Whitney R. Tilson and Glenn H.

Tongue Managing Partners

phone: 212 386 7160 fax: 240 368 0299 www.T2PartnersLLC.com

March 1, 2012 Dear Partner, Our fund declined 0.9% in February vs. gains of 4.3% for the S&P 500, 2.9% for the Dow and 5.5% for the Nasdaq. Year to date, our fund is up 11.5% vs. 9.0% for the S&P 500, 6.5% for the Dow and 14.0% for the Nasdaq. On the long side, winners included Citigroup (8.5%) and SanDisk (7.8%), offset by Netflix (-7.9%), Grupo Prisa (B shares) (-7.4%), and J.C. Penney (-4.7%). On the short side, we profited from First Solar (-23.6%), which just reported dismal earnings and guidance, Interoil (-10.4%), and Boyd Gaming (-8.7%). These gains were offset by Salesforce.com (22.6%), which is growing rapidly but trades at 8.7x revenues and has a $19.6 billion market cap despite being unprofitable. In addition, Green Mountain Coffee Roasters, which we think is likely to be the next Krispy Kreme (for those of you with long memories), rose 21.8%. Berkshire Hathaway Last Saturday, Berkshire Hathaway released its latest earnings report, as well as Warren Buffetts widely anticipated annual letter. Neither disappointed. Heres our quick take: a) Berkshire has never been stronger. Its balance sheet is awash with cash and the company has a diverse and robust collection of exceptional businesses that are collectively generating more than $1 billion per month for Buffett and Munger to allocate. b) The company is firing on all cylinders. As Buffett writes: Our major businesses did well last year. In fact, each of our five largest non-insurance companies BNSF, Iscar, Lubrizol, Marmon Group and MidAmerican Energy delivered record operating earnings. In aggregate these businesses earned more than $9 billion pre-tax in 2011. Contrast that to seven years ago, when we owned only one of the five, MidAmerican, whose pre-tax earnings were $393 million. Unless the economy weakens in 2012, each of our fabulous five should again set a record, with aggregate earnings comfortably topping $10 billion. c) We have increased our estimate of intrinsic value to more than $178,000/share, based on $98,366 in investments/share plus applying a 10 multiple to our estimate of normalized pretax operating earnings of $8,000/share.

The GM Building, 767 Fifth Avenue, 18th Floor, New York, NY 10153

d) Given the diversity of Berkshires businesses, the companys performance is a good indicator of the overall strength of the U.S. economy (outside of the housing sector, which Buffett says remains in a depression). e) At many points in his letter, Buffett shows the wide gap between book value and intrinsic value, concluding that book value is a considerably understated proxy for intrinsic value. However, we think he is being too conservative when he writes: Over time, the divergence will likely become ever more substantial in absolute terms, remaining reasonably steady, however, on a percentage basis as both the numerator and denominator of the business-value/book-value equation increase. As Berkshires value has increasingly shifted in recent years from its investment portfolio, which is valued at market (i.e., book value), to operating businesses like GEICO and Burlington Northern, we think Berkshires intrinsic value is becoming a greater percentage of book value yet the stock is currently trading near the lowest premium to book value in the past two decades. f) Buffett makes it very clear that he believes that Berkshires stock is significantly undervalued and that hes eager to buy it back, up to a price equal to 1.1x book value, or $110,000/A share as of 12/31/11 (Buffetts limit price is likely higher today, as book value has almost certainly risen this year). We think the share repurchase program puts a firm floor on the stock price only a few percentage points below todays level of $118,000. g) Berkshire is our largest position because of its asymmetric return profile: only a few percentage points of downside vs. 50% upside, with intrinsic value growing at roughly 10% annually. h) On the first page of the letter, Buffett did his best to put the succession issue to rest, writing: Your Board is equally enthusiastic about my successor as CEO, an individual to whom they have had a great deal of exposure and whose managerial and human qualities they admire. (We have two superb back-up candidates as well.) When a transfer of responsibility is required, it will be seamless, and Berkshires prospects will remain bright. We dont have a strong view on who the successor is, but dont care because we think its highly likely that Buffett will be running Berkshire for at least five more years, maybe even 10. In addition, our estimate of intrinsic value doesnt include any Buffett premium. Since Berkshire reported earnings, the stock is actually down a bit so we took advantage and, though it was already our largest position, we added to it. Whitney was on CNBC on Monday, commenting on Buffetts letter and how cheap we think Berkshires stock is (plus a few comments on Dell at the end). To watch the video, click here, and a transcript is attached in Appendix A. We have also updated our Berkshire Hathaway slide deck, which his posted here and also attached in Appendix B.

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K-1s As always, we will strive to have the K-1 tax forms to you by late March. If you would like us to send a copy of your K-1 to anyone other than yourself (such as your accountant), please email Kelli at KAlires@T2PartnersLLC.com. Privacy Policy Attached in Appendix C is our privacy policy, which we are required to send you once a year. Conclusion Thank you for your continued confidence in us and the fund. As always, we welcome your comments or questions, so please dont hesitate to call us at (212) 386-7160. Sincerely yours, Whitney Tilson and Glenn Tongue The unaudited return for the T2 Accredited Fund versus major benchmarks (including reinvested dividends) is: February Year to Date Since Inception T2 Accredited Fund net -0.9% 11.5% 138.9% S&P 500 4.3% 9.0% 40.8% Dow 2.9% 6.5% 91.3% NASDAQ 5.5% 14.0% 40.9%
Past performance is not indicative of future results. Please refer to the disclosure section at the end of this letter. The T2 Accredited Fund was launched on 7/1/04.

T2 Accredited Fund Performance (Net) Since Inception

200 180 160

140
120 100
(%) 80

60 40 20 0 -20

-40 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

T2 Accredited Fund

S&P 500

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T2 Accredited Fund Monthly Performance (Net) Since Inception

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 T2 S&P T2 S&P T2 S&P T2 S&P T2 S&P T2 S&P T2 S&P T2 S&P T2 S&P T2 S&P T2 S&P T2 S&P T2 S&P T2 S&P AF 500 AF 500 AF 500 AF 500 AF 500 AF 500 AF 500 AF 500 AF 500 AF 500 AF 500 AF 500 AF 500 AF 500 January February March April May June July August 7.8 -2.9 4.1 2.1 -5.7 2.2 -0.7 4.1 4.1 -3.1 4.0 3.7 -2.5 5.8 -3.2 -0.4 -2.7 6.4 2.0 5.9 -6.3 6.2 10.3 -5.1 -2.8 4.1 -3.6 5.4 -7.2 -4.5 -1.5 2.3 -5.0 -1.9 9.8 -3.0 -2.0 2.4 -1.6 6.1 -5.3 -0.3 -7.9 0.5 4.4 -0.6 -2.6 5.1 1.8 4.6 -1.1 2.5 -6.1 -0.8 2.3 6.5 3.6 -9.2 -6.4 7.8 0.6 -2.4 -1.0 -6.3 -8.1 1.9 7.6 0.9 -1.8 -1.1 3.0 -0.2 0.0 -7.3 -5.0 -4.3 -1.5 -2.0 3.7 -5.5 2.9 1.4 -2.6 -1.6 0.9 8.2 5.3 1.3 1.7 1.9 -1.0 5.6 0.8 5.3 4.7 7.0 3.9 2.4 -1.4 0.1 4.6 -0.9 -1.6 -0.4 0.8 -0.2 1.8 1.5 -1.5 -1.5 1.4 1.9 -3.4 0.4 1.1 1.5 4.0 3.4 1.1 2.1 3.9 0.6 -2.6 -3.1 0.5 -3.2 -1.5 3.5 3.1 -1.3 2.6 -2.4 2.0 -1.7 -1.9 3.2 0.1 3.7 -1.0 0.8 -1.6 3.7 0.0 4.9 1.9 -3.1 3.9 2.2 1.8 -0.2 -0.9 2.9 5.0 6.3 1.9 1.4 2.7 0.2 1.3 1.4 -2.9 0.2 0.7 2.3 2.6 3.5 1.7 1.4 2.4 -3.3 -0.8 4.4 2.5 -3.0 -5.4 1.7 -1.1 8.2 -3.6 -4.3 1.7 -2.1 1.1 4.6 3.3 -1.5 -3.0 1.5 3.6 1.9 -6.9 -2.3 -0.9 7.9 -1.2 -2.5 -3.3 15.9 -5.9 -3.3 -0.5 4.9 1.2 -8.4 -0.9 1.3 -9.1 -3.6 -8.4 -1.6 -3.6 3.1 6.0 1.6 -8.0 -5.2 7.0 -2.8 4.1 -4.1 1.9 -1.9 -2.4 -4.6 2.4 3.4 0.0 3.0 -1.1 -1.7 -2.0 12.6 -0.9 4.5 4.3

-8.9 -10.8 7.3 2.9 20.1 8.1 -5.0 6.8 6.3 5.9 9.0 9.6 5.5 0.2 7.6 3.6 3.7 -1.8 6.0 1.9 4.6 -2.1 -2.6 4.5 3.5 -1.5 1.7 -1.7 -1.9 0.5

-6.0 10.5 -0.8 -7.1 -7.9 0.5 6.6 2.9 2.3 0.4

-4.5 -13.9 -5.4 8.9 3.8 0.0 6.7 -9.3 7.0 -0.6 0.1 -7.0 10.9 -0.2 1.0 11.5 9.0

September -3.3 October November December YTD TOTAL 8.1 2.8 9.8

-5.4 -10.9 1.7 2.8 4.1 -7.4 8.8 5.8 -5.8 6.2 2.2 -0.4

1.7 -12.5 -16.8 -1.9 -4.2 -0.7 -8.9 -4.0 -7.1 1.1 -1.2 5.5

31.0 21.0 -4.5

-9.1 16.5 -11.9 -22.2 -22.1 35.1 28.6 20.6 10.9

25.2 15.8 -3.2

5.5 -18.1 -37.0 37.1 26.5 10.5 15.1 -24.9 2.1

Note: Returns in 2001, 2003, 2009 and 2012 reflect the benefit of the high-water mark, assuming an investor at inception.

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Appendix A: Transcript of Whitney Tilsons Appearance on CNBC, Discussing Warren Buffetts Annual Letter
(http://video.cnbc.com/gallery/?video=3000074897) CNBC: Lets get more insight on Buffett one-on-one this morning. Lets welcome in Whitney Tilson. You said you were buying more shares today. Why is that? Whitney Tilson: We are because we were blown away by the incredible performance of Berkshire Hathaways business. Intrinsic value went up in our view weve increased our estimate of intrinsic value from approximately $170,000 to almost $180,000 per A share or about $120 per B share yet the stocks trading down a couple bucks today, the last I looked, and that makes no sense to us. CNBC: Why do you think the value should be 50% higher than todays price? Whitney Tilson: Well, we value it sort of like we value any company, which is you take the cash and investments and just value that at market prices and thats almost $100,000 per share for Berkshire (keep in mind when Im talking about the stock, Im using A shares) and the stocks at $118,000. So, youre paying $18,000 a share for a collection of 75 operating businesses that are generating about $8,000 per share of pretax earnings each year, so Berkshire is trading at 2.5 times the earnings of its operating businesses. Thats insane! CNBC: But how do you know that youre going close that gap? The underperformance from Berkshire Hathaway is 10% over the last 12 months relative to the S&P. Youre an extremely capable investor. Why invest via Berkshire Hathaway with the risk of leadership or whatever theyre discounting the assets for, when you could dive straight in and buy those companies in the open market? Whitney Tilson: Well, you cant. Only about half of Berkshires investment portfolio is in stocks. We could certainly buy those stocks. But that is less than half of Berkshire Hathaways value. We cant buy Burlington Northern anymore. We cant buy Marmon. We cant buy Iscar. All of the operating business, all of the insurance businesses, we cant buy. CNBC: But wouldnt that discount overhang until, essentially, Warren Buffett goes and they know who the successor is going to be? That could be a very long time. That could be a deep value trap. Whitney Tilson: Weve owned Berkshire Hathaway for 13 or 14 years. Consistently, we have seen the discount widen to todays level. We think its trading about 65 cents on the dollar today. That means it has 50% upside. And by the way, the share repurchase program we think puts a floor on the price only 8% down. As investors we like asymmetric risk-rewards. Up 50%, down 8%. Ill buy that all day long.

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We have encountered periods where the stock has traded, for whatever reason, theres no obvious catalyst here, well concede that for sure, but weve always been rewarded if were just patient and here we think were going to be rewarded sooner rather than later. CNBC: A lack of a dividend might be a difficulty in this market. Whitney Tilson: I dont want a dividend though because I think that Warren Buffett is at the top of his game and it doesnt make sense to dividend out a dollar in which I have to pay taxes on it, where he can reinvest that dollar either into existing businesses or new investments. CNBC: Or maybe a share buyback. He has said in the past that he would buy back shares. You are buying today. He is not buying today. Does that bother you? Whitney Tilson: He is not, because he has set a limit. He has said the stock is, quote, considerably undervalued (thats Buffett-speak for wildly undervalued) at 110% of book value. Thats about $110,000 per A share today. The stocks at $118,000. Down not that much further than right now, hes going to be buying that stock very aggressively. And I think thats why he came out in his annual letter and was the most bullish, pound the table [optimistic], letting his investors know this is the most extraordinary collection of businesses we have here at Berkshire, because he doesnt want to buy the stock from selling shareholders who just get sort of fed up with the stock not moving. CNBC: You think he can buy enough stock to put a floor in? You said down eight [percent]. If it gets to that, do you think he can maintain a price if he in fact is an aggressive buyer in the stock? Whitney Tilson: Look at $60 billion of cash in short-term bonds thats his dry powder. He says hes not going to go below $20 [billion], so hes got $40 billion to buy back the stock. On a $200 billion market cap, he could easily buy back 20% of the outstanding shares. This is not a particularly liquid stock. It could fall a little bit below that 110% of book value, but I think the more it fell, the more aggressively hed buy. CNBC: Are you frustrated at all by this anointing of a successor but unwillingness to tell us who it is? Whitney Tilson: You know, Im glad, actually, hes not. If I thought Buffett was leaving in the next year, then I would want to know who the person was. CNBC: But you dont know when hes leaving. Whitney Tilson: I dont. But I know as long as mentally hes at the top of his game and physically hes able to do it, he loves what he does and his board and shareholders want him there. If you look at an actuarial table, a healthy 81-year-old guys got another 12 years left to live (and Id give him the up side on that), so that means I think its very likely hell be running Berkshire for another five years. CNBC: And thats why you dont want to know who the successor is?

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Whitney Tilson: The thing is, if I think hes going to be there at least five years, maybe ten, things can change over five or ten years and if he anoints someone today and then that person makes a terrible mistake like David Sokol did or somebody better comes along, can you imagine if he tried to switch horses? All the second guessing it would be a media circus! So, its much better for him to have it quietly known [only by the board]. Things can change. Given that I think Buffetts going to be running Berkshire for quite some time, Im not as worried about the succession issue as everybody else seems to be. CNBC: Do you think his call on housing, obviously early, well see if it turns out to be right, has dinged his credibility when he talks about anything macro? Whitney Tilson: He has 50 years of a track record as the worlds greatest investor. Housing will eventually turn. Many times hes been early on particular investments or predictions. For example, I noticed on the show a moment ago that his Buy America. I Am. editorial that he wrote in the New York times was in October or November of 08. The stock market proceeded to fall for another four or five months. A lot of people were saying Buffett was wrong, but it turns out he was just a few months early. CNBC: You are making a differentiation between his portfolio as private companies and also stocks. Are there any stocks that you actually own in your mutual funds or hedge funds that he owns? Whitney Tilson: Sure. He added to his Wells Fargo position last year, as did we. We made a lot of money on American Express off the bottom, but we have not purchased that recently. We dont own that currently. By and large we like his stock portfolio. Hes limited to only the largest companies in the world, of course, to buy whereas we can buy a much wider range of companies. CNBC: What about the eight European companies that he said this morning that he was buying or he had bought. When do we get to know what those are? Whitney Tilson: Interesting. I dont know what the disclosure rules on that are. Im curious what that is. CNBC: Would you be tempted to follow him? Whitney Tilson: We look very hard at any new position that he buys. When he bought IBM, we took a fresh look at the company and we just decided it wasnt quite cheap enough for us. We prefer our Microsoft, our Dell in the tech space. We dont think hes made a bad investment there at all [however]. CNBC: Did it rankle you the way he disclosed the IBM purchase? Whitney Tilson: You mean the delay? No. As a Berkshire shareholder, Im glad that the SEC occasionally gives him some latitude to not disclose what hes buying because obviously he

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moves markets and it runs the stock up. If he decides the stock is cheap, I want him to be able to buy as much of it as possible at a cheap price before its disclosed and the stock runs up. CNBC: Has his willingness to be vocal, to be even a poster child for some doctrine of tax dogma in this country, does that bother you? Is he over his skis in that way? Whitney Tilson: I asked him that question once at a public forum. I said, Why do you need this aggravation? Youre already rich and why dont you just focus on investing? I admire you for doing it and I wish more people engaged in the political process. I think that would make a healthier democracy. So whether you agree or disagree, I think you should applaud what hes doing and other people of prominence should be engaging [as well]. So thats my general view and I dont think it really sucks up too much of his time. Hes a man of principle. If he believes strongly in something, I think in this late stage of his life hes trying to use his stature and influence to try and impact the world in a positive way. CNBC: Back to Berkshire Hathaway. Youre buying the shares today. It was already your biggest position across your portfolios. Youre very disciplined [in terms of] it has to be a certain size, it cant exceed a certain percentage. Are you bumping up against that limit at this point? Whitney Tilson: Thats the main concern. Right now, if I had to go away for five years and it was just my money, I would be perfectly comfortable having 100% of my net worth in Berkshire. CNBC: Really? 100%? Whitney Tilson: Just like Warren Buffett he has 100% of his net worth in the stock. CNBC: Aside from a little J.P. Morgan. Whitney Tilson: Yeah, 99%. CNBC: Youre a fiduciary. Youre saying just you... Whitney Tilson: If it was just me and I had to go away for five years. CNBC: Something we ought to know about? You heading somewhere? Whitney Tilson: You know, Berkshire is already a low double-digit position. At times in our portfolio Berkshire has exceeded a 20% position over the last 13 years. Its getting pretty close to that its that cheap and its also that safe. Berkshire has never been stronger. Financially, its never had a more diverse mix of businesses and just fabulous businesses. If you compare Berkshire five years ago to today, its light years stronger and safer [today] than it was then. And the stocks just as cheap. CNBC: Just quickly, Whitney, weve got the CEO, Michael Dell, of Dell on later on. You were fairly early in the Dell story, believing that it would be a recovery story, the quarter, obviously,

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was a very disappointing one. What would you ask Michael Dell at this point? Are you losing faith in this? Whitney Tilson: Not at all. Our timing was pretty good buying it, around $14. Weve had a nice gain on it, but were still hanging in there. Its tough for them to grow. Theyre in very competitive markets. We think what theyre doing, moving out of commodity businesses and into higher margin businesses make sense. My only quarrel with him and ask him this question please when he comes on is, Why arent you buying back massive amounts of stock? Theyve actually been reducing their share repurchases over the last few quarters. In my opinion, they should buy back 25% of their stock in the next two years. Thatll increase earnings-pershare by 33% even if earnings are flat thats 17% [I meant 15%] earnings-per-share gain [per year] over the next two years. They have the balance sheet, they have the cash flow to do it. The stocks crazy cheap. Why arent they doing it? CNBC: Unless they want to make an acquisition. Whitney Tilson: They can do both, barring a mega-acquisition. Theyve been doing little tuck-in acquisitions, bolt-on acquisitions. Im not going to quibble with that. But theyre drowning in cash and cash flow right now. CNBC: Whitney, great to see you. Whitney Tilson: My pleasure.

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Appendix B: Berkshire Hathaway Slides

An Analysis of Berkshire Hathaway

February 26, 2012

T2 Partners Management L.P. Manages Hedge Funds and Mutual Funds and is a Registered Investment Advisor
The General Motors Building 767 Fifth Avenue, 18th Floor New York, NY 10153
(212) 386-7160 Info@T2PartnersLLC.com www.T2PartnersLLC.com

This presentation is posted at: www.tilsonfunds.com/BRK.pdf

Disclaimer
THIS PRESENTATION IS FOR INFORMATIONAL AND EDUCATIONAL PURPOSES ONLY AND SHALL NOT BE CONSTRUED TO CONSTITUTE INVESTMENT ADVICE. NOTHING CONTAINED HEREIN SHALL CONSTITUTE A SOLICITATION, RECOMMENDATION OR ENDORSEMENT TO BUY OR SELL ANY SECURITY OR OTHER FINANCIAL INSTRUMENT. INVESTMENT FUNDS MANAGED BY WHITNEY TILSON AND GLENN TONGUE OWN STOCK IN BERKSHIRE HATHAWAY. THEY HAVE NO OBLIGATION TO UPDATE THE INFORMATION CONTAINED HEREIN AND MAY MAKE INVESTMENT DECISIONS THAT ARE INCONSISTENT WITH THE VIEWS EXPRESSED IN THIS PRESENTATION. WE MAKE NO REPRESENTATION OR WARRANTIES AS TO THE ACCURACY, COMPLETENESS OR TIMELINESS OF THE INFORMATION, TEXT, GRAPHICS OR OTHER ITEMS CONTAINED IN THIS PRESENTATION. WE EXPRESSLY DISCLAIM ALL LIABILITY FOR ERRORS OR OMISSIONS IN, OR THE MISUSE OR MISINTERPRETATION OF, ANY INFORMATION CONTAINED IN THIS PRESENTATION. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS AND FUTURE RETURNS ARE NOT GUARANTEED.
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Berkshire Hathaway: A High-Quality, Growing 67-Cent Dollar

History Berkshire Hathaway today does not resemble the company that Buffett bought into during the 1960s Berkshire was a leading New England-based textile company, with investment appeal as a classic Ben Graham-style net-net Buffett took control of Berkshire on May 10, 1965 At that time, Berkshire had a market value of about $18 million and shareholder's equity of about $22 million

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The Berkshire Hathaway Empire Today

Stakes in Public Companies Worth $1.5+ Billion
Company Coca-Cola IBM Wells Fargo American Express Procter & Gamble Kraft Munich RE Wal-Mart U.S. Bancorp ConocoPhillips Johnson & Johnson Sanofi-Aventis POSCO Tesco Shares 200.0 63.9 400.0 151.6 72.4 79.0 20.1 39.0 78.1 29.1 31.4 25.8 3.9 291.6 Price Value ($B) $69.00 $197.76 $30.18 $53.33 $66.71 $37.88 $146.55 $58.79 $28.73 $75.95 $64.46 $71.59 $38,820 $5.01 $13.8 $12.6 $12.1 $8.1 $4.8 $3.0 $2.9 $2.3 $2.2 $2.2 $2.0 $1.9 $1.5 $1.5

The Basics

Stock price (2/24/12): $120,000 $80.04 for B shares (equivalent to $120,060/A share) Shares outstanding: 1.65 million Market cap: $198 billion Total assets (Q4 11): $393 billion Total equity (Q4 11): $169 billion Book value per share (Q4 11): $99,860 P/B: 1.20x Float (Q4 11): $70.6 billion

Note: Shares as of 12/31/11; Stock prices as of 2/24/12.

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Earnings of Non-Insurance Businesses Have Soared Thanks to Burlington Northern and the Economic Rebound

Quarterly Earnings of Key Business Units

2009 649 477 250 84 5,459 6,919 2010 1,117 452 176 268 5,145 7,158 2011 576 144 -714 242 4,725 4,973
Earnings before taxes* Insurance Group: GEICO General Re Berkshire Reinsurance Group Berkshire H. Primary Group Investment Income Total Insurance Oper. Inc. Non-Insurance Businesses: Burlington Northern Santa Fe Finance and Financial products 242 58 513 723 1,536 3,541 277 72 372 1,015 1,736 3,946 273 50 481 1,020 1,824 3,793 214 52 408 957 1,631 3,579 241 28 73 516 744 1,602 2,973 254 261 68 329 956 1,868 3,632 163 247 68 526 798 1,802 3,002 113 197 67 1,592 516 2,485 5,736 112 162 143 303 206 926 2,593 115 170 66 402 201 954 2,534 119 194 64 441 350 1,168 3,114 307 160 71 382 271 1,191 2,917 Marmon McLane Company 476 111 190 80 395 583 1,835 3,463 974 155 219 109 338 860 2,655 4,865 1,127 148 212 89 416 844 2,836 4,359 1,034 275 192 91 390 805 2,787 4,584 965 156 222 82 451 675 2,551 2,536 1,070 177 273 105 320 976 2,921 4,316 1,236 147 257 124 489 964 3,217 5,950 1,470 294 240 59 399 1,060 3,522 4,382 Q1 07 Q2 07 Q3 07 Q4 07 295 30 553 49 1,078 2,005 325 230 356 63 1,236 2,210 335 157 183 77 1,217 1,969 158 138 335 90 1,227 1,948 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 186 42 29 25 1,089 1,371 298 102 79 81 1,204 1,764 246 54 -166 -8 1,074 1,200 186 144 1,280 112 1,529 3,251 148 -16 177 4 1,354 1,667 111 276 -318 29 1,482 1,580 200 186 141 7 1,412 1,946 190 31 250 44 1,211 1,726 299 -39 52 33 1,283 1,628 329 222 117 48 1,494 2,210 289 201 -237 52 1,218 1,523 200 68 244 135 1,150 1,797 337 -326 -1,343 56 1,261 -15 159 132 -354 54 1,404 1,395 114 148 1,375 58 1,038 2,733 -34 190 -392 74 1,022 860

Earnings before taxes*

2004 970 3 417 161 2,824 4,375

2005 1,221 -334 -1,069 235 3,480 3,533

2006 1,314 523 1,658 340 4,316 8,151

2007 1,113 555 1,427 279 4,758 8,132

2008 916 342 1,222 210 4,896 7,586

Insurance Group: GEICO General Re Berkshire Reinsurance Group Berkshire H. Primary Group Investment Income Total Insurance Oper. Inc. Non-Insurance Businesses: Burlington Northern Santa Fe Finance and Financial products Marmon McLane Company MidAmerican/Utilities/Energy Other Businesses Total Non-Insur. Oper. Inc. Total Operating Income

584 228 237 2,253 3,302 7,677

822 217 523 2,406 3,968 7,501

1,157 229 1,476 3,297 6,159 14,310

1,006 232 1,774 3,279 6,291 14,423

771 733 276 2,963 2,809 7,552 15,138

653 686 344 1,528 884 4,095 11,014

3,611 689 813 369 1,539 3,092 10,113 17,271

4,741 774 992 370 1,659 3,675 12,211 17,184

MidAmerican/Utilities/Energy Other Businesses Total Non-Insur. Oper. Inc. Total Operating Income

* In 2010, Berkshire changed this table from Earnings before income taxes, noncontrolling interests and equity method earnings to Earnings before income taxes. Thus, 2008-2011 reflect the new numbers, and all prior years reflect the old ones.

* In 2010, Berkshire changed this table from Earnings before income taxes, noncontrolling interests and equity method earnings to Earnings before income taxes, but a breakdown of Q1-Q3 numbers in 2008-2010 isnt available, so we use the old numbers for Q1-Q3 of each year, but to get the Q4 numbers in 2008-2010, we subtract from the full-year numbers, which causes slight anomalies in Q4 08, Q4 09 and Q4 10.

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Berkshire Is Becoming Less of an Investment Company and More of an Operating Business

After a Two-Year Hiatus, Berkshire Is Buying Stocks Again

20

Cash paid, mostly for Burlington Northern

(the total value of the company at acquisition was $34 billion)

Buying stocks again

15

$B
10 5

0
1997 (5)
*

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

(10)
Acquisitions Net Stock Purchases

Source: 2010 annual letter.
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Buffett is doing a good job investing but the cash is coming in so fast! A high-class problem Markets have a way of presenting big opportunities on short notice Chaos in 2008, junk bonds in 2002 Buffett has reduced average maturity of bond portfolio so he can act quickly
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Buffett Invested Large Amounts of Capital During the Downturn in 2008

Investment/Commitment Mars/Wrigley Auction rate securities Goldman Sachs Constellation Energy stock and preferred Marmon Amount (Bn) $6.5 $6.5 $5.0 $5.7 $4.5 Q2 event; sold much in Q3 Plus $5B to exercise warrants Sold for a $1.1B gain incl. breakup fee The remaining 34.6% not owned by BRK will be purchased from 2011-14 Full year; net of sales Plus $3B to exercise warrants Q2 event; sold much in Q3 Iscar acquisition Plus sharing agreement Comment

Valuing Berkshire
Over the years we'veattempt[ed] to increase our marketable investments in wonderful businesses, while simultaneously trying to buy similar businesses in their entirety. 1995 Annual Letter In our last two annual reports, we furnished you a table that Charlie and I believe is central to estimating Berkshire's intrinsic value. In the updated version of that table, which follows, we trace our two key components of value. The first column lists our per-share ownership of investments (including cash and equivalents) and the second column shows our per-share earnings from Berkshire's operating businesses before taxes and purchase-accounting adjustments, but after all interest and corporate expenses. The second column excludes all dividends, interest and capital gains that we realized from the investments presented in the first column. 1997 Annual Letter

General stock purchases Dow/Rohm & Haas General Electric Fed. Home Loan Disc. Notes Tungaloy Swiss Re unit ING reinsurance unit Other businesses purchased TOTAL

$3.3 $3.0 $3.0 $2.4 $1.0 $0.8 $0.4 $3.9 $46.0

Plus $8B to exercise GS & GE warrants

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Note: Does not include capital committed to Berkshires new bond insurance business, Berkshire Assurance

In effect, the columns show what Berkshire would look like were it split into two parts, with one entity holding our investments and the other operating all of our businesses and bearing all corporate costs. 1997 Annual Letter
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Buffetts Comments on Berkshires Valuation Lead to an Implied Multiplier of Approximately 12

Pre-tax EPS Excluding All Year-End Intrinsic Implied Investments Income From Stock Investments Price Value Multiplier Year Per Share 1996 $28,500 $421 $34,100 $34,100 13 1997 $38,043 $718 $46,000 $46,000 11 1998 $47,647 $474 $70,000 $54,000 13 1999 $47,339 -$458 $56,100 $60,000
1996 Annual Letter: Today's price/value relationship is both much different from what it was a year ago and, as Charlie and I see it, more appropriate. 1997 Annual Letter: Berkshire's intrinsic value grew at nearly the same pace as book value (book +34.1%) 1998 Annual Letter: Though Berkshire's intrinsic value grew very substantially in 1998, the gain fell well short of the 48.3% recorded for book value. (Assume a 1520% increase in intrinsic value.) 1999 Annual Letter: A repurchase of, say, 2% of a company's shares at a 25% discount from per-share intrinsic value...We will not repurchase shares unless we believe Berkshire stock is selling well below intrinsic value, conservatively calculated...Recently, when the A shares fell below $45,000, we considered making repurchases.
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Estimating Berkshires Value: 2001 2011

Pre-tax EPS Excluding All Income From Intrinsic Value Investments1 Per Share -$1,289 $64,000 $1,479 $70,000 $2,912 $97,000 $3,003 $103,000 $3,600 $117,300 $5,200-$5,400 $143,000-$144,400 $5,500-$5,700 $156,300-$158,700 $5,727 $121,728 (8 multiple) $3,571 $126,801 (10 multiple) $7,200 $166,730 (10 multiple) 2 $8,000 $178,366 (10 multiple) Subsequent Year Stock Price Range $59,600-$78,500 $60,600-$84,700 $81,000-$95,700 $78,800-$92,000 $85,700-$114,200 $107,200-$151,650 $84,000-$147,000 $70,050-$108,100 $97,205-$128,730 $98,952-$131,463 ?

Year End 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Investments Per Share $47,460 $52,507 $62,273 $66,967 $74,129 $80,636 $90,343 $75,912 $91,091 $94,730 $98,366

Given compressed multiples at the end of 2008, we used an 8 rather than a 12 multiple. Weve now increased this to a 10 multiple, still below the historical 12 multiple we believe Buffett uses.
1. Unlike Buffett, we include a conservative estimate of normalized earnings from Berkshires insurance businesses: half of the $2 billion of annual profit over the past nine years. 2. Buffett reported $6,990/share in his 2011 annual letter, but we include half of normalized insurance earnings as well as run-rate earnings for Lubrizol.

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Berkshire Is 33% Below Intrinsic Value, Close to a Multi-Decade Low

180,000

12-Month Investment Return

Intrinsic value estimate of $178,400 using 10 multiple

170,000 160,000 150,000 140,000

Intrinsic

value*

130,000 120,000 110,000 100,000 90,000 80,000 70,000

Current intrinsic value: $178,400/share Plus 8% growth of intrinsic value of the business Plus cash build over next 12 months: $7,000/share Equals intrinsic value in one year of $200,000 67% above todays price

33% discount to intrinsic value

60,000 50,000 40,000 30,000 20,000

* Investments per share plus 12x pre-tax earnings per share (excluding all income from investments) for the prior year, except for YE 2008 (8 multiple) and YE 2009 onward (10 multiple).

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Catalysts

Berkshires New Share Repurchase Program

On September 26th 2011, Berkshire announced the first formal share repurchase program in Berkshires history, and only the second time Buffett has ever offered to buy back stock Its unusual in three ways:
1. 2. 3. Theres no time limit Theres no dollar cap Buffett set a price: no higher than a 10% premium over the thencurrent book value of the shares. In the opinion of our Board and management, the underlying businesses of Berkshire are worth considerably more than this amount

Continued earnings growth of operating businesses, especially as $1+ billion of pre-tax earnings from Lubrizol are incorporated New equity investments Additional cash build Meaningful share repurchases Eventually, Berkshire could win back a AAA rating (not likely in the near term) Potential for more meaningful acquisitions and investments If theres a double-dip recession, this becomes more likely

Book value at the end of Q4 11 was $99,860 ($66.57/B share) Thus, a 10% premium means that Buffett is willing to buy back stock up to $109,846 ($73.23/B share), 8.5% below todays price

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The Share Repurchase Program Has Significantly Improved the Risk-Reward Equation, So We Bought More Stock

Berkshire Stock Outperformed the S&P 500 by 83 Percentage Points in the Year After the Only Other Time Buffett Offered to Buy Back Stock
March 11, 2000 March 11, 2001 Up 72%

It confirms that Buffett shares our belief that Berkshire stock is deeply undervalued
He wouldnt be buying it back at a 10% premium to book value if he thought its intrinsic value was, say, 20% or even 30% above book Our estimate is nearly $180,000/share, 50% above todays levels

Buffett put a floor on the stock: he was clear in numerous interviews after the program was announced that he is eager to buy back a lot of stock and he has plenty of dry powder to do so:
Berkshire has $33.5 billion of cash (excluding railroads, utilities, energy, finance and financial products), plus another $31.2 billion in bonds (nearly all of which are short-term, cash equivalents), which totals $64.7 billion On top of this, the company generated more than $12.3 billion in free cash flow in 2011 in other words, more than $1 billion/month is pouring into Omaha The press release notes that repurchases will not be made if they would reduce Berkshires consolidated cash equivalent holdings below $20 billion, so that leaves $45 billion to deploy (and growing by more than $1 billion/month), equal to 23% of the companys current market cap
Its unlikely, however, that Buffett would repurchase anything close to this amount, as some of the cash and bonds are held at various insurance subsidiaries, plus Buffett likely wants to keep plenty of dry powder to make acquisitions and investments like the recent $5 billion one into Bank of America

Berkshire Hathaway

S&P 500

Down 11%

In summary, Buffett could easily buy back $10-20 billion of stock and still have plenty of dry powder for other investments
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Risk: Who Will Replace Buffett?

When Buffett is no longer running Berkshire, his job will be split into two parts: one CEO, who has not been named, and a small number of CIOs (Chief Investment Officers)
Two have been named already, Todd Combs and Ted Weschler, who both appear to be excellent investors

Arent We Concerned About the Uncertainty of Berkshire After Buffett?

Answer: Not really, for two primary reasons: 1. Buffett isnt going anywhere anytime soon. We think its at least 80% likely that Buffett will be running Berkshire for five more years, and 50% likely hell be doing so for 10 more years
Buffett turned 81 on Aug. 30th, is in excellent health, and loves his job There are no signs that he is slowing down mentally in fact, he appears to be getting better with age A life expectancy calculator (http://calculator.livingto100.com) shows that Buffett is likely to live to age 93 (12 more years) and wed bet on the over

Nevertheless, Buffett is irreplaceable and it will be a significant loss when he no longer runs Berkshire for a number of reasons:
There is no investor with Buffetts experience, wisdom and track record, so his successors decisions regarding the purchases of both stocks and entire business might not be as good Most of the 75+ managers of Berkshires operating subsidiaries are wealthy and dont need to work, but nevertheless work extremely hard and almost never leave thanks to Buffetts halo and superb managerial skills. Will this remain the case under his successors? Buffetts reputation is unrivaled so he is offered deals (such as the recent $5 billion investment in BofA) on terms that are not offered to any other investor and might not be offered to his successors Being offered investment opportunities on terms/prices not available to anyone else also applies to buying companies outright. Theres a high degree of prestige in selling ones business to Buffett (above and beyond the advantages of selling to Berkshire). For example, the owners of Iscar could surely have gotten a higher price had they taken the business public or sold it to an LBO firm Buffetts Rolodex is unrivaled, so he gets calls (and can make calls that get returned) that his successors might not

2. The stock is very cheap based on our estimate of intrinsic value (nearly $178,400/A share), which does not include any Buffett premium
We simply take investments/share and add the value of the operating businesses, based on a conservative multiple of their normalized earnings The value of the cash and bonds wont change, and Coke, American Express, Burlington Northern, GEICO, etc. will continue to generate robust earnings even after Buffetts no longer running Berkshire
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Why Doesnt Buffett Identify His Successor Now?

The Real Buffett Risk

Buffett is often asked (as are we): What would happen to the company (and stock) if you got hit by a bus (i.e., die suddenly)?
If it happened tomorrow, our best guess is that the stock would fall 10-15% (which would give Berkshire the opportunity to buy back a lot of stock if it was trading below 110% of book value) But this isnt likely. Not to be morbid, but most people dont die suddenly from something like an accident or heart attack, but rather die slowly: their bodies (and sometimes minds) break down gradually A far greater risk to Berkshire shareholders is that Buffett begins to lose it mentally and starts making bad investment decisions, but doesnt recognize it (or refuses to acknowledge it because he loves his work so much) and the board wont take away the keys, perhaps rationalizing that a diminished Buffett is still better than anyone else Buffett is aware of this risk and has instructed Berkshires board members, both publicly and privately, that their most important job is to take away the keys if they see him losing it We trust that both Buffett and the board will act rationally, but also view it as our job to independently observe and evaluate Buffett to make sure were comfortable that hes still at the top of his game. Today, we think hes never been better.
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We think it's wise that Buffett hasn't named his successor for two reasons: 1. It would place enormous pressure and expectations on this person, which is unnecessary and counterproductive; 2. It might be demotivating for the candidates who were not chosen; and 3. Who knows what will happen between now and the time that a successor takes over (which could be more than a decade)?
Maybe the current designee falls ill, leaves Berkshire, performs poorly, or makes a terrible mistake (like Sokol did)? Or what if another candidate (perhaps one of the two backup successors today) performs incredibly well, or Berkshire acquires a business with a fantastic CEO, and Buffett and the board decide that another candidate is better? In either case, Buffett and the board will be able to switch their choice without the second-guessing and media circus that would occur if the successor had been named

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An Analogy with Apple & Steve Jobs

The most comparable example of a business that, like Berkshire, is closely associated with its legendary founder and CEO is Apple
As Steve Jobss health began to fail, he assumed fewer day-to-day responsibilities, passing them to top lieutenants Jobs resigned as CEO on Aug. 24, 2011 and died exactly six weeks later Apples stock on the first trading days after his retirement and death were announced declined less than 1%, as this chart shows:

Other Risks
A double-dip recession impacts Berkshires earnings materially No catalyst occurs, so the stock sits there and doesnt go up Intrinsic value will likely continue to grow nicely Berkshires stock portfolio declines Losses in the shorter-duration derivatives such as credit-default swaps are larger than expected and/or mark-to-market losses mount among the equity index puts A major super-cat event occurs that costs Berkshire many billions Berkshire is downgraded

First day of trading after Steve Jobs announces retirement

First day of trading after Steve Jobs dies

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Conclusion

Cheap stock: 67-cent dollar, giving no value to recent investments and immense optionality Extremely safe: huge cash and other assets provide intrinsic value downside protection, while the new share repurchase program provides downside protection on the stock Strong earnings should eventually act as a catalyst

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Appendix C: Privacy Policy

This privacy policy explains the manner in which the Partnership, the General Partner and the Investment Manager (collectively, the Partnership) collect, utilize and maintain nonpublic personal information about the Partnerships investors, as required under Federal legislation. Collection of Investor Information The Partnership collects nonpublic personal information about its investors mainly through the following sources: Subscription forms, investor questionnaires a nd other information provided by the investor in writing, in person, by telephone, electronically or by any other means. This information includes name, address, nationality, tax identification number and financial and investment qualifications; and transactions within the Partnership, including account balances, investments and withdrawals. Disclosure of Nonpublic Personal Information The Partnership does not sell or rent investor information. The Partnership does not disclose nonpublic personal information about its investors to nonaffiliated third parties or to affiliated entities, except as permitted by law. For example, the Partnership may share nonpublic personal information in the following situations: To service providers in connection with the administration and servicing of the Partnership, which may include attorneys, accountants, auditors and other professionals. The Partnership may also share information in connection with the servicing or processing of Partnership transactions; To 3rd party marketing firms who have been engaged by T2 to raise assets for the Partnership. Any information provided to a 3rd party marketing firm would be limited to name and basic contact information. To affiliated companies in order to provide you with ongoing personal advice and assistance with respect to the products and services you have purchased through the Partnership and to introduce you to other products and services that may be of value to you; To respond to a subpoena or court order, judicial process or regulatory authorities; To protect against fraud, unauthorized transactions (such as money laundering), claims or other liabilities; and Upon consent of an investor to release such information, including authorization to disclose such information to persons acting in a fiduciary or representative capacity on behalf of the investor. If you elect to opt-out and do not want us to share your non-public personal information other than when required to perform normal services or when required by law, please contact us at:767 Fifth Avenue, 18th Floor, New York, New York 10153, Ph: (212) 3867160 or by email:kalires@t2partnersllc.com. Protection of Investor Information The Partnerships policy is to require that all employees, financial professionals and companies providing services on its behalf keep client information confidential.

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The Partnership maintains safeguards that comply with federal standards to protect investor information. The Partnership restricts access to the personal and account information of investors to those employees who need to know that information in the course of their job responsibilities. Third parties with whom the Partnership shares investor information must agree to follow appropriate standards of security and confidentiality. The Partnerships privacy policy applies to both current and former investors. The Partnership may disclose nonpublic personal information about a former investor to the same extent as for a current investor. Changes to Privacy Policy The Partnership may make changes to its privacy policy in the future. The Partnership will not make any change affecting you without first sending you a revised privacy policy describing the change.

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T2 Accredited Fund, LP (the Fund) commenced operations on January 1, 1999. The Funds investment objective is to achieve long-term after-tax capital appreciation commensurate with moderate risk, primarily by investing with a long-term perspective in a concentrated portfolio of U.S. stocks. In carrying out the Partnerships investment objective, the Investment Manager, T2 Partners Management, LLC, seeks to buy stocks at a steep discount to intrinsic value such that there is low risk of capital loss and significant upside potential. The primary focus of the Investment Manager is on the long-term fortunes of the companies in the Partnerships portfolio or which are otherwise followed by the Investment Manager, relative to the prices of their stocks. There is no assurance that any securities discussed herein will remain in Funds portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent the Funds entire portfolio and in the aggregate may represent only a small percentage of an accounts portfolio holdings. It should not be assumed that any of the securities transactions, holdings or sectors discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein. All recommendations within the preceding 12 months or applicable period are available upon request. Performance results shown are for the T2 Accredited Fund, LP and are presented gross and net of incentive fees. Gross returns reflect the deduction of management fees, brokerage commissions, administrative expenses, and other operating expenses of the Fund. Gross returns will be reduced by accrued performance allocation or incentive fees, if any. Gross and net performance includes the reinvestment of all dividends, interest, and capital gains. Performance for the most recent month is an estimate. The fee schedule for the Investment Manager includes a 1.5% annual management fee and a 20% incentive fee allocation. For periods prior to June 1, 2004, the Investment Managers fee schedule included a 1% annual management fee and a 20% incentive fee allocation, subject to a 10% hurdle rate. In practice, the incentive fee is earned on an annual, not monthly, basis or upon a withdrawal from the Fund. Because some investors may have different fee arrangements and depending on the timing of a specific investment, net performance for an individual investor may vary from the net performance as stated herein. The return of the S&P 500 and other indices are included in the presentation. The volatility of these indices may be materially different from the volatility in the Fund. In addition, the Funds holdings differ significantly from the securities that comprise the indices. The indices have not been selected to represent appropriate benchmarks to compare an investors performance, but rather are disclosed to allow for comparison of the investors performance to that of certain wellknown and widely recognized indices. You cannot invest directly in these indices. Past results are no guarantee of future results and no representation is made that an investor will or is likely to achieve results similar to those shown. All investments involve risk including the loss of principal. This document is confidential and may not be distributed without the consent of the Investment Manager and does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product. Any such offer or solicitation may only be made by means of delivery of an approved confidential offering memorandum.
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