UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

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 incorporation or organization)	(I.R.S. Employer Identification No.)

c/o GRAHAM CAPITAL MANAGEMENT, L.P.

40 Highland Avenue

Rowayton, CT  06853

(Address of principal executive offices) (Zip Code)

Paul Sedlack

Graham Capital Management, L.P.

40 Highland Avenue

Rowayton, CT  06853

(203) 899-3400

(Registrant’s telephone number, including area code)

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

Yes 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 February 1, 2011, 247,705.74 Units of the Systematic Strategies Portfolio were outstanding.

As of February 1, 2011, 1,181,270.77 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 September 30, 2010 and December 31, 2009 (unaudited)	1
	Consolidated Statements of Operations for the three months and nine months ended September 30, 2010 and 2009 (unaudited)	2
	Consolidated Statements of  Changes in Members’ Capital for the nine months ended September 30, 2010 and 2009 (unaudited)	3
	Consolidated Statements of  Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
	Graham Alternative Investment Trading LLC
	Statements of Financial Condition at September 30, 2010 (unaudited) and December 31, 2009 (audited)	15
	Condensed Schedules of Investments at September 30, 2010 (unaudited) and December 31, 2009 (audited)	16
	Statements of Operations and Managing Member Allocation for the three months and nine months ended September 30, 2010 and 2009 (unaudited)	18
	Statements of  Changes in Members’ Capital for the nine months ended September 30, 2010 and 2009 (unaudited)	19
	Statements of  Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited)	20
	Notes to Financial Statements (unaudited)	21
	Graham Alternative Investment Trading II LLC
	Statements of Financial Condition at September 30, 2010 (unaudited) and December 31, 2009 (audited)	67

	Statements of Operations and Managing Member Allocation for the three months and nine months ended September 30, 2010 and 2009 (unaudited)	68
	Statements of  Changes in Members’ Capital for the nine months ended September 30, 2010 and 2009 (unaudited)	69
	Statements of  Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited)	70
	Notes to Financial Statements (unaudited)	71
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	94
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	106
Item 4.	Controls and Procedures	107
PART II - Other Information		108

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

	September 30, 2010 (Unaudited)		December 31, 2009 (Audited)
Assets
Investment in Graham Alternative Investment Trading LLC, at fair value	$	132,338,608	$	104,469,283
Investment in Graham Alternative Investment Trading II LLC, at fair value		18,473,243		7,246,605
Redemptions receivable from Graham Alternative Investment Trading LLC		550,861		179,735
Total assets	$	151,362,712	$	111,895,623
Liabilities and members’ capital
Liabilities:
Accrued redemptions	$	550,861	$	179,735
Total liabilities		550,861		179,735
Members’ capital:
Blended Strategies Portfolio
Class 0 Units (816,307.982 and 636,284.928 units issued and outstanding at $137.19 and $135.56, respectively)		111,993,332		86,253,313
Class 2 Units (180,525.220 and 161,590.940 units issued and outstanding at $112.70 and $112.73, respectively)		20,345,276		18,215,970
Total Blended Strategies Portfolio		132,338,608		104,469,283
Systematic Strategies Portfolio
Class 0 Units (121,072.338 and 41,862.245 units issued and outstanding at $98.26 and $100.59, respectively)		11,896,502		4,210,889
Class 2 Units (68,999.975 and 30,647.378 units issued and outstanding at $95.32 and $99.05, respectively)		6,576,741		3,035,716
Total Systematic Strategies Portfolio		18,473,243		7,246,605
Total members’ capital		150,811,851		111,715,888
Total liabilities and members’ capital	$	151,362,712	$	111,895,623

See accompanying notes.

1

Graham Alternative Investment Fund II LLC

Consolidated Statements of Operations

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010 (Unaudited)			2009 (Unaudited)			2010 (Unaudited)			2009 (Unaudited)
Net gain allocated from investments in other funds:
Net realized (loss) gain on investments	$	(1,002,467	)	$	2,119,526		$	869,827		$	4,653,057
Net increase in unrealized appreciation on investments		5,634,064			2,286,701			5,479,488			432,165
Net gain allocated from investments in other funds		4,631,597			4,406,227			6,349,315			5,085,222
Net investment loss allocated from investments in other funds:
Investment income:
Interest income		367,128			169,240			1,023,735			427,297
Expenses:
Brokerage fees		850,578			517,106			2,287,169			1,442,854
Advisory fees		722,560			437,192			1,939,520			1,237,424
Sponsor fees		361,280			218,595			969,760			618,710
Incentive allocation		396,552			449,027			402,284			460,954
Interest and other		7,574			2,690			25,695			3,413
Total expenses		2,338,544			1,624,610			5,624,428			3,763,355
Net investment loss allocated from investments in other funds		(1,971,416	)		(1,455,370	)		(4,600,693	)		(3,336,058	)
Net income	$	2,660,181		$	2,950,857		$	1,748,622		$	1,749,164

See accompanying notes.

2

Graham Alternative Investment Fund II LLC

Consolidated Statements of Changes in Members’ Capital

For the nine months ended September 30, 2010 (unaudited) and 2009 (unaudited)

							Blended Strategies Portfolio
	Class 0 Units						Class 2 Units						Total
	Units			Capital			Units			Capital			Blended Strategies Portfolio
Members’ capital, December 31, 2008		516,925.720		$	68,295,291			103,563.227		$	11,572,329		$	79,867,620
Subscriptions		179,093.598			23,729,020			57,423.228			6,375,993			30,105,013
Redemptions		(175,460.141	)		(23,207,779	)		(24,267.550	)		(2,688,521	)		(25,896,300	)
Net income		—			1,341,254			—			126,209			1,467,463
Members’ capital, September 30, 2009		520,559.177		$	70,157,786			136,718.905		$	15,386,010		$	85,543,796

							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		209,591.883			28,198,847			34,719.384			3,852,029			32,050,876
Redemptions		(29,568.829	)		(3,996,683	)		(15,785.104	)		(1,753,415	)		(5,750,098	)
Net income		—			1,537,855			—			30,692			1,568,547
Members’ capital, September 30, 2010		816,307.982		$	111,993,332			180,525.220		$	20,345,276		$	132,338,608

See accompanying notes.

3

Graham Alternative Investment Fund II LLC

Consolidated Statements of Changes in Members’ Capital (continued)

For the nine months ended September 30, 2010 (unaudited) and 2009 (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, 2008		—	$	—		—	$	—	$	—	$	79,867,620
Initial subscriptions		50.000		5,000		—		—		5,000		5,000
Subscriptions		29,264.646		2,756,500		12,109.772		1,143,999		3,900,499		34,005,512
Redemptions		—		—		—		—		—		(25,896,300	)
Net income		—		211,497		—		70,204		281,701		1,749,164
Members’ capital, September 30, 2009		29,314.646	$	2,972,997		12,109.772	$	1,214,203	$	4,187,200	$	89,730,996

							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		82,338.958			7,747,459			40,833.612			3,836,375			11,583,834			43,634,710
Redemptions		(3,128.865	)		(303,574	)		(2,481.015	)		(233,697	)		(537,271	)		(6,287,369	)
Net income (loss)		—			241,728			—			(61,653	)		180,075			1,748,622
Members’ capital, September 30, 2010		121,072.338		$	11,896,502			68,999.975		$	6,576,741		$	18,473,243		$	150,811,851

See accompanying notes.

4

Graham Alternative Investment Fund II LLC

Consolidated Statements of Cash Flows

	Nine Months Ended September 30,
	2010 (Unaudited)			2009 (Unaudited)
Cash flows used in operating activities
Net income	$	1,748,622		$	1,749,164
Adjustments to reconcile net income to net cash used in operating activities:
Net income allocated from investment in Graham Alternative Investment Trading LLC		(1,568,547	)		(1,467,463	)
Net income allocated from investment in Graham Alternative Investment Trading II LLC		(180,075	)		(281,701	)
Proceeds from sale of investments in Graham Alternative Investment Trading LLC		5,750,098			25,896,300
Proceeds from sale of investments in Graham Alternative Investment Trading II LLC		537,271			—
Investments in Graham Alternative Investment Trading LLC		(32,050,876	)		(30,105,013	)
Investments in Graham Alternative Investment Trading II LLC		(11,583,834	)		(3,905,499	)
Changes in assets and liabilities:
Redemption receivable from Graham Alternative Investment Trading LLC		(371,126	)		910,062
Net cash used in operating activities		(37,718,467	)		(7,204,150	)
Cash flows provided by financing activities
Subscriptions		43,634,710			34,010,512
Redemptions		(5,916,243	)		(26,806,362	)
Net cash provided by financing activities		37,718,467			7,204,150
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 Consolidated Financial Statements

September 30, 2010 (unaudited)

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 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 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 Paris (“MONEP”), the Hong Kong Exchanges and Clearing Ltd. (“HKEX”), the Intercontinental Exchange (“ICE”), the London Commodity Exchange (“LCE”), the London International Financial Futures and Options Exchange Ltd. (“LIFFE”), the London Metal Exchange (“LME”), the Marché à Terme International de France (“MATIF”), the Montreal Exchange (“ME”), the Osaka Securities Exchange (“OSE”), the Sydney Futures Exchange Ltd. (“SFE”), the Singapore International Monetary Exchange (“SIMEX”), the South African Exchange (“SAFEX”), the Tokyo International Financial Futures Exchange (“TIFFE”), 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 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 consolidated financial statements and accompanying notes related to September 30, 2010 and 2009 and the three and nine month periods then ended are unaudited.  Amounts included herein as of December 31, 2009 have been taken from the December 31, 2009 audited consolidated financial statements and accompanying notes of the Fund.

In July 2009, the Financial Accounting Standards Board (“FASB”) issued “The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles” (the “Codification”). The Codification is the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. All existing accounting standard documents are superseded and all other accounting literature not included in the Codification is considered non-authoritative. The adoption of the Codification does not impact the Fund’s consolidated financial statements except for references made to authoritative accounting literature in the footnotes.

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 GAIT and GAIT II 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 in accordance with U.S. GAAP. The Fund records its proportionate share of the GAIT Funds’ investment income, 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 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.

7

Graham Alternative Investment Fund II LLC

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Investment in Graham Alternative Investment Trading LLC and Graham Alternative Investment Trading II LLC (continued)

At September 30, 2010 and December 31, 2009, the Fund owned 33.42% and 34.38%, respectively of GAIT.  At September 30, 2010 and December 31, 2009, the Fund owned 30.22% and 19.48%, respectively of GAIT II.

Fair Value

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

The Fund follows U.S. GAAP for fair value measurements, which defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements.  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 settle prices for such assets or liabilities as published by the primary exchange upon which they are traded.

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

● 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 Level 2 valuations based on the release of ASU 2009-12 in 2009.  As of September 30, 2010 and December 31, 2009, neither the GAIT Funds nor the Master Funds held any Level 3 investments as defined by ASU 2009-12.

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.

8

Graham Alternative Investment Fund II LLC

Notes to Consolidated Financial Statements (continued)

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.

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 will equal 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 at least three business days prior written notice.

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 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.

9

Graham Alternative Investment Fund II LLC

Notes to Consolidated Financial Statements (continued)

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.

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 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. This allocation is reflected as an expense in the consolidated statements of operations of the Fund.

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 GAIT Funds’ 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 those amounts.  These reimbursements are included in other income 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 the Fund.

10

Graham Alternative Investment Fund II LLC

Notes to Consolidated Financial Statements (continued)

5. Income Taxes

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

U.S. GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the 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 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.

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 months ended September 30, 2010 and 2009:

	Blended Strategies Portfolio						Systematic Strategies Portfolio
	Class 0			Class 2			Class 0			Class 2
Per share operating performance
Net asset value per unit, June 30, 2009	$	130.41		$	109.20		$	93.58		$	92.63
Net income:
Net investment loss		(1.69	)		(2.02	)		(1.34	)		(1.78	)
Net gain on investments		6.05			5.36			9.18			9.42
Net income		4.36			3.34			7.84			7.64
Net asset value per unit, September 30, 2009	$	134.77		$	112.54		$	101.42		$	100.27
Net asset value per unit, June 30, 2010	$	134.80		$	111.00		$	95.72		$	93.33
Net income:
Net investment loss		(3.59	)		(1.25	)		(1.41	)		(1.75	)
Net gain on investments		5.98			2.95			3.95			3.74
Net income		2.39			1.70			2.54			1.99
Net asset value per unit, September 30, 2010	$	137.19		$	112.70		$	98.26		$	95.32

11

Graham Alternative Investment Fund II LLC

Notes to Consolidated Financial Statements (continued)

7. Financial Highlights (continued)

The following represents ratios to average members’ capital and total return for the three months ended September 30, 2010 and 2009 for the Blended Strategies Portfolio:

	Blended Strategies Portfolio
	Class 0						Class 2
	2010			2009			2010			2009
Total return before Incentive Allocation		2.16	%		3.83	%		1.59	%		3.33	%
Incentive Allocation		(0.39	)		(0.53	)		(0.09	)		(0.33	)
Total return after Incentive Allocation		1.77	%		3.30	%		1.50	%		3.00	%
Net investment loss before Incentive Allocation		(1.03	)%		(1.07	)%		(1.55	)%		(1.67	)%
Incentive Allocation		(0.39	)		(0.53	)		(0.09	)		(0.33	)
Net investment loss after Incentive Allocation		(1.42	)%		(1.60	)%		(1.64	)%		(2.00	)%
Total expenses before Incentive Allocation		1.29	%		1.28	%		1.80	%		1.88	%
Incentive Allocation		0.39			0.53			0.09			0.33
Total expenses after Incentive Allocation		1.68	%		1.81	%		1.89	%		2.21	%

The following represents ratios to average members’ capital and total return for the three months ended September 30, 2010 and 2009 for the Systematic Strategies Portfolio:

	Systematic Strategies Portfolio
	Class 0						Class 2
	2010			2009			2010			2009
Total return before Incentive Allocation		2.52	%		12.56	%		2.00	%	9.55	%
Incentive Allocation		0.00			(4.72	)		0.00		(1.91	)
Total return after Incentive Allocation		2.52	%		7.84	%		2.00	%	7.64	%
Net investment loss before in Incentive Allocation		(1.05	)%		(1.00	)%		(1.60	)%	(1.59	)%
Incentive Allocation		0.00			(4.72	)		0.00		(1.91	)
Net investment loss after Incentive Allocation		(1.05	)%		(5.72	)%		(1.60	)%	3.50	%
Total expenses before Incentive Allocation		1.31	%		1.31	%		1.86	%	1.79	%
Incentive Allocation		0.00			4.72			0.00		1.91
Total expenses after Incentive Allocation		1.31	%		6.03	%		1.86	%	3.70	%

12

Graham Alternative Investment Fund II LLC

Notes to Consolidated Financial Statements (continued)

7. Financial Highlights (continued)

The following is the per Unit operating performance calculation for the nine months ended September 30, 2010 and 2009:

	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, 2008	$	132.12		$	111.74		$	—		$	—
Initial subscription		—			—			100.00			100.00
Net income:
Net investment loss		(4.97	)		(5.93	)		(3.77	)		(2.32	)
Net gain on investments		7.62			6.73			5.19			2.59
Net income		2.65			0.80			1.42			0.27
Net asset value per unit, September 30, 2009	$	134.77		$	112.54		$	101.42		$	100.27
Net asset value per unit, December 31, 2009	$	135.56		$	112.73		$	100.59		$	99.05
Net income (loss):
Net investment loss		(5.12	)		(5.87	)		(3.85	)		(5.11	)
Net gain on investments		6.75			5.84			1.52			1.38
Net income (loss)		1.63			(0.03	)		(2.33	)		(3.73	)
Net asset value per unit, September 30, 2010	$	137.19		$	112.70		$	98.26		$	95.32

The following represents ratios to average members’ capital and total return for the nine months ended September 30, 2010 and 2009 for the Blended Strategies Portfolio:

	Blended Strategies Portfolio
	Class 0						Class 2
	2010			2009			2010			2009
Total return before Incentive Allocation		1.61	%		2.56	%		0.06	%		1.06	%
Incentive Allocation		(0.40	)		(0.55	)		(0.09	)		(0.34	)
Total return after Incentive Allocation		1.21	%		2.01	%		(0.03	)%		0.72	%
Net investment loss before Incentive Allocation		(3.03	)%		(3.26	)%		(4.55	)%		(4.87	)%
Incentive Allocation		(0.40	)		(0.55	)		(0.09	)		(0.34	)
Net investment loss after Incentive Allocation		(3.43	)%		(3.81	)%		(4.64	)%		(5.21	)%
Total expenses before Incentive Allocation		3.82	%		3.83	%		5.34	%		5.45	%
Incentive Allocation		0.40			0.55			0.09			0.34
Total expenses after Incentive Allocation		4.22	%		4.38	%		5.43	%		5.79	%

13

Graham Alternative Investment Fund II LLC

Notes to Consolidated Financial Statements (continued)

7. Financial Highlights (continued)

The following represents ratios to average members’ capital and total return for the nine months ended September 30, 2010 and 2009 for the Systematic Strategies Portfolio:

	Systematic Strategies Portfolio
	Class 0						Class 2
	2010			2009			2010			2009
Total return before Incentive Allocation		(2.32	)%		6.26	%		(3.77	)%		2.09	%
Incentive Allocation		0.00			(4.84	)		0.00			(1.82	)
Total return after Incentive Allocation		(2.32	)%		1.42	%		(3.77	)%		0.27	%
Net investment loss before in Incentive Allocation		(3.19	)%		(3.29	)%		(4.66	)%		(2.13	)%
Incentive Allocation		0.00			(4.84	)		0.00			(1.82	)
Net investment loss after Incentive Allocation		(3.19	)%		(8.13	)%		(4.66	)%		(3.95	)%
Total expenses before Incentive Allocation		4.00	%		3.82	%		5.45	%		2.37	%
Incentive Allocation		0.00			4.84			0.00			1.82
Total expenses after Incentive Allocation		4.00	%		8.66	%		5.45	%		4.19	%

Total return is calculated for Class 0 units and Class 2 Units taken as a whole and is not 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. The net investment loss and total expense ratios are computed based upon the weighted average of members’ capital for Class 0 and Class 2 Units of the Fund for the three and nine months ended September 30, 2010 and 2009.

8. Subsequent Events

The Fund had subscriptions of approximately $12.5 million and redemptions of approximately $1.2 million for the period from October 1, 2010 through November 15, 2010.  These amounts have not been included in the financial statements.

14

Graham Alternative Investment Trading LLC

Statements of Financial Condition

	September 30, 2010 (Unaudited)		December 31, 2009 (Audited)
Assets
Cash and cash equivalents	$	—	$	49
Investments in Master Funds, at fair value		47,722,574		16,210,863
Investment in Graham Cash Assets LLC, at fair value		352,499,552		289,831,323
Accrued commission reimbursements		272,183		137,079
Receivable from Master Funds		9		2,825
Total assets	$	400,494,318	$	306,182,139
Liabilities and members’ capital
Liabilities:
Accrued redemptions	$	1,562,060	$	572,512
Accrued brokerage fees		758,657		608,084
Accrued advisory fees		656,921		518,693
Accrued sponsor fees		328,460		259,346
Accrued incentive allocation		1,189,086		341,592
Payable to Master Funds		8,263		—
Total liabilities		4,503,447		2,300,227
Members’ capital:
Class 0 Units (2,432,830.504 and 1,851,259.271 units issued and outstanding at $137.19 and $135.56 per unit, respectively)		333,772,162		250,952,480
Class 2 Units (544,462.259 and 462,314.824 units issued and outstanding at $112.70 and $112.73 per unit, respectively)		61,361,176		52,116,241
Class M Units (4,671.470 and 4,671.470 units issued and outstanding at $183.57 and $174.08 per unit, respectively)		857,533		813,191
Total members’ capital		395,990,871		303,881,912
Total liabilities and members’ capital	$	400,494,318	$	306,182,139

See accompanying notes.

15

Graham Alternative Investment Trading LLC

Condensed Schedules of Investments

September 30, 2010 (Unaudited)

Description	Fair Value		Percentage of Members’ Capital
Investments in Master Funds, at fair value
Graham Commodity Strategies LLC	$	6,161,754		1.56	%
Graham Discretionary Energy Trading III LLC		2,801,778		0.71	%
Graham Fed Policy Ltd.		5,721,915		1.44	%
Graham Global Monetary Policy LLC		1,848,673		0.47	%
Graham GMP Securities LLC		106,920		0.03	%
Graham K4D Trading Ltd.		26,750,233		6.75	%
Graham Macro Directional LLC		4,229,855		1.07	%
Graham Short Term Global Macro LLC		101,446		0.02	%
Total investments in Master Funds	$	47,722,574		12.05	%

See accompanying notes.

16

 Graham Alternative Investment Trading LLC

Condensed Schedules of Investments

December 31, 2009

Description	Fair Value		Percentage of Members’ Capital
Investments in Master Funds, at fair value
Graham Commodity Strategies LLC	$	763,431		0.25	%
Graham Fed Policy Ltd.		2,649,859		0.87	%
Graham Global Monetary Policy LLC		864,633		0.28	%
Graham K4D Trading Ltd.		11,724,671		3.86	%
Graham Macro Directional LLC		208,269		0.07	%
Total investments in Master Funds	$	16,210,863		5.33	%

See accompanying notes.

17

 Graham Alternative Investment Trading LLC

Statements of Operations and Managing Member Allocation

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010 (Unaudited)			2009 (Unaudited)			2010 (Unaudited)			2009 (Unaudited)
Net gain allocated from investments in Master Funds:
Net realized (loss) gain on investments	$	(2,574,496	)	$	6,230,384		$	2,867,722		$	14,282,768
Net increase in unrealized appreciation on investments		15,073,125			7,113,599			15,373,790			1,242,416
Brokerage commissions and fees		(683,647	)		(407,829	)		(1,739,141	)		(1,009,350	)
Net gain allocated from investments in Master Funds		11,814,982			12,936,154			16,502,371			14,515,834
Net investment loss allocated from investments in Master Funds		(26,684	)		(13,700	)		(56,160	)		(25,990	)
Investment income:
Interest income		502,343			353,267			1,384,191			1,149,986
Other income		683,647			408,535			1,739,141			1,010,056
Total investment income		1,185,990			761,802			3,123,332			2,160,042
Expenses:
Brokerage fees		2,227,084			1,598,256			6,030,707			4,456,543
Advisory fees		1,922,144			1,371,660			5,172,169			3,873,365
Sponsor fees		961,072			685,830			2,586,085			1,936,682
Interest and other		11,550			4,988			37,822			14,021
Total expenses		5,121,850			3,660,734			13,826,783			10,280,611
Net investment loss of the Fund		(3,935,860	)		(2,898,932	)		(10,703,451	)		(8,120,569	)
Net income		7,852,438			10,023,522			5,742,760			6,369,275
Incentive allocation		(1,189,086	)		(1,289,920	)		(1,194,778	)		(1,315,601	)
Net income available for pro-rata allocation to all members	$	6,663,352		$	8,733,602		$	4,547,982		$	5,053,674

See accompanying notes.

18

Graham Alternative Investment Trading LLC

Statements of Changes in Members’ Capital

For the nine months ended September 30, 2010 (unaudited) and 2009 (unaudited)

	Class 0						Class 2						Class M					Total
	Units			Capital			Units			Capital			Units		Capital			Capital
Members’ capital, December 31, 2008		1,585,426.608		$	209,463,943			276,829.231		$	30,933,785			4,671.470	$	748,868		$	241,146,596
Subscriptions		393,501.474			51,952,001			198,354.098			21,957,268			—		—			73,909,269
Redemptions		(256,441.514	)		(33,785,402	)		(59,319.349	)		(6,580,690	)		—		(1,315,601	)		(41,681,693	)
Incentive allocation		—			—			—			—			—		1,315,601			1,315,601
Net income available for pro-rata allocation		—			4,515,449			—			489,887			—		48,338			5,053,674
Members’ capital, September 30, 2009		1,722,486.568		$	232,145,991			415,863.980		$	46,800,250			4,671.470	$	797,206		$	279,743,447
	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		727,135.959			97,996,571			127,071.006			14,095,881			—		—			112,092,452
Redemptions		(145,564.726	)		(19,555,651	)		(44,923.571	)		(4,975,824	)		—		(1,194,778	)		(25,726,253	)
Incentive allocation		—			—			—			—			—		1,194,778			1,194,778
Net income available for pro-rata allocation		—			4,378,762			—			124,878			—		44,342			4,547,982
Members’ capital, September 30, 2010		2,432,830.504		$	333,772,162			544,462.259		$	61,361,176			4,671.470	$	857,533		$	395,990,871

See accompanying notes.

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Graham Alternative Investment Trading LLC

Statements of Cash Flows

	Nine Months Ended September 30,
	2010 (Unaudited)			2009 (Unaudited)
Cash flows used in operating activities
Net income	$	5,742,760		$	6,369,275
Adjustments to reconcile net income to net cash used in operating activities:
Net income allocated from investment in Master Funds		(16,446,211	)		(14,489,844	)
Net income allocated from investment in Graham Cash Assets LLC		(1,384,191	)		(580,963	)
Net income allocated from investment in Graham Cash Assets II LLC		—			(569,023	)
Proceeds from sale of investments in Master Funds		237,721,282			160,049,081
Proceeds from sale of investments in Graham Cash Assets LLC		187,141,787			227,786,474
Proceeds from sale of investments in Graham Cash Assets II LLC		—			359,882,599
Investments in Master Funds		(252,775,703	)		(164,789,765	)
Investments in Graham Cash Assets LLC		(248,425,825	)		(482,253,100	)
Investments in Graham Cash Assets II LLC		—			(112,508,973	)
Changes in assets and liabilities:
Accrued commission reimbursements		(135,104	)		(35,817	)
Accrued brokerage fees		150,573			53,857
Accrued advisory fees		138,228			31,277
Accrued sponsor fees		69,114			(5,206,063	)
Accrued incentive allocation		847,494			15,638
Net cash used in operating activities		(87,355,796	)		(26,245,347	)
Cash flows provided by financing activities
Subscriptions		112,092,452			73,909,269
Redemptions		(24,736,705	)		(47,663,458	)
Net cash provided by financing activities		87,355,747			26,245,811
Net (decrease) increase in cash and cash equivalents		(49	)		464
Cash and cash equivalents, beginning of period		49			195
Cash and cash equivalents, end of period	$	—		$	659

See accompanying notes.

20

Graham Alternative Investment Trading LLC

Notes to Financial Statements

September 30, 2010 (unaudited)

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 Note 2, 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 Paris (“MONEP”), the Hong Kong Exchanges and Clearing Ltd. (“HKEX”), the Intercontinental Exchange (“ICE”), the London Commodity Exchange (“LCE”), the London International Financial Futures and Options Exchange Ltd. (“LIFFE”), the London Metal Exchange (“LME”), the Marché à Terme International de France (“MATIF”), the Montreal Exchange (“ME”), the Osaka Securities Exchange (“OSE”), the Sydney Futures Exchange Ltd. (“SFE”), the Singapore International Monetary Exchange (“SIMEX”), the South African Exchange (“SAFEX”), the Tokyo International Financial Futures Exchange (“TIFFE”), 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”) of GAIT.

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 September 30, 2010 and 2009 and the three and nine month periods then ended are unaudited.  Amounts included herein as of December 31, 2009 have been taken from the December 31, 2009 audited financial statements and accompanying notes of GAIT.

21

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

In July 2009, the Financial Accounting Standards Board (“FASB”) issued “The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles” (the “Codification”). The Codification is the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. All existing accounting standard documents are superseded and all other accounting literature not included in the Codification is considered non-authoritative.  The adoption of the Codification does not impact GAIT’s financial statements except for references made to authoritative accounting literature in the footnotes.

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. At December 31, 2009, this amount was primarily invested in overnight deposits with major U.S. financial institutions.

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. Gains and losses are allocated monthly by each Master Fund to GAIT based upon GAIT’s proportionate share of the net assets of each Master Fund and are included in the statements of operations and managing member allocation for the three and nine months ended September 30, 2010 and 2009.

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 settle prices for such assets or liabilities as published by the primary exchange upon which they are traded.

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

● 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, Graham Cash Assets LLC (“GCA”), and Graham Cash Assets II LLC (“GCA II”) have been classified as Level 2 valuations based on the release of ASU 2009-12 in 2009.  As of September 30, 2010 and December 31, 2009, the Master Funds and GCA did not hold any Level 3 investments.

22

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Fair Value (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. To the extent a Master Fund is deemed to be insolvent, all positions could be subject to liquidation.

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.

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.

23

Graham Alternative Investment Trading LLC

Notes to 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.

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.

An interest rate swap contract is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified 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.

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.

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.

24

Graham Alternative Investment Trading LLC

Notes to 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.

Indemnifications

In the normal course of business, the Master Funds, GCA, GCA II 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.

3. Investments in Master Funds

As of September 30, 2010 and December 31, 2009, GAIT invested in Master Funds, all of which were managed by the Manager. GAIT’s investments in these Master Funds, as well as 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 “Master Funds.”  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.

September 30, 2010
Investment – Objective	Percent of Members’ Capital			Fair Value		Net Income (three months then ended)		Net Income (nine months then ended)
Graham K4D Trading Ltd. –  (a)		6.75	%	$	26,750,233	$	6,996,103	$	2,886,254
Other Master Funds (7) –  (b) (c) (d) (e)		5.30	%		20,972,341		4,792,195		13,559,957
		12.05	%	$	47,722,574	$	11,788,298	$	16,446,211

December 31, 2009
Investment – Objective	Percent of Members’ Capital			Fair Value		Net Income (twelve months then ended)
Master Funds (6) – (a) (b) (c) (d) (e)		5.33	%	$	16,210,863	$	19,395,922
		5.33	%	$	16,210,863	$	19,395,922

(a) – Systematic Macro

(b) – Fixed Income

(c) – Global Macro

(d) – Energy Related

(e) – Commodities

25

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following table summarizes the financial position of each Master Fund as of September 30, 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 GMP Securities LLC (Delaware)			Graham K4D Trading Ltd. (BVI)			Graham Macro Directional LLC (Delaware)			Graham Short Term Global Macro LLC (Delaware)
Assets:
Cash and cash equivalents	$	1		$	—		$	—		$	—		$	6		$	—		$	—		$	—
Due from brokers		19,204,912			3,668,548			3,174,872			19,489,417			1,908,865			140,608,437			26,199,281			1,183,365
Options, at fair value		—			11,482,000			29,243,476			898,431			—			—			—			31,249
Derivative financial instruments, at fair value		23,519,240			4,706,904			20,179,904			3,584,276			—			74,010,326			253,089			—
Subscriptions receivable		—			—			12			130			156			—			—			38,268
Interest receivable		—			—			—			533			1			11,929			172			—
Total assets		42,724,153			19,857,452			52,598,264			23,972,787			1,909,028			214,630,692			26,452,542			1,252,882
Liabilities:
Options, at fair value		—			—			11,370,356			—			—			—			—			—
Derivative financial instruments, at fair value		—			—			—			—			533,509			—			302,924			485,235
Due to brokers		—			—			—			1,379,506			—			1,113,899			1,463,918			363,135
Redemptions payable		—			—			154			10			156			—			—			38,268
Total liabilities		—			—			11,370,510			1,379,516			533,665			1,113,899			1,766,842			886,638
Net assets	$	42,724,153		$	19,857,452		$	41,227,754		$	22,593,271		$	1,375,363		$	213,516,793		$	24,685,700		$	366,244
Percentage of Master Fund held by the Fund		14.42	%		14.11	%		13.88	%		8.18	%		7.77	%		12.53	%		17.13	%		27.70	%

26

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following table summarizes the results of operations of each Master Fund for the three and nine months ended September 30, 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 GMP Securities LLC (Delaware)			Graham K4D Trading Ltd. (BVI)			Graham Macro Directional LLC (Delaware)			Graham Short Term Global Macro LLC (Delaware)
	Three Months Ended September 30, 2010
Net investment income (loss)	$	(1,462	)	$	(63,926	)	$	(3,721	)	$	(28,436	)	$	486		$	(25,302	)	$	62,423		$	723
Net realized gain (loss) on investments		(30,632,779	)		(8,157,907	)		20,771,895			2,888,717			(716,813	)		(9,520,923	)		2,616,752			1,479,222
Net increase (decrease) in appreciation on investments		31,565,216			13,651,897			3,687,486			2,868,043			(529,824	)		68,863,324			(2,464,404	)		15,070
Brokerage commissions and fees		(1,347,849	)		(551,867	)		(544,081	)		(462,964	)		(538	)		(1,766,962	)		(361,528	)		(153,017	)
Net gain (loss) on investments		(415,412	)		4,942,123			23,915,300			5,293,796			(1,247,175	)		57,575,439			(209,180	)		1,341,275
Net income (loss)	$	(416,874	)	$	4,878,197		$	23,911,579		$	5,265,360		$	(1,246,689	)	$	57,550,137		$	(146,757	)	$	1,341,998

	Nine Months Ended September 30, 2010
Net investment income (loss)	$	(9,606	)	$	(95,164	)	$	(6,706	)	$	(47,142	)	$	(25,215	)	$	(127,018	)	$	(36,686	)	$	912
Net realized gain (loss) on investments		(27,201,108	)		618,331			12,832,214			95,303,646			(4,743,412	)		(31,318,993	)		17,533,873			(3,686,155	)
Net increase (decrease) in appreciation on investments		23,031,904			9,373,559			26,296,377			5,543,806			1,324,681			54,268,614			(1,589,754	)		1,941,696
Brokerage commissions and fees		(3,540,939	)		(1,066,971	)		(2,885,788	)		(1,618,332	)		(1,695	)		(4,773,158	)		(665,723	)		(285,325	)
Net gain (loss) on investments		(7,710,143	)		8,924,919			36,242,803			99,229,120			(3,420,426	)		18,176,463			15,278,396			(2,029,784	)
Net income (loss)	$	(7,719,749	)	$	8,829,755		$	36,236,097		$	99,181,978		$	(3,445,641	)	$	18,049,445		$	15,241,710		$	(2,028,872	)

27

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following represents the condensed schedules of investments for the Master Funds as of September 30, 2010:

Description	Number of Contracts		Fair Value			Percentage of Members’ Capital
Graham Commodity Strategies LLC
Long contracts
Futures
Brent Crude Oil November 2010		2,860	$	9,915,240			23.21	%
Brent Crude Oil December 2010		947		4,038,950			9.45	%
Brent Crude Penultimate Financial December 2011		1,095		5,380,900			12.59	%
Copper March 2011		2,293		21,718,625			50.83	%
Cotton March 2011		1,476		14,615,780			34.21	%
Gas Oil October 2010		1,314		3,898,800			9.13	%
Gasoline RBOB November 2010		1,198		3,429,884			8.03	%
Heating Oil December 2010		583		2,649,688			6.20	%
Natural Gas March 2011		598		(7,342,030	)		(17.18	)%
Soybean November 2011		980		2,269,325			5.31	%
LME Aluminum December 2010		1,386		5,686,388			13.31	%
Wheat December 2010		2,072		5,778,138			13.52	%
WTI Crude December 2012		2,364		7,869,570			18.42	%
Other commodity				8,121,270			19.01	%
Total futures				88,030,528			206.04	%
Swaps
Commodity				1,046,250			2.45	%
Total swaps				1,046,250			2.45	%

28

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following represents the condensed schedules of investments for the Master Funds as of September 30, 2010:

Description	Number of Contracts			Fair Value			Percentage of Members’ Capital
Graham Commodity Strategies LLC (continued)
Short contracts
Futures
Brent Crude Oil December 2010		(2,150	)	$	(6,725,170	)		(15.74	)%
Brent Crude Oil December 2012		(958	)		(2,638,670	)		(6.18	)%
Brent Crude Penultimate Financial December 2010		(647	)		(3,146,830	)		(7.37	)%
Brent Crude Penultimate Financial December 2012		(1,295	)		(5,704,250	)		(13.35	)%
Copper December 2010		(2,293	)		(17,288,513	)		(40.46	)%
Cotton December 2010		(1,476	)		(13,388,050	)		(31.34	)%
Gas Oil November 2010		(1,074	)		(3,248,850	)		(7.60	)%
LME Aluminum December 2010		(1,157	)		(4,872,231	)		(11.40	)%
Natural Gas November 2010		(1,144	)		3,860,000			9.03	%
Wheat December 2010		(1,957	)		4,233,763			9.91	%
WTI Crude November 2010		(2,951	)		(2,482,380	)		(5.81	)%
Other commodity					(11,381,527	)		(26.64	)%
Total futures					(62,782,708	)		(146.95	)%
Swaps
Commodity					(2,774,830	)		(6.49	)%
Total swaps					(2,774,830	)		(6.49	)%
Total				$	23,519,240			55.05	%

29

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following represents the condensed schedules of investments for the Master Funds as of September 30, 2010:

Description	Number of Contracts		Fair Value			Percentage of Members’ Capital
Graham Discretionary Energy Trading III LLC
Long contracts
Futures
Gasoline RBOB November 2010		1,000	$	4,561,200			22.97	%
Globex Crude Oil December 2011		500		2,361,500			11.89	%
Heating Oil March 2011		291		2,498,177			12.58	%
Heating Oil May 2011		291		2,331,958			11.74	%
Heating Oil December 2011		1,513		6,321,378			31.83	%
Natural Gas November 2010		750		(1,311,470	)		(6.60	)%
WIT Crude November 2010		1,300		3,290,500			16.57	%
WIT Crude December 2010		2,593		9,118,030			45.92	%
WIT Crude December 2011		1,300		3,468,250			17.47	%
Other commodity				(694,513	)		(3.50	)%
Total futures				31,945,010			160.87	%
Options
Crude Oil future December 2010, 74.00 Call		1,000		8,050,000			40.54	%
Other options				3,432,000			17.28	%
Total options				11,482,000			57.82	%
Swaps
Natural Gas Swap January 2011		3,400		(3,181,000	)		(16.02	)%
Natural Gas ICE Swap January 2011		5,176		(3,125,140	)		(15.74	)%
Other swaps				(355,300	)		(1.79	)%
Total swaps				(6,661,440	)		(33.55	)%

30

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following represents the condensed schedules of investments for the Master Funds as of September 30, 2010:

Description	Number of Contracts			Fair Value			Percentage of Members’ Capital
Graham Discretionary Energy Trading III LLC (continued)
Short contracts
Futures
Gasoline RBOB January 2011		(1,000	)	$	(4,508,700	)		(22.70	)%
Globex Crude Oil December 2010		(500	)		(1,610,000	)		(8.11	)%
Heating Oil December 2010		(1,000	)		(4,549,461	)		(22.91	)%
Heating Oil April 2011		(582	)		(4,783,691	)		(24.09	)%
Heating Oil June 2011		(513	)		(2,129,669	)		(10.72	)%
Natural Gas January 2010		(2,144	)		11,878,540			59.82	%
WTI Crude November 2010		(1,275	)		(5,846,640	)		(29.44	)%
WTI Crude December 2010		(2,725	)		(7,219,300	)		(36.36	)%
WTI Crude January 2011		(1,300	)		(4,344,260	)		(21.88	)%
WTI Crude December 2011		(500	)		(1,565,730	)		(7.88	)%
Other commodity					433,445			2.18	%
Total futures					(24,245,466	)		(122.09	)%
Swaps
Natural Gas Swap November 2010		(3,000	)		1,710,000			8.61	%
Other swaps					1,958,800			9.87	%
Total swaps					3,668,800			18.48	%
Total				$	16,188,904			81.53	%

31

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following represents the condensed schedules of investments for the Master Funds as of September 30, 2010:

Description	Number of Contracts			Fair Value			Percentage of Net Assets
Graham Fed Policy Ltd.
Long contracts
Futures
30 Day Fed Fund January 2011		9,766		$	5,692,038			13.80	%
30 Day Fed Fund February 2011		4,831			2,847,540			6.91	%
30 Day Fed Fund March 2011		7,230			2,856,666			6.93	%
Other interest rate					8,677,735			21.05	%
Total futures					20,073,979			48.69	%
Options
Fed Fund futures November 2010, $99.75 Call		28,543			8,028,361			19.47	%
Fed Fund futures December 2010, $99.75 Call		20,104			6,492,436			15.75	%
Fed Fund futures January 2011, $99.75 Call		7,626			2,780,535			6.74	%
Fed Fund futures February 2011, $99.75 Call		11,350			4,138,351			10.04	%
Other interest rate futures					7,803,793			18.93	%
Total options					29,243,476			70.93	%
Short contracts
Futures
Interest rate					105,925			0.26	%
Total futures					105,925			0.26	%
Options
Fed Fund futures January 2011, $99.18 Call		(16,126	)		(2,183,904	)		(5.30	)%
Fed Fund futures February 2011, $99.18 Call		(21,586	)		(3,148,210	)		(7.64	)%
Other interest rate futures					(6,038,242	)		(14.64	)%
Total options					(11,370,356	)		(27.58	)%
Total				$	38,053,024			92.30	%

32

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following represents the condensed schedules of investments for the Master Funds as of September 30, 2010:

Description	Number of Contracts / Principal Amount			Fair Value			Percentage of Members’ Capital
Graham Global Monetary Policy LLC
Long contracts
Futures
U.S. 10 Year Note December 2010		584		$	1,479,625			6.55	%
Natural Gas March 2011		150			(1,315,560	)		(5.82	)%
Foreign bond					(614,299	)		(2.72	)%
Foreign index					(185,173	)		(0.82	)%
U.S. index					(68,750	)		(0.30	)%
Other U.S. bond					142,578			0.63	%
Other commodity					1,713,426			7.58	%
Total futures					1,151,847			5.10	%
Options
Bond future					672,965			2.98	%
Currency					225,466			0.99	%
Total options					898,431			3.97	%
Forwards
Chinese Yuan / U.S. Dollar 06/17/11	CNY	338,000,000			1,417,342			6.27	%
Indian Rupee / U.S. Dollar 10/13/10	IDR	1,404,600,000			1,419,760			6.29	%
Other foreign currency					2,854,393			12.63	%
Total forwards					5,691,495			25.19	%
Short contracts
Futures
Euroswiss December 2010		(7,848	)		(1,131,048	)		(5.01	)%
U.S. bond					(59,813	)		(0.26	)%
U.S. index					(135,450	)		(0.60	)%
Commodity					457,290			2.03	%
Other interest rate					(476,164	)		(2.11	)%
Total futures					(1,345,185	)		(5.95	)%
Forwards
Korean Won / U.S. Dollar 10/04/10	KRW	(29,962,500,000	)		(1,282,993	)		(5.68	)%
Other foreign currency					(630,888	)		(2.79	)%
Total forwards					(1,913,881	)		(8.47	)%
Total				$	4,482,707			19.84	%

33

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following represents the condensed schedules of investments for the Master Funds as of September 30, 2010:

Description	Principal Amount			Fair Value			Percentage of Members’ Capital
Graham GMP Securities LLC
Short contracts
Interest Rate Swaps
Pay 0.69%, receive floating, quarterly expiring 09/13/12	CHF	(253,400,000	)	$	(255,841	)		(18.60	)%
Pay 0.70%, receive floating, quarterly expiring 09/13/12	CHF	(250,000,000	)		(277,668	)		(20.19	)%
Total futures					(533,509	)		(38.79	)%
Total				$	(533,509	)		(38.79	)%

34

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following represents the condensed schedules of investments for the Master Funds as of September 30, 2010:

Description	Principal Amount		Fair Value			Percentage of Net Assets
Graham K4D Trading Ltd.
Long contracts
Futures
U.S. bond			$	5,765,314			2.70	%
Foreign bond				3,171,287			1.49	%
U.S. index				11,745,619			5.50	%
Foreign index				(9,271,591	)		(4.34	)%
Commodity				59,192,780			27.72	%
Interest rate				9,544,082			4.47	%
Currency				5,293,828			2.48	%
Total futures				85,441,319			40.02	%
Forwards
Australian Dollar / U.S. Dollar 10/20/10	AUD	469,629,938		14,762,320			6.91	%
British Pound / U.S. Dollar 10/20/10	GBP	817,343,862		12,518,080			5.86	%
Canadian Dollar / Euro 10/20/10	CAD	550,370,598		(18,245,657	)		(8.54	)%
Euro / Japanese Yen 10/20/10	EUR	573,094,973		19,051,960			8.92	%
Euro / U.S. Dollar 10/20/10	EUR	1,470,469,134		90,970,449			42.61	%
Japanese Yen / U.S. Dollar 10/20/10	JPY	134,747,743,600		16,232,195			7.60	%
Swiss Franc / U.S. Dollar 10/20/10	CHF	1,382,475,498		28,825,136			13.50	%
Other foreign currency				23,655,845			11.08	%
Total forwards				187,770,328			87.94	%

35

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following represents the condensed schedules of investments for the Master Funds as of September 30, 2010:

Description	Principal Amount			Fair Value			Percentage of Net Assets
Graham K4D Trading Ltd. (continued)
Short contracts
Futures
U.S. bond				$	(741,000	)		(0.35	)%
Foreign bond					(665,490	)		(0.31	)%
U.S. index					(5,955,442	)		(2.79	)%
Foreign index					1,782,400			0.83	%
Commodity					(31,523,672	)		(14.76	)%
Interest rate					(1,203,356	)		(0.56	)%
Currency					836,397			0.39	%
Total futures					(37,470,163	)		(17.55	)%
Forwards
British Pound / U.S. Dollar 10/20/10	GBP	(809,242,721	)		(11,041,291	)		(5.17	)%
Canadian Dollar / Euro 10/20/10	CAD	(576,867,819	)		17,827,452			8.35	%
Euro / Japanese Yen 10/20/10	EUR	(606,318,356	)		(24,556,109	)		(11.51	)%
Euro / U.S. Dollar 10/20/10	EUR	(1,352,629,280	)		(86,500,240	)		(40.51	)%
Japanese Yen / U.S. Dollar 10/20/10	JPY	(111,949,188,000	)		(15,169,475	)		(7.10	)%
Swiss Franc / U.S. Dollar 10/20/10	CHF	(1,171,821,167	)		(21,598,191	)		(10.12	)%
Other foreign currency					(20,693,304	)		(9.69	)%
Total forwards					(161,731,158	)		(75.75	)%
Total				$	74,010,326			34.66	%

36

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following represents the condensed schedules of investments for the Master Funds as of September 30, 2010:

Description	Number of Contracts	Fair Value			Percentage of Members’ Capital
Graham Macro Directional LLC
Long contracts
Futures
U.S. bond		$	(129,511	)		(0.53	)%
Commodity			382,600			1.55	%
Total futures			253,089			1.02	%
Forwards
Foreign currency			(257,568	)		(1.04	)%
Total forwards			(257,568	)		(1.04	)%
Short Contracts
Forwards
Foreign currency			(45,356	)		(0.18	)%
Total forwards			(45,356	)		(0.18	)%
Total		$	(49,835	)		(0.20	)%

37

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following represents the condensed schedules of investments for the Master Funds as of September 30, 2010:

Description	Principal Amount		Fair Value			Percentage of Members’ Capital
Graham Short Term Global Macro LLC
Long contracts
Options
U.S. Dollar Call / Canadian Dollar 10/01/10, $1.038 Put	$	100,000,000	$	19,879			5.43	%
Other currency				11,370			3.10	%
Total options				31,249			8.53	%
Forwards
Australian Dollar / U.S. Dollar 10/05/10	AUD	343,000,000		(530,977	)		(144.98	)%
Brazilian Real / U.S. Dollar 10/04/10	BRL	208,394,000		1,962,626			535.88	%
Chinese Yuan / U.S. Dollar 08/19/11	CNY	334,143,000		933,966			255.01	%
New Zealand Dollar / U.S. Dollar 10/01/10	NZD	24,000,000		(101,850	)		(27.81	)%
New Zealand Dollar / U.S. Dollar 10/04/10	NZD	28,000,000		(56,190	)		(15.34	)%
Other foreign currency				(17,590	)		(4.80	)%
Total forwards				2,189,985			597.96	%
Short Contracts
Futures
Commodity				(1,990	)		(0.54	)%
Total futures				(1,990	)		(0.54	)%
Forwards
Australian Dollar / U.S. Dollar 10/05/10	AUD	(393,000,000)		209,799			57.28	%
Brazilian Real / U.S. Dollar 10/04/10	BRL	(208,436,000)		(1,921,484	)		(524.65	)%
Chinese Yuan / U.S. Dollar 08/19/11	CNY	(334,143,000)		(1,007,680	)		(275.14	)%
New Zealand Dollar / U.S. Dollar 10/01/10	NZD	(12,000,000)		47,654			13.01	%
Other foreign currency				(1,519	)		(0.41	)%
Total forwards				(2,673,230	)		(729.91	)%
Total			$	(453,986	)		(123.96	)%

38

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following table summarizes the financial position of each Master Fund as of December 31, 2009:

	Graham Commodity Strategies LLC (Delaware)			Graham Fed Policy Ltd. (BVI)			Graham Global Monetary Policy LLC (Delaware)			Graham K4D Trading Ltd. (BVI)			Graham Macro Directional LLC (Delaware)
Assets:
Cash and cash equivalents	$	1,000		$	218		$	661		$	425		$	644
Due from brokers		9,338,086			15,446,856			4,369,612			99,865,289			1,504,495
Options, at fair value		—			13,752,876			4,562,737			—			—
Derivative financial instruments, at fair value		487,337			2,862,031			1,507,026			17,929,174			115,018
Subscriptions receivable		1,288			9,630			4,169			4,331			2,017
Interest receivable		—			—			105			293			—
Total assets		9,827,711			32,071,611			10,444,310			117,799,512			1,622,174
Liabilities:
Options, at fair value		—			9,228,344			1,568,611			—			—
Derivative financial instruments, at fair value		—			—			186,163			—			—
Due to brokers		—			48,333			—			—			—
Redemptions payable		1,288			9,772			13,305			4,331			2,017
Total liabilities		1,288			9,286,449			1,768,079			4,331			2,017
Net assets	$	9,826,423		$	22,785,162		$	8,676,231		$	117,795,181		$	1,620,157
Percentage of Master Fund held by the Fund		7.77	%		11.63	%		9.97	%		9.95	%		12.85	%

39

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following table summarizes the results of operations of each Master Funds for the three and nine months ended September 30, 2009:

	Graham Commodity Strategies LLC (Delaware)			Graham Fed Policy Ltd. (BVI)			Graham Global Macro Focus  LLC * (Delaware)		Graham Global Monetary Policy LLC (Delaware)			Graham K4D Trading Ltd. (BVI)			Graham Macro Directional LLC (Delaware)
	Three Months Ended September 30, 2009
Net investment income	$	(5,961	)	$	(1,528	)	$	—	$	(16,897	)	$	(87,844	)	$	(825	)
Net realized gain (loss) on investments		(2,453,546	)		3,332,452			—		(10,548,829	)		71,311,018			(2,034,940	)
Net increase (decrease) in appreciation on investments		(408,035	)		14,092,262			—		(6,155,522	)		62,612,060			1,140,287
Brokerage commissions and fees		(1,079,848	)		(312,748	)		—		(264,215	)		(2,462,705	)		(167,696	)
Net gain (loss) on investments		(3,941,429	)		17,111,966			—		(16,968,566	)		131,460,373			(1,062,349	)
Net income (loss)	$	(3,947,390	)	$	17,110,438		$	—	$	(16,985,463	)	$	131,372,529		$	(1,063,174	)

	Nine Months Ended September 30, 2009
Net investment income (loss)	$	(7,355	)	$	(7,197	)	$	33		$	(32,278	)	$	(169,463	)	$	(1,643	)
Net realized gain (loss) on investments		(7,326,588	)		90,236,041			(299,050	)		20,884,233			(120,649	)		4,112,183
Net increase (decrease) in appreciation on investments		13,192,385			(57,836,596	)		299,050			(6,246,402	)		38,270,144			1,470,892
Brokerage commissions and fees		(2,416,865	)		(1,027,152	)		—			(655,942	)		(5,377,799	)		(392,311	)
Net gain on investments		3,448,932			31,372,293			—			13,981,889			32,771,696			5,190,764
Net income	$	3,441,577		$	31,365,096		$	33		$	13,949,611		$	32,602,233		$	5,189,121

* - This entity ceased operations on March 31, 2009

40

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following represents the condensed schedules of investments for the Master Funds as of December 31, 2009:

Description	Number of Contracts			Fair Value			Percentage of Members’ Capital
Graham Commodity Strategies LLC
Long contracts
Futures
Copper May 2010		678		$	4,041,813			41.13	%
Copper July 2010		630			4,188,413			42.63	%
Cotton # 2 May 2010		1,162			2,942,250			29.94	%
Globex Crude Oil June 2010		300			1,768,950			18.00	%
Natural Gas March 2010		1,000			505,000			5.14	%
Natural Gas September 2010		250			(537,500	)		(5.47	)%
Sugar #11 May 2010		1,505			4,489,755			45.69	%
Wheat July 2010		1,092			(716,838	)		(7.29	)%
Other commodity					(1,041,637	)		(10.60	)%
Total futures					15,640,206			159.17	%
Short contracts
Futures
Copper March 2010		(1,308	)		(7,146,138	)		(72.72	)%
Cotton # 2 March 2010		(1,162	)		(1,987,760	)		(20.23	)%
Globex Crude Oil December 2010		(300	)		(1,957,100	)		(19.92	)%
Natural Gas March 2010		(980	)		(1,292,520	)		(13.15	)%
Natural Gas April 2010		(250	)		612,500			6.23	%
Sugar #11 March 2010		(1,305	)		(4,665,416	)		(47.48	)%
WTI Crude March 2010		(3,172	)		840,170			8.55	%
Other commodity					443,395			4.51	%
Total futures					(15,152,869	)		(154.21	)%
Total				$	487,337			4.96	%

41

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following represents the condensed schedules of investments for the Master Funds as of December 31, 2009:

Description	Number of Contracts			Fair Value			Percentage of Net Assets
Graham Fed Policy Ltd.
Long contracts
Futures
30 Day Fed Fund February 2010		5,483		$	2,388,691			10.48	%
Other interest rate					473,340			2.08	%
Total futures					2,862,031			12.56	%
Options
Fed Fund futures February 2010, $99.75 Call		8,715			3,631,540			15.94	%
Fed Fund futures May 2010, $99.75 Call		23,150			4,823,303			21.17	%
Eurodollar futures March 2010, $99.63 Call		10,100			1,893,750			8.31	%
Other interest rate futures					3,404,283			14.94	%
Total options					13,752,876			60.36	%
Short contracts
Options
Fed Fund futures February 2010, $99.81 Call		(13,080	)		(2,452,696	)		(10.76	)%
Fed Fund futures May 2010, $99.81 Call		(19,850	)		(1,654,299	)		(7.26	)%
Eurodollar futures March 2011, $99.63 Call		(42,350	)		(1,323,438	)		(5.81	)%
Other interest rate futures					(3,797,911	)		(16.67	)%
Total options					(9,228,344	)		(40.50	)%
Total				$	7,386,563			32.42	%

42

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following represents the condensed schedules of investments for the Master Funds as of December 31, 2009:

Description	Number of  Contracts / Principal  Amount			Fair Value			Percentage of Members’ Capital
Graham Global Monetary Policy LLC
Long contracts
Futures
Commodity				$	29,025			0.33	%
Total futures					29,025			0.33	%
Options
Euro / Swiss Franc 03/04/10, $1.50 Put		100,000,000			2,245,923			25.89	%
Euro / Swiss Franc 03/11/10, $1.50 Put		100,000,000			2,304,314			26.56	%
U.S. index					12,500			0.14	%
Total options					4,562,737			52.59	%
Forwards
Australian Dollar / Japanese Yen 01/04/10	AUD	60,000,000			919,592			10.60	%
Australian Dollar / U.S. Dollar 01/04/10	AUD	80,000,000			495,440			5.71	%
Japanese Yen / U.S. Dollar 01/04/10	JPY	11,025,114,000			(1,513,453	)		(17.44	)%
Other foreign currency					554,290			6.38	%
Total forwards					455,869			5.25	%
Short contracts
Futures
Foreign bond					373,824			4.31	%
Interest rate					(253,871	)		(2.93	)%
Total futures					119,953			1.38	%
Options
Euro / Swiss Franc 03/04/10, $1.46 Put		(100,000,000	)		(651,902	)		(7.51	)%
Euro / Swiss Franc 03/11/10, $1.47 Put		(100,000,000	)		(916,709	)		(10.57	)%
Total options					(1,568,611	)		(18.08	)%
Forwards
Japanese Yen / U.S. Dollar 01/04/10	JPY	(11,047,096,000)			1,582,181			18.24	%
Euro / Japanese Yen 01/04/10	EUR	(40,000,000)			(434,683	)		(5.01	)%
Australian Dollar / Japanese Yen 01/04/10	AUD	(60,000,000)			(930,489	)		(10.72	)%
Other foreign currency					499,007			5.75	%
Total forwards					716,016			8.26	%
Total				$	4,314,989			49.73	%

43

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following represents the condensed schedules of investments for the Master Funds as of December 31, 2009:

Description	Number of Contracts/Principal  Amount		Fair Value			Percentage of Net Assets
Graham K4D Trading Ltd.
Long contracts
Futures
LME Aluminum January 2010		1,302	$	6,972,938			5.92	%
LME Copper January 2010		366		6,743,091			5.72	%
Other commodity				21,454,287			18.21	%
U.S. bond				(4,526,734	)		(3.84	)%
Foreign bond				(6,607,015	)		(5.61	)%
U.S. index				5,331,432			4.53	%
Foreign index				8,908,434			7.56	%
Interest rate				(8,722,161	)		(7.40	)%
Currency				355,993			0.30	%
Total futures				29,910,265			25.39	%
Forwards
British Pound / Japanese Yen 01/20/10	GBP 224,750,683			11,529,834			9.79	%
Euro / U.S. Dollar 01/20/10	EUR 593,968,247			(12,238,099	)		(10.39	)%
Japanese Yen / U.S. Dollar 01/20/10	JPY 51,561,122,880			(17,479,840	)		(14.84	)%
Other foreign currency				9,230,717			7.84	%
Total forwards				(8,957,388	)		(7.60	)%

44

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following represents the condensed schedules of investments for the Master Funds as of December 31, 2009:

Description	Number of Contracts/Principal  Amount			Fair Value			Percentage of Net Assets
Graham K4D Trading Ltd. (continued)
Short contracts
Futures
U.S. bond				$	1,217,531			1.03	%
Foreign bond					2,267,786			1.93	%
U.S. index					(2,810,098	)		(2.39	)%
Foreign index					(3,726,222	)		(3.16	)%
Commodity					(14,721,246	)		(12.50	)%
Interest rate					2,493,009			2.12	%
Currency					(32,595	)		(0.03	)%
Total futures					(15,311,835	)		(13.00	)%
Forwards
Japanese Yen / U.S. Dollar 01/20/10	JPY	(52,960,960,701	)		18,321,239			15.55	%
Euro / U.S. Dollar 01/20/10	EUR	(604,603,018	)		12,851,322			10.91	%
British Pound / Japanese Yen 01/20/10	GBP	(207,438,849	)		(11,260,219	)		(9.56	)%
Other foreign currency					(7,624,210	)		(6.47	)%
Total forwards					12,288,132			10.43	%
Total				$	17,929,174			15.22	%

45

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following represents the condensed schedules of investments for the Master Funds as of December 31, 2009:

Description	Principal Amount			Fair Value			Percentage of Members’ Capital
Graham Macro Directional LLC
Long contracts
Forwards
New Zealand Dollar / U.S. Dollar 01/05/10	NZD	25,000,000		$	168,512			10.40	%
Japanese Yen / U.S. Dollar 01/05/10	JPY	2,773,860,000			(189,105	)		(11.67	)%
Japanese Yen / U.S. Dollar 01/04/10	JPY	2,300,065,000			(285,387	)		(17.62	)%
Total forwards					(305,980	)		(18.89	)%
Short Contracts
Forwards
Japanese Yen / U.S. Dollar 01/05/10	JPY	(4,620,210,000	)		346,235			21.37	%
Japanese Yen / U.S. Dollar 01/04/10	JPY	(2,300,065,000	)		281,275			17.36	%
New Zealand Dollar / U.S. Dollar 01/05/10	NZD	(25,000,000	)		(206,512	)		(12.74	)%
Total forwards					420,998			25.99	%
Total				$	115,018			7.10	%

46

Graham Alternative Investment Trading LLC

Notes to 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 September 30, 2010:

	Graham Commodity Strategies LLC			Graham Discretionary Energy Trading III LLC			Graham Fed Policy Ltd.			Graham Global Monetary Policy LLC			Graham GMP Securities LLC			Graham K4D Trading Ltd.			Graham Macro Directional LLC			Graham Short Term Global Macro LLC
Long Contracts
Level 1:
Commodity futures	$	88,030,528		$	31,945,010		$	—		$	397,866		$	—		$	59,192,780		$	382,600		$	—
Commodity futures options		—			11,482,000			—			—			—			—			—			—
Commodity swaps		1,046,250			(6,661,440	)		—			—			—			—			—			—
Currency futures		—			—			—			—			—			5,293,828			—			—
Foreign bond futures		—			—			—			(614,299	)		—			3,171,287			—			—
Foreign index futures		—			—			—			(185,173	)		—			(9,271,591	)		—			—
Interest rate futures		—			—			20,073,979			—			—			9,544,082			—			—
Interest rate futures options		—			—			29,243,476			—			—			—			—			—
U.S. bond futures		—			—			—			1,622,203			—			5,765,314			(129,511	)		—
U.S. bond futures options		—			—			—			672,965			—			—			—			—
U.S. index futures		—			—			—			(68,750	)		—			11,745,619			—			—
Total Level 1		89,076,778			36,765,570			49,317,455			1,824,812			—			85,441,319			253,089			—
Level 2:
Foreign currency forwards		—			—			—			5,691,495			—			187,770,328			(257,568	)		2,189,985
Foreign currency forwards options		—			—			—			225,466			—			—			—			31,249
Total Level 2		—			—			—			5,916,961			—			187,770,328			(257,568	)		2,221,234
Total long contracts	$	89,076,778		$	36,765,570		$	49,317,455		$	7,741,773		$	—		$	273,211,647		$	(4,479	)	$	2,221,234
Short Contracts
Level 1:
Commodity futures	$	(62,782,708	)	$	(24,245,466	)	$	—		$	457,290		$	—		$	(31,523,672	)	$	—		$	(1,990	)
Commodity swaps		(2,774,830	)		3,668,800			—			—			—			—			—			—
Currency futures		—			—			—			—			—			836,397			—			—
Foreign bond futures		—			—			—			—			—			(665,490	)		—			—
Foreign index futures		—			—			—			—			—			1,782,400			—			—
Interest rate futures		—			—			105,925			(1,607,212	)		—			(1,203,356	)		—			—
Interest rate futures options		—			—			(11,370,356	)		—			—			—			—			—
U.S. bond futures		—			—			—			(59,813	)		—			(741,000	)		—			—
U.S. index futures		—			—			—			(135,450	)		—			(5,955,442	)		—			—
Total Level 1		(65,557,538	)		(20,576,666	)		(11,264,431	)		(1,345,185	)		—			(37,470,163	)		—			(1,990	)
Level 2:
Foreign currency forwards		—			—			—			(1,913,881	)		—			(161,731,158	)		(45,356	)		(2,673,230	)
Interest rate swaps		—			—			—			—			(533,509	)		—			—			—
Total Level 2		—			—			—			(1,913,881	)		(533,509	)		(161,731,158	)		(45,356	)		(2,673,230	)
Total short contracts	$	(65,557,538	)	$	(20,576,666	)	$	(11,264,431	)	$	(3,259,066	)	$	(533,509	)	$	(199,201,321	)	$	(45,356	)	$	(2,675,220	)

47

Graham Alternative Investment Trading LLC

Notes to 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, 2009:

	Graham Commodity Strategies LLC			Graham Fed Policy Ltd.			Graham Global Monetary Policy LLC			Graham K4D Trading Ltd.			Graham Macro Directional LLC
Long Contracts
Level 1:
Commodity futures	$	15,640,206		$	—		$	29,025		$	35,170,316		$	—
Currency futures		—			—			—			355,993			—
Foreign bond futures		—			—			—			(6,607,015	)		—
Foreign index futures		—			—			—			8,908,434			—
U.S. index futures options		—			—			12,500			—			—
Interest rate futures		—			2,862,031			—			(8,722,161	)		—
Interest rate futures options		—			13,752,876			—			—			—
U.S. bond futures		—			—			—			(4,526,734	)		—
U.S. index futures		—			—			—			5,331,432			—
Total Level 1		15,640,206			16,614,907			41,525			29,910,265			—
Level 2:
Foreign currency forwards		—			—			455,869			(8,957,388	)		(305,980	)
Foreign currency forwards options		—			—			4,550,237			—			—
Total Level 2		—			—			5,006,106			(8,957,388	)		(305,980	)
Total long contracts	$	15,640,206		$	16,614,907		$	5,047,631		$	20,952,877		$	(305,980	)
Short Contracts
Level 1:
Commodity futures	$	(15,152,869	)	$	—		$	—		$	(14,721,246	)	$	—
Currency futures		—			—			—			(32,595	)		—
Foreign bond futures		—			—			373,824			2,267,786			—
Foreign index futures		—			—			—			(3,726,222	)		—
Interest rate futures		—			—			(253,871	)		2,493,009			—
Interest rate futures options		—			(9,228,344	)		—			—			—
U.S. bond futures		—			—			—			1,217,531			—
U.S. index futures		—			—			—			(2,810,098	)		—
Total Level 1		(15,152,869	)		(9,228,344	)		119,953			(15,311,835	)		—
Level 2:
Foreign currency forwards		—			—			716,016			12,288,132			420,998
Foreign currency forwards options		—			—			(1,568,611	)		—			—
Total Level 2		—			—			(852,595	)		12,288,132			420,998
Total short contracts	$	(15,152,869	)	$	(9,228,344	)	$	(732,642	)	$	(3,023,703	)	$	420,998

48

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following table displays the volume of derivative activities and fair value of derivative contracts held by the Master Funds based on their notional amounts and number of contracts at September 30, 2010 categorized by primary underlying risk.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting.

	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	$	2,363,889,660		3,217	$	(162,940,388	)		(32,565	)	$	116,391,502	$	(91,143,682	)	$	946,777,990		20,615	$	(982,295,785	)		(17,506	)	$	50,371,230	$	(45,664,326	)
Commodity swaps		19,905,750		27		(46,998,000	)		(65	)		1,046,250		(2,774,830	)		—		—		—			—			—		—
		2,383,795,410		3,244		(209,938,388	)		(32,630	)		117,437,752		(93,918,512	)		946,777,990		20,615		(982,295,785	)		(17,506	)		50,371,230		(45,664,326	)
Equity price
Futures		—		—		—			—			—		—			—		—		—			—			—		—
		—		—		—			—			—		—			—		—		—			—			—		—
Foreign currency exchange rate
Futures		—		—		—			—			—		—			—		—		—			—			—		—
Forwards		—		—		—			—			—		—			—		—		—			—			—		—
		—		—		—			—			—		—			—		—		—			—			—		—
Interest rate
Futures		—		—		—			—			—		—			—		—		—			—			—		—
Interest rate swaps		—		—		—			—			—		—			—		—		—			—			—		—
		—		—		—			—			—		—			—		—		—			—			—		—
Total	$	2,383,795,410		3,244	$	(209,938,388	)		(32,630	)	$	117,437,752	$	(93,918,512	)	$	946,777,990		20,615	$	(982,295,785	)		(17,506	)	$	50,371,230	$	(45,664,326	)
Collateral balances supporting all derivative positions													$	19,204,912														$	3,668,548

49

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following table displays the volume of derivative activities and fair value of derivative contracts held by the Master Funds based on their notional amounts and number of contracts at September 30, 2010 categorized by primary underlying risk.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting.

	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	$	—		—	$	—			—		$	—	$	—		$	80,259,510		900	$	(20,317,500	)		(500	)	$	2,384,736	$	(1,529,580	)
		—		—		—			—			—		—			80,259,510		900		(20,317,500	)		(500	)		2,384,736		(1,529,580	)
Equity price
Futures		—		—		—			—			—		—			967,418,750		700		(7,332,038	)		(129	)		—		(389,373	)
		—		—		—			—			—		—			967,418,750		700		(7,332,038	)		(129	)		—		(389,373	)
Foreign currency exchange rate
Futures		—		—		—			—			—		—			—		—		—			—			—		—
Forwards		—		—		—			—			—		—			5,307,582,723		—		(4,019,505,977	)		—			4,937,482		(1,159,868	)
		—		—		—			—			—		—			5,307,582,723		—		(4,019,505,977	)		—			4,937,482		(1,159,868	)
Interest rate
Futures		23,424,520,541		56,323		(6,750,998,724	)		(16,231	)		20,302,497		(122,593	)		828,796,566		4,725		(2,448,622,863	)		(10,162	)		1,693,217		(2,352,338	)
Interest rate swaps		—		—		—			—			—		—			—		—		—			—			—		—
		23,424,520,541		56,323		(6,750,998,724	)		(16,231	)		20,302,497		(122,593	)		828,796,566		4,725		(2,448,622,863	)		(10,162	)		1,693,217		(2,352,338	)
Total	$	23,424,520,541		56,323	$	(6,750,998,724	)		(16,231	)	$	20,302,497	$	(122,593	)	$	7,184,057,549		6,325	$	(6,495,778,378	)		(10,791	)	$	9,015,435	$	(5,431,159	)
Collateral balances supporting all derivative positions													$	3,174,872														$	18,109,911

50

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following table displays the volume of derivative activities and fair value of derivative contracts held by the Master Funds based on their notional amounts and number of contracts at September 30, 2010 categorized by primary underlying risk.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting.

	Graham GMP Securities 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	$	—		—	$	—			—	$	—	$	—		$	1,345,520,996		19,414	$	(895,262,752	)		(12,218	)	$	68,402,092	$	(40,732,984	)
		—		—		—			—		—		—			1,345,520,996		19,414		(895,262,752	)		(12,218	)		68,402,092		(40,732,984	)
Equity price
Futures		—		—		—			—		—		—			5,039,857,338		28,532		(4,564,577,226	)		(7,718	)		15,550,380		(17,249,394	)
		—		—		—			—		—		—			5,039,857,338		28,532		(4,564,577,226	)		(7,718	)		15,550,380		(17,249,394	)
Foreign currency exchange rate
Futures		—		—		—			—		—		—			345,036,482		2,896		(261,914,652	)		(2,753	)		10,074,934		(3,944,709	)
Forwards		—		—		—			—		—		—			121,082,211,007		—		(18,849,043,891	)		—			63,198,490		(37,159,320	)
		—		—		—			—		—		—			121,427,247,489		2,896		(19,110,958,543	)		(2,753	)		73,273,424		(41,104,029	)
Interest rate
Futures		—		—		—			—		—		—			44,152,023,654		45,196		(21,502,689,049	)		(22,885	)		25,373,716		(9,502,879	)
Interest rate swaps		—		—		(52,374,540	)		—		—		(533,509	)		—		—		—			—			—		—
		—		—		(52,374,540	)		—		—		(533,509	)		44,152,023,654		45,196		(21,502,689,049	)		(22,885	)		25,373,716		(9,502,879	)
Total	$	—		—	$	(52,374,540	)		—	$	—	$	(533,509	)	$	171,964,649,477		96,038	$	(46,073,487,570	)		(45,574	)	$	182,599,612	$	(108,589,286	)
Collateral balances supporting all derivative positions												$	1,908,865														$	139,494,538

51

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)
 

3. Investments in Master Funds (continued)

The following table displays the volume of derivative activities and fair value of derivative contracts held by the Master Funds based on their notional amounts and number of contracts at September 30, 2010 categorized by primary underlying risk.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting.

	Graham Macro Directional LLC														Graham Short Term Global Macro 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	$	19,644,000		150	$	—			—	$	382,600	$	—		$	—		—	$	(130,960	)		(1	)	$	—	$	(1,990	)
		19,644,000		150		—			—		382,600		—			—		—		(130,960	)		(1	)		—		(1,990	)
Equity price
Futures		—		—		—			—		—		—			—		—		—			—			—		—
		—		—		—			—		—		—			—		—		—			—			—		—
Foreign currency exchange rate
Futures		—		—		—			—		—		—			—		—		—			—			—		—
Forwards		1,041,250		—		(5,000	)		—		—		(302,924	)		10,555,413		—		(2,143,598	)		—			66,377		(549,622	)
		1,041,250		—		(5,000	)		—		—		(302,924	)		10,555,413		—		(2,143,598	)		—			66,377		(549,622	)
Interest rate
Futures		79,233,906		700		—			—		—		(129,511	)		—		—		—			—			—		—
Interest rate swaps		—		—		—			—		—		—			—		—		—			—			—		—
		79,233,906		700		—			—		—		(129,511	)		—		—		—			—			—		—
Total	$	99,919,156		850	$	(5,000	)		—	$	382,600	$	(432,435	)	$	10,555,413		—	$	(2,274,558	)		(1	)	$	66,377	$	(551,612	)
Collateral balances supporting all derivative positions												$	24,735,363														$	820,230

52

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following table displays the volume of derivative activities and fair value of derivative contracts held by the Master Funds based on their notional amounts and number of contracts at December 31, 2009 categorized by primary underlying risk.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting.

	Graham Commodity Strategies LLC															Graham Fed Policy Ltd.
	Long exposure						Short exposure									Long exposure						Short exposure
	Notional amounts		Number of contracts		Derivative Assets		Notional amounts			Number of contracts			Derivative Liabilities			Notional amounts		Number of contracts		Derivative Assets		Notional amounts		Number of contracts		Derivative Liabilities
Commodity price
Futures	$	883,506,418		15,628	$	20,799,665	$	(880,556,002	)		(14,732	)	$	(20,312,328	)	$	—		—	$	—	$	—		—	$	—
		883,506,418		15,628		20,799,665		(880,556,002	)		(14,732	)		(20,312,328	)		—		—		—		—		—		—
Equity price
Futures		—		—		—		—			—			—			—		—		—		—		—		—
		—		—		—		—			—			—			—		—		—		—		—		—
Foreign currency exchange rate
Futures		—		—		—		—			—			—			—		—		—		—		—		—
Forwards		—		—		—		—			—			—			—		—		—		—		—		—
		—		—		—		—			—			—			—		—		—		—		—		—
Interest rate
Futures		—		—		—		—			—			—			8,430,422,879		20,666		3,336,902		—		—		(474,871	)
Interest rate swaps		—		—		—		—			—			—			—		—		—		—		—		—
		—		—		—		—			—			—			8,430,422,879		20,666		3,336,902		—		—		(474,871	)
Total	$	883,506,418		15,628	$	20,799,665	$	(880,556,002	)		(14,732	)	$	(20,312,328	)	$	8,430,422,879		20,666	$	3,336,902	$	—		—	$	(474,871	)
Collateral balances supporting all derivative positions													$	9,338,086												$	15,446,856

53

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following table displays the volume of derivative activities and fair value of derivative contracts held by the Master Funds based on their notional amounts and number of contracts at December 31, 2009 categorized by primary underlying risk.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting.

	Graham Global Monetary Policy LLC															Graham K4D Trading Ltd.
	Long exposure						Short exposure									Long exposure						Short exposure
	Notional amounts		Number of contracts		Derivative Assets		Notional amounts			Number of contracts			Derivative Liabilities			Notional amounts		Number of contracts		Derivative Assets		Notional amounts			Number of contracts			Derivative Liabilities
Commodity price
Futures	$	2,072,500		100	$	29,025	$	—			—		$	—		$	1,281,924,053		21,625	$	42,918,544	$	(699,668,279	)		(11,135	)	$	(22,469,474	)
		2,072,500		100		29,025		—			—			—			1,281,924,053		21,625		42,918,544		(699,668,279	)		(11,135	)		(22,469,474	)
Equity price
Futures		—		—		—		—			—			—			6,321,952,643		16,319		14,812,534		(3,918,741,020	)		(5,980	)		(7,108,988	)
		—		—		—		—			—			—			6,321,952,643		16,319		14,812,534		(3,918,741,020	)		(5,980	)		(7,108,988	)
Foreign currency exchange rate
Futures		—		—		—		—			—			—			30,156,168		359		757,620		(108,869,583	)		(1,006	)		(434,222	)
Forwards		478,798,928		—		4,643,816		(575,969,539	)		—			(3,471,931	)		6,096,436,526		—		78,435,771		(5,707,147,861	)		—			(75,105,027	)
		478,798,928		—		4,643,816		(575,969,539	)		—			(3,471,931	)		6,126,592,694		359		79,193,391		(5,816,017,444	)		(1,006	)		(75,539,249	)
Interest rate
Futures		—		—		489,449		(8,760,546,779	)		(4,450	)		(369,496	)		66,489,448,610		25,046		7,611,075		(83,222,672,828	)		(13,820	)		(21,488,659	)
		—		—		489,449		(8,760,546,779	)		(4,450	)		(369,496	)		66,489,448,610		25,046		7,611,075		(83,222,672,828	)		(13,820	)		(21,488,659	)
Total	$	480,871,428		100	$	5,162,290	$	(9,336,516,318	)		(4,450	)	$	(3,841,427	)	$	80,219,918,000		63,349	$	144,535,544	$	(93,657,099,571	)		(31,941	)	$	(126,606,370	)
Collateral balances supporting all derivative positions													$	4,257,152														$	99,865,289

54

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following table displays the volume of derivative activities and fair value of derivative contracts held by the Master Funds based on their notional amounts and number of contracts at December 31, 2009 categorized by primary underlying risk.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting.

	Graham Macro Directional LLC
	Long exposure						Short exposure
	Notional amounts		Number of contracts		Derivative Assets		Notional amounts			Number of contracts		Derivative Liabilities
Foreign currency exchange rate
Forwards	$	72,680,881		—	$	796,022	$	(92,523,752	)		—	$	(681,004	)
Total	$	72,680,881		—	$	796,022	$	(92,523,752	)		—	$	(681,004	)
Collateral balances supporting all derivative positions												$	1,504,495

55

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following table shows the realized and unrealized 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 September 30, 2010:

	Graham Commodity Strategies LLC		Graham Discretionary Energy Trading III LLC			Graham Fed Policy Ltd.			Graham Global Monetary Policy LLC			Graham GMP Securities LLC			Graham K4D Trading Ltd.			Graham Macro Directional LLC			Graham Short Term Global Macro LLC
Commodity price
Futures	$	932,437	$	(2,918,560	)	$	(3,979,882	)	$	3,669,261		$	—		$	23,090,803		$	664,110		$	(316,538	)
Options		—		8,412,550			—			—			—			—			—			—
		932,437		5,493,990			(3,979,882	)		3,669,261			—			23,090,803			664,110			(316,538	)
Equity price
Futures		—		—			—			(2,451,692	)		—			(31,259,994	)		(1,845,278	)		(62,758	)
		—		—			—			(2,451,692	)		—			(31,259,994	)		(1,845,278	)		(62,758	)
Foreign currency exchange rate
Futures		—		—			—			—			—			979,360			—			—
Forwards		—		—			—			(575,427	)		5,011			22,931,616			(625,639	)		9,008,929
Options		—		—			—			3,317,727			—			—			—			(7,025,943	)
		—		—			—			2,742,300			5,011			23,910,976			(625,639	)		1,982,986
Interest rate
Bonds		—		—			—			—			—			—			—			—
Futures		—		—			61,850,906			3,256,027			—			43,600,616			1,959,155			(109,398	)
Interest rate swaps		—		—			—			—			(1,251,648	)		—			—			—
Options		—		—			(33,411,643	)		(1,459,136	)		—			—			—			—
		—		—			28,439,263			1,796,891			(1,251,648	)		43,600,616			1,959,155			(109,398	)
Total	$	932,437	$	5,493,990		$	24,459,381		$	5,756,760		$	(1,246,637	)	$	59,342,401		$	152,348		$	1,494,292

56

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following table shows the realized and unrealized 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 nine months ended September 30, 2010:

	Graham Commodity Strategies LLC			Graham Discretionary Energy Trading III LLC		Graham Fed Policy Ltd.			Graham Global Monetary Policy LLC			Graham GMP Securities LLC			Graham K4D Trading Ltd.			Graham Macro Directional LLC			Graham Short Term Global Macro LLC
Commodity price
Futures	$	(4,169,204	)	$	422,100	$	—		$	8,710,031		$	—		$	(50,844,752	)	$	(697,600	)	$	(1,330,724	)
Options		—			9,569,790		—			—			—			—			—			—
		(4,169,204	)		9,991,890		—			8,710,031			—			(50,844,752	)		(697,600	)		(1,330,724	)
Equity price
Futures		—			—		—			886,918			—			(92,929,632	)		426,912			95,380
		—			—		—			886,918			—			(92,929,632	)		426,912			95,380
Foreign currency exchange rate
Futures		—			—		—			—			—			4,090,176			—			—
Forwards		—			—		—			83,614,961			25,702			13,713,340			13,064,342			10,956,826
Options		—			—		—			—			—			—			—			(12,231,023	)
		—			—		—			83,614,961			25,702			17,803,516			13,064,342			(1,274,197	)
Interest rate
Bonds		—			—		—			—			(45,362	)		—			—			—
Futures		—			—		62,709,382			9,510,178			—			148,920,489			3,150,465			765,082
Interest rate swaps		—			—		—			(403,000	)		(3,399,071	)		—			—			—
Options		—			—		(23,580,791	)		(1,471,636	)		—			—			—			—
		—			—		39,128,591			7,635,542			(3,444,433	)		148,920,489			3,150,465			765,082
Total	$	(4,169,204	)	$	9,991,890	$	39,128,591		$	100,847,452		$	(3,418,731	)	$	22,949,621		$	15,944,119		$	(1,744,459	)

57

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following table shows the realized and unrealized 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 September 30, 2009:

	Graham Commodity Strategies LLC			Graham Fed Policy Ltd.		Graham Global Monetary Policy LLC			Graham K4D Trading Ltd.			Graham Macro Directional LLC
Commodity price
Futures	$	(2,861,581	)	$	—	$	850,240		$	24,463,206		$	384,960
		(2,861,581	)		—		850,240			24,463,206			384,960
Equity price
Futures		—			—		(1,189,962	)		112,121,801			(323,373	)
Options		—			—		—			—			—
		—			—		(1,189,962	)		112,121,801			(323,373	)
Foreign currency exchange rate
Futures		—			—		—			223,969			—
Forwards		—			—		(12,298,201	)		20,247,415			(2,293,887	)
Options		—			—		(1,573,148	)		—			—
		—			—		(13,871,349	)		20,471,384			(2,293,887	)
Interest rate
Futures		—			13,532,331		(2,493,280	)		(23,133,313	)		1,337,647
Options		—			3,892,383		—			—			—
		—			17,424,714		(2,493,280	)		(23,133,313	)		1,337,647
Total	$	(2,861,581	)	$	17,424,714	$	(16,704,351	)	$	133,923,078		$	(894,653	)

58

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

3. Investments in Master Funds (continued)

The following table shows the realized and unrealized 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 nine months ended September 30, 2009:

	Graham Commodity Strategies LLC		Graham Fed Policy Ltd.		Graham Global Monetary Policy LLC			Graham K4D Trading Ltd.			Graham Macro Directional LLC
Commodity price
Futures	$	5,865,797	$	—	$	3,815,835		$	(10,723,803	)	$	1,328,938
		5,865,797		—		3,815,835			(10,723,803	)		1,328,938
Equity price
Futures		—		—		(2,043,743	)		59,945,342			(137,453	)
Options		—		—		(135,476	)		—			—
		—		—		(2,179,219	)		59,945,342			(137,453	)
Foreign currency exchange rate
Futures		—		—		425,330			(2,362,228	)		—
Forwards		—		—		11,916,251			25,212,981			6,729,458
Options		—		—		(2,424,248	)		—			(275,879	)
		—		—		9,917,333			22,850,753			6,453,579
Interest rate
Futures		—		14,045,168		3,083,882			(33,922,797	)		(2,061,989	)
Options		—		18,354,277		—			—			—
		—		32,399,445		3,083,882			(33,922,797	)		(2,061,989	)
Total	$	5,865,797	$	32,399,445	$	14,637,831		$	38,149,495		$	5,583,075

59

Graham Alternative Investment Trading LLC

Notes to 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. GAIT’s investment in GCA is valued in the accompanying statements of financial condition at fair value in accordance with U.S. GAAP. GAIT records its proportionate share of GCA’s investment income and expenses on a monthly basis. For the three months ended September 30, 2010, the total amount recognized by GAIT with respect to its investment in GCA was $502,343.  For the nine months ended September 30, 2010, the total amount recognized by GAIT with respect to its investment in GCA was $1,384,191.  For the three months ended September 30, 2009, the total amount recognized by GAIT with respect to its investment in GCA was $353,267.  For the nine months ended September 30, 2009, the total amount recognized by GAIT with respect to its investment in GCA was $580,963. These amounts are included in interest income in the statements of operations and managing member allocation.  At September 30, 2010 and December 31, 2009, GAIT owned approximately 13.93% and 15.15%, respectively, of GCA.  The following table summarizes the financial position of GCA as of September 30, 2010 and December 31, 2009:

	September 30,  2010		December 31,  2009
Assets:
Cash and cash equivalents	$	837,774,778	$	485,846,462
Investments in fixed income securities		1,686,686,798		1,421,913,802
Redemptions receivable		—		—
Accrued interest income		6,204,285		4,848,122
Total assets		2,530,665,861		1,912,608,386
Liabilities:
Other payables		20,000		—
Total liabilities		20,000		—
Members’ capital	$	2,530,645,861	$	1,912,608,386

The following table summarizes the results of operations of GCA for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Investment income
Interest income	$	3,507,896	$	2,302,499	$	9,167,607	$	4,231,267
Net investment income		3,507,896		2,302,499		9,167,607		4,231,267
Net income	$	3,507,896	$	2,302,499	$	9,167,607	$	4,231,267

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Notes to Financial Statements (continued)

4. Graham Cash Assets LLC (continued)

The following represents the condensed schedule of investments for GCA as of September 30, 2010:

Description	Principal Amount		Fair Value		Percentage of Members’ Capital
Graham Cash Assets LLC
Investments in Fixed Income Securities (cost $1,686,686,798)
United States
FDIC Guaranteed Bonds (cost $985,173,744)
Citibank 1.25% - 1.63% due 03/30/11 – 11/15/11	$	200,000,000	$	200,777,418		7.93	%
Citigroup 1.25% - 1.38% due 05/05/11 – 09/22/11		150,000,000		150,526,681		5.95	%
Other FDIC Guaranteed Bonds				633,869,645		25.05	%
Total FDIC Guaranteed Bonds				985,173,744		38.93	%
Government Bonds (cost $701,513,054)
U.S. Treasury 0.88% - 1.50% due 10/31/10 – 09/30/11		700,000,000		701,513,054		27.72	%
Total Government Bonds				701,513,054		27.72	%
Total Investments in Fixed Income Securities			$	1,686,686,798		66.65	%

The following represents the condensed schedule of investments for GCA as of December 31, 2009:

Description	Principal Amount		Fair Value		Percentage of Members’ Capital
Graham Cash Assets LLC
Investments in Fixed Income Securities (cost $1,421,913,802)
United States
FDIC Guaranteed Bonds (cost $667,900,290)
Bank of America 0.28% Floating Rate Note due 09/13/10	$	100,000,000	$	100,177,559		5.24	%
Other Bank of America 0.63% - 1.70% Floating Rate Notes due 12/23/10 - 06/22/12		75,000,000		75,931,110		3.97	%
Citibank 1.25% - 1.63%  due 03/30/11 - 11/15/11		125,000,000		125,481,266		6.56	%
JPMorgan Chase 1.65% - 2.63% due 12/01/10 - 02/23/11		125,000,000		126,280,415		6.60	%
Other FDIC guaranteed bonds				240,029,940		12.55	%
Total FDIC Guaranteed Bonds				667,900,290		34.92	%
Government Bonds (cost $754,013,512)
U.S. Treasury 0.00% - 2.75% due 01/31/10 - 06/30/11		750,000,000		754,013,512		39.42	%
Total Government Bonds				754,013,512		39.42	%
Total Investments in Fixed Income Securities			$	1,421,913,802		74.34	%

61

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Notes to 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 September 30, 2010 and December 31, 2009:

	September 30,  2010		December 31,  2009
Long positions
Level 2:
Fixed income securities
FDIC Guaranteed Bonds	$	985,173,744	$	667,900,290
Government Bonds		701,513,054		754,013,512
Fixed income securities		1,686,686,798		1,421,913,802
Total Level 2		1,686,686,798		1,421,913,802
Total long positions	$	1,686,686,798	$	1,421,913,802

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 will equal 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 at least three business days prior written notice.

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.

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Notes to 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 GAIT’s 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 those amounts.  These reimbursements are included in other income 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.

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Notes to 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’s revenues and expenses for income tax purposes.

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

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 months ended September 30, 2010 and 2009:

	Class 0			Class 2
Per unit operating performance:
Net asset value per unit, June 30, 2009	$	130.41		$	109.20
Net income:
Net investment loss		(1.70	)		(2.04	)
Net gain on investments		6.06			5.38
Net income		4.36			3.34
Net asset value per unit, September 30, 2009	$	134.77		$	112.54
Net asset value per unit, June 30, 2010	$	134.80		$	111.00
Net income:
Net investment loss		(0.02	)		(1.25	)
Net gain on investments		2.41			2.95
Net income		2.39			1.70
Net asset value per unit, September 30, 2010	$	137.19		$	112.70

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Graham Alternative Investment Trading LLC

Notes to 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 months ended September 30, 2010 and 2009:

	Class 0						Class 2
	2010			2009			2010			2009
Total return before Incentive Allocation		2.17	%		3.78	%		1.59	%		3.30	%
Incentive Allocation		(0.41	)		(0.49	)		(0.09	)		(0.31	)
Total return after Incentive Allocation		1.76	%		3.29	%		1.50	%		2.99	%
Net investment loss before Incentive Allocation		(0.82	)%		(1.14	)%		(2.25	)%		(1.54	)%
Incentive Allocation		(0.41	)		(0.49	)		(0.09	)		(0.31	)
Net investment loss after Incentive Allocation		(1.23	)%		(1.63	)%		(2.34	)%		(1.85	)%
Total expenses before Incentive Allocation		1.29	%		0.57	%		1.80	%		0.95	%
Incentive Allocation		0.41			0.49			0.09			0.31
Total expenses after Incentive Allocation		1.70	%		1.06	%		1.89	%		1.26	%

The following is the per unit operating performance calculation for the nine months ended September 30, 2010 and 2009:

	Class 0			Class 2
Per unit operating performance:
Net asset value per unit, December 31, 2008	$	132.12		$	111.74
Net income:
Net investment loss		(4.99	)		(5.98	)
Net gain on investments		7.64			6.78
Net income		2.65			0.80
Net asset value per unit, September 30, 2009	$	134.77		$	112.54
Net asset value per unit, December 31, 2009	$	135.56		$	112.73
Net income (loss):
Net investment loss		(3.80	)		(5.35	)
Net gain on investments		5.43			5.32
Net income (loss)		1.63			(0.03	)
Net asset value per unit, September 30, 2010	$	137.19		$	112.70

65

Graham Alternative Investment Trading LLC

Notes to Financial Statements (continued)

9. Financial Highlights (continued)

The following represents ratios to average members’ capital, excluding the Managing Member, and total return for the nine months ended September 30, 2010 and 2009:

	Class 0						Class 2
	2010			2009			2010			2009
Total return before Incentive Allocation		1.61	%		2.50	%		0.06	%		1.04	%
Incentive Allocation		(0.41	)		(0.50	)		(0.09	)		(0.32	)
Total return after Incentive Allocation		1.20	%		2.00	%		(0.03	)%		0.72	%
Net investment loss before Incentive Allocation		(2.84	)%		(3.46	)%		(4.87	)%		(4.93	)%
Incentive Allocation		(0.41	)		(0.50	)		(0.09	)		(0.32	)
Net investment loss after Incentive Allocation		(3.25	)%		(3.96	)%		(4.96	)%		(5.25	)%
Total expenses before Incentive Allocation		3.84	%		3.11	%		5.37	%		4.57	%
Incentive Allocation		0.41			0.50			0.09			0.32
Total expenses after Incentive Allocation		4.25	%		3.61	%		5.46	%		4.89	%

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 and nine months ended September 30, 2010 and 2009.

10.  Subsequent Events

The Fund had subscriptions of approximately $35.0 million and redemptions of approximately $3.8 million through November 15, 2010.  These amounts have not been included in the financial statements.

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Statements of Financial Condition

	September 30, 2010 (Unaudited)		December 31, 2009 (Audited)
Assets
Cash and cash equivalents	$	—	$	770
Investment in Graham K4D Trading Ltd., at fair value		8,269,549		3,256,884
Investment in Graham Cash Assets LLC, at fair value		53,439,124		34,112,305
Accrued commission reimbursements		27,128		15,286
Receivable from Graham K4D Trading Ltd.		2		—
Total assets	$	61,735,803	$	37,385,245
Liabilities and members’ capital
Liabilities:
Accrued redemptions	$	320,519	$	—
Accrued brokerage fees		141,742		88,838
Accrued advisory fees		101,399		63,502
Accrued sponsor fees		50,700		31,751
Accrued incentive allocation		—		479
Payable to Graham K4D Trading Ltd.		—		343
Total liabilities		614,360		184,913
Members’ capital:
Class 0 Units (374,714.036 and 222,427.212 units issued and outstanding at $98.26  and $100.59 per unit, respectively)		36,819,202		22,373,766
Class 2 Units (254,430.549 and 149,683.130 units issued and outstanding at $95.32  and $99.05 per unit, respectively)		24,251,074		14,826,566
Class M Units (500.000 and 0.000 units issued and outstanding at $102.33  and $0.00 per unit, respectively)		51,167		—
Total members’ capital		61,121,443		37,200,332
Total liabilities and members’ capital	$	61,735,803	$	37,385,245

See accompanying notes.

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Graham Alternative Investment Trading II LLC

Statements of Operations and Managing Member Allocation

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010 (Unaudited)			2009 (Unaudited)			2010 (Unaudited)			2009 (Unaudited)
Net gain allocated from investment in Graham K4D Trading Ltd.:
Net realized (loss) gain on investments	$	(323,278	)	$	1,044,993		$	(461,871	)	$	962,227
Net increase in unrealized appreciation on investments		2,521,920			512,892			1,960,470			401,748
Brokerage commissions and fees		(66,281	)		(27,654	)		(166,821	)		(37,734	)
Net gain allocated from investment  in Graham K4D Trading Ltd.		2,132,361			1,530,231			1,331,778			1,326,241
Net investment loss allocated from investment in Graham K4D Trading Ltd.		(952	)		(1,000	)		(4,212	)		(1,326	)
Investment income:
Interest income		74,832			17,719			195,949			25,370
Other income		66,281			27,689			166,821			37,769
Total investment income		141,113			45,408			362,770			63,139
Expenses:
Brokerage fees		404,584			113,215			1,033,726			163,181
Advisory fees		290,137			72,520			747,087			103,261
Sponsor fees		145,069			36,261			373,544			51,632
Interest and other		2,321			1,025			7,231			2,766
Total expenses		842,111			223,021			2,161,588			320,840
Net investment loss of the Fund		(700,998	)		(177,613	)		(1,798,818	)		(257,701	)
Net income (loss)		1,430,411			1,351,618			(471,252	)		1,067,214
Incentive allocation		—			(213,390	)		—			(213,432	)
Net income (loss) available for pro-rata allocation to all members	$	1,430,411		$	1,138,228		$	(471,252	)	$	853,782

See accompanying notes.

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Graham Alternative Investment Trading II LLC

Statements of Changes in Members’ Capital

For the nine months ended September 30, 2010 (unaudited) and 2009 (unaudited)

	Class 0					Class 2						Class M				Total
	Units		Capital			Units			Capital			Units		Capital		Capital
Members’ capital, January 4, 2009		—	$	—			—		$	—			—	$	—	$	—
Initial subscriptions		2,240.000		224,000			5,750.000			575,000			—		—		799,000
Subscriptions		69,888.379		6,676,000			92,754.061			8,861,697			—		—		15,537,697
Redemptions		—		(103,755	)		(500.000	)		(158,586	)		—		—		(262,341	)
Incentive allocation		—		103,755			—			109,677			—		—		213,432
Net income available for pro-rata allocation		—		415,019			—			438,763			—		—		853,782
Members’ capital, September 30, 2009		72,128.379	$	7,315,019			98,004.061		$	9,826,551			—	$	—	$	17,141,570

	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		162,400.604			15,431,662			116,148.901			10,952,416			500.000		50,000		26,434,078
Redemptions		(10,113.780	)		(976,087	)		(11,401.482	)		(1,065,628	)		—		—		(2,041,715	)
Net (loss) income available for pro-rata allocation		—			(10,139	)		—			(462,280	)		—		1,167		(471,252	)
Members’ capital, September 30, 2010		374,714.036		$	36,819,202			254,430.549		$	24,251,074			500.000	$	51,167	$	61,121,443

    See accompanying notes.

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Graham Alternative Investment Trading II LLC

Statements of Cash Flows

For the nine months ended September 30, 2010 and 2009

	Nine Months Ended September 30,
	2010 (Unaudited)			2009 (Unaudited)
Cash flows used in operating activities
Net (loss) income	$	(471,252	)	$	1,067,214
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Net income allocated from investment in Graham K4D Trading Ltd.		(1,327,566	)		(1,324,915	)
Net income allocated from investment in Graham Cash Assets LLC		(195,949	)		(21,887	)
Net income allocated from investment in Graham Cash Assets II LLC		—			(3,483	)
Proceeds from sale of investments in Graham K4D Trading Ltd.		30,922,054			5,971,532
Proceeds from sale of investments in Graham Cash Assets LLC		39,547,824			8,453,431
Proceeds from sale of investments in Graham Cash Assets II LLC		—			4,786,414
Investments in Graham K4D Trading Ltd.		(34,607,498	)		(7,464,189	)
Investments in Graham Cash Assets LLC		(58,678,694	)		(23,045,914	)
Investments in Graham Cash Assets II LLC		—			(4,782,931	)
Changes in assets and liabilities:
Accrued commission reimbursements		(11,842	)		(10,385	)
Accrued brokerage fees		52,904			45,102
Accrued advisory fees		37,897			28,674
Accrued sponsor fees		18,949			14,337
Accrued incentive allocation		(479	)		213,390
Net cash used in operating activities		(24,713,652	)		(16,073,610	)
Cash flows provided by financing activities
Subscriptions		26,434,078			16,336,697
Redemptions		(1,721,196	)		(262,341	)
Net cash provided by financing activities		24,712,882			16,074,356
Net (decrease) increase in cash and cash equivalents		(770	)		746
Cash and cash equivalents, beginning of period		770			—
Cash and cash equivalents, end of period	$	—		$	746

See accompanying notes.

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Notes to Financial Statements

September 30, 2010(unaudited)

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 operation of January 1, 1999 and is organized as a British Virgin Islands business company.  As more fully described in Note 2, 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 Paris (“MONEP”), the Hong Kong Exchanges and Clearing Ltd. (“HKEX”), the Intercontinental Exchange (“ICE”), the London Commodity Exchange (“LCE”), the London International Financial Futures and Options Exchange Ltd. (“LIFFE”), the London Metal Exchange (“LME”), the Marché à Terme International de France (“MATIF”), the Montreal Exchange (“ME”), the Osaka Securities Exchange (“OSE”), the Sydney Futures Exchange Ltd. (“SFE”), the Singapore International Monetary Exchange (“SIMEX”), the South African Exchange (“SAFEX”), the Tokyo International Financial Futures Exchange (“TIFFE”), 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”) of the Fund.

Duties of the Managing Member

Subject to the terms and conditions of the LLC Agreement, the Managing Member has complete and exclusive responsibility for managing and administering the affairs of GAIT 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.

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Notes to Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Amounts included in the financial statements and accompanying notes related to September 30, 2010 and 2009 and the three and nine month periods then ended are unaudited.  Amounts included herein as of December 31, 2009 have been taken from the December 31, 2009 audited financial statements and accompanying notes of GAIT II.

In July 2009, the Financial Accounting Standards Board (“FASB”) issued “The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles” (the “Codification”). The Codification is the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. All existing accounting standard documents are superseded and all other accounting literature not included in the Codification is considered non-authoritative.  The adoption of the Codification does not impact GAIT II’s financial statements except for references made to authoritative accounting literature in the footnotes.

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. At December 31, 2009, this amount was primarily invested in overnight deposits with major U.S. financial institutions.

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 statement of financial condition at fair value in accordance with U.S. GAAP. Gains and losses are allocated monthly by K4D Trading to GAIT II based upon GAIT II’s proportionate share of the net assets 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 settle prices for such assets or liabilities as published by the primary exchange upon which they are traded.

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

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

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Graham Alternative Investment Trading II LLC

Notes to Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Fair Value (continued)

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 based on the release of ASU 2009-12 in December 2009. As of September 30, 2010 and December 31, 2009, neither K4D Trading nor GCA held any Level 3 investments.

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 statement 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. To the extent the Master Fund is deemed to be insolvent, all positions could be subject to liquidation.

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 gain on investments in the Master Fund’s statement 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.

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Graham Alternative Investment Trading II LLC

Notes to Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Futures contracts (continued)

A futures contract represents a commitment for the future purchase or sale of an asset or cash settlement based on the value of an asset on a specified date.  The purchase and sale of futures contracts are executed on an exchange which requires margin deposits with a Futures Commission Merchant (“FCM”).  Subsequent payments are made or received by the Master Fund each day, depending on the daily fluctuations in the value of the contract. These changes in valuation are recorded for financial statement purposes as unrealized gains or losses by the Master Fund.  Relative to over-the-counter derivative financial instruments, futures contracts provide reduced counterparty risk to the Master Fund since futures are exchange-traded and the exchange’s clearinghouse guarantees the futures against default. However some non-U.S. exchanges are “principals’ markets” in which no common clearing facility exists and the Master Fund may look only to the clearing broker for performance of the contract.  The U.S. Commodity Exchange Act requires an FCM to segregate all funds received from such FCM’s customers in respect of regulated futures transactions. If the FCM were not to do so to the full extent required by law, the assets of the Master Fund might not be fully protected in the event of the bankruptcy or insolvency of the FCM. In that case, the Master Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the FCM’s combined customer accounts, even though certain property specifically traceable to the Master Fund was held by the FCM.  In addition, in the event of bankruptcy or insolvency of an exchange or an affiliated clearing house, the Master Fund might experience a loss of funds deposited through its FCM as margin with such exchange or affiliated clearing house, the loss of unrealized profits on its open positions, and the loss of funds owed to it as realized profits on closed positions.

Forward Contracts

The Master Fund enters into foreign currency 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.

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.

An interest rate swap contract is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified 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.

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Notes to Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Swap Contracts (continued)

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.

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.

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.

Indemnifications

In the normal course of business, the Master Fund, GCA, GCA II 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.

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Notes to Financial Statements (continued)

3. Investment in Graham K4D Trading Ltd.

As of September 30, 2010 and December 31, 2009, 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.

September 30, 2010
Investment – Objective	Percent of Members’ Capital			Fair Value		Net Income (three months then ended)		Net Income (nine months then ended)
Graham K4D Trading Ltd. (a)		13.53	%	$	8,269,549	$	2,131,409	$	1,327,566
		13.53	%	$	8,269,549	$	2,131,409	$	1,327,566

(a) – Systematic macro

December 31, 2009
Investment – Objective	Percent of Members’ Capital			Fair Value		Net Income (twelve months then ended)
Graham K4D Trading Ltd. (a)		8.75	%	$	3,256,884	$	1,203,633
		8.75	%	$	3,256,884	$	1,203,633

(a) – Systematic macro

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Notes to Financial Statements (continued)

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

The following table summarizes the financial position of K4D Trading as of September 30, 2010 and December 31, 2009:

	September 30,  2010			December 31,  2009
Assets:
Cash and cash equivalents	$	—		$	425
Due from brokers		140,608,437			99,865,289
Derivative financial instruments, at fair value		74,010,326			17,929,174
Subscriptions receivable		—			4,331
Interest receivable		11,929			293
Total assets		214,630,692			117,799,512
Liabilities:
Due to brokers		1,113,899			—
Redemptions payable		—			4,331
Total liabilities		1,113,899			4,331
Net assets	$	213,516,793		$	117,795,181
Percentage of Master Fund held by the Fund		3.87	%		2.76	%

The following table summarizes the results of operations of K4D Trading for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Net investment loss	$	(25,302	)	$	(87,844	)	$	(127,018	)	$	(169,463	)
Net realized (loss) gain on investments		(9,520,923	)		71,311,018			(31,318,993	)		(120,649	)
Net increase in appreciation on investments		68,863,324			62,612,060			54,268,614			38,270,144
Brokerage commissions and fees		(1,766,962	)		(2,462,705	)		(4,773,158	)		(5,377,799	)
Net gain on investments		57,575,439			131,460,373			18,176,463			32,771,696
Net income	$	57,550,137		$	131,372,529		$	18,049,445		$	32,602,233

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Graham Alternative Investment Trading II LLC

Notes to Financial Statements (continued)

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

The following represents the condensed schedules of investments for Graham K4D Trading Ltd. as of September 30, 2010:

Description	Principal Amount		Fair Value			Percentage of Net Assets
Graham K4D Trading Ltd.
Long contracts
Futures
U.S. bond			$	5,765,314			2.70	%
Foreign bond				3,171,287			1.49	%
U.S. index				11,745,619			5.50	%
Foreign index				(9,271,591	)		(4.34	)%
Commodity				59,192,780			27.72	%
Interest rate				9,544,082			4.47	%
Currency				5,293,828			2.48	%
Total futures				85,441,319			40.02	%
Forwards
Australian Dollar / U.S. Dollar 10/20/10	AUD	469,629,938		14,762,320			6.91	%
British Pound / U.S. Dollar 10/20/10	GBP	817,343,862		12,518,080			5.86	%
Canadian Dollar / Euro 10/20/10	CAD	550,370,598		(18,245,657	)		(8.54	)%
Euro / Japanese Yen 10/20/10	EUR	573,094,973		19,051,960			8.92	%
Euro / U.S. Dollar 10/20/10	EUR	1,470,469,134		90,970,449			42.61	%
Japanese Yen / U.S. Dollar 10/20/10	JPY	134,747,743,600		16,232,195			7.60	%
Swiss Franc / U.S. Dollar 10/20/10	CHF	1,382,475,498		28,825,136			13.50	%
Other foreign currency				23,655,845			11.08	%
Total forwards				187,770,328			87.94	%

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Graham Alternative Investment Trading II LLC

Notes to Financial Statements (continued)

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

The following represents the condensed schedule of investments for Graham K4D Trading Ltd. as of September 30, 2010:

Description	Principal Amount			Fair Value			Percentage of Net Assets
Graham K4D Trading Ltd. (continued)
Short contracts
Futures
U.S. bond				$	(741,000	)		(0.35	)%
Foreign bond					(665,490	)		(0.31	)%
U.S. index					(5,955,442	)		(2.79	)%
Foreign index					1,782,400			0.83	%
Commodity					(31,523,672	)		(14.76	)%
Interest rate					(1,203,356	)		(0.56	)%
Currency					836,397			0.39	%
Total futures					(37,470,163	)		(17.55	)%
Forwards
British Pound / U.S. Dollar 10/20/10	GBP	(809,242,721	)		(11,041,291	)		(5.17	)%
Canadian Dollar / Euro 10/20/10	CAD	(576,867,819	)		17,827,452			8.35	%
Euro / Japanese Yen 10/20/10	EUR	(606,318,356	)		(24,556,109	)		(11.51	)%
Euro / U.S. Dollar 10/20/10	EUR	(1,352,629,280	)		(86,500,240	)		(40.51	)%
Japanese Yen / U.S. Dollar 10/20/10	JPY	(111,949,188,000	)		(15,169,475	)		(7.10	)%
Swiss Franc / U.S. Dollar 10/20/10	CHF	(1,171,821,167	)		(21,598,191	)		(10.12	)%
Other foreign currency					(20,693,304	)		(9.69	)%
Total forwards					(161,731,158	)		(75.75	)%
Total				$	74,010,326			34.66	%

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Graham Alternative Investment Trading II LLC

Notes to Financial Statements (continued)

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

The following represents the condensed schedule of investments for Graham K4D Trading Ltd. as of December 31, 2009:

Description	Number of Contracts/ Principal Amount		Fair Value			Percentage of Net Assets
Graham K4D Trading Ltd.
Long contracts
Futures
LME Aluminum January 2010		1,302	$	6,972,938			5.92	%
LME Copper January 2010		366		6,743,091			5.72	%
Other commodity				21,454,287			18.21	%
U.S. bond				(4,526,734	)		(3.84	)%
Foreign bond				(6,607,015	)		(5.61	)%
U.S. index				5,331,432			4.53	%
Foreign index				8,908,434			7.56	%
Interest rate				(8,722,161	)		(7.40	)%
Currency				355,993			0.30	%
Total futures				29,910,265			25.39	%
Forwards
British Pound / Japanese Yen 01/20/10	GBP	224,750,683		11,529,834			9.79	%
Euro / U.S. Dollar 01/20/10	EUR	593,968,247		(12,238,099	)		(10.39	)%
Japanese Yen / U.S. Dollar 01/20/10	JPY	51,561,122,880		(17,479,840	)		(14.84	)%
Other foreign currency				9,230,717			7.84	%
Total forwards				(8,957,388	)		(7.60	)%

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Graham Alternative Investment Trading II LLC

Notes to Financial Statements (continued)

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

The following represents the condensed schedule of investments for Graham K4D Trading Ltd. as of December 31, 2009:

Description	Number of Contracts/ Principal Amount		Fair Value			Percentage of Net Assets
Graham K4D Trading Ltd. (continued)
Short contracts
Futures
U.S. bond			$	1,217,531			1.03	%
Foreign bond				2,267,786			1.93	%
U.S. index				(2,810,098	)		(2.39	)%
Foreign index				(3,726,222	)		(3.16	)%
Commodity				(14,721,246	)		(12.50	)%
Interest rate				2,493,009			2.12	%
Currency				(32,595	)		(0.03	)%
Total futures				(15,311,835	)		(13.00	)%
Forwards
Japanese Yen / U.S. Dollar 01/20/10	JPY	(52,960,960,701)		18,321,239			15.55	%
Euro / U.S. Dollar 01/20/10	EUR	(604,603,018)		12,851,322			10.91	%
British Pound / Japanese Yen 01/20/10	GBP	(207,438,849)		(11,260,219	)		(9.56	)%
Other foreign currency				(7,624,210	)		(6.47	)%
Total forwards				12,288,132			10.43	%
Total			$	17,929,174			15.22	%

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Notes to 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 September 30, 2010 and December 31, 2009:

	September 30,  2010			December 31,  2009
Long Contracts
Level 1:
U.S. bond futures	$	5,765,314		$	(4,526,734	)
Foreign bond futures		3,171,287			(6,607,015	)
U.S. index futures		11,745,619			5,331,432
Foreign index futures		(9,271,591	)		8,908,434
Commodity futures		59,192,780			35,170,316
Interest rate futures		9,544,082			(8,722,161	)
Currency futures		5,293,828			355,993
Total Level 1		85,441,319			29,910,265
Level 2:
Foreign currency forwards		187,770,328			(8,957,388	)
Total Level 2		187,770,328			(8,957,388	)
Total long contracts	$	273,211,647		$	20,952,877
Short Contracts
Level 1:
U.S. bond futures	$	(741,000	)	$	1,217,531
Foreign bond futures		(665,490	)		2,267,786
U.S. index futures		(5,955,442	)		(2,810,098	)
Foreign index futures		1,782,400			(3,726,222	)
Commodity futures		(31,523,672	)		(14,721,246	)
Interest rate futures		(1,203,356	)		2,493,009
Currency futures		836,397			(32,595	)
Total Level 1		(37,470,163	)		(15,311,835	)
Level 2:
Foreign currency forwards		(161,731,158	)		12,288,132
Total Level 2		(161,731,158	)		12,288,132
Total short contracts	$	(199,201,321	)	$	(3,023,703	)

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Notes to Financial Statements (continued)

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

The following table displays the notional exposure and fair value of derivative contracts held by K4D Trading based on their notional amounts and number of contracts at September 30, 2010 categorized by primary underlying risk.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting.

	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	$	1,345,520,996		19,414	$	(895,262,752	)		(12,218	)	$	68,402,092	$	(40,732,984	)
		1,345,520,996		19,414		(895,262,752	)		(12,218	)		68,402,092		(40,732,984	)
Equity price
Futures		5,039,857,338		28,532		(4,564,577,226	)		(7,718	)		15,550,380		(17,249,394	)
		5,039,857,338		28,532		(4,564,577,226	)		(7,718	)		15,550,380		(17,249,394	)
Foreign currency exchange rate
Futures		345,036,482		2,896		(261,914,652	)		(2,753	)		10,074,934		(3,944,709	)
Forwards		121,082,211,007		—		(18,849,043,891	)		—			63,198,490		(37,159,320	)
		121,427,247,489		2,896		(19,110,958,543	)		(2,753	)		73,273,424		(41,104,029	)
Interest rate
Futures		44,152,023,654		45,196		(21,502,689,049	)		(22,885	)		25,373,716		(9,502,879	)
		44,152,023,654		45,196		(21,502,689,049	)		(22,885	)		25,373,716		(9,502,879	)
Total	$	171,964,649,477		96,038	$	(46,073,487,570	)		(45,574	)	$	182,599,612	$	(108,589,286	)
Collateral balances supporting all derivative positions													$	139,494,538

83

Graham Alternative Investment Trading II LLC

Notes to Financial Statements (continued)

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

The following table displays the notional exposure and fair value of derivative contracts held by K4D Trading based on their notional amounts and number of contracts at December 31, 2009 categorized by primary underlying risk.  Derivative assets and liability balances are presented on a gross basis, prior to the application of counterparty netting.

	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	$	1,281,924,053		21,625	$	(699,668,279	)		(11,135	)	$	42,918,544	$	(22,469,474	)
		1,281,924,053		21,625		(699,668,279	)		(11,135	)		42,918,544		(22,469,474	)
Equity price
Futures		6,321,952,643		16,319		(3,918,741,020	)		(5,980	)		14,812,534		(7,108,988	)
		6,321,952,643		16,319		(3,918,741,020	)		(5,980	)		14,812,534		(7,108,988	)
Foreign currency exchange rate
Futures		30,156,168		359		(108,869,583	)		(1,006	)		757,620		(434,222	)
Forwards		6,096,436,526		—		(5,707,147,861	)		—			78,435,771		(75,105,027	)
		6,126,592,694		359		(5,816,017,444	)		(1,006	)		79,193,391		(75,539,249	)
Interest rate
Futures		66,489,448,610		25,046		(83,222,672,828	)		(13,820	)		7,611,075		(21,488,659	)
		66,489,448,610		25,046		(83,222,672,828	)		(13,820	)		7,611,075		(21,488,659	)
Total	$	80,219,918,000		63,349	$	(93,657,099,571	)		(31,941	)	$	144,535,544	$	(126,606,370	)
Collateral balances supporting all derivative positions													$	99,865,289

84

Graham Alternative Investment Trading II LLC

Notes to Financial Statements (continued)

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

The following table shows the realized and unrealized gains and losses on all financial instruments held by the Master Fund reported in net gain on investments in its statement of operations segregated by primary underlying risk and contract type for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Commodity price
Futures	$	23,090,803		$	24,463,206		$	(50,844,752	)	$	(10,723,803	)
		23,090,803			24,463,206			(50,844,752	)		(10,723,803	)
Equity price
Futures		(31,259,994	)		112,121,801			(92,929,632	)		59,945,342
		(31,259,994	)		112,121,801			(92,929,632	)		59,945,342
Foreign currency exchange rate
Futures		979,360			223,969			4,090,176			(2,362,228	)
Forwards		22,931,616			20,247,415			13,713,340			25,212,981
		23,910,976			20,471,384			17,803,516			22,850,753
Interest rate
Futures		43,600,616			(23,133,313	)		148,920,489			(33,922,797	)
		43,600,616			(23,133,313	)		148,920,489			(33,922,797	)
Total	$	59,342,401		$	133,923,078		$	22,949,621		$	38,149,495

85

Graham Alternative Investment Trading II LLC

Notes to 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. GAIT II’s investment in GCA is valued in the accompanying statement of financial condition at fair value in accordance with U.S. GAAP. GAIT II records its proportionate share of GCA’s investment income and expenses on a monthly basis. For the three months ended September 30, 2010, the total amount recognized by GAIT II with respect to its investment in GCA was $74,832.  For the nine months ended September 30, 2010, the total amount recognized by GAIT II with respect to its investment in GCA was $195,949. For the three months ended September 30, 2009, the total amount recognized by GAIT II with respect to its investment in GCA was $17,719. For the nine months ended September 30, 2009, the total amount recognized by GAIT II with respect to its investment in GCA was $21,887. These amounts are included in interest income in the statements of operations and managing member allocation. At September 30, 2010 and December 31, 2009, GAIT II owned approximately 2.11% and 1.78%, respectively, of GCA. The following table summarizes the financial position of GCA as of September 30, 2010 and December 31, 2009:

	September 30,  2010		December 31,  2009
Assets:
Cash and cash equivalents	$	837,774,778	$	485,846,462
Investments in fixed income securities		1,686,686,798		1,421,913,802
Redemptions receivable		—		—
Accrued interest income		6,204,285		4,848,122
Total assets		2,530,665,861		1,912,608,386
Liabilities:
Other payables		20,000		—
Total liabilities		20,000		—
Members’ capital	$	2,530,645,861	$	1,912,608,386

The following table summarizes the results of operations of GCA for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Investment income
Interest income	$	3,507,896	$	2,302,499	$	9,167,607	$	4,231,267
Net investment income		3,507,896		2,302,499		9,167,607		4,231,267
Net income	$	3,507,896	$	2,302,499	$	9,167,607	$	4,231,267

86

Graham Alternative Investment Trading II LLC

Notes to Financial Statements (continued)

4. Graham Cash Assets LLC (continued)

The following represents the condensed schedule of investments for GCA as of September 30, 2010:

Description	Principal Amount		Fair Value		Percentage of Members’ Capital
Graham Cash Assets LLC
Investments in Fixed Income Securities (cost $1,686,686,798)
United States
FDIC Guaranteed Bonds (cost $985,173,744)
Citibank 1.25% - 1.63% due 03/30/11 – 11/15/11	$	200,000,000	$	200,777,418		7.93	%
Citigroup 1.25% - 1.38% due 05/05/11 – 09/22/11		150,000,000		150,526,681		5.95	%
Other FDIC Guaranteed Bonds				633,869,645		25.05	%
Total FDIC Guaranteed Bonds				985,173,744		38.93	%
Government Bonds (cost $701,513,054)
U.S. Treasury 0.88% - 1.50% due 10/31/10 – 09/30/11		700,000,000		701,513,054		27.72	%
Total Government Bonds				701,513,054		27.72	%
Total Investments in Fixed Income Securities			$	1,686,686,798		66.65	%

The following represents the condensed schedule of investments for GCA as of December 31, 2009:

Description	Principal Amount		Fair Value		Percentage of Members’ Capital
Graham Cash Assets LLC
Investments in Fixed Income Securities (cost $1,421,913,802)
United States
FDIC Guaranteed Bonds (cost $667,900,290)
Bank of America 0.28% Floating Rate Note due 09/13/10	$	100,000,000	$	100,177,559		5.24	%
Other Bank of America 0.63% - 1.70% Floating Rate Notes due 12/23/10 - 06/22/12		75,000,000		75,931,110		3.97	%
Citibank 1.25% - 1.63%  due 03/30/11 - 11/15/11		125,000,000		125,481,266		6.56	%
JPMorgan Chase 1.65% - 2.63% due 12/01/10 - 02/23/11		125,000,000		126,280,415		6.60	%
Other FDIC guaranteed bonds				240,029,940		12.55	%
Total FDIC Guaranteed Bonds				667,900,290		34.92	%
Government Bonds (cost $754,013,512)
U.S. Treasury 0.00% - 2.75% due 01/31/10 - 06/30/11		750,000,000		754,013,512		39.42	%
Total Government Bonds				754,013,512		39.42	%
Total Investments in Fixed Income Securities			$	1,421,913,802		74.34	%

87

Graham Alternative Investment Trading II LLC

Notes to 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 September 30, 2010 and December 31, 2009:

	September 30,  2010		December 31,  2009
Long positions
Level 2:
Fixed income securities
FDIC Guaranteed Bonds	$	985,173,744	$	667,900,290
Government Bonds		701,513,054		754,013,512
Fixed income securities		1,686,686,798		1,421,913,802
Total Level 2		1,686,686,798		1,421,913,802
Total long positions	$	1,686,686,798	$	1,421,913,802

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 will equal 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 at least three business days prior written notice.

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.

88

Graham Alternative Investment Trading II LLC

Notes to 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 those amounts.  This reimbursement is included in other income in the statement 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.

89

Graham Alternative Investment Trading II LLC

Notes to 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.

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 months ended September 30, 2010 and 2009:

	Class 0			Class 2
Per unit operating performance:
Initial net asset value per unit, June 30, 2009	$	93.58		$	92.63
Net income:
Net investment loss		(1.32	)		(1.80	)
Net gain on investments		9.16			9.44
Net income		7.84			7.64
Net asset value per unit, September 30, 2009	$	101.42		$	100.27
Net asset value per unit, June 30, 2010	$	95.72		$	93.33
Net income:
Net investment loss		(1.14	)		(0.25	)
Net gain on investments		3.68			2.24
Net income		2.54			1.99
Net asset value per unit, September 30, 2010	$	98.26		$	95.32

90

Graham Alternative Investment Trading II LLC

Notes to 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 months ended September 30, 2010 and 2009:

	Class 0						Class 2
	2010			2009			2010			2009
Total return before Incentive Allocation		2.52	%		11.48	%		2.00	%		10.42	%
Incentive Allocation		0.00			(3.64	)		0.00			(2.78	)
Total return after Incentive Allocation		2.52	%		7.84	%		2.00	%		7.64	%
Net investment loss before Incentive Allocation		(1.18	)%		(1.63	)%		(1.72	)%		(2.13	)%
Incentive Allocation		0.00			(3.64	)		0.00			(2.78	)
Net investment loss after Incentive Allocation		(1.18	)%		(5.27	)%		(1.72	)%		(4.91	)%
Total expenses before Incentive Allocation		1.30	%		0.76	%		1.82	%		1.26	%
Incentive Allocation		0.00			3.64			0.00			2.78
Total expenses after Incentive Allocation		1.30	%		4.40	%		1.82	%		4.04	%

The following is the per unit operating performance calculation for the nine months endedSeptember 30, 2010 and 2009:

	Class 0			Class 2
Per unit operating performance:
Initial net asset value per unit, January 4, 2009	$	100.00		$	100.00
Net income:
Net investment loss		(3.73	)		(5.16	)
Net gain on investments		5.15			5.43
Net income		1.42			0.27
Net asset value per unit, September 30, 2009	$	101.42		$	100.27
Net asset value per unit, December 31, 2009	$	100.59		$	99.05
Net loss:
Net investment loss		(3.41	)		(4.77	)
Net gain on investments		1.08			1.04
Net loss		(2.33	)		(3.73	)
Net asset value per unit, September 30, 2010	$	98.26		$	95.32

91

Graham Alternative Investment Trading II LLC

Notes to Financial Statements (continued)

9. Financial Highlights (continued)

The following represents ratios to average members’ capital, excluding the Managing Member, and total return for the nine months ended September 30, 2010 and 2009:

	Class 0						Class 2
	2010			2009			2010			2009
Total return before Incentive Allocation		(2.32	)%		5.06	%		(3.77	)%		3.05	%
Incentive Allocation		0.00			(3.64	)		0.00			(2.78	)
Total return after Incentive Allocation		(2.32	)%		1.42	%		(3.77	)%		0.27	%
Net investment loss before Incentive Allocation		(3.55	)%		(3.80	)%		(5.11	)%		(5.32	)%
Incentive Allocation		0.00			(3.64	)		0.00			(2.78	)
Net investment loss after Incentive Allocation		(3.55	)%		(7.44	)%		(5.11	)%		(8.10	)%
Total expenses before Incentive Allocation		3.88	%		3.26	%		5.43	%		4.79	%
Incentive Allocation		0.00			3.64			0.00			2.78
Total expenses after Incentive Allocation		3.88	%		6.90	%		5.43	%		7.57	%

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 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 and nine months ended September 30, 2010 and 2009.

10. Subsequent Events

The Fund had subscriptions of approximately $2.4 million and redemptions of approximately $0.6 million through November 15, 2010.  These amounts have not been included in the financial statements.

92

Investment Advisor

Graham Capital Management, L.P.

40 Highland Avenue

Rowayton, CT  06853

U.S.A.

Administrator

SEI Global Services Inc.

1 Freedom Valley Drive

Oaks, PA  19456

U.S.A.

Legal and Tax Advisors

Proskauer Rose LLP

1585 Broadway

New York, NY  10036

U.S.A.

Registered Address

Corporation Service Company

2711 Centerville Road

Suite 400

Wilmington, DE 19808

U.S.A.

Independent Registered Public Accounting Firm

Ernst & Young LLP

300 First Stamford Place

Stamford, CT 06902

U.S.A.

93

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 September 30, 2010 the Fund’s net asset value increased by $20,654,836 or 15.9%.  This increase was attributable to a $16,077,978 or 12.4% net increase in the Blended Strategies Portfolio and a $4,576,858 or 3.5% net increase in the Systematic Strategies Portfolio.  The net increase in the Blended Strategies Portfolio was attributable to total subscriptions of $15,340,558 or 11.8% and net income of $2,221,842 or 1.7% partially offset by redemptions totaling $1,484,422 or -1.1%, for the period.  The net increase in the Systematic Strategies Portfolio was attributable to total subscriptions of $4,338,066 or 3.3% and net income of $438,339 or 0.3% partially offset by redemptions totaling $199,547 or -0.1%, for the period.

For the three months ended September 30, 2009 the Fund’s net asset value increased by $13,183,024 or 17.2%.  This increase was attributable to a $9,119,920 or 11.9% net increase in the Blended Strategies Portfolio and a $4,063,104 or 5.3% net increase in the Systematic Strategies Portfolio. The net increase in the Blended Strategies Portfolio was attributable to total subscriptions of $19,210,632 or 25.1% and net income of $2,663,252 or 3.5% partially offset by redemptions totaling $12,753,964 or -16.7%, for the period. The net increase in the Systematic Strategies Portfolio was attributable to total subscriptions of $3,775,499 or 4.9% and net income of $287,605 or 0.4%, for the period.

For the nine months ended September 30, 2010 the Fund’s net asset value increased by $39,095,963 or 35.0%.  This increase was attributable to a $27,869,325 or 24.9% net increase in the Blended Strategies Portfolio and a $11,226,638 or 10.1% net increase in the Systematic Strategies Portfolio.  The net increase in the Blended Strategies Portfolio was attributable to total subscriptions of $32,050,876 or 28.7% and net income of $1,568,547 or 1.4% partially offset by redemptions totaling $5,750,098 or -5.2%, for the period.  The net increase in the Systematic Strategies Portfolio was attributable to total subscriptions of $11,583,834 or 10.4% and net income of $180,075 or 0.2% partially offset by redemptions totaling $537,271 or -0.5%, for the period.

For the nine months ended September 30, 2009 the Fund’s net asset value increased by $9,863,376 or 12.3%.  This increase was attributable to a $5,676,176 or 7.1% net increase in the Blended Strategies Portfolio and a $4,187,200 or 5.2% net increase in the Systematic Strategies Portfolio. The net increase in the Blended Strategies Portfolio was attributable to total subscriptions of $30,105,013 or 37.7% and net income of $1,467,463 or 1.8% partially offset by redemptions totaling $25,896,300 or -32.4%, for the period. The net increase in the Systematic Strategies Portfolio was attributable to total subscriptions of $3,905,499 or 4.9% and net income of $281,701 or 0.3%, for the period.

94

(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

2010 Summary

For the three months ended September 30, 2010, the portfolio experienced net trading gains of $3,994,406 attributable to the following sectors:

Agriculture	$	(285,354	)
Energy		(102,496	)
Foreign exchange		1,398,681
Interest rates		2,822,852
Metals		1,355,333
Softs		319,270
Stock index		(1,513,880	)
	$	3,994,406

The U.S. dollar’s continued depreciation on the back of growing expectations for quantitative easing and the appreciation of commodity currencies especially those with ties to gold, notably Australian dollar, Canadian dollar and South African rand, contributed to significant gains in foreign currency trading.  The expectation of quantitative easing and the Federal Reserve’s anticipated, and later in the quarter confirmed, accommodative monetary policy stance led to gains in short term interest rate trading.   Gains were also recognized in European interest rates as a weakened global growth outlook drove investors to flock to the safety of government securities during the quarter lowering yields which benefitted the portfolio.  The portfolio was able to benefit from the rise in prices in global metals driven by both economic growth concerns, especially in gold which crept closer to its all time high prices, as well as in base metals where a favorable outlook in industrial activity and increased demand from China led to gains.  Trading results in commodities were mixed throughout the quarter as trends coming into the quarter reversed in the early part of the quarter as projections for harvests in some of the staple crops turned below initial expectations and prices were additionally affected by economic growth sentiment while other markets continued to follow trends leading to overall gains in softs and losses in agriculture.  Trading in energy was mixed as gains in calendar spread positions in crude oil and heating oil generated profits which were offset by losses on outright positions, most notably natural gas as the energy markets exhibited volatile price swings throughout the period.  Trading in stock indices generated losses during the period as the markets exhibited significant volatility predominantly in U.S. and European markets with a sharp rally in July followed by a sell off in August on the back of economic growth concerns reversing again in September, as an appetite for risk reappeared.

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 September 30, 2010, Brokerage Fees increased by $243,526 or 49.3%, Advisory Fees increased by $218,496 or 52.2% and Sponsor Fees increased by $109,248 or 52.2% 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 and a net gain for the period,  partially offset by redemptions. During the same period interest income increased by $161,505 or 99.4% predominantly due to the increase in net assets discussed above.  Interest was earned on free cash at an average annualized yield of 0.61% for the three months ended September 30, 2010 compared to 0.62% for the same period in 2009.

95

The Incentive Allocation is based on the New High Net Trading Profits of the portfolio.  For the three months ended September 30, 2010, the Incentive Allocation increased by $4,436, or 1.1%, when compared to the same period of 2009.  This was the result of a higher net gain before incentive allocation for the three months ended September 30, 2010 when compared to 2009.

For the nine months ended September 30, 2010, the Blended Strategies Portfolio experienced net trading gains of $5,710,573 attributable to the following sectors:

Agriculture	$	(369,367	)
Energy		(1,571,158	)
Foreign exchange		3,486,377
Interest rates		7,854,651
Metals		525,778
Softs		(399,533	)
Stock index		(3,816,175	)
	$	5,710,573

The portfolio experienced overall gains this year as economic concerns ebbed and flowed creating significant volatility in most markets.  Consistent gains were posted in interest rates as beginning of the year concerns about Greece and the European Union as well as the efforts of the U.S. Federal Reserve to be accommodative and stimulate growth, led to a general trend towards flatter yield curves throughout the year in the U.S. and Europe.  The portfolio was able to generate gains in foreign currency during high volatility as early year concerns about Greece, Portugal, Ireland and Spain led to declines in the Euro versus the U.S. dollar in the early part of the year only to reverse more recently as the Federal Reserve’s continued efforts to stimulate growth coupled with a more stable outlook for Europe has driven a devaluation of the dollar versus the Euro and Japanese yen.  The portfolio was able to generate gains in trading in many of the major commodity currencies such as Australian dollar and Canadian dollar as these strengthened  against the U.S. dollar on the heels of the increase in value of gold throughout the year.  Trading in commodities generated mixed results for the year, as many commodities alternated between trading highly correlated to the U.S. dollar to trading on fundamental news creating several instances of abrupt price reversals throughout the year leading to overall losses with one standout being gains in gold which crept towards all time price highs in the third quarter.  Trading in energy generated losses as dramatic price movements predominantly in the second quarter moved against the portfolio’s positions notably in crude and natural gas as the uneasiness in the markets about the global growth potential, exacerbated by the May “flash crash” in U.S. stock markets, triggered a flight to quality and adverse price moves for the portfolio.  Losses in energies were partially offset by gains in calendar spread positions in crude oil and heating oil.  Trading in stock indices generated losses during the year as the gyrations in economic sentiment resulted in, at times, abrupt volatility in the major European and U.S. stock markets highlighted by the May “flash crash”.

For the nine months ended September 30, 2010, Brokerage Fees increased by $607,016 or 42.8%, Advisory Fees increased by $522,539 or 42.9% and Sponsor Fees increased by $261,271 or 42.9% 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 and a net gain for the period, partially offset by redemptions. During the same period interest income increased by $501,347 or 119.2% predominantly due to the increase in net assets discussed above.  Interest was earned on free cash at an average annualized yield of 0.61% for the nine months ended September 30, 2010 compared to 0.60% for the same period in 2009.

For the nine months ended September 30, 2010, the Incentive Allocation decreased by $1,828 or -0.5%, in the portfolio over the corresponding period of the preceding year due to lower net gain before incentive allocation partially offset by an increase in interest income.

96

The following table illustrates the sector distribution of the Blended Strategies Portfolio’s investments in Master Funds as of September 30, 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	7.6	%
Energy	11.7	%
Foreign exchange	81.9	%
Interest rates	47.3	%
Metals	(48.7	%)
Softs	1.8	%
Stock index	(1.6	%)
	100.0	%

2009 Summary

For the three months ended September 30, 2009, the Blended Strategies Portfolio experienced net trading gains of $4,017,164 attributable to the following sectors:

Agriculture	$	201,999
Energy		(623,471	)
Foreign exchange		202,217
Interest rates		(267,772	)
Metals		525,774
Softs		558,482
Stock index		3,419,935
	$	4,017,164

The portfolio recorded gains in the quarter as global stock indices began an upward trend in July based on positive economic news and continued to rise steadily throughout the quarter.  Gains were also recognized in commodity markets such as metals and softs led by gains in sugar which reached all time highs during the quarter.  These gains were partially offset by losses in the energy markets where the portfolio experienced some losses in crude oil as price volatility increased driven by weak demand data and geopolitical tension.  This was also evidenced in natural gas which experienced some weakness in the beginning of the quarter then sharply reversed in the last month of the quarter resulting in losses.  The portfolio also experienced losses in interest rates as gains in short term interest rates were offset by losses in the longer end of the curve led by losses in European interest rate markets.

97

For the nine months ended September 30, 2009, the Blended Strategies Portfolio experienced net trading gains of $4,701,317 attributable to the following sectors:

Agriculture	$	(15,969	)
Energy		(549,711	)
Foreign exchange		1,580,311
Interest rates		(204,447	)
Metals		241,478
Softs		394,199
Stock index		3,255,456
	$	4,701,317

The portfolio experienced volatility throughout the first nine months of the year as macro trends appeared and reversed significantly resulting in mixed results in several sectors.  The portfolio recorded overall gains in stock indices as global equity prices plummeted in the first portion of the first quarter on the heels of heightened recessionary fears. This situation persisted into mid March when earning reports from large U.S. financials as well as the prospect of further stimulus funds to be released, sparked a global stock market rally.  The general upward trend in the equity markets persisted through the third quarter.   The portfolio was able to recoup losses in its short stock positions when the turnaround began by reversing its position in late March and benefitting from the continued upward trend in indices.  The portfolio posted gains in currency trading in each quarter despite the volatility in the markets.  The U.S. dollar strengthened throughout the first part of the year as stock markets weakened on recessionary fears only to reverse course and weaken as the stock market gained momentum through the summer.  The discretionary portion of the portfolio was able to take advantage in short term trading opportunities while the systematic portion was able to post gains on longer term trends in the currency markets.  The portfolio was able to recognize gains in several commodities markets as trends developed in the later portion of the year, notably, sugar rising to an all time high in the third quarter as well as increasing prices in base metals in the third quarter. These gains were offset by losses experienced in energy and interest rates.  The energy markets began the year with some weakness following the recessionary concerns of the markets, as well as the U.S. dollar strength.  This trend abruptly reversed late in the first quarter as the U.S. dollar weakened and global stock market gains provided increased abatement of the recessionary concerns.  The scenario repeated itself late in the third quarter as weakness in natural gas abruptly reversed late in the quarter resulting in losses for the portfolio.  The portfolio posted losses in interest rates overall with mixed results throughout the year as the changing sentiment on the economies of both the U.S. and Europe led to yield curve compression and expansion during the year.

98

The following table illustrates the sector distribution of the Blended Strategies Portfolio’s investments in Master Funds as of December 31, 2009 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	3.1	%
Energy	6.4	%
Foreign exchange	42.1	%
Interest rates	(39.1	%)
Metals	54.5	%
Softs	23.2	%
Stock index	9.8	%
	100.0	%

Systematic Strategies Portfolio

2010 Summary

For the three months ended September 30, 2010, the Systematic Strategies Portfolio experienced net trading gains of $637,191 attributable to the following sectors:

Agriculture	$	(19,175	)
Energy		(70,415	)
Foreign exchange		301,988
Interest rates		429,225
Metals		259,330
Softs		79,870
Stock index		(343,632	)
	$	637,191

The U.S. dollar’s continued depreciation on the back of growing expectations for quantitative easing contributed to significant gains in foreign currency trading.  The expectation of quantitative easing coupled with a weakened global growth outlook, which drove investors toward the safety of government securities during the quarter, also generated gains in interest rate trading.  The portfolio was able to benefit from the rise in prices in global metals driven by both economic growth concerns especially in gold which crept closer to its all time high prices as well as in base metals where a favorable outlook in industrial activity and increased demand from China led to gains.  Trading results in commodities were mixed throughout the quarter as trends coming into the quarter reversed in the early part of the quarter as projections for harvests in some of the staple crops turned below initial expectations and prices were additionally affected by economic growth sentiment while other markets continued to follow trends leading to overall gains in softs and losses in agriculture and energies.  Trading in stock indices generated losses during the period as the markets exhibited significant volatility predominantly in U.S. and European markets with a sharp rally in July followed by a sell off in August on the back of economic growth concerns reversing again in September, as an appetite for risk reappeared.

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.

99

For the three months ended September 30, 2010, Brokerage Fees increased by $89,946 or 385.1%, Advisory Fees increased by $66,872 or 363.0% and Sponsor Fees increased by $33,437 or 363.0% 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 and a net gain for the period, partially offset by redemptions. During the same period interest income increased by $36,383 or 543.0% predominantly due to the increase in net assets discussed above.  Interest was earned on free cash at an average annualized yield of 0.61% for the three months ended September 30, 2010 compared to 0.62% for the same period in 2009.

The Incentive Allocation is based on the New High Net Trading Profits of the portfolio for the period. For the three months ended September 30, 2010 there was no Incentive Allocation earned despite the portfolio’s profitability, due to the loss carryforward at the beginning of the quarter.

For the nine months ended September 30, 2010, the Systematic Strategies Portfolio experienced net trading gains of $638,742 attributable to the following sectors:

Agriculture	$	(86,423	)
Energy		(623,029	)
Foreign exchange		405,624
Interest rates		2,382,631
Metals		174,828
Softs		(185,086	)
Stock index		(1,429,803	)
	$	638,742

The portfolio experienced overall gains this year as economic concerns ebbed and flowed creating significant volatility in most markets.  Consistent gains were posted in interest rates as beginning of the year concerns about Greece and the European Union as well as the efforts of the U.S. Federal Reserve to be accommodative and stimulate growth, led to a general trend in lower yields throughout the year in both the U.S. and Europe.  The portfolio was able to generate gains in foreign currency during high volatility as early year concerns about Greece, Portugal, Ireland and Spain led to declines in the Euro against the U.S. dollar early in the year.  This trend later reversed as the Federal Reserve’s continued efforts to stimulate growth, coupled with a more stable outlook for Europe, has driven a devaluation of the U.S. dollar versus the Euro and Japanese yen as well as several other more commodity linked currencies such as the Australian dollar.  Trading in commodities generated mixed results for the year as many commodities alternated between trading highly correlated to the U.S. dollar and trading on fundamental news creating several instances of abrupt price reversals throughout the year leading to overall losses, with one exception being gold which crept towards all time price highs in the third quarter.  Trading in energy generated losses as dramatic price movements predominantly in the second quarter moved against the portfolio positions notably in crude and natural gas as the uneasiness in the markets about the global growth potential exacerbated by the May “flash crash” in U.S. stock markets triggered a flight to quality and adverse price moves for the portfolio.  Trading in stock indices generated losses during the year as the gyrations in economic sentiment resulted in, at times, abrupt volatility in the major European and U.S. stock markets highlighted by the May “flash crash”.

For the nine months ended September 30, 2010, Brokerage Fees increased by $237,299 or 996.8%, Advisory Fees increased by $179,557 or 959.6% and Sponsor Fees increased by $89,779 or 959.6% 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 and a net gain for the period, partially offset by redemptions. During the same period interest income increased by $95,091 or 1,405.2% predominantly due to the increase in net assets discussed above.  Interest was earned on free cash at an average annualized yield of 0.61% for the nine months ended September 30, 2010 compared to 0.60% for the same period in 2009.

100

For the nine months ended September 30, 2010, there was no incentive allocation due to the portfolio’s lack of year to date profitability.

The following table illustrates the sector distribution of the Systematic Strategies Portfolio’s investments in Master Funds as of September 30, 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	4.0	%
Energy	7.5	%
Foreign exchange	43.5	%
Interest rates	21.4	%
Metals	25.1	%
Softs	0.8	%
Stock index	(2.3	%)
	100.0	%

2009 Summary

For the three months ended September 30, 2009, the Systematic Strategies Portfolio experienced net trading gains of $389,063 attributable to the following sectors:

Agriculture	$	21,511
Energy		(53,726	)
Foreign exchange		65,198
Interest rates		(65,345	)
Metals		46,988
Softs		54,550
Stock index		319,887
	$	389,063

The portfolio recorded gains in the quarter in U.S. and European stock indices as U.S. jobless claims improved during July and positive second quarter earnings in the finance and technology sector above estimates helped spur a rally.  Despite volatility in the markets during the quarter, the portfolio was able to post consistent gains in U.S. equities.  Similarly in Europe and UK equities, strong retail sales reports early in the quarter pushed European stock indices higher and the rally gained momentum behind the dovish interest rate environment in the UK and Europe as well as signs of budding growth on the continent.  Gains were also recognized in currency trading as general U.S. dollar weakness prevailed during the quarter providing opportunity for gains against many currencies.  Positive returns were also registered in commodities including softs, metals and agriculture markets most notably in sugar which hit an all time high during the quarter as well as in base metals which also experienced increased prices.  Gains were offset with losses in interest rates and energies as the dovish interest rate environment led to losses on European interest rate trades and a late quarter rally in natural gas which reversed its course from long standing weakness.

101

For the nine months ended September 30, 2009, the Systematic Strategies Portfolio experienced net trading gains of $383,905 attributable to the following sectors:

Agriculture	$	19,474
Energy		(77,807	)
Foreign exchange		84,543
Interest rates		(91,117	)
Metals		44,636
Softs		52,787
Stock index		351,389
	$	383,905

The portfolio experienced volatility throughout the first nine months of the year as macro trends appeared and reversed significantly this year resulting in mixed results in several sectors.  The portfolio recorded overall gains in stock indices as global equity prices plummeted in the first portion of the first quarter on the heels of heightened recessionary fears. This situation persisted into mid March when earnings reports from large U.S. financials as well as the prospect of further stimulus funds to be released sparked a global stock market rally.  The general upward trend in the equity markets persisted through the third quarter.   The portfolio was able to recoup losses in its short stock positions when the turnaround began by reversing its position in late March and benefitting from the continued upward trend in indices.  Similar volatility was experienced in currency trading as the U.S. dollar strengthened in the first part of the year and the stock markets weakened, only to reverse course and weaken as the stock markets gained momentum in the second part of the year.  The portfolio was able to post overall gains in its currency trading as it was able to profit in both environments.  The portfolio was able to recognize gains in several commodities markets as trends developed in the later portion of the year, notably sugar rising to an all time high in the third quarter as well as increasing prices in base metals in the third quarter.  These gains were offset by losses experienced in energy and interest rates.  The energy markets began the year with some weakness following the recessionary concerns of the markets as well as the U.S. dollar strength.  This trend abruptly reversed late in the first quarter as the U.S. dollar weakened and global stock market gains provided increased abatement of the recessionary concerns.  The scenario repeated itself late in the third quarter as weakness in natural gas abruptly reversed late in the quarter resulting in losses for the portfolio.  Losses in interest rates were recognized on the reversal of sentiment as well as safe haven buying which led to gains in the beginning of the first quarter reversed late in the first quarter affecting the portfolios performance.  This occurred again late in the second quarter and into the third quarter as strong selling in the short end of the yield curve on the back of smaller than expected May U.S. payrolls data led to losses for the portfolio.

The following table illustrates the sector distribution of the Systematic Strategies Portfolio’s investments in Master Funds as of December 31, 2009 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	10.2	%
Energy	19.5	%
Foreign exchange	49.3	%
Interest rates	(76.9	%)
Metals	60.9	%
Softs	23.5	%
Stock index	13.5	%
	100.0	%

102

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
September 30, 2010		11.53	%		13.70	%
December 31, 2009		5.34	%		9.18	%
September 30, 2009		10.37	%		17.55	%

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 September 30, 2010, 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. 

103

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

(iv)           Critical Accounting Policies

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

Fair Value Measurement - The Fund follows U.S. GAAP for fair value measurements, which defines fair value, establishes a framework for measuring fair value and requires certain disclosures about fair value measurements.  U.S. GAAP uses a three-level hierarchy for fair value measurement based on the transparency and independence of inputs used in the valuation of an asset or liability as of the measurement date.  The Fund reports the fair value of its investment-related assets and liabilities in accordance with the hierarchy established under U.S. GAAP.

The Fund records its investments in the GAIT Funds at fair value in accordance with U.S. GAAP.  In determining its net asset value, each GAIT Fund records its investments in Master Funds at fair value in accordance with U.S. GAAP.  The Fund records its proportionate share of the GAIT Funds’ investment income and loss, expenses, fees, and realized and unrealized gains and losses on a monthly basis.  Purchases and sales of units in the GAIT Funds are recorded on a trade date basis.  The accounting policies of the GAIT Funds are described in their attached respective financial statements.

The Master Funds record all their financial instruments at fair value, which is derived in accordance with U.S. GAAP.  Unrealized gains and losses from these instruments are recorded based on changes in their fair value.  Realized gains and losses are recorded when the positions are closed.  All unrealized and realized gains and losses related to derivative financial instruments are included in net gain (loss) on investments in the Master Funds’ statements of operations.

Cash Assets - The GAIT Funds invest a portion of their excess liquidity in Cash Assets, an entity for which the Manager is also the sole investment advisor.  The financial information of Cash Assets is included in the notes to the Financial Statements of the GAIT Funds.

Statement of Operations - As discussed under Item 1, the Fund offers Class 0 and Class 2 units of the Blended Strategies Portfolio and the Systematic Strategies Portfolio.  Class 0 and Class 2 units within each portfolio differ only with respect to their fees.  The Blended Strategies and Systematic Strategies Portfolios differ with respect to the underlying funds in which they invest. All items of gain, loss, income and expense of the Fund are specifically and directly allocated to each portfolio from the underlying Master Funds.  The Fund presents a combined statement of operations which encompasses the amounts applicable to the Blended and Systematic Strategies Portfolios.

104

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.

105

Item 3. Quantitative and Qualitative Disclosures about Market Risk

          Not Required.

106

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 September 30, 2010.   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 September 30, 2010. 

There were no changes to the Fund’s internal controls over financial reporting during the third quarter of 2010 that have materially affected, or are reasonably likely to materially affect, the Fund’s internal controls over financial reporting.

107

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 September 30, 2010, the Fund issued 116,210 Units in exchange for $15,340,558 with respect to the Blended Strategies Portfolio and 45,955 Units in exchange for $4,338,066 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.

Period (as of)	Blended Strategies Portfolio Total Number of Units Purchased		Systematic Strategies Portfolio Total Number of Units Purchased
July 1, 2010		33,306		15,624
August 1, 2010		26,286		13,908
September 1, 2010		56,618		16,423

Item 3. Defaults Upon Senior Securities – None

Item 4. [Removed and Reserved]

Item 5. Other Information – None

108

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)

109

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:  March 11, 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

110