Second Quarter Review | July 20, 2009

Despite maintaining a cautious view as evidenced by our cash position and well-hedged
portfolio, we are pleased to report a Q2 return of 8.55%. Our top performers for the quarter
were our auto finance bank debt positions – specifically Chrysler Financial, Ford Motor
Credit, and GMAC. These credits were the most compelling corporate distressed
opportunities we have seen so far in this cycle. The market was pricing in losses in each
company’s retail and wholesale loan portfolios well in excess of our most bearish
scenarios. Despite retail losses running between 2% - 4% and dealer losses being
negligible, market prices appeared to be discounting losses of 25% - 50% depending on the
specific security. Each of these companies faced distinct challenges and was tethered to
automotive companies of varying health. These positions were all profitable during the
quarter despite the bankruptcy filings of both Chrysler Automotive and General Motors.

A critical component of Chrysler’s bankruptcy plan involved GMAC taking the place of
Chrysler Financial to provide financing for new Chrysler vehicles. In essence, Chrysler
Automotive will continue manufacturing vehicles with retail customers and dealers financed
by GMAC – thereby leaving Chrysler Financial in run-off mode. Despite the disruptions at
Chrysler Automotive, Chrysler Financial’s results have remained solid with losses remaining
low while the company generates significant cash flow as the portfolio quickly shrinks. We
still have a large position in Chrysler Financial first and second lien bank debt, and despite
significant price appreciation, we believe that the market continues to underestimate yields
by not fully pricing in how quickly par recoveries may be achieved.

An investment in Rite Aid bonds was also profitable during the quarter. Rite Aid is the third
largest drugstore chain in the country, which, a few years ago purchased the U.S.
operations of Jean Coutu, a Canadian pharmacy chain. The significant challenges of
integrating a large acquisition made with considerable leverage at a time when the
economy was in freefall created a near perfect storm and the entire capital structure sold
off significantly. Last fall new management was brought in to oversee this integration and
improve operating performance. Since their arrival, cash management has strengthened,
expenses are decreasing, margins are improving, and the acquired stores are performing
better. Rite Aid has also refinanced its balance sheet which has served to push the next
maturity out for several years giving them adequate time to fix the business operations.
These bonds traded up significantly and we have reduced our position.

During Q2, we built a position in E*Trade bonds. E*Trade operates 2 primary businesses,
an online brokerage and a bank. While the brokerage side of the company was performing
well, E*Trade Bank was struggling to remain well-capitalized due to its mortgage portfolio.
Despite this concern, we found the bonds attractive for several reasons. First, we believed
the size of the bank’s capital hole to be manageable and small relative to the Company’s
true enterprise value. Second, all parties involved including management, the financial
sponsor, bondholders and most importantly its primary regulator were incentivized to
ensure the Company remained a going concern. Third, we did not believe E*Trade had an
imminent liquidity situation, especially as its brokerage business continued to thrive.
Finally, we found the event-driven nature of the situation with an identifiable, near-term
positive catalyst very attractive. On June 17th, E*Trade announced a capital plan that
included a large debt-for-equity exchange and equity offering to satisfy regulators and
solidify its capital base at both E*Trade Bank and the parent, driving bond prices across the
capital structure significantly higher. Consequently, we sold our bonds that will not be
exchangeable into equity.

We also participated in the Debtor-In-Possession (DIP) financing for General Growth

Properties (GGP) and made profitable investments in several parts of the capital structure.
GGP filed for bankruptcy with an agreement to receive DIP financing from its largest
shareholder on what can only be described as egregious terms. The Company and their
advisors reportedly had difficulty finding more attractive DIP terms. However, public
disclosure of the original DIP proposal resulted in a two week competitive bidding process.
In the end our group prevailed with a creative structure that provides us significant
coverage, a good base case rate of return, and some interesting optionality. After the
bankruptcy filing, we invested in bonds and bank debt of various GGP entities. During the
quarter the entire capital structure traded up significantly and we reduced some exposure.

The fund begins Q3 with a 10% exposure to Residential Mortgage Backed Securities
(RMBS). This portfolio was also profitable for the quarter. We added to our mortgage
position in March and through April. The prices of RMBS securities have risen substantially
to levels where we are no longer adding aggressively but continue to maintain our position.
We believe that despite tepid signs of stabilization, the housing and mortgage markets
remain under significant stress and we expect there to be continued attractive
opportunities in the space. However, we were positively surprised by the amount of
principal repayments in our portfolio. Additionally, as the commercial real estate and
consumer sectors continue to deteriorate, we have been preparing ourselves to take
advantage of what are likely to be very attractive distressed opportunities in those
structured credit markets.

Our sovereign CDS position was the biggest detractor for the quarter on a mark to market
basis. Notwithstanding the IMF and EU bailouts of the Baltics, spreads tightened
throughout Q2. We expect the credit profile of European sovereign governments to
continue to deteriorate and accordingly we feel that owning protection at current levels
offers a compelling risk/reward opportunity.

We still believe this credit cycle will take several years to resolve. First, we expect that
commercial real estate is still in the very early stages of a prolonged downturn. The
performance of most property types continues to be stressed. As debt on properties
matures, we expect that repayment will be unlikely in many cases. Therefore, debt will
need to be rescheduled or restructured. The size of this opportunity is very large and we
believe that our capital will potentially be able to generate excellent returns in this space.
Second, corporate debt maturities will be very heavy in the next three years. Similarly,
some percentage of this debt will not be repaid and will need to be restructured. We are
already observing higher default rates in Q2. Several large companies such as Extended
Stay, Six Flags, General Motors, and General Growth Properties recently filed for bankruptcy
and we anticipate this trend will continue.

We increased our equities exposure slightly in Q2 by adding selectively to positions such as

Dell and Humana. At its lows in March, Dell was an $8 stock with roughly $4 in net cash per
share. Based upon an aggressive cost-cutting program, we believed that the worst case EPS
for 2009 would be higher than $1 which provided us with a large margin of safety on the
investment. Our enthusiasm for the name was bolstered by the potential for a corporate
hardware upgrade cycle with the launch of Microsoft’s new operating system this fall. Dell
reported a strong first quarter and the stock traded up in June as the magnitude of the cost-
cutting activities became evident to the street.

We also believe that our positions in the managed care sector represent compelling
opportunities given the fears surrounding the new administration's potential healthcare
reform policies. In our opinion the healthcare insurers will be key participants in the
reform, and while these companies will clearly be impacted, the situation will not be nearly
as dire as their stock prices reflected in March.

The reinsurance sector also remains a significant part of the equity book. At the start of Q2,
reinsurers were, on average, trading at a greater than 15% discount to Q1 book value. With
average leverage of approximately 3x and significantly more conservative investment
portfolios than other financial stocks, this discount seems unwarranted. Additionally, given
the stresses on insurance industry balance sheets in 2008, as well as the inability to access
capital markets, prices for hurricane protection have increased materially this year. In light
of this, we helped capitalize a reinsurance sidecar this quarter, covering Florida wind
exposure.

We continue to run a well hedged portfolio in Asia. We grew our allocation to Tier 1 and Tier
2 hybrid bank paper of a small group of Asian and Australian banks during the first two
months of the quarter and these positions contributed meaningful profits. We also
benefited from our exposure to leveraged loans in the region and participated in a few
recapitalization transactions in Australia that performed well. Although we decreased our
credit exposure during the last few weeks of the quarter, we are hopeful that we will get
another opportunity during the second half of the year as foreign banks, particularly in
Australia, will be focused on reducing their exposure to highly levered entities.

Several years ago we made the decision to empower a number of portfolio managers –
primarily in the equity area – to allocate silos of capital to distinct industries subject to
specific risk controls. This approach had some success at the outset but never fully met our
expectations – both in terms of performance and the organization. In the summer of 2007
we decided to downsize our equity business and further build up our credit group. Our goal
was to restructure the investment process to reflect a single pool of opportunistic capital
without any specified industry or strategy constraints. As a result of the changes that took
place, we believe our investment process is currently operating at a significantly higher
level than it has over the past several years and that 2009 year-to-date performance reflects
our improved agility.

Our longevity and successful 21 year track record reflects our institutional approach to
management and diligent investment process. For the majority of our history, we have
managed money as a single pool of capital with dollars flowing to the best ideas with a
focus on event-driven equity and credit situations. During the last credit cycle, our ability to
deploy significant amounts of capital in a timely manner while conducting rigorous due
diligence resulted in some excellent investment opportunities. Similarly, we anticipate an
increase in the number of businesses experiencing financial stress, and we are poised to
act as an alternative provider of capital for these companies by participating in DIPS and
other rescue financings.

The team remains committed to pursuing investment management with rigor and discipline.
The primary goal of the Firm continues to be producing uncorrelated returns across different
securities, industries, and geographies. As always, your thoughts and comments are
welcome. Please feel free to contact Jamie Parrot at (212) 583-4088/ jparrot@perrycap.com
or Harlan Saroken at (212) 583-4059/ hsaroken@perrycap.com to further discuss any of
these developments.

Past performance is not a guarantee of future results. There can be no assurance that these or
comparable returns will be achieved by Perry Partners’ investments, either individually or in the
aggregate. All returns shown above reflect the reinvestment of dividends and interest and the
deduction of all fees and expenses. Although we believe that the performance goals set out in this
letter are realistic, it is possible that they will not be achieved and that you could even lose a
substantial portion of your investment. The information contained in this letter represents neither
an offer to sell nor a solicitation of an offer to buy any securities. Securities in this fund will only be
offered through a current offering memorandum and appropriate subscription documents. Copies
of the offering memorandum may be obtained from Jamie Parrot (jparrot@perrycap.com) or Harlan
Saroken (hsaroken@perrycap.com) in our New York office and will be made available upon request.
Offers will not be made in any jurisdiction in which the making of an offer or the acceptance thereof
would not be in compliance with the laws of such jurisdiction. Investors should read the
Confidential Private Offering Memorandum carefully, especially the “Risk Factors” section, before
making a decision to invest in Perry Partners. Additional information is available through our
password protected website (www.perrycap.com).
 June 30, 2009

Estimate Exposure Report

Non-Side
Pocket Total Fund S&P 500 Barclays HY
Composite Composite (Total Return) Credit Index

MTD Performance 1.53% EST 1.25% EST 0.20% 2.86%

QTD Performance 9.61% EST 8.55% EST 15.93% 23.07%
YTD Performance 9.51% EST 7.71% EST 3.16% 30.43%

Performance Attribution by Strategy MTD QTD YTD

Equities North America 0.32% 0.57% -0.43%
Latin America / Other 0.01% -0.10% -0.09%
Europe 0.02% 0.02% 0.07%
Asia 0.05% -0.24% -0.33%
0.40% 0.25% -0.78%

Credit North America 0.82% 10.35% 11.07%

Latin America / Other 0.01% 0.03% 0.03%
Europe 0.01% 0.13% 0.13%
Asia 0.16% 0.44% 0.50%
1.00% 10.95% 11.73%

Credit Derivatives North America 0.09% 0.08% -0.25%

Latin America / Other -0.04% -0.09% -0.09%
Europe -0.30% -2.09% -1.99%
Asia 0.02% -0.31% -0.28%
-0.23% -2.41% -2.61%

Private/Real Estate North America 0.22% 0.41% -0.08%

Latin America / Other 0.00% 0.00% -0.13%
Europe -0.07% -0.06% -0.01%
Asia 0.09% 0.15% 0.11%
0.24% 0.50% -0.11%

Legacy Sidepocket -0.06% -0.02% -0.22%

Global Macro -0.10% -0.72% -0.30%

Total Performance Attribution 1.25% 8.55% 7.71%

Performance attribution relates to the total fund composite return

Number of
Portfolio Exposure by Strategy (as a % of Capital) Long Short
Strategies*
Equities North America 18% -11% 20
Latin America / Other 0% 0% 0
Europe 0% 0% 2
Asia 3% -3% 8
21% -14% 30

Credit North America 35% -1% 27

Latin America / Other 0% 0% 1
Europe 1% 0% 2
Asia 4% 0% 4
40% -1% 34

Credit Derivatives North America 1% -2% 4

Latin America / Other 0% 0% 1
Europe 1% -55% 4
Asia 0% -7% 5
2% ** -64% ** 14

Private/Real Estate North America 8% -1% 12

Latin America / Other 1% 0% 2
Europe 2% 0% 2
Asia 1% 0% 2
12% -1% 18

Legacy Sidepocket 5% 0%

Global Macro*** 0% 0% 2

Total Portfolio Exposure**** 80% -80% 98

Fund Capital (in millions) $1,533 EST

Firmwide Capital (in millions) $6,648 EST

Top Exposure
Top 5 Long Positions (as a % of Capital) 18.24%
Top 5 Short Positions (as a % of Capital) -28.47%
 The fund maintains a 11% position in Treasury money market funds which it considers to be cash & cash equivalents
and are therefore excluded from the above analysis.
For purposes of this report, long equity options are valued off of premium, short equity options at delta adjusted notional value and
option combinations, where the exposure is limited to the difference in strike prices, are adjusted to reflect the net delta exposure.
* The strategy count includes only those strategies that are at least 15 basis points of the portfolio.
** Please note this is a non risk-adjusted notionalized number which costs the fund approximately $10 million annually to maintain. In addition,
this report does not reflect the market value of those positions in which the firm is both the buyer and seller of protection on the same reference
obligation even if such positions are held at different counterparties.

*** Includes net option premiums at risk on currency hedges for the following currencies: Swiss Franc, Korean Won, Japanese Yen, and Taiwanese
Dollar. The net delta adjusted short currency position represents a notional 3% of capital.
**** In addition to the above, the firm hedges exposures to certain macro-economic related risks. These include, but may not
be limited to, fixed income products and currencies. These positions augment our portfolio hedges and add diversification
benefits to the overall firm.