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October 2017

Dear Vilas Fund Partner,

The Vilas Fund, LP rose 15.0% in the three-month period ended 9/30/2017. On a year-to-date
basis, the Fund has increased 19.7%. Since the Fund began a little over 7 years ago (August
9, 2010), it has appreciated at 16.0% per year, net of fees, compared to the 14.3% return of
the S&P 500 Index. This performance has compounded an initial investment of $1 at inception
into $2.88 as of quarter end. If we are fortunate enough to have this rate of return (16%)
continue through our ten-year anniversary, the Fund will have grown $1 into $4.40, net of fees.
Importantly, the Fund has also been very tax efficient and has produced a net negative amount
of realized capital gains from inception through year end 2016. Thus, the returns we show
were not partially taxed away.

The power of compounding capital at somewhat higher rates is compelling, especially for those
investors with longer term time horizons. This is the entire premise of the Vilas
Fund: attempting to generate a high return on investment by using the capital markets to their
fullest. To accomplish this, we utilize a value strategy, buying stocks well below what we
believe they are worth, usually at low multiples of book value and earnings, and selling short
glamour stocks, or those with extremely rosy outlooks and massive valuations, at levels far
above their worth. Academic research has found that, over time, deep value stocks tend to
outperform glamour stocks by roughly 9.5% per year over rolling 5-year periods1.

The markets have not cooperated with this data recently: growth stocks have produced
significantly higher returns than value stocks since 2005. We believe that this trend will reverse
in the intermediate future, and with a vengeance. We would not be surprised to see a similar
downdraft in the glamour segments of the market as we witnessed in the 2000-2002 period for
technology stocks and the early 1990s for biotech stocks. Ironically, the reason I was able to
begin managing an equity fund in the mid 1990s was due to the fact that the former manager
concentrated on glamorous, but unprofitable, biotech and healthcare stocks that crashed. An
early lesson that wasn't lost on me. Following this, the 2000-2002 period was undoubtedly the
best in my equity management career as the Fund I managed increased 19% from 12/31/99 to
12/31/2002 while the stock market fell 38%. We believe that a similar set of circumstances,
though not as widespread, will occur in the not too distant future. If the future environment is
very similar to the past bursting of the tech bubble, the Vilas Fund, LP should perform
markedly better in relation to the market than the other equity fund I managed.

Why are we so optimistic? Because we have seen this movie before and are positioned to
benefit greatly. Cisco Systems, Intel, EMC, Linear Technology, Oracle, Microsoft, Dell, Nortel,
and Sun Microsystems were far better companies, from an earnings, cash flow and balance
sheet perspective, when compared to todays crop of glamour stocks. They still fell ~90% on
average. Tesla, Amazon and Netflix, to name a few, are trading at higher valuations than the
four horsemen stocks did in 1999 yet have comparatively poor balance sheets, lousy

VILASCAPITAL Management, LLC The Aon Center 200 E. Randolph Street, Suite 5100 Chicago, IL 60601
Office: (312) 702-1976 web: www.vilascapital.com
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earnings quality, and dubious business models. This is a recipe for disaster and will eventually
end very poorly.

On the other hand, our portfolio of financials, healthcare stocks, retailers, and automobile
manufacturers are selling at roughly 11 times 2018 earnings estimates, on a weighted average
basis. In addition, the financials we own in the US and Europe are selling, on average, at
roughly tangible book value per share, which implies that there is no value for their ongoing
operations. These valuations are very attractive and should provide for compelling future
returns.

Thus, the Vilas Fund is short a smattering of companies with massive market capitalizations,
poor balance sheets, and virtually no earnings while it is long companies with low valuations,
strong balance sheets and decent long-term growth outlooks. Our long positions, to be clear,
may seem to some to be as exciting as watching paint dry. However, we will trade a low
valuation with a decent long-term outlook for certain fast growing high fliers with poor financial
characteristics every time. There is a reason Aesop wrote the Tortoise and the Hare
fable: slow and steady wins the race.

Portfolio Structure and Commentary

The Vilas Fund currently has roughly $3.60 of long positions for every $1 of short positions.
This ratio has fallen in the last quarter as we have increased the quantity of our short positions
in order to attempt to protect principal in an inevitable market correction. The main positions in
the short portfolio include Tesla, Netflix, Amazon and Ferrari. We added the position in Ferrari
as we believe that it is considerably overvalued after its nearly 100% increase in 2017. This is
a shorter-term position designed to provide higher beta, or market sensitivity, protection in a
correction. We believe that Ferrari is a great brand and company in many respects but we
need to protect principal and this was a good vehicle to do so, no pun intended. The other
short positions are glamour stocks that will never be able to produce profits that will yield a
good return for shareholders. Thus, they are bubbles destined to pop.

Amazon has been successful because they employ a predatory pricing strategy whereby they
price their merchandise below cost, especially after wasteful packaging and delivery expenses,
in order to gain market share and to delight customers. We know what Amazon's net income
is, they disclose their profit in AWS, they disclose their volume in third party sales, which we
can then estimate the profitability by looking at eBay and Alibaba, so we can then solve for
their first party merchandise profit or loss. It appears that Amazon is losing many billions per
year in their main general merchandise business. Consistently losing money in a business line
to gain market share and force others out of business is the definition of predatory pricing.

To continue growing at the rate they are growing, Amazon needs to consume a company the
size of Macys and Gap, combined, every year. Unfortunately, predatory pricing is illegal and is

VILASCAPITAL Management, LLC The Aon Center 200 E. Randolph Street, Suite 5100 Chicago, IL 60601
Office: (312) 702-1976 web: www.vilascapital.com
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the reason the antitrust laws are on the books from the Rockefeller/Standard Oil years,
including the Sherman Act of 1890, the Clayton Act of 1914, and the FTC act of 1914. These
laws were enacted to prevent a winner take all strategy, arising from predatory pricing, that
concentrates wealth and power. Eventually, the predatory company will raise prices once there
is no competition, hurting society.

We believe that it is a matter of time for one of the many hundreds of retailers who has been
decimated by this unlawful activity to sue Amazon for antitrust violations, gain class action
status, and win. Or, it is possible that the Justice Department brings a case on its own.
Regardless, the easy going for Amazon is likely over, as it was after FTC action against
Microsoft in the late 1990s or IBM before that. Thus, we are short Amazon as they will likely
never gain the monopoly pricing power that would be necessary to recoup their losses in the
general merchandise business.

Tesla, our largest short position by a considerable margin, is destined to be a terrible stock and
will likely enter the protection of the bankruptcy court at some point in the future. Why? A
business cannot perpetually lose money in a highly, highly capital intensive industry and
finance itself with lots of debt and little equity. When Tesla fails, it is our opinion that members
of the current management team will likely reside in very close proximity to Jeff Skilling, Bernie
Ebbers and John Rigas. The end (less pollution, potentially) does not justify the means (untrue
statements by management, puffery via Twitter and improper accounting). It didnt for Enron, it
didnt for Worldcom, and it didnt for Adelphia. Unfortunately, these issues only come to light
after the fact when the SEC and Justice Department have a disaster on their hands.

Our long portfolio has many companies selling far below what they are worth. Over the last 5
years, Honda, our largest position, is down 9%, and Barclays, our second largest holding, is
down 30%. Both companies should be trading at least 50% higher than their current share
prices. In addition to our concentration in very large US financial companies (C, MS, GS, MET,
BAC, BX, AIG), which have been performing very well, and positions in GM, Ford and Daimler
that have recently outperformed the market, we have a smattering of newer or increased
holdings, such as Transocean, General Mills, Target, Walgreens, CVS, Medtronic, Kroger,
Express Scripts and Viacom, that are all trading at very attractive levels compared to what they
are worth. We see plenty of upside in the long portfolio, in aggregate, and therefore have
increased our short positions to protect principal instead of selling our long positions.

Conclusion

When asked our opinion about the stock market, we generally respond what part? There is a
huge divergence between the have and have nots. It is sort of like asking what we think of
house prices? The answer is quite different if we are discussing the Bay Area, East Hampton,

VILASCAPITAL Management, LLC The Aon Center 200 E. Randolph Street, Suite 5100 Chicago, IL 60601
Office: (312) 702-1976 web: www.vilascapital.com
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Palm Beach or Aspen vs. Detroit, Chicago, Wisconsin, Iowa or Indiana. We could make an
argument that houses in the former areas have recently appreciated so rapidly that they are
somewhat overpriced while houses in the Midwest are somewhat underpriced.

It is similar in the stock market. On one hand, we have Amazon with a nearly $500 billion
enterprise value that has, according to the New York Times, only produced $5.7 billion in profit
since inception. Therefore, it is trading at nearly 100 times trailing, twenty-year cumulative
earnings. In contrast, General Motors, with almost $10 billion in trailing annual net income, is
trading with a $59 billion market capitalization, or roughly six times trailing twelve-month
earnings. Due to the financial gravity of valuations reverting to the mean, we forecast a
massive rotation, out of growth and into value, instead of an overall bear market.

We appreciate your investment with our firm and look forward to the next few years with great
optimism.

Sincerely,

John C. Thompson, CFA


CEO and Chief Investment Officer

Vilas Capital Management, LLC.


The Aon Center, Suite 5100
200 East Randolph Street
Chicago, IL 60601

Office: (312) 702-1976


Cell: (608) 576-3938

Email: jthompson@vilascapital.com
Web: www.vilascapital.com

____________________________________
1 Contrarian Investment, Extrapolation, and Risk, 1994, Lakonishok, Shleifer, and Vishny

VILASCAPITAL Management, LLC The Aon Center 200 E. Randolph Street, Suite 5100 Chicago, IL 60601
Office: (312) 702-1976 web: www.vilascapital.com
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Disclosures

Performance data represents past performance and does not guarantee future results. Performance
includes the reinvestment of dividends and other earnings. Net performance is net of all fees and is
based upon the current investors fee structure. Future performance will vary depending upon each
investors capital account and fee structure. The Vilas Fund, LPs specialized investment program
involves risk. A detailed review of the risk factors are described in the offering materials, which you
should read carefully before considering an investment in The Vilas Fund, LP. The current performance
may be higher or lower than the performance data provided herein. The Vilas Fund, LP, performance
may not be directly comparable to the performance of other private or registered funds.

The Vilas Fund, LP, is a private fund and the securities are offered in reliance on an exemption from the
registration requirements of the Securities Act and are not subject to the protections of the Investment
Company Act. The Securities and Exchange Commission has not reviewed the securities or the
offering materials. The Vilas Fund, LP, securities are subject to legal restrictions on transfer and resale
and investors should not assume they would be able to resell them.

All information contained herein is subject to revision and completion. Should there be a discrepancy
between the offering materials and this document, the offering materials will control. This document is
not intended to be a complete description of the business engaged in by Vilas Capital Management,
LLC, nor is it an offering or solicitation to invest. Any such offer or solicitation may be made only by
means of a confidential private offering memorandum. No subscriptions will be received or accepted
until subscription documents are completed and Vilas Capital Management, LLC, has approved the
subscription agreement and an investors eligibility to invest. Prospective investors must be accredited
investors and must meet certain minimum annual income and/or net worth thresholds in order to be
eligible to invest.

The S&P 500 Index represents 500 of the United States largest stocks from a broad variety of
industries and includes reinvested dividends. The HFRX Equity Hedge Index consists of equity hedge
strategies that maintain positions both long and short in primarily equity and equity derivative securities.
A wide variety of investment processes can be employed to arrive at an investment decision and
strategies can be broadly diversified or narrowly focused and can range broadly in terms of levels of net
exposure, leverage employed, holding period, concentrations and valuation ranges.

This presentation contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of
Vilas Capital Management, LLC and are subject to significant risks and uncertainties. Actual results
may differ from those set forth in the forward-looking statements. Factors that could cause The Vilas
Fund, LLP actual results to differ materially from those described in the forward-looking statements can
be found in The Vilas Fund Confidential Private Offering Memorandum and Subscription Agreement.
Vilas Capital Management, LLC does not undertake to update the forward-looking statements to reflect
the impact of circumstances or events that may arise after the date of the forward-looking statements.

VILASCAPITAL Management, LLC The Aon Center 200 E. Randolph Street, Suite 5100 Chicago, IL 60601
Office: (312) 702-1976 web: www.vilascapital.com
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