Mutual fund investing involves risks including loss of principal. The chart below covers the period from inception of The Fairholme Allocation Fund (December 31, 2010) to December 31, 2012. Past performance information to December 31, 2012, quoted below is unaudited and does not guarantee future results. The investment return and principal value of an investment in The Fairholme Allocation Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower 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 Allocation Fund's performance, asset composition or volatility. Given the wide scope of securities held by the S&P 500, it should be inherently less volatile. Our results may differ markedly from those of the S&P 500 in either up or down market trends. The performance of the S&P 500 is shown with all dividends reinvested into the index and does not reflect any reduction in performance for the effects of transaction costs or management fees. The Barclays Capital U.S. Aggregate Bond Index is an unmanaged market-weighted index comprised of investment grade corporate bonds (rated BBB or better), mortgages, and U.S. Treasury and government agency issues with at least one year to maturity. Investors cannot invest directly in an index. As reflected in its current prospectus dated March 29, 2012, The Fairholme Allocation Fund's Expense Ratio is 1.01%, which includes acquired fund fees and expenses of 0.01%. Acquired fund fees and expenses are those expenses incurred indirectly by The Fairholme Allocation Fund as a result of investments in securities issued by one or more investment companies, including, but not limited to, money market funds. Fairholme Capital Management (the "Manager") contractually agreed to waive a portion of its management fees and/or pay The Fairholme Allocation Fund's expenses (excluding taxes, interest, brokerage commissions, acquired fund fees and expenses, expenses incurred in connection with any merger or reorganization and extraordinary expenses such as litigation) in order to limit the expenses of The Fairholme Allocation Fund to 0.75% of The Fairholme Allocation Fund's daily average net assets for the period of December 29, 2010 through March 29, 2012.
January 29, 2013
To The Shareholders and Directors of The Fairholme Allocation Fund (FAAFX, Financial):
The Fairholme Allocation Fund (the "Fund") increased 9.54% versus 4.22% and 16.00% gains for the Barclays Capital US Aggregate Bond Index (the "Barclays Bond Index") and S&P 500 Index (the "S&P 500"), respectively, in 2012. A $10.00 investment in the Fund at its inception has declined to $9.42 (assuming reinvestment of distributions) compared to $11.24 for the Barclays Bond Index and $11.85 for the S&P 500. Cash and equivalents stand at $45 million (17.4% of the Fund). The following table compares the Fund's unaudited performance (after expenses) with that of the Barclays Bond Index and S&P 500 with dividends and distributions reinvested for the period ended December 31, 2012:
The Fund remains focused on small quantity ideas, including warrants on common stock of companies affected by residential real estate markets. 2013 will be the Fund's third year of operation and the economy's fourth year of recovery. It should allow the time for portfolio security prices to further rise with current home price gains across the country. Given current liquidity and the potential for performance dilution to shareholders, the Fund has determined to suspend the sale of shares to new investors after the last day of this February. The Fund will remain available for purchase to existing shareholders, may make exceptions to this suspension, and reserves the right to recommence sales to new investors in the future.
Respectfully submitted,
Bruce R. Berkowitz
Managing Member
Fairholme Capital Management
The Portfolio Manager's Report is not part of The Fairholme Allocation Fund's 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 and precedes a more formal Management Discussion and Analysis. 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 Allocation Fund are as of the latest public filing of The Fairholme Allocation Fund with respect to such holdings at the time of publication, unless specified.
January 29, 2013
To The Shareholders and Directors of The Fairholme Allocation Fund (FAAFX, Financial):
The Fairholme Allocation Fund (the "Fund") increased 9.54% versus 4.22% and 16.00% gains for the Barclays Capital US Aggregate Bond Index (the "Barclays Bond Index") and S&P 500 Index (the "S&P 500"), respectively, in 2012. A $10.00 investment in the Fund at its inception has declined to $9.42 (assuming reinvestment of distributions) compared to $11.24 for the Barclays Bond Index and $11.85 for the S&P 500. Cash and equivalents stand at $45 million (17.4% of the Fund). The following table compares the Fund's unaudited performance (after expenses) with that of the Barclays Bond Index and S&P 500 with dividends and distributions reinvested for the period ended December 31, 2012:
The Fund remains focused on small quantity ideas, including warrants on common stock of companies affected by residential real estate markets. 2013 will be the Fund's third year of operation and the economy's fourth year of recovery. It should allow the time for portfolio security prices to further rise with current home price gains across the country. Given current liquidity and the potential for performance dilution to shareholders, the Fund has determined to suspend the sale of shares to new investors after the last day of this February. The Fund will remain available for purchase to existing shareholders, may make exceptions to this suspension, and reserves the right to recommence sales to new investors in the future.
Respectfully submitted,
Bruce R. Berkowitz
Managing Member
Fairholme Capital Management
The Portfolio Manager's Report is not part of The Fairholme Allocation Fund's 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 and precedes a more formal Management Discussion and Analysis. 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 Allocation Fund are as of the latest public filing of The Fairholme Allocation Fund with respect to such holdings at the time of publication, unless specified.
