Exhibit (a)(2)

ARTICLES SUPPLEMENTARY

to

ARTICLES OF INCORPORATION

of

FAIRHOLME FUNDS, INC.

THIS IS TO CERTIFY that FAIRHOLME FUNDS, INC., a Maryland corporation having its principal office in Baltimore City, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST: Pursuant to the authority of the Corporation's Board of Directors to classify and reclassify unissued shares of capital stock of the Corporation, the Board of Directors has reclassified 50,000,000 unissued shares of the Corporation's Common Stock, par value $.0001 per share, as 50,000,000 shares of Common Stock of the Fairholme Fund, a series of the Corporation, par value $.0001 per share, by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption thereof as hereinafter set forth.

SECOND: The shares of Common Stock of the Fairholme Fund as so reclassified by the Corporation's Board of Directors shall have the relative preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the shares of Common Stock of the Fairholme Fund as set forth in Article EIGHTH, Section 8.1, of the Corporation's Articles of Incorporation and shall be subject to all provisions of the Articles of Incorporation relating to stock of the Corporation generally.

THIRD: The shares aforesaid have been duly reclassified by the Corporation's Board of Directors pursuant to authority and power contained in the Corporation's Articles of Incorporation.

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IN WITNESS WHEREOF, Fairholme Funds, Inc. has caused these Articles Supplementary to be executed by its President and attested by its Secretary and its corporate seal to be affixed on this 5th day of May, 2005. The President of the Corporation who signed these Articles Supplementary acknowledges them to be the act of the Corporation and states under the penalties of perjury that to the best of his knowledge, information and belief the matters and facts relating to approval hereof are true in all material respects.

FAIRHOLME FUNDS, INC.

                                            By:      /s/ Bruce R. Berkowitz
                                                     --------------------------
                                                     Name:  Bruce R. Berkowitz
                                                     Title: President




Attested:     /s/ Keith D. Trauner
              -----------------------------------
              Name:   Keith D. Trauner
              Title:  Secretary

SK 22146 0003 654546

Exhibit (a)(3)

ARTICLES SUPPLEMENTARY

to

ARTICLES OF INCORPORATION

of

FAIRHOLME FUNDS, INC.

THIS IS TO CERTIFY that FAIRHOLME FUNDS, INC., a Maryland corporation having its principal office in Baltimore City, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST: Pursuant to the authority of the Corporation's Board of Directors to classify and reclassify unissued shares of capital stock of the Corporation, the Board of Directors has reclassified 25,000,000 unissued shares of the Corporation's Common Stock, par value $.0001 per share, as 25,000,000 shares of Common Stock of the Fairholme Fund, a series of the Corporation, par value $.0001 per share, by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption thereof as hereinafter set forth.

SECOND: The shares of Common Stock of the Fairholme Fund as so reclassified by the Corporation's Board of Directors shall have the relative preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the shares of Common Stock of the Fairholme Fund as set forth in Article EIGHTH, Section 8.1, of the Corporation's Articles of Incorporation and shall be subject to all provisions of the Articles of Incorporation relating to stock of the Corporation generally.

THIRD: The shares aforesaid have been duly reclassified by the Corporation's Board of Directors pursuant to authority and power contained in the Corporation's Articles of Incorporation.

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IN WITNESS WHEREOF, Fairholme Funds, Inc. has caused these Articles Supplementary to be executed by its President and attested by its Secretary and its corporate seal to be affixed on this 15th day of November, 2005. The President of the Corporation who signed these Articles Supplementary acknowledges them to be the act of the Corporation and states under the penalties of perjury that to the best of his knowledge, information and belief the matters and facts relating to approval hereof are true in all material respects.

FAIRHOLME FUNDS, INC.

                                            By:      /s/ Bruce R. Berkowitz
                                                     --------------------------
                                                     Name:   Bruce R. Berkowitz
                                                     Title:  President




Attested:   /s/ Keith D. Trauner
            -----------------------------------
            Name:   Keith D. Trauner
            Title:  Secretary

SK 22146 0003 654547

Exhibit (e)

UNDERWRITING AGREEMENT

THIS AGREEMENT is made as of August 15, 2005, by and between Fairholme Funds, Inc. (the "Fund"), a Maryland Corporation, and Citco Mutual Fund Distributors, Inc., a Delaware corporation ("Underwriter").

WHEREAS, the Fund is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and

WHEREAS, the Fund is authorized by its Charter and By-laws to issue separate series of shares of its common stock representing separate investment portfolios (each series individually referred to herein as a "Portfolio" and collectively as the "Portfolios") and to further divide such Portfolios into separate share classes; and

WHEREAS, the Fund has authorized the issuance of shares of common stock ("Shares") in the Portfolios which are identified on Exhibit A attached hereto, which Exhibit A may be amended from time to time by mutual agreement of the Fund and Underwriter; and

WHEREAS, the Fund desires that the Underwriter offer, as principal underwriter, the shares of each Portfolio and class thereof to the public and the Underwriter is willing to provide those services on the terms and conditions set forth in this Agreement in order to promote the growth of the Portfolios and facilitate the distribution of shares; and

WHEREAS, the Fund has taken the necessary steps to appoint Underwriter as the Fund's principal underwriter pursuant to Section 15 of the 1940 Act and the Fund's organizational documents; and

WHEREAS, Underwriter is a broker-dealer registered with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as amended, (the "Exchange Act") and a member in good standing of the National Association of Securities Dealers, Inc., (the "NASD"); and

NOW, THEREFORE, in consideration of the promises and agreements of the parties contained herein, the parties hereto, intending to be legally bound, agree as follows:

1. Appointment; Delivery of Documents.

(a) The Fund hereby appoints Underwriter as exclusive agent for the distribution of Shares of the Portfolios listed in Exhibit A hereto, and Underwriter hereby accepts such appointment under the terms of this Agreement.

(b) In connection therewith, the Fund has delivered to Underwriter copies of (i) the Fund's Charter and By-laws, (ii) the Fund's Registration Statement and all amendments thereto filed with the SEC pursuant to the Securities Act of 1933, as amended ("Securities Act"), or the 1940 Act ("Registration Statement'), (iii) the current prospectuses and statements of additional information of each Portfolio and class thereof (collectively, as currently in effect and as amended or supplemented, the "Prospectus"); and (iv) relevant procedures adopted by the Fund with respect to the Portfolios that are necessary for Underwriter to perform the services set forth herein and shall promptly furnish Underwriter with all amendments of or supplements to the foregoing. The Fund shall deliver to Underwriter a certified copy of the resolution of the Board of Directors of the Fund (the "Board") appointing Underwriter and authorizing the execution and deliver of this Agreement.

(c) (i) All advertising and sales literature related to the Fund that is not in use prior to the execution of this Agreement shall be delivered to Underwriter for review prior to use with sufficient time to permit the Underwriter to review the material and file with the NASD if necessary. The Fund and Underwriter shall mutually agree upon reasonable turnaround times for such review.

(ii) All advertising and sales literature related to the Fund that is in use prior to the execution of this Agreement shall be delivered to Underwriter, and Underwriter shall file such material with the NASD, if necessary, within ten days of its use by Underwriter or its agents.

2. Offering of Shares.

(a) Underwriter shall have the right to buy from the Fund the Shares needed to fill unconditional orders for unsold Shares of the Portfolios as shall then be effectively registered under the Securities Act placed with the Underwriter by investors or Selected Dealers or Selected Agents (each as defined in Section 10 hereof) acting as agent for their customer or on their own behalf. Alternatively, Underwriter may act as the Fund's agent, to offer, and to solicit offers to subscribe to, unsold Shares of the Portfolios as shall then be effectively registered under the Securities Act. Underwriter will promptly forward all orders and subscriptions to the Fund. The price that Underwriter shall pay for Shares purchased from the Fund shall be the net asset value per Share, determined as set forth in Section 2(c) hereof, used in determining the public offering price on which the orders are based. Shares purchased by Underwriter are to be resold by Underwriter to investors at the public offering price, as set forth in Section 2(b) hereof, or to Selected Dealers or Selected Agents acting as agent for their customers that have entered into agreements with Underwriter pursuant to Section 10 hereof or acting on their own behalf. The Fund reserves the right to sell Shares directly to investors through subscriptions received by the Fund, but no such direct sales shall affect the sales charges due to Underwriter hereunder.

(b) The public offering price of the Shares of a Portfolio, i.e., the price per Share at which Underwriter or Selected Dealers or Selected Agents may sell Shares to the public or to those persons eligible to invest in Shares as described in the applicable Prospectus, shall be the public offering price determined in accordance with the then currently effective Prospectus of the Portfolio or class thereof under the Securities Act relating to such Shares. The public offering price shall not exceed the net asset value at which Underwriter, when acting as principal, is to purchase such Shares, plus, in the case of Shares for which an initial sales charge is assessed, an initial charge equal to a specified percentage or percentages of the public offering price of the Shares as set forth in the current Prospectus relating to the Shares. In the case of Shares for which an initial sales charge may be assessed, Shares may be sold to certain classes of persons at reduced sales charges or without any sales charge as from time to time set forth in the current Prospectus relating to the Shares. The Fund will advise Underwriter of the net asset value per Share at each time as the net asset value per Share shall have been determined by the Fund and at such other times as Underwriter may reasonably request.

(c) The net asset value per Share of each Portfolio or class thereof shall be determined by the Fund, or its designated agent, in accordance with and at the times indicated in the applicable Prospectus on each business day in accordance with the method set forth in the Prospectus and guidelines established by the Board.

(d) The Fund reserves the right to suspend the offering of Shares of a Portfolio or of any class thereof at any time in the absolute discretion of the Board, and upon notice of such suspension Underwriter shall cease to offer Shares of the Portfolios or classes thereof specified in the notice.

(e) The Fund, or any agent of the Fund designated in writing to Underwriter by the Fund, shall be promptly advised by Underwriter of all purchase orders for Shares received by Underwriter and all subscriptions for Shares obtained by Underwriter as agent shall be directed to the Fund for acceptance and shall not be binding until accepted by the Fund. Any order or subscription may be rejected by the Fund. The Fund or its designated agent will confirm orders and subscriptions upon their receipt, will make appropriate book entries and, upon receipt by the Fund or its designated agent of payment thereof, will issue such Shares in uncertificated form pursuant to the instructions of Underwriter. Underwriter agrees to cause such payment and such instructions to be delivered promptly to the Fund or its designated agent.

3. Repurchase or Redemption of Shares by the Fund.

(a) Any of the outstanding Shares of a Portfolio or class thereof may be tendered for redemption at any time, and the Fund agrees to redeem or repurchase the Shares so tendered in accordance with its obligations as set forth in the Charter and the Prospectus relating to the Shares. The price to be paid to redeem or repurchase the Shares of a Portfolio or class thereof shall be equal to the net asset value calculated in accordance with the provisions of Section 2(c) hereof less, in the case of Shares for which a deferred sales charge is assessed, a deferred sales charge equal to a specified percentage or percentages of the net asset value of those Shares as from time to time set forth in the Prospectus relating to those Shares or their cost, whichever is less. Shares of a Portfolio or class thereof for which a deferred sales charge may be assessed and that have been outstanding for a specified period of time may be redeemed without payment of a deferred sales charge as from time to time set forth in the Prospectus relating to those Shares.

(b) The Fund or its designated agent shall pay (i) the total amount of the redemption price consisting of the redemption price, less first, any applicable contingent deferred sales charge, and second, any applicable redemption fee as provided in the Prospectus, which redemption fee shall be retained by the Fund, to the redeeming shareholder or its agent and (ii) except as may be otherwise required by the Rules of Conduct (the "Rules") of the NASD and any interpretations thereof, any applicable deferred sales charges to Underwriter in accordance with Underwriter's instructions on or before the fifth business day (or such other earlier business day as is customary in the investment company industry) subsequent to the Fund or its agent having received the notice of redemption in proper form.

(c) Redemption of Shares or payment therefor may be suspended at times when the New York Stock Exchange is closed for any reason other than its customary weekend or holiday closings, when trading thereon is restricted, when an emergency exists as a result of which disposal by the Fund of securities owned by a Portfolio is not reasonably practicable or it is not reasonably practicable for the Fund fairly to determine the value of a Portfolio's net assets, or during any other period when the SEC so requires or permits.

4. Duties and Representations of the Underwriter.

(a) Underwriter shall distribute Shares of the Portfolios upon the terms and conditions contained herein and in the then current Prospectus. Underwriter shall devote reasonable time and effort to effect sales of Shares but only against orders therefore and shall not be obligated to sell any specific number of Shares. The services of Underwriter to the Fund hereunder are not to be deemed exclusive, and nothing herein contained shall prevent Underwriter from entering into like arrangements with other investment companies so long as the performance of its obligations hereunder is not impaired thereby.

(b) In selling Shares of the Portfolios, Underwriter shall use its best efforts in all material respects duly to conform with the requirements of all federal and state laws relating to the sale of the Shares. None of Underwriter, any Selected Dealer, any Selected Agent or any other person is authorized by the Fund to give any information or to make any representations other than as is contained in a Portfolio's Prospectus or any advertising materials or sales literature specifically approved in writing by the Fund or its agents.

(c) Underwriter shall adopt and follow procedures for the confirmation of sales to investors and Selected Dealers or Selected Agents, the collection of amounts payable by investors and Selected Dealers or Selected Agents on such sales, and the cancellation of unsettled transactions, as may be necessary to comply with the requirements of the NASD.

(d) Underwriter shall provide to the Fund, promptly upon its request, the taxpayer identification of all shareholders of a Portfolio that purchased, redeemed, transferred, or exchanged shares of the Portfolio held through an account with Underwriter, and the amount and dates of such shareholder purchases, redemptions, transfers, and exchanges. Underwriter shall execute any instructions from the Fund to restrict or prohibit further purchases or exchanges of Portfolio shares by a shareholder who has been identified by the Fund as having engaged in transactions that violate the Fund's market timing policies.

(e) Underwriter represents and warrants to the Fund that:

(i) It is a corporation duly organized and incorporated and in good standing under the laws of the State of Delaware and it is duly qualified to carry on its business in the Commonwealth of Pennsylvania;

(ii) It is empowered under applicable laws and by its Charter and By-laws to enter into and perform this Agreement;

(iii) All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement;

(iv) It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement;

(v) This Agreement, when executed and delivered, will constitute a legal, valid and binding obligation of Underwriter, enforceable against Underwriter in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties;

(vi) It is registered with the SEC as a broker-dealer under the Exchange Act, it will comply with all applicable terms and provisions of the Exchange Act and the rules and regulations thereunder, it is a member in good standing of the NASD, it will abide by the rules and regulations of the NASD, and it will notify the Fund if its membership in the NASD is terminated or suspended; and

(vii) The performance by Underwriter of its obligations hereunder does not and will not contravene any provision of its Charter or By-laws.

(e) Notwithstanding anything in this Agreement to the contrary, Underwriter makes no warranty or representation as to the number of Selected Dealers or Selected Agents with which it has entered into agreements in accordance with Section 10 hereof, as to the availability of any Shares to be sold through any Selected Dealer, Selected Agent or other intermediary or as to any other matter not specifically set forth herein.

5. Duties and Representations of the Fund.

(a) The Fund shall furnish to Underwriter copies of all financial statements and other documents to be delivered to shareholders or investors at least two business days prior to such delivery and shall furnish Underwriter copies of all other financial statements, documents and other papers or information which Underwriter may reasonably request for use in connection with the distribution of Shares. The Fund shall make available to Underwriter the number of copies of a Portfolio's Prospectus as Underwriter shall reasonably request.

(b) The Fund shall take, from time to time, subject to the approval of the Board and any required approval of the shareholders of the Fund, all action necessary to fix the number of authorized Shares (if such number is not limited) and to register the Shares under the Securities Act, to the end that there will be available for sale the number of Shares as reasonably may be expected to be sold pursuant to this Agreement.

(c) The Fund shall execute any and all documents, furnish to Underwriter any and all information, otherwise use its best efforts to take all actions that may be reasonably necessary and cooperate with Underwriter in taking any action as may be necessary to register or qualify Shares for sale under the securities laws of the various states of the United States and other jurisdictions ("States") as Underwriter shall designate (subject to approval by the Fund); provided that Underwriter shall not be required to register as a broker-dealer or file a consent to service of process in any State and neither the Fund nor any Portfolio or class thereof shall be required to qualify as a foreign corporation, trust or association in any State. Any registration or qualification may be withheld, terminated or withdrawn by the Fund at any time in its discretion. Underwriter shall furnish such information and other material relating to its affairs and activities as may be required by the Fund in connection with such registration or qualification.

(d) The Fund represents and warrants to Underwriter that:

(i) It is a corporation duly organized and incorporated and in good standing under the laws of the State of Maryland;

(ii) It is empowered under applicable laws and by its Charter and By-laws to enter into and perform this Agreement;

(iii) All proceedings required by the Charter and By-laws have been taken to authorize it to enter into and perform its duties under this Agreement;

(iv) It is an open-end management investment company registered with the SEC under the 1940 Act;

(v) All Shares, when issued, shall be validly issued, fully paid and non-assessable;

(vi) This Agreement, when executed and delivered, will constitute a legal, valid and binding obligation of the Fund, enforceable against the Fund in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties;

(vii) The Registration Statement is currently effective and will remain effective with respect to all Shares of the Portfolios and classes thereof being offered for sale;

(viii) The Registration Statement and Prospectuses have been or will be, as the case may be, carefully prepared in conformity with the requirements of the Securities Act and the rules and regulations thereunder;

(ix) The Registration Statement and Prospectuses contain or will contain all statements required to be stated therein in accordance with the Securities Act and the rules and regulations thereunder; all statements of fact contained or to be contained in the Registration Statement or Prospectuses are or will be true and correct at the time indicated or on the effective date as the case may be; and neither the Registration Statement nor any Prospectus, when they shall become effective or be authorized for use, will include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading to a purchaser of Shares;

(x) It will from time to time file such amendment or amendments to the Registration Statement and Prospectuses as, in the light of then-current and then-prospective developments, shall, in the opinion of its counsel, be necessary in order to have the Registration Statement and Prospectuses at all times contain all material facts required to be stated therein or necessary to make any statements therein not misleading to a purchaser of Shares ("Required Amendments");

(xi) It will provide Underwriter with copies of any amendment to the Registration Statement or Prospectuses promptly;

(xii) Any amendment to the Registration Statement or Prospectuses hereafter filed will, when it becomes effective, contain all statements required to be stated therein in accordance with the 1940 Act and the rules and regulations thereunder; all statements of fact contained in the Registration Statement or Prospectuses will, be true and correct at the time indicated or on the effective date as the case may be; and no such amendment, when it becomes effective, will include an untrue statement of a material fact or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading to a purchaser of the Shares; and

(xiii) It will provide Underwriter with a list of persons authorized by the Board to give oral and/or written instructions and upon whose orders Underwriter may act.

6. Expenses to be Borne by Fund. The Fund will bear the following expenses:

(a) preparation, setting in type, and printing of sufficient copies of the Prospectuses for distribution to shareholders, and the distribution to shareholders of the Prospectus;

(b) preparation, printing and distribution of reports and other communications to shareholders;

(c) registration of the Shares under the federal securities law;

(d) qualification of the Shares for sale in the jurisdictions designated by Fund and Underwriter;

(e) maintaining facilities for the issue and transfer of the Shares;

(f) supplying information, prices and other data to be furnished by the Fund under this Agreement; and

(g) any original issue taxes or transfer taxes applicable to the sale or delivery of the Shares of certificates therefore.

7. Compensation. The Fund shall pay Underwriter for the services to be provided under this Agreement in accordance with, and in the manner set forth in, Exhibit B attached hereto, as such Exhibit B may be amended from time to time by mutual agreement of the parties.

If this Agreement becomes effective subsequent to the first day of a month or terminates before the last day of a month, Underwriter's compensation for that part of the month in which this Agreement is in effect shall be prorated in a manner consistent with the calculation of the fees as set forth above. Payment of Underwriter's compensation for the preceding month shall be made promptly.

8. Standard of Care.

(a) Underwriter shall use its best judgment and reasonable efforts in rendering services to the Fund under this Agreement but shall be under no duty to take any action except as specifically set forth herein or as may be specifically agreed to by Underwriter in writing. Underwriter shall not be liable to the Fund or any of the Fund's shareholders for any error of judgment or mistake of law, for any loss arising out of any investment, or for any action or inaction of Underwriter in the absence of bad faith, willful misfeasance or gross negligence in the performance of Underwriter's duties or obligations under this Agreement or by reason of Underwriter's reckless disregard of its duties and obligations under this Agreement.

(b) Underwriter shall not be liable for any action taken or failure to act in good faith reliance upon:

(i) the advice of the Fund or of counsel, who may be counsel to the Fund or counsel to Underwriter;

(ii) any oral instruction with respect to any amount less than $10,000, which it receives from any person authorized by the Board to give such oral instruction;

(iii) any written instruction or certified copy of any resolution of the Board, and Underwriter may rely upon the genuineness of any such document or copy thereof reasonably believed in good faith by Underwriter to have been validly executed; or

(iv) any signature, instruction, request, letter of transmittal, certificate, opinion of counsel, statement, instrument, report, notice, consent, order, or other document reasonably believed in good faith by Underwriter to be genuine and to have been signed or presented by the Fund or other proper party or parties;

and Underwriter shall not be under any duty or obligation to inquire into the validity or invalidity or authority or lack thereof of any statement, oral or written instruction, resolution, signature, request, letter of transmittal, certificate, opinion of counsel, instrument, report, notice, consent, order, or any other document or instrument which reasonably believes in good faith to be genuine.

9. Indemnification.

(a) The Fund agrees to indemnify, defend and hold the Underwriter, its officers, Directors and agents, and any person who controls the Underwriter within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, free and harmless from and against any and all claims, demands or liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Underwriter, its officers, Directors and agents or any such controlling persons may incur, without bad faith, willful misfeasance or negligence on the part of the person being indemnified, under the Securities Act, the Exchange Act, or under common law or otherwise, arising out of or based upon (i) the bad faith, willful misfeasance or gross negligence of the Fund in connection with the subject matter of this Agreement; (ii) any material breach by the Fund of its representations and warranties under this Agreement; (iii) any untrue statement of a material fact contained in the Registration Statement or Prospectus or arising out of or based upon any alleged omission to state a material fact required to be stated in either thereof or necessary to make the statements in either thereof not misleading, except insofar as such claims, demands, liabilities or expenses arise out of or are based upon any such untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information furnished in writing by the Underwriter to the Fund for use in the Registration Statement, (iv) any untrue statement of a material fact contained in a Fund advertisement or sales literature or arising out of or based upon any alleged omission to state a material fact required to be stated in either thereof or necessary to make the statements in either thereof not misleading, except insofar as such claims, demands, liabilities or expenses arise out of or are based upon any such untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information furnished in writing by the Underwriter to the Fund for use in such advertisement or sales literature or (iv) any action taken or omitted by the Fund prior to the date of this Agreement.

(b) The Underwriter agrees to indemnify, defend, and hold the Fund, its officers, Directors, employees, shareholders and agents, and any person who controls the Fund within the meaning of Section 15 of the Securities Act of Section 20 of the Exchange Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending against such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Fund, its Directors, officers, employees, shareholders and agents, or any such controlling person may incur, without bad faith, willful misfeasance or negligence on the part of the person being indemnified, under the Securities Act, the Exchange Act or under common law or otherwise arising out of or based upon (i) any material breach by the Underwriter of its representations and warranties in this Agreement; (ii) any untrue statement of a material fact contained in information furnished in writing by the Underwriter to the Fund for use in the Registration Statement, or arising out of or based upon any omission or alleged omission to state a material fact in connection with such information required to be stated in the Registration Statement necessary to make such information not misleading; or (iii) any act of, or omission by, Underwriter or its representatives that does not conform to the standard of care set forth in Section 8 of this Agreement.

(c) A party seeking indemnification hereunder (the "Indemnitee") shall give prompt written notice to the party from whom indemnification is sought (the "Indemnitor") of a written assertion or claim of any threatened or pending legal proceeding which may be subject to indemnity under this Section; provided, however, that failure to notify the Indemnitor of such written assertion or claim shall not relieve the indemnitor of any liability arising from this Section. The Indemnitor shall be entitled, if it so elects, to assume the defense of any suit brought to enforce a claim subject to this Agreement and such defense shall be conducted by counsel chosen by the Indemnitor and satisfactory to the Indemnitee; provided, however, that if the defendants include both the Indemnitee and the Indemnitor, and the Indemnitee shall have reasonably concluded that there may be one or more legal defenses available to it which are different from or additional to those available to the Indemnitor ("conflict of interest"), the Indemnitor shall have the right to select separate counsel acceptable to the Indemnitee to defend such claim on behalf of the Indemnitee. In the event that the Indemnitor elects to assume the defense of any suit pursuant to the preceding sentence and retains counsel satisfactory to the Indemnitee, the Indemnitee shall bear the fees and expenses of additional counsel retained by it except for reasonable investigation costs which shall be borne by the Indemnitor. If the Indemnitor (i) does not elect to assume the defense of a claim,
(ii) elects to assume the defense of a claim but chooses counsel that is not satisfactory to the Indemnitee or (iii) has no right to assume the defense of a claim because of a conflict of interest, the Indemnitor shall advance or reimburse the Indemnitee, at the election of the Indemnitee, reasonable fees and disbursements of any counsel retained by Indemnitee, including reasonable investigation costs.

10. Selected Dealer and Selected Agent Agreements. Underwriter shall have the right to enter into selected dealer agreements with securities dealers of its choice ("Selected Dealers") and selected agent agreements with depository institutions and other financial intermediaries of its choice ("Selected Agents") for the sale of Shares and to fix therein the portion of the sales charge, if any, that may be allocated to the Selected Dealers or Selected Agents; provided, that the Fund shall approve the standard form of agreement with Selected Dealers or Selected Agents and shall review the compensation set forth therein. Underwriter shall include in the agreements with Selected Dealers or Selected Agents provisions relating to compliance with anti-money laundering and market timing policies. Shares of each Portfolio or class thereof shall be resold by Selected Dealers or Selected Agents only at the public offering price(s) set forth in the Prospectus relating to the Shares. Within the United States, Underwriter shall offer and sell Shares of the Portfolios only to such Selected Dealers as are members in good standing of the NASD.

11. Force Majeure. If either party shall be delayed in the performance of its services or prevented entirely or in part from performing services due to causes or events beyond its control, including and without limitation, acts of God, interruption of power or other utility, transportation or communication services, acts of civil or military authority, sabotages, national emergencies, explosion, flood, accident, earthquake or other catastrophe, fire, strike or other labor problems, legal action, present or future law, governmental order, rule or regulation, or shortages of suitable parts, materials, labor or transportation, such delay or non-performance shall be excused and a reasonable time, subject to restrictions and requirements of performance as may be established by federal or state law.

12. Confidentiality.

Underwriter agrees to treat all records and other information related to the Fund, including any information concerning a Portfolio's holdings, as proprietary information of the Fund and, on behalf of itself and its employees, to keep confidential all such information, except that Underwriter may:

(i) Prepare or assist in the preparation of periodic reports to shareholders and regulatory bodies such as the SEC;

(ii) Provide information typically supplied in the investment company industry to companies that track or report price, performance or other information regarding investment companies; and

(iii) Release such other information as approved in writing by the Fund, which approval shall not be unreasonably withheld;

Provided, however, that Underwriter may release any information regarding the Fund without the consent of the Fund if Underwriter reasonably believes that it may be exposed to civil or criminal legal proceedings for failure to comply, when requested to release any information by duly constituted authorities or when so requested by the Fund.

13. Rule 38a-1 Policies and Procedures

Underwriter has provided the Fund with its written compliance policies and procedures as required by Rule 38a-1 ("Rule 38a-1 Policies and Procedures") for the approval by the Board of Directors of the Fund. With respect to the services that Underwriter provides to the Fund hereunder, Underwriter's Rule 38a-1 Policies and Procedures shall be reasonably designed to prevent violations by the Underwriter of the federal securities laws as defined in Rule 38a-1, and which include the Securities Act of 1933, the Securities and Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Investment Company Act of 1940, the Investment Advisers Act of 1940, Title V of the Gramm-Leach-Bliley Act (relating to privacy regulation), any SEC rules adopted under any of these statutes, the Bank Secrecy Act as it applies to registered investment company operations (anti-money laundering), and any rules adopted thereunder by the SEC or the Department of the Treasury ("Federal Securities Laws").

Underwriter will promptly provide the Fund's Chief Compliance Officer with any material changes that have been made to Underwriter's Rule 38a-1 Policies and Procedures.

Underwriter agrees to cooperate with the Fund in the annual review of Underwriter's Rule 38a-1 Policies and Procedures conducted by the Fund's Chief Compliance Officer to determine the adequacy of Underwriter's Rule 38a-1 Policies and Procedures and the effectiveness of their implementation (the "Annual Review"). Underwriter also agrees to cooperate with the Fund in any interim reviews of Underwriter's Rule 38a-1 Policies and Procedures to determine their adequacy and the effectiveness of their implementation in response to significant compliance events, changes in business arrangements, and/or regulatory developments ("Interim Review"). Such cooperation includes, without limitation, furnishing such certifications, subcertifications, and documentation within the scope of the Underwriter's functions and responsibilities as the Fund's Chief Compliance Officer shall reasonably request from time to time and implementing changes to Underwriter's Rule 38a-1 Policies and Procedures satisfactory to the Fund's Chief Compliance Officer and the Underwriter.

Underwriter will provide the Fund with ongoing, direct, and immediate access to Underwriter's compliance personnel and shall cooperate with the Fund's Chief Compliance Officer in order to provide assistance to the Fund in carrying out it's obligations under Rule 38a-1.

Underwriter will promptly notify the Fund in the event that a Material Compliance Matter, as defined under Rule 38a-1, occurs with respect to Underwriter's Rule 38a-1 Policies and Procedures and will cooperate with the Fund in providing the Fund with periodic and special reports in the event any Material Compliance Matter occurs. A "Material Compliance Matter" has the same meaning as the term defined in Rule 38a-1, and includes any compliance matters that involve: (1) a violation of the Federal Securities Laws by Underwriter (or its officer, directors, employees, or agents); (2) a violation of Underwriter's Rule 38a-1 Policies and Procedures; or (3) a weakness in the design or implementation of Underwriter's Rule 38a-1 Policies and Procedures.

Underwriter (and anyone acting under the direction of Underwriter) will refrain from, directly or indirectly, taking any action to coerce, manipulate, mislead, or fraudulently influence the Fund's Chief Compliance Officer in the performance of his or her responsibilities under Rule 38a-1.

14. Termination and Amendment of this Agreement. This Agreement shall automatically terminate, without the payment of any penalty, in the event of its assignment. This Agreement may be amended only if such amendment is approved (i) by Underwriter, (ii) either by action of the Board or at a meeting of the Shareholders of the Fund by the affirmative vote of a majority of the outstanding Shares, and (iii) by a majority of the Directors of the Fund who are not interested persons of the Fund or of Underwriter, by vote cast in person at a meeting called for the purpose of voting on such approval. Either the Fund or Underwriter may terminate this Agreement at any time on sixty (60) days' written notice delivered or mailed by registered mail, postage prepaid, to the other party.

15. Effective Period of This Agreement. Unless terminated automatically as set forth in Section 14 of this Agreement, this Agreement shall take effect upon its execution and shall remain in full force and effect for a period of two years from that date, and shall remain in full force and effect from year to year thereafter, subject to annual approval (i) by Underwriter,
(ii) by the Board or by vote of a majority of the outstanding Shares, and in either case (iii) by a majority of the Directors of the Fund who are not interested persons of the Fund or of Underwriter, by vote cast in person at a meeting called for the purpose of voting on such approval.

16. Successor Investment Company. Unless this Agreement has been terminated in accordance with Section 14, the terms and provisions of this Agreement shall become automatically applicable to any investment company which is a successor to the Fund as a result of a reorganization, recapitalization or change of domicile.

17. Severability. In the event any provision of this Agreement is determined to be void or unenforceable, such determination shall not affect the remainder of this Agreement, which shall remain in full force and effect.

18. Questions of Interpretation.

(a) This Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.

(b) Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act shall be resolved by reference to such term or provision of the 1940 Act and its interpretation thereof, if any, by the United States courts; or in the absence of any controlling decision of any such court, by rules, regulations or orders of the SEC issued pursuant to said Act. In addition, where the effect of a requirement of the 1940 Act, reflected in any provision of this Agreement is revised by rule, regulation or order of the SEC, such provision shall be deemed to incorporate the effect of such rule, regulation or order.

19. Notices. Any notices under this Agreement shall be in writing, addressed and delivered or mailed postage paid to the other party at such address as such other party may designate for the receipt of such notice. Until further notice to the other party, it is agreed that for this purpose the address of the Fund is 51 John F. Kennedy Parkway, Short Hills, New Jersey 07078, Attn: Keith D. Trauner, and for the Underwriter is 83 General Warren Boulevard, Suite 200, Malvern, PA 19355, Attn:President.

20. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

21. Binding Effect. Each of the undersigned expressly warrants and represents that he has the full power and authority to sign this Agreement on behalf of the party indicated, and that his signature will operate to bind the party indicated to the foregoing terms.

IN WITNESS WHEREOF, the Fund and Underwriter have each caused this Agreement to be signed on its behalf, all as of the day and year first above written.

ATTEST:                              FAIRHOLME FUNDS, INC.


/s/ Linda V. Baxter                  By: /s/ Keith D. Trauner
                                         --------------------
                                     Name: Keith D. Trauner
                                     Title: Treasurer & Secretary

ATTEST:                              CITCO MUTUAL FUND DISTRIBUTORS, INC.



/s/ George M. Chamberlain            By: /s/ Paul L. Giorgio
                                         ---------------------
                                     Name: Paul L. Giorgio
                                     Title: Chief Financial Officer/FINOP

                PORTFOLIOS                              Sole Class
                ----------                              ----------

The Fairholme Fund                                         [X]

EXHIBIT B

The following fees are hereby made subject to the Agreement dated August 15, 2005, by and between Citco Mutual Fund Distributors, Inc. ("Underwriter") and Fairholme Funds, Inc. (the "Fund"):

The Fund will pay Underwriter a flat fee of $12,000 per year for underwriting services provided to the Portfolios of the Fund.

#591515

Exhibit (g)(1)

CUSTODY AGREEMENT

Dated August 15, 2005

Between

UMB BANK, N.A.

and

FAIRHOLME FUNDS, INC.

TABLE OF CONTENTS

SECTION                                                                    PAGE
-------                                                                    ----

 1. Appointment of Custodian                                                 1

 2. Definitions                                                              1
    (a) Securities                                                           1
    (b) Assets                                                               1
    (c) Instructions and Special Instructions                                1

 3. Delivery of Corporate Documents                                          2

 4. Powers and Duties of Custodian and Domestic Subcustodian                 2
    (a) Safekeeping                                                          3
    (b) Manner of Holding Securities                                         3
    (c) Free Delivery of Assets                                              4
    (d) Exchange of Securities                                               4
    (e) Purchases of Assets                                                  4
    (f) Sales of Assets                                                      5
    (g) Options                                                              5
    (h) Futures Contracts                                                    6
    (i) Segregated Accounts                                                  6
    (j) Depositary Receipts                                                  6
    (k) Corporate Actions, Put Bonds, Called Bonds, Etc.                     6
    (l) Interest Bearing Deposits                                            7
    (m) Foreign Exchange Transactions                                        7
    (n) Pledges or Loans of Securities                                       8
    (o) Stock Dividends, Rights, Etc.                                        8
    (p) Routine Dealings                                                     8
    (q) Collections                                                          8
    (r) Bank Accounts                                                        9
    (s) Dividends, Distributions and Redemptions                             9
    (t) Proceeds from Shares Sold                                            9
    (u) Proxies and Notices; Compliance with the Shareholders
          Communication Act of 1985                                          9
    (v) Books and Records                                                    9
    (w) Opinion of Fund's Independent Certified Public Accountants          10
    (x) Reports by Independent Certified Public Accountants                 10
    (y) Bills and Others Disbursements                                      10

 5. Subcustodians                                                           10
    (a) Domestic Subcustodians                                              10
    (b) Foreign Subcustodians                                               10
                                                                            11
    (c) Special Subcustodians                                               11
    (d) Termination of a Subcustodian                                       11
    (e) Certification Regarding Foreign Subcustodians                       11
    (f)  Securities Depositories
    (g)  Limitations on Placement of Foreign Assets

 6. Standard of Care                                                        12
    (a) General Standard of Care                                            12
    (b) Actions Prohibited by Applicable Law, '                             12
    Etc.
    (c) Liability for Past Records                                          12
    (d) Advice of Counsel                                                   12
    (e) Advice of the Fund and Others                                       12
    (f) Instructions Appearing to be Genuine                                13
    (g) Exceptions from Liability                                           13

 7. Liability of the Custodian for Actions of Others                        13
    (a) Domestic Subcustodians                                              13
    (b) Foreign Subcustodians                                               13
    (c) Securities Systems, Interim Subcustodians, Special                  13
        Subcustodians, Eligible Securities
        Depositories
    (d) Defaults or Insolvency's of Brokers, Banks, Etc.                    14
    (e) Reimbursement of Expenses                                           14

 8. Indemnification                                                         14
    (a) Indemnification by Fund                                             14
    (b) Indemnification by Custodian                                        14

 9. Advances                                                                14

10. Liens                                                                   15

11. Compensation                                                            15

12. Powers of Attorney                                                      15

13. Termination and Assignment                                              15

14. Additional Funds                                                        15

15. Notices                                                                 16

16. Miscellaneous                                                           16

CUSTODY AGREEMENT

This agreement made as of this 15th day of August, 2005, between UMB Bank,
n.a., a national banking association with its principal place of business located in Kansas City, Missouri (hereinafter "Custodian"), and Fairholme Funds, Inc., on behalf of each of its series listed on Appendix B hereof, together with such additional series which may be included in Appendix B hereto (individually, a "Fund" and collectively, the "Funds").

WITNESSETH:

WHEREAS, Fairholme Funds, Inc. is registered as an open-end management investment company under the Investment Company Act of 1940, as amended; and

WHEREAS, Fairholme Funds, Inc. desires to appoint Custodian as custodian for the custody of Assets (as hereinafter defined) owned by each Fund which Assets are to be held in such accounts as such Fund may establish from time to time; and

WHEREAS, Custodian is willing to accept such appointment on the terms and conditions hereof.

NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties hereto, intending to be legally bound, mutually covenant and agree as follows:

1. APPOINTMENT OF CUSTODIAN.

Fairholme Funds, Inc., on behalf of each Fund, hereby constitutes and appoints the Custodian as custodian of Assets belonging to each such Fund which have been or may be from time to time deposited with the Custodian. Custodian accepts such appointment as a custodian and agrees to perform the duties and responsibilities of Custodian as set forth herein on the conditions set forth herein.

2. DEFINITIONS.

For purposes of this Agreement, the following terms shall have the meanings so indicated:

(a) "Security" or "Securities" shall mean stocks, bonds, bills, rights, script, warrants, interim certificates and all negotiable or nonnegotiable paper commonly known as Securities and other instruments or obligations.

(b) "Assets" shall mean Securities, monies and other property held by the Custodian for the benefit of a Fund.

(c)(1) "Instructions", as used herein, shall mean: (i) a tested telex, a written (including, without limitation, facsimile transmission) request, direction, instruction or certification signed or initialed by or on behalf of a Fund by an Authorized Person; (ii) a telephonic or other oral communication from a person the Custodian reasonably believes to be an Authorized Person; or (iii) a communication effected directly between an electro-mechanical or electronic device or system (including, without limitation, computers) on behalf of a Fund. Instructions in the form of oral communications shall be confirmed by the appropriate Fund by tested telex or in writing in the manner set forth in clause
(i) above, but the lack of such confirmation shall in no way affect any action taken by the Custodian in reliance upon such oral Instructions prior to the Custodian's receipt of such confirmation. Each Fund authorizes the Custodian to record any and all telephonic or other oral Instructions communicated to the Custodian.

(c)(2) "Special Instructions", as used herein, shall mean Instructions countersigned or confirmed in writing by the Treasurer or any Assistant Treasurer of a Fund or any other person designated by the Treasurer of such Fund in writing, which countersignature or confirmation shall be included on the same instrument containing the Instructions or on a separate instrument relating thereto.

(c)(3) Instructions and Special Instructions shall be delivered to the Custodian at the address and/or telephone, facsimile transmission or telex number agreed upon from time to time by the Custodian and each Fund.

(c)(4) Where appropriate, Instructions and Special Instructions shall be continuing instructions.

3. DELIVERY OF CORPORATE DOCUMENTS.

Each of the parties to this Agreement represents that its execution does not violate any of the provisions of its respective charter, articles of incorporation, articles of association or bylaws and all required corporate action to authorize the execution and delivery of this Agreement has been taken.

Fairholme Funds, Inc., on behalf of each Fund, has furnished the Custodian with copies, properly certified or authenticated, with all amendments or supplements thereto, of the following documents:

(a) Certificate of Incorporation (or equivalent document) of Fairholme Funds, Inc. as in effect on the date hereof;

(b) By-Laws of Fairholme Funds, Inc. as in effect on the date hereof;

(c) Resolutions of the Board of Directors of Fairholme Funds, Inc. appointing the Custodian and approving the form of this Agreement; and

(d) The Fund's current prospectus and statements of additional information.

Fairholme Funds, Inc., on behalf of each Fund, shall promptly furnish the Custodian with copies of any updates, amendments or supplements to the foregoing documents.

In addition, Fairholme Funds, Inc., on behalf of each Fund, has delivered or will promptly deliver to the Custodian, copies of the Resolution(s) of its Board of Directors or Trustees and all amendments or supplements thereto, properly certified or authenticated, designating certain officers or employees of each such Fund who will have continuing authority to certify to the Custodian: (a) the names, titles, signatures and scope of authority of all persons authorized to give Instructions or any other notice, request, direction, instruction, certificate or instrument on behalf of each Fund, and (b) the names, titles and signatures of those persons authorized to countersign or confirm Special Instructions on behalf of each Fund (in both cases collectively, the "Authorized Persons" and individually, an "Authorized Person"). Such Resolutions and certificates may be accepted and relied upon by the Custodian as conclusive evidence of the facts set forth therein and shall be considered to be in full force and effect until delivery to the Custodian of a similar Resolution or certificate to the contrary. Upon delivery of a certificate which deletes or does not include the name(s) of a person previously authorized to give Instructions or to countersign or confirm Special Instructions, such persons shall no longer be considered an Authorized Person authorized to give Instructions or to countersign or confirm Special Instructions. Unless the certificate specifically requires that the approval of anyone else will first have been obtained, the Custodian will be under no obligation to inquire into the right of the person giving such Instructions or Special Instructions to do so. Notwithstanding any of the foregoing, no Instructions or Special Instructions received by the Custodian from a Fund will be deemed to authorize or permit any director, trustee, officer, employee, or agent of such Fund to withdraw any of the Assets of such Fund upon the mere receipt of such authorization, Special Instructions or Instructions from such director, trustee, officer, employee or agent.

4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN.

Except for Assets held by any Subcustodian appointed pursuant to Sections 5(b) or (c) of this Agreement, the Custodian shall have and perform the powers and duties hereinafter set forth in this Section 4. For purposes of this Section 4 all references to powers and duties of the "Custodian" shall also refer to any Domestic Subcustodian appointed pursuant to Section 5(a).

(a) Safekeeping.

The Custodian will keep safely the Assets of each Fund which are delivered to it from time to time. The Custodian shall not be responsible for any property of a Fund held or received by such Fund and not delivered to the Custodian.

(b) Manner of Holding Securities.

(1) The Custodian shall at all times hold Securities of each Fund either: (i) by physical possession of the share certificates or other instruments representing such Securities in registered or bearer form; or (ii) in book-entry form by a Securities System (as hereinafter defined) in accordance with the provisions of sub-paragraph (3) below.

(2) The Custodian may hold registrable portfolio Securities which have been delivered to it in physical form, by registering the same in the name of the appropriate Fund or its nominee, or in the name of the Custodian or its nominee, for whose actions such Fund and Custodian, respectively, shall be fully responsible. Upon the receipt of Instructions, the Custodian shall hold such Securities in street certificate form, so called, with or without any indication of fiduciary capacity. However, unless it receives Instructions to the contrary, the Custodian will register all such portfolio Securities in the name of the Custodian's authorized nominee. All such Securities shall be held in an account of the Custodian containing only assets of the appropriate Fund or only assets held by the Custodian as a fiduciary, provided that the records of the Custodian shall indicate at all times the Fund or other customer for which such Securities are held in such accounts and the respective interests therein.

(3) The Custodian may deposit and/or maintain domestic Securities owned by a Fund in, and each Fund hereby approves use of: (a) The Depository Trust Company; and (b) any book-entry system as provided in (i) Subpart O of Treasury Circular No. 300, 31 CFR 306.115, (ii) Subpart B of Treasury Circular Public Debt Series No. 27-76, 31 CFR 350.2, or (iii) the book-entry regulations of federal agencies substantially in the form of 31 CFR 306.115. Upon the receipt of Special Instructions, the Custodian may deposit and/or maintain domestic Securities owned by a Fund in any other domestic clearing agency registered with the Securities and Exchange Commission ("SEC") under Section 17A of the Securities Exchange Act of 1934 (or as may otherwise be authorized by the SEC to serve in the capacity of depository or clearing agent for the Securities or other assets of investment companies) which acts as a Securities depository. Each of the foregoing shall be referred to in this Agreement as a "Securities System", and all such Securities Systems shall be listed on the attached Appendix A. Use of a Securities System shall be in accordance with applicable Federal Reserve Board and SEC rules and regulations, if any, and subject to the following provisions:

(i) The Custodian may deposit the Securities directly or through one or more agents or Subcustodians which are also qualified to act as custodians for investment companies.

(ii) The Custodian shall deposit and/or maintain the Securities in a Securities System, provided that such Securities are represented in an account ("Account") of the Custodian in the Securities System that includes only assets held by the Custodian as a fiduciary, custodian or otherwise for customers.

(iii) The books and records of the Custodian shall at all times identify those Securities belonging to any one or more Funds which are maintained in a Securities System.

(iv) The Custodian shall pay for Securities purchased for the account of a Fund only upon (a) receipt of advice from the Securities System that such Securities have been transferred to the Account of the Custodian in accordance with the rules of the Securities System, and (b) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of such Fund. The Custodian shall transfer Securities sold for the account of a Fund only upon (a) receipt of advice from the Securities System that payment for such Securities has been transferred to the Account of the Custodian in accordance with the rules of the Securities System, and (b) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of such Fund. Copies of all advices from the Securities System relating to transfers of Securities for the account of a Fund shall be maintained for such Fund by the Custodian. The Custodian shall deliver to a Fund on the next succeeding business day daily transaction reports that shall include each day's transactions in the Securities System for the account of such Fund. Such transaction reports shall be delivered to such Fund or any agent designated by such Fund pursuant to Instructions, by computer or in such other manner as such Fund and Custodian may agree.

(v) The Custodian shall, if requested by a Fund pursuant to Instructions, provide such Fund with reports obtained by the Custodian or any Subcustodian with respect to a Securities System's accounting system, internal accounting control and procedures for safeguarding Securities deposited in the Securities System.

(vi) Upon receipt of Special Instructions, the Custodian shall terminate the use of any Securities System on behalf of a Fund as promptly as practicable and shall take all actions reasonably practicable to safeguard the Securities of such Fund maintained with such Securities System.

(c) Free Delivery of Assets.

Notwithstanding any other provision of this Agreement and except as provided in Section 3 hereof, the Custodian, upon receipt of Special Instructions, will undertake to make free delivery of Assets, provided such Assets are on hand and available, in connection with a Fund's transactions and to transfer such Assets to such broker, dealer, Subcustodian, bank, agent, Securities System or otherwise as specified in such Special Instructions.

(d) Exchange of Securities.

Upon receipt of Instructions, the Custodian will exchange portfolio Securities held by it for a Fund for other Securities or cash paid in connection with any reorganization, recapitalization, merger, consolidation, or conversion of convertible Securities, and will deposit any such Securities in accordance with the terms of any reorganization or protective plan.

Without Instructions, the Custodian is authorized to exchange Securities held by it in temporary form for Securities in definitive form, to surrender Securities for transfer into a name or nominee name as permitted in Section
4(b)(2), to effect an exchange of shares in a stock split or when the par value of the stock is changed, to sell any fractional shares, and, upon receiving payment therefor, to surrender bonds or other Securities held by it at maturity or call.

(e) Purchases of Assets.

(1) Securities Purchases. In accordance with Instructions, the Custodian shall, with respect to a purchase of Securities, pay for such Securities out of monies held for a Fund's account for which the purchase was made, but only insofar as monies are available therein for such purpose, and receive the portfolio Securities so purchased. Unless the Custodian has received Special Instructions to the contrary, such payment will be made only upon receipt of Securities by the Custodian, a clearing corporation of a national Securities exchange of which the Custodian is a member, or a Securities System in accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding the foregoing, upon receipt of Instructions: (i) in connection with a repurchase agreement, the Custodian may release funds to a Securities System prior to the receipt of advice from the Securities System that the Securities underlying such repurchase agreement have been transferred by book-entry into the Account maintained with such Securities System by the Custodian, provided that the Custodian's instructions to the Securities System require that the Securities System may make payment of such funds to the other party to the repurchase agreement only upon transfer by book-entry of the Securities underlying the repurchase agreement into such Account; (ii) in the case of Interest Bearing Deposits, currency deposits, and other deposits, foreign exchange transactions, futures contracts or options, pursuant to Sections 4(g), 4(h), 4(l), and 4(m) hereof, the Custodian may make payment therefor before receipt of an advice of transaction; and (iii) in the case of Securities as to which payment for the Security and receipt of the instrument evidencing the Security are under generally accepted trade practice or the terms of the instrument representing the Security expected to take place in different locations or through separate parties, such as commercial paper which is indexed to foreign currency exchange rates, derivatives and similar Securities, the Custodian may make payment for such Securities prior to delivery thereof in accordance with such generally accepted trade practice or the terms of the instrument representing such Security.

(2) Other Assets Purchased. Upon receipt of Instructions and except as otherwise provided herein, the Custodian shall pay for and receive other Assets for the account of a Fund as provided in Instructions.

(f) Sales of Assets.

(1) Securities Sold. In accordance with Instructions, the Custodian will, with respect to a sale, deliver or cause to be delivered the Securities thus designated as sold to the broker or other person specified in the Instructions relating to such sale. Unless the Custodian has received Special Instructions to the contrary, such delivery shall be made only upon receipt of payment therefor in the form of: (a) cash, certified check, bank cashier's check, bank credit, or bank wire transfer; (b) credit to the account of the Custodian with a clearing corporation of a national Securities exchange of which the Custodian is a member; or (c) credit to the Account of the Custodian with a Securities System, in accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding the foregoing, Securities held in physical form may be delivered and paid for in accordance with "street delivery custom" to a broker or its clearing agent, against delivery to the Custodian of a receipt for such Securities, provided that the Custodian shall have taken reasonable steps to ensure prompt collection of the payment for, or return of, such Securities by the broker or its clearing agent, and provided further that the Custodian shall not be responsible for the selection of or the failure or inability to perform of such broker or its clearing agent or for any related loss arising from delivery or custody of such Securities prior to receiving payment therefor.

(2) Other Assets Sold. Upon receipt of Instructions and except as otherwise provided herein, the Custodian shall receive payment for and deliver other Assets for the account of a Fund as provided in Instructions.

(g) Options.

(1) Upon receipt of Instructions relating to the purchase of an option or sale of a covered call option, the Custodian shall: (a) receive and retain confirmations or other documents, if any, evidencing the purchase or writing of the option by a Fund; (b) if the transaction involves the sale of a covered call option, deposit and maintain in a segregated account the Securities (either physically or by book-entry in a Securities System) subject to the covered call option written on behalf of such Fund; and (c) pay, release and/or transfer such Securities, cash or other Assets in accordance with any notices or other communications evidencing the expiration, termination or exercise of such options which are furnished to the Custodian by the Options Clearing Corporation (the "OCC"), the securities or options exchanges on which such options were traded, or such other organization as may be responsible for handling such option transactions.

(2) Upon receipt of Instructions relating to the sale of a naked option (including stock index and commodity options), the Custodian, the appropriate Fund and the broker-dealer shall enter into an agreement to comply with the rules of the OCC or of any registered national securities exchange or similar organizations(s). Pursuant to that agreement and such Fund's Instructions, the Custodian shall: (a) receive and retain confirmations or other documents, if any, evidencing the writing of the option; (b) deposit and maintain in a segregated account, Securities (either physically or by book-entry in a Securities System), cash and/or other Assets; and (c) pay, release and/or transfer such Securities, cash or other Assets in accordance with any such agreement and with any notices or other communications evidencing the expiration, termination or exercise of such option which are furnished to the Custodian by the OCC, the securities or options exchanges on which such options were traded, or such other organization as may be responsible for handling such option transactions. The appropriate Fund and the broker-dealer shall be responsible for determining the quality and quantity of assets held in any segregated account established in compliance with applicable margin maintenance requirements and the performance of other terms of any option contract.

(h) Futures Contracts.

Upon receipt of Instructions, the Custodian shall enter into a futures margin procedural agreement among the appropriate Fund, the Custodian and the designated futures commission merchant (a "Procedural Agreement"). Under the Procedural Agreement the Custodian shall: (a) receive and retain confirmations, if any, evidencing the purchase or sale of a futures contract or an option on a futures contract by such Fund; (b) deposit and maintain in a segregated account cash, Securities and/or other Assets designated as initial, maintenance or variation "margin" deposits intended to secure such Fund's performance of its obligations under any futures contracts purchased or sold, or any options on futures contracts written by such Fund, in accordance with the provisions of any Procedural Agreement designed to comply with the provisions of the Commodity Futures Trading Commission and/or any commodity exchange or contract market (such as the Chicago Board of Trade), or any similar organization(s), regarding such margin deposits; and (c) release Assets from and/or transfer Assets into such margin accounts only in accordance with any such Procedural Agreements. The appropriate Fund and such futures commission merchant shall be responsible for determining the type and amount of Assets held in the segregated account or paid to the broker-dealer in compliance with applicable margin maintenance requirements and the performance of any futures contract or option on a futures contract in accordance with its terms.

(i) Segregated Accounts.

Upon receipt of Instructions, the Custodian shall establish and maintain on its books a segregated account or accounts for and on behalf of a Fund, into which account or accounts may be transferred Assets of such Fund, including Securities maintained by the Custodian in a Securities System pursuant to Paragraph (b)(3) of this Section 4, said account or accounts to be maintained
(i) for the purposes set forth in Sections 4(g), 4(h) and 4(n) and (ii) for the purpose of compliance by such Fund with the procedures required by the SEC Investment Company Act Release Number 10666 or any subsequent release or releases relating to the maintenance of segregated accounts by registered investment companies, or (iii) for such other purposes as may be set forth, from time to time, in Special Instructions. The Custodian shall not be responsible for the determination of the type or amount of Assets to be held in any segregated account referred to in this paragraph, or for compliance by the Fund with required procedures noted in (ii) above.

(j) Depositary Receipts.

Upon receipt of Instructions, the Custodian shall surrender or cause to be surrendered Securities to the depositary used for such Securities by an issuer of American Depositary Receipts or International Depositary Receipts (hereinafter referred to, collectively, as "ADRs"), against a written receipt therefor adequately describing such Securities and written evidence satisfactory to the organization surrendering the same that the depositary has acknowledged receipt of instructions to issue ADRs with respect to such Securities in the name of the Custodian or a nominee of the Custodian, for delivery in accordance with such instructions.

Upon receipt of Instructions, the Custodian shall surrender or cause to be surrendered ADRs to the issuer thereof, against a written receipt therefor adequately describing the ADRs surrendered and written evidence satisfactory to the organization surrendering the same that the issuer of the ADRs has acknowledged receipt of instructions to cause its depository to deliver the Securities underlying such ADRs in accordance with such instructions.

(k) Corporate Actions, Put Bonds, Called Bonds, Etc.

Upon receipt of Instructions, the Custodian shall: (a) deliver warrants, puts, calls, rights or similar Securities to the issuer or trustee thereof (or to the agent of such issuer or trustee) for the purpose of exercise or sale, provided that the new Securities, cash or other Assets, if any, acquired as a result of such actions are to be delivered to the Custodian; and (b) deposit Securities upon invitations for tenders thereof, provided that the consideration for such Securities is to be paid or delivered to the Custodian, or the tendered Securities are to be returned to the Custodian.

Notwithstanding any provision of this Agreement to the contrary, the Custodian shall take all necessary action, unless otherwise directed to the contrary in Instructions, to comply with the terms of all mandatory or compulsory exchanges, calls, tenders, redemptions, or similar rights of security ownership, and shall notify the appropriate Fund of such action in writing by facsimile transmission or in such other manner as such Fund and Custodian may agree in writing.

The Fund agrees that if it gives an Instruction for the performance of an act on the last permissible date of a period established by any optional offer or on the last permissible date for the performance of such act, the Fund shall hold the Custodian harmless from any adverse consequences in connection with acting upon or failing to act upon such Instructions.

(l) Interest Bearing Deposits.

Upon receipt of Instructions directing the Custodian to purchase interest bearing fixed term and call deposits (hereinafter referred to, collectively, as "Interest Bearing Deposits") for the account of a Fund, the Custodian shall purchase such Interest Bearing Deposits in the name of such Fund with such banks or trust companies, including the Custodian, any Subcustodian or any subsidiary or affiliate of the Custodian (hereinafter referred to as "Banking Institutions"), and in such amounts as such Fund may direct pursuant to Instructions. Such Interest Bearing Deposits may be denominated in U.S. dollars or other currencies, as such Fund may determine and direct pursuant to Instructions. The responsibilities of the Custodian to a Fund for Interest Bearing Deposits issued by the Custodian shall be that of a U.S. bank for a similar deposit. With respect to Interest Bearing Deposits other than those issued by the Custodian, (a) the Custodian shall be responsible for the collection of income and the transmission of cash to and from such accounts; and
(b) the Custodian shall have no duty with respect to the selection of the Banking Institution or for the failure of such Banking Institution to pay upon demand.

(m) Foreign Exchange Transactions.

(l) Each Fund hereby appoints the Custodian as its agent in the execution of all currency exchange transactions. The Custodian agrees to provide exchange rate and U.S. Dollar information, in writing, to the Funds. Such information shall be supplied by the Custodian at least by the business day prior to the value date of the foreign exchange transaction, provided that the Custodian receives the request for such information at least two business days prior to the value date of the transaction.

(2) Upon receipt of Instructions, the Custodian shall settle foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery on behalf of and for the account of a Fund with such currency brokers or Banking Institutions as such Fund may determine and direct pursuant to written Instructions. Custodian shall notify a Fund if the currency broker or Banking Institution that the Fund has instructed the Custodian to utilize to settle foreign exchange transactions pursuant to the written Instructions is unable, or is no longer available, to settle such transactions.

(3) Each Fund accepts full responsibility for its use of third party foreign exchange brokers and for execution of said foreign exchange contracts and understands that the Fund shall be responsible for any and all costs and interest charges which may be incurred as a result of the failure or delay of its third party broker to deliver foreign exchange. The Custodian shall have no responsibility or liability with respect to the selection of the currency brokers or Banking Institutions with which a Fund deals or the performance of such brokers or Banking Institutions.

(4) Notwithstanding anything to the contrary contained herein, upon receipt of Instructions the Custodian may, in connection with a foreign exchange contract, make free outgoing payments of cash in the form of U.S. Dollars or foreign currency prior to receipt of confirmation of such foreign exchange contract or confirmation that the countervalue currency completing such contract has been delivered or received.

(5) The Custodian shall not be obligated to enter into foreign exchange transactions as principal. However, if the Custodian has made available to a Fund its services as a principal in foreign exchange transactions and subject to any separate agreement between the parties relating to such transactions, the Custodian shall enter into foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery on behalf of and for the account of the Fund, with the Custodian as principal.

(n) Pledges or Loans of Securities.

(1) Upon receipt of Instructions from a Fund, the Custodian will release or cause to be released Securities held in custody to the pledgees designated in such Instructions by way of pledge or hypothecation to secure loans incurred by such Fund with various lenders including but not limited to UMB Bank, n.a.; provided, however, that the Securities shall be released only upon payment to the Custodian of the monies borrowed, except that in cases where additional collateral is required to secure existing borrowings, further Securities may be released or delivered, or caused to be released or delivered for that purpose upon receipt of Instructions. Upon receipt of Instructions, the Custodian will pay, but only from funds available for such purpose, any such loan upon re-delivery to it of the Securities pledged or hypothecated therefor and upon surrender of the note or notes evidencing such loan. In lieu of delivering collateral to a pledgee, the Custodian, on the receipt of Instructions, shall transfer the pledged Securities to a segregated account for the benefit of the pledgee.

(2) Upon receipt of Special Instructions, and execution of a separate Securities Lending Agreement, the Custodian will release Securities held in custody to the borrower designated in such Instructions and may, except as otherwise provided below, deliver such Securities prior to the receipt of collateral, if any, for such borrowing, provided that, in case of loans of Securities held by a Securities System that are secured by cash collateral, the Custodian's instructions to the Securities System shall require that the Securities System deliver the Securities of the appropriate Fund to the borrower thereof only upon receipt of the collateral for such borrowing. The Custodian shall have no responsibility or liability for any loss arising from the delivery of Securities prior to the receipt of collateral. Upon receipt of Instructions and the loaned Securities, the Custodian will release the collateral to the borrower.

(o) Stock Dividends, Rights, Etc.

The Custodian shall receive and collect all stock dividends, rights, and other items of like nature and, upon receipt of Instructions, take action with respect to the same as directed in such Instructions.

(p) Routine Dealings.

The Custodian will, in general, attend to all routine and mechanical matters in accordance with industry standards in connection with the sale, exchange, substitution, purchase, transfer, or other dealings with Securities or other property of each Fund except as may be otherwise provided in this Agreement or directed from time to time by Instructions from any particular Fund. The Custodian may also make payments to itself or others from the Assets for disbursements and out-of-pocket expenses incidental to handling Securities or other similar items relating to its duties under this Agreement, provided that all such payments shall be accounted for to the appropriate Fund.

(q) Collections.

The Custodian shall (a) collect amounts due and payable to each Fund with respect to portfolio Securities and other Assets; (b) promptly credit to the account of each Fund all income and other payments relating to portfolio Securities and other Assets held by the Custodian hereunder upon Custodian's receipt of such income or payments or as otherwise agreed in writing by the Custodian and any particular Fund; (c) promptly endorse and deliver any instruments required to effect such collection; and (d) promptly execute ownership and other certificates and affidavits for all federal, state, local and foreign tax purposes in connection with receipt of income or other payments with respect to portfolio Securities and other Assets, or in connection with the transfer of such Securities or other Assets; provided, however, that with respect to portfolio Securities registered in so-called street name, or physical Securities with variable interest rates, the Custodian shall use its best efforts to collect amounts due and payable to any such Fund. The Custodian shall notify a Fund in writing by facsimile transmission or in such other manner as such Fund and Custodian may agree in writing if any amount payable with respect to portfolio Securities or other Assets is not received by the Custodian when due. The Custodian shall not be responsible for the collection of amounts due and payable with respect to portfolio Securities or other Assets that are in default.

(r) Bank Accounts.

Upon Instructions, the Custodian shall open and operate a bank account or accounts on the books of the Custodian; provided that such bank account(s) shall be in the name of the Custodian or a nominee thereof, for the account of one or more Funds, and shall be subject only to draft or order of the Custodian. The responsibilities of the Custodian to any one or more such Funds for deposits accepted on the Custodian's books shall be that of a U.S. bank for a similar deposit.

(s) Dividends, Distributions and Redemptions.

To enable each Fund to pay dividends or other distributions to shareholders of each such Fund and to make payment to shareholders who have requested repurchase or redemption of their shares of each such Fund (collectively, the "Shares"), the Custodian shall release cash or Securities insofar as available. In the case of cash, the Custodian shall, upon the receipt of Instructions, transfer such funds by check or wire transfer to any account at any bank or trust company designated by each such Fund in such Instructions. In the case of Securities, the Custodian shall, upon the receipt of Special Instructions, make such transfer to any entity or account designated by each such Fund in such Special Instructions.

(t) Proceeds from Shares Sold.

The Custodian shall receive funds representing cash payments received for shares issued or sold from time to time by each Fund, and shall credit such funds to the account of the appropriate Fund. The Custodian shall notify the appropriate Fund of Custodian's receipt of cash in payment for shares issued by such Fund by facsimile transmission or in such other manner as such Fund and the Custodian shall agree. Upon receipt of Instructions, the Custodian shall: (a) deliver all federal funds received by the Custodian in payment for shares as may be set forth in such Instructions and at a time agreed upon between the Custodian and such Fund; and (b) make federal funds available to a Fund as of specified times agreed upon from time to time by such Fund and the Custodian, in the amount of checks received in payment for shares which are deposited to the accounts of such Fund.

(u) Proxies and Notices; Compliance with the Shareholders Communication Act of 1985.

The Custodian shall deliver or cause to be delivered to the appropriate Fund all forms of proxies, all notices of meetings, and any other notices or announcements affecting or relating to Securities owned by such Fund that are received by the Custodian, any Subcustodian, or any nominee of either of them, and, upon receipt of Instructions, the Custodian shall execute and deliver, or cause such Subcustodian or nominee to execute and deliver, such proxies or other authorizations as may be required. Except as directed pursuant to Instructions, neither the Custodian nor any Subcustodian or nominee shall vote upon any such Securities, or execute any proxy to vote thereon, or give any consent or take any other action with respect thereto.

The Custodian will not release the identity of any Fund to an issuer which requests such information pursuant to the Shareholder Communications Act of 1985 for the specific purpose of direct communications between such issuer and any such Fund unless a particular Fund directs the Custodian otherwise in writing.

(v) Books and Records.

The Custodian shall maintain such records relating to its activities under this Agreement as are required to be maintained by Rule 31a-1 under the Investment Company Act of 1940 ("the 1940 Act") and to preserve them for the periods prescribed in Rule 31a-2 under the 1940 Act. These records shall be open for inspection by duly authorized officers, employees or agents (including independent public accountants) of the appropriate Fund during normal business hours of the Custodian.

The Custodian shall provide accountings relating to its activities under this Agreement as shall be agreed upon by each Fund and the Custodian.

(w) Opinion of Fund's Independent Certified Public Accountants.

The Custodian shall take all reasonable action as each Fund may request to obtain from year to year favorable opinions from each such Fund's independent certified public accountants with respect to the Custodian's activities hereunder and in connection with the preparation of each such Fund's periodic reports to the SEC and with respect to any other requirements of the SEC.

(x) Reports by Independent Certified Public Accountants.

At the request of a Fund, the Custodian shall deliver to such Fund a written report prepared by the Custodian's independent certified public accountants with respect to the services provided by the Custodian under this Agreement, including, without limitation, the Custodian's accounting system, internal accounting control and procedures for safeguarding cash, Securities and other Assets, including cash, Securities and other Assets deposited and/or maintained in a Securities System or with a Subcustodian. Such report shall be of sufficient scope and in sufficient detail as may reasonably be required by such Fund and as may reasonably be obtained by the Custodian.

(y) Bills and Other Disbursements.

Upon receipt of Instructions, the Custodian shall pay, or cause to be paid, all bills, statements, or other obligations of a Fund.

5. SUBCUSTODIANS.

From time to time, in accordance with the relevant provisions of this Agreement, (i) the Custodian may appoint one or more Domestic Subcustodians, Foreign Subcustodians, Interim Subcustodians or Special Subcustodians (each as hereinafter defined) to act on behalf of any one or more Funds; and (ii) the Custodian may be directed, pursuant to an agreement between a Fund and the Custodian ("Delegation Agreement"), to appoint a Domestic Subcustodian to perform the duties of the Foreign Custody Manager (as such term is defined in Rule 17f-5 under the 1940 Act) ("Approved Foreign Custody Manager") for such Fund so long as such Domestic Subcustodian is so eligible under the 1940 Act. Such Delegation Agreement shall provide that the appointment of any Domestic Subcustodian as the Approved Foreign Custody Manager must be governed by a written agreement between the Custodian and the Domestic Subcustodian, which provides for compliance with Rule 17f-5. The Approved Foreign Custody Manager may appoint a Foreign Subcustodian or Interim Subcustodian in accordance with this Section 5. For purposes of this Agreement, all Domestic Subcustodians, Foreign Subcustodians, Interim Subcustodians and Special Subcustodians shall be referred to collectively as "Subcustodians."

(a) Domestic Subcustodians.

The Custodian may, at any time and from time to time, appoint any bank as defined in Section 2(a)(5) of the 1940 Act or any trust company or other entity, any of which meet the requirements of a custodian under Section 17(f) of the 1940 Act and the rules and regulations thereunder, to act for the Custodian on behalf of any one or more Funds as a subcustodian for purposes of holding Assets of such Fund(s) and performing other functions of the Custodian within the United States (a "Domestic Subcustodian"). Each Fund shall approve in writing the appointment of the proposed Domestic Subcustodian; and the Custodian's appointment of any such Domestic Subcustodian shall not be effective without such prior written approval of the Fund(s). Each such duly approved Domestic Subcustodian and the countries where Foreign Subcustodians through which they may hold securities and other Assets of a Fund shall be as agreed upon by the parties hereto in writing, from time to time, and shall be reflected on Appendix A hereto.

(b) Foreign Subcustodians.

(1) Foreign Subcustodians. The Approved Foreign Custody Manager may appoint any entity meeting the requirements of an Eligible Foreign Custodian, as such term is defined in Rule 17f-5(a)(1) under the 1940 Act, and which term shall also include a bank that qualifies to serve as a custodian of assets of investment companies under Section 17(f) of the 1940 Act or by SEC order is exempt therefrom (each a "Foreign Subcustodian" in the context of either a subcustodian or a sub-subcustodian), provided that the Approved Foreign Custody Manager's appointments of such Foreign Subcustodians shall at all times be governed by an agreement that complies with Rule 17f-5.

(2) Interim Subcustodians. Notwithstanding the foregoing, in the event that a Fund shall invest in a security or other Asset to be held in a country in which the Approved Foreign Custody Manager has not appointed a Foreign Subcustodian or for which the Fund has otherwise directed that a specific Foreign Subcustodian be used, the Custodian shall, or shall cause the Approved Foreign Custody Manager to, promptly notify the Fund in writing by facsimile transmission or in such other manner as the Fund and Custodian shall agree in writing of the unavailability of an approved Foreign Subcustodian in such country; and upon the receipt of Special Instructions, the Custodian shall, or shall cause the Approved Foreign Custody Manager to, appoint or approve any Person (as hereinafter defined) designated by the Fund in such Special Instructions, to hold such security or other Asset. The subcustodian agreement between the Custodian and the Interim Subcustodian shall comply with the provisions of the 1940 Act and the rules and regulations thereunder (including Rule 17f-5, if applicable) and the terms and provisions of this Agreement. The Custodian shall comply with Section 5(b)(1) hereof with respect to the appointment of an Interim Subcustodian. (Any Person appointed or approved as either a subcustodian or sub-subcustodian pursuant to this Section 5(b)(2) is herein referred to as an "Interim Subcustodian.")

(3) In the event that the Approved Foreign Custody Manager or its delegate reasonably determines that such Person will not provide delegation services (i) in a country in which a Fund has directed that the Fund shall invest in a security or other Asset or (ii) with respect to a specific Foreign Subcustodian which the Fund has directed be used, the Approved Foreign Custody Manager or the Custodian (or the Domestic Subcustodian), as applicable, shall be entitled to rely on any such instruction provided pursuant to Section 5(b)(2) as a Special Instruction and shall have no duties or liabilities under this Agreement with respect to such arrangement save those that it may undertake specifically in writing with respect to each particular instance; provided that the Delegation Agreement and this Agreement shall not constitute the Approved Foreign Custody Manager or the Custodian (or the Domestic Subcustodian), as the exclusive delegate of the Fund for purposes of Rule 17f-5 and, particularly where such Person does not agree to provide fully the services under this Agreement and the Delegation Agreement to the Fund with respect to a particular country or specific Foreign Subcustodian, the Fund may delegate such services to another delegate pursuant to Rule 17f-5.

(c) Special Subcustodians.

Upon receipt of Special Instructions, the Custodian shall, on behalf of a Fund, appoint one or more banks, trust companies or other entities designated in such Special Instructions to act for the Custodian on behalf of such Fund as a subcustodian for purposes of: (i) effecting third-party repurchase transactions with banks, brokers, dealers or other entities through the use of a common custodian or subcustodian; (ii) providing depository and clearing agency services with respect to certain variable rate demand note Securities, (iii) providing depository and clearing agency services with respect to dollar denominated Securities, and (iv) effecting any other transactions designated by such Fund in such Special Instructions. Each such designated subcustodian (hereinafter referred to as a "Special Subcustodian") shall be listed on Appendix A attached hereto, as it may be amended from time to time. In connection with the appointment of any Special Subcustodian, the Custodian shall enter into a subcustodian agreement with the Special Subcustodian in form and substance approved by the appropriate Fund in Special Instructions. The Custodian shall not amend any subcustodian agreement entered into with a Special Subcustodian, or waive any rights under such agreement, except upon prior approval pursuant to Special Instructions.

(d) Termination of a Subcustodian.

The Custodian may, at any time in its discretion upon notification to the appropriate Fund(s), terminate any Subcustodian of such Fund(s) in accordance with the termination provisions under the applicable subcustodian agreement, and upon the receipt of Special Instructions, the Custodian will terminate any Subcustodian in accordance with the termination provisions under the applicable subcustodian agreement.

(e) Certification Regarding Foreign Subcustodians.

Upon request of a Fund, the Custodian shall deliver, or cause any Approved Foreign Custody Manager to deliver, to the Fund a certificate stating: (i) the identity of each Foreign Subcustodian then acting on behalf of the Custodian;
(ii) the countries in which the Eligible Securities Depositories (as defined in
Section 5(f)) through which each Foreign Subcustodian is then holding cash, securities and other Assets of the Fund; and (iii) such other information as may be requested by the Fund to ensure compliance with rules and regulations under the 1940 Act.

(f) Securities Depositories.

(1) The Custodian (or the Domestic Subcustodian) may place and maintain a Fund's Foreign Assets (as defined in Rule 17f-5 under the 1940 Act) with an Eligible Securities Depository (as defined in Rule 17f-7, which term shall include any other securities depository for which the SEC by exemptive order has permitted registered investment companies to maintain their assets).

(2) The Custodian (or the Domestic Subcustodian) shall, for evaluation by the Fund or its adviser, provide an analysis of the custody risks associated with maintaining the Fund's Foreign Assets with each Eligible Securities Depository utilized directly or indirectly by the Custodian as of the date hereof (or, in the case of an Eligible Securities Depository not so utilized as of the date hereof, prior to the initial placement of the Fund's Foreign Assets at such depository) and at which any Foreign Assets of the Fund are held or are expected to be held. The Custodian (or the Domestic Subcustodian) shall monitor the custody risks associated with maintaining the Fund's Foreign Assets at each such Eligible Securities Depository on a continuing basis and shall promptly notify the Fund or its adviser of any material changes in such risks.

(3) Based on the information available to it in the exercise of diligence, the Custodian (or the Domestic Subcustodian) shall determine the eligibility under Rule 17f-7 of each foreign securities depository before maintaining the Fund's Foreign Assets therewith and shall promptly advise the Fund if any Eligible Securities Depository ceases to be so eligible. A list of Eligible Securities Depositories used by the Custodian directly or indirectly as of the date hereof, or as amended from time to time, is attached as Appendix A. Notwithstanding Subsection 16(c) hereof, Eligible Securities Depositories may, subject to Rule 17f-7, be added to or deleted from such list from time to time.

(4) Withdrawal of Assets. If an arrangement with an Eligible Securities Depository no longer meets the requirements of Rule 17f-7, the Custodian (or the Domestic Subcustodian) will withdraw the Fund's Foreign Assets from such depository as soon as reasonably practicable.

(5) Standard of Care. In fulfilling its responsibilities under this
Section 5(f), the Custodian will exercise reasonable care, prudence and diligence.

(g) Limitations on Placement of Foreign Assets.

A Fund shall not place or maintain any of the Fund's Foreign Assets in any country, and shall as promptly as practicable withdraw the Fund's Foreign Assets from any country, that is identified in the Global Custody Network Listing provided by the Custodian (or the Domestic Subcustodian) as a country where the liability or responsibility of the Approved Foreign Custody Manager or the Custodian (or the Domestic Subcustodian) is conditioned or predicated on the ability of the Approved Foreign Custody Manager or the Custodian (or the Domestic Subcustodian) to recover damages from the Foreign Subcustodian in such country.

6. STANDARD OF CARE.

(a) General Standard of Care.

The Custodian shall be liable to a Fund for all losses, damages and reasonable costs and expenses suffered or incurred by such Fund resulting from the negligence or willful misfeasance of the Custodian; provided, however, in no event shall the Custodian be liable for special, indirect or consequential damages arising under or in connection with this Agreement.

(b) Actions Prohibited by Applicable Law, Etc.

In no event shall the Custodian incur liability hereunder if the Custodian or any Subcustodian or Securities System, or any Subcustodian, Eligible Securities Depository utilized by any such Subcustodian, or any nominee of the Custodian or any Subcustodian (individually, a "Person") is prevented, forbidden or delayed from performing, or omits to perform, any act or thing which this Agreement provides shall be performed or omitted to be performed, by reason of:
(i) any provision of any present or future law or regulation or order of the United States of America, or any state thereof, or of any foreign country, or political subdivision thereof or of any court of competent jurisdiction (and the Custodian nor any other Person shall not be obligated to take any action contrary thereto); or (ii) any "Force Majeure," which for purposes of this Agreement, shall mean any circumstance or event which is beyond the reasonable control of the Custodian, a Subcustodian or any agent of the Custodian or a Subcustodian and which adversely affects the performance by the Custodian of its obligations hereunder, by the Subcustodian of its obligations under its subcustody agreement or by any other agent of the Custodian or the Subcustodian, unless in each case, such delay or nonperformance is caused by the negligence, misfeasance or misconduct of the Custodian. Such Force Majeure events may include any event caused by, arising out of or involving (a) an act of God, (b) accident, fire, water damage or explosion, (c) any computer, system or other equipment failure or malfunction caused by any computer virus or the malfunction or failure of any communications medium, (d) any interruption of the power supply or other utility service, (e) any strike or other work stoppage, whether partial or total, (f) any delay or disruption resulting from or reflecting the occurrence of any Sovereign Risk (as defined below), (g) any disruption of, or suspension of trading in, the securities, commodities or foreign exchange markets, whether or not resulting from or reflecting the occurrence of any Sovereign Risk, (h) any encumbrance on the transferability of a currency or a currency position on the actual settlement date of a foreign exchange transaction, whether or not resulting from or reflecting the occurrence of any Sovereign Risk, or (i) any other cause similarly beyond the reasonable control of the Custodian.

Subject to the Custodian's general standard of care set forth in Subsection 6(a) hereof and the requirements of Section 17(f) of the 1940 Act and Rules 17f-5 and 17f-7 thereunder, the Custodian shall not incur liability hereunder if any Person is prevented, forbidden or delayed from performing, or omits to perform, any act or thing which this Agreement provides shall be performed or omitted to be performed by reason of any (i) "Sovereign Risk," which for the purpose of this Agreement shall mean, in respect of any jurisdiction, including the United States of America, where investments are acquired or held under this Agreement, (a) any act of war, terrorism, riot, insurrection or civil commotion,
(b) the imposition of any investment, repatriation or exchange control restrictions by any governmental authority, (c) the confiscation, expropriation or nationalization of any investments by any governmental authority, whether de facto or de jure, (d) any devaluation or revaluation of the currency, (e) the imposition of taxes, levies or other charges affecting investments, (f) any change in the applicable law, or (g) any other economic or political risk incurred or experienced that is not directly related to the economic or financial conditions of the Eligible Foreign Custodian, except as otherwise provided in this Agreement or the Delegation Agreement, or (ii) "Country Risk," which for the purpose of this Agreement shall mean, with respect to the acquisition, ownership, settlement or custody of investments in a jurisdiction, all risks relating to, or arising in consequence of, systemic and markets factors affecting the acquisition, payment for or ownership of investments, including (a) the prevalence of crime and corruption except for crime or corruption by the Eligible Foreign Custodian, or its employees, directors or officers for which the liability of the Custodian (or the Domestic Subcustodian) or the Approved Foreign Custody Manager is not predicated upon recovery of such damages from the Subcustodian as set forth in the Global Custody Network Listing, (b) the inaccuracy or unreliability of business and financial information (unrelated to the Approved Foreign Custody Manager's duties imposed by Rule 17f-5(c) under the 1940 Act or to the duties imposed on the Custodian by Rule 17f-7 under the 1940 Act), (c) the instability or volatility of banking and financial systems, or the absence or inadequacy of an infrastructure to support such systems, (d) custody and settlement infrastructure of the market in which such investments are transacted and held, (e) the acts, omissions and operation of any Eligible Securities Depository, it being understood that this provision shall not excuse the Custodian's performance under the express terms of this Agreement and its liability therefor, (f) the risk of the bankruptcy or insolvency of banking agents, counterparties to cash and securities transactions, registrars or transfer agents, (g) the existence of market conditions which prevent the orderly execution or settlement of transactions or which affect the value of assets, and (h) the laws relating to the safekeeping and recovery of a Fund's Foreign Assets held in custody pursuant to the terms of this Agreement; provided, however, that, in compliance with Rule 17f-5, neither Sovereign Risk nor Country Risk shall include the custody risk of a particular Eligible Foreign Custodian of a Fund's Foreign Assets.

(c) Liability for Past Records.

Neither the Custodian nor any Domestic Subcustodian shall have any liability in respect of any loss, damage or expense suffered by a Fund, insofar as such loss, damage or expense arises from the performance of the Custodian or any Domestic Subcustodian in reliance upon records that were maintained for such Fund by entities other than the Custodian or any Domestic Subcustodian prior to the Custodian's employment hereunder.

(d) Advice of Counsel.

The Custodian and all Domestic Subcustodians shall be entitled to receive and act upon advice of counsel of its own choosing on all matters. The Custodian and all Domestic Subcustodians shall be without liability for any actions taken or omitted in good faith pursuant to the advice of counsel.

(e) Advice of the Fund and Others.

The Custodian and any Domestic Subcustodian may rely upon the advice of any Fund and upon statements of such Fund's accountants and other persons believed by it in good faith to be expert in matters upon which they are consulted, and neither the Custodian nor any Domestic Subcustodian shall be liable for any actions taken or omitted, in good faith, pursuant to such advice or statements.

(f) Instructions Appearing to be Genuine.

The Custodian and all Domestic Subcustodians shall be fully protected and indemnified in acting as a custodian hereunder upon any Resolutions of the Board of Directors or Trustees, Instructions, Special Instructions, advice, notice, request, consent, certificate, instrument or paper appearing to it to be genuine and to have been properly executed and shall, unless otherwise specifically provided herein, be entitled to receive as conclusive proof of any fact or matter required to be ascertained from any Fund hereunder a certificate signed by any officer of such Fund authorized to countersign or confirm Special Instructions.

(g) Exceptions from Liability.

Without limiting the generality of any other provisions hereof, neither the Custodian nor any Domestic Subcustodian shall be under any duty or obligation to inquire into, nor be liable for:

(i) the validity of the issue of any Securities purchased by or for any Fund, the legality of the purchase thereof or evidence of ownership required to be received by any such Fund, or the propriety of the decision to purchase or amount paid therefor;

(ii) the legality of the sale of any Securities by or for any Fund, or the propriety of the amount for which the same were sold; or

(iii) any other expenditures, encumbrances of Securities, borrowings or similar actions with respect to any Fund's Assets;

and may, until notified to the contrary, presume that all Instructions or Special Instructions received by it are not in conflict with or in any way contrary to any provisions of any such Fund's Articles of Incorporation or By-Laws or votes or proceedings of the shareholders or directors of any such Fund, or any such Fund's currently effective Registration Statement on file with the SEC.

7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.

(a) Domestic Subcustodians

The Custodian shall be liable for the acts or omissions of any Domestic Subcustodian to the same extent as if such actions or omissions were performed by the Custodian itself.

(b) Foreign Subcustodians.

The Custodian shall be liable to a Fund for any loss or damage to such Fund caused by or resulting from the acts or omissions of any Foreign Subcustodian to the extent that, under the terms set forth in the subcustodian agreement between the Custodian or a Domestic Subcustodian and such Foreign Subcustodian, the Foreign Subcustodian has failed to perform in accordance with the standard of conduct imposed under such subcustodian agreement and the Custodian or Domestic Subcustodian recovers from the Foreign Subcustodian under the applicable subcustodian agreement. The Custodian represents and warrants that it will exercise the remedies granted to it under the Custodian Agreement between the Custodian and the Domestic Subcustodian to seek recovery from the Domestic Subcustodian of the amount of any such loss or damage caused by or resulting from the acts or omissions of any Foreign Subcustodian appointed or utilized by the Domestic Subcustodian.

(c) Securities Systems, Interim Subcustodians, Special Subcustodians, Eligible Securities Depositories.

The Custodian shall not be liable to any Fund for any loss, damage or expense suffered or incurred by such Fund resulting from or occasioned by the actions or omissions of a Securities System, Interim Subcustodian, Special Subcustodian, or Eligible Securities Depository unless such loss, damage or expense is caused by, or results from, the negligence or willful misfeasance of the Custodian, provided however, that the Custodian shall be liable to such Fund to the extent the Custodian recovers from the Securities System, Interim Subcustodian, Special Subcustodian, or Eligible Securities Depository under the applicable agreement any amount for any loss, damage or expense suffered or incurred by such Fund and , to the extent permissible, that the Custodian's rights under the applicable agreement with the Securities System, Interim Subcustodian, Special Subcustodian, or Eligible Securities Depository are subrogated to such Fund.

(d) Defaults or Insolvency's of Brokers, Banks, Etc.

The Custodian shall not be liable for any loss, damage or expense suffered or incurred by any Fund resulting from or occasioned by the actions, omissions, neglects, defaults or insolvency of any broker, bank, trust company or any other person with whom the Custodian may deal (other than any of such entities acting as a Subcustodian, Securities System or Eligible Securities Depository, for whose actions the liability of the Custodian is set out elsewhere in this Agreement) unless such loss, damage or expense is caused by, or results from, the negligence or willful misfeasance of the Custodian.

(e) Reimbursement of Expenses.

Each Fund agrees to reimburse the Custodian for all out-of-pocket expenses incurred by the Custodian in connection with this Agreement, but excluding salaries and usual overhead expenses.

8. INDEMNIFICATION.

(a) Indemnification by Fund.

Subject to the limitations set forth in this Agreement, each Fund agrees to indemnify and hold harmless the Custodian and its nominees from all losses, damages and expenses (including attorneys' fees) suffered or incurred by the Custodian or its nominee caused by or arising from actions taken by the Custodian, its employees or agents in the performance of its duties and obligations under this Agreement, including, but not limited to, any indemnification obligations undertaken by the Custodian under any relevant subcustodian agreement; provided, however, that such indemnity shall not apply to the extent the Custodian is liable under Sections 6 or 7 hereof.

If any Fund requires the Custodian to take any action with respect to Securities, which action involves the payment of money or which may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to such Fund being liable for the payment of money or incurring liability of some other form, such Fund, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it.

(b) Indemnification by Custodian.

Subject to the limitations set forth in this Agreement and in addition to the obligations provided in Sections 6 and 7, the Custodian agrees to indemnify and hold harmless each Fund from all losses, damages and expenses suffered or incurred by each such Fund caused by the negligence or willful misfeasance of the Custodian.

9. ADVANCES.

In the event that, pursuant to Instructions, the Custodian or any Subcustodian, Securities System, or Eligible Securities Depository acting either directly or indirectly under agreement with the Custodian (each of which for purposes of this Section 9 shall be referred to as "Custodian"), makes any payment or transfer of funds on behalf of any Fund as to which there would be, at the close of business on the date of such payment or transfer, insufficient funds held by the Custodian on behalf of any such Fund, the Custodian may, in its discretion without further Instructions, provide an advance ("Advance") to any such Fund in an amount sufficient to allow the completion of the transaction by reason of which such payment or transfer of funds is to be made. In addition, in the event the Custodian is directed by Instructions to make any payment or transfer of funds on behalf of any Fund as to which it is subsequently determined that such Fund has overdrawn its cash account with the Custodian as of the close of business on the date of such payment or transfer, said overdraft shall constitute an Advance. Any Advance shall be payable by the Fund on behalf of which the Advance was made on demand by Custodian, unless otherwise agreed by such Fund and the Custodian, and shall accrue interest from the date of the Advance to the date of payment by such Fund to the Custodian at a rate agreed upon in writing from time to time by the Custodian and such Fund. It is understood that any transaction in respect of which the Custodian shall have made an Advance, including but not limited to a foreign exchange contract or transaction in respect of which the Custodian is not acting as a principal, is for the account of and at the risk of the Fund on behalf of which the Advance was made, and not, by reason of such Advance, deemed to be a transaction undertaken by the Custodian for its own account and risk. The Custodian and each of the Funds which are parties to this Agreement acknowledge that the purpose of Advances is to finance temporarily the purchase or sale of Securities for prompt delivery in accordance with the settlement terms of such transactions or to meet emergency expenses not reasonably foreseeable by a Fund. The Custodian shall promptly notify the appropriate Fund of any Advance. Such notification shall be sent by facsimile transmission or in such other manner as such Fund and the Custodian may agree.

10. LIENS.

The Custodian shall have a lien on the Property in the Custody Account to secure payment of fees and expenses for the services rendered under this Agreement. If the Custodian advances cash or securities to the Fund for any purpose or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of its duties hereunder, except such as may arise from its or its nominee's negligent action, negligent failure to act or willful misconduct, any Property at any time held for the Custody Account shall be security therefor and the Fund hereby grants a security interest therein to the Custodian. The Fund shall promptly reimburse the Custodian for any such advance of cash or securities or any such taxes, charges, expenses, assessments, claims or liabilities upon request for payment, but should the Fund fail to so reimburse the Custodian, the Custodian shall be entitled to dispose of such Property to the extent necessary to obtain reimbursement. The Custodian shall be entitled to debit any account of the Fund with the Custodian including, without limitation, the Custody Account, in connection with any such advance and any interest on such advance as the Custodian deems reasonable.

11. COMPENSATION.

Each Fund will pay to the Custodian such compensation as is agreed to in writing by the Custodian and each such Fund from time to time. The parties agree to the compensation as set forth in Appendix C as attached hereto. Such compensation, together with all amounts for which the Custodian is to be reimbursed in accordance with Section 7(e), shall be billed to each such Fund and paid in cash to the Custodian.

12. POWERS OF ATTORNEY.

Upon request, each Fund shall deliver to the Custodian such proxies, powers of attorney or other instruments as may be reasonable and necessary or desirable in connection with the performance by the Custodian or any Subcustodian of their respective obligations under this Agreement or any applicable subcustodian agreement.

13. TERMINATION AND ASSIGNMENT.

Any Fund or the Custodian may terminate this Agreement by notice in writing, delivered or mailed, postage prepaid (certified mail, return receipt requested) to the other not less than 90 days prior to the date upon which such termination shall take effect. Upon termination of this Agreement, the appropriate Fund shall pay to the Custodian such fees as may be due the Custodian hereunder as well as its reimbursable disbursements, costs and expenses paid or incurred. Upon termination of this Agreement, the Custodian shall deliver, at the terminating party's expense, all Assets held by it hereunder to the appropriate Fund or as otherwise designated by such Fund by Special Instructions. Upon such delivery, the Custodian shall have no further obligations or liabilities under this Agreement except as to the final resolution of matters relating to activity occurring prior to the effective date of termination.

This Agreement may not be assigned by the Custodian or any Fund without the respective consent of the other, duly authorized by a resolution by its Board of Directors or Trustees.

14. ADDITIONAL FUNDS.

An additional Fund or Funds may become a party to this Agreement after the date hereof by an instrument in writing to such effect signed by such Fund or Funds and the Custodian. If this Agreement is terminated as to one or more of the Funds (but less than all of the Funds) or if an additional Fund or Funds shall become a party to this Agreement, there shall be delivered to each party an Appendix B or an amended Appendix B, signed by each of the additional Funds (if any) and each of the remaining Funds as well as the Custodian, deleting or adding such Fund or Funds, as the case may be. The termination of this Agreement as to less than all of the Funds shall not affect the obligations of the Custodian and the remaining Funds hereunder as set forth on the signature page hereto and in Appendix B as revised from time to time.

15. NOTICES.

As to each Fund, notices, requests, instructions and other writings delivered to Fairholme Funds, Inc., 51 JFK Parkway, 2nd Floor, Attn: Keith Trauner, Short Hills, New Jersey 07078, postage prepaid, or to such other address as any particular Fund may have designated to the Custodian in writing, shall be deemed to have been properly delivered or given to a Fund.

Notices, requests, instructions and other writings delivered to the Securities Administration department of the Custodian at its office at 928 Grand Blvd., 5th Floor, Attn: Bonnie Johnson, Kansas City, Missouri 64106, postage prepaid, or to such other addresses as the Custodian may have designated to each Fund in writing, shall be deemed to have been properly delivered or given to the Custodian hereunder; provided, however, that procedures for the delivery of Instructions and Special Instructions shall be governed by Section 2(c) hereof.

16. MISCELLANEOUS.

(a) This Agreement is executed and delivered in the State of Missouri and shall be governed by the laws of such state.

(b) All of the terms and provisions of this Agreement shall be binding upon, and inure to the benefit of, and be enforceable by the respective successors and assigns of the parties hereto.

(c) No provisions of this Agreement may be amended, modified or waived, in any manner except in writing, properly executed by both parties hereto; provided, however, Appendix A may be amended from time to time as Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians, and Eligible Securities Depositories are approved or terminated according to the terms of this Agreement.

(d) The captions in this Agreement are included for convenience of reference only, and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.

(e) This Agreement shall be effective as of the date of execution hereof.

(f) This Agreement may be executed simultaneously in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

(g) The following terms are defined terms within the meaning of this Agreement, and the definitions thereof are found in the following sections of the Agreement:

Term                               Section
----                               -------

Account                            4(b)(3)(ii)
ADR'S                              4(j)
Advance                            9
Approved Foreign Custody Manager   5
Assets                             2(b)
Authorized Person                  3
Banking Institution                4(1)
Country Risk                       6(b)
Domestic Subcustodian              5(a)
Force Majeure                      6(b)
Foreign Assets                     5(f)
Foreign Subcustodian               5(b)
Instruction                        2(c)(1)
Interim Subcustodian               5(c)
Interest Bearing Deposit           4(1)
Liens                              10
OCC                                4(g)(1)
Person                             6(b)
Procedural Agreement               4(h)
SEC                                4(b)(3)
Securities                         2(a)
Eligible Securities Depositories   5(f)
Securities System                  4(b)(3)
Shares                             4(s)
Sovereign Risk                     6(b)
Special Instruction                2(c)(2)
Special Subcustodian               5(d)
Subcustodian                       5
1940 Act                           4(v)

(h) If any part, term or provision of this Agreement is held to be illegal, in conflict with any law or otherwise invalid by any court of competent jurisdiction, the remaining portion or portions shall be considered severable and shall not be affected, and the rights and obligations of the parties shall be construed and enforced as if this Agreement did not contain the particular part, term or provision held to be illegal or invalid.

(i) Entire Agreement. This Agreement and the Delegation Agreement, as amended from time to time, constitute the entire understanding and agreement of the parties thereto with respect to the subject matter therein and accordingly, supercedes as of the effective date of this Agreement any custodian agreement heretofore in effect between the Funds and the Custodian.

IN WITNESS WHEREOF, the parties hereto have caused this Custody Agreement to be executed by their respective duly authorized officers.

FAIRHOLME FUNDS, INC.

Attest:                                 By:

                                        /s/ Keith D. Trauner
-----------------------------           ------------------------------

                                        Name:  Keith D. Trauner
                                        Title:    Secretary/Treasurer
                                        Date:    August 15, 2005

UMB BANK, N.A.

Attest:                                 By:

                                        /s/ Ralph R. Santoro
-----------------------------           ------------------------------

                                        Name:  Ralph R. Santoro
                                        Title:    Senior Vice President
                                        Date:    August 15, 2005

                          SECURITIES DEPOSITORIES
COUNTRIES                 FOREIGN SUBCUSTODIANS               CLEARING AGENCIES
---------                 ---------------------               -----------------

                                                                   Euroclear




FAIRHOLME FUNDS, INC.                   UMB BANK, N.A.

By:                                     By:

/s/ Keith D. Trauner                    /s/ Ralph R. Santoro
-------------------------------------   ------------------------------------

Name:  Keith D. Trauner                 Name:  Ralph R. Santoro
Title: Secretary/Treasurer              Title: Senior Vice President
Date:  August 15, 2005                  Date:  August 15, 2005

APPENDIX B

CUSTODY AGREEMENT

The Agreement applies with respect to the following series of Fairholme Funds, Inc. (each a "Fund" and collectively, the "Funds"):

THE FAIRHOLME FUND

FAIRHOLME FUNDS, INC.

Attest:                                 By:

                                        /s/ Keith D. Trauner
-----------------------------           ------------------------------------
                                        Name:  Keith D. Trauner
                                        Title: Secretary/Treasurer
                                        Date:  August 15, 2005


                                        UMB BANK, N.A.

Attest:                                 By:

                                        /s/ Ralph R. Santoro
-----------------------------           ------------------------------------
                                        Name:  Ralph R. Santoro
                                        Title: Senior Vice President
                                        Date:  August 15, 2005

APPENDIX C

CUSTODY AGREEMENT

The following schedule of fees applies to the Custody Agreement between the Fairholme Funds, Inc. and UMB Bank, n.a., unless and until such schedule is subsequently amended.

Schedule of Fees for Domestic Custody Services

Net Asset Value Fees

To be computed as of month-end on the average net asset value of each portfolio at the annual rate of:

1.00 basis point on the first $100,000,000 in assets; plus .75 basis point on the next $100,000,000 in assets; plus .50 basis point on the assets in excess of $200,000,000; *Subject to a $250 per month minimum per portfolio

*Fed Book Entry                                            8.00
*Physical                                                 25.00
 Principal Paydown                                         5.00
 Option (Initial Only)/Future                             25.00
 Corporate Action/Call/Reorg                              25.00

*Third-Party VRDN (Bank Book Entry) 15.00 *UMB Repurchase Agreement 5.00 *Tri-Party Repurchase Agreement 15.00 Wires In/Out & Checks Issued

(Non-Settlement Related)                                   8.00
*Fund of Fund Security Transaction
   ~ In-house Sweep (Scout &/or MMF)                  no charge
   ~ Preferred List**                                     10.00
   ~ All other                                            25.00
  Fund of Fund Dividend Transaction
   ~ Sweep Income                                     no charge
   ~ Preferred List**                                      5.00
   ~ All other                                            10.00

*A transaction includes buys, sells, maturities, or free security movements.

                                                            Transaction
Country                              Annual Asset Charge      Charge
-------                              -------------------      ------
                                    (Basis Points)

Argentina                                  23                    $60
Australia                                4.50                    $50
Austria                                  7.25                    $45
Bangladesh                                 60                   $150
Belgium (Equity)                         5.25                    $45
Belgium (Fixed Income)                   5.40                    $45
Bolivia                                    50                   $110
Botswana                                   60                   $150
Brazil                                     20                    $55
Bulgaria                                   60                   $135
Canada                                   2.50                    $25
Cedel/Euroclear (Equity)                 4.50                    $17
Cedel/Euroclear (Fixed Income)           2.00                    $20
Chile                                      20                    $70
China                                      20                    $70
Colombia                                   42                   $110
Croatia                                    70                   $135
Czech Republic (Equity)                    28                    $55
Czech Republic (Fixed Income)              19                    $55
Denmark                                  5.00                    $45
Ecuador                                    50                   $110
Egypt                                      45                   $130
Estonia                                    45                   $100
Finland                                  5.00                    $45
France                                   3.50                    $30
Germany                                  3.50                    $30
Greece (Equity)                            30                    $60
Greece (Fixed Income)                      20                    $60
Hong Kong                                4.50                    $55
Hungary (Physical Equity)                  35                    $75
Hungary (Keler, Equity/Fixed               30                    $75
Income)
India                                      40                    $90
Indonesia                                  12                    $75
Ireland                                  4.00                    $30
Israel                                     20                    $80
Italy                                    4.50                    $35
Japan                                    3.30                    $28
Jordan                                     50                   $140
Latvia                                     65                    $90
Lithuania                                  55                    $90
Malaysia                                   10                    $65
Mauritius                                  55                   $165
Mexico                                   6.50                    $35
Morocco                                    40                   $135
Netherlands                              4.50                    $30
New Zealand                              5.00                    $75
Norway                                   5.00                    $45
Pakistan                                   40                   $110
Panama                                     75                   $140
Peru                                       45                   $100
Philippines                                20                    $75
Poland                                     40                    $80
Portugal                                 9.50                    $85
Romania                                    40                    $85
Russia (Equity)                            65                   $110
Russia (Fixed Income)                      55                   $110
Singapore                                5.50                    $60
Slovakia                                   40                    $70
Slovenia                                   75                   $180
South Africa                             6.00                    $50
South Korea                                14                    $50
Spain                                    5.50                    $60
Sri Lanka                                  25                    $65
Sweden                                   4.50                    $50
Switzerland                              4.50                    $45
Taiwan                                     20                    $75
Thailand                                 9.50                    $70
Turkey                                     20                    $70
United Kingdom                           3.00                    $25
Uruguay                                    40                    $95
Venezuela                                  42                    $90
Zimbabwe                                   60                   $145


Additional Charges, Each

Trade Correction and Cancel                                      $15
Late Instruction                                                 $15
Non-Automated Trade Instruction                                  $15

Additional market asset and transaction charges will be negotiated prior to investment.

Out-of-Pocket Expenses

Includes, but is not limited to, all locally mandated charges, depository charges, Euroclear deposit and withdrawal charges, stamp duties, foreign investor registration charges, local taxes, certificate fees, proxy fees and charges, re-registration fees and overnight and other courier services.

Fees for services not contemplated by this schedule will be negotiated on a case-by-case basis.

FAIRHOLME FUNDS, INC.                   UMB BANK, N.A.

By: /s/ Keith D. Trauner                By:  /s/ Ralph R. Santoro
-------------------------------------   ------------------------------------

Name:  Keith D. Trauner                 Name:  Ralph R. Santoro
Title: Secretary/Treasurer              Title: Senior Vice President
Date:  August 15, 2005                  Date:  August 15, 2005

22146.0003#656673

Exhibit (g)(2)

RULE 17f-5 DELEGATION AGREEMENT

By its execution of this Delegation Agreement by and between UMB Bank, n.a. (the Custodian), a national banking association, with its principal office in Kansas City, Missouri, and each of the registered investment companies (on behalf of any series thereof, if applicable) listed on the Appendix to this Agreement, together with such additional companies as shall be made parties to this Agreement by the execution of a revised Appendix to this Agreement (such companies, and any series thereof, are referred to individually as a "Fund" and, collectively, as the "Funds"), the Funds hereby direct the Custodian to appoint Citibank, N.A., a National Banking Association under the laws of the United States of America, as the Approved Foreign Custody Manager (the Delegate) under the terms of the Custody Agreement between the Funds and the Custodian to perform certain functions with respect to the custody of the Funds' Assets (as defined in Section 13 of this Delegation Agreement) outside the United States of America.

WHEREAS, the Delegate has agreed to provide global custody services to the Custodian on behalf of the Funds through a Custodian Agreement; and

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the Funds and Custodian agree as follows. Capitalized terms shall have the meaning indicated in Section 13 of this Delegation Agreement unless otherwise indicated.

1. Maintenance of Funds' Assets Abroad. Each Fund, acting through its Board of Directors or Trustees (the Board), or its duly authorized representative, hereby instructs the Custodian to enter into a written agreement with the Delegate to place and maintain the Fund's Assets outside the United States in accordance with instructions received from the Fund's investment adviser. (An investment adviser may include any duly authorized sub-adviser to the Fund.) Such instruction shall represent a Special Instruction under the terms of the Custody Agreement between the Fund and the Custodian (the Custody Agreement). Each Fund acknowledges that: (a) the Custodian shall direct the Delegate to perform services hereunder only with respect to the countries where the Delegate provides custodial services as indicated on the Delegate Global Custody Network Listing; (b) depending on conditions in the particular country, advance notice may be required before the Delegate, upon the Custodian's direction, shall be able to perform its duties in or with respect to such country (such advance notice to be reasonable in light of the specific facts and circumstances attendant to performance of duties in such country); and (c) nothing in this Delegation Agreement shall require the Custodian to direct the Delegate to provide delegated or custodial services in any country, and there may from time to time be countries as to which the Delegate determines it will not provide delegation services.

2. Delegation. Pursuant to the provisions of Rule 17f-5 under the Investment Company Act of 1940 (the 1940 Act), and on behalf of and at the direction of the Funds, each Fund's Board hereby directs the Custodian, and the Custodian hereby agrees, to appoint the Delegate to perform only those duties set forth in this Delegation Agreement concerning the safekeeping of the Funds' Assets in each of the countries as to which Custodian has reported to the Funds that the Custodian shall have appointed the Delegate to act pursuant to Rule 17f-5. The Custodian is hereby authorized to take such actions, and to direct the Delegate to take such actions, on behalf of or in the name of the Funds as are reasonably required to discharge its duties under this Delegation Agreement, including, without limitation, to cause the Funds' Assets to be placed with a particular Eligible Foreign Custodian in accordance herewith. Each Fund confirms that it's Board or investment adviser has considered and accepted the Sovereign Risk and prevailing Country Risk as part of its continuing investment decision process.

3. Selection of Eligible Foreign Custodian and Contract Administration. The Custodian shall direct the Delegate pursuant to a written agreement to perform the following duties with respect to the selection of Eligible Foreign Custodians and administration of certain contracts governing the Funds' foreign custodial arrangements:

(a) Selection of Eligible Foreign Custodian. The Delegate shall place and maintain the Funds' Assets with an Eligible Foreign Custodian; provided that, the Delegate shall be required to determine that the Funds' Assets will be subject to reasonable care based on the standards applicable to custodians in the relevant market, after considering all factors relevant to the safekeeping of such assets, including without limitation:

(i) The Eligible Foreign Custodian's practices, procedures, and internal controls, including, but not limited to, the physical protections available for certificated securities (if applicable), the controls and procedures for dealing with any Securities Depository, the method of keeping custodial records, and the security and data protection practices;

(ii) Whether the Eligible Foreign Custodian has the requisite financial strength to provide reasonable care for the Funds' Assets;

(iii) The Eligible Foreign Custodian's general reputation and standing; and

(iv) Whether the Funds will have jurisdiction over and be able to enforce judgments against the Eligible Foreign Custodian, such as by virtue of the existence of any offices of such Eligible Foreign Custodian in the United States or such Eligible Foreign Custodian's appointment of an agent for service of process in the United States or consent to jurisdiction in the United States.

The Delegate shall be required to make the foregoing determination consistent with the standard of care set forth in Section 8 of this Delegation Agreement.

(b) Contract Administration. The Custodian shall require that the Delegate cause that the foreign custody arrangements with an Eligible Foreign Custodian be governed by a written contract that the Delegate has determined will provide reasonable care for the Funds' Assets based on the standards applicable to custodians in the relevant market after considering all factors relevant to the safekeeping of the Funds' Assets as specified in Rule 17f-5(c)(1). Each such contract shall, except as set forth in the last paragraph of this subsection
(b), include provisions that provide:

(i) For indemnification or insurance arrangements (or any combination of the foregoing) such that the Funds will be adequately protected against the risk of loss of assets held in accordance with such contract;

(ii) That the Funds' Assets will not be subject to any right, charge, security interest, lien or claim of any kind in favor of the Eligible Foreign Custodian or its creditors, except a claim of payment for their safe custody or administration or, in the case of cash deposits, liens or rights in favor of creditors of such Custodian arising under bankruptcy, insolvency or similar laws;

(iii) That beneficial ownership of each Fund's Assets will be freely transferable without the payment of money or value other than for safe custody or administration;

(iv) That adequate records will be maintained identifying each Fund's Assets as belonging to the Fund or as being held by a third party for the benefit of the Fund;

(v) That each Fund's independent public accountants will be given access to those records described in (iv) above or confirmation of the contents of such records; and

(vi) That the Delegate will receive sufficient and timely periodic reports, which will be provided to the Funds by the Custodian, with respect to the safekeeping of each Fund's Assets, including, but not limited to, notification of any transfer to or from the Fund's account or a third party account containing foreign assets held for the benefit of the Fund.

The Custodian may permit in its agreement with the Delegate that such contract may contain, in lieu of any or all of the provisions specified in this
Section 3(b), such other provisions that the Delegate determines will provide, in their entirety, the same or a greater level of care and protection for the Funds' Assets as the specified provisions, in their entirety.

(c) Limitation to Delegated Selection. Notwithstanding anything in this Delegation Agreement to the contrary, the agreement between the Custodian and the Delegate may provide that the duties under this Section 3 shall apply only to Eligible Foreign Custodians selected by the Delegate and shall not apply to any Eligible Foreign Custodian that the Delegate is directed to use pursuant to
Section 7 of this Delegation Agreement.

4. Monitoring. The Custodian shall enter into an agreement with the Delegate that requires the Delegate to establish a system to monitor the appropriateness of maintaining each Fund's Assets with each Eligible Foreign Custodian that has been selected by the Delegate pursuant to Section 3 of this Delegation Agreement. The Custodian shall direct the Delegate to monitor the continuing appropriateness of placement of each Fund's Assets in accordance with the criteria established under Section 3(a) of this Delegation Agreement and such Eligible Foreign Custodian's actual performance in accordance with the written contract as provided in Section 3(b) of this Delegation Agreement. The Custodian shall direct the Delegate to monitor the continuing appropriateness of the contract governing each Fund's arrangements in accordance with the criteria established under Section 3(b) of this Delegation Agreement.

5. Reporting. The Custodian shall enter into an agreement with the Delegate providing that, initially, prior to the placement of a Fund's Assets with any Eligible Foreign Custodian, and thereafter, at least annually and at such other times as the Board deems reasonable and appropriate based on the circumstances of the Fund's arrangements, the Delegate shall provide to the Board of each Fund, or to the Custodian for prompt provision to such Board, written reports specifying placement of the Fund's Assets with each Eligible Foreign Custodian selected by the Delegate pursuant to Section 3 of this Delegation Agreement and shall promptly report as to any material changes to such foreign custody arrangements. Such reporting will include the appropriateness of maintaining the Fund's Assets with a particular custodian under paragraph (c)(1) of Rule 17f-5 and the performance of the contract under paragraph (c)(2) of Rule 17f-5. The agreement may provide that the Delegate will prepare such a report with respect to any Eligible Foreign Custodian that the Delegate has been instructed to use pursuant to Section 7 hereunder only to the extent specifically agreed with respect to the particular situation.

6. Withdrawal of Fund Assets. The Custodian shall enter into an agreement with the Delegate providing that, if the Delegate determines that an arrangement with a specific Eligible Foreign Custodian selected by the Delegate consistent with
Section 3 of this Delegation Agreement no longer meets the requirements of said Section, the Delegate shall give the Custodian prompt notice of such determination and upon instructions the Delegate shall withdraw each Fund's Assets from the non-complying arrangement as soon as reasonably practicable. The Delegate shall use good faith to notify the Custodian as to any facts known to the Delegate, considering whether such withdrawal would require liquidation of any of the Fund's Assets or would materially impair the liquidity, value or other investment characteristics of the Fund's Assets. Any such instructions from the Fund or the Fund's investment adviser to the Custodian regarding liquidation or withdrawal shall be in the form of Special Instructions.

7. Direction as to Eligible Foreign Custodian. Notwithstanding this Delegation Agreement, each Fund, acting through its Board, its investment adviser or its other authorized representative, may instruct the Custodian to direct the Delegate to place and maintain the Fund's Assets in a particular country or with a particular Eligible Foreign Custodian, including without limitation with respect to investment in countries as to which the Delegate reasonably determines that it will not provide delegation services. In the event that the Delegate determines that it will provide delegation services in such country or with such Eligible Foreign Custodian, the Custodian will comply with the provisions otherwise set forth in this Delegation Agreement. In the event that the Delegate reasonably determines that it will not provide delegation services in such country or with such Eligible Foreign Custodian, the Custodian and Delegate shall be entitled to rely on any such instruction as a Special Instruction and shall have no duties or liabilities under this Delegation Agreement with respect to such arrangement save those that it may undertake specifically in writing with respect to each particular instance; provided that this Delegation Agreement and the Custodian Agreement shall not constitute the Custodian or the Delegate as the exclusive delegate of any of the Funds for purposes of Rule 17f-5 and, particularly where Custodian does not agree to provide fully the services under this Delegation Agreement and the Custody Agreement to a Fund with respect to a particular country, the Fund may delegate such services to another delegate pursuant to Rule 17f-5.

8. Standard of Care. In carrying out its duties under this Delegation Agreement, the Custodian agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for safekeeping the Funds' Assets would exercise. In addition, the Custodian will enter into a written agreement with the Delegate providing that, in carrying out its duties under its agreement with the Custodian, the Delegate will exercise reasonable care, prudence and diligence such as a person having responsibility for safekeeping of the Funds' Assets would exercise.

9. Liability of the Custodian for Actions of Other Persons. The Custodian shall be liable for the actions or omissions of the Delegate or any Eligible Foreign Custodian as set forth in the Custody Agreement between the Custodian and the Funds, except as provided in Section 7 hereunder.

10. Representations. The Custodian hereby represents and warrants that it is a U.S. Bank and that this Delegation Agreement has been duly authorized, executed and delivered by the Custodian and is a legal, valid and binding agreement of the Custodian enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy laws and any other similar laws affecting the rights and remedies of creditors generally and by equitable principles. The Custodian will enter into an agreement with the Delegate in which the Delegate will represent and warrant that it is a U.S. Bank and that the agreement between the Custodian and the Delegate has been duly authorized, executed and delivered by the Delegate and is a legal, valid and binding agreement of the Delegate enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy laws and any other similar laws affecting the rights and remedies of creditors generally and by equitable principles.

Each Fund hereby represents and warrants that its Board has determined that it is reasonable to rely on the Custodian to direct the Delegate to perform the delegated responsibilities provided for herein and that this Delegation Agreement has been duly authorized, executed and delivered by the Fund and is a legal, valid and binding agreement of the Fund enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy laws and any other similar laws affecting the rights and remedies of creditors generally and by equitable principles.

11. Effectiveness; termination. This Delegation Agreement shall be effective as of August 15, 2005. This Delegation Agreement may be terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Such termination shall be effective on the 60th day following the date on which the non-terminating party shall receive the foregoing notice. The foregoing to the contrary notwithstanding, this Delegation Agreement shall be deemed to have been terminated concurrently with the termination of the Custody Agreement. The Custodian shall terminate its agreement with the Delegate pursuant to this Delegation Agreement concurrently with any termination of this Delegation Agreement.

12. Notices. Notices and other communications under this Delegation Agreement are to be made in accordance with the arrangements designated for such purpose under the Custody Agreement unless otherwise indicated in a writing referencing this Delegation Agreement and executed by both parties.

13. Definitions. Capitalized terms in this Delegation Agreement have the following meanings:

a. Country Risk - shall mean, with respect to the acquisition, ownership, settlement or custody of investments in a jurisdiction, all risks relating to, or arising in consequence of, systemic and markets factors affecting the acquisition, payment for or ownership of investments including (a) the prevalence of crime and corruption except for crime or corruption by the Eligible Foreign Custodian or its employees, directors or officers for which the liability of the Custodian, the Delegate or the Approved Foreign Custody Manager is not predicated upon recovery of such damages from the Eligible Foreign Custodian as set forth in the Global Custody Network Listing, (b) the inaccuracy or unreliability of business and financial information (unrelated to the Custodian's duties imposed by Rule 17f-5(c) under the 1940 Act or to the duties imposed upon it by Rule 17f-7 under the 1940 Act), (c) the instability or volatility of banking and financial systems, or the absence or inadequacy of an infrastructure to support such systems, (d) custody and settlement infrastructure of the market in which such investments are transacted and held, (e) the acts, omissions and operation of any Securities Depository, it being understood that this provision shall not excuse the Custodian's performance under the express terms of this Agreement and its liability therefor, (f) the risk of the bankruptcy or insolvency of banking agents, counterparties to cash and securities transactions, registrars or transfer agents, (g) the existence of market conditions which prevent the orderly execution or settlement of transactions or which affect the value of assets, and (h) the laws relating to the safekeeping and recovery of a Fund's Assets held in custody pursuant to the terms of the Custody Agreement; provided, however, that, in compliance with Rule 17f-5, neither Sovereign Risk nor Country Risk shall include the custody risk of a particular Eligible Foreign Custodian of the Fund's Assets.

b. Eligible Foreign Custodian - shall have the meaning set forth in Rule 17f-5(a)(1) and shall also include a bank that qualifies to serve as a custodian of assets of investment companies under Section 17(f) of the 1940 Act.

c. Fund's Assets - shall mean any of a Fund's investments (including foreign currencies) for which the primary market is outside the United States, and such cash and cash equivalents as are reasonably necessary to effect the Fund's transactions in such investments.

d. Special Instructions - shall have the meaning set forth in the Custody Agreement.

e. Securities Depository - shall have the meaning for an "Eligible Securities Depository" as set forth in Rule 17f-7.

f. Sovereign Risk - shall mean, in respect of any jurisdiction, including the United States of America, where investments are acquired or held hereunder or under the Custody Agreement, (a) any act of war, terrorism, riot, insurrection or civil commotion, (b) the imposition of any investment, repatriation or exchange control restrictions by any governmental authority, (c) the confiscation, expropriation or nationalization of any investments by any governmental authority, whether de facto or de jure, (d) any devaluation or revaluation of the currency, (e) the imposition of taxes, levies or other charges affecting investments, (f) any change in the applicable law, or (g) any other economic or political risk incurred or experienced that is not directly related to the economic or financial conditions of the Eligible Foreign Custodian, except as otherwise provided in this Delegation Agreement or the Custody Agreement.

g. U. S. Bank - shall have the meaning set forth in Rule 17f-5(a)(7) under the 1940 Act.

14. Governing Law and Jurisdiction. This Delegation Agreement shall be construed in accordance with the laws of the State of Missouri. The parties hereby submit to the exclusive jurisdiction of the Federal courts sitting in the State of Missouri.

15. Fees. The Custodian shall perform its functions under this Delegation Agreement for the compensation determined under the Custody Agreement. Neither the Custodian nor the Delegate shall receive separate compensation from a Fund for the performance of the duties and services set forth in this Delegation Agreement.

16. Integration. This Delegation Agreement supplements and/or amends the Custody Agreement with respect to the selection and monitoring of Eligible Foreign Custodians, the administration of contracts with Eligible Foreign Custodians, the withdrawal of assets from Eligible Foreign Custodians and the issuance of reports in connection with such duties; provided that, in the event that there are any inconsistencies between the Delegation Agreement and the Custody Agreement, the provisions of the Delegation Agreement shall govern for the purpose of compliance with Rule 17f-5. The terms of the Custody Agreement shall apply generally as to matters not expressly covered in this Delegation Agreement, including dealings with the Eligible Foreign Custodians in the course of discharge of the Custodian's obligations under the Custody Agreement, and the Custodian's obligation to indemnify the Funds as set forth in the Custody Agreement, and the Funds' obligation to indemnify the Custodian as set forth in the Custody Agreement, the terms of which are incorporated herein by reference. This Delegation Agreement supersedes the existing Delegation Agreement.

IN WITNESS WHEREOF, each of the parties hereto has caused this Delegation Agreement to be duly executed.

Fairholme Funds, Inc.                 UMB Bank, n.a.


By: /s/ Keith D. Trauner         By:  /s/ Ralph R. Santoro
----------------------------     ----------------------------
Name:   Keith D. Trauner         Name:   Ralph R. Santoro
Title:  Secretary/Treasurer      Title:  Senior Vice President

Effective Date: August 15, 2005

APPENDIX

THE FAIRHOLME FUND

22146.0003#676177

Exhibit (h)(2)

MUTUAL FUND SERVICES AGREEMENT

THIS AGREEMENT is made as of this 18th day of May, 2005, by and between FAIRHOLME FUNDS, INC. (the "Fund"), a Maryland corporation having its principal place of business at 51 JFK Parkway, Short Hills, New Jersey 07078, and CITCO MUTUAL FUND SERVICES, INC. ("CMFS"), a corporation organized under the laws of the State of Delaware and having its principal place of business at 83 General Warren Boulevard, Suite 200, Malvern, Pennsylvania 19355.

WHEREAS, the Fund is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act");

WHEREAS, the Fund is authorized by its Charter and By-laws to issue separate series of shares of its common stock representing separate investment portfolios (each series individually referred to herein as a "Portfolio" and collectively as the "Portfolios") and to further divide such Portfolios into separate share classes;

WHEREAS, the Fund has authorized the issuance of shares of common stock in the Portfolios, and share classes thereof, listed on Schedule A to this Agreement, attached hereto and made part of this Agreement, as such Schedule A may be amended in writing from time to time by CMFS and the Fund;

WHEREAS, the Fund desires that CMFS perform certain transfer agency, accounting, and administrative services for each Portfolio listed on Schedule A, and such Portfolios as may be added to Schedule A from time to time in accordance with the foregoing recital;

WHEREAS, the Fund has taken all necessary action to appoint CMFS and all necessary approvals have been obtained; and

WHEREAS, CMFS is willing to perform such services on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual premises and covenants herein set forth, the parties agree as follows:

1. RETENTION OF CMFS.

The Fund hereby retains CMFS to provide transfer agency, fund accounting and fund administration services to each Portfolio as set forth in Schedules B, C and D to this Agreement, attached hereto and made part of this Agreement, as such schedules may be amended in writing from time to time by CMFS and the Fund. CMFS hereby accepts such appointment to perform such services in accordance with the terms of this Agreement and subject to the supervision of the Fund's sponsor (i.e., investment adviser) and the Fund's Board of Directors. CMFS shall not be responsible for services that are not explicitly set forth in this Agreement. Nonetheless, CMFS agrees to negotiate in good faith with the Fund regarding the provision of any services not set forth herein but desired by the Fund.

2. SUBCONTRACTING.

CMFS may, at its expense, subcontract with any entity or person concerning the provision of the services contemplated hereunder; provided, however, that CMFS shall not be relieved of any of its obligations under this Agreement by the appointment of such subcontractor and provided further, that CMFS shall be responsible, to the extent provided in Section 7 hereof, for all acts of such subcontractor as if such acts were its own.

3. COMPENSATION.

The Fund shall pay for the services to be provided by CMFS under this Agreement in accordance with, and in the manner set forth in, Schedule E attached hereto, as such Schedule E may be amended from time to time in writing by the parties.

If this Agreement becomes effective subsequent to the first day of a month or terminates before the last day of a month, CMFS' compensation for that part of the month in which the Agreement is in effect shall be prorated in a manner consistent with the calculation of the fees as set forth above. Payment of CMFS' fees for the preceding month shall be made within ten (10) days of the end of such month. CMFS shall have the right to assess a late fee up to one-half of one
(1) percent of the fee due in the event the Fund fails to pay any fee due hereunder in accordance with the terms hereof. The Fund shall pay the foregoing fees despite the existence of any dispute between the parties. In the event a court of competent jurisdiction determines that CMFS is not entitled to such fee, CMFS shall promptly reimburse the Fund the amount of such fee.

4. REIMBURSEMENT OF EXPENSES.

In addition to paying CMFS the fees described in Schedule E attached hereto, the Fund agrees to reimburse CMFS for its reasonable out-of-pocket expenses in providing services hereunder, including without limitation the following:

(a) All freight, delivery and bonding charges incurred by CMFS in delivering materials to and from the Fund;

(b) All direct telephone, telephone transmission and telecopy or other electronic transmission expenses incurred by CMFS or an affiliate of CMFS in communications with the Fund, an adviser or sub-adviser to the Fund, the Fund's custodian, counsel, auditors, dealers or others as required for CMFS to perform the services to be provided hereunder;

(c) The costs of obtaining security market quotes for the holdings of each Portfolio (the cost of obtaining prices for securities held in each Portfolio will be borne by the Portfolio);

(d) All expenses incurred in connection with any custom programming, statements or systems modifications required to provide any reports or services requested by the Fund;

(e) Any and all costs associated with the preparation, mailing or delivery of statements, confirms, offering documents, proxy statements or any other documents, including, but not limited to, the costs of preparation, photocopying, supplies, typesetting, printing, postage, any fees charged by Automatic Data Processing, Inc. or other processors with respect to such mailings and any related record storage;

(f) Any expenses incurred by CMFS to reprint account applications or other documents identifying CMFS (along with its address and telephone number) as the Fund's transfer agent;

(g) Any expenses CMFS shall incur at the written direction of an officer of the Fund's investment adviser or officer of the Fund;

(h) Any additional expenses reasonably incurred by CMFS in the performance of its duties and obligations under this Agreement and approved in advance by the Fund;

(i) Any expenses incurred by CMFS in connection with shareholder meetings and proxy solicitations;

(j) Any fees and expenses associated with Blue Sky filings, SEC registration fees, Edgar Filings (if applicable), electronic support of Board materials, escheatment, applicable Imaging fees, portfolio data software, VRU services, Citrix links, internet architecture and access fees, Web Access for Fund shareholders, DST FanMail or other similar reporting services, esuite of features (E-signature), third party platforms, bank service charges, associated fees of NSCC trading, other industry standard transfer agency expenses which shall be pre-approved;

(k) Fidelity bond insurance premiums of the Fund;

(l) The costs resulting from greater than 150 portfolio trades per month, per Portfolio (exclusive of daily cash investments). Portfolios engaging in more than 150 trades per month shall not be charged for excess trades so long as the total number of monthly portfolio trades executed by all the Portfolios does not exceed the aggregate monthly portfolio trades allowed under this paragraph (e.g., 8 Portfolios X 150 monthly trades = 1200 aggregate monthly allowable trades). Portfolios executing more than 150 portfolio trades per month and that cause the Fund to exceed its aggregate monthly allowable trades will be charged $5 per trade for each trade in excess of 150.

(m) Any expenses associated with the implementation and enforcement of Customer Identification Procedures as required by regulations or rules adopted pursuant to the USA PATRIOT Act, and any new law, rule or regulation issued relating to the Fund's Anti - Money Laundering Program (as defined in Schedule D) which require the commitment of CMFS resources or that are adopted subsequent to the Effective Date and which expenses are directly related to the Fund's operations.

5. EFFECTIVE DATE.

This Agreement shall become effective with respect to the Fund's Portfolios as of the date first written above or, if the Fund is converting from a prior service provider, upon completion of the conversion of the records and services from the Fund's former service provider to CMFS (the "Effective Date"). The Fund will provide CMFS with reasonable notice, as mutually agreed upon in writing, of such conversion to allow for an orderly conversion from the former service provider to CMFS.

If a particular Portfolio is not in existence on the date of this Agreement or upon completion of the conversion from the former service provider, the Effective Date of this Agreement (including the fee schedule hereto) with respect to such Portfolio shall be the date CMFS is provided with written notice of the Portfolio's commencement of operations in accordance with the terms of this Agreement. To assure that CMFS can provide the services hereunder as of the Portfolio's commencement of operations, the Fund shall give CMFS at least 45 days advance written notice of the inception of such new Portfolio. CMFS also needs 45 days advance written notice of changes to share class structure (e.g., additions or changes of sales loads).

CMFS shall have a right of first refusal to provide transfer agency, accounting and administration services to any new Portfolio established by the Fund. CMFS reserves the right to decline to provide such services to any new Portfolio established by the Fund.

6. TERM OF THIS AGREEMENT.

The term of this Agreement shall continue in effect, unless earlier terminated by any party hereto as provided hereunder, for a period of two (2) years. Thereafter, unless otherwise terminated as provided herein, this Agreement shall be renewed automatically for additional periods of one year.

This Agreement may be terminated without penalty: (i) by the Fund or CMFS upon ninety (90) days' written notice; or (ii) by the Fund or CMFS for any uncured "cause" (as defined below) upon the provision of sixty (60) days' advance written notice by the party alleging cause.

For purposes of this Agreement, "cause" shall mean:

(i) a material breach of this Agreement that has not been remedied within thirty (30) days following written notice of such breach from the non-breaching party;

(ii) an act or omission of a party to this Agreement involving gross negligence, willful malfeasance or intentional wrongdoing;

(iii) a series of negligent acts, omissions or breaches of this Agreement which, in the aggregate, constitute in the reasonable judgment of the Fund, a serious, unremedied and ongoing failure to perform satisfactorily CMFS' obligations hereunder;

(iv) a final, non-appealable judicial, regulatory or administrative ruling or order in which the party to be terminated has been found guilty of criminal or unethical behavior in the conduct of its business; or

(v) financial difficulties on the part of the party to be terminated which are evidenced by the authorization or commencement of, or involvement by way of pleading, answer, consent or acquiescence in, a voluntary or involuntary case under Title 11 of the United States Code, as from time to time is in effect, or any applicable law other than said Title 11, of any jurisdiction relating to the liquidation or reorganization of debtors or the modification or alteration of the rights of creditors.

In the event the Fund notifies CMFS of any foregoing cause in accordance with the notice requirements of this provision, CMFS shall be given forty-five
(45) days to remedy such cause for termination. Upon remedying such cause, the notice of termination provided by the Fund shall no longer have the effect of terminating the Agreement. Finding "cause" shall not be determinative of any liability under this Agreement, which is governed by Paragraph 7 hereof.

Notwithstanding the foregoing, in the event this Agreement is terminated and for any reason CMFS, with the written consent of the Fund, in fact continues to perform any one or more of the services contemplated by this Agreement or any schedule or exhibit hereto, the then pertinent provisions of this Agreement, including without limitation the provisions dealing with indemnification, shall continue in full force and effect. Compensation due CMFS and unpaid by the Fund upon such termination shall be immediately due and payable upon and notwithstanding such termination. CMFS shall be entitled to collect from the Fund, in addition to the compensation described in Schedule E, the amount of all of CMFS' expenses in connection with CMFS' activities in effecting such termination, including without limitation, the delivery to the Fund and/or its designees of the Fund's property, records, instruments and documents. In the event this Agreement is terminated, CMFS will continue to provide services to the Fund during the transition period to a successor service provider and will cooperate with the successor service provider to assist in as orderly, efficient and cost effective conversion as is reasonably possible.

7. STANDARD OF CARE AND LIABILITY.

The duties of CMFS shall be confined to those expressly set forth herein, and no implied duties are assumed by or may be asserted against CMFS hereunder. CMFS shall be liable for any damages arising directly out of CMFS' failure to perform its duties under this Agreement to the extent such damages arise directly out of CMFS' willful misfeasance, bad faith, gross negligence in the performance of its duties, or reckless disregard of it obligations and duties hereunder. (As used in this paragraph 7, the term "CMFS" shall include directors, officers, employees and other agents of CMFS as well as CMFS itself).

Without limiting the generality of the foregoing or any other provision of this Agreement, CMFS shall not be liable for the validity or invalidity or authority or lack thereof of any instruction, notice or other instrument that CMFS reasonably believes to be genuine and to have been signed or presented by a duly authorized representative of the Fund. CMFS shall not be liable for any pricing error caused by the failure of the Fund's investment adviser or sub-adviser to provide a trade ticket or for incorrect information included in any trade ticket provided.

CMFS may at any time seek instructions from the Fund and may consult with counsel for the Fund or its own counsel, and with accountants and other experts with respect to any matter arising in connection with CMFS' duties hereunder, and CMFS shall not be liable or accountable for any action taken or omitted by it in good faith in accordance with such instruction or with the reasonable opinion of such counsel, accountants or other experts qualified to render such opinion. To the extent CMFS consults with such consultants pursuant to this provision, such expense shall be an expense of the Fund.

In the event the Fund is converting from a prior service provider, CMFS shall be entitled to rely upon the Fund's books and records provided to CMFS by the prior service provider and shall have no duty to investigate whether such books and records are complete or accurate. CMFS shall not be subject to liability hereunder, to the extent CMFS cannot perform any of its services hereunder as a result of a failure of the Fund's former service provider.

8. INDEMNIFICATION.

The Fund agrees to indemnify and hold harmless CMFS from and against any and all actions, suits, claims, losses, damages, costs, charges, reasonable counsel fees and disbursements, payments, expenses and liabilities (including reasonable investigation expenses) (collectively, "Losses") to which CMFS may become liable arising directly or indirectly out of (i) any action or omission to act which CMFS takes at any request or on the direction of or in reliance on the reasonable advice of the Fund, the Fund's counsel or the Fund's investment adviser, (ii) upon any instruction, notice or other instrument that CMFS reasonably believes to be genuine and to have been signed or presented by a duly authorized representative of the Fund, its investment adviser or other duly authorized agent, (iii) any action or omission of CMFS that CMFS on its own initiative, in good faith and without negligence on the part of CMFS and otherwise in accordance with the standard of care set forth in Paragraph 7 above, takes or does not take in connection with the performance of its duties or obligations hereunder, (iv) any inaccuracy or omission in any prospectus, registration statement, annual or other periodic report or proxy statement of the Fund or any advertising, marketing, shareholder communication, or promotional material generated by the Fund or its investment adviser or sub-adviser, or (v) any breach by the Fund of any representation, warranty or agreement contained in this Agreement. CMFS shall not be indemnified against or held harmless from any Losses arising directly or indirectly out of CMFS' own willful misfeasance, bad faith, negligence in the performance of its duties, or reckless disregard of its obligations and duties hereunder. (As used in this paragraph 8, the term "CMFS" shall include directors, officers, employees and other agents of CMFS as well as CMFS itself).

CMFS agrees to indemnify and hold harmless the Fund from and against any and all Losses to which the Fund may become liable arising directly out of (i) CMFS' own willful misfeasance, bad faith, gross negligence in the performance of its duties, or reckless disregard of its obligations and duties as set forth in this Agreement, or (ii) any breach by CMFS of any representation, warranty or agreement contained in this Agreement. (As used in this paragraph 8, the term "Fund" shall include Directors, officers, employees and other agents of the Fund as well as the Fund itself.)

If a claim is made against any party to this Agreement as to which that party may seek indemnity under this paragraph 8 from the other party, the party seeking indemnification shall notify the other party within ten (10) days after receipt of any written assertion of such claim threatening to institute an action or proceeding or service of summons or other legal process. Failure to notify a party of a claim for indemnification will relieve the party from whom indemnification is sought from any liability which it may have on account of the indemnity provisions set forth under this paragraph 8 unless the party seeking indemnification can demonstrate to the reasonable satisfaction of the other party that such party has not been prejudiced in any material respect by such failure to so notify.

The parties to this Agreement will cooperate in the control of the defense of any action, suit or proceeding in which a party is involved and for which indemnity is being provided by the other party. Any party from whom indemnification is sought may negotiate the settlement of any action, suit or proceeding subject to the other party's approval, which approval will not be unreasonably withheld. The party seeking indemnification reserves the right, but not the obligation, to participate in the defense or settlement of a claim, action or proceeding with its own counsel. Costs or expenses incurred by a party to whom indemnification is being provided in connection with, or as a result of such participation, will be borne solely by the indemnified party unless:

o the party seeking indemnification has received an opinion of counsel from counsel to either party stating that the use of common counsel would present an impermissible conflict of interest;

o the defendants in, or targets of, any such action or proceeding include both CMFS and the Fund, and legal counsel to either party has reasonably concluded that there are legal defenses available to a party which are different from or additional to those available to the other party or which may be adverse to or inconsistent with defenses available to a party; or

o the party from whom indemnification is sought authorizes the other party to employ separate counsel at the expense of the indemnifying party.

o The terms of this paragraph 8 will survive the termination of this Agreement.

9. RECORD RETENTION AND CONFIDENTIALITY.

CMFS shall keep and maintain on behalf of the Fund all books and records which the Fund or CMFS is, or may be, required to keep and maintain pursuant to any applicable statutes, rules and regulations, including without limitation Rules 31a-1 and 31a-2 under the 1940 Act, relating to the maintenance of books and records in connection with the services to be provided hereunder. CMFS further agrees that all such books and records maintained by CMFS in connection with the services hereunder shall be the property of the Fund and to make such books and records available for inspection by the Fund or by the SEC at reasonable times and otherwise to keep confidential all books and records and other information relative to the Fund and its shareholders; except when requested to divulge such information by duly-constituted authorities or court process. In case of any requests or demands for the inspection of the records of the Fund maintained by CMFS, CMFS will endeavor to notify the Fund and to secure instructions from an authorized officer of the Fund as to such inspection. CMFS shall abide by the Fund's instructions for granting or denying the inspection; provided, however, that CMFS may grant the inspection without instructions if CMFS is advised by counsel to CMFS that failure to do so would be a breach of any applicable law, regulation, or request of a regulatory authority or order of a court, or would result in liability to CMFS.

CMFS acknowledges that the Fund's non-public information, including but not limited to portfolio holdings information ("Non-public Information") is the confidential property of the Fund. CMFS agrees that during the term of this Agreement, it shall maintain policies reasonably designed to prohibit the dissemination or use of the Fund's Non-public Information by CMFS or its employees, affiliates, subsidiaries, parent, officers, directors, advisors and contractors ("Representatives"), except as provided in this Agreement. In any event, CMFS and its Representatives shall not engage in securities transactions based on Non-public Information or knowledge of the Fund's trading position or plans.

Dissemination of Non-public Information may occur only: (i) in connection with the provision of services to the Fund (including for data processing, statistical and risk analysis purposes); (ii) at the direction of the Fund pursuant to instructions as provided in this Agreement; or (iii) as requested or required in any regulatory proceeding, investigation, audit, examination, subpoena, civil investigative demand or other similar process, or required by operation of law or regulation. Any disclosure by CMFS pursuant to (iii), above, shall be preceded to the extent reasonably practicable by reasonable notice to the Fund; provided, however, no such notice is required where the disclosure is made to any internal or external auditor of CMFS or any authorized services provider or to any examiner or regulator of CMFS or any authorized services provider. Upon written request, CMFS agrees to promptly return or destroy, as directed, any Non-public Information; provided, however, CMFS shall be entitled to keep one copy of any Non-public Information as required to satisfy any regulatory or other legal obligation applicable to CMFS, which retained information shall continue to be subject to the terms of this Section without regard to any termination of the Agreement.

10. FORCE MAJEURE.

CMFS assumes no responsibility hereunder, and shall not be liable, for any damage, loss of data, delay or any other loss whatsoever caused by acts of civil or military authority, national emergencies, fire, flood, catastrophe, acts of God, insurrection, war, riots or failure of the mails, transportation, communication or power supply.

11. RIGHTS OF OWNERSHIP; RETURN OF RECORDS.

Except for computer software, programs and procedures, whether or not customized for the Fund or one of its Portfolios, developed to perform services required to be provided by CMFS under this Agreement, all books and records maintained by CMFS in connection with its services under this Agreement are the exclusive property of the Fund and all such records and data will be furnished to the Fund in appropriate form as soon as practicable after termination of this Agreement for any reason. CMFS may at its option at any time, and shall promptly upon the Fund's demand, deliver to the Fund, at the Fund's expense, and cease to retain, books and records created and maintained by CMFS pursuant to this Agreement which are no longer needed by CMFS in the performance of its services or for its legal protection. CMFS shall be entitled to maintain a copy of the Fund's books and records to the extent necessary for CMFS to fulfill its regulatory obligations. If such books and records are not delivered in accordance with this paragraph, CMFS will maintain such books and records in accordance with applicable record keeping requirements from the date such books and records were created. At the end of such retention period, such books and records will be delivered to the Fund at the Fund's expense unless the Fund instructs CMFS in writing to destroy such books and records. Any such destruction will be at the Fund's expense. If destruction of books and records is instructed by the Fund, CMFS shall provide reasonable proof of such destruction to the Fund. Any such destruction authorization shall be evidenced by a certified resolution of the Fund's Board of Directors. The Fund shall indemnify and hold harmless CMFS in accordance with Paragraph 8 of this Agreement for any loss, claim or expense (including, but not limited to, reasonable attorneys' fees) in connection with CMFS' compliance with an instruction to destroy any books and records pursuant to this paragraph.

12. REPRESENTATIONS OF THE FUND.

The Fund certifies to CMFS that: (1) as of the close of business on the Effective Date, each Portfolio that is in existence as of the Effective Date has authorized the issuance of an indefinite number of shares and has elected to register an indefinite number of shares in accordance with Rule 24f-2 under the 1940 Act; (2) this Agreement has been duly authorized by the Fund and, when executed and delivered by the Fund, will constitute a legal, valid and binding obligation of the Fund, enforceable against the Fund in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; (3) if necessary, any shareholder approval of this Agreement has been obtained; and (4) that it will promptly disclose any material regulatory, civil or criminal investigation or proceeding during the term of this Agreement, including any such investigation or proceeding in existence as of the Effective Date.

13. REPRESENTATIONS OF CMFS.

CMFS represents and warrants that: (1) it has adopted and implemented procedures intended to safeguard from loss or damage the books and records CMFS maintains on behalf of the Fund pursuant to the terms of this Agreement; (2) this Agreement has been duly authorized by CMFS and, when executed and delivered by CMFS, will constitute a legal, valid and binding obligation of CMFS, enforceable against CMFS in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; (3) it is duly registered with the appropriate regulatory agency as a transfer agent and such registration will remain in full force and effect for the duration of this Agreement; and (4) that it will promptly disclose any material regulatory, civil or criminal investigation or proceeding during the term of this Agreement, including any such investigation or proceeding in existence as of the Effective Date.

14. INSURANCE.

CMFS shall furnish the Fund with a copy of, and any related information with respect to, CMFS' errors and omissions insurance policy. Such policy and information shall include the identity of its insurance carrier(s), coverage levels and deductible amounts. CMFS shall notify the Fund within ten (10) days should any of its insurance coverage be canceled or reduced. Such notification shall include the date of change and the reasons therefore. Any failure on the part of CMFS to notify the Fund of changes to CMFS' insurance coverage as set forth in this paragraph 14 shall constitute a material breach of this Agreement, and the Fund shall be entitled to terminate this Agreement immediately in the event of such a breach.

15. INFORMATION TO BE FURNISHED BY THE FUND.

The Fund has furnished to CMFS, or will furnish prior to the Effective Date, the following:

(a) Copies of the following documents:

1. Copies of the Fund's current Charter and of any amendments thereto, certified by the proper official of the state in which such document has been filed.

2. The Fund's current By-laws and any amendments thereto; and

3. Copies of resolutions of the Directors covering the approval of this Agreement, authorization of a specified officer of the Fund to execute and deliver this Agreement and authorization for specified officers of the Fund to provide instructions to CMFS.

(b) A list of all the officers of the Fund, together with specimen signatures of those officers who are authorized to instruct CMFS in all matters.

(c) Copies of the current Prospectus and Statement of Additional Information ("SAI") for each Portfolio.

(d) A copy of relevant procedures adopted by the Fund with respect to each Portfolio that are necessary for CMFS to perform its services hereunder, including a list of all issuers the Portfolio is restricted from purchasing.

(e) A list of all affiliated persons (as such term is defined in the 1940 Act) of the Fund that are broker-dealers.

(f) The identity of the Fund's auditors along with contact information.

(g) The expense budget for each Portfolio for the current fiscal year.

(h) A list of contact persons (primary, backup and secondary backup) of the Fund's investment adviser and, if applicable, sub-adviser who can be reached until 6:30 p.m. ET with respect to valuation and compliance matters.

The Fund shall promptly provide CMFS with written notice of any updates of or changes to any of the foregoing documents or information, including an updated written copy of such document or information. Until CMFS receives such updated information or document, CMFS shall have no obligation to implement or rely upon such updated information or document.

16. RULE 38a-1 POLICIES AND PROCEDURES

CMFS has provided the Fund with its written compliance policies and procedures as required by Rule 38a-1 ("Rule 38a-1 Policies and Procedures") for the approval by the Directors of the Fund. With respect to the services CMFS provides to the Fund hereunder, CMFS' Rule 38a-1 Policies and Procedures shall be reasonably designed to prevent violations by CMFS of the federal securities laws as defined in Rule 38a-1, and which include the Securities Act of 1933, the Securities and Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Investment Company Act of 1940, the Investment Advisers Act of 1940, Title V of the Gramm-Leach-Bliley Act (relating to privacy regulation), any SEC rules adopted under any of these statutes, the Bank Secrecy Act as it applies to registered investment company operations (anti-money laundering), and any rules adopted thereunder by the SEC or the Department of the Treasury ("Federal Securities Laws").

CMFS will promptly provide the Fund's Chief Compliance Officer with any material changes that have been made to CMFS' Rule 38a-1 Policies and Procedures.

CMFS agrees to cooperate with the Fund in the annual review of CMFS' Rule 38a-1 Policies and Procedures conducted by the Fund's Chief Compliance Officer to determine the adequacy of CMFS' Rule 38a-1 Policies and Procedures and the effectiveness of their implementation (the "Annual Review"). CMFS also agrees to cooperate with the Fund in any interim reviews of CMFS' Rule 38a-1 Policies and Procedures to determine their adequacy and the effectiveness of their implementation in response to significant compliance events, changes in business arrangements, and/or regulatory developments ("Interim Review"). Such cooperation includes, without limitation, furnishing such certifications, subcertifications, and documentation within the scope of CMFS' functions and responsibilities as the Fund's Chief Compliance Officer shall reasonably request from time to time and implementing changes to CMFS' Rule 38a-1 Policies and Procedures satisfactory to both the Fund's Chief Compliance Officer and CMFS.

CMFS will provide the Fund with ongoing, direct, and prompt access to CMFS' compliance personnel and shall cooperate with the Fund's Chief Compliance Officer in order to provide assistance to the Fund in carrying out its obligations under Rule 38a-1.

CMFS will promptly notify the Fund in the event that a Material Compliance Matter, as defined under Rule 38a-1, occurs with respect to CMFS' Rule 38a-1 Policies and Procedures and will cooperate with the Fund in providing the Fund with periodic and special reports in the event any Material Compliance Matter occurs. A "Material Compliance Matter" has the same meaning as the term defined in Rule 38a-1, and includes any compliance matters that involve: (1) a violation of the Federal Securities Laws by CMFS (or its officer, directors, employees, or agents); (2) a violation of CMFS' Rule 38a-1 Policies and Procedures; or (3) a weakness in the design or implementation of CMFS' Rule 38a-1 Policies and Procedures.

CMFS (and anyone acting under the direction of CMFS) will refrain from, directly or indirectly, taking any action to coerce, manipulate, mislead, or fraudulently influence the Fund's Chief Compliance Officer in the performance of her or his responsibilities under Rule 38a-1.

17. AMENDMENTS TO AGREEMENT.

This Agreement, or any term thereof, may be changed or waived only by written amendment signed by the party against whom enforcement of such change or waiver is sought.

For special cases, the parties hereto may amend such procedures set forth herein as may be appropriate or practical under the circumstances, and CMFS may conclusively assume that any special procedure which has been approved by the Fund does not conflict with or violate any requirements of any rule, regulation or requirement of any regulatory body of the Fund's then current prospectuses.

18. COMPLIANCE WITH LAW.

Except for the obligations of CMFS specifically set forth herein, the Fund assumes full responsibility for the preparation, substance and distribution of each prospectus and SAI of the Fund as well as compliance with all applicable requirements of the Securities Act of 1933, as amended (the "Securities Act"), the 1940 Act and any other laws, rules and regulations of governmental authorities having jurisdiction. The Fund represents and warrants that no shares of the Fund will be offered to the public until the Fund's registration statement under the Securities Act and the 1940 Act has been declared or becomes effective and currently is effective in accordance with the Securities Act and the 1940 Act.

19. NOTICES.

Any notice provided hereunder shall be sufficiently given when sent by registered or certified mail to the party required to be served with such notice, at the following address: if to CMFS, at 83 General Warren Boulevard, Suite 200, Malvern, Pennsylvania 19355, Attn: President with a copy to the attention of General Counsel and if to the Fund, at 51 John F. Kennedy Parkway, Short Hills, New Jersey 07078 Attn: Keith D. Trauner; or at such other address as such party may from time to time specify in writing to the other party pursuant to this paragraph.

20. ASSIGNMENT.

This Agreement and the rights and duties hereunder shall not be assignable by any party hereto except as permitted under Section 2 or except by the specific written consent of the other party. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns.

21. GOVERNING LAW.

This Agreement shall be construed in accordance with the laws of the Commonwealth of Pennsylvania and the applicable provisions of the 1940 Act. To the extent that the applicable laws of the Commonwealth of Pennsylvania, or any of the provisions herein, conflict with the applicable provisions of the 1940 Act, the provisions of the 1940 Act shall control.

22. MULTIPLE ORIGINALS.

This Agreement may be executed in two or more counterparts, each of which when so executed shall be deemed to be an original, but such counterparts shall together constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed all as of the day and year first above written.

CITCO MUTUAL FUND SERVICES, INC.          FAIRHOLME FUNDS, INC.

By:/s/ John A. Lukan                      By:/s/ Bruce R. Berkowitz
-------------------------------           -----------------------------
John A. Lukan                             Name:  Bruce R. Berkowitz
President                                 Title: President

SCHEDULE A

TO THE
MUTUAL FUND SERVICES AGREEMENT
BETWEEN
FAIRHOLME FUNDS, INC.
AND
CITCO MUTUAL FUND SERVICES, INC.

                            Dated May 18, 2005

PORTFOLIOS                                     Sole Class
----------                                     ----------

The Fairholme Fund                                 X

SCHEDULE B

TO THE
MUTUAL FUND SERVICES AGREEMENT
BETWEEN FAIRHOLME FUNDS, INC. (the "Fund")
AND
CITCO MUTUAL FUND SERVICES, INC.
Dated May 18, 2005

(a) Maintenance of Accounting Books and Records.

With respect to the services provided by CMFS under this Agreement, CMFS shall maintain and keep current the accounts, books, records and other documents relating to the Fund's financial and portfolio transactions as and for the periods that may be required by the rules and regulations of the Securities and Exchange Commission (the "SEC") adopted under Section 31(a) of the 1940 Act. CMFS shall cause the subject records of the Fund to be maintained and preserved pursuant to the requirements of the 1940 Act.

(b) Daily Accounting Services.

CMFS shall perform the following accounting services with the frequency provided in the prospectus for each Portfolio:

(i) Calculate the net asset value per share utilizing prices obtained from the sources described in subsection 1(b)(ii) below;

(ii) Obtain security prices from independent pricing services, or if such quotes are unavailable, then obtain such prices from each Portfolio's investment adviser or its designee as approved by the Fund's Board of Directors (hereafter referred to as "Directors");

(iii) Verify and reconcile with the Portfolios' custodian all daily trade activity on settlement date;

(iv) Compute, as appropriate, and in consultation with the Fund's auditors and tax advisers, each Portfolio's net income and capital gains, dividend payables, dividend factors, yields, and weighted average portfolio maturity, provided however that CMFS shall not be responsible for tax compliance;

(v) Distribute net asset values and yields to NASDAQ or such other exchange or reporting entity as is approved by the Directors;

(vi) Determine unrealized appreciation and depreciation on securities held by the Portfolios;

(vii) Amortize premiums and accrete discounts on securities purchased at a price other than face value, if requested by the Fund;

(viii) Update accounting system to reflect rate changes, as received from a Portfolio's investment adviser or designee, on variable interest rate instruments;

(ix) Post Portfolio transactions to appropriate categories;

(x) Accrue expenses and monitor the established expense budgets of each Portfolio according to instructions received from the Fund's treasurer or other authorized representative (including officers of the Fund's investment adviser) and make such adjustments over such periods as CMFS deems necessary to reflect over-accruals or under-accruals of estimated expenses or income;

(xi) Determine the outstanding receivables and payables for all
(1) security trades, (2) portfolio share transactions and
(3) income and expense accounts in accordance with the budgets provided by the Fund or its investment adviser;

(xii) Provide accounting reports in connection with the Fund's regular annual audit and other routine audits and examinations by regulatory agencies.

(c) Additional Periodic Accounting Services.

CMFS shall also perform the following accounting services for each Portfolio in accordance with such deadlines as the parties mutually agree upon:

(i) Provide information periodically (as may reasonably be requested by the Fund or a Portfolio's investment adviser or sub-adviser(s)) and as required to complete the following financial statements for each Portfolio: (1) Statement of Assets and Liabilities; (2) Statement of Operations; (3) Statement of Changes in Net Assets; (4) Security Purchases and Sales Journals; and (5) Portfolio Holdings Reports.

(ii) Provide accounting information for the following:

(1) federal and state income tax returns and federal excise tax returns, which will be prepared by the Fund's auditor or tax advisers;

(2) the Fund's semi-annual reports on Form N-SAR;

(3) the Fund's annual, semi-annual and quarterly (if any) shareholder reports;

(4) registration statements on Form N-1A and other filings relating to the registration of shares;

(5) CMFS' monitoring of the Fund's portfolio composition with respect to its status as a regulated investment company under Subchapter M of the Internal Revenue Code, as amended;

(6) annual audit by the Fund's auditors; and

(7) routine examinations performed by the SEC.

(iii) Produce no less frequently than quarterly such compliance reports as may be agreed upon by the parties relating to the services provided by CMFS under this Agreement for the Fund's investment adviser and the Board of Directors and provide information to the Fund's investment adviser and other appropriate persons with respect to questions of Fund compliance.

(d) Additional Reports and Services.

(i) Upon reasonable notice and as mutually agreed upon, CMFS may provide additional reports upon the request of the Fund or its investment adviser, or sub-adviser(s), which may result in additional charges, the amount of which shall be agreed upon between the parties prior to the provision of such report.

(ii) Upon reasonable notice and as mutually agreed upon, CMFS may provide such other similar services with respect to a Portfolio, which may result in an additional charge, the amount of which shall be agreed upon between the parties prior to the provision of such service.

SCHEDULE C
TO THE
MUTUAL FUND SERVICES AGREEMENT
BETWEEN FAIRHOLME FUNDS, INC. (the "Fund")
AND
CITCO MUTUAL FUND SERVICES, INC.
Dated May 18, 2005

CMFS shall assure that it maintains the necessary office space, equipment, personnel and facilities for handling the affairs of the Fund as they relate to the services provided under this Agreement (including the schedules to this Agreement). Further, CMFS shall:

(a) record expenses and administer all disbursements with respect to each Portfolio, and, as appropriate, compute the Portfolios' respective yields, total returns, expense ratios and portfolio turnover rates;

(b) prepare such reports, notices and other documents (including reports regarding the sale and redemption of shares of the Fund) as may be necessary or desirable to make notice filings relating to the Fund's shares with federal and state securities authorities to enable the Fund to make a continuous offering of its shares; provided that CMFS shall not be required to provide an opinion regarding the valid issuance of the shares if such an opinion of counsel is required;

(c) coordinate the mailing of prospectuses, prospectus supplements, proxy statements, and other reports to Fund shareholders as the Fund may request upon reasonable notice;

(d) arrange for a location at which to hold shareholders meetings and for the tabulation of shareholder votes for such meetings;

(e) coordinate the filing of the Fund's fidelity bond in accordance with the requirements of the 1940 Act;

(f) on a post-trade basis, perform a secondary check of portfolio holdings to assist the Fund in ensuring portfolio adherence with the requirements and limitations set forth by the Investment Company Act of 1940, the Fund's prospectus and SAI, and other applicable regulatory requirements.

a. in this regard, the Fund shall promptly provide CMFS with updated copies of such documents (including, but not limited to, restricted issuer or country lists) as they may be amended from time to time;

b. as CMFS' compliance monitoring is on a post-trade basis, the portfolio managers and their employers must monitor compliance with prospectus, 1940 Act, and other regulatory or investment limitations on a primary, pre-trade basis;

c. in order for CMFS to adequately fulfill its undertaking pursuant to this provision of the Agreement, the portfolio manager(s) will need to promptly provide CMFS with information on a periodic basis, as may be requested by CMFS from time to time;

d. except as otherwise provided in this Agreement, CMFS' undertaking in this provision shall not include the following types of monitoring-related activities: (i) calculating the amount necessary to cover senior securities as defined under the 1940 Act and the SEC Staff's interpretation thereof; (ii) selecting liquid assets to cover senior securities; (iii) ensuring that the cash management instructions provided by the portfolio manager(s) is consistent with applicable regulatory requirements; (iv) issuing cash management instructions on behalf of portfolio manager(s); (v) compliance with any applicable repurchase agreement procedures; (vi) compliance with Rules 17a-7, 17e-1 and 10f-3 of the 1940 Act; or (vii) compliance with the Fund's market timing policies and procedures.

(g) coordinate the compilation and mailing of materials for quarterly and special meetings of the Directors (in this regard, the Fund shall provide CMFS with notice of regular meetings at least six (6) weeks before such meeting and as soon as practicable before any special meeting of the Directors);

(h) cooperate with, and take all reasonable actions in the performance of its duties under this Agreement to ensure that all necessary information is made available to the Fund's independent public accountants in connection with the preparation of any audit or report requested by the Fund, including the provision of a conference room at CMFS' location if necessary (in this regard, the Fund's independent auditors shall provide CMFS with reasonable notice of any such audit so that CMFS will be able to promptly respond to such information requests without undue disruption of its business); and

(i) prepare and file with the SEC periodic financial reports on form N-SAR, N-CSR, N-Q and filings required pursuant to Rules 17g-1 and 24f-2 under the 1940 Act. File Form N-PX containing the information provided by the Fund or its advisers. CMFS will not file Form 13F or Schedule 13G. Coordinate and assist the Fund with such other filings as may be required by law or regulation as the parties may agree.

Additional Administrative Services. Upon reasonable notice and as mutually agreed upon, CMFS may provide additional administrative services upon the request of the Fund or its investment adviser or sub-adviser, which may result in additional charges, the amount of which shall be agreed upon between the parties prior to the provision of such report.

SCHEDULE D
TO THE
MUTUAL FUND SERVICES AGREEMENT
BETWEEN FAIRHOLME FUNDS, INC. (the "Fund")
AND
CITCO MUTUAL FUND SERVICES, INC.
Dated May 18, 2005

(a) Services. CMFS will perform the following services:

(i) provide the services of a transfer agent, dividend disbursing agent and, as relevant, agent in connection with accumulation, open-account or similar plans (including without limitation any periodic investment plan or periodic withdrawal program) that are customary for open-end management investment companies including: (A) maintaining all shareholder accounts, (B) preparing shareholder meeting lists, (C) mailing proxies to shareholders, (D) mailing shareholder reports and prospectuses to current shareholders, (E) withholding taxes on U.S. resident and non-resident alien accounts, (F) preparing and filing U.S. Treasury Department Forms 1099 and other appropriate forms required by federal authorities with respect to distributions for shareholders, (G) preparing and mailing confirmation forms and statements of account to shareholders for all purchases and redemptions of Shares and other confirmable transactions in shareholder accounts, (H) preparing and mailing activity statements for shareholders, and (I) providing shareholder account information;

(ii) receive for acceptance orders for the purchase of Shares and promptly deliver payment and appropriate documentation therefor to the custodian of the applicable Portfolio (the "Custodian");

(iii) pursuant to purchase orders, issue the appropriate number of Shares and hold such Shares in the appropriate shareholder account;

(iv) receive for acceptance redemption requests and deliver the appropriate documentation therefor to the Custodian;

(v) monitor redemption requests for application of a Portfolio's redemption fee, if applicable, as set forth in the Portfolio's prospectus;

(vi) as and when it receives monies paid to it by the Custodian with respect to any redemption, pay the redemption proceeds, less any applicable redemption fee, as required by the prospectus pursuant to which the redeemed Shares were offered and as instructed by the redeeming shareholders;

(vii) effect transfers of Shares upon receipt of appropriate instructions from shareholders;

(viii) prepare and transmit to shareholders (or credit the appropriate shareholder accounts) payments for all distributions declared by the Fund with respect to Shares;

(ix) if applicable, issue share certificates and replacement share certificates for those share certificates alleged to have been lost, stolen, or destroyed upon receipt by CMFS of indemnification satisfactory to CMFS and protecting CMFS and the Fund and, at the option of CMFS, issue replacement certificates in place of mutilated share certificates upon presentation thereof without requiring indemnification;

(x) receive from shareholders or debit shareholder accounts for sales commissions, including contingent deferred, deferred and other sales charges, and service fees (i.e., wire redemption charges) and prepare and transmit payments to underwriters, selected dealers and others for commissions and service fees received;

(xi) track shareholder accounts by financial intermediary source and otherwise as requested by the Fund and provide periodic reporting to the Fund or other agent;

(xii) maintain records of account for and provide reports and statements to the Fund and shareholders as to the foregoing;

(xiii) record the issuance of Shares of the Fund and maintain pursuant to Rule 17Ad-10(e) under the Securities Exchange Act of 1934, as amended (the "1934 Act") a record of the total number of Shares of the Fund, each Portfolio and each class thereof, that are authorized, based upon data provided to it by the Fund, and are issued and outstanding and provide the Fund on a regular basis a report of the total number of Shares that are authorized and the total number of Shares that are issued and outstanding;

(xiv) provide a system which will enable the Fund to calculate the total number of Shares of each Portfolio and class thereof sold in each State;

(xv) in accordance with the Fund's obligations under all applicable anti-money laundering laws, regulations, rules and government guidance and the Bank Secrecy Act ("BSA"), as amended by the USA PATRIOT ACT of 2001, together with its implementing regulations, and related governmental and self-regulatory organization rules and regulations (collectively, the "Anti-Money Laundering Laws"), maintain an anti-money laundering program reasonably designed to ensure that the Fund is in material compliance with the Anti-Money Laundering Laws with respect to the services provided by CMFS to the Fund under this Agreement (the "Anti-Money Laundering Program"). (CMFS agrees to notify the Fund of any change to the Anti-Money Laundering Program that may materially impact the Fund's anti-money laundering program. It is contemplated that the Anti-Money Laundering Program as well as the Fund's anti-money laundering program will be amended from time to time, as additional regulations are adopted and/or regulatory guidance is provided relating to the Fund's or CMFS' anti-money laundering responsibilities);

(xvi) in order to assist the Fund in complying with its policies and procedures related to market timing activity, provide the Fund with access to a daily report on any potential market timing activity (based on criteria provided to CMFS by the Fund) and, upon written instructions from the Fund, take such action as the Fund so instructs against any shareholder determined by the Fund to be engaged in market timing activity; and

(xvii) respond as appropriate to all inquiries and communications from shareholders relating to shareholder accounts, provide the Fund with notification of any complaints relating to shareholder accounts and assist the Fund in resolving any complaints relating to shareholder accounts.

(b) Other Services. CMFS shall provide the following additional services on behalf of the Fund and such other services agreed to in writing by the Fund and CMFS:

(i) monitor and make appropriate filings with respect to the escheatment laws of the various states and territories of the United States; and

(ii) receive and tabulate proxy votes/oversee the activities of proxy solicitation firms and coordinate the tabulation of proxy and shareholder meeting votes.

(c) Blue Sky Matters. The Fund or other agent (i) shall identify to CMFS in writing those transactions and assets to be treated as exempt from reporting for each state and territory of the United States and for each foreign jurisdiction (collectively "States") and (ii) shall monitor the sales activity with respect to shareholders domiciled or resident in each State. The responsibility of CMFS for the Fund's State registration status is solely limited to the reporting of transactions to the Fund, and CMFS shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws relating to the issue or sale of such Shares, which functions shall be the sole responsibility of the Fund or its administrator or other agent.

(d) Safekeeping. CMFS shall establish and maintain facilities and procedures reasonably acceptable to the Fund for the safekeeping, control, preparation and use of share certificates (if applicable), check forms, and facsimile signature imprinting devices. CMFS shall establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of all records maintained by CMFS pursuant to this Agreement.

(e) Cooperation With Accountants. CMFS shall cooperate with each Portfolio's independent registered public accounting firm and shall take reasonable action to make all necessary information available to the firm for the performance of its duties.

(f) Inspection Of Records By Others For Purposes Of The Fund's Anti-Money Laundering Program. CMFS agrees to allow appropriate federal examiners to obtain and inspect information and records maintained by CMFS under this Agreement relating to the Fund's anti-money laundering program and to inspect CMFS for purposes of the Fund's anti-money laundering program.

(g) Suspicious Activities. The Fund agrees to notify CMFS promptly about any known suspicious activities related to open accounts. CMFS agrees to notify the Fund promptly about any detected suspicious activities pursuant to the Anti-Money Laundering Program.

(h) Issuance of Shares. CMFS shall make original issues of Shares of each Portfolio and class thereof in accordance with the Fund's then-current prospectus only upon receipt of (i) instructions requesting the issuance, (ii) a certified copy of a resolution of the Board authorizing the issuance, (iii) necessary funds for the payment of any original issue tax applicable to such Shares, and (iv) an opinion of the Fund's counsel as to the legality and validity of the issuance, which opinion may provide that it is contingent upon the filing by the Fund of an appropriate notice with the SEC, as required by
Section 24 of the 1940 Act or the rules thereunder. If the opinion described in
(iv) above is contingent upon a filing under Section 24 of the 1940 Act, the Fund shall indemnify CMFS for any liability arising from the failure of the Fund to comply with that section or the rules thereunder.

(i) Transfer of Shares. Transfers of Shares of each Portfolio and class thereof shall be registered on the shareholder records maintained by CMFS. In registering transfers of Shares, CMFS may rely upon the Uniform Commercial Code as in effect in the State of Pennsylvania or any other statutes that, in the opinion of CMFS' counsel, protect CMFS and the Fund from liability arising from
(i) not requiring complete documentation, (ii) registering a transfer without an adverse claim inquiry, (iii) delaying registration for purposes of such inquiry or (iv) refusing registration whenever an adverse claim requires such refusal. As transfer agent, CMFS will be responsible for delivery to the transferor and transferee of such documentation as is required by the Uniform Commercial Code.

CMFS shall perform such other services for the Fund that are mutually agreed upon by the parties from time to time either at such fee as mutually agreed upon by the parties; provided, however that the Fund or CMFS may retain third parties to perform such other services in accordance with paragraph 2 of this Agreement. Such services may include, without limitation, mailing shareholder reports and mailing notices of shareholders' meetings, proxies and proxy statements, for which the Fund promptly will reimburse CMFS' for its out-of-pocket expenses.

Additional Transfer Agency Services. Upon reasonable notice and as mutually agreed upon, CMFS may provide additional administrative services upon the request of the Fund or its investment adviser or sub-adviser, which may result in additional charges, the amount of which shall be agreed upon between the parties prior to the provision of such report.

SCHEDULE E

TO THE
MUTUAL FUND SERVICES AGREEMENT
BETWEEN FAIRHOLME FUNDS, INC. (the "Fund")

AND
CITCO MUTUAL FUND SERVICES, INC.
Dated May 18, 2005

--------------------------------------------------------------------------------
      Average Daily Net Assets                  Annualized Fees
--------------------------------------------------------------------------------

On the first $300 million in Assets                  0.11%
--------------------------------------------------------------------------------

On Assets  greater  than $300 million
but less than $600 million                           0.08%
--------------------------------------------------------------------------------

On  all  Assets   greater  than  $600                0.06%
million.
--------------------------------------------------------------------------------

CHANGE OF TERMS:

This schedule is based upon current regulatory requirements and the Fund's current requirements as set forth in its registration statement, organizational documents, policies and procedures. Any material change to business or makeup of the Fund, the investment objectives or to the minimum investment amount may constitute a material change to this Agreement. If such a change occurs, the parties agree to negotiate in good faith to modify the foregoing fee schedule in accordance with the additional requirements resulting from such material change(s).

22146.0003 #564952v3

Exhibit (i)

SEWARD & KISSEL LLP
1200 G Street, N.W.
Washington, DC 20005

Telephone: (202) 737-8833
Facsimile: (202) 737-5184
www.sewkis.com

March 28, 2006

Fairholme Funds, Inc.
51 JFK Parkway
Short Hills, NJ 07078

Ladies and Gentlemen:

We have acted as counsel for Fairholme Funds, Inc., a Maryland corporation (the "Company"), in connection with the registration under the Securities Act of 1933, as amended (the "Securities Act"), of an indefinite number of shares of common stock, par value $0.0001 per share (each, a "Share" and collectively, the "Shares"), of The Fairholme Fund, a series of the Company (the "Series"). The Company is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.

As counsel for the Company, we have participated in the preparation of the Post-Effective Amendment to the Company's Registration Statement on Form N-1A (as so amended, the "Registration Statement") to be filed with the Securities and Exchange Commission (the "Commission") in which this letter is included as an exhibit. We have examined the Charter and By-laws of the Company and any amendments and supplements thereto and have relied upon such corporate records of the Company and such other documents and certificates as to factual matters as we have deemed to be necessary to render the opinion expressed herein.

Based on such examination, we are of the opinion that the Shares to be offered for sale pursuant to the Registration Statement are, to the extent of the number of Shares of the Series authorized to be issued by the Company in its Charter, duly authorized, and, when sold, issued and paid for as contemplated by the Registration Statement, and will have been validly issued and fully paid and nonassessable under the laws of the State of Maryland.

We do not express an opinion with respect to any laws other than laws of Maryland applicable to the due authorization, valid issuance and nonassessability of shares of common stock of corporations formed pursuant to the provisions of the Maryland General Corporation Law. Accordingly, our opinion does not extend to, among other laws, the federal securities laws or the securities or "blue sky" laws of Maryland or any other jurisdiction. Members of this firm are admitted to the bars of the State of New York and the District of Columbia.

We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement and to the reference to our firm in the Registration Statement. In giving this consent, we do not thereby admit that we are included in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission.

Very truly yours,

                                          /s/ Seward & Kissel LLP

SK 22146 0003 655809

Exhibit j

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in this Post-Effective Amendment No. 8 to Registration Statement No. 333-88517 of The Fairholme Fund (the "Fund"), a series of Fairholme Funds, Inc., on Form N-1A of our report dated January 11, 2006, appearing in the Annual Report of the Fund for the year ended November 30, 2005 and to the reference to us under the heading "Financial Highlights" appearing in the Prospectus, which is a part of such Registration Statement, and under the headings "Independent Registered Public Accounting Firm" and "Financial Statements" in the Statement of Additional Information, which is also part of such Registration Statement.

/s/ DELOITTE & TOUCHE LLP
--------------------------

Philadelphia, Pennsylvania
March 28, 2006

SK 22146 0003 656142