Item 1. Financial Statements
See accompanying notes.
See accompanying notes.
See accompanying notes.
See accompanying notes.
See accompanying notes.
Graham Alternative Investment Fund I LLC
March 31, 2013
1. Organization and Business
Graham Alternative Investment Fund I LLC (the “Fund”) was formed on May 16, 2006, commenced operations on August 1, 2006 and is organized as a Delaware Limited Liability Company (“LLC”). The Fund offers investors Class 0 and Class 2 shares of a Blended Strategies Portfolio, and Class 0 and Class 2 shares of a Systematic Strategies Portfolio. The Fund invests all of its Blended Strategies Portfolio assets dedicated to trading in Graham Alternative Investment Trading LLC (“GAIT”), a Delaware LLC which was formed on May 16, 2006 and commenced operations on August 1, 2006. The Fund invests all of its Systematic Strategies Portfolio assets dedicated to trading in Graham Alternative Investment Trading II LLC (“GAIT II”), a Delaware LLC which was formed on July 16, 2008 and commenced operations on January 4, 2009. GAIT and GAIT II (collectively “the GAIT Funds”) invest in various master trading vehicles (“Master Funds”), 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 the GAIT Funds and the Fund. The Manager is registered as a Commodity Pool Operator and Commodity Trading Advisor with the Commodity Futures Trading Commission (the “CFTC”) and is a member of the National Futures Association. The Manager is also registered as a Registered Investment Advisor with the Securities and Exchange Commission. The Fund is a reporting company under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and qualifies as a smaller reporting company under the Exchange Act. Effective March 28, 2013 the Manager filed an amendment to the Certificate of Formation of the Fund to designate the interests of unitholders of the Fund as series under the Delaware Limited Liability Company Act. This amendment allows unitholders of the Fund to benefit from limitation of liability protection afforded to each series.
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 investments in the GAIT Funds, which in turn invest in various Master Funds. The Master Funds seek to profit from opportunities in the global financial markets, including interest rate futures, foreign exchange, global stock indices and energy, metals and agricultural futures, as professionally managed multi-strategy investment vehicles. Each of the investment programs consists of multiple trading strategies of the Manager, which the Manager has combined in an effort to diversify the Fund’s investment exposure and to make the Fund’s performance returns less volatile and more consistently profitable.
SEI Global Services, Inc. (“SEI”) is the Fund’s independent administrator and transfer agent. SEI is responsible for certain matters pertaining to the administration of the Fund.
The Fund will terminate on December 31, 2050 or at an earlier date if certain conditions occur as outlined in the Limited Liability Company Agreement (“LLC Agreement”).
The performance of the Fund is directly affected by the performance of the GAIT Funds; therefore these financial statements should be read in conjunction with the attached financial statements of the GAIT Funds.
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 the GAIT Funds.
Graham Alternative Investment Fund I LLC
Notes to Unaudited Financial Statements (continued)
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 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 Graham Alternative Investment Trading LLC and Graham Alternative Investment Trading II LLC
The Fund records its investments in the GAIT Funds at fair value based upon the Fund’s proportionate share of the GAIT Funds’ reported net asset value in accordance with U.S. GAAP. In determining its net asset value, the GAIT Funds record their investments in Master Funds at fair value based upon the GAIT Funds’ proportionate share of the Master Funds’ reported net asset value. The Fund records its proportionate share of the GAIT Funds’ 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 the GAIT Funds are recorded on a trade date basis. The accounting policies of the GAIT Funds are described in their attached financial statements.
Each of the GAIT Funds charges its investors, including the Fund, an advisory fee, brokerage 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 their portion of the advisory fee, brokerage fee, sponsor fee and incentive allocation charged by the GAIT Funds.
At March 31, 2013 and December 31, 2012, the Fund owned 61.03% and 63.27%, respectively of GAIT, and 58.82% and 56.47%, respectively of GAIT II.
Fair Value
The fair value of the assets and liabilities of the Fund and the GAIT Funds, 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-level hierarchy for fair value measurement based on the activeness of the market and the transparency and independence of inputs used in the valuation of an asset or liability as of the measurement date.
The fair value hierarchy categorizes asset and liability positions into one of three levels, as summarized below, based on the inputs and assumptions used in deriving fair value.
| | · | Level 1 inputs are unadjusted closing or settlement prices for such assets or liabilities as published by the primary exchange upon which they are traded. |
| | · | Level 2 inputs include quoted prices for similar assets and liabilities obtained from independent brokers and/or market makers in each security. With respect to the Fund’s investments in the GAIT Funds, Level 2 inputs include the net asset value of the underlying fund in which it holds an investment. |
| | · | Level 3 inputs are those which are considered unobservable and are significant in arriving at fair value. |
Graham Alternative Investment Fund I LLC
Notes to Unaudited Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Fair Value (continued)
In accordance with this hierarchy, the Fund’s investments in the GAIT Funds have been classified as a Level 2 valuation. There were no Level 3 assets or liabilities held at any point during the three months ended March 31, 2013 or the year ended December 31, 2012 by the Fund, the GAIT Funds, or the Master Funds, and there were no transfers between levels during those periods. Transfers between levels, if any, are recognized on the actual date of the event or change in circumstances that cause the transfer.
Indemnifications
In the normal course of business, the Master Funds, the GAIT Funds, Graham Cash Assets LLC (“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.
3. Capital Accounts
The Fund offers two classes (each a “Class”) in different series (each a “Series” or “Portfolio”) of Units (collectively the “Units”), being Class 0 Units and Class 2 Units in both Blended and Systematic Strategies Portfolios. The Fund may issue additional Classes or Series in the future subject to different fees, expenses or other terms, or to invest in other investment programs or combinations of investment programs managed by the Manager.
A separate Capital Account is maintained for each Member with respect to each member’s Class of Units. The initial balance of each Member’s Capital Account is equal to the initial contribution to the Fund by such Member with respect to the Class and Series to which such Capital Account relates. Each Member’s Capital Account is increased by any additional subscription, and decreased by any redemption by such Member of Units of such Class and Series to which the Capital Account relates. All income and expenses of the Fund are allocated among the Members’ Capital Accounts [in respect of a Series] in proportion to the balance that each Capital Account bears to the balance of all Capital Accounts [of that Series] as of the beginning of such fiscal period.
Subscriptions
Units may be purchased at a price equal to the Net Asset Value per Unit of the relevant Class and Series as of the immediately preceding Valuation Day as defined in the LLC Agreement. The minimum initial subscription from each investor in each Class is $50,000. Members may subscribe for additional Units in a minimum amount of not less than $5,000.
Units are available for subscription as of the first business day of each month upon written notice of at least three business days prior to the last business day of the preceding month.
Graham Alternative Investment Fund I LLC
Notes to Unaudited Financial Statements (continued)
3. Capital Accounts (continued)
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 $25,000. The redemption proceeds will normally be remitted within 15 days after the Valuation Day, without interest for the period from the Valuation Day to the payment date.
Redemption Fees
Class 2 Units are subject to a redemption fee equal to 2% of their Net Asset Value if redeemed within six months from their subscription date and a redemption fee equal to 1% of their Net Asset Value if redeemed more than six and less than twelve months from their subscription date. Class 0 Units are not subject to a redemption fee. Redemption fees are payable to the Manager upon redemption of Units from the proceeds of such redemption. Redemption fees of $0 and $3,885 were paid to the Manager for the three months ended March 31, 2013 and 2012, respectively, and are included as redemptions in the statements of changes in members’ capital.
4. Fees and Related Party Transactions
Advisory Fees
For the three months ended March 31, 2013 and 2012, each Class of the GAIT Funds other than Class M pays the Manager an advisory fee (the “Advisory Fee”) at an aggregate annual rate equal to 1.75% and 2%, respectively, of the Net Asset Value of such Class. The Advisory Fee is payable monthly in arrears calculated as of the last business day of each month and any other date the Manager may permit, in its sole and absolute discretion, as of which any subscription or redemption is effected with respect to Units of such Class during the month.
Sponsor Fees
For the three months ended March 31, 2013 and 2012, each Class of the GAIT Funds other than Class M pays the Manager a sponsor fee (the “Sponsor Fee”) at an annual rate specified in the table below. This Sponsor Fee was payable monthly in arrears calculated as of the last business day of the month in the same manner as the Advisory Fee. For the three months ended March 31, 2013 the Sponsor Fee listed below for Class 2 included a selling agent fee (the “Selling Agent Fee”) of 2%. The Selling Agent Fee represented a fee for initial and on-going service fees to the Fund’s selling agents.
| Class | 2013 Annual Rate | 2012 Annual Rate |
| Class 0 | 0.75% | 1.00% |
| Class 2 | 2.75% | 1.00% |
Incentive Allocation
At the end of each calendar quarter, the Manager of the GAIT Funds 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 the GAIT Funds, 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 the GAIT Funds shall be proportionately reduced, effective as of the date of any redemption of any Units of such class, by multiplying the loss carryforward by the ratio that the amount of assets redeemed from such class bears to the net assets of such class immediately prior to such redemption. The loss carryforward of a class must be recouped before any subsequent Incentive Allocation can be made to the Manager
Graham Alternative Investment Fund I LLC
Notes to Unaudited Financial Statements (continued)
4. Fees and Related Party Transactions (continued)
Brokerage Fees
For the three months ended March 31, 2012, each Class of GAIT Funds other than Class M paid the Manager a brokerage fee (the “Brokerage Fee”) at an annual rate specified in the table below. This Brokerage Fee was payable monthly in arrears calculated as of the last business day of each month in the same manner as the Advisory Fee.
| Class | Annual Rate |
| | |
| Class 0 | 2% |
| Class 2 | 4% |
In consideration of the Brokerage Fee, the Manager assumed all of the GAIT Funds’ trading commissions (including exchange, clearing and regulatory fees relating to its trades), routine legal expenses, internal and external accounting, audit and tax preparation expenses, fees and expenses of an external or internal administrator, and expenses and costs of printing and mailing reports and notices, together with the costs incurred in connection with the organization of the GAIT Funds and the Fund and the continuous offering of Units. To the extent the GAIT Funds were allocated any of these expenses from the Master Funds in which they invested, the Manager reimbursed the GAIT Funds for those amounts. These reimbursements are included in commission reimbursements in the GAIT Funds’ statements of operations and managing member allocation. As a result, there is no impact to the Fund’s statement of operations.
As of January 1, 2013 the GAIT Funds eliminated the Brokerage Fee and the GAIT Funds incurred directly all costs previously covered by the Brokerage Fee.
Administrator’s Fee
For the three month period ended March 31, 2013, the GAIT Funds paid SEI a monthly administrator’s fee based on each GAIT Fund’s net asset value, calculated as of the last business day of each month. In addition, the GAIT Funds reimbursed SEI for reasonable out-of-pocket expenses incurred on behalf of the GAIT Funds. The total administrator’s fees allocated to the Fund by the GAIT Funds for the three month periods ended March 31, 2013 and 2012 were $57,849 and $0, respectively.
Any portion of any of the above fees, including the Incentive Allocation, may be paid by the Manager to third parties as compensation for selling activities in connection with the Fund.
5. Income Taxes
No provision for income taxes has been made in the accompanying financial statements, as members are individually responsible for reporting income or loss based upon their respective share of the Fund’s revenues and expenses for income tax purposes.
U.S. GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. U.S. GAAP requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a more-likely-than-not threshold would be recorded as a tax expense in the current year. 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 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.
Graham Alternative Investment Fund I LLC
Notes to Unaudited Financial Statements (continued)
6. Financial Highlights
The following is the per Unit operating performance calculation for the three month periods ended March 31, 2013 and 2012:
| | | Blended Strategies Portfolio | | | Systematic Strategies Portfolio | |
| | | Class 0 | | | Class 2 | | | Class 0 | | | Class 2 | |
| Per unit operating performance | | | | | | | | | | | | |
| Net asset value per unit, December 31, 2011 | | $ | 123.17 | | | $ | 98.77 | | | $ | 81.35 | | | $ | 77.24 | |
| Net gain: | | | | | | | | | | | | | | | | |
| Net investment loss | | | (1.20 | ) | | | (1.48 | ) | | | (0.92 | ) | | | (1.27 | ) |
| Net gain on investments | | | 4.17 | | | | 3.36 | | | | 1.89 | | | | 1.80 | |
| Net gain | | | 2.97 | | | | 1.88 | | | | 0.97 | | | | 0.53 | |
| Net asset value per unit, March 31, 2012 | | $ | 126.14 | | | $ | 100.65 | | | $ | 82.32 | | | $ | 77.77 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net asset value per unit, December 31, 2012 | | $ | 114.88 | | | $ | 90.29 | | | $ | 73.46 | | | $ | 68.36 | |
| Net gain: | | | | | | | | | | | | | | | | |
| Net investment loss | | | (0.88 | ) | | | (1.14 | ) | | | (0.65 | ) | | | (0.93 | ) |
| Net gain on investments | | | 8.47 | | | | 6.65 | | | | 7.81 | | | | 7.24 | |
| Net gain | | | 7.59 | | | | 5.51 | | | | 7.16 | | | | 6.31 | |
| Net asset value per unit, March 31, 2013 | | $ | 122.47 | | | $ | 95.80 | | | $ | 80.62 | | | $ | 74.67 | |
The following represents ratios to average members’ capital and total return for the three month periods ended March 31, 2013 and 2012 for the Blended Strategies Portfolio:
| | | Blended Strategies Portfolio | |
| | | Class 0 | | | Class 2 | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | |
| Total return before Incentive Allocation | | | 6.61 | % | | | 2.41 | % | | | 6.10 | % | | | 1.90 | % |
| Incentive Allocation | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | |
| Total return after Incentive Allocation | | | 6.61 | % | | | 2.41 | % | | | 6.10 | % | | | 1.90 | % |
| | | | | | | | | | | | | | | | | |
| Net investment loss before Incentive Allocation | | | (0.77 | )% | | | (0.97 | )% | | | (1.22 | )% | | | (1.50 | )% |
| Incentive Allocation | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | |
| Net investment loss after Incentive Allocation | | | (0.77 | )% | | | (0.97 | )% | | | (1.22 | )% | | | (1.50 | )% |
| | | | | | | | | | | | | | | | | |
| Total expenses before Incentive Allocation | | | 0.79 | % | | | 1.27 | % | | | 1.27 | % | | | 1.79 | % |
| Incentive Allocation | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | |
| Total expenses after Incentive Allocation | | | 0.79 | % | | | 1.27 | % | | | 1.27 | % | | | 1.79 | % |
Graham Alternative Investment Fund I LLC
Notes to Unaudited Financial Statements (continued)
6. Financial Highlights (continued)
The following represents ratios to average members’ capital and total return for the three month periods ended March 31, 2013 and 2012 for the Systematic Strategies Portfolio:
| | | Systematic Strategies Portfolio | |
| | | Class 0 | | | Class 2 | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | |
| Total return before Incentive Allocation | | | 9.75 | % | | | 1.19 | % | | | 9.23 | % | | | 0.69 | % |
| Incentive Allocation | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | |
| Total return after Incentive Allocation | | | 9.75 | % | | | 1.19 | % | | | 9.23 | % | | | 0.69 | % |
| | | | | | | | | | | | | | | | | |
| Net investment loss before Incentive Allocation | | | (0.88 | )% | | | (1.13 | )% | | | (1.36 | )% | | | (1.64 | )% |
| Incentive Allocation | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | |
| Net investment loss after Incentive Allocation | | | (0.88 | )% | | | (1.13 | )% | | | (1.36 | )% | | | (1.64 | )% |
| | | | | | | | | | | | | | | | | |
| Total expenses before Incentive Allocation | | | 0.90 | % | | | 1.27 | % | | | 1.40 | % | | | 1.78 | % |
| Incentive Allocation | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | |
| Total expenses after Incentive Allocation | | | 0.90 | % | | | 1.27 | % | | | 1.40 | % | | | 1.78 | % |
Total return is calculated for Class 0 and Class 2 Units taken as a whole. Total return is calculated as the change in total members’ capital adjusted for subscriptions or redemptions during the period and have not been annualized. An individual member’s return may vary from these returns based on the timing of capital transactions and the applicability of Advisory Fees, Brokerage Fees, Sponsor 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 the GAIT Funds. These ratios have not been annualized. The computation of such ratios is based on the amount of net investment loss, expenses and Incentive Allocation. Net investment loss and total expense ratios are computed based upon the weighted average of members’ capital for Class 0 and Class 2 Units of the Fund for the three month periods ended March 31, 2013 and 2012.
7. Subsequent Events
The Fund had subscriptions of approximately $2.7 million and redemptions of approximately $4.2 million through May 15, 2013, the date through which subsequent events were evaluated by management. These amounts have not been included in the financial statements.
Graham Alternative Investment Trading LLC
| | | March 31, 2013 (Unaudited) | | | December 31, 2012 (Audited) | |
| Assets | | | | | | |
| Investments in Master Funds, at fair value | | $ | 49,660,422 | | | $ | 47,870,899 | |
| Investment in Graham Cash Assets LLC, at fair value | | | 208,557,050 | | | | 241,839,538 | |
| Accrued commission reimbursements | | | – | | | | 165,510 | |
| Receivable from Master Funds | | | 2,853 | | | | 1,856 | |
| Other receivable | | | 218,078 | | | | – | |
| Total assets | | $ | 258,438,403 | | | $ | 289,877,803 | |
| | | | | | | | | |
| Liabilities and members’ capital | | | | | | | | |
| Liabilities: | | | | | | | | |
| Accrued redemptions | | $ | 12,079,330 | | | $ | 23,262,309 | |
| Accrued advisory fees | | | 345,676 | | | | 489,673 | |
| Accrued sponsor fees | | | 216,714 | | | | 244,837 | |
| Accrued brokerage fees | | | – | | | | 568,525 | |
| Accrued professional fees | | | 362,895 | | | | – | |
| Accrued administrator's fees | | | 25,799 | | | | – | |
| Payable to Master Funds | | | 6,543 | | | | 6,476 | |
| Total liabilities | | | 13,036,957 | | | | 24,571,820 | |
| | | | | | | | | |
| Members’ capital: | | | | | | | | |
| Class 0 Units (1,639,090.018 and 1,922,696.211 units issued and outstanding at $122.47 and $114.88 per unit, respectively) | | | 200,731,401 | | | | 220,876,439 | |
| Class 2 Units (457,262.490 and 483,129.319 units issued and outstanding at $95.80 and $90.29 per unit, respectively) | | | 43,804,327 | | | | 43,623,249 | |
| Class M Units (4,671.470 and 4,671.470 units issued and outstanding at $185.32 and $172.60 per unit, respectively) | | | 865,718 | | | | 806,295 | |
| Total members’ capital | | | 245,401,446 | | | | 265,305,983 | |
| Total liabilities and members’ capital | | $ | 258,438,403 | | | $ | 289,877,803 | |
See accompanying notes.
Graham Alternative Investment Trading LLC
Condensed Schedules of Investments
| | | March 31, 2013 (Unaudited) | | | December 31, 2012 (Audited) | |
| Description | | Fair Value | | | Percentage of Members’ Capital | | | Fair Value | | | Percentage of Members’ Capital | |
| | | | | | | | | | | | | |
| Investments in Master Funds, at fair value | | | | | | | | | | | | |
| Graham Commodity Strategies LLC | | $ | 12,122,243 | | | | 4.94 | % | | $ | 16,324,504 | | | | 6.15 | % |
| Graham Global Monetary Policy LLC | | | 12,160,765 | | | | 4.96 | % | | | 7,258,710 | | | | 2.74 | % |
| Graham K4D Trading Ltd. | | | 25,377,414 | | | | 10.34 | % | | | 24,287,685 | | | | 9.15 | % |
| Total investments in Master Funds | | $ | 49,660,422 | | | | 20.24 | % | | $ | 47,870,899 | | | | 18.04 | % |
See accompanying notes.
Graham Alternative Investment Trading LLC
| | | Three Months Ended March 31, | |
| | | 2013 (Unaudited) | | | 2012 (Unaudited) | |
| Net gain allocated from investments in Master Funds: | | | | | | |
| Net realized gain on investments | | $ | 20,273,648 | | | $ | 20,614,297 | |
| Net decrease in unrealized appreciation on investments | | | (860,950 | ) | | | (5,597,814 | ) |
| Brokerage commissions and fees | | | (477,561 | ) | | | (1,091,330 | ) |
| Net gain allocated from investments in Master Funds | | | 18,935,137 | | | | 13,925,153 | |
| | | | | | | | | |
| Net investment loss allocated from investments in Master Funds | | | (5,957 | ) | | | (35,948 | ) |
| | | | | | | | | |
| Investment income: | | | | | | | | |
| Interest income | | | 124,162 | | | | 217,632 | |
| | | | | | | | | |
| Expenses: | | | | | | | | |
| Advisory fees | | | 1,109,892 | | | | 2,089,945 | |
| Sponsor fees | | | 690,123 | | | | 1,044,972 | |
| Brokerage fees | | | – | | | | 2,423,310 | |
| Administrator’s fees | | | 82,841 | | | | – | |
| Professional fees and other | | | 389,274 | | | | 3,320 | |
| Commission reimbursements | | | – | | | | (1,091,329 | ) |
| Total expenses | | | 2,272,130 | | | | 4,470,218 | |
| Net investment loss of the Fund | | | (2,147,968 | ) | | | (4,252,586 | ) |
| | | | | | | | | |
| Net income | | | 16,781,212 | | | | 9,636,619 | |
| | | | | | | | | |
| Incentive allocation | | | – | | | | – | |
| | | | | | | | | |
| Net income available for pro-rata allocation to all members | | $ | 16,781,212 | | | $ | 9,636,619 | |
See accompanying notes.
Graham Alternative Investment Trading LLC
For the three months ended March 31, 2013 (unaudited) and 2012 (unaudited)
| | | Class 0 | | | Class 2 | | | Class M | | Total | |
| | | Units | | Capital | | | Units | | Capital | | | Units | | Capital | | Capital | |
| | | | | | | | | | | | | | | | | | |
| Members’ capital, December 31, 2011 | | | 2,827,795.124 | | | $ | 348,287,779 | | | | 688,937.679 | | | $ | 68,048,075 | | | | 4,671.470 | | | $ | 822,214 | | | $ | 417,158,068 | |
| Subscriptions | | | 31,134.715 | | | | 3,853,255 | | | | 13,203.211 | | | | 1,312,894 | | | | – | | | | – | | | | 5,166,149 | |
| Redemptions | | | (151,186.869 | ) | | | (18,947,613 | ) | | | (72,757.539 | ) | | | (7,261,223 | ) | | | – | | | | – | | | | (26,208,836 | ) |
| Incentive allocation | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | |
| Net income | | | – | | | | 8,357,220 | | | | – | | | | 1,248,999 | | | | – | | | | 30,400 | | | | 9,636,619 | |
| Members’ capital, March 31, 2012 | | | 2,707,742.970 | | | $ | 341,550,641 | | | | 629,383.351 | | | $ | 63,348,745 | | | | 4,671.470 | | | $ | 852,614 | | | $ | 405,752,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Class 0 | | | Class 2 | | | Class M | | Total | |
| | | Units | | Capital | | | Units | | Capital | | | Units | | Capital | | Capital | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Members’ capital, December 31, 2012 | | | 1,922,696.211 | | | $ | 220,876,439 | | | | 483,129.319 | | | $ | 43,623,249 | | | | 4,671.470 | | | $ | 806,295 | | | $ | 265,305,983 | |
| Subscriptions | | | 24,271.848 | | | | 2,870,000 | | | | 9,833.882 | | | | 926,793 | | | | – | | | | – | | | | 3,796,793 | |
| Redemptions | | | (307,878.041 | ) | | | (37,111,245 | ) | | | (35,700.711 | ) | | | (3,371,297 | ) | | | – | | | | – | | | | (40,482,542 | ) |
| Incentive allocation | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | |
| Net income | | | – | | | | 14,096,207 | | | | – | | | | 2,625,582 | | | | – | | | | 59,423 | | | | 16,781,212 | |
| Members’ capital, March 31, 2013 | | | 1,639,090.018 | | | $ | 200,731,401 | | | | 457,262.490 | | | $ | 43,804,327 | | | | 4,671.470 | | | $ | 865,718 | | | $ | 245,401,446 | |
See accompanying notes.
Graham Alternative Investment Trading LLC
| | | Three Months Ended March 31, | |
| | | 2013 (Unaudited) | | | 2012 (Unaudited) | |
| Cash flows provided by operating activities | | | | | | |
| Net income | | $ | 16,781,212 | | | $ | 9,636,619 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
| Net income allocated from investments in Master Funds | | | (18,929,180 | ) | | | (13,889,205 | ) |
| Net income allocated from investment in Graham Cash Assets LLC | | | (124,162 | ) | | | (217,632 | ) |
| Proceeds from sale of investments in Master Funds | | | 81,395,633 | | | | 188,533,634 | |
| Proceeds from sale of investments in Graham Cash Assets LLC | | | 95,351,740 | | | | 164,479,188 | |
| Investments in Master Funds | | | (64,256,906 | ) | | | (182,364,309 | ) |
| Investments in Graham Cash Assets LLC | | | (61,945,090 | ) | | | (141,756,832 | ) |
| Changes in assets and liabilities: | | | | | | | | |
| Accrued commission reimbursements | | | 165,510 | | | | (7,878 | ) |
| Other receivable | | | (218,078 | ) | | | - | |
| Accrued advisory fees | | | (143,997 | ) | | | (27,090 | ) |
| Accrued sponsor fees | | | (28,123 | ) | | | (13,545 | ) |
| Accrued brokerage fees | | | (568,525 | ) | | | (35,730 | ) |
| Accrued professional fees | | | 362,895 | | | | - | |
| Accrued administrator's fees | | | 25,799 | | | | - | |
| Net cash provided by operating activities | | | 47,868,728 | | | | 24,337,220 | |
| | | | | | | | | |
| Cash flows used in financing activities | | | | | | | | |
| Subscriptions | | | 3,796,793 | | | | 5,166,149 | |
| Redemptions | | | (51,665,521 | ) | | | (29,503,369 | ) |
| Net cash used in financing activities | | | (47,868,728 | ) | | | (24,337,220 | ) |
| | | | | | | | | |
| Net change in cash and cash equivalents | | | - | | | | - | |
| | | | | | | | | |
| Cash and cash equivalents, beginning of period | | | - | | | | - | |
| Cash and cash equivalents, end of period | | $ | - | | | $ | - | |
See accompanying notes.
Graham Alternative Investment Trading LLC
March 31, 2013
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 Commodity Futures Trading Commission and is a member of the National Futures Association. The Managing Member is also registered as a Registered Investment Advisor with the Securities and Exchange Commission.
The investment objective of GAIT is to achieve long-term capital appreciation through professionally managed trading through its investment in various master trading vehicles (“Master Funds”). As more fully described in Notes 2 and 3, these Master Funds invest in a broad range of derivative instruments such as currency forward and futures contracts; bond, interest rate, and index futures contracts; commodity forward and futures contracts, and options and swaps thereon traded on U.S. and foreign exchanges, as well as over-the-counter.
Graham Alternative Investment Fund I LLC, Graham Alternative Investment Fund II LLC, and Graham Alternative Investment III Ltd. (collectively the “Feeder Funds”) are the primary investors of GAIT.
SEI Global Services, Inc. (“SEI”) is GAIT’s independent administrator and transfer agent. SEI is responsible for certain matters pertaining to the administration of GAIT.
GAIT will terminate on December 31, 2050 or at an earlier date if certain conditions occur as outlined in the Limited Liability Company Agreement (“LLC Agreement”).
Duties of the Managing Member
Subject to the terms and conditions of the LLC Agreement, the Managing Member has complete and exclusive responsibility for managing and administering the affairs of GAIT and for directing the investment and reinvestment of the assets of GAIT.
2. Summary of Significant Accounting Policies
These financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and all amounts are stated in U.S. dollars. The preparation of these financial statements requires the Managing Member 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 managing member allocation.
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Investments in Master Funds (continued)
During the year ended December 31, 2012 certain Master Funds in which GAIT invested consolidated their assets under Graham Commodity Strategies LLC, then ceased operations and were dissolved. The amount of assets that were transferred in-kind in connection with this consolidation totals $1,362,929. The dates of the consolidations and dissolutions were as follows:
| Master Fund | Consolidation Date | Dissolution Date |
| Graham Fed Policy Ltd. | May 29, 2012 | October 23, 2012 |
| Graham Energy Fundamental LLC | May 29, 2012 | October 1, 2012 |
| Graham Macro Directional LLC | May 30, 2012 | October 1, 2012 |
| Graham Macro Technical Ltd. | May 30, 2012 | October 23, 2012 |
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 managing member 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.
The fair value hierarchy categorizes asset and liability positions into one of three levels, as summarized below, based on the inputs and assumptions used in deriving fair value.
| | · | Level 1 inputs are unadjusted closing or settlement prices for such assets or liabilities as published by the primary exchange upon which they are traded. |
| | · | Level 2 inputs include quoted prices for similar assets and liabilities obtained from independent brokers and/or market makers in each security. With respect to GAIT’s investments in the other funds managed by the Manager, Level 2 inputs include the net asset value of the underlying fund in which it holds an investment. |
| | · | Level 3 inputs are those which are considered unobservable and are significant in arriving at fair value. |
In accordance with this hierarchy, GAIT’s investments in Master Funds and Graham Cash Assets LLC (“Cash Assets”) have been classified as Level 2. These investments are discussed in Notes 3 and 4. There were no Level 3 assets or liabilities held at any point during the three months ended March 31, 2013 or the twelve months ended December 31, 2012 by GAIT, the Master Funds, or Cash Assets, and there were no transfers between levels during those periods. Transfers between levels, if any, are recognized on the actual date of the event or change in circumstances that cause the transfer.
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Derivative Instruments
In the normal course of business, the Master Funds utilize derivative financial instruments in connection with their trading activities. Derivative instruments derive their value from underlying assets, indices, reference rates or a combination of these factors. Investments in derivative financial instruments are subject to additional risks that can result in a loss of all or part of an investment. The Master Funds’ derivative financial instruments are classified by the following primary underlying risks: interest rate, foreign currency exchange rate, commodity price, and equity price risks. These risks can be in excess of the amounts recognized in the statements of financial condition. In addition, the Master Funds are also subject to additional counterparty risk should their counterparties fail to meet the terms of their contracts. Management of counterparty risk involves a number of considerations, such as the financial profile of the counterparty, specific terms and duration of the contractual agreement, and the value of collateral held, if any. The Master Funds have established initial credit approval, credit limits, and collateral requirements and may reduce their exposure to any counterparties they deem necessary. Trading in non-U.S. dollar denominated derivative instruments may subject the value of, and gains and losses associated with, such contracts to additional risks related to adverse changes in the applicable exchange rates.
Unrealized gains and losses from derivative financial instruments are recorded based on changes in their fair value. Realized gains and losses are recorded when the positions are closed. All unrealized and realized gains and losses related to derivative financial instruments are included in net gain 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.
A futures contract represents a commitment for the future purchase or sale of an asset or cash settlement based on the value of an asset on a specified date. The purchase and sale of futures contracts are executed on an exchange which requires margin deposits with a Futures Commission Merchant (“FCM”). Subsequent payments are made or received by the Master Funds each day, depending on the daily fluctuations in the value of the contract. These changes in valuation are recorded for financial statement purposes as unrealized gains or losses by the Master Funds. Relative to over-the-counter derivative financial instruments, futures contracts provide reduced counterparty risk to the Master Funds since futures are exchange-traded and the exchanges’ clearing house guarantees the futures against default. However some non-U.S. exchanges are “principals’ markets” in which no common clearing facility exists and the Master Funds may look only to the clearing broker for performance of the contract. The U.S. Commodity Exchange Act requires an FCM to segregate all funds received from such FCM’s customers in respect of regulated futures transactions. If the FCM were not to do so to the full extent required by law, the assets of the Master Funds might not be fully protected in the event of the bankruptcy or insolvency of the FCM. In that case, the Master Funds would be limited to recovering only a pro rata share of all available funds segregated on behalf of the FCM’s combined customer accounts, even though certain property specifically traceable to the Master Funds was held by the FCM. In addition, in the event of bankruptcy or insolvency of an exchange or an affiliated clearing house, the Master Funds might experience a loss of funds deposited through its FCM as margin with such exchange or affiliated clearing house, the loss of unrealized profits on its open positions, and the loss of funds owed to it as realized profits on closed positions.
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Derivative Instruments (continued)
Forward Contracts
The Master Funds enter into foreign currency forward contracts in an attempt to take advantage of changes in exchange rates. Forward currency transactions are contracts or agreements for delivery of specific currencies or the cash equivalent value at a specified future date and an agreed upon price. Forward contracts are not guaranteed by an exchange or clearing house and therefore the risks include the inability of counterparties to meet their obligations under the terms of the contracts as well as the risks associated with movements in fair value.
Exchange traded forward contracts are valued based upon the settlement prices as of the valuation date, established by the primary exchange upon which they are traded. All other forward contracts are valued based upon a forward curve constructed using independently quoted forward points. Changes in fair value of each forward contract are recognized as unrealized gains or losses.
Swap Contracts
The Master Funds may enter into various swap contracts in an attempt to take advantage of changes in interest rates and asset values. Swap contracts are not guaranteed by an exchange or an affiliated clearing house or regulated by any U.S. or foreign government authorities. Failure of a counterparty to meet its obligation under the terms of the swap contract could result in the loss of any unrealized gains on open positions. It may not be possible to dispose of or close out a swap position without the consent of the counterparty, and the Master Fund may not be able to enter into an offsetting contract in order to cover its risk. Swaps are subject to the International Swap and Derivative Association (“ISDA”) Master Agreements which generally require among other things, that a Master Fund maintain a predetermined level of net assets, and provide limits with respect to any decline in the Master Fund’s net asset value over 1-month, 3-month and 12-month periods. If a Master Fund were to violate such provisions, the counterparty to the swaps could demand liquidation of outstanding swap positions.
A total return swap contract is an agreement that obligates two parties to exchange cash flows calculated by reference to changes in specified prices or rates for a specified notional amount of the underlying assets. The payment flows are usually netted against each other, with the difference being paid by one party to another.
Exchange traded swaps are valued based upon the closing prices established by the primary exchange upon which they are traded. Total return swaps are valued based upon the exchange published settle price of the underlying reference instrument. 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.
Options
The Master Funds may buy and sell covered and uncovered exchange traded and over-the-counter options on futures, foreign currencies, commodities, interest rates and equities to take advantage of the price movements of the financial instrument underlying the option or to hedge positions in the underlying assets. Option contracts give one party the right, but not the obligation, to buy or sell within a limited time or on a specified date, a financial instrument, commodity or currency at a contracted price. Options may also be settled in cash, based on differentials between specified indices or prices.
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Derivative Instruments (continued)
Options (continued)
The Master Funds are exposed to counterparty risk to the extent that a seller of an over-the-counter option does not meet its obligations under the terms of the option contract. The maximum risk of loss to the Master Funds is the unrealized gains of the contracts and the premiums paid to purchase its open option contracts. Relative to over-the-counter options, exchange traded options provide reduced counterparty risk to the Master Funds since the exchanges’ clearinghouse guarantees the option against default.
Exchange traded options are valued based upon the settlement prices published as of the valuation date by the principal exchange upon which they are traded. In the absence of an exchange published settlement price, the option will be valued using the last reported sales price reported on the exchange for the valuation date. Over-the-counter options and exchange traded options with no reported sales price on the valuation date will generally be valued at the average of last reported bid and offer quotes from independent brokers or from the exchange, respectively.
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.
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds
As of March 31, 2013 and December 31, 2012, GAIT invested in various Master Funds, all of which were managed by the Manager. GAIT’s investments in these Master Funds, as well as the investment objectives of each Master Fund, are summarized below. Master Funds in which GAIT invested 5% or more of its members’ capital are individually identified, while smaller investments are aggregated under the caption “Other Global Macro Funds.” The number of Master Funds included in each aggregated category is disclosed parenthetically next to each name. All of the Master Funds and GAIT are related parties. The Master Funds do not charge management or incentive fees and all offer monthly subscriptions and redemptions.
| March 31, 2013 | |
| Investment – Objective | | Percent of Members’ Capital | | | Fair Value | | | Net Income (three months then ended) | |
| | | | | | | | | | |
| Systematic Macro Funds | | | | | | | | | |
| Graham K4D Trading Ltd. | | 10.34% | | | $ | 25,377,414 | | | $ | 13,334,035 | |
| | | | | | | | | | | | |
| Global Macro Funds | | | | | | | | | | | |
| Other Global Macro Funds (2) | | 9.90% | | | | 24,283,008 | | | | 5,595,145 | |
| | | 20.24% | | | $ | 49,660,422 | | | $ | 18,929,180 | |
| December 31, 2012 | | | | |
| Investment – Objective | | Percent of Members’ Capital | | | Fair Value | | | Net Income (three months ended March 31, 2012) | |
| | | | | | | | | | |
| Systematic Macro Funds | | | | | | | | | |
| Graham K4D Trading Ltd. | | 9.15% | | | $ | 24,287,685 | | | $ | 5,591,898 | |
| | | | | | | | | | | | |
| Global Macro Funds | | | | | | | | | | | |
| Graham Commodity Strategies LLC | | 6.15% | | | | 16,324,504 | | | | 9,902,476 | |
| Other Global Macro Funds (6) | | 2.74% | | | | 7,258,710 | | | | (1,605,169 | ) |
| | | 18.04% | | | $ | 47,870,899 | | | $ | 13,889,205 | |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following table summarizes the financial position of each Master Fund as of March 31, 2013:
| | | Graham Commodity Strategies LLC (Delaware) | | | Graham Global Monetary Policy LLC (Delaware) | | | Graham K4D Trading Ltd. (BVI) | |
| Assets: | | | | | | | | | |
| Due from brokers | | $ | 93,430,570 | | | $ | 174,649,891 | | | $ | 45,625,595 | |
| Fixed income securities, at fair value | | | 49,994,385 | | | | - | | | | 124,985,964 | |
| Derivative financial instruments, at fair value | | | 22,809,550 | | | | - | | | | 41,487,936 | |
| CME membership, at fair value | | | 2,365,700 | | | | - | | | | 855,250 | |
| Dividends receivable | | | 13,500 | | | | - | | | | - | |
| Other assets | | | - | | | | 118 | | | | - | |
| Total assets | | | 168,613,705 | | | | 174,650,009 | | | | 212,954,745 | |
| | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | |
| Derivative financial instruments, at fair value | | | 8,713,867 | | | | 8,259,984 | | | | 11,277,718 | |
| Due to brokers | | | 3,095,181 | | | | - | | | | - | |
| Total liabilities | | | 11,809,048 | | | | 8,259,984 | | | | 11,277,718 | |
| Net assets | | $ | 156,804,657 | | | $ | 166,390,025 | | | $ | 201,677,027 | |
| | | | | | | | | | | | | |
| Percentage of Master Fund held by GAIT | | | 7.73 | % | | | 7.31 | % | | | 12.58 | % |
When multiple derivative contracts are held with the same counterparty, the Master Funds will net the contracts in an asset position with the contracts in a liability position when covered by a master netting agreement or similar arrangements, for presentation in the statements of financial condition. The table below displays the amounts by which the fair values of both derivative assets and derivative liabilities were reduced within the Master Funds’ statements of financial condition as a result of this netting. Collateral pledged represents the further amounts by which derivative assets and liabilities could have been reduced on the statements of financial condition. The Master Funds elect to display the amounts in due from (to) brokers on the statements of financial condition.
| Description | | Gross Amount | | | Gross Amount Offset in the Statements of Financial Condition | | | Net Amount Presented in the Statements of Financial Condition | | | Collateral Pledged | | | Net Amount | |
| | | | | | | | | | | | | | | | |
| Graham Commodity Strategies LLC | | | | | | | | | | | | | | | |
| Derivative assets | | $ | 220,490,352 | | | $ | (197,680,802 | ) | | $ | 22,809,550 | | | $ | (3,095,181 | ) | | $ | 19,714,369 | |
| Derivative liabilities | | | (206,394,669 | ) | | | 197,680,802 | | | | (8,713,867 | ) | | | 8,713,867 | | | | – | |
| | | $ | 14,095,683 | | | $ | – | | | $ | 14,095,683 | | | $ | 5,618,686 | | | $ | 19,714,369 | |
| | | | | | | | | | | | | | | | | | | | | |
| Graham Global Monetary Policy LLC | | | | | | | | | | | | | | | | | | | | |
| Derivative assets | | $ | 41,388,389 | | | $ | (41,388,389 | ) | | $ | – | | | $ | – | | | $ | – | |
| Derivative liabilities | | | (49,648,373 | ) | | | 41,388,389 | | | | (8,259,984 | ) | | | 8,259,984 | | | | – | |
| | | $ | (8,259,984 | ) | | $ | – | | | $ | (8,259,984 | ) | | $ | 8,259,984 | | | $ | – | |
| | | | | | | | | | | | | | | | | | | | | |
| Graham K4D Trading Ltd. | | | | | | | | | | | | | | | | | | | | |
| Derivative assets | | $ | 73,562,576 | | | $ | (32,074,640 | ) | | $ | 41,487,936 | | | $ | – | | | $ | 41,487,936 | |
| Derivative liabilities | | | (43,352,358 | ) | | | 32,074,640 | | | | (11,277,718 | ) | | | 11,277,718 | | | | – | |
| | | $ | 30,210,218 | | | $ | – | | | $ | 30,210,218 | | | $ | 11,277,718 | | | $ | 41,487,936 | |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following schedules display the condensed schedules of investments for the Master Funds as of March 31, 2013:
| Description | | Principal Amount / Number of Contracts | | | Fair Value | | | Percentage of Net Assets of Master Fund | |
| Graham Commodity Strategies LLC | | | | | | | | | |
| Fixed income securities | | | | | | | | | |
| Bonds (cost $49,989,257) | | | | | | | | | |
| United States | | | | | | | | | |
| U.S. Treasury bill 0.00% due 06/13/2013 | | $ | 50,000,000 | | | $ | 49,994,385 | | | | 31.88 | % |
| Total United States | | | | | | | 49,994,385 | | | | 31.88 | % |
| Total bonds | | | | | | | 49,994,385 | | | | 31.88 | % |
| Total fixed income securities | | | | | | $ | 49,994,385 | | | | 31.88 | % |
| | | | | | | | | | | | | |
| Derivative financial instruments | | | | | | | | | | | | |
| Long contracts | | | | | | | | | | | | |
| Futures | | | | | | | | | | | | |
| Copper May 2013 | | | 86 | | | $ | (75,450 | ) | | | (0.05 | )% |
| Copper June 2013 | | | 3,280 | | | | (10,337,104 | ) | | | (6.59 | )% |
| Corn May 2013 – December 2013 | | | 8,051 | | | | (10,040,838 | ) | | | (6.40 | )% |
| Lead June 2013 | | | 7,160 | | | | (11,378,133 | ) | | | (7.26 | )% |
| Natural Gas May 2013 – April 2014 | | | 8,071 | | | | 13,174,030 | | | | 8.40 | % |
| Wheat July 2013 | | | 534 | | | | 55,300 | | | | 0.04 | % |
| Wheat December 2013 | | | 4,246 | | | | (19,394,100 | ) | | | (12.37 | )% |
| Other Wheat May 2013 – December 2013 | | | 3,394 | | | | (6,423,388 | ) | | | (4.10 | )% |
| WTI Crude May 2013 – December 2016 | | | 12,862 | | | | 25,927,810 | | | | 16.53 | % |
| Zinc June 2013 | | | 7,986 | | | | (8,244,293 | ) | | | (5.26 | )% |
| Other commodity | | | | | | | (9,841,320 | ) | | | (6.28 | )% |
| Foreign bond | | | | | | | 1,716,916 | | | | 1.09 | % |
| Foreign index | | | | | | | (458,335 | ) | | | (0.29 | )% |
| Interest rate | | | | | | | 541,433 | | | | 0.35 | % |
| U.S. bond | | | | | | | 590,999 | | | | 0.38 | % |
| U.S. index | | | | | | | 605,580 | | | | 0.39 | % |
| Total futures | | | | | | | (33,580,893 | ) | | | (21.42 | )% |
| | | | | | | | | | | | | |
| Swaps | | | | | | | | | | | | |
| Commodity | | | | | | | (317,650 | ) | | | (0.20 | )% |
| Total swaps | | | | | | | (317,650 | ) | | | (0.20 | )% |
| | | | | | | | | | | | | |
| Forwards | | | | | | | | | | | | |
| Foreign currency | | | | | | | 1,132,921 | | | | 0.72 | % |
| Total forwards | | | | | | | 1,132,921 | | | | 0.72 | % |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following schedules display the condensed schedules of investments for the Master Funds as of March 31, 2013:
| Description | | Number of Contracts | | | Fair Value | | | Percentage of Net Assets of Master Fund | |
| Graham Commodity Strategies LLC (continued) | | | | | | | | | |
| Derivative financial instruments (continued) | | | | | | | | | |
| Long contracts (continued) | | | | | | | | | |
| Options (cost $91,615,243) | | | | | | | | | |
| U.S. dollar / Japanese Yen May 2013 Call $85.00 | | | 2 | | | $ | 14,576,964 | | | | 9.30 | % |
| U.S. dollar / Japanese Yen May 2013 Call $87.00 | | | 1 | | | | 11,525,668 | | | | 7.35 | % |
| U.S. dollar / Japanese Yen May 2013 Call $89.00 | | | 1 | | | | 8,623,775 | | | | 5.50 | % |
| U.S. dollar / Japanese Yen May 2013 Call $94.00 | | | 2 | | | | 9,940,786 | | | | 6.34 | % |
| Other U.S. dollar / Japanese Yen April 2013 - August 2013 Call $90.00 - $100.00 | | | 15 | | | | 23,809,825 | | | | 15.18 | % |
| Other U.S. dollar / Japanese Yen March 2013 - April 2013 Put $93.75 - $94.00 | | | 2 | | | | 1,535,276 | | | | 0.98 | % |
| Other currency | | | | | | | 18,457,243 | | | | 11.77 | % |
| Commodity | | | | | | | 311,000 | | | | 0.20 | % |
| Interest rate | | | | | | | 3,705,889 | | | | 2.36 | % |
| U.S. bond | | | | | | | 1,859,375 | | | | 1.19 | % |
| U.S. index | | | | | | | 750,000 | | | | 0.48 | % |
| Total options | | | | | | | 95,095,801 | | | | 60.65 | % |
| | | | | | | | | | | | | |
| Short contracts | | | | | | | | | | | | |
| Futures | | | | | | | | | | | | |
| Copper May 2013 | | | (586 | ) | | | 524,688 | | | | 0.33 | % |
| Copper June 2013 | | | (3,205 | ) | | | 8,984,375 | | | | 5.73 | % |
| Lead June 2013 | | | (6,542 | ) | | | 11,078,565 | | | | 7.07 | % |
| Natural Gas May 2013 – March 2014 | | | (7,447 | ) | | | (8,457,350 | ) | | | (5.39 | )% |
| Wheat July 2013 | | | (5,241 | ) | | | 22,688,913 | | | | 14.46 | % |
| Other Wheat May 2013 – December 2013 | | | (2,555 | ) | | | 2,976,575 | | | | 1.90 | % |
| WTI Crude July 2013 | | | (2,119 | ) | | | (9,338,550 | ) | | | (5.96 | )% |
| Other WTI Crude May 2013 – December 2015 | | | (10,441 | ) | | | (21,203,260 | ) | | | (13.52 | )% |
| Zinc June 2013 | | | (8,925 | ) | | | 9,735,976 | | | | 6.21 | % |
| Other commodity | | | | | | | 11,118,961 | | | | 7.09 | % |
| Currency | | | | | | | (259,388 | ) | | | (0.17 | )% |
| Foreign bond | | | | | | | (22,997 | ) | | | (0.01 | )% |
| Foreign index | | | | | | | 71,924 | | | | 0.05 | % |
| Interest rate | | | | | | | (920,250 | ) | | | (0.59 | )% |
| U.S. bond | | | | | | | (519,563 | ) | | | (0.33 | )% |
| U.S. index | | | | | | | (375,780 | ) | | | (0.24 | )% |
| Total futures | | | | | | | 26,082,839 | | | | 16.63 | % |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following schedules display the condensed schedules of investments for the Master Funds as of March 31, 2013:
| Description | | Number of Contracts | | | Fair Value | | | Percentage of Net Assets of Master Fund | |
| Graham Commodity Strategies LLC (continued) | | | | | | | | | |
| Derivative financial instruments (continued) | | | | | | | | | |
| Short contracts (continued) | | | | | | | | | |
| Swaps | | | | | | | | | |
| Commodity | | | | | $ | 1,850,000 | | | | 1.18 | % |
| Total swaps | | | | | | 1,850,000 | | | | 1.18 | % |
| | | | | | | | | | | | |
| Forwards | | | | | | | | | | | |
| Foreign currency | | | | | | (6,289,929 | ) | | | (4.01 | )% |
| Total forwards | | | | | | (6,289,929 | ) | | | (4.01 | )% |
| | | | | | | | | | | | |
| Options (cost $68,717,027) | | | | | | | | | | | |
| U.S. dollar / Japanese Yen May 2013 Call $85.00 | | | (2 | ) | | | (14,576,964 | ) | | | (9.30 | )% |
| U.S. dollar / Japanese Yen May 2013 Call $87.00 | | | (2 | ) | | | (11,525,668 | ) | | | (7.35 | )% |
| U.S. dollar / Japanese Yen May 2013 Call $89.00 | | | (1 | ) | | | (8,623,775 | ) | | | (5.50 | )% |
| U.S. dollar / Japanese Yen May 2013 Call $94.00 | | | (3 | ) | | | (9,940,786 | ) | | | (6.34 | )% |
| Other U.S. dollar / Japanese Yen April 2013 - August 2013 Call $90.00 - $105.00 | | | (15 | ) | | | (16,592,830 | ) | | | (10.56 | )% |
| Other U.S. dollar / Japanese Yen April 2013 Put $93.00 | | | (1 | ) | | | (659,576 | ) | | | (0.42 | )% |
| Other currency | | | | | | | (3,680,017 | ) | | | (2.35 | )% |
| Interest rate | | | | | | | (2,784,040 | ) | | | (1.78 | )% |
| U.S. bond | | | | | | | (1,093,750 | ) | | | (0.70 | )% |
| U.S. index | | | | | | | (400,000 | ) | | | (0.26 | )% |
| Total options | | | | | | | (69,877,406 | ) | | | (44.56 | )% |
| Total derivative financial instruments | | | | | | $ | 14,095,683 | | | | 8.99 | % |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following schedules display the condensed schedules of investments for the Master Funds as of March 31, 2013:
| Description | Notional Amount | | Fair Value | | | Percentage of Net Assets of Master Fund | |
| Graham Global Monetary Policy LLC | | | | | | | |
| Derivative financial instruments | | | | | | | |
| Long contracts | | | | | | | |
| Futures | | | | | | | |
| Commodity | | | $ | (345,600 | ) | | | (0.21 | )% |
| Foreign bond | | | | 2,532,977 | | | | 1.52 | % |
| Foreign index | | | | 2,697,007 | | | | 1.63 | % |
| Interest rate | | | | (731,250 | ) | | | (0.44 | )% |
| U.S. bond | | | | 1,375 | | | | 0.00 | % |
| U.S. index | | | | 199,650 | | | | 0.12 | % |
| Total futures | | | | 4,354,159 | | | | 2.62 | % |
| | | | | | | | | | |
| Forwards | | | | | | | | | |
| Foreign currency | | | | 7,107,495 | | | | 4.27 | % |
| Total forwards | | | | 7,107,495 | | | | 4.27 | % |
| | | | | | | | | | |
| Options (cost $3,484,579) | | | | | | | | | |
| Foreign currency | | | | 37,973 | | | | 0.02 | % |
| Interest rate | | | | 328,125 | | | | 0.20 | % |
| Total options | | | | 366,098 | | | | 0.22 | % |
| | | | | | | | | | |
| Short contracts | | | | | | | | | |
| Futures | | | | | | | | | |
| Commodity | | | | 603,600 | | | | 0.36 | % |
| Foreign bond | | | | (1,613,144 | ) | | | (0.97 | )% |
| Foreign index | | | | (3,754,535 | ) | | | (2.25 | )% |
| Interest rate | | | | 1,679,463 | | | | 1.01 | % |
| U.S. bond | | | | (2,208,688 | ) | | | (1.33 | )% |
| U.S. index | | | | (1,616,325 | ) | | | (0.97 | )% |
| Total futures | | | | (6,909,629 | ) | | | (4.15 | )% |
| | | | | | | | | | |
| Forwards | | | | | | | | | |
| Foreign currency | | | | (2,687,210 | ) | | | (1.62 | )% |
| Total forwards | | | | (2,687,210 | ) | | | (1.62 | )% |
| | | | | | | | | | |
| Options (cost $12,934,391) | | | | | | | | | |
| Foreign currency | | | | (10,319,022 | ) | | | (6.20 | )% |
| Interest rate | | | | (171,875 | ) | | | (0.10 | )% |
| Total options | | | | (10,490,897 | ) | | | (6.30 | )% |
| Total derivative financial instruments | | | $ | (8,259,984 | ) | | | (4.96 | )% |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following schedules display the condensed schedules of investments for the Master Funds as of March 31, 2013:
| Description | | Principal Amount | | | Fair Value | | | Percentage of Net Assets of Master Fund | |
| Graham K4D Trading Ltd. | | | | | | | | | |
| Fixed income securities | | | | | | | | | |
| Bonds (cost $124,973,143) | | | | | | | | | |
| United States | | | | | | | | | |
| U.S. Treasury bill 0.00% due 06/13/2013 | | $ | 125,000,000 | | | $ | 124,985,964 | | | | 61.97 | % |
| Total United States | | | | | | | 124,985,964 | | | | 61.97 | % |
| Total bonds | | | | | | | 124,985,964 | | | | 61.97 | % |
| Total fixed income securities | | | | | | $ | 124,985,964 | | | | 61.97 | % |
| | | | | | | | | | | | | |
| Derivative financial instruments | | | | | | | | | | | | |
| Long contracts | | | | | | | | | | | | |
| Futures | | | | | | | | | | | | |
| Commodity | | | | | | $ | (7,896,824 | ) | | | (3.92 | )% |
| Currency | | | | | | | 851,699 | | | | 0.42 | % |
| Interest rate | | | | | | | (932,395 | ) | | | (0.46 | )% |
| Foreign bond | | | | | | | 19,685,680 | | | | 9.76 | % |
| Foreign index | | | | | | | (2,546,292 | ) | | | (1.26 | )% |
| U.S. bond | | | | | | | 6,146,713 | | | | 3.05 | % |
| U.S. index | | | | | | | 13,149,000 | | | | 6.52 | % |
| Total futures | | | | | | | 28,457,581 | | | | 14.11 | % |
| | | | | | | | | | | | | |
| Forwards | | | | | | | | | | | | |
| Foreign currency | | | | | | | 1,016,425 | | | | 0.50 | % |
| Total forwards | | | | | | | 1,016,425 | | | | 0.50 | % |
| | | | | | | | | | | | | |
| Short contracts | | | | | | | | | | | | |
| Futures | | | | | | | | | | | | |
| Commodity | | | | | | | 16,169,706 | | | | 8.02 | % |
| Currency | | | | | | | 140,392 | | | | 0.07 | % |
| Interest rate | | | | | | | (31,761 | ) | | | (0.02 | )% |
| Foreign bond | | | | | | | (1,683,088 | ) | | | (0.83 | )% |
| Foreign index | | | | | | | 176,922 | | | | 0.09 | % |
| U.S. bond | | | | | | | (1,485,323 | ) | | | (0.74 | )% |
| U.S. index | | | | | | | (247,924 | ) | | | (0.12 | )% |
| Total futures | | | | | | | 13,038,924 | | | | 6.47 | % |
| | | | | | | | | | | | | |
| Forwards | | | | | | | | | | | | |
| Foreign currency | | | | | | | (12,302,712 | ) | | | (6.10 | )% |
| Total forwards | | | | | | | (12,302,712 | ) | | | (6.10 | )% |
| Total derivative financial instruments | | | | | | $ | 30,210,218 | | | | 14.98 | % |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following table shows the fair value classification of each investment type by Master Fund as of March 31, 2013:
| | | Graham Commodity Strategies LLC | | | Graham Global Monetary Policy LLC | | | Graham K4D Trading Ltd. | |
| Assets | | | | | | | | | |
| Level 1: | | | | | | | | | |
| Commodity futures | | $ | 106,814,417 | | | $ | 983,800 | | | $ | 20,586,959 | |
| Commodity futures options | | | 311,000 | | | | - | | | | - | |
| Commodity futures swaps | | | 1,850,000 | | | | - | | | | - | |
| Currency futures | | | - | | | | - | | | | 1,260,054 | |
| Equity securities | | | 2,365,700 | | | | - | | | | 855,250 | |
| Foreign bond futures | | | 1,719,665 | | | | 2,545,799 | | | | 18,592,047 | |
| Foreign index futures | | | 75,136 | | | | 2,861,349 | | | | 9,609,819 | |
| Interest rate futures | | | 712,788 | | | | 1,679,463 | | | | 71,324 | |
| Interest rate futures options | | | 3,705,889 | | | | 328,125 | | | | - | |
| U.S. bond futures | | | 602,092 | | | | 167,125 | | | | 6,146,713 | |
| U.S. bond futures options | | | 1,859,375 | | | | - | | | | - | |
| U.S. index futures | | | 616,430 | | | | 199,650 | | | | 13,149,000 | |
| U.S. index futures options | | | 750,000 | | | | - | | | | - | |
| Total Level 1 | | | 121,382,492 | | | | 8,765,311 | | | | 70,271,166 | |
| | | | | | | | | | | | | |
| Level 2: | | | | | | | | | | | | |
| Fixed income securities | | | 49,994,385 | | | | - | | | | 124,985,964 | |
| Foreign currency forwards | | | 13,213,676 | | | | 33,304,178 | | | | 5,380,832 | |
| Foreign currency options | | | 88,469,537 | | | | 37,973 | | | | - | |
| Total Level 2 | | | 151,677,598 | | | | 33,342,151 | | | | 130,366,796 | |
| Total assets | | $ | 273,060,090 | | | $ | 42,107,462 | | | $ | 200,637,962 | |
| Liabilities | | | | | | | | | | | | |
| Level 1: | | | | | | | | | | | | |
| Commodity futures | | $ | (115,283,010 | ) | | $ | (725,800 | ) | | $ | (12,314,077 | ) |
| Commodity futures swaps | | | (317,650 | ) | | | - | | | | - | |
| Currency futures | | | (259,388 | ) | | | - | | | | (267,963 | ) |
| Foreign bond futures | | | (25,746 | ) | | | (1,625,966 | ) | | | (589,455 | ) |
| Foreign index futures | | | (461,547 | ) | | | (3,918,877 | ) | | | (11,979,189 | ) |
| Interest rate futures | | | (1,091,605 | ) | | | (731,250 | ) | | | (1,035,480 | ) |
| Interest rate futures options | | | (2,784,040 | ) | | | (171,875 | ) | | | - | |
| U.S. bond futures | | | (530,656 | ) | | | (2,374,438 | ) | | | (1,485,323 | ) |
| U.S. bond futures options | | | (1,093,750 | ) | | | - | | | | - | |
| U.S. index futures | | | (386,630 | ) | | | (1,616,325 | ) | | | (247,924 | ) |
| U.S. index futures options | | | (400,000 | ) | | | - | | | | - | |
| Total Level 1 | | | (122,634,022 | ) | | | (11,164,531 | ) | | | (27,919,411 | ) |
| | | | | | | | | | | | | |
| Level 2: | | | | | | | | | | | | |
| Foreign currency forwards | | | (18,370,684 | ) | | | (28,883,893 | ) | | | (16,667,119 | ) |
| Foreign currency options | | | (65,599,616 | ) | | | (10,319,022 | ) | | | - | |
| Total Level 2 | | | (83,970,300 | ) | | | (39,202,915 | ) | | | (16,667,119 | ) |
| Total liabilities | | $ | (206,604,322 | ) | | $ | (50,367,446 | ) | | $ | (44,586,530 | ) |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following table displays the gross volume of derivative activities based on their notional amounts and number of contracts and fair value of derivative contracts held by the Master Funds at March 31, 2013 categorized by primary underlying risk and is representative of the Derivative Instruments held by the Master Funds throughout the period. Derivatives denominated in foreign currencies have been converted to U.S. dollars. Derivative asset and liability balances are presented on a gross basis, prior to the application of counterparty netting. The Master Funds trade futures and options 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. Amounts presented below as collateral balances supporting all derivative positions are included in due from brokers and fixed income securities on the Master Funds’ statements of financial condition.
| | | Graham Commodity Strategies LLC | |
| | | Long exposure | | | Short exposure | | | | | | | |
| | | Notional amounts | | | Number of contracts | | | Notional amounts | | | Number of contracts | | | Derivative Assets | | | Derivative Liabilities | |
| Commodity price | | | | | | | | | | | | | | | | | | |
| Futures | | $ | 4,516,766,981 | | | | 70,286 | | | $ | (4,571,551,601 | ) | | | (66,777 | ) | | $ | 106,814,417 | | | $ | (115,283,010 | ) |
| Swaps | | | 8,915,625 | | | | 250 | | | | (43,187,500 | ) | | | (1,250 | ) | | | 1,850,000 | | | | (317,650 | ) |
| Options (a) | | | 13,545,076 | | | | 1,800 | | | | - | | | | - | | | | 311,000 | | | | - | |
| | | | 4,539,227,682 | | | | 72,336 | | | | (4,614,739,101 | ) | | | (68,027 | ) | | | 108,975,417 | | | | (115,600,660 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity price | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 319,703,527 | | | | 3,817 | | | | (73,448,589 | ) | | | (1,426 | ) | | | 507,659 | | | | (664,270 | ) |
| Options (a) | | | 20,788,326 | | | | 2,000 | | | | (38,792,612 | ) | | | (2,000 | ) | | | 750,000 | | | | (400,000 | ) |
| | | | 340,491,853 | | | | 5,817 | | | | (112,241,201 | ) | | | (3,426 | ) | | | 1,257,659 | | | | (1,064,270 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency exchange rate | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | - | | | | - | | | | (73,300,000 | ) | | | (500 | ) | | | - | | | | (259,388 | ) |
| Forwards | | | 1,446,220 | | | | N/A | | | | (6,603,228 | ) | | | N/A | | | | 13,213,676 | | | | (18,370,684 | ) |
| Options (a) | | | 1,772,334,519 | | | | 59 | | | | (2,348,755,220 | ) | | | (42 | ) | | | 88,469,537 | | | | (65,599,616 | ) |
| | | | 1,773,780,739 | | | | 59 | | | | (2,428,658,448 | ) | | | (542 | ) | | | 101,683,213 | | | | (84,229,688 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 2,617,417,246 | | | | 14,040 | | | | (1,010,151,938 | ) | | | (4,194 | ) | | | 3,008,799 | | | | (1,622,261 | ) |
| Options (a) | | | 2,648,257,934 | | | | 33,000 | | | | (2,709,080,052 | ) | | | (37,000 | ) | | | 5,565,264 | | | | (3,877,790 | ) |
| | | | 5,265,675,180 | | | | 47,040 | | | | (3,719,231,990 | ) | | | (41,194 | ) | | | 8,574,063 | | | | (5,500,051 | ) |
| Total | | $ | 11,919,175,454 | | | | 125,252 | | | $ | (10,874,870,740 | ) | | | (113,189 | ) | | $ | 220,490,352 | | | $ | (206,394,669 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (a) Notional amounts for options are based on the delta-adjusted positions. | |
| | | | | | | | | | | | | | | | | | |
| Collateral balances supporting all derivative positions | | | | | | | | | | | | | | | $ | 140,329,774 | |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following table displays the gross volume of derivative activities based on their notional amounts and number of contracts and fair value of derivative contracts held by the Master Funds at March 31, 2013 categorized by primary underlying risk and is representative of the Derivative Instruments held by the Master Funds throughout the period. Derivatives denominated in foreign currencies have been converted to U.S. dollars. Derivative asset and liability balances are presented on a gross basis, prior to the application of counterparty netting. The Master Funds trade futures and options 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. Amounts presented below as collateral balances supporting all derivative positions are included in due from brokers and fixed income securities on the Master Funds’ statements of financial condition.
| | | Graham Global Monetary Policy LLC | |
| | | Long exposure | | | Short exposure | | | | | | | |
| | | Notional amounts | | | Number of contracts | | | Notional amounts | | | Number of contracts | | | Derivative Assets | | | Derivative Liabilities | |
| Commodity price | | | | | | | | | | | | | | | | | | |
| Futures | | $ | 33,509,700 | | | | 210 | | | $ | (47,535,675 | ) | | | (530 | ) | | $ | 983,800 | | | $ | (725,800 | ) |
| | | | 33,509,700 | | | | 210 | | | | (47,535,675 | ) | | | (530 | ) | | | 983,800 | | | | (725,800 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity price | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 143,543,838 | | | | 1,210 | | | | (311,994,347 | ) | | | (4,688 | ) | | | 2,861,349 | | | | (5,335,552 | ) |
| | | | 143,543,838 | | | | 1,210 | | | | (311,994,347 | ) | | | (4,688 | ) | | | 2,861,349 | | | | (5,335,552 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency exchange rate | | | | | | | | | | | | | | | | | | | | | |
| Forwards | | | 15,832,896 | | | | N/A | | | | (11,412,611 | ) | | | N/A | | | | 33,304,178 | | | | (28,883,893 | ) |
| Options (a) | | | 366,219,351 | | | | 15 | | | | (484,826,175 | ) | | | (21 | ) | | | 37,971 | | | | (10,319,020 | ) |
| | | | 382,052,247 | | | | 15 | | | | (496,238,786 | ) | | | (21 | ) | | | 33,342,149 | | | | (39,202,913 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 3,944,598,156 | | | | 16,140 | | | | (4,478,152,012 | ) | | | (21,072 | ) | | | 3,872,966 | | | | (4,212,233 | ) |
| Options (a) | | | 174,418,681 | | | | 7,500 | | | | (312,555,660 | ) | | | (7,500 | ) | | | 328,125 | | | | (171,875 | ) |
| | | | 4,119,016,837 | | | | 23,640 | | | | (4,790,707,672 | ) | | | (28,572 | ) | | | 4,201,091 | | | | (4,384,108 | ) |
| Total | | $ | 4,678,122,622 | | | | 25,075 | | | $ | (5,646,476,480 | ) | | | (33,811 | ) | | $ | 41,388,389 | | | $ | (49,648,373 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (a) Notional amounts for options are based on the delta-adjusted positions. | |
| | | | | | | | | | | | | | | | | | |
| Collateral balances supporting all derivative positions | | | | | | | | | | | | | | | $ | 174,649,891 | |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following table displays the gross volume of derivative activities based on their notional amounts and number of contracts and fair value of derivative contracts held by the Master Funds at March 31, 2013 categorized by primary underlying risk and is representative of the Derivative Instruments held by the Master Funds throughout the period. Derivatives denominated in foreign currencies have been converted to U.S. dollars. Derivative asset and liability balances are presented on a gross basis, prior to the application of counterparty netting. The Master Funds trade futures and options 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. Amounts presented below as collateral balances supporting all derivative positions are included in due from brokers and fixed income securities on the Master Funds’ statements of financial condition.
| | | Graham K4D Trading Ltd. | |
| | | Long exposure | | | Short exposure | | | | | | | |
| | | Notional amounts | | | Number of contracts | | | Notional amounts | | | Number of contracts | | | Derivative Assets | | | Derivative Liabilities | |
| Commodity price | | | | | | | | | | | | | | | | | | |
| Futures | | $ | 433,953,216 | | | | 6,764 | | | $ | (745,232,168 | ) | | | (12,587 | ) | | $ | 20,586,959 | | | $ | (12,314,077 | ) |
| | | | 433,953,216 | | | | 6,764 | | | | (745,232,168 | ) | | | (12,587 | ) | | | 20,586,959 | | | | (12,314,077 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity price | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 1,603,347,336 | | | | 21,498 | | | | (13,450,196 | ) | | | (293 | ) | | | 22,510,895 | | | | (11,979,189 | ) |
| | | | 1,603,347,336 | | | | 21,498 | | | | (13,450,196 | ) | | | (293 | ) | | | 22,510,895 | | | | (11,979,189 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency exchange rate | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 241,477,410 | | | | 2,794 | | | | (67,067,688 | ) | | | (455 | ) | | | 1,260,054 | | | | (267,963 | ) |
| Forwards | | | 1,769,220 | | | | N/A | | | | (13,055,508 | ) | | | N/A | | | | 5,380,832 | | | | (16,667,119 | ) |
| | | | 243,246,630 | | | | 2,794 | | | | (80,123,196 | ) | | | (455 | ) | | | 6,640,886 | | | | (16,935,082 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 12,653,597,920 | | | | 63,775 | | | | (181,044,311 | ) | | | (1,092 | ) | | | 23,823,836 | | | | (2,124,010 | ) |
| | | | 12,653,597,920 | | | | 63,775 | | | | (181,044,311 | ) | | | (1,092 | ) | | | 23,823,836 | | | | (2,124,010 | ) |
| Total | | $ | 14,934,145,102 | | | | 94,831 | | | $ | (1,019,849,871 | ) | | | (14,427 | ) | | $ | 73,562,576 | | | $ | (43,352,358 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Collateral balances supporting all derivative positions | | | | | | | | | | | | | | | $ | 170,611,559 | |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following table summarizes the results of operations of each Master Fund for the three month period ended March 31, 2013:
| | | Graham Commodity Strategies LLC (Delaware) | | | Graham Global Monetary Policy LLC (Delaware) | | | Graham K4D Trading Ltd. (BVI) | |
| | | | | | | | | | |
| Net investment income (loss) | | $ | 19,321 | | | $ | (9,933 | ) | | $ | 5,727 | |
| | | | | | | | | | | | | |
| Net realized gain on investments | | | 48,652,796 | | | | 51,104,416 | | | | 97,907,052 | |
| Net (decrease) increase in unrealized appreciation on investments | | | (14,063,987 | ) | | | (9,355,745 | ) | | | 5,166,618 | |
| Brokerage commissions and fees | | | (4,722,980 | ) | | | (722,451 | ) | | | (486,361 | ) |
| Net gain on investments | | | 29,865,829 | | | | 41,026,220 | | | | 102,587,309 | |
| Net income | | $ | 29,885,150 | | | $ | 41,016,287 | | | $ | 102,593,036 | |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following table shows the gains and losses on all financial instruments held by the Master Funds reported in net realized gain on investments and net increase (decrease) in unrealized appreciation on investments in their statements of operations segregated by primary underlying risk and contract type for the three month period ended March 31, 2013:
| | | Graham Commodity Strategies LLC | | | Graham Global Monetary Policy LLC | | | Graham K4D Trading Ltd. | |
| Commodity price | | | | | | | | | |
| Futures | | $ | (30,429,236 | ) | | $ | (7,314,955 | ) | | $ | (17,404,730 | ) |
| Options | | | (1,960,880 | ) | | | - | | | | - | |
| Swaps | | | 1,625,558 | | | | - | | | | (577,404 | ) |
| | | | (30,764,558 | ) | | | (7,314,955 | ) | | | (17,982,134 | ) |
| Equity price | | | | | | | | | | | | |
| Equities | | | 365,400 | | | | - | | | | 61,994 | |
| Futures | | | 1,889,027 | | | | 10,440,783 | | | | 101,503,652 | |
| Options | | | 37,188 | | | | (508,058 | ) | | | - | |
| | | | 2,291,615 | | | | 9,932,725 | | | | 101,565,646 | |
| Foreign currency exchange rate | | | | | | | | | | | | |
| Forwards | | | 46,415,211 | | | | 46,368,216 | | | | 6,982,321 | |
| Futures | | | (412,375 | ) | | | - | | | | 3,389,816 | |
| Options | | | 15,244,889 | | | | (1,249,162 | ) | | | - | |
| | | | 61,247,725 | | | | 45,119,054 | | | | 10,372,137 | |
| Interest rate | | | | | | | | | | | | |
| Bonds | | | 8,826 | | | | - | | | | 22,066 | |
| Futures | | | 2,054,268 | | | | (5,221,023 | ) | | | 9,095,955 | |
| Options | | | (601,190 | ) | | | (767,130 | ) | | | - | |
| Swaps | | | 352,123 | | | | - | | | | - | |
| | | | 1,814,027 | | | | (5,988,153 | ) | | | 9,118,021 | |
| Total | | $ | 34,588,809 | | | $ | 41,748,671 | | | $ | 103,073,670 | |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following table summarizes the financial position of each Master Fund as of December 31, 2012:
| | | Graham Commodity Strategies LLC (Delaware) | | | Graham Global Monetary Policy LLC (Delaware) | | | Graham K4D Trading Ltd. (BVI) | |
| Assets: | | | | | | | | | |
| Due from brokers | | $ | 114,206,522 | | | $ | 76,261,597 | | | $ | 29,961,942 | |
| Fixed income securities, at fair value | | | 49,996,302 | | | | - | | | | 124,990,755 | |
| Derivative financial instruments, at fair value | | | 34,869,226 | | | | 13,475,515 | | | | 25,424,116 | |
| CME membership, at fair value | | | 2,000,300 | | | | - | | | | 793,453 | |
| Dividends receivable | | | 52,500 | | | | - | | | | - | |
| Other assets | | | - | | | | 107 | | | | - | |
| Total assets | | | 201,124,850 | | | | 89,737,219 | | | | 181,170,266 | |
| | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | |
| Derivative financial instruments, at fair value | | | 17,032,718 | | | | 1,950,294 | | | | - | |
| Due to brokers | | | - | | | | - | | | | 1,750,659 | |
| Redemptions payable | | | 5,369 | | | | - | | | | - | |
| Total liabilities | | | 17,038,087 | | | | 1,950,294 | | | | 1,750,659 | |
| Net assets | | $ | 184,086,763 | | | $ | 87,786,925 | | | $ | 179,419,607 | |
| | | | | | | | | | | | | |
| Percentage of Master Fund held by GAIT | | | 8.87 | % | | | 8.27 | % | | | 13.54 | % |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
When multiple derivative contracts are held with the same counterparty, the Master Funds will net the contracts in an asset position with the contracts in a liability position when covered by a master netting agreement or similar arrangements, for presentation in the statements of financial condition. The table below displays the amounts by which the fair values of both derivative assets and derivative liabilities were reduced within the Master Funds’ statements of financial condition as a result of this netting. Collateral pledged represents the further amounts by which derivative assets and liabilities could have been reduced on the statements of financial condition. The Master Funds elect to display the amounts in due from (to) brokers on the statements of financial condition.
| Description | | Gross Amount | | | Gross Amount Offset in the Statements of Financial Condition | | | Net Amount Presented in the Statements of Financial Condition | | | Collateral Pledged | | | Net Amount | |
| | | | | | | | | | | | | | | | | | | | | |
| Graham Commodity Strategies LLC | | | | | | | | | | | | | | | | | | | | |
| Derivative assets | | $ | 199,106,163 | | | $ | (164,236,937 | ) | | $ | 34,869,226 | | | $ | – | | | $ | 34,869,226 | |
| Derivative liabilities | | | (181,269,655 | ) | | | 164,236,937 | | | | (17,032,718 | ) | | | 17,032,718 | | | | – | |
| | | $ | 17,836,508 | | | $ | – | | | $ | 17,836,508 | | | $ | 17,032,718 | | | $ | 34,869,226 | |
| | | | | | | | | | | | | | | | | | | | | |
| Graham Global Monetary Policy LLC | | | | | | | | | | | | | | | | | | | | |
| Derivative assets | | $ | 43,728,176 | | | $ | (30,252,661 | ) | | $ | 13,475,515 | | | $ | – | | | $ | 13,475,515 | |
| Derivative liabilities | | | (32,202,955 | ) | | | 30,252,661 | | | | (1,950,294 | ) | | | 1,950,294 | | | | – | |
| | | $ | 11,525,221 | | | $ | – | | | $ | 11,525,221 | | | $ | 1,950,294 | | | $ | 13,475,515 | |
| | | | | | | | | | | | | | | | | | | | | |
| Graham K4D Trading Ltd. | | | | | | | | | | | | | | | | | | | | |
| Derivative assets | | $ | 66,291,346 | | | $ | (40,867,230 | ) | | $ | 25,424,116 | | | $ | 1,750,659 | | | $ | 23,673,457 | |
| Derivative liabilities | | | (40,867,230 | ) | | | 40,867,230 | | | | – | | | | – | | | | – | |
| | | $ | 25,424,116 | | | $ | – | | | $ | 25,424,116 | | | $ | 1,750,659 | | | $ | 23,673,457 | |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following schedules display the condensed schedules of investments for the Master Funds as of December 31, 2012.
| Description | | Principal Amount / Notional Amount / Number of Contracts | | | Fair Value | | | Percentage of Net Assets of Master Fund | |
| Graham Commodity Strategies LLC | | | | | | | | | |
| Fixed income securities | | | | | | | | | |
| Bonds (cost $49,989,111) | | | | | | | | | |
| United States | | | | | | | | | |
| U.S. Treasury bill 0.00% due 03/14/13 | | $ | 50,000,000 | | | $ | 49,996,302 | | | | 27.16 | % |
| Total United States | | | | | | | 49,996,302 | | | | 27.16 | % |
| Total bonds | | | | | | | 49,996,302 | | | | 27.16 | % |
| | | | | | | | | | | | | |
| Derivative financial instruments | | | | | | | | | | | | |
| Long contracts | | | | | | | | | | | | |
| Futures | | | | | | | | | | | | |
| Brent Crude March 2013 - September 2013 | | | 9,543 | | | | 14,516,600 | | | | 7.89 | % |
| Natural Gas May 2013 | | | 7,931 | | | | (14,959,620 | ) | | | (8.13 | )% |
| Natural Gas July 2013 | | | 6,351 | | | | (11,052,940 | ) | | | (6.00 | )% |
| Other Natural Gas February 2013 - January 2014 | | | 11,510 | | | | (4,945,000 | ) | | | (2.69 | )% |
| Wheat March 2013 - December 2013 | | | 8,992 | | | | (7,496,000 | ) | | | (4.07 | )% |
| WTI Crude April 2013 | | | 6,643 | | | | 10,201,020 | | | | 5.54 | % |
| WTI Crude November 2013 | | | 1,999 | | | | (12,183,290 | ) | | | (6.62 | )% |
| WTI Crude January 2014 | | | 1,999 | | | | (11,361,590 | ) | | | (6.17 | )% |
| Other WTI Crude February 2013 - June 2014 | | | 8,570 | | | | 13,477,380 | | | | 7.32 | % |
| Other commodity | | | | | | | (24,499,577 | ) | | | (13.31 | )% |
| Total futures | | | | | | | (48,303,017 | ) | | | (26.24 | )% |
| | | | | | | | | | | | | |
| Swaps | | | | | | | | | | | | |
| Commodity futures | | | | | | | (162,119 | ) | | | (0.09 | )% |
| Total swaps | | | | | | | (162,119 | ) | | | (0.09 | )% |
| | | | | | | | | | | | | |
| Forwards | | | | | | | | | | | | |
| Japanese Yen / U.S. dollar 01/04/13 | | JPY180,218,436,000 | | | | (15,289,285 | ) | | | (8.31 | )% |
| Japanese Yen / U.S. dollar 01/07/13 | | JPY73,665,968,900 | | | | (5,778,001 | ) | | | (3.14 | )% |
| Other foreign currency | | | | | | | 1,376,864 | | | | 0.75 | % |
| Total forwards | | | | | | | (19,690,422 | ) | | | (10.70 | )% |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following schedules display the condensed schedules of investments for the Master Funds as of December 31, 2012.
| Description | | Number of Contracts | | | Fair Value | | | Percentage of Net Assets of Master Fund | |
| Graham Commodity Strategies LLC (continued) | | | | | | | | | |
| Derivative financial instruments (continued) | | | | | | | | | |
| Long contracts (continued) | | | | | | | | | |
| Options | | | | | | | | | |
| Natural Gas Futures February 2013 - January 2015 Call $3.75 - $5.00 | | | 2,150 | | | $ | 1,591,150 | | | | 0.86 | % |
| Natural Gas Futures March 2013 - April 2013 Put $0.00 - $3.25 | | | 4,100 | | | | 1,971,000 | | | | 1.07 | % |
| Other commodity | | | | | | | 521,780 | | | | 0.28 | % |
| U.S. dollar / Japanese Yen February 2013 - May 2013 Call $85.00 - $88.00 | | | 4 | | | | 16,385,856 | | | | 8.90 | % |
| Other currency | | | | | | | 1,195,163 | | | | 0.66 | % |
| U.S. bond | | | | | | | 574,219 | | | | 0.31 | % |
| U.S. index | | | | | | | 1,856,250 | | | | 1.01 | % |
| Total options | | | | | | | 24,095,418 | | | | 13.09 | % |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following schedules display the condensed schedules of investments for the Master Funds as of December 31, 2012.
| Description | | Number of Contracts / Notional Amount | | | Fair Value | | | Percentage of Net Assets of Master Fund | |
| Graham Commodity Strategies LLC (continued) | | | | | | | | | |
| Derivative financial instruments (continued) | | | | | | | | | |
| Short contracts | | | | | | | | | |
| Futures | | | | | | | | | |
| Brent Crude February 2013 - December 2014 | | | (8,330 | ) | | $ | (10,374,090 | ) | | | (5.64 | )% |
| Natural Gas March 2013 | | | (5,467 | ) | | | 16,116,840 | | | | 8.76 | % |
| Natural Gas April 2013 | | | (10,618 | ) | | | 27,581,820 | | | | 14.99 | % |
| Other Natural Gas February 2013 - April 2014 | | | (9,670 | ) | | | 5,062,300 | | | | 2.75 | % |
| Wheat March 2013 - July 2013 | | | (8,999 | ) | | | 8,924,988 | | | | 4.85 | % |
| WTI Crude March 2013 | | | (5,663 | ) | | | (9,638,060 | ) | | | (5.24 | )% |
| WTI Crude June 2013 | | | (3,787 | ) | | | (12,403,880 | ) | | | (6.74 | )% |
| Other WTI Crude February 2013 - December 2015 | | | (10,649 | ) | | | (15,529,960 | ) | | | (8.44 | )% |
| Other commodity | | | | | | | 22,886,444 | | | | 12.44 | % |
| U.S. bond | | | | | | | 45,313 | | | | 0.02 | % |
| U.S. index | | | | | | | 7,500 | | | | 0.00 | % |
| Total futures | | | | | | | 32,679,215 | | | | 17.75 | % |
| | | | | | | | | | | | | |
| Swaps | | | | | | | | | | | | |
| Commodity futures | | | | | | | 59,748 | | | | 0.03 | % |
| Total swaps | | | | | | | 59,748 | | | | 0.03 | % |
| | | | | | | | | | | | | |
| Forwards | | | | | | | | | | | | |
| U.S. dollar / Japanese Yen 01/04/13 | | JPY(179,649,983,200 | ) | | | 21,846,045 | | | | 11.87 | % |
| U.S. dollar / Japanese Yen 01/07/13 | | JPY(186,460,696,800 | ) | | | 14,713,710 | | | | 7.99 | % |
| U.S. dollar / Japanese Yen 01/07/13 | | JPY(2,602,098,000 | ) | | | (14,672 | ) | | | (0.01 | )% |
| Other foreign currency | | | | | | | (798,071 | ) | | | (0.43 | )% |
| Total forwards | | | | | | | 35,747,012 | | | | 19.42 | % |
| | | | | | | | | | | | | |
| Options | | | | | | | | | | | | |
| Natural Gas Futures April 2013 Put $3.00 | | | (250 | ) | | | (182,500 | ) | | | (0.10 | )% |
| Natural Gas Futures February 2013 - January 2015 Call $0.10 - $5.50 | | | (3,350 | ) | | | (979,700 | ) | | | (0.53 | )% |
| Other commodity | | | | | | | (21,000 | ) | | | (0.01 | )% |
| Currency | | | | | | | (5,242,064 | ) | | | (2.84 | )% |
| U.S. bond | | | | | | | (164,063 | ) | | | (0.09 | )% |
| Total options | | | | | | | (6,589,327 | ) | | | (3.57 | )% |
| | | | | | | | | | | | | |
| Total | | | | | | $ | 67,832,810 | | | | 36.85 | % |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following schedules display the condensed schedules of investments for the Master Funds as of December 31, 2012.
| Description | Notional Amount | | Fair Value | | | Percentage of Net Assets of Master Fund | |
| Graham Global Monetary Policy LLC | | | | | | | |
| Derivative financial instruments | | | | | | | |
| Long contracts | | | | | | | |
| Futures | | | | | | | |
| Foreign bond | | | $ | 145,741 | | | | 0.17 | % |
| Foreign index | | | | 2,401,384 | | | | 2.73 | % |
| Interest rate | | | | (1,575,000 | ) | | | (1.79 | )% |
| Total futures | | | | 972,125 | | | | 1.11 | % |
| | | | | | | | | | |
| Forwards | | | | | | | | | |
| Brazilian Real / U.S. dollar 01/03/13 | BRL838,687,500 | | | 10,278,835 | | | | 11.71 | % |
| Chinese Yuan / U.S. dollar 01/03/13 - 06/27/13 | | | | 4,523,387 | | | | 5.15 | % |
| Mexican Peso / U.S. dollar 01/02/13 - 01/03/13 | | | | 7,159,228 | | | | 8.16 | % |
| Other foreign currency | | | | (963,799 | ) | | | (1.10 | )% |
| Total forwards | | | | 20,997,651 | | | | 23.92 | % |
| | | | | | | | | | |
| Options | | | | | | | | | |
| Interest rate | | | | 625,000 | | | | 0.71 | % |
| U.S. index | | | | 158,750 | | | | 0.18 | % |
| Foreign currency | | | | 529,605 | | | | 0.61 | % |
| Total options | | | | 1,313,355 | | | | 1.50 | % |
| | | | | | | | | | |
| Short contracts | | | | | | | | | |
| Futures | | | | | | | | | |
| Foreign index | | | | (328,287 | ) | | | (0.37 | )% |
| Foreign bond | | | | 492,734 | | | | 0.56 | % |
| Interest rate | | | | 2,371,123 | | | | 2.70 | % |
| U.S. bond | | | | 759,204 | | | | 0.86 | % |
| Total futures | | | | 3,294,774 | | | | 3.75 | % |
| | | | | | | | | | |
| Forwards | | | | | | | | | |
| U.S. dollar / Brazilian Real 01/03/13 | BRL(838,687,500) | | | (6,955,653 | ) | | | (7.92 | )% |
| Other foreign currency | | | | (4,833,382 | ) | | | (5.51 | )% |
| Total forwards | | | | (11,789,035 | ) | | | (13.43 | )% |
| | | | | | | | | | |
| Options | | | | | | | | | |
| Interest rate | | | | (468,750 | ) | | | (0.53 | )% |
| Foreign currency | | | | (2,794,899 | ) | | | (3.19 | )% |
| Total options | | | | (3,263,649 | ) | | | (3.72 | )% |
| | | | | | | | | | |
| Total | | | $ | 11,525,221 | | | | 13.13 | % |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following schedules display the condensed schedules of investments for the Master Funds as of December 31, 2012.
| Description | | Principal Amount / Notional Amount / Number of Contracts | | | Fair Value | | | Percentage of Net Assets of Master Fund | |
| Graham K4D Trading Ltd. | | | | | | | | | |
| Long securities | | | | | | | | | |
| Bonds (cost $124,963,438) | | | | | | | | | |
| United States | | | | | | | | | |
| U.S. Treasury bill 0.00% due 03/14/13 | | $ | 125,000,000 | | | $ | 124,990,755 | | | | 69.66 | % |
| Total United States | | | | | | | 124,990,755 | | | | 69.66 | % |
| Total bonds | | | | | | | 124,990,755 | | | | 69.66 | % |
| | | | | | | | | | | | | |
| Derivative financial instruments | | | | | | | | | | | | |
| Long contracts | | | | | | | | | | | | |
| Futures | | | | | | | | | | | | |
| Nikkei 225 Index March 2013 | | | 2,254 | | | | 11,197,084 | | | | 6.24 | % |
| Topix Index March 2013 | | | 1,383 | | | | 11,116,231 | | | | 6.20 | % |
| Other foreign index | | | | | | | (1,641,221 | ) | | | (0.92 | )% |
| Commodity | | | | | | | 40,893 | | | | 0.02 | % |
| Currency | | | | | | | 19,615 | | | | 0.01 | % |
| Interest rate | | | | | | | 989,629 | | | | 0.55 | % |
| Foreign bond | | | | | | | 3,888,306 | | | | 2.17 | % |
| U.S. bond | | | | | | | 372,289 | | | | 0.21 | % |
| U.S. index | | | | | | | 345,055 | | | | 0.19 | % |
| Total futures | | | | | | | 26,327,881 | | | | 14.67 | % |
| | | | | | | | | | | | | |
| Forwards | | | | | | | | | | | | |
| Foreign currency | | | | | | | (1,692,952 | ) | | | (0.94 | )% |
| Total forwards | | | | | | | (1,692,952 | ) | | | (0.94 | )% |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following schedules display the condensed schedules of investments for the Master Funds as of December 31, 2012.
| Description | Notional Amount | | Fair Value | | | Percentage of Net Assets of Master Fund | |
| Graham K4D Trading Ltd. (continued) | | | | | | | |
| Derivative financial instruments (continued) | | | | | | | |
| Short contracts | | | | | | | |
| Futures | | | | | | | |
| Foreign index | | | $ | (73,012 | ) | | | (0.04 | )% |
| Commodity | | | | (7,643,113 | ) | | | (4.27 | )% |
| Currency | | | | 1,060,981 | | | | 0.59 | % |
| Interest rate | | | | (39,202 | ) | | | (0.02 | )% |
| Foreign bond | | | | (241,205 | ) | | | (0.13 | )% |
| U.S. bond | | | | 243,652 | | | | 0.14 | % |
| U.S. index | | | | (353,828 | ) | | | (0.20 | )% |
| Total futures | | | | (7,045,727 | ) | | | (3.93 | )% |
| | | | | | | | | | |
| Forwards | | | | | | | | | |
| U.S. dollar / Japanese Yen 03/21/13 | JPY(24,575,106,969) | | | 9,839,401 | | | | 5.48 | % |
| Other U.S. dollar / Japanese Yen 01/04/13 - 01/07/13 | JPY(2,181,627,007) | | | 105,135 | | | | 0.06 | % |
| Other foreign currency | | | | (2,109,622 | ) | | | (1.17 | )% |
| Total forwards | | | | 7,834,914 | | | | 4.37 | % |
| | | | | | | | | | |
| Total | | | $ | 150,414,871 | | | | 83.83 | % |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following table shows the fair value classification of each investment type by Master Fund as of December 31, 2012:
| | | Graham Commodity Strategies LLC | | | Graham Global Monetary Policy LLC | | | Graham K4D Trading Ltd. | |
| Assets | | | | | | | | | |
| Level 1: | | | | | | | | | |
| U.S. bond futures | | $ | 45,313 | | | $ | 921,438 | | | $ | 927,920 | |
| U.S. bond futures options | | | 574,219 | | | | - | | | | - | |
| Foreign bond futures | | | - | | | | 638,475 | | | | 7,253,098 | |
| Foreign index futures | | | - | | | | 2,401,384 | | | | 23,920,199 | |
| U.S. index futures | | | 7,500 | | | | - | | | | 1,461,396 | |
| U.S. index futures options | | | 1,856,250 | | | | 158,750 | | | | - | |
| Commodity futures | | | 136,583,500 | | | | - | | | | 10,650,606 | |
| Commodity futures options | | | 4,083,930 | | | | - | | | | - | |
| Commodity futures swaps | | | 59,748 | | | | - | | | | - | |
| Interest rate futures | | | - | | | | 2,202,373 | | | | 1,735,617 | |
| Interest rate futures options | | | - | | | | 625,000 | | | | - | |
| Currency futures | | | - | | | | - | | | | 1,104,266 | |
| Equity securities | | | 2,000,300 | | | | - | | | | 793,453 | |
| Total Level 1 | | | 145,210,760 | | | | 6,947,420 | | | | 47,846,554 | |
| | | | | | | | | | | | | |
| Level 2: | | | | | | | | | | | | |
| Foreign currency forwards | | | 38,314,684 | | | | 36,251,151 | | | | 19,238,245 | |
| Foreign currency options | | | 17,581,019 | | | | 529,605 | | | | - | |
| Treasury bills | | | 49,996,302 | | | | - | | | | 124,990,755 | |
| Total Level 2 | | | 105,892,005 | | | | 36,780,756 | | | | 144,229,000 | |
| Total assets | | $ | 251,102,765 | | | $ | 43,728,176 | | | $ | 192,075,554 | |
| Liabilities | | | | | | | | | | | | |
| Level 1: | | | | | | | | | | | | |
| U.S. bond futures | | $ | - | | | $ | (162,234 | ) | | $ | (311,979 | ) |
| U.S. bond futures options | | | (164,063 | ) | | | - | | | | - | |
| Foreign bond futures | | | - | | | | - | | | | (3,605,997 | ) |
| Foreign index futures | | | - | | | | (328,287 | ) | | | (3,321,117 | ) |
| U.S. index futures | | | - | | | | - | | | | (1,470,168 | ) |
| Commodity futures | | | (152,260,115 | ) | | | - | | | | (18,252,826 | ) |
| Commodity futures options | | | (1,183,200 | ) | | | - | | | | - | |
| Commodity futures swaps | | | (162,119 | ) | | | - | | | | - | |
| Interest rate futures | | | - | | | | (1,406,250 | ) | | | (785,190 | ) |
| Interest rate futures options | | | - | | | | (468,750 | ) | | | - | |
| Currency futures | | | - | | | | - | | | | (23,670 | ) |
| Total Level 1 | | | (153,769,497 | ) | | | (2,365,521 | ) | | | (27,770,947 | ) |
| | | | | | | | | | | | | |
| Level 2: | | | | | | | | | | | | |
| Foreign currency forwards | | | (22,258,094 | ) | | | (27,042,535 | ) | | | (13,096,283 | ) |
| Foreign currency options | | | (5,242,064 | ) | | | (2,794,899 | ) | | | - | |
| Total Level 2 | | | (27,500,158 | ) | | | (29,837,434 | ) | | | (13,096,283 | ) |
| Total liabilities | | $ | (181,269,655 | ) | | $ | (32,202,955 | ) | | $ | (40,867,230 | ) |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following table displays the gross volume of derivative activities based on their notional amounts and number of contracts and fair value of derivative contracts held by the Master Funds at December 31, 2012 categorized by primary underlying risk and is representative of the derivative positions held by the Master Funds throughout the year. Derivatives denominated in foreign currencies have been converted to U.S. dollars. Derivative asset and liability balances are presented on a gross basis, prior to the application of counterparty netting. The Master Funds trade futures and options 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. Amounts presented below as collateral balances supporting all derivative positions are included in due from brokers and fixed income securities on the Master Funds’ statements of financial condition.
| | | Graham Commodity Strategies LLC | |
| | | Long exposure | | | Short exposure | | | | | | | |
| | | Notional amounts | | | Number of contracts | | | Notional amounts | | | Number of contracts | | | Derivative Assets | | | Derivative Liabilities | |
| Commodity price | | | | | | | | | | | | | | | | | | |
| Futures | | $ | 6,957,172,641 | | | | 102,887 | | | $ | (6,812,506,601 | ) | | | (100,934 | ) | | $ | 136,583,500 | | | $ | (152,260,115 | ) |
| Options (a) | | | 35,431,382 | | | | 7,568 | | | | (17,122,694 | ) | | | (3,700 | ) | | | 4,083,930 | | | | (1,183,200 | ) |
| Swaps | | | 5,039,580 | | | | 142 | | | | (4,869,180 | ) | | | (142 | ) | | | 59,748 | | | | (162,119 | ) |
| | | | 6,997,643,603 | | | | 110,597 | | | | (6,834,498,475 | ) | | | (104,776 | ) | | | 140,727,178 | | | | (153,605,434 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity price | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | - | | | | - | | | | (10,650,000 | ) | | | (150 | ) | | | 7,500 | | | | - | |
| Options (a) | | | 61,067,207 | | | | 3,000 | | | | - | | | | - | | | | 1,856,250 | | | | - | |
| | | | 61,067,207 | | | | 3,000 | | | | (10,650,000 | ) | | | (150 | ) | | | 1,863,750 | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency exchange rate | | | | | | | | | | | | | | | | | | | | | |
| Forwards | | | 1,898,423,498 | | | | N/A | | | | (1,882,366,909 | ) | | | N/A | | | | 38,314,684 | | | | (22,258,094 | ) |
| Options (a) | | | 475,390,150 | | | | 8 | | | | (245,955,750 | ) | | | (4 | ) | | | 17,581,019 | | | | (5,242,064 | ) |
| | | | 2,373,813,648 | | | | 8 | | | | (2,128,322,659 | ) | | | (4 | ) | | | 55,895,703 | | | | (27,500,158 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | - | | | | - | | | | (33,195,313 | ) | | | (250 | ) | | | 45,313 | | | | - | |
| Options (a) | | | 84,078,349 | | | | 3,500 | | | | (32,955,244 | ) | | | (3,500 | ) | | | 574,219 | | | | (164,063 | ) |
| | | | 84,078,349 | | | | 3,500 | | | | (66,150,557 | ) | | | (3,750 | ) | | | 619,532 | | | | (164,063 | ) |
| Total | | $ | 9,516,602,807 | | | | 117,105 | | | $ | (9,039,621,691 | ) | | | (108,680 | ) | | $ | 199,106,163 | | | $ | (181,269,655 | ) |
| | | | | | | | | | | | | | | | | | |
| (a) Notional amounts for options are based on the delta-adjusted positions. | |
| | | | | | | | | | | | | | | | | | |
| Collateral balances supporting all derivative positions | | | | | | | | | | | | | | | $ | 164,202,824 | |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following table displays the gross volume of derivative activities based on their notional amounts and number of contracts and fair value of derivative contracts held by the Master Funds at December 31, 2012 categorized by primary underlying risk and is representative of the derivative positions held by the Master Funds throughout the year. Derivatives denominated in foreign currencies have been converted to U.S. dollars. Derivative asset and liability balances are presented on a gross basis, prior to the application of counterparty netting. The Master Funds trade futures and options 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. Amounts presented below as collateral balances supporting all derivative positions are included in due from brokers and fixed income securities on the Master Funds’ statements of financial condition.
| | | Graham Global Monetary Policy LLC | |
| | | Long exposure | | | Short exposure | | | | | | | |
| | | Notional amounts | | | Number of contracts | | | Notional amounts | | | Number of contracts | | | Derivative Assets | | | Derivative Liabilities | |
| Commodity price | | | | | | | | | | | | | | | | | | |
| Futures | | $ | - | | | | - | | | $ | - | | | | - | | | $ | - | | | $ | - | |
| | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity price | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 41,877,970 | | | | 450 | | | | (9,872,405 | ) | | | (165 | ) | | | 2,401,384 | | | | (328,287 | ) |
| Options (a) | | | - | | | | - | | | | (6,152,186 | ) | | | (1,500 | ) | | | 158,750 | | | | - | |
| | | | 41,877,970 | | | | 450 | | | | (16,024,591 | ) | | | (1,665 | ) | | | 2,560,134 | | | | (328,287 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency exchange rate | | | | | | | | | | | | | | | | | | | | | |
| Forwards | | | 3,622,783,412 | | | | N/A | | | | (3,613,574,796 | ) | | | N/A | | | | 36,251,151 | | | | (27,042,535 | ) |
| Options (a) | | | 197,455,675 | | | | 10 | | | | (259,686,600 | ) | | | (11 | ) | | | 529,605 | | | | (2,794,899 | ) |
| | | | 3,820,239,087 | | | | 10 | | | | (3,873,261,396 | ) | | | (11 | ) | | | 36,780,756 | | | | (29,837,434 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 2,689,682,667 | | | | 10,913 | | | | (4,622,750,125 | ) | | | (19,386 | ) | | | 3,762,286 | | | | (1,568,484 | ) |
| Options (a) | | | 289,162,168 | | | | 5,000 | | | | (370,156,922 | ) | | | (5,000 | ) | | | 625,000 | | | | (468,750 | ) |
| | | | 2,978,844,835 | | | | 15,913 | | | | (4,992,907,047 | ) | | | (24,386 | ) | | | 4,387,286 | | | | (2,037,234 | ) |
| Total | | $ | 6,840,961,892 | | | | 16,373 | | | $ | (8,882,193,034 | ) | | | (26,062 | ) | | $ | 43,728,176 | | | $ | (32,202,955 | ) |
| | |
| (a) Notional amounts for options are based on the delta-adjusted positions. | |
| | |
| Collateral balances supporting all derivative positions | | | $ | 76,261,597 | |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following table displays the gross volume of derivative activities based on their notional amounts and number of contracts and fair value of derivative contracts held by the Master Funds at December 31, 2012 categorized by primary underlying risk and is representative of the derivative positions held by the Master Funds throughout the year. Derivatives denominated in foreign currencies have been converted to U.S. dollars. Derivative asset and liability balances are presented on a gross basis, prior to the application of counterparty netting. The Master Funds trade futures and options 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. Amounts presented below as collateral balances supporting all derivative positions are included in due from brokers and fixed income securities on the Master Funds’ statements of financial condition.
| | | Graham K4D Trading Ltd. | |
| | | Long exposure | | | Short exposure | | | | | | | |
| | | Notional amounts | | | Number of contracts | | | Notional amounts | | | Number of contracts | | | Derivative Assets | | | Derivative Liabilities | |
| Commodity price | | | | | | | | | | | | | | | | | | |
| Futures | | $ | 364,319,244 | | | | 4,414 | | | $ | (883,588,505 | ) | | | (13,712 | ) | | $ | 10,650,606 | | | $ | (18,252,826 | ) |
| | | | 364,319,244 | | | | 4,414 | | | | (883,588,505 | ) | | | (13,712 | ) | | | 10,650,606 | | | | (18,252,826 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity price | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 1,226,779,876 | | | | 13,036 | | | | (106,770,515 | ) | | | (1,893 | ) | | | 25,381,594 | | | | (4,791,285 | ) |
| | | | 1,226,779,876 | | | | 13,036 | | | | (106,770,515 | ) | | | (1,893 | ) | | | 25,381,594 | | | | (4,791,285 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency exchange rate | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 36,929,900 | | | | 352 | | | | (136,511,977 | ) | | | (1,624 | ) | | | 1,104,266 | | | | (23,670 | ) |
| Forwards | | | 1,526,791,218 | | | | N/A | | | | (1,520,649,257 | ) | | | N/A | | | | 19,238,245 | | | | (13,096,283 | ) |
| | | | 1,563,721,118 | | | | 352 | | | | (1,657,161,234 | ) | | | (1,624 | ) | | | 20,342,511 | | | | (13,119,953 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 9,571,876,106 | | | | 45,765 | | | | (16,351,154 | ) | | | (81 | ) | | | 9,916,635 | | | | (4,703,166 | ) |
| | | | 9,571,876,106 | | | | 45,765 | | | | (16,351,154 | ) | | | (81 | ) | | | 9,916,635 | | | | (4,703,166 | ) |
| Total | | $ | 12,726,696,344 | | | | 63,567 | | | $ | (2,663,871,408 | ) | | | (17,310 | ) | | $ | 66,291,346 | | | $ | (40,867,230 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Collateral balances supporting all derivative positions | | | | | | | | | | | | | | | $ | 153,202,038 | |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following table summarizes the results of operations of each Master Fund for the three month period ended March 31, 2012:
| | | Graham Commodity Strategies LLC (Delaware) | | | Graham Energy Focus LLC* (Delaware) | | | Graham Fed Policy Ltd. (BVI) | | | Graham Global Monetary Policy LLC (Delaware) | | | Graham K4D Trading Ltd. (BVI) | | | Graham Macro Directional LLC (Delaware) | |
| | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | $ | 48,651 | | | $ | 6,738 | | | $ | (621 | ) | | $ | (183,235 | ) | | $ | (163,316 | ) | | $ | (1,557 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net realized gain (loss) on investments | | | 97,207,797 | | | | (3,769,417 | ) | | | 2,820,547 | | | | 8,743,554 | | | | 58,121,648 | | | | (10,190,191 | ) |
| Net (decrease) increase in unrealized appreciation on investments | | | (16,699,287 | ) | | | 5,355,406 | | | | (11,309,018 | ) | | | (2,050,197 | ) | | | (19,255,098 | ) | | | 545,825 | |
| Brokerage commissions and fees | | | (4,631,328 | ) | | | (205,978 | ) | | | (149,960 | ) | | | (750,439 | ) | | | (1,724,083 | ) | | | (168,365 | ) |
| Net gain (loss) on investments | | | 75,877,182 | | | | 1,380,011 | | | | (8,638,431 | ) | | | 5,942,918 | | | | 37,142,467 | | | | (9,812,731 | ) |
| Net income (loss) | | $ | 75,925,833 | | | $ | 1,386,749 | | | $ | (8,639,052 | ) | | $ | 5,759,683 | | | $ | 36,979,151 | | | $ | (9,814,288 | ) |
* For the period from January 1, 2012 to February 29, 2012
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Master Funds (continued)
The following table shows the gains and losses on all financial instruments held by the Master Funds reported in net realized gain (loss) on investments and net increase (decrease) in unrealized appreciation on investments in their statements of operations segregated by primary underlying risk and contract type for the three month period ended March 31, 2012:
| | | Graham Commodity Strategies LLC | | | Graham Energy Focus LLC | | | Graham Fed Policy Ltd. | | | Graham Global Monetary Policy LLC | | | Graham K4D Trading Ltd. | | | Graham Macro Directional LLC | |
| Commodity price | | | | | | | | | | | | | | | | | | |
| Futures | | $ | 84,567,986 | | | $ | 12,682,853 | | | $ | - | | | $ | 2,393,663 | | | $ | 23,543,861 | | | $ | (640,236 | ) |
| Options | | | - | | | | 789,330 | | | | - | | | | - | | | | - | | | | - | |
| Swaps | | | 4,138,309 | | | | (11,744,944 | ) | | | - | | | | - | | | | 1,355,801 | | | | - | |
| | | | 88,706,295 | | | | 1,727,239 | | | | - | | | | 2,393,663 | | | | 24,899,662 | | | | (640,236 | ) |
| Equity price | | | | | | | | | | | | | | | | | | | | | | | | |
| Equities | | | 26,760 | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Futures | | | (10,251,455 | ) | | | (141,250 | ) | | | (1,750 | ) | | | (997,388 | ) | | | 118,769,741 | | | | (3,172,188 | ) |
| IMM shares | | | 11,000 | | | | - | | | | - | | | | - | | | | - | | | | | |
| NYMEX shares | | | - | | | | - | | | | - | | | | - | | | | (18,000 | ) | | | | |
| Options | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | (10,213,695 | ) | | | (141,250 | ) | | | (1,750 | ) | | | (997,388 | ) | | | 118,751,741 | | | | (3,172,188 | ) |
| Foreign currency exchange rate | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 2,985,381 | | | | - | | | | - | | | | - | | | | (9,299,984 | ) | | | - | |
| Forwards | | | (566,879 | ) | | | - | | | | - | | | | 2,519,129 | | | | (25,296,450 | ) | | | (2,755,673 | ) |
| Options | | | - | | | | - | | | | - | | | | 112,443 | | | | - | | | | - | |
| | | | 2,418,502 | | | | - | | | | - | | | | 2,631,572 | | | | (34,596,434 | ) | | | (2,755,673 | ) |
| Interest rate | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | (409,272 | ) | | | - | | | | (11,357,110 | ) | | | 2,665,510 | | | | (70,205,252 | ) | | | (3,076,269 | ) |
| Options | | | - | | | | - | | | | 2,870,389 | | | | - | | | | - | | | | - | |
| Treasury bills | | | 6,680 | | | | - | | | | - | | | | - | | | | 16,833 | | | | - | |
| | | | (402,592 | ) | | | - | | | | (8,486,721 | ) | | | 2,665,510 | | | | (70,188,419 | ) | | | (3,076,269 | ) |
| Total | | $ | 80,508,510 | | | $ | 1,585,989 | | | $ | (8,488,471 | ) | | $ | 6,693,357 | | | $ | 38,866,550 | | | $ | (9,644,366 | ) |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
4. Graham Cash Assets LLC
GAIT invests a portion of its excess liquidity in Cash Assets, an entity for which the Manager is also the sole investment advisor. Cash Assets commenced operations on June 22, 2005, and was formed as a Delaware Limited Liability Company for the purpose of consolidating investment activity of multiple funds managed by the Manager. Its objective is to preserve capital while enhancing return on cash balances and providing daily liquidity. It invests in debt obligations guaranteed by the U.S. federal government which range in maturity from one to twenty-four months. Cash Assets also maintains cash and cash equivalents on deposit with major U.S. institutions. Cash Assets values all fixed income securities at amortized cost which approximates fair value. GAIT’s investment in Cash Assets is valued in the accompanying statements of financial condition at fair value in accordance with U.S. GAAP based upon GAIT’s proportionate share of Cash Assets’ reported net asset value. GAIT records its proportionate share of Cash Assets’ investment income and expenses on a monthly basis. For the three months ended March 31, 2013, the total amount recognized by GAIT with respect to its investment in Cash Assets was $124,162. For the three months ended March 31, 2012, the total amount recognized by GAIT with respect to its investment in Cash Assets was $217,632. These amounts are included in interest income in the statements of operations and managing member allocation. At March 31, 2013 and December 31, 2012, GAIT owned approximately 5.49% and 6.02%, respectively, of Cash Assets. The following table summarizes the financial position of Cash Assets as of March 31, 2013 and December 31, 2012:
| | | March 31, 2013 | | | December 31, 2012 | |
| Assets: | | | | | | |
| Cash and cash equivalents | | $ | 876,832,743 | | | $ | 968,228,634 | |
| Investments in fixed income securities (cost $2,917,185,054 and $3,041,387,608, respectively) | | | 2,917,185,054 | | | | 3,041,387,608 | |
| Accrued interest receivable | | | 7,023,150 | | | | 5,989,305 | |
| Total assets | | | 3,801,040,947 | | | | 4,015,605,547 | |
| | | | | | | | | |
| Liabilities: | | | | | | | | |
| Other liabilities | | | 15,004 | | | | 9,300 | |
| Total liabilities | | | 15,004 | | | | 9,300 | |
| Net assets | | $ | 3,801,025,943 | | | $ | 4,015,596,247 | |
The following table summarizes the results of operations of Cash Assets for the three months ended March 31, 2013 and 2012:
| | | 2013 | | �� | 2012 | |
| Investment income | | | | | | |
| Interest income | | $ | 2,127,133 | | | $ | 2,361,852 | |
| Total investment income | | | 2,127,133 | | | | 2,361,852 | |
| | | | | | | | | |
| Expenses: | | | | | | | | |
| Bank fee expense | | | 33,653 | | | | 24,103 | |
| Total expenses | | | 33,653 | | | | 24,103 | |
| Net investment income | | | 2,093,480 | | | | 2,337,749 | |
| Net income | | $ | 2,093,480 | | | $ | 2,337,749 | |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
4. Graham Cash Assets LLC (continued)
The following represents the condensed schedule of investments of Cash Assets as of March 31, 2013:
| Description | | Principal Amount | | | Fair Value | | | Percentage of Members’ Capital | |
| Investments in Fixed Income Securities (cost $2,917,185,054) | | | | | | | | | |
| United States | | | | | | | | | |
| Government Bonds (cost $2,917,185,054) | | | | | | | | | |
| U.S. Treasury 0.50% due 05/31/13 | | $ | 200,000,000 | | | $ | 200,100,675 | | | | 5.26 | % |
| U.S. Treasury 0.13% - 2.75% due 04/15/13 – 02/15/15 | | | 2,700,000,000 | | | | 2,717,084,379 | | | | 71.49 | % |
| Total Government Bonds | | | | | | | 2,917,185,054 | | | | 76.75 | % |
| | | | | | | | | | | | | |
| Total Investments in Fixed Income Securities | | | | | | $ | 2,917,185,054 | | | | 76.75 | % |
The following represents the condensed schedule of investments of Cash Assets as of December 31, 2012:
| Description | | Principal Amount | | | Fair Value | | | Percentage of Members’ Capital | |
| Investments in Fixed Income Securities (cost $3,041,387,608) | | | | | | | | | |
| United States | | | | | | | | | |
| Government Bonds (cost $3,041,387,608) | | | | | | | | | |
| U.S. Treasury 0.13% - 2.63% due 01/15/13 – 12/31/14 | | $ | 3,025,000,000 | | | $ | 3,041,387,608 | | | | 75.74 | % |
| Total Government Bonds | | | | | | | 3,041,387,608 | | | | 75.74 | % |
| | | | | | | | | | | | | |
| Total Investments in Fixed Income Securities | | | | | | $ | 3,041,387,608 | | | | 75.74 | % |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
4. Graham Cash Assets LLC (continued)
Cash Assets reports the fair value of its investment related assets and liabilities in accordance with the hierarchy established under U.S. GAAP. The following table shows the fair value classification of each investment type held by Cash Assets as of March 31, 2013 and December 31, 2012:
| | | March 31, 2013 | | | December 31, 2012 | |
| Assets | | | | | | |
| Level 2: | | | | | | |
| Fixed income securities | | | | | | |
| Government Bonds | | $ | 2,917,185,054 | | | $ | 3,041,387,608 | |
| Total fixed income securities | | | 2,917,185,054 | | | | 3,041,387,608 | |
| Total Level 2 | | | 2,917,185,054 | | | | 3,041,387,608 | |
| Total assets | | $ | 2,917,185,054 | | | $ | 3,041,387,608 | |
5. Capital Accounts
GAIT offers Class 0 Units and Class 2 Units (collectively, the “Units”). GAIT may issue additional classes in the future subject to different fees, expenses or other terms, or to invest in other investment programs or combinations of investment programs managed by the Manager. GAIT also has Management Units (“Class M units”) which are solely for the investment of the Manager.
A separate Capital Account is maintained for each member with respect to each Class of Units held by such member. The initial balance of each member’s Capital Account is equal to the initial contribution to GAIT with respect to the Class to which such Capital Account relates. Each member’s Capital Account is increased by any additional subscription, and decreased by any redemption by such member of Units of such Class to which the Capital Account relates. All income and expenses of GAIT are allocated among the Capital Accounts of the members in proportion to the balance that each Capital Account bears to the balance of all Capital Accounts as of the beginning of such fiscal period.
Subscriptions
Units may be purchased at a price equal to the Net Asset Value per Unit of the relevant Class as of the immediately preceding Valuation Day, as defined in the LLC Agreement. There is no minimum subscription amount.
Units are available for subscription as of the first business day of each month upon written notice of at least three business days prior to the last business day of the preceding month.
Redemptions
Units are not subject to any minimum holding period. Members may redeem Units at the Net Asset Value thereof as of the last business day of each month upon not less than three business days’ prior written notice to the administrator.
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
6. Fees and Related Party Transactions
Advisory Fees
For the three months ended March 31, 2013 and 2012 each Class of GAIT other than Class M pays the Manager an advisory fee (the “Advisory Fee”) at an aggregate annual rate equal to 1.75% and 2%, respectively, of the Net Asset Value of such Class. The Advisory Fee is payable monthly in arrears calculated as of the last business day of each month and any other date the Manager may permit, in its sole and absolute discretion, as of which any subscription or redemption is effected with respect to Units of such Class during the month.
Sponsor Fees
For the three months ended March 31, 2013 and 2012, each Class of GAIT other than Class M paid the Manager a sponsor fee (the “Sponsor Fee”) at an annual rate specified in the table below. This Sponsor Fee was payable monthly in arrears calculated as of the last business day of each month in the same manner as the Advisory Fee. For the three months ended March 31, 2013 the Sponsor Fee listed below for Class 2 included a selling agent fee (the “Selling Agent Fee”) of 2%. The Selling Agent Fee represented a fee for initial and on-going service fees to the Feeder Funds’ selling agents.
| Class | 2013 Annual Rate | 2012 Annual Rate |
| | | |
| Class 0 | 0.75% | 1.00% |
| Class 2 | 2.75% | 1.00% |
Incentive Allocation
At the end of each calendar quarter, the Manager will receive a special allocation of net profits (the “Incentive Allocation”) in an amount equal to 20% of the New High Net Trading Profits of each Class as defined in the LLC Agreement. The Incentive Allocation is also accrued and allocable on the date of redemption with respect to any Units that are redeemed prior to the end of a calendar quarter. Additionally, any loss carryforward attributable to any class of GAIT shall be proportionately reduced effective as of the date of any redemption of any Units of such class by multiplying the loss carryforward by the ratio that the amount of assets redeemed from such class bears to the net assets of such class immediately prior to such redemption. The loss carryforward of a class must be recouped before any subsequent Incentive Allocation can be made to the Manager.
Brokerage Fees
For the three months ended March 31, 2012, each Class of GAIT other than Class M paid the Manager a brokerage fee (the “Brokerage Fee”) at an annual rate specified in the table below. This Brokerage Fee was payable monthly in arrears calculated as of the last business day of each month in the same manner as the Advisory Fee.
| Class | Annual Rate |
| | |
| Class 0 | 2% |
| Class 2 | 4% |
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
6. Fees and Related Party Transactions (continued)
Brokerage Fees (continued)
In consideration of the Brokerage Fee, the Manager assumed all of GAIT’s trading commissions (including exchange, clearing and regulatory fees relating to its trades), routine legal expenses, internal and external accounting, audit and tax preparation expenses, fees and expenses of an external or internal administrator, and expenses and costs of printing and mailing reports and notices, together with the costs incurred in connection with the organization of GAIT and the continuous offering of Units. To the extent GAIT was allocated any of these expenses from the Master Funds in which it invested, the Manager reimbursed GAIT for those amounts. These reimbursements are included in commission reimbursements in the statements of operations and managing member allocation.
As of January 1, 2013 GAIT eliminated the Brokerage Fee and GAIT incurred directly all costs previously covered by the Brokerage Fee.
Administrator’s Fee
For the three month period ended March 31, 2013, GAIT paid SEI a monthly administrator’s fee based GAIT’s net asset value, calculated as of the last business day of each month. In addition, GAIT reimbursed SEI for reasonable out-of-pocket expenses incurred on behalf of GAIT. The total administrator’s fees incurred by GAIT for the three month periods ended March 31, 2013 and 2012 were $82,841 and $0, respectively, of which $25,799 and $0 were accrued as of March 31, 2013 and 2012, respectively.
Any portion of any of the above fees, including the Incentive Allocation, may be paid by the Manager to third parties as compensation for selling activities in connection with GAIT.
7. Income Taxes
No provision for income taxes has been made in the accompanying financial statements, as members are individually responsible for reporting income or loss based upon their respective share of GAIT’s revenues and expenses for income tax purposes.
U.S. GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. U.S. GAAP requires the evaluation of tax positions taken or expected to be taken in the course of preparing GAIT’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a more-likely-than-not threshold would be recorded as a tax expense in the current year. The Manager has evaluated GAIT’s tax positions and has concluded that there are no significant tax positions requiring recognition, measurement or disclosure in the financial statements. 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.
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
8. Financial Highlights
The following is the per unit operating performance calculation for the three month periods ended March 31, 2013 and 2012:
| | | Class 0 | | | Class 2 | |
| Per unit operating performance | | | | | | |
| Net asset value per unit, December 31, 2011 | | $ | 123.17 | | | $ | 98.77 | |
| Net gain: | | | | | | | | |
| Net investment loss | | | (1.20 | ) | | | (1.48 | ) |
| Net gain on investments | | | 4.17 | | | | 3.36 | |
| Net gain | | | 2.97 | | | | 1.88 | |
| Net asset value per unit, March 31, 2012 | | $ | 126.14 | | | $ | 100.65 | |
| | | | | | | | | |
| Net asset value per unit, December 31, 2012 | | $ | 114.88 | | | $ | 90.29 | |
| Net gain: | | | | | | | | |
| Net investment loss | | | (0.88 | ) | | | (1.14 | ) |
| Net gain on investments | | | 8.47 | | | | 6.65 | |
| Net gain | | | 7.59 | | | | 5.51 | |
| Net asset value per unit, March 31, 2013 | | $ | 122.47 | | | $ | 95.80 | |
The following represents ratios to average members’ capital, excluding the Managing Member, and total return for the three month periods ended March 31, 2013 and 2012:
| | | Class 0 | | | Class 2 | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | |
| Total return before Incentive Allocation | | | 6.61 | % | | | 2.41 | % | | | 6.10 | % | | | 1.90 | % |
| Incentive Allocation | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | |
| Total return after Incentive Allocation | | | 6.61 | % | | | 2.41 | % | | | 6.10 | % | | | 1.90 | % |
| | | | | | | | | | | | | | | | | |
| Net investment loss before Incentive Allocation | | | (0.77 | )% | | | (0.97 | )% | | | (1.22 | )% | | | (1.50 | )% |
| Incentive Allocation | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | |
| Net investment loss after Incentive Allocation | | | (0.77 | )% | | | (0.97 | )% | | | (1.22 | )% | | | (1.50 | )% |
| | | | | | | | | | | | | | | | | |
| Total expenses before Incentive Allocation | | | 0.79 | % | | | 1.27 | % | | | 1.27 | % | | | 1.79 | % |
| Incentive Allocation | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | |
| Total expenses after Incentive Allocation | | | 0.79 | % | | | 1.27 | %* | | | 1.27 | % | | | 1.79 | %* |
*- The percentages noted above represent total expenses before commission reimbursements, which represent 0.27% of average members’ capital for the three month period ended March 31, 2012.
Graham Alternative Investment Trading LLC
Notes to Unaudited Financial Statements (continued)
8. 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’ capital, excluding that of the Managing Member, adjusted for subscriptions or redemptions during the period and have not been annualized. An individual member’s return may vary from these returns based on the timing of capital transactions and the applicability of Advisory Fees, Brokerage Fees, Sponsor Fees and the Incentive Allocation. The net investment loss and total expense ratios (including Incentive Allocation) are calculated for the Class 0 and Class 2 units taken as a whole and include amounts from GAIT and net investment loss and expenses allocated from Master Funds and investment income from Cash Assets. These ratios have not been annualized. The computation of such ratios is based on the amount of net investment loss, total expenses and Incentive Allocation. Net investment loss and total expense ratios are computed based upon the weighted average of members’ capital of GAIT, excluding that of the Managing Member, for the three month periods ended March 31, 2013 and 2012.
9. Subsequent Events
GAIT had subscriptions of approximately $3.4 million and redemptions of approximately $5.7 million through May 15, 2013, the date through which subsequent events were evaluated by management. These amounts have not been included in the financial statements.
Graham Alternative Investment Trading II LLC
Statements of Financial Condition
| Assets | | March 31, 2013 (Unaudited) | | | December 31, 2012 (Audited) | |
| Investment in Graham K4D Trading Ltd., at fair value | | $ | 5,963,038 | | | $ | 6,984,957 | |
| Investment in Graham Cash Assets LLC, at fair value | | | 25,296,983 | | | | 34,050,873 | |
| Accrued commission reimbursements | | | – | | | | 8,466 | |
| Receivable from Graham K4D Trading Ltd. | | | 1,379 | | | | 1,764 | |
| Other receivable | | | 26,481 | | | | – | |
| Total assets | | $ | 31,287,881 | | | $ | 41,046,060 | |
| | | | | | | | | |
| Liabilities and members’ capital | | | | | | | | |
| Liabilities: | | | | | | | | |
| Accrued redemptions | | $ | 1,266,893 | | | $ | 8,098,182 | |
| Accrued advisory fees | | | 41,900 | | | | 69,458 | |
| Accrued brokerage fees | | | – | | | | 106,515 | |
| Accrued sponsor fees | | | 45,737 | | | | 34,729 | |
| Accrued professional fees | | | 64,504 | | | | – | |
| Accrued administrator’s fees | | | 3,117 | | | | – | |
| Total liabilities | | | 1,422,151 | | | | 8,308,884 | |
| | | | | | | | | |
| Members’ capital: | | | | | | | | |
| Class 0 Units (159,719.612 and 182,134.590 units issued and outstanding at $80.62 and $73.46 per unit, respectively) | | | 12,876,599 | | | | 13,380,170 | |
| Class 2 Units (226,896.395 and 282,516.243 units issued and outstanding at $74.67 and $68.36 per unit, respectively) | | | 16,941,368 | | | | 19,313,793 | |
| Class M Units (500.000 and 500.000 units issued and outstanding at $95.53 and $86.43 per unit, respectively) | | | 47,763 | | | | 43,213 | |
| Total members’ capital | | | 29,865,730 | | | | 32,737,176 | |
| Total liabilities and members’ capital | | $ | 31,287,881 | | | $ | 41,046,060 | |
See accompanying notes.
Graham Alternative Investment Trading II LLC
Statements of Operations and Managing Member Allocation
| | | Three Months Ended March 31, | |
| | | 2013 (Unaudited) | | | 2012 (Unaudited) | |
| Net gain allocated from investment in Graham K4D Trading Ltd.: | | | | | | |
| Net realized gain on investments | | $ | 2,973,567 | | | $ | 2,323,627 | |
| Net increase (decrease) in unrealized appreciation on investments | | | 220,676 | | | | (649,916 | ) |
| Brokerage commissions and fees | | | (15,220 | ) | | | (73,759 | ) |
| Net gain allocated from investment in Graham K4D Trading Ltd. | | | 3,179,023 | | | | 1,599,952 | |
| | | | | | | | | |
| Net investment income (loss) allocated from investment in Graham K4D Trading Ltd. | | | 166 | | | | (6,903 | ) |
| | | | | | | | | |
| Investment income: | | | | | | | | |
| Interest income | | | 15,257 | | | | 37,236 | |
| | | | | | | | | |
| Expenses: | | | | | | | | |
| Advisory fees | | | 134,660 | | | | 344,030 | |
| Brokerage fees | | | – | | | | 509,052 | |
| Sponsor fees | | | 148,565 | | | | 172,015 | |
| Professional fees and other | | | 78,315 | | | | 933 | |
| Administrator’s fees | | | 10,028 | | | | – | |
| Commission reimbursements | | | – | | | | (73,759 | ) |
| Total expenses | | | 371,568 | | | | 952,271 | |
| Net investment loss of the Fund | | | (356,311 | ) | | | (915,035 | ) |
| | | | | | | | | |
| Net income | | | 2,822,878 | | | | 678,014 | |
| | | | | | | | | |
| Incentive allocation | | | – | | | | – | |
| | | | | | | | | |
| Net income available for pro-rata allocation to all members | | $ | 2,822,878 | | | $ | 678,014 | |
See accompanying notes.
Graham Alternative Investment Trading II LLC
Statements of Changes in Members’ Capital
For the three months ended March 31, 2013 (unaudited) and 2012 (unaudited)
| | | Class 0 | | | Class 2 | | | Class M | | | Total | |
| | | Units | | | Capital | | | Units | | | Capital | | | Units | | | Capital | | | Capital | |
| | | | | | | | | | | | | | | | | | | | | | |
| Members’ capital, December 31, 2011 | | | 434,835.751 | | | $ | 35,371,951 | | | | 439,312.861 | | | $ | 33,930,645 | | | | 500.000 | | | $ | 45,511 | | | $ | 69,348,107 | |
| Subscriptions | | | 5,073.642 | | | | 414,000 | | | | 1,294.902 | | | | 100,000 | | | | – | | | | – | | | | 514,000 | |
| Redemptions | | | (30,265.303 | ) | | | (2,506,412 | ) | | | (40,752.106 | ) | | | (3,169,153 | ) | | | – | | | – | | | | (5,675,565 | ) |
| Incentive allocation | | | – | | | | – | | | | – | | | | – | | | | – | | | – | | | | – | |
Net income | | | – | | | | 441,704 | | | | – | | | | 235,189 | | | | – | | | | 1,121 | | | | 678,014 | |
| Members’ capital, March 31, 2012 | | | 409,644.090 | | | $ | 33,721,243 | | | | 399,855.657 | | | $ | 31,096,681 | | | | 500.000 | | | $ | 46,632 | | | $ | 64,864,556 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Class 0 | | | Class 2 | | | Class M | | | Total | |
| | | Units | | | Capital | | | Units | | | Capital | | | Units | | | Capital | | | Capital | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Members’ capital, December 31, 2012 | | | 182,134.590 | | | $ | 13,380,170 | | | | 282,516.243 | | | $ | 19,313,793 | | | | 500.000 | | | $ | 43,213 | | | $ | 32,737,176 | |
| Subscriptions | | | 67.173 | | | | 5,000 | | | | – | | | | – | | | | – | | | | – | | | | 5,000 | |
| Redemptions | | | (22,482.151 | ) | | | (1,700,797 | ) | | | (55,619.848 | ) | | | (3,998,527 | ) | | | – | | | | – | | | | (5,699,324 | ) |
| Incentive allocation | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | |
| Net income | | | – | | | | 1,192,226 | | | | – | | | | 1,626,102 | | | | – | | | | 4,550 | | | | 2,822,878 | |
| Members’ capital, March 31, 2013 | | | 159,719.612 | | | $ | 12,876,599 | | | | 226,896.395 | | | $ | 16,941,368 | | | | 500.000 | | | $ | 47,763 | | | $ | 29,865,730 | |
See accompanying notes.
Graham Alternative Investment Trading II LLC
| | | Three Months Ended March 31, | |
| | | 2013 (Unaudited) | | | 2012 (Unaudited) | |
| Cash flows provided by operating activities | | | | | | |
| Net income | | $ | 2,822,878 | | | $ | 678,014 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
| Net income allocated from investment in Graham K4D Trading Ltd. | | | (3,179,189 | ) | | | (1,593,049 | ) |
| Net income allocated from investment in Graham Cash Assets LLC | | | (15,257 | ) | | | (37,236 | ) |
| Proceeds from sale of investments in Graham K4D Trading Ltd. | | | 9,510,317 | | | | 21,749,577 | |
| Proceeds from sale of investments in Graham Cash Assets LLC | | | 18,255,435 | | | | 26,562,481 | |
| Investments in Graham K4D Trading Ltd. | | | (5,308,824 | ) | | | (19,713,913 | ) |
| Investments in Graham Cash Assets LLC | | | (9,486,288 | ) | | | (22,025,717 | ) |
| Changes in assets and liabilities: | | | | | | | | |
| Accrued commission reimbursements | | | 8,466 | | | | 4,467 | |
| Other receivable | | | (26,481 | ) | | | – | |
| Accrued advisory fees | | | (27,558 | ) | | | (8,718 | ) |
| Accrued brokerage fees | | | (106,515 | ) | | | (14,534 | ) |
| Accrued sponsor fees | | | 11,008 | | | | (4,359 | ) |
| Accrued professional fees | | | 64,504 | | | | – | |
| Accrued administrator’s fees | | | 3,117 | | | | – | |
| Net cash provided by operating activities | | | 12,525,613 | | | | 5,597,013 | |
| | | | | | | | | |
| Cash flows used in financing activities | | | | | | | | |
| Subscriptions | | | 5,000 | | | | 514,000 | |
| Redemptions | | | (12,530,613 | ) | | | (6,111,013 | ) |
| Net cash used in financing activities | | | (12,525,613 | ) | | | (5,597,013 | ) |
| | | | | | | | | |
| Net change in cash and cash equivalents | | | – | | | | – | |
| | | | | | | | | |
| Cash and cash equivalents, beginning of period | | | – | | | | – | |
| Cash and cash equivalents, end of period | | $ | – | | | $ | – | |
See accompanying notes.
Graham Alternative Investment Trading II LLC
March 31, 2013
1. Organization and Business
Graham Alternative Investment Trading II LLC (“GAIT II”) was formed on July 16, 2008, commenced operations on January 4, 2009 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 Commodity Futures Trading Commission and is a member of the National Futures Association. The Managing Member is also registered as a Registered Investment Advisor with the Securities and Exchange Commission.
The investment objective of GAIT II is to achieve long-term capital appreciation through professionally managed trading through its investment in Graham K4D Trading Ltd. (the “Master Fund” or “K4D Trading”), a master trading vehicle. K4D Trading commenced operations on January 1, 1999 and is organized as a British Virgin Islands business company. As more fully described in Notes 2 and 3, this Master Fund invests in a broad range of derivative instruments such as currency forward and futures contracts; bond, interest rate, and index futures contracts; commodity forward and futures contracts, and options and swaps thereon traded on U.S. and foreign exchanges, as well as over-the-counter.
Graham Alternative Investment Fund I LLC and Graham Alternative Investment Fund II LLC (collectively the “Feeder Funds”) are the primary investors of GAIT II.
SEI Global Services, Inc. (“SEI”) is GAIT II’s independent administrator and transfer agent. SEI is responsible for certain matters pertaining to the administration of GAIT II.
GAIT II will terminate on December 31, 2050 or at an earlier date if certain conditions occur as outlined in the Limited Liability Company Agreement (“LLC Agreement”).
Duties of the Managing Member
Subject to the terms and conditions of the LLC Agreement, the Managing Member has complete and exclusive responsibility for managing and administering the affairs of GAIT II and for directing the investment and reinvestment of the assets of GAIT II.
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 preparation of these financial statements requires the Managing Member 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 K4D Trading Ltd.
GAIT II invests in K4D Trading which is managed by the Managing Member. This investment is valued in the accompanying statements of financial condition at fair value in accordance with U.S. GAAP based upon GAIT II’s proportionate share of K4D Trading’s reported net asset value. Gains and losses are allocated monthly by K4D Trading to GAIT II based upon GAIT II’s proportionate share of the net asset value of K4D Trading and are included in the accompanying statements of operations and managing member allocation.
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Fair Value
The fair value of GAIT II’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 managing member allocation.
GAIT II 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 II reports the fair value of its investment related assets and liabilities in accordance with the hierarchy established under U.S. GAAP. U.S. GAAP uses a three-level hierarchy for fair value measurement based on the activeness of the market and the transparency and independence of inputs used in the valuation of an asset or liability as of the measurement date.
The fair value hierarchy categorizes asset and liability positions into one of three levels, as summarized below, based on the inputs and assumptions used in deriving fair value.
| | · | Level 1 inputs are unadjusted closing or settle 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. With respect to GAIT II’s investments in other funds managed by the Manager, Level 2 inputs include the net asset value of the underlying fund in which it holds an investment. |
| | · | Level 3 inputs are those which are considered unobservable and are significant in arriving at fair value. |
In accordance with this hierarchy, GAIT II’s investments in K4D Trading and Graham Cash Assets LLC (“Cash Assets”) have been classified as Level 2 valuations. There were no Level 3 assets or liabilities held at any point during the three months ended March 31, 2013 or the twelve months ended December 31, 2012 by GAIT II, K4D Trading, or Cash Assets, and there were no transfers between levels during those periods. Transfers between levels, if any, are recognized on the actual date of the event or change in circumstances that cause the transfer.
Derivative Instruments
In the normal course of business, the Master Fund utilizes derivative financial instruments in connection with its 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 Fund’s 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 Fund is also subject to additional counterparty risk should its 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 Fund has established initial credit approval, credit limits, and collateral requirements and may reduce its exposure to any counterparties it deems 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.
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Derivative Instruments (continued)
Unrealized gains and losses from derivative financial instruments are recorded based on changes in their fair value. Realized gains and losses are recorded when the positions are closed. All unrealized and realized gains and losses related to derivative financial instruments are included in net realized gain and net (decrease) increase in unrealized appreciation on investments in the Master Fund’s statements of operations.
Futures Contracts
The Master Fund uses futures contracts in an attempt to take advantage of changes in the value of equities, commodities, interest rates, bonds and foreign currencies. Futures contracts are valued based upon the closing price as of the valuation date, established by the primary exchange upon which they are traded.
A futures contract represents a commitment for the future purchase or sale of an asset or cash settlement based on the value of an asset on a specified date. The purchase and sale of futures contracts are executed on an exchange which requires margin deposits with a Futures Commission Merchant (“FCM”). Subsequent payments are made or received by the Master Fund each day, depending on the daily fluctuations in the value of the contract. These changes in valuation are recorded for financial statement purposes as unrealized gains or losses by the Master Fund. Relative to over-the-counter derivative financial instruments, futures contracts provide reduced counterparty risk to the Master Fund since futures are exchange-traded and the exchange’s clearinghouse guarantees the futures against default. However some non-U.S. exchanges are “principals’ markets” in which no common clearing facility exists and the Master Fund 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 Fund might not be fully protected in the event of the bankruptcy or insolvency of the FCM. In that case, the Master Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the FCM’s combined customer accounts, even though certain property specifically traceable to the Master Fund was held by the FCM. In addition, in the event of bankruptcy or insolvency of an exchange or an affiliated clearing house, the Master Fund 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 Fund enters into foreign currency forward contracts in an attempt to take advantage of changes in exchange rates. Forward currency transactions are contracts or agreements for delivery of specific currencies or the cash equivalent value at a specified future date and an agreed upon price. Forward contracts are not guaranteed by an exchange or clearing house and therefore the risks include the inability of counterparties to meet their obligations under the terms of the contracts as well as the risks associated with movements in fair value.
Exchange traded forward contracts are valued based upon the settlement prices as of the valuation date, established by the primary exchange upon which they are traded. All other forward contracts are valued based upon a forward curve constructed using independently quoted forward points. Changes in fair value of each forward contract are recognized as unrealized gains or losses.
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Derivative Instruments (continued)
Swap Contracts
The Master Fund may enter into various swap contracts in an attempt to take advantage of changes in interest rates and asset values. Swap contracts are not guaranteed by an exchange or an affiliated clearing house or regulated by any U.S. or foreign government authorities. Failure of a counterparty to meet its obligation under the terms of the swap contract could result in the loss of any unrealized gains on open positions. It may not be possible to dispose of or close out a swap position without the consent of the counterparty, and the Master Fund may not be able to enter into an offsetting contract in order to cover its risk. Swaps are subject to the International Swap and Derivative Association (“ISDA”) Master Agreements which generally require among other things, that a Master Fund maintain a predetermined level of net assets, and provide limits with respect to any decline in the Master Fund’s net asset value over 1-month, 3-month and 12-month periods. If a Master Fund were to violate such provisions, the counterparty to the swaps could demand liquidation of outstanding swap positions.
A total return swap contract is an agreement that obligates two parties to exchange cash flows calculated by reference to changes in specified prices or rates for a specified notional amount of the underlying assets. The payment flows are usually netted against each other, with the difference being paid by one party to another.
Exchange traded swaps are valued based upon the closing prices established by the primary exchange upon which they are traded. Total return swaps are valued based upon the exchange published settle price of the underlying reference instrument. Changes in fair value of each swap are recognized as unrealized gains or losses. The Master Fund records realized gains or losses when a swap contract is terminated.
Options
The Master Fund may buy and sell covered and uncovered exchange traded and over-the-counter options on futures, foreign currencies, commodities, interest rates and equities to take advantage of the price movements of the financial instrument underlying the option or to hedge positions in the underlying assets. Option contracts give one party the right, but not the obligation, to buy or sell within a limited time or on a specified date, a financial instrument, commodity or currency at a contracted price. Options may also be settled in cash, based on differentials between specified indices or prices.
The Master Fund is 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 Fund is the unrealized gains of the contracts and the premiums paid to purchase its open option contracts. Relative to over-the-counter options, exchange traded options provide reduced counterparty risk to the Master Fund since the exchanges’ clearinghouse guarantees the option against default.
Exchange traded options are valued based upon the settlement prices published as of the valuation date, by the principal exchange upon which they are traded. In the absence of an exchange published settlement price, the option will be valued using the last reported sales price reported on the exchange for the valuation date. Over-the-counter options and exchange traded options with no reported sales price on the valuation date will generally be valued at the average of last reported bid and offer quotes from independent brokers or from the exchange, respectively.
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Indemnifications
In the normal course of business, the Master Fund, Cash Assets, and GAIT II enter into contracts that contain a variety of indemnifications. Such contracts may include those by the Master Fund and Cash Assets with their brokers and trading counterparties. GAIT II’s maximum exposure under these arrangements is unknown; however, GAIT II has not had prior claims or losses with respect to such indemnifications and considers the risk of loss to be remote.
3. Investment in Graham K4D Trading Ltd.
As of March 31, 2013 and December 31, 2012, GAIT II invested in K4D Trading, a master trading vehicle also managed by the Managing Manager. GAIT II’s investment in K4D Trading, as well as its investment objective, is summarized below. K4D Trading and GAIT II are related parties. K4D Trading does not charge any management or incentive fees, and offers monthly subscriptions and redemptions.
| March 31, 2013 | |
| Investment – Objective | | Percent of Members’ Capital | | | Fair Value | | | Net Income (three months then ended) | |
| | | | | | | | | | |
| Systematic Macro | | | | | | | | | |
| Graham K4D Trading Ltd. | | | 19.97 | % | | $ | 5,963,038 | | | $ | 3,179,189 | |
| | | | 19.97 | % | | $ | 5,963,038 | | | $ | 3,179,189 | |
| | | | | | |
| December 31, 2012 | | | | | |
| Investment – Objective | | Percent of Members’ Capital | | | Fair Value | | | Net Income (three months ended March 31, 2012) | |
| | | | | | | | | | | | | |
| Systematic Macro | | | | | | | | | | | | |
| Graham K4D Trading Ltd. | | | 21.34 | % | | $ | 6,894,957 | | | $ | 1,593,049 | |
| | | | 21.34 | % | | $ | 6,894,957 | | | $ | 1,593,049 | |
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Graham K4D Trading Ltd. (continued)
The following table summarizes the financial position of K4D Trading as of March 31, 2013:
| Assets: | | | |
| Due from brokers | | $ | 45,625,595 | |
| Fixed income securities, at fair value (cost $124,973,143) | | | 124,985,964 | |
| Derivative financial instruments, at fair value | | | 41,487,936 | |
| CME Membership, at fair value | | | 855,250 | |
| Total assets | | | 212,954,745 | |
| | | | | |
| Liabilities: | | | | |
| Derivative financial instruments, at fair value | | | 11,277,718 | |
| Total liabilities | | | 11,277,718 | |
| Net assets | | $ | 201,677,027 | |
| | | | | |
| Percentage of K4D Trading held by GAIT II | | | 2.96 | % |
When multiple derivative contracts are held with the same counterparty, K4D Trading will net the contracts in an asset position with the contracts in a liability position when covered by a master netting agreement or similar arrangements, for presentation in the statement of financial condition. The table below displays the amounts by which the fair values of both derivative assets and derivative liabilities were reduced within K4D Trading’s statement of financial condition as a result of this netting. Collateral pledged represents the further amounts by which derivative assets and liabilities could have been reduced on the statement of financial condition. K4D Trading elects to display the amounts in due from brokers on the statement of financial condition.
| Description | | Gross Amount | | | Gross Amount Offset in the Statement of Financial Condition | | | Net Amount Presented in the Statement of Financial Condition | | | Collateral Pledged | | | Net Amount | |
| | | | | | | | | | | | | | | | |
| Derivative assets | | $ | 73,562,576 | | | $ | (32,074,640 | ) | | $ | 41,487,936 | | | $ | – | | | $ | 41,487,936 | |
| Derivative liabilities | | | (43,352,358 | ) | | | 32,074,640 | | | | (11,277,718 | ) | | | 11,277,718 | | | | – | |
| | | $ | 30,210,218 | | | $ | – | | | $ | 30,210,218 | | | $ | 11,277,718 | | | $ | 41,487,936 | |
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Graham K4D Trading Ltd. (continued)
The following schedule displays the condensed schedule of investments for K4D Trading as of March 31, 2013:
| Description | | Principal Amount | | | Fair Value | | | Percentage of Net Assets of Master Fund | |
| Graham K4D Trading Ltd. | | | | | | | | | |
| Fixed income securities | | | | | | | | | |
| Bonds (cost $124,973,143) | | | | | | | | | |
| United States | | | | | | | | | |
| U.S. Treasury bill 0.00% due 06/13/2013 | | $ | 125,000,000 | | | $ | 124,985,964 | | | | 61.97 | % |
| Total United States | | | | | | | 124,985,964 | | | | 61.97 | % |
| Total bonds | | | | | | | 124,985,964 | | | | 61.97 | % |
| Total fixed income securities | | | | | | $ | 124,985,964 | | | | 61.97 | % |
| | | | | | | | | | | | | |
| Derivative financial instruments | | | | | | | | | | | | |
| Long contracts | | | | | | | | | | | | |
| Futures | | | | | | | | | | | | |
| Commodity | | | | | | $ | (7,896,824 | ) | | | (3.92 | )% |
| Currency | | | | | | | 851,699 | | | | 0.42 | % |
| Interest rate | | | | | | | (932,395 | ) | | | (0.46 | )% |
| Foreign bond | | | | | | | 19,685,680 | | | | 9.76 | % |
| Foreign index | | | | | | | (2,546,292 | ) | | | (1.26 | )% |
| U.S. bond | | | | | | | 6,146,713 | | | | 3.05 | % |
| U.S. index | | | | | | | 13,149,000 | | | | 6.52 | % |
| Total futures | | | | | | | 28,457,581 | | | | 14.11 | % |
| | | | | | | | | | | | | |
| Forwards | | | | | | | | | | | | |
| Foreign currency | | | | | | | 1,016,425 | | | | 0.50 | % |
| Total forwards | | | | | | | 1,016,425 | | | | 0.50 | % |
| | | | | | | | | | | | | |
| Short contracts | | | | | | | | | | | | |
| Futures | | | | | | | | | | | | |
| Commodity | | | | | | | 16,169,706 | | | | 8.02 | % |
| Currency | | | | | | | 140,392 | | | | 0.07 | % |
| Interest rate | | | | | | | (31,761 | ) | | | (0.02 | )% |
| Foreign bond | | | | | | | (1,683,088 | ) | | | (0.83 | )% |
| Foreign index | | | | | | | 176,922 | | | | 0.09 | % |
| U.S. bond | | | | | | | (1,485,323 | ) | | | (0.74 | )% |
| U.S. index | | | | | | | (247,924 | ) | | | (0.12 | )% |
| Total futures | | | | | | | 13,038,924 | | | | 6.47 | % |
| | | | | | | | | | | | | |
| Forwards | | | | | | | | | | | | |
| Foreign currency | | | | | | | (12,302,712 | ) | | | (6.10 | )% |
| Total forwards | | | | | | | (12,302,712 | ) | | | (6.10 | )% |
| Total derivative financial instruments | | | | | | $ | 30,210,218 | | | | 14.98 | % |
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
3. Investment in Graham K4D Trading Ltd. (continued)
The following table shows the fair value classification of each investment type for K4D Trading as of March 31, 2013:
| Assets | | | |
| Level 1: | | | |
| Commodity futures | | $ | 20,586,959 | |
| Currency futures | | | 1,260,054 | |
| Equity securities | | | 855,250 | |
| Foreign bond futures | | | 18,592,047 | |
| Foreign index futures | | | 9,609,819 | |
| Interest rate futures | | | 71,324 | |
| U.S. bond futures | | | 6,146,713 | |
| U.S. index futures | | | 13,149,000 | |
| Total Level 1 | | | 70,271,166 | |
| | | | | |
| Level 2: | | | | |
| Fixed income securities | | | 124,985,964 | |
| Foreign currency forwards | | | 5,380,832 | |
| Total Level 2 | | | 130,366,796 | |
| Total assets | | $ | 200,637,962 | |
| | | | | |
| Liabilities | | | | |
| Level 1: | | | | |
| Commodity futures | | $ | (12,314,077 | ) |
| Currency futures | | | (267,963 | ) |
| Foreign bond futures | | | (589,455 | ) |
| Foreign index futures | | | (11,979,189 | ) |
| Interest rate futures | | | (1,035,480 | ) |
| U.S. bond futures | | | (1,485,323 | ) |
| U.S. index futures | | | (247,924 | ) |
| Total Level 1 | | | (27,919,411 | ) |
| | | | | |
| Level 2: | | | | |
| Foreign currency forwards | | | (16,667,119 | ) |
| Total Level 2 | | | (16,667,119 | ) |
| Total liabilities | | $ | (44,586,530 | ) |
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
3. Investment in Graham K4D Trading Ltd. (continued)
The following table displays the gross volume of derivative activities based on their notional amounts and number of contracts and fair value of derivative contracts held by the Master Fund at March 31, 2013 categorized by primary underlying risk and is representative of the derivative positions held by K4D Trading throughout the period. Derivatives denominated in foreign currencies have been converted to U.S. dollars. Derivative asset and liability balances are presented on a gross basis, prior to the application of counterparty netting. K4D Trading trades futures 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 K4D Trading 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 K4D Trading and GAIT II. Amounts presented below as collateral balances supporting all derivative positions are included in due from brokers and fixed income securities on K4D Trading’s statement of financial condition.
| | | Graham K4D Trading Ltd. | |
| | | Long exposure | | | Short exposure | | | | | | | |
| | | Notional amounts | | | Number of contracts | | | Notional amounts | | | Number of contracts | | | Derivative Assets | | | Derivative Liabilities | |
| Commodity price | | | | | | | | | | | | | | | | | | |
| Futures | | $ | 433,953,216 | | | | 6,764 | | | $ | (745,232,168 | ) | | | (12,587 | ) | | $ | 20,586,959 | | | $ | (12,314,077 | ) |
| | | | 433,953,216 | | | | 6,764 | | | | (745,232,168 | ) | | | (12,587 | ) | | | 20,586,959 | | | | (12,314,077 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity price | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 1,603,347,336 | | | | 21,498 | | | | (13,450,196 | ) | | | (293 | ) | | | 22,510,895 | | | | (11,979,189 | ) |
| | | | 1,603,347,336 | | | | 21,498 | | | | (13,450,196 | ) | | | (293 | ) | | | 22,510,895 | | | | (11,979,189 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency exchange rate | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 241,477,410 | | | | 2,794 | | | | (67,067,688 | ) | | | (455 | ) | | | 1,260,054 | | | | (267,963 | ) |
| Forwards | | | 1,769,220 | | | | N/A | | | | (13,055,508 | ) | | | N/A | | | | 5,380,832 | | | | (16,667,119 | ) |
| | | | 243,246,630 | | | | 2,794 | | | | (80,123,196 | ) | | | (455 | ) | | | 6,640,886 | | | | (16,935,082 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 12,653,597,920 | | | | 63,775 | | | | (181,044,311 | ) | | | (1,092 | ) | | | 23,823,836 | | | | (2,124,010 | ) |
| | | | 12,653,597,920 | | | | 63,775 | | | | (181,044,311 | ) | | | (1,092 | ) | | | 23,823,836 | | | | (2,124,010 | ) |
| Total | | $ | 14,934,145,102 | | | | 94,831 | | | $ | (1,019,849,871 | ) | | | (14,427 | ) | | $ | 73,562,576 | | | $ | (43,352,358 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Collateral balances supporting all derivative positions | | | | | | | | | | | | | | | $ | 170,611,559 | |
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
3. Investment in Graham K4D Trading Ltd. (continued)
The following table summarizes the results of operations of K4D Trading for the three month period ended March 31, 2013:
| Net investment income | | $ | 5,727 | |
| | | | | |
| Net realized gain on investments | | | 97,907,052 | |
| Net increase in unrealized appreciation on investments | | | 5,166,618 | |
| Brokerage commissions and fees | | | (486,361 | ) |
| Net gain on investments | | | 102,587,309 | |
| Net income | | $ | 102,593,036 | |
The following table shows the gains and losses on all financial instruments held by K4D Trading reported in net realized gain on investments and net increase in unrealized appreciation on investments in its statement of operations segregated by primary underlying risk and contract type for the three month period ended March 31, 2013:
| Commodity price | | | |
| Futures | | $ | (17,404,730 | ) |
| Swaps | | | (577,404 | ) |
| | | | (17,982,134 | ) |
| | | | | |
| Equity price | | | | |
| Equities | | | 61,994 | |
| Futures | | | 101,503,652 | |
| | | | 101,565,646 | |
| | | | | |
| Foreign currency exchange rate | | | | |
| Forwards | | | 6,982,321 | |
| Futures | | | 3,389,816 | |
| | | | 10,372,137 | |
| | | | | |
| Interest rate | | | | |
| Bonds | | | 22,066 | |
| Futures | | | 9,095,955 | |
| | | | 9,118,021 | |
| Total | | $ | 103,073,670 | |
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Graham K4D Trading Ltd. (continued)
The following table summarizes the financial position of K4D Trading as of December 31, 2012.
| Assets: | | | |
| Due from brokers | | $ | 29,961,942 | |
| Fixed income securities, at fair value | | | 124,990,755 | |
| Derivative financial instruments, at fair value | | | 25,424,116 | |
| CME Membership, at fair value | | | 793,453 | |
| Total assets | | | 181,170,266 | |
| | | | | |
| Liabilities: | | | | |
| Due to brokers | | | 1,750,659 | |
| Total liabilities | | | 1,750,659 | |
| Net assets | | $ | 179,419,607 | |
| | | | | |
| Percentage of K4D Trading held by GAIT II | | | 3.89 | % |
When multiple derivative contracts are held with the same counterparty, K4D Trading will net the contracts in an asset position with the contracts in a liability position when covered by a master netting agreement or similar arrangements, for presentation in the statement of financial condition. The table below displays the amounts by which the fair values of both derivative assets and derivative liabilities were reduced within K4D Trading’s statement of financial condition as a result of this netting. Collateral pledged represents the further amounts by which derivative assets and liabilities could have been reduced on the statement of financial condition. K4D Trading elects to display the amounts in due to brokers on the statement of financial condition.
| Description | | Gross Amount | | | Gross Amount Offset in the Statement of Financial Condition | | | Net Amount Presented in the Statement of Financial Condition | | | Collateral Pledged | | | Net Amount | |
| | | | | | | | | | | | | | | | |
| Derivative assets | | $ | 66,291,346 | | | $ | (40,867,230 | ) | | $ | 25,424,116 | | | $ | (1,750,659 | ) | | $ | 23,673,457 | |
| Derivative liabilities | | | (40,867,230 | ) | | | 40,867,230 | | | | – | | | | – | | | | – | |
| | | $ | 25,424,116 | | | $ | – | | | $ | 25,424,116 | | | $ | (1,750,659 | ) | | $ | 23,673,457 | |
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Graham K4D Trading Ltd. (continued)
The following schedules display the condensed schedule of investments for K4D Trading as of December 31, 2012.
| Description | | Principal Amount / Number of Contracts | | | Fair Value | | | Percentage of Net Assets of Master Fund | |
| Graham K4D Trading Ltd. | | | | | | | | | |
| Fixed income securities | | | | | | | | | |
| Bonds (cost $124,963,438) | | | | | | | | | |
| United States | | | | | | | | | |
| U.S. Treasury bill 0.00% due 03/14/13 | | $ | 125,000,000 | | | $ | 124,990,755 | | | | 69.66 | % |
| Total United States | | | | | | | 124,990,755 | | | | 69.66 | % |
| Total bonds | | | | | | | 124,990,755 | | | | 69.66 | % |
| | | | | | | | | | | | | |
| Derivative financial instruments | | | | | | | | | | | | |
| Long contracts | | | | | | | | | | | | |
| Futures | | | | | | | | | | | | |
| Nikkei 225 Index March 2013 | | | 2,254 | | | | 11,197,084 | | | | 6.24 | % |
| Topix Index March 2013 | | | 1,383 | | | | 11,116,231 | | | | 6.20 | % |
| Other foreign index | | | | | | | (1,641,221 | ) | | | (0.92 | )% |
| Commodity | | | | | | | 40,893 | | | | 0.02 | % |
| Currency | | | | | | | 19,615 | | | | 0.01 | % |
| Interest rate | | | | | | | 989,629 | | | | 0.55 | % |
| Foreign bond | | | | | | | 3,888,306 | | | | 2.17 | % |
| U.S. bond | | | | | | | 372,289 | | | | 0.21 | % |
| U.S. index | | | | | | | 345,055 | | | | 0.19 | % |
| Total futures | | | | | | | 26,327,881 | | | | 14.67 | % |
| | | | | | | | | | | | | |
| Forwards | | | | | | | | | | | | |
| Foreign currency | | | | | | | (1,692,952 | ) | | | (0.94 | )% |
| Total forwards | | | | | | | (1,692,952 | ) | | | (0.94 | )% |
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
3. Investments in Graham K4D Trading Ltd. (continued)
The following schedules display the condensed schedule of investments for K4D Trading as of December 31, 2012.
| Description | Notional Amount | | Fair Value | | | Percentage of Net Assets of Master Fund | |
| Graham K4D Trading Ltd. (continued) | | | | | | | |
| Derivative financial instruments (continued) | | | | | | | |
| Short contracts | | | | | | | |
| Futures | | | | | | | |
| Foreign index | | | $ | (73,012 | ) | | | (0.04 | )% |
| Commodity | | | | (7,643,113 | ) | | | (4.27 | )% |
| Currency | | | | 1,060,981 | | | | 0.59 | % |
| Interest rate | | | | (39,202 | ) | | | (0.02 | )% |
| Foreign bond | | | | (241,205 | ) | | | (0.13 | )% |
| U.S. bond | | | | 243,652 | | | | 0.14 | % |
| U.S. index | | | | (353,828 | ) | | | (0.20 | )% |
| Total futures | | | | (7,045,727 | ) | | | (3.93 | )% |
| | | | | | | | | | |
| Forwards | | | | | | | | | |
| U.S. dollar / Japanese Yen 03/21/13 | JPY(24,575,106,969) | | | 9,839,401 | | | | 5.48 | % |
| Other U.S. dollar / Japanese Yen 01/04/13 - 01/07/13 | JPY(2,181,627,007) | | | 105,135 | | | | 0.06 | % |
| Other foreign currency | | | | (2,109,622 | ) | | | (1.17 | )% |
| Total forwards | | | | 7,834,914 | | | | 4.37 | % |
| | | | | | | | | | |
| Total | | | $ | 150,414,871 | | | | 83.83 | % |
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
3. Investment in Graham K4D Trading Ltd. (continued)
The following table shows the fair value classification of each investment type for K4D Trading as of December 31, 2012:
| Assets | | | |
| Level 1: | | | |
| U.S. bond futures | | $ | 927,920 | |
| Foreign bond futures | | | 7,253,098 | |
| U.S. index futures | | | 1,461,395 | |
| Foreign index futures | | | 23,920,199 | |
| Commodity futures | | | 10,650,606 | |
| Interest rate futures | | | 1,735,617 | |
| Currency futures | | | 1,104,266 | |
| Equity securities | | | 793,453 | |
| Total Level 1 | | | 47,846,554 | |
| | | | | |
| Level 2: | | | | |
| Foreign currency forwards | | | 19,238,245 | |
| Fixed income security | | | 124,990,755 | |
| Total Level 2 | | | 144,229,000 | |
| Total assets | | $ | 192,075,554 | |
| | | | | |
| Liabilities | | | | |
| Level 1: | | | | |
| U.S. bond futures | | $ | (311,979 | ) |
| Foreign bond futures | | | (3,605,997 | ) |
| Foreign index futures | | | (3,321,117 | ) |
| U.S. index futures | | | (1,470,168 | ) |
| Commodity futures | | | (18,252,826 | ) |
| Interest rate futures | | | (785,190 | ) |
| Currency futures | | | (23,670 | ) |
| Total Level 1 | | | (27,770,947 | ) |
| | | | | |
| Level 2: | | | | |
| Foreign currency forwards | | | (13,096,283 | ) |
| Total Level 2 | | | (13,096,283 | ) |
| Total liabilities | | $ | (40,867,230 | ) |
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
3. Investment in Graham K4D Trading Ltd. (continued)
The following table displays the gross volume of derivative activities based on their notional amounts and number of contracts and fair value of derivative contracts held by the Master Fund at December 31, 2012 categorized by primary underlying risk and is representative of the derivative positions held by K4D Trading throughout the year. Derivatives denominated in foreign currencies have been converted to U.S. dollars. Derivative asset and liability balances are presented on a gross basis, prior to the application of counterparty netting. K4D Trading trades futures 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 K4D Trading 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 K4D Trading and GAIT II. Amounts presented below as collateral balances supporting all derivative positions are included in due from brokers and fixed income securities on K4D Trading’s statement of financial condition.
| | | Graham K4D Trading Ltd. | |
| | | Long exposure | | | Short exposure | | | | | | | |
| | | Notional amounts | | | Number of contracts | | | Notional amounts | | | Number of contracts | | | Derivative Assets | | | Derivative Liabilities | |
| Commodity price | | | | | | | | | | | | | | | | | | |
| Futures | | $ | 364,319,244 | | | | 4,414 | | | $ | (883,588,505 | ) | | | (13,712 | ) | | $ | 10,650,606 | | | $ | (18,252,826 | ) |
| | | | 364,319,244 | | | | 4,414 | | | | (883,588,505 | ) | | | (13,712 | ) | | | 10,650,606 | | | | (18,252,826 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity price | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 1,226,779,876 | | | | 13,036 | | | | (106,770,515 | ) | | | (1,893 | ) | | | 25,381,594 | | | | (4,791,285 | ) |
| | | | 1,226,779,876 | | | | 13,036 | | | | (106,770,515 | ) | | | (1,893 | ) | | | 25,381,594 | | | | (4,791,285 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency exchange rate | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 36,929,900 | | | | 352 | | | | (136,511,977 | ) | | | (1,624 | ) | | | 1,104,266 | | | | (23,670 | ) |
| Forwards | | | 1,526,791,218 | | | | N/A | | | | (1,520,649,257 | ) | | | N/A | | | | 19,238,245 | | | | (13,096,283 | ) |
| | | | 1,563,721,118 | | | | 352 | | | | (1,657,161,234 | ) | | | (1,624 | ) | | | 20,342,511 | | | | (13,119,953 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures | | | 9,571,876,106 | | | | 45,765 | | | | (16,351,154 | ) | | | (81 | ) | | | 9,916,635 | | | | (4,703,166 | ) |
| | | | 9,571,876,106 | | | | 45,765 | | | | (16,351,154 | ) | | | (81 | ) | | | 9,916,635 | | | | (4,703,166 | ) |
| Total | | $ | 12,726,696,344 | | | | 63,567 | | | $ | (2,663,871,408 | ) | | | (17,310 | ) | | $ | 66,291,346 | | | $ | (40,867,230 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Collateral balances supporting all derivative positions | | | | | | | | | | | | | | | $ | 153,202,038 | |
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
3. Investment in Graham K4D Trading Ltd. (continued)
The following table summarizes the results of operations of K4D Trading for the three month period ended March 31, 2012.
| Net investment loss | | $ | (163,316 | ) |
| | | | | |
| Net realized gain on investments | | | 58,121,648 | |
| Net decrease in unrealized appreciation on investments | | | (19,255,098 | ) |
| Brokerage commissions and fees | | | (1,724,083 | ) |
| Net loss on investments | | | 37,142,467 | |
| Net income | | $ | 36,979,151 | |
The following table shows the gains and losses on all financial instruments held by the Master Fund reported in net realized gain on investments and net decrease in unrealized appreciation on investments in its statement of operations segregated by primary underlying risk and contract type for the three month period ended March 31, 2012:
| Commodity price | | | |
| Futures | | $ | 23,543,861 | |
| Swaps | | | 1,355,801 | |
| | | | 24,899,662 | |
| | | | | |
| Equity price | | | | |
| Futures | | | 118,769,741 | |
| NYMEX shares | | | (18,000 | ) |
| | | | 118,751,741 | |
| | | | | |
| Foreign currency exchange rate | | | | |
| Futures | | | (9,299,984 | ) |
| Forwards | | | (25,296,450 | ) |
| | | | (34,596,434 | ) |
| | | | | |
| Interest rate | | | | |
| Futures | | | (70,205,252 | ) |
| Treasury bills | | | 16,833 | |
| | | | (70,188,419 | ) |
| Total | | $ | 38,866,550 | |
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
4. Graham Cash Assets LLC
GAIT II invests a portion of its excess liquidity in Cash Assets, an entity for which the Manager is also the sole investment advisor. Cash Assets commenced operations on June 22, 2005 and was formed as a Delaware Limited Liability Company for the purpose of consolidating investment activity of multiple funds managed by the Manager. Its objective is to preserve capital while enhancing return on cash balances and providing daily liquidity. It invests in debt obligations guaranteed by the U.S. federal government, which range in maturity from one to twenty-four months. Cash Assets also maintains cash and cash equivalents on deposit with major U.S. institutions. Cash Assets values all fixed income securities at amortized cost which approximates fair value. GAIT II’s investment in Cash Assets is valued in the accompanying statements of financial condition at fair value in accordance with U.S. GAAP based upon GAIT II’s proportionate share of Cash Assets’ reported net asset value. GAIT II records its proportionate share of Cash Assets’ investment income and expenses on a monthly basis. For the three months ended March 31, 2013, the total amount recognized by GAIT II with respect to its investment in Cash Assets was $15,257. For the three months ended March 31, 2012, the total amount recognized by GAIT II with respect to its investment in GCA was $37,236. These amounts are included in interest income in the statements of operations and managing member allocation. At March 31, 2013 and December 31, 2012, GAIT II owned approximately 0.67% and 0.85%, respectively, of Cash Assets. The following table summarizes the financial position of Cash Assets as of March 31, 2013 and December 31, 2012:
| | | March 31, 2013 | | | December 31, 2012 | |
| Assets: | | | | | | |
| Cash and cash equivalents | | $ | 876,832,743 | | | $ | 968,228,634 | |
| Investments in fixed income securities (cost $2,917,185,054 and $3,041,387,608, respectively) | | | 2,917,185,054 | | | | 3,041,387,608 | |
| Accrued interest receivable | | | 7,023,150 | | | | 5,989,305 | |
| Total assets | | | 3,801,040,947 | | | | 4,015,605,547 | |
| | | | | | | | | |
| Liabilities: | | | | | | | | |
| Other liabilities | | | 15,004 | | | | 9,300 | |
| Total liabilities | | | 15,004 | | | | 9,300 | |
| Net assets | | $ | 3,801,025,943 | | | $ | 4,015,596,247 | |
The following table summarizes the results of operations of Cash Assets for the three months ended March 31, 2013 and 2012:
| | | 2013 | | | 2012 | |
| Investment income | | | | | | |
| Interest income | | $ | 2,127,133 | | | $ | 2,361,852 | |
| Total investment income | | | 2,127,133 | | | | 2,361,852 | |
| | | | | | | | | |
| Expenses: | | | | | | | | |
| Bank fee expense | | | 33,653 | | | | 24,103 | |
| Total expenses | | | 33,653 | | | | 24,103 | |
| Net investment income | | | 2,093,480 | | | | 2,337,749 | |
| Net income | | $ | 2,093,480 | | | $ | 2,337,749 | |
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
4. Graham Cash Assets LLC (continued)
The following represents the condensed schedule of investments of Cash Assets as of March 31, 2013:
| Description | | Principal Amount | | | Fair Value | | | Percentage of Members’ Capital | |
| Investments in Fixed Income Securities (cost $2,917,185,054) | | | | | | | | | |
| United States | | | | | | | | | |
| Government Bonds (cost $2,917,185,054) | | | | | | | | | |
| U.S. Treasury 0.50% due 05/31/13 | | $ | 200,000,000 | | | $ | 200,100,675 | | | | 5.26 | % |
| U.S. Treasury 0.13% - 2.75% due 04/15/13 – 02/15/15 | | | 2,700,000,000 | | | | 2,717,084,379 | | | | 71.49 | % |
| Total Government Bonds | | | | | | | 2,917,185,054 | | | | 76.75 | % |
| | | | | | | | | | | | | |
| Total Investments in Fixed Income Securities | | | | | | $ | 2,917,185,054 | | | | 76.75 | % |
The following represents the condensed schedule of investments of Cash Assets as of December 31, 2012:
| Description | | Principal Amount | | | Fair Value | | | Percentage of Members’ Capital | |
| Investments in Fixed Income Securities (cost $3,041,387,608) | | | | | | | | | |
| United States | | | | | | | | | |
| Government Bonds (cost $3,041,387,608) | | | | | | | | | |
| U.S. Treasury 0.13% - 2.63% due 01/15/13 – 12/31/14 | | $ | 3,025,000,000 | | | $ | 3,041,387,608 | | | | 75.74 | % |
| Total Government Bonds | | | | | | | 3,041,387,608 | | | | 75.74 | % |
| | | | | | | | | | | | | |
| Total Investments in Fixed Income Securities | | | | | | $ | 3,041,387,608 | | | | 75.74 | % |
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
4. Graham Cash Assets LLC (continued)
Cash Assets reports the fair value of its investment related assets and liabilities in accordance with the hierarchy established under U.S. GAAP. The following table shows the fair value classification of each investment type held by Cash Assets as of March 31, 2013 and December 31, 2012:
| | | March 31, 2013 | | | December 31, 2012 | |
| Assets | | | | | | |
| Level 2: | | | | | | |
| Fixed income securities | | | | | | |
| Government Bonds | | $ | 2,917,185,054 | | | $ | 3,041,387,608 | |
| Total fixed income securities | | | 2,917,185,054 | | | | 3,041,387,608 | |
| Total Level 2 | | | 2,917,185,054 | | | | 3,041,387,608 | |
| Total assets | | $ | 2,917,185,054 | | | $ | 3,041,387,608 | |
5. Capital Accounts
GAIT II offers Class 0 Units and Class 2 Units (collectively, the “Units”). GAIT II may issue additional classes in the future subject to different fees, expenses or other terms, or to invest in other investment programs or combinations of investment programs managed by the Manager. GAIT II also has Management Units (“Class M units”) which are solely for the investment of the Manager.
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 members’ Capital Account is equal to the initial contribution to GAIT II with respect to the Class to which such Capital Account relates. Each member’s Capital Account is increased by any additional subscription, and decreased by any redemption by such member of Units of such Class to which the Capital Account relates. All income and expenses of GAIT II are allocated among the members’ Capital Accounts in proportion to the balance that each Capital Account bears to the balance of all Capital Accounts as of the beginning of such fiscal period.
Subscriptions
Units may be purchased at a price equal to the Net Asset Value per Unit of the relevant Class as of the immediately preceding Valuation Day, as defined in the LLC Agreement. There is no minimum subscription amount.
Units are available for subscription as of the first business day of each month upon written notice of at least three business days prior to the last business day of the preceding month.
Redemptions
Units are not subject to any minimum holding period. Members may redeem Units at the Net Asset Value thereof as of the last business day of each month upon not less than three business days’ prior written notice to the administrator.
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
6. Fees and Related Party Transactions
Advisory Fees
For the three months ended March 31, 2013 and 2012 each Class of GAIT II other than Class M pays the Manager an advisory fee (the “Advisory Fee”) at an aggregate annual rate equal to 1.75% and 2%, respectively, of the Net Asset Value of such Class. The Advisory Fee is payable monthly in arrears calculated as of the last business day of each month and any other date the Manager may permit, in its sole and absolute discretion, as of which any subscription or redemption is effected with respect to Units of such Class during the month.
Sponsor Fees
For the three months ended March 31, 2013 and 2012, each Class of GAIT II other than Class M paid the Manager a sponsor fee (the “Sponsor Fee”) at an annual rate specified in the table below. This Sponsor Fee was payable monthly in arrears calculated as of the last business day of each month in the same manner as the Advisory Fee. For the three months ended March 31, 2013 the Sponsor Fee listed below for Class 2 included a selling agent fee (the “Selling Agent Fee”) of 2%. The Selling Agent Fee represented a fee for initial and on-going service fees to the Feeder Funds’ selling agents.
| Class | 2013 Annual Rate | 2012 Annual Rate |
| | | |
| Class 0 | 0.75% | 1.00% |
| Class 2 | 2.75% | 1.00% |
| | | |
Incentive Allocation
At the end of each calendar quarter, the Manager will receive a special allocation of net profits (the “Incentive Allocation”) in an amount equal to 20% of the New High Net Trading Profits of each Class as defined in the LLC Agreement. The Incentive Allocation is also accrued and allocable on the date of redemption with respect to any Units that are redeemed prior to the end of a calendar quarter. Additionally, any loss carryforward attributable to any class of GAIT II shall be proportionately reduced effective as of the date of any redemption of any Units of such class by multiplying the loss carryforward by the ratio that the amount of assets redeemed from such class bears to the net assets of such class immediately prior to such redemption. The loss carryforward of a class must be recouped before any subsequent Incentive Allocation can be made to the Manager.
Brokerage Fees
For the three months ended March 31, 2012, each Class of GAIT II other than Class M paid the Manager a brokerage fee (the “Brokerage Fee”) at an annual rate specified in the table below. This Brokerage Fee was payable monthly in arrears calculated as of the last business day of each month in the same manner as the Advisory Fee.
| Class | Annual Rate |
| | |
| Class 0 | 2% |
| Class 2 | 4% |
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
6. Fees and Related Party Transactions (continued)
Brokerage Fees (continued)
In consideration of the Brokerage Fee, the Manager assumed all of GAIT II’s trading commissions (including exchange, clearing and regulatory fees relating to its trades), routine legal expenses, internal and external accounting, audit and tax preparation expenses, fees and expenses of an external or internal administrator, and expenses and costs of printing and mailing reports and notices, together with the costs incurred in connection with the organization of GAIT II and the continuous offering of Units. To the extent GAIT II was allocated any of these expenses from the Master Funds in which it invested, the Manager reimbursed GAIT II for those amounts. These reimbursements are included in commission reimbursements in the statements of operations and managing member allocation.
As of January 1, 2013 GAIT II eliminated the Brokerage Fee and GAIT II incurred directly all costs previously covered by the Brokerage Fee.
Administrator’s Fee
For the three month period ended March 31, 2013, GAIT II paid SEI a monthly administrator’s fee based GAIT II’s net asset value, calculated as of the last business day of each month. In addition, GAIT II reimbursed SEI for reasonable out-of-pocket expenses incurred on behalf of GAIT II. The total administrator’s fees incurred by GAIT II for the three month periods ended March 31, 2013 and 2012 were $10,028 and $0, respectively, of which $3,117 and $0 were accrued as of March 31, 2013 and 2012, respectively.
Any portion of any of the above fees, including the Incentive Allocation, may be paid by the Manager to third parties as compensation for selling activities in connection with GAIT II.
7. Income Taxes
No provision for income taxes has been made in the accompanying financial statements, as members are individually responsible for reporting income or loss based upon their respective share of GAIT II’s revenues and expenses for income tax purposes.
U.S. GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. U.S. GAAP requires the evaluation of tax positions taken or expected to be taken in the course of preparing GAIT II’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 GAIT II’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 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.
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
8. Financial Highlights
The following is the per unit operating performance calculation for the three month periods ended March 31, 2013 and 2012:
| | | Class 0 | | | Class 2 | |
| Per unit operating performance | | | | | | |
| Net asset value per unit, December 31, 2011 | | $ | 81.35 | | | $ | 77.24 | |
| Net gain: | | | | | | | | |
| Net investment loss | | | (0.92 | ) | | | (1.27 | ) |
| Net gain on investments | | | 1.89 | | | | 1.80 | |
| Net gain | | | 0.97 | | | | 0.53 | |
| Net asset value per unit, March 31, 2012 | | $ | 82.32 | | | $ | 77.77 | |
| | | | | | | | | |
| Net asset value per unit, December 31, 2012 | | $ | 73.46 | | | $ | 68.36 | |
| Net gain: | | | | | | | | |
| Net investment loss | | | (0.65 | ) | | | (0.93 | ) |
| Net gain on investments | | | 7.81 | | | | 7.24 | |
| Net gain | | | 7.16 | | | | 6.31 | |
| Net asset value per unit, March 31, 2013 | | $ | 80.62 | | | $ | 74.67 | |
The following represents ratios to average members’ capital, excluding the Managing Member, and total return for the three month periods ended March 31, 2013 and 2012:
| | | Class 0 | | | Class 2 | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | |
| Total return before Incentive Allocation | | | 9.75 | % | | | 1.19 | % | | | 9.23 | % | | | 0.69 | % |
| Incentive Allocation | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | |
| Total return after Incentive Allocation | | | 9.75 | % | | | 1.19 | % | | | 9.23 | % | | | 0.69 | % |
| | | | | | | | | | | | | | | | | |
| Net investment loss before Incentive Allocation | | | (0.88 | )% | | | (1.13 | )% | | | (1.36 | )% | | | (1.64 | )% |
| Incentive Allocation | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | |
| Net investment loss after Incentive Allocation | | | (0.88 | )% | | | (1.13 | )% | | | (1.36 | )% | | | (1.64 | )% |
| | | | | | | | | | | | | | | | | |
| Total expenses before Incentive Allocation | | | 0.90 | % | | | 1.27 | % | | | 1.40 | % | | | 1.78 | % |
| Incentive Allocation | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | |
| Total expenses after Incentive Allocation | | | 0.90 | % | | | 1.27 | %* | | | 1.40 | % | | | 1.78 | %* |
*- The percentages noted above represent total expenses before commission reimbursements, which represent 0.11% of average members’ capital for the three month period ended March 31, 2012.
Graham Alternative Investment Trading II LLC
Notes to Unaudited Financial Statements (continued)
8. 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’ capital, excluding that of the Managing Member, adjusted for subscriptions or redemptions during the period and has not been annualized. An individual member’s return may vary from these returns based on the timing of capital transactions and the applicability of Advisory Fees, Brokerage Fees, Sponsor Fees, and the Incentive Allocation. The net investment loss and total expense ratios (including Incentive Allocation) are calculated for the Class 0 and Class 2 units taken as a whole and include amounts from GAIT II and net investment income (loss) and expenses allocated from the Master Fund and investment income from Cash Assets. These ratios have not been annualized. The computation of such ratios is based on the amount of net investment income (loss), expenses and Incentive Allocation. Net investment loss and total expense ratios are computed based upon the weighted average of members’ capital of GAIT II, excluding that of the Managing Member, for the three month periods ended March 31, 2013 and 2012.
9. Subsequent Events
GAIT II had subscriptions of approximately $10,000 and redemptions of approximately $0.5 million through May 15, 2013, the date through which subsequent events were evaluated by management. These amounts have not been included in the financial statements.
Forward-Looking Statements
Certain statements within this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These statements are being made pursuant to the PSLRA, with the intention of obtaining the benefits of the “safe harbor” provisions of the PSLRA, and, other than as required by law, we assume no obligation to update or supplement such statements. Forward-looking statements are those that do not relate solely to historical facts. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. You can identify these statements by the use of words such as “may,” “will,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “continue,” “further,” “seek,” “plan,” or “project” and variations of these words or comparable words or phrases of similar meaning. These forward-looking statements reflect our current beliefs and expectations with respect to future events and are based on assumptions and are subject to risks and uncertainties and other factors outside our control that may cause actual results to differ materially from those projected. We undertake no obligation to update publicly or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
| (a) | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following is a discussion of our current financial position and results of operations. This discussion should be read together with our Annual Report on Form 10-K, dated March 28, 2013. This discussion should also be read in conjunction with “Item 1: Financial Statements.” The information contained therein is essential to, and should be read in conjunction with, the following analysis. For the purposes of this filing, the term “Fund” shall include each of GAIF I, the GAIT Funds and the master funds in which they invest, unless the context implies otherwise. The Fund does not engage in the sale of goods or services. The Fund’s capital consists of capital contributions of the members, as increased or decreased by gains and losses from its investments in the Master Funds, interest, expenses and redemptions. Its only assets are its investments in the Master Funds. The Master Funds do not engage in the sale of goods or services. Their assets are comprised of the equity in their accounts with clearing brokers and OTC counterparties, in each case consisting of cash, open trade equity on derivatives and the net option premium paid or received. In the case of Graham Cash Assets LLC (“Cash Assets”), the assets consist of investments in debt obligations guaranteed by the U.S. federal government, as well as cash and cash equivalents.
For the three months ended March 31, 2013 the Fund’s net asset value decreased by $19,025,042 or -10.2%. This decrease was attributable to a $18,103,430 or -9.7% net decrease in the Blended Strategies Portfolio and a $921,612 or -0.5% net decrease in the Systematic Strategies Portfolio. The net decrease in the Blended Strategies Portfolio was attributable to total subscriptions of $2,296,886 or 1.2% and net income of $10,586,996 or 5.7% offset by redemptions totaling $30,987,312 or -16.6%, for the period. The net decrease in the Systematic Strategies Portfolio was attributable to net income of $1,626,538 or 0.9% offset by redemptions totaling $2,548,150 or -1.4%, for the period.
For the three months ended March 31, 2012 the Fund’s net asset value decreased by $12,999,726 or -4.2%. This decrease was attributable to a $10,168,316 or -3.3% net decrease in the Blended Strategies Portfolio and a $2,831,410 or -0.9% net decrease in the Systematic Strategies Portfolio. The net decrease in the Blended Strategies Portfolio was attributable to total subscriptions of $1,636,540 or 0.5% and net income of $6,089,653 or 2.0% offset by redemptions totaling $17,894,509 or -5.8%, for the period. The net decrease in the Systematic Strategies Portfolio was attributable to total subscriptions of $178,000 or 0.1% and net income of $459,375 or 0.1% offset by redemptions totaling $3,468,785 or -1.1%, for the period.
| | (ii) | 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 Strategies Portfolio
2013 Summary
Three Months Ended March 31, 2013
For the three months ended March 31, 2013, the Blended Strategies Portfolio experienced net trading gains of $12,234,308. The trading results are attributable to the following sectors:
| Agriculture / Softs | | $ | (800,458 | ) |
| Base metals | | | (334,208 | ) |
| Energy | | | (3,065,286 | ) |
| Equities | | | 9,287,432 | |
| Foreign exchange | | | 6,239,752 | |
| Long term / intermediate rates | | | 121,003 | |
| Precious metals | | | 582,534 | |
| Short term rates | | | 203,539 | |
| | | $ | 12,234,308 | |
The Blended Strategies Portfolio recorded a solid net gain for the first quarter of 2013. The majority of the gains were driven by positions in Asian, U.S. and European equity index futures. The portfolio recorded profits from trading foreign exchange, with noteworthy gains from positions in the Japanese yen, Mexican peso and Canadian dollar versus the U.S. dollar. Smaller gains in the foreign exchange sector were recorded from trading various European currency crosses. Trading in precious metals also led to modest gains for the portfolio, while losses in energy, base metals, and agricultural commodities offset a portion of the overall gains for the quarter.
Brokerage, Advisory and Sponsor Fees are calculated as a percentage of the Fund’s net asset value as of the end of each month and are affected by trading performance, interest income, subscriptions into and redemptions out of the Fund. Accordingly, the fluctuations in these amounts are directly correlated to the changes in net asset value which are discussed in detail herein.
For the three months ended March 31, 2013, Advisory Fees decreased by $619,599 or -46.9%, Brokerage Fees decreased by $1,515,874 or -100.0% and Sponsor Fees decreased by $236,274 or -35.8% in the Blended Strategies Portfolio over the corresponding period of the preceding year. These decreases are all attributable to lower net assets of the portfolio resulting from subscriptions and net income offset by redemptions for the period. Additionally, the Brokerage Fees were eliminated in 2013 and the Advisory Fees were reduced by 0.25% for each class of units from 2% in 2012 to 1.75% in 2013. During the same period interest income decreased by $59,101 or -43.1%. Interest was earned on free cash at an average annualized yield of 0.23% for the three months ended March 31, 2013 compared to 0.25% for the same period in 2012.
The Incentive Allocation is based on the New High Net Trading Profits of the portfolio. For the three months ended March 31, 2013 and 2012 the portfolio has not yet recovered previous losses. As a result, there was no Incentive Allocation for those periods.
The following table illustrates the sector distribution of the Blended Strategies Portfolio’s investments in Master Funds as of March 31, 2013 based on the fair value of the underlying assets and liabilities in each Master Fund including both long and short positions. Positive percentages represent net assets whereas negative percentages represent a net liability.
| Agriculture / Softs | | | 1.5 | % |
| Base metals | | | (2.7 | )% |
| Energy | | | (0.4 | )% |
| Equities | | | 10.9 | % |
| Foreign exchange | | | 20.6 | % |
| Long term / intermediate rates | | | 72.4 | % |
| Precious metals | | | 1.1 | % |
| Short term rates | | | (3.4 | )% |
| | | | 100.0 | % |
2012 Summary
For the three months ended March 31, 2012, the Blended Strategies Portfolio experienced net trading gains of $9,472,909 attributable to the following sectors:
| Agriculture / Softs | | $ | (1,008,654 | ) |
| Base metals | | | (3,329,971 | ) |
| Energy | | | 15,135,640 | |
| Equities | | | 10,623,609 | |
| Foreign exchange | | | (3,404,428 | ) |
| Long Term / intermediate rates | | | (7,667,567 | ) |
| Precious metals | | | (640,089 | ) |
| Short term rates | | | (235,631 | ) |
| | | $ | 9,472,909 | |
The Blended Strategies Portfolio posted a net gain for the first quarter of 2012 with profits from both systematic and discretionary trading. The majority of the positive performance resulted from trading in the energy markets due to the steep drop in natural gas prices that resulted from unseasonably mild weather in the U.S. and abundant supply. The portfolio also recorded profits from trading crude oil as prices climbed due to rising tensions in the Middle East. Additional gains resulted from positions in U.S., Asian and European equity indices as the portfolio benefitted from the rally in risk assets. The portfolio recorded losses in other sectors, which offset some of the overall gains for the quarter. Losses resulted from fixed income trading amidst declining prospects of quantitative easing in the U.S. The portfolio also incurred losses in foreign exchange, particularly in the Euro, Swiss franc and British pound as well as in base metals amidst rising prices. Trading in agricultural and soft commodities led to modest losses as prices were mixed during the quarter.
Brokerage, Advisory and Sponsor Fees are calculated as a percentage of the Fund’s net asset value as of the end of each month and are affected by trading performance, interest income, subscriptions into and redemptions out of the Fund. Accordingly, the fluctuations in these amounts are directly correlated to the changes in net asset value which are discussed in detail herein.
For the three months ended March 31, 2012, Brokerage Fees decreased by $317,520 or -17.3%, Advisory Fees decreased by $273,219 or -17.2% and Sponsor Fees decreased by $136,609 or -17.2%% in the Blended Strategies Portfolio over the corresponding period of the preceding year. These decreases are all attributable to lower net assets of the portfolio resulting from redemptions partially offset by subscriptions and net income for the period. During the same period interest income decreased by $194,260 or -58.6%. Interest was earned on free cash at an average annualized yield of 0.28% for the three months ended March 31, 2012 compared to 0.49% for the same period in 2011.
The Incentive Allocation is based on the New High Net Trading Profits of the portfolio. For the three months ended March 31, 2012 there was no Incentive Allocation compared to $7,813 for the corresponding period in 2011 due to the portfolio’s lack of year to date profitability in 2012.
The following table illustrates the sector distribution of the Blended Strategies Portfolio’s investments in Master Funds as of March 31, 2012 based on the fair value of the underlying assets and liabilities in each Master Fund including both long and short positions. Positive percentages represent net assets whereas negative percentages represent a net liability.
| Agriculture / Softs | | | 25.5 | % |
| Base metals | | | 14.7 | % |
| Energy | | | (60.7 | %) |
| Equities | | | 174.1 | % |
| Foreign exchange | | | 57.1 | % |
| Long Term / intermediate rates | | | (72.1 | %) |
| Precious metals | | | (0.4 | %) |
| Short term rates | | | (38.2 | %) |
| | | | 100.0 | % |
Systematic Strategies Portfolio
2013 Summary
Three Months Ended March 31, 2013
For the three months ended March 31, 2013, the Systematic Strategies Portfolio experienced net trading gains of $1,840,706. The trading results are attributable to the following sectors:
| Agriculture / Softs | | $ | 28,594 | |
| Base metals | | | (75,439 | ) |
| Energy | | | (480,173 | ) |
| Equities | | | 1,890,253 | |
| Foreign exchange | | | 197,488 | |
| Long term / intermediate rates | | | 98,058 | |
| Precious metals | | | 186,374 | |
| Short term rates | | | (4,449 | ) |
| | | $ | 1,840,706 | |
The Systematic Strategies Portfolio posted a net gain for the first quarter of 2013. The majority of the gains were driven by positions in U.S., Asian and European equity index futures. The portfolio also recorded gains in the foreign exchange sector, particularly from positions in the Japanese yen, Mexican peso, and Canadian dollar versus the U.S. dollar. Trading in precious metals also contributed to gains. Losses from trading in the energy and base metals sectors offset a portion of the overall gains for the quarter.
Brokerage, Advisory and Sponsor Fees are calculated as a percentage of the Fund’s net asset value as of the end of each month and are affected by trading performance, interest income, subscriptions into and redemptions out of the Fund. Accordingly, the fluctuations in these amounts are directly correlated to the changes in net asset value, which are discussed in detail herein.
For the three months ended March 31, 2013 Advisory Fees decreased by $150,898 or -66.1%, Brokerage Fees decreased by $324,236 or -100.0% and Sponsor Fees decreased by $27,968 or -24.5% in the Systematic Strategies Portfolio over the corresponding period of the preceding year. These decreases are all attributable to lower net assets of the portfolio resulting from subscriptions and net income offset by redemptions for the period. Additionally, the Brokerage Fees were eliminated in 2013 and the Advisory Fees were reduced by 0.25% for each class of units from 2% in 2012 to 1.75% in 2013. During the same period, interest income decreased by $15,935 or -64.6%. Interest was earned on free cash at an average annualized yield of 0.23% for the three months ended March 31, 2013 compared to 0.25% for the same period in 2012.
The Incentive Allocation is based on the New High Net Trading Profits of the portfolio. For the three months ended March 31, 2013 and 2012 the portfolio has not yet recovered previous losses. As a result, there was no Incentive Allocation for those periods.
The following table illustrates the sector distribution of the Systematic Strategies Portfolio’s investments in Master Funds as of March 31, 2013 based on the fair value of the underlying assets and liabilities in each Master Fund including both long and short positions. Positive percentages represent net assets whereas negative percentages represent a net liability.
| Agriculture / Softs | | | 4.5 | % |
| Base metals | | | (1.2 | )% |
| Energy | | | 0.3 | % |
| Equities | | | 6.8 | % |
| Foreign exchange | | | (6.6 | )% |
| Long Term / intermediate rates | | | 95.1 | % |
| Precious metals | | | 1.7 | % |
| Short term rates | | | (0.6 | )% |
| | | | 100.0 | % |
2012 Summary
For the three months ended March 31, 2012, the Systematic Strategies Portfolio experienced net trading gains of $1,106,440 attributable to the following sectors:
| Agriculture / Softs | | $ | (392,773 | ) |
| Base metals | | | (782,181 | ) |
| Energy | | | 2,154,434 | |
| Equities | | | 3,456,959 | |
| Foreign exchange | | | (1,048,694 | ) |
| Long Term / intermediate rates | | | (1,867,517 | ) |
| Precious metals | | | (315,654 | ) |
| Short term rates | | | (98,134 | ) |
| | | $ | 1,106,440 | |
The Systematic Strategies Portfolio posted a net gain for the first quarter of 2012. Performance during the quarter was primarily driven by profitable positions in global equity indices. The portfolio also recorded gains from trading crude oil and oil products as prices rose due to concerns over inventory levels and rising tensions in the Middle East. The steep drop in natural gas prices also benefitted the portfolio on the back of warmer weather and ample supplies, which fueled further gains in the energy sector. Losses resulted from trading global fixed income, particularly in the U.S., amidst diminished hopes for further quantitative easing, which offset some of the portfolio’s overall gain. Losses were also incurred in the metals markets amidst rising base metal prices and a sharp sell-off in gold on the last day of February. Losses from positions in the Euro, Swiss franc and British pound as well as agricultural and soft commodities also offset a portion of the portfolio’s net gains for the quarter.
Brokerage, Advisory and Sponsor Fees are calculated as a percentage of the Fund’s net asset value as of the end of each month and are affected by trading performance, interest income, subscriptions into and redemptions out of the Fund. Accordingly, the fluctuations in these amounts are directly correlated to the changes in net asset value, which are discussed in detail herein.
For the three months ended March 31, 2012, Brokerage Fees decreased by $67,246 or -17.2%, Advisory Fees decreased by $52,090 or -18.6% and Sponsor Fees decreased by $26,045 or -18.6% in the Systematic Strategies Portfolio over the corresponding period of the preceding year. These decreases are all attributable to lower net assets of the portfolio resulting from redemptions partially offset by subscriptions and net income for the period. During the same period interest income decreased by $32,614 or -56.9%. Interest was earned on free cash at an average annualized yield of 0.28% for the three months ended March 31, 2012 compared to 0.49% for the same period in 2011.
The Incentive Allocation is based on the New High Net Trading Profits of the portfolio. For the three months ended March 31, 2012 there was no Incentive Allocation due to unrecovered previous losses compared to $3,007 for the corresponding period in 2011.
The following table illustrates the sector distribution of the Blended Strategies Portfolio’s investments in Master Funds as of March 31, 2012 based on the fair value of the underlying assets and liabilities in each master fund including both long and short positions. Positive percentages represent net assets whereas negative percentages represent a net liability.
| Agriculture / Softs | | | 68.6 | % |
| Base metals | | | 38.5 | % |
| Energy | | | (151.5 | %) |
| Equities | | | 412.6 | % |
| Foreign exchange | | | (190.6 | %) |
| Long Term / intermediate rates | | | (9.3 | %) |
| Precious metals | | | (13.5 | %) |
| Short term rates | | | (54.8 | %) |
| | | | 100.0 | % |
Variables Affecting Performance
The Fund’s performance is affected by net profitability resulting from the trading operations of the Master Funds, the fees charged by the Fund, and interest income earned on cash and cash equivalents. The Master Funds acquire and liquidate long and short positions in futures contracts, forwards contracts, spot currency contracts and associated derivative instruments such as options and swaps. These instruments are carried at fair value, which is heavily influenced by a wide variety of factors including but not limited to, the level and volatility of exchange rates, interest rates, equity prices, and commodity prices as well as global macro political events. These factors generate market movements affecting the fair value of these instruments and in turn the net gains and losses allocated from the Master Funds.
Brokerage, Advisory and Sponsor Fees are calculated based on a percentage of the Fund’s net asset value. Changes in the net assets of the Fund resulting from subscriptions, redemptions, interest and trading profits allocated from the Master Funds can therefore have a material impact on the fee expense of the Fund.
A portion of the assets of the Fund is held in cash and cash equivalents. Changes in the net assets of the Fund as well as changes in the interest rates earned on these investments can have a material impact on interest income earned.
There are no known demands, commitments, events or uncertainties that will result in or are reasonably likely to result in the Fund’s liquidity increasing or decreasing in any material way.
A portion of the Fund’s assets is generally held as cash or cash equivalents, which are used to margin the Fund’s investments. It is expected that the average margin the Fund will be required to post to support the Fund’s trading may range between 10% and 30% of the Fund’s total assets, which will be segregated or secured by the futures brokers in accordance with the CEA and with CFTC regulations or be maintained on deposit with over-the-counter counterparties. In exceptional market conditions, this amount could increase. The Master Funds are subject to margin calls on a constant daily and intra-day basis, whether in connection with initiating new investment positions or as a result of changes in the value of current investment positions. These margin requirements are met through the posting of additional margin with the applicable futures or OTC clearing broker. The Manager generally expresses its margin requirements for the portfolios in terms of the aggregate of the margin requirements plus the net option premium costs for the underlying strategies as a percentage of net assets. The following table shows these amounts as of the date indicated:
| | | Blended Strategies Portfolio | | | Systematic Strategies Portfolio | |
| March 31, 2013 | | 19.18% | | | 19.07% | |
| December 31, 2012 | | 16.47% | | | 17.00% | |
| March 31, 2012 | | 22.70% | | | 18.67% | |
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 March 31, 2013, 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 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 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 GAIT Funds at fair value in accordance with U.S. GAAP. In determining its net asset value, each GAIT Fund records its investments in Master Funds at fair value in accordance with U.S. GAAP. The Fund records its proportionate share of the GAIT 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 GAIT Funds are recorded on a trade date basis. The accounting policies of the GAIT Funds are described in their attached respective financial statements.
The Master Funds record all their financial instruments at fair value, which is derived in accordance with U.S. GAAP. Unrealized gains and losses from these instruments are recorded based on changes in their fair value. Realized gains and losses are recorded when the positions are closed. All unrealized and realized gains and losses related to derivative financial instruments are included in net gain (loss) on investments in the Master Funds’ statements of operations.
Cash Assets - The GAIT Funds invest 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 GAIT Funds.
Statement of Operations - As discussed under Item 1, the Fund offers Class 0 and Class 2 units of the Blended Strategies Portfolio and the Systematic Strategies Portfolio. Class 0 and Class 2 units within each portfolio differ only with respect to their fees. The Blended Strategies and Systematic Strategies Portfolios differ with respect to the underlying funds in which they invest. All items of gain, loss, income and expense of the Fund are specifically and directly allocated to each portfolio from the underlying Master Funds. The Fund presents a combined statement of operations which encompasses the amounts applicable to the Blended and Systematic Strategies Portfolios.
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 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.
No disclosure is required hereunder as the Fund is a “smaller reporting company”, as defined in Item 10(f)(1) of regulation S-K.
The Advisor’s Chief Operating Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Fund’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of March 31, 2013. Based on that evaluation, the Advisor’s Chief Operating Officer and Chief Financial Officer concluded that the Fund’s disclosure controls and procedures were effective as of March 31, 2013.
There were no changes to the Fund’s internal controls over financial reporting during the first quarter of 2013 that have materially affected, or are reasonably likely to materially affect, the Fund’s internal controls over financial reporting.
PART II. OTHER INFORMATION
None
Not Required
For the three months ended March 31, 2013, the Fund issued 20,175.437 Units in exchange for $2,296,886 with respect to the Blended Strategies Portfolio and 0.000 Units with respect to the Systematic Strategies Portfolio, in each case in a transaction that was not registered under the Securities Act of 1933, as amended (the “Act”). The Units were issued in reliance upon applicable exemptions from registration under Section 4(2) of the Act and Section 506 of Regulation D promulgated thereunder.
The following chart sets forth the purchases of Units of the Fund.
| | | Blended Strategies Portfolio | | Systematic Strategies Portfolio | |
| | | Total | | Total | |
| | | Number of | | Number of | |
| | | Units Purchased | | Units Purchased | |
| Period (as of) | | | | | |
| January 1, 2013 | | 7,038.866 | | 0.000 | |
| February 1, 2013 | | 1,843.129 | | 0.000 | |
| March 1, 2013 | | 11,293.442 | | 0.000 | |
| * 3.1 | Amendment to Certificate of Formation of Graham Alternative Investment Fund I LLC |
| * 4.1 | Amended and Restated Limited Liability Company Agreement of Graham Alternative Investment Fund I LLC |
| * 10.1 | Form of Subscription Agreement |
| * 10.2 | Form of Placement Agreement |
| * 10.10 | Safekeeping Account Agreement between Graham Cash Assets LLC and Bank of America, N.A. |
| Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Operating Officer) |
| Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer) |
| Section 1350 Certification (Certification of Chief Operating Officer and Chief Financial Officer) |
| | * | Incorporated by reference to the Fund’s Form 8-K previously filed on April 11, 2013 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: May 15, 2013 | GRAHAM ALTERNATIVE INVESTMENT FUND I LLC |
| | | | |
| | By: | GRAHAM CAPITAL MANAGEMENT, L.P. |
| | | its Manager |
| | | | |
| | | By: | /s/ Paul Sedlack |
| | | | Paul Sedlack, Chief Operating Officer |
| | | | |
| | | By: | /s/ Brian Douglas |
| | | | Brian Douglas, Chief Financial Officer |
