Dear Friends: Dakshana successfully completed its 10th full year of operations in 2016. Since inception in 2007, the IITs have accepted 1,589 Dakshana Scholars (out of a total universe of 2,505 Dakshana Scholars) – a success rate of 63.43%. Not too shabby – considering that the IITs accept under 2% of applicants. In 2017, out of 461 Dakshana Scholars who were prepared for the test, 391 made it – a success rate of 85%. Not only was this our largest batch ever, the results are the best ever for Dakshana! (Over the last fifty years) if you took our top fifteen decisions out, we’d have a pretty average record. - Charlie Munger Five Great Decisions I’ve made innumerable bad decisions for Dakshana since inception. Thankfully, we've also made five great decisions over the last eleven years. These were: 1. Committing to give away 2% of wealth annually at the age of 42. (2006) 2. Cloning Anand Kumar’s Super 30 model. (2007) 3. Partnering with the JNV System/Government of India. (2007) 4. Bringing on Colonel Ram Sharma as CEO. (2009) 5. Acquiring Dakshana Valley for $10 million. (2013) These five great decisions have trumped all the bad ones. Dakshana's model of alleviating poverty and unleashing the tremendous lost talent in rural India has been successful beyond my wildest dreams. The fifth decision was an especially hard one when we made it in 2013. We stretched bigtime to make it happen. Out of the $20 million or so that Dakshana has spent over the last decade, the Dakshana Valley purchase represents half the pie. And it will likely absorb tens of millions of capex in the years ahead. You stuck to your principles and when opportunities came along, you pounced on them with vigour. - Charlie Munger Today the Dakshana Valley purchase looks like a no-brainer. Without it we could not embark on several of our new initiatives that will be central to our relevance in the decades ahead. It is the bedrock on which we’ll grow and scale Dakshana. These are the realities of life and investing as well. A few great decisions are likely to trump a number of bad ones. Page 1 Dakshana Begins Medical College Coaching Over the years, several of our scholars changed their minds and decided their true calling was to be doctors rather than engineers. The admission process for medical school in India is similar to engineering. Admission is based on performance in competitive exams after high school. The only difference is that while the IIT entrance exams focus on Physics, Chemistry and Mathematics (PCM), the medical entrance exams focus on Physics, Chemistry and Biology (PCB). In the past, several of our scholars studied Biology on their own, did well in the medical entrance exams and went on to become great docs. We’ve had cases where some of our gifted kids have gotten top ranks in the IIT entrance exams and secured admission in some of the country’s best medical schools as well. In 2016, Dakshana formally started coaching for medical school at Dakshana Valley. We accepted 69 scholars for our first one-year medical coaching batch. Out of these 69, at least 60 will get offered a seat at a government medical college in India. The remaining 9 did well enough so that they’ll be offered a dental school seat and might get a medical school seat as well. It is an outstanding success rate. The scholars, faculty and Dakshana management all worked incredibly hard to get these results. In India, becoming doctors is of more interest to high school girls than becoming engineers. And, at Dakshana, we believe we are doing far more social justice when we support a girl versus a boy. It was thus a no-brainer to add medical coaching. Out of these 69 medical Dakshana scholars, 15 were girls. We ended up with 22% girls versus a more typical 10% or lower number on the engineering side. More importantly, 13 out of the 15 girls did well enough to be guaranteed a medical college seat. The subsidy offered by the Government of India for medical schools is even higher than for the IITs. Annual out-of-pocket costs for tuition, room and board at state-funded medical schools in India ranges from $150-400/year. Even this can be a daunting sum for our scholars, and we’ve helped arrange loans and grants through partner NGOs to ensure that our scholars face no financial hurdles. One of our female scholars in this first batch was Ms. Sadiqa Mehroon from Kargil district in the state of Jammu & Kashmir. Her village is a stone’s throw from the Line of Control, the defacto border between India and Pakistan. It is one of the most militarized borders on the planet where periodic artillery fire is the norm. Her village has no doctors. The closest hospital is hours away. Sadiqa hopes to return to her village after medical school and change the desolate healthcare situation in her community. Sadiqa’s mother is illiterate and her father is a farmer earning less than $80/month. We, at Dakshana, hope to unleash all the talent and drive of tens of thousands of Sadiqas in the years ahead to help “fix India.” Dakshana Valley: The Best Place on the Planet for IIT and Medical Entrance Exam Coaching! In 2016, we also accepted 60 scholars for IIT entrance exam coaching at Dakshana Valley. 58 of these 60 scholars cracked the exam – a success rate of 97%! We also had 10 scholars return for an additional year of coaching in preparation for their 2nd attempt at the JEE at Dakshana Valley. Of these 10 “repeaters”, 100% of them cracked the exam. Spread over 109 acres with two valleys, five lakes and dozens of acres of orchards, Dakshana Valley offers very few distractions for scholars. They have world-class faculty, classrooms, dorms and nutritious meals provided to them. It is, in my opinion, the best place on the planet to prepare for the IIT and medical entrance exams. Page 2 When Dakshana does coaching at most JNVs, we have very limited control beyond faculty and scholar selection. At Dakshana Valley, Colonel Sharma and his amazing team control virtually every facet of the program. The Colonel does not believe in cutting corners. He and his able team have worked hard to provide scholars with an environment that maximizes their odds of success. It has worked vastly better than I ever imagined. In 2016, Dakshana Valley hosted 139 scholars. That number will nearly double in 2017 and we intend to keep increasing capacity till we are well past hosting 1000-1500 scholars at any given time at Dakshana Valley. The scaling at Dakshana Valley is almost limitless and we intend to fully tap its potential in the decades ahead. Cloning the Charles T. Munger Hall The Charles T. Munger Hall and most of its associated buildings were commissioned in 2016. It took five years to build from the time I originally proposed it to the Government of India as a win-win public- private partnership. A picture is worth a thousand words and a structure is worth a thousand pictures. After Senior JNV and Ministry of Human Resources Development (MHRD) officials visited the Hall, they got super excited to rapidly clone it. It is truly a marvelous facility. JNV Pune has been chosen as the next Center of Excellence. The Government of India works on precedence. New initiatives are hard to get off the ground (as we saw with the 5-year Munger Hall gestation period). However, once a precedent is established, it goes a lot faster. The government is telling us that they intend to have the Pune center ready in 2019. And they intend to do several more in the years ahead. The government has also told us that future centers will be developed 100% with taxpayer rupees (!!). However, they want us to fully manage the architectural design, scholar selection and coaching of scholars at all centers. Our preferred architect, Mr. Sandeep Kohli, is designing these future centers. In 2011, we proposed to the government that we’d spend $300,000 and the government would spend $2 million on developing the first Center of Excellence (Munger Hall and related buildings) in an innovative public-private partnership without precedent. Each new center will cost $3-4 million and there are plans to do a half a dozen such centers. The $300,000 investment by Dakshana in Munger Hall may eventually be matched 60:1 by the government as they eventually spend $25-30 million on these future centers of excellence. I love our equal partnership with the Government of India! Page 3 2016 Financial Overview Table 1. Financial Overview 2016 Dakshana Financial Overview (in thousands of US$) Cash and Marketable Securities on 12/31/15: $ 1,697 Scholar and Overhead Expenses: ($1,162) Dakshana Valley Purchase: ($1,762) Construction Expenses: ($320) Contributions by Donors: $1,200 Contributions by Pabrai Family: $1,190 Donated Coaching Services: $26 Donated Corporate Services: $2 Net Investment/Forex Gain (Loss): $48 Cash and Marketable Securities on 12/31/16: $ 891 We have nearly fully paid off the $10 million Dakshana Valley purchase price. We intend to clear the last of the payments in 2018. Once we have paid off the Valley in full, it will open up considerable funds to embark on increasing capacity at Dakshana Valley and scaling up. Direct Scholar Expenses In 2016, we spent $1,161,500 on the Dakshana Scholar Program and related corporate overhead.