FAIRHOLME FUNDS INC - Notes to Mutual Funds Financial Statements - 2-22-2000 by FAIRX-Agreements

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									                                  NOTES TO FINANCIAL STATEMENTS
                                          December 27, 1999

1. ORGANIZATION

Fairholme Funds, Inc. (the "Trust") is an open-end management investment company organized as a corporation
under the laws of the State of Maryland on September 30, 1999. The corporation provides for 100 million
authorized shares at .0001 par value, which may, without shareholder approval, be divided into an unlimited
number of series of such shares, and which presently consist of one series of shares for the The Fairholme Fund
(the "Fund").

The primary investment objective of the Fund is long term growth of capital.

The Fund uses an independent custodian and transfer agent. No transactions other than those relating to
organizational matters and the sale of 10,000 shares of The Fairholme Fund have taken place to date.

2. RELATED PARTY TRANSACTIONS

As of December 27, 1999, all of the outstanding shares of the Fund were owned by Fairholme Capital
Management, LLC. A shareholder who beneficially owns, directly or indirectly, more than 25% of the Fund's
voting securities may be deemed a "control person" (as defined in the 1940 Act) of the Fund.

Fairholme Capital Management, LLC., the Fund's investment adviser and administrator, is registered as an
investment adviser under the Investment Advisers Act of 1940. Certain directors and officers of Fairholme
Funds, Inc. are also directors and officers of Fairholme Capital Management, LLC.

As adviser and administrator, Fairholme Capital Management, LLC. receives from the Fund as compensation for
its services to the Fund a total combined annual fee of 1.00% of the Fund's net assets. This fee is higher than that
paid by most other investment companies. The fee is paid monthly and calculated on the average daily closing net
asset value of the Fund.

The adviser pays all expenses incident to the Fund's operations and business except litigation expenses,
brokerage fees, taxes, interest, and other extraordinary charges.

3. DISTRIBUTION PLAN

The Fund has adopted a distribution plan in accordance with Rule 12b-1 under the 1940 Act. The plan has not
been implemented and the Fund has no intention of implementing the plan during the Fund's first fiscal year.

4. CAPITAL STOCK AND DISTRIBUTION

At December 27, 1999, 100 million shares were authorized and paid in capital amounted to $100,000 for The
Fairholme Fund. Transactions in capital stock were as follows:

                Shares Sold:
                   The Fairholme Fund                                                       10,000

                Shares Redeemed:
                   The Fairholme Fund                                                            0
                                                                                            ------

                 Net Increase:
                   The Fairholme Fund                                                       10,000
                                                                                            ------

                Shares Outstanding:
                   The Fairholme Fund                                                       10,000
                                                                                            ------

								
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