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Graham Alternative Investment Fund II LLC – ‘10-Q’ for 9/30/19

On:  Thursday, 11/14/19, at 3:22pm ET   ·   For:  9/30/19   ·   Accession #:  1140361-19-20539   ·   File #:  0-53967

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

11/14/19  Graham Alternative Inv Fd II LLC  10-Q        9/30/19   35:3.8M                                   Broadridge Fin’l So… Inc

Quarterly Report   —   Form 10-Q   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    987K 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     18K 
 3: EX-31.2     Certification -- §302 - SOA'02                      HTML     18K 
 4: EX-32.1     Certification -- §906 - SOA'02                      HTML     14K 
27: R1          Document and Entity Information                     HTML     43K 
12: R2          Consolidated Statements of Financial Condition      HTML     40K 
                (Unaudited)                                                      
19: R3          Consolidated Statements of Financial Condition      HTML     22K 
                (Unaudited) (Parenthetical)                                      
34: R4          Consolidated Statements of Operations (Unaudited)   HTML     46K 
29: R5          Consolidated Statements of Changes in Members'      HTML     45K 
                Capital (Unaudited)                                              
14: R6          Consolidated Statements of Cash Flows (Unaudited)   HTML     45K 
21: R7          Organization and Business                           HTML     21K 
35: R8          Summary of Significant Accounting Policies          HTML     24K 
25: R9          Capital Accounts                                    HTML     17K 
22: R10         Fees and Related Party Transactions                 HTML     19K 
15: R11         Income Taxes                                        HTML     17K 
28: R12         Financial Highlights                                HTML    106K 
33: R13         Subsequent Events                                   HTML     15K 
20: R14         Summary of Significant Accounting Policies          HTML     40K 
                (Policies)                                                       
13: R15         Fees and Related Party Transactions (Tables)        HTML     15K 
26: R16         Financial Highlights (Tables)                       HTML    107K 
32: R17         Organization and Business (Details)                 HTML     14K 
18: R18         Summary of Significant Accounting Policies          HTML     20K 
                (Details)                                                        
16: R19         Capital Accounts (Details)                          HTML     29K 
30: R20         Fees and Related Party Transactions (Details)       HTML     37K 
31: R21         Financial Highlights (Details)                      HTML     58K 
23: R22         Subsequent Events (Details)                         HTML     15K 
11: XML         IDEA XML File -- Filing Summary                      XML     55K 
17: EXCEL       IDEA Workbook of Financial Reports                  XLSX     30K 
 5: EX-101.INS  XBRL Instance -- gaifb-20190930                      XML    606K 
 7: EX-101.CAL  XBRL Calculations -- gaifb-20190930_cal              XML     61K 
 8: EX-101.DEF  XBRL Definitions -- gaifb-20190930_def               XML    186K 
 9: EX-101.LAB  XBRL Labels -- gaifb-20190930_lab                    XML    520K 
10: EX-101.PRE  XBRL Presentations -- gaifb-20190930_pre             XML    293K 
 6: EX-101.SCH  XBRL Schema -- gaifb-20190930                        XSD     75K 
24: ZIP         XBRL Zipped Folder -- 0001140361-19-020539-xbrl      Zip     65K 


‘10-Q’   —   Quarterly Report
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Index
"Consolidated Statements of Financial Condition at September 30, 2019 (Unaudited) and December 31, 2018 (Audited)
"Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018
"Unaudited Consolidated Statements of Changes in Members' Capital for the three and nine months ended September 30, 2019 and 2018
"Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018
"Notes to Unaudited Consolidated Financial Statements
"Statements of Financial Condition at September 30, 2019 (Unaudited) and December 31, 2018 (Audited)
"Condensed Schedules of Investments at September 30, 2019 (Unaudited) and December 31, 2018 (Audited)
"Unaudited Statements of Operations and Incentive Allocation for the three and nine months ended September 30, 2019 and 2018
"Unaudited Statements of Changes in Members' Capital for the three and nine months ended September 30, 2019 and 2018
"Unaudited Statements of Cash Flows for the nine months ended September 30, 2019 and 2018
"Notes to Unaudited Financial Statements
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Quantitative and Qualitative Disclosures about Market Risk
"Controls and Procedures
"Part II -- Other Information
"Exhibits

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 C: 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) of the
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to          
Commission File Number 0-53967

GRAHAM ALTERNATIVE INVESTMENT FUND II LLC
BLENDED STRATEGIES PORTFOLIO
(Exact name of registrant as specified in its charter)

Delaware
 
20-4897149
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

c/o GRAHAM CAPITAL MANAGEMENT, L.P.
40 Highland Avenue
Rowayton, CT  06853
(Address of principal executive offices) (Zip Code)

Graham Capital Management, L.P.
40 Highland Avenue
Rowayton, CT  06853
(203) 899-3400
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which
registered
 
None
 
N/A
 
None

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

Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes   No ☐

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

Large accelerated filer
Accelerated filer  ☐
Non-accelerated filer
Smaller reporting company
Emerging Growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).

Yes ☐  No ☒

As of November 1, 2019, 212,609.930 Units of the Blended Strategies Portfolio were outstanding.



GRAHAM ALTERNATIVE INVESTMENT FUND II LLC

BLENDED STRATEGIES PORTFOLIO
FORM 10-Q

INDEX

     
Page
Number
       
PART I - Financial Information:
 
       
 
Item 1.
Financial Statements:
 
       
   
Graham Alternative Investment Fund II LLC Blended Strategies Portfolio
 
       
   
1
       
   
2
       
   
3
       
   
5
       
   
6
       
   
Graham Alternative Investment Trading LLC
 
       
   
14
       
   
15
       
   
16
       
   
17
       
   
19
       
   
20
       
 
Item 2.
60
       
 
Item 3.
68
       
 
Item 4.
69
     
70
     
 
 72

 
Certification
 
Certification
 
Certification


PART I

Item 1.
Financial Statements
Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Consolidated Statements of Financial Condition

   
(Unaudited)
   
(Audited)
 
             
Assets
           
Investment in Graham Alternative Investment Trading LLC, at fair value
 
$
28,037,912
   
$
27,978,759
 
Redemptions receivable from Graham Alternative Investment Trading LLC
   
1,143,544
     
182,935
 
Total assets
 
$
29,181,456
   
$
28,161,694
 
                 
Liabilities and members’ capital
               
Liabilities:
               
Redemptions payable
 
$
1,143,544
   
$
182,935
 
Total liabilities
   
1,143,544
     
182,935
 
                 
Members’ capital:
               
Class 0 Units (111,332.718 and 125,660.811 units issued and outstanding at $151.80 and $133.70, respectively)
   
16,900,484
     
16,801,362
 
Class 2 Units (102,760.337 and 116,424.562 units issued and outstanding at $108.38 and $96.01, respectively)
   
11,137,428
     
11,177,397
 
Total members’ capital
   
28,037,912
     
27,978,759
 
Total liabilities and members’ capital
 
$
29,181,456
   
$
28,161,694
 

See accompanying notes and the attached financial statements of Graham Alternative Investment Trading LLC.

1

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Unaudited Consolidated Statements of Operations

   
Three Months Ended
September 30,
   
Nine Months Ended
 
       
2018
   
2019
   
2018
 
Net gain allocated from investment in Graham Alternative Investment Trading LLC
                       
Net realized gain (loss) on investments
 
$
3,190,469
   
$
(1,221,701
)
 
$
4,386,141
   
$
376,832
 
Net (decrease) increase in unrealized appreciation on investments
   
(1,191,257
)
   
1,616,010
     
(494,982
)
   
434,911
 
Brokerage commissions and fees
   
(55,563
)
   
(47,040
)
   
(166,525
)
   
(186,833
)
Net gain allocated from investment in Graham Alternative Investment Trading LLC
   
1,943,649
     
347,269
     
3,724,634
     
624,910
 
                                 
Net investment loss allocated from investment in Graham Alternative Investment Trading LLC
                               
Investment income
                               
Interest income
   
146,106
     
142,994
     
423,532
     
405,857
 
                                 
Expenses
                               
Advisory fees
   
111,466
     
131,072
     
317,862
     
409,370
 
Sponsor fees
   
58,599
     
67,645
     
167,668
     
212,548
 
Professional fees and other
   
71,844
     
54,446
     
138,749
     
105,052
 
Administrator’s fees
   
9,503
     
11,420
     
27,879
     
35,389
 
Interest expense
   
1,530
     
     
4,530
     
 
Total expenses
   
252,942
     
264,583
     
656,688
     
762,359
 
Net investment loss allocated from investment in Graham Alternative Investment Trading LLC
   
(106,836
)
   
(121,589
)
   
(233,156
)
   
(356,502
)
Net income
 
$
1,836,813
   
$
225,680
   
$
3,491,478


$
268,408
 

See accompanying notes and the attached financial statements of Graham Alternative Investment Trading LLC.

2

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Unaudited Consolidated Statements of Changes in Members’ Capital

For the three and nine months ended September 30, 2019

   
Class 0 Units
   
Class 2 Units
       
   
Units
   
Capital
   
Units
   
Capital
   
Total Members’
Capital
 
                               
Members’ capital, December 31, 2018
   
125,660.811
   
$
16,801,362
     
116,424.562
   
$
11,177,397
   
$
27,978,759
 
Subscriptions
   
1,882.369
     
250,000
     
775.525
     
73,500
     
323,500
 
Redemptions
   
(4,231.016
)
   
(563,529
)
   
(7,277.581
)
   
(694,270
)
   
(1,257,799
)
Net loss
   
     
(1,083
)
   
     
(23,376
)
   
(24,459
)
Members’ capital, March 31, 2019
   
123,312.164
     
16,486,750
     
109,922.506
     
10,533,251
     
27,020,001
 
Subscriptions
   
373.974
     
50,000
     
     
     
50,000
 
Redemptions
   
(4,089.933
)
   
(571,538
)
   
(5,274.413
)
   
(522,693
)
   
(1,094,231
)
Net income
   
     
1,043,131
     
     
635,993
     
1,679,124
 
Members’ capital, June 30, 2019
   
119,596.205
   
17,008,343
     
104,648.093
   
 
10,646,551
   
 
27,654,894
 
Subscriptions
   
     
     
     
     
 
Redemptions
   
(8,263.487
)
   
(1,249,411
)
   
(1,887.756
)
   
(204,384
)
   
(1,453,795
)
Net income
   
     
1,141,552
     
     
695,261
     
1,836,813
 
Members’ capital, September 30, 2019
   
111,332.718
   
$
16,900,484
     
102,760.337
   
$
11,137,428
   
$
28,037,912
 

See accompanying notes and the attached financial statements of Graham Alternative Investment Trading LLC.

3

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Unaudited Consolidated Statements of Changes in Members’ Capital (continued)

For the three and nine months ended September 30, 2018

   
Class 0 Units
   
Class 2 Units
       
   
Units
   
Capital
   
Units
   
Capital
   
Total Members’
Capital
 
                               
Members’ capital, December 31, 2017
   
164,393.539
   
$
23,163,675
     
137,512.329
   
$
14,017,790
   
$
37,181,465
 
Subscriptions
   
     
     
     
     
 
Redemptions
   
(4,139.796
)
   
(603,688
)
   
(3,993.281
)
   
(424,688
)
   
(1,028,376
)
Net income
   
     
394,780
     
     
217,684
     
612,464
 
Members’ capital, March 31, 2018
   
160,253.743
     
22,954,767
     
133,519.048
     
13,810,786
     
36,765,553
 
Subscriptions
   
     
     
     
     
 
Redemptions
   
(2,290.444
)
   
(326,509
)
   
(8,051.221
)
   
(824,546
)
   
(1,151,055
)
Net loss
   
     
(342,193
)
   
     
(227,543
)
   
(569,736
)
Members’ capital, June 30, 2018
   
157,963.299
   
 
22,286,065
     
125,467.827
   
 
12,758,697
     
35,044,762
 
Subscriptions
   
     
     
     
     
 
Redemptions
   
(5,214.164
)
   
(733,214
)
   
(1,871.485
)
   
(190,162
)
   
(923,376
)
Net income
   
     
156,882
     
     
68,798
     
225,680
 
Members’ capital, September 30, 2018
   
152,749.135
   
$
21,709,733
     
123,596.342
   
$
12,637,333
   
$
34,347,066
 

See accompanying notes and the attached financial statements of Graham Alternative Investment Trading LLC.

4

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Unaudited Consolidated Statements of Cash Flows

   
Nine Months Ended
 
       
2018
 
Cash flows provided by operating activities
           
Net income
 
$
3,491,478
   
$
268,408
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Net (income) allocated from investment in Graham Alternative Investment Trading LLC
   
(3,491,478
)
   
(268,408
)
Proceeds from sale of investment in Graham Alternative Investment Trading LLC
   
2,845,216
     
2,749,654
 
Investment in Graham Alternative Investment Trading LLC
   
(373,500
)
   
 
Net cash provided by operating activities
   
2,471,716
     
2,749,654
 
                 
Cash flows used in financing activities
               
Subscriptions
   
373,500
     
 
Redemptions
   
(2,845,216
)
   
(2,749,654
)
Net cash used in financing activities
   
(2,471,716
)
   
(2,749,654
)
                 
Net change in cash and cash equivalents
   
     
 
                 
Cash and cash equivalents, beginning of period
   
     
 
Cash and cash equivalents, end of period
 
$
   
$
 

See accompanying notes and the attached financial statements of Graham Alternative Investment Trading LLC.

5

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements

September 30, 2019

1. Organization and Business
 
The Blended Strategies Portfolio (the “Fund”) is a series of Graham Alternative Investment Fund II LLC (“GAIF II”), a Delaware Series Limited Liability Company established through an amendment to the certificate of formation, effective March 28, 2013. Prior to March 28, 2013, GAIF II was organized as a Delaware Limited Liability Company which was formed on May 16, 2006 and commenced operations on August 1, 2006. GAIF II has one other active series in addition to the Fund, the Systematic Strategies Portfolio, which ceased trading operations on October 31, 2019. GAIF II is registered as a commodity pool and as such is subject to the oversight and jurisdiction of the U.S. Commodity Futures Trading Commission (“CFTC”).
 
As a Series Limited Liability Company each series is legally segregated, and the assets associated with each series are held separately and accounted for in separate and distinct records from the assets of any other series of GAIF II. The debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular series are enforceable against the assets of such series only, and not against the assets of GAIF II generally or any other series thereof. Further, none of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to GAIF II are enforceable against the assets of any other series.
 
The Fund offers investors Class 0 and Class 2 Units (collectively the “Units”). Graham Alternative Investment Ltd. (“GAI”) is a British Virgin Islands business company which was formed on June 1, 2006 and commenced operations on August 1, 2006. The Fund invests all of its assets dedicated to trading in Graham Alternative Investment Trading LLC (“GAIT”), a Delaware Limited Liability Company which was formed on May 18, 2006 and commenced operations on August 1, 2006, through an investment in GAI’s Blended Strategies Portfolio. GAIT invests in various master trading vehicles (“Master Funds”) and Graham Cash Assets LLC (“Cash Assets”), all of which are managed by Graham Capital Management, L.P. (the “Advisor” or “Manager”). The Fund is the sole owner of GAI’s Blended Strategies Portfolio and GAI’s Blended Strategies Portfolio invests all of its assets into GAIT. The Manager is the director of GAI and the sole investment advisor of GAI, GAIT and the Fund. The Manager is registered as a Commodity Pool Operator and Commodity Trading Advisor with the CFTC and is a member of the National Futures Association. The Manager is also registered with the Securities and Exchange Commission as an investment adviser. The Fund’s Units are registered under Section 12 of the Securities Exchange Act of 1934.
 
The investment objective of the Fund is to achieve long-term capital appreciation through professionally managed trading in both U.S. and foreign markets primarily in futures contracts, forwards contracts, spot currency contracts, and associated derivative instruments, such as options and swaps, through its investment in GAIT, which in turn invests in various Master Funds. The Master Funds seek to profit from opportunities in the global financial markets, including interest rate futures, foreign exchange, global stock indices and energy, metals and agricultural futures, as professionally managed multi-strategy investment vehicles. Each of the investment programs consists of multiple trading strategies of the Manager, which the Manager has combined in an effort to diversify the Fund’s investment exposure and to make the Fund’s performance returns less volatile and more consistently profitable.
 
SEI Global Services, Inc. (“SEI”) is the Fund’s independent administrator and transfer agent. SEI is responsible for certain matters pertaining to the administration of the Fund.
 
The Fund will terminate on December 31, 2050 or at an earlier date if certain conditions occur as outlined in the Limited Liability Company Agreement (“LLC Agreement”).
 
See attached financial statements of Graham Alternative Investment Trading LLC.

6

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)

1. Organization and Business (continued)
 
The performance of the Fund is directly affected by the performance of GAIT; therefore, these consolidated financial statements should be read in conjunction with the attached financial statements of GAIT, including the condensed schedules of investments.
 
Duties of the Manager
 
Subject to the terms and conditions of the LLC Agreement, the Manager has complete and exclusive responsibility for managing and administering the affairs of the Fund and for directing the investment and reinvestment of the assets of the Fund, GAI, and GAIT.
 
2. Summary of Significant Accounting Policies
 
These consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and all amounts are stated in U.S. dollars. The Fund is an investment company and applies specialized accounting guidance as outlined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies. The preparation of these consolidated financial statements requires the Manager to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
 
Principles of Consolidation
 
The Fund owns 100% of GAI’s Blended Strategies Portfolio and as such these consolidated financial statements include all the accounts of the Fund and GAI’s Blended Strategies Portfolio. Intercompany transactions and balances have been eliminated in consolidation. Creditors of the Fund have recourse to all assets of the Fund for amounts due to them, while creditors of GAI would have recourse only to the assets of GAI.
 
Investment in Graham Alternative Investment Trading LLC
 
The Fund records its investment in GAIT at fair value based upon the Fund’s proportionate share of GAIT’s reported net asset value in accordance with U.S. GAAP. In determining its net asset value, GAIT records its investments in the Master Funds at fair value based upon GAIT’s proportionate share of the Master Funds’ reported net asset value. The Fund records its proportionate share of GAIT’s investment income and loss, expenses, fees, and realized and unrealized gains and losses on a monthly basis and includes them in the consolidated statements of operations. Purchases and sales of units in GAIT are recorded on a trade date basis. The accounting policies of GAIT are described in its attached financial statements.
 
GAIT charges its investors, including the Fund, an advisory fee, sponsor fee, and incentive allocation, all of which are described in detail in Note 4. The Fund does not charge any additional fees; however, each investor in the Fund indirectly bears a portion of the advisory fee, sponsor fee, and incentive allocation charged by GAIT.

At September 30, 2019 and December 31, 2018, the Fund owned 48.94% and 46.31%, respectively of GAIT.

See attached financial statements of Graham Alternative Investment Trading LLC.

7

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)
 
Fair Value
 
The fair value of the assets and liabilities of the Fund and GAIT, which qualify as financial instruments under U.S. GAAP, approximates the carrying amounts presented in the consolidated statements of financial condition. Changes in these carrying amounts are included in the consolidated statements of operations.
 
The Fund follows U.S. GAAP for fair value measurements, which defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements. The Fund reports the fair value of its investment related assets and liabilities in accordance with the hierarchy established under U.S. GAAP. U.S. GAAP uses a three-level hierarchy for fair value measurement based on the activeness of the market and the transparency and independence of inputs used in the valuation of an asset or liability as of the measurement date.

The fair value hierarchy categorizes asset and liability positions into one of three levels, as summarized below, based on the inputs and assumptions used in deriving fair value.
 

Level 1 inputs are unadjusted closing or settlement prices for such assets or liabilities as published by the primary exchange upon which they are traded.

Level 2 inputs include quoted prices for similar assets and liabilities obtained from independent brokers and/or market makers in each security.

Level 3 inputs are those which are considered unobservable and are significant in arriving at fair value.

The Fund’s investment in GAIT has been valued at net asset value using the practical expedient. Accordingly, under U.S. GAAP, this investment is excluded from categorization in the fair value hierarchy. There were no Level 3 assets or liabilities held at any point during the nine months ended September 30, 2019 or the year ended December 31, 2018 by the Fund, GAIT, the Master Funds or Cash Assets.
 
Cash and Cash Equivalents
 
The Fund classifies all highly liquid investments with a maturity of three months or less at the time of purchase as cash equivalents. Cash deposited with a bank is subject to credit risk. In the event of the bank’s insolvency, recovery of the Fund’s cash would be limited to account insurance or other protection afforded by such deposit. At September 30, 2019 and December 31, 2018, the Fund did not have any cash or cash equivalents.
 
Indemnifications
 
In the normal course of business, the Master Funds, GAIT, Cash Assets, and the Fund enter into contracts that contain a variety of indemnifications. Such contracts may include those by Cash Assets and the Master Funds with their brokers and trading counterparties. The Fund’s maximum exposure under these arrangements is unknown; however, the Fund has not had prior claims or losses with respect to such indemnifications and considers the risk of loss to be remote. At September 30, 2019 and December 31, 2018, no accruals have been recorded by the Fund for indemnifications.
 
See attached financial statements of Graham Alternative Investment Trading LLC.

8

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)

3. Capital Accounts
 
The Fund offers two classes (each a “Class”) of Units, being Class 0 Units and Class 2 Units. The Fund may issue additional Classes in the future subject to different fees, expenses or other terms, or may invest in other investment programs or combinations of investment programs managed by the Manager.
 
A separate capital account is maintained for each member with respect to each member’s Class of Units. The initial balance of each member’s capital account is equal to the initial contribution to the Fund by such member with respect to the Class to which such capital account relates. Each member’s capital account is increased by any additional subscription and decreased by any redemption by such member of Units of such Class to which the capital account relates. All income and expenses of the Fund are allocated among the members’ capital accounts in proportion to the balance that each capital account bears to the balance of all capital as of the beginning of such fiscal period.
 
Subscriptions
 
Units may be purchased at a price equal to the Net Asset Value per Unit of the relevant Class as of the immediately preceding Valuation Day, as defined in the LLC Agreement. The minimum initial subscription from each investor in each Class is $10,000. Members may subscribe for additional Units in a minimum amount of not less than $5,000.
 
Units are available for subscription as of the first business day of each month upon written notice of at least three business days prior to the last business day of the preceding month.
 
Redemption of Units
 
Units are not subject to any minimum holding period. Members may redeem Units at the Net Asset Value thereof as of each Valuation Day, as defined in the LLC Agreement, upon not less than three business days’ prior written notice to the administrator. A partial redemption request for an amount less than $10,000 will not be accepted, nor will a redemption request be accepted to the extent that it would result in an investor owning less than $10,000. The redemption proceeds will normally be remitted within 15 days after the Valuation Day, without interest for the period from the Valuation Day to the payment date.
 
See attached financial statements of Graham Alternative Investment Trading LLC.

9

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)

4. Fees and Related Party Transactions
 
Advisory Fees
 
Each Class of GAIT other than Class M paid the Manager an advisory fee (the “Advisory Fee”) at an aggregate annual rate of 1.50% of the Members’ Capital of such Class. The Advisory Fee is payable monthly in arrears calculated as of the last business day of each month and any other date the Manager may permit, in its sole and absolute discretion, as of which any subscription or redemption is effected with respect to Units of such Class during the month. For the nine months ended September 30, 2019 and 2018, the Advisory Fees allocated to the Fund by each Class of GAIT totaled $317,862 and $409,370, respectively.
 
Sponsor Fees
 
Each Class of GAIT other than Class M paid the Manager a sponsor fee (the “Sponsor Fee”) at an annual rate of the Members’ Capital specified in the table below. The Sponsor Fee is payable monthly in arrears calculated as of the last business day of each month in the same manner as the Advisory Fee. For the nine months ended September 30, 2019 and 2018, the Sponsor Fees allocated to the Fund by each Class of GAIT totaled $167,668 and $212,548, respectively.
 
Class 0
Class 2
0.50%
1.25%
Incentive Allocation
 
At the end of each calendar quarter, Graham Capital LLC, an affiliate of the Manager, will receive a special allocation of net profits (the “Incentive Allocation”) in an amount equal to 20% of the New High Net Trading Profits of each Class of GAIT, as defined in the LLC Agreement. The Incentive Allocation is also accrued and allocable on the date of redemption with respect to any Units that are redeemed prior to the end of a calendar quarter. Additionally, any loss carryforward attributable to any class of GAIT shall be proportionately reduced, effective as of the date of any redemption of any Units of such class, by multiplying the loss carryforward by the ratio that the amount of Members’ Capital redeemed from such class bears to the capital of such class immediately prior to such redemption. The loss carryforward of a class must be recouped before any subsequent Incentive Allocation can be made to the Manager. There was no Incentive Allocation allocated to the Fund by GAIT for the nine months ended September 30, 2019 and 2018.
 
Any portion of any of the above fees, including the Incentive Allocation, may be paid by the Manager to third parties as compensation for selling activities in connection with the Fund.
 
Administrator’s Fee

For the nine months ended September 30, 2019 and 2018, GAIT paid SEI a monthly administrator’s fee based on GAIT’s Members’ Capital, calculated as of the last business day of each month. In addition, GAIT reimbursed SEI for reasonable out-of-pocket expenses incurred on behalf of GAIT. The total administrator’s fees, including out-of-pocket expenses, allocated to the Fund by GAIT for the nine months ended September 30, 2019 and 2018 were $27,879 and $35,389, respectively.
 
See attached financial statements of Graham Alternative Investment Trading LLC.

10

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)

5. Income Taxes
 
No provision for income taxes has been made in the accompanying consolidated financial statements, as members are individually responsible for reporting income or loss based upon their respective share of the Fund’s revenues and expenses for income tax purposes.
 
U.S. GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the consolidated financial statements. U.S. GAAP requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a “more-likely-than-not” threshold would be recorded as a tax expense in the current year. The Fund identifies its major tax jurisdictions as the U.S. for Federal tax purposes and Connecticut for state tax purposes. The Manager has evaluated the Fund’s tax positions and has concluded that there are no significant tax positions requiring recognition, measurement or disclosure in the consolidated financial statements for open tax years 2016 through 2018 or expected to be taken in the Fund’s 2019 tax returns. The Manager is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax expense will change materially in the next twelve months. Tax years which are considered open by the relevant jurisdiction are subject to potential examination. Any assessment for interest or penalties on taxes related to uncertain tax positions, when present, would be included in interest and penalties on tax on the consolidated statements of operations. No such interest and/or penalties were assessed to the Fund for the nine months ended September 30, 2019 and 2018.
 
6. Financial Highlights
 
The following is the per Unit operating performance calculation for the three months ended September 30, 2019 and 2018:
 

   
Class 0
   
Class 2
 
Per unit operating performance
           
Net asset value per unit, June 30, 2018
 
$
141.08
   
$
101.69
 
Net income:
               
Net investment loss
   
(0.40
)
   
(0.48
)
Net gain on investments
   
1.45
     
1.04
 
Net income
   
1.05
     
0.56
 
Net asset value per unit, September 30, 2018
 
$
142.13
   
$
102.25
 
                 
Net asset value per unit, June 30, 2019
 
$
142.21
   
$
101.74
 
Net income:
               
Net investment loss
   
(0.45
)
   
(0.52
)
Net gain on investments
   
10.04
     
7.16
 
Net income
   
9.59
     
6.64
 
Net asset value per unit, September 30, 2019
 
$
151.80
   
$
108.38
 

See attached financial statements of Graham Alternative Investment Trading LLC.

11

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)

6. Financial Highlights (continued)
 
The following represents ratios to average Members’ Capital, excluding the Managing Member, and total return for the three months ended September 30, 2019 and 2018:
 
   
Class 0
   
Class 2
 
   
2019
   
2018
   
2019
   
2018
 
                         
Total return before Incentive Allocation
   
6.74
%
   
0.74
%
   
6.53
%
   
0.55
%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Total return after Incentive Allocation
   
6.74
%
   
0.74
%
   
6.53
%
   
0.55
%
                                 
Net investment loss before Incentive Allocation
   
(0.30
)%
   
(0.28
)%
   
(0.49
)%
   
(0.47
)%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Net investment loss after Incentive Allocation
   
(0.30
)%
   
(0.28
)%
   
(0.49
)%
   
(0.47
)%
                                 
Total expenses before Incentive Allocation
   
0.81
%
   
0.70
%
   
1.00
%
   
0.89
%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Total expenses after Incentive Allocation
   
0.81
%
   
0.70
%
   
1.00
%
   
0.89
%

The following is the per Unit operating performance calculation for the nine months ended September 30, 2019 and 2018:
 
   
Class 0
   
Class 2
 
Per unit operating performance
           
Net asset value per unit, December 31, 2017
 
$
140.90
   
$
101.94
 
Net income:
               
Net investment loss
   
(1.11
)
   
(1.38
)
Net gain on investments
   
2.34
     
1.69
 
Net income
   
1.23
     
0.31
 
Net asset value per unit, September 30, 2018
 
$
142.13
   
$
102.25
 
                 
Net asset value per unit, December 31, 2018
 
$
133.70
   
$
96.01
 
Net income:
               
Net investment loss
   
(0.87
)
   
(1.19
)
Net gain on investments
   
18.97
     
13.56
 
Net income
   
18.10
     
12.37
 
Net asset value per unit, September 30, 2019
 
$
151.80
   
$
108.38
 

See attached financial statements of Graham Alternative Investment Trading LLC.

12

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)

6. Financial Highlights (continued)
 
The following represents ratios to average Members’ Capital, excluding the Managing Member, and total return for the nine months ended September 30, 2019 and 2018:
 
   
Class 0
   
Class 2
 
   
2019
   
2018
   
2019
   
2018
 
                         
Total return before Incentive Allocation
   
13.54
%
   
0.87
%
   
12.88
%
   
0.30
%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Total return after Incentive Allocation
   
13.54
%
   
0.87
%
   
12.88
%
   
0.30
%
                                 
Net investment loss before Incentive Allocation
   
(0.62
)%
   
(0.77
)%
   
(1.18
)%
   
(1.34
)%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Net investment loss after Incentive Allocation
   
(0.62
)%
   
(0.77
)%
   
(1.18
)%
   
(1.34
)%
                                 
Total expenses before Incentive Allocation
   
2.14
%
   
1.90
%
   
2.70
%
   
2.46
%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Total expenses after Incentive Allocation
   
2.14
%
   
1.90
%
   
2.70
%
   
2.46
%
 
Total return is calculated for Class 0 and Class 2 Units taken as a whole. Total return is calculated as the change in total Members’ Capital adjusted for subscriptions or redemptions during the period. An individual member’s return may vary from these returns based on the timing of capital transactions. The net investment loss and total expense ratios (including Incentive Allocation) are calculated for Class 0 and Class 2 Units taken as a whole and include net amounts allocated from GAIT. The computation of such ratios is based on the amount of net investment loss, expenses and Incentive Allocation. Net investment loss and total expense ratios are computed based upon the weighted average of Members’ Capital for Class 0 and Class 2 Units of the Fund for the three and nine months ended September 30, 2019 and 2018 and are not annualized.
 
7. Subsequent Events
 
The Fund had no subscriptions and redemptions of approximately $0.2 million from October 1, 2019 through November 14, 2019, the date through which subsequent events were evaluated by management and consolidated financial statements were available for issuance. These amounts have not been included in the consolidated financial statements.

See attached financial statements of Graham Alternative Investment Trading LLC.

13

Graham Alternative Investment Trading LLC

Statements of Financial Condition

   
(Unaudited)
   
(Audited)
 
Assets
           
Investments in Master Funds, at fair value
 
$
8,386,240
   
$
5,730,163
 
Investment in Graham Cash Assets LLC, at fair value
   
51,461,585
     
55,501,064
 
Receivable from Master Funds
   
357
     
43
 
Total assets
 
$
59,848,182
   
$
61,231,270
 
                 
Liabilities and members’ capital
               
Liabilities:
               
Redemptions payable
 
$
2,270,190
   
$
520,046
 
Accrued professional fees
   
174,520
     
165,656
 
Accrued advisory fees
   
71,960
     
76,351
 
Accrued sponsor fees
   
38,505
     
41,055
 
Accrued administrator’s fee
   
6,195
     
6,870
 
Payable to Master Funds
   
-
     
68
 
Total liabilities
   
2,561,370
     
810,046
 
                 
Members’ capital:
               
Class 0 Units (221,516.099 and 263,114.613 units issued and outstanding at $151.80 and $133.70 per unit, respectively)
   
33,626,500
     
35,179,498
 
Class 2 Units (206,315.161 and 251,175.400 units issued and outstanding at $108.38 and $96.01 per unit, respectively)
   
22,360,973
     
24,114,225
 
Class M Units (4,671.470 units issued and outstanding at $278.14 and $241.36 per unit, respectively)
   
1,299,339
     
1,127,501
 
Total members’ capital
   
57,286,812
     
60,421,224
 
Total liabilities and members’ capital
 
$
59,848,182
   
$
61,231,270
 
 
See accompanying notes.
 
14

Graham Alternative Investment Trading LLC

Condensed Schedules of Investments

   
(Unaudited)
   
(Audited)
 
Description
 
Fair Value
   
Percentage of
Members’
Capital
   
Fair Value
   
Percentage of
Members’
Capital
 
                         
Investments in Master Funds, at fair value
                       
Graham Commodity Strategies LLC
 
$
3,639,141
     
6.35
%
 
$
2,439,800
     
4.03
%
Graham K4D Trading Ltd.
   
4,747,099
     
8.29
%
   
3,290,363
     
5.45
%
Total investments in Master Funds
 
$
8,386,240
     
14.64
%
 
$
5,730,163
     
9.48
%
 
See accompanying notes.
 
15

Graham Alternative Investment Trading LLC

Unaudited Statements of Operations and Incentive Allocation

   
Three Months Ended
September 30,
   
Nine Months Ended
 
       
2018
   
2019
   
2018
 
Net gain allocated from investments in Master Funds
                       
Net realized gain (loss) on investments
 
$
6,517,068
   
$
(2,576,142
)
 
$
8,963,569
   
$
859,188
 
Net (decrease) increase in unrealized appreciation on investments
   
(2,430,205
)
   
3,408,339
     
(971,786
)
   
980,559
 
Brokerage commissions and fees
   
(113,446
)
   
(99,258
)
   
(346,336
)
   
(397,021
)
Net gain allocated from investments in Master Funds
   
3,973,417
     
732,939
     
7,645,447
     
1,442,726
 
                                 
Net investment income allocated from investments in Master Funds
   
23,953
     
32,606
     
73,162
     
80,973
 
                                 
Investment income
                               
Interest income
   
274,254
     
269,246
     
808,632
     
780,945
 
                                 
Expenses
                               
Advisory fees
   
222,678
     
272,245
     
648,406
     
856,646
 
Sponsor fees
   
119,180
     
146,617
     
345,837
     
464,096
 
Professional fees and other
   
146,642
     
115,177
     
287,167
     
222,826
 
Administrator’s fees
   
19,405
     
24,106
     
58,085
     
75,214
 
Interest expense
   
3,126
     
     
9,436
     
 
Total expenses
   
511,031
     
558,145
     
1,348,931
     
1,618,782
 
Net investment loss of the Fund
   
(236,777
)
   
(288,899
)
   
(540,299
)
   
(837,837
)
                                 
Net income
   
3,760,593
     
476,646
     
7,178,310
     
685,862
 
                                 
Incentive allocation
   
(187
)
   
     
(187
)
   
 
                                 
Net income available for pro-rata allocation to all members
 
$
3,760,406
   
$
476,646
   
$
7,178,123
   
$
685,862
 

See accompanying notes.

16

Graham Alternative Investment Trading LLC

Unaudited Statements of Changes in Members’ Capital

For the three and nine months ended September 30, 2019

   
Class 0
   
Class 2
   
Class M
   
Total
Capital
  
   
Units
   
Capital
   
Units
   
Capital
   
Units
   
Capital
   
                                           
Members’ capital, December 31, 2018
   
263,114.613
   
$
35,179,498
     
251,175.400
   
$
24,114,225
     
4,671.470
   
$
1,127,501
   
$
60,421,224
 
Subscriptions
   
2,447.080
     
325,000
     
775.525
     
73,500
     
     
     
398,500
 
Redemptions
   
(15,238.411
)
   
(2,029,083
)
   
(23,162.529
)
   
(2,203,496
)
   
     
     
(4,232,579
)
Net (loss) income
   
     
(7,364
)
   
     
(60,726
)
   
     
5,537
     
(62,553
)
Members’ capital, March 31, 2019
   
250,323.282
     
33,468,051
     
228,788.396
     
21,923,503
     
4,671.470
     
1,133,038
     
56,524,592
 
Subscriptions
   
1,308.908
     
175,000
     
     
     
     
     
175,000
 
Redemptions
   
(20,134.592
)
   
(2,789,632
)
   
(9,736.326
)
   
(970,981
)
   
     
     
(3,760,613
)
Net income
   
     
2,068,954
     
     
1,333,122
     
     
78,194
     
3,480,270
 
Members’ capital, June 30, 2019
   
231,497.598
   
 
32,922,373
     
219,052.070
   
 
22,285,644
     
4,671.470
     
1,211,232
     
56,419,249
 
Subscriptions
   
     
     
     
     
     
     
 
Redemptions
   
(9,981.499
)
   
(1,511,641
)
   
(12,736.909
)
   
(1,381,202
)
   
     
(187
)
   
(2,893,030
)
Incentive allocation
   
     
(187
)
   
     
     
     
187
     
 
Net income
   
     
2,215,955
     
     
1,456,531
     
     
88,107
     
3,760,593
 
Members’ capital, September 30, 2019
   
221,516.099
   
$
33,626,500
     
206,315.161
   
$
22,360,973
     
4,671.470
   
$
1,299,339
   
$
57,286,812
 
 
See accompanying notes.
 
17

Graham Alternative Investment Trading LLC

Unaudited Statements of Changes in Members’ Capital (continued)

For the three and nine months ended September 30, 2018

   
Class 0
   
Class 2
   
Class M
   
Total
Capital
  
   
Units
   
Capital
   
Units
   
Capital
   
Units
   
Capital
   
                                           
Members’ capital, December 31, 2017
   
331,577.130
   
$
46,720,480
     
320,722.151
   
$
32,693,924
     
4,671.470
   
$
1,164,668
   
$
80,579,072
 
Subscriptions
   
     
     
     
     
     
     
 
Redemptions
   
(21,577.372
)
   
(3,205,378
)
   
(6,473.455
)
   
(689,158
)
   
     
     
(3,894,536
)
Net income
   
     
889,307
     
     
500,135
     
     
25,170
     
1,414,612
 
Members’ capital, March 31, 2018
   
309,999.758
     
44,404,409
     
314,248.696
     
32,504,901
     
4,671.470
     
1,189,838
     
78,099,148
 
Subscriptions
   
527.126
     
75,000
     
974.513
     
100,000
     
     
     
175,000
 
Redemptions
   
(6,062.765
)
   
(871,157
)
   
(21,114.780
)
   
(2,157,237
)
   
     
     
(3,028,394
)
Net loss
   
     
(653,289
)
   
     
(540,059
)
   
     
(12,048
)
   
(1,205,396
)
Members’ capital, June 30, 2018
   
304,464.119
   
 
42,954,963
     
294,108.429
   
 
29,907,605
     
4,671.470
   
 
1,177,790
     
74,040,358
 
Subscriptions
   
     
     
     
     
     
     
 
Redemptions
   
(8,490.408
)
   
(1,194,264
)
   
(9,243.907
)
   
(937,961
)
   
     
     
(2,132,225
)
Net income
   
     
305,077
     
     
156,862
     
     
14,707
     
476,646
 
Members’ capital, September 30, 2018
   
295,973.711
   
$
42,065,776
     
284,864.522
   
$
29,126,506
     
4,671.470
   
$
1,192,497
   
$
72,384,779
 
 
See accompanying notes.
 
18

Graham Alternative Investment Trading LLC

Unaudited Statements of Cash Flows

   
Nine Months Ended September 30,
 
       
2018
 
Cash flows provided by operating activities
           
Net income
 
$
7,178,310
   
$
685,862
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Net (income) allocated from investments in Master Funds
   
(7,718,609
)
   
(1,523,699
)
Net (income) allocated from investment in Graham Cash Assets LLC
   
(808,632
)
   
(780,945
)
Proceeds from sale of investments in Master Funds
   
52,804,810
     
61,701,991
 
Proceeds from sale of investments in Graham Cash Assets LLC
   
45,575,107
     
55,957,053
 
Investments in Master Funds
   
(47,742,660
)
   
(62,971,850
)
Investments in Graham Cash Assets LLC
   
(40,726,996
)
   
(44,507,342
)
Changes in assets and liabilities:
               
Increase (decrease) in accrued professional fees
   
8,864
     
(82,149
)
Decrease in accrued advisory fees
   
(4,391
)
   
(12,926
)
Decrease in accrued sponsor fees
   
(2,550
)
   
(7,119
)
Decrease in accrued administrator’s fee
   
(675
)
   
(1,138
)
Net cash provided by operating activities
   
8,562,578
     
8,457,738
 
                 
Cash flows used in financing activities
               
Subscriptions
   
573,500
     
175,000
 
Redemptions
   
(9,136,078
)
   
(8,632,738
)
Net cash used in financing activities
   
(8,562,578
)
   
(8,457,738
)
                 
Net change in cash and cash equivalents
   
     
 
                 
Cash and cash equivalents, beginning of period
   
     
 
Cash and cash equivalents, end of period
 
$
   
$
 
                 
Supplemental cash flow information
               
Interest paid
 
$
9,436
   
$
 

See accompanying notes.
 
19

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements


1. Organization and Business
 
Graham Alternative Investment Trading LLC (“GAIT”) was formed on May 18, 2006, commenced operations on August 1, 2006 and is organized as a Delaware Limited Liability Company. Graham Capital Management, L.P. (the “Managing Member” or “Manager”) is the Managing Member and the sole investment advisor. The Managing Member is registered as a Commodity Pool Operator and Commodity Trading Advisor with the U.S. Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association. The Managing Member is also registered with the Securities and Exchange Commission as an investment adviser. GAIT is a commodity pool, and as such is subject to the oversight and jurisdiction of the CFTC.
 
The investment objective of GAIT is to achieve long-term capital appreciation through professionally managed trading through its investment in various master trading vehicles (“Master Funds”). As more fully described in Notes 2 and 3, these Master Funds invest in a broad range of derivative instruments such as currency forward and futures contracts; bond, interest rate, and index futures contracts; commodity forward and futures contracts, and options and swaps thereon traded on U.S. and foreign exchanges, as well as over-the-counter (“OTC”).
 
Graham Alternative Investment Fund I LLC Blended Strategies Portfolio and Graham Alternative Investment Fund II LLC Blended Strategies Portfolio are the primary investors of GAIT.
 
SEI Global Services, Inc. (“SEI”) is GAIT’s independent administrator and transfer agent. SEI is responsible for certain matters pertaining to the administration of GAIT.
 
GAIT will terminate on December 31, 2050 or at an earlier date if certain conditions occur as outlined in the Limited Liability Company Agreement (“LLC Agreement”).
 
Duties of the Managing Member
 
Subject to the terms and conditions of the LLC Agreement, the Managing Member has complete and exclusive responsibility for managing and administering the affairs of GAIT and for directing the investment and reinvestment of the assets of GAIT.
 
2. Summary of Significant Accounting Policies
 
These financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and all amounts are stated in U.S. dollars. GAIT is an investment company and applies specialized accounting guidance as outlined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies. The preparation of these financial statements requires the Manager to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
 
Investments in Master Funds
 
GAIT invests in various Master Funds which are managed by the Managing Member. These investments are valued in the accompanying statements of financial condition at fair value in accordance with U.S. GAAP based upon GAIT’s proportionate share of the Master Funds’ reported net asset values. Gains and losses are allocated monthly by each Master Fund to GAIT based upon GAIT’s proportionate share of the net asset value of each Master Fund and are included in the statements of operations and incentive allocation.
 
20

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)
 
Due from/to Brokers
 
Due from/to brokers on the Master Funds’ financial statements primarily consist of cash balances carried as margin deposits with clearing brokers for the purpose of trading in futures contracts, foreign currency contracts and other derivative financial instruments and securities, and receivables/payables for unsettled transactions. Substantially all of the Master Funds’ cash and investments are held as collateral by its brokers to secure derivative instruments and securities.
 
Revenue Recognition
 
All positions in financial instruments are recorded on the trade date at fair value. Net unrealized appreciation or depreciation on open derivative financial instruments is included in the Master Funds’ statements of financial condition as the difference between the original purchase price and the current market value at year end. Any change in net unrealized appreciation or depreciation from the preceding period is reported in the Master Funds’ statements of operations. Interest income and expense are recorded on the accrual basis. Dividends are recorded on the ex-dividend date and are net of applicable withholding taxes. All other expenses are recorded on the accrual basis. Realized gains and losses are calculated based on the specific identification method.
 
Brokerage Commissions and Fees
 
Brokerage commissions and fees on the Master Funds’ financial statements represent all brokerage commissions and other fees incurred in connection with the Master Funds’ trading activity and are recorded on the accrual basis.
 
Foreign Currency Translation
 
Assets and liabilities denominated in foreign currencies are translated using the exchange rates at September 30, 2019 and December 31, 2018. Gains and losses resulting from foreign currency transactions are calculated using daily exchange rates prevailing on the transaction date. The Master Funds do not isolate the portion of results of operations from changes in foreign exchange rates on investments and cash from fluctuations arising from changes in market prices held. The Master Funds’ currency translation gains and losses are included in the statements of operations and incentive allocation within net realized gain (loss) and net (decrease) increase in unrealized appreciation on investments.
 
 
Fair Value
 
The fair value of GAIT’s assets and liabilities, which qualify as financial instruments under U.S. GAAP, approximates the carrying amounts presented in the statements of financial condition. Changes in these carrying amounts are included in the statements of operations and incentive allocation.
 
GAIT follows U.S. GAAP for fair value measurements, which defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements. GAIT reports the fair value of its investment related assets and liabilities in accordance with the hierarchy established under U.S. GAAP. U.S. GAAP uses a three-level hierarchy for fair value measurement based on the activeness of the market and the transparency and independence of inputs used in the valuation of an asset or liability as of the measurement date.
 
21

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)
 
Fair Value (continued)
 
The fair value hierarchy categorizes asset and liability positions into one of three levels, as summarized below, based on the inputs and assumptions used in deriving fair value.
 

Level 1 inputs are unadjusted closing or settlement prices for such assets or liabilities as published by the primary exchange upon which they are traded.

Level 2 inputs include quoted prices for similar assets and liabilities obtained from independent brokers and/or market makers in each security.

Level 3 inputs are those which are considered unobservable and are significant in arriving at fair value.
 
GAIT’s investments in the Master Funds and Graham Cash Assets LLC (“Cash Assets”) have been valued at net asset value using the practical expedient. Accordingly, under U.S. GAAP, these investments are excluded from categorization in the fair value hierarchy. GAIT’s investments in the Master Funds and Cash Assets are discussed in Notes 3 and 4. There were no Level 3 assets or liabilities held at any point during the nine months ended September 30, 2019 or the year ended December 31, 2018 by GAIT, the Master Funds, or Cash Assets.
 
Derivative Instruments
 
In the normal course of business, the Master Funds utilize derivative financial instruments in connection with their trading activities. Derivative instruments derive their value from underlying assets, indices, reference rates or a combination of these factors. Investments in derivative financial instruments are subject to additional risks that can result in a loss of all or part of an investment. The Master Funds’ derivative financial instruments are classified by the following primary underlying risks: interest rate, foreign currency exchange rate, commodity price, and equity price risks. These risks can be in excess of the amounts recognized in the statements of financial condition. In addition, the Master Funds are also subject to additional counterparty risk should their counterparties fail to meet the terms of their contracts. Management of counterparty risk involves a number of considerations, such as the financial profile of the counterparty, specific terms and duration of the contractual agreement, and the value of collateral held, if any. The Master Funds have established initial credit approval, credit limits, and collateral requirements and may reduce their exposure to any counterparties they deem necessary. Trading in non-U.S. dollar denominated derivative instruments may subject the value of, and gains and losses associated with, such contracts to additional risks related to adverse changes in the applicable exchange rates.
 
Unrealized appreciation and depreciation from derivative financial instruments are recorded based on changes in their fair value. Realized gains and losses are recorded when the positions are closed. All unrealized and realized gains and losses related to derivative financial instruments are included in net gain on investments in the Master Funds’ statements of operations.
 
Futures Contracts
 
The Master Funds use futures contracts in an attempt to take advantage of changes in the value of equities, commodities, interest rates, bonds and foreign currencies. Futures contracts are valued based upon the closing price as of the valuation date established by the primary exchange upon which they are traded.

22

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 

2. Summary of Significant Accounting Policies (continued)

Derivative Instruments (continued)
 
Futures Contracts (continued)
 
A futures contract represents a commitment for the future purchase or sale of an asset or cash settlement based on the value of an asset on a specified date. The purchase and sale of futures contracts are executed on an exchange which requires margin deposits with a Futures Commission Merchant (“FCM”). Subsequent payments are made or received by the Master Funds each day, depending on the daily fluctuations in the value of the contract. These changes in valuation are recorded for financial statement purposes as unrealized appreciation and depreciation by the Master Funds. Relative to over-the-counter derivative financial instruments, futures contracts provide reduced counterparty risk to the Master Funds since futures are exchange-traded and the exchanges’ clearing house guarantees the futures against default. However, some non-U.S. exchanges are “principals’ markets” in which no common clearing facility exists, and the Master Funds may look only to the clearing broker for performance of the contract. The U.S. Commodity Exchange Act requires an FCM to segregate all funds received from such FCM’s customers in respect of regulated futures transactions. If the FCM were not to do so to the full extent required by law, the assets of the Master Funds might not be fully protected in the event of the bankruptcy or insolvency of the FCM. In that case, the Master Funds would be limited to recovering only a pro rata share of all available funds segregated on behalf of the FCM’s combined customer accounts, even though certain property specifically traceable to the Master Funds was held by the FCM. In addition, in the event of bankruptcy or insolvency of an exchange or an affiliated clearing house, the Master Funds might experience a loss of funds deposited through its FCM as margin with such exchange or affiliated clearing house, the loss of unrealized profits on its open positions, and the loss of funds owed to it as realized profits on closed positions.
 
Forward Contracts
 
The Master Funds enter into foreign currency forward contracts in an attempt to take advantage of changes in exchange rates. Forward currency transactions are contracts or agreements for delivery of specific currencies or the cash equivalent value at a specified future date and an agreed upon price. Forward contracts are not guaranteed by an exchange or clearing house and therefore the risks include the inability of counterparties to meet their obligations under the terms of the contracts as well as the risks associated with movements in fair value.
 
Exchange-traded forward contracts are valued based upon the settlement prices as of the valuation date, established by the primary exchange upon which they are traded. All other forward contracts are valued based upon a forward curve constructed using independently quoted forward points. Changes in fair value of each forward contract are recognized as unrealized appreciation and depreciation.
 
23

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)
 
Derivative Instruments (continued)
 
 
The Master Funds may enter into various swap contracts in an attempt to take advantage of changes in interest rates and asset values. Exchange-traded interest rate swap contracts are executed on an exchange which requires margin deposits with a Central Clearing Counterparty (“CCP”). Subsequent payments are made or received by the Master Funds each day, depending on the daily fluctuations in the value of the contract. These changes in valuation are recorded for financial statement purposes as unrealized appreciation or depreciation by the Master Funds. Relative to over-the-counter interest rate swap contracts, exchange-traded interest rate swap contracts provide reduced counterparty risk since they are exchange-traded and the exchange’s clearinghouse guarantees against default. The Commodity Exchange Act requires a CCP to segregate all funds received from such CCP’s customers in respect of exchange-traded interest rate swaps. If the CCP were not to do so to the full extent required by law, the assets of the Master Funds might not be fully protected in the event of the bankruptcy or insolvency of the CCP. In that case, the Master Funds would be limited to recovering only a pro rata share of all available funds segregated on behalf of the CCP’s combined customer accounts, even though certain property specifically traceable to the Master Funds is held by the CCP. In addition, in the event of bankruptcy or insolvency of an exchange or an affiliated clearing house, the Master Funds could experience a loss of funds deposited through its CCP as margin with such exchange or affiliated clearing house, the loss of unrealized profits on its open positions, and the loss of funds owed to it as realized profits on closed positions. All funds deposited with both U.S. and non-U.S. CCPs are included in due from brokers on the statements of financial condition. Over the counter swap contracts are not guaranteed by an exchange or an affiliated clearing house or regulated by any U.S. or foreign government authorities. Failure of a counterparty to meet its obligation under the terms of the swap contract could result in the loss of any unrealized appreciation on open positions. It may not be possible to dispose of or close out a swap position without the consent of the counterparty, and the Master Funds may not be able to enter into an offsetting contract in order to cover its risk.
 
An interest rate swap contract is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified rates for a specified notional amount of the underlying assets. The payment flows are usually netted against each other, with the difference being paid by one party to another. Interest rate swap positions are generally valued as the present value of the net future cash flows as estimated by the Manager using a discount curve constructed from independently obtained future interest rate assumptions.
 
A total return swap contract is an agreement that obligates two parties to exchange cash flows calculated by reference to changes in specified prices for a specified notional amount of the underlying assets. The payment flows are usually netted against each other, with the difference being paid by one party to another. Total return swaps are generally valued based upon the value of the underlying instruments as determined by the primary exchange on which they are traded.
 
Exchange-traded swaps are valued based upon the closing prices established by the primary exchange upon which they are traded. Changes in fair value of each swap are recognized as unrealized appreciation or depreciation. The Master Funds record realized gains or losses when a swap contract is terminated.

24

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)
 
Derivative Instruments (continued)
 
Options

The Master Funds may buy and sell covered and uncovered exchange-traded and over-the-counter options on futures, foreign currencies, commodities, interest rates and equities to take advantage of the price movements of the financial instrument underlying the option or to hedge positions in the underlying assets. Option contracts give one party the right, but not the obligation, to buy or sell within a limited time or on a specified date, a financial instrument, commodity or currency at a contracted price. Options may also be settled in cash, based on differentials between specified indices or prices.
 
When purchasing options, the Master Funds are exposed to counterparty risk to the extent that a seller of an over-the-counter option does not meet its obligations under the terms of the option contract. The maximum risk of loss to the Master Funds is the unrealized appreciation of the contracts and the premiums paid to purchase its open option contracts. Relative to over-the-counter options, exchange-traded options provide reduced counterparty risk to the Master Funds since the exchanges’ clearinghouse guarantees the option against default.
 
Selling uncovered options may subject the Master Funds to unlimited risk of loss. As the writer of an option, the Master Funds bear the market risk of an unfavorable change in the price of the underlying instrument.
 
Exchange-traded options are valued based upon the settlement prices published as of the valuation date by the principal exchange upon which they are traded. In the absence of an exchange published settlement price, the option will be valued using the last reported sales price reported on the exchange for the valuation date. Over-the-counter options and exchange-traded options with no reported sales price on the valuation date will generally be valued at the average of the last reported bid and offer quotes from independent brokers or from the exchange, respectively.
 
Credit Risk Related Contingent Features
 
OTC derivative instruments are subject to ISDA Master Agreements which generally require among other things, that the Master Funds maintain a predetermined level of net assets or rate of return and provide limits with respect to any decline in value over 1-month, 3-month and 12-month periods. If the Master Funds were to violate such provisions, the counterparty to these instruments could demand liquidation of the outstanding positions. There were no events that occurred throughout the nine months ended September 30, 2019 and the year ended December 31, 2018 which caused any counterparty to demand liquidation of any outstanding positions. Graham K4D Trading Ltd. had derivative instruments subject to credit risk related contingent features in a net liability position in the amount of $0 and $3,714,582 at September 30, 2019 and December 31, 2018, respectively. Graham Commodity Strategies LLC had derivative instruments subject to credit risk related contingent features in a net liability position in the amount of $0 and $1,049 at September 30, 2019 and December 31, 2018, respectively.
 
New York Mercantile Exchange Corporate Membership
 
Graham Commodity Strategies LLC, a Master Fund in which GAIT invests, is a member of the New York Mercantile Exchange (“NYMEX”). As a result of its membership, Graham Commodity Strategies LLC owns two NYMEX seats and 30,000 shares of the CME Group. Graham Commodity Strategy LLC’s policy is to value the NYMEX seats and the shares of the CME Group at fair value. As of September 30, 2019 and December 31, 2018, the two NYMEX seats were valued at $265,000 and $220,000, respectively, and the 30,000 shares of CME Group were valued at $6,340,200 and $5,643,600, respectively, both of which are contained within Exchange Memberships on Graham Commodity Strategies LLC’s statements of financial condition. The NYMEX seats and CME Group shares are considered Level 1 assets as described in the Fair Value section of Note 2.
 
25

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
2. Summary of Significant Accounting Policies (continued)
 
Chicago Board of Trade Membership

Graham K4D Trading Ltd., a Master Fund in which GAIT invests, is a member of the Chicago Board of Trade (“CBOT”) under Rule 106.S and owns two B-1/Full seats and one B‑2/Associate seat (“collectively, “CBOT memberships”). Graham K4D Trading Ltd.’s policy is to value the CBOT memberships at fair value. As of September 30, 2019 and December 31, 2018, the two B-1/Full seats were valued at a total of $479,000 and $560,000, respectively, and the B-2/Associate seat was valued at $39,500 and $51,000, respectively, all of which are included in Exchange Memberships on the statements of financial condition. Additionally, Graham K4D Trading Ltd. owns a Chicago Mercantile Exchange (“CME”) seat valued at $87,750 and $145,500 at September 30, 2019 and December 31, 2018, respectively, which is also included in Exchange Memberships on the statements of financial condition. The CBOT memberships and CME seat are considered Level 1 assets as described in the Fair Value section of Note 2.

Fixed Income Securities

The fixed income securities positions are valued at the mean between the last reported bid and ask quotations received from independent brokers. GAIT is exposed to credit risk relating to whether the issuers will meet their obligations when they come due until the fixed income securities are sold or reach maturity.
 
Indemnifications
 
In the normal course of business, the Master Funds, Cash Assets, and GAIT enter into contracts that contain a variety of indemnifications. Such contracts may include those by Cash Assets and the Master Funds with their brokers and trading counterparties. GAIT’s maximum exposure under these arrangements is unknown; however, GAIT has not had prior claims or losses with respect to such indemnifications and considers the risk of loss to be remote. At September 30, 2019 and December 31, 2018, no accruals have been recorded by GAIT for indemnifications.
 
Cash and Cash Equivalents
 
GAIT classifies all highly liquid investments with a maturity of three months or less at the time of purchase as cash equivalents. Cash deposited with a bank is subject to credit risk. In the event of the bank’s insolvency, recovery of the GAIT’s cash would be limited to account insurance or other protection afforded by such deposit. At September 30, 2019 and December 31, 2018, GAIT did not have any cash or cash equivalents.


26

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3. Investments in Master Funds
 
As of September 30, 2019 and December 31, 2018, GAIT invested in various Master Funds, all of which were managed by the Manager. GAIT’s investments in these Master Funds, as well as the investment objectives of each Master Fund, are summarized below. Master Funds in which GAIT invested 5% or more of its Members’ Capital are individually identified. All of the Master Funds and GAIT are related parties. The Master Funds do not charge management or incentive allocation, and all offer monthly subscriptions and redemptions.
 
 
Investment – Objective
 
Percent of
Members’
Capital
   
Fair Value
   
Net Income
(nine months ended
September 2019)
 
                   
Global Macro Funds
                 
Graham Commodity Strategies LLC
   
6.35%

 
$
3,639,141
   
$
2,501,873
 
                         
Systematic Macro Funds
                       
Graham K4D Trading Ltd.
   
8.29%

   
4,747,099
     
5,216,736
 
     
14.64%

 
$
8,386,240
   
$
7,718,609
 

 
Investment – Objective
 
Percent of
Members’
Capital
   
Fair Value
   
Net Income (Loss)
(nine months ended
September 2018)
 
                         
Global Macro Funds
                       
Graham Commodity Strategies LLC
   
4.03%

 
$
2,439,800
   
$
2,089,412
 
       
               
Systematic Macro Funds
     
               
Graham K4D Trading Ltd.
   
5.45%

   
3,290,363
     
(565,713
)
     
9.48%

 
$
5,730,163
   
$
1,523,699
 

The following table summarizes the financial position of each Master Fund as of September 30, 2019:
 
   
Graham
Commodity
Strategies LLC
(Delaware)
   
Graham K4D
Trading Ltd.
(BVI)
 
Assets:
           
Fixed income securities, at fair value (cost $31,087,793)
 
$
-
   
$
31,456,934
 
Due from brokers
   
114,054,641
     
33,553,935
 
Derivative financial instruments, at fair value
   
23,560,207
     
3,402,101
 
Exchange memberships, at fair value
   
6,605,200
     
606,250
 
Accrued interest income
   
-
     
131,496
 
Total assets
   
144,220,048
     
69,150,716
 
                 
Liabilities:
               
Derivative financial instruments, at fair value
   
4,764,588
     
5,407,077
 
Due to brokers
   
-
     
-
 
Interest payable
   
-
     
3,500
 
Total liabilities
   
4,764,588
     
5,410,577
 
Members’ Capital / Net Assets
 
$
139,455,460
   
$
63,740,139
 
                 
Percentage of Master Fund held by GAIT
   
2.61
%
   
7.45
%

27

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3. Investments in Master Funds (continued)
 
The following schedules display the condensed schedules of investments for the Master Funds as of September 30, 2019:
 
Description
 
Number of
Contracts / Notional
Amounts
   
Fair Value
   
Percentage
of Members’
Capital of
Master Fund
 
Graham Commodity Strategies LLC
                 
Exchange memberships (cost $2,146,960)
                 
United States (cost $2,146,960)
                 
Financial services (cost $2,146,960)
       
$
6,605,200
     
4.74
%
Total exchange memberships
       
$
6,605,200
     
4.74
%
                       
Derivative financial instruments
                     
                     
Futures
                     
Commodity
         
(7,343,771
)
   
(5.27
)%
Currency
         
(3,519
)
   
(0.00
)%
Foreign bond
         
(540,624
)
   
(0.39
)%
Foreign index
         
370,327
     
0.27
%
Interest rate
                     
Euro dollar 90 day December - June 2021
   
12,601
     
566,288
     
0.41
%
Other interest rate
           
(8,247
)
   
(0.01
)%
U.S. bond
           
(359,734
)
   
(0.26
)%
U.S. index
           
(100,370
)
   
(0.07
)%
Total futures
           
(7,419,650
)
   
(5.32
)%
                         
Forwards
                       
Foreign currency
           
1,998,596
     
1.43
%
Total forwards
           
1,998,596
     
1.43
%
                         
Options (cost $99,261,570)
                       
Commodity futures
           
9,808,863
     
7.03
%
Currency futures
                       
Euro dollar / U.S. dollar October 2019 - November 2019, $1.11 - $1.21 Call
   
4
     
312,098
     
0.22
%
Euro dollar / U.S. dollar November 2019 - February 2020, $1.04 - $1.08 Put
   
5
     
2,965,310
     
2.13
%
Other currency futures
           
16,602,107
     
11.90
%
Interest rate futures
                       
Euro dollar 1yr midcurve December 2019 - March 2020, $98.88 - $99.38 Call
   
4
     
(197,613
)
   
(0.14
)%
Euro dollar December 2019 - December 2020 $99.25 - $99.75 Call
   
6
     
3,832,775
     
2.75
%
Euro dollar December 2019 - December 2020 $95.50 - $97.88 Put
   
7
     
1,631,788
     
1.17
%
Euro dollar June 2020 $99.00 Call
   
1
     
10,356,938
     
7.43
%
Other interest rate futures
           
2,535,085
     
1.82
%
U.S. index futures
           
644,420
     
0.46
%
Total options
           
48,491,771
     
34.77
%

28

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3. Investments in Master Funds (continued)
 
The following schedules display the condensed schedules of investments for the Master Funds as of September 30, 2019:
 
Description
 
Number of
Contracts / Notional
Amounts
   
Fair Value
   
Percentage
of Members’
Capital of
Master Fund
 
Graham Commodity Strategies LLC (continued)
                 
Derivative financial instruments (continued)
                 
Short contracts
                 
Futures
                 
Commodity
       
$
1,142,910
     
0.82
%
Currency
         
14,674
     
0.01
%
Foreign bond
         
(453,393
)
   
(0.33
)%
Interest rate
                     
Euro dollar 90 day September 2021
   
(11,581
)
   
(1,794,063
)
   
(1.29
)%
U.S. bond
           
(89,938
)
   
(0.05
)%
U.S. index
           
(24,408
)
   
(0.02
)%
Total futures
           
(1,204,218
)
   
(0.86
)%
                         
Forwards
                       
Foreign currency
           
1,817,486
     
1.30
%
Total forwards
           
1,817,486
     
1.30
%
                         
Options (proceeds $50,253,589)
                       
Commodity futures
         
$
(5,680,544
)
   
(4.07
)%
Currency futures
                       
Euro dollar / U.S. dollar October 2019 - February 2020, $1.12 - $1.21 Call
   
(4
)
   
(478,475
)
   
(0.34
)%
Euro dollar / U.S. dollar November 2019 - December 2019, $1.04 - $1.08 Put
   
(4
)
   
(545,089
)
   
(0.39
)%
Other currency futures
           
(6,145,553
)
   
(4.40
)%
Interest rate futures
                       
Euro dollar 1yr midcurve December 2019 - March 2020, $99.13 - $99.38 Call
   
(3
)
   
(456,038
)
   
(0.33
)%
Euro dollar December 2019 - December 2020 $98.38 - $99.50 Call
   
(6
)
   
(6,637,631
)
   
(4.76
)%
Euro dollar December 2019 - December 2020 $95.00 - $98.00 Put
   
(8
)
   
(959,950
)
   
(0.69
)%
Other interest rate futures
           
(2,708,736
)
   
(1.94
)%
U.S. index futures
           
(1,276,350
)
   
(0.92
)%
Total options
           
(24,888,366
)
   
(17.84
)%
Total derivative financial instruments
         
$
18,795,619
     
13.48
%

29

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3. Investments in Master Funds (continued)
 
The following schedules display the condensed schedules of investments for the Master Funds as of September 30, 2019:
 
Description
 
Principal / Number
Notional Amounts
   
Fair Value
   
Percentage of
Net Assets of
Master Fund
 
Graham K4D Trading Ltd.
                 
Fixed income securities owned (cost $31,087,793)
                 
Bonds (cost $31,087,793)
                 
United States (cost $31,087,793)
                 
Government Bonds (cost $31,087,793)
                 
U.S. Treasury bond 1.38% due 01/15/2020
 
$
31,500,000
   
$
31,456,934
     
49.35
%
Total United States
           
31,456,934
     
49.35
%
Total bonds
           
31,456,934
     
49.35
%
Total fixed income securities owned
         
$
31,456,934
     
49.35
%
                         
Exchange memberships (cost $1,051,100)
                       
United States (cost $1,051,100)
                       
Financial services (cost $1,051,100)
         
$
606,250
     
0.95
%
Total exchange memberships
         
$
606,250
     
0.95
%
                         
Derivative financial instruments
                       
                       
Futures
                       
Commodity
         
$
(2,702,140
)
   
(4.24
)%
Currency
           
266,338
     
0.42
%
Foreign bond
           
(2,213,458
)
   
(3.48
)%
Foreign index
           
3,361,135
     
5.27
%
Interest rate
           
434,100
     
0.68
%
U.S. bond
           
(3,040,164
)
   
(4.77
)%
U.S. index
           
(3,468,292
)
   
(5.44
)%
Total futures
           
(7,362,481
)
   
(11.56
)%
                         
Forwards
                       
Foreign currency
           
(2,109,625
)
   
(3.31
)%
Total forwards
           
(2,109,625
)
   
(3.31
)%

30

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3. Investments in Master Funds (continued)
 
The following schedules display the condensed schedules of investments for the Master Funds as of September 30, 2019:
 
Description
 
Number of
Contracts / Notional
Amounts
 
Fair Value
   
Percentage of
Net Assets of
Master Fund
 
Graham K4D Trading Ltd. (continued)
 
           
Derivative financial instruments (continued)
 
           
Short contracts
 
           
Futures
 
           
Commodity
       
$
2,027,448
     
3.18
%
Currency
         
105,636
     
0.17
%
Foreign bond
         
11,682
     
0.02
%
Foreign index
         
(5,711
)
   
(0.01
)%
U.S. bond
         
(183,650
)
   
(0.29
)%
Total futures
         
1,955,405
     
3.07
%
                       
Forwards
                     
Foreign currency
         
5,511,725
     
8.65
%
Total forwards
         
5,511,725
     
8.65
%
Total derivative financial instruments
       
$
(2,004,976
)
   
(3.15
)%

31

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3. Investments in Master Funds (continued)
 
The following table shows the fair value classification of each investment type by Master Fund as of  September 30, 2019:
 
   
Graham
Commodity
Strategies LLC
   
Graham K4D
Trading Ltd.
 
Assets
           
Level 1:
           
Commodity futures
 
$
2,788,495
   
$
5,568,327
 
Commodity futures options
   
9,808,863
     
-
 
Currency futures
   
19,594
     
379,444
 
Exchange memberships
   
6,605,200
     
606,250
 
Foreign bond futures
   
139,496
     
1,051,906
 
Foreign index futures
   
370,327
     
3,763,343
 
Interest rate futures
   
1,390,257
     
434,657
 
Interest rate futures options
   
21,206,806
     
-
 
U.S. bond futures
   
407,141
     
-
 
U.S. index futures
   
5,337
     
-
 
U.S. index futures options
   
644,420
     
-
 
Total Level 1
   
43,385,936
     
11,803,927
 
                 
Level 2:
               
Foreign currency forwards
   
17,101,014
     
5,554,617
 
Foreign currency futures options
   
19,879,516
     
-
 
Government bonds*
   
-
     
31,456,934
 
Total Level 2
   
36,980,530
     
37,011,551
 
Total investment related assets
 
$
80,366,466
   
$
48,815,478
 
                 
Liabilities
               
Level 1:
               
Commodity futures
 
$
(8,989,356
)
 
$
(6,243,019
)
Commodity futures options
   
(5,680,544
)
   
-
 
Currency futures
   
(8,439
)
   
(7,470
)
Foreign bond futures
   
(1,133,513
)
   
(3,253,682
)
Foreign index futures
   
-
     
(407,919
)
Interest rate futures
   
(2,626,279
)
   
(557
)
Interest rate futures options
   
(13,810,188
)
   
-
 
U.S. bond futures
   
(856,813
)
   
(3,223,814
)
U.S. index futures
   
(130,115
)
   
(3,468,292
)
U.S. index futures options
   
(1,276,350
)
   
-
 
Total Level 1
   
(34,511,597
)
   
(16,604,753
)
                 
Level 2:
               
Foreign currency forwards
   
(13,284,932
)
   
(2,152,517
)
Foreign currency futures options
   
(7,169,118
)
   
-
 
Total Level 2
   
(20,454,050
)
   
(2,152,517
)
Total investment related liabilities
 
$
(54,965,647
)
 
$
(18,757,270
)

* See each Master Fund’s condensed schedule of investments for breakout of industry and geographic region.
 
32

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
3. Investments in Master Funds (continued)
 
The following table displays the gross volume of derivative activities categorized by primary underlying risk of Graham Commodity Strategies LLC based on its average quarterly notional amounts and number of contracts for the nine months ended September 30, 2019. The table also displays the fair value of derivative contracts held by Graham Commodity Strategies LLC at September 30, 2019 categorized by primary underlying risk. The fair value of derivative contracts is included in derivative financial instruments on the statements of financial condition. Derivatives denominated in foreign currencies have been converted to U.S. dollars. Derivative asset and liability balances are presented on a gross basis, prior to the application of counterparty netting. The Master Funds trade derivative instruments on a leveraged basis. Due to the low margin deposits normally required for trading these derivative financial instruments, the gross notional exposure as displayed in the tables below may exceed the net asset value of the Master Funds by a significant amount. As a result, a relatively small price movement in an underlying derivative financial instrument may result in immediate and substantial effect on the net income and net asset value of the Master Funds and GAIT.
 
   
Long exposure
   
Short exposure
             
   
Notional
amounts
   
Number
of
   
Notional
amounts
   
Number
of
   
Derivative
Assets
   
Derivative
Liabilities
 
Commodity price
                                   
Futures
 
$
307,988,851
     
3,410
   
$
(40,171,352
)
   
(731
)
 
$
2,788,495
   
$
(8,989,356
)
Options(a)
   
187,769,805
     
5,902
     
(161,457,122
)
   
(6,345
)
   
9,808,863
     
(5,680,544
)
     
495,758,656
     
9,312
     
(201,628,474
)
   
(7,076
)
   
12,597,358
     
(14,669,900
)
                                                 
Equity price
                                               
Futures
   
160,081,019
     
1,799
     
(113,564,044
)
   
(1,179
)
   
375,664
     
(130,115
)
Options(a)
   
86,658,348
     
2,785
     
(72,854,350
)
   
(5,161
)
   
644,420
     
(1,276,350
)
     
246,739,367
     
4,584
     
(186,418,394
)
   
(6,340
)
   
1,020,084
     
(1,406,465
)
Foreign currency exchange rate
                                         
Forwards
   
4,783,682,446
     
N/A
     
(3,211,569,784
)
   
N/A
     
17,101,014
     
(13,284,932
)
Futures
   
1,989,154
     
20
     
(1,446,053
)
   
(16
)
   
19,594
     
(8,439
)
Options(a)
   
1,117,890,081
     
62
     
(1,388,008,481
)
   
(57
)
   
19,879,516
     
(7,169,118
)
     
5,903,561,681
     
82
     
(4,601,024,318
)
   
(73
)
   
37,000,124
     
(20,462,489
)
                                                 
Interest rate
                                               
Futures
   
16,534,964,749
     
60,904
     
(7,726,400,090
)
   
(33,613
)
   
1,936,894
     
(4,616,605
)
Options(a)
   
7,793,935,349
     
330,023
     
(5,110,492,609
)
   
(236,886
)
   
21,206,806
     
(13,810,188
)
     
24,328,900,098
     
390,927
     
(12,836,892,699
)
   
(270,499
)
   
23,143,700
     
(18,426,793
)
Total
 
$
30,974,959,802
     
404,905
   
$
(17,825,963,885
)
   
(283,988
)
 
$
73,761,266
   
$
(54,965,647
)
 
(a)
Notional amounts for options are based on the delta-adjusted positions.
 
33

 Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3. Investments in Master Funds (continued)
 
The following table displays the gross volume of derivative activities categorized by primary underlying risk of Graham K4D Trading Ltd. based on its average quarterly notional amounts and number of contracts for the nine months ended September 30, 2019. The table also displays the fair value of derivative contracts held by Graham K4D Trading Ltd. at September 30, 2019 categorized by primary underlying risk. The fair value of derivative contracts is included in derivative financial instruments on the statements of financial condition. Derivatives denominated in foreign currencies have been converted to U.S. dollars. Derivative asset and liability balances are presented on a gross basis, prior to the application of counterparty netting. The Master Funds trade derivative instruments on a leveraged basis. Due to the low margin deposits normally required for trading these derivative financial instruments, the gross notional exposure as displayed in the tables below may exceed the net asset value of the Master Funds by a significant amount. As a result, a relatively small price movement in an underlying derivative financial instrument may result in immediate and substantial effect on the net income and net asset value of the Master Funds and GAIT.
 
   
Long exposure
   
Short exposure
             
   
Notional
amounts
   
Number
of
   
Notional
amounts
   
Number
of
   
Derivative
Assets
   
Derivative
Liabilities
 
Commodity price
                                   
Futures
 
$
150,696,461
     
1,701
   
$
(215,180,787
)
   
(4,636
)
 
$
5,568,327
   
$
(6,243,019
)
     
150,696,461
     
1,701
     
(215,180,787
)
   
(4,636
)
   
5,568,327
     
(6,243,019
)
                                                 
Equity price
                                               
Futures
   
552,519,428
     
5,817
     
(10,718,809
)
   
(145
)
   
3,763,343
     
(3,876,211
)
     
552,519,428
     
5,817
     
(10,718,809
)
   
(145
)
   
3,763,343
     
(3,876,211
)
Foreign currency exchange rate
                                         
Forwards
   
242,360,632
     
N/A
     
(717,174,061
)
   
N/A
     
5,554,617
     
(2,152,517
)
Futures
   
21,421,204
     
225
     
(9,829,242
)
   
(99
)
   
379,444
     
(7,470
)
     
263,781,836
     
225
     
(727,003,303
)
   
(99
)
   
5,934,061
     
(2,159,987
)
                                                 
Interest rate
                                               
Futures
   
2,580,229,971
     
14,060
     
(172,952,505
)
   
(1,152
)
   
1,486,563
     
(6,478,053
)
     
2,580,229,971
     
14,060
     
(172,952,505
)
   
(1,152
)
   
1,486,563
     
(6,478,053
)
Total
 
$
3,547,227,696
     
21,803
   
$
(1,125,855,404
)
   
(6,032
)
 
$
16,752,294
   
$
(18,757,270
)
 
34

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
3. Investments in Master Funds (continued)
 
When multiple derivative contracts are held with the same counterparty, the Master Funds will net the contracts in an asset position with the contracts in a liability position when covered by a master netting agreement or similar arrangements, for presentation in the statements of financial condition. The table below displays the amounts at September 30, 2019 by which the fair values of both derivative assets and derivative liabilities were reduced within the Master Funds’ statements of financial condition as a result of this netting. Gross amounts below correspond to the total derivative asset and derivative liability balances categorized by primary underlying risk and product type in the preceding tables. Collateral pledged (received) for derivative assets and liabilities represent the cash amounts which are included in due from brokers on the statements of financial condition. Actual collateral pledged or received by the Master Funds may exceed these amounts.
 
Description
 
Gross
Amount
   
Gross Amount
Offset in
the Statements
of Financial
Condition
   
Net Amount
Presented in
the Statements
of Financial
Condition
   
Collateral
(Received) /
Pledged
   
Net Amount
 
                               
Graham Commodity Strategies LLC1
                         
Derivative assets
 
$
73,761,266
   
$
(50,201,059
)
 
$
23,560,207
   
$
-
   
$
23,560,207
 
Derivative liabilities
   
(54,965,647
)
   
50,201,059
     
(4,764,588
)
   
4,764,588
     
-
 
                                         
Graham K4D Trading Ltd.2
                                       
Derivative assets
 
$
16,752,294
   
$
(13,350,193
)
 
$
3,402,101
     
-
   
$
3,402,101
 
Derivative liabilities
   
(18,757,270
)
   
13,350,193
     
(5,407,077
)
 
$
5,407,077
     
-
 
 
1 Net derivative asset and liability amounts presented in the statements of financial condition is held with four counterparties. At September 30, 2019, additional collateral pledged in the amount of $109,274,303 was posted in support of derivative positions and is included in due from brokers on the statements of financial condition.
 
2 Net derivative asset and liability amounts presented in the statement of financial condition are held with two counterparties. At September 30, 2019, additional collateral pledged in the amount of $28,146,858 was posted in support of derivative positions and is included in due from brokers on the statement of financial condition.
 
35

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
3. Investments in Master Funds (continued)
 
The following table summarizes the results of operations of each Master Fund for the three months ended September 30, 2019:
 
   
Graham
Commodity
Strategies LLC
   
Graham K4D
Trading Ltd.
 
             
Net investment income
 
$
372,292
   
$
200,436
 
                 
Net realized gain on investments
   
91,288,839
     
57,612,556
 
Net decrease in unrealized appreciation on investments
   
(35,180,589
)
   
(19,316,972
)
Brokerage commissions and fees
   
(4,210,945
)
   
(101,863
)
Net gain on investments
   
51,897,305
     
38,193,721
 
Net income
 
$
52,269,597
   
$
38,394,157
 

The following table summarizes the results of operations of each Master Fund for the nine months ended September 30, 2019:
 
   
Graham
Commodity
Strategies LLC
   
Graham K4D
Trading Ltd.
 
             
Net investment income
 
$
1,281,301
   
$
659,930
 
                 
Net realized gain on investments
   
148,812,821
     
77,214,124
 
Net (decrease) increase in unrealized appreciation on investments
   
(36,393,948
)
   
5,561,738
 
Brokerage commissions and fees
   
(12,718,098
)
   
(346,364
)
Net gain on investments
   
99,700,775
     
82,429,498
 
Net income
 
$
100,982,076
   
$
83,089,428
 

36

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
3. Investments in Master Funds (continued)
 
The following table shows the gains and losses on all financial instruments held by the Master Funds reported in net realized gain and net decrease in unrealized appreciation on investments in their statements of operations segregated by primary underlying risk and contract type for the three months ended September 30, 2019:
 
   
Graham
Commodity
Strategies LLC
   
Graham
K4D Trading
Ltd.
 
Commodity price
           
Futures
 
$
19,473,321
   
$
(5,318,152
)
Options
   
4,420,347
     
-
 
     
23,893,668
     
(5,318,152
)
Equity price
               
Equities
   
561,900
     
(65,750
)
Futures
   
17,324,869
     
12,840,006
 
Options
   
(1,344,915
)
   
-
 
     
16,541,854
     
12,774,256
 
Foreign currency exchange rate
               
Forwards
   
32,672,955
     
15,215,088
 
Futures
   
(52,501
)
   
946,691
 
Options
   
(22,151,472
)
   
-
 
     
10,468,982
     
16,161,779
 
Interest rate
               
Fixed income securities
   
-
     
71,982
 
Futures
   
21,266,142
     
14,605,719
 
Options
   
(16,062,396
)
   
-
 
     
5,203,746
     
14,677,701
 
Total
 
$
56,108,250
   
$
38,295,584
 

37

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
3. Investments in Master Funds (continued)
 
The following table shows the gains and losses on all financial instruments held by the Master Funds reported in net realized gain and net (decrease) increase in unrealized appreciation on investments in their statements of operations segregated by primary underlying risk and contract type for the nine months ended September 30, 2019:
 
 
 
Graham
Commodity
Strategies LLC
   
Graham
K4D Trading
Ltd.
 
Commodity price
           
Futures
 
$
34,095,503
   
$
(34,710,115
)
Options
   
5,106,892
     
-
 
 
   
39,202,395
     
(34,710,115
)
Equity price
               
Equities
   
741,600
     
(150,250
)
Futures
   
26,252,521
     
37,721,909
 
Options
   
904,890
     
-
 
 
   
27,899,011
     
37,571,659
 
Foreign currency exchange rate
               
Forwards
   
45,971,846
     
9,888,840
 
Futures
   
(148,941
)
   
1,128,368
 
Options
   
(43,138,591
)
   
-
 
 
   
2,684,314
     
11,017,208
 
Interest rate
               
Fixed income securities
   
-
     
364,834
 
Futures
   
35,470,016
     
68,532,276
 
Options
   
7,163,137
     
-
 
 
   
42,633,153
     
68,897,110
 
Total
 
$
112,418,873
   
$
82,775,862
 

38

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
3. Investments in Master Funds (continued)

The following table summarizes the financial position of each Master Fund as of December 31, 2018:
 
   
Graham
Commodity
Strategies LLC
(Delaware)
   
Graham K4D
Trading Ltd.
(BVI)
 
Assets:
           
Fixed income securities, at fair value (cost $62,362,617)
 
$
-
   
$
62,592,100
 
Due from brokers
   
76,813,273
     
13,515,716
 
Derivative financial instruments, at fair value
   
20,399,655
     
-
 
Exchange memberships, at fair value
   
5,863,600
     
756,500
 
Accrued interest income
   
36,830
     
364,002
 
Dividends receivable
   
36,750
     
-
 
Total assets
   
103,150,108
     
77,228,318
 
                 
Liabilities:
               
Derivative financial instruments, at fair value
   
1,878,673
     
7,631,786
 
Interest payable
   
525
     
11,474
 
Total liabilities
   
1,879,198
     
7,643,260
 
Members’ Capital / Net Assets
 
$
101,270,910
   
$
69,585,058
 
                 
Percentage of Master Fund held by GAIT
   
2.41
%
   
4.73
%

39

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
3. Investments in Master Funds (continued)
 
The following schedules display the condensed schedules of investments for the Master Funds as of December 31, 2018:
 
Description
 
Number of
Contracts / Notional
Amounts
   
Fair Value
   
Percentage
of Members’
Capital of
Master Fund
 
Graham Commodity Strategies LLC
                 
Exchange memberships (cost $2,146,960)
                 
United States (cost $2,146,960)
                 
Financial services (cost $2,146,960)
       
$
5,863,600
     
5.79
%
Total exchange memberships
       
$
5,863,600
     
5.79
%
                       
Derivative financial instruments
                     
                     
Futures
                     
Commodity
       
$
3,698,683
     
3.65
%
Currency
         
(1,165
)
   
(0.00
)%
Foreign index
         
(42,275
)
   
(0.04
)%
Interest rate
                     
Fed Fund 30 day July 2019
   
13,491
     
14,851,438
     
14.67
%
Fed Fund 30 day January 2019 - December 2019
   
15,909
     
4,051,887
     
4.00
%
Other interest rate
           
719,375
     
0.71
%
U.S. bond
                       
U.S. 5yr note March 2019
   
15,538
     
15,861,867
     
15.66
%
U.S. 2yr - 10yr note March 2019
   
5,294
     
2,530,094
     
2.50
%
U.S. long bond March 2019
   
200
     
(119,188
)
   
(0.12
)%
U.S. Ultra bond March 2019
   
411
     
947,844
     
0.94
%
U.S. index
           
43,370
     
0.04
%
Total futures
           
42,541,930
     
42.01
%
                         
Forwards
                       
Chinese yuan / U.S. dollar 02/01/2019 - 10/15/2019
 
CNH
2,289,561,625      
3,331,384
     
3.29
%
Japanese yen / U.S. dollar 01/04/2019 - 01/07/2019
 
JPY
84,717,596,509      
6,780,540
     
6.70
%
Taiwan dollar / U.S. dollar 01/03/2019 - 06/13/2019
 
TWD
48,008,984,652      
3,144,452
     
3.10
%
Other foreign currency
           
869,160
     
0.86
%
Total forwards
           
14,125,536
     
13.95
%

40

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3. Investments in Master Funds (continued)
 
The following schedules display the condensed schedules of investments for the Master Funds as of December 31, 2018:
 
Description
 
Number of
Notional Amounts
   
Fair Value
   
Percentage
of Members’
Capital of
Master Fund
 
Graham Commodity Strategies LLC (continued)
                 
Derivative financial instruments (continued)
                 
Long contracts (continued)
                 
Options (cost $75,200,814)
                 
Commodity futures
       
$
2,337,480
     
2.31
%
Currency
                     
Euro dollar / U.S. dollar January 2019 - May 2019, $1.15 - $1.34 Call
   
3
     
849,954
     
0.83
%
Euro dollar / U.S. dollar January 2019 - June 2019, $1.05 - $1.12 Put
   
5
     
3,613,066
     
3.57
%
U.S. dollar / Chinese yuan January 2019, $7.20 Call
   
1
     
20
     
0.00
%
U.S. dollar / Chinese yuan April 2019 - December 2019, $6.60 - $6.92 Put
   
4
     
9,111,130
     
9.00
%
U.S. dollar / Japanese yen February 2019, $110.60 Put
   
1
     
7,663,920
     
7.57
%
U.S. dollar / Japanese yen April 2019, $111.20 Put
   
1
     
7,368,200
     
7.27
%
U.S. dollar / Japanese yen January 2019 - May 2019, $109.75 - $111.60 Put
   
6
     
17,712,554
     
17.49
%
U.S. dollar / Taiwan dollar January 2019 - June 2019, $31.30 - $31.70 Call
   
11
     
1,806,425
     
1.78
%
Other currency
           
10,550,246
     
10.42
%
Interest rate
                       
Euro dollar 1yr midcurve June 2019 – September 2019, $96.50 Put
   
2
     
(5,421,875
)
   
(5.35
)%
Euribor 2yr midcurve June 2019, $100.00 Call
   
1
     
4,171,579
     
4.12
%
Other interest rate futures
           
7,249,033
     
7.16
%
U.S. index futures
           
1,256,250
     
1.24
%
Total options
           
68,267,982
     
67.41
%

41

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
3. Investments in Master Funds (continued)
 
The following schedules display the condensed schedules of investments for the Master Funds as of December 31, 2018:
 
Description
 
Number of
Contracts / Notional
Amounts
   
Fair Value
   
Percentage
of Members’
Capital of
Master Fund
 
Graham Commodity Strategies LLC (continued)
                 
Derivative financial instruments (continued)
                 
Short contracts
                 
Futures
                 
Commodity
       
$
225,676
     
0.22
%
Foreign bond
         
(504,546
)
   
(0.50
)%
Interest rate
                     
Fed Fund 30 day August 2019
   
(13,491
)
   
(16,380,602
)
   
(16.17
)%
Fed Fund 30 day May 2019 - November 2019
   
(6,167
)
   
(5,045,154
)
   
(4.98
)%
Other interest rate
           
(47,354
)
   
(0.05
)%
U.S. Ultra bond March 2019
   
(2,837
)
   
(102,187
)
   
(0.10
)%
U.S. index
           
(242,000
)
   
(0.24
)%
Total futures
           
(22,096,167
)
   
(21.82
)%
                         
Forwards
                       
U.S. dollar / Chinese yuan 02/01/2019 - 10/15/2019
 
CNH
(2,874,294,571)      
(3,464,643
)
   
(3.42
)%
U.S. dollar / Japanese yen 01/04/2019 - 01/07/2019
 
JPY
(51,210,507,355)      
(3,940,829
)
   
(3.89
)%
U.S. dollar / Taiwan dollar 01/03/2019 - 06/13/2019
 
TWD
(56,242,002,182)      
(8,214,043
)
   
(8.11
)%
Other foreign currency
           
3,420,784
     
3.37
%
Total forwards
           
(12,198,731
)
   
(12.05
)%
                         
Options (proceeds $66,816,605)
                       
Commodity futures
           
(1,000,339
)
   
(0.99
)%
Currency
                       
Euro dollar / U.S. dollar January 2019 - December 2019, $1.15 - $1.34 Call
   
(6
)
   
(7,129,507
)
   
(7.04
)%
Euro dollar / U.S. dollar February 2019 - June 2019, $1.05 - $1.10 Put
   
(4
)
   
(3,590,823
)
   
(3.55
)%
U.S. dollar / Chinese yuan January 2019, $7.40 Call
   
(1
)
   
(20
)
   
(0.00
)%
U.S. dollar / Chinese yuan April 2019 - December 2019, $6.35 - $6.92 Put
   
(4
)
   
(7,737,030
)
   
(7.64
)%
U.S. dollar / Japanese yen February 2019, $110.60 Put
   
(1
)
   
(7,663,920
)
   
(7.57
)%
U.S. dollar / Japanese yen April 2019, $111.20 Put
   
(1
)
   
(7,368,200
)
   
(7.28
)%
U.S. dollar / Japanese yen January 2019 - May 2019, $110.00 - $111.60 Put
   
(4
)
   
(17,155,353
)
   
(16.94
)%
Taiwan dollar / U.S. dollar May 2019 - June 2019, $31.55 - $31.63 Call
   
(2
)
   
(608,610
)
   
(0.60
)%
Other currency
           
(8,372,745
)
   
(8.26
)%
Interest rate
                       
Euro dollar 1yr midcurve June 2019 - September 2019, $96.00 - $96.25 Put
   
(2
)
   
1,921,875
     
1.90
%
Euribor 2yr midcurve June 2019, $99.88 Call
   
(1
)
   
(9,137,745
)
   
(9.02
)%
Other interest rate futures
           
(1,468,651
)
   
(1.45
)%
U.S. index futures
           
(2,808,500
)
   
(2.77
)%
Total options
           
(72,119,568
)
   
(71.21
)%
Total derivative financial instruments
         
$
18,520,982
     
18.29
%

42

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
3. Investments in Master Funds (continued)
 
The following schedules display the condensed schedules of investments for the Master Funds as of December 31, 2018:
 
Description
 
Principal / Number
Notional Amounts
   
Fair Value
   
Percentage of
Net Assets of
Master Fund
 
Graham K4D Trading Ltd.
                 
Fixed income securities owned (cost $62,362,617)
                 
Bonds (cost $62,362,617)
                 
United States (cost $62,362,617)
                 
Government Bonds (cost $62,362,617)
                 
U.S. Treasury bond 1.13% due 01/15/2019
 
$
31,500,000
   
$
31,486,465
     
45.25
%
U.S. Treasury bond 1.38% due 01/15/2020
   
31,500,000
     
31,105,635
     
44.70
%
Total United States
           
62,592,100
     
89.95
%
Total bonds
           
62,592,100
     
89.95
%
Total fixed income securities owned
         
$
62,592,100
     
89.95
%
                         
Exchange memberships (cost $1,051,100)
                       
United States (cost $1,051,100)
                       
Financial services (cost $1,051,100)
         
$
756,500
     
1.09
%
Total exchange memberships
         
$
756,500
     
1.09
%
                         
Derivative financial instruments
                       
                       
Futures
                       
Commodity
                       
Natural gas February 2019
   
378
   
$
(5,558,587
)
   
(7.99
)%
Other commodity
           
(1,630,362
)
   
(2.35
)%
Currency
                       
Japanese yen March 2019
   
4
     
11,862
     
0.02
%
Other currency
           
(291,631
)
   
(0.42
)%
Foreign bond
           
4,250,332
     
6.11
%
Foreign index
           
(1,951,495
)
   
(2.80
)%
Interest rate
           
480,650
     
0.69
%
U.S. bond
                       
U.S. 10yr note March 2019
   
679
     
340,805
     
0.49
%
U.S. long bond March 2019
   
886
     
1,496,445
     
2.15
%
U.S. index
           
(3,303,916
)
   
(4.75
)%
Total futures
           
(6,155,897
)
   
(8.85
)%
                         
Forwards
 
                   
Japanese yen / U.S. dollar 01/04/2019 – 03/20/2019
  JPY
7,409,817,000      
518,746
     
0.75
%
Other foreign currency
           
876,576
     
1.26
%
Total forwards
           
1,395,322
     
2.01
%

43

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
3. Investments in Master Funds (continued)
 
The following schedules display the condensed schedules of investments for the Master Funds as of December 31, 2018:
 
Description
 
Number of
Contracts / Notional
Amounts
   
Fair Value
   
Percentage of
Net Assets of
Master Fund
 
Graham K4D Trading Ltd. (continued)
                 
Derivative financial instruments (continued)
                 
Short contracts
                 
Futures
                 
Commodity
       
$
8,406,227
     
12.08
%
Currency
         
27,885
     
0.04
%
Foreign index
         
2,446,585
     
3.52
%
Interest rate
                     
90 day Eurodollar June 2020
   
(3,081
)
   
(4,086,692
)
   
(5.87
)%
Other interest rate
           
(98,172
)
   
(0.14
)%
U.S. bond
                       
U.S. 2 yr – 5 yr note March 2019
   
(2,956
)
   
(4,784,097
)
   
(6.88
)%
U.S. index
           
326,957
     
0.47
%
Total futures
           
2,238,693
     
3.22
%
                         
Forwards
                       
U.S. dollar / Japanese yen 01/04/2019 – 01/07/2019
 
JPY
(2,633,486,422)      
(143,282
)
   
(0.21
)%
U.S. dollar / Japanese yen 03/20/2019
 
JPY
(22,697,264,000)      
(6,247,196
)
   
(8.98
)%
Other foreign currency
           
1,280,574
     
1.84
%
Total forwards
           
(5,109,904
)
   
(7.35
)%
Total derivative financial instruments
         
$
(7,631,786
)
   
(10.97
)%

44

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
3. Investments in Master Funds (continued)
 
The following table shows the fair value classification of each investment type by Master Fund as of December 31, 2018:

   
Graham
Commodity
Strategies LLC
   
Graham K4D
Trading Ltd.
 
Assets
           
Level 1:
           
Commodity futures
 
$
4,486,309
   
$
10,924,441
 
Commodity futures options
   
2,337,480
     
-
 
Currency futures
   
475
     
59,691
 
Exchange memberships
   
5,863,600
     
756,500
 
Foreign bond futures
   
138,198
     
4,250,332
 
Foreign index futures
   
-
     
2,603,289
 
Interest rate futures
   
20,013,528
     
480,650
 
Interest rate futures options
   
13,342,488
     
-
 
U.S. bond futures
   
19,339,805
     
1,837,250
 
U.S. index futures
   
43,370
     
326,957
 
U.S. index futures options
   
1,256,250
     
-
 
Total Level 1
   
66,821,503
     
21,239,110
 
                 
Level 2:
               
Foreign currency forwards
   
27,155,059
     
5,540,490
 
Foreign currency futures options
   
58,675,515
     
-
 
Government bonds*
   
-
     
62,592,100
 
Total Level 2
   
85,830,574
     
68,132,590
 
Total investment related assets
 
$
152,652,077
   
$
89,371,700
 
                 
Liabilities
               
Level 1:
               
Commodity futures
 
$
(561,950
)
 
$
(9,707,163
)
Commodity futures options
   
(1,000,339
)
   
-
 
Currency futures
   
(1,640
)
   
(311,575
)
Foreign bond futures
   
(642,744
)
   
-
 
Foreign index futures
   
(42,275
)
   
(2,108,199
)
Interest rate futures
   
(21,863,938
)
   
(4,184,864
)
Interest rate futures options
   
(16,028,272
)
   
-
 
U.S. bond futures
   
(221,375
)
   
(4,784,097
)
U.S. index futures
   
(242,000
)
   
(3,303,916
)
U.S. index futures options
   
(2,808,500
)
   
-
 
Total Level 1
   
(43,413,033
)
   
(24,399,814
)
                 
Level 2:
               
Foreign currency forwards
   
(25,228,254
)
   
(9,255,072
)
Foreign currency futures options
   
(59,626,208
)
   
-
 
Total Level 2
   
(84,854,462
)
   
(9,255,072
)
Total investment related liabilities
 
$
(128,267,495
)
 
$
(33,654,886
)
 
*  See each Master Fund’s condensed schedule of investments for breakout of industry and geographic region.
 
45

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
3. Investments in Master Funds (continued)
 
The following table displays the gross volume of derivative activities categorized by primary underlying risk of Graham Commodity Strategies LLC based on its average quarterly notional amounts and number of contracts for the year ended December 31, 2018. The table also displays the fair value of derivative contracts held by Graham Commodity Strategies LLC at December 31, 2018 categorized by primary underlying risk. The fair value of derivative contracts is included in derivative financial instruments on the statements of financial condition. Derivatives denominated in foreign currencies have been converted to U.S. dollars. Derivative asset and liability balances are presented on a gross basis, prior to the application of counterparty netting. The Master Funds trade derivative instruments on a leveraged basis. Due to the low margin deposits normally required for trading these derivative financial instruments, the gross notional exposure as displayed in the tables below may exceed the net asset value of the Master Funds by a significant amount. As a result, a relatively small price movement in an underlying derivative financial instrument may result in immediate and substantial effect on the net income and net asset value of the Master Funds and GAIT.
 
   
Long exposure
   
Short exposure
             
   
Notional
amounts
   
Number
of
   
Notional
amounts
   
Number
of
   
Derivative
Assets
   
Derivative
Liabilities
 
Commodity price
                                   
Futures
 
$
272,541,861
     
5,754
   
$
(177,709,601
)
   
(3,732
)
 
$
4,486,309
   
$
(561,950
)
Options (a)
   
1,298,537,787
     
18,027
     
(380,553,060
)
   
(19,678
)
   
2,337,480
     
(1,000,339
)
     
1,571,079,648
     
23,781
     
(558,262,661
)
   
(23,410
)
   
6,823,789
     
(1,562,289
)
Equity price
                                               
Futures
   
319,487,143
     
5,171
     
(165,950,877
)
   
(1,336
)
   
43,370
     
(284,275
)
Options (a)
   
254,692,833
     
16,240
     
(191,820,390
)
   
(23,034
)
   
1,256,250
     
(2,808,500
)
     
574,179,976
     
21,411
     
(357,771,267
)
   
(24,370
)
   
1,299,620
     
(3,092,775
)
Foreign currency exchange rate
                                         
Forwards
   
16,918,431,703
     
N/A
     
(3,410,910,329
)
   
N/A
     
27,155,059
     
(25,228,254
)
Futures
   
423,939
     
4
     
-
     
-
     
475
     
(1,640
)
Options (a)
   
2,197,339,066
     
51
     
(2,396,099,814
)
   
(41
)
   
58,675,515
     
(59,626,208
)
     
19,116,194,708
     
55
     
(5,807,010,143
)
   
(41
)
   
85,831,049
     
(84,856,102
)
Interest rate
                                               
Futures
   
20,804,178,975
     
62,009
     
(25,465,899,339
)
   
(76,933
)
   
39,491,531
     
(22,728,057
)
Options (a)
   
7,298,162,958
     
167,030
     
(8,522,843,364
)
   
(123,049
)
   
13,342,488
     
(16,028,272
)
     
28,102,341,933
     
229,039
     
(33,988,742,703
)
   
(199,982
)
   
52,834,019
     
(38,756,329
)
Total
 
$
49,363,796,265
     
274,286
   
$
(40,711,786,774
)
   
(247,803
)
 
$
146,788,477
   
$
(128,267,495
)

 
(a)
Notional amounts for options are based on the delta-adjusted positions.
 
46

 Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
3. Investments in Master Funds (continued)
 
The following table displays the gross volume of derivative activities categorized by primary underlying risk of Graham K4D Trading Ltd. based on its average quarterly notional amounts and number of contracts for the year ended December 31, 2018. The table also displays the fair value of derivative contracts held by Graham K4D Trading Ltd. at December 31, 2018 categorized by primary underlying risk. The fair value of derivative contracts is included in derivative financial instruments on the statements of financial condition. Derivatives denominated in foreign currencies have been converted to U.S. dollars. Derivative asset and liability balances are presented on a gross basis, prior to the application of counterparty netting. The Master Funds trade derivative instruments on a leveraged basis. Due to the low margin deposits normally required for trading these derivative financial instruments, the gross notional exposure as displayed in the tables below may exceed the net asset value of the Master Funds by a significant amount. As a result, a relatively small price movement in an underlying derivative financial instrument may result in immediate and substantial effect on the net income and net asset value of the Master Funds and GAIT.
 
   
Long exposure
   
Short exposure
             
   
Notional
amounts
   
Number
of
   
Notional
amounts
   
Number
of
   
Derivative
Assets
   
Derivative
Liabilities
 
Commodity price
                                   
Futures
 
$
352,534,389
     
4,767
   
$
(315,959,595
)
   
(5,520
)
 
$
10,924,441
   
$
(9,707,163
)
     
352,534,389
     
4,767
     
(315,959,595
)
   
(5,520
)
   
10,924,441
     
(9,707,163
)
                                                 
Equity price
                                               
Futures
   
417,348,057
     
3,525
     
(137,133,948
)
   
(1,719
)
   
2,930,246
     
(5,412,115
)
     
417,348,057
     
3,525
     
(137,133,948
)
   
(1,719
)
   
2,930,246
     
(5,412,115
)
                                                 
Foreign currency exchange rate
                                         
Forwards
   
309,204,100
     
N/A
     
(781,505,253
)
   
N/A
     
5,540,490
     
(9,255,072
)
Futures
   
24,478,900
     
261
     
(16,744,023
)
   
(166
)
   
59,691
     
(311,575
)
     
333,683,000
     
261
     
(798,249,276
)
   
(166
)
   
5,600,181
     
(9,566,647
)
                                                 
Interest rate
                                               
Futures
   
1,794,077,328
     
9,368
     
(2,321,524,647
)
   
(13,412
)
   
6,568,232
     
(8,968,961
)
     
1,794,077,328
     
9,368
     
(2,321,524,647
)
   
(13,412
)
   
6,568,232
     
(8,968,961
)
Total
 
$
2,897,642,774
     
17,921
   
$
(3,572,867,466
)
   
(20,817
)
 
$
26,023,100
   
$
(33,654,886
)
 
47

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
3. Investments in Master Funds (continued)
 
When multiple derivative contracts are held with the same counterparty, the Master Funds will net the contracts in an asset position with the contracts in a liability position when covered by a master netting agreement or similar arrangements, for presentation in the statements of financial condition. The table below displays the amounts at December 31, 2018 by which the fair values of both derivative assets and derivative liabilities were reduced within the Master Funds’ statements of financial condition as a result of this netting. Gross amounts below correspond to the total derivative asset and derivative liability balances categorized by primary underlying risk and product type in the preceding tables. Collateral pledged (received) for derivative assets and liabilities represent the cash amounts which are included in due from brokers on the statements of financial condition. Actual collateral pledged or received by the Master Funds may exceed these amounts.
 
Description
 
Gross
Amount
   
Gross Amount
Offset in
the Statements
of Financial
Condition
   
Net Amount
Presented in
the Statements
of Financial
Condition
   
Collateral
(Received) /
Pledged
   
Net Amount
 
                               
Graham Commodity Strategies LLC1
                         
Derivative assets
 
$
146,788,477
   
$
(126,388,822
)
 
$
20,399,655
   
$
-
   
$
20,399,655
 
Derivative liabilities
   
(128,267,495
)
   
126,388,822
     
(1,878,673
)
   
1,878,673
     
-
 
                                         
Graham K4D Trading Ltd.2
                                       
Derivative assets
 
$
26,023,100
   
$
(26,023,100
)
 
$
-
   
$
-
   
$
-
 
Derivative liabilities
   
(33,654,886
)
   
26,023,100
     
(7,631,786
)
   
5,875,703
     
(1,756,083
)
 
1 Net derivative asset and liability amounts presented in the statements of financial condition are held with three counterparties. The Master Fund has pledged/received offsetting collateral to/from one of those counterparties as of December 31, 2018. At December 31, 2018, additional collateral pledged in the amount of $74,833,150 was posted in support of derivative positions and is included in due from brokers on the statements of financial condition.
 
2 Net derivative liability amounts presented in the statement of financial condition are held with two counterparties. At December 31, 2018, additional collateral pledged in the amount of $7,640,013 was posted in support of derivative positions and is included in due from brokers on the statement of financial condition.
 
48

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
3. Investments in Master Funds (continued)
 
The following table summarizes the results of operations of each Master Fund for the three months ended September 30, 2018:
 
   
Graham
Commodity
Strategies LLC
   
Graham K4D
Trading Ltd.
 
             
Net investment income
 
$
468,924
   
$
328,938
 
                 
Net realized (loss) gain on investments
   
(89,718,593
)
   
1,483,690
 
Net increase in unrealized appreciation on investments
   
48,923,860
     
32,187,872
 
Brokerage commissions and fees
   
(3,069,011
)
   
(159,451
)
Net (loss) gain on investments
   
(43,863,744
)
   
33,512,111
 
Net (loss) income
 
$
(43,394,820
)
 
$
33,841,049
 

The following table summarizes the results of operations of each Master Fund for the nine months ended September 30, 2018:
 
   
Graham
Commodity
Strategies LLC
   
Graham K4D
Trading Ltd.
 
             
Net investment income
 
$
1,131,699
   
$
926,064
 
                 
Net realized gain (loss) on investments
   
83,978,196
     
(20,137,034
)
Net increase in unrealized appreciation on investments
   
9,136,728
     
1,746,179
 
Brokerage commissions and fees
   
(13,443,886
)
   
(580,001
)
Net gain (loss) on investments
   
79,671,038
     
(18,970,856
)
Net income (loss)
 
$
80,802,737
   
$
(18,044,792
)

49

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
3. Investments in Master Funds (continued)
 
The following table shows the gains and losses on all financial instruments held by the Master Funds reported in net realized (loss) gain and net increase in unrealized appreciation on investments in their statements of operations segregated by primary underlying risk and contract type for the three months ended September 30, 2018:
 
   
Graham
Commodity
Strategies LLC
   
Graham
K4D Trading
Ltd.
 
Commodity price
           
Futures
 
$
(3,582,536
)
 
$
11,252,154
 
Options
   
1,315,280
     
-
 
     
(2,267,256
)
   
11,252,154
 
Equity price
               
Equities
   
158,200
     
(125,750
)
Futures
   
(9,568,285
)
   
24,474,058
 
Options
   
(2,670,195
)
   
-
 
     
(12,080,280
)
   
24,348,308
 
Foreign currency exchange rate
               
Forwards
   
9,456,422
     
191,409
 
Futures
   
291,130
     
564,103
 
Options
   
(35,758,784
)
   
-
 
     
(26,011,232
)
   
755,512
 
Interest rate
               
Fixed income securities
   
-
     
67,676
 
Futures
   
3,023,255
     
(2,752,088
)
Options
   
(3,459,220
)
   
-
 
 
   
(435,965
)
   
(2,684,412
)
Total
 
$
(40,794,733
)
 
$
33,671,562
 

50

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
3. Investments in Master Funds (continued)
 
The following table shows the gains and losses on all financial instruments held by the Master Funds reported in net realized gain (loss) and net increase in unrealized appreciation on investments in their statements of operations segregated by primary underlying risk and contract type for the nine months ended September 30, 2018:
 
   
Graham
Commodity
Strategies LLC
   
Graham
K4D Trading
Ltd.
 
Commodity price
           
Futures
 
$
(21,406,702
)
 
$
(6,303,208
)
Options
   
1,361,099
     
-
 
     
(20,045,603
)
   
(6,303,208
)
Equity price
               
Equities
   
694,800
     
(212,750
)
Futures
   
14,320,509
     
11,360,616
 
Options
   
(6,200,320
)
   
-
 
     
8,814,989
     
11,147,866
 
Foreign currency exchange rate
               
Forwards
   
61,046,760
     
(26,279,314
)
Futures
   
228,205
     
(36,112
)
Options
   
(51,384,027
)
   
-
 
     
9,890,938
     
(26,315,426
)
Interest rate
               
Fixed income securities
   
-
     
5,538
 
Futures
   
92,001,952
     
3,074,375
 
Options
   
2,452,648
     
-
 
     
94,454,600
     
3,079,913
 
Total
 
$
93,114,924
   
$
(18,390,855
)
 
51

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
4. Graham Cash Assets LLC
 
GAIT invests a portion of its excess liquidity in Cash Assets, an entity for which the Manager is also the sole investment advisor. Cash Assets commenced operations on June 22, 2005 and was formed as a Delaware Limited Liability Company for the purpose of consolidating investment activity of multiple funds managed by the Manager. Its objective is to preserve capital while enhancing return on cash balances and providing daily liquidity. It invests in debt obligations guaranteed by the U.S. Federal government which generally range in maturity from one to thirty months. Cash Assets also maintains cash and cash equivalents on deposit with major U.S. institutions. Cash Assets values all fixed income securities at amortized cost which approximates fair value. GAIT’s investment in Cash Assets is valued in the accompanying statements of financial condition at fair value in accordance with U.S. GAAP based upon GAIT’s proportionate share of Cash Assets’ reported net asset value. GAIT’s investment in GCA at September 30, 2019 and December 31, 2018 is $51,461,585 and $55,501,064 which represents a percentage of GAIT’s Members’ Capital of 89.83% and 91.86%, respectively.
 
GAIT records its proportionate share of Cash Assets’ investment income and expenses on a monthly basis.  For the three months and nine months ended September 30, 2019, the total amount recognized by GAIT with respect to its investment in Cash Assets was $274,254 and $808,632, respectively. For the three months and nine months ended September 30, 2018, the total amount recognized by GAIT with respect to its investment in Cash Assets was $269,246 and $780,945, respectively.  These amounts are included in interest income in the statements of operations and incentive allocation. At September 30, 2019 and December 31, 2018, GAIT owned approximately 0.95% and 1.26%, respectively, of Cash Assets. The following table summarizes the financial position of Cash Assets as of September 30, 2019 and December 31, 2018:
 
         
Assets:
           
Cash and cash equivalents
 
$
507,255,033
   
$
727,311,005
 
Investments in fixed income securities (amortized cost $4,912,180,627 and $3,678,136,029, respectively)
   
4,912,180,627
     
3,678,136,029
 
Interest receivable
   
16,456,548
     
12,116,133
 
Total assets
   
5,435,892,208
     
4,417,563,167
 
                 
Liabilities:
               
Accrued bank fee expense
   
17,000
     
-
 
Total liabilities
   
17,000
     
-
 
                 
Members’ capital
 
$
5,435,875,208
   
$
4,417,563,167
 

52

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
4. Graham Cash Assets LLC (continued)
 
The following table summarizes the results of operations of Cash Assets for the three and nine months ended September 30, 2019 and 2018:
 
   
Three Months Ended
September 30,
   
Nine Months Ended
 
       
2018
   
2019
   
2018
 
Investment income
                       
Interest income
 
$
27,890,220
   
$
20,627,056
   
$
74,162,722
   
$
59,861,550
 
Total investment income
   
27,890,220
     
20,627,056
     
74,162,722
     
59,861,550
 
                                 
Expenses:
                               
Bank fee expense
   
11,503
     
40,668
     
57,410
     
85,829
 
Total expenses
   
11,503
     
40,668
     
57,410
     
85,829
 
Net investment income
   
27,878,717
     
20,586,388
     
74,105,312
     
59,775,721
 
Net income
 
$
27,878,717
   
$
20,586,388
   
$
74,105,312
   
$
59,775,721
 

The following represents the condensed schedule of investments of Cash Assets as of September 30, 2019:
 
Description
 
Principal
Amount
   
Fair Value
   
Percentage of
Members’
Capital
 
Investments in Fixed Income Securities (amortized cost $4,912,180,627)
                 
United States
                 
Government Bonds (amortized cost $4,537,617,435)
                 
U.S. Treasury bonds 1.00% – 2.75% due 10/15/2019 – 2/28/2021
 
$
4,550,000,000
   
$
4,537,617,435
     
83.48
%
Total Government Bonds
           
4,537,617,435
     
83.48
%
                         
Treasury Bills (amortized cost $374,563,192)
                       
U.S. Treasury bills 0.00% due 10/08/2019 – 11/21/2019
 
$
375,000,000
     
374,563,192
     
6.89
%
Total Treasury Bills
           
374,563,192
     
6.89
%
Total United States
           
4,912,180,627
     
90.37
%
Total Investments in Fixed Income Securities
         
$
4,912,180,627
     
90.37
%

53

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

4. Graham Cash Assets LLC (continued)
 
The following represents the condensed schedule of investments of Cash Assets as of December 31, 2018:
 
Description
 
Principal
Amount
   
Fair Value
   
Percentage of
Members’
Capital
 
Investments in Fixed Income Securities (amortized cost $3,678,136,029)
                 
United States
                 
Government Bonds (amortized cost $3,678,136,029)
                 
U.S. Treasury bonds 0.75% – 3.13% due 01/15/2019 – 10/31/2020
 
$
3,700,000,000
   
$
3,678,136,029
     
83.26
%
Total Government Bonds
           
3,678,136,029
     
83.26
%
Total United States
           
3,678,136,029
     
83.26
%
Total Investments in Fixed Income Securities
         
$
3,678,136,029
     
83.26
%
 
Cash Assets reports the fair value of its investment related assets and liabilities in accordance with the hierarchy established under U.S. GAAP. The following table shows the fair value classification of each investment type held by Cash Assets as of September 30, 2019 and December 31, 2018:
 
         
Assets
           
Level 2:
           
Fixed income securities
           
Government bonds
 
$
4,537,617,435
   
$
3,678,136,029
 
Treasury bills
   
374,563,192
     
-
 
Total fixed income securities
   
4,912,180,627
     
3,678,136,029
 
Total Level 2
   
4,912,180,627
     
3,678,136,029
 
Total assets
 
$
4,912,180,627
   
$
3,678,136,029
 

5. Capital Accounts
 
GAIT offers Class 0 Units and Class 2 Units (collectively, the “Units”). GAIT may issue additional classes in the future subject to different fees, expenses or other terms, or to invest in other investment programs or combinations of investment programs managed by the Manager. GAIT also has Management Units (“Class M units”) which are solely for the investment of the Manager.
 
A separate capital account is maintained for each member with respect to each Class of Units held by such member. The initial balance of each member’s capital account is equal to the initial contribution to GAIT with respect to the Class to which such capital account relates. Each member’s Capital Account is increased by any additional subscription and decreased by any redemption by such member of Units of such Class to which the capital account relates. All income and expenses of GAIT are allocated among the capital accounts of the members in proportion to the balance that each capital account bears to the balance of all capital accounts as of the beginning of such fiscal period.
 
54

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

5. Capital Accounts (continued)
 
Subscriptions
 
Units may be purchased at a price equal to the Net Asset Value per Unit of the relevant Class as of the immediately preceding Valuation Day, as defined in the LLC Agreement. There is no minimum subscription amount.
 
Units are available for subscription as of the first business day of each month upon written notice of at least three business days prior to the last business day of the preceding month.
 
Redemptions
 
Units are not subject to any minimum holding period. Members may redeem Units at the Net Asset Value thereof as of the last business day of each month upon not less than three business days’ prior written notice to the administrator.
 
6. Fees and Related Party Transactions
 
Advisory Fees
 
Each Class of GAIT other than Class M paid the Manager an advisory fee (the “Advisory Fee”) at an aggregate annual rate of 1.50% of the Members’ Capital of such Class. The Advisory Fee is payable monthly in arrears calculated as of the last business day of each month and any other date the Manager may permit, in its sole and absolute discretion, as of which any subscription or redemption is affected with respect to Units of such Class during the month. The Advisory Fees paid to the Manager for the nine months ended September 30, 2019 and 2018 were $648,406 and $856,646, respectively.
 
Sponsor Fees
 
Each Class of GAIT other than Class M paid the Manager a sponsor fee (the “Sponsor Fee”) at an annual rate of the Members’ Capital specified in the table below. The Sponsor Fee is payable monthly in arrears calculated as of the last business day of each month in the same manner as the Advisory Fee. The Sponsor Fees paid to the Manager for the nine months ended September 30, 2019 and 2018 were $345,837 and $464,096, respectively.
 
Class 0
Class 2
0.50%
1.25%
 
55

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

6. Fees and Related Party Transactions (continued)
 
Incentive Allocation
 
At the end of each calendar quarter, Graham Capital LLC, an affiliate of the Manager, will receive a special allocation of net profits (the “Incentive Allocation”) in an amount equal to 20% of the New High Net Trading Profits of each Class as defined in the LLC Agreement. The Incentive Allocation is also accrued and allocable on the date of redemption with respect to any Units that are redeemed prior to the end of a calendar quarter. Additionally, any loss carryforward attributable to any class of GAIT shall be proportionately reduced effective as of the date of any redemption of any Units of such class by multiplying the loss carryforward by the ratio that the amount of assets redeemed from such class bears to the net assets of such class immediately prior to such redemption. The loss carryforward of a class must be recouped before any subsequent Incentive Allocation can be made. The Incentive Allocation for the nine months ended September 30, 2019 and 2018 was $187 and $0, respectively.
 
Any portion of any of the above fees, including the Incentive Allocation, may be paid by the Manager to third parties as compensation for selling activities in connection with GAIT.
 
Administrator’s Fee
 
For the nine months ended September 30, 2019 and 2018, GAIT paid SEI a monthly administrator’s fee based on GAIT’s Members’ Capital, calculated as of the last business day of each month. In addition, GAIT reimbursed SEI for reasonable out-of-pocket expenses incurred on behalf of GAIT. The total administrator’s fees, including out-of-pocket expenses, incurred by GAIT were $58,085 and $75,214, respectively.
 
7. Income Taxes
 
No provision for income taxes has been made in the accompanying financial statements, as members are individually responsible for reporting income or loss based upon their respective share of GAIT’s revenues and expenses for income tax purposes.
 
U.S. GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. U.S. GAAP requires the evaluation of tax positions taken or expected to be taken in the course of preparing GAIT’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a “more-likely-than-not” threshold would be recorded as a tax expense in the current year. GAIT identifies its major tax jurisdictions as the U.S. for Federal tax purposes and Connecticut for state tax purposes. The Manager has evaluated GAIT’s tax positions and has concluded that there are no significant tax positions requiring recognition, measurement or disclosure in the financial statements for open tax years 2016 through 2018 or expected to be taken in GAIT’s 2019 tax returns. The Manager is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax expense will change materially in the next twelve months. Tax years which are considered open by the relevant jurisdiction are subject to potential examination. Any assessment for interest or penalties on taxes related to uncertain tax positions, when present, would be included in interest and penalties on tax on the statements of operations and incentive allocation. No such interest and/or penalties were assessed to GAIT for the nine months ended September 30, 2019 and 2018.
 
56

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

8. Financial Highlights
 
The following is the per Unit operating performance calculation for the three months ended September 30, 2019 and 2018:
 
   
Class 0
   
Class 2
 
Per unit operating performance
           
Net asset value per unit, June 30, 2018
 
$
141.08
   
$
101.69
 
Net income:
               
Net investment loss
   
(0.40
)
   
(0.48
)
Net gain on investments
   
1.45
     
1.04
 
Net income
   
1.05
     
0.56
 
Net asset value per unit, September 30, 2018
 
$
142.13
   
$
102.25
 
                 
Net asset value per unit, June 30, 2019
 
$
142.21
   
$
101.74
 
Net income:
               
Net investment loss
   
(0.45
)
   
(0.53
)
Net gain on investments
   
10.04
     
7.17
 
Net income
   
9.59
     
6.64
 
Net asset value per unit, September 30, 2019
 
$
151.80
   
$
108.38
 

The following represents ratios to average Members’ Capital, excluding the Managing Member, and total return for the three months ended September 30, 2019 and 2018:
 
   
Class 0
   
Class 2
 
   
2019
   
2018
   
2019
   
2018
 
                         
Total return before Incentive Allocation
   
6.74
%
   
0.74
%
   
6.53
%
   
0.55
%
Incentive Allocation
   
(0.00
)
   
0.00
     
0.00
     
0.00
 
Total return after Incentive Allocation
   
6.74
%
   
0.74
%
   
6.53
%
   
0.55
%
                                 
Net investment loss before Incentive Allocation
   
(0.30
)%
   
(0.28
)%
   
(0.49
)%
   
(0.47
)%
Incentive Allocation
   
(0.00
)
   
0.00
     
0.00
     
0.00
 
Net investment loss after Incentive Allocation
   
(0.30
)%
   
(0.28
)%
   
(0.49
)%
   
(0.47
)%
                                 
Total expenses before Incentive Allocation
   
0.81
%
   
0.70
%
   
1.01
%
   
0.89
%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Total expenses after Incentive Allocation
   
0.81
%
   
0.70
%
   
1.01
%
   
0.89
%

57

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

8. Financial Highlights (continued)
 
The following is the per Unit operating performance calculation for the nine months ended September 30, 2019 and 2018:
 
   
Class 0
   
Class 2
 
Per unit operating performance
           
Net asset value per unit, December 31, 2017
 
$
140.90
   
$
101.94
 
Net income:
               
Net investment loss
   
(1.11
)
   
(1.39
)
Net gain on investments
   
2.34
     
1.70
 
Net income
   
1.23
     
0.31
 
Net asset value per unit, September 30, 2018
 
$
142.13
   
$
102.25
 
                 
Net asset value per unit, December 31, 2018
 
$
133.70
   
$
96.01
 
Net income:
               
Net investment loss
   
(0.86
)
   
(1.19
)
Net gain on investments
   
18.96
     
13.56
 
Net income
   
18.10
     
12.37
 
Net asset value per unit, September 30, 2019
 
$
151.80
   
$
108.38
 

58

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

8. Financial Highlights (continued)
 
The following represents ratios to average Members’ Capital, excluding the Managing Member, and total return for the nine months ended September 30, 2019 and 2018:
 
   
Class 0
   
Class 2
 
   
2019
   
2018
   
2019
   
2018
 
                         
Total return before Incentive Allocation
   
13.54
%
   
0.87
%
   
12.88
%
   
0.30
%
Incentive Allocation
   
(0.00
)
   
0.00
     
0.00
     
0.00
 
Total return after Incentive Allocation
   
13.54
%
   
0.87
%
   
12.88
%
   
0.30
%
                                 
Net investment loss before Incentive Allocation
   
(0.61
)%
   
(0.78
)%
   
(1.18
)%
   
(1.34
)%
Incentive Allocation
   
(0.00
)
   
0.00
     
0.00
     
0.00
 
Net investment loss after Incentive Allocation
   
(0.61
)%
   
(0.78
)%
   
(1.18
)%
   
(1.34
)%
                                 
Total expenses before Incentive Allocation
   
2.14
%
   
1.90
%
   
2.71
%
   
2.47
%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Total expenses after Incentive Allocation
   
2.14
%
   
1.90
%
   
2.71
%
   
2.47
%

Total return is calculated for Class 0 and Class 2 units taken as a whole. Total return is calculated as the change in total Members’ Capital, excluding that of the Managing Member, adjusted for subscriptions or redemptions during the period. An individual member’s return may vary from these returns based on the timing of capital transactions and the applicability of Advisory Fees, Sponsor Fees, Administrator’s Fees, and the Incentive Allocation. The net investment loss and total expense ratios (including Incentive Allocation) are calculated for the Class 0 and Class 2 units taken as a whole and include amounts from GAIT and net investment loss and expenses allocated from Master Funds and investment income from Cash Assets. The computation of such ratios is based on the amount of net investment loss, total expenses and Incentive Allocation. Net investment loss and total expense ratios are computed based upon the weighted average of Members’ Capital of GAIT, excluding that of the Managing Member, for the three and nine months ended September 30, 2019 and 2018.

9. Subsequent Events

GAIT had no subscriptions and redemptions of approximately $0.9 million from October 1, 2019 through November 14, 2019, the date through which subsequent events were evaluated by management and financial statements were available for issuance. These amounts have not been included in the financial statements.

59

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

Forward-Looking Statements

Certain statements within this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These statements are being made pursuant to the PSLRA, with the intention of obtaining the benefits of the “safe harbor” provisions of the PSLRA, and, other than as required by law, we assume no obligation to update or supplement such statements. Forward-looking statements are those that do not relate solely to historical facts. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. You can identify these statements by the use of words such as “may,” “will,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “continue,” “further,” “seek,” “plan,” or “project” and variations of these words or comparable words or phrases of similar meaning. These forward-looking statements reflect our current beliefs and expectations with respect to future events and are based on assumptions and are subject to risks and uncertainties and other factors outside our control that may cause actual results to differ materially from those projected, including the risks and uncertainties described in our Annual Report on Form 10-K for the year ended December 31, 2018 under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We undertake no obligation to update publicly or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

(a)
Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of our current financial position and results of operations. This discussion should be read together with our annual consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2018 included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 29, 2019. This discussion should also be read in conjunction with “Item 1: Financial Statements.” The information contained therein is essential to, and should be read in conjunction with, the following analysis. For the purposes of this filing beginning with Item 2, the term “Fund” shall include the Blended Strategies Portfolio of GAIF II, GAIT, and the Master Funds in which they invest, unless the context implies otherwise. The Fund does not engage in the sale of goods or services. The Fund’s capital consists of capital contributions of the members, as increased or decreased by gains and losses from its investments in the Master Funds, interest, expenses and redemptions. Its only assets are its investments in the Master Funds. The Master Funds do not engage in the sale of goods or services. Their assets are comprised of the equity in their accounts with clearing brokers and OTC counterparties, in each case consisting of cash, open trade equity on derivatives and the net option premium paid or received. In the case of Graham Cash Assets LLC (“Cash Assets”), the assets consist of investments in debt obligations guaranteed by the U.S. Federal government, as well as cash and cash equivalents.

For the three months ended September 30, 2019, the Blended Strategies Portfolio’s Members’ Capital increased by $383,018 or 1.4%. The net increase in the Blended Strategies Portfolio was attributable to net income of $1,836,813 or 6.6% offset by redemptions of $1,453,795 or -5.2%, for the period.

For the nine months ended September 30, 2019, the Blended Strategies Portfolio’s Members’ Capital increased by $59,153 or 0.2%. The net increase in the Blended Strategies Portfolio was attributable to net income of $3,491,478 or 12.5% and subscriptions of $373,500 or 1.3% offset by redemptions totaling $3,805,825 or -13.6%, for the period.

For the three months ended September 30, 2018, the Blended Strategies Portfolio’s Members’ Capital decreased by $697,696 or -2.0%. The net decrease in the Blended Strategies Portfolio was attributable to redemptions totaling $923,376 or -2.6% offset by net income of $225,680 or 0.6%, for the period.

For the nine months ended September 30, 2018, the Blended Strategies Portfolio’s Members’ Capital decreased by $2,834,399 or -7.6%. The net decrease in the Blended Strategies Portfolio was attributable to redemptions totaling $3,102,807 or -8.3% offset by net income of $268,408 or 0.7%, for the period.

60

 
(i)
Results of Operations

The Fund’s success depends primarily upon the Manager’s ability to recognize and capitalize on market trends in the different and varied sectors of the global financial markets in which it trades.

2019 Summary

Three Months Ended September 30, 2019

For the three months ended September 30, 2019, the Blended Strategies Portfolio experienced net trading gains of $1,999,212. The trading results are attributable to the following sectors:

Agriculture / Softs
 
$
(14,777
)
Base Metals
   
38,697
 
Energy
   
(234,772
)
Equities
   
672,551
 
Foreign Exchange
   
702,963
 
Long Term / Intermediate Rates
   
785,375
 
Precious Metals
   
294,428
 
Short Term Rates
   
(245,253
)
   
$
1,999,212
 

The Blended Strategies Portfolio recorded a net gain for the third quarter of 2019. The portfolio recorded gains in fixed income futures, primarily from positions on the long end of the yield curve in the U.S. and Europe.  In currencies, the portfolio recorded gains from positions in the euro, Singapore dollar, and British pound sterling versus the U.S. dollar. The portfolio also recorded profits in equity index futures, most notably in Europe with smaller gains in the U.S. In commodities, the portfolio recorded gains in metals and losses in energy.

Advisory, Sponsor, and Administrator’s Fees are calculated as a percentage of the Fund’s net asset value as of the end of each month and are affected by trading performance, interest income, subscriptions into and redemptions out of the Fund. Accordingly, the fluctuations in these amounts are directly correlated to the changes in net asset value which are discussed in detail herein.

For the three months ended September 30, 2019, Advisory Fees decreased by $19,606 or -15.0%, Sponsor Fees decreased by $9,046 or -13.4%, and Administrator’s Fees decreased by $1,917 or -16.8% in the Fund over the corresponding period of the preceding year. These decreases are attributable to lower net assets of the portfolio resulting from redemptions and partially offset by net income and subscriptions for the period. During the same period, interest income increased by $3,112 or 2.2%. Interest was earned on free cash at an average annualized yield of 2.09% for the three months ended September 30, 2019 compared to 1.67% for the same period in 2018.

The Incentive Allocation is based on the New High Net Trading Profits of the portfolio. For the three months ended September 30, 2019 and 2018 the portfolio has not yet recovered previous losses. As a result, there was no Incentive Allocation for those periods.

61

Nine Months Ended September 30, 2019

For the nine months ended September 30, 2019, the Blended Strategies Portfolio experienced net trading gains of $3,891,159. The trading results are attributable to the following sectors:

Agriculture / Softs
 
$
(101,718
)
Base Metals
   
(102,011
)
Energy
   
(823,022
)
Equities
   
1,531,260
 
Foreign Exchange
   
486,469
 
Long term / Intermediate Rates
   
1,964,386
 
Precious Metals
   
450,819
 
Short Term Rates
   
484,976
 
   
$
3,891,159
 

The Blended Strategies Portfolio recorded a net gain for the first three quarters of 2019. The portfolio recorded gains in fixed income futures, primarily from positions across the yield curve in the U.S. with further gains in European, Australian and Canadian bonds. The portfolio also recorded gains in equity index futures, primarily from positions in European benchmark indices with smaller gains in the U.S. and Asia. In currencies, the portfolio recorded profits from positions in the euro and Singapore dollar versus the U.S. dollar. In commodities, gains in metals were more than offset by losses from positions in energy.

Advisory, Sponsor, and Administrator’s Fees are calculated as a percentage of the Fund’s net asset value as of the end of each month and are affected by trading performance, interest income, subscriptions into and redemptions out of the Fund. Accordingly, the fluctuations in these amounts are directly correlated to the changes in net asset value which are discussed in detail herein.

For the nine months ended September 30, 2019, Advisory Fees decreased by $91,508 or -22.4%, Sponsor Fees decreased by $44,880 or -21.1%, and Administrator’s Fees decreased by $7,510 or -21.2% in the Fund over the corresponding period of the preceding year. These decreases are attributable to lower net assets of the portfolio resulting from redemptions and partially offset by net income and subscriptions for the period. During the same period, interest income increased by $17,675 or 4.4%. Interest was earned on free cash at an average annualized yield of 2.06% for the nine months ended September 30, 2019 compared to 1.51% for the same period in 2018.

The Incentive Allocation is based on the New High Net Trading Profits of the portfolio. For the nine months ended September 30, 2019 and 2018 the portfolio has not yet recovered previous losses. As a result, there was no Incentive Allocation for those periods.

The following table illustrates the sector distribution of the Fund’s investments in Master Funds as of September 30, 2019 based on the fair value of the underlying assets and liabilities in each Master Fund including both long and short positions. Positive percentages represent net assets whereas negative percentages represent a net liability.

Agriculture / Softs
   
(2.4
)%
Base Metals
   
3.4
%
Energy
   
2.3
%
Equities
   
(1.1
)%
Foreign Exchange
   
45.4
%
Long Term / Intermediate Rates
   
(7.2
)%
Precious Metals
   
(9.4
)%
Short Term Rates
   
69.0
%
     
100.0
%

62

2018 Summary

Three Months Ended September 30, 2018

For the three months ended September 30, 2018, the Blended Strategies Portfolio experienced net trading gains of $394,309. The trading results are attributable to the following sectors:

Agriculture / Softs
 
$
(42,192
)
Base Metals
   
(86,104
)
Energy
   
194,399
 
Equities
   
501,839
 
Foreign Exchange
   
(348,692
)
Long Term / Intermediate Rates
   
(337,623
)
Precious Metals
   
273,989
 
Short Term Rates
   
238,693
 
   
$
394,309
 

The Blended Strategies Portfolio recorded a net gain for the third quarter of 2018. Gains resulted primarily from positions in U.S. equity index futures with smaller gains in Asian benchmark indices. The portfolio also recorded gains in commodities, particularly in energy and precious metals. Losses were experienced in currencies and fixed income, which offset a portion of the overall profits for the period.

Advisory, Sponsor, and Administrator’s Fees are calculated as a percentage of the Fund’s net asset value as of the end of each month and are affected by trading performance, interest income, subscriptions into and redemptions out of the Fund. Accordingly, the fluctuations in these amounts are directly correlated to the changes in net asset value which are discussed in detail herein.

For the three months ended September 30, 2018, Advisory Fees decreased by $58,616 or -30.9%, Sponsor Fees decreased by $23,426 or -25.7%, and Administrator’s Fees decreased by $5,217 or -31.4% in the Fund over the corresponding period of the preceding year. These decreases are attributable to lower net assets of the portfolio resulting from redemptions offset by net income for the period. During the same period, interest income increased by $25,176 or 21.4%. Interest was earned on free cash at an average annualized yield of 1.67% for the three months ended September 30, 2018 compared to 0.95% for the same period in 2017.

The Incentive Allocation is based on the New High Net Trading Profits of the portfolio. For the three months ended September 30, 2018 and 2017 the portfolio has not yet recovered previous losses. As a result, there was no Incentive Allocation for those periods.

Nine Months Ended September 30, 2018

For the nine months ended September 30, 2018, the Blended Strategies Portfolio experienced net trading gains of $811,743. The trading results are attributable to the following sectors:

Agriculture / Softs
 
$
(600,720
)
Base Metals
   
(793,552
)
Energy
   
1,048,432
 
Equities
   
426,864
 
Foreign Exchange
   
(580,038
)
Long Term / Intermediate Rates
   
(617,553
)
Precious Metals
   
(40,385
)
Short Term Rates
   
1,968,695
 
   
$
811,743
 

63

The Blended Strategies Portfolio recorded a net gain for the first three quarters of 2018. The majority of the gains resulted from positions in fixed income futures, most notably on the front end of the yield curve in the U.S. The portfolio also recorded gains in equity index futures, most notably in the U.S.  In commodities, gains from positions in energy were more than offset by losses from positions in metals and agricultural commodities. The portfolio experienced losses in currencies, which offset a portion of the overall gains for the period.

Advisory, Sponsor, and Administrator’s Fees are calculated as a percentage of the Fund’s net asset value as of the end of each month and are affected by trading performance, interest income, subscriptions into and redemptions out of the Fund. Accordingly, the fluctuations in these amounts are directly correlated to the changes in net asset value which are discussed in detail herein.

For the nine months ended September 30, 2018, Advisory Fees decreased by $260,639 or -38.9%, Sponsor Fees decreased by $192,278 or -47.5%, and Administrator’s Fees decreased by $17,941 or -33.6% in the Fund over the corresponding period of the preceding year. These decreases are attributable to lower net assets of the portfolio resulting from redemptions partially offset by net income for the period. The decrease in Sponsor Fees is also attributable to a reduction of the Class 2 Sponsor Fee rate from 2.75% in the first quarter of 2017 and 1.50% in the second quarter of 2017 to 1.25% beginning in the third of 2017. The decrease in Sponsor Fees is also attributable to a reduction of the Class 0 Sponsor Fee rate from 0.75% in the first six months of 2017 to 0.50% beginning in the third quarter of 2017. The decrease in Advisory Fees is also attributable to a reduction of the Advisory Fee rate from 1.75% in the first six months of 2017 to 1.50% beginning in the third quarter of 2017. During the same period, interest income increased by $93,884 or 30.1%. Interest was earned on free cash at an average annualized yield of 1.51% for the nine months ended September 30, 2018 compared to 0.80% for the same period in 2017.

The Incentive Allocation is based on the New High Net Trading Profits of the portfolio. For the nine months ended September 30, 2018 and 2017 the portfolio has not yet recovered previous losses. As a result, there was no Incentive Allocation for those periods.

The following table illustrates the sector distribution of the Fund’s investments in Master Funds as of September 30, 2018 based on the fair value of the underlying assets and liabilities in each Master Fund including both long and short positions. Positive percentages represent net assets whereas negative percentages represent a net liability.

Agriculture / Softs
   
2.2
%
Base Metals
   
(0.1
)%
Energy
   
9.6
%
Equities
   
14.8
%
Foreign Exchange
   
14.6
%
Long Term / Intermediate Rates
   
26.8
%
Precious Metals
   
2.0
%
Short Term Rates
   
30.1
%
     
100.0
%

Variables Affecting Performance
 
The Fund’s performance is affected by net profitability resulting from the trading operations of the Master Funds, the fees charged by the Fund, and interest income earned on cash and cash equivalents. The Master Funds acquire and liquidate long and short positions in futures contracts, forwards contracts, spot currency contracts and associated derivative instruments such as options and swaps. These instruments are carried at fair value, which is heavily influenced by a wide variety of factors including but not limited to, the level and volatility of exchange rates, interest rates, equity prices, and commodity prices as well as global macro political events. These factors generate market movements affecting the fair value of these instruments and in turn the net gains and losses allocated from the Master Funds.

64

Advisory, Sponsor, and Administrator’s Fees are calculated based on a percentage of the Fund’s net asset value. Changes in the net assets of the Fund resulting from subscriptions, redemptions, interest and trading profits allocated from the Master Funds can therefore have a material impact on the fee expense of the Fund.

A portion of the assets of the Fund is held in cash and cash equivalents. Changes in the net assets of the Fund as well as changes in the interest rates earned on these investments can have a material impact on interest income earned.

 
(ii)
Liquidity

There are no known demands, commitments, events or uncertainties that will result in or are reasonably likely to result in the Fund’s liquidity increasing or decreasing in any material way.

A portion of the Fund’s assets is generally held as cash or cash equivalents, which are used to margin the Fund’s investments.  It is expected that the average margin the Fund will be required to post to support the Fund’s trading may range between 10% and 30% of the Fund’s total assets, which will be segregated or secured by the futures brokers in accordance with the CEA and with CFTC regulations or be maintained on deposit with over-the-counter counterparties. In exceptional market conditions, this amount could increase. The Master Funds are subject to margin calls on a constant daily and intra-day basis, whether in connection with initiating new investment positions or as a result of changes in the value of current investment positions. These margin requirements are met through the posting of additional margin with the applicable futures or FX clearing broker, on an almost daily basis. The Manager generally expresses its margin requirements for the portfolios in terms of the aggregate of the margin requirements for the underlying strategies plus the net option premium costs for the underlying strategies. The following table shows these amounts as of the date indicated:

   
Blended Strategies
Portfolio
 
   
14.09%

   
  9.46%

   
14.52%


Other than any potential market-imposed limitations on liquidity, the Fund’s assets are highly liquid and are expected to remain so. Market-imposed limitations, when they occur, can be due to limited open interest in certain futures markets or to daily price fluctuation limits, which are inherent in the Fund’s futures trading. Through September 30, 2019, the Fund experienced no meaningful periods of illiquidity in any of the markets traded by the Manager on behalf of the Fund.

 
(iii)
Capital Resources

The Fund raises additional capital through the sale of Units and capital is increased through trading profits (if any) and interest income. The Fund may borrow money from brokers or their affiliates and other lenders. Units may be offered for sale as of the beginning, and may be redeemed as of the end, of each month. The amount of capital raised for the Fund should not have a significant impact on its operations, as the Fund has no significant capital expenditure or working capital requirements other than for monies to pay trading losses, brokerage commissions and expenses.

The Fund participates in the speculative trading of commodity futures contracts, substantially all of which are subject to margin requirements. The minimum amount of margin required for each contract is set from time to time in response to various market factors by the respective exchanges. Further, the Fund’s brokers may require margin in excess of minimum exchange requirements. The Fund bears the risk of financial failure of the brokers through which it clears trades and maintains margin in respect of any such trades and of its counterparties for its foreign exchange and swap trades with whom it also maintains margin.

65

 
(iv)
Critical Accounting Policies

Presentation – Graham Alternative Investment Fund II LLC is a series Limited Liability Company under Delaware law. The financial statements and corresponding footnotes are presented solely for the Blended Strategies Portfolio, except where otherwise noted.
 
Use of Estimates – The Fund’s consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and all amounts are stated in U.S. dollars except where noted. The preparation of the consolidated financial statements requires the Manager to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The Fund’s significant accounting policies are described in detail in Note 2 of the consolidated financial statements.
 
Fair Value Measurement – The Fund follows U.S. GAAP for fair value measurements, which defines fair value, establishes a framework for measuring fair value and requires certain disclosures about fair value measurements. U.S. GAAP uses a three-level hierarchy for fair value measurement based on the transparency and independence of inputs used in the valuation of an asset or liability as of the measurement date. The Fund reports the fair value of its investment-related assets and liabilities in accordance with the hierarchy established under U.S. GAAP.
 
The Fund records its investments in GAIT at fair value in accordance with U.S. GAAP. In determining its net asset value, GAIT records its investments in Master Funds at fair value in accordance with U.S. GAAP. The Fund records its proportionate share of GAIT’s investment income and loss, expenses, fees, and realized and unrealized gains and losses on a monthly basis. Purchases and sales of units in GAIT are recorded on a trade date basis. The accounting policies of GAIT are described in its attached financial statements.
 
The Master Funds record all their financial instruments at fair value, which is derived in accordance with U.S. GAAP. Unrealized gains and losses from these instruments are recorded based on changes in their fair value. Realized gains and losses are recorded when the positions are closed. All unrealized and realized gains and losses related to derivative financial instruments are included in net gain (loss) on investments in the Master Funds’ statements of operations.
 
Investment CompanyThe Fund is an investment company and applies specialized accounting guidance as outlined in Financial Accounting Standards Board Accounting Standards Codification Topic 946 Update 2013-08, Financial Services – Investment Companies, Amendments to the Scope, Measurement, and Disclosure Requirements. The Manager has evaluated this guidance and has determined the Fund meets the criteria to be classified as an investment company.
 
Cash Assets – GAIT invests a portion of its excess liquidity in Cash Assets, an entity for which the Manager is also the sole investment advisor. The financial information of Cash Assets is included in the notes to the financial statements of GAIT.
 
Income Taxes – No provision for income taxes has been made in the Fund’s financial statements, as each member is responsible for reporting income or loss based upon the member’s respective share of the Fund’s revenues and expenses for income tax purposes.
 
66

U.S. GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the consolidated financial statements. U.S. GAAP requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a “more-likely-than-not” threshold would be recorded as a tax expense in the current year and the Fund identifies its major tax jurisdictions as U.S. Federal and Connecticut State. The Manager has evaluated the Fund’s tax positions and has concluded that there are no significant tax positions requiring recognition, measurement or disclosure in the consolidated financial statements for open tax years 2016 through 2018 or expected to be taken in the Fund’s 2019 tax returns. The Manager is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax expense will change materially in the next twelve months. Tax years which are considered open by the relevant jurisdiction are subject to potential examination.
 
 
(v)
Off-Balance Sheet Arrangements

The Fund does not engage in off-balance sheet arrangements with other entities.

67

Item 3.
Quantitative and Qualitative Disclosures about Market Risk

No disclosure is required hereunder as the Fund is a “smaller reporting company”, as defined in Item 10(f)(1) of Regulation S-K.

68

Item 4.
Controls and Procedures

Evaluation of Disclosure Control and Procedures

The Fund has established disclosure controls and procedures to ensure that the information required to be disclosed by the Fund in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Manager and the Fund’s management, as appropriate, to allow timely decisions regarding required disclosure.

Based on their evaluation as of September 30, 2019, the Manager, along with the Manager’s principal executive officer and principal financial officer, has concluded that the Fund’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective.

Changes in Internal Control Over Financial Reporting

There were no changes to the Fund’s internal control over financial reporting during the third quarter of 2019 that have materially affected, or are reasonably likely to materially affect, the Fund’s internal control over financial reporting.

69

PART II. OTHER INFORMATION

Item 1.
Legal Proceedings

None

Item 1A.
Risk Factors

Except for the information presented below, there have been no material changes to the risk factors disclosed in our 2018 Form 10-K.

Operational Risks may adversely affect the operations of the Manager and may directly and indirectly affect the operations of the Fund. The Manager is responsible for developing, implementing and operating appropriate systems and procedures to execute all investment transactions and monitor and control operational risk on behalf of the Fund. The Manager relies on its execution, financial, accounting and other data processing systems to trade, clear and settle all transactions, to evaluate and monitor potential and existing portfolio investments, and to generate risk management and other reports that are critical to oversight of client accounts.  Certain of the Manager’s operations are dependent upon systems operated by third parties, including the Fund’s administrator, prime brokers, counterparties, electronic exchanges, other execution platforms and their various service providers. The Manager may not be in a position to verify the reliability of such third-party systems or data.  Failure of or errors in such systems could result in mistakes or delays in the execution, confirmation or settlement of transactions, or in transactions not being properly booked, evaluated or accounted for. The increasing reliance on internet-based programs and applications to conduct transactions and store data also creates increased security risks. Targeted cyber-attacks, or accidental events, can lead to a breach in computer and data systems and access by unauthorized persons to sensitive transactional or personal information.  Data taken in breaches may be used by criminals to commit identity theft, obtain loans or payments under false identities, and other crimes. Cybersecurity breaches at the Manager or its service providers or counterparties may directly or indirectly affect the Fund, and could lead to theft, data corruption, interference with business operations, disruption of operational systems, interference with the Manager’s or the Fund’s ability to execute transactions, direct financial loss or reputational damage, or violations of applicable laws related to data and privacy protection and consumer protection.

70

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

For the three months ended September 30, 2019, the Fund issued no Units with respect to the Blended Strategies Portfolio.

Issuer Purchases of Units

 
Date
 
(a) Total
Number of
Units
Purchased1
   
(b) Average
Price Paid
per Unit
   
(c) Total Number of
Units Purchased
as Part of Publicly
Announced Plans
or Programs
   
(d) Maximum Number
of Approximate
Dollar Value of
Units that May Yet
Be Purchased
Under the Plans or
Programs
 
 
July 1 – July 31, 2019
   
 1,956.383
   
$
129.93
     
N/A
     
N/A
 
 
August 1 – August 31, 2019
   
    496.761
   
$
112.85
     
N/A
     
N/A
 
 
September 1 – September 30, 2019
   
 7,698.099
   
$
148.55
     
N/A
     
N/A
 
 
TOTAL
   
10,151.243
   
$
143.21
     
N/A
     
N/A
 

1 Represents number of Units redeemed by Members of the Fund in accordance with the LLC Agreement.

Item 3.
Defaults Upon Senior Securities – None

Item 4.
Mine Safety Disclosures – None

Item 5.
Other InformationNone

71

Item 6.
Exhibits

Certificate of Formation of Graham Alternative Investment Fund II LLC
Amendment to Certificate of Formation of Graham Alternative Investment Fund II LLC
Amended and Restated Limited Liability Company Agreement of Graham Alternative Investment Fund II LLC
Rule 13a-14(a)/15d-14(a) Certification (Certification of Principal Executive Officer)
Rule 13a-14(a)/15d-14(a) Certification (Certification of Principal Financial Officer)
Section 1350 Certification (Certification of Principal Executive Officer and Principal Financial Officer)
*** 101.INS
XBRL Instance Document
*** 101.SCH
XBRL Taxonomy Extension Schema
*** 101.CAL
XBRL Taxonomy Extension Calculation Linkbase
*** 101.DEF
XBRL Taxonomy Extension Definition Linkbase
*** 101.LAB
XBRL Taxonomy Extension Label Linkbase
*** 101.PRE
XBRL Taxonomy Extension Presentation Linkbase


 
**


72

SIGNATURES

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

 
GRAHAM ALTERNATIVE INVESTMENT FUND II LLC
   
BLENDED STRATEGIES PORTFOLIO
         
   
By:
GRAHAM CAPITAL MANAGEMENT, L.P.
 
     
its Manager
 
         
 
By:
 
   
Brian Douglas, Principal Executive Officer
 
         
 
By:
 
   
George Schrade, Principal Financial Officer
 


73


Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
Filed on:11/14/19
11/1/19
10/31/19
10/1/19
For Period end:9/30/19
8/31/19
7/31/19
6/30/1910-Q
3/31/1910-Q
3/29/1910-K,  D/A
12/31/1810-K
9/30/1810-Q
6/30/1810-Q
3/31/1810-Q
12/31/1710-K
9/30/1710-Q
4/11/138-K
3/28/1310-K,  8-K
4/30/1010-12G
8/1/06
6/1/06
5/18/06
5/16/06
6/22/05
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