Bruce Berkowitz's Fairholme Fund Semi-Annual 2022 Report

July 29, 2022

Dear Fellow Shareholders:

St. Joe Company (JOE, Financial) common stock is the lion’s share of the Fund’s assets. Dozens of JOE projects are in various stages of completion. Management’s 2024 milestones are 2,000 yearly residential sales; 2,500 multi-family and senior living units; 1,500 hotel rooms; 1,800,000 square feet of leased property; 3,250 club memberships; and 750 marina boat slips.¹ While supply chain disruptions have slowed progress, there are few signs, if any, of a slowdown in demand. The popularity of Watersound communities, the sprouting of Latitude Margaritaville along the Intracoastal Waterway, the redevelopment of Panama City, and the rebuilding of Tyndall Air Force Base into America’s “installation of the future” are major catalysts for JOE’s value creation along Florida’s Emerald Coast.

The Fund continued to purchase Enterprise Products Partners L.P (EPD, Financial) (Enterprise) and Commercial Metals Corp. (CMC, Financial) during the six months ended June 30, 2022. Enterprise processes and transports natural gas, natural gas liquids, and oil. The supply of hydrocarbons and their derivatives are critical for modern life. There are no ready substitutes. CMC recycles scrap into rebar that is essential for the strengthening of concrete infrastructure. Both Enterprise and CMC, like JOE, have regional moats.

U.S. Treasury Bills and Treasury money market funds comprise 11% of Fund assets. I and affiliates own 31% of the Fund’s shares. We “eat our own cooking” because we expect that the Fund will outperform the S&P 500 Index as it has since inception. I look forward to our annual report and thank long-term shareholders for their patience and trust.

Respectfully submitted,

Bruce R. Berkowitz, Chief Investment Officer

1 Joe Annual Shareholders’ Meeting Presentation, May 17, 2022, www.ir.joe.com

The Fairholme Fund (Trades, Portfolio) shares outstanding and unaudited net asset value per share (“NAV”) at May 31, 2022, the end of The Fairholme Fund (Trades, Portfolio)’s semi-annual period, and NAVs at other pertinent dates, were as follows:

At June 30, 2022, the unaudited NAV of The Fairholme Fund (Trades, Portfolio) was $25.17.

Performance figures below are shown for The Fairholme Fund (Trades, Portfolio)’s semi-annual period ended May 31, 2022, and do not match calendar year figures for the period ended June 30, 2022, cited in the Portfolio Manager^’s report

For the six months ended May 31, 2022, The Fairholme Fund (Trades, Portfolio) outperformed the S&P 500 Index (“S&P 500”) by 14.07 percentage points Over the last fiscal year, The Fairholme Fund (Trades, Portfolio) also outperformed the S&P 500 by 2.29 percentage points. From inception, The Fairholme Fund (Trades, Portfolio) outperformed the S&P 500 by 3.46 percentage points per annum, or on a cumulative basis, 451.52 percentage points

Fairholme Capital Management, L.L.C. (the “Manager”) believes performance over shorter periods is likely to be less meaningful than performance over longer periods. Investors are cautioned not to rely on short-term results. The fact that securities increase or decline in value does not always indicate that the Manager believes these securities to be more or less attractive — in fact, the Manager believes that some price increases present selling opportunities and some price declines present buying opportunities.

Further, shareholders should note that the S&P 500 is unmanaged indices incurring no fees, expenses, or tax effects and are shown solely to compare The Fairholme Fund (Trades, Portfolio)’s performance to that of unmanaged and diversified indices of securities. As of the prospectus dated March 30, 2022, the gross expense ratio for The Fairholme Fund (Trades, Portfolio) is 1.00%. Shareholders are also cautioned that it is possible that some securities mentioned in this discussion may no longer be held by The Fairholme Fund (Trades, Portfolio) subsequent to the end of the fiscal period, and that The Fairholme Fund (Trades, Portfolio) may have made new investments that are not yet required to be disclosed. It is The Fairholme Fund (Trades, Portfolio)’s general policy not to disclose portfolio holdings other than when required by relevant law or regulation. Portfolio holdings are subject to change without notice and are not a recommendation to buy or sell any security.

Not all The Fairholme Fund (Trades, Portfolio) portfolio dispositions or additions are material, and, while The Fairholme Fund (Trades, Portfolio) and the Manager have long-term objectives, it is possible that a security sold or purchased in one period will be purchased or sold in a subsequent period. Generally, the Manager determines to buy and sell based on its estimates of the, respectively, relative intrinsic values and the Manager’s assessment of certain attractive characteristics of a company, general market conditions and expected future returns of an investment.

The Manager invests The Fairholme Fund (Trades, Portfolio)’s assets in securities to the extent the Manager finds reasonable investment opportunities in accordance with The Fairholme Fund (Trades, Portfolio)’s investment strategies, policies and restrictions, as stated in The Fairholme Fund (Trades, Portfolio)’s Prospectus and may invest a significant portion of The Fairholme Fund (Trades, Portfolio)’s assets in cash and cash equivalents The Manager views liquidity as a strategic advantage. Due to the continued uncertainty caused by the spread of COVID-19 and the corresponding market volatility and governmental responses to it, during the period ended May 31, 2022, the Manager has continued to hold U.S. Treasury Bills as part of The Fairholme Fund (Trades, Portfolio)’s investments At May 31, 2022, cash and cash equivalents (consisting of cash, deposit accounts, U.S. Treasury Bills and Treasury money-market funds) represented 9.6% of The Fairholme Fund (Trades, Portfolio)’s total assets Since inception, The Fairholme Fund (Trades, Portfolio) has held varying levels of cash and cash equivalents for periods without, in the Manager’s view negatively influencing performance

The Fairholme Fund (Trades, Portfolio) is considered to be “non-diversified” under the Investment Company Act of 1940. Accordingly, The Fairholme Fund (Trades, Portfolio) can invest a greater percentage of its assets in fewer securities than a diversified fund, and can invest a significant portion of cash and liquid assets held by The Fairholme Fund (Trades, Portfolio) in one or more higher-risk securities at any time, including periods when a market is weak or a particular security declines sharply. The Fairholme Fund (Trades, Portfolio) may also have a greater percentage of assets invested in a particular sector than a diversified fund, exposing The Fairholme Fund (Trades, Portfolio) to the risk of an unanticipated event or condition and risks affecting a single company, sector or security.

The commentary below provides details of The Fairholme Fund (Trades, Portfolio)’s portfolio holdings by issuer and sector, as well as reporting the most significant positive and negative performance by investment for the six months ended May 31, 2022.

The most significant gains in The Fairholme Fund (Trades, Portfolio)’s portfolio were related to positive developments in the Real Estate Management & Development, Oil & Gas Storage & Transportation, and Steel sectors. Investments in the Metals & Mining, Mortgage Finance, and Semiconductors sectors saw some losses during the six months ended May 31, 2022.

The Manager made no changes to the core investment strategies and techniques it employed during the six months ended May 31, 2022.

For the six months ended May 31, 2022, The Fairholme Fund (Trades, Portfolio) investment that contributed to performance were The St. Joe Co., Enterprise Products Partners, LP., and Commercial Metals Co. The detractors to performance during the period were Imperial Metals Corp. (TSX:III, Financial), Federal Home Loan Mortgage Corp. (FMCC, Financial) (“Freddie”), Intel Corp. (INTC, Financial), and Federal National Mortgage Association (FNMA, Financial) (“Fannie”.) The following charts show the top holdings by issuer and sector in descending order of percentage of net assets as of May 31, 2022.

The Manager views the ability to focus on fewer investments than a diversified fund as a strategic advantage. However, such a strategy may negatively influence long-term performance.

A more complete discussion and description of the principal risks of investing in The Fairholme Fund (Trades, Portfolio) can be found in its Prospectus and Statement of Additional Information.

Large cash inflows or outflows may adversely affect The Fairholme Fund (Trades, Portfolio)’s performance. Such flows are monitored and actions deemed appropriate by the Manager are contemplated for when such flows could negatively impact performance.

Since inception, The Fairholme Fund (Trades, Portfolio) has been advised by the Manager. Bruce Berkowitz (Trades, Portfolio), both the Chief Investment Officer of the Manager and Chairman of The Fairholme Fund (Trades, Portfolio)’s Board of Directors (the “Board” or the “Directors”), and his affiliates beneficially own an aggregate 13,317,942 shares of The Fairholme Fund (Trades, Portfolio), at May 31, 2022. While there is no requirement that Mr. Berkowitz own shares of The Fairholme Fund (Trades, Portfolio), such holdings are believed to help align the interests of the Manager with the interests of the shareholders.

The Board, including the Independent Directors, continues to believe that it is in the best interests of The Fairholme Fund (Trades, Portfolio) to have Mr Berkowitz serve as Chairman of the Board given: his long-term relative performance; his experience, commitment and significant personal investments in The Fairholme Fund (Trades, Portfolio); the present composition of the Board; and current rules and regulations. A Director and Officers of The Fairholme Fund (Trades, Portfolio) are also Officers of the Manager Nevertheless, at May 31, 2022, a majority of Directors were independent of the Manager no stock option or restricted stock plans exist, Officers received no direct compensation from The Fairholme Fund (Trades, Portfolio), and the Director affiliated with the Manager received no compensation for being a Director

For more complete information about The Fairholme Fund (Trades, Portfolio), or to obtain a current Prospectus please visit www.fairholmefunds com or call Shareholder Services at (866) 202-2263.