FUNDAMENTAL FUNDS INC, PRE 14A, 1998-12-11

FUNDAMENTAL FUNDS INC
PRE 14A, 1998-12-11

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[X] Preliminary Proxy Statement

[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))

[ ] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12

<PAGE>

Fundamental Fixed-Income Fund
(Fundamental U.S. Government Strategic Income Fund)
(High-Yield Municipal Bond Series)
(Tax-Free Money Market Series)
The California Muni Fund
Fundamental Funds, Inc.
(New York Muni Fund)
(Name of Registrant as Specified In Its Charter)
----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

1) Title of each class of securities to which transaction applies:

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2) Aggregate number of securities to which transaction applies:

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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined.

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4) Proposed maximum aggregate value of transaction:

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5) Total Fee Paid:

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[ ] Fee paid previously with preliminary materials

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid

<PAGE>

previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:

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2) Form, Schedule or Registration Statement No.:

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3) Filing Party:

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4) Date Filed:

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<PAGE>

67 Wall Street
New York, New York 10005

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Notice of Special Meeting of Shareholders

------------------------------------------

To the Shareholders
of the Fundamental Funds:

NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the
"Meeting") of Fundamental U.S. Government Strategic Income Fund, High-Yield
Municipal Bond Series and Tax-Free Money Market Series of Fundamental
Fixed-Income Fund, The California Muni Fund and New York Muni Fund series of
Fundamental Funds, Inc. (each, a "Fund" and, collectively, the "Funds") will be
held at ______ (Eastern time) at ____________ on January ___, 1999, for the
purposes indicated below:

(1) To approve or disapprove the proposed Investment Advisory
Agreements (the "New Advisory Agreements") between the Funds and
Cornerstone Equity Advisors, Inc. ("Cornerstone");

(2) To consider ratification of the payment of advisory fees (the
"Interim Advisory Fees") by the Funds to Cornerstone for the period
from _______ through the date of the Meeting;

(3) To elect a slate of five (5) members to the Boards of the
Funds to hold office until their successors are duly elected and
qualified;

(4) To transact such other matters as may properly come before the
Meeting or any adjournment thereof.

<PAGE>

Shareholders of record as of the close of business on December __, 1998
are entitled to receive notice of, and to vote at, the Meeting and any and all
adjournments thereof. Your attention is called to the accompanying Proxy
Statement.

By Order of the Boards of The Fundamental Funds

Joseph Neuberger
Secretary

December __, 1998

You can help avoid the necessity and expense of sending follow-up letters to
ensure a quorum by promptly returning the enclosed proxy. If you are unable to
attend the meeting, please mark, sign, date and return the enclosed proxy so
that the necessary quorum may be represented at the meeting. The enclosed
envelope requires no postage if mailed in the United States.

<PAGE>

67 Wall Street
New York, New York 10005
----------------------------------

PROXY STATEMENT
----------------------------------

The enclosed proxy is solicited by the Board of Trustees of Fundamental
Fixed-Income Fund, on behalf of its Fundamental U.S. Government Strategic Income
Fund, High-Yield Municipal Bond Series and Tax-Free Money Market Series, the
Board of Trustees of The California Muni Fund and the Board of Directors of
Fundamental Funds, Inc. (the "Boards" or "Board Members") on behalf of its New
York Muni Fund series (each, a "Fund" and, collectively, the "Funds").
Fundamental Fixed-Income Fund, The California Muni Fund and Fundamental Funds,
Inc. (referred to herein collectively as the "Fundamental Funds") are each
registered open-end investment companies having their executive office at 67
Wall Street, New York, New York 10005. The proxy is revocable at any time before
it is voted by sending written notice of the revocation to The Fundamental Funds
or by appearing personally at the January __, 1999 special meeting of
shareholders (the "Meeting").

SUMMARY OF PROPOSALS

(1) To approve or disapprove the proposed Investment Advisory
Agreements (the "New Advisory Agreements") between the Funds and
Cornerstone Equity Advisors, Inc. ("Cornerstone");

(2) To consider ratification of the payment of advisory fees (the
"Interim Advisory Fees") by the Funds to Cornerstone for the period
from November 30, 1998 through the date of the Meeting;

<PAGE>

(3) To elect a slate of five (5) members to the Boards of the
Funds to hold office until their successors are duly elected and
qualified;

(4) To transact such other matters as may properly come before the
Meeting or any adjournment thereof.

PLEASE FILL IN, DATE AND SIGN THE PROXY CARD AND RETURN THE CARD IN THE
RETURN ENVELOPE PROVIDED.

This combined Notice of Special Meeting and Proxy Statement and proxy
card are first being mailed to shareholders on or about December __, 1998.

<PAGE>

INTRODUCTION

The Meeting is being called to approve new investment advisory
agreements, ratify advisory fees paid during an interim period, and to elect new
Board Members to fill vacancies.

Description of Voting

Approval of Proposals 1 and 2 require the affirmative vote of a
"majority of the outstanding voting securities," within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act") of each Fund. The
term "majority of the outstanding voting securities" is defined under the 1940
Act to mean: (a) 67% or more of the outstanding Shares present at the Meeting,
if the holders of more than 50% of the outstanding Shares are present or
represented by proxy, or (b) more than 50% of the outstanding Shares of a Fund,
whichever is less. A plurality of the votes cast at the Meeting by the
shareholders of The California Muni Fund and New York Muni Fund is required for
the election of Board Members of such Funds. Shareholders of Fundamental U.S.
Government Strategic Income Fund, High-Yield Municipal Bond Series and Tax-Free
Money Market Series vote together in the election of trustees of Fundamental
Fixed-Income Fund. A plurality of the votes cast at the Meeting by shareholders
of such Funds is required for the election of trustees.

Shareholders of record at the close of business on Decmeber __, 1998
(the "Record Date"), are entitled to receive notice of, and to vote at, the
Meeting, including any adjournment thereof. As of the Record Date, the
Fundamental Funds had the number of Shares outstanding set forth below, each
Share being entitled to one vote:

Total Shares
Fund Outstanding
---- -----------

Fundamental U.S. Government Strategic Income Fund
High-Yield Municipal Bond Series
Tax-Free Money Market Series
The California Muni Fund
New York Muni Fund

Each shareholder will be entitled to one vote for each share and a
fractional vote for each fractional share held. Shareholders holding a majority
(one-third, with respect to The California Muni Fund) of the outstanding Shares
of a Fund at the close of business on the Record Date present in person or by
proxy will constitute a quorum

<PAGE>

for the transaction of business with respect to the Fund at the Meeting. For
purposes of determining the presence of a quorum and counting votes on the
matters presented, Shares represented by abstentions and "broker non-votes" will
be counted as present, but not as votes cast, at the Meeting.

Any proxy which is properly executed and returned in time to be voted
at the Meeting will be counted in determining whether a quorum is present with
respect to a Fund and will be voted as marked. In the absence of any
instructions, such proxy will be voted to approve the Proposals. If a quorum is
not present at the Meeting with respect to a Fund, or if a quorum is present but
sufficient votes to approve the Proposals are not received, the persons named as
proxies may propose one or more adjournments of the Meeting to permit further
solicitation of proxies. In determining whether to adjourn the Meeting, the
following factors may be considered: the nature of the Proposals that are the
subject of the Meeting, the percentage of votes actually cast, the percentage of
negative votes actually cast, the nature of any further solicitation and the
information to be provided to shareholders with respect to the reasons for the
solicitation. Any adjournment will require the affirmative vote of a majority of
those shares of a Fund represented at the Meeting in person or by proxy. A
shareholder vote may be taken for the Proposals in this Proxy Statement prior to
any adjournment if sufficient votes have been received for approval. If a
shareholder abstains from voting as to any matter, then the shares held by such
shareholder shall be deemed present at the Meeting for purposes of determining a
quorum and for purposes of calculating the vote with respect to such matter, but
shall not be deemed to have been voted in favor of such matter. A shareholder
may revoke his or her proxy at any time prior to its exercise by delivering
written notice of revocation or by executing and delivering a later dated proxy
to the address set forth on the cover page of this Proxy Statement, or by
attending and voting at the Meeting.

The costs of preparing and mailing proxy materials will be borne
equally by the Adviser and the Funds, with the Funds' costs being allocated
based in part on a Fund's assets and in part on its number of shareholders. The
Funds' share of the costs is estimated to be $_________. Proxy solicitations
will be made primarily by mail, but may also be made by telephone, facsimile or
personal interview conducted by certain officers or employees of the Fundamental
Funds or Cornerstone. Cornerstone has also retained ___________ to assist with
proxy solicitations, on behalf of the Fund Boards, the cost of which (estimated
to be $ _____) will also be borne equally by Cornerstone and the Funds.

If the Proposal is approved, it is anticipated that it will become
effective as soon as practical thereafter.

<PAGE>

MATTERS TO BE ACTED ON
PROPOSAL NO. 1
APPROVAL OF NEW ADVISORY AGREEMENTS

Section 15 of the 1940 Act requires that each Fund's investment
advisory agreement be in writing, and be approved by both (i) the Board Members
of the Fund (including a majority of the Board Members who are not parties to
the agreement or "interested persons" of any such party ("Independent Board
Members")) and (ii) the Fund's shareholders. The agreement can have an initial
term of two years, but thereafter must be approved for continuance annually by
the Board, including a vote of a majority of the Independent Board Members at an
in-person meeting.

On September 25, 1998, at a Special Board Meeting, the Board Members
selected Cornerstone to provide investment advisory services to the Funds during
the interim period commencing September 29, 1998 until the earlier of the date
of this Meeting or January 27, 1999 (the "Interim Period") and, pending
shareholder approval at this Meeting, to provide continuous advisory services to
the Funds on a regular basis. Cornerstone was selected following the Boards'
decision on May 30, 1998, to not renew the Fundamental Funds' advisory
agreements with Fundamental Portfolio Advisors, Inc. ("FPA"), and a decision on
August 12, 1998, to abandon a proposed reorganization between the Fundamental
Funds and The Tocqueville Trust, a registered investment company. See
"Background" below.

BACKGROUND

Non-renewal of Advisory Agreements with FPA. The Boards' decision to
not renew the advisory agreements with FPA (the "FPA Agreements") was made in
connection with its decision to approve Agreements and Plans of Reorganization
(each a "Plan" and collectively, the "Plans") providing for the transfer of the
assets of the Fundamental Funds to newly created series of The Tocqueville Trust
(the "Reorganization").

On July 15, 1997, the Boards of the Fundamental Funds approved the
Plans and recommended that shareholders of each Fund approve the transactions
contemplated by them. Prior to taking this action, the Independent Board Members
retained an investment banking firm to seek fund organizations willing to manage
the Funds and to submit requests for proposals. The Independent Board Members
had concluded that it was unlikely that a majority of the Funds' Independent
Board Members would approve the continuance of the FPA Agreements beyond
December 31, 1997. FPA advised the Independent Board Members that it had already
received a proposal

<PAGE>

from Tocqueville Asset Management L.P. ("Tocqueville") contemplating investment
company reorganizations pursuant to which Tocqueville would serve as successor
investment adviser to the Funds. Therefore, in addition to submitting requests
for proposals to mutual fund organizations recommended by the investment banking
firm, a request for proposal was also submitted to Tocqueville.

In approving the proposed Tocqueville transaction, the Board Members,
considering the best interest of the shareholders of the Funds, took into
account all such factors as they deemed relevant, but gave no greater weight to
any of the following factors. The Board Members, assisted by independent counsel
and an investment banking firm, narrowed their review to the consideration of
two mutual fund organizations and interviewed representatives of both
organizations. The Board Members' decision to recommend approval of the proposed
transaction by shareholders was based on the totality of the facts and
circumstances; however, the following were the main points in Tocqueville's
favor: (i) Tocqueville had a clear understanding of the Funds' portfolios; (ii)
the other organization did not offer the same shareholder privileges that the
Funds currently offer and that Tocqueville would continue to offer; and (iii)
the Board Members had determined that Tocqueville would be able to provide
superior levels of support and service to the Funds and their shareholders.

Following the Boards' unanimous approval of the Reorganization ,
however, two former Independent Board Members, Mr. James A. Bowers and Mr. Clark
L. Bullock ("Former Independent Board Members"), and one former Interested Board
Member, Dr. Vincent J. Malanga, concluded that the Reorganization was not in the
best interest of the Funds and their shareholders. The Former Independent Board
Members believed that Tocqueville did not have experienced municipal bond fund
portfolio managers; that certain fees related to the Reorganization that would
have been paid by Tocqueville to FPA for services to be rendered shareholders
were excessive; that the other Board Members failed to consider pursuing a
transaction similar to the Reorganization with another mutual fund organization;
and that the Boards needed to further evaluate Tocqueville's internal compliance
control system and personnel. Based on these concerns, the Former Independent
Board Members believed that the Board Members should have sought other
alternatives to Tocqueville. Because the other Board Members failed to act in a
manner which the Former Independent Board Members believed was consistent with
shareholders' interest, the Former Independent Board Members tendered their
resignations as Board Members and their resignations were accepted effective
November 2 and 3, 1997, respectively.

At the time of July 15, 1997 Special Board Meeting, and until sometime
in March, 1998, Dr. Malanga shared the views of two Independent Board Members.
However, after reviewing the testimony that Mr. Christopher P. Culp made to the
staff of the Securities and Exchange Commission (the "SEC"), Dr. Malanga
believed that the Independent Board Members should have investigated fully the
allegations which FPA believes Mr. Culp made

<PAGE>

before the SEC. Because they failed to do so, Dr. Malanga concluded that the
Independent Board Members should be replaced.

The plans for the Reorganization proceeded because the two Independent
Board Members, which constituted a majority of the Fund Boards, continued to
believe that the Reorganization was in the best interest of the Funds and their
shareholders.

Tocqueville as the Initial Interim Adviser. At a Special Board Meeting
held on May 30, 1998, the Boards approved agreements under which Tocqueville
proceeded to provide investment advisory services to the Funds on an interim
basis pending shareholder approval of the Reorganization. Tocqueville's interim
advisory agreements (the "Tocqueville Agreements") were effective for a 120-day
period commencing June 1, 1998. The Tocqueville Agreements were substantially
similar to the FPA Agreements which had been previously approved by the Boards
and Fund shareholders.

On August 12, 1998, the Boards agreed to abandon and terminate plans
for the Reorganization and seek alternative investment management arrangements
for the Funds. Rather than liquidating the Funds, internalizing portfolio
management, or placing the Funds into receivership, the Boards decided to pursue
other interim investment management arrangements. As part of that process, the
Boards conducted due diligence inquires into other possible interim investment
managers. Due to the time-consuming nature of such inquiries, the Boards'
selection of Cornerstone on September 25, 1998 came at a time that was very
close to the expiration date of the 120-day interim period for the Tocqueville
Agreements (September 28, 1998). Consequently, the Boards directed the filing of
an application for a order (the "Application") with the SEC exempting the Funds
and Cornerstone from certain provisions of the 1940 Act. In effect, the
Application would provide the Funds another 120-day interim period during which
time the shareholders would have the opportunity to approve the selection of
another investment adviser. The SEC granted the Application on November 30,
1998.

DESCRIPTION OF CORNERSTONE

Cornerstone was organized as a Nevada corporation in 1997 and is
registered with the SEC as an investment adviser under the Investment Advisers
Act of 1940, as amended (the "Advisers Act"). Other than the Funds, Cornerstone
has approximately $20 million of assets under management. The Funds' assets are
being managed by Mr. Stephen C. Leslie, Chairman and Chief Executive Officer of
Cornerstone. Mr. Leslie has approximately 17 years' experience with fixed-income
securities and, specifically, municipal bond portfolios. Neither Cornerstone nor
any of its predecessors has acted as an investment adviser to any investment
company registered under the 1940 Act other than the Funds. The address of
Cornerstone is 67 Wall Street, New York, New

<PAGE>

York 10005.

Officers and Directors of Cornerstone. Set forth below are the names
and principal occupations of each principal executive officer and director of
Cornerstone:

NAME PRINCIPAL OCCUPATION /+/
- --------- -----------------------
Stephen C. Leslie* Chairman of the Board and Chief Executive Officer
James A. De Matteo President and Director
G. John Fulvio** Director and Treasurer.

/+/ Title with Cornerstone unless otherwise indicated.
* Mr. Leslie also serves as President of the Funds.
** Mr. Fulvio also serves as Chief Financial Officer of the Funds.

The address of each of the above principal executive officers and directors
of Cornerstone is 67 Wall Street, New York, New York 10005.

SUMMARY OF THE NEW ADVISORY AGREEMENTS

The following is a summary of the terms of each New Advisory Agreement.
Shareholders should review the form of New Advisory Agreement (see Exhibit A
hereto) for the complete terms of the agreement. Under the New Advisory
Agreements, the Funds will receive the same advisory services provided in
substantially the same manner and at the same fee levels as the Funds received
under the FPA Agreements. Cornerstone is responsible for the overall management
of the business affairs and assets of each Fund, subject to the authority of its
Board. Cornerstone manages and supervises each Fund's investment portfolio and
directs the purchase and sale of its investment securities subject at all times
to the policies and control of the Fund's Board.

Cornerstone pays all of the ordinary operating expenses of each Fund,
including executive salaries and the rental of office space, with the exception
of the following, which are to be paid by the Fund: (1) charges and expenses for
determining from time-to-time, the net asset value of the Fund and the keeping
of its books and records, (2) the charges and expenses of any auditors,
custodian, transfer agent, plan agent, dividend disbursing agent and registrar
performing services for the Fund, (3) brokers' commissions, and issue and
transfer taxes, chargeable to the Fund in connection with securities
transactions, (4) insurance premiums, interest charges, dues

<PAGE>

and fees for membership in trade associations and all taxes and fees payable by
the Fund to federal, state or other governmental agencies, (5) fees and expenses
involved in registering and maintaining registrations of the shares of the Fund
with the Securities and Exchange Commission and under the securities laws or
regulations of states and other jurisdictions, (6) all expenses of shareholders'
and Board meetings, and of preparing, printing and distributing notices, proxy
statements and all reports to shareholders and to governmental agencies, (7)
charges and expenses of legal counsel to the Fund, (8) compensation of those
Board Members of the Fund as such who are not affiliated with or interested
persons of Cornerstone or the Fund (other than as Board Members), (9) fees and
expenses incurred pursuant to the distribution and marketing plan and (10) such
nonrecurring or extraordinary expenses as may arise, including litigation
affecting the Fund and any indemnification by the Fund of its Board Members,
officers, employees or agents with respect thereto. To the extent any of the
foregoing charges or expenses are incurred by the Fundamental Funds for the
benefit of each of its series, the Fund is responsible for payment of the
portion of such charges or expenses which are properly allocable to the Fund.

For the services it would provide under the terms of the New Advisory
Agreements, Cornerstone would receive monthly fees at the same level as those of
the FPA Agreements. These fees are noted as follows:

Fundamental U.S. Government Strategic Income Fund:

Average Daily Net Asset Value Annual Fee Payable
----------------------------- ------------------
<S> <C>

Net asset value to $500,000,000 .75%
Net asset value of $500,000,000 or more but less than $1,000,000,000 .72%
Net asset value of $1,000,000,000 or more .70%

High-Yield Municipal Bond Series:

Average Daily Net Asset Value Annual Fee Payable
----------------------------- ------------------

Net asset value to $100,000,000 .80%
Net asset value of $100,000,000 or more but less than $200,000,000 .78%
Net asset value of $200,000,000 or more but less than $300,000,000 .76%
Net asset value of $300,000,000 or more but less than $400,000,000 .74%
Net asset value of $400,000,000 or more but less than $500,000,000 .72%
Net asset value of $500,000,000 or more .70%

</TABLE>

<PAGE>

Tax-Free Money Market Series; The California Muni Fund; New York Muni Fund:

Average Daily Net Asset Value Annual Fee Payable
----------------------------- ------------------
<S> <C>

Net asset value to $100,000,000 .50%
Net asset value of $100,000,000 or more but less than $200,000,000 .48%
Net asset value of $200,000,000 or more but less than $300,000,000 .46%
Net asset value of $300,000,000 or more but less than $400,000,000 .44%
Net asset value of $400,000,000 or more but less than $500,000,000 .42%
Net asset value of $500,000,000 or more .40%

</TABLE>

OTHER INFORMATION

Market-Timers. A substantial portion of the assets of the Funds are derived from
professional money managers and investors who invest in the Funds as part of an
asset-allocation or market-timing investment strategy. Market-timers are likely
to redeem or exchange their Fund shares frequently to take advantage of
anticipated changes in market conditions. When market-timers make sudden and
large changes in their investments, they may disrupt the portfolio manager's
strategy by compelling the manager to sell securities intended to be held for
longer periods. Consequently, a Fund may not be able to realize potential
capital appreciation. Other results of market-timing activity may include the
following: higher trading costs to a Fund when excessive exchanging occurs;
significant portfolio turnover that may adversely affect the ability of a Fund
to meet its investment objective; and higher expenses that are unfairly borne by
a Fund's remaining shareholders. Notwithstanding the instability of short-term
assets, any substantial increase in a Fund's asset base (an increase that may
result from market-timing activity), even though temporary, may result in
economies of scale that will benefit the shareholders in the form of lower
expense ratios. For further information concerning market-timing activity, see
"FPA Licensing Agreement" below.

As of the Record Date, the Fundamental Funds believed that
clients of market-timers owned in the aggregate:

__ % of New York Muni Fund, which had total assets of $ _______;

__ % of The California Muni Fund, which had total assets of $ ______; and

__ % of Tax-Free Money Market Series, which had total assets
of $ _____ .

<PAGE>

FPA Licensing Agreement. Cornerstone and FPA have entered into a
licensing agreement pursuant to which Cornerstone (not the Funds) will pay FPA
the sum of $30,000 a month for a 12-month period for providing computer
equipment and services, including a software program designed to develop
strategy models, to be used by Cornerstone in connection with market-timing
activities among the Funds. The licensing agreement further provides that it may
be continued for three successive 12-month periods, provided that each 12-month
continuation is approved by a majority vote of the Funds' Independent Board
Members. Furthermore, the Independent Board Members have directed Cornerstone to
place a substantial portion of the licensing payments in escrow (see below), to
be deducted from any amounts otherwise payable to FPA under the licensing
agreement, pending clarification of certain legal issues and in order to satisfy
FPA's past due payment obligations to members of a settlement class. Both
Cornerstone and FPA have represented to the Boards that they will adhere to the
following escrow provisions considered by the Independent Board Members in
voting to approve the New Advisory Agreements, and to recommend that
shareholders do so also:

1. Cornerstone to place in escrow out of the amounts it would
otherwise pay FPA under the licensing agreement, for the
benefit of the three Funds, the sum of $117,033, representing
the difference between the sum of (i) $106,863, the amount
previously escrowed by FPA and Fundamental Service Corporation
(on behalf of certain of their directors, officers,
shareholders, employees and control persons) (the
"Indemnities") and (ii) $62,834, the amount of management fees
withheld for payment to FPA pursuant to actions taken by the
Funds' Independent Board Members, (total of $169,697) and
$286,730, the aggregate amount of the indemnification payments
received by the Indemnities from three of the Funds during the
fiscal year ended December 31, 1997.

2. Cornerstone to place in escrow out of the amounts it would
otherwise pay FPA under the licensing agreement, for the
benefit of the three Funds, the sum of $81,143, representing
the amount paid to independent legal counsel to determine
whether or not the Indemnities engaged in "disabling conduct."

3. Cornerstone to place in escrow out of the amounts it would
otherwise pay FPA under the licensing agreement, for the
benefit of the members of a settlement class, the sum of
$102,115, representing a past due payment obligation required
to have been made by FPA pursuant to a stipulation of
settlement of a class action suit together with the estimated
costs of issuing checks and distributing them to members of
the settlement class ("Class Payment Expenses").

4. Cornerstone to place in escrow out of the amounts it would
otherwise pay FPA under the licensing

<PAGE>

agreement, for the benefit of members of a settlement class,
any future past due payment obligations required to be made by
FPA pursuant to a stipulation of settlement of a class action
suit together with any Class Payment Expenses.

Payments to FPA by Cornerstone over the initial 12-month period, after
taking the foregoing escrow deductions of $300,291 into account, will,
therefore, be no greater than $59,709. Such amount is subject to further
reduction resulting from any Class Payment Expenses.

SUMMARY OF BOARD DELIBERATIONS

After deciding to abandon the Tocqueville Reorganization, the Boards
considered three potential investment advisers. On September 9, 1998, one of the
Independent Board Members met with representatives from Cornerstone and reviewed
their operations. The Independent Board Members also held other discussions
during the period from September 9 to September 24, 1998. On September 25, 1998,
at a Special Board Meeting, the full Boards held further interviews with
Cornerstone, met separately with their independent counsel, and approved
Cornerstone as interim adviser to the Funds and as successor adviser to the
Funds, subject to shareholder approval. In determining to recommend approval of
the New Advisory Agreements to the shareholders, the Independent Board Members
considered the following significant factors among others: (i) the nature and
quality of the services to be provided to the Funds by Cornerstone, including
its ability to accommodate professional money managers and investors who invest
in the Funds as part of an asset-allocation or market-timing investment
strategy; (ii) under the New Advisory Agreements, the Funds will receive the
same advisory services provided in substantially the same manner and at the same
fee levels, and by personnel having substantially equivalent qualifications, as
the Funds received under the FPA Agreements; (iii) that the payments to be made
by the Adviser to FPA under the licensing agreement, and the Adviser's agreement
to deposit certain portions of such payments into an escrow account, will likely
benefit shareholders of the Funds and members of a settlement class; (iv)
Cornerstone's commitment to the development and expansion of the investment
company business, and (v) the possibility that having a Cornerstone affiliate
act as distributor for the Funds will increase the assets and economies of scale
of the Funds.

<PAGE>

RECOMMENDATION OF THE BOARDS

After carefully considering all of the issues involved, the Remaining
Independent Board Member recommends to shareholders that they vote "FOR"
Proposal No. 1 and the selection of Cornerstone as adviser to the Funds.

VOTE REQUIRED FOR PROPOSAL NO. 1

With respect to each Fund, approval of Proposal No. 1 requires the
affirmative vote of (i) 67% or more of the shares of the Fund present in person
at the Meeting or represented by proxy, if holders of more than 50% of the
outstanding shares on the record date are present, in person or by proxy, or
(ii) more than 50% of the outstanding shares on the record date, whichever is
less.

If Proposal No. 1 is not approved by shareholders of a Fund, the New
Advisory Agreement will not take effect for that Fund.

<PAGE>

PROPOSAL NO. 2
RATIFICATION OF PAYMENT OF
INTERIM ADVISORY FEES

As of September 29, 1998, the Boards approved the execution of interim
investment advisory agreements (the "Interim Advisory Agreements") between the
Funds and Cornerstone whereby Cornerstone agreed to act as interim investment
adviser for the Funds for a period of up to 120 days from September 29, 1998,
pending shareholder approval of the New Advisory Agreements. Except for their
shorter time frame, the Interim Advisory Agreements are identical to the New
Advisory Agreements described above in Proposal No. 1. Since September 29, 1998,
Cornerstone has been providing investment advisory services to the Funds.
However, Cornerstone is seeking shareholder ratification of fees for its
services only from the date of the SEC order permitting them to act as an
investment adviser to the Fundamental Funds pursuant to written contracts which
have not been approved by shareholders of the Funds to the date of the Meeting
(the "Interim Advisory Fees"). If shareholders do not ratify the Interim
Advisory Fees with respect to a Fund, Cornerstone will be reimbursed for its
costs in providing services to the Fund. If shareholders ratify the Interim
Advisory Fees, Cornerstone will receive fees that are equal in rate to the New
Advisory Agreements (which are the same as the FPA Agreements that were approved
by shareholders).

SUMMARY OF BOARD DELIBERATIONS

At the Special Board Meeting on September 25, 1998, the Boards, after
selecting Cornerstone as the new adviser, considered the issue of the Interim
Advisory Fees. The Boards stated that it was its intention to have a contract
with Cornerstone in effect at all relevant times and that it would be equitable
for Cornerstone to receive at least the costs of its services with the
possibility of receiving the same fees that the prior advisers for the Funds had
received. The Boards also believed that it would be in the best interests of the
Funds to have such advisory services available to the Funds during the interim
period.

RECOMMENDATION OF THE BOARDS

In light of these considerations, the Remaining Independent Board
Member recommends that shareholders vote "FOR" Proposal No. 2 and ratification
of the payment of the Interim Advisory Fees.

<PAGE>

VOTE REQUIRED FOR PROPOSAL NO. 2

Approval of Proposal No. 2 requires the affirmative vote of (i) 67% or
more of the shares of the Funds present in person at the Meeting or represented
by proxy, if holders of more than 50% of the outstanding shares on the record
date are present, in person or by proxy, or (ii) more than 50% of the
outstanding shares on the record date, whichever is less.

<PAGE>

PROPOSAL NO. 3
ELECTION OF BOARD MEMBERS

At the Meeting, shareholders are asked to elect a slate of five
nominees for positions on the Boards, including three who are not
"interested persons" of the Fund, to serve as Board Members of the Funds, to
hold office until their successors are duly elected and qualified. It is the
intention of the persons named in the accompanying form of proxy to vote "FOR"
the election of each of the nominees named below, each of whom has consented to
being named in this Proxy Statement and has agreed to serve if elected.

Four individuals not currently serving on the Boards have been
nominated to serve as Board Members. If elected by shareholders, the four
nominees will serve together with the current member of the present Boards, Mr.
L. Greg Ferrone.

Five nominees are to be elected, each to serve until his successor is
duly elected and shall qualify. The current Independent Board Member reserves
the right to substitute another person or persons of his choice as nominee or
nominees if a nominee is unable to serve as a Board Member at the time of the
Meeting for any reason. Nothing, however, indicates that such a situation will
arise. The following table sets forth certain information regarding each nominee
for election as a Board Member by shareholders.

<PAGE>
INFORMATION REGARDING NOMINEES'
PRINCIPAL OCCUPATION AND OTHER INFORMATION

<TABLE>
<CAPTION>
Name and Principal Occupation
During the Past Five Years Board Amount of
and Directorships of Member Beneficial Ownership
Public Companies Age Since of Shares of the Funds

<S> <C> <C> <C>
William J. Armstrong. Vice President and [ ] Nominee [ ]
Treasurer, Ingersoll-Rand Company (5/86 -
Present); Trustee, Chase Vista Funds.

L. Greg Ferrone. Senior Manager, ARC 47 1987* [ ]
Partners ( -Present); Consultant, IntraNet, Inc.
( ); Sales & Marketing Director, RAV
Communications ( ); Vice President/Regional
Manager, National Westminster Bank USA
( ).

G. John Fulvio. Treasurer, Cornerstone Equity 41 Nominee [ ]
Advisors, Inc. (4/97 - Present); Partner, Speer &
Fulvio (3/87 - 4/97).

Stephen C. Leslie. Chairman and CEO, 45 Nominee [ ]
Cornerstone Equity Advisors, Inc. (6/97 -
Present); Partner, Wall Street Capital Group
(3/97 - 6/97); Partner, Wall Street Investment
Corp. (11/95 - 3/97); Partner, Tucker Anthony
Securities (8/95 - 10/95); Senior Vice President,
Pryor McClendon Counts & Co. (5/94 - 8/95);
Senior Vice President, Siebert Capital Markets
(6/93 - 5/94).

Dr. Yvonne Scruggs-Leftwich. Executive [ ] Nominee [ ]
Director and Chief Operating Officer, Black
Leadership Forum, Inc.; Director, Joint Center
for Political and Economic Studies (1991 - Present).
</TABLE>

* Mr. Ferrone has been a Board Member of the Fundamental Fixed Income Fund
since 1987 and a Board Member of Fundamental Funds, Inc. and The California
Muni Fund since 1989.

The Boards met fifteen times during the fiscal year ended December 31,
1997. The Boards have Audit, Nominating and Portfolio Review Committees (the
"Committees"). The Committees currently consist of Mr. L. Greg Ferrone. If all
of the nominees to serve on the Boards are elected by shareholders, it is
anticipated that the Committees will consist of Mr. Ferrone and two or more
nominees for election as Board Members who are not "interested persons" of the
Funds or the Adviser.

The Audit Committee makes recommendations to the Boards concerning the
selection of the Funds' independent public accountants and reviews with such
accountants the scope and results of the Funds' annual audits. The function of
the Nominating Committee is the selection and nomination for appointment and
election of candidates to serve as Independent Board Members. The Portfolio
Review Committee oversees the Funds' investment performance and strategies,
internal controls and procedures, prospectus review and compliance with the
investment policies stated therein, and review of annual and semi-annual reports
to shareholders. Exhibit B hereto sets forth certain information regarding
compensation paid to each Board Member and the number of Board, Audit Committee,
Nominating Committee and Portfolio Review Committee Meetings each Fund has held
in the calendar year ended December 31, 1997. Each current Board Member
nominated for election attended at least 75% of the meetings that were held in
the calendar year ended December 31, 1997. The Executive Officers of the Funds
are set forth in Exhibit B hereto. Each officer of the Funds will serve at the
discretion of the Boards.

<PAGE>

shareholder servicing payments to FPA. Dr. Vincent J. Malanga resigned his
positions as Chairman of the Board and as a Board Member of each Fund on July 7,
1998 as a result of his settlement of an SEC administrative proceeding. Finally,
Mr. James C. Armstrong, an Independent Board Member, resigned on October 7,
1998.

RECOMMENDATION OF THE BOARDS
The Remaining Independent Board Member recommends that shareholders
vote "FOR" the election of the nominees under Proposal No. 3.

VOTE REQUIRED FOR PROPOSAL NO. 3
A plurality of the votes cast at the Meeting by the shareholders of The
California Muni Fund and New York Muni Fund is required for the election of
Board Members of such Funds. Shareholders of Fundamental U.S. Government
Strategic Income Fund, High-Yield Municipal Bond Series and Tax-Free Money
Market Series vote together in the election of trustees of Fundamental
Fixed-Income Fund. A plurality of the votes cast at the Meeting by shareholders
of such Funds is required for the election of trustees.

CUSTODIAN, ADMINISTRATOR AND TRANSFER AGENT
Firstar Bank Milwaukee, N.A., which has its principal place of business at
615 East Michigan Street, Milwaukee, Wisconsin 53202, acts as the Funds'
custodian. Firstar Mutual Fund Services, LLC, located at the same address as the
Funds' custodian, acts as the Funds' administrator and transfer agent.

OTHER MATTERS
The Boards do not know of any other business to be brought before the
Meeting. If any other matters properly come before the Meeting, proxies will
vote on such matters in their discretion.

REPORTS TO SHAREHOLDERS AND FINANCIAL STATEMENTS
A copy of each Fund's Annual Report to Shareholders will be furnished,
without charge, to shareholders. Copies of the Fund's Annual Report to
Shareholders may be obtained by calling Firstar Mutual Fund Services, LLC, at
1-800-322-6864.

<PAGE>

SHAREHOLDER PROPOSALS

Each Fund is not required to hold annual meetings of shareholders and
currently does not intend to hold such meetings unless shareholder action is
required in accordance with the 1940 Act or the Fund's Declaration of Trust
(Articles of Incorporation). A shareholder proposal to be considered for
inclusion in the proxy statement at any subsequent meeting of shareholders must
be submitted a reasonable time before the proxy statement for that meeting is
mailed. Whether a proposal submitted will be included in the proxy statement
will be determined in accordance with applicable federal and state laws.

By Order of the Boards of the Fundamental Funds

Joseph Neuberger
Secretary

Dated: December __, 1998

SHAREHOLDERS ARE REQUESTED TO FILL IN, DATE AND SIGN THE PROXY CARD AND RETURN
IT PROMPTLY IN THE ENCLOSED PREPAID ENVELOPE.

<PAGE>

EXHIBIT A

FORM OF

INVESTMENT ADVISORY AGREEMENT
-----------------------------

THIS AGREEMENT is made as of this ______day of ________, by and between
(______), (the "Fund") and Cornerstone Equity Advisors, Inc. (the "Investment
Adviser");

W I T N E S S E T H

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

WHEREAS, the Investment Adviser has a pending registration as
an investment adviser under the Investment Advisers Act of 1940, as amended (the
"Investment Advisers Act"), and engages in the business of acting as an
investment adviser; and

WHEREAS, the Fund and the Investment Adviser desire to enter
into an agreement to provide for the management of the assets of the Fund on the
terms and conditions hereinafter set forth.

NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:

1. Management. The Investment Adviser shall act as investment
adviser for the Fund and shall, in such capacity, supervise the investment and
reinvestment of the cash, securities or other properties comprising the Fund's
assets, subject at all times to the policies and control of the Fund's Board of
Directors/Trustees. The Investment Adviser shall give the Fund the benefit of
its best judgment, efforts and facilities in rendering its services as
investment adviser.

2. Duties of Investment Adviser. In carrying out its
obligation under paragraph 1 hereof, the Investment Adviser shall, subject at
all times to the policies and control of the Fund's Board of Directors/Trustees:

<PAGE>

(a) supervise and manage all aspects of the Fund's
operations;
(b) provide the Fund or obtain for it, and
thereafter supervise, such executive, administrative, clerical and shareholder
servicing services as are deemed advisable by the Fund's Board of
Directors/Trustees;
(c) arrange, but not pay for, the periodic updating
of prospectuses and supplements thereto, proxy material, tax returns, reports to
the Fund's shareholders and reports to and filings with the Securities and
Exchange Commission and state Blue Sky authorities;
(d) provide the Fund with, or obtain for it, adequate
office space and all necessary office equipment and services, including
telephone service, heat, utilities, stationery supplies and similar items for
the Fund's principal office;
(e) provide the Board of Directors/Trustees of the
Fund on a regular basis with financial reports and analyses on the Fund's
operations and the operations of comparable investment companies;
(f) obtain and evaluate pertinent information
about significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally or the
Fund, and whether concerning the individual issuers whose securities are
included in the Fund or the activities in which they engage, or with respect to
securities which the Investment Adviser considers desirable for inclusion in the
Fund;
(g) determine what issuers and securities shall be
represented in the Fund's portfolio and regularly report them to the Board of
Directors/Trustees of the Fund;
(h) formulate and implement continuing programs for
the purchases and sales of the securities of such issuers and regularly report
thereon to the Board of Directors/Trustees of the Fund; and

(i) take, on behalf of the Fund, all actions which
appear to the Fund necessary to carry into effect such purchase and sale
programs and supervisory functions as aforesaid, including the placing of orders
for the purchase and sale of portfolio securities.

3. Broker-Dealer Relationships. The Investment Adviser is
responsible for decisions to buy and sell securities for the Fund, broker-dealer
selection, and negotiation of brokerage commission rates. The Investment

<PAGE>

Adviser's primary consideration in effecting a security transaction will be
execution at a price that is reasonable and fair compared to the commission, fee
or other remuneration received or to be received by other brokers in connection
with comparable transactions, including similar securities being purchased or
sold on a securities exchange during a comparable period of time.

In selecting a broker-dealer to execute each particular
transaction, the Investment Adviser will take the following into consideration:
the best net price available; the reliability, integrity and financial condition
of the broker-dealer; the size of and difficulty in executing the order; and the
value of the expected contribution of the broker-dealer to the investment
performance of the Fund on a continuing basis. Accordingly, the price to the
Fund in any transaction may be less favorable than that available from another
broker-dealer if the difference is reasonably justified by other aspects of the
portfolio execution services offered. Subject to such policies and procedures as
the Board of Directors/Trustees may determine, the Investment Adviser shall not
be deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused the Fund to pay a
broker or dealer that provides brokerage and research services to the Investment
Adviser for the Fund's use an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction, if the Investment
Adviser determines in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Investment Adviser's overall responsibilities with respect to the Fund. The
Investment Adviser is further authorized to allocate the orders placed by it on
behalf of the Fund to such brokers and dealers who also provide research or
statistical material, or other services to the Fund or the Investment Adviser
for the Fund's use. Such allocation shall be in such amounts and proportions as
the Investment Adviser shall determine and the Investment Adviser will report on
said allocations regularly to the Board of Directors/Trustees of the Fund
indicating the brokers to whom such allocations have been made and the basis
therefor.

4. Control by Board of Directors/Trustees. Any investment
program undertaken by the Investment Adviser pursuant to this Agreement, as well
as any other activities undertaken by the Investment Adviser

<PAGE>

on behalf of the Fund pursuant thereto, shall at all times be subject to any
directives of the Board of Directors/Trustees of the Fund.

5. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Investment Adviser shall at all times
conform to:
(a) all applicable provisions of the Investment
Company Act and the Investment Advisers Act and any rules and regulations
adopted thereunder as amended; and
(b) the provisions of the Registration Statements of
the Fund under the Securities Act of 1933, as amended, and the Investment
Company Act; and
(c) the provisions of the Articles of Incorporation
of the Fund, as amended; and
(d) the provisions of the By-laws of the Fund, as
amended; and (e) any other applicable provisions of state and federal law.

6. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and the Investment Adviser as follows:

(a) The Investment Adviser shall furnish, at its
expense and without cost to the Fund, the services of a President, Chief
Financial Officer, Secretary and to the extent necessary, such additional
officers as may be required by the Fund for the proper conduct of its affairs.
(b) The Investment Adviser shall further maintain, at
its expense and without cost to the Fund, a trading function in order to carry
out its obligations under subparagraph (i) of paragraph 2 hereof to place orders
for the purchase and sale of portfolio securities for the Fund.
(c) All of the ordinary business expenses incurred in
the operations of the Fund and the offering of its shares shall be borne by the
Fund unless specifically provided otherwise in this paragraph 6. These expenses
include but are not limited to brokerage commissions, legal, auditing, taxes or
governmental fees, the cost of preparing share certificates, custodian,
depository, transfer and shareholder service agent costs, expenses of issue,
sale, redemption and repurchase of shares, expenses of registering and
qualifying shares for sale, insurance premiums on property or personnel
(including officers and directors if available) of the Fund which inure to its

<PAGE>

benefit, expenses relating to director/trustee and shareholder meetings, the
cost of preparing and distributing reports and notices to shareholders, the fees
and other expenses incurred by the Fund in connection with membership in
investment company organizations and the cost of printing copies of prospectuses
and statements of additional information distributed to shareholders.

7. Compensation. The Fund shall pay the Investment Adviser a
portfolio management fee with respect to the Fund, which fee shall be computed
on the basis of the average net asset value of the Fund as ascertained at the
close of each business day and which fee shall be paid monthly in accordance
with the following schedule:

[SEE FEE SCHEDULE IN THE PROXY STATEMENT FOR MANAGEMENT FEES
APPLICABLE TO YOUR FUND].

8. Non-Exclusivity. The services of the Investment Adviser to
the Fund are not to be deemed to be exclusive, and the Investment Adviser shall
be free to render investment advisory and corporate administrative or other
services to others (including other investment companies) and to engage in other
activities. It is understood and agreed that officers or directors of the
Investment Adviser may serve as officers or directors/trustees of the Fund, and
that officers or directors/trustees of the Fund may serve as officers or
directors of the Investment Adviser to the extent permitted by law; and that the
officers and directors of the Investment Adviser are not prohibited from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, officers, directors or trustees of any
other firm or corporation, including other investment companies.

9. Term and Approval. This Agreement shall become effective at
the close of business on the date hereof and shall remain in force and effect
for two years and thereafter from year to year, provided that such continuance
is specifically approved at least annually (i) by a vote of the majority of
Directors/Trustees who are not parties to this agreement or interested persons
of any such party, cast in person at a meeting called for the purpose; and (ii)
by a vote of the Board of Directors/Trustees of the Fund or a majority of the
outstanding voting shares of the Fund.

10. Termination. This Agreement may be terminated upon sixty
(60) days' written notice to the Investment Adviser by vote of the Fund's Board
of Directors/Trustees or by vote of a majority of the Fund's outstanding voting
securities. This Agreement may be terminated by the Investment Adviser on sixty
(60) days'

<PAGE>

written notice to the Fund. The notice provided for herein may be waived by
either party to this Agreement. This Agreement shall automatically terminate in
the event of its assignment, the term "assignment" for the purpose having the
meaning defined in Section 2(a)(4) of the Investment Company Act.

11. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of the
Fund and that of the Investment Adviser shall be 67 Wall Street, New York, New
York 10005. If to the Fund, an additional copy of any notice under this
Agreement shall be provided to Kramer Levin Naftalis & Frankel LLP, 919 Third
Avenue, New York, New York 10022, attention to Carl Frischling, Esq.

12. Questions of Interpretation. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the Investment Company Act
shall be resolved by reference to such term or provision of the Act and to
interpretations thereof, if any, by the United States Courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the Securities and Exchange Commission issued pursuant to said Act. In
addition, where the effect of a requirement of the Investment Company Act
reflected in any provision of this Agreement is released by rules, regulation or
order of the Securities and Exchange Commission, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.

13. [For Fundamental Fixed-Income Fund and The California Muni
Fund]. Liability of Trustees and Shareholders. A copy of the Agreement and
Declaration of Trust of the Fund is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this instrument
is executed on behalf of the Trustees of the Fund as trustees and not
individually and that the obligations of this instrument are not binding upon
any of the Trustees or shareholders individually but are binding only upon the
assets and property of the Fund.

IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers on the day
and year first above written.

<PAGE>

(FUND)

Attest: By:

-------------------------

- -------------------------

(CORNERSTONE EQUITY ADVISORS, INC. )

Attest:
By:

-------------------------
- -------------------------

<PAGE>

EXHIBIT B

BOARD MEMBER COMPENSATION
(For each current Board Member Receiving
Compensation from a Fundamental Fund for the most
recently completed fiscal year)
BOARD AND COMMITTEE MEETINGS
FUND OFFICERS

<TABLE>
<CAPTION>
Number of
Portfolio
Number of Board Number of Audit Review Committee
Meetings Held Committee Meetings Meetings Held
During Calendar Held During During Calendar
Amounts Paid During Calendar Year Ended L. Greg Year Ended Calendar Year Ended Year Ended
December 31, 1997 From Fund to Board Member Ferrone December 31, 1997 December 31, 1997 December 31, 1997
- ------------------------------------------- ------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
New York
Muni Fund.................................. $20,124 15 2 4

The California
Muni Fund.................................. $ 2,064 15 2 4

High-Yield Municipal
Bond Series................................ $ 336 15 2 4

Tax-Free Money
Market Series.............................. $ 1,979 15 2 4

Fundamental U.S. Government
Strategic Income Fund...................... $ 1,479 15 2 4

Total Compensation......................... $25,982

OFFICERS OF THE FUNDAMENTAL FUNDS

NAME PRINCIPAL POSITION PRINCIPAL OCCUPATION
- ---- -------------------- -----------------------------------------------
Stephen C. Leslie President See Nominees for Election as Board Member
G. John Fulvio Chief Financial Officer See Nominees for Election as Board Member
Joseph Neuberger Secretary Vice President and Manager of Fund Administration
and Compliance Services of F irstar Mutual Fund
Services LLC.
</TABLE>

<PAGE>

FUNDAMENTAL FIXED-INCOME FUND

FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND
SPECIAL MEETING OF SHAREHOLDERS -- JANUARY __, 1999

Please refer to the Proxy Statement for a discussion of these matters. THE
UNDERSIGNED HOLDER(S) OF SHARES OF BENEFICIAL INTEREST OF THE FUNDAMENTAL U.S.
GOVERNMENT STRATEGIC INCOME FUND SERIES OF FUNDAMENTAL FIXED-INCOME FUND HEREBY
CONSTITUTES AND APPOINTS L. GREG FERRONE AND STEPHEN C. LESLIE, OR EITHER OF
THEM, THE ATTORNEYS AND PROXIES OF THE UNDERSIGNED, WITH FULL POWER OF
SUBSTITUTION, TO VOTE THE SHARES LISTED BELOW AS DIRECTED, AND UPON ANY OTHER
BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF,
AND HEREBY REVOKES ANY PRIOR PROXIES. To vote, mark an X in blue or black ink on
the proxy card below. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
OF FUNDAMENTAL FIXED-INCOME FUND.

- ------Detach card at perforation and mail in postage paid envelope provided-----

1. Approval of the proposed Investment Advisory Agreement between the Fund
and Cornerstone Equity Advisors, Inc.

FOR AGAINST ABSTAIN
|_| |_| |_|

2. Ratification of the payment of interim advisory fees to Cornerstone Equity
Advisors, Inc.

FOR AGAINST ABSTAIN
|_| |_| |_|

3. Election of trustees to serve as members of the Board of Trustees of
Fundamental Fixed-Income Fund. The nominees are:
William J. Armstrong, L. Greg Ferrone, G. John Fulvio, Stephen C. Leslie,
and Dr. Yvonne Scruggs-Leftwich.

FOR ALL NOMINEES FOR ALL NOMINEES EXCEPT
|_| |_|

TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE "FOR ALL
NOMINEES EXCEPT" BOX, AND STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST
ABOVE.

<PAGE>

- ------Detach card at perforation and mail in postage paid envelope provided-----

FUNDAMENTAL FIXED-INCOME FUND

FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND
PROXY

This proxy, when properly executed and returned, will be voted in the manner
directed herein by the undersigned. If no direction is made, this proxy will be
voted FOR approval of Proposals 1 and 2, and for election of all nominees.

Please sign exactly as name appears on this card. When account is joint tenants,
all should sign. When signing as administrator, trustee or guardian, please give
title. If a corporation or partnership, sign in entity's name and by authorized
person.

x____________________________

Dated:___________________, 199_

<PAGE>

FUNDAMENTAL FIXED-INCOME FUND

HIGH-YIELD MUNICIPAL BOND SERIES
SPECIAL MEETING OF SHAREHOLDERS -- JANUARY __, 1999

Please refer to the Proxy Statement for a discussion of these matters. THE
UNDERSIGNED HOLDER(S) OF SHARES OF BENEFICIAL INTEREST OF THE HIGH-YIELD
MUNICIPAL BOND SERIES OF FUNDAMENTAL FIXED-INCOME FUND HEREBY CONSTITUTES AND
APPOINTS L. GREG FERRONE AND STEPHEN C. LESLIE, OR EITHER OF THEM, THE ATTORNEYS
AND PROXIES OF THE UNDERSIGNED, WITH FULL POWER OF SUBSTITUTION, TO VOTE THE
SHARES LISTED BELOW AS DIRECTED, AND UPON ANY OTHER BUSINESS THAT MAY PROPERLY
COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF, AND HEREBY REVOKES ANY
PRIOR PROXIES. To vote, mark an X in blue or black ink on the proxy card below.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF FUNDAMENTAL
FIXED-INCOME FUND.

- ------Detach card at perforation and mail in postage paid envelope provided-----

1. Approval of the proposed Investment Advisory Agreement between the Fund
and Cornerstone Equity Advisors, Inc.

FOR AGAINST ABSTAIN
|_| |_| |_|

2. Ratification of the payment of interim advisory fees to Cornerstone Equity
Advisors, Inc.

FOR AGAINST ABSTAIN
|_| |_| |_|

FOR ALL NOMINEES FOR ALL NOMINEES EXCEPT
|_| |_|

TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE "FOR ALL
NOMINEES EXCEPT" BOX, AND STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST
ABOVE.

<PAGE>

- -----Detach card at perforation and mail in postage paid envelope provided------

FUNDAMENTAL FIXED-INCOME FUND

HIGH-YIELD MUNICIPAL BOND SERIES
PROXY

x____________________________

Dated:___________________, 199_

<PAGE>

FUNDAMENTAL FIXED-INCOME FUND

TAX-FREE MONEY MARKET SERIES
SPECIAL MEETING OF SHAREHOLDERS -- JANUARY __, 1999

Please refer to the Proxy Statement for a discussion of these matters. THE
UNDERSIGNED HOLDER(S) OF SHARES OF BENEFICIAL INTEREST OF THE TAX-FREE MONEY
MARKET SERIES OF FUNDAMENTAL FIXED-INCOME FUND HEREBY CONSTITUTES AND APPOINTS
L. GREG FERRONE AND STEPHEN C. LESLIE, OR EITHER OF THEM, THE ATTORNEYS AND
PROXIES OF THE UNDERSIGNED, WITH FULL POWER OF SUBSTITUTION, TO VOTE THE SHARES
LISTED BELOW AS DIRECTED, AND UPON ANY OTHER BUSINESS THAT MAY PROPERLY COME
BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF, AND HEREBY REVOKES ANY PRIOR
PROXIES. To vote, mark an X in blue or black ink on the proxy card below. THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF FUNDAMENTAL
FIXED-INCOME FUND.

- -----Detach card at perforation and mail in postage paid envelope provided-----

1. Approval of the proposed Investment Advisory Agreement between the Fund
and Cornerstone Equity Advisors, Inc.

FOR AGAINST ABSTAIN
|_| |_| |_|

2. Ratification of the payment of interim advisory fees to Cornerstone Equity
Advisors, Inc.

FOR AGAINST ABSTAIN
|_| |_| |_|

FOR ALL NOMINEES FOR ALL NOMINEES EXCEPT
|_| |_|

TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE "FOR ALL
NOMINEES EXCEPT" BOX, AND STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST
ABOVE.

<PAGE>

- -----Detach card at perforation and mail in postage paid envelope provided-----

FUNDAMENTAL FIXED-INCOME FUND

TAX-FREE MONEY MARKET SERIES
PROXY

x____________________________

Dated:___________________, 199_

<PAGE>

THE CALIFORNIA MUNI FUND

SPECIAL MEETING OF SHAREHOLDERS -- JANUARY __, 1999

Please refer to the Proxy Statement for a discussion of these matters. THE
UNDERSIGNED HOLDER(S) OF SHARES OF BENEFICIAL INTEREST OF THE CALIFORNIA MUNI
FUND HEREBY CONSTITUTES AND APPOINTS L. GREG FERRONE AND STEPHEN C. LESLIE, OR
EITHER OF THEM, THE ATTORNEYS AND PROXIES OF THE UNDERSIGNED, WITH FULL POWER OF
SUBSTITUTION, TO VOTE THE SHARES LISTED BELOW AS DIRECTED, AND UPON ANY OTHER
BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF,
AND HEREBY REVOKES ANY PRIOR PROXIES. To vote, mark an X in blue or black ink on
the proxy card below. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
OF THE CALIFORNIA MUNI FUND.

- ------Detach card at perforation and mail in postage paid envelope provided-----

1. Approval of the proposed Investment Advisory Agreement between the Fund
and Cornerstone Equity Advisors, Inc.

FOR AGAINST ABSTAIN
|_| |_| |_|

2. Ratification of the payment of interim advisory fees to Cornerstone Equity
Advisors, Inc.

FOR AGAINST ABSTAIN
|_| |_| |_|

3. Election of trustees to serve as members of the Board of Trustees of The
California Muni Fund. The nominees are: William J. Armstrong, L. Greg
Ferrone, G. John Fulvio, Stephen C. Leslie, and Dr. Yvonne
Scruggs-Leftwich.

FOR ALL NOMINEES FOR ALL NOMINEES EXCEPT
|_| |_|

TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE "FOR ALL
NOMINEES EXCEPT" BOX, AND STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST
ABOVE.

<PAGE>

- -----Detach card at perforation and mail in postage paid envelope provided------

THE CALIFORNIA MUNI FUND

PROXY

x____________________________

Dated:___________________, 199_

<PAGE>

FUNDAMENTAL FUNDS, INC.

NEW YORK MUNI FUND
SPECIAL MEETING OF SHAREHOLDERS -- JANUARY __, 1999

Please refer to the Proxy Statement for a discussion of these matters. THE
UNDERSIGNED HOLDER(S) OF SHARES OF COMMON STOCK OF THE NEW YORK MUNI FUND SERIES
OF FUNDAMENTAL FUNDS, INC. HEREBY CONSTITUTES AND APPOINTS L. GREG FERRONE AND
STEPHEN C. LESLIE, OR EITHER OF THEM, THE ATTORNEYS AND PROXIES OF THE
UNDERSIGNED, WITH FULL POWER OF SUBSTITUTION, TO VOTE THE SHARES LISTED BELOW AS
DIRECTED, AND UPON ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING
OR ANY ADJOURNMENTS THEREOF, AND HEREBY REVOKES ANY PRIOR PROXIES. To vote, mark
an X in blue or black ink on the proxy card below. THIS PROXY IS SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS OF FUNDAMENTAL FUNDS, INC.

- -----Detach card at perforation and mail in postage paid envelope provided------

1. Approval of the proposed Investment Advisory Agreement between the Fund and
Cornerstone Equity Advisors, Inc.

FOR AGAINST ABSTAIN
|_| |_| |_|

2. Ratification of the payment of interim advisory fees to Cornerstone Equity
Advisors, Inc.

FOR AGAINST ABSTAIN
|_| |_| |_|

3. Election of directors to serve as members of the Board of Directors of
Fundamental Funds, Inc. The nominees are: William J. Armstrong, L. Greg
Ferrone, G. John Fulvio, Stephen C. Leslie, and Dr. Yvonne
Scruggs-Leftwich.

FOR ALL NOMINEES FOR ALL NOMINEES EXCEPT
|_| |_|

TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE "FOR ALL
NOMINEES EXCEPT" BOX, AND STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST
ABOVE.

<PAGE>

- ------Detach card at perforation and mail in postage paid envelope provided-----

FUNDAMENTAL FUNDS, INC.

NEW YORK MUNI FUND
PROXY

x____________________________

Dated:___________________, 199_