The Fairholme Fund, Semi-Annual Report 2009 (includes Bruce Berkowitz's Commentary)

FAIRX

THE FAIRHOLME FUND

A NO-LOAD CAPITAL APPRECIATION FUND

SEMI-ANNUAL REPORTFOR THE SIX MONTHS ENDEDMAY 31, 2009FAIRHOLMEFUNDS.COM866.202.2263

FAIRHOLME

Ignore the crowd.

The chart above covers the period from inception ofThe Fairholme Fund (the “Fund”)(December 29, 1999) to the end of the most recent fiscal semi-annual period (May 31, 2009).The following notes pertain to the chart above as well as the performance table included inthe Management Discussionand Analysisthat followsthe Portfolio Manager’s Report.Performance information in this report represents past performance and is not a guarantee of future results. The investment return and principal value of an investment in the Fund willfluctuate, so that an investor’s shareswhen redeemed, may be worth more or less than theiroriginal cost. Current performance may be higher or lower than the performance quotedwithin. Any questions you have, including obtaining the latest month-end performance, canbe answered by calling the Fund at 1-866-202-2263or by visiting the Fund’s website atwww.fairholmefunds.com.Data for both the S&P 500 Index and the Fund are presented assuming all dividends anddistributions have been reinvested and do not reflect any taxes that might have been incurredby a shareholder as a result of Fund distributions. The S&P 500 Index is a widelyrecognized, unmanaged index of 500 of the largest companies in the United States asmeasured by market capitalization and does not reflect any investment management fees ortransaction expenses, nor the effects of taxes, fees or other charges.

Fairholme Fund S&P 500

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PORTFOLIO MANAGER’SREPORTFor the Six Months Ended June 30, 2009

This Portfolio Manager’s Report is based on calendar year performance and precedes a more formal Management Discussion & Analysis. Opinions of thePortfolio Manager are intended as such, and not as statements of fact requiringattestation. All references to portfolio investments are as of the latest public filing of the Fund’s holdings at the time of publication. Mutual fund investing involves risksincluding loss of principal. Performance information quoted herein represents past performance and is not a guarantee of future results. The investment return and principal values of an investment in the Fund will fluctuate,so that an investor’sshareswhen redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than the performance information quoted within. The Fund imposes a 2% redemption fee on shares held less than 60 days.Performance data does not reflect the redemption fee, which if imposed, would reducereturns. Any questions you have regarding the latest month-end performance can beobtained by calling shareholder services at 1-866-202-2263 or by visiting the Fund’swebsite at www.fairholmefunds.com. Additional information regarding the risks of investing in the Fund may be found in the Fund’s current Prospectus and Statement of Additional Information. The S&P 500 Index is a broad-based unmanaged index of 500 stocks, which is widely recognized as representative of the U.S. equity market ingeneral. Investors cannot invest directly in an index. Please refer to the back cover of this document for additional important disclosures.

July 29, 2009To the Shareholders and Directors of the Fairholme Fund:Below is a comparison of the Fund’s unaudited performance (after expenses) withthat of the S&P 500 Index (before expenses), both with dividends and distributionsreinvested, for the period ending June 30, 2009:

SincePerformanceSixOneThreeFiveInceptionto 6/30/09MonthsYearYearsYears12/29/1999

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Cumulative:

The Fairholme Fund16.21%-13.18%-1.65%44.21%195.07%S&P 500 Index3.16%-26.21%-22.70%-10.72%-25.55%

Annualized:

The Fairholme Fund-13.18%-0.55%7.60%12.06%S&P 500 Index-26.21%-8.22%-2.24%-3.06%The Fund’s Expense Ratioat May 31, 2009 is 1.00%.In theFund’scurrent prospectusdated March 17, 2009, the Fund’sExpenseRatio is 1.02%.