THE FAIRHOLME
FOCUSED INCOME FUND (FOCIX)
A no-load, non-diversified fund seeking current income
SUMMARY PROSPECTUS
March 28, 2014
A series of
FAIRHOLME FUNDS, INC.
Managed by
FAIRHOLME CAPITAL
MANAGEMENT
Before you invest, you may want to review the Fund’s Prospectus,
which contains more information about the Fund and its risks.
The Fund’s Prospectus and Statement of Additional Information,
both dated March 28, 2014, are
incorporated by reference into this
Summary Prospectus. For free paper or electronic copies of the
Fund’s Prospectus and other information about the Fund, go to
www.fairholmefunds.com/prospectus, email a request to
investorrelations@fairholme.net, call
1-866-202-2263, or ask any
financial advisor, bank, or broker-dealer who offers shares of the Fund.
“(E)ven the intelligent investor is likely to need considerable
willpower to keep from following the crowd.”
– Benjamin Graham
THE FAIRHOLME FOCUSED INCOME FUND
(“The Income Fund”)
Investment Objective
The Income Fund seeks current income.
Fees and Expenses of the Fund
The following table describes the fees and expenses you may pay if you buy and hold shares of The Income Fund.
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SHAREHOLDER FEES
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(Fees Paid Directly From Your Investment)
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Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of
offering price)
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None
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Maximum Deferred Sales Charge (Load) (as a percentage of
amount redeemed)
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None
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Maximum Sales Charge (Load) Imposed on
Reinvested Dividends and Other Distributions (as a percentage of amount reinvested)
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None
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ANNUAL FUND OPERATING EXPENSES
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(Expenses That You Pay Each Year As A Percentage Of The Value Of Your
Investment In The
Income Fund)
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Management Fees
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1.00%
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Distribution (12b-1) Fees
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None
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Other Expenses
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0.01%
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Total Annual Fund Operating
Expenses
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1.01%
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For more information about the management fee, see the Investment Management section of the Prospectus.
“Other Expenses” include acquired fund fees and expenses, which are incurred indirectly by The Income Fund as a result of investing in securities of one or more investment companies. Please note that the Total Annual Fund Operating
Expenses in the table above may not correlate to the Ratio of Expenses to Average Net Assets found within the “Financial Highlights” section of the Prospectus.
Example
This Example is intended to help you compare the cost of investing
in The Income Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in The Income
Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that The Income Fund’s operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs would be:
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1 Year
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3 Years
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5 Years
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10 Years
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$103
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$322
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$558
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$1,236
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Portfolio Turnover
The Income Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).
A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when The Income Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the
example, affect The Income Fund’s performance. During the most recent fiscal year, The Income Fund’s portfolio turnover rate was 42.87% of the average value of its portfolio.
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Principal Investment Strategies
Fairholme Capital Management, L.L.C. (the “Manager”), the investment adviser to The Income Fund, attempts, under normal
circumstances, to achieve The Income Fund’s investment objective by investing in a focused portfolio of cash distributing securities. To maintain maximum flexibility, the securities in which The Income Fund may invest include corporate debt
securities of issuers in the U.S. and foreign countries, bank debt (including bank loans and participations), government and agency debt securities of the U.S. and foreign countries, convertible bonds and other convertible securities, and equity
securities, including preferred and common stock, and interests in real estate investment trusts (“REITs”). The Income Fund’s portfolio securities may be rated by one or more nationally recognized statistical rating organizations
(“NRSROs”), such as Moody’s Investors Service, Inc. (“Moody’s”) or Standard & Poor’s Ratings Services (“S&P”), or may be unrated. The Manager may invest in securities for The Income Fund
without regard to maturity or the rating of the issuer of the security. The Income Fund may invest without limit in lower-rated securities (or “junk bonds”). Lower-rated securities are those rated below “Baa” by Moody’s or
below “BBB” by S&P or that have comparable ratings from other NRSROs or, if unrated, are determined to be comparable to lower-rated debt securities by the Manager.
Although The Income Fund normally holds a focused portfolio of securities, The Income Fund is not required to be fully invested in such
securities and may maintain a significant portion of its total assets in cash and securities generally considered to be cash equivalents.
The Income Fund may also use other investment strategies and invest its assets in other types of investments, which are described in the section in the Prospectus entitled “Additional Information
about the Funds’ Investments and Risks,” and in The Income Fund’s Statement of Additional Information (“SAI”).
Principal Risks of Investing in The Income Fund
General Risks.
All investments are subject to inherent
risks, and an investment in The Income Fund is no exception. Accordingly, you may lose money by investing in The Income Fund. Markets can trade in random or cyclical price patterns, and prices can fall over time. The value of The Income Fund’s
investments will fluctuate as markets fluctuate and could decline over short-or long-term periods.
Focused Portfolio and
Non-Diversification Risks.
The Income Fund may have more volatility and is considered to have more risk than a fund that invests in securities of a greater number of issuers because changes in the value of a single issuer’s securities
may have a more significant effect, either negative or positive, on the net asset value (“NAV”) of The Income Fund. To the extent that The Income Fund invests its assets in the securities of fewer issuers, The Income Fund will be subject
to greater risk of loss if any of those securities decreases in value or becomes impaired. To the extent that The Income Fund’s investments are focused in a particular issuer, region, country, market, industry, asset class or other category,
The Income Fund may be susceptible to loss due to adverse occurrences affecting that issuer, region, country, market, industry, asset class or other category.
High Yield Security Risk.
Investments in fixed-income securities that are rated below investment grade by one or more NRSROs or that are unrated and are deemed by the Manager to be of similar
quality (“high yield securities”) may be subject to greater risk of loss of principal and interest than investments in higher-rated fixed-income securities. High yield securities are also generally considered to be subject to greater
market risk than higher-rated securities.
Credit Risk.
The Income Fund’s investments are subject to credit
risk. An issuer’s credit quality depends on its ability to pay interest on and repay its debt and other obligations. Defaulted securities (or those expected to default) are subject to additional risks in that the securities may become subject
to a plan or reorganization that can diminish or eliminate their value. The credit risk of a security may also depend on the credit quality of any bank or financial institution that provides credit enhancement for the security. The Manager does not
rely solely on third party credit ratings to select The Income Fund’s portfolio securities.
Interest Rate
Risk.
The Income Fund’s investments are subject to interest rate risk, which is the risk that the value of a security will decline because of a change in general interest rates. Investments subject to interest rate risk will usually
decrease in value when interest rates rise and rise in value when interest rates decline. Also, securities with long maturities typically experience a more pronounced change in value when interest rates change.
Equity Risk.
The Income Fund is subject to the risk that stock and other equity security prices may fall over short or extended
periods of time. Historically, the equity markets have moved in cycles, and the value of The Income Fund’s equity securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by
industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility.
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An investment in The Income Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Further discussion about other risks of investing in The Income Fund may be found in the section in the Prospectus entitled “Additional Information about
the Funds’ Investments and Risks,” and in The Income Fund’s SAI.
Past Performance
The bar chart and table set out below show The Income Fund’s historical performance, and provide some indication of
the risks of investing in The Income Fund by showing changes in The Income Fund’s performance from year to year and by showing how The Income Fund’s average annual total returns for the 1- and 3-year periods and since inception compare to
the performance of the Barclays Capital U.S. Aggregate Bond Index. The Barclays Capital U.S. Aggregate Bond Index is an unmanaged market-weighted index comprised of investment grade (rated Baa3/BBB-/BBB- or higher) taxable bonds, mortgage-backed
securities, asset-backed securities, corporate securities, government-related securities, including U.S. Treasury and government agency issues, with at least one year to maturity. Because indices cannot be invested in directly, these index returns
do not reflect a deduction for fees, expenses or taxes. The Income Fund’s past performance (before and after taxes) may not be an indication of how The Income Fund will perform in the future. Updated performance information for The Income Fund
may be obtained by visiting www.fairholmefunds.com or by calling 1-866-202-2263.
Annual Returns of The Income Fund for the Last 4 Calendar
Years
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Best Quarter—2nd Qtr 2013: +15.79%
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Worst Quarter—3rd Qtr 2011: -9.41%
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Average Annual Total Returns for The Income Fund (for the periods ended December 31, 2013)
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Portfolio Returns
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1 Year
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3 Year
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Since
Inception
(12/31/2009)
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Return Before Taxes
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29.92%
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10.71%
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10.81%
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Return After Taxes on
Distributions
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26.08%
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7.59%
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8.15%
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Return After Taxes on Distributions and
Sale of The Income Fund Shares
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18.27%
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7.20%
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7.52%
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Barclays Capital U.S. Aggregate Bond
Index (reflects no deduction for fees, expenses or taxes)
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-2.03%
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3.26%
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4.07%
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The theoretical “after-tax” returns shown in the table are calculated using the highest
historical individual federal marginal income tax rates, and do not reflect the impact of state and local taxes.
Your actual “after-tax” returns depend on your personal tax situation and may differ from the returns shown above
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Also, “after-tax” return information is not relevant to shareholders who hold shares of The Income Fund through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts (“IRAs”). The “after-tax”
returns shown in the table reflect past tax effects and are not predictive of future tax effects.
Investment
Adviser
Fairholme Capital Management, L.L.C., the Manager, provides investment advisory services to The Income Fund.
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Portfolio Manager
Bruce R. Berkowitz, Managing Member and Chief Investment Officer of the Manager, and the President and a Director of Fairholme Funds, Inc.
(the “Company”), has been The Income Fund’s lead portfolio manager since The Income Fund’s inception. Mr. Berkowitz is responsible for the day-to-day management of The Income Fund’s portfolio.
Purchase and Sale of The Income Fund Shares
Since the close of business on February 28, 2013 (the “Closing Date”), the sale of shares of The Income Fund has been suspended to new investors, subject to certain exceptions as
described below. Subject to the rights of The Income Fund to reject any order to purchase shares or to withdraw the offering of shares at any time, shares remain available for purchase to existing shareholders of The Income Fund.
The following categories of new investors may continue to purchase shares of The Income Fund: (i) clients of financial advisors and
financial consultants that have clients invested in The Income Fund as of the Closing Date; (ii) clients of financial advisors and intermediaries that have approved the inclusion of The Income Fund as an investment option in their asset
allocation programs or discretionary investment programs, including wrap, model or other managed account programs, as of the Closing Date; and (iii) participants in group retirement plans that include The Income Fund as an investment option as of
the Closing Date, and IRA transfers and rollovers from such plans. In addition, Directors of the Company, clients and employees of the Manager and their respective immediate family members may open new accounts and add shares of The Income Fund to
such accounts.
The Income Fund reserves the right to limit the foregoing exceptions and make additional exceptions to the
suspension of the sale of shares to new investors.
Shareholders eligible to purchase shares of The Income Fund are subject to
the following minimum investment amounts (which may be waived by the Manager in its discretion):
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Minimum Investment
To Open Account
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$25,000
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Minimum Subsequent Investment
(Non-Automatic Investment Plan Members)
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$2,500
for Regular Accounts
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$1,000
for IRAs
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Minimum
Subsequent Investment
(Automatic Investment Plan Members)
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$250 per month minimum
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Shareholders eligible to purchase shares of The Income Fund may do so through their financial
intermediaries or by contacting The Income Fund: (i) by telephone at 1-866-202-2263; or (ii) by mail addressed to c/o BNY Mellon Investment Servicing (US) Inc., P.O. Box 9692, Providence, RI 02940-9692; or (iii) by overnight
delivery addressed to c/o BNY Mellon Investment Servicing (US) Inc., 4400 Computer Drive, Westborough, MA 01581-1722.
Shareholders may redeem shares of The Income Fund through their financial intermediaries or by contacting The Income Fund:
(i) by telephone at 1-866-202-2263; (ii) by mail addressed to c/o BNY Mellon Investment Servicing (US) Inc., P.O. Box 9692, Providence, RI 02940-9692; or (iii) by overnight delivery addressed to c/o BNY Mellon Investment
Servicing (US) Inc., 4400 Computer Drive, Westborough, MA 01581-1722.
Tax Information for The Income Fund
The Income Fund intends to make distributions that may be taxed as ordinary income or capital gains.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase shares of The Income Fund through a broker-dealer or other financial intermediary (such as a bank), The Income Fund and
its related companies may pay the intermediary for certain administrative and shareholder servicing functions. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary to recommend The Income Fund over
another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
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