TI{E LION FUND, L.P.

To the Partners of The Lion Fund, L'P':

ouroverallperformancein2014wasminusT.2o/o.overthelastl5years,TheLionFundhasachieved a rate of return of 167o compounded annually'

My business partner Phil Coolev and I started from z3ro,.t-o-i:I ?lltlf ::::"*i:t".:itl1billion

j;il#il;J;;iil;th controtled businesses employing over 23,000 people" 'not bad for'^-^:-:-- l:f^

;'#i#fffiffi;i*;'d;uu'"a i" San Antonio w:,111b:':.':,o1:::.:'i:i::il:::s rife-

ilil'#,":t "r'"u"t;".ss

and investments: J: T"d ",Tii-':1"-":lv*?:l oYl^:0,*it""::*::

il.?"".il; : ilk;;;n"r, po.o, walton, Buffett quickly come to mind - to design an enterprise1 - -a-:L--+^l +^

that fits our skill Much of our success to date can be attributed to

app

;T$l.J:"'r".?#becau;"",ffid;;" ;;iaild-b-"t because the owner-manasers of that era thousht.- __, :-

-:-l

#ffi; ;;.d by,h" gnyrrlr-'al. our old-fash io ned ideal T.: tli::P:Lil

entrepreneurially as capitalists. We are driven to developing enterprises with our partners in mind -

to advance wealth'J/---/-

Based on the facing page displaying the metric for evaluating our performance in 2014' it

appears that wealth retreaii.,A=ft", uil, we f,ad negative absolute performance, and compared to the

S&P, it was the worst relative performance since my founding The Lion Fund' We concentrate on

relative results U."uu.", oter time, poor relativ" nu-b"' will produce unacceptable absolute results'

However. we do not measure the progress of our investments by their market price changing

during;;;;;;;;. ri"rr''., pil ""0

r "*r,,It"

rll :

p"1toTul': 91pp{?l:]::,*"J-:'3::::::;;ril""ff;il,i;;rl."rr., *" own, as if we owned thim in their entiretv. Naturallv, had we owned

r - ^--rl L^ ^^-^:l^--,{iil;"";i;i"rr""i",tr"* companies in the Fund's portfolio, TLF could be considered a

"conglomerate," and for 20l4we would be pleased with the pt?gt::: ::"11',t::::1,t::::;',:""1T3

#;##;" ;;; assessment of business progress is not iy means of improvement in annual-.-r -,^l--^ ^f G',c.-^ ^^-L fl^.". f\-

;ffi;;;;""""""*"r cash flows. Rather, it is uased on the present value of future cash flows' on'e - ;. '---r-,--:=-:=>-*aT^-;^^

the basis of gfowth in business value, we created-WealtTl. UVer tlme' Dtnqrlss:

must converge. we focus on the growth of business value with the idea

ultimately reflect it, thereupon producing a satisfactory return'

If near-term stock price changes were the key criterion in measuring performance, then one

would have missed the greatest oppoirunity to invest with a famous Midwesterner, Warren Buffett'

As you may know, Mr. -Buffett

took control of Berkshire in 1965. In the calendar Vear e1di19 ]n1!:

b"r'r..n,r" il"in"*iv *gistered - in absolute and in relative results -

negative returns for five- and

six-year intervals.\=::\

Returns are displayed as follows for both Berkshire and the S&P.

Berkshire's Stock Performance vs. the S&P 500Index

Annual Percentage Change

Stock Price

(l)S&P 500lndex Relative Results

(2) (r)-(2)

(4.6)

80.5

8.1

(2.s)

(48.7)

2.5

(0.8)%

(4.6)%

3.9

t4.6

18.9

(14.8)

(26.4)

37.2

3.3Yo

21.80h

(8.5)

65.9

(r 0.8)

12.3

(22.3)

(34.7)

(4.1)%

(26.4)%

Evaluating Berkshire's intrinsic value record -

using per-share book value as an understated

proxy for intrinsic value - an investor would calculate over the same time period a gain of llLYo.

Over an extended period of time, undoubtedly total stock return is the best barometer, even though

evaluations spanning as long as five or ten years can be distorted by high or low prices at the

,,bBginning or end of the measurement period. For Berkshire, from the time Buffett took control on .,.

hli/u, 10, 1965 through December 31,2014, he produced an average annual return of nearly 2V" I/'versus about I Q%forthe S&P.

' 74

tl lt is important to review the trend of our outperformance on rolling five- and ten-year bases.

{7Five year is the absolule minimum period we have repeatedly stated -

over which

' performance should be reviewed, and with the passage of time the performance figures increase in

validity. Because we have long-term partners -

averaging ten years (and counting!) -

the decade

test is presented for review. A series of calculations is then presented so that you can determine foryourself which period is most consequential for evaluation. Since our inception, there have been

eleven five-year and six ten-year spans-

S-year Average Annual Return lO-year Average Annual Return

TLF S&P TLF s&P

2000-04

2001-0s

2002-06

2003-07

2004-08

200s-09

2006-10

2007-ll

2t0E-t2

2009-r3

201 0-l 4

19.7"/o

14.6

14.8

19.9

6.8

15.4

18.6

| 1.0

r 0.3

25.9

l3.0

(2.3)%

0.5

6.2

r2.8

(2.2)

0.4

z.J

(0.2)

1.7

18.0

15.5

2000-09

2001-10

2002-rr

2003-12

2004-13

2005-14

17.501o

16.5

t2.8

r 5.0

16.0

14.2

(0.e)%

1.4

2.9

71

7.4

7;7

tu-[uyz

Last year I wrote to you, "The reason we believe a five-year time horizon is the absolute

minimum by which to judge results is that performance can be significantly distorted by starting and

ending dates. For instance, during the five years that ended with 2012, the S&P generated a return of

i\i2$;;um. However a shift of one y"ur -

excluding the dismal year of 2008 but.including the fi

robusi performance of 20 | 3 -

the average S&P annual retum. . .jumped to I 8%. Should an investor lr

conclude with a five-year test when one interval produces a paltry 1.7% annual return, but a shift of

one year produces a retum that is over 1000% higher? Arguably, five years can be too short to

evaluate Conclusively performance results." The same logic can be applied to excluding TLF's

outperformance of 2009 but including its underperformance of 2014. A shift of one year reduces

,N average annual returns from 25.9Yo to l3Yo. Obviously, calculations of g.r{[j!Lb" bi-"d,

[I fuuo.iUly or unfavorably, based on a selection of initial or terminal dates. /'

l '.---..-I gut I also, in our Partnership Guidelines, initially laid out in the 2002 Annual Rep-ort and

reproduced every year since then, said that you should "Judge our results aeaiqqlhe5'f;ftS-O0 . oYt

benchmark - over a period of no less than five years. Make sure not to evaluate us on a yearly basts

because I can say with conviction that we will have years in which we trail the benchmark, perhaps

substantially. So, our policy of measuring performance in no way promises excellent results -

naturally - it merely ensures objective assessment. If we fail the five-year test, we will find a new

line of work, and evin I should find someone else to manage my money. The only caveat to such a

provision: Should the five year period encompass a speculative bull market hurting our relative

performance; we'll address this issue when we cross it." It is clearly time to address it so that I keep

my job!

Doubtless, TLF's relative outperformance in 2008-09 caused the Fund subsequently to

underperform, as compared to the robust bull run of the S&P. But we will never abandon a sound and

.p.!'oven strategy simply to outrun an index in the short run. Results can become distorted around

$arfet disloJJions, e.g.,1974-75 and 2008-09. In fact, our six-year annual return is 19.7% versus

17.2o/o for the S&P. Our basic idea is to concentrate capital into stocks of businesses with the belief

that such a portfolio will generate higher retums over time with a lesser investment risk than will a

diversified itock portfolio. (As a side note: Out of the approximate 14,000 stocks that trade in the

U.S.. over 50%o fail to beat the S&P over a five year period. The S&P is no pushover.) Our objective

is to earn your appreciation through capital appreciation.

Today, I believe that low overall price/value ratio of the portfolio has positioned us more

favorably than at any time in the last five years for a desirable reward/risk profile with excellent

profit potential vis-i-vis the S&P. My confidence in TLF's future is backed by financial commitment

in thaf at the end of the year I personally added $8.5 million to my account in TLF. In Matthew 6:21

Jesus said: "For where your treasure is, there will your heart be also." My treasure and heart are in

TLF.

**{<

L-<:7-rY' Whut is rather commonplace in the U.S. system that we find most damning is the pursuit of

short-term performl;gc+{he undue emphasis on near-term stock price has caused firms to issue

Wedffi#gs-guidance, which to ui is the{qQrsj-&rm of co{pofAte*eovem'ancd..Business _is

fundamentally unpredictable and uncertain. The tffconcern is that after making public a specific

commitment to Wall Street, managers may begin to engage in 991gj4 ft. This

phenomenon occurred with prior management of Steak n Shake because of its fogm on .ret{€Htresults -

EPS growth of l5Vo per year -

one pursued at the expense of maximizing the long-term

economic value of the enterprise. [n the end, this flawed concept almost bankrupted the restaurant

chain. Thus, the real issue is that managers will engage in false, misleading, or fraudulent reporting

- corporate governance al its worst.

But it is not just corporate America that is to blame for the aforementioned craven behavior.

The investment managers who preside over other people's assets are also engaging in short-term

conduct, reinforcing the appalling, atrocious problem. After all, many investment managers suffer

from their own govemance failures with their own faulty investnnent performance and high fees.

Although there are a number of high quality companies who behave honorably, the trend in short-

term sub-standard thinking and reliance on third parties to direct corporate action are quite alarming.

Our reaction to the troubling behavior of corporate America and Wall Street is to ignore that which

we find to be illogical, irrational and invalid. We continue to exercise rationality and thereby exploit

the opportunity gaps created by the shortcomings of others.

Accounting & Audit

KPMG LLP performed all tax accounting for the partnership in 2014. North Street Global

Fund Services LLC handled all the reporting for the Fund. Deloitte LLP audited the Fund's

financials. All three firms performed their tasks in a timely, productive manner'

Prime Broker

We are changing brokers and custodians from M.S. Howells & Co. to J.P. Morgan Chase &

Co. We have been pleased with the services of M.S. Howells, but we are now at a size that requires a

far larger organization to handle our account.

We are eager to see you at the annual meeting to be held Friday, April 24 at the Dominion

Country Club.

April 18,2015

Sardar Biglari, CFAChairman of the Board