2004

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

WESCO FINANCIAL CORPORATION LETTER TO SHAREHOLDERS To Our Shareholders: Consolidated net ""operating'' income (i.e., before realized investment gains shown in the table below) for the calendar year 2004 increased to $47,427,000 ($6.66 per share) from $39,958,000 ($5.61 per share) in the previous year. Consolidated net income decreased to $47,427,000 ($6.66 per share) from $74,711,000 ($10.49 per share) in the previous year. Wesco has four major subsidiaries: (1) Wesco-Financial Insurance Company (""Wes-FIC''), headquartered in Omaha and engaged principally in the reinsurance business, (2) The Kansas Bankers Surety Company (""Kansas Bankers''), owned by Wes-FIC and specializing in insurance products tailored to midwestern banks, (3) CORT Business Services Corporation (""CORT''), headquartered in Fairfax, Virginia and engaged principally in the furniture rental business, and (4) Precision Steel Warehouse, Inc. (""Precision Steel''), headquartered in Chicago and engaged in the steel warehousing and specialty metal products businesses. Consolidated net income for the two years just ended breaks down as follows (in 000s except for per- share amounts)(1) : Year Ended December 31, 2004 December 31, 2003 Per Per Wesco Wesco Amount Share(2) Amount Share(2) Operating earnings: Wesco-Financial and Kansas Bankers insurance businesses Ì Underwriting ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $14,618 $2.05 $15,711 $ 2.21 Investment income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 26,302 3.69 30,925 4.

Lala's biography frames Jamsetji's signature trait as a willingness to commit capital to long-cycle projects whose payoff would arrive only after his own death, a stance unusual among Indian mercantile families of the era that typically preferred trade with short cycles and quick returns.

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

The same work stresses that the trust-ownership structure was not an afterthought layered onto a profitable business but was conceived alongside the businesses themselves, binding the creation of wealth to its redeployment from the outset.

34 CORT furniture rental business ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,022 .71 (6,257) (.88) Precision Steel businesses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,094 .15 (860) (.12) All other ""normal'' net operating earnings(3) ÏÏÏÏÏÏÏÏÏ 391 .06 439 .06 47,427 6.66 39,958 5.61 Realized investment gains ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 34,753 4.88 Wesco consolidated net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $47,427 $6.66 $74,711 $10.49 (1) All Ñgures are net of income taxes. (2) Per-share data are based on 7,119,807 shares outstanding. Wesco has had no dilutive capital stock equivalents. (3) Represents income from ownership of the Wesco headquarters oÇce building, primarily leased to outside tenants, and interest and dividend income from cash equivalents and marketable securities owned outside the insurance subsidiaries, less interest and other corporate expenses. This supplementary breakdown of earnings diÅers somewhat from that used in audited Ñnancial statements which follow standard accounting convention. The foregoing supplementary breakdown is furnished because it is considered useful to shareholders. The total consolidated net income shown above is, of course, identical to the total in our audited Ñnancial statements.

have taken from us a 3%-of-premiums ceding commission on premium volume passed through them to Wes-FIC. Excepting this ceding commission, Wes-FIC has had virtually no insurance-acquisition or insurance administration costs. In some cases, other Berkshire subsidiaries act as reinsurers at higher levels than the level at which Wes-FIC is reinsuring; terms of the reinsurance are considered by Wes-FIC to be fair or advantageous to Wes-FIC. For the past several years Wes-FIC's reinsurance activity has consisted of the participation in two arrangements: (1) Participation in four risk pools managed by an insurance subsidiary of Berkshire Hathaway, our 80%-owning parent, covering hull, liability, work- ers' compensation and satellite exposures relating to the aviation industry as follows: with respect to 2001, to the extent of 3% for each pool, with satellite exposures eÅective June 1; for 2002, 13% of the hull and liability pools, increasing to 15.5% in August, and 3% of the workers' compensa- tion pool (satellite exposures were not renewed in June); and, for 2003 and 2004, 10% of the hull and liability pools only. The Berkshire subsidiary provides a portion of the upper-level reinsurance protection to these aviation risk pools, and therefore to Wes-FIC, on terms that could result in the Berkshire subsidiary having a diÅerent interest from that of Wes-FIC under certain conditions, e.g., in settling a large loss.

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.

(2) A multi-year contract entered into in 2000 through another Berkshire insurance subsidiary, as intermediary without proÑt, covering certain multi-line property and casualty risks of a large, unaÇliated insurer. This contract was commuted (terminated) in the fourth quarter of 2004, at which time Wes-FIC paid the ceding company $43.1 million, cash, repre- senting all unearned premiums, reduced by unamortized costs and ex- penses. After the commutation, Wes-FIC's obligation to indemnify any further insurance losses under the contract ceased. Under that contract, there was a net reduction in written premiums of $2.3 million for 2004, compared with written premiums of $30.4 million for 2003; earned premiums were $6.4 million for 2004 and $42.0 million for 2003. Underwriting results of Wes-FIC in both 2004 and 2003 were weirdly favorable, causing the underwriting gains of $14.6 million for 2004 and $15.7 million for 2003. Such weirdly favorable results are not to be expected over the long term. It should be recalled that Wes-FIC reported an underwriting loss of $8.1 million as recently as 2001. However, we do try to create some underwriting gain as results are averaged out over many years. Kansas Bankers was purchased by Wes-FIC in 1996 for approximately $80 mil- lion in cash. Its tangible net worth now exceeds its acquisition price, and it has been a very satisfactory acquisition, reÖecting the sound management of President Don Towle and his team.

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

Kansas Bankers was chartered in 1909 to underwrite deposit insurance for Kansas banks. Its oÇces are in Topeka, Kansas. Over the years its service has continued to adapt to the changing needs of the banking industry. Today its customer base, consisting mostly of small and medium-sized community banks, is spread throughout 30 mainly midwestern states.and

oÇcers indemnity policies, bank employment practices policies, bank insurance agents professional errors and omissions indemnity policies and Internet banking catastrophe theft insurance. KBS increased the volume of business retained eÅective in 1998. It had previously ceded almost half of its premium volume to reinsurers. Now it reinsures only about 14%. The increased volume of business retained comes, of course, with increased irregularity in the income stream. The combined ratio of an insurance company represents the percentage that its underwriting losses and expenses bear to its premium revenues. KBS's combined ratio has been much better than average for insurers, at 74.9% for 2004 and 65.0% for 2003. We continue to expect volatile but favorable long-term eÅects from increased insurance retained. CORT Business Services Corporation (""CORT'') In February 2000, Wesco purchased CORT Business Services Corporation (""CORT'') for $386 million in cash. CORT is a very long established company that is the country's leader in rentals of furniture that lessees have no intention of buying. In the trade, people call CORT's activity ""rent-to-rent'' to distinguish it from ""lease-to-purchase'' businesses that are, in essence, installment sellers of furniture. However, just as Hertz, as a rent-to-rent auto lessor in short-term arrangements, must be skilled in selling used cars, CORT must be and is skilled in selling used furniture.

CORT's revenues totaled $354 million for calendar 2004, versus $360 million for calendar 2003. Of these amounts, furniture rental revenues were $275 million and $276 million, furniture sales revenues were $68 million each year, and apartment locator fees of Relocation Central Corporation, a business CORT started up in 2001, were $11 million and $16 million. CORT operated at an after-tax proÑt of $5.0 mil- lion for 2004; its operations resulted in an after-tax loss of $6.3 million for 2003; it contributed $2.4 million and $13.1 million to Wesco's consolidated operating income for 2002 and 2001. Recent results have been signiÑcantly worse than CORT's $29 million of after-tax operating proÑts for the ten months that we owned it in 2000. The Ñgures are before (1) goodwill amortization of $6.0 million for 2001 and $5.1 million for 2000 (see discussion below), and (2) realized securities losses of $.7 million in 2000, but include Relocation Central's after-tax losses of $7.4 million for 2004, $9.0 million for 2003, $8.3 million for 2002 and $7.0 million for 2001. Excluding the operating losses of Relocation Central, CORT, at the parent company level, contributed $12.4 million to Wesco's consolidated after-tax operating earnings for 2004, versus $2.7 million for 2003 and $10.7 million for 2002. When we purchased CORT early in 2000, its furniture rental business was rapidly growing, reÖecting the strong U.S.

furniture rental business. Obviously, when we purchased CORT we were poor predictors of near-term industry-wide prospects of the ""rent-to- rent'' sector of the furniture business. It now appears that CORT's business has begun to rebound. Furniture rental revenues for the fourth quarter of 2004 exceeded those for the comparable quarter of 2003 by 13%, and, during the year the number of furniture leases outstanding grew by 2%. CORT started up a new subsidiary during 2001, Relocation Central Corporation, which provides the nation's largest apartment locator service through its websites, (www.relocationcentral.com and www.myrelocationcentral.com), customer call centers and walk-in locations. This start-up venture did not progress as rapidly as CORT expected and caused losses followed by some downsizing. More than 350 apartment communities now refer their tenants to CORT. Relocation Central was reorganized to become a division of CORT as of yearend 2004; it now relies more on Internet traÇc and less on separate, fully-staÅed facilities than previously. The integration of Relocation Central into CORT was begun in 2003 as part of a program to reduce CORT's costs and thus enhance its operating results. CORT still likes the idea of having relocation services in its product mix. We expect to report in due course that CORT's operations have become more satisfactory.

Even through the crash, CORT has operated at a positive cash flow, and the general distress in its field has permitted various small expansions. During the past four years it invested $74 million in business expansion through acquisitions of several small businesses and reduced its line-of-credit and other debt by $33 million. CORT remains the national leader in its market segment and we believe that these acquisi- tions will prove to be satisfactory expansions of a fundamentally sound business. When Wesco paid $386 million for CORT, about 60% of the purchase price was attributable to goodwill, an intangible balance sheet asset. Wesco's consolidated balance sheet now contains about $267 million in goodwill (including $27 million from Wesco's 1996 purchase of KBS). The Financial Account- ing Standards Board adopted a rule which became effective in 2002 that no longer requires automatic amortization of acquired goodwill. (The requirement for such amortization has been replaced by a standard that requires an annual assessment to determine whether the value of goodwill has been impaired, in which event the intangible would be written down or written off, as appropriate.) Earnings we have reported since 2002 more closely reflect microeconomic reality as we appraise it. CORT has long been headed by Paul Arnold, age 58, who is a star executive as is convincingly demonstrated by his long record as CEO of CORT. We are absolutely delighted to have Paul and CORT within Wesco.

We continue to expect a considera- ble expansion of CORT's business and earnings at some future time. Precision Steel Warehouse, Inc. (""Precision Steel'') The businesses of Wesco's Precision Steel subsidiary, headquartered in the outskirts of Chicago at Franklin Park, Illinois, operated at an after-tax proÑt of $1.1 million in 2004, versus an after-tax loss of $.9 million in 2003. The 2004 Ñgure reÖects an after-tax LIFO inventory accounting adjustment decreasing after-tax income by $1.8 million. In 2003 the LIFO adjustment was insigniÑcant. Precision Steel's operating results for 2004 and 2003 also reÖect expenses of $.and

$.7 million, after taxes, in connection with environmental cleanup of an industrial park where a Precision Steel subsidiary has operated alongside approximately 15 other manufacturers for many years. Had it not been for the LIFO accounting adjustment or the environmental matter, Precision Steel would have reported operating income of $3.0 million, after taxes, for 2004, versus an operating loss of $.2 million, after taxes, for 2003. Prior to 2004, Precision Steel suÅered from a signiÑcant reduction in demand for steel combined with intensiÑed competition for quite some time. Some of the sales reduction was caused by customers' (or former customers') unsuccessful competi- tion with manufacturers outside the United States. Although the 2004 Ñgures appear to signal improvement, the severity of the domestic downturn is demonstrated by the fact that Precision Steel's average annual steel service revenues for the years 2001 through 2003 were down 27% from those reported for 1998 through 2000. Even after improved 2004 results, Precision Steel has not reported satisfactory operating results in recent years. Its approximately-break-even after-tax operations for the most recent four years compare unfavorably with operating proÑts which averaged $2.3 million, after taxes, for the years 1998 through 2000. Precision Steel endured a diÇcult and chaotic year in 2004.

At the beginning of 2004, a shortage of raw materials from domestic mills produced near chaos in the domestic steel service industry. Prices of those raw materials were sharply increased and the price of Ñnished steel also increased sharply. Fortunately, the impact to date on Precision Steel has been favorable. Its 2004 revenues increased 31.2%, from those of 2003; pounds of steel products sold increased 14.5%. At present, domestic steel mills have been operating at capacity and imported steel has not been readily available. These and other factors have enabled steel mills to raise prices, place limits on order quantities and extend delivery times. Precision Steel has reacted to these pressures by passing the price increases, plus normal mark-ups, on to customers, and favoring long-term customer relationships. However, we are concerned that the favorable 2004 operating results may have been anomalous and temporary and that the steel warehouse business may revert to diÇcult times. Terry Piper, who became Precision Steel's President and Chief Executive OÇcer late in 1999, has done an outstanding job in leading Precision Steel through very diÇcult years.

Tag Ends from Savings and Loan Days All that now remains outside Wes-FIC but within Wesco as a consequence of Wesco's former involvement with Mutual Savings, Wesco's long-held savings and loan subsidiary, is a small real estate subsidiary, MS Property Company, that holds tag ends of appreciated real estate assets with a net book value of about $8.6 million, consisting mainly of the nine-story commercial oÇce building in downtown Pasadena, where Wesco is headquartered. MS Property Company's results of opera- tions, immaterial versus Wesco's present size, are included in the breakdown of earnings on page 1 within ""other operating earnings.''

Other Operating Earnings Other operating earnings, net of interest paid and general corporate expenses, amounted to $.4 million in 2004, unchanged from the $.4 million earned in 2003. Sources were (1) rents ($3.4 million gross in 2004) from Wesco's Pasadena oÇce property (leased almost entirely to outsiders, including Citibank as the ground Öoor tenant), and (2) interest and dividends from cash equivalents and marketable securities held outside the insurance subsidiaries, less (3) general corporate ex- penses plus minor expenses involving tag-end real estate. Consolidated Balance Sheet and Related Discussion Wesco carries its investments at market value, with unrealized appreciation, after income tax eÅect, included as a separate component of shareholders' equity, and related taxes included in income taxes payable, in its consolidated balance sheet. As indicated in the accompanying Ñnancial statements, Wesco's net worth, as accountants compute it under their conventions, increased to $2.12 billion ($297 per Wesco share) at yearend 2004 from $2.08 billion ($292 per Wesco share) at yearend 2003. The main cause of increase was net income after deduction of dividends paid to shareholders. The foregoing $297-per-share book value approximates liquidation value assum- ing that all Wesco's non-security assets would liquidate, after taxes, at book value.

Of course, so long as Wesco does not liquidate, and does not sell any appreciated securities, it has, in effect, an interest-free ""loan'' from the government equal to its deferred income taxes on the unrealized gains, subtracted in determining its net worth. This interest-free ""loan'' from the government is at this moment working for Wesco shareholders and amounted to about $32 per Wesco share at yearend 2004. However, some day, parts of the interest-free ""loan'' may be removed as securities are sold. Therefore, Wesco's shareholders have no perpetual advantage creating value for them of $32 per Wesco share. Instead, the present value of Wesco's shareholders' advantage must logically be much lower than $32 per Wesco share. Business and human quality in place at Wesco continues to be not nearly as good, all factors considered, as that in place at Berkshire Hathaway. Wesco is not an equally-good-but-smaller version of Berkshire Hathaway, better because its small size makes growth easier. Instead, each dollar of book value at Wesco continues plainly to provide much less intrinsic value than a similar dollar of book value at Berkshire Hathaway. Moreover, the quality disparity in book value's intrinsic merits has, in recent years, continued to widen in favor of Berkshire Hathaway. All that said, we make no attempt to appraise relative attractiveness for invest- ment of Wesco versus Berkshire Hathaway stock at present stock-market quotations.

To progress from this point at a satisfactory rate, Wesco plainly needs more favorable investment opportunities, recognizable as such by its management, prefer- ably in whole companies, but, alternatively, in marketable securities to be purchased by Wesco's insurance subsidiaries. Our views regarding the general prospects for investment in common stocks are unchanged two years after Warren BuÅett wrote the following, in his 2002 annual report to shareholders of our parent company: ""We continue to do little in equities. ®We© are increasingly comfortable with our holdings in ®our© major investees because most of them have in- creased their earnings while their valuations have decreased.not

inclined to add to them. Though these enterprises have good prospects, we don't yet believe their shares are undervalued. ""In our view, the same conclusion Ñts stocks generally. Despite three years of falling prices, which have signiÑcantly improved the attractiveness of com- mon stocks, we still Ñnd very few that even mildly interest us. That dismal fact is testimony to the insanity of valuations reached during The Great Bubble. Unfortunately, the hangover may prove to be proportional to the binge. ""The aversion to equities that ®we© exhibit today is far from congenital. We love owning common stocks Ì if they can be purchased at attractive prices. In ®my© 61 years of investing, 50 or so years have offered that kind of opportunity. There will be years like that again. Unless, however, we see a very high probability of at least 10% pre-tax returns (which translates to 61 /2-7% after corporate tax), we will sit on the sidelines. With short-term money returning less than 1% after-tax, sitting it out is no fun. But occasionally successful investing requires inactivity.'' In fact, the one thing that should interest Wesco shareholders most with respect to 2004 is that, as in 2003, 2002 and 2001, Wesco found no new common stocks for our insurance companies to buy.

Shareholders should note that the recently announced sale of The Gillette Company to The Procter and Gamble Company, subject to shareholder approval later in 2005, is expected to result in Wesco's recognition of an investment gain of about $190 million, after income taxes. No income taxes will be paid in cash, and all of Wesco's Gillette shares will be converted into Procter and Gamble shares. Although we will be pleased to become owners of shares of Procter and Gamble, we do not regard this ""mere accounting'' gain as signiÑcant to Wesco shareholders. The Board of Directors recently increased Wesco's regular dividend from 341 /2 cents per share to 351 /2 cents per share, payable March 2, 2005, to shareholders of record as of the close of business on February 2, 2005. This annual report contains Form 10-K, a report Ñled with the Securities and Exchange Commission, and includes detailed information about Wesco and its subsidiaries as well as audited Ñnancial statements bearing extensive footnotes. As usual, your careful attention is sought with respect to these items. Shareholders can access much Wesco information, including printed annual reports, earnings releases, SEC Ñlings, and the websites of Wesco's subsidiaries and parent, Berkshire Hathaway, from Wesco's website: www.wescoÑnancial.com. We regret the pending retirement of Wesco's President, Bob Bird, who is not standing for reelection.