MutualFundWire.com: Berkowitz Partially Closes Everything

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Thursday, January 31, 2013

Berkowitz Partially Closes Everything

A star PM and mutual fund chief is shutting new investors out of his entire mutual fund business in a month. Yesterday Bruce Berkowitz' Miami-based Fairholme Funds [profile] revealed that after the market closes on February 28, the three Fairholme mutual funds will no longer sell shares to new investors.

Barron's, Bloomberg Businessweek, InvestmentNews, Morningstar and Seeking Alpha all covered Berkowitz' move.

Berkowitz and his team offer three mutual funds: the famous, two-star, silver-rated, $7.5-billion, 13-year-old Fairholme Fund (for which Berkwotiz won domestic equity PM of the year in 2009 and domestic equity manager of the decade); the $269.1-million, two-year-old Fairholme Allocation Fund; and the bronze-rated, $240.7-million, three-year-old Fairholme Focused Income Fund. Existing shareholders will still be able to invest further in the funds.

Fairholme offered two explanations for the closing:

The decisions were based on beliefs that (i) inflows from new investors into a Fund may dilute the proportionate interests of existing Fund shareholders in the Fund’s current portfolio holdings and (ii) each Fund is well positioned to fund current operations and make new investments.

The move comes after several volatile years for the concentrated deep-value manager, with chart-topping performance in 2012 and big losses in 2008 and 2011, along with $8.5 billion in net outflows over the past two years. M* notes that, while many mutual fund closings are driven by big inflows, Berkowitz feels "burned by the massive outflows of the past two year. He says he would now rather have a smaller, core group of long-term shareholders who have a thorough understanding of his deep-value process and are less likely to bolt during periodic bouts of underperformance."

Company Press Release

FOR IMMEDIATE RELEASE

FAIRHOLME FUNDS, INC.

January 30, 2013, Miami, Florida

FAIRHOLME FUNDS, INC. AND ITS SERIES THE FAIRHOLME FUND, THE FAIRHOLME FOCUSED INCOME FUND AND THE FAIRHOLME ALLOCATION FUND WILL NO LONGER ACCEPT NEW INVESTORS AFTER FEBRUARY 28, 2013

Effective as of the close of business on February 28, 2013, the Funds will suspend the sale of shares to new investors. Shares of each Fund will remain available for purchase only to each Fund’s existing shareholders. The decisions were based on beliefs that (i) inflows from new investors into a Fund may dilute the proportionate interests of existing Fund shareholders in the Fund’s current portfolio holdings and (ii) each Fund is well positioned to fund current operations and make new investments. Each Fund retains the right to make exceptions to the suspension of the sale of its shares to new investors and reserves the right to recommence selling its shares to new investors in the future.

A supplement to the Funds’ prospectus, which has been filed with the SEC, provides additional information about the terms of each Fund’s offering.

Investing in the Funds involves risks including loss of principal. The Funds’ investment objectives, risks, charges, and expenses should be considered carefully before investing. The prospectus contains this and other important information about the Funds, and it may be obtained by calling Shareholder Services at 1-866-202- 2263 or visiting our website www.fairholmefunds.com. Read it carefully before investing.

Fairholme Distributors, LLC (1/13)

Contact: Brian Ehrlich, Fairholme Capital Management, L.L.C. 305.358.3000