<PAGE> 1
THE FAIRMONT FUND
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
WITH
REPORT OF INDEPENDENT AUDITORS
<PAGE> 2
COMMENTS FROM MORTON H. SACHS, CHAIRMAN
Market performance during 1996 barely slowed from the torrid pace set in 1995.
Driven by the continuing inflow of pension and 401(K) plan contributions, the
market seemed able to ignore worries over the economy and slower growth in
earnings. Huge retirement investments combined with those from the increasingly
popular index funds fueled tremendous growth in the large capitalization sector.
The gains evidenced by the Dow Industrial and S&P 500 stocks were not typical of
the broader market.
Though several industry/economic sectors rotated into or out of favor during the
course of the year, not all sectors participated equally. Notably absent were
the smaller capitalization value stocks, precisely that segment of the market
where the Fund normally derives most of its gains. As a result, the Fairmont
Fund lagged the major indexes, closing the year up 9.52%. Despite a lackluster
environment, several holdings did exceptionally well, especially in the finance
and insurance sectors. Since our stock selection process is driven by the
potential of individual companies, not by the overall market, we can expect to
be out of step with the market from time to time. We continue to believe that
our strategy is sound and will produce superior results over time.
<TABLE>
FIVE YEAR COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE FAIRMONT
FUND AND S&P 500
<CAPTION>
Fund Growth of 10,000 S&P 500 Growth of 10,000
(5 Year) (5 Year)
<C> <C> <C>
12/31/91 10,000 10,000
12/31/92 11,404 10,760
12/31/93 13,178 11,843
12/31/94 14,137 11,888
12/3/195 18,083 16,503
12/31/96 19,805 20,291
Past performance is not predictive of future performance
</TABLE>
<TABLE>
TEN YEAR COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE FAIRMONT FUND AND THE S&P 500
<CAPTION>
Fund Growth of 10,000 S&P 500 Growth of 10,000
(10 Year) (10 Year)
<C> <C> <C>
12/31/86 10,000 10,000
12/31/87 9,223 10,527
12/31/88 9,511 12,271
12/31/89 10,161 16,152
12/31/90 7,913 15,649
12/31/91 11,122 20,407
12/31/92 12,683 21,958
12/31/93 14,657 24,165
12/31/94 15,723 24,484
12/31/95 20,112 33,678
12/31/96 22,027 41,407
Past performance is not predictive of future performance
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
1 Year 5 Year 10 Year
9.52% 14.64% 8.22%
<PAGE> 3
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and
Board of Directors:
Fairmont Fund
We have audited the accompanying statement of assets and liabilities of Fairmont
Fund, including the schedule of investments, as of December 31, 1996, and the
related statements of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Fairmont Fund as of December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio 44145
January 21, 1997
<PAGE> 4
THE FAIRMONT FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENTS IN SECURITIES
COMMON STOCKS (SHARES) VALUE PERCENT
------------ -------
<S> <C> <C>
ACCOUNTING SERVICES
50,000 Medaphis Corporation (a) . . . . . . . . . . . . . . $ 559,375 1.82%
---------
AGRICULTURAL CHEMICALS
20,000 Alcide Corporation (a) . . . . . . . . . . . . . . . 415,000 1.35
---------
AUTOMOBILE INSURANCE
35,000 Integon Corporation . . . . . . . . . . . . . . . . 621,250 2.02
---------
AUTOMOBILE PARTS
155,000 TBC Corporation (a) . . . . . . . . . . . . . . . . . 1,162,500 3.78
---------
BANKING
3,000 Bank of Boston Corporation . . . . . . . . . . . . . 192,750
15,000 City National Corporation . . . . . . . . . . . . . . 324,375
47,000 Imperial Bancorp (a) . . . . . . . . . . . . . . . . 1,128,000
70,000 North Fork Bancorporation, Inc. . . . . . . . . . . . 2,493,750
75,000 UST Corporation . . . . . . . . . . . . . . . . . . . 1,546,875
---------
5,685,750 18.50
---------
BUSINESS SERVICES
150,000 Butler International, Inc. (a) . . . . . . . . . . . 1,537,500
219,000 Digital Solutions, Inc. (a) . . . . . . . . . . . . . 752,813
---------
2,290,313 7.45
---------
CABLE TELEVISION
30,000 American Telecasting Inc. (a) . . . . . . . . . . . . 172,500
110,000 CAI Wireless Systems (a) . . . . . . . . . . . . . . 110,000
25,000 Heartland Wireless Communications (a) . . . . . . . . 328,125
---------
610,625 1.99
---------
COMPUTER PERIPHERAL EQUIPMENT MANUFACTURERS
100,000 Madge N.V. (a) . . . . . . . . . . . . . . . . . . . 987,500 3.21
---------
CREDIT INSTITUTION
5,000 First Merchants Acceptance Corporation (a) . . . . . 95,625 0.31
---------
EMPLOYMENT AGENCY
25,000 Employee Solutions Inc. (a) . . . . . . . . . . . . . 512,500 1.67
---------
HOSPITAL AND MEDICAL SERVICE PLANS
50,000 Maxicare Healthcare Plans, Inc. (a) . . . . . . . . . 1,112,500 3.62
---------
LIFE INSURANCE
55,000 Pioneer Financial Services, Inc. . . . . . . . . . . 1,375,000 4.47
---------
MEDICAL LABORATORIES
500,000 Meris Laboratories, Inc. (a) . . . . . . . . . . . . 250,000 0.81
---------
</TABLE>
<PAGE> 5
THE FAIRMONT FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENTS IN SECURITIES (CONTINUED)
COMMON STOCKS (SHARES) VALUE PERCENT
----------- -------
<S> <C> <C>
MULTILINE INSURANCE
30,000 USF&G Company . . . . . . . . . . . . . . . . . . . . $ 626,250 2.04%
---------
OIL AND GAS EXPLORATION
100,000 Oryx Energy Company (a) . . . . . . . . . . . . . . . 2,475,000 8.05
---------
PERSONAL SERVICES
10,000 Regis Corporation . . . . . . . . . . . . . . . . . . 162,500 0.53
---------
PHARMACEUTICALS
30,000 Novartis AG ADR . . . . . . . . . . . . . . . . . . . 1,721,250
250,000 Pharmos Corporation (a) . . . . . . . . . . . . . . . 367,187
18,750 Pharmos Corporation Warrants Exp. 9/15/00 (a)(b) . . 5,273
---------
2,093,710 6.81
---------
PLASTICS PRODUCTS
10,000 APL Ltd . . . . . . . . . . . . . . . . . . . . . . . 236,250 0.77
---------
PRINTING
5,000 World Color Press, Inc. (a) . . . . . . . . . . . . . 96,250 0.31
---------
RETAIL STORES
65,000 Strouds Inc.(a) . . . . . . . . . . . . . . . . . . . 211,250 0.69
---------
SAVINGS INSTITUTIONS
70,000 Dime Financial Corporation . . . . . . . . . . . . . 1,207,500
100,000 Mechanics Savings Bank (a) . . . . . . . . . . . . . 1,575,000
---------
2,782,500 9.06
---------
SEMICONDUCTORS
10,000 California Micro Devices Corporation (a) . . . . . . 56,875 0.19
---------
SHOES
30,000 Timberland Company (a) . . . . . . . . . . . . . . . 1,140,000 3.71
---------
SOFT DRINKS
7,000 Coca-Cola Bottling Company Consolidated . . . . . . . 341,250 1.11
---------
TELEPHONE APPARATUS
40,000 Bright Voice Systems, Inc. (a) . . . . . . . . . . . 595,000 1.94
---------
WATER TRANSPORTATION
50,000 Alexander and Baldwin Company . . . . . . . . . . . . 1,250,000 4.07
---------
</TABLE>
<PAGE> 6
THE FAIRMONT FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENTS IN SECURITIES (CONTINUED)
COMMON STOCKS (SHARES) VALUE PERCENT
----------- -------
<S> <C> <C>
WHOLESALE GROCERIES
50,000 Fleming Companies, Inc. . . . . . . . . . . . . . . . $ 862,500
50,000 International Dairy Queen, Inc. Class A (a) . . . . . 1,000,000
----------
1,862,500 6.06%
---------- ------
TOTAL COMMON STOCK (Cost $26,129,250) . . . . . . . . . . . . 29,607,273 96.34
BANK REPURCHASE AGREEMENT
With Star Bank NA of Cincinnati, issued 12/31/96 due 1/2/97,
fully collateralized by Government National Mortgage Association,
6.00% due 5/20/22 (Cost $765,000) . . . . . . . . . . . . . . . 765,000 2.49
---------- ------
TOTAL INVESTMENTS (Cost $26,894,250) . . . . . . . . . . . . . 30,372,273 98.83
OTHER ASSETS LESS LIABILITIES . . . . . . . . . . . . . . . . 358,731 1.17
---------- ------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . $ 30,731,004 100.00%
========== ======
</TABLE>
(a) Common stocks which did not declare a dividend in 1996.
(b) Restricted stock acquired on 9/11/95 and carried at $0.2812 per share with
a cost of $0.00.
See accompanying notes.
<PAGE> 7
THE FAIRMONT FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C> <C>
INVESTMENTS IN SECURITIES, At Value (Note 2)
Common stocks (Cost $26,129,250) . . . . . . . . . . . . . . . $ 29,607,273
Bank repurchase agreement . . . . . . . . . . . . . . . . . . . 765,000
----------
Total investments in securities . . . . . . . . . . . . . . . . . . . . . . . . $ 30,372,273
CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,704
RECEIVABLES
Investment securities sold . . . . . . . . . . . . . . . . . . 498,784
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 10,125
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
----------
Total receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 509,015
----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,902,992
LIABILITIES
PAYABLES
Distributions to shareholders (Note 4) . . . . . . . . . . . . $ 110,169
Management fee (Note 3) . . . . . . . . . . . . . . . . . . . 37,963
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . 23,284
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 572
----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171,988
----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,731,004
==========
NET ASSETS CONSIST OF
Capital stock (1,161,678 shares outstanding) (Note 8) . . . . . . . . . . . . . . . $ 27,626,619
Accumulated net realized losses on investments (Note 6) . . . . . . . . . . . . . . (373,638)
Net unrealized appreciation on investments (Note 5) . . . . . . . . . . . . . . . . 3,478,023
----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,731,004
==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
($30,731,004 divided by 1,161,678 shares) . . . . . . . . . . . . . . . . . . . . . $ 26.45
==========
</TABLE>
See accompanying notes.
<PAGE> 8
THE FAIRMONT FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 2)
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 201,043
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,777
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
---------
Total investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324,820
EXPENSES
Management fee (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503,732
---------
Net investment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (178,912)
---------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS (Note 2)
Net realized gains from investment transactions . . . . . . . . . . . . . . . . . . . . 3,637,050
Net change in unrealized appreciation on investments . . . . . . . . . . . . . . . . . . (765,433)
---------
Net realized and unrealized gains on investments . . . . . . . . . . . . . . . . . . 2,871,617
---------
Net increase in net assets resulting from operations . . . . . . . . . . . . . $ 2,692,705
=========
</TABLE>
See accompanying notes.
<PAGE> 9
THE FAIRMONT FUND
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
FROM OPERATIONS
<S> <C> <C>
Net investment loss . . . . . . . . . . . . . . . . . . . . $ (178,912) $ (136,265)
Net realized gains on investments . . . . . . . . . . . . . 3,637,050 3,460,455
Net change in unrealized appreciation
on investments . . . . . . . . . . . . . . . . . . . . . (765,433) 2,774,041
------------ ------------
Net increase in net assets
resulting from operations . . . . . . . . . . . . . . . 2,692,705 6,098,231
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (Note 4)
Distributions from net realized gains on investments . . . . (3,273,575) (3,458,598)
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
FROM CAPITAL SHARE TRANSACTIONS (Note 8) Shares Shares
----------- ----------
<S> <C> <C> <C> <C>
Proceeds from sale of shares . . . . . . . . 90,818 2,591,421 106,454 2,870,723
Shares issued in reinvestment
of distributions . . . . . . . . . . . . 119,600 3,163,405 122,781 3,317,538
Payments for shares redeemed . . . . . . . . (92,010) (2,633,953) (108,307) (2,831,640)
----------- ---------- ---------- ------------
Net increase or decrease in net assets
from capital share transactions . . . . 118,408 3,120,873 120,928 3,356,621
=========== ----------- ========== ------------
Net increase in net assets . . . . . . . . . . . . . . . 2,540,003 5,996,254
NET ASSETS
Beginning of year . . . . . . . . . . . . . . . . . . . . . 28,191,001 22,194,747
------------ ------------
End of period . . . . . . . . . . . . . . . . . . . . . . . $ 30,731,004 $ 28,191,001
============ ==========
</TABLE>
See accompanying notes.
<PAGE> 10
THE FAIRMONT FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------------------------------
December December December December December
31 31 31 31 31
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period . . . . $ 27.02 24.06 22.43 19.41 17.02
Income From Investment Operations
---------------------------------
Net Investment Income . . . . . . . . . . (.10) (.08) (.16) (.14) (.17)
Net Gains or Losses on Securities
(both realized and unrealized) . . . . 2.67 6.80 1.79 3.16 2.56
-------- -------- -------- -------- --------
Total From Investment Operations . . . . 2.57 6.72 1.63 3.02 2.39
Less Distributions
------------------
Dividends (from net investment income) . . .00 .00 .00 .00 .00
Distributions (from capital gains) . . . . 3.14 3.76 .00 .00 .00
Returns of Capital . . . . . . . . . . . . .00 .00 .00 .00 .00
-------- -------- -------- -------- --------
Total Distributions . . . . . . . . . . 3.14 3.76 .00 .00 .00
Net Asset Value, End of Period . . . . . . $ 26.45 27.02 24.06 22.43 19.41
======== ======== ======== ======== ========
Total Return . . . . . . . . . . . . . . . . 9.52% 27.92% 7.27% 15.56% 14.04%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (in 000s) . . . . . $ 30,731 $ 28,191 $ 22,195 $ 18,884 $ 16,788
Ratio of Expenses to Average Net Assets . . . 1.66% 1.70% 1.74% 1.78% 1.79%
Ratio of Net Income to Average Net Assets . . (.59)% (.55)% (.79)% (.66)% (.85)%
Portfolio Turnover Rate . . . . . . . . . . . 2.37 2.47 2.75 1.55 1.32
Average Commission Rate . . . . . . . . . . . .057
</TABLE>
See accompanying notes.
<PAGE> 11
THE FAIRMONT FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) Organization
The Fairmont Fund (The Fund) is a no-load, diversified series of The
Fairmont Fund Trust (The Trust), which is a Kentucky Business Trust and an
open-end investment company registered under the Investment Company Act of
1940. The Fund was established under a declaration of trust dated December 29,
1980 and began offering its shares publicly on September 2, 1981.
(2) Summary of Significant Accounting Policies
(a) Valuation of Investment Securities - Purchases and sales of securities
are recorded on a trade date basis. Portfolio securities which are traded on
stock exchanges or in the over-the-counter markets are valued at the last sale
price as of 4:00 P.M. Eastern time on the day the securities are being valued
or, lacking any sales, at the mean between the closing bid and asked prices.
Fixed income securities are valued by using market quotations, or independent
pricing services which use prices provided by market makers or estimates of
market values obtained from yield data relating to instruments or securities
with similar characteristics. Securities and other assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Trustees. Dividend income
is recorded on the ex-dividend date and interest income is recorded on the
accrual basis.
(b) Gains and Losses on Investment Securities - Gains and losses from
sales of investments are calculated on the "identified cost" method. Upon
disposition of a portion of the investment in a particular security, it is The
Fund's general practice to first select for sale those securities which qualify
for long-term capital gain or loss treatment for tax purposes.
(c) Repurchase Agreements - The Fund may acquire repurchase agreements
from banks or security dealers (the Seller) which the Board of Trustees and the
Adviser have determined creditworthy. The Seller of the repurchase agreement
is required to maintain the value of collateral at not less than the repurchase
price, including accrued interest. Securities pledged as collateral for
repurchase agreements are held by The Fund's custodian in the Federal
Reserve/Treasury book-entry system.
(d) Capital Shares - The Fund records purchases of its capital shares at
the daily net asset value next determined after receipt of a shareholder's
check or wire and application in proper form. Redemptions are recorded at the
net asset value next determined following receipt of a shareholder's written
request in proper form.
(3) Investment Advisory Agreement, Commissions and Related Party Transactions
The Investment Advisory Agreement (the Agreement) provides that The Sachs
Company (the Adviser) will pay all of The Trust's operating expenses, including
fees to disinterested trustees, but excluding brokerage fees and commissions,
taxes, interest and extraordinary expenses. The Adviser also pays The Fund's
officers' salaries. Under the terms of the Agreement, The Fund pays the
Adviser a fee at the rate of 2% of the first $10,000,000 of average daily net
assets, 1-1/2% of the next $20,000,000, and 1% of the average daily net assets
over $30,000,000. The management fee is accrued daily and paid monthly. The
Adviser received management fees of $503,732 for the year ended December 31,
1996.
Morton H. Sachs, a trustee of The Fund, is the president and sole
shareholder of the Adviser. The Adviser, as a registered broker-dealer of
securities, effected substantially all of the investment portfolio transactions
for The Fund. For this service the Adviser received commissions of $487,272
for the year ended December 31, 1996.
Certain officers and/or Trustees of The Fund are officers of the Adviser.
<PAGE> 12
THE FAIRMONT FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(4) Distributions to Shareholders
The following is a summary of distributions to shareholders for the years ended
December 31, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
Period Paid Per Share
Ended Date Declared In Cash Reinvested Total Amount
----- ------------- ------- ---------- ----- ------
<S> <C> <C> <C> <C> <C>
12/31/96 December 31, 1996 $110,169 $3,163,405 $3,273,574 $3.14
12/31/95 December 29, 1995 $141,060 $3,317,538 $3,458,598 $3.76
</TABLE>
(5) Investments
For the year ended December 31, 1996, the cost of purchases and proceeds from
sales of investments, other than temporary cash investments, were $67,596,732
and $68,596,661, respectively.
Following is information regarding unrealized appreciation (depreciation) and
aggregate cost of securities based upon federal income tax cost at December
31, 1996:
<TABLE>
<CAPTION>
Tax Cost
-----------
<S> <C>
Aggregate gross unrealized appreciation for
all securities with value in excess of cost . . . . . . . . . . . . . . $ 5,235,807
Aggregate gross unrealized depreciation for
all securities with cost in excess of value . . . . . . . . . . . . . . (2,131,422)
-----------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . $ 3,104,385
===========
Aggregate cost of securities . . . . . . . . . . . . . . . . . . . . . . . $26,502,888
===========
</TABLE>
(6) Income Taxes
It is The Fund's policy to comply with the special provisions of the Internal
Revenue Code available to investment companies and, in the manner provided
therein, to distribute substantially all of its income to shareholders.
Therefore no tax provision is required. The accumulated net realized loss is
due only to temporary timing differences caused by wash sales and does not
represent a capital loss carryforward for income tax purposes.
(7) There are no reportable financial instruments which have any off-balance
sheet risk as of December 31, 1996.
(8) At December 31, 1996 an indefinite number of capital shares (no par value)
were authorized, and paid-in capital amounted to $27,626,619. Transactions in
capital shares were as follows:
<TABLE>
<S> <C>
Shares sold . . . . . . . . . . . . . . . . . 210,418
Shares redeemed . . . . . . . . . . . . . . . (92,010)
----------
Net increase . . . . . . . . . . . . . . . . 118,408
Shares outstanding:
Beginning of period . . . . . . . . . 1,043,270
----------
Ending of period . . . . . . . . . . 1,161,678
==========
</TABLE>
