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October 2009

This report was prepared by PSQR Management LLC (“PSQR”), the investment manager to PSQR Master Fund Ltd. (the “Fund”),and is being provided on a confidential basis solely to its intended recipients and should not be re-transmitted without the prior expresswritten consent of PSQR. While all information contained in this report is believed to be accurate, PSQR makes no warranty as to thecompleteness or accuracy of the information provided.This report shall not constitute an offer to sell or the solicitation of any offer to buy securities in the Fund, which may only be made onthe basis of the Confidential Private Offering Memorandum (“CPOM”) and only at the time a qualifying offeree receives the CPOMand only in those jurisdictions where permitted by law. The CPOM will contain important information about the Fund (includinginvestment objective, policies, risk factors, fees, tax implications and relevant qualifications). In the case of any inconsistencybetween the descriptions or terms in this letter and the CPOM, the CPOM shall prevail. The securities of the Fund shall not beoffered, solicited or sold in any jurisdiction in which such offer, solicitation or sale would be unlawful unless and until therequirements of the laws of such jurisdiction have been satisfied.

P S Q R

This is our first quarterly report. We started investing in global macro themes on April 15, 2008.Our investment strategy attempts to profit from the effect of global rebalancing and central bank policies on the world’s largest economies. We express our views by trading currencies andfutures on government securities, stock indices and commodities. The fund’s cumulative returnfrom inception through September 30, 2009 was 175.5% with maximum cumulative month-enddrawdown of 14.5%.

Fund Gross Return (%)2008 2009MonthYeartoDateInceptiontoDateMonthYeartoDateInceptiontoDateJan66.94 66.94 154.35Feb5.81 76.64 169.13Mar0.17 76.95 169.59Apr3.73 3.73 3.73 0.83 78.41 171.83May(0.15)3.58 3.58(0.03)78.35 171.73 Jun0.52 4.12 4.12 0.48 79.21 173.04Jul(9.03) (5.28)(5.28)0.46 80.03 174.29 Aug(5.97) (10.94)(10.94)0.76 81.40 176.38 Sep19.03 6.01 6.01(0.31)80.84 175.52 Oct16.17 23.15 23.15Nov(0.10)23.03 23.03Dec23.84 52.36 52.36

We turned bearish on long-dated US Treasuries in early 2008 because we expected a massivepolicy response, both monetary and fiscal, to the economic crisis that was taking shape. ShortingTreasury futures worked relatively well early in the year. To limit the event risk in the Treasuryshort position, we started shorting equities as well, primarily S&P futures. Intuitively andempirically, one would expect equities and Treasury securities to be anti-correlated with respectto event risk. Shorting Treasury and the S&P futures together did reduce volatility for a time butproved challenging in July and August, when in some cases the two instruments appreciated atthe same time. In September and October, we decided to reduce gross exposure and short eitherTreasuries or the S&P but not both. This strategy was highly profitable, in part because of well-timed short-term trading decisions. We were essentially out of the market for the balance of theyear until we reopened a large Treasury short position at the end of December. The level of Treasury bonds was so high that the downside seemed limited.

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We held the position until late February and then reduced it significantly and started trading moretactically, particularly after the Bank of England announced its quantitative easing (QE)measures. As a result, we suffered only a minor setback when the FOMC announced its own QEinitiative in March. Since the QE announcement, we have become even more cautious, limiting,on average, gross exposure to approximately 40% of NAV. The September 30, 2009 allocation of gross exposure was approximately 50% short Treasury bond futures, 25% long long-dated oilfutures and 25% long Chinese Yuan non-deliverable forwards. While we remain opportunisticabout the size of our exposure in relation to NAV, we are likely to have a significantly higherlevel of exposure in the future than we do currently.

Infrastructure and Research

The last few months have been a time of organization-building. A number of key professionals joined the firm, including Alex Patelis, formerly with Merrill Lynch, as Chief Economist andDeanna Masters, formerly with Linklaters, as General Counsel. We have set up legal entities andtrading lines with several counterparties and are in the process of relocating our headquarters toBermuda.We have also undertaken “basic” research projects. We believe that proprietary insights arecritical to superior investment results. Even the most brilliant insights in the workings of theeconomy or the markets are unlikely to generate

alpha

if they are widely available. Our primaryresearch focus has been the interaction of private-sector leverage and aggregate economic growth.

Outlook

We remain fundamentally skeptical about the ability of the US dollar and of US dollar-denominated fixed-income assets to retain their value over time. The US dollar is a

fiat

currencyand its value depends entirely on the integrity of US monetary policy. The gravity of the USfinancial crisis and the inability of the US Administration and Congress to deal with it effectivelyhave forced the Federal Reserve to adopt a no-holds-barred monetary stimulus program, the effectof which could be destabilizing.The Federal Reserve’s “unconventional” policy measures have channeled an enormous amount of liquidity into asset markets, thereby inflating prices and alleviating the banking system problems,but they have been far less effective in healing the “real” economy. Policymakers refuse to dealwith the problem at the source: excessive household leverage.It’s hard to say whether we have reached bottom in the contraction of household demand.Presumably, after cutting discretionary outlays, households go on spending on necessities untilthey run out of cash. Even in the suspended reality of unemployment, people will delay majoradjustments until they become inevitable.In addition, the debt-service “holiday” occasioned by mortgage delinquencies and foreclosures inprocess temporarily boosts borrowers’ spending power. And the inventory of homes in theprocess of foreclosure has held supply off the market and supported prices. Eventually, however,the debt-service holiday will stop and the inventory of foreclosed homes will hit the market.Meanwhile, solvent households will continue to focus on reducing their debt. Therefore, weexpect the resulting household credit contraction to subtract significantly from future economicgrowth just as household credit expansion added to it over the last 10-20 years.So the Fed needs to do more.

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A Stealthy TARP 2.0

The Fed is engineering the equivalent of the original TARP through its unconventional policymeasures. While less likely to be challenged, this approach will hurt US taxpayers and investorsin US dollar-denominated fixed-income securities alike.In 2003, Federal Reserve Chairman Ben Bernanke suggested to the Japanese that they cut taxes,with the central bank buying government debt to fund the resulting budget shortfall. He likenedthis to printing money and recommended explicitly linking the tax cut and central bank government debt purchases to make sure the public would understand that the central bank was infact printing money. According to Bernanke, this measure would instantly increase householdnominal wealth while also strengthening the government financial position by lowering the ratioof government debt to GDP!Presumably Bernanke would have liked to pursue a similar policy in the US today. However, atax cut of the requisite magnitude was not in the cards and, in any event, the problem in the US isnot – yet – the level of government debt; rather, it is the level of mortgage debt in the householdsector, which is essentially unchanged from the boom, even as asset values have shrunk.So Bernanke adjusted his prescription. By buying mortgage-backed securities guaranteed by theGSEs, corporate debt issued by the GSEs and Treasury securities, the Fed has suppressed long-term interest rates and reduced the cost of fixed-rate mortgages. This has allowed refinancing bythe GSEs of mortgages previously held on bank balance sheets – so the banks’ money is off thetable. Borrowers may have refinanced more than they can afford today but may still come outahead if home prices rebound.We are not sure that home prices will rebound but we do believe that long-term interest rates will,once the Fed’s operations are overwhelmed by the Treasury issuance needs. The US Treasurywill have to ramp up issuance to fund $2 trillion of deficit plus $2 trillion of maturities in 2010.The empirical evidence suggests that the size of the budget deficit relative to GDP influences USrates more than inflation (unlike Japan where 95% of government debt is owned domestically,only 50% of US government debt is). When interest rates rise, the Fed (i.e., taxpayers) and otherUS Treasury and agency MBS holders will be stuck with the resulting losses.There has been a vocal public debate among FOMC members. One day one of them argues – likeSan Francisco Fed Governor Evans – that it is dangerous to target asset bubbles. A day lateranother – such as Fed System Governor Kevin Warsh – warns of the perils of policy asymmetry(i.e., ease a lot in a hurry, tighten a little at leisure) and advocates a policy as aggressive intightening as it was in easing. One can’t help but see this as a tactic to keep market participants ontheir toes and buy time to continue undisturbed on the present course for as long as possible.

China will determine the pace of US recovery and value of the US dollar

So far, the Fed’s plan has benefited from the acquiescence of foreign holders of US debt (China,etc.), who needed to shorten the maturity of their holdings before reducing their US dollarexposure. If they had tried to sell long-term dollar-denominated bonds at the same time that theywere reducing their US dollar exposure, they would have caused a US dollar collapse and hurtthemselves in the process.At some point, though, China may start selling US dollars or, preferably, using them to buy USgoods and services. As the inflow of Chinese goods and the outflow of US dollars arguably kept