Вы находитесь на странице: 1из 22

From: unknown Page: 2123 Date: 11116/2009 1104:09 AM

2009 Thin~ guarj;er (Jepo,R

-().16% 0.82% 0.01% S.22%
-0.28% 0.84'16 0.0'1%
-4>.32% 1.'11% 0.08% CREOtt 3.75% 23.15%
8.16% 23.15%
RHOOVlUty 0,71% 355% 19.89%

F'O'NDS 0.71% 5.50% 3.56% 19.97% Performance rcsulls QfJsc;fibBd hereIn are nel Of ftft9S lfnd e)(penafJ$ ami assume (tIinVIJ8trmmt of dividendI> fmrt rmpitI.!J19al/'1$ for the pfJr{(Jt:/$ IndlC$ied. AN material has; bOon obtainad from SOLJfOCfIJ balltwad to be rttffallfa but its accuracy (~ nat gU8rantf1ed, Pa$t pf1rform~ncfl is not nocfwmrNy IndicatillfJ of retums the Funds may achieve In tho futuro, ThIs matlnial may not bp

dlllltributad tQ ather than tht Intondpti Uiliuthur!ud

rllptodut;Ucm or dIstribution of ill! or any of is stl'l~t1y

Ilf(.lhlblted. C()pyrlght 2009 Paul$oo & Co. Inc.

NCY 1&, A8T, mr

Merger Arbitrage Pg. 2

Credit ....... " .Pg. 5

Event Arbitrage. . . . .. Pg. 10 Recovery ...... , ....... Pg. 17

Table of Contents

This fax was received by GFI FAXmaker fax server. For more information, visit: http://www<gfLcom

From: unknown

Page: 3/23

Date: 11/16/200911:04:09 AM

AUM: $4.0 BUllon
The merger funds wera proflmlJle 11"1 the third quartfl'r. The table below summarizes our net
results and com paras our performance to the US eqijity market and to the broader Hedge Fund
Index. Ufr.{J(
IlJl. IWI'i SI!l' Ym ~ 30YliS s·ns lO-Ylill
~ !Iud
PlIultoA ~ Ltd. ~·1(M 0", D.Olilfl S:n% 1N1'111 ~ 11.1S% l.'I~ 14.11'1!1
PliultnR ~ lJI of'- II.IWlII IIJI7CIt !i.l3% 6Jil'I(I :It-H 11.42% 14$1b ,~
~~Ltd. -G~ 1,71116 1I.QP11o lU,9CiYl6 12.M ~ M.2.'rM! 25.80%
l'asiIMI PJ,nxu:n UnhaflC4':d LP ·Ut'll US% II-U!III ~~ l~M'lfI ~ ".oflllll :Il.U'16 The merger funds have continued to we had several profitable trad opportunities. While we are s from earlier in the year.

returns in 2009. This year. while the number of ig(establa aotivity, spreads h~!fht"ned


us, u.s. -a.s. us, U$ . us O'.s.
. ~
m.ll $".11 $0.9 $6.2 ~ $ $5.0 $2.6 n,S P·I $1.5
~.29 $3t.:w $9.t2 ~ ~I.~; $il1.a1 m.2/i fl9.89 $11.:lII $2'1$8 $SUS
$U..c $O.2/j $8 WJIi $a.Sl $3.651 $0.11 10.35 $0.,')4 $O.7S
) 1116.'0') Hll9/O!l tMno lmllO 121111tW 11:I1I1D IInM I :ta9,IIl'} lVI$M I.I3lfl0
9.0'lIl 16.l'llt . ~,,,*, 1.m11 ! 2Ulf! U% -t6lb 6.ti'lt! ~~
Sau~: as of 1tV16109
-ASOlJtrnl6 8tub equ/fy valu~ of $4.tifJ
Tml f(Jpro&$(l~ Inr.lli:rn Am j/nmllfla~d lind r:a1lllidllrad /Q t!l~ of 1/18 £Iack markel and IIKt r~p(filliVf} I/Ildors In
g£lrJ(lfll/, PaIfOffll!in~ roqu/III (/(JSCrIP~ horoin lI.{fJ (lilt of (fIlla MSU/nll (9!iW/lSrmfm/ of dlvid6flrJ./I (1M '~pil~J
g!lln~ fW 1M perilxJ$ ~ltt/l(f, Tt)a /lbow r&pfIiRanl1 /$ PfIlB&IIlorJ for HIu/llr.}tiv/) PUIP~8 only.
Theru i& 110 fll/Min181l thRl In /1111 futuro Ihalm fundli. M iMte(/(i1 NfQ t:1lQfI obla(1IIld from
~allf(Xj1l /mliflvqd w fit! /'111!abl!t bill Ns Is /lilt MC!lIi&llrity imlill(llil.<& (1/ ~wrM th~
Furnl~ mel' Mlh~~ III the Mu~. Tills tlllil 1I'IIIndtd reclphmt. l)nauuu:mlfld
... "" ...... .n ... II""",," ,."... ... """"'",.+1 ...... b .... fl ""oJ .... 1'1 .. ~" ........ flnnn JJnnln .... V ('II... • ....... This fax was received by GFI FAXmaker fax server, For more information, visit: http://www.gfLcom

From: unknown

Page: 4/23

Date: 11/16/200911 :04:09 AM




Wfit bolieve the primary reason the market capitalil~~on of Wyeth, over enough to closa the spread, In total we hAr~"mA over 48 million shares batwaan thlt Merger posn/Ol'l In both funds.

The size of our position was due to our oonlfont JNI.l"f'[2lar's merqer I;Itfflt$QY and the limited

closing conditions. Whilo the mQl'ijftr was on antitrust approval, our detallad work,

both intemally ana: with tho a~5iGtanoo of antitrnfil counsaf, concluded that tha uitlmEtttl

l:Iiv6atitlireli were easily manageable. Wf! viewed this corporate $tnltaglo transaction

as a low risk high return opportunlb!. II) why it bscama our l~nle5t position In both our

mergElr and event funds. ~~

'I deallll:!lffrdua to the If.lrge simply not large J'Qh!'!~lftAr In Wyeth with W>'6th was: the largest


The most profitable deal1n the quarter was Pfizer's $64 billion acquisition of Wyeth, Our profit was due to the accreucn of the spread from Incaptlon through closing on October 1 SIll.

Spr8at1 $ 5·00
0.50 ..... ,

.. ,' ..

• . ! ~ <,II ~

I ~ • ... •

Another profitable positron for us In thQ quarter was PepsiCo's daflnl"vo agreement to acquire Papal aot.tlln9 Group and PeplilAmorloaa Inc. Our inlfD/V5ITlent in both PepGi Battling and P~pslAmf)ricas is am, of the few aitulltiQn& In the past two years whera wa have participated in proPDSed offers, In Pepal's case, we viewad the probaplUty Df the transac"ons C)C()urring as very high due to the low Initial price, strategic Importnncl}, and large 51zQ of the acqufrer relative to tM targE){.

This fax was received by OFf FAXmaker fax server. For more information, visit http://wvvw.gfi.com

From: unknown Page: 5/23 Date: 11/16/200911:04:09 AM

Outlook This quarter, we reDpened the Margur Funlttl (lNhlch had be$n closed to new capital since December 2007) gMm the expected pickup in m8rijIJr QdMty ftrlQ the small siee of th$ funds ($4.0 !:Wlllan) relative to the opportunity set. Whlla marger activity in 2009 was at a cyclical trough duo to the recession, we believe Morgll'r activity will pick up In 2010 providing greater apportun/tloli. While merger activity i& c:ydh::al, aur f~n~s hltve providsd aeove average returns over the merger cycle wIth low volatility and oopltal pressrvation in down markets.


j " •

PepsiCo announced offers for each of its battlers on Aprit 20tn, 2009j at a time when stocks had begun to bounce off of their March laws, We haVQ arbltragad many bottling ttl.lf\3actiOnli over the years and viewed the absolute values of the offers as quite low. The original offers were made at multiples of 7,Ox and 7.61( EBITDA. fBSPftotiVety, Ver&U5 hl5torlcal average muttiplaR of 9.51(.

Also PepsiCO, which had spun off PQPSI Bottling Group 10 yoor& ago, was struggHng with its US distrlbutkm. Popsl realized it nel;ld,,[f to conlfQl, fix, and rationaliz$ IllI North Amurican dlslritlu.ron system as part of ita baVfNltg8 strategy. lamB QUitomers such as Wal-Mart Stor6$ had begun to press vendors, Gwen as PapaleQ, tQ retlc)nnli:l8 tim number of distributors and to streamline optlfations to roolACft CQsts,

On August aid, after many months of nagotiations, PapalCo announced agreBd deals with each of 1m bottlers, at addltfooal pmmlums of 23.11K! and 22,5% to the originm offers. We expeot both strategic deals to close either by tM $nd of the year Of early in the firat quartar of 2010.

~~ ~~~----~~~~~~~~~----~~--~


$3.75 $a.SO ~.25 $3.00 $2.76

i ~.sa #' $2.25 § $2.00

$1.16 $1.Ii1l $1.26 $1.00 $0.75 $0.50

$0.26 _:.......;...:....;;......lIo.;....:....:.";"O:"'..;.!.,.i;~1IIi

Tllfl MtwJ!i I'flP/'fl!8(lf/l II tnlrliallir# flf ll(l¢lJf(/fes MUI'/f IMj1j ~/1l8 will 0. ,.,.41/11 thll ~ In IhfI MM/, Thlf nnrttrlflll ImIY ~ or dlllrllmtlo" Qf I'IIIlf f:nv Qftl1t.lYIIItwi.'

purptm8 only. TlJII~ la no gual'tlillrtf I/f(l/ In Ih~ fflI~~~nI'y i!ldK;atjl/ft Q{ "tlllm 1110 fundG mIt I'Hlplt11lt. Unau,hflrlf,lld f1lPfVd~lJn .. eQ,lne.

This fax was received by GFI FAXmaker fax server. For more information, visit: http://W\fV\JI/.gfi.com

From: unknown

Page: 6/23

Date: 11/16/200911 :04:09 AM

AUM: $7.5 Billion

The Paulson Cretllt Funds are the best periormlng Paulson funds this year, up 22.6% net vro through September. '(he tables below summarize our not resulta for the third quarter and for various pertoda since inception, What'$< notable abOut o~r performance is that althuugh other di&tressed managers have performed well thl~ year Que to tha overall :itrength in the cr~dn market, the Paulson Credit Funds also performed woll in 2008, posting positive net returns of 18.6% while the HFRI Pistressoo Index declined 25% net.

YTO lIftt Qr Ufs11me
Sapr. 20110 200B Fund MlIl1Iple
Paul#an c.e&t 0pp0tumi!lc8 Ltd.· 3.78Jb 23. 18.28% UU'i'% l2.Ox
-- -...,.,.,..., ..... _- -_, . - _. • , p . -
Pa'lillHm Credit. ~tieII n Ltd. 3,15% 21US% 16.11~ 96.75% 6.Cix
.. .. ~ _ ........ Ifl" ........ • .. --- - - . ---
~ Credit Oppo:rtlmiriflll W 23.15% 18.67% 114.951Ji 12,01: 'Fund:; commflnc;ed June 2006

1hlrd Q\.!@Jlm:

Credit spreads continued to contract all credit posmcns. The chart below

l,1lOO ~.600 1.400 I,m 1.00!l

8\lO 000

400 ~/llll1l9{~7IbP)

l'OD I~~L., ~ __ . . __ ~~~


r ~ ~ ~ ~ ~

1Iw fOpII)UlMfI! inlJlJiM ~IU W//IIlM6gltd MIlt ctlnsldfl(/JrllII ~SlJX9 rJ."'fiW<lll9~i(l a(illllt/ D/ (6~B 8M e.qlIllQ95 IHld PlIl'n OflftliflJOlJ (rom !IClINC4S 1xI/iQwllla lill (G~bbltl bIN H~ ma¥ lIo/rkt1'8 if! thll MU18_ Thl_ 1nII11H'j!1 rnlIY n~1 ~ all OlllllVot IIdij malorlllll !IrIC1Ir Pfl>h1i>1~.

~1Ml $G~~ ki flMl6m1. PMfJfmrmCIJ (;11,,"81 DIlInS mr Ih~ ~n·orn IlldlCflItid, An mB"ri" h~~

tl/JffO.mtMlIltt nDr _~fNIty lndiCQI~ PI 1'lltl/mS III. f'!Hr(f~

rOtlpl.nL Un.~U1ttr1lfd reprCtdLOt:ll9n Of dllllrlbYlll>(I Df


This fax was received by GFI FAXmaker fax server. For more information, visit http://WVvW.gfi.com

From: unknown

Page: 7/23

Date: 11/16/2009 11 :04:09 AM

HlW1O, Wo COntlnLlad *0 add to our oredlt position In the quarter and ware approximately 105% invested as of the end of September.

~ u~
i U%
t% Thti jlatwll IIIprollfllltll It plNtllll list (jf 8flCtll'i/il'lli MWII /h1f1lfl SSPurillits will bit flfI(d ill 1/111 ... ~lpl.l1t. UNillItIorliod rllproduc;jlon or 0laU1111111111

PIIIJUn a. Co. Inc. NIW 11.

.-.s:tlitlf~8 PiHp05111i oofy. 11Ier6 hi no (I!IIranklll Ihlll in 100 maY' not Ita dl.tri~lrtell fQ IIth~r ttI.1I Ita IntIndid thII ,"illtm.1 fa .t+1cllV prohIbHid. cop~rltht 2110f!. __ IW'.m'r

This fax was received by GFI FAXmaker fax server, For more information, visit: http://WM'I.gfi.com

From: unknown

Page: 1/1

Date: 11/16/2009 11 :22:39 AM

Approximately 50% of our portfolio Is in attractive yielding currant pay bonda and mortgage backed fJacurlt:les yIelding, on an unleverod basifl, approximately 10%. As we add new positions to tho portfolio, we Intend to provide modest leverage whIch would fncrease the gross return from our bond portfolio to Itta 20% range. Our borrowlng costs against marginable securities are extremely low, Feel Funds plus 25bp, or currently around 0.5%. Assuming the bonds don't default, this portion of the portfolio woukllock in this retum for the average duration of the securities of approximamly throo years.

An example of our current PElY bond portfolio is cur position in GMAC. the former auto financa arm of GM. While we origiflally entaraQ our positIon when tha yield was nearly 55%, we . maintain our positron today given the relatively attractive yield of nearly 11 % and the very low

likelihood of defaull (due to the government's Injection of preferred equity, guarantee of millturing debt. and Insurance of deposits).

GM4C 6.117J16 ~ 1If'91U
1 $75.0
.! sss.o
l :'I~5.0
sas.e $~.O +---.........--r--.--,--.,. ....... ....- ....... ....,......,.....--. .....


De:=:~·~ ~

Our highest return expectation fs In tha ctefi'mlt~d debt category whore we will exchange the securities in the portfoljO for a combination of cash. new debt securities, and equity. While we expect that tha awap ror cash and debt will offer abovB average returns for the holding period, we anticipate the greatefft returns will come from the equity securities of the reorganflad bankrupt oompanles. We participated In numerous reorganlzatlons of bankrupt companies in the last two cycles, early 1990's and 2002w2QQ4, and believe similar attraetlve opportunities will

present themselves in this cycle, .

r/lQ Ilbovll ropm~nta Ii par/iar lisf 0( ifl£IIrNill8 anQ fuwro /htl~1l sec:uritlllll wlU bll Mid In the P",ulaoo tllClplotlt. UlllullflQnzad raproduClI'1FI or p.III"m II Co. 1M.

This fax was received by GFI FAXmaker fax server. For more information, visit httpJlwww.gfLcom

From: unknown Page: 9/23 Date: 11/16/200911:04:09 AM

Dubt R!!structY!iOB

We are also involved in many capital re&tructurina& Involving fl)cchanoe offers and refinancings outside of bankruptcy whIch cstllead to similar ralums to a bankruptcy reorganIzation. In OM example, Con6eea, we purchased $200 million ($100 mlliion allocated to Credit F~nd5} 01 oonvertib!e dabentures convertlbte at $5.4e per share to help refinaneEI a $293 million existing convert. Concem about tfm ability to refinance the 8xl&tlng (:OI1vert cft!lsod the Eltock to trade in the $5 ranafl. only 30% Qf book value per share compared tQ an average of 100"A of book valu@ for tt"t ~verBge life Insurance company. As a rSlJult of thla flnanc::ing, which included an equity component, the stock jumped 29% to $6.50, in the two daya aftar the announcacl restructuring. We expect a$ conseeo fOcU1J8!i on operations that over time. the company can achieve an average multiple implying Significant additional upslde to Qur poslilon, ThQ attraction of lila convertible debt security Is t:hBt we gat the aqully upside with the protection of a senior debt instrument


Our Cradit Funda, wiltl $7,5 bimon under management, are stili relatively small compared to other distreSSflQ heclge fund managors, vary small when compared to other credit manageni, and tiny when compared to the market opporttmity. The table below highlights the enormous market opportunity in difltrassoo,


WlUo~ $7,000,0







'!Wlt<u I:oI.WIW -mill! BfU,lI, Pd'aIIIud fIek

&oxftI: ~~; c...jj.! -.nr. u-.! ~-lMt""""'* Citm>'

Thll abllve fltpra:WOOlIl pfll1lQ/ 14/ o.t IIJflJf/l rI1/1~fI ~IlWi/lll5 WIll ba tIIIld In (fIfI flf{IIpr,"t· U".lIlhlJr,," rttpl'i)dulithm ~r altll'rlJ~lIl1111 Paul,on 110 CII. Inll.

pufp(J(l!ts OII/y, ThaM 14 rI(I gu¥l'IInllW thftlln the n~ " Ijllltrlbllltd 1D o1lu1r min tn. IntontktCl m.1eI1Il ,. 1Ih11Ot1V prohlbltctd, CDP)'rlght 200a


This fax was received by GFI FAX maker fax server. For more information, visit: htip:/Iwwvv.gfi.com

From: unknown Page: 10/23 Date: 11/16/200911:04:09 AM

Crftdlt Team

Since John worked ,!It OcIyssey flartnorli In tho earlY 1980's, he hajJ witnossed four dlstrosaad cycles (early 1960's, early 1990'S, early 2000's and to~IIY). In addition to John. the oredlt funds are sUppOrted by a team of highly a~perlenoed dlstr&$lIed Investors led by Sheru Chowdhry and Ty Wallach on the corporate sldfl anc:t Sihan Shu on U1e structured flnanee $Ida,

Sharu joined us In 2004 and helpqd lead our aUCCQ88fui efforts in dlettesaed invoSlln9 DUring the last downtum. Sll~n jQlned Uli in 2006 and was a kay part of our efforta In developIng our dlfferontlated expertise on mortgage packed SDDurltiaa. Ty Joln~d us In 2008 from Oak Hill Advlsom wherE! he waa a partrtar and co-head of El.lrDpMn investments with aver 13 years experlenc::o In distressed in~ting.

Over the past year, In preparation for the numerous opportunities in credit and taking sdvooblge of financial firms contracting or failing, we tlddad sxpariancaQ analyata: who am experts In REITG~ CMBS, RMBS, corporate debt and bankrttptey law,

Tlla above ntP/llJ/1nJIIII pttrt/6111s1 of ,wurlllosl$lld lufure /h8li1l 8ll1X1rllb$ will be fluid in 1M P~~/I nu;lf1ltnt UnltlJtharhlliJ ffJPradlictiDn IIr Paulwl1i1! eo.lnl:.

This fax was received by GFI FAXmaker fax server. For more information, visit http://www,gfi.com

From: unknown

Page: 11/23

Date: 11116/200911 :04:09 AM

",; ,"

The Pauison /\UVf: .. ltitgl~ Funds I'. vcut :\ rhi' ragt~

J ! .... J \\I'UlJt HI n~.· \UH'111.~L • .:'u1j'll'nd

~\"l \ ~US\ "'u \, \ l,.h "lULU

J '0. J HI lin" lJlJII\ u'oIEIIIII ~ UIII.tI'. [n I·.·\J/~I /: ~·I.i.~'(/r'\ .'h\lu,'· l ' I!. J 1/.':."1 .~.!:::. ".1 \ ~ ~ I~' 1 ~ 1((,' \ •. ~.H:\

AUM: $16,3 Billion

Tho Advantage Funda are our broadest and largest fund~ and partlclpate in all areas af evant arbitrage including merger, distressed. corporate restrllClurinQa. and other events, The Advantage Funds ware profitable In the third quarter. The table below summarize$ our net results and compare!'! our performance to the U.S, and Eurapei'tn equity marKets and to the broader hedg8 fund indloes,

l'mlaQa ~ f.td. 16011 1.tiOIIl 0.11% ~~ :u.um ~1li:M ;u5'Hi 28,m Z6.JI'III a.~
)'au'IIOQ~ Ll' ~ 1.6iIIII 1I.:n~ WlII% 2lMHII 2:lmlII UM'lP U,m 24i~ lM:iiI
PaulIOII Ailmtqe 'fIllIt Lcd. a,W* !MlI'IIt 11m '9.7~ 37.- ~ ~ . iO.3S'iII 5.1!1<
I'auIIiIII ~ I'Jr,lf LP :uar.& UlII6 om lV.6lW> 87M)II. ~ ~ . iO.7W "4 Since tha beginning of the "_,til"',,, """U~'''''I''I'[

169% 10 takt'l advantage Investment level since 2007.

~ 120'lb • Shtma/HAV
'tj tOll'!fl
1 &I'iI>
.! This fax was r~ceived by GFI FAXmaker fax server. For more information, visit: http://INWW.gfl.com







The Advantage Funds' porttollo stratllQY for 2009 through 2011 and possibly beyond is focused on (i) bank and OOfPOrata restrwcl\.lrtngs, (jj) bftnknJptcy reorganIzatIons, (ili) long dlstressed securities, and (Iv) strategic merger deahl, The. tA.lrrent allocations of the funds appear aa follows:

From: unknown Page: 12123 Date: 11/16/200911:04:09 AM

As of Sttptember 3fl, '009

Mera" Arbltra(Jt 24.5%
EN.trtu.d 27.6%
Event LOna 57.7%
EVlntShort 42.3%
Market Hldpue 17.1%
Totlll 1Q,U% BaD~ Rg§tructurlao.

In the evant space, a key f:1r~~ Qf focu& for us is in restructuring flnanclals. Led by a highly experienCfJd team of bank Qnalysts, we follow apprnxlmatoly 70 bHnks internationally. As part of our analysl!>, we estirnata the need for further equity Issuance by fQreCftsting cera aamlngs,

aggregating estimated losses, anct projeetlna the deficiency. Based on the varisblM, we

then foreca~t fuMe prioos baaad on projected per share. Our methodology ha& baen

highly accurate in predicting the petfQrman a share prices of many financial companles,

This is the same analysis we did In 20 008 that us to identify troubled Manelat

instiMion3 rona before It was a~ to the tabla below summarizea the

ccncluslon of our work Which estl~·tha Paflk&. ~

c ~<O


This fax was received by GFI FAXmaker fax server. For more information, visit http://vvww.gfi.com

From: unknown

Page: 13/23 Date: 11116/2009 11 ;04;09 AM

The sharp rise in the f1nanolalllactor (1J9o/~ from March 9) has ((Ifll,lIted In inefficient valuations creating what we believe are opportunities on both the kmg and thtf short side. Our long positions are concentrated on tho right side of thil1 chart offering the mo&t appreciation potential, whU.:t our short positions are oonconb'etert on the laft. We beUava over time as banks reallz8 100000Bij and ,-aport eamings tfl8lr valuation should become rrtOf@ rational ctJu51ng our portfolio to appreclata in both the long ftllQ short side,

Our largest po&ilion in flnanclal3 continues to bo In Bank of America. Allhough the stock has 11$80 from wOOn 'We) purchased the stock, wo believe) considerablo upsldfil remsins. In the table below. we show our analyskl fur Bank Of Amarlca as of December 31, 2011 t when we believe banks will have pas500 this current writfrdown cyole and ha~ vl&lblllty for growth in 201:l. Our 9litlmate for pre-ttedlt. pre-tax income implies no Increase in the earnings Bank of Amerlca has genemted the past throe quarters,

Ettft!Y!:tudns ~RQdUDIl19l; BinI! Rf Amarlc. Borum Anllvll,"

Normalbed Provisiou (1.'15% t'Jf Low)


$57.500 million




1111 fflIll6rl1JIIs complierJ fl'am (lQ1Dm ba"ovtld 10 ilrlillylilf bb&ed on v~ 118mJmpt/om. IIll/uBi not II'CUt¥Irtl, Thlt dfl~ 1131ed 'PM """,wntI {Ii no f)lHIItInloll Ih~ ill too 'ilium mh~~. ~!"!t '!lit In!'~~!~.~Jpt~nl. Un,,~nIRJ!Iwf

N2n~B!nk.Butnu;t"[(nD 0eeettuoltiftl

Tho Advantage Funds are involVed in numerous non-bank rtJtJtruoturlng opporhmiUfJ8, both In and out C)f bankruptQy, whioh Mn CrftBtfJ attractlvf~ly priced aqutties with potentially ~i9nifiCl'ilnt upside, Haldelbergcement AG 18 one such example.

This fax was received by GFI FAXmaker fax server. For more information, visit: http://wwwgfi.com

From: unknown Page: 14/23 Date: 11/16/200911:04:10 AM

In September, Wf) particIpated In the recaf)lmHzation of HeldalbergCament, the third larg&st oamant and the largest ag9n~9"'tEui company In tho world, Its operations are spread globally, wl1h 60% to North America and Wealsm Eurup" and 40% to Emerging Markets. ThQ pement Industry has been oommllc:h!lted MQ eperates In locally Indeptmdent marketsl tht.l~ leacUng to stable cemant prtCftS anlf high caah ganuration capability. This Is e&pedally true for the market leadElrs: Hololm, Laforge and HOj(h,ll:mrgC6mfmt.

Before executing IlQ recapltatlzaUon In September '09, Haidelbergcemttnt WaQ hl~hty luvered (5.7x 109 SaITOA), .-od faced a E8.7bn debt mmurity In 2011. Ft.!l'tharmore, 83% of ite ,hare5 we/e held by the bankrUpt Merok\e family or Ita cmdltor banks, laactlng to carporalft govemanoa conoorns and vary fitth:) free float. Thl& madli the &t~ unfnvaErtable for many Instltutklnal fnVfiators.

The recap~tallsation was trulV transfQnnatioMI as It solved both Issues, New shaf'e'&, which were sold at €37 or a .... 14% discount to the market price, ralBed €2.3bn Qf caSh. Heidelbor'gCOOlent than W/:I1i abla to repay dabt and stabili~ the caplml Eltructum In IIna wlth Its poom (4.7)( '09 SaITDA). It also enabled a heavily nveNil.lbacribed €2.5bn hIgh yield bond i55U8. At the same time, tn" Itxlstlng aharaholden:; reduced their stake to 24%, creating a liqUid and Investable stockl which Iii now likely to lojn the German prima Index OAX.

We had already invested In Held&lbergCement band& In Spring '09, at a diaoount to fact valuQ,

While the company was ovel1avered, WB felt the value in bankruptcy was above the

prices we paid fQT the boMs. With our deep of the company, we were prepared

to pUrCM$fl thflo stop" when tho offering We believe ali the global economy

recovers Bnd cosh flow is Ul$ed to roSaln most, If not ~l', of Its previous

decline over !hI} next ooupJ$ of

elI/loCI ~ro'l
C fCI./I
tillU This fax was received by GFI FAXmaker fax server. For more information, visit: http://WNW<gficom

From: unknown

Page: 15/23 Date: 11/16/2009 11 : 04: 1 0 AM

In addition to HafdalbargCement, we also (ecapitall~ed Conseco, and are involved In num(trous other pending restructurlng$ in thf)' bankruptcy araa, GonaraUy spt'taking, we havfi Z'lisnificant (jQbt positions In numeroulJ. bankl'uPt companies that will conv&rt into equity stakes when the companies emerge from bankruptcy. It is our experience from past diatr~~ood cycles that theSfl post..oonkrnptcy equity stakes can bQ a rmtanlngful source of return,

gp!d EvWl'

Dua to our poaitiv8 outlook for gold we wantad to have some event exposure in the sector, OLlf current exposr.ll'e conslsls of flVB gold mining litocks, oompnfiing 14% of oor current portfolio. Each company has Its own event catalyst Independent of the gold price. We believe all of the stocks have upside potflntial in a flftt gQfd pnce 8nvirQnment, I:JUl would rise even more In a higher price 6nvirf)nm8f1t. As Wtl have menllooea DefoTe, there is no gol~ I:TF or gold fOlWsrd ell:posure in thEI Advantage Funds or any of our filncls. These posItions are real)rvad exoluslvely to hedge the dollar exposure for the Gold Sharu Cia,s,

AUgloGoid A'blnli; Our biggest pORitlan Is AngloGold Aahanti ("AU"). As fimt ooUined in our 2009 aecond quarter mport. we wafS attracted to the stock because it was thB third Iflt'(lEtSt GQId prcdl.fC(lr In th6 world aoo tmded at the lowest prlcelNAV multlpl6 of 116 peers - due to: 1) lUi

exposure to South Africa: 2) declining producUo lej 3) large hedge bOOk; and 4) poor

$afely record, After Mark Cutifani, a highly oa n1ng executive, joined the company and

set out to improve the company's porto I we bought the stock. As the company

dWftrslfied out of South Africa, reduce ge 1m production profile and

Improved its safety l'eOO/'d. the 6ta~~ . The $how& the solid autpef'formanoe

of AU thIs year vs the Gold err. o~ r\

y ~Q






The iI~[/v(j roprollrmt~ II PIltIHU IIIIt of Mu~ tIle/itl af/llUfl//ot~ Will lie hekl tn TtlIII mmrlllt mty mit " C1l1ll'IDUlld

n,. 0::1 ...... ftf _hi" M.""rf., ,.

This fax was received by GFI FAXmaker fax server. For more information, visit: http://wvvw.gfi.com

From: unknown Page: 16/23 Date: 11/16/200911 :04:1 0 AM

Gabriol ResthJtot:lfl: Gabrlella another gold miner where an event catalyst can sharply affect tha stock price. Gabriel, based In Romania, iii the largest potential gold mine In Europe. We own 19.9% of the company. While the company has completed aM Itt feal':libllity studiea, ordared aU Its mine cquipmentt and Is ready tel begin mine construction, it has been stvrnled by an Im~billty to get en envIronmental permit. AlthOugh tM mine would bring numerous l;Ienetlts to Romania In terms of Investment, jobs, royalties, taxes and remediation of formerly polluted areas, opposition from NGO's has stallmi thlt permItting process. The stock cUlTanlly tradas at $2 per share. We believe if they recolwt a ptrmit Qnd bagln mln~ coMtruotlon, that the stock eQUId trade In the $6 * $8 ranga. If they atartad producing gold, the stook could trade In tho $a • $12ranga. Gabriel's two other largft ahareholdam, Nuwmcni Mining and Electrum Strategic, witfl 16% and 19% slakas rtJSp8ctivaly, are alao motivated to I18lp move the process forwal'd. With a new CEO and rElstructureQ boprd we are hopeful that Gabriel WIll reterve the necessary approvals.

Di5tres$od CredIt

PletrGssed credit remains a key area of our event portfolio. The oompt>5i1ion is similar to the Credit Fund, 8S ahown by the table p~low, although th" relative concentration is less in the AdVal1taga Fundl'i than tha Credit Funds (30% Vet 100%). Plosst:! fi81t "Paulson Credit Opportl.lnitlesU report for a dlscusslon of wr crecllt strateRY.

Mocgor Argitrage: Wyath/p!!!t:tr

TIle most profitable merger de-Elfin the quarter was Pflzer's $64 billion aoqui~itlQn of Wyeth. Our profit was due to the simple accretion of the 5pra~d from Inception through closIng on Oerober 1 SIn.

. Thfll'B Ii na QUIfnffI/D(I l/rlll irllhiI of tutlJ/ll plimmnrmCQ, W MoI',1C1f FlHKfa. thl1ll1T1i1$r ~m/flgy ."...,111 fIMIIV not ~ IIlatrlbllttd to all or 'inY 111 ifill malflrt_l r. fflh1tly

This fax was received by GFI FAXmaker fax server. For more information, visit: httpJIWWIN.gfLcorn

We believe the primary reason the spread~~a~~~a throughout the deal was due to the large

n'1~rkal capitalization of Wyeth, over $64 ,a ctlmmunity was simply not large

enough ttl close Um spraad, In tatal me me largest &haraho'~r in Wyeth. We

owned over 48 million shares be FI.mds and Wyeth..JN6S the

largest positIon in both funds, y ~9' .

The aiXe of our posit/on was due to !llralAai~~dthe limited

dosIng conditions. While the detailed work,

both internally and with lh6 thl'lt the ultlmaw

divestitures were easily mooage~ble. lilrateglo transaction

an a row risk high return opportunity which posltion In Path our

Marger and Event F~nrtft.

spread ..


From: unknown Page: 17/23

Date: 11/16/200911:04:10 AM

With the higher Investment level in both short QPportunitiali we would expect more

VOlatility in the funds. While we our net ma!1(et exposure low our longs will not

always correlate with our shone. the levered nature of many of our equity paliitlOl'1S

may result in hlgh"'t volallflty thRn thtt market. While we could reduce the

vQla~nty b}/ limiting our e~1iI.m~! we bolieve that the return opportunllie$ are

unusually attraotive at this point in tho oyclo warranting 6OiYl8 addlUQOll1 volatility in ~xchan(J6 for poter,ltlally higher retums.


We are very cptimmtic about the outlOOk for ttl') Aclvantilge Funds, We see numerous opportuniUes for investment In the dlfltrfiis$d, merger, bankruptcy and corporate restruclurlng sectors that wllllJkely propel our returns through 2011 ,

This fax was received by GFI FAXmaker fax server. For more information, visit: http://www.gfLcom

From: unknown

Page: 18f23

Date: 11/16/2009 11:04:10 AM



AUM: $1.7 Billion The Recovery Funds ware profitable in lhe lhird quarter. The table below summarilfls our net rel'iLdts ancl compares our performance to the U.S. equity markets and to the broader hadge

fund indices. YTD Life of

JUl. AUG SSP 2009 Fund

Pauliml Recovery Fund Ltd! 0.71% S5O% 3.55% 1~).89% 19.86%
Pllula<m lW:ovvy FwW LP* 0.71% 5,~ 3.56% 19.9'1% 20.12% 140%
~ JOO% f\ifO~
~ • Sbo~/NAV
I 80% ~~ • 'U:mp/NAV

2Q% 7,!S6%




HFRX RF. ludell:

HF1lX n. F. Event lnde:J:


·Funds commanDBd OctolXlr 02008.

We are excited about the DI'IiI.:sOf~L::; positoned for long tarm growth,

{88% long, 47% short, 41% nat

\; I·

Thll /Ilp/"llsM/f1d Int11C(1~ W IffImfillil9lfd amt

Pvrforrmtm;ll: !'Inuit$" dfMOOt>ed hM.'<in are Pltrilldl! iMIiClJtt;1(/. All ml1/t;1rifll hils /loon pll}fcrm/l/IC1l I~ nol t1f1wBallrily /rIdlllllt/WI ~th~r !h~~ !~~y.!t."."1Id r~r~flI~nl. UmluthD*~t!l1rJ1Ih



fJI ,1111 mlWK mtlfk$/ 11m! thll (illlp!I{IliVfl IitHilWi in gIIIlIIlll/. ~IlVf$/lIlMt of dlvll1tndll lind fiSpililf fIIIln~ "" tlrfl btl feliliMo but "II IIClCU-nK;Y is fI(l/ qUIlflmlfllld. Pw;t In f/J, MUfCi. TI\I. mlt.ttll may not bo dlstrlbultld 10 iIfj:I~f!:B:Jf 1111 Dr tmy 0' this 1l1~.flrlllllll Itrlclly prvhlblted.

This fax was received by GFI FAXmaker fax server. For more information, visit: http://WVvW.gfi.com




From: unknown Page: 19/23 Date: 11/16/2009 11:04:10AM

RetJrycturi ng

We believe that onQ of thfl greatest opportunities for our fundlf in thl~ part of thlil cycllil ia to pro\lide capital to refinance hJgh quality IXlmpanfes that have found lt1emaelvtH\ over-leveraged at a cyclical trough. These companies' ""wily valuations have ooIlapaed due to high leverage, excessIve near term debt makJrftlas, and declining buliHnsi& fundamantala. Yet, mftny of these companies are taaders 1n their ind\'/~ry and can avoid blmkr\Jptcy by ill!lulng mf~ltlooal eqUity B8curttias to reduce IO'lOrugB and by nmtructtlrlng ttl~r debt to limit near farm maturitIes. If we arB able to provide the equitv ntJC896Pry to gtit through the downturn, then these quality companies will be SI.lCCfUlliful, providing good returns on our equity Investment.

Qyr Tqp L9!!lI f!gJltlpD.,1JP PJxIG,g lilt$) lb. fgjl.9!dDQ Caitsor"!! (AS of S~ptember 30, 20(9)


IrtlKiiw¥atelv TO ban~s

tq\llty by

the capital defiCioncy. Our methodology has

a'lo:AtlIAfA prlees of mlny nnancial 2008 that allowed WII 10 identify to tha market. The following tabte !'filum profile fer 73 bank6.

Bank Restruct!JrlnW! led by iii hlghty oxperlanca(f Intarootkmalfy. As part of our an~nVIII'IIIL foro~mlng cere eamlngll. agGregating e8tllma~ftl1l

We then forecast future prices basad on DroIeCUld been highly aceuratD in predICting thG nAr1fnm'AI'II".A companIes. This Is the same analysis we ~Id In troubled financial itlstltutions long ~fore It was summarizes the conclusion Qf our work Which !t.liUlldti

The sharp rlflo In the financial sector March 9) has resultea In illcflficlent valuations

creating what we believe are on both the long and the short side. Our long

positions ara concentrated 00 of thiQ chart offering the most appreoiation potantmft

while our short poslUans are on the left. We believe over time as banks realize

klases and report liJi'rnlngslhalr valuation should b£lCOOl(l mora rational oausing our portfolio to apprec1ate in both the lOng and short Ilid~,

This fax was received by GFI FAXmaker fax server. FOf more information, visit: htlp://www.gfi.com

From: unknown Page: 20/23 Date: 11/16/200911:04:10 AM




Our largest poGitlon 1ft the Recovery

known as IndyMac, which wa from

prol)rnssfng better than plannoci as we have mortgage portfolio and the ability to put new ThQ bf,mk Is olso benefiting from an Increase of Ttlese poSItives have allowed OnBWfl~t to strengthened capItal base. the bank can further portfolios and flew 1~r1 originations,


nnfl1DU<!!II1 Bank, formerly In OneWest is In apraat13 in the ~~ ohHt at attractive ylfl\da, with organic deposit growth, grow IbJ capit~' basB. With ~ purchases of whole bankli. a&set

In!Y!.i!!!lst! B!!trWcJurtnO&: con~ 'I Conaoco is a uta lnauranee CO~y focUSQQ on th$ undaruarved and growing senior middle inCOMe market. Conseco dllftrltn.taa thl'Q\,IlJh its 9ubaidlarlall Sankers life and Casualty and COlonial Penn as well as through Independent agents. We hiiVC peen following CQnG9CO through its many Itaratlona atartlng almost 15 years ago, Cof1SI!'ICO was an acquisitive oompany PU(ch~$ihg other insurance oompanlea In which we had Invested. inCluding Bankers Life in 1995 and Walihlngton National In 1997. Its UI-fatad 1908 acquisition of Green tree Financial would eventuallY torcs the company Into bankruptoy during the last credit cycle, In bankruptcy, we purchased the bonds of consaec eventually exchanging them for equity. Unfortunately, the compa"y emerged with EI tremendous amQunt of hwera9~ and wt) sold our stock. Since 2003, the compflny has consistently atf'1.lgglad undar the weight of that leverage,

This fax was received by GFI FAXmaker fax server. For more information, visit: http://wvvw.gfLcom

Havil, Conseco has recently suffered because of a near term need to mtlnanoo a $293mm maturny of its convertlbla debt. onerous debl COllftnants, and lillm capital ratimJ. At roughly $5, conS(fCO'& stock traded at approximately 30% of book value versus its peers at an averaga Qf 100%. To solve thelle problem8, we plJrth~&ed 1S.4mm shares at $4.75 and received 5mm warmnts. We amp Pought $200mm of a $293mm mandatorily convertlbkt dB~nture convertible at $5.49. With thifi pdage, COnseoo w~1 allio sail at lease $200mm mont aql-llly, 0lvln9 the company the Wharewlthal to 30lve Its leverage problems and allow its strong management team to exploit Its market polll1ian.

The dQY we announced our purchaso the sto~k lumpad 29%, We b",Uewt there Is (;Qnsld~rabl& more upside potential for the company, now that the IllI1nagQrnent team, l!ld by Insurance Elxecutive Jim Prieur, i8 fully able to concentrate on running Its buSlllEfflS,

The consece restructuring demonstrates our unique ability to analY16 OOmpl&K balanoo sheets and businesses, provide slgnlflcant cap~tal, and proactively work with management to structure holistic solutions for refinanCing their companies.

From: unknown Page: 21/23 Date: 11/16/200911 :04:10 AM

YlllildaIP9WDJlQ! 12 2D1Q fgt y.S. LIf.lngYU!M9' CgmrumJu


... ...







NOD,·Plnanch!1 Bf!ltryctydDds: HpldQlbemQtw!nt

In September, we participated In the recapitalization of HeldeloorgCc:lrnent, the third Iarg8at cement and the largest aggregates company In the world. It6 operations I'\re Ilprltad globally, wIth 00% to North America and Westem Europe and 40% to EmCtrging Markets. Tha camsnt industry has been conaolidated and opttrataa In IQCRIIy independent markets. thus IO$lI!'l9 to

This fax was received by GFI FAXmaker fax server. For more information, visit http://lN'NW.gfi.com


stable cement prices and hlgh cash generatiOn capability, This Is especially true for the market l$ader$ HQlcim, J..afal1Jij. and HaidelbergCement.

aaforo executing 111I recapltaNltdion In September '09, HeidelbergCemant was nlghly levered (5.7x '09 EBITOA), and faced a Ea.7bn dabt maturity In 2011, Furthermore, 83% of It$ ehares ware held by the bankrupt Merokle familyat' ItS cradlmr bank~ leading to corpora~ governanco concerns find vary IIttl, frae flOat, This made the Sled< unlnvo8table for many illStltutlanal Invaators.

From: unknown Page: 22/23 Date: 11116/2009 11 :04: 1 0 AM

The recapitJlisation WI'IB truly tnmQforma~onal au It solved both l~ua8. New shares, which were sold at E37 or a -14% dlsoollnt to tha l'rtal1<at price, raISed E2,3bn Of cash, HeldelbargCornont til en WQ5 i)blo to raptly dabt and stabilize the capital crtr\Icture In line with its peera (4,7X '09 eBITDA). It also enabled it hef.lvlly OV8n1ubacribBd E2,5bn high yield bend jEmUft. AI tho same lime, the el(jstjng sharehaldal1J fQduCffd thQ~r staktt to 244J.i!, creatlng a liquid and investable stock, which is now likely to jDin thp German prime Index PAX,

We had already Invested in HeidelbergCement bonds In spring '09j at a discount to face value. While the aompany was ovorlevered, we felt the reoovery value In bankruptcy was above the prices we paid for the bands, WIth our deep uooQrntandlng pf ~ company, we wero prepared to purchase the stack when the offering was Qnnounood, We boliQVft as the glObal economy recovers and eash flow 13 UBOO to reduce debt, EPS should regain most, If not all. of its prevlous decline over the next couple of years.

e no


e se


This fax was received by GFI FAXmaker fax server. For more information, visit: http://www.gfi.com

From: unknown

Page: 23/23 Date: 11/16/2009 11: 04: 1 0 AM


We are optlmlstio about the outlook for the Recovery Funds. We see num"roua restructuring opportunities In financial and othftr flQctorn., Polh in and out of bankruptcy, which have the potential to appreciate substantially as the or;onam~ recovers, WI' b~liev8 we have alr~ady established many of the positions that may propel our returns through 201 1.

However, in t"9 attempt to gail1 higher returns we WQl.lla alCpect the volatHity or this f~nd to be greater than our athQr fundll. The objective of the RecovQry Fund$ Is to try ~nd rml)(lmfa:e nttums in an economic reoovery with lssa concern about monthly volatility, Our nen long exposure (59% 8S of mld-Oo~obBr) ls higher than that of aur Advantage Funds. Assuming we can create additIonal opportunities! our goal would be to inc;reaae our exposure to 1 ()O%. Due to the large net long exposure, plus the leveraged noture of the Qquitles, the volatility of the fund could equal or exceed that of the overall market,

PIlIlI ptHfonnsnce III naf flOOOfiliarlly li'KtiG~tive "f full1ro r"I"n~ reClplilll1. UnluthDrlud rllprtlljllCtioll Ilr 200II P_IlI»lIn • CQ. Inc.

mlt~ not be dI,blbutad ~o olner Ihlm the mM'tmll, .ltIctlV prcmlbll~. (:1)pyP"IQtlt

This fax was received by GFI FAXmaker fax server. For more information, visit: http://www.gfi,com