COVER LETTER
TO: MR. KENNETH RUPERT
SECURITIES AND EXCHANGE COMMISSION
January 13, 1999
Dear Mr. Rupert:
Please find attached revised PRRN14A preliminary proxy material.
Thank you,
Lance Brofman
Fundamental Portfolio Advisors
<PAGE>
SUBJECT COMPANY:
COMPANY DATA:
COMPANY CONFORMED NAME: FUNDAMENTAL FIXED INCOME FUND
CENTRAL INDEX KEY: 0000811668
STANDARD INDUSTRIAL CLASSIFICATION: []
IRS NUMBER: 133644930
STATE OF INCORPORATION: MA
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: PRRN14A
SEC ACT:
SEC FILE NUMBER: 811-05063
FILM NUMBER:
BUSINESS ADDRESS:
STREET 1: 90 WASHINGTON ST - 19TH FL
CITY: NEW YORK
STATE: NY
ZIP: 10006
BUSINESS PHONE: 2126353000
MAIL ADDRESS:
STREET 1: 90 WASHINGTON ST
STREET 2: 19TH FLOOR
CITY: NEW YORK
STATE: NY
ZIP: 10006
FORMER COMPANY:
FORMER CONFORMED NAME: FUNDAMENTAL PORTFOLIO ADVISORS FIXED INCOME FUND
DATE OF NAME CHANGE: 19870715
FILED BY:
COMPANY DATA:
COMPANY CONFORMED NAME: FUNDAMENTAL PORTFOLIO ADVISORS
CENTRAL INDEX KEY: 0000804176
STANDARD INDUSTRIAL CLASSIFICATION: []
IRS NUMBER: 136828244
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: PRRN14A
BUSINESS ADDRESS:
STREET 1: 90 WASHINGTON ST - 19TH FL
CITY: NEW YORK
STATE: NY
ZIP: 10006
BUSINESS PHONE: 2126353000
MAIL ADDRESS:
STREET 1: 90 WASHINGTON ST
STREET 2: 19TH FLOOR
CITY: NEW YORK
STATE: NY
ZIP: 10006
[TYPE]PRRN14A
[DESCRIPTION]PRELIMINARY PROXY STATEMENT
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant | |
Filed by a party other than the registrant |X|
Check the appropriate box:
|X| Preliminary proxy statement
|_| Confidential, for Use of the Commission Only
|_| Definitive proxy statement
|_| Definitive additional materials (as permitted by Rule 14a-6(e)(2))
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Fundamental Fixed-Income Fund
(Fundamental U.S. Government Strategic Income Fund)
(High-Yield Municipal Bond Series)
(Tax-Free Money Market Series)
(Name of Registrant as Specified in Its Charter)
Fundamental Portfolio Advisors, Inc.
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:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| 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:
<PAGE>
PRELIMINARY PROXY MATERIALS
FOR THE INFORMATION OF THE SECURITIES
AND EXCHANGE COMMISSION ONLY
FUNDAMENTAL PORTFOLIO ADVISORS, INC.
90 Washington Street
New York, New York 10006
_______________, 1999
Dear Fellow Shareholder:
The enclosed proxy is being solicited on behalf of
Fundamental Portfolio Advisors, Inc. ("FPA"), which formerly was the
advisor to (i) Fundamental U.S. Government Strategic Income Fund,
High-Yield Municipal Bond Series and Tax-Free Money Market Series of
Fundamental Fixed-Income Fund, (ii) The California Muni Fund, and (iii)
Fundamental Funds, Inc. on behalf of its New York Muni Fund
series (each, a "Fund" and, collectively, the "Funds"). The
Funds are each registered open-end investment companies having
their executive office at 67 Wall Street, New York, New York.
FPA requests that Shareholders call for a meeting of
Shareholders of the Funds to be held at the earliest possible time as
permitted by law as further described in the enclosed proxy material
(the "Meeting"). FPA also solicits the enclosed proxy to vote FOR the
approval of Investment Advisory Agreements with Cornerstone Equity
Advisors, Inc., FOR ratification of the payment of interim advisory
fees to Cornerstone, FOR the election of new Board Members, FOR
such proposals which may be necessary to accomplish the removal and
replacement of the current Board including amending the Articles of
Incorporation of Fundamental Funds, Inc., to permit removal of
directors without cause and termination of the 12b-1 plans; AGAINST
the election of William J. Armstrong and L. Greg Ferrone ("Ferrone")as
board members; FOR removing Ferrone as a board member and FOR a 10-1
reverse stock split for the New York Muni Fund.
Ferrone is the only current member of the Fund's Boards. William
J. Armstrong was nominated to be a board member by Ferrone and James
C. Armstrong ("Armstrong"). Thus the Fund's are all operating with less
than the minimum number of board members required by their Declarations of
Trust or Articles of Incorporation, which is three for the California
Muni Fund and two for the other Funds.
As with the previous proxy material sent to the Shareholders by FPA
in mid-May 1998 we are seeking both to cause a meeting to occur
and soliciting proxies to vote on matters to be considered at the
meeting. Thus, the holders of this proxy are further empowered to take
any such of the Fund, to cause the Meeting to occur and to cause the FPA
Proposals to be brought to a vote of Shareholders.
FPA believes that the proxies executed in response to the
Definitive Proxy Material filed by FPA on May 11, 1998 are valid
until they are revoked or expire. However, numerous events have
transpired since the May 11, 1998. Therefore additional material
information is now available that was not known in May 1998 and thus could
not have been contained in the May 11, 1998 Definitive Proxy Material.
Thus, the requests that a meeting of Shareholders occur contained in
those proxies as well as the letters from Shareholders sent to the Fund
requesting that a Shareholder's meeting occur may or may not still have
effect. We are asking you to execute and respond to the enclosed proxy
card even if you have already responded to the Definitive Proxy Material
filed by FPA on May 11, 1998 or have sent a letter requesting that a
meeting of the Shareholders occur. The May 1998 proxies may be subject
to challenge and the enclosed proxy card allows you to indicate your
vote on proposals and nominees not mentioned on the May 1998 proxies.
As was the case in the spring of 1998, the Fund's board has
filed preliminary proxy material. That preliminary proxy material
filed on December 11, 1998 and supplements filed by the boards to
the Fund's Prospectuses indicate the possibility that a special meeting
may be called by the boards, and various laws and regulations, described
in the enclosed Proxy Statement, require that a meeting be held. The
proxies being solicited may be voted at any meeting of Shareholders that
may occur prior to the proxies being revoked or expiring pursuant to
applicable law. The proxies will be voted as instructed on matters
substantially similar to those enumerated in the enclosed proxy
statement.
<PAGE>
The extreme measures taken by the board to prevent the
Shareholders from holding any meetings, which are described in the
enclosed proxy materials necessitates the solicitation of this proxy.
FPA believes that since May 1998 the board has consistently
disregarded the rights and expressed wishes of the majority of
Shareholders with regard to Shareholders meetings. Furthermore, FPA
believes that the current board member may be reluctant allow
definitive proxy material to be filed, containing truthful and
accurate disclosure concerning the board's conduct relating to the
Fund's involvement with Tocqueville Asset Management L.P.("TAM") and
the Special Meeting action. FPA believes that rather than permit a vote
by Shareholders, the current board member might refuse to set or allow to
be set a record date and meeting date, or attempt in some other way to
circumvent the will of the Shareholders. FPA believes that as long as
Ferrone remains the only board member, the possibility exists that he
may take other action detrimental to the Funds and the Shareholders in an
attempt to circumvent the will of the Shareholders.
FPA believes that Ferrone's continuation as a Board Member is not in
the best interests of the Shareholders for the reasons described in the
enclosed Proxy Statement. FPA believes that Armstrong and Ferrone were
complicit in, knew of or recklessly disregarded actions and conduct by
Tocqueville Asset Management, L.P. ("TAM") that damaged the Funds and
TAM's violations of applicable law. Furthermore, the damages to the Funds
and the lack of any action to date seeking recovery and restitution from
TAM on behalf of the Funds are the result of Armstrong and Ferrone having
deprived the Funds' Shareholders of their rights with respect to holding
Shareholder meetings and other abuse of process.
From May 1998 through January 1999 Armstrong and Ferrone, and then
Ferrone alone, refused to set or allow to be set a record date and
meeting date for a Shareholder meeting despite requests that such a meeting
be held from Shareholders holding majorities of the outstanding shares in
each Fund. A Shareholder meeting is required when requested by holders of
more than 10% of the outstanding shares of any of the Funds. By preventing
the Shareholders from holding a meeting, Armstrong and Ferrone were able to
stop the Shareholders from voting to remove them as board members. Had the
meeting been allowed to occur, Shareholders voting in person or by proxy
could have removed Armstrong and Ferrone and elected new board members.
While Shareholders could have revoked any proxies executed prior to the
meeting or in person at the meeting, by May 25, 1998 sufficient proxies had
been received favoring the removal of Armstrong and Ferrone, that they
would have been removed if the meeting was held and the proxies were not
revoked.
Removing Armstrong and Ferrone would have prevented them from
installing TAM as investment advisor to the Funds. Armstrong and Ferrone
did appoint TAM investment advisor to the Funds on June 1, 1998 for a
period of 120 days without Shareholder approval. Rule 15a-4 of the
Investment Company act permits a temporary 120-day exemption to the
requirement that all investment advisory contracts be approved by a vote of
the shareholders. The installation of TAM as the advisor was not in the
best interests of Shareholders and against the expressed wishes of the
majority of Shareholders. As described in the enclosed Proxy Statement in
the section entitled "Recent Events" TAM caused severe damage to the Funds
and the Shareholders during that period.
FPA believes that Armstrong and Ferrone's actions aimed at preventing
and delaying meetings of the Funds' Shareholders were not in the interests
of Shareholders and were contrary to applicable provisions of the Funds'
Prospectuses, Articles of Incorporation, Declarations of Trust and by-laws.
Furthermore, Armstrong and Ferrone's actions with regard to the Shareholder
meetings violated applicable provisions of Section 16(c) of the Investment
Company Act of 1940, Section 206(4) of the Investment Advisors Act of 1940,
agreements pursuant to a Federal Court Order and Stipulation dated June 8,
1998, an undertaking entered into with The SEC in 1997 and representations
made in the Fundamental Fund's 1990 proxy statement.
FPA believes that Armstrong and Ferrone's actions and conduct with
regard to the Funds' involvement with TAM at minimum were examples of
extremely poor judgment and bad faith. Furthermore, FPA believes that some
of Armstrong and Ferrone's actions were motivated by malice and in
violation of law. In any case, the Funds and their Shareholders were
severely damaged by TAM and the removal and replacement of Ferrone should
facilitate attempts at recovery of the damages caused by TAM. The
background, history and details of TAM's involvement with the Funds and the
Tocqueville Transaction are more fully described in the accompanying Proxy
Statement.
2
<PAGE>
Specific examples of how FPA believes that Armstrong and Ferrone breached
their fiduciary duty to the Funds, by placing their personal agendas ahead
of the interests of the Funds' Shareholders include:
Choosing to spend enormous amounts of the Shareholders
money on litigation to prevent Shareholders' meetings that
had been requested by Shareholders representing the majority
of outstanding shares in each Fund.
Authorizing TAM to act as investment advisor to the Funds
on June 1, 1998 against the expressed wishes of the
Shareholders and without there being the required executed
investment advisory agreements (thus violating Section 15 of
the Investment Company Act), and concealing that fact from
the Shareholders, the SEC and the interested board member.
Their decision in August 1998 to backdate investment
advisory agreements with TAM and thus cause the Funds to pay
fees to TAM as if investment advisory agreements had been
executed on or before June 1, 1998.
Their decision in August 1998 to add clauses to the
backdated investment advisory agreements with TAM that were
not in the original versions, which retroactively
indemnified TAM and limited TAM's liability for losses
sustained by the Funds due to securities transactions. This
was done after they were informed that TAM had executed
transactions (described in the enclosed Proxy Statement)
which damaged the Funds. TAM's tenure as interim investment
advisor was thus prolonged to the maximum 120 days allowed
under Rule 15a-4, despite offers by FPA and other qualified
registered investment advisors to replace TAM. This allowed
TAM to further damage the Funds.
Their decisions in August and September 1998 to
recklessly disregard TAM's violations of rule 2a-7 under the
Investment Company Act of 1940, with regard to the
Fundamental Tax-Free Money Market Fund. Rule 2a-7 limits the
types and amounts of securities that can be purchased by
money market funds. Among the violations of 2a-7 was a
purchase of more than thirty three million dollars of a
single non-rated private placement security (cusip
6498385B1) on August 14, 1998. Immediately after the
purchase, that single issue comprised more than half of the
assets of the Money Market Fund.
We ask you to take the time to consider this important matter and vote
now. In order to make sure that your vote is represented, please indicate
your vote on the enclosed proxy card and date it. Your prompt response
will ensure that your shares are counted at the Meeting. Every vote counts.
If you later find that you are able to attend the Meeting in person, you
may revoke your proxy at the Meeting and vote in person.
Sincerely,
Lance Brofman, President
Fundamental Portfolio Advisors, Inc.
<PAGE>
PRELIMINARY PROXY MATERIALS
FOR THE INFORMATION OF THE SECURITIES
AND EXCHANGE COMMISSION ONLY
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
PROXY STATEMENT
The enclosed proxy is being solicited on behalf of Fundamental
Portfolio Advisors, Inc. ("FPA"), which until May 31, 1998 acted as
advisor to (i) Fundamental U.S. Government Strategic Income Fund (the "U.S.
Fund"), High-Yield Municipal Bond Series and Tax-Free Money Market Series
of Fundamental Fixed-Income Fund, (ii) The California Muni Fund, and (iii)
Fundamental Funds, Inc. on behalf of its New York Muni Fund series
(each, a "Fund" and, collectively, the "Funds"). The Funds are each
registered open-end investment companies having their executive office at
67 Wall Street, New York, New York 10005.
The sole remaining member of the Fund's Board has caused to be filed
preliminary proxy material indicating an intention to call a Meeting for
the purpose of voting on proposals as follows:
I. With respect to each Fund, approving an Investment Advisory Agreement
with Cornerstone Equity Advisors Inc.
II.Ratification of the payment of interim advisory fees to Cornerstone
Equity Advisors, Inc.
III. Electing Board Members.
At that meeting or in a Shareholders meeting that may be called in response
to requests by shareholders or by an officer of the Funds, the
Shareholders will also vote on the proposals put forth by FPA, as follows:
IV. Terminating all plans formed under Rule 12b-1 of the Investment Company
Act of 1940 (the "12b-1 Plans").
V. Removing the current Board member.
VI. With respect to the New York Muni Fund series, amend the Articles of
Incorporation so that Board members may be removed by a majority of votes
cast by Shareholders.
VII. With respect to the New York Muni Fund series approval of a 10-1
reverse stock split.
In addition, to transact such other business as may properly come before
the meeting or any adjournment thereof.
FOR THE REASONS DESCRIBED BELOW UNDER "REPLACING BOARD MEMBERS" AND
"RECENT EVENTS", FPA SOLICITS YOUR PROXY TO VOTE AGAINST THE ELECTION OF
WILLIAM L. ARMSTRONG AND L. GREG FERRONE AS BOARD MEMBERS, AS NOT IN THE
<PAGE>
BEST INTERESTS OF THE SHAREHOLDERS. FPA ALSO SEEKS THIS PROXY TO VOTE FOR
THE FPA PROPOSALS.
The proxy is revocable at any time before it is voted by sending
written notice of the revocation to the Funds or by appearing personally at
the Meeting. The submission of a later dated proxy also revokes any prior
dated proxies.
FPA and its owners have a financial interest in the outcome of the
voting. FPA's contract to manage the Funds expired on May 31, 1998, and
the two independent Board members did not renew or extend the contract.
Currently, the Funds are being managed on an interim basis by Cornerstone.
Cornerstone has executed a Consulting Agreement and a Software License
Agreement with Dr. Brofman (See "LICENSING AND CONSULTING AGREEMENTS") and
anticipates that it will acquire by purchase or via the assumption of lease
obligations furniture, fixtures, office equipment, computers and software
licenses from FPA, Fundamental Service Corporation ("FSC") and Dr. Brofman
(See "ADMINISTRATIVE PROCEEDINGS"). All payments pursuant to those
agreements ARE TO COME FROM CORNERSTONE AND ARE NOT IN ANY WAY AN EXPENSE
OR LIABILITY OF THE FUNDS. Charges pursuant to the Software License
Agreement began accruing on September 28, 1998. The amounts payable
pursuant to the Software License Agreement are obligations of Cornerstone
(NOT THE FUNDS)and are not subject to reduction, and thus will remain
owing, in the event of any advisory change, assignment, merger or
reorganization involving the Funds or any other funds managed by
Cornerstone. The charges are subject to reduction due to declines in Funds
assets resulting from declines in the market value of the Funds' securities
portfolios or certain net shareholder redemptions. Dr. Brofman believes
that despite the fact that Ferrone's primary fiduciary responsibility is to
the Funds, were he to continue as a board member, Ferrone would attempt to
use his position to interfere with contractual rights and in other ways
interfere with the ability of those who have been associated with FPA
(including Dr. Brofman) to perform services for Cornerstone or earn a
livelihood. Furthermore in 1997 and 1998, FSC and FPA reimbursed the Funds
for certain legal expenses by not taking fees otherwise due them. FSC did
not take fees due it from the New York Muni Fund in the amount of $51,200
in 1998. FPA and FSC did not take fees due them from the U.S. Government
Fund in the amount of $96,077 and $29,560, respectively for the year
ended December 31, 1997. FPA and FSC asserted that they elected to forgo
these fees to reimburse the Funds for legal expenses pursuant to
indemnification. Armstrong and Ferrone have taken the position that
forgoing fees did not constitute a reimbursement, but rather was a waiver
that Armstrong and Ferrone believe should not be considered a
reimbursement. There was no agreement or representation written or
otherwise to waive any fees, nor was any fee waiver required during the
period in question. FPA believes that almost any individuals other than
Armstrong and Ferrone would agree that the book entry transactions
authorized by FPA and carried out by the Funds' Custodian Bank and
Accounting agent, had the identical effect of reimbursing the Funds, as
would have been accomplished by the issuance back and forth of physical
checks, or any other payment mechanism. Furthermore FPA believes that any
waiver not required or pursuant to a waiver agreement has the identical
effect of a reimbursement carried out by the physical exchange of checks.
FPA has a further interest in the outcome of the voting in that a portion
of the payments made by Cornerstone will be used to satisfy an obligation
that FPA has to the Settlement Class (See "THE SETTLEMENT CLASS'). The non-
renewal of the Fund's investment advisory contracts in May 1998, caused FPA
to become insolvent and thus unable to meet its financial obligations. (See
"CERTAIN ADDITIONAL INFORMATION ABOUT FPA")
If the 12b-1 Plan for any Fund is terminated, the new Board of such
Fund (or the current Board member if a new Board is not elected) could vote
to reinstate the 12b-1 Plan or to adopt a similar Plan. Any such action
would require the approval of the majority of Shareholders of such Fund.
While the 12b-1 plans are in effect, only the current independent Board
members may select and nominate any independent Board members. Therefore,
termination of the 12b-1 plans is being sought solely to allow the
Shareholders to remove and replace the current independent Board members.
Since the U.S Government Fund, the High Yield Municipal Bond Series and the
Tax-Free Money Market Fund are all series of the Fundamental Fixed-Income
Fund, the 12b-1 plans must be terminated for all three of those Funds, if
trustees of any of those funds are not to be only selected by the current
independent board members. Termination of the 12b-1 plans in either one or
two but not all three of the series would not remove the requirement that
only the current independent board member may select board members for any
of the three funds. With regard to the New York Muni and California Muni
Funds which are not series of the Fundamental Fixed-Income Fund,
termination of the 12b-1 plans is not dependent one way or another on what
happens with any other fund or series. It is highly likely that a new Board
will attempt to reinstate the 12b-1 plans and submit them for Shareholder
approval.
2
<PAGE>
COPIES OF EACH FUNDS' FINANCIAL STATEMENTS AS OF JUNE 30, 1998 MAY BE
OBTAINED, WITHOUT CHARGE, BY CALLING THE FUNDS' TRANSFER AGENT, FIRSTAR
TRUST CO. AT 1-800-225-6864.
This combined Proxy Statement and proxy card are first being mailed to
Shareholders on or about ________, 1999.
INTRODUCTION
Fundamental Portfolio Advisors, Inc. ("FPA") solicits the enclosed
proxy to vote AGAINST the election of William J. Armstrong and L. Greg
Ferrone ("Ferrone"). Ferrone is the current Board member. William J.
Armstrong was nominated to be a board member by Ferrone and James C.
Armstrong ("Armstrong"). In the alternative that Ferrone is able to pursue
a strategy whereby he continues as a Board Member without the Shareholders
having any opportunity to vote upon his re-election or continuance, either
by canceling or delaying the above mentioned meeting, or by any other
means; then the holders of this proxy are further empowered to take any
such action as, in the view of the holders, may be appropriate under
applicable law to cause a meeting to occur at which removal of the current
director can be voted upon. FPA also solicits this proxy to vote FOR the
following:
1. With respect to each Fund, approving an Investment Advisory Agreement
with Cornerstone Equity Advisor' Inc.
2. Ratification of the payment of interim advisory fees to Cornerstone
Equity Advisors, Inc.
3. Electing new Board Members.
4. Terminating all plans formed under Rule 12b-1 of the Investment Company
Act of 1940 (the "12b-1 Plans");
5. Removing the current Board member;
FOR NEW YORK MUNI FUND ONLY:
6. Amend the Articles of Incorporation so that Board members may be
removed by a majority of votes cast by Shareholders.
7. Approve a 10 for 1 reverse stock split for the New York Muni Fund.
8. In the event the Meeting does not take place promptly, or is adjourned,
to permit the proxy holders to take all action (as described below) in the
name of the Shareholders, the President, the Secretary and/or the Board as
allowed under applicable law to (a) cause the Meeting to take place and (b)
cause the FPA Proposals to be presented and voted upon at the Meeting.
In addition, to transact such other business as may properly come
before the meeting or any adjournment thereof.
Information about the 12b-1 Plans is provided below in the section
entitled "Terminating the 12b-1 Plans". A remote possibility exists that
both Proposal 5. could pass, and in the voting on Proposal 3. Mr. Ferrone
could receive enough votes to be elected to the boards of one or more of
the Funds. This would provide an inconsistent result. It is not clear as to
what Mr. Ferrone's status would be in the eventuality, thus the matter
would probably be subject to judicial interpretation.
The Meeting is being called because the Funds have been operating
since June 1, 1998 without an advisory agreement having been approved by a
vote of the Shareholders. Rule 15a-4 of the Investment Company Act, permits
one to act as investment advisor to a mutual fund without approval by a
majority of Shareholders for only 120 days. Rule 15a-4 states as follows:
RULE 15A-4. TEMPORARY EXCEPTION FOR CERTAIN INVESTMENT
ADVISORS.
3
<PAGE>
Notwithstanding section 15(a) of the Act, a person may
act as investment adviser for an investment company pursuant
to a written contract which has not been approved by a
majority of the outstanding voting securities of such
company during the one hundred and twenty day period after
the termination of an investment advisory contract by an
event (other than an assignment by an investment adviser in
connection with which such investment adviser, or
controlling person, thereof, directly or indirectly receives
money or other benefit) described in paragraphs (3) or (4)
of section 15(a) of the Act or by the failure to renew such
contract: Provided, That:
(a) Such contract has been approved by the investment
company's board of directors, including a majority of the
directors who are not interested persons thereof: and
(b) The compensation to be received under the contract
does not exceed the compensation which would have been
received under the most recent investment advisory contract
that had been approved by the vote of a majority of the
outstanding voting securities of the investment advisor.
Upon the expiration of the 120-day period on September 28, 1998, the Funds
applied for an exemptive order from the SEC to allow another 120 days,
which was granted on November 30, 1998. The exemptive order issued by the
SEC allows the Funds to operate without a contract having approved by a
vote of the Shareholders until March 28, 1999, which is 120 days from
November 30, 1998, the date of the order. There is now only one board
member. The Declaration of Trust of the California Muni Fund specifies that
there shall be no less than three board members. The other Fund's
Declarations of Trust and Articles of Incorporation require that there be
no less than two board members. All of the Funds require at least two board
members for a quorum. Furthermore, holders of shares representing
majorities of the outstanding shares in each Fund called for a meeting to
be held in May 1998 for the purpose of removing and replacing the
disinterested board members. The Funds' Prospectuses state that
Shareholders may remove directors from office by a majority of votes
entitled to be cast at a meeting of Shareholders and that Shareholders
holding 10% or more of the Funds' outstanding stock may call a special
meeting of Shareholders. Furthermore the articles of incorporation,
declarations of trust, by-laws, undertakings entered into with the
Securities and Exchange Commission (the "Commission" or the "SEC") and
applicable laws all provided Shareholders the right to call meetings and to
remove and replace directors.
The Meeting is also being called pursuant to a court ordered
stipulation, more fully described below, of which provides that:
As soon as practicable, the Funds will take the
necessary steps (i) to call and notice [the Meeting] for the
purposes of, among other things, to vote upon the
[Tocqueville Transactions] and other issues raised by the
Funds' Proxy Material and [this Proxy Statement] and (ii) to
take all action necessary to cause the [Meeting] to take
place in accordance with applicable law within a reasonable
period of time following SEC approval and mailing of the
Funds' Proxy Material, not to exceed thirty (30) days. The
parties intend and agree that the issues raised by the
Funds' Proxy Material and [this Proxy Statement] will be
submitted to the Funds' Shareholders for resolution and vote
at the [Meeting].
FPA believes that under applicable state law anyone may solicit a proxy for
any Fund.
FPA has serious doubts concerning the sincerity and motives of the sole
board member. The extreme measures taken by the board to prevent the
Shareholders from holding any meetings, which are described in the enclosed
proxy materials, necessitates the solicitation of this proxy. FPA believes
that since May 1998 the board has consistently disregarded the rights and
expressed wishes of the majority of Shareholders with regard to
Shareholders meetings. Furthermore, FPA believes that the current board
member may be reluctant allow definitive proxy material to be filed,
containing truthful and accurate disclosure concerning the board's conduct
relating to the Fund's involvement with Tocqueville Asset Management
L.P.("TAM")and the Special Meeting action. FPA believes that rather than
permit a vote by Shareholders, the current board member might refuse to set
or allow to be set a record date and meeting date, or attempt in some other
way to circumvent the will of the Shareholders. FPA believes that as long
4
<PAGE>
as Ferrone remains the only board member, the possibility exists that he
may take other action detrimental to the Funds and the Shareholders in an
attempt to circumvent the will of the Shareholders. FPA believes that the
existence of executed proxies supporting the election of a new board can
help defend the Funds against action the board might contemplate aimed at
preventing a shareholder meeting from ever occurring. Such actions, which
have been threatened by board members, include dissolving the Funds or
engineering the appointment of an SEC Receiver for the Funds. Thus, with
respect to each Fund, in the event that the Fund, or any appropriate
officer or director of the Fund, for whatever reason fails to call the
Meeting promptly or calls the Meeting and fails to present the Proposals at
the meeting, then the holders of this proxy are further empowered to take
any such action as, in the view of the holders, may be appropriate under
applicable law to compel the Fund, or any appropriate officer or director
of the Fund, to cause the Meeting to occur and to cause the FPA Proposals
to be brought to a vote of Shareholders. The cost of any such action,
including legal fees, shall be initially shall be borne by FPA. FPA
reserves the right, however, to request reimbursement from the Fund for
such costs, including legal fees. It should be noted that even without the
execution of any proxies solicited by this Proxy Statement, the many
compelling legal requirements that a meeting be held. enumerated above,
should eventually cause a meeting to be held.
The Following table summarizes the various proposals, in terms of which
Fund they are applicable to and the voting required for each matter.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NY Muni Fund Money Fund High-Yield Cal Muni US Govt
------------ ---------- ---------- -------- -------
1. Approval of an Investment A A A A A
Advisory Agreement with Cornerstone
Equity Advisors, Inc.
2. Ratification of the Payment A A A A A
of the interim advisory fees to
Cornerstone Equity Advisors, Inc.
3. Election of Board Members C D D C D
4. Terminating the 12b-1 plans B B B B B
5. Remove current Board member B A A B A
6. Amend the Articles of B NA NA NA NA
Incorporation so that Board
Members may be removed by a majority
Of votes cast by Shareholders
7. Approve a 10 for 1 reverse C NA NA NA NA
stock split for the NY Muni
Fund
</TABLE>
A. Requires the affirmative vote of i. 67% 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.
B. Requires the affirmative vote of the majority of outstanding shares.
C. Requires a plurality of votes cast at the meeting by Shareholders.
D. Requires a plurality of votes cast at the meeting by Shareholders.
Shareholders of the 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.
NA. Matter not applicable to that Fund
5
<PAGE>
MATTERS TO BE ACTED ON
By signing the enclosed Proxy and Ballot card you( if a New York Muni
Fund Shareholder) are voting, FOR amending the Articles of Incorporation of
the New York Muni Fund, FOR a 10 to 1 reverse stock split for the New York
Muni Fund, and as a shareholder of all Funds FOR terminating all existing
12b-1 Plans, FOR removing the current Board member and FOR electing new
Board members, For approval of the contracts with Cornerstone, FOR
ratification of the payment of advisory fees to Cornerstone Equity
Advisors, Inc. and FOR the proxy holders to take all action in the name of
the Shareholders, the President, the Secretary and/or the Board as allowed
under applicable law (a) to cause the Meeting to take place and (b) to
cause the FPA Proposals to be presented and voted upon at the Meeting.
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, in
connection with its decision to approve Agreements and Plans of
Reorganization providing for the transfer of the assets of the Fundamental
Funds to newly created series of the Tocqueville Trust, 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 "RECENT
EVENTS" below.
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:
6
<PAGE>
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 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:
7
<PAGE>
Fundamental U.S. Government Strategic Income Fund:
<TABLE>
<CAPTION>
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%
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>
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
8
<PAGE>
for its services only from November 30, 1998, 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 and FPA
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. FPA recommends
voting FOR the proposal.
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
THE NUMBER OF BOARD MEMBERS
If Ferrone is removed or not re-elected and the board members proposed
by FPA are elected, the total number of board members for each fund will be
nine, of which six would be "disinterested". Only disinterested board
members can receive any fees from the Funds and certain matters require
approval by votes of the majority of disinterested board members. In 1989
the Funds' Boards consisted of nine board members, elected by the
Shareholders, of which eight were disinterested. Subsequent deaths and
resignations have left Armstrong and Ferrone as the only board members. FPA
believes that having too few board members can lead to abuses and that much
of the damage to the Funds described above may have been prevented or
mitigated if there been additional board members at the time. In
particular, Armstrong and Ferrone's ability to prevent the Shareholders
meetings by spending enormous amounts of the Shareholder's money on
litigation and threatening to cause severe damage to the Funds and the
Shareholders if attempts were made to exercise the Shareholders rights and
remedies with respect to holding a meeting, was facilitated by the fact
that there were only two disinterested board members. FPA believes they
were at times able to get their way by making specific threats to
"engineer" the appointment of a SEC receiver for the Funds by declaring
that the directors were hopelessly deadlocked among themselves.
Stipulation No.1, which was "so ordered" by Judge Richard Owen on June
8, 1998 after agreement to its terms by all parties, as described above,
contains a paragraph:
9
<PAGE>
9. The Independent Directors will (a) take such
action as is necessary pursuant to Maryland General
Corporation Law Section 2-602 to insure that the
Shareholders of Fundamental Funds, Inc. may vote at the New
Special Meeting to amend the Articles of Incorporation to
permit the removal of directors without cause; and (b) waive
any claim or argument for purposes of the New Special
Meeting that Maryland General Corporate Law Section 2-407(a)
only permits Shareholders of the Fundamental Funds, Inc. to
fill director vacancies resulting from removal by the
Shareholders, thus permitting such Shareholders to fill
vacancies resulting from resignation or death, as well.
FPA believes that 9(b) shown above will permit the Shareholders to fill the
vacancies that are the result of deaths and resignations as well as
replacing the current board member, and that in light of their agreement to
Stipulation No. 1, any attempt by the current board member to prevent such
action by the Shareholders would be an act of bad faith. In the event that
the current board member is removed but, that by changing the authorized
number of board members, or by other means, the current board member
prevents all of the proposed board members from being elected, it is
anticipated that those board members who are elected would then take
whatever corporate action is required to cause the other proposed board
members to become board members.
FPA believes that in the best interests of the shareholders that all
of the proposed board members, who stood up to the tactics engaged in by
those trying to prevent the Shareholders meeting, be afforded the
opportunity to serve as board members. We believe that the tactics of the
current board members included using Fund resources to harass and
intimidate those who sought their removal. An example of what we believe
were harassing tactics was their attempt to serve a subpoena to the Hon.
Alfred Toker, a Shareholder and proposed board member while he was on the
bench and presiding in court. He is a retired New York State Supreme Court
Justice who is presently a Judicial Hearing Officer of the N.Y. Supreme
Court.
You are being asked to vote to elect the proposed new board members.
If you elect them, they will hold office until their successors have been
elected. The proposal to elect these nominees is not contingent upon the
proposal to remove the current board members being approved. In other
words, some or all of these nominees could be elected to serve as new
directors by virtue of their receiving the highest number of votes cast.
As of the date of the mailing of this proxy statement, we know of no
reason why any nominee may be unable to serve as a director. If any nominee
is unable to serve, your proxy may vote for another nominee proposed by the
Proxies. In addition, We reserve the right to nominate additional nominees
to fill any vacant board member positions. Such nominees may or may not be
"interested persons" of the Funds.
DESCRIPTION OF THE PROPOSED BOARD MEMBERS
Robert Brandt, Ph.D.
Consultant to a regional insurance company with regard to certain
trading decisions for a portion of the fixed income assets they manage, and
formerly a consultant to an investment arm of a financial services company
with regard to certain aspects of fixed income trading. Consulting
Psychologist engaged in management consulting and organizational
development with Vision Action Associates, a management consulting
firm. Dr. Brandt is the son of the late Stanley Brandt who served with
distinction as a Board Member of the Funds.
Lance Brofman, Ph.D.
Founder and former: President, Treasurer and Board Member of New York
Muni Fund and California Muni Fund and Chief Portfolio Strategist of the
Fundamental Funds. President of FPA. Director of Liberty Petroleum, Inc.
Dr. Brofman holds a Ph.D. and an MBA in Economics and Finance from the New
York University Graduate School of Business Administration. He is an
"interested person" as defined by the 1940 Act by virtue of his affiliation
with FPA and his Consulting and Services Agreement with Cornerstone, and
is one of the Parties to the ADMINISTRATIVE PROCEEDINGS discussed below.
(See ADMINISTRATIVE PROCEEDINGS p___)
10
<PAGE>
G. John Fulvio
Treasurer, Cornerstone Equity Advisors, Inc. (4/97 - Present);
Partner, Speer & Fulvio (3/87 - 4/97).
Christian Dan Jensen
Principal of the Dan Group, an association of independent consultants
specializing in corporate strategy, management and sales skill development.
Former member board of directors of Alpha Mineral, Inc. Formerly, a
product manager for Becton-Dickinson Corporation. Formerly New England
Regional Director of Silva International, Inc., Vice President Learning
Dynamics, Inc. He is a member of the American Seminar Leaders Association
having achieved the designation CSL, Certified Seminar Leader, and is an
instructor in the GNYADA-Hofstra University Management Program. He has a
degree in management from Clark University. His address is 18 Old Castle
Drive, Newtown, CT 06470.
Stephen C. Leslie
Chairman and CEO, 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).
Robert H. Parks, Ph.D.
Professor of Finance, Lubin (Graduate) School of Business, Pace
University, New York, formerly Professor of Finance at Wharton Business
School, Managing Director and Chief Economist of Robert H. Parks &
Associates, Inc., an Economic and Investment Research Firm for
Institutional Investors, formerly Executive Vice President, Chief Economist
at Advest Institutional Service, First Vice President and Chief Economist,
Blyth Eastman Dillion (now Paine Webber), and Vice President and Chief
Economist, duPont Glore Forgan. Dr. Parks is author of: Unlocking the
Secrets of Wall Street published in 1998 and The Witch Doctor of Wall
Street, published in 1996. His address is 65 North Rockledge Road, Suite
2F, Bronxville, New York 10708.
Dr. Yvonne Scruggs-Leftwich
Executive Director and Chief Operating Officer, Black Leadership
Forum, Inc.; Director, Joint Center for Political and Economic Studies
(1991 - Present). In addition to being a frequent commentator on CNN & Co.
and National Public Radio, she has written over 100 publications including
a soon to be published book entitled Sound Bites of Protest: Race, Politics
and Public Policy.
The Rev. William M. Taliaferro
Former Industrial Specialist Westcord Commercial Group, which
specializes in the sale and leasing of industrial and commercial
properties. Currently serving as a consultant to several churches. He has
eighteen years of experience on the Board of Directors of two churches,
both as a member and as President. He also conducts seminars as a
consultant to the Broward County, Florida Public Defenders Office. From
1980 to 1995 he was Pastor and President of the Board of Trustees of the
Church of Religious Science in Ft. Lauderdale, Florida. He served as a
member of the Board of Directors and Board of Education of Religious
Science International and earned an honorary Doctorate for his
contributions to both Boards. His age is 66. His address is 73345 Joshua
Tree St., Palm Desert Ca. 92260.
11
<PAGE>
The Hon. Alfred Toker
Presently a Judge (Judicial Hearing Officer) of the Supreme Court, New
York County. Retired as a Justice of Supreme Court of the State of New
York -- 1994. Past Member of the Board of Directors of Village View Housing
Corporation. Previously Chief litigating Partner of the law firm of
Gwertzman, Pfeffer, Toker and Lefkowitz 1980- 1988. Senior Trial Counsel
with the office of the Corporation Counsel of the City of New York, 1954 --
1979. His address is 71 Thomas St., New York, N.Y. 10013-4310. His age is
74.
Stock Ownership of the Proposed Board Members
The number of shares of Common Stock beneficially owned by each
proposed Board Member as of ___________, 1998 is determined under the rules
of the SEC, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership
included any shares as to which the individual has sole or shared voting
power or investment power and also any shares which the individual has the
right to acquire within 60 days after ___________, 1998. Unless
otherwise indicated each person has sole investment and voting power (or
shares such power with his spouse) with respect to the shares set forth in
the following table. The inclusion herein of any shares deemed
beneficially owned does not constitute an admission of beneficial ownership
of those shares.
<TABLE>
<CAPTION>
NAME NY Muni Fund Money Fund Hi-Yield Cal Muni US Govt
- ---- ------------ ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Hon. Alfred Toker
Robert Brandt(1)
Lance Brofman (2)
Christian Jensen
The Rev. William Taliaferro
Dr. Yvonne Scruggs-Leftwich
</TABLE>
1. Includes shares held by family members:
2. Includes shares held by family members:
1998 COMPENSATION OF THE PROPOSED BOARD MEMBERS
The Proposed Board Members have not previously received compensation from
the Funds as board members.
Expected 1999 Compensation of the Proposed Board Members
The proposed Board members anticipate receiving the following
compensation for their first year as a Board members of the Funds in 1999:
<TABLE>
<CAPTION>
Pension or Retirement
Benefits Accrued Total Compensation
as Part of Fund from the Funds
Expenses Paid to Directors
NAME NY Muni Fund Money Fund Hi-Yield Cal Muni US Govt
- ------------------- -------- ------- -------- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hon. Alfred Toker $16,000 1,600 $200 $1,200 $1,000 0 $20,000
Robert Parks $16,000 1,600 $200 $1,200 $1,000 0 $20,000
Christian Jensen $16,000 1,600 $200 $1,200 $1,000 0 $20,000
William Taliaferro $16,000 1,600 $200 $1,200 $1,000 0 $20,000
Robert Brandt $16,000 1,600 $200 $1,200 $1,000 0 $20,000
Yvonne Scruggs-Leftwich $16,000 1,600 $200 $1,200 $1,000 0 $20,000
</TABLE>
13
<PAGE>
PROPOSAL NO. 4
TERMINATING THE 12B-1 PLANS
The 12b-1 Plans are plans of distribution pursuant to Rule 12b-1
of the Investment Company Act of 1940 (the "Investment Company Act"). The
12b-1 Plans allow the Funds to pay certain promotional and advertising
expenses and to compensate certain registered securities dealers and
financial institutions for services provided in connection with the
processing of orders for purchase or redemption of the shares of the Funds
and furnishing other Shareholder services. Payments by each Fund shall
not exceed 1/2 of 1% of daily net assets of such Fund, and such amount
may not be increased without Shareholder approval. The 12b-1 Plans
provide that the Funds' management shall provide quarterly reports on
expenditures pursuant to the 12b-1 Plans to directors for their review.
Each Funds' 12b-1 Plan will terminate on _________, 1998, unless
continued by the Funds' Board and the affirmative vote of a majority
of the Funds' independent Board members. In approving the 12b-1 Plans,
the then directors have determined, in the exercise of their business
judgment and in light of their fiduciary duties as directors of the
Funds, that there was a reasonable likelihood that the 12b-1 Plans
would benefit the Funds and the Shareholders. Each Funds' 12b-1 Plan may
only be renewed if the directors of such Fund make a similar determination
for each subsequent year.
While the 12b-1 Plans are in effect, only the current independent
Board members may select and nominate any independent Board members.
Therefore, the current independent Board members may not be removed
unless Shareholders vote FOR the termination of the 12b-1 Plans. Since the
U.S Government Fund, the High Yield Municipal Bond Series and the Tax-Free
Money Market Fund are all series of the Fundamental Fixed Income Fund, the
12b-1 plans must be terminated for all three of those Funds, if trustees
of any of those funds are not to be only selected by the current
independent board members. Termination of the 12b-1 plans in either one or
two but not all three of the series would not remove the requirement that
only the current independent board member may select board members for any
of the three funds. .With regard to the New York Muni and California Muni
Funds which are not series of the Fundamental Fixed-Income Fund,
termination of the 12b-1 plans is not dependent one way or another on what
happens with any other fund or series.
The California Fund and the New York Muni Fund each has a
reimbursement 12b-1 Plan. These Plans do not carry over expenses from year
to year, and if the Plan is terminated in accordance with its terms, the
obligation of the Fund to make payments pursuant to the Plan will cease
and the Fund will not be required to make any payments for expenses
incurred after the date the Plan terminates.
Fundamental Fixed-Income Fund has a compensation plan with no carry
over provisions.
If the 12b-1 Plan for any Fund is terminated, the new Board of such
Fund (or the current Board if a new Board is not elected) could vote to
reinstate the 12b-1 Plan or to adopt a similar plan. Any such action
would require the approval of the majority of Shareholders of such Fund.
It is highly likely that any new Board will attempt to reinstate the 12b-
1 Plans and submit them for Shareholder approval.
14
<PAGE>
PROPOSAL NO. 5
REMOVING THE BOARD MEMBER
FPA believes that Ferrone should be removed as a board member because
of his conduct relating to: the Tocqueville Transaction and
Interpositioning, The Special Meeting of Shareholders and subsequent
occurrences described below in "RECENT EVENTS".
On July 15, 1997, the Boards (consisting of four disinterested and one
interested member) unanimously approved the Tocqueville Transactions which,
with respect to each Fund, contemplated a merger plan and the transactions
contemplated thereby, providing for (i) the transfer of all the assets of
the Fund into a New Series of the Tocqueville Trust (the "Tocqueville
Trust") in exchange for shares in the New Series; (ii) the pro rata
distribution of the shares of the New Series to the Shareholders of the
Fund; and (iii) the dissolution of the Fund. The reorganization would also
include approval of an entirely new board comprised of persons who are
currently trustees of the Tocqueville Trust.
On January 14, 1998 Mr. Chris Culp, a former officer of both TAM and
Tocqueville Securities stated in sworn testimony to the SEC that
Tocqueville Securities improperly obtained economic benefit in almost every
trade that was conducted by the Tocqueville Government Fund. Armstrong and
Ferrone (the only two disinterested board members at that time) were
informed of Mr. Culp's testimony and allegations. Armstrong and Ferrone
refused Mr. Culp's request that he be allowed to speak with them about the
matter and discuss his testimony. Armstrong and Ferrone then refused, and
have continued to refuse, to authorize the attorneys representing the Funds
(whose law firm also represents the Tocqueville Trust)to investigate the
allegations made by Mr. Culp regarding TAM, TS and the Tocqueville Trust.
In light of (i) FPA's belief that Tocqueville has a policy of
interpositioning, (ii) the stated intention of Tocqueville Asset
Management, L.P. to restrict the number of exchanges, particularly in
connection with so-called "market timing" strategies, and (iii) the
demonstrated lack of the necessary expertise to manage the kind of
sophisticated assets contained in the Funds' portfolios, Dr. Vincent
Malanga, the interested Board member, concluded that the Tocqueville
Transaction was not in the best interests of Shareholders and requested the
Preliminary Proxy Statement seeking Shareholder approval of the Tocqueville
Transaction, which had been submitted to the SEC on October 28, 1997, be
revised to reflect his views. Messrs. Armstrong and Ferrone, the
Independent Board Members at that time, forbade any mention or disclosure
of Mr. Culp's allegations concerning the Tocqueville Government Fund in the
Proxy Material filed by the Fund seeking approval of the Tocqueville
Transactions.
On April 17, 1998 FPA filed preliminary proxy material with the
Commission opposing the Tocqueville Transactions and calling for a special
meeting of Shareholders to be held for the purpose of removing and
replacing Messrs. Armstrong and Ferrone, the Independent Board Members. On
May 11, 1998 Definitive proxy material was filed by FPA with the
Commission. By May 25, 1998 holders of the majority of the outstanding
shares in each of the five Fundamental Funds had executed proxies and/or
otherwise indicated in writing that they wanted a Shareholders meeting to
be held for the purpose of removing the current directors, James C.
Armstrong and L. Greg Ferrone. A Shareholder meeting is required if
requested by holder of more than 10% of the outstanding shares in any of
the Funds.
No such meeting has been held, even though Dr. Malanga as President of
the Funds called and noticed a special meeting of Shareholders to be held
on May 29, 1998. Messrs. Armstrong and Ferrone have been able to prevent
the Shareholders meetings and thus perpetuate themselves in office by: 1.
Spending enormous amounts of the Shareholder's money on litigation; 2.
Refusing to set or allow to be set a record date and meeting date,
despite requests for such a meeting from Shareholders holding majorities
of the outstanding shares in each Fund; and 3. Repeatedly threatening to
cause severe damage to the Funds and the Shareholders if attempts were made
to exercise the Shareholders rights and remedies with respect to holding a
meeting.
Their specific threats were to dissipate the Funds' assets with
additional litigation costs, and more ominously to "engineer" the
appointment of a S.E.C. receiver for the Funds. The mechanisms by which
they purported to be able to "engineer" such a receivership included
declaring that the directors were hopelessly deadlocked among themselves.
Their taunts that a S.E.C. receivership is "the worst possible thing that
could happen to a mutual fund" may not be entirely accurate. However, for
an otherwise economically viable complex of no-load open-end mutual funds,
with no redemption charges, it was a serious and intimidating threat.
As further described below in "RECENT EVENTS" On May 26, 1998
Armstrong sought and obtained a temporary restraining order (the "TRO")
which prevented the special meeting of Shareholders scheduled to be held on
May 29, 1998 from occurring. The plaintiffs in the Action claimed that the
TRO was necessary to maintain the status quo and to give the Shareholders
an opportunity to vote on the Tocqueville Transaction. At no time was any
indication given to the court that it was Armstrong's intention to use the
ten-day TRO period to appoint TAM as interim advisor and Tocqueville
Securities L.P. distributor for the Funds. The complaint included an
affidavit from Armstrong. The affidavit claimed:
(FPA, Brofman and Malanga) acted so surreptitiously that
neither the Funds themselves nor the long-time counsel to
the Funds had any idea that preparations for the special
meeting were underway
The truth is that FPA Preliminary Proxy Material was available on EDGAR
the SEC electronic system as of April 17, 1998. That FPA was making this
filing was known to Mr. Buchwald and Mr. Frischling of Kramer, Levin the
long time counsel to the Funds. The Prospectus of each Fund, dated May
1,1998, states in language prepared by the long-term counsel to the Funds:
Subsequent to the filing with the Securities and Exchange
Commission of preliminary proxy solicitation material
seeking Shareholder approval of the Agreement and Plan of
Reorganization at the special meeting of Shareholders, the
Manager filed two preliminary proxy statements with the
Securities and Exchange Commission, one opposing the
Transaction pursuant to which Tocqueville would assume
management of the assets of the Fund; the second, proposing
to replace the two independent Board Members of the election
of six new nominees to the Fund's Board (in addition to
Vincent J. Malanga, a current Board Member).
There were also published reports of FPA's efforts to remove the directors
at a special meeting in the news media including The Wall Street Journal
(May 7, 1998) and Bloomberg News Service (April 23, 1998). The Armstrong
complaint totally concealed the fact that the Board had set the record date
as March 31, 1998 and the location of the special meeting as the Downtown
Athletic Club in NYC even though that was indicated in the Proxy material
submitted to the SEC by the Funds. Armstrong also claimed in the affidavit
that Ferrone intended to resign from the board and that:
This resignation will leave me as the sole surviving
independent board member.
By preventing the Shareholders from holding a meeting, Armstrong and
Ferrone were able to install TAM as investment advisor to the Funds for a
period of 120 days without Shareholder approval. Rule 15a-4 of the
Investment Company act permits a temporary 120-day exemption to the
requirement that all mutual fund investment advisory contracts be approved
by a vote of the shareholders. The installation of TAM as the advisor was
not in the best interests of Shareholders and against the expressed wishes
of the majority of Shareholders. As described in the enclosed Proxy
Statement in the section entitled "Recent Events" TAM caused severe damage
to the Funds and the Shareholders during that period.
On May 30, 1998 Armstrong and Ferrone appointed TAM as interim advisor
for the Funds from, and transferred the distribution agreements for the
Funds from FSC to Tocqueville Securities L.P. ("TS"). Commencing June 1,
1998 TAM became the investment advisor to the Funds. While the attorneys
representing the Funds had drafted an interim advisory agreement between
the Funds and TAM, the advisory agreement was not executed at that time as
TAM refused to sign the agreement. Nevertheless, Armstrong and Ferrone
authorized TAM to continue to manage the Funds without there being a signed
investment advisory agreement The absence of such an signed agreement was
concealed from Dr. Malanga, the Shareholders and the SEC.
As further described below in "RECENT EVENTS" TAM as the interim
advisor to the Funds executed a number of securities transactions that were
extremely disadvantageous to the Fund. Securities were sold at prices
substantially below their fair-market value as had been indicated by the
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independent pricing services, and substantially below what FPA believes an
investment manger with expertise in the trading of these types of
securities could have obtained for them.
Armstrong and Ferrone refused to authorize any action that could have
sought recovery of the damages suffered by the Funds at the hands of TAM.
Furthermore, they have taken actions, which may preclude or impede future
attempts to recover the damages caused by TAM. In August 1998 Armstrong,
Ferrone and TAM executed an investment advisory agreement between TAM and
the Funds and backdated it to be effective June 1, 1998. The new agreement
differed from the original draft dated June 1, 1998 in that it contained a
clause No. 11, which reads:
11. Liability of Interim Investment Advisor and
Indemnification. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations
or duties hereunder the Interim Investment Advisor or any of
its officers, trustees or employees, it shall not be subject
to liability to the Fund or to any Shareholder of the Fund
for any omission in the course of, or connected with,
rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
The original June 1, 1998 version of the Investment Advisory Agreement
contained no such indemnification or limitation of liability for
Tocqueville.
On September 2, 1998 the Funds filed electronically with the
Commission forms NSAR-A which included a copy of the Investment Advisory
Agreement (containing clause 11, above), which stated that the agreement is
"made as of this 1st day of June, 1998". Upon information and belief,
Armstrong and Ferrone authorized the Funds to pay TAM advisory fees
covering the period back to June 1, 1998 as if a signed Investment Advisory
Agreement had been executed from that date.
FPA believes that an intended consequence of the filing of the back-
dated Investment Advisory Agreement containing the indemnification and
limitation of liability clause No. 11 shown above, may have been to
convince any party considering action aimed at recovery of the damages to
the Shareholders caused by TAM on June 4, 1998 and June 12, 1998, that TAM
was relying on the indemnification when it executed the transactions.
FPA believes that Ferrone either acquiesced to or was recklessly
negligent in ignoring the transactions which damaged the U.S. Fund and The
New York Muni Fund and TAM's violations of rule 2a-7 under the Investment
Company Act of 1940, with regard to the Fundamental Tax-Free Money Market
Fund. Ferrone and Armstrong were certainly aware that TAM was acting as an
investment advisor to the Funds without having executed written investment
advisory agreements and thus was in violation of Section 15(a) of the
Investment Company Act of 1940.
FPA believes that Armstrong and Ferrone had a fiduciary duty to the
Funds to prevent or to rectify TAM's actions which harmed the Shareholders
and violated applicable law. FPA believes that in light of the repeated
warnings about TAM communicated to Armstrong and Ferrone, the failure to
prevent the continuation of such activity by TAM constituted willful
misfeasance, bad faith, gross negligence and reckless disregard of their
fiduciary duties on the part of Armstrong and Ferrone. FPA further
believes that Messrs. Armstrong and Ferrone violated Sections 10(b) and 15
(c) of the Exchange Act, by failing to disclose various material facts
concerning the Funds. Among such material facts, were that on June 4, 1998
the U.S. Fund was radically changed from one consistent with the objective
as stated in its Prospectus of providing high current income by investing
in a portfolio of Government Securities with high current yields to a fund
whose portfolio had the lowest yielding securities. This radical portfolio
change reduced the dividend yield from above 7.5% to less than 2%.
The Funds' Statement of Additional Information indicate that Armstrong
and Ferrone each received director's fees at the rate of $26,000 per year.
FPA believes, based on a survey of published information from sources such
as Lipper's, that Ferrone receives more than twice the amount paid to
directors or trustees of any other mutual fund or mutual fund group, in the
United States with assets of up to the size of the that of the Fundamental
Funds. Furthermore, the Funds' Independent Board Members, including
Armstrong and Ferrone have historically paid themselves, with the Funds'
money, additional sums at the rate of $125 per hour for work done on
"special projects". In his May 26, 1998 affidavit Armstrong claimed to have
no economic or personal interest, and that Ferrone intended to resign.
However, FPA believes, based on statements of former board members, that
the directors fees that Armstrong and Ferrone have received from the Funds,
as a direct consequence of preventing the Shareholder meeting from
occurring, has comprised a significant part of their incomes since that
date. For these and other reasons and occurrences described below in
"RECENT EVENTS", FPA believes it imperative that Ferrone be removed as a
Board Member.
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Approval of the proposal to remove the Board member a Fund requires an
affirmative vote by majorities of the outstanding shares of that Fund.
Furthermore for the board member to be removed by the Shareholders of any
Fund the 12b-1 plan for that Fund must be terminated. With regard to the
three series of the Fundamental Fixed Income Fund, the 12b-1 plan for all
of those Funds must be terminated for the board member to be removed from
any of those Funds.
PROPOSAL NO. 6
AMENDING THE NEW YORK MUNI FUND ARTICLES OF INCORPORATION
The current Articles of Incorporation of the New York Muni Fund only
allows Shareholders to remove a director prior to the expiration of his or
her term of office for cause by the vote of a majority of outstanding
voting shares. As part of the Stipulation entered into on June 8, 1998
Armstrong and Ferrone agreed to the take such action as is necessary
pursuant to Maryland General Corporation Law Section 2-602 to insure that
the Shareholders of Fundamental Funds, Inc. may vote at the New Special
Meeting to amend the Articles of Incorporation to permit the removal of
directors without cause. On June 17, 1998 the Board approved such an
amendment to the New York Muni Fund Articles of Incorporation and
recommended that it be approved by the Shareholders.
PRIOR TO APPROVAL OF THE PROPOSED AMENDMENT Art. 8 (g) of the Articles
currently states:
The stockholders of the Corporation may remove any
director of the Corporation prior to the expiration of
his term of office for cause, and not otherwise, by the
affirmative vote of a majority of all votes entitled to be
cast for the election of directors.
Our proposed amendment seeks to allow directors to be removed prior to
the expiration of their term of office without cause, by the vote of a
majority of outstanding voting shares.
AFTER APPROVAL OF THE PROPOSED AMENDMENT IT WILL READ:
The stockholders of the Corporation may remove and
replace any director of the Corporation prior to the
expiration of his or her term of office by the affirmative
vote of a majority of all votes entitled to be cast for the
election of directors.
Such amendment requires the vote of a majority of the shares entitled to
vote for the election of directors.
PROPOSAL NO. 7
APPROVAL OF A 10-1 REVERSE STOCK SPLIT FOR THE NEW YORK MUNI FUND
The proposed 10-1 reverse stock split will have no effect on the value
of any Shareholder's balance or effect the value of any transactions.
Transactions involving the purchase or sale of shares of the New York Muni
Fund are now conducted with three significant figures. Thus, when the
Fund's Net Asset Value per share is below $1.00 the price used for share
purchases and sales is rounded to the nearest tenth of a cent. The purpose
of the reverse stock split is to have the Fund's Net Asset Value per share
expressed in the number of digits after the decimal place so as to be
compatible with the NASDAQ reporting system, which feeds data to many media
outlets, including most newspapers. Approval of the proposal requires a
plurality of the votes cast.
RECENT EVENTS
ADMINISTRATIVE PROCEEDINGS
Since January, 1995, FPA and the Funds' Board members have cooperated
in an investigation conducted by the United States Securities and Exchange
Commission (the "SEC") concerning the Fundamental US Government Strategic
Income Fund (the "US Fund"), its Trustees, Fundamental Service
Corporation ("FSC"), FPA, Dr. Vincent J. Malanga, and Dr. Lance Brofman.
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On or about October 24, 1997, the SEC filed a corrected order
instituting public proceedings (the "Administrative Proceeding") pursuant
to Section 8A of the Securities Act of 1933, Sections 15(b), 19(h), and
21C of the Securities Exchange Act of 1934, Sections 9(b) and (f) of the
Investment Company Act, and Sections 203(e), (f) and (k) of the
Investment Advisers Act of 1940 (the "Advisors' Act") against FPA, Dr.
Vincent J. Malanga, Dr. Lance Brofman and FSC (the "Respondents").
The Administrative Proceeding relates to the activities of FPA,
which is registered with the SEC pursuant to Section 203(c) of the
Advisors' Act since October 17, 1986. FPA was the investment advisor to
the US Fund and the other Funds.
The SEC Division of Enforcement alleges that false and
misleading statements were made in the prospectus and sales literature of
the US Fund. The Division of Enforcement further alleges that the fund was
marketed as a relatively safe and conservative investment, designed to
provide "high current income with minimum risk of principal and relative
stability of [NAV]"; that as a U.S. government bond fund, interest rate
risk posed the greatest risk to the Funds' NAV; that according to the
Funds' prospectus and sales materials, the fund sought to limit that
risk, and thus to maximize stability of NAV, by limiting the Funds'
"duration" to three years or less; that the term "duration" generally
refers to the sensitivity of the value of a security or a portfolio of
securities to changes in interest rates (although measured in
years, an instrument's duration is not necessarily the same as its term to
maturity); that duration is a measure of the price sensitivity of a fixed
income fund, such as a U.S. government bond fund, to changes in interest
rates; that a portfolio with a low duration will be less sensitive to
changes in interest rates than a high duration portfolio.
The Division of Enforcement further alleges that certain
antifraud provisions of the federal securities laws were violated because
the US Fund was marketed as a safe investment, offering relative
stability of NAV ("low volatility"), when it was not; that contrary to
the representations in the US Funds' prospectus and sales literature, the
US fund had a heightened sensitivity to changes in interest rates, due in
large part to its substantial investment in Inverse floating Collateralized
mortgage obligations ("inverse floaters"); that further, the US Funds'
duration was not limited to three years or less; that when interest rates
rose in 1994, the US fund incurred substantial loses; that in 1994, the US
Funds' NAV declined approximately 32%, significantly more than almost all
other U.S. government bond funds.
The Division of Enforcement further alleges that this proceeding
also involves Drs. Malanga's and Brofman's failure to disclose FPA's
soft dollar arrangements to the board of the US Fund and other funds
managed by FPA.
The term "soft dollars" generally describes an arrangement whereby
an investment advisor uses commission dollars generated by securities
trades executed in advisory client accounts to pay for research,
brokerage, or other products, services, or expenses, including soft
dollar credits generated by syndicate designations.
Respondents filed a joint answer denying the SEC's allegations to
the extent that they allege any wrongdoing or that they have violated
antifraud provisions of the Federal Securities Laws by marketing the US
Fund as a safe investment, offering relative stability of NAV and further
denying that the US Funds' investment in inverse floaters gave it a
heightened sensitivity to changes in interest rates as opposed to other
securities in which the US Fund could have appropriately invested.
Respondents further denied that the US Funds' duration ever exceeded three
years. Respondents further denied that their conduct with respect to soft
dollars violated any law or regulation to warrant the proceedings
initiated against them.
In July 1998, the Securities and Exchange Commission accepted an offer
of settlement by Dr. Malanga with respect to the ADMINISTRATIVE
PROCEEDINGS. Without admitting or denying the allegations, Dr. Malanga
agreed not to associate with any investment company or securities firm for
a period of twelve months and not to work in a supervisory capacity for two
years and a fine of $25,000.
An Administrative hearing was held in September 1998, at which Dr.
Brofman reiterated his denials of all wrongdoing and his assertion that he
did not violate any laws or regulations. Post-hearing filings are to be
filed by the parties by April 1999 and an initial decision will be made
after May 1999. The range of possible ultimate outcomes of the proceedings
includes sanctions which could among other things preclude Dr. Brofman from
serving as a Board Member.
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The Funds were not a party to the SEC administrative proceedings.
Relating to the same allegations, but separately, NASD Regulation, Inc.
(the "NASD") entered into a Letter of Acceptance, Waiver and Consent with
FSC, the distributor of the US Fund, Dr. Malanga and David P. Wieder that
imposed a total of $125,000 in fines and other stipulated sanctions on
FSC, Dr. Malanga, and Wieder for distributing advertising materials for
the US Fund that the NASD deemed to be false and misleading. All fines have
been paid.
As a stipulated non-monetary sanction FSC agreed that, for a
period of three years, FSC will prefile all advertising and sales
literature with the NASD's Advertising Department before use, and will
retain an outside consultant to report on FSC's compliance policies with
respect to advertising and sales literature and other compliance
policies. Dr. Malanga has also agreed to a 30 day suspension from
associating, in any capacity, with any NASD member firm, which suspension
has been completed.
FSC, Dr. Malanga and the other FSC officer neither admitted nor
denied the allegations and filed a Mitigation Statement in response
to the Letter of Acceptance, Waiver and Consent. Neither Dr. Brofman, nor
the Funds were parties to the NASD proceedings.
THE TOCQUEVILLE TRANSACTIONS AND INTERPOSITIONING
In 1990 the Funds' Boards consisted of nine board members, elected by
the Shareholders, of which eight were disinterested. The deaths of four
board members and the inability of the remaining board members to agree on
any replacements resulted in the number of board members being reduced to
five by 1996. By the end of 1996 regulatory problems, the performance of
the Funds and the change in the composition of the boards caused by the
deaths led some of the disinterested board members to believe that
alternative management could be arranged for the Funds.
On July 15, 1997, the Boards, which then consisted of four
disinterested, and one interested member, unanimously approved the
Tocqueville Transactions which, with respect to each Fund, contemplated a
merger plan and the transactions contemplated thereby, providing for (i)
the transfer of all the assets of the Fund into a New Series of the
Tocqueville Trust (the "Tocqueville Trust") in exchange for shares in the
New Series; (ii) the pro rata distribution of the shares of the New Series
to the Shareholders of the Fund; and (iii) the dissolution of the Fund. The
reorganization would also include approval of an entirely new board
comprised of persons who are currently trustees of the Tocqueville Trust.
In 1997 Mr. Robert Kleinschmidt the President of TAM and the
Tocqueville Trust sent a letter to the trustees of the Tocqueville Trust
stating that he believed that Mr. Armstrong would make an excellent
addition to the Board of the Tocqueville Trust. A copy of that letter was
provided to Mr. Armstrong
From February 18, 1997 until August 27, 1997, Mr. Christopher P.
Culp, an officer of TAM, served on FPA's Investment Advisory Committee
as the principal portfolio manager of the Funds. He did so in his capacity
as an agent of Fundamental, representing to the Boards that he was working
without salary or other compensation from FPA. At the same time, he
continued to be employed by Tocqueville. While FPA and the Board knew that
Culp was employed by Tocqueville, the Board and FPA were not aware of the
interpositioning described below.
On eight separate occasions between April 17, 1997 and July 24,
1997, Mr. Culp engaged Tocqueville Securities L.P. ("Tocqueville
Securities"), an affiliate of Tocqueville Trust, as agent to purchase
bonds over-the-counter on behalf of the New York Muni Fund. The normal
practice is for mutual funds to buy or sell bonds directly from dealers,
without paying a commission. In contrast, institutional investors such
as mutual funds normally do pay commissions on common stock
transactions executed on stock exchanges or through the NASDAQ system
where an exchange member or broker is involved.
In the instances above, Tocqueville Securities interposed between
the New York Muni Fund and the dealer selling the bonds to the Fund. The
seller of the bonds was willing and able to sell the securities directly
to the Fund (and had done so on prior occasions). Tocqueville
Securities arranged to have the securities first sold to Tocqueville
Securities, which simultaneously sold the securities to the Fund and at
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higher price. Tocqueville Securities performed no service or function in
the transactions except to collect the difference between the price the
dealer was willing to sell the securities for and the price the Fund
paid. The difference was a mark-up or a commission.
In each of these occasions the New York Muni Funds' Board has
concluded that the commissions paid to Tocqueville Securities in
connection with these transactions (a portion of which TAM claimed was
paid to Mr. Culp) were not justified and that the New York Muni Fund
bore unnecessary expense. Based upon a report initiated by
Tocqueville Securities and prepared by the New York Muni Funds'
independent auditors, and upon the Board's own analysis, the Board directed
that FPA terminate Mr. Culp's services as a portfolio manager. At the
Board's request and in order to reimburse the New York Muni Fund
for all of its losses, Tocqueville Securities, on September 15, 1997,
voluntarily paid $260,000 to the New York Muni Fund, an amount which
significantly exceeds the total commissions ($184,920.60) received by
Tocqueville Securities in connection with these transactions. The
staff of the SEC and the Department of NASD Regulation have been informed
of these events by Tocqueville Securities.
FPA understands that Mr. Culp has testified before the SEC, and
believes that in his testimony he stated to the SEC that he engaged in
other similar transactions on behalf of the Tocqueville Government
Fund. FPA believes that Tocqueville would deny the statements made by
Culp. FPA has no knowledge of any proceeding or investigation commenced
or planned by the SEC against any Tocqueville entity relating to such
activities.
Views of Former Board Members and the Interested Board Member
View of Former Board Members
After consideration, Messrs. James A. Bowers and Clark L. Bullock,
then two of the four independent Board members at that time, determined,
for the reasons set forth below, that proceeding with the Tocqueville
Transactions was not in the best interests of the Funds and their
Shareholders.
A. Lack of Experienced Portfolio Manager. Messrs. Bowers and
Bullock's original determination to vote in favor of the Tocqueville
Transactions was greatly dependent on the confidence they had in Mr.
Culp's ability to manage the portfolio of the New York Muni Fund and the
California Muni Fund. During the six month period ending August 27, 1997,
Mr. Culp had been managing the portfolios of these Funds and made
regular presentations to the Boards at which he described his
investment approach and detailed his trading discipline. Messrs. Bowers
and Bullock believed that Mr. Culp managed the portfolios well and that,
because of his presence, Tocqueville--which otherwise had no experience
managing investment companies investing in municipal obligations
("Municipal Bond Funds")-- could properly perform its investment
advisory duties on behalf of these Funds after the Tocqueville
Transactions became effective. Mr. Culp is no longer employed by
Tocqueville. Messrs. Bowers and Bullock believed that Tocqueville had
not demonstrated that it had investment professionals with sufficient
experience managing Municipal Bond Funds to warrant proceeding with the
Tocqueville Transactions, although representatives of Tocqueville had
indicated their intention to seek to hire such person or persons.
B. Excessive Fees. In connection with the Board members' approval
of the Tocqueville Transactions at the July 15, 1997 meeting,
representatives of Tocqueville and FPA advised the Boards that
Tocqueville intended to engage FPA to perform consulting services in
connection with the Funds' existing Shareholders and to pay FPA a fee
at the rate of .25% annually of the assets of Fund Shareholders remaining
after the Tocqueville Transactions became effective. Tocqueville advised
the Boards in writing that these fees would be paid only for bona fide
services rendered.
Messrs. Bowers and Bullock believed, at the time of the July 15,
1997 approval, that FPA intended to maintain its organization with staff
to service Fund Shareholders. FPA told the Board that FPA intended
only to retain the services of its principal Shareholders, Drs.
Malanga and Brofman (the Board having determined in December 1996 that
Dr. Brofman should have nothing to do with the Funds' operations) and two
other employees to perform these functions.
Messrs. Bowers and Bullock believed it inappropriate for Tocqueville
to pay Brofman, Malanga and two other employees an annual fee of
approximately $450,000 based on current asset levels for consulting
services and that some portion of that amount should be retained by
Shareholders in the form of lower management or other fees. The other
Board members disagreed.
C. Failure to Consider Alternatives. In light of the foregoing,
Messrs. Bowers and Bullock requested that the Boards attempt to
determine whether representatives of another mutual funds complex that
had proposed, on or about July 15, 1997, to enter into a transaction
with the Funds similar to the Tocqueville Transactions, were interested
in pursuing a transaction. The other Board members determined not to do
so. Messrs. Bowers and Bullock believe it would have been in the best
interests of Shareholders to make this inquiry and seek alternatives to
Tocqueville.
Because of the Board members' failure to act in a manner which
Messrs. Bullock and Bowers believed was consistent with Shareholders'
interests, Messrs. Bullock and Bowers tendered their resignations as
Board members and their resignations were accepted effective November 2
and 3, 1997, respectively. Their resignations left the number of remaining
board members at three, of which two were disinterested.
View of the Former Interested Board Member
In March of 1998, after reviewing the testimony of Mr. Culp,
described above, Dr. Malanga concluded that (i) the Tocqueville
Transactions are not in the best interests of the Shareholders, (ii) the
independent Board members should investigate fully the allegations which
FPA believes Mr. Culp made in his testimony before the SEC, and (iii)
because the current Boards have failed to fully investigate the
allegations which FPA believes Mr. Culp made, the current Boards should be
replaced.
THE SPECIAL MEETING OF SHAREHOLDERS
On April 17, 1998, FPA filed various proxy materials with the SEC
seeking the vote of Shareholders (i) to oppose the Tocqueville
Transactions, and (ii) to remove the current independent Board members
and to elect replacement Board members. Upon learning that the proxy
solicitation of the independent Board members regarding the Tocqueville
Transactions was at a standstill, FPA filed separate proxy materials with
the SEC seeking proxies of Shareholders to vote to call a special meeting
of Shareholders (the "Special Meeting"), and at the Special Meeting
(x) to terminate all 12b-1 Plans (as defined below), (y) to remove all
current independent Board members and (z) to elect the new Board
members (the "Special Meeting Proxy"). On May 11, 1998, the SEC
cleared the Special Meeting Proxy and FPA thereafter filed definitive
proxy materials for the Special Meeting Proxy.
Between May 11, 1998 and May 14, 1998, Dr. Malanga, as proxy, took all
such action he believed to be required to have the Special Meeting take
place on May 29, 1998. Accordingly, on May 14, 1998, Dr. Malanga
issued a notice to the Shareholders of the Funds in his name as President
of the Funds and in the name of the Secretary of the Funds stating that the
Special Meeting would take place on May 29, 1998.
On approximately May 20, 1998, the independent Board members, through
their counsel, communicated to FPA's counsel their objection to the
Special Meeting going forth on grounds that the proposals contained in the
Special Meeting Proxy should not be voted upon prior to the Shareholders
voting on the Tocqueville Transactions. The independent Board members
also claimed that the Special Meeting was improperly called, although
the exact reasons for such a claim was not communicated. The independent
Board members did not communicate any other reason why the Special Meeting
should not take place.
On May 22, 1998, Dr. Malanga, though his counsel, proposed
to the independent Board members that, in the spirit of full
disclosure to the Shareholders, and to avoid having the Shareholders
bear the expense of unnecessary litigation related to the Funds, the
following: (a) to adjourn and renotice the Special Meeting to a date not
more than twenty-one days from the date initially scheduled to afford the
independent Board members (i) to file and clear their own proxy materials
opposing the action being solicited by FPA to be voted upon at the
Special Meeting, (ii) to file and clear proxy materials seeking such
other action which the independent Board members believed to be
appropriate to be voted upon at the Special Meeting, and (iii) to
disseminate any other information to Shareholders which the
independent Board members believed to be appropriate to enable the
Shareholders to vote on all relevant issues; (b) to have the independent
Board members withdraw all objection, if any, regarding FPA's proxy
materials and the manner in which the Special Meeting was called; and (c)
until such time as the Special Meeting takes place and the Shareholders
vote, to have the assets of the Funds managed by an independent third
party, John Hsu Capital, Inc., through a sub-advisory agreement or such
other arrangement which the independent Board members deemed appropriate
(the "May 22 Proposal").
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The two independent Board members did not accept the May 22 Proposal
and in response threatened to bring a lawsuit to enjoin the Special Meeting
from taking place, without articulating the basis for such a lawsuit. On
May 26, 1998, Dr. Malanga agreed to adjourn the Special Meeting
without date to enable the independent Board members and FPA, in the
spirit of full disclosure to the Shareholders, while attempting to keep
the expenses of litigation related to the Funds at a minimum, to adjourn
the Special Meeting to allow the Tocqueville Transactions to be voted
upon at the same time the Shareholders would be asked to vote on the
items contained in the Special Meeting Proxy.
On May 26, 1998 Armstrong stated in a sworn affidavit that he had no
personal interest in the Tocqueville Transaction and that Ferrone had no
interest in continuing indefinitely as a board member. On May 27, 1998,
notwithstanding Dr. Malanga's agreement to adjourn the Special Meeting,
Mr. Armstrong, but not Mr. Ferrone, commenced an action in the name of the
Funds against FPA and Drs. Malanga and Brofman in the United States
District Court for the Southern District of New York (the "Special
Meeting Action"), claiming that the Special Meeting was improperly called,
and obtained a temporary order signed by Judge Richard Owen preventing
the Special Meeting from taking place. The plaintiffs in the Special
Meeting Action claimed that the temporary order was necessary to maintain
the status quo and to give the Shareholders an opportunity to vote on the
Tocqueville Transaction. At no time was any indication given to the court
that it was Armstrong's intention to use the temporary order period to
transfer control of the Funds from FPA to TAM.
The temporary order was obtained without FPA or Dr. Malanga or Dr.
Brofman being heard on the issue.
On May 30, 1998, the Funds' Boards met for the purpose of, among
other things, choosing a Manager for the Funds. FPA offered to continue
to act as Manager for the Funds without a contract, on a quantum meruit
basis. FPA communicated to the Board that it was the most qualified to act
as interim Manager because, if nothing else, it was most familiar with
the Funds' portfolio. Bull & Bear Advisors, Inc. also offered to act as
interim Manager. At the May 30th meeting, the Boards instead appointed
Tocqueville Asset Management L.P. as interim Manager.
Commencing June 1, 1998 TAM became the investment advisor to the
Funds. On June 2, 1998 Armstrong and Ferrone elected Robert W. Kleinschmidt
as President of the Funds and Mr. Kieren Lyons as Vice President and Chief
Financial Officer of the Funds. Kleinschmidt and Lyons hold similar offices
in the Tocqueville Trust. While, Kramer, Levin, the attorneys representing
simultaneously: The Funds, Mr. Armstrong and The Tocqueville Trust had
drafted an interim advisory agreement between the Funds and TAM, the
advisory agreement was not executed at that time as TAM refused to sign the
agreement. Nevertheless, Armstrong and Ferrone authorized TAM to continue
to manage the Funds without there being a signed investment advisory
agreement, in violation of Section 15(a) of the Investment Company Act of
1940. The absence of a signed agreement was not disclosed in any of the
supplements to the Funds' Prospectuses including those dated June 1, 1998
and June 3, 1998. The absence of a signed investment advisory agreement was
also concealed from Dr. Malanga, a Board Member at that time.
FPA believes that the Special Meeting Action was based on speculation
and misstatements of fact and law. FPA also believes that the Special
Meeting Action was precipitous and unnecessary, especially in light of
FPA's May 22 Proposal and FPA's willingness to adjourn the Special
Meeting without any judicial intervention. FPA believes that, as a
matter of cost, the Special Meeting Action was not in the best interests of
the Shareholders
Sufficient votes were received pursuant to the Special Meeting
Proxy to carry and pass each of the proposals contained in the Special
Meeting Proxy. Had the independent Board members not blocked the Special
Meeting from taking place, and assuming that the shareholders who had voted
by proxy would not have revoked their proxies in person at the meeting, the
independent Board members would have been removed.
At the June 2, 1998 Board meeting Dr. Malanga proposed and Mr. Ferrone
seconded a motion to set a record date for a new special meeting of
Shareholders at which the FPA proposals and the Tocqueville Transaction
could be voted upon. After Mr. Lyons stated that Tocqueville wanted to
delay the setting of such a record date until Tocqueville was able to
change the composition of those Shareholders eligible to vote, Armstrong
and Ferrone defeated the motion. FPA believes that this and other conduct
22
<PAGE>
by Armstrong and Ferrone with regard to the setting of a record date for a
special meeting of Shareholders, either in collusion with Mr. Lyons, in
collusion with other parties, or not in collusion with any other party but
with the intent to influence, affect or manipulate the outcome of a vote by
Shareholders, constituted violations of Section 206(4) of the Investment
Advisors Act.
On June 4, 1998, TAM liquidated most of the portfolio of the U.S.
Fund, resulting in a loss of approximately $1 million and reducing its NAV
by approximately 7.2%. FPA had previously advised the independent Board
members that it believed TAM was not qualified to manage the Funds. All of
the sales were to a Utah-based securities firm. There were no significant
redemptions or any other reasons to raise cash at that time. The
transaction prices and settlement terms of these sales were extremely
disadvantageous to the Fund. Most of the securities were sold at prices
substantially below their fair-market value as had been indicated by the
independent pricing services, and substantially below what FPA believes an
investment manger with expertise in the trading of these types of
securities could have obtained for them. The possibility does exist that
for some or all of the securities, the prices provided by the independent
pricing service, upon which the net asset value of the Fund was being
calculated, may have been too high. In that case, the prices received by
TAM might have been fair. However, the prices at which TAM sold the
securities were also below indications of value as of that date that FPA
has obtained for those securities from individuals employed at various
securities firms that deal in such securities and other independent
commercial pricing services. The table below summarizes the transactions
that occurred on June 4, 1998 and why FPA believes that the transactions
and the lack of any attempt by Ferrone and Armstrong to seek recovery of
the damages to the shareholders constituted willful misfeasance, bad faith,
gross negligence and reckless disregard of their fiduciary duties on the
part of TAM, Armstrong and Ferrone.
<TABLE>
<CAPTION>
COMPARISON OF THE PRICES OF SECURITIES ISSUED BY U.S GOVERNMENT AGENCIES
AND INSTRUMENTALITIES SOLD ON JUNE 4, 1998 TO THE VALUES INDICATED BY THE
FUND'S INDEPENDENT PRICING SERVICE
June 4, 1998
SECURITY June 4,1998 PRICES AS PER
TAM INDEPENDENT
ISSUER COUPON MATURITY CUSIP SALE PRICE PRICING SERVICE
<S> <C> <C> <C> <C> <C>
------ ------- ---------- -------------- -------- --------
FHLMC 15.3% 5-25-24 3133T5NR0 98.25 103.7118
FNMA 15.33% 3-25-23 31358UGT7 103.50 114.4876
FNMA 14.49% 5-25-23 31359AFV6 101.625 118.1987
FNMA 15.5% 3-25-23 31358TX95 99.25 102.1395
FHLMC 6.5% 12-15-23 3133T3KK3 93.5 99.8211
FHLMC 9.25% 8-15-23 3133T0TQ7 100.9375 104.4756
FHLMC 13.593 5-15-24 3133T5JV6 98.125 114.7757
FHLMC is the Federal Home Loan Mortgage Co.
FNMA is the Federal National Mortgage Assoc.
</TABLE>
The only formal independent price supplied to FPA for those securities
on that date comes from the independent pricing service used by the Fund to
evaluate those securities that day. Queries made by FPA to other
commercially available price providers, and securities firms with expertise
in the markets for these securities indicated that significantly higher
prices could have been obtained on June 4, 1998 for those securities. The
Funds are audited annually by McGladrey & Pullen, LLP. The independent
auditors use alternative independent pricing sources to ascertain that the
Fund securities are valued at prices which reflect the fair market value of
such securities. The prices of those securities as per the December 31,
1997 audit date were (by cusip): 3133T5NR0 119.999, 31358UGT7 114.014,
31359AFV6 111.0319, 31358TX95 106.9502, 3133T3KK3 91.8572, 3133T0TQ7 109.99
and 3133T5JV6 114.408
On June 4, 1998 TAM also liquidated the Fund's holdings of U.S.
Treasury Bonds 9.0% coupon maturing 11-15-18 (cusip 912810EB0)at a price
slightly below what they had been valued at by the independent pricing
23
<PAGE>
service. In doing so TAM "broke" (terminated prior to the agreed upon
expiration date) the reverse repurchase agreement that those treasury bonds
had been securing. The Fund had been earning additional income from the
difference between the interest income that had been generated by the
treasury bonds and the substantially lower rate paid pursuant to the
reverse repurchase agreement. The current Prospectus (dated May, 1 1998) of
the Fund states:
As long as the interest rate paid by the Fund for borrowing
via the use of reverse repurchase agreements is less than
the interest rate the Fund can earn on its securities
investments, these transactions will represent an essential
element of the Fund's objective of achieving relatively high
income.
The proceeds from the sales by TAM went uninvested for two days as TAM
had sold the Fund's securities for next-day settlement rather than the
"regular" settlement customary for these securities. That further
disadvantaged the Fund and advantaged the buyer of the securities, as the
securities all paid relatively high rates if interest. Despite the
provision in the prospectus quoted above, TAM did not enter into any
reverse repurchase agreements, thus further reducing the Fund's net income
and the Fund's leverage.
As a result of these transactions the Fund was radically changed from
one providing high current income by investing in a portfolio of Government
Securities with high current yields to a fund whose portfolio mostly
contained the lowest yielding securities. This radical portfolio change
reduced the dividend yield from above 7.5% to less than 2% as the dividend
rate per share of the Fund declined by more than 80%. FPA believes that one
of TAM's motivation for these transactions was to change the composition of
the Funds' Shareholders with the intent to affect the outcome of a vote by
the Shareholders.
Upon information and belief, the firm to whom TAM sold the Funds'
securities was also involved with many of the transactions between the
Tocqueville Government Fund and Tocqueville Securities. As described above
it was alleged in sworn testimony to the SEC by Mr. Chris Culp, that those
transactions involving the Tocqueville Government Fund and Tocqueville
Securities involved violations of applicable law. Upon information and
belief, all of the securities formerly in the Fund were initially purchased
by a hedge fund that was a client of the Utah-based securities firm. Many
of the securities then quickly retraded at substantially higher prices.
Upon learning of the damages suffered by the Fund and its Shareholders
as a result of TAM's action, Dr. Malanga and others urged that Armstrong
and Ferrone authorize an attorney with expertise in such matters to explore
ways in which the Fund could obtain restitution from TAM. In particular Dr.
Malanga suggested that TAM buy the same securities or similar securities,
at market prices and sell them to the Fund at the prices the Fund had
received for them. In this way both the Funds' NAV and dividend rate could
be restored. Armstrong and Ferrone refused to authorize any attempts to
recover the damages suffered by the Fund. Aside from the loss in Net Asset
Value, the tax laws and accounting regulations relating to mutual funds as
such that these sales were extremely disadvantageous to the Fund. When a
mutual fund owns a bond that is paying much higher coupon interest than is
available on newly issued similar types of bonds, it generally is not in
the interest of the fund shareholders to sell the bond, even at its fair
market price. Aside from the issue of realizing capital gains that could be
subject to taxation, the income available to pay dividends to shareholders
from a "old" bond that pays a high coupon but want previously bought at a
price lower than today's market is greater than the income available to pay
dividends from an identical bond bought today at a market price above its
face value. The reason why a bond bought at a lower price generates more
income available to pay dividends than the same bond bought at a higher
price is that any purchase premium must be amortized. Thus, had the bonds
sold by TAM on June 4, 1998 been immediately repurchased by the Fund at
higher prices, the dividends from that point on would have been lower
because of the required amortization of the premium. Had Dr. Malanga's
suggestion that TAM buy the bond back at market prices and the sell them to
the Fund at the prices TAM caused them to be sold at, there still would
have been some reduction in the dividend but not nearly as much since the
premium to be amortized would be much less. FPA believes that a competent
investment advisor should have been aware that the income from these
securities could generally not have been "replaced" with any purchases of
other securities at market value.
In connection with discovery relating the Special Meeting Action
commenced by Armstrong on behalf of the Funds, attorneys for Armstrong and
the Funds (whose law firm also represented the Tocqueville Trust, and still
does so) subpoenaed tens of thousands of documents and deposed all of board
members proposed by FPA. The only discovery sought by FPA in the matter
24
<PAGE>
were certain board books of the Tocqueville Trust which FPA believed could
have corroborated Mr. Culp's allegations against TAM and TSC relating to
the Transactions between TS and the Tocqueville Trust. The board books were
in the possession of the law firm, which represented the Armstrong, the
Funds and the Tocqueville Trust. While FPA produced all of the documents
requested pursuant to discovery relating to the Special Meeting Action,
attorneys for Armstrong and the Funds litigated (at the Funds expense) the
discovery issue and as of June 8, 1998 were able to avoid producing the
board books. Armstrong and Ferrone have continued to refuse to authorize
the attorneys representing the Funds (whose law firm also represents the
Tocqueville Trust) to investigate the allegations made by Mr. Culp
regarding TAM, TS and the Tocqueville Trust, and the June 8, 1998
settlement described below made moot the attempt by FPA to obtain access to
the board books in question.
On June 8, 1998, the Funds, on the one hand, and FPA and Drs.
Malanga and Brofman on the other, entered into a stipulation, which was
"so ordered" by Judge Richard Owen ("Stipulation No.1"). This settled on
an interim basis the Special Meeting Action by which the Shareholder's
meeting was blocked. Under Stipulation No. 1, all of the parties to the
Special meeting Action agreed to the following essential terms: (i) that
as soon as is practicable the Funds would file with the SEC revised proxy
materials which seek a Shareholders vote on the Tocqueville Transactions
and the FPA proposals, (ii) that the Funds would take the necessary steps
to call a notice a new special meeting of Shareholders (the "New Special
Meeting") for purposes of having the Shareholders vote upon the
Tocqueville Transactions and the FPA proposals set forth in the Special
Meeting Proxy and to have the New Special Meeting take place within
thirty (30) days from the date that the SEC cleared proxy materials from
the Funds and FPA, (iii) all of the parties agreed to use their best
efforts to insure that Shareholders are provided a full and fair
opportunity to consider and vote upon, on a simultaneous basis the
proposals contained in the Funds' proxy material and the FPA Proxy
Materials , (iv) FPA would not assert any damages against the
independent Board members for actions taken on July 15, 1997 and May 30,
1998 concerning the Tocqueville Trust, Tocqueville Asset Management
L.P. and Tocqueville Securities L.P., and (v) that FPA and Drs. Malanga and
Brofman agreed not to hold the Special Meeting until such time as the
New Special Meeting could take place.
On June 12, 1998 TAM informed the Board Members that it had sold
$1,900,000 of a New York City Agency Bonds held by the Fundamental New York
Muni Fund. TAM stated in its communication to the Board, that it had sold
the Bonds because they were below investment-grade, and that withdrawals
required raising cash. In actuality the Bonds were and are investment-grade
rated by Moody's. Furthermore the NY Muni Fund held on June 12, 1998 more
than ten million dollars in puttable variable rate demand notes ('VRDNs"),
that could have been converted to cash that day at face value at the
holders option. The VRDNs were held by the Fund as cash equivalents to meet
immediate needs. While an investment advisor has the discretion to hold any
amounts of cash as they may see fit, FPA believes that the written
communication to the board from TAM stating that cash was required at the
time of this sale strongly suggests that TAM did not posses the expertise
to know that the VRDNs were puttable.
The price per bond paid to the NY Fund (101.77) was about one percent
lower than the price the NY Fund had received from the sale of $1,600,000
of the same bond (102.75) on February 19,1998, and substantially lower than
what FPA believes a market participant with expertise in the trading of
these types of securities, and which had known that they were investment-
grade rated, could have obtained for them. On the earlier date at which the
Fund had sold the same bonds at a higher price, municipal bond prices were
actually lower, as measured by the benchmark municipal bond index futures.
The June 1998 Municipal Bond Futures contract closed at 125.3125 on June
12, 1998 as compared with 123.5625 on February 19, 1998. Historic
comparisons of the levels of the benchmark municipal bond index futures
does not necessarily prove that TAM sold the bonds at an unfairly low level
on June 12,1998. It is possible that even though the benchmark municipal
bond index futures prices indicated that the general level of municipal
bond prices were higher on June 12, 1998 than on February 19, 1998, special
factors may have affected the price of this individual security and
accounted for the lower price obtained for the Fund by TAM. Unlike
securities traded on exchanges, the actual prices at which specific
municipal bonds are transacted at the institutional level are not public
knowledge. Thus, FPA can only make an assertion based on the one actual
prior transaction involving the Fund.
On June 19, 1998 the Funds filed a new set of preliminary proxy
materials with the Commission seeking Shareholder approval of the
Tocqueville transaction. As in all earlier such proxy materials supporting
the Tocqueville Transaction, no mention or disclosure was made concerning
the allegations of improper securities transactions between Tocqueville
Securities and the Tocqueville Government Fund. No mention or disclosure
25
<PAGE>
was made of the transactions of June 4, 1998 and June 12, 1998 and the
resulting damages suffered by the Funds. No mention or disclosure was made
of the fact that TAM was acting as investment advisor to the Funds without
having signed a written investment advisory agreement and thus was
violating applicable law. The lack of a signed investment advisory
agreement was also concealed from Dr. Malanga who was still a Board Member
at the time.
At the end of June 1998 Armstrong and Ferrone indicated through their
attorneys that they would be willing to replace TAM with an advisor
proposed by FPA, and would not object to FPA or former employees of FPA
providing services and expertise to such a new advisor. In light of FPA's
view of the importance of quickly terminating TAM's involvement with the
Funds and thus precluding further damage to the Funds and The Shareholders
by TAM, the principals of FPA sought out registered investment advisors who
possessed or expressed a willingness to acquire the expertise required to
manage the Funds. The expressed intention of Armstrong and Ferrone to
quickly replace TAM and to take action aimed at preventing further damaging
truncations by TAM, was a factor in FPA's and others decision to defer the
exercise of rights and remedies with respect to Armstrong and Ferrone's
refusal to permit the Shareholders Meeting to occur.
While they did terminate the Tocqueville Transaction, Armstrong and
Ferrone have refused to authorize any action that could have sought
recovery of the damages suffered by the Funds at the hands of TAM. Upon
information and belief, Mr. Lyons told Shareholders that had called seeking
an explanation of the losses, that TAM's action had been directed by the
Board Members. Evidence of this was sent to Armstrong and Ferrone by FPA.
On July 10, 1998 FPA was informed that the Boards adopted resolutions
authorizing the termination of the Tocqueville Transactions. TAM was
authorized to continue as interim advisor for each of the Funds. Armstrong
and Ferrone continued to represent that steps would be taken to prevent
further damage to the Funds by TAM, that TAM would be replaced as interim
advisor in a relatively short time and that a special meeting of
Shareholders would be held prior to September 27, 1998. Armstrong and
Ferrone also repeatedly threatened to cause severe damage to the Funds and
the Shareholders if attempts were made to exercise the Shareholders rights
and remedies with respect to holding a meeting, or enforcing the provisions
of Stipulation No.1 in which all parties agreed to use their best efforts
to insure that Shareholders are provided a full and fair opportunity to
consider and vote upon the FPA proposals. Their specific threats were to
dissipate the Funds' assets with additional litigation costs, and/or to
"engineer" the appointment of a S.E.C. receiver for the Funds. Supplements
dated August 12, 1998, filed to the Funds' Prospectuses disclosing the
abandonment of the Tocqueville Transaction stated:
The Boards are in the process of considering alternative investment
management agreements for the Funds and intend on or prior to September 27,
1998 to seek approval of the Funds' Shareholders of new permanent
investment management agreements.
No mention was made in the Prospectus supplements of the damage to the
Funds by TAM or the drastic change in the portfolio composition nor the 80%
reduction in the dividend rates of the U.S. Fund that resulted from TAM's
actions.
In August 1998 Armstrong, Ferrone and TAM executed investment advisory
agreements between TAM and the Funds and backdated them to be effective
June 1, 1998. The new agreements differed from the original drafts dated
June 1, 1998 in that they contained a clause No. 11, which reads:
11. Liability of Interim Investment Advisor and
Indemnification. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations
or duties hereunder the Interim Investment Advisor or any of
its officers, trustees or employees, it shall not be subject
to liability to the Fund or to any Shareholder of the Fund
for any omission in the course of, or connected with,
rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
The original June 1, 1998 version of the Investment Advisory Agreements
contained no such indemnification or limitation of liability for TAM.
On September 2, 1998 the Funds filed electronically with the
Commission forms NSAR-A which included a copy of the Investment Advisory
Agreements (containing clause 11, above), which stated that the agreement
is "made as of this 1st day of June, 1998". The signature page of the
Investment Advisory Agreement included with the September 2, 1998 NSAR-A
filing used the word "attest" where the word "signature" would normally
appear. No individuals were identified as signatories, nor was any
signature date indicated.
26
<PAGE>
Armstrong and Ferrone authorized the Funds to pay TAM advisory fees
covering the period back to June 1, 1998 as if signed Investment Advisory
Agreements had been executed from that date. FPA believes that one intended
consequence of the filing of the back-dated Investment Advisory Agreements
containing the indemnification and limitation of liability clause No. 11
shown above, may have been to convince any party contemplating taking
action aimed at recovery of the damages cause by TAM on June 4, 1998 and
June 12, 1998, that TAM was relying on the indemnification when it executed
the transactions that caused the damages.
FPA believes than Armstrong and Ferrone's authorization of the
payments to TAM and the retroactive indemnification to TAM after knowledge
of the transactions of June 4, 1998 and June 12, 1998 was a breach of their
fiduciary duties to the Funds and the Funds' Shareholders.
FPA believes that Armstrong and Ferrone were complicit in, knew of or
recklessly disregarded TAM's violations of rule 2a-7 under the Investment
Company Act of 1940, with regard to the Fundamental Tax-Free Money Market
Fund. Rule 2a-7 limits the types and amounts of securities that can be
purchased by money market funds. Among the violations of 2a-7 was a
purchase of more than thirty three million dollars of a single non-rated
private placement security on August 14, 1998. Immediately after the
purchase, that single issue comprised more than half of the assets of the
Money Market Fund. Separate from the 2a-7 money market fund diversification
issues, the Fund's Prospectus and current SEC policy regarding the
liquidity of securities purchased by mutual funds would have required that
the board consider with respect to liquidity, private placement securities
such as the $33,453,299.18 P-Floats due 7-1-23 (cusip 6498385B1) purchased
by the Fundamental Tax-Free Money Market Fund on August 14, 1998. FPA
believes that extensive discussions concerning portfolio transaction took
place involving the two board members and TAM around or slightly prior to
that date. Violations of rule 2a-7 due to larger than permitted amounts of
single issues of private placement securities for the Money Market Fund
also occurred on at least August 7, 1998 (cusip 592596WR7), September 7,
1998 (cusip 649668N30) and September 16, 1998 (cusip 733581RD6).
FPA believes that by all known methodologies for calculation duration,
the duration of the Fundamental U.S. Government Fund exceeded three years
from June 1998 through September 23, 1998, in violation the current
Prospectus and The Board Resolution adopted October 18, 1995. The question
of which duration calculation methodology was appropriate for the
Fundamental U.S. Government Strategic Income Fund in 1993 is the primary
issue in dispute in the Administrative Proceedings involving Dr. Brofman,
FPA and FSC discussed on p.___)
Armstrong and Ferrone continued to authorize TAM's continuation as
investment advisor for as long as possible without there being a
Shareholder vote. On September 24, 1998 TAM sold a position held in the
Fundamental U.S. Government Fund of principal strips of U.S. Treasury Bonds
at substantially below their fair-market value as had been indicated by the
independent pricing services, and substantially below what FPA believes
that an investment manger with expertise in the trading of these types of
securities could have obtained for them. As a result of the transaction the
Net Asset Value of the Fund declined by more than 2.2% on that single day,
despite an increase in the general level of bond prices that day. The
possibility exists that the independent pricing service which provided the
evaluations of that security and the separate independent pricing service
used by the Fund's auditors when performing each year end audit may have
overvalued this security. However, FPA believes that an investment manager
with expertise in the trading of physical U.S. Treasury strips (non-cusip
bearer-bonds) could have obtained a significantly higher price for the
security. FPA also believes that executing this transaction with only four
days remaining in TAM's tenure was both malicious and gratuitous. FPA also
believes that in light of the circumstance and the information available to
them at the time Armstrong and Ferrone had a fiduciary duty to the Fund to
prevent or reverse this transaction. FPA believes that the failure to
prevent the continuation of such activity by TAM constituted willful
misfeasance, bad faith, gross negligence and reckless disregard of their
fiduciary duties on the part of Armstrong and Ferrone.
On September 28, 1998 the 120-day temporary exemption under Rule 15a-4
of the Investment Company Act which had permitted TAM to act as investment
advisor to the funds without approval by a majority of Shareholders
expired. Thus, without a Shareholder vote there was no legal way for TAM to
continue to act as advisor. The Board appointed Cornerstone as interim
advisor effective September 29, 1998 and applied to the SEC for an
exemption from Rule 15a-4 asking for permission to continue for up to
another 120 days without having a vote by Shareholders. FPA believes that
no other mutual fund has ever asked for such an exemption.
27
<PAGE>
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 "
LICENSING AND CONSULTING AGREEMENTS" 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 $ _____ .
__ % of The High Yield Series, which had total assets of $______
none of the assets of the U.S. Government Series
LICENSING AND CONSULTING AGREEMENTS
In June 1998 Armstrong and Ferrone indicated through their attorneys
that they would be willing to replace TAM with an advisor proposed by FPA,
and would not object to FPA or former employees of FPA providing services
and expertise to such a new advisor. In light of FPA's view of the
importance of quickly terminating TAM's involvement with the Funds and thus
precluding further damage to the Funds and The Shareholders by TAM, the
principals of FPA sought out registered investment advisors who possessed
or expressed a willingness to acquire the expertise required to manage the
Funds. The expressed intention of Armstrong and Ferrone to quickly replace
TAM, was a factor in FPA's and others decision to defer exercise of rights
and remedies with respect to Armstrong and Ferrone's refusal to permit the
Shareholders Meeting to occur. While FPA submitted proposed replacements
beginning in June 1998, Armstrong and Ferrone prevented the replacement of
TAM as interim manager for the Funds, until September 28, 1998. That date
marked the expiration of the full 120-day temporary exemption under Rule
15a-4 of the Investment Company Act, which had permitted TAM to act as
investment advisor to the funds without approval by a majority of
Shareholders. Thus, without a Shareholder vote there was no legal way for
TAM to continue to act as advisor. The Board appointed Cornerstone as
interim advisor effective September 29, 1998 and applied to the SEC for an
exemption from Rule 15a-4 asking for permission to continue for up to
another 120 days without having a vote by Shareholders. An exemption from
Rule 15a-4 was granted on November 30, 1998. That exemption will expire on
March 28, 1999, which is 120 days from November 30, 1998.
28
<PAGE>
Cornerstone was one of the registered investment advisors proposed by
Dr. Brofman as a replacement for TAM. Cornerstone executed a Consulting and
Services Agreement and a Software License Agreement with Dr. Brofman as an
individual in August 1998 which is 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 payments pursuant to those agreements ARE
TO COME FROM CORNERSTONE AND ARE NOT IN ANY WAY AN EXPENSE OR LIABILITY OF
THE FUNDS. The Consulting and Services Agreement requires that Cornerstone
(and not the Funds) make payments, but only in the event that the total net
assets of the Funds exceed $150 million. The total net assets of the Funds
have not been at that level since the Consulting and Service Agreement took
effect, thus no payments have been made or are owing under the Consulting
and Services Agreement. As of December 31, 1998 the total net assets of the
Funds were $_____ million. Charges pursuant to the Software License
Agreement began accruing on September 28, 1998, and will remain in force
until January 1, 2006. The monthly charges payable for the licensed
software are $62,500. The amounts payable pursuant to the Software License
Agreement are obligations of Cornerstone (not the Funds)and are subject to
reduction due to declines in Funds assets resulting from declines in the
market value of the Funds' securities portfolios or certain net
shareholder redemptions. The charges are not subject to reduction, and
thus will remain owing, in the event of any advisory change, assignment,
merger or reorganization involving the Funds or any other funds managed by
Cornerstone. In September 1998 Dr. Brofman agreed to allow Cornerstone
the discretion to defer a portion of the payments due under the agreements,
and thus limit Cornerstone's cash payment to him to $30,000 in any given
month, with the accrued remaining unpaid balance to be paid at a later
date. Dr. Brofman also agreed that a portion of the payments could be
placed in escrow for the benefit of the Funds to guarantee payments to the
Funds pursuant to undertakings made by him pending a final determination as
to the indemnification issue. FPA and Dr. Brofman contend that $176,837 was
reimbursed to the Funds ($51,200 to the NY Fund and $125,637 to the US Govt
Fund) by forgoing or waiving fees. Armstrong and Ferrone position has been
that the book entry transactions authorized by FPA and carried out by the
Funds' Custodian Bank and Accounting agent, did not have effect of
reimbursing the Funds, as would have been accomplished by the issuance back
and forth of physical checks. FPA has a further interest in the outcome of
the voting (see "CERTAIN ADDITIONAL INFORMATION ABOUT FPA" below).
Separately and additionally, Dr. Brofman also intends to place a portion of
the payments into an escrow account for the benefit of members of a
settlement class (described below) which is still owed $306,343.50, to
secure any obligation it may be determined that he has to the settlement
class.
THE SETTLEMENT CLASS
Persons and entities that purchased shares of the: New York Muni Fund
from January 1, 1992 through and including April 15, 1994; Fundamental U.S.
Government Strategic Income Fund from March 2, 1992 through and including
August 11, 1994; or California Muni Fund from January 1, 1993 through and
including July 31, 1994 are members of the "Settlement Class". In 1994 a
number of lawsuits were filed relating to losses experience by mutual funds
that had positions in derivatives that were affected by the sudden and
extreme increase in prevailing interest rates that occurred in 1994. Some
prominent mutual funds affiliated with major securities firms quickly
settled the first suits, which spawned many other suits against other
mutual fund entities, including FPA, FSC and their principals. FPA believes
that in all cases where such suits were litigated the defendants prevailed,
in that the suits were either dismissed or verdicts favoring the defendants
were rendered. FPA denied and continues to deny each and all of the claims
and contentions alleged in the suits. However, in 1996 FPA concluded that
further litigation would be protracted and expensive. FPA thus entered into
a settlement providing money for the class members, on the condition that
there be no payment of legal fees to the plaintiffs attorneys, either by
FPA or from monies that would have otherwise gone to the class members. FPA
would deposit $90,000 and then four additional annual payments of
$102,114.50 into an account from which payments would be made to members of
the settlement class. The settlement also called for additional amounts to
be paid by FPA depending upon growth in the net assets of the Funds advised
by FPA.
Payments from FPA in the amounts of $90,000 and $102,114.50 pursuant
to the Settlement were distributed to Class Members in 1996 and 1997
respectively. A consequence of the non-renewal of the Funds' investment
advisory contracts in May 1998 was that FPA became insolvent. Thus, funds
were not available to make further payments to the Class Members. While,
the obligation to the Class Members is solely that of FPA, Dr. Brofman
intends use a portion of the payments from Cornerstone to him to allow the
Class Members to receive the amounts in total that they would have
ultimately received had FPA continued in operation. A consequence of the
non-renewal of the Funds' investment advisory contracts in May 1998,
was that no Funds were available to make further payments to the Class
29
<PAGE>
Members. While, the obligation to the Class Members is solely that of
FPA, Dr. Brofman intends use a portion of the payments from Cornerstone
to him to allow the Class Members to receive the amounts in total that
they would have ultimately received had FPA continued in operation. Dr.
Brofman anticipates that 30% of the amounts he receives from
Cornerstone will be devoted to the Class Members until they have
received the total amount that they would have received from FPA.
ABOUT FPA
FPA is a privately held Delaware corporation. Its principal
Shareholder and President is Dr. Lance Brofman. (See ADMINISTRATIVE
PROCEEDINGS p___)
STOCK OWNERSHIP OF FUND SHARES FPA AND RELATED ENTITIES
The number of shares of Common Stock beneficially owned by FPA
and its principals as of ___________, 1998 is determined under the rules of
the SEC, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership
included any shares as to which the individual has sole or shared voting
power or investment power and also any shares which the individual has
the right to acquire within 60 days after ___________, 1998. Unless
otherwise indicated each person has sole investment and voting power
(or shares such power with his spouse) with respect to the shares set forth
in the following table. The inclusion herein of any shares deemed
beneficially owned does not constitute an admission of beneficial
ownership of those shares.
<TABLE>
<CAPTION>
NAME NY Muni Fund Money Fund Hi-Yield Cal Muni US Govt
------------ ---------- -------- ------- -------- -------
<S> <C> <C> <C> C> <C>
Lance Brofman(1)
Vincent Malanga(2,3)
FPA
</TABLE>
1. Includes shares held by family members:
2. Includes shares held by family members:
3. Includes shares held by an affiliate:
CERTAIN ADDITIONAL INFORMATION ABOUT FPA
FPA and FSC, on behalf of certain of their directors, officers,
Shareholders, employees and control persons (the "Indemnitees"), received
payments during the fiscal year ended December 31, 1997 from three of the
Funds for attorneys' fees incurred by them in defending the above
proceedings. These payments were as follows: US Fund--approximately
$232,500.00; New York Muni Fund--approximately $50,230.00; California Muni
Fund--approximately $4,000.00. Upon learning of the payments, the
independent Board members have directed that the Indemnitees return all of
the payments to the Funds or place them in escrow pending their receipt of
an opinion of independent legal counsel that the Indemnitees are entitled
to receive such attorneys' fee reimbursements. The Declaration of Trust,
Articles of Incorporation and contracts that call for Indemnification
specify that no indemnification shall be provided to a person who shall be
found to have engaged in "disabling conduct" as defined by applicable law.
The Indemnities have undertaken to reimburse the Fund for any
indemnification expenses for which it is determined that they were not
entitled to as a result of "disabling conduct" net of any reimbursements
already made to the Fund in the form of fees forgone or other similar
payments.
30
<PAGE>
Further information with respect to each Fund is discussed below:
A. New York Muni Fund
The Funds' Semi-Annual Reports dated June 30, 1998 ("SAR") noted that in
1997 FPA and FSC received payments from some of the Funds' including a
payment from Fundamental New York Muni Fund of $50,230 pursuant to
indemnification, and that the Independent Board Members of the Fund had
directed that the Indemnitees return the payments to the Fund or place them
in escrow pending receipt of an opinion of an independent legal counsel
that to the effect that the Indemnitees are entailed to receive them. The
SAR went on to state:
The Articles of Incorporation and contracts that call for
indemnification specify that no indemnification shall be
provided to a person who shall be found to have engaged in
"disabling conduct" as defined by applicable law. The
Indemnitees have undertaken to reimburse the Fund for any
indemnification expenses for which it is determined that
that they were not entitled to as a result of "disabling
conduct" net of any reimbursements already made to the Fund
in the form of fees forgone or other similar payments. FSC
waived fees in the amount of $51,200 for the YEAR ENDED
DECEMBER 31, 1997 (Emphasis added). FSC has asserted that
they elected to forgo these fees because the Fund was paying
legal expenses pursuant to indemnification. The independent
Directors instructed FPA to escrow the full amount incurred
by the Series of $50,230. In addition the Board of Directors
has not authorized the payment of management fees in the
amount of $48,528 for services rendered prior to the
termination of the management agreement.
Omitted from the SAR was the fact that in 1998 FPA and FSC in writing had
informed the Funds' custodian bank and accounting agent that FPA and FSC
intended to reimburse the Fund for the legal expenses in question by
waiving fees due FPA and FSC. There was no agreement or representation
written or otherwise to waive any fees, nor was any fee waiver required
during the periods in question. The Funds' custodian bank and accounting
agent was specifically asked if checks had to be physically issued to
accomplish the reimbursement. FPA was told that normal practice was not for
the custodian bank to first issue a check to FPA and/or FSC and then have
FPA and/or FSC issue a check back to the Funds' custodian bank. FPA was
told that the use of fee waivers specifically to reimburse the Funds for
legal expenses should be accomplished by means of book entries. The Funds'
custodian bank and accounting agent stated in writing that it should be
done via book entry, with no physical checks being issued. Then in 1998 FPA
and FSC instructed the Funds' custodian bank and accounting agent to make
the accounting entries and transfers necessary to credit the Fund with
$51,200 that was due FPA and FSC for services rendered in 1998. Thus, the
SAR filed on September 17,1998, quoted above, falsely states that the
$51,200 was waived in 1997, whereas in actuality it was 1998, after FPA and
FSC specifically communicated with the Funds' custodian bank and accounting
agent. FPA believes that almost any individuals other than Armstrong and
Ferrone would agree that the book entry transactions authorized by FPA and
carried out by the Funds' Custodian Bank and Accounting agent, had the
identical effect of reimbursing the Fund, as would have been accomplished
by the issuance back and forth of physical checks, or any other payment
mechanism. FPA believes that Ferrone's actions and behavior in this matter
are additional reasons for his removal and replacement as Board Member.
B. US Fund
FPA and FSC did not take fees due them in the amount of $96,077 and
$29,560, respectively for the year ended December 31, 1997. FPA and FSC
have asserted that they elected to forgo these fees because the Fund was
paying legal expenses pursuant to indemnification. There was no agreement
or representation written or otherwise to waive any fees, nor was any fee
waiver required during the period in question. The Fund has retained
independent legal counsel to determine whether the Indemnitees engaged in
disabling conduct. Pending clarification of the legal issues involved,
the Indemnitees have placed into an escrow account $102,863 as of April
30, 1998. Despite the reimbursement accomplished by forgoing fees, the
independent trustees have instructed FPA to escrow the full amount incurred
by the Fund of approximately $232,500. The SAR filed on September 17,1998,
notes that payments were not made to FPA and FSC for services rendered
prior to the termination of the management and distribution agreements,
because of the indemnification issue with regard to: the U.S. Government
Fund even though FPA waived fees of $125,637 in 1997 to reimburse the Fund
for legal expense and placed into an escrow account $102,863 (the
difference between the amount paid by the Fund and the amount waived to
reimburse the Fund for legal expenses).
31
<PAGE>
FPA believes that almost any individuals other than Armstrong and
Ferrone would agree that even if it is eventually determined that no
indemnification is proper, the amounts placed into escrow to date fully
secure the Funds against any possibility that a determination that no
indemnification is to be paid, would result in any loss to the fund, or
cause the Funds to have incurred any higher expenses than would otherwise
be the case. Thus, there is no legal or logical basis for requiring further
amounts to be escrowed. FPA believes that almost any individuals other than
Armstrong and Ferrone would agree that not taking fees due them on the part
of FPA and FSC constitutes a valid reimbursement of the Funds' legal
expenses.
C. The California Muni Fund
Payments were not made to FPA and FSC for services rendered prior to the
termination of the management and distribution agreements, because of the
indemnification issue with regard to the California Muni Fund even though
FPA deposited $4,000 (the entire amount paid by the Fund for
indemnification) into an escrow account as directed by the independent
Board Members.
D. The Other Funds
Payments were not made to FPA and FSC for services rendered prior to the
termination of the management and distribution agreements, because of the
indemnification issue with regard to those Funds even though there is no
assertion that any indemnification expenses were paid or should be returned
or escrowed for those Funds.
FPA believes that almost any individuals other than Armstrong and
Ferrone would agree that even if it is eventually determined that no
indemnification is proper, the amounts placed into escrow to date fully
secure the Funds against any possibility that a determination that no
indemnification is to be paid, would result in any loss to the fund, or
cause the Funds to have incurred any higher expenses than would otherwise
be the case. Thus, there is no legal or logical basis for requiring further
amounts to be escrowed. FPA believes that almost any individuals other than
Armstrong and Ferrone would agree that not taking fees due them on the part
of FPA and FSC constitutes a valid reimbursement of the Funds' legal
expenses.
DESCRIPTION OF VOTING
THE NEW YORK MUNI FUND
The New York Muni Fund is governed by its Articles of Incorporation,
Bylaws, Prospectuses and undertakings of and by the Fund, and applicable
federal and Maryland State law. Holders of 10% of the outstanding voting
shares of the Fund have the right to call for a special meeting of
Shareholders for any reason. Such holders request the Secretary to call a
meeting, and the Secretary shall call such meeting after informing the
requesting Shareholders of the estimated cost of giving notice of such
meeting, and receiving such amount from the requesting Shareholders. The
Secretary then gives Shareholders written or printed notice of meeting not
less than neither ten nor more than 90 days before the meeting date.
Should the Secretary refuse or otherwise be unable to call the requested
meeting, the requesting Shareholders may commence a civil action to compel
the occurrence of the meeting.
In addition to Shareholders, the President or the Board may call a
special meeting of Shareholders.
A director may serve until removed or until his or her term expires.
A director's term expires when a successor has been elected at an annual
meeting of Shareholders, or a special meeting of Shareholders called in
lieu of an annual meeting. Shareholders may vote to elect new directors
without first voting to removing the existing directors. A plurality of the
votes cast at such meeting at which a quorum is present is sufficient to
elect a director.
The present Articles of Incorporation only allow a Board Member to be
removed for cause prior to the expiration of his or her term. FPA is
soliciting this Proxy to, among other things, amend the Articles of
Incorporation so that Board members may be removed prior to the expiration
of his or her term by a Vote of the majority of voting shares.
The Articles of Incorporation and Bylaws allow nine directors. That
number may be increased, up to 15 directors, by the act of a majority of
existing directors. A majority of existing directors may also decrease the
number of directors to a number not less than two, but such decrease shall
not affect the term of office of any director.
Section 16(c) of the Investment Company Act relates to Shareholder rights
for mutual funds that are not required to hold annual Shareholder meetings.
The Fundamental Funds, Inc. April 30, 1997 N-1A registration statement
contains in item 32:
Undertakings.
(1) The Registrant undertakes to comply with Section
16(c) of the Investment Company Act of 1940 as though such
provisions of the Act were applicable to the Registrant,...
(2) The Registrant undertakes to call a meeting of
stockholders for the purpose of voting upon the question of
removal of one or more of the Registrant's directors when
requested in writing to do so by the holders of at least 10%
of the Registrant's outstanding shares of common stock and,
in connection with such meeting, to comply with the
provisions of Section 16(c) of the Investment Company Act of
1940 relating to Shareholder communications.
THE CALIFORNIA MUNI FUND
The California Muni Fund is governed by its Declaration of Trust,
Bylaws, Prospectuses and undertakings of and by the Fund, and applicable
federal and Commonwealth of Massachusetts law. The holders of one-third of
all shares entitled to vote may call a meeting for any reason. With
respect to removing Trustees, however, a meeting may be called by holders
of 10% of the outstanding voting shares. The Shareholders shall request the
Secretary to call the meeting. The Secretary then gives Shareholders a
written or printed notice of meeting not less than neither ten nor more
than 90 days before the meeting date. Should the Secretary refuse or
otherwise be unable to call the requested meeting, the requesting
Shareholders may commence a civil action to compel the occurrence of the
meeting.
In addition, the Declaration of Trust provides that the Trust will be
governed by section 16(c) of the Investment Company Act, which states that
whenever ten or more Shareholders meeting the qualifications set forth in
section 16(c) seek the opportunity of furnishing materials to other
Shareholders with a view to obtaining signatures on such a request for a
meeting, the Trustees shall comply with the provisions of section 16(c)
with respect to providing such Shareholders access to the list of the
Shareholders of record or the mailing of such materials to such
Shareholders of record.
In addition to Shareholders, the Chairman of the Board of Trustees,
the President, or the Trustees may call a special meeting of Shareholders.
There shall be no more than 15 nor less than three Trustees. Within
these limits, the existing Trustees may vote to change the actual number of
Trustees.
A Trustee may be removed, with or without cause, by the affirmative
vote of a majority of the outstanding shares present in person or by proxy
at the special meeting, provided that a quorum is present. In addition, a
Trustee may be removed for cause by the vote of two-thirds of the Trustees
whose removal is not proposed.
The power of Trustees to appoint successor Trustees is subject to
section 16(a) of the Investment Company Act, which provides that no person
may serve as a Trustee of a Fund unless elected to that office by the
holders of the outstanding voting securities of the Fund. Vacancies
occurring between such meetings may be filled by the Trustees as described
above if immediately after filling such vacancies at least two-thirds of
the Trustees then holding office shall have been elected to such office by
the holders of the outstanding shares of the Fund at such special meeting.
In the event that at any time less than a majority of the Trustees were so
33
<PAGE>
elected, the Trustees or the Secretary shall forthwith cause to be held as
promptly as possible and in any event within 60 days a meeting of such
holders for the purpose of electing Trustees to fill the existing vacancies
unless the SEC by order extends such period.
THE FIXED-INCOME FUNDS
The Fundamental U.S. Government Strategic Income Fund, the High-Yield
Municipal Bond Series and the Tax-Free Money Market Funds (together, the
"Fixed-Income Funds"), are governed by its Declaration of Trust, Bylaws,
Prospectuses and undertakings of and by the Fixed-Income Funds, and
applicable federal and Commonwealth of Massachusetts law. The holders of
10% of the outstanding voting shares or the Trustees may request the
Secretary to call a special meeting of Shareholders. The Secretary then
gives Shareholders a written or printed notice of meeting not less than 15
days before the meeting date. If the Secretary refuses or neglects for more
than two days to call such a special meeting, the Trustees or the
Shareholders so requesting may, in the name of the Secretary, call the
meeting by giving a notice of meeting. In addition to Shareholders, the
Fixed-Income Funds allow the Trustees to call a special meeting.
In addition, the Declaration of Trust provides that the Trust will be
governed by section 16(c) of the Investment Company Act, which states that
whenever ten or more Shareholders meeting the qualifications set forth in
section 16(c) seek the opportunity of furnishing materials to other
Shareholders with a view to obtaining signatures on such a request for a
meeting, the Trustees shall comply with the provisions of section 16(c)
with respect to providing such Shareholders access to the list of the
Shareholders of record or the mailing of such materials to such
Shareholders of record.
There shall be no more than nine or less than two Trustees. The
existing Trustees determine the actual number of Trustees.
A Trustee may be removed by the action of two-thirds of the remaining
Trustees. A vacancy on the Board of Trustees may be filled by the
appointment of the remaining Trustees.
The power of Trustees to appoint successor Trustees is subject to
section 16(a) of the Investment Company Act, which provides that no person
may serve as a Trustee of a Fund unless elected to that office by the
holders of the outstanding voting securities of the Fund. Vacancies
occurring between such meetings may be filled by the Trustees if
immediately after filling such vacancies at least two-thirds of the
Trustees then holding office shall have been elected to such office by the
holders of the outstanding shares of the Fund at such special meeting. In
the event that at any time less than a majority of the Trustees were so
elected, the Trustees or the Secretary shall forthwith cause to be held as
promptly as possible and in any event within 60 days a meeting of such
holders for the purpose of electing Trustees to fill the existing vacancies
unless the SEC by order extends such period.
ALL FUNDS
FPA believes that under applicable state law anyone may solicit a
proxy for any Fund. Approval of Proposals 1, 2, 3 and 4 requires the
affirmative vote of (i) with respect to the California Muni Fund and New
York Muni Fund, a majority of each Funds' outstanding shares of beneficial
interest/common stock ("Shares"), (ii) with respect to Fundamental U.S.
Government Strategic Income Fund, High-Yield Municipal Bond Series and Tax-
Free Money Market Series, a "majority of the outstanding voting
securities," within the meaning of the Investment Company Act of each Fund.
The term "majority of the outstanding voting securities" is defined under
the Investment Company 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. Proposals 5 and
6 require the affirmative votes of the majority of outstanding shares.
Proposal 7 requires a plurality of votes cast at the meeting of New York
Muni Fund Shareholders.
Shareholders of record at the close of business on ___________, 1998
(the "Record Date"), will be entitled to notice of, and to vote at, the
Meeting, including any adjournment thereof. As of the Record Date, the
Funds had the number of Shares outstanding set forth below, each Share
being entitled to one
vote:
Total Shares Fund
Outstanding
---------------- ----------
34
<PAGE>
Each Shareholder will be entitled to one vote for each share and a
fractional vote for each fractional share held. The issued and outstanding
shares of the New York Muni Fund series constitute all of the issued and
outstanding shares of Fundamental Funds, Inc. 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 for 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 to change the
Articles of Incorporation and a approve a 10-1 stock split of the New York
Muni Fund, to terminate all 12b-1 Plans, to remove all Board members, and
to elect new Board members may be taken 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. FPA
will vote the proxy at any adjourned meeting in a manner consistent with
the proxy, unless such proxy is revoked at or prior to the adjourned
meeting.
If sufficient votes are not cast to terminate the 12b-1 Plans, the
present independent Board members may not be removed. If sufficient votes
are not cast to amend the Articles of Incorporation of the New York Muni
Fund to remove directors by a majority of Shareholder votes, such directors
may not be removed prior to the expiration of their term without cause.
All proxy material filed electronically on the SEC EDGAR system will
be available immediately on certain electronic news services such as
Bloomberg, and within a few days on the internet at WWW.SEC.GOV. This proxy
material is being mailed to shareholders on 1999.
Solicitations will be made primarily by mail, but may also be made by
telephone, facsimile, electronic mail, or personal interview conducted by
certain officers or employees of the Funds or FPA. FPA has engaged
Shareholder Communications, Inc. to assist with proxy solicitations, at an
estimated cost of $ . FPA will pay for the initial cost of
solicitations, but may petition the Funds to reimburse FPA for such costs.
VOTING INFORMATION ON AND DISCRETION OF ATTORNEYS NAMED IN THE PROXY
While the Meeting is called to act upon any other business that may
properly come before it, at the date of this Proxy Statement the only
business which FPA intends to present or knows that others will present is
the business mentioned in this Proxy Statement. If any other matters
lawfully come before the Meeting, and in all procedural matters at the
Meeting, it is the intention that the enclosed proxy shall be voted in
accordance with the best judgment of the attorneys named therein, or their
substitutes, present and acting at the Meeting. As of the Record Date, the
Fundamental Funds believed that the following persons beneficially owned
more than 5% of Shares of the Funds:
35
<PAGE>
FUNDAMENTAL NEW YORK FUND
Number of Shares Percentage of
Names & Address Owned Outstanding Shares
---------------- ------------ ------------------
FUNDAMENTAL CALIFORNIA FUND
Number of Shares Percentage of
Names & Address Owned Outstanding Shares
---------------- ------------ -------------------
FUNDAMENTAL MONEY MARKET FUND
Number of Shares Percentage of
Names & Address Owned Outstanding Shares
--------------- ---------------- -----------------
FUNDAMENTAL HIGH YIELD FUND
Number of Shares Percentage of
Names & Address Owned Outstanding Shares
---------------- --------------- -----------------
FUNDAMENTAL US GOVERNMENT FUND
Number of Shares Percentage of
Names & Address Owned Outstanding Shares
---------------- ---------------- ------------------
SUBMISSION OF PROPOSALS FOR THE NEXT MEETING OF SHAREHOLDERS
The Funds do not hold Shareholder meetings on an annual basis. FPA
believes that under the New York Muni Funds' Articles of Incorporation and
By-Laws, annual meetings of Shareholders, or a special meetings of
Shareholders in lieu of annual meetings, are required to be held. Under
the California Muni and Fundamental Fixed-Income Funds' Declarations of
Trust and By-Laws, annual meetings of Shareholders are not required to be
held unless necessary under the 1940 Act (for example, when fewer than a
majority of the Board members have been elected by Shareholders). A
Shareholder proposal intended to be presented at any meeting hereafter
called should be sent to the Funds at 67 Wall Street, New York, New York,
and must be received by the Funds within a reasonable time before the
solicitation relating thereto is made in order to be included in the notice
or proxy statement related to such meeting. The submission by a
Shareholder of a proposal for inclusion in a proxy statement does not
guarantee that it will be included. Shareholder proposals are subject to
certain regulations under federal securities law.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. IF YOU DO NOT EXPECT TO
ATTEND THE MEETING, IF AND WHEN CALLED, PLEASE SIGN YOUR PROXY CARD
PROMPTLY AND RETURN IT IN THE ENCLOSED ENVELOPE TO AVOID UNNECESSARY
EXPENSE AND DELAY. NO POSTAGE IS NECESSARY.
___________, 1999
FUNDAMENTAL PORTFOLIO ADVISORS,INC.
Lance Brofman
President,
Fundamental Portfolio Advisors, Inc.
36
<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:
(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;
37
<PAGE>
(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:
38
<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 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:
Fundamental U.S. Government Strategic Income Fund:
<TABLE>
<CAPTION>
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%
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>
39
<PAGE>
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' 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.
40
<PAGE>
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.
(FUND)
Attest: By:
-------------------------
- -------------------------
(CORNERSTONE EQUITY ADVISORS,INC. )
Attest:
By:
-------------------------
- -------------------------
<PAGE>
FUNDAMENTAL FIXED-INCOME FUND
FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND
SPECIAL MEETING OF SHAREHOLDERS ---____________, 1999
Please refer to the Proxy Statement for a discussion of the 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 FPA, THE HON. ALFRED TOKER, ROBERT
PARKS, CHRISTIAN DAN JENSEN, THE REV. WILLIAM M. TALIAFERRO, ROBERT
BRANDT, LANCE BROFMAN, OR ANY OF THEM, THE ATTORNEYS AND PROXIES OF THE
UNDERSIGNED, WITH FULL POWER OF SUBSTITUTION, TO VOTE THE SHARES LISTED
BELOW AS DIRECTED, 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 FPA.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4, 5, 6 AND 7.
---Detach card at perforation and mail in postage paid envelope provided-
--
1. Approval of the Investment Advisory Agreement with Cornerstone
Equity Advisors.
FOR AGAINST ABSTAIN
|_| |_| |_|
2. Ratification of the payment of interim advisory fees to
Cornerstone Equity Advisors, Inc.
FOR AGAINST ABSTAIN
|_| |_| |_|
3. Election of Board members. The following individuals seeking
election as Board members solicit this Proxy. If no direction is given
this Proxy will be voted in favor of the election of these individuals:
To elect G. John Fulvio, Stephen C. Leslie, Dr. Yvonne Scruggs-Leftwich,
The Hon. Alfred Toker, Robert Parks, Christian Dan Jensen, The Rev. William
M. Taliaferro, Dr. Robert Brandt and Dr. Lance Brofman as Board members
FOR AGAINST ABSTAIN
|_| |_| |_|
WITHHOLD AUTHORITY TO VOTE FOR ALL EXCEPT
|_| |_|
To withhold authority to vote, mark "For all except" and write the
individual's name(s) on the line below.
- --------------------
4. Approval of the Proposal to terminate all plans formed under Rule
12b-1 of the Investment Company Act of 1940:
FOR AGAINST ABSTAIN
|_| |_| |_|
5. Removal of Current Board member. FPA seeks to remove the following
individual Board member. If no direction is given this Proxy will be voted
in favor of the removal of these individuals:
To remove L. Greg Ferrone as a Board member
FOR AGAINST ABSTAIN
|_| |_| |_|
6. To request and call for a Meeting of Shareholders and, to permit the
proxy holders to take all action in the name of the Shareholders or the
Secretary as appropriate under applicable law to (a) cause the Meeting to
take place and (b) cause the Proposals to be presented at the Meeting.
FOR AGAINST ABSTAIN
|_| |_| |_|
7. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting or any adjournment
thereof.
---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 PROPOSALS 1, 2, 3, 4, 5, 6 AND 7.
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____________________________
x____________________________
Dated:___________________, 1999
<PAGE>
FUNDAMENTAL FIXED-INCOME FUND
HIGH-YIELD MUNICIPAL BOND SERIES
SPECIAL MEETING OF SHAREHOLDERS -- -____________, 1999
Please refer to the Proxy Statement for a discussion of the matters. THE
UNDERSIGNED HOLDER(S) OF SHARES OF BENEFICIAL INTEREST OF THE HIGH-
YIELD MUNICIPAL BOND SERIES OF FUNDAMENTAL FIXED-INCOME FUND HEREBY VOTES
TO CALL A SPECIAL MEETING AND CONSTITUTES AND APPOINTS THE HON. ALFRED
TOKER, ROBERT PARKS, CHRISTIAN DAN JENSEN, THE REV. WILLIAM M. TALIAFERRO,
ROBERT BRANDT, LANCE BROFMAN, OR ANY OF THEM, THE ATTORNEYS AND PROXIES OF
THE UNDERSIGNED, WITH FULL POWER OF SUBSTITUTION, TO VOTE THE SHARES LISTED
BELOW AS DIRECTED, 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 FPA.
---Detach card at perforation and mail in postage paid envelope provided-
--
1. Approval of the Investment Advisory Agreement with Cornerstone Equity
Advisors.
FOR AGAINST ABSTAIN
|_| |_| |_|
2. Ratification of the payment of interim advisory fees to Cornerstone
Equity Advisors, Inc.
FOR AGAINST ABSTAIN
|_| |_| |_|
3. Election of Board members. The following individuals seeking election
as Board members solicit this Proxy. If no direction is given this Proxy
will be voted in favor of the election of these individuals:
To elect G. John Fulvio, Stephen C. Leslie, Dr. Yvonne Scruggs-Leftwich,
The Hon. Alfred Toker, Robert Parks, Christian Dan Jensen, The Rev. William
M. Taliaferro, Dr. Robert Brandt and Dr. Lance Brofman as Board members
FOR AGAINST ABSTAIN
|_| |_| |_|
WITHHOLD AUTHORITY TO VOTE FOR ALL EXCEPT
|_| |_|
To withhold authority to vote, mark "For all except" and write the
individual's name(s) on the line below.
- --------------------
4. Approval of the Proposal to terminate all plans formed under Rule
12b-1 of the Investment Company Act of 1940:
FOR AGAINST ABSTAIN
|_| |_| |_|
5. Removal of Current Board member. FPA seeks to remove the
following individual Board member. If no direction is given this Proxy will
be voted in favor of the removal of these individuals:
To remove L. Greg Ferrone as a Board member
FOR AGAINST ABSTAIN
|_| |_| |_|
6. To request and call for a Meeting of Shareholders and, to permit
the proxy holders to take all action in the name of the Shareholders or the
Secretary as appropriate under applicable law to (a) cause the Meeting to
take place and (b) cause the Proposals to be presented at the Meeting.
FOR AGAINST ABSTAIN
|_| |_| |_|
7. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting or any adjournment
thereof.
---Detach card at perforation and mail in postage paid envelope provided-
--
FUNDAMENTAL FIXED-INCOME FUND
HIGH-YIELD MUNICIPAL BOND SERIES
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 PROPOSALS 1, 2, 3, 4, 5, 6 AND 7.
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____________________________
x____________________________
Dated:___________________, 1999
<PAGE>
FUNDAMENTAL FIXED-INCOME FUND
TAX-FREE MONEY MARKET SERIES
SPECIAL MEETING OF SHAREHOLDERS -- -____________, 1999
Please refer to the Proxy Statement for a discussion of the matters.
THE UNDERSIGNED HOLDER(S) OF SHARES OF BENEFICIAL INTEREST OF THE TAX-
FREE MONEY MARKET SERIES OF FUNDAMENTAL FIXED-INCOME FUND HEREBY VOTES
TO CALL A SPECIAL MEETING AND CONSTITUTES AND APPOINTS ALFRED TOKER,
ROBERT PARKS, CHRISTIAN DAN JENSEN, THE REV. WILLIAM M. TALIAFERRO,
ROBERT BRANDT, LANCE BROFMAN, OR ANY OF THEM, THE ATTORNEYS AND PROXIES OF
THE UNDERSIGNED, WITH FULL POWER OF SUBSTITUTION, TO VOTE THE SHARES
LISTED BELOW AS DIRECTED, 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 FPA.
---Detach card at perforation and mail in postage paid envelope provided-
--
1. Approval of the Investment Advisory Agreement with Cornerstone Equity
Advisors.
FOR AGAINST ABSTAIN
|_| |_| |_|
2. Ratification of the payment of interim advisory fees to Cornerstone
Equity Advisors, Inc.
FOR AGAINST ABSTAIN
|_| |_| |_|
3. Election of Board members. The following individuals seeking election
as Board members solicit this Proxy. If no direction is given this Proxy
will be voted in favor of the election of these individuals:
To elect G. John Fulvio, Stephen C. Leslie, Dr. Yvonne Scruggs-Leftwich,
The Hon. Alfred Toker, Robert Parks, Christian Dan Jensen, The Rev. William
M. Taliaferro, Dr. Robert Brandt and Dr. Lance Brofman as Board members
FOR AGAINST ABSTAIN
|_| |_| |_|
WITHHOLD AUTHORITY TO VOTE FOR ALL EXCEPT
|_| |_|
To withhold authority to vote, mark "For all except" and write the
individual's name(s) on the line below.
- --------------------
4. Approval of the Proposal to terminate all plans formed under Rule 12b-1
of the Investment Company Act of 1940:
FOR AGAINST ABSTAIN
|_| |_| |_|
5. Removal of Current Board member. FPA seeks to remove the following
individual Board member. If no direction is given this Proxy will be voted
in favor of the removal of these individuals:
To remove L. Greg Ferrone as a Board member
FOR AGAINST ABSTAIN
|_|
|_|
|_|
6. To request and call for a Meeting of Shareholders and, to permit the
proxy holders to take all action in the name of the Shareholders or the
Secretary as appropriate under applicable law to (a) cause the Meeting to
take place and (b) cause the Proposals to be presented at the Meeting.
FOR AGAINST ABSTAIN
|_| |_| |_|
7. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment
thereof.
---Detach card at perforation and mail in postage paid envelope provided-
--
FUNDAMENTAL FIXED-INCOME FUND
TAX-FREE MONEY MARKET SERIES
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 PROPOSALS 1, 2, 3, 4, 5, 6 AND 7.
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____________________________
x____________________________
Dated:___________________, 1999
<PAGE>
THE CALIFORNIA MUNI FUND
SPECIAL MEETING OF SHAREHOLDERS ---____________, 1999
Please refer to the Proxy Statement for a discussion of the matters.
THE UNDERSIGNED HOLDER(S) OF SHARES OF BENEFICIAL INTEREST OF THE
CALIFORNIA MUNI FUND HEREBY VOTES TO CALL A SPECIAL MEETING AND
CONSTITUTES AND APPOINTS ALFRED TOKER, ROBERT PARKS, CHRISTIAN DAN JENSEN,
THE REV. WILLIAM M. TALIAFERRO, ROBERT BRANDT, LANCE BROFMAN, OR ANY OF
THEM, THE ATTORNEYS AND PROXIES OF THE UNDERSIGNED, WITH FULL POWER OF
SUBSTITUTION, TO VOTE THE SHARES LISTED BELOW AS DIRECTED, 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 FPA.
---Detach card at perforation and mail in postage paid envelope provided-
--
1. Approval of the Investment Advisory Agreement with Cornerstone Equity
Advisors.
FOR AGAINST ABSTAIN
|_| |_| |_|
2. Ratification of the payment of interim advisory fees to Cornerstone
Equity Advisors, Inc.
FOR AGAINST ABSTAIN
|_| |_| |_|
3. Election of Board members. The following individuals seeking election
as Board members solicit this Proxy. If no direction is given this Proxy
will be voted in favor of the election of these individuals:
To elect G. John Fulvio, Stephen C. Leslie, Dr. Yvonne Scruggs-Leftwich,
The Hon. Alfred Toker, Robert Parks, Christian Dan Jensen, The Rev. William
M. Taliaferro, Dr. Robert Brandt and Dr. Lance Brofman as Board members
FOR AGAINST ABSTAIN
|_| |_| |_|
WITHHOLD AUTHORITY TO VOTE FOR ALL EXCEPT
|_| |_|
To withhold authority to vote, mark "For all except" and write the
individual's name(s) on the line below.
- --------------------
4. Approval of the Proposal to terminate all plans formed under Rule
12b-1 of the Investment Company Act of 1940:
FOR AGAINST ABSTAIN
|_| |_| |_|
5. Removal of Current Board members. FPA seeks to remove the following
individual Board member. If no direction is given this Proxy will be voted
in favor of the removal of these individuals:
To remove L. Greg Ferrone as a Board member
FOR AGAINST ABSTAIN
|_| |_| |_|
6. To request and call for a Meeting of Shareholders and, to permit the
proxy holders to take all action in the name of the Shareholders or the
Secretary as appropriate under applicable law to (a) cause the Meeting to
take place and (b) cause the Proposals to be presented at the Meeting.
FOR AGAINST ABSTAIN
|_| |_| |_|
7. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting or any adjournment
thereof.
---Detach card at perforation and mail in postage paid envelope provided-
--
THE CALIFORNIA MUNI 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 PROPOSALS 1, 2, 3, 4, 5 AND 6.
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____________________________
x____________________________
Dated:___________________, 1999
<PAGE>
FUNDAMENTAL FUNDS, INC.
NEW YORK MUNI FUND
SPECIAL MEETING OF SHAREHOLDERS ---____________, 1999
Please refer to the Proxy Statement for a discussion of the matters.
THE UNDERSIGNED HOLDER(S) OF SHARES OF BENEFICIAL INTEREST OF THE
FUNDAMENTAL NEW YORK MUNI FUND HEREBY VOTES TO CALL A SPECIAL MEETING
AND CONSTITUTES AND APPOINTS ALFRED TOKER, ROBERT PARKS, CHRISTIAN
DAN JENSEN, THE REV. WILLIAM M. TALIAFERRO, ROBERT BRANDT, LANCE
BROFMAN, OR ANY OF THEM, THE ATTORNEYS AND PROXIES OF THE UNDERSIGNED,
WITH FULL POWER OF SUBSTITUTION, TO VOTE THE SHARES LISTED BELOW AS
DIRECTED, 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 FPA.
---Detach card at perforation and mail in postage paid envelope provided-
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1. Approval of the Investment Advisory Agreement with Cornerstone Equity
Advisors.
FOR AGAINST ABSTAIN
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2. Ratification of the payment of interim advisory fees to Cornerstone
Equity Advisors, Inc.
FOR AGAINST ABSTAIN
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3. Election of Board members. The following individuals seeking election
as Board members solicit this Proxy. If no direction is given this Proxy
will be voted in favor of the election of these individuals:
To elect G. John Fulvio, Stephen C. Leslie, Dr. Yvonne Scruggs-Leftwich,
The Hon. Alfred Toker, Robert Parks, Christian Dan Jensen, The Rev. William
M. Taliaferro, Dr. Robert Brandt and Dr. Lance Brofman as Board members
FOR AGAINST ABSTAIN
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WITHHOLD AUTHORITY TO VOTE FOR ALL EXCEPT
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To withhold authority to vote, mark "For all except" and write the
individual's name(s) on the line below.
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4. Approval of the Proposal to terminate all plans formed under Rule
12b-1 of the Investment Company Act of 1940:
FOR AGAINST ABSTAIN
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5. Removal of Current Board members. FPA seeks to remove the following
individual Board member. If no direction is given this Proxy will be voted
in favor of the removal of these individuals:
To remove L. Greg Ferrone as a Board member
FOR AGAINST ABSTAIN
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6. Approval of the Proposal to Amend the Articles of Incorporation to
allow a vote of a majority of voting shares to remove and replace
directors:
FOR AGAINST ABSTAIN
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7. To approve a 10 for 1 reverse stock split for the New York Muni Fund.
FOR AGAINST ABSTAIN
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8. To request and call for a Meeting of Shareholders and, to permit the
proxy holders to take all action in the name of the Shareholders or the
Secretary as appropriate under applicable law to (a) cause the Meeting to
take place and (b) cause the Proposals to be presented at the Meeting.
FOR AGAINST ABSTAIN
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9. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting or any adjournment
thereof.
---Detach card at perforation and mail in postage paid envelope provided-
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FUNDAMENTAL FUNDS, INC.
NEW YORK MUNI 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 PROPOSALS 1, 2, 3, 4, 5, 6, 7 AND 8.
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____________________________
x____________________________
Dated:___________________, 1999
