Securities to be 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 | | | |
Securities to be registered pursuant to Section 12(g) of the Act: | | Blended StrategiesCore Macro Portfolio: Units of Interests | | | | | | | | (Title (Title of Class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No ☑ Indicate by check mark if the registrant is not required to file reports pursuant to section 13 or section 15(d) of the Act. Yes ☐No ☑ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K ☑.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated file, 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 (Do not check if a smaller reporting company)☐
| Smaller reporting 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 has filed a report on attestation to its management’s assessment of the effectiveness of internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐No ☑
Units of the Blended StrategiesCore Macro Portfolio with an aggregate value of $61,206,192$29,711,303 were outstanding and held by non-affiliates as of June 30, 2017.2022.
As of March 1, 2018, 335,049.8992023, 153,061.961 Units of the Blended StrategiesCore Macro Portfolio were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE None
GRAHAM ALTERNATIVE INVESTMENT FUND I LLC
General Development of Business
Graham Alternative Investment Fund I LLC (“GAIF I”) is 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 I was organized as a Delaware Limited Liability Company which was formed on May 16, 2006. GAIF I was formed to enable U.S. taxable investors to achieve long-term capital appreciation through professionally managed trading in both U.S. and foreign markets, primarily in futures contracts, forward currency and metals contracts, spot currency contracts and associated derivative instruments such as options and swaps. GAIF I commenced operations on August 1, 2006.
Investors in GAIF I may invest in either or both of two different portfolios, theThe Core Macro Portfolio (formerly known as Blended Strategies Portfolio or the Systematic Strategies Portfolio. The Blended Strategies PortfolioPortfolio) uses a systematic trading program and a discretionary trading program. The Systematic Strategies Portfolio uses solely a systematic program. The Blended StrategiesCore Macro Portfolio units of interest (the “Units”) are the only units of GAIF I are registered under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and the financial information and statements contained herein are solely with respect to that Portfolio.
GAIF I invests substantially all its assets into feeder funds. GAIF I invests in Graham Alternative Investment Trading LLC, and Graham Alternative Investment Trading II LLC, each a Delaware limited liability company (the “Feeder Funds”Fund”). Specifically, the assets of GAIF I subscribed for investment in the Blended StrategiesCore Macro Portfolio will be invested in Graham Alternative Investment Trading LLC and the assets of GAIF I subscribed for investment in the Systematic Strategies Portfolio will be invested in Graham Alternative Investment Trading II LLC. Trading on behalf of the Fund (as defined below) will be conducted in separate master funds (in a “master-feeder” fund structure) managed by the Manager (as defined below), with the exception of the Systematic Strategies Portfolio in which trading is conducted in Graham Alternative Investment Trading II LLC.. For the purposes of this report, the term “Fund” shall include each of GAIF I, the Feeder FundsFund and the master funds in which they invest, unless the context implies otherwise. Graham Capital Management, L.P. (the “Manager”) is the Fund’s manager and the investment advisor to the Fund. The Manager’s website is www.grahamcapital.com.
The investment objective of eachthe portfolio 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. The Fund may also trade futures on virtual currencies. The Fund seeks profit opportunities in the global financial markets, including interest rates,rate futures, foreign exchange, global stock indices and energy, metals and agricultural futures, as a professionally managed multi-strategy investment vehicle.
EachThe portfolio of the Fund consists of multiple trading strategies of the Manager, which the Manager has combined in an effort to diversify the investment exposure of eachthe portfolio and to make the performance returns of eachthe portfolio less volatile and more consistently profitable. The Manager seeks to combine in eachone portfolio investment strategies that trade in different markets and display relatively low correlation to each other. Through such composition, the Manager aims to provide eachthe portfolio with the potential to make profits and have strong risk-adjusted returns in both rising and falling markets and during both expanding and recessionary economic cycles. In discretionary programs, a trader determines trades subjectively based on his personal assessment of trading data and trading experience, while in systematic programs, trades are based almost entirely on computerized mathematical models. The Fund, at all times, will look primarily to commodity interests as its principal intended source of gains and anticipates that at all times commodity interests will present the Fund’s primary risk of loss, and the Fund will not acquire any financial instrument or enter into any financial transaction if to do so would cause the Fund to look to securities as its principal intended source of gains or anticipate that securities will present the Fund’s primary risk of loss. Examples of the types of instruments that the Fund may trade by market include, but are not limited to:
Global fixed income: U.S. Treasury futures, Eurodollar futures and Japanese government bond futures
Global stock indices: futures contracts on the Russell 2000, S&P 500 and TOPIX
Foreign exchange: forward contracts on the British pound, euro, Japanese yen and Swiss franc
Energy: futures contracts on heating oil, natural gas and crude oil
Agriculture and Softs: futures contracts on cotton, feeder cattle, lean hogs and soybeans
Metals: futures or forward contracts on aluminum, copper and gold
The Manager believes strongly in the importance of its ongoing research activities, particularly in theand development of new trading programs, and expects to develop additional trading systems and strategies for the Fund and to modify or replace the systems currently in use for the Fund over time. The Manager also seeks to add new trading strategies to its discretionary programs and to modify such strategies over time. There is no maximum number of trading programs that the Manager may see fit to include in either the Blended Strategies Portfolio or the Systematic StrategiesCore Macro Portfolio, and the Manager may increase or decrease the number of programs included in eachthe portfolio over time.time or increase the number of markets or contracts that are traded on behalf of the portfolio. The Manager continually updates and modifies its trading programs and may make such additions or deletions of trading programs or make any other changes to either the Blended Strategies Portfolio or the Systematic StrategiesCore Macro Portfolio at any time– such as changes in the leverage of, or in the asset allocations to, any of the Fund’s trading programs – in its sole discretion. The Fund is not required to provide prior, or any, notice of any such changes to investors.
Under the Amended and Restated Limited Liability Company Agreement of GAIF I (the “Company Agreement”), the Manager has complete and exclusive responsibility for management and administration of the affairs of GAIF I. The Manager is currently registered as a commodity pool operator (“CPO”) and commodity trading advisor (“CTA”) with the Commodity Futures Trading Commission (“CFTC”), and as an investment adviser with the Securities and Exchange Commission (“SEC”), and is a member of the National Futures Association (“NFA”). GAIF I is not required to be, and is not, registered under the Investment Company Act of 1940, as amended. Investors purchasing units of interests (the “Units”) in GAIF I have no rights to participate in the management of the Fund. Units are sold through dealers that are not affiliated with the Fund or the Manager.
Pursuant to the Company Agreement, GAIF I’s term will end upon the first to occur of the following:
| · | the withdrawal (voluntary or involuntary), bankruptcy or an assignment for the benefit of creditors or dissolution of the Manager; or |
| · | any date prior to December 31, 2050 on which the Manager elects to dissolve GAIF I. |
GAIF I’s business constitutes only one segment for financial reporting purposes (i.e., a speculative commodity pool). GAIF Idoes not engage in sales of goods or services.
As of February 28, 2017,2022, the aggregate Net Asset Value (as defined below under “Allocation of Profit and Loss”) of the Units in GAIF I was $69,026,167.$27,004,626. GAIF I operates on a calendar fiscal year.
Narrative Description of Business
GAIF I offers fourtwo classes (each a “Class”) of Units, being Class 0 Units and Class 2 Units of the Blended Strategies Portfolio and Class 0 Units and Class 2 Units of the Systematic StrategiesCore Macro Portfolio. As further described below under “Fees,” Class 0 and Class 2 Units of eachthe portfolio differ only as to their applicable fees. Subscriptions for Units of any Class may be accepted by GAIF I 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, and on such other notice and dates as the Manager may permit in its sole and absolute discretion.
Units of each Class of each portfolio are offered at their Net Asset Value per Unit as of the end of each month. The minimum initial investment for Class 0 Units is $10,000 (this Class is primarily for “wrap fee programs”) and the minimum additional investment is $5,000. Wrap fee programs bundle the various services provided to a client by a broker or financial advisor in a single fee arrangement rather than charging the client fees for specific transactions. The minimum initial investment for Class 2 Units is $10,000 and the minimum additional investment is $5,000. GAIF I will be continuously offered and has no limit on the maximum aggregate amount of subscriptions that may be contributed to it.
Capital contributions by a single subscriber for any Class of Units, upon acceptance of the subscriber as a member, represent a single interest in GAIF I for that subscriber’s respective Class of Units. A Unit of each Class reflects a member’s interest in GAIF I’s net assetsmember’s capital with respect to the Class of Units owned by the member. Although separate Classes of Units in a portfolio are offered, all capital contributions to a particular portfolio are pooled by GAIF I and invested in GAIT or GAIT II as applicable.GAIT. Units may be purchased only by investors who qualify as accredited investors under Regulation D of the Securities Act of 1933 (“Securities Act”). The principal differences among the separate Classes of Units within the same portfolio are their fees. Holders of Units, regardless of which Class of a portfolio they hold, participate pro rata in the profits and losses of that portfolio in proportion to the Net Asset Value of the Class and have identical rights, as members, under the Company Agreement.
(ii) The Manager The Manager was organized in May 1994 as a Delaware limited partnership. The general partner of the Manager is KGT, Inc., a Delaware corporation of which Kenneth G. Tropin is the sole director and ultimate sole shareholder. KGT, Inc. became a listed Principal of the Manager effective July 27, 1994. The Manager has been registered as a CPO and CTA under the Commodity Exchange Act (“CEA”) and has been a member of the NFA since July 27, 1994 and has beenis also registered as an investment adviser with the Securities and Exchange Commission since March 20, 2012. As of March 1, 2018,2023, the Manager has approximately 201193 personnel and manages assets of over $13$18.8 billion. The Manager’s principal office is located at 40 Highland Avenue, Rowayton, Connecticut 06853 and its telephone number is (203) 899-3400. The Manager’s advisory services may in part be performed out of its branch office in West Palm Beach, Florida and the office of the Manager’s London affiliate, Graham Capital LLP.
(iii) | (iii) The Trading Program |
The Fund offers two separate portfolios, each representing a different investment program: the Blended Strategies Portfolio and the Systematic Strategies Portfolio. The Manager strives to combine various trading strategies within each portfolio in order to diversify the investment exposure of each portfolio and reduce its dependence on any single trading strategy. The Manager also seeks trading strategies that have low correlation to each other in an effort to make the performance returns of each portfolio, so far as is practicable, less volatile and more consistently profitable. The Manager’s Investment Committee, which is comprised of Kenneth G. Tropin, Pablo Calderini, Paul Sedlack, Robert E. Murray, Brian Douglas, Barry S. Fox, James A. Madeiros, William Pertusi, Thomas P. Schneider,Christopher McCann, Timothy Sperry, Edward Tricker, Kelly Tropin Whitridge, George Schrade and Isaac Finkle,Jennifer Ancker Whelen makes decisions with respect to the selection of strategies traded on behalf of the Fund.
Biographical information regarding the members of the Investment Committee as of December 31, 2022 is set forth below.
Kenneth G. Tropin, 6469, is the Chairman and the founder of the Manager. In May 1994, he founded the Manager and became an Associated Person and Principal effective July 27, 1994. Mr. Tropin developed the firm's original trading programs and is responsible for the overall management of the organization, including the investment of its proprietary trading capital.
Pablo Calderini, 53, 58, is the President and Chief Investment Officer of the Manager and, among other things, is responsible for the management and oversight of the discretionary and systematicquantitative trading businesses at the Manager. He joined the Manager in August 2010 and became an Associated Person and Principal of the Manager effective August 13, 2010. Mr. Calderini received a B.A. in Economics from Universidad Nacional de Rosario in 1987 and a Masters in Economics from Universidad del Cema in 1988,1989, each in Argentina.
Paul Sedlack, 57Brian Douglas, 49, is Vice Chairman, Chief Operating Officer and the General Counsel of the Manager. He joined the Manager in June 1998 and became an Associated Person of the Manager effective November 20, 1998 and a Principal on August 21, 1998. He oversees the operation of the finance and administration departments and is also responsible for all legal and compliance matters. Mr. Sedlack received a J.D. from Cornell Law School in 1986 and an M.B.A. in Finance in 1983 and B.S. in Engineering in 1982 from State University of New York at Buffalo.
Robert E. Murray,57C.P.A., is the Chief Executive Officer of the Manager. In July 2004, he joined the Manager as Manager of Financial Reporting. Mr. Douglas became Director of Financial Reporting in April 2008. Mr. Douglas became Chief Financial Officer in April 2013, Chief Operating Officer in March 2019 and Chief Executive Officer in October 2021. Mr. Douglas is responsible for the management and oversight of risk management, quantitative trading,the finance, administration, investor relationsservices, technology, human resources, legal and technology at the Manager. He joined the Manager in June 2003 and became an Associated Person and Principal of the Manager effective June 27, 2003. Mr. Murray received a Bachelor’s Degree in Business with a Finance concentration from Geneseo State University in 1983.
Brian Douglas, 44, C.P.A., is the Chief Financial Officer of the Manager.compliance departments. He became an Associated Person of the Manager effective February 1, 2013 and a Principal on April 1, 2013. In July 2004, he joined the Manager as Manager of Financial Reporting and became Director of Financial Reporting in April 2008. Mr. Douglas received a B.A. in accounting from Western Connecticut State University in May 1996.
George Schrade, 48, C.P.A., is the Chief Financial Officer of the Manager, responsible for overseeing the Manager’s Middle Office, Financial Reporting, Treasury Operations, and Corporate Accounting groups. He became an Associated Person of the Manager effective December 21, 2016 and a Principal on February 28, 2019. In June 2007, he joined the Manager as Senior Analyst in Financial Reporting and has held positions of increasing responsibility prior to becoming Chief Financial Officer in March 2019. Mr. Schrade received a B.S in Accounting from Quinnipiac University in May 1996.
Barry S. Fox,5459, is Managing Director of Quantitative Research Operations and Execution of the Manager. He became an Associated Person of the Manager effective November 10, 2000 and a Principal on November 15, 2007. Mr. Fox joined the Manager in August 2000. Mr. Fox received a B.S. in Business Administration from State University of New York at Buffalo in 1986. James A. Medeiros, 44, is a Senior Managing Director of the Manager responsible for the firm’s Investor Relations group. He joined the Manager in July 2009 and became an Associated Person of the Manager effective July 21, 2009 and a Principal on February 7, 2013. Mr. Medeiros received a Bachelor of Science from the Edmund A. Walsh School of Foreign Service at Georgetown University in 1996, and received an M.B.A. from the Wharton School at the University of Pennsylvania in 2003.
William Pertusi,57, Christopher McCann, 52,is the Chief Risk Officer of the Manager, responsible for identifying, monitoring and acting upon financial risks relative to financial returns in the Manager’sManager's diverse trading strategies. He became an Associated Person of the Manager effective July 24, 2006 and a Principal on November 28, 2006. Mr. Pertusi received a B.S. in Electrical Engineering from Lehigh University in 1983, an M.B.A. from Harvard in 1987, and an M.S. in Mathematics from Fairfield University in 2006.
Thomas P. Schneider, 55, is an Executive Vice President, and the Chief Trader of the Manager. He joined the Manager in June 1994May 2009 and became an Associated Person of the Manager effective September 12, 1994May 29, 2009 and a Principal on November 30, 1995.effective June 24, 2019. He is responsible for managingwas previously registered as a Principal of the Manager’s quantitative futures and foreign exchange trade execution, including all of its core and short term quantitative trading strategies, and developing and maintaining relationships with independent executing brokers and futures commission merchants (“FCMs”).Manager effective September 12, 2012 through February 22, 2016. Mr. Schneider graduated from the University of Notre Dame in 1983 with a B.B.A.McCann received an M.B.A. in Finance from New York University Stern School of Business in May 1998, a M.S. in Industrial Engineering from Rutgers University in May 1995, and received an Executive M.B.A.a B.S. in Chemical Engineering from theWashington University of Texas at Austin in 1997.May 1992.
Tim Sperry, 50,55, is Executive Director and Chief Compliance Officer of the Manager. He joined the Manager in June 2004. As Chief Compliance Officer, he oversees compliance and regulatory matters related to the firm’s business. He became an Associated Person of the Manager effective October 9, 2012 and a Principal on October 10, 2012. As Chief Compliance Officer, he oversees compliance and regulatory matters related to the firm’s business. Mr. Sperry received a J.D. from New England School of Law in May 1998 and a B.A. in Political Science in 1989 from Boston University.
Isaac Finkle, 65, Edward Tricker, 39, is Chief LegalInvestment Officer of Quant Strategies of the Manager. He is currently responsible for the management and oversight of the firm's Quantitative Strategies team, including quantitative operations and execution, research, alpha technology, and data science. He became an Associated Person of the Manager effective February 4, 2013 and a Principal on April 30, 2014. Dr. Tricker joined the Manager in June 2011 as a quantitative research analyst. Dr. Tricker received a Ph.D. in Statistics from Imperial College of Science and Technology in London in October 2009 and a B.S. in Mathematics and Statistics from the University of Oxford in June 2005.
Kelly TropinWhitridge, 32, is Chief Economist and Senior Managing Director of the Manager. Mrs. TropinWhitridge is responsible for leading the Manager’s economic research efforts in addition to playing a key role in the management of the firm’s discretionary trading team. Shejoined the Manager in May 20032014 and became an Associated Person and Principal of the Manager effective September 6, 2018. Mrs. TropinWhitridge received a Bachelor of Arts in Government from Dartmouth College in June 2013. Jennifer Ancker Whelen, 49, is Chief Client Officer, Co-Head of Institutional Relations, and Managing Director of the Manager. She joined the Manager in April 2007 and became an Associated Person of the Manager effective April 16, 2004June 6, 2007 and a Principal on June 5, 2007. Mr. Finkle receivedJanuary 15, 2021. Mrs. Ancker Whelen is responsible for the development of strategic relationships with the Manager’s global client base, including consultants and institutional investors. Mrs. Ancker Whelen graduated cum laude from Colby College in 1995 with a J.D. from New York University School of LawB.A. in 1985, a Ph.D. from the University of Pennsylvania in 1998 specializing in sociological theory,Economics and a B.A. with honorsminor in philosophy from Haverford College in 1973.Sociology. The discretionary traders for any discretionary investment strategy selected to trade on behalf of the Fund make the trading decisions for that discretionary strategy. The Manager has developed sophisticated proprietary software to study optimal portfolio weighting strategies and the effect of specific markets on the performance, risk, correlation and volatility characteristics of each of its trading strategies. As a result, the weighting or leverage that a trading strategy uses in each market may change to address changes in market conditions.conditions or to reflect other trading strategies trading in that market. With such software, the Manager devotes considerable attention to risk management at the portfolio level in an effort to ensure balance between markets and that the overall leverage used by eachthe portfolio is consistent with the Manager’s overall views on risk. The Manager’s objective in forming the investment program of eachthe portfolio is to provide the portfolio with significant potential for capital appreciation in both rising and falling markets and during expanding or recessionary economic cycles. Currently, 50% of the assets of the Blended StrategiesCore Macro Portfolio are allocated to trading the Manager’s Discretionary Trading Program and 50% of the assets are allocated to trading to a sole systematic program, the Manager’s K4D Program (formerly referred to as the K4D-15V Program,Program), but the Manager may alter these allocations at any time within its sole discretion. Currently, 100% of the assets of the Systematic Strategies Portfolio are allocated to the Manager’s K4D-15V Program, but the Manager may over time add other quantitative trading programs to the Systematic Strategies Program.
The Fund will trade actively in both U.S. and foreign markets, primarily on major futures exchanges as well as the inter-bank cash currency and swaps markets. The Fund also engages in exchange for physical (EFP) transactions, which involve a privately negotiated and simultaneous exchange of a futures position for a corresponding position in the underlying physical commodity, and the Fund may use options and other derivatives in addition to swaps. The Manager may also trade other financial instruments, such as emerging market currencies, global stock index futures and futures on virtual currencies, as it endeavors to achieve superior results for investors and enhanced portfolio diversification. The Manager may trade without geographic or market restriction, with new and existing discretionary and quantitative strategies routinely expanding or otherwise modifying the types of instruments traded for the Fund. The Manager reserves the right in extraordinary market conditions to reduce leverage and portfolio risk if it feels in its sole discretion that it is in the potential best interest of the Fund. While such actions are anticipated to occur very infrequently, no assurance can be given that the Manager’s actions will enhance performance or that any efforts by the Manager to achieve portfolio diversification will be successful.
The Manager expects to add additional trading strategies and programs to eachthe portfolio and to modify or replace the strategies currently in use for eachthe portfolio over time, and may in the future offer other portfolios. There is no maximum number of strategies and programs that the Manager may see fit to include in the Fund or eachthe portfolio, and the Manager may increase or decrease the number of strategies and programs included in the Fund or eachthe portfolio over time or increase the number of markets or contracts that are traded on behalf of the Fund or eachthe portfolio. The Manager may make such additions or deletions of trading programs to the Fund or eachthe portfolio at any time and may make such additions, deletions or any other changes, such as changes in the leverage or volatility targets of, or in the asset allocations to, any of the Fund’s trading strategies and programs, in its sole discretion and without prior notice to members.The Core Macro Portfolio does not currently have an annual leverage or volatility target, and even to the extent such targets are established by the Manager in the future, there can be no assurance that the Core Macro Portfolio's programs (or any trading systems or programs utilized by the Fund) will meet such targets in any given period.
The Manager conducts risk analysis and employs risk management controls at various levels of the Fund, including portfolio risk, strategy risk, market risk and execution risk. The objectives of its risk management approach are to measure a Portfolio’s quantitative and qualitative exposures to the risks identified; formulate appropriate policies and procedures in an effort prudently to manage overall risk; monitor compliance with the Manager’s risk policies and procedures; and report identified and measured risks to the Manager’s Risk Committee.Committee and risk management team.
In constructing a Portfolio, the Manager employs various risk management protocols. Using a proprietary asset allocation model and its own qualitative assessments, the Manager’s Investment Committee determines the appropriate strategies for a Portfolio and the weighting of each in the Portfolio. AtThe Manager has developed a trade execution and reporting infrastructure designed to minimize the risk of errors. For example, where appropriate, trades are manually checked for accuracy by the Manager’s middle office staff and are subject to additional cross checking using computerized means. Each discretionary trader’s positions must adhere to established risk management guidelines and position limits, which are regularly monitored by the Manager��s risk management team.
Effective testing, reporting and review are critical elements of the Manager’s risk management process. Daily stress testing is performed to evaluate a strategy’s risk exposure. Daily reporting of Value-at-Risk (VaR), plus intraday reporting of net gains or losses for each strategy enables the Manager’s Risk Committee and the Investment Committee to observe each strategy’s adherence to its investment profile as well as market exposure. VaR is a probabilistic measure of the amount of loss, often referred to as the threshold, that a portfolio of investments may experience over a specified time period. Each strategy is formally reviewed by the Investment Committee on a monthly basis.
The Manager’s quantitative trading programs (including the quantitative traders primarily responsible for implementing such programs) typically use proprietary portfolio construction and embedded risk management techniques within the programs themselves to manage exposure across individual strategy level,markets and sectors. The quantitative risk management process incorporates the outputs of the underlying trading models with a sophisticated risk management process in an effort to enhance returns and maintain diversification and portfolio volatility targets. Notwithstanding the foregoing, certain quantitative traders may be subject to risk policies similar in whole or in part to the risk policies described below with respect to discretionary traders. With respect to the discretionary traders who trade on behalf of the Fund, the Manager works closely with each discretionary trader to design an appropriate investment profile, including return objective and volatility level, for each individual trading strategy. Through continuous monitoring and an active dialogue with every discretionary trader, the Manager seeks to identify and minimize any deviations from the investment profile. In addition, the Manager has implemented a uniform set of risk guidelines for all discretionary traders designed to reduce a strategy’s downside risk. The Manager has developed a trade execution and reporting infrastructure designed to minimize the risk of errors. For example, where appropriate, trades are manually checked for accuracy by the Manager’s middle office staff and are subject to additional cross checking using computerized means. Each discretionary trader’s positions must adhere to established risk management guidelines and position limits, which are regularly monitored by the Manager’s risk management team.
Effective testing, reporting and review are critical elements of the Manager’s risk management process. Daily stress testing is performed to evaluate a strategy’s risk exposure. Daily reporting of Value-at-Risk (VaR), plus intraday reporting of net gains or losses for each strategy enables the risk management team and the Investment Committee to observe the strategy’s adherence to its investment profile as well as market exposure. VaR is a probabilistic measure of the amount of loss, often referred to as the threshold, that a portfolio of investments will experience over a specified time period. Finally, each strategy is formally reviewed by the Investment Committee on a monthly basis.
To manage risk the Manager limits the size and structure of positions taken on behalf of the Fund so that they comply with various risk parameters, both those defined by the Manager and those defined by each of the individual discretionary traders for the Fund’s underlying trading strategies.
The Manager subjects the trading of all of its discretionary traders to a risk monitoring regime that includes a set of defined drawdown limits and a series of risk measurements. Drawdown limits are used as a risk management tool to enforce risk reduction on a discretionary strategy if the discretionary trader is experiencing losses and has not yet reduced overall risk levels. The Manager generally defines a drawdown as losses experienced over a specified period of time, expressed as a percentage of net assets at the beginning of the period. The Manager imposes daily, monthly, and overall drawdown limits for all discretionary traders. There isThe Manager establishes a daily move limit that requires a prompt report to the risk manager,department, a monthly peak to trough drawdown that likely leadswill lead to risk reduction, and a total peak to trough drawdown that likely leads to risk reduction. There is also a drawdown limit where the Manager’s Investment Committee would meet to consider closing a given program. Further, the Manager conducts a daily risk process measuring VaR and reviewing stress tests for each Portfolio.the portfolio. The Manager evaluates the validity of VaR as a risk management tool by comparing the number of instances that profit and loss exceeded expected parameters over various time frames. For example, the Manager utilizes a one day 97.5% VaR, which means that in respect of the Portfolio that it is analyzing it expects the Portfolio to experience a loss in excess of VaR on approximately 1 out of every 40 days. In addition, the Manager runs an extensive series of stress tests, including historical scenarios as well as specific foreign exchange, equity and interest rate shocks. In managing strategy risk, the Manager limits the size and structure of positions taken on behalf of the Portfolio to ensure that they comply with various risk parameters, both those defined by the Manager for the underlying trading strategies and those defined by each of the discretionary traders that trade on behalf of the Portfolio.
In addition to the risk monitoring procedures employed by the Manager, each discretionary trader trading on behalf of a discretionary program for the Fund has established his or her own proprietary risk measures and parameters. These generally include measures of first order sensitivities (i.e., the sensitivity of the Portfolio to a change in a parameter of the underlying instruments) to the most relevant risk factors for a given book (for example, the dollar value of a basis point in the case of interest rate products), measurement of stress loss in extreme market events, or the use of explicit stop loss points. When individual limits on any of these are breached, the discretionary trader likely will reduce risk even if within the Manager’s guidelines.
The Fund currently employs a master-feeder structure for its individual trading programs such that eachthe portfolio’s trading program may, but will not necessarily in all cases, be conducted through one or more master funds. Each of the master funds is managed by one or more employees of the Manager. The master funds were organized by the Manager in order to facilitate the management of various funds and accounts managed by the Manager using in whole or in part the same trading program. The Fund, alternatively, may trade its individual trading programs through one or more managed accounts in the Fund’s name.
Discretionary Trading Program
The Manager has been trading discretionary programs since February 1998. Discretionary programs, unlike systematic programs which are based almost entirely on computerized mathematical models, determine trades subjectively on the basis of a trader’s personal assessment of trading data and trading experience. Although the Manager has had over a decade of experience trading various discretionary programs, DTPDiscretionary Trading Program (“DTP”) itself commenced trading as of August 2008. DTP seeks to invest in various global macro markets that are highly liquid. DTP consists of several of the Manager’s leading discretionary strategies traded by employees of the Manager that focus on the global fixed income, stock index, currency, energy, commodity and metals markets, but over time it may participate in any other liquid market that is available as the Manager deems appropriate.The Fund may also trade futures on virtual currencies.
The Manager’s discretionary programs have generally displayed a significant degree of non-correlation with traditional and other alternative investments, including with the Manager’s own quantitative investment programs. In its composition of DTP, the Manager will seek an investment portfolio that continues to offer such non-correlation and that provides diversification to other investments. DTP may take both long and short positions and thus may generate successful performance results in both rising and declining markets. The holding periods of its positions may range, depending on the individual trading strategies, from just a few hours to months, such that DTP may potentially profit in markets that exhibit either short-term moves or long-term trends. As with its systematic investment programs, the Manager may add or delete trading strategies or trading markets in DTP or alter their individual weightings or leverage as it deems appropriate, and no notice will be given to investors of such allocation changes; in addition, discretionary strategies that have previously traded on behalf of the Fund may be included in DTP.changes. The Manager may make such allocation changes based on a proprietary allocation model, its assessment of market conditions or the availability of additional discretionary trading strategies, in its discretion.
The descriptions contained herein of DTP should not be understood as in any way limiting its investment activities. In addition, the Fund may engage in investment strategies and programs not described herein that the Manager considers appropriate.
Systematic Trading Program
The Manager’s systematic investment programs employ various quantitatively based systems that are designed to participate selectively in potential profit opportunities that can occur in a diverse number of U.S. and international markets. Such systems generally are based on computerized mathematical models and can rely both on technical (i.e., historic price and volume data) and fundamental (i.e., general economic, interest rate and industrial production data) information as the basis for their trading decisions. The systems establish positions in markets where the price action of a particular market signals the computerized systems used by the Manager that a potential move in prices is occurring. The systems are designed to analyze mathematically the recent trading characteristics of each market and to statistically compare such characteristics to the historical trading patterns of the particular market. The systems also employ proprietary risk management and trade filter strategies that seek to benefit fromprice moves while reducing risk and volatility exposure. Each systematic investment program of the Manager incorporates trading strategies developed by the Manager’s research department. While the Manager’s systematic investment programs have employed long-term systematic strategies from their inception, the programs may also include trend systems with varying time horizons. The Manager believes strongly in the importance of research and development of new trading strategies and expects to develop additional trading systems and strategies and to modify or replace the systems currently in use in its systematic programs over time in its ongoing efforts to keep pace with changing market conditions. The decision to add or subtract systems or strategies from any investment program or to change the leverage of, or the asset allocations to, any of the trading strategies of such investment program shall be at the Manager’s sole discretion. The Manager anticipates that the constellation of trading strategies comprising the K4D-15VK4D program will continue to grow and evolve over time. There is no maximum number of strategies that the Manager may include in the K4D-15VK4D investment program. In connection with its programs’ systematic trading, the Manager may employ discretion in determining the leverage and timing of trades for new accounts and the market weighting and participation. In unusual or emergency market conditions, the Manager may also utilize discretion in establishing positions or liquidating positions or otherwise reducing portfolio risk where the Manager believes, in its sole discretion, that it is in the potential best interest of the Fund to do so. While such actions are anticipated to occur very infrequently, no assurance can be given that the Manager’s discretionary actions in these programs will enhance performance. The K4D-15VK4D Program features the first system that the Manager developed, which began trading client accounts in 1995. It utilizes multiple computerized trading models and offers broad diversification in both financial and non-financial markets, currently trading in approximately 80-9090-100 global markets. The K4D-15V Program’s legacy trend system is primarily long-term in nature, but the program alsoK4D Program includes short-term and intermediate trend-following systems as well as momentum carry, fundamental value/reversion strategiesas well as strategies that in the aggregate are intended to be diversifying from trend-following, and is intended to generate significant returns over time with an acceptable degree of risk and volatility. The computer models are currently based on a daily basis analyze the recent price action, the relative strengthprice-based data and the risk characteristics of each marketnon-priced based macroeconomic and compare statistically the quantitative results of this data to years of historical data on each market.fundamental information.
The investment objectives and methods summarized above represent the Manager’s current intentions. Depending on conditions in the financial and securities markets and the economy in general, the Manager may pursue other objectives, employ other investment techniques or purchase any type of financial instrument that it considers appropriate and in the best interests of the Fund, whether or not described in this section.
Northern Trust International Banking Corporation serves as the Fund’s banker for purposes of receiving subscription funds, disbursing redemption payments and processing cash transactions not directly related to the Fund’s portfolio.
Bank of America, N.A. serves as the Fund’s banker for transactions on behalf of eachthe portfolio. A significant portion of the Fund’s assets may be held by Bank of America, N.A. in addition to the futures clearing brokers utilized on behalf of the Fund as well as OTC counterparties. The Fund may also hold excess funds not required for trading in bank accounts at Bank of America, N.A. JPMorgan Chase Bank, N.A. or elsewhere. The Manager, in its discretion, may change the brokerage and custodial arrangements described herein without notice to investors.
GAIF I currently has no direct arrangement with any futures commission broker; rather each master fund that trades on behalf of the Fund may have its separate clearing arrangements with aone or more futures broker. At present, Credit SuisseBofA Securities (USA) LLC, Merrill Lynch, Pierce Fenner & Smith Incorporated (the successor to Bank of AmericaInc., Wells Fargo Securities, LLC as futures broker after Bank of America’s merger with Merrill Lynch and Co.), and Newedge USA, LLCBarclays Capital Inc. are the primary futures clearing brokers for the master funds, but neither the Fund nor the master funds are required or under any contractual obligation to continue to employ them as futures clearing brokers (together with additional or replacement clearing brokers the Manager may select from time to time without notice to investors, the “Futures Brokers”). The Manager is authorized to determine the Futures Brokers (or the counterparty, if concerning a foreign currency or swap transaction) to be used for eachthe portfolio transactiontransactions for the Fund. The Manager is not affiliated with any futures commission merchant or broker-dealer. Each Futures Broker will obtain, safe-keep and maintain custody of all of the Fund’s fully paid assets held by it in a customer account identified on the books of the Futures Broker as belonging to the Fund and segregated from the broker’s own proprietary positions. All of the Fund’s assets, funds, securities and other property held by each Futures Broker are held as security or collateral for the Fund’s obligations to the broker. The margin levels required to initiate or maintain open positions are established from time to time by each Futures Broker and applicable regulatory authorities. Each Futures Broker may close out positions, purchase securities, or cancel orders for the Fund’s account at any time it deems necessary for its protection, generally without the consent of or notice to the Fund.
Agreements with Futures Brokers in general provide that the broker will not be liable in connection with the execution, clearing, handling, purchasing, or selling of commodities, or other property, or other action, except for negligence or misconduct on the broker’s part. Such agreements also may provide that the Futures Broker will be indemnified and held harmless by the Fund from and against any loss, claim, or expense (including attorney’s fees) incurred by the broker in connection with it acting or declining to act for the Fund, and that the Fund will fully reimburse the broker for any legal or other expenses (including the cost of any investigation and preparation) which the broker may incur in connection with any claim, action, proceeding, or investigation arising out of or in connection with the agreement or the transactions contemplated thereunder.
In addition to trading in the Interbank market for foreign exchange, the Fund currently trades on all the major U.S. futures exchanges and may also trade on, but is not limited to, the following foreign exchanges:
ASX Trade24 Bolsa de Mercadorias and Futuros Borsa Italiana (IDEM) Eurex ExchangeEUREX
EURONEXT/London International Financial Futures and Options Exchange EURONEXT/Derivatives Paris MONEP EURONEXT/Derivatives Amsterdam European Options Exchange Hong Kong Exchanges and Clearing Ltd. ICE Endex ICE Futures Canada ICE Futures Europe Intercontinental Exchange JSE Equity Derivatives Market Korea Futures Exchange London Metal Exchange Ltd. Montreal Exchange OMX Nordic Exchange Stockholm Osaka Securities Exchange Singapore Exchange Ltd. South African Exchange Stockholm Stock Exchange
Tokyo Commodity Exchange Tokyo Financial Exchange Tokyo Stock Exchange Turkish Derivatives Exchange
In connection with such trading on foreign exchanges, the Fund’s assets may be deposited by the futures brokers with foreign brokers or banks. Although these foreign brokers or banks are subject to local regulation in their jurisdiction, the protections afforded by foreign regulatory bodies and rules may differ significantly from those afforded by United States regulators and rules. The Fund expects to earnearns interest on cash not required to be posted as margin for its trading. Cash not required by the Fund’s investment programs for trading is currently invested by the Manager in a separate cash management master fund, Graham Cash Assets LLC (“Cash Assets”), managed by the Manager. The Fund pays the Manager no additional fees for managing the Fund’s assets invested in Cash Assets. It is currently anticipated that on average between 70% and 90%95% of the assets of eachthe portfolio will be invested in Cash Assets. Various investment funds managed byOther affiliates of the Manager and other entities affiliated withinvestment funds and accounts managed by the Manager may invest in Cash Assets and each such entity bears its proportional share of the operating expenses of Cash Assets. Cash Assets may pay some third-party fees to unaffiliated custodians or managers in connection with the management of its portfolio, which fees will effectively be borne pro rata by all investment vehicles that invest in Cash Assets. Cash Assets may deposit a portion of its assets in an interest bearing bank account with Bank of America N.A. and JPMorgan Chase Bank, N.A. or other banks or in brokerage accounts, or it may purchase securities (directly or through repurchase or reverse repurchase agreements) which are direct obligations of or obligations guaranteed as to principal or interest by the United States (e.g. U. S. Treasury Bills or Bonds), or other securities issued or guaranteed by corporations in which the United States has a direct or indirect interest (e.g., U.S. government agency securities) which have been designated pursuant to section 3(a)(12) of the Securities Exchange Act of 1934 as exempted securities.
In addition to exchange-traded futures contracts and swaps, the Fund trades spot and forward contracts on foreign currencies and, to a lesser degree, OTC swap and derivatives contracts,contracts. The Fund does not currently the onlyanticipate trading any other non-CFTC regulated instruments the Fund anticipates trading.instruments. The Manager estimates that 20-60% of the Fund’s trades for eachthe portfolio may be in forward contracts and 5-15%0-10% in swap contracts, but depending on market conditions, the percentage of eachthe portfolio’s trades constituted by forward or swap contracts may fall substantially outside that range. Bank of America, N.A. and Barclays currently serve as the Fund’s primary counterparties for foreign currency forward transactions. All of the Fund’s assets, funds, securities, and other property held by Bank of America, N.A. or Barclays as a Fund counterparty, and any other bank or broker-dealer acting as a foreign currency forward counterparty or OTC swap counterparty of the Fund are held as security or collateral for the Fund’s obligations to such entity. As theThe forward and OTC swap markets currently are unregulated, the Fund bearsbear additional risks (e.g., the credit risk of trading with counterparties) not present in exchange-traded futures and swaps trading. Under the Dodd–Frank Wall Street Reform and Consumer Protection Act, the CFTC, sometimes together with the SEC, has enacted regulations to govern these contracts and requires many of them to be cleared through an exchange or clearinghouse.
The Manager determines, in its sole and absolute discretion, the amount of distributions, if any, to be made by the Fund. It is expected that dividends ordinarily will not be paid and that all portfolio earnings will be retained for reinvestment (subject to the redemption privilege).
Fees
Pursuant to the Company Agreement, each Class of the Blended Strategies Portfolio and Systematic StrategiesCore Macro Portfolio of the Fund paid the Manager an advisory fee (the “Advisory Fee”) at an aggregate annual rate equal to 1.75% of the Net Asset Value of such Class for the period from January 1, 2016 through June 30, 2017. Pursuant to the amended Company Agreement, each Class of the Blended Strategies Portfolio and Systematic Strategies Portfolio of the Fund pays the Manager an advisory fee at an aggregate annual rate equal to 1.50% of the Net Asset Value of such Class commencing on July 1, 2017 through December 31, 2017.Class. For purposes of calculating the Advisory Fee, the Net Asset Value of each Class equals the total fair market value of the assets of the Fund attributable to that Class less the liabilities of the Fund attributable to that Class. Profits and losses are allocated among the Classes in proportion to their respective Net Asset Values (before accrual of the Sponsor Fee and the Incentive Allocation set forth below). The Advisory Fee is payable monthly in arrears calculated as of the last business day of each month (before giving effect to any redemptions as of the last business day of the month and subscriptions as of the beginning of the next business day, and before deduction or accrual of fees payable to the Manager and the Incentive Allocation). A portion of the Advisory Fee may be paid to third parties as compensation for offering or selling activities in connection with the Fund. If the Company AgreementManager is terminated as the manager of the Fund as of a date other than the last business day of a month, the Advisory Fee will be prorated through the termination date.
Each Class 0 and Class 2 of the Fund pays the Manager a sponsor fee (the “Sponsor Fee”) at an annual rate of its net Asset Valuethe Members’ Capital specified in the table below. The Sponsor Fee, in each case payable monthly in arrears, determined in the same manner as the Advisory Fee.
| Period | | Class 0 | | Class 2 | | | | | | | | | | For the period from January 1, 2016 through March 31, 2017 | | | 0.75 | % | | | 2.75 | % | | For the period from April 1, 2017 through June 30, 2017 | | | 0.75 | % | | | 1.50 | % | | For the period from July 1, 2017 through December 31, 2017 | | | 0.50 | % | | | 1.25 | % |
| Class 0 | Class 2 | | | | | 0.50% | 1.25% |
A significant portion of the Sponsor Fees will beis paid to third parties as compensation for offering or selling activities in connection with the Fund. The Manager may pay initial service fees as well as on-going service fees to its selling agents. When an initial service fee is paid, the on-going service fee to a selling agent will generally commence the 13th month with respect to which the Fund investor ofintroduced by such selling agent has been invested in the Fund. The service fees paid by the Manager to selling agents range up to 2% of net assets with respect to Class 2 investors.
| (iii) | Incentive Allocation |
Each Class of the Blended StrategiesCore Macro Portfolio and the Systematic Strategies Portfolio of the Fund bears a quarterly Incentive Allocation, payable to Graham Capital LLC, an affiliate of the Manager (“Graham LLC”), as of the end of each calendar quarter, equal to 20% of the net profits of the Class for the quarter, subject to a “loss carryforward” provision. The loss carryforward provision generally provides that the ManagerGraham LLC will not receive an Incentive Allocation in respect of the Class for a calendar quarter to the extent that the Class experiences net loss since the last calendar quarter for which an Incentive Allocation was earned, and such loss has not been recouped through subsequent net profits. The Incentive Allocation is calculated and paid as follows: At the end of each calendar quarter, the Incentive Allocation is deducted from the Net Asset Value of each Class and credited to the Capital Account of the ManagerGraham LLC in the Feeder Funds, in an amount equal to 20% of New High Net Trading Profits (as defined below) with respect to each class of the Blended Strategies Portfolio and the Systematic StrategiesCore Macro Portfolio for such period. “New High Net Trading Profits” for any Class for any quarter shall mean the Net Capital Appreciation (which includes unrealized gains and losses and interest income and expense, less all accrued debts, liabilities and obligations of the Class (but before any accrual for the Incentive Allocation) for such period) for the quarter minus the Carryforward Loss (as defined below), if any, as of the beginning of the quarter, for such Class. The “Carryforward Loss” shall be increased as of the end of each calendar quarter by the amount of any Net Capital Depreciation with respect to such Class during the quarter then ended and shall be decreased (but not below zero) as of the end of each calendar quarter by the amount of any Net Capital Appreciation with respect to such Class during the quarter then ended. In addition, the Carryforward Loss for a Class for any calendar quarter shall be proportionately reduced effective as of the date of redemption of any Units of such Class by multiplying (i) the Carryforward Loss for such Class immediately prior to such redemption by (ii) 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 Carryforward Loss of a Class must be recouped before any subsequent Incentive Allocation can be made to the Manager.Graham LLC. The Incentive Allocation is also accrued and allocable on the date of redemption with respect to any Units that are redeemed on any date not the end of a calendar quarter, as if the date of redemption were the end of a calendar quarter and the Incentive Allocation shall only be deducted with respect to such redeemed Units.
A portion of any of the above fees (including the Incentive Allocation) may be paid by the Manager or its affiliates to third parties as compensation for offering or selling activities in connection with the Fund.
EachFor 2022, each Class of the Fund will bewas responsible for its proportionate share of the Fund’s operating, administrative, trading and other direct expenses of the relevant Portfolio, including all trading commissions (including exchange and clearing and regulatory fees relating to its trades), legal expenses, internal and external accounting, audit and tax preparation expenses, fees and expenses of an Administrator, costs of preparing any required regulatory filings, and printing and mailing costs, together with a proportionate share of the costs incurred in connection with the organization of the Fund (including government incorporation charges and professional fees and expenses in connection with the preparation of the Fund’s offering documents and the preparation of the basic corporate and contract documents of the Fund) and the Fund’s continuing offering of Units.
Beginning June 2022, each Class of the Fund shall pay or reimburse the Manager for all direct costs associated with its assets allocated to the various trading strategies, whether discretionary or quantitative, as the case may be, utilized on the Fund’s behalf and all other expenses related to the operations and business of the Fund including, but not limited to, all expenses of investment transactions such as brokerage commissions and exchange, clearing or regulatory fees and expenses; interest, commitment fees and other costs related to borrowing; transaction fees, finder’s fees, sourcing fees, investment banking fees, origination fees and other similar fees and expenses; fees and expenses of the Administrator; custodial fees; bank service fees; costs of news, research, data and quotation services, software and equipment, including Bloomberg terminals; third-party investment and trading, risk-management and portfolio management related services, licensing, systems, hardware and software (including the third-party installation, programming or servicing related thereto), including trade order management, collateral and margin management and accounting services, licensing, systems, hardware and software; costs of connectivity services; data storage costs; fees and expenses related to the Fund’s currency conversion and hedging activities; other hedging costs; membership, license and similar charges in connection with exchange memberships; income taxes, withholding taxes, transfer taxes and other governmental charges and duties; governmental, registration, license, membership or related fees or expenses payable to any regulatory or self-regulatory organization (including costs associated with preparing and filing regulatory reports such as Form 10-K, Form 10-Q, NFA Form PQR and MiFID trade and transaction reports) or in connection with the distribution of the Units in any jurisdiction; costs of compliance with FATCA, CRS or other similar rules; professional fees of tax advisors, accountants and attorneys; costs for D&O, E&O, cybersecurity and other insurance for the Fund and the Manager; the costs of maintaining the Fund’s registered office; the costs of printing and distributing offering materials and Net Asset Value reports and notices to Members or holding meetings of Members; fees and expenses paid to outside counsel, accountants, experts and other third parties in connection with sourcing, investigating, analyzing, evaluating and conducting due diligence and surveillance on, monitoring and conducting background checks in connection with, existing and potential investments (whether or not consummated); costs of negotiating trading counterparty and service provider agreements; legal and third party costs incurred in connection with settling trades; legal fees and costs (including settlement costs) arising in connection with any litigation, arbitration, investigation or other proceeding related to any portfolio investment; legal and compliance expenses (including responding to formal and informal inquiries, indemnification expenses and expenses associated with regulatory filings relating to the Fund and its portfolio investments); legal and tax structuring expenses; costs of any external appraisers; direct expenses or fees for third parties related to monitoring and responding to class action and other claims (including contingency fees); and all other expenses incurred in connection with locating, evaluating, purchasing, selling or holding investments. The Fund’s operating, administrative and trading expenses are estimated, based on recent experience of the Fund and recent experience with respect to the types of costs and expenses that are expected to be borne by the Fund in the future, to amount to approximately 1.00%1.12% of net assets annually for the Blended StrategiesCore Macro Portfolio, and 0.50% of net assets annually forbut actual expenses may exceed the Systematic Strategies Portfolio.estimated amount. These expenses will be calculated and payable monthly in arrears in the same manner as the Advisory Fee.
The Manager provides and pays for its own professional and administrative staff, office space, business equipment and facilities and other general overhead expenses incidental to its advisory services. Taxes, interest For 2022, the Manager also provided and otherpaid for its expenses related to borrowing, extraordinarybusiness equipment and facilities.
Extraordinary expenses of the Fund such as litigation expenses, or any other fees or expenses not described above in the section “Fees,” will also be separately borne by the Fund. All fees and expenses of the Fund (including the Incentive Allocation) will be assessed at the Feeder Fund level.
Each investor should understand that the costs of the Fund’s operating, administrative and operationaltrading expenses may vary, and that these costs (including the costs described above) are no longer cappednot limited and may be higher than the above estimated amounts. The Fund makes no representation that in the future these expenses may not increase and may not exceed these estimates.
The Manager determines how certain expenses are allocated among the Fund and other funds and accounts managed by the Manager. The Manager will allocate the above expenses (including the investment and operating expenses of the Master Funds) among the funds and accounts the Manager manages in proportion to their respective net asset values, in proportion to their respective participation in a particular investment, strategy or program, or in any other manner that the Manager determines to be equitable (which may be based on the Manager’s assumptions as to relative usage or resources allocated among the funds and accounts). The Manager has established expense allocation policies in an effort to address such matters and may amend such policies or establish additional expense allocation policies in an effort to address potential conflicts of interest that may arise in the future.
Allocation of Profit and Loss
A separate Capital Account is maintained for each member with respect to each Class of Units held by such member. The initial balance of each Capital Account of each member will equal the net initial contribution to the Fund by such member with respect to the Class to which such Capital Account relates. Each Capital Account of each member is increased by any additional capital contributions by such member with respect to the Class to which such Capital Account relates and decreased by any redemptions of Units of such Class by such member. Net realized and unrealized appreciation or depreciation in the value of assets of eachthe portfolio of the Fund, including investment income and expenses, is allocated at the end of each fiscal period among the Capital Accounts of the members in proportion to the relative values of such Capital Accounts as of the commencement of such fiscal period (in the case of any month end that is not also the end of a calendar quarter,year, before any accrual for the Incentive Allocation).
On the last day of each fiscal period, an allocation is made of the net profit or net loss attributable to the investments of eachthe portfolio for such fiscal period. The net profit or net loss for a fiscal period is allocated among all the Classes of eachthe portfolio pro rata in the proportion that the Net Asset Value of each Class as of the date of the commencement of such fiscal period bears to the Net Asset Value of the portfolio as of such date.
The Net Asset Value of each Class means the total value of the Fund’s assets, at fair value, attributable to that Class less the liabilities of the Fund attributable to that Class. The Net Asset Value per Unit of any Class is determined as of the close of business on the last business day of the month (a “Valuation Day”) by dividing the Net Asset Value of that Class by the number of outstanding Units of that Class. Such deductions will include an accrual for the Incentive Allocation and the fees to be paid to the Manager.
The net profit or net loss of each Class for a fiscal period in turn is allocated among all holders of Units of that Class pro rata in the proportion that the Net Asset Value of each member’s holding of Units of that Class as of the date of the commencement of such fiscal period (after adjustment for any contributions to the capital of the Fund which are effective on such date) bears to the aggregate Net Asset Value of that Class as of such date. The Manager is responsible for determining the value of the Fund’s assets. The Fund has appointed SEI Global Services Inc. as the Fund’s independent administrator (“Administrator”), and in connection with that role SEI is responsible, subject to the ultimate supervision of the Manager, for calculating the Net Asset Value of the Fund and the Net Asset Value per Unit of each Class of Units. In determining the Net Asset Value of the Fund and the Net Asset Value per Unit of each Class of Units, the Administrator will follow the valuation policies and procedures adopted by the Fund as set out below. If and to the extent that the Manager is responsible for or otherwise involved in the pricing of any of the Fund’s portfolio assets, the Administrator may accept, use and rely on such prices in determining the Net Asset Value of the Fund and shall not be liable to the Fund, any investor in the Fund, the Manager or any other person in so doing.
For all purposes, including subscriptions, redemptions and the calculation of the fees paid to the Manager, the Manager shall determine the fair market value of any investment made by the Fund. In general, investments will be valued as follows:
| a. | The value of unrealized gain or loss on open futures contracts shall be recorded as the difference between the contract price on the trade date and the closing price reported as of the Valuation Day on the primary exchange on which such contracts are traded. |
| b. | The value of any option listed or traded on any recognized foreign or U.S. exchange shall be the settlement price published by the principal exchange on which it is traded on the relevant Valuation Day. If the recognized foreign or U.S. exchange does not publish a settlement price, the value of any option listed or traded on any recognized foreign or U.S. securities exchange shall be the last reported sale price on the relevant Valuation Day on the principal exchange on which such option is traded. If no such sale of such option was reported on that date, the market value shall be the average of the last reported bid and asked price. The market value of any over-the-counter option for which representative broker’s quotations are available shall be determined in like manner by reference to the last reported sale price, or, if none is available, to the average of the last reported bid and asked quotation. Premiums for the sale of such options written by the Fund shall be included in the assets of the portfolio, and the market value of such options shall be included as a liability. |
| c. | The value of any U.S. government security shall be the cost of such security plus accrued interest discount and amortization of premium.discount.
|
The fair value of any assets not referred to in clauses (a) through (c) above (or the valuation of any assets referred to therein in the event that the Manager shall determine that there is no active market or that another method of valuation is advisable in the circumstances) shall be determined by or pursuant to the direction of the Manager. Prospective investors should be aware that situations involving uncertainties as to the valuation of portfolio positions could have an adverse effect on Net Asset Value if management’s judgments regarding appropriate valuations should prove incorrect. Absent bad faith or manifest error, the Fund’s Net Asset Value determinations are conclusive and binding on all investors. Net Asset Values are expressed in U.S. dollars, and any items denominated in other currencies are translated at prevailing exchange rates as determined by the Administrator in consultation with the Manager.
The Manager may, in its sole and absolute discretion, permit any other method of valuation to be used if it considers that such method of valuation better reflects fair value and is in accordance with good accounting practice.
Reporting
The Fund is required to furnish audited annual reports to its members containing financial statements examined by the Fund’s independent registered public accounting firm. The Fund is also required to provide members with monthly performance updates and monthly unaudited financial statements.
Regulation
The Manager has been registered as a CPO and CTA under the CEA, and as an investment adviser with the Securities and Exchange Commission,SEC and has been a member of the NFA since July 27, 1994. GAIF I is regulated as a commodity pool by the CFTC and NFA. The CFTC may suspend a CPO’s or CTA’s registration if it finds that its trading practices tend to disrupt orderly market conditions or in certain other situations. In the event that the registration of the Manager werewas terminated or suspended, the Manager would be unable to continue to manage the business of the Fund. ShouldThe Fund is expected to be terminated should the Manager’s registration be suspended, termination of GAIF I might result. In addition to such registration requirements, the CFTC and certain commodity exchanges have established limits on the maximum net long or net short positions that any person may hold or control in particular commodities. Most exchanges also limit the changes in futures contract prices that may occur during a single trading day.
All persons who provide services directly to the Fund (as opposed to those persons who provide services through a third-party service provider) are employed by the Manager. The Fund has no employees of its own.
All investments risk the loss of capital. No guarantee or representation is made that either portfolio of the Fund will achieve its investment objective. An investment in the Fund is speculative and involves certain considerations and risk factors that prospective investors should consider before subscribing. The practices of leverage and derivatives trading and other investment techniques, which the Fund expects to employ, can, in certain circumstances, result in significant losses. Under certain circumstances, an investment in the Fund involves the risk of a substantial loss of such investment. Investors should be able to bear the loss of their entire investment in the Fund, and their investment in the Fund should not be their sole significant investment.
Past performance is not necessarily indicative of future results.
Class 0 of the Fund has been operating since August 1, 2006, and Class 2 since November 1, 2007 with respect to its original portfolio, now the Blended StrategiesCore Macro Portfolio. Moreover, DTP became a part of the Blended StrategiesCore Macro Portfolio as of August 2008. The Systematic Strategies Portfolio commenced actual trading as of January 1, 2009. There can be no assurance that any portfolio of the Fund will achieve its investment objective.
Risks Related to Trading and Market Conditions
Futures and Options Trading Is Speculative and Volatile. Futures and options prices are highly volatile. Such volatility may lead to substantial risks and returns, generally much larger than in the case of equity or fixed-income investments. Price movements for futures are influenced by, among other things: changing supply and demand relationships; weather; agricultural, trade, fiscal, monetary, and exchange control programs and policies of governments; macro political and economic events and policies; changes in national and international interest rates and rates of inflation; currency devaluations and revaluations; and emotions of other marketmarketplace participants. None of these factors can be controlled by the Fund and no assurance can be given that the Manager’s advice will result in profitable trades for a participating customer or that a customer will not incur substantial losses. With respect to the Blended Strategies Portfolio, the master funds included in DTP may purchase and write options. The purchaser of an option is subject to the risk of losing the entire purchase price of the option, while the writer of an option is subject to an unlimited risk of loss, namely the risk of loss resulting from the difference between the premium received for the option and the price of the futures contract or other asset underlying the option which the writer must purchase or deliver upon exercise of the option.
The Fund may purchase call and put options in respect of specific futures contracts, and may write and sell covered or uncovered call and put option contracts. A call option gives the purchaser of the option the right to buy, and obligates the writer to sell, the underlying contract at a stated exercise price at any time prior to the expiration of the option. Similarly, a put option gives the purchaser of the option the right to sell, and obligates the writer to buy, the underlying contract at a stated exercise price at any time prior to the expiration of the option. A covered call option sold by the Fund, which is a call option with respect to which the Fund owns the underlying contract, exposes the Fund during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying contract or to possible continued holding of a contract which might otherwise have been sold to protect against depreciation in the market price of the contract. A covered put option sold by the Fund, which is a put option with respect to which the Fund has sold short an equivalent number of the underlying contract or owns an offsetting put option, exposes the Fund during the term of the option to possible loss of opportunity to realize profit due to a decline in price of the underlying contract.
The Fund may engage in “uncovered” option transactions, where the writer of a call option does not own an equivalent number of the underlying contracts or, in the case of a put option, the writer has not segregated cash to fulfill the obligation, has not sold short an equivalent number of contracts and does not own a put option covering an equivalent number of contracts with an exercise price equal to or greater than the exercise price of the put written. Regarding uncovered options, the purchaser of an option is subject to the risk of losing the entire purchase price of the uncovered option, while the writer of an uncovered option is subject to an unlimited risk of loss, namely the risk of loss resulting from the difference between the premium received for the option and the price of the futures contract or other asset underlying the option which the writer must purchase and deliver upon exercise of the option.
Thus, an investment in the Fund is suitable only for those investors with speculative capital who understand the risks of futures and options markets.
The Fund’s Trading IsHighlyLeveraged, Which May Result in Substantial Losses for the Fund. The Fund trades futures, currencies, swaps, options, and optionsother instruments on a leveraged basis due to the low margin deposits normally required for trading. As a result, a relatively small price movement in a contract may result in immediate and substantial gains or losses for the Fund. For example, $3,000 in margin may be required to hold a U.S. Treasury futures contract with a face value of $100,000. If the value of the contract were to decline by 3%, the entire margin deposit would be lost. There is no cap on the amount of leverage that the Fund may employ.
Market Illiquidity May Cause Less Favorable Trade Prices. Futures trading at times may be illiquid. Most United States commodity exchanges limit price fluctuations in certain commodity interest prices during a single day by means of “daily price fluctuation limits” or “daily limits.” The daily limit, which is set by most exchanges for all but a portion of the expiration month, imposes a floor and a ceiling on the prices at which a trade may be executed, as measured from the last trading day’s close. While these limits were put in place to lessen margin exposure, they may have certain negative consequences for the Fund’s trading. For example, once the price of a particular contract has increased or decreased by an amount equal to the daily limit, thereby producing a “limit-up” or “limit-down” market, positions in the contract can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Contract prices in various commodities have occasionally moved the daily limit for several consecutive days with little or no trading. Similar occurrences could prevent the Fund from promptly liquidating unfavorable positions, subjecting the Fund to substantial losses.losses, or prevent it from entering into desired trades. Other investment positions held by the Fund may be or become illiquid. The Fund may invest in instruments traded on non-U.S. exchanges. The Fund may not be readily able to dispose of illiquid investments, and in some cases may be contractually prohibited from disposing of an investment for a specified period of time. An exchange or regulatory authority may suspend trading in a particular instrument, order immediate liquidation and settlement of a particular contract, or order that trading in a particular contract be conducted for liquidation only.
Exchange for Physicals (“EFPs”). The Fund may engage in transactions in physical commodities, including exchange for physical transactions. An exchange for physical (“EFP”) is a transaction permitted under the rules of many futures exchanges in which two parties holding futures positions may close out their positions without making an open, competitive trade on the exchange. Generally, the holder of a short futures position buys the physical commodity, while the holder of a long futures position sells the physical commodity. The prices at which such transactions are executed are negotiated between the parties. The Fund May Invest in Swaps and Swaptions. Whether the Fund’s use of swap agreements or swaptions will be successful will depend on the Manager’s ability to select appropriate transactions for the Fund. Swap agreements and options on swap agreements (“swaptions”) can be individually negotiated and structured to include exposure to a variety of different types of investments, asset classes or market factors. Depending on their structure, swap agreements may increase or decrease the holder’s exposure to, for example, long-term or short-term interest rates, foreign currency values, credit spreads or other factors. Swap agreements can take many different forms and are known by a variety of names. Though the Fund’s investment portfolio is generally expected to be liquid, certain swap transactions may be highly illiquid and may increase or decrease the volatility of the Fund’s investment portfolio. Moreover, the Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or insolvency of its counterparty. The Fund will also bear the risk of loss related to swap agreements, for example, for breaches of such agreements or the failure of the Fund to post or maintain required collateral. It is possible that developments in the swap markets, including potential government regulation, could adversely affect the Fund’s ability to terminate swap transactions or to realize amounts to be received under such transactions.
Virtual Currency Futures. The Fund may trade futures on virtual currencies. There are relatively few futures currently available with respect to virtual currencies. Futures with respect to virtual currencies typically have higher collateral and margin deposit requirements than apply to futures with respect to other asset classes, thereby limiting the ability of the Fund to leverage such investments. As margin deposit requirements are set as a percentage of the value of a particular contract, the inherent price volatility of the underlying virtual currency may result in substantial increases in margin requirements for long or short positions of related futures if the price of the underlying virtual currency rises or falls. If FCMs and exchanges lower such margin or collateral requirements in the future, this would increase the inherent leverage of such products, thus increasing the risk of such positions. 16In light of the comparatively small number of market participants and trading volume compared to traditional markets and the volatile demand for the underlying virtual currencies, it may be more difficult to liquidate virtual currency futures at desired prices. In addition, FCMs and virtual currency exchanges may, in the future, impose position limits, prohibit naked shorting, or prohibit give-in transactions, among other restrictions on customer activity. Such restrictions may restrict the Fund 's ability to exit a position during a period of high volatility. Whether due to government action, virtual currency network failure or compromise, market disruptions or exchange or FCM imposed limits, the Fund’s inability to liquidate a position at the desired price or in general may result in substantial losses for the Fund.
Virtual currencies are not issued or controlled by any central governmental or non-governmental authority. The value of virtual currencies will depend on market demand by investors and market participants. As a result, the market prices for virtual currencies can be very volatile. In addition, tax, commodity and securities laws and regulations applicable to virtual currencies are still developing. In the future, CFTC and SEC rulemaking and other regulatory developments may impact the manner in which virtual currencies and related derivatives may be held or traded. One or more countries, including the United States, may take regulatory actions in the future that could severely restrict the right to acquire, own, hold, sell or use virtual currencies or to exchange virtual currencies for other currencies. Any such regulation could have a significant impact on the value of virtual currencies.
In Times of Market Stress, the Fund May Not Be Able to Diversify Its Portfolio.Portfolio and Risk Management Systems May Not be Effective. Where the markets are subject to exceptional stress, trading strategies and programs may become less diversified and more highly correlated as the stress may cause diverse and otherwise unrelated markets all to act in a similar manner. Efforts by the Manager to diversify the Fund’s trading strategies and investment exposure may not succeed in protecting the Fund from significant losses in the event of severe market disruptions. Furthermore, certain risk measures used by the Advisor as part of its risk management systems and procedures, including VaR, are dependent on inputs derived from historical scenarios and data. Such inputs based on historical scenarios and data may not be reliable during periods of unusual or distressed market conditions where the market ceases to function in a typical manner. As a result, the Advisor’s risk management systems and procedures may not operate as anticipated or be effective to prevent losses, in unusual or distressed market conditions. A significant risk of any risk management system using stop loss limits is “gap risk,” which is the risk that liquidity suddenly becomes unavailable and/or markets simply move too quickly through the desired stop level, resulting in greater than expected losses. The inability of a Portfolio or other investors to sell certain types of investments could also lead to a potential inability of the Portfolio and other investors to meet margin calls or fund withdrawals, the impact of which can be further aggravated as dealers and counterparties reduce available credit lines and investors withdraw additional capital. The COVID-19 outbreak initially placed tremendous stress on global markets, leading to a breakdown in typical asset class correlations, decreasing liquidity in the cash markets, and increasing volatility across all markets, although those effects have become muted in response to global vaccination measures to combat the outbreak and fiscal relief measures to support businesses and households.
The Fund Has Credit and Market Risks With Respect to Its Cash Management. The Fund currently invests all assets not required for trading in Cash Assets, which in turn presently holds deposits in bank accounts or invests broadly in U.S. government or agency securities. With respect to its cash deposited in bank accounts, although the bank accounts themselves may be insured by the United States Federal Deposit Insurance Corporation, the balances in such accounts will be largely uninsured, as the maximum amount of insurance available to such accounts will not be material relative to the balances that are expected to be maintained in the accounts. With respect to its investment in U.S. government or agency securities, Cash Assets currently intends to hold them until they mature and values them at amortized cost which approximates fair value. Some of these securities may not mature for a year or longer. If Cash Assets were forced to sell some of its securities in the open market before they mature to meet unanticipated redemption requests (whether from the Fund or other entities affiliated with the Manager), the market value of the securities at such time may be below their amortized cost causing a loss for Fund investors. In addition, if interest rates rise, the interest rate that Cash Assets pays its investors (including the Fund) will not fully reflect the new rates because its pre-existing investments are still yielding interest at lower rates.
The Fund May Also Borrow Money to Support its Trading, Which Could Increase the Level of Volatility in its Performance and Expose the Fund to Greater Losses. In addition to the leverage implicit in trading futures, the Fund may borrow money from brokers or their affiliates and other lenders. A significant portion of the funds borrowed by the Fund may be obtained from brokerage entities in the form of margin loans collateralized by assets held in the Fund’s brokerage account with such brokerage firms. The Fund does not have any limits on borrowing or leverage.
The Fund May Be Terminated at Any Time. Unforeseen circumstances, including substantial losses, the retirement or loss of key personnel of the Manager, the withdrawal of the Manager or the decision of the Manager not to continue to manage the Fund, could cause the Fund to terminate prior to its stated termination date of December 31, 2050. Early termination of the Fund could disrupt an investor’s overall investment portfolio plan resulting in the loss of some or all of its investment.
There is no Secondary Market for the Units, Therefore Investors Should Consider Their Investment in the Fund to be Illiquid. It is not anticipated that an active secondary market will develop in the Units. The Units will not be transferable without the consent of the Manager (which may be granted or withheld in its discretion and on such terms as it determines). Units are not being registered so as to permit a public offering under the securities laws of any jurisdiction. Moreover, there are limitations on the ability of an investor to require the Fund to redeem Units. Consequently, the Units will be illiquid investments.
The Fund Does Not Anticipate Paying Dividends or Making Distributions, Therefore an Investment in the Fund is Not Appropriate for Investors Seeking Current Income. Since the Fund does not presently intend to pay dividends or other distributions, an investment in the Fund may not be suitable for investors seeking current returns for financial or tax planning purposes.
Regulatory and Related Risks
The Fund Is Subject to Speculative Position Limits, Which May Limit the Fund’s Ability to Generate Profits or Result in Losses. The CFTC and various exchanges impose speculative position limits on the number of futures positions a person or group may hold or control in particular futures. Most physical delivery and many financial futures and option contracts are subject to speculative position limits. The CFTC has established position limits with respect to 25 commodity futures and options contracts (including contracts for corn, oats, wheat, soybeans, soybean oil, soybean meal, and cotton.cotton) as well as economically equivalent swaps and may in the future impose limits on additional contracts. In other markets, the relevant exchanges are required to determine whether and to what extent limits should apply. For purposes of complying with speculative position limits, the Fund’s outright futures positions will be required to be aggregated with any futures positions owned or controlled by the Manager or any principal of the Manager.Manager, including all of the other client accounts managed by the Manager. Similar types of limits apply to trading on EU commodity exchanges as a result of EU regulations that came into effect in 2018, albeit in a manner somewhat different to the manner in which limits apply on US commodity exchanges. As a result, the Fund may be unable to take positions in particular futures or may be forced to liquidate positions in particular futures, which could limit the ability of the Fund to earn profits or cause it to experience losses.
Trading on Non-U.S. Exchanges Presents Greater Risks to the Fund than Trading on U.S. Exchanges. Unlike trading on U.S. commodity exchanges, trading on non-U.S. commodity exchanges is not regulated by the CFTC and may be subject to greater risks than trading on U.S. exchanges. For example, some non-U.S. exchanges are “principals’ markets” in which no common clearing facility exists, and a trader may look only to the broker for performance of the contract. In addition, unless the Fund hedges against fluctuations in the exchange rate between the U.S. dollar (in which Units are denominated) and other currencies in which trading is done on non-U.S. exchanges, any profits that the Fund might realize in trading could be reduced or eliminated by adverse changes in the exchange rate, or the Fund could incur losses as a result of those changes. Additional costs could also be incurred in connection with international investment activities. Foreign brokerage commissions generally are higher than in the United States. Expenses also may be incurred on currency exchanges when the Fund changes investments from one currency to another. Increased custodian costs as well as administrative difficulties (such as the applicability of foreign laws to foreign custodians in various circumstances, including bankruptcy, ability to recover lost assets, expropriation, nationalization and record access) may be associated with the maintenance of assets in foreign jurisdictions.
The Unregulated Nature of the Over-The-Counter Markets Creates Counterparty Risks that Do Not Exist in Futures Trading on Exchanges. Forward markets, including foreign currency markets, offer less protection against defaults in trading than is available when trading occurs on an exchange. Forward contracts are not guaranteed by an exchange or clearing house, and, therefore, a non-settlement or default on the contract would deprive the Fund of unrealized profits or force the Fund to cover its commitment to purchase and resale, if any, at the current market price.
Additional risks of the forward markets include: (i) the forward markets are generally not regulated by any U.S. or foreign governmental authorities; (ii) there are generally no limitations on daily price moves in forward transactions; (iii)(ii) speculative position limits are not applicable to forward transactions although the counterparties with which the Fund may deal may limit the size or duration of positions available as a consequence of credit considerations; (iv)(iii) participants in the forward markets are not required to make continuous markets in forward contracts; and (v)(iv) the forward markets are “principals’ markets” in which performance with respect to a forward contract is the responsibility only of the counterparty with which the trader has entered into a contract (or its guarantor, if any), and not of any exchange or clearing house. As a result, the Fund will be subject to the risk of inability or refusal to perform with respect to such contracts on the part of the counterparties with which the Fund trades. For example, because the Fund trades foreign exchange contracts with Bank of America, N.A., it is at risk with respect to the creditworthiness and trading practices of Bank of America, N.A. as the counterparty to its contracts. The Fund Has Credit Risk with respectRespect to its Futures Brokers. The CEA requires a U.S. broker to segregate all funds received from such broker’s customers in respect of regulated futures transactions from such broker’s proprietary funds. If the broker were not to do so to the full extent required by law, the assets of the Fund might not be fully protected in the event of the bankruptcy of the broker. In the event of the broker’s bankruptcy, the Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the broker’s combined customer accounts, even though certain property specifically traceable to the Fund (for example, U.S. Treasury bills deposited by the Fund) was held by the broker. In addition, in the event of bankruptcy or insolvency of an exchange or an affiliated clearing house, the Fund might experience a loss of funds deposited through its broker as margin with an 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. If the Fund retains brokers that are not subject to U.S. regulation, its funds deposited with those brokers might not be segregated.
Central Clearing. In order to mitigate counterparty risk and systemic risk in general, U.S. and international regulatory initiatives require certain derivatives to be cleared through a clearinghouse. In the United States, clearing requirements were part of the SwapsU.S. Dodd-Frank Wall Street Reform and Derivatives Markets Creates Counterparty RisksConsumer Protection Act (the “Dodd-Frank Act”). The CFTC imposed its first clearing mandate on December 13, 2012, affecting certain interest rate and credit default swaps. It is expected that Do Not Exist in Futures Trading on Exchanges. The Fund may enter into swap contracts and related derivatives agreements with various counterparties. Certain swapsthe CFTC, the SEC and other forms ofinternational regulators will continue to implement clearing requirements for other derivatives instruments currently are not guaranteed by an exchange or its clearing house or regulated by any U.S. or foreign governmental authorities. Consequently, there are no requirements with respect to record keeping, financial responsibility or segregation of customer funds and positions. The default of a party with which the Fund has entered into an OTC swap or other derivative may result in the loss of unrealized profitsfuture. Trades submitted for clearing are subject to minimum initial and forcevariation margin requirements set by the Fundrelevant clearinghouse, the futures commission merchant (“FCM”), as well as possible SEC or CFTC mandated margin requirements. Clearing through FCMs has in certain cases led to cover its resale commitments, if any, at the then current market price. Itlosses caused by operational failure or fraud. As products become more standardized in order to be cleared, standardized derivatives may not be possible to dispose of or close out an OTC swap or other derivative position without the consent of the counterparty, andmean that the Fund may not be able to enter intohedge its risks or express an offsetting contractinvestment view as well as it would using customizable derivatives available in order to be able to cover its risk.
The Fund Has Credit and Market Risks With Respect to Its Cash Management. The Fund currently invests all assets not required for trading in Cash Assets, which in turn presently holds deposits in bank accounts or invests broadly in U.S. government or agency securities. With respect to its cash deposited in bank accounts, although the bank accounts themselves may be insured by the United States Federal Deposit Insurance Corporation, the balances in such accounts will be largely uninsured, as the maximum amount of insurance available to such accounts will not be material relativeOTC markets. Compared to the balances that are expected to be maintained in the accounts. With respect to its investment in U.S. government or agency securities, Cash Assets currently intends to hold them until they mature. Some of these securities may not mature for a year or longer. If Cash Assets were forced to sell some of its securities in the openOTC derivatives market, before they mature to meet unanticipated redemption requests (whether from the Fund or other entities affiliated with the Manager), the market value of the securities at such time may be below their principal face amount, causing a loss for Fund investors. In addition, if interest rates rise, the interest rate that Cash Assets pays its investors (including the Fund) will not fully reflect the new rates because its pre-existing investments are still yielding interest at lower rates.
The Fund May Also Borrow Money to Support its Trading, Which Could Increase the Level of Volatility in its Performance and Expose the Fund to Greater Losses. In addition to the leverage implicit in trading futures, the Fund may borrow money from brokers or their affiliates and other lenders. A significant portion of the funds borrowed by the Fund may be obtainedsubject to more onerous and more frequent (daily or even intraday) margin calls from brokerage entitiesboth the clearinghouse and the FCM. In addition, clearinghouse margin is dynamic and may be increased in times of market stress. Although standardized clearing for derivatives is intended to reduce risk (for instance, it may reduce the form of margin loans collateralized by assets held incounterparty risk to the Fund’s brokerage account with such brokerage firms. Thedealers to which the Fund would be exposed under OTC derivatives), it does not eliminate risk. Rather, standardized clearing transfers risk of default from the OTC derivatives dealer to the central clearinghouse, which may increase systemic risk, potentially more so than a failure by an OTC derivatives counterparty. The failure of a clearinghouse, although less likely than the failure of a counterparty, could have any limits on borrowing or leverage.
The Fund Relies on Key Individuals. The Fund relies exclusivelya much more significant impact on the Manager for the management of its investment portfolio,financial system. Because these clearinghouses are still developing and the Manager relies significantly onrelated bankruptcy process is untested, it is difficult to speculate what the services of its founder, Kenneth G. Tropin. There couldactual risks would be adverse consequences to the Fund inrelated to the eventdefault of a clearinghouse. Also, a clearinghouse will likely require that the Manager ceasesFund relinquish control of its transactions if the clearinghouse were to be available to devote its services to the Fund. There could be adverse consequences tobecome insolvent, and, therefore, the Fund if Mr. Tropin ceases towould not be available to devote his services to the Manager.
The Fund May Be Terminated at Any Time. Unforeseen circumstances, including substantial losses, the retirement or loss of key personnel of the Manager, the withdrawal of the Manager or the decision of the Manager not to continue to manage the Fund, could cause the Fundable to terminate priorand close out of a defaulting clearinghouse’s positions but would become subject to its stated termination date of December 31, 2050. Early termination of the Fund could disrupt an investor’s overall investment portfolio plan resulting in the loss of some or all of its investment.
There is no Secondary Market for the Units, Therefore Investors Should Consider Their Investment in the Fund to be Illiquid. It is not anticipated that an active secondary market will develop in the Units. Units are not registered on any exchange, so there is no active secondary market, nor are Units being registered so as to permitregulators’ control over those positions. In such a public offering under the securities laws of any jurisdiction. The Units will not be transferable without the consent of the Manager (which may be granted on such terms as it determines or withheld). Moreover, there are limitations on the ability of an investor to require the Fund to redeem Units. Consequently, the Units will be illiquid investments.
The Fund Does Not Anticipate Paying Dividends or Making Distributions, Therefore an Investment in the Fund is Not Appropriate for Investors Seeking Current Income. Since the Fund does not presently intend to pay dividends or other distributions, an investment incircumstance, the Fund may not be suitable for investors seeking current returns for financial able to take actions that it deems appropriate to lessen the impact of such clearinghouse’s default. Applicable regulations may also require the Fund to make public information regarding its swaps volume, position size and/or tax planning purposes.trades, which could detrimentally impact the Fund’s ability to achieve its investment objectives.
Taxes Will Be Imposed on You Regardless of Cash Distributions.U.S. taxable investors in the Fund must recognize for federal income tax purposes their pro rata share of the taxable net income of the Fund, regardless of whether such investors requested a partial redemption from the Fund to cover their U.S. federal income tax liabilities. An investment in the Fund may generate taxable income for a member even though the value of the member’s interest in the Fund has declined. A member may have to use personal funds to pay the income tax owed on the income or gain allocated to the member. Sufficient information may not be available in time for the member to determine accurately an amount to redeem to pay U.S. federal income taxes for a given fiscal year.
Changes in Tax Laws Governing Individual Retirement Accounts (“IRAs”) Could Result in Adverse Tax Consequences to IRA Owners and Beneficiaries. A change in the current tax laws under the Internal Revenue Code of 1986, as amended (the “Code”) or other applicable tax rules governing IRAs and their investments (including, without limitation, the Code provisions governing the maximum contributions that may be made to IRAs, the types of investments that IRAs may hold, the maximum amount that may be invested in IRAs, and/or the annual minimum required distributions that IRAs must make) could result in adverse tax consequences to IRAs (and their owners and beneficiaries) that invest in the Fund. Such changes could include, for example, a prohibition on IRAs holding investments such as an interest in the Fund and/or a limitation on the aggregate investments that an IRA may hold, which may cause an IRA to lose its tax-exempt status if it is unable to divest from the necessary investments to satisfy any such rules (and/or be exposed to penalty taxes for failure to comply with such rules). By investing in the Fund, an IRA will be deemed to represent and warrant that it expressly understands that its interest in the Fund is generally non-transferable and may not be transferred, exchanged, or otherwise disposed of except as permitted under and in accordance with the applicable LLC Agreement and this Private Offering Memorandum, and that there can be no assurance that the IRA will be able to timely liquidate or dispose of its interest in the Fund in the event of any such change in law in order to avoid any such adverse tax consequences (and that none of the Fund, the Manager or any of their affiliates is under any obligation, whether express or implied, to assist or otherwise accommodate such liquidation or transfer or mitigate such adverse tax consequences to such IRA or its owners or beneficiaries).
Investors Do Not Have the Protections Provided to a Regulated Mutual Fund. Although the Fund may be considered similar to an investment company, it is not required to, and does not intend to, register as such under the Investment Company Act of 1940, as amended (the “Investment Company Act”). Accordingly, certain provisions of the Investment Company Act (which, among other things, require investment companies to have a certain number of disinterested directors and regulate the relationship between the adviser and the investment company) will not be applicable.
Interests in the Fund have not been and will not be registered under the Securities Act, in reliance upon an exemption available under Regulation D under the Securities Act. Accordingly, interests in the Fund will be offered only to investors that, among other requirements, are accredited investors within the meaning of Regulation D. Quantitative Trading System Flaws are not Trade Errors. The Manager’s quantitative trading systems utilize sophisticated quantitative methods for signal generation and trade execution. These systems rely heavily on price-based and fundamental data sourced from third parties. Inaccuracies in the data received, the design and implementation of the systems, and in the sourcing, processing and incorporation of the data into these systems can result in flaws in signal generation and faulty order execution potentially resulting in losses to client accounts. Systems are developed with the aid of historical data, which reflects how markets behaved in the past under different circumstances. These trading systems cannot predict or detect fundamental changes in market behavior and might not perform as designed or intended during periods of unexpected market behavior. Developing quantitative trading programs requires highly skilled personnel applying advanced quantitative methods to vast data sets. Notwithstanding the Manager’s approach to hiring highly qualified quantitative research personnel, commitment to well-defined research and development protocols and extensive testing and ongoing monitoring of its trading systems, the complex nature of quantitative trading programs creates the risk that flaws will arise in these systems. Such flaws may be difficult to detect and therefore may impact these systems for extended periods of time. All of these risks are intrinsic to the operation of quantitative trading strategies, and investors in the Fund must assume that the foregoing elements constitute an inherent risk of the Fund’s investment. As such, any losses attributable to these issues will not be deemed to be trade errors and will be borne by the Fund.
Regulation in the Derivatives Industry. The Dodd-Frank Act has had a significant impact on the derivatives industry. The Dodd-Frank Act divides the regulatory responsibility for derivatives in the United States between the SEC and the CFTC, a distinction that does not exist in any other jurisdiction. The CFTC has regulatory authority over “swaps” and the SEC has regulatory authority over “security-based swaps”. As a result of this bifurcation and the different pace at which the agencies have promulgated necessary regulations, different transactions are subject to different levels of regulation in the United States. In addition, there has been and will be extensive rulemaking related to derivative products by non-U.S. regulatory authorities. Differences between regulatory regimes may make it more difficult or costly for dealers, prime brokers, FCMs, custodians, exchanges, clearinghouses and other entities, such as the Fund, to comply with and follow various regulatory regimes. There are significant legal, operational, technological and trading implications that result from the Dodd-Frank Act and related rules and regulations that may make it difficult or impossible for the Fund to enter into otherwise beneficial transactions. As an example, both U.S. and non-U.S. regulators have mandated margin requirements with respect to uncleared derivatives under certain circumstances (such requirements together, the “Uncleared Margin Rules” or “UMR”). The Manager currently expects that at least a portion of the Fund’s trading will be subject to UMR, which may have negative trading implications for the Fund, including without limitation, increased trading costs and expenses and margin requirements.
Impact of Future Financial Industry Regulation is Uncertain butand May Impact the Fund’s OperationsOperation of the Portfolios. Legal, tax and regulatory developments could occur. Securities, futures and other financial markets are subject to comprehensive statutes, regulations and margin requirements enforced by the SEC, the CFTC and other U.S. and non-U.S. regulators and self-regulatory organizations and exchanges authorized to take extraordinary actions in the event of market emergencies. The regulation of derivatives transactions and funds that engage in such transactions is an evolving area of law and is subject to modification by government and judicial actions. The regulatory environment for private funds is evolving, and changes in the regulation of hedge funds and their trading activities may adversely affect the ability of investors (such as the Fund) to pursue certain investment strategies, the ability to obtain leverage and financing, and the value of certain investments. The U.S. Congress enacted sweeping financial legislation (the “Dodd-Frank Act”) regarding the operation of banks, private fund managers and other financial institutions, which includes provisions regarding the regulation of swaps and other derivatives. Many provisions of the Dodd-Frank Act are being implemented through regulatory rulemakings and similar processes over a period of time. The impact of the Dodd-Frank Act, and of follow-on regulation, on certain trading strategies and operations is impossible to predict, and may be adverse. U.S. and non-U.S. regulators may take additional actions in light of other developments in global financial markets, such as the European debtbanking crisis. In September 2008, for example, the SEC and various non-U.S. regulatory bodies imposed temporary bans on short-selling of a variety of stocks, and adopted other regulations that may have the effect of making short-selling more difficult or costly. Additional proposed legislation and regulations are pending in several global markets that may further regulate or limit short-selling activities or other activities. These changes may adversely affect the markets in which the Funds invest,Fund invests and may limit or adversely affect the ability of the Manager to use short sales, swaps and other derivatives as part of the investment and hedging strategies used by the Manager.
Risks of Using Trading Models. The success of certain systematic trading models developed by the Manager will depend on their ability to accurately predict future market prices, and upon the continuation of past correlations among the market prices of specific futures, forwards, securities and other financial instruments, the markets generally, and the factors used in the models. To the extent that such models, or the assumptions underlying them, are not correct, the Fund may sustain losses. Even if the same correlations continue to exist in the future, they may not exist over the period of any particular investment in the Fund.
The development and ongoing maintenance of trading models is complex and involves financial, economic, econometric and statistical theories, research and modeling, which are then translated into computer code. Although the Manager devotes significant resources to testing, evaluating, monitoring and improving its trading models on a continuous basis, there is always the risk that trading models may be subject to coding or other errors, and there is no assurance that the software code used by the Manager’s trading models will successfully or optimally translate the Manager’s theories and analyses into successful trading results. The Manager relies on trading, communication, programming and other systems and equipment (including web services, cloud storage, cloud computing platforms and cloud architecture) that may be subject to failures, interruptions, loss of functionality, degradation, compromises in security, loss of power or other events or circumstances. Many of the strategies used by the Manager also depend on the receipt of timely and accurate market and other data from third party vendors. Any failure to receive such data in a timely manner, or the receipt of inaccurate data for any reason, could disrupt and adversely affect trading until such failure or inaccuracy is corrected.
The Trading Programs Used by Each PortfolioThe portfolio May Be Changed Without Notice to Investors. The Manager continuously updates and changes its trading programs as a result of its ongoing research efforts and in response to changing market conditions. The Manager also expects to develop and implement new trading programs from time to time.time, which may be used first by other funds or accounts managed by the Manager. The Manager may make additions or deletions of trading programs used by either the Blended Strategies Portfolio or the Systematic StrategiesCore Macro Portfolio at any time, and may make additions, deletions or any other changes to its trading programs used by either portfolio – such as changes in the amount of leverage or volatility targets of, or in the allocations of assets to, any of the trading programs used by either portfolio as well as changes to underlying trading – at any time as determined by the Manager in its sole discretion. The Manager is not required to provide prior, or any, notice to investors of any such changes. As a result, the descriptions of the trading programs of eachthe portfolio in the Fund’s offering materials may not at any particular time fully or accurately describe the trading programs being used by eachthe portfolio.
19Calculation and Payment of Redemption Proceeds to Members May Be Based on Unaudited Data and Accrued Liabilities Subject to Adjustment. Accordingly, adjustments and revisions may be made to the Fund’s net asset value following the year-end audit of the Fund. Once paid, no revision to a Member’s redemption proceeds will be made based upon audit adjustments. Thus, the Fund will not seek reimbursement in the event of any overpayment and will not pay additional amounts in the event of an underpayment. As a result, a redeeming Member may be positively or negatively affected by a revision to the Fund’s net asset value. To the extent that such revisions to net asset value decrease the net asset value of the Fund, the outstanding Units will be adversely affected by redemptions. Conversely, any increases in the net asset value of the Fund resulting from such adjustments will be entirely for the benefit of the outstanding Units. Similarly, the Fund’s net asset value in any calculation period is reduced by accrued liabilities, including expenses borne by the Fund. Certain accruals for expenses and other liabilities may be adjusted in future calculation periods. The net asset value of the Fund in prior periods will not be revised due to any subsequent adjustment to the accruals.
Effect of Substantial Redemptions. Substantial redemptions could be triggered by a number of events, including, without limitation, unsatisfactory performance, events in the markets, a significant change in personnel or management of the Manager, legal or regulatory issues that investors perceive to have a bearing on the Fund and/or the Manager, or other events. Actions taken to meet substantial redemption requests from the Fund could result in the Fund altering its investments at other than optimal times, prices of financial instruments held by the Fund decreasing and in Fund expenses increasing (e.g., transaction costs and the costs of terminating agreements) and forced covering/sales to ensure proper margin ratios. The overall value of the Fund also may decrease because the liquidation value of certain assets may be materially less than their cost or mark-to-market value. Substantial redemptions from the Fund could also significantly restrict the Fund’s ability to obtain financing or transact with derivatives counterparties needed for its investment strategies, which would have a further material adverse effect on the Fund’s performance.
Systemic Risk. Credit risk may arise through a default by or because of one of several large institutions that are dependent on one another to meet their liquidity or operational needs, so that a default by or because of one institution may cause a series of defaults by the other institutions. This is sometimes referred to as a “systemic risk” and may adversely affect financial intermediaries, such as clearing houses, banks, securities firms and exchanges with which the Fund interacts. A systemic failure could have material adverse consequences on the Fund and on the markets for the financial instruments in which the Fund seeks to invest.
Risks Related to Conflicts of Interest Performance Based and other Fund Compensation Could Expose the Fund to Greater Risks. The Manager could receive substantial compensation in the event it generates net profits for the Fund. Such compensation arrangements may provide an incentive for the Manager to effectuate larger and more risky transactions than would be the case in the absence of such arrangements. The Manager may receive compensation with respect to unrealized appreciation of Fund assets as well as with respect to realized gains from the trading of Fund assets. The fees and incentive allocation payable to the Manager were not the subject of arms’ length negotiation. In addition, investors that acquire Units of any Class with a Net Asset Value below a previous high waterhigh-water mark might benefit at the expense of pre-existing investors where those Units increase in value but are not yet subject to an Incentive Allocation because the Class as a whole still has aggregate carried forward losses.
The Manager Manages and May Invest in Other Accounts. The Manager acts as general partner or trading manageradvisor to other investment funds and other managed accounts, including those referenced herein, that have investment objectives and methodologies that in some cases are similar to, and in other cases different from, those of the Fund. TheseThe majority of these investment funds and managed accounts employ amany of the same discretionary or systematic trading program identical to, or substantially similar to,strategies that are traded for the Fund and a discretionary trading program similar to that traded for the Blended Strategies Portfolios. Fund. The Manager may receive higher or lower fees for managing certainis not required to trade all of these accounts. The Manager may also offer suchthe accounts greater transparency with respect to their investments or different redemption orthat it manages on a parallel basis, and other terms than those offered by the Fund. The Manager and its principals may trade for their own accounts in the same markets in which the Fund trades and such accounts may take positions that are opposite, or ahead of, positions taken for the Fund. However,Even accounts that are ordinarily traded on a parallel or substantially similar basis may not participate on such a basis in all portfolio investments for a variety of reasons as determined in the discretion of the Manager, including, without limitation, specific account restrictions, rebalancing of accounts due to capital inflows and outflows, different sizes, funding levels and cash requirements of accounts which can influence position size and market access, and prior differences in portfolio investments. To the extent other investment funds and managed accounts grow in size, they may have an impact on the Fund’s trading and may adversely affect the Fund’s performance. The Manager receives higher management fees, higher incentive-based compensation and/or larger expense reimbursements for managing certain of these funds and accounts, which may create an incentive for the Manager and the Manager’s employees (including the Manager’s investment management and other trading personnel) to allocate riskier, more highly leveraged, or more highly compensated trading strategies, or a greater proportion of such trading strategies, to such funds and accounts. The Manager and its principals will not knowingly or deliberately favorand their proprietary accounts over other clientrelated parties also trade for their own accounts in any manner.some of the same markets in which the Fund trades, and also own significant positions in the Fund and other funds managed by the Manager. The Manager and its principals and their related parties invest proprietary capital in different investment programs offered to clients from those offered by the Fund and may in addition invest proprietary capital to start new untested research strategies of the Manager. Fund investors will not be permitted to inspect the records of such proprietary accounts or the written policies related to such trading. The Manager and its principals also may manage other accounts in the future. All of the above accounts maywill compete with the Fund for the same positions. All of the foregoing accounts maywill be aggregated for purposes of determining applicable position limits and may take the same or different positions as the Fund. With respect to the discretionary strategies traded for the Fund,portfolio, all of the Manager’s trading is currently conducted through one or more master funds. ThisMaster Funds. Except with respect to portfolio managers trading on behalf of more than one account (as discussed further below), this structure generally eliminates the need for trade allocation procedures whichfor the discretionary strategies that would otherwise be the casenecessary if trading for each strategy was conducted for multiple accounts. The Manager closely reviews the capacity levels of each master fundMaster Fund traded for the Fund to ensure that all funds that utilize the discretionary trading strategies can invest in the master fundsMaster Funds at the levels designated by the Manager’s Investment Committee. To date, the master fundsMaster Funds have not experienced capacity limits that would impact the operation of the funds that invest in them; however, no assurance can be given that in the future one or more master fundsMaster Funds will not experiencebe subject to capacity limits, which would require the Manager to limit the participationallocation of assets of one or more funds in the affected masterMaster Funds. Both discretionary and quantitative trading strategies within the Master Funds will also be subject to capacity guidelines and constraints at times and trading allocations among or within the Master Funds will be adjusted accordingly as determined by the Manager’s Investment Committee.
In general, each portfolio manager makes all decisions about what to buy and sell independently from all other portfolio managers. Accordingly, portfolio managers may be buying or selling the same instruments at the same or different times, and at times may be competing with each other to identify, purchase or sell specific instruments. Additionally, portfolio managers may pursue the same or similar strategies and invest in some of the same instruments on behalf of multiple accounts, including certain accounts in which the Fund is not invested. The Manager has established a trade allocation policy that seeks to allocate investment opportunities among client accounts, including the Fund, in a manner that is fair and equitable. The policy identifies appropriate criteria by which the Manager may choose to allocate investments among client accounts, including considerations related to client account investment policies, guidelines or restrictions, tax considerations, cash availability and liquidity constraints. The policy also identifies inappropriate criteria for use in allocating investments among client accounts which relate to situations that would benefit the Manager at the expense of or through the use of client funds. The Manager may amend its existing trade allocation policies or establish additional trade allocation policies in an effort to address potential conflicts of interest that may arise in the future, including as the result of additional portfolio managers trading on behalf of more than one account. The Manager and its officers and employees devote to the Fund as much time as the Manager deems necessary and appropriate to manage the Fund’s business. The Manager and its affiliates may form additional investment funds, enter into other investment advisory relationships, or engage in other business activities, even though such activities may be in competition with the Fund and may involve substantial time and resources of the Manager and its affiliates. These activities could be viewed as creating a conflict of interest in that the time and effort of the Manager’s officers and employees will not be devoted exclusively to the business of the Fund but will be allocated between the business of the Fund and the other business activities of the Manager and its affiliates. During turbulent conditions or distress in the financial markets or other times when the Fund will need focused support and assistance from the Manager and its officers and employees, other accounts for which the Manager serves as an investment manager may likewise require greater focus and attention, potentially placing the Manager’s resources in high demand. In such situations, the Fund may not receive the necessary support and assistance it would require or would otherwise receive if the Manager did not act as an investment manager for other accounts. The Manager or its affiliates may manage separate managed accounts or dedicated investment vehicles for institutional investors that pursue strategies similar to, or that overlap with, those of the Fund. These clients may have access to detailed information about their accounts, including current portfolio holdings, which the Manager does not customarily make available to investors in the Fund or other pooled investment vehicles. Such clients may be able to take action, including more timely action, with respect to their accounts that investors in pooled vehicles with similar or parallel strategies cannot take. The Manager continuously updates and changes its trading programs as a result of its ongoing research efforts and in response to changing market conditions. The Manager also expects to develop and implement new trading programs from time to time. In connection with these development efforts or as discussed further herein, the Manager may, in its sole discretion, determine not to include certain trading programs in client funds and accounts, including the Fund. The Manager determines which accounts that it manages use which trading strategies and programs. The Manager may determine that certain accounts will not participate in certain trading strategies and programs, or allocate assets to particular portfolio managers, that are considered riskier, that are expected to be more volatile, that use greater leverage, that are newer and do not have an established track record, that do not have a track record or other performance metrics that are appropriate for the strategy or characteristics of a particular account, or that are experimental and still being developed or tested. The Manager may also determine that certain investors or prospective investors have an interest in investing in a different trading program which may allocate assets to particular trading programs or portfolio managers only, or to allocate assets to such trading programs and portfolio managers to a greater extent or lesser extent compared to other funds and accounts, including the Fund. The Manager has agreed, and may in the future agree, in its sole discretion, to manage funds or accounts investing pursuant to different trading programs, and such funds or accounts may be restricted to certain investors only, including, without limitation, investors who pay higher fees or expenses, large or strategic investors who satisfy significant minimum investment or other requirements, or investors with specific regulatory or investment policy requirements. The Manager and its principals and their related parties may elect to invest proprietary capital in the different trading programs, including to a greater or lesser extent compared to the level of proprietary capital investment in other funds and accounts, including the Fund. The inclusion or exclusion of a trading program or portfolio manager in a portfolio may have benefits or other consequences affecting other funds and accounts or the Manager generally. While most funds and accounts managed by the Manager (including the Fund) charge a fixed management fee as a percentage of net assets and performance-based compensation as a percentage of the relevant fund’s or account’s net profits, certain other funds and accounts incur an additional level of expense equal to the allocable compensation payable to certain of the Manager’s investment management and trading personnel, with such performance based compensation generally calculated and payable without netting the performance of any one trading strategy, portfolio manager or portfolio management team against another. There is no requirement that all of the Manager’s portfolio managers be compensated in the same manner across all funds and accounts managed by the Manager, and portfolio managers are expected to be compensated separately with respect to their trading for such funds, with their compensation with respect to such funds having the potential to substantially exceed the compensation payable to them with respect to their trading for funds and accounts that do not incur such additional level of expense, such as the Fund. The funds and accounts incurring an additional level of expense will also bear their allocable portion of certain other non-compensation expenses as disclosed in the applicable offering documents for such funds from time to time, which may also materially exceed the non-compensation expenses borne by other funds and accounts, such as the Fund, which do not incur such expenses. The different expense and compensation structures described above may create actual or potential conflicts of interest for the Manager and its employees. The Manager may make additions to or deletions from the Fund’s trading programs or add or remove portfolio managers at any time and may make modifications to those trading programs – such as changes in the amount of leverage of, or in the allocations of assets to, trading programs – at any time as determined by the Manager in its sole discretion. The Manager is not required to provide prior, or any, notice to Fund investors of any such changes. As a result, the descriptions of the Fund’s trading programs herein may not at any particular time fully or accurately describe each trading program being used by the Fund. With respect to the Manager’s systematicvarious trading programs, for those accounts that participate in a trade allocation process, the Manager utilizesmay place block orders with brokers on behalf of multiple accounts, including the Fund. Accounts in which the Manager and its principals have an interest may be included with client accounts in block orders.
Because a block order may be executed at different prices, one or more of the accounts may receive more favorable fills and some less favorable fills. The Manager generally uses a Monte Carlo methodologysimulation to allocate trades in its systematic strategies to multiple underlying accounts. Monte Carlo simulations measure the overall variance for split fillhow fills are distributed, with the goal to keep the allocation whereby a large number of hypothetical allocation scenarios are modeled and the scenario with the lowest variance so as to achieve the fairest allocation among accounts. The process builds a list of fills by broker/price that were received during the day, and a list of accounts/quantity. The account/quantity list is randomly sorted and then allocated the fills from the list in order. After all accounts are filled, the overall variance for how the fills were distributed is systematically selectedmeasured and utilized forthat value is compared to the previous trial. If the variance is lower (more fair), the allocation across applicable accounts.result is kept. If the variance is higher, the result is discarded. This process is run 100,000 times using the allocation with the lowest variance to achieve the fairest allocation. If during the process an allocation results in a variance of 0 (where every account has received the average), the process stops and that allocation is used. Consistent application of this non-discretionary allocation methodology is designed to satisfysatisfies regulatory requirements of objectivity and fairness such that no account or group of accounts receives consistently favorable or unfavorable treatment over time.treatment. Allocations made according to this methodology will be deemed equitable even though under certain market conditions the allocation on an individuala trade may be more favorable to some accounts than others. In addition, the event split fills of futures orders are allocated after execution, the Manager makes available upon request by certain affected clients composite data sufficient to compare execution results. Where block orders are not sanctioned or permitted for an account, whether by regulation or otherwise, buy or sell orders for such account are placed separately. These individual orders may be for the same positions as a block order executed for multiple accounts. The Manager’s execution of such trades is then subject to a randomizationtrade rotation process that is intended to ensure that no account (whether utilizing separate orders or participating in block orders) receives consistently favorable or unfavorable treatment over any other account.other. With this randomization process, the order or timing of execution of any trade for any account cannot be determined or predicted in advance. The Manager may determine to employ additional or alternative methods for allocating orders to client accounts that meet the regulatory requirements of objectivity and fairness such that no account or group of accounts receives consistently favorable or unfavorable treatment. The Manager may enter into side agreements with specific investors in the Fund providing for different fees, redemption rights, access to information about the Fund’s investments or other matters relating to an investment in the Fund.
The Fund Will Generally Bear the Impact of Trade Errors. The Fund will ordinarily be responsible for any losses, and will benefit from any gains, resulting from trading errors and similar human errors, absent the Manager’s reckless disregard of its duties, willful misconduct, or gross negligence, or as otherwise required by law. As a result, any negative or positive results of trading errors generally will be borne by the Fund, rather than by the Manager, so long as the Manager adheres to the foregoing standard of care. However, the Manager bears all direct costs incurred in correcting trade errors, as defined below, without reimbursement for such costs from the Fund; provided, however, that the Manager shall be entitled to set off against such costs any amounts received by it from a broker or trade counter party in recognition of their relative degree of fault in the trade error. In no event shall the Manager be responsible for the negligence, dishonesty or bad faith of any broker or agent of the Fund; provided that such broker or agent was selected, engaged or retained by the Manager in good faith. A “trade error” is any execution by an employee of the Manager mistakenly transmitting, either through negligence or willful misconduct, a trade order to any broker or trade counter party on the Manager’s behalf that the Manager fails to liquidate through its trade reconciliation processes. In no event shall the Manager either offset the cost of correcting trade errors through soft dollars or seek to correct a trade error by instituting a trade between client accounts.
The Master–Feeder Structure Underlying the Fund’s Trading May Create Operating Inefficiencies for the Fund. All trading attributable to the Fund is currently conducted through the master funds organized and managed by the Manager, through a so-called “master-feeder” fund structure. A portion of the subscription proceeds received from investors ordinarily is invested by the Fund in the master funds, in each case with limited liability to the Fund. A separate master fund then invests in global fixed income,futures, foreign exchange and other markets pursuant to each of the investment programs managed by the Manager.
Other investment funds and managed accounts structured to meet the needs of various U.S. and non-U.S. investors, including various proprietary accounts of the Managerand its related parties, also may invest in eachsuch master fund, includingfunds, which include the Fund’s cash management vehicle, Cash Assets. The unitsinterests of such investors in any master fund may be in conflict in a number of respects, including, without limitation, as to theU.S. federal income tax consequences and capital utilization with regard to any master fund’s transactions. For example, each master fund’s transactions may provide investors subject to U.S. income taxation with different after-tax returns than those of non-U.S. and U.S. tax-exempt investors. In some cases, feeder funds that use different investment strategies are subject to different liquidity terms offered to their investors, and therefore may need to make more frequent withdrawals from master funds in order to satisfy redemption requests of investors. Also, each master fund may borrow to increase the efficiency of its capital utilization, but in so doing may incur borrowing charges at a rate that exceeds the rate at which the Fund earns interest income on its available cash. SuchThe Manager seeks to utilize such borrowing, with its attendant additional cost, serves to stabilize the master funds’ financing arrangements and offersoffer various other advantages to their investors. At the same time, such borrowing may disproportionately benefit more leveraged investors in the master funds (including proprietary accounts of the Manager) over less leveraged investors (potentially including the Fund). Investors in the Fund may have conflicting investment, tax, or other interests with respect to their investment. The conflicting interests of individual investors may relate to or arise from, among other things, the nature of investments made by the Fund, the structuring of the acquisition of such investments, or the timing of disposition of investments. In such circumstances, the Manager will consider the investment and other objectives of the Fund and its investors as a whole, and not the investment or other objectives of any investor individually.
When two or more funds or accounts simultaneously invest in a single Master Fund, investors such as the Fund that are better capitalized or use less leverage than other investors may be exposed to losses resulting from a higher-leveraged investor’s inability to provide capital to the Master Fund pro rata to such Master Fund’s requirements from time to time.
Allocation of Expenses. The Manager determines how certain expenses are allocated among the Fund and other funds and accounts managed by the Manager. The Manager will allocate expenses (including the investment and operating expenses of the Master Funds) among the funds and accounts the Manager manages in proportion to their respective net asset values, in proportion to their respective participation in a particular investment, strategy or program, or in any other manner that the Manager determines to be equitable (which may be based on the Manager’s assumptions as to relative usage or resources allocated among the funds and accounts). The Manager has established expense allocation policies in an effort to address such matters and may amend such policies or establish additional expense allocation policies in an effort to address potential conflicts of interest that may arise in the future.
General Risk Factors
Natural Disasters and Other Events. The Fund and its investments may be affected by events beyond the control of the Fund and the Manager, including hurricanes, earthquakes, floods and other natural disasters, emergence of new viruses (such as COVID-19) or outbreaks of an infectious disease, pandemic or any other serious public health concern, infrastructure failures, war, terrorism, labor strikes, or social unrest or instability. The Manager is not able to predict the extent, severity or duration of these or other similar events or the impact that these events may have on the Fund or its investments.
Operational Risks, Including Those Related to Computer Systems and Cybersecurity Threats, May Impact the Fund’s Operations. The Fund depends on the Manager to develop, implement and operate the appropriate systems and procedures to execute all investment transactions and monitor and control operational risk. The Fund’s business is highly dependent on its ability to process, on a daily basis, large volumes of transactions across numerous and diverse markets. Consequently, the Fund relies heavily on its execution, financial, accounting and other data processing systems to trade, clear and settle all transactions, to evaluate and monitor potential and existing portfolio investments, and to generate risk management and other reports that are critical to oversight of the Fund’s activities. Certain portions of the Fund’s and the Manager’s operations are dependent upon systems operated by third parties, including the Fund’s administrator, prime brokers, market counterparties, electronic exchanges, other execution platforms, data providers and their various service providers. The Manager may not be in a position to verify the reliability of such third-party systems or data. Failure of or errors in such systems could result in mistakes or delays in the execution, confirmation or settlement of transactions, or in transactions not being properly booked, evaluated or accounted for. The increasing reliance on internet-based programs and applications to conduct transactions and store data also creates increased security risks. Targeted cyber-attacks, or accidental events, can lead to a breach in computer and data systems and access by unauthorized persons to sensitive transactional or personal information. Data taken in breaches may be used by criminals to commit identity theft, obtain loans or payments under false identities, and other crimes. Cybersecurity breaches at the Manager or its service providers or counterparties may directly or indirectly affect the Fund, and could lead to theft, data corruption, interference with business operations, disruption of operational or trading systems, interference with the Manager’s or the Fund’s ability to execute transactions, direct financial loss or reputational damage, or violations of applicable laws related to data and privacy protection and consumer protection.
The Fund Relies on Key Individuals. The Manager has complete and exclusive responsibility for management and administration of the affairs of the Fund, and Fund relies exclusively on the Manager for the management of its investment portfolio. The Manager, in turn, relies significantly on the services of its founder, Kenneth G. Tropin. The Manager also relies significantly on the services of certain discretionary and quantitative trading personnel for the Fund. There could be adverse consequences to the Fund in the event that the Manager ceases to be available to devote its services to the Fund. There could be adverse consequences to the Fund if Mr. Tropin ceases to be available to devote his services to the Manager. There could be adverse consequences to the Fund if certain discretionary and quantitative trading personnel cease to be available to devote their services to the Fund. The foregoing list of risk factors and conflicts of interest does not purport to be a complete enumeration or explanation of the risks or conflicts involved in an investment in the Fund. Prospective investors should consult with their own advisors before deciding to subscribe for Units.
| Item 1B: | UNRESOLVED STAFF COMMENTS |
Not applicable.
The Fund does not own or use any physical properties in the conduct of its business. The Manager operates from its principal office in Rowayton, Connecticut as well as its offices in London, UK and West Palm Beach, Florida.
There are no material legal proceedings pending, on appeal or concluded to which the Fund is a party or to which any of its assets is subject. There have been no material legal proceedings pending, on appeal or concluded against the Manager or any of its principals, directors or executive officers within the past five years.
| Item 4: | MINE SAFETY DISCLOSURES |
Not applicable.
| Item 5: | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
There is no public market for the Units, and none is likely to develop. Units may be redeemed subject to the conditions of the Company Agreement. Units may not be assigned or otherwise transferred except as permitted under the Company Agreement and as such may not be sold by investors pursuant to Rule 144 of the Securities Act of 1933, as amended.
As of March 1, 2018,2023, there were 16261 holders of Class 0 Units and 12648 holders of Class 2 Units of the Blended StrategiesCore Macro Portfolio.
The Manager determines, in its sole and absolute discretion, the amount of distributions, if any, to be made by the Fund to its investors. To date no distributions have been paid on the Units and the Manager has no present intention to make any distributions in the future.
(d) | Securities Authorized for Issuance under Equity Compensation Plans |
None.
Not applicable.
(f) | Recent Sales of Unregistered Securities |
For the three months ended December 31, 2017,2022, the Fund issued 7,715.622did not issue any Units in exchange for $1,046,137 with respect to the Blended Strategies Portfolio, in each case in a transaction that was not registered under the Securities Act. The Units were issued in reliance upon applicable exemptions from registration under Section 4(a)(2) of the Securities Act and Section 506 of Regulation D promulgated thereunder.Core Macro Portfolio.
The following chart sets forth the purchases of Units of the Fund.
| Month beginning: | | Blended Strategies Portfolio Class 0 Number of Units Purchased | | Price of Blended Strategies Portfolio Class 0 Units Purchased | | Blended Strategies Portfolio Class 2 Number of Units Purchased | | Price of Blended Strategies Portfolio Class 2 Units Purchased | | October 1, 2017 | | | 0.000 | | | $ | 138.81 | | | | 0.000 | | | $ | 100.61 | | | November 1, 2017 | | | 6,385.848 | | | $ | 140.33 | | | | 0.000 | | | $ | 101.65 | | | December 1, 2017 | | | 353.408 | | | $ | 141.90 | | | | 976.366 | | | $ | 102.42 | |
| Month beginning: | | Core Macro Portfolio Class 0 Number of Units Purchased | | Price of Core Macro Portfolio Class 0 Units Purchased | | Core Macro Portfolio Class 2 Number of Units Purchased | | Price of Core Macro Portfolio Class 2 Units Purchased | | October 1, 2022 | | | 1,798.138 | | | $ | 230.97 | | | | 921.741 | | | $ | 163.97 | | | November 1, 2022 | | | 810.095 | | | $ | 224.11 | | | | - | | | | - | | | December 1, 2022 | | | 1,627.988 | | | $ | 224.59 | | | | 968.677 | | | $ | 159.22 | | |
| Item 6: | SELECTED FINANCIAL DATARESERVED
|
Not applicable.
No disclosure is required hereunder as the Fund is a “smaller reporting company,” as defined in Item 10(f)(1) of Regulation S-K.
29
| Item 7: | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
| (a) | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Reference is made to “Item 8: Financial Statements”. The information contained therein is essential to, and should be read in conjunction with, the following analysis. The Fund does not engage in the sale of goods or services. The Fund’s capital consists of capital contributions of the members, as increased or decreased by gains and losses from its investments in the Master Funds, interest, expenses and redemptions. Its only assets are its investments in the Master Funds. The Master Funds do not engage in the sale of goods or services. Their assets are comprised of the equity in their accounts with clearing brokers and OTC counterparties, in each case consisting of cash, open trade equity on derivatives and the net option premium paid or received. In the case of Graham Cash Assets LLC, the assets consist of investments in debt obligations guaranteed by the U.S. federal government, as well as cash and cash equivalents.
For the year ended December 31, 2017,2022, the Blended StrategiesCore Macro Portfolio’s net assetMembers’ Capital value decreasedincreased by $30,670,444$3,228,351 or -42.1%12.6%. This decreaseincrease in net assetsMembers’ Capital was attributable to total subscriptionsnet income of $3,238,637$6,745,624 or 4.4%26.3%, offset by redemptions totaling $30,629,444$3,517,273 or -42.0% and a net loss of $3,279,637 or -4.5%,-13.7% for the year.
For the year ended December 31, 2016,2021, the Blended StrategiesCore Macro Portfolio’s net assetMembers’ Capital value decreased by $13,027,928$3,597,326 or -15.2%-12.3%. This decrease in net assetsMembers’ Capital was attributable to total subscriptions of $1,666,739redemptions totaling $4,170,090 or 1.9%-14.3%, offset by redemptions totaling $13,588,225net income of $572,764 or -15.8% and a net loss of $1,106,442 or -1.3%,2.0% for the year.
| (i) | (i) Results of Operations |
The Fund’s success depends primarily upon the Manager’s ability to recognize and capitalize on market trends in the different and varied sectors of the global financial markets in which it trades.
Blended StrategiesCore Macro Portfolio
20172022 Summary
For the year ended December 31, 2017,2022, the Blended StrategiesCore Macro Portfolio experienced trading lossesgains of $1,524,372$9,089,749 attributable to the following sectors:
| | | | | | | Agriculture / Softs | | $ | (1,092,956 | ) | | $ | (147,371 | ) | | Base Metals | | | 169,719 | | | 106,735 | | | Commodity Mix | | | (63,460 | ) | | Energy | | | (1,568,578 | ) | | 1,425,170 | | | Equities | | | 3,908,747 | | | 638,791 | | | Foreign Exchange | | | (596,087 | ) | | 2,749,233 | | | Long Term / Intermediate Rates | | | (2,083,774 | ) | | 3,585,260 | | | Precious Metals | | | (425,524 | ) | | (270,892 | ) | | Short Term Rates | | | 164,081 | | | | 1,066,283 | | | | | $ | (1,524,372 | ) | | $ | 9,089,749 | |
The Blended StrategiesCore Macro Portfolio recorded a net trading loss in 2017.gain during 2022, with profits across all major sectors. The lossesmajority of profits resulted primarily from positions in fixed income futures, primarily on the long end offrom positions across the yield curve in the U.S. Losses also resulted from positions in commodities, most notably in energy and, agricultural commodities, as well as from positions in currencies. Theto a lesser extent, Europe and Japan. In currencies, the portfolio recordedproduced gains from long positions in global equity indices, which offset a portionthe U.S. dollar versus the Japanese yen, euro, and British pound sterling, particularly during the first three quarters of the overall losses duringyear when the year.dollar was rising. The portfolio posted positive performance in commodities, mainly from long positions in energy. In equity index futures, positions in U.S., European, and Asian benchmark indices led to further gains for the portfolio.
Advisory and Sponsor Fees are calculated as a percentage of the Fund’s net assetMembers’ Capital value as of the end of each month and are affected by trading performance, interest income, subscriptions into and redemptions out of the Fund. Accordingly, the fluctuations in these amounts are directly correlated to the changes in net asset value which are discussed in detail herein. For the year ended December 31, 2017,2022, Advisory Fees decreasedincreased by $384,237$14,709 or -27.7%3.4%, Sponsor Fees decreasedincreased by $482,144$15,367 or -43.7%6.7%, and Administrator’s Fees decreasedincreased by $21,981$790 or -21.3%2.2% in the Blended StrategiesCore Macro Portfolio over the corresponding period of the preceding year. These decreasesThe movements are all attributable to lower net assetsconsistent with the timing of the portfolioprofit and loss and capital activity during the year resulting from redemptions and a net loss for the year which was partially offset by subscriptions. The decrease in Sponsor Fees is also attributable to a reduction of the Class 2 Sponsor Fee rate from 2.75% in 2016 and the first quarter of 2017 to 1.50% in the second quarter of 2017 and from 1.50% to 1.25% in the third quarter of 2017. The decrease in Sponsor Fees is also attributable to a reduction of the Class 0 Sponsor Fee rate from 0.75% in 2016 and the first half of 2017 to 0.50% in the second quarter of 2017. The decrease in Advisory Fees is also attributable to a reduction of the Advisory Fee rate from 1.75% in 2016 to 1.50% in the third quarter of 2017.year. During the year ended December 31, 2017,2022, interest income increased by $145,504$249,365 or 39.5%1,039.6%. Interest was earned on free cash at an average annualized yield of 0.87%0.92% for the year ended December 31, 20172022 compared to 0.54%0.10% for the year ended December 31, 2016.2021.
The Incentive Allocation is based on the New High Net Trading Profits of the portfolio. For the yearsyear ended December 31, 2017 and 2016,2022, the portfolio had not yet recovered previous losses. As a result there was no Incentive Allocation increased by $1,172,360 or 272.8%. This was the result of a higher net gain before incentive allocation for those periods.the year ended December 31, 2022 compared to the year ended December 31, 2021.
The following table illustrates the sector distribution of the Blended StrategiesCore Macro Portfolio’s investments in Master Funds as of December 31, 20172022 based on the fair value of the underlying assets and liabilities in each master fund including both long and short positions. Positive percentages represent net assets whereas negative percentages represent net liabilities.
| Agriculture / Softs | | | 6.054.9 | % | | Base Metals | | | 14.8(13.5 | )% | | Energy | | | 29.6117.0 | % | | Equities | | | 11.9(354.0 | )% | | Foreign Exchange | | | 22.175.2 | % | | Long Term / Intermediate Rates | | | 11.884.8 | % | | Precious Metals | | | 2.1(3.0 | )% | | Short Term Rates | | | 1.7138.6 | % | | | | | 100.0 | % |
20162021 Summary
For the year ended December 31, 2016,2021, the Blended StrategiesCore Macro Portfolio experienced trading gains of $1,794,810$1,922,356 attributable to the following sectors:
| | | | | | | Agriculture / Softs | | $ | 1,048,011 | | | $ | 659,505 | | | Base Metals | | | (2,460,508 | ) | | 407,714 | | | Energy | | | (794,356 | ) | | 806,437 | | | Equities | | | (1,067,204 | ) | | 1,644,987 | | | Foreign Exchange | | | 1,526,527 | | | 481,009 | | | Long Term / Intermediate Rates | | | 1,994,423 | | | (1,669,494 | ) | | Precious Metals | | | 775,132 | | | (442,463 | ) | | Short Term Rates | | | 772,785 | | | | 34,661 | | | | | $ | 1,794,810 | | | $ | 1,922,356 | |
The Blended StrategiesCore Macro Portfolio recorded modesta net tradinggain during 2021. The majority of gains for 2016.resulted from positions in equity index futures, most notably in the U.S. The portfolio also recorded profits in commodity futures, primarily from positions in energy and agricultural commodities. In currencies, the portfolio posted profits primarily from positions in the euro versus the U.S. dollar. The portfolio experienced losses in commodities, primarilyfixed income futures, mostly from positions in the energy complexU.S. bonds with smaller losses in European, Canadian, and base metals. Further losses resulted from trading U.S. equity index futures. In the long term / intermediate rates sector, the portfolio recorded profits primarily from positions on the long end of the yield curve in Europe. Additional gains resulted from positions in foreign exchange, primarily from trading the Japanese yen, British pound sterling and, to a lesser extent, the Mexican peso and Canadian dollar versus the U.S. dollar, which offset the portfolio’s losses for the year.Australian bonds.
Advisory and Sponsor Fees are calculated as a percentage of the Fund’s net assetMembers’ Capital value as of the end of each month and are affected by trading performance, interest income, subscriptions into and redemptions out of the Fund. Accordingly, the fluctuations in these amounts are directly correlated to the changes in net asset value which are discussed in detail herein. For the year ended December 31, 2016,2021, Advisory Fees decreasedincreased by $237,461$5,912 or -14.6%1.4%, Sponsor Fees decreasedincreased by $146,828$1,707 or -11.8%0.7%, and Administrator’s Fees decreased by $25,716$14 or -19.9%-0.0% in the Blended StrategiesCore Macro Portfolio over the corresponding period of the preceding year. These decreasesThe Advisory Fees, Sponsor Fees and Administrator’s Fees are all attributablesubstantially the same when compared to lower net assets of the portfolio during the year resulting from redemptions which were partially offset by subscriptions and a net loss for thecorresponding prior year. During the year ended December 31, 2016,2021, interest income increaseddecreased by $78,530$262,163 or 27.1%-91.6%. Interest was earned on free cash at an average annualized yield of 0.54%0.10% for the year ended December 31, 20162021 compared to 0.37%1.13% for the year ended December 31, 2015.2020.
The Incentive Allocation is based on the New High Net Trading Profits of the portfolio. For the year ended December 31, 2016,2021, the Incentive Allocation decreased by $1,550,824$101,426 or -100% over the corresponding period of the preceding year.-19.1%. This was the result of a net loss before incentive allocation for the year ended December 31, 2016 compared to alower net gain before incentive allocation for the year ended December 31, 2015.2021 compared to the year ended December 31, 2020.
The following table illustrates the sector distribution of the Blended StrategiesCore Macro Portfolio’s investments in Master Funds as of December 31, 20162021 based on the fair value of the underlying assets and liabilities in each master fund including both long and short positions. Positive percentages represent net assets whereas negative percentages represent net liabilities.
| Agriculture / Softs | | | 16.913.8 | % | | Base Metals | | | (16.613.5 | )% | | Energy | | | 9.1107.9 | % | | Equities | | | 11.1(6.6 | )% | | Foreign Exchange | | | 8.7(47.7 | )% | | Long Term / Intermediate Rates | | | 1.223.3 | % | | Precious Metals | | | 10.7(6.1 | )% | | Short Term Rates | | | 58.91.9 | % | | | | | 100.0 | % |
Variables Affecting Performance
The performance of eachthe portfolio of the Fund is affected by net profitability resulting from the trading operations of the master funds, the fees charged by the Fund, and interest income earned on cash and cash equivalents. The master funds acquire and liquidate long and short positions in futures contracts, forward contracts, spot currency contracts and associated derivative instruments such as options and swaps. These instruments are carried at fair value, which is heavily influenced by a wide variety of factors including, but not limited to the level and volatility of exchange rates, interest rates, equity prices, and commodity prices as well as global macro political events. These factors generate market movements affecting the fair value of these instruments and in turn the net gains and losses allocated from the master funds.
Brokerage, advisory and sponsor fees are calculated based on percentage of the net asset value of eachthe portfolio. Changes in the net assets of eachthe portfolio resulting from subscriptions, redemptions, interest and trading profits allocated from the master funds can therefore have a material impact in the fee expense of eachthe portfolio.
A portion of the assets of eachthe portfolio is held in cash and cash equivalents. Changes in the net assets of eachthe portfolio as well as changes in the interest rates earned on these investments can have a material impact on interest income earned.
A portion of the assets of eachthe portfolio is generally held as cash or cash equivalents, which are used to margin the Fund’s investments. It is expected that the average margin the Fund will be required to post to support the Fund’s trading may range between 10% and 30% of the total assets of eachthe portfolio, which will be segregated or secured by the futures brokers in accordance with the CEA and with CFTC regulations or be maintained on deposit with over-the-counter counterparties. In exceptional market conditions, this amount could increase. The master funds are subject to margin calls on a constant daily and intra-day basis, whether in connection with initiating new investment positions or as a result of changes in the value of current investment positions. These margin requirements are met through the posting of additional margin with the applicable futures broker or FX clearing broker, on an almost daily basis. The Manager generally expresses its margin requirements for the portfolios in terms of the aggregate of the margin requirements for the underlying strategies plus the net option premium costs for the underlying strategies. For the years ended December 31, 20172022 and December 31, 2015,2021, the margin requirements for the Blended StrategiesCore Macro Portfolio were 9.63%9.33% and 11.88%8.63%, respectively. Other than any potential market-imposed limitations on liquidity, the Fund’s assets are highly liquid and are expected to remain so. Market-imposed limitations, when they occur, can be due to limited open interest in certain futures markets or to daily price fluctuation limits, which are inherent in the Fund’s futures trading. Through December 31, 2017,2022, the Fund experienced no meaningful periods of illiquidity in any of the markets traded by the Manager on behalf of the Fund.
The Fund raises additional capital only through the sale of Units and capital is increased through trading profits (if any) and interest income. The Fund may borrow money from brokers or their affiliates and other lenders. Units may be offered for sale as of the beginning, and may be redeemed as of the end, of each month. The amount of capital raised for the Fund should not have a significant impact on its operations, as the Fund has no significant capital expenditure or working capital requirements other than for monies to pay trading losses, brokerage commissions and expenses.
The Fund participates in the speculative trading of commodity futures contracts, substantially all of which are subject to margin requirements. The minimum amount of margin required for each contract is set from time to time in response to various market factors by the respective exchanges. Further, the Fund’s brokers may require margin in excess of minimum exchange requirements. The Fund bears the risk of financial failure of the brokers through which it clears trades and maintains margin in respect of any such trades and of its counterparties for its foreign exchange and swap trades with whom it also maintains margin.
| (iv) | Critical Accounting Policies |
Use of Estimates – The Fund’s financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and all amounts are stated in U.S. dollars. The preparation of the financial statements requires the Manager to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The Fund’s significant accounting policies are described in detail in Note 2 of the financial statements.
Fair Value Measurement - The Fund follows U.S. GAAP for fair value measurements, which defines fair value, establishes a framework for measuring fair value and requires certain disclosures about fair value measurements. U.S. GAAP uses a three-level hierarchy for fair value measurement based on the 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 Fund reports the fair value of its investment-related assets and liabilities in accordance with the hierarchy established under U.S. GAAP.
The Fund records its investments in the Feeder FundsFund at fair value in accordance with U.S. GAAP. In determining its net asset value, eachthe Feeder Fund records its investments in master funds at fair value in accordance with U.S. GAAP. The Fund records its proportionate share of the Feeder Funds’ investment income and loss, expenses, fees, and realized and unrealized gains and losses on a monthly basis. Purchases and sales of units in the Feeder Funds are recorded on a trade date basis.
The master funds record all their financial instruments at fair value, which is derived in accordance with U.S. GAAP. Unrealized gainsappreciation and lossesdepreciation from these instruments are recorded based on changes in their fair value. Realized gains and losses are recorded when the positions are closed. All unrealized and realized gains and losses related to derivative financial instruments are included in net gain (loss) on investments in the master funds’ statements of operations.
Cash Assets - The Feeder Funds investFund invests a portion of their excess liquidity in Cash Assets, an entity for which the Manager is also the sole investment advisor. The financial information of Cash Assets is included in the notes to the Financial Statements of the Feeder Funds within Item 8.
Income Taxes - No provision for income taxes has been made in the Fund’s financial statements, as each member is responsible for reporting income or loss based upon the member’s respective share of the Fund’s revenues and expenses for income tax purposes. 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. The Manager has evaluated the Fund’s tax positions and has concluded that there are no significant tax positions requiring recognition, measurement or disclosure in the financial statements. The Manager is not aware of any tax positions or interest/penalties for which it is reasonably possible that the total amounts of unrecognized tax expense will change materially in the next twelve months.
| (v) | Off-Balance Sheet Arrangements |
The Fund does not engage in off-balance sheet arrangements with other entities.
| Item 7A: | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
No disclosure is required hereunder as the Fund is a “smaller reporting company,” as defined in Item 10(f)(1) of Regulation S-K.
| Item 8: | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
| FINANCIAL STATEMENTS | | | | Graham Alternative Investment Fund I LLC | | Core Macro Portfolio (formerly known as Blended Strategies Portfolio | | Portfolio) Years endedEnded December 31, 20172022 and 2016 | | 2021 with Report of Independent Registered Public Accounting Firm |
GRAHAM ALTERNATIVE INVESTMENT FUND I LLC BLENDED STRATEGIESCORE MACRO PORTFOLIO
40 Highland Avenue Rowayton, CT 06853
The undersigned affirms, on behalf of Graham Alternative Investment Fund I LLC Blended StrategiesCore Macro Portfolio, that to the best of his knowledge and belief, the information contained in the attached audited financial statements of Graham Alternative Investment Fund I LLC Blended StrategiesCore Macro Portfolio for the years ended December 31, 20172022 and 20162021 is accurate and complete.
| | By: | Graham Capital Management, L.P., as | | | | Sole Manager |
| | By: |  | | | Brian Douglas | George Schrade | | | | Chief Financial Officer | | | | March 29, 201830, 2023 |
Graham Alternative Investment Fund I LLC
Core Macro Portfolio (formerly known as Blended Strategies PortfolioPortfolio)
Financial Statements
Years Ended December 31, 20172022 and 20162021
Contents
Report of Independent Registered Public Accounting Firm (PCAOB ID 42) | 3138 | | | | Statements of Financial Condition | 3239 | Statements of Operations | 3340
| Statements of Changes in Members’ Capital | 3441
| Statements of Cash Flows | 3542
| Notes to Financial Statements | 3643
|
Financial Statements – Graham Alternative Investment Trading LLC
 |
Ernst & Young LLP 300 First Stamford Place Stamford, CT 06902-6765 | |
Tel: +1 203 674 3000 ey.com |
Report of Independent Registered Public Accounting Firm
To the Members and Manager of Blended StrategiesCore Macro Portfolio
Opinion on the Financial Statements
We have audited the accompanying statements of financial condition of Blended StrategiesCore Macro Portfolio (the “Portfolio”“Fund”) (one of the series constituting Graham Alternative Investment Fund I LLC (the “Fund”(“GAIF I”)) as of December 31, 20172022 and 2016,2021, and the related statements of operations, changes in members’ capital and cash flows for each of the two years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of Blended Strategies Portfoliothe Fund (one of the series constituting Graham Alternative Investment Fund I LLC)GAIF I) at December 31, 20172022 and 2016, 2021, the results of its operations, changes in its members’ capital, and its cash flows for each of the two years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’sGAIF I’s management. Our responsibility is to express an opinion on the Portfolio’sFund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the FundGAIF I in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The FundGAIF I is not required to have, nor were we engaged to perform, an audit of the Fund’sits internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to those charged with governance and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Ernst & Young LLP
We have served as the auditor of Blended Strategies Portfoliothe Fund (one of the series constituting Graham Alternative Investment Fund I LLC Blended Strategies Portfolio)GAIF I) since 2006.
Stamford, CT
| A member firm of Ernst & Young Global Limited |
Graham Alternative Investment Fund I LLC
Core Macro Portfolio (formerly known as Blended Strategies PortfolioPortfolio)
Statements of Financial Condition
| | | December 31, | | | December 31, | | | | | 2017 | | | 2016 | | | 2022
| | | 2021
| | | Assets | | | | | | | | | | | | | | Investment in Graham Alternative Investment Trading LLC, at fair value | | $ | 42,232,939 | | | $ | 72,903,383 | | | $ | 28,825,841 | | | $ | 25,597,490 | | | Redemption receivable from Graham Alternative Investment Trading LLC | | | 265,369 | | | | 1,207,986 | | | | Redemptions receivable from Graham Alternative Investment Trading LLC | | | | 519,852 | | | 253,800 | | | Total assets | | $ | 42,498,308 | | | $ | 74,111,369 | | | $ | 29,345,693 | | | $ | 25,851,290 | | | | | | | | | | | | | | | | | | | Liabilities and members’ capital | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | Accrued redemptions | | $ | 265,369 | | | $ | 1,207,986 | | | | Redemptions payable | | | $ | 519,852 | | | $ | 253,800 | | | Total liabilities | | | 265,369 | | | | 1,207,986 | | | 519,852 | | | 253,800 | | | | | | | | | | | | | | | | | | | Members’ capital: | | | | | | | | | | | | | | | | Class 0 Units (167,183.591 and 331,592.087 units issued and outstanding at $140.90 and $146.92, respectively) | | | 23,556,805 | | | | 48,718,754 | | | | Class 2 Units (183,209.822 and 225,124.868 units issued and outstanding at $101.94 and $107.43, respectively) | | | 18,676,134 | | | | 24,184,629 | | | Class 0 Units (70,066.654 and 83,586.118 units issued and outstanding at $224.59 and $176.27, respectively) | | | 15,735,969 | | | 14,734,016 | | Class 2 Units (82,214.218 and 86,438.110 units issued and outstanding at $159.22 and $125.68, respectively) | | | | 13,089,872 | | | 10,863,474 | | | Total members’ capital | | | 42,232,939 | | | | 72,903,383 | | | | 28,825,841 | | | | 25,597,490 | | | Total liabilities and members’ capital | | $ | 42,498,308 | | | $ | 74,111,369 | | | $ | 29,345,693 | | | $ | 25,851,290 | |
See accompanying notes and the attached financial statements of Graham Alternative Investment Trading LLC.
Graham Alternative Investment Fund I LLC
Core Macro Portfolio (formerly known as Blended Strategies PortfolioPortfolio)
Statements of Operations
| | | Years ended December 31, | | | | | 2017 | | | 2016 | | | Net (loss) gain allocated from investment in Graham Alternative Investment Trading LLC | | | | | | | | Net realized (loss) gain on investments | | $ | (1,663,254 | ) | | $ | 1,107,650 | | | Net increase in unrealized appreciation on investments | | | 138,882 | | | | 687,160 | | | Brokerage commissions and fees | | | (359,595 | ) | | | (468,083 | ) | | Net (loss) gain allocated from investment in Graham Alternative Investment Trading LLC | | | (1,883,967 | ) | | | 1,326,727 | | | | | | | | | | | | | Net investment loss allocated from investment in Graham Alternative Investment Trading LLC | | | | | | | | | | Investment income | | | | | | | | | | Interest income | | | 514,250 | | | | 368,746 | | | | | | | | | | | | | Expenses | | | | | | | | | | Advisory fees | | | 1,004,481 | | | | 1,388,718 | | | Sponsor fees | | | 620,543 | | | | 1,102,687 | | | Professional fees and other | | | 203,546 | | | | 207,179 | | | Administrator’s fees | | | 81,350 | | | | 103,331 | | | Incentive allocation | | | - | | | | - | | | Total expenses | | | 1,909,920 | | | | 2,801,915 | | | Net investment loss allocated from investment in Graham Alternative Investment Trading LLC | | | (1,395,670 | ) | | | (2,433,169 | ) | | Net loss | | $ | (3,279,637 | ) | | $ | (1,106,442 | ) |
| | | Years Ended December 31, | | | | | 2022
| | | 2021
| | | Net gain allocated from investment in Graham Alternative Investment Trading LLC: | | | | | | | | Net realized gain on investment | | $ | 8,779,529 | | | $ | 2,462,629 | | | Net increase (decrease) in unrealized appreciation on investment | | | 310,220 | | | | (540,273 | ) | | Brokerage commissions and fees | | | (100,465 | ) | | | (80,400 | ) | | Net gain allocated from investment in Graham Alternative Investment Trading LLC | | | 8,989,284 | | | | 1,841,956 | | | | | | | | | | | | | Net investment loss allocated from investment in Graham Alternative Investment Trading LLC: | | | | | | | | | | Investment income: | | | | | | | | | | Interest income | | | 273,351 | | | | 23,986 | | | | | | | | | | | | | Expenses: | | | | | | | | | | Incentive allocation | | | 1,602,167 | | | | 429,807 | | | Advisory fees | | | 443,408 | | | | 428,699 | | | Sponsor fees | | | 244,840 | | | | 229,473 | | Professional fees
| | | 172,431 | | | | 162,087 | | | Administrator’s fee | | | 37,235 | | | | 36,445 | | | | | 10,562 | | | | – | | | Interest expense | | | 6,368 | | | | 6,667 | | | Total expenses | | | 2,517,011 | | | | 1,293,178 | | | Net investment loss allocated from investment in Graham Alternative Investment Trading LLC | | | (2,243,660 | ) | | | (1,269,192 | ) | | Net income | | $ | 6,745,624 | | | $ | 572,764 | |
See accompanying notes and the attached financial statements of Graham Alternative Investment Trading LLC.
Graham Alternative Investment Fund I LLC
Core Macro Portfolio (formerly known as Blended Strategies PortfolioPortfolio)
Statements of Changes in Members’ Capital
Years endedEnded December 31, 20172022 and 20162021
| | | Class 0 Units | | | Class 2 Units | | | Total Members’ Capital | | | | | Units | | | Capital | | | Units | | | Capital | | | | | | | | | | | | | | | | | | | Members’ capital, December 31, 2015 | | | 400,877.751 | | | $ | 59,064,584 | | | | 244,435.571 | | | $ | 26,866,727 | | | $ | 85,931,311 | | | Subscriptions | | | 4,318.522 | | | | 620,000 | | | | 9,922.534 | | | | 1,046,739 | | | | 1,666,739 | | | Redemptions | | | (73,604.186 | ) | | | (10,502,194 | ) | | | (29,233.237 | ) | | | (3,086,031 | ) | | | (13,588,225 | ) | | Net loss | | | – | | | | (463,636 | ) | | | – | | | | (642,806 | ) | | | (1,106,442 | ) | | Members’ capital, December 31, 2016 | | | 331,592.087 | | | | 48,718,754 | | | | 225,124.868 | | | | 24,184,629 | | | | 72,903,383 | | | Subscriptions | | | 20,167.169 | | | | 2,888,637 | | | | 3,356.742 | | | | 350,000 | | | | 3,238,637 | | | Redemptions | | | (184,575.665 | ) | | | (25,976,272 | ) | | | (45,271.788 | ) | | | (4,653,172 | ) | | | (30,629,444 | ) | | Net loss | | | – | | | | (2,074,314 | ) | | | – | | | | (1,205,323 | ) | | | (3,279,637 | ) | | Members’ capital, December 31, 2017 | | | 167,183.591 | | | $ | 23,556,805 | | | | 183,209.822 | | | $ | 18,676,134 | | | $ | 42,232,939 | |
| | | Class 0 Units | | | Class 2 Units | | | | | | | | Units | | | Capital | | | Units | | | Capital | | | Total Members’ Capital | | | | | | | | | | | | | | | | | | | Members’ capital, December 31, 2020 | | | 100,881.333 | | | $ | 17,458,496 | | | | 94,473.834 | | | $ | 11,736,320 | | | $ | 29,194,816 | | | Subscriptions | | | – | | | | – | | | | – | | | | – | | | | – | | | Redemptions | | | (17,295.215 | ) | | | (3,098,485 | ) | | | (8,035.724 | ) | | | (1,071,605 | ) | | | (4,170,090 | ) | | Net income | | | – | | | | 374,005 | | | | – | | | | 198,759 | | | | 572,764 | | Members’ capital, December 31, 2021 | | | 83,586.118 | | | $
| 14,734,016 | | | | 86,438.110 | | | $
| 10,863,474 | | | $
| 25,597,490 | | | Subscriptions | | | – | | | | – | | | | – | | | | – | | | | – | | | Redemptions | | | (13,519.464 | ) | | | (2,892,405 | ) | | | (4,223.892 | ) | | | (624,868 | ) | | | (3,517,273 | ) | | Net income | | | – | | | | 3,894,358 | | | | – | | | | 2,851,266 | | | | 6,745,624 | | Members’ capital, December 31, 2022 | | | 70,066.654 | | | $ | 15,735,969 | | | | 82,214.218 | | | $ | 13,089,872 | | | $ | 28,825,841 | |
See accompanying notenotes and the attached financial statements of Graham Alternative Investment Trading LLC.
Graham Alternative Investment Fund I LLC
Core Macro Portfolio (formerly known as Blended Strategies PortfolioPortfolio)
Statements of Cash Flows
| | | Years Ended December 31, | | | Years Ended December 31, | | | | | 2017 | | | 2016 | | | 2022
| | | 2021
| | | Cash flows provided by operating activities | | | | | | | | | | | | | | Net loss | | $ | (3,279,637 | ) | | $ | (1,106,442 | ) | | | Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | | | | Net loss allocated from investment in Graham Alternative Investment Trading LLC | | | 3,279,637 | | | | 1,106,442 | | | | Proceeds from sale of investments in Graham Alternative Investment Trading LLC | | | 31,572,061 | | | | 15,318,961 | | | | Investments in Graham Alternative Investment Trading LLC | | | (3,238,637 | ) | | | (1,666,739 | ) | | | Net income | | | $ | 6,745,624 | | | $ | 572,764 | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | Net (income) allocated from investment in Graham Alternative Investment Trading LLC | | | | (6,745,624 | ) | | | (572,764 | ) | | Proceeds from sale of investment in Graham Alternative Investment Trading LLC | | | | 3,251,221 | | | | 4,149,379 | | | Net cash provided by operating activities | | | 28,333,424 | | | | 13,652,222 | | | | 3,251,221 | | | | 4,149,379 | | | | | | | | | | | | | | | | | | | | | Cash flows used in financing activities | | | | | | | | | | | | | | | | | | Subscriptions | | | 3,238,637 | | | | 1,666,739 | | | | – | | | | – | | | Redemptions | | | (31,572,061 | ) | | | (15,318,961 | ) | | Redemptions (net of redemptions payable)
| | | | (3,251,221 | ) | | | (4,149,379 | ) | | Net cash used in financing activities | | | (28,333,424 | ) | | | (13,652,222 | ) | | | (3,251,221 | ) | | | (4,149,379 | ) | | | | | | | | | | | | | | | | | | | | Net change in cash and cash equivalents | | | – | | | | – | | | | – | | | | – | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents, beginning of year | | | – | | | | – | | | | – | | | | – | | | Cash and cash equivalents, end of year | | $ | – | | | $ | – | | | $ | – | | | $ | – | |
See accompanying notenotes and the attached financial statements of Graham Alternative Investment Trading LLC.
1. Organization and Business The Blended StrategiesCore Macro Portfolio (the “Fund”) is a series of Graham Alternative Investment Fund I LLC (“GAIF I”), 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 I was organized as a Delaware Limited Liability Company which was formed on May 16, 2006 and commenced operations on August 1, 2006. GAIF I has one other active series in addition to the Fund, the Systematic Strategies Portfolio. GAIF I 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”). Effective May 2, 2022, the Fund name was changed from Blended Strategies Portfolio to Core Macro Portfolio.
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 I. 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 I 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 I are enforceable against the assets of any other series.
The Fund offers investorsmembers Class 0 and Class 2 units.Units (collectively the “Units”). 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. 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 Manager is the manager and the sole investment advisor of 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. The Fund may also trade futures on virtual currencies. 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 Amended and Restated Limited Liability Company Agreement (“LLC Agreement”). of the Fund. The performance of the Fund is directly affected by the performance of GAIT; therefore, these financial statements should be read in conjunction with the attached financial statements of GAIT.GAIT, including the condensed schedules of investments. See attached financial statements of Graham Alternative Investment Trading LLC.
1. Organization and Business (continued)
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 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 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.
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 and Cash Assets at fair value based upon GAIT’s proportionate share of the Master Funds’ and Cash Assets’ 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 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 December 31, 20172022 and 2016,2021, the Fund owned 52.41%45.58% and 52.99%46.20%, respectively of GAIT.
Fair Value The fair value of the assets and liabilities of the Fund and GAIT, which qualify as financial instruments under U.S. GAAP, approximates the carrying amounts presented in the statements of financial condition. Changes in these carrying amounts are included in the 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 levelthree-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.
See attached financial statements of Graham Alternative Investment Trading LLC.
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 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 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. |
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 years ended December 31, 20172022 and 20162021 by the Fund, GAIT, the Master Funds or Cash AssetsAssets.
Cash and there were no transfers between levels during those periods. Transfers between levels, if any, are recognizedCash 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 beginningbank's insolvency, recovery of the year.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 December 31, 2022 and 2021, 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 December 31, 20172022 and 2016,2021, 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. A separate capital account is maintained for each member with respect to each member’s Class of Units. The initial balance of each member’sMember’s capital account is equal to the initial contributionsubscription to the Fund by such member with respect to the Class to which such capital account relates. Each member’sMember’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’ capitalMembers’ 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. See attached financial statements of Graham Alternative Investment Trading LLC.
3. Capital Accounts (continued)
Subscriptions
Units may be purchased at a price equal to the Net Asset Value per Unit of the relevant Class as of the immediately preceding Valuation Day, as defined in the LLC Agreement. 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.Any initial or additional cash received prior to or on December 31, 2022, if any, for Fund shares related to the subsequent period is considered a subscription received in advance on December 31, 2022. The new subscription does not receive an allocation of income or expense from the Fund and is recorded as a liability on the Statement of Financial Condition as subscriptions received in advance. See attached financial statements of Graham Alternative Investment Trading LLC.
Graham Alternative Investment Fund I LLC
Blended Strategies Portfolio
Notes to Financial Statements (continued)
3. Capital Accounts (continued)
Subscriptions (continued)
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.Redemptions paid after the end of a fiscal period, based upon end-of-period share values, if any, are reflected as redemptions payable on the Statement of Financial Condition at year end.
Redemption Fees
Class 0 Units are not subject to a redemption fee. For the period from January 1, 2016 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 are 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 are payable to the Manager upon redemption of Units from the proceeds of such redemption. Redemption fees of $0 and $231 were paid to the Manager for the years ended December 31, 2017 and 2016, respectively.
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 Net Asset ValueMembers’ Capital of such Class specified for the periods in the table below.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 effectedaffected with respect to Units of such Class during the month. For the years ended December 31, 20172022 and 2016,2021, the Advisory Fees allocated to the Fund by each Class of GAIT totaled $1,004,481$443,408 and $1,388,718,$428,699, respectively. Period | | Annual Rate | | | | | | For the period from January 1, 2016 through June 30, 2017 | | | 1.75 | % | For the period from July 1, 2017 through December 31, 2017 | | | 1.50 | % |
See attached financial statements of Graham Alternative Investment Trading LLC.
Graham Alternative Investment Fund I LLC
Blended Strategies Portfolio
Notes to 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 Net Asset ValueMembers’ 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 years ended December 31, 20172022 and 2016,2021, the Sponsor Fees allocated to the Fund by each Class of GAIT totaled $620,543$244,840 and $1,102,687,$229,473, respectively.
| Period | | Class 0 | | Class 2 | | | | | | | | | | For the period from January 1, 2016 through March 31, 2017 | | | 0.75 | % | | | 2.75 | % | | For the period from April 1, 2017 through June 30, 2017 | | | 0.75 | % | | | 1.50 | % | | For the period from July 1, 2017 through December 31, 2017 | | | 0.50 | % | | | 1.25 | % |
| Class 0 | Class 2 | | | | 0.50%
| 1.25%
|
See attached financial statements of Graham Alternative Investment Trading LLC.
4. Fees and Related Party Transactions (continued)
Incentive Allocation At the end of each calendar quarter, Graham Capital LLC, an affiliate of the Manager, will receive a special allocation of net profits (the “Incentive Allocation”) in an amount equal to 20% of the New High Net Trading Profits of each Class 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 assetsMembers’ Capital redeemed from such class bears to the net assetsMembers’ 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 Manager. There was noyears ended December 31, 2022 and 2021, Incentive Allocation of $1,602,167 and $429,807, respectively were allocated to the Fund by GAITGAIT.
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 years ended December 31, 2017 and 2016.Fund. Administrator’s Fee For the years ended December 31, 20172022 and 2016,2021, GAIT paid SEI a monthly administrator’s fee based on GAIT’s net asset value,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 years ended December 31, 20172022 and 20162021 were $81,350$37,235 and $103,331,$36,445, respectively.
Any portion of any of the above fees, including the Incentive Allocation, may be paid byProfessional Fees
GAIT shall pay, or reimburse the Manager, to third parties as compensation for selling activitiesexpenses arising in connection with the Fund.Fund’s audit, tax and legal fees (“professional fees”). The total professional fees allocated to the Fund by GAIT for years ended December 31, 2022 and 2021 were $172,431 and $162,087, respectively.
Operating Expenses
In accordance with the LLC Agreement dated May 2, 2022, GAIT shall pay, or reimburse the Manager, for expenses arising in connection with the Fund’s investments, operations, and business (“operating expenses”). For the period from June 1, 2022 through December 31, 2022, GAIT reimbursed the Manager for operating expenses which were comprised of market data and technology costs associated with its assets allocated to the various Master Funds. The total operating expenses allocated to the Fund by GAIT for the period from June 1, 2022 through December 31, 2022 was $10,562. There were no such expenses allocated to the Fund by GAIT for the year ended December 31, 2021. 5. Income Taxes No provision for income taxes has been made in the accompanying financial statements, as members are individually responsible for reporting income or loss based upon their respective share of the Fund’s revenuesincome and expenses for income tax purposes.
See attached financial statements of Graham Alternative Investment Trading LLC.
Graham Alternative Investment Fund I LLC
Blended Strategies Portfolio
Notes to 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 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“more-likely-than-not” threshold would be recorded as a tax expense in the current year and theyear. The Fund identifies its major tax jurisdictions as the U.S. for Federal tax purposes, Connecticut for state tax purposes and Connecticut State.various international jurisdictions. The Manager has evaluated the Fund’s tax positions for all open tax years under the respective statutes of limitations (generally three years in the U.S. but varying in non-US jurisdictions) and has concluded that there are no significant tax positions requiring recognition, measurement, or disclosure in the financial statements for open tax years 2014 through 2016 or expected to be taken in the Fund’s 2017 tax returns.statements. The Manager is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax expense will change materially in the next twelve months. Tax years which are considered open by the relevant jurisdiction are subject to potential examination. Any assessment for interest or penalties on taxes related to uncertain tax positions, when present, would be included in interest and penalties on tax on the statements of operations. During the years ended December 31, 2022 and 2021, no such interest and/or penalties were assessed to the Fund. See attached financial statements of Graham Alternative Investment Trading LLC.
6. Risk Factors 6.Global economic, political and market conditions may adversely affect the Fund’s operations. The current global financial market situation, as well as various social and political circumstances in the United States and around the world (including wars and other forms of conflict, terrorist acts, security operations and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes and global health epidemics), may contribute to increased market volatility and economic uncertainties or deterioration in the United States and worldwide. For example, the outbreak of coronavirus, or COVID-19, in 2020 in many countries adversely impacted global commercial activity with profound impacts to broad economic factors and contributed to significant volatility in financial markets over a prolonged period of time. Globally, most notably in China, efforts to combat COVID-19 continued for an extended period of time, which have continued to impact global supply chains and employment markets, albeit to a lesser degree. Such impacts may affect the financial markets in which the Fund operates.
7. Financial Highlights The following is the per Unit operating performance calculation for the years ended December 31, 2017 and 2016: | | | Class 0 | | | Class 2 | | | Per unit operating performance | | | | | | | | Net asset value per unit, December 31, 2015 | | $ | 147.34 | | | $ | 109.91 | | | Net loss: | | | | | | | | | | Net investment loss | | | (3.52 | ) | | | (4.74 | ) | | Net gain on investments | | | 3.10 | | | | 2.26 | | | Net loss | | | (0.42 | ) | | | (2.48 | ) | | Net asset value per unit, December 31, 2016 | | | 146.92 | | | | 107.43 | | | Net loss: | | | | | | | | | | Net investment loss | | | (2.82 | ) | | | (3.08 | ) | | Net loss on investments | | | (3.20 | ) | | | (2.41 | ) | | Net loss | | | (6.02 | ) | | | (5.49 | ) | | Net asset value per unit, December 31, 2017 | | $ | 140.90 | | | $ | 101.94 | |
The following represents ratios to average members’ capital, excluding the Managing Member, and total return for the years ended December 31, 20172022 and 2016:2021:
| | | Class 0 | | | Class 2 | | | | 2017 | | 2016 | | 2017 | | 2016 | | | | | | | | | | | | | | | | Total return before Incentive Allocation | | | (4.10 | )% | | | (0.29 | )% | | | (5.11 | )% | | | (2.26 | )% | | Incentive Allocation | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | | | Total return after Incentive Allocation | | | (4.10 | )% | | | (0.29 | )% | | | (5.11 | )% | | | (2.26 | )% | | | | | | | | | | | | | | | | | | | | Net investment loss before Incentive Allocation | | | (1.99 | )% | | | (2.45 | )% | | | (2.99 | )% | | | (4.47 | )% | | Incentive Allocation | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | | | Net investment loss after Incentive Allocation | | | (1.99 | )% | | | (2.45 | )% | | | (2.99 | )% | | | (4.47 | )% | | | | | | | | | | | | | | | | | | | | Total expenses before Incentive Allocation | | | 2.85 | % | | | 2.93 | % | | | 3.85 | % | | | 4.95 | % | | Incentive Allocation | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | | | Total expenses after Incentive Allocation | | | 2.85 | % | | | 2.93 | % | | | 3.85 | % | | | 4.95 | % |
| | | Class 0 | | | Class 2 | | | Per unit operating performance | | | | | | | Net asset value per Unit, December 31, 2020 | | $
| 173.06 | | | $
| 124.23 | | | Net income: | | | | | | | | | | Net investment loss | | | (7.55 | ) | | | (6.29 | ) | | Net gain on investments | | | 10.76 | | | | 7.74 | | | Net income | | | 3.21 | | | | 1.45 | | Net asset value per Unit, December 31, 2021 | | $
| 176.27 | | | $
| 125.68 | | | Net income: | | | | | | | | | | Net investment loss | | | (16.04 | ) | | | (12.02 | ) | | Net gain on investments | | | 64.36 | | | | 45.56 | | | Net income | | | 48.32 | | | | 33.54 | | Net asset value per Unit, December 31, 2022 | | $ | 224.59 | | | $ | 159.22 | |
The following represents ratios to average Members’ Capital and total return for the years ended December 31, 2022 and 2021: | | | Class 0 | | Class 2 | | | | | 2022
| | 2021
| | 2022
| | 2021
| | | | | | | | | | | | | | | | | | Total return before Incentive Allocation | | | 34.89 | % | | | 3.65 | % | | | 33.25 | % | | | 2.75 | % | | | Incentive Allocation | | | (7.48 | ) | | | (1.79 | ) | | | (6.56 | ) | | | (1.58 | ) | | | Total return after Incentive Allocation | | | 27.41 | % | | | 1.86 | % | | | 26.69 | % | | | 1.17 | % | | | | | | | | | | | | | | | | | | | | | | Net investment loss before Incentive Allocation | | | (1.91 | )% | | | (2.68 | )% | | | (2.65 | )% | | | (3.42 | )% | | | Incentive Allocation | | | (5.73 | ) | | | (1.54 | ) | | | (5.38 | ) | | | (1.49 | ) | | | Net investment loss after Incentive Allocation | | | (7.64 | )% | | | (4.22 | )% | | | (8.03 | )% | | | (4.91 | )% | | | | | | | | | | | | | | | | | | | | | | Total expenses before Incentive Allocation | | | 2.86 | % | | | 2.76 | % | | | 3.61 | % | | | 3.50 | % | | | Incentive Allocation | | | 5.73 | | | | 1.54 | | | | 5.38 | | | | 1.49 | | | | Total expenses after Incentive Allocation | | | 8.59 | % | | | 4.30 | % | | | 8.99 | % | | | 4.99 | % | |
See attached financial statements of Graham Alternative Investment Trading LLC.
6.7. Financial Highlights (continued)
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’ capitalMembers’ Capital adjusted for subscriptions or redemptions during the year. 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’ capitalMembers’ Capital for Class 0 and Class 2 Units of the Fund for the years ended December 31, 20172022 and 2016.2021. 7.8. Subsequent Events The Fund had no subscriptions and redemptions of approximately $2.3$0.1 million and no redemptions from January 1, 20182023 through March 29, 2018,30, 2023, the date through which subsequent events were evaluated by management. These amounts have not been included in the financial statements.
See attached financial statements of Graham Alternative Investment Trading LLC.
42 | FINANCIAL STATEMENTS | | | | Financial Statements Graham Alternative Investment Trading LLC | | Years endedEnded December 31, 20172022 and 2016 | | 2021 with Report of Independent Registered Public Accounting Firm |
GRAHAM ALTERNATIVE INVESTMENT TRADING LLC
40 Highland Avenue Rowayton, CT 06853
The undersigned affirms, on behalf of Graham Alternative Investment Trading LLC, that to the best of his knowledge and belief, the information contained in the attached audited financial statements of Graham Alternative Investment Trading LLC for the years ended December 31, 20172022 and 20162021 is accurate and complete.
| | By: | Graham Capital Management, L.P., as | | | | Sole Manager |
| | By: | | | | Brian Douglas | George Schrade | | | | Chief Financial Officer | | | | March 29, 201830, 2023 |
Graham Alternative Investment Trading LLC
Financial Statements
Years Ended December 31, 20172022 and 20162021
Contents
| Report of Independent Registered Public Accounting Firm (PCAOB ID 42) | 4653 | | | | | Statements of Financial Condition | 4754 | | Condensed Schedules of Investments | 4855 | | Statements of Operations and Incentive Allocation | 4956 | | Statements of Changes in Members’ Capital | 5057 | | Statements of Cash Flows | 5158 | | Notes to Financial Statements | 59 |
|
Ernst & Young LLP 300 First Stamford Place Stamford, CT 06902-6765 | |
Tel: +1 203 674 3000 ey.com |
Report of Independent Registered Public Accounting Firm
To the Members and Manager of Graham Alternative Investment Trading LLC
Opinion on the Financial Statements
We have audited the accompanying statements of financial condition of Graham Alternative Investment Trading LLC (the “Fund”(“GAIT”), including the condensed schedules of investments, as of December 31, 20172022 and 2016,2021, and the related statements of operations and incentive allocation, changes in members’ capital and cash flows for each of the two years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of Graham Alternative Investment Trading LLCGAIT at December 31, 20172022 and 2016, 2021, the results of its operations, changes in its members’ capital and its cash flows for each of the two years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’sGAIT’s management. Our responsibility is to express an opinion on the Fund’sGAIT’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the FundGAIT in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The FundGAIT is not required to have, nor were we engaged to perform, an audit of the Fund’sits internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’sGAIT’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to those charged with governance and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Ernst & Young LLP
We have served as theGAIT’s auditor of Graham Alternative Investment Trading LLC since 2006.
Stamford, CT
March 29, 201830, 2023 A member firm of Ernst & Young Global Limited Graham Alternative Investment Trading LLC
Statements of Financial Condition
| | | December 31, | | | | | 2017 | | | 2016 | | | Assets | | | | | | | | Investments in Master Funds, at fair value | | $ | 7,809,515 | | | $ | 16,404,782 | | | Investment in Graham Cash Assets LLC, at fair value | | | 73,474,604 | | | | 123,316,812 | | | Receivable from Master Funds | | | 101 | | | | 45 | | | Total assets | | $ | 81,284,220 | | | $ | 139,721,639 | | | | | | | | | | | | | Liabilities and members’ capital | | | | | | | | | | Liabilities: | | | | | | | | | | Accrued redemptions | | $ | 367,689 | | | $ | 1,570,542 | | | Accrued professional fees | | | 171,603 | | | | 184,381 | | | Accrued advisory fees | | | 101,840 | | | | 205,048 | | | Accrued sponsor fees | | | 54,975 | | | | 158,099 | | | Accrued administrator’s fee | | | 9,041 | | | | 13,455 | | | Payable to Master Funds | | | - | | | | 85 | | | Total liabilities | | | 705,148 | | | | 2,131,610 | | | | | | | | | | | | | Members’ capital: | | | | | | | | | Class 0 Units (331,577.130 and 650,889.077 units issued and outstanding at $140.90 and $146.92 per unit, respectively) | | | 46,720,480 | | | | 95,631,060 | | Class 2 Units (320,722.151 and 379,525.982 units issued and outstanding at $101.94 and $107.43 per unit, respectively) | | | 32,693,924 | | | | 40,771,563 | | Class M Units (4,671.470 units issued and outstanding at $249.32 and $254.18 per unit, respectively) | | | 1,164,668 | | | | 1,187,406 | | | Total members’ capital | | | 80,579,072 | | | | 137,590,029 | | | Total liabilities and members’ capital | | $ | 81,284,220 | | | $ | 139,721,639 | |
See accompanying notes.
Graham Alternative Investment Trading LLC
Condensed Schedules of Investments
| Description | | December 31, 2017 | | | December 31, 2016 | | | Fair Value | | | Percentage of Members’ Capital | | | Fair Value | | | Percentage of Members’ Capital | | | | | | | | | | | | | | | | Investments in Master Funds, at fair value | | | | | | | | | | | | | | Graham Commodity Strategies LLC | | $ | 3,235,547 | | | | 4.01 | % | | $ | 7,580,654 | | | | 5.51 | % | | Graham K4D Trading Ltd. | | | 4,573,968 | | | | 5.68 | % | | | 8,824,128 | | | | 6.41 | % | | Total investments in Master Funds | | $ | 7,809,515 | | | | 9.69 | % | | $ | 16,404,782 | | | | 11.92 | % |
See accompanying notes.
Graham Alternative Investment Trading LLC
Statements of Operations and Incentive Allocation
| | | Years Ended December 31, | | | | | 2017 | | | 2016 | | | Net (loss) gain allocated from investments in Master Funds | | | | | | | | Net realized (loss) gain on investments | | $ | (3,168,433 | ) | | $ | 1,916,316 | | | Net increase in unrealized appreciation on investments | | | 287,917 | | | | 1,448,462 | | | Brokerage commissions and fees | | | (661,183 | ) | | | (880,900 | ) | | Net (loss) gain allocated from investments in Master Funds | | | (3,541,699 | ) | | | 2,483,878 | | | | | | | | | | | | | Net investment income (loss) allocated from investments in Master Funds | | | 87,838 | | | | (19,203 | ) | | | | | | | | | | | | Investment income | | | | | | | | | | Interest income | | | 859,221 | | | | 712,063 | | | Total investment income | | | 859,221 | | | | 712,063 | | | | | | | | | | | | | Expenses | | | | | | | | | | Advisory fees | | | 1,827,525 | | | | 2,592,751 | | | Sponsor fees | | | 1,103,331 | | | | 1,977,590 | | | Professional fees and other | | | 373,889 | | | | 387,737 | | | Administrator’s fees | | | 149,581 | | | | 194,581 | | | Total expenses | | | 3,454,326 | | | | 5,152,659 | | | Net investment loss of the Fund | | | (2,595,105 | ) | | | (4,440,596 | ) | | | | | | | | | | | | Net loss | | | (6,048,966 | ) | | | (1,975,921 | ) | | | | | | | | | | | | Incentive allocation | | | - | | | | - | | | | | | | | | | | | | Net loss available for pro-rata allocation to all members | | $ | (6,048,966 | ) | | $ | (1,975,921 | ) |
See accompanying notes.
Graham Alternative Investment Trading LLC
Statements of Changes in Members’ Capital
For the years ended December 31, 2017 and 2016
| | | Class 0 | | | Class 2 | | | Class M | | | Total Capital | | | | | Units | | | Capital | | | Units | | | Capital | | | Units | | | Capital | | | | | | | | | | | | | | | | | | | | | | | | | Members’ capital, December 31, 2015 | | | 791,620.850 | | | $ | 116,635,944 | | | | 415,606.489 | | | $ | 45,680,694 | | | | 4,671.470 | | | $ | 1,161,324 | | | $ | 163,477,962 | | | Subscriptions | | | 60,400.008 | | | | 8,435,000 | | | | 15,622.922 | | | | 1,658,239 | | | | – | | | | – | | | | 10,093,239 | | | Redemptions | | | (201,131.781 | ) | | | (28,560,069 | ) | | | (51,703.429 | ) | | | (5,445,182 | ) | | | – | | | | – | | | | (34,005,251 | ) | | Incentive allocation | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | Net income (loss) | | | – | | | | (879,815 | ) | | | – | | | | (1,122,188 | ) | | | – | | | | 26,082 | | | | (1,975,921 | ) | | 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 | | | 22,311.608 | | | | 3,197,637 | | | | 6,175.457 | | | | 640,000 | | | | – | | | | – | | | | 3,837,637 | | | Redemptions | | | (341,623.555 | ) | | | (48,128,656 | ) | | | (64,979.288 | ) | | | (6,670,972 | ) | | | – | | | | – | | | | (54,799,628 | ) | | Incentive allocation | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | Net loss | | | – | | | | (3,979,561 | ) | | | – | | | | (2,046,667 | ) | | | – | | | | (22,738 | ) | | | (6,048,966 | ) | | 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 | |
See accompanying notes.
Graham Alternative Investment Trading LLC
Statements of Cash Flows
| | | Years Ended December 31, | | | | | 2017 | | | 2016 | | | Cash flows provided by operating activities | | | | | | | | Net loss | | $ | (6,048,966 | ) | | $ | (1,975,921 | ) | | Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | | | Net loss (income) allocated from investments in Master Funds | | | 3,453,861 | | | | (2,464,675 | ) | | Net income allocated from investment in Graham Cash Assets LLC | | | (859,221 | ) | | | (712,063 | ) | | Proceeds from sale of investments in Master Funds | | | 110,380,663 | | | | 134,987,628 | | | Proceeds from sale of investments in Graham Cash Assets LLC | | | 139,927,540 | | | | 133,838,408 | | | Investments in Master Funds | | | (105,239,398 | ) | | | (131,431,124 | ) | | Investments in Graham Cash Assets LLC | | | (89,226,111 | ) | | | (105,911,104 | ) | | Changes in assets and liabilities: | | | | | | | | | | Decrease in accrued advisory fees | | | (103,208 | ) | | | (42,838 | ) | | Decrease in accrued sponsor fees | | | (103,124 | ) | | | (26,412 | ) | | (Decrease) increase in accrued professional fees | | | (12,778 | ) | | | 117,131 | | | Decrease in accrued administrator’s fee | | | (4,414 | ) | | | (6,292 | ) | | Net cash provided by operating activities | | | 52,164,844 | | | | 26,372,738 | | | | | | | | | | | | | Cash flows used in financing activities | | | | | | | | | | Subscriptions | | | 3,837,637 | | | | 10,093,239 | | | Redemptions | | | (56,002,481 | ) | | | (36,465,977 | ) | | Net cash used in financing activities | | | (52,164,844 | ) | | | (26,372,738 | ) | | | | | | | | | | | | Net change in cash and cash equivalents | | | – | | | | – | | | | | | | | | | | | | Cash and cash equivalents, beginning of year | | | – | | | | – | | | Cash and cash equivalents, end of year | | $ | – | | | $ | – | |
See accompanying notes.
Graham Alternative Investment Trading LLC
Statements of Financial Condition
| | | December 31, | | | | | 2022 | | | 2021 | | | Assets | | | | | | | | Investments in Master Funds, at fair value | | $ | 6,078,610 | | | $ | 4,769,945 | | | Investment in Graham Cash Assets LLC, at fair value | | | 58,599,019 | | | | 51,121,197 | | | Receivable from Master Funds | | | 181 | | | | 44 | | | Total assets | | $ | 64,677,810 | | | $ | 55,891,186 | | | | | | | | | | | | | Liabilities and members’ capital | | | | | | | | | | Liabilities: | | | | | | | | | | Redemptions payable | | $ | 1,169,444 | | | $ | 263,800 | | | Accrued professional fees | | | 132,957 | | | | 114,472 | | | Accrued advisory fees | | | 79,343 | | | | 68,959 | | | Accrued sponsor fees | | | 42,803 | | | | 36,436 | | | Accrued administrator’s fees | | | 7,030 | | | | 6,154 | | | Accrued operating expenses | | | 3,223 | | | | - | | | Payable to Master Funds | | | 102 | | | | 825 | | | Total liabilities | | | 1,434,902 | | | | 490,646 | | | | | | | | | | | | | Members’ capital: | | | | | | | | | | Class 0 Units (161,081.937 and 185,533.074 units issued and outstanding at $224.59 and $176.27 per unit, respectively) | | | 36,176,761 | | | | 32,704,572 | | | Class 2 Units (155,844.459 and 167,534.772 units issued and outstanding at $159.22 and $125.68 per unit, respectively) | | | 24,813,000 | | | | 21,055,621 | | | Class M Units (4,671.470 units issued and outstanding at $482.32 and $351.14 per unit, respectively) | | | 2,253,147 | | | | 1,640,347 | | Total members’ capital | | | 63,242,908 | | | | 55,400,540 | | | Total liabilities and members’ capital | | $ | 64,677,810 | | | $ | 55,891,186 | |
See accompanying notes. Graham Alternative Investment Trading LLC
Condensed Schedules of Investments
| | | December 31, 2022 | | December 31, 2021 | | | Description | | Fair Value | | | Percentage of Members’ Capital | | Fair Value | | | Percentage of Members’ Capital | | | | | | | | | | | | | | | | | | Investments in Master Funds, at fair value | | | | | | | | | | | | | | | Graham Commodity Strategies LLC | | $ | 2,190,592 | | | | 3.46 | % | | $ | 1,849,637 | | | | 3.34 | % | | | Graham Derivatives Strategies LLC | | | 794,631 | | | | 1.26 | % | | | – | | | | 0.00 | % | | | Graham K4D Trading Ltd. | | | 3,093,387 | | | | 4.89 | % | | | 2,920,308 | | | | 5.27 | % | | | Total investments in Master Funds | | $ | 6,078,610 | | | | 9.61 | % | | $ | 4,769,945 | | | | 8.61 | % | |
See accompanying notes. Graham Alternative Investment Trading LLC
Statements of Operations and Incentive Allocation
| | | Years Ended December 31, | | | | | 2022 | | | 2021 | | | Net gain allocated from investments in Master Funds: | | | | | | | | Net realized gain on investments | | $ | 19,231,395 | | | $ | 4,995,591 | | | Net increase (decrease) in unrealized appreciation on investments | | | 650,760 | | | | (1,105,630 | ) | | Brokerage commissions and fees | | | (220,096 | ) | | | (168,014 | ) | | Net gain allocated from investments in Master Funds | | | 19,662,059 | | | | 3,721,947 | | | | | | | | | | | | | Net investment income (loss) allocated from investments in Master Funds | | | 49,163 | | | | (4,687 | ) | | | | | | | | | | | | Investment income: | | | | | | | | | | Interest income | | | 549,107 | | | | 54,144 | | | Total investment income | | | 549,107 | | | | 54,144 | | | | | | | | | | | | | Expenses: | | | | | | | | | | Advisory fees | | | 939,577 | | | | 870,429 | | | Sponsor fees | | | 502,596 | | | | 459,358 | | | Professional fees | | | 376,372 | | | | 338,317 | | | Administrator’s fees | | | 81,540 | | | | 76,111 | | | Operating expenses | | | 23,104 | | | | - | | | Interest expense | | | 13,933 | | | | 13,927 | | | Total expenses | | | 1,937,122 | | | | 1,758,142 | | | Net investment loss of the Fund | | | (1,388,015 | ) | | | (1,703,998 | ) | | | | | | | | | | | | Net income | | | 18,323,207 | | | | 2,013,262 | | | | | | | | | | | | | Incentive allocation | | | (3,404,318 | ) | | | (855,525 | ) | | | | | | | | | | | | Net income available for pro-rata allocation to all members | | $ | 14,918,889 | | | $ | 1,157,737 | |
See accompanying notes.
Graham Alternative Investment Trading LLC
Statements of Changes in Members’ Capital
Years Ended December 31, 2022 and 2021
| | | Class 0 | | | Class 2 | | | Class M | | | Total | | | | | Units | | | Capital | | | Units | | | Capital | | | Units | | | Capital | | | Capital | | | | | | | | | | | | | | | | | | | | | | | | | | Members’ capital, December 31, 2020 | | | 203,816.771 | | | $ | 35,272,482 | | | | 184,460.524 | | | $ | 22,915,191 | | | | 4,671.470 | | | $ | 1,556,178 | | | $ | 59,743,851 | | | Subscriptions | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | Redemptions | | | (18,283.697 | ) | | | (3,277,246 | ) | | | (16,925.752 | ) | | | (2,223,802 | ) | | | – | | | | (855,525 | ) | | | (6,356,573 | ) | | Incentive allocation | | | – | | | | (525,669 | ) | | | – | | | | (329,856 | ) | | | – | | | | 855,525 | | | | – | | | Net income | | | – | | | | 1,235,005 | | | | – | | | | 694,088 | | | | – | | | | 84,169 | | | | 2,013,262 | | | Members’ capital, December 31, 2021 | | | 185,533.074 | | | $ | 32,704,572 | | | | 167,534.772 | | | $ | 21,055,621 | | | | 4,671.470 | | | $ | 1,640,347 | | | $ | 55,400,540 | | | Subscriptions | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | Redemptions | | | (24,451.137 | ) | | | (5,262,123 | ) | | | (11,690.313 | ) | | | (1,814,398 | ) | | | – | | | | (3,404,318 | ) | | | (10,480,839 | ) | | Incentive allocation | | | – | | | | (2,076,348 | ) | | | – | | | | (1,327,970 | ) | | | – | | | | 3,404,318 | | | | – | | | Net income | | | – | | | | 10,810,660 | | | | – | | | | 6,899,747 | | | | – | | | | 612,800 | | | | 18,323,207 | | | Members’ capital, December 31, 2022 | | | 161,081.937 | | | $ | 36,176,761 | | | | 155,844.459 | | | $ | 24,813,000 | | | | 4,671.470 | | | $ | 2,253,147 | | | $ | 63,242,908 | |
See accompanying notes. Graham Alternative Investment Trading LLC
Statements of Cash Flows
| | | Years Ended December 31, | | | | | 2022 | | | 2021 | | | Cash flows provided by operating activities | | | | | | | | Net income | | $ | 18,323,207 | | | $ | 2,013,262 | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | Net (income) allocated from investments in Master Funds | | | (19,711,222 | ) | | | (3,717,260 | ) | | Net (income) allocated from investment in Graham Cash Assets LLC | | | (549,107 | ) | | | (54,144 | ) | | Proceeds from sale of investments in Master Funds | | | 71,652,796 | | | | 63,866,707 | | | Proceeds from sale of investments in Graham Cash Assets LLC | | | 45,124,212 | | | | 51,951,676 | | | Purchase of investments in Master Funds | | | (53,251,099 | ) | | | (58,472,636 | ) | | Purchase of investments in Graham Cash Assets LLC | | | (52,052,927 | ) | | | (48,713,888 | ) | | Changes in assets and liabilities: | | | | | | | | | | Increase (decrease) in accrued professional fees | | | 18,485 | | | | (13,859 | ) | | Increase (decrease) in accrued advisory fees | | | 10,384 | | | | (6,076 | ) | | Increase (decrease) in accrued sponsor fees | | | 6,367 | | | | (3,474 | ) | | Increase (decrease) in accrued administrator’s fees | | | 876 | | | | (464 | ) | | Increase in operating expenses | | | 3,223 | | | | – | | | Net cash provided by operating activities | | | 9,575,195 | | | | 6,849,844 | | | | | | | | | | | | | Cash flows used in financing activities | | | | | | | | | | Subscriptions | | | – | | | | – | | | Redemptions (net of redemptions payable) | | | (9,575,195 | ) | | | (6,849,844 | ) | | Net cash used in financing activities | | | (9,575,195 | ) | | | (6,849,844 | ) | | | | | | | | | | | | Net change in cash and cash equivalents | | | – | | | | – | | | | | | | | | | | | | Cash and cash equivalents, beginning of year | | | – | | | | – | | | Cash and cash equivalents, end of year | | $ | – | | | $ | – | | | | | | | | | | | |
| Supplemental cash flow information | | | | | | | | Interest paid | | $ | 13,933 | | | $ | 13,927 | |
See accompanying notes. 1. Organization and Business Graham Alternative Investment Trading LLC (“GAIT”) was formed on May 18, 2006, commenced operations on August 1, 2006 and is organized as a Delaware Limited Liability Company. Graham Capital Management, L.P. (the “Managing Member” or “Manager”) is the Managing Member and the sole investment advisor. The Managing Member is registered as a Commodity Pool Operator and Commodity Trading Advisor with the U.S. Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association. The Managing Member is also registered with the Securities and Exchange Commission as an investment adviser. GAIT is a commodity pool, and as such is subject to the oversight and jurisdiction of the CFTC. The investment objective of GAIT is to achieve long-term capital appreciation through professionally managed trading through its investment in various master trading vehicles (“Master Funds”). As more fully described in Notes 2 and 3, these Master Funds invest in a broad range of derivative instruments such as currency forward and futures contracts; bond, interest rate, and index futures contracts; commodity forward and futures contracts, and options and swaps thereon traded on U.S. and foreign exchanges, as well as over-the-counter.over-the-counter (“OTC”). Graham Alternative Investment Fund I LLC Core Macro Portfolio (formerly known as Blended Strategies PortfolioPortfolio) and Graham Alternative Investment Fund II LLC Core Macro Portfolio (formerly known as Blended Strategies PortfolioPortfolio) (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 Amended and Restated Limited Liability Company Agreement (“LLC Agreement”). Duties of the Managing Member Subject to the terms and conditions of the LLC Agreement, the Managing Member has complete and exclusive responsibility for managing and administering the affairs of GAIT and for directing the investment and reinvestment of the assets of GAIT. 2. Summary of Significant Accounting Policies These financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and all amounts are stated in U.S. dollars. GAIT is an investment company and applies specialized accounting guidance as outlined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies. The preparation of these financial statements requires the Manager to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Investments in Master Funds GAIT invests in various Master Funds which are managed by the Managing Member. These investments are valued in the accompanying statements of financial condition at fair value in accordance with U.S. GAAP based upon GAIT’s proportionate share of the Master Funds’ reported net asset values. Gains and losses are allocated monthly by each Master Fund to GAIT based upon GAIT’s proportionate share of the net asset value of each Master Fund and are included in the statements of operations and incentive allocation. 2. Summary of Significant Accounting Policies (continued)
Due from/to Brokers
Due from/to brokers on the Master Funds’ financial statements primarily consist of cash balances carried as margin deposits with clearing brokers for the purpose of trading in futures contracts, foreign currency contracts and other derivative 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 gainappreciation or lossdepreciation 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.year end. Any change in net unrealized gainappreciation or lossdepreciation from the preceding period is reported in the Master Funds’ statements of operations. Interest income and expense are recorded on the accrual basis. Dividends, if any, 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 December 31, 20172022 and 2016.2021. 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 of investments held. CurrencyThe Master Funds’ currency translation gains and losses are included in the statementstatements of operations and incentive allocation within net realized loss (gain)gain and net increase (decrease) in unrealized appreciation on investments.
Fair Value
The fair value of GAIT’s assets and liabilities, which qualify as financial instruments under U.S. GAAP, approximates the carrying amounts presented in the statements of financial condition. Changes in these carrying amounts are included in the statements of operations and incentive allocation.
GAIT follows U.S. GAAP for fair value measurements, which defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements. GAIT reports the fair value of its investment related assets and liabilities in accordance with the hierarchy established under U.S. GAAP. U.S. GAAP uses a three-level hierarchy for fair value measurement based on the activeness of the market and the transparency and independence of inputs used in the valuation of an asset or liability as of the measurement date. 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 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 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. |
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 years ended December 31, 20172022 or 20162021 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.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 gainsappreciation and lossesdepreciation 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)and net increase (decrease) in unrealized appreciation on investments in the Master Funds’ statements of operations.
Futures Contracts
The Master Funds use futures contracts in an attempt to take advantage of changes in the value of equities, commodities, interest rates, bonds, and foreign currencies. Futures contracts are valued based upon the closing price as of the valuation date established by the primary exchange upon which they are traded.
2. Summary of Significant Accounting Policies (continued)
Derivative Instruments (continued)
Futures Contracts (continued)
A futures contract represents a commitment for the future purchase or sale of an asset or cash settlement based on the value of an asset on a specified date. The purchase and sale of futures contracts are executed on an exchange which requires margin deposits with a Futures Commission Merchant (“FCM”). Subsequent payments are made or received by the Master Funds each day, depending on the daily fluctuations in the value of the contract. These changes in valuation are recorded for financial statement purposes as unrealized gains or lossesappreciation 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 potentially recovering only a pro ratapro-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 forwardForward 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.appreciation and depreciation.
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 commodity prices, interest rates, and asset values. Exchange traded interest ratecleared swap contracts are executedcleared 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 gainsappreciation or lossesdepreciation by the Master Funds. The Master Funds records realized gains or losses when a swap contract is terminated. Relative to over-the-counterOTC interest rate swap contracts, exchange tradedcleared interest rate swap contracts provide reduced counterparty risk since they are exchange-tradedexchange-cleared, 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 tradedcleared 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 ratapro-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 statementsstatement of financial condition. Over the counterOTC 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 gainsappreciation 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.amount. 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 ManagerAdvisor using a discount curve constructed from independently obtained future interest rate assumptions. Interest is calculated and accrued throughout the life of each swap and is included in interest receivable and interest payable on the Master Funds' statements of financial condition. Payments received at the end of each reset period are recorded against such accruals.
A credit default swap contract is an arrangement between the Master Funds and a counterparty which allows the buyer to protect against losses incurred as a result of default by a specified reference entity. The buyer pays a premium and the counterparty agrees to make a payment to compensate the buyer for losses upon the occurrence of a specified credit event. The Master Funds could be both buyers and sellers of credit default swaps. When the Master Funds is the seller of a credit default swap it is contractually obligated to provide credit protection on an underlying instrument. Credit default swaps purchased are presented as long contracts and credit default swaps sold are presented as short contracts on the Master Funds’ condensed schedule of investments. The Master Funds would have to perform under such contracts if pre‑defined credit events as defined by the contracts occurred. Typical credit events would include bankruptcy, dissolution or insolvency of the underlying referenced entity, failure to pay and restructuring of the obligations of the referenced entity. Credit default swap positions are valued at the mean between the last reported bid and ask quotations received from independent brokers. 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 and terms of the contract as determined by the primary exchange on which they are traded.
Exchange traded swaps are valued based upon the closing prices established by the primary exchange upon which they are traded. Changes in fair value of each swap are recognized as unrealized gains or losses. The Master Funds record realized gains or losses when a swap contract is terminated.
2. Summary of Significant Accounting Policies (continued)
Derivative Instruments (continued)
Options
The Master Funds may buy and sell covered and uncovered exchange tradedexchange-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 gainsappreciation of the contracts and the premiums paid to purchase its open option contracts. Relative to over-the-counter options, exchange tradedexchange-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 tradedExchange-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 tradedexchange-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 years ended December 31, 20172022 and 20162021 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 $864,462$0 and $0$2,342,440 at December 31, 20172022 and 2016,2021, respectively. Graham Commodity Strategies LLC had no derivative instruments subject to credit risk related contingent features in a net liability position in the amount of $0 and $280,016 at December 31, 20172022 and 2016.2021, respectively. Graham Derivatives Strategies LLC had derivative instruments subject to credit risk related contingent features in a net liability position in the amount of $4,554 at December 31, 2022.
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 membershipsseats and the shares of the CME Group at fair value. As of December 31, 20172022 and 2016,2021, the two NYMEX membershipsseats were valued at $260,000$297,500 and $398,000,$315,000, respectively, and the 30,000 shares of CME Group were valued at $4,381,500$5,044,800 and $3,460,500,$6,853,800, respectively, bothall of which are containedincluded 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. 2. Summary of Significant Accounting Policies (continued)
Chicago BoardMercantile Exchange Membership Graham Commodity Strategies LLC, a Master Fund in which GAIT invests, is also a member of Trade Membershipthe 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 Strategies LLC’s policy is to value the CME seats and the shares of the CME Group at fair value. As of December 31, 2022 and 2021, the two CME seats were valued at $485,500 and $464,500, respectively, and the 2,232 shares of CME Group were valued at $375,333 and $509,923, respectively, all of which are included within Exchange memberships on Graham Commodity Strategies LLC’s statement of financial condition. The CME seats and CME Group shares are considered Level 1 assets as described in the Fair Value section of Note 2.
Graham K4D Trading Ltd., a Master Fund in which GAIT invests, is a member of the 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 December 31, 2022 and 2021, the CME seat was valued at $187,000 and $112,000, respectively, and the 4,085 shares of the CME Group were valued at $686,934 and $933,259, respectively, all of which are included in 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 As of December 31, 2022, Graham Commodity Strategies LLC, a Master Fund in which GAIT invests, is also a member of the Chicago Board of Trade (“CBOT”) under Rule 106.S and owns 3,265 shares of the CME Group as a result of its CBOT membership. Graham Commodity Strategies LLC’s policy is to value the CME shares at fair value. As of December 31, 2022 and 2021, the 3,265 shares of the CME Group were valued at $549,043 and $745,922 and are included in Exchange memberships on Graham Commodity Strategies LLC’s statement of financial condition. The CME shares are considered Level 1 assets as described in the Fair Value section of Note 2. Graham K4D Trading Ltd., a Master Fund in which GAIT invests, is also a member of the CBOT under Rule 106.S and owns two B-1/Full seats and one B-2/Associate seat.seat (“collectively, “CBOT memberships”). Graham K4D Trading Ltd.’s policy is to value the CBOT memberships at fair value. As of December 31, 20172022 and 2016,2021, the two B-1/Full membershipsseats were valued at $720,000$555,000 and $404,000,$413,500, respectively, and the B-2/Associate memberships wereseat was valued at $72,250$55,000 and $62,750, respectively, both$47,500, all of which are included in Exchange Membershipmemberships on the statementsGraham K4D Trading Ltd.’s statement of financial condition. Additionally, Graham K4D Trading Ltd. owns 970 shares of the CME Group as a Chicago Mercantile Exchange (“CME”) seatresult of its CBOT membership. The Graham K4D Trading Ltd.’s policy is to value the CME Group shares at fair value. As of December 31, 2022 and 2021, the 970 shares of the CME Group were valued at $232,000$163,115 and $200,000 at December 31, 2017 and 2016, respectively, which is also included in Exchange Membership on the statements of financial condition.$221,606, respectively. The CBOT memberships and shares andof the CME seatGroup are considered Level 1 assets as described in the Fair Value section of Note 2.
Commodity Exchange Membership As of December 31, 2022, Graham Commodity Strategies LLC, a Master Fund in which GAIT invests, is also a member of the Commodity Exchange (“COMEX”) and owns two COMEX seats. Graham Commodity Strategies LLC’s policy is to value the COMEX seats at fair value. As of December 31, 2022 and 2021, the two COMEX seats were valued at $150,000 and $196,000 in total and is included in Exchange memberships on Graham Commodity Strategies LLC’s statement of financial condition. The COMEX seats are considered Level 1 assets as described in the Fair Value section of Note 2. 2. Summary of Significant Accounting Policies (continued) Fixed Income Securities
The fixed income securities positions held by the Master Funds where applicable, 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 held by the Master Funds are sold or reach maturity. Cash and Cash Equivalents GAIT classifies all highly liquid investments with a maturity of three months or less at the time of purchase as cash equivalents. Cash deposited with a bank is subject to credit risk. In the event of the bank's insolvency, recovery of GAIT’s cash would be limited to account insurance or other protection afforded by such deposit. At December 31, 2022 and 2021, 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 December 31, 20172022 and 2016,2021, no accruals have been recorded by GAIT for indemnifications. 3. Investments in Master Funds
As of December 31, 20172022 and 2016,2021, 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 feesallocation, and all offer monthly subscriptions and redemptions. | December 31, 2017 | | | Investment – Objective | Percent of Members’ Capital | Fair Value | | Net Income (Loss) | | | | | | | | | | Global Macro Funds | | | | | | | | Graham Commodity Strategies LLC | | | 4.01 | % | | $ | 3,235,547 | | | $ | (5,975,551 | ) | | | | | | | | | | | | | | | Systematic Macro Funds | | | | | | | | | | | | | | Graham K4D Trading Ltd. | | | 5.68 | % | | | 4,573,968 | | | | 2,521,690 | | | | | | 9.69 | % | | $ | 7,809,515 | | | $ | (3,453,861 | ) |
| December 31, 2022 | | | Investment – Objective | | Percent of Members’ Capital | | Fair Value | | | Net Income | | | | | | | | | | | | | | Global Macro Funds | | | | | | | | | | | Graham Commodity Strategies LLC | | | 3.46 | % | | $ | 2,190,592 | | | $ | 9,542,437 | | | Graham Derivatives Strategies LLC | | | 1.26 | % | | | 794,631 | | | | 4,262,773 | | | | | | | | | | | | | | | | | Systematic Macro Funds | | | | | | | | | | | | | | Graham K4D Trading Ltd. | | | 4.89 | % | | | 3,093,387 | | | | 5,906,012 | | | | | | 9.61 | % | | $ | 6,078,610 | | | $ | 19,711,222 | |
| December 31, 2016 | | | | December 31, 2021 | | December 31, 2021 | | | Investment – Objective | Percent of Members’ Capital | Fair Value | | Net Income (Loss) | | | Percent of Members’ Capital | | Fair Value | | | Net Income | | | | | | | | | | | | | | | | | | | Global Macro Funds | | | | | | | | | | | | | | | | | Graham Commodity Strategies LLC | | | 5.51 | % | | $ | 7,580,654 | | | $ | 9,444,633 | | | 3.34 | % | | $ | 1,849,637 | | | $ | 3,009,872 | | | | | | | | | | | | | | | | | | | | | | | | | Systematic Macro Funds | | | | | | | | | | | | | | | | | | | | | | | Graham K4D Trading Ltd. | | | 6.41 | % | | | 8,824,128 | | | | (6,979,958 | ) | | | 5.27 | % | | 2,920,308 | | | 707,388 | | | | | | 11.92 | % | | $ | 16,404,782 | | | $ | 2,464,675 | | | | 8.61 | % | | $ | 4,769,945 | | | $ | 3,717,260 | |
The following table summarizes the financial position of each Master Fund as of December 31, 2017:2022: | | | Graham Commodity Strategies LLC (Delaware) | | | Graham K4D Trading Ltd. (BVI) | | | Graham Commodity Strategies LLC (Delaware) | | | Graham Derivatives Strategies LLC (Delaware) | | | Graham K4D Trading Ltd. (BVI) | | | Assets: | | | | | | | | | | | | | | | | | Due from brokers | | $ | 75,982,823 | | | $ | 57,953,421 | | | $ | 51,314,793 | | | $ | 4,022,847 | | | $ | 41,554,615 | | | Derivative financial instruments, at fair value | | | 43,001,886 | | | | 36,313,912 | | | 32,942,978 | | | 28,122,323 | | | 3,702,198 | | | Exchange membership, at fair value | | | 4,641,500 | | | | 1,024,250 | | | | Dividends receivable | | | 73,500 | | | | - | | | | Exchange memberships, at fair value | | | 6,902,176 | | | – | | | 1,647,049 | | | Interest receivable | | | 225,389 | | | 35,580 | | | 30,745 | | | Dividend receivable | | | | 111,816 | | | | – | | | | 15,923 | | | Total assets | | | 123,699,709 | | | | 95,291,583 | | | | 91,497,152 | | | | 32,180,750 | | | | 46,950,530 | | | | | | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | | | Derivative financial instruments, at fair value | | | 2,426,201 | | | | 864,462 | | | – | | | – | | | 2,319,737 | | | Interest payable | | | | 9,630 | | | | 3,587 | | | | – | | | Total liabilities | | | 2,426,201 | | | | 864,462 | | | | 9,630 | | | | 3,587 | | | | 2,319,737 | | | Members’ Capital / Net Assets | | $ | 121,273,508 | | | $ | 94,427,121 | | | $ | 91,487,522 | | | $ | 32,177,163 | | | $ | 44,630,793 | | | | | | | | | | | | | | | | | | | | | | Percentage of Master Fund held by GAIT | | | 2.67 | % | | | 4.84 | % | | | 2.39 | % | | | 2.47 | % | | | 6.93 | % |
3. Investments in Master Funds (continued)
The following schedules display the condensed schedules of investments for the Master Funds as of December 31, 2017.2022: | Description | | Number of Contracts / Notional Amounts | | | Fair Value | | | Percentage of Members’ Capital of Master Fund | | | Graham Commodity Strategies LLC | | | | | | | | | | | Derivative financial instruments | | | | | | | | | | | Long contracts | | | | | | | | | | | Futures | | | | | | | | | | | Natural gas February 2018 | | | 658 | | | $ | 2,158,330 | | | | 1.78 | % | | Other commodity | | | | | | | 5,434,751 | | | | 4.48 | % | | Foreign index | | | | | | | (354,017 | ) | | | (0.29 | )% | | Interest rate | | | | | | | (623,605 | ) | | | (0.52 | )% | | U.S. 2yr. – 5yr. note March 2018 | | | 10,027 | | | | 850,898 | | | | 0.70 | % | | U.S. Ultra bond March 2018 | | | 313 | | | | 991,875 | | | | 0.82 | % | | U.S. index | | | | | | | 51,870 | | | | 0.04 | % | | Total futures | | | | | | | 8,510,102 | | | | 7.01 | % | | | | | | | | | | | | | | | | Forwards | | | | | | | | | | | | | | Chinese yuan / U.S. dollar 01/05/2018 – 06/27/2018 | | CNY | 5,455,827,240 | | | | 10,139,758 | | | | 8.36 | % | | Euro / U.S. dollar 01/02/2018 – 01/03/2018 | | EUR | 931,390,201 | | | | 4,434,234 | | | | 3.66 | % | | Other foreign currency | | | | | | | 6,345,166 | | | | 5.23 | % | | Total forwards | | | | | | | 20,919,158 | | | | 17.25 | % | | | | | | | | | | | | | | | | Options (cost $54,432,797) | | | | | | | | | | | | | | Natural gas Euro February 2018 – March 2018, $2.85 – $4.00 Call | | | 5 | | | | 5,500,625 | | | | 4.54 | % | | Natural gas Euro April 2018, $2.40 Put | | | 1 | | | | 243,000 | | | | 0.20 | % | | Other commodity futures | | | | | | | 6,436,170 | | | | 5.30 | % | | Euro / U.S. dollar January 2018 – June 2018, $1.20 – $1.25 Call | | | 8 | | | | 12,619,168 | | | | 10.40 | % | | U.S. dollar / Chinese yuan January 2018 – March 2018, $6.52 – $6.53 Put | | | 2 | | | | 1,194,579 | | | | 0.99 | % | | Other currency | | | | | | | 4,387,683 | | | | 3.62 | % | | Euro-Bund February 2018 – March 2018, $159.50 – $161.50 Put | | | 4 | | | | 2,750,159 | | | | 2.27 | % | | Interest rate futures | | | | | | | 920,619 | | | | 0.76 | % | | U.S. index futures | | | | | | | 2,361,250 | | | | 1.95 | % | | Total options | | | | | | | 36,413,253 | | | | 30.03 | % |
| Description | | Number of Contracts | | | Fair Value | | | Percentage of Members’ Capital | | | Graham Commodity Strategies LLC | | | | | | | | | | | Exchange memberships (cost $3,649,411) | | | | | | | | | | | United States (cost $3,649,411) | | | | | | | | | | | Financial services (cost $3,649,411) | | | | | $ | 6,902,176 | | | | 7.54 | % | | Total exchange memberships | | | | | $ | 6,902,176 | | | | 7.54 | % | | | | | | | | | | | | | | | Derivative financial instruments | | | | | | | | | | | | | Long contracts | | | | | | | | | | | | | Futures | | | | | | | | | | | | | Commodity | | | | | $ | 2,497,000 | | | | 2.73 | % | | Foreign bond | | | | | | (118 | ) | | | (0.00 | )% | | Foreign index | | | | | | 23,027 | | | | 0.03 | % | | Interest rate | | | | | | | | | | | | | 3 month SOFR March 2023 | | | 712 | | | | 61,213 | | | | 0.07 | % | | 3 month SOFR June 2023 | | | 5,342 | | | | (1,321,100 | ) | | | (1.44 | )% | | Other interest rate | | | | | | | (20,892 | ) | | | (0.03 | )% | | U.S. bond | | | | | | | | | | | | | | U.S. 2 yr Note (CBT) March 2023 | | | 7,403 | | | | (4,826,937 | ) | | | (5.28 | )% | | U.S. index | | | | | | | 312,773 | | | | 0.34 | % | | Total futures | | | | | | | (3,275,034 | ) | | | (3.58 | )% | | | | | | | | | | | | | | | | Forwards | | | | | | | | | | | | | | Foreign currency | | | | | | | 372,322 | | | | 0.41 | % | | Total forwards | | | | | | | 372,322 | | | | 0.41 | % | | | | | | | | | | | | | | | | Options (cost $4,818,694) | | | | | | | | | | | | | | Currency futures | | | | | | | | | | | | | | U.S. dollar / Japanese Yen January 2023 - May 2023, $125.05 - $130.10 Put | | | 8 | | | | 6,156,445 | | | | 6.73 | % | | Other currency futures | | | | | | | 3,477,917 | | | | 3.80 | % | | U.S. index futures | | | | | | | 70,125 | | | | 0.08 | % | | Total options | | | | | | | 9,704,487 | | | | 10.61 | % |
3. Investments in Master Funds (continued)
The following schedules display the condensed schedules of investments for the Master Funds as of December 31, 2017.2022: | 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 | | | | | $ | (4,482,357 | ) | | | (3.69 | )% | | Euro Bund March 2018 | | | (900 | ) | | | 306,192 | | | | 0.25 | % | | Euro Buxl 30 Year bond March 2018 | | | (1,215 | ) | | | 4,378,522 | | | | 3.61 | % | | Euro Bobl March 2018 | | | (500 | ) | | | 54,045 | | | | 0.04 | % | | Other foreign bond | | | | | | | 4,280,253 | | | | 3.53 | % | | Interest rate | | | | | | | 2,869,308 | | | | 2.37 | % | | U.S. 5yr - 10yr note March 2018 | | | (9,478 | ) | | | (784,141 | ) | | | (0.65 | )% | | U.S. Long bond March 2018 | | | (2,850 | ) | | | (5,533,781 | ) | | | (4.56 | )% | | Total futures | | | | | | | 1,088,041 | | | | 0.90 | % | | | | | | | | | | | | | | | | Forwards | | | | | | | | | | | | | | U.S. dollar / Chinese yuan 01/05/2018 - 12/27/2018 | | CNY | (3,140,200,529) | | | | (4,654,222 | ) | | | (3.84 | )% | | U.S. dollar / Euro dollar 01/02/2018 - 01/03/2018 | | EUR | (170,559,412) | | | | (460,013 | ) | | | (0.38 | )% | | Other foreign currency | | | | | | | (6,278,444 | ) | | | (5.17 | )% | | Total forwards | | | | | | | (11,392,679 | ) | | | (9.39 | )% | | | | | | | | | | | | | | | | Options (proceeds $22,973,074) | | | | | | | | | | | | | | Natural gas Euro February 2018 - March 2018, $3.10 - $3.50 Call | | | (2 | ) | | | (1,806,500 | ) | | | (1.49 | )% | | Natural gas Euro July 2018 - December 2018, $2.80 Put | | | (6 | ) | | | (1,707,000 | ) | | | (1.41 | )% | | Other commodity futures | | | | | | | (2,961,175 | ) | | | (2.44 | )% | | Euro dollar / U.S. dollar January 2018 - May 2018, $1.21 - $1.30 Call | | | (5 | ) | | | (3,531,255 | ) | | | (2.91 | )% | | Other currency | | | | | | | (1,688,050 | ) | | | (1.39 | )% | | Euro-bund February 2018 - March 2018, $158.50 - $160.50 Put | | | (3 | ) | | | (1,611,205 | ) | | | (1.33 | )% | | Interest rate futures | | | | | | | 319,245 | | | | 0.26 | % | | U.S. index futures | | | | | | | (1,976,250 | ) | | | (1.63 | )% | | Total options | | | | | | | (14,962,190 | ) | | | (12.34 | )% | | Total derivative financial instruments | | | | | | $ | 40,575,685 | | | | 33.46 | % |
| Description | | Number of Contracts | | | Fair Value | | | Percentage of Members’ Capital | | | Graham Commodity Strategies LLC (continued) | | | | | | | | | | | Derivative financial instruments (continued) | | | | | | | | | | | Short contracts | | | | | | | | | | | Futures | | | | | | | | | | | Commodity | | | | | $ | (33,030 | ) | | | (0.04 | )% | | Foreign bond | | | | | | | | | | | | | Japan 10 yr Bond March 2023 | | | (977 | ) | | | 16,185,652 | | | | 17.69 | % | | Other foreign bond | | | | | | | 1,543,377 | | | | 1.69 | % | | Foreign index | | | | | | | 5,158,227 | | | | 5.64 | % | | Interest rate | | | | | | | | | | | | | | 3 month SOFR March 2024 | | | (1,780 | ) | | | 467,988 | | | | 0.51 | % | | 3 month SOFR June 2024 | | | (2,848 | ) | | | 1,023,225 | | | | 1.12 | % | | 3 month SOFR December 2023 | | | (6,787 | ) | | | 3,559,411 | | | | 3.89 | % | | U.S. bond | | | | | | | | | | | | | | U.S. 5 yr Note (CBT) March 2023 | | | (949 | ) | | | 396,727 | | | | 0.43 | % | | U.S. 10 yr Note (CBT) March 2023 | | | (2,019 | ) | | | 1,473,414 | | | | 1.61 | % | | U.S. Long bond (CBT) March 2023 | | | (29 | ) | | | 7,500 | | | | 0.01 | % | | U.S. Ultra bond (CBT) March 2023 | | | (215 | ) | | | (241,500 | ) | | | (0.26 | )% | | U.S. index | | | | | | | 586,740 | | | | 0.64 | % | | Total futures | | | | | | | 30,127,731 | | | | 32.93 | % | | | | | | | | | | | | | | | | Forwards | | | | | | | | | | | | | | Foreign currency | | | | | | | (555,295 | ) | | | (0.61 | )% | | Total forwards | | | | | | | (555,295 | ) | | | (0.61 | )% | | | | | | | | | | | | | | | | Options (proceeds $962,413) | | | | | | | | | | | | | | Currency futures | | | | | | | | | | | | | | U.S. dollar / Japanese Yen January 2023 - February 2023, $125.05 - $130.10 Put | | | (6 | ) | | | (3,345,095 | ) | | | (3.66 | )% | | Other currency futures | | | | | | | (86,138 | ) | | | (0.09 | )% | | Total options | | | | | | | (3,431,233 | ) | | | (3.75 | )% | | Total derivative financial instruments | | | | | | $ | 32,942,978 | | | | 36.01 | % |
3. Investments in Master Funds (continued)
The following schedules display the condensed schedules of investments for the Master Funds as of December 31, 2017.2022: | Description | | Number of Contracts / Notional Amounts | | | Fair Value | | | Percentage of Net Assets of Master Fund | | | Graham K4D Trading Ltd. | | | | | | | | | | | Derivative financial instruments | | | | | | | | | | | Long contracts | | | | | | | | | | | Futures | | | | | | | | | | | LME Aluminum March 2018 | | | 1,060 | | | $ | 4,755,763 | | | | 5.04 | % | | NY Harbor ULSD February 2018 | | | 779 | | | | 4,733,191 | | | | 5.01 | % | | Brent crude oil March 2018 | | | 872 | | | | 2,874,432 | | | | 3.04 | % | | WTI crude oil February 2018 | | | 560 | | | | 1,896,805 | | | | 2.01 | % | | Other commodity | | | | | | | 13,843,544 | | | | 14.66 | % | | Currency | | | | | | | 58,265 | | | | 0.06 | % | | Foreign bond | | | | | | | (2,189,927 | ) | | | (2.32 | )% | | Foreign index | | | | | | | 4,937,220 | | | | 5.23 | % | | Interest rate | | | | | | | (508,175 | ) | | | (0.54 | )% | | U.S. bond | | | | | | | 441,140 | | | | 0.47 | % | | U.S. index | | | | | | | 2,077,053 | | | | 2.20 | % | | Total futures | | | | | | | 32,919,311 | | | | 34.86 | % | | | | | | | | | | | | | | | | Forwards | | | | | | | | | | | | | | Foreign currency | | | | | | | 8,014,637 | | | | 8.49 | % | | Total forwards | | | | | | | 8,014,637 | | | | 8.49 | % | | | | | | | | | | | | | | | | Short contracts | | | | | | | | | | | | | | Futures | | | | | | | | | | | | | | LME Aluminum March 2018 | | | (217 | ) | | | (1,135,344 | ) | | | (1.20 | )% | | Other commodity | | | | | | | (656,808 | ) | | | (0.70 | )% | | Currency | | | | | | | 299,999 | | | | 0.32 | % | | Foreign bond | | | | | | | 545,339 | | | | 0.58 | % | | Foreign index | | | | | | | 21,830 | | | | 0.02 | % | | Interest rate | | | | | | | 580,989 | | | | 0.62 | % | | U.S. bond | | | | | | | 3,659,496 | | | | 3.87 | % | | U.S. index | | | | | | | 90,860 | | | | 0.10 | % | | Total futures | | | | | | | 3,406,361 | | | | 3.61 | % | | | | | | | | | | | | | | | | Forwards | | | | | | | | | | | | | | Foreign currency | | | | | | | (8,890,859 | ) | | | (9.42 | )% | | Total forwards | | | | | | | (8,890,859 | ) | | | (9.42 | )% | | Total derivative financial instruments | | | | | | $ | 35,449,450 | | | | 37.54 | % |
| Description | | Number of Contracts | | | Fair Value | | | Percentage of Members’ Capital | | | Graham Derivatives Strategies LLC | | | | | | | | | | | Derivative financial instruments | | | | | | | | | | | Long contracts | | | | | | | | | | | Futures | | | | | | | | | | | Commodity | | | | | $ | 55,450 | | | | 0.17 | % | | Foreign bond | | | | | | (70,256 | ) | | | (0.22 | )% | | U.S. bond | | | | | | (69,031 | ) | | | (0.21 | )% | | Total futures | | | | | | (83,837 | ) | | | (0.26 | )% | | | | | | | | | | | | | | | Forwards | | | | | | | | | | | | | Foreign currency | | | | | | (34,812 | ) | | | (0.11 | )% | | Total forwards | | | | | | (34,812 | ) | | | (0.11 | )% | | | | | | | | | | | | | | | Options (cost $38,031,263) | | | | | | | | | | | | | Commodity futures | | | | | | 1,294,020 | | | | 4.02 | % | | Currency futures | | | | | | | | | | | | | Euro dollar / British pound March 2023, $0.90 Call | | | 2 | | | | 2,786,554 | | | | 8.66 | % | | Euro dollar / British pound February 2023, $0.89 Call | | | 1 | | | | 1,918,757 | | | | 5.96 | % | | Euro dollar / Canadian dollar March 2023 - June 2023, $1.50 - $1.55 Call | | | 2 | | | | 2,102,023 | | | | 6.53 | % | | U.S. dollar / Japanese yen May 2023 - June 2023, $147.00 - $148.00 Call | | | 2 | | | | 459,528 | | | | 1.43 | % | | U.S. dollar / Japanese yen June 2023, $124.00 Put | | | 1 | | | | 6,554,699 | | | | 20.37 | % | | U.S. dollar / Japanese yen February 2023, $127.50 Put | | | 1 | | | | 1,787,137 | | | | 5.55 | % | | U.S. dollar / Japanese yen February 2023 - May 2023, $125.00 - $128.00 Put | | | 4 | | | | 4,763,727 | | | | 14.80 | % | | U.S. dollar / Japanese yen January 2023 - April 2023 (eko $125.50 -$129.00), $131.50 - $134.00 Put | | | 4 | | | | 2,834,864 | | | | 8.81 | % | | Other currency | | | | | | | 1,877,623 | | | | 5.84 | % | | Foreign bond futures | | | | | | | 630,334 | | | | 1.96 | % | | Interest rate futures | | | | | | | | | | | | | | 3 month SOFR February 2023, $95.00 Call | | | 1 | | | | 2,734,050 | | | | 8.50 | % | | 3 month SOFR February 2023, $95.19 Call | | | 1 | | | | 1,685,450 | | | | 5.24 | % | | 3 month SOFR January 2023, $95.00 Call | | | 1 | | | | 2,836,500 | | | | 8.82 | % | | 3 month SOFR March 2023, $95.31 Call | | | 1 | | | | 1,897,250 | | | | 5.90 | % | | 3 month SOFR January 2023 - March 2023, $95.13 - $95.19 Call | | | 2 | | | | 2,097,938 | | | | 6.52 | % | | U.S. bond futures | | | | | | | 1,159,813 | | | | 3.60 | % | | U.S. index futures | | | | | | | | | | | | | | S&P 500 E-mini September 2023, $4,800.00 Call | | | 1 | | | | 590,425 | | | | 1.83 | % | | S&P 500 E-mini January 2023, $3,700.00 Put | | | 1 | | | | 2,991,175 | | | | 9.30 | % | | S&P 500 E-mini January 2023, $3,400.00 Put | | | 1 | | | | 210,788 | | | | 0.66 | % | | Total options | | | | | | | 43,212,655 | | | | 134.30 | % |
3. Investments in Master Funds (continued)
The following schedules display the condensed schedules of investments for the Master Funds as of December 31, 2022: | Description | | Number of Contracts | | | Fair Value | | | Percentage of Members’ Capital | | | Graham Derivatives Strategies LLC (continued) | | | | | | | | | | | Derivative financial instruments (continued) | | | | | | | | | | | Short contracts | | | | | | | | | | | Futures | | | | | | | | | | | Foreign bond | | | | | $ | 1,194,016 | | | | 3.71 | % | | Interest rate | | | | | | | | | | | | | 3 month SOFR December 2023 | | | (38 | ) | | | (3,325 | ) | | | (0.01 | )% | | U.S. bond | | | | | | | 2,539 | | | | 0.01 | % | | U.S. index | | | | | | | | | | | | | | E-mini Russ 2000 March 2023 | | | (9 | ) | | | (1,890 | ) | | | (0.01 | )% | | S&P 500 E-mini March 2023 | | | (32 | ) | | | (19,162 | ) | | | (0.06 | )% | | Total futures | | | | | | | 1,172,178 | | | | 3.64 | % | | | | | | | | | | | | | | | | Options (proceeds $22,332,158) | | | | | | | | | | | | | | Commodity futures | | | | | | | (462,150 | ) | | | (1.44 | )% | | Currency futures | | | | | | | | | | | | | | U.S. dollar / Japanese yen February 2023, $125.00 - $125.50 Put | | | (2 | ) | | | (1,855,231 | ) | | | (5.77 | )% | | Other currency futures | | | | | | | (1,512,474 | ) | | | (4.70 | )% | | Foreign bond futures | | | | | | | (201,630 | ) | | | (0.63 | )% | | Interest rate futures | | | | | | | | | | | | | | 3 month SOFR February 2023, $95.06 Call | | | (1 | ) | | | (2,071,250 | ) | | | (6.44 | )% | | 3 month SOFR January 2023, $95.06 Call | | | (1 | ) | | | (1,891,000 | ) | | | (5.88 | )% | | 3 month SOFR January 2023 - March 2023, $95.13 - $95.44 Call | | | (5 | ) | | | (5,215,713 | ) | | | (16.20 | )% | | U.S. bond futures | | | | | | | (888,688 | ) | | | (2.76 | )% | | U.S. index futures | | | | | | | | | | | | | | S&P 500 E-mini September 2023, $4,700.00 Call | | | (1 | ) | | | (841,225 | ) | | | (2.61 | )% | | S&P 500 E-mini January 2023, $3,500.00 Put | | | (1 | ) | | | (1,204,500 | ) | | | (3.74 | )% | | Total options | | | | | | | (16,143,861 | ) | | | (50.17 | )% | | Total derivative financial instruments | | | | | | $ | 28,122,323 | | | | 87.40 | % |
3. Investments in Master Funds (continued) The following schedules display the condensed schedules of investments for the Master Funds as of December 31, 2022: | Description | | Number of Contracts | | | Fair Value | | | Percentage of Net Assets | | | Graham K4D Trading Ltd. | | | | | | | | | | | Exchange memberships (cost $1,924,208) | | | | | | | | | | | United States (cost $1,924,208) | | | | | | | | | | Financial services (cost $1,924,208) | | | | | $ | 1,647,049 | | | | 3.69 | % | | Total exchange memberships | | | | | $ | 1,647,049 | | | | 3.69 | % | | | | | | | | | | | | | | | Derivative financial instruments | | | | | | | | | | | | | Long contracts | | | | | | | | | | | | | Futures | | | | | | | | | | | | | Commodity | | | | | $ | 3,736,084 | | | | 8.37 | % | | Currency | | | | | | | | | | | | | Euro FX currency March 2023 | | | 15 | | | | 7,505 | | | | 0.02 | % | Other currency
| | | | | | | (25,432 | ) | | | (0.06 | )% | | Foreign bond | | | | | | | | | | | | | | Euro-Buxl 30 yr March 2023 | | | 13 | | | | (218,664 | ) | | | (0.49 | )% | | Euro-Oat March 2023 | | | 8 | | | | (72,824 | ) | | | (0.16 | )% | | Euro-Schatz March 2023 | | | 491 | | | | 28,435 | | | | 0.06 | % | | Other foreign bond futures | | | | | | | (1,506,373 | ) | | | (3.38 | )% | | Foreign index | | | | | | | | | | | | | | CAC 40 10 Euro January 2023 | | | 279 | | | | (831,148 | ) | | | (1.86 | )% | | Euro Stoxx 50 March 2023 | | | 1,396 | | | | (2,927,143 | ) | | | (6.56 | )% | | Nikkei 225 (OSE) March 2023 | | | 196 | | | | (2,812,569 | ) | | | (6.30 | )% | Other foreign index
| | | | | | | (2,936,199 | ) | | | (6.58 | )% | | U.S. bond | | | | | | | (971,258 | ) | | | (2.18 | )% | | U.S. index | | | | | | | (988,125 | ) | | | (2.21 | )% | | Total futures | | | | | | | (9,517,711 | ) | | | (21.33 | )% | | | | | | | | | | | | | | | | Swaps (cost $149,945) | | | | | | | | | | | | | | Interest rate | | | | | | | 7,998 | | | | 0.02 | % | | Total swaps | | | | | | | 7,998 | | | | 0.02 | % | | | | | | | | | | | | | | | | Forwards | | | | | | | | | | | | | | Foreign currency | | | | | | | 926,650 | | | | 2.08 | % | | Total forwards | | | | | | | 926,650 | | | | 2.08 | % |
3. Investments in Master Funds (continued) The following schedules display the condensed schedules of investments for the Master Funds as of December 31, 2022: | Description | | Number of Contracts | | | Fair Value | | | Percentage of
Net Assets | | | Graham K4D Trading Ltd. (continued) | | | | | | | | | | | Derivative financial instruments (continued) | | | | | | | | | | | Short contracts | | | | | | | | | | | Futures | | | | | | | | | | | Commodity | | | | | $ | 400,881 | | | | 0.90 | % | | Currency | | | | | | (30,113 | ) | | | (0.07 | )% | | Foreign bond | | | | | | | | | | | | | Euro-Bobl March 2023 | | | (248 | ) | | | 1,336,006 | | | | 2.99 | % | | Euro-Btp March 2023 | | | (6 | ) | | | (20,715 | ) | | | (0.05 | )% | | Euro-Bund March 2023 | | | (104 | ) | | | 970,271 | | | | 2.17 | % | | Other foreign bond | | | | | | | 1,420,235 | | | | 3.19 | % | | Foreign index | | | | | | | (77,544 | ) | | | (0.17 | )% | | Interest rate | | | | | | | | | | | | | | 3 month Euro Euribor December 2023 | | | (1,254 | ) | | | 2,334,823 | | | | 5.23 | % | | Other interest rate | | | | | | | 1,291,770 | | | | 2.90 | % | | U.S. bond | | | | | | | 769,686 | | | | 1.72 | % | | U.S. index | | | | | | | 750,082 | | | | 1.68 | % | | Total futures | | | | | | | 9,145,382 | | | | 20.49 | % | | | | | | | | | | | | | | | | Swaps (proceeds $64,745) | | | | | | | | | | | | | | Interest rate | | | | | | | 108,048 | | | | 0.24 | % | | Total swaps | | | | | | | 108,048 | | | | 0.24 | % | | | | | | | | | | | | | | | | Forwards | | | | | | | | | | | | | | Foreign currency | | | | | | | 712,094 | | | | 1.60 | % | | Total forwards | | | | | | | 712,094 | | | | 1.60 | % | | Total derivative financial instruments | | | | | | $ | 1,382,461 | | | | 3.10 | % |
3. Investments in Master Funds (continued) The following table shows the fair value classification of each investment type by Master Fund as of December 31, 2017:2022:
| | | Graham Commodity Strategies LLC | | | Graham Derivatives
Strategies LLC | | | Graham K4D Trading Ltd. | | | Assets | | | | | | | | | | | Level 1: | | | | | | | | | | | Commodity futures | | $ | 4,725,880 | | | $ | 76,970 | | | $ | 5,591,646 | | | Commodity futures options | | | – | | | | 1,294,020 | | | | – | | | Currency futures | | | – | | | | – | | | | 9,067 | | | Exchange memberships* | | | 6,902,176 | | | | – | | | | 1,647,049 | | | Foreign bond futures | | | 17,729,029 | | | | 1,194,016 | | | | 3,754,947 | | | Foreign bond futures options | | | – | | | | 630,334 | | | | – | | | Foreign index futures | | | 5,220,331 | | | | – | | | | 11,627 | | | Interest rate futures | | | 5,111,837 | | | | – | | | | 3,626,593 | | | Interest rate futures options | | | – | | | | 11,251,188 | | | | – | | | U.S. bond futures | | | 2,018,336 | | | | 111,297 | | | | 769,686 | | | U.S. bond futures options | | | – | | | | 1,159,813 | | | | – | | | U.S. index futures | | | 1,910,878 | | | | – | | | | 815,657 | | | U.S. index futures options | | | 70,125 | | | | 3,792,388 | | | | – | | | Total Level 1 | | | 43,688,592 | | | | 19,510,026 | | | | 16,226,272 | | | | | | | | | | | | | | | | | Level 2: | | | | | | | | | | | | | | Foreign currency forwards | | | 2,067,521 | | | | 25,084,912 | | | | 2,851,140 | | | Foreign currency futures options | | | 9,634,362 | | | | – | | | | – | | | Interest rate swap | | | – | | | | – | | | | 150,127 | | | Total Level 2 | | | 11,701,883 | | | | 25,084,912 | | | | 3,001,267 | | | Total investment related assets | | $ | 55,390,475 | | | $ | 44,594,938 | | | $ | 19,227,539 | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | Level 1: | | | | | | | | | | | | | | Commodity futures | | $ | (2,261,910 | ) | | $ | (21,520 | ) | | $ | (1,454,681 | ) | | Commodity futures options | | | – | | | | (462,150 | ) | | | – | | | Currency futures | | | – | | | | – | | | | (57,107 | ) | | Foreign bond futures | | | (118 | ) | | | (70,256 | ) | | | (1,818,576 | ) | | Foreign index futures | | | (39,077 | ) | | | – | | | | (9,596,230 | ) | | Foreign bond futures options | | | – | | | | (201,630 | ) | | | – | | | Interest rate futures | | | (1,341,992 | ) | | | (3,325 | ) | | | – | | | Interest rate futures options | | | – | | | | (9,177,963 | ) | | | – | | | U.S. bond futures | | | (5,209,132 | ) | | | (177,789 | ) | | | (971,258 | ) | | U.S. bond futures options | | | – | | | | (888,688 | ) | | | – | | | U.S. index futures | | | (1,011,365 | ) | | | (21,052 | ) | | | (1,053,700 | ) | | U.S. index futures options | | | – | | | | (2,045,725 | ) | | | – | | | Total Level 1 | | | (9,863,594 | ) | | | (13,070,098 | ) | | | (14,951,552 | ) | | | | | | | | | | | | | | | | Level 2: | | | | | | | | | | | | | | Foreign currency forwards | | | (2,250,494 | ) | | | (34,812 | ) | | | (1,212,396 | ) | | Foreign currency futures options | | | (3,431,233 | ) | | | (3,367,705 | ) | | | – | | | Interest rate swap | | | – | | | | – | | | | (34,081 | ) | | Total Level 2 | | | (5,681,727 | ) | | | (3,402,517 | ) | | | (1,246,477 | ) | | Total investment related liabilities | | $ | (15,545,321 | ) | | $ | (16,472,615 | ) | | $ | (16,198,029 | ) |
| | | Graham Commodity Strategies LLC | | | Graham K4D Trading Ltd. | | | Assets | | | | | | | | Level 1: | | | | | | | | Commodity futures | | $ | 13,829,633 | | | $ | 31,996,866 | | | Commodity futures options | | | 13,308,775 | | | | - | | | Currency futures | | | - | | | | 434,847 | | | Foreign bond futures | | | 9,019,012 | | | | 2,311,119 | | | Foreign index futures | | | - | | | | 6,250,768 | | | Foreign index futures options | | | 4,040,611 | | | | - | | | Interest rate futures | | | 4,532,907 | | | | 846,231 | | | Interest rate futures options | | | 2,225,495 | | | | - | | | U.S. bond futures | | | 2,505,664 | | | | 4,100,636 | | | U.S. index futures | | | 173,120 | | | | 2,593,457 | | | U.S. index futures options | | | 2,361,250 | | | | - | | | Total Level 1 | | | 51,996,467 | | | | 48,533,924 | | | | | | | | | | | | | Level 2: | | | | | | | | | | Foreign currency forwards | | | 23,574,930 | | | | 9,288,894 | | | Foreign currency options | | | 18,201,430 | | | | - | | | Total Level 2 | | | 41,776,360 | | | | 9,288,894 | | | Total investment related assets | | $ | 93,772,827 | | | $ | 57,822,818 | | | | | | | | | | | | Liabilities | | | | | | | | | | Level 1: | | | | | | | | | | Commodity futures | | $ | (10,718,909 | ) | | $ | (5,685,283 | ) | | Commodity futures options | | | (7,603,655 | ) | | | - | | | Currency futures | | | - | | | | (76,583 | ) | | Foreign bond futures | | | - | | | | (3,955,707 | ) | | Foreign bond futures options | | | (2,901,657 | ) | | | - | | | Foreign index futures | | | (354,017 | ) | | | (1,291,718 | ) | | Interest rate futures | | | (2,287,204 | ) | | | (773,417 | ) | | Interest rate futures options | | | (985,631 | ) | | | - | | | U.S. bond futures | | | (6,980,813 | ) | | | - | | | U.S. index futures | | | (121,250 | ) | | | (425,544 | ) | | U.S. index futures options | | | (1,976,250 | ) | | | - | | | Total Level 1 | | | (33,929,386 | ) | | | (12,208,252 | ) | | | | | | | | | | | | Level 2: | | | | | | | | | | Foreign currency forwards | | | (14,048,451 | ) | | | (10,165,116 | ) | | Foreign currency options | | | (5,219,305 | ) | | | - | | | Total Level 2 | | | (19,267,756 | ) | | | (10,165,116 | ) | | Total investment related liabilities | | $ | (53,197,142 | ) | | $ | (22,373,368 | ) |
* See each Master Fund’s condensed schedule of investments for breakout of industry and geographic region. 3. Investments in Master Funds (continued)
The following table displays the gross volume of derivative activities categorized by primary underlying risk of Graham Commodity Strategies LLC based on its average quarterly notional amounts and number of contracts for the year ended December 31, 2017.2022. The table also displays the fair value of derivative contracts held by Graham Commodity Strategies LLC at December 31, 20172022 categorized by primary underlying risk. The fair value of derivative contracts is included in derivative financial instruments on the Master Funds’ statements of financial condition. Derivatives denominated in foreign currencies have been converted to U.S. dollars. Derivative asset and derivative 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 | | | | | | | | | Long exposure | | | Short exposure | | | | | | | | Notional amounts | | Number of contracts | | | Notional amounts | | | Number of contracts | | | Derivative Assets | | | Derivative Liabilities | | | Notional Amounts | | | Number of contracts | | | Notional amounts | | | Number of contracts | | | Derivative assets | | | Derivative liabilities | | | Commodity price | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Futures | | $ | 684,895,792 | | | 26,605 | | | $ | (418,457,890 | ) | | | (10,460 | ) | | $ | 13,829,633 | | | $ | (10,718,909 | ) | | $ | 186,625,658 | | 2,101 | | $ | (15,498,641 | ) | | (467 | ) | | $ | 4,725,880 | | $ | (2,261,910 | ) | | Options(a) | | | 886,926,208 | | | 48,656 | | | | (638,485,018 | ) | | | (52,972 | ) | | | 13,308,775 | | | | (7,603,655 | ) | | | Options (a) | | | | 13,373,826 | | 1,072 | | | (5,762,599 | ) | | (575 | ) | | | – | | – | | | | | | 1,571,822,000 | | | 75,261 | | | | (1,056,942,908 | ) | | | (63,432 | ) | | | 27,138,408 | | | | (18,322,564 | ) | | | 199,999,484 | | | 3,173 | | | (21,261,240 | ) | | | (1,042 | ) | | | 4,725,880 | | | (2,261,910 | ) | | Equity price | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Futures | | | 205,942,579 | | | 1,991 | | | | (241,079,315 | ) | | | (2,453 | ) | | | 173,120 | | | | (475,267 | ) | | 105,393,870 | | 997 | | (223,123,315 | ) | | (2,820 | ) | | 7,131,209 | | (1,050,442 | ) | | Options(a) | | | 59,964,058 | | | 4,650 | | | | (32,309,289 | ) | | | (5,525 | ) | | | 2,361,250 | | | | (1,976,250 | ) | | | | | | 265,906,637 | | | 6,641 | | | | (273,388,604 | ) | | | (7,978 | ) | | | 2,534,370 | | | | (2,451,517 | ) | | | Options (a) | | | | 714,207 | | 1,639 | | | (934,457 | ) | | (1,636 | ) | | | 70,125 | | – | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 106,108,077 | | | 2,636 | | | (224,057,772 | ) | | | (4,456 | ) | | | 7,201,334 | | | (1,050,442 | ) | | Foreign currency exchange rate | Foreign currency exchange rate | | | | | | | | | | | | | | | | | | Foreign currency exchange rate | | | | | | | | | | | | | | Forwards | | | 38,829,225,666 | | | N/A | | | | (2,004,799,747 | ) | | | N/A | | | | 23,574,930 | | | | (14,048,451 | ) | | 1,316,655,676 | | N/A | | (1,208,969,411 | ) | | N/A | | | 2,067,521 | | (2,250,494 | ) | | Options(a) | | | 1,153,407,119 | | | 34 | | | | (799,574,425 | ) | | | (33 | ) | | | 18,201,430 | | | | (5,219,305 | ) | | | Options (a) | | | | 60,751,845 | | 7 | | | (96,796,503 | ) | | (20 | ) | | | 9,634,362 | | (3,431,233 | ) | | | | | 39,982,632,785 | | | 34 | | | | (2,804,374,172 | ) | | | (33 | ) | | | 41,776,360 | | | | (19,267,756 | ) | | | 1,377,407,521 | | | 7 | | | (1,305,765,914 | ) | | | (20 | ) | | | 11,701,883 | | | (5,681,727 | ) | | Interest rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Futures | | | 7,826,142,920 | | | 30,549 | | | | (23,846,250,019 | ) | | | (88,273 | ) | | | 16,057,583 | | | | (9,268,017 | ) | | 1,238,790,866 | | 7,141 | | (2,850,846,022 | ) | | (12,398 | ) | | 24,859,202 | | (6,551,242 | ) | | Options(a) | | | 3,705,221,105 | | | 123,619 | | | | (6,474,304,873 | ) | | | (119,408 | ) | | | 6,266,106 | | | | (3,887,288 | ) | | | Options (a) | | | | 805,426,116 | | 16,775 | | | (914,747,665 | ) | | (16,775 | ) | | | – | | – | | | | | | 11,531,364,025 | | | 154,168 | | | | (30,320,554,892 | ) | | | (207,681 | ) | | | 22,323,689 | | | | (13,155,305 | ) | | | 2,044,216,982 | | | 23,916 | | | (3,765,593,687 | ) | | | (29,173 | ) | | | 24,859,202 | | | (6,551,242 | ) | | Total | | $ | 53,351,725,447 | | | 236,104 | | | $ | (34,455,260,576 | ) | | | (279,124 | ) | | $ | 93,772,827 | | | $ | (53,197,142 | ) | | $ | 3,727,732,064 | | 29,732 | | $ | (5,316,678,613 | ) | | (34,691 | ) | | $ | 48,488,299 | | $ | (15,545,321 | ) |
| (a) | – Notional amounts for options are based on the delta-adjusted positions. |
3. Investments in Master Funds (continued)
The following table displays the gross volume of derivative activities categorized by primary underlying risk of Graham K4D Trading Ltd.Derivatives Strategies LLC based on its average quarterly notional amounts and number of contracts for the year endedperiod from January 14, 2022 (commencement of operations) to December 31, 2017.2022. The table also displays the fair value of derivative contracts held by Graham K4D Trading Ltd.Derivatives Strategies LLC at December 31, 20172022 categorized by primary underlying risk. The fair value of derivative contracts is included in derivative financial instruments on the Master Funds’ statements of financial condition. Derivatives denominated in foreign currencies have been converted to U.S. dollars. Derivative asset and derivative 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 | | | | | | | | | Long exposure | | | Short exposure | | | | | | | | Notional amounts | | | Number of contracts | | | Notional amounts | | | Number of contracts | | | Derivative Assets | | | Derivative Liabilities | | | Notional Amounts | | | Number of contracts | | | Notional amounts | | | Number of contracts | | | Derivative assets | | | Derivative liabilities | | | Commodity price | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Futures | | $ | 369,756,628 | | | | 4,817 | | | $ | (363,243,889 | ) | | | (8,875 | ) | | $ | 31,996,866 | | | $ | (5,685,283 | ) | | $ | 11,546,990 | | 78 | | $
| – | |
| – | | | $ | 76,970 | | $ | (21,520 | ) | | | | | 369,756,628 | | | | 4,817 | | | | (363,243,889 | ) | | | (8,875 | ) | | | 31,996,866 | | | | (5,685,283 | ) | | | Options (a) | | | | 84,705,847 | | 2,514 | | | (59,510,938 | ) | | (2,520 | ) | | | 1,294,020 | | (462,150 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 96,252,837 | | | 2,592 | | | (59,510,938 | ) | | | (2,520 | ) | | | 1,370,990 | | | (483,670 | ) | | Equity price | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Futures | | | 916,387,258 | | | | 8,530 | | | | (16,306,851 | ) | | | (785 | ) | | | 8,844,225 | | | | (1,717,262 | ) | | 5,392,423 | | 24 | | (7,282,457 | ) | | (39 | ) | | – |
| | (21,052 | ) | | Options (a) | | | | 51,591,974 | | 2,432 | | | (96,065,054 | ) | | (2,221 | ) | | | 3,792,388 | | (2,045,725 | ) | | | | | 916,387,258 | | | | 8,530 | | | | (16,306,851 | ) | | | (785 | ) | | | 8,844,225 | | | | (1,717,262 | ) | | | 56,984,397 | | | 2,456 | | | (103,347,511 | ) | | | (2,260 | ) | | | 3,792,388 | | | (2,066,777 | ) | | Foreign currency exchange rate | Foreign currency exchange rate | | | | | | | | | | | | | | | | | | | | | | Foreign currency exchange rate | | | | | | | | | | | | | | Forwards | | | 1,124,238,162 | | | | N/A | | | | (798,826,259 | ) | | | N/A | | | | 9,288,894 | | | | (10,165,116 | ) | | 43,567,730 | | N/A | | (39,590,124 | ) | | N/A | | | – | | (34,812 | ) | | Futures | | | 14,700,523 | | | | 152 | | | | (40,445,174 | ) | | | (424 | ) | | | 434,847 | | | | (76,583 | ) | | | | | | 1,138,938,685 | | | | 152 | | | | (839,271,433 | ) | | | (424 | ) | | | 9,723,741 | | | | (10,241,699 | ) | | | Options (a) | | | | 475,407,964 | | 15 | | | (523,109,593 | ) | | (18 | ) | | | 25,084,912 | | (3,367,705 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 518,975,694 | | | 15 | | | (562,699,717 | ) | | | (18 | ) | | | 25,084,912 | | | (3,402,517 | ) | | Interest rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Futures | | | 3,211,871,054 | | | | 18,268 | | | | (2,037,461,446 | ) | | | (10,891 | ) | | | 7,257,986 | | | | (4,729,124 | ) | | 155,838,281 | | 448 | | (244,880,268 | ) | | (1,134 | ) | | 1,305,313 | | (251,370 | ) | | Options (a) | | | | 1,586,360,072 | | 26,015 | | | (1,403,160,971 | ) | | (26,024 | ) | | | 13,041,335 | | (10,268,281 | ) | | | | | 3,211,871,054 | | | | 18,268 | | | | (2,037,461,446 | ) | | | (10,891 | ) | | | 7,257,986 | | | | (4,729,124 | ) | | | 1,742,198,353 | | | 26,463 | | | (1,648,041,239 | ) | | | (27,158 | ) | | | 14,346,648 | | | (10,519,651 | ) | | Total | | $ | 5,636,953,625 | | | | 31,767 | | | $ | (3,256,283,619 | ) | | | (20,975 | ) | | $ | 57,822,818 | | | $ | (22,373,368 | ) | | $ | 2,414,411,281 | | 31,526 | | $ | (2,373,599,405 | ) | | (31,956 | ) | | $ | 44,594,938 | | $ | (16,472,615 | ) |
(a)Notional amounts for options are based on the delta-adjusted positions. |
