10-Q 1 brhc10016790_10q.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 September 30, 2020

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)

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

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

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

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

Yes ☒  No ☐

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

Yes ☒  No

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

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

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

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

Yes ☐ No ☒

As of November 1, 2020, 193,558.764 Units of the Blended Strategies Portfolio were outstanding.


GRAHAM ALTERNATIVE INVESTMENT FUND II LLC

BLENDED STRATEGIES PORTFOLIO
FORM 10-Q

INDEX

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

 
 
 
Item 3.
68
 

 
 
 
Item 4.
69
 
 
 
70
 
 
 
 71

 
Certification
 
 
Certification
 
 
Certification
 

PART I

Item 1.
Financial Statements

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Consolidated Statements of Financial Condition

   
September 30, 2020
(Unaudited)
   
December 31, 2019
(Audited)
 
             
Assets
           
Investment in Graham Alternative Investment Trading LLC, at fair value
 
$
28,527,354
   
$
27,344,100
 
Redemptions receivable from Graham Alternative Investment Trading LLC
   
165,492
     
241,412
 
Total assets
 
$
28,692,846
   
$
27,585,512
 
                 
Liabilities and members’ capital
               
Liabilities:
               
Redemptions payable
 
$
165,492
   
$
241,412
 
Total liabilities
   
165,492
     
241,412
 
                 
Members’ capital:
               
Class 0 Units (104,817.807 and 109,215.865 units issued and outstanding at $167.69 and $152.04, respectively)
   
17,577,370
     
16,605,529
 
Class 2 Units (90,826.160 and 99,110.353 units issued and outstanding at $120.56 and $108.35, respectively)
   
10,949,984
     
10,738,571
 
Total members’ capital
   
28,527,354
     
27,344,100
 
Total liabilities and members’ capital
 
$
28,692,846
   
$
27,585,512
 

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
September 30,
   
Nine Months Ended
September 30,
 
   
2020
   
2019
   
2020
   
2019
 
Net gain allocated from investment in Graham Alternative Investment Trading LLC:
                       
Net realized gain on investment
 
$
2,596,039
   
$
3,190,469
   
$
3,979,719
   
$
4,386,141
 
Net decrease in unrealized appreciation on investment
   
(686,469
)
   
(1,191,257
)
   
(402,083
)
   
(494,982
)
Brokerage commissions and fees
   
(19,281
)
   
(55,563
)
   
(95,074
)
   
(166,525
)
Net gain allocated from investment in Graham Alternative Investment Trading LLC
   
1,890,289
     
1,943,649
     
3,482,562
     
3,724,634
 
                                 
Net investment loss allocated from investment in Graham Alternative Investment Trading LLC:
                               
Investment income:
                               
Interest income
   
57,786
     
146,106
     
256,081
     
423,532
 
                                 
Expenses:
                               
Incentive allocation
   
238,422
     
     
315,624
     
 
Advisory fees
   
110,261
     
111,466
     
314,493
     
317,862
 
Sponsor fees
   
58,023
     
58,599
     
165,889
     
167,668
 
Professional fees
   
47,462
     
71,844
     
101,859
     
138,749
 
Administrator’s fees
   
9,466
     
9,503
     
27,083
     
27,879
 
Interest expense
   
1,695
     
1,530
     
5,063
     
4,530
 
Total expenses
   
465,329
     
252,942
     
930,011
     
656,688
 
Net investment loss allocated from investment in Graham Alternative Investment Trading LLC
   
(407,543
)
   
(106,836
)
   
(673,930
)
   
(233,156
)
Net income
 
$
1,482,746
   
$
1,836,813
   
$
2,808,632
   
$
3,491,478
 

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 Three and Nine Months Ended September 30, 2020

   
Class 0 Units
   
Class 2 Units
       
   
Units
   
Capital
   
Units
   
Capital
   
Total Members’
Capital
 
                               
Members’ capital, December 31, 2019
   
109,215.865
   
$
16,605,529
     
99,110.353
   
$
10,738,571
   
$
27,344,100
 
Subscriptions
   
     
     
     
     
 
Redemptions
   
(3,026.716
)
   
(461,116
)
   
(4,554.736
)
   
(509,337
)
   
(970,453
)
Net income
   
     
773,231
     
     
530,522
     
1,303,753
 
Members’ capital, March 31, 2020
   
106,189.149
     
16,917,644
     
94,555.617
     
10,759,756
     
27,677,400
 
Subscriptions
   
     
     
     
     
 
Redemptions
   
(1,371.342
)
   
(218,495
)
   
(1,853.353
)
   
(210,307
)
   
(428,802
)
Net income (loss)
   
     
23,724
     
     
(1,591
)
   
22,133
 
Members’ capital, June 30, 2020
   
104,817.807
     
16,722,873
     
92,702.264
     
10,547,858
     
27,270,731
 
Subscriptions
   
     
     
     
     
 
Redemptions
   
     
     
(1,876.104
)
   
(226,123
)
   
(226,123
)
Net income
   
     
854,497
     
     
628,249
     
1,482,746
 
Members’ capital, September 30, 2020
   
104,817.807
   
$
17,577,370
     
90,826.160
   
$
10,949,984
   
$
28,527,354
 

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 (continued)

For the Three and Nine Months Ended September 30, 2019

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

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

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Unaudited Consolidated Statements of Cash Flows

   
Nine Months Ended
September 30,
 
   
2020
   
2019
 
Cash flows provided by operating activities
           
Net income
 
$
2,808,632
   
$
3,491,478
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Net (income) allocated from investment in Graham Alternative Investment Trading LLC
   
(2,808,632
)
   
(3,491,478
)
Proceeds from sale of investment in Graham Alternative Investment Trading LLC
   
1,701,298
     
2,845,216
 
Purchases of investment in Graham Alternative Investment Trading LLC
   
     
(373,500
)
Net cash provided by operating activities
   
1,701,298
     
2,471,716
 
                 
Cash flows used in financing activities
               
Subscriptions
   
     
373,500
 
Redemptions
   
(1,701,298
)
   
(2,845,216
)
Net cash used in financing activities
   
(1,701,298
)
   
(2,471,716
)
                 
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.

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements

September 30, 2020

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

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)

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

At September 30, 2020 and December 31, 2019, the Fund owned 48.63% and 49.24%, respectively of GAIT.

See attached financial statements of Graham Alternative Investment Trading LLC.

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)

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

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

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

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

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

The Fund’s investment in GAIT has been valued at net asset value using the practical expedient. Accordingly, under U.S. GAAP, this investment is excluded from categorization in the fair value hierarchy. There were no Level 3 assets or liabilities held at any point during the nine months ended September 30, 2020 or the year ended December 31, 2019 by the Fund, GAIT, the Master Funds or Cash Assets.
 
Cash and Cash Equivalents
 
The Fund classifies all highly liquid investments with a maturity of three months or less at the time of purchase as cash equivalents on the statements of financial condition. Cash deposited with a bank is subject to credit risk. In the event of the bank’s insolvency, recovery of the Fund’s cash would be limited to account insurance or other protection afforded by such deposit, which could be substantially less than the amount deposited. At September 30, 2020 and December  31, 2019, the Fund did not have any cash or cash equivalents.
 
Indemnifications
 
In the normal course of business, the Master Funds, GAIT, Cash Assets, and the Fund enter into contracts that contain a variety of indemnifications. Such contracts may include those by Cash Assets and the Master Funds with their brokers and trading counterparties. The Fund’s maximum exposure under these arrangements is unknown; however, the Fund has not had prior claims or losses with respect to such indemnifications and considers the risk of loss to be remote. At September 30, 2020 and December 31, 2019, no accruals have been recorded by the Fund for indemnifications.

See attached financial statements of Graham Alternative Investment Trading LLC.

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)

3. Capital Accounts
 
The Fund offers two classes (each a “Class”) of Units, being Class 0 Units and Class 2 Units. The Fund may issue additional Classes in the future subject to different fees, expenses or other terms, or may invest in other investment programs or combinations of investment programs managed by the Manager.
 
A separate capital account is maintained for each member with respect to each member’s Class of Units. The initial balance of each Members’ Capital account is equal to the initial subscription to the Fund by such member with respect to the Class to which such capital account relates. Each Members’ 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 business days after the Valuation Day, without interest for the period from the Valuation Day to the payment date.
 
4. Fees and Related Party Transactions
 
Advisory Fees
 
Each Class of GAIT other than Class M paid the Manager an advisory fee (the “Advisory Fee”) at an aggregate annual rate of 1.50% of the Members’ Capital of such Class. The Advisory Fee is payable monthly in arrears calculated as of the last business day of each month and any other date the Manager may permit, in its sole and absolute discretion, as of which any subscription or redemption is affected with respect to Units of such Class during the month. For the nine months ended September 30, 2020 and 2019, the Advisory Fees allocated to the Fund by each Class of GAIT totaled $314,493 and $317,862, respectively.
 
See attached financial statements of Graham Alternative Investment Trading LLC.

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)

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 Members’ Capital specified in the table below. The Sponsor Fee is payable monthly in arrears calculated as of the last business day of each month in the same manner as the Advisory Fee. For the nine months ended September 30, 2020 and 2019, the Sponsor Fees allocated to the Fund by each Class of GAIT totaled $165,889 and $167,668, respectively.
 
Class 0
Class 2
0.50%
1.25%
 
Incentive Allocation
 
At the end of each calendar quarter, Graham Capital LLC, an affiliate of the Manager, will receive a special allocation of net profits (the “Incentive Allocation”) in an amount equal to 20% of the New High Net Trading Profits of each Class of GAIT, as defined in the LLC Agreement. The Incentive Allocation is also accrued and allocable on the date of redemption with respect to any Units that are redeemed prior to the end of a calendar quarter. Additionally, any loss carryforward attributable to any class of GAIT shall be proportionately reduced, effective as of the date of any redemption of any Units of such class, by multiplying the loss carryforward by the ratio that the amount of Members’ Capital redeemed from such class bears to the Members’ Capital of such class immediately prior to such redemption. The loss carryforward of a class must be recouped before any subsequent Incentive Allocation can be made to Graham Capital LLC. For the nine months ended September 30, 2020, $315,624 of Incentive Allocation was allocated to the Fund by GAIT. There was no Incentive Allocation allocated to the Fund by GAIT for the nine months ended September 30, 2019.
 
Any portion of any of the above fees, including the Incentive Allocation, may be paid by the Manager to third parties as compensation for selling activities in connection with the Fund.
 
Administrator’s Fee

For the nine months ended September 30, 2020 and 2019, GAIT paid SEI a monthly administrator’s fee based on GAIT’s Members’ Capital, calculated as of the last business day of each month. In addition, GAIT reimbursed SEI for reasonable out-of-pocket expenses incurred on behalf of GAIT. The total administrator’s fees, including out-of-pocket expenses, allocated to the Fund by GAIT for the nine months ended September 30, 2020 and 2019 were $27,083 and $27,879, respectively.
 
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 income and expenses for income tax purposes.
 
See attached financial statements of Graham Alternative Investment Trading LLC.

10

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)

5. Income Taxes (continued)
 
U.S. GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the consolidated financial statements. U.S. GAAP requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a “more-likely-than-not” threshold would be recorded as a tax expense in the current year. The Fund identifies its major tax jurisdictions as the U.S. for Federal tax purposes and Connecticut for state tax purposes. The Manager has evaluated the Fund’s tax positions and has concluded that there are no significant tax positions requiring recognition, measurement or disclosure in the consolidated financial statements for open tax years 2017 through 2019 or expected to be taken in the Fund’s 2020 tax returns. The Manager is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax expense will change materially in the next twelve months. Tax years which are considered open by the relevant jurisdiction are subject to potential examination. Any assessment for interest or penalties on taxes related to uncertain tax positions, when present, would be included in interest and penalties on tax on the consolidated statements of operations. No such interest and/or penalties were assessed to the Fund for the nine months ended September 30, 2020 and 2019.
 
6. Financial Highlights
 
The following is the per Unit operating performance calculation for the three months ended September 30, 2020 and 2019:

   
Class 0
   
Class 2
 
Per unit operating performance
           
Net asset value per Unit, June 30, 2019
 
$
142.21
   
$
101.74
 
Net income:
               
Net investment loss
   
(0.45
)
   
(0.52
)
Net gain on investments
   
10.04
     
7.16
 
Net income
   
9.59
     
6.64
 
Net asset value per Unit, September 30, 2019
 
$
151.80
   
$
108.38
 
                 
Net asset value per Unit, June 30, 2020
 
$
159.54
   
$
113.78
 
Net income:
               
Net investment loss
   
(2.90
)
   
(1.12
)
Net gain on investments
   
11.05
     
7.90
 
Net income
   
8.15
     
6.78
 
Net asset value per Unit, September 30, 2020
 
$
167.69
   
$
120.56
 

See attached financial statements of Graham Alternative Investment Trading LLC.

11

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)

6. Financial Highlights (continued)
 
The following represents ratios to average Members’ Capital, excluding the Managing Member, and total return for the three months ended September 30, 2020 and 2019:
 
    Class 0     Class 2  
   
2020
   
2019
   
2020
   
2019
 
                                 
Total return before Incentive Allocation
   
6.
33%

   
6.
74%

   
6.
19%

   
6.
53%

Incentive Allocation
   
(1.
22)

   
0.
00      
(0.
23)
   
0.
00  
Total return after Incentive Allocation
   
5.
11%

   
6.
74%

   
5.
96%

   
6.
53%

                                         
Net investment loss before Incentive Allocation
   
(0.
52)%

   
(0.
30)%

   
(0.
71)%

   
(0.
49)%

Incentive Allocation
   
(1.
22)

   
0.
00      
(0.
23)

   
0.
00  
Net investment loss after Incentive Allocation
   
(1.
74)%

   
(0.
30)%

   
(0.
94)%

   
(0.
49)%

       
                               
Total expenses before Incentive Allocation
   
0.
72%

   
0.
81%

   
0.
92%

   
1.
00%

Incentive Allocation
   
1.
22      
0.
00      
0.
23      
0.
00  
Total expenses after Incentive Allocation
   
1.
94%

   
0.
81%

   
1.
15%

   
1.
00%


The following is the per Unit operating performance calculation for the nine months ended September 30, 2020 and 2019:
 
   
Class 0
   
Class 2
 
Per unit operating performance
           
Net asset value per Unit, December 31, 2018
 
$
133.70
   
$
96.01
 
Net income:
               
Net investment loss
   
(0.87
)
   
(1.19
)
Net gain on investments
   
18.97
     
13.56
 
Net income
   
18.10
     
12.37
 
Net asset value per Unit, September 30, 2019
 
$
151.80
   
$
108.38
 
                 
Net asset value per Unit, December 31, 2019
 
$
152.04
   
$
108.35
 
Net income:
               
Net investment loss
   
(4.45
)
   
(2.13
)
Net gain on investments
   
20.10
     
14.34
 
Net income
   
15.65
     
12.21
 
Net asset value per Unit, September 30, 2020
 
$
167.69
   
$
120.56
 

See attached financial statements of Graham Alternative Investment Trading LLC.

12

Graham Alternative Investment Fund II LLC

Blended Strategies Portfolio

Notes to Unaudited Consolidated Financial Statements (continued)

6. Financial Highlights (continued)
 
The following represents ratios to average Members’ Capital, excluding the Managing Member, and total return for the nine months ended September 30, 2020 and 2019:
 
    Class 0     Class 2  
   
2020
   
2019
   
2020
   
2019
 
                                 
Total return before Incentive Allocation
   
12.
01%

   
13.
54%

   
11.
50%

   
12.
88%

Incentive Allocation
   
(1.
72)

   
0.
00      
(0.
23)

   
0.
00  
Total return after Incentive Allocation
   
10.
29%

   
13.
54%

   
11.
27%

   
12.
88%

                                         
Net investment loss before Incentive Allocation
   
(1.
08)%


(0.
62)%
   
(1.
64)%
   
(1.
18)%

Incentive Allocation
   
(1.
72)

   
0.
00      
(0.
23)

   
0.
00  
Net investment loss after Incentive Allocation
   
(2.
80)%

   
(0.
62)%

   
(1.
87)%

   
(1.
18)%

                                         
Total expenses before Incentive Allocation
   
2.
00%

   
2.
14%

   
2.
57%

   
2.
70%

Incentive Allocation
   
1.
72      
0.
00      
0.
23      
0.
00  
Total expenses after Incentive Allocation
   
3.
72%

   
2.
14%

   
2.
80%

   
2.
70%


Total return is calculated for Class 0 and Class 2 Units taken as a whole. Total return is calculated as the change in total Members’ Capital adjusted for subscriptions or redemptions during the period. An individual member’s return may vary from these returns based on the timing of capital transactions. The net investment loss and total expense ratios (including Incentive Allocation) are calculated for Class 0 and Class 2 Units taken as a whole and include net amounts allocated from GAIT. The computation of such ratios is based on the amount of net investment loss, expenses and Incentive Allocation. Net investment loss and total expense ratios are computed based upon the weighted average of Members’ Capital for Class 0 and Class 2 Units of the Fund for the three and nine months ended September 30, 2020 and 2019 and are not annualized.
 
7. Subsequent Events
 
The Fund had no subscriptions and redemptions of approximately $0.3 million from October 1, 2020 through November 16, 2020, the date through which subsequent events were evaluated by management and the consolidated financial statements were available for issuance. These amounts have not been included in the consolidated financial statements.

See attached financial statements of Graham Alternative Investment Trading LLC.

13

Graham Alternative Investment Trading LLC

Statements of Financial Condition

   
September 30, 2020
(Unaudited)
   
December 31, 2019
(Audited)
 
Assets
           
Investments in Master Funds, at fair value
 
$
5,788,259
   
$
7,251,243
 
Investment in Graham Cash Assets LLC, at fair value
   
53,762,743
     
48,977,607
 
Receivable from Master Funds
   
53
     
167
 
Total assets
 
$
59,551,055
   
$
56,229,017
 
                 
Liabilities and members’ capital
               
Liabilities:
               
Redemptions payable
 
$
663,893
   
$
386,119
 
Accrued professional fees
   
115,495
     
195,023
 
Accrued advisory fees
   
71,236
     
69,712
 
Accrued sponsor fees
   
37,831
     
37,281
 
Accrued administrator’s fee
   
6,221
     
6,032
 
Payable to Master Funds
   
     
195
 
Total liabilities
   
894,676
     
694,362
 
                 
Members’ capital:
               
Class 0 Units (206,023.230 and 213,162.414 units issued and outstanding at $167.69 and $152.04 per unit, respectively)
   
34,548,958
     
32,409,897
 
Class 2 Units (187,612.958 and 201,355.180 units issued and outstanding at $120.56 and $108.35 per unit, respectively)
   
22,618,601
     
21,816,766
 
Class M Units (4,671.470 units issued and outstanding at $318.70 and $279.99 per unit, respectively)
   
1,488,820
     
1,307,992
 
Total members’ capital
   
58,656,379
     
55,534,655
 
Total liabilities and members’ capital
 
$
59,551,055
   
$
56,229,017
 

See accompanying notes.
 
14

Graham Alternative Investment Trading LLC

Condensed Schedules of Investments

   
September 30, 2020
(Unaudited)
   
December 31, 2019
(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
 
$
2,472,918
     
4.22%

 
$
3,714,431
     
6.69%

Graham K4D Trading Ltd.
   
3,315,341
     
5.65%

   
3,536,812
     
6.37%

Total investments in Master Funds
 
$
5,788,259
     
9.87%

 
$
7,251,243
     
13.06%

 
See accompanying notes.
 
15

Graham Alternative Investment Trading LLC

Unaudited Statements of Operations and Incentive Allocation

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2020
   
2019
   
2020
   
2019
 
Net gain allocated from investments in Master Funds:
                       
Net realized gain on investments
 
$
5,339,512
   
$
6,517,068
   
$
8,164,328
   
$
8,963,569
 
Net decrease in unrealized appreciation on investments
   
(1,403,904
)
   
(2,430,205
)
   
(834,248
)
   
(971,786
)
Brokerage commissions and fees
   
(39,638
)
   
(113,446
)
   
(194,161
)
   
(346,336
)
Net gain allocated from investments in Master Funds
   
3,895,970
     
3,973,417
     
7,135,919
     
7,645,447
 
                                 
Net investment (loss) income allocated from investments in Master Funds
   
(110
)
   
23,953
     
30,459
     
73,162
 
                                 
Investment income:
                               
Interest income
   
117,948
     
274,254
     
492,103
     
808,632
 
                                 
Expenses:
                               
Advisory fees
   
220,985
     
222,678
     
628,085
     
648,406
 
Sponsor fees
   
117,599
     
119,180
     
335,013
     
345,837
 
Professional fees
   
96,658
     
146,642
     
207,756
     
287,167
 
Administrator’s fee
   
19,460
     
19,405
     
55,449
     
58,085
 
Interest expense
   
3,487
     
3,126
     
10,279
     
9,436
 
Total expenses
   
458,189
     
511,031
     
1,236,582
     
1,348,931
 
Net investment loss of the Fund
   
(340,241
)
   
(236,777
)
   
(744,479
)
   
(540,299
)
                                 
Net income
   
3,555,619
     
3,760,593
     
6,421,899
     
7,178,310
 
                                 
Incentive allocation
   
(472,401
)
   
(187
)
   
(623,182
)
   
(187
)
                                 
Net income available for pro-rata allocation to all members
 
$
3,083,218
   
$
3,760,406
   
$
5,798,717
   
$
7,178,123
 

See accompanying notes.

16

Graham Alternative Investment Trading LLC

Unaudited Statements of Changes in Members’ Capital

For the Three and Nine Months Ended September 30, 2020

   
Class 0
   
Class 2
   
Class M
   
Total
 
   
Units
   
Capital
   
Units
   
Capital
   
Units
   
Capital
   
Capital
 
                                           
Members’ capital, December 31, 2019
   
213,162.414
   
$
32,409,897
     
201,355.180
   
$
21,816,766
     
4,671.470
   
$
1,307,992
   
$
55,534,655
 
Subscriptions
   
     
     
     
     
     
     
 
Redemptions
   
(5,366.145
)
   
(816,202
)
   
(6,097.039
)
   
(673,152
)
   
     
(139,069
)
   
(1,628,423
)
Incentive allocation
   
     
(139,069
)
   
     
     
     
139,069
     
 
Net income
   
     
1,650,675
     
     
1,075,378
     
     
75,147
     
2,801,200
 
Members’ capital, March 31, 2020
   
207,796.269
     
33,105,301
     
195,258.141
     
22,218,992
     
4,671.470
     
1,383,139
     
56,707,432
 
Subscriptions
   
     
     
     
     
     
     
 
Redemptions
   
(1,773.039
)
   
(282,562
)
   
(2,988.460
)
   
(339,451
)
   
     
(11,712
)
   
(633,725
)
Incentive allocation
   
     
(11,712
)
   
     
     
     
11,712
     
 
Net income (loss)
   
     
58,386
     
     
(2,677
)
   
     
9,371
     
65,080
 
Members’ capital, June 30, 2020
   
206,023.230
     
32,869,413
     
192,269.681
     
21,876,864
     
4,671.470
     
1,392,510
   
$
56,138,787
 
Subscriptions
   
     
     
     
     
     
     
 
Redemptions
   
     
     
(4,656.723
)
   
(565,626
)
   
     
(472,401
)
   
(1,038,027
)
Incentive allocation
   
     
(419,887
)
   
     
(52,514
)
   
     
472,401
     
 
Net income
   
     
2,099,432
     
     
1,359,877
     
     
96,310
     
3,555,619
 
Members’ capital, September 30, 2020
   
206,023.230
   
$
34,548,958
     
187,612.958
   
$
22,618,601
     
4,671.470
   
$
1,488,820
   
$
58,656,379
 
 
See accompanying notes.
 
17

Graham Alternative Investment Trading LLC

Unaudited Statements of Changes in Members’ Capital (continued)

For the Three and Nine Months Ended September 30, 2019

   
Class 0
   
Class 2
   
Class M
   
Total
 
   
Units
   
Capital
   
Units
   
Capital
   
Units
   
Capital
   
Capital
 
                                           
Members’ capital, December 31, 2018
   
263,114.613
   
$
35,179,498
     
251,175.400
   
$
24,114,225
     
4,671.470
   
$
1,127,501
   
$
60,421,224
 
Subscriptions
   
2,447.080
     
325,000
     
775.525
     
73,500
     
     
     
398,500
 
Redemptions
   
(15,238.411
)
   
(2,029,083
)
   
(23,162.529
)
   
(2,203,496
)
   
     
     
(4,232,579
)
Incentive allocation
   
     
     
     
     
     
     
 
Net (loss) income
   
     
(7,364
)
   
     
(60,726
)
   
     
5,537
     
(62,553
)
Members’ capital, March 31, 2019
   
250,323.282
     
33,468,051
     
228,788.396
     
21,923,503
     
4,671.470
     
1,133,038
     
56,524,592
 
Subscriptions
   
1,308.908
     
175,000
     
     
     
     
     
175,000
 
Redemptions
   
(20,134.592
)
   
(2,789,632
)
   
(9,736.326
)
   
(970,981
)
   
     
     
(3,760,613
)
Incentive allocation
   
     
     
     
     
     
     
 
Net income
   
     
2,068,954
     
     
1,333,122
             
78,194
     
3,480,270
 
Members’ capital, June 30, 2019
   
231,497.598
     
32,922,373
     
219,052.070
     
22,285,644
     
4,671.470
     
1,211,232
     
56,419,249
 
Subscriptions
   
     
     
     
     
     
     
 
Redemptions
   
(9,981.499
)
   
(1,511,641
)
   
(12,736.909
)
   
(1,381,202
)
   
     
(187
)
   
(2,893,030
)
Incentive allocation
   
     
(187
)
   
     
     
     
187
     
 
Net income
   
     
2,215,955
     
     
1,456,531
     
     
88,107
     
3,760,593
 
Members’ capital, September 30, 2019
   
221,516.099
   
$
33,626,500
     
206,315.161
   
$
22,360,973
     
4,671.470
   
$
1,299,339
   
$
57,286,812
 
 
See accompanying notes.
 
18

Graham Alternative Investment Trading LLC

 Unaudited Statements of Cash Flows

   
Nine Months Ended September 30,
 
   
2020
   
2019
 
Cash flows provided by operating activities
           
Net income
 
$
6,421,899
   
$
7,178,310
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Net (income) allocated from investments in Master Funds
   
(7,166,378
)
   
(7,718,609
)
Net (income) allocated from investment in Graham Cash Assets LLC
   
(492,103
)
   
(808,632
)
Proceeds from sale of investments in Master Funds
   
49,538,983
     
52,804,810
 
Proceeds from sale of investment in Graham Cash Assets LLC
   
33,700,267
     
45,575,107
 
Purchases of investments in Master Funds
   
(40,931,275
)
   
(47,742,660
)
Purchases of investment in Graham Cash Assets LLC
   
(37,971,727
)
   
(40,726,996
)
Changes in assets and liabilities:
               
(Decrease) increase in accrued professional fees
   
(79,528
)
   
8,864
 
Increase (decrease) in accrued advisory fees
   
1,524
     
(4,391
)
Increase (decrease) in accrued sponsor fees
   
550
     
(2,550
)
Increase (decrease) in accrued administrator’s fee
   
189
     
(675
)
Net cash provided by operating activities
   
3,022,401
     
8,562,578
 
                 
Cash flows used in financing activities
               
Subscriptions
   
     
573,500
 
Redemptions
   
(3,022,401
)
   
(9,136,078
)
Net cash used in financing activities
   
(3,022,401
)
   
(8,562,578
)
                 
Net change in cash and cash equivalents
   
     
 
                 
Cash and cash equivalents, beginning of period
   
     
 
Cash and cash equivalents, end of period
 
$
   
$
 
                 
Supplemental cash flow information
               
Interest paid
 
$
10,279
   
$
9,436
 

See accompanying notes.
 
19

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements

September 30, 2020

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

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)
 
Due from/to Brokers
 
Due from/to brokers on the Master Funds’ financial statements primarily consist of cash balances carried as margin deposits with clearing brokers for the purpose of trading in futures contracts, foreign currency contracts and other derivative financial instruments and securities, and receivables/payables for unsettled transactions. Substantially all of the Master Funds’ cash and investments are held as collateral by its brokers to secure derivative instruments and securities.
 
Revenue Recognition
 
All positions in financial instruments are recorded on the trade date at fair value. Net unrealized appreciation or depreciation on open derivative financial instruments is included in the Master Funds’ statements of financial condition as the difference between the original purchase price and the current market value at year end. Any change in net unrealized appreciation or depreciation from the preceding period is reported in the Master Funds’ statements of operations. Interest income and expense are recorded on the accrual basis. Dividends are recorded on the ex-dividend date and are net of applicable withholding taxes. All other expenses are recorded on the accrual basis. Realized gains and losses are calculated based on the specific identification method.
 
Brokerage Commissions and Fees
 
Brokerage commissions and fees on the Master Funds’ financial statements represent all brokerage commissions and other fees incurred in connection with the Master Funds’ trading activity and are recorded on the accrual basis.
 
Foreign Currency Translation
 
Assets and liabilities denominated in foreign currencies are translated using the exchange rates at September 30, 2020 and December 31, 2019. 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 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.
 
21

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

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

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

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

Level 3 inputs are those which are considered unobservable and are significant in arriving at fair value.
 
GAIT’s investments in the Master Funds and Graham Cash Assets LLC (“Cash Assets”) have been valued at net asset value using the practical expedient. Accordingly, under U.S. GAAP, these investments are excluded from categorization in the fair value hierarchy. GAIT’s investments in the Master Funds and Cash Assets are discussed in Notes 3 and 4. There were no Level 3 assets or liabilities held at any point during the nine months ended September 30, 2020 or the year ended December 31, 2019 by GAIT, the Master Funds, or Cash Assets.
 
Derivative Instruments
 
In the normal course of business, the Master Funds utilize derivative financial instruments in connection with their trading activities. Derivative instruments derive their value from underlying assets, indices, reference rates or a combination of these factors. Investments in derivative financial instruments are subject to additional risks that can result in a loss of all or part of an investment. The Master Funds’ derivative financial instruments are classified by the following primary underlying risks: interest rate, foreign currency exchange rate, commodity price, and equity price risks. These risks can be in excess of the amounts recognized in the statements of financial condition. In addition, the Master Funds are also subject to additional counterparty risk should their counterparties fail to meet the terms of their contracts. Management of counterparty risk involves a number of considerations, such as the financial profile of the counterparty, specific terms and duration of the contractual agreement, and the value of collateral held, if any. The Master Funds have established initial credit approval, credit limits, and collateral requirements and may reduce their exposure to any counterparties they deem necessary. Trading in non-U.S. dollar denominated derivative instruments may subject the value of, and gains and losses associated with, such contracts to additional risks related to adverse changes in the applicable exchange rates.
 
Unrealized appreciation and depreciation from derivative financial instruments are recorded based on changes in their fair value. Realized gains and losses are recorded when the positions are closed. All unrealized and realized gains and losses related to derivative financial instruments are included in net realized 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.

22

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

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

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

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

24

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

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

The Master Funds may buy and sell covered and uncovered exchange-traded and over-the-counter options on futures, foreign currencies, commodities, interest rates and equities to take advantage of the price movements of the financial instrument underlying the option or to hedge positions in the underlying assets. Option contracts give one party the right, but not the obligation, to buy or sell within a limited time or on a specified date, a financial instrument, commodity or currency at a contracted price. Options may also be settled in cash, based on differentials between specified indices or prices.
 
When purchasing options, the Master Funds are exposed to counterparty risk to the extent that a seller of an over-the-counter option does not meet its obligations under the terms of the option contract. The maximum risk of loss to the Master Funds is the unrealized appreciation of the contracts and the premiums paid to purchase its open option contracts. Relative to over-the-counter options, exchange-traded options provide reduced counterparty risk to the Master Funds since the exchanges’ clearinghouse guarantees the option against default.
 
Selling uncovered options may subject the Master Funds to unlimited risk of loss. As the writer of an option, the Master Funds bear the market risk of an unfavorable change in the price of the underlying instrument.
 
Exchange-traded options are valued based upon the settlement prices published as of the valuation date by the principal exchange upon which they are traded. In the absence of an exchange published settlement price, the option will be valued using the last reported sales price reported on the exchange for the valuation date. Over-the-counter options and exchange-traded options with no reported sales price on the valuation date will generally be valued at the average of the last reported bid and offer quotes from independent brokers or from the exchange, respectively.
 
Credit Risk Related Contingent Features
 
OTC derivative instruments are subject to ISDA Master Agreements which generally require among other things, that the Master Funds maintain a predetermined level of net assets or rate of return and provide limits with respect to any decline in value over 1-month, 3-month and 12-month periods. If the Master Funds were to violate such provisions, the counterparty to these instruments could demand liquidation of the outstanding positions. There were no events that occurred throughout the nine months ended September 30, 2020 and the year ended December 31, 2019 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 $3,066,896 and $2,477,323 at September 30, 2020 and December 31, 2019, respectively. Graham Commodity Strategies LLC had no derivative instruments subject to credit risk related contingent features in a net liability position at September 30, 2020 and December 31, 2019.
 
New York Mercantile Exchange Corporate Membership
 
Graham Commodity Strategies LLC, a Master Fund in which GAIT invests, is a member of the New York Mercantile Exchange (“NYMEX”). As a result of its membership, Graham Commodity Strategies LLC owns two NYMEX seats and 30,000 shares of the CME Group. Graham Commodity Strategy LLC’s policy is to value the NYMEX seats and the shares of the CME Group at fair value. As of September 30, 2020 and December 31, 2019, the two NYMEX seats were valued at $152,000 and $189,500, respectively,  and the 30,000 shares of CME Group were valued at $5,019,300 and $6,021,600, respectively, all of which are included within Exchange memberships on Graham Commodity Strategies LLC’s statements of financial condition. The NYMEX seats and CME Group shares are considered Level 1 assets as described in the Fair Value section of Note 2.
 
25

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)
 
Chicago Mercantile Exchange Membership
 
As of September 30, 2020, Graham Commodity Strategies LLC is a member of the Chicago Mercantile Exchange (“CME”). As a result of its membership, Graham Commodity Strategies LLC owns two CME seats and 2,232 shares of the CME Group. Graham Commodity Strategy LLC’s policy is to value the CME seats and the shares of the CME Group at fair value. As of September 30, 2020, the two CME seats were valued at $361,750 and the 2,232 shares of CME Group were valued at $373,436 all of which are included within Exchange memberships on Graham Commodity Strategies LLC’s statement of financial condition. Graham Commodity Strategies LLC was not a member of the CME as of December 31, 2019. The CME seats and CME Group shares are considered Level 1 assets as described in the Fair Value section of Note 2.
 
As of September 30, 2020, K4D Trading Ltd., a Master Fund in which GAIT invests, is also a member of the Chicago Mercantile Exchange (“CME”). As a result of its membership, Graham K4D Trading Ltd. owns one CME seat and 4,085 shares of the CME Group. Graham K4D Trading Ltd.’s policy is to value the CME seat and the shares of the CME Group at fair value. As of September 30, 2020 and December 31, 2019, the CME seat was valued at $65,500 and $62,500, respectively. As of September 30, 2020, the 4,085 shares of the CME Group were valued at $683,461. As of December 31, 2019, Graham K4D Trading Ltd. did not hold any shares of the CME Group. The CME seat and shares of the CME Group are included within Exchange memberships on Graham K4D Trading Ltd.’s statement of financial condition. The CME seat and CME Group 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. is a member of the Chicago Board of Trade (“CBOT”) under Rule 106.S and owns two  B-1/Full seats and one B-2/Associate seat (collectively, “CBOT memberships”). Graham K4D Trading Ltd.’s policy is to value the CBOT memberships at fair value. As of September 30, 2020 and December 31, 2019, the two B-1/Full seats were valued at a total of $345,000 and $333,000, respectively, and the B-2/Associate seat was valued at $33,500 and $37,750, respectively, all of which are included in Exchange memberships on the statements of financial condition. Additionally, Graham K4D Trading Ltd. owns 970 shares of the CME Group as a result of its CBOT membership. Graham K4D Trading Ltd.’s policy is to value the CME Group shares at fair value. As of September 30, 2020, the 970 shares of the CME Group were valued at $162,291. The CBOT memberships and shares of the CME Group are considered Level 1 assets as described in the Fair Value section of Note 2.
 
As of September 30, 2020, Graham Commodity Strategies LLC is also a member of the CBOT under Rule 106.S and owns 3,265 shares of the CME Group. Graham Commodity Strategies LLC’s policy is to value the CME shares at fair value. As of September 30, 2020, the 3,265 shares of the CME Group were valued at $546,267 and is included in Exchange memberships on Graham Commodity LLC’s statement of financial condition. Graham Commodity Strategies LLC was not a member of the CBOT as of December 31, 2019. The CBOT memberships and CME seat are considered Level 1 assets as described in the Fair Value section of Note 2.
 
Fixed Income Securities

The fixed income securities positions are valued at the mean between the last reported bid and ask quotations received from independent brokers. GAIT is exposed to credit risk relating to whether the issuers will meet their obligations when they come due until the fixed income securities are sold or reach maturity.
 
26

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)
 
Cash and Cash Equivalents
 
GAIT classifies all highly liquid investments with a maturity of three months or less at the time of purchase as cash equivalents on the statements of financial condition. Cash deposited with a bank is subject to credit risk. In the event of the bank’s insolvency, recovery of the GAIT’s cash would be limited to account insurance or other protection afforded by such deposit, which could be substantially less than the amount deposited. At September 30, 2020 and December 31, 2019, GAIT did not have any cash or cash equivalents.
 
Indemnifications
 
In the normal course of business, the Master Funds, Cash Assets, and GAIT enter into contracts that contain a variety of indemnifications. Such contracts may include those by Cash Assets and the Master Funds with their brokers and trading counterparties. GAIT’s maximum exposure under these arrangements is unknown; however, GAIT has not had prior claims or losses with respect to such indemnifications and considers the risk of loss to be remote. At September 30, 2020 and December 31, 2019, no accruals have been recorded by GAIT for indemnifications.
 
3. Investments in Master Funds
 
As of September 30, 2020 and December 31, 2019, 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 fees or incentive allocation, and all offer monthly subscriptions and redemptions.
 
September 30, 2020
 
Investment – Objective
 
Percent of
Members’
Capital
   
Fair Value
   
Net Income (Loss)
(nine months ended
September 2020)
 
                   
Global Macro Funds
                 
Graham Commodity Strategies LLC
   
4.22%

 
$
2,472,918
   
$
8,768,627
 
                         
Systematic Macro Funds
                       
Graham K4D Trading Ltd.
   
5.65%

   
3,315,341
     
(1,623,822)

     
9.87%

 
$
5,788,259
   
$
7,144,805
 

December 31, 2019
 
Investment – Objective
 
Percent of
Members’
Capital
   
Fair Value
   
Net Income
(nine months ended
September 2019)
 
                   
Global Macro Funds
                 
Graham Commodity Strategies LLC
   
6.69%

 
$
3,714,431
   
$
2,501,873
 
                         
Systematic Macro Funds
                       
Graham K4D Trading Ltd.
   
6.37%

   
3,536,812
     
5,216,736
 
     
13.06%

 
$
7,251,243
   
$
7,718,609
 

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Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3. Investments in Master Funds
 
The following table summarizes the financial position of each Master Fund as of September 30, 2020:
 
   
Graham
Commodity
Strategies LLC
(Delaware)
   
Graham K4D
Trading Ltd.
(BVI)
 
Assets:
           
Fixed income securities, at fair value (cost $15,290,650)
 
$
   
$
15,296,199
 
Due from brokers
   
66,816,965
     
17,743,311
 
Derivative financial instruments, at fair value
   
19,290,737
     
 
Exchange memberships, at fair value
   
6,452,753
     
1,289,752
 
Interest receivable
   
1,579
     
347
 
Total assets
   
92,562,034
     
34,329,609
 
                 
Liabilities:
               
Derivative financial instruments, at fair value
   
     
5,088,808
 
Interest payable
   
15,464
     
895
 
Total liabilities
   
15,464
     
5,089,703
 
Members’ Capital / Net Assets
 
$
92,546,570
   
$
29,239,906
 
                 
Percentage of Master Fund held by GAIT
   
2.67
%
   
11.34
%

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Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3. Investments in Master Funds (continued)
 
The following schedules display the condensed schedules of investments for the Master Funds as of September 30, 2020:
 
Description
 
Number of
Contracts / Notional
Amounts
   
Fair Value
   
Percentage
of Members’
Capital of
Master Fund
 
Graham Commodity Strategies LLC
                 
Exchange memberships (cost $9,884,735)
                 
United States (cost $9,884,735)
                 
Financial services (cost $9,884,735)
       
$
6,452,753
     
6.97
%
Total exchange memberships
       
$
6,452,753
     
6.97
%
                       
Derivative financial instruments
                     
Long contracts
                     
Futures
                     
Commodity
         
(931,656
)
   
(1.00
)%
Foreign bond
         
911,965
     
0.99
%
Foreign index
         
427,578
     
0.46
%
Interest rate
         
(97,874
)
   
(0.11
)%
U.S. bond
                     
U.S. 10yr Ultra bond December 2020
   
151
     
(52,891
)
   
(0.06
)%
U.S. long bond December 2020
   
176
     
(155,156
)
   
(0.17
)%
U.S. index
           
3,111,515
     
3.36
%
Total futures
           
3,213,481
     
3.47
%
                         
Forwards
                       
Foreign currency
           
7,310,869
     
7.90
%
Total forwards
           
7,310,869
     
7.90
%
                         
Options (cost $71,262,578)
                       
Commodity futures
           
4,446,645
     
4.80
%
Currency futures
                       
Chinese yuan / Taiwan dollar December 2020 - February 2021, $4.18 - $4.35 Call
   
12
     
4,639,914
     
5.01
%
Euro / U.S. dollar October 2020 - January 2021, $1.15 - $1.29 Call
   
34
     
10,443,265
     
11.29
%
Euro / U.S. dollar October 2020, $1.12 Put
   
1
     
104
     
0.00
%
Other currency futures
           
6,555,079
     
7.08
%
Interest rate futures
           
5,174,019
     
5.59
%
U.S. bond futures
                       
U.S. 10yr December 2020, $140.00 - $142.00 Call
   
2
     
5,518,500
     
5.96
%
U.S. index futures
                       
S&P 500 E-mini October 2020 - March 2021, $3,400.00 - $4,000.00 Call
   
2
     
5,995,185
     
6.48
%
S&P 500 E-mini March 2021, $2,000.00 Put
   
1
     
1,122,255
     
1.21
%
Total options
           
43,894,966
     
47.42
%

29

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)
 
3. Investments in Master Funds (continued)
 
The following schedules display the condensed schedules of investments for the Master Funds as of September 30, 2020:
 
Description
 
Number of
Contracts / Notional
Amounts
   
Fair Value
   
Percentage
of Members’
Capital of
Master Fund
 
Graham Commodity Strategies LLC (continued)
                 
Derivative financial instruments (continued)
                 
Short contracts
                 
Futures
                 
Commodity
       
$
(386,643
)
   
(0.42
)%
Foreign bond
         
(10,064
)
   
(0.01
)%
Foreign index
         
574,783
     
0.62
%
Interest rate
         
(757,925
)
   
(0.82
)%
U.S. bond
                     
U.S. Ultra bond December 2020
   
(515
)
   
183,500
     
0.20
%
U.S. index
                       
S&P 500 E-mini December 2020
   
(692
)
   
(144,750
)
   
(0.15
)%
Total futures
           
(541,099
)
   
(0.58
)%
 
                       
Forwards
                       
U.S. dollar / Euro 10/19/2020 - 12/16/2020
 
EUR
 (131,091,627 )
   
(5,544,720
)
   
(5.99
)%
Other foreign currency
           
(1,869,458
)
   
(2.02
)%
Total forwards
           
(7,414,178
)
   
(8.01
)%
                         
Options (proceeds $39,858,143)
                       
Commodity futures
           
(3,662,680
)
   
(3.96
)%
Currency futures
                       
Euro / U.S. dollar October 2020 - February 2021, $1.15 - $1.27 Call
   
(17
)
   
(7,514,450
)
   
(8.12
)%
Euro / U.S. dollar October 2020 - February 2021, $1.12 - $1.13 Put
   
(3
)
   
(785,785
)
   
(0.85
)%
Other currency futures
           
(2,443,860
)
   
(2.64
)%
Interest rate futures
           
(4,199,026
)
   
(4.53
)%
U.S. bond futures
                       
U.S. 10yr December 2020, $141.00 Call
   
(1
)
   
(3,961,781
)
   
(4.28
)%
U.S. index futures
                       
S&P 500 E-mini October 2020 - March 2021, $3,500.00 - $4,200.00 Call
   
(2
)
   
(4,200,720
)
   
(4.54
)%
S&P 500 E-mini October 2020, $2,700.00 Put
   
(1
)
   
(405,000
)
   
(0.44
)%
Total options
           
(27,173,302
)
   
(29.36
)%
Total derivative financial instruments
         
$
19,290,737
     
20.84
%

30

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3. Investments in Master Funds (continued)
 
The following schedules display the condensed schedules of investments for the Master Funds as of September 30, 2020:
 
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 $15,290,650)
                 
Government bonds (cost $15,290,650)
                 
United States (cost $15,290,650)
                 
Treasury Bonds (cost $15,290,650)
                 
U.S. Treasury bond 0.00% due 01/07/2021
 
$
15,300,000
   
$
15,296,199
     
52.31
%
Total United States
           
15,296,199
     
52.31
%
Total government bonds
           
15,296,199
     
52.31
%
Total fixed income securities owned
         
$
15,296,199
     
52.31
%
                         
Exchange memberships (cost $1,902,973)
                       
United States (cost $1,902,973)