The GM Building, 767 Fifth Avenue, 18

Floor, New York, NY 10153

Whitney R. Tilson and Glenn H. Tongue phone: 212 386 7160 Managing Partners fax: 240 368 0299www.T2PartnersLLC.com

September 1, 2011Dear Partner,Our fund declined 13.3% in August vs. -5.4% for the S&P 500, -4.0% for the Dow and -6.4% forthe Nasdaq. Year to date, it

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s down 21.9% vs. -1.8% for the S&P 500, +2.1% for the Dow and -2.2% for the Nasdaq.On the long side, our portfolio got clobbered across the board despite generally good company-specific news regarding our major holdings (discussed below). Amidst a tumultuous month inthe markets, investors dumped stocks that were even slightly illiquid, or that are valued primarilyon future, rather than current, profits

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both traits that characterize many positions in our fund.One of our biggest advantages is being willing and able to look out 2-3 years when mostinvestors are looking out 2-3 months (or, in many cases, 2-3 microseconds), but this hurt us lastmonth. Thus, big-cap stalwarts with strong cash flows and balance sheets like BerkshireHathaway (-1.6%), Microsoft (-2.9%), AB InBev (-4.0%), and Kraft (+1.9%) held up relativelywell, but the rest of our portfolio didn

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t as more than a dozen of our major holdings suffereddouble-digit declines: Grupo Prisa B (-28.0%), Resource America (-23.3%), Citigroup (-19.0%),General Growth Properties (-18.9%), Iridium warrants (-17.6%), Seagate (-16.6%), Winn Dixie(-14.1%), J.C. Penney (-13.4%), BP (-13.3%), CIT Group (-13.0%), dELiA*s (-11.5%), SearsCanada (-11.1%), and Howard Hughes (-10.5%).Our short book performed well, led by declines in Corinthian Colleges (-47.1%), Boyd Gaming(-28.5%), ReachLocal (-20.0%), Lennar (-16.9%), ITT Educational Services (-15.8%), MBIA(-15.7%), First Solar (-15.4%), OpenTable (-13.9%), SuccessFactors (-13.5%), Salesforce.com(-11.0%), and Lululemon Athletica (-9.6%).

Our View of Market Opportunities

In our view, the turmoil of the past month has created the best bargains we’ve seen in the market

since

the chaos and panic of late 2008 and early 2009. Of course stocks aren’t anywhere ascheap now as they were then, but the risks aren’t nearly as great either (we think many peopledidn’t realize or have forgotten how close we were then to a worldwide Grea

t Depression), so ona risk-adjusted basis we think our portfolio is as attractive now as it was then.

While we have great confidence in the eventual outcome, we can’t make any short

-termforecasts. We thought the stocks we owned were very cheap a month

ago, but that didn’t stop

them from falling quite a bit further

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and this could continue. Catching falling knivessometimes results in cuts.

So, then, you might ask, why don’t we stop holding onto falling knives, sell much of what we

own, and wait for m

ore clarity, strength, confidence, etc. to return to the market? Oaktree’s

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Howard Marks answers this question in his latest book, The Most Important Thing: UncommonSense for the Thoughtful Investor (which we highly recommend). He writes:

Common threads run through the best investments I

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ve witnessed. They

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re usually contrarian,challenging and uncomfortable. Whenever the debt market collapses, for example, most peoplesay,

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re not going to try to catch a falling knife; it

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s too dangerous.

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They usually add,

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re going to wait until the dust settles and uncertainty is resolved.

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The one thing I

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m sure of is that by the time the knife has stopped falling, the dust has settled andthe uncertainty has been resolved, there

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ll be no great bargains left. Thus a hugely profitableinvestment that doesn

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t begin with discomfort is usually an oxymoron.It

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s our job as contrarians to catch falling knives, hopefully with care and skill. That

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s why theconcept of intrinsic value is so important. If we hold a view of value that enables us to buy wheneveryone else is selling

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and if our view turns out to be right

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that

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s the route to the greatestrewards earned with the least risk.

Changes to the Portfolio

We took advantage of the market volatility last month to make a number of changes in ourportfolio. Specifically, we:

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Reduced risk by taking down both our gross long and short exposures such that we arenow 115% long and 39% short (76% net long).

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Eliminated any position in which we didn’t have enormous conviction. In particular,

with only a few exceptions, for long positions smaller than 3% we either bought more or,in most cases, sold entirely. With regret (because we t

hink they’re cheap and will do

well), we sold CIT Group, General Growth Properties, Winn Dixie, Kraft, BP and FairfaxFinancial, among others.

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We only made a few changes to our short book, most notably covering MBIA (what anwild and profitable ride that has been over nearly a decade!) and Simon Properties (whichwas a hedge against our long position in GGP).

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For investments with similar risk-reward profiles, we chose our favorite and sold theother. Specifically, we added to Citigroup and exited CIT Group, sold Seagate to buyWestern Digital, and trimmed Microsoft to buy Dell (discussed below).

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We took advantage of the carnage among financial stocks and initiated new positions inGoldman Sachs and a tiny position in Bank of America (after Buffett invested), plusadded to our positions in Berkshire Hathaway, Citigroup and Wells Fargo. We think investors are lumping imperiled European financials in with U.S. financials, which are inmuch better shape (though still facing real headwinds to be sure).The net result of these changes, we believe, is lower risk, less clutter (both in our portfolio and inour minds), some great new positions, and tremendous upside thanks to a portfolio much morefocused on our best ideas.

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Annus horribilis

It has now been exactly a year since our performance has taken a nosedive

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re down 23.1%.We feel terrible about it and obviously wish we

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d done some things differently, but we are not atall discouraged or worried, as we

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ve been through this before: if you look at our performancetable at the end of this letter, you will see that we

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ve lost more money, much faster, on two otheroccasions: we were down 27.4% in eight months from June 2002

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January 2003 in our sisterfund, the T2 Accredited Fund (the T2 Qualified Fund launched in July 2004), and down 35.0%in five months from October 2008

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February 2009. In both of these cases, by playing a stronghand and buying more of our favorite stocks as they plunged, we made back all of the losses (andthen some) remarkably quickly: in only nine months in 2002-03 and ten months in 2008-09. Wecould not be more confident that we will rebound strongly from these latest losses as well.An obvious difference, of course, is that in the previous two declines, the market was tumblingas well, whereas over the past year, the market is up 18.5%. Thus, while our absolute declineisn

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t as large, our relative performance is far worse. This is due to three factors, which we

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vediscussed in previous letters: first, we made a few mistakes, such as being short Netflix; second,in a far greater number of stocks, we invested too early (though we are confident that we

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ll beproven right); and finally, our macro calls have been completely wrong.Regarding the latter, it

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s been very frustrating to accurately predict the primary causes of thecurrent market turmoil

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the weak U.S. economy characterized by persistently highunemployment and a feeble housing market, plus the sovereign debt crisis in Europe

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but tohave done so a year too early (lest you think we are engaging in revisionist history, we

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veattached excerpts from our July 2010 and 2010 annual letter in an endnote at the end of thisletter

). As a result, we were positioned too defensively in late 2010 and our short book hurt ourreturns so much and grew so large that we were forced to trim it back and forswore makingmajor market calls in the absence of high conviction of a major bubble. Thus, we werepositioned normally

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substantially net long

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when the recent market storm hit.

So what are the lessons we

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ve taken from our experience over the past year? That we

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re muchbetter bottoms-up stock and industry analysts than we are macro prognosticators. Making (andacting on) a bearish macro call a year ago was a mistake that we learned from and correctedearlier this year. In contrast, we do not think we made a mistake by failing to predict the latestmarket turmoil. Other than in rare circumstances, it

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s just not what we do because we don

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tthink we

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re good at it.Perhaps a good analogy is that we think we can identify major hurricanes before they hit

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likethe housing bubble bursting

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but are unlikely to see sudden tornadoes such as what occurred inthe past month (some believe that, rather than being a sudden tornado, the turmoil of the pastmonth is the front edge of another major hurricane, but we don

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t think that

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s likely; rather, a

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muddle-through

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scenario

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discussed in the endnote

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is most probable).

Guaranteed Underperformance

Stocks are volatile and since we invest in a concentrated fashion, often in unpopular sectors, arewilling to

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catch falling knives

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if they

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re cheap enough, and never engage in closet indexing,we

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ve always known from the day we started this business nearly 13 years ago that our portfoliowould occasionally suffer losses and/or trail the market, perhaps to a significant degree. In other