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1120 Avenue of the Americas, Fourth Floor New York, NY 10036 (646) 484-9896 www.DenaliInvestors.com

January 20, 2014 To: Re: All Limited Partners Fourth Quarter 2013, Letter to Partners

Dear Partners: Please find below material information regarding Denali Investors funds. PERFORMANCE Denali Investors +12.7% +66.0% +115.3% +13.2% S&P 500 (Total Return) +10.5% +32.4% +36.8% +5.2%

2013 Q4 Performance 2013 Year-to-Date Performance Total Return Since Inception* Annualized Return Since Inception* * Return from inception November 2007 GENERAL COMMENTS

We generated strong performance this quarter with significantly less exposure due to our large cash position and hedges. As certain investments hit their price targets, we scaled back and exited several investments including the Murphy Oil (MUR) + Murphy USA (MUSA) spinoff, and the United Online (UNTD) + FTD Companies (FTD) spinoff. Overall, 2013 was a good year for the fund. We more than doubled the returns of market while maintaining a significant net cash position of 25% to 35%. We have continued to find new special situation opportunities. Looking to 2014, the opportunity set remains robust. Lets consider spinoffs. In 2009, for example, there were only a few interesting spinoffs the entire year. The same can be said of 2010. However, in Q1 of 2014 alone, there is a pipeline of fourteen spinoffs. A few are very interesting. In addition, the overall special situations pipeline for the remainder of 2014 looks attractive and is growing. Our opportunity set is increasing due to many more specific and understandable catalysts with attractive risk/return profiles, despite the markets having risen. SELECT PORTFOLIO POSITIONS During the fourth quarter, we shared a presentation on the related Liberty entities that are controlled by John Malone. All of the medias attention, it seems, is on the bid for Time Warner Cable (TWC) by Charter (CHTR) and Liberty Media (LMCA). In order to facilitate a potential transaction, LMCA

is offering to convert the minority Sirius XM (SIRI) shares into non-voting Liberty C class shares for a low premium but with tax and participation advantages. Presently, SIRI accounts for 70% of the LMCA net asset value. The bear hug on TWC by LMCA/CHTR and possibly others has begun with an initial $132.50 mixed consideration offer (cash and stock). All eyes are on the next developments. Meanwhile, there is very little attention being paid to what appears to be the more interesting opportunities in Liberty Interactive (LINTA), Liberty Ventures (LVNTA), and Liberty Global (LBTYA). In the first half of 2014, LINTA will separate and reclassify Liberty Digital (LDCA) assets and the remaining LINTA will become QVC Inc. (QVCA). Also, LVNTA will separate and reclassify TripAdvisor Holdings (LTCA) which will hold significant economic and also majority voting control of TripAdvisor (TRIP). In addition, LBTYA may separate its Latin American assets, although there has not yet been a definitive announcement. On the surface, the Liberty entities look like an alphabet soup of stock symbols that is hard to decipher. There are many simultaneous actions occurring within the Malone complex that seem hard to connect. However, the opportunities are actually quite simple and only seemingly complex, which is something Malone has done repeatedly since the early TCI days. I believe we are quickly coming to a juncture that will create and unlock a great deal of value for investors. The new crop of positions from Q4 2013 is promising and each has multiple near-term catalysts that will unlock value. Let me outline certain ones below: Spinoff + Dividend*: The Company will complete a spinoff in Q2 2014 and our position pre-spin is $10 per share. The spinoff is worth $8 per share. The parent business is worth $10 per share and is being sold, which will result in a full special cash dividend. Activism*: In a position mentioned last quarter, the activists succeeded in surfacing a higher value for shareholders, with the announcement of a competitor offering $15 per share. Our cost basis is $10 per share. However, we believe the company has value of $15 to $25 per share and expect a higher bid is possible by a number of other companies. * Prices are normalized to $10 per share. There are many catalysts in the queue for Q1 and it should be an eventful quarter. Our cash position is 25%. CONCLUSION We believe the coming years will be as exciting and productive as the previous ones. We are grateful for your trust and support. As always, above all else our focus remains on investing for survival. Sincerely, Denali Investors LLC 2

ADDENDUM OUR INVESTMENT FRAMEWORK It is worthwhile to revisit the fundamentals of our investment framework and to reevaluate the manner in which they hold us in good stead through turbulent times. Although our partners already adhere to our investment mindset and believe in the validity of the tenets (which we consider sensible and logical), we know that most managed capital does not align with our framework. Our basic structure (the allocation groupings and the incentive structure) is based on the Buffett partnerships from the 1950s. Today, most people associate Buffett with a buy -and-hold-forever philosophy. However, most people do not know how he first created wealth for his investors and himself. What the popular view discounts is that Buffett began his career managing a hedge fund that was value-based and heavily involved in special situations. Basically falling into two categories, his Generals were undervalued stocks (still studied by many today) and his Workouts were special situations investments (unstudied by almost all). Generals + Workouts: The Generals (Long/Short) tend to produce returns that are more greatly affected by the overall market performance, as with rising or falling tides. The Workouts (Special Situations) tend to provide market agnostic returns and tend to have more attractive risk-reward profiles in downturns. Much of Buffetts consistency in outperformance even during years in which the markets declined is attributable to his special situation investments. Critically, the combination of the two is much more powerful than either one alone in producing absolute returns over an extended time frame. The validity of this portfolio structure strikes me as powerful, simple, and elegant. In my view, those that focus only on one category at the exclusion of the other are at a fundamental disadvantage. The inherent balance in the combined structure is why Buffett himself said he expected, although could not guarantee, to outperform in bear markets and underperform in bull markets. By having a balanced tool kit, a portfolio remains flexible in allocating to the most promising opportunity set that presents itself. Flexible & Opportunistic Mandate: We have a flexible mandate that allows us to look at any opportunities that may be attractive. Certain funds that are designed to fit into a style box remain captive to a certain sector, geography or asset class. The problem for such fund managers is that capital can flood out as easily as it floods in (i.e. technology sector funds in 1999 versus 2000 or energy specific funds in 2008 versus 2009). Also, they become captive to a slice of the market when it is no longer attractive and are simultaneously prevented from areas that are attractive. Whether bargains are available or not is immaterial. The order of the day is to sell. As a generalist, our flexible mandate allows us to look at opportunities across the spectrum. Concentration: We are highly selective. Our concentration of investments into our best five to ten investment ideas is an advantage. Our opportunistic style of investing allows us to wait for investments with highly favorable risk-reward profiles and requisite margins of safety. Allocating more capital to really good ideas, which do not come around too often, simply makes sense. This builds a portfolio one idea at a time, such that performance over time correlates to the outcome of 3

those ideas rather than to the market. On the flip side, the typical mutual fund holds about 80 positions, which practically guarantees below average performance and explains why 80% of them underperform the market simply due to frictional costs. Net Cash = Fortress: Another advantage is the ability to maintain net cash in the absence of other opportunities. Cash is a valuable strategic asset and not a burden. Many funds must be fully invested according to the funds mandate. A fund manager must then perhaps buy at a time that may not be prudent or sell at a time that is even less prudent. Our ability to hold cash remains a great tactical advantage. When the market is desperately seeking liquidity, we will be able to provide it and invest on our terms. The use of leverage can be extremely dangerous. As has become apparent, investments that were mediocre at best were made to look superior in cooperative markets through the use of easy borrowing. Alignment of Interests: We eat our own cooking. I have the lions share of my net worth in the fund and I will continue to keep my assets in the fund. A SPECIAL THANKS TO OUR INVESTORS Denali Investors is fortunate to 1) be extremely selective in the manner we make investments, 2) be able to focus on research and investing as opposed to marketing and promotion, and 3) have partners with a long-term value perspective in combination with outstanding professional and personal character. The firm is lucky, and rare, in this regard. Our investor base appreciates that short-term moves from the entry point are largely meaningless and that the eventual realization of intrinsic value is our focus. Likewise, that metrics such as the Sharpe ratio, Value-at-risk, tracking error, or volatility are particularly useless measurements for prudent long-term management of capital. It is a true pleasure to go to work every day on your behalf. I thank you for your trust and support.