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Peter Rabover, CFA

Portfolio Manager
Artko Capital LP

October 21st, 2015

Dear Partner,

For the 1st fiscal and 3rd calendar quarter of 2015, a partnership interest in Artko Capital returned -0.45%
net of fees. At the same time, an investment in the most comparable market index alternatives—
Vanguard Russell 2000 Index ETF, iShares Russell Microcap ETF and the Vanguard S&P 500 Admiral Shares
indexes—lost -11.94%,-13.76% and -6.45% of their value, respectively. Our gross, monthly and cumulative
results, as well as those for the comparable indexes, are available in the table below. While we are
disappointed in the slightly negative returns, we are encouraged by our fully invested portfolio’s capacity
to withstand and outperform the volatile down markets and are confident that each one of our
investments will continue to outperform in the long term.

As this is our first official reporting quarter, we are excited to talk about our philosophy, process and more
importantly the additions to our portfolio during this reporting period, which means this will be a lengthy
letter. We believe a thorough discussion of how we view investing and our portfolio holdings is an
important consideration in your continued successful participation as a limited partner in our fund, but
we promise our future letters will be shorter.

The most significant keys to our future success are a laser focus on business quality, ease in the
understanding of business models and an almost heretical adherence to the concept of the margin of
safety in determining valuation and purchase price. Since this is at the heart of our investment process
and our fund strategy, in this letter we’d like to focus on margin of safety. Minimizing downside risk while
seeking out high return, high uncertainty investments is one of the most powerful concepts on Wall Street.
Fortunately for us, a large subset of Wall Street likes to view risk as the volatility of stock prices, not as the
deviation from the value of fundamentals or assets of the underlying companies that those stock prices
represent. The process for determining margin of safety gives us the opportunity to buy companies whose
stock prices are trading significantly below the company’s true intrinsic value. While these kinds of deals
are increasingly harder and harder to find in the large- and mid-capitalization space, the small- and micro-
cap segment of the market offer a plethora of such opportunities and this is the space where we will be

Much like an “everything must go” clearance sale at a department store, finding great deals in the bargain
basket of companies that go out of fashion in the current markets is at the heart of how we invest. Let’s
start out with a basic and purely hypothetical example of a Michael Kors handbag. The bags can retail for
thousands of dollars due to the high quality of the product, the great leather and, of course, the Michael
Kors brand name. But to continue with the example, today, news comes out that a Michael Kors leather
tanning factory in Asia employs hundreds of underage children in a horrible safety conditions (not true).
The Internet explodes with outrage. The “Boycott Michael Kors” Facebook page has 500,000 likes. A slew
of celebrities very publicly promise to never buy a Kors handbag again. More importantly, you can’t walk
by a store without seeing Michael Kors bags at 80% off, selling now for just a $100 dollars. So you start to
sniff around and figure out that just the content of the fine leather in the bag is worth $150. In addition,
you don’t really believe that this outrage will last or that Michael Kors’ brand name is dead. You’ve been
through enough corporate scandals to know which ones destroy a brand and which ones are temporary.

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You do a survey with hundreds of women to see if the scandal would deter them from ever buying Kors
again. You talk to brand executives and consultants, and you feel confident that this scandal has more
bark than bite. After spending days figuring out the true value of leather, you buy one hundred bags and
put them in a storage locker and wait until the storm blows over and you can sell them again in a few
years on eBay for their full retail price of $500.

So what happened there? You determined your margin of safety—the leather in the bag—is worth more
than what the bags are selling for and their true long-term intrinsic value is worth far more than their
price. Worst case, the bags will start to sell for the cost of the leather—$150—or you’ll go out and just
sell them for the leather in a few years and make a small profit or break even after transaction costs. In
the short term, there is a chance that those bags might even sell down for $50, but you’re not taking the
price risk if you’re willing to hold the bags for the long term. The biggest risk in this hand bag investment
is the uncertainty of what is going to happen down the line, but this is the kind of risk that most value
investors would welcome with open arms.

While this example in some ways oversimplifies value investing, in reality there isn’t much difference
between looking at the margin of safety of buying handbags and figuring out your downside loss when
analyzing high-quality companies trading on the stock market. As one of our favorite managers, Seth
Klarman, once said: “There is nothing esoteric about value investing. It is simply the process of
determining the value of an underlying security and then buying it at a considerate discount from its value.
It is really that simple. The greatest challenge is maintaining the requisite patience and discipline to buy
only when the prices are attractive and to sell when they are not, avoiding the short term performance
that engulfs most market participants”

The process behind figuring out the margin of safety and the intrinsic value of each investment is a lot
more art than science. There is no set way to view the downside in each business. In some cases, it may
be the assets on the balance sheet: a building, a collection of patents, a strong brand name, a valuable
piece of land; in other cases it may be a business segment with high moat, competitive advantages that
produce high returns and cash flows with long-term contracts. We like to think of an analogy by Leon
Cooperman, another favorite investor, who compares value investing to selecting from 25 different
brands of beer in the supermarket: some combination of return-on-equity, growth rate, price-to-earnings
ratio, dividend yield and asset value: "There's something that makes you reach for one particular brew.”

Of course if it was just as easy as finding a bunch of handbags or beers on sale and waiting for them to
appreciate in value, everyone would be a great investor. Capital preservation is only half of a successful
value investment strategy, with a focus on returns being equally as important. Having started our career
working for two very successful value firms—Hahn Capital Management and Scharf Investments—during
the dot-com and Enron/WorldCom eras, through the cycles we’ve learned that successful value investing
not only involves finding bargains, but making sure they are high-quality companies and have identifiable
catalysts on the horizon to help them appreciate in value. Running a fairly concentrated portfolio with a
long-term holding period allows us to pass on a lot of “pretty good” bargains in search of great ones.
Consistent quality earnings and cash flow; market leadership; a well incentivized management team; clean
balance sheets; high returns on capital; and long-term competitive advantages and high moats, are just a
few of the things we look for when identifying candidates that we would consider high quality. Hard
catalysts, such as corporate merger and acquisition transactions, new project announcements or
recapitalizations; and soft ones, such as continued reported strong cash/earnings growth, guidance
revisions, new Wall Street coverage and analyst days, are key to long-term appreciation of our
investments. We don’t always need a corporate event or a valuation adjustment if we bought a company

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producing 12% ROICs, at a price of 10x high quality earnings that are growing at consistent 10-15% a year.
We look forward to expanding on these aspects of our research process in the future letters, but we would
be remiss not mention that as part of our process we don’t buy companies without competitive
advantages or those we don’t understand. Warren Buffett didn’t get rich by buying biotechs, Dot-Coms
and E&Ps, and if we invest regularly in those sectors, it’s likely you won’t either. That is not to say that the
Enhanced Value part of our portfolio won’t occasionally get to take small positions in those types of
securities if we see extreme risk reward spreads in special situations but you shouldn’t hold your breath.

Portfolio Updates

We had a busy quarter of building our portfolio, and we’re excited about the companies that we have
added. Our portfolio strategy is underpinned by investing in securities that may not always be indexable
due to their size, low liquidity or just relative time on the market. In that way, we do not want to compete
with the low-cost index alternatives that are widely available to you but compliment them in offering an
alternative investment product. We like to view our portfolio in two parts. The Core Value portfolio, where
we own high-quality companies with high ROICs, excellent assets and management teams and low
downside risk. The second, smaller, portion of our overall portfolio is what we like to view as the Enhanced
Value option. In this portfolio, we like to own small positions in securities that may not always meet or
margin of safety or high quality hurdles but offer a much higher rate of return relative to the downside
risk than the investments in our core portfolio.

Core Portfolio Additions:

 US Geothermal (HTM) – This is one of our most exciting new investments. US Geothermal is a
collection of three geothermal plants in Western United States. Geothermal is one of the most reliable
energy producing resources available today and utilities are willing to pay the highest rates per
megawatt to lock in the reliable base load supply for up to 30 years. The company’s intrinsic value is
underpinned by its steady stream of cash flows from its long-term contracts, and we believe purchase
of the company’s valuable geothermal plant assets at a 75% discount to their true market value
represents a significant margin of safety. What excites us the most about this company is their pipeline
opportunity to increase their geothermal base from around 40MWs today to over 200MW in the next
few years. With the addition of Dennis Giles, a former executive from Calpine who managed an
800MW geothermal portfolio, as CEO two years ago; no shortage of high-quality financing partners,
such as Goldman Sachs and Enbridge; and a “measure 10x, cut once” diligent corporate culture, we
are confident that with the execution on just a small number of projects in the pipeline the company’s
true market value will appreciate to two to three times what it is today. The private equity interest in
the company’s stable cash flows, should they not be able convert their pipeline, makes us confident
in the long-term safety of this investment.

 Gaiam (GAIA) – We added a long position in the market leader in the fast-growing yoga equipment
space while paying a fraction of the price of similar trading comparable sports equipment companies.
We are thrilled about being invested in the consistently high-growth yoga equipment and apparel
market, the company’s leading market position and a well-received introduction of the lower price
point clothing yoga line, which all translate into double-digit revenue and cash flow growth. These
are, however, THE LEAST exciting aspects of the story. The company was founded, led and today is
still 25% owned by its chairman, Jirka Rysavy, a man renowned for creating massive value for his
shareholders as the founder of Corporate Express, Crystal Market (Wild Oates Markets) and Real
Goods Solar. In his position as the former CEO, Rysavy created an online yoga TV concept, Gaiam TV,

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which today has grown to a 7,000 title library with over 123,000 subscribers paying $10 a month, with
a high retention ratio. Gaiam has announced that they will be spinning off Gaiam TV into a separate,
publicly traded company at the end of October. We expect this event will fully highlight the value of
each stand-alone business, which we expect to be at least double of what the entire company is
currently worth. In other words, we bought the equipment business on the cheap and got the TV
business for free! Our margin of safety in this investment lies in the strength of the Gaiam brand and
the Gaiam TV subscriber base, which are both highly valuable and desirable assets whose true values
are significantly above what is implied in today’s trading price. Where we may be wrong is in the short-
term market reaction to the spin off, as both companies will be even smaller micro-cap illiquid
investments, with new management teams and boards. However, in the long term we are confident
that the price will approach the true value of each business.

 CSW Industrials (CSWI) – CSW Industrials is a collection of high-quality industrial and specialty
chemical companies assembled by Capital Southwest Corporation (CSWC), a business development
corporation (BDC), over the last three decades and spun out a separate company, CSWI, on October
1st. CSW Industrials manufactures high-end industrial and commercial coatings, lubricants and
specialty chemicals and serves a range of diverse markets from HVAC and railroads to agriculture and
oil and gas. The company has grown revenues and profits by consistent double digits via organic
growth and a successful bolt-on acquisition strategy. We took a long position in CSWC as the post-
spin Net Asset Value of the BDC would consist of 80% cash, and we felt that the downside risk of
owning both and selling the cash rich parent at the spin out was minimal relative to the stock moving
against us as the market recognized the value of CSWI prior to the spin. In short, CSWI has some of
the highest returns on capital, growth rates and profit margins in the small-cap specialty chemicals
and industrials space while coming to market at the lowest valuations; a 50% discount to its peers.
While we recognize the market tends to pay less for acquisition growth, we don’t expect such high-
quality companies to stay cheap for long and fully expect the company’s valuation to close to its peers
as it continues to grow its earnings and free cash flow at high rates in the intermediate future. We
believe our margin of safety lies in the consistent high free cash flow generation of the business, at
over 10% of revenues, and its low valuation relative to its peers, at 11x forward earnings.

 USA Technologies (USAT) – We initiated a long position in USA Technologies, a market leader in
enabling credit and debit card transactions in the vending industry. We’ve long covered the financial
transaction industry from a large- and mid-cap perspective, and we’re excited to discover a micro-cap
leader in a niche but fast growing market of upgrading the payment options for vending machines.
The company has over 330,000 point of sale (POS) machines installed from a 9,600 strong customer
base. The few key metrics to note in this story are that USAT has only penetrated 20% of the total
vending machines of its customer base and that an installation of a POS machine increases revenues
per machine by 20% and profit by over 200%, for its customers. We fully expect the market to embrace
this technology as the economic benefits become harder to ignore. More important to note is that
while in the past USAT use to sell and finance the POS equipment to its customers, going forward, a
majority of the installation will be financed by third-party partners, which will free up significant Free
Cash Flow. In fact, we expect Free Cash Flow to grow at a 50% annual rate over the next few years,
while today the company is trading at less than 10x Free Cash Flow. We believe our margin of safety
lies in the recurring cash flow of its very sticky and diverse installed customer base and the strategic
value USA Technologies represents to a number of larger players in the industry. We look forward to

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monitoring the margin evolution of the business as well as efforts to continue to penetrate the
customer base further as our guideposts.

 National Research Corp. B Shares (NRCIB) – In what is one of our more interesting special situation
small-cap investments, we built up a long position in the B shares of National Research Corp. National
Research Corp. operates as part of an oligopoly in the healthcare analytics space. In essence, the
company provides analytical feedback via consumer surveys to doctors and hospitals, not unlike what
Nielsen does for the television and advertising industry. The company has been successful in
generating quality earnings, cash flow growth and high ROICs for decades, led by its founder, former
Nielsen executive Michael Hays. With the passing of the Affordable Care Act, a growing part of hospital
government reimbursements is now dependent on the feedback from government mandated
surveys, which is where we view National Research Corp. as analogous to the S&P, Moody’s and Fitch
oligopoly of the bond rating industry. While National Research Corp. does not have to be approved
by the government like its bond rating counterparts, their service is mandated by the Center for
Medicare and & Medicaid Services (CMS) and the barriers to entry of reputation and experience are
relatively high as we discovered by talking to various hospital administrators. We note that while the
switching costs are relatively low, we view this as a positive, since we believe neither the hospitals
nor the government would want a monopoly from the market leader, Press Ganey. Much like its
counterparts in the information service and analytics industry, National Research Corporation trades
at high multiples of earnings, however, through a quirk in corporate governance, its B shares trade at
a significant economic discount to the A shares. In 2013, the CEO recapitalized the company in his
own favor by issuing two classes of shares. The B shares have 6x of the dividend and earning power
and 100x of the voting power of the A shares while trading only at two-and-a-half times the price of
the A shares. While we are slightly uncomfortable with the corporate governance aspect of this
arrangement, the B shares provided us with the opportunity to buy this great business at less than
10x of high quality, recurring Free Cash Flow and a 4.5% dividend yield, which is where we see our
margin of safety. The company has paid out special dividends in the past, and we believe that once
the market recognizes that 50% of the next special dividend will go to the B shares, the 60% discount
between the A and B shares will narrow significantly, and in the meantime we expect the company to
continue to grow revenues and profits in double digits through its new customer wins.

 Graham Holdings (GHM) – Our new long position in Graham Holdings is as close as we will get to a
“bet” on oil prices this year. Graham Holdings is a niche manufacturer of high-end capital equipment
to the petrochemical, refining and power markets as well as to the U.S. Navy nuclear submarine fleet.
One of the more interesting dynamics of the recent oil price collapse has been a massive increase in
refining and petrochemical production volume as the refiners rush to build up product inventories
while the input cost of oil is low. In fact, most U.S. refiners have been running at over a 100% capacity
all spring and summer and booking record profits. However, as a large number of refiners are owned
by the oil majors that have been cutting all of their budgets across the board, the necessary upgrades
and maintenance capital expenditures, as provided by Graham Holdings, have been put on hold. This
dynamic of deferred capital investment while running at full capacity cannot continue for long, and
we fully expect a major upswing in refining industry capital investment in the near future. In the
meantime, Graham Holdings is trading at is 10-year low Price to Book multiple, while continuing to
generate consistent double digit ROICs; a balance sheet with over $60 million in cash (or one-third of
Graham’s market value); and a strong backlog supported by its U.S. Navy nuclear submarine contract.
We believe our margin of safety is based on Graham’s strong balance sheet, extremely low valuation

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and a long-term backlog with an increasing aftermarket, high recurring revenue component. Graham
Holdings is currently trading at its 10-year low Price to Book multiple of 1.5x, while consistently
growing the book value, through cycles, at an 18% Compounded Annual Growth Rate during the same
time period. With its 5- and 10-year median Price to Book multiple at close to 3x, we fully expect our
investment to double or triple over our investment holding period.

 Babcock & Wilcox Enterprises (BW) – This is another recent spin off special situation that is a new part
of our core value portfolio. The spin off allowed Babcock & Wilcox to become a leading standalone
manufacturer of steam power generation and environmental systems worldwide. Babcock & Wilcox
has been in the business of building steam generation power plants for over 100 years and has one of
the most admirable reputations in the engineering and construction space. The company operates
through three segments: global power, global services, and industrial environmental. There are many
reasons to like this business, including some controversial ones. We are very bullish on the long-term
growth in power demand, with U.S. Energy Information Administration (EIA) forecasting a 24%
increase in demand by 2040 in its base case. This demand will have to be met by growth in power
generation of natural gas, renewables and even coal plants. Utilities accounted for the largest piece
of global foreign direct investment in the last decade at over $860 billion, and we expect this trend to
continue. While the EIA expects the absolute number of global coal electricity generation to stay flat
through 2040, this is misleading as the continued U.S. Environmental Protection Agency (EPA) led shut
down of coal plants in United States will be offset by growth in coal power generation in the emerging
markets. In the meantime, the remaining North American coal plants will need to be maintained and
upgraded to meet EPA specifications—most of which are supported by the company’s steady and
recurring $1 billion in global revenue aftermarket business, as part of its global services segment with
a leading 40% market share. We are confident the company can execute on its record $2.5 billion
backlog and continue to win big project awards, such as recent $600 million of awards to build three
biomass plants in the United Kingdom. In fact, Babcock & Wilcox is the only large scale E&C company
that is projected to grow its earnings, in annual double-digit percent, in the next 2-3 years, while
trading at the industry low of 3.5x EV/EBITDA and 7x P/E ratios on our 2016 estimates. Additionally,
the company has over $350 million in cash on its balance sheet (more than one-third of the market
value of the entire company); has a growing backlog and a well incentivized management team with
over $50 million in insider holdings. We would be remiss not to mention that the CEO’s MBA from our
alma mater, the Darden Graduate School of Business, gives us an extra degree of confidence in the
management team. We believe the strong balance sheet, the large recurring revenue aftermarket
business and the extreme low valuation represent a significant margin of safety for this investment
while execution on long-term market fundamentals and continued strong growth in non-coal business
should drive this investment to trade at 2-3x its value today.

 Viad (VVI) – This is one of our favorite core holdings. Viad’s two excellent but different business
segments, marketing & events and travel & recreation, are what is left over from a 1980s
conglomerate that has sold and spun off more than 20 businesses over the last 30 years, including
Greyhound, Dial Corp and Moneygram International. Each segment deserves its own discussion, but
we do anticipate that in the next three to five years the company will spin off one of the segments
into a separate company for the market to appreciate the premium value of each standalone business.
The marketing and events segment is a market leader in putting on exhibitions and live events
worldwide with almost $1 billion in revenue in 2015. They put on shows such as the European Society
of Cardiology annual event or corporate events with Microsoft or Mary Kay. It’s a great business, with

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Viad already working with 14 of the top 20 global event organizers, and in the last 12 months has
made four great strategic acquisitions into ancillary services, such as audio visual and event
accommodations. The acquisitions will significantly increase the segment’s profit margin and present
a tremendous cross-selling opportunity. One of the quirks about this segment is the presence of a
number of large bi-annual events, which are masking the true revenue growth of this segment and
the profitability of its acquisitions in 2015. We expect 2016 to be a monster year for this business as
the market sees the true growth and profitability of this segment. The other business segment, travel
& recreation, is a collection of high-end hotels, lodges, tours and attractions around Glacier, Denali
and Banff national parks. The segment has high growth Revenues Per Available Room (RevPAR) and
consistently strong occupancy levels, and continues to develop strong attractions to drive guest
traffic. If you haven’t already, we encourage you to check out the Glacier Skywalk in Jasper National
Park, a $20 million project, which includes a quarter mile glass floor platform hanging 900 feet over
the Columbia Ice Field. In its first year, the project has attracted over 300,000 visitors and generated
$4.5 million in EBITDA, a 90% rate of return! Finally, we really like the management team that is
return-on-capital and capital-allocation focused. With over $25 million of insider capital invested in
the firm, we are confident they will continue to do great things. Our margin of safety lies in the strong
balance sheet, the travel segment’s valuable hotel assets and the extremely low valuation of below
4.5x 2016 EBITDA at which we bought into this business. Longer term, we expect this business to grow
at 15-20% a year, generate massive free cash flow and eventually split into two companies, which
puts our long-term price target at over 200% from today’s price.

 Village Supermarkets (VLGEA) – We added a long position in Village Supermarkets in late September
2015, as the company reached the entry price at which we were comfortable after doing a lot of initial
research in late 2014. Village Supermarkets owns 29 ShopRite grocery supermarkets, mostly in New
Jersey. Ordinarily, we would be loath to invest in small capitalization grocery chains, as this is a space
where size matters greatly to achieve distribution economies of scale and supplier purchasing power.
However, Village Supermarkets has a strong competitive advantage in that it belongs to, and owns
13% of, a ShopRite Co-Operative, Wakefern Food Corp. Wakefern is the largest employer in New
Jersey and owns the Northeast’s largest trucking fleet. Its size allows it to achieve similar purchasing
power scale as Walmart or Kroger; share in ShopRite brand development and advertising; and have
centralized overhead systems for its members, such as treasury and human resources. This allows its
members to have negative working capital, strong cash flows and the ability to compete on price with
the Walmarts of the world, which is demonstrated by Village Supermarket’s ability to earn some of
the highest long-term gross margins and ROICs in the space. The company’s founders, the Sumas
Family, which run the company, own close to 40% or over a $100 million of the company, so they are
strongly invested in running Village Supermarkets and are involved in Wakefern’s operations. The
company has a consistent double-digit Return on Equity, which has allowed it to grow its book value
at 5-6% a year while paying out a 4-5% dividend yield. Village Supermarkets has consistently traded
between 1.3x and 2.3x book value over the last decade while generating superior returns. We were
able to buy this great business at close to 1.3x book value and less than 4x EBITDA, versus their peers
trading at close to 4.8x and 10x book value and EBITDA. We fully expect the company to continue to
generate high returns for the foreseeable future and to appreciate to the industry and its own
historical high multiples with consistent results. In the meantime, we’re happy to collect a 4% dividend
and watch the book value grow while having a strong margin of safety in the valuation and as well as
the hidden value on the balance sheet of the Wakefern investment listed at cost.

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Overall, we’re pleased with the high quality of our Core Value portfolio. Here are some metrics from the

 Our portfolio’s median and average ROIC is 10%

 Our median insider ownership is 9% and our average executive team owns over $55 million in our
portfolio companies
 Our median balance sheet has no debt and enjoys a positive 3% net cash position
 The median capitalization of our portfolio companies is $350 million
 Our median Price to Book Value ratio is 1.70x versus 2.13x for Russell 2000
 Our median 2016 Price to Earnings ratio is 13.0x versus 21.1x for Russell 2000

We look forward to tracking these statistics for our Core Value portfolio versus our benchmarks and are
working on putting together more comparability on operating metrics for our index benchmarks going

Enhanced Value Portfolio Additions

This is the part of our portfolio where we take smaller positions in special situation investments and loosen
our margin of safety philosophy for higher absolute upside potential and much higher risk reward ratios.
In short, while we may expect a little bit of a higher permanent capital loss potential from these
investments, we expect much higher returns. These investments will tend to be much more event/hard
catalyst driven and will have shorter holding periods than our Core Value portfolio. The Enhanced Value
portfolio is likely to stay close to 20% of the overall portfolio with investments ranging from 1 to 5% of
initial positions.

 Kodak $14.93 September 2018 Warrants (KODK-WT) – The Kodak warrants are our most bullish
position in the whole portfolio. While we fully expect the “Is Kodak still even around?” questions, we
will note that this is absolutely not your grandfather’s Kodak. Having emerged from bankruptcy two
years ago, Kodak is now mostly a successful commercial printing company with high-end laser, 3D and
packaging system printer offerings growing at high double digits. In the meantime, the company has
been undergoing the continued post-bankruptcy reorganization, massively cutting operating
expenses. There are many exciting aspects of this story, including the continued growth in installation
of high recurring revenue SONORA, Proper and Flexcel printing systems worldwide and the $100
million in cost savings hitting the income statement in 2016. While Kodak currently has a $600 million
Enterprise Value with almost zero net debt, we expect next year’s EBITDA and cash flow to come in
close to $200 million and $150 million, meaning the company is trading close to 3.0x and 4.0x EBITDA
and Operating Cash Flow estimates. In the meantime, the company also has a 7,500 patent portfolio;
an industrial park in Rochester, NY, which we estimate is worth close to $500 million; and significant
optionality to license its world famous Kodak brand name all of which provide a strong margin of
safety for the stock at this price. As part of the bankruptcy process, the company issued warrants
with a strike price of $14.93, close to the company’s current stock price of $15-$16, that we were able
to buy at below $2.75. However, we expect the company’s true value to appreciate to over $75 over
the next 3 years, meaning our expected return in this position is over 20 times our investment. We
don’t often find risk-reward ratios where we feel our downside is pretty limited while having a 2000%
return potential. We are prepared to take the liquidity and price volatility risk, given how thinly these
warrants trade. The company’s upcoming Analyst Day in late October 2015 should shine some much
needed light on the company’s growth potential going forward.

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 MMA Capital Management (MMAC) – This is a unique balance sheet restructuring opportunity. At its
heart, it is a real estate bond investment firm managing a $200 million portfolio of multifamily low
income and community development bonds. In addition, it has a number of investments that are
misunderstood or ignored by the market, which are worth multiples of what they are stated at on the
balance sheet. MMA Capital Management also has a significant stake in a number of real estate
limited partnerships as well as an option to buy back the general partner in 2019 with all of the earned
carried interest. Other interesting aspects of the story are the $400 million in Net Operating Losses
and the ability to refinance their debt, which is currently trading on the market for close to 50 cents
on the dollar. While the stock is currently trading below .8x book value, with a market capitalization
of only $85 million, its true book value is more than double of what is stated, and the company is
buying back an average of 10% of shares outstanding a year and has committed to continuing to buy
back shares below book value. Perhaps the more interesting aspect of the story is the entire
management team consistently using 100% of their after tax salary to buy stock outright on the open
market as well. We are mindful of the potential interest rate sensitivity and the opaqueness of
community development bonds while expecting a two to three times return from this investment.

 Full House Resorts (FLL) – Full House is a $28 million market capitalization operator of four small
casinos and hotels in Indiana, Nevada and Mississippi. Our investment in Full House Resorts is not an
investment in the four mid-market casinos but instead an investment in Dan Lee, a veteran casino
operator who spent a decade as a CFO of Wynn’s Mirage Resorts and seven years as the CEO of
Pinnacle Entertainment. He is one of the most respected gaming executives in the industry having
completed hundreds of casino, hotel and gaming transactions as well as doubling and tripling
profitability at most of his targets. We view Full House as a fund vehicle for Dan Lee to acquire
turnaround casino operations and to position Full House as a leader in the gaming industry. Since our
investment, Dan Lee has announced a $30 million acquisition of a casino in Colorado and proposed a
$650 million casino and mall development project in Indiana. We expect big things from this
management team and look forward to future value creating announcements.

We expect to add a few more small positions to our Enhanced Value portfolio in the next year, and we’re
excited about the upside each one of our current investments has to offer.

Portfolio Performance

We had a solid quarter, staying nearly flat while the major small- and micro-cap indexes dropped over
11%. Out of our 12 fully invested positions, only USA Technologies performed in line with the down
market. Our outperformance was helped by over 10% moves in Viad, US Geothermal and Kodak warrants,
as well as positive performances from National Research Corp. and MMA Capital Management, while the
rest of the portfolio’s positions stayed close to our entry purchase prices with minimal losses. Our average
cash position was under 3% throughout the quarter.

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Market Outlook and Commentary

While we do not pretend to be expert market and economic forecasters and we choose our investments
in the belief that they will outperform through economic and market cycles, we do pay careful attention
to fundamental macro indicators and market valuations in making our investment decisions.

In 3Q 2015, the market shrugged off yet another Greek debt drama, but it did not shake off the bursting
of the Chinese market bubble and a slowdown in Asian economic growth with the S&P 500 dropping over
10% from its recent highs and the number of the stocks within the index hitting 52-week lows nearing
30%. A lot has been written in the media and on Wall Street trading desks about the market’s high
absolute valuation (15.6x forward P/E) and potential for an earnings growth slowdown; however, we tend
to look at market valuation through the prism of relativity, via a variant of the Fed Model. By taking the
spread between the market earnings yield (i.e., the inverse of its forward P/E), at 6.4% and comparing it
to the real 10-year treasury rate 0.02% (10-year Treasury of 2.02% less 10 year Fed CPI inflation forecast
at 2.0%), we can see that the 6.4% spread is significantly above the long-term average of around ~4%. In
other words, our view of market valuation is a factor of not only earnings growth but also the relative real
yield one can get on alternative, safer investments. The three factors that we pay attention to that would
cause the spread to widen (i.e., a market contraction), are earnings growth, interest rates and inflation.

The current market expectations for 2016 market earnings growth are 10% or about 130.00 per share.
While we expect the forecasted earnings to keep coming down closer to 7-8% growth on fears of a
stronger dollar, weak Chinese growth, and more pain from the energy sector we believe growth to
surprise on the upside. The U.S. economy is poised to continue growing at a 2% - 2.5% GDP trend rate for
the next few years due to growth in wages, lower unemployment and a nice boost in the global consumer
(and corporate) pocket from significantly lower commodity prices. As the U.S. consumer represents over
70% of the domestic GDP and with a number of tailwinds, such as pent-up housing demand and rising
consumer confidence, we fully expect continued consumer demand to contribute to GDP and earnings
growth. With the U.S. corporate balance sheets in their best health in a decade (at 25% of total

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capitalization) and flush with cash, while we are in the minority, we’re not opposed to sustained earnings
growth support with continued investments in buying back company shares.

If growth is so good, should we worry about rising interest rates? Yes, but not overly. We are strong
believers in the investment philosophy of “don’t just do something, stand there” and with unemployment
still above 5% and the Fed forecast of 2015 inflation below 1% and below 2% in 2016, we hope the Fed
adopts the same “standby and watch” stance until the circumstances warrant it, likely sometime in late
2016. Perhaps the most telling real world indicator of low inflation risk today is the Social Security
Administration’s announcement of no cost of living adjustments (COLA) for 2016. While we do expect
interest rates eventually to rise, we do not expect more than a 100 basis point increase in the next 12 to
24 months.

Finally, with slack still left in U.S. employment rate, a 20% stronger dollar and a 40% year-on-year collapse
in the global commodity prices, we expect the long-term inflation expectations to remain subdued. There
are a lot of factors that can trip up corporate earnings growth, interest rates and long-term inflation
expectations, such as a stronger slowdown in Asian growth, another European fiscal crisis or an illogical
“do something” Fed. Additionally, we are closely monitoring the student loan market as a big potential
trouble spot that could trip up credit markets, economic growth and consumer confidence. While we are
not expecting a roaring bull market, we are also not expecting a market collapse based on fundamentals.
We believe post-correction the market is valued within the appropriate range and will likely produce single
digit returns or losses in the near future while creating opportunities in a “stock pickers” market.

Fund Update

As this was our official launch quarter, we could not have done it without our investors as well as our
accounting, legal and auditing support. We’re thankful to have HC Global, The Securities Law Group, M.D.
Hall & Company Inc. and First Republic Bank as our operating partners in this venture and are looking
forward to continuing to working with them in the future.

Next Fund Opening

Our next fund openings will be December 1st, 2015, and January 1st, 2016. For offering documents and
presentations contact peter@artkocapital.com or 415.531.2699.

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Legal Disclosure

The Partnership’s performance is based on operations during a period of general market growth and
extraordinary market volatility during part of the period, and is not necessarily indicative of results the
Partnership may achieve in the future. In addition, the results are based on the periods as a whole, but
results for individual months or quarters within each period have been more favorable or less favorable
than the average, as the case may be. The foregoing data have been prepared by the General Partner and
have not been compiled, reviewed or audited by an independent accountant and non-year end results
are subject to adjustment.

The results portrayed are for an investor since inception in the Partnership and the results reflect the
reinvestment of dividends and other earnings and the deduction of costs, the management fees charged
to the Partnership and a pro forma reduction of the General Partner’s special profit allocation, if
applicable. The General Partner believes that the comparison of Partnership performance to any single
market index is inappropriate. The Partnership’s portfolio may contain options and other derivative
securities, fixed income investments, may include short sales of securities and margin trading and is not
as diversified as the indices, shown. The HFR Equity Hedge index is an equal weighted performance index
of certain funds in the Hedge Fund Research, Inc. (HFR) Database that deploy strategies maintaining
positions both long and short in primarily equity and equity derivative securities, including quantitative
and fundamental techniques, specific sectors, and ranging broadly in net exposure, leverage, holding
periods, and concentrations of market capitalizations. The Standard & Poor's 500 Index contains 500
industrial, transportation, utility and financial companies and is generally representative of the large
capitalization US stock market. The Russell 2000 Index is comprised of the smallest 2000 companies in the
Russell 3000 Index and is generally representative of the small capitalization U.S. stock market. The Russell
Microcap Index is comprised of the smallest 1,000 securities in the Russell 2000 Index plus the next 1,000
securities (traded on national exchanges). The Russell Microcap is generally representative of the
microcap segment of the U.S. stock market. All of the indices are unmanaged, market weighted and reflect
the reinvestment of dividends. Due to the differences among the Partnership’s portfolio and the
performance of the equity market indices shown above, however, the General Partner cautions potential
investors that no such index is directly comparable to the investment strategy of the Partnership.

While the General Partner believes that to date the Partnership has been managed with an investment
philosophy and methodology similar to that described in the Partnership’s Offering Circular and to that
which will be used to manage the Partnership in the future, future investments will be made under
different economic conditions and in different securities. Further, the performance discussed herein does
not reflect the General Partner’s performance in all different economic cycles. It should not be assumed
that investors will experience returns in the future, if any, comparable to those discussed above. The
information given above is historic and should not be taken as any indication of future performance. It
should not be assumed that recommendations made in the future will be profitable, or will equal, the
performance of the securities discussed in this material. Upon request, the General Partner will provide
to you a list of all the recommendations made by it within the past year.

This document is not intended as and does not constitute an offer to sell any securities to any person or
a solicitation of any person of any offer to purchase any securities. Such an offer or solicitation can only
be made by the confidential Offering Circular of the Partnership. This information omits most of the
information material to a decision whether to invest in the Partnership. No person should rely on any
information in this document, but should rely exclusively on the Offering Circular in considering whether
to invest in the Partnership.

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