FAIRHOLME

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CONFIDENTIAL NOTINTENDEDFORDISTRIBUTION
Fairholme Ignore the crowd.

This presentation uses Bank of America as a case study to illustrate Fairholme Capital Managements investment strategy for the Fairholme Fund. In the pages that follow, we show Fairholme Fund shareholders why we ignore the crowd with regard to Bank of America and other financial companies that currently are out of favor with the market. However, nothing in this presentation should be taken as a recommendation to anyone to buy, hold or sell Bank of America securities or any other investment mentioned herein. Our opinion of Bank of Americas prospects should not be considered a guarantee of future events. Investors are reminded that there can be no assurance that past performance will continue, and that a mutual funds current and future portfolio holdings always are subject to risk. As with all mutual funds, investing in the Fairholme Fund involves risk including loss of principal. The Fairholme Funds holdings and sector weightings are subject to change. As of August 31, 2011, Bank of America securities comprised 6.1% of the Fairholme Funds total net assets. The Fairholme Funds portfolio holdings are generally disclosed as required by law or regulation on a quarterly basis through reports to shareholders or filings with the SEC within 60 days after quarter end. A complete list of the Fairholme Funds top ten holdings is available on our website at www.fairholmefunds.com. The Fairholme Fund is nondiversified, which means that it invests in a smaller number of securities when compared to more diversified funds. Therefore, the Fund is exposed to greater individual security volatility than diversified funds. The Fairholme Fund can invest in foreign securities which may involve greater volatility and political, economic and currency risks and differences in accounting methods. The Fund may also invest in special situations to achieve its objectives. These strategies may involve greater risks than other fund strategies. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longerterm debt securities. Lowerrated and nonrated securities present greater loss to principal than higherrated securities. The Fairholme Funds investment objectives, risks, charges, and expenses should be considered carefully before investing. The prospectus contains this and other important information about the Fairholme Fund, and may be obtained by calling shareholder services at 8662022263 or visiting our website at www.fairholmefunds.com. Read it carefully before investing. Additional supplementary information can be found at the end of the presentation.

Fairholme

Ignore the crowd.

TheFairholmeFund(FAIRX):
AverageAnnualTotalReturnsasof9/30/2011: 1Year 5Year FairholmeFund 22.20% 0.12% S&P500 1.14% 1.18% 30DaySECYield ExpenseRatio 0.52% 1.01%* 10Year 7.15% 2.82%

*Includesacquiredfundfeesof.01%.AcquiredfundfeesandexpensesarethoseexpensesincurredindirectlybytheFairholme Fundasaresultof investmentsinsecuritiesissuedbyoneormoreinvestmentcompanies.

CumulativeReturnsasof9/30/2011: 1Year FairholmeFund 22.20% S&P500 1.14%

5Year 0.61% 5.76%

10Year 99.57% 32.00%

Performance information quoted above represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investors shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than the performance quoted herein. The Fairholme Fund imposes a 2.00% redemption fee on shares held less than 60 days. Performance data does not reflect the redemption fee. If reflected, total returns would be reduced. Fairholme performance numbers assume reinvestment of dividends and capital gains and include all expenses, including acquired fund fees and expenses incurred indirectly by the Fairholme Fund in securities issued by investment companies. While the Fairholme Fund has no front or back loads, or 12b1 fees, management fees and other expenses still apply. Current month end performance may be obtained by calling Shareholder Services at 8662022263.

Fairholme

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GuidingPrinciples

ShareholdersFirst DontLose FocusonValue LongTermPerformance IgnoreTheCrowd

Fairholme

Ignore the crowd.

$50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $

Ourperformancesince inceptionhasbeenquitegood

Performanceofa$10,000Investment

FAIRX

S&P500

* Based on total return. See last page for supplementary information Fairholme Ignore the crowd.

And,weveevenkeptpacewithourheroes.
$70,000

Performanceofa$10,000Investment

$60,000

$50,000

$40,000

$30,000

$20,000

$10,000

FAIRX

Leucadia

BerkshireHathaway

S&P500

* Based on total return. See last page for supplementary information Fairholme Ignore the crowd.

ValueinvestingisalongtermstrategyevenCharlieMungers private partnership(preBerkshireHathaway)hadtoughinvestmentperiods.

$180,000 $160,000

Performanceofa$10,000Investment

$140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $ 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975

MungerPartnership
* See last page for supplementary information Fairholme

DowJonesIndustrialAverage
Ignore the crowd.

Greedywhenothersarefearful, andfearfulwhenothersaregreedy.
25% 1,350 1,300 20% 1,250 15%

1,200

10%

1,150

1,100 5%

When investors are fearful prices are low, and we buy.

0%

When prices are high and others are greedy, we raise cash.

1,050

1,000

FAIRXCash%

S&P500

Fairholme

Ignore the crowd.

S&P500Index

FAIRXCash%

Valueinvestorsdonotequatevolatility withriskoverthelongterm.

Volatility:[voluhtilitee]
WebstersDictionary
Tendingtofluctuatesharplyandregularly.

BarronsDictionaryofFinanceandInvestmentTerms
Characteristicofasecurity,commodity,ormarkettoriseorfallsharply inpricewithinashorttermperiod.

Fairholme

Ignore the crowd.

Marketpricevolatilityonlymeasures shorttermperceptionoflongtermrisk.
FAIRXRecoveryPeriods
$40
RecoveryPeriod
8/29/03:$16.52 Span:16Months

RecoveryPeriod
4/30/10:$35.20 Span:30Months

RecoveryPeriod
12/31/10:$35.38 Span:8Months

$35

$30 FAIRXNetAssetValue(NAV)
13.92%

$25

$20
50.26%

$15
15.12%

$10

PeakToTrough PeakToTrough
4/30/02:$16.40 2/28/03:$13.92 Span:10Months 10/31/07:$34.82 2/27/09:$17.32 Span:16Months

PeakToTrough
4/30/10:$35.20 6/30/10:$30.30 Span:2 Months

$5

FAIRXNAV

Fairholme

Ignore the crowd.

InvestmentThesisforFinancialStocks

1% Returnon
Assets

10% Returnon
OwnersEquity

20% impliedannual
ReturnonInvestment

Thiswouldbea reasonablereturnto profitability,and certainlynota difficultgoal.

Thisissimplythe mathassociatedwith theleverageof financialcompanies.

Thisistheimplied annual returnwhen youcanbuystockat bookvalue.

Fairholme

Ignore the crowd.

Case Study: Bank of America

Fairholme

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Fairholme

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InvestinginourCircleofCompetence
Businessesweunderstand Favorablelongtermprospects
$90 $80 $70

Operatedbyhonestandcompetentpeople Availableatattractiveprices

DollarsPerShare

$60 $50 $40 $30 $20 $10 $0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

BookValue
Fairholme

MarketPrice

Cash

Revenue
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BankofAmericasFranchise
5,700Branches,17,500ATMs,and16,500FinancialAdvisorsin50statesandover40countries. Touches80%oftheU.S.population,including57millionconsumerandsmallbusinessrelationships.
$2,500,000

AcquisitionsandAssetGrowth
NorthCarolinaNationalBank BankersTrust FirstRepublicBank C&SSovran NationsBank MNCFinancial BarnettBank BoatmensBank BankAmericaCorp

Dollars(inmillions)

$2,000,000

$1,500,000

$1,000,000

$500,000

FleetBoston MBNA U.S.Trust Lasalle Bank Countrywide MerrillLynch

$0
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

TotalAssets
Fairholme Ignore the crowd.

Youvegottoadmititsgettingbetter... Alittlebetterallthetime.
$600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 $12,000 $10,000 $8,000 $6,000 $4,000

LongTermDebtDecline 22%declinesinceQ12010

$2,000 $0

ChargeOffs 53%declinesinceQ12010 QoQdecreasesince2010

LongTermDebt $1,060,000 $1,040,000 $1,020,000 $1,000,000 $980,000 $960,000 $940,000 $920,000 18%

Chargeoffs

Capital SufficientTier1Capital

Deposits 7%increasesinceQ12010 Reflectsstrongcustomerbase

16% 14% 12% 10% 8% 6% 4%

Deposits

Dollars(inmillions)
Fairholme

Tier1CommonEquityRatio Tier1RiskBasedCapitalRatio TotalRiskBasedCapitalRatio

* See last page for supplementary information Ignore the crowd.

LegacyCountrywideLoans

GlobalWealth& GlobalBanking& InvestmentManagement LegacyConsumerRealEstateServices Markets

Fairholme

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MasksStrongFranchises.

Deposits

CardServices

Global Commercial Banking

GlobalWealth& GlobalBanking& ConsumerRealEstateServices InvestmentManagement Markets

LegacyAssetServicing

ConsumerRealEstateServices

Fairholme

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Getvs.Give

FutureCash Flows

MarketCap:$70bn

OwnersCapital:$200bn Reserves:$50bn

UsingBenGrahamsframework, recentlythemarkethasbeena votingmachine,butwhenit returnstoaweighingmachine BankofAmericasstrong fundamentalswillcomeintoplay.

Fairholme

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Djvu?
Its earnings power has been disguised by the intense provisioning for loan losses. But when the provisioning gets back to a normal level, youll start to see that incredible earnings power come down to the bottom line. And its as simple as that.
BruceR.Berkowitz OutstandingInvestorDigest November25,1992

Fairholme

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WiseinvestorsdonotpermitMr.Marketsdailyfluctuationsto affecttheirunderstandingoffundamentalvalue.
1,800% 1,600% 1,400%

CumulativeReturn

1,200% 1,000% 800% 600% 400% 200% %

Started to Buy Wells Fargo

WellsFargo

S&P500

Bankshavebeenherebefore.
Fairholme Ignore the crowd.

The S&P 500 Index is a broad based measurement of changes in the stock market, is used for comparative purposes only, and is not meant to be indicative of the Funds performance, asset composition or volatility. Given the wide scope of securities held by S&P 500, it should be inherently less volatile. Our results may differ markedly from those of the S&P 500 in either up or down market trends. The performance of the S&P 500 is shown with all dividends reinvested into the index and does not reflect any reduction in performance for the effects of transaction costs or management fees. Investors cannot invest directly in an index. The performance quoted for Berkshire Hathaway (Berkshire) and Leucadia National Corporation (Leucadia) is based on the closing market price of Berkshires Class A Common Stock and Leucadias common shares. Berkshire is a conglomerate holding company owning subsidiaries that engage in a number of diverse business activities including property and casualty insurance and reinsurance, freight rail transportation, utilities and energy, finance, manufacturing, services and retailing. Leucadia is a diversified holding company engaged in a variety of businesses, including manufacturing, land based contract oil and gas drilling, gaming entertainment, real estate activities, medical product development and winery operations. Berkshire and Leucadia are not mutual funds. They are subject to different corporate, securities, and tax regulations that affected their return in ways different than a mutual fund. Berkshire has not paid a dividend. Its earnings are retained and taxed at prevailing corporate income tax rates. The quoted returns for Berkshire and Leucadia do not reflect capital gains tax a shareholder would pay upon sale of their stock. As a registered mutual fund, Fairholme Fund's net investment income is exempt from corporate taxation provided it is paid out as dividends. The Fund's quoted returns do not reflect a shareholder's taxes on dividends or upon redemption of shares. Berkshire was the Funds fourth largest holding as of August 31, 2011, representing 7.9% of the Funds total net assets. Leucadia was not among the Funds top ten holdings as of the same date. The Munger Partnership was a private investment partnership run by Charles Munger, who is now ViceChairman of Berkshire Hathaway. Tier 1 Capital: a regulatory measure of a banks financial strength. It is composed of core capital, which is principally common stock and retained earnings. Tier 1 Common Equity Ratio: the measurement of a bank's core equity capital compared with its total riskweighted assets. This is the measure of a bank's financial strength. The Tier 1 common capital ratio excludes any preferred shares or noncontrolling interests when determining the calculation. Tier 1 RiskBased Capital Ratio: the ratio of Tier 1 capital to its Riskweighted assets. Riskweighted asset is a bank's assets or offbalance sheet exposures, weighted according to risk. The historical return shown for Wells Fargo is based on Closing Price of its Common Stock. The chart refers to the purchase and sale of Wells Fargo stock by Fairholme Funds portfolio manager while he was portfolio manager for Shearson Lehman Brothers. Wells Fargo securities were not among the Fairholme Funds top ten holdings as of August 31, 2011, and were not held by Fund as of its last shareholder report dated May 31, 2011. Opinions expressed are those of the author and/or Fairholme Capital Management, L.L.C. and should not be considered a forecast of future events, a guarantee of future results, nor investment advice. Shares of the Fairholme Fund are distributed by Fairholme Distributors, Inc.

Fairholme

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FAIRHOLME
Ignore the crowd.

Fairholme

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