**UNITED STATES SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

**x****      QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**For the quarterly period ended June 30,2010**

** **

**OR**

** **

**o****         TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**For the transition period from                to                **

 

**Commission File Number 0-28928**

 

**ML TREND-FOLLOWING FUTURES FUNDL.P.**

(Exact Name of Registrant as

specified in its charter)

 

| **Delaware**                    | ** ** | **13-3887922**                    |
|---------------------------------|------------|-----------------------------------|
| (State or other jurisdiction of |       | (IRS Employer Identification No.) |
| incorporation or organization)  |       |                              |

 

**c/o Merrill Lynch AlternativeInvestments LLC**

**Four World FinancialCenter, 10****th**** Floor**

**250 Vesey Street**

**New York, New York 10080**

(Address of principalexecutive offices)

(Zip Code)

 

**212-449-3517**

(Registrant’s telephonenumber, including area code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes  x  No  o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporatewebsite if any, every Interactive Data File required to be submitted and postedpursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes  o  No  o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reportingcompany.  See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act. (Check one):

 

| Large accelerated filer o                     |   | Accelerated filer o       |
|-----------------------------------------------|--------|---------------------------|
|                                          |   |                      |
| Non-accelerated filer x                       |   | Small reporting company o |
| (Do not check if a smaller reporting company) |   |                      |

 

Indicateby check mark whether the registrant is a shell company (as defined by Rule 12b-2of the Exchange Act).  Yes o  No x

 

As of June 30, 2010,1,282,429 units of limited partnership interest membership were outstanding.

 

 

 

----

 

**ML TREND-FOLLOWING FUTURESFUND L.P.**

 

QUARTERLY REPORT FOR JUNE30, 2010 ON FORM 10-Q

 
| ** ** |                                                                                        | **PAGE** |
|------------|---------------------------------------------------------------------------------------------|----------|
|       |                                                                                        |     |
|       | PART I                                                                                 |     |
|       |                                                                                        |     |
| Item 1.    | Financial  Statements                                                                       | 1        |
|       |                                                                                        |     |
| Item 2.    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 13       |
|       |                                                                                        |     |
| Item 3.    | Quantitative  and Qualitative Disclosures About Market Risk                                 | 17       |
|       |                                                                                        |     |
| Item 4.    | Controls and  Procedures                                                                    | 25       |
|       |                                                                                        |     |
|       | PART II                                                                                |     |
|       |                                                                                        |     |
| Item 1.    | Legal Proceedings                                                                           | 25       |
|       |                                                                                        |     |
| Item 1A.   | Risk Factor                                                                                 | 25       |
|       |                                                                                        |     |
| Item 2.    | Unregistered  Sales of Securities and Use of Proceeds                                       | 25       |
|       |                                                                                        |     |
| Item 3.    | Defaults  Upon Senior Securities                                                            | 26       |
|       |                                                                                        |     |
| Item 4.    | (Removed and  Reserved)                                                                     | 26       |
|       |                                                                                        |     |
| Item 5.    | Other Information                                                                           | 26       |
|       |                                                                                        |     |
| Item 6.    | Exhibits                                                                                    | 26       |

 

----

 

PART I- FINANCIAL INFORMATION

 

Item 1.    FinancialStatements

 

ML TREND-FOLLOWING FUTURESFUND L.P.

(a Delaware LimitedPartnership)

 

STATEMENTS OF FINANCIALCONDITION

(unaudited)

 
| ** **                                                                                                    | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                                                                                    | ** ** | **2010**          | ** **  | **2009**              | ** ** |
|                                                                                                          |       |              |        |                  |       |
| **ASSETS:**                                                                                                   |       |              |        |                  |       |
| Cash and cash equivalents                                                                                     |       | $                 | 248,698     |                  | $          | 236,960 |   |
| Investments in Portfolio Funds (cost $186,600,796  for 2010 and $205,798,913 for 2009)                        |       | 230,095,424       |        | 252,194,542           |       |
| Due from Portfolio Funds                                                                                      |       | 4,489,191         |        | 11,698,600            |       |
| Accrued interest receivable                                                                                   |       | 73                |        | 80                    |       |
|                                                                                                          |       |              |        |                  |       |
| **TOTAL ASSETS**                                                                                              |       | $                 | 234,833,386 |                  | $          | 264,130,182 |   |
|                                                                                                          |       |              |        |                  |       |
| **LIABILITIES AND PARTNERS’ CAPITAL**                                                                    |       |              |        |                  |       |
| **LIABILITIES:**                                                                                              |       |              |        |                  |       |
| Wrap fee payable                                                                                              |       | $                 | 870,942     |                  | $          | 868,235 |   |
| Redemptions payable                                                                                           |       | 3,706,711         |        | 11,251,332            |       |
| Other liabilities                                                                                             |       | —            |        | 86,698                |       |
|                                                                                                          |       |              |        |                  |       |
| Total liabilities                                                                                             |       | 4,577,653         |        | 12,206,265            |       |
|                                                                                                          |       |              |        |                  |       |
| **PARTNERS’ CAPITAL:**                                                                                   |       |              |        |                  |       |
| General Partner (41,734 Units and 41,734 Units)                                                               |       | 8,313,413         |        | 8,313,413             |       |
| Limited Partners (1,240,695 Units and 1,390,359  Units)                                                       |       | 221,942,320       |        | 243,610,504           |       |
|                                                                                                          |       |              |        |                  |       |
| Total partners’ capital                                                                                  |       | 230,255,733       |        | 251,923,917           |       |
|                                                                                                          |       |              |        |                  |       |
| **TOTAL LIABILITIES AND PARTNERS’  CAPITAL:**                                                            |       | $                 | 234,833,386 |                  | $          | 264,130,182 |   |
|                                                                                                          |       |              |        |                  |       |
| **NET ASSET VALUE PER UNIT**(Based on 1,282,429 and 1,432,093 Units outstanding; unlimited Units  authorized) |       | $                 | 179.5466    |                  | $          | 175.9131 |   |

 

See notes to financial statements.

 

1

----

 

ML TREND-FOLLOWING FUTURESFUND L.P.

(a Delaware LimitedPartnership)

STATEMENTS OF OPERATIONS

(unaudited)

 
| ** **                                                                        | ** ** | **For the three** | ** ** | **For the three** | ** **  | **For the six**   | ** ** | **For the six**   | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------------|------------|-------------------|-------------|-------------------|------------|-------------------|------------|
| ** **                                                                        | ** ** | **months ended**  | ** ** | **months ended**  | ** **  | **months ended**  | ** ** | **months ended**  | ** ** |
| ** **                                                                        | ** ** | **June 30,** | ** ** | **June 30,** | ** **  | **June 30,** | ** ** | **June 30,** | ** ** |
| ** **                                                                        | ** ** | **2010**          | ** ** | **2009**          | ** **  | **2010**          | ** ** | **2009**          | ** ** |
| **TRADING PROFIT (LOSS):**                                                        |       |              |       |              |        |              |       |              |       |
| Realized, net                                                                     |       | $                 | 3,803,201  |              | $           | 3,765,833         |       | 13,049,224        |       | $ | 11,682,486 |   |
| Change in unrealized, net                                                         |       | (6,559,239        | )          | (25,116,609       | )           | (2,901,001        | )          | (39,002,065       | )          |
| Total trading profit (loss)                                                       |       | (2,756,038        | )          | (21,350,776       | )           | 10,148,223        |       | (27,319,579       | )          |
|                                                                              |       |              |       |              |        |              |       |              |       |
| **INVESTMENT INCOME:**                                                            |       |              |       |              | ** **  | ** **        |       |              |       |
| Interest                                                                          |       | 150               |       | 1,353             |        | 376               |       | 3,741             |       |
|                                                                              |       |              |       |              |        |              |       |              |       |
| **EXPENSES:**                                                                     |       |              |       |              | ** **  | ** **        |       |              |       |
| Wrap fee                                                                          |       | 2,426,313         |       | 3,080,984         |        | 4,913,778         |       | 6,530,181         |       |
| Administrative and filing fees                                                    |       | —            |       | —            |        | 13,710            |       | —            |       |
| Other Expenses                                                                    |       | —            |       | (41,970           | )           | —            |       | 20,530            |       |
| Total expenses                                                                    |       | 2,426,313         |       | 3,039,014         |        | 4,927,488         |       | 6,550,711         |       |
|                                                                              |       |              |       |              |        |              |       |              |       |
| **NET INVESTMENT (INCOME) LOSS**                                                  |       | (2,426,163        | )          | (3,037,660        | )           | (4,927,112        | )          | (6,546,970        | )          |
|                                                                              |       |              |       |              |        |              |       |              |       |
| **NET PROFIT (LOSS)**                                                             |       | (5,182,201        | )          | $                 | (24,388,437 | )                 | $          | 5,221,111         |       | $ | (33,866,549 | ) |
|                                                                              |       |              |       |              |        |              |       |              |       |
| **NET PROFIT (LOSS) PER UNIT:**                                                   |       |              |       |              |        |              |       |              |       |
| Weighted average number of General Partner and  Limited Partner Units outstanding |       | 1,330,113         |       | 1,665,654         |        | $                 | 1,371,699  |              | 1,703,391  |   |
|                                                                              |       |              |       |              |        |              |       |              |       |
| Net income(loss) per weighted average General  Partner and Limited Partner Unit   |       | $                 | (3.90      | )                 | $           | (14.64            | )          | $                 | 3.81       |   | $ | (19.88 | ) |

 

See notes to financial statements.

 

2

----

 

ML TREND-FOLLOWING FUTURESFUND L.P.

(a Delaware LimitedPartnership)

 

STATEMENTS OF CHANGES INPARTNERS’ CAPITAL

For the three months ended June 30,2010 and 2009

(unaudited)

 
| ** **                                     | ** ** | **Units** | ** ** | **General  Partner** | ** ** | **Limited  Partners** | ** ** | **Total**   | ** ** |
|------------------------------------------------|------------|-----------|------------|----------------------|------------|-----------------------|------------|-------------|------------|
|                                           |       |      |       |                 |       |                  |       |        |       |
| PARTNERS’ CAPITAL, December 31, 2008 |       | 1,766,400 |       | $                    | 8,313,413  |                  | $          | 343,561,095 |       | $ | 351,874,508 |   |
|                                           |       |      |       |                 |       |                  |       |        |       |
| Subscriptions                                  |       | 55,411    |       | —               |       | 10,627,664            |       | 10,627,664  |       |
|                                           |       |      |       |                 |       |                  |       |        |       |
| Net Profit (Loss)                              |       |      |       | (859,196             | )          | (33,007,353           | )          | (33,866,549 | )          |
|                                           |       |      |       |                 |       |                  |       |        |       |
| Redemptions                                    |       | (196,176  | )          |                 |       | (37,667,068           | )          | (37,667,068 | )          |
|                                           |       |      |       |                 |       |                  |       |        |       |
| PARTNERS’ CAPITAL, June 30, 2009     |       | 1,625,635 |       | $                    | 7,454,217  |                  | $          | 283,514,338 |       | $ | 290,968,555 |   |
|                                           |       |      |       |                 |       |                  |       |        |       |
| PARTNERS’ CAPITAL, December 31, 2009 |       | 1,432,093 |       | $                    | 8,313,413  |                  | $          | 243,610,504 |       | $ | 251,923,917 |   |
|                                           |       |      |       |                 |       |                  |       |        |       |
| Subscriptions                                  |       | 14,935    |       | —               |       | 2,633,967             |       | 2,633,967   |       |
|                                           |       |      |       |                 |       |                  |       |        |       |
| Net Profit (Loss)                              |       | —    |       | —               |       | 5,221,111             |       | 5,221,111   |       |
|                                           |       |      |       |                 |       |                  |       |        |       |
| Redemptions                                    |       | (164,599  | )          | —               |       | (29,523,262           | )          | (29,523,262 | )          |
|                                           |       |      |       |                 |       |                  |       |        |       |
| PARTNERS’ CAPITAL, June 30, 2010     |       | 1,282,429 |       | $                    | 8,313,413  |                  | $          | 221,942,320 |       | $ | 230,255,733 |   |

 

See notes to financial statements.

 

3

----

 

ML TREND-FOLLOWING FUTURES FUND L.P.

(A Delaware Limited Partnership)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 (unaudited)

 

The following per Unit data and ratios have been derived frominformation provided in the financial statements.

 
| ** **                                                       | ** ** | **Three months ended** | ** ** | **Six months ended**   | ** ** |
|------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                       | ** ** | **June 30, 2010** | ** ** | **June 30, 2010** | ** ** |
| **Per Unit  Operating Performance:**                             |       |                   |       |                   |       |
|                                                             |       |                   |       |                   |       |
| Net asset value, beginning of period                             |       | $                      | 183.52     |                   | $          | 175.91 |   |
|                                                             |       |                   |       |                   |       |
| Net Realized and net unrealized change in trading  profit (loss) |       | (2.15                  | )          | 7.23                   |       |
| Expenses (1)                                                     |       | (1.82                  | )          | (3.59                  | )          |
|                                                             |       |                   |       |                   |       |
| Net asset value, end of period                                   |       | $                      | 179.55     |                   | $          | 179.55 |   |
|                                                             |       |                   |       |                   |       |
| **Total Return: (3)**                                            |       |                   |       |                   |       |
|                                                             |       |                   |       |                   |       |
| Total return                                                     |       | -2.16                  | %          | 2.07                   | %          |
|                                                             |       |                   |       |                   |       |
| **Ratios to Average Net Assets:  (1),(2)**                       |       |                   |       |                   |       |
|                                                             |       |                   |       |                   |       |
| Expenses                                                         |       | 1.00                   | %          | 2.02                   | %          |
|                                                             |       |                   |       |                   |       |
| Net investment profit (loss)                                     |       | -2.08                  | %          | 2.41                   | %          |

 

----

(1) Includes the impact of brokerage commission expense.

(2) The ratios do not reflect the proportionate share of incomeand expense of the Portfolio Funds.

(3) Thetotal return calculations are based on compounded monthly returns and iscalculated for each class taken as a whole. An individual partners’ return mayvary from these returns based on timing of capital transactions.

 

See notes to financial statements.

 

4

----

 

ML TREND-FOLLOWING FUTURES FUND L.P.

(A Delaware Limited Partnership)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE SIX MONTHS ENDED JUNE 30, 2009 (unaudited)

 

The following per Unit data and ratios have been derived frominformation provided in the financial statements.

 
| ** **                                               | ** ** | **Three months ended** | ** ** | **Six months ended**   | ** ** |
|----------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                               | ** ** | **June 30, 2009** | ** ** | **June 30, 2009** | ** ** |
| **Per Unit Operating Performance:**                      |       |                   |       |                   |       |
| ** **                                               |       |                   |       |                   |       |
| Net asset value, beginning of year                       |       | $                      | 193.65     |                   | $          | 199.20 |   |
|                                                     |       |                   |       |                   |       |
| Realized and unrealized change in trading profit  (loss) |       | (12.84                 | )          | (16.38                 | )          |
| Interest income                                          |       | 0                      |       | 0                      |       |
| Expenses (1)                                             |       | (1.82                  | )          | (3.83                  | )          |
|                                                     |       |                   |       |                   |       |
| Net asset value, end of period                           |       | $                      | 178.99     |                   | $          | 178.99 |   |
|                                                     |       |                   |       |                   |       |
| **Total Return: (3)**                                    |       |                   |       |                   |       |
|                                                     |       |                   |       |                   |       |
| Total return                                             |       | -7.57                  | %          | -10.15                 | %          |
|                                                     |       |                   |       |                   |       |
| **Ratios to Average Net Assets:  (1),(2)**               |       |                   |       |                   |       |
|                                                     |       |                   |       |                   |       |
| Expenses                                                 |       | 5.22                   | %          | 1.99                   | %          |
|                                                     |       |                   |       |                   |       |
| Net investment profit (loss)                             |       | -2.46                  | %          | -10.55                 | %          |

 

----

(1) Includes the impact of brokerage commission expense.

(2) The ratios do not reflect the proportionate share of incomeand expense of the Portfolio Funds.

(3) Thetotal return calculations are based on compounded monthly returns and iscalculated for each class taken as a whole. An individual partners’ return mayvary from these returns based on timing of capital transactions.

 

See notes to financial statements.

 

5

----

 

ML TREND-FOLLOWING FUTURESFUND L.P.

(a Delaware LimitedPartnership)

 

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

1.     SUMMARY OF SIGNIFICANTACCOUNTING POLICIES

 

ML Trend-Following Futures Fund L.P. (the “Partnership”) formerly knownas ML JWH Strategic Allocation Fund L.P was organized under the DelawareRevised Uniform Limited Partnership Act on December 11, 1995 and commencedtrading on July 15, 1996.  ThePartnership operates as a “fund of funds”, allocating and reallocating itscapital, under the discretion of Merrill Lynch Alternative Investments LLC (“MLAI”)the general partner of the Partnership, among four underlying FuturesAccessFunds (each a “Portfolio Fund” and collectively the “Portfolio Funds”) (SeeNote 2). The Portfolio Funds are a group of commodity pools sponsored by MLAI,each of which places substantially all of its assets in a managed futures andforward trading account managed by a single or multiple commodity tradingadvisors.  Each of the Portfolio Fundsimplements a different trading strategy.

 

OnApril 20, 2007, MLAI issued an announcement regarding a restructuring ofthe Partnership, effective June 1, 2007. As part of the restructuring the following occurred:

 

·              ThePartnership changed its name to ML Trend-Following Futures Fund L.P.

 

·              ThePartnership’s assets were reinvested in MLAI-sponsored Portfolio Funds: MLAspect FuturesAccess LLC (“Aspect”), ML Chesapeake FuturesAccess LLC (“Chesapeake”),ML Transtrend DTP Enhanced FuturesAccess LLC (“Transtrend”) and ML WintonFuturesAccess LLC (“Winton”).  ThesePortfolio Funds employ a variety of systematic models with an emphasis on astyle of investment commonly referred to as “diversified trend following” andthe Partnership no longer utilized the services of John W. Henry &Company, Inc. (“JWH®”) as acommodity trading advisor.

 

·              OnMay 7, 2007, the Partnership was deregistered under the Securities Act of1933, as amended, but retained its registration under the Securities Act of1934, as amended.

 

·              Priorto June 1, 2007, the Partnership’s brokerage commissions andadministrative fees constituted a single annual “wrap fee” in an amount of 6.0%of the Partnership’s average month-end Net Asset Value, which covered all ofthe Partnership’s costs and expenses, other than bid-ask spreads and certaintrading fees as well as an annual filing fee payable to the State of New Jerseyand offering costs. After June 1, 2007, the Partnership pays a wrap fee inthe amount of 4.0% of the Partnership’s average month-end Net Asset Value.Other than this 4.0% wrap fee, the only direct expense of the Partnership isthe annual New Jersey filing fee, which is assessed on a per-partner basis witha maximum charge of $250,000 per year.

 

MLAI,the sponsor (“Sponsor”) and general partner of the Partnership, is an indirectwholly-owned subsidiary of Merrill Lynch & Co., Inc. (“MerrillLynch”).  Merrill Lynch, Pierce, Fenner &Smith Incorporated (“MLPF&S”), a wholly-owned subsidiary of Merrill Lynch,is the Partnership’s commodity broker. As used herein, the capitalized term “MLAI”also refers to the general partner at times when its name was MLIM AlternativeStrategies LLC, as applicable. On September 15, 2008, Merrill Lynchentered into an Agreement and Plan of Merger (as amended by Amendment No. 1dated as of October 21, 2008, the “Merger Agreement”) with Bank of AmericaCorporation (“Bank of America”). Pursuant to the Merger Agreement, onJanuary 1, 2009, a wholly-owned subsidiary of Bank of America merged withand into Merrill Lynch, with Merrill Lynch continuing as the survivingcorporation and a subsidiary of Bank of America.

 

6

----

 

Interests in the Fund arenot insured or otherwise protected by the Federal Deposit Insurance Corporationor any other government authority. Interests are not deposits or other obligations of, and are notguaranteed by, Bank of America Corporation or any of its affiliates or by anybank.  Interests are subject toinvestment risks, including the possible loss of the full amount invested.

 

Inthe opinion of management, these interim financial statements contain alladjustments, consisting only of normal recurring adjustments, necessary for afair statement of the financial position of the Partnership as of June 30,2010 and the results of its operations for the three and six months ended June 30,2010 and 2009. However, the operating results for the interim periods may notbe indicative of the results for the full year.

 

Certaininformation and footnote disclosures normally included in annual financialstatements prepared in conformity with accounting principles generally acceptedin the United States of America (“U.S. GAAP”) have been omitted. Thesefinancial statements should be read in conjunction with the financialstatements and notes thereto included in the Partnership’s Annual Report on Form 10-Kfiled with the Securities and Exchange Commission for the year ended December 31,2009.

 

Estimates

 

Thepreparation of financial statements in conformity with U.S. GAAP requiresmanagement to make estimates and assumptions that may affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements as well as the reported amountsof revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

 

2.               INVESTMENTS INPORTFOLIO FUNDS

 

The four Portfolio Funds inwhich the Partnership is invested in as of June 30, 2010 are; Winton,Aspect, Transtrend and Bluetrend. MLAI may, in its discretion, change PortfolioFunds at any time. MLAI may vary the percentage of the Partnership’s totalportfolio allocated to the different Portfolio Funds at MLAI’s discretion.There is no pre-established range for the minimum and maximum allocations thatmay be made to any given Portfolio Funds.

 

Theinvestment transactions were accounted for on a trade date basis. Theinvestments in the Portfolio Funds were valued at fair value and are reflectedin the Statements of Financial Condition. In determining fair value, MLAIutilized the net asset value of the underlying Portfolio Funds whichapproximates fair value. The fair value was net of all fees relating to thePortfolio Funds, paid or accrued. Additionally, MLAI monitored the performanceof the Portfolio Funds. Such monitoring procedures included, but were notlimited to: monitoring market movements in Portfolio Funds’ investments,comparing performance to industry benchmarks, and in-depth conference calls andsite visits with the Portfolio Funds’ Managers.

 

7

----

 

The Investment in PortfolioFunds at June 30, 2010 and December 31, 2009 are as follows:

 

**June 30,2010**

 
| ** **                                         | ** ** | **Fair Value** | ** **  | **Percentage of  Partners’ Capital** | ** ** | **Profit (Loss)** | ** ** | **Cost**   | ** ** | **Management  Fee** | ** **  | **Performance  Fee** | ** ** | **Redemptions  Permitted** | ** ** |
|----------------------------------------------------|------------|---------------------|-------------|-----------------------------------------------------|------------|------------------------|------------|------------|------------|---------------------|-------------|----------------------|------------|----------------------------|------------|
| ML  Winton FuturesAccess LLC                       |       | $                   | 57,523,856  |                                                | 24.98      | %                      | $          | 4,205,052  |       | $                   | 41,752,330  |                 | $          | (462,144                   | )          | $ | — |   | Monthly |   |
| ML  Aspect FuturesAccess LLC                       |       | 57,523,856          |        | 24.98                                               | %          | 2,169,176              |       | 46,692,866 |       | (459,596            | )           | —               |       | Monthly                    |       |
| ML  Transtrend DTP Enhanced FuturesAccess LLC      |       | 57,523,856          |        | 24.98                                               | %          | 2,286,013              |       | 43,596,821 |       | (306,367            | )           | —               |       | Monthly                    |       |
| ML  Chesapeake FuturesAccess LLC*                  |       | —              |        | 0.00                                                | %          | (1,787,343             | )          | —     |       | (51,094             | )           | —               |       | Monthly                    |       |
| ML  Bluetrend FuturesAccess LLC                    |       | 57,523,856          |        | 24.98                                               | %          | 3,275,325              |       | 54,558,779 |       | (261,355            | )           | —               |       | Monthly                    |       |
|                                               |       |                |        |                                                |       |                   |       |       |       |                |        |                 |       |                       |       |
| Total  Investment in Portfolio Funds at fair value |       | $                   | 230,095,424 |                                                | 99.92      | %                      | $          | 10,148,223 |       | $                   | 186,600,796 |                 | $          | (1,540,556                 | )          | $ | — |   |   |   |

 

**December 31,2009**

 
| ** **                                         | ** ** | **Fair Value** | ** **  | **Percentage of  Partners’ Capital** | ** ** | **Profit (Loss)** | ** ** | **Cost**    | ** ** | **Management  Fee** | ** **  | **Performance  Fee** | ** ** | **Redemptions  Permitted** | ** ** |
|----------------------------------------------------|------------|---------------------|-------------|-----------------------------------------------------|------------|------------------------|------------|-------------|------------|---------------------|-------------|----------------------|------------|----------------------------|------------|
| ML  Winton FuturesAccess LLC                       |       | $                   | 63,048,635  |                                                | 25.02      | %                      | $          | (5,336,877  | )          | $                   | 49,017,143  |                 | $          | (1,141,376                 | )          | $ | (58 | ) | Monthly |   |
| ML  Aspect FuturesAccess LLC                       |       | 63,048,636          |        | 25.02                                               |       | (9,013,890             | )          | 52,913,668  |       | (1,136,895          | )           | (4,019               | )          | Monthly                    |       |
| ML  Transtrend DTP Enhanced FuturesAccess LLC      |       | 63,048,635          |        | 25.02                                               |       | (11,662,966            | )          | 49,054,433  |       | (755,300            | )           | (127                 | )          | Monthly                    |       |
| ML  Chesapeake FuturesAccess LLC*                  |       | 63,048,636          |        | 25.02                                               |       | (443,571               | )          | 54,813,669  |       | (764,642            | )           | (49,803              | )          | Monthly                    |       |
|                                               |       |                |        |                                                |       |                   |       |        |       |                |        |                 |       |                       |       |
| Total  Investment in Portfolio Funds at fair value |       | $                   | 252,194,542 |                                                | 100.08     | %                      | $          | (26,457,304 | )          | $                   | 205,798,913 |                 | $          | (3,798,213                 | )          | $ | (54,007 | ) |   |   |

 

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* Liquidated as of January 31,2010.

 

These investments arerecorded at fair value. In accordance with Regulation S-X, the following issummarized financial information for each of the Portfolio Funds which requiredisclosure.

 

8

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| ** ** | ** ** | **As of June 30, 2010** | ** **    |
|------------|------------|------------------------------|---------------|
| ** ** | ** ** | **Total Assets**             | ** **    | **Total Liabilities** | ** ** | **Total Capital** | ** ** |
| Winton     |       | $                            | 812,417,812   |   | $ | 18,893,855 |   | $ | 793,523,957 |   |
| Aspect     |       | 272,687,239                  |          | 8,646,378 |   | 264,040,861 |   |
| Transtrend |       | 246,620,488                  |          | 1,931,258 |   | 244,689,230 |   |
| Bluetrend  |       | 247,458,410                  |          | 9,610,164 |   | 237,848,246 |   |
|       |       |                         |          |   |   |   |   |
| Total      |       | $                            | 1,579,183,949 |   | $ | 39,081,655 |   | $ | 1,540,102,294 |   |

 
| ** **  | ** ** | **As of December 31, 2009** | ** **    |
|-------------|------------|----------------------------------|---------------|
| ** **  | ** ** | **Total Assets**                 | ** **    | **Total Liabilities** | ** ** | **Total Capital** | ** ** |
| Winton      |       | $                                | 766,300,520   |   | $ | 16,264,053 |   | $ | 750,036,467 |   |
| Aspect      |       | 271,191,373                      |          | 5,562,211 |   | 265,629,162 |   |
| Transtrend  |       | 238,072,475                      |          | 2,171,789 |   | 235,900,686 |   |
| Chesapeake* |       | 163,226,178                      |          | 11,079,623 |   | 152,146,555 |   |
|        |       |                             |          |   |   |   |   |
|        |       | $                                | 1,438,790,546 |   | $ | 35,077,676 |   | $ | 1,403,712,870 |   |

 
| ** **  | ** ** | **For the six months ended June 30, 2010** | ** ** |
|-------------|------------|-------------------------------------------------|------------|
| ** **  | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **  | ** ** | **Income (Loss)**                               | ** ** | **Commissions** | ** ** | **Other** | ** ** | **Income (Loss)** | ** ** |
| Winton      |       | $                                               | 4,744,654  |   | $ | (39,267 | ) | $ | (500,335 | ) | $ | 4,205,052 |   |
| Aspect      |       | 2,763,546                                       |       | (70,249 | ) | (524,121 | ) | 2,169,176 |   |
| Transtrend  |       | 2,840,084                                       |       | (185,262 | ) | (368,809 | ) | 2,286,013 |   |
| Chesapeake* |       | (1,716,301                                      | )          | (5,817 | ) | (65,225 | ) | (1,787,343 | ) |
| Bluetrend   |       | 4,457,140                                       |       | (92,039 | ) | (1,089,776 | ) | 3,275,325 |   |
|        |       |                                            |       |   |   |   |   |   |   |
| Total       |       | $                                               | 13,089,123 |   | $ | (392,634 | ) | $ | (2,548,266 | ) | $ | 10,148,223 |   |

 
| ** **  | ** ** | **For the six months ended June 30, 2009** | ** **  |
|-------------|------------|-------------------------------------------------|-------------|
| ** **  | ** ** | ** **                                      | ** **  | ** ** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **  | ** ** | **Income (Loss)**                               | ** **  | **Commissions** | ** ** | **Other** | ** ** | **Income (Loss)** | ** ** |
| Winton      |       | $                                               | (5,602,979  | ) | $ | (40,114 | ) | $ | (683,122 | ) | $ | (6,326,215 | ) |
| Aspect      |       | (11,015,684                                     | )           | (104,555 | ) | (701,711 | ) | (11,821,950 | ) |
| Transtrend  |       | (1,492,762                                      | )           | (177,096 | ) | (513,444 | ) | (2,183,302 | ) |
| Chesapeake* |       | (6,449,396                                      | )           | (32,148 | ) | (502,365 | ) | (6,983,909 | ) |
|        |       |                                            |        |   |   |   |   |   |   |
| Total       |       | $                                               | (24,560,821 | ) | $ | (353,913 | ) | $ | (2,400,642 | ) | $ | (27,315,376 | ) |

 

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* Liquidated as of January 31,2010.

 

3.    FAIR VALUE OF INVESTMENTS

 

TheFinancial Accounting Standards Board (“FASB”) issued the Accounting StandardsCodification (“ASC”) which provides authoritative guidance on fair valuemeasurement. This guidance defines fair value, establishes a framework formeasuring fair value and expands disclosures about fair value measurements.

 

Fair value of an investment is the amount that wouldbe received to sell the investment in an orderly transaction between marketparticipants at measurement date (i.e. the exit price). Purchase and sale ofinvestments is recorded on a trade date basis. Realized gains and losses oninvestments is recognized when the investments are sold. Any change in netunrealized gain or loss from the preceding period is reported on the Statementsof Operations.

 

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Thefair value measurement guidance established a hierarchal disclosure frameworkwhich prioritizes and ranks the level of market price observability used inmeasuring investments at fair value. Market price observability is impacted bya number of factors, including the type of investment and the characteristicsspecific to the investment. Investments with readily available active quotedprices or for which fair value can be measured from actively quoted pricesgenerally will have a higher degree of market price observability and a lesserdegree of judgment used in measuring fair value.

 

Investmentsmeasured and reported at fair value are classified and disclosed in one of thefollowing categories:

 

LevelI — Quoted prices are available in active markets for identical investments asof the reporting date. The type of investments included in Level I are publiclytraded investments. As required by the fair market value measurement guidance,the Fund does not adjust the quoted price for these investments even insituations where the Fund holds a large position and a sale could reasonablyimpact the quoted price.

 

LevelII — Pricing inputs are other than quoted prices in active markets, which areeither directly or indirectly observable as of the reporting date, and fairvalue is determined through the use of generally accepted and understood modelsor other valuation methodologies. Investments which are generally included inthis category are investments valued using market data.

 

LevelIII — Pricing inputs are unobservable and include situations where there islittle, if any, market activity for the investment. Fair value for theseinvestments is determined using valuation methodologies that consider a rangeof factors, including but not limited to the nature of the investment, localmarket conditions, trading values on public exchanges for comparablesecurities, current and projected operating performance and financingtransactions subsequent to the acquisition of the investment. The inputs intothe determination of fair value require significant management judgment. Due tothe inherent uncertainty of these estimates, these values may differ materiallyfrom the values that would have been used had a ready market for theseinvestments existed.

 

In certain cases, the inputs used to measure fair value may fall intodifferent levels of the fair value hierarchy. In such cases, an investment’slevel within the fair value hierarchy is based on the lowest level of inputthat is significant to the fair value measurement. MLAI’s assessment of thesignificance of a particular input to the fair value measurement in itsentirety requires judgment, and considers factors specific to the investment.

 

Following is a description of the valuationmethodologies used for investments, as well as the general classification ofsuch investments pursuant to the valuation hierarchy.

 

Investments in Portfolio Funds are valued using thenet asset value reported by the Portfolio Funds, as a practical expedient whichmanagement believes approximates fair value. These net asset values are theprices used to execute trades with these Portfolio Funds.

 

Although there are monthly transactions inthese Portfolio Funds interests, the Net Asset Value’s (“NAV”) are materiallybased on portfolios of Level I and Level II assets and liabilities for whichthe Fund has transparency.  As such, thePartnership determined that its investments in these portfolio funds in thiscase, would be classified as Level II.

 

Thefollowing table summarizes the valuation of the Partnership’s investments bythe above fair value hierarchy levels as of June 30, 2010 and December 31,2009:

 
| **Investment  in**     | ** ** | ** ** | ** **  | ** **  | ** ** | ** **   | ** ** | ** **    | ** **  |
|------------------------|------------|------------|-------------|-------------|------------|--------------|------------|---------------|-------------|
| **Portfolio  Funds**   | ** ** | **Total**  | ** **  | **Level I** | ** ** | **Level II** | ** ** | **Level III** | ** **  |
|                   |       |       |        |        |       |         |       |          |        |
| June 30, 2010     |       | $          | 230,095,424 |        | $          | —       |       | $             | 230,095,424 |   | $ | — |   |
| December 31, 2009 |       | $          | 252,194,542 |        | $          | —       |       | $             | 252,194,542 |   | $ | — |   |

 

There were no significanttransfers to or from Level I or II during the quarter ended March 31,2010.

 

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4.               MARKET, CREDITAND CONCENTRATION RISKS

 

The nature of thisPartnership has certain risks, which cannot be presented on the financialstatements. Additionally, the Partnership invests in the Portfolio Funds whichhave similar market risk as mentioned below. The following summarizes some ofthose risks.

 

Market Risk

 

Derivative instrumentsinvolve varying degrees of market risk. Changes in the level or volatility of interest rates, foreign currencyexchange rates or the market values of the financial instruments or commoditiesunderlying such derivative instruments frequently result in changes in thePortfolio Funds’ Net unrealized profit (loss) on such derivative instruments asreflected in the Portfolio Funds’ Statements of Financial Condition.  The Portfolio Funds’ exposure to market riskis influenced by a number of factors, including the relationships among thederivative instruments held by the Portfolio Funds as well as the volatility andliquidity of the markets in which the derivative instruments are traded.Investments in foreign markets may also entail legal and political risks.

 

MLAI has procedures in placeintended to control market risk exposure, although there can be no assurancethat they will, in fact, succeed in doing so. These procedures focus primarily on monitoring the trading of thePortfolio Funds, calculating the Net Asset Value of the Fund and the PortfolioFunds as of the close of business on each day and reviewing outstandingpositions for over-concentrations.  WhileMLAI does not intervene in the markets to hedge or diversify the PortfolioFunds’ market exposure, MLAI may urge the respective trading advisors toreallocate positions in an attempt to avoid over-concentrations.  However, such interventions are expected tobe unusual.  It is expected that MLAI’sbasic risk control procedures will consist of the ongoing process of advisormonitoring, with the market risk controls being applied by respective tradingadvisors.

 

Credit Risk

 

The risks associated with exchange-traded contracts are typicallyperceived to be less than those associated with over-the-counter(non-exchange-traded) transactions, because exchanges typically (but notuniversally) provide clearinghouse arrangements in which the collective credit(in some cases limited in amount, in some cases not) of the members of theexchange is pledged to support the financial integrity of the exchange.  In over-the-counter transactions, on theother hand, traders must rely solely on the credit of their respectiveindividual counterparties.  Margins,which may be subject to loss in the event of a default, are generally requiredin exchange trading, and counterparties may also require margin in theover-the-counter markets.

 

The credit risk associated with these instruments from counterpartynonperformance is the net unrealized profit on open contracts, if any, includedin the Portfolio Funds’ Statements of Financial Condition. The Portfolio Fundsattempt to mitigate this risk by dealing exclusively with Merrill Lynchentities as clearing brokers.

 

The Portfolio Funds, in their normal course of business, enter intovarious contracts, with Merrill Lynch Pierce Fenner & Smith Inc. (“MLPF&S”)acting as their commodity broker. Pursuant to the brokerage arrangement with MLPF&S (which includes anetting arrangement), to the extent that such trading results in receivablesfrom and payables to MLPF&S, these receivables and payables are offset andreported as a net receivable or payable and included in Net unrealized profit(loss) on open contracts on the Portfolio Funds’ Statements of FinancialCondition.

 

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Concentration Risk

 

The Partnership’s investments in the Portfolio Funds are subject to themarket and credit risk of the Portfolio Funds. Because the majority of thePartnership’s capital is invested in the Portfolio Funds, any changes in themarket conditions that would adversely affect the Portfolio Funds couldsignificantly impact the solvency of the Partnership.

 

Indemnifications

 

Inthe normal course of business, the Fund has entered, or may in the future enterinto agreements, that obligate the Fund to indemnify third parties, includingaffiliates of the Fund, for breach of certain representations and warrantiesmade by the Fund. No claims have actually been made with respect to suchindemnities and any quantification would involve hypothetical claims that havenot been made. Based on the Fund’s experience, MLAI expected the risk of lossto be remote and, therefore, no provision has been recorded.

 

5.    RECENT ACCOUNTING PRONOUNCEMENTS

 

In January 2010, the FASB issued an update to the fair valuemeasurements disclosure. Pursuant to this update, additional disclosures in thefinancial statements relating to transfers in and out of Levels 1 and 2 fairvalue measurements and separate disclosure of purchases, sales, issuances, andsettlements in Level 3 rollforward, will be required. In addition, this updateprovides clarifications on i) the level of aggregation of classes of assets andliabilities disclosed in the fair value measurement disclosures and ii)disclosures relating to the inputs and valuation techniques for Level 2 andLevel 3 fair value measurements. The new disclosures and clarifications ofexisting disclosures are effective for annual reporting periods beginning afterDecember 15, 2009, except for the disclosures about purchases, sales,issuances, and settlements in the Level 3 roll forward which are effective forfiscal years beginning after December 15, 2010. This update furtherenhances the fair value disclosures and the Sponsor has determined that theadoption of this update on January 1, 2010, did not have a material impactto the Partnership’s financial statements.

 

6.         SUBSEQUENT EVENTS

 

Management has evaluated the impact of subsequent events on thePartnership and has determined that there were no subsequent events thatrequire adjustments to, or disclosure in, the financial statements.

 

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Item 2:  Management’s Discussionand Analysis of Financial Condition and Results of Operations

 

The Partnership calculates the Net Asset Value per unit of each classof units as of the close of business on the last business day of each calendarmonth and such other dates as MLAI may determine in its discretion.  The Partnership’s “Net Asset Value” as of anycalculation date will generally equal the value of the Partnership’sinvestments in the underlying funds as of such date, plus any other assets heldby the Partnership, minus accrued brokerage commissions, sponsor’s, managementand performance fees, organizational expense amortization and any operatingcosts and other liabilities of the Partnership.

 

MONTH-END NET ASSET VALUEPER INITIAL UNIT

 
| ** ** | ** ** | **Jan.** | ** ** | **Feb.** | ** ** | **Mar.** | ** ** | **April** | ** ** | **May** | ** ** | **June** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|-----------|------------|---------|------------|----------|------------|
| 2009       |       | $        | 199.54     |     | $          | 199.02   |       | $         | 193.65     |    | $          | 188.68   |       | $ | 185.32 |   | $ | 178.99 |   |
| 2010       |       | $        | 169.62     |     | $          | 173.32   |       | $         | 183.52     |    | $          | 186.87   |       | $ | 178.84 |   | 179.55 |   |
|            |            |          |            |          |            |          |            |           |            |         |            |          |            |  |  |  |  |  |  |

 

Liquidity and Capital Resources

 

The Partnership does not engage in the sale of goodsor services.  The Partnership’s assetsare its (i) investment in Funds and (ii) Cash.  Because of the low margin deposits normallyrequired in commodity futures trading relatively small price movements mayresult in substantial losses to the Partnership.  While substantial losses could lead to amaterial decrease in liquidity, no such material losses occurred during thefirst quarter of 2010.

 

The Partnership’s capital consists of the capitalcontributions of the partners as increased or decreased by gains or losses ontrading, expenses, interest income, redemptions of Redeemable Units anddistributions of profits, if any.

 

For the six months ended June 30, 2010,Partnership capital decreased 8.60% from $251,923,917 to $230,255,733.  This decrease was attributable to the netgain from operations of $5,221,111, coupled with the redemption of 164,599Redeemable Units resulting in an outflow of $29,523,262.  The cash outflow was offset with cash inflowof $2,633,967 due tosubscription of 14,935 units.    Futureredemptions could impact the amount of funds available for investment incommodity contract positions in subsequent months.

 

Critical Accounting Policies

 

Statement of Cash Flows

 

The Partnership is not required to provide a Statementof Cash Flows.

 

Fair value is defined as the price that would bereceived to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date.  For more information on our treatment of fairvalue see Note 3, Fair Value of Investments.

 

Investments in other investment companies are valuedusing the net asset value reported by the investment company. If appropriate,adjustments to the reported net asset value may be made based on variousfactors, including, but not limited to, the attributes of the interest held,including the rights and obligations, and any restrictions or illiquidity.

 

Where the Partnership believes that quoted marketprices are not available or that the market is not active, fair values areestimated by using quoted prices of securities with similar characteristics,pricing models or matrix pricing, observable net asset values and these aregenerally classified as Level II securities the Partnership determined that itsinvestments in other investment funds would be classified as Level II.

 

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CashEquivalents

 

The Fund considers all highly liquid investments,with a maturity of three months or less when acquired, to be cash equivalents.Cash equivalents were recorded at amortized cost which approximated fair value(Level II see Note 3).  Cash was held at a nationally recognized financialinstitution.

 

Interest Rates and Income

 

The Partnership currently earns interest based onthe prevailing Fed Funds rate plus a spread for short cash positions and minusa spread for long cash positions. The current short term interest rates haveremained extremely low when compared with historical rates and thus hascontributed negligible amounts to overall Partnership performance.

 

Income Taxes

 

Noprovision for income taxes has been made in the accompanying financialstatements as each Partner is individually responsible for reporting income orloss based on such Partner’s respective share of the Partnership’s income andexpenses as reported for income tax purposes.

 

The Partnership follows the ASC guidance issued foraccounting for uncertainty in income taxes. This guidance provides how uncertain tax positions should be recognized,measured, presented and disclosed in the financial statements.  This guidance also requires the evaluation oftax positions taken or expected to be taken in the course of preparing thePartnership’s financial statements to determine whether the tax positions are “more-likely-than-not”to be sustained by the applicable tax authority.  Tax positions with respect to tax at thepartnership level not deemed to meet the “more-likely-than-not” threshold wouldbe recorded as a tax benefit or expense in the current year.  The General Partner has analyzed thePartnership’s tax positions and has concluded that no provision for income taxis required in the Partnership’s financial statements. The following are themajor tax jurisdictions for the Partnership and the earliest tax year subjectto examination: United States — 2007.

 

Results of Operations

 

January 1, 2010 to March 31, 2010

 

ThePartnership experienced a net trading profit of $12,904,261 for the firstquarter of 2010.

 

ThePortfolio Funds’ long positions in equities, commodities and short positions inthe U.S. dollar resulted in profits posted to the Partnership at the beginningof January.  Markets then reversed andlosses were posted in each of these asset classes and all gains accumulatedthrough the middle of the month were given back in these various markets.  Fixed income was one asset class whereexisting positioning were profitable. Long positions in short term interestrate contracts posted gains however, these gains were not enough to offsetlosses in the three other major asset classes resulting in losses being postedto the Partnership at the end of January.

 

ThePortfolio Funds had positive performance in February resulting in profitsbeing posted to the Partnership. Long positions in fixed income drove performance.Yields generally moved lower over the course of the month and the PortfolioFunds benefited from having long exposure to both bonds and short term interestrate contracts. The managers benefited from short positions in Europeancurrency exposure due to the Euro and British pound losing value against theU.S. dollar. In other asset classes, some choppiness and a lack of significanttrends meant that equity indices and commodities did not have much of an impacton the month’s returns.

 

14

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ThePortfolio Funds had positive performance in March resulting in profitsbeing posted to the Partnership. Equity indices drove performance for mostPortfolio Funds’ trading advisors. Positioning was firmly on the long side dueto the strength of the current up trends in global equity indices. Commoditieswere also profitable across the board due to long positions in oil and metalsand short positions in natural gas and grains. Positioning was spot on in mostof these sub sectors. Oil and metals generally rose and natural gas and grainsdeclined in March. Currencies also posted profits to the Partnership. The euroand British pound ended the month down, benefiting short positions in thesecurrencies. On the other hand the Canadian and Australian dollars rose,resulting in profits due to their long positions in these currencies. Fixedincome was the only losing asset class. Short term interest rate contractsgenerally stayed flat, but yields on longer term government bonds rose duringthe month, causing some losses to long positions in those instruments. Overall,the yield moves were not very large, so losses were contained.

 

April 1, 2010 to June 30, 2010

 

The Partnership experienceda net trading loss of $2,756,038 for the second quarter of 2010.

 

The Portfolio Funds hadpositive performance in April resulting in profits being posted to thePartnership.  In fixed income, fallingoverall G7 (Canada, France, Germany, Italy, Japan, United Kingdom andUnited States) yields meant that long positions were profitable. In currencies,a balanced posture with short European currencies against long positions incommodity and emerging markets currencies posted profits to the Partnership. Incommodities, some sectors lost money which was offset by gains in the energiesand metals sectors. While U.S. equity indices ended the month up, European andAsian markets generally ended the month lower. All trading advisors were longin global equity indices with profits or losses dependent upon their relativesize in various geographies.

 

The Portfolio Funds had anegative performance in May posting losses to the Partnership.  Equities, oil, natural gas and industrialmetals all saw reversals with some markets moving more than 10% in the oppositedirection of the trend. By the end of May, most Portfolio Funds were very lightin equities (but still long) and slightly short positions in energies. Otherlosing commodity positions were also cut, with the only remaining long exposurebeing in precious metals. Currencies performance varied as some tradingadvisors posted profits and some lost money in the asset class. Performancedepended on the relative size of short European currency positions vs. longpositions in commodities and emerging markets currency positions.  The trading advisors with larger shortpositions in European currencies managed to make money in the asset class.Fixed income yields came down during the month of May as investors soughtsafety in government securities. The trading advisors long positioningbenefited from these moves however, the gains were not enough to offset lossesin other portfolio areas.

 

ThePortfolio Funds posted losses to the Fund as performance was quite mixed amongtrading advisors. Equities and many commodity sectors incurred significantreversals with the trading advisors being caught on the wrong side of trades.As a result, they had moved to cut risk in those asset classes. Coming intoJune, the trading advisors still had on some long equity exposure. They were alsolong precious metals, short grains and neutral in the energy sector. But ingeneral, position sizes tended to be small. When equities continued to movedownward during June and commodities continued to experience some movesthat were adverse to positioning, losses were incurred. In June, currencieswere generally the worst performing asset class for the trading advisors.Having significant short European currency exposure was bad for performance astwo major currencies, the British pound and Swiss franc rallied. There weresome gains from short euro positions, but these were not enough to counterlosses incurred from reversals in the British pound and Swiss franc. Fixedincome was a solid winning asset class for the trading advisors. Long positionsacross the yield curve generated positive returns as yields came down as aresult of stronger risk adverse sentiment, especially in the second half ofJune. Fixed income also happened to be a portfolio area where risk wasrelatively greater than in other asset classes, so gains here were able tocounter losses or mixed performance in all other sectors.

 

15

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January 1, 2009 to March 31, 2009

 

During the first quarter of 2009, the Partnership'sNet Asset Value per Unit decreased 2.67% from $199.20 to $193.89 as compared toan increase of 9.67% in the same period of 2008.  The Partnership experienced a net tradingloss in the first quarter of 2009 of $5,968,803.

 

The performances of the Portfolio Funds were mixed atthe beginning of the quarter which reflected the choppy markets anddiversification of the Portfolio Fund’s approach to trading. The Partnershipprofited from falling equities, with long-term Portfolio Funds managerscapturing more of the move. The Partnership also profited from a continuousdown-trend in commodities. Largest losses were suffered in fixed incomepositions as U.S. Treasury yields rallied and other global bonds shadowed themove.

 

Time horizon focus did not seem to be a driver ofreturns, while asset allocation played a more significant role in the middle ofthe quarter. Most of the Portfolio Funds had small net short exposures toequity markets posting profits for the Partnership. In addition, the PortfolioFunds that had long positions in the U.S. dollar against various currenciesalso posted profits for the Partnership. The Portfolio Funds that had longpositions in the Japanese yen vs. the U.S. dollar was detrimental as theJapanese yen ended the month down significantly relative to the U.S. dollar.Fixed income markets experienced volatile swings in February and most of thePortfolio Funds ended with losses being posted for the Partnership.

 

The Partnership posted losses at the end of thequarter. At the start of March, the Portfolio Funds were positioned long in thefixed income markets. Most Portfolio Funds kept this positioning throughout themonth and benefited from falling yields resulting in profits posted for thePartnership. This was the only sector contributing to profits for thePartnership for March. All other sectors had negative attribution for the monthas a result of significant reversals in many markets. During March, equitymarkets rallied, following some positive corporate news in the first week. Whenthe U.S. Federal Reserve announced the start of quantitative easing midmonth,the U.S. dollar began losing value against most major currencies along withcommodity markets which are negatively correlated with the U.S. dollar and riskaversion, moved up. The Portfolio Funds are medium to long term trend followersand were not in a position to cut exposures very fast and were negativelyaffected by these reversals.

 

April 1, 2009 toJune 30, 2009

 

During the second quarter of 2009, the Partnership'sNet Asset Value per Redeemable Unit decreased 7.68% from $193.89 to $178.99 ascompared to an increase of 6.95% in the same period of 2008.  The Partnership experienced a net tradingloss in the second quarter of 2009 of $21,350,776.

 

The performancesof the Portfolio Funds were down at the beginning of the quarter which resultedin losses being posted to the Partnership. The market environment that causedlosses for the Partnership in March persisted through April as well. ThePortfolio Fund Managers continued to be positioned against market moves andexperienced losses in most of the sectors they traded in. In March 2009 havinglong positions in fixed income helped to offset losses in equity indices,currencies and commodities. In April, the losses in equity indices, currenciesand commodities were more muted as many managers had trimmed risk in thosesectors; however, having long positions in fixed income proved to be a problemas global bond yields rose significantly, hurting those long positions.Overall, fixed income was the worst performing sector for the Partnership,followed by currencies. Most managers had mixed exposure in commodities, makingmoney in some markets and losing money in others. In equities, positioning wasmore on the short side, but with extremely small exposures; losses thus weremuted.

 

16

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The Partnership postedlosses in April as many big trends reversed as the Portfolio Fund Managerswere not correctly positioned in the markets movements. The reversing trendscontinued in May and only one of the Portfolio Fund Managers turned aroundits portfolio to be in line with them. Winton and Chesapeake have long timehorizons and need more conviction about new trends before reversingpositioning. Aspect and Transtrend are more medium term, but only Transtrendwas able to adjust its portfolio enough to take advantage of new trends. As aresult, losses were posted to the Partnership in the middle of the quarter.Overall, equity positioning was flat therefore, attribution from equities waslikely zero. Commodity positioning was mostly short positions and that hurt thePartnership as commodities moved up during May. Long positions in the U.S.dollar and long positions in bond bias also detracted from performance.

 

The Portfolio Funds had anegative month resulting in losses being posted to the Partnership at the endof the quarter. April and May had been characterized by market movesmost commonly seen during periods where investors are risk seeking. There wereup moves in equities and commodities and down moves in bonds and the U.S.dollar. June continued to be a challenging month as several events tookplace. First, short term interest rates suffered a sharp reversal during thefirst week of June and the U.S. dollar had a similar reversal, gainingagainst most currencies. Then, mid-month, the up trends in equities andcommodities reversed, as sentiment became risk averse again. As a result ofthese moves, most asset classes ended the month with negative attribution. Theworst were short term interest rates and commodities. Medium term managers hadthe worst performance as they not only suffered from the interest rates and U.S.dollar moves, but also the reversals in equities and commodities. Winton and

 

Chesapeake, the longest term managers, had relatively smaller lossesbecause the equity and commodity reversals were actually good for them sincethey were still holding on to their pre-March positions in those assetclasses.

 

The Partnership has no applicable off-balance sheet arrangements ortabular disclosure of contractual obligations of the type described in Items303(a)(4) and 303(a)(5) of Regulation S-K.

 

Item 3.   Quantitativeand Qualitative Disclosures About Market Risk

 

Introduction

 

ThePortfolio Funds are a speculative commodity pools. The market sensitiveinstruments held by the Portfolio Funds are acquired for speculative tradingpurposes and all or substantially all of the Portfolio Funds’ assets aresubject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments isintegral, not incidental, to the Partnership’s main line of business.

 

Marketmovements result in frequent changes in the fair market value of the PortfolioFunds’ open positions and, consequently, in their earnings and cash flow.  The Portfolio Funds’ market risk isinfluenced by a wide variety of factors, including the level and volatility ofinterest rates, exchange rates, equity price levels, the market value offinancial instruments and contracts, the diversification effects among thePortfolio Funds’ open positions and the liquidity of the markets in which theytrade.

 

The Portfolio Funds’ under the direction of their respective TradingAdvisors rapidly acquire and liquidate both long and short positions in a widerange of different markets. Consequently, it is not possible to predict how a possible future marketscenario will affect performance, and the Partnership’s and the Portfolio Funds’past performance is not necessarily indicative of its future results.

 

17

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Valueat Risk is a measure of the maximum amount which the Portfolio Funds couldreasonably be expected to lose in a given market sector.  However, the inherent uncertainty of thePortfolio Funds’ speculative trading and the recurrence in the markets tradedby the Portfolio Funds of market movements far exceeding expectations couldresult in actual trading or non-trading losses far beyond the indicated Valueat Risk or the Portfolio Funds’ experience to date (i.e., “risk of ruin”).  In light of the foregoing as well as therisks and uncertainties intrinsic to all future projections, the inclusion ofthe quantification in this section should not be considered to constitute anyassurance or representation that the Portfolio Funds’ losses in any marketsector will be limited to Value at Risk or by the Portfolio Funds’ attempts tomanage their market risks.

 

Quantifyingthe Partnership’s Trading Value at Risk

 

QuantitativeForward-Looking Statements

 

Thefollowing quantitative disclosures regarding the Partnership’s market riskexposures contain “forward-looking statements” within the meaning of the safeharbor from civil liability provided for such statements by the PrivateSecurities Litigation Reform Act of 1995 (set forth in Section 27A of theSecurities Act of 1933 and Section 21E of the Securities Exchange Act of1934).  All quantitative disclosures inthis section are deemed to be forward-looking statements for purposes of thesafe harbor, except for statements of historical fact.

 

Due to the Partnership’s fund of funds structure, the followingstatements are related to the Portfolio Funds.

 

Exchange maintenance margin requirements have been used by thePortfolio Funds as the measure of their Value at Risk.  Maintenance margin requirements are set byexchanges to equal or exceed the maximum loss in the fair value of any givencontract incurred in 95% to 99% of the one-day time periods included in thehistorical sample (approximately one year, generally) researched for purposesof establishing margin levels.  Themaintenance margin levels are established by dealers and exchanges usinghistorical price studies as well as an assessment of current market volatility(including the implied volatility of the options on a given futures contract)and economic fundamentals to provide a probabilistic estimate of the maximumexpected near-term one-day price fluctuation. n the case of market sensitiveinstruments which are not exchange-traded (almost exclusively currencies in thecase of the Portfolio Funds), the margin requirements for the equivalentfutures positions have been used as Value at Risk.  In those rare cases in which afutures-equivalent margin is not available, dealers’ margins have been used.

 

100% positive correlation in the different positions held in eachmarket risk category has been assumed. Consequently, the margin requirements applicable to the open contractshave been aggregated to determine each trading category’s aggregate Value atRisk.  The diversification effects (whichwould reduce the Value at Risk estimates) resulting from the fact that thePortfolio Funds’ positions are rarely, if ever, 100% positively correlated havenot been reflected.

 

The following information with respect to Value At Risk (VAR) is setforth in respect of the Portfolio Funds separately, rather than for thePartnership on a stand-alone basis.

 

18

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The Partnership’s TradingValue at Risk in Different Market Sectors

 

The following table indicates the average, highest, and lowest tradingValue at Risk which is the sum of the individual Portfolio Funds’ tables. TheValue at Risk table is also associated with the Partnership’s open positions bymarket category for the six months ended June 30, 2010 and 2009.

 

**June 30, 2010**

 
| **Aspect Class DT (3)** | ** ** | **Average**       | ** ** | **% of Average**   | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|------------------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|------------------|------------|
| **Market Sector**            | ** ** | **Value at Risk** | ** ** | **Capitalization** | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
|                         |       |              |       |               |       |              |       |             |       |
| Agricultural Commodities     |       | $                 | 347,720    |               | 0.58       | %                 | $          | 440,199          |       | $ | 265,239 |   |
| Energy                       |       | 538,642           |       | 0.89               | %          | 882,507           |       | 255,226          |       |
| Interest Rates               |       | 1,709,270         |       | 2.83               | %          | 2,405,980         |       | 1,115,972        |       |
| Metals                       |       | 577,631           |       | 0.96               | %          | 730,698           |       | 441,047          |       |
| Stock Indices                |       | 634,589           |       | 1.05               | %          | 907,291           |       | 403,427          |       |
| Currencies                   |       | 665,531           |       | 1.10               | %          | 1,490,858         |       | 85,396           |       |
|                         |       |              |       |               |       |              |       |             |       |
| TOTAL                        |       | $                 | 4,473,383  |               | 7.41       | %                 | $          | 6,857,533        |       | $ | 2,566,307 |   |

 

----

(3) Average Capitalization of Aspect Class DT is $60,367,423.

 

**June 30, 2009**

 
| **Aspect Class DT (3)** | ** ** | **Average**       | ** ** | **% of Average**   | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|------------------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|------------------|------------|
| **Market Sector**            | ** ** | **Value at Risk** | ** ** | **Capitalization** | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
|                         |       |              |       |               |       |              |       |             |       |
| Agricultural Commodities     |       | $                 | 53,216     |               | 0.07       | %                 | $          | 319,298          |       | $ | 2,090 |   |
| Energy                       |       | 52,304            |       | 0.06               | %          | 313,825           |       | 11,286           |       |
| Interest Rates               |       | 7,210,013         |       | 8.91               | %          | 43,260,077        |       | 4,042,808        |       |
| Metals                       |       | 37,661            |       | 0.05               | %          | 225,965           |       | 3,111            |       |
| Stock Indices                |       | 37,281            |       | 0.05               | %          | 223,687           |       | 5,085            |       |
| Currencies                   |       | 187,959           |       | 0.23               | %          | 1,127,751         |       | 84,024           |       |
|                         |       |              |       |               |       |              |       |             |       |
| TOTAL                        |       | $                 | 7,578,434  |               | 9.37       | %                 | $          | 45,470,603       |       | $ | 4,148,404 |   |

 

----

(3) Average Capitalization of Aspect Class DT is $80,889,208.

 

19

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**June 30, 2010**

 
| **Transtrend Class DT (2)** | ** ** | **Average**       | ** ** | **% of Average**   | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|----------------------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|------------------|------------|
| **Market Sector**                | ** ** | **Value at Risk** | ** ** | **Capitalization** | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
|                             |       |              |       |               |       |              |       |             |       |
| Agricultural Commodities         |       | $                 | 518,307    |               | 0.86       | %                 | $          | 856,791          |       | $ | 278,529 |   |
| Energy                           |       | 1,955,127         |       | 3.24               | %          | 3,099,978         |       | 954,529          |       |
| Interest Rates                   |       | 829,490           |       | 1.38               | %          | 1,773,193         |       | 220,835          |       |
| Metals                           |       | 328,731           |       | 0.55               | %          | 707,152           |       | 85,739           |       |
| Stock Indices                    |       | 690,234           |       | 1.14               | %          | 1,082,191         |       | 341,897          |       |
| Currencies                       |       | 1,710,033         |       | 2.84               | %          | 2,890,273         |       | 939,581          |       |
|                             |       |              |       |               |       |              |       |             |       |
| TOTAL                            |       | $                 | 6,031,922  |               | 10.01      | %                 | $          | 10,409,578       |       | $ | 2,821,110 |   |

 

----

(2) Average capitalization of Transtrend Class DT is$60,293,595.

 

**June 30, 2009**

 
| **Transtrend Class DT (2)** | ** ** | **Average**       | ** ** | **% of Average**   | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|----------------------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|------------------|------------|
| **Market Sector**                | ** ** | **Value at Risk** | ** ** | **Capitalization** | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
|                             |       |              |       |               |       |              |       |             |       |
| Agricultural Commodities         |       | $                 | 204,209    |               | 0.25       | %                 | $          | 1,225,253        |       | $ | 87,687 |   |
| Energy                           |       | 276,491           |       | 0.34               | %          | 1,658,949         |       | 46,285           |       |
| Interest Rates                   |       | 6,376,162         |       | 7.83               | %          | 38,256,973        |       | 3,051,202        |       |
| Metals                           |       | 15,619            |       | 0.02               | %          | 93,713            |       | 1,737            |       |
| Stock Indices                    |       | 255,531           |       | 0.31               | %          | 1,533,189         |       | 17,141           |       |
| Currencies                       |       | 233,777           |       | 0.29               | %          | 1,402,664         |       | 30,936           |       |
|                             |       |              |       |               |       |              |       |             |       |
| TOTAL                            |       | $                 | 7,361,789  |               | 9.04       | %                 | $          | 44,170,741       |       | $ | 3,234,988 |   |

 

----

(2) Average capitalization of Transtrend Class DT is$81,398,026.

 

20

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**June 30, 2010**

 
| **Winton Class DT (5)** | ** ** | **Average**       | ** ** | **% of Average**   | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|------------------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|------------------|------------|
| **Market Sector**            | ** ** | **Value at Risk** | ** ** | **Capitalization** | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
|                         |       |              |       |               |       |              |       |             |       |
| Agricultural Commodities     |       | $                 | 372,259    |               | 0.62       | %                 | $          | 533,886          |       | $ | 219,160 |   |
| Energy                       |       | 248,163           |       | 0.41               | %          | 349,453           |       | 150,391          |       |
| Interest Rates               |       | 976,017           |       | 1.62               | %          | 1,293,477         |       | 733,238          |       |
| Metals                       |       | 904,600           |       | 1.50               | %          | 1,132,325         |       | 728,183          |       |
| Stock Indices                |       | 692,382           |       | 1.15               | %          | 978,520           |       | 417,247          |       |
| Currencies                   |       | 676,688           |       | 1.12               | %          | 936,116           |       | 479,628          |       |
|                         |       |              |       |               |       |              |       |             |       |
| TOTAL                        |       | $                 | 3,870,109  |               | 6.42       | %                 | $          | 5,223,777        |       | $ | 2,727,847 |   |

 

----

(5) Average capitalization of Winton Class DT is $60,367,424.

 

**June 30, 2009**

 
| **Winton Class DT (5)** | ** ** | **Average**       | ** ** | **% of Average**   | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|------------------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|------------------|------------|
| **Market Sector**            | ** ** | **Value at Risk** | ** ** | **Capitalization** | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
|                         |       |              |       |               |       |              |       |             |       |
| Agricultural Commodities     |       | $                 | 37,103     |               | 0.05       | %                 | $          | 222,620          |       | $ | 1,017 |   |
| Energy                       |       | 16,048            |       | 0.02               | %          | 96,286            |       | 3,483            |       |
| Interest Rates               |       | 3,236,411         |       | 3.98               | %          | 19,418,465        |       | 2,966,081        |       |
| Metals                       |       | 12,778            |       | 0.02               | %          | 76,669            |       | 5,697            |       |
| Stock Indices                |       | 60,895            |       | 0.07               | %          | 365,373           |       | 25,424           |       |
| Currencies                   |       | 150,587           |       | 0.19               | %          | 903,519           |       | 61,101           |       |
|                         |       |              |       |               |       |              |       |             |       |
| TOTAL                        |       | $                 | 3,513,822  |               | 4.33       | %                 | $          | 21,082,932       |       | $ | 3,062,803 |   |

 

----

(5) Average capitalization of Winton Class DT is $81,317,000.

 

21

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**June 30, 2010**

 
| **Bluetrend Class DT (2)** | ** ** | **Average**       | ** ** | **% of Average**   | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|---------------------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|------------------|------------|
| **Market Sector**               | ** ** | **Value at Risk** | ** ** | **Capitalization** | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
|                            |       |              |       |               |       |              |       |             |       |
| Agricultural Commodities        |       | $                 | 195,561    |               | 0.45       | %                 | $          | 355,824          |       | $ | 90,273 |   |
| Energy                          |       | 1,229,060         |       | 2.84               | %          | 3,047,534         |       | 169,856          |       |
| Interest Rates                  |       | 1,572,937         |       | 3.64               | %          | 2,529,680         |       | 877,448          |       |
| Metals                          |       | 229,364           |       | 0.53               | %          | 338,673           |       | 104,529          |       |
| Stock Futures                   |       | 1,274,167         |       | 2.95               | %          | 2,024,684         |       | 531,950          |       |
| Currencies                      |       | 946,934           |       | 2.19               | %          | 2,562,252         |       | 35,673           |       |
|                            |       |              |       |               |       |              |       |             |       |
| TOTAL                           |       | $                 | 5,448,023  |               | 12.60      | %                 | $          | 10,858,647       |       | $ | 1,809,729 |   |

 

----

(2) Average capitalization of Bluetrend Class DT is$43,215,759.

 

**June 30, 2009**

 
| **Chesapeake Class DT (4)** | ** ** | **Average**       | ** ** | **% of Average**   | ** ** | **Highest Value** | ** ** | **Lowest Value** | ** ** |
|----------------------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|------------------|------------|
| **Market Sector**                | ** ** | **Value at Risk** | ** ** | **Capitalization** | ** ** | **At Risk**       | ** ** | **At Risk**      | ** ** |
|                             |       |              |       |               |       |              |       |             |       |
| Agricultural Commodities         |       | $                 | 146,814    |               | 0.18       | %                 | $          | 880,883          |       | $ | 68,462 |   |
| Energy                           |       | 88.56             |       | 0.00               | %          | 531.34            |       | —           |       |
| Interest Rates                   |       | 3,443,613         |       | 4.23               | %          | 20,661,675        |       | 3,110,485        |       |
| Metals                           |       | 47,080            |       | 0.06               | %          | 282,479           |       | 30,261           |       |
| Stock Indices                    |       | —            |       | —             |       | —            |       | —           |       |
| Stock Futures                    |       | 323               |       | 0.00               | %          | 1,939             |       | 0                |       |
| Currencies                       |       | 65,494            |       | 0.08               | %          | 392,962           |       | 20,404           |       |
|                             |       |              |       |               |       |              |       |             |       |
| TOTAL                            |       | $                 | 3,703,412  |               | 4.55       | %                 | $          | 22,220,469       |       | $ | 3,229,612 |   |

 

----

(4) Average capitalization of Chesapeake Class DT is$81,317,447.

 

Liquidated as of January 31, 2010.

 

22

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Material Limitations onValue at Risk as an Assessment of Market Risk

 

The face value of the marketsector instruments held by the Partnership and the Portfolio Funds aretypically many times the applicable maintenance margin requirement (maintenancemargin requirements generally ranging between approximately 1% and 10% ofcontract face value) as well as many times the capitalization of thePartnership and the Portfolio Funds.  Themagnitude of the Partnership’s and the Portfolio Funds’ open positions’ createsa “risk of ruin” not typically found in most other investment vehicles.  Because of the size of its positions, certainmarket conditions — unusual, but historically recurring from time to time —could cause the Partnership and the Portfolio Funds to incur severe losses overa short period of time.   Evencomparatively minor losses could cause MLAI to further deleverage or terminatethe Partnership’s and the Portfolio Funds’ trading. The foregoing Value at Risktable — as well as the past performance of the Partnership and the PortfolioFunds — gives no indication of this “risk of ruin.”

 

Non-Trading Risk

 

Foreign Currency Balances; Cash on Deposit with MLPF&S

 

The Portfolio Funds have non-trading market risk on its foreign cashbalances not needed for margin. These balances (as well as the market risk theyrepresent) are generally immaterial.

 

The Portfolio Funds also have non-trading market risk on theapproximately 90-95% of its assets which are held in cash at MLPF&S orBlackRock.  The value of this cash is notinterest rate sensitive, but there is cash flow risk in that if interest ratesdecline so will the cash flow generated on these monies.

 

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

The following qualitative disclosures regardingthe Partnership’s market risk exposures through the Portfolio Funds after thechange in structure— except for (i) those disclosures that are statementsof historical fact and (ii) the descriptions of how the Partnershipmanages its primary market risk exposures constitute forward-looking statementswithin the meaning of Section 27A of the Securities Act and Section 21Eof the Securities Exchange Act.  ThePartnership’s primary market risk exposures as well as the strategies used andto be used by MLAI and the trading advisors of the Portfolio Funds for managingsuch exposures are subject to numerous uncertainties, contingencies and risks,any one of which could cause the actual results of the risk controls for thePartnership and for the trading conducted through Portfolio Funds to differmaterially from the objectives of such strategies.  Government interventions, defaults andexpropriations, illiquid markets, the emergence of dominant fundamentalfactors, political upheavals, changes in historical price relationships, aninflux of new market participants, increased regulation and many other factorscould result in material losses as well as in material changes to the riskexposures and the risk management strategies of the Partnership.  There can be no assurance that thePartnership’s risk management strategies will not change materially or that anysuch strategies will be effective in either the short- or long-term.  Investors must be prepared to lose all orsubstantially all of the value of their investment in the Partnership.

 

23

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QualitativeDisclosures Regarding Means of Managing Risk Exposure

 

Trading Risk

 

MLAIhas procedures in place intended to control market risk, although there can beno assurance that they will, in fact, succeed in doing so.  While MLAI does not intervene in the marketsto hedge or diversify the Partnership’s market exposure; MLAI may urge thePortfolio Funds to reallocate positions in an attempt to avoidover-concentrations.  However, suchinterventions are unusual.  Except incases in which it appears that the Portfolio Funds has begun to deviate frompast practice and trading policies or to be trading erratically, MLAI basicrisk control procedures consist simply of the ongoing process of monitoring thePortfolio Funds with the market risk controls being applied by the PortfolioFunds.

 

RiskManagement

 

PortfolioFunds attempt to control risk in all aspects of the investment process — fromconfirmation of a trend to determining the optimal exposure in a given market,and to money management issues such as the startup or upgrade of investoraccounts.  Portfolio Funds double checkthe accuracy of market data, and will not trade a market without multiple pricesources for analytical input.  Inconstructing a portfolio, Portfolio Funds seek to control overall risk as wellas the risk of any one position, and Portfolio Funds trade only markets thathave been identified as having positive performance characteristics.  Trading discipline requires plans for theexit of a market as well as for entry. Portfolio Funds factor the point of exit into the decision to enter(stop loss).  The size of Portfolio Fund’spositions in a particular market is not a matter of how large a return can begenerated but of how much risk it is willing to take relative to that expectedreturn.

 

Toattempt to reduce the risk of volatility while maintaining the potential forexcellent performance, proprietary research is conducted on an ongoing basis torefine the Portfolio Funds investment strategies.  Research may suggest substitution ofalternative investment methodologies with respect to particular contracts; thismay occur, for example, when the testing of a new methodology has indicatedthat its use might have resulted in different historical performance.  In addition, risk management research andanalysis may suggest modifications regarding the relative weighting amongvarious contracts, the addition or deletion of particular contracts for aprogram, or a change in position size in relation to account equity.  The weighting of capital committed to variousmarkets in the investment programs is dynamic, and Portfolio Funds may vary theweighting at its discretion as market conditions, liquidity, position limitconsiderations and other factors warrant.

 

PortfolioFunds may determine that risks arise when markets are illiquid or erratic,which may occur cyclically during holiday seasons, or on the basis ofirregularly occurring market events.  Insuch cases, Portfolio Funds at its sole discretion may overridecomputer-generated signals and may at times use discretion in the applicationof its quantitative models, which may affect performance positively ornegatively.

 

Adjustmentsin position size in relation to account equity have been and continue to be anintegral part of Portfolio Fund’s investment strategy.  At its discretion, Portfolio Funds may adjustthe size of a position in relation to equity in certain markets or entireprograms.  Such adjustments may be madeat certain times for some programs but not for others.  Factors which may affect the decision toadjust the size of a position in relation to account equity include ongoingresearch, program volatility, assessments of current market volatility and riskexposure, subjective judgment, and evaluation of these and other general marketconditions.

 

Non-Trading Risk

 

ThePartnership and the Portfolio Funds control the non-trading exchange rate riskby regularly converting foreign currency balances back into U.S. dollars atleast once per week and more frequently if a particular foreign currencybalance becomes unusually high.

 

24

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ThePartnership and the Portfolio Funds have cash flow interest rate risk on its cashon deposit with MLPF&S in that declining interest rates would cause theincome from such cash to decline. However, a certain amount of cash or cash equivalents must be held bythe Partnership in order to facilitate margin payments and pay expenses andredemptions.  MLAI does not take anysteps to limit the cash flow risk on the cash held on deposit at MLPF&S andin the BlackRock sponsored money market fund.

 

Item 4. Controls and Procedures

 

MLAI,the general partner of the Partnership with the participation of MLAI’s ChiefExecutive Officer and the Chief Financial Officer, has evaluated theeffectiveness of the design and operation of its disclosure controls andprocedures (as defined  in Rule 13a-15(e) underthe Securities Exchange Act of 1934) with respect to the Partnership as of theend of the period  covered by thisquarterly report, and, based on this evaluation, has concluded that thesedisclosure controls and procedures are effective.  No change in internal control over financialreporting (as defined in Rule 13a-15(f) under the Securities ExchangeAct of 1934) occurred during the quarter ended June 30, 2010 that has materially affected, or is reasonably likelyto materially affect, the Partnership’s internal control over financialreporting.

 

PART II - OTHERINFORMATION

 

Item 1.  LegalProceedings

 

None.

 

Item 1A:  Risk Factors

 

There are no materialchanges from risk factors as previously disclosed in the Annual Report on Form 10-Kfor the year ended December 31, 2009, filed with the Securities andExchange Commission on March 31, 2010.

 

Item 2.                                                           UnregisteredSales of Securities and Use of Proceeds

 

(a) Issuance to accredited investors pursuantto Regulation D and Section 4(6) under the Securities Act. Theselling agent of the following Class of Unit was MLPF&S.

 
| ** ** | ** ** | **Subscription** | ** ** | ** ** | ** ** |
|------------|------------|------------------|------------|------------|------------|
| ** ** | ** ** | **Amount**       | ** ** | **Units**  | ** ** | **NAV** | ** ** |
| Jan-10     |       | $                | 432,387    |       | $          | 2,458 |   | 175.91 |   |
| Feb-10     |       | 194,727          |       | 1,148      |       | 169.62 |   |
| Mar-10     |       | 1,078,220        |       | 6,221      |       | 173.32 |   |
| Apr-10     |       | 177,277          |       | 966        |       | 183.52 |   |
| May-10     |       | 246,854          |       | 1,321      |       | 186.87 |   |
| Jun-10     |       | 504,502          |       | 2,821      |       | 178.84 |   |
| Jul-10     |       | —           |       | —     |       | 179.55 |   |
|            |            |                  |            |            |            |  |  |  |  |

 

25

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(b) None.

(c) None.

 

Item 3.                             Defaults UponSenior Securities

 

None.

 

Item 4.                             (Removed andReserved)

 

Item 5.                             OtherInformation

 

None.

 

Item 6.                             Exhibits

 

The following exhibits are filed herewith to this Quarterly Report on Form 10-Q:
| 31.01  and         |   |                                              |
|--------------------|--------|---------------------------------------------------|
| 31.02              |   | Rule 13a-14(a)/15d-14(a) Certifications |
|               |   |                                              |
| Exhibit 31.01 |   |                                              |
| and  31.02         |   | Are  filed herewith.                              |
|               |   |                                              |
| 32.01  and         |   |                                              |
| 32.02              |   | Section 1350  Certifications                 |
|               |   |                                              |
| Exhibit 32.01 |   |                                              |
| and  32.02         |   | Are  filed herewith.                              |

 

26

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
|                        | ML  TREND-FOLLOWING FUTURES FUND L.P. |
|-----------------------------|---------------------------------------|
|                        |                                  |
|                        | By:                                   | MERRILL  LYNCH ALTERNATIVE |
|                        |                                  | INVESTMENTS LLC |
|                        |                                  | (General  Partner) |
|                        |                                  |   |
|                        |                                  |   |
| Date: August 13, 2010  | By:                                   | /s/ JUSTIN C. FERRI |
|                        |                                  | Justin  C. Ferri |
|                        |                                  | Chief  Executive Officer and President |
|                        |                                  | (Principal  Executive Officer) |
|                        |                                  |   |
|                        |                                  |   |
| Date:  August 13, 2010 | By:                                   | /s/  BARBRA E. KOCSIS |
|                        |                                  | Barbra  E. Kocsis |
|                        |                                  | Chief  Financial Officer |
|                        |                                  | (Principal  Financial and Accounting Officer) |

 

27

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