By The Fairholme Fund (FAIRX) is providing additional information regarding the December 16, 2011 distribution and tax classification.
American International Group, Inc. (AIG) announced on December 29, 2011 that the United States Internal Revenue Service had ruled that the issuance of approximately 75 million warrants distributed on January 19, 2011, to AIG's common shareholders of record as of January 13, 2011, did not qualify as a tax free stock distribution. Although the distribution of warrants did not qualify as a tax free distribution of stock, an AIG common shareholder should not recognize any taxable income or gain as a result of the warrant distribution, provided the shareholder's tax basis in its AIG shares is greater than the fair market value of the warrants distributed.
The Fairholme Fund, which held the AIG common stock and received warrants distributed by AIG on January 19, 2011, treated the warrant distribution as taxable income for purposes of reporting its distribution on December 16, 2011. This treatment was consistent with information available at the time of The Fairholme Fund's distribution. As a result of the updated information provided by AIG, the dividend distribution paid by The Fairholme Fund on December 16, 2011 will be reclassified as a return of capital and reported as such on the 2011 Form 1099 to be sent by the end of January 2012.
Please contact Shareholder Services at 1-866-202-2263 (610-382-7849 outside the United States) if you have any questions. You should consult your tax advisor regarding the tax consequences of the distribution.
Fairholme Funds, Inc.
Brian Ehrlich, 305-358-3000
