Fairholme ( FAIRX) fund, with $18 billion in assets, has a return of 21% this year and a 12% average annual return over the past 10 years. Its portfolio includes 12 bonds and 22 stocks, with 51% of fund assets in the top 10 holdings. The financial-services sector is its main focus, with a 74% weighting. In the reporting period that ended Aug. 31, the fund made the insurance conglomerate AIG ( AIG) a new holding and top position, at 7% of the fund's assets, by buying 29.3 million shares. That stake has grown significantly since then, as Fairholme Capital, the parent of Fairholme fund, reported two weeks ago that it now holds almost 42 million shares, or 30% of AIG's stock that isn't owned by the U.S. government, making it the largest private investor in the firm. AIG is up 75% this year, bringing its three-year performance to a loss of 95%. It traded recently at $54.13. Bruce Berkowitz, who started the Fairholme fund in December 1999 and has been its chief manager since then, appears confident the worst is over at the troubled company. AIG threw out everything but the kitchen sink in its recent third quarter, writing down the value of all sorts of assets, including several businesses that it plans to sell, which resulted in a loss of $2.4 billion for the quarter. It also recently announced plans to recapitalize and pay down its government bailout loan. Fairholme also raised its stake in investment-banking firm Morgan Stanley ( MS) by 28 million shares, to just over 30 million, or 5.2% of the fund, in its most recent reporting period. Also among the fund's top 10 holdings are the bankers: Goldman Sachs ( GS), at 5.4%, and Bank of America ( BAC) and Citigroup ( C), both at 5.3%.