Kinnaras Capital

Management LLC www.kinnaras.com

225 Flax Hill Road • Suite 1 • Norwalk, CT 06854 • Phone: 203-252-7654 • Fax: 860-529-7167

January 27, 2010

Dear Investors,

Kinnaras Capital Management ("KCM", "Kinnaras", or the "Firm") Separately Managed Accounts
("SMAs") returned 9.5% net in Q4 2010 and 11.3% net for the calendar year ended December 31, 2010.
Table I presents KCM SMA performance relative to key indices. Investors should note that individual
returns will vary based on the time one invested and that the composite return presented below is net of
fees and is the time-weighted return ("TWR") of all Kinnaras SMAs. TWR is one of the most
comprehensive and accurate way of gauging investment performance for managed accounts but can be
skewed at times due to the timing of new portfolio openings.

TABLE I: 2010 MANAGED ACCOUNT PERFORMANCE

Q1 2010 Q2 2010 Q3 2010 Q4 2010 YTD 2010

KCM Net Performance 9.46% -14.04% 8.09% 9.46% 11.31%

DJIA 4.11% -9.97% 10.37% 7.32% 11.02%

SP500 4.87% -11.86% 10.72% 10.20% 12.78%
NASDAQ 5.68% -12.04% 12.30% 12.00% 16.91%
1/31/2010 2/28/2010 3/31/2010 4/30/2010 5/31/2010 6/30/2010 7/31/2010 8/31/2010 9/30/2010 10/31/2010 11/30/2010 12/31/2010 FY 2010
KCM Net Performance -1.40% 4.49% 6.24% 2.81% -8.71% -8.42% 4.26% -6.15% 10.47% 2.77% -3.16% 9.98% 11.31%

DJIA -3.46% 2.56% 5.15% 1.40% -7.92% -3.58% 7.08% -4.31% 7.72% 3.06% -1.01% 5.19% 11.02%
SP500 -3.70% 2.85% 5.88% 1.48% -8.20% -5.39% 6.88% -4.74% 8.76% 3.69% -0.23% 6.53% 12.78%
NASDAQ -5.37% 4.23% 7.14% 2.64% -8.29% -6.55% 6.90% -6.24% 12.04% 5.86% -0.37% 6.19% 16.91%

As I mentioned in November, I noticed a number of bargains in October and November and began to
adjust the portfolio accordingly, essentially turning over most of our holdings from the earlier part of the
year. When reconfiguring the portfolio, I also broadened it in terms of holdings and capital allocation.
Rather than have a handful of companies account for 50% of the total portfolio, by mid-late November
the portfolio was structured to have a bit more diversification with position sizes generally ranging from
3-5%.

While I've discussed specific investments in previous letters, I thought it would be more useful to
present a broader overview of the current portfolio given the recent turnover. The following charts
highlight weightings in terms of industry, capitalization, and valuation. By reviewing these charts,
investors should have a sufficient overview of where capital is currently deployed.

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 TABLE I: PORTFOLIO WEIGHTINGS1,2

Weighting by Industry Basic Materials Weighting by Capitalization

Utilities <$10B
3% Cash
4% 5%
Business Services 3%
Telecom Equipment 4%
5% <$2.5B
9%
Cash <$100MM
Telecom 3% 26%
2%

Technology Consumer
15% 21%
<$500MM
26%
Resorts/Casinos
8%
Drilling
6%
Pulp & Paper
3% Energy
2%
Old Media Food
Healthcare 3%
10% Industrial Goods <$250MM
3%
8% 31%

Weighting by Price to Book Value

Weighting by EV/EBITDA
<17.50x Cash Cash
4% 3% <1.50x 3%
<15.00x 16%
5% <0.50x
<0.00x 16%
14%
<12.50x
3%

<2.50x
10%
<0.75x
<1.25x 13%
<10.00x 21%
13%

<7.50x
24% <5.00x
24%
<1.00x
31%

1
Consumer category in Weighting by Industry chart includes retail and consumer goods companies. Old Media category
includes newspaper publishers, broadcast television, and radio companies.
2
Weighting by Capitalization, EV/EBITDA, and Price to Book Value charts are not cumulative. For example, in Weighting
by EV/EBITDA, 10% of the portfolio is invested in companies below 2.5x EV/EBITDA but above 0.0x EV/EBITDA
(preceding category).
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TABLE II: HISTOGRAMS3
Distribution by Capitalization
12

10

0
<$50 <$100 <$250 <$500 <$1,000 <$2,500 <$5,000 <$10,000

Distribution by Price to Book Value

10

0
<0.25x <0.50x <0.75x <1.00x <1.25x <1.50x <1.75x

Distribution by EV/EBITDA

10

0
<0.00x <2.50x <5.00x <7.50x <10.00x <12.50x <15.00x <17.50x

3
Y-Axis represents histogram bins which are not cumulative. For example, in Distribution by Capitalization, the portfolio
contains 8 investments which are below $100MM in market capitalization but above $50MM (preceding bin).
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While the information above may be a bit daunting, there are really just a few basic takeaways for
investors to recognize. We currently have a heavy skew towards small and micro capitalization stocks
with 57% of the portfolio invested in companies valued below $250MM. In fact just 5% of the portfolio
is invested in companies worth more than $2.5B in market capitalization. These companies are also
pretty cheap as expressed through low Price to Book ("P/B") and Enterprise Value to EBITDA
("EV/EBITDA").

Aside from presenting data related to the current portfolio, it is also important to review key drivers of
2010 performance which are highlighted in Table III by stock ticker. Some of our largest holdings in
the first three quarters of 2010 consisted of RJET, C, S, KFT, and DYN. As Table III illustrates, RJET
was the only high conviction holding that performed well as other big bets were either routine or
disappointing in terms of performance.

TABLE III: 2010 NOTABLE REALIZED LOSSES & GAINS4

FBC
JADA
PRWT
AIB
CHINA
TRMA
TA
SNV
IKAN
TRID
DYN
DSPG
KFT
ZZ
S
MPEL
C
BUSE
CNO
SPTN
TSO
WNR
CWTR
RJET

-90% -80% -70% -60% -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Another consistent aspect amongst our losers was that a number of them were in the financial services
segment, specifically banks. The better play was to invest in larger regional banks such as KeyCorp
("KEY"), Regions Financial ("RF"), and Huntington Bancshares ("HBAN") but I positioned our bank
holdings more aggressively in 2010. Of the four losing bank stocks in Table III, the investment theses
for Allied Irish Bank ("AIB") and Flagstar Bancorp ("FBC") were completely wrong. I still believe
investors in Premier West Bancorp ("PRWT") and Synovus Financial Corp ("SNV") can be well

4
Highlights material gains and losses realized in 2010 with percentage gains and losses based on average returns for
managed accounts. Individual accounts will experience differing returns per holding based on when their account was
opened.
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rewarded over the next 12-24 months but sold them primarily because of more attractive opportunities
which arose in October and November and the chance to harvest tax losses.

Investors may also be curious regarding the divestiture of Sprint-Nextel ("S"), our highest conviction
holding in 2010. When Greenlight Capital founder David Einhorn revealed a stake in S in early
December (a few weeks after we had sold), I received a few "what do you think about that" emails, not
surprising when one considers Greenlight Capital's ~22% annualized return since inception in 1996.
One of the reasons I sold S was simply due to a flurry of much more attractive prospects that arose in
Q3. The limited capital we control allows us to invest in any segment of the market and I wanted to take
advantage of that opportunity in Q3.

Nonetheless, I would have considered holding on to a small stake in S if I had greater confidence in its
management team, marketing efforts, and competitive dynamics. When establishing our stake in S in
early 2010, one component of my investment thesis was the head start S had on its rivals in deploying
next generation ("nextgen") cellular capabilities. S's 4G service is provided through its majority stake in
Clearwire ("CLWR"). S would also be releasing two spectacular phones using Google's Android
Operating System in the summer -- the HTC EVO ("EVO") and Samsung Epic. Sales data was
demonstrating that Android phones were gaining considerable momentum and the EVO and Epic were
two of the most widely anticipated smartphones of 2010.

Heading into 2010, S would be the first to 4G with a significant lead time over its rivals, had two highly
rated phones that could compete against any of the top smartphones, had a very compelling price point
relative to other carriers, experienced massive improvements in customer service, and had already
demonstrated success in rationalizing parts of its business to drive operational improvements. S also
faced few financing constraints with most of its debt maturities far into the future. The stock was cheap
across a number of valuation metrics and had a number of catalysts in place that could drive
improvements in valuation.

Here's where the train started to get off the tracks. The telecom business is highly competitive and I
believe companies have to go for the jugular when it comes to advertising to demonstrate their key
strengths over their competitors. For example, Verizon ("VZ") directly mocks AT&T's ("T") network
coverage in its television ads, leading the viewer to believe that VZ has the best coverage while T has
overpriced and weak network coverage. S intended to release the EVO in June and a number of third
party sources considered it to be the best smartphone available. S had for the first time a legitimate top-
shelf product and had also developed a very competitive pricing plan offering far more value to a
subscriber relative to VZ and T. I had expected some aggressive and smart advertising to promote the
EVO functionality and S phone plans directly against its competition. Instead there appeared to be little
to no advertising until the final two weeks of the release and the marketing was very mundane.

I felt S had squandered a huge opportunity when there were no other competitors to market leading up to
the introduction of the EVO and from that point on I began to question S's advertising efforts. For
example, S runs advertisements before the coming attractions start in movie theaters. As theaters are
usually pretty empty before the coming attractions start, I would wonder how effective the use of these
ad dollars were in attracting new subscribers. I also was skeptical of the company's sponsorship of
CBS's NFL halftime show and sponsorship of the Sprint Cup for NASCAR. My personal view was that
S could be far more effective with advertising that demonstrates what its network and exclusive phones
could do rather than spend ad dollars on blanket sponsorship.

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The next problem arose with S's handling of CLWR. CLWR is majority owned by S but was also
competing directly against its parent company by offering CLWR-branded service as well as specific
connection devices such as the iSpot which competed against the S Overdrive. Considering that CLWR
burns considerable cash, much of it from S, it was bizarre that S sat idly by for so long allowing CLWR
to use S cash to develop products to compete against its parent. In Q4 it became apparent that CLWR
would need more capital setting up additional tension between S and CLWR.

At this point S needs CLWR as it provides S with its 4G service but CLWR will still require billions to
further expand coverage in the US. It will be challenging for S to fund CLWR's needs while also
executing its own capital spending plans. S took far too long to decide to rationalize its iDEN and
CDMA networks but it intends to start in 2011. This project will require billions and excludes the
roughly $2B+ needed on maintenance capex and FCC license expenditures. These are not immaterial
expenditures considering S generates under $6B in EBITDA.

What exacerbates this problem is that competitors are now coming to market with 4G services. While S
had a large lead in terms of time, it squandered that lead with ineffectual marketing and poor
management of CLWR. The company has a compromised operational and financial strategy and is now
facing competition with far better marketing and deeper resources.

For example, S marketing executives could learn a lot from T-Mobile. T-Mobile has released some
excellent ads which are exactly what I envisioned S would have done but did not. The T-Mobile ads
copy the "I'm a Mac, I'm a PC" commercials Apple developed whereby T-Mobile goes directly after
AT&T and the iPhone, highlighting AT&T's poor network performance and limitations of the iPhone 4
(http://www.youtube.com/watch?v=4EdUKSwQcsg&feature=player_embedded). S could easily have
done similar ads but for whatever reason, S CEO Dan Hesse has been reluctant to highlight any design
and operational advantages the EVO and Epic have over the iPhone or the S network has over
competitors. T-Mobile has had no such qualms and it would be little surprise if sales of T-Mobile 4G
devices accelerate due to the smart advertising5.

Aside from T-Mobile, VZ is also beginning to market its 4G service. VZ has the deepest pockets of US
telecoms and will be rolling out its coverage network at an aggressive clip while S and CLWR struggle
to address financing and operational aspects. In addition, 4G smartphones appear to be slated for wide
availability across carriers in 2011. While the EVO and Epic were two of the best phones released in
2010, there are a host of very impressive phones set to be released in 2011 such as the Motorola Droid
BIONIC, Samsung 4G LTE Smartphone (nextgen Galaxy S), and HTC Thunderbolt. What will make
this challenging for S is the cost subsidies associated with increasingly advanced phones will not be as
easily absorbed by S relative to its peers as the Company's current plans yield lower ARPU relative to its
peers. This could result in further margin pressures.

When entering 2010, S has a number of tangible opportunities and I felt if the company successfully
executed on these, operations would improve significantly and thus yield a better valuation for the stock.
S had its chances but I believe they missed what was essentially the one "open year" they had to increase
subscribers with a relatively light competitive field. As Q3 and Q4 passed, the window between S and
its competition was virtually eliminated. I expect that 2011 will be a year where its deeper pocket rivals
like VZ flex their muscles and offer 4G services with other attractive smartphones. S may still pay off

5
Even worse for S is that T-Mobile's 4G is really just an enhanced form of 3G so S has the superior technology but still
struggled in my opinion to generate effective advertising.
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handsomely for investors but I felt we had better places to invest and that the outlook for S was getting
increasingly more challenging.

S did not perform as well as I had expected and substantial losses on small portfolio positions ate away
gains from other parts of the portfolio. For example, Kinnaras allocated about 2% of its capital to Jade
Art Group ("JADA") in Q3. The loss recognized on JADA reduced total portfolio performance by about
1.2%. That one loss was enough to more than wipe out the entire 10% gain of a 10% allocation to KFT.
This was the overarching theme in 2010 where the portfolio's highest conviction holdings were
overshadowed by the returns of less material holdings for both gains and losses.

These results combined with the findings of an analysis I conducted and presented to investors in
November led me to alter my overall approach to position sizing. As a result, when I was turning the
portfolio over in October and November, most weightings ranged from 3-5% as opposed to prior
position weightings in excess of 10% for the Fund . This alteration in portfolio weightings is in part due
to the results of testing my historical position sizing approach over the past several years (which
suggested a less concentrated approach would yield better results) combined with a heavier skew
towards deep value micro cap and small cap stocks.

As for 2011, some investors have asked for my forecast/outlook for this year. I don't have one or plan to
develop an outlook. My focus is solely tied to our current holdings, prospects, and their valuations.
When a company is trading for less than tangible book value and is producing solid cash flow, it's
usually worth taking a flier on in any environment so long as one can stomach some volatility and has a
sufficient enough time horizon.

This may sound simplistic and naive but spending too much time thinking about the economy and
broader market outlook can deleteriously impact one's investment performance. Much of what the
market impounds is data that is widely consumed. So when someone is parroting what they have
heard/read from various media outlets, it's difficult to place much value on this "news" as it is likely
widely reflected in current asset prices.

As always, feel free to contact me with any questions.

Best regards,

Amit Chokshi

DISCLAIMER: Any views expressed herein are provided for information purposes only and should not be construed in any way as an offer, an
endorsement, or inducement to invest with any fund, manager, or program mentioned here or elsewhere. Neither Kinnaras Capital Management LLC nor
any persons or entities associated with the firm make any warranty, express or implied, as to the suitability of any investment, or assume any responsibility
or liability for any losses, damages, costs, or expenses, of any kind or description, arising out of your use of this document or your investment in any
investment fund. You understand that you are solely responsible for reviewing any investment fund, its offering, and any statements made by a fund or its
manager and for performing such due diligence as you may deem appropriate, including consulting your own legal and tax advisers, and that any
information provided by Kinnaras Capital Management LLC and this document shall not form the primary basis of your investment decision. This material
is based upon information Kinnaras Capital Management LLC believes to be reliable. However, Kinnaras Capital Management LLC does not represent that
it is accurate, complete, and/or up-to-date and, if applicable, time indicated. Kinnaras Capital Management LLC does not accept any responsibility to update
any opinion, analyses, or other information contained in the material.

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