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EX-32.1 - EXHIBIT 32.1 - GRAHAM ALTERNATIVE INVESTMENT FUND II LLCex32_1.htm
EX-31.2 - EXHIBIT 31.2 - GRAHAM ALTERNATIVE INVESTMENT FUND II LLCex31_2.htm
EX-31.1 - EXHIBIT 31.1 - GRAHAM ALTERNATIVE INVESTMENT FUND II LLCex31_1.htm

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 June 30, 2016
 
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)
 
Paul Sedlack
Graham Capital Management, L.P.
40 Highland Avenue
Rowayton, CT  06853
(203) 899-3400
(Registrant’s telephone number, including area code)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of the chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒  No ☐

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

 
Large accelerated filer ☐
Accelerated filer ☐  
Non-accelerated filer ☐
Smaller reporting company ☒  

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 August 1, 2016, 487,051.730 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.
 
       
   
Graham Alternative Investment Fund II LLC Blended Strategies Portfolio
 
       
   
1
       
   
2
       
   
3
       
   
4
       
   
5
       
   
Graham Alternative Investment Trading LLC
 
       
   
13
       
   
14
       
   
15
       
   
16
       
   
17
       
   
18
       
 
Item 2.
54
       
 
Item 3.
62
       
 
Item 4.
63
       
PART II - Other Information    64
 
Exhibits
 
EX - 31.1
Certification
EX - 31.2
Certification
EX - 32.1
Certification


PART I

Item 1.
Financial Statements

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Consolidated Statements of Financial Condition
 
   
June 30, 2016
(Unaudited)
   
December 31, 2015
(Audited)
 
             
Assets
           
Investment in Graham Alternative Investment Trading LLC, at fair value
 
$
70,321,594
   
$
76,385,327
 
Redemption receivable from Graham Alternative Investment Trading LLC
   
1,161,753
     
1,092,546
 
Total assets
 
$
71,483,347
   
$
77,477,873
 
                 
Liabilities and members’ capital
               
Liabilities:
               
Accrued redemptions
 
$
1,161,753
   
$
1,092,546
 
Total liabilities
   
1,161,753
     
1,092,546
 
                 
Members’ capital:
               
Class 0 Units (359,650.877 and 390,743.099 units issued and outstanding at $144.89 and $147.34, respectively)
   
52,110,719
     
57,571,360
 
Class 2 Units (170,169.389 and 171,170.918 units issued and outstanding at $107.02 and $109.91, respectively)
   
18,210,875
     
18,813,967
 
Total members’ capital
   
70,321,594
     
76,385,327
 
Total liabilities and members’ capital
 
$
71,483,347
   
$
77,477,873
 

See accompanying notes.
 
1

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Unaudited Consolidated Statements of Operations

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2016
   
2015
   
2016
   
2015
 
Net gain (loss) allocated from investment in Graham Alternative Investment Trading LLC
                       
Net realized gain (loss) on investments
 
$
(576,504
)
 
$
(2,613,640
)
 
$
(2,392,708
)
 
$
6,990,498
 
Net increase (decrease) in unrealized appreciation on investments
   
1,620,889
     
(2,232,057
)
   
2,164,106
     
(4,230,663
)
Brokerage commissions and fees
   
(105,747
)
   
(126,512
)
   
(228,346
)
   
(229,706
)
Net gain (loss) allocated from investment in Graham Alternative Investment Trading LLC
   
938,638
     
(4,972,209
)
   
(456,948
)
   
2,530,129
 
                                 
Net investment loss allocated from investment in Graham Alternative Investment Trading LLC
                               
Investment income
                               
Interest income
   
83,041
     
61,081
     
166,431
     
113,268
 
                                 
Expenses
                               
Advisory fees
   
312,304
     
354,825
     
645,549
     
721,829
 
Sponsor fees
   
223,463
     
255,169
     
460,414
     
520,410
 
Professional fees and other
   
58,007
     
55,264
     
72,823
     
102,355
 
Administrator’s fees
   
24,552
     
28,170
     
50,777
     
57,178
 
Incentive allocation
   
-
     
-
     
-
     
1,369,198
 
Total expenses
   
618,326
     
693,428
     
1,229,563
     
2,770,970
 
Net investment loss allocated from investment in Graham Alternative Investment Trading LLC
   
(535,285
)
   
(632,347
)
   
(1,063,132
)
   
(2,657,702
)
Net income (loss)
 
$
403,353
   
$
(5,604,556
)
 
$
(1,520,080
)
 
$
(127,573
)
 
See accompanying notes.
 
2

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Unaudited Consolidated Statements of Changes in Members’ Capital

For the six months ended June 30, 2016 and 2015

   
Class 0 Units
   
Class 2 Units
       
   
Units
   
Capital
   
Units
   
Capital
   
Total Members’
Capital
 
                               
Members’ capital, December 31, 2014
   
390,307.769
   
$
58,300,841
     
178,245.791
   
$
20,245,406
   
$
78,546,247
 
Subscriptions
   
10,333.635
     
1,627,644
     
8,854.151
     
1,046,950
     
2,674,594
 
Redemptions
   
(15,113.729
)
   
(2,328,452
)
   
(6,922.541
)
   
(832,614
)
   
(3,161,066
)
Net loss
   
     
34,215
     
     
(161,788
)
   
(127,573
)
Members’ capital, June 30, 2015
   
385,527.675
   
$
57,634,248
     
180,177.401
   
$
20,297,954
   
$
77,932,202
 
 
   
Class 0 Units
   
Class 2 Units
       
   
Units
   
Capital
   
Units
   
Capital
   
Total Members’
Capital
 
                               
Members’ capital, December 31, 2015
   
390,743.099
   
$
57,571,360
     
171,170.918
   
$
18,813,967
   
$
76,385,327
 
Subscriptions
   
3,369.474
     
490,000
     
2,696.511
     
291,500
     
781,500
 
Redemptions
   
(34,461.696
)
   
(4,926,886
)
   
(3,698.040
)
   
(398,267
)
   
(5,325,153
)
Net loss
           
(1,023,755
)
           
(496,325
)
   
(1,520,080
)
Members’ capital, June 30, 2016
   
359,650.877
   
$
52,110,719
     
170,169.389
   
$
18,210,875
   
$
70,321,594
 
 
See accompanying notes.
 
3

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Unaudited Consolidated Statements of Cash Flows
 
   
Six Months Ended
June 30,
 
   
2016
   
2015
 
Cash flows provided by operating activities
           
Net loss
 
$
(1,520,080
)
 
$
(127,573
)
Adjustments to reconcile net loss to net cash provided by operating activities:
               
Net loss allocated from investment in Graham Alternative Investment Trading LLC
   
1,520,080
     
127,573
 
Proceeds from sale of investments in Graham Alternative Investment Trading LLC
   
5,255,946
     
5,157,081
 
Investments in Graham Alternative Investment Trading LLC
   
(781,500
)
   
(2,674,594
)
Net cash provided by operating activities
   
4,474,446
     
2,482,487
 
                 
Cash flows used in financing activities
               
Subscriptions
   
781,500
     
2,674,594
 
Redemptions
   
(5,255,946
)
   
(5,157,081
)
Net cash used in financing activities
   
(4,474,446
)
   
(2,482,487
)
                 
Net change in cash and cash equivalents
   
     
 
                 
Cash and cash equivalents, beginning of period
   
     
 
Cash and cash equivalents, end of period
 
$
   
$
 

See accompanying notes.
 
4

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements

June 30, 2016
 
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. 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 members Class 0 and Class 2 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 Asserts 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 U.S. 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 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”).
 
5

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.
 
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 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 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 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 June 30, 2016 and December 31, 2015, the Fund owned 46.19% and 46.73%, respectively of GAIT.

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.
 
6

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 (continued)
 
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. According to FASB  Accounting Standards Update 2015-07 – Disclosures for Investment in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) (“ASU 2015-07”), these investments are no longer categorized in the fair value hierarchy. There were no Level 3 assets or liabilities held at any point during the six months ended June 30, 2016 or the year ended December 31, 2015 by the Fund, GAIT, or the Master Funds and there were no transfers between levels during those periods. Transfers between levels, if any, are recognized on the actual date of the event or change in circumstances that cause the transfer.
 
Recent Accounting Pronouncements
 
In August 2014, the FASB issued Accounting Standards Update 2014-15 – Presentation of Financial Statements – Going Concern (Subtopic 205-40). The pronouncement determines management’s responsibility regarding the assessment of the Fund’s ability to continue as a going concern even if the Fund’s liquidation is not imminent. Under this guidance, during each period in which financial statements are prepared, management will need to evaluate whether there are conditions or events that, in the aggregate, raise substantial doubt about the Fund’s ability to continue as a going concern within one year after the date the financial statements are issued. Substantial doubt would exist if conditions or events indicate that the Fund will be unable to meet its obligations as they become due. Accounting Standards Update 2014-15 is effective for annual periods ending after December 15, 2016, however early adoption is permitted. The Manager is currently assessing the impact, if any, that this pronouncement will have on the disclosures within the consolidated financial statements which is expected to be minimal.
 
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 June 30, 2016 and December 31, 2015, no accruals have been recorded by the Fund for indemnifications.
 
7

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 (collectively the “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 to 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.
 
Redemption Fees
 
Class 2 Units are subject to a redemption fee equal to 2% of their Net Asset Value if redeemed within six months from their subscription date and a redemption fee equal to 1% of their Net Asset Value if redeemed more than six and less than twelve months from their subscription date. Class 0 Units are not subject to a redemption fee. Redemption fees are payable to the Manager upon redemption of Units from the proceeds of such redemption. Redemption fees of $500 and $0 were paid to the Manager for the six months ended June 30, 2016 and 2015, respectively.
 
8

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)
 
4. Fees and Related Party Transactions
 
Advisory Fees
 
For the six months ended June 30, 2016 and 2015, each Class of GAIT other than Class M paid the Manager an advisory fee (the “Advisory Fee”) at an aggregate annual rate equal to 1.75% of the Net Asset Value 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.
 
Sponsor Fees
 
For the six months ended June 30, 2016 and 2015, each Class of GAIT other than Class M paid the Manager a sponsor fee (the “Sponsor Fee”) at an annual rate of the Net Asset Value 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.
 
Class
Annual Rate
   
Class 0
0.75%
Class 2
2.75%
 
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 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 total Incentive Allocation allocated to the Fund by GAIT for the six months ended June 30, 2016 and 2015 was $0 and $1,369,198, respectively.
 
Administrator’s Fee
 
For the six months ended June 30, 2016 and 2015, GAIT paid SEI a monthly administrator’s fee based on GAIT’s net asset value, 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 six months ended June 30, 2016 and 2015 were $50,777 and $57,178, 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 the Fund.
 
9

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 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 2013 through 2015 or expected to be taken in the Fund’s 2016 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.
 
6. Financial Highlights
 
The following is the per Unit operating performance calculation for the three month periods ended June 30, 2016 and 2015:
 
   
Class 0
   
Class 2
 
Per unit operating performance
           
Net asset value per unit, March 31, 2015
 
$
159.93
   
$
121.12
 
Net loss:
               
Net investment loss
   
(1.01
)
   
(1.34
)
Net loss on investments
   
(9.43
)
   
(7.12
)
Net loss
   
(10.44
)
   
(8.46
)
Net asset value per unit, June 30, 2015
 
$
149.49
   
$
112.66
 
                 
Net asset value per unit, March 31, 2016
 
$
143.72
   
$
106.68
 
Net income:
               
Net investment loss
   
(0.89
)
   
(1.18
)
Net gain on investments
   
2.06
     
1.52
 
Net income
   
1.17
     
0.34
 
Net asset value per unit, June 30, 2016
 
$
144.89
   
$
107.02
 
 
10

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 month periods ended June 30, 2016 and 2015:
 
   
Class 0
   
Class 2
 
   
2016
   
2015
   
2016
   
2015
 
                         
Total return before Incentive Allocation
   
0.81
%
   
(6.53
)%
   
0.32
%
   
(6.99
)%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Total return after Incentive Allocation
   
0.81
%
   
(6.53
)%
   
0.32
%
   
(6.99
)%
                                 
Net investment loss before Incentive Allocation
   
(0.63
)%
   
(0.65
)%
   
(1.12
)%
   
(1.15
)%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Net investment loss after Incentive Allocation
   
(0.63
)%
   
(0.65
)%
   
(1.12
)%
   
(1.15
)%
                                 
Total expenses before Incentive Allocation
   
0.75
%
   
0.73
%
   
1.24
%
   
1.22
%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Total expenses after Incentive Allocation
   
0.75
%
   
0.73
%
   
1.24
%
   
1.22
%
 
The following is the per unit operating performance calculation for the six month periods ended June 30, 2016 and 2015:
 
   
Class 0
   
Class 2
 
Per unit operating performance
           
Net asset value per unit, December 31, 2014
 
$
149.37
   
$
113.58
 
Net income (loss):
               
Net investment loss
   
(2.05
)
   
(2.74
)
Net gain on investments
   
2.17
     
1.82
 
Net income (loss)
   
0.12
     
(0.92
)
Net asset value per unit, June 30, 2015
 
$
149.49
   
$
112.66
 
                 
Net asset value per unit, December 31, 2015
 
$
147.34
   
$
109.91
 
Net loss:
               
Net investment loss
   
(1.74
)
   
(2.36
)
Net loss on investments
   
(0.71
)
   
(0.53
)
Net loss
   
(2.45
)
   
(2.89
)
Net asset value per unit, June 30, 2016
 
$
144.89
   
$
107.02
 
 
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 and total return for the six month periods ended June 30, 2016 and 2015:
 
   
Class 0
   
Class 2
 
   
2016
   
2015
   
2016
   
2015
 
                         
Total return before Incentive Allocation
   
(1.66
)%
   
1.88
%
   
(2.63
)%
   
0.84
%
Incentive Allocation
   
0.00
     
(1.80
)
   
0.00
     
(1.65
)
Total return after Incentive Allocation
   
(1.66
)%
   
0.08
%
   
(2.63
)%
   
(0.81
)%
                                 
Net investment loss before Incentive Allocation
   
(1.20
)%
   
(1.32
)%
   
(2.19
)%
   
(2.34
)%
Incentive Allocation
   
0.00
     
(1.71
)
   
0.00
     
(1.62
)
Net investment loss after Incentive Allocation
   
(1.20
)%
   
(3.03
)%
   
(2.19
)%
   
(3.96
)%
                                 
Total expenses before Incentive Allocation
   
1.42
%
   
1.46
%
   
2.41
%
   
2.48
%
Incentive Allocation
   
0.00
     
1.71
     
0.00
     
1.62
 
Total expenses after Incentive Allocation
   
1.42
%
   
3.17
%
   
2.41
%
   
4.10
%

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 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 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 six month periods ended June 30, 2016 and 2015.
 
7. Subsequent Events
 
The Fund had subscriptions of approximately $0.4 million and redemptions of approximately $6.6 million from July 1, 2016 through August 15, 2016, the date through which subsequent events were evaluated by management. These amounts have not been included in the financial statements.
 
12

Graham Alternative Investment Trading LLC

Statements of Financial Condition
 
   
June 30, 2016
(Unaudited)
   
December 31, 2015
(Audited)
 
Assets
           
Investments in Master Funds, at fair value
 
$
18,187,570
   
$
17,496,603
 
Investment in Graham Cash Assets LLC, at fair value
   
136,043,880
     
150,532,053
 
Receivable from Master Funds
   
46
     
-
 
Total assets
 
$
154,231,496
   
$
168,028,656
 
                 
Liabilities and members’ capital
               
Liabilities:
               
Accrued redemptions
 
$
1,548,595
   
$
4,031,268
 
Accrued advisory fees
   
219,483
     
247,886
 
Accrued sponsor fees
   
166,537
     
184,511
 
Accrued professional fees
   
46,873
     
67,250
 
Accrued administrator’s fee
   
17,428
     
19,747
 
Payable to Master Funds
   
43
     
32
 
Total liabilities
   
1,998,959
     
4,550,694
 
                 
Members’ capital:
               
Class 0 Units (740,411.711 and 791,620.850 units issued and outstanding at $144.89 and $147.34  per unit, respectively)
   
107,280,121
     
116,635,944
 
Class 2 Units (409,247.215 and 415,606.489 units issued and outstanding at $107.02 and $109.91 per unit, respectively)
   
43,796,067
     
45,680,694
 
Class M Units (4,671.470 units issued and outstanding at $247.53 and $248.60 per unit, respectively)
   
1,156,349
     
1,161,324
 
Total members’ capital
   
152,232,537
     
163,477,962
 
Total liabilities and members’ capital
 
$
154,231,496
   
$
168,028,656
 

See accompanying notes.
 
13

Graham Alternative Investment Trading LLC

Condensed Schedules of Investments
 
   
June 30, 2016
(Unaudited)
   
December 31, 2015
(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
 
$
8,254,512
     
5.42
%
 
$
6,374,087
     
3.90
%
Graham K4D Trading Ltd.
   
9,933,058
     
6.53
%
   
11,122,516
     
6.80
%
Total investments in Master Funds
 
$
18,187,570
     
11.95
%
 
$
17,496,603
     
10.70
%
 
See accompanying notes.
 
14

Graham Alternative Investment Trading LLC

Unaudited Statements of Operations and Incentive Allocation
 
   
Three Months Ended
June 30,
 
 
Six Months Ended
June 30,
 
   
2016
   
2015
   
2016
   
2015
 
Net (loss) gain allocated from investments in Master Funds
                       
Net realized (loss) gain on investments
 
$
(1,184,883
)
 
$
(5,658,562
)
 
$
(5,043,230
)
 
$
14,964,405
 
Net increase (decrease) in unrealized appreciation on investments
   
3,490,082
     
(4,850,666
)
   
4,654,101
     
(9,127,745
)
Brokerage commissions and fees
   
(225,690
)
   
(273,826
)
   
(487,279
)
   
(495,307
)
Net gain (loss) allocated from investments in Master Funds
   
2,079,509
     
(10,783,054
)
   
(876,408
)
   
5,341,353
 
                                 
Net investment loss allocated from investments in Master Funds
   
(5,885
)
   
(19,495
)
   
(9,587
)
   
(43,786
)
                                 
Investment income
                               
Interest income
   
176,984
     
132,112
     
354,887
     
244,107
 
                                 
Expenses
                               
Advisory fees
   
660,756
     
762,147
     
1,366,653
     
1,544,475
 
Sponsor fees
   
498,596
     
566,509
     
1,028,636
     
1,149,218
 
Administrator’s fees
   
52,332
     
60,919
     
108,284
     
123,175
 
Professional fees and other
   
117,595
     
99,886
     
145,498
     
176,636
 
Total expenses
   
1,329,279
     
1,489,461
     
2,649,071
     
2,993,504
 
Net investment loss of the Fund
   
(1,152,295
)
   
(1,357,349
)
   
(2,294,184
)
   
(2,749,397
)
                                 
Net income (loss)
   
921,329
     
(12,159,898
)
   
(3,180,179
)
   
2,548,170
 
                                 
Incentive allocation
   
     
     
     
2,920,022
 
                                 
Net income (loss) available for pro-rata allocation to all members
 
$
921,329
   
$
(12,159,898
)
 
$
(3,180,179
)
 
$
(371,852
)

See accompanying notes.
 
15

Graham Alternative Investment Trading LLC

Unaudited Statements of Changes in Members’ Capital

For the six months ended June 30, 2016 and 2015

   
Class 0
   
Class 2
   
Class M
   
Total
Capital
 
   
Units
   
Capital
   
Units
   
Capital
   
Units
   
Capital
     
                                           
Members’ capital, December 31, 2014
   
812,590.118
   
$
121,377,790
     
408,116.011
   
$
46,354,391
     
4,671.470
   
$
1,129,481
   
$
168,861,662
 
Subscriptions
   
25,361.574
     
3,999,644
     
20,350.418
     
2,416,950
     
     
     
6,416,594
 
Redemptions
   
(22,343.169
)
   
(3,461,342
)
   
(13,567.457
)
   
(1,611,936
)
   
     
(2,920,022
)
   
(7,993,300
)
Incentive allocation
   
     
(2,147,427
)
   
     
(772,595
)
   
     
2,920,022
     
 
Net income
   
     
2,160,313
     
     
353,791
     
     
34,066
     
2,548,170
 
Members’ capital, June 30, 2015
   
815,608.523
   
$
121,928,978
     
414,898.972
   
$
46,740,601
     
4,671.470
   
$
1,163,547
   
$
169,833,126
 
 
   
Class 0
   
Class 2
   
Class M
   
Total
Capital
 
   
Units
   
Capital
   
Units
   
Capital
   
Units
   
Capital
     
                                           
Members’ capital, December 31, 2015
   
791,620.850
   
$
116,635,944
     
415,606.489
   
$
45,680,694
     
4,671.470
   
$
1,161,324
   
$
163,477,962
 
Subscriptions
   
6,659.057
     
965,000
     
9,431.374
     
1,001,239
     
     
     
1,966,239
 
Redemptions
   
(57,868.196
)
   
(8,332,102
)
   
(15,790.648
)
   
(1,699,383
)
   
     
     
(10,031,485
)
Incentive allocation
   
     
     
     
     
     
     
 
Net loss
   
     
(1,988,721
)
   
     
(1,186,483
)
   
     
(4,975
)
   
(3,180,179
)
Members’ capital, June 30, 2016
   
740,411.711
   
$
107,280,121
     
409,247.215
   
$
43,796,067
     
4,671.470
   
$
1,156,349
   
$
152,232,537
 

See accompanying notes.
 
16

Graham Alternative Investment Trading LLC

Unaudited Statements of Cash Flows
 
   
Six Months Ended June 30,
 
   
2016
   
2015
 
Cash flows provided by operating activities
           
Net (loss) income
 
$
(3,180,179
)
 
$
2,548,170
 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
               
Net loss (income) allocated from investments in Master Funds
   
885,995
     
(5,297,567
)
Net income allocated from investment in Graham Cash Assets LLC
   
(354,887
)
   
(244,107
)
Proceeds from sale of investments in Master Funds
   
69,612,773
     
92,868,066
 
Proceeds from sale of investments in Graham Cash Assets LLC
   
66,991,701
     
80,885,997
 
Investments in Master Funds
   
(71,189,770
)
   
(82,703,571
)
Investments in Graham Cash Assets LLC
   
(52,148,641
)
   
(79,278,086
)
Changes in assets and liabilities:
               
Accrued advisory fees
   
(28,403
)
   
(17,356
)
Accrued sponsor fees
   
(17,974
)
   
(12,794
)
Accrued professional fees
   
(20,377
)
   
(23,876
)
Accrued administrator’s fee
   
(2,319
)
   
(1,261
)
Net cash provided by operating activities
   
10,547,919
     
8,723,615
 
                 
Cash flows used in financing activities
               
Subscriptions
   
1,966,239
     
6,416,594
 
Redemptions
   
(12,514,158
)
   
(15,140,209
)
Net cash used in financing activities
   
(10,547,919
)
   
(8,723,615
)
                 
Net change in cash and cash equivalents
   
     
 
                 
Cash and cash equivalents, beginning of period
   
     
 
Cash and cash equivalents, end of period
 
$
   
$
 
 
See accompanying notes.
 
17

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements

June 30, 2016
 
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.
 
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.
 
18

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’ and Graham Cash Assets LLC’s (“Cash Assets”) 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 instruments and securities, and receivables/payables for unsettled transactions. Substantially all of the Master Funds’ and Cash Assets’ cash and investments are held as collateral by its brokers to secure derivative instruments and securities.
 
Revenue Recognition
 
All financial instruments are recorded on the trade date at fair value. Net unrealized gain or loss on open derivative 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 the end of the period. Any change in net unrealized gain or loss 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 related withholding taxes. All other expenses are recorded on the accrual basis.
 
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 June 30, 2016 and December 31, 2015. 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. Currency translation gains and losses are included in the statement of operations within net realized gain (loss) and net increase (decrease) 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.
 
19

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 Master Funds and Cash Assets have been valued at net asset value using the practical expedient. According to FASB Accounting Standards Update 2015-07 – Disclosures for Investment in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) (“ASU 2015-07”), these investments are no longer categorized in the fair value hierarchy. GAIT’s investments in 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 six months ended June 30, 2016 or the year ended December 31, 2015 by GAIT, the Master Funds, or Cash Assets, and there were no transfers between levels during those periods. Transfers between levels, if any, are recognized on the actual date of the event or change in circumstances that cause the transfer.
 
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 gains and losses 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 (loss) on investments in the Master Funds’ statements of operations.
 
20

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
2. Summary of Significant Accounting Policies (continued)

Derivative Instruments (continued)
 
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.

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 gains or losses 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 gains or losses.
 
21

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)
 
Derivative Instruments (continued)
 
Swap Contracts
 
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 gains or losses 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 gains 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 Advisor 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 last traded prices established by the primary exchange upon which they are traded. Changes in fair value of each swap are recognized as unrealized gains or losses. The Master Funds record realized gains or losses when a swap contract is terminated.
 
22

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 gains 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 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 six months ended June 30, 2016 or for the year ended December 31, 2015 which caused any counterparty to demand liquidation of any outstanding positions. At June 30, 2016 and December 31, 2015, there were no Derivative Instruments subject to credit risk related contingent features in a net liability position for either of the Master Funds in which GAIT invests except for Graham Commodity Strategies LLC. Graham Commodity Strategies LLC had Derivative Instruments subject to credit risk related contingent features in a net liability position in the amount of $9,635,727 and $102,519 at June 30, 2016 and December 31, 2015, respectively.
 
23

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
2. Summary of Significant Accounting Policies (continued)
 
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 memberships and the shares of the CME Group at fair value. As of June 30, 2016 and December 31, 2015, the two NYMEX memberships were valued at $396,000 and $305,000, respectively, and the 30,000 shares of CME Group were valued at $2,922,000 and $2,718,000, respectively, both of which are contained within Exchange Memberships on Graham Commodity Strategies LLC’s statements of financial condition. The NYMEX seats and shares are considered Level 1 assets as described in the Fair Value section of Note 2.
 
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. Graham K4D Trading Ltd.’s policy is to value the CBOT memberships at fair value. As of June 30, 2016 and December 31, 2015, the B-1/Full memberships were valued at $415,000 and $455,000, respectively, and the B-2/Associate memberships were valued at $67,500 and $72,500, respectively, both of which are included in CME Membership on the statements of financial condition. Additionally, Graham K4D Trading Ltd. owns a Chicago Mercantile Exchange seat valued at $237,500 and $224,500 at June 30, 2016 and December 31, 2015, respectively, which is also included in Exchange Membership on the statements of financial condition. The CBOT memberships and shares are considered Level 1 assets as described in the Fair Value section of Note 2.
 
Recent Accounting Pronouncements
 
In August 2014, the FASB issued Accounting Standards Update 2014-15 – Presentation of Financial Statements – Going Concern (Subtopic 205-40). The pronouncement determines management’s responsibility regarding the assessment of GAIT’s ability to continue as a going concern even if GAIT’s liquidation is not imminent. Under this guidance, during each period in which financial statements are prepared, management will need to evaluate whether there are conditions or events that, in the aggregate, raise substantial doubt about GAIT’s ability to continue as a going concern within one year after the date the financial statements are issued. Substantial doubt would exist if conditions or events indicate that GAIT will be unable to meet its obligations as they become due. Accounting Standards Update 2014-15 is effective for annual periods ending after December 15, 2016, however early adoption is permitted. The Manager is currently assessing the impact, if any, that this pronouncement will have on the disclosures within the financial statements. Any impact is expected to be minimal.
 
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 June 30, 2016 and December 31, 2015, no accruals have been recorded by GAIT for indemnifications.
 
24

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3. Investments in Master Funds
 
As of June 30, 2016 and December 31, 2015, 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, while smaller investments are aggregated under the caption “Other Global Macro Funds,” if applicable. All of the Master Funds and GAIT are related parties. The Master Funds do not charge management or incentive fees and all offer monthly subscriptions and redemptions.
 
June 30, 2016
 
Investment – Objective
 
Percent of
Members’
Capital
   
Fair Value
   
Net Income (Loss)
(six months ended)
 
                   
Systematic Macro Funds
                 
Graham K4D Trading Ltd.
   
6.53
%
 
$
9,933,058
   
$
145,642
 
                         
Global Macro Funds
                       
Graham Commodity Strategies LLC
   
5.42
%
   
8,254,512
     
(1,031,637
)
     
11.95
%
 
$
18,187,570
   
$
(885,995
)
 
December 31, 2015
       
Investment – Objective
 
Percent of
Members’
Capital
   
Fair Value
   
Net Income
(six months ended
June 30, 2015)
 
                   
Systematic Macro Funds
                 
Graham K4D Trading Ltd.
   
6.80
%
 
$
11,122,516
   
$
4,250,708
 
                         
Global Macro Funds
                       
Graham Commodity Strategies LLC
   
3.90
%
   
6,374,087
     
1,046,859
 
     
10.70
%
 
$
17,496,603
   
$
5,297,567
 
 
25

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 June 30, 2016:
 
   
Graham
Commodity
Strategies LLC
(Delaware)
   
Graham K4D
Trading Ltd.
(BVI)
 
Assets:
           
Due from brokers
 
$
128,661,360
   
$
72,712,384
 
Derivative financial instruments, at fair value
   
33,509,522
     
34,056,597
 
Exchange membership, at fair value
   
3,318,000
     
720,000
 
Total assets
   
165,488,882
     
107,488,981
 
                 
Liabilities:
               
Derivative financial instruments, at fair value
   
9,635,727
     
-
 
Total liabilities
   
9,635,727
     
-
 
Net assets
 
$
155,853,155
   
$
107,488,981
 
                 
Percentage of Master Fund held by GAIT
   
5.30
%
   
9.24
%
 
26

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 June 30, 2016.
 
Description
 
Number of
Contracts /
Notional Amounts
   
Fair Value
   
Percentage of
Members’
Capital of
Master Fund
 
Graham Commodity Strategies LLC
                 
Derivative financial instruments
                 
Long contracts
                 
Futures
                 
Soybean November 2016
   
250
   
$
300,963
     
0.19
%
Soybean August 2016
   
5,000
     
(823,663
)
   
(0.53
)%
Gold August 2016
   
1,162
     
1,422,210
     
0.91
%
Other commodity
           
1,397,915
     
0.90
%
Foreign bond
           
2,606
     
0.00
%
Foreign index
           
(432,775
)
   
(0.28
)%
Fed fund 30 day August 2016
   
47,228
     
9,985,653
     
6.41
%
Fed fund 30 day July 2016
   
20,207
     
6,092,935
     
3.91
%
U.S. bond
           
3,134,453
     
2.01
%
U.S. index
           
366,010
     
0.24
%
Total futures
           
21,446,307
     
13.76
%
                         
Forwards
                       
Euro / U.S. dollar 07/05/2016 - 09/06/2016
 
EUR
719,837,049      
(10,250,621
)
   
(6.57
)%
Chinese yuan / U.S. dollar 07/15/2016 - 02/06/2017
 
CNY
6,042,963,967      
(8,802,636
)
   
(5.65
)%
Japanese yen / U.S. dollar 07/05/2016
 
JPY
4,107,708,000      
(217,399
)
   
(0.14
)%
Other foreign currency
           
1,965,752
     
1.26
%
Total forwards
           
(17,304,904
)
   
(11.10
)%
                         
Options (cost $103,883,660)
                       
Crude Oil futures option August 2016, $43.50 Put
   
1
     
375,000
     
0.24
%
Crude Oil futures option August 2016 - December 2016, $52.50 - $100.00 Call
   
4
     
747,670
     
0.48
%
Gold future option August 2016, $1,325.00 Call
   
1
     
9,877,500
     
6.34
%
Gold future option October 2016, $1,350.00 Call
   
1
     
1,190,000
     
0.76
%
Soybean futures option November 2016, $1,100.00 Call
   
1
     
27,412,500
     
17.59
%
Soybean futures option August 2016, $1,200.00 Call
   
1
     
400,781
     
0.26
%
Other commodity futures options
           
14,513,528
     
9.31
%
Euro / U.S. dollar 07/01/2016 - 02/24/2017, $1.00 - $1.18 Put
   
7
     
2,412,589
     
1.55
%
U.S. dollar / Chinese yuan 07/15/2016 - 02/24/2017, $6.55 - $7.60 Call
   
22
     
13,909,172
     
8.93
%
U.S. dollar / Japanese yen 07/29/2016 - 09/26/2016, $107.00 - $129.60 Call
   
3
     
440,702
     
0.28
%
U.S. dollar / Japanese yen 07/06/2016 - 08/08/2016, $99.00 - $127.02 Put
   
6
     
9,645,934
     
6.19
%
Other currency
           
11,360,475
     
7.29
%
Interest rate futures
           
520,610
     
0.33
%
U.S. bond futures
           
2,265,625
     
1.45
%
U.S. index futures
           
330,000
     
0.21
%
Total options
           
95,402,086
     
61.21
%
 
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 June 30, 2016.
 
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
                 
Soybean November 2016
   
(5,000
)
 
$
1,467,863
     
0.94
%
Other commodity futures
           
(184,438
)
   
(0.12
)%
Foreign index
           
(411,370
)
   
(0.26
)%
Fed fund 30 Day October 2016
   
(31,728
)
   
(14,430,363
)
   
(9.26
)%
Fed fund 30 Day April 2017
   
(1,000
)
   
(41,670
)
   
(0.03
)%
Other interest rate
           
(2,938,701
)
   
(1.88
)%
U.S. bond
           
871,766
     
0.56
%
U.S. index
           
(818,438
)
   
(0.53
)%
Total futures
           
(16,485,351
)
   
(10.58
)%
                         
Forwards
                       
U.S. dollar / Euro 07/05/2016 - 09/06/2016
 
EUR 
(1,299,935,858 )    
11,531,112
     
7.40
%
U.S. dollar / Chinese yuan 07/05/2016 - 06/13/2017
 
CNY
(7,562,316,468 )    
7,563,173
     
4.85
%
U.S. dollar / Japanese yen 07/05/2016
 
JPY
(14,982,783,566 )    
630,210
     
0.40
%
Other foreign currencies
           
(3,499,169
)
   
(2.24
)%
Total forwards
           
16,225,326
     
10.41
%
                         
Options (proceeds $105,482,162)
                       
Crude Oil futures option October 2016 - December 2016, $45.00 - $120.00 Call
   
(7
)
   
(16,684,400
)
   
(10.71
)%
Crude Oil futures option August 2016 - December 2016, $35.00 - $46.00 Put
   
(8
)
   
(9,767,500
)
   
(6.27
)%
Gold futures option August 2016 - October 2016, $1,400.00 - $1,425.00 Call
   
(3
)
   
(5,392,500
)
   
(3.46
)%
Gold futures option August 2016, $1,275.00 Put
   
(1
)
   
(540,000
)
   
(0.35
)%
Soybean futures option November 2016, $1,300.00 Call
   
(1
)
   
(7,800,000
)
   
(5.00
)%
Soybean futures option August 2016, $1,250.00 Call
   
(1
)
   
(375,000
)
   
(0.24
)%
Soybean futures option August 2016, $1,100.00 Put
   
(1
)
   
(140,625
)
   
(0.09
)%
Other commodity futures
           
(10,222,098
)
   
(6.55
)%
Euro / U.S. dollar 07/01/2016 - 01/10/2017, $1.00 - $1.10 Put
   
(4
)
   
(992,991
)
   
(0.64
)%
U.S. dollar / Chinese yuan 08/12/2016 - 02/24/2017, $6.70 - $7.40 Call
   
(19
)
   
(7,944,926
)
   
(5.10
)%
U.S. dollar / Chinese yuan 08/26/2016, $6.37 Put
   
(1
)
   
(38,407
)
   
(0.02
)%
U.S. dollar / Japanese yen 07/06/2016 - 08/01/2016, $100.00 - $107.02 Put
   
(5
)
   
(9,806,810
)
   
(6.29
)%
Other currency
           
(4,115,662
)
   
(2.64
)%
Interest rate futures
           
(312,500
)
   
(0.20
)%
U.S. bond futures
           
(1,156,250
)
   
(0.74
)%
U.S. index futures
           
(120,000
)
   
(0.08
)%
Total options
           
(75,409,669
)
   
(48.38
)%
Total derivative financial instruments
         
$
23,873,795
     
15.32
%
 
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 June 30, 2016.
 
Description
 
Number of
Contracts/Notional
Amounts
   
Fair Value
   
Percentage of
Net Assets of
Master Fund
 
Graham K4D Trading Ltd.
                 
Derivative financial instruments
                 
Long contracts
                 
Futures
                 
Commodity
       
$
5,190,464
     
4.83
%
Currency
         
66,468
     
0.06
%
Foreign bond
         
13,685,374
     
12.73
%
Foreign index
         
2,550,896
     
2.37
%
Interest rate
         
1,761,445
     
1.64
%
U.S. 2yr – 5yr note September 2016
   
3,672
     
2,608,939
     
2.43
%
U.S. 10yr note September 2016
   
2,551
     
6,945,033
     
6.46
%
U.S. long bond September 2016
   
795
     
4,706,606
     
4.38
%
U.S. index
           
(2,332,883
)
   
(2.17
)%
Total futures
           
35,182,342
     
32.73
%
                         
Forwards
                       
Japanese yen / U.S. dollar 07/05/2016 – 09/21/2016
 
JPY
24,499,828,949      
6,630,111
     
6.17
%
British pound / U.S. dollar 07/05/2016 – 09/21/2016
 
GBP  
158,573,000      
(21,122,127
)
   
(19.65
)%
Other foreign currency
           
(1,800,920
)
   
(1.68
)%
Total forwards
           
(16,292,936
)
   
(15.16
)%
                         
Short contracts
                       
Futures
                       
Commodity
           
(6,638,472
)
   
(6.18
)%
Currency
           
(30,349
)
   
(0.03
)%
Foreign bond
           
(939,594
)
   
(0.87
)%
Foreign index
           
3,521,380
     
3.28
%
Interest rate
           
(1,303,611
)
   
(1.21
)%
U.S. 2yr – 5yr note September 2016
   
(3,253
)
   
(4,683,485
)
   
(4.36
)%
U.S. long bond September 2016
   
(49
)
   
37,364
     
0.03
%
U.S. index
           
(10,197
)
   
(0.01
)%
Total futures
           
(10,046,964
)
   
(9.35
)%
                         
Forwards
                       
Japanese yen / U.S. dollar 07/05/2016 – 09/21/2016
 
JPY
(6,166,142,000 )    
127,878
     
0.12
%
British pound / U.S. dollar 07/05/2016 – 09/21/2016
 
GBP 
(205,427,063 )    
18,513,692
     
17.22
%
Other foreign currency
           
6,572,585
     
6.12
%
Total forwards
           
25,214,155
     
23.46
%
Total derivative financial instruments
         
$
34,056,597
     
31.68
%
 
29

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 June 30, 2016:

   
Graham
Commodity
Strategies LLC
   
Graham K4D
Trading Ltd.
 
Assets
           
Level 1:
           
Commodity futures
 
$
8,696,735
   
$
17,036,439
 
Commodity futures options
   
54,516,979
     
-
 
Currency futures
   
-
     
406,503
 
Foreign bond futures
   
2,606
     
13,685,374
 
Foreign index futures
   
302,849
     
6,845,678
 
Interest rate futures
   
16,125,279
     
1,761,445
 
Interest rate futures options
   
1,125,000
     
-
 
U.S. bond futures
   
4,363,157
     
14,297,942
 
U.S. bond futures options
   
2,265,625
     
-
 
U.S. index futures
   
366,010
     
-
 
U.S. index futures options
   
330,000
     
-
 
Total Level 1
   
88,094,240
     
54,033,381
 
                 
Level 2:
               
Foreign currency forwards
   
41,026,684
     
32,846,073
 
Foreign currency options
   
37,768,871
     
-
 
Total Level 2
   
78,795,555
     
32,846,073
 
Total investment related assets
 
$
166,889,795
   
$
86,879,454
 
                 
Liabilities
               
Level 1:
               
Commodity futures
 
$
(5,115,885
)
 
$
(18,484,447
)
Commodity futures options
   
(50,922,123
)
   
-
 
Currency futures
   
-
     
(370,384
)
Foreign bond futures
   
-
     
(939,594
)
Foreign index futures
   
(1,146,994
)
   
(773,402
)
Interest rate futures
   
(17,457,425
)
   
(1,303,611
)
Interest rate futures options
   
(916,890
)
   
-
 
U.S. bond futures
   
(356,938
)
   
(4,683,485
)
U.S. bond futures options
   
(1,156,250
)
   
-
 
U.S. index futures
   
(818,438
)
   
(2,343,080
)
U.S. index futures options
   
(120,000
)
   
-
 
Total Level 1
   
(78,010,943
)
   
(28,898,003
)
                 
Level 2:
               
Foreign currency forwards
   
(42,106,262
)
   
(23,924,854
)
Foreign currency options
   
(22,898,795
)
   
-
 
Total Level 2
   
(65,005,057
)
   
(23,924,854
)
Total investment related liabilities
 
$
(143,016,000
)
 
$
(52,822,857
)
 
30

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 the Master Funds based on their average quarterly notional amounts and number of contracts for the six months ended June 30, 2016. The table also displays the fair value of derivative contracts held by the Master Funds at June 30, 2016 categorized by primary underlying risk. 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.
 
   
Graham Commodity Strategies LLC
 
   
Long exposure
   
Short exposure
             
   
Notional
amounts
   
Number
of
contracts
   
Notional
amounts
   
Number
of
contracts
   
Derivative
Assets
   
Derivative
Liabilities
 
Commodity price
                                   
Futures
 
$
607,529,446
     
17,106
   
$
(391,413,863
)
   
(8,835
)
 
$
8,696,735
   
$
(5,115,885
)
Options(a)
   
715,954,010
     
37,179
     
(425,855,297
)
   
(21,750
)
   
54,516,979
     
(50,922,123
)
Swaps (b)
   
27,685,864
     
595
     
-
     
-
     
-
     
-
 
     
1,351,169,320
     
54,880
     
(817,269,160
)
   
(30,585
)
   
63,213,714
     
(56,038,008
)
Equity price
                                               
Futures
   
98,467,488
     
1,206
     
(70,359,720
)
   
(986
)
   
668,859
     
(1,965,432
)
Options(a)
   
30,644,426
     
7,125
     
(8,528,506
)
   
(2,250
)
   
330,000
     
(120,000
)
     
129,111,914
     
8,331
     
(78,888,226
)
   
(3,236
)
   
998,859
     
(2,085,432
)
Foreign currency exchange rate
                                         
Forwards
   
9,725,885,810
     
N/A
     
(4,338,620,439
)
   
N/A
     
41,026,684
     
(42,106,262
)
Options(a)
   
1,522,097,750
     
59
     
(1,241,945,137
)
   
(56
)
   
37,768,871
     
(22,898,795
)
     
11,247,983,560
     
59
     
(5,580,565,576
)
   
(56
)
   
78,795,555
     
(65,005,057
)
Interest rate
                                               
Futures
   
21,084,895,288
     
68,829
     
(8,672,618,014
)
   
(24,282
)
   
20,491,042
     
(17,814,363
)
Options(a)
   
2,819,629,079
     
100,500
     
(2,823,493,989
)
   
(82,000
)
   
3,390,625
     
(2,073,140
)
Swaps (b)
   
559,814
     
1
     
(2,624,769
)
   
(2
)
   
-
     
-
 
     
23,905,084,181
     
169,330
     
(11,498,736,772
)
   
(106,284
)
   
23,881,667
     
(19,887,503
)
Total
 
$
36,633,348,975
     
232,600
   
$
(17,975,459,734
)
   
(140,161
)
 
$
166,889,795
   
$
(143,016,000
)

(a) – Notional amounts for options are based on the delta-adjusted positions.
(b) – Notional amounts and number of contracts for these swaps are calculated based on the average amount of each swap transaction that occurred during the six months ended June 30, 2016, as a result of no open contracts at any quarter end.
 
31

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 the Master Funds based on their average quarterly notional amounts and number of contracts for the six months ended June 30, 2016. The table also displays the fair value of derivative contracts held by the Master Funds at June 30, 2016 categorized by primary underlying risk. 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.
 
   
Graham K4D Trading Ltd.
 
   
Long exposure
   
Short exposure
             
   
Notional
amounts
   
Number
of
contracts
   
Notional
amounts
   
Number
of
contracts
   
Derivative
Assets
   
Derivative
Liabilities
 
Commodity price
                                   
Futures
 
$
390,516,547
     
7,770
   
$
(243,087,387
)
   
(6,114
)
 
$
17,036,439
   
$
(18,484,447
)
     
390,516,547
     
7,770
     
(243,087,387
)
   
(6,114
)
   
17,036,439
     
(18,484,447
)
                                                 
Equity price
                                               
Futures
   
432,121,248
     
4,742
     
(172,873,774
)
   
(2,030
)
   
6,845,678
     
(3,116,482
)
     
432,121,248
     
4,742
     
(172,873,774
)
   
(2,030
)
   
6,845,678
     
(3,116,482
)
                                                 
Foreign currency exchange rate
                                         
Forwards
   
792,957,432
     
N/A
     
(807,917,677
)
   
N/A
     
32,846,073
     
(23,924,854
)
Futures
   
5,714,141
     
57
     
(71,548,506
)
   
(736
)
   
406,503
     
(370,384
)
     
798,671,573
     
57
     
(879,466,183
)
   
(736
)
   
33,252,576
     
(24,295,238
)
                                                 
Interest rate
                                               
Futures
   
3,849,546,957
     
22,644
     
(908,124,309
)
   
(4,229
)
   
29,744,761
     
(6,926,690
)
     
3,849,546,957
     
22,644
     
(908,124,309
)
   
(4,229
)
   
29,744,761
     
(6,926,690
)
Total
 
$
5,470,856,325
     
35,213
   
$
(2,203,551,653
)
   
(13,109
)
 
$
86,879,454
   
$
(52,822,857
)
 
32

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 June 30, 2016 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
 
$
166,889,795
   
$
(133,380,273
)
 
$
33,509,522
   
$
-
   
$
33,509,522
 
Derivative liabilities
   
(143,016,000
)
   
133,380,273
     
(9,635,727
)
   
9,635,727
     
-
 
                                         
Graham K4D Trading Ltd.2
                                       
Derivative assets
 
$
86,879,454
   
$
(52,822,857
)
 
$
34,056,597
   
$
-
   
$
34,056,597
 
Derivative liabilities
   
(52,822,857
)
   
52,822,857
     
-
     
-
     
-
 
 
1 Net derivative asset and liability amounts presented in the statement of financial condition are held with three counterparties. The Master Fund has pledged offsetting collateral to one of those counterparties as of June 30, 2016. At June 30, 2016, additional collateral pledged in the amount of $119,013,033 was posted in support of derivative positions and is included in due from brokers on the statement of financial condition.
 
2 Net derivative asset amounts presented in the statement of financial condition are held with two counterparties. The Master Fund did not receive collateral from of these counterparties that may have been used to offset these derivative amounts as of June 30, 2016. At June 30, 2016, collateral pledged in the amount of $72,712,384 was posted in support of derivative positions and is included in due from brokers on the statement of financial condition.
 
33

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 June 30, 2016:
 
   
Graham
Commodity
Strategies LLC
   
Graham K4D
Trading Ltd.
 
             
Net investment income
 
$
52,403
   
$
15,442
 
                 
Net realized loss on investments
   
(12,192,367
)
   
(4,870,236
)
Net increase in unrealized appreciation on investments
   
16,960,920
     
28,968,759
 
Brokerage commissions and fees
   
(3,995,592
)
   
(224,053
)
Net gain on investments
   
772,961
     
23,874,470
 
Net income
 
$
825,364
   
$
23,889,912
 

The following table summarizes the results of operations of each Master Fund for the six months ended June 30, 2016:
 
   
Graham
Commodity
Strategies LLC
   
Graham K4D
Trading Ltd.
 
             
Net investment income
 
$
72,946
   
$
17,315
 
                 
Net realized loss on investments
   
(47,379,082
)
   
(23,469,553
)
Net increase in unrealized appreciation on investments
   
40,472,541
     
27,020,608
 
Brokerage commissions and fees
   
(8,680,172
)
   
(459,063
)
Net (loss) gain on investments
   
(15,586,713
)
   
3,091,992
 
Net (loss) income
 
$
(15,513,767
)
 
$
3,109,307
 
 
34

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 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 June 30, 2016:
 
   
Graham
Commodity
Strategies LLC
   
Graham
K4D Trading
Ltd.
 
Commodity price
           
Futures
 
$
20,017,696
   
$
2,316,724
 
Options
   
20,998,060
     
-
 
Swaps
   
(5,443,954
)
   
-
 
     
35,571,802
     
2,316,724
 
Equity price
               
Equities
   
121,500
     
195,750
 
Futures
   
(12,778,666
)
   
(8,171,691
)
Options
   
(6,815,323
)
   
-
 
     
(19,472,489
)
   
(7,975,941
)
Foreign currency exchange rate
               
Forwards
   
5,868,382
     
2,083,036
 
Futures
   
-
     
38,528
 
Options
   
(6,680,438
)
   
-
 
     
(812,056
)
   
2,121,564
 
Interest rate
               
Futures
   
(5,968,438
)
   
27,636,176
 
Options
   
(4,570,187
)
   
-
 
Swaps
   
19,921
     
-
 
     
(10,518,704
)
   
27,636,176
 
Total
 
$
4,768,553
   
$
24,098,523
 
 
35

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 and net increase in unrealized appreciation on investments in their statements of operations segregated by primary underlying risk and contract type for the six months ended June 30, 2016:
 
   
Graham
Commodity
Strategies LLC
   
Graham
K4D Trading
Ltd.
 
Commodity price
           
Futures
 
$
27,338,384
   
$
(13,527,670
)
Options
   
59,438,194
     
-
 
Swaps
   
(5,443,954
)
   
-
 
     
81,332,624
     
(13,527,670
)
Equity price
               
Equities
   
295,000
     
(32,000
)
Futures
   
(16,266,345
)
   
(18,164,502
)
Options
   
(9,705,162
)
   
-
 
     
(25,676,507
)
   
(18,196,502
)
Foreign currency exchange rate
               
Forwards
   
(18,774,874
)
   
(1,727,239
)
Futures
   
-
     
(4,737,191
)
Options
   
(11,875,818
)
   
-
 
     
(30,650,692
)
   
(6,464,430
)
Interest rate
               
Futures
   
(23,215,999
)
   
41,739,657
 
Options
   
(7,990,661
)
   
-
 
Swaps
   
(705,306
)
   
-
 
     
(31,911,966
)
   
41,739,657
 
Total
 
$
(6,906,541
)
 
$
3,551,055
 
 
36

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, 2015:

   
Graham
Commodity
Strategies LLC
(Delaware)
   
Graham K4D
Trading Ltd.
(BVI)
 
Assets:
           
Due from brokers
 
$
63,952,987
   
$
100,917,683
 
Derivative financial instruments, at fair value
   
57,737,935
     
6,923,751
 
Exchange membership, at fair value
   
3,023,000
     
752,000
 
Total assets
   
124,713,922
     
108,593,434
 
                 
Liabilities:
               
Derivative financial instruments, at fair value
   
102,519
     
-
 
Interest payable
   
202,114
     
-
 
Total liabilities
   
304,633
     
-
 
Net assets
 
$
124,409,289
   
$
108,593,434
 
                 
Percentage of Master Fund held by GAIT
   
5.12
%
   
10.24
%
 
37

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, 2015.
 
Description
 
Number of
Contracts / Notional
Amounts
   
Fair Value
   
Percentage
of Members’
Capital of
Master Fund
 
Graham Commodity Strategies LLC
                 
Derivative financial instruments
                 
Long contracts
                 
Futures
                 
Natural gas February 2016
   
750
   
$
204,090
     
0.16
%
Other commodity
           
(591,587
)
   
(0.48
)%
Foreign bond
           
41,429
     
0.03
%
Foreign index
           
(796,068
)
   
(0.64
)%
Interest rate
           
(3,047,734
)
   
(2.45
)%
U.S. bond
           
246,594
     
0.21
%
U.S. index
           
(312,175
)
   
(0.25
)%
Total futures
           
(4,255,451
)
   
(3.42
)%
                         
Swaps
                       
Interest rate
           
(499,166
)
   
(0.40
)%
Total swaps
           
(499,166
)
   
(0.40
)%
                         
Forwards
                       
U.S. dollar / Chinese yuan 02/22/2016 - 12/15/2016
CNY
1,614,278,056      
(6,542,494
)
   
(5.26
)%
Euro / U.S. dollar 01/04/2016 - 01/05/2016
EUR
285,331,324
     
(953,787
)
   
(0.77
)%
British pound / U.S. dollar 01/04/2016 - 01/05/2016
GBP
268,236,160
     
(2,252,472
)
   
(1.81
)%
Other foreign currency
           
(499,290
)
   
(0.40
)%
Total forwards
           
(10,248,043
)
   
(8.24
)%
                         
Options (cost $121,828,281)
                       
U.S. dollar / Chinese yuan 11/15/16, $6.60 Call
   
1
     
8,120,680
     
6.53
%
U.S. dollar / Chinese yuan 01/11/16 - 02/15/16, $6.18 - $6.25 Put
   
4
     
4,635
     
0.00
%
Other U.S. dollar / Chinese yuan 01/25/16 - 12/19/16, $6.30 - $7.40 Call
   
15
     
24,331,188
     
19.56
%
British pound / U.S. dollar 01/04/2016 - 02/01/2016, $1.47 - $1.49 Put
   
2
     
3,374,745
     
2.71
%
U.S. dollar / British pound 02/22/2016 - 06/17/2016, $1.41 - $1.47 Put
   
2
     
719,822
     
0.58
%
Other currency options
           
8,427,213
     
6.78
%
Copper LME January 2016 - May 2016, $3,200.00 - $4,800.00 Put
   
6
     
10,243,625
     
8.23
%
Crude oil February 2016 - December 2016, $40.00 - $100.00 Call
   
3
     
2,771,500
     
2.23
%
Crude oil February 2016 - March 2016, $35.00 - $40.00 Put
   
7
     
13,856,000
     
11.14
%
Natural gas Euro February 2016, $2.30 Call
   
1
     
3,296,000
     
2.65
%
Natural gas Euro March 2016, $1.90 - $2.10 Put
   
4
     
3,223,500
     
2.59
%
Other commodity futures
           
6,569,952
     
5.28
%
 
38

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, 2015.
 
Description
 
Number of
Contracts / Notional Amounts
   
Fair Value
   
Percentage
of Members’
Capital of
Master Fund
 
Graham Commodity Strategies LLC (continued)
                 
Derivative financial instruments (continued)
                 
Long contracts (continued)
                 
Options (continued)
                 
IMM Eurodollar March 2016, $99.38 Put
   
1
   
$
9,646,875
     
7.75
%
IMM Eurodollar January 2016, $99.50 Call
   
1
     
234,375
     
0.19
%
Other IMM Eurodollar January 2016 - March 2016, $99.00 - $99.50 Put
   
3
     
821,875
     
0.66
%
Eurodollar 1 year mid-curve January 2016, $98.25 - $98.63 Put
   
2
     
412,500
     
0.33
%
Other interest rate futures
           
6,083,820
     
4.89
%
Foreign index
           
1,144
     
0.00
%
U.S. bond futures
           
3,414,313
     
2.74
%
U.S. index futures
           
207,500
     
0.17
%
Total options
           
105,761,262
     
85.01
%
                         
Short contracts
                       
Futures
                       
Natural gas April 2016
   
(875
)
   
(684,460
)
   
(0.55
)%
Other commodity
           
326,918
     
0.26
%
Foreign index
           
(1,076,645
)
   
(0.87
)%
90 day Eurodollar June 2016 – March 2017
   
(29,354
)
   
6,085,350
     
4.90
%
Other interest rate
           
785,538
     
0.63
%
U.S. bond
           
162,945
     
0.13
%
U.S. index
           
(526,262
)
   
(0.42
)%
Total futures
           
5,073,384
     
4.08
%
                         
Swaps
                       
Interest rate
           
724,715
     
0.58
%
Total swaps
           
724,715
     
0.58
%
                         
Forwards
                       
U.S. dollar / Chinese yuan 02/22/2016 - 12/30/2016
CNY
(1,920,932,849)
     
7,210,013
     
5.80
%
Euro / U.S. dollar 01/04/2016 - 01/05/2016
EUR
(860,881,820)
     
3,806,611
     
3.06
%
British pound / U.S. dollar 01/04/2016 - 01/05/2016
GBP
(405,231,605)
     
3,408,977
     
2.74
%
Other foreign currency
           
(21,670
)
   
(0.02
)%
Total forwards
           
14,403,931
     
11.58
%
 
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, 2015.
 
 
 
 
Description
 
Number of
Contracts
   
Fair Value
   
Percentage
of Members’
Capital of
Master Fund
 
Graham Commodity Strategies LLC (continued)
                 
Derivative financial instruments (continued)
                 
Short contracts (continued)
                 
Options (proceeds $50,339,273)
                 
U.S. dollar / Chinese yuan 11/15/16, $6.80 Call
   
(1
)
 
$
(10,761,400
)
   
(8.65
)%
Other U.S. dollar / Chinese yuan 03/2/16 - 12/1/16, $6.90 - $7.40 Call
   
(9
)
   
(14,075,595
)
   
(11.31
)%
British pound / U.S dollar 02/01/2016, $1.47 Put
   
(1
)
   
(1,394,550
)
   
(1.12
)%
British pound / U.S dollar 12/23/2016, $1.60 Call
   
(1
)
   
(3,141,080
)
   
(2.53
)%
Other currency options
           
(2,016,995
)
   
(1.62
)%
Copper LME May 2016 - May 2016, $4,000.00 - $4,200.00 Put
   
(2
)
   
(817,625
)
   
(0.66
)%
Crude oil February 2016 - December 2016, $42.50 - $120.00 Call
   
(3
)
   
(710,000
)
   
(0.57
)%
Crude oil February 2016 - December 2016, $32.50 - $40.00 Put
   
(4
)
   
(5,177,500
)
   
(4.16
)%
Natural gas Euro February 2016, $2.55 Call
   
(1
)
   
(1,390,000
)
   
(1.12
)%
Natural gas Euro March 2016, $1.75 Put
   
(1
)
   
(1,235,000
)
   
(0.99
)%
Other commodity futures
           
(686,120
)
   
(0.55
)%
IMM Eurodollar January 2016 - March 2016, $99.13 - $99.38 Put
   
(3
)
   
(4,118,750
)
   
(3.31
)%
Eurodollar 1 year mid-curve January 2016 $98.38 Put
   
(1
)
   
(37,500
)
   
(0.03
)%
Other interest rate futures
           
(6,083,820
)
   
(4.89
)%
U.S. bond futures
           
(1,679,281
)
   
(1.35
)%
Total options
           
(53,325,216
)
   
(42.86
)%
Total derivative financial instruments
         
$
57,635,416
     
46.33
%
 
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, 2015.
 
Description
Number of
Contracts
 
Fair Value
   
Percentage of
Net Assets of
Master Fund
 
Graham K4D Trading Ltd.
             
Derivative financial instruments
             
Long contracts
             
Futures
             
Commodity
   
$
(71,393
)
   
(0.06
)%
Currency
     
(182,430
)
   
(0.17
)%
Foreign bond
     
200,068
     
0.18
%
Foreign index
     
389,224
     
0.36
%
Interest rate
     
(2,410,691
)
   
(2.22
)%
U.S. bond
     
(522,563
)
   
(0.48
)%
U.S. index
     
(638,527
)
   
(0.59
)%
Total futures
     
(3,236,312
)
   
(2.98
)%
                   
Forwards
                 
Foreign currency
     
692,077
     
0.64
%
Total forwards
     
692,077
     
0.64
%
                   
Short contracts
                 
Futures
                 
Commodity
     
4,567,007
     
4.20
%
Currency
     
(564
)
   
(0.00
)%
Foreign bond
     
557,382
     
0.51
%
Foreign index
     
(2,950,714
)
   
(2.72
)%
Interest rate
     
616,252
     
0.57
%
U.S. bond
     
1,667,893
     
1.54
%
U.S. index
     
(24,607
)
   
(0.02
)%
Total futures
     
4,432,649
     
4.08
%
                   
Forwards
                 
Foreign currency
     
5,035,337
     
4.64
%
Total forwards
     
5,035,337
     
4.64
%
Total derivative financial instruments
   
$
6,923,751
     
6.38
%
 
41

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, 2015:

   
Graham
Commodity
Strategies LLC
   
Graham K4D
Trading Ltd.
 
Assets
           
Level 1:
           
Commodity futures
 
$
6,018,377
   
$
13,861,420
 
Commodity futures options
   
39,960,577
     
-
 
Currency futures
   
-
     
166,602
 
Foreign bond futures
   
41,429
     
2,152,576
 
Foreign index futures
   
10,826
     
1,011,173
 
Foreign index futures options
   
1,144
     
-
 
Interest rate futures
   
7,030,695
     
616,252
 
Interest rate futures options
   
17,199,445
     
-
 
U.S. bond futures
   
490,008
     
1,752,773
 
U.S. bond futures options
   
3,414,313
     
-
 
U.S. index futures
   
-
     
124,748
 
U.S. index futures options
   
207,500
     
-
 
Total Level 1
   
74,374,314
     
19,685,544
 
                 
Level 2:
               
Foreign currency forwards
   
22,920,961
     
8,963,340
 
Foreign currency options
   
44,978,283
     
-
 
Interest rate swaps
   
907,901
     
-
 
Total Level 2
   
68,807,145
     
8,963,340
 
Total investment related assets
 
$
143,181,459
   
$
28,648,884
 
                 
Liabilities
               
Level 1:
               
Commodity futures
 
$
(6,763,416
)
 
$
(9,365,806
)
Commodity futures options
   
(10,016,245
)
   
-
 
Currency futures
   
-
     
(349,596
)
Foreign bond futures
   
-
     
(1,395,126
)
Foreign index futures
   
(1,883,539
)
   
(3,572,663
)
Interest rate futures
   
(3,207,541
)
   
(2,410,691
)
Interest rate futures options
   
(10,240,070
)
   
-
 
U.S. bond futures
   
(80,469
)
   
(607,443
)
U.S. bond futures options
   
(1,679,281
)
   
-
 
U.S. index futures
   
(838,437
)
   
(787,882
)
Total Level 1
   
(34,708,998
)
   
(18,489,207
)
                 
Level 2:
               
Foreign currency forwards
   
(18,765,073
)
   
(3,235,926
)
Foreign currency options
   
(31,389,620
)
   
-
 
Interest rate swaps
   
(682,352
)
   
-
 
Total Level 2
   
(50,837,045
)
   
(3,235,926
)
Total investment related liabilities
 
$
(85,546,043
)
 
$
(21,725,133
)
 
42

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 the Master Funds based on their average quarterly notional amounts and number of contracts for the year ended December 31, 2015. The table also displays the fair value of derivative contracts held by the Master Funds at December 31, 2015 categorized by primary underlying risk. 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.
 
   
Graham Commodity Strategies LLC
 
   
Long exposure
   
Short exposure
             
   
Notional
amounts
   
Number
of
contracts
   
Notional
amounts
   
Number
of
contracts
   
Derivative
Assets
   
Derivative
 Liabilities
 
Commodity price
                                   
Futures
 
$
374,094,637
     
11,953
   
$
(400,639,986
)
   
(11,145
)
 
$
6,018,377
   
$
(6,763,416
)
Options(a)
   
419,679,848
     
61,923
     
(560,582,580
)
   
(40,277
)
   
39,960,577
     
(10,016,245
)
Swaps
   
-
     
-
     
(7,004,813
)
   
(900
)
   
-
     
-
 
     
793,774,485
     
73,876
     
(968,227,379
)
   
(52,322
)
   
45,978,954
     
(16,779,661
)
Equity price
                                               
Futures
   
80,444,841
     
1,095
     
(138,921,627
)
   
(1,506
)
   
10,826
     
(2,721,976
)
Options(a)
   
34,956,652
     
2,925
     
(52,961,326
)
   
(1,775
)
   
208,644
     
-
 
     
115,401,493
     
4,020
     
(191,882,953
)
   
(3,281
)
   
219,470
     
(2,721,976
)
Foreign currency exchange rate
                                         
Forwards
   
4,187,793,131
     
N/A
     
(2,243,675,487
)
   
N/A
     
22,920,961
     
(18,765,073
)
Options(a)
   
1,552,206,971
     
60
     
(1,838,491,889
)
   
(72
)
   
44,978,283
     
(31,389,620
)
     
5,740,000,102
     
60
     
(4,082,167,376
)
   
(72
)
   
67,899,244
     
(50,154,693
)
Interest rate
                                               
Futures
   
10,679,789,830
     
41,186
     
(7,598,613,188
)
   
(30,243
)
   
7,562,132
     
(3,288,010
)
Options(a)
   
4,829,112,681
     
78,236
     
(5,279,221,415
)
   
(61,411
)
   
20,613,758
     
(11,919,351
)
Swaps
   
1,364,481,610
     
2
     
(1,364,481,610
)
   
(1
)
   
907,901
     
(682,352
)
     
16,873,384,121
     
119,424
     
(14,242,316,213
)
   
(91,655
)
   
29,083,791
     
(15,889,713
)
Total
 
$
23,522,560,201
     
197,380
   
$
(19,484,593,921
)
   
(147,330
)
 
$
143,181,459
   
$
(85,546,043
)

(a) – Notional amounts for options are based on the delta-adjusted positions.
 
43

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 the Master Funds based on their average quarterly notional amounts and number of contracts for the year ended December 31, 2015. The table also displays the fair value of derivative contracts held by the Master Funds at December 31, 2015 categorized by primary underlying risk. 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.
 
   
Graham K4D Trading Ltd.
 
   
Long exposure
   
Short exposure
             
   
Notional
amounts
   
Number
of
contracts
   
Notional
amounts
   
Number
of
contracts
   
Derivative
Assets
   
Derivative
Liabilities
 
Commodity price
                                   
Futures
 
$
225,300,324
     
4,501
   
$
(684,987,830
)
   
(14,693
)
 
$
13,861,420
   
$
(9,365,806
)
     
225,300,324
     
4,501
     
(684,987,830
)
   
(14,693
)
   
13,861,420
     
(9,365,806
)
                                                 
Equity price
                                               
Futures
   
535,501,752
     
5,523
     
(142,703,218
)
   
(1,788
)
   
1,135,921
     
(4,360,545
)
     
535,501,752
     
5,523
     
(142,703,218
)
   
(1,788
)
   
1,135,921
     
(4,360,545
)
                                                 
Foreign currency exchange rate
                                         
Forwards
   
478,599,115
     
N/A
     
(987,923,598
)
   
N/A
     
8,963,340
     
(3,235,926
)
Futures
   
56,520,291
     
586
     
(42,152,570
)
   
(452
)
   
166,602
     
(349,596
)
     
535,119,406
     
586
     
(1,030,076,168
)
   
(452
)
   
9,129,942
     
(3,585,522
)
                                                 
Interest rate
                                               
Futures
   
5,306,913,703
     
27,893
     
(1,300,665,767
)
   
(7,096
)
   
4,521,601
     
(4,413,260
)
     
5,306,913,703
     
27,893
     
(1,300,665,767
)
   
(7,096
)
   
4,521,601
     
(4,413,260
)
Total
 
$
6,602,835,185
     
38,503
   
$
(3,158,432,983
)
   
(24,029
)
 
$
28,648,884
   
$
(21,725,133
)
 
44

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, 2015 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
 
$
143,181,459
   
$
(85,443,524
)
 
$
57,737,935
   
$
-
   
$
57,737,935
 
Derivative liabilities
   
(85,546,043
)
   
85,443,524
     
(102,519
)
   
102,519
     
-
 
                                         
Graham K4D Trading Ltd.2
                                       
Derivative assets
 
$
28,648,884
   
$
(21,725,133
)
 
$
6,923,751
   
$
-
   
$
6,923,751
 
Derivative liabilities
   
(21,725,133
)
   
21,725,133
     
-
     
-
     
-
 
                                         
 
1 Net derivative asset and liability amounts presented in the statement of financial condition are held with five counterparties. The Master Fund has pledged offsetting collateral to one of those counterparties as of December 31, 2015. At December 31, 2015, additional collateral pledged in the amount of $63,779,068 was posted in support of derivative positions and is included in due from brokers on the statement of financial condition.
 
2 Net derivative asset amounts presented in the statement of financial condition are held with two counterparties. The Master Fund did not receive collateral from of these counterparties that may have been used to offset these derivative amounts as of December 31, 2015. At December 31, 2015 additional collateral pledged in the amount of $100,917,683 was posted in support of derivative positions and is included in due from brokers on the statement of financial condition.
 
45

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 year ended December 31, 2015:
 
   
Graham
Commodity
Strategies LLC
   
Graham K4D
Trading Ltd.
 
             
Net investment income (loss)
 
$
18,652
   
$
(124,700
)
                 
Net realized gain on investments
   
70,189,877
     
91,533,151
 
Net decrease in unrealized appreciation on investments
   
(50,162,298
)
   
(50,295,170
)
Brokerage commissions and fees
   
(17,331,586
)
   
(1,159,521
)
Net gain on investments
   
2,695,993
     
40,078,460
 
Net income
 
$
2,714,645
   
$
39,953,760
 

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 (decrease) in unrealized appreciation on investments in their statements of operations segregated by primary underlying risk and contract type for the year ended December 31, 2015:
 
   
Graham
Commodity
Strategies LLC
   
Graham
K4D Trading
Ltd.
 
Commodity price
           
Futures
 
$
7,461,370
   
$
34,713,887
 
Options
   
(16,246,281
)
   
-
 
Swaps
   
(79,938
)
   
-
 
     
(8,864,849
)
   
34,713,887
 
Equity price
               
Equities
   
(116,500
)
   
(305,500
)
Futures
   
29,023,886
     
695,389
 
Options
   
(8,300,588
)
   
-
 
     
20,606,798
     
389,889
 
Foreign currency exchange rate
               
Forwards
   
40,840,293
     
23,190,075
 
Futures
   
-
     
442,172
 
Options
   
(4,923,365
)
   
-
 
     
35,916,928
     
23,632,247
 
Interest rate
               
Futures
   
(22,648,710
)
   
(17,498,042
)
Options
   
(168,603
)
   
-
 
Swaps
   
(4,813,985
)
   
-
 
     
(27,631,298
)
   
(17,498,042
)
Total
 
$
20,027,579
   
$
41,237,981
 
 
46

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 range in maturity from one to twenty-two 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 records its proportionate share of Cash Assets’ investment income and expenses on a monthly basis. For the three and six months ended June 30, 2016, the total amount recognized by GAIT with respect to its investment in Cash Assets was $176,984 and $354,887, respectively. For the three and six months ended June 30, 2015, the total amount recognized by GAIT with respect to its investment in Cash Assets was $132,112 and $224,107, respectively. These amounts are included in interest income in the statements of operations and incentive allocation. At June 30, 2016 and December 31, 2015, GAIT owned approximately 3.51% and 4.02%, respectively, of Cash Assets. The following table summarizes the financial position of Cash Assets as of June 30, 2016 and December 31, 2015:
 
   
June 30, 2016
   
December 31, 2015
 
Assets:
           
Cash and cash equivalents
 
$
769,396,523
   
$
850,874,164
 
Investments in fixed income securities (cost $3,407,010,957 and $2,885,317,424, respectively)
   
3,407,010,957
     
2,885,317,424
 
Accrued interest receivable
   
5,300,203
     
5,861,018
 
Total assets
   
4,181,707,683
     
3,742,052,606
 
                 
Liabilities:
               
Due to broker
   
301,413,086
     
-
 
Total liabilities
   
301,413,086
     
-
 
                 
Net assets
 
$
3,880,294,597
   
$
3,742,052,606
 
 
The following table summarizes the results of operations of Cash Assets for the three and six months ended June 30, 2016 and 2015:
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2016
   
2015
   
2016
   
2015
 
Investment income
                       
Interest income
 
$
4,967,225
   
$
2,486,964
   
$
9,649,425
   
$
4,819,027
 
Total investment income
   
4,967,225
     
2,486,964
     
9,649,425
     
4,819,027
 
                                 
Expenses:
                               
Bank fee expense
   
12,020
     
7,386
     
35,338
     
17,240
 
Total expenses
   
12,020
     
7,386
     
35,338
     
17,240
 
Net investment income
   
4,955,205
     
2,479,578
     
9,614,087
     
4,801,787
 
Net income
 
$
4,955,205
   
$
2,479,578
   
$
9,614,087
   
$
4,801,787
 
 
47

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 June 30, 2016:
 
Description
 
Principal
Amount
   
Fair Value
   
Percentage of
Members’
Capital
 
Investments in Fixed Income Securities (cost $3,407,010,957)
                 
United States
                 
Government Bonds (cost $3,407,010,957)
                 
U.S. Treasury 0.38% – 3.25% due 07/07/2016 – 04/30/2018
 
$
3,400,000,000
   
$
3,407,010,957
     
87.80
%
Total Government Bonds
           
3,407,010,957
     
87.80
%
Total United States
           
3,407,010,957
     
87.80
%
Total Investments in Fixed Income Securities
         
$
3,407,010,957
     
87.80
%

The following represents the condensed schedule of investments of Cash Assets as of December 31, 2015:
Description
 
Principal
Amount
   
Fair Value
   
Percentage of
Members’
Capital
 
Investments in Fixed Income Securities (cost $2,885,317,424)
                 
United States
                 
Government Bonds (cost $2,885,317,424)
                 
U.S. Treasury 0.25% – 3.25% due 01/15/2016 – 12/31/2017
 
$
2,875,000,000
   
$
2,885,317,424
     
77.11
%
Total Government Bonds
           
2,885,317,424
     
77.11
%
Total United States
           
2,885,317,424
     
77.11
%
Total Investments in Fixed Income Securities
         
$
2,885,317,424
     
77.11
%

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 June 30, 2016 and December 31, 2015:
 
   
June 30, 2016
   
December 31, 2015
 
Assets
           
Level 2:
           
Fixed income securities
           
Government Bonds
 
$
3,407,010,957
   
$
2,885,317,424
 
Total fixed income securities
   
3,407,010,957
     
2,885,317,424
 
Total Level 2
   
3,407,010,957
     
2,885,317,424
 
Total assets
 
$
3,407,010,957
   
$
2,885,317,424
 

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.
 
48

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
5. Capital Accounts (continued)
 
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.
 
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
 
For the six months ended June 30, 2016 and 2015, each Class of GAIT other than Class M pays the Manager an advisory fee (the “Advisory Fee”) at an aggregate annual rate equal to 1.75% of the Net Asset Value 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.
 
Sponsor Fees
 
For the six months ended June 30, 2016 and 2015, each Class of GAIT other than Class M paid the Manager a sponsor fee (the “Sponsor Fee”) at an annual rate of the Net Asset Value 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.
 
Class
Annual Rate
   
Class 0
0.75%
Class 2
2.75%
 
49

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 was $0 and $2,920,022 for the six months ended June 30, 2016 and 2015, respectively.
 
Administrator’s Fee
 
For the six months ended June 30, 2016 and 2015, GAIT paid SEI a monthly administrator’s fee based on GAIT’s net asset value, 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 for the six months ended June 30, 2016 and 2015 were $108,284 and $123,175, respectively, of which $17,428 and $19,618 was accrued as of June 30, 2016 and 2015, 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.
 
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 and GAIT identifies its major tax jurisdictions as U.S. Federal and Connecticut State. 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 2013 through 2015 or expected to be taken in GAIT’s 2016 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.
 
50

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 June 30, 2016 and 2015:
 
   
Class 0
   
Class 2
 
Per unit operating performance
           
Net asset value per unit, March 31, 2015
 
$
159.93
   
$
121.12
 
Net loss:
               
Net investment loss
   
(1.01
)
   
(1.34
)
Net loss on investments
   
(9.43
)
   
(7.12
)
Net loss
   
(10.44
)
   
(8.46
)
Net asset value per unit, June 30, 2015
 
$
149.49
   
$
112.66
 

Net asset value per unit, March 31, 2016
 
$
143.72
   
$
106.68
 
Net income:
               
Net investment loss
   
(0.89
)
   
(1.18
)
Net gain on investments
   
2.06
     
1.52
 
Net income
   
1.17
     
0.34
 
Net asset value per unit, June 30, 2016
 
$
144.89
   
$
107.02
 

The following represents ratios to average members’ capital, excluding the Managing Member, and total return for the three months ended June 30, 2016 and 2015:
 
   
Class 0
   
Class 2
 
   
2016
   
2015
   
2016
   
2015
 
                         
Total return before Incentive Allocation
   
0.81
%
   
(6.52
)%
   
0.32
%
   
(6.99
)%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Total return after Incentive Allocation
   
0.81
%
   
(6.52
)%
   
0.32
%
   
(6.99
)%
                                 
Net investment loss before Incentive Allocation
   
(0.63
)%
   
(0.65
)%
   
(1.13
)%
   
(1.15
)%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Net investment loss after Incentive Allocation
   
(0.63
)%
   
(0.65
)%
   
(1.13
)%
   
(1.15
)%
                                 
Total expenses before Incentive Allocation
   
0.74
%
   
0.73
%
   
1.24
%
   
1.22
%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Total expenses after Incentive Allocation
   
0.74
%
   
0.73
%
   
1.24
%
   
1.22
%
 
51

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 six month periods ended June 30, 2016 and 2015:
 
   
Class 0
   
Class 2
 
Per unit operating performance
           
Net asset value per unit, December 31, 2014
 
$
149.37
   
$
113.58
 
Net income (loss):
               
Net investment loss
   
(2.05
)
   
(2.74
)
Net gain on investments
   
2.17
     
1.82
 
Net income (loss)
   
0.12
     
(0.92
)
Net asset value per unit, June 30, 2015
 
$
149.49
   
$
112.66
 
                 
Net asset value per unit, December 31, 2015
 
$
147.34
   
$
109.91
 
Net loss:
               
Net investment loss
   
(1.73
)
   
(2.36
)
Net loss on investments
   
(0.72
)
   
(0.53
)
Net loss
   
(2.45
)
   
(2.89
)
Net asset value per unit, June 30, 2016
 
$
144.89
   
$
107.02
 

The following represents ratios to average members’ capital, excluding the Managing Member, and total return for the six month periods ended June 30, 2016 and 2015:
 
   
Class 0
   
Class 2
 
   
2016
   
2015
   
2016
   
2015
 
                         
Total return before Incentive Allocation
   
(1.66
)%
   
1.85
%
   
(2.63
)%
   
0.83
%
Incentive Allocation
   
0.00
     
(1.77
)
   
0.00
     
(1.64
)
Total return after Incentive Allocation
   
(1.66
)%
   
0.08
%
   
(2.63
)%
   
(0.81
)%
                                 
Net investment loss before Incentive Allocation
   
(1.19
)%
   
(1.32
)%
   
(2.19
)%
   
(2.34
)%
Incentive Allocation
   
0.00
     
(1.70
)
   
0.00
     
(1.61
)
Net investment loss after Incentive Allocation
   
(1.19
)%
   
(3.02
)%
   
(2.19
)%
   
(3.95
)%
                                 
Total expenses before Incentive Allocation
   
1.42
%
   
1.46
%
   
2.42
%
   
2.48
%
Incentive Allocation
   
0.00
     
1.70
     
0.00
     
1.61
 
Total expenses after Incentive Allocation
   
1.42
%
   
3.16
%
   
2.42
%
   
4.09
%

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 six months ended June 30, 2016 and 2015.
 
52

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

9. Subsequent Events

GAIT had subscriptions of approximately $0.6 million and redemptions of approximately $7.1 million from July 1, 2016 through August 15, 2016, the date through which subsequent events were evaluated by management. These amounts have not been included in the financial statements.
 
53

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. 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, 2015 included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 30, 2016. 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 and GAI, 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 June 30, 2016, the Blended Strategies Portfolio’s net asset value decreased by $3,054,904 or -4.2%. The net decrease in the Blended Strategies Portfolio was attributable to total subscriptions of $434,500 or 0.6% and net income of $403,353 or 0.5% offset by redemptions totaling $3,892,757 or -5.3%, for the period.

For the six months ended June 30, 2016, the Blended Strategies Portfolio’s net asset value decreased by $6,063,733 or -7.9%. The net decrease in the Blended Strategies Portfolio was attributable to total subscriptions of $781,500 or 1.0% offset by redemptions totaling $5,325,153 or -6.9% and a net loss of $1,520,080 or -2.0%, for the period.

For the three months ended June 30, 2015, the Blended Strategies Portfolio’s net asset value decreased by $5,993,291 or -7.1%. The net decrease in the Blended Strategies Portfolio was attributable to total subscriptions of $1,940,050 or 2.3% offset by redemptions totaling $2,328,785 or -2.7% and a net loss of $5,604,556 or -6.7%, for the period.

For the six months ended June 30, 2015, the Blended Strategies Portfolio’s net asset value decreased by $614,045 or -0.8%. The net decrease in the Blended Strategies Portfolio was attributable to total subscriptions of $2,674,594 or 3.4% offset by redemptions totaling $3,161,066 or -4.0% and a net loss of $127,573 or -0.2% for the period.
 
54

(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.

2016 Summary

Three Months Ended June 30, 2016

For the three months ended June 30, 2016, the Blended Strategies Portfolio experienced net trading gains of $1,044,385. The trading results are attributable to the following sectors:

Agriculture / Softs
 
$
861,694
 
Base metals
   
(490,715
)
Energy
   
(324,647
)
Equities
   
(945,442
)
Foreign exchange
   
68,908
 
Long term / Intermediate rates
   
1,509,701
 
Precious metals
   
967,995
 
Short term rates
   
(603,109
)
   
$
1,044,385
 

The Blended Strategies Portfolio recorded a net gain for the second quarter of 2016. The majority of the gains resulted from positions in commodities, most notably from long positions in gold and silver as precious metals rallied with additional gains from long positions in soybeans. The portfolio also recorded gains in fixed income, primarily from long positions on the long end of the yield curve in the U.S. and Europe as bond futures rallied. Smaller profits resulted in foreign exchange, primarily from long positions in the Japanese yen versus the U.S. dollar. The portfolio experienced losses in equity index futures, primarily from positions in U.S. and European benchmark indices, 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 three months ended June 30, 2016, Advisory Fees decreased by $42,521 or -12.0%, Sponsor Fees decreased by $31,706 or -12.4%, and Administrator’s Fees decreased by $3,618 or -12.8% in the Fund over the corresponding period of the preceding year. These decreases are all 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 $21,960 or 36.0%. Interest was earned on free cash at an average annualized yield of 0.52% for the three months ended June 30, 2016 compared to 0.34% for the same period in 2015.

The Incentive Allocation is based on the New High Net Trading Profits of the portfolio. For the three months ended June 30, 2016, and June 30, 2015, the portfolio has not yet recovered previous losses. As a result, there was no Incentive Allocation for those periods.
 
55

Six Months Ended June 30, 2016

For the six months ended June 30, 2016, the Blended Strategies Portfolio experienced net trading losses of $228,602. The trading results are attributable to the following sectors:

Agriculture / Softs
 
$
191,089
 
Base metals
   
(431,805
)
Energy
   
629,820
 
Equities
   
(843,758
)
Foreign exchange
   
(605,773
)
Long term / Intermediate rates
   
784,083
 
Precious metals
   
336,607
 
Short term rates
   
(288,865
)
   
$
(228,602
)

The Blended Strategies Portfolio recorded a net loss for the first half of 2016. The portfolio experienced losses in equity index futures, primarily from positions in U.S., Asian and European benchmark indices. Losses also resulted from positions in foreign exchange, particularly from a long bias in the U.S. dollar versus the euro and Swiss franc with smaller losses in the New Zealand dollar and emerging market currencies. The portfolio recorded gains in commodities, primarily from positions in crude oil, natural gas, soybeans and gold. Additional profits resulted from long positions on the long end of the fixed income yield curve in Europe and Asia as bond futures rallied, which offset a portion of the overall losses 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 six months ended June 30, 2016, Advisory Fees decreased by $76,280 or -10.6%, Sponsor Fees decreased by $59,996 or -11.5%, and Administrator’s Fees decreased by $6,401 or -11.2% in the Fund over the corresponding period of the preceding year. These decreases are all attributable to lower net assets of the portfolio resulting from redemptions and a net loss partially offset by subscriptions for the period. During the same period, interest income increased by $53,163 or 46.9%. Interest was earned on free cash at an average annualized yield of 0.50% for the six months ended June 30, 2016 compared to 0.32% for the same period in 2015.

The Incentive Allocation is based on the New High Net Trading Profits of the portfolio. For the six months ended June 30, 2016, the Incentive Allocation decreased by $1,369,198 over the corresponding period of the preceding year. This was the result of a net loss before incentive allocation for the six months ended June 30, 2016 compared to a net gain before incentive allocation for the six months ended June 30, 2015.

The following table illustrates the sector distribution of the Fund’s investments in Master Funds as of June 30, 2016 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
   
62.1
%
Base metals
   
(13.8
)%
Energy
   
(59.6
)%
Equities
   
3.4
%
Foreign exchange
   
41.1
%
Long term / Intermediate rates
   
45.6
%
Precious metals
   
22.6
%
Short term rates
   
(1.4
)%
     
100.0
%
 
56

2015 Summary

Three Months Ended June 30, 2015

For the three months ended June 30, 2015, the Blended Strategies Portfolio experienced net trading losses of $4,845,697. The trading results are attributable to the following sectors:

Agriculture / Softs
 
$
(504,462
)
Base metals
   
(449,586
)
Energy
   
(610,159
)
Equities
   
697,862
 
Foreign exchange
   
(1,805,923
)
Long term / Intermediate rates
   
(1,366,947
)
Precious metals
   
(404,039
)
Short term rates
   
(402,443
)
   
$
(4,845,697
)

The Blended Strategies Portfolio recorded a net loss for the second quarter of 2015. The portfolio recorded losses from positions in commodity futures, particularly in agriculture/softs, metals, and energy. The portfolio recorded losses in fixed income futures from positions on the long end of the yield curve in the U.S., Australia and Europe. Losses also resulted from the foreign exchange sector, as gains from trading the Japanese yen and New Zealand dollar versus the U.S dollar were offset by losses in the euro, British pound sterling and Australian dollar. Gains in equity index futures, most notably in Asian benchmark indices, offset a portion of the portfolio’s losses for the quarter.

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 June 30, 2015, Advisory Fees increased by $70,193 or 24.7%, Sponsor Fees increased by $47,176 or 22.7%, and Administrator’s Fees increased by $6,118 or 27.7% in the Fund over the corresponding period of the preceding year. These increases are all attributable to higher net assets of the portfolio resulting from subscriptions and partially offset by redemptions and a net loss for the period. During the same period, interest income increased by $25,528 or 71.8%. Interest was earned on free cash at an average annualized yield of 0.34% for the three months ended June 30, 2015 compared to 0.25% for the same period in 2014.

The Incentive Allocation is based on the New High Net Trading Profits of the portfolio. For the three months ended June 30, 2015, the portfolio experienced net trading losses. For the three months ended June 30, 2014, the portfolio has not yet recovered previous losses. As a result, there was no Incentive Allocation for those periods.

Six Months Ended June 30, 2015
 
For the six months ended June 30, 2015, the Blended Strategies Portfolio experienced net trading gains of $2,759,835. The trading results are attributable to the following sectors:
 
Agriculture / Softs
 
$
(361,387
)
Base metals
   
(558,206
)
Energy
   
(1,010,720
)
Equities
   
3,031,932
 
Foreign exchange
   
2,935,331
 
Long term / Intermediate rates
   
(430,679
)
Precious metals
   
(939,582
)
Short term rates
   
93,146
 
   
$
2,759,835
 
 
57

The Blended Strategies Portfolio posted a net gain for the first half of 2015. The portfolio recorded gains from foreign exchange, most notably from a long bias in the U.S. dollar versus the euro and commodity currencies. Gains also resulted from positions in equity index futures, particularly in Asia and Europe as equities rallied during the first half of the year. Profits in European fixed income futures were offset by losses in the U.S. The portfolio recorded losses in metals, energy and agricultural commodities, which offset a portion of the gains.
 
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 six months ended June 30, 2015, Advisory Fees increased by $129,179 or 21.8%, Sponsor Fees increased by $92,847 or 21.7%, and Administrator’s Fees increased by $12,069 or 26.8% in the Fund over the corresponding period of the preceding year. These increases are all attributable to higher net assets of the portfolio resulting from subscriptions partially offset by redemptions and a net loss for the period. During the same period, interest income increased by $39,853 or 54.3%. Interest was earned on free cash at an average annualized yield of 0.32% for the six months ended June 30, 2015 compared to 0.25% for the same period in 2014.
 
The Incentive Allocation is based on the New High Net Trading Profits of the portfolio. For the six months ended June 30, 2015, the Incentive Allocation increased by $1,369,198. This was the result of a higher net gain before incentive allocation for the six months ended June 30, 2015 compared to the six months ended June 30, 2014. For the six months ended June 30, 2014, the portfolio had not yet recovered previous losses-. As a result, there was no Incentive Allocation for that period.
 
The following table illustrates the sector distribution of the Fund’s investments in Master Funds as of June 30, 2015 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
   
69.1
%
Base metals
   
14.8
%
Energy
   
6.9
%
Equities
   
22.0
%
Foreign exchange
   
14.2
%
Long term / Intermediate rates
   
(12.1
)%
Precious metals
   
(11.7
)%
Short term rates
   
(3.2
)%
     
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.
 
58

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
 
June 30, 2016
   
11.82
%
December 31, 2015
   
10.48
%
June 30, 2015
   
10.15
%

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 June 30, 2016, 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.
 
59

(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 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 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. The Fund’s significant accounting policies are described in detail in Note 2 of the 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 Update 2013-08, Financial Services – Investment Companies (Topic 946), 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.
 
60

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 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 financial statements for open tax years 2013 through 2015 or expected to be taken in the Fund’s 2016 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.
 
61

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.
 
62

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 June 30, 2016, 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 second quarter of 2016 that have materially affected, or are reasonably likely to materially affect, the Fund’s internal control over financial reporting.
 
63

PART II. OTHER INFORMATION
 
Item 1. Legal Proceedings
 
None

Item 1A. Risk Factors
 
Not Required

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

For the three months ended June 30, 2016, the Fund issued 3,443.308 Units in exchange for $434,500 with respect to the Blended Strategies Portfolio, in each case in a transaction that was not registered under the Securities Act of 1933, as amended (the “Act”). The Units were issued in reliance upon applicable exemptions from registration under Section 4(a)(2) of the Act and Rule 506 of Regulation D promulgated thereunder. All purchasers of the Units were accredited investors, as that term is defined under Rule 501 of Regulation D.

The following chart sets forth the purchases of Units of the Fund during each month of the quarter covered by this report.
 
Period (as of)
 
Blended Strategies Portfolio
Total
Number of
Units Issued
 
April 2016
   
3,089.252
 
May 2016
   
106.343
 
June 2016
   
247.713
 
 
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
 
April 1 - April 30, 2016
   
3,253.160
     
129.97
     
N/A
     
N/A
 
May 1 - May 31, 2016
   
16,588.154
     
139.15
     
N/A
     
N/A
 
June 1 - June 30, 2016
   
8,275.351
     
140.39
     
N/A
     
N/A
 
TOTAL
   
28,116.665
     
138.45
     
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 Information – None
 
64

Item 6. Exhibits

** 3.1
Certificate of Formation of Graham Alternative Investment Fund II LLC
* 3.2
Amendment to Certificate of Formation of Graham Alternative Investment Fund II LLC
* 4.1
Amended and Restated Limited Liability Company Agreement of Graham Alternative Investment Fund II LLC
** 10.1
Form of Subscription Agreement
** 10.2
Form of Placement Agreement
*** 10.10
Safekeeping Account Agreement between Graham Cash Assets LLC and Bank of America, N.A.
Rule 13a-14(a)/15d-14(a) Certification (Certification of Principal Executive Officer)
Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer)
Section 1350 Certification (Certification of Principal Executive Officer and Chief 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
 
* Incorporated by reference to the Fund’s Form 8-K previously filed on April 11, 2013

** Incorporated by reference to the Fund’s Form 10 previously filed on April 30, 2010

*** Incorporated by reference to the Fund’s Form 10/A previously filed on September 3, 2010

**** Filed herewith
 
65

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.
 
Dated:  August 15, 2016
GRAHAM ALTERNATIVE INVESTMENT FUND II LLC BLENDED STRATEGIES PORTFOLIO
   
 
By:
GRAHAM CAPITAL MANAGEMENT, L.P. its Manager

  By: 
/s/ Paul Sedlack
 
   
        Paul Sedlack, Principal Executive Officer
 
       
  By: 
/s/ Brian Douglas
 
   
        Brian Douglas, Chief Financial Officer
 
 
 
66