CASE STUDY II

FAIRHOLME
Ignore the crowd.
 CURRENT INVESTMENT OPPORTUNITY
We have identified a public company:

 Trades at less than one‐half tangible book value
 Fortress balance sheet
 Shareholder equity‐to‐assets ratio of 15%
 Repurchasing common stock
 Leader in global property and casualty insurance
 Dominant U.S. life insurance and retirement services provider
 86 million customer and client relationships worldwide 

…Sound interesting?
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 …We certainly think so.

“Insurance is critical to the smooth functioning of the world economy.

Businesses cannot operate without coverage against the unexpected and
most capital transactions cannot be financed without insurance.”

Bruce R. Berkowitz
Outstanding Investor Digest
Year End 2001 Edition
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 Investment Thesis for AIG
Reasonable Expectations

10% Return on  20% Implied Annual

Owner’s Equity Return on Investment

This is a reasonable return  This is a reasonable return 
even at heightened capital  when you buy stock at less 
ratios expected this cycle. than half book value.

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 Investing in our Circle of Competence
 Experienced with insurance companies  Fixable problems
 Favorable earnings power  Available at attractive prices
 $1,800

 $1,600
Initiated purchase after
the financial crisis.
 $1,400

 $1,200

 $1,000
Price *

 $800

 $600

 $400

 $200

 $‐

Price Book Value per share
* Date of reverse split: 07/01/2009

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 “The seeds of great performance are usually sown 
in times of intense fear after a disaster.”
– Bruce R. Berkowitz, Letter to Clients, October 2011

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 “When a recovering icon trades at half of our understanding of intrinsic 
value for a reason that has nothing to do with its prospects, we swing big.”
– Bruce R. Berkowitz, Letter to Clients, June 30, 2011

$60

$50

$40
Price

$30

$20

$10 With AIG’s price significantly  As the gap between AIG’s stock 

below book value, we initiated  price and book value widened in 
our investment. 2011, we increased our stake.
$0

Price Book Value per share

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 is Back
#1 Global Property and Casualty Insurer, Serving Customers in more than 130 Countries
EUROMONEY INSURANCE SURVEY
BEST INSURER OVERALL ‐ GLOBAL
REGION CATEGORY
 #1 Western Europe  #1 General P & C
 #1 Latin America  #1 D & O Liability
 #2 North America  #1 Marine and Fire
 #2 Asia  #1 Medical and Life
 #2 Central & Eastern Europe  #2 Catastrophe

“AIG’s crisis is over…all the fundamentals of running this company are moving in the 
right direction. We can look forward and focus on operating results. It’s all about how 
to create the best shareholder value going forward.”
—Robert H. Benmosche, President and Chief Executive Officer, AIG, August 5, 2011 

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 Key Franchises Unscathed by Crisis, 
Revenues Growing
Revenues by Reportable Segments 
(in millions)
World leader in global property and 
+10%
casualty insurance.
$41,590
• 45,000 employees
$37,629
• 70 million worldwide clients
$11,317 
• #1 Global Insurer (Euromoney)
$10,147 

U.S. life insurance and retirement  $27,482 
$30,273 
services leader.

• 13,000 employees
• 16 million customers
• Recognized leader in U.S. market YTD 2010* YTD 2011**
Chartis SunAmerica
* Revenues by reportable segments through 09/30/2010
FAIRHOLME ** Revenues by reportable segments through 09/30/2011
Ignore the crowd.
 Industry Leader With Loyal Customer Base

2011 ACCOLADES 98%

 BUYER’S CHOICE AWARD FOR EXPERTISE, BUSINESS INSURANCE

 INNOVATION AWARD, BUSINESS INSURANCE
96%
 MOST TRUSTED BRAND IN KOREA, CHOSUN ILBO
 BEST QUALITY SERVICE TRAVEL INSURANCE COMPANY (CHINA), 
WORLD TRAVEL FAIR
 STANDOUT COMPANY AWARD (BRAZIL), 
89%
REVISTA SEGURADOR BRASIL
 BEST PRODUCT INNOVATION AWARD (GENERAL INSURANCE), 
CELENT
~33%
 COMPANY OF THE YEAR (HEALTH INSURANCE), CELENT
 BEST PRACTICES IN TECHNOLOGY
(GLOBAL MARINE AND ENERGY), CELENT
~ 93%* Retention on these Segments

* At September 30, 2011, based on a 12‐month rolling average.

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Tracing its history back to 1850, SunAmerica has over a 160‐year track 
record of leadership in the U.S. life and retirement services market.

 LEADING PROVIDER OF TERM AND UNIVERSAL LIFE

PRODUCTS
 LONG‐STANDING LEADER IN THE STRUCTURED
SETTLEMENT ANNUITY MARKET

 LONG‐STANDING LEADER IN 403(B) DEFINED

CONTRIBUTION MARKET

 TOP BANK CHANNEL FIXED ANNUITY PROVIDER FOR

15 CONSECUTIVE YEARS

 LEADER IN INDIVIDUAL VARIABLE ANNUITIES

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 Trust But Verify
Our Research has been Enhanced by Unprecedented Disclosure

“We are committed to adding even further disclosure…to make it easier for people to 
reach their own conclusions [about AIG]. We [have also] accelerated the pace of 
third‐party scrutiny by outside actuaries so that it’s not a slower cycle.”
—Peter D. Hancock, Chief Executive Officer, Chartis, December 7, 2011

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 AIG Moving Forward
Aggressively Winding Down and De‐Risking the AIGFP* Derivatives Portfolio
$1,600
$1,450
$1,400

$1,200

Exposure (in billions)
 89% Reduction in Derivatives Exposures $1,000

$800
‐89%
 94% Reduction of Trade Positions $600

$400
 95% Reduction of CDS portfolio $144
$240
$200
$65 $40 $20
$18 $8
$0
Market Derivatives Arbitrage/Multi Regulatory Capital Stable Value Wrap
Sector CDS CDS (including Book
Mezzanine)
2008 3Q2011
 40,000 $350,000
35,000  $302,201
 35,000 $300,000

Super Senior CDS Exposure 
Outstanding Trade Positions

 30,000
$250,000
 25,000

 20,000
16,100 
‐94% (in millions)
$200,000 $183,526
‐95%
$150,000
 15,000
$100,000
 10,000
$59,850
 5,000
3,900  $50,000
2,100  $26,042
 ‐ $0
2008 2009 2010 3Q2011 2008 2009 2010 3Q2011
* AIG Financial Products Corporation
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 Powerful Franchises and Valuable Assets
As AIG sheds additional non‐core assets and further reduces risk exposures, 
the value of its powerful franchises and assets will emerge.

ILFC
AIA MORTGAGE
GUARANTEE

CHARTIS SUNAMERICA

MAIDEN LANE II / MAIDEN LANE III

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 Compared to its Peers,
AIG is Exceptionally Cheap
 1.40
Historical 15‐year Price/Book Average for Property & Casualty Insurance Sector = 1.30

 1.20
AIG Price/Book 
= 0.56
 1.00
Price to Book

 0.80

 0.60

 0.40

 0.20

 ‐
Chubb Ace Travelers Allstate American International Group
(Market Cap: $18+ Billion)  (Market Cap: $23+ Billion)  (Market Cap: $23+ Billion)  (Market Cap: $14+ Billion)  (Market Cap: $47+ Billion) 
5‐Year Average Price / Book Current Price / Book

Market Capitalizations as of January 30, 2012.

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 Margin of Safety: $25 Buys You $45+…
“Investing is all about what you give versus what you get.” * 

GIVE = $25

Future Cash 
Flows

Market Cap: $47bn

In return for purchasing stock (above) at

historic lows, an investor in AIG receives Tangible Book Value: $80bn
value (right) that far outweighs the cost. Reserves: $73bn
This provides downside protection as well DTAs: $17bn ‐ $25bn
as upside opportunity — when the market
returns to a “weighing machine,” AIG’s
market cap will increase.
GET = $45+

* Bruce R. Berkowitz, Morningstar Conference, June 9, 2011
Market Prices as of January 30, 2012.

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 AIG’s Long‐Term Goals
Positioning for Success

 INCREASE RETURN ON EQUITY (ROE) TO 10%

 GROW EARNINGS PER SHARE
 INCREASE PRE‐TAX OPERATING INCOME
 UTILIZE DEFERRED TAX ASSETS (DTA)
 REDUCE GENERAL & ADMINISTRATIVE EXPENSES
 DEPLOY EXCESS CAPITAL FOR:
• POTENTIAL SHARE REPURCHASES
• DIVIDEND PAYMENTS
• ACQUISITIONS
• ORGANIC BUSINESS OPPORTUNITIES

“Simply put, this company is too valuable to ignore. And we have a clear vision for 
[AIG] to be the most valuable insurance company, not the biggest. This is a 
franchise that has a real extraordinary uniqueness to it.” 

—Peter D. Hancock, Chief Executive Officer, Chartis, December 7, 2011

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 “Many shall be restored that now are fallen…”
– Horace, Ars Poetica
 40,000,000  $1,800

 35,000,000  $1,600

 $1,400
 30,000,000

 $1,200
 25,000,000
Short Interest

 $1,000

Price *
 20,000,000
 $800

 15,000,000
 $600

 10,000,000
 $400

 5,000,000  $200

 ‐  $‐

Short Interest Price

* Date of reverse split: 07/01/2009

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 Staying the Course
Courage of Conviction
“This is not an easy time for value investors. As we practice
the strategy, value investing has been underperforming and
prices for our companies are depressed and do not reflect
intrinsic value or business fundamentals…Each of our holdings
generates excess free cash. All are at bargain prices. Yet, our
investment experience has taught us that we cannot control
prices. Cheap can get cheaper, even if there is nothing
fundamentally wrong. However, market history says that high
quality, well‐managed companies don’t stay cheap for long.”

Bruce R. Berkowitz
Letter to Clients
February 2000
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 This presentation uses American International Group as a case study to illustrate Fairholme Capital Management’s investment strategy for the
Fairholme Fund. In the pages that follow, we show Fairholme Fund shareholders why we “Ignore the crowd” with regard to 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 November 30, 2011, American International Group
securities comprised 26.2% 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 that 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 (01/12)

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