<PAGE>
ANNUAL REPORT
THE FONTAINE TRUST
FONTAINE CAPITAL APPRECIATION FUND
FONTAINE GLOBAL GROWTH FUND
FONTAINE GLOBAL INCOME FUND
DECEMBER 31, 1996
<PAGE>
FELLOW SHAREHOLDERS OF
THE FONTAINE TRUST
INVESTMENT OVERVIEW
As our long term shareholders know, we have been fairly cautious over the
last several years due to what we perceive to be the overvaluation in the
U. S. and other global stock markets. During this time, we have seen
tremendous liquidity pumped into world markets by various governments in an
attempt to increase economic growth. We believed that this would cause a
liquidity bubble in global markets, and sooner or later, we felt that the
flow of liquidity would move out of financial assets into tangible assets.
Because of this belief, we decided to invest in commodity-related stock
investments. It is a strategy that worked very well for us in 1996 and one
we continue to implement as we head into 1997.
One of our major investment themes attempts to capitalize on the
globalization of markets and sources of production worldwide. The end of
the Cold War seven years ago resulted in an opening up of new investment
opportunities for foreign capital-especially in the mining industry.
Investors are now able to bring capital to countries that formerly did not
allow foreign investment. This results in the development of natural
resources that can be sold at world prices, benefiting those shareholders
who are willing to take the required risk.
The recent weakness in the price of gold has allowed us to add to our
investments in mining and mineral exploration companies at very favorable
prices, similar to the values we were able to obtain in late 1995 before
gold rose above $400 per ounce. In addition, the break in the price of
copper and nickel during the third quarter of 1996 allowed us to establish
several investments in fast growing copper producers and add to existing
positions in nickel producers. These investments, along with our holdings
of international oil companies, have become the primary focus of our equity
portfolios as we enter 1997. For investors such as ourselves who are
skeptical of the current market mania, companies with strong and growing
underlying asset values are especially attractive.
I would like to welcome those shareholders who have joined us recently.
We are pleased that the Fontaine Global Growth Fund ("FONGX") and Fontaine
Global Income Fund ("FOGIX") have joined the Capital Appreciation Fund
("FAPPX") with listings on the NASDAQ quotation system. Also, both the
Fontaine Global Growth and Capital Appreciation Funds are now listed in
most national newspapers. Please feel free to call me if you have any
questions about your investments in our Funds.
Sincerely,
/s/ Richard H. Fontaine
Richard H. Fontaine
President and Chairman of the
Investment Advisory Committee
February 20, 1997
<PAGE>
FONTAINE CAPITAL APPRECIATION FUND
PORTFOLIO SUMMARY
<TABLE>
TOP 10 HOLDINGS
Primary
Security Country/Region
<S> <C> <C>
1 U.S. Treasury Note, 10/99 United States
2 U.S. Treasury Note, 5/97 United States
3 Stride Rite Corp. United States
4 Expatriate Resources Ltd. (Can.) Canada
5 Guyanor Resources S. A. (Can.) South America
6 Golden Star Resources South America
7 Southwestern Gold Corp. (Can.) South America
8 Sea Containers Ltd. - Class "A" United States
9 Echo Bay Mines Ltd. United States
10 Pan African Resources Corp. (Can.) Africa
</TABLE>
ASSET MIX AS OF 12/31/96
[Pie Chart detailing asset breakdown by class: Common Stocks-43.2%, Bonds-
11.4%, and Cash<includes cash equivalents and other net assets>-45.4%]
CUMULATIVE PERFORMANCE COMPARISON*
$10,000 INVESTMENT SINCE INCEPTION
[Line Chart detailing growth of a $10,000 investment in Fontaine Capital
Appreciation Fund and S&P "500" Index since Capital Appreciation Fund
inception on September 28, 1989 through December 31, 1996]
<TABLE>
Average Annual Total Return Performance<F1> Periods Ended 12/31/96
Three Year Five Year Since Inception on
One Year (Annualized) (Annualized) 9/28/89 (Annualized)
<S> <C> <C> <C> <C>
Fontaine Capital
Appreciation Fund + 15.0% + 10.8% + 8.3% + 8.8%
S&P "500" Index<F1> + 22.8% + 19.5% + 15.1% + 14.2%
<F1>
Please refer to the footnote on Page 8 for explanation of index information.
</TABLE>
<PAGE>
FONTAINE CAPITAL APPRECIATION FUND
PORTFOLIO REVIEW
The Fontaine Capital Appreciation Fund's performance was strong in 1996.
The Fund's performance was driven by its investments in three major
investment sectors: 1) U.S. based mining companies, 2) international oil
stocks, and 3) medical testing and drug development companies.
The U.S. based mining companies such as Golden Star Resources, Getchell
Gold, FMC Gold, and Stillwater Mining were all major contributors during
the first half of 1996. During the second half of 1996, the oil
investments in Exxon, Chevron and Texaco made significant headway.
Holdings in Agouron Pharmaceuticals and Self-Care also made positive
contributions in the second half of the year.
KEY INVESTMENTS
Stride Rite - A leading marketer of children's shoes, athletic footwear and
recreational shoes for adults. New designer lines are adding sales momentum
to existing lines, and a long planned turnaround appears to be underway.
Expatriate Resources Ltd. - This Canadian Exploration company is well
financed and currently focusing on activities in the Yukon Territory,
where its management has unparalleled expertise. In late 1996, a major
discovery was made at the ICE Property in the Finlayson Lake area that
is rapidly developing into an exciting new copper discovery.
Golden Star Resources - Denver based mineral and diamond exploration
company has extensive holdings in Guyana, Suriname, French Guiana,
Brazil, and five African countries.
INVESTMENT STRATEGY
We continue to seek out new investments that might achieve the level of
returns we have enjoyed over the last year without exposure to an
unnecessary level of risk. Over 40% of fund assets have been invested
in shorter term U.S. Treasury securities to provide additional
protection of principal.
<PAGE>
FONTAINE GLOBAL GROWTH FUND
PORTFOLIO SUMMARY
<TABLE>
TOP 10 HOLDINGS
Primary
Security Country/Region
<S> <C> <C>
1 Battle Mountain Gold Preferred United States
2 Guyanor Resources S. A. (Can.) South America
3 Expatriate Resources Ltd. (Can.) Canada
4 Westmin Resources Ltd. (Can.) Canada
5 Carolina Power & Light Co. United States
6 Santa Cruz Gold, Inc. (Can.) Central America
7 German Unity Bond, 1/02 Western Europe
8 Delmarva Power & Light United States
9 Inco Ltd. - Class ''VBN'' (Can.) Canada
10 Golden Star Resources South America
</TABLE>
ASSET MIX AS OF 12/31/96
[Pie Chart detailing asset breakdown by class: Common Stocks-78.7%, Bonds-
9.2%, Cash<includes cash equivalents and other net assets>-4.2%, and
Preferred Stocks-7.9%]
CUMULATIVE PERFORMANCE COMPARISON*
$10,000 INVESTMENT SINCE INCEPTION
[Line Chart detailing growth of a $10,000 investment in Fontaine Global
Growth Fund, Lipper Global Fund Index, and S&P "500" Index since Global
Growth Fund inception on May 1, 1992 through December 31, 1996]
<TABLE>
Average Annual Total Return Performance<F1> Periods Ended 12/31/96
Three Year Since Inception
One Year (Annualized) on 5/01/92 (Annualized)
<S> <C> <C> <C>
Fontaine Global Growth Fund + 37.1% + 15.9% + 12.1%
Lipper Global Fund Index<F1> + 16.3% + 9.2% + 12.8%
S&P "500" Index<F1> + 22.8% + 19.5% + 16.1%
<F1>
Please refer to the footnote on Page 8 for explanation of index information.
</TABLE>
<PAGE>
FONTAINE GLOBAL GROWTH FUND
PORTFOLIO REVIEW
The Fontaine Global Growth Fund had an excellent year in 1996, finishing
with a 37.1% gain. Global Growth ranked second of 182 funds in
Morningstar's World Stock objective for one year total return as of
December 31, 1996, and the fund ranked eighth of 99 funds for three year
annualized return.
During 1996, the fund benefited from its focused strategy in natural
resource and commodity related investments. Greenstone Resources
reported significant additions to its gold reserves in Central America,
resulting in a tripling in its share price. Golden Star Resources
continued to develop significant gold and diamond properties throughout
the Guyana Shield region of South America, which resulted in a threefold
increase in the value of our interest in the company.
Three small companies delivered significant returns to the portfolio
when new discoveries dramatically enhanced their share price: Indomin
Resources in Indonesia, Asquith Resources in Central African Republic,
and Black Swan Gold in Brazil. We also experienced good returns from
our retail, oil, and depressed value investments.
KEY INVESTMENTS
Inco - Class "VBN" - This company has 25% ownership of the mining
operation that will be constructed over the next three years on the
nickel deposit in Voisey Bay, Labrador. This facility should be one of
the lowest cost producers of nickel, cobalt and copper over the next two
decades and should provide strong investment returns as the company
moves through development and into production.
Pan African Resources - Its highly experienced geologists are currently
pursuing gold exploration properties in Mali, Ethiopia, and Kenya. It
represents outstanding value as a portfolio of mineral prospects in a
largely undeveloped continent.
Madison Enterprises Corp. - A very well financed mineral exploration
company with rights to the Mount Kare prospect in Papua New Guinea. The
property is adjacent to the Pogera Mine of Placer Dome and offers
significant potential for new discoveries over the next several years.
INVESTMENT STRATEGY
The Fontaine Global Growth Fund pursues investments in small, fast
growing companies wherever we can find them. In the last year, we have
developed a portfolio of stocks that we feel have significant upside
potential. This fund establishes large positions in these companies and
pursues concentrated investment themes to maximize future growth of
capital. Many of the ideas that drove our investments during 1996 are
continuing to provide good opportunities in 1997. We are aggressively
pursuing these opportunities and searching out new investment themes
that fit our overall strategy.
<PAGE>
FONTAINE GLOBAL INCOME FUND
PORTFOLIO SUMMARY
<TABLE>
TOP 10 HOLDINGS
Primary
Security Country/Region
<S> <C> <C>
1 U.S. Treasury Note, 12/98 United States
2 Bundes Obligation, 5/00 Western Europe
3 World Bank Note, 9/02 Western Europe
4 U.S. Treasury Bill, 6/97 United States
5 German Unity Bond, 1/02 Western Europe
6 Inco Ltd. Preferred - Series "E" Canada
7 Battle Mountain Gold Preferred United States
8 Westmin Resources Ltd. (Can.) Canada
9 Carolina Power & Light United States
10 Dayton Mining South America
</TABLE>
ASSET MIX AS OF 12/31/96
[Pie Chart detailing asset breakdown by class: Common Stocks-25.3%, Bonds-
52.6%, Cash<includes cash equivalents and other net assets>-13.3%, and
Preferred Stocks-8.8%]
CUMULATIVE PERFORMANCE COMPARISON*
$10,000 INVESTMENT SINCE INCEPTION
[Line Chart detailing growth of a $10,000 investment in Fontaine Global
Income Fund, Merrill Lynch Global Bond Index since Global Income Fund
inception on May 1, 1992 through December 31, 1996]
<TABLE>
Average Annual Total Return Performance<F1> Periods Ended 12/31/96
Three Year Since Inception
One Year (Annualized) on 5/01/92 (Annualized)
<S> <C> <C> <C>
Fontaine Global Income Fund + 15.2% + 9.6% + 9.6%
Merrill Lynch Global Bond Index<F1> + 4.0% + 7.6% + 9.5%
Lipper World Income Fund Index<F1> + 10.0% + 6.3% + 8.3%
<F1>
Please refer to the footnote on Page 8 for explanation of index information.
</TABLE>
<PAGE>
FONTAINE GLOBAL INCOME FUND
PORTFOLIO REVIEW
The Fontaine Global Income Fund performed very well during 1996,
appreciating 15.2% during the year. The Fund had a successful equity
strategy that complemented our fixed income positions during the period
and resulted in significant equity returns. The primary contributors in
this area were our holdings in international gold mining and mineral
exploration companies, and positions in international petroleum stocks.
KEY INVESTMENTS
Battle Mountain Gold Preferred - A high coupon, convertible preferred
stock that should benefit from the recent merger with Hemlo Gold.
Significant upside potential exists if gold moves higher over the next
few years.
Inco Preferred Series "E" - A holding that resulted from the takeover by
Inco of Diamond Fields Resources. The high current coupon provides
income and stability while allowing conservative exposure to the upside
potential of Inco's nickel properties by its convertibility feature.
Westmin Resources - A well financed Canadian natural resource company
that produces zinc and copper. The company offers considerable growth
potential from several new discoveries and the recent acquisition of a
low cost Chilean copper producer. Westmin offers a growth component to
the portfolio, and some diversification for our bond investments.
INVESTMENT STRATEGY
We have added to our holdings of German Deutsche Mark denominated fixed
income investments to provide both a significant level of current income
as well as the possibility of capital gains should the level of the U.S.
dollar decline over the next several years. We also will continue to
search out the most aggressive, value oriented equity investments to
provide superior returns within the context of a conservative fixed
income strategy.
<PAGE>
FUND COMPARISON
All three Funds of the Fontaine Trust were up strongly during 1996.
Capital Appreciation Fund was up 15%, Global Income up 15%, and Global
Growth up 37%. All three funds benefited from our common investment
strategy, and their different performance for the period reflected their
different implementation of the common strategy.
Fontaine Global Growth Fund is the most aggressive portfolio of the
Fontaine Trust. Its assets are allocated in small to medium capitalization
companies with an aggressive allocation to stocks.
Fontaine Capital Appreciation Fund is more defensive in nature. It is more
domestically oriented, and tends to own larger capitalization common
stocks. This fund also utilizes cash, preferred stocks and bond positions
to preserve capital.
Fontaine Global Income Fund makes use of the same stock selections as the
other portfolios, but less aggressively. The majority of the Fund's assets
are invested in U.S. Treasury securities, high-quality foreign government
bonds, and money market instruments.
DIVIDEND INFORMATION
Fontaine Capital Appreciation Fund went ex-dividend on December 23, 1996
for holders of record on December 20, 1996. Capital Appreciation declared
an income dividend of $0.23 per share, a short-term capital gains
distribution of $2.38 per share, and a long-term capital gains distribution
of $0.29 per share. The reinvestment price on December 23, 1996 was $9.37.
Fontaine Global Growth Fund went ex-dividend on December 23, 1996 for
holders of record on December 20, 1996. Global Growth declared an income
dividend of $0.12 per share, a short-term capital gains distribution of
$1.11 per share, and a long-term capital gains distribution of $0.01 per
share. The reinvestment price on December 23, 1996 was $12.39.
Fontaine Global Income Fund went ex-dividend on September 26, 1996 for
holders of record on September 25, 1996. Global Income declared an income
dividend of $0.05 per share. The reinvestment price on September 26, 1995
was $11.89. Fontaine Global Income Fund also went ex-dividend on December
23, 1996 for holders of record on December 20, 1996. Global Income
declared an income dividend of $0.22 per share, a short-term capital gains
distribution of $0.74 per share, and a long-term capital gains distribution
of $0.05 per share. The reinvestment price on December 23, 1996 was $10.88.
- ----------------------------------------------------------------------------
* All performance is historical. Past performance is not indicative of
future results. The returns for each Fund and those for the funds
included in each Lipper category include changes in share price and
reinvestment of all dividends and capital gains distributions.
Calculations of return by Lipper Analytical Services, Inc. do not reflect
the effect of sales loads charged by other mutual funds. Each Fund's
returns and principal will vary, and you may have a gain or loss when you
sell Fund shares. Fontaine Associates is currently absorbing certain
expenses of each Fund, which has increased each Fund's returns for the
periods noted. The S&P "500" Index is an unmanaged index of 500
companies generally regarded as representative of the U.S. stock market.
The Lipper Global Fund Index is an unmanaged index of the 30 largest
funds in Lipper Analytical Services' Global Fund objective. The Merrill
Lynch Global Bond Index is an unmanaged index of over 7100 short to long
term global bonds generally regarded as representative of the global bond
market. The Lipper Global Income Fund Index is an unmanaged index of the
30 largest funds in Lipper Analytical Services' Global Income Fund
objective. Please read the Prospectus, which has preceded or accompanies
this Report, before you invest or send money.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS
December 31, 1996
Fontaine Capital Appreciation Fund
Shares/ Value
Par (000) (000)
<S> <C> <C>
COMMON STOCKS -- 43.2%
Apparel & Shoes -- 3.4%
Stride Rite Corp. 22000 $ 220
Diamonds & Gemstones -- 0.1%
<F2>Diamondco Note (Can.) 5900 2
Entertainment & Leisure -- 1.2%
<F2>Hollywood Park, Inc. 5000 75
Food Processing -- 1.9%
McCormick & Company, Inc. 5000 118
Gold Exploration -- 4.4%
<F2>Madison Enterprises Corp. (Can.) 46000 134
<F2>Pan African Resources Corp. (Can.) 291600 149
-----
283
Gold Mining -- 11.8%
<F2>Dayton Mining Company 2400 16
Echo Bay Mines Ltd. 22702 150
<F2>Golden Star Resources Ltd. 13100 170
<F2>Guyanor Resources S. A. (Can.) 28000 189
<F2>Metallica Resources, Inc. (Can.) 42700 143
Newmont Gold Company 2000 88
-----
756
Insurance -- 1.6%
USF&G Corp. 5000 104
Metals & Mining - General -- 4.2%
Inco Ltd. - Class "VBN" (Can.) 3000 73
Southern Peru Copper Corp. 9100 133
<F2>Westmin Resources Ltd. (Can.) 13700 66
-----
272
Mineral Exploration -- 10.4%
<F2>Cambiex Exploration, Inc. - Wts. (Can.) 85000 71
<F2>Expatriate Resources Ltd. (Can.) 89500 192
<F2>Santa Cruz Gold, Inc. (Can.) 116300 115
<F2>Southwestern Gold Corp. (Can.) 13600 166
<F2>X-Cal Resources Ltd. (Can.) 196000 122
-----
666
Retail/Department Stores -- 1.8%
Wal-Mart Stores, Inc. 5000 115
Transportation Services -- 2.4%
Sea Containers Ltd. - Class "A" 10000 156
TOTAL COMMON STOCKS (Cost - $3,132) $ 2,767
LONG-TERM GOVERNMENT
OBLIGATIONS -- 11.4%
U. S. Government Obligations -- 11.4%
U.S. Treasury Note,
6.00%, Due 10/15/99 330 330
U.S. Treasury Note,
6.25%, Due 5/31/00 100 101
U.S. Treasury Note,
6.50%, Due 5/15/97 300 301
-----
732
TOTAL LONG-TERM GOVERNMENT
OBLIGATIONS (Cost - $732) $ 732
TOTAL INVESTMENTS IN SECURITIES
% OF NET ASSETS - 54.6% (Cost - $3,864) $ 3,499
<F1>
(Can.) = Canadian Traded Security
<F2>
Non-income producing
<F3>
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS
December 31, 1996
Fontaine Global Growth Fund
Shares/ Value
Par (000) (000)
<S> <C> <C>
PREFERRED STOCKS -- 7.9%
Battle Mountain Gold Preferred 7600 $ 380
TOTAL PREFERRED STOCKS (Cost - $380) $ 380
COMMON STOCKS -- 78.7%
Airlines -- 1.8%
Southwest Airlines Co. 4000 $ 88
Apparel & Shoes -- 0.5%
Stride Rite Corporation 2600 26
Diamonds & Gemstones -- 0.1%
<F3>Diamondco Note (Can.) 1000 1
Electric Utilities -- 10.9%
Carolina Power & Light Co. 6000 219
Delmarva Power & Light Co. 10100 206
Oklahoma Gas & Electric Co. 2000 84
Rochester Gas & Electric Corp. 700 13
-----
522
Gold Exploration -- 6.8%
<F3>Madison Enterprises Corp. (Can.) 29000 85
<F3>Meridian Gold Inc. 16800 69
<F3>Pan African Resources Corp. (Can.) 337050 172
-----
326
Gold Mining -- 22.7%
<F3>Ambrex Mining Corp. (Can.) 275000 70
<F3>Bre-X Minerals Ltd. (Can.) 10000 158
Echo Bay Mines Ltd. 9010 60
<F3>Eden Roc Mineral Corp. (Can.) 126800 165
<F3>El Callao Mining Corp. (Can.) 63800 61
<F3>Golden Star Resources Ltd. 14000 182
<F3>Guyanor Resources S. A. (Can.) 36700 248
<F3>Metallica Resources, Inc. (Can.) 39000 131
<F3>Nevsun Resources Ltd. (Can.) 2200 13
-----
1,088
Metals & Mining - General -- 12.5%
<F3><F4><F5>African Selection Mining 50000 37
Asarco, Inc. 2100 52
<F3>Hecla Mining Co. 15000 84
Inco Ltd. - Class "VBN" (Can.) 7750 188
<F3>Westmin Resources Ltd. (Can.) 49700 241
-----
602
Mineral Exploration -- 20.0%
<F3>Asquith Resources, Inc. (Can.) 37000 49
<F3>Cambiex Exploration, Inc. (Can.) 5200 4
<F3>Expatriate Resources Ltd. (Can.) 115100 248
<F3>Santa Cruz Gold, Inc. (Can.) 212400 209
<F3>Southwestern Gold Corp. (Can.) 9500 116
<F3>Tombstone Exploration Co. Ltd. (Can. 73100 115
<F3>Triton Mining Corp.(Can.) 54000 165
<F3>X-Cal Resources Ltd. (Can.) 89900 56
-----
962
Oil & Gas Exploration -- 3.4%
Chevron Corp. 1000 65
Texaco, Inc. 1000 98
-----
163
TOTAL COMMON STOCKS (Cost - $4,224) $ 3,778
LONG-TERM GOVERNMENT
OBLIGATIONS -- 9.2%
German Government Obligations -- 5.7%
Bundes Obligations,
5.875%, Due 5/15/00 (Par = DM100) $ 68 $ 68
German Federation Unity Bonds,
8.00%, Due 1/21/02 (Par = DM280) 205 207
-----
275
U. S. Government Obligations -- 1.1%
U.S. Treasury Note,
6.00%, Due 10/15/99 50 50
World Bank Obligations -- 2.4%
World Bank Note,
6.125%, Due 9/27/02 (Par = DM170) 118 116
TOTAL LONG-TERM GOVERNMENT
OBLIGATIONS (Cost - $440) $ 441
TOTAL INVESTMENTS IN SECURITIES
% OF NET ASSETS - 95.8% (Cost - $5,044) $ 4,599
<F1>
(Can.) = Canadian Traded Security
<F2>
DM = Deutsche Mark
<F3>
Non-income producing
<F4>
Board Valued
<F5>
Security contains some restrictions as to public resale.
Cost basis $37
<F6>
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS
December 31, 1996
Fontaine Global Income Fund
Shares/ Value
Par (000) (000)
<S> <C> <C>
PREFERRED STOCKS -- 8.8%
Battle Mountain Gold Preferred 2100 $ 105
Freeport McMoran Preferred "A" 1200 33
Inco Ltd. Preferred - Series "E" 2045 106
-----
244
TOTAL PREFERRED STOCKS (Cost - $242) $ 244
COMMON STOCKS -- 25.3%
Airlines -- 1.6%
Southwest Airlines Co. 2000 $ 44
Diamonds & Gemstones -- 0.1%
<F3>Diamondco Note (Can.) 500 1
Electric Utilities -- 2.6%
Carolina Power & Light Co. 2000 73
Gold Exploration -- 0.5%
<F3>Madison Enterprises Corp. (Can.) 5000 14
Gold Mining -- 6.7%
<F3>Ambrex Mining Corp. (Can.) 21000 5
<F3>Dayton Mining Corp. 10700 72
Echo Bay Mines Ltd. 1500 10
<F3>Golden Star Resources Ltd. 4500 59
<F3>Guyanor Resources S. A. (Can.) 5600 38
-----
184
Metals & Mining - General -- 8.4%
<F3>Hecla Mining Co. 5000 28
Inco Ltd. - Class "VBN" (Can.) 2200 53
Southern Peru Copper Corp. 3600 53
<F3>Westmin Resources Ltd. (Can.) 20100 97
-----
231
Mineral Exploration -- 4.6%
<F3>Expatriate Resources Ltd. (Can.) 2600 6
<F3>Santa Cruz Gold Inc. (Can.) 35000 34
<F3>Southwestern Gold Corp. (Can.) 3900 48
<F3>X-Cal Resources Ltd. (Can.) 64600 40
-----
128
Retail/Department Stores -- 0.8%
Wal-Mart Stores, Inc. 1000 23
TOTAL COMMON STOCKS (Cost - $760) $ 698
LONG-TERM GOVERNMENT
OBLIGATIONS -- 52.6%
German Government Obligations -- 17.6%
Bundes Obligations,
5.875%, Due 5/15/00 (Par = DM440) $ 307 $ 300
German Federation Unity Bonds,
8.00%, Due 1/21/02 (Par = DM250) 183 185
-----
485
U. S. Government Obligations -- 26.4%
U.S. Treasury Note,
5.125%, Due 6/30/98 70 69
U.S. Treasury Note,
5.50%, Due 2/28/99 70 70
U.S. Treasury Note,
5.75%, Due 12/31/98 400 399
U.S. Treasury Note,
6.00%, Due 8/31/97 50 50
U.S. Treasury Note,
6.00%, Due 10/15/99 70 70
U.S. Treasury Note,
6.25%, Due 5/31/00 70 70
-----
728
World Bank Obligations -- 8.6%
World Bank Note,
6.125%, Due 9/27/02 (Par = DM350) 241 239
TOTAL LONG-TERM GOVERNMENT
OBLIGATIONS (Cost - $1,457) $ 1,452
SHORT-TERM GOVERNMENT
OBLIGATIONS -- 8.2%
U. S. Government Obligations -- 8.2%
U.S. Treasury Bills,
5.244%, Due 6/5/97 230 225
TOTAL SHORT-TERM GOVERNMENT
OBLIGATIONS (Cost - $225) $ 225
TOTAL INVESTMENTS IN SECURITIES
% OF NET ASSETS - 94.9% (Cost - $2,684) $ 2,619
<F1>
(Can.) = Canadian Traded Security
<F2>
DM = Deutsche Mark
<F3>
Non-income producing
<F4>
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
THE FONTAINE TRUST / December 31, 1996
Capital Global Global
Appreciation Growth Income
(amounts are actual)
<S> <C> <C> <C>
ASSETS
Investments at Market Value:
Capital Appreciation (Cost $3,864,335) 3,499,069
Global Growth (Cost $5,043,930) 4,599,121
Global Income (Cost $2,684,007) 2,618,566
Cash & Cash Equivalents 797,923 360,281 1,379,812
Dividends and Interest Receivable 12,236 20,428 34,068
Receivable for Investments Sold 1,614,782 713,191 135,830
Receivable for Fund Shares Sold 918,498 21,580 21,973
Prepaid Expenses 4,177 5,061 3,465
--------- --------- ---------
TOTAL ASSETS 6,846,685 5,719,662 4,193,714
LIABILITIES
Payable for Investments Purchased 344,250 834,804 547,775
Payable for Fund Shares Redeemed 5,394 35,994 832,902
Payable for Shareholder Distributions 75,829 34,809 47,938
Accrued Expenses 16,413 11,168 6,310
TOTAL LIABILITIES 441,886 916,775 1,434,925
--------- --------- ---------
NET ASSETS 6,404,799 4,802,887 2,758,789
ANALYSIS OF NET ASSETS:
Paid-in-capital applicable to shares outstanding;
$.001 par value, unlimited number of shares authorized:
Capital Appreciation: 683,834 shares 7,100,185
Global Growth: 384,149 shares 5,304,321
Global Income: 253,409 shares 2,839,176
Undistributed net investment income (2,502) (13,189) (9,715)
Accumulated net realized loss (326,795) (40,316) --
Unrealized depreciation of investments (366,089) (447,929) (70,672)
---------- ---------- ----------
NET ASSETS 6,404,799 4,802,887 2,758,789
NET ASSET VALUE PER SHARE 9.37 12.50 10.89
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
THE FONTAINE TRUST/For the Year Ended December 31,1996
Capital Global Global
Appreciation Growth Income
(amounts are actual)
<S> <C> <C> <C>
INVESTMENT INCOME
Income
Dividends 51,853 31,024 20,440
Interest 50,536 23,085 43,586
------- ------ ------
Total Income 102,389 54,109 64,026
Expenses
Investment Management Fees 61,135 23,702 13,185
Shareholder Servicing Fees 11,066 9,252 3,187
Custodian and Accounting Fees 6,700 3,437 1,407
Legal & Auditing Fees 25,259 9,204 4,823
Prospectus & Shareholder Reports 6,889 4,661 1,918
Registration Fees 7,399 2,489 1,503
Insurance/Miscellaneous Costs 3,833 987 875
------- ------- -------
Total Expenses Before Waivers
And Reimbursement From Adviser 122,281 53,732 26,898
Less: Waivers And Reimbursement From Adviser (25,752) (10,468) (4,475)
------ ------ ------
Net Expenses 96,529 43,264 22,423
-------- -------- --------
NET INVESTMENT INCOME 5,860 10,845 41,603
REALIZED AND UNREALIZED GAIN /
(LOSS) FROM INVESTMENTS
Net Realized Gain From Investments 1,025,313 354,248 184,770
Unrealized Depreciation on Investments (299,752) (441,604) (74,151)
---------- --------- --------
NET GAIN/(LOSS) ON INVESTMENTS 725,561 (87,356) 110,619
INCREASE/(DECREASE) IN NET ASSETS FROM
OPERATIONS 731,421 (76,511) 152,222
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
THE FONTAINE TRUST
Capital Global
Appreciation Growth
Year Year Year Year
Ended Ended Ended Ended
12/31/96 12/31/95 12/31/96 12/31/95
---------- ---------- ---------- ---------
CHANGE IN NET ASSETS (amounts are actual)
<S> <C> <C> <C> <C>
Operations
Net investment income $ 5,860 $ 115,794 $ 10,845 $ 9,852
Net realized gain from investments 1,025,313 658,080 354,248 38,241
Change in unrealized depreciation from investments (299,752) (21,365) (441,604) (1,296)
--------- ------- ------- ------
Change in Net Assets from Operations 731,421 752,509 (76,511) 46,797
Distributions to Shareholders
Net investment income (5,861) (114,581) (10,701) (10,148)
In excess of net investment income (97,256) -- (42,145) --
Net realized gain on investments (965,016) (636,829) (354,247) (32,736)
In excess of net realized gain on investments (232,041) -- (11,362) --
--------- ------- ------- ------
Change in Net Assets From Distributions to Shareholders (1,300,174) (751,410) (418,455) (42,884)
Net Equalization 55 (3,159) -- --
Capital Share Transactions
Capital Appreciation
Sold 251,892 and 43,751 shares 2,900,335 523,058
Distributions reinvested of 130,666 and 66,510 shares 1,224,345 715,650
Redeemed 193,950 and 143,398 shares (2,433,568) (1,633,412)
Global Growth
Sold 530,302 and 31,410 shares 7,702,621 326,304
Distributions reinvested of 30,964 and 3,984 shares 383,646 40,274
Redeemed 246,905 and 1,113 shares (3,488,543) (11,777)
--------- --------- --------- -------
Change in Net Assets from Capital Share Transactions 1,691,112 (394,704) 4,597,724 354,801
--------- ------- --------- -------
CHANGE IN NET ASSETS 1,122,414 (396,764) 4,102,758 358,714
NET ASSETS
Beginning of period 5,282,385 5,679,149 700,129 341,415
End of period $6,404,799 $5,282,385 $4,802,887 $700,129
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
THE FONTAINE TRUST (Cont'd)
Global
Income
Year Year
Ended Ended
12/31/96 12/31/95
--------- --------
CHANGE IN NET ASSETS (amounts are actual)
<S> <C> <C>
Operations
Net investment income $ 41,603 $ 26,005
Net realized gain from investments 184,770 49,011
Change in unrealized appreciation/(depreciation) from investments (74,151) 15,550
------- ------
Change in Net Assets From Operations 152,222 90,566
Distributions to Shareholders
Net investment income (41,808) (25,618)
In excess of net investment income (9,715) --
Net realized gain on investments (184,770) (48,877)
------- ------
Change in Net Assets From Distributions to Shareholders (236,293) (74,495)
Capital Share Transactions
Global Income
Sold 235,669 and 29,366 shares 2,715,884 310,821
Distributions reinvested of 16,818 and 6,704 shares 184,487 70,618
Redeemed 100,375 and 2,002 shares (1,117,054) (21,149)
--------- -------
Change in Net Assets from Capital Share Transactions 1,783,317 360,290
--------- --------
CHANGE IN NET ASSETS 1,699,246 376,361
NET ASSETS
Beginning of period 1,059,543 683,182
End of period $2,758,789 $1,059,543
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
THE FONTAINE TRUST
Capital
Appreciation
Year Year Year Year Year
Ended Ended Ended Ended Ended
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.67 $ 10.75 $ 10.75 $ 9.60 $ 10.78
Investment Activities
Net Investment Income<F1> 0.01 0.26 0.07 0.14 0.33
Net Realized and Unrealized
Gain/(Loss) on Investments 1.59 1.42 0.18 1.22 (0.76)
Total From Investment Activities 1.60 1.68 0.25 1.35 (0.43)
Distributions
Net Investment Income (0.01) (0.26) (0.18) (0.135) (0.12)
In Excess of Net Investment Income (0.22) -- -- -- --
Net Realized Gains (2.15) (1.50) (0.07) (0.065) (0.63)
In Excess of Net Realized Gains (0.52) -- -- -- --
Total Distributions (2.90) (1.76) (0.25) (0.20) (0.75)
NET ASSET VALUE,
END OF PERIOD $ 9.37 $ 10.67 $ 10.75 $ 10.75 $ 9.60
Ratio of Expenses to
Average Net Assets <F1> 1.49% 1.50% 1.50% 1.50% 1.50%
Ratio of Net Investment Income
to Average Net Assets 0.09% 2.16% 1.41% 1.15% 3.12%
Total Investment Return 15.00% 15.49% 2.34% 14.09% -3.94%
Portfolio Turnover Rate 372.7% 96.0% 135.6% 131.7% 129.2%
Average Commission Paid $0.0195 -- -- -- --
Net Assets End of Period (000's) $6,405 $5,282 $5,679 $8,903 $14,902
<F1>Excludes investment management fees and other expenses in excess of voluntary expense limitation of 1.50% for Capital
Appreciation. Without fees waived or reimbursed by the adviser (see Note 5), the annualized expense ratios would have been:
1.89%, 2.10%, 2.23%, 1.81% and 1.94%.
<F2>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
THE FONTAINE TRUST (Cont'd)
Global
Growth
Year Year Year Year From
Ended Ended Ended Ended 5/1/92<F1>
12/31/96 12/31/95 12/31/94 12/31/93 to 12/31/92
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.03 $ 9.61 $ 10.34 $ 9.33 $ 10.00
Investment Activities
Net Investment Income<F3> 0.06 0.21 0.16 0.14 0.07
Net Realized and Unrealized
Gain/(Loss) on Investments 3.65 1.14 (0.20) 1.11 (0.41)
Total From Investment Activities 3.71 1.35 (0.04) 1.25 (0.34)
Distributions
Net Investment Income (0.02) (0.22) (0.16) (0.11) (0.08)
In Excess of Net Investment Income (0.10) -- -- -- --
Net Realized Gains (1.09) (0.71) (0.53) (0.13) (0.25)
In Excess of Net Realized Gains (0.03) -- -- -- --
Total Distributions (1.24) (0.93) (0.69) (0.24) (0.33)
NET ASSET VALUE,
END OF PERIOD $ 12.50 $ 10.03 $ 9.61 $ 10.34 $ 9.33
Ratio of Expenses to
Average Net Assets<F3> 1.46% 1.44% 1.45% 1.50% 1.50%
Ratio of Net Investment Income
to Average Net Assets 0.36% 2.36% 1.69% 1.15% 1.23%<F2>
Total Investment Return 37.10% 13.97% -0.35% 13.39% -3.37%
Portfolio Turnover Rate 252.8% 101.5% 114.1% 263.8% 348.5%<F2>
Average Commission Paid $0.0144 -- -- -- --
Net Assets End of Period (000's) $4,803 $700 $341 $349 $335
<F1>Commencement of Operations
<F2>Annualized
<F3>Excludes investment management fees and other expenses in excess of voluntary expense limitation of 1.50% for Global
Growth. Without fees waived or reimbursed by the adviser (see Note 5), the annualized expense ratios would have been:
1.82%, 2.04%, 1.45%, 3.62% and 7.19%.
<F4>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
THE FONTAINE TRUST (Cont'd)
Global
Income
Year Year Year Year From
Ended Ended Ended Ended 5/1/92<F1>
12/31/96 12/31/95 12/31/94 12/31/93 to 12/31/92
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.46 $ 10.16 $ 10.78 $ 9.37 $ 10.00
Investment Activities
Net Investment Income<F3> 0.26 0.36 0.29 -- 0.14
Net Realized and Unrealized
Gain/(Loss) on Investments 1.33 0.91 (0.13) 1.92 (0.48)
Total From Investment Activities 1.59 1.27 0.16 1.92 (0.34)
Distributions
Net Investment Income (0.30) (0.35) (0.39) -- (0.21)
In Excess of Net Investment Income (0.07) -- -- -- --
Net Realized Gains (0.79) (0.62) (0.39) (0.51) (0.08)
Total Distributions (1.16) (0.97) (0.78) (0.51) (0.29)
NET ASSET VALUE,
END OF PERIOD $ 10.89 $ 10.46 $ 10.16 $ 10.78 $ 9.37
Ratio of Expenses to
Average Net Assets<F3> 1.24% 1.21% 1.21% 1.25% 1.25%
Ratio of Net Investment Income
to Average Net Assets 2.30% 3.35% 2.49% 2.13% 2.47%<F2>
Total Investment Return 15.21% 12.62% 1.49% 20.53% -3.47%
Portfolio Turnover Rate 222.2% 95.9% 129.9% 171.5% 189.6%<F2>
Average Commission Paid $0.0264 -- -- -- --
Net Assets End of Period (000's) $2,759 $1,060 $683 $849 $1,384
<F1>Commencement of Operations
<F2>Annualized
<F3>Excludes investment management fees and other expenses in excess of voluntary expense limitation of 1.25% for Global
Income. Without fees waived or reimbursed by the adviser (see Note 5), the annualized expense ratios would have been:
1.51%, 1.74%, 1.98%, 2.32% and 3.05%.
<F4>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
The Fontaine Trust / December 31, 1996
Note 1 -- Organization
The Fontaine Trust ("Trust") was organized as a Massachusetts business trust
and is registered with the Securities and Exchange Commission ("SEC") as a
no-load open-end management investment company. The Trust currently
consists of three Funds: Fontaine Capital Appreciation Fund ("Capital
Appreciation Fund"), Fontaine Global Growth Fund ("Global Growth Fund") and
Fontaine Global Income Fund ("Global Income Fund") ("Fund" or "Funds").
Each Fund is a separate investment portfolio of the Trust having distinct
investment objectives, investment programs, policies, and restrictions.
Capital Appreciation Fund and Global Growth Fund are diversified investment
companies under the Investment Company Act of 1940 ("1940 Act"). Global
Income Fund is registered as a non-diversified investment company under the
1940 Act to enable it to invest more than 5% of its total assets in
securities of one issuer, including, in particular, securities of foreign
governments.
The Trust was organized on April 20, 1989 and had no operations prior to
September 28, 1989, other than those relating to organizational matters
including the sale of 33,073 shares of beneficial interest of Capital
Appreciation Fund at $10.00 per share to Richard H. Fontaine. During 1990,
Capital Appreciation Fund changed its fiscal year-end from August 31 to
December 31, resulting in a four month transition period. Global Growth
Fund and Global Income Fund each commenced operations on May 1, 1992, with
an initial stock subscription of 10,000 shares and 40,000 shares,
respectively, of beneficial interest at $10.00 per share to Richard H.
Fontaine.
The investment objectives of each Fund as well as the nature and risks of
their investment activities are set forth more fully in the Trust's
Prospectus and Statement of Additional Information, dated May 1, 1996.
Note 2 -- Significant Accounting Policies
A -- Security Valuation--Investments in securities traded on a national
securities exchange and securities traded on over-the-counter markets are
valued at the last sale price on the day of valuation. Securities for which
no sale price is available are valued at the last bid price. Investments in
securities for which no market quotations are available are valued based on
quotations provided by broker-dealers or by such other method approved by
the Board of Trustees. Short-term investments are stated at cost, which
when combined with accrued interest receivable, approximates market value.
B -- Security Transactions and Investment Income--Income and expenses are
recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded by each Fund on the ex-dividend date. Investment
transactions are accounted for on the trade date. Realized gains and losses
from investment transactions and unrealized appreciation and depreciation of
investments are reported on an identified cost basis.
C -- Equalization--Capital Appreciation Fund uses the accounting practice of
equalization, by which a portion of the proceeds from sales and costs of
redemption of capital shares, equivalent on a per share basis to the amount
of undistributed net investment income on the date of the transactions, is
credited or charged to undistributed income. As a result, undistributed net
investment income per share is unaffected by sales or redemptions of capital
shares.
D -- Foreign Currency--Amounts denominated in or expected to settle in
foreign currencies (FC) are translated into United States dollars (US$) at
rates reported by a major New York City broker on the following basis:
a. Market value of investment securities, other assets and liabilities
---at the closing rate of exchange as of the date of the statement of
assets and liabilities.
b. Purchases and sales of investment securities, income and expenses
---at the rate of exchange prevailing on the respective dates of such
transactions (or at an average rate if significant rate fluctuations
have not occurred.)
Notes to Financial Statements (Cont'd)
Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities including investments in securities at
fiscal year end, resulting from changes in the exchange rate. The effect of
changes in foreign exchange rates on realized and unrealized security gains
and losses is reflected as a component of such gains and losses.
E -- Cash and Cash Equivalents--The Trust considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents. This balance represents money market Deposit Accounts held
with the Custodian.
F -- Concentration of Credit--The Trust maintains cash balances in money
market accounts of the Custodian. At December 31, 1996, money market
balances held by Capital Appreciation Fund, Global Growth Fund and Global
Income Fund were $891,735, $360,281, and $1,379,812, respectively. These
accounts are overnight money market sweep accounts with a variable interest
rate (4.90% as of December 31, 1996).
G -- Use of Estimates--The preparation of the financial statements in
accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates.
H -- Restricted Securities--Investments in restricted securities cannot be
resold or transferred unless they are subsequently registered under the
Securities Act of 1933 or registered under state security laws.
Note 3 -- Federal Income Taxes
No provision for federal income taxes is required since each Fund intends to
qualify as a regulated investment company and distribute all of its taxable
income.
At December 31, 1996, the aggregate cost of securities for federal income
tax purposes for Capital Appreciation Fund, Global Growth Fund and Global
Income Fund were $3,921,776, $5,093,048, and $2,694,339, respectively. Net
unrealized appreciation/(depreciation) of investments for each Fund were as
follows:
<TABLE>
Capital Appreciation Global Growth Global Income
<S> <C> <C> <C>
Appreciated Investments $ 61,721 $ 87,383 $ 35,123
Depreciated Investments (426,987) (532,191) (100,563)
--------- --------- ---------
Net Unrealized Depreciation $(365,266) $(444,808) $(65,440)
Net Unrealized Depreciation-
Tax Basis $(367,768) $(457,998) $(75,772)
</TABLE>
The Distributions in Excess of Net Investment Income per the Statement of
Changes in Net Assets for the Global Growth Fund and Capital Appreciation
Fund are due to the reclassification of capital gains on the sale of
securities identified as Passive Foreign Investment Companies (PFICs) from
capital gains to net investment income and to the inclusion of unrealized
gains on PFICs held in the portfolios at December 31, 1996 in net investment
income.
The Distributions in Excess of Net Realized Gain on the Statement of Changes
in Net Assets for these funds are due to the postponement of capital loss
recognition due to wash sales and to the funds' election to push capital
losses incurred post October 31, 1996 to the next fiscal year.
Notes to Financial Statements (Cont'd)
Note 4 -- Investment Transactions
<TABLE>
Capital Appreciation Global Growth Global Income
<S> <C> <C> <C>
U. S. Government Securities:
Purchases $968,934 $147,828 $675,642
Sales 2,229,030 255,435 286,227
Securities Other Than Short-Term
and U. S. Government Securities:
Purchases $19,613,025 $10,884,812 $4,233,381
Sales 20,260,548 6,597,572 3,232,414
</TABLE>
Note 5 -- Related Parties
A -- Investment Adviser--The investment management agreements ("Advisory
Contracts") between Richard Fontaine Associates, Inc. ("Adviser") and
Capital Appreciation Fund, Global Growth Fund and Global Income Fund,
provide for an annual investment management fee, computed daily and paid
monthly, at a rate equal to 0.95%, 0.85%, and 0.75%, of average daily net
assets, respectively.
Under the terms of the Advisory Contracts, the Adviser is required to bear
any expenses of each Fund which exceed the expense limitations applicable to
each Fund as imposed by the securities regulations of any state in which the
fund is registered. Additionally, in accordance with the Expense Limitation
Agreements between each Fund and the Adviser, the Adviser has agreed to bear
any expenses of each Fund which exceed the voluntary, Adviser-imposed
expense limitation of 1.50% of average daily net assets for Capital
Appreciation Fund and Global Growth Fund and 1.25% of average daily net
assets for Global Income Fund. The expense limitation agreements under the
Master Advisory Contracts by and between the Funds and Richard Fontaine
Associates are reviewed for renewal by the Board of Trustees on an annual
basis.
Capital Appreciation Fund: Pursuant to this agreement, $25,752 of
management fees were waived by the Adviser which exceeded the 1.50% expense
limitation for the year ended December 31, 1996. In addition, $337,698 of
fees and expenses were waived or reimbursed by the Adviser in prior periods.
As of December 31, 1996, the Fund owed $1,928 to the Adviser for management
fees payable.
Global Growth Fund: Pursuant to this agreement, $10,468 of management fees
were waived by the Adviser which exceeded the 1.50% expense limitation for
the year ended December 31, 1996. In addition, $23,406 of fees and expenses
were waived or reimbursed by the Adviser in prior periods. As of December
31, 1996, the Fund owed $449 to the Adviser for management fees payable.
Global Income Fund: Pursuant to this agreement, $4,475 of management fees
were waived by the Adviser which exceeded the 1.25% expense limitation for
the year ended December 31, 1996. In addition, $36,361 of fees and expenses
were waived or reimbursed by the Adviser in prior periods. As of December
31, 1996, the Fund owed $754 to the Adviser for management fees payable.
B -- Transfer Agent--During the year ended December 31, 1996, Capital
Appreciation Fund, Global Growth Fund and Global Income Fund, incurred
transfer agent fees and expenses of approximately $8,097, $6,446, and
$2,569, respectively, for shareholder and accounting services provided by
Richard Fontaine and Company, Inc., an affiliate of the Adviser. As of
December 31, 1996, transfer agent fees payable by Capital Appreciation Fund,
Global Growth Fund and Global Income Fund were $1,235, $1,863 and $559,
respectively.
C -- Board of Trustees--At the June 24, 1994 meeting of the Board of
Trustees, it was unanimously agreed upon that the Board would temporarily
waive the trustees fees normally charged each Fund, thus reducing each
Fund's expense.
Notes to Financial Statements (Cont'd)
D -- Ownership of Fund Shares--Certain related parties investing in the
Funds hold positions representing 5% or more of total net assets. These
parties may include employees and Trustees of the Trust, Transfer Agent,
and/or Adviser. The Adviser also manages separate accounts apart from its
investment management activities to the Trust. At certain times during the
year, the manager may transact with the Funds on behalf of these separate
accounts. As of December 31, 1996, balances held by these parties were as
follows:
<TABLE>
Capital Appreciation Fund
Shares Dollar Amount % Net Assets
<S> <C> <C> <C>
Richard H. Fontaine and
Members of the Board of Trustees 112,125.826 $1,050,619 16.40%
Private Accounts under
Adviser Management 34,350.995 321,869 5.03%
----------- ---------- ------
TOTAL 146,476.821 $1,372,488 21.43%
</TABLE>
<TABLE>
Global Growth Fund
Shares Dollar Amount % Net Assets
<S> <C> <C> <C>
Richard H. Fontaine and
Members of the Board of Trustees 28,208.177 $ 352,602 7.34%
</TABLE>
<TABLE>
Global Income Fund
Shares Dollar Amount % Net Assets
<S> <C> <C> <C>
Richard H. Fontaine and
Members of the Board of Trustees 20,881.558 $ 227,400 8.24%
Private Accounts under
Adviser Management 150,577.254 1,639,786 59.44%
----------- ---------- ------
TOTAL 171,458.812 $1,867,186 67.68%
</TABLE>
E -- Related Party Transactions--As an investment practice in the interest
of minimizing transaction expenses, the Adviser may trade securities between
the three Funds in the Trust and between the Funds and the separate accounts
also under Adviser management. These transactions are affected at the
prevailing market price and, where applicable, the prevailing foreign
exchange rate obtained from an independent source and are an alternative to
each fund undertaking the transaction with a third party. No interfund
charges are made for these transfers.
Note 6 -- Subsequent Event
At the February 5, 1997 meeting of the Board of Trustees, it was unanimously
agreed upon that Richard Fontaine Associates would discontinue the Expense
Limitation Agreements with the Funds effective May 1, 1997. If the Fund
Operating Expenses for a particular Fund are less than the Operating Expense
Limit for that Fund and the assets of that Fund exceed $20 Million, the Fund
Operating Expenses assumed and paid by Fontaine Associates in prior periods
on behalf of a particular Fund could be reimbursed by that Fund, provided
that in doing so the Operating Expense Limit for that Fund is not exceeded
and the period over which such reimbursements are made does not exceed five
years from the date of the first such payment. Effective with this
discontinuance, expense waivers and reimbursements through April 30, 1997
will no longer be recapturable by Richard Fontaine Associates. (Please refer
to the Prospectus for more information on Expenses.)
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of The Fontaine Trust, comprised of:
Fontaine Capital Appreciation Fund,
Fontaine Global Growth Fund, and
Fontaine Global Income Fund
We have audited the accompanying statement of assets and
liabilities, including the schedule of portfolio investments, for the
Fontaine Capital Appreciation Fund, Fontaine Global Growth Fund, and
Fontaine Global Income Fund as of December 31, 1996 and the related
statements of operations for the year then ended, the statement of changes
in net assets for the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended (Fontaine
Capital Appreciation Fund) and for the four years then ended and for the
period May 1, 1992 (commencement of operations) to December 31, 1992
(Fontaine Global Growth Fund and Fontaine Global Income Fund). These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on the
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 investments owned as of December 31, 1996 by correspondence
with the custodian and brokers. 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 Fontaine Capital Appreciation Fund, Fontaine Global
Growth Fund and Fontaine Global Income Fund as of December 31, 1996, and the
results of their operations, their changes in net assets and financial
highlights for the respective periods as stated in the first paragraph, in
conformity with generally accepted accounting principles.
Coopers & Lybrand, L.L.P.
Baltimore, Maryland
February 20, 1997
<PAGE>
Fontaine Trust
210 W. Pennsylvania Avenue, Suite 240
Towson, Maryland 21204
General/Account Information:
Baltimore Area: (410) 825-7890
Toll Free: 1-800-247-1550
Investment Adviser:
Richard Fontaine Associates, Incorporated
210 W. Pennsylvania Avenue, Suite 240
Towson, Maryland 21204
Transfer Agent and
Dividend Disbursing Agent:
Richard Fontaine and Company
210 W. Pennsylvania Avenue, Suite 240
Towson, Maryland 21204
Custodian:
Chase Manhattan Bank
270 Park Avenue
New York, NY 10017
Independent Accountants:
Coopers & Lybrand, L.L.P.
217 East Redwood Street
Baltimore, Maryland 21202
Legal Counsel:
Katten, Muchin & Zavis
1025 Thomas Jefferson Street, N. W., Suite 700
Washington, D. C. 20007-5201
OFFICERS AND TRUSTEES
Richard H. Fontaine, Chairman and President
Dana R. Barrows, Trustee
Lester M. Bradshaw, Trustee
Lucas L. Godinez, Trustee
Anne Dyer Fontaine, Vice President, Treasurer
Kimberly A. Malkowski, Secretary
