**Exhibit13.01**

*** ***

***ML SYSTEMATICMOMENTUM FUTURESACCESS LLC***

***(A Delaware Limited Liability Company)***

** **

*Financial Statements for the year ended December 31,2008 and for the period April 2, 2007 (commencement of operations) to December 31,2007 and Report of Independent Registered Public Accounting Firm*

* *

 

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ML SYSTEMATICMOMENTUM  FUTURESACCESS LLC

 (A Delaware Limited Liability Company)

 

TABLE OF CONTENTS

 
| ** **                                                                                                                                                                                    | **Page** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                                                                                          |     |
| REPORT  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                                                                                                                      | 1        |
|                                                                                                                                                                                          |     |
| FINANCIAL  STATEMENTS:                                                                                                                                                                        |     |
|                                                                                                                                                                                          |     |
| Statements  of Financial Condition as of December 31, 2008 and 2007                                                                                                                      | 2        |
|                                                                                                                                                                                          |     |
| Statements of  Operations for the year ended December 31, 2008 and for the period  April 2, 2007 (commencement of operations) to December 31, 2007                             | 3        |
|                                                                                                                                                                                          |     |
| Statements of Changes  in Members’ Capital for the year ended December 31, 2008 and for the  period April 2, 2007 (commencement of  operations) to December 31, 2007 | 4        |
|                                                                                                                                                                                          |     |
| Financial Data  Highlights for the year ended December 31, 2008 and  for the period April 2, 2007  (commencement of operations) to December 31, 2007                      | 5        |
|                                                                                                                                                                                          |     |
| Notes  to Financial Statements                                                                                                                                                                | 7        |

 

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|   | Deloitte  & Touche LLP  |
|--------|-----------------------------|
|   | Two  World Financial Center |
|   | New  York, NY 10281-1414    |
|   | USA                         |
|   |                        |
|   | Tel:  +1 212 436 2000       |
|   | www.deloitte.com            |

 

REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Members of

ML Systematic MomentumFuturesAccess LLC:

 

We have audited theaccompanying statements of financial condition of ML Systematic Momentum FuturesAccessLLC (the “Fund”), as of December 31, 2008 and 2007, and the relatedstatements of operations, changes in members’ capital, and the financial datahighlights for the year ended December 31, 2008 and for the period April 2,2007 (commencement of operations) to December 31, 2007. These financialstatements and financial data highlights are the responsibility of the Fund’smanagement. Our responsibility is to express an opinion on these financialstatements and financial data highlights based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements andfinancial data highlights are free of material misstatement. The Fund is notrequired to have, nor were we engaged to perform, an audit of its internal controlover financial reporting. Our audits included consideration of internal controlover financial reporting as a basis for designing audit procedures that areappropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Fund’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for ouropinion.

 

In our opinion, thefinancial statements and financial data highlights referred to above presentfairly, in all material respects, the financial position of ML SystematicMomentum FuturesAccess LLC as of December 31, 2008 and 2007, the results of itsoperations, changes in members’ capital and the financial data highlights forthe year ended December 31, 2008 and for the period April 2, 2007(commencement of operations) to December 31, 2007, in conformity withaccounting principles generally accepted in the United States of America.

 

 

March 30, 2009

 
|   | A  member firm of            |
|--------|------------------------------|
|   | **Deloitte Touche Tohmatsu** |

 

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ML SYSTEMATICMOMENTUM FUTURESACCESS LLC

(A DelawareLimited Liability Company)

 

STATEMENTS OF FINANCIAL CONDITION

DECEMBER 31, 2008and 2007

 
| ** **                                                                                                 | ** ** | **2008**    | ** **  | **2007**    | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
| **ASSETS:**                                                                                                | ** ** | ** **  | ** **  | ** **  | ** ** |
|                                                                                                       |       |        |        |        |       |
| Cash                                                                                                       |       | $           | 36,548      |        | $          | 94,318 |   |
| Investment  in Portfolio Funds (Cost $614,639,346 and 106,513,819)                                         |       | 701,122,301 |        | 121,063,894 |       |
| Deferred  initial offering costs                                                                           |       | —      |        | 33,750      |       |
| Receivable  from Portfolio Fund                                                                            |       | 22,935      |        | 34,775      |       |
|                                                                                                       |       |        |        |        |       |
| **TOTAL ASSETS**                                                                                           |       | $           | 701,181,784 |        | $          | 121,226,737 |   |
|                                                                                                       |       |        |        |        |       |
| **LIABILITIES AND MEMBERS’ CAPITAL:**                                                                 | ** ** | ** **  | ** **  | ** **  | ** ** |
| LIABILITIES:                                                                                               |       |        |        |        |       |
| Sponsor  fee payable                                                                                       |       | $           | 1,018,265   |        | $          | 177,810 |   |
| Redemptions  payable                                                                                       |       | 21,004,290  |        | 505,214     |       |
| Ongoing  offering costs payable                                                                            |       | 22,623      |        | —      |       |
| Other                                                                                                      |       | 438,518     |        | 319,636     |       |
|                                                                                                       |       |        |        |        |       |
| Total  liabilities                                                                                         |       | 22,483,696  |        | 1,002,660   |       |
|                                                                                                       |       |        |        |        |       |
| MEMBERS’  CAPITAL:                                                                                    |       |        |        |        |       |
| Members’  Interest (532,683,079 Units and 111,518,320 Units outstanding, unlimited  Units authorized) |       | 678,698,088 |        | 120,224,077 |       |
| Total  members’ capital                                                                               |       | 678,698,088 |        | 120,224,077 |       |
|                                                                                                       |       |        |        |        |       |
| **TOTAL LIABILITIES AND MEMBERS’ CAPITAL**                                                            |       | $           | 701,181,784 |        | $          | 121,226,737 |   |
| ** **                                                                                                 | ** ** | ** **  | ** **  | ** **  | ** ** |
| **NET ASSET VALUE PER UNIT (SEE NOTE 6)**                                                                  | ** ** | ** **  | ** **  | ** **  | ** ** |

 

See notes tofinancial statements.

 

2

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ML SYSTEMATIC MOMENTUMFUTURESACCESS LLC

(A DelawareLimited Liability Company)

 

STATEMENTS OFOPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2008 AND FOR THE PERIOD APRIL 2,2007 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 2007

 
| ** **                                    | ** ** | **2008**    | ** ** | **2007**   | ** ** |
|-----------------------------------------------|------------|-------------|------------|------------|------------|
| **TRADING PROFIT (LOSS):**                    | ** ** | ** **  | ** ** | ** ** | ** ** |
|                                          |       |        |       |       |       |
| Realized                                      |       | $           | 9,202,478  |       | $          | (560,037 | ) |
| Change  in unrealized                         |       | 71,910,257  |       | 14,550,075 |       |
|                                          |       |        |       |       |       |
| Total  trading profit (loss)                  |       | 81,112,735  |       | 13,990,038 |       |
|                                          |       |        |       |       |       |
| **INVESTMENT INCOME:**                        | ** ** | ** **  | ** ** | ** ** | ** ** |
| Interest                                      |       | 97,972      |       | 3,827      |       |
|                                          |       |        |       |       |       |
| **EXPENSES:**                                 | ** ** | ** **  | ** ** | ** ** | ** ** |
| Sponsor  fee                                  |       | 6,953,728   |       | 485,354    |       |
| Other                                         |       | 632,387     |       | 504,521    |       |
| Total  expenses                               |       | 7,586,115   |       | 989,875    |       |
|                                          |       |        |       |       |       |
| **NET INVESTMENT INCOME (LOSS)**              |       | (7,488,143  | )          | (986,048   | )          |
|                                          |       |        |       |       |       |
| **NET INCOME (LOSS)**                         |       | $           | 73,624,592 |       | $          | 13,003,990 |   |
|                                          |       |        |       |       |       |
| **NET INCOME (LOSS) PER UNIT:**               | ** ** | ** **  | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | ** **  | ** ** | ** ** | ** ** |
| Weighted  average number of Units outstanding |       |        |       |       |       |
| Class A**                                |       | 23,953,472  |       | 3,034,273  |       |
| Class C*                                 |       | 198,139,920 |       | 28,115,079 |       |
| Class D                                  |       | 25,725,432  |       | 57,470,233 |       |
| Class I*                                 |       | 40,873,271  |       | 4,656,993  |       |
| Class D1***                              |       | 19,636,088  |       | 4,998,359  |       |
| Class DA****                             |       | 56,445,187  |       | —     |       |
|                                          |       |        |       |       |       |
| Net  income (loss) per weighted average Unit  |       |        |       |       |       |
| Class A**                                |       | $           | 0.2175     |       | $          | 0.1351 |   |
| Class C*                                 |       | $           | 0.2298     |       | $          | 0.1087 |   |
| Class D                                  |       | $           | 0.2860     |       | $          | 0.1564 |   |
| Class I*                                 |       | $           | 0.2269     |       | $          | 0.0801 |   |
| Class D1***                              |       | $           | 0.2374     |       | $          | 0.0350 |   |
| Class DA****                             |       | $           | 0.0282     |       | $          | — |   |

 

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*Units issued June 1,2007.

** Units issued onJuly 1, 2007.

*** Units issuedon July 1, 2007 and Class D1 was previously known as Class D-SD.

**** Units issuedon December 1, 2008.

 

See notes tofinancial statements.

 

3

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ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

(A DelawareLimited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL FOR THE YEARENDED DECEMBER 31, 2008 AND FOR THE PERIOD APRIL 2, 2007 (COMMENCEMENT OFOPERATIONS) TO DECEMBER 31, 2007

 
| ** **                 | ** ** | **Initial Offering** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** ** | **Members’ Capital   December 31, 2007** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** ** | **Members’ Capital   December 31, 2008** | ** ** |
|----------------------------|------------|---------------------------|------------|-------------------|------------|-----------------|------------|-------------------------------------------------------------------|------------|-------------------|------------|-----------------|------------|-------------------------------------------------------------------|------------|
| Class A**             |       | —                    |       | 5,249,271         |       | (170,625        | )          | 5,078,646                                                         |       | 44,090,513        |       | (5,757,217      | )          | 43,411,942                                                        |       |
| Class C*              |       | —                    |       | 71,012,676        |       | (1,123,975      | )          | 69,888,701                                                        |       | 298,412,978       |       | (50,944,452     | )          | 317,357,227                                                       |       |
| Class D               |       | 80,000,000                |       | 16,803,705        |       | 80,000,000      |       | 16,803,705                                                        |       | 23,519,954        |       | (5,445,345      | )          | 34,878,314                                                        |       |
| Class I*              |       | —                    |       | 14,757,114        |       | —          |       | 14,757,114                                                        |       | 46,161,324        |       | (7,718,330      | )          | 53,200,108                                                        |       |
| Class D1***           |       | —                    |       | 5,000,000         |       | (9,846          | )          | 4,990,154                                                         |       | 28,477,949        |       | (2,428,057      | )          | 31,040,046                                                        |       |
| Class DA****          |       | —                    |       |              |       | —          |       | —                                                            |       | 56,445,187        |       | (3,649,745      | )          | 52,795,442                                                        |       |
|                       |       |                      |       |              |       |            |       |                                                              |       |              |       |            |       |                                                              |       |
| Total  Members’ Units |       | 80,000,000                |       | 112,822,766       |       | (81,304,446     | )          | 111,518,320                                                       |       | 497,107,905       |       | (75,943,146     | )          | 532,683,079                                                       |       |

 
| ** **                    | ** ** | ** **                | ** ** | ** **        | ** ** | ** **      | ** ** | **Net Income** | ** **  | **Members’ Capital**  | ** ** | ** **        | ** ** | ** **      | ** **  | **Net Income** | ** ** | **Members’ Capital**  | ** ** |
|-------------------------------|------------|---------------------------|------------|-------------------|------------|-----------------|------------|---------------------|-------------|---------------------------------|------------|-------------------|------------|-----------------|-------------|---------------------|------------|---------------------------------|------------|
| ** **                    | ** ** | **Initial Offering** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** ** | **(Loss)**          | ** **  | **December 31, 2007** | ** ** | **Subscriptions** | ** ** | **Redemptions** | ** **  | **(Loss)**          | ** ** | **December 31, 2008** | ** ** |
| Class A**                |       | $                         | —     |              | $          | 4,977,396       |       | $                   | (169,767    | )                               | $          | 409,790           |       | $               | 5,217,419   |                | $          | 50,773,605                      |       | $ | (6,670,127 | ) | $ | 5,208,770 |   | $ | 54,529,667 |   |
| Class C*                 |       | —                    |       | 72,659,028        |       | (1,184,529      | )          | 3,057,074           |        | 74,531,573                      |       | 350,073,604       |       | (60,487,671     | )           | 45,528,837          |       | 409,646,343                     |       |
| Class D                  |       | 80,000,000                |       | 18,735,477        |       | (88,281,472     | )          | 8,988,855           |        | 19,442,860                      |       | 30,338,088        |       | (6,986,221      | )           | 7,357,954           |       | 50,152,681                      |       |
| Class I*                 |       | —                    |       | 15,493,954        |       | —          |       | 373,255             |        | 15,867,209                      |       | 54,394,371        |       | (9,328,239      | )           | 9,275,144           |       | 70,208,485                      |       |
| Class D1***              |       | —                    |       | 5,000,000         |       | (10,000         | )          | 175,016             |        | 5,165,016                       |       | 33,092,685        |       | (3,043,195      | )           | 4,661,767           |       | 39,876,273                      |       |
| Class DA****             |       | —                    |       | —            |       | —          |       | —              |        | —                          |       | 56,445,187        |       | (3,752,668      | )           | 1,592,120           |       | 54,284,639                      |       |
|                          |       |                      |       |              |       |            |       |                |        |                            |       |              |       |            |        |                |       |                            |       |
| Total  Members’ Interest |       | $                         | 80,000,000 |              | $          | 116,865,855     |       | $                   | (89,645,768 | )                               | $          | 13,003,990        |       | $               | 120,224,077 |                | $          | 575,117,540                     |       | $ | (90,268,121 | ) | $ | 73,624,592 |   | $ | 678,698,088 |   |

 

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*Units issued June 1,2007.

** Units issued onJuly 1, 2007.

*** Units issuedon July 1, 2007 and Class D1 was previously known as Class D-SD.

**** Units issuedon December 1, 2008.

 

See notes tofinancial statements.

 

4

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ML SYSTEMATICMOMENTUM FUTURESACCESS LLC

 (A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS FOR THE YEAR ENDED DECEMBER31, 2008

 
| ** **                                        | ** ** | **Class A** | ** ** | **Class C** | ** ** | **Class D** | ** ** | **Class I** | ** ** | **Class D1** | ** ** | **Class DA*** | ** ** |
|---------------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|-------------------|------------|--------------------|------------|
| **Per Unit Operating Performance:**               |       |             |       |             |       |             |       |             |       |              |       |               |       |
|                                              |       |             |       |             |       |             |       |             |       |              |       |               |       |
| Net  asset value, beginning of period             |       | $                | 1.0273     |             | $          | 1.0664           |       | $                | 1.1571     |              | $          | 1.0752             |       | $ | 1.0350 |   | $ | 1.0000 |   |
|                                              |       |             |       |             |       |             |       |             |       |              |       |               |       |
| Realized  and unrealized change in trading profit |       | 0.2494           |       | 0.2577           |       | 0.2846           |       | 0.2614           |       | 0.2532            |       | 0.0280             |       |
| Interest  income                                  |       | 0.0003           |       | 0.0004           |       | 0.0004           |       | 0.0004           |       | 0.0003            |       | 0.0000             |       |
| Expenses                                          |       | (0.0209          | )          | (0.0337          | )          | (0.0042          | )          | (0.0173          | )          | (0.0038           | )          | 0.0002             |       |
|                                              |       |             |       |             |       |             |       |             |       |              |       |               |       |
| Net  asset value, end of period                   |       | $                | 1.2561     |             | $          | 1.2908           |       | $                | 1.4379     |              | $          | 1.3197             |       | $ | 1.2847 |   | $ | 1.0282 |   |
|                                              |       |             |       |             |       |             |       |             |       |              |       |               |       |
| **Total Return:**                                 | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **        | ** ** | ** **         | ** ** |
|                                              |       |             |       |             |       |             |       |             |       |              |       |               |       |
| Total  return                                     |       | 22.20            | %          | 20.98            | %          | 24.05            | %          | 22.68            | %          | 24.05             | %          | 2.82               | %(a)       |
|                                              |       |             |       |             |       |             |       |             |       |              |       |               |       |
| **Ratios to Average Members’ Capital:**      | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **        | ** ** | ** **         | ** ** |
|                                              |       |             |       |             |       |             |       |             |       |              |       |               |       |
| Expenses                                          |       | 1.85             | %          | 2.87             | %          | 0.34             | %          | 1.46             | %          | 0.34              | %          | -0.19              | %(a)       |
|                                              |       |             |       |             |       |             |       |             |       |              |       |               |       |
| Net  investment income (loss)                     |       | -1.82            | %          | -2.84            | %          | -0.31            | %          | -1.43            | %          | -0.31             | %          | 0.19               | %(a)       |

 

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*Units issued December 1,2008.

 

(a)  Theratios have been annualized and do not reflect the proportionate share ofincome and expenses of the Portfolio funds.

 

See notes tofinancial statements.

 

5

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ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

 (A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS FOR THE PERIOD APRIL 2, 2007(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 2007

 

The following perUnit data and ratios have been derived from information provided in thefinancial statements.

 
| ** **                                          | ** ** | **Class A**** | ** ** | **Class C*** | ** ** | **Class D** | ** ** | **Class I*** | ** ** | **Class D1***** | ** ** |
|-----------------------------------------------------|------------|--------------------|------------|-------------------|------------|------------------|------------|-------------------|------------|----------------------|------------|
| **Per Unit Operating Performance:**                 |       |               |       |              |       |             |       |              |       |                 |       |
|                                                |       |               |       |              |       |             |       |              |       |                 |       |
| Net  asset value, beginning of period               |       | $                  | 1.0000     |              | $          | 1.0000           |       | $                 | 1.0000     |                 | $          | 1.0000 |   | $ | 1.0000 |   |
|                                                |       |               |       |              |       |             |       |              |       |                 |       |
| Realized  and change in unrealized trading profit   |       | 0.0400             |       | 0.0885            |       | 0.1613           |       | 0.0898            |       | 0.0389               |       |
| Interest  income (c) (d)                       |       | —             |       | —            |       | —           |       | 0.0001            |       | —               |       |
| Expenses  (d)                                       |       | (0.0127            | )          | (0.0221           | )          | (0.0042          | )          | (0.0147           | )          | (0.0039              | )          |
|                                                |       |               |       |              |       |             |       |              |       |                 |       |
| Net  asset value, end of period                     |       | $                  | 1.0273     |              | $          | 1.0664           |       | $                 | 1.1571     |                 | $          | 1.0752 |   | $ | 1.0350 |   |
|                                                |       |               |       |              |       |             |       |              |       |                 |       |
| **Total Return:****(b)**                            | ** ** | ** **         | ** ** | ** **        | ** ** | ** **       | ** ** | ** **        | ** ** | ** **           | ** ** |
|                                                |       |               |       |              |       |             |       |              |       |                 |       |
| Total  return                                       |       | 2.73               | %          | 6.64              | %          | 15.71            | %          | 7.52              | %          | 3.50                 | %          |
|                                                |       |               |       |              |       |             |       |              |       |                 |       |
| **Ratios to Average Members’ Capital:****(a)** | ** ** | ** **         | ** ** | ** **        | ** ** | ** **       | ** ** | ** **        | ** ** | ** **           | ** ** |
|                                                |       |               |       |              |       |             |       |              |       |                 |       |
| Expenses                                            |       | 2.91               | %          | 4.16              | %          | 0.58             | %          | 2.72              | %          | 0.79                 | %          |
|                                                |       |               |       |              |       |             |       |              |       |                 |       |
| Net  investment income (loss)                       |       | -2.90              | %          | -4.15             | %          | -0.58            | %          | -2.71             | %          | -0.78                | %          |

 

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* Units issued on June 1,2007

** Units issued onJuly 1, 2007

*** Units issuedon July 1, 2007 and class D1 was previously known as Class D-SD.

(a) Theratios have been annualized and do not reflect the proportionate share ofincome and expenses of the Portfolio Funds.

(b) Notannualized.

(c) Impact ofinterest income is less than $0.0001 for Class A, C, D and D1.

(d) Per Unitdata is calculated using weighted average Units during the period.

 

See notes tofinancial statements.

 

6

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ML SYSTEMATICMOMENTUM FUTURESACCESS LLC

 (ADelaware Limited Liability Company)

 

NOTES TO FINANCIAL STATEMENTS

 

1.       SUMMARY OF SIGNIFICANTACCOUNTING POLICIES

 

Organization

 

ML Systematic Momentum FuturesAccess LLC (the “Fund”),a Merrill Lynch FuturesAccess Program (the “Program”) fund, was organized underthe Delaware Limited Liability Company Act on March 8, 2007 and commencedoperations on April 2, 2007.  TheFund operates as a “fund of funds”, allocating and reallocating its capital,under the direction of Merrill Lynch Alternative Investments LLC (“MLAI”), theSponsor of the Fund, among eight underlying FuturesAccess Funds (each a “PortfolioFund”, and collectively the “Portfolio Funds”) (See Note 2).  MLAI is an indirect wholly-owned subsidiaryof Merrill Lynch & Co., Inc. (“Merrill Lynch”). Merrill Lynch,Pierce, Fenner & Smith Incorporated (“MLPF&S”), a wholly-ownedsubsidiary of Merrill Lynch, is the commodity broker of the Portfolio Funds.

 

The Program is agroup of commodity pools sponsored by MLAI (each a “Program Fund” orcollectively, “Program Funds”) each of which places substantially all of itsassets in a managed futures and forward trading account managed by a single ormultiple commodity trading advisor. Each Program Fund is generally similar tothe Fund in terms of fees, Classes of Units and redemption rights. Each of theProgram Funds implements a different trading strategy.

 

The Fund offersfour Classes of Units to retail investors: Class A, Class C, Class Dand Class I. Each Class of Units was offered at $1.00 per Unit andsubsequently is offered at Net Asset Value per Unit for other reportingpurposes (see Note 6). The four Classes of Units are subject to differentSponsor fees. Classes D1 and DA are used exclusively for investments made bySystematic Momentum FuturesAccess LTD and Systematic Momentum FuturesAccess IILLC, respectively, and are not charged Sponsor fees.

 

Effective January 1, 2009, Merrill Lynch & Co., Inc.became a wholly-owned subsidiary of Bank of America Corporation pursuant to amerger agreement.

 

Interests in the Fund are not insured or otherwise protected by theFederal Deposit Insurance Corporation or any other government authority.  Interests are not deposits or otherobligations of, and are not guaranteed by, Bank of America Corporation or anyof its affiliates or by any bank. Interests are subject to investment risks, including the possible lossof the full amount invested.

 

Estimates

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America (“U.S. GAAP”) requires management tomake estimates 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.

 

7

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RevenueRecognition

 

The PortfolioFunds’ commodity futures, options on futures and forward contract transactionsare recorded on the trade date and open contracts are reflected in Netunrealized profit (loss) on open contracts in the Statements of FinancialCondition of the Portfolio Funds as the difference between the originalcontract value and the market value (for those commodity interests for whichmarket quotations are readily available) or at fair value.  The change in unrealized profit (loss) onopen contracts from one period to the next is reflected in Change in unrealizedunder Trading profit (loss) in the Statements of Operations of the PortfolioFunds.

 

The resultingchange between cost and market value (net of subscription and redemptionactivity in Portfolio Funds) is reflected in the Statements of Operations as “Changein unrealized”.  In addition, when theFund redeems or partially redeems its interest in the Portfolio Funds, itrecords realized (net profit or loss) for such interests in the Statements ofOperations of the Fund.

 

Foreign CurrencyTransactions

 

The Fund’sfunctional currency is the U.S. dollar; however, it and the Portfolio Funds maytransact business in U.S. dollars and in currencies other than the U.S.dollar.  Assets and liabilitiesdenominated in currencies other than the U.S. dollar are translated into U.S.dollars at the rates in effect at the date of the Statements of FinancialCondition of the Fund and each of the Portfolio Funds.  Income and expense items denominated incurrencies other than the U.S. dollar are translated into U.S. dollars at therates in effect during the period.  Gainsand losses resulting from the translation to U.S. dollars are reported inRealized in the Statements of Operations of the Fund and each of the PortfolioFunds.

 

Cash

 

The Fund maintainscash at an unaffiliated bank for operations purposes.

 

OperatingExpenses, Offering Costs and Selling Commissions

 

The Fund pays forall routine operating costs (including ongoing offering costs, administration,custody, transfer, exchange and redemptions process, legal, regulatory filing,tax, audit, escrow, accounting and printing fees and expenses) incurred by theFund. The Fund also pays any extraordinary expenses.

 

For financialreporting purposes in conformity with U.S. GAAP, the Fund amortized the totalinitial offering costs of $120,000 over a twelve-month period.  For all other purposes, including determiningthe Net Asset Value per Unit for subscription and redemption purposes, the Fundamortizes offering costs over a 60 month period (see Note 6).

 

Class A Unitsare subject to a sales commission paid to Merrill Lynch ranging from 1.00% to2.50%.  Class D, and Class IUnits are subject to sales commissions up to 0.50%.  The rate assessed to a given subscription isbased upon the subscription amount. Sales commissions are directly deductedfrom subscription amounts.  Class CUnits are not subject to any sales commissions.

 

8

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Income Taxes

 

No provision forincome taxes has been made in the accompanying financial statements as eachMember is individually responsible for reporting income or loss based on suchMember’s share of the Fund’s income and expenses as reported for income taxpurposes.

 

Distributions

 

The Members areentitled to receive, equally per Unit, any distributions which may be made bythe Fund.  No such distributions havebeen declared for the year ended December 31, 2008 and the period ended December 31,2007.

 

Subscriptions

 

Units are offered as of the close of business at theend of each month.  Shares are purchasedas of the first business day of any month at Net Asset Value for all otherpurposes (see Note 6), but the subscription request must be submitted at leastthree calendar days before the end of the preceding month.  Subscriptions submitted less than three daysbefore the end of a month will be applied to Units subscriptions as of thebeginning of the second month after receipt, unless revoked by MLAI.

 

Redemptions andExchanges

 

A Member may redeem or exchange some or all of such Member’sUnits at Net Asset Value for all other purposes (see Note 6) as of the close ofbusiness, on the last business day of any month, upon ten calendar days’ notice(“notice period”).

 

An investor in the Fund can exchange these Units forUnits of the same Class in other Program Funds as of the beginning of eachcalendar month upon at least ten days’ prior notice.  The minimum exchange amount is $10,000.

 

Redemption and exchange requests are accepted withinthe notice period.  The Fund does notaccept any redemption requests after the notice period.  All redemption requests received after thenotice period will be processed for the following month.

 

9

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Dissolution of theFund

 

The Fund may terminate if certain circumstancesoccur as set forth in the offering memorandum, which   include but are not limited to thefollowing:

 

(a)       Bankruptcy, dissolution, withdrawal or other termination of the tradingadvisors of this Fund.

(b)       Any event which would make unlawful the continued existence of thisFund.

(c)       Determination by MLAI to liquidate or withdraw from the Fund.

 

Indemnifications

 

In the normalcourse of business, the Fund enters into contracts and agreements that containa variety of representations and warranties and which provide generalindemnifications.  The Fund’s maximumexposure under these arrangements is unknown, as this would involve futureclaims that may be made against the Fund that have not yet occurred.  The Fund expects the risk of any future obligationunder these indemnifications to be remote.

 

2.       INVESTMENTS IN  PORTFOLIO FUNDS

 

The PortfolioFunds in which the Fund was invested as of December 31, 2008 and 2007 orduring the period/year were:  MLChesapeake FuturesAccess LLC (“Chesapeake”), ML Transtrend DTP EnhancedFuturesAccess LLC (“Transtrend”), ML Altis FuturesAccess LLC (“Altis”), MLWinton FuturesAccess LLC (“Winton”), ML Aspect FuturesAccess LLC (“Aspect”), MLJohn Locke FuturesAccess LLC (“John Locke”), ML GSA FuturesAccess LLC (“GSA”),ML BlueTrend FuturesAccess LLC (“Blue Trend”) and ML Alphasimplex FuturesAccessLLC (“Alphasimplex”).  MLAI, the Sponsorof the fund, may in its discretion, change the Portfolio Funds at any time.MLAI, also at its discretion may vary the percentage of the Fund’s totalportfolio allocated to the different Portfolio Funds. There is nopre-established range for the minimum and maximum allocations that may be madeto any given Portfolio Fund.

 

At December 31,2008, Investments in Portfolio Funds at fair value are as follows:

 
| ** ** | ** ** | **Percentage of  Members’  Capital** | ** ** | **Fair Value** | ** **  | **Profit (Loss)** | ** ** | **Management  Fees (1)** | ** ** | **Performance  Fees (1)** | ** ** | **Redemptions Permitted** | ** ** |
|------------|------------|------------------------------------------------|------------|---------------------|-------------|------------------------|------------|-------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| Chesapeake |       | 10.43                                          | %          | 70,779,579          |        | 3,583,563              |       | (946,192                      | )          | (1,156,091                     | )          | monthly                        |       |
| Transtrend |       | 16.47                                          | %          | 111,765,499         |        | 16,444,848             |       | (1,231,913                    | )          | (6,770,217                     | )          | monthly                        |       |
| Altis      |       | 13.77                                          | %          | 93,483,991          |        | 29,676,850             |       | (1,141,904                    | )          | (7,244,896                     | )          | monthly                        |       |
| Winton     |       | 16.36                                          | %          | 111,014,511         |        | 10,361,844             |       | (1,190,256                    | )          | (2,396,979                     | )          | monthly                        |       |
| Aspect     |       | 10.45                                          | %          | 70,896,651          |        | 10,548,013             |       | (961,833                      | )          | (2,478,788                     | )          | monthly                        |       |
| John Locke |       | 15.40                                          | %          | 104,525,135         |        | 10,325,464             |       | (1,062,203                    | )          | (2,433,472                     | )          | monthly                        |       |
| BlueTrend  |       | 7.22                                           | %          | 48,989,192          |        | 7,948,538              |       | (290,672                      | )          | (2,619,030                     | )          | monthly                        |       |
| GSA        |       | 13.21                                          | %          | 89,667,743          |        | (7,776,385             | )          | (940,975                      | )          | (0                             | )          | monthly                        |       |
|       |       | 103.31                                         | %          | $                   | 701,122,301 |                   | $          | 81,112,735                    |       | $                              | (7,765,948 | )                              | $          | (25,099,473 | ) |   |   |
|            |            |                                                |            |                     |             |                        |            |                               |            |                                |            |                                |            |  |  |  |  |

 

Total Investmentsin Portfolio Funds at Fair Value (Cost $614,639,346)

 

----

(1)   See note 5

 

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2007:

 
| ** **   | ** ** | **Percentage of  Investment** | ** ** | **Fair Value** | ** **  | **Profit (Loss)** | ** ** | **Management  Fees** | ** ** | **Performance  Fees** | ** ** | **Redemptions Permitted** |   |
|--------------|------------|------------------------------------|------------|---------------------|-------------|------------------------|------------|----------------------|------------|-----------------------|------------|--------------------------------|--------|
| Alphasimplex |       | 0.00                               | %          | $                   | —      |                   | $          | (943,066             | )          | $                     | (60,176    | )                              | $      | — |   | monthly |   |
| Chesapeake   |       | 15.55                              | %          | 18,829,228          |        | 907,353                |       | (210,487             | )          | —                |       | monthly                        |   |
| Transtrend   |       | 14.81                              | %          | 17,927,148          |        | 3,553,620              |       | (216,171             | )          | (797,192              | )          | monthly                        |   |
| Altis        |       | 15.18                              | %          | 18,378,819          |        | 2,911,775              |       | (214,966             | )          | (610,793              | )          | monthly                        |   |
| Winton       |       | 14.73                              | %          | 17,829,738          |        | 2,796,394              |       | (214,222             | )          | (350,520              | )          | monthly                        |   |
| Aspect       |       | 15.06                              | %          | 18,235,954          |        | 1,770,147              |       | (212,213             | )          | (173,744              | )          | monthly                        |   |
| John Locke   |       | 12.32                              | %          | 14,914,443          |        | 1,760,298              |       | (154,163             | )          | (356,510              | )          | monthly                        |   |
| GSA          |       | 12.35                              | %          | 14,948,564          |        | 1,233,517              |       | (138,501             | )          | (236,986              | )          | monthly                        |   |
|         |       |                               |       |                |        |                   |       |                 |       |                  |       |                           |   |
|         |       | 100.00                             | %          | $                   | 121,063,894 |                   | $          | 13,990,038           |       | $                     | (1,420,899 | )                              | $      | (2,525,745 | ) |   |   |

 

Total Investmentsin Portfolio Funds at Fair Value (Cost $106,513,819)

 

3.       FAIR VALUE 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.

 

TheFund adopted FAS 157 as of January 1, 2008. The adoption of FAS 157 didnot have a material impact on the Fund’s financial statements.

 

Fairvalue of an investment is the amount that would be received to sell theinvestment in an orderly transaction between market participants at themeasurement date (i.e. the exit price).

 

FAS157 established a hierarchical disclosure framework which prioritizes and ranksthe level of market price observability used in measuring investments at fairvalue. Market price observability is impacted by a number of factors, includingthe type of investment and the characteristics specific to the investment.Investments with readily available active quoted prices or for which fair valuecan be measured from actively quoted prices generally will have a higher degreeof market price observability and a lesser degree of judgment used in measuringfair value.

 

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

 

LevelI — Quoted prices are available in active markets for identical investments asof the reporting date. The type of investments included in Level I are publiclytraded investments.

 

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

 

LevelIII — Pricing inputs are unobservable including the Fund’s own assumptions indetermining the fair value of investments.

 

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In certain cases, the inputs used to measure fairvalue may fall into different levels of the fair value hierarchy. In suchcases, an investment’s level within the fair value hierarchy is based on thelowest level of input that is significant to the fair value measurement. MLAI’sassessment of the significance of a particular input to the fair valuemeasurement in its entirety requires judgment, and considers factors specificto the investment.

 

The following table summarizes the valuation of theFund’s investment by the above FAS 157 fair value hierarchy levels as of  December 31, 2008.

 
| ** **                     | ** ** | **Total** | ** **  | **Level I** | ** ** | **Level II** | ** ** | **Level III** | ** ** |
|--------------------------------|------------|-----------|-------------|------------------|------------|-------------------|------------|--------------------|------------|
| Investment in  Portfolio Funds |       | $         | 701,122,301 |             | N/A        |              | $          | 701,122,301        |       | N/A |   |
|                                |            |           |             |                  |            |                   |            |                    |            |  |  |

 

4.       RELATED PARTY TRANSACTIONS

 

The PortfolioFunds’ U.S. dollar assets are maintained at MLPF&S. On assets held in U.S.dollars, Merrill Lynch credits the Portfolio Funds with interest at the mostfavorable rate payable by MLPF&S to accounts of Merrill Lynch affiliatesbut not less than 75% of such prevailing rate. The Portfolio Funds are credited with interest on any of their assetsand net gains actually held by MLPF&S non-U.S. dollar currencies at a prevailinglocal rate received by Merrill Lynch. Merrill Lynch may derive certain economic benefit, in excess of theinterest which Merrill Lynch pays to the Portfolio Funds, from possession ofsuch assets.

 

Merrill Lynch charges the Portfolio Funds at prevailinglocal interest rates for financing realized and unrealized losses on eachPortfolio Fund’s non-U.S. dollar-denominated positions.  Such amounts are netted against interestincome due to the insignificance of such amounts.

 

The Fund charges Sponsor fees on the month-end netassets after all other charges at annual rates equal to 1.50% for Class A,2.50% for Class C, 1.10% on Class I. Class D, D1 and DA re not charged a Sponsor Fee.   Sponsor fees are paid to MLAI.

 

No brokerage commission is charged to investors at theFund level, although brokerage commissions are charged to investors at thePortfolio Funds’ level, and investors will be indirectly subject to their *pro rata* share of such fees based on the investment of theFund in such underlying Portfolio Funds. Brokerage commissions will be paid on the completion or liquidation of atrade and are referred to as “round-turn” commissions, which cover both theinitial purchase (or sale) and the subsequent offsetting sale (or purchase) ofa commodity futures contract.  A portionof the brokerage fees is paid to Portfolio Funds’ executing brokers, which maynot include MLPF&S, as the commission or their execution services. The “round-turn”commissions paid will not exceed $15 per round-turn, except in the case ofcertain foreign contracts on which the rates may be as high as $100 perround-turn due to the large size of the contracts traded.  In general, it is estimated that aggregatebrokerage commission charges will not exceed 3% and should equal approximately0.50% per annum of each of the Portfolio Fund’s average month-end assets.

 

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5.       ADVISORY AGREEMENTS

 

EachPortfolio Fund implements a systematic-based managed future strategy under thedirection of its trading advisor which is listed below:

 
| ** **          | ** ** | ** **                          | ** ** | **Next Renewal Date** |
|---------------------|------------|-------------------------------------|------------|---------------------------------|
| **Portfolio  Fund** | ** ** | **Advisor**                         | ** ** | **of Advisory Agreement**       |
| Altis               |       | Altis Partners  (Jersey) Limited    |       | December 31,  2016         |
| Aspect              |       | Aspect Capital  Management          |       | December 31,  2011         |
| Chesapeake          |       | Chesapeake  Capital Corporation     |       | December 31,  2016         |
| Transtrend          |       | Transtrend B.V.                     |       | December 31,  2009         |
| Winton              |       | Winton Capital  Management Limited  |       | December 31,  2014         |
| John Locke          |       | John Locke  Investments SA          |       | December 31,  2016         |
| GSA                 |       | GSA Capital  Partner, LLP           |       | June 30,  2012             |
| BlueTrend           |       | BlueCrest  Capital Management, L.P. |       | December 31,  2010         |

 

The advisory agreements shall be automatically renewedfor successive three-year periods with the exception of Transtrend which has anautomatic renewal of one-year period, on the same terms, unless terminated byeither the Portfolio Fund or the respective advisor upon 90 days’ notice to theother party.  The trading advisorsdetermine the commodity futures, options on futures and forward contract tradesto be made on behalf of their respective Portfolio Fund accounts, subject tocertain trading policies and to certain rights reserved by MLAI.

 

The Portfolio Funds charge an annual management feesof 2.00% of their average month-end assets after reduction for the brokeragecommissions accrued with respect to such assets. For Altis, Chesapeake,BlueTrend and Transtrend, MLAI receives 50% of the 2.00% management fees. ForAspect, Winton, John Locke and GSA, MLAI receives 25% of the 2.00% managementfees.  The remainder being paid to therespective trading advisor.

 

Performance charged by the Portfolio Funds arecalculated at 20% for all Portfolio Funds except BlueTrend and Transtrend whichis calculated at 25% of any New Trading Profit, as defined, and earned by therespective advisors.  Performance fees arealso paid out in respect of Units redeemed as of the end of interim month, tothe extent of the applicable percentage of any New Trading Profit attributableto such Units. For the following Funds, Aspect, Winton, GSA and John Locke,MLAI received 25% of the 20% performance fees.

 

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6.       NET ASSET VALUE PER UNIT

 

Forfinancial reporting purposes, in conformity with U.S. GAAP, the Fund amortizesover a twelve-month period the initial offering costs for purposes ofdetermining Net Asset Value. Such costs initially were paid by MLAI.  For all other purposes, including computingNet Asset Value for purposes of member subscription and redemption activity,such costs are amortized over 60 months.

 

Consequently,the Net Asset Value and Net Asset Value per Unit of the different Classes forfinancial reporting purposes and for all other purposes as of December 31,2008 and 2007 are as follows:

 

December 31,2008:

 
| ** **    | ** ** | **Net Asset Value** | ** **  | ** **               | ** ** | **Net Asset Value per Unit** | ** ** |
|---------------|------------|-------------------------------|-------------|--------------------------|------------|--------------------------------------------------|------------|
| ** **    | ** ** | **All Other  Purposes**  | ** **  | **Financial  Reporting** | ** ** | **Number of  Units**                        | ** ** | **All Other  Purposes** | ** ** | **Financial  Reporting** | ** ** |
| ** **    | ** ** | **(unaudited)**               | ** **  | ** **               | ** ** | ** **                                       | ** ** | **(unaudited)** | ** ** | ** ** | ** ** |
| Class A  |       | $                             | 54,531,772  |                     | $          | 54,529,667                                       |       | 43,411,942 |   | $ | 1.2561 |   | $ | 1.2561 |   |
| Class C  |       | 409,679,565                   |        | 409,646,343              |       | 317,357,227                                      |       | 1.2909 |   | 1.2908 |   |
| Class D  |       | 50,209,935                    |        | 50,152,681               |       | 34,878,314                                       |       | 1.4396 |   | 1.4379 |   |
| Class I  |       | 70,217,871                    |        | 70,208,485               |       | 53,200,108                                       |       | 1.3199 |   | 1.3197 |   |
| Class D1 |       | 39,878,678                    |        | 39,876,273               |       | 31,040,046                                       |       | 1.2848 |   | 1.2847 |   |
| Class DA |       | 54,284,639                    |        | 54,284,639               |       | 52,795,442                                       |       | 1.0282 |   | 1.0282 |   |
|          |       | $                             | 678,802,460 |                     | $          | 678,698,088                                      |       | 532,683,079 |   |   |   |   |   |
|               |            |                               |             |                          |            |                                                  |            |  |  |  |  |  |  |  |  |

 

December 31,2007:

 
| ** **    | ** ** | **Net Asset Value** | ** **  | ** **               | ** ** | **Net Asset Value per Unit** | ** ** |
|---------------|------------|-------------------------------|-------------|--------------------------|------------|--------------------------------------------------|------------|
| ** **    | ** ** | **All Other  Purposes**  | ** **  | **Financial  Reporting** | ** ** | **Number of  Units**                        | ** ** | **All Other  Purposes** | ** ** | **Financial  Reporting** | ** ** |
| ** **    | ** ** | **(unaudited)**               | ** **  | ** **               | ** ** | ** **                                       | ** ** | **(unaudited)** | ** ** | ** ** | ** ** |
| Class A  |       | $                             | 5,219,799   |                     | $          | 5,217,419                                        |       | 5,078,646 |   | $ | 1.0278 |   | $ | 1.0273 |   |
| Class C  |       | 74,560,703                    |        | 74,531,573               |       | 69,888,701                                       |       | 1.0668 |   | 1.0664 |   |
| Class D  |       | 19,497,806                    |        | 19,442,860               |       | 16,803,705                                       |       | 1.1603 |   | 1.1571 |   |
| Class I  |       | 15,872,806                    |        | 15,867,209               |       | 14,757,114                                       |       | 1.0756 |   | 1.0752 |   |
| Class D1 |       | 5,167,584                     |        | 5,165,016                |       | 4,990,154                                        |       | 1.0356 |   | 1.0350 |   |
|          |       | $                             | 120,318,698 |                     | $          | 120,224,077                                      |       | 111,518,320 |   |   |   |   |   |
|               |            |                               |             |                          |            |                                                  |            |  |  |  |  |  |  |  |  |

 

7.       WEIGHTED AVERAGE UNITS

 

Theweighted average number of Units outstanding for each Class is computedfor purposes of calculating net income per weighted average Unit.  The weighted average number of Unitsoutstanding for the year ended December 31, 2008 and the period ended December 31,2007 equals the Units outstanding for each Class as of such date, adjustedproportionately for Units sold or redeemed based on the respective length oftime each was outstanding during the period.

 

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8.       RECENT ACCOUNTING PRONOUNCEMENTS

 

In March 2008,the FASB released Statement of Financial Accounting Standards No. 161,Disclosures about Derivative Instruments and Hedging Activities — an amendmentto FASB Statement No. 133 (“FAS 161”). FAS 161 requires qualitativedisclosures about objectives and strategies for using derivatives, quantitativedisclosures about fair value amounts of and gains and losses on derivativeinstruments, and disclosures about credit-risk related contingent features inderivative agreements. The application of FAS 161 is required for fiscal yearsbeginning after November 15, 2008 and interim periods within those fiscalyears. Currently, the Fund is evaluating the implications of FAS 161 on itsfinancial statements.

 

In May 2008, the FASB issued Statement ofFinancial Accounting Standards No. 162, “*TheHierarchy of Generally Accepted Accounting Principles*” (“FAS 162”).FAS 162 identifies the sources of accounting principles and the framework forselecting the accounting principles used in preparing financial statements ofnongovernmental entities that are presented in conformity with U.S. GAAP.Currently, U.S. GAAP hierarchy is provided in the American Institute ofCertified Public Accountants U.S. Auditing Standards (“AU”) Section 411, “*The Meaning of Present Fairly in Conformity With Generally AcceptedAccounting Principles*” (“AU Section 411”). FAS 162 is effective60 days following the SEC’s approval of the Public Company Accounting OversightBoard’s amendments to AU Section 411. The Fund does not expect theadoption of FAS 162 to have an impact on its financial statements.

 

9.       MARKET AND CREDIT RISK

 

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

 

### Market Risk

###  

Derivative instruments involve varying degrees ofmarket risk.  Changes in the level orvolatility of interest rates, foreign currency exchange rates or the marketvalues of the financial instruments or commodities underlying such derivative instrumentsfrequently result in changes in the Portfolio Funds’ net unrealized gains onopen contracts on such derivative instruments as reflected in the Statements ofFinancial Condition of the Portfolio Funds. The Fund’s exposure to market risk is influenced by a number of factors,including the relationships among the derivative instruments held by thePortfolio Funds as well as the volatility and liquidity of the markets in whichthe derivative instruments are traded. Investments in foreign markets may also entail legal and politicalrisks.

 

MLAI has procedures in place intended to controlmarket risk exposure, although there can be no assurance that they will, infact, succeed in doing so.  Theseprocedures focus primarily on monitoring the trading of the Portfolio Funds,calculating the Net Asset Value of the Fund and the Portfolio Funds as of theclose of business on each day and reviewing outstanding positions forover-concentrations.  While MLAI does notintervene in the markets to hedge or diversify the Portfolio Funds’ marketexposure, MLAI may urge the respective trading advisors to reallocate positionsin an attempt to avoid over-concentrations. However, such interventions are expected to be unusual.  It is expected that MLAI’s basic risk controlprocedures will consist of the ongoing process of advisor monitoring, with themarket risk controls being applied by respective trading advisors.

 

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Credit Risk

 

The risks associated withexchange-traded contracts are typically perceived to be less than thoseassociated with over-the-counter (non-exchange-traded) transactions, becauseexchanges typically provide clearinghouse arrangements in which the collectivecredit (in some cases limited in amount, in some cases not) of the members ofthe exchange is pledged to support the financial integrity of theexchange.  In over-the-countertransactions, on the other hand, traders must rely solely on the credit oftheir respective individual counterparties. Margins, which may be subject to loss in the event of a default, aregenerally required in exchange trading, and counterparties may also requiremargin in the over-the-counter markets.

 

The credit riskassociated with these instruments from counterparty nonperformance is the netunrealized gains on open contracts, if any, included in the Statements ofFinancial Condition of the Portfolio Funds. The Portfolio Funds attempt tomitigate this risk by dealing exclusively with Merrill Lynch entities asclearing brokers.

 

The PortfolioFunds, in their normal course of business, enter into various contracts, withMLPF&S acting as their commodity broker. Pursuant to the brokerage arrangement with MLPF&S (which includes anetting arrangement), to the extent that such trading results in receivablesfrom and payables to MLPF&S, these receivables and payables are offset andreported as a net receivable or payable and included in Equity in commodityfutures trading accounts in the Statements of Financial Condition of thePortfolio Funds.

 

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|   | *     *      *     *     *      *     *     *      *     *      * |   |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | To the best of the  knowledge and belief of the                                                                                                                                                                                                                                |   |
|   | undersigned, the information contained in this                                                                                                                                                                                                                                 |   |
|   | report  is accurate and complete.                                                                                                                                                                                                                                              |   |
|   | /s/ Barbra E.  Kocsis                                                                                                                                                                                                                                                          |   |
|   | Barbra E. Kocsis                                                                                                                                                                                                                                                               |   |
|   | Chief Financial Officer                                                                                                                                                                                                                                                        |   |
|   | Merrill Lynch Alternative Investments LLC                                                                                                                                                                                                                                      |   |
|   | Sponsor of                                                                                                                                                                                                                                                                     |   |
|   | ML Systematic Momentum FuturesAccess LLC                                                                                                                                                                                                                                       |   |

 

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