Mohnish Pabrai

Page 1 1220 Roosevelt, Suite 200 Tel. +1949.453.0609 Irvine, CA 92620-3675 mp@pabraifunds.com USA www.pabraifunds.com To: All Limited Partners and Investors of the Pabrai Investment Funds From: Mohnish Pabrai, Managing Partner Date: January 18, 2021 Re: 2020 Results, etc. Dear Partners: Happy New Year! December 31 was our annual redemption date. A total of $44 million was redeemed from the various funds in 2020. The redemptions on a per fund basis are: PIF2: $9.5 million PIF3: $9.5 million PIF4: $25.0 million For the quarter ended December 31, 2020, a total of $4.2 million was added to the various funds by new and existing partners. The additions on a per fund basis are: PIF2: $3.7 million PIF4: $0.5 million The funds are currently open to new and existing Pabrai investors to add funds. The next opening is April 1, 2021. PIF2 is the oldest fund and has been closed to new investors for many years. It has just 100 slots and those were all used up several years ago. Over the years we’ve had a few redemptions and this has opened up about 8 slots. PIF2 is open to US-based investors who are qualified clients. The minimum investment to join PIF2 as a new partner is $4 million. PIF3 is our offshore fund for non-US accredited offshore investors, and U.S. IRAs, foundations, and endowments. The minimum investment to join PIF3 as a new partner is $3.5 million for individuals and $10 million for IRAs/foundations/endowments. PIF4 is for qualified US-based investors.

The minimum investment to join PIF4 as a new partner is $5 million. For current investors in any of the funds, the minimum addition to their current investment is $25,000. For IRA investors the minimum is $5,000. Here are the deposit slips for PIF2, PIF3 and PIF4. If you are interested in or would like more information about the April 1, 2021 opening, please contact me at mp@pabraifunds.com or Valerie Magursky at vm@pabraifunds.com.are:

Page 5 General Comments Life’s tragedy is that we get old too soon and wise too late. - Ben Franklin It has been a wonderful 26 years since I began my journey as a value investor. Before I heard about Warren Buffett in 1994, I had no clue about investing. I went through a very steep (and incredibly exhilarating) learning curve in 1994 and 1995. It was wonderful to enter this new world of Buffett, Munger, Graham and the magic of compounding. The 2nd highest period of learning and growth for me was last year. It was probably all that time I had at home to contemplate my naval. It led to a breakthrough change in my mindset. When I began my value investing journey, I was a buy and hold investor. I made several investments where I could not see the end of the runway and the mental model I used was to simply set it and forget it. In the period from 1994-1999, I captured two 100 baggers. In one case, I put 10% of my $1 million in investable assets in it and cashed out over $10 million five years later. The other one was a 1% bet. It went up 140x and I rang the register with over $1.4 million. There were also some losers and more than a few other winners, but it was these two 100 baggers that mattered the most. Buying and holding these high conviction bets was key. The 140-bagger was a company in India where I was sent physical share certificates. There were no digital confirms in India back then.

I put those dilapidated certificates in the bottom shelf of a filing cabinet and did not open that drawer for several years. It was helpful to not have the shares available in a brokerage account. The effort required to sell them helped me hold on with zero activity for several years. When Pabrai Funds started in July 1999, the tech bubble was heading towards a crescendo. Just eight months after we launched, the Nasdaq would top out at over 5000 and eventually bottom out at 1114 in 2002 - down 78% from its March 2000 peak. As the funds launched in 1999, I was able to sidestep the aftermath by focusing on being a Grahamian investor. Instead of buy and hold, I focused on buying dollar bills for 50 cents or less and selling them for 90 cents or more. This worked very well. From inception in 1999 through March 2018, $100,000 dollar invested in PIF2 turned into more than $1.8 million – after my ridiculous fees and all expenses. Now it is $1.4 million. All three funds beat virtually all the indices from inception through 2017 over one, three, five or ten years or life of funds1. For the first nineteen years, we outperformed regardless of whether we had $1 million in AUM or $600 million. When I look back at the full 21+ year history of Pabrai Funds, we’ve had two periods of two years each when we’ve seriously underperformed the indices. The first was during the financial crisis of 2007-09 and the second was from April 2018 to March 2020.

The 2018-20 drawdown was further aggravated by the Covid lockdowns. Our performance from April 2020 onwards has been robust. All three funds 1 The only exceptions being PIF2 and PIF4 underperforming the erratic Nasdaq over 10 years.

Page 6 are up 57-67% since April 2020 – almost keeping up with the Nasdaq even with no high-flyer tech names in the mix. Our long-term results didn’t look good in 2009 and the same is true of 2020. Given our current wide discount to underlying intrinsic value, it would not surprise me to see Pabrai Funds meaningfully outperform the indices over the next several years. Learnings from Nick Sleep I owe a great deal of the 2020 epiphanies to my good friend Nick Sleep. Nick went through his own evolution from Graham to Munger and the results speak for themselves. “Oh, and note, the truly brilliant investors weren’t investors; they were entrepreneurs that didn’t sell.” - Nick Sleep (in an email to me in August 2020) I have mentioned Nick’s modus operandi a few times in my sessions with students. I am not sure how thrilled Nick is about it, but the Financial Times recently published a link to the full set of his letters to partners: The complete letters of Nomad Investment Partnership | Financial Times (ft.com) I cannot recommend reading these letters strongly enough. They should be read and reread. Download them while they are still online. I have no idea if they’ll still be there in the future. I’d suggest reading them oldest to newest (versus the order in the PDF of newest to oldest). You’ll also enjoy this piece by John Garrett: Learning from Nicholas Sleep — Investment Masters Class (mastersinvest.com) The big evolution I had in 2020 was: 1. Go back to buy and hold. 2.

Have the same long-term ownership mindset of the families and CEOs that founded and ran these businesses. 3. Fixate on discounted growing pies, vs. 30-50 cent dollar bills. Emphasize nimble compounders whose DNA is to relentlessly incubate and spawn new businesses with long runways. 4. If the business is getting better over time and the moat is widening, don’t fixate on the valuation. There is no need to sell such a business simply because it appears to be optically overvalued. All bets are off if valuation goes to egregious extremes. I told Charlie Munger recently that I feel really dumb. It took me 26 years to figure out something so simple. Charlie always excels at making me feel great. He said, “Don’t feel so bad Mohnish. It also took Warren and me 25 years to figure that out.” The business I have held for the longest duration in my life is the 100% General Partner (GP) interest in Pabrai Funds. 21 years and counting.of

Page 7 the GP of Pabrai Funds. Over the years I have been approached to sell a minority stake. I have always brushed off these overtures without ever asking what the price or terms might be. For well over half of the 21 years, the GP has earned no fees and lost money. It is the exact opposite of a consistent performer. Nonetheless, I love it and have no plans to ever sell any part of it. I wish I had applied this enlightened view to our Ferrari stake. We received nearly 1.2 million shares of Ferrari as part of its spinoff from Fiat. We received $101 million in proceeds for our effective $23 million investment in Ferrari. Had we held on, our stake would be worth north of a quarter billion today. And we’d have paid zero capital gains taxes. Don’t even get me started on Moutai. Capitalism is creative destruction and brutal. Very few businesses will thrive and grow for decades on end. Most eventually go into secular decline. One needs to be good at separating the wheat from the chaff and distinguish between the ebbs and flows versus secular declines. This mindset shift changes the nature of businesses one should be interested in owning. They need to have strong moats, long runways and great management. At Pabrai Funds I am currently very pregnant with a few good but not great businesses. In due course as these get to intrinsic value, they’ll get replaced with more durable moats and runways. I intend to hold on to the Ferraris forever.

Another criteria that needs to be there for Mohnish to be interested is that they need to be available cheap. This last criteria has likely led to mistakes of omission in the past and will continue in the future. It is just how I am wired. I know Amazon and Salesforce will do very well in the future. I just can’t get myself to buy into these incredible franchises at current valuations. I also cannot see a path to 100x (or even 10x) from here on these or a number of the current tech high- flyers. For Snowflake to go from its current $83 billion market cap to $830 billion or $8.3 trillion, at some point it would need to be generating cashflows ranging from $20 to $200 billion a year. Trailing revenues are less than $500 million. Revenues would need to go up over 100x for investors to have a real shot at 10x returns from here. I’d rather fish in other ponds. Where is the fishing really good? As a datapoint, let’s look at the ponds PIF3 has been fishing in lately.2021:

Page 8 PIF3's Largest Holdings Shares Held Cost Market Value Vintage Approx. (millions) (millions) Return Micron Tech. 389,000 $16 $31.6 2018 2x Rain Industries 14,737,427 $10 $29.4 2015 3x Reysas Logistics 23,395,000 $4.2 $27.1 2019 6.5x Sunteck Realty 3,701,506 $13.5 $19.4 2017 1.4x Seritage Gr. Prop. 1,211,000 $11.0 $19 2020 1.7x Total $126.5 (~3/4th of PIF3 assets) The grapes of 2016 must have been sour. As an investor in Pabrai Funds, you can take some comfort from the likely zero overlap between Pabrai Funds and your other investments. You probably don’t own any of these household names. The large gains in Reysas Logistics may have piqued your curiosity. Let’s delve further. Reysas Logistics – The Little Engine that Could Reysas Logistics is based in Istanbul, Turkey. Over the years, Fahad and I have made several wonderful trips to Istanbul and met with 50+ listed businesses in Turkey. On our last trip in July 2019, we visited the headquarters of Reysas and met with the outstanding father-son duo that run the place. After the meeting and drilldown, we sold our other two investments in Turkey and put every dollar we could into Reysas Logistics. “All day you wait for the pitch you like; then when the fielders are asleep you step up and hit it.” - Warren Buffett Durmus Doven founded Reysas in 1989. The family owned a Toyota dealership in Ankara in the 1980s.

At that time new Toyota cars were individually driven from the Istanbul port to Ankara and other dealerships across the country. In the late 1980s, Durmus was vacationing in France and saw a car carrier trailer for the very first time in his life. At the time, these did not exist in Turkey. Hence all cars were driven from the port to the various dealerships across the country using an expensive army of drivers. As soon as he returned to Turkey, Durmus tried to bring a car carrier trailer into Turkey only to be rebuffed. These type of trucks were not allowed to be imported in Turkey at the time. So, he rigged up his own version of a car carrier trailer (sans hydraulics) and offered to transport Toyotas deep into the hinterland at much lower prices than were prevailing. Toyota loved it. The dealers loved it and customers were willing to pay a premium for new cars with “zero miles.”

Page 9 Durmus began converting regular trucks into car carrier trailers as fast as he could and Reysas was born. He was making super normal profits and enjoying it all. Then the inevitable happened. Others started making similar car carrier trailers and the market was over supplied in short order. Durmus found himself with a bunch of underutilized trucks and dwindling cash flows. Someone approached him about refrigerating some of his trucks to transport vegetables. Very soon, his entire fleet was refrigerated, and happy days were here again. Till more competitors showed up and the super normal profits again collapsed. The competition in trucking did not stop Reysas from growing its fleet from 10 trucks in 1993 to 1600 by 2006. Today Reysas has the largest truck fleet in Turkey and the 4th largest in Europe. Doven’s clients pointed out the lack of adequate refrigerated warehouses in Turkey and offered him a long term lease if he built one. And very soon Reysas had its first refrigerated warehouse. They scaled rapidly and today, with 12 million square feet, Reysas is the largest owner of warehouses in Turkey. The next largest competitor has 2 million sq. ft. Reysas’ tenants include the likes of Alibaba, Ikea and Amazon. Carrefour is their largest tenant and leases 15% of their total footprint. 20% of Reysas’ warehouses are refrigerated. The warehouses are 99+% leased on long-term leases.

Their leases with multinationals are typically in Euros with the usual 2-3% annual escalators. The leases in Turkish Lira are indexed to inflation in Turkey. Reysas’ borrowing currencies were not properly matched with their leases when we invested. This was one of the reasons the stock was under pressure. By mid-2020 they had refinanced across the board at significantly lower rates and perfectly matched their lease currencies. The warehouses have become a nice, recurring revenue business. I spent an afternoon kicking the tires and visited a number of Reysas warehouses in the pre-pandemic July of 2019. Needless to say, I was impressed. Over the years Reysas has spawned a number of new businesses that mostly tend to have strong recurring revenues – and it very quickly becomes the #1 player. It is the largest private rail freight operator in Turkey. All the trains are run by the government. Reysas rents the track, locomotives and drivers from the government and runs its own railcars. It owns three rail terminals and its trains carry freight between Turkey and Europe. Reysas still has a large trucking business, but is now allocating a lot more capital to rail versus trucks due to superior economics. New Tailwinds The Bosphorus strait separates the European sliver of Turkey from the Asian part. Until recently freight trains from Turkey’s Asian hinterlands were not allowed to use the Marmaray Tunnel under the Bosphorus strait.

Thus cargo from trains had to be unloaded in the Asian part of Istanbul, transported by truck across the strait and then reloaded onto trains on the European side of Istanbul. All that was changed in May 2020 and now freight trains are allowed to use the tunnel. Reysas’ rail freight business has gone parabolic. The company recently placed orders for 185 new rail wagon containers from the Netherlands, which are a huge fraction of its existing stock. Rail revenues grew over 40% in 2020 and similar growth continues into 2021. Their weekly freight train frequency to Europe is now one trip every two days. Covid has been a huge tailwind for many of Reysas’ customers. I have many fond memories of watching the sun set as we dined at one of many fine seafood restaurants on the banks of the Bosphorus. I am hoping that tradition can be restarted in the summer of 2021. It’s a tough job, but someone’s gotta do it.

Page 10 Here Comes the Sun A few years ago, a German company inquired with Reysas about leasing their warehouse rooftops. The Germans intended to put solar panels on their rooftops to take advantage of Turkey’s new net metering laws. These laws required the power company to pay the same price per unit for rooftop solar power as it charged for electric service. The Dovens studied the economics and realized that if there ever was a no-brainer, this was it. It is not intuitive, but industrial scale rooftop solar installations are less expensive to deploy and maintain than ground mount systems. Reysas has a real durable competitive advantage here. They are aggressively putting solar panels on all their warehouse rooftops themselves. I’m estimating that they’ll have 50 MW of installed capacity in a few years and likely be generating $5-10 million a year in after tax earnings. This is new cash flow that I hadn’t even known about when we invested in this $19 million market cap company. Reysas is the gift that keeps on giving. There are risks. Turkey could change the net metering laws anytime. Nevada did just that a few years ago. In Turkey this is unlikely. The country has virtually no oil reserves and imports half the coal it uses. Energy imports make up 20% of Turkey’s total imports and 75% of its current account deficit. Maximizing solar energy production is a no-brainer for Turkey.

Thus, even though the Reysas solar business has no long-term PPAs, it may end up being an even better business. Future electric rates are likely to grow with inflation while Reysas has already finished its solar outlays in older (and cheaper) Turkish Liras. Warehouse Redevelopment The oldest Reysas warehouses were built more than a quarter century ago. Some of the ones in Central Istanbul are now in highly desirable areas to live and one old warehouse is being torn down. A JV is planned with an apartment developer. This will take several years, but Reysas should net north of $40 million when the dust settles. Did I mention the market cap was $19 million when we invested? There are many more businesses within Reysas Logistics including vehicle inspections stations and forklift leasing. The Dovens told me that their capital allocation mindset is simple. They want their money back in three years or less. They said they preferred if it was one year or less. I have not found instances of dumb capital allocation by Egemen Doven or his dad. To the contrary, I find them very nimble and opportunistic. Most of their investments tend to have recurring revenue type characteristics. These are difficult to replicate franchises. So, while we bought a dollar bill for well under 10 cents, I am most excited about the increase in value of that dollar bill. I am more excited about the Dovens than the tangible assets in the business today.

“When it is raining gold, reach for a bucket, not a thimble.” - Warren Buffett There are two listed Reysas businesses. Reysas REIT and Reysas Logistics. Logistics owns 62% of the REIT and owns all the other businesses. Reysas REIT only owns the warehouses. In July 2019, the REIT had a market cap of $42 million while Logistics was changing hands at $19 million.and

Page 11 $1.2 billion. The REIT stock alone inside Reysas Logistics had a market value of $26 million. In addition Reysas Logistics owned various other rail, trucking, forklift leasing and the vehicle inspections business. “The stock market is designed to transfer money from the active to the patient.” - Warren Buffett Both businesses were ridiculously undervalued. I obviously preferred buying Logistics. But given the tiny market caps, I didn’t think we could get much stock before the price moved. So, I decided to buy as much as possible of both businesses. Turkey is a dream market for long term value investors to practice their art. Let’s consider the example of Reysas Logistics. There are 119 million shares outstanding. We now own over 39 million shares of Reysas Logistics. The founders and other long- term holders own another 44 million shares. Thus free float is 36 million shares. The daily volume is typically 2-7 million shares. The holding period of the free float shares is just a few days. I suspect most of them are held for just a few hours. When we bought our stake in Reysas Logistics and Reysas REIT in 2019, we ended up with 13.4 million shares of Logistics and 27.1 million shares of the REIT. When the price moved up dramatically in Q1 2020, we exited our Reysas REIT position and held on to the Logistics shares. We received $22.4 million in USD for our REIT shares. Later in the year, as Covid spread across the globe, we reinvested the $22.

4 million back into Reysas Logistics shares and ended up getting about the same number of shares we would have had if we had been able to buy those shares in 2019. All this was only possible due to the hyperactive trading habits of the investors in Turkey. The bottom line is that we invested less than $7 million to get nearly 1/3 ownership of a business whose current market cap is $135 million. Coming back to Nick Sleep, my mindset on Reysas is that we are not an investor in the business. We are a passive owner. Our stake mirrors the stake of the founders. We are their silent partner cheering them on from the sidelines. As long as the moat stays intact and the valuation does not become egregious, we have no plans to sell a single Reysas share for decades. An egregious valuation for Reysas today would be multiple billions of dollars. Thank you Nick! Rain Industries I have written about Rain Industries in the past. You can find those previous thoughts in the ‘19 AR, the ‘18 AR, Jan ‘19 Letter, Oct ‘18 Letter, July ’18 Letter and Jan ’18 Letter. Rain was bought as a future P/E of 1. By 2018, Rain was already a ten bagger and it was dumb not to exit then. What kept me from selling is that I understood the business better and it wasn’t just a cheap business. Rain has an exceptional capital allocator and leader at its helm who is continually improving the business. It is a good but not great business.

Rain will likely go past its old highs in the next few years and we’ll again have our 10x. At a minimum we’ll be trimming at that point. Seritage, Micron & Sunteck In the case of Seritage, over the next 5-15 years they’ll likely have fully transformed their core footprint into highly desirable mixed-use developments in prime areas of the country.out

Page 12 what to do with it sometime between 2025 and 2035. Seritage is in the funeral and recycling business. I wrote in my first book Mosaic why funeral businesses are such awesome assets to own. Micron is in an industry with rapid change but it is also in a stable oligopoly with a solid moat. The business has gotten a lot better since we invested in 2018. I continue to watch it carefully. Mumbai real-estate has finally woken up from its long slumber and Sunteck has many tail winds. The plan is to hold it for a while. The beauty of this ownership mindset is that it can tolerate a healthy error rate. We do not need to be right on all five bets. We may end up with great results even if just one or two of these bets work out as long as the others are flat. The odds of permanent loss of capital are very muted in all five bets and we could be very right on at least three out of five of them. I am always reticent about discussing current portfolio positions. It causes commitment and consistency biases which can hurt us. There are no guaranteed winners. Not even Reysas. I am hopeful that the portfolio continues to be managed objectively and rationally without bias. All three funds have similar, but not identical holdings. Most of our Reysas shares are owned by PIF3. Reysas makes up about 8% and 2% of PIF2 and PIF4 assets respectively. PIF2 and PIF4 have some great holdings that aren’t present or meaningful in the PIF3 portfolio.

It is unclear to me which fund does the best going forward. A Permanent Home with Temporary Capital Our ownership mindset is at odds with annual redemptions. I want to hold several of these bets for decades but the capital in the funds is temporary. One way to counter that is to have subscriptions exceed redemptions. I have hardly spent any time on raising assets for a long time. I will put more effort on that front to try to ensure effective permanence. We are currently loading up on four wonderful businesses and seriously short of cash. All four are wonderful compounding machines and deserve to be held for decades. There is not much we own that I would be excited to sell today. We thus need to bring in more cash. I would like to encourage you to add to your investment. And I welcome your referrals. All three funds are open and I think the best days for Pabrai Funds lie ahead. As an existing investor you can add as little as $25,000. The next opening is April 1, 2021. Here are the deposit slips for PIF2, PIF3 and PIF4. To add funds, please send me or Valerie Magursky a note at mp@pabraifunds.com or vm@pabraifunds.com. Pabrai Funds has a wonderful long-term investor base. I’d encourage you to think about your investment in Pabrai Funds as a permanent home. Let’s get you the full multi-decade benefits of holding a few compounders. Alignment of Interests My immediate family has a stake of 175,859 units of PIF2 and 433,197 units of PIF4.

The administrative team at Pabrai Funds and I own 54,157 units of PIF4 and 14,754 units of PIF3 in various retirement accounts. In addition, The Dakshana Foundation owns 77,006 units of PIF3. The aggregate stake of the Pabrai family, the Pabrai Funds team and The Dakshana Foundation in Pabrai Funds is worth approximately $41 million. Pabrai Funds charges no management fee, just performance fees – which are ¼ of the returns over 6% annualized (subject to high-water marks). I only get paid when you make money. When you win, I win.

Page 13 I am very bullish on the long-term future of Pabrai Funds – as demonstrated by my being the second largest investor in the funds. No fees were earned in Q4 2020. I have an approximately $7.4 million investment in Dhandho Holdings. Additionally, The Dakshana Foundation has an approximately $0.4 million investment in Dhandho Holdings. Besides this, I have no other meaningful interests in any other mutual funds, hedge funds or private equity funds. Our interests are completely aligned. Online Portal for Investment Statements All of you should have received an email from Liccar Fund Services with instructions to set up your own online portal to access your investor statements moving forward. Your 12/31 investor statement has been uploaded to the portal. If you have not yet set your investor portal password, please contact Valerie Magursky at vm@pabraifunds.com for assistance. Final K-1’s (for US Investors) For PIF2 and PIF4 investors, we expect your final K-1s to be uploaded to the portal in March 2021 by our Administrator, Liccar. Annual Report – Will be out in Q2 2021 Our modus operandi now is to provide expansive commentary in the annual reports and the annual meetings. The quarterly letter will continue to provide updated performance numbers and announcements, but minimal commentary. The annual report is slated to be published in Q2 2021. Chai With Pabrai Blog Please check out my blog www.ChaiWithPabrai.com which I try to keep updated.

Here are some recent additions to the blog: Columbia Business School Podcast on The Value of Continuous Learning In December 2020, I had a wonderful discussion with Professor Tano Santos of Columbia Business School for the Value Investing with Legends Podcast. We discussed my learnings from my father’s entrepreneurial ventures and the need for investors to think like entrepreneurs. We also talked about compounders, spawners and the future of value investing. http://www.chaiwithpabrai.com/blog/cbsdec2020 My Annual Talk at Boston College I very much enjoyed my discussion with Prof. Arvind Navaratnam’s class on Fundamental Analysis & Value Investing at the Carroll School of Management (Boston College) in October 2020. We discussed a few investing frameworks, the importance of investment mistakes, and how to look for businesses that transcend geography and currency.

Page 14 http://www.chaiwithpabrai.com/blog/mohnish-pabrai-lecture-at-boston-college-carroll-school-of- mgmt-october-8-2020 My talk at Boston College is also available as a podcast on Apple Podcasts: https://tinyurl.com/applepabrai Suggestion Box We are always interested in hearing how we can better serve you. Please feel free to email me any suggestions/feedback you may have at mp@pabraifunds.com 2021 Annual Meetings – Tentative Dates There will be two annual meetings held sequentially in Orange County, California & virtually. These meetings will cover Pabrai Funds, Dhandho Holdings and Dhandho Funds. Prior to the California meeting, we will have the 7th Annual Gran Fondo Dhandho Bike Ride. It’s a scenic ride around the Newport Estuary with views of the Pacific Ocean in Newport Beach, California. Biking can be a dangerous activity; we only want folks who are decent bikers on the ride. The ride begins at Starbucks in Newport Beach at 8:15 AM, and ends there around 10:30 AM. For folks that just wanna chill, you can come to the Starbucks at 10:30 AM and hang out with us bikers. Here is a link to the Starbucks location: http://www.starbucks.com/store/18175/us/jamboree-bristol/3601-jamboree-road-newport-beach-ca- 926602961 Several out-of-towners have rented bikes from The Path Bike Shop. Here is a link to their website: http://www.thepathbikeshop.com/. They have a great selection of bikes and will deliver and pick up the bikes from your hotel.

Bikers are best off staying at the Newport Beach Marriott Bayview, as it is less than 0.5 miles from our Starbucks rendezvous point. Here is a link to the hotel’s website: http://www.marriott.com/hotels/travel/npbst-newport-beach-marriott-bayview/. I hope you’ll join me on Saturday morning to experience some of the magic of Southern California. The California meeting is tentatively scheduled to be on Saturday, September 11th, 2021 at 4:00 PM at: Soka University Performing Arts Center 1 University Drive, Aliso Viejo, California 92656 Tel. +1949.480.4000 Soka University has a spectacular campus nestled in the scenic hills of Aliso Viejo. It is a 20-minute drive from Orange County Airport (SNA), and about an hour drive from LAX.University:

Page 15 Marriott Renaissance ClubSport 50 Enterprise Aliso Viejo, CA 92656 Reservations: 800-468-3571 Phone: 949-643-6700 There are many hotels in the area. Here is a link to other hotels near Soka University: https://www.soka.edu/hotels-near-soka Agenda for the California meeting: 4:00 – 4:30 PM: Meet and Greet 4:30 – 6:30 PM: Presentation and Q&A 6:30 – 7:15 PM: Cocktail Hour In lieu of dinner in California, we’ll have an extended cocktail hour with expanded appetizers (multiple food stations), and lots of tables to sit and chat. The Virtual meeting is tentatively scheduled to be held via video conference on Saturday, September 18th, 2021 at 12:00 PM Pacific Time. Confirmed guests will receive instructions via email on how to attend the virtual meeting. Agenda for the virtual meeting: 12:00 – 2:00 PM Pacific Time: Presentation and Q&A The invites will go out electronically via email in July 2021. Look for it in your inbox! If you don’t receive it, please contact invite@pabraifunds.com. Your significant other and young kids are welcome to attend. As we are now a Registered Investment Advisor, the SEC requires that all guests must be “accredited investors,” which includes your adult kids (22 years or older). The invitation is non- transferable. Stay healthy and safe. I look forward to seeing you in September.

Page 16 Assets Under Management There is $547 million in assets under management between all the funds as of January 1, 2021. It is a true joy to manage Pabrai Funds. I love it! Thanks for your continued interest, referrals and support. Feel free to call me at +1949.453.0609 or email me at mp@pabraifunds.com with any queries or comments. Warm regards, Mohnish Pabrai Note: The assets under management in the above graph are as of June 30 for all annual periods. Various indices are included throughout this letter for reference. Reference to an index or benchmark does not imply that the strategy will achieve returns, experience volatility, or have other results similar to the index. As an example, the Funds may invest in foreign securities or fixed income instruments; however the indices presented only include U.S. securities. These indices are purely a basket of stocks, and the Funds may invest in securities other than stocks such as bonds, warrants and preferred stocks. The Funds typically hold fewer than 10 positions as compared to 500 in the S&P, 30 in the DJIA, and thousands in the NASDAQ. Therefore, the Funds are significantly more concentrated than the benchmark indices and may experience notably higher volatility and return characteristics from these indices. Copyright © 2021 by Mohnish Pabrai. All Rights Reserved. Please do not post this letter on the web. $0.00 $100.00 $200.00 $300.00 $400.00 $500.00 $600.00 $700.00 $800.Management

17 Spectrum Pointe Drive, Suite 503 Tel. +1949.275.5652 Lake Forest , CA 92630-2277 mpabrai@pabraifunds.com USA www.pabraifunds.com To: All Limited Partners and Investors of the Pabrai Investment Funds From: Mohnish Pabrai, Managing Partner Date: January 14, 2004 Re: Updated Performance Numbers for all Funds Dear Partners: Dec. 31 represents the fiscal year end for PIF3 and PIF4. It also is the annual redemption date for all the funds. To that end, the redemptions we had were: PIF2: $1.4 Million PIF3: $275,000 PIF4: $0 In addition, PIF3 was open to new investors and a total of about $500,000 in new funds were added to PIF3 on January 1, 2004. Between the redemptions and fiscal year end, performance numbers for all the funds are required to be reported as of December 31, 2003. Here are the updated performance numbers on all the funds: Page 1

PABRAI INVESTMENT FUND 4 Performance Summary: DJIA NASDAQ S&P 500 PIF3 (net to investors) 10/1/03 – 12/31/03 +13.4% +12.3% +12.2% +8.4% Cumulative +13.4% +12.3% +12.2% +8.4% Note: Per AIMR guidelines, annualized performance numbers for periods totaling less than a year are not being provided. Such data can being misleading. Comparison in Changes in Value of PIF4 vs. the Indices. PIF4: $108,390; Best Index (Dow): $113,400 $90,000 $95,000 $100,000 $105,000 $110,000 $115,000 Oct-03 Nov-03 Dec-03 PIF4 S&P 500 DJIA NASDAQ General Comments PIF2 and PIF3 are up 104.2% and 96.5% respectively in 2003 (net to investors). The numbers are even more astounding before management fees. PIF2, for example, was up 136% before management fees and after expenses in 2003. While we’re all wealthier as a result and can bask in the sun in the wake of the good news, it should be very obvious that we’re very unlikely to ever see a year as good as 2003 again for Pabrai Funds. Three factors working in our favor concurrently helped make the year: 1. We were lucky to find a decent number of good investment ideas. 2. Convergence from 50% or more discount to intrinsic value to fully priced took place in an unusually short period of time for many of our holdings. 3. Mistakes of inclusion were virtually non-existent. Only one investment made in 2003 resulted in a realized loss of 0.5% of the investment amount. Page 4

We will make many mistakes (of inclusion and omission). It will usually take much longer to get convergence and good investment ideas appear to be a rarity these days. Thus our returns will be noticeably lower going forward. We’re very unlikely to see such a convergence of these factors again. I do expect the Pabrai Funds to outperform the best of the three indices over the long haul. I have no idea by how much we will outperform, but am willing to wager that it will be substantially less than the last 4½ years. Partners would be best off setting their expectations for The Pabrai Investment Funds to outperform the best of the three indices by a small margin over the long haul. PIF4 is thus far underperforming the indices. Three main factors: 1. Due to its newness and paucity of good investment ideas, PIF4 has a good sized cash position. 2. During periods of rapidly rising index values, we’re likely to underperform. All three indices were up over 12% in 3 months – that many times the expected annualized long term return from public equity investments. 3. No attempt is being made to outperform the indices over short-term comparative periods. The focus is on superior long-term performance. Alignment of Interests Since all three funds were at historic highs on December 31, management fees were payable. A management fee of $1,783,287.79 was paid by PIF2 on 12/31/03. As I have always done, this fee was reinvested back in PIF2. A management fee of $310,042.

35 was paid by PIF3 on 12/31/03. A management fee of $223,125.28 was paid by PIF4 on 11/30/03. This fee was reinvested into PIF4. Dalal Street, Inc. (wholly owned by me) has 405,831 units of PIF2 and 23,095 units of PIF4. This stake is worth about $12 Million. Thus I have a deep vested interest in the future performance of The Pabrai Funds. When you win, I win. Our interests are completely aligned. I am very bullish on the long-term future of The Pabrai Funds – as demonstrated by my being the single largest investor in the funds. Next Opening – February 1, 2004 There are 2 funds open to new investors to add funds - PIF3 and PIF4. To invest in PIF3, one needs to be a non-US accredited offshore investor. Tax-exempt accounts like IRAs, Roth IRAs and US Family Foundations can invest in PIF3 as well. The minimum investment to join PIF3 as a new partner is $100,000. The minimum investment for PIF4 is $250,000 and one needs to be a “qualified investor” as defined by the SEC.5

is considered a qualified investor. Please refer to those documents for the precise definition. Simplistically, individual investors are considered qualified if they are accredited investors (at least a $1 Million net worth) and have at least $5 Million in investments. If, for example, a person owned $5 Million worth of commercial real estate with a $4 Million mortgage on it, she would be considered a qualified investor as she has at least a $1 Million net worth and $5 Million in investments. Existing partners in any of the Pabrai Funds can add funds in increments of $25,000 at each opening (with a $25,000 minimum). Next opening to add funds is February 1, 2004. Assets Under Management There is about $89 Million in assets under management between all the funds as of January 1, 2004. Thanks for your continued interest, referrals and support. Pabrai Investment Funds Assets Under Management (In Millions of $) 1999 2000 2001 2002 2003 2004 Assets Under Management Feel free to call me at +1949.275.5652 or email me at mpabrai@pabraifunds.com with any queries or comments. Warm Regards, Mohnish Pabrai Page 6

Pabrai Funds to outperform the best of the three indices over the long haul. I have no idea by how much we will outperform, but am willing to wager that it will be substantially less than the last 4 years. Partners would be best off setting their expectations for The Pabrai Investment Funds to outperform the best of the three indices by a small margin over the long haul. Intrinsic Value and Investment Opportunities PIF2 and PIF3 are up 51% and 42% respectively this year. Some of our positions are approaching their intrinsic value and the market value versus intrinsic value gap has clearly narrowed for both funds. Overtime, these fully valued positions will be replaced again by discounted businesses. When these opportunities show up on the radar is, however, unpredictable. Hence I remain very bullish on the future of the funds. Investment opportunities continue to be very scarce. I have found just one new business to add to the portfolio this year – and over half the year is over. Our future does rest on my ability to find a few great investment ideas periodically. Alignment of Interests On June 30, since we were at a historic high and well above the 6% annualized since the last high, a management fee was paid to the investment manager, Dalal Street, Inc. (wholly owned by me) as follows: PIF3: $93,931.99 PIF2: $891,569.10 Since PIF3 is an offshore fund, I cannot invest in it and am required to take my fee out of the fund.

Offshore Investors: A $100,000 investment in PIF3 at inception on February 1, 2002 was worth $123,800 as of May 31, 2003 (net to investors). This equates to an annualized return of 17.4% since inception. PABRAI INVESTMENT FUND I Performance Summary: (closed and merged with PIF2 on 12/31/02) DJIA NASDAQ S&P 500 PIFI (net to investors) 7/1/99 - 6/30/00 -3.3% +48.0% +7.2% +50.5% 7/1/00 – 6/30/01 +2.1% -45.4% -14.8% -8.3% 7/1/01 – 6/30/02 -10.3% -32.7% -18.0% +63.6% 7/1/02 – 12/31/02 -8.7% -10.3% -8.5% -12.6% Annualized -6.4% -18.1% -11.2% +21.5% Cumulative -20.7% -50.3% -34.0% +97.9% Comparison of Changes in Value of $100,000 invested in PIFI vs the Indices $0.00 $50,000.00 $100,000.00 $150,000.00 $200,000.00 $250,000.00 Jun-99 Oct-99 Feb-00 Jun-00 Oct-00 Feb-01 Jun-01 Oct-01 Feb-02 Jun-02 Oct-02 PIFI S&P 500 DJIA NASDAQ I just received draft statements for all the PIF2 and PIF3 partners for review from the respective fund administrators and, to be absolutely candid, I was elated. Both the funds are at historic highs – which means that every dollar ever invested in either fund at anytime by any partner is worth more than they invested. And with my having interacted in person with nearly every partner in the funds, it was a very good feeling when I reviewed the data on what you invested and its current value. I like making money for all of you. Having said that, I’d like to express that the annualized performance of 29.8% for PIFI/PIF2 and 17.

Comparison of Changes in value of $100,000 invested in PIF3 vs. the Indices. PIF3: $145,300; Best Index (Dow): $97,000 $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 Feb-02 Apr-02 Jun-02 Aug-02 Oct-02 Dec-02 Feb-03 Apr-03 Jun-03 Aug-03 PIF3 S&P 500 DJIA Nasdaq Offshore Investors: A $100,000 investment in PIF3 at inception on February 1, 2002 was worth $145,300 as of Sept. 30, 2003 (net to investors). This equates to an annualized return of 25.1% since inception. General Comments The diligent reader will notice that PIF2 and PIF3 are up 54.7% and 53.3% respectively in value for the first 9 months of 2003. Both funds are also at historic highs. While these facts are interesting, investors are best off focusing on long-term performance rather than a few months. Since inception in 1999, PIFI/PIF2 have delivered an annualized return of 30.1%. PIF3 was launched in 2002 and it has delivered an annualized return of 25.1% since then. I’d like to again express that annualized gains of this magnitude are an anomaly and not to be expected going forward. I do expect the Pabrai Funds to outperform the best of the three indices over the long haul. I have no idea by how much we will outperform, but am willing to wager that it will be substantially less than the last 4 years. Partners would be best off setting their expectations for The Pabrai Investment Funds to outperform the best of the three indices by a small margin over the long haul.

Page 3 of 8 PABRAI INVESTMENT FUND 3 Performance Summary: DJIA NASDAQ S&P 500 PIF3 (net to investors) 2/1/02 – 12/31/02 -13.4% -30.9% -21.1% -5.2% Annualized -14.5% -33.2% -22.8% -5.7% Cumulative -13.4% -30.9% -21.1% -5.2% Comparison of Changes in value of $100,000 invested in PIF3 vs. the Indices (Net to Investors) $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 Feb. 2002 Dec. 2002 PIF3 S&P 500 DJIA Nasdaq The Pabrai Funds are 3½ years old and the performance of the funds has been satisfactory – especially considering that the portfolios are being valued at a substantial discount to my estimate of their intrinsic value. PIFI, the oldest fund, has averaged an annualized rate of return of 21.5% while all the benchmark indices are down substantially. The last 3½ years have been difficult ones for most funds and investors and our vastly superior performance is fully attributable to following the core investing tenets prescribed by The Graham/Buffett/Munger school of investing. PIF2 has averaged an annualized return of 16.6% in the 2¼ years that it has been in existence and again is substantially better than all three indices and nearly all other equity funds. PIF3 is the youngest fund. It is just 11 months old and lost 5.2% of its value in 2002. While this is better than all the benchmark indices, nonetheless investors are in the red. I do believe that the results for all the funds will be very satisfactory over the long term (5-10 years).

Comparison in Changes in Value of PIF4 vs. the Indices. PIF4: $102,300; Best Index (Nasdaq): $109,800 $94,000 $96,000 $98,000 $100,000 $102,000 $104,000 $106,000 $108,000 $110,000 $112,000 Oct-03 Nov-03 PIF4 S&P 500 DJIA NASDAQ General Comments PIF2 and PIF3 are up 86.9% and 75.8% respectively in value for the first 11 months of 2003. I’d like to again express that annualized gains of this magnitude are an anomaly and not to be expected going forward. Before fees, the PIF2 YTD returns are over 100% - and that is amazing to me. I do expect the Pabrai Funds to outperform the best of the three indices over the long haul. I have no idea by how much we will outperform, but am willing to wager that it will be substantially less than the last 4+ years. Partners would be best off setting their expectations for The Pabrai Investment Funds to outperform the best of the three indices by a small margin over the long haul. The Nasdaq was up an amazing 9.8% over the last two months – far outpacing the 2.3% that PIF4’s valued increased over the same period. Due to its newness, PIF4 has a large cash position. There just isn’t much on sale and I’m in no hurry. The money will be put to work as and when good opportunities present themselves. Over the long haul it should outperform the best of the three indices by a small margin after fees and expenses. I believe the market as a whole is overvalued. All markets do eventually get to trading around a fair valuation.

Comparison of Changes in Value of $100,000 invested in PIFI vs the Indices $0.00 $50,000.00 $100,000.00 $150,000.00 $200,000.00 $250,000.00 Jun-99 Oct-99 Feb-00 Jun-00 Oct-00 Feb-01 Jun-01 Oct-01 Feb-02 Jun-02 Oct-02 PIFI S&P 500 DJIA NASDAQ The diligent reader will notice that PIF2 lost 1.7% in value in the month of July while PIF3 gained 1% during the month. Given the short one month duration that these numbers represent, they are essentially meaningless. Investors are best off fixating on the long term results (5-10 years) that the funds generate. The Pabrai Funds have delivered an annualized return of 30.2% for PIFI/PIF2 and 22.8% for PIF3 since inception. I’d like to again express that annualized gains of of this magnitude are an anomaly and not to be expected going forward. I do expect the Pabrai Funds to outperform the best of the three indices over the long haul. I have no idea by how much we will outperform, but am willing to wager that it will be substantially less than the last 4 years. Partners would be best off setting their expectations for The Pabrai Investment Funds to outperform the best of the three indices by a small margin over the long haul. Investment opportunities continue to be very scarce. Our future does rest on my ability to find a few great investment ideas periodically. Alignment of Interests On July 31, since PIF2 was below its historic high, no management fee is payable.

Page 3 of 8 PABRAI INVESTMENT FUND I Performance Summary: (closed and merged with PIF2 on 12/31/02) DJIA NASDAQ S&P 500 PIFI (net to investors) 7/1/99 - 6/30/00 -3.3% +48.0% +7.2% +50.5% 7/1/00 – 6/30/01 +2.1% -45.4% -14.8% -8.3% 7/1/01 – 6/30/02 -10.3% -32.7% -18.0% +63.6% 7/1/02 – 12/31/02 -8.7% -10.3% -8.5% -12.6% Annualized -6.4% -18.1% -11.2% +21.5% Cumulative -20.7% -50.3% -34.0% +97.9% Comparison of Changes in Value of $100,000 invested in PIFI vs the Indices $0.00 $50,000.00 $100,000.00 $150,000.00 $200,000.00 $250,000.00 Jun-99 Oct-99 Feb-00 Jun-00 Oct-00 Feb-01 Jun-01 Oct-01 Feb-02 Jun-02 Oct-02 PIFI S&P 500 DJIA NASDAQ There is little I have in terms of comments on the aforementioned performance as it is only a month of new data. During the month PIF2 outperformed all three indices while PIF3 outperformed two of the three indices. All the funds have outperformed all the benchmark indices by wide margins since inception. Partners are best off focusing on long term performance results (3, 5, 10 years etc.) without trying to read too much into monthly or annual performance numbers. With the portfolio trading at a substantial discountto its intrinsic value, I remain very bullish on the funds. Thoughts on Macro Events Macro factors like the Iraq situation or terror alerts have substantial short-term market impacts (which we try to take advantage of), but have little to do with our long term results.

To date, I have always reinvested all my fees back into the PIFI/PIF2 partnerships. Dalal Street has 221,079.85 units of PIF2. This stake is worth about $4.7 Million as of 7/1/03. Thus I have a deep vested interest in the future performance of The Pabrai Funds. When you win, I win. Our interests are completely aligned. I wrote an article recently that you might find interesting reading. On July 14, 2003, The Street.com ran Tectonic Shifts in the American Class System. If you are not a subscriber to TheStreet.com, you can read it on the funds’ website. Here is the links to the PDF version: Tectonic Shifts in the American Class System - PDF Version Next Opening – August 1, 2003 There are now 95 investors in PIF2 and recently I received commitments from 5 accredited investors to join PIF2 on August 1, 2003.8

do expect the Pabrai Funds to outperform the best of the three indices over the long haul. I have no idea by how much we will outperform, but am willing to wager that it will be substantially less than the last 4 years. Partners would be best off setting their expectations for The Pabrai Investment Funds to outperform the best of the three indices by a small margin over the long haul. Intrinsic Value and Investment Opportunities Even with the increase in NAV through 5/31/03, the Pabrai Funds continues to be valued at a big discount to my perception of their respective underlying intrinsic value. We own small parts of some very exceptional businesses and we bought our various stakes at great prices. Hence I remain very bullish on the future of the funds. Investment opportunities continue to be very scarce. I have found just one new business to add to the portfolio this year – and nearly half the year is over. Our future does rest on my ability to find a few great investment ideas periodically. If I can find 2-3 great investment ideas annually, our future is assured. However, that is a tall order – and I do hope partners recognize it as such. Alignment of Interests On May 31, since we were at a historic high and well above the 6% annualized since the last high, a management fee was paid to the investment manager, Dalal Street, Inc. (wholly owned by me) as follows: PIF3: $53,719.64 PIF2: $817,076.

PIF4, being mostly cash, is currently valued at a small discount to its intrinsic value. I expect that this discount will rise over the coming years, as I’m able to take advantage of a few good investment ideas annually.3

Whether this “correction” takes place over a day, a year or ten years is unpredictable. In the meanwhile, I love crawling through the crevices of inefficiency looking for that rare fat pitch. Alignment of Interests Since all three funds were at historic highs on Nov. 30, management fees were payable. PIF3 was also paid a management fee of $196,403.4

Page 4 of 8 The primary driver of our long term results will be how the underlying businesses perform. Macro events would need to be very ugly, broad-based and close to home to have long- term negative impacts on the revenue or cash flow generation engines of more than 20 or 30% of the portfolio. I can certainly envision macro events which would easily dwarf 9/11 and can destroy significant intrinsic value. However, if we had those type of extreme events take place, the health of our respective portfolios would not be high on our list of worries. Hence the peaceful sleep I enjoy everyday. Alignment of Interests To date, I have always reinvested all my fees back into the partnerships. Dalal Street, the investment manager that I own, has 138,019.49 units of PIF2. Based on last published NAV, this stake is worth about $1.97 Million. Thus I have a deep vested interest in the future performance of The Pabrai Funds. When you win, I win. Our interests are completely aligned. Talks at Harvard and MIT I recently gave 2 identical talks on February 4 and 5. Both were to the respective Investment Clubs at The Harvard Business School and MIT’s Sloan School of Management in Boston and Cambridge. I am giving below the link to the powerpoint presentation: The Latticework of Mental Models, Worldly Wisdom and Investment Success Most of the speech content and rich Q&A sessions are, unfortunately, not on the slides.

On the other hand PIF3 was at a historic high and above the 6% annualized return threshold since the last high. Thus a management fee of $5,294.71 was paid to the investment manager, Dalal Street, Inc. (wholly owned by me). Since PIF3 is an offshore fund, I cannot invest in it and am required to take my fee out of the fund. To date, I have always reinvested all my fees back into the PIFI/PIF2 partnerships. Dalal Street has 221,079.85 units of PIF2. This stake is worth about $4.6 Million as of 8/1/03. Thus I have a deep vested interest in the future performance of The Pabrai Funds. When you win, I win. Our interests are completely aligned. I am very bullish on the long term future of The Pabrai Funds – as demonstrated by my being the single largest investor in the funds.4

Page 4 of 8 intrinsic value. For these reasons, I do believe that future long-term results will continue to be very satisfactory. I’m bullish on The Pabrai Funds. At the same time good investment ideas continue to be very scarce. I’m content to wait (indefinitely) for them to appear on the horizon. Merger of PIFI and PIF2 The PIFI and PIF2 merger was approved by partners and the funds were merged on12/31/02. The reduced expenses of having one (larger) pool of capital versus two will be better for all of us. PIF2 is the surviving partnership and all PIFI partners got 1.4 partnership units of PIF2 for each partnership unit of PIFI they had. Alignment of Interests To date, I have always reinvested all my fees back into the partnerships. Dalal Street, the investment manager that I own, has 137,979.27 units of PIF2. Based on last published NAV, this stake is worth about $1.95 Million. Thus I have a deep vested interest in the future performance of The Pabrai Funds. When you win, I win. Our interests are completely aligned. Articles and Talks I wrote two articles recently that you might find interesting reading. On Dec. 12, The Street.com ran The Danger in Buying the Biggest and on January 2, 2003, TheStreet.com ran What Warren Buffett can Teach Microsoft. If you are not a subscriber to TheStreet.com, you can read both of them on funds’ website.

59 Since PIF3 is an offshore fund, I cannot invest in it and am required to take my fee out of the fund. To date, I have always reinvested all my fees back into the PIFI/PIF2 partnerships. Dalal Street has 179,253.29 units of PIF2. This stake is worth about $3.5 Million as of 6/1/03. Thus I have a deep vested interest in the future performance of The Pabrai Funds. When you win, I win. Our interests are completely aligned. I wrote an article recently that you might find interesting reading. On May 16, 2003, The Street.com ran Astronomers, Astronauts and Styles of Investing. If you are not a subscriber to TheStreet.com, you can read it on the funds’ website. Here is the links to the PDF version: Astronomers, Astronauts and Styles of Investing - PDF Version Next Opening – August 1, 2003 There are now 95 investors in PIF2 and, per SEC rules, the fund must close to new investors once we reach a count of 100 investors.8

However, the interested reader could glean much of that by reading the following: 1. In the Appendix of Charlie Munger’s biography (entitled “Damn Right!”), is an essay by Munger on the thesis behind Berkshire’s investment in Coca Cola. Buffett and Munger almost never provide such a descriptive of the analytics behind their various brilliant investment decisions, so this writeup is a rare treat. It is a wonderful window into how Munger’s remarkable latticework mind works. 2. I’ve written three articles in the past that encapsulate most of the thesis of the talk. They are: Buffett Succeeds at Nothing (The Motley Fool, Oct.2003

Next Opening All the 100 slots in PIF2 are spoken for and the fund is now closed to new investors. PIF4 is in the process of being setup. PIF4 will be limited to qualified investors only (folks with investments over $5 Million). PIF4 will go live on October 1, 2003 with a minimum investment of $250,000. The minimum investment to join the funds as a new partner remains unchanged at $100,000 for PIF3 – which is limited to offshore investors. Existing partners in any of the Pabrai Funds can add funds in increments of $25,000 at each opening (with a $25,000 minimum). PIF2 next opening to add funds is Oct. 1, 2003. PIF3’s next opening is Sept. 1, ’03. PIF2 typically opens six times a year to add funds (Feb. 1, April 1, June 1, August 1, Oct. 1 and Dec. 1). PIF3 opens monthly on the 1st day of each month to add funds. Annual Meetings All partners should have received their invites to the Pabrai Funds 2003 Annual Meetings via snail mail. If you didn’t, just let me know and I’ll send another invite over. If you have any friends or family or advisors you’d like to have attend, please let me know and I’ll send them an invite as well. Please send the RSVP cards in by Sept. 6, ’03. The 2003 annual meeting will be held sequentially at two locations – Chicago and Orange County, California. The Chicago meeting is scheduled to be on Saturday, Sept.

Here are the links to the PDF Versions: The Danger in Buying the Biggest - PDF Version What Warren Buffett can Teach Microsoft - PDF Version Next Opening – February 1, 2003 The minimum investment to join the funds as a new partner remains unchanged at $400,000. The next opening is 2/1/03. Existing partners can add funds in increments of $25,000 at each opening (with a $25,000 minimum). This does not apply to our offshore investors. PIF3 is setup as an offshore mutual fund limited to non-US accredited investors. The minimum investment for new PIF3 is always $100,000. Assets under management are about $27.5 Million as of 12/31/02.

10/31/03 and $115,151.75 when it again hit a new high on 11/30/03. Since PIF3 is an offshore fund, I cannot invest in it and am required to take the fee out of the fund. A management fee of $3,038,701.73 was paid by PIF2 on 11/30/03. As I have always done, this fee was reinvested back in PIF2. A management fee of $25,677.25 was paid by PIF4 on 11/30/03. This fee was reinvested into PIF4. Dalal Street, Inc. (wholly owned by me) has 344,049 units of PIF2 and 2510 units of PIF4. This stake was worth about $9.1 Million. Thus I have a deep vested interest in the future performance of The Pabrai Funds. When you win, I win. Our interests are completely aligned. I am very bullish on the long-term future of The Pabrai Funds – as demonstrated by my being the single largest investor in the funds. Declining Expense Ratios Pabrai Funds has always focused on minimizing frictional costs for the investor. To that end, I’m very pleased to see that PIF2 is likely to have annual expenses of under 10 basis points (or less than 0.1% of assets) from 2004 onwards. The only thing investors pay for until the fund achieves a 6% annualized return is direct fund expenses like accounting, audit, tax and administration. Getting these down under 10 basis points for all the funds is one of my objectives. While the difference between having expenses of 1% a year versus 0.

were a year ago, but both are presently valued at a 25% or higher discount to my conservative estimate of their respective intrinsic values. I believe the market as a whole is overvalued. It is very hard to find good investment ideas in these euphoric markets, but I’m in no particular hurry. All markets do eventually get to trading around a fair valuation. Whether this “correction” takes place over a day, a year or ten years is unpredictable. In the meanwhile, I love to crawl through the crevices of inefficiency that exist in all markets to find that rare fat pitch. Alignment of Interests On Sept. 30, since PIF2 and PIF3 were at historic highs, management fees were payable. PIF3 paid a management fee of $98,842.50 when it hit a historic high on 8/31/03 and $17,159.87 when it again hit a new high on 9/30/03. Since PIF3 is an offshore fund, I cannot invest in it and am required to take the fee out of the fund. A management fee of $171,708.34 was paid (wholly owned by me) by PIF2 on 10/1/03. As I have always done, this fee was reinvested in PIF2 on 10/1/03. Dalal Street has 228,935 units of PIF2. This stake was worth about $5 Million as of 10/1/03. Thus I have a deep vested interest in the future performance of The Pabrai Funds. When you win, I win. Our interests are completely aligned. I am very bullish on the long-term future of The Pabrai Funds – as demonstrated by my being the single largest investor in the funds.

investors once we reach a count of 100 investors – so as of now, Pabrai Funds cannot accept anymore US-based accredited investors. PIF4 is in the process of being setup. PIF4 will be limited to qualified investors only (net worth over $5 Million). PIF4 will probably go live on October 1, 2003 with a minimum investment requirement of $250,000. The minimum investment to join the funds as a new partner remains unchanged at $100,000 for PIF3 – which is limited to offshore investors. Existing partners in any of the Pabrai Funds can add funds in increments of $25,000 at each opening (with a $25,000 minimum). Assets under management are about $48 Million as of 7/1/03. Pabrai Investment Funds Assets Under Management (In Millions of $) 1999 2000 2001 2002 2003 Assets Under Management Annual Meetings The annual meeting will be held sequentially at two locations – Chicago and Orange County, California. The Chicago meeting is scheduled to be on Saturday, Sept. 13, 2003 at 4:00 PM at the same venue as the last 2 years: Carlucci’s Restaurant (Auditorium), 6111 North River Road, Rosemont, Illinois 60018 Tel. +1847.518.0990 Carlucci’s is a 3 minutes taxi ride from Chicago’s O’Hare Airport is a adjoining the Marriott Suites and Westin ‘Ohare. Agenda: 4:00 – 4:30 PM: Meet & Greet Page 5 of 8

Page 5 of 8 The minimum investment to join the funds as a new partner remains unchanged at $400,000 for US Investors and $100,000 for offshore investors. The next opening is on 4/1/03. Existing partners can add funds in increments of $25,000 at each opening (with a $25,000 minimum). Assets under management are about $28.5 Million as of 2/1/03. Pabrai Investment Funds Assets Under Management (In Millions of $) 1999 2000 2001 2002 2003 Assets Under Management Meeting the San Francisco Bay Area Partners: On March 18 and 19, I am in the San Francisco Bay area meeting a number of partners who I’ve never met. It’s long overdue. Am also meeting a number of folks who have an interest in learning more. On March 18, I am hosting a dinner for partners and friends in a private room at: Gaylord Restaurant 1706 El Camino Real, Menlo Park, CA 94025 Tel. (415) 326-8761 6:30 – 7:30 PM: Cocktails & Appetizers 7:30 – 9:30 PM: Dinner If you find yourself in the SF Bay area on 3/18 and would like to attend, just call or email me. Also, I am in Los Angeles during the week of February 24, if any of you are in LA during that week and would like to meet up.

1% many not seem like much in a year when we’re up over 80%, it is very meaningful in down years (yes, we’ll see a few of those) or even years when we barely eke out a positive return. These expense ratio declines have been accomplished while upgrading our service providers to best in class – like engaging PricewaterhouseCoopers to do the audit and tax work. As assets under management rise, PIF3 and PIF4 will get to 10 basis points as well. As a comparison, the wonderful Vanguard S&P 500 Index Fund has over $66 Billion in assets and an expense ratio of 0.18% - nearly double of PIF2. PIF2 is cheaper than Vanguard’s fund until we get to a return above about 6.3% for investors. With virtually all other mutual funds and hedge funds, Pabrai Funds is cheaper until annualized returns are above 10%. With the 1/20 structure of most hedge funds, Pabrai Funds has lower fees and expenses until annualized returns are over 50% a year. Next Opening – February 1, 2004 for US Investors There are 2 funds open to new investors to add funds - PIF3 and PIF4. To invest in PIF3, one needs to be a non-US accredited offshore investor. Tax-exempt accounts like IRAs, Roth IRAs and US Family Foundations can now invest in PIF3 as well. The minimum investment to join PIF3 as a new partner is $100,000 and the next opening is on January 1, 2004.5

13, 2003 at 4:00 PM at the same venue as the last 2 years: Carlucci’s Restaurant (Auditorium), 6111 North River Road, Rosemont, Illinois 60018 Tel. +1847.518.0990 Carlucci’s is a 3 minutes taxi ride from Chicago’s O’Hare Airport is a adjoining the Marriott Suites and Westin ‘Ohare. The Orange County, California meeting will be on Saturday, Sept. 20, 2003 at 4:00 PM at: McCormick & Schmick’s Seafood Restaurant (Private Dining Room) 2000 Main Street Irvine, CA 92614 Tel. +1949.756.5

Next Opening – December 1, 2004 for US Investors There are 2 funds open to new investors to add funds - PIF3 and PIF4. To invest in PIF3, one needs to be a non-US accredited offshore investor. The minimum investment to join PIF3 as a new partner is $100,000 and the next opening is on November 1, 2003. The next opening for PIF4 is on December 1, 2004. The minimum investment is $250,000 and one needs to be a “qualified investor” as defined by the SEC. The offering and subscription documents for PIF4 have details on who is considered a qualified investor. Please refer to those documents for the precise definition. Simplistically, individual investors are considered qualified if they are accredited investors (at least a $1 Million net worth) and have at least $5 Million in investments. If, for example, a person owned $5 Million worth of commercial real estate with a $4 Million mortgage on it, she would be considered a qualified investor as she has at least a $1 Million net worth and $5 Million in investments. Existing partners in any of the Pabrai Funds can add funds in increments of $25,000 at each opening (with a $25,000 minimum). PIF2/PIF4’s next opening to add funds is December 1, 2003. PIF3’s next opening is November 1, ’03.4

4:30 – 6:00 PM: Presentation and Q&A 6:00 – 7:00 PM: Cocktail Hour 7:00 – 9:00 PM: Dinner The Orange County, California meeting will be on Saturday, Sept. 20, 2003 at 4:00 PM at: McCormick & Schmick’s Seafood Restaurant (Private Dining Room) 2000 Main Street Irvine, CA 92614 Tel. +1949.756.0505 McCormick & Schmick’s is a 3 minutes taxi ride from Orange County Airport and is adjoining The Embassy Suites Hotel in Irvine. Agenda: 4:00 – 4:30 PM: Meet & Greet 4:30 – 6:00 PM: Presentation and Q&A 6:00 – 7:00 PM: Cocktail Hour 7:00 – 9:00 PM: Dinner I do hope I see you in Rosemont or Irvine in September. Thanks for your continued interest, referrals and support. Feel free to call me at +1949.275.5652 or email me at mpabrai@pabraifunds.com with any queries or comments. Warm Regards, Mohnish Pabrai Page 6 of 8

process of setting up PIF4. PIF4 will be limited to qualified investors only (net worth over $5 Million), but have the ability to have upto 500 partners. PIF4 will likely start with a minimum investment requirement of $250,000. The minimum investment to join the funds as a new partner remains unchanged at $100,000 for PIF3 – which is limited to offshore investors. The next openings for PIF3 are on July 1, 2003 and August 1, 2003. Existing partners in either fund can add funds in increments of $25,000 at each opening (with a $25,000 minimum). Assets under management are about $43 Million as of 6/1/03. Pabrai Investment Funds Assets Under Management (In Millions of $) 1999 2000 2001 2002 2003 Assets Under Management Pabrai Funds Relocated to Lake Forest, California – June 1, 2003 As I mentioned in my last letter, Pabrai Funds is now based in Lake Forest, California. Here are our new coordinates: Pabrai Investment Funds 17 Spectrum Pointe Drive Suite 503 Lake Forest, CA 92630 Tel. +1949.275.5652 Fax. +1949.457.9394 mpabrai@pabraifunds.com www.pabraifunds.com My new Executive Administrative Assistant/Office Manager is Chris Saludo-Perkins. You can reach her at csaludo@pabraifunds.com or +1949.457.9391. Feel free to visit us at your Page 5 of 8

Page 5 of 8 Pabrai Investment Funds Assets Under Management (In Millions of $) 1999 2000 2001 2002 Assets Under Management Finally, with this update I am making two changes to the reporting format. The first is the addition of dividend data for all three indices. Earlier, I was unable to find a good source for historical dividend data on the S&P 500 and the Nasdaq Composite. I’m grateful to the folks at Merrill Lynch for providing this information. This will provide precise apples to apples comparison with all three indices. Secondly, I am eliminating reporting of the Pre-expense Performance Data. For a detailed narrative on the reasoning, please see Appendix B. Thanks for your continued interest, referrals and support. Happy New Year! Warm Regards, Mohnish Pabrai

Page 8 of 8 Appendix B Reporting Format Change Going forward, the Pre-expense Performance Data will no longer be reported in my bi- monthly letters. Expense detail will be listed as usual in the annual audit report. I had provided this data for a few reasons that have now become irrelevant. Some of these reasons were: 1. To provide greater transparency on the fund NAV calculations. For the first three years these calculations were done by me. Now this function is handled by professional fund administrators who are independent third-parties with high-integrity. In addition all the funds are being audited by PriceWaterhouse Coopers. 2. Investors have often commented that they only care about the net returns to them. The expense details are not so relevant. They are right. The annual audit report does detail all fund expenses, so the simpler reporting will make it easier for investors to gauge fund performance. 3. At the outset, we had $1 Million under management. Today it’s north of $27 Million. At $1 Million in assets, our expense ratios were relatively high because of the very limited assets to amortize them over. While we are still very small, expenses now get amortized over a bigger asset base which is good for all of us. I wanted investors to be able to see how the funds were doing without the distorting effects of the relatively large expense ratios. As we scaled this has become less relevant.

times a year to add funds (Feb. 1, April 1, June 1, August 1, Oct. 1 and Dec. 1). PIF3 opens monthly on the 1st day of each month to add funds. Annual Meetings Slides & Transcript Both the Chicago and Orange County annual meetings for Pabrai Funds, held on 9/13 and 9/20 respectively, went off smoothly. There were about 80 attendees in Chicago and about 25 in Irvine, California. I’d like to thank all the partners, potential partners and their families who took time out of their busy schedules on a Saturday afternoon to attend. Also thanks to Pabrai Funds Office Manager, Julie Shiposh, for organizing the various facets of the meeting and transcribing the presentation and Q&A session. I have posted the 2003 Annual Meeting Presentation Slides and the Transcript including the rich Q&A session on the Pabrai Funds website. Presentation to TiE Seattle on Sept. 18. 2003 The Seattle chapter of The Indus Entrepreneurs (www.tie.org; www.tie-seattle.org) invited me to speak to their members on Sept. 18, 2003. The slides of the talk entitled, “Entrepreneurship and Value Investing: Two Sides of the Same Coin.”, are on the Pabrai Funds website. I tend to use PowerPoint slides as a prompter for organizing my thoughts. Thus most of the content of the talk and the rich Q&A are, unfortunately, not on the slides. The best way to learn is to teach. Preparing and giving the talk were terrific learning experiences.

McCormick & Schmick’s is a 3 minutes taxi ride from Orange County Airport and is next to The Embassy Suites Hotel in Irvine. Agenda (for both meetings): 4:00 – 4:30 PM: Meet & Greet 4:30 – 6:00 PM: Presentation and Q&A 6:00 – 7:00 PM: Cocktail Hour 7:00 – 9:00 PM: Dinner I do hope I see you in Rosemont or Irvine in September. Assets Under Management There is about $49 Million in assets under management between PIF2 and PIF3 (as of 8/1/03). Thanks for your continued interest, referrals and support. Pabrai Investment Funds Assets Under Management (In Millions of $) 1999 2000 2001 2002 2003 Assets Under Management Feel free to call me at +1949.275.5652 or email me at mpabrai@pabraifunds.com with any queries or comments. Warm Regards, Mohnish Pabrai Page 6 of 6

The next opening for PIF4 is on February 1, 2004. The minimum investment is $250,000 and one needs to be a “qualified investor” as defined by the SEC. The offering and subscription documents for PIF4 have details on who is considered a qualified investor. Please refer to those documents for the precise definition. Simplistically, individual investors are considered qualified if they are accredited investors (at least a $1 Million net worth) and have at least $5 Million in investments. If, for example, a person owned $5 Million worth of commercial real estate with a $4 Million mortgage on it, she would be considered a qualified investor as she has at least a $1 Million net worth and $5 Million in investments. Existing partners in any of the Pabrai Funds can add funds in increments of $25,000 at each opening (with a $25,000 minimum). PIF2/PIF4’s next opening to add funds is February 1, 2004. PIF3’s next opening is January 1, 2004. PIF2 and PIF4 typically open six times a year to add funds (Feb. 1, April 1, June 1, August 1, Oct. 1 and Dec. 1). PIF3 opens monthly on the 1st day of each month to add funds. Musings on Probabilities, Uncertainties and Investing I’m in the midst of reading In an Uncertain World: Tough Choices from Wall Street to Washington by Robert E. Rubin and thoroughly enjoying it. Formerly Secretary of the Treasury, Rubin is a gifted writer. He comes across as a very low-ego matter-of-fact likeable individual.

convenience. We’d love to give you a tour of the entire 711 sq. ft. out of which we run the funds. Annual Meetings Going forward, I plan to hold the annual meeting sequentially at two locations – Chicago and Orange County, California. The Chicago meeting is scheduled to be on Saturday, Sept. 13, 2003 at 4:00 PM at the same venue as the last 2 years: Carlucci’s Restaurant, 6111 North River Road, Rosemont, Illinois 60018 Tel. +1847.518.0990 Agenda: 4:00 – 6:00 PM: Presentation and Q&A 6:00 – 7:00 PM: Cocktail Hour 7:00 – 9:00 PM: Dinner The Orange County, California meeting will be on Saturday, Sept. 20, 2003 at 4:00 PM at a yet to be determined location. Thanks for your continued interest, referrals and support. Feel free to call me at +1949.275.5652 or email me at mpabrai@pabraifunds.com with any queries or comments. Warm Regards, Mohnish Pabrai Page 6 of 8

California Summer Reading The time I get to read books is inversely proportional to the level of the Dow Jones index. When we have times like 2003 when markets are very overvalued, I find myself with more time for general reading and if we were to witness markets like 1974 again, then general reading would go out the window. I’m periodically questioned on the contents of my bookshelf on the website and specifically where I would suggest getting started. It’s a difficult question to answer as it depends on one’s aptitudes and interests. However, I decided that I’d periodically discuss a few books read recently and in the not too distant past to help folks decide for themselves if they are likely to enjoy certain books over others. The best book on Warren Buffett (in my opinion) is The Making of an American Capitalist by Roger Lowenstein. It’s a good book to get started on Buffett. Following Lowenstein’s book, I’d recommend reading Buffett’s Letters to Shareholders from 1977 to 2002. You can also get a hard copy of the letters (3 bound books) by sending proof of shareholding or a check for $35 to Berkshire Hathaway, Inc. 3555 Farnam Street, Suite 1440, Omaha, NE 68131.5

Additionally, with the merger of PIFI and PIF2, we now have a single fund with over $23 million in assets and growing which makes the expense ratio very reasonable. As we scale, it will decline further (as a % of the assets in the fund). 4. Investors with investments in other funds etc. can do an apples to apples comparison more easily.

Rubin thinks that there are no absolute certainties in life and one has to make decisions based on varying degrees of uncertainty and incomplete datasets. His perspectives resonate very well with me – especially as applied to investing in equities. The future of even the best business on the planet is far from assured. And when one invests in any business one needs to make some objective assessments about the manner in which one expects the future to unfold. The key is to only make bets when the odds are heavily in favor of your thesis. No single investment of mine has ever been a guaranteed winner at the time the investment was made, but all of them were made with perceived odds being heavily in my favor. The results have been quite acceptable thus far – even as a few bets have gone against me – as they are going to from time to time. At the Blackjack table in a casino, depending on the rules, the house has a 1-2% odds advantage. It’s usually 48:50 odds against you. Even with those slim odds against you and even betting a small sum on each bet, the house is likely to wipe out a fairly large bankroll in a matter of hours. With investing, there are times when the odds are 80:20 or 90:10 in the investor’s favor of generating a 30% (or higher) annual return. One needs to fully capitalize on these opportunities. The trick is to make bets very sparingly – only when the odds are heavily in your favor. Few Bets…Big Bets…Infrequent Bets – that’s the simple mantra.6

The letters should be read and re-read a few times. For $35 one would get a far better education on business (and life in general) than spending 2 years and $100,000 getting a Harvard MBA. Over the summer, I read two books on games that I have no competency in – baseball and poker. That didn’t stop me from learning a few things and thoroughly enjoyed both books. The first, on baseball, is Moneyball: The Art of Winning an Unfair Game by Michael Lewis and the second, on poker, is Positively Fifth Street: Murderers, Cheetahs, and Binion's World Series of Poker by James McManus. Moneyball is a terrific book that’s really all about value investing and leveraging Munger’s Latticework of Mental Models to exploit glaring inefficiencies in major league baseball salaries vs. talent. When the author of a book on poker references some of my favorite books like Why Is Sex Fun?, Guns, Germs and Steel (both by Jared Diamond) and How the Mind Works by Steven Pinker (one that’s arrived, but not yet read), my curiosity was piqued. McManus and Lewis are very talented writers and I loved the candid writing style. Both books are very entertaining and I found myself laughing out loud on more than one occasion. This was my first summer in Southern California and I thoroughly enjoyed it. A special unexpected bonus is the amazing cool Mediterranean weather at nights with zero humidity and zero bugs!

There was about $81 Million in assets under management between all the funds as of December 1, 2003. Thanks for your continued interest, referrals and support. Pabrai Investment Funds Assets Under Management (In Millions of $) 1999 2000 2001 2002 2003 Assets Under Management Feel free to call me at +1949.275.5652 or email me at mpabrai@pabraifunds.com with any queries or comments. Warm Regards, Mohnish Pabrai Page 7 of 7

I do most of my reading after the kids go to bed and it’s been very nice to have the doors open – letting in a gentle breeze off the Pacific while settling in with a good book. Some of the other good reads this summer included Investment Biker and Adventure Capitalist (both by Jim Rogers). Rogers went around the world on a motorcycle about a decade ago and then he did the same trip at the turn of the millennium in a car. He’s been a very successful investor (and a partner of George Soros) for decades and both books are worth reading for their uniqueness. You can’t find any other book that in one paragraph describes the beauty of the Victoria Falls and in the next goes into the diverse investing climate in the two countries on either side of the falls. While I don’t agree with some of Jim’s investing perspectives, he’s clearly a smart value guy and one can learn a lot from him about the world we live in. The only person who comes to mind as being more adventuresome and a better capitalist than Rogers is Richard Branson. His biography, Losing My Virginity, is another terrific read. I highly recommend Branson’s book for its candor and insights on starting and growing businesses. Branson reinforces Amar Bhide’s (author of The Origin and Evolution of New Businesses) thesis that most startups are low-risk ventures. My talk on Sept. 18 to TiE- Seattle focused on how entrepreneurship and investing are closely related with both being low-risk arbitrage oriented vocations.

mistake randomness for a set of determinate patterns. Well worth reading, even for a value investor. Assets Under Management There was about $59 Million in assets under management between all the funds as of October 1, 2003. Thanks for your continued interest, referrals and support. Pabrai Investment Funds Assets Under Management (In Millions of $) 1999 2000 2001 2002 2003 Assets Under Management Feel free to call me at +1949.275.5652 or email me at mpabrai@pabraifunds.com with any queries or comments. Warm Regards, Mohnish Pabrai Page 7 of 7

Pabrai Investment Funds Memo To: All Limited Partners of The Pabrai Investment Fund 2, L. P. From: Mohnish Pabrai, Managing Partner Date: February 2, 2002 Re: Pabrai Investment Fund 3 (Offshore Fund) Launched Dear Partners: I’d like to begin by welcoming our new partners into The Pabrai Funds. I hope we have a long and mutually prosperous relationship. The BVI-based offshore fund, PIF3 went live on February 1, 2002. Between PIF2 and PIF3, over $3.8 Million in new assets came in on February 1 ($651,000 in PIF3 and $3,216,188.23 Million in PIF2). The details of the Asset Value Calculations are in the attached Appendix A. PABRAI INVESTMENT FUND 2 Performance Summary: DJIA NASDAQ S&P 500 PIF2 PIF2 (before exp.) (after exp.) 10/1/00 – 9/30/01 -15.2% -59.2% -27.5% +17.6% +12.0% 10/1/01 – 1/25/02 +11.4% +29.4% +8.8 % +34.2% +31.0% Annualized -4.2% -38.1% -16.3% +40.8% +33.3% Cumulative -5.5% -47.2% -21.1% +57.8% +46.7% Page 1 of 5

Pabrai Investment Funds Memo To: All Limited Partners of The Pabrai Investment Funds From: Mohnish Pabrai, Managing Partner Date: July 18, 2002 Re: Unaudited Year-end Performance Numbers for PIFI and PIF2 Dear Partners: One of the most frequent questions I get from PIFI partners is: “Hey Mohnish, Why do you treat us like 2nd class citizens and not report updated PIFI performance when you release PIF2 data?” PIFI partners are very near and dear to my heart. You were the first group to give me your hard earned $$$ to manage when there was no track record. The investors who join the partnership today have a three year history to look at – which would not exist without you. All the funds have the same reporting rules. NAV gets reported at fiscal year end and each time there are subscriptions or redemptions. Since PIFI is closed, the only intervals that get reported are redemptions and year end – which leads to a maximum of 2 datapoints a year and a minimum of 1 datapoint a year. The Pabrai Funds are unusual when compared to other funds in their reporting frequency. When Buffett ran his partnerships in the 1950s and 1960s, he reported once a year so investors did not fixate on “noise”. I subscribe to that theory and hence the fund rules. However, it is your turn to bask in the sun. The NAV after all fees and expenses is $22.54/unit. Michael J. Liccar & Co. are in the process of preparing the statements as of 6/30/02 for PIFI and PIF2 and you’ll be receiving them in a few days.8

Pabrai Investment Funds Memo To: All Partners of The Pabrai Investment Funds From: Mohnish Pabrai, Managing Partner Date: July 22, 2002 Re: Updated Performance Data; Over $23 Million in Assets Dear Partners: I’d like to begin by welcoming our new partners into the various Pabrai Funds. I hope we have a long and mutually prosperous relationship. Between PIF2, PIF3 and our first managed account, $5,086,000 in funds came in on April 1, 2002. The breakdown is $975,000 into PIF2; $2,100,000 into PIF3 and $2,011,000 in the managed account. The details of the Asset Value Calculations are in the attached Appendix A. PABRAI INVESTMENT FUND 2 Performance Summary: DJIA NASDAQ S&P 500 PIF2 PIF2 (before exp.) (after exp.) 10/1/00 – 9/30/01 -15.2% -59.2% -27.5% +17.6% +12.0% 10/1/01 – 3/29/02 +18.2% +23.0% +10.2% +43.2% +40.4% Annualized +0.1% -49.8% -13.9% +41.6% +35.2% Cumulative +0.2% -49.8% -20.0% +68.4% +57.2% Page 1 of 7

Pabrai Investment Funds Memo To: All Limited Partners of The Pabrai Investment Funds From: Mohnish Pabrai, Managing Partner Date: June 3, 2002 Re: Updated Performance Data; TPA in Place; Moving to the Big 4 for Annual Audit Services Dear Partners: $2,955,814 in new assets came in on June 1, 2002. All of it was directed towards PIF2. I’d like to begin by welcoming all our new partners into The Pabrai Funds – especially the one who lives in Maui, Hawaii. It’s always good to have a friend and partner in Maui! I hope all of us have a long and mutually prosperous relationship. Whenever we have new subscriptions, redemptions or fiscal year-end for a given fund, I have to publish updated NAV numbers for that fund. Here is the updated (unaudited) performance data for PIF2. The details of the Asset Value Calculations are in the attached Appendix A. PABRAI INVESTMENT FUND 2 Performance Summary: DJIA NASDAQ S&P 500 PIF2 PIF2 (before exp.) (after exp.) 10/1/00 – 9/30/01 -15.2% -59.2% -27.5% +17.6% +12.0% 10/1/01 – 5/31/02 +12.9% +7.8% +2.5% +62.9% +55.6% Annualized -2.6% -38.9% -16.4% +47.7% +39.6% Cumulative -4.3% -56.0% -25.7% +91.6% +74.3% Page 1 of 9

Pabrai Investment Funds Memo To: All Limited Partners of The Pabrai Investment Funds From: Mohnish Pabrai, Managing Partner Date: August 1, 2002 Re: Updated Performance Numbers et. al. Dear Partners: Over $4 Million is new funds were added by existing and new partners of The Pabrai Investment Funds on August 1, 2002. Of this $3,860,000 was added to PIF2 and $250,000 was added to PIF3 (offshore). It is the single largest amount added to PIF2 at any time since inception. Previously, at the Oct. 1, 2001 opening (right after 9/11), PIF2 partners added what was at that time the largest amount to the fund. I am very pleased to be associated with this august group of long term partners who have repeatedly demonstrated their high IQ by adding funds to the partnership in droves right after big drops in the stock market. While I don’t believe in trying to play market timing games, I am happy to see Pabrai Funds partners add funds to the stock market while the masses are selling their holdings in droves. It reminds me of the famous Buffett quote: Be fearful when the world is greedy and be greedy when the world is fearful. Anytime there are new subscriptions or redemptions, the funds need to publish NAV numbers so the funds can be correctly priced. Hence PIF2 and PIF3 performance data is being updated through 7/31/02. Here are the updated numbers: Page 1 of 9

Pabrai Investment Funds Memo To: All Limited Partners of The Pabrai Investment Fund 2, L. P. From: Mohnish Pabrai, Managing Partner Date: January 7, 2002 Re: The Misses and The Aces Dear Partners: As I had stated earlier, we have our offshore investors redeeming their interest in PIF2. They are moving their assets in PIF3, which is a BVI based Professional Mutual Fund limited to accredited offshore investors. PIF3 goes live on February 1, 2002. Whenever we add or redeem assets to the funds, I have to release performance to date to assign the correct Net Asset Value to the new funds. The details of the Asset Value Calculations are in the attached Appendix A. PABRAI INVESTMENT FUND 2 Performance Summary: DJIA NASDAQ S&P 500 PIF2 PIF2 (before exp.) (after exp.) 10/1/00 – 9/30/01 -15.2% -59.2% -27.5% +17.6% +12.0% 10/1/01 – 12/31/01 +13.4% +30.1% +10.2% +31.9% +29.5% Annualized -3.1% -39.7% -17.1% +42.1% +34.6% Cumulative -3.8% -46.9% -20.1% +55.1% +45.0%

The annualized performance % numbers for The Pabrai Funds were off as I had been using an errored formula. There is no error in the NAV/unit numbers. Thankfully, the mistake understated annualized performance. Our actual annualized performance is better than previously reflected. This has been corrected. I’m sorry about this. The diligent reader will notice that PIF2 had a strong December and a very good 2001. I had not published our 1/1/01 NAV before, but it was $9.87/unit. For the year 2001, our gain was 57.1% before fees and expenses. Considering that all three indices were down, we had an exceptional year – one that is clearly unsustainable. When compared to 2001 mutual fund performance, PIF2 would have come in as the 5th best performing fund of the year including ALL mutual funds. Of the 4 funds ahead of us, 2 are country specific funds (Russia and South Korea). The data indicates that we’ve outperformed over 99.9% of mutual funds in 2001. As I’ve stated earlier, I think we’re fairly good, but not that good. Long term, I’d expect more funds to outperform The Pabrai Funds while we continue to outperform the indices and atleast 90% of fund managers. We achieved these returns with modest realized gains in 2001. Our portfolio continues to trade substantially below intrinsic. I’m not sure when Mr. Market will assign an appropriate value to the holdings, but I have some confidence that, for most positions, this will happen within 24 months. So, we have a few “Aces in the Hole.

DJIA NASDAQ S&P 500 PIFI PIFI (before exp.) (after exp.) 7/1/99 - 6/30/00 -4.7% +47.3% +4.7% +62.5% +50.1% 7/1/00 – 6/30/01 +2.2% -45.5% -15.9% -7.7% -8.3% 7/1/01 – 8/31/01 -5.1% -16.5% -7.4% +14.0% +14.2% Annualized -3.6% -16.9% -9.3% +28.0% +23.3% Cumulative -7.6% -33.0% -18.5% +70.7% +57.3% Comparison of Changes in Value of $100,000 invested in PIFI vs the Indices $0.00 $50,000.00 $100,000.00 $150,000.00 $200,000.00 Jul-99 Oct-99 Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 PIFI S&P 500 DJIA NASDAQ The diligent reader will notice that PIF2 is at a historical high and has delivered exceptional results since inception. I would like to make a few comments at this juncture on the performance numbers: 1. The manner in which the funds have performed has amazed me. I fully expect our future performance to be inferior to the results of the past. Actually, I’d like to restate the previous sentence as follows – I can virtually guarantee and promise that our future results in the coming years will significantly lag the performance that PIF2 has delivered in the last twenty months. I would also like to repeat the objective of The Pabrai Investment Funds. The Pabrai Investment Funds’ goal is to outperform all three major indices (DJIA, S&P 500, Nasdaq Composite) over the long haul. It is NOT our objective to beat, for example, the Nasdaq Composite by an annualized margin of 78.5% as we happen to have done in the last 20 months.

Pabrai Investment Funds Assets Under Management (In Millions of $) 1999 2000 2001 June-02 Assets Under Management The diligent reader will notice that PIFI is at a historical high and has delivered exceptional results since inception. I would like to make a few comments at this juncture on PIFI: 1. I have stated earlier that PIFI has a few disadvantages versus PIF2 which are likely to hinder performance when compared to PIF2. The first is that there is no new money coming into PIFI. This means that when I have an idea that PIF2 invests in, PIFI may not be able to make the investment – or if it does, it means there are likely to be tax consequences as I have to sell something in PIFI to buy. The flip side of this is that there was an investment PIF2 made a few months ago that PIFI could buy a very small position in. As it turned out, it has so far resulted in a unrealized loss and PIFI’s exposure was proportionally far lower than PIF2. Time will tell if this eventually turns into a realized gain or loss. The second disadvantage is that the allowable leverage % is lower (30% vs. 50%). I’d like PIFI partners to be fully aware of these facts and their impact on performance. 2. It is harder to manage PIFI than PIF2 because of the bigger struggle with which ideas are the best. I try to do my best and so far the overwhelming number of decisions on idea selection have been good ones – hence our performance versus the broad market. 3.

PABRAI INVESTMENT FUND I (closed) Performance Summary: DJIA NASDAQ S&P 500 PIFI PIFI (before exp.) (after exp.) 7/1/99 - 6/30/00 -4.7% +47.3% +4.7% +62.5% +50.1% 7/1/00 – 6/30/01 +2.2% -45.5% -15.9% -7.7% -8.3% 7/1/01 – 8/31/01 -5.1% -16.5% -7.4% +14.0% +14.2% Annualized -3.6% -16.9% -9.3% +28.0% +23.3% Cumulative -7.6% -33.0% -18.5% +70.7% +57.3% Comparison of Changes in Value of $100,000 invested in PIFI vs the Indices $0.00 $50,000.00 $100,000.00 $150,000.00 $200,000.00 Jul-99 Oct-99 Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 PIFI S&P 500 DJIA NASDAQ The diligent reader will notice that PIF2 and PIF3 are at historical highs. We had a good couple of months and some holdings took off almost immediately after I bought them. Nonetheless, the portfolio continues to trade well below my estimation of its intrinsic value. Raising the Minimum Amount for new Partners There are now 70 limited partners between PIFI, PIF2 and managed accounts. We are limited to 100 US partners by law. As the available slots decrease, the minimum will increase. Going forward, the new minimum investment to join the funds as a new partner will be $300,000. This is effective at the next opening of 6/1/02. Existing partners can add anything over $25,000 at each opening. This does not apply to our offshore investors. PIF3 is setup an an offshore mutual fund limited to non-US accredited investors.

The diligent reader will notice that PIF2 is at a historical high. January 2002 was good month for PIF2 – considering that we had some further appreciation while all three benchmark indices lost value. Nonetheless, the portfolio continues to trade well below my estimation of its intrinsic value. Raising the Minimum Amount for new Partners There are now 66 limited partners between PIFI and PIF2 and we are limited to 100 by law. As the available slots decrease, the minimum will increase. Going forward, the new minimum investment to join the funds as a new partner will be $250,000. This is effective at the next opening of 4/1/02. Existing partners can add anything over $25,000 at each opening. Pabrai Investment Funds Assets Under Management (In Millions of $) 7/1/1999 7/1/2000 7/1/2001 2/1/2002 Assets Under Management Third-Party Administrator Status (TPA) For PIFI and PIF2 Based on the third amendment votes received todate, the partners appear to be overwhelmingly in favor of the addition on the TPA. I’ll have a final tally when the window closes on 2/1/02 and will move forward with having the TPA in place shortly thereafter. Thank you for your continued interest, support, confidence and referrals. Warm Regards, Mohnish Pabrai Page 3 of 5

Even the not so diligent reader will notice that PIF2 experienced a significant decline in July – over 14%. All the indices were down in July and the markets were quite volatile with fairly large swings in both directions almost daily. Since the funds typically have 10-15 holdings and do not engage in any sort of derivative hedging or taking short positions, the portfolio is likely to gyrate up and down with the market in the short run. As Ben Graham succinctly put it: “The s ock market is like a voting machine in the sho t run t r and like a weighing machine in the long run” Eventually the market price of a stock will tend to revolve around the intrinsic value of the underlying business. In the short-term however, we can easily see wide disparities between the stock price and intrinsic value. Occasionally, these gaps widen to allow fractions of businesses to be bought at big discounts to their underlying intrinsic value. That is the only time we’re interested in buying stakes in a select few of these businesses. Indices like the Dow have 30 stocks, the S&P 500 has 500 and the Nasdaq composite has thousands. With 10-12 holdings we are likely to experience higher volatility than the indices in the short term. In the long-run, however, the performance of the fund will gravitate towards the underlying intrinsic value of the holdings. The key to our success is to be right about the business. If we’re right about most of the businesses in the portfolio, we’ll do just fine.

Assets under management are about $23 Million – up from $1 Million less than 3 years ago. Thanks for your strong vote of confidence! Pabrai Investment Funds Assets Under Management (In Millions of $) 7/1/1999 7/1/2000 7/1/2001 4/1/2002 Assets Under Management Thanks for the continued interest, support and referrals. Warm Regards, Mohnish Pabrai Page 4 of 7

While the funds have done exceptionally well over the last three years, the recent declines are not new. Here is some of the past published data on prior declines: PIFI Dec. ‘99 – Feb. ‘00: -8.3% Sept. ’00 – June ’01: -17.4% PIF2 Feb. ’01 – March ’01: -14.4% August ’01 – Sept. 01: -11.8% (9/11 impact) PIFI investors who joined the partnership on 9/1/00 had to wait 22 months before seeing a the first positive return on their investment – even though the funds have delivered an annualized return of over 30% since inception. While I believe I’m preaching to the choir here, I just want to drive home the message that it is best to fixate on long term performance – five to ten years out.9

The past performance numbers are not sustainable over the long haul. 2. I have mentioned earlier that the funds make two types of investments: 1. Buying pieces of exceptional businesses well below Intrinsic Value. 2. Special Situations (distressed securities, misunderstood businesses etc.)9

” I’d be remiss if I didn’t point out that we had several mistakes in 2001. Buffett has eloquently said that his biggest mistakes are mistakes of omission. I was trying to buy some stocks too cheaply and the trades never executed. Tricon Global (YUM) is one that I’ll remember for some time to come. Pepsi spun off Taco Bell, KFC and Pizza Hut to shareholders in a separate company called Tricon. Normally, I’m always been bearish on QSRs. However, I read an extensive piece on Outstanding Investor Digest and loved the business after I really understood it. It was at about $27/share at the time. By the time I finished my research and was all excited the stock was at about $33/share. I decided that I’d pay no more than $32 for it and placed limit orders. Tricon was an exceptionally cheap and fast growing company at $32/share. The stock came as low as $32.25, but I never changed the limit orders. Its now north of $50 and we don’t own a single share. I blew it with Tricon. American Express is another one where, when it fell to the $26 range after 9/11, I considered it a steal. I was able to get some for PIFI, but did not have cash available when it hit $26 in PIF2. Later when I had the cash, I had the opportunity to get some at $27, but I stuck to the $26 price. At $26 there was a very good chance of a 100% return in 24 month. At $27-28, I thought the return might be around 80-90% - which is still very very good for a solid blue chip like AXP.

Appendix A PIF2 NAV and Performance Fees and Expenses Since Inception. Per the January, 2002 custodian statement, the value of PIF2 assets is $7,694,840.86 Accrued interest on bonds in the portfolio is $200,163.20 The expenses incurred by PIF2 through January are legal and accounting expenses totaling $28,641.25 plus accrued expenses of $5391.82. The NAV before fees and expenses is $7,923,645.31 or $15.78/unit. In other words, PIF2 is up 57.8% since inception sixteen months ago before fees and expenses – or an annualized rate of 40.8%. NAV after all expenses is $7,889,612.24 or $14.7047/unit. The previous NAV high after fees is $14.50 set on 12/31/01. Since the NAV is above the previous historical high, there is a fee is payable to Dalal Street (General Partner) at this time. Since the last high was 1 month ago, the first 0.5% goes to investors and then the 3:1 split. Dalal Street’s share is $0.03305/unit or $17,732.55 The NAV after all fees and expenses is $14.6717. In other words, PIF2 is up 46.8% since inception sixteen months ago AFTER all fees and expenses – or an annualized rate of 33.3%. As I have always done in the past 100% of my fee is being reinvested back into PIF2 – resulting in 1208.63 units being issued to Dalal Street. Dalal Street has reinvested all fees earned from PIFI and PIF2 back into the funds. At this point, Dalal Street has 45,566.21 units of PIF2 and 25,610.78 units of PIFI. Based on last published NAV, this stake is worth 668,533.76 + 402,857.

All the funds’ portfolio valuations are substantially under my estimation of their intrinsic value. I am very happy with the holdings and feel very good about the long term performance going forward. 4. I think the stats are along the lines that over 80% of market gains occur in under 10% of total invested time. That’s the principal reason that it is best to avoid trying to time the market. Nonetheless, it is my belief that, due to the drop in the market recently, August 1 looks like a good window to add funds.8

It’s pretty much guaranteed we’ll continue to make mistakes (omissions and others). The good news is that we don’t need to do extraordinary things for extraordinary results. Even with the mistakes, I’m confident, we’ll do ok. Raising the Minimum Amount for new Partners Going forward, the new minimum investment to join the funds as a new partner will be $100,000. This is effective 2/1/02. We can have only 99 partners in each fund and as the number of slots left go down, the minimum needs to go up to delay the closing of the present fund for as long as possible to new investors. We have about $12 Million under management and will be targeting minimums to be about 0.75-1.25% of assets under management. Pabrai Investment Funds Assets Under Management (In Millions of $) 7/1/1999 7/1/2000 7/1/2001 1/1/2002 Assets Under Management Third-Party Administrator Status (TPA) For PIFI and PIF2 I will have the draft amendment ready this week. After attorney review, I’ll send it to all partners. Warm Regards, Mohnish Pabrai Page 4

October 1, 2001 was an especially good window because of the market drop after the tragic events of 9/11. Thoughts on Merging PIFI and PIF2 A few of the PIFI partners met with me a few months ago to voice their displeasure and discomfort with the infrequent reporting. At the conclusion of the meeting, a plausible solution was arrived at. If the two funds were merged into one, it is likely that the merged fund would have atleast one partner (old or new) adding funds every 2 months and thus there would be 7 to 8 datapoints a year for PIFI investors. I liked the idea of merging the funds as it would simplify my task (easier to manage 1 fund vs. 2), reduce accounting, audit and administrative costs and I would no longer have less-than-happy partners. We’d also have a larger asset pool to amortize expenses over. The negatives are that the guarantee of principal etc. in PIFI would be eliminated (I see this as a positive). The leverage ratio would go up to 50%. I don’t see this as an issue as I am exceedingly careful with leverage, but some of you might. Finally, we’d have higher accounting and legal fees for 1 year as the funds merge to handle all the tax, accounting and legal issues. I only want to pursue a merge if the overwhelming number of partners want it. At this point, I’d like to get a pulse on your thoughts. Just call me or send me an email letting me know if you’re in favor or against the merger.

I believe that public equities as a group are overvalued today (and has been since the inception of the funds). The average US-based public company delivered an average annualized return of 12.45% during the 1954-94 period. One can expect a broad based index to deliver 10-13% over the long haul if stocks are fairly priced. With the overpriced market we find ourselves in, Warren Buffett expects stocks to deliver a 4-7% annualized return over the next 15 years. I fully agree with Buffett’s thesis. Thus it is clear that if we bought a basket of businesses at their intrinsic value, we’d expect the Pabrai Investment Funds to deliver a 10-13% annualized return before expenses – and lag the indices after expenses. If we bought this random basket at present prices, our returns would resemble Buffett’s 4-7% numbers over the next 10-15 years. But I’m not interested in the typical publicly traded company. I’m interested in the great ones. The problem is that the great ones are not a secret. Everyone knows they are great and their typical valuations are stratospheric. Indeed, bought at these valuations, these businesses would probably lag the 4-7% that the market is expected to deliver. 3. I have an internal threshold of making investments only where there is a big margin of safety and a very high probability of a 30% or higher annualized return.

As you are aware, the funds are allowed to employ leverage. PIFI can leverage upto 30% and the other funds can go upto 50%. When Buffett ran his partnerships in the 1950s and 60s, he almost always had more ideas than money and the funds were nearly fully leveraged (50%) during most of the period. Buffett’s use of leverage was focused on workout and special situation investments. Today Buffett’s vehicle for leverage is insurance float – which is simply brilliant since that float is subdivided into a myriad of risk classes being covered that are very very unlikely to have any sort of aggregation ever. As an example, after 9/11, some of Berkshire’s Insurance units saw big claims, but its GEICO auto insurance unit with about 15% of the float was untouched by the events of 9/11. Many partners and potential partners have voiced concerns about the use of leverage in the funds to me from time to time. I have always been very careful with leverage – only using it for special situations. However, after a great deal of reflection, I have come to the conclusion that there are really no limits to the short-term irrationality of markets. I don’t believe 1929 represents the extreme to which markets can go. If fact, until 1987 common wisdom was that big market drops were a thing of the past. So while we are probably protected against a 50 or 100 year flood, I don’t think we’re protected against a 1000 year flood.

Page 7 of 7 Note: The source for the indices data is Barron’s. The DJIA data includes dividends. The S&P 500 and Nasdaq numbers exclude dividends as Barron’s does not provide historical dividend data for the S&P 500 and Nasdaq Composite.

57= $1,071,391.33. Thus I have a deep vested interest in the future performance of PIFI and PIF2. When you win, I win. Our interests are completely aligned. $3,216,188.33 in new funds have come in as of Feb. 1 leading to 220,418.96 units being issued. Thus total units outstanding on 2/1/02 are 756,955.58 PIF2’s Performance BEFORE and AFTER fees and expenses vs. the Indices. No. of Date PIF2 NAV PIF2 NAV S&P S&P DJIA DJIA NASDAQNASDAQ Units Pre-Exp. Post- Exp. 500 500 110000 10/1/2000 $10.00 $10.00 $10.00 1436.51 $10.00 10650.92 $10.00 3672.82 473269 10/1/2001 $11.76 $11.20 $7.25 1040.94 $8.48 9027.26 $4.08 1498.50 543079 12/1/2001 $13.93 $13.29 $7.93 1139.45 $9.42 10031.26 $5.26 1930.58 536537 12/31/2001 $15.51 $14.50 $7.99 1148.08 $9.62 10249.37 $5.31 1950.40 756956 1/25/2002 $15.78 $14.67 $7.89 1133.28 $9.45 10067.95 $5.28 1937.5

The only exception to the 30% rule is “temporary placeholders” where the expected ROI is between 20-30%, but the margin of safety is even bigger (see point 6 below). How then can our 30% ROI threshold be met? How have we performed so well for the last few years? The answer lies in a few simple facts: Since public equities are overvalued as a group and great businesses are even worse investments at present prices, I’ve managed the funds since inception with a big focus on special situations. To give you some color, as I write this letter, PIF2 has 17 distinct businesses in the portfolio. About 88% of the portfolio is comprised of 10 businesses and the remaining 7 make up the remaining 12%. Our fate will be largely determined by the 10 companies that make up 88%. The only reason we have 17 vs. 10 is that assets have come into PIF2 at a very fast rate and positions that at one time represented 10% are now down to just 2-3%. We were unable to buy more as they had appreciated before new $$$ came in, but have not appreciated to the point of becoming candidates for sale. Of the 10 businesses, 3 are great businesses. However, all 10 were bought as special situations. The 3 great businesses had big clouds hanging over them when they were bought. However, applying Munger’s Latticework of Mental Models allowed me to see beyond the clouds. We’ve done very well on these three (two have appreciated over 80% in the last 8 months and one has appreciated about 25% in the last 4 months).

If the market were to drop 50+% in a course of 2 to 3 days and if it happened while we were fully leveraged, we’d have a problem. We’d be forced to sell positions at the exact opposite time that we’d like to sell. As an example, the Nasdaq has seen over 75% of its capitalization disappear over the last 2 years. There is nothing that prevents such drops from occurring over a matter of days versus a matter of years. While I don’t believe we will ever see the type of drops I’m alluding to, I would not want to bet on it – especially with your hard-earned money. If we are totally unleveraged and the market dropped 50%, there is no real problem. We can just wait out the storm and eventually the underlying businesses will get priced around their intrinsic value. Indeed, if we ever saw such big drops with no change in portfolio fundamentals, I’d be asking partners to add funds and we’d go shopping selectively. I started thinking hard about the leverage issue last year when Charlie Munger made the following comment at the 2001 Berkshire Hathaway meeting alluding to the “Monopoly” board game when speaking on the subject of use of leverage. “I don’t want to go back to Go! I’ve been a Go once and have no desire to see it again.” t I thought a lot about the appropriate percentage of leverage (while still being able to withstand a 1000 year flood) and concluded that it should be zero.

I have not talked to the legal/accounting folks yet, but 12/31 might be a good date to merge to minimize tax issues. PIF2 Performance Update The diligent PIF2 reader will notice that PIF2’s NAV declined from $17.43 (on June 1, 2002) to $15.89 on June 30, 2002. While this is not what folks who added funds on 6/1 like to see, it is basically “noise”. As Ben Graham succinctly put it says, “In the short run, the market is a voting machine and in the long run it is a weighing machine”. The broad market volatility in the last few weeks has “voted” us down temporarily. The portfolio’s market value was well below my estimation of its intrinsic value on June 1 and, as I write this, that gap has widened. 2002 Annual Meeting Reminder: The 2002 Annual Meeting will be held at 4:00 PM on the Saturday Sept. 14, 2002 at: Carlucci’s Restaurant 6111 North River Road Rosemont, Illinois 60018 Tel. +1847.518.8

4:00 – 6:00 PM Presentation & Q&A 6:00 – 7:00 PM Cocktails 7:00 PM Dinner Attire: Business or Business Casual The formal invites will go out within 2-3 weeks. Kids are welcome. Please RSVP as soon as you know. Many past attendees have expressed a strong desire to attend every year. I hope you can make it and meet your fellow partners and get all your queries on The Pabrai Funds answered candidly. Thanks for your continued interest, referrals and support. Warm Regards, Mohnish Pabrai Page 6 of 8

The remaining seven are boring, mediocre businesses – but with an overhang on the business that has depressed its valuation. Again, using Munger’s Latticework approach led me to the conclusion that these businesses were temporarily mispriced. The typical boring business was bought by us at fifty cents on the dollar with the expectation that it was highly likely to be recognized as a dollar bill within about 2-2½ years (thus yielding a 30% annualized return). What has actually happened is that many of these businesses have been recognized as being worth 70 or 80 cents within a few weeks of our purchase. If we buy something for 50 cents and eight weeks later, it’s selling for 75 cents, our portfolio looks like it’s on steroids! I am explaining all of this as a word of caution. Virtually none of our purchases are based on “catalysts” in place that will drive the stock price. I believe value is its own catalyst and eventually most of these businesses selling at 50 cents on the dollar do get recognized as dollar bills by the nearly fully efficient market. However, its is totally an anomaly to have this recognition take place in a matter of weeks rather than years. I do not expect our future special situation purchases to appreciate as quickly as the past purchases have done. The past is an anomaly. 4. Not only have the great ideas appreciated very rapidly, we have had far more than our share of great ideas.

Our current leverage is small and, over the next few weeks, I will be completely eliminating use of leverage in all the funds. We have a couple of appreciated positions that are near intrinsic value and would prefer to get long term capital gains treatment since we’re under 8 weeks away from it. The impact of being fully unleveraged is significant from a performance perspective.9

employed leverage. We still expect to continue to beat the indices and 90+% of mutual funds, but this is now one more reason future performance will be less spectacular than the past. The good news is that we have far more control over our destiny and have a substantially lower risk profile. I’ve recently had conversations with some partners on this change and nearly all are enthusiastic about it. I’d welcome your thoughts and comments. Finally, in the highly unlikely event, that I ever change my mind on leverage use, I’ll be giving partners a heads up and a chance to exit the fund before employing leverage again. Merging PIFI and PIF2 Michael J. Liccar & Co. are researching some of the nuances of merging the funds. It appears that it is fairly straightforward with no negative tax impact on anyone. I’ll be proposing an amendment to the PIFI and PIF2 on 1/1/03 after we’ve gotten a handle on all legal, tax and accounting issues. Assuming 2/3 or more of partner units vote in favor, we will proceed with the merger. We’ll also allow any PIFI or PIF2 partners opposed to the merger to exit the fund on 12/31/02, so no one has the merger forced on them if they disagree with it. I see this as a big positive with the reduction in fees and a single larger fund with is easier to manage and amortize the reduced fees over a larger pool of assets. Stay tuned. I’ll email you before any of the amendment docs get sent out so you can watch for them.

Since inception, I have almost always had more investment ideas than available investment dollars. That is a great situation, but again another one that I don’t expect to always be the case. As an example, I have no new investment ideas at this time. I have not had a new investment idea for some time now and while I’m confident great ideas will pop up on the radar in the future, I expect them to be far fewer than the past. 5. As we grow assets our universe of opportunities will shrink. We have already had a couple of situations where I was unable to buy the full position I wanted to buy before the price moved up. At $28 Million, our assets under management is a very modest size. I don’t see size as a big problem at this time, but I’d like investors to recognize that size does impact performance negatively. 6. Occasionally, I have made investments where the perceived ROI was expected to be 20-29%, but there is was a massive margin of safety. An example is a REIT investment we made that has an exceptional management team, a relatively high current dividend yield (even compared to other REITs) and selling at about 2/3 of its fair value. In that instance, there was a huge margin of safety and an expected 20% ROI. I viewed that investment as a “temporary placeholder” – until a better idea came along. Temporary placeholders have added to our returns in the past and will probably continue to do so in the future. At this time I have no new temporary placeholder ideas. 7.

Appendix A PIFI NAV and Performance The June 30, 2002 NAV for PIFI is 4,867,508.36. Accrued bond interest is $53,797.22. Paid expenses since inception are $55,134.42. This yields a pre-expense NAV of $4,976,440. Excluding Dalal Street’s reinvested fees, there are 188142.40 units outstanding. This yields a pre-expense and fee NAV/unit of $26.45. In other words PIFI is up 164.5% since inception or an annualized rate of 38.3% BEFORE all fees and expenses. Accrued expenses and Accrued prior year Illinois Replacement Taxes are $22,200. After adding in all paid and estimated accrued expenses, the estimated NAV is $4,899,105.94. Including Dalal Street’s fee, there were 203,753.19 units outstanding. This yields a NAV after all expenses of $24.04/unit. This is a historical high and hence a fee is payable to Dalal Street. The last high was set on 8/31/00 of $16.68. The 6% annualized return from 8/31/00 to 6/30/02 on $16.68 yields $18.56. Dalal Street’s fee is ¼ of $5.48 or $1.37/unit or $279,115.14. The NAV after all fees and expenses is $4,619,990.80 or $22.54. In other words PIFI is up 125.4% since inception or an annualized rate of 31.1% AFTER all fees and expenses. As I have always done in the past, 100% of my fee is being reinvested back into PIF2 – resulting in 12,383.10 units being issued to Dalal Street. At this point, Dalal Street has 84,833.03 units of PIF2 and 37,993.95 units of PIFI. Based on last published NAV, this stake is worth $1,347,996.85. + $856,383.63 = $2,204,380.

PIFI and PIF2 have had mistakes of omission and I had mentioned some of them in the 1/1/02 letter to partners. The mistakes of omission have been the costliest mistakes. They have also have had a few mistakes of “inclusion”.9

48. Thus I have a deep vested interest in the future performance of The Pabrai Funds. When you win, I win. Our interests are completely aligned. TOTAL PIFI units outstanding are 216,049.04. PIFI’s Performance BEFORE and AFTER fees and expenses vs. the Indices. No. of Date PIFI NAV PIFI NAV S&P S&P DJIA DJIA NASDAQ NASDAQ Shares Pre-Fees Post-Fees 500 500 100000 7/1/99 $10.00 $10.00 $10.00 1391.22 $10.00 11,139.24 $10.00 2692.96 164453 6/30/00 $16.25 $15.05 $10.47 1456.60 $9.53 10,613.49 $14.73 3966.11 230480 6/30/01 $14.97 $13.78 $8.80 1224.42 $9.74 10,847.09 $8.02 2160.54 216027 6/30/02 $26.45 $22.54 $7.11 989.82 $8.77 9,773.40 $5.43 1463.21 PIF2 NAV and Performance Fees and Expenses Since Inception. Per the June, 2002 custodian and bank statement, the value of PIF2 assets is $16,218,048.89. Accrued interest on bonds in the portfolio is $173,310.28. The expenses incurred by PIF2 through June are legal, accounting and administrative expenses totaling $43,572.42 plus an estimated $16,000 in accrued expenses and $43,163.8

2002 Annual Meeting Reminder: The 2002 Annual Meeting will be held at 4:00 PM on the Saturday Sept. 14, 2002 at: Carlucci’s Restaurant 6111 North River Road Rosemont, Illinois 60018 Tel. +1847.518.0990 (www.carluccirestaurant.com) 4:00 – 6:00 PM Presentation & Q&A 6:00 – 7:00 PM Cocktails 7:00 PM Dinner Attire: Business or Business Casual You should all have received your formal invites in the mail. Kids are welcome. Please RSVP as soon as you know. Many past attendees have expressed a strong desire to attend every year. I hope you can make it and meet your fellow partners and get all your queries on The Pabrai Funds answered candidly.9

completely masked by the spectacular performance of the rest of the portfolio. The good news is that we have been right about the overwhelming majority of businesses we’ve invested in. Regardless of the obsession with buying businesses with large margins of safety, I am confident that the errors in judgment will continue. However, to paraphrase Buffett, the good news with investing is that one can have good result in the end even with a few mistakes along the way. It is not necessary to be right 100% of the time. I plan to delve more deeply into our mistakes at the Pabrai Investment Funds annual meeting on September 14, 2002. Third Party Administrator (TPA) in Place – Michael J. Liccar & Co., (www.liccar.com) As I had mentioned earlier via email, PIFI and PIF2 are all set with Michael J. Liccar & Co. as the Third Party Administrator. They are based in Chicago and, in addition to their fund administration speciality, are a CPA firm as well. Liccar has dozens of hedge funds and limited partnerships from all over the world as clients and comes highly recommended. They handled most of the subscriptions for the 6/1 closing and I expect all subscriptions, redemptions and additions will be handled directly by them in the future. They will be issuing all the partner statements going forward as well as producing all of your annual K- 1s. The 6/1 statements will likely take longer to get out as they get us into their systems, but should be faster going forward.

Raising the Minimum Amount for new Partners We added 6 new partners - bringing the total US-based partners to 82. We are limited to 100 US partners by law. As the available slots decrease, the minimums continue to increase. Going forward, the new minimum investment to join PIF2 as a new partner will be $400,000. This is effective at the next opening of 10/1/02. Existing partners can add funds in increments of $25,000 (with a $25,000 minimum) at each opening. This does not apply to our offshore investors. PIF3 is setup as an offshore mutual fund limited to non-US accredited investors. The minimum investment for PIF3 is $100,000. Assets under management are about $26 Million. Thanks for your strong vote of confidence! Pabrai Investment Funds Assets Under Management (In Millions of $) 1999 2000 2001 June-02 Assets Under Management Thanks for your continued interest, referrals and support. Warm Regards, Mohnish Pabrai Page 7 of 9

Page 8 of 8 taxes. The NAV before fees and expenses is $16,434,931.59 or $17.25/unit. In other words, PIF2 is up 72.5% since inception twenty one months ago before fees and expenses – or an annualized rate of 36.6% NAV after all expenses is $16,332,195.69 or $15.89/unit. The previous NAV high after fees is $17.43 set on 6/1/02. Since the NAV is below the previous historical high, there is a no fee is payable to Dalal Street (General Partner) at this time. PIF2 is up 58.9% since inception twenty one months ago AFTER all fees and expenses – or an annualized rate of 30.3%. Total units outstanding on 6/30/02 are 1,027,794.97. PIF2’s Performance BEFORE and AFTER fees and expenses vs. the Indices. No. of Date PIF2 NAV PIF2 NAV S&P S&P DJIA DJIA NASDAQNASDAQ Units Pre-Exp. Post- Exp. 500 500 110000 10/1/2000 $10.00 $10.00 $10.00 1436.51 $10.00 10650.92 $10.00 3672.82 330014 6/30/2001 $12.09 $11.74 $8.52 1224.42 $10.46 11140.05 $5.88 2160.54 1027795 6/30/2002 $17.25 $15.89 $6.89 989.82 $8.98 9563.39 $3.98 1463.21 PIF3’s Performance BEFORE and AFTER fees and expenses vs. the Indices. No. of Date PIFI NAV PIFI NAV S&P S&P DJIA DJIA NASDAQ NASDAQ Units Pre-Fees Post- Fees 500 500 65100 1/25/2002 $10.00 $10.00 $10.00 1133.28 $10.00 9840.08 $10.00 1937.70 255836 3/29/2002 $11.39 $11.01 $10.12 1147.39 $10.62 10446.55 $9.52 1845.35 Note: The source for the indices data is Barron’s. The DJIA data includes dividends.

Upgrading to the Big 4 for Audit Services - PriceWaterhouseCoopers We have an every increasing number of partners spread out all over the country and world. While our present auditors, Gleeson, Sklar, Sawyers and Cumpata, LLP (GSSC) are very well recognized in Chicago and do great work, the name means nothing to folks outside Chicago. The annual audit of the funds is a critical function and all partners must be totally comfortable with the auditors. Thus, as much as I’ve enjoyed working with GSSC, as well as my deep sense of loyalty, I found it important to move the audit function to one of the Big 4. Investors anywhere in the world need to immediately recognize the auditors and the integrity they represent. I am planning to move the audit function for PIFI and PIF2 for the next fiscal year (ended 6/30/03) to PriceWaterhouseCoopers (PWC). GSSC will do the audit for PIFI and PIF2 for the year ended 6/30/02. PWC will also handle the audit for PIF3 which will have its first fiscal year-end on 12/31/02. I am working with a terrific PWC team based in Chicago and Milwaukee with a strong specialty in the fund management space. I have had a relationship with Al Lovitsch and his team at GSSC for many years with my previous businesses as well as The Pabrai Funds. I am very grateful for all the excellent advice, guidance and work they’ve always done. Thank you Al!9

The S&P 500 and Nasdaq numbers exclude dividends as Barron’s does not provide historical dividend data for the S&P 500 and Nasdaq Composite. PIFI and PIF3 performance numbers are dated since The Pabrai Investment Funds only releases performance data annually at fiscal year end for all funds. The only exception is whenever there are subscriptions or redemptions for a given fund. Thus PIFI and PIF2 performance is updated and PIF3 is not.

We added 5 new partners - bringing the total US-based partners to 76. We are limited to 100 US partners by law. As the available slots decrease, the minimum will increase. Going forward, the new minimum investment to join the funds as a new partner will be $350,000. This is effective at the next opening of 8/1/02. Existing partners can add funds in increments of $25,000 at each opening. This does not apply to our offshore investors. PIF3 is setup as an offshore mutual fund limited to non-US accredited investors. The minimum investment for PIF3 is $100,000. Assets under management are about $28 Million – up from $1 Million less than 3 years ago. Thanks for your strong vote of confidence! Pabrai Investment Funds Assets Under Management (In Millions of $) 1999 2000 2001 June-02 Assets Under Management Warm Regards, Mohnish Pabrai Page 7 of 9

Pabrai Investment Funds Memo To: All Limited Partners of The Pabrai Investment Fund 2, L. P. From: Mohnish Pabrai, Managing Partner Date: October 5, 2001 Re: Welcoming New Partners of The Pabrai Funds. Performance Data Dear Partners: On October 1, 2001, we added a record $1,075,000 from existing and new limited partners to the Pabrai Investment Fund 2 (PIF2). I believe this represents the single largest addition to either fund since inception. Given the tragic events of Sept. 11 and the state of the markets, I was pleasantly surprised to see a strong showing from existing and new investors. Usually the sentiment of investors is to be bullish and add $$$ to their equity positions when the Dow is at, say, 15000. On the other hand a Dow 7000 tends to lead investors to put it all under the mattress. Needless to say this not the sort of investor behavior encouraged by the likes of Peter Lynch or Warren Buffett. It was wonderful to see that my smart partners “get it” and added to PIF2 at what is probably the best investment window since inception of the fund. The diversity of investors is expanding and I am proud to be associated with this august group. I’d like to welcome the new partner from North Dakota. With the recent addition or North Dakota, we now have the following states represented in The Pabrai Funds: Arizona, California, Colorado, Florida, Illinois, Louisiana, Maine, Minnesota, New Jersey, North Dakota, Ohio, Vermont, Washington (13 down, 37 to go).

Pabrai Investment Funds Memo To: All Limited Partners of The Pabrai Investment Fund 2, L. P. From: Mohnish Pabrai, Managing Partner Date: February 3, 2001 Re: Welcome New Limited Partners; Performance Data Dear Partners: On February 1, 2000, we added an additional $800,000 and 7 new limited partners to the Pabrai Investment Fund 2 (PIF2). Between the two funds we’ve brought in $5.3 Million in assets under management since inception and have 37 limited partners. The diversity of investors is expanding and am proud to be associated with this august group. Whenever we add assets to the funds, I have to release performance to date to assign the correct Net Asset Value to the new funds. The details of the Asset Value Calculations are in the attached Appendix A. PABRAI INVESTMENT FUND 2 Performance Summary: DJIA NASDAQ S&P 500 PIF2 PIF2 (before exp.) (after exp.) 10/1/00 – 1/26/01 0.1% -24.3% -5.7% 13.8% 10.6% For completeness of the track record, I am also giving all the published performance data on the first fund, PIFI. PABRAI INVESTMENT FUND I Performance Summary: DJIA NASDAQ S&P 500 PIFI PIFI (before exp.) (after exp.) 7/1/99 - 6/30/00 -6.2% +47.3% +4.7% +62.5% +50.05% 7/1/00 – 8/30/00 +7.14% +1.9% +3.4% +14.09% +11.08% Cumulative +0.5% +50.1% +8.3% +85.4% +66.8% (7/1/99 – 8/30/00)

Pabrai Investment Funds Memo To: All Limited Partners of The Pabrai Investment Fund 2, L. P. From: Mohnish Pabrai, Managing Partner Date: April 2, 2001 Re: Welcome New Limited Partners; Performance Data Dear Partners: On April 1, 2001, we added additional funds from existing and new limited partners to the Pabrai Investment Fund 2 (PIF2). Between the two funds we’ve brought in $5.5 Million in assets under management since inception and have 38 limited partners. The diversity of investors is expanding and I am proud to be associated with this august group. We now have the following states represented between the first and second partnership: Arizona, California, Colorado, Florida, Illinois, Minnesota, New Jersey, Ohio, Vermont, Washington (10 down, 40 to go). Internationally, we have one limited partner based in Italy and another in Barbados. Whenever we add assets to the funds, I have to release performance to date to assign the correct Net Asset Value to the new funds. The details of the Asset Value Calculations are in the attached Appendix A. PABRAI INVESTMENT FUND 2 Performance Summary: DJIA NASDAQ S&P 500 PIF2 PIF2 (before exp.) (after exp.) 10/1/00 – 3/31/01 -7.3% -49.9% -19.3% -3.3% -5.3%

Pabrai Investment Funds Memo To: All Limited Partners of The Pabrai Investment Fund 2, L. P. From: Mohnish Pabrai, Managing Partner Date: June 4, 2001 Re: Welcome New Limited Partners; Performance Data Dear Partners: On June 1, 2001, we added additional funds from existing and new limited partners to the Pabrai Investment Fund 2 (PIF2). Between the two funds we’ve brought in over $6 Million in assets under management since inception and have 40 limited partners. The diversity of investors is expanding and I am proud to be associated with this august group. We now have the following states represented between the first and second partnership: Arizona, California, Colorado, Florida, Illinois, Louisiana, Minnesota, New Jersey, Ohio, Vermont, Washington (11 down, 39 to go). In addition, we have 2 offshore investors. Whenever we add assets to the funds, I have to release performance to date to assign the correct Net Asset Value to the new funds. The details of the Asset Value Calculations are in the attached Appendix A. PABRAI INVESTMENT FUND 2 Performance Summary: DJIA NASDAQ S&P 500 PIF2 PIF2 (before exp.) (after exp.) 10/1/00 – 5/25/01 +3.3% -38.7% -11.0% +16.0% +13.5%

Pabrai Investment Funds Memo To: All Limited Partners of The Pabrai Investment Fund 2, L. P. From: Mohnish Pabrai, Managing Partner Date: July 5, 2001 Re: 2nd Anniversary of The Pabrai Funds. Performance Data Dear Partners: On June 30, 2001, The Pabrai Funds turned two years old. The last two years, while being traumatic for the general market, have been fairly good to The Pabrai Funds. Since the fiscal year end for the funds is June 30, our auditors are busy preparing their audit report for both funds that I hope to share with you on or before August 15, 2001. In the interim, I’m providing UNAUDITED results for both funds through June 30, 2001. There is bound to be some variance between these figures and the audited numbers particularly as they relate to accrued expenses, deferred taxes etc. The details of the Asset Value Calculations are in the attached Appendix A. PABRAI INVESTMENT FUND I Performance Summary: DJIA NASDAQ S&P 500 PIFI PIFI (before exp.) (after exp.) 7/1/99 - 6/30/00 -4.7% +47.3% +4.7% +62.5% +50.1% 7/1/00 – 6/30/01 +2.2% -45.5% -15.9% -7.7% -8.3% Annualized -1.3% -10.4% -6.2% +22.5% +17.5% Cumulative -2.6% -20.8% -12.0% +49.7% +38.0%

Pabrai Investment Funds Memo To: All Limited Partners of The Pabrai Investment Fund 2, L. P. From: Mohnish Pabrai, Managing Partner Date: August 1, 2001 Re: Welcoming New Partners of The Pabrai Funds. Performance Data Dear Partners: On August 1, 2001, we added additional funds from existing and new limited partners to the Pabrai Investment Fund 2 (PIF2). Between the two funds we now have over $8 Million in assets under management and have 46 limited partners. Both the number of limited partners and assets under management has quadrupled in the last two years. The diversity of investors is expanding and I am proud to be associated with this august group. I’d like to welcome the new partner from Maine. With the recent addition or Maine, we now have the following states represented in The Pabrai Funds: Arizona, California, Colorado, Florida, Illinois, Louisiana, Maine, Minnesota, New Jersey, Ohio, Vermont, Washington (12 down, 38 to go). In addition, we have 2 offshore investors. Whenever we add assets to the funds, I have to release performance to date to assign the correct Net Asset Value to the new funds. The details of the Asset Value Calculations are in the attached Appendix A. PABRAI INVESTMENT FUND 2 Performance Summary: DJIA NASDAQ S&P 500 PIF2 PIF2 (before exp.) (after exp.) 10/1/00 – 7/27/01 -0.9% -44.8% -16.1% +34.1% +27.1% Annualized -1.1% -53.8% -19.3% +40.1% +32.5%

Pabrai Investment Funds Memo To: All Limited Partners of The Pabrai Investment Fund I, L. P. From: Mohnish Pabrai, Managing Partner Date: August 31, 2001 Re: Redemption of PIFI Units; Updated PIFI NAV Dear Partners: I had received requests from two limited partners of PIFI to redeem their units. Per PIFI partnership rules, any limited partner can request a withdrawal of their interest in the partnership during a two week window after audited results are released. Between the two, a total of 26,726.94 units were redeemed at $15.73/unit. I’m sending checks totaling $420,414.77 to the two partners. Both partners have a gain on their original investment and I’d like to take this opportunity to thank them for participating in PIFI and hope our paths cross again. As an FYI, I was forced to liquidate positions that I otherwise would not have sold at this time. We will have higher realized capital gains this year as a result of the withdrawals. The details of the Asset Value Calculations are in the attached Appendix A. PABRAI INVESTMENT FUND I Performance Summary: DJIA NASDAQ S&P 500 PIFI PIFI (before exp.) (after exp.) 7/1/99 - 6/30/00 -4.7% +47.3% +4.7% +62.5% +50.1% 7/1/00 – 6/30/01 +2.2% -45.5% -15.9% -7.7% -8.3% 7/1/01 – 8/31/01 -5.1% -16.5% -7.4% +14.0% +14.2% Annualized -3.6% -18.3% -9.4% +24.9% +21.1% Cumulative -7.6% -33.0% -18.5% +70.7% +57.3%

Memo To: All Limited Partners of The Pabrai Investment Fund 2, L. P. From: Mohnish Pabrai, Managing Partner Date: December 7, 2001 Re: Fifteen States Represented Dear Partners: On December 1, 2001, we added $875,000 from existing and new limited partners to the Pabrai Investment Fund 2 (PIF2). The diversity of investors is expanding and I am proud to be associated with this august group. I’d like to welcome all the new partners. We just added our first investors from the great states of New Mexico and Texas. With the recent additions, we now have the following states represented in The Pabrai Funds: Arizona, California, Colorado, Florida, Illinois, Louisiana, Maine, Minnesota, New Jersey, New Mexico, North Dakota, Ohio, Texas, Vermont, Washington (15 down, 35 to go). In addition, we have 2 offshore investors. Whenever we add assets to the funds, I have to release performance to date to assign the correct Net Asset Value to the new funds. The details of the Asset Value Calculations are in the attached Appendix A. PABRAI INVESTMENT FUND 2 Performance Summary: DJIA NASDAQ S&P 500 PIF2 PIF2 (before exp.) (after exp.) 10/1/00 – 9/30/01 -15.2% -59.2% -27.5% +17.6% +12.0% 10/1/01 – 11/30/01 +11.1% +28.8% +9.5% +18.5% +18.7% Annualized -5.0% -40.6% -17.2% +33.7% +28.2% Cumulative -5.8% -47.4% -20.1% +39.3% +32.9% Pabrai Investment Funds

The objective of the Pabrai Funds is to, over the long haul, beat the three major indices. In doing so, I believe we’d be outperforming 90+% of funds and portfolio managers. To date, both funds have exceeded this objective by a wide margin. However, we have to remember the PIFI is just 2½ years old and PIF2 is even younger at just 14 months. All we can say at this juncture is that we’re off to a fine start. We need at least 5-10 years of performance history before meaningful conclusions can be drawn. 9/11 was a very tragic day for our country and in its aftermath, the stock markets got quite rattled. If I had just one wish, I’d wish that 9/11 was just another ordinary day in our lives with no terrorist activity. However, flush with cash on 10/1 and with the market inefficiency gap significantly widened after 9/11, I went hunting for value. We were quite lucky. Late September and early October was an especially fertile time and I was able to add some exceptional businesses and special situations to our portfolio at big discounts to their intrinsic value. Both funds have stronger portfolios with bigger discounts to intrinsic value than they did on 9/10/01. Over the last year, we’ve had more than our fair share of great ideas. If we have just 3 or 4 good ideas in a year, I think our results will be exceptional. Our approach is highly opportunistic. There is no way for me to know when we’ll have our next great idea.

In addition, we have 2 offshore investors. Whenever we add assets to the funds, I have to release performance to date to assign the correct Net Asset Value to the new funds. The details of the Asset Value Calculations are in the attached Appendix A.Summary:

Along with the audit report, I’ll send each of you an updated statement of the value of your holdings as of 8/1/01 well before the annual meeting for your perusal. The diligent reader of these memos will recall the PIF2 was up 20.9% as of 6/30/01 and is up 34.1% as of 7/27/01 – a gain of over 13% in less than a month. July saw all three of the benchmark indices go down, yet the fund went up. How come? Publicly traded stocks are strange creatures. Historically, stocks have delivered an annualized rate of 10-12%. This 10-12% has been delivered in a very lumpy form. The DJIA hit the same number in 1966 and 1982 – a gap of 16 years. Thus one could have invested in 1966 in 30 formidable blue chips and shown a 0% return after 16 years! The return in the next 16 years (1983-1999) were stellar and well above the 12% norm. But it would have taken 30+ years to get the 10+% annualized rate. That’s long term! The Pabrai Funds investment style is hard to distill down to two words, but “Focused Value” comes close. Focus means that we have positions in a handful of equities. As I write this PIFI has a total of 11 distinct stocks and PIF2 has a total of 15 distinct stocks and bonds. Buffett’s partner, Charlie Munger, would probably view the Pabrai Funds portfolio as somewhat over diversified. Charlie feels that 3 or 4 well-selected businesses are all that is required to have a diversified portfolio.

Comparison of Changes in Value of $100,000 invested in PIFI vs the Indices $0.00 $50,000.00 $100,000.00 $150,000.00 $200,000.00 Jul-99 Oct-99 Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 PIFI S&P 500 DJIA NASDAQ For completeness, here are the latest published performance numbers for PIF2: PABRAI INVESTMENT FUND 2 Performance Summary: DJIA NASDAQ S&P 500 PIF2 PIF2 (before exp.) (after exp.) 10/1/00 – 7/27/01 -0.9% -44.8% -16.1% +34.1% +27.0% Annualized -1.1% -53.8% -19.3% +40.1% +32.4% Comparison of Changes in value of $100,000 invested in PIF2 vs. the Indices $0 $50,000 $100,000 $150,000 Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- PIF2 S&P 500 DJIA NASDAQ The diligent reader would have noticed that PIFI is up 14% in the last two months versus a significant drop in the three benchmark indices. Since inception, PIFI is outperforming the Dow, Nasdaq and S&P 500 by 24.7%, 39.4% and 30.5% on an annualized basis after all fees and expenses respectively. Page 2

Over the long haul, the objective of The Pabrai Investment Funds is to beat all three major indices – Nasdaq Composite, DJIA and the S&P 500. As you can see for the above data, both PIFI and PIF2 have exceeded this yardstick so far. A few comments: • The results for PIF2 during this short six-month window are not that meaningful. One will be able to get a good idea of PIF2 performance in a 3 to 5 year timeframe. Both funds have performed well over the limited time of their existence, but the litmus test will the performance record established over the next five years. We’re off to a healthy start. • The last six months have been painful for many investors in the stock market. There are very few instances in history when a major index (Nasdaq) loses 50% of its value in six short months. Including all trading expenses and margin interest, PIF2 is off just 3.3% during the same period. I don’t like to see any negative numbers, but was happy to see that the core fundamentals of value investing held up well during the last few months. The fund was fully invested with an outstanding margin balance during most of the period. • We own pieces of some very exceptional companies bought at exceptional prices. I am very bullish about their future regardless of the market. Over time, I hope I’ll be able to share some of them with you. In the letter dated 12/4/00, I had talked about one of the holdings in PIFI (Diamond Technology Partners) and the thinking behind buying and selling Diamond.

• For PIFI we now have 2 full years of performance data. In spite of the good performance and beating all three indices by a wide margin, investors who came in on 3/1/00 are down 5.5% on their investment todate. Investors who came in on 9/1/2000 are down 17.4%. To them I’d like to say that it’s been 16 and 10 months respectively since you made your investment. I hope you’ll gauge the performance over a longer time horizon of atleast 3-5 years. • All investors in PIF2 have a gain as we are at a historical high with a 20.9% gain in 9 months. Nonetheless, its only 9 months. We’ll be able to truly judge performance over the next few years. • All in all I am happy with the results that PIFI and PIF2 have achieved todate. Both funds are ahead of 99+% of mutual and hedge funds in their performance since inception. Annual Meeting Reminder: The Annual Meeting for The Pabrai Investment Funds is scheduled to be on Saturday, September 8, 2001. The meeting location is: Carlucci’s Restaurant 6111 North River Road Rosemont, Illinois 60018 Tel. +1847.518.0990 4:00 PM - Meeting 5:30 PM - Cocktails 7:00 PM - Dinner For out-of-towners, The Marriott Suites and Westin O’Hare in Rosemont are both walking distance to the restaurant. You should all have received your invites in the mail. I do hope that you’ll bring all your toughest questions to the meeting. Next Investment Window The next date when funds will be added to PIF2 is August 1, 2001. I continue to have more opportunities than cash.

To simplify, if you invested $100,000 on 10/1/00 into PIF2, your investment after all fees and expenses is now worth $110,600. If you invested $100,000 on 12/1/00, your investment is now worth $115,208. Over the next few weeks, I am planning to send all investors of PIFI and PIF2 a summary of the partnership units held and the prices and times they were bought at etc., so you can simply look at the current value/unit and derive your investment performance etc. If there is any other information or data you’d like included, please let me know. I plan to send this summary atleast once a year. The objective of The Pabrai Investment Funds is to, over the long haul, beat all three major indices – Nasdaq Composite, DJIA and the S&P 500. As you can see for the above data, PIF2 has exceeded this yardstick so far. A few comments on this front: • The results for PIF2 during this short a window are not that meaningful. One will be able to get a good idea of PIF2 performance in a 3 to 5 year timeframe. Both funds have performed well over the limited time of their existence, but the litmus test will the performance record established over the next five years. I’m happy that we’re off to a healthy start. • PIF2 is up 13.8% in 4 months. A 13.8% return in 4 months works out to an annualized return of 41.4%. An annualized 41+% return is unlikely to be sustainable or achievable over the long haul and partners should keep expectations in line with the funds’ stated objectives.

Over the long haul, the objective of The Pabrai Investment Funds is to beat all three major indices – Nasdaq Composite, DJIA and the S&P 500. As you can see for the above data, both PIFI and PIF2 have exceeded this yardstick so far. A few comments: • The results for PIF2 during this short eight-month window are not that meaningful. One will be able to get a good idea of PIF2 performance in a 3 to 5 year timeframe. Both funds have performed well over the limited time of their existence, but the litmus test will the performance record established over the next five years. We’re off to a healthy start. • We own pieces of some very exceptional companies bought at exceptional prices. In addition, we have some low-risk, high-return special situation investments. I am very bullish about their future regardless of the market. Over time, I hope I’ll be able to share some of them with you. As I write this letter, Stewart Enterprises (STEI) is hitting a 52-week high of $8/share. You’ll recall that in one of my moments of brilliance, I sold 100% of our holdings at around $4/share. However, it was a special situation play for us that had a very very high likelihood of delivering around a 100% return in under 2 years. It delivered that in less than a year and I didn’t want to hold a highly leveraged company once our special situation return was achieved. The irony is that Wall Street had sell recommendations on it at $2 and buy recommendations when its fully priced at $8!

Annual Meeting: The Annual Meeting for The Pabrai Investment Funds is scheduled to be on Saturday, September 8, 2000 at 4:00 PM. The location is: Maggiano’s Restaurant Oak Brook, Illinois We will have a private room and the meeting will be followed by cocktails and dinner. Last year’s meeting was fun. All limited partners and their spouses/significant others/dates are invited. I hope all of you can attend. Please mark it on your calendar. Next Investment Window The next date when funds will be added to PIF2 is April 1, 2001. I’m planning to add around $1 Million on 4/1/01. If you’re interested in investing, please contact me so I can make the allocation. More importantly, I’d appreciate any referrals you might have. I have an information kit that’s easy for me to send to any prospective investor.2

Annual Meeting Reminder: The Annual Meeting for The Pabrai Investment Funds is scheduled to be on Saturday, September 8, 2001 at 4:00 PM. The meeting location has changed to: Carlucci’s Restaurant 6111 North River Road Rosemont, Illinois 60018 Tel. +1847.518.0990 The funds’ partners are no longer a Chicago-centric group. Many of you are from all over the country and around the globe. Rosemont is right next to Chicago’s O’Hare Airport and several hotels are within walking distance of Carlucci’s to accommodate the growing number of out-of-towners. Last year, we had about a dozen folks in attendance. This year I hope to see many times that number. We will have a private room and the meeting will be followed by cocktails and dinner. All limited partners and their spouses/significant others are invited. I hope all of you can attend. Please mark it on your calendar.3

Comparison of Changes in Value of $100,000 invested in PIFI vs the Indices $0.00 $50,000.00 $100,000.00 $150,000.00 $200,000.00 Jul-99 Oct-99 Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 PIFI S&P 500 DJIA NASDAQ The diligent reader of these letters will recall that PIF2 was up 34.1% as of 7/27/01 and is up 17.6% as of 9/30/01 – a loss of 12.3% in the last two months. Virtually all of the loss in value of the PIF2 portfolio is the result of the tragic events of Sept. 11. To understand the 9/11 impact on the stock market, I’d like to categorize publicly traded companies into four categories. All companies fall into one of these categories. They are: 1. Companies whose prospects are significantly impaired in the short and long term (e.g. American Airlines, Midway Airlines). The impact on Midway Airlines is particularly poignant and painful. The airline folded all operations on Sept. 12. Midway was in the midst of downsizing its fleet and operations when the Sept. 11 tragedy dealt it a fatal crippling blow. Stocks of these businesses should have taken a hit as their future prospects were bleak in the near term and impacted in the long term. We had just one holding that fell into this category. Their near term profitability is substantially reduced and it will impact them in the long run as well with a significantly weakened balance sheet. As I write this, I’m unable to determine if we’ll have a gain or loss on this holding eventually. 2.

A few years ago John Bogle wrote an outstanding book entitled Common Sense on Mutual Funds. John was the Chairman of Vanguard and an exceptionally brilliant and direct person. He’s an excellent writer as well. In the book, John gave a lot of good empirical data on the probabilities of the typical portfolio or fund manager beating the market. Over 85% of mutual and hedge funds lag the market after all fees and expenses. He further showed that the empirical data suggests that just 1 in 200 fund managers is able to beat the market by over an average of 3% annually. I am confident that the deeply rooted grounding in Buffett/Graham/Munger principles of investing that I have embraced will result is outperforming the three indices over the long haul. I don’t think a 25% annualized outperformance of these indices is a rational expectation for the Pabrai Funds. So, while the results of both funds have been exceptional so far, we should remember that: 1. The funds are just 26 months old. We can look back on the track record after 5+ years. 2. The stock market is nearly fully efficient. However, occasionally, Mr. Market will underprice a company or two substantially. Our investment style is very opportunistic. We play in the crevices of inefficiency within an otherwise nearly fully efficient market. Occasionally as I crawl through these crevices, I’m able to uncover great investment ideas. I’ll act upon a good idea when I see one.

In this letter, I’m sharing another one – Stewart Enterprises. • The benchmarks we have set to beat are high benchmarks. Historically any fund that has, over the long term, beaten these three indices, has been in the top 3-5% of mutual or hedge funds in performance. • If we, over the long haul, do not beat the indices, then there would have been no point to having the funds. You’d be better off picking one or more of the indices. If I cannot perform better than an unmanaged group of equities then I should not be in the fund management business! In my letter to investors dated December 4, 2000, I had mentioned the there are two types of businesses of interest to the fund: 1. Great, compelling companies that may have little to no growth, but a solid cash flow engine and trading at markets caps substantially below their sale price in a private transaction. 2. Growth at Reasonable Price (GARP) companies. Fast growers that are really cheap. There is a third category that sometimes fits into the first category (compelling value), but not always.3

The logic Charlie is applying is the following: If I were forced to trim a 15 stock portfolio to 4 stocks, chances are high that I’d pick 4 businesses that I would be far more knowledgeable about than even 15 businesses and its very likely that the 4 stock portfolio would outperform the 15 stock portfolio. The key words that Charlie is emphasizing are “well selected”. There is a fund manager friend of mine who runs a fund with just 3 stocks in it. I spent some time looking at his three holdings (two of them are represented in The Pabrai Funds) and the conclusion I came to was that the probabilities of his losing money on any of the three stocks was very very remote. On the other hand, it is pretty much guaranteed that his portfolio will blow away S&P 500 returns over the long haul. They represent three very well selected businesses with phenomenal business models, exceptional management and bought at dirt- cheap prices – dramatically below intrinsic value. I’d ideally like to hold positions in 10 securities in a given portfolio and, over time, will manage both PIFI and PIF2 towards fewer holdings than today. The small minority of fund managers who consistently beat the market, do it with relatively focused portfolios. The corollary is that there is an extremely high probability of under performing the market with portfolios where the top 20 holdings comprise less than 20% of the portfolio.3

Thus I’d like to add more cash. It’s a great time to invest. If you’re interested in investing, please contact me so I can make the allocation. More importantly, I’d appreciate any referrals you might have. I have an information kit that’s easy for me to send to any prospective investor. Thank you for this opportunity to be of service to you. I appreciate your continued help, support and confidence.3

I do have some confidence that a few good ideas will pop up on the radar every so often – just as they have over the last seven years. PIF3 Approved by the BVI Pabrai Investment Fund 3 (PIF3) has been formally approved and setup as an Offshore Mutual Fund based in the British Virgin Islands. I’d like to thank Walter Stasiuk at Sonnenschein, Nath and Rosenthal (New York) and Conyers, Dill and Pearman (BVI) who serve as legal counsel for PIF3 for all their help and efforts in getting the fund setup. Its scheduled to go live on 1/1/02 with the 2 offshore investors in PIF2 moving their interest to PIF3. PIF3 is limited to accredited investors and they must be non U.S. Citizens or Residents. Unlike PIFI and PIF3, there is no limit to the number of investors in PIF3. As a result of the redemption of PIF2 units on 1/1/02, I’ll be reporting NAV on that date as well. I do not expect the redemptions to affect our holdings as nearly $2 Million has come into the funds in the last 2 months and the total redemption will be under $300,000. Raising the Minimum Amount for new Partners Going forward, the new minimum investment to join the funds as a new partner will be $100,000. The previous minimum was $50,000. This is effective 2/1/02. We can have only 99 partners in each fund and as the number of slots left go down, the minimum needs to go up to delay the closing of the present fund for as long as possible to new investors.3

Over the December holidays, I wrote an article entitled “ The Intrinsic Value of Cisco, Intel and Microsoft”. I’m sending it as an attachment for those of you interested in reading it. It’ll give you a better sense of some of the tools I use in analyzing businesses for the portfolio. Its also being posted on the website. Your K-1s for 2000 Our auditors, Gleeson, Sklar, Sawyers and Cumpata, are in the midst of preparing all your K-1s for the 2000 tax year. They should be out to you by Feb. 15, 2001. Thank you for this opportunity to be of service to you. I appreciate your continued help, support and confidence. Warm Regards, Mohnish Pabrai Page 3

Most mutual funds have over 100 stocks in a given fund. That would imply that the fund manager spends 500-700 hours a year just on the 400 earnings conference calls annually in the portfolio – without accounting for reading or researching stocks not yet in the portfolio. I have a hard enough time keeping up with the 15 businesses. I don’t know how anyone can be intimately familiar with all the nuances of 100+ diversified dynamic businesses and know them as well as the 3 stock fund manager. Both PIFI and PIF2 are fully invested as I write this letter. We own small pieces of some exceptional businesses. We now also have some Special Situation investments and bonds with low risk and terrific Yield to Maturity (YTM) in PIF2. Even after the reported PIF2 gains in July, both portfolios are, in my opinion, valued at substantial discounts to intrinsic value by the market. Annual Meeting Reminder: I’ve received most of the RSVPs. If you have not sent yours in, please do before 8/31 so we have an accurate count. From the list of attendees we have so far I know that we’ll have a fun meeting. The meeting is scheduled to be on Saturday, September 8, 2001 at 4:00 PM. The meeting location is: Carlucci’s Restaurant 6111 North River Road Rosemont, Illinois 60018 Tel. +1847.518.0990 Nearby Hotels – Marriott Suites O’Hare, The Westin O’Hare Next Investment Window The next date when funds will be added to PIF2 is October 1, 2001. I continue to have more opportunities than cash.

As an FYI, we crossed the $10 Million mark in assets under management on 12/1/01. Assets have grown over 10 fold since inception less than 2½ years ago. Thank you for your support. Pabrai Investment Funds Assets Under Management (In Millions of $) 7/1/1999 7/1/2000 7/1/2001 12/1/2001 Assets Under Management Appointing a Third-Party Administrator (TPA) For PIFI and PIF2 A few current and prospective partners have expressed concerns about the lack of transparency in the funds. For example, I am the portfolio manager and I issue the NAV calcs and statements. A TPA would alleviate this concern. TPA’s are entities that provide administrative services for hundreds of funds with billions under management. Investors would get their statements and NAV calculations from a reputed and independent third-party. In addition, they’d co-sign all checks or wires for redemptions, fund expenses etc. The advantages for an investor are obvious. The disadvantage is the cost. I’ll be seeking input from all of the limited partners and then, based on the feedback, will move forward with an amendment to add the TPA function to the funds. I’d recommend adding the TPA as it makes the funds more professional as we scale. Next Investment Window The next date when funds will be added to PIF2 is February 1, 2002. It’s a great time to invest. I’d also appreciate any referrals you might have. I have an information kit that’s easy for me to send to any prospective investor.

There is no way to predict how many good ideas I’ll be able to uncover in the next few years. I think I’ve had more than my share of good ideas in the last few years. I don’t consider the stock market at large to be underpriced. Most of the stuff I look at is either fully priced or over priced. Its hard to find good investment ideas – but that’s precisely the reason you’ve engaged me. I love digging and analyzing and occasionally we hit pay dirt. So I’ll continue digging and crawling to find hidden value. Annual Meeting Reminder: The Annual Meeting for The Pabrai Investment Funds is scheduled to be on Saturday, September 8, 2001. The meeting location is: Carlucci’s Restaurant 6111 North River Road Rosemont, Illinois 60018 Tel. +1847.518.3

Companies whose prospects are impaired only in the short term, but have minimal impact long term (e.g. American Express). It’s clear that American Express’s near term earnings will take a hit as travel slows down. American Express earnings took a hit during the Gulf War as well. But what was the impact on American Express’s intrinsic value in 2001 related to the Korean War, Cuban Missile Crisis, the Kennedy assassination, the Vietnam War and the Gulf War? The answer is zero. I suspect that the impact on them 2-3 years from now will again be close to zero. I’m ploughing through companies in this category that are now “on clearance sale” to see if they fit our investment criteria.3

Next Investment Window The next date when funds will be added to PIF2 is August 1, 2001. I continue to have more opportunities than cash. Thus I’d like to add more cash. It’s a great time to invest. If you’re interested in investing, please contact me so I can make the allocation. More importantly, I’d appreciate any referrals you might have. I have an information kit that’s easy for me to send to any prospective investor. Thank you for this opportunity to be of service to you. I appreciate your continued help, support and confidence. Warm Regards, Mohnish Pabrai Page 4

from them in the 1950s and 60s Buffett Partnerships. Buffett continues to invest in workouts for his own account as well as Berkshire Hathaway. Another terms for workouts would be Arbitrage or simply “Special Situations” Buffett does two types of investing. One is buying great companies at compelling valuations and holding them for a long time (Coca Cola, American Express etc.) The other is workout investing. He has made a lot of money in his career for these workouts. Workouts typically offer modest returns, but virtually no risk. Let me give you some examples: Company A is publicly traded and its stock is at $30/share. Company A announces that it has reached an agreement to be sold to Company B in an all-cash transaction for $35/share. They announce that the both the boards have approved the transaction and recommended that shareholders approve it as well. A month later, the shareholders have approved the merger and the deal is expected to close in 30-45 days. Company A’s stock is trading in a range of $34-$34.50/share. The NASDAQ drops 10% a month before the merger and the stock drops to $33.50/share. If one bought the stock at $33.50 and got $35 a month later, it’s a 53.73% annualized rate of return with virtually no risk! This is known as “Merger Arbitrage”. Usually spreads on announced cash mergers are slim, but occasionally these spreads widen. They are sometimes quite wide if the companies are small cap as liquidity issues keep big players out.

Thus I’d like to add more cash. It’s a great time to invest. I’d also appreciate any referrals you might have. I have an information kit that’s easy for me to send to any prospective investor. Thank you for this opportunity to be of service to you. I appreciate your continued help, support and confidence.4

Buffett has done a lot of merger arbitrage in his investing career. The returns are nearly as well locked in as Bank CDs, but with much higher returns. Occasionally things can go awry, but one needs to study each deal and evaluate risk of deals not closing etc. There are many types of Special Situations. Another is closed-end funds selling at deep discounts to NAV. Typically most closed end fund sport a modest discount or premium to NAV. However, sometimes the discount widens to large numbers – I’ve seen 50+% discounts to NAV. One has to again evaluate the probabilities of the spread narrowing and the timeframe involved, but the potential returns can be high. Yet another that was available in 1999 and 2000 in spades was in Real Estate Investment Trusts (REITs). Let’s say there is a company that owns the Oak Brook Mall and this company is publicly traded. Its only business is to keep up the property, find tenants for vacant space and maintain the premises. It would be classified as a REIT. Typically, it would distribute to shareholders most of the rent after expenses. If the Oak Brook Mall is 90+% leased to Fortune 1000 names on long term leases and the yield on its dividend is 15%, one can evaluate what are the future expected dividend streams and what the property might be sold for some day. Like closed-end funds, many REIT prices collapsed as the NASDAQ was soaring and yields went quite high.

category. Their cash flow may decline for a few quarters, but they’ll be back on track after that. 3. Companies whose prospects are not impaired at all by the events of 9/11. Of particular interest are those whose stock prices have taken a hit (e.g. Liquidation World). I wrote an article in Silicon India that explains Liquidation World’s business model. These are interesting to analyze as their market caps have dropped substantially with no change in their future cash flow. We have a few holdings in this category and I expect that Mr. Market will soon realize the folly of his pricing aberration on these businesses. 4. Companies whose prospects are improved as a result of the Greenspan rate cut and are indifferent to the Sept. 11 tragedy (e.g. Stewart Enterprises, Radiologix etc.) As the Silicon India article shows, both these companies have business models that largely insulate them from events like Sept. 11. Stewart is in the Funeral Services business and Radiologix runs stand-alone and outsourced medical x-ray and CAT scan facilities. Both businesses have substantial debt tied to the US prime rate. When Greenspan cut rates their respective earnings got a boost going forward. Both stocks should have rallied in the aftermath, but instead both fell as Mr. Market went into a depressed state. I have always enjoyed studying businesses like these because they are so resilient to what might be severely traumatic for many other businesses.

Thank you for this opportunity to be of service to you. I appreciate your continued help, support and confidence. Happy Holidays!!! To do our part in stimulating the economy, Harina, the kids and me are going to Disneyworld later this month!4

For out-of-towners, The Marriott Suites and Westin O’Hare in Rosemont are both walking distance to the restaurant. You should all have received your invites in the mail. I do hope that you’ll bring all your toughest questions to the meeting. Next Investment Window The next date when funds will be added to PIF2 is October 1, 2001. I continue to have more opportunities than cash. Thus I’d like to add more cash. It’s a great time to invest. If you’re interested in investing, please contact me so I can make the allocation. More importantly, I’d appreciate any referrals you might have. I have an information kit that’s easy for me to send to any prospective investor. Thank you for this opportunity to be of service to you. I appreciate your continued help, support and confidence. Warm Regards, Mohnish Pabrai mpabrai@pabraifunds.com +1630.240.1652 Page 4

Another type of Special Situation arises when there is a cloud hanging over a company that leads to a mass exodus of investors. A recent example is Buffett’s $150 Million investment in US Gypsum (USG). USG was trading at a P/E ratio of about 3 when Buffett bought about 15% of the company’s stock on the open market. It has asbestos liabilities and lawsuits which have historically cost the company $50+/million annually in recent years. Clearly Buffett does not view USG and Coca Cola in the same light. USG is a special situation play for him. He understands asbestos related liabilities probably better than most of Wall Street due to his extensive 40+ years in Property/Casualty Insurance etc. He probably thinks that the street has thrown the baby out with the bath water. Thus he must believe that future worst case asbestos when fully factored point to a far higher valuation for USG. He will exit USG when he feels its stock price reflects its intrinsic value including asbestos liabilities. We invested in a special situation in Q42000 and just sold the last of our position in March 2001. Let me share it with you. Stewart Enterprises, Inc. (STEI) About five or six years ago, I recall reading an interesting article in the Chicago Tribune. The article talked about business failure rates in various industries. Of particular interest was a table that listed rates of business failure by SIC code.

Those that underwent a decline in their market caps and meet the Buffett description of a good business are of particular interest. Businesses in all four categories took a hit in their market caps as a result of Sept. 11. We had many holdings in categories 2,3 and 4 that took a hit as well. I fully expect them to get back on track. The good news is that there is a good amount of dry powder available to take advantage of these anomalies for all of our benefit. I am able to replace special situation investments with great GARP (growth at a reasonable price) businesses or even better special situations – which only improves upon our expected future results. To summarize, I’d like to say that in my judgment we have a portfolio with a higher intrinsic value today than we did on Sept. 10. While the NAV may be lower, the intrinsic value is higher. 2002 Annual Meeting: The 2002 Annual Meeting will be held at 4:00 PM on the Saturday following Labor Day (Sept.4

Rosemont, Illinois 60018 Tel. +1847.518.0990 Please note is on your calendar. With 12 attendees in 2001 and 47 attendees in 2001, I’d love to host over 100 for the 2002 meeting. Be There! Next Investment Window The next date when funds will be added to PIF2 is December 1, 2001. It’s a great time to invest. I’d also appreciate any referrals you might have. I have an information kit that’s easy for me to send to any prospective investor. Thank you for this opportunity to be of service to you. I appreciate your continued help, support and confidence. Warm Regards, Mohnish Pabrai Page 5

I found it interesting that the lowest rate of failure of any class of business was Funeral Homes. When I thought about it, it made perfect sense. When one is growing up and thinking about career paths, I don’t know anyone who would say “I’d like to run a funeral home.”. It’s a morbid business and few aspire to enter it. Thus, chances are, that if you own a funeral home you won’t see competitors spring up all over the place. Also, when one seeks out a funeral home for a loved one, you’re not interested in going to the newest one around, but rather the one with the deepest roots in the community. Its also a highly predictable business. Average life expectancy of humans changes very slowly. Any life insurer can predict the number of people who will die in Chicago in 2002, 2003 etc. They don’t know who will die, but know how many will. So, unlike many businesses I look at, future revenue for a given funeral home is not too hard to figure out. I subscribe to Value Line and they categorize summaries of stocks at the extreme with various characteristics – Lowest P/E stocks, Highest P/E, Widest discount from Book Value. I noticed that two companies in the Funeral Services business showed up on two lists – lowest P/E and widest discount from book value. They were Service Corp (SRV) and Stewart Enterprises (STEI). Not only did they show up on the list, but Stewart had a P/E ratio of about 3.5

universe of 1700 companies). Stewart was trading at about $2/share. Its historical high was about $28/share (achieved in 1999). Stewart was also showing a book value of $8.50/share. It was thus trading at less than ¼ of book value. Its book value excluding goodwill was $400 Million or about $4/share. Most of the book value was in real estate etc. whose value was probably higher due to the depreciation charges that accounting standards dictate. Land does not usually depreciate. Stewart’s earnings and operating cash flow for the six months ended April 30, 2000 was about $38 Million or about $0.36/share. On an annualized basis they were producing free cash flow of about $0.72 cents/share. The stock was trading at less than 3 times cash flow!! It was also trading at about ¼ of annual revenue. Why? After I spent several days pouring through all the 10-Ks, 10-Qs, listing to recent conference calls and looking at all the analysts reports I could get my hands on, the picture became clear. Stewart was a 90 year old company that has done a roll-up in the funeral service business in the early 90s. Funeral Services is a highly fragmented business worldwide. Three players in the industry – Carriage Services, Service Corp. and Stewart Enterprises had been successful in acquiring hundreds of mom and pop funeral operators. All three followed the same modus operandi. On the exterior, there was no visible change after the mom and pop was acquired.

The name was maintained (as these small funeral homes had tremendous brand equity in their communities), but the back-end, merchandizing, selling pre-paid funerals etc. was streamlined and corporatized. The mistake all three made was that most of the acquisitions were done for cash rather than stock and they freely borrowed money to support their acquisition binge. Then the music stopped. The street lost its excitement for the funeral business and their stocks started to come down. Bankers and lenders weren’t interested in further lending and wanted balance sheets deleveraged. With no additional acquisitions, sales went flat. This is not a growth business. Stewart found itself in 2000 with $930 Million of long-term debt with about $500 Million coming due in 2002. The company had said to the street that they had excellent relations with their bankers, had never violated a bank covenant and were confident that their bankers would extend the loan. They also said that they had begun to explore the sale of international funeral homes and cemeteries in Europe, Mexico etc. International assets comprised about 20% of revenues and assets, but weren’t generating much cash flow. Thus Stewart has about $460 Million in assets outside the US. Despite this data, the stock was at $2/share. I figured that there were two possible scenarios – the company would either be forced into bankruptcy by lenders or they would refinance/eliminate debt and continue as usual.6

If the company liquidated, at the “store” level, each store was very profitable, so they’d be sold off as going concerns. Stores would not be sold for 3 times cash flow. Buyers would bid them up to 6-10 times cash flow. Presumably, worst case, the previous owners would buy them back for less than they sold them for. So under a 2002 bankruptcy, I figured the worst-case liquidation value was $4-5/share. If they indeed did sell off international operations, than would generate $300-500 Million in cash, which would eliminate the 2002 issue with the lenders. Thinking back to the Tribune article, while I allowed for bankruptcy as an option, I thought it was very unlikely given the nature of the business. This qualified as a Buffett-style workout or special situation. It was a play to get $4-5/share within a maximum of 2 years and exit (a 50% annual rate of return). I like all aspects of Stewart’s business except the leverage in the balance sheet. If I could buy Stewart with no debt at 3 times cash flow, I’d do it in a heartbeat and hold it for much longer – till it got to 8-10 times cash flow. But with the leveraged balance sheet this was simply a special situation play. The final piece of the research was to kick the tires. I met a friend of mine who had known Stewart for years and mentioned that their properties and services were the best in the business. They were at the high-end and very committed to service.

In this market, one is not looking for the cheapest solution, but the most respectable and dignified one. So they appeared to have some pricing power – which was great. I backed up the proverbial truck. In August I bought as much as I could for my personal account and PIFI. The other problem with Stewart was the lack of float. It was a $2/share, but very little volume. It took days to fill my limit orders, but I’m a patient man. In December, I got a bonus, Stewart dipped to $1.75 (the December effect) and I added a bunch more PIF2 in December. The average buy price for PIF2’s Stewart stake was $1.99/share, including trading commissions. In the last conference call on March 15, Stewart announced that they were close to a few deals for the International Properties and expected to have firm announcements within 90 days. They had also paid down $50+ Million of debt and cash flow remains strong. In March, Stewart stock price was around $3.50-4.00/share and Reuters did a positive story on how the industry was intensely focused on deleveraging their balance sheets and this was a non-cyclical highly predictable business. I started exiting Stewart at about $3.75/share and sold everything at $4/share. We were in and out in less than six months with a 150+% annualized rate of return. Thank you Stewart. You can rest assured that we’ll be back in the straddle with Stewart if nothing changes and the stock goes back to $1.75.7

for another $2-3 appreciation in the short term was akin to gambling. It reminds me of a Buffett quote that goes something like this: “When buying a stock, don’t count on a good sale price, focus on a great purchase price so that even a mediocre sale price looks great.” We bought Stewart at a great price and sold at a mediocre price. With the Diamond and Stewart examples, I am trying to help my partners better understand how this “black box” functions. Over time, I hope to share more successes and failures with you. It should also help explain why we didn’t drop 50% in value when the Nasdaq did. Annual Meeting Reminder: The Annual Meeting for The Pabrai Investment Funds is scheduled to be on Saturday, September 8, 2001 at 4:00 PM. The location is: Maggiano’s Restaurant Oak Brook, Illinois We will have a private room and the meeting will be followed by cocktails and dinner. Last year’s meeting was fun. All limited partners and their spouses/significant others/dates are invited. I hope all of you can attend. Please mark it on your calendar. Next Investment Window The next date when funds will be added to PIF2 is June 1, 2001. I continue to have more opportunities than cash. Thus I’d like to add more cash. It’s a great time to invest. If you’re interested in investing, please contact me so I can make the allocation. More importantly, I’d appreciate any referrals you might have. I have an information kit that’s easy for me to send to any prospective investor.

03.09.2000 To: Pabrai Investment Fund I Limited Partners From: Mohnish Pabrai, Managing Partner Date: 3/9/00 Re: Welcome New Limited Partners; PIFI Valuation Dear Partners: 1. Introducing the new and original Limited Partners Let me begin by welcoming all the new limited partners. Thank you for confidence and support. The new limited partners are: (Deleted for Confidentiality) I’d also like to introduce our new limited partners to the original limited partners: (Deleted for Confidentiality) 2. PIFI Cost/Share calculation for new funds. On February 28, 2000, we brought in $800,000 in new funds into PIFI. Prior to this injection of additional funds, PIFI had 100,000 shares outstanding issued on 7/1/1999 at $10.00/share. PIFI will publish audited results a few weeks after our year-end on 6/30/2000. I am presenting here unaudited results through 2/25/2000 so that a calculation can be done on the present cost/share of PIFI. As support for these numbers, I am attaching a portion of the first page of the PIFI Brokerage account statement as of 2/25/00. The total net assets in PIFI as of 2/25/2000 $1,607,551.68 The costs incurred from inception through 2/25/00 are: Legal: $10,230.45 Tax and Accounting: $1,675.00 TOTAL $11,905.45 Page 1

2.6 8/18/00 – PIFI Reports Audited Results for year ended 6/30/00 To: All Limited Partners of The Pabrai Investment Fund I From: Mohnish Pabrai, Managing Partner Date: August 18, 2000 Re: Annual Audit Results for PIFI for the Year ended 6/30/00 Dear Partners: Gleeson, Sklar, Sawyers and Cumpata, LLP. has completed its annual audit of The Pabrai Investment Fund I. I am enclosing their report for your perusal. If you recall, I had estimated $5000 in accrued expenses in my memo to you dated July 3, 2000. Gleeson has estimated accrued expenses at $6125. In addition they have assumed a deferred tax liability of $8152. This relates to the 1.5% Illinois Use Tax on gains. We have unrealized gains that net this tax, if realized. Thus their expense accruals are $9,277 higher than mine. This reduces the NAV to $2,476,277 vs. my number of $2,485,498. The number of shares outstanding on 6/30/00 was 164453.16 leading to a NAV of $15.05/share. My fee is $13,951 or 926.98 shares. The individual audited shareholding as of 6/30/00 is as follows: NAME Shares Held Value of Holdings (Rounded) as of 6/30/00 (rounded) CONFIDENTIAL INFORMATION TOTAL 165,380.14 $2,490,228 PIFI’s Audited Performance AFTER fees and expenses vs. the Indices. Page 1

Page 1 00.02.2000 Partnership Amendment Suggestions To: Pabrai Investment Fund Limited Partners New Limited Partners intending to become investors in PIFI From: Mohnish Pabrai, Managing Partner Date: 2/2/00 Re: Problem with the setup of the Pabrai Investment Fund I Dear Partners/Prospective Partners: I have recently discovered a problem with the Pabrai Investment Fund rules and bylaws that make very little logical sense and need some fixing immediately. I cannot bring in additional funds into PIFI until the problem is resolved. I have shared this problem with a few investors already and I believe that they agree with my proposed solution. Let me give you some hypothetical examples of scenarios that depict the problems: Case 1: Assume that PIFI starts on 7/1/99 with $1,000,000 from 8 investors. 100,000 shares are issued to investors at $10.00 each. Assume that PIFI has a 100% return on invested capital through 1/31/00 and brings in $800,000 in new funds from new and existing investors. Assume legal and accounting fees through 1/31/00 are $15,000. Bringing in new investors under current rules requires a calculation of Net Asset Value (NAV) per share as of 1/31/00 after management fees and expenses. Thus, investors get the (7/12) of 6% of $1,000,000 as the guarantee or $35,000. Then the $15,000 expenses are paid. Then the balance ($950,000) gain is split: Dalal Street: $237,500 PIFI Investors: $712,500 Thus the total PIFI investor gain is $747,500.

Pabrai Investment Funds Memo To: All Limited Partners of The Pabrai Investment Fund 2, L. P. From: Mohnish Pabrai, Managing Partner Date: December 4, 2000 Re: Welcome New Limited Partners; Performance Data Dear Partners: As you know, The Pabrai Investment Fund 2 (PIF2) was launched on 10/1/00 with $1.1 Million in assets and 9 limited partners, including myself. On December 1, 2000, we added an additional $600,000 in assets and 8 new limited partners. Between the two funds we’ve brought in $4.5 Million in assets under management since inception and have 30 limited partners. The diversity of investors is expanding and am proud to be associated with this august group. We now have the following states represented between the first and second partnership: California, Colorado, Florida, Illinois, Minnesota, New Jersey, Ohio, Vermont, Washington. (9 down, 41 to go). We are now international with one limited partner based in Italy. Whenever we add assets to the funds, I have to release performance to date to assign the correct Net Asset Value to the new funds. The details of the Asset Value Calculations are in the attached Appendix A. PABRAI INVESTMENT FUND 2 Performance Summary: DJIA NASDAQ S&P 500 PIF2 PIF2 (before exp.) (after exp.) 10/1/00 – 11/24/00 -1.7% -21.0% -6.6% -3.5% -4.0% For completeness of the track record, I am also giving all the published performance data on the first fund, PIFI. The NAV before expenses is $9.65/unit and after expenses is $9.60/unit.

To: All Limited Partners of The Pabrai Investment Fund 2, L. P. From: Mohnish Pabrai, Managing Partner Date: October 6, 2000 Re: …and we’re up and running … Dear Partners: The Pabrai Investment Fund 2, L. P. was successfully launched on 10/1/00. I had a minimum asset goal of $1,000,000 to launch the fund. We started the fund with $1,100,000 in assets and 9 Limited Partners. In the memos of the first partnership, I published names and amounts of Limited Partners, but received some objections from a few partners concerning the visibility of some of their personal financials to strangers. It’s a very valid objection. Thus, going forward, limited partner identities and amounts invested are not being shared - even with other limited partners. Identities will be visible via name tags at the Annual Meeting to other Partners and attendees. The diversity of investors is expanding and am proud to be associated with this august group. We now have the following states represented between the first and second partnership: California, Florida, Illinois, Minnesota, New Jersey, Ohio, Vermont (7 down, 43 to go; There is atleast one European who’s planning to invest at the next opening, so that’ll make us International.)

2.5 7/3/00 – PIFI Reports First Year Unaudited Results To: Pabrai Investment Fund I Limited Partners From: Mohnish Pabrai, Managing Partner Date: July 3, 2000 Re: PIFI Finishes its First Full Year – Unofficial, Unaudited Results PIFI Beats all the Major Indices and over 99% of Mutual Funds and Professional Fund Managers. Up over 62.5% for the year (before fees and expenses) Dear Partners: June 30, 2000 was an important day for me. Not only was it my mother’s 58th birthday, but it also represented the day on which we finished our first year as partners in The Pabrai Investment Fund I. PIFI is very dear to me and close to my heart. I’ve really enjoyed serving all of my partners last year and look forward to many many prosperous years together. Our auditors, Gleeson, Sklar, Sawyers and Cumpata, LLP (GSSC), will be beginning their audit on PIFI’s first year etc. almost immediately and I hope to have their audit report to share with all of you within the next few weeks. In the meanwhile, I would like to share the unofficial, unaudited PIFI results with all of you. PLEASE NOTE THAT I DO EXPECT SOME VARIANCE BETWEEN MY NUMBERS AND THE AUDITED NUMBERS, PARTICULARLY AS THEY RELATE TO EXPENSES AND FEES. However, these differences should be miniscule in the broad scheme of things. For example, the auditors may look at cash vs. accrued expenses differently than the way I’m doing them. The total net assets in PIFI as of 6/30/00 (as reflected in the Brokerage Statement) are $2,504,802.

Page 2 The NAV is $17.475 as of 1/31/00 If $800,000 in new funds come in on 2/1/00, 45,780 new PIFI shares are issued at a value of $17.475/share. Dalal Street’s shares rise from 10,000 to 23,590.84 TOTAL PIFI shares outstanding as of 2/1/00 are 159,371 at a value of $17.745 for a total NAV of $2,785,008. Lets, assume that as of 6/30/00, NAV is $2,600,000 or $16.31 Since this is the anniversary, we need to calculate gains, fees, NAV again per current rules. Investors are guaranteed (5/12) of 6% of 2,785,008 or $69,625.20 Thus the minimum NAV should be $2,854,633. Dalal Street needs to add $254,633 to the PIFI account to make the investors whole. Thus Dalal Street’s net fees for the first year is ($17,133) for the year. In other words, PIFI delivered a return to full-year investors of 63.1% and still ended up not making any kind of a fee and ended up writing checks to the investors. There is a problem here. Case 2 Same assumptions as Case 1 except PIFI does not add “mid-year funds”. Thus no new funds or investors are added throughout the year and PIFI has a gain of 63.1% after expenses, but before management fees. In this scenario, Dalal Street ends up with a fee of about $157,750. This makes more sense and is closer to the intent. As you can see, with identical year-end results in one case Dalal Street gets hosed inspite of stellar performance.in:

7/1/99 – 6/30/00 If you refer to my memo dated 3/4/00, you’ll see that we had expenses totaling $11,905.45 through 2/28/00. In addition, we paid GSSC $1450 towards preparation of tax return in April and had a final invoice of $325 for tax preparation from GSSC that we paid in June, but the check will most likely clear in July. Thus, PIFI’s NAV before expenses as of 6/30/00 would have been $2,518,157.89 The total shares in PIFI currently are 164453.16. Of these, 9535.82 were given to Dalal Street, Inc. on 2/28/00 as its fee through that day. If we exclude the fee, shares outstanding as of 6/30/00 would be 154917.34, giving a value per share of $16.2548 or a gain of 62.55% for the year before fees and expenses! 2. PIFI Performance AFTER Fees and Expenses for the period 7/1/99 – 6/30/00 The total net assets in PIFI as of 6/30/00 (as reflected in the Brokerage Statement) are $2,504,802.44. The $325 uncashed check to GSSC needs to be subtracted as does GSSC’s audit fees. I’ll put in a budgetary number of $5000 for accrued expenses that have not yet been paid (e.g the audit fee). Thus PIFI assets after all expenses, but before Dalal Street’s fee are estimated at $2,499,477.44. PIFI had 164453.16 shares outstanding as of 2/28/00 at $14.57/share and a total NAV of $2,395,646. The total gain before fees but after expenses is $103,831.44. Since this gain is over a 4-month period (3/1/00-6/30/00), the minimum guaranteed returns are 2% of $2,395,646 or $47,912.92.

3. S&P 500: $95,800 4. DJIA: $88,500 Thus one would have lost money on the DJIA and the S&P 500 and had a very good return on the NASDAQ composite Index. PIFI is currently underperforming the NASDAQ and dramatically exceeding the S&P 500 and DJIA. Even after fees and expenses we’ve significantly outperformed the DJIA and S&P 500 index. With fees, we’ve significantly underperformed vs. the NASDAQ index. The returns that PIFI has delivered to date have significantly exceeded my expectations. Our holdings represent excellent companies with strong franchises bought at substantial discounts to intrinsic value. The manner in which they have appreciated in such a short time span has surprised me. Thus, I would not be surprised at all if our year-end results were less spectacular than now. We might well have an annual performance that is not as good as the first eight months. 4. The First PIFI Annual Meeting!! I hope all of you will attend the first PIFI annual meeting to be held on: Saturday, August 26, 2000 from 4:30-6:30 PM at Digital Disrupters, Inc. 1901 Butterfield Road, Suite 300 Downers Grove, Illinois 60515 Tel. +1630.493.6652 (my direct line) (I am the founder and CEO of Digital Disrupters. Check it out at www.disrupters.com) This will be followed by Cocktails and Dinner at 6:45 PM at Maggiano’s, Oak Brook Mall, Oak Brook, Illinois I’ll arrange for a private room. Spouses/significant others are welcome (and encouraged) to attend.

Due to the variance in expenses, the performance after Fees and expenses are slightly different than the unaudited version reported in July. The audited numbers are: No. Of Shares Date PIFI NAV S&P S&P DJIA DJIA NASDAQ NASDAQ 100000 7/2/99 $10.00 $10.00 1,391.22 $10.00 11,139.24 $10.00 2692.96 100000 12/8/99 $17.15 $10.09 1,403.88 $9.94 11,068.12 $13.32 3586.08 100000 2/25/00 $14.57 $9.58 1,333.36 $8.85 9,862.12 $17.05 4590.50 164453 6/30/00 $15.05 $10.47 1,456.60 $9.38 10,447.89 $14.73 3966.11 To explain the above chart, in layman’s terms, if $100,000 each were invested on 7/2/99 in PIFI, the Dow Jones Industrial Average (DJIA), the S&P 500 and the NASDAQ Index, the results (before expenses and fees) would as of 6/30/00 be: 1. PIFI: $150,500 2. NASDAQ: $147,300 3. S&P 500: $104,700 4. DJIA: $93,800 Thus one would have lost money on the DJIA, had a less than 5% return on S&P 500 and had a very good return on the NASDAQ composite Index. PIFI out performed all the three market indices. It beat the DJIA by 57.2%, the S&P 500 by 45.7% and the Nasdaq Composite by 3.7% AFTER all fees and expenses. Reminder on the Annual Meeting: All your RSVPs are in. Thank you. This is just a reminder. If any of you need directions, please email or call me. Remember that we meet at 4:30 at Digital Disrupters and head to Maggiano’s at 6:30. Saturday, August 26, 2000 from 4:30-6:30 PM at Digital Disrupters, Inc. 1901 Butterfield Road, Suite 300 Downers Grove, Illinois 60515 Tel. +1630.493.2

We also have a diversity of backgrounds represented ranging from a trader on the Chicago Board of Options Exchange, a Court Reporter in Minnesota, an Attorney, a Silicon Valley venture capitalist, an operator of an aircraft parts mail-order house, retirees in Florida and Vermont, IT consultants, several entrepreneurs, CEO/COOs of companies, folks in the printing business, software business, a commercial real- estate developer, an ethnic food wholesaler etc. Several partners are also Berkshire Hathaway shareholders. I was surprised to learn that some sold Class A Berkshire shares to invest in The Pabrai Investment Fund. I’m not sure of everyone’s age, but have virtually every age group from 20-something to 70-something represented. We now have 22 Limited Partners between the two funds – up from 8 when we started 15 months ago. I’m already looking forward to next year’s annual meeting. We’ll need a bigger room!

PABRAI INVESTMENT FUND I Performance Summary: DJIA NASDAQ S&P 500 PIFI PIFI (before exp.) (after exp.) 7/1/99 - 6/30/00 -6.2% +47.3% +4.7% +62.5% +50.05% 7/1/00 – 8/30/00 +7.14% +1.9% +3.4% +14.09% +11.08% Cumulative +0.5% +50.1% +8.3% +85.4% +66.8% (7/1/99 – 8/30/00) The objective of The Pabrai Investment Funds is to, over the long haul, beat all three major indices – Nasdaq Composite, DJIA and the S&P 500. As you can see for the above data, PIF2 has fallen short of this yardstick so far. A few comments on this front: • The results for PIF2 during this short a window are for the most part meaningless. One will be able to get a good idea of PIF2 performance in a 3 to 5 year timeframe. My perspective is that the minimum length of time that one needs performance data to evaluate a given fund is three years and an ideal timeframe is five years. For what its worth, PIF2 was fully invested in the various equities on 11/24/00 with an outstanding margin balance. We were about 80% invested in the various equities on 10/31/00. • The benchmarks we have set to beat are high benchmarks. Historically any fund that has, over the long term, beaten these three indices, has been in the top 3-5% of mutual or hedge funds in performance. • If we, over the long haul, do not beat the indices, then there would have been no point to having the fund. You’d be better off picking one or more of the indices.

If I cannot perform better than an unmanaged group of equities then I should not be in the fund management business! • Our goals are relative to the indices. If all three indices dropped 30% in a given year and PIF2 dropped 20%, I’d consider it a superior performance to being up 25% when all three indices were up 20%. It is important to understand this. The direction of the indices does have a “gravitational pull” on us. If the indices delivered a cumulative return of 2% after 5 years and PIF2 was up 5% after 5 years, I’d consider it a good performance. If we were up 12% with the indices up 2%, I’d consider it a great performance. If public-equities deliver the historical 8-10% average return per year they have on average for the last 50+ years and we delivered a 15% average return, I’d be very satisfied.2

Limited Partners Holdings This memo is custom for each limited partner. It contains your investment amount, my investment amount and the rest of the investors as a group to maintain confidentiality. The shareholding as of 10/1/00 is as follows: NAME Shares Held Value of Holdings (Rounded) as of 10/1/00 (rounded) Dalal Street, Inc. (Mohnish Pabrai) 10,000 $100,000 All other Limited Partners 100,000 $1,000,000 TOTAL 110,000 $1,100,000 Between the two funds, there is now about $5 Million under management. I am planning to add another $1-2 Million on 12/1/00 to PIF2. I continue to be undercapitalized – i.e. many more ideas than $$$ available to invest. Also, since the investments are in public equities, whether we invest $100,000 or $10 Million in a given company, the work involved is the same. Thus, until I get to about $100 Million under management, I’ll continue to be undercapitalized. There is $350K already committed to come in on 12/1/00. If you are interested in adding to your position, please let me know at the earliest so I can allocate it. I would need funds by 11/30/00. The minimum investment is $100,000. As you know existing investors have the highest priority followed by your referrals from existing investors. Billy Stubbs, our webmaster, continues to enhance our website and add to its content. Check it out at www.pabraifunds.com. After getting to $5 Million under management, I figured that even Warren would approve of my splurging on business cards.

The returns above $47,912.92 are $55,918.52. Dalal Street’s fee is 25% of $55,918.92 or $13,979.63 Thus the total NAV after expenses and Dalal Street’s fees are $2,485,497.81 or $15.1137127 per share. Please note that this is an approximation and the audited numbers are bound to be slightly different. In other words, PIFI is up 51.14% after all fees and expenses for its first full year ended 6/30/00.2

All costs for the meeting and the evening will be borne by Dalal Street, Inc. at no cost to PIFI. During the meeting and dinner, I’ll will give you my perspectives on the first full year of PIFI’s operations and results followed by my thoughts on the 2000-2001 year. This will be followed by a Q&A session where anyone can ask me any question except for questions relating to PIFI’s specific holdings or my perspective on a given company.3

Page 3 7/1/99 – 6/30/00: 150% 7/1/00 – 6/30/01: -30% 7/1/01 – 6/30/02: 200% 7/1/02 – 6/30/03: -35% Before fees or penalties, if there were $1,000,000 under management on 7/1/99, it would have grown to $3,412,500 or an average annual return of about 36%. Dalal Street’s fees/penalties would have been: Start Pre-fee End Post-Fee End Fee 7/1/99 – 6/30/00: 150% $1M $2.5M $2.05M $350K 7/1/00 – 6/30/01: -30% $2.05M $1.44M $2.17M ($610K) 7/1/01 – 6/30/02: 200% $2.17M $6.51M $5.43M $1090K 7/1/02 – 6/30/03: -35% $5.43M $3.53M $5.76M ($2.23M) In other words, Dalal Street is in the hole by $1.4M and investors endup with an after fee return of $4.76M after 4 years or an average annualized return of about 55%. There is something drastically wrong with this picture. Buffett avoided the Case 1 problem completely by setting up new partnerships whenever he got new funds. I don’t like that solution to the Case 1 problem because I’ll end up managing 20 very small buckets of money. Very inefficient and time consuming with lots of record keeping and investing overhead. He avoided Case 3 by never having a down year. He never had a year where returns were over 59% or less than 6.8%. I’ll exceed the 59% record most likely in the first year. It is very likely that if first year returns are north of 100%, the next year may be negative or marginal. Therefore, I need to alter PIFI rules to fix the aforementioned problem. Here is the proposed solution: 1.

1. The PIFI Website!! I have secured a domain name (www.pabraifund.com) and as time allows am developing the content etc. for the site. I don’t have a firm schedule on when the site will be up, but am hoping to have it up and running before we finish our first year. The site will not have names or identities of the limited partners anywhere on the site to maintain confidentiality. Here is a listing of a subset of the features I’m planning: 1. Post all the PIFI legal docs (with no limited partner names) 2. Post all my memos to limited partners (with no limited partner names) 3. PIFI’s performance, fees and expense data to data vs. the indices. 4. Ability to register and join the PIFI limited partners waiting list. 5. Post all the performance data on all monies I manage (personal portfolio, TransTech’s portfolio, Digital Disrupters portfolio) 6. Description on PIFI and its objectives 7. Data on the original Buffett partnerships. The expenses associated with the development and maintenance of the site will be borne 100% by Dalal Street with no cost to PIFI. Thus, if any of you have investor referral, they can go online, get all the data they need and register to get on the waiting list. I’d welcome any comments or suggestions. See you in August!! Mohnish Pabrai Page 4

PIFI guarantees a minimum average annualized return of 6%. In years when the annual return is below 6%, no management fee is paid, but Dalal Street pays nothing into the fund as long as the average annualized return is over 6%. The counter resets every 5 years. Therefore, if the PIFI first 5-year average return is 26% and the 6th year return is –20%, then Dalal Street, needs to deposit funds to make up the difference. This seems fair. It also keeps me from resting on my laurels since I know that the past track record will only help me in the next 0-4 years at most.

Funds like to categorize themselves as “growth” or “value” or “small cap” etc. I find that with many stocks, “growth” and “value” are two sides of the same coin. They are not mutually exclusive. I get a lot of questions from investors regarding the inner-workings of this “black-box”. I’m including some very specific information on The Pabrai Investment Funds to shed some light in this matter. The investment style of the Pabrai Investment Funds is quite simple. The fund only takes long positions in public equities. There are no options or derivatives etc. that the fund delves into at all. Typically the funds assets are divided between under 15 securities with the typical allocation for a given security being 10% of assets in the fund. The fund is allowed to go up to 30% into margin. I look at 3000+ public companies a year. When I look at a given public company, I run them through a three-question filter. 95+% of companies do not make it through these filters and are discarded. The ones that make it through are then rigorously analyzed before anything becomes part of the portfolio. Inspite of my best efforts, I have made mistakes in the past and know that there will be more in the future. The goal is that we are right many more times than we are wrong. The three filters that a security has to go through is a positive answer to the questions: 1. Do I understand this business well? Is it well within my circle of competence?

Billy did a nice job of designing them and of our partners printed them (we’re trying to keep the $$$ in the family). I’m sending a few to each of you. Feel free to pass them on to folks who you think might have an interest in looking at The Pabrai Investment Funds. All of the legal docs have been executed by us, however, some of you pointed out a few errors/edits needed in the Fund Legal Documents. I have referred these to the attorney. We will have a short amendment to the agreement that I hope to have executed by all of us in the coming weeks.2

Page 4 2. Investors can withdraw from the partnership in any given year during the “open window” after annual results are disclosed. If an investor decides to exit the partnership, the following rules apply: 2.1 If an investor withdraws from the partnership, it is assumed that the withdrawal will be 100% of invested funds and returns thereof. 2.2 If an investor withdraws funds that have been in the partnership for less than two years then Investors will receive the NAV of the shares they own in their account. 2.3 If an investor withdraws funds that have been in the partnership for more than two years then Investors will receive the higher of: The NAV of the shares they own in their account. OR Their principal investment compounded at an annual rate of 6%. Thus no matter when during the 5-year period an investor injects funds into the partnership they are guaranteed a minimum 6% annualized rate of return compounded as long as they stay in for more than 2 years. I have discussed the problem with Joe Fenech, our legal counsel and one of the Limited Partners. His perspective is that an addendum needs to be created and signed by all existing limited partners. He is in the process of creating this addendum and I’ll circulate it for signature ASAP to existing limited partners. New Investors I have received some of your checks, but have done nothing with them. Most likely, I’ll be bringing in the new funds a month later due to this issue. Thus the funds would get deposited on 3/1/00.

If the answer is no, the business is simply skipped over. 2. Is this a great and predictable business? The definition of a great business would mean a business that has some of the following characteristics: • Recurring Revenue Streams (e.g. GEICO) • Ability to raise prices ahead of inflation (e.g. The Washington Post) • Some sort of Monopoly or Oligopy type market positioning (e.g. American Express) • Strong franchise/brand that gives it insulation from most competitors (e.g. Coca Cola) Most businesses do not have ANY of the above characteristics and some may just have one of the above. A business that has more than one of the above characteristics is, by definition, rare. If I find a great business then I ask the third, and more difficult, question: 3. Is it on sale at a price well below its Intrinsic Value(IV)?3

If you are uncomfortable with any of this, I can return your check and there is no impact (positive or negative) on you. I’m assuming all of you have seen a copy of the existing legal documents. If not, please let me know and I’ll send you a copy. I’ll send you a copy of the addendum to review after its ready. I’d suggest that you only invest if you are 100% comfortable. Feel free to email or call me for any clarification. I do intend to bring in $800K at this time. If any of you are dropping out, I’d appreciate knowing about it ASAP as there are folks on the PIFI waiting list I can then get to become investors at this time.Investors

The combination of a great business and it being on sale is, by definition, an anomaly. I look for these anomalies. When they occur, after rigorous analysis, I’ll either take a pass or backup the truck. There are two types of great business that are of interest to the fund: 1. Great, compelling companies trading at very low valuations relative to their expected value in a private sale. These companies may have little to no annual growth, but tend to have a solid cash flow engines that are highly predictable and are trading at very low multiples to earnings, cash flow and/or other metrics of value. 2. Growth at Reasonable Price (GARP) Companies. These companies, in high- growth markets, have shown a history of growing fast and are expected to continue to do so. I usually prefer GARP companies to straight value companies. I think the best returns will come from great, high growth companies that are available well below IV. I believe most of Buffett’s success has come from GARP-type businesses (Coca Cola, American Express, GEICO, The Washington Post etc.) So value businesses remain in the portfolio till either: 1. They reach IV and are sold. 2. A better value business comes along. 3. A better GARP business comes along. GARP businesses remain in the portfolio till: 1. They go well beyond IV. I hate to sell a good GARP business unless its well beyond IV. 2. A better GARP business comes along.

Page 5 If you’re uncomfortable with this change, then my suggestion would be to exit PIFI at year-end. Please recognize that I’ll be giving low priority to any investors who withdraw invested funds and subsequently want to add funds to PIFI. They’ll go to a far lower priority. The selection of investors for PIFI priority is: 1. Existing investors with no withdrawal history. 2. Referrals from existing investors with no withdrawal history. 3. Other Individuals referred to me or directly known to me. 4. Existing investors with withdrawal history. 5. Referral from existing investors with withdrawal history. 6. Other Individuals. Please advise me of any concerns or questions immediately. Thanks

Case Study: Diamond Technology Partners (NASDAQ – DTPI) I get asked from time to time by Partners and potential investors to give more insight into the fund by giving a few examples of what is in the portfolio. I do not plan to release current portfolio holdings as, in many cases, I’d add to our position if there is a near term decline in price. However, I’d thought I’d take this opportunity to describe one of the early holdings in PIFI. We have fully exited our position in Diamond Technology Partners and do not expect that I’ll buy DTPI anytime in the near future. Diamond Technology Partners is a Strategy and Management Consulting firm based in Chicago. I believe it was the first buy we made when PIFI went live on 7/1/99.4

we bought 5500 shares DTPI at a price of $23.75/share for a total investment of about $130,000 or 13% of PIFI assets. I arrived at 13% because we had $1,000,000, plus an ability to go upto $300,000 into margin yielding total buying power of $1.3 Million. If funds are available, I’m typically allocating 13% of assets in a given security. 1. Did I understand DTPI well? Is it well within my circle of competence? The answer is yes for the following reasons: • I was the founder and then CEO of TransTech, Inc. TransTech is an IT Consulting Services company. I had run TransTech for about 9 years and grown it from nothing to about 160 people. Over the years, I learnt a lot about the IT Services space and Consulting services. • With DTPI being based in Chicago, I was quite familiar with the company. Over the years I had met with Mel Bergstein (CEO, DTPI) and other senior executives of DTPI. I used to go to various IT Services investment banker conferences and DTPI was usually a presenter. I’d listen to Mel speak and then attend the Q&A thereafter. • I met a couple of times with Mel and senior management at DTPI in Q1999 to explore possible synergies between DTPI and TransTech. Specifically, DTPI did a lot of high- level work at the CXO (CEO, CIO, COO) level with Fortune 2000 companies that led to IT projects that DTPI usually referred to other firms. I was hoping to make TransTech one of those firms.

As it turned out, DTPI and TransTech never did work on a project together – so far - even though there were a few pre-sales efforts. Those meetings did help me get more familiar with DTPI. • During one of these meetings, Mel gave me a tour of DTPI Headquarters in the John Hancock building. I remember that Mel’s office was no bigger than most of his managers. Also, all corner offices were allocated to be temporary workspace for consultants in between projects or working out of HQ. In other words, unlike the typical business where the CEO has the best office, Mel had allocated the very best space to the folks who were in the trenches making the money for the company. I liked his employee-centric view. • Chunka Mui is one of the partners at Diamond. He is the author of “Unleashing the Killer App”. I had dinner with Mel and Chunka in Boston in Q199 when Chunka spoke at a gathering of CEOs. It was clear that DTPI clients saw tremendous value in Chunka and would willingly pay top dollar to a team he was part of. So, all in all, I did consider understanding DTPI well within my circle of competence. 2. Is Diamond Technology Partners a great and predictable business? The answer again came back as a resounding yes for the following reasons.5

• DTPI’s revenue history from 1995 through 1999 is: Revenue Net Income # of Clients 1995: $12.8 Million -$0.4 Million (loss) 1996: $26.3 Million $1.2 Million 24 1997: $37.6 Million $0.6 Million 45 1998: $58.3 Million $6.0 Million 65 1999: $82.4 Million $9.8 Million 85 Q41999 $22.7 Million $2.8 Million Their fiscal year ends on March 31. So the last published results available were for the year ended March 31, 1999. • DTPI is a business with a recurring revenue stream. They have a very “sticky” relationship with their customers. Once they acquire a customer, the probabilities are very high that that company will engage DTPI again and again on numerous projects. Thus, once a base of revenue is built the business with most of its existing customers, its pretty much guaranteed that, for example, 2002 revenues will exceed 2001 revenues. A large portion of the 2001 customers will be customers in 2002 and spend more than 2001. • The relationship DTPI has with a given Fortune 2000 company is at the CXO level. Very few businesses are able to establish relationships at the CXO level. The relationship is similar to a doctor-patient relationship. How often do you change your doctor? DTPI provides very critical advice and guidance to the patient (CXO). There are very few other doctors available (McKinsey, Bain, A. T. Kearney etc. Al), but switching is very hard since “medical histories” are lost and one has to start over. Very painful. • DTPI is a highly specialized “doctor”.

They specialize in “Digital Strategy”. While they never had many dot-com clients, many DTPI clients needed DTPI to help them evolve from Brick and Mortar to Click and Mortar. DTPI is one of the leading firms in the digital strategy space. So while McKinsey etc. were more established, DTPI was nimbler and far more focused on an area of tremendous pain for many companies. • DTPI recruits consultants from the top MBA schools. They pay their junior consultants between $120,000 - $150,000 per year. These folks generated billings around $387,000/year/person in 1999. They make a nice spread. 50% gross margin! About 50% of DTPI turnover is forced. Every year they ask the bottom 5-8% of their workforce politely to leave. Its the typical McKinsey “up or out” format. If you do this systematically over the years, you end up with a better workforce every year.6

• The clients form a wonderful franchise with a large moat of water around it. They used to recruit at 3-4 schools a few years ago. Now it’s over a dozen of the best business schools. The recruiting engine is also a nice franchise. You send alums back to recruit and that another moat of water. • Raising Prices Ahead of Inflation. DTPI is run by a team that monitors key metrics very closely. They have healthy price increases to their clients every year – well ahead of inflation. Their clients know that rates will rise every year and DTPI has demonstrated strong pricing power in its model. I guess when you’re sick, you go to the best doctor and don’t try to haggle with them. DTPI clients recognize the value they bring and thus this business has a strong ability to raise prices ahead of inflation. • The business is in its infancy. It had a long ways to go before reaching anywhere close to saturation. 2. Was DTPI on sale at a price well below its Intrinsic Value(IV)? What was the Intrinsic Valueof DTPI on July 1, 1999? We know that the market value of DTPI on 7/1/99 was about $315 Million. I had extrapolated that if DTPI went into zero growth mode, they would drop 20-30% of revenue to the bottom line versus the 10-12% they were dropping today. They operate in a 50% gross margin environment and with a total squeeze, they could get upto 25-30% dropping to the bottom line. However, it was much better for shareholders to grow the business.

So the free cash flow they could generate was very high. They were at a $100 Million run rate. Conservatively, I estimated that they had the ability to keep growing 40% a year for a few years and then drop off to 20-30% thereafter. They would continue to drop atleast 12% to the bottom line and possibly increase this to 15% over time. The summary of the analysis I did, led to a 2005 revenue in the range of $400-500 Million with Net Income of $50-60 Million. In 2005, they might trade at a P/E of 20-30; yielding a market cap of $1 Billion to $1.8 Billion. At the low-end, we’d get 3.3 times our money in 5 years and at the high-end it would be 6 times. I liked those numbers and saw a very limited down side. So I made the investment. Within a few months, the stock split 3:2. Around March 10, 2000, DTPI was trading at $110/share with about 21 Million shares outstanding. It had a market capitalization of $2.3 Billion against revenues of less than $140 Million annually!! Clearly Wall Street decided that they liked this doctor - a lot. It was well above IV. I used to have a viewpoint in allocating capital that was flawed and has since been edited.7

regardless of the relationship between IV and Market Value believing that eventually Intrinsic Value and Market Value would be in sync. The flaw is that if we are holding a business that the market is valuing at a significant premium to Intrinsic Value, then we are almost sure to see a drop back to Intrinsic Value. So in Q32000, I changed my modus operandi and decided that I will not hold equities at significant premiums to Intrinsic Value. Its unfortunate. This change will lead to us selling what are still great businesses due to Mr. Market’s mood swings. In addition there were a couple of events that give me some thought for concern. They are not big issues, but they are at the back of my mind. • DTPI did not have a big dot com client base, but their traditional clients were through Q22000 spending a lot of $$$ with DTPI because of the “dot com scare”. The Fortune 2000 was scared. As Q32000 came around and dot coms started to fold, these traditional companies have seen the pressure ease off from their shareholders and boards and some may curtail digital strategy spending. I see this as an issue, but not a big issue. • DTPI announced a major European acquisition in Summer 2000. Having run a “people business” I’m very skeptical of acquisitions in the space. It seems like a good match, but most acquisitions don’t work. DTPI has very talented managers. They may pull it off. Again an issue, but not a major one.

I started to unload DTPI on 8/1/2000 and had completely exited on 10/16/2000. Our average sell price was $57/share ($85.60 pre-split). In Peter Lynch terms, this was almost a “four bagger” in less than 18 months. We sold well above Intrinsic Value. The stock is at about $39 as I write this. I still see DTPI as a good company, but my opinion is somewhat lower than 7/1/99. DTPI is not our best investment so far in the fund, but it is among one of the better ones. It is also a company I know far better than a few others in the portfolio. I do not personally know the managements of the majority of our investments at the time the investment is made. I hope this data is helpful to you in understanding how your funds are being invested by me. Annual Meeting: The Annual Meeting for The Pabrai Investment Funds is scheduled to be on Saturday, September 8, 2001 at 4:00 PM.8

Oak Brook, Illinois We will have a private room and the meeting will be followed by cocktails and dinner. Last year’s meeting was fun. All limited partners and their spouses/significant others/dates are invited. I hope all of you can attend. Please mark it on your calendar. Next Investment Window The next date when funds will be added to PIF2 is February 1, 2001. I’m planning to add around $1 Million on 2/1/01. If you’re interested in investing, please send contact me so I can make the allocation. Page 9

12.08.1999 First Letter to Parterns To: Pabrai Investment Fund I Limited Partners From: Mohnish Pabrai, Managing Partner Date: 12/8/1999 Re: Adding Capital to Pabrai Investment Fund I Dear Partners: There will typically be only two occasions where I will be writing to you – the first is the annual letter with results and the second is to get additional funds for Pabrai Investment Fund I (PIFI). This letter deals with the second. At the suggestion of one of you, I am going to first ask my existing partners if they would like to increase funds they have contributed to PIFI. If the total contribution all of you seek to make exceeds the amount I am seeking, then I will not be inviting new partners into PIFI. I think that giving the earliest investors preference to add more funds will always be my priority. My original PIFI partners took the biggest leap of faith in trusting me with your hard-earned money and I intend to remember and recognize that. I had also suggested that I would typically release audited results once a year, except when additional funds are sought. The results I am releasing in this letter are not audited and while I have gone over them several times to ensure no errors, they have not been seen by another set of eyes. If a majority you have a desire to see audited results before committing additional funds and would like PIFI to bear the cost of the same, I will be glad to accommodate you.

My suggestion, however, is that I get you a copy of the first page of the PIFI brokerage account statement as of 12/31/99 or 11/30/99. That will give a summary of total asset value in the account. We will have the audit on June 30 at a minimum every year. Results todate As of 7/1/99, we had 100,000 shares of PIFI issued at a face value of $10.00 per share. Total funds under management were $1,000,000. As of 12/8/99, the net asset value is $1,715,107. The returns (before fees and expenses) are 71.51% todate. On an annualized basis, this exceeds 160%.1

There have been NO sell side transactions todate. There is a small amount of dividend income (yes, we do own atleast one dividend paying stock!) which will be reflected on your K1s. Here are some comparisons on PIFI performance vs. the major indices: No. of Shares Date PIFI NAV S&P S&P DJIA DJIA Nasdaq Nasdaq 100000 7/2/99 $10.00 $10.00 1,391.22 $10.00 11,139.24 $10.00 2,692.96 100000 12/8/99 $17.15 $10.09 1,403.88 $9.94 11,068.12 $13.32 3,586.08 To explain the above chart, in layman’s terms, if $100,000 each were invested on 7/2/99 in PIFI, the Dow Jones Industrial Average (DJIA), the S&P 500 and the NASDAQ Index, the results (before expenses and fees) would as of 12/8/99 be: 1. PIFI: $171,500 2. NASDAQ: $133,200 3. S&P 500: $100,900 4. DJIA: $99, 400 Thus one would have lost money on the DJIA and had a very good return on the NASDAQ Index. PIFI is over 100% better (todate) versus the best performing NASDAQ index. The returns that PIFI has delivered to date have significantly exceeded my expectations. Our holdings represent excellent companies with strong franchises bought at substantial discounts to intrinsic value. The manner in which they have appreciated has stunned me. Thus, I would not be surprised at all if our year- end results were less spectacular than now. We might well have an annual performance that is not as good as the first five odd months. We are fully invested on the $1,000,000 and about $254,000 in stock owned on margin.

Per the terms of our agreement, PIFI has the ability to buy securities on margin upto 30% of the total assets under management. This would allow me to invest another $260,000 before I hit the maximum. I do not want to leverage PIFI to that extent. I’d like to bring in another $500,000 at this time to eliminate our margin position and have money ready to go to work as I see opportunities.2

The only expenses PIFI has incurred to date are legal for $10,500. The bank fees, margin interest and brokerage commissions are already included when calculating returns. Thus the 71.50% return is after including commissions, margin interest and bank fees. If the return on 12/31/99 were 71.50%, then the Dalal Street effective fee would be calculated as follows: The first 3% return (50% of 6% for 6 months) is guaranteed and free of fees. The remaining 68.50% is split 3:1. Thus investors keep 51.38% and Dalal Street, Inc. gets 17.125%. Thus, the net assets after fees are: TOTAL ASSETS: $1,715,000 Less Expenses: $10,500 Less Mgt. Fees: $173,387.50 Net Assets: $1,531,112.50 Asset Value per share: $15.31 Dalal Street, Inc. will be putting its entire management fee back into PIFI at the basis of $15.31/share. It would receive an equivalent of 11,325 PIFI shares and its total shares would go to 21,325. As you can see, I am not doing this for charity. I also believe in eating my own cooking. I have a very deep vested interest in having PIFI “take the cover off the ball” while being very prudent with its investments. For simplicity sake, I will assume that new funds will come in on 1/1/2000. I would prefer having the minimum investment be $100,000 and additional investment dollars be in multiples of $100,000. Please let me know at the earliest if you’d like to put more funds in and how much you’d be interested in putting in. I will assume that I’ll have all your responses by 12/20/99.

I will start contacting some of the folks who have been insistent that I let them into PIFI on 12/21/99. If you decide to increase participation, please plan to have your checks to me by 12/31/99. Annual Meeting: Our annual meeting will be held at the headquarters of my new company, DigitalDisrupters.com (www.disrupters.com). This will most likely be in Downers Grove, Illinois after we finish our first year and announce results. I will let you know the exact date and time well in advance.3