**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.20549**

** **

**FORM 10-Q**

** **
| **(Mark  One)**                                         |
|---------------------------------------------------------|
| ** **                                              | ** ** |
| **x**                                                   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
| ** **                                              | ** ** |
| **For the quarterly period ended March 31,  2009** |
| ** **                                              |
| **OR**                                                  |
| ** **                                              | ** ** |
| **o**                                                   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                         |  |  |

 

**For thetransition period from                to                **

 

**CommissionFile Number 0-52384**

 

# **SYSTEMATICMOMENTUM II LLC**

(Exact Name of Registrant as specified in its charter)

 

| **Delaware**                    | ** ** | **20-5269618**                    |
|---------------------------------|------------|-----------------------------------|
| (State or other jurisdiction of |       | (IRS Employer Identification No.) |
| incorporation or organization)  |       |                              |

 

**c/oMerrill Lynch Alternative Investments LLC**

**Two WorldFinancial Center, 7****th**** Floor**

**New York, New York 10281**

(Address of principal executive offices)

(Zip Code)

 

**212-236-2063**

(Registrant’s telephone number, 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 corporateWeb site, if any, an 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

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “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

 

Thelimited partnership units of the registrant are not publicly traded.Accordingly, there is no aggregate market value for registrant’s outstandingequity that is readily determinable.

 

Asof March 31, 2009, 41,353,995 units of membership were outstanding.

 

 

 

----

 

**SYSTEMATIC MOMENTUM II LLC**

 

QUARTERLY REPORT FOR MARCH 31, 2009 ON FORM 10-Q

 

Table of Contents

 
| ** **   | ** **                                                                                  | **PAGE** |
|--------------|---------------------------------------------------------------------------------------------|----------|
| PART I  |
|         |                                                                                        |     |
| Item 1.      | Financial Statements                                                                        | 1        |
|         |                                                                                        |     |
| Item 2.      | Management’s Discussion  and Analysis of Financial Condition and Results of Operations | 12       |
|         |                                                                                        |     |
| Item 3.      | Quantitative and  Qualitative Disclosures About Market Risk                                 | 16       |
|         |                                                                                        |     |
| Item 4.      | Controls and Procedures                                                                     | 18       |
|         |                                                                                        |     |
| PART II |
|         |                                                                                        |     |
| Item 1.      | Legal Proceedings                                                                           | 19       |
|         |                                                                                        |     |
| Item 1A.     | Risk Factors                                                                                | 19       |
|         |                                                                                        |     |
| Item 2.      | Unregistered Sales of  Equity Securities and Use of Proceeds                                | 19       |
|         |                                                                                        |     |
| Item 3.      | Defaults Upon Senior  Securities                                                            | 19       |
|         |                                                                                        |     |
| Item 4.      | Submission of Matters  to a Vote of Security Holders                                        | 19       |
|         |                                                                                        |     |
| Item 5.      | Other Information                                                                           | 20       |
|         |                                                                                        |     |
| Item 6.      | Exhibits                                                                                    | 20       |
|              |                                                                                             |          |  |

 

----

 

PART I - FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

SYSTEMATIC MOMENTUM II LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF FINANCIAL CONDITION

(unaudited)

 
| ** **                                                                                               | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                               | ** ** | **2009**           | ** ** | **2008**              | ** ** |
| **ASSETS:**                                                                                              |       |               |       |                  |       |
| Investments in  Systematic Momentum (cost $47,133,651 for 2009 and $52,795,442 for 2008)                 |       | $                  | 46,787,414 |                  | $          | 54,284,473 |   |
| Due from  Systematic Momentum                                                                            |       | 1,817,317          |       | 3,752,667             |       |
| Cash                                                                                                     |       | 122,925            |       | 117,899               |       |
| Accrued interest                                                                                         |       | —             |       | 2,092                 |       |
|                                                                                                     |       |               |       |                  |       |
| **TOTAL  ASSETS**                                                                                        |       | $                  | 48,727,656 |                  | $          | 58,157,131 |   |
|                                                                                                     |       |               |       |                  |       |
| **LIABILITIES  AND MEMBERS’ CAPITAL:**                                                              |       |               |       |                  |       |
| LIABILITIES:                                                                                             |       |               |       |                  |       |
| Sponsor fee  payable                                                                                     |       | $                  | 85,118     |                  | $          | 96,219 |   |
| Redemptions  payable                                                                                     |       | 1,704,200          |       | 3,583,417             |       |
| Initial offering  costs payable                                                                          |       | 26,255             |       | 27,156                |       |
| Other                                                                                                    |       | 102,235            |       | 120,219               |       |
|                                                                                                     |       |               |       |                  |       |
| Total  liabilities                                                                                       |       | 1,917,808          |       | 3,827,011             |       |
|                                                                                                     |       |               |       |                  |       |
| MEMBERS’  CAPITAL:                                                                                  |       |               |       |                  |       |
| Members’  Interest (41,353,995 Units and 46,011,832 Units outstanding, unlimited Units  authorized) |       | 46,809,848         |       | 54,330,120            |       |
| Total members’  capital                                                                             |       | 46,809,848         |       | 54,330,120            |       |
|                                                                                                     |       |               |       |                  |       |
| **TOTAL  LIABILITIES AND MEMBERS’ CAPITAL**                                                         |       | $                  | 48,727,656 |                  | $          | 58,157,131 |   |
| ** **                                                                                               | ** ** | ** **         | ** ** | ** **            | ** ** |
| **NET  ASSET VALUE PER UNIT (SEE NOTE 4)**                                                               |       |               |       |                  |       |

 

See accompanying notes to financial statements.

 

1

----

 

SYSTEMATIC MOMENTUM II LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF OPERATIONS

(unaudited)

 
| ** **                                    | ** ** | **For the three**       | ** ** | **For the three**       | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                    | ** ** | **months ended**        | ** ** | **months ended**        | ** ** |
| ** **                                    | ** ** | **March 31, 2009** | ** ** | **March 31, 2008** | ** ** |
| **TRADING  PROFIT (LOSS):**                   | ** ** | ** **              | ** ** | ** **              | ** ** |
|                                          |       |                    |       |                    |       |
| Realized                                      |       | $                       | 103,465    |                    | $          | 12,282,600 |   |
| Change in  unrealized, net                    |       | (1,864,959              | )          | (3,064,163              | )          |
| Brokerage  commissions                        |       | —                  |       | (67,233                 | )          |
|                                          |       |                    |       |                    |       |
| Total trading  profit (loss)                  |       | (1,761,494              | )          | 9,151,204               |       |
|                                          |       |                    |       |                    |       |
| **INVESTMENT  INCOME:**                       |       |                    |       |                    |       |
| Interest                                      |       | 7,669                   |       | 540,493                 |       |
|                                          |       |                    |       |                    |       |
| **EXPENSES:**                                 |       |                    |       |                    |       |
| Management fee                                |       | —                  |       | 331,247                 |       |
| Sponsor fee                                   |       | 268,259                 |       | 311,737                 |       |
| Performance fee                               |       | —                  |       | 1,314,929               |       |
| Other                                         |       | 77,541                  |       | 53,012                  |       |
| Total expenses                                |       | 345,800                 |       | 2,010,925               |       |
|                                          |       |                    |       |                    |       |
| **NET  INVESTMENT INCOME (LOSS)**             |       | (338,131                | )          | (1,470,432              | )          |
| .                                             |       |                    |       |                    |       |
| **NET  INCOME (LOSS)**                        |       | $                       | (2,099,625 | )                       | $          | 7,680,772 |   |
|                                          |       |                    |       |                    |       |
| Weighted average  number of Units outstanding |       |                    |       |                    |       |
| Class A                                  |       | 6,377,619               |       | 6,295,311               |       |
| Class C                                  |       | 31,156,975              |       | 30,568,834              |       |
| Class D                                  |       | 1,746,524               |       | 19,857,639              |       |
| Class I                                  |       | 4,887,493               |       | 12,734,164              |       |
|                                          |       |                    |       |                    |       |
| Net income  (loss) per weighted average Unit  |       |                    |       |                    |       |
| Class A                                  |       | $                       | (0.0471    | )                       | $          | 0.1034 |   |
| Class C                                  |       | $                       | (0.0484    | )                       | $          | 0.0984 |   |
| Class D                                  |       | $                       | (0.0437    | )                       | $          | 0.1328 |   |
| Class I                                  |       | $                       | (0.0439    | )                       | $          | 0.1086 |   |

 

See accompanying notes to financial statements.

 

2

----

 

SYSTEMATIC MOMENTUM II LLC

 (a Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES INMEMBERS’ CAPITAL

For the three monthsended March 31, 2009 and 2008

(unaudited)

 
| ** **                | ** ** | **Members’ Capital  December 31, 2007** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** ** | **Members’ Capital  March 31, 2008** | ** ** | **Members’ Capital  December 31, 2008** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** ** | **Members’ Capital  March 31, 2009** | ** ** |
|---------------------------|------------|-------------------------------------------------------------|------------|-------------------|------------|-----------------|------------|----------------------------------------------------------|------------|-------------------------------------------------------------|------------|-------------------|------------|-----------------|------------|----------------------------------------------------------|------------|
| Class A              |       | 4,247,792                                                   |       | 2,891,639         |       | —          |       | 7,139,431                                                |       | 6,501,601                                                   |       | —            |       | (196,050        | )          | 6,305,551                                                |       |
| Class C              |       | 23,461,920                                                  |       | 11,379,651        |       | (867,834        | )          | 33,973,737                                               |       | 31,802,737                                                  |       | 2,533             |       | (2,643,217      | )          | 29,162,053                                               |       |
| Class D              |       | 19,675,186                                                  |       | 1,517,252         |       | (7,439,207      | )          | 13,753,231                                               |       | 1,746,524                                                   |       | —            |       | —          |       | 1,746,524                                                |       |
| Class I              |       | 8,783,678                                                   |       | 5,233,041         |       | (329,032        | )          | 13,687,687                                               |       | 5,960,970                                                   |       | —            |       | (1,821,103      | )          | 4,139,867                                                |       |
|                      |       |                                                        |       |              |       |            |       |                                                     |       |                                                        |       |              |       |            |       |                                                     |       |
| Total Members’ Units |       | 56,168,576                                                  |       | 21,021,583        |       | (8,636,073      | )          | 68,554,086                                               |       | 46,011,832                                                  |       | 2,533             |       | (4,660,370      | )          | 41,353,995                                               |       |

 

See accompanyingnotes to financial statements.

 

3

----

 

SYSTEMATIC MOMENTUM II LLC

(a Delaware LimitedLiability Company)

 

STATEMENTS OF CHANGES INMEMBERS’ CAPITAL

For the three monthsended March 31, 2009 and 2008

(unaudited)

 
| ** **                   | ** ** | **Members’ Capital  December 31, 2007** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** ** | **Net Income (Loss)** | ** **  | **Members’ Capital  March 31, 2008** | ** ** | **Members’ Capital  December 31, 2008** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** ** | **Net Income (Loss)** | ** ** | **Members’ Capital  March 31, 2009** | ** ** |
|------------------------------|------------|-------------------------------------------------------------|------------|-------------------|------------|-----------------|------------|---------------------------------|-------------|----------------------------------------------------------|------------|-------------------------------------------------------------|------------|-------------------|------------|-----------------|------------|---------------------------------|------------|----------------------------------------------------------|------------|
| Class A                 |       | $                                                           | 4,849,384  |              | $          | 3,496,491       |       | $                               | —      |                                                     | $          | 650,701                                                     |       | $                 | 8,996,576  |            | $          | 7,793,914                       |       | $                                                        | —     |   | $ | (233,368 | ) | $ | (300,227 | ) | $ | 7,260,319 |   |
| Class C                 |       | 26,459,564                                                  |       | 13,778,153        |       | (1,079,652      | )          | 3,008,956                       |        | 42,167,021                                               |       | 37,238,734                                                  |       | 2,966             |       | (3,016,972      | )          | (1,508,485                      | )          | 32,716,244                                               |       |
| Class D                 |       | 22,237,106                                                  |       | 1,848,057         |       | (9,425,513      | )          | 2,637,659                       |        | 17,297,309                                               |       | 2,112,788                                                   |       | —            |       | —          |       | (76,381                         | )          | 2,036,407                                                |       |
| Class I                 |       | 10,022,992                                                  |       | 6,270,331         |       | (414,034        | )          | 1,383,456                       |        | 17,262,745                                               |       | 7,184,684                                                   |       | —            |       | (2,173,274      | )          | (214,532                        | )          | 4,796,878                                                |       |
|                         |       |                                                        |       |              |       |            |       |                            |        |                                                     |       |                                                        |       |              |       |            |       |                            |       |                                                     |       |
| Total Members’  Capital |       | $                                                           | 63,569,046 |              | $          | 25,393,032      |       | $                               | (10,919,199 | )                                                        | $          | 7,680,772                                                   |       | $                 | 85,723,651 |            | $          | 54,330,120                      |       | $                                                        | 2,966      |   | $ | (5,423,614 | ) | $ | (2,099,625 | ) | $ | 46,809,848 |   |

 

See accompanying notes to financial statements.

 

4

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SYSTEMATIC MOMENTUM II LLC

(a Delaware Limited Liability Company)

 

NOTES TO FINANCIALSTATEMENTS

(unaudited)

 

1.               SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

 

Organization

 

SystematicMomentum II LLC (the “Fund”) formerly known as ML APM Global Commodity FuturesAccessLLC, a Merrill Lynch FuturesAccess Program (the “Program”) fund, was organizedunder the Delaware Limited Liability Company Act on May 17, 2004 andcommenced trading activities on December 1, 2006.

 

OnOctober 22, 2008, MLAI issued an announcement regarding a restructuring ofthe Fund. Effective December 1, 2008 as part of the restructuring thefollowing occurred:

 

·                  The Fund changed its name to SYSTEMATICMOMENTUM II LLC

 

·                  The name change amendment was filed with theSecretary of States of Delaware, New Jersey and New York on December 1,2008.

 

·                  TheFund’s assets were reinvested in ML Systematic Momentum FuturesAccess LLC (“SystematicMomentum”).  Systematic Momentum investsinto the following Funds: ML Altis FuturesAccess LLC (“Altis”), ML AspectFuturesAccess LLC (“Aspect”), ML BlueTrend FuturesAccess LLC (“BlueTrend”), MLChesapeake FuturesAccess LLC (“Chesapeake”), ML GSA FuturesAccess LLC (“GSA”),ML John Locke FuturesAccess LLC (“John Locke”), ML Transtrend DTP EnhancedFuturesAccess LLC (“Transtrend”) and ML Winton FuturesAccess LLC (“Winton”)and, (each a “Portfolio Fund”, collectively “Portfolio Funds”).  The Portfolio Funds employ a variety ofsystematic models and the Fund no longer utilizes the services of Absolute PlusManagement, LLC (“APM”) as a commodity trading advisor. Prior to therestructure, the Fund engaged in the speculative trading of futures, options onfutures and forward contracts on a wide range of commodities.

 

·                  The Portfolio Funds are a group of commoditypools sponsored by MLAI, each of which places substantially all of its assetsin a managed futures and forward trading account managed by a single ormultiple commodity trading advisors. Each of the Portfolio Funds implements a different trading strategy.

 

MLAIis the sponsor and the manager of the Fund. MLAI is an indirect wholly-owned subsidiary of Merrill Lynch &Co., Inc. (“Merrill Lynch”). Merrill Lynch, Pierce, Fenner &Smith Incorporated (“MLPF&S”), a wholly-owned subsidiary of Merrill Lynch,is the commodity broker of the Portfolio Funds. On September 15, 2008,Merrill Lynch & Co., Inc. (“Merrill Lynch” or the “Company”)entered 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, on January 1,2009, a wholly-owned subsidiary of Bank of America (“Merger Sub”) merged withand into Merrill Lynch, with Merrill Lynch continuing as the survivingcorporation and a subsidiary of Bank of America (the “Merger”).

 

5

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In the opinion ofmanagement, these interim financial statements contain all adjustments necessaryto present fairly the financial position of the Fund as of March 31, 2009and the results of its operations for the three months ended March 31,2009 and 2008.  However, the operatingresults for the interim periods may not be indicative of the results for thefull year.

 

Certaininformation and footnote disclosures normally included in annual financialstatements prepared in accordance with accounting principles generally acceptedin the United States of America (“U.S. GAAP”) have been omitted.  These financial statements should be read inconjunction with the financial statements and notes thereto included in theFund’s Annual Report on Form 10-K filed with the Securities and ExchangeCommission for the year ended December 31, 2008.

 

The preparation offinancial statements in conformity with U.S. GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period.  Actualresults could differ from those estimates.

 

The Fund investssubstantially all of its assets in the Systematic Momentum.  The financialstatements of Systematic Momentum, including the schedule of investments, arepresented as Exhibit 99 to this interim report on form 10-Q and should beread with the Fund’s financial statements. The percentage of SystematicMomentum owned by the Fund at March 31, 2009 was 6.52%, and December 31,2008 was 8.00%.

 

2.               INVESTMENTIN SYSTEMATIC MOMENTUM

 

The Fund investssubstantially all of its assets in Systematic Momentum. The investmenttransactions are accounted for on a trade date basis. Investment in SystematicMomentum is valued at fair value and reflected on the Statements of FinancialCondition. In determining fair value, MLAI utilizes the net asset valuation ofSystematic Momentum. The fair value of Systematic Momentum is net of all feesrelating to Systematic Momentum, paid or accrued. Additionally, MLAI monitorsthe performance of the Portfolio Funds. Such monitoring procedures include, butare not limited to: monitoring market movements in Portfolio Funds’investments, comparing performance to industry benchmarks, and in-depth conferencecalls and site visits with Portfolio Funds managers.

 

At March 31, 2009 and December 31, 2008 Investments inPortfolio Funds at fair value are as follows:

 
| ** ** | ** ** | **March 31, 2009**                        | ** ** |
|------------|------------|-------------------------------------------|------------|
| ** ** | ** ** | **Percentage of   Member’s Capital** | ** ** | **Fair Value** | ** ** |
|       |       |                                      |       |   |   |
| Chesapeake |       | 10.21                                     | %          | 4,775,122 |   |
| Transtrend |       | 15.91                                     | %          | 7,446,008 |   |
| Altis      |       | 13.10                                     | %          | 6,127,880 |   |
| Winton     |       | 16.22                                     | %          | 7,589,489 |   |
| Aspect     |       | 9.99                                      | %          | 4,672,848 |   |
| John Locke |       | 14.38                                     | %          | 6,728,581 |   |
| BlueTrend  |       | 7.15                                      | %          | 3,343,920 |   |
| GSA        |       | 13.05                                     | %          | 6,103,566 |   |
|       |       |                                      |       |   |   |
|       |       | 100.01                                    | %          | $ | 46,787,414 |   |
|            |            |                                           |            |  |  |  |

 

6

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| ** ** | ** ** | **December 31, 2008**                    | ** ** |
|------------|------------|------------------------------------------|------------|
| ** ** | ** ** | **Percentage of Member’s  Capital** | ** ** | **Fair Value** | ** ** |
|       |       |                                     |       |   |   |
| Chesapeake |       | 10.09                                    | %          | 5,480,117 |   |
| Transtrend |       | 15.93                                    | %          | 8,653,456 |   |
| Altis      |       | 13.32                                    | %          | 7,238,009 |   |
| Winton     |       | 15.82                                    | %          | 8,595,311 |   |
| Aspect     |       | 10.10                                    | %          | 5,489,181 |   |
| John Locke |       | 14.90                                    | %          | 8,092,870 |   |
| BlueTrend  |       | 6.98                                     | %          | 3,792,994 |   |
| GSA        |       | 12.78                                    | %          | 6,942,535 |   |
|       |       |                                     |       |   |   |
|       |       | 99.92                                    | %          | $ | 54,284,473 |   |
|            |            |                                          |            |  |  |  |

 

3.               FAIRVALUE OF INVESTMENTS

 

In September 2006,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards No. 157, Fair Value Measurement (“FAS 157”). FAS 157defines fair value, establishes a framework for measuring fair value andexpands disclosures about fair value measurements. The Fund adopted FAS 157 asof January 1, 2008. The adoption of FAS 157 did not have a material impacton the Fund’s financial statements.

 

Fair value of an investment is the amount that wouldbe received to sell the investment in an orderly transaction between marketparticipants at the measurement date (i.e. the exit price). Purchase and saleof investments 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 Statementof Operations.

 

FAS 157 established ahierarchal disclosure framework which prioritizes and ranks the level of marketprice observability used in measuring investments at fair value. Market priceobservability is impacted by a number of factors, including the type ofinvestment and the characteristics specific to the investment. Investments withreadily available active quoted prices or for which fair value can be measuredfrom actively quoted prices generally will have a higher degree of market priceobservability and a lesser degree of judgment used in measuring fair value.

 

Investments measured andreported at fair value are classified and disclosed in one of the followingcategories:

 

Level I — Quoted pricesare available in active markets for identical investments as of the reportingdate. The type of investments included in Level I are publicly tradedinvestments. As required by FAS 157, the Fund does not adjust the quoted pricefor these investments even in situations where the Fund holds a large positionand a sale could reasonably impact the quoted price.

 

Level II — Pricing inputsare other than quoted prices in active markets, which are either directly orindirectly observable as of the reporting date, and fair value is determinedthrough the use of generally accepted and understood models or other valuationmethodologies. Investments which are generally included in this category areinvestments valued using market data.

 

7

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Level III — Pricinginputs are unobservable and include situations where there is little, if any,market activity for the investment.

 

In certain cases,the inputs used to measure fair value may fall into different levels of thefair value hierarchy. In such cases, an investment’s level within the fairvalue hierarchy is based on the lowest level of input that is significant tothe fair value measurement. The Sponsor’s assessment of the significance of aparticular input to the fair value measurement in its entirety requiresjudgment, 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 other investment companies are valuedusing the net asset value reported by the investment company. These net assetvalues are the prices used to execute trades with these investmentcompanies.  If appropriate, adjustmentsto the reported net asset value may be made based on various factors,including, but not limited to, the attributes of the interest held, includingthe rights and obligations, and any restrictions or illiquidity.

 

Although there are monthly transactions inthese investment company interests, the NAV’s are materially based onportfolios of Level I and Level II assets and liabilities for which the Fundhas transparency.  As such, the Funddetermined that its investments in these investment companies in this case, wouldbe classified as Level II.

 

The followingtable summarizes the valuation of the Fund’s investment by the above FAS 157fair value hierarchy levels as of December 31, 2008 and March 31,2009:

 
| ** **                     | ** ** | **Total** | ** ** | **Level I** | ** ** | **Level II** | ** ** | **Level III** | ** ** |
|--------------------------------|------------|-----------|------------|-------------|------------|--------------|------------|---------------|------------|
| Investment in  Portfolio Funds |       |      |       |        |       |         |       |          |       |
|                           |       |      |       |        |       |         |       |          |       |
| 12/31/2008                     |       | $         | 54,284,473 |        | N/A        |         | $          | 54,284,473    |       | N/A |   |
|                           |       |      |       |        |       |         |       |          |       |
| 03/31/2009                     |       | $         | 46,787,414 |        | N/A        |         | $          | 46,787,414    |       | N/A |   |

 

The Fund adopted Statement of Financial Accounting Standards No. 161,“Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”)as of January 1, 2009 which requires qualitative disclosures aboutobjectives and strategies for using derivatives, quantitative disclosures aboutfair value amounts of and gains and losses on derivative instruments, anddisclosures about credit-risk-related contingent features in derivativeagreements. FAS 161 only expands the disclosure requirements for derivativeinstruments and related hedging activities and has no impact on Statement ofFinancial Condition or Statement of Income and Expenses and Partners’ Capital.The Fund invests only in other Portfolio Funds, it does not have any directinvestments in derivative instruments.

 

8

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4.               NET ASSET VALUE PER UNIT

 

Forfinancial reporting purposes, in conformity with U.S. GAAP, the Fund amortizesover a twelve-month period the total initial offering costs payable to MLAI forpurposes of determining Net Asset Value. For all other purposes, including computing Net Asset Value for purposesof member subscription and redemption activity, such costs are amortized over60 months.  Consequently, the Net AssetValue and Net Asset Value per Unit of the different Classes for financialreporting purposes and for all other purposes at March 31, 2009 and December 31,2008 are as follows:

 

March 31, 2009

 
| ** **   | ** ** | **Net Asset Value**      | ** **       | ** **                | ** ** | **Net Asset Value per Unit** | ** ** |
|--------------|------------|--------------------------|------------------|---------------------------|------------|------------------------------|------------|
| ** **   | ** ** | **All Other   Purposes** | ** **       | **Financial   Reporting** | ** ** | **Number of Units**          | ** ** | **All Other  Purposes** | ** ** | **Financial  Reporting** | ** ** |
| Class A |       | $                        | 7,263,192        |                      | $          | 7,260,319                    |       | 6,305,551 |   | $ | 1.1519 |   | $ | 1.1514 |   |
| Class C |       | 32,720,760               |             | 32,716,244                |       | 29,162,053                   |       | 1.1220 |   | 1.1219 |   |
| Class D |       | 2,053,412                |             | 2,036,407                 |       | 1,746,524                    |       | 1.1758 |   | 1.1660 |   |
| Class I |       | 4,798,739                |             | 4,796,878                 |       | 4,139,867                    |       | 1.1592 |   | 1.1587 |   |
|         |       | $                        |  46,836,103 |                      | $          | 46,809,848                   |       | 41,353,995 |   |   |   |   |   |
|              |            |                          |                  |                           |            |                              |            |  |  |  |  |  |  |  |  |

 

December 31, 2008

 
| ** **   | ** ** | **Net Asset Value**      | ** **       | ** **               | ** ** | **Net  Asset Value per Unit** | ** ** |
|--------------|------------|--------------------------|------------------|--------------------------|------------|-------------------------------|------------|
| ** **   | ** ** | **All  Other  Purposes** | ** **       | **Financial  Reporting** | ** ** | **Number  of Units**          | ** ** | **All  Other   Purposes** | ** ** | **Financial    Reporting** | ** ** |
| Class A |       | $                        | 7,796,919        |                     | $          | 7,793,914                     |       | 6,501,601 |   | $ | 1.1992 |   | $ | 1.1988 |   |
| Class C |       | 37,243,881               |             | 37,238,734               |       | 31,802,737                    |       | 1.1711 |   | 1.1709 |   |
| Class D |       | 2,129,830                |             | 2,112,788                |       | 1,746,524                     |       | 1.2195 |   | 1.2097 |   |
| Class I |       | 7,186,646                |             | 7,184,684                |       | 5,960,970                     |       | 1.2056 |   | 1.2053 |   |
|         |       | $                        |  54,357,276 |                     | $          | 54,330,120                    |       | 46,011,832 |   |   |   |   |   |
|              |            |                          |                  |                          |            |                               |            |  |  |  |  |  |  |  |  |

 

9

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5.               MARKETCREDIT AND CONCENTRATION RISKS

 

Thenature of this Fund has certain risks, which cannot be presented on thefinancial statements.  Additionally, theFund invests in other commodity funds with similar market risk as mentionedbelow.  The following summarizes some ofthose risks.

 

MarketRisk

 

Derivativeinstruments involve varying degrees of market risk.  Changes in the level or volatility ofinterest rates, foreign currency exchange rates or the market values of thefinancial instruments or commodities underlying such derivative instrumentsfrequently result in changes in Net unrealized profit (loss) on such derivativeinstruments as reflected in the Statements of Financial Condition of thePortfolio Funds.  The Fund’s exposure tomarket risk is influenced by a number of factors, including the relationshipsamong the derivative instruments held by the Portfolio Funds as well as thevolatility and liquidity of the markets in which the derivative instruments aretraded. Investments in foreign markets may also entail legal and politicalrisks.

 

Credit Risk

 

 The risks associated with exchange-tradedcontracts are typically perceived to be less than those associated withover-the-counter (non-exchange-traded) transactions, because exchangestypically provide clearinghouse arrangements in which the collective credit (insome cases limited in amount, in some cases not) of the members of the exchangeis 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 eventof a default, are generally required in exchange trading, and counterpartiesmay also require margin in the over-the-counter markets.

 

The credit riskassociated with these instruments from counterparty nonperformance is the Netunrealized profit, if any, included in the Statements of Financial Condition ofthe Portfolio Funds. The Portfolio Funds attempt to mitigate this risk by dealingexclusively with Merrill Lynch entities as clearing brokers.

 

The Portfolio Funds, in their normal course ofbusiness, enter into various contracts, with Merrill Lynch Pierce, Fenner &Smith Inc., (“MLPF&S”) acting as their commodity broker.  Pursuant to the brokerage arrangement withMLPF&S (which includes a netting arrangement), to the extent that suchtrading results in receivables from and payables to MLPF&S, thesereceivables and payables are offset and reported as a net receivable or payableand included in Equity in commodity futures trading accounts in the Statementsof Financial Condition of the Portfolio Funds.

 

Concentration Risk

 

The Fund’s investments in the Portfolio Funds aresubject to the market and credit risk of the Portfolio Funds. Because themajority of the Fund’s capital is invested in the Portfolio Funds, any changesin the market conditions that would adversely affect the Portfolio Funds couldsignificantly impact the solvency of the Fund.

 

10

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6.               RECENTACCOUNTING PRONOUNCEMENTS

 

InMay 2008, the FASB issued Statement of Financial Accounting Standards No. 162,“*The Hierarchy of Generally Accepted AccountingPrinciples*” (“FAS 162”). FAS 162 identifies the sources ofaccounting principles and the framework for selecting the accounting principlesused in preparing financial statements of nongovernmental entities that arepresented in conformity with U.S. GAAP. Currently, U.S. GAAP hierarchy isprovided in the American Institute of Certified Public Accountants U.S.Auditing Standards (“AU”) Section 411, “*The Meaningof Present Fairly in Conformity With Generally Accepted Accounting Principles*”(“AU Section 411”). FAS 162 is effective 60 days following the SEC’sapproval of the Public Company Accounting Oversight Board’s amendments to AU Section 411.The Fund does not expect the adoption of FAS 162 to have an impact on itsfinancial statements.

 

In April 2009,the FASB issued FSP No. FAS 157-4, “*DeterminingFair Value When the Volume and Level of Activity for the Asset or LiabilityHave Significantly Decreased and Identifying Transactions That Are Not Orderly*”(FSP 157-4). FSP 157-4 provides additional guidance for estimating fair valuein accordance with FASB Statement No. 157, *Fair Value Measurements*, when the volume and level ofactivity for the asset or liability have significantly decreased. This FSP alsoincludes guidance on identifying circumstances that indicate a transaction isnot orderly. The FSP emphasizes that even if there has been a significantdecrease in the volume and level of activity for the asset or liability andregardless of the valuation technique(s) used, the objective of a fairvalue measurement remains the same. Fair value is the price that would bereceived to sell an asset or paid to transfer a liability in an orderlytransaction (that is, not a forced liquidation or distressed sale) betweenmarket participants at the measurement date under current market conditions.The FSP also contains enhanced disclosure requirements whereby fair valuedisclosures as well as certain disaggregated information will be disclosedbeginning in the second quarter 2009.

 

7.               SUBSEQUENTEVENT

 

ML GSA FuturesAccess LLC is one of the Portfolio Fundsin which Systematic Momentum, a FutureAccess fund of funds, invests. As ofApril 30, 2009, approximately 13% of the capital of the Fund was allocatedto GSA. However, the underlying manager of GSA has informed the Sponsor that itis discontinuing the strategy and will no longer act as the trading adviser forGSA. As a result, effective on or about May 31, 2009, GSA will beliquidated and Systematic Momentum will no longer invest in GSA. The Sponsormay reallocate the liquidation proceeds among other new or existing PortfolioFunds.

 

11

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Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations

 

MONTH-END NET ASSET VALUE PER UNIT

(NON U.S. GAAP)

 

MLAI believes thatthe Net Asset Value used to calculate subscription and redemption value andto    report performance to investorsthroughout the year is the most valuable performance measure to the Members ofthe Fund.   Therefore, the charts belowreferencing Net Asset Value and performance measurements are based on the NetAsset Value for all other purposes, as discussed in Note 4 to the financialstatements.

 

 

MONTH-END NETASSET VALUE PER INITIAL UNIT CLASS A

 
| ** ** | ** ** | **Jan.** | ** ** | **Feb.** | ** ** | **Mar.** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|
| 2008       |       | $        | 1.2225     |     | $          | 1.2945   |       | $ | 1.2606 |   |
| 2009       |       | $        | 1.1903     |     | $          | 1.1908   |       | $ | 1.1519 |   |

 

MONTH-END NET ASSET VALUEPER INITIAL UNIT CLASS C

 
| ** ** | ** ** | **Jan.** | ** ** | **Feb.** | ** ** | **Mar.** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|
| 2008       |       | $        | 1.2061     |     | $          | 1.2750   |       | $ | 1.2414 |   |
| 2009       |       | $        | 1.1614     |     | $          | 1.1609   |       | $ | 1.1220 |   |

 

MONTH-END NET ASSET VALUEPER INITIAL UNIT CLASS D

 
| ** ** | ** ** | **Jan.** | ** ** | **Feb.** | ** ** | **Mar.** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|
| 2008       |       | $        | 1.2119     |     | $          | 1.2852   |       | $ | 1.2590 |   |
| 2009       |       | $        | 1.2119     |     | $          | 1.2139   |       | $ | 1.1758 |   |

 

MONTH-END NET ASSET VALUEPER INITIAL UNIT CLASS I

 
| ** ** | ** ** | **Jan.** | ** ** | **Feb.** | ** ** | **Mar.** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|
| 2008       |       | $        | 1.2218     |     | $          | 1.2921   |       | $ | 1.2614 |   |
| 2009       |       | $        | 1.1971     |     | $          | 1.1979   |       | $ | 1.1592 |   |

 

Liquidity and Capital Resources

 

The Fund does not engage in the sale of goods orservices.  The Fund’s assets are it’s (i) investmentin Funds and (ii) Cash.    Becauseof the low margin deposits normally required in commodity futures tradingrelatively small price movements may result in substantial losses to theFund.  While substantial losses couldlead to a material decrease in liquidity, no such material losses occurredduring the first quarter of 2009.

 

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

 

12

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Forthe three months ended March 31, 2009, Fund capital decreased 13.84% from$54,330,120 to $46,809,848.  This decrease was attributable to the netloss from operations of $338,133, coupled with the redemption of 4,660,370Redeemable Units of Limited Fund Interest resulting in an outflow of$5,423,614.  The cash outflow was offsetwith cash inflow of $2,966 due to subscription of 2,533 units.  Future redemptions could impact the amount offunds available for investment in commodity contract positions in subsequentmonths.

 

Critical Accounting Policies

 

Use of Estimates

 

The preparation of financial statements andaccompanying notes in conformity with U.S. generally accepted accountingprinciples (“GAAP”‘) requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities, income and expenses, andrelated disclosures of contingent assets and liabilities in the financialstatements and accompanying notes.  As aresult, actual results could differ from these estimates.

 

Statement of Cash Flows

 

The Fund has elected not to provide a Statement ofCash Flows as permitted by Statement of Financial Accounting Standards No. 102“Statement of Cash Flows-Exemption of Certain Enterprises and Classification ofCash Flows from Certain Securities Acquired for Resale” (“FAS 102”).

 

Investments

 

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 Statementof Operations.

 

Fair Value Measurements

 

The Fund adopted Statement of Financial AccountingStandards No. 157, *Fair Value Measurements*(“SFAS 157”) as of January 1, 2008 which defines fair value as the pricethat would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date.  The Fund did not apply the deferral allowedby FASB Staff Positions No. FAS 157-2, for nonfinancial assets andnonfinancial liabilities measured at fair value on a nonrecurring basis.  For information on the Fund’s valuationpolicies, see Note 3. Fair Value of Investments.

 

13

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Income Taxes

 

Income taxes have not been provided as each memberis individually liable for the taxes, if any, on their share of the Fund’sincome and expenses and Members’ Capital.

 

In 2007, the Fund adopted FASB interpretationNo. 48 “Accounting for Uncertainty in income Taxes” (“FIN 48”).  FIN 48 provides guidance for how uncertaintax positions should be recognized, measured, presented and disclosed in thefinancial statements.  FIN 48 requiresthe evaluation of tax positions taken or expected to be taken in the course ofpreparing the Fund’s financial statements to determine whether the taxpositions are “more-likely-than-not” to be sustained by the applicable taxauthority.  Tax positions with respect totax at the Fund level not deemed to meet the “more-likely-than-not” thresholdwould be recorded as a tax benefit or expense in the current year.  MLAI has concluded that the adoption of FIN48 had no impact on the operations of the Fund for the period ended March 31,2009 and that no provision for income tax is required in the Fund’s financialstatements

 

Results of Operations

 

January 1,2009 to March 31, 2009

 

The Fund experienced a net trading loss beforebrokerage commissions and related fees in the first quarter of 2009 of$1,761,494.

 

Performanceof the Portfolio Funds were mixed in January which reflected the choppymarkets and diversification of the Portfolio Funds approach to trading. Wintonwas the best performer, while Altis and GSA performed the worst. The PortfolioFunds profited from falling equities, with long-term managers capturing more ofthe move. The Portfolio Funds also profited from a continuous down-trend incommodities. Largest losses were suffered in fixed income positions as the U.S.Treasury yields rallied and other global bonds shadowed the move.

 

Timehorizon focus did not seem to be a driver of returns in the middle of thequarter, while asset allocation played a more significant role. The PortfolioFunds had small net short exposures to equity markets and thus registered gainsin this asset class. In addition, most of the Portfolio Funds that had longpositions in the U.S. dollar against various currencies posted profits. Some ofthe Portfolio Funds that had long positions in the Japanese yen vs. the U.S.dollar posted losses due to the Japanese yen ending the month downsignificantly relative to the U.S. dollar. Fixed income markets experiencedvolatile swings during the month as most of the Portfolio Funds ended withsmall losses in this sector.

 

Atthe start of March, most of the Portfolio Funds had long positions in the fixedincome markets and kept this position throughout the month of March andbenefited from falling yields. John Locke was the exception. As a shorter termmanager, its positioning was influenced significantly by intra-month choppinessin fixed income markets, causing large losses.

 

14

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Allother sectors had posted losses in March as a result of significantreversals in many markets. During March, equity markets rallied following somepositive corporate news in the first week. When the U.S. Federal Reserveannounced the start of quantitative easing mid-month, the U.S. dollar beganlosing value against most major currencies and the commodity markets which are negativelycorrelated with the U.S. dollar and risk aversion moved up. Given that mostmanagers in the vertical are medium to long term trend followers, they were notin a position to cut exposures very fast and were negatively affected by thesereversals.

 

January 1,2008 to March 31, 2008

 

TheFund posted profits in all sectors for the first quarter.

 

The agriculture sectorposted profits for the Fund. Corn and soybeans had a strong January asSouth Korea, who is the 4th largest importer of U.S. corn,was reportedly looking to buy more corn off of the U.S. dollar’s weaknessposting profits for the Fund. Soybeans surged on concerns that Chinese demandwill reduce U.S. inventories mid-quarter. Wheat rose on reports that productionwill not keep pace with output and reports from the U.S. Department ofAgriculture that show inventory at a 60 year low. Later in the month, wheatcorrected as crops in the Northern Hemisphere appear in better condition thaninitially reported. Also wheat crops in the Ukraine and Russia look better thanpreviously forecasted. The quarter ended with losses being posted to the Funddue to the following factors. Grains closed lower at —0.30% as both wheat andsoybeans faced corrections while corn ended about flat. Softs also took away about—1.00% from returns as coffee and sugar both corrected for a total of —0.85%.Commodities sell off ended on March 20th with the biggest weekly declinein 50 years as expectations of slower economic growth impacted prices. Chinaannounced subsidies to farmers in an attempt to curb inflation at an 11-yearhigh.

 

The metals sector postedprofits for the Fund. The largest returns came from precious metals which wereup by about 2% (gold +1.5% and silver +0.5%) at the beginning of the yearposting profits to the Fund. Gold moved to a record level of over $942 on theback of the U.S. Federal Reserve’s aggressive move and the U.S. dollar’sweakness and copper rose on reports the supply is the lowest in sevenmonths.  The quarter ended with lossesbeing posted to the Fund due to precious metals which fell -1.00% in March withgold mostly responsible, finishing down -0.70%.

 

The interest rate sectorposted profits for the Fund. The U.S. Federal Reserve made a historical move ofreducing rates at the beginning of the year by 125 basis points in nine daysciting both growth and credit concerns and that credit has still tightened forhouseholds and businesses. Losses were posted to the Fund mid-quarter due tothe volatility in the market as the fixed income ended slightly negative byroughly -0.80%. The quarter ended with profits being posted to the Fund as theU.S. Federal Reserve lowered overnight rates by 75 basis points to 2.25% whichwas the 6th reduction since September 2007.

 

The energy sector postedprofits for the Fund. Losses were posted to the Fund at the beginning of theyear as crude oil has corrected due to several factors such as fears of theU.S. hitting a recession, the OPEC Minister saying they are ready to increaseproduction and an inventory surge for the week ending January 11, 2008,which all caused concern that current market levels cannot be maintained. Oilrose above $100 a barrel mid-quarter on supply concerns from loss of Nigerianoutput, pumping disruptions in Iraq and fire at a United Kingdom gas plant.Crude oil corrected as U.S. inventories rose for the 11 weeks out of the last12 by 2.25 million barrels helped by an earlier than expected opening of Iraqexport terminal.

 

15

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Item 3.   Quantitative and Qualitative DisclosuresAbout Market Risk

 

Introduction

 

TheFund is a fund of fund which invests in a speculative commodity pool PortfolioFunds. The market sensitive instruments held by the Portfolio Funds areacquired for speculative trading purposes and all or substantially all of thePortfolio Funds’ assets are subject to the risk of trading loss.  Unlike an operating company, the risk ofmarket sensitive instruments is integral, not incidental, to the Portfolio Fund’smain line of business.

 

Marketmovements result in frequent changes in the fair market value of the PortfolioFund’s open positions and, consequently, in its earnings and cash flow. ThePortfolio Funds’ market risk is influenced by a wide variety of factors,including the level and volatility of interest rates, exchange rates, equityprice levels, the market value of financial instruments and contracts, thediversification effects among the Portfolio Funds’ open positions and theliquidity of the markets in which it trades.

 

ThePortfolio Funds, under the direction of their respective advisors, rapidlyacquire and liquidate both long and short positions in wide range of differentmarkets.  Consequently, it is notpossible to predict how a particular future market scenario will affectperformance, and the Fund’s past performance is not necessarily indicative ofits future results.

 

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 inherentuncertainty of the Portfolio Fund’s speculative trading and the recurrence inthe markets traded by the Portfolio Funds of market movements far exceedingexpectations could result in actual trading or non-trading losses far beyondthe indicated Value at Risk or the Fund’s experience to date (i.e., “risk ofruin”). In light of the foregoing, as well as the risks and uncertaintiesintrinsic to all future projections, the quantifications included in thissection should not be considered to constitute any assurance or representationthat the Portfolio Fund’s losses in any market sector will be limited to Valueat Risk or by the Portfolio Fund’s attempts to manage its market risk.

 

QuantifyingThe Fund’s Trading Value At Risk

 

QuantitativeForward-Looking Statements

 

Thefollowing quantitative disclosures regarding the Portfolio Fund’s market riskexposures contain “forward-looking statement” within the meaning of the safeharbor form 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.

 

ThePortfolio Fund’s risk exposure in the various market sectors traded by the PortfolioFunds advisors is quantified below in terms of Value at Risk.  Due to the Portfolio Fund’s mark-to-marketaccounting, any loss in the fair value of the Fund’s open positions is directlyreflected in the Fund’s earnings (realized or unrealized) and cash flow (atleast in the case of exchange-traded contracts in which profits and losses onopen positions are settled daily through variation margin).

 

16

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Exchangemaintenance margin requirements of the Portfolio Funds have been used as themeasure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceedthe maximum loss in the fair value of any given contract incurred in 95%-99% ofthe one-day time periods included in the historical sample (generallyapproximately one year) researched for purposes of establishing margin levels.  The maintenance margin levels are establishedby dealers and exchanges using historical price studies as well as anassessment of current market volatility (including the implied volatility ofthe options on a given futures contract) and economic fundamentals to provide aprobabilistic estimate of the maximum expected near-term one-day pricefluctuation.

 

In the case of market sensitive instruments which are notexchange-traded (almost exclusively currencies in the case of the PortfolioFunds), the margin requirements for the equivalent futures positions have beenused as Value at Risk.  In those rarecases in which a futures-equivalent margin is not available, dealers’ marginshave 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 effectsresulting from the fact that the Fund’s positions are rarely, if ever, 100%positively correlated have not been reflected.

 

Material Limitations on Value at Riskas an Assessment of Market Risk

 

The face value of the market sectorinstruments held by the Fund is typically many times the applicable maintenancemargin requirement (maintenance margin requirements generally ranging betweenapproximately 1% and 10% of contract face value) as well as many times thecapitalization of the Fund.  Themagnitude of the Fund’s open positions creates a “risk of ruin” not typicallyfound in most other investment vehicles. Because of the size of its positions, certain market conditions —unusual, but historically recurring from time to time — could cause the Fund toincur severe losses over a short period of time.   The foregoing Value at Risk table — as wellas the past performance of the Fund — gives no indication of this “risk ofruin.”

 

Non-Trading Risk

 

ForeignCurrency Balances; Cash on Deposit with MLPF&S

 

ThePortfolio Funds has non-trading market risk on its foreign cash balances notneeded for margin. However, these balances (as well as the market risk theyrepresent) are immaterial.

 

ThePortfolio Funds also has non-trading market risk on the approximately 90%-95%of its assets which are held in cash at MLPF&S. The value of this cash isnot interest rate sensitive, but there is cash flow risk in that if interestrates decline so will the cash flow generated on these monies. This cash flowrisk is immaterial.

 

17

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Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

Thefollowing qualitative disclosures regarding the Fund’s market risk exposures — exceptfor (i) those disclosures that are statements of historical fact and (ii) thedescriptions of how the Fund manages its primary market risk exposures — constituteforward-looking statements within the meaning of Section 27A of theSecurities Act and Section 21E of the Securities Exchange Act. The Fund’sprimary market risk exposures as well as the strategies used and to be used byMLAI and APM for managing such exposures are subject to numerous uncertainties,contingencies and risks, any one of which could cause the actual results of theFund’s risk controls to differ materially from the objectives of suchstrategies. Government interventions, defaults and expropriations, illiquidmarkets, the emergence of dominant fundamental factors, political upheavals,changes in historical price relationships, an influx of new marketparticipants, increased regulation and many other factors could result inmaterial losses as well as in material changes to the risk exposures and therisk management strategies of the Fund. There can be no assurance that the Fund’scurrent market exposure and/or risk management strategies will not changematerially or that any such strategies will be effective in either the short-or long-term. Investors must be prepared to lose all or substantially all ofthe time value of their investment in the Fund.

 

Item4. Controls and Procedures

 

MLAI, the Sponsorof Systematic Momentum II LLC, 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 thisquarterly report, and, based on this evaluation, has concluded that thesedisclosure controls and procedures are effective.  Additionally, there were no significantchanges in the Fund’s internal controls or in other factors during the latestfiscal quarter that has materially affected, or is reasonably likely tomaterially affect the Fund’s internal control over financial reporting.

 

18

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PART II - OTHER INFORMATION

 

Item 1.            LegalProceedings

 

None.

 

Item 1A.         Risk Factors

 

Thereare no material changes from risk factors as previously disclosed in the AnnualReport on

 

Form 10-Kfor the year ended December 31, 2008, filed March 31, 2009.

 

Item 2.            Unregistered Sales of Equity Securities and Use ofProceeds

 

(a) Issuance to accredited investors pursuant toRegulation D and Section 4(6) under the Securities Act.  The selling agent of the following Class ofUnits was MLPF&S.

 

CLASS A

 
| ** **   | ** ** | **Subscription** | ** ** | ** ** | ** ** |
|--------------|------------|------------------|------------|------------|------------|
| ** **   | ** ** | **Amount**       | ** ** | **Units**  | ** ** | **NAV (1)** | ** ** |
| Jan-09       |       | $                | —     |       | —     |   | $ | 1.1992 |   |
| Feb-09       |       | —           |       | —     |       | 1.1903 |   |
| Mar-09       |       | —           |       | —     |       | 1.1908 |   |
| Apr-09       |       | —           |       | —     |       | 1.1519 |   |
|         |       |             |       |       |       |   |   |
| CLASS C |       |             |       |       |       |   |   |
|         |       |             |       |       |       |   |   |
| ** **   | ** ** | **Subscription** | ** ** | ** ** | ** ** |
| ** **   | ** ** | **Amount**       | ** ** | **Units**  | ** ** | **NAV (1)** | ** ** |
| Jan-09       |       | $                | 2,966      |       | 2,533      |   | $ | 1.1709 |   |
| Feb-09       |       | —           |       | —     |       | 1.1614 |   |
| Mar-09       |       | —           |       | —     |       | 1.1609 |   |
| Apr-09       |       | —           |       | —     |       | 1.1220 |   |
|         |       |             |       |       |       |   |   |
| CLASS D |       |             |       |       |       |   |   |
|         |       |             |       |       |       |   |   |
| ** **   | ** ** | **Subscription** | ** ** | ** ** | ** ** |
| ** **   | ** ** | **Amount**       | ** ** | **Units**  | ** ** | **NAV (1)** | ** ** |
| Jan-09       |       | $                | —     |       | —     |   | $ | 1.2195 |   |
| Feb-09       |       | —           |       | —     |       | 1.2119 |   |
| Mar-09       |       | —           |       | —     |       | 1.2139 |   |
| Apr-09       |       | —           |       | —     |       | 1.1758 |   |
|         |       |             |       |       |       |   |   |
| CLASS I |       |             |       |       |       |   |   |
|         |       |             |       |       |       |   |   |
| ** **   | ** ** | **Subscription** | ** ** | ** ** | ** ** |
| ** **   | ** ** | **Amount**       | ** ** | **Units**  | ** ** | **NAV (1)** | ** ** |
| Jan-09       |       | $                | —     |       | —     |   | $ | 1.2056 |   |
| Feb-09       |       | —           |       | —     |       | 1.1971 |   |
| Mar-09       |       | —           |       | —     |       | 1.1979 |   |
| Apr-09       |       | —           |       | —     |       | 1.1592 |   |

 

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(1) Beginningof the month Net Asset Value for all other purposes

 

(b)  None.

(c)  None.

 

Item 3.            DefaultsUpon Senior Securities

 

None.

 

Item 4.            Submissionof Matters to a Vote of Security Holders

 

None.

 

19

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Item 5.            OtherInformation

 

ML GSA FuturesAccess LLCis one of the Portfolio Funds in which Systematic Momentum, a FutureAccess fundof funds, invests. As of April 30, 2009, approximately 13% of the capitalof the Fund was allocated to GSA. However, the underlying manager of GSA hasinformed the Sponsor that it is discontinuing the strategy and will no longer actas the trading adviser for GSA. As a result, effective on or about May 31,2009, GSA will be liquidated and Systematic Momentum will no longer invest inGSA. The Sponsor may reallocate the liquidation proceeds among other new orexisting Portfolio Funds.

 

Item 6.            Exhibits

 

The following exhibits are incorporated by referenceor 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:      Arefiled herewith.

 

32.01 and

32.02               Section 1350 Certifications

 

Exhibit 32.01

and 32.02       Arefiled herewith.

 

Exhibit 99      The financial statements of ML SystematicMomentum FuturesAccess LLC, as filed herewith.

 

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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.

 

 
|                    |   | SYSTEMATIC  MOMENTUM II LLC                     |
|-------------------------|--------|-------------------------------------------------|
|                    |   |                                            |
|                    |   |                                            |
|                    | By:    | MERRILL  LYNCH ALTERNATIVE                      |
|                    |   | INVESTMENTS  LLC                                |
|                    |   | (Manager)                                       |
|                    |   |                                            |
|                    |   |                                            |
| Date: May 15, 2009 | By:    | /s/ PAUL MORTON                                 |
|                    |   | Paul Morton                                     |
|                    |   | Chief  Executive Officer, President and Manager |
|                    |   | (Principal  Executive Officer)                  |
|                    |   |                                            |
|                    |   |                                            |
| Date  May 15, 2009 | By:    | /s/  BARBRA E. KOCSIS                           |
|                    |   | Barbra  E. Kocsis                               |
|                    |   | Chief  Financial Officer                        |
|                    |   | (Principal Financial and Accounting Officer)    |

 

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