** **

**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

** **

**(MarkOne)**

 

| **ý****QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|--------------------------------------------------------------------------------------------------------|
|                                                                                                   |
| **For the quarterly period ended March 31, 2006**                                                      |
|                                                                                                   |
| **OR**                                                                                                 |
|                                                                                                   |
| **o****TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |

 

**For thetransition period from                to                 **

 

**Commission File Number 0-51086**

 

**ML CORNERSTONE FUTURESACCESS LLC**

(Exact Name of Registrantas

specified in its charter)

 

| **Delaware**                    | ** ** | **20-1227929**                    |
|---------------------------------|------------|-----------------------------------|
| (State or other jurisdiction of |       | (IRS Employer Identification No.) |
| incorporation or organization)  |       |                              |

 

**c/o Merrill Lynch Alternative Investments LLC**

**Princeton Corporate Campus**

**800 Scudders Mill Road -  Section 2G**

**Plainsboro, New Jersey 08536**

 (Address ofprincipal executive offices)

(Zip Code)

 

**609-282-6996**

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15 (d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes o  No ý

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 
|   |   |   |   |   |   | Yes o |   | No ý |
|--------|--------|--------|--------|--------|--------|------------|--------|----------------|

 

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or 15(d) of the Act.

 
|   |   |   |   |   |   | Yes o |   | No ý |
|--------|--------|--------|--------|--------|--------|------------|--------|----------------|

 

Indicate by check mark whether the registrant (1)has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.

 
|   |   |   |   |   |   | Yes ý |   | No o |
|--------|--------|--------|--------|--------|--------|-----------------|--------|-----------|

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part II of this Form 10-Qor any amendment to this Form 10-Q. ý

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act. (Check one):

 
|   | Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer ý |
|--------|--------------------------------|--------|--------------------------|--------|-----------------------------------|

 

Indicate by check mark if the registrant is a shellcompany (as defined by Rule 12b-2 of the Act).

 
|   |   |   |   |   |   | Yes o |   | No ý |
|--------|--------|--------|--------|--------|--------|------------|--------|----------------|

 

 

----

 

**ML CORNERSTONE FUTURESACCESS LLC**

 

QUARTERLY REPORT FORMARCH 31, 2006 ON FORM 10-Q

 

Table of Contents

 
| ** **  | ** **                                                                                  | **PAGE** |
|-------------|---------------------------------------------------------------------------------------------|----------|
| PART I |
|        |                                                                                        |     |
| Item 1.     | Financial Statements                                                                        | 2        |
|        |                                                                                        |     |
| Item 2.     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 9        |
|        |                                                                                        |     |
| Item 3.     | Quantitative  and Qualitative Disclosures About Market Risk                                 | 11       |
|        |                                                                                        |     |
| Item 4.     | Controls and  Procedures                                                                    | 11       |
|        |                                                                                        |     |
| PART II     |
|        |                                                                                        |     |
| Item 1.     | Legal Proceedings                                                                           | 12       |
|        |                                                                                        |     |
| Item 2.     | Changes in  Securities and Use of Proceeds                                                  | 12       |
|        |                                                                                        |     |
| Item 3.     | Defaults  Upon Senior Securities                                                            | 12       |
|        |                                                                                        |     |
| Item 4.     | Submission  of Matters to a Vote of Security Holders                                        | 12       |
|        |                                                                                        |     |
| Item 5.     | Other Information                                                                           | 12       |
|        |                                                                                        |     |
| Item 5a.    | Recent  Sales of Unregistered Securities: Uses of Proceeds From Registered Securities       | 13       |
|        |                                                                                        |     |
| Item 6      | Exhibits  and Reports on Form 8-K                                                           | 13       |

 

1

----

 

PART I - FINANCIAL INFORMATION

 

Item 1.    Financial Statements

 

ML CORNERSTONE FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF FINANCIAL CONDITION

 
| ** **                                                                      | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|---------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                      | ** ** | **(unaudited)**          | ** ** | ** **                  | ** ** |
|                                                                            |       |                     |       |                        |       |
| **ASSETS:**                                                                     |       |                     |       |                        |       |
| Equity in  commodity futures trading accounts:                                  |       |                     |       |                        |       |
| Cash                                                                            |       | $                        | 75,777,614 |                        | $          | 58,685,484 |   |
| Net unrealized  profit on open contracts                                        |       | 1,942,865                |       | 1,466,683                   |       |
| Cash                                                                            |       | 101,006                  |       | —                      |       |
| Accrued interest                                                                |       | 274,304                  |       | 196,419                     |       |
|                                                                            |       |                     |       |                        |       |
| **TOTAL**                                                                       |       | $                        | 78,095,789 |                        | $          | 60,348,586 |   |
|                                                                            |       |                     |       |                        |       |
| **LIABILITIES  AND MEMBERS’ CAPITAL:**                                     |       |                     |       |                        |       |
| LIABILITIES:                                                                    |       |                     |       |                        |       |
| Brokerage  commissions payable                                                  |       | $                        | 34,711     |                        | $          | 30,999 |   |
| Management fee  payable                                                         |       | 129,181                  |       | 99,205                      |       |
| Sponsor’s fee  payable                                                     |       | 136,993                  |       | 104,683                     |       |
| Incentive fee  payable                                                          |       | 1,170,176                |       | 521,565                     |       |
| Redemptions  payable                                                            |       | 588,637                  |       | 172,097                     |       |
| Initial offering  costs payable                                                 |       | 103,210                  |       | 110,118                     |       |
| Other payables                                                                  |       | 73,223                   |       | 114,819                     |       |
|                                                                            |       |                     |       |                        |       |
| Total  liabilities                                                              |       | 2,236,131                |       | 1,153,486                   |       |
|                                                                            |       |                     |       |                        |       |
| MEMBERS’  CAPITAL:                                                         |       |                     |       |                        |       |
| Sponsor’s  Capital (21,248 and 21,248 Units issued and outstanding)        |       | 21,642                   |       | 20,373                      |       |
| Members’ Capital  (74,571,133 and 61,779,296 Units issued and outstanding) |       | 75,838,016               |       | 59,174,727                  |       |
|                                                                            |       |                     |       |                        |       |
| Total members’  capital                                                    |       | 75,859,658               |       | 59,195,100                  |       |
|                                                                            |       |                     |       |                        |       |
| **TOTAL  LIABILITIES AND MEMBERS’ CAPITAL**                                |       | $                        | 78,095,789 |                        | $          | 60,348,586 |   |
| ** **                                                                      |       |                     |       |                        |       |
| **NET  ASSET VALUE PER UNIT (Note 2)**                                          |       |                     |       |                        |       |

 

See notes to financialstatements.

 

2

----

 

ML CORNERSTONE FUTURESACCESS LLC 

(a Delaware Limited Liability Company)

 

STATEMENTS OF OPERATIONS

(unaudited)

 
| ** **                                    | ** ** | **For the three** | ** ** | **For the two** | ** ** |
|-----------------------------------------------|------------|-----------------------------|------------|---------------------------|------------|
| ** **                                    | ** ** | **months ended**       | ** ** | **months ended**     | ** ** |
| ** **                                    | ** ** | **March 31,**          | ** ** | **March 31,**        | ** ** |
| ** **                                    | ** ** | **2006**                    | ** ** | **2005**                  | ** ** |
| **TRADING  PROFITS (LOSSES):**                |       |                        |       |                      |       |
|                                          |       |                        |       |                      |       |
| Realized                                      |       | $                           | 5,148,728  |                      | $          | (165,566 | ) |
| Change in  unrealized                         |       | 475,929                     |       | (443,558                  | )          |
| Brokerage  commissions                        |       | (85,753                     | )          | (18,126                   | )          |
|                                          |       |                        |       |                      |       |
| Total trading  profits (losses)               |       | 5,538,904                   |       | (627,250                  | )          |
|                                          |       |                        |       |                      |       |
| **INVESTMENT  INCOME:**                       |       |                        |       |                      |       |
| Interest                                      |       | 720,200                     |       | 24,797                    |       |
|                                          |       |                        |       |                      |       |
| **EXPENSES:**                                 |       |                        |       |                      |       |
| Management fee                                |       | 351,571                     |       | 24,847                    |       |
| Sponsor’s fee                            |       | 372,318                     |       | 27,936                    |       |
| Incentive fee                                 |       | 1,170,176                   |       | —                    |       |
| Other                                         |       | 49,746                      |       | 20,587                    |       |
| Total expenses  before reimbursement          |       | 1,943,811                   |       | 73,370                    |       |
| Sponsor’s fee  reimbursement             |       | —                      |       | (6,032                    | )          |
|                                          |       |                        |       |                      |       |
| Total expenses                                |       | 1,943,811                   |       | 67,338                    |       |
|                                          |       |                        |       |                      |       |
| **NET  INVESTMENT LOSS**                      |       | (1,223,611                  | )          | (42,541                   | )          |
|                                          |       |                        |       |                      |       |
| **NET  INCOME (LOSS)**                        |       | $                           | 4,315,293  |                      | $          | (669,791 | ) |
|                                          |       |                        |       |                      |       |
| **NET  INCOME (LOSS) PER UNIT:**              |       |                        |       |                      |       |
|                                          |       |                        |       |                      |       |
| Weighted average  number of Units outstanding |       |                        |       |                      |       |
| Class A                                       |       | 11,024,508                  |       | 1,104,370                 |       |
| Class C                                       |       | 49,750,399                  |       | 6,140,028                 |       |
| Class D                                       |       | 1,398,885                   |       | —                    |       |
| Class I                                       |       | 7,591,037                   |       | 595,082                   |       |
|                                          |       |                        |       |                      |       |
| Net income  (loss) per weighted average Units |       |                        |       |                      |       |
| Class A                                       |       | $                           | 0.0637     |                      | $          | (0.0849 | ) |
| Class C                                       |       | $                           | 0.0608     |                      | $          | (0.0850 | ) |
| Class D                                       |       | $                           | 0.0718     |                      | —     |   |
| Class I                                       |       | $                           | 0.0641     |                      | $          | (0.0911 | ) |

 

See notes to financialstatements.

 

3

----

 

ML CORNERSTONE FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

For the three and two months ended March 31, 2006 and2005

(unaudited)

 
| ** **                  | ** ** | **Initial  Offering** | ** ** | **Initial  Offering Costs** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** ** | **Net Loss** | ** ** | **Members’  Capital March31, 2005** | ** ** | **Members’  Capital December 31, 2005** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** ** | **Net  Income** | ** ** | **Members’  Capital March 31, 2006** | ** ** |
|-----------------------------|------------|-----------------------|------------|-----------------------------|------------|-------------------|------------|-----------------|------------|--------------|------------|------------------------------------------|------------|----------------------------------------------|------------|-------------------|------------|-----------------|------------|-----------------|------------|-------------------------------------------|------------|
|                        |       |                  |       |                        |       |              |       |            |       |         |       |                                     |       |                                         |       |              |       |            |       |            |       |                                      |       |
| Class A                     |       | 729,300               |       | —                      |       | 789,140           |       | (19,500         | )          | —       |       | 1,498,940                                |       | 10,021,657                                   |       | 2,048,606         |       | (375,679        | )          | —          |       | 11,694,584                                |       |
| Class C                     |       | 4,211,000             |       | —                      |       | 3,858,056         |       |            |       | —       |       | 8,069,056                                |       | 43,063,748                                   |       | 12,076,880        |       | (1,388,219      | )          | —          |       | 53,752,409                                |       |
| Class D                     |       | —                |       | —                      |       | —            |       | —          |       | —       |       | —                                   |       | 1,398,885                                    |       | —            |       | —          |       | —          |       | 1,398,885                                 |       |
| Class I                     |       | 287,000               |       | —                      |       | 616,164           |       | —          |       | —       |       | 903,164                                  |       | 7,295,006                                    |       | 506,391           |       | (76,142         | )          | —          |       | 7,725,255                                 |       |
|                        |       |                  |       |                        |       |              |       |            |       |         |       |                                     |       |                                         |       |              |       |            |       |            |       |                                      |       |
| Total Members’  Units  |       | 5,227,300             |       | —                      |       | 5,263,360         |       | (19,500         | )          | —       |       | 10,471,160                               |       | 61,779,296                                   |       | 14,631,877        |       | (1,840,040      | )          | —          |       | 74,571,133                                |       |
|                        |       |                  |       |                        |       |              |       |            |       |         |       |                                     |       |                                         |       |              |       |            |       |            |       |                                      |       |
| Class A                     |       | —                |       | —                      |       | —            |       | —          |       | —       |       | —                                   |       | 10,611                                       |       | —            |       | —          |       | —          |       | 10,611                                    |       |
| Class C                     |       | —                |       | —                      |       | —            |       | —          |       | —       |       | —                                   |       | 10,637                                       |       | —            |       | —          |       | —          |       | 10,637                                    |       |
| Class D                     |       | —                |       | —                      |       | —            |       | —          |       | —       |       | —                                   |       | —                                       |       | —            |       | —          |       | —          |       | —                                    |       |
| Class I                     |       | —                |       | —                      |       | —            |       | —          |       | —       |       | —                                   |       | —                                       |       | —            |       | —          |       | —          |       | —                                    |       |
|                        |       |                  |       |                        |       |              |       |            |       |         |       |                                     |       |                                         |       |              |       |            |       |            |       |                                      |       |
| Total Sponsor’s  Units |       | —                |       | —                      |       | —            |       | —          |       | —       |       | —                                   |       | 21,248                                       |       | —            |       | —          |       | —          |       | 21,248                                    |       |

 

Seenotes to financial statements.

 

4

----

 
| ** **                     | ** ** | **Initial  Offering** | ** ** | **Initial  Offering Costs** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** ** | **Net Loss** | ** ** | **Members’  Capital March31, 2005** | ** ** | **Members’  Capital December 31, 2005** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** ** | **Net  Income** | ** ** | **Members’  Capital March 31, 2006** | ** ** |
|--------------------------------|------------|-----------------------|------------|-----------------------------|------------|-------------------|------------|-----------------|------------|--------------|------------|------------------------------------------|------------|----------------------------------------------|------------|-------------------|------------|-----------------|------------|-----------------|------------|-------------------------------------------|------------|
|                           |       |                  |       |                        |       |              |       |            |       |         |       |                                     |       |                                         |       |              |       |            |       |            |       |                                      |       |
| Class A                        |       | $                     | 729,300    |                        | $          | (22,714           | )          | $               | 777,066    |         | $          | (19,201                                  | )          | $                                            | (93,815    | )                 | $          | 1,370,636       |       | $               | 9,635,030  |                                      | $          | 2,002,452 |   | $ | (374,091 | ) | $ | 701,126 |   | $ | 11,964,517 |   |
| Class C                        |       | 4,211,000             |       | (101,777                    | )          | 3,795,941         |       | —          |       | (521,765     | )          | 7,383,399                                |       | 41,024,353                                   |       | 11,664,740        |       | (1,361,133      | )          | 3,025,634       |       | 54,353,594                                |       |
| Class D                        |       | —                |       | —                      |       | —            |       | —          |       | —       |       | —                                   |       | 1,466,886                                    |       | —            |       | —          |       | 100,433         |       | 1,567,319                                 |       |
| Class I                        |       | 287,000               |       | (16,335                     | )          | 606,922           |       | —          |       | (54,211      | )          | 823,376                                  |       | 7,048,458                                    |       | 495,800           |       | (78,503         | )          | 486,831         |       | 7,952,586                                 |       |
|                           |       |                  |       |                        |       |              |       |            |       |         |       |                                     |       |                                         |       |              |       |            |       |            |       |                                      |       |
| Total Members’  Interests |       | $                     | 5,227,300  |                        | $          | (140,826          | )          | $               | 5,179,929  |         | $          | (19,201                                  | )          | $                                            | (669,791   | )                 | $          | 9,577,411       |       | $               | 59,174,727 |                                      | $          | 14,162,992 |   | $ | (1,813,727 | ) | $ | 4,314,024 |   | $ | 75,838,016 |   |
|                           |       |                  |       |                        |       |              |       |            |       |         |       |                                     |       |                                         |       |              |       |            |       |            |       |                                      |       |
| Class A                        |       | $                     | —     |                        | $          | —            |       | $               | —     |         | $          | —                                   |       | $                                            | —     |              | $          | —          |       | $               | 10,221     |                                      | $          | — |   | $ | — |   | $ | 651 |   | $ | 10,872 |   |
| Class C                        |       | —                |       | —                      |       | —            |       | —          |       | —       |       | —                                   |       | 10,152                                       |       | —            |       | —          |       | 618             |       | 10,770                                    |       |
| Class D                        |       | —                |       | —                      |       | —            |       | —          |       | —       |       | —                                   |       | —                                       |       | —            |       | —          |       | —          |       | —                                    |       |
| Class I                        |       | —                |       | —                      |       | —            |       | —          |       | —       |       | —                                   |       | —                                       |       | —            |       | —          |       | —          |       | —                                    |       |
|                           |       |                  |       |                        |       |              |       |            |       |         |       |                                     |       |                                         |       |              |       |            |       |            |       |                                      |       |
| Total Sponsor’s  Interest |       | $                     | —     |                        | $          | —            |       | $               | —     |         | $          | —                                   |       | $                                            | —     |              | $          | —          |       | $               | 20,373     |                                      | $          | — |   | $ | — |   | $ | 1,269 |   | $ | 21,642 |   |
|                           |       |                  |       |                        |       |              |       |            |       |         |       |                                     |       |                                         |       |              |       |            |       |            |       |                                      |       |
| Total Members’  Capital   |       | $                     | 5,227,300  |                        | $          | (140,826          | )          | $               | 5,179,929  |         | $          | (19,201                                  | )          | $                                            | (669,791   | )                 | $          | 9,577,411       |       | $               | 59,195,100 |                                      | $          | 14,162,992 |   | $ | (1,813,727 | ) | $ | 4,315,293 |   | $ | 75,859,658 |   |

 

See notes tofinancial statements.

 

5

----

 

ML CORNERSTONE FUTURESACCESS LLC 

(a Delaware Limited Liability Company)

 

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

1.               SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

 

In the opinion of management, the financial statementscontain all adjustments necessary to present fairly the financial position of MLCornerstone FuturesAccess LLC (the “Fund”) as of March 31, 2006, and theresults of its operations for the three and two months ended March 31, 2006 and2005. However, the operating results for the interim periods may not beindicative of the results for the full year. The Fund commenced tradingactivities on February 1, 2005. Therefore, the Statements of Operations and Statementsof Changes in Members’ Capital contain information only for the two monthperiod ended March 31, 2005.

 

Certain information andfootnote disclosures normally included in annual financial statements preparedin accordance with accounting principles generally accepted in the UnitedStates of America (“US GAAP”) have been omitted. It is suggested that thesefinancial statements be read in conjunction with the financial statements andnotes thereto included in the Fund’s Annual Report on Form 10-K filed with theSecurities and Exchange Commission for the year ended December 31, 2005.

 

The preparation of financial statements in conformitywith US GAAP requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates.

 

2.               NETASSET VALUE PER UNIT

 

For financial reporting purposes, in conformity withUS GAAP, the Fund deducted the total initial offering costs at inception fromMembers’ Capital for purposes of determining Net Asset Value. For all otherpurposes, including computing Net Asset Value for purposes of membersubscription and redemption activity, such costs are amortized over 60 months.Consequently, the Net Asset Value and Net Asset Value per Unit of the differentClasses for financial reporting purposes and for all other purposes are asfollows:

 

At March 31, 2006 the Net Asset Values of thedifferent series of Units are as follows:

 
| ** ** | ** ** | **Net Asset Value** | ** ** | ** **               | ** ** | **Net Asset Value per Unit** | ** ** |
|------------|------------|-------------------------------|------------|--------------------------|------------|--------------------------------------------------|------------|
| ** ** | ** ** | **All Other  Purposes**  | ** ** | **Financial  Reporting** | ** ** | **Number of  Shares**                       | ** ** | **All Other  Purposes** | ** ** | **Financial  Reporting** | ** ** |
| Class A    |       | $                             | 11,992,232 |                     | $          | 11,975,389                                       |       | 11,705,195 |   | $ | 1.0245 |   | $ | 1.0231 |   |
| Class C    |       | 54,435,799                    |       | 54,364,364               |       | 53,763,046                                       |       | $ | 1.0125 |   | $ | 1.0112 |   |
| Class D    |       | 1,569,897                     |       | 1,567,319                |       | 1,398,885                                        |       | $ | 1.1222 |   | $ | 1.1204 |   |
| Class I    |       | 7,964,940                     |       | 7,952,586                |       | 7,725,255                                        |       | $ | 1.0310 |   | $ | 1.0294 |   |
|       |       | $                             | 75,962,868 |                     | $          | 75,859,658                                       |       | 74,592,381 |   |   |   |   |   |

 

6

----

 

At December 31, 2005 the Net Asset Values of thedifferent series of Units are as follows:

 
| ** ** | ** ** | **Net Asset Value** | ** ** | ** **               | ** ** | **Net Asset Value per Unit** | ** ** |
|------------|------------|-------------------------------|------------|--------------------------|------------|--------------------------------------------------|------------|
| ** ** | ** ** | **All Other  Purposes**  | ** ** | **Financial  Reporting** | ** ** | **Number of  Shares**                       | ** ** | **All Other  Purposes** | ** ** | **Financial  Reporting** | ** ** |
| Class A    |       | $                             | 9,663,194  |                     | $          | 9,645,251                                        |       | 10,032,268 |   | $ | 0.9632 |   | $ | 0.9614 |   |
| Class C    |       | 41,110,839                    |       | 41,034,505               |       | 43,074,385                                       |       | $ | 0.9544 |   | $ | 0.9526 |   |
| Class D    |       | 1,469,615                     |       | 1,466,886                |       | 1,398,885                                        |       | $ | 1.0506 |   | $ | 1.0486 |   |
| Class I    |       | 7,061,570                     |       | 7,048,458                |       | 7,295,006                                        |       | $ | 0.9680 |   | $ | 0.9662 |   |
|       |       | $                             | 59,305,218 |                     | $          | 59,195,100                                       |       | 61,800,544 |   |   |   |   |   |

 

3.               FAIRVALUE AND OFF-BALANCE SHEET RISK

 

The nature of this Fund has certain risks, whichcannot all be presented on the financial statements. The following summarizessome of those risks.

 

Market Risk

 

Derivative instruments involve varying degrees ofoff-balance sheet market risk. Changes in the level or volatility of interestrates, foreign currency exchange rates or the market values of the financialinstruments or commodities underlying such derivative instruments frequentlyresult in changes in the Fund’s net unrealized profit (loss) on such derivativeinstruments as reflected in the Statements of Financial Condition. The Fund’sexposure to market risk is influenced by a number of factors, including the relationshipsamong the derivative instruments held by the Fund as well as the volatility andliquidity of the markets in which the derivative instruments are traded.

 

The Sponsor of the Fund,Merrill Lynch Alternative Investments LLC (“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 primarilyon monitoring the trading of Cornerstone Trading Company, Inc. (“Cornerstone”),calculating the Net Asset Value of the Fund as of the close of business on eachday and reviewing outstanding positions for over-concentrations. While MLAI doesnot itself intervene in the markets to hedge or diversify the Fund’s marketexposure, MLAI may urge Cornerstone to reallocate positions in an attempt toavoid over-concentrations. However, such interventions are expected to be unusual.It is expected that MLAI’s basic risk control procedures will consist of theongoing process of advisor monitoring, with the market risk controls beingapplied by Cornerstone itself.

 

Credit Risk

 

The risks associated with exchange-traded contractsare typically perceived 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. Inover-the-counter transactions, on the other hand, traders must rely solely onthe credit of their respective individual counterparties. Margins, which may besubject to loss in the event of a default, are generally required in exchangetrading, and counterparties may also require margin in the over-the-countermarkets.

 

7

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The credit risk associated with these instruments fromcounterparty nonperformance is the net unrealized profit, if any, included inthe Statements of Financial Condition. The Fund attempts to mitigate this riskby dealing exclusively with Merrill Lynch & Co., Inc. (“Merrill Lynch”)entities as clearing brokers.

 

The Fund, in its normalcourse of business, enters into various contracts, with Merrill Lynch PierceFenner & Smith Inc. (“MLPF&S”) acting as its commodity broker. Pursuantto the brokerage arrangement with MLPF&S (which includes a nettingarrangement), to the extent that such trading results in receivables from andpayables to MLPF&S, these receivables and payables are offset and reportedas a net receivable or payable and included in Equity from commodity futurestrading accounts in the Statements of Financial Condition.

 

8

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Item2:    Management’s Discussion andAnalysis of Financial Condition and Results of Operations

 

MONTH-END NET ASSET VALUE PER UNIT (1)

(NON US GAAP)

 

Class A

| ** ** | ** ** | **Jan** | ** ** | **Feb** | ** ** | **Mar** | ** ** |
|------------|------------|---------|------------|---------|------------|---------|------------|
| 2005       |       | n/a     |       | $       | 0.9847     |    | $          | 0.9286 |   |
| 2006       |       | $       | 0.9693     |    | $          | 0.9888  |       | $ | 1.0245 |   |
|            |            |         |            |         |            |         |            |  |  |  |

 

Class C

| ** ** | ** ** | **Jan** | ** ** | **Feb** | ** ** | **Mar** | ** ** |
|------------|------------|---------|------------|---------|------------|---------|------------|
| 2005       |       | n/a     |       | $       | 0.9839     |    | $          | 0.9271 |   |
| 2006       |       | $       | 0.9597     |    | $          | 0.9781  |       | $ | 1.0125 |   |
|            |            |         |            |         |            |         |            |  |  |  |

 

Class D

| ** ** | ** ** | **Jan** | ** ** | **Feb** | ** ** | **Mar** | ** ** |
|------------|------------|---------|------------|---------|------------|---------|------------|
| 2005       |       | n/a     |       | n/a     |       | n/a     |       |
| 2006       |       | $       | 1.0585     |    | $          | 1.0812  |       | $ | 1.1222 |   |
|            |            |         |            |         |            |         |            |  |  |  |

 

Class I

| ** ** | ** ** | **Jan** | ** ** | **Feb** | ** ** | **Mar** | ** ** |
|------------|------------|---------|------------|---------|------------|---------|------------|
| 2005       |       | n/a     |       | $       | 0.9850     |    | $          | 0.9292 |   |
| 2006       |       | $       | 0.9745     |    | $          | 0.9944  |       | $ | 1.0310 |   |
|            |            |         |            |         |            |         |            |  |  |  |

 

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(1) Represents NetAsset Value per unit for all other purposes as discussed in Note 2 to theFinancial Statements.

 

PerformanceSummary

 

January 1, 2006 toMarch 31, 2006

 

The Fund posted anoverall gain for the quarter with interest rates, energy, and metal sectorsposting gains while agricultural and currencies sectors posted losses.

 

The interest rate sectorwas the most profitable for the Fund. Although the Fund was generally net short, the best performer in Short RateAsset Allocation was a long position in the Canadian market. In addition, theFund was modestly profitable in a short position in U.S. Eurodollar futures.These positions continued to be profitable through mid-quarter as the marketpriced in roughly one more U.S. Federal Reserve tightening than had beenanticipated in January. Our other major short term interest rate position,short Euribor (Euro denominated three month interest rate) futures, wasmodestly profitable as well as the consensus shifted to expect still strongereconomic growth in Europe. Interest rates went up at the end of the quarter andthe strategy was short fixed income. In particular, the Fund was short and didwell in German Bunds, Euribor and U.S. Eurodollars.

 

The energy sector postedthe second highest profit for the Fund. The best performer for the Fund was a short position in natural gas. Acontinued mild winter in the U.S. has contributed to lower prices. Excellentperformance mid-quarter was mainly due to the energy markets, most of whichwere short. In

 

9

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particular, natural gasfutures dropped around 30%. However, by the end of the quarter, the energysector short positions adversely affected the Fund.

 

The metals sector postedprofits for the Fund. Profits were generated in the metals sector even througha volatile climate. The quarter ended with the bullish speculative environmentfueling long term trends.

 

The agricultural sectorposted losses for the Fund. The agricultural market was soft which attributedto the difficult trading environment resulting in the Fund posting losses forthis sector.

 

The currency sector wasthe least profitable for the Fund. Currency Asset Allocation continued tostruggle the beginning of the quarter losing money in short positions in theAustralian dollar. The Fund has closed out all currency positions and willprobably not re-enter until the U.S. dollar shifts to negative momentum.

 

February 1, 2005to March 31, 2005

 

The Fund posted a loss forthe first quarter of 2005.  The currencyand interest rate sectors were unprofitable while the energy sector posted asmall profit for the quarter.

 

The largest losses werein the Currency Asset Allocation sector and the Short Rate Asset Allocation sector.  The Fund was long U.S. Eurodollars, whichdropped in price, and short in the European markets, which rose in price.  This occurred because the models identifiedthe term structure as over discounting future rate increases.  Despite that, U.S. rates went up and Europeanrates went down.  The Fund is long theU.S. and short Europe, with a short bias.

 

In the currency market,solid gains were posted, at the beginning of the period, due to the longSterling/short U.S. dollar position.  Thecurrency positions were left unchanged in February.  A current important driver of this positionis the United States’ poor balance of payments position.  In March, the U.S. dollar rallied strongly asthe U.S. economy remained strong and the U.S. Federal Reserve spoke openlyabout inflation concerns.  Inflation isgenerally bad for a country’s currency but in this case the market interpretedthese statements as a signal that short-term rates would rise more thanexpected.  Rising interest rates tend tobe supportive of a country’s currency, perhaps because of the higher nominalreturn that can be earned on fixed income assets.  Losses were incurred in the British pound andthe Japanese yen.  Toward the end of the period,the Fund reduced its exposure to the U.S. dollar as the momentum shifted bycutting the British pound and Japanese yen positions and going more short withthe Euro.  The Fund currently has a smallshort U.S. dollar exposure.

 

The interest rate sectorhad the greatest loss for the Fund.  TheFund began trading in February and had lackluster performance in short-terminterest rates.  Though the Fund was netshort on these instruments globally in February, it was long U.S. short-terminterest rates which decreased in price more than the shorts.  Over the course of the month, the Fund addedmodestly to its net short position, and continued to adjust the short interestrate position more often than was typical for their trading program.

 

10

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Item3.    Quantitative and QualitativeDisclosures About Market Risk

 

Not applicable

 

Item 4.    Controlsand Procedures

 

Merrill LynchAlternative Investments LLC, the General Partner of ML CornerstoneFuturesAccess LLC (the “Fund”), with the participation of the Sponsor’s ChiefExecutive Officer and the Chief Financial Officer, has evaluated theeffectiveness of the design and operation of its disclosure controls andprocedures with respect to the Fund as of the end of the period of this quarterlyreport, and, based on this evaluation, has concluded that these disclosurecontrols and procedures are effective. Additionally, there were no significant changes in the Fund’s internalcontrols or in other factors that could significantly affect these controlssubsequent to the date of this evaluation, including any corrective actionswith regard to significant deficiencies and material weaknesses.

 

11

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PART II - OTHER INFORMATION

 

Item1.            Legal Proceedings

 

Neither the Fund nor MLAI has ever been the subject of any materiallitigation.  Merrill Lynch is the 100%indirect owner of MLAI, MLPF&S and all other Merrill Lynch entitiesinvolved in the operations of the Fund. Merrill Lynch as well as certain of its subsidiaries and affiliates havebeen named as defendants in civil actions, arbitration proceedings and claimsarising out of their respective business activities. Although the ultimateoutcome of these actions cannot be predicted at this time and the results oflegal proceedings cannot be predicted with certainty, it is the opinion ofmanagement that the result of these matters will not be materially adverse tothe business operations or the financial condition of MLAI or the Fund.

 

Item2.            Changes in Securitiesand Use of Proceeds

 

(a)          None.

(b)         None.

(c)          None.

(d)         None.

 

Item3.            Defaults Upon SeniorSecurities

 

None.

 

Item4.            Submission of Mattersto a Vote of Security Holders

 

None.

 

Item5.            Other Information

 

None.

 

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Item 5(a).       RecentSales of Unregistered Securities:  Usesof Proceeds From Registered Securities:

 

Issuance toaccredited investors pursuant to Regulation D and Section 4(6) under theSecurities Act.  The selling agent of thefollowing Class of Units was MLPF&S.

 

CLASS A

 
|   | ** ** | **Subscription  Amount** | ** ** | **Units** | ** ** | **NAV (1)** | ** ** |
|--------|------------|--------------------------|------------|-----------|------------|------------------|------------|
| Jan-06 |       |                     | 641,544    |      | 666,055    |             | 0.9632     |   |
| Feb-06 |       |                     | 306,145    |      | 315,841    |             | 0.9693     |   |
| Mar-06 |       |                     | 1,054,763  |      | 1,066,710  |             | 0.9888     |   |
| Apr-06 |       |                     | 934,029    |      | 911,693    |             | 1.0245     |   |

 

CLASS C

 
| ** ** | ** ** | **Subscription  Amount** | ** ** | **Units** | ** ** | **NAV (1)** | ** ** |
|------------|------------|--------------------------|------------|-----------|------------|------------------|------------|
| Jan-06     |       |                     | 3,822,939  |      | 4,005,594  |             | 0.9544     |   |
| Feb-06     |       |                     | 2,749,933  |      | 2,865,409  |             | 0.9597     |   |
| Mar-06     |       |                     | 5,091,868  |      | 5,205,877  |             | 0.9781     |   |
| Apr-06     |       |                     | 5,905,887  |      | 5,832,975  |             | 1.0125     |   |

 

CLASS D

 
|   | ** ** | **Subscription  Amount** | ** ** | **Units** | ** ** | **NAV (1)** | ** ** |
|--------|------------|--------------------------|------------|-----------|------------|------------------|------------|
| Jan-06 |       |                     | —     |      | —     |             | 1.0506     |   |
| Feb-06 |       |                     | —     |      | —     |             | 1.0585     |   |
| Mar-06 |       |                     | —     |      | —     |             | 1.0812     |   |
| Apr-06 |       |                     | 300,000    |      | 267,332    |             | 1.1222     |   |

 

CLASS I

 
| ** ** | ** ** | **Subscription  Amount** | ** ** | **Units** | ** ** | **NAV (1)** | ** ** |
|------------|------------|--------------------------|------------|-----------|------------|------------------|------------|
| Jan-06     |       |                     | 97,927     |      | 101,164    |             | 0.9680     |   |
| Feb-06     |       |                     | 249,000    |      | 255,516    |             | 0.9745     |   |
| Mar-06     |       |                     | 148,873    |      | 149,711    |             | 0.9944     |   |
| Apr-06     |       |                     | 1,193,282  |      | 1,157,403  |             | 1.0310     |   |

 

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(1) Net Asset Value forall other purposes

 

Item 6.            Exhibitsand Reports on Form 8-K.

 

(a) Exhibits.

 

The followingexhibits are incorporated by reference or are filed herewith to this QuarterlyReport on Form 10-Q:

 

31.01 and

31.02               Rule13a-14(a)/15d-14(a) Certifications

 

Exhibit 31.01

and 31.02:      Arefiled herewith.

 

32.01 and

32.02               Section1350 Certifications

 

Exhibit 32.01

and 32.02       Arefiled herewith.

 

(b) Reportson Form 8-K.

 

There were noreports on Form 8-K filed during the three months of fiscal 2006.

 

13

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|   | ML CORNERSTONE  FUTURESACCESS LLC |
|--------|-----------------------------------|
|   |                              |
|   |                              |
|   | By:                               | MERRILL LYNCH  ALTERNATIVE |   |
|   |                              | INVESTMENTS LLC |   |
|   |                              | (Sponsor) |   |

 

 
| Date: May 15, 2006 |   | By     | /s/ ROBERT M. ALDERMAN                          |   |
|--------------------|--------|--------|-------------------------------------------------|--------|
|               |   |   | Robert M. Alderman                              |   |
|               |   |   | Chief Executive  Officer, President and Manager |
|               |   |   | (Principal Executive  Officer)                  |
|                    |        |        |                                                 |        |  |

 

 
| Date: May 15, 2006 |   |   |
|--------------------|--------|--------|
|               |   | By     | /s/ MICHAEL L. PUNGELLO |   |
|               |   |   | Michael L. Pungello |
|               |   |   | Vice President, Chief  Financial Officer |
|               |   |   | and Treasurer |
|               |   |   | (Principal  Financial and Accounting Officer) |

 

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