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FAIRHOLME

Ignore the crowd.

DISCLAIMER
This presentation uses the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) as a case study to illustrate Fairholme Capital Managements investment strategy for The Fairholme Fund (NASDAQ: FAIRX). In the pages that follow, we show shareholders why we Ignore the crowd with regard to our portfolio positions that are currently out of favor in the market. However, nothing in this presentation should be taken as a recommendation to anyone to buy, hold, or sell certain securities or any other investment mentioned herein. Our opinion of a companys 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 are always subject to risk. As with all mutual funds, investing in The Fairholme Fund involves risk including potential loss of principal. 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. The Fairholme Funds holdings and sector weightings are subject to change. As of May 31, 2013, the preferred stock of Fannie Mae and Freddie Mac comprised 6.5% and the common stock comprised 0.4% 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. The Fairholme Fund is nondiversified, which means that it invests in a smaller number of securities when compared to more diversified funds. As a result, The Fairholme 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 Fairholme 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 (866) 2022263 or by visiting our website at www.fairholmefunds.com. Read it carefully before investing.

FAIRHOLME
Ignore the crowd.

FACTS AND FIGURES

FAIRHOLME
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FANNIE MAE & FREDDIE MAC


THE MORTGAGE MARKETS PRIVATE CAPITAL SOURCE
$38.6TRILLION U.S.BOND MARKET $8.2TRILLION MORTGAGE SECURITIES MARKET

FANNIE MAE AND FREDDIE MAC


TREASURIES CORPORATE BONDS

$4.3T

MORTGAGE SECURITIES
OTHER
U.S. GOVERNMENT

OTHER

FAIRHOLME
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Source:SecuritiesIndustryandFinancialMarketsAssociation,2013

FANNIE MAE & FREDDIE MAC


STEPPING UP WHEN OTHERS WILL NOT
MBSISSUANCE VOLUME
100%

80%

60%
97% 99% 97% 97% 97% 95%

40%

86%

86% 70% 58% 57%

64%

20%

0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 H12013
FannieMae&FreddieMac OtherPrivateCapital

FAIRHOLME
Ignore the crowd. Sources:FederalHousingFinanceAgencyandSecuritiesIndustryandFinancialMarketsAssociation,2013

FANNIE MAE & FREDDIE MAC


NOBODY DOES
50% 45% 40% 35% 30%
27%

IT

BETTER

PERCENTAGE OF LOANS EVER 90DAYS DELINQUENT BY ORIGINATION YEAR (20012008)

25% 20% 15% 10%


6%

5% 0% 2001 2002 2003 2004 2005 2006 2007 2008 Average


FannieMae&FreddieMac OtherPrivatelyFundedMBS

FAIRHOLME
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Source:FederalHousingFinanceAgency,2010

U.S. TREASURY INVESTMENT FULLY RECOUPED

IN

2014

$200

$189.5

$189.5

$189.5

$186.2

$189.5

$192.2

$155.9

$150
$127.9

$100

$61.8 $55.2

$50
$36.3 $20.2 $6.8 $0.2

$0
$inbillions

2008

2009

2010
TotalDisbursed

2011
TotalRecouped

2012

2013E

Q12014E

FAIRHOLME
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Sources:U.S.Treasury,FannieMae,FreddieMac,Fairholme Research

FAIRHOLME

Ignore the crowd.