10-Q 1 form10q.htm 10-Q

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, 2018
 
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 this 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, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
Accelerated filer ☐
Non-accelerated filer
Smaller reporting company
Emerging Growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).
 
Yes ☐  No
 
As of August 1, 2018, 281,604.772 Units of the Blended Strategies Portfolio were outstanding.
 


GRAHAM ALTERNATIVE INVESTMENT FUND II LLC
 
BLENDED STRATEGIES PORTFOLIO
FORM 10-Q
 
INDEX
 
     
Page
Number
         
PART I - Financial Information:
 
         
 
Item 1.
Financial Statements:  
         
   
Graham Alternative Investment Fund II LLC Blended Strategies Portfolio
 
         
     
1
         
     
2
         
     
3
         
     
4
         
     
5
         
     
Graham Alternative Investment Trading LLC
 
         
     
14
         
     
15
         
     
16
         
     
17
         
     
18
         
     
19
         
 
Item  2.
 
58
         
 
Item 3.
 
66
         
 
Item 4.
 
67
   
68
     
   
       
 
Certification
 
Certification
 
 
Certification
 
PART I
 
Item 1.
Financial Statements
 
Graham Alternative Investment Fund II LLC
 
Blended Strategies Portfolio
 
Consolidated Statements of Financial Condition
 
   
June 30, 2018
(Unaudited)
   
December 31, 2017
(Audited)
 
             
Assets
           
Investment in Graham Alternative Investment Trading LLC, at fair value
 
$
35,044,762
   
$
37,181,465
 
Redemption receivable from Graham Alternative Investment Trading LLC
   
385,728
     
102,320
 
Total assets
 
$
35,430,490
   
$
37,283,785
 
                 
Liabilities and members’ capital
               
Liabilities:
               
Accrued redemptions
 
$
385,728
   
$
102,320
 
Total liabilities
   
385,728
     
102,320
 
                 
Members’ capital:
               
Class 0 Units (157,963.299 and 164,393.539 units issued and outstanding at $141.08 and $140.90, respectively)
   
22,286,065
     
23,163,675
 
Class 2 Units (125,467.827 and 137,512.329 units issued and outstanding at $101.69 and $101.94, respectively)
   
12,758,697
     
14,017,790
 
Total members’ capital
   
35,044,762
     
37,181,465
 
Total liabilities and members’ capital
 
$
35,430,490
   
$
37,283,785
 
 
See accompanying notes and the attached financial statements of Graham Alternative Investment Trading LLC.
 
1

Graham Alternative Investment Fund II LLC
 
Blended Strategies Portfolio
 
Unaudited Consolidated Statements of Operations
 
   
Three months ended
June 30,
   
Six Months Ended
June 30,
 
   
2018
   
2017
   
2018
   
2017
 
Net (loss) gain allocated from investment in Graham Alternative Investment Trading LLC
                       
Net realized (loss) gain on investments
 
$
(191,553
)
 
$
(1,112,000
)
 
$
1,598,533
   
$
(868,590
)
Net decrease in unrealized appreciation on investments
   
(208,344
)
   
(953,942
)
   
(1,181,099
)
   
(1,945,658
)
Brokerage commissions and fees
   
(61,692
)
   
(80,294
)
   
(139,793
)
   
(164,202
)
Net (loss) gain allocated from investment in Graham Alternative Investment Trading LLC
   
(461,589
)
   
(2,146,236
)
   
277,641
     
(2,978,450
)
                                 
Net investment loss allocated from investment in Graham Alternative Investment Trading LLC
                               
Investment income
                               
Interest income
   
137,950
     
101,332
     
262,863
     
194,155
 
                                 
Expenses
                               
Advisory fees
   
136,112
     
229,777
     
278,298
     
480,321
 
Sponsor fees
   
70,789
     
127,085
     
144,903
     
313,755
 
Professional fees and other
   
27,456
     
67,594
     
50,606
     
115,999
 
Administrator’s fees
   
11,740
     
17,405
     
23,969
     
36,693
 
Incentive allocation
   
-
     
-
     
-
     
-
 
Total expenses
   
246,097
     
441,861
     
497,776
     
946,768
 
Net investment loss allocated from investment in Graham Alternative Investment Trading LLC
   
(108,147
)
   
(340,529
)
   
(234,913
)
   
(752,613
)
Net (loss) income
 
$
(569,736
)
 
$
(2,486,765
)
 
$
42,728
   
$
(3,731,063
)
 
See accompanying notes and the attached financial statements of Graham Alternative Investment Trading LLC.
 
2

Graham Alternative Investment Fund II LLC
 
Blended Strategies Portfolio
 
Unaudited Consolidated Statements of Changes in Members’ Capital
 
For the six months ended June 30, 2018 and 2017
 
   
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
 

   
Class 0 Units
   
Class 2 Units
       
   
Units
   
Capital
   
Units
   
Capital
   
Total Members’
Capital
 
                               
Members’ capital, December 31, 2017
   
164,393.539
   
$
23,163,675
     
137,512.329
   
$
14,017,790
   
$
37,181,465
 
Subscriptions
   
     
     
     
     
 
Redemptions
   
(6,430.240
)
   
(930,197
)
   
(12,044.502
)
   
(1,249,234
)
   
(2,179,431
)
Net income (loss)
   
     
52,587
     
     
(9,859
)
   
42,728
 
Members’ capital, June 30, 2018
   
157,963.299
   
$
22,286,065
     
125,467.827
   
$
12,758,697
   
$
35,044,762
 
 
See accompanying notes and the attached financial statements of Graham Alternative Investment Trading LLC.
 
3

Graham Alternative Investment Fund II LLC
 
Blended Strategies Portfolio
 
Unaudited Consolidated Statements of Cash Flows
 
   
Six Months Ended
June 30,
 
   
2018
   
2017
 
Cash flows provided by operating activities
           
Net income (loss)
 
$
42,728
   
$
(3,731,063
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
Net (income) loss allocated from investment in Graham Alternative Investment Trading LLC
   
(42,728
)
   
3,731,063
 
Proceeds from sale of investments in Graham Alternative Investment Trading LLC
   
1,896,023
     
10,116,318
 
Investments in Graham Alternative Investment Trading LLC
   
     
(449,000
)
Net cash provided by operating activities
   
1,896,023
     
9,667,318
 
                 
Cash flows used in financing activities
               
Subscriptions
   
     
449,000
 
Redemptions
   
(1,896,023
)
   
(10,116,318
)
Net cash used in financing activities
   
(1,896,023
)
   
(9,667,318
)
                 
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.
 
4

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements

June 30, 2018
 
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 Section 12 of the Securities Exchange Act of 1934.

The investment objective of the Fund is to achieve long-term capital appreciation through professionally managed trading in both U.S. and foreign markets primarily in futures contracts, forwards contracts, spot currency contracts, and associated derivative instruments, such as options and swaps, through its investment in GAIT, which in turn invests in various Master Funds. The Master Funds seek to profit from opportunities in the global financial markets, including interest rate futures, foreign exchange, global stock indices and energy, metals and agricultural futures, as professionally managed multi-strategy investment vehicles. Each of the investment programs consists of multiple trading strategies of the Manager, which the Manager has combined in an effort to diversify the Fund’s investment exposure and to make the Fund’s performance returns less volatile and more consistently profitable.

SEI Global Services, Inc. (“SEI”) is the Fund’s independent administrator and transfer agent. SEI is responsible for certain matters pertaining to the administration of the Fund.

The Fund will terminate on December 31, 2050 or at an earlier date if certain conditions occur as outlined in the Limited Liability Company Agreement (“LLC Agreement”).
 
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, 2018 and December 31, 2017, the Fund owned 47.33% and 46.14%, respectively of GAIT.
 
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

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

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

·
Level 1 inputs are unadjusted closing or settlement prices for such assets or liabilities as published by the primary exchange upon which they are traded.
·
Level 2 inputs include quoted prices for similar assets and liabilities obtained from independent brokers and/or market makers in each security.
·
Level 3 inputs are those which are considered unobservable and are significant in arriving at fair value.

The Fund’s investment in GAIT has been valued at net asset value using the practical expedient. Accordingly under U.S. GAAP, this investment is excluded from categorization in the fair value hierarchy. There were no Level 3 assets or liabilities held at any point during the six months ended June 30, 2018 or the year ended December 31, 2017 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, 2018 and December 31, 2017, 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.
 
7

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)
 
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 0 Units are not subject to a redemption fee. For the period from January 1, 2017 to March 31, 2017, Class 2 Units were 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. Effective April 1, 2017, Class 2 Units were subject to a redemption fee equal to 0.75% of their Net Asset Value if redeemed within six months from their subscription date and a redemption fee equal to 0.40% of their Net Asset Value if redeemed more than six and less than twelve months from their subscription date. Effective July 1, 2017, Class 2 Units are no longer subject to a redemption fee. Redemption fees were payable to the Manager upon redemption of Units from the proceeds of such redemption. There were no such redemption fees paid to the Manager for the six months ended June 30, 2017.
 
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

Each Class of GAIT other than Class M paid the Manager an advisory fee (the “Advisory Fee”) at an aggregate annual rate of the Net Asset Value of such Class specified for the periods in the table below. 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, 2018 and 2017, the Advisory Fees allocated to the Fund by each Class of GAIT totaled $278,298 and $480,321, respectively.
 
Period
Annual Rate
   
For the period from January 1, 2017 through June 30, 2017
1.75%
For the period from July 1, 2017 through June 30, 2018
1.50%
 
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 in the table below. The Sponsor Fee is payable monthly in arrears calculated as of the last business day of each month in the same manner as the Advisory Fee. For the six months ended June 30, 2018 and 2017, the Sponsor Fees allocated to the Fund by each Class of GAIT totaled $144,903 and $313,755, respectively.
 
Period
Class 0
Class 2
     
For the period from January 1, 2017 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 period from July 1, 2017 through June 30, 2018
0.50%
1.25%
 
Incentive Allocation

At the end of each calendar quarter, Graham Capital LLC, an affiliate of the Manager, will receive a special allocation of net profits (the “Incentive Allocation”) in an amount equal to 20% of the New High Net Trading Profits of each Class of GAIT, as defined in the LLC Agreement. The Incentive Allocation is also accrued and allocable on the date of redemption with respect to any Units that are redeemed prior to the end of a calendar quarter. Additionally, any loss carryforward attributable to any class of GAIT shall be proportionately reduced, effective as of the date of any redemption of any Units of such class, by multiplying the loss carryforward by the ratio that the amount of 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 to the Manager. There was no Incentive Allocation allocated to the Fund by GAIT for the six months ended June 30, 2018 and 2017.
 
9

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)
 
4. Fees and Related Party Transactions (continued)

Administrator’s Fee

For the six months ended June 30, 2018 and 2017, 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, 2018 and 2017 were $23,969 and $36,693, 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.

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 2015 through 2017 or expected to be taken in the Fund’s 2018 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.
 
10

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)
 
6. Financial Highlights

The following is the per Unit operating performance calculation for the three months ended June 30, 2018 and 2017:
 
   
Class 0
   
Class 2
 
Per unit operating performance
           
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
 
                 
Net asset value per unit, March 31, 2018
 
$
143.24
   
$
103.44
 
Net loss:
               
Net investment loss
   
(0.33
)
   
(0.43
)
Net loss on investments
   
(1.83
)
   
(1.32
)
Net loss
   
(2.16
)
   
(1.75
)
Net asset value per unit, June 30, 2018
 
$
141.08
   
$
101.69
 
 
The following represents ratios to average members’ capital and total return for the three months ended June 30, 2018 and 2017:
 
   
Class 0
   
Class 2
 
   
2018
   
2017
   
2018
   
2017
 
                         
Total return before Incentive Allocation
   
(1.51
)%
   
(4.54
)%
   
(1.69
)%
   
(4.72
)%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Total return after Incentive Allocation
   
(1.51
)%
   
(4.54
)%
   
(1.69
)%
   
(4.72
)%
                                 
Net investment loss before Incentive Allocation
   
(0.23
)%
   
(0.60
)%
   
(0.42
)%
   
(0.79
)%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Net investment loss after Incentive Allocation
   
(0.23
)%
   
(0.60
)%
   
(0.42
)%
   
(0.79
)%
                                 
Total expenses before Incentive Allocation
   
0.61
%
   
0.79
%
   
0.80
%
   
0.98
%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Total expenses after Incentive Allocation
   
0.61
%
   
0.79
%
   
0.80
%
   
0.98
%
 
11

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)
 
6. Financial Highlights (continued)

The following is the per Unit operating performance calculation for the six months ended June 30, 2018 and 2017:
 
   
Class 0
   
Class 2
 
Per unit operating performance
           
Net asset value per unit, December 31, 2016
 
$
146.92
   
$
107.43
 
Net loss:
               
Net investment loss
   
(1.68
)
   
(1.95
)
Net loss on investments
   
(7.45
)
   
(5.41
)
Net loss
   
(9.13
)
   
(7.36
)
Net asset value per unit, June 30, 2017
 
$
137.79
   
$
100.07
 
                 
Net asset value per unit, December 31, 2017
 
$
140.90
   
$
101.94
 
Net income (loss):
               
Net investment loss
   
(0.71
)
   
(0.91
)
Net gain on investments
   
0.89
     
0.66
 
Net income (loss)
   
0.18
     
(0.25
)
Net asset value per unit, June 30, 2018
 
$
141.08
   
$
101.69
 
 
12

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)
 
6. Financial Highlights (continued)

The following represents ratios to average members’ capital and total return for the six month periods ended June 30, 2018 and 2017:
 
   
Class 0
   
Class 2
 
   
2018
   
2017
   
2018
   
2017
 
                         
Total return before Incentive Allocation
   
0.13
%
   
(6.21
)%
   
(0.25
)%
   
(6.85
)%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Total return after Incentive Allocation
   
0.13
%
   
(6.21
)%
   
(0.25
)%
   
(6.85
)%
                                 
Net investment loss before Incentive Allocation
   
(0.49
)%
   
(1.18
)%
   
(0.87
)%
   
(1.87
)%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Net investment loss after Incentive Allocation
   
(0.49
)%
   
(1.18
)%
   
(0.87
)%
   
(1.87
)%
                                 
Total expenses before Incentive Allocation
   
1.20
%
   
1.53
%
   
1.59
%
   
2.23
%
Incentive Allocation
   
0.00
     
0.00
     
0.00
     
0.00
 
Total expenses after Incentive Allocation
   
1.20
%
   
1.53
%
   
1.59
%
   
2.23
%
 
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, 2018 and 2017, and are not annualized.

7. Subsequent Events

The Fund had no subscriptions and redemptions of approximately $0.2 million from July 1, 2018 through August 14, 2018, the date through which subsequent events were evaluated by management. These amounts have not been included in the consolidated financial statements.
 
13

Graham Alternative Investment Trading LLC
 
Statements of Financial Condition
 
   
June 30, 2018
(Unaudited)
   
December 31, 2017
(Audited)
 
Assets
           
Investments in Master Funds, at fair value
 
$
8,075,872
   
$
7,809,515
 
Investment in Graham Cash Assets LLC, at fair value
   
67,726,734
     
73,474,604
 
Receivable from Master Funds
   
345
     
101
 
Total assets
 
$
75,802,951
   
$
81,284,220
 
                 
Liabilities and members’ capital
               
Liabilities:
               
Accrued redemptions
 
$
1,538,040
   
$
367,689
 
Accrued advisory fees
   
91,902
     
101,840
 
Accrued professional fees
   
74,591
     
171,603
 
Accrued sponsor fees
   
50,013
     
54,975
 
Accrued administrator’s fee
   
8,047
     
9,041
 
Total liabilities
   
1,762,593
     
705,148
 
                 
Members’ capital:
               
Class 0 Units (304,464.119 and 331,577.130 units issued and outstanding at $141.08 and $140.90 per unit, respectively)
   
42,954,963
     
46,720,480
 
Class 2 Units (294,108.429 and 320,722.151 units issued and outstanding at $101.69 and $101.94 per unit, respectively)
   
29,907,605
     
32,693,924
 
Class M Units (4,671.470 units issued and outstanding at $252.12 and $249.32 per unit, respectively)
   
1,177,790
     
1,164,668
 
Total members’ capital
   
74,040,358
     
80,579,072
 
Total liabilities and members’ capital
 
$
75,802,951
   
$
81,284,220
 
 
See accompanying notes.
 
14

Graham Alternative Investment Trading LLC
 
Condensed Schedules of Investments
 
   
June 30, 2018
(Unaudited)
   
December 31, 2017
(Audited)
 
Description
 
Fair Value
   
Percentage of
Members’
Capital
   
Fair Value
   
Percentage of
Members’
Capital
 
                         
Investments in Master Funds, at fair value
                       
Graham Commodity Strategies LLC
 
$
3,505,551
     
4.74%
 
 
$
3,235,547
     
4.01%
 
Graham K4D Trading Ltd.
   
4,570,321
     
6.17%
 
   
4,573,968
     
5.68%
 
Total investments in Master Funds
 
$
8,075,872
     
10.91%
 
 
$
7,809,515
     
9.69%
 
See accompanying notes.
 
15

Graham Alternative Investment Trading LLC
 
 Unaudited Statements of Operations and Incentive Allocation
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2018
   
2017
   
2018
   
2017
 
Net (loss) gain allocated from investments in Master Funds
                       
Net realized (loss) gain on investments
 
$
(422,206
)
 
$
(2,522,525
)
 
$
3,435,330
   
$
(1,880,846
)
Net decrease in unrealized appreciation on investments
   
(422,482
)
   
(2,156,639
)
   
(2,427,780
)
   
(4,330,852
)
Brokerage commissions and fees
   
(130,960
)
   
(181,804
)
   
(297,763
)
   
(370,290
)
Net (loss) gain allocated from investments in Master Funds
   
(975,648
)
   
(4,860,968
)
   
709,787
     
(6,581,988
)
                                 
Net investment income allocated from investments in Master Funds
   
24,340
     
22,879
     
48,367
     
33,420
 
                                 
Investment income
                               
Interest income
   
268,546
     
206,382
     
511,699
     
404,207
 
                                 
Expenses
                               
Advisory fees
   
284,535
     
515,272
     
584,401
     
1,072,217
 
Sponsor fees
   
154,986
     
289,702
     
317,479
     
722,912
 
Professional fees and other
   
58,187
     
152,619
     
107,649
     
260,816
 
Administrator’s fees
   
24,926
     
39,410
     
51,108
     
82,679
 
Total expenses
   
522,634
     
997,003
     
1,060,637
     
2,138,624
 
Net investment loss of the Fund
   
(254,088
)
   
(790,621
)
   
(548,938
)
   
(1,734,417
)
                                 
Net (loss) income
   
(1,205,396
)
   
(5,628,710
)
   
209,216
     
(8,282,985
)
                                 
Incentive allocation
   
     
     
     
 
                                 
Net (loss) income available for pro-rata allocation to all members
 
$
(1,205,396
)
 
$
(5,628,710
)
 
$
209,216
   
$
(8,282,985
)
 
See accompanying notes.
 
16

Graham Alternative Investment Trading LLC
 
Unaudited Statements of Changes in Members’ Capital

For the six months ended June 30, 2018 and 2017
 
   
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
 
 
   
Class 0
   
Class 2
   
Class M
   
Total
 
   
Units
   
Capital
   
Units
   
Capital
   
Units
   
Capital
   
Capital
 
                                                         
Members’ capital, December 31, 2017
   
331,577.130
   
$
46,720,480
     
320,722.151
   
$
32,693,924
     
4,671.470
   
$
1,164,668
   
$
80,579,072
 
Subscriptions
   
527.126
     
75,000
     
974.513
     
100,000
     
     
     
175,000
 
Redemptions
   
(27,640.137
)
   
(4,076,535
)
   
(27,588.235
)
   
(2,846,395
)
   
     
     
(6,922,930
)
Incentive allocation
   
     
     
     
     
     
     
 
Net income (loss)
   
     
236,018
     
     
(39,924
)
   
     
13,122
     
209,216
 
Members’ capital, June 30, 2018
   
304,464.119
   
$
42,954,963
     
294,108.429
   
$
29,907,605
     
4,671.470
   
$
1,177,790
   
$
74,040,358
 
 
See accompanying notes.
 
17

Graham Alternative Investment Trading LLC
 
 Unaudited Statements of Cash Flows
 
   
Six Months Ended June 30,
 
   
2018
   
2017
 
Cash flows provided by operating activities
           
Net income (loss)
 
$
209,216
   
$
(8,282,985
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
Net (income) loss allocated from investments in Master Funds
   
(758,154
)
   
6,548,568
 
Net income allocated from investment in Graham Cash Assets LLC
   
(511,699
)
   
(404,207
)
Proceeds from sale of investments in Master Funds
   
37,132,321
     
60,188,555
 
Proceeds from sale of investments in Graham Cash Assets LLC
   
33,702,467
     
74,872,087
 
Investments in Master Funds
   
(36,640,768
)
   
(65,136,190
)
Investments in Graham Cash Assets LLC
   
(27,442,898
)
   
(50,469,813
)
Changes in assets and liabilities:
               
Decrease in accrued advisory fees
   
(9,938
)
   
(42,774
)
Decrease in accrued professional fees
   
(97,012
)
   
(20,382
)
Decrease in accrued sponsor fees
   
(4,962
)
   
(66,975
)
Decrease in accrued administrator’s fee
   
(994
)
   
(1,232
)
Net cash provided by operating activities
   
5,577,579
     
17,184,652
 
                 
Cash flows used in financing activities
               
Subscriptions
   
175,000
     
2,531,500
 
Redemptions
   
(5,752,579
)
   
(19,716,152
)
Net cash used in financing activities
   
(5,577,579
)
   
(17,184,652
)
                 
Net change in cash and cash equivalents
   
     
 
                 
Cash and cash equivalents, beginning of period
   
     
 
Cash and cash equivalents, end of period
 
$
   
$
 
 
See accompanying notes.
 
18

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements

June 30, 2018
 
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.
 
19

Graham Alternative Investment Trading LLC

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

Due from/to Brokers

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

Revenue Recognition

All positions in financial instruments are recorded on the trade date at fair value. Net unrealized gain or loss on open derivative financial instruments is included in the Master Funds’ statements of financial condition as the difference between the original purchase price and the current market value at 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 applicable withholding taxes. All other expenses are recorded on the accrual basis. Realized gains and losses are calculated based on the specific identification method.

Brokerage Commissions and Fees

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

Foreign Currency Translation

Assets and liabilities denominated in foreign currencies are translated using the exchange rates at June 30, 2018 and December 31, 2017. Gains and losses resulting from foreign currency transactions are calculated using daily exchange rates prevailing on the transaction date. The Master Funds do not isolate the portion of results of operations from changes in foreign exchange rates on investments and cash from fluctuations arising from changes in market prices held. The Master Funds’ currency translation gains and losses are included in the statements of operations and incentive allocation within net realized gain (loss) and net decrease 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.
 
20

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 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, 2018 or the year ended December 31, 2017 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.
 
21

Graham Alternative Investment Trading LLC

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

Futures Contracts (continued)

A futures contract represents a commitment for the future purchase or sale of an asset or cash settlement based on the value of an asset on a specified date. The purchase and sale of futures contracts are executed on an exchange which requires margin deposits with a Futures Commission Merchant (“FCM”). Subsequent payments are made or received by the Master Funds each day, depending on the daily fluctuations in the value of the contract. These changes in valuation are recorded for financial statement purposes as unrealized 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.
 
22

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 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.
 
23

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 month period ended June 30, 2018 and 2017 which caused any counterparty to demand liquidation of any outstanding positions. Graham K4D Trading Ltd. had derivative instruments subject to credit risk related contingent features in a net liability position in the amount of $0 and $876,222 at June 30, 2018 and December 31, 2017, respectively. Graham Commodity Strategies LLC had derivative instruments subject to credit risk related contingent features in a net liability position in the amount of $189 and $12,435 at June 30, 2018 and December 31, 2017, respectively.

New York Mercantile Exchange Corporate Membership

Graham Commodity Strategies LLC, a Master Fund in which GAIT invests, is a member of the New York Mercantile Exchange (“NYMEX”). As a result of its membership, Graham Commodity Strategies LLC owns two NYMEX seats and 30,000 shares of the CME Group. Graham Commodity Strategy LLC’s policy is to value the NYMEX memberships and the shares of the CME Group at fair value. As of June 30, 2018 and December 31, 2017, the two NYMEX memberships were valued at $260,500 and $260,000, respectively, and the 30,000 shares of CME Group were valued at $4,917,600 and $4,381,500, 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.
 
24

Graham Alternative Investment Trading LLC

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

Chicago Board of Trade Membership

Graham K4D Trading Ltd., a Master Fund in which GAIT invests, is a member of the Chicago Board of Trade (“CBOT”) under Rule 106.S and owns two B-1/Full seats and one B-2/Associate seat. Graham K4D Trading Ltd.’s policy is to value the CBOT memberships at fair value. As of June 30, 2018 and December 31, 2017, the B-1/Full memberships were valued at $683,500 and $720,000, respectively, and the B-2/Associate memberships were valued at $58,750 and $72,250, 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 $195,000 and $232,000 at June 30, 2018 and December 31, 2017, 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.

Fixed Income Securities
 
The fixed income securities positions are valued at the mean between the last reported bid and ask quotations received from independent brokers. GAIT is exposed to credit risk relating to whether the issuers will meet their obligations when they come due until the fixed income securities are sold or reach maturity.

Indemnifications

In the normal course of business, the Master Funds, Cash Assets, and GAIT enter into contracts that contain a variety of indemnifications. Such contracts may include those by Cash Assets and the Master Funds with their brokers and trading counterparties. GAIT’s maximum exposure under these arrangements is unknown; however, GAIT has not had prior claims or losses with respect to such indemnifications and considers the risk of loss to be remote. At June 30, 2018 and December 31, 2017, no accruals have been recorded by GAIT for indemnifications.
 
25

Graham Alternative Investment Trading LLC

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

As of June 30, 2018 and December 31, 2017, 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, 2018
 
Investment – Objective
 
Percent of
Members’
Capital
   
Fair Value
   
Net Income (Loss)
(six months
ended June 2018)
 
                   
Global Macro Funds
                 
Graham Commodity Strategies LLC
   
4.74%
 
 
$
3,505,551
   
$
3,374,691
 
                         
Systematic Macro Funds
                       
Graham K4D Trading Ltd.
   
6.17%
 
   
4,570,321
     
(2,616,537
)
     
10.91%
 
 
$
8,075,872
   
$
758,154
 
 
December 31, 2017
         
Investment – Objective
 
Percent of
Members’
Capital
   
Fair Value
   
Net Loss
(six months
ended June 2017)
 
                         
Global Macro Funds
                       
Graham Commodity Strategies LLC
   
4.01%
 
 
$
3,235,547
   
$
(3,496,194
)
                         
Systematic Macro Funds
                       
Graham K4D Trading Ltd.
   
5.68%
 
   
4,573,968
     
(3,052,374
)
     
9.69%
 
 
$
7,809,515
   
$
(6,548,568
)
 
The following table summarizes the financial position of each Master Fund as of June 30, 2018:
 
   
Graham
Commodity
Strategies LLC
(Delaware)
   
Graham K4D
Trading Ltd.
(BVI)
 
Assets:
           
Fixed income securities, at fair value (cost $62,362,617)
 
$
-
   
$
62,300,479
 
Due from brokers
   
97,766,401
     
18,262,578
 
Derivative financial instruments, at fair value
   
51,897,679
     
4,718,679
 
Exchange membership, at fair value
   
5,178,100
     
937,250
 
Accrued interest income
   
-
     
363,294
 
Total assets
   
154,842,180
     
86,582,280
 
                 
Liabilities:
               
Due to brokers
   
2,262,706
     
-
 
Derivative financial instruments, at fair value
   
18,001,470
     
-
 
Total liabilities
   
20,264,176
     
-
 
Members’ Capital / Net Assets
 
$
134,578,004
   
$
86,582,280
 
                 
Percentage of Master Fund held by GAIT
   
2.60
%
   
5.28
%
 
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, 2018.
 
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 September 2018
   
250
   
$
361,370
     
0.27
%
WTI crude oil August 2018 - September 2018
   
1,775
     
6,430,410
     
4.78
%
Natural gas August 2018
   
2,474
     
(1,024,640
)
   
(0.76
)%
Other commodity futures
           
(939,268
)
   
(0.70
)%
Euro Bobl September 2018
   
2,528
     
2,045,196
     
1.52
%
Euro Bund September 2018
   
1,232
     
1,746,928
     
1.30
%
Foreign index
           
(2,519,794
)
   
(1.87
)%
Interest rate
           
966,970
     
0.72
%
U.S. bond
           
2,400,281
     
1.78
%
U.S. index
           
(520,000
)
   
(0.39
)%
Total futures
           
8,947,453
     
6.65
%
                         
Forwards
                       
Chinese yuan / U.S. dollar 07/03/2018 - 12/27/2018
 CNY
 3,161,013,660
     
(6,285,025
)
   
(4.67
)%
Taiwan dollar / U.S. dollar 07/23/2018 - 11/29/2018
 TWD  13,549,246,000      
(9,735,446
)
   
(7.23
)%
Other foreign currency
           
(3,768,597
)
   
(2.80
)%
Total forwards
           
(19,789,068
)
   
(14.70
)%
 
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, 2018.
 
Description
 
Number of
Contracts / Notional
Amounts
   
Fair Value
   
Percentage
of Members’
Capital of
Master Fund
 
Graham Commodity Strategies LLC (continued)
                 
Derivative financial instruments (continued)
                 
Long contracts
                 
Options (cost $154,606,750)
                 
Crude oil August 2018 - December 2018, $70.00 - $85.00 Call
   
11
     
7,040,090
     
5.23
%
Crude oil August 2018 - September 2018, $45.00 - $67.00 Put
   
3
     
(71,560
)
   
(0.05
)%
Natural gas Euro October 2018, $2.90 Put
   
1
     
2,306,000
     
1.71
%
Natural gas Euro September 2018, $3.00 Put
   
1
     
581,000
     
0.43
%
Other commodity
           
9,297,516
     
6.91
%
Australian dollar / U.S. dollar July 2018 - June 2019, $0.64 - $0.74 Call
   
13
     
13,291,505
     
9.88
%
Euro / U.S. dollar July 2018 - December 2018, $1.26 - $1.42 Call
   
9
     
145,161
     
0.11
%
Euro / U.S. dollar July 2018 – June 2019, $1.07 - $1.17 Put
   
21
     
22,503,874
     
16.71
%
British pound / U.S. dollar July 2018, $1.40 - $1.47 Call
   
2
     
24
     
0.00
%
British pound / U.S. dollar July 2018 - October 2018, $1.27 - $1.34 Put
   
8
     
11,364,957
     
8.44
%
U.S. dollar / Chinese yuan July 2018 - August 2018, $6.42 - $6.70 Call
   
5
     
16,523,320
     
12.28
%
U.S. dollar / Chinese yuan July 2018 - December 2018, $6.10 - $6.39 Put
   
4
     
498,339
     
0.37
%
U.S. dollar / Taiwan dollar November 2018, $30.70 - $31.22 Call
   
6
     
3,357,025
     
2.49
%
Other currency
           
15,369,665
     
11.42
%
Euro Bund August 2018, $157.50 Put
   
1
     
(1,359,730
)
   
(1.01
)%
Euro dollar 1 year mid curve August 2018, $97.25 Call
   
1
     
(56,250
)
   
(0.04
)%
Euro dollar 1 year mid curve December 2018, $96.75 - $97.25 Put
   
2
     
7,706,250
     
5.73
%
IMM Euro dollar December 2018 - December 2019, $96.50 - $97.75 Put
   
5
     
10,494,813
     
7.80
%
Other interest rate
           
506,402
     
0.38
%
U.S. bond future
           
2,046,625
     
1.52
%
S&P 500 E-mini September 2018 - December 2018, $2,875.00 - $3,025.00 Call
   
2
     
560,000
     
0.42
%
S&P 500 E-mini July 2018 - October 2018, $2,375.00 - $2,700.00 Put
   
4
     
18,165,000
     
13.49
%
Total options
           
140,270,026
     
104.22
%
 
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, 2018.
 
Description
 
Number of
Contracts / Notional
Amounts
   
Fair Value
   
Percentage
of Members’
Capital of
Master Fund
 
Graham Commodity Strategies LLC (continued)
                 
Derivative financial instruments (continued)
                 
Short contracts
                 
Futures
                 
Natural gas December 2018
   
(1,000
)
 
$
159,770
     
0.12
%
WTI crude oil August 2018 - December 2018
   
(1,155
)
   
(7,532,110
)
   
(5.60
)%
Euro Buxl 30 Year bond September 2018
   
(2,370
)
   
(12,039,061
)
   
(8.95
)%
Other foreign bond
           
(5,075,330
)
   
(3.77
)%
Foreign index
           
(41,602
)
   
(0.03
)%
Other interest rate
           
(4,763,579
)
   
(3.54
)%
U.S. bond
           
(84,766
)
   
(0.06
)%
S&P 500 E-mini September 2018
   
(1,829
)
   
1,900,193
     
1.41
%
Other U.S. index
           
10,045
     
0.01
%
Total futures
           
(27,466,440
)
   
(20.41
)%
                         
Forwards
                       
U.S. dollar / Chinese yuan 07/03/2018 - 12/27/2018
CNY
(3,665,796,997
)    
3,237,706
     
2.41
%
U.S. dollar / Taiwan dollar 07/23/2018 - 12/21/2018
TWD
(18,169,949,000
)    
22,255,306
     
16.54
%
Other foreign currency
           
2,304,806
     
1.71
%
Total forwards
           
27,797,818
     
20.66
%
 
29

Graham Alternative Investment Trading LLC

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

The following schedules display the condensed schedules of investments for the Master Funds as of June 30, 2018.
 
Description
 
Number of
Contracts / Notional
Amounts
   
Fair Value
   
Percentage
of Members’
Capital of
Master Fund
 
Graham Commodity Strategies LLC (continued)
                 
Derivative financial instruments (continued)
                 
Short contracts
                 
Options (proceeds $101,293,784)
                 
Crude oil August 2018 - December 2019, $60.00 - $90.00 Call
   
11
     
(16,666,050
)
   
(12.38
)%
Crude oil August 2018 - November 2018, $40.00 - $67.50 Put
   
3
     
180,140
     
0.13
%
Natural gas Euro option August 2018 - September 2018, $2.85 - $2.90 Call
   
3
     
(5,757,750
)
   
(4.28
)%
Natural gas Euro option August 2018 - October 2018, $2.70 - $2.90 Put
   
3
     
(5,020,500
)
   
(3.73
)%
Other commodity futures
           
(7,934,063
)
   
(5.90
)%
Australian dollar / U.S. dollar July 2018 - June 2019, $0.78 - $0.84 Call
   
5
     
(706,994
)
   
(0.52
)%
Australian dollar / U.S. dollar July 2018 - September 2018, $0.72 - $0.73 Put
   
3
     
(1,675,910
)
   
(1.24
)%
Euro / U.S. dollar July 2018 - June 2019, $1.21 - $1.42 Call
   
16
     
(7,850,853
)
   
(5.83
)%
Euro / U.S. dollar July 2018 – June 2019, $1.00 - $1.16 Put
   
12
     
(6,342,006
)
   
(4.71
)%
British pound / U.S. dollar July 2018, $1.40 Call
   
1
     
(20
)
   
(0.00
)%
British pound / U.S. dollar July 2018, $1.30 - $1.34 Put
   
2
     
(2,597,503
)
   
(1.93
)%
U.S. dollar / Chinese yuan July 2018 - August 2018, $6.49 - $6.70 Call
   
5
     
(16,163,080
)
   
(12.01
)%
U.S. dollar / Chinese yuan July 2018, $6.10 - $6.15 Put
   
2
     
(25
)
   
(0.00
)%
Other currency futures
           
(1,543,037
)
   
(1.15
)%
Euro Bund August 2018, $154.50 - $155.50 Put
   
2
     
659,538
     
0.49
%
Euro dollar 1 year mid curve December 2018, $96.50 - $97.00 Put
   
2
     
(4,131,250
)
   
(3.07
)%
IMM Euro dollar option December 2018 - December 2019, $96.25 - $97.38 Put
   
4
     
(4,078,456
)
   
(3.03
)%
Other interest rate
           
18,598
     
0.01
%
U.S. bond future
           
(845,609
)
   
(0.63
)%
S&P 500 E-mini September 2018 - December 2018, $3,000.00 - $3,150.00 Call
   
2
     
(401,250
)
   
(0.30
)%
S&P 500 E-mini July 2018 - October 2018, $2,225.00 - $2,625.00 Put
   
4
     
(15,007,500
)
   
(11.15
)%
Total options
           
(95,863,580
)
   
(71.23
)%
Total derivative financial instruments
         
$
33,896,209
     
25.19
%
 
30

Graham Alternative Investment Trading LLC

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

The following schedules display the condensed schedules of investments for the Master Funds as of June 30, 2018.
 
Description
 
Principal / Number
of Contracts /
Notional Amounts
   
Fair Value
   
Percentage of
Net Assets of
Master Fund
 
Graham K4D Trading Ltd.
                 
Fixed income securities owned (cost $62,362,617)
                 
Bonds (cost $62,362,617)
                 
United States (cost $62,362,617)
                 
Government Bonds (cost $62,362,617)
                 
U.S. Treasury bond 1.13% due 01/15/2019
 
$
31,500,000
   
$
31,325,889
     
36.18
%
U.S. Treasury bond 1.38% due 01/15/2020
   
31,500,000
     
30,974,590
     
35.78
%
Total Government Bonds
           
62,300,479
     
71.96
%
Total fixed income securities owned (cost $62,362,617)
         
$
62,300,479
     
71.96
%
                         
Derivative financial instruments
                       
Long contracts
                       
Futures
                       
Brent crude oil September 2018
   
655
   
$
2,738,829
     
3.16
%
LME Copper September 2018
   
374
     
(5,215,786
)
   
(6.02
)%
LME Zinc September 2018
   
756
     
(5,406,604
)
   
(6.24
)%
WTI crude oil August - September 2018
   
725
     
4,256,533
     
4.92
%
Other commodity
           
830,452
     
0.96
%
Currency
           
198,098
     
0.23
%
Foreign bond
           
6,786,474
     
7.83
%
Foreign index
           
(4,008,541
)
   
(4.63
)%
Interest rate
           
481,833
     
0.56
%
U.S. bond
           
607,611
     
0.70
%
U.S. index
           
(5,463,698
)
   
(6.31
)%
Total futures
           
(4,194,799
)
   
(4.84
)%
                         
Forwards
                       
Foreign currency
           
(1,199,487
)
   
(1.39
)%
Total forwards
           
(1,199,487
)
   
(1.39
)%
 
31

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, 2018.
 
Description
 
Number of
Contracts / Notional
Amounts
   
Fair Value
   
Percentage of
Net Assets of
Master Fund
 
Graham K4D Trading Ltd. (continued)
                 
Derivative financial instruments (continued)
                 
Short contracts
                 
Futures
                 
LME Copper September 2018
   
(193
)
 
$
1,120,046
     
1.29
%
LME Zinc September 2018
   
(732
)
   
2,634,276
     
3.04
%
Other commodity
           
3,883,392
     
4.49
%
Currency
           
(32,668
)
   
(0.04
)%
Foreign bond
           
(157,521
)
   
(0.18
)%
Foreign index
           
1,187,617
     
1.37
%
Interest rate
           
47,335
     
0.05
%
U.S. bond
           
(3,276,216
)
   
(3.78
)%
Total futures
           
5,406,261
     
6.24
%
                         
Forwards
                       
Foreign currency
           
4,706,704
     
5.44
%
Total forwards
           
4,706,704
     
5.44
%
Total derivative financial instruments
         
$
4,718,679
     
5.45
%
 
32

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, 2018:
 
   
Graham
Commodity
Strategies LLC
   
Graham K4D
Trading Ltd.
 
Assets
           
Level 1:
           
Commodity futures
 
$
6,951,550
   
$
19,039,062
 
Commodity futures options
   
20,007,456
     
-
 
Currency futures
   
-
     
268,724
 
Foreign bond futures
   
3,821,541
     
6,786,474
 
Foreign bond futures options
   
659,538
     
-
 
Foreign index futures
   
17,713
     
1,271,417
 
Interest rate futures
   
4,077,083
     
539,399
 
Interest rate futures options
   
19,619,661
     
-
 
U.S. bond futures
   
2,403,406
     
607,611
 
U.S. bond futures options
   
2,046,625
     
-
 
U.S. index futures
   
1,965,988
     
-
 
U.S. index futures options
   
18,725,000
     
-
 
Total Level 1
   
80,295,561
     
28,512,687
 
                 
Level 2:
               
Foreign currency forwards
   
34,279,047
     
6,884,815
 
Foreign currency options
   
83,053,871
     
-
 
Government bonds*
   
-
     
62,300,479
 
Total Level 2
   
117,332,918
     
69,185,294
 
Total investment related assets
 
$
197,628,479
   
$
97,697,981
 
                 
Liabilities
               
Level 1:
               
Commodity futures
 
$
(9,496,018
)
 
$
(14,197,924
)
Commodity futures options
   
(36,052,633
)
   
-
 
Currency futures
   
-
     
(103,294
)
Foreign bond futures
   
(17,143,808
)
   
(157,521
)
Foreign bond futures options
   
(1,359,730
)
   
-
 
Foreign index futures
   
(2,579,109
)
   
(4,092,341
)
Interest rate futures
   
(7,873,692
)
   
(10,231
)
Interest rate futures options
   
(9,159,554
)
   
-
 
U.S. bond futures
   
(87,891
)
   
(3,276,216
)
U.S. bond futures options
   
(845,609
)
   
-
 
U.S. index futures
   
(575,750
)
   
(5,463,698
)
U.S. index futures options
   
(15,408,750
)
   
-
 
Total Level 1
   
(100,582,544
)
   
(27,301,225
)
                 
Level 2:
               
Foreign currency forwards
   
(26,270,297
)
   
(3,377,598
)
Foreign currency options
   
(36,879,429
)
   
-
 
Total Level 2
   
(63,149,726
)
   
(3,377,598
)
Total investment related liabilities
 
$
(163,732,270
)
 
$
(30,678,823
)
 
* - See the Master Fund’s condensed schedule of investments for breakout of industry and geographic region.
 
33

Graham Alternative Investment Trading LLC

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

The following table displays the gross volume of derivative activities categorized by primary underlying risk of Graham Commodity Strategies LLC based on its average quarterly notional amounts and number of contracts for the six months ended June 30, 2018. The table also displays the fair value of derivative contracts held by Graham Commodity Strategies LLC at June 30, 2018 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.
 
   
Long exposure
   
Short exposure
             
   
Notional
amounts
   
Number
of
contracts
   
Notional
amounts
   
Number
of
contracts
   
Derivative
Assets
   
Derivative
Liabilities