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April 15, 2010 Dear Investor

The value of your investment in Downtown Associates II appreciated by +2.17% in the first quarter of 2010, trailing the broader market averages. The S&P 500 Total Return index was up +5.39% and the Russell 2000 Total Return index was up +8.85%. Since January 1, 2008, the approximate beginning of the bear market, DTA II is up +9.07% as compared to the S&P 500 Total Return Index which was down -16.03% and the Russell 2000 Total Return Index which was down -8.35%. Quarterly Performance Review We continued to pare back our long positions during the quarter given their substantial appreciation and increased our hedges to protect our portfolio. For the quarter our average gross long exposure was 57% and our gross short exposure was 42% (substantially all in highly liquid ETF hedges) resulting in net long exposure of just 15%. Our gross long positions were up approximately +12%, and when adjusted for market exposure they contributed +7.4%. Our gross hedges were down approximately -10.5%, and when adjusted for market exposure contributed -4.3%. The top portfolio performers for the quarter were BGC Partners Inc. (up 32% during the quarter) and Super Micro Computer (up 55% during the quarter). Portfolio Strategy and Market Outlook We are pleased that our stock selection has continued to deliver strong performance during the quarter and we are comfortable with our conservative portfolio posture given our view of current valuations and economic conditions. It remains our objective to deploy significant amounts of capital into new ideas as attractive opportunities present themselves and to protect our assets in a market decline. We believe that patience is still a virtue. Downtown Associates manages money with a long term perspective, focused first on protecting your and our investment assets. We will not “chase” performance – when stocks are expensive the ensuing returns are likely to be subpar. Instead we prefer to hold cash, remain liquid and wait for attractive opportunities. Why should today’s opportunity set be the only one we consider when tomorrow’s is likely to be more fertile? By remaining disciplined in our purchase decisions, we seek to maximize future returns while limiting our downside risk (the possibility of a permanent loss of investment capital). We prefer the risk of lost opportunity to the risk of lost capital. It can be painful to hold cash during a rising market. As a result, many in our profession would rather hold expensive securities in an effort to hug the entire market indices and thereby avoid any near-term underperformance - inevitably this leads to mediocre long term returns. We believe strongly in our disciplined investment strategy and our ability to generate strong long-term investment returns, while protecting capital in weak market environments. Because we hold a concentrated portfolio, we only need a few select stocks to fall to appetizing prices, not the broader market. We do not know when great stock opportunities will present themselves and as a result, it is important that we have cash available to position us to take maximum advantage of sudden distressed and emotional sellers.

April 15, 2010 Page Two We expect the management teams of our companies to make very well reasoned capital allocation decisions. If they invest in projects which have low expected returns just because they have idle capital, we would be extremely disappointed. By logical extension, we would expect that our investor partners would think similarly of our own investing decisions. On that score, you can rest assured that we remain intently focused on making great investments at attractive prices such that our downside is well protected while preserving our ability to generate outsized long-term returns. As noted above, our hedges have cost us money during the quarter. It is easy to view hedging in the same way we view the premiums on flood insurance. After months of sun, we sometimes question why we have this insurance, nevertheless we are usually happy when the clouds start to appear. Stock Update – Super Micro Computer In addition to selling shares in many of our holdings as the market continued to rally, we took the opportunity to exit (almost entirely) our position in Super Micro Computer (SMCI). SMCI has been an outstanding investment for Downtown Associates. Our investment in SMCI represented approximately 5% of our portfolio on a cost basis (a significant portfolio position given its relatively small market capitalization) and generated a total investment return of 133% for an average annual return of approximately 72% over our approximate 18 month holding period. SMCI designs and manufactures application-optimized servers for over 500 global customers, including major IT resellers and prominent data center operators such as Google and Yahoo. We were impressed by the company’s 25%+ annual growth rate from 2005 to 2007, strong balance sheet, very positive customer testimonials, and attractive stock valuation (just 9X earnings). We prefer businesses where the management team owns significant amounts of stock, aligning their interests with ours. The CEO of SMCI, Charles Liang, owned 28% of the company. He founded the company in 1982 without any outside capital and grew the business to $500M of sales, impressively without a single unprofitable year. Despite these characteristics, SMCI’s stock had fallen sharply as technology spending softened and the company’s growth temporarily slowed. We made our first purchases in June 2008 at around $7.00 per share. In the darkest hours of the recent economic collapse we were able to purchase a large block of shares at just $3.75, an absolutely attractive price that represented just 90% of the company’s net tangible book value (approximately 50% of which was cold hard cash). As is often the case, our second and third purchases of an investment tend to be at even better prices than the first! Throughout the period of our ownership, SMCI remained profitable, grew R&D spending and increased their product differentiation and market share. The company’s long-term thinking (and our patience) was rewarded when SMCI reported record December quarterly revenues, 33% higher than when we made our initial investment before the tech downturn. The stock rallied strongly closing the quarter at over $17 per share. For some, the volatility of SMCI’s stock would have been impossible to endure. However, it is opportunities like these that Downtown Associates is structured to exploit. Thanks to our investors, we can remain patient opportunists, aligning ourselves with like-minded CEOs like Charles Liang to deliver great long-term returns.

April 15, 2010 Page Three Client Conference Call We are again planning to hold our Annual Client Conference Call and have set a date of June 10, 2010. Please mark your calendars. We will be sending more detailed information in the coming days. Developments at Downtown Associates We are pleased and excited to report that Emily Hannum joined the Downtown Associates team as our new Director of Marketing and Client Relations earlier this month. Emily has over 12 years of highly successful investment marketing experience having worked in both Europe and the U.S. for a highly respected investment management firm. Please join us in extending her a very warm welcome. We hope that you will all have the opportunity to meet Emily in the coming months. Thank you for your continued confidence in Downtown Associates. If you have any questions, we would be happy to discuss them with you at your convenience. Sincerely,