10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) of the

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to 

Commission File Number 0-53967

GRAHAM ALTERNATIVE INVESTMENT FUND II LLC

(Exact name of registrant as specified in its charter)

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

c/o GRAHAM CAPITAL MANAGEMENT, L.P.

40 Highland Avenue

Rowayton, CT  06853

(Address of principal executive offices) (Zip Code)

Paul Sedlack

Graham Capital Management, L.P.

40 Highland Avenue

Rowayton, CT  06853

(203) 899-3400

(Registrant’s telephone number, including area code)

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

Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of the chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o  No o

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

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x

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

Yes o  No x

As of April 1, 2011, 274,745.230 Units of the Systematic Strategies Portfolio were outstanding.

As of April 1, 2011, 1,253,087.121 Units of the Blended Strategies Portfolio were outstanding.

GRAHAM ALTERNATIVE INVESTMENT FUND II LLC

FORM 10-Q

INDEX

			Page
			Number
PART I - Financial Information:
	Item 1.	Financial Statements:
		Consolidated Statements of Financial Condition at March 31, 2011 and December 31, 2010 (unaudited)	1
		Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010 (unaudited)	2
		Consolidated Statements of  Changes in Members’ Capital for the three months ended March 31, 2011 and 2010 (unaudited)	3
		Consolidated Statements of  Cash Flows for the three months ended March 31, 2011 and 2010 (unaudited)	5
		Notes to Consolidated Unaudited Financial Statements	6
		Graham Alternative Investment Trading LLC
		Statements of Financial Condition at March 31, 2011 (unaudited) and December 31, 2010 (audited)	14
		Condensed Schedules of Investments at March 31, 2011 (unaudited) and December 31, 2010 (audited)	15
		Statements of Operations and Managing Member Allocation for the three months ended March 31, 2011 and 2010 (unaudited)	16
		Statements of  Changes in Members’ Capital for the three months ended March 31, 2011 and 2010 (unaudited)	17
		Statements of  Cash Flows for the three months ended March 31, 2011 and 2010 (unaudited)	18
		Notes to Unaudited Financial Statements	19
		Graham Alternative Investment Trading II LLC
		Statements of Financial Condition at March 31, 2011 (unaudited) and December 31, 2010 (audited)	66
		Statements of Operations and Managing Member Allocation for the three months ended March 31, 2011 and 2010 (unaudited)	67

		Statements of  Changes in Members’ Capital for the three months ended March 31, 2011 and 2010 (unaudited)	68
		Statements of  Cash Flows for the three months ended March 31, 2011 and 2010 (unaudited)	69
		Notes to Unaudited Financial Statements	70
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	93
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	101
	Item 4.	Controls and Procedures	102
PART II - Other Information			103

Item 1.	Legal Proceedings	103
Item 1A.	Risk Factors	103
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	103
Item 3.	Defaults Upon Senior Securities	103
Item 4.	[Removed and Reserved]	103
Item 5.	Other Information	103
Item 6.	Exhibits	104
EX - 31.1	Certification
EX - 31.2	Certification
EX - 32.1	Certification

PART I

Item 1. Financial Statements

Graham Alternative Investment Fund II LLC

Consolidated Statements of Financial Condition

	March 31, 2011		December 31, 2010
	(Unaudited)		(Audited)
Assets
Investment in Graham Alternative Investment Trading LLC, at fair value	$	162,739,579	$	147,900,169
Investment in Graham Alternative Investment Trading II LLC, at fair value		25,922,002		21,286,941
Redemptions receivable from Graham Alternative Investment Trading LLC		496,179		1,136,034
Redemptions receivable from Graham Alternative Investment Trading II LLC		51,690		729,231
Total assets	$	189,209,450	$	171,052,375
Liabilities and members’ capital
Liabilities:
Accrued redemptions	$	547,869	$	1,865,265
Total liabilities		547,869		1,865,265
Members’ capital:
Blended Strategies Portfolio
Class 0 Units (977,102.052 and 875,825.668 units issued and outstanding at $137.45 and $138.96, respectively)		134,304,771		121,701,356
Class 2 Units (254,079.920 and 230,452.833 units issued and outstanding at $111.91 and $113.68, respectively)		28,434,808		26,198,813
Total Blended Strategies Portfolio		162,739,579		147,900,169
Systematic Strategies Portfolio
Class 0 Units (137,021.453 and 122,899.506 units issued and outstanding at $100.08 and $102.92, respectively)		13,712,692		12,648,247
Class 2 Units (126,544.901 and 86,626.635 units issued and outstanding at $96.48 and $99.72, respectively)		12,209,310		8,638,694
Total Systematic Strategies Portfolio		25,922,002		21,286,941
Total members’ capital		188,661,581		169,187,110
Total liabilities and members’ capital	$	189,209,450	$	171,052,375

See accompanying notes.

1

Graham Alternative Investment Fund II LLC

Consolidated Statements of Operations

	Three Months Ended March 31,
	2011 (Unaudited)			2010 (Unaudited)
Net (loss) gain allocated from investments in other funds:
Net realized gain (loss) on investments	$	545,041		$	(2,269,610	)
Net (decrease) increase in unrealized appreciation on investments		(1,147,506	)		2,613,873
Net (loss) gain allocated from investments in other funds		(602,465	)		344,263
Net investment loss allocated from investments in other funds:
Investment income:
Interest income		189,121			316,212
Expenses:
Brokerage fees		1,106,840			674,726
Advisory fees		911,525			569,292
Sponsor fees		455,762			284,646
Incentive allocation		(692	)		-
Interest and other		4,306			-
Total expenses		2,477,741			1,528,664
Net investment loss allocated from investments in other funds		(2,288,620	)		(1,212,452	)
Net loss	$	(2,891,085	)	$	(868,189	)

See accompanying notes.

2

Graham Alternative Investment Fund II LLC

Consolidated Statements of Changes in Members’ Capital

For the three months ended March 31, 2011 (unaudited) and 2010 (unaudited)

	Blended Strategies Portfolio
	Class 0 Units						Class 2 Units						Total
	Units			Capital			Units			Capital			Blended Strategies Portfolio
Members’ capital, December 31, 2009		636,284.928		$	86,253,313			161,590.940		$	18,215,970		$	104,469,283
Subscriptions		57,581.542			7,622,831			8,768.302			967,829			8,590,660
Redemptions		(4,834.910	)		(644,072	)		(5,084.396	)		(559,043	)		(1,203,115	)
Net loss		–			(504,573	)		–			(219,791	)		(724,364	)
Members’ capital, March 31, 2010		689,031.560		$	92,727,499			165,274.846		$	18,404,965		$	111,132,464
	Blended Strategies Portfolio
	Class 0 Units						Class 2 Units						Total
	Units			Capital			Units			Capital			Blended Strategies Portfolio
Members’ capital, December 31, 2010		875,825.668		$	121,701,356			230,452.833		$	26,198,813		$	147,900,169
Subscriptions		107,697.644			15,120,041			28,261.784			3,232,561			18,352,602
Redemptions		(6,421.260	)		(895,563	)		(4,634.697	)		(532,092	)		(1,427,655	)
Net loss		–			(1,621,063	)		–			(464,474	)		(2,085,537	)
Members’ capital, March 31, 2011		977,102.052		$	134,304,771			254,079.920		$	28,434,808		$	162,739,579

See accompanying notes.

3

Graham Alternative Investment Fund II LLC

Consolidated Statements of Changes in Members’ Capital (continued)

For the three months ended March 31, 2011 (unaudited) and 2010 (unaudited)

	Systematic Strategies Portfolio
	Class 0 Units						Class 2 Units						Total
	Units			Capital			Units			Capital			Systematic Strategies Portfolio			Total Members’ Capital
Members’ capital, December 31, 2009		41,862.245		$	4,210,889			30,647.378		$	3,035,716		$	7,246,605		$	111,715,888
Subscriptions		54,285.544			5,038,000			4,379.823			422,500			5,460,500			14,051,160
Redemptions		–			–			(53.978	)		(4,906	)		(4,906	)		(1,208,021	)
Net income (loss)		–			9,589			–			(153,414	)		(143,825	)		(868,189	)
Members’ capital, March 31, 2010		96,147.789		$	9,258,478			34,973.223		$	3,299,896		$	12,558,374		$	123,690,838
	Systematic Strategies Portfolio
	Class 0 Units						Class 2 Units						Total
	Units			Capital			Units			Capital			Systematic Strategies Portfolio			Total Members’ Capital
Members’ capital, December 31, 2010		122,899.506		$	12,648,247			86,626.635		$	8,638,694		$	21,286,941		$	169,187,110
Subscriptions		16,685.584			1,721,533			42,509.460			4,243,511			5,965,044			24,317,646
Redemptions		(2,563.637	)		(266,441	)		(2,591.194	)		(257,994	)		(524,435	)		(1,952,090	)
Net loss		–			(390,647	)		–			(414,901	)		(805,548	)		(2,891,085	)
Members’ capital, March 31, 2011		137,021.453		$	13,712,692			126,544.901		$	12,209,310		$	25,922,002		$	188,661,581

See accompanying notes.

4

Graham Alternative Investment Fund II LLC

Consolidated Statements of Cash Flows

	Three Months Ended March 31,
	2011 (Unaudited)			2010 (Unaudited)
Cash flows used in operating activities
Net loss	$	(2,891,085	)	$	(868,189	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net loss allocated from investment in Graham Alternative Investment Trading LLC		2,085,537			724,364
Net loss allocated from investment in Graham Alternative Investment Trading II LLC		805,548			143,825
Proceeds from sale of investments in Graham Alternative Investment Trading LLC		1,427,655			1,203,115
Proceeds from sale of investments in Graham Alternative Investment Trading II LLC		524,435			4,906
Investments in Graham Alternative Investment Trading LLC		(17,712,747	)		(8,410,925	)
Investments in Graham Alternative Investment Trading II LLC		(5,287,503	)		(5,460,500	)
Net cash used in operating activities		(21,048,160	)		(12,663,404	)
Cash flows provided by financing activities
Subscriptions		24,317,646			14,051,160
Redemptions		(3,269,486	)		(1,387,756	)
Net cash provided by financing activities		21,048,160			12,663,404
Net change in cash and cash equivalents		–			–
Cash and cash equivalents, beginning of period		–			–
Cash and cash equivalents, end of period	$	–		$	–

See accompanying notes.

5

Graham Alternative Investment Fund II LLC

Notes to Unaudited Consolidated Financial Statements

March 31, 2011

1.  Organization and Business

Graham Alternative Investment Fund II 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 members Class 0 and Class 2 units of a Blended Strategies Portfolio, and Class 0 and Class 2 units of a Systematic Strategies Portfolio.  Graham Alternative Investment Ltd. (“GAI”) is a British Virgin Islands business company which was formed on June 1, 2006 and commenced operations on August 1, 2006.  The Fund invests all of its Blended Strategies Portfolio assets dedicated to trading in Graham Alternative Investment Trading LLC (“GAIT”), a Delaware LLC formed on May 18, 2006 through an investment in GAI.  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 formed on July 16, 2008 through an investment in GAI. 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 Fund is the sole owner of GAI and GAI invests all of its assets into the GAIT Funds.  The Manager is the director of GAI and the sole investment advisor of GAI, 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 and is a member of the National Futures Association. The Fund is registered as a reporting company under the Securities Exchange Act of 1934.

The investment objective of the Fund is to achieve long-term capital appreciation through professionally managed trading in both U.S. and foreign markets, primarily in futures contracts, forwards contracts, spot currency contracts, options 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.

In addition to trading in the Interbank market for foreign exchange, the Manager currently executes orders on all the major U.S. futures exchanges and may also trade on, but is not limited to, the Bolsa de Mercadorias and Futuros (“BMF”), Borsa Italiana Idem (“IML”), the Eurex Deutschland (“EUREX”), Euronext (“EURONEXT”), the Hong Kong Exchanges and Clearing Ltd. (“HKEX”), the Intercontinental Exchange (“ICE”), the London International Financial Futures and Options Exchange Ltd. (“LIFFE”), the London Metal Exchange (“LME”), the Montreal Exchange (“ME”), the Mercado de Futuros Financieros (“MEFF”), the Osaka Securities Exchange (“OSE”), the Sydney Futures Exchange Ltd. (“SFE”), the Singapore Exchange (“SGX”), the South African Exchange (“SAFEX”), the Tokyo Financial Exchange (“TFX”), the Tokyo Commodity Exchange (“TOCOM”) and the Tokyo Stock Exchange (“TSE”).

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

The Fund will terminate on December 31, 2050 or at an earlier date if certain conditions occur as outlined in the Limited Liability Company Agreement (“LLC Agreement”) of the Fund.

The performance of the Fund is directly affected by the performance of the GAIT Funds; therefore these consolidated financial statements should be read in conjunction with the attached financial statements of the GAIT Funds.

6

Graham Alternative Investment Fund II LLC

Notes to Unaudited Consolidated Financial Statements (continued)

1.  Organization and Business (continued)

Duties of the Manager

Subject to the terms and conditions of the LLC Agreement, the Manager has complete and exclusive responsibility for managing and administering the affairs of the Fund and for directing the investment and reinvestment of the assets of the Fund, GAI and the GAIT Funds.

2.  Summary of Significant Accounting Policies

These consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and all amounts are stated in U.S. dollars. The preparation of these consolidated financial statements requires the Manager to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Amounts included in the financial statements and accompanying notes related to March 31, 2011 and 2010 and the three month periods then ended are unaudited. Amounts included herein as of December 31, 2010 have been taken from the December 31, 2010 audited financial statements and accompanying notes of the Fund.

Principles of Consolidation

The Fund owns 100% of GAI and as such these consolidated financial statements include all the accounts of the Fund and GAI.  Intercompany transactions and balances have been eliminated in consolidation. Creditors of the Fund have recourse to all assets of the Fund for amounts due to them, while creditors of GAI would have recourse only to the assets of GAI.

Investment in Graham Alternative Investment Trading LLC and Graham Alternative Investment Trading II LLC

The Fund records its investments in the GAIT Funds at fair 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 consolidated statements of operations. Purchases and sales of units in the Fund, GAI and 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.

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, 2011 and December 31, 2010, the Fund owned 32.71% and 33.11%, respectively of GAIT, and 31.53% and 30.50%, 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 consolidated statements of financial condition. Changes in these carrying amounts are included in the consolidated statements of operations.

7

Graham Alternative Investment Fund II LLC

Notes to Unaudited Consolidated Financial Statements (continued)

2.  Summary of Significant Accounting Policies (continued)

Fair Value (continued)

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 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.

The Fund reports the fair value of its investment related assets and liabilities in accordance with the hierarchy established under U.S. GAAP.  In accordance with this hierarchy, the Fund’s investments in the GAIT Funds have been classified as a Level 2 valuation.  These investments are discussed in Note 3 of the attached GAIT financial statements.  There were no Level 3 assets or liabilities held at any point during the three months ended March 31, 2011 or the twelve months ended December 31, 2010 by the GAIT Funds or Graham Cash Assets LLC, and there were no transfers between Level 1 and Level 2 during those periods.

Cash and Cash Equivalents

The Fund considers cash and cash equivalents to include all highly liquid investments with a maturity of three months or less when acquired.

Indemnifications

In the normal course of business, the Fund, the GAIT Funds and the Master Funds enter into contracts that contain a variety of indemnifications. Such contracts include those with the Master Funds’ 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 Class 0 Units and Class 2 Units (collectively, the “Units”) in both Blended and Systematic Strategies Portfolios. The Fund may issue additional Classes in the future subject todifferent fees, expenses or other terms, or to invest in other investment programs or combinations of investment programs managed by the Manager.

8

Graham Alternative Investment Fund II LLC

Notes to Unaudited Consolidated Financial Statements (continued)

3.  Capital Accounts (continued)

A separate Capital Account is maintained for each Member with respect to each member’s Class of Units. The initial balance of each member’s Capital Account is equal to the initial contribution to the Fund by such Member with respect to the Class to which such Capital Account relates. Each member’s Capital Account is increased by any additional subscription, and decreased by any redemption by such member of Units of such Class to which the Capital Account relates. All income and expenses of the Fund are allocated among the members’ Capital Accounts in proportion to the balance that each Capital Account bears to the balance of all Capital Accounts as of the beginning of such fiscal period.

Addition of Members and Managing Members

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.

Subscriptions

Units may be purchased at a price equal to the Net Asset Value per Unit of the relevant Class as of the immediately preceding Valuation Day, as defined in the LLC Agreement. The minimum initial subscription from each investor in each Class is $10,000. Members may subscribe for additional Units in a minimum amount of not less than $5,000.

Redemption of Units

Units are not subject to any minimum holding period. Members may redeem Units at the Net Asset Value thereof as of each Valuation Day, as defined in the LLC Agreement, upon not less than three business days’ prior written notice to the administrator. A partial redemption request for an amount less than $10,000 will not be accepted, nor will a redemption request be accepted to the extent that it would result in an investor owning less than $10,000. The redemption proceeds will normally be remitted within 15 days after the Valuation Day, without interest for the period from the Valuation Day to the payment date.

Redemption Fees

Class 2 Units are subject to a redemption fee equal to 2% of their Net Asset Value if redeemed within six months from their subscription date and a redemption fee equal to 1% of their Net Asset Value if redeemed more than six and less than twelve months from their subscription date. Class 0 Units are not subject to a redemption fee. Redemption fees are payable to the Manager upon redemption of Units from the proceeds of such redemption. Redemption fees of $1,542 and $2,077 were paid to the Manager for the three months ended March 31, 2011 and 2010, respectively, and are included as redemptions in the statements of changes in members’ capital.

4.  Fees

Advisory Fees

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 2% 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.

9

Graham Alternative Investment Fund II LLC

Notes to Unaudited Consolidated Financial Statements (continued)

4.  Fees (continued)

Sponsor Fees

Each Class of the GAIT Funds other than Class M pays the Manager a sponsor fee (the “Sponsor Fee”) at an annual rate of 1% of its Net Asset Value, payable monthly in arrears, determined in the same manner as the Advisory Fee.

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.

Brokerage Fees

Each Class of the GAIT Funds other than Class M pays the Manager a brokerage fee (the “Brokerage Fee”) at the annual rate specified in the table below. This Brokerage Fee is payable monthly in arrears and 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 bears 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 are allocated any of these expenses from the Master Funds in which it invests, the Manager will reimburse the GAIT Funds for those amounts.  These reimbursements are included in commission reimbursements in the GAIT Funds’ statements of operations and managing member allocation.

Any portion of any of the above fees, including the Incentive Allocation, may be paid by the Manager to third parties as compensation for selling activities in connection with the Fund.

5.  Income Taxes

No provision for income taxes has been made in the accompanying consolidated financial statements, as members are individually responsible for reporting income or loss based upon their respective share of the Fund’s revenues and expenses for income tax purposes.

10

Graham Alternative Investment Fund II LLC

Notes to Unaudited Consolidated Financial Statements (continued)

5.  Income Taxes (continued)

U.S. GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the consolidated financial statements. U.S. GAAP requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a more-likely-than-not threshold would be recorded as a tax expense in the current year. The Manager has evaluated the Fund’s tax positions and has concluded that there are no significant tax positions requiring recognition, measurement or disclosure in the consolidated financial statements. The Manager is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax expense will change materially in the next twelve months. Tax years which are considered open by the relevant jurisdiction are subject to potential examination.

6.  Related Party Transactions

The Manager, due to its relationship with its affiliates, may enter into certain related party transactions.

7.  Financial Highlights

The following is the per Unit operating performance calculation for the three month periods ended March 31, 2011 and 2010:

	Blended Strategies Portfolio						Systematic Strategies Portfolio
	Class 0			Class 2			Class 0			Class 2
Per share operating performance
Net asset value per unit, December 31, 2009	$	135.56		$	112.73		$	100.59		$	99.05
Net loss:
Net investment gain (loss)		(1.64	)		(1.65	)		25.43			(1.41	)
Net gain (loss) on investments		0.66			0.28			(29.73	)		(3.29	)
Net loss		(0.98	)		(1.37	)		(4.30	)		(4.70	)
Net asset value per unit, March 31, 2010	$	134.58		$	111.36		$	96.29		$	94.35
Net asset value per unit, December 31, 2010	$	138.96		$	113.68		$	102.92		$	99.72
Net loss:
Net investment loss		(1.27	)		(1.57	)		(1.05	)		(1.50	)
Net loss on investments		(0.24	)		(0.20	)		(1.79	)		(1.74	)
Net loss		(1.51	)		(1.77	)		(2.84	)		(3.24	)
Net asset value per unit, March 31, 2011	$	137.45		$	111.91		$	100.08		$	96.48

11

Graham Alternative Investment Fund II LLC

Notes to Unaudited Consolidated Financial Statements (continued)

7.   Financial Highlights (continued)

The following represents ratios to average members’ capital and total return for the three month periods ended March 31, 2011 and 2010 for the Blended Strategies Portfolio:

	Blended Strategies Portfolio
	Class 0						Class 2
	2011			2010			2011			2010
Total return before Incentive Allocation		(1.08	)%		(0.73	)%		(1.55	)%		(1.22	)%
Incentive Allocation		(0.01	)		0.00			(0.01	)		0.00
Total return after Incentive Allocation		(1.09	)%		(0.73	)%		(1.56	)%		(1.22	)%
Net investment loss before Incentive Allocation		(0.90	)%		(0.97	)%		(1.38	)%		(1.47	)%
Incentive Allocation		(0.01	)		0.00			(0.01	)		0.00
Net investment loss after Incentive Allocation		(0.91	)%		(0.97	)%		(1.39	)%		(1.47	)%
Total expenses before Incentive Allocation		1.00	%		0.70	%		1.51	%		0.91	%
Incentive Allocation		0.01			0.00			0.01			0.00
Total expenses after Incentive Allocation		1.01	%		0.70	%		1.52	%		0.91	%

The following represents ratios to average members’ capital and total return for the three month periods ended March 31, 2011 and 2010 for the Systematic Strategies Portfolio:

	Systematic Strategies Portfolio
	Class 0						Class 2
	2011			2010			2011			2010
Total return before Incentive Allocation		(2.75	)%		(4.27	)%		(3.24	)%		(4.74	)%
Incentive Allocation		(0.01	)		0.00			(0.01	)		0.00
Total return after Incentive Allocation		(2.76	)%		(4.27	)%		(3.25	)%		(4.74	)%
Net investment loss before Incentive Allocation		(1.03	)%		(1.06	)%		(1.52	)%		(1.48	)%
Incentive Allocation		(0.01	)		0.00			(0.01	)		0.00
Net investment loss after Incentive Allocation		(1.04	)%		(1.06	)%		(1.53	)%		(1.48	)%
Total expenses before Incentive Allocation		1.12	%		0.38	%		1.64	%		0.38	%
Incentive Allocation		0.01			0.00			0.01			0.00
Total expenses after Incentive Allocation		1.13	%		0.38	%		1.65	%		0.38	%

12

Graham Alternative Investment Fund II LLC

Notes to Unaudited Consolidated Financial Statements (continued)

7.  Financial Highlights (continued)

Total return is calculated for Class 0 units and Class 2 Units taken as a whole and has not been annualized. Total return is calculated as the change in total members’ capital adjusted for subscriptions or redemptions during the year. An individual member’s return may vary from these returns based on the timing of capital transactions and the applicability of Advisory Fees, Brokerage Fees, Sponsor Fees and the Incentive Allocation. The net investment loss and total expense ratios (including Incentive Allocation) are calculated for Class 0 Units and Class 2 Units taken as a whole and include amounts from the Fund and amounts allocated from the GAIT Funds. 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 Units and Class 2 Units of the Fund for the three months ended March 31, 2011 and 2010.

8.  Subsequent Events

The Fund had subscriptions of approximately $8.5 million and redemptions of approximately $2.4 million through May 16, 2011, the date through which subsequent events were evaluated by management.  These amounts have not been included in the financial statements.

13

Graham Alternative Investment Trading LLC

Statements of Financial Condition

	March 31, 2011		December 31, 2010
	(Unaudited)		(Audited)
Assets
Investments in Master Funds, at fair value	$	80,018,732	$	43,910,786
Investment in Graham Cash Assets LLC, at fair value		422,134,782		409,389,656
Commission reimbursements receivable		501,077		278,469
Total assets	$	502,654,591	$	453,578,911
Liabilities and members’ capital
Liabilities:
Accrued redemptions	$	2,858,194	$	4,817,403
Accrued brokerage fees		983,124		894,187
Accrued advisory fees		852,305		768,947
Accrued sponsor fees		426,153		384,474
Payable to Master Funds		551		61
Total liabilities		5,120,327		6,865,072
Members’ capital:
Class 0 Units (3,065,466.192 and 2,685,172.128 units issued and outstanding at $137.45 and $138.96 per unit, respectively)		421,354,913		373,121,130
Class 2 Units (672,805.309 and 639,582.657 units issued and outstanding at $111.91 and $113.68 per unit, respectively)		75,295,604		72,710,381
Class M Units (4,671.470 and 4,671.470 units issued and outstanding at $189.18 and $188.88 per unit, respectively)		883,747		882,328
Total members’ capital		497,534,264		446,713,839
Total liabilities and members’ capital	$	502,654,591	$	453,578,911

See accompanying notes.

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Graham Alternative Investment Trading LLC

Condensed Schedules of Investments

	March 31, 2011 (Unaudited)					December 31, 2010 (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	$	12,093,121		2.43	%	$	7,603,525		1.70	%
Graham Discretionary Energy Trading III LLC		3,980,505		0.80	%		1,690,592		0.38	%
Graham Energy Focus LLC		6,257,534		1.26	%		-		0.00	%
Graham Fed Policy Ltd.		7,832,977		1.57	%		6,709,637		1.50	%
Graham Global Monetary Policy LLC		4,369,033		0.88	%		3,566,013		0.80	%
Graham K4D Trading Ltd.		44,364,556		8.92	%		24,030,670		5.38	%
Graham Macro Directional LLC		1,121,006		0.22	%		268,357		0.06	%
Graham Short Term Global Macro LLC		-		0.00	%		41,992		0.01	%
Total investments in Master Funds	$	80,018,732		16.08	%	$	43,910,786		9.83	%

See accompanying notes.

15

 Graham Alternative Investment Trading LLC

Statements of Operations and Managing Member Allocation

	Three Months Ended March 31,
	2011 (Unaudited)			2010 (Unaudited)
Net (loss) gain allocated from investments in Master Funds:
Net realized gain (loss) on investments	$	3,418,594		$	(5,419,425	)
Net (decrease) increase in unrealized appreciation on investments		(3,764,589	)		6,838,336
Brokerage commissions and fees		(1,250,077	)		(496,264	)
Net (loss) gain allocated from investments in Master Funds		(1,596,072	)		922,647
Net investment loss allocated from investments in Master Funds		(17,371	)		(11,175	)
Investment income:
Interest income		515,146			415,495
Expenses:
Brokerage fees		2,801,106			1,786,293
Advisory fees		2,420,953			1,521,144
Sponsor fees		1,210,476			760,572
Interest and other		4,557			4,747
Commission reimbursements		(1,250,077	)		(496,264	)
Total expenses		5,187,015			3,576,492
Net investment loss of the Fund		(4,671,869	)		(3,160,997	)
Net loss		(6,285,312	)		(2,249,525	)
Incentive allocation		(10,086	)		-
Net loss available for pro-rata allocation to all members	$	(6,295,398	)	$	(2,249,525	)

See accompanying notes.

16

Graham Alternative Investment Trading LLC

Statements of Changes in Members’ Capital

For the three months ended March 31, 2011 (unaudited) and 2010 (unaudited)

	Class 0						Class 2						Class M					Total
	Units			Capital			Units			Capital			Units		Capital			Capital
Members’ capital, December 31, 2009		1,851,259.271		$	250,952,480			462,314.824		$	52,116,241			4,671.470	$	813,191		$	303,881,912
Subscriptions		151,028.659			20,005,694			45,915.276			5,069,594			–		–			25,075,288
Redemptions		(36,152.265	)		(4,733,057	)		(12,948.251	)		(1,406,910	)		–		–			(6,139,967	)
Incentive allocation		–			–			–			–			–		–			–
Net (loss) income		–			(1,629,259	)		–			(624,416	)		–		4,150			(2,249,525	)
Members’ capital, March 31, 2010		1,966,135.665		$	264,595,858			495,281.849		$	55,154,509			4,671.470	$	817,341		$	320,567,708
	Class 0						Class 2						Class M					Total
	Units			Capital			Units			Capital			Units		Capital			Capital
Members’ capital, December 31, 2010		2,685,172.128		$	373,121,130			639,582.657		$	72,710,381			4,671.470	$	882,328		$	446,713,839
Subscriptions		408,198.569			57,181,643			56,759.804			6,490,664			–		–			63,672,307
Redemptions		(27,904.505	)		(3,886,994	)		(23,537.152	)		(2,669,490	)		–		(10,086	)		(6,566,570	)
Incentive allocation		–			(6,683	)		–			(3,403	)		–		10,086			–
Net (loss) income		–			(5,054,183	)		–			(1,232,548	)		–		1,419			(6,285,312	)
Members’ capital, March 31, 2011		3,065,466.192		$	421,354,913			672,805.309		$	75,295,604			4,671.470	$	883,747		$	497,534,264

See accompanying notes.

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Graham Alternative Investment Trading LLC

Statements of Cash Flows

	Three Months Ended March 31,
	2011 (Unaudited)			2010 (Unaudited)
Cash flows used in operating activities
Net loss	$	(6,285,312	)	$	(2,249,525	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net loss (income) allocated from investment in Master Funds		1,613,443			(911,472	)
Net income allocated from investment in Graham Cash Assets LLC		(515,146	)		(415,495	)
Proceeds from sale of investments in Master Funds		191,380,309			63,389,546
Proceeds from sale of investments in Graham Cash Assets LLC		169,852,202			62,539,001
Investments in Master Funds		(229,101,208	)		(81,902,881	)
Investments in Graham Cash Assets LLC		(182,082,182	)		(58,473,000	)
Changes in assets and liabilities:
Commission reimbursements receivable		(222,608	)		(68,668	)
Accrued brokerage fees		88,937			31,778
Accrued advisory fees		83,358			26,922
Accrued sponsor fees		41,679			13,461
Net cash used in operating activities		(55,146,528	)		(18,020,333	)
Cash flows provided by financing activities
Subscriptions		63,672,307			25,075,288
Redemptions		(8,525,779	)		(7,054,071	)
Net cash provided by financing activities		55,146,528			18,021,217
Net increase in cash and cash equivalents		-			884
Cash and cash equivalents, beginning of period		-			49
Cash and cash equivalents, end of period	$	-		$	933

See accompanying notes.

18

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements

March 31, 2011

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 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 currency forward and futures contracts; bond, interest rate, and index futures contracts; commodity forward and futures contracts, and swaps thereon (collectively referred to as “Derivative Positions”) traded on U.S. and foreign exchanges.

In addition to trading in the Interbank market for foreign exchange, the Manager currently executes orders on all the major U.S. futures exchanges and may also trade on, but is not limited to, the Bolsa de Mercadorias and Futuros (“BMF”), Borsa Italiana Idem (“IML”), the Eurex Deutschland (“EUREX”), Euronext (“EURONEXT”), the Hong Kong Exchanges and Clearing Ltd. (“HKEX”), the Intercontinental Exchange (“ICE”), the London International Financial Futures and Options Exchange Ltd. (“LIFFE”), the London Metal Exchange (“LME”), the Montreal Exchange (“ME”), the Mercado de Futuros Financieros (“MEFF”), the Osaka Securities Exchange (“OSE”), the Sydney Futures Exchange Ltd. (“SFE”), the Singapore Exchange (“SGX”), the South African Exchange (“SAFEX”), the Tokyo Financial Exchange (“TFX”), the Tokyo Commodity Exchange (“TOCOM”) and the Tokyo Stock Exchange (“TSE”).

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.

Amounts included in the financial statements and accompanying notes related to March 31, 2011 and 2010 and the three month periods then ended are unaudited. Amounts included herein as of December 31, 2010 have been taken from the December 31, 2010 audited financial statements and accompanying notes of the Fund.

19

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

2.  Summary of Significant Accounting Policies (continued)

Cash and Cash Equivalents

GAIT considers cash and cash equivalents to include all highly liquid investments with a maturity of three months or less when acquired.

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 value. 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.

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.  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 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.

GAIT reports the fair value of its investment related assets and liabilities in accordance with the hierarchy established under U.S. GAAP.  In accordance with this hierarchy, GAIT’s investments in Master Funds and Graham Cash Assets LLC (“GCA”) have been classified as Level 2.  These investments are discussed in Note 3.  There were no Level 3 assets or liabilities held at any point during the three months ended March 31, 2011 or the twelve months ended December 31, 2010 by the Master Funds or GCA, and there were no transfers between Level 1 and Level 2 during those periods.

20

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, credit, 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.

The Master Funds record all their derivative 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.

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 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 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.

21

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

2.  Summary of Significant Accounting Policies (continued)

Forward Contracts

The Master Funds enter into foreign currency and commodity forward contracts in an attempt to take advantage of changes in exchange rates and commodity prices.  Forward currency and commodities transactions are contracts or agreements for delivery of specific currencies and commodities 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.

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 and force the Master Fund to cover its resale commitments, if any, at the current market price.  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 a 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 settlement price of the underlying.  During the term of the swaps, changes in value are recognized as unrealized gains or losses by marking the contracts to fair value.  Additionally, the Master Funds record a realized gain (loss) when a swap contract is terminated and when periodic payments are received or made at the end of each measurement period, but prior to termination.  The Master Funds determine the estimated fair value of all swaps in accordance with U.S. GAAP.

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.

22

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

2.  Summary of Significant Accounting Policies (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 Fund is the fair value 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, GCA, and GAIT enter into contracts that contain a variety of indemnifications. Such contracts include those with the Master Funds’ 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.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current year presentation.

3.  Investments in Master Funds

As of March 31, 2011 and December 31, 2010, 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 Master 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, 2011
Investment – Objective	Percent of Members’ Capital			Fair Value		Net Income (three months then ended)
Graham K4D Trading Ltd. –  (a)		8.92	%	$	44,364,556	$	(6,490,761	)
Other Master Funds (7) –  (b) (c) (d) (e)		7.16	%		35,654,176		4,877,318
		16.08	%	$	80,018,732	$	(1,613,443	)

December 31, 2010
Investment – Objective	Percent of Members’ Capital			Fair Value		Net Income (three months ended March 31, 2010)
Graham K4D Trading Ltd. –  (a)		5.38	%	$	24,030,670	$	(4,673,263	)
Other Master Funds (7) –  (b) (c) (d) (e)		4.45	%		19,880,116		5,584,735
		9.83	%	$	43,910,786	$	911,472

(a) – Systematic Macro (b) – Fixed Income (c) – Global Macro (d) – Energy Related (e) – Commodities

23

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, 2011:

	Graham Commodity Strategies LLC (Delaware)			Graham Discretionary Energy Trading III 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)
Assets:
Due from brokers	$	71,788,618		$	-		$	17,984,242		$	25,147,965		$	32,252,617		$	288,833,860		$	4,762,663
Options, at fair value		-			11,794,000			15,045,300			46,076,251			427,005			-			-
Derivative financial instruments, at fair value		11,551,256			25,885,509			-			10,117,976			3,767,638			52,072,797			255,550
Subscriptions receivable		-			-			7			-			239			405			-
Interest receivable		-			-			-			-			3,341			20,997			109
Total assets		83,339,874			37,679,509			33,029,549			81,342,192			36,450,840			340,928,059			5,018,322
Liabilities:
Options, at fair value		-			100,000			5,998,200			36,226,853			50,000			-			-
Derivative financial instruments, at fair value		-			-			3,679,198			-			-			1,544,291			-
Due to brokers		-			13,764,783			-			-			409,325			-			-
Redemptions payable		-			-			7			142			120			405			-
Total liabilities		-			13,864,783			9,677,405			36,226,995			459,445			1,544,696			-
Net assets	$	83,339,874		$	23,814,726		$	23,352,144		$	45,115,197		$	35,991,395		$	339,383,363		$	5,018,322
Percentage of Master Fund held by the Fund		14.51	%		16.71	%		26.80	%		17.36	%		12.14	%		13.07	%		22.34	%

24

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, 2011.

Description	Number of Contracts		Fair Value		Percentage of Net Assets of Master Fund
Graham Commodity Strategies LLC
Long contracts
Futures
Brent Crude Penultimate Financial December 2011		897	$	14,556,190		17.47	%
Brent Crude Penultimate Financial June 2012		200		5,788,000		6.95	%
Brent Crude June 2012		850		5,968,500		7.16	%
Other Brent Crude May 2011 - December 2011		1,676		2,629,740		3.16	%
Heating Oil November 2011		1,000		9,021,600		10.82	%
Heating Oil January 2012		1,000		8,748,600		10.50	%
LME Aluminum May 2011		40		135,000		0.16	%
LME Aluminum June 2011		6,920		11,234,456		13.48	%
Wheat July 2011		914		6,952,850		8.34	%
Other Wheat May 2011 - December 2011		2,517		3,200,275		3.84	%
WTI Crude June 2011		2,757		7,153,420		8.58	%
WTI Crude July 2011		951		4,741,680		5.69	%
WTI Crude December 2012		2,225		7,651,870		9.18	%
WTI Crude December 2013		300		400,250		0.48	%
Other commodity				15,148,941		18.18	%
Total futures				103,331,372		123.99	%
Swaps
Gasoline December 2011		27		7,917,750		9.50	%
Total swaps				7,917,750		9.50	%

25

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, 2011.

Description	Number of Contracts			Fair Value			Percentage of Net Assets of Master Fund
Graham Commodity Strategies LLC (continued)
Short contracts
Futures
Brent Crude Penultimate Financial December 2012		(1,097	)	$	(16,933,990	)		(20.32	)%
Brent Crude Penultimate Financial June 2011		(3	)		(115,320	)		(0.14	)%
Brent Crude Oil June 2011		(847	)		(6,031,620	)		(7.24	)%
Other Brent Crude Oil December 2012 - December 2013		(1,413	)		(1,964,360	)		(2.36	)%
Gas Oil June 2012		(1,140	)		(7,275,650	)		(8.73	)%
Gas Oil December 2011		(220	)		(267,850	)		(0.32	)%
Heating Oil December 2011		(2,000	)		(17,728,200	)		(21.28	)%
Other Heating Oil May 2011 - June 2011		(553	)		(89,002	)		(0.11	)%
LME Aluminum May 2011		(40	)		(133,000	)		(0.16	)%
LME Aluminum June 2011		(6,884	)		(13,336,656	)		(16.00	)%
WTI Crude May 2011		(3,449	)		(8,891,490	)		(10.67	)%
WTI Crude December 2011		(1,955	)		(6,916,940	)		(8.30	)%
Other commodity					(12,892,538	)		(15.46	)%
Total futures					(92,576,616	)		(111.09	)%
Swaps
Gasoline June 2012		(27	)		(7,121,250	)		(8.54	)%
Total swaps					(7,121,250	)		(8.54	)%
Total				$	11,551,256			13.86	%

26

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3.  Investments in Master Funds (continued)

The following schedules display the condensed schedules of investments for the Master Funds as of March 31, 2011.

Description	Number of Contracts		Fair Value			Percentage of Net Assets of Master Fund
Graham Discretionary Energy Trading III LLC
Long contracts
Futures
Brent Crude May 2011 - June 2012		2,453	$	2,973,070			12.48	%
Globex Crude Oil June 2011		75		1,743,000			7.32	%
Globex Crude Oil December 2011		500		11,505,000			48.31	%
Globex RBOB Gasoline June 2011		675		12,729,150			53.46	%
Heating Oil May 2011		600		5,061,706			21.25	%
Heating Oil July 2011		500		7,610,459			31.96	%
Heating Oil December 2012		801		1,665,917			7.00	%
Heating Oil June 2011		504		586,496			2.46	%
WTI Crude July 2011		500		3,960,000			16.63	%
WTI Crude December 2011		250		1,737,100			7.29	%
WTI Crude June 2011		1,202		3,692,180			15.51	%
Other commodity				(298,939	)		(1.26	)%
Total futures				52,965,139			222.41	%
Options
Crude Oil Future May 2011, $106.50 Put		500		1,245,000			5.23	%
Crude Oil Future May 2011, $95.00 Put		1,800		270,000			1.13	%
Crude Oil Future May 2011, $110.00 Call		500		690,000			2.90	%
Crude Oil Future Calendar Spread, July 2011 – December 2011, $0.10 - $1.00 Put		24,000		6,350,000			26.66	%
Natural Gas October 2011, $4.50 Call		500		2,641,000			11.09	%
Natural Gas May 2011, $4.50 Call		500		598,000			2.51	%
Total options				11,794,000			49.52	%
Swaps
Natural Gas April 2012		8,800		1,700,000			7.14	%
Other Natural Gas November 2011 – January 2012		2,572		398,430			1.67	%
Total swaps				2,098,430			8.81	%

27

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3.  Investments in Master Funds (continued)

The following schedules display the condensed schedules of investments for the Master Funds as of March 31, 2011.

Description	Number of Contracts			Fair Value			Percentage of Net Assets of Master Fund
Graham Discretionary Energy Trading III LLC (continued)
Short contracts
Futures
Brent Crude September 2011		(1,000	)	$	(2,187,980	)		(9.19	)%
Brent Crude December 2011		(1,277	)		(3,481,320	)		(14.62	)%
Globex Heating Oil June 2011		(750	)		(12,058,200	)		(50.63	)%
Heating Oil June 2012		(801	)		(1,663,733	)		(6.99	)%
Other Heating Oil November 2011 - January 2012		(800	)		(2,264,220	)		(9.51	)%
WTI Crude ICE December 2011		(250	)		(2,037,500	)		(8.55	)%
WTI Crude ICE May 2011 – December 2012		(731	)		(1,542,200	)		(6.48	)%
Other commodity					(353,677	)		(1.48	)%
Total futures					(25,588,830	)		(107.45	)%
Options
Commodity					(100,000	)		(0.42	)%
Total options					(100,000	)		(0.42	)%
Swaps
Natural Gas October 2011		(11,048	)		(3,589,230	)		(15.07	)%
Total swaps					(3,589,230	)		(15.07	)%
Total				$	37,579,509			157.80	%

28

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3.  Investments in Master Funds (continued)

The following schedules display the condensed schedules of investments for the Master Funds as of March 31, 2011.

Description	Number of Contracts			Fair Value			Percentage of Net Assets of Master Fund
Graham Energy Focus LLC
Long contracts
Futures
Natural Gas October 2011 - April 2013		1,861		$	1,520,340			6.51	%
WTI Crude ICE May 2011 - December 2012		272			2,285,020			9.79	%
Other commodity					750,202			3.21	%
Total futures					4,555,562			19.51	%
Options
Natural Gas October 2011, $4.50 Call		400			2,112,800			9.05	%
Natural Gas May 2011 - March 2012, $3.95 - $4.80 Call		1,400			6,822,100			29.21	%
Natural May 2011 - October 2012, $3.50  - $4.80 Put		2,650			6,110,400			26.17	%
Total options					15,045,300			64.43	%
Swaps
Natural Gas October 2011		3,445			1,237,600			5.30	%
Natural Gas January 2012		7,454			1,636,500			7.01	%
Natural Gas February 2012		1,740			1,199,585			5.14	%
Other Natural Gas May 2011 - December 2013		8,791			3,350,173			14.34	%
Total swaps					7,423,858			31.79	%
Short contracts
Futures
Natural Gas July 2011		(1,868	)		(2,175,170	)		(9.31	)%
Natural Gas January 2012		(2,629	)		(6,252,790	)		(26.78	)%
Other Natural Gas May 2011 - December 2012		(932	)		(2,678,220	)		(11.46	)%
Other commodity					(1,792,483	)		(7.68	)%
Total futures					(12,898,663	)		(55.23	)%
Options
Natural Gas May 2011 - October 2011, $4.15 - $5.50 Call		(3,500	)		(4,287,050	)		(18.36	)%
Natural Gas May 2011 - March 2012, $4.00 - $4.25 Call		(1,350	)		(1,681,150	)		(7.20	)%
Other commodity					(30,000	)		(0.13	)%
Total options					(5,998,200	)		(25.69	)%
Swaps
Natural Gas November 2011		(2,030	)		(1,968,250	)		(8.43	)%
Other Natural Gas May 2011 – December 2013		(7,308	)		(791,705	)		(3.39	)%
Total swaps					(2,759,955	)		(11.82	)%
Total				$	5,367,902			22.99	%

29

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3. Investments in Master Funds (continued)

The following schedules display the condensed schedules of investments for the Master Funds as of March 31, 2011.

Description	Number of Contracts			Fair Value			Percentage of Net Assets of Master Fund
Graham Fed Policy Ltd.
Long contracts
Futures
30 Day Fed Fund August 2011		7,848		$	2,528,619			5.61	%
Other 30 Day Fed Fund April 2011 - June 2012		26,317			7,071,462			15.67	%
Total futures					9,600,081			21.28	%
Options
Eurodollar futures March 2012, $98.63 Put		20,000			6,875,000			15.24	%
Eurodollar futures March 2012, $99.38 Put		20,000			18,625,000			41.29	%
30 Day Fed Fund futures June 2011, $99.81 Call		9,188			2,297,182			5.09	%
30 Day Fed Fund futures April 2011 - December 2011, $99.75 - $99.81 Call		57,419			11,396,904			25.26	%
30 Day Fed Fund futures September 2011, $99.88 Put		12,100			3,781,552			8.38	%
30 Day Fed Fund futures April 2011 - October 2011, $99.75 - $99.88 Put		26,335			3,100,613			6.87	%
Total options					46,076,251			102.13	%
Short contracts
Futures
Interest rate					517,895			1.15	%
Total futures					517,895			1.15	%
Options
Eurodollar futures March 2012, $98.75 Put		(20,000	)		(8,125,000	)		(18.01	)%
Eurodollar futures March 2012, $99.25 Put		(20,000	)		(15,875,000	)		(35.19	)%
30 Day Fed Fund futures September 2011, $99.81 Put		(24,200	)		(4,033,655	)		(8.94	)%
30 Day Fed Fund futures April 2011 - December 2011, $99.88 - $99.94 Call		(139,812	)		(4,831,992	)		(10.71	)%
30 Day Fed Fund futures July 2011 - December 2011, $99.75 - $99.81 Put		(27,650	)		(3,361,206	)		(7.45	)%
Total options					(36,226,853	)		(80.30	)%
Total				$	19,967,374			44.26	%

30

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3.  Investments in Master Funds (continued)

The following schedules display the condensed schedules of investments for the Master Funds as of March 31, 2011.

Description	Principal  Amount	Fair Value			Percentage of Net Assets of Master Fund
Graham Global Monetary Policy LLC
Long contracts
Futures
Commodity		$	1,613,130			4.48	%
Interest rate			1,172,679			3.26	%
Total futures			2,785,809			7.74	%
Options
Commodity			345,000			0.96	%
Foreign currency			82,005			0.23	%
Total options			427,005			1.19	%
Forwards
Chinese Yuan / U.S. Dollar 06/17/2011	CNY        338,000,000		1,870,722			5.20	%
Korean Won / U.S. Dollar 04/18/2011	KRW 85,155,500,000		2,164,219			6.01	%
Other foreign currency			1,641,681			4.56	%
Total forwards			5,676,622			15.77	%
Short contracts
Futures
U.S. bond			(323,187	)		(0.90	)%
Foreign bond			128,741			0.36	%
Commodity			(551,860	)		(1.53	)%
Interest rate			(7,374	)		(0.02	)%
Total futures			(753,680	)		(2.09	)%
Options
Commodity			(50,000	)		(0.14	)%
Total options			(50,000	)		(0.14	)%
Forwards
Foreign currency			(3,941,113	)		(10.95	)%
Total forwards			(3,941,113	)		(10.95	)%
Total		$	4,144,643			11.52	%

31

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3.  Investments in Master Funds (continued)

The following schedules display the condensed schedules of investments for the Master Funds as of March 31, 2011.

Description	Principal Amount	Fair Value			Percentage of Net Assets of Master Fund
Graham K4D Trading Ltd.
Long contracts
Futures
U.S. bond		$	(1,693,870	)		(0.50	)%
Foreign bond			1,076,899			0.32	%
U.S. index			8,356,229			2.46	%
Foreign index			6,955,415			2.05	%
Commodity			25,056,183			7.38	%
Interest rate			(958,759	)		(0.28	)%
Currency			4,703,445			1.39	%
Total futures			43,495,452			12.82	%
Forwards
Australian Dollar / U.S. Dollar 04/20/11	AUD    2,270,409,210		69,879,791			20.59	%
Canadian Dollar / U.S. Dollar 04/20/11	CAD    2,993,928,486		26,032,783			7.67	%
Euro / Japanese Yen 04/20/11	EUR        722,878,081		31,067,277			9.15	%
Euro / U.S. Dollar 04/20/11	EUR     2,425,359,120		44,098,568			12.99	%
Japanese Yen / U.S. Dollar 04/20/11	JPY  265,224,580,054		(56,456,018	)		(16.63	)%
New Zealand Dollar / U.S. Dollar 04/20/11	NZD       848,309,198		21,101,112			6.22	%
Other foreign currency			82,745,920			24.38	%
Total forwards			218,469,433			64.37	%

32

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, 2011.

Description	Principal  Amount	Fair Value			Percentage of Net Assets of Master Fund
Graham K4D Trading Ltd. (continued)
Short contracts
Futures
U.S. bond		$	393,672			0.12	%
Foreign bond			12,829,370			3.77	%
Foreign index			(6,392,370	)		(1.88	)%
Commodity			(4,114,279	)		(1.21	)%
Interest rate			5,053,667			1.49	%
Currency			807,195			0.24	%
Total futures			8,577,255			2.53	%
Forwards
Australian Dollar / U.S. Dollar 04/20/11	AUD   (1,943,684,931)		(62,352,863	)		(18.37	)%
Canadian Dollar / U.S. Dollar 04/20/11	CAD   (2,566,882,066)		(33,800,932	)		(9.96	)%
Euro / Japanese Yen 04/20/11	EUR       (644,173,895)		(29,021,433	)		(8.55	)%
Euro / U.S. Dollar 04/20/11	EUR    (2,227,734,366)		(44,146,754	)		(13.01	)%
Japanese Yen / U.S. Dollar 04/20/11	JPY (255,219,960,505)		54,118,737			15.95	%
New Zealand Dollar / U.S. Dollar 04/20/11	NZD      (896,997,648)		(24,523,202	)		(7.23	)%
Other foreign currency			(80,287,277	)		(23.66	)%
Total forwards			(220,013,724	)		(64.83	)%
Total		$	50,528,506			14.89	%

33

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, 2011.

Description	Number of Contracts		Fair Value			Percentage of Net Assets of Master Fund
Graham Macro Directional LLC
Long contracts
Futures
Gold June 2011		150	$	293,050			5.84	%
U.S. index				(37,500	)		(0.75	)%
Total futures				255,550			5.09	%
Total			$	255,550			5.09	%

34

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, 2011:

	Graham Commodity Strategies LLC			Graham Discretionary Energy Trading III LLC			Graham Energy Focus LLC			Graham Fed Policy Ltd.			Graham Global Monetary  Policy LLC			Graham K4D Trading Ltd.			Graham Macro Directional LLC
Long Contracts
Level 1:
U.S. bond futures	$	-		$	-		$	-		$	-		$	-		$	(1,693,870	)	$	-
Foreign bond futures		-			-			-			-			-			1,076,899			-
U.S. index futures		-			-			-			-			-			8,356,229			(37,500	)
Foreign index futures		-			-			-			-			-			6,955,415			-
Commodity futures		103,331,372			52,965,139			4,555,562			-			1,613,130			25,056,183			293,050
Commodity futures options		-			11,794,000			15,045,300			-			345,000			-			-
Commodity swaps		7,917,750			2,098,430			7,423,858			-			-			-			-
Interest rate futures		-			-			-			9,600,081			1,172,679			(958,759	)		-
Interest rate futures options		-			-			-			46,076,251			-			-			-
Currency futures		-			-			-			-			-			4,703,445			-
Total Level 1		111,249,122			66,857,569			27,024,720			55,676,332			3,130,809			43,495,542			255,550
Level 2:
Foreign currency forwards		-			-			-			-			5,676,622			218,469,433			-
Foreign currency forwards options		-			-			-			-			82,005			-			-
Total Level 2		-			-			-			-			5,758,627			218,469,433			-
Total long contracts	$	111,249,122		$	66,857,569		$	27,024,720		$	55,676,332		$	8,889,436		$	261,964,975		$	255,550
Short Contracts
Level 1:
U.S. bond futures	$	-		$	-		$	-		$	-		$	(323,187	)	$	393,672		$	-
Foreign bond futures		-			-			-			-			128,741			12,829,370			-
Foreign index futures		-			-			-			-			-			(6,392,370	)		-
Commodity futures		(92,576,616	)		(25,588,830	)		(12,898,663	)		-			(551,860	)		(4,114,279	)		-
Commodity futures options		-			(100,000	)		(5,998,200	)		-			(50,000	)		-			-
Commodity swaps		(7,121,250	)		(3,589,230	)		(2,759,955	)		-			-			-			-
Interest rate futures		-			-			-			517,895			(7,374	)		5,053,667			-
Interest rate futures options		-			-			-			(36,226,853	)		-			-			-
Currency futures		-			-			-			-			-			807,195			-
Total Level 1		(99,697,866	)		(29,278,060	)		(21,656,818	)		(35,708,958	)		(803,680	)		8,577,255			-
Level 2:
Foreign currency forwards		-			-			-			-			(3,941,113	)		(220,013,724	)		-
Total Level 2		-			-			-			-			(3,941,113	)		(220,013,724	)		-
Total short contracts	$	(99,697,866	)	$	(29,278,060	)	$	(21,656,818	)	$	(35,708,958	)	$	(4,744,793	)	$	(211,436,469	)	$	-

35

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, 2011categorized by primary underlying risk.  Derivatives denominated in foreign currencies have been converted to U.S. dollars.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting. Amounts presented below as collateral balances supporting all derivative positions are included in due from / (to) brokers on the respective Master Fund’s statement of financial position.

	Graham Commodity Strategies LLC															Graham Discretionary Energy Trading III LLC
	Long exposure				Short exposure											Long exposure				Short exposure
	Notional amounts		Number of contracts		Notional amounts			Number of contracts			Derivative Assets		Derivative Liabilities			Notional amounts		Number of contracts		Notional amounts			Number of contracts			Derivative Assets		Derivative Liabilities
Commodity price
Futures	$	3,125,470,679		39,677	$	(2,776,326,546	)		(37,009	)	$	112,336,594	$	(101,581,838	)	$	1,095,037,792		37,955	$	(931,009,729	)		(9,460	)	$	56,270,758	$	(28,894,449	)
Swaps		26,777,250		27		(26,514,000	)		(27	)		7,917,750		(7,121,250	)		138,594,740		11,372		(127,521,540	)		(11,048	)		2,300,000		(3,790,800	)
		3,152,247,929		39,704		(2,802,840,546	)		(37,036	)		120,254,344		(108,703,088	)		1,233,632,532		49,327		(1,058,531,269	)		(20,508	)		58,570,758		(32,685,249	)
Equity price
Futures		-		-		-			-			-		-			-		-		-			-			-		-
		-		-		-			-			-		-			-		-		-			-			-		-
Foreign currency exchange rate
Futures		-		-		-			-			-		-			-		-		-			-			-		-
Forwards		-		-		-			-			-		-			-		-		-			-			-		-
		-		-		-			-			-		-			-		-		-			-			-		-
Interest rate
Futures		-		-		-			-			-		-			-		-		-			-			-		-
		-		-		-			-			-		-			-		-		-			-			-		-
Total	$	3,152,247,929		39,704	$	(2,802,840,546			(37,036	)	$	120,254,344		(108,703,088	)	$	1,233,632,532		49,327	$	(1,058,531,269	)		(20,508	)	$	58,570,758	$	(32,685,249	)
Collateral balances supporting all derivative positions													$	71,788,618														$	(13,764,783	)

36

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, 2011categorized by primary underlying risk.  Derivatives denominated in foreign currencies have been converted to U.S. dollars.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting. Amounts presented below as collateral balances supporting all derivative positions are included in due from / (to) brokers on the respective Master Fund’s statement of financial position.

	Graham Energy Focus LLC															Graham Fed Policy Ltd.
	Long exposure				Short exposure											Long exposure				Short exposure
	Notional amounts		Number of contracts		Notional amounts			Number of contracts			Derivative Assets		Derivative Liabilities			Notional amounts		Number of contracts		Notional amounts			Number of contracts			Derivative Assets		Derivative Liabilities
Commodity price
Futures	$	186,982,608		10,116	$	(333,793,798	)		(11,913	)	$	4,893,505	$	(13,236,606	)	$	-		-	$	-			-		$	-	$	-
Swaps		263,191,915		21,430		(114,490,450	)		(9,338	)		7,936,763		(3,272,860	)		-		-		-			-			-		-
		450,174,523		31,546		(448,284,248	)		(21,251	)		12,830,268		(16,509,466	)		-		-		-			-			-		-
Equity price
Futures		-		-		-			-			-		-			-		-		-			-			-		-
		-		-		-			-			-		-			-		-		-			-			-		-
Foreign currency exchange rate
Futures		-		-		-			-			-		-			-		-		-			-			-		-
Forwards		-		-		-			-			-		-			-		-		-			-			-		-
		-		-		-			-			-		-			-		-		-			-			-		-
Interest rate
Futures		-		-		-			-			-		-			14,213,286,597		34,165		(713,690,966	)		(1,722	)		10,466,254		(348,278	)
		-		-		-			-			-		-			14,213,286,597		34,165		(713,690,966	)		(1,722	)		10,466,254		(348,278	)
Total	$	450,174,523		31,546	$	(448,284,248	)		(21,251	)	$	12,830,268	$	(16,509,466	)	$	14,213,286,597		34,165	$	(713,690,966	)		(1,722	)	$	10,466,254	$	(348,278	)
Collateral balances supporting all derivative positions													$	17,984,242														$	25,147,965

37

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, 2011categorized by primary underlying risk.  Derivatives denominated in foreign currencies have been converted to U.S. dollars.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting. Amounts presented below as collateral balances supporting all derivative positions are included in due from / (to) brokers on the respective Master Fund’s statement of financial position.

	Graham Global Monetary Policy LLC															Graham K4D Trading Ltd.
	Long exposure				Short exposure											Long exposure				Short exposure
	Notional amounts		Number of contracts		Notional amounts			Number of contracts			Derivative Assets		Derivative Liabilities			Notional amounts		Number of contracts		Notional amounts			Number of contracts			Derivative Assets		Derivative Liabilities
Commodity price
Futures	$	103,187,500		1,700	$	(54,108,000	)		(1,450	)	$	1,761,270	$	(700,000	)	$	1,216,608,649		14,239	$	(237,850,835	)		(3,751	)	$	33,002,810	$	(12,060,906	)
		103,187,500		1,700		(54,108,000	)		(1,450	)		1,761,270		(700,000	)		1,216,608,649		14,239		(237,850,835	)		(3,751	)		33,002,810		(12,060,906	)
Equity price
Futures		-		-		-			-			-		-			780,831,862		11,792		(174,585,658	)		(1,691	)		17,713,871		(8,794,597	)
		-		-		-			-			-		-			780,831,862		11,792		(174,585,658	)		(1,691	)		17,713,871		(8,794,597	)
Foreign currency exchange rate
Futures		-		-		-			-			-		-			305,790,215		2,727		(221,066,583	)		(2,632	)		6,391,645		(881,005	)
Forwards		1,931,095		-		(1,679,020	)		-			2,199,243		(463,734	)		64,401,562		-		(62,576,740	)		-			61,240,470		(62,784,761	)
		1,931,095		-		(1,679,020	)		-			2,199,243		(463,734	)		370,191,777		2,727		(283,643,323	)		(2,632	)		67,632,115		(63,665,766	)
Interest rate
Futures		1,246,474,710		3,000		(2,054,868,630	)		(9,804	)		1,692,294		(721,435	)		6,684,174,178		25,793		(12,480,888,254	)		(48,233	)		23,293,117		(6,592,138	)
		1,246,474,710		3,000		(2,054,868,630	)		(9,804	)		1,692,294		(721,435	)		6,684,174,178		25,793		(12,480,888,254	)		(48,233	)		23,293,117		(6,592,138	)
Total	$	1,351,593,305		4,700	$	(2,110,655,650	)		(11,254	)	$	5,652,807	$	(1,885,169	)	$	9,051,806,466		54,551	$	(13,176,968,070	)		(56,307	)	$	141,641,913	$	(91,113,407	)
Collateral balances supporting all derivative positions													$	31,843,292														$	288,833,860

38

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, 2011categorized by primary underlying risk.  Derivatives denominated in foreign currencies have been converted to U.S. dollars.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting. Amounts presented below as collateral balances supporting all derivative positions are included in due from / (to) brokers on the respective Master Fund’s statement of financial position.

	Graham Macro Directional LLC
	Long exposure				Short exposure
	Notional amounts		Number of contracts		Notional amounts		Number of contracts		Derivative Assets		Derivative Liabilities
Commodity price
Futures	$	21,598,500		150	$	-		-	$	293,050	$	-
		21,598,500		150		-		-		293,050		-
Equity price
Futures		19,815,000		300		-		-		-		(37,500	)
		19,815,000		300		-		-		-		(37,500	)
Foreign currency exchange rate
Futures		-		-		-		-		-		-
Forwards		-		-		-		-		-		-
		-		-		-		-		-		-
Interest rate
Futures		-		-		-		-		-		-
		-		-		-		-		-		-
Total	$	41,413,500		450	$	-		-	$	293,050	$	(37,500	)
Collateral balances supporting all derivative positions											$	4,762,663

39

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 months ended March 31, 2011:

	Graham Commodity Strategies LLC (Delaware)			Graham Discretionary Energy Trading III 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)			Graham Short Term Global Macro LLC (Delaware)
Net investment income (loss)	$	(4,480	)	$	968		$	(8,821	)	$	(1,120	)	$	(28,130	)	$	(83,866	)	$	(557	)	$	1,186
Net realized gain (loss) on investments		70,342,613			561,787			(3,932,204	)		15,588,830			20,968,150			(47,163,832	)		(21,781,890	)		3,960,455
Net increase (decrease) in appreciation on investments		(25,420,622	)		3,834,874			(2,102,378	)		(1,353,759	)		3,743,874			5,253,462			279,691			(1,898,136	)
Brokerage commissions and fees		(1,833,702	)		(850,714	)		(386,480	)		(584,561	)		(713,576	)		(3,291,928	)		(318,998	)		(548,562	)
Net gain (loss) on investments		43,088,289			3,545,947			(6,421,062	)		13,650,510			23,998,448			(45,202,298	)		(21,821,197	)		1,513,757
Net income (loss)	$	43,083,809		$	3,546,915		$	(6,429,883	)	$	13,649,390		$	23,970,318		$	(45,286,164	)	$	(21,821,754	)	$	1,514,943

40

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 gain (loss) on investments in their statements of operations segregated by primary underlying risk and contract type for the three months ended March 31, 2011:

	Graham Commodity Strategies LLC		Graham Discretionary Energy Trading III LLC			Graham Energy Focus LLC			Graham Fed Policy Ltd.			Graham Global Monetary Policy LLC			Graham K4D Trading Ltd.			Graham Macro Directional LLC			Graham Short Term Global Macro LLC
Commodity price
Futures	$	44,631,741	$	7,266,514		$	(11,350,526	)	$	9,566,143		$	5,797,601		$	44,811,512		$	(634,480	)	$	3,852,769
Options		-		(3,803,688	)		3,005,179			-			207,880			-			-			(223,490	)
Swaps		290,250		933,835			2,310,765			-			-			-			-			-
		44,921,991		4,396,661			(6,034,582	)		9,566,143			6,005,481			44,811,512			(634,480	)		3,629,279
Equity price
Futures		-		-			-			-			(4,947,186	)		(40,301,211	)		(301,661	)		1,134,945
Options		-		-			-			-			-			-			-			(427,187	)
		-		-			-			-			(4,947,186	)		(40,301,211	)		(301,661	)		707,758
Foreign currency exchange rate
Futures		-		-			-			-			-			(5,461,945	)		-			-
Forwards		-		-			-			-			41,508,124			(24,055,983	)		(12,277,803	)		5,706,028
Options		-		-			-			-			(12,578,583	)		-			-			(7,400,670	)
		-		-			-			-			28,929,541			(29,517,928	)		(12,277,803	)		(1,694,642	)
Interest rate
Bonds		-		-			-			-			-			-			-			-
Futures		-		-			-			7,646,707			(4,830,499	)		(16,902,743	)		(8,288,255	)		(580,076	)
Options		-		-			-			(2,977,779	)		(445,313	)		-			-			-
		-		-			-			4,668,928			(5,275,812	)		(16,902,743	)		(8,288,255	)		(580,076	)
Total	$	44,921,991	$	4,396,661		$	(6,034,582	)	$	14,235,071		$	24,712,024		$	(41,910,370	)	$	(21,502,199	)	$	2,062,319

41

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, 2010:

	Graham Commodity Strategies LLC (Delaware)			Graham Discretionary Energy Trading III LLC (Delaware)			Graham Fed Policy Ltd. (BVI)			Graham Global Monetary Policy LLC (Delaware)			Graham K4D Trading Ltd. (BVI)			Graham Macro Directional LLC (Delaware)			Graham Short Term Global Macro LLC (Delaware)
Assets:
Due from brokers	$	14,527,187		$	-		$	23,563,039		$	42,869,239		$	135,887,098		$	1,286,040		$	246,023
Options, at fair value		-			2,165,000			15,955,481			603,151			-			-			47,256
Derivative financial instruments, at fair value		36,971,878			16,379,776			11,613,647			-			45,743,328			173,923			-
Subscriptions receivable		-			-			1,739			340			-			-			-
Interest receivable		-			-			-			3,056			9,100			113			-
Total assets		51,499,065			18,544,776			51,133,906			43,475,786			181,639,526			1,460,076			293,279
Liabilities:
Options, at fair value		-			182,500			3,958,218			-			-			-			-
Derivative financial instruments, at fair value		-			-			-			3,185,389			-			-			105,751
Due to brokers		-			6,241,250			-			530,100			-			-			41,070
Redemptions payable		-			-			-			220			-			-			-
Total liabilities		-			6,423,750			3,958,218			3,715,709			-			-			146,821
Net assets	$	51,499,065		$	12,121,026		$	47,175,688		$	39,760,077		$	181,639,526		$	1,460,076		$	146,458
Percentage of Master Fund held by the Fund		14.76	%		13.95	%		14.22	%		8.97	%		13.23	%		18.38	%		28.67	%

42

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, 2010.

Description	Number of Contracts		Fair Value		Percentage of Net Assets of Master Fund
Graham Commodity Strategies LLC
Long contracts
Futures
Brent Crude Penultimate Financial December 2011		1,095	$	14,633,650		28.42	%
Brent Crude Penultimate Financial June 2012		200		2,036,000		3.95	%
Other Brent Crude December 2011 - June 2011		1,277		3,601,460		6.99	%
Coffee March 2011		396		4,360,950		8.47	%
Corn July 2011		3,991		18,055,400		35.06	%
Corn December 2011		48		153,788		0.30	%
Heating Oil March 2011		527		5,647,421		10.97	%
Other Heating Oil February 2011 - June 2011		397		264,810		0.51	%
LME Aluminum March 2011		1,590		2,988,131		5.80	%
LME Aluminum January 2011		723		2,143,550		4.16	%
LME Copper January 2011		172		2,952,825		5.73	%
LME Copper March 2011		359		2,598,425		5.05	%
LME Lead January 2011		511		3,757,844		7.30	%
LME Lead March 2011		315		641,800		1.25	%
LME Zinc March 2011		1,566		4,704,131		9.13	%
LME Zinc January 2011		633		2,228,906		4.33	%
Soybean July 2011		613		4,537,487		8.81	%
Soybean November 2011		102		280,350		0.54	%
Wheat July 2011		1,414		7,393,413		14.36	%
Wheat March 2011		1,044		5,075,512		9.86	%
Other Wheat May 2011 - December 2011		1,676		4,151,525		8.06	%
WTI Crude April 2011		2,180		4,866,480		9.45	%
WTI Crude December 2012		2,529		18,709,570		36.33	%
Other commodity				10,047,962		19.51	%
Total futures				125,831,390		244.34	%

43

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, 2010.

Description	Number of Contracts			Fair Value			Percentage of Net Assets of Master Fund
Graham Commodity Strategies LLC (continued)
Short contracts
Futures
Brent Crude Penultimate Financial December 2012		(1,295	)	$	(13,292,950	)		(25.81	)%
Brent Crude Penultimate Financial June 2011		(3	)		(49,020	)		(0.10	)%
Brent Crude December 2012		(1,143	)		(5,592,330	)		(10.86	)%
Coffee May 2011		(338	)		(4,695,019	)		(9.12	)%
Corn March 2011		(3,625	)		(9,012,475	)		(17.50	)%
Gas Oil March 2011		(646	)		(3,626,950	)		(7.04	)%
Gas Oil January 2011 - June 2012		(53	)		(108,375	)		(0.22	)%
LME Aluminum January 2011 - March 2011		(2,207	)		(3,806,831	)		(7.39	)%
LME Copper January 2011		(173	)		(2,962,525	)		(5.75	)%
LME Copper March 2011		(327	)		(2,328,450	)		(4.52	)%
LME Lead January 2011 - March 2011		(826	)		(3,205,319	)		(6.22	)%
LME Zinc January 2011		(634	)		(4,078,794	)		(7.92	)%
LME Zinc March 2011		(1,494	)		(5,237,125	)		(10.17	)%
Wheat July 2011		(2,459	)		(5,308,537	)		(10.31	)%
Wheat March 2011		(688	)		(4,981,550	)		(9.67	)%
Wheat May 2011		(795	)		(849,025	)		(1.65	)%
WTI Crude February 2011		(2,758	)		(5,155,560	)		(10.01	)%
WTI Crude December 2011		(1,829	)		(7,981,680	)		(15.50	)%
Other commodity					(6,586,997	)		(12.79	)%
Total futures					(88,859,512	)		(172.55	)%
Total				$	36,971,878			71.79	%

44

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, 2010.

Description	Number of Contracts		Fair Value		Percentage of Net Assets of Master Fund
Graham Discretionary Energy Trading III LLC
Long contracts
Futures
Brent Crude February 2011		330	$	977,500		8.07	%
Brent Crude April 2011		330		974,400		8.04	%
Gasoline RBOB February 2011 – June 2011		1,025		7,896,193		65.14	%
Globex RBOB Gasoline June 2011		475		2,643,060		21.81	%
Globex Crude Oil June 2011		75		733,500		6.05	%
Globex Crude Oil December 2011		500		4,600,000		37.95	%
Heating Oil December 2011		1,650		14,407,478		118.86	%
Heating Oil August 2011		500		412,012		3.40	%
Natural Gas October 2011		721		1,138,980		9.40	%
Other commodity				594,381		4.90	%
Total futures				34,377,504		283.62	%
Options
Crude Oil Future April 2011, $100.00 Call		500		1,010,000		8.33	%
Crude Oil Future, February 2011 - March 2011 $(0.50) - $85.00 Put		3,450		1,155,000		9.53	%
Total options				2,165,000		17.86	%
Swaps
Natural Gas Swap April 2011		4,540		1,872,750		15.45	%
Natural Gas Swap October 2011		2,124		933,360		7.70	%
Natural Gas Swap November 2011		2,000		950,000		7.84	%
Total swaps				3,756,110		30.99	%

45

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, 2010.

Description	Number of Contracts			Fair Value			Percentage of Net Assets of Master Fund
Graham Discretionary Energy Trading III LLC (continued)
Short contracts
Futures
Brent Crude March 2011		(660	)	$	(1,900,100	)		(15.68	)%
Globex Heat Oil June 2011		(550	)		(2,936,850	)		(24.23	)%
Heating Oil June 2011		(1,325	)		(5,756,297	)		(47.49	)%
Heating Oil July 2011		(1,000	)		(836,611	)		(6.90	)%
Heating Oil June 2012		(75	)		(239,350	)		(1.97	)%
Natural Gas April 2011		(1,135	)		(1,872,750	)		(15.45	)%
Natural Gas November 2011		(500	)		(840,220	)		(6.93	)%
Natural Gas January 2012 - April 2012		(302	)		(314,660	)		(2.60	)%
WTI Crude June 2011		(775	)		(4,299,500	)		(35.47	)%
WTI Crude December 2011		(500	)		(976,750	)		(8.06	)%
WTI Crude April 2011		(125	)		(363,750	)		(3.00	)%
Total futures					(20,336,838	)		(167.78	)%
Options
Commodity					(182,500	)		(1.51	)%
Total options					(182,500	)		(1.51	)%
Swaps
Natural Gas Swap January 2012		(1,800	)		(837,000	)		(6.91	)%
Natural Gas Swap April 2012		(2,000	)		(580,000	)		(4.78	)%
Total swaps					(1,417,000	)		(11.69	)%
Total				$	18,362,276			151.49	%

46

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, 2010.

Description	Number of Contracts			Fair Value			Percentage of Net Assets of Master Fund
Graham Fed Policy Ltd.
Long contracts
Futures
30 Day Fed Fund February 2011		4,831		$	2,646,031			5.61	%
Other 30 Day Fed Fund January 2011 - June 2012		50,026			8,927,649			18.92	%
Total futures					11,573,680			24.53	%
Options
30 Day Fed Fund futures February 2011, $99.75 Call		11,350			3,310,682			7.02	%
Other 30 Day Fed Fund futures January 2011 - December 2011, $99.69 - $99.81 Call		74,106			11,797,652			25.01	%
30 Day Fed Fund futures January 2011 - February 2011, $99.63 - $99.75 Put		30,823			409,647			0.87	%
Other interest rate futures					437,500			0.93	%
Total options					15,955,481			33.83	%
Short contracts
Futures
30 Day Fed Fund December 2010 - July 2012		(2,849	)		39,967			0.08	%
Total futures					39,967			0.08	%
Options
30 Day Fed Fund futures January 2011 - December 2011, $99.81 - $99.94 Call		(178,751	)		(3,833,213	)		(8.13	)%
30 Day Fed Fund futures January 2011, $99.69 Put		(6,000	)		(62,505	)		(0.13	)%
Other interest rate futures					(62,500	)		(0.13	)%
Total options					(3,958,218	)		(8.39	)%
Total				$	23,610,910			50.05	%

47

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, 2010.

Description	Number of Contracts / Principal  Amount		Fair Value			Percentage of Net Assets of Master Fund
Graham Global Monetary Policy LLC
Long contracts
Futures
Commodity			$	833,980			2.10	%
Interest rate				1,570,955			3.95	%
Total futures				2,404,935			6.05	%
Options
Foreign currency				603,151			1.52	%
Total options				603,151			1.52	%
Forwards
Japanese Yen / U.S. Dollar 01/04/11	JPY 35,703,594,900			2,677,452			6.73	%
Japanese Yen / U.S. Dollar 01/05/11	JPY 34,708,122,000			2,429,135			6.11	%
Chinese Yuan / U.S. Dollar 06/17/11 - 06/27/11	CNY     471,400,000			2,318,175			5.83	%
Australian Dollar / U.S. Dollar 01/04/11 - 01/05/11	AUD    550,000,000			3,850,775			9.68	%
Other foreign currency				(474,653	)		(1.19	)%
Total forwards				10,800,884			27.16	%
Short contracts
Futures
Euroswiss March 2011		(7,500)		(2,070,419	)		(5.21	)%
Other interest rate				(1,009,594	)		(2.53	)%
U.S. bond				(37,016	)		(0.09	)%
Foreign bond				641,195			1.61	%
Commodity				(770,200	)		(1.94	)%
Total futures				(3,246,034	)		(8.16	)%
Forwards
Australian Dollar / U.S. Dollar  01/04/11	AUD    (450,000,000)			(3,909,044	)		(9.83	)%
Other Australian Dollar / U.S. Dollar  01/05/11	AUD    (115,000,000)			(192,228	)		(0.48	)%
Japanese Yen / U.S. Dollar 01/04/11	JPY (35,868,141,100)			(4,709,285	)		(11.84	)%
Other Japanese Yen / U.S. Dollar 01/05/11	JPY (40,735,192,000)			(1,652,261	)		(4.16	)%
Other foreign currency				(2,682,356	)		(6.75	)%
Total forwards				(13,145,174	)		(33.06	)%
Total			$	(2,582,238	)		(6.49	)%

48

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, 2010.

Description	Principal Amount	Fair Value			Percentage of Net Assets of Master Fund
Graham K4D Trading Ltd.
Long contracts
Futures
U.S. bond		$	237,741			0.13	%
Foreign bond			1,053,653			0.58	%
U.S. index			3,010,100			1.66	%
Foreign index			(3,683,508	)		(2.03	)%
Commodity			31,911,445			17.57	%
Interest rate			325,182			0.18	%
Currency			4,536,916			2.50	%
Total futures			37,391,529			20.59	%
Forwards
Japanese Yen / U.S. Dollar 01/19/11	JPY   43,988,617,100		11,186,032			6.16	%
Other Japanese Yen / U.S. Dollar 1/04/11 - 1/05/11	JPY   14,270,122,339		796,715			0.44	%
Swiss Franc / U.S. Dollar  01/19/11	CHF       491,922,158		17,376,713			9.57	%
Other foreign currency			28,092,524			15.46	%
Total forwards			57,451,984			31.63	%

49

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, 2010.

Description	Principal  Amount	Fair Value			Percentage of Net Assets of Master Fund
Graham K4D Trading Ltd. (continued)
Short contracts
Futures
U.S. bond		$	(1,546,794	)		(0.85	)%
Foreign bond			(540,937	)		(0.30	)%
Foreign index			(142,959	)		(0.08	)%
Commodity			(4,754,965	)		(2.62	)%
Interest rate			(3,790,967	)		(2.09	)%
Currency			739,824			0.41	%
Total futures			(10,036,798	)		(5.53	)%
Forwards
Japanese Yen / U.S. Dollar 01/19/11	JPY   (36,043,608,800)		(12,993,436	)		(7.15	)%
Other Japanese Yen / U.S. Dollar 1/04/11 - 1/05/11	JPY   (14,111,800,669)		(834,965	)		(0.46	)%
Swiss Franc / U.S. Dollar 01/19/11	CHF       (431,464,200)		(17,247,454	)		(9.50	)%
Other foreign currency			(7,987,532	)		(4.40	)%
Total forwards			(39,063,387	)		(21.51	)%
Total		$	45,743,328			25.18	%

50

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, 2010.

Description	Principal Amount	Fair Value		Percentage of Net Assets of Master Fund
Graham Macro Directional LLC
Long contracts
Futures
Commodity		$	66,430		4.55	%
Total futures			66,430		4.55	%
Forwards
Canadian Dollar / U.S. Dollar 01/04/11	CAD     20,003,980		87,433		5.99	%
Total forwards			87,433		5.99	%
Short Contracts
Futures
Foreign bond			20,060		1.37	%
Total futures			20,060		1.37	%
Total		$	173,923		11.91	%

51

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, 2010.

Description	Principal Amount / Number of Contracts	Fair Value			Percentage of Net Assets of Master Fund
Graham Short Term Global Macro LLC
Long contracts
Futures
S&P 500 E-Mini March 2011	225	$	(16,875	)		(11.52	)%
Total futures			(16,875	)		(11.52	)%
Options
British Pound Put / Swiss Franc Call, $1.47	CHF      10,000,000		47,256			32.27	%
Total options			47,256			32.27	%
Forwards
Chinese Yuan / U.S. Dollar 08/19/11	CNY    334,143,000		1,385,221			945.81	%
Total forwards			1,385,221			945.81	%
Short Contracts
Forwards
Swiss Franc / British Pound 01/05/11	CHF     (7,292,955)		(15,162	)		(10.35	)%
Chinese Yuan / U.S. Dollar 08/19/11	CNY (334,143,000)		(1,458,935	)		(996.15	)%
Total forwards			(1,474,097	)		(1,006.50	)%
Total		$	(58,495	)		(39.94	)%

52

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, 2010:

	Graham Commodity Strategies LLC			Graham Discretionary Energy Trading III LLC			Graham Fed Policy Ltd.			Graham Global Monetary Policy LLC			Graham K4D Trading Ltd.			Graham Macro Directional LLC		Graham Short Term Global Macro LLC
Long Contracts
Level 1:
U.S. bond futures	$	-		$	-		$	-		$	-		$	237,741		$	-	$	-
Foreign bond futures		-			-			-			-			1,053,653			-		-
U.S. index futures		-			-			-			-			3,010,100			-		(16,875	)
Foreign index futures		-			-			-			-			(3,683,508	)		-		-
Commodity futures		125,831,390			34,377,504			-			833,980			31,911,445			66,430		-
Commodity futures options		-			2,165,000			-			-			-			-		-
Commodity swaps		-			3,756,110			-			-			-			-		-
Interest rate futures		-			-			11,573,680			1,570,955			325,182			-		-
Interest rate futures options		-			-			15,955,481			-			-			-		-
Currency futures		-			-			-			-			4,536,916			-		-
Total Level 1		125,831,390			40,298,614			27,529,161			2,404,935			37,391,529			66,430		(16,875	)
Level 2:
Foreign currency forwards		-			-			-			10,800,884			57,451,984			87,433		1,385,221
Foreign currency forwards options		-			-			-			603,151			-			-		47,256
Total Level 2		-			-			-			11,404,035			57,451,984			87,433		1,432,477
Total long contracts	$	125,831,390		$	40,298,614		$	27,529,161		$	13,808,970		$	94,843,513		$	153,863	$	1,415,602
Short Contracts
Level 1:
U.S. bond futures		-			-			-			(37,016	)		(1,546,794	)		-		-
Foreign bond futures		-			-			-			641,195			(540,937	)		20,060		-
Foreign index futures		-			-			-			-			(142,959	)		-		-
Commodity futures		(88,859,512	)		(20,336,838	)		-			(770,200	)		(4,754,965	)		-		-
Commodity futures options		-			(182,500	)		-			-			-			-		-
Commodity swaps		-			(1,417,000	)		-			-			-			-		-
Interest rate futures		-			-			39,967			(3,080,013	)		(3,790,967	)		-		-
Interest rate futures options		-			-			(3,958,218	)		-			-			-		-
Currency futures		-			-			-			-			739,824			-		-
Total Level 1		(88,859,512	)		(21,936,338	)		(3,918,251	)		(3,246,034	)		(10,036,798	)		20,060		-
Level 2:
Foreign currency forwards		-			-			-			(13,145,174	)		(39,063,387	)		-		(1,474,097	)
Total Level 2		-			-			-			(13,145,174	)		(39,063,387	)		-		(1,474,097	)
Total short contracts	$	(88,859,512	)	$	(21,936,338	)	$	(3,918,251	)	$	(16,391,208	)	$	(49,100,185	)	$	20,060	$	(1,474,097	)

53

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3.  Investments in Master Funds (continued)

The following table displays the grossvolume 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, 2010 categorized by primary underlying risk.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting. Amounts presented below as collateral balances supporting all derivative positions are included in due from / (to) brokers on the respective Master Fund’s statement of financial position.

	Graham Commodity Strategies LLC															Graham Discretionary Energy Trading III LLC
	Long exposure				Short exposure											Long exposure				Short exposure
	Notional amounts		Number of contracts		Notional amounts			Number of contracts			Derivative Assets		Derivative Liabilities			Notional amounts		Number of contracts		Notional amounts			Number of contracts			Derivative Assets		Derivative Liabilities
Commodity price
Futures	$	2,051,527,235		30,976	$	(1,894,621,560	)		(29,206	)	$	126,128,889	$	(89,157,011	)	$	670,612,370		6,981	$	(598,798,245	)		(6,947	)	$	34,377,504	$	(20,336,838	)
Swaps		-		-		-			-			-		-			98,880,020		8,664		(48,003,000	)		(3,800	)		3,756,110		(1,417,000	)
		2,051,527,235		30,976		(1,894,621,560	)		(29,206	)		126,128,889		(89,157,011	)		769,492,390		15,645		(646,801,245	)		(10,747	)		38,133,614		(21,753,838	)
Equity price
Futures		-		-		-			-			-		-			-		-		-			-			-		-
		-		-		-			-			-		-			-		-		-			-			-		-
Foreign currency exchange rate
Futures		-		-		-			-			-		-			-		-		-			-			-		-
Forwards		-		-		-			-			-		-			-		-		-			-			-		-
		-		-		-			-			-		-			-		-		-			-			-		-
Interest rate
Futures		-		-		-			-			-		-			-		-		-			-			-		-
		-		-		-			-			-		-			-		-		-			-			-		-
Total	$	2,051,527,235		30,976	$	(1,894,621,560	)		(29,206	)	$	126,128,889	$	(89,157,011	)	$	769,492,390		15,645	$	(646,801,245	)		(10,747	)	$	38,133,614	$	(21,753,838	)
Collateral balances supporting all derivative positions													$	14,527,187														$	(6,241,250	)

54

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3.  Investments in Master Funds (continued)

The following table displays the grossvolume 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, 2010 categorized by primary underlying risk.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting. Amounts presented below as collateral balances supporting all derivative positions are included in due from / (to) brokers on the respective Master Fund’s statement of financial position.

	Graham Fed Policy Ltd.															Graham Global Monetary Policy LLC
	Long exposure				Short exposure											Long exposure				Short exposure
	Notional amounts		Number of  contracts		Notional amounts			Number of  contracts			Derivative Assets		Derivative Liabilities			Notional amounts		Number of contracts		Notional amounts			Number of contracts			Derivative Assets		Derivative Liabilities
Commodity price
Futures	$	-		-	$	-			-		$	-	$	-		$	38,619,000		600	$	(24,200,000	)		(500	)	$	833,980	$	(770,200	)
		-		-		-			-			-		-			38,619,000		600		(24,200,000	)		(500	)		833,980		(770,200	)
Equity price
Futures		-		-		-			-			-		-			-		-		-			-			-		-
		-		-		-			-			-		-			-		-		-			-			-		-
Foreign currency exchange rate
Futures		-		-		-			-			-		-			-		-		-			-			-		-
Forwards		-		-		-			-			-		-			56,025,637,522		-		(46,698,002,524	)		-			15,230,468		(17,574,758	)
		-		-		-			-			-		-			56,025,637,522		-		(46,698,002,524	)		-			15,230,468		(17,574,758	)
Interest rate
Futures		22,811,918,666		54,857		(1,184,445,024	)		(2,849	)		12,217,514		(603,867	)		1,740,487,175		5,000		(2,788,603,000	)		(14,950	)		2,212,150		(3,117,029	)
		22,811,918,666		54,857		(1,184,445,024	)		(2,849	)		12,217,514		(603,867	)		1,740,487,175		5,000		(2,788,603,000	)		(14,950	)		2,212,150		(3,117,029	)
Total	$	22,811,918,666		54,857	$	(1,184,445,024	)		(2,849	)	$	12,217,514	$	(603,867	)	$	57,804,743,697		5,600	$	(49,510,805,524	)		(15,450	)	$	18,276,598	$	(21,461,987	)
Collateral balances supporting all derivative positions													$	23,563,039														$	42,339,139

55

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3.  Investments in Master Funds (continued)

The following table displays the grossvolume 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, 2010 categorized by primary underlying risk.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting. Amounts presented below as collateral balances supporting all derivative positions are included in due from / (to) brokers on the respective Master Fund’s statement of financial position.

	Graham K4D Trading Ltd.															Graham Macro Directional LLC
	Long exposure				Short exposure											Long exposure				Short exposure
	Notional amounts		Number of contracts		Notional amounts			Number  of  contracts			Derivative Assets		Derivative Liabilities			Notional amounts		Number of  contracts		Notional amounts			Number of contracts			Derivative Assets		Derivative Liabilities
Commodity price
Futures	$	810,106,878		10,782	$	(53,034,444	)		(926	)	$	32,742,543	$	(5,586,063	)	$	10,660,500		75	$	-			-		$	66,430	$	-
		810,106,878		10,782		(53,034,444	)		(926	)		32,742,543		(5,586,063	)		10,660,500		75		-			-			66,430		-
Equity price
Futures		16,008,395,340		15,303		(968,631,180	)		(671	)		4,935,403		(5,751,770	)		-		-		-			-			-		-
		16,008,395,340		15,303		(968,631,180	)		(671	)		4,935,403		(5,751,770	)		-		-		-			-			-		-
Foreign currency exchange rate
Futures		340,454,690		2,852		(86,152,236	)		(957	)		5,633,114		(356,374	)		-		-		-			-			-		-
Forwards		90,870,643,000		-		(87,109,470,216	)		-			78,339,927		(59,951,330	)		19,920,873		-		-			-			87,433		-
		91,211,097,690		2,852		(87,195,622,452	)		(957	)		83,973,041		(60,307,704	)		19,920,873		-		-			-			87,433		-
Interest rate
Futures		2,044,200,093		8,454		(63,261,455,459	)		(23,095	)		2,729,784		(6,991,906	)		-		-		(12,531,000	)		(100	)		20,060		-
		2,044,200,093		8,454		(63,261,455,459	)		(23,095	)		2,729,784		(6,991,906	)		-		-		(12,531,000	)		(100	)		20,060		-
Total	$	110,073,800,001		37,391	$	(151,478,743,535	)		(25,649	)	$	124,380,771	$	(78,637,443	)	$	30,581,373		75	$	(12,531,000	)		(100	)	$	173,923	$	-
Collateral balances supporting all derivative positions													$	135,887,098														$	1,286,040

56

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

3.  Investments in Master Funds (continued)

The following table displays the grossvolume 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, 2010 categorized by primary underlying risk.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting. Amounts presented below as collateral balances supporting all derivative positions are included in due from / (to) brokers on the respective Master Fund’s statement of financial position.

	Graham Short Term Global Macro 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		14,096,250		225		-			-		-		(16,875	)
		14,096,250		225		-			-		-		(16,875	)
Foreign currency exchange rate
Futures		-		-		-			-		-		-
Forwards		51,458,935		-		(56,468,659	)		-		1,385,221		(1,474,097	)
		51,458,935		-		(56,468,659	)		-		1,385,221		(1,474,097	)
Interest rate
Futures		-		-		-			-		-		-
		-		-		-			-		-		-
Total	$	65,555,185		225	$	(56,468,659	)		-	$	1,385,221	$	(1,490,972	)
Collateral balances supporting all derivative positions												$	204,953

57

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 months ended March 31, 2010:

	Graham Commodity Strategies LLC (Delaware)			Graham Discretionary  Energy Trading III LLC (Delaware)			Graham Fed Policy Ltd. (BVI)			Graham Global Monetary Policy LLC  (Delaware)			Graham K4D Trading Ltd. (BVI)			Graham Macro  Directional  LLC (Delaware)			Graham Short Term Global  Macro LLC (Delaware)
Net investment income (loss)	$	(3,636	)	$	(5,702	)	$	(1,232	)	$	(6,153	)	$	(68,408	)	$	(11,143	)	$	171
Net realized gain (loss) on investments		1,059,499			(1,108,471	)		5,663,643			37,085,598			(77,892,271	)		7,549,544			(3,124,378	)
Net increase (decrease) in appreciation on investments		7,026,115			8,918,128			3,402,087			427,683			34,667,568			(108,934	)		1,095,590
Brokerage commissions and fees		(1,002,423	)		(276,911	)		(1,134,151	)		(597,494	)		(1,480,295	)		(146,619	)		(38,204	)
Net gain (loss) on investments		7,083,191			7,532,746			7,931,579			36,915,787			(44,704,998	)		7,293,991			(2,066,992	)
Net income (loss)	$	7,079,555		$	7,527,044		$	7,930,347		$	36,909,634		$	(44,773,406	)	$	7,282,848		$	(2,066,821	)

58

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 gain on investments in their statements of operations segregated by primary underlying risk and contract type for the three months ended March 31, 2010:

	Graham Commodity Strategies  LLC		Graham Discretionary Energy Trading III LLC			Graham Fed Policy Ltd.		Graham Global Monetary  Policy LLC			Graham K4D Trading Ltd.			Graham Macro  Directional LLC			Graham Short Term  Global  Macro LLC
Commodity price
Futures	$	8,085,614	$	8,524,507		$	-	$	2,178,297		$	(23,768,545	)	$	(758,020	)	$	(792,850	)
Options		-		(714,850	)		-		-			-			-			-
		8,085,614		7,809,657			-		2,178,297			(23,768,545	)		(758,020	)		(792,850	)
Equity price
Futures		-		-			-		1,126,108			(32,614,364	)		(211,949	)		(175,975	)
		-		-			-		1,126,108			(32,614,364	)		(211,949	)		(175,975	)
Foreign currency exchange rate
Futures		-		-			3,056,080		-			712,311			-			-
Forwards		-		-			-		37,702,416			(80,875	)		9,180,238			1,552,433
Options		-		-			6,009,650		(3,520,011	)		-			-			(2,525,849	)
		-		-			9,065,730		34,182,405			631,436			9,180,238			(973,416	)
Interest rate
Futures		-		-			-		441,971			12,526,770			(769,659	)		(86,547	)
Interest rate swaps		-		-			-		(403,000	)		-			-			-
Options		-		-			-		(12,500	)		-			-			-
		-		-			-		26,471			12,526,770			(769,659	)		(86,547	)
Total	$	8,085,614	$	7,809,657		$	9,065,730	$	37,513,281		$	(43,224,703	)	$	7,440,610		$	(2,028,788	)

59

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 GCA, an entity for which the Manager is also the sole investment advisor. GCA 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 three to thirty months. GCA also maintains cash and cash equivalents on deposit with major U.S. institutions. GCA values all fixed income securities at amortized cost to the extent it approximates fair value.  GAIT’s investment in GCA is valued in the accompanying statements of financial condition at fair value in accordance with U.S. GAAP based upon the Fund’s proportionate share of GCA’s reported net asset value. GAIT records its proportionate share of GCA’s investment income and expenses on a monthly basis. For the three months ended March 31, 2011, the total amount recognized by GAIT with respect to its investment in GCA was $515,146.  For the three months ended March 31, 2010, the total amount recognized by GAIT with respect to its investment in GCA was $415,495.  These amounts are included in interest income in the statements of operations and managing member allocation.  At March 31, 2011 and December 31, 2010, GAIT owned approximately 13.92% and 13.77%, respectively, of GCA.  The following table summarizes the financial position of GCA as of March 31, 2011 and December 31, 2010:

	March 31, 2011		December 31, 2010
Assets:
Cash and cash equivalents	$	657,076,450	$	750,098,151
Investments in fixed income securities (cost $2,367,048,721 and $2,215,622,512, respectively)		2,367,048,721		2,215,622,512
Accrued interest income		8,384,794		6,547,074
Total assets		3,032,509,965		2,972,267,737
Liabilities:
Other liabilities		20,000		20,000
Total liabilities		20,000		20,000
Net assets	$	3,032,489,965	$	2,972,247,737

The following table summarizes the results of operations of GCA for the three months ended March 31, 2011 and 2010:

	2011		2010
Investment income
Interest income	$	3,860,502	$	2,623,273
Total investment income		3,860,502		2,623,273
Expenses:
Bank fee expense		133,584		-
Total expenses		133,584		-
Net investment income		3,726,918		2,623,273
Net income	$	3,726,918	$	2,623,273

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Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

4.  Graham Cash Assets LLC (continued)

The following schedule displays the condensed schedule of investments for GCA as of March 31, 2011.

Description	Principal Amount		Fair Value		Percentage of Members’ Capital
Graham Cash Assets LLC
Investments in Fixed Income Securities (cost $2,367,048,721)
United States
FDIC Guaranteed Bonds (cost $1,179,021,270)
Citibank 1.25% - 1.88% due 07/12/11 – 12/28/12	$	375,000,000	$	377,224,782		12.44	%
Citigroup Funding Inc. 1.38% - 1.88% due 05/05/11 – 11/15/12		175,000,000		176,506,228		5.82	%
Other FDIC guaranteed bonds				625,290,260		20.62	%
Total FDIC Guaranteed Bonds				1,179,021,270		38.88	%
Government Bonds (cost $1,188,027,451)
U.S. Treasury 0.38% - 1.13% due 04/30/11 – 11/30/12		1,185,000,000		1,188,027,451		39.18	%
Total Government Bonds				1,188,027,451		39.18	%
Total Investments in Fixed Income Securities			$	2,367,048,721		78.06	%

The following schedule displays the condensed schedule of investments for GCA as of December 31, 2010.

Description	Principal Amount		Fair Value		Percentage of Members’ Capital
Graham Cash Assets LLC
Investments in Fixed Income Securities (cost $2,215,622,512)
United States
FDIC Guaranteed Bonds (cost $1,101,463,404)
Citibank 1.25% – 1.88% due 03/30/11 – 05/07/12	$	350,000,000	$	351,915,163		11.84	%
Other FDIC guaranteed bonds				749,548,241		25.22	%
Total FDIC Guaranteed Bonds				1,101,463,404		37.06	%
Government Bonds (cost $1,114,159,108)
U.S. Treasury 0.88% due 04/30/11		150,000,000		150,213,724		5.05	%
Other U.S. Treasury 0.75% –  1.13% due 01/31/11 – 04/30/12				963,945,384		32.43	%
Total Government Bonds				1,114,159,108		37.48	%
Total Investments in Fixed Income Securities			$	2,215,622,512		74.54	%

61

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

4.  Graham Cash Assets LLC (continued)

GCA 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 GCA as of March 31, 2011 and December 31, 2010:

	March 31, 2011		December 31, 2010
Long positions
Level 2:
Fixed income securities
FDIC Guaranteed Bonds	$	1,179,021,270	$	1,101,463,404
Government Bonds		1,188,027,451		1,114,159,108
Total fixed income securities		2,367,048,721		2,215,622,512
Total Level 2		2,367,048,721		2,215,622,512
Total long positions	$	2,367,048,721	$	2,215,622,512

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 members’ 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.

Addition of Members and Managing Members

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.

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.

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.

62

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

6.  Fees

Advisory Fees

Each Class of GAIT other than Class M pays the Manager an advisory fee (the “Advisory Fee”) at an aggregate annual rate equal to 2% 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

Each Class of GAIT other than Class M pays the Manager a sponsor fee (the “Sponsor Fee”) at an annual rate of 1% of its Net Asset Value, payable monthly in arrears, determined in the same manner as the Advisory Fee.

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.

Brokerage Fees

Each Class of GAIT other than Class M pays the Manager a brokerage fee (the “Brokerage Fee”) at the annual rate specified in the table below. This Brokerage Fee is 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 bears 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 is allocated any of these expenses from the Master Funds in which it invests, the Manager will reimburse GAIT for those amounts.  These reimbursements are included in commission reimbursements in the statements of operations and managing member allocation.

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.

63

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

7.  Income Taxes (continued)

U.S. GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. U.S. GAAP requires the evaluation of tax positions taken or expected to be taken in the course of preparing 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.

8.  Related Party Transactions

The Manager, due to its relationship with its affiliates, may enter into certain related party transactions.

9.  Financial Highlights

The following is the per unit operating performance calculation for the three month periods ended March 31, 2011 and 2010:

	Class 0			Class 2
Per unit operating performance:
Net asset value per unit, December 31, 2009	$	135.56		$	112.73
Net loss:
Net investment loss		(1.94	)		(2.08	)
Net gain on investments		0.96			0.71
Net loss		(0.98	)		(1.37	)
Net asset value per unit, March 31, 2010	$	134.58		$	111.36
Net asset value per unit, December 31, 2010	$	138.96		$	113.68
Net loss:
Net investment loss		(1.27	)		(1.57	)
Net loss on investments		(0.24	)		(0.20	)
Net loss		(1.51	)		(1.77	)
Net asset value per unit, March 31, 2011	$	137.45		$	111.91

64

Graham Alternative Investment Trading LLC

Notes to Unaudited Financial Statements (continued)

9.  Financial Highlights (continued)

The following represents ratios to average members’ capital, excluding the Managing Member, and total return for the three month periods ended March 31, 2011 and 2010:

	Class 0		Class 2
	2011	2010	2011	2010
Total return before Incentive Allocation	(1.08)%	(0.72)%	(1.55)%	(1.22)%
Incentive Allocation	(0.01)	0.00	(0.01)	0.00
Total return after Incentive Allocation	(1.09)%	(0.72)%	(1.56)%	(1.22)%
Net investment loss before Incentive Allocation	(0.90)%	(0.81)%	(1.38)%	(1.38)%
Incentive Allocation	(0.01)	0.00	(0.01)	0.00
Net investment loss after Incentive Allocation	(0.91)%	(0.81)%	(1.39)%	(1.38)%
Total expenses before Incentive Allocation	1.00%	1.25%	1.51%	1.76%
Incentive Allocation	0.01	0.00	0.01	0.00
Total expenses after Incentive Allocation	1.01%	1.25%	1.52%	1.76%

Total return is calculated for Class 0 and Class 2 units taken as a whole and has not been annualized. Total return is calculated as the change in total members’ capital, excluding that of the Managing Member, adjusted for subscriptions or redemptions during the year. An individual member’s return may vary from these returns based on the timing of capital transactions and the applicability of Advisory Fees, 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 amounts allocated from Master Funds. 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, 2011 and 2010.

10. Subsequent Events

The Fund had subscriptions of approximately $22.2 million and redemptions of approximately $7.2 million through May 16, 2011.  These amounts have not been included in the financial statements.

65

Graham Alternative Investment Trading II LLC

Statements of Financial Condition

	March 31, 2011		December 31, 2010
Assets	(Unaudited)		(Audited)
Investment in Graham K4D Trading Ltd., at fair value	$	12,743,402	$	7,411,468
Investment in Graham Cash Assets LLC, at fair value		70,456,667		64,089,936
Commission reimbursements receivable		52,836		28,795
Total assets	$	83,252,905	$	71,530,199
Liabilities and members’ capital
Liabilities:
Accrued redemptions	$	628,193	$	1,393,281
Accrued brokerage fees		201,023		170,942
Accrued advisory fees		141,321		121,404
Accrued sponsor fees		70,660		60,702
Payable to Graham K4D Trading Ltd.		15		-
Total liabilities		1,041,212		1,746,329
Members’ capital:
Class 0 Units (475,482.461 and 397,859.944 units issued and outstanding at $100.08 and $102.92 per unit, respectively)		47,584,852		40,945,899
Class 2 Units (358,335.198 and 288,630.496 units issued and outstanding at $96.48 and $99.72 per unit, respectively)		34,572,911		28,783,191
Class M Units (500.000 and 500.000 units issued and outstanding at $107.86 and $109.56 per unit, respectively)		53,930		54,780
Total members’ capital		82,211,693		69,783,870
Total liabilities and members’ capital	$	83,252,905	$	71,530,199

See accompanying notes.

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Graham Alternative Investment Trading II LLC

Statements of Operations and Managing Member Allocation

	Three Months Ended March 31,
	2011 (Unaudited)			2010 (Unaudited)
Net loss allocated from investment in Graham K4D Trading Ltd.:
Net realized loss on investments	$	(1,756,078	)	$	(2,120,237	)
Net increase in unrealized appreciation on investments		302,089			1,209,716
Brokerage commissions and fees		(130,856	)		(45,962	)
Net loss allocated from investment  in Graham K4D Trading Ltd.		(1,584,845	)		(956,483	)
Net investment loss allocated from investment in Graham K4D Trading Ltd.		(3,257	)		(2,058	)
Investment income:
Interest income		84,828			53,593
Expenses:
Brokerage fees		570,302			275,547
Advisory fees		403,643			200,402
Sponsor fees		201,821			100,201
Interest and other		1,319			1,196
Commission reimbursements		(130,856	)		(45,962	)
Total expenses		1,046,229			531,384
Net investment loss of the Fund		(961,401	)		(477,791	)
Net loss		(2,549,503	)		(1,436,332	)
Incentive allocation		(2,187	)		-
Net loss available for pro-rata allocation to all members	$	(2,551,690	)	$	(1,436,332	)

See accompanying notes.

67

Graham Alternative Investment Trading II LLC

Statements of Changes in Members’ Capital

For the three months ended March 31, 2011(unaudited) and 2010 (unaudited)

	Class 0						Class 2						Class M				Total
	Units			Capital			Units			Capital			Units		Capital			Capital
Members’ capital, December 31, 2009		222,427.212		$	22,373,766			149,683.130		$	14,826,566			–	$	–		$	37,200,332
Subscriptions		94,438.818			8,858,000			22,555.298			2,128,500			–		–			10,986,500
Redemptions		(1,000.365	)		(92,619	)		(2,790.935	)		(253,629	)		–		–			(346,248	)
Incentive allocation		–			–			–			–			–		–			–
Netloss		–			(723,100	)		–			(713,232	)		–		–			(1,436,332	)
Members’ capital, March 31, 2010		315,865.665		$	30,416,047			169,447.493		$	15,988,205			–	$	–		$	46,404,252

	Class 0						Class 2						Class M					Total
	Units			Capital			Units			Capital			Units		Capital				Capital
Members’ capital, December 31, 2010		397,859.944		$	40,945,899			288,630.496		$	28,783,191			500.000	$	54,780			$	69,783,870
Subscriptions		88,740.714			9,146,533			78,173.657			7,805,177			–		–				16,951,710
Redemptions		(11,118.197	)		(1,139,685	)		(8,468.955	)		(832,512	)		–		(2,187	)			(1,974,384	)
Incentive allocation		–			(1,538	)		–			(649	)		–		2,187				–
Netloss		–			(1,366,357	)		–			(1,182,296	)		–		(850	)			(2,549,503	)
Members’ capital, March 31, 2011		475,482.461		$	47,584,852			358,335.198		$	34,572,911			500.000	$	53,930			$	82,211,693

See accompanying notes.

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Graham Alternative Investment Trading II LLC

Statements of Cash Flows

	Three Months Ended March 31,
	2011 (Unaudited)			2010 (Unaudited)
Cash flows used in operating activities
Net loss	$	(2,549,503	)	$	(1,436,332	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net loss allocated from investment in Graham K4D Trading Ltd.		1,588,102			958,541
Net income allocated from investment in Graham Cash Assets LLC		(84,828	)		(53,593	)
Proceeds from sale of investments in Graham K4D Trading Ltd.		24,007,476			6,806,772
Proceeds from sale of investments in Graham Cash Assets LLC		34,237,936			12,046,000
Investments in Graham K4D Trading Ltd.		(30,927,497	)		(11,466,911	)
Investments in Graham Cash Assets LLC		(40,519,839	)		(17,531,000	)
Changes in assets and liabilities:
Commission reimbursements receivable		(24,041	)		(5,179	)
Accrued brokerage fees		30,081			17,689
Accrued advisory fees		19,917			15,704
Accrued sponsor fees		9,958			7,852
Net cash used in operating activities		(14,212,238	)		(10,640,457	)
Cash flows provided by financing activities
Subscriptions		16,951,710			10,986,500
Redemptions		(2,739,472	)		(346,727	)
Net cash provided by financing activities		14,212,238			10,639,773
Net decrease in cash and cash equivalents		-			(684	)
Cash and cash equivalents, beginning of period		-			770
Cash and cash equivalents, end of period	$	-		$	86

See accompanying notes.

69

Graham Alternative Investment Trading II LLC

Notes to Unaudited Financial Statements

March 31, 2011

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 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 currency forward and futures contracts; bond, interest rate, and index futures contracts; commodity forward and futures contracts, and swaps thereon (collectively referred to as “Derivative Positions”) traded on U.S. and foreign exchanges.

In addition to trading in the Interbank market for foreign exchange, the Manager currently executes orders on all the major U.S. futures exchanges and may also trade on, but is not limited to, the Bolsa de Mercadorias and Futuros (“BMF”), Borsa Italiana Idem (“IML”), the Eurex Deutschland (“EUREX”), Euronext (“EURONEXT”), the Hong Kong Exchanges and Clearing Ltd. (“HKEX”), the Intercontinental Exchange (“ICE”), the London International Financial Futures and Options Exchange Ltd. (“LIFFE”), the London Metal Exchange (“LME”), the Montreal Exchange (“ME”), the Mercado de Futuros Financieros (“MEFF”), the Osaka Securities Exchange (“OSE”), the Sydney Futures Exchange Ltd. (“SFE”), the Singapore Exchange (“SGX”), the South African Exchange (“SAFEX”), the Tokyo Financial Exchange (“TFX”), the Tokyo Commodity Exchange (“TOCOM”) and the Tokyo Stock Exchange (“TSE”).

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.

Amounts included in the financial statements and accompanying notes related to March 31, 2011 and 2010 and the three month periods then ended are unaudited. Amounts included herein as of December 31, 2010 have been taken from the December 31, 2010 audited financial statements and accompanying notes of the Fund.

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Notes to Unaudited Financial Statements (continued)

2.   Summary of Significant Accounting Policies (continued)

Cash and Cash Equivalents

GAIT II considers cash and cash equivalents to include all highly liquid investments with a maturity of three months or less when acquired.

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 the 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.

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.  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 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 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.

GAIT II reports the fair value of its investment related assets and liabilities in accordance with the hierarchy established under U.S. GAAP.  In accordance with this hierarchy, GAIT II’s investments in K4D Trading and Graham Cash Assets LLC (“GCA”) have been classified as Level 2 valuations. These investments are discussed in Note 3.  There were no Level 3 assets or liabilities held at any point during the three months ended March 31, 2011 or the twelve months ended December 31, 2010 by K4D Trading or GCA, and there were no transfers between Level 1 and Level 2 during those periods.

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Notes to Unaudited Financial Statements (continued)

2.   Summary of Significant Accounting Policies (continued)

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, credit, 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.

The Master Fund records all its derivative 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 realized gain and net increase in 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.

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Notes to Unaudited Financial Statements (continued)

2.   Summary of Significant Accounting Policies (continued)

Forward Contracts

The Master Fund enters into foreign currency and commodity forward contracts in an attempt to take advantage of changes in exchange rates and commodity prices.  Forward currency and commodities transactions are contracts or agreements for delivery of specific currencies and commodities 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.

Swap Contracts

The Master Fund may enter into various swap contracts.  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 and force the Master Fund to cover its resale commitments, if any, at the current market price.  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 a 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 settlement price of the underlying.  During the term of the swaps, changes in value are recognized as unrealized gains or losses by marking the contracts to fair value.  Additionally, the Master Fund records a realized gain (loss) when a swap contract is terminated and when periodic payments are received or made at the end of each measurement period, but prior to termination.  The Master Fund determines the estimated fair value of all swaps in accordance with U.S. GAAP.

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.

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Notes to Unaudited Financial Statements (continued)

2.   Summary of Significant Accounting Policies (continued)

Options (continued)

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 fair value 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.

Indemnifications

In the normal course of business, the Master Fund, GCA, and GAIT II enter into contracts that contain a variety of indemnifications. Such contracts include those with the Master Fund’s 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, 2011 and December 31, 2010, 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, 2011
Investment – Objective	Percent of Members’ Capital			Fair Value		Net Income (three months then ended)
Graham K4D Trading Ltd. (a)		15.50	%	$	12,743,402	$	(1,588,102	)
		15.50	%	$	12,743,402	$	(1,588,102	)

December 31, 2010
Investment – Objective	Percent of Members’ Capital			Fair Value		Net Income (three months ended March 31, 2010)
Graham K4D Trading Ltd. (a)		10.62	%	$	7,411,468	$	(958,541	)
		10.62	%	$	7,411,468	$	(958,541	)
(a) – Systematic macro

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Notes to Unaudited Financial Statements (continued)

3.   Investment in Graham K4D Trading Ltd. (continued)

The following table summarizes the financial position of K4D Trading as of March 31, 2011.

Assets:
Due from brokers	$	288,833,860
Derivative financial instruments, at fair value		52,072,797
Subscriptions receivable		405
Interest receivable		20,997
Total assets		340,928,059
Liabilities:
Derivative financial instruments, at fair value		1,544,291
Redemptions payable		405
Total liabilities		1,544,696
Net assets	$	339,383,363
Percentage of Master Fund held by the Fund		3.75	%

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Notes to Unaudited Financial Statements (continued)

3.   Investment in Graham K4D Trading Ltd. (continued)

The following schedules display the condensed schedules of investments for K4D Trading as of March 31, 2011.

Description	Principal Amount	Fair Value			Percentage of Net Assets of K4D Trading
Long contracts
Futures
U.S. bond		$	(1,693,870	)		(0.50	)%
Foreign bond			1,076,899			0.32	%
U.S. index			8,356,229			2.46	%
Foreign index			6,955,415			2.05	%
Commodity			25,056,183			7.38	%
Interest rate			(958,759	)		(0.28	)%
Currency			4,703,445			1.39	%
Total futures			43,495,542			12.82	%
Forwards
Australian Dollar / U.S. Dollar 04/20/11	AUD     2,270,409,210		69,879,791			20.59	%
Canadian Dollar / U.S. Dollar 04/20/11	CAD     2,993,928,486		26,032,783			7.67	%
Euro / Japanese Yen 04/20/11	EUR         722,878,081		31,067,277			9.15	%
Euro / U.S. Dollar 04/20/11	EUR      2,425,359,120		44,098,568			12.99	%
Japanese Yen / U.S. Dollar 04/20/11	JPY   265,224,580,054		(56,456,018	)		(16.63	)%
New Zealand Dollar / U.S. Dollar 04/20/11	NZD        848,309,198		21,101,112			6.22	%
Other foreign currency			82,745,920			24.38	%
Total forwards			218,469,433			64.37	%

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Notes to Unaudited Financial Statements (continued)

3.   Investment in Graham K4D Trading Ltd. (continued)

The following schedules display the condensed schedules of investments for K4D Trading as of March 31, 2011.

Description	Principal  Amount	Fair Value			Percentage of Net Assets of K4D Trading
Short contracts
Futures
U.S. bond		$	393,672			0.12	%
Foreign bond			12,829,370			3.77	%
Foreign index			(6,392,370	)		(1.88	)%
Commodity			(4,114,279	)		(1.21	)%
Interest rate			5,053,667			1.49	%
Currency			807,195			0.24	%
Total futures			8,577,255			2.53	%
Forwards
Australian Dollar / U.S. Dollar 04/20/11	AUD     (1,943,684,931)		(62,352,863	)		(18.37	)%
Canadian Dollar / U.S. Dollar 04/20/11	CAD     (2,566,882,066)		(33,800,932	)		(9.96	)%
Euro / Japanese Yen 04/20/11	EUR         (644,173,895)		(29,021,433	)		(8.55	)%
Euro / U.S. Dollar 04/20/11	EUR      (2,227,734,366)		(44,146,754	)		(13.01	)%
Japanese Yen / U.S. Dollar 04/20/11	JPY   (255,219,960,505)		54,118,737			15.95	%
New Zealand Dollar / U.S. Dollar 04/20/11	NZD        (896,997,648)		(24,523,202	)		(7.23	)%
Other foreign currency			(80,287,277	)		(23.66	)%
Total forwards			(220,013,724	)		(64.83	)%
Total		$	50,528,506			14.89	%

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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, 2011.

Long Contracts
Level 1:
U.S. bond futures	$	(1,693,870	)
Foreign bond futures		1,076,899
U.S. index futures		8,356,229
Foreign index futures		6,955,415
Commodity futures		25,056,183
Interest rate futures		(958,759	)
Currency futures		4,703,445
Total Level 1		43,495,542
Level 2:
Foreign currency forwards		218,469,433
Total Level 2		218,469,433
Total long contracts	$	261,964,975
Short Contracts
Level 1:
U.S. bond futures	$	393,672
Foreign bond futures		12,829,370
Foreign index futures		(6,392,370	)
Commodity futures		(4,114,279	)
Interest rate futures		5,053,667
Currency futures		807,195
Total Level 1		8,577,255
Level 2:
Foreign currency forwards		(220,013,724	)
Total Level 2		(220,013,724	)
Total short contracts	$	(211,436,469	)

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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 Funds at March 31, 2011 categorized by primary underlying risk.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting.Amounts presented below as collateral balances supporting all derivative positions are included in due from / (to) brokers 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	$	1,216,608,649		14,239	$	(237,850,835	)		(3,751	)	$	33,002,810	$	(12,060,906	)
		1,216,608,649		14,239		(237,850,835	)		(3,751	)		33,002,810		(12,060,906	)
Equity price
Futures		780,831,862		11,792		(174,585,658	)		(1,691	)		17,713,871		(8,794,597	)
		780,831,862		11,792		(174,585,658	)		(1,691	)		17,713,871		(8,794,597	)
Foreign currency exchange rate
Futures		305,790,215		2,727		(221,066,583	)		(2,632	)		6,391,645		(881,005	)
Forwards		64,401,562		-		(62,576,740	)		-			61,240,470		(62,784,761	)
		370,191,777		2,727		(283,643,323	)		(2,632	)		67,632,115		(63,665,766	)
Interest rate
Futures		6,684,174,178		25,793		(12,480,888,254	)		(48,233	)		23,293,117		(6,592,138	)
		6,684,174,178		25,793		(12,480,888,254	)		(48,233	)		23,293,117		(6,592,138	)
Total	$	9,051,806,466		54,551	$	(13,176,968,070	)		(56,307	)	$	141,641,913	$	(91,113,407	)
Collateral balances supporting all derivative positions													$	288,833,860

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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 months ended March 31, 2011.

Net investment loss	$	(83,866	)
Net realized loss on investments		(47,163,832	)
Net increase in appreciation on investments		5,253,462
Brokerage commissions and fees		(3,291,928	)
Net loss on investments		(45,202,298	)
Net loss	$	(45,286,164	)

The following table shows the gains and losses on all financial instruments held by the Master Fund reported in net realized gain and net increase in appreciation on investments in its statement of operations segregated by primary underlying risk and contract type for the three months ended March 31, 2011:

Commodity price
Futures	$	44,811,512
		44,811,512
Equity price
Futures		(40,301,211	)
		(40,301,211	)
Foreign currency exchange rate
Futures		(5,461,945	)
Forwards		(24,055,983	)
		(29,517,928	)
Interest rate
Futures		(16,902,743	)
		(16,902,743	)
Total	$	(41,910,370	)

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Notes to Unaudited Financial Statements (continued)

3.   Investment in Graham K4D Trading Ltd. (continued)

The following table summarizes the financial position of K4D Trading as of December 31, 2010.

Assets:
Due from brokers	$	135,887,098
Derivative financial instruments, at fair value		45,743,328
Subscriptions receivable		-
Interest receivable		9,100
Total assets		181,639,526
Liabilities:
Derivative financial instruments, at fair value		-
Redemptions payable		-
Total liabilities		-
Net assets	$	181,639,526
Percentage of Master Fund held by the Fund		4.08	%

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Notes to Unaudited Financial Statements (continued)

3.   Investment in Graham K4D Trading Ltd. (continued)

The following schedule displays the condensed schedule of investments of K4D Trading as of December 31, 2010.

Description	Principal Amount	Fair Value			Percentage of Net Assets of K4D Trading
Long contracts
Futures
U.S. bond		$	237,741			0.13	%
Foreign bond			1,053,653			0.58	%
U.S. index			3,010,100			1.66	%
Foreign index			(3,683,508	)		(2.03	)%
Commodity			31,911,445			17.57	%
Interest rate			325,182			0.18	%
Currency			4,536,916			2.50	%
Total futures			37,391,529			20.59	%
Forwards
Japanese Yen / U.S. Dollar 01/19/11	JPY   43,988,617,100		11,186,032			6.16	%
Other Japanese Yen / U.S. Dollar 1/04/11 - 1/05/11	JPY   14,270,122,339		796,715			0.44	%
Swiss Franc / U.S. Dollar  01/19/11	CHF       491,922,158		17,376,713			9.57	%
Other foreign currency			28,092,524			15.46	%
Total forwards			57,451,984			31.63	%

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Notes to Unaudited Financial Statements (continued)

3.   Investment in Graham K4D Trading Ltd. (continued)

The following schedule displays the condensed schedule of investments of K4D Trading as of December 31, 2010.

Description	Principal  Amount	Fair Value			Percentage of Net Assets of K4D Trading
Short contracts
Futures
U.S. bond		$	(1,546,794	)		(0.85	)%
Foreign bond			(540,937	)		(0.30	)%
Foreign index			(142,959	)		(0.08	)%
Commodity			(4,754,965	)		(2.62	)%
Interest rate			(3,790,967	)		(2.09	)%
Currency			739,824			0.41	%
Total futures			(10,036,798	)		(5.53	)%
Forwards
Japanese Yen / U.S. Dollar 01/19/11	JPY   (36,043,608,800)		(12,993,436	)		(7.15	)%
Other Japanese Yen / U.S. Dollar 1/04/11 - 1/05/11	JPY   (14,111,800,669)		(834,965	)		(0.46	)%
Swiss Franc / U.S. Dollar 01/19/11	CHF       (431,464,200)		(17,247,454	)		(9.50	)%
Other foreign currency			(7,987,532	)		(4.40	)%
Total forwards			(39,063,387	)		(21.51	)%
Total		$	45,743,328			25.18	%

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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, 2010.

Long Contracts
Level 1:
U.S. bond futures	$	237,741
Foreign bond futures		1,053,653
U.S. index futures		3,010,100
Foreign index futures		3,683,508
Commodity futures		31,911,445
Interest rate futures		325,182
Currency futures		4,536,916
Total Level 1		37,391,529
Level 2:
Foreign currency forwards		57,451,984
Total Level 2		57,451,984
Total long contracts	$	94,843,513
Short Contracts
Level 1:
U.S. bond futures	$	(1,546,794	)
Foreign bond futures		(540,937	)
Foreign index futures		(142,959	)
Commodity futures		(4,754,965	)
Interest rate futures		(3,790,967	)
Currency futures		739,824
Total Level 1		(10,036,798	)
Level 2:
Foreign currency forwards		(39,063,387	)
Total Level 2		(39,063,387	)
Total short contracts	$	(49,100,185	)

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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 Funds at December 31, 2010 categorized by primary underlying risk.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting.Amounts presented below as collateral balances supporting all derivative positions are included in due from / (to) brokers 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	$	810,106,878		10,782	$	(53,034,444	)		(926	)	$	32,742,543	$	(5,586,063	)
		810,106,878		10,782		(53,034,444	)		(926	)		32,742,543		(5,586,063	)
Equity price
Futures		16,008,395,340		15,303		(968,631,180	)		(671	)		4,935,403		(5,751,770	)
		16,008,395,340		15,303		(968,631,180	)		(671	)		4,935,403		(5,751,770	)
Foreign currency exchange rate
Futures		340,454,690		2,852		(86,152,236	)		(957	)		5,633,114		(356,374	)
Forwards		90,870,643,000		-		(87,109,470,216	)		-			78,339,927		(59,951,330	)
		91,211,097,690		2,852		(87,195,622,452	)		(957	)		83,973,041		(60,307,704	)
Interest rate
Futures		2,044,200,093		8,454		(63,261,455,459	)		(23,095	)		2,729,784		(6,991,906	)
		2,044,200,093		8,454		(63,261,455,459	)		(23,095	)		2,729,784		(6,991,906	)
Total	$	110,073,800,001		37,391	$	(151,478,743,535	)		(25,649	)	$	124,380,771	$	(78,637,443	)
Collateral balances supporting all derivative positions													$	135,887,098

85

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 months ended March 31, 2010.

Net investment loss	$	(68,408	)
Net realized loss on investments		(77,892,271	)
Net increase in appreciation on investments		34,667,568
Brokerage commissions and fees		(1,480,295	)
Net loss on investments		(44,704,998	)
Net loss	$	(44,773,406	)

The following table shows the gains and losses on all financial instruments held by the Master Fund reported in net realized gain and net increase in appreciation on investments in its statement of operations segregated by primary underlying risk and contract type for the three months ended March 31, 2010.

Commodity price
Futures	$	(23,768,545	)
		(23,768,545	)
Equity price
Futures		(32,614,364	)
		(32,614,364	)
Foreign currency exchange rate
Futures		712,311
Forwards		(80,875	)
		631,436
Interest rate
Futures		12,526,770
		12,526,770
Total	$	(43,224,703	)

86

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 GCA, an entity for which the Manager is also the sole investment advisor. GCA 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 three to thirty months. GCA also maintains cash and cash equivalents on deposit with major U.S. institutions. GCA values all fixed income securities at amortized cost to the extent it approximates fair value.  GAIT II’s investment in GCA is valued in the accompanying statements of financial condition at fair value in accordance with U.S. GAAP based upon the Fund’s proportionate share of GCA’s reported net asset value. GAIT II records its proportionate share of GCA’s investment income and expenses on a monthly basis.  For the three months ended March 31, 2011, the total amount recognized by GAIT II with respect to its investment in GCA was $84,828. For the three months ended March 31, 2010, the total amount recognized by GAIT II with respect to its investment in GCA was $53,593. These amounts are included in interest income in the statements of operations and managing member allocation. At March 31, 2011 and December 31, 2010, GAIT II owned approximately 2.32% and 2.16%, respectively, of GCA. The following table summarizes the financial position of GCA as of March 31, 2011 and December 31, 2010:

	March 31, 2011		December 31, 2010
Assets:
Cash and cash equivalents	$	657,076,450	$	750,098,151
Investments in fixed income securities (cost $2,367,048,721 and $2,215,622,512, respectively)		2,367,048,721		2,215,622,512
Accrued interest income		8,384,794		6,547,074
Total assets		3,032,509,965		2,972,267,737
Liabilities:
Other liabilities		20,000		20,000
Total liabilities		20,000		20,000
Net assets	$	3,032,489,965	$	2,972,247,737

The following table summarizes the results of operations of GCA for the three months ended March 31, 2011 and 2010:

	2011		2010
Investment income
Interest income	$	3,860,502	$	2,623,273
Total investment income		3,860,502		2,623,273
Expenses:
Bank fee expense		133,584		-
Total expenses		133,584		-
Net investment income		3,726,918		2,623,273
Net income	$	3,726,918	$	2,623,273

87

Graham Alternative Investment Trading II LLC

Notes to Unaudited Financial Statements (continued)

4.   Graham Cash Assets LLC (continued)

The following schedule displays the condensed schedule of investments for GCA as of March 31, 2011.

Description	Principal Amount		Fair Value		Percentage of Members’ Capital
Graham Cash Assets LLC
Investments in Fixed Income Securities (cost $2,367,048,721)
United States
FDIC Guaranteed Bonds (cost $1,179,021,270)
Citibank 1.25% - 1.88% due 07/12/11 – 12/28/12	$	375,000,000	$	377,224,782		12.44	%
Citigroup Funding Inc. 1.38% - 1.88% due 05/05/11 – 11/15/12		175,000,000		176,506,228		5.82	%
Other FDIC guaranteed bonds				625,290,260		20.62	%
Total FDIC Guaranteed Bonds				1,179,021,270		38.88	%
Government Bonds (cost $1,188,027,451)
U.S. Treasury 0.38% - 1.13% due 04/30/11 – 11/30/12		1,185,000,000		1,188,027,451		39.18	%
Total Government Bonds				1,188,027,451		39.18	%
Total Investments in Fixed Income Securities			$	2,367,048,721		78.06	%

The following schedule displays the condensed schedule of investments for GCA as of December 31, 2010.

Description	Principal Amount		Fair Value		Percentage of Members’ Capital
Graham Cash Assets LLC
Investments in Fixed Income Securities (cost $2,215,622,512)
United States
FDIC Guaranteed Bonds (cost $1,101,463,404)
Citibank 1.25% – 1.88% due 03/30/11 – 05/07/12	$	350,000,000	$	351,915,163		11.84	%
Other FDIC guaranteed bonds				749,548,241		25.22	%
Total FDIC Guaranteed Bonds				1,101,463,404		37.06	%
Government Bonds (cost $1,114,159,108)
U.S. Treasury 0.88% due 04/30/11		150,000,000		150,213,724		5.05	%
Other U.S. Treasury 0.75% – 1.13% due 01/31/11 – 04/30/12				963,945,384		32.43	%
Total Government Bonds				1,114,159,108		37.48	%
Total Investments in Fixed Income Securities			$	2,215,622,512		74.54	%

88

Graham Alternative Investment Trading II LLC

Notes to Unaudited Financial Statements (continued)

4.   Graham Cash Assets LLC (continued)

GCA 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 GCA as of March 31, 2011 and December 31, 2010:

	March 31, 2011		December 31, 2010
Long positions
Level 2:
Fixed income securities
FDIC Guaranteed Bonds	$	1,179,021,270	$	1,101,463,404
Government Bonds		1,188,027,451		1,114,159,108
Fixed income securities		2,367,048,721		2,215,622,512
Total Level 2		2,367,048,721		2,215,622,512
Total long positions	$	2,367,048,721	$	2,215,622,512

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 inother 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.

Addition of Members and Managing Members

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.

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.

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.

89

Graham Alternative Investment Trading II LLC

Notes to Unaudited Financial Statements (continued)

6.   Fees

Advisory Fees

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 2% 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

Each Class of GAIT II other than Class M pays the Manager a sponsor fee (the “Sponsor Fee”) at an annual rate of 1% of its Net Asset Value, payable monthly in arrears, determined in the same manner as the Advisory Fee.

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.

Brokerage Fees

Each Class of GAIT II other than Class M pays the Manager a brokerage fee (the “Brokerage Fee”) at the annual rate specified in the table below. This Brokerage Fee is 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 bears 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 GAIT II’s continuous offering of Units. To the extent GAIT II is allocated any of these expenses from the Master Fund, the Manager will reimburse GAIT II for those amounts.  This reimbursement is included in commission reimbursements in the statements of operations and managing member allocation.

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.

90

Graham Alternative Investment Trading II LLC

Notes to Unaudited Financial Statements (continued)

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.

8.   Related Party Transactions

The Manager, due to its relationship with its affiliates, may enter into certain related party transactions.

9.   Financial Highlights

The following is the per unit operating performance calculation for the three month periods endedMarch 31, 2011 and 2010:

	Class 0			Class 2
Per unit operating performance:
Net asset value per unit, December 31, 2009	$	100.59		$	99.05
Net loss:
Net investment loss		(1.84	)		(1.73	)
Net loss on investments		(2.46	)		(2.97	)
Net loss		(4.30	)		(4.70	)
Net asset value per unit, March 31, 2010	$	96.29		$	94.35
Net asset value per unit, December 31, 2010	$	102.92		$	99.72
Net loss:
Net investment loss		(1.05	)		(1.50	)
Net loss on investments		(1.79	)		(1.74	)
Net loss		(2.84	)		(3.24	)
Net asset value per unit, March 31, 2011	$	100.08		$	96.48

91

Graham Alternative Investment Trading II LLC

Notes to Unaudited Financial Statements (continued)

9.   Financial Highlights (continued)

The following represents ratios to average members’ capital, excluding the Managing Member, and total return for the three month periods ended March 31, 2011 and 2010:

	Class 0						Class 2
	2011			2010			2011			2010
Total return before Incentive Allocation		(2.75	)%		(4.27	)%		(3.24	)%		(4.75	)%
Incentive Allocation		(0.01	)		0.00			(0.01	)		0.00
Total return after Incentive Allocation		(2.76	)%		(4.27	)%		(3.25	)%		(4.75	)%
Net investment loss before Incentive Allocation		(1.03	)%		(1.21	)%		(1.52	)%		(1.69	)%
Incentive Allocation		(0.01	)		0.00			(0.01	)		0.00
Net investment loss after Incentive Allocation		(1.04	)%		(1.21	)%		(1.53	)%		(1.69	)%
Total expenses before Incentive Allocation		1.12	%		1.28	%		1.64	%		7.11	%
Incentive Allocation		0.01			0.00			0.01			0.00
Total expenses after Incentive Allocation		1.13	%		1.28	%		1.65	%		7.11	%

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 year. 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 amounts allocated from the Master Fund. 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 of GAIT II, excluding that of the Managing Member, for the three month periods ended March 31, 2011 and 2010.

10. Subsequent Events

The Fund had subscriptions of approximately $7.8 million and redemptions of approximately $1.2 million through May 16, 2011.  These amounts have not been included in the financial statements.

92

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Reference is made to “Item 1: Financial Statements”.  The information contained therein is essential to, and should be read in conjunction with, the following analysis.  The Fund does not engage in the sale of goods or services.  The Fund’s capital consists of capital contributions of the members, as increased or decreased by gains and losses from its investments in the Master Funds, interest, expenses and redemptions.  Its only assets are its investments in the Master Funds.  The Master Funds do not engage in the sale of goods or services.  Their assets are comprised of the equity in their accounts with clearing brokers and OTC counterparties, in each case consisting of cash, open trade equity on derivatives and the net option premium paid or received. In the case of Graham Cash Assets LLC, the assets consist of investments in debt obligations guaranteed by the U.S. federal government, as well as cash and cash equivalents.

For the three months ended March 31, 2011 the Fund’s net asset value increased by $19,474,471 or 11.5%.  This increase was attributable to a $14,839,410 or 8.8% net increase in the Blended Strategies Portfolio and a $4,635,061 or 2.7% net increase in the Systematic Strategies Portfolio.  The net increase in the Blended Strategies Portfolio was attributable to total subscriptions of $18,352,602 or 10.8% partially offset by redemptions totaling $1,427,655 or -0.8% and a net loss of $2,085,537 or -1.2%, for the period.  The net increase in the Systematic Strategies Portfolio was attributable to total subscriptions of $5,965,044 or 3.5% partially offset by redemptions totaling $524,435 or -0.3% and a net loss of 805,548 or -0.5%, for the period.

For the three months ended March 31, 2010 the Fund’s net asset value increased by $11,974,950 or 10.7%.  This increase was attributable to a $6,663,181 or 6.0% net increase in the Blended Strategies Portfolio and a $5,311,769 or 4.7% net increase in the Systematic Strategies Portfolio. The net increase in the Blended Strategies Portfolio was attributable to total subscriptions of $8,590,660 or 7.7% and partially offset by redemptions totaling $1,203,115 or -1.1% and a net loss of $724,364 or -0.6%, for the period. The net increase in the Systematic Strategies Portfolio was attributable to total subscriptions of $5,460,500 or 4.9% partially offset by redemptions of $4,906 or 0.0% and a net loss of $143,825 or -0.2%, for the period.

(i)          Results of Operations

The Fund’s success depends primarily upon the Manager’s ability to recognize and capitalize on market trends in the different and varied sectors of the global financial markets in which it trades.

Blended Strategies Portfolio

2011 Summary

For the three months ended March 31, 2011, the portfolio experienced net trading losses of $135,325 attributable to the following sectors:

Agriculture	$	147,009
Energy		486,135
Foreign exchange		(311,461	)
Interest rates		(208,220	)
Metals		133,063
Softs		155,747
Stock index		(537,598	)
	$	(135,325	)

93

The portfolio recorded a net loss for the period led by stock indices.  The stock index sector generated large losses for the period despite recognizing gains in the early part of the quarter amid rising equity prices driven by improved global economic output and investor optimism.  Significant losses, notably in European indices, were recognized in March as the earthquake and tsunami in Japan generated dramatic market reversals.   Losses were also recognized in foreign exchange during the period with trading in Asian currencies during March contributing most significantly. The interest rates sector posted a loss for the period predominantly from trading in U.S. and European fixed income markets.  The portfolio was able to generate profits in the energy sector led by crude and heating oil as continued tensions in the Middle East drove energy prices higher.  Trading in commodities (agriculture, metals and softs) were also profitable as the portfolio took advantage of rising prices in these markets notably in agricultural commodities.

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, 2011, Brokerage Fees increased by $313,291 or 51.0%, Advisory Fees increased by $263,283 or 50.2% and Sponsor Fees increased by $131,641 or 50.2% in the Blended Strategies Portfolio over the corresponding period of the preceding year.   These increases are all attributable to higher net assets of the portfolio resulting from subscriptions, partially offset by redemptions and a net loss for the period. During the same period interest income decreased by $128,475 or -43.9%.  Interest was earned on free cash at an average annualized yield of 0.49% for the three months ended March 31, 2011 compared to 0.61% for the same period in 2010.

The Incentive Allocation is based on the New High Net Trading Profits of the portfolio.  For the three months ended March 31, 2011, the Incentive Allocation increased by $128, compared to zero, for the corresponding period of 2010 as a result of incentive allocations made mid-quarter related to shares redeemed when the portfolio was in a period of New High Net Trading Profits.

The following table illustrates the sector distribution of the Blended Strategies Portfolio’s investments in Master Funds as of March 31, 2011 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	23.4	%
Energy	35.2	%
Foreign exchange	6.1	%
Interest rates	29.8	%
Metals	0.3	%
Softs	(4.1	)%
Stock index	9.3	%
	100.0	%

94

2010 Summary

For the three months ended March 31, 2010, the Blended Strategies Portfolio experienced net trading gains of $385,279 attributable to the following sectors:

Agriculture	$	214,328
Energy		305,198
Foreign exchange		1,500,434
Interest rates		855,237
Metals		(329,944	)
Softs		(672,273	)
Stock index		(1,487,701	)
	$	385,279

The Blended Strategies Portfolio recorded a net loss during January due primarily to sharp reversals in global equity indices, foreign exchange and commodities.  These losses were partially offset by gains in the interest rate sector from both the discretionary and systematic portion of the portfolio.  The discretionary portion of the portfolio also contributed gains in currencies, which were generated by short positions in the euro as well as short crosses in the Swiss franc and Australian and New Zealand dollars.  During February, the portfolio was profitable in both systematic and discretionary trading in foreign exchange, including positions in European currencies and the Australian dollar.  Additional gains stemmed from positions in the European fixed income and industrial metals markets.  Smaller losses, from trading in global stock indices and commodities offset a portion of the month’s gains.  For the month of March, trading gains were recorded in global stock indices as equities rallied, and in energy amid falling natural gas prices. The portfolio also generated profits in foreign exchange, agriculturals and industrial metals.  Losses in the U.S. fixed income markets detracted from the portfolio's overall profits.

The following table illustrates the sector distribution of the Blended Strategies Portfolio’s investments in Master Funds as of December 31, 2010 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	20.7	%
Energy	19.7	%
Foreign exchange	4.4	%
Interest rates	21.7	%
Metals	30.7	%
Softs	4.3	%
Stock index	(1.5	%)
	100.0	%

95

Systematic Strategies Portfolio

2011 Summary

For the three months ended March 31, 2011, the Systematic Strategies Portfolio experienced net trading losses of $467,140 attributable to the following sectors:

Agriculture	$	770
Energy		197,433
Foreign exchange		(361,151	)
Interest rates		(221,918	)
Metals		157,676
Softs		156,159
Stock index		(396,109	)
	$	(467,140	)

The foreign exchange sector generated losses during the period as the U.S. dollar abruptly reversed its declining trend early in the quarter and strengthened following the release of favorable employment data.  The losses were slightly offset as trading for the remainder of quarter generated modest gains notably in commodity currencies such as the Canadian and Australian dollars.  The stock index sector also generated losses for the period despite recognizing gains in the early part of the quarter amid rising equity prices driven by improved global economic output and investor optimism.  Significant losses, notably in European indices, were recognized in March as the earthquake and tsunami in Japan generated dramatic market reversals.  Net losses were recorded in the interest rates sector predominantly from U.S. and European fixed income markets.  The portfolio was able to generate profits in the energy sector led by crude and heating oil as continued tensions in the Middle East drove energy prices higher during the period.  Gains were recognized in metals benefiting from the rising price of silver, which rose on steep demand and tight supply levels.  Gains were also recognized in other commodities (agriculture and softs) on the heels of rising prices in sugar, corn and cotton.

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, 2011, Brokerage Fees increased by $118,823 or 198.0%, Advisory Fees increased by $78,950 or 177.8% and Sponsor Fees increased by $39,475 or 177.8% in the Systematic Strategies Portfolio over the corresponding period of the preceding year.   These increases are all attributable to higher net assets of the portfolio resulting from subscriptions, partially offset by redemptions and a net loss for the period. During the same period interest income increased by $1,384 or 5.8% predominantly due to the increase in net assets discussed above partially offset by a decrease in the average annualized yield earned on free cash.  Interest was earned on free cash at an average annualized yield of 0.49% for the three months ended March 31, 2011 compared to 0.61% for the same period in 2010.

The Incentive Allocation is based on the New High Net Trading Profits of the portfolio for the period. For the three months ended March 31, 2011 the Incentive Allocation decreased by $820, compared to zero, for the corresponding period of 2010 due to the reversal of allocated Incentive Allocation in the last month of the quarter.

96

The following table illustrates the sector distribution of the Systematic Strategies Portfolio’s investments in Master Funds as of March 31, 2011 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	5.8	%
Energy	22.1	%
Foreign exchange	10.6	%
Interest rates	32.1	%
Metals	17.0	%
Softs	(4.7	%)
Stock index	17.1	%
	100.0	%

2010 Summary

For the three months ended March 31, 2010, the Systematic Strategies Portfolio experienced net trading losses of $41,016 attributable to the following sectors:

Agriculture	$	8,492
Energy		2,439
Foreign exchange		4,787
Interest rates		13,254
Metals		(10,264	)
Softs		(25,269	)
Stock index		(34,455	)
	$	(41,016	)

The portfolio recorded a loss during January due primarily to sharp price trend reversals across virtually all macro sectors.  Specifically, losses occurred as the European equity index markets declined, while the U.S. dollar rallied against the Swiss franc, Australian and New Zealand dollars and the euro.  In the commodity sector, losses resulted as prices declined in industrial metals, crude oil and soybeans.  Smaller gains in the interest rate sector offset a portion of the month’s losses. The portfolio experienced gains in February as trends emerged in currencies and the fixed income markets.  The portfolio generated profits in foreign exchange, particularly from trading the Australian dollar, euro, yen and British pound. Similarly, a rally in the fixed income markets resulted in gains for the portfolio in European interest rates, particularly from positions in Euribor and German bond futures. The portfolio incurred smaller losses for the month from trading commodities, including sugar, corn, wheat and crude oil.  During the month of March, profits were recorded in U.S. equity indices, as well as across Asian and European equity indices.  The portfolio also experienced gains in foreign exchange, with notable profits from long positions in the Canadian and Australian dollars.  Smaller gains were recorded in commodities trading.  Losses in the U.S. and Asian fixed income markets offset a portion of the portfolio’s overall gain for the month.

97

The following table illustrates the sector distribution of the Systematic Strategies Portfolio’s investments in Master Funds as of December 31, 2010 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	21.3	%
Energy	14.1	%
Foreign exchange	19.3	%
Interest rates	(15.6	%)
Metals	56.3	%
Softs	7.6	%
Stock index	(3.0	%)
	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 in 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.

(ii)           Liquidity

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, 2011		11.74	%		14.45	%
December 31, 2010		7.57	%		7.73	%
March 31, 2010		12.42	%		17.40	%

98

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, 2011, the Fund experienced no meaningful periods of illiquidity in any of the markets traded by the Manager on behalf of the Fund.

(iii)           Capital Resources

The Fund raises additional capital only through the sale of Units and capital is increased through trading profits (if any) and interest income.  The Fund may borrow money from brokers or their affiliates and other lenders. Units may be offered for sale as of the beginning, and may be redeemed as of the end, of each month.  The amount of capital raised for the Fund should not have a significant impact on its operations, as the Fund has no significant capital expenditure or working capital requirements other than for monies to pay trading losses, brokerage commissions and expenses.

           The Fund participates in the speculative trading of commodity futures contracts, substantially all of which are subject to margin requirements.  The minimum amount of margin required for each contract is set from time to time in response to various market factors by the respective exchanges.  Further, the Fund’s brokers may require margin in excess of minimum exchange requirements.  The Fund bears the risk of financial failure of the brokers through which it clears trades and maintains margin in respect of any such trades and of its counterparties for its foreign exchange and swap trades with whom it also maintains margin.

(iv)           Critical Accounting Policies

Use of Estimates – The Fund’s financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and all amounts are stated in U.S. dollars. The preparation of the financial statements requires the Manager to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.  The Fund’s significant accounting policies are described in detail in Note 2 of the financial statements.

Fair Value Measurement - The Fund follows U.S. GAAP for fair value measurements, which defines fair value, establishes a framework for measuring fair value and requires certain disclosures about fair value measurements.  U.S. GAAP uses a three-level hierarchy for fair value measurement based on the 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.

99

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.

100

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

          Not Required.

101

Item 4.    Controls and Procedures

          The Advisor’s Chief Executive 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, 2011.   Based on that evaluation, the Advisor’s Chief Executive Officer and Chief Financial Officer concluded that the Fund’s disclosure controls and procedures were effective as of March 31, 2011.

  There were no changes to the Fund’s internal controls over financial reporting during the first quarter of 2011 that have materially affected, or are reasonably likely to materially affect, the Fund’s internal controls over financial reporting.

102

PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

None

Item 1A. Risk Factors

Not Required

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

For the three months ended March 31, 2011, the Fund issued 135,959.428 Units in exchange for $18,352,602 with respect to the Blended Strategies Portfolio and 59,195.044 Units in exchange for $5,965,044 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
Period (as of)	Units Purchased	Units Purchased
January 1, 2011	32,079.387	21,005.721
February 1, 2011	44,215.922	18,184.446
March 1, 2011	59,664.119	20,004.877

Item 3.    Defaults Upon Senior Securities – None

Item 4.    [Removed and Reserved]

Item 5.    Other Information – None

103

Item 6.    Exhibits

* 3.1	Certificate of Formation of Graham Alternative Investment Fund II LLC
* 4.1	Amended and Restated Limited Liability Company Agreement of Graham Alternative Investment Fund II LLC
* 10.1	Form of Subscription Agreement
* 10.2	Form of Placement Agreement

*  Incorporated by reference to the Fund’s Form 10 previously filed on April 30, 2010

The exhibits required to be filed by Item 601 of regulation S-K are incorporated herein by reference
31.1	—	Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Executive Officer)
31.2	—	Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer)
32.1	—	Section 1350 Certification (Certification of Chief Executive Officer and Chief Financial Officer)

104

SIGNATURES

          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 16, 2011	GRAHAM ALTERNATIVE INVESTMENT FUND II LLC
	By:	GRAHAM CAPITAL MANAGEMENT, L.P.                 its Manager
		By:	/s/ Paul Sedlack
			Paul Sedlack, Chief Executive Officer
		By:	/s/ Jeff Baisley
			Jeff Baisley, Chief Financial Officer

105

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Paul Sedlack, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Graham Alternative Investment Fund II LLC (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 16, 2011

/s/ Paul Sedlack

Paul Sedlack

Chief Executive Officer

Graham Capital Management L.P.

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Jeff Baisley, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Graham Alternative Investment Fund II LLC (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 16, 2011

/s/ Jeff Baisley

Jeff Baisley

Chief Financial Officer

Graham Capital Management L.P.

EX-32.1

EXHIBIT 32.1

CERTIFICATION

PURSUANT TO

SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE

I, Jeff Baisley, Chief Financial Officer of Graham Capital Management L.P. and I, Paul Sedlack, Chief Executive Officer of Graham Capital Management L.P., certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1. The Quarterly Report on Form 10-Q of Graham Alternative Investment Fund II LLC for the period ended March 31, 2011 fully complies with the requirements of Section 13(a) or 15(d)of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the registrant.

Date: May 16, 2011

/s/ Jeff Baisley

Jeff Baisley

Chief Financial Officer

Graham Capital Management L.P.

/s/ Paul Sedlack

Paul Sedlack

Chief Executive Officer

Graham Capital Management L.P.