Fairholme Funds, Inc. and Its Series, The Fairholme Fund, The Fairholme Focused Income Fund And The Fairholme Allocation Fund, Publish Their Portfolio Manager’s Reports and 2013 Semi-Annual Reports
MIAMI--(BUSINESS WIRE)-- The Fairholme Fund, The Fairholme Focused Income Fund, and The Fairholme Allocation Fund will file their Semi-Annual Reports with the United States Securities and Exchange Commission (“SEC”). The filings contain information on the respective portfolio holdings of The Fairholme Fund (Nasdaq: FAIRX ) , The Fairholme Focused Income Fund (Nasdaq: FOCIX ) , and The Fairholme Allocation Fund (Nasdaq: FAAFX ) as of May 31, 2013.
The Portfolio Manager’s Reports for each series of the Fairholme Funds and their respective 2013 Semi-Annual Reports will be available online to the public on the SEC’s EDGAR database and are currently available at www.fairholmefunds.com.
FAIRHOLME CAPITAL MANAGEMENT, LLC
PORTFOLIO MANAGER’S REPORT
For the Six Months Ended June 30, 2013
Mutual fund investing involves risks, including loss of principal. The chart below covers the period from inception of The Fairholme Fund (December 29, 1999) to June 30, 2013. The past performance information quoted below is unaudited and does not guarantee future results. The investment return and principal value of an investment in The Fairholme Fund will fluctuate; an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information quoted below. Performance figures assume reinvestment of dividends and capital gains but do not reflect a 2.00% redemption fee on shares redeemed within 60 days of purchase. Any questions you may have, including most recent month-end performance, can be answered by calling Shareholder Services at 1.866.202.2263. 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 Fairholme Fund’s performance, asset composition, or volatility. The Fairholme Fund maintains a focused portfolio of investments in a limited number of issuers and does not seek to diversify its investments. This exposes The Fairholme Fund to the risk of unanticipated industry conditions and risks particular to a single company or the securities of a single company. The Fairholme Fund’s performance may differ markedly from the performance of the S&P 500 Index in either up or down market trends. The performance of the S&P 500 Index is shown with all dividends reinvested and does not reflect any reduction in performance for the effects of transaction costs or management fees. Investors cannot invest directly in an index. As reflected in its current prospectus, dated April 1, 2013, The Fairholme Fund’s expense ratio is 1.00%. Effective as of the close of business on February 28, 2013, the sale of shares of The Fairholme Fund has been suspended to new investors, subject to certain exceptions.
July 29, 2013
To the Shareholders and the Directors of The Fairholme Fund:
The Fairholme Fund (the “Fund” or “FAIRX”) gained 15.08% versus 13.82% for the S&P 500 Index (the “S&P 500”) in the first six months of this year. The following table compares the Fund’s unaudited performance (after expenses) with that of the S&P 500, with dividends and distributions reinvested, for the period ended June 30, 2013.
|The Fairholme Fund||25.32%||37.64%||179.70%||367.77%|
|S&P 500 Index||20.60%||40.33%||102.25%||41.59%|
|The Fairholme Fund||25.32%||6.60%||10.83%||12.10%|
|S&P 500 Index||20.60%||7.01%||7.30%||2.61%|
At June 30, 2013, the value of a $10.00 investment in the Fund at its inception was worth $46.78 (calculated by assuming reinvestment of distributions into additional fund shares) compared to $14.16 for the S&P 500. FAIRX returned almost nine times more than the S&P 500 on a $10.00 investment. This difference, more than anything, demonstrates how the Fund has outperformed the market (as represented by the S&P 500) over the long run.
The Fund’s average rolling 5-year return was 68.56% versus 16.84% for the S&P 500. The Fund has outperformed the S&P 500 in 94 of 103 5-year periods, calculated after each month’s end. The Fund’s worst 5-year-period return was (6.89)% versus (29.05)% for the S&P 500. In its best 5-year period, the Fund’s return was 163.08% versus the S&P 500’s best return of 105.13%.
Fund’s Rolling 5-Year-Period Returns*
(3/2000 – 2/2005)
(10/2002 – 9/2007)
(1/2007 – 12/2011)
(3/2004 – 2/2009)
The advantages of our long-term focused investment approach are most evident when evaluating our performance over any 5-year period since the inception of FAIRX in 1999. The Fund has achieved 99 positive 5-year return periods and only 4 negative 5-year return periods, compared with 76 positive 5-year return periods and 27 negative 5-year return periods for the S&P 500.
Eighty-five percent of net assets are invested in AIG, Bank of America, and others damaged by our country’s residential real estate bubble. We bought when most thought them dead. Clearly, they were not and we helped prove the point. Our initial investments reaffirmed a deeply held – and historically profitable – belief that it doesn’t pay to bet against America.
The Fund’s latest investments in the recovery of homeownership are in the preferred stocks of Fannie Mae and Freddie Mac. Your current mortgage may be backed by Fannie or Freddie – about 60% of new mortgages are. Millions of families depend on them to lower the costs and increase the availability of homeownership. In times of stress, Fannie and Freddie stand to ensure the continued functioning of our housing market. Their twelve thousand employees do yeoman’s work helping to preserve a cornerstone of the American dream.
The Fund was able to purchase the preferred stocks of Fannie and Freddie near one-fifth of liquidation values – a significant bargain thanks to market predictions of U.S. Government agencies expropriating their assets. We see them differently. Fannie and Freddie are successful, publicly traded, shareholder-owned companies just like AIG and Bank of America. Shifting political winds can change their futures, but not alter their pasts.
The Fund has filed complaints in the Court of Federal Claims and the U.S. District Court in Washington. In our suits, we seek nothing more than the enforcement of existing contractual rights, which require the payment of dividends to Fannie and Freddie preferred shareholders. Our arguments are based on fundamental principles. In America, property ownership is a sacrosanct freedom, guaranteed by our Constitution. In America, we follow the rule of law, not the rule of the crowd. In America, profitable companies honor contracts.
Recent performance is due in good part to our investment in AIG and the teachings of John J. Byrne, the Babe Ruth of insurance. Not a day goes by without hearing his principles, “Underwriting comes first. Maintain a strong balance sheet. Invest for total return. Think like an owner.” Jack passed away this year. He will be missed, but not forgotten.
*Represents the percentage returns over a five-year rolling period (calculated after each month’s end) since inception through June 30, 2013. Monthly rolling 5-year performance is a period of 60 consecutive months determined on a rolling basis, with a new 60-month period beginning on the first day of each calendar month since the inception of the Fund.
|Onward and upward,|
|Bruce R. Berkowitz|
|Fairholme Capital Management|
The Portfolio Manager’s Report is not part of The Fairholme Fund’s Semi-Annual Report due to forward-looking statements that, by their nature, cannot be attested to, as required by regulation. The Portfolio Manager’s Report is based on calendar year performance. A more formal Management Discussion and Analysis is included in the Semi-Annual Report. Opinions of the Portfolio Manager are intended as such, and not as statements of fact requiring attestation. All references to portfolio investments of The Fairholme Fund are as of the latest public filing of The Fairholme Fund with respect to such holdings at the time of publication, unless specified.
Investing in the Funds involves risks including loss of principal. The Funds’ investment objectives, risks, charges, and expenses should be considered carefully before investing. The prospectus contains this and other important information about the Funds, and it may be obtained by calling Shareholder Services at 1-866-202-2263 or visiting our website www.fairholmefunds.com . Read it carefully before investing.
For a copy of the top holdings for The Fairholme Fund, please click here. Portfolio holdings are subject to risk and may change at any time.
Fairholme Capital Management, L.L.C.
Brian Ehrlich, 305-358-3000
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