This presentation uses Sears Holdings Corporation (“Sears” or the “Company”) as a case study to illustrate Fairholme Capital Management’s investment strategy for the Fairholme Fund. In the following pages, we show Fairholme Fund shareholders why we “ignore the crowd” concerning our portfolio positions that are currently out of favor in the market.

However, nothing in this presentation should be taken as a recommendation to anyone to buy, hold, or sell certain securities or any other investment mentioned herein. Our opinion of a company’s prospects should not be considered a guarantee of future events. Investors are reminded that there can be no assurance that past performance will continue, and that a mutual fund’s current and future portfolio holdings always are subject to risk. As with all mutual funds, investing in the Fairholme Fund involves risk including potential loss of principal. Opinions expressed are those of the author and/or Fairholme Capital Management, L.L.C. and should not be considered a forecast of future events, a guarantee of future results, nor investment advice.

The Fairholme Fund’s holdings and sector weightings are subject to change. As of May 31, 2012, Sears securities comprised 10 percent of the Fairholme Fund’s total net assets. The Fairholme Fund’s portfolio holdings are generally disclosed as required by law or regulation on a quarterly basis through reports to shareholders or filings with the SEC within 60 days after quarter end. A complete list of the Fairholme Fund’s top ten holdings is available on our website at www.fairholmefunds.com.

The Fairholme Fund is non‐diversified, which means it invests in a smaller number of securities when compared to more diversified funds. Therefore, the Fairholme Fund is exposed to greater individual security volatility than diversified funds. The Fairholme Fund can invest in foreign securities which may involve greater volatility and political, economic, and currency risks and differences in accounting methods. The Fairholme Fund may also invest in “special situations” to achieve its objectives. These strategies may involve greater risks than other fund strategies. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer‐term debt securities. Lower‐rated and non‐rated securities present greater loss to principal than higher‐rated securities.

The Fairholme Fund’s investment objectives, risks, charges, and expenses should be considered carefully before investing. The Prospectus contains this and other important information about the Fairholme Fund, and may be obtained by calling shareholder services at (866) 202‐2263 or by visiting our website at www.fairholmefunds.com. Read it carefully before investing.

Fairholme Distributors, LLC (08/12)

Case Study III Sears - Sears Holdings has over $20 billion of assets on our balance sheet. In some cases, the fair market values of our assets are not reflected on the balance sheet due to GAAP convention, such as the value of our owned real estate and many of our below market leases. [...] We have a portfolio of businesses and assets that deserve to generate substantial value for our shareholders. - Edward S. Lampert, Chairman, February 23, 2012

Scale with Recent Market Price does not Equal Intrinsic Value; Investing is all about what you give versus what you get.

Key Pieces: Real Estate (Vast Property Portfolio Carried at Low Cost), Operations (Increasing Cash Flows Through Greater Efficiencies and Cost Reductions), Top Brands (Revenue Beyond Sears and KMart), Leadership (New Team with Proven Success), Liquidity (Ample to Meet all Liabilities and Opportunties), Catalysts (Changing Winds). Many dispair that Sears seems unable to regain past retail glory, despite a conservative balance sheet and many valuable assets. In searching for instant gratification, most are missing key points. Bruce R. Berkowitz, Fairholme, January 10, 2008.

Real Estate: Margin of Safety. Recent commercial real estate market dynamics and retail industry trends provide even greater embedded value in SHLD's property portfolio when evaluated on a stand-alone basis.

Real Estate: Over 250 Million Sq Ft of Retail Space - Significant value in low cost owned properties and long-term below-market leased sites, Diverse mall-based and freestanding locations across North America

Real Estate Property Portfolios in Perspective. Sears Holdings has one of the most diverse and valuable real estate portfolios in the country and I look forward to helping create additional value for the company by enhancing and repositioning selected parts of its real estate portfolio, David Lakes, President of Real Estate Development, March 20, 2012


Real Estate 126 Years. Consumer Price Index from 1871 to 2011 -- shows upward trajectory. Generally Accepted Accounting Principles (GAAP) manadate valuing their real estate at the lower cost or market. GAAP would force the Dutch settlers to value Manhattan today at the 1626 purchase price of $23.70. - Bruce R. Berkowitx, Fairholme, June 30, 2012,

Operations - Close to half of America Shopped in a Sears or KMart Last Year. Logos of Sears stores. The Board of Directors and I look at and evaluate Sears Holdings as a portfolio of businesses, with different market positions, strengths and opportunities. - Edward S. Lampert Chairman, February 23, 2012.

Operations: Increasing Efficiencies and Reducing Costs: Inventory Balance and Drivers of Cost Savings. We need a relentless focus on cost optimization. This is about profitability and value, not just cost reduction. - Rajan Penkar, senior vice president and president of suppluy chain, March 15, 2012.

Top Brands: Trade Names Valued at $5.6 Billion in Early 2005: Kenmore is the leader in major appliances, Craftsman in the lea

Proven Leadership - List of Senior Hires Since 2011

Liquidity: Cash and Equivalents ($800 million), Domestic Credit Revolver (1,800 million), Canadian Credit Facility ($600 million, Net Inventory ($5,500 million). Putting various sources of liquidity together, you get a sense of some of the levers that the company has to meet its obligations and to generate long-term value. - Edward S. Lampert, Chairman, February 23, 2012.

Catalysts? Display of graphs with Population and Retail Sales Growth, Case-Shiller Index, Home Sales, Housing Starts, Residen

The Road Ahead

We made it through the financial crisis and the housing crisis. Now we intend to make it through our current challenges and restore confidence in the company ... we do not intend to sit idly by and have it be business as usual.

 — Edward S. Lampert, Chairman's Letter, February 23, 2012

Intrinsic Value: The value of a security based on an underlying analysis of all aspects of the business distinct from market value.

Market Capitalization: The total value of a company’s publicly-traded shares outstanding.

S&P / Case-Shiller U.S. National Home Price Index: Composite of single-family home price indices for the nine U.S. Census divisions.

Credit Facility: A type of loan made to a business or corporation. Types of credit facilities include: revolving credit, term loans, committed facilities, and letter of credit.

Credit Revolver: Line of credit that can be drawn down or repaid until the maturity of the agreement.


Source: Bruce Berkowitz, Case Study III Sears
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