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).

Non-Side Pocket

CompositeTotal Fund Composite

S&P 500(Total Return)

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

Portfolio Exposure by Strategy (as a % of Capital) Long Short Number of Strategies*

Equities North America 18% -11% 20Latin America / Other 0% 0% 0Europe 0% 0% 2Asia 3% -3% 8

21% -14% 30

Credit North America 35% -1% 27Latin America / Other 0% 0% 1Europe 1% 0% 2Asia 4% 0% 4

40% -1% 34

Credit Derivatives North America 1% -2% 4Latin America / Other 0% 0% 1Europe 1% -55% 4Asia 0% -7% 5

2% ** -64% ** 14

Private/Real Estate North America 8% -1% 12Latin America / Other 1% 0% 2Europe 2% 0% 2Asia 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 ESTFirmwide 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%

June 30, 2009

Estimate Exposure Report

Barclays HYCredit Index

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.