Bruce Berkowitz's Fairholme Fund 2023 Annual Report: A Review

January 26, 2024

Dear Fellow Shareholders:

The Fairholme Fund (Trades, Portfolio) is a non-diversified mutual fund with the objective of long-term capital growth. With dividends reinvested and after expenses, the Fund has averaged 10.26% per annum growth since inception versus 7.05% for the S&P 500 Index.

A great migration to the American South Continues. Nothwest Florida, including Bay, Walton and Gulf counties, where 86% of St. Joe's (JOE, Financial) land holdings are located, is being discovered by more people from more parts of the country than ever before. St. Joe is building new neighborhoods, hotels, club amenities, apartments and townhomes and commercial buildings to accommodate new residents and visitors. WIth current demographic patterns, we believe St. Joe has the resources to grow its residential, hospitality and commercial segments for decades.

Enterprise Products LP (EPD, Financial) has averaged a 15% per annum total return, with cash distributions reinvested over the past 25 years, by moving hydrocarbons from where found to where consumed. This performance should continue as the world expands, global living conditions improve and as natural gas and natural gas liquids replace dirtier energy inputs.

Cash and cash equivalents compose 9% of the fund's assets. All investments not specifically described in this letter total less than 5% of the Fund's assets.

I and affiliates own 34% of the Fund's shares. We continue to eat our own cooking.

Respectfully submitted,

Bruce R. Berkowitz

Chief Investment Officer

Please consider the investment objectives, risks and charges and expenses of the Fund carefully before investing. The prospectus and summary prospectus contain this and other information about the Fund and are available at www.fairholmefunds.com or by calling Shareholder Services at 866-202-2263. The prospectus and summary prospectus should be read carefully before investing.

The Fairholme Fund (Trades, Portfolio) (the “Fund”) shares outstanding and audited net asset value per share (“NAV”) at November 30, 2023, the end of the Fund's fiscal year, and NAVs at other pertinent dates, were as follows:

At December 31, 2023, the unaudited NAV of the Fund was $36.16.

Performance figures below are shown for the Fund's fiscal year ended November 30, 2023, and do not match calendar year figures for the period ended December 31, 2023, cited in the Portfolio Manager's report.

For the six months ended November 30, 2023, the Fund outperformed the S&P 500 Index (“S&P 500”) by 0.58 percentage points. Over the last fiscal year, the Fund also outperformed the S&P 500 by 15.17 percentage points. From inception, the Fund outperformed the S&P 500 by 2.83 percentage points per annum, or on a cumulative basis, 425.44 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 Fund's performance to that of unmanaged and diversified indices of securities. As of the prospectus dated March 30, 2023, the gross expense ratio for the Fund 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 Fund subsequent to the end of the fiscal period, and that the Fund may have made new investments that are not yet required to be disclosed. It is the Fund'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 Fund portfolio dispositions or additions are material, and, while the Fund 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 Fund's assets in securities to the extent the Manager finds reasonable investment opportunities in accordance with the Fund's investment strategies, policies and restrictions, as stated in the Fund's Prospectus and may invest a significant portion of the Fund's assets in cash and cash equivalents. The Manager views liquidity as a strategic advantage. At November 30, 2023, cash and cash equivalents (consisting of cash, deposit accounts, U.S. Treasury Bills, and Treasury money-market funds) represented 11.7% of the Fund's total assets. Since inception, the Fund has held varying levels of cash and cash equivalents for periods without, in the Manager's view, negatively influencing performance.

The Fund is considered to be “non-diversified” under the Investment Company Act of 1940. Accordingly, the Fund 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 Fund in one or more higher-risk securities at any time, including periods when a market is weak or a particular security declines sharply. The Fund may also have a greater percentage of assets invested in a particular sector than a diversified fund, exposing the Fund 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 Fund's portfolio holdings by issuer and sector, as well as reporting the most significant positive and negative performance by investment for the fiscal year ended November 30, 2023.

The most significant increases in the value of the Fund's portfolio during the period were related to positive developments in the Real Estate Management & Development and Oil & Gas Storage & Transportation sectors. The Fund's investment in the Mortgage Finance sector saw some decrease in value during the period.

The Manager made no changes to the core investment strategies and techniques it employed during the fiscal year ended November 30, 2023.

For the fiscal year ended November 30, 2023, the Fund investments that contributed to performance were securities of The St. Joe Co. and Enterprise Products Partners, LP. The detractors to performance during the period were securities of Federal National Mortgage Association (FNMA, Financial) and Federal Home Loan Mortgage Corp. (FMCC, Financial) The following tables show the top holdings by issuer and sector in descending order of percentage of net assets as of November 30, 2023.

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 Fund can be found in its Prospectus and Statement of Additional Information.

Large cash inflows or outflows may adversely affect the Fund'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 Fund has been advised by the Manager. Bruce Berkowitz (Trades, Portfolio) is the Chief Investment Officer of the Manager and Chairman of the Fund's Board of Directors (the “Board” or the “Directors”). As of November 30, 2023, Mr. Berkowitz and his affiliates owned an aggregate 13,309,401 shares of the Fund. While there is no requirement that Mr. Berkowitz own shares of the Fund, 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 Fund to have Mr. Berkowitz serve as Chairman of the Board given: his long-term relative performance; his experience, commitment, and significant personal investments in series of the Company; the present composition of the Board; and current rules and regulations. A Director and Officers of the Fund are also Officers of the Manager. Nevertheless, at November 30, 2023, a majority of Directors were independent of the Manager, no stock option or restricted stock plans exist, Officers received no direct compensation from the Fund, and the Director affiliated with the Manager received no compensation for being a Director.

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