Exhibit 99.1

 

AlphaMetrix WC Diversified Fund — MT0041 (A Cayman Islands Exempted Limited Liability Company) Financial Statements as of and for the Years Ended December 31, 2012 and 2011, and Independent Auditors’ Report

 

PURSUANT TO AN EXEMPTION FROM THE COMMODITY
FUTURES TRADING COMMISSION IN CONNECTION WITH
POOLS WHOSE PARTICIPANTS ARE LIMITED TO QUALIFIED
ELIGIBLE PARTICIPANTS, AN OFFERING MEMORANDUM
FOR THIS POOL IS NOT REQUIRED TO BE, AND HAS NOT BEEN,
FILED WITH THE COMMISSION. FURTHERMORE, AN EXEMPTION
FROM CERTAIN DISCLOSURE AND PERIODIC REPORTING
REQUIREMENTS PURSUANT TO SECTION 4.7 OF THE
REGULATIONS HAS ALSO BEEN CLAIMED.

INDEPENDENT AUDITORS’ REPORT

 

To the Shareholders and Board of Directors of
AlphaMetrix WC Diversified Fund — MT0041

 

We have audited the accompanying financial statements of AlphaMetrix WC Diversified Fund — MT0041 (a Cayman Islands exempted limited liability company) (the “Master Fund”), which comprise the statements of financial condition, including the condensed schedules of investments, as of December 31, 2012 and 2011, and the related statements of operations and changes in net assets for the years then ended (all expressed in United States dollars), and the related notes to the financial statements.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors’ Responsibility

 

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Master Fund’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Master Fund’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AlphaMetrix WC Diversified Fund — MT0041 as of December 31, 2012 and 2011, and the results of its operations and changes in its net assets for the years then ended, in accordance with accounting principles generally accepted in the United States of America.

 

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois
April 11, 2013

ALPHAMETRIX WC DIVERSIFIED FUND — MT0041
(A Cayman Islands Exempted Limited Liability Company)

 

STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2012 and 2011
(Expressed in U.S. dollars)
ASSETS		2012				2011
Equity in commodity trading accounts at clearing brokers:
Cash		$	72,415,838			$	34,648,405
Options on futures contracts, at fair value, net (Cost: $22,300)			—				8,048
Investments, at fair value (representing unrealized appreciation on open contracts, net)			3,324,330				6,957,375
Investment in AlphaMosaic SPC - Offshore Platform Cash Account, at fair value (Note 5)			—				60,757,195
Due from feeder fund			—				707,300
Cash at bank			29,260,417				7,965,040
Total assets		$	105,000,585			$	111,043,363
LIABILITIES AND SHAREHOLDERS’ EQUITY (NET ASSETS)
LIABILITIES:
Equity in commodity trading accounts at clearing brokers:
Options on futures contracts, at fair value, net (Proceeds: $45,665)		$	—			$	18,565
Redemptions payable			4,582,486				4,949,586
Total liabilities			4,582,486				4,968,151
SHAREHOLDERS’ EQUITY (NET ASSETS)			100,418,099				106,075,212
Total liabilities and shareholders’ equity (net assets)		$	105,000,585			$	111,043,363
Net asset value per share
(42,917 and 41,639 shares issued and outstanding at December 31, 2012 and December 31, 2011, respectively; 4,999,802 shares authorized)		$	2,339.85			$	2,547.51

 

See notes to financial statements.

ALPHAMETRIX WC DIVERSIFIED FUND — MT0041
(A Cayman Islands Exempted Limited Liability Company)

 

CONDENSED SCHEDULE OF INVESTMENTS
DECEMBER 31, 2012
(Expressed in U.S. dollars)

 

			Number of Contracts				Fair Value				Percent of Shareholders’ Equity (Net Assets)
Long positions:
Domestic
Futures contracts
Agriculture			198			$	(329,610	)			(0.33	)%
Currency			1,906				(200,045	)			(0.20	)
Energy			56				136,806				0.14
Index			1,040				(557,293	)			(0.55	)
Interest			3,331				(240,790	)			(0.24	)
Metals			119				(1,038,764	)			(1.03	)
Forward currency contracts
Forwards							(107,956	)			(0.11	)
Foreign
Futures contracts
Agriculture			8				(1,302	)			—
Energy			34				(2,507	)			—
Index			1,820				1,602,453				1.59
Interest			3,597				1,165,235				1.15
Metals			209				(313,152	)			(0.31	)
Forward currency contracts
Forwards							(32,575	)			(0.03	)
Total long positions							80,500				0.08
Short positions:
Domestic
Futures contracts
Agriculture			577				48,454				0.05
Currency			555				3,776,038				3.76
Energy			224				(374,758	)			(0.37	)
Index			12				(4,165	)			—
Interest			8				(279	)			—
Metals			13				(45,400	)			(0.05	)
Forward currency contracts
Forwards							611,526				0.61
Foreign
Futures contracts
Agriculture			8				(273	)			—
Currency			420				8,278				0.01
Interest			138				(27,002	)			(0.03	)
Metals			150				(753,300	)			(0.75	)
Forward currency contracts
Forwards							4,711				—
Total short positions							3,243,830				3.23
Investments - at fair value, net						$	3,324,330				3.31	%

 

See notes to financial statements.

ALPHAMETRIX WC DIVERSIFIED FUND - MT0041
(A Cayman Islands Exempted Limited Liability Company)

 

CONDENSED SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
(Expressed in U.S. Dollars)

 

		Number of Contracts				Fair Value				Percent of Shareholders’ Equity (Net Assets)
Long positions:
Domestic
Options on futures contracts
Index (Cost: $22,300)			24			$	8,048				0.01	%
Futures contracts
Agriculture			138				(175,423	)			(0.17	)
Currency			716				995,790				0.94
Energy			266				40,424				0.04
Index			412				249,723				0.24
Interest			2,214				879,400				0.83
Metals			86				(1,323,365	)			(1.25	)
Forward currency contracts
Forwards							49,980				0.05
Foreign
Futures contracts
Currency			50				(3,926	)			—
Index			69				40,920				0.04
Interest			3,905				3,165,632				2.98
Metals			275				(380,292	)			(0.36	)
Forward currency contracts
Forwards							(49,263	)			(0.05	)
Total long positions							3,497,648				3.30
Short positions:
Domestic
Options on futures contracts
Index (proceeds: $45,665)			24				(18,565	)			(0.02	)
Futures contracts
Agriculture			845				(473,316	)			(0.45	)
Currency			1,490				2,595,575				2.45
Energy			375				329,954				0.31
Index			114				12,737				0.01
Interest			298				(32,688	)			(0.03	)
Metals			24				(13,028	)			(0.01	)
Forward currency contracts
Forwards							5,963				—
Foreign
Futures contracts
Agriculture			83				128,736				0.12
Energy			6				19,965				0.02
Index			137				29,970				0.03
Interest			33				7,595				0.01
Metals			528				806,851				0.76
											(Continued	)

ALPHAMETRIX WC DIVERSIFIED FUND - MT0041
(A Cayman Islands Exempted Limited Liability Company)

 

CONDENSED SCHEDULE OF INVESTMENTS
DECEMBER 31, 2011
(Expressed in U.S. Dollars)

 

										Percent of Shareholders’ Equity (Net
						Fair Value				Assets)
Foreign
Forward currency contracts
Forwards						$	49,461				0.05	%
Total short positions							3,449,210				3.25
Investments - at fair value						$	6,946,858				6.55	%
							Percent of Shareholders’ Equity (Net				% Ownership
Investments in fund			Fair Value				Assets)				of Fund
AlphaMosaic SPC - Offshore Platform Cash Account1		$	60,757,195				57.28	%			38.68	%
1 Invests in short-term liquid cash equivalents and has daily liquidity, see Note 5.
See notes to financial statements.											(Concluded	)

ALPHAMETRIX WC DIVERSIFIED FUND — MT0041
(A Cayman Islands Exempted Limited Liability Company)

 

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012 and 2011
(Expressed in U.S. dollars)
		2012				2011
INVESTMENT INCOME:
Interest income		$	28,925			$	30,118
Interest income- AlphaMosaic SPC - Offshore Platform Cash Account (Note 5)			—				443,375
Total income			28,925				473,493
EXPENSES:
Trading costs			332,028				322,413
Interest expense			20,219				—
Cash Manager Fees - AlphaMosaic SPC - Offshore Platform Cash Account (Note 5)			—				57,510
Sponsor fee - AlphaMosaic SPC - Offshore Platform Cash Account (Note 5)			—				292,286
Bank fees			—				75
Total expenses			352,247				672,284
NET INVESTMENT INCOME/(LOSS)			(323,322	)			(198,791	)
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain/(loss) from:
Investments			(4,345,693	)			41,008,123
Investments in AlphaMosaic SPC - Offshore Platform Cash Account (Note 5)			—				(251,163	)
Foreign currency transactions			(155,114	)			129,203
			(4,500,807	)			40,886,163
Net increase/(decrease) in unrealized appreciation/(depreciation) on:
Investments			(3,645,893	)			(7,141,553	)
Investments in AlphaMosaic SPC - Offshore Platform Cash Account (Note 5)			—				184,223
Translation of assets and liabilities denominated in foreign currencies			215,260				(176,203	)
			(3,430,633	)			(7,133,533	)
Net realized and unrealized gain/(loss) on investments and foreign currency			(7,931,440	)			33,752,630
Net increase/(decrease) in net assets resulting from operations		$	(8,254,762	)		$	33,553,839

 

See notes to financial statements.

ALPHAMETRIX WC DIVERSIFIED FUND — MT0041
(A Cayman Islands Exempted Limited Liability Company)

 

STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 2012 and 2011 (Expressed in U.S. dollars)
		2012				2011
Changes in net assets from operations:
Net investment income/(loss)		$	(323,322	)		$	(198,791	)
Net realized gain/(loss) from investments and foreign currency transactions			(4,500,807	)			40,886,163
Net increase/(decrease) in unrealized appreciation/(depreciation) on investments and translation of assets and liabilities denominated in foreign currencies			(3,430,633	)			(7,133,533	)
Net increase/(decrease) in net assets resulting from operations			(8,254,762	)			33,553,839
Changes in net assets from capital transactions:
Proceeds from issuance of shares to investors			38,469,864				71,519,601
Redemptions of shares by investors			(35,872,215	)			(171,265,547	)
Net increase/(decrease) in net assets resulting from capital transactions			2,597,649				(99,745,946	)
Increase/(decrease) in net assets			(5,657,113	)			(66,192,107	)
NET ASSETS — Beginning of Year			106,075,212				172,267,319
NET ASSETS — End of Year		$	100,418,099			$	106,075,212

 

See notes to financial statements.

AlphaMetrix WC Diversified Fund — MT0041

(A Cayman Islands Exempted Limited Liability Company)

 

Notes to the Financial Statements

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

1.

Organization and Structure

 

AlphaMetrix WC Diversified Fund — MT0041 (the “Master Fund”) was incorporated on December 22, 2008 in the Cayman Islands as an exempted company with limited liability. The Master Fund was created to serve as the trading entity managed by Winton Capital Management Ltd. (the “Trading Advisor”) pursuant to its Diversified Program (the “Program”). The Program is systematically trading over numerous futures markets including grains, metals, softs, energies, meats, and financials. Trend-following in nature, the Trading Advisor’s system uses technical analysis to identify market trends. The strategy consists of a multiple of systems – four long-term models and one short-term model.

 

The Master Fund and other separately incorporated offshore investment vehicles (“Other Master Funds”)are investment vehicles available under the AlphaMetrix Managed Account Platform (the “Platform”). The Master Fund and the Platform are sponsored by AlphaMetrix, LLC (the “Sponsor” or “AlphaMetrix”) as a means of making available to qualified highnet-worth individuals and institutional investors (including funds of hedge funds) (“Investors”) a variety of third-party professional managed futures and foreign exchange advisors (“Advisors”). The Trading Advisor is not affiliated with the Sponsor.

 

AlphaMosaic (US) LLC, a Delaware Series Limited Liability Company (the “U.S. Platform”), and AlphaMosaic SPC, a Cayman Islands Segregated Portfolio Company (the “Offshore Platform”), serve as the feeder funds for the Platform and invest substantially all of the assets of their respective segregated portfolios (each a “Fund”) in the Master Fund or Other Master Funds. AlphaMosaic (US) LLC — Cell No. 41 (“LLC41”), a separate series of the U.S. Platform and AlphaMosaic SPC — SP 41 Segregated Portfolio (“SPC41”), a segregated portfolio of the Offshore Platform, each invest in the Master Fund. To the extent that any investor in LLC41 and SPC41 elects to invest below the maximum available funding factor applicable to the Master Fund, LLC41 and SPC41 invest in the AlphaMosaic US LLC - Platform Cash Account and AlphaMosaic SPC - Offshore Platform Cash Account (“OPCA”), respectively. The Master Fund also invests in the OPCA (see Note 5).

 

AlphaMetrix Managed Futures III LLC (AlphaMetrix WC Diversified Series), a Delaware Series Limited Liability Company (“AM III LLC”), and its two Sub-Series (B-0 and B-2), each a “Sub-Series”, also serves as a feeder fund and invests a portion of the assets of the Sub-Series in the Master Fund or Other Master Funds.

 

LLC41, SPC41, AM III LLC Sub-Series B-0 and AM III LLC Sub-Series B-2 are collectively hereafter referred to as the “Feeder Funds”.

 

Subscriptions and redemptions into the Feeder Funds and the corresponding transactions with the Master Fund are governed by the U.S. Platform, Offshore Platform, and AlphaMetrix Managed Futures III LLC’s respective Confidential Offering Memorandum.

 

The Master Fund is managed by its Board of Directors (“Directors”). The Directors have delegated the day-to-day operations of the Master Fund to service providers, including the Sponsor and the Master Fund’s administrator. There are no service contracts, existing or proposed, between the Master Fund and any Director, aside from the fiduciary responsibility that each Director serves in fulfillment of his or her respective role as Director of the Master Fund.

The Sponsor was formed in May 2005 and its principal office is located in Chicago, Illinois. The Sponsor is registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a commodity pool operator and commodity trading advisor, with the Securities and Exchange Commission (“SEC”) as a Registered Investment Advisor (“RIA”), and registered transfer agent (“RTA”), and is a member of the National Futures Association (“NFA”).

 

The Master Fund has appointed the Sponsor, under the terms of a trading management agreement (the “Trading Management Agreement”), to manage, with wide discretionary powers, the portfolio of the Master Fund. Under the Trading Management Agreement, the Directors have delegated to the Sponsor full authority in respect of all matters relating to the investment and portfolio management of the Master Fund.

 

Pursuant to the Trading Management Agreement, the Directors have also delegated to the Sponsor authority to select the administrator for the Master Fund. The Trading Management Agreement will continue and remain in force until terminated by either the Sponsor or the Master Fund upon not less than thirty (30) days’ prior written notice. In certain circumstances (for example, the insolvency of either party or in the event all trading for the Master Fund by the Trading Advisor is suspended), the Trading Management Agreement may be terminated immediately by either party.

 

The Master Fund and the Sponsor have entered into a contract (the “Trading Agreement”) with the Trading Advisor pursuant to which the Master Fund’s trading accounts are managed, subject to rights of termination, by the Trading Advisor in accordance with its Program. The Trading Advisor may alter its Program (including its trading systems and methods and including the addition and/or deletion of any financial interests or contracts traded in the Master Fund’s trading accounts), provided that the Trading Advisor provides prior notice to the Master Fund and the Sponsor of any material change to the Trading Advisor’s Program. From time to time, the Trading Advisor (or its affiliates) may manage additional accounts, and these accounts will increase the level of competition for the same trades desired for the Master Fund, including the priorities of order entry. There is no specific limit as to the number of accounts the Trading Advisor (or its affiliates) may manage. In addition, the positions of all of the accounts owned or controlled by the Platform’s Trading Advisors (or their affiliates) are aggregated for the purposes of applying speculative position limits. The management and incentive fees due to the Trading Advisor, in accordance with the Trading Agreement, are paid by the Sponsor who in turn receives management and incentive fees calculated, recorded and allocated to the Investors by the Feeder Funds in accordance with the U. S. Platform, Offshore Platform, and AlphaMetrix Managed Futures III LLC’s respective Confidential Offering Memorandum.

 

2

Summary of Significant Accounting Policies

 

The accounting records of the Master Fund are maintained in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Following is a summary of significant accounting policies consistently followed in the preparation of the Master Fund’s financial statements.

 

Cash — Cash held in the commodity trading account at the clearing brokers consists of either cash maintained in the custody of the brokers, a portion of which is required margin for open positions, or amounts due to/from the brokers for margin or unsettled trades. The Master Fund also holds cash in a non-interest bearing United States dollar (“USD”) commercial bank account. The Master Fund holds various currencies at the clearing brokers, of which approximately $62,385,447 and $30,540,432 is held in USD and $10,030,391 and $4,107,973 in foreign currencies as of December 31, 2012 and 2011, respectively. The non-U.S. currencies fluctuate in value on a daily basis relative to the USD. A portion of this cash is restricted cash required to meet maintenance margin requirements. Cash with the clearing brokers as of December 31, 2012 and 2011 included restricted

cash for margin requirements of $34,058,099 and $22,216,652, respectively. This cash becomes unrestricted when the underlying positions to which it is applicable are liquidated.

 

Depending on the Program and investments traded, the Master Fund follows the following valuation and revenue recognition policies:

 

Valuation and Revenue Recognition —

 

Futures and Options on Futures Contracts — The Master Fund may enter into futures and options on futures contracts. Upon entering into a futures contract, the Master Fund agrees to receive or deliver a fixed quantity of an underlying instrument or commodity for an agreed-upon price. An option contract provides the option purchaser with the right, but not the obligation, to buy or sell a security or financial instrument at a predetermined exercise price during a defined period. An option contract requires the option writer to buy or sell that security or financial instrument at the same predetermined exercise price during the defined period. Futures and options on futures contracts are recorded on the trade date. The difference between the original contract amount and the fair value of futures contracts purchased or sold is reflected as unrealized appreciation/(depreciation) on open contracts. Options on futures contracts are reflected in investments at fair value. The difference between the premiums paid or received on open options on futures contracts and fair value of such options is recorded as unrealized appreciation/(depreciation) on open contracts. The fair value of futures and options on futures contracts is based upon daily exchange settlement prices. The realized gain or loss is determined on the settlement of intraday trades first and then by the first-in-first-out (“FIFO”) method.

 

Forward Currency Contracts — Forward currency contracts, agreements to exchange one currency for another at a future date and at a specified price, are recorded on the trade date. The difference between the original contract amount and fair value of the open forward currency contract is reflected as unrealized appreciation/(depreciation) on open contracts. Realized gain or loss is recognized when the open contract is closed on its settlement date. Fair value of forward currency contracts is determined daily at closing and based on broker quotes received from interbank foreign currency markets.

 

Foreign Currency Transactions — The Master Fund’s financial statements are denominated in USD. However, forward currency contracts, non-U.S. futures contracts, and non-U.S. options on futures contracts are denominated in currencies other than USD. Assets and liabilities and transactions denominated in currencies other than the USD are translated into USD at the rates in effect either at the close of business on the last business day of the reporting period or on the date of such transactions, respectively. Such fluctuations are included within the unrealized appreciation on open contracts, net. The Master Fund does not separate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in the fair value of investments held on the Statement of Operations. Net realized foreign exchange gains or losses arise from the sales of foreign currencies and currency gains or losses realized between trade and settlement dates. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities resulting from changes in exchange rates.

 

Investment in AlphaMosaic SPC - Offshore Platform Cash Account — The Master Fund’s investment in the OPCA is carried at fair value and represents the Master Fund’s pro rata interest in the net assets of the OPCA as of the close of business on the relevant valuation date.  Substantially all of the assets of the OPCA are carried at fair value.  At each valuation date, the OPCA’s income, expenses, net realized gain/(loss) and net increase/decrease in unrealized

appreciation/(depreciation) are allocated to the Master Fund, based on the Master Fund’s pro rata interest in the net assets of the OPCA, and recorded in the Statement of Operations (See Note 5).

 

Interest Income/Expense — Interest income and expense is recognized on an accrual basis. 

 

Trading Costs — Trading costs generally consist of brokerage commissions, brokerage fees, clearing fees, exchange and regulatory fees, and transaction and NFA fees. Fees vary by type of contract for each purchase and sale or sale and purchase (round turn) of futures, options on futures, and forward currency contracts. Commissions are paid on each individual investment transaction.

 

Operating Costs — Operating costs consist of legal, compliance, regulatory, audit, tax, administration, and other costs. In accordance with each Feeder Fund’s respective Confidential Offering Memorandum, each Feeder Fund is responsible for and will bear its pro rata share of its corresponding Master Fund’s operating costs.

 

Income Taxes — The Master Fund follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, Income Taxes (“ASC 740”), related to accounting for uncertainty in income taxes. ASC 740 prescribes the minimum recognition threshold a tax position must meet in connection with accounting for uncertainties in income tax positions taken or expected to be taken by an entity before being measured and recognized in the financial statements. ASC 740 requires the evaluation of tax positions taken in the course of preparing the tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. As of December 31, 2012 and 2011, the Master Fund recognized no liability in connection with ASC 740. The Master Fund is subject to U.S. Federal, state and local or non-US income tax examinations by tax authorities for all tax years since inception.

 

As the Master Fund is a partnership for tax purposes, the Master Fund’s investors are individually responsible for reporting income or loss based on each investor’s share of the Master Fund’s income and expenses as reported for income tax purposes.

 

Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

 

Indemnifications — The Sponsor and Directors are indemnified against certain liabilities arising out of the performance of their duties for the Master Fund. In addition, in the normal course of business, the Master Fund enters into contracts with vendors and others that provide for general indemnifications. The Master Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Master Fund. However, the Master Fund expects the risk of loss to be remote.

 

3.

FAIR VALUE MEASUREMENTS

 

Fair Value Measurements and Disclosures — The Master Fund’s investments are stated at fair value in accordance with FASB ASC 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being

quoted prices in an active market. Under ASC 820, fair value measurements are disclosed by level within that hierarchy, as follows:

 

Level 1 — Values for investments classified as Level 1 are based on unadjusted quoted prices for identical investments in an active market. Since valuations are based on quoted prices that are readily accessible at the measurement date, valuation of these investments does not entail a significant degree of judgment.

 

Level 2 — Values for investments classified as Level 2 are based on quoted prices for similar investments in active or non-active markets for which all significant inputs are observable either directly or indirectly. Level 2 inputs may also include discounts related to restrictions on the investments.

 

Level 3 — Values for investments categorized as Level 3 are based on prices or valuation techniques that require inputs that are both significant to the fair value and unobservable, including valuations by the Sponsor in the absence of readily ascertainable fair values.

 

In December 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities. The update creates new disclosure requirements requiring entities to disclose both gross and net information for recognized derivative instruments and financial instruments that are either offset in the Statement of Financial Condition or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Sponsor is currently evaluating the impact of the ASU’s adoption on the Master Fund’s financial statement disclosures.

 

A description of the valuation methodologies applied to the Master Fund’s major categories of assets and liabilities measured at fair value on a recurring basis follows. Inputs that are used in determining fair value of an investment may include price information, credit data, volatility statistics, and other factors. These inputs can be either observable or unobservable. All of the inputs for the Master Fund are observable. The availability of observable inputs can vary between investments and is affected by various factors such as type of investment and the volume and level of activity for that investment or similar investments in the marketplace.

 

Exchange-traded derivative contracts that are actively traded are valued based on daily quoted settlement prices from the respective exchange and are categorized in Level 1 of the fair value hierarchy. Exchange-traded derivative contracts not actively traded and over-the-counter (“OTC”) derivative contracts can include futures contracts, options on futures contracts, forward currency contracts and option contracts whose values are based on an underlying reference, such as interest rates, foreign currencies, credit standing of reference entities, equities or commodities. Such derivative contracts are valued using observable market data, including currency spot rates or quoted prices of the related underlying reference, obtained from the applicable exchange or market. OTC derivative contracts are valued using the above described pricing methodology and are categorized as Level 2 within the fair value hierarchy.

 

There were no transfers between levels for the years ended December 31, 2012 and 2011.

 

The inputs or methodologies used for valuing investments are not necessarily indicative of the risk associated with investing in those instruments.

 

The investment in AlphaMosaic SPC – Offshore Platform Cash Account is classified as Level 2 since it is fully redeemable as of December 31, 2011 at its net asset value (see Note 5).

The following tables present the classification of investments, by type, into the above hierarchy levels as of December 31, 2012 and 2011. Presentation is gross – as an asset if in a gain position and a liability if in a loss position.

 

						Fair Value Measurements at Reporting Date Using
							Quoted Prices in
							Active Markets for				Significant Other				Significant
			Fair Value at				Identical Investments				Observable Inputs				Unobservable Inputs
Description			December 31, 2012				(Level 1)				(Level 2)				(Level 3)
Assets
Futures contracts
Agriculture		$	309,385			$	309,385			$	—			$	—
Currency			4,600,247				4,600,247				—				—
Energy			235,703				235,703				—				—
Index			2,172,308				2,172,308				—				—
Interest			1,866,312				1,866,312				—				—
Metals			163,204				163,204				—				—
Forward currency contracts			939,255				—				939,255				—
Total investment assets at fair value			10,286,414				9,347,159				939,255				—
Liabilities
Futures contracts
Agriculture			(592,115	)			(592,115	)			—				—
Currency			(1,015,976	)			(1,015,976	)			—				—
Energy			(476,162	)			(476,162	)			—				—
Index			(1,131,313	)			(1,131,313	)			—				—
Interest			(969,149	)			(969,149	)			—				—
Metals			(2,313,820	)			(2,313,820	)			—				—
Forward currency contracts			(463,549	)			—				(463,549	)			—
Total investment liabilities at fair value			(6,962,084	)			(6,498,535	)			(463,549	)			—
Total investments at fair value - net*		$	3,324,330			$	2,848,624			$	475,706			$	—

 

* Located on the Statement of Financial Condition as Investments, at fair value.

						Fair Value Measurements at Reporting Date Using
							Quoted Prices in
							Active Markets for				Significant Other				Significant
			Fair Value at				Identical Investments				Observable Inputs				Unobservable Inputs
Description			December 31, 2011				(Level 1)				(Level 2)				(Level 3)
Assets
Investment In AlphaMosaic SPC - Offshore Platform Cash Account		$	60,757,195			$	—			$	60,757,195			$	—
Options on futures contracts
Index			8,048				8,048				—				—
Futures contracts
Energy			747,739				747,739				—				—
Metals			1,131,637				1,131,637				—				—
Interest			4,284,861				4,284,861				—				—
Index			424,442				424,442				—				—
Currency			3,696,178				3,696,178				—				—
Agriculture			692,540				692,540				—				—
Forward currency contracts			177,092				—				177,092				—
Total investment assets at fair value			71,919,732				10,985,445				60,934,287				—
Liabilities
Options on futures contracts
Index			(18,565	)			(18,565	)			—				—
Futures contracts
Energy			(357,396	)			(357,396	)			—				—
Metals			(2,041,471	)			(2,041,471	)			—				—
Interest			(264,922	)			(264,922	)			—				—
Index			(91,092	)			(91,092	)			—				—
Currency			(108,739	)			(108,739	)			—				—
Agriculture			(1,212,543	)			(1,212,543	)			—				—
Forward currency contracts			(120,951	)			—				(120,951	)			—
Total investment liabilities at fair value			(4,215,679	)			(4,094,728	)			(120,951	)			—
Total investments at fair value - net*		$	67,704,053			$	6,890,717			$	60,813,336			$	—

 

*	Located on the Statement of Financial Condition as Investments, at fair value, Options on futures contracts, at fair value, and Investment in AlphaMosaic SPC Offshore Platform Cash Account, at fair value.

4.

Derivative Financial Instruments

 

Derivative financial instruments speculatively traded by the Master Fund can include U.S. and foreign futures and options on futures contracts and forward currency contracts (collectively, “derivatives”) whose values are based upon an underlying asset, indices, or reference rates, and generally represent future commitments to exchange cash flows, or to purchase or sell other financial instruments at specified future dates. Derivatives may be traded on an exchange or OTC. Exchange-traded derivatives are standardized and include futures and options on futures contracts. OTC derivatives are negotiated between contracting parties and include forward currency contracts and certain options. Derivatives are subject to various risks similar to those related to the underlying financial instruments including market and credit risks.

 

Market risk is the potential for changes in the fair value of derivatives due to market changes, including interest and foreign exchange rate movements and fluctuations in commodity and security prices. Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded. The market risk of the Master Fund is managed by the underlying Trading Advisor according to its Program. The Master Fund is exposed to a market risk equal to the notional contract value of the derivatives contracts purchased and unlimited liability on such contracts sold short.

 

Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. Credit risk due to exchange traded financial instruments is significantly reduced by the regulatory requirements of the individual exchanges on which the instruments are traded. At any point in time, the credit risk for OTC derivatives is limited to the net unrealized gain for each counterparty for which a netting agreement exists, if any. In a similar fashion, liabilities represent net amounts owed to counterparties. As of December 31, 2012 and 2011, the credit risk exposure for the Master Fund’s outstanding OTC derivatives is $475,706 and $56,141.

 

Purchase and sale of futures contracts requires margin deposits with a broker. Additional deposits may be necessary for any loss on contract value. The U.S. Commodity Exchange Act requires a broker to segregate all customer transactions and assets from such broker’s proprietary activities. A customer’s cash and other property (for example, U.S. Treasury bills) deposited with a broker are considered commingled with all other customer funds subject to the broker’s segregation requirements. In the event of a broker’s insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than total cash and other property deposited.

 

The Master Fund trades forward currency contracts in unregulated markets between principals and assumes the risk of loss from counterparty nonperformance. Accordingly, the risks associated with forward currency contracts are generally greater than those associated with exchange traded contracts because of the greater risk of counterparty default. Additionally, the trading of forward currency contracts typically involves delayed cash settlement.

 

The Master Fund has a substantial portion of its assets on deposit with counterparties. In the event of a counterparty’s insolvency, recovery of the Master Fund’s assets on deposit may be limited to account insurance or other protection afforded such deposits.

To evaluate and monitor counterparty risk for each counterparty, the AlphaMetrix Risk Department initially evaluates the credit ratings from the major agencies: Moody’s, Standard & Poor’s and Fitch Ratings. Credit ratings and outlooks are monitored daily for downgrades whereby an investigation is initiated upon an adverse occurrence. Further, any large decline in the daily stock price also triggers an investigation. Lastly, quarterly reports on earnings and future outlooks from counterparties are reviewed and analyzed for unfavorable results by the AlphaMetrix Risk Department.

 

FASB ASC 815, Derivatives and Hedging (“ASC 815”) requires qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements.

 

Pursuant to the Program, the Master Fund engages in the speculative trading of derivatives. These derivatives include both financial and non-financial contracts held as part of a diversified trading strategy. The Master Fund is exposed to both market risk, the risk arising from changes in the fair value of the contracts, and credit risk with the clearing broker, the risk of failure by another party to perform according to the terms of a contract.

 

At December 31, 2012 and 2011, the Master Fund had open positions with the following notional values by sector:

 

			2012								2011
Description			Quantity				Notional Value				Quantity				Notional Value
Long
Futures contracts
Agriculture			206			$	7,934,924				138			$	6,630,393
Currency			1,906				196,936,123				766				98,901,838
Energy			90				11,365,253				266				28,092,824
Index			2,860				192,932,539				481				28,155,268
Interest			6,928				1,720,012,429				6,119				1,485,123,919
Metals			328				36,380,526				361				31,355,082
Short
Futures contracts
Agriculture			(585	)			(19,938,260	)			(928	)			(32,560,137	)
Currency			(975	)			(84,357,523	)			(1,490	)			(173,829,790	)
Energy			(224	)			(16,012,187	)			(381	)			(30,550,481	)
Index			(12	)			(99,960	)			(251	)			(13,071,976	)
Interest			(146	)			(54,271,555	)			(331	)			(99,683,182	)
Metals			(163	)			(18,446,656	)			(552	)			(37,516,519	)

 

At December 31, 2011, the Master Fund held 24 long index options on futures contracts and 24 short index options on futures contracts.

 

During 2012, the Master Fund participated in 5,301 forward currency, 88,648 futures and 74 options on futures contract transactions.

 

During 2011, the Master Fund participated in 3,414 forward currency, 87,648 futures and 95 options on futures contract transactions.

 

The effect of trading derivative contracts on the Statements of Operations for the years ended December 31, 2012 and 2011 is detailed below:

			Net Trading Gain/(Loss)*				Net Trading Gain/(Loss)*
			for the year ended				for the year ended
			December 31, 2012				December 31, 2011
Options on futures contracts:
Index		$	126,012			$	159,033
Futures contracts:
Agriculture			(4,494,672	)			1,265,488
Currency			(7,887,401	)			2,013,711
Energy			(6,019,444	)			4,690,781
Index			2,040,118				(4,382,778	)
Interest			16,109,258				24,604,422
Metals			(7,030,401	)			5,906,704
Total futures and options on futures contracts			(7,156,530	)			34,257,361
Forward currency contracts			(835,056	)			(390,791	)
Total net trading gain/(loss)		$	(7,991,586	)		$	33,866,570

 

* Includes both realized of ($4,345,693) and $41,008,123 and unrealized of ($3,645,893) and ($7,141,553) gains/(losses) for the years ended December 31, 2012 and 2011. Both are located in Net Realized and Unrealized Gain/(Loss) on Investments and Foreign Currency in the Statements of Operations. Amounts exclude foreign currency transactions and translation.

 

5.

INVESTMENT IN ALPHAMOSAIC SPC - OFFSHORE PLATFORM CASH ACCOUNT

 

As a means of efficient and effective cash management, the Master Fund invested in OPCA during 2011. The Master Fund liquidated its investment in the OPCA on January 16, 2012. The OPCA is a related-party vehicle maintained by the Sponsor within the Offshore Platform that strategically manages cash utilizing highly liquid cash-equivalent holdings with only the highest credit ratings. The OPCA’s investments are carried at fair value and are readily convertible to cash upon demand. The Sponsor maintains the OPCA with one or more custodians (each, a “Cash Custodian”), and the OPCA is managed by one or more third-party cash managers (each, a “Cash Manager”) which may include the Sponsor, the Cash Custodian and/or any of their respective affiliates. Subscriptions and redemptions into/out of the OPCA can be done daily. At December 31, 2012 and 2011, the Cash Custodian is JP Morgan Chase Bank. Beginning on January 13, 2012, the Cash Manager was AlphaMetrix LLC. Prior to January 13, 2012, the Cash Manager was Horizon Cash Management L.L.C.

 

Irrespective of the actual investments made by the OPCA at the direction of the Cash Manager, for the Master Fund’s investment in the OPCA, the OPCA will credit the Master Fund with interest in an amount equal to the lower of (i) 90% of the 3-month U.S. Treasury Bill rate, after transaction costs, or (ii) the Master Fund’s pro rata share of the amount of the actual return earned, after transaction costs, by the OPCA. The Sponsor fee is equal to the net of interest income earned by the OPCA that is greater than 90% of the 3-month U.S. Treasury Bill rate less transaction costs.  The Cash Manager charges an annual management fee of not greater than 0.09% (depending on the amounts of assets under management), payable monthly, computed daily on the assets under its management. All income and expenses are allocated pro rata to the investors in the OPCA.

The OPCA is exposed to counter-party risk. To mitigate this risk, the Sponsor has established that the OPCA’s assets be invested in highly liquid investments with only the highest credit ratings and maintained by a separate third party Cash Custodian under the terms of a written custody agreement,

such that the OPCA assets are maintained in a separate segregated account with the Cash Custodian. Further, while the OPCA investments are made at the discretion of the Cash Manager in accordance with the terms of a written cash management agreement, the custody of the investments at all times remains with the Cash Custodian. Investment activity by the Cash Manager is monitored on a daily basis by the AlphaMetrix, LLC Risk Group to ensure that the investments are within the parameters of the cash management agreement. The OPCA investments are reconciled daily between the Cash Custodian’s statement and the Cash Manager’s statement.

 

The Master Fund’s investment in the OPCA also exposes the Master Fund to credit risk which is limited to the Master Fund’s investment in and receivable from the OPCA.

 

With respect to the OPCA investments at December 31, 2011, none were greater than 5% of OPCA’s net assets, there were no concentrations with a single issuer that exceeded 5%, and all of the issuers were domiciled in the United States. None of the Master Fund’s pro rata share of each of the OPCA investments were greater than 5% of the Master Fund’s net assets.

 

The following is a summary of the OPCA investments at December 31, 2011. All percentages are in relation to the net assets of the OPCA. All investments are long positions. These investments matured in January 2012.

 

			2011
			% of OPCA
Types of Investments			Net Assets
Short-Term Commercial Paper			31.18
Total			31.18	%

 

During 2011, various industries were represented within the OPCA of which the following industries exceeded 5% of the net asset value of the OPCA at December 31, 2011: Diversified Financials 8.91% and Energy 8.91%.

 

6.

Allocation of Master Fund’S Income and Gains and Losses

 

Profits and losses of the Master Fund are allocated pro-rata among the participating shareholders (Feeder Funds) holding interests in the Master Fund.

 

7.

Related Parties

 

AlphaMetrix Alternative Investment Advisors, LLC (“AlphaMetrix AIA”), an independent research affiliate of the Sponsor, was formed in August 2007. AlphaMetrix AIA is a registered CFTC commodity trading advisor and member of the NFA. AlphaMetrix AIA is responsible for the initial due diligence of the Trading Advisors that are being considered for the Platform. While AlphaMetrix AIA conducts due diligence and recommends Trading Advisors for the Platform, the Sponsor is ultimately responsible for the selection of all Trading Advisors to be added to the Platform. Currently, AlphaMetrix AIA receives no direct compensation for the services provided.

 

AlphaMetrix360 Cayman, Ltd. (“AlphaMetrix360 Cayman”), an affiliate of the Sponsor, serves as administrator (“Administrator”) for the Master Fund.

8.

NAV Verification agent

 

Custom House Fund Services (Chicago) LLC (“Custom House”) has been retained by the Platform to serve as a NAV Verification Agent and perform certain net asset value verification procedures for each Master Fund pursuant to a NAV Verification Agreement (the “NAV Verification Agreement”), entered into by Custom House, the Sponsor, the Platform and the Administrator. Under the terms of the NAV Verification Agreement, Custom House communicates the results of its procedures to each investor.

 

9.

Capital Structure

 

The share capital of the Master Fund is US$50,000 divided into (i) 2 voting, non-participating management shares of a nominal or par value of US$1.00 each and (ii) 4,999,800 non-voting, participating portfolio shares each being a non-voting share each of a nominal or par value of US$0.01 each. A Management Share was allotted and issued to the subscriber to the Memorandum of Association and has been transferred to the Sponsor. The remaining Management Share has been allotted and issued to the Sponsor at par and both are fully paid. Subscriptions and redemptions into the Master Fund are allowed on a bi-monthly basis and transacted at the current net asset value at the time of the subscription or redemption.

 

The analysis of changes in shares (rounded to the nearest whole share) for the year is as follows:

 

			2012				2011
Shares outstanding — Beginning of Year			41,639				83,286
Shares subscribed			15,930				31,898
Shares redeemed			(14,652	)			(73,545	)
Shares outstanding — End of Year			42,917				41,639

 

10.

Financial Highlights

 

Financial highlights of the Master Fund for the years ended December 31, 2012 and 2011, are presented in the table below. The information has been derived from information presented in the financial statements.

 

Regarding the information shown in the table below:

 

·

Per share operating performance is computed based upon either actual number of shares outstanding at the beginning and end of the year or the weighted-average net shares for the years ended December 31, 2012 and 2011. Weighted average shares are computed using the month-end and mid-month shares outstanding.

 

·

Total return is calculated as the change in the net asset value per share for the years ended December 31, 2012 and 2011.

 

·

The net investment loss and total expense ratios are computed based upon the weighted average net assets for the years ended December 31, 2012 and 2011. Weighted average net assets are computed using the average of month-end and mid-month net assets.

An individual shareholder’s total return and ratios may vary from those below based on the timing of capital transactions.

 

			Year Ended December 31, 2012				Year Ended December 31, 2011
Net asset value — Beginning of Year		$	2,547.51			$	2,068.38
Per share data (for a share outstanding throughout the year):
Net investment loss			(7.25	)			(3.35	)
Net realized and unrealized gain/(loss) on investments and foreign currency			(200.41	)			482.48
Total from investment operations			(207.66	)			479.13
Net asset value — End of Year		$	2,339.85			$	2,547.51
Total return			(8.15	)%			23.16	%
Ratio to average net assets:
Net investment loss			(0.30	)%			(0.15	)%
Total expenses			0.33	%			0.50	%

 

11.

SUBSEQUENT EVENTs

 

In accordance with FASB ASC 855, Subsequent Events, the Sponsor has evaluated all subsequent events requiring recognition and disclosure in the Master Fund’s financial statements through April 11, 2013, the date the financial statements were available for issuance. The Sponsor has determined that,except as discussed below, there are no material events that would require recognition or disclosure in the Master Fund’s financial statements through this date.

 

Between January 1, 2013 and April 11, 2013, the Master Fund had subscriptions of $1,750,461 and redemptions of $40,608,082, exclusive of any capital activity accrued as of December 31, 2012.

 

******

AlphaMetrix WC Diversified Fund — MT0041

(A Cayman Islands Exempted Limited Liability Company)

 

OATH OF AFFIRMATION OF THE COMMODITY POOL OPERATOR

 

To the best of the knowledge and belief of the undersigned, the information contained in the annual report for the years ended December 31, 2012 and 2011, is accurate and complete.

 

/s/
Aleks Kins, President and Chief Executive Officer
AlphaMetrix, LLC — Sponsor