Form 497K FAIRHOLME FUNDS INC
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THE FAIRHOLME ALLOCATION FUND (FAAFX)
A no-load, non-diversified fund seeking long-term total return
March 30, 2021
A series of
FAIRHOLME FUNDS, INC.
FAIRHOLME CAPITAL MANAGEMENT
Before you invest, you may want to review the Funds Prospectus,
which contains more information about the Fund and its risks.
The Funds Prospectus and Statement of Additional Information,
both dated March 30, 2021, as may be amended or
supplemented, are incorporated by reference into this
Summary Prospectus. For free paper or electronic copies of the
Funds Prospectus and other information about the Fund, go to
www.fairholmefunds.com/prospectus, email a request to
email@example.com, call (866) 202-2263, or ask any
financial advisor, bank, or broker-dealer who offers shares of the Fund.
As of March 29, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Funds annual and semi-annual shareholder reports are no longer sent by mail, unless you have specifically requested paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports are made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund or your financial intermediary electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (866) 202-2263.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (866) 202-2263. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all funds held with Fairholme Funds, Inc.
(The Allocation Fund)
The Allocation Fund seeks long-term total return.
The following table describes the fees and expenses you may pay if you buy and hold shares of The Allocation Fund. You may be required to pay commissions and/or other forms of compensation to a broker for transactions in shares of The Allocation Fund, which are not reflected in the tables or the Example below.
|(Fees Paid Directly From Your Investment)|
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of amount redeemed)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions (as a percentage of amount reinvested)
Redemption Fee Paid to the Fund (as a percentage of amount redeemed within 60 days of purchase, if applicable)
|ANNUAL FUND OPERATING EXPENSES|
|(Expenses That You Pay Each Year As A Percentage Of The
Value Of Your Investment In The Allocation Fund)
Distribution (12b-1) Fees
Acquired Fund Fees and Expenses
Total Annual Fund Operating Expenses(a)
This table does not reflect the application of the management fee waiver discussed in the section of the Prospectus entitled Investment Management, pursuant to which the Manager (defined below) has agreed to waive, on a voluntary basis, a portion of the management fee of The Allocation Fund to the extent necessary to limit the management fee paid to the Manager by The Allocation Fund to an annual rate of 0.80% of the daily average net asset value of The Allocation Fund (Undertaking). This Undertaking may be terminated by the Manager upon 60 days written notice to The Allocation Fund.
For more information about the management fee, see the Investment Management section of the Prospectus. Acquired Fund Fees and Expenses are those fees and expenses incurred indirectly by The Allocation Fund as a result of The Allocation Funds investing in securities of one or more investment companies, including money market funds. Please note that the Total Annual Fund Operating Expenses in the table above does not correlate to the Ratio of Net Expenses to Average Net Assets found within the Financial Highlights section of the Prospectus, which reflects the actual operating expenses of The Allocation Fund for the fiscal year ended November 30, 2020.
This Example is intended to help you compare the cost of investing in The Allocation Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in The Allocation 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 Allocation Funds operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
|1 Year||3 Years||5 Years||10 Years|
The amounts shown do not reflect the application of the Undertaking.
The Allocation 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 Allocation 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 Allocation Funds performance. During the most recent fiscal year, The Allocation Funds portfolio turnover rate was 32.15% of the average value of its portfolio.
The Allocation Fund seeks long-term total return from capital appreciation and income. Fairholme Capital Management, L.L.C. (the Manager), the investment adviser to The Allocation Fund, attempts, under normal circumstances, to achieve The Allocation Funds investment objective by investing opportunistically in a focused portfolio of investments in the equity, fixed-income and cash and cash-equivalent asset classes. The proportion of The Allocation Funds portfolio invested in each asset class will vary from time to time based on the Managers assessment of relative fundamental values of securities and other investments in the class, the attractiveness of investment opportunities within each asset class, general market and economic conditions, and expected future returns of investments.
The Allocation Fund may invest in any, all or none of the targeted asset classes at any given time. There is no limitation on the amount of The Allocation Funds portfolio that may be allocated to any one of these asset classes. The Allocation Fund may maintain a significant portion of its assets in cash and cash-equivalent securities and investments. In certain market conditions, the Manager may determine that it is appropriate for The Allocation Fund to hold a significant cash position for an extended period of time.
In addition, The Allocation Fund may invest in securities and other investments without regard to the jurisdictions in which the issuers of the securities are organized or situated and without regard to the market capitalizations or sectors of the issuers. The Allocation Fund may also invest in securities without regard to maturity or the rating of the issuer of the security. The Allocation Fund may invest, for example, without limit in lower-rated securities (or junk bonds), which are those securities rated below Baa by Moodys Investors Service, Inc. (Moodys) or below BBB by S&P Global Ratings (S&P) or that have comparable ratings from other nationally recognized statistical rating organizations (NRSROs) or, if unrated, are determined to be comparable to lower-rated debt securities by the Manager.
The Allocation 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 Allocation Funds Statement of Additional Information (SAI).
General/Market Risks. The market values of securities or other investments that The Allocation Fund holds may fall, sometimes rapidly or unpredictably, or fail to rise for various reasons including changes or potential or perceived changes in U.S. or foreign economies, financial markets, interest rates, the liquidity of investments and other factors including terrorism, war, natural disasters and public health events and crises, including disease/virus outbreaks and epidemics. The resulting short-term and long-term effects and consequences of such events and factors on global and local economies and specific countries, regions, businesses, industries, and companies cannot necessarily be foreseen or predicted. From time to time, certain market segments (such as equity or fixed income), investment styles (such as growth or value), or other investment categories, may fall out of favor which may impair the value of an investment in The Allocation Fund. An investment in The Allocation Fund could lose money over short or long periods.
Allocation Risk. The allocation of investments among the different asset classes, such as equity or fixed-income asset classes, may have a more significant effect on The Allocation Funds net asset value (NAV) when one of these classes is performing more poorly than others.
Equity Risk. The Allocation 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 Allocation Funds 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.
Focused Portfolio and Non-Diversification Risks. The Allocation 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 issuers security may have a more significant effect, either negative or positive, on The Allocation Funds NAV. To the extent that The Allocation Fund invests its assets in the securities of fewer issuers, The Allocation 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 Allocation Funds investments are focused in a particular issuer, region, country, market, industry, asset class or other category, The Allocation Fund may be
susceptible to loss due to adverse occurrences affecting that issuer, region, country, market, industry, asset class or other category.
Control and Substantial Positions Risk. The Allocation Fund may invest in the securities of a company for the purpose of affecting the management or control of the company or may have or acquire a substantial position in the securities of a company, subject to applicable legal restrictions with respect to the investment. Such an investment imposes additional risks for The Allocation Fund other than a possible decline in the value of the investment. These additional risks include: the application of statutory, regulatory and other requirements to The Allocation Fund, or to the Manager and its affiliates, could restrict activities contemplated by The Allocation Fund, or by the Manager and its affiliates, with respect to a portfolio company or limit the time and the manner in which The Allocation Fund is able to dispose of its holdings or hedge such holdings; The Allocation Fund, or the Manager and its affiliates, may be required to obtain relief from the Securities and Exchange Commission (the SEC) or its staff prior to engaging in certain activities with respect to a portfolio company that could be deemed a joint arrangement under the Investment Company Act of 1940, as amended (the 1940 Act); The Allocation Fund may incur substantial expenses and costs when taking control or other substantial positions in a company, including paying market prices for securities whose value The Allocation Fund is required to discount when computing the NAV of The Allocation Funds shares, and there is no guarantee that such expenses and costs can be recouped; and The Allocation Fund could be exposed to various legal claims by governmental entities, or by a portfolio company, its security holders and its creditors, arising from, among other things, The Allocation Funds status as an insider or control person of a portfolio company or from the Managers designation of directors to serve on the board of directors of a portfolio company.
Industry/Sector Risk. To the extent The Allocation Fund invests or maintains a significant portion of its assets in one or more issuers in a particular industry or industry sector, The Allocation Fund will be subject to a greater degree to the risks particular to that industry or industry sector. Market or economic factors affecting issuers in that industry, group of related industries or sector could have a major effect on the value of The Allocation Funds investments and NAV. The securities of issuers in the real estate sector and oil and gas sectors, which includes storage, transportation and exploration, comprise a significant portion of The Allocation Funds assets. The investment in the real estate sector exposes The Allocation Fund to the risks of the real estate and real estate related sectors generally, and of that issuer, including risks relating to real estate investments and development in Northwest Florida, hospitality, and forestry. In this regard, the securities of a single real estate related issuer or a group of real estate issuers may underperform the market as a whole due to legislative or regulatory changes, adverse market conditions and/or increased competition affecting the real estate sector. Additionally, the investments in the oil and gas sectors expose The Allocation Fund to the risks of the oil and gas sectors generally, and of those issuers, including changes in regulations; fluctuations in commodity prices and interest rates; changes in supply and demand for energy products; depletion of resources; development of alternative energy sources; extreme weather conditions and natural disasters; and terrorist attacks.
Publicly Traded Partnership Risk. The Allocation Fund invests in publicly traded partnerships (PTPs), which are limited partnerships the interests in which (called units) are traded on public exchanges. PTPs are subject to the risks associated with their underlying assets or operating companies, which typically include assets or companies in the oil and gas sectors. PTPs are also subject to tax risk, as PTPs typically receive pass-through tax treatment and would be adversely affected if they were to loss such status. Other risks of investments in PTPs may include, among others, potential lack of liquidity of PTP units, interest rate risk, limitations on the unitholders voting and distribution rights, potential conflicts of interest between a PTP and its general partner, and the possibility of the PTPs general partner requiring unitholders to sell their units at an undesirable price or time.
Interest Rate Risk. Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations. Very low or negative interest rates would likely magnify the risks associated with changes in interest rates. During periods of very low or negative rates, The Allocation Funds returns would likely be adversely affected.
Cash Position Risk. To the extent that The Allocation Fund holds large positions in cash or cash equivalents, there is a risk of lower returns and potential lost opportunities to participate in market appreciation.
Credit Risk. The Allocation Funds investments are subject to credit risk. An issuers 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. Changes in economic, tax and regulatory policies, interest rates, inflation rates and government instability, war or other political or economic actions or factors may have an adverse effect on the investments of The Allocation Fund. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations. The Manager does not rely solely on third party credit ratings to select The Allocation Funds portfolio securities.
Small- to Medium-Capitalization Risk. Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small- to mid-cap companies may have additional risks because, among other things, these companies have limited product lines, markets or financial resources.
Illiquid Investments Risk. Illiquid investments risk exists when particular investments are difficult to purchase or sell, possibly preventing The Allocation Fund from selling out of these illiquid securities at an advantageous price. Derivatives and securities involving substantial market and credit risk tend to involve greater illiquid investments risk. A fund may face illiquid investments risk as a result of, among other factors, low trading volumes, legal or contractual restrictions on resale, substantial redemptions of the funds shares and, with respect to fixed-income securities, rising interest rates. In certain circumstances, illiquid investments risk may be greater for a particular security as a result of, among other things, changes in the markets relating to that security, increased selling of the security by market participants or increases in the size of the holding relative to other fund holdings or to the issuers total issuance. In addition, over recent years illiquid investments risk has increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Illiquid investments risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
An investment in The Allocation 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 Allocation Fund may be found in the section in the Prospectus entitled Additional Information about the Funds Investments and Risks, and in The Allocation Funds SAI.
The bar chart and table set out below show The Allocation Funds historical performance, and provide some indication of the risks of investing in The Allocation Fund by showing changes in The Allocation Funds performance from year to year and by showing how The Allocation Funds average annual total returns for the 1-, 5-, and 10-year (same as since inception) periods compare to the performance of the Bloomberg Barclays U.S. Aggregate Bond Index and the S&P 500 Index. The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, and includes Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities and commercial mortgage-backed securities (agency and non-agency). The S&P 500 Index is a widely recognized, unmanaged index of 500 of the largest companies in the United States as measured by market capitalization. The S&P 500 Index assumes reinvestment of all dividends and distributions. Because indices cannot be invested in directly, these index returns do not reflect a deduction for fees, expenses or taxes. The Allocation Funds past performance (before and after taxes) may not be an indication of how The Allocation Fund will perform in the future. Updated performance information for The Allocation Fund may be obtained by calling 1-866-202-2263.
Annual Returns for The Allocation Fund for the Last 10 Calendar Years
|Best Quarter - 4th Qtr 2020: +30.69%||Worst Quarter - 1st Qtr 2020: -19.03%|
Average Annual Total Returns for The Allocation Fund (for the period ended December 31, 2020)
|Portfolio Returns||1 Year||5 Years||
Return Before Taxes
Return After Taxes on Distributions
Return After Taxes on Distributions and Sale of The Allocation Fund Shares
Bloomberg Barclays U.S. Aggregate Bond Index (reflects no deduction for fees, expenses or taxes)
S&P 500 Index (reflects no deduction for fees, expenses or taxes)
Same as Since Inception (12/31/2010).
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. Also, after-tax return information is not relevant to shareholders who hold The Allocation Fund shares 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.
The average annual total return after taxes on distributions and sale of The Allocation Fund shares for the 10-year period is higher than the average annual total return after taxes on distributions for the same period because of realized losses that would have been sustained upon the sale of The Allocation Fund shares immediately after such 10-year period. In addition to the assumptions in the preceding paragraph, the calculation for the average annual total return after taxes on distributions and sale of The Allocation Fund shares assumes that an investor would have been able to immediately utilize the full realized loss to reduce his or her federal tax liability. However, actual individual tax results may vary and investors should consult their tax advisors regarding their personal tax situations.
Fairholme Capital Management, L.L.C., the Manager, provides investment advisory services to The Allocation Fund.
Bruce R. Berkowitz, Chief Investment Officer of the Manager, and the President and a Director of Fairholme Funds, Inc. (the Company), has been The Allocation Funds lead portfolio manager since The Allocation Funds inception. Mr. Berkowitz is responsible for the day-to-day management of The Allocation Funds portfolio.
Purchases of shares of The Allocation Fund are subject to the following minimum investment amounts (which may be waived by the Manager in its discretion):
To Open Account
for Regular Accounts
Minimum Subsequent Investment
(Non-Automatic Investment Plan Members)
|$1,000 for Regular Accounts and IRAs|
Minimum Subsequent Investment
(Automatic Investment Plan Members)
|$250 per month minimum|
Shareholders eligible to purchase shares of The Allocation Fund may do so through their financial intermediaries or by contacting The Allocation 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.
The Allocation Fund reserves the right to limit the sale of shares to new investors and existing shareholders at any time. The Allocation Fund may reject any order to purchase shares, and may withdraw the offering of shares at any time to any or all investors.
Shareholders may redeem shares of The Allocation Fund through their financial intermediaries or by contacting The Allocation 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.
The Allocation Fund intends to make distributions that may be taxed as ordinary income or capital gains.
If you purchase shares of The Allocation Fund through a broker-dealer or other financial intermediary (such as a bank), The Allocation 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 Allocation Fund over another investment. Ask your salesperson or visit your financial intermediarys website for more information.
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