FAIRHOLME

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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
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FACTS AND FIGURES
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FANNIE MAE AND
FREDDIE MAC
OTHER
U.S.
GOVERNMENT
FANNIE MAE & FREDDIE MAC
THE MORTGAGE MARKETS PRIVATE CAPITAL SOURCE
Source:SecuritiesIndustryandFinancialMarketsAssociation,2013
$38.6TRILLION
U.S.BOND MARKET
$8.2TRILLION
MORTGAGE SECURITIES MARKET
CORPORATE
BONDS
MORTGAGE
SECURITIES
OTHER
TREASURIES
$4.3T
FAIRHOLME
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FANNIE MAE & FREDDIE MAC
STEPPING UP WHEN OTHERS WILL NOT
Sources:FederalHousingFinanceAgencyandSecuritiesIndustryandFinancialMarketsAssociation,2013
86% 86%
70%
58%
57%
64%
97%
99%
97% 97% 97%
95%
0%
20%
40%
60%
80%
100%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 H12013
MBSISSUANCE VOLUME
FannieMae&FreddieMac OtherPrivateCapital
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* Percentage of loans in a given originationyear (as measured by their principal
balance at origination) that have ever become 90days delinquent, entered
foreclosure processing, or entered real estate owned (REO) status.
Source:FederalHousingFinanceAgency,2010
FANNIE MAE & FREDDIE MAC
NOBODY DOES IT BETTER
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2001 2002 2003 2004 2005 2006 2007 2008 Average
PERCENTAGE OF LOANS EVER 90DAYS DELINQUENT BY ORIGINATION YEAR (20012008)*
FannieMae&FreddieMac OtherPrivatelyFundedMBS
27%
6%
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$61.8
$127.9
$155.9
$189.5 $189.5 $189.5
$189.5
$0.2
$6.8
$20.2
$36.3
$55.2
$186.2
$192.2
$0
$50
$100
$150
$200
2008 2009 2010 2011 2012 2013E Q12014E
TotalDisbursed TotalRecouped
$inbillions
Sources:U.S.Treasury,FannieMae,FreddieMac,Fairholme Research
U.S. TREASURY INVESTMENT FULLY RECOUPED IN 2014
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