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A R L I N G T O N VA L U E C A P I TA L

INVESTMENT PHILOSOPHY

We view stock as ownership in a business.


We let volatility work to our advantage.
Arlington strives to be conservative, and invest with a margin of safety.
We exercise patience and discipline to only invest in exceptional opportunities.

Above all, we think vigilance towards risk is central to solid investment returns.

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INVESTMENT PHILOSOPH Y

We view stock as ownership in a business:


The over-arching principle of our investment discipline is to approach buying stock as though we were buying
the whole business outright and retaining management.
Employing an owners mentality helps us tune out distracting noise, allowing us to focus on the long-term
fundamentals of the business as opposed to the daily gyrations of the share price.

We let volatility work to our advantage:


On average, individual stock prices fluctuate more than 75% in a 52-week period.
We dont believe volatility equates to risk.
We welcome volatility as volatile markets occasionally offer extraordinary opportunities.

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INVESTMENT PHILOSOPHY

Arlington strives to be conservative and invest with a margin of safety:


When analyzing a business, we strive to be conservative and realistic in our assumptions.
We are disciplined investors, and purchase stocks only when favorably priced.

We exercise patience and discipline to only invest in exceptional opportunities:


Fiercely competitive markets combined with a limited mental aptitude makes it difficult to find attractive
investments - where the risk/reward equation is extremely favorable.
Because exceptional opportunities are rare, we want to make meaningful investments when such opportunities
are identified.

[Speaking about Berkshire Hathaway growing from 10 million to 120 billion over 40 years] Success wasnt based on
hyperkinetic activity. It was achieved through nondiversification, a hell of a lot of patience, and intensely opportunistic
behavior on a few occasions If you took the top 15 decisions out, you would have a pretty modest record.
- Charlie Munger / Vice Chairman, Berkshire Hathaway

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INVESTMENT CRITERIA AND PROCESS

Our success depends on exercising patience and discipline to only invest in situations
that meet our criteria:
Total universe of publicly
traded companies.
Ability to understand the business: We focus on businesses
we thoroughly understand. This eliminates a significant number
of potential investments and results in Arlington owning many of
the same companies numerous times.

Staying Power: We focus on companies with staying power.


We look for long-term durability and low rates of change.

Quality Management Teams: We look for honest,


intelligent management teams with proven track records.

Attractive Price: We only invest when the price is attractive,


which provides both a margin of safety and favorable prospective returns.

Strictly adhering to our criteria often results in a concentrated portfolio.

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PERFORMANCE
AVM Ranger, LP (as of 12/31/2014)

AVM Ranger, LP AVM Ranger, LP


Annualized Return Since Inception Cumulative Return Since Inception
40% 750%
37.9% 707.5%
35% 650%

550%
30%
450%
25%
350%

20% 250%

15% 150%
85.0%
50%
10%
9.9%
-50%

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5% AVM Ranger

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0% S&P 500
S&P 500 AVM Ranger

Calendar Year Gross Net S&P 500


AVM Ranger, LP Gross Net S&P 500
2008 ( July inception) 15.2% 13.0% -28.5%
Annualized Return 37.9% 31.0% 9.9% 2009 91.2% 73.3% 26.5%
2010 31.4% 25.6% 15.1%
Cumulative Return 1 707.5% 478.3% 85.0%
1 Performance reflects a July 24, 2008 inception
2011 3.0% 1.4% 2.1%
2012 35.7% 29.2% 16.0%
2013 51.5% 42.6% 32.4%
2014 31.8% 25.9% 13.7%

In July 2008, Arlington Value Capital launched AVM Ranger Fund, LP. AVM Ranger Fund, LP is our primary fund has generated a 37.9% annualized
return (before fees) and has outperformed the S&P 500 by approximately 28% per annum since inception.

6 *PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS


PERFORMANCE
Arlington Value Management, LLC (AVM): Dec 19991 - June 2011 15-Year Combined Return: Dec 19991 - Dec 2014
2000% 2000% 1,898.7%
1500% 1500%

1000% 1000%

595.1%
500% 500%
400% 400%
300% 300%

200% 200%

100% 100%
86.5%

11.7%
0% 0%

-50%
50# -50%
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AVM S&P 500 AVM AVM Ranger S&P 500

AVM Calendar Rtrns (since inception) Gross Net S&P 500 15-Year Combined Return* Gross Net S&P 500
2000 58.5% 58.5% 2 -8.4%
2001 42.4% 39.9% -11.8% Cumulative Return 1,898.7% 1,101.7% 86.5%
2002 -22.7% -24.6% -22.1% Annualized Return 22.1% 18.0% 4.2%
2003 56.6% 53.0% 28.7%
*Assumes client started with AVM and switched to AVM Ranger at funds
2004 21.1% 18.2% 10.9%
inception in July 2008
2005 -32.7% -34.4% 4.9%
2006 12.5% 9.8% 15.8%
2007 13.0% 10.3% 5.5%
Prior to AVM Ranger LP, Arlington Value Management LLC (AVM) was
2008 13.3% 10.6% -37.0%
2009 62.2% 58.4% 26.5% our primary fund. From mid 2008 through mid 2011, AVM and AVM
2010 23.4% 20.5% 15.1% Ranger were managed side by side. After Q2 2011, AVM LLC was merged into
2011 (Through June) 8.4% 7.1% 6.0% AVM Ranger LP. The above chart shows the combined returns since inception.
Annualized Return 18.4% 15.9% 1.0%
1 Performance reflects a December 23, 1999 inception
2 AVM LLC did not charge a fee until Q1 of 2001
7 *PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
PERFORMANCE

Top Performing Funds Since July 20081 Annualized 11.5-Year Top Performing Funds Annualized
( July 20081 through Dec 2014) return since (December 19992 through June 2011) 11.5-Year
July 2008 Arlington Value Management is closed return

AVM RANGER FUND, LP 37.90% ARLINGTON VALUE MANAGEMENT, LLC 18.36%


PIMCO StocksPLUS Long Duration Institutional 19.83% Lord Abbett Micro Cap Value I 17.57%
PRIMECAP Odyssey Aggressive Growth 18.57% CGM Focus 17.53%
AllianzGI Ultra Micro Cap Instl 18.43% Hotchkis and Wiley Small Cap Value I 17.34%
Walthausen Small Cap Value 17.98% RS Partners A 16.51%
Fidelity Small Cap Discovery 17.91% Robeco Small Cap Value II 15.9%
Delaware Pooled Focus Smid-Cap Gr Eq 17.74% Wells Fargo Advantage Small Cap Value 15.65%
PIMCO Fundamental IndexPLUS 17.70% Pacific Advisors Small Cap Value A 15.56%
Hotchkis and Wiley Value Opps A 17.46% Wasatch Micro Cap 15.08%
Lord Abbett Micro Cap Growth I 17.39% America Century Small Cap Value Instl 14.78%
Reynolds Blue Chip Growth 17.13% Lord Abbett Small Cap Value 14.71%

S&P 500 INDEX 9.93% S&P 500 INDEX 0.97%

1 All performance comparisons above are from July 24, 2008 through Dec 31, 2014 2 All performance comparisons above are from December 23, 1999 through June 30, 2011

The two tables above demonstrate how Arlington has stacked up against the S&P 500 and the top 10 performing funds of the approximately 5,000 and 3,000 US equity
funds tracked by Morningstar over the approximately 6.5 years since AVM Ranger Funds inception and the 11.5 year lifespan of Arlington Value Management LLC
respectively. The average return for all funds is likely below the returns for the index as it is widely noted that most funds underperform the index over time. Performance
for all funds is gross of management fees.
Arlington Value Management LLC was merged into AVM Ranger LP in Q3 2011. The 11.5-year data represents Arlington Value Management LLCs return from its
inception in December of 1999 through June 2011.

Data Source: Morningstar (as of Dec 31, 2013). AVM Ranger LP is a private offering and is NOT tracked by Morningstar

8 *PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS


PERFORMANCE

Batting Average:
I was a good investor myself, but I couldnt do what Warren and Charlie do so well virtually never have any losers.
Otis Booth, major Berkshire Hathaway shareholder
Arlington Value Batting Average .800+ S&P 500 Batting Average .450

A stubborn adherence to our investment principles results in a high batting average.


A high batting average is the key driver of strong long-term performance.
The above graph displays the 3-year performance of each stock in which Arlington committed more than 3% of its capital relative to the 3-year performance of the S&P
500 over the first eight years of the fund. For perspective, the accompanying graph displays the 3-year performance of each company in the S&P 500 compared to the 3-
year performance of the index average. Arlington may have held the investment for less or more than three years, but we feel a 3-year period accurately demonstrates the
success of the initial investment decision.

9 *PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS


V I G I L A N C E T O WA R D S R I S K

Above all, we think vigilance towards risk is central to solid investment returns.

It is very easy to generate performance by taking on more risk. And so what you need to do is compensate for risk-
adjusted performance... and that is where all the bodies are buried. Ragharum G. Rajan, IMF Chief Economist
(2003 - 2007)

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V I G I L A N C E T O WA R D S R I S K

A Consistent Vigilance Toward Risk:

From Arlington Value Capitals 2001 Annual Letter:


. . . a big portion of our assets are invested in companies that should thrive in a period of declining equity markets and tight capital markets in general.

From Arlington Value Capitals 2003 Annual Letter:


Junk bond spreads over treasuries have narrowed sharply. It seems as though institutional investors are focusing solely on returns and forgetting about
risk. . . our top three holdings are defensively positioned.

From Arlington Value Capitals 2004 Annual Letter:


Going into 2005 we continue to have the portfolio positioned defensively. . . Given the high prices and significant risks in the market, we believe our
positioning is prudent for the long term.

From Arlington Value Capitals 2005 Annual Letter:


The current market environment reminds me of the crocodile pond my brother described to me after returning home from Australia: What looks calm and
inviting to jump into is fraught with potential danger just below the surface. I think its a mistake to equate the low volatility in the market to a low risk
environment in which to invest.

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V I G I L A N C E T O WA R D S R I S K

A Consistent Vigilance Toward Risk:

From Arlington Value Capitals 2006 Annual Letter:


Wall Street tends to overweight, and extrapolate the most recent past performance - which has been favorable and without any serious gyrations or shocks.
As a result, financial markets are pricing in tranquility as far as the eye can see.
. . . Many take comfort in the derivatives market to hedge risk. The number and amount of derivative products have proliferated at an incredible rate over the
past few years. In normal times these innovations help to spread out risk. However, its times of unusual shocks and distress when one needs these products
the most. Unfortunately, this is likely to be the time when these products add to the instability as large-scale liquidations take place between a small number
of counterparties. I cant pretend to know how derivatives will play out in the next shock to the system. My worry is that it exacerbates the problem instead
of dampening it - which is why the products were created in the first place.
. . . The most dangerous environment is oftentimes at the cusp of euphoria; combining maximum leverage with rosy outlooks, on the heels of record profit
growth and low interest rates, is a recipe for disaster in my opinion. . . The common theme for managers investing for others is a seemingly blissful
willingness to ignore risks and lever up in order to achieve their desired returns. This is manifested in the narrow credit spreads across virtually all types of
securities, which in my opinion have gone to crazy levels.

From Arlington Value Capitals 2007 Annual letter:


The common theme running through the veins of Wall Street, and what is largely responsible for much of the anxiety, is leverage. The insane amount of
leverage being employed is all the more perilous when considering the interconnected nature of the financial system. Having dry powder and financial
flexibility in this environment, as we do, and FFH does, is a very favorable position to occupy in a market of forced asset sales and massive de-leveraging.
. . . I must sound like a broken record, as my overall tone of caution hasnt changed much over the years. . . Our portfolio continues to be positioned
somewhat defensively.

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V I G I L A N C E T O WA R D S R I S K

Protecting Capital during Down Markets:


AVM vs. S&P 500 AVM vs. S&P 500
January 2000 - September 2002 September 2007 - March 2009
60% 60%
54.6%

45% 45%

30% 30%

15% 15%

0% 0%
-5.11%
-15% -15%

-30% -30%
AVM AVM
-45% -45%
-44.52% S&P 500 S&P 500
-47.74%
-60% -60%

Period: Jan 00 - Sep 02 Return Period: Sep 07- Mar 09 Return


Arlington Value Management +54.46% Arlington Value Management -5.11%
S&P 500 -44.52% S&P 500 -47.74%

Arlingtons keen focus on risk has protected capital during the two worst peak-to-trough periods for the
S&P 500 over the last 15 years.

*PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS


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INVEST MENT HISTORY

Three Periods of Arlington Value Capital:


Period 1: (5 Years: Dec 1999 - Dec 2004): Arlingtons primary founding partner was responsible for all investment activity.

Period 2: (1.5 Years: Jan 2005 - June 2006): In January 2005, Arlington took on two new active partners which resulted in
material changes to Arlingtons investment process. The altered investment process resulted in significant internal conflicts. The
funds performance during this period was extremely poor.

Period 3: (8 Years: July 2006 - Current): In July 2006, Arlington went back to its original investment process and structure.

Arlington Value Capital Historical Timeline


Period 1 Period 2 Period 3
300% 300% 1,000%
225% 225% 825%
150% 650%
150%
475%
75% 75% 300%
0% 0% 125%
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Annualized Annualized Annualized


Period 1 (5 Years) Period 2 (1.5 Years) Period 3 (8.5 Years)
Return Return Return
Arlington Value Management 27.03% Arlington Value Management -28.10% Arlington / AVM Ranger LP 30.96%
S&P 500 -2.15% S&P 500 5.10% S&P 500 8.13%

*PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS


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AV O I D T H E D E A D LY S I N S

We strive to avoid the deadly sins of portfolio management:


Accepting Unsuitable Capital
Groupthink Lack of Independent Thinking
Overconfidence Self-Deception
Overactivity Insufficient Patience and Discipline

All I want to know is where Im going to die, so Ill never go there unknown

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AV O I D T H E D E A D LY S I N S

Accepting Unsuitable Capital:


Unsuitable capital misaligns interests and expectations, interfering with ones ability to execute the strategy.
Incompatible investors distort ones investment mentality and can cause one to focus on short-term fluctuations
rather than long-term values.

The single greatest edge an investor can have is a long-term orientation. In a world where performance comparisons
are made not only annually and quarterly but even monthly and daily, it is more crucial than ever to take the long view.
In order to avoid a mismatch between the time horizon of the investments and that of the investors, one's clients must
share this orientation. Ours do." Seth Klarman

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AV O I D T H E D E A D LY S I N S

Groupthink Lack of Independent Thinking:


Relying on others analysis results in paralysis or panic under volatile conditions.
Groups have a tendency to reinforce preconceptions and suppress critical thinking.
Seeking consensus results in making decisions with the heart rather than the brain.

Madness is rare in individuals but in groups, parties, peoples and ages it is the rule. Gustave Le Bon

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AV O I D T H E D E A D LY S I N S

Overconfidence Self-Deception:
Inability to say I dont know.
Investors own too many stocks, ignoring the boundaries of their mental capacity, resulting in excessive mistakes
and harmful frictional costs.
Average holding period on NYSE: 6-months!

The awareness of ignorance is the dawning of wisdom. Socrates

Never fool yourself, and remember you are the easiest person to fool. Richard Feyman

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AV O I D T H E D E A D LY S I N S

Overactivity Insufficient Patience and Discipline:


Unable to sit still without tiring of sitting still.
Act too often, think too little.
Relaxing investment standards after a drought of ideas.
Average holding period on NYSE: 6-months!

The enemy of investment success is activity. Warren Buett

The big money is not in the buying and selling, but in the waiting. Jesse Livermore

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G E N E R A L I N F O R M AT I O N
Summary of Terms
Minimum Investment $5,000,000 Subscriptions: Monthly
Management Fee: 1.0% (Annual) Withdrawals: Monthly w/30-day notice
Performance Fee: 15% Reporting Quarterly
High Water Mark: Yes Lock-up: Soft
Hurdle Rate: No Withdrawal fee: 3%, 2%,1%, for first three years
Fixed Fee Option (2.4%) Yes Offshore Option BVI Company Ltd by Shares

Firm Management
Allan Mecham (801) 979-0655 Ben Raybould (801) 792-9590
allan@arlingtonvalue.com ben@arlingtonvalue.com
Prior Experience: Wasatch Funds Prior Experience: Leucadia National

Service Providers
Prime Broker Jefferies & Co Custodian J.P. Morgan
Contact: Evan Gevarter (212) 707-6491 One Metro Tech Center North
egarter@Jefferies.com Brooklyn NY 11201-3859

Administrator NAV Consulting Legal Counsel Ragghianti Freitas LLP


Contact: Prem Jacob (630) 954-1919 Contact: Jack Martel (415) 453-8269
prem.jacob@navconsulting.net jmartel@rflawllp.com

Auditor KPMG Offshore Counsel Harneys


Contact: Marc Wolf (310) 273-2770 Contact: Philip Graham (284) 852-2551
marcwolf@kpmg.com philip.graham@harneys.com

The information in this document has been furnished by the general partner of the fund and not all information has been independently reviewed or audited. Past performance is not indicative of future performance. Inherent in any investment is the
possibility of loss. This does not constitute an offer or a solicitation of an offer to buy a security. Any offer or solicitation must be made only by means of a delivery of a private placement memorandum. This document is for information purposes only and
its contents may not be reproduced or distributed in any manner without prior approval from Arlington Value Capital, LLC.
Indices are provided as market indicators only. It should not be assumed that holdings, volatility or management style of any Arlington investment vehicle will, or is intended to, resemble that of the mentioned indices. The
comparison of this performance data to a single market index or other index is imperfect because the former may contain options and other derivative securities, may include margin trading and other leverage, and may not
be as diversified as the S&P 500 Index or other indices. Index returns supplied by various sources are believed to be accurate and reliable.

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