<PAGE>
SEMI-ANNUAL REPORT
THE FONTAINE TRUST
FONTAINE CAPITAL APPRECIATION FUND
FONTAINE GLOBAL GROWTH FUND
FONTAINE GLOBAL INCOME FUND
JUNE 30, 1997
<PAGE>
FELLOW SHAREHOLDERS OF
THE FONTAINE TRUST
INVESTMENT OVERVIEW
As our long-term shareholders know, we have been cautious over the last
several years due to what we perceived to be extreme 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 invested in commodity related stock investments.
This is what paid off so well for us in 1996 but has caused us to decline
in value in 1997.
Our main investments have been natural resource based with a heavy emphasis
on companies with strong and rapidly growing underlying asset values.
Unfortunately, the market environment for natural resource stocks has not
been very accommodating. The same positions that outperformed the market
so dramatically in 1996 are now responsible for the poor performance thus
far in 1997. Two significant events triggered this sell-off in mining
investments. First, the world's mining stocks were rocked by the Bre-X
scandal that hit these markets hard at the end of the first quarter. Bre-X
Minerals was a Canadian mining company that had announced a very large gold
deposit in Indonesia which sent its shares up sharply, only to collapse
later when the discovery proved to be fraudulent. While the Trust did not
own Bre-X at that time, we did own other companies in the same industry
that continue to suffer from the massive withdrawal of funds from this
investment sector. Secondly, at the end of the second quarter the
Australian Central Bank announced that it had sold significant portions of
its gold reserves, taking the price of the metal to a twelve year low and
fueling concern that other central banks might follow suit. Both of these
events have put severe pressure on our investment strategy during the first
half of 1997.
Because of our continuing belief that the flow of liquidity will eventually
find its way into tangible assets, we have used the recent weakness 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. In the near term, we expect a bumpy ride. Over the long term, we
anticipate returns in line with historical cyclical moves. For example,
gold mining shares gained 289% from the low in 1972 to the high in 1974.
Similar moves resulted in returns of 400% from the 1978 low through the
1981 high, and 202% from the 1982 low through the 1983 high. The
corresponding moves for the Dow Jones Industrial Average during these
periods were 77%, 38%, and 66%, respectively.*
At heart we are contrarian investors. We buy stocks in fundamentally
strong companies that are currently out of favor with investors. This
investment style tends to produce below average returns in very strong
markets. For those of you equally concerned about the current market mania
and who believe that the tide will eventually turn, it may be the right
time to renew your commitment to this strategy.
As always, your confidence and loyalty are truly appreciated. Please feel
free to call me if you have any questions about your investments in our
funds.
Sincerely,
Richard H. Fontaine
President and Chairman of the
Investment Advisory Committee
August 26, 1997
* Source - Gold Stock Research
<PAGE>
FONTAINE CAPITAL APPRECIATION FUND
PORTFOLIO SUMMARY
<TABLE>
TOP 10 HOLDINGS
Primary
Security Country/Region
<S> <C>
1 U. S. Treasury Note, 12/98 United States
2 U. S. Treasury Note, 6/99 United States
3 U. S. Treasury Bills, 4/98 United States
4 U. S. Treasury Note, 10/99 United States
5 Dayton Mining Corporation South America
6 Vertex Pharmaceuticals United States
7 Expatriate Resources Canada
8 Valerie Gold Resources Latin America
9 McCormick & Company United States
10 Southwestern Gold Corporation South America
</TABLE>
ASSET MIX AS OF 6/30/97
[Pie Chart detailing asset breakdown by class: Common Stocks-38.6%, Bonds-
29.6%, and Cash<includes cash equivalents and other net assets>-31.8%]
<TABLE>
Cumulative Performance Comparison* Periods Ended 6/30/97
Five Year Since Inception
Six Months One Year) (Annualized) on 9/28/89
<S> <C> <C> <C> <C>
Fontaine Capital
Appreciation Fund - 9.4% - 13.6% + 32.3% + 66.8%
S&P "500" Index* + 20.6% + 34.7% +146.0% +218.7%
Lipper Capital
Appreciation Fund Index* + 10.2% +15.0% +111.6% +153.8%
<FN>
*Please refer to the footnote on page 8 for explanation of index
information.
</TABLE>
<TABLE>
Average Annual Total Return Performance* Periods Ended 6/30/97
Five Year Since Inception on
One Year (Annualized) 9/28/89 (Annualized)
<S> <C> <C> <C>
Fontaine Capital
Appreciation Fund - 13.6% + 5.8% + 6.8%
S&P "500" Index* + 34.7% + 19.7% + 16.2%
Lipper Capital
Appreciation Fund Index* + 15.0% + 16.2% + 12.8%
<FN>
*Please refer to the footnote on page 8 for explanation of index
information.
</TABLE>
<PAGE>
FONTAINE CAPITAL APPRECIATION FUND
PORTFOLIO REVIEW
Our main strategy of high cash reserves, defensive short-term bond
positions, and an aggressive equity component backfired on us in the first
half of 1997. The Fontaine Capital Appreciation Fund's exposure to the
natural resource industry resulted in poor performance during the period.
The good performance in our other stock selections such as Vertex
Pharmaceuticals, Wal-Mart, USF&G and Southwest Airlines was not strong
enough to outweigh the negative impact of the poor performers.
Specifically, Expatriate Resources, Dayton Mining and Valerie Gold, while
currently representing outstanding value, were hard hit in market price in
the second quarter. We believe that these stocks and others in the
portfolio are currently significantly oversold and should snap back in the
next several quarters.
INVESTMENT STRATEGY
Going forward, we intend to maintain our defensive cash position and short
term bond holdings. We are confident that some of our equity positions
will return to a more normalized valuation which hopefully will allow us to
improve our relative performance over the remainder of 1997.
KEY INVESTMENTS
McCormick & Company - The company is the world's largest provider of
spices, seasonings and other products to the food industry. For the last
five years, McCormick has been locked in a price war with a tenacious
Australian competitor, Burns, Philp & Company, Ltd., that was trying to
increase its worldwide market share. Burns, Philp, maker of the Durkee,
French and Spice Islands brands, announced this May that it was quitting
the spice business and selling off the company's spice assets. This should
prove to be a long term positive for McCormick as both earnings and sales
should benefit from the demise of their largest and most aggressive
competitor.
Southwestern Gold - The company grows shareholder value by acquiring
exploration properties with potential for world class ore deposits. They
then structure joint ventures with senior mining companies so that
Southwestern retains a 30% carried interest without having to commit funds
until the property is in production. With over $40 million in cash
reserves, Southwestern Gold is well positioned to take advantage of
opportunities to acquire additional properties in the current market. Over
half of Southwestern's current stock price is cash and marketable
securities, and its portfolio of exploration properties is significantly
undervalued.
Vertex Pharmaceuticals - The company is engaged in the discovery,
development and commercialization of drugs for the treatment of multiple
diseases including cancer and AIDS. Vertex is a leader in the use of
structure based drug design used to develop an HIV protease inhibitor (VX
478) and a chemosensitizing agent to improve radiation therapy used in
cancer patients.
<PAGE>
FONTAINE GLOBAL GROWTH FUND
PORTFOLIO SUMMARY
<TABLE>
TOP 10 HOLDINGS
Primary
Security Country/Region
<S> <C>
1 Valerie Gold Resources Latin America
2 Elf Aquitaine ADR Western Europe
3 U. S. Treasury Note, 6/99 United States
4 Pan African Resources Corporation Africa
5 German Unity Bond, 1/02 Western Europe
6 Inco Ltd. Canada
7 Expatriate Resources Canada
8 Getchell Gold Corporation United States
9 Pharmacia & Upjohn United States
10 NDU Resources Canada
</TABLE>
ASSET MIX AS OF 6/30/97
[Pie Chart detailing asset breakdown by class: Common Stocks-77.2%, Preferred
Stocks-1.7%, Bonds-15.4%, and Cash<includes cash equivalents and other net
assets>-5.7%]
<TABLE>
Cumulative Performance Comparison* Periods Ended 6/30/97
Five Year Since Inception
Six Months One Year) (Annualized) on 9/28/89
<S> <C> <C> <C> <C>
Fontaine Global
Growth Fund - 26.0% - 30.7% + 22.8% + 26.2%
Lipper Global Fund Index* + 13.9% + 20.6% + 91.6% + 99.9%
S&P "500" Index* + 20.6% + 34.7% +146.0% +143.8%
<FN>
*Please refer to the footnote on page 8 for explanation of index information.
</TABLE>
<TABLE>
Average Annual Total Return Performance* Periods Ended 6/30/97
Five Year Since Inception on
One Year (Annualized) 9/28/89 (Annualized)
<S> <C> <C> <C>
Fontaine Global
Growth Fund - 30.7% + 4.2% + 4.6%
Lipper Global Fund Index* + 20.6% + 13.9% + 14.3%
S&P "500" Index* + 34.7% + 19.7% + 18.8%
<FN>
*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 a very difficult first half of 1997.
As described in our opening letter to shareholders, the market presented
several major challenges to our investment strategy during the first six
months of this year. We decided that the consolidation of the sector
provided a significant opportunity to buy the companies with the best
growth potential, and we have aggressively pursued those investments that
could double or triple in value over the next several years.
Many of our investments in the energy sector, the drug sector, and the
airline industry were profitable for us during the period, but these
positive results were outweighed by the down move in other stocks.
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 believe have significant upside potential,
especially at the attractive valuations found in the wake of the Bre-X
scandal. This fund establishes large positions in these companies and
pursues concentrated investment themes to maximize future growth of
capital.
KEY INVESTMENTS
Valerie Gold Resources - Valerie has over CN$17 million in cash in the
treasury and a very prospective land position in Mexico. The market valued
this property at CN$100 million in 1996 and at zero today. The stock
currently sells for less than the cash held in the company's treasury.
While Valerie's mineral properties may not be valued again at CN$100
million, we do believe that these highly mineralized sites will ultimately
develop into a minable deposit which could provide the stock with a two to
three hundred percent return for the patient investor.
Inco Ltd - Class "VBN" - Inco Voisey's Bay owns 25% of the Diamond Fields
nickel and copper deposit in Labrador, Canada that, when it goes into
production in late 1999, will be the world's lowest cost nickel mine with
over 700 million pounds of nickel production per year at an average cost of
50 cents per pound. With nickel currently selling for $3.25 per pound, we
feel that the stock could double within the next two years.
Expatriate Resources - A major exploration company that owns an extensive
land package in a highly prospective part of the Yukon Territory of Canada.
It has recently been developing a significant copper discovery at its ICE
Property, and we feel that this deposit and others could provide
substantial upside in the stock price over the next year.
<PAGE>
FONTAINE GLOBAL INCOME FUND
PORTFOLIO SUMMARY
<TABLE>
TOP 10 HOLDINGS
Primary
Security Country/Region
<S> <C>
1 Bundes Obligation, 5/00 Western Europe
2 World Bank Note, 9/02 Western Europe
3 German Unity Bond, 1/02 Western Europe
4 Teck Corporation - Class "B" South America
5 U. S. Treasury Note, 6/98 United States
6 Getchell Gold Corporation United States
7 Toyota Motor Corporation Japan
8 McCormick & Company United States
9 U. S. Treasury Note, 8/97 United States
10 Inco Ltd. - Class "VBN" Canada
</TABLE>
ASSET MIX AS OF 6/30/97
[Pie Chart detailing asset breakdown by class: Common Stocks-39.6%, Preferred
Stocks-2.0%, Bonds-45.2%, and Cash<includes cash equivalents and other net
assets>-13.21]
<TABLE>
Cumulative Performance Comparison* Periods Ended 6/30/97
Five Year Since Inception
Six Months One Year) (Annualized) on 9/28/89
<S> <C> <C> <C> <C>
Fontaine Global
Income Fund - 10.3% - 10.2% + 33.9% + 37.4%
Merril Lynch Global
Bond Index* + 0.3% + 5.6% + 46.0% + 53.4%
Lipper Global Income
Fund Index* + 1.1% + 9.4% + 41.7% + 46.8%
<FN>
*Please refer to the footnote on page 8 for explanation of index information.
</TABLE>
<TABLE>
Average Annual Total Return Performance* Periods Ended 6/30/97
Five Year Since Inception on
One Year (Annualized) 9/28/89 (Annualized)
<S> <C> <C> <C>
Fontaine Global
Income Fund - 10.2% + 6.0% + 6.3%
Merrill Lynch Global
Bond Index* + 5.6% + 7.9% + 8.6%
Lipper Global Income
Fund Index* + 9.4% + 7.2% + 7.7%
<FN>
*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 declined in value during the first half of
1997 because of two primary factors: 1) the value of the dollar against the
German Deutsche Mark increased 16% during the period, eroding the value of
our German Government Bonds, and 2) the global equity holdings in the Fund
which have a strong bias toward gold and natural resources also declined.
INVESTMENT STRATEGY
We continue to hold 20% of our portfolio in cash equivalents and short-term
U. S. Government bonds and 38% in Deutsche Mark denominated government
bonds of a 3-5 year maturity. The cash is for preservation of principle
and provides a future buying reserve. The German Deutsche Mark denominated
fixed income investments provide both a significant level of current income
as well as a hedge against a U. S. stock market decline, which we feel
could lower the U. S. dollar against the German currency as investors
worldwide reduce their U. S. security holdings.
KEY INVESTMENTS
Battle Mountain Gold Preferred - A high coupon, convertible preferred stock
that should benefit from the recent merger with Hemlo Gold. Currently
yielding 6.5%, the stock also offers significant upside potential if gold
moves higher over the next few years.
German Government Bonds - These 6-8% coupon bonds are of a 3-5 year average
maturity and offer significant income and the potential for capital gains
should the dollar depreciate against the German mark. We feel that the
proposed European Monetary Union is likely to come under greater internal
scrutiny as the German election approaches, and we think that a delay or
cancellation of the agreement would be very positive for the German
currency.
Inco Ltd. - World's largest nickel producer. The stock is currently
depressed because of the dilution caused by the acquisition of Diamond
Fields Resources for Inco common stock. We expect strong cash flow to
enable retirement of a large portion of these newly issued shares over the
next 3-5 years and significant long term appreciation from these current
levels.
<PAGE>
FUND COMPARISON
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.
Our most defensive fund is the Fontaine Global Income Fund, which makes use
of the same stock selections as the other portfolios, but less
aggressively. Sixty percent of the Fund's assets are invested in U. S.
Treasury Notes, high-quality foreign government bonds, preferred stocks and
cash equivalents.
DIVIDEND INFORMATION
Fontaine Global Income Fund went ex-dividend on March 26, 1997, for holders
of record on March 25, 1997. The first quarter income dividend was $0.08
per share. The reinvestment price on March 26, 1997 was $10.48.
Global Income Fund also went ex-dividend on June 26, 1997, for holders of
record on June 25, 1997. The second quarter income dividend was $0.05 per
share. The reinvestment price on June 26, 1997 was $9.70.
* All performance is historical. 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 in each Lipper
category. 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 Funds objective. The
Lipper Capital Appreciation Index is an unmanaged index of the 30 largest
funds in Lipper Analytical Services' Capital Appreciation objective. The
Lipper Global Income Fund Index is an unmanaged index of the 30 largest
funds in Lipper Analytical Services' Global Income objective. The Merrill
Lynch Global Bond Index is an unmanaged index of over 8100 short to long
term global bonds generally regarded as representative of the global bond
market. Please read the Prospectus, which has preceded or accompanies this
Report, before you invest or send money. Past performance is not
indicative of future results.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS
June 30, 1997 (Unaudited)
Fontaine Capital Appreciation Fund
Shares/ Value
Par (000) (000)
<S> <C> <C>
COMMON STOCKS -- 38.6%
Apparel & Shoes -- 1.4%
Stride Rite Corp. 5,500 $ 71
Diamonds & Gemstones -- 0.1%
<F1> Diamond Fields International 5,900 2
Food Processing -- 3.4%
McCormick & Company, Inc. 7,000 177
Gold Mining -- 9.4%
<F1> Dayton Mining Corp. 51,500 196
<F1> Getchell Gold Corp. 3,600 127
Placer Dome, Inc. 10,000 164
-------
487
Insurance -- 2.3%
USF&G Corp. 5,000 120
Metals & Mining - General -- 6.7%
<F1> Hecla Mining Co. 10,300 55
Inco Ltd. - Class "VBN" (Can.) 4,000 82
Newmont Mining Corp. 4,000 156
<F1> Stillwater Mining Co. 2,400 53
-------
346
Mineral Exploration -- 11.6%
<F1> Asquith Resources, Inc. (Can.) 119,500 56
<F1> Expatriate Resources Ltd. (Can.) 130,100 189
<F1> Southwestern Gold Corp. (Can.) 25,100 171
<F1> Valerie Gold Resources Ltd. (Can.) 174,800 180
-------
596
Pharmaceuticals & Drugs -- 3.7%
<F1> Vertex Pharmaceuticals, Inc. 5,000 191
-------
TOTAL COMMON STOCKS (Cost - $2,513) $ 1,990
LONG-TERM GOVERNMENT
OBLIGATIONS -- 29.6%
U. S. Government Obligations -- 29.6%
U.S. Treasury Note,
5.75%, Due 12/31/98 $ 600 $ 598
U.S. Treasury Note,
6.00%, Due 6/30/99 500 499
U.S. Treasury Note,
6.00%, Due 10/15/99 330 330
U.S. Treasury Note,
6.25%, Due 5/31/00 100 100
-------
1,527
TOTAL LONG-TERM GOVERNMENT -------
OBLIGATIONS (Cost - $1,530) $ 1,527
SHORT-TERM GOVERNMENT
OBLIGATIONS -- 9.3%
U. S. Government Obligations -- 9.3%
U.S. Treasury Bills,
5.66%, Due 4/2/98 $ 500 $ 480
TOTAL SHORT-TERM GOVERNMENT -------
OBLIGATIONS (Cost - $478) $ 480
TOTAL INVESTMENTS IN SECURITIES -------
% OF NET ASSETS - 77.5% (Cost - $4,521) $ 3,997
<F1> Non-income producing
<FN>(Can.) = Canadian Traded Security
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS
June 30, 1997 (Unaudited)
Fontaine Global Growth Fund
Shares/ Value
Par (000) (000)
<S> <C> <C>
COMMON STOCKS -- 77.2%
Airlines -- 0.7%
Southwest Airlines Co. 1,000 $ 26
Apparel & Shoes -- 3.3%
Stride Rite Corp. 10,000 129
Diamonds & Gemstones -- 0.1%
<F1> Diamond Fields International 1,000 1
Food Processing -- 3.6%
McCormick & Company, Inc. 5,600 141
Gold Mining -- 13.5%
<F1> Ambrex Mining Corp. (Can.) 260,000 26
<F1> Dayton Mining Corp. 24,100 92
<F1> El Dorado Gold Corp. Ltd. 20,200 79
<F1> Emperor Gold Corp. (Can.) 19,000 16
<F1> Getchell Gold Corp. 5,000 176
Placer Dome, Inc. 8,000 131
-------
520
Metals & Mining - General -- 12.3%
<F1><F2><F3> African Selection Mining 50,000 30
Cambior, Inc. 2,000 23
<F1> Hecla Mining Co. 15,000 80
Inco Ltd. 6,000 180
Inco Ltd. - Class "VBN" (Can.) 6,050 124
Newmont Mining Corp. 1,000 39
-------
476
Mineral Exploration -- 25.7%
<F1> Cream Minerals Ltd. (Can.) 90,800 60
<F1> Expatriate Resources Ltd. (Can.) 122,600 178
<F1> NDU Resources Ltd. (Can.) 278,000 161
<F1> Nordac Resources Ltd. (Can.) 92,900 74
<F1> Pan African Resources Corp. (Can.) 980,650 185
<F1> Valerie Gold Resources Ltd. (Can.) 327,100 337
-------
995
Oil & Gas Exploration -- 9.9%
British Petroleum Co. ADR 1,500 112
Elf Aquitane S.A. ADR 5,000 272
-------
384
Pharmaceuticals & Drugs -- 6.8%
<F1> Ligand Pharmaceuticals - Class "B" 3,000 39
Pharmacia & Upjohn, Inc. 5,000 174
<F1> Xoma Corp. 10,000 48
-------
261
Retail/Department Stores-- 1.3%
Wal-Mart Stores, Inc. 1,500 51
-------
TOTAL COMMON STOCKS (Cost - $4,147) $ 2,984
PREFERRED STOCKS -- 1.7%
Battle Mountain Gold Preferred 1,400 $ 67
-------
TOTAL PREFERRED STOCKS (Cost - $70) $ 67
LONG-TERM GOVERNMENT
OBLIGATIONS -- 15.4%
German Government Obligations -- 6.3%
Bundes Obligations,
5.875%, Due 5/15/00 (Par = DM100) $ 67 $ 60
German Federation Unity Bonds,
8.00%, Due 1/21/02 (Par = DM280) 203 183
-------
243
U. S. Government Obligations -- 6.4%
U.S. Treasury Note,
6.00%, Due 6/30/99 200 200
U.S. Treasury Note,
6.00%, Due 10/15/99 50 50
-------
250
World Bank Obligations -- 2.7%
World Bank Note,
6.125%, Due 9/27/02 (Par = DM170) 117 103
TOTAL LONG-TERM GOVERNMENT -------
OBLIGATIONS (Cost - $637) $ 596
TOTAL INVESTMENTS IN SECURITIES -------
% OF NET ASSETS - 94.3% (Cost - $4,854) $ 3,647
<F1> Non-income producing
<F2> Board Valued
<F3> Security contains some restrictions as to public resale. Cost basis $37.
<FN> (Can.) = Canadian Traded Security
DM = Deutsche Mark
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS
June 30, 1997 (Unaudited)
Fontaine Global Income Fund
Shares/ Value
Par (000) (000)
<S> <C> <C>
COMMON STOCKS -- 39.6%
Automobiles -- 3.5%
Toyota Motor Corp. ADR 1,000 $ 59
Diamonds & Gemstones -- 0.1%
<F1> Diamond Fields International 500 1
Food Processing -- 3.0%
McCormick & Company, Inc. 2,000 50
Gold Mining -- 4.1%
<F1> Ambrex Mining Corp. (Can.) 21,000 2
<F1> Getchell Gold Corp. 1,900 67
-------
69
Metals & Mining - General -- 16.9%
Cambior, Inc. 4,000 45
<F1> Hecla Mining Co. 5,000 27
Inco Ltd. 1,500 45
Inco Ltd. - Class "VBN" (Can.) 2,300 47
<F1> Teck Corp. - Class "B" (Can.) 6,000 122
-------
286
Mineral Exploration -- 7.8%
<F1> Expatriate Resources Ltd. (Can.) 26,000 37
<F1> Guyanor Resources S.A. (Can.) 3,400 10
<F1> Southwestern Gold Corp. (Can.) 6,000 41
<F1> Valerie Gold Resources Ltd. (Can.) 42,500 44
-------
132
Oil & Gas Exploration -- 2.2%
British Petroleum Co. ADR 500 37
Retail/Department Stores -- 2.0%
Wal-Mart Stores, Inc. 1,000 34
-------
TOTAL COMMON STOCKS (Cost - $847) 668
PREFERRED STOCKS -- 2.0%
Battle Mountain Gold Preferred 700 $ 33
-------
TOTAL PREFERRED STOCKS (Cost - $35) $ 33
LONG-TERM GOVERNMENT
OBLIGATIONS -- 45.2%
German Government Obligations -- 25.5%
Bundes Obligations,
5.875%, Due 5/15/00 (Par = DM440) $ 305 $ 266
German Federation Unity Bonds,
8.00%, Due 1/21/02 (Par = DM250) 181 163
-------
429
U. S. Government Obligations -- 7.1%
U.S. Treasury Note,
6.00%, Due 8/31/97 50 50
U.S. Treasury Note,
5.125%, Due 6/30/98 70 70
-------
120
World Bank Obligations -- 12.6%
World Bank Note,
6.125%, Due 9/27/02 (Par = DM350) 240 213
TOTAL LONG-TERM GOVERNMENT -------
OBLIGATIONS (Cost - $845) 762
TOTAL INVESTMENTS IN SECURITIES -------
% OF NET ASSETS - 86.8% (Cost - $1,727) $ 1,463
<F1> Non-income producing
<FN> (Can.) = Canadian Traded Security
DM = Deutsche Mark
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
THE FONTAINE TRUST / June 30, 1997 (Unaudited)
Capital Global Global
Appreciation Growth Income
------------ ---------- ----------
(amounts are actual)
<S> <C> <C> <C>
ASSETS
Investments at Market Value:
Capital Appreciation (Cost $4,521,137) $ 3,997,095
Global Growth (Cost $4,854,397) $ 3,647,164
Global Income (Cost $1,727,356) $ 1,463,185
Cash & Cash Equivalents 1,205,252 619,352 171,877
Dividends and Interest Receivable 26,927 14,537 20,578
Receivable for Investments Sold 159,794 78,747 45,996
Receivable for Fund Shares Sold 896 8,815 1,600
Prepaid Expenses 9,716 10,961 5,031
---------- ---------- ----------
TOTAL ASSETS 5,399,680 4,379,576 1,708,267
LIABILITIES
Payable for Investments Purchased 219,879 448,313 18,026
Payable for Fund Shares Redeemed 15,025 62,493 --
Payable for Shareholder Distributions -- -- 4,286
Accrued Expenses 6,463 3,504 255
---------- ---------- ----------
TOTAL LIABILITIES 241,367 514,310 22,567
---------- ---------- ----------
NET ASSETS $ 5,158,313 $ 3,865,266 $ 1,685,700
ANALYSIS OF NET ASSETS:
Paid-in-capital applicable to shares
outstanding;$.001 par value, unlimited
number of shares authorized:
Capital Appreciation: 607,524 shares $ 6,397,237
Global Growth: 417,722 shares $ 5,889,276
Global Income: 174,857 shares $ 2,040,630
Undistributed net investment income/(loss) 30,351 (4,195) (12,061)
Accumulated net realized loss (745,233) (812,582) (78,698)
Unrealized depreciation of investments (524,042) (1,207,233) (264,171)
---------- ---------- ----------
NET ASSETS $ 5,158,313 $ 3,865,266 $ 1,685,700
NET ASSET VALUE PER SHARE $ 8.49 $ 9.25 $ 9.64
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
THE FONTAINE TRUST/For the Six Months Ended June 30, 1997 (Unaudited)
Capital Global Global
Appreciation Growth Income
------------ -------- --------
(amounts are actual)
<S> <C> <C> <C>
INVESTMENT INCOME
Income
Dividends $ 8,580 $ 24,914 $ 6,996
Interest 71,832 29,564 38,632
------- ------- -------
Total Income 80,412 54,478 45,628
Expenses
Investment Management Fees 28,314 22,064 9,149
Shareholder Servicing Fees 8,005 15,002 3,595
Custodian and Accounting Fees 2,119 2,309 1,049
Legal & Auditing Fees 7,587 7,291 2,744
Prospectus & Shareholder Reports 2,585 3,779 826
Registration Fees 4,189 4,770 2,688
Trustees' Fees & Expenses 507 236 101
Insurance/Miscellaneous Costs 2,285 1,783 1,220
------- ------- -------
Total Expenses Before Waivers
And Reimbursement From Adviser 55,591 57,234 21,372
Less:
Waivers And Reimbursement From Adviser (7,997) (12,225) (3,382)
------- ------- -------
Net Expenses 47,594 45,009 17,990
------- ------- -------
NET INVESTMENT INCOME 32,818 9,469 27,638
REALIZED AND UNREALIZED
LOSS FROM INVESTMENTS
Net Realized Loss From Investments (418,438) (772,266) (78,698)
Unrealized Depreciation on Investment (157,918) (759,779) (194,292)
---------- ---------- ----------
NET LOSS ON INVESTMENTS (576,356) (1,532,045) (272,990)
DECREASE IN NET ASSETS FROM ---------- ---------- ----------
OPERATIONS $ (543,538) $(1,522,576) $ (245,352)
<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
Six Months Six Months
Ended Year Ended Year
6/30/97 Ended 6/30/97 Ended
(Unaudited) 12/31/96 (Unaudited) 12/31/96
----------- -------- ----------- --------
(amounts are actual)
<S> <C> <C> <C> <C>
CHANGE IN NET ASSETS
Operations
Net investment income $ 32,818 $ 5,860 $ 9,469 10,845
Net realized gain/(loss) from investments (418,438) 1,025,313 (772,266) 354,248
Change in unrealized depreciation from investments (157,918) (299,752) (759,779) (441,604)
-------- -------- -------- --------
Change in Net Assets from Operations (543,538) 731,421 (1,522,576) (76,511)
Distributions to Shareholders
Net investment income -- (5,861) -- (10,701)
In excess of net investment income -- (97,256) -- (42,145)
Net realized gain on investments -- (965,016) -- (354,247)
In excess of net realized gain on investments -- (232,041) -- (11,362)
-------- -------- -------- --------
Change in Net Assets From Distributions to Shareholders -- (1,300,174) -- (418,455)
Net Equalization -- 55 -- --
Capital Share Transactions
Capital Appreciation
Sold 16,357 and 251,892 shares 154,153 2,900,335
Distributions reinvested of 0 and 130,666 shares -- 1,224,345
Redeemed 92,667 and 193,950 shares (857,101) (2,433,568)
Global Growth
Sold 176,636 and 530,302 shares 2,198,110 7,702,621
Distributions reinvested of 0 and 30,964 shares -- 383,646
Redeemed 143,063 and 246,905 shares (1,613,155) (3,488,543)
--------- --------- --------- ---------
Change in Net Assets from Capital Share Transactions (702,948) 1,691,112 584,955 4,597,724
--------- --------- --------- ---------
CHANGE IN NET ASSETS (1,246,486) 1,122,414 (937,621) 4,102,758
NET ASSETS
Beginning of period 6,404,799 5,282,385 4,802,887 700,129
--------- --------- --------- ---------
End of period $ 5,158,313 $ 6,404,799 $ 3,865,266 $ 4,802,887
<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
Six Months
Ended Year
6/30/97 Ended
(Unaudited) 12/31/96
--------- --------
(amounts are actual)
<S> <C> <C>
CHANGE IN NET ASSETS
Operations
Net investment income $ 27,638 $ 41,603
Net realized gain/(loss) from investments (78,698) 184,770
Change in unrealized depreciation from investments (194,292) (74,151)
-------- --------
Change in Net Assets From Operations (245,352) 152,222
Distributions to Shareholders
Net investment income (29,191) (41,808)
In excess of net investment income -- (9,715)
Net realized gain on investments -- (184,770)
-------- --------
Change in Net Assets From Distributions to Shareholders (29,191) (236,293)
Capital Share Transactions
Global Income
Sold 22,996 and 235,669 shares 248,277 2,715,884
Distributions reinvested of 1,279 and 16,818 shares 13,044 184,487
Redeemed 102,826 and 100,375 shares (1,059,867) (1,117,054)
--------- ---------
Change in Net Assets from Capital Share Transactions (798,546) 1,783,317
--------- ---------
CHANGE IN NET ASSETS (1,073,089) 1,699,246
NET ASSETS
Beginning of period 2,758,789 1,059,543
--------- ---------
End of period $ 1,685,700 $ 2,758,789
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
THE FONTAINE TRUST
Capital
Appreciation
Six
Months
Ended Year Year Year Year
6/30/97 Ended Ended Ended Ended
(Unaudited) 12/31/96 12/31/95 12/31/94 12/31/93
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.37 $ 10.67 $ 10.75 $ 10.75 $ 9.60
Investment Activities
Net Investment Income<F2> 0.05 0.01 0.26 0.07 0.135
Net Realized and Unrealized
Gain/(Loss) on Investments (0.93) 1.59 1.42 0.18 1.215
----- ----- ----- ----- -----
Total From Investment Activities (0.88) 1.60 1.68 0.25 1.35
Distributions
Net Investment Income -- (0.01) (0.26) (0.18) (0.135)
In Excess of Net Investment Income -- (0.22) -- -- --
Net Realized Gains -- (2.15) (1.50) (0.07) (0.065)
In Excess of Net Realized Gains -- (0.52) -- -- --
----- ----- ----- ----- -----
Total Distributions -- (2.90) (1.76) (0.25) (0.20)
----- ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD $ 8.49 $ 9.37 $ 10.67 $ 10.75 $ 10.75
Ratio of Expenses to
Average Net Assets <F2> 1.60%<F1> 1.49% 1.50% 1.50% 1.50%
Ratio of Net Investment Income
to Average Net Assets 0.55% 0.09% 2.16% 1.41% 1.15%
Total Investment Return -9.39% 15.00% 15.49% 2.34% 14.09%
Portfolio Turnover Rate 311.8%<F1> 372.7% 96.0% 135.6% 131.7%
Average Commission Paid $0.0196 $0.0195 -- -- --
Net Assets End of Period (000's) $5,158 $6,405 $5,282 $5,679 $8,903
<F1>Annualized
<F2>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:
1.87%, 1.89%, 2.10%, 2.23% and 1.81%.
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
THE FONTAINE TRUST (Cont'd)
Global
Growth
Six
Months
Ended Year Year Year Year
6/30/97 Ended Ended Ended Ended
(Unaudited) 12/31/96 12/31/95 12/31/94 12/31/93
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.50 $ 10.03 $ 9.61 $ 10.34 $ 9.33
Investment Activities
Net Investment Income<F2> 0.02 0.06 0.21 0.16 0.14
Net Realized and Unrealized
Gain/(Loss) on Investments (3.27) 3.65 1.14 (0.20) 1.11
----- ----- ----- ----- -----
Total From Investment Activities (3.25) 3.71 1.35 (0.04) 1.25
Distributions
Net Investment Income -- (0.02) (0.22) (0.16) (0.11)
In Excess of Net Investment Income -- (0.10) -- -- --
Net Realized Gains -- (1.09) (0.71) (0.53) (0.13)
In Excess of Net Realized Gains -- (0.03) -- -- --
----- ----- ----- ----- -----
Total Distributions -- (1.24) (0.93) (0.69) (0.24)
----- ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD $ 9.25 $ 12.50 $ 10.03 $ 9.61 $ 10.34
Ratio of Expenses to
Average Net Assets<F2> 1.74%<F1> 1.46% 1.44% 1.45% 1.50%
Ratio of Net Investment Income
to Average Net Assets 0.18% 0.36% 2.36% 1.69% 1.15%
Total Investment Return -26.00% 37.10% 13.97% -0.35% 13.39%
Portfolio Turnover Rate 270.8%<F1> 252.8% 101.5% 114.1% 263.8%
Average Commission Paid $0.0091 $0.0144 -- -- --
Net Assets End of Period (000's) $3,865 $4,803 $700 $341 $349
<F1>Annualized
<F2>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:
2.21%, 1.82%, 2.04%, 1.45% and 3.62%.
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
THE FONTAINE TRUST (Cont'd)
Global
Income
Six
Months
Ended Year Year Year Year
6/30/97 Ended Ended Ended Ended
(Unaudited) 12/31/96 12/31/95 12/31/94 12/31/93
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.89 $ 10.46 $ 10.16 $ 10.78 $ 9.37
Investment Activities
Net Investment Income<F2> 0.11 0.26 0.36 0.29 --
Net Realized and Unrealized
Gain/(Loss) on Investments (1.23) 1.33 0.91 (0.13) 1.92
----- ----- ----- ----- -----
Total From Investment Activities (1.12) 1.59 1.27 0.16 1.92
Distributions
Net Investment Income (0.13) (0.30) (0.35) (0.39) --
In Excess of Net Investment Income -- (0.07) -- -- --
Net Realized Gains -- (0.79) (0.62) (0.39) (0.51)
----- ----- ----- ----- -----
Total Distributions (0.13) (1.16) (0.97) (0.78) (0.51)
----- ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD $ 9.64 $ 10.89 $ 10.46 $ 10.16 $ 10.78
Ratio of Expenses to
Average Net Assets<F2> 1.48%<F1> 1.24% 1.21% 1.21% 1.25%
Ratio of Net Investment Income
to Average Net Assets 1.13% 2.30% 3.35% 2.49% 2.13%
Total Investment Return -10.34% 15.21% 12.62% 1.49% 20.53%
Portfolio Turnover Rate 132.4%<F1> 222.2% 95.9% 129.9% 171.5%
Average Commission Paid $0.0168 $0.0264 -- -- --
Net Assets End of Period (000's) $1,686 $2,759 $1,060 $683 $849
<F1>Annualized
<F2>Excludes investment management fees and other expenses in excess of voluntary expense limitation of 1.50% for Global
Income. Without fees waived or reimbursed by the adviser (see Note 5), the annualized expense ratios would have been:
1.76%, 1.51%, 1.74%, 1.98% and 2.32%.
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
THE FONTAINE TRUST / June 30, 1997
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 $10.00 per share to Richard H.
Fontaine.
The investment objectives of each Fund as well as the nature and risks of
their investment activities are set forth more fully in the Trust's
Prospectus and Statement of Additional Information, dated May 1, 1997.
Note 2 -- Significant Accounting Policies
A -- Security Valuation--Investments in securities traded on a national
securities exchange and securities traded on over-the-counter markets are
valued at the last sale price on the day of valuation. Securities for
which no sale price is available are valued at the last bid price.
Investments in securities for which no market quotations are available are
valued based on quotations provided by broker-dealers or by such other
method approved by the Board of Trustees. Short-term investments are
stated at cost, which when combined with accrued interest receivable,
approximates market value.
B -- Security Transactions and Investment Income--Income and expenses are
recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded by each Fund on the ex-dividend date. Investment
transactions are accounted for on the trade date. Realized gains and
losses from investment transactions and unrealized appreciation and
depreciation of investments are reported on an identified cost basis.
C -- Equalization--Capital Appreciation Fund uses the accounting practice
of equalization, by which a portion of the proceeds from sales and costs of
redemption of capital shares, equivalent on a per share basis to the amount
of undistributed net investment income on the date of the transactions, is
credited or charged to undistributed income. As a result, undistributed
net investment income per share is unaffected by sales or redemptions of
capital shares.
D -- Foreign Currency--Amounts denominated in or expected to settle in
foreign currencies (FC) are translated into United States dollars (US$) 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.)
<PAGE>
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 June 30, 1997, money market balances
held by Capital Appreciation Fund, Global Growth Fund and Global Income
Fund were $1,205,252, $619,352, and $171,877, respectively. These accounts
are overnight money market sweep accounts with a variable interest rate
(4.40% as of June 30, 1997).
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.
<PAGE>
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 June 30, 1997, the aggregate cost of securities for federal income tax
purposes for Capital Appreciation Fund, Global Growth Fund and Global
Income Fund were $4,521,137, $4,854,397, and $1,727,356, 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 $ 48,974 $ 30,649 $ 12,905
Depreciated Investments (573,016) (1,237,702) (277,076)
--------- --------- ---------
Net Unrealized Depreciation $(524,042) $(1,207,233) $(264,171)
</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 fund' election to
push capital losses incurred post October 31, 1996 to the next fiscal year.
<PAGE>
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 $2,665,813 $898,557 $199,672
Sales 1,563,622 696,906 803,656
Securities Other Than Short-Term
and U. S. Government Securities:
Purchases $4,769,332 $5,743,729 $1,201,233
Sales 4,973,458 5,359,084 1,246,560
</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.
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.)
Capital Appreciation Fund: Pursuant to this agreement, $7,997 of
management fees were waived by the Adviser which exceeded the 1.50% expense
limitation for the six months ended June 30, 1997. In addition, $363,450
of fees and expenses were waived or reimbursed by the Adviser in prior
periods. As of June 30, 1997, the Fund owed $4,261 to the Adviser for
management fees payable.
Global Growth Fund: Pursuant to this agreement, $12,225 of management fees
were waived by the Adviser which exceeded the 1.50% expense limitation for
the six months ended June 30, 1997. In addition, $33,874 of fees and
expenses were waived or reimbursed by the Adviser in prior periods. As of
June 30, 1997, the Fund owed $3,009 to the Adviser for management fees
payable.
Global Income Fund: Pursuant to this agreement, $3,382 of management fees
were waived by the Adviser which exceeded the 1.25% expense limitation for
the six months ended June 30, 1997. In addition, $40,836 of fees and
expenses were waived or reimbursed by the Adviser in prior periods. As of
June 30, 1997, the Fund owed $1,096 to the Adviser for management fees
payable.
<PAGE>
Notes to Financial Statements (Cont'd)
B -- Transfer Agent--During the six months ended June 30, 1997, Capital
Appreciation Fund, Global Growth Fund and Global Income Fund, incurred
transfer agent fees and expenses of approximately $7,502, $14,377, and
$3,306, respectively, for shareholder and accounting services provided by
Richard Fontaine and Company, Inc., an affiliate of the Adviser. As of
June 30, 1997, transfer agent fees payable by Capital Appreciation Fund,
Global Growth Fund and Global Income Fund were $1,023, $2,248 and $535,
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.
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 June 30, 1997, 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 97,536.155 $ 828,081.96 16.05%
Private Accounts under
Adviser Management 36,162.773 307,021.94 5.95%
----------- ---------- ------
TOTAL 133,698.928 $1,135,103.90 22.00%
</TABLE>
<TABLE>
Global Growth Fund
Shares Dollar Amount % Net Assets
<S> <C> <C> <C>
Richard H. Fontaine and
Members of the Board of Trustees 29,943.054 $ 276,973.25 7.17%
Private Accounts under
Adviser Management 30,124.855 278,654.91 7.21%
----------- ---------- ------
TOTAL 60,067.909 $ 555,628.16 14.38%
</TABLE>
<TABLE>
Global Income Fund
Shares Dollar Amount % Net Assets
<S> <C> <C> <C>
Richard H. Fontaine and
Members of the Board of Trustees 21,171.270 $ 204,091.04 12.11%
Private Accounts under
Adviser Management 77,239.094 744,584.87 44.17%
----------- ---------- ------
TOTAL 98.410.364 $ 948,675.91 56.28%
</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.
<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
