(PUB) Investing 2015

6

Data through November 30, 2015 FINRA members: For internal or institutional use only. Fairholme Focused Income

Ticker FOCIX

Yield 4.0%

SEC Yield —

Total Assets $243 mil

Mstar Category High Yield Bond

Benchmark 1: BofAML US HY Master II TR USD Benchmark 2: Barclays US Agg Bond TR USD Morningstar Analyst Rating 11-20-15 ´

Investment Style Fixed Income

Historical Profile Return Risk Rating High High QQQQQ Highest

16.0

Growth of $10,000

Investment Values of Fund Investment Values of Benchmark 1

14.0

Morningstar Pillars Process

12.0

∞ Positive ¶ Neutral ∞ Positive ∞ Positive § Negative

Performance

People Parent

10.0

Performance Quartile (within Category)

) ) & ) &

Price

History

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 11-15

Morningstar Analyst Rating Morningstar evaluates mutual funds based on five key pillars, which its analysts believe lead to funds that are more likely to outperform over the long term on a risk-adjusted basis. Analyst Rating Spectrum Œ „ ´ ‰ Á

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10.71 9.91 9.47 11.17 10.41 10.72

NAV

-0.72 5.19 29.92 -3.39 6.16 -5.10 -10.40 22.50 -5.90 8.27 -8.56 0.97 31.94 -9.36 5.28 6.94 10.14 4.50 2.20 3.23 -7.66 -4.95 25.42 -5.59 2.93

Total Return % +/- Bmark 1 +/- Bmark 2 Income Return % Capital Return % Capital Gains $ Expense Ratio % Income Ratio % Turnover Rate % Net Assets $mil Total Rtn % Rank Cat Income $

Pillar Spectrum ∞ Positive

88

99

1

98

1

§ Negative

¶ Neutral

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.36 0.73 0.97 0.42 0.24 0.33 0.04 0.00 0.00 0.68 0.15 0.00 1.00 1.00 1.00 1.00 1.00 1.00 4.69 5.96 9.53 4.28 1.94 3.95

Performance 11-30-15 1st Qtr 2nd Qtr

3rd Qtr

4th Qtr

Total

2011 2012 2013 2014 2015

4.93 -1.37 -9.41 5.90 -0.72 5.98 0.48 3.50 -4.55 5.19 7.48 15.79 0.94 3.41 29.92 4.61 0.75 -1.47 -6.97 -3.39

.

77

92

8

43

39

352

298

241

237

209

243

Rating and Risk Time Period Load-Adj Return %

Portfolio Analysis 08-31-15

4.79 0.24 3.79

— —

Date of Maturity

Value $000

% Assets

Morningstar Rtn vs Cat

Morningstar Risk vs Cat

Morningstar Risk-Adj Rating

Total Fixed Income: 8

Amount 000

Trailing

Total Return%

+/- Bmark 1

+/- Bmark 2

%Rank Cat

Growth of $10,000

Imperial Metals Corp New 03-15-19

50,200 47,936 19.85 45,239 44,053 18.24 7,535 7,500 3.11 8,655 7,422 3.07 6,350 5,429 2.25 5,000 4,895 2.03 3,556 2,858 1.18 1,730 1,703 0.71

1 Yr 3 Yr 5 Yr

4.60 8.91 7.26

3 Mo 6 Mo

-2.40 -0.21 -2.83 -1.61 4.35 -1.49 4.60 8.16 3.63 8.91 5.84 7.41 7.26 1.50 4.17

69 9,760 5 9,839 1 10,460 1 12,920 1 14,196

Sears Hldgs 8%

12-15-19 10-15-18

High QQQQQ High QQQQ

High High

Sears Hldgs 6.625%

1 Yr

Atwood Oceanics 6.5% 02-01-20 Chesapeake Engy 7.25% 12-15-18

10 Yr Incept

— — — —

3 Yr Avg 5 Yr Avg 10 Yr Avg 15 Yr Avg

7.67

Jefferies Fin Llc/Jfin Cp

04-01-20

— — — — — — — — — —

Chesapeake Engy 6.625% 08-15-20

Other Measures

Standard Index

Best Fit Index

Hrg Grp 144A 7.75%

01-15-22

Alpha

10.8 -0.98

2.4

Beta

0.56

Tax Analysis

Tax Adj Rtn% %Rank Cat Tax-Cost Rat %Rank Cat

R-Squared

5

13

Current Investment Style

Sector Breakdown

% Assets

3 Yr (estimated) 5 Yr (estimated) 10 Yr (estimated)

6.59 4.71

1 1

2.14 2.37

15 37

Government

0

Duration Ltd Mod Ext

Standard Deviation

13.22

Government Related

12 60

— — — —

Mean

8.91 0.70

Quality High Med Low

Corporate

Sharpe Ratio

Potential Capital Gain Exposure: -2% of assets

Agency MBS 0 Non-Agency Residential MBS 0 Commercial MBS 0 Covered Bond 0 Asset Backed 0 Municipal 0 Cash & Equivalents 28 Other 0

Morningstar's Take by Kevin McDevitt, CFA 11-20-15 Fairholme Focused Income earns a Morningstar Analyst Rating of Bronze thanks to its eclectic yet rewarding return stream. This fund has bounced back impressively after a poor 2014 showing. Continuing its feast-or-famine tradition, the fund has the high-yield Morningstar Category's highest one-year return (9.3% through October 2015), beating its closest competitor by 6 percentage points. This owes in part to the fund's combined 12.5% position in Fannie Mae/Freddie Mac preferreds, which were up 50% and 21%, respectively. This reversal is a reminder that whether the fund is doing well or not, manager Bruce Berkowitz is playing an entirely different game than most competitors. Berkowitz invests exclusively in fallen angels, as opposed to bonds that are high yield when issued. The fund's income also tends to be much lower than most peers. Berkowitz is more focused on the capital appreciationthatcomeswhenaholding isrerated.Finally, the portfolio is highly concentrated, with about 45% of assets in just two issuers, Sears and Imperial Metals, as of August.

1 figure provided by fund

This combination makes the fund far more volatile than most peers. Its five-year standard deviation, a measure of volatility, was 12.2% through October 2015, double that of the BofAML U.S. HY Master II Index. In fact, the fund's standard deviation is much more in line with an equity index, such as the broad-based Russell 3000 Index, which had a nearly identical five-year standard deviation of 12.3%. Looking at the fund as an equity proxy wouldn't be accurate either. Instead, the fund might be thought of as a source of somewhat uncorrelated returns. Since its 2010 inception, the fund has a R-squared--a measure of correlation--of just 19 with both the BofAML U.S. HY Master II Indexand theRussell3000 Index.Thus, the fund could provide diversification for investors looking for an alternative to stocks and bonds. However, that requires detaching from the fund's wild year-to-year fluctuations. For those who can do so, it can fill a useful niche.

— — —

Avg Eff Duration 1 Avg Eff Maturity Avg Credit Quality Avg Wtd Coupon

7.34%

Avg Wtd Price

95.17% of par

Composition - Net Cash

Coupon Range

% of Bonds

25.7 Bonds 9.4 Other

50.4 14.5

0% PIK

0.0 0.0 0.0

Stocks

0% to 4% 4% to 6% 6% to 8% 8% to 10%

Special Securities Restricted/Illiquid Secs Emerging-Markets Secs Options/Futures/Warrants

100.0

25

0.0 0.0

0 0

More than 10%

Credit Analysis

% bonds

AAA

— BB — B

— —

AA

A

— Below B — — Not Rated —

BBB

Address:

Fairholme Funds Inc Miami, FL 33137

Minimum Purchase: Min Auto Inv Plan:

$25000 Add: $2500IRA: $25000

$25000 Add: $250

866-202-2263

Sales Fees:

No-load

Web Address:

www.fairholmefunds.com

Management Fee:

1.00%

Inception:

01-04-10

Actual Fees:

Mgt:1.00% Dist:—

Advisor:

Fairholme Capital Management LLC

Expense Projections: Income Distribution:

3Yr:$322 5Yr:$558 10Yr:$1236

Subadvisor:

None

Quarterly

D

ß ® Mutual Funds

©2015Morningstar, Inc.All rights reserved. The information herein is not represented orwarranted to be accurate, complete or timely. Past performance is no guarantee of future results.Access updated reports at www.morningstar.com . To order reprints, call 312-696-6100.