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FORM 10-Q

For the quarterly period ended June 30, 2017

For the transition period from          to          

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

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.

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).

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☒

Emerging Growth company ☐

 

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

Yes ☐  No ☒

As of August 1, 2017, 398,259.526 Units of the Blended Strategies Portfolio were outstanding.

 

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GRAHAM ALTERNATIVE INVESTMENT FUND II LLC

BLENDED STRATEGIES PORTFOLIO

FORM 10-Q

INDEX

 

			Page Number
PART I - Financial Information:
	Item 1.	Financial Statements:
		Graham Alternative Investment Fund II LLC Blended Strategies Portfolio
		Consolidated Statements of Financial Condition at June 30, 2017 (unaudited) and December 31, 2016 (audited)	1
		Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016	2
		Unaudited Consolidated Statements of Changes in Members’ Capital for the six months ended June 30, 2017 and 2016	3
		Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016	4
		Notes to Unaudited Consolidated Financial Statements	5
		Graham Alternative Investment Trading LLC
		Statements of Financial Condition at June 30, 2017 (unaudited) and December 31, 2016 (audited)	13
		Condensed Schedules of Investments at June 30, 2017 (unaudited) and December 31, 2016 (audited)	14
		Unaudited Statements of Operations and Incentive Allocation for the three and six months ended June 30, 2017 and 2016	15
		Unaudited Statements of Changes in Members’ Capital for the six months ended June 30, 2017 and 2016	16
		Unaudited Statements of Cash Flows for the six months ended June 30, 2017 and 2016	17
		Notes to Unaudited Financial Statements	18
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	54
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	62
	Item 4.	Controls and Procedures	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, 2017 (Unaudited)				December 31, 2016 (Audited)
Assets
Investment in Graham Alternative Investment Trading LLC, at fair value		$	50,086,394			$	63,499,240
Redemption receivable from Graham Alternative Investment Trading LLC			377,021				362,556
Total assets		$	50,463,415			$	63,861,796
Liabilities and members’ capital
Liabilities:
Accrued redemptions		$	377,021			$	362,556
Total liabilities			377,021				362,556
Members’ capital:
Class 0 Units (257,416.998 and 319,296.990 units issued and outstanding at $137.79 and $146.92, respectively)			35,470,372				46,912,306
Class 2 Units (146,062.975 and 154,401.114 units issued and outstanding at $100.07 and $107.43, respectively)			14,616,022				16,586,934
Total members’ capital			50,086,394				63,499,240
Total liabilities and members’ capital		$	50,463,415			$	63,861,796

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

 

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Unaudited Consolidated Statements of Operations

		Three months ended June 30,								Six Months Ended June 30,
		2017				2016				2017				2016
Net (loss) gain allocated from investment in Graham Alternative Investment Trading LLC
Net realized loss on investments		$	(1,112,000	)		$	(576,504	)		$	(868,590	)		$	(2,392,708	)
Net (decrease) increase in unrealized appreciation on investments			(953,942	)			1,620,889				(1,945,658	)			2,164,106
Brokerage commissions and fees			(80,294	)			(105,747	)			(164,202	)			(228,346	)
Net (loss) gain allocated from investment in Graham Alternative Investment Trading LLC			(2,146,236	)			938,638				(2,978,450	)			(456,948	)
Net investment loss allocated from investment in Graham Alternative Investment Trading LLC
Investment income
Interest income			101,332				83,041				194,155				166,431
Expenses
Advisory fees			229,777				312,304				480,321				645,549
Sponsor fees			127,085				223,463				313,755				460,414
Professional fees and other			67,594				58,007				115,999				72,823
Administrator’s fees			17,405				24,552				36,693				50,777
Incentive allocation			-				-				-				-
Total expenses			441,861				618,326				946,768				1,229,563
Net investment loss allocated from investment in Graham Alternative Investment Trading LLC			(340,529	)			(535,285	)			(752,613	)			(1,063,132	)
Net (loss) income		$	(2,486,765	)		$	403,353			$	(3,731,063	)		$	(1,520,080	)

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

 

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Unaudited Consolidated Statements of Changes in Members’ Capital

For the six months ended June 30, 2017 and 2016

		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

		Class 0 Units								Class 2 Units
		Units				Capital				Units				Capital				Total Members’ Capital
Members’ capital, December 31, 2016			319,296.990			$	46,912,306				154,401.114			$	16,586,934			$	63,499,240
Subscriptions			2,144.439				309,000				1,354.166				140,000				449,000
Redemptions			(64,024.431	)			(9,130,653	)			(9,692.305	)			(1,000,130	)			(10,130,783	)
Net loss			-				(2,620,281	)			-				(1,110,782	)			(3,731,063	)
Members’ capital, June 30, 2017			257,416.998			$	35,470,372				146,062.975			$	14,616,022			$	50,086,394

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

 

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Unaudited Consolidated Statements of Cash Flows

		Six Months Ended June 30,
		2017				2016
Cash flows provided by operating activities
Net loss		$	(3,731,063	)		$	(1,520,080	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Net loss allocated from investment in Graham Alternative Investment Trading LLC			3,731,063				1,520,080
Proceeds from sale of investments in Graham Alternative Investment Trading LLC			10,116,318				5,255,946
Investments in Graham Alternative Investment Trading LLC			(449,000	)			(781,500	)
Net cash provided by operating activities			9,667,318				4,474,446
Cash flows used in financing activities
Subscriptions			449,000				781,500
Redemptions			(10,116,318	)			(5,255,946	)
Net cash used in financing activities			(9,667,318	)			(4,474,446	)
Net change in cash and cash equivalents			–				–
Cash and cash equivalents, beginning of period			–				–
Cash and cash equivalents, end of period		$	–			$	–

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

 

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 Assets LLC (“Cash Assets”), all of which are managed by Graham Capital Management, L.P. (the “Advisor” or “Manager”). The Fund is the sole owner of GAI’s Blended Strategies Portfolio and GAI’s Blended Strategies Portfolio invests all of its assets into GAIT. The Manager is the director of GAI and the sole investment advisor of GAI, GAIT and the Fund. The Manager is registered as a Commodity Pool Operator and Commodity Trading Advisor with the 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.

 

1. Organization and Business (continued)

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”).

 

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, 2017 and December 31, 2016, the Fund owned 44.55% and 46.15%, respectively of GAIT.

 

2. Summary of Significant Accounting Policies (continued)

Fair Value

The fair value of the assets and liabilities of the Fund and GAIT, which qualify as financial instruments under U.S. GAAP, approximates the carrying amounts presented in the consolidated statements of financial condition. Changes in these carrying amounts are included in the consolidated statements of operations.

 

The Fund follows U.S. GAAP for fair value measurements, which defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements. The Fund reports the fair value of its investment related assets and liabilities in accordance with the hierarchy established under U.S. GAAP. U.S. GAAP uses a three-level hierarchy for fair value measurement based on the activeness of the market and the transparency and independence of inputs used in the valuation of an asset or liability as of the measurement date.

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

·

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

·

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

·

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

The Fund’s investment in GAIT has been valued at net asset value using the practical expedient. Accordingly under U.S. GAAP, these investments are excluded from categorization in the fair value hierarchy. There were no Level 3 assets or liabilities held at any point during the six months ended June 30, 2017 or the year ended December 31, 2016 by the Fund, GAIT, the Master Funds, or Cash Assets and there were no transfers between levels during those periods. Transfers between levels, if any, are recognized as of the beginning of the year.

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, 2017 and December 31, 2016, no accruals have been recorded by the Fund for indemnifications.

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.

 

3. Capital Accounts (continued)

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 $0 and $500 were paid to the Manager for the six months ended June 30, 2017 and 2016, respectively.

4. Fees and Related Party Transactions

Advisory Fees

For the six months ended June 30, 2017 and 2016, 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. For the six months ended June 30, 2017 and 2016, the Advisory Fees allocated to the Fund by each Class of GAIT totaled $480,321 and $645,549, respectively.

 

4. Fees and Related Party Transactions (continued)

Sponsor Fees

Each Class of GAIT other than Class M paid the Manager a sponsor fee (the “Sponsor Fee”) at an annual rate of the Net Asset Value specified for the periods 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.

Period		Class 0				Class 2
For the period from January 1, 2016 through March 31, 2017			0.75	%			2.75	%
For the period from April 1, 2017 through June 30, 2017			0.75	%			1.50	%

For the six months ended June 30, 2017 and 2016, the Sponsor Fees allocated to the Fund by each Class of GAIT totaled $313,755 and $460,414, respectively.

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. There was no Incentive Allocation allocated to the Fund by GAIT for the six months ended June 30, 2017 and 2016.

Administrator’s Fee

For the six months ended June 30, 2017 and 2016, 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, 2017 and 2016 were $36,693 and $50,777, 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.

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.

 

5. Income Taxes (continued)

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 2014 through 2016 or expected to be taken in the Fund’s 2017 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 months ended June 30, 2017 and 2016:

		Class 0				Class 2
Per unit operating performance
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
Net asset value per unit, March 31, 2017		$	144.35			$	105.03
Net loss:
Net investment loss			(0.84	)			(0.81	)
Net loss on investments			(5.72	)			(4.15	)
Net loss			(6.56	)			(4.96	)
Net asset value per unit, June 30, 2017		$	137.79			$	100.07

 

6. Financial Highlights (continued)

The following represents ratios to average members’ capital, excluding the Manager, and total return for the three months ended June 30, 2017 and 2016:

		Class 0								Class 2
		2017				2016				2017				2016
Total return before Incentive Allocation			(4.54	)%			0.81	%			(4.72	)%			0.32	%
Incentive Allocation			0.00				0.00				0.00				0.00
Total return after Incentive Allocation			(4.54	)%			0.81	%			(4.72	)%			0.32	%
Net investment loss before Incentive Allocation			(0.59	)%			(0.63	)%			(0.78	)%			(1.12	)%
Incentive Allocation			0.00				0.00				0.00				0.00
Net investment loss after Incentive Allocation			(0.59	)%			(0.63	)%			(0.78	)%			(1.12	)%
Total expenses before Incentive Allocation			0.79	%			0.75	%			0.98	%			1.24	%
Incentive Allocation			0.00				0.00				0.00				0.00
Total expenses after Incentive Allocation			0.79	%			0.75	%			0.98	%			1.24	%

The following is the per Unit operating performance calculation for the six months ended June 30, 2017 and 2016:

		Class 0				Class 2
Per unit operating performance
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
Net asset value per unit, December 31, 2016		$	146.92			$	107.43
Net loss:
Net investment loss			(1.68	)			(1.94	)
Net loss on investments			(7.45	)			(5.42	)
Net loss			(9.13	)			(7.36	)
Net asset value per unit, June 30, 2017		$	137.79			$	100.07

 

6. Financial Highlights (continued)

The following represents ratios to average members’ capital and total return for the six month periods ended June 30, 2017 and 2016:

		Class 0								Class 2
		2017				2016				2017				2016
Total return before Incentive Allocation			(6.21	)%			(1.66	)%			(6.85	)%			(2.63	)%
Incentive Allocation			0.00				0.00				0.00				0.00
Total return after Incentive Allocation			(6.21	)%			(1.66	)%			(6.85	)%			(2.63	)%
Net investment loss before Incentive Allocation			(1.18	)%			(1.20	)%			(1.86	)%			(2.19	)%
Incentive Allocation			0.00				0.00				0.00				0.00
Net investment loss after Incentive Allocation			(1.18	)%			(1.20	)%			(1.86	)%			(2.19	)%
Total expenses before Incentive Allocation			1.53	%			1.42	%			2.23	%			2.41	%
Incentive Allocation			0.00				0.00				0.00				0.00
Total expenses after Incentive Allocation			1.53	%			1.42	%			2.23	%			2.41	%

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 months ended June 30, 2017 and 2016, and are not annualized.

7. Subsequent Events

Effective July 1, 2017, the annual Advisory Fee charged to Class 0 and Class 2 Units of GAIT was reduced from 1.75% to 1.50%. The annual Sponsor Fee charged to Class 0 Units of GAIT was reduced from 0.75% to 0.50%. The annual Sponsor Fee charged to Class 2 Units of GAIT was reduced from 1.50% to 1.25%.

The Fund had no subscriptions and redemptions of approximately $0.7 million from July 1, 2017 through August 14, 2017, the date through which subsequent events were evaluated by management. These amounts have not been included in the financial statements.

 

Graham Alternative Investment Trading LLC

Statements of Financial Condition

		June 30, 2017 (Unaudited)				December 31, 2016 (Audited)
Assets
Investments in Master Funds, at fair value		$	14,803,728			$	16,404,782
Investment in Graham Cash Assets LLC, at fair value			99,318,745				123,316,812
Receivable from Master Funds			83				45
Total assets		$	114,122,556			$	139,721,639
Liabilities and members’ capital
Liabilities:
Accrued redemptions		$	1,272,825			$	1,570,542
Accrued professional fees			163,999				184,381
Accrued advisory fees			162,274				205,048
Accrued sponsor fees			91,124				158,099
Accrued administrator’s fee			12,223				13,455
Payable to Master Funds			2				85
Total liabilities			1,702,447				2,131,610
Members’ capital:
Class 0 Units (558,321.325 and 650,889.077 units issued and outstanding at $137.79 and $146.92 per unit, respectively)			76,933,018				95,631,060
Class 2 Units (343,366.942 and 379,525.982 units issued and outstanding at $100.07 and $107.43 per unit, respectively)			34,359,568				40,771,563
Class M Units (4,671.470 units issued and outstanding at $241.36 and $254.18 per unit, respectively)			1,127,523				1,187,406
Total members’ capital			112,420,109				137,590,029
Total liabilities and members’ capital		$	114,122,556			$	139,721,639

See accompanying notes.

 

Graham Alternative Investment Trading LLC

Condensed Schedules of Investments

		June 30, 2017 (Unaudited)								December 31, 2016 (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		$	7,060,296				6.28	%		$	7,580,654				5.51	%
Graham K4D Trading Ltd.			7,743,432				6.89	%			8,824,128				6.41	%
Total investments in Master Funds		$	14,803,728				13.17	%		$	16,404,782				11.92	%

See accompanying notes.

 

Graham Alternative Investment Trading LLC

 Unaudited Statements of Operations and Incentive Allocation

		Three Months Ended June 30,								Six Months Ended June 30,
		2017				2016				2017				2016
Net (loss) gain allocated from investments in Master Funds
Net realized loss on investments		$	(2,522,525	)		$	(1,184,883	)		$	(1,880,846	)		$	(5,043,230	)
Net (decrease) increase in unrealized appreciation on investments			(2,156,639	)			3,490,082				(4,330,852	)			4,654,101
Brokerage commissions and fees			(181,804	)			(225,690	)			(370,290	)			(487,279	)
Net (loss) gain allocated from investments in Master Funds			(4,860,968	)			2,079,509				(6,581,988	)			(876,408	)
Net investment gain (loss) allocated from investments in Master Funds			22,879				(5,885	)			33,420				(9,587	)
Investment income
Interest income			206,382				176,984				404,207				354,887
Expenses
Advisory fees			515,272				660,756				1,072,217				1,366,653
Sponsor fees			289,702				498,596				722,912				1,028,636
Professional fees and other			152,619				117,595				260,816				145,498
Administrator’s fees			39,410				52,332				82,679				108,284
Total expenses			997,003				1,329,279				2,138,624				2,649,071
Net investment loss of the Fund			(790,621	)			(1,152,295	)			(1,734,417	)			(2,294,184	)
Net (loss) income			(5,628,710	)			921,329				(8,282,985	)			(3,180,179	)
Incentive allocation			–				–				–				–
Net (loss) income available for pro-rata allocation to all members		$	(5,628,710	)		$	921,329			$	(8,282,985	)		$	(3,180,179	)

See accompanying notes.

 

Graham Alternative Investment Trading LLC

Unaudited Statements of Changes in Members’ Capital

For the six months ended June 30, 2017 and 2016

		Class 0								Class 2								Class M								Total
		Units				Capital				Units				Capital				Units				Capital				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

		Class 0								Class 2								Class M								Total
		Units				Capital				Units				Capital				Units				Capital				Capital
Members’ capital, December 31, 2016			650,889.077			$	95,631,060				379,525.982			$	40,771,563				4,671.470			$	1,187,406			$	137,590,029
Subscriptions			14,784.737				2,141,500				3,734.542				390,000				–				–				2,531,500
Redemptions			(107,352.489	)			(15,297,967	)			(39,893.582	)			(4,120,468	)			–				–				(19,418,435	)
Incentive allocation			–				–				–				–				–				–				–
Net loss			–				(5,541,575	)			–				(2,681,527	)			–				(59,883	)			(8,282,985	)
Members’ capital, June 30, 2017			558,321.325			$	76,933,018				343,366.942			$	34,359,568				4,671.470			$	1,127,523			$	112,420,109

See accompanying notes.

 

Graham Alternative Investment Trading LLC

 Unaudited Statements of Cash Flows

		Six Months Ended June 30,
		2017				2016
Cash flows provided by operating activities
Net loss		$	(8,282,985	)		$	(3,180,179	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Net loss allocated from investments in Master Funds			6,548,568				885,995
Net income allocated from investment in Graham Cash Assets LLC			(404,207	)			(354,887	)
Proceeds from sale of investments in Master Funds			60,188,555				69,612,773
Proceeds from sale of investments in Graham Cash Assets LLC			74,872,087				66,991,701
Investments in Master Funds			(65,136,190	)			(71,189,770	)
Investments in Graham Cash Assets LLC			(50,469,813	)			(52,148,641	)
Changes in assets and liabilities:
Decrease in accrued advisory fees			(42,774	)			(28,403	)
Decrease in accrued sponsor fees			(66,975	)			(17,974	)
Decrease in accrued professional fees			(20,382	)			(20,377	)
Decrease in accrued administrator’s fee			(1,232	)			(2,319	)
Net cash provided by operating activities			17,184,652				10,547,919
Cash flows used in financing activities
Subscriptions			2,531,500				1,966,239
Redemptions			(19,716,152	)			(12,514,158	)
Net cash used in financing activities			(17,184,652	)			(10,547,919	)
Net change in cash and cash equivalents			–				–
Cash and cash equivalents, beginning of period			–				–
Cash and cash equivalents, end of period		$	–			$	–

See accompanying notes.

 

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.

 

2. Summary of Significant Accounting Policies (continued)

Due from/to Brokers

Due from/to brokers on the Master Funds’ financial statements primarily consist of cash balances carried as margin deposits with clearing brokers for the purpose of trading in futures contracts, foreign currency contracts and other derivative instruments and securities, and receivables/payables for unsettled transactions. Substantially all of the Master Funds’ cash and investments are held as collateral by its brokers to secure derivative instruments and securities.

Revenue Recognition

All 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. Realized gains and losses are calculated based on the specific identification method.

Brokerage Commissions and Fees

Brokerage commissions and fees on the Master Funds’ financial statements represent all brokerage commissions and other fees incurred in connection with the Master Funds’ trading activity and are recorded on the accrual basis.

Foreign Currency Translation

Assets and liabilities denominated in foreign currencies are translated using the exchange rates at June 30, 2017 and December 31, 2016. 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 loss and net (decrease) increase in unrealized appreciation on investments.

Fair Value

The fair value of GAIT’s assets and liabilities, which qualify as financial instruments under U.S. GAAP, approximates the carrying amounts presented in the statements of financial condition. Changes in these carrying amounts are included in the statements of operations and incentive allocation.

GAIT follows U.S. GAAP for fair value measurements, which defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements. GAIT reports the fair value of its investment related assets and liabilities in accordance with the hierarchy established under U.S. GAAP. U.S. GAAP uses a three-level hierarchy for fair value measurement based on the activeness of the market and the transparency and independence of inputs used in the valuation of an asset or liability as of the measurement date.

 

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 Graham Cash Assets LLC (“Cash Assets”) have been valued at net asset value using the practical expedient. Accordingly under U.S. GAAP, these investments are excluded from categorization in the fair value hierarchy. GAIT’s investments in 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, 2017 or the year ended December 31, 2016 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 as of the beginning of the year.

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.

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.

 

2. Summary of Significant Accounting Policies (continued)

Derivative Instruments (continued)

Futures Contracts (continued)

A futures contract represents a commitment for the future purchase or sale of an asset or cash settlement based on the value of an asset on a specified date. The purchase and sale of futures contracts are executed on an exchange which requires margin deposits with a Futures Commission Merchant (“FCM”). Subsequent payments are made or received by the Master Funds each day, depending on the daily fluctuations in the value of the contract. These changes in valuation are recorded for financial statement purposes as unrealized 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.

 

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 Manager using a discount curve constructed from independently obtained future interest rate assumptions.

A total return swap contract is an agreement that obligates two parties to exchange cash flows calculated by reference to changes in specified prices for a specified notional amount of the underlying assets. The payment flows are usually netted against each other, with the difference being paid by one party to another. Total return swaps are generally valued based upon the value of the underlying instruments as determined by the primary exchange on which they are traded.

Exchange traded swaps are valued based upon the closing prices established by the primary exchange upon which they are traded. Changes in fair value of each swap are recognized as unrealized gains or losses. The Master Funds record realized gains or losses when a swap contract is terminated.

 

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 month period ended June 30, 2017 or the year ended December 31, 2016 which caused any counterparty to demand liquidation of any outstanding positions. At June 30, 2017 and December 31, 2016, there were derivative instruments subject to credit risk related contingent features in a net liability position for the Master Funds in which GAIT invests. Graham K4D Trading Ltd. had derivative instruments subject to credit risk related contingent features in a net liability position in the amount of $45,226,633 and $0 at June 30, 2017 and December 31, 2016, respectively. Graham Commodity Strategies LLC had derivative instruments subject to credit risk related contingent features in a net liability position in the amount of $2,143,049 and $0 at June 30, 2017 and December 31, 2016, respectively.

 

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, 2017 and December 31, 2016, the two NYMEX memberships were valued at $301,000 and $398,000, respectively, and the 30,000 shares of CME Group were valued at $3,757,200 and $3,460,500, 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, 2017 and December 31, 2016, the B-1/Full memberships were valued at $445,500 and $404,000, respectively, and the B-2/Associate memberships were valued at $61,500 and $62,750, respectively, both of which are included in Exchange Membership on the statements of financial condition. Additionally, Graham K4D Trading Ltd. owns a Chicago Mercantile Exchange (“CME”) seat valued at $210,750 and $200,000 at June 30, 2017 and December 31, 2016, respectively, which is also included in Exchange Membership on the statements of financial condition. The CBOT memberships and shares and CME seat are considered Level 1 assets as described in the Fair Value section of Note 2.

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, 2017 and December 31, 2016, no accruals have been recorded by GAIT for indemnifications.

 

3. Investments in Master Funds

As of June 30, 2017 and December 31, 2016, GAIT invested in various Master Funds, all of which were managed by the Manager. GAIT’s investments in these Master Funds, as well as the investment objectives of each Master Fund, are summarized below. Master Funds in which GAIT invested 5% or more of its members’ capital are individually identified. All of the Master Funds and GAIT are related parties. The Master Funds do not charge management or incentive fees and all offer monthly subscriptions and redemptions.

June 30, 2017
Investment – Objective		Percent of Members’ Capital				Fair Value				Net Loss (six months ended)
Systematic Macro Funds
Graham K4D Trading Ltd.			6.89	%		$	7,743,432			$	(3,052,374	)
Global Macro Funds
Graham Commodity Strategies LLC			6.28	%			7,060,296				(3,496,194	)
			13.17	%		$	14,803,728			$	(6,548,568	)

December 31, 2016
Investment – Objective		Percent of  Members’ Capital				Fair Value				Net Loss (six months ended June 30, 2016)
Systematic Macro Funds
Graham K4D Trading Ltd.			6.41	%		$	8,824,128			$	145,642
Global Macro Funds
Graham Commodity Strategies LLC			5.51	%			7,580,654				(1,031,637	)
			11.92	%		$	16,404,782			$	(885,995	)

The following table summarizes the financial position of each Master Fund as of June 30, 2017:

		Graham Commodity Strategies LLC (Delaware)				Graham K4D Trading Ltd. (BVI)
Assets:
Due from brokers		$	165,787,814			$	164,569,974
Derivative financial instruments, at fair value			32,364,568				-
Exchange membership, at fair value			4,058,200				717,750
Total assets			202,210,582				165,287,724
Liabilities:
Derivative financial instruments, at fair value			2,143,049				45,226,633
Total liabilities			2,143,049				45,226,633
Members’ Capital / Net Assets		$	200,067,533			$	120,061,091
Percentage of Master Fund held by GAIT			3.53	%			6.45	%

 

3. Investments in Master Funds (continued)

The following schedules display the condensed schedules of investments for the Master Funds as of June 30, 2017.

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
Brent crude oil March 2018			600			$	82,190				0.04	%
KC HRW wheat September 2017			11,000				36,825,175				18.41	%
KC HRW wheat December  2017			1,047				396,375				0.20	%
Mill wheat Euro September 2017 - December 2017			28,000				3,052,400				1.53	%
Natural gas August 2017			628				750,550				0.38	%
Wheat September 2017			2,000				3,784,188				1.89	%
WTI crude oil August 2017			290				804,580				0.40	%
Other commodity futures							3,760,660				1.88	%
Foreign bond							(3,030,157	)			(1.52	)%
Foreign index							(14,989	)			(0.01	)%
Interest rate							(1,382,048	)			(0.69	)%
U.S. bond							(4,788,813	)			(2.39	)%
U.S. index							128,900				0.06	%
Total futures							40,369,011				20.18	%
Forwards
Euro / U.S. dollar 07/05/2017		EUR	903,787,129				1,046,016				0.52	%
Other foreign currency							8,043,931				4.02	%
Total forwards							9,089,947				4.54	%
Options (cost $154,270,498)
Crude oil August 2017 - December 2018, $47.00 - $73.00 Call			12				10,927,750				5.46	%
Crude oil August 2017 - June 2018, $40.00 - $51.00 Put			6				8,122,500				4.06	%
Natural gas Euro option August 2017 - March 2018, $3.25 - $4.00 Call			11				8,978,000				4.49	%
Other commodity futures options							10,624,440				5.31	%
Euro / U.S. dollar May 2018, $1.20 Call			2				10,276,800				5.14	%
Euro / U.S. dollar November 2017, $1.15 Call			2				10,270,800				5.13	%
Euro / U.S. dollar July 2017 - November 2017, $1.13 - $1.17 Call			5				13,412,852				6.71	%
Euro / U.S. dollar July 2017 - October 2017, $0.97 - $1.11 Put			7				39,847				0.02	%
Other currency future options							20,031,469				10.01	%
Euro-bund August 2017, $164.50 Call			1				(116,952	)			(0.06	)%
Euro-bund August 2017 - September 2017, $159.00 - $161.50 Put			2				2,763,374				1.38	%
Interest rate futures							6,614,824				3.31	%
U.S. bond futures							460,938				0.23	%
U.S. index							6,422,500				3.21	%
Total options							108,829,142				54.40	%

 

3. Investments in Master Funds (continued)

The following schedules display the condensed schedules of investments for the Master Funds as of June 30, 2017.

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
Brent crude oil December 2017			(300	)		$	(656,000	)			(0.33	)%
KC HRW wheat December 2017			(9,047	)			(30,455,750	)			(15.22	)%
KC HRW wheat March 2018			(3,000	)			(5,877,513	)			(2.94	)%
Mill wheat Euro September 2017			(1,000	)			(500	)			(0.00	)%
Wheat March 2018			(2,000	)			(7,973,263	)			(3.98	)%
WTI crude oil August 2017 - December 2017			(1,450	)			(3,061,670	)			(1.53	)%
Other commodity futures							846,850				0.43	%
Euro bund September 2017			(6,266	)			13,728,555				6.86	%
Euro buxl 30 Year bond September 2017			(100	)			419,941				0.21	%
Euro bobl September 2017			(600	)			9,135				0.00	%
Other foreign bond future							813,073				0.41	%
Foreign index							765,252				0.38	%
Interest rate							11,906,714				5.95	%
U.S. bond							3,027,719				1.51	%
U.S. index							1,139,900				0.57	%
Total futures							(15,367,557	)			(7.68	)%
Forwards
U.S. dollar / Euro 07/05/2017		EUR	(351,995,936)				(628,961	)			(0.31	)%
Other foreign currency							(2,631,131	)			(1.32	)%
Total forwards							(3,260,092	)			(1.63	)%
Options (proceeds $107,270,855)
Crude oil September 2017 - December 2019, $45.00 - $80.00 Call			(13	)			(29,917,750	)			(14.96	)%
Crude oil August 2017 - June 2018, $37.50 - $50.00 Put			(12	)			(20,435,640	)			(10.21	)%
Natural gas Euro option August 2017 - March 2018, $3.40 - $5.00 Call			(7	)			(3,887,375	)			(1.94	)%
Natural gas Euro option August 2017 - December 2018, $2.50 - $3.00 Put			(20	)			(9,239,750	)			(4.62	)%
Other commodity futures							(16,864,223	)			(8.43	)%
Euro / U.S. dollar July 2017 - May 2018, $1.15 - $1.30 Call			(8	)			(12,641,368	)			(6.32	)%
Euro / U.S. dollar July 2017, $1.00 Put			(1	)			(20	)			(0.00	)%
Other currency futures							(10,485,330	)			(5.24	)%
Euro bund September 2017, $157.50 Put			(1	)			(685,134	)			(0.34	)%
Euro bund August 2017, $160.00 Put			(1	)			(645,168	)			(0.32	)%
Interest rate							(1,589,986	)			(0.79	)%
U.S. bond future							(210,938	)			(0.11	)%
U.S. index							(2,836,250	)			(1.42	)%
Total options							(109,438,932	)			(54.70	)%
Total derivative financial instruments						$	30,221,519				15.11	%

 

3. Investments in Master Funds (continued)

The following schedules display the condensed schedules of investments for the Master Funds as of June 30, 2017.

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						$	3,448,381				2.87	%
Japanese yen September 2017			1				(39	)			(0.00	)%
Other currency							(22,360	)			(0.02	)%
Canadian 10yr bond future September 2017			2,694				(8,832,359	)			(7.35	)%
Other foreign bond							(12,713,783	)			(10.59	)%
Foreign index							(10,542,329	)			(8.78	)%
Interest rate							(3,916,218	)			(3.26	)%
U.S. bond							(2,764,431	)			(2.30	)%
U.S. index							(704,030	)			(0.59	)%
Total futures							(36,047,168	)			(30.02	)%
Forwards
Canadian dollar / U.S. dollar 07/05/2017 - 09/20/2017		CAD	326,568,013				3,446,311				2.87	%
Japanese yen / U.S. dollar  07/05/2017 - 09/20/2017		JPY	27,546,965,000				(6,497,502	)			(5.41	)%
Other foreign currency							13,211,901				11.00	%
Total forwards							10,160,710				8.46	%
Short contracts
Futures
Commodity							(14,571,753	)			(12.14	)%
Canadian dollar September 2017			(14	)			(4,446	)			(0.00	)%
Japanese yen September 2017			(8	)			12,326				0.01	%
Other currency							659,578				0.55	%
Canadian 10yr bond future September 2017			(221	)			502,886				0.42	%
Other foreign bond							835,313				0.70	%
Foreign index							380,982				0.32	%
Interest rate							110				0.00	%
U.S. bond							736,876				0.61	%
U.S. index							183,102				0.15	%
Total futures							(11,265,026	)			(9.38	)%
Forwards
U.S. dollar / Canadian dollar 07/05/2017 - 09/20/2017		CAD	(292,444,000)				(7,938,024	)			(6.61	)%
U.S. dollar / Japanese yen 07/05/2017 - 09/20/2017		JPY	(40,926,773,025)				8,534,789				7.11	%
Other foreign currency							(8,671,914	)			(7.23	)%
Total forwards							(8,075,149	)			(6.73	)%
Total derivative financial instruments						$	(45,226,633	)			(37.67	)%