15609 Rising River Place North • San Diego, CA 92127

Ph (858) 759-9970 • Fax (858) 759-9935 www.PacificaCapital.Net

January 25, 2012

Re: PCI Overview of 4th

Quarter, 2011

Dear Pacifica Client,

While Pacifica reports quarterly results, we do so with reluctance. Our focus is on generating long term

results, and our belief is that short term performance is not meaningful. As demonstrated in the table on

page 7, PCI’s long term, aggregate results continue to be very rewarding. Historically, tumultuous

markets, like what we experienced during parts of the second half of 2011, give us the best opportunities

to invest for long term capital appreciation.

If you did not do so last quarter, please read the announcement of changes to our reporting process in

the “Pacifica News” section of this letter on page 5.

1. Critical Issues

a. In general, accounts managed by Pacifica underperformed the broader market in 2011, which as

measured by the S&P 500 was up 2.1% including dividends for the year. Our below historical

results were primarily due to our increased concentration in the financial sector. Well publicized

uncertainties centered in Europe combined with continued softness in the housing market and

regulatory issues in the US drove down stock prices of all the financial companies, even the

stronger, better managed ones we purchased. We are confident in the long term success of our

portfolio of companies, especially given that many of their competitors will be forced to scale

back and give up market share to the stronger institutions.

b. Global stock markets, and particularly financial related sectors, experienced severe volatility over

the last several months. We attempted to take advantage of low prices by adding to our positions

in Goldman Sachs and Wells Fargo, both industry leaders in their respective areas and both with

strong management and best of class cultures.

c. During the year, we made limited, opportunistic buys in a few of our other favorite companies as

investor market fear caused the prices of American Express, Berkshire Hathaway, CNA

Insurance, and US Bank to occasionally fall to our initial buy targets.

d. We sold our position in both Energizer and Johnson & Johnson. In both cases, the stock price

moved up since our purchases, and more importantly, management has not been living up to our

expectations. Thus, we felt it was prudent to take advantage of the stronger share price and move

our capital into more attractively valued companies such as Goldman Sachs and Wells Fargo.

e. We continue to hold some cash, which currently offers very unattractive returns due to

historically low interest rates. To offset low interest rates, we also continue to purchase and hold

preferred stocks, which we believe have an attractive risk/reward profile with desirable tax-

adjusted yields and some room for upside through appreciation (see a more detailed explanation

2

in the Investment Positions Summary). Especially during the 2nd

half of 2011, the prices of our

preferred stocks were extremely volatile due to widespread fear in the financial sector and

relatively low volumes, allowing us to make additional investment at attractive prices. We still

feel very confident in their short to midterm potential, and we will continue to hold them, and

receive the 4% plus tax advantaged yields, while we wait for better buying opportunities of

common stocks and/or the prices of our preferred positions move up closer to their par values..

f. Until the recent distressed market conditions occurred in the second half of 2011, we had avoided

more aggressive purchasing over the past couple of years. Our investment approach avoids

squeezing the last gains out of a strong market, and we wait for our opportunities in weak markets

like today. This philosophy has been very successful over Pacifica’s history, but it requires

patience and waiting on the sidelines during many parts of the market cycle.

g. We remain focused on US based international businesses that will benefit from expanding

economies in fast growing countries with large populations including China, India, Brazil, etc.

h. We have further concentrated our portfolios in financial industry (national and regional banks,

credit card and global investment banks) and related businesses (property and casualty insurance),

as this broad sector has been most adversely effected by global financial market uncertainties. We

believe the companies we have purchased in these industries are best–in-class and are positioned

to provide significant long term returns to Pacifica clients.

2. Global Trends

While prices of US based and global companies had recovered over the past few years, markets

experienced significant declines during the 3rd

and 4th Quarters. Aggressive worldwide government

stimulus programs and unsustainable spending and monetary policies have created uncertainties in global

financial markets. We remain concerned about their long term unintended consequences.

Public debt levels across the board in the United States and most developed countries are increasing

rapidly to unsustainable levels and are dramatically shifting control of resources from the private to the

public sector. We are very skeptical of government sponsored solutions and interventions, and we believe

there is a great likelihood they will eventually result in unfavorable consequences, including inevitable

entitlement program rollbacks and pension fund defaults in both the public and private sectors. We

believe that concentrating our investments in companies with superior management, strong balance

sheets, and solid global business prospects will best protect our capital over time.

In the US and most developed Western countries, other long term trends remain a concern, including

unfavorable demographics (slower population growth and aging populations), and more socialistic

economic policies. On the other hand, the largest population areas, including China, India, Brazil, and

other emerging countries, are experiencing the opposite long term trends. The most attractive growth

opportunities are in these emerging regions of the world. We prefer to own North American-based

companies due to preferable transparency and governance. Within those parameters, the overwhelming

majority of our capital is invested in global businesses that will greatly benefit from expanding operations

in those high-growth regions: Fairfax Financial, American Express, Starbucks, Goldman Sachs, Berkshire

Hathaway, etc.

3. Economic Outlook

The current uncertainty in the financial markets reflects ongoing concern about possible “spill over”

effects from the serious issues in Europe on the US economy going forward. The US economy remains in

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a fragile state despite substantial fiscal stimulus, monetary stimulus (QE1, QE2, and the purchase of

longer term treasuries), and new and hard to predict future financial regulations. These have not created

solutions to high unemployment, continuing housing market issues, and anemic rates of economic

growth.

The US cannot continue to pursue its current economic stimulus indefinitely (extreme low interest rates

and enormous deficits). We know the US economy is resilient, but we believe its sustainable long term

growth rate will be lower than it has been. Public policy decisions do make a difference over time. In

other words, the economic “pie” will not grow as fast in the future as it has in the past – selecting the best

companies that can deal with varying economic conditions and gain market shares will be more critical

than ever to investment successes.

4. Investment Environment

While we are not particularly bullish about the current stock market in the US and the developed world,

we feel positive about the global business prospects of our portfolio of companies. At various times

during the year, especially in the 3rd

and 4th quarters, we saw positive indicators of good buys in the

market that included (1) a significant increase in the bullishness of managers and directors as reflected

through stronger insider buying, and less selling, (2) higher levels of negative sentiment among the

investment community and increased market volatility, (i.e., increased “fear” levels), and (3) ongoing

withdrawals from stock mutual funds. As the year came to a close, these same indicators had moved

more into neutral territory. Although we do not attempt to time the market, we know that there will be

occasional favorable buying opportunities, in addition to our recent purchases, if we remain patient. We

will invest our remaining cash when we find the right prices on the businesses we want to own.

5. Public Equity Markets

Our long term expectation for the US market is for annual gains, including dividends, of just over 5% and

for PCI’s average results to be better than that by a few percentage points. In fact, in just under 14 years

of PCI management (March 1998 – December 2011), the overall market was up just under 46.1%, while

PCI’s accounts, in aggregate, gained just approximately 343.0% - an approximate 11.2% compounded

annual gain (see PCI Results and Performance Record on page 7 for details).

6. Pacifica’s Portfolio

Generally speaking, in late 2008 and early 2009 we bought several companies for the first time and added

to existing positions, all at bargain prices that we believed would prove to be very attractive over the long

term. Later in 2009 and early 2010, we sold varying amounts of several companies whose share prices

increased rather drastically, and in some cases, beyond our estimate of intrinsic value.

Fairfax and Berkshire Hathaway continue to be our two largest holdings, and our two long term favorites.

We have no plans to shift from these two positions to others for potentially better short term results. In

addition, we own smaller amounts of very solid companies with bright long term prospects (American

Express, Starbucks, Goldman Sachs, ADP, RG Barry, Wells Fargo, and US Bank). Of utmost importance

to us has always been to limit the downside (risk) and focus on long term performance.

We did sell the majority of our position in both Energizer and Johnson & Johnson this last year. Three

factors helped us come to this decision: (1) the share prices increased to levels we were less comfortable

with, (2) we developed further insight into the businesses that made us a less confident in their

management teams, and (3) we felt that other opportunities offered far more upside potential.

4

In conclusion, we are enthusiastic about buys we made in 2011 in several companies, though our initial

purchases in Goldman Sachs and Best Buy have since proven to be a little too early. We remain confident

that several years from now we will look back on these investments favorably. For more detailed

information on the positions in your portfolio please refer to the attached Investment Positions summary.

Please do not hesitate to contact us as indicated below with any questions or comments. Also, it is

important that you contact us if there have been any changes in your financial situation, investment

objectives, or if you desire to impose any reasonable restrictions or modify existing restrictions on your

account.

Sincerely,

Steve Leonard and Kari Pemberton

Founder & Chief Investment Officer Director of Research

steve@pacificacapital.net kari@pacificacapital.net

858-759-6800 512-310-8545

CC: Blake Isaacson

Enclosures:

Investment Positions Summary

5

ADDENDUM TO PCI QUARTERLY LETTER

Pacifica News

Pacifica has implemented a new, fully-automated performance and portfolio reporting system. Our

significant investment in PCI’s back office systems will help us better serve you with greater speed and

efficiency in generating your quarterly report, though it remains a “work-in-progress” at this point.

As part of the new system we are using a new format for your Portfolio Report that will accompany this

letter each quarter. We will continue to tweak this report going forward, and you will see continued

enhancements in the coming quarters. We welcome any of your feedback as these improved reports

evolve.

In addition to the new look of our reports we also are implementing a new secure email system that

maintains our standards with the rest of the industry. Starting with the 1st quarter report of 2011, you will

now receive a secure email that asks you to login to a website in order to access your account statement

(similar to how you would access your bank or credit card accounts online). The first time you login to

this new system you will be asked to create a login and password. We strive to maintain client privacy,

and this new secure access system will ensure that your confidential information is not accessible to

outside parties. As a new upgrade this quarter, our secure email system may be able to deliver your

statement securely directly to your inbox. If your e-mail server is setup to exchange emails in a secure

manner this should happen automatically. Otherwise, you will continue to receive e-mails prompting you

to login to your account to access your quarterly statement.

One final change to note: going forward we will report investment returns (both on a personal and

aggregate level) on a time-weighted return (TWR) basis versus our prior method using an internal rate of

return (IRR) method.

The IRR measures how a portfolio’s investments did overall. It is a single rate of return that makes the

value of everything added to the portfolio equal to everything taken out of the portfolio, or a constant rate

of return that makes the present value of the portfolio’s ending value and all withdrawals precisely equal

to the present value of the portfolio’s initial value and all contributions. On the other hand, the TWR

measures how the manager performs. It removes the effect of the client’s decisions to deposit or withdraw

money in the account. It measures investment performance (income and price changes) as a percentage of

capital “at work,” effectively eliminating the effects of additions and withdrawals of capital and their

timing that alter IRR accounting. Stated another way, TWR is designed to remove the effects of capital

flows into and out of the portfolio.

TWR is the standard that the investment community generally uses to measure portfolio performance, and

you now should be able to compare your Pacifica returns to any other money managers on an “apples to

apples” basis. Although we feel IRR is an important figure as well, we are moving to a TWR standard to

better reflect those elements of your portfolio that we can control. Feel free to contact us with any

questions regarding this performance calculation change or any other comments as we work our way

through these changes.

Investment Partnership

Some members of the PCI family of investors have expressed interest in additional investment products

that build in distinct ways on our conservative, value-oriented, and long term strategy. In response, we

have created an investment partnership which is described below:

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Pacifica Capital Fund (“PCF”) – Following the PCI investment strategy, PCF will also employ

a short selling strategy when the market is overvaluing certain companies’ stocks. In addition,

PCF will employ reasonable amounts of leverage when severe discounts are available – most

likely during periods of deep undervaluation. Those approaches offer greater potential returns

with a commensurate increase in risk.

A summary of this partnership and subscription documents are available upon request. Please contact

Blake Isaacson, Director of Sales & Marketing, or Steve Leonard if you would like to receive additional

information. We can be reached as follows:

steve@pacificacapital.net blake@pacificacapital.net

(858) 759-6800 (858) 759-9970

Real Estate Partnerships

For the first time in many years, Steve Leonard and Blake Isaacson are directing investment partnerships

in commercial real estate projects. Please note, investments in these real estate partnerships are limited

to qualified investors only. If you are a qualified investor and have an interest in learning more about

these projects, please contact Steve Leonard or Blake Isaacson at the contact information above.

PCI Manages 401k Assets

If this option holds a potential solution for you, a family member, business associate or friend, it would be

our pleasure to help explain and facilitate the process. Blake Isaacson is very familiar with this vehicle

and can be contacted as shown above with any questions.

Expanding PCI’s Management of Your Portfolio

We are going to contact you about handling a greater share of your investable assets. We encourage you

to consider our over 13 year performance record and to think about additional opportunities where PCI’s

management could add to the value of your family’s investment portfolio (including retirement accounts

and additional family accounts), and those of your relatives as well. Please let me know if you would like

us to expedite our contacting you.

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PCI’s Results and Performance Record

PCI has outperformed the market and has provided significant gains to its longest term clients. We have

outperformed the market in 10 of the last 13 calendar years, and more significantly, not suffered nearly as

much in the years when the stock market suffered its greatest losses. The following are PCI’s

Performance Results from inception - 1998 - through 2010; they are compared to those of the S&P 500’s.

PCI accounts, in aggregate, vastly outperformed the overall market over the long term because our

declines were much less during periods of market weakness and our gains were generally better during

periods of market strength.

While 2008 was substantially below our average, our results were much better than the overall market –

down 13.7% versus down 37.0% for the S&P 500. For 2009, aggregate account results once again

outperformed the market – up 32.1% vs. 26.5% for the S&P 500. Our 2010 results were just below the

S&P 500, as we held large cash balances in an exceptionally strong market. In 2011, our strong

concentration in financial related stocks, which we purchased during the year at substantial discounts to

our estimate of their intrinsic values, caused PCI to fall short of the S&P 500. We only update this chart at

the end of each year, as we do not believe comparisons for any shorter periods are meaningful.

PCI S&P 500 Difference

1998* 15.8% 13.0% 2.8%

1999 -16.3% 21.0% -37.3%

2000 46.7% -9.1% 55.8%

2001 23.5% -11.9% 35.4%

2002 -0.5% -22.1% 21.6%

2003 30.7% 28.7% 2.0%

2004 12.1% 10.9% 1.2%

2005 3.0% 4.9% -1.9%

2006 23.2% 15.8% 7.4%

2007 7.9% 5.5% 2.4%

2008 -13.7% -37.0% 23.3%

2009 32.1% 26.5% 5.6%

2010 12.1% 15.1% -3.0%

2011 -1.1% 2.1% -3.2%

Total (13-3/4 years) 343.0% 46.1% 296.9%

IRR - Inception 11.2% 2.7% 8.5%

*PCI performance for each year is an Internal Rate of Return measurement for that year. 1998 is a partial year. IRR is a weighted return that accounts for

contributions and withdrawals during the period. The S&P 500 return measures the change from the start of the period to the end of the period, assuming no

contributions and/or withdrawals and includes dividends. The “Total” is for the entire period, compounded annually. PCI results are shown net of all fees, including

management fees, brokerage fees and custodial expenses, and reflect the reinvestment of all dividends and earnings. Performance results provided herein are the

aggregate of all fully discretionary accounts managed by PCI, including those accounts no longer with PCI, and include the performance of the accounts of PCI’s

principals (which do not incur management fees) and certain other accounts that have reduced management fees. Minimal leverage and short selling has been used

since inception for the PCI managed accounts; the effects of such leverage and short selling on PCI’s performance figures have been nominal. Results for individual

accounts are varied and will vary in the future. In addition, it is not likely that the relative performance of PCI’s managed accounts will exceed the performance of the

broader stock market (as measured by the S&P 500 or other broad market indexes) by as large a margin as has occurred to date. The stock market faced an

unprecedented decline in the year 2008, which strongly impacted the performance of the S&P 500 Index during the time period shown. In addition, PCI’s

performance during the year 2000 was significantly enhanced by the strong performance of one large position in its accounts under management. The 12/30/11 total

ending balance for all accounts was approximately $245 million and approximately $46 million was in accounts of PCI principals (Leonard family and PCI accounts).

Total number of individual accounts was 290 as of 12/30/11.

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Past performance is not a guarantee or indicator of future results, and investors should not assume that investments made on their behalf by PCI will be profitable, and

may, in fact, result in a loss. Investors also should not assume that PCI’s results will outperform the S&P 500 Index or other broad market indexes in the future. The

investment objective of PCI’s managed accounts is capital appreciation. PCI’s strategy is to concentrate its investments in a limited number of positions with certain

positions representing an intentionally large size in the accounts. This concentration is likely to result in greater volatility than the overall market as measured by the

S&P 500 Index, which is made up of 500 large companies. In addition, PCI’s strategy is to “hold for the long term” which reduces trading costs.

PCI’s Approach

As we have written much about in the past, the investment approach that we employ in the management

of your account is to focus on a limited number of businesses and industries at a given time. In that sense,

your account is concentrated in industries that we feel we have a thorough knowledge of and in

businesses that we have been able to purchase at prices below our estimation of their intrinsic value.

While owning fewer stocks and concentrating on specific industries may result in increased account

volatility, this investment philosophy has resulted in superior investment returns since 1998 as you can

see from the PCI Results and Performance Record on page 7 of this report (please be advised that past

performance is not a guarantee of future performance).

In addition, we focus exclusively on equity purchases and do not attempt to invest your portfolio in

bonds, commodities, or other miscellaneous types of investments. Any funds that are not invested in

equities are placed in the money market to earn interest while we wait to buy (at our Buy Price) the

investment opportunities on which we are focusing. Cash in your account may earn relatively low returns

while we wait patiently for the businesses that we feel confident in to be offered by the market at the price

we are willing to pay.

As opposed to most money managers who invest relatively equal amounts of money in many different

positions, we focus the largest part of our investment capital on our favorite companies. We also do our

best to limit the number of different companies owned to those in which we have the most confidence and

understanding. Using this strategy, PCI has kept our “losses” smaller and our “wins” more significant,

and this dynamic is reflected in our superior, long term compounded return (see PCI Results and

Performance Record on page 7 for details). Our goal remains to be near 100% invested, but only when we

can find very good businesses at very good prices.

PCI concentrates investments in our favorite companies and those with very positive, long term

international growth prospects (see the Global Trends section at the beginning of this letter). We are also

seeking to invest in companies that have a track record of paying and/or that we believe are likely to pay

larger dividends over time. These include Fairfax Financial, Auto Data Processing, Starbucks, American

Express, US Bank, Goldman Sachs, Best Buy, RG Barry and Wells Fargo.

We favor investments that produce net cash flow that is either reinvested in the core businesses at high

rates of return or paid out to the owners in the form of dividends. An additional component of our

investment decision making is our concern about the possibility of much higher inflation at some point in

the future, and how the results from accompanying higher interest rates may affect valuations and

business prospects. Thus, we are looking more favorably at companies that will be less adversely affected

by higher inflation and ultimately, interest rates, as we believe the consequences to certain businesses and

industries could be very severe.

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PCI’s Investment Philosophy

PCI has outperformed the market because our strategy works, and we are generally disciplined in following our stated strategy.

First, when the market becomes overvalued we tend to sell stocks and hold more cash. Conversely, when the market is depressed

we get emboldened and begin to invest our cash.

We are constantly analyzing new businesses with the goal of determining attractive prices at which to purchase stock. In

addition, we continually monitor changes in anticipated future operating results of the businesses in our accounts and update the

estimation of their intrinsic value in order to determine prices at which we would be willing to buy more shares or sell existing

ones.

We have many companies on our Buy List (i.e., companies that we would like to own and whose stock prices have occasionally

traded within approximately 20% of our Buy Price). These companies fall within our “intellectual and financial understanding”,

and we patiently wait for stock price declines in these companies to our Buy Price. “Open buy limit orders” for many of these

companies have been placed in most accounts to purchase these shares as the prices come down to our Buy Price. We continue

to study these companies to update our estimation of their intrinsic value and adjust our Buy Price accordingly. The discipline to

maintain a consistent valuation process independent of the “investor herd mentality” is pivotal to the successful execution of

PCI’s investment philosophy.

Over the last 13 years market conditions have periodically allowed us to make additional purchases in existing positions and in

new companies both at, and below, our Buy Prices. Our Buy Price must offer two very important attributes:

(1) a “discount” or margin of safety relative to our estimation of intrinsic value

(2) a price that will provide the likelihood of strong investment returns over a reasonable holding period – the longer

the better. Note: We are realistic in acknowledging that we won’t always be able to buy at the lowest prices. Rather,

Pacifica aims for acquisition prices that should reward us with above average long term returns.

We want to emphasize that we do not try to time the market. Generally, Pacifica neither sells stocks because we believe the

overall market is overvalued, nor do we buy stocks because we believe the overall market may be undervalued. We focus on

individual companies whose businesses we understand, and buy them when we can be confident in our estimates of their intrinsic

value and future profits.

We still hope to become fully invested if the market weakens (including selling our preferred stock positions and reinvesting those

proceeds in common stocks). The key for us is to have the discipline and patience to be able to invest in fine companies when the

markets for their share prices are depressed.

We believe successful investing requires the knowledge to be able to accurately value the business being acquired, as well as an

understanding of market dynamics (psychology). We believe the stock market’s cyclical nature produces broad-based periods of

overvaluation, fair valuation, and then undervaluation before the pattern reverses and repeats itself. This classic market cycle is

driven by investor emotions during each period - greed near the markets peak, and fear as the market bottoms. To quote one of

the great investors in history and a wonderful man who has passed away, John Templeton, “Bull Markets are born on pessimism,

grown on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the

maximum optimism is the best time to sell.”

We believe this market cycle psychology is important to understand so that one does not make the mistake of following the herd

mentality and suffering subpar investment returns. While it is impossible to determine exactly when each of these phases is

entered, we know that today’s market is in the part of the cycle where the best buys are no longer easily found. The dramatic

recovery in stock prices definitely reflects this dynamic. While we cannot predict with accuracy when the next broad market

buying opportunity will occur, we can say with confidence that we will try to be patient and wait for better bargains.

The bottom line is that to be a good investor you need to not only buy when it is emotionally the hardest, and sell when

emotionally it is the hardest, but also do nothing while waiting for market extremes to offer better opportunities. Sounds so easy,

but it is so hard. You often don’t know you have been right until months or even years later. There is often no immediate

gratification for the best of those decisions. At the end of this quarter, we believe that the market is nearing the top of the cycle,

although we do not know how long it will stay there before it will turn. We continue to be very patient with limited investing

activity.

As we continue to preach tirelessly, successful investing is not about beating the market every quarter, or even every year, but

beating the market over the long term. This requires buying when conditions appear bleak and wisely pruning positions when

conditions are unsustainably strong.

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Investment Positions – Business Summary Listed in approximate descending order of size in the aggregate of all accounts (within individual accounts, percentages will vary) Largest Positions (Over 15% of holdings)

Fairfax Financial – (FRFHF) (initial purchase in 2001, most recent purchase 2011) – A holding company that engages in property and casualty insurance and reinsurance worldwide. Fairfax owns significant operations in the United States, Canada and Europe, and most importantly, growing operations in much of the developing world including India, China, Thailand, Singapore, Hong Kong, Poland, Dubai, Kuwait, and Brazil. We believe that Fairfax enjoys a significant sustainable competitive advantage over other insurance companies due to its management’s ability to earn exceptional returns on its large investment balances over the long term.

Business Outlook: Fairfax has navigated the tumultuous investment environment of the last few years very shrewdly, and its large investment balances (approximately 2.5 times its book value) have performed exceptionally well. First, Fairfax took advantage of the credit bubble by making huge gains on credit default swaps in 2007-2008. Then, Fairfax redeployed assets into higher return corporate bonds, tax-advantaged municipal bonds (insured by Berkshire Hathaway), and equities worldwide in late 2008 and early 2009. During the second half of 2010, Fairfax cut back its equity exposure with sales and hedges due to economic uncertainty and significant market appreciation. As of September 30th, Fairfax had substantial cash holdings and an approximate 100% hedge position against their equity and equity-related holdings. In early 2010, Fairfax’s financial ratings were upgraded, and Fairfax will pay an annual dividend of $10/share in January 2012 (2.3% of their 2011 yearend stock price).

Investment Activity: Fairfax is a company we will resist selling unless its share price

reaches levels that place our continued ownership at risk of significant capital loss. It is very challenging to find companies with management teams that prove so rewarding to their shareholders over long time periods. Fairfax’s track record since inception 25 years ago (1985) is indeed impressive with book value growing from $1.52/share to approximately $403/share (9/30/11) – an outstanding 25% annual compounded growth rate. For newer accounts, we bought limited amounts during the first part of this year when its share price briefly declined to near its book value. Our target is to have this company represent 20% or more of account values, though strong gains in Fairfax’s stock price since mid 2009 prevented us from reaching this level in newer accounts.

Berkshire Hathaway – (BRKB) (initial purchase in late 1999, most recent purchase 2010) – One of the strongest companies in the world as ranked by shareholder equity, Berkshire employs an extremely prudent operating and investment philosophy. Each year, literally billion of dollars of new operating businesses, as well as other investments, are acquired with its prodigious cash flow, and this is usually accomplished with no increase to its share count. In other words, the intrinsic value of each share of Berkshire has increased dramatically since our original purchase. We feel very confident that this performance will continue, though given its current extraordinarily conservative operating strategy as well as giant size, future growth as a percentage of equity will be slower.

Business Outlook: During 2011, Berkshire continued to report strong operating results

despite large catastrophic property insurance losses and what we expect will be partial

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write downs their investment in Wells Fargo stock. Regardless of short term fluctuations in its reported results, Berkshire is on track to increase its intrinsic value by shrewdly taking advantage of its rock solid financial strength over the long term. Berkshire Hathaway continues to use its ample cash flow for acquisitions. In 2011, Berkshire completed the acquisition of specialty chemical company Lubrizol, Berkshire made an opportunistic $5 billion investment in Bank of America 6% preferred stock with significant common stock warrants, and accumulated a $10 billion investment in shares of IBM. Each of these investments will immediately increase Berkshire’s return on otherwise low-yielding cash. Berkshire also announced guidelines for its first share buyback late in the 3rd quarter. We usually do not approve of share buybacks, but in this case Berkshire set a maximum price of 110% of book value. This is a very sensible price, and any shares purchased should garner a better return than many of Berkshire’s other acquisitions.

Investment Activity: We do believe, at the right price, every account should have a stake in this outstanding company. During the 3rd quarter weak and volatile markets allowed us to add Berkshire to newer accounts at prices that we expect will prove very satisfactory returns over time. With this business as our second largest holding, we sleep peacefully at night.

Medium Positions (5%-10% of holdings) Starbucks – (SBUX) (initial purchase 1998, most recent purchases in 2009) – Starbucks is one of the world’s leading consumer brands and should continue to show impressive growth in many international markets for years to come. Simply put, loyal customers around the world frequently visit Starbucks to enjoy their affordable, “addictive” indulgences.

Business Outlook: We think the Starbucks brand and customer loyalties are second to none. With Starbuck’s core North American business once again showing strong margins and moderate growth, they are now focused on new opportunities, including aggressive international expansion (especially in China) and expected new consumer product initiatives like Via instant coffee and expanded premium single serve coffee options like Keurig. Starbucks should continue to earn high returns on invested capital within existing and new markets. Sales, store openings, same store sales and profits are once again growing, providing Starbucks with strong free cash flow that has been used to pay down debt, buyback their stock, and raise their dividend.

Investment Activity: Pacifica purchased a very concentrated position in Starbucks in the latter part of the 1990’s but then sold it as the stock reached new highs between 2003 and 2005. We began buying Starbucks once again in late 2008 and early 2009 at an average cost of around $11/share. That price represented a 70% decline from its high share price reached a few years prior. Starbucks’ share price has increased significantly since our purchases. We feel very comfortable owning a large position in this strong global brand that generates substantial free cash flow. We look forward to adding more if its price declines again to the $24/share range.

RG Barry – (DFZ) (initial purchase in 2001, most recent purchase 2011) – RG Barry has an approximate 35% market share in the soft slipper category in the United States. The soft slipper category provides stable and significant cash flow that RG Barry has utilized to put in place a dividend and invest in growth. RG Barry is seeking new international markets through expansion with current retailers such as Wal-Mart and Costco as well as entering new product categories

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through its recent acquisitions of Foot Petals LLC, a shoe insole maker, and Bagallini, a specialty handbag and accessories maker. RG Barry sources its products in Asia, has strong relationships with the largest retailers, cost effective distribution systems, excellent marketing and product design, and a strong balance sheet.

Business Outlook: RG Barry has earned solid profits and high returns on capital since their business revamp was completed back in 2004. In addition, RG Barry’s current business model requires very little capital reinvestment, so their strong cash flow has resulted in a dramatic change during our ownership from a net debt position to excess in cash and no debt (except an old pension fund short fall) before they began redeploying their cash into new related businesses. The success of RG Barry’s recent acquisitions will be important in determining the company’s future intrinsic value. Investment Activity: RG Barry is a business that we are comfortable owning. Consumers still buy $20 slippers even during periods of general softness in retail sales. RG Barry has just completed two acquisitions that will increase their sales by approximately 25%, and we expect these additions to have a positive effect on net earnings through both increased sales and an improved margin profile. RG Barry pays a meaningful dividend (currently yielding over 2%), and we were able to add limited shares to some accounts during the 3rd quarter as the price dropped briefly into our buy range.

Goldman Sachs - (GS) (initial purchase 2010, most recent purchase 2011) – A leading provider of financial services to the major institutional participants in global capital markets. Revenue sources include 1) Trading and principal, 2) Investment banking, 3) Asset management and security services, and 4) Interest and income from balances and holdings. Goldman Sachs has enlarged its international presence, particularly in Asia, to take advantage of developing capital markets, which will enhance its operations in the fastest growing regions of the world’s economy. Goldman Sachs is poised to win the top spot among advisors for 2011 on both global takeovers and equity offerings, with by far the most deals outside the Americas among the top five advisors.

Business Outlook: Goldman Sachs has grown its book value from $20.94 at the end of its first year as a public company in 1999 to $131.09 at the end of the 3rd quarter of 2011 - a compounded growth rate of 19% (for “financial” companies such as Goldman Sachs, Wells Fargo, Fairfax, Berkshire, etc. we believe shareholder equity – which is measured by book value – is a very important measure of value). Keep in mind that during this period the stock market had very challenging results and many financial companies have suffered severe setbacks. Nonetheless, Goldman Sachs out performed its competitors, and its shareholders have been richly rewarded. We are very impressed with Goldman Sachs’ management, industry position, strength in most emerging growth markets, durable reputation, and entrepreneurial culture.

Investment Activity: We added to our position during the year at what we believe to be a very attractive valuation. Investor caution caused by uncertain and ongoing investigations, European financial turmoil, new regulatory modifications, and fear surrounding financial markets all have caused its stock price to fall to its lowest level relative to its book value during its history as a public company. While we think Goldman Sachs will likely earn lower than its historical ROE of over 20% going forward due to lower leverage, new regulations, etc., we also think its market position has been enhanced as a result of recent financial market upheavals including ongoing turmoil in European financial markets.

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Wells Fargo – (WFC) (initial purchase 2008, most recent purchase 2011) - Wells Fargo is a nationwide, diversified financial services company, and is one of the largest financial institutions in the US, ranking fourth in assets ($1.2 trillion) and third in market value among its US peers. One in three households in America does business with WFC.

Business Outlook: Wells Fargo’s conservative management was not nearly as aggressive during the boom years, and therefore able to maintain a strong balance sheet and suffer a relatively lower impact from the financial and housing meltdowns of the past few years. Wells Fargo was able to take advantage of the banking crisis with the opportunistic acquisition of Wachovia Bank at an attractive price at the end of 2008, which made it one of only four truly national banks. We believe Wells Fargo is uniquely positioned to use their competitive advantages: its extensive banking network, diverse businesses, strong, customer-focused corporate culture, and proven, conservative management team to continue to grow market share, earn above industry average returns on capital, and reward its shareholders. With continued uncertainties in world financial markets, Wells Fargo’s conservative operating culture and prudent business strategy should once again prove rewarding to its shareholders.

Investment Activity: We purchased a limited position of Wells Fargo during the financial panic of 2008 at bargain prices, but as valuations soared in 2009 we sold our positions. During the later part of 2011, Wells Fargo’s price once again came into our buy range due to fear from new capital regulations, the possibility of large loan put-backs from Fannie Mae, Freddie Mac, and other large institutional investors, as well as financial market turmoil centered in Europe, . We see great potential in Wells Fargo’s future as they suffer fewer loan losses and continue to leverage their infrastructure and high level of products per client across Wachovia’s client base.

CNA Financial – (CNA) – (initial purchase in 2004, most recent purchase 2011) - One of the larger direct property and casualty insurers in the US, 90% owned by Loews Corp. New management was installed a few years ago, and the company has successfully completed a major restructuring and turnaround.

Business Outlook: CNA’s book value declined fairly dramatically in late 2008 and early 2009 due to severe temporary declines in the value of its investment portfolio. As the market has recovered for those hard-to-value investments, CNA’s book value has rebounded dramatically. CNA’s share price historically follows the changes in its book value, though its book value at the end of the quarter was approximately 75% higher than its closing share price. Insurance markets are weak, but improving, and CNA’s capital position and industry ratings remain strong.

Investment Activity: CNA’s share price recovered somewhat in the 4th quarter, although it is still significantly lower than its tangible book value of over $40.00/share (as of 9/30/11). CNA recently reinstated its dividend, paid off preferred shares issued to Loews Corp, and bought the remaining public interest in CNA Surety (specialty P&C insurance business).

Smallest Positions (less than 5% of holdings)

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American Express – (AXP) (initial purchase 2008) – American Express was founded over 150 years ago and is the leading global provider of credit cards, debit payments, financial network and travel-related services. Similar to other companies in our portfolio such as Starbucks and ADP, American Express benefits from strong customer loyalty to its brand.

Business Outlook: American Express was adversely affected by the general economic cycle related to credit issues. However, as the current economic recovery continues, credit losses are declining and earnings are rising once again. American Express remains the premier global credit card, and their international business should grow significantly for many years. As the only credit card company with a closed loop payment system, American Express has been very innovative in using their customer data to help build additional services around customer behavior for vendors which could provide meaningful new channels for growth in the future. Additionally, American Express has been entering new growth areas in the alternative payment space with the launch of Serve, a digital payment and service platform with multiple payment options (person-to-person, money transfers, mobile payments, in store card payments, and online transactions) and fee-free pre-paid credit cards.

Investment Activity: For a few very brief periods during the 2ne half of 2011 AXP’s share price declined to the upper level of our targeted buy price range and we added shares to accounts that didn’t already own this excellent business. Our goal is to own more of this outstanding global franchise if its price declines again.

Automatic Data Processing – (ADP) (initial purchase 2008) – ADP is the largest global provider of business outsourcing solutions specializing in human resources, payroll and benefits, administration and servicing, as well as dealing with services to the automotive retail industry. ADP has a 50 year track record of very strong and consistent growth with large margins, impressive returns on capital, and a consistent history of increasing profits and dividends.

Business Outlook: With general softness in the economy, ADP has posted average results in 2010, improving slightly in 2011. ADP earns interest income on $15 billion of client funds it holds, so lower short term interest rates have adversely affected earnings. While their auto dealer business was adversely affected by the large decline in industry sales, ADP gained market share during the decline and is now benefitting from the uptick in sales. International growth remains a huge opportunity for ADP, which we believe makes its long term prospects bright.

Investment Activity: No changes during the last several quarters. We are very interested in adding more of this position to accounts if we are fortunate enough to have its share price decline to our Buy Price. We consider ADP another one of our “core” investments, and we are reluctant to sell unless its share price reaches an unsustainable level.

US Bank - (USB) (initial purchase 2009, most recent purchase 2010) – One of the largest regional banks in the United States with a superior track record over the last two decades. Recently named “Best Bank in US” by Euromoney magazine, USB has an exceptional management team and culture.

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Business Outlook: US Bank’s conservative management culture allows us to be very comfortable with this investment as many of its competitors face ongoing challenges created by their overly aggressive lending practices during the last several years. Due to its financial strength, USB was one of the first banks to increase its dividend in 2011 after meeting all new financial regulations.

Investment Activity: Bought during the financial markets’ “panic” period during February and March of 2009. While we did sell some shares as markets recovered, we are very willing to add more shares if stock price pulls back again. During the 3rd Quarter of 2011, US Bank’s share price briefly traded near our buy price, and we did purchase a very limited number of shares in newer accounts with large cash balances.

New Positions – 2011 Best Buy – (BBY) (initial purchase 2010, most recent purchase 2011) – The largest retailer of electronic products and services with a dominant market position in North America and international operations in Europe and China.

Business Outlook: Recent competitive pressure from big box retailers and online retailers has resulted in declining same store sales and lower profit margins. Best Buy has put new initiatives in place that should increase returns over time, including reducing their retail store footprint, expanding and adding new product categories (especially in gaming, tablets and mobile), and expanding their website selection. Best Buy remains by far the dominant “bricks and mortar” retailer of electronics and is devoting their attention to improving their online operations. Their North American based stores remain solidly profitable in this challenging retail environment providing significant cash flows for overseas expansion, large share repurchases, and a healthy dividend yield.

Investment Activity: We made initial purchases in 2010 at favorable prices, and when the stock price recovered we exited this small position the same year. During 2011, Best Buy’s share price declined well below our initial purchases in 2010, and we began buying again at what we think was a very attractive valuation (less than 8 times average trailing and projected earnings).

Sold Positions Energizer - (ENR) (initial purchase 2008, most recent purchase 2010) – Global consumer brands company, including Eveready/Energizer Batteries - #1 globally and #1 in the US in batteries, Schick - #2 globally and #2 in the US in the wet shave market, Playtex - #2 in US in plastic applicator tampons, Playtex, Diaper Genie - #1 in US in infant feeding and diaper disposal systems, Banana Boat, Hawaiian Tropics - #1 in the US in sun care, Wet Ones - #1 in the US in moist hand wipes, Edge/Skinmate - #1 in the US in shave prep.

Business Outlook: While certain Energizers’ products are not likely to grow much in the future, such as disposable battery sales in the United States, many of its strong brands do have solid growth potential particularly in other parts around the world including the large developing markets of China, India, and Brazil.

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Investment Activity: We first bought our shares of Energizer in early 2009 at a very attractive price. When its stock price subsequently recovered quite strongly, we sold off our positions. In the 2nd Quarter of 2010, the share price once again declined to a level that met our initial buy target range, and we began adding shares of Energizer to our accounts. Its share price has since recovered, and over the last few months we sold our holdings for large gains. Our sell decision was based on both higher stock price and some concerns with management – too many acquisitions, no dividend in spite of strong free cash flow and too many excuses for poor operations.

Johnson & Johnson - (JNJ) (initial purchase in 2008, most recent purchase 2010) - JNJ is one of the largest and strongest health care companies in the world with three main divisions: pharmaceutical, consumer products, and medical devices - each with a broad and rapidly expanding global platform.

Business Outlook: Over the last two years, JNJ experienced its first sales decline in 76 years and its first decline in profits in over 25 years. Despite that bump in the road, JNJ has an outstanding track record. In fact, over the last 100 years it has grown by over a 10% annual rate. That impressive record is probably matched by less than a handful of companies in the world. JNJ is just now beginning to penetrate China and India with products like Tylenol, Band-Aid and baby shampoo as well as numerous products from its pharmaceutical and medical devices divisions.

Investment Activity: We initiated a small position in JNJ when JNJ’s share price was adversely affected by a widely publicized consumer products recall of over the counter medications as well as concerns about the robustness of its pharmaceutical pipeline. Our average purchase price of JNJ shares is below its average share price of over 10 years ago, even though its sales, profits, and dividends have grown considerably during that period. However, our opinion of management is not high – too many quality control issues, acquisitions and excuses. During the last six months, JNJ’s share price improved, and we sold our holdings for reasonable gains.

Preferred Stock Positions – (short term cash substitute)

We have been purchasing, price permitting, variable rate preferred shares in a few companies that have financial stability and management teams with which we are very comfortable. With money market returns close to zero and many of our accounts with sizeable cash balances, PCI views these investments as shorter-term opportunities to increase our yield with the added benefit of possible modest capital appreciation. In general, preferred stock doesn’t offer the same potential for long term appreciation as common stock, but it’s a more stable investment vehicle because it generally pays a larger tax advantaged dividend (dividends are currently taxed at a lower capital gain tax rate than interest income). With money market returns at historic lows and our concern about reaching for yield by either taking on interest rate risk (i.e. locking in at rates that may prove unfavorable over time) or credit risk, we view the following issuances as attractive substitute investments: Goldman Sachs Preferred (either A, C or D), US Bank Preferred H, Morgan Stanley Preferred A, and Bank of America Preferred G or H. All offer minimum yield at approximately 4% and are tied to short term interest rates. So, if/when rates rise by more than approximately 2% - 3%, their payouts will also increase. Additionally, we have been able to purchase our shares at an average

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discount of 20% or more to their par value of $25, thus allowing for potential appreciation on an eventual sale and/or call by the issuer. During the second half of the year, the preferred stock prices were extremely volatile due to widespread fear in the financial sector and relatively low volumes. We still feel very confident in their short to mid term potential, and we will continue to hold them, and receive the approximate 5% tax advantaged yield, while we wait for their share prices to once again approach par value (their historical trading pattern) and/or while waiting for other opportunities in the market to replace them.