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:
[ ] 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
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)
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(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:
2) Aggregate number of securities to which transaction applies:
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.
4) Proposed maximum aggregate value of transaction:
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
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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<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)
67 Wall Street
New York, New York 10005
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Notice of Special Meeting of Shareholders
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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 10:00 a.m. (Eastern time) at the Harmonie Club, 4 East 60th Street, New
York, New York, on Friday, March 12, 1999, for the purposes indicated below:
(1) To approve the proposed Investment Advisory Agreements (the "New
Advisory Agreements") between the Funds and Cornerstone Equity Advisors, Inc.
("Cornerstone");
(2) To ratify 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;
(3) To elect a slate of six (6) members to the Boards of the Funds to hold
office until their successors are duly elected and qualified;
THE FOLLOWING PROPOSAL APPLIES TO SHAREHOLDERS OF THE TAX-FREE MONEY MARKET
SERIES:
(4) To reclassify as non-fundamental an investment policy prohibiting
investments in other investment companies;
(5) To transact such other matters as may properly come before the Meeting
or any adjournment thereof.
Shareholders of record as of the close of business on January 14, 1999 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
February 22, 1999
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.
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)
67 Wall Street
New York, New York 10005
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PROXY STATEMENT
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<PAGE>
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 March 12, 1999 special meeting of shareholders
(the "Meeting").
SUMMARY OF PROPOSALS
(1) To approve 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;
(3) To elect a slate of six (6) members to the Boards of the Funds to hold
office until their successors are duly elected and qualified;
THIS PROPOSAL APPLIES ONLY TO SHAREHOLDERS OF THE TAX-FREE MONEY MARKET
SERIES:
(4) To reclassify as non-fundamental an investment policy prohibiting
investments in other investment companies;
(5) 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 February 22, 1999.
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, 2 and 4 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 (Proposal 3). 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
(Proposal 3). The chart below shows which Funds will be voting on the various
proposals:
FUND PROPOSALS TO BE VOTED
- ---- --------------------------
1 2 3 4
--------------------------
Fundamental U.S. Government Strategic Income Fund X X X
High-Yield Municipal Bond Series X X X
Tax-Free Money Market Series X X X X
The California Muni Fund X X X
New York Muni Fund X X X
Shareholders of record at the close of business on January 14, 1999 (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:
FUND TOTAL SHARES OUTSTANDING
- ---- ------------------------
Fundamental U.S. Government Strategic Income Fund 3,690,797.687
High-Yield Municipal Bond Series 266,845.544
Tax-Free Money Market Series 5,576,232.330
The California Muni Fund 2,199,057.166
New York Muni Fund 139,451,725.121
<PAGE>
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 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
Cornerstone 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 $22,500. 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 Shareholder Communications
Corporation to assist with proxy solicitations, on behalf of the Fund Boards,
the cost of which (estimated to be $20,000) will also be borne equally by
Cornerstone and the Funds.
If the Proposals are approved, it is anticipated that they will become
effective as soon as practical thereafter.
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 (at
that time consisting of Mr. James C. Armstrong and Mr. L. Greg Ferrone) selected
Cornerstone to provide investment advisory services to the Funds during the
interim period commencing September 29, 1998 until the date of this Meeting (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").
<PAGE>
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 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 in November
1997.
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, who at the
time, was a portfolio co-manager affiliated with Tocqueville and the principal
portfolio manager for the Funds, 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 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 an 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.
<PAGE>
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 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. See
Nominees for Election as Board Member.
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. The management fees and
management services to be performed under the New Advisory Agreements are
substantially the same as those 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 the daily 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 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:
<TABLE>
<CAPTION>
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%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGH-YIELD MUNICIPAL BOND SERIES:
AVERAGE DAILY NET ASSET VALUE ANNUAL FEE PAYABLE
----------------------------- ------------------
<S> <C>
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%
TAX-FREE MONEY MARKET SERIES; THE CALIFORNIA MUNI FUND; NEW YORK MUNI FUND:
AVERAGE DAILY NET ASSET VALUE ANNUAL FEE PAYABLE
----------------------------- ------------------
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. This could cause the Fund to realize losses. 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 "Consulting and Licensing
Agreements" below.
As of the Record Date, the Fundamental Funds believed that clients of
market-timers owned in the aggregate:
<TABLE>
<S> <C>
49% of New York Muni Fund, which had total assets of $113,095,349.07;
40% of The California Muni Fund, which had total assets of $17,504,495.04; and
47% of Tax-Free Money Market Series, which had total assets of $5,5761,244.47.
</TABLE>
CONSULTING AND LICENSING AGREEMENTS
DESCRIPTION OF AGREEMENTS: Cornerstone and Lance M. Brofman as an
individual ("Brofman") entered into a Consulting and Services Agreement (the
"Consulting Agreement") and a Software Licensing Agreement (the "Licensing
Agreement") (collectively, the "Consulting and Licensing Agreements") in August
1998 which are to run through January 1, 2006. The software license includes
programs designed to develop strategy models to be used in connection with
market-timing activities among the Funds and software designed to facilitate and
assure compliance with various mutual fund rules and regulations. ALL FEES
RECEIVED BY BROFMAN PURSUANT TO THE CONSULTING AND LICENSING AGREEMENTS ARE TO
COME FROM CORNERSTONE AND ARE NOT IN ANY WAY AN EXPENSE OR LIABILITY OF THE
FUNDS. The Licensing Agreement provides that Cornerstone (and not the Funds) pay
monthly fees to Brofman in the amount of $62,500. However, the Independent Board
Members, at the time of the September 25, 1998 Special Board Meeting, believed
it was inappropriate for Cornerstone to pay Brofman monthly fees of $62,500
under the Licensing Agreement, that such fees were excessive and that, in any
event, a substantial portion of any amounts payable to Brofman should be
deducted in order to first satisfy some of FPA's past due obligations (see
below). The amounts payable pursuant to the Licensing Agreement are subject to
reduction due to declines in the Funds' assets resulting from declines in the
market value of the Funds' securities portfolios or certain net shareholder
redemptions. Fees due under the Licensing Agreement began accruing on September
28, 1998. The Consulting Agreement provides that Cornerstone (and not the Funds)
pay fees to Brofman in the amount of 0.50% per year of the average amount by
which the net assets of the Funds exceed $150 million. The total net assets of
the Funds have not been at that level since the Consulting Agreement took
effect, thus no payments have been made or are owing under the Consulting
Agreement. As of January 31, 1999 the total net assets of the Funds were $144
million.
<PAGE>
LIMITATIONS UNDER THE AGREEMENTS PURSUANT TO BOARD ACTION: Notwithstanding
the amount of the fees described in the Licensing Agreement or in any other
agreement or arrangement between Cornerstone and Brofman, Cornerstone has
represented to the Fund Boards that Cornerstone and Brofman have each agreed
that the maximum monthly amount of any fees payable to Brofman or FPA under any
agreement or arrangement would be limited to $30,000. Cornerstone also
represented that Cornerstone and Brofman have also agreed that the Licensing
Agreement would be continued only for three successive 12-month periods,
provided that each 12-month continuation is approved by a majority vote of the
Funds' Independent Board Members. Brofman has notified counsel to the Funds of
his disagreement with the foregoing representations made to the Fund Boards by
Cornerstone and that he intends to pursue all of his rights under the Consulting
and Licensing Agreements (see "Description of Agreements" above). The Fund
Boards are not a party to the Consulting and Licensing Agreements and the Fund
Boards have no position on the full nature of the Consulting and Licensing
Agreements.
PAYMENTS TO SETTLEMENT CLASS PURSUANT TO BOARD ACTION: On February 12,
1999, the Fund Boards directed Cornerstone to place a substantial portion of any
fee payments to Brofman in escrow in order to satisfy FPA's 1998 and 1999
payment obligations to members of a Settlement Class.1 Cornerstone is required
to place into an escrow account for the benefit of the Settlement Class (as
defined in Footnote 1) out of the amounts it would otherwise pay Brofman under
the Consulting and Licensing Agreements 83 1/3% of any payment to Brofman until
such time as FPA's 1998 and 1999 payment obligations to the Settlement Class,
each in the amount of $102,115, have been paid. For example, if a monthly
payment of $30,000 would otherwise be paid to Brofman under the Licensing
Agreement, $25,000 of such amount would be placed in escrow and paid to members
of the Settlement Class and $5,000 would be released to Brofman. All of the
costs associated with issuing checks and distributing them to members of the
Settlement Class together with any of the costs of maintaining the escrow
account ("Class Payment Expenses") will be added to FPA's 1998 and 1999 payment
obligations. Consequently, Brofman will, in effect, be paying for all Class
Payment Expenses. On February 12, 1999, the Fund Boards also authorized the
release of $176,157 from an escrow account and from amounts withheld for payment
to FPA pursuant to an agreement with Brofman and FPA, the provisions of which
provide for, among other things, the immediate payment of $50,000 by FPA into an
escrow account for the benefit of members of the Settlement Class. The $176,157
released represented the sum of: (i) $106,863, the amount previously escrowed by
Vincent J. Malanga on behalf of FPA, Fundamental Service Corporation, and
certain of their directors, officers, shareholders, employees and control
persons, following a demand therefor by the Funds' Independent Board Members,
and (ii) $69,294, the amount of management fees withheld for payment to FPA
pursuant to action previously taken by the Funds' Independent Board Members.
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, consisting of Messrs. Armstrong and
Ferrone, 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 best interests of the
shareholders of the Funds and took into account all such factors as they deemed
relevant, but gave no greater weight to any of the following factors: (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) the management fees and management services to be
performed under the New Advisory Agreements are substantially the same as those
under the FPA Agreements, and will be performed by personnel having
substantially equivalent qualifications; (iii) that the payments to be made by
Cornerstone to Brofman under the Consulting and Licensing Agreements, and
Cornerstone's agreement to deposit certain portions of such payments into an
escrow account, may potentially benefit members of the Settlement Class and
shareholders of the Funds should the Fund Boards authorize release of escrowed
amounts directly to the Funds, for example, upon any finding of "disabling
conduct"; (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.
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 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 November 30, 1998 to the earlier of (i) the
date of the Meeting or (ii) March 31, 1999 (the "Interim Advisory Fees").
November 30, 1998 is the date of an SEC Order permitting Cornerstone to act as
an interim investment adviser to the Fundamental Funds for a maximum period of
120 days from the date of the Order, pursuant to written contracts which have
not been approved by shareholders of the Funds. March 31, 1999, represents the
end of the 120-day period for which Cornerstone could receive the Interim
Advisory Fees. It is expected that the Meeting would take place prior to March
31, 1999. 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 their 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.
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.
PROPOSAL NO. 3
ELECTION OF BOARD MEMBERS
At the Meeting, shareholders are asked to elect a slate of six nominees for
positions on the Boards, including four 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.
Five individuals not currently serving on the Boards have been nominated to
serve as Board Members. If elected by shareholders, the five nominees will serve
together with the current member of the present Boards, Mr. L. Greg Ferrone.
Six 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>
<TABLE>
<CAPTION>
INFORMATION REGARDING NOMINEES'
PRINCIPAL OCCUPATION AND OTHER INFORMATION
NAME AND PRINCIPAL OCCUPATION BOARD AMOUNT OF
DURING THE PAST FIVE YEARS MEMBER BENEFICIAL OWNERSHIP
AND DIRECTORSHIPS OF AGE SINCE OF SHARES OF THE FUNDS
- ---------------------------- --- -------- --------------------
<S> <C> <C> <C>
WILLIAM J. ARMSTRONG. Vice President and 56 Nominee N/A
Treasurer, Ingersoll-Rand Company (5/86 - Present);
Trustee, Chase Vista Funds.
L. GREG FERRONE. Senior Manager, ARC Partners 47 1987* 47,657.950
(10/97 - Present); Consultant, IntraNet, Inc. (Tax-Free Money Mkt)
(4/90 - 10/97); Sales & Marketing Director, 393.617
RAV Communications (4/85 - 4/90); (US Government)
Vice President/Regional Manager, 374.699++
National Westminster Bank USA (3/78 - 4/85). (New York Muni)
G. JOHN FULVIO.+ Treasurer, Cornerstone Equity 41 Nominee 1,211.709
Advisors, Inc. (4/97 - Present); Partner, (New York Muni)
Speer & Fulvio (3/87 - 4/97).
STEPHEN C. LESLIE.+ Chairman and CEO, 45 Nominee 1,211.709
Cornerstone Equity Advisors, Inc. (New York Muni)
(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).
LEROY E. RODMAN. Counsel, Morrison, 85 Nominee N/A
Cohen, Singer & Weinstein, LLP
(1996 - Present); Senior Partner,
Teitelbaum, Hiller, Rodman,
Paden & Hibsher, P.C. (1990 - 1996).
DR. YVONNE SCRUGGS-LEFTWICH. 65 Nominee N/A
Executive 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.
+ Denotes "interested person" of the Funds as defined in the 1940 Act.
++ Mr. Ferrone owns 15,221.576 shares of the US Government Fund on behalf of a
minor's trust account.
The Boards met 11 times during the fiscal year ended December 31, 1998. 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 Cornerstone.
<PAGE>
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. The table below 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, 1998. Mr. Ferrone, the current Board
Member nominated for election attended at least 75% of the meetings that were
held in the calendar year ended December 31, 1998. The Executive Officers of the
Funds are set forth in the table below. Each officer of the Funds will serve at
the discretion of the Boards.
Dating back to November, 1997, four Board Members have resigned. Messrs.
Clark L. Bullock and James A. Bowers, two Independent Board Members, resigned on
November 2 and 3, 1997, respectively over disagreements with the other Board
Members concerning the Tocqueville Reorganization and "excessive" 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.
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, 1998 FROM FUND TO BOARD MEMBER FERRONE DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998
- ------------------------------------------- ------- -------------------------------------------------------
<S> <C> <C> <C> <C>
New York Muni Fund $12,401 11 2 3
The California Muni Fund 1,518 11 2 3
High-Yield Municipal Bond Series 170 11 2 3
Tax-Free Money Market Series 4,693 11 2 3
Fundamental U.S. Government
Strategic Income Fund 718 11 2 3
Total Compensation 19,500
</TABLE>
- --------------------------------------------------------------------------------
* For services and attendance at Board Meetings and other committee meetings
which are common to each Fund, each Board Member who is not affiliated with the
adviser, Cornerstone, is compensated at the rate of $6,500 per quarter prorated
among the Funds based on their respective average net assets. It is expected
that the four nominees who are not affiliated with Cornerstone will receive such
compensation from the Funds.
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 Firstar
Mutual Fund Services LLC.
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.
<PAGE>
PROPOSAL NO. 4
RECLASSIFICATION AS NON-FUNDAMENTAL OF THE TAX-FREE
MONEY MARKET SERIES' INVESTMENT POLICY REGARDING
PURCHASES OF SECURITIES OF OTHER INVESTMENT COMPANIES
The Tax-Free Money Market Series currently has a fundamental investment
policy prohibiting investments in other investment companies, except as part of
a merger, consolidation, or acquisition of assets. If approved by shareholders,
this restriction would be reclassified as non-fundamental. The Board of Trustees
would then be able to authorize the Fund to invest in other investment
companies, investments not currently permitted by virtue of the policy now
proposed for elimination. Cornerstone has indicated that it will seek
authorization from the new Board of Trustees to permit the Fund to invest in
other investment companies. Upon investing in other investment companies, the
Fund will bear a portion of the expenses of the underlying fund or funds, in
addition to its own expenses. The 1940 Act currently limits the amount an
investment company may invest in other investment companies. Under these
limitations, the Fund may only purchase up to 3% of the total outstanding
securities of any underlying fund. In addition, an underlying fund whose shares
are purchased by the Fund will be obligated to redeem shares held by the Fund in
an amount up to 1% of the underlying fund's outstanding securities during any
period less than 30 days. Because of the 1940 Act limitations, shares held by
the Fund in excess of 1% of an underlying fund's outstanding securities will be
considered not readily marketable securities, which together with other such
securities may not exceed 10% of the Fund's net assets. If authorized by the
Board of Trustees, the Fund could potentially invest an unlimited amount of its
assets in underlying funds. Cornerstone believes that the flexibility to invest
in other investment companies will potentially enable the Fund to achieve a
higher yield and remain competitive with other funds with similar investment
objectives.
RECOMMENDATION OF THE BOARDS
The remaining Independent Board Member recommends that shareholders of the
Tax-Free Money Market Series vote "FOR" Proposal No. 4 and reclassification as
non-fundamental of an investment policy prohibiting investments in other
investment companies.
VOTE REQUIRED FOR PROPOSAL NO. 4
Approval of Proposal No. 4 requires the affirmative vote of (i) 67% or more
of the shares of the Tax-Free Money Market Series 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 of the Tax-Free Money Market Series on the Record
Date, whichever is less.
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.
PRINCIPAL SHAREHOLDERS
As of the Record Date, to the best knowledge of each Fund and its Board,
except as set forth below, no person owned beneficially or of record more than
5% of the outstanding shares of a Fund. As of the Record Date, the officers and
Board Members of each Fund beneficially owned less than 1% of the shares of each
Fund.
<TABLE>
<CAPTION>
5% BENEFICIAL OWNERS
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL PERCENT
FUND BENEFICIAL OWNER OWNERSHIP OF FUND
---- ------------------- ---------- -------
<S> <C> <C> <C>
High-Yield Municipal Bond Series Kenneth S. & Heidi G. Widelitz, Trustees 26,957 10.10%
The Widelitz Family Trust
U/A Dtd 04/15/94
10519 Lauriston Ave.
Los Angeles, CA 90064
High-Yield Municipal Bond Series Kenneth S. Widelitz, Custodian 13,446 5.05%
Bryce Scott Widelitz Utma CAAge 21
10519 Lauriston Ave.
Los Angeles, CA 90064
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL PERCENT
FUND BENEFICIAL OWNER OWNERSHIP OF FUND
---- ------------------- ---------- -------
<S> <C> <C> <C>
High-Yield Municipal Bond Series Vivian Kaufman, Trustee 39,222 14.70%
Vivian Kaufman Revocable Trust
U/A Dtd Oct 06 93
1900 S. Ocean Blvd., Apt. 5S
Pompano Beach, FL 33062-8000
High-Yield Municipal Bond Series Donald M. Sullivan 18,172 6.81%
29-07 148th St., Apt. 32U
Flushing, NY11354-2455
High-Yield Municipal Bond Series Evelyn H. Brady 16,326 6.12%
222 E. 56th St., Apt. 3E
New York, NY10022-3718
Fundamental U.S. Government
Strategic Income Fund Fleet National Bank, Custodian 351,721 9.53%
FBO Peter &Ruth Nicholas
Attn 0000907870
PO Box 92800
Rochester, NY 14692-8900
Tax-Free Money Market Series Birk S. McCandless, Trustee 2,122,888 35.44%
Birk S. McCandless
Intervivos Trust
U/A Dtd Aug 16 95
3945 Freedom Ctr., Ste. 640
Santa Clara, CA 95054-1225
Tax-Free Money Market Series Bruce E. Berman & 437,112 7.30%
Bente H. Berman Jt Ten
4355 Golf Course Dr.
Westlake Village, CA 91362-4309
Tax-Free Money Market Series Bente H. Berman & 365,703 6.10%
Bruce Berman, Trustees
Bente H. Berman MD Retirement
Trust U/A Dtd Apr 22 96
4355 Golf Course Dr.
Westlake Village, CA 91362-4309
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL PERCENT
FUND BENEFICIAL OWNER OWNERSHIP OF FUND
----- ------------------- ---------- -------
<S> <C> <C> <C>
The California Muni Fund Eugene L. Lessner, Trustee 147,349 6.7%
Lessner Revocable Living Trust
U/A Dtd Nov 17 86
3244 San Amadeo, Unit 3A
Laguna Hills, CA 92653-3876
The California Muni Fund James V. Nanning 121,918 5.54%
Cook Ave., Cottage 310
Sea Island, GA 31561
The California Muni Fund JCI High Yield Fund LP 175,509 7.98%
960 Caughlin Xing # 100
Reno, NV 89509-0631
The California Muni Fund High Sierra Investments 157,264 7.15%
960 Caughlin Xing #100
Reno, NV 89509-0631
</TABLE>
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.
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: February 22, 1999
SHAREHOLDERS ARE REQUESTED TO FILL IN, DATE AND SIGN THE PROXY CARD AND RETURN
IT PROMPTLY IN THE ENCLOSED PREPAID ENVELOPE.
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");
WITNESSETH
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:
<PAGE>
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:
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 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 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:
<PAGE>
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 (Declaration of
Trust) 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 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/trustees of the
Investment Adviser may serve as officers or directors 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 by a majority of the outstanding
voting securities 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' 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.
<PAGE>
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.
(FUND)
By:
---------------------------------
Attest:
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Cornerstone Equity Advisors, Inc.
By:
---------------------------------
Attest:
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