As filed with the Securities and Exchange Commission
on June 23, 1995.
File No. 33-12738
ICA No. 811-5063
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. 16 [X]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 18 [X]
Fundamental Fixed Income Fund
(Exact name of registrant as specified in charter)
90 Washington Street
19th Floor
New York, New York 10006
(Address of principal executive office)
(212) 635-3000
(Area code and telephone number)
Copies to:
Vincent J. Malanga Carl Frischling, Esq.
90 Washington Street Kramer, Levin, Naftalis,
19th Floor Nessen, Kamin & Frankel
New York, New York 10006 919 Third Avenue
New York, New York 10022
________________________________________________________________
(Name and Address of Agent for Service)
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It is proposed that this filing will become effective:
/_/ Immediately upon filing /_/ on ( ) pursuant to
pursuant to paragraph (b) paragraph (b)
/_/ 60 days after filing /_/ on ( ) pursuant to
pursuant to paragraph (a)(1) paragraph (a)(1)
/X/ 75 days after filing /_/ on ( ) pursuant to
pursuant to paragraph (a)(2) of paragraph (a)(2)
rule 485.
If appropriate, check the following box:
/_/ This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Registrant has registered an indefinite number of Shares pursuant
to Rule 24f-2 and its Rule 24f-2 Notice for its 1994 fiscal year
was filed on February 24, 1995, in accordance with Rule 24f-2.
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FUNDAMENTAL FIXED INCOME FUND
DAILY CASH RESERVES SERIES
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
Form N-1A
Item Number
Prospectus
Part A Prospectus Caption Page Number
1. Cover Page............................ 1
2. Fee Table............................. 3
3. *
4. Investment Objective and Policies;
Other Information..................... 5; 7; 21
5.(a) Management............................ 12
(b) Management
(c) *
(d) General Information................... 21
(e) Management............................ 12
(f) *
5A. *
6.(a) General Information...................
(b) *
(c) *
(d) *
(e) Other Information; Cover Page......... 21; 1
(f) Information about Shares of
Daily Cash Reserves................. 20
(g) Information about Shares of
Daily Cash Reserves................. 20
7.(a) Information about Shares of
Daily Cash Reserves................. 20
(a) Information about Shares of
Daily Cash Reserves................. 20
(c) Information about Shares of
Daily Cash Reserves................. 20
(d) Information about Shares of
Daily Cash Reserves................. 20
(e) *
(f) Information about Shares of
Daily Cash Reserves................. 20
8. Information about Shares of
Daily Cash Reserves................. 20
9. *
__________________
* Not Applicable
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Statement of Statement of
Additional Information Additional Information
Part B Caption Page Number
10. Cover Page.................. 1
11. Table of Contents........... 2
12. *
13. Investment Objectives
and Policies.............. 3
14. Management of the Fund...... 10
15. Other Information........... 36
16.(a) Management of the Fund;
Investment Manager........ 15; 20
(b) Investment Manager.......... 20
(c) *
(d) *
(e) *
(f) Distribution Plan........... 18
(g) *
(h) Custodian and Independent
Accountants............... 24
(i) *
17.(a) Portfolio Transactions...... 22
(b) *
(c) Portfolio Transactions...... 22
(d) *
(e) *
18. Description of Shares....... 32
19.(a) See prospectus under Purchase
of Shares and Net Asset
Value - How to Purchase
Shares
(b) Determination of Net
Asset Value............... 33
(c) *
20. Dividends and Tax Matters... 24
21. Distribution Plan........... 18
22. Calculation of Yield........ 34
23. *
Part C Information required to be included
in Part C is set forth under the
appropriate Item so numbered in
Part C to this Registration Statement.
__________________________
*Not Applicable
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FUNDAMENTAL FIXED-INCOME FUND
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
High-Yield Municipal Bond Series
Tax-Free Money Market Series
Form N-1A
Item Number
Part A Prospectus Caption
1. Cover Page
2. Annual Operating Expenses
3. Financial Highlights
4. Investment Objective and Policies;
Investment Considerations and Restrictions;
General Information
5.(a) Management
(b) Management
(c) *
(d) General Information - Investor Services
(e) Management
(f) *
6.(a) Information About Shares - Description of Shares
(b) *
(c) *
(d) *
(e) General Information; Cover Page
(f) Information About Shares - Dividends and Taxes
(g) Information About Shares - Dividends and Taxes
7.(a) Information About Shares - Distribution Expenses
(b) Information About Shares - Purchase Price and
Net Asset Value
(c) General Information - Exchangeability of Shares
(d) Information About Shares - How to Purchase Shares
(e) *
(f) Distribution Expenses
8. Information About Shares - Redemptions
9. *
___________
* Not Applicable
<PAGE>
<PAGE>
Part B. Statement Caption
10. Cover Page
11. Table of Contents
12. *
13. Investment Objective and Policies
14. Management of the Fund
15. Other Information
16.(a) Management of the Fund; Investment Manager
(b) Investment Manager
(c) *
(d) *
(e) *
(f) Distribution Plan
(g) *
(h) Custodian and Independent Accountants
(i) *
17.(a) Portfolio Transactions
(b) *
(c) Portfolio Transactions
(d) *
(e) *
18. Description of Shares
19.(a) See prospectus under Information About Shares - How
to Purchase Shares
(b) Determination of Net Asset Value
(c) *
20. Taxes
21. Distribution Plan
22. Calculation of Yield and Average Annual Total Return
23. Financial Statements
Part C Information required to be included in Part C is set
forth under the appropriate Item so numbered in Part
C to this Registration Statement.
_________________________
* Not Applicable<PAGE>
Fundamental Family of Funds
Daily Cash Reserves
90 Washington Street
New York, New York 10006
1-800-225-6864
Prospectus
, 1995
This Prospectus pertains to Daily Cash Reserves Series ("Daily
Cash Reserves") of the Fundamental Fixed-Income Fund (the
"Fund"), an open-end, non-diversified management investment
company (commonly referred to as a mutual fund). The investment
objective of Daily Cash Reserves is to seek to provide as high a
level of current income as is consistent with the preservation of
capital and liquidity. Shares of Daily Cash Reserves are neither
insured nor guaranteed by the United States Government. There is
no assurance that Daily Cash Reserves will be able to maintain a
stable net asset value of $1.00 per share or that Daily Cash
Reserves' investment objective will be achieved. Mutual fund
shares are not deposits of or guaranteed by any depository
institution, bank or the FDIC and are subject to investment risk
including the possible loss of principal.
This Prospectus concisely sets forth the information about
Daily Cash Reserves that you should know before investing. You
should read and retain this Prospectus for your future reference.
More information about Daily Cash Reserves is included in the
Statement of Additional Information, also dated ,
1995, which has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference.
A copy of the Statement of Additional Information may be obtained
free of charge by writing to the Fund at the address listed
above, or by calling (800) 322-6864. Shareholder inquiries
may also be placed through this number.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES AGENCY
NOR HAS THE COMMISSION OR ANY STATE SECURITIES AGENCY PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Contents
Fee Table. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Objective and Policies. . . . . . . . . . . . . . 4
Obligations Issued by Banks (U.S. and Foreign). . . . . 4
Short-Term Corporate Obligations. . . . . . . . . . . . 5
Repurchase Agreements . . . . . . . . . . . . . . . . . 6
Reverse Repurchase Agreements . . . . . . . . . . . . . 6
Delayed Delivery Arrangements and When-Issued
Securities . . . . . . . . . . . . . . . . . . . . 7
Investment Restrictions. . . . . . . . . . . . . . . . . . . 8
Management . . . . . . . . . . . . . . . . . . . . . . . . . 8
Information about Shares of
Daily Cash Reserves. . . . . . . . . . . . . . . . . . . . . 10
Description of Shares . . . . . . . . . . . . . . . . . 10
How to Purchase Shares. . . . . . . . . . . . . . . . . 11
Methods of Payment. . . . . . . . . . . . . . . . . . . 11
Purchase Price and Net Asset Value. . . . . . . . . . . 12
Distribution Expenses . . . . . . . . . . . . . . . . . 12
Redemptions . . . . . . . . . . . . . . . . . . . . . . 13
Transfers . . . . . . . . . . . . . . . . . . . . . . . 16
Tax Sheltered Retirement Plans. . . . . . . . . . . . . 16
Dividends and Taxes . . . . . . . . . . . . . . . . . . 17
General Information. . . . . . . . . . . . . . . . . . . . . 17
Investor Services . . . . . . . . . . . . . . . . . . . 17
Calculation of Yield. . . . . . . . . . . . . . . . . . 18
Exchangeability of Shares . . . . . . . . . . . . . . . 18
Statement of Additional Information . . . . . . . . . . 19
Other Information . . . . . . . . . . . . . . . . . . . 19
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FEE TABLE
The following table sets forth the estimated annual operating
expenses of Daily Cash Reserves expressed as a percentage of the
average net assets of Daily Cash Reserves and a hypothetical
illustration of the amount of operating expenses of Daily Cash
Reserves that would be incurred by an investor purchasing $1000
of shares of Daily Cash Reserves who redeems his or her
investment at the end of one and three years.
Estimated Annual Operating Expenses
(as a percentage of average net assets)
Management fees .50%
12b-1 fees1 .50%
Other expenses, net of reimbursement .25%
Total operating expenses 1.25%
Example: You would pay the following expenses on a $1000
investment assuming (1) a 5% annual return and (2) redemption at
the end of each time period:
1 Year 3 Years
$13 $40
1As a result of distribution fees of .50% per annum of the Fund's
average daily net assets, a long-term shareholder may pay more
than the economic equivalent of the maximum front-end sales
charge permitted by the National Association of Securities
Dealers, Inc.
The purpose of the preceding table is to assist an investor
in Daily Cash Reserves in understanding the various costs and
expenses that will be directly or indirectly borne by such
investor.
The example set forth in the above table is for information
purposes only and should not be considered as a representation of
past or future expenses of Daily Cash Reserves or of past or
future returns on an investment in Daily Cash Reserves. Actual
expenses of Daily Cash Reserves and the return on an investment
in Daily Cash Reserves may vary significantly from the expenses
and investment return assumed in the above example.
For further information regarding management fees, 12b-1
fees, and other expenses of Daily Cash Reserves, see "Management"
and "Information about Shares of Daily Cash Reserves Distribution
Expenses" in this Prospectus and "Management of the Fund" and
Distribution Plan in the Statement of Additional Information.
1
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INVESTMENT OBJECTIVE AND POLICIES
Daily Cash Reserves seeks to provide as high a level of current
income as is consistent with the preservation of capital and
liquidity. The investment objective of Daily Cash Reserves is a
fundamental policy, which may not be changed without the approval
of the shareholders of Daily Cash Reserves.
Daily Cash Reserves invests only in U.S. dollar-denominated
securities which are rated in one of the two highest rating
categories for debt obligations by at least two nationally
recognized statistical rating organizations ("NRSROs") (or one
NRSRO if the instrument was rated by only one such organization)
or, if unrated, are of comparable quality as determined in
accordance with procedures established by the Board of Trustees.
The NRSROs currently rating instruments of the type Daily Cash
Reserves may purchase are Moody's Investors Service, Inc.,
Standard & Poor's Corporation, Duff and Phelps, Inc., Fitch
Investors Service, Inc., IBCA Limited and IBCA Inc. (See the SAI
for information with respect to rating criteria for each NRSRO.)
Investments in rated securities not rated in the highest category
by at least two NRSROs (or one NRSRO if the instrument was rated
by only one such organization), and unrated securities not
determined by the Board of Trustees to be comparable to those
rated in the highest category, will be limited to 5% of Daily
Cash Reserves's total assets, with the investment in any such
issuer being limited to not more than the greater of 1% of Daily
Cash Reserves's total assets or $1 million. Daily Cash Reserves
may invest in obligations issued or guaranteed by the U.S.
Government without any such limitation.
Daily Cash Reserves invests in such high quality debt obligations
with relatively short maturities. Unless otherwise stated, the
investment policies and restrictions set forth below and in the
SAI are not fundamental policies, and may be changed by the Board
of Trustees, with notice to shareholders.
Daily Cash Reserves seeks to achieve its objective by investing
at least 80% of its assets in U.S. Government Obligations (which
consist of marketable securities and instruments issued or
guaranteed by the U.S. Government or by its agencies or
instrumentalities), in bank instruments, in corporate commercial
instruments and in other corporate instruments which mature in
thirteen months or less (collectively, "Money Market
Obligations").
2
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Obligations Issued by Bank (U.S. and Foreign)
Daily Cash Reserves may invest up to 100% of its assets in
obligations issued by banks, and up to 10% of its assets in
obligations issued by any one bank, subject to the provisions of
Rule 2a-7 of the Investment Company Act of 1940 (the "1940 Act").
If the bank is a domestic bank, it must be a member of the FDIC.
Daily Cash Reserves may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks or
foreign branches of foreign banks ("Eurodollar" obligations) and
domestic branches of foreign banks ("Yankee dollar" obligations).
Daily Cash Reserves will limit its aggregate investments in
foreign bank obligations, including Eurodollar obligations and
Yankee dollar obligations, to 25% of its total assets at the time
of purchase, provided that there is no limitation upon Daily Cash
Reserves' investments in (a) Eurodollar obligations, if the
domestic parent of the foreign branch issuing the obligation is
unconditionally liable in the event that the foreign branch fails
to pay on the Eurodollar obligation for any reason; and (b)
Yankee dollar obligations, if the United States branch of the
foreign bank is subject to the same regulation as the United
States banks. Eurodollar, Yankee dollar and other foreign bank
obligations include time deposits, which are non-negotiable
deposits maintained in a bank for a specified period of time at a
stated interest rate. Daily Cash Reserves will limit its
purchases of time deposits to those which mature in seven days or
less, and will limit its purchases of time deposits maturing in
two to seven days to 10% of Daily Cash Reserves' total assets at
the time of purchase.
Eurodollar, Yankee dollar and other foreign obligations involve
special investment risks, including the possibility that
liquidity could be impaired because of future political and
economic developments, that the obligations may be less
marketable than comparable domestic obligations of domestic
issuers, that a foreign jurisdiction might impose withholding
taxes on interest income payable on those obligations, that
deposits may be seized or nationalized, that foreign governmental
restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal and interest on those
obligations, that the selection of foreign obligations may be
more difficult because there may be less information publicly
available concerning foreign issuers, that there may be
difficulties in enforcing a judgment against a foreign issuer or
that the accounting, auditing and financial reporting standards,
practices and requirements applicable to foreign issuers may
differ from those applicable to domestic issuers. In addition,
foreign banks are not subject to examination by U. S. Government
agencies or instrumentalities.
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Short-Term Corporate Obligations
Daily Cash Reserves may invest in short-term corporate
obligations and instruments, including but not limited to
corporate commercial paper, notes, bonds and debentures.
Corporate commercial instruments generally consist of short-term
unsecured promissory notes issued by corporations. Daily Cash
Reserves may also purchase variable amount master demand notes,
which are unsecured demand notes that permit investment of
fluctuating amounts of money at variable rates of interest
pursuant to arrangements with issuers who meet the foregoing
quality criteria. The interest rate on a variable amount master
demand note is periodically redetermined according to a
prescribed formula. Although there is no secondary market in
master demand notes, the payee may demand payment of the
principal and interest upon notice not exceeding five business or
seven calendar days. Daily Cash Reserves may also invest in
participation interests in loans extended by banks to companies,
provided that both such banks and such companies meet the quality
standards set forth above. (See the SAI for information with
respect to corporate commercial instruments and bond ratings.)
Daily Cash Reserves may also invest in fixed or variable rate
debt units representing an undivided interest in a trust's
distributions of principal and interest that the trust receives
from an underlying portfolio of bonds issued by a highly rated
corporate or U.S. Government agency issuer and/or payments from
re-characterized distributions made possible by the swap of
certain payments due on the underlying bonds. Daily Cash
Reserves' investment will be limited solely to the debt units and
in each case, must meet the credit quality standards under Rule
2a-7 of the 1940 Act. Debt units will be purchased by Daily Cash
Reserves as an institutional accredited investor pursuant to a
private placement memorandum. Sale of debt units will be
effected pursuant to Rule 144A or other exemptions from
registration under the Securities Act of 1933, subject to the
eligibility of the transferee and compliance with trust agreement
requirements. The Manager will monitor the liquidity of the debt
units under the supervision of the Fund's Board of Trustees.
In the pursuit of its objective and policies, from time to time
Daily Cash Reserves may engage in the following strategies:
Repurchase Agreements
Under a repurchase agreement, Daily Cash Reserves acquires
ownership of an obligation and the seller agrees, at the time of
the sale, to repurchase the obligation at a mutually agreed upon
time and price, thereby determining the yield during Daily Cash
Reserves' holding period. This arrangement results in a fixed
rate of return insulated from market fluctuations during such
period. Although the underlying collateral for repurchase
agreements may have maturities exceeding one year, Daily Cash
Reserves will not enter into a repurchase agreement if as a
result of such investment more than 10% of Daily Cash Reserves'
total assets would be invested in illiquid securities, including
repurchase agreements which expire in more than seven days. Daily
Cash Reserves may, however, enter into a "continuing contract" or
"open" repurchase agreement under which the seller is under a
continuing obligation to repurchase the underlying obligation
from Daily Cash Reserves on demand and the effective interest
rate is negotiated on a daily basis. In general, Daily Cash
Reserves will enter into repurchase agreements only with domestic
banks with total assets of at least $1.5 billion or with primary
dealers in U.S. Government securities. However, the total assets
of a bank will not be the sole factor determining Daily Cash
Reserves's investment decisions, and Daily Cash Reserves may
enter into repurchase agreements with other institutions which
the Board of Trustees believes present minimal credit risk.
Nevertheless, if the seller of a repurchase agreement fails to
repurchase the obligation in accordance with the terms of the
agreement, Daily Cash Reserves may incur a loss to the extent
that the proceeds realized on the sale of the underlying
obligation are less than the repurchase price. Repurchase
agreements may be considered loans to the seller of the
underlying security.
Reverse Repurchase Agreements
Daily Cash Reserves may also enter into reverse repurchase
agreements, which involve the sale by Daily Cash Reserves of a
portfolio security at an agreed upon price, date and interest
payment. Daily Cash Reserves will enter into reverse repurchase
agreements for temporary or defensive purposes to facilitate the
orderly sale of portfolio securities to accommodate abnormally
heavy redemption requests should they occur, or in some cases as
a technique to enhance income. Daily Cash Reserves will generally
use reverse repurchase agreements when the interest income to be
earned from the investment of the proceeds is greater than the
interest expense of the reverse repurchase transaction. Daily
Cash Reserves will enter into reverse repurchase agreements only
in amounts up to 10% of the value of its total assets at the time
of entering into such agreements. Reverse repurchase agreements
involve the risk that the market value of securities retained by
Daily Cash Reserves in lieu of liquidation may decline below the
repurchase price of the securities sold by Daily Cash Reserves
which it is obligated to repurchase. The risk, if encountered,
could cause a reduction in the net asset value of Daily Cash
Reserves' shares. Reverse repurchase agreements are considered to
be borrowings under the 1940 Act. (See "Investment Restrictions"
in the SAI for percentage limitations on borrowings.)
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Delayed Delivery Arrangements and When-Issued Securities
Delayed delivery agreements are commitments by Daily Cash
Reserves to dealers or issuers to acquire securities beyond the
customary same-day settlement for money market instruments.
These commitments fix the payment price and interest rate to be
received on the investment. Delayed delivery agreements will not
be used as a speculative or leverage technique. Rather, from time
to time, Daily Cash Reserves' investment advisor can anticipate
that cash for investment purposes will result from scheduled
maturities of existing portfolio instruments or from net sales of
shares of Daily Cash Reserves; therefore, to assure that Daily
Cash Reserves will be as fully invested as possible in
instruments meeting its investment objective, Daily Cash Reserves
may enter into delayed delivery agreements, but only to the
extent of anticipated funds available for investment during a
period of not more than five business days. Daily Cash Reserves
will enter into when-issued and delayed delivery transactions
only when the time period between trade date and settlement date
is at least 30 days and not more than 120 days. Money Market
Obligations are sometimes offered on a "when-issued" basis; that
is, the date for delivery of and payment for the securities is
not fixed at the date of purchase, but is set after the
securities are issued (normally within forty-five days after the
date of the transaction). The payment obligation and the interest
rate that will be received on the securities are fixed at the
time the buyer enters into the commitment. Daily Cash Reserves
will only make commitments to purchase such Money Market
Obligations with the intention of actually acquiring such
securities, but Daily Cash Reserves may sell these securities
before the settlement date if it is deemed advisable.
If Daily Cash Reserves enters into a delayed delivery agreement
or purchases a when-issued security, Daily Cash Reserves will
direct its custodian bank to place cash or other high grade
securities (including Money Market Obligations) in a separate
account of Daily Cash Reserves in an amount equal to its delayed
delivery agreements or when-issued commitments. If the market
value of such securities declines, additional cash or securities
will be placed in the account on a daily basis so that the market
value of the account will equal the amount of such Daily Cash
Reserves Series' delayed delivery agreements and when-issued
commitments. To the extent that funds are in a separate account,
they will not be available for new investment or to meet
redemptions. Investments in securities on a when-issued basis and
use of delayed delivery agreements may increase Daily Cash
Reserves' exposure to market fluctuation, or may increase the
possibility that Daily Cash Reserves will incur a short-term
loss, if Daily Cash Reserves must engage in portfolio
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transactions in order to honor a when-issued commitment or accept
delivery of a security under a delayed delivery agreement. Daily
Cash Reserves will employ techniques designed to minimize these
risks. No additional delayed delivery agreements or when-issued
commitments will be made if, as a result, more than 25% of Daily
Cash Reserves' net assets would become so committed.
INVESTMENT RESTRICTIONS
Daily Cash Reserves' investment programs are subject to a number
of investment restrictions which reflect self-imposed standards
as well as Federal and state regulatory limitations. The most
significant of these restrictions provide that Daily Cash
Reserves will not: (1) purchase securities of any issuer (other
than obligations of the U.S. Government, its agencies or
instrumentalities and repurchase agreements fully secured by such
obligations) if as a result more than 5% of Daily Cash Reserves's
total assets would be invested in the securities of such issuer,
except that in the case of certificates of deposit and bankers'
acceptances, up to 25% of the value of Daily Cash Reserves' total
assets may be invested without regard to such 5% limitation, but
shall instead be subject to a 10% limitation (in each case,
subject to the provisions of Rule 2a-7 of the 1940 Act); (2)
purchase any corporate commercial instruments which would cause
25% of the value of Daily Cash Reserves' total assets at the time
of such purchase to be invested in securities of one or more
issuers conducting their principal business activities in the
same industry; (3) borrow money or pledge, mortgage or
hypothecate its assets except for temporary or emergency purposes
and then only in an amount not exceeding 33 1/3% of the value of
Daily Cash Reserves's total assets, except that Daily Cash
Reserves may enter into delayed delivery or reverse repurchase
agreements and may make commitments to purchase when-issued
securities consistent with its investment objective and policies
(and Daily Cash Reserves will not make additional investments
while borrowings other than when-issued and delayed delivery
purchases and reverse repurchase agreements are outstanding); or
(4) lend money or securities except to the extent that the
investments of Daily Cash Reserves may be considered loans.
Maturities
Consistent with its objective of stability of principal, Daily
Cash Reserves attempts to maintain a constant net asset value of
$1.00 per share and, to this end, values its assets by the
amortized cost method and rounds the per share net asset value to
the nearest whole cent in compliance with applicable rules and
regulations. Accordingly, Daily Cash Reserves invests in Money
Market Obligations having remaining maturities of thirteen months
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or less and maintains a weighted average maturity for Daily Cash
Reserves of 90 days or less. However, there can be no assurance
that Daily Cash Reserves's net asset value per share of $1.00
will be maintained.
MANAGEMENT
The Board of Trustees of the Fund has the overall responsibility
for the management and supervision of Daily Cash Reserves. The
trustees meet regularly each quarter. By virtue of the functions
performed by Fundamental Portfolio Advisors, Inc. (the
"Manager"), the investment adviser of Daily Cash Reserves,
neither the Fund nor Daily Cash Reserves require any employees
other than the executive officers of the Fund, all of whom
receive their compensation from the Manager or other sources. The
Statement of Additional Information contains the names and
general background of each trustee and executive officer of the
Fund.
Dr. Lance Brofman is the Fund's portfolio manager. Dr.
Brofman received an M.B.A. and a Ph.D. in Economics and Finance
from New York University in 1978. He is currently the Chief
Portfolio Strategist for the Fundamental Family of Funds.
Pursuant to a management agreement between the Fund and the
Manager, the Manager serves as investment adviser to Daily Cash
Reserves and is responsible for the overall management of the
business affairs and assets of Daily Cash Reserves, subject to
the authority of the Fund's board of trustees. The Manager's
address is 90 Washington Street, New York, New York 10006-2214.
Under the terms of the management agreement, the Manager is also
authorized to buy and sell securities for the account of Daily
Cash Reserves, in its discretion, subject to the right of the
Fund's trustees to disapprove any such purchase or sale (in which
case the transaction would be reversed).
Daily Cash Reserves pays all brokerage commissions in
connection with its portfolio transactions. Daily Cash Reserves
also bears the expense, pro rata with the other series of the
Fund, of maintaining the Fund's registration as an investment
company under the 1940 Act and of registering its shares under
the Securities Act of 1933. Daily Cash Reserves also pays certain
other costs and expenses, which are more fully described in the
Statement of Additional Information under the caption Investment
Adviser.
As compensation for the performance of its management
services and the assumption of certain expenses of Daily Cash
Reserves and the Fund, the Manager is entitled under the
management agreement to an annual management fee (which is
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computed daily and paid monthly) from Daily Cash Reserves equal
to 0.5% of Daily Cash Reserves' average daily net asset value up
to $100,000,000 and decreasing by .02% for each $100,000,000
increase in net assets down to 0.4% of net assets in excess of
$500,000,000.
Under the management agreement and pursuant to authority
granted by the trustees, the Manager is authorized to place
portfolio transactions with dealer firms that have provided
assistance in the distribution of shares of Daily Cash Reserves
or shares of other series of the Fund or other funds for which
the Manager acts as investment adviser if it reasonably believes
that the quality of the transaction and the amount of the spread
are comparable to what they would be with other qualified
dealers.
In addition to paying a management fee to the Manager, Daily
Cash Reserves also pays a distribution fee to Fundamental Service
Corporation, an affiliate of the Manager. See "Information about
Shares of Daily Cash Reserves--Distribution Expenses." The
Manager also manages and serves as investment adviser to two
other investment companies, New York Muni Fund, Inc. and The
California Muni Fund. The Manager is a Delaware corporation that
was incorporated in 1986.
INFORMATION ABOUT SHARES OF
DAILY CASH RESERVES
Description of Shares
The Fund is an open-end, non-diversified management investment
company that was organized as a Massachusetts business trust on
March 19, 1987. Daily Cash Reserves is a non-diversified
portfolio of the Fund and thus by itself does not constitute a
balanced investment plan. The Declaration of Trust under which
the Fund was organized authorizes the trustees of the Fund to
issue an unlimited number of shares of beneficial interest in the
Fund, without par value, which may be divided into such separate
series as the trustees may establish. The Fund currently has four
series of shares: Daily Cash Reserves, the Tax-Free Money Market
Series, the High-Yield Municipal Bond Series and the Fundamental
U.S. Government Strategic Income Fund Series.
The trustees may establish additional series of shares. As
an open-end investment company, the Fund continuously offers
shares of its Daily Cash Reserves Series to the public and under
normal conditions must redeem these shares on demand of any
registered holder at the then-current net asset value per share.
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Each share of Daily Cash Reserves represents an equal
proportionate interest in Daily Cash Reserves with each other
share in the series. Shares entitle their holders to one vote per
share. Investors in Daily Cash Reserves are entitled to vote in
the election of trustees, on the adoption of any management
contract or distribution plan, on any change in a fundamental
investment policy with respect to Daily Cash Reserves and on
other matters submitted to shareholder vote, as provided in the
Fund's Declaration of Trust. Shares of the Fund are voted by
individual series, except (1) when required by the 1940 Act they
are voted in the aggregate, and (2) when the trustees determine
that a matter affects only one or more particular series of
shares, only the shares of such series are entitled to vote on
such matter. Shares of Daily Cash Reserves have no cumulative
voting rights, preemptive rights, or subscription rights. The
shares are freely transferable and fully paid and except as set
forth in the Statement of Additional Information, are
non-assessable.
Daily Cash Reserves has its own assets, which are recorded
separately on the Fund's books from the assets of the Fund's
other series and held by the trustees of the Fund in trust for
investors in Daily Cash Reserves. All income and proceeds earned
and expenses incurred by Daily Cash Reserves are allocated to
Daily Cash Reserves, and the portion of all income and expenses
earned or incurred by the Fund, rather than by an individual
series of the Fund, which is properly allocable to Daily Cash
Reserves, is allocated to Daily Cash Reserves. On liquidating the
Fund or Daily Cash Reserves, investors in Daily Cash Reserves
would be entitled to share pro rata in the net assets of Daily
Cash Reserves available for distribution to shareholders.
Shares will remain on deposit with the transfer agent for
Daily Cash Reserves and certificates will not be issued.
How to Purchase Shares
Shares of Daily Cash Reserves may be purchased either directly
from Daily Cash Reserves or through securities dealers, banks, or
other financial institutions. Daily Cash Reserves has a minimum
initial purchase requirement of $1000. The minimum subsequent
purchase requirement is $100. Subsequent purchases are made in
the same manner as initial purchases.
Investors can purchase shares without a sales charge if they
purchase the shares directly from Daily Cash Reserves. However,
investors may be charged a fee if they purchase shares through
securities dealers, banks, or other financial institutions.
Investors opening a new account for Daily Cash Reserves must
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complete and submit a purchase application along with payment of
the purchase price for their initial investment. Investors
purchasing additional shares of Daily Cash Reserves should
include their account number along with payment of the purchase
price for additional shares being purchased. Investors may
re-open an account with a minimum investment of $100 and without
filing a purchase application during the year in which the
account was closed or during the following calendar year if the
information on the original purchase application is still
applicable. Daily Cash Reserves may require the filing of a
statement that all information on the original purchase
application remains applicable.
For customers of certain financial institutions who offer
the service, investors may have their "free-credit" cash balances
automatically invested in shares of Daily Cash Reserves. These
investments are not subject to the minimum purchase requirements
described above.
A purchase order becomes effective immediately on receipt by
Fundamental Shareholder Services, Inc., as agent for Daily Cash
Reserves, if it is received before 4:00 P.M. on any business day.
After a purchase order becomes effective, confirmation of the
purchase is sent to the investor, and the purchase is credited to
the investor's account. The Fund, or any series thereof, reserves
the right to reject any purchase order.
Shares of Daily Cash Reserves may be purchased only in
states where the shares are qualified for sale.
Methods of Payment
Payment of the purchase price for shares of Daily Cash Reserves
may be made in any of the following manners.
Payment by Wire. An expeditious method of purchasing shares
involves transmitting federal funds by bank wire to United States
Trust Company of New York. To purchase shares by wire transfer,
instruct a commercial bank to wire money to United States Trust
Company of New York, ABA #021001318, For Credit to Acct.:
20-7391-9, FBO: Fundamental Shareholder Services, Inc., for the
account of the Fundamental Daily Cash Reserves Series. The wire
transfer should be accompanied by the investor's name, address,
and social security number (in the case of new investors) or
account number (in the case of persons already owning shares of
that series). Important: Call 1-800-322-6864 for wire
instructions.
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Payment by Check. Shares may also be purchased by check.
Checks should be made payable to Fundamental Family of Funds and
mailed to Fundamental Shareholder Services, Inc., Agent, P.O. Box
1013, Bowling Green Station, New York, N.Y. 10274-1013. If your
check does not clear, Fundamental Shareholder Services, Inc. will
cancel your purchase and you could be liable for any losses or
fees incurred. The Fund reserves the right to limit the number of
checks processed at any one time and will notify investors prior
to exercising this right.
Exchange of Shares. Persons holding shares of any other
series of the Fund or any other mutual fund for which Fundamental
Portfolio Advisors, Inc., the Fund's investment adviser, acts as
investment adviser may purchase shares of Daily Cash Reserves by
exchanging shares of such other series or mutual fund. See
"General Information--Exchangeability of Shares."
Purchase Price and Net Asset Value
Each share of Daily Cash Reserves is sold at its net asset value
next determined after a purchase order becomes effective. It is
the intention of Daily Cash Reserves to maintain a per share net
asset value of $1.00, although no such net asset value can be
guaranteed. The net asset value per share of Daily Cash Reserves
is determined as of the close of trading on the New York Stock
Exchange (currently 4:00 P.M. New York time) on each day that
both the New York Stock Exchange and the Fund's custodian bank
are open for business. The net asset value per share of Daily
Cash Reserves is also determined on any other day that the level
of trading in its portfolio securities is sufficiently high that
the current net asset value per share might be materially
affected by changes in the value of its portfolio securities. On
any day on which no purchase orders for the shares of Daily Cash
Reserves become effective and no shares are tendered for
redemption, the net asset value per share will not be determined.
The net asset value per share of Daily Cash Reserves is computed
by taking the amount of the value of all of its assets, less its
liabilities, and dividing it by the number of outstanding shares.
For purposes of determining net asset value, expenses of Daily
Cash Reserves are accrued daily and taken into account.
The portfolio securities of Daily Cash Reserves are valued
on an amortized cost basis. Under this valuation method, a
portfolio instrument is valued at cost and any premium or
discount is amortized on a constant basis until maturity. Other
assets are valued at fair value as determined in good faith by
persons designated by the Fund's trustees using methods
determined by the trustees.
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Distribution Expenses
The Fund has adopted a plan of distribution pursuant to Rule
12b-1 of the 1940 Act (the plan), under which Daily Cash Reserves
pays to Fundamental Service Corporation ("FSC") a fee, which is
accrued daily and paid monthly, at an annual rate of .50% of
Daily Cash Reserves' average daily net assets. Amounts paid under
the plan are paid to FSC to compensate it for services it
provides and expenses it bears in distributing Daily Cash
Reserves' shares to investors, including payment of compensation
by FSC to securities dealers and other financial institutions and
organizations, such as banks, trust companies, savings and loan
associations, and investment advisers to obtain various
distribution related and/or administrative services for Daily
Cash Reserves. Expenses of FSC also include expenses of its
employees, who engage in or support distribution of shares or
service shareholder accounts, including overhead and telephone
expenses; printing and distributing prospectuses and reports used
in connection with the offering of Daily Cash Reserves' shares;
and preparing, printing, and distributing sales literature and
advertising materials. FSC is an affiliate of the Manager.
The Glass-Steagall Act prohibits banks from engaging in the
business of underwriting, selling, or distributing securities,
such as shares of a mutual fund. Although the scope of this
prohibition under the Glass-Steagall Act has not been fully
defined, in FSC's opinion it should not prohibit banks from being
paid for performing shareholder-servicing functions under the
plan. If, because of changes in law or regulation or due to new
interpretations of existing law, a bank or the Fund were
prevented from continuing these arrangements, it is expected that
the Fund's trustees would make other arrangements for these
services and shareholders would not suffer adverse financial
consequences.
At any given time, FSC may incur expenses in distributing
shares of Daily Cash Reserves pursuant to the plan that would be
in excess of the total of payments made by Daily Cash Reserves
pursuant to the plan. For example, if during a year of the plan
FSC incurs $500,000 of expenses pursuant to the plan on sales of
$100 million of Daily Cash Reserves and FSC receives a
distribution fee calculated at the annual rate of 0.50% of Daily
Cash Reserves' average daily net assets (assuming $50 million in
average daily net assets), FSC would have incurred, at the end of
such year, $250,000 in excess expenses under the plan during such
year. Because there is no requirement under the plan to reimburse
FSC for all its expenses or any requirement to continue the plan
from year to year, this excess amount does not constitute a
liability of Daily Cash Reserves, and Daily Cash Reserves will
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not reimburse FSC for any such excess amount. Although payments
under the plan by Daily Cash Reserves may not be directly used to
finance distribution of shares of other series of the Fund, under
the plan and similar plans adopted by other series of the Fund,
FSC may pay for distribution expenses of any such series from any
source available to it, including any profits it may realize.
Accordingly, it is possible but not likely until Daily Cash
Reserves has at least $150,000,000 in net assets, that FSC may
use profits it realizes from Daily Cash Reserves to finance
another series of the Fund.
Redemptions
Each investor in Daily Cash Reserves has the right to cause Daily
Cash Reserves to redeem his or her shares, by making a request to
Fundamental Shareholder Services, Inc. in accordance with the
procedures of either the regular redemption procedure, the
telephone redemption privilege, the expedited redemption
privilege, or the check redemption privilege, as described in the
following paragraphs. If Fundamental Shareholder Services, Inc.
receives a redemption request before the close of trading on any
day the Fund is open for business , the redemption will become
effective on that day and be made at the net asset value per
share of Daily Cash Reserves, as determined at the close of
trading on that day, and payment will be made on the following
business day. If Fundamental Shareholder Services, Inc. receives
a redemption request following the close of trading on that
either the New York Stock Exchange, or on any day that either the
New York Stock Exchange or the Fund's custodian bank are not open
for business, the redemption will become effective on the next
day that both the New York Stock Exchange and the Fund's
custodian bank are open for business and be made at the net asset
value per share of Daily Cash Reserves, as determined at the
close of trading on that day, and payment will be made on the
following business day. Investors are entitled to receive all
dividends on shares being redeemed that are declared on or before
the effective date of the redemption of such shares. The net
asset value per share of Daily Cash Reserves received by an
investor on redeeming shares may be more or less than the
purchase price per share paid by such investor, depending on the
market value of the portfolio of Daily Cash Reserves at the time
of redemption.
Regular Redemption Procedure. Investors may redeem their
shares by sending a written redemption request to Fundamental
Shareholder Services, Inc., which request must specify the number
of shares to be redeemed and be signed by the investor of record.
For redemptions exceeding $5000 (and for all written redemptions,
regardless of amount, made within 30 days following any change in
account registration), the signature of the investor on the
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redemption request must be guaranteed by an eligible guarantor
institution approved by Fundamental Shareholder Services, Inc.
Signature guarantees in proper form generally will be accepted
from domestic banks, a member of a national securities exchange,
credit unions and savings associations, as well as from
participants in the Securities Transfer Agents Medallion Program
("STAMP"). If you have any questions with respect to signature
guarantees, please call the transfer agent at (800) 322-6864.
Fundamental Shareholder Services, Inc. may, at its option,
request further documentation from corporations, executors,
administrators, trustees, or guardians. If a redemption request
is sent to Daily Cash Reserves, Daily Cash Reserves will forward
it to Fundamental Shareholder Services, Inc. Redemption requests
will not become effective until all proper documents have been
received by Fundamental Shareholder Services, Inc. Requests for
redemption that are subject to any special condition, or specify
an effective date other than as provided herein, cannot be
accepted and will be returned to the investor.
Telephone Redemption Privilege. An investor may, by either
completing the appropriate section of the purchase application,
or by later making a written request to Fundamental Shareholder
Services, Inc., containing his or her signature guaranteed by an
eligible guarantor (see above), obtain the telephone redemption
privilege for any of his or her accounts. Provided that your
account registration has not changed within the last 30 days, an
investor may redeem shares from an account for which he or she
has the telephone redemption privilege by making a telephone
redemption request to Fundamental Shareholder Services, Inc., at
(800) 322-6864. All calls will be recorded. A check for the
proceeds of such a redemption will be issued in the name of the
investor of record and mailed to the investor's address as it
appears on the records of Daily Cash Reserves. Both Daily Cash
Reserves and Fundamental Shareholder Services, Inc. reserve the
right to refuse or limit a telephone redemption request and to
modify the telephone redemption privilege at any time.
Neither the Fund nor its transfer agent will be liable for
following instructions communicated by telephone that they
reasonably believe to be genuine. It is the Fund's policy to
provide that a written confirmation statement of all telephone
call transactions will be mailed to shareholders at their address
of record within 3 business days after the telephone call
transaction. Since you will bear the risk of loss, you should
verify the accuracy of telephone transactions immediately upon
receipt of your confirmation statement.
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Expedited Redemption Privilege. An investor in any series
of the Fund may, by either completing the appropriate section of
the purchase application, or by later making a written request to
Fundamental Shareholder Services, Inc., containing his or her
signature guaranteed by an eligible guarantor (see above), obtain
the expedited redemption privilege for any of his or her
accounts. The expedited redemption privilege allows the investor
to have the proceeds of any redemption of shares in any amount of
$5000 or more transferred by wiring federal funds to the
commercial bank or savings and loan institution specified in his
or her purchase application or written request for the expedited
redemption privilege. Expedited redemption requests may be made
by either mail (to the address specified under regular redemption
procedure) or by telephone (to the number specified under
telephone redemption privilege). The proceeds of such a
redemption may be subject to a deduction of the usual and
customary charge. An investor may change the account or
commercial bank designated to receive the redemption proceeds by
sending a written request to Fundamental Shareholder Services,
Inc., containing his or her signature guaranteed in the manner
just described. Both Daily Cash Reserves and Fundamental
Shareholder Services, Inc. reserve the right to refuse or limit
an expedited redemption request and to modify the expedited
redemption privilege at any time.
Check Redemption Privilege. An investor in any series of the
Fund may, by either completing the appropriate section of the
purchase application, or by later making a written request to
Daily Cash Reserves, obtain redemption checks for any of his or
her accounts. These checks may be used by the investor in any
lawful manner and may be payable to the order of any person or
company in an amount of $100 or more. When a check is presented
to Fundamental Shareholder Services, Inc. for payment,
Fundamental Shareholder Services, Inc., as agent for the
investor, will cause Daily Cash Reserves to redeem a sufficient
number of shares in the investor's account to cover the amount of
the check. Investors using the check redemption privilege will be
subject to the same rules and regulations applicable to other
checking accounts at United States Trust Company of New York.
There is no charge to the investor for using the check redemption
privilege, except that a fee may be imposed by Fundamental
Shareholder Services, Inc. if an investor requests that it stop
payment of a Redemption Check or if it cannot honor a Redemption
Check due to insufficient funds or other valid reasons. The check
redemption privilege may not be used to close an account. The
check redemption privilege may be modified or terminated at any
time by either Daily Cash Reserves or Fundamental Shareholder
Services, Inc.
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At times, Daily Cash Reserves may be requested to redeem
shares for which it has not yet received good payment. Daily Cash
Reserves may delay, or cause to be delayed, payment of redemption
proceeds until such time as it has assured itself that good
payment has been received for the purchase of such shares, which
may take up to 15 days. In the case of payment by check, the
determination of whether the check has been paid by the paying
institution can generally be made within 7 days, but may take
longer. Investors may avoid the possibility of any such delay by
purchasing shares by wire. In the event of delays in paying
redemption proceeds, Daily Cash Reserves will take all available
steps to expedite collection of the investment check.
If shares are purchased by check, you may write checks
against such shares only after 15 days from the date the purchase
was executed. Shareholders who draw against shares purchased
fewer than 15 days from the date of original purchase, will be
charged usual and customary bank fees.
Daily Cash Reserves reserves the right to suspend the right
of redemption or postpone the day of payment with respect to its
shares (1) during any period when the New York Stock Exchange is
closed (other than customary weekend and holiday closings); (2)
during any period when trading markets that Daily Cash Reserves
normally uses are restricted or an emergency exists as determined
by the Securities and Exchange Commission, so that disposal of
Daily Cash Reserves' investments or determination of its net
asset value is not reasonably practicable; or (3) for such other
periods as the Securities and Exchange Commission by order may
permit to protect investors.
If an investor's account has an aggregate net asset value of
less than $100, Daily Cash Reserves may redeem the shares held in
such account if the net asset value of such account has not been
increased to at least $100 within 60 days of notice by Daily Cash
Reserves to such investor of its intention to redeem the shares
in such account. Daily Cash Reserves will not redeem the shares
of an account with a net asset value of less than $100 if the
account was reduced from the initial minimum investment of $1000
or more to below $100 as a result of market activity.
Transfers
An investor may transfer shares of Daily Cash Reserves by
submitting to Fundamental Shareholder Services, Inc. a written
request for transfer, signed by the registered holder of the
shares and indicating the name of, the social security number or
taxpayer identification number of, and the distribution and
redemption options elected by, the new registered holder.
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Fundamental Shareholder Services, Inc. may, at its option,
request further documentation from transferors who are
corporations, executors, administrators, trustees, or guardians.
Tax Sheltered Retirement Plans
Certain types of Prototype Pension and Profit Sharing Plans,
including IRAs, SEP-IRA Plans, IRA Rollover Accounts and 403(b)
Plans are available. Check redemption and telephone redemption
privileges are not available to Retirement account holders. Plan
support services are available by calling us at 1-800-322-6864.
Dividends and Taxes
Daily Cash Reserves will declare on each business day just prior
to the calculation of its net asset value all of its net
investment income (consisting of earned interest income less
expenses) as a dividend on shares of record at the close of
business on the preceding business day. Dividends are generally
distributed on the last business day of the month. Daily Cash
Reserves normally distributes capital gains, if any, before the
end of its fiscal year. All dividends and capital gains
distributions by Daily Cash Reserves will be in the form of
additional shares unless the investor has made an election,
either on his or her purchase application or in a subsequent
written request to Fundamental Shareholder Services, Inc., to
receive such distributions in cash. An investor may change his or
her distribution election by filing a written request with
Fundamental Shareholder Services, Inc. at least four days prior
to the date of a distribution.
As with any investment, you should consider how your
investment in Daily Cash Reserves will be taxed. If your account
is not a tax-deferred retirement account, be aware of these tax
implications.
Distributions are subject to federal income tax, and may
also be subject to state or local taxes. If you live outside the
United States, your distributions could also be taxed by the
country in which you reside. Your distributions are taxable when
they are paid, whether you take them in cash or reinvest them.
However, distributions declared in December and paid in January
are taxable as if they were paid on December 31. For federal tax
purposes, Daily Cash Reserves' income and short-term capital gain
distributions are taxed as dividends; long-term capital gain
distributions, if any, are taxed as long-term capital gains.
Every January, Daily Cash Reserves will send you and the IRS a
statement showing the taxable distributions paid to you in the
previous year.
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The foregoing description relates only to federal income tax
consequences for investors who are U.S. citizens or corporations.
Investors should consult their own advisers regarding these
matters and state, local, and other applicable tax laws. Daily
Cash Reserves may be required by federal law to withhold 31% of
reportable payments (which may include ordinary income dividends,
capital gain dividends, and redemptions) paid to investors who
have not complied with IRS regulations. In order to avoid this
withholding requirement, investors must certify on their
application or a separate W-9 form, that their social security or
taxpayer identification number is correct and that they are not
currently subject to backup withholding or that they are exempt
from backup withholding. The federal income tax status of all
distributions by Daily Cash Reserves will be reported to
investors annually.
GENERAL INFORMATION
Investor Services
Fundamental Shareholder Services, Inc. is the transfer agent
and dividend-paying agent for shares of Daily Cash Reserves and
United States Trust Company of New York acts as custodian for
assets of Daily Cash Reserves. Inquiries regarding Daily Cash
Reserves should be addressed to Fundamental Shareholder Services,
Inc. It is anticipated that The Chase Manhattan Bank, N.A.
("Chase"), New York, New York, will act as the Fund's custodian
and bookkeeping agent following consummation of a transaction
pursuant to which Chase has agreed to acquire the United States
Trust Company unit responsible for safekeeping of fund assets and
for performing fund accounting activities.
Fundamental Shareholder Services, Inc. maintains an account
for each investor in Daily Cash Reserves, and all of the
investor's transactions are recorded in this account.
Confirmation statements showing details of transactions are sent
to investors following each transaction, and each investor is
sent a monthly account summary.
Annual and semi-annual reports of Daily Cash Reserves
together with the list of securities held by Daily Cash Reserves
in its portfolio are mailed to each investor in Daily Cash
Reserves.
Investors whose shares are held in the name of an investment
broker-dealer or other party will not normally have an account
with Daily Cash Reserves and may not be able to use some of the
services available to investors of record.
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Calculation of Yield
Daily Cash Reserves may from time to time advertise Daily Cash
Reserves' yield and effective yield. Daily Cash Reserves' yield
refers to the income generated by an investment in Daily Cash
Reserves over a seven-day period (which period will be stated in
the advertisement). This income is then annualized; that is, the
amount of income generated by the investment during the seven-day
period is assumed to be generated each week over a 52-week period
and is shown as a percentage of the investment. The effective
yield is calculated similarly, but when annualized, the income
earned by an investment in Daily Cash Reserves is assumed to be
reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of the assumed
reinvestment.
Both yield and effective yield quotations are based on
historical earnings of Daily Cash Reserves. Both yields will
fluctuate over time and are not necessarily representative of
future income or distributions or the actual return to be earned
by an investor, nor are they necessarily a sound basis for
comparing Daily Cash Reserves with bank deposits or other
fixed-income investments.
Exchangeability of Shares
Investors may exchange shares of Daily Cash Reserves having an
aggregate net asset value of $1000 or more for shares of any
other series of the Fund or any other mutual fund for which the
Manager acts as the investment adviser by either (1) delivering
to Fundamental Shareholder Services, Inc. a written request
specifying the number of shares of Daily Cash Reserves to be
exchanged and the series of the Fund or the mutual fund in which
they wish to invest after such an exchange, or (2) in the case of
those investors who have the telephone redemption privilege,
making such a request by telephone. (See "Redemption--Telephone
Redemption Privilege" for a discussion of the Fund's policy with
respect to losses resulting from unauthorized telephone
transactions). The exchange is effected by redeeming the
investor's shares of Daily Cash Reserves and issuing to the
investor shares of the series or mutual fund in which he or she
is investing. The shares of both Daily Cash Reserves and the
series or mutual fund being invested in are valued for purposes
of this exchange at the net asset value per share of Daily Cash
Reserves and such other series or fund, respectively, as next
determined after receipt by Fundamental Shareholder Services,
Inc. of the exchange request.
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The exchange privilege is available only in those states
where such exchange can legally be made and exchanges may only be
made between accounts with identical account registration and
account numbers and is subject to the suitability requirements,
if any, of the series or fund for which an exchange is proposed
to be made. Prior to effecting an exchange, an investor should
consider the investment policies of the series or mutual fund he
or she is investing in. Any exchange is, in effect, a redemption
of shares in one fund and a purchase of the other fund. A capital
gain or loss for federal income tax purposes may be realized by
the investor with the exchange.
Statement of Additional Information
The Statement of Additional Information for Daily Cash Reserves,
dated the date of this Prospectus, contains more detailed
information about Daily Cash Reserves, including information
relating to (1) its investment policies and restrictions, (2) its
investment adviser and the trustees and officers of the Fund, (3)
portfolio trading, (4) various services provided for investors in
Daily Cash Reserves, (5) the method used to calculate yield and
effective yield and (6) financial statements and certain other
financial information.
Other Information
The Code of Ethics of Fundamental Portfolio Advisors, Inc. and
the Fund prohibits all affiliated personnel from engaging in
personal investment activities which compete with or attempt to
take advantage of the Fund's planned portfolio transactions. The
objective of the Code of Ethics of both the Fund and Fundamental
Portfolio Advisors, Inc. is that their operations be carried out
for the exclusive benefit of the Fund's shareholders. Both
organizations maintain careful monitoring of compliance with the
Code of Ethics.
FUNDAMENTAL FAMILY OF FUNDS
90 Washington Street
New York NY 10006
1-800-225-6864
Transfer Agent
Fundamental Shareholder Services, Inc.
P.O. Box 1013
New York, NY 10274
1-800-322-6864
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Counsel to the Fund
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
New York, New York
Independent Accountants
McGladrey & Pullen, LLP
New York, New York
No person has been authorized to give any information or to make
any representations other than those contained in this Prospectus
and in the Fund's official sales literature in connection with
the offer of the Fund's shares, and, if given or made, such other
information or representations must not be relied upon as having
been authorized by the Fund. This Prospectus does not constitute
an offer in any State in which, or to any person to whom, such
offering may not lawfully be made.
<PAGE>
FUNDAMENTAL FAMILY OF FUNDS
Daily Cash
Reserves
Prospectus
, 1995
FUNDAMENTAL FIXED INCOME FUND
DAILY CASH RESERVES SERIES
90 Washington Street
New York, New York 10006
STATEMENT OF ADDITIONAL INFORMATION
___________, 1995
This Statement of Additional Information provides
certain detailed information concerning the Daily Cash Reserves
Series ("Daily Cash Reserves") of the Fundamental Fixed Income
Fund (the "Fund"). Daily Cash Reserves seeks to provide as high
a level of current income as is consistent with the preservation
of capital and liquidity. Of course, there can be no assurance
that the investment objective will be achieved.
Shares of the Daily Cash Reserves are neither insured
nor guaranteed by the United States Government. There is no
assurance that Daily Cash Reserves will be able to maintain a
stable net asset value of $1.00 per share.
This Statement of Additional Information is not a
Prospectus and should be read in conjunction with the Daily Cash
Reserves' current Prospectus, a copy of which may be obtained by
writing to Fundamental Service Corporation ("FSC") at P.O.
Box 1013, Bowling Green Station, New York, New York 10274-1013,
or by calling (800) 322-6864.
This Statement of Additional Information relates to the
Daily Cash Reserves' Prospectus dated _________, 1995.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A
PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
PAGE
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TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . 1
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . 5
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . 7
DISTRIBUTION PLAN. . . . . . . . . . . . . . . . . . . . . 9
INVESTMENT MANAGER . . . . . . . . . . . . . . . . . . . . 11
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . 13
CUSTODIAN AND INDEPENDENT ACCOUNTANTS. . . . . . . . . . . 14
DIVIDENDS AND TAX MATTERS. . . . . . . . . . . . . . . . . 15
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . 22
CERTAIN LIABILITIES. . . . . . . . . . . . . . . . . . . . 22
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . 23
CALCULATION OF YIELD . . . . . . . . . . . . . . . . . . . 24
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Prospectus of Daily Cash Reserves dated _________,
1995 (the "Prospectus") identifies the investment objective and
the principal investment policies of Daily Cash Reserves. Other
investment policies and a further description of certain of the
policies described in the Prospectus are set forth below.
Information concerning the fundamental investment
objectives of Daily Cash Reserves is set forth in the Prospectus
under the caption "Investment Objective and Policies." The
principal features of the investment program and the primary
risks associated with the investment program of Daily Cash
Reserves are discussed in the Prospectus under the aforementioned
caption.
The following is a more detailed description of the
portfolio instruments eligible for purchase by Daily Cash
Reserves which augments the summary of the investment program
which appears in the Prospectus, under the aforementioned
caption. Daily Cash Reserves seeks to achieve its objective by
investing in a portfolio of short-term instruments rated high
quality by a major rating service or determined to be of high
quality in accordance with procedures established by the Board
of Trustees.
Subsequent to its purchase by Daily Cash Reserves, a
particular issue of Money Market Obligations, as defined in the
Prospectus may cease to be rated or its rating may be reduced
below the minimum required for purchase by Daily Cash
Reserves. Neither event requires the elimination of such
obligation from Daily Cash Reserves' portfolio, but Fundamental
Portfolio Advisors, Inc. (the "Manager") will consider such an
event to be relevant in its determination of whether Daily Cash
Reserves should continue to hold such obligation in its
portfolio. To the extent that the ratings accorded by a
nationally recognized statistical rating organization ("NRSRO")
for Money Market Obligations may change as a result of
changes in these rating systems, Daily Cash Reserves will
attempt to use comparable ratings as standards for its
investments in Money Market Obligations and Municipal Securities
in accordance with the investment policies contained herein.
The investment objective and policies of Daily Cash
Reserves are "fundamental" only where noted. Fundamental
policies may only be changed by a vote of the majority of the
outstanding shares of Daily Cash Reserves. (See "Description of
Shares.") There can be no assurance that Daily Cash Reserves'
objective will be achieved.
1
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The following is a more detailed description of the
portfolio instruments eligible for purchase by Daily Cash
Reserves which augments the summary of the investment program
which appears in the Prospectus under the caption "Investment
Objective and Policies." Daily Cash Reserves seeks to achieve
its objective by investing in a portfolio of money market
instruments.
Daily Cash Reserves may invest in U.S. Government
Obligations consisting of marketable securities and instruments
issued or guaranteed by the U.S. Government or by certain of its
agencies or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include bills, certificates of
indebtedness, notes and bonds. Obligations of U.S. Government
agencies and instrumentalities ("Agencies") are issued by
government-sponsored agencies and enterprises acting under
authority of Congress. Certain Agencies are backed by the full
faith and credit of the U.S. Government, and others are not.
In addition to direct U.S. Government Obligations,
Daily Cash Reserves may invest in the following:
1) Agencies that are not backed by the full faith and credit of
the U.S. Government, such as obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank.
2) Bank Instruments which consist mainly of certificates of
deposit, bankers' acceptances and time deposits.
Certificates of deposit represent short-term
interest-bearing deposits of commercial banks and against
which certificates bearing fixed rates of interest are
issued. Bankers' acceptances are short-term negotiable
drafts endorsed by commercial banks, which arise primarily
from international commercial transactions. Time deposits
are nonnegotiable deposits maintained in a bank for a
specified period of time at a stated interest rate. Daily
Cash Reserves limits investments to bank instruments
described in the Prospectus under the caption "Investment
Objective and Policies."
3) Corporate Commercial Instruments consisting of short-term
unsecured promissory notes issued by corporations to finance
short-term credit needs. (See "Investment Limitations" in
this Statement of Additional Information for information
with respect to commercial paper ratings.) Among the
instruments that Daily Cash Reserves may purchase are
variable amount master demand notes, which are unsecured
demand notes that permit investment of fluctuating
amounts of money at variable rates of interest pursuant to
arrangements between the issuer and the payee or its agent
whereby the indebtedness on the notes may vary and the
interest rate is periodically redetermined.
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4) In addition, Daily Cash Reserves may purchase loan
participations, which consist of interests in loans made by
banks to corporations, where both the bank and the
corporation meet the Fund's credit standards. Daily Cash
Reserves generally purchases loan participation certificates
maturing in seven days or less.
Daily Cash Reserves may enter into the following arrangements:
1) Repurchase Agreements under which the purchaser (for
example, Daily Cash Reserves) acquires ownership of an
obligation (e.g., a debt instrument or time
deposit) and the seller agrees, at the time of the sale, to
repurchase the obligation at a mutually agreed upon time and
price, thereby determining the yield during the purchaser's
holding period. This arrangement results in a fixed
rate of return insulated from market fluctuations during
such period. Although the underlying collateral for
repurchase agreements may have maturities exceeding one
year, Daily Cash Reserves will not enter into a repurchase
agreement if as a result of such transaction more than 10%
of Daily Cash Reserves' total assets would be invested in
illiquid securities, including repurchase agreements
expiring in more than seven days. Daily Cash Reserves
may, however, enter into a "continuing contract" or "open"
repurchase agreement under which the seller is under a
continuing obligation to repurchase the underlying
obligation from Daily Cash Reserves on demand and the
effective interest rate is negotiated on a daily basis. In
general, Daily Cash Reserves will enter into repurchase
agreements only with domestic banks with total assets
of at least $1.5 billion or with primary dealers in U.S.
Government securities, but total assets will not be the sole
determinative factor, and Daily Cash Reserves may enter into
repurchase agreements with other institutions which
the Board of Trustees believes present minimal credit risks.
Nevertheless, if the seller of a repurchase agreement fails
to repurchase the debt instrument in accordance with the
terms of the agreement, Daily Cash Reserves may incur a
loss to the extent that the proceeds it realizes on the
sale of the underlying obligation are less than the
repurchase price. Repurchase agreements are considered to
be loans by Daily Cash Reserves under the Investment Company
Act of 1940 (the "1940 Act").
2) Reverse Repurchase Agreements involving the sale of money
market instruments held by Daily Cash Reserves, with an
agreement that Daily Cash Reserves will repurchase the
instruments at an agreed upon price and date. Daily Cash
Reserves will employ reverse repurchase agreements when
necessary to meet unanticipated net redemptions so as to
avoid liquidating other money market instruments during
unfavorable market conditions, or in some cases as a
technique to enhance income, and only in amounts up to 10%
of the value of Daily Cash Reserves' total assets at the
time it enters into a reverse repurchase agreement. At the
time it enters into a reverse repurchase agreement, Daily
Cash Reserves will place in a segregated custodial account
high-quality debt securities having a dollar value equal to
the repurchase price. Daily Cash Reserves will utilize
reverse repurchase agreements when the interest income to be
earned from portfolio investments which would otherwise
have to be liquidated to meet redemptions is greater than
the interest expense incurred as a result of the reverse
repurchase transactions.
3) Delayed Delivery Agreements involving commitments by Daily
Cash Reserves to dealers or issuers to acquire securities or
instruments at a specified future date beyond the customary
same-day settlement for money market instruments. These
commitments may fix the payment price and interest rate to
be received on the investment. Delayed delivery agreements
will not be used as a speculative or leverage technique.
Rather, from time to time, the Manager can anticipate that
cash for investment purposes will result from scheduled
maturities of existing portfolio instruments or from net
sales of shares of Daily Cash Reserves. To assure that
Daily Cash Reserves will be as fully invested as possible in
instruments meeting its investment objective, Daily Cash
Reserves may enter into delayed delivery agreements, but
only to the extent of anticipated funds available for
investment during a period of not more than five
business days. Until the settlement date, Daily Cash
Reserves will set aside in a segregated account high-quality
debt securities of a dollar value sufficient at all times to
make payment for the delayed delivery securities. Not more
than 25% of Daily Cash Reserves' total assets will be
committed to delayed delivery agreements and when-issued
securities, as described below. The delayed delivery
securities, which will not begin to accrue interest until
the settlement date, will be recorded as an asset of Daily
Cash Reserves and will be subject to the risks of market
fluctuation. The purchase price of the delayed delivery
securities is a liability of Daily Cash Reserves until
settlement. Absent extraordinary circumstances, Daily Cash
Reserves will not sell or otherwise transfer the delayed
delivery securities prior to settlement. If cash is not
available to Daily Cash Reserves at the time of settlement,
Daily Cash Reserves may be required to dispose of portfolio
securities that it would otherwise hold to maturity in order
to meet its obligation to accept under a delayed delivery
agreement. The Board of Trustees has determined that
entering into delayed delivery agreements does not present a
materially increased risk of loss to shareholders, but the
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Board of Trustees may restrict the use of delayed delivery
agreements if the risk of loss is determined to be material
or if it affects the constant net asset value of Daily Cash
Reserves.
Many new issues of Money Market Obligations are offered
on a "when-issued" basis, that is, the date for delivery of and
payment for the securities is not fixed at the date of purchase,
but is set after the securities are issued (normally within
forty-five days after the date of the transaction). The payment
obligation and the interest rate that will be received on the
securities are fixed at the time the buyer enters into the
commitment. Daily Cash Reserves will only make commitments to
purchase such Money Market Obligations with the intention of
actually acquiring such securities, but Daily Cash Reserves may
sell these securities before the settlement date if it is deemed
advisable. No additional when-issued commitments will be made
if as a result more than 25% of Daily Cash Reserves' net assets
would become committed to purchases of when-issued securities and
delayed delivery agreements.
If Daily Cash Reserves purchases a when-issued
security, it will direct its custodian bank to collateralize the
when-issued commitment by establishing a segregated account in
the same fashion as required for a Delayed Delivery Agreement.
The special custody account will likewise be marked-to-market,
and the amount in the special custody account will be increased
if necessary to maintain adequate coverage of the when-issued
commitments.
Securities purchased on a when-issued basis and the
securities held in Daily Cash Reserves' portfolio are subject to
changes in market value based upon the public's perception of the
creditworthiness of the issuer and changes in the level of
interest rates (which will generally result in all of those
securities changing in value in the same way, i.e., all those
securities experiencing appreciation when interest rates
rise). Therefore, if, in order to achieve higher interest
income, Daily Cash Reserves is to remain substantially fully
invested at the same time that it has purchased securities on a
when-issued basis, there will be a possibility that the market
value of Daily Cash Reserves' assets will fluctuate to a greater
degree. Furthermore, when the time comes for Daily Cash Reserves
to meet its obligations under when-issued commitments, Daily Cash
Reserves will do so by using then-available cash flow, by
sale of the securities held in the separate account, by sale of
other securities or, although it would not normally expect to do
so, by directing the sale of the when-issued securities
themselves (which may have a market value greater or less than
Daily Cash Reserves' payment obligation).
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A sale of securities to meet such obligations carries
with it a greater potential for the realization of net short-term
capital gains, which are not exempt from federal income taxes.
The value of when-issued securities on the settlement date may
be more or less than the purchase price.
Portfolio Turnover. Pursuit by Daily Cash Reserves of
its investment objective may lead to frequent changes in the
securities held in its portfolio, which is known as "portfolio
turnover." Portfolio turnover may involve payments by Daily Cash
Reserves of broker commissions, dealer spreads and other
transaction costs relating to the purchase and the sale of
securities. Portfolio turnover rate for a given fiscal year is
calculated by dividing the lesser of the cost of purchases or the
proceeds on sales of portfolio securities during the year by the
monthly average of the value of the portfolio securities during
the year.
INVESTMENT LIMITATIONS
Daily Cash Reserves has adopted the following policies
as "fundamental policies," which cannot be changed without the
approval of the holders of a majority of the shares of Daily Cash
Reserves (which, as used in this Statement of Additional
Information, means the lesser of (i) more than 50% of the
outstanding shares, or (ii) 67% or more of the shares present at
a meeting at which holders of more than 50% of the outstanding
shares are represented in person or by proxy). Daily Cash
Reserves may not:
1) purchase any Money Market Obligation, if, as a result of
such purchase, more than 5% of Daily Cash Reserves' total
assets would be invested in securities of issuers, which,
with their predecessors, have been in business for less than
three years;
2) invest in shares of any other investment company, other than
in connection with a merger, consolidation, reorganization
or acquisition of assets;
3) invest more than 10% of the value of Daily Cash Reserves'
total assets in illiquid securities, including variable
amount master demand notes (if such notes provide for
prepayment penalties) and repurchase agreements with
remaining maturities in excess of seven days;
4) invest in companies for the purpose of exercising control;
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5) underwrite any issue of securities, except to the extent
that the purchase of securities, either directly from the
issuer or from an underwriter for an issuer, and the later
disposition of such securities in accordance with Daily Cash
Reserves' investment programs, may be deemed an
underwriting;
6) purchase or sell real estate, but this shall not prevent
investments in securities secured by real estate or
interests therein;
7) sell securities short or purchase any securities on margin,
except for such short-term credits as are necessary for the
clearance of transactions;
8) purchase or retain securities of an issuer if, to the
knowledge of the Fund, the trustees and officers of the Fund
and directors and officers of the Manager, each of whom owns
more than 1/2 of 1% of such securities, together own
more than 5% of the securities of such issuer;
9) mortgage, pledge or hypothecate any assets except to secure
permitted borrowings and reverse repurchase agreements and
then only in an amount up to 15% of the value of Daily Cash
Reserves' total assets at the time of borrowing or entering
into a reverse repurchase agreement; or
10) purchase or sell commodities or commodity futures contracts
or interests in oil, gas or other mineral exploration or
development program (Daily Cash Reserves may, however,
purchase and sell securities of companies engaged in the
exploration, development, production, refining, transporting
and marketing of oil, gas or minerals).
In order to permit the sale of Daily Cash Reserves'
shares in certain states, the Fund may make commitments on behalf
of Daily Cash Reserves that are more restrictive than the
restrictions described above. Should the Fund determine that
any such commitment is no longer in the best interest of Daily
Cash Reserves and its shareholders it will revoke the commitment
by terminating sales of its shares in the state(s) involved.
If a percentage restriction is adhered to at the time
of investment, a later increase or decrease in percentage
resulting from a change in values or assets will not
constitute a violation of such restriction.
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MANAGEMENT OF THE FUND
The Fund's Board of Trustees provides broad supervision
over the affairs of the Fund and of Daily Cash Reserves. The
officers of the Fund are responsible for the operations of Daily
Cash Reserves. The Trustees and executive officers of the Fund
are listed below, together with their principal occupations
during the last five years. Each Trustee who is considered to be
an "interested person" of the Fund, as defined by the 1940 Act,
is indicated by an asterisk (*).
James C. Armstrong: Trustee of the Fund. Mr.
Armstrong is a partner in Armstrong/Seltzer Communications, Inc.,
a New York management, consulting and public relations firm. He
was formerly Executive Director, Global Public Affairs Institute
at New York University and Professor, Bell of Pennsylvania Chair
in Telecommunications, Temple University, and is a management
consultant. He was with American Telephone and Telegraph Company
for 15 years. His last position with AT&T was Director,
Corporate Policy Analysis. Mr. Armstrong previously held
positions at the Institute for Defense Analysis, the Office of
the Postmaster General, and on the faculty of the University of
Maryland. He has been a consultant to government, academic and
business organizations, and has served on various government-
industry task forces and committees. Mr. Armstrong was an
Officer in the United States Navy and holds a Ph.D. in nuclear
physics. Mr. Armstrong's address is 51 Mt. Pleasant Road,
Morristown, New Jersey 07960.
James A. Bowers: Trustee of the Fund. Mr. Bowers is a
consultant for Prototypes (formerly Director of Finance and
Administration), The American Telephone and Telegraph Company,
The RAND Corporation and CogniTech Services Corporation.
He was employed at AT&T for 23 years. His latest position with
AT&T was in the Treasury Department as District Manager-
Securities and Exchange Commission Reporting. Mr. Bowers holds
Bachelor of Science and Master of Arts degrees in Economics from
Florida Atlantic University. Mr. Bowers' address is 60 East
Eighth Street, New York, N.Y. 10003.
Stanley M. Brandt: Trustee of the Fund. Mr. Brandt
retired in 1980 from his position as Vice President of Alexander
& Alexander, a publicly held international insurance and
reinsurance firm, after 16 years of service with it and with
Bleichroeder Bing & Co., a privately held firm acquired by
Alexander & Alexander in 1975. Previously, Mr. Brandt was
associated with privately held insurance and merchant banking
firms, principally as a Vice President of Frenkel & Co., Inc.
which he joined in 1944 and with Bingham & Co., Inc. which he
joined in 1938. Mr. Brandt's address is 75C Heritage Hills,
Somers, New York 10589.
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Clark L. Bullock: Trustee of the Fund. Mr. Bullock is
Chairman of the Board of Shelter Rock Investors Services Corp., a
privately-held, New York-based investment company. Mr. Bullock
received a Masters of Science degree in Mathematical Economics
from Purdue University in 1972 and a Bachelor of Arts degree in
International Relations from the University of Arizona. Mr.
Bullock's address is c/o Shelter Rock Investors, 150 Hopper
Avenue, Waldwick, NJ 07463.
L. Greg Ferrone: Trustee of the Fund. Mr. Ferrone is
a consultant with IntraNet, Inc., a provider of computer systems
to the domestic and international banking industry. Previously
he was the Director of Sales & Marketing for RAV Communications
Inc., Vice President/Regional Manager with National Westminster
Bank USA and an officer at Security Pacific Bank. Mr. Ferrone
received a Bachelor of Science degree from Rensselaer Polytechnic
Institute in 1972 and studied at the Stonier Graduate School of
Banking. Mr. Ferrone's address is 83 Ronald Court, Ramsey, New
Jersey 07446.
*Vincent J. Malanga: Chairman of the Board, Chief
Executive Officer, President and Treasurer of the Fund, The
California Muni Fund and New York Muni Fund, Inc. Mr. Malanga
is President, Treasurer and a Director of Fundamental Portfolio
Advisors, Inc., Executive Vice President, Secretary and a
Director of Fundamental Service Corporation, and President,
LaSalle Economics Inc., an economic consulting firm. Prior
thereto, he was a Vice President and Senior Economist at A. Gary
Shilling & Company, Inc., an economic consulting and brokerage
firm. He previously served as an Economist at White, Weld & Co.
(an investment banking and brokerage firm) and so served from
1976 to 1978. Prior thereto, Mr. Malanga, who holds a Ph.D. in
Economics from Fordham University, was an Economist at the
Federal Reserve Bank of New York. Mr. Malanga's address is 90
Washington Street, 19th Floor, New York, New York 10006.
David P. Wieder: Vice President and Secretary of the
Fund. Mr. Wieder is Secretary of Fundamental Portfolio Advisors,
Inc., and President, Treasurer and a Director of Fundamental
Shareholder Services, Inc. Mr. Wieder holds a Bachelor of
Science degree in Economics from Cornell University. Mr.
Wieder's address is 90 Washington Street, 19th Floor, New York,
New York 10006.
All of the Trustees of the Fund are also Trustees or
Directors of New York Muni Fund, Inc. and The California Muni
Fund. All of the officers of the Fund hold similar offices with
New York Muni Fund, Inc. and The California Muni Fund.
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Daily Cash Reserves does not pay any salary or
compensation to any of its officers, all of whom are officers or
employees of the Manager. For services and attendance at board
meetings and meetings of committees which are common to the
Fund, New York Muni Fund, Inc. and The California Muni Fund
(other affiliated mutual fund entities for which the Manager acts
as the investment adviser), each Trustee of the Fund who is not
affiliated with the Manager is compensated at the rate of $6,500
per quarter prorated among the three fund entities based on their
respective average net assets at the end of each quarter. Each
such Trustee is also reimbursed by the three fund entities, on
the same basis, for actual out-of-pocket expenses relating to
his attendance at meetings. The Manager pays the compensation of
the Fund's officers and of the one Trustee that is affiliated
with the Manager.
In May, 1987 Mr. Brandt made an initial investment of
$10,857 to become a limited partner of LPM Financial Futures Fund
I, Limited Partnership. Additional investments in the aggregate
amount of $22,963 were made at various times thereafter, through
January, 1988. In September, 1988 Mr. Brandt made an investment
of $10,000 to become a limited partner of LPM Equities Fund
Limited Partnership. Mr. Brandt has since disposed of his
interests in these two limited partnerships. Mr. Malanga is Vice
President, Secretary and a 50% shareholder of LaSalle Portfolio
Management, Inc., the general partner of both LPM Financial
Futures Fund I, Limited Partnership and LPM Equities Fund Limited
Partnership. Messrs. Ferrone and Malanga are first cousins.
Transfer Agent
Fundamental Shareholder Services, Inc., P.O. Box 1013,
Bowling Green Station, New York, New York 10274-1013, an
affiliate of the Manager and Fundamental Service Corporation
("FSC"), performs all services in connection with the
transfer of shares of Daily Cash Reserves, acts as its dividend
disbursing agent, and as administrator of the exchange, check
redemption, telephone redemption and expedited redemption
privileges of Daily Cash Reserves pursuant to a Transfer Agency
and Service Agreement dated as of _________________, 1995.
DISTRIBUTION PLAN
As discussed in the Prospectus, the Fund has entered
into a Distribution Agreement with FSC. FSC is a Delaware
corporation which is owned approximately 43.7% by each of Messrs.
Thomas W. Buckingham, a consultant to the Manager, and Vincent J.
Malanga, a Trustee and officer of the Fund and a director and
officer of the Manager, and 9.8% by Dr. Lance M. Brofman, an
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employee of the Manager. The Trustees who are not, and were not
at the time they voted, interested persons of the Fund, as
defined in the 1940 Act (the "Independent Trustees"), have
approved the Distribution Agreement. The Distribution Agreement
provides that FSC will bear the distribution expenses of Daily
Cash Reserves not borne by Daily Cash Reserves. The Distribution
Agreement was approved by action of the Trustees of the Fund and
entered into by the Fund and FSC on January 25, 1995. The
Distribution Agreement will continue in effect for an initial
period of two years and thereafter from year to year
if it is specifically approved, at least annually, in the manner
required by the 1940 Act.
FSC bears all expenses it incurs in providing services
under the Distribution Agreement. Such expenses include
compensation to it and to securities dealers and other financial
institutions and organizations such as banks, trust companies,
savings and loan associations and investment advisors for
distribution related and/or administrative services performed for
Daily Cash Reserves. FSC also pays certain expenses in
connection with the distribution of Daily Cash Reserves'
shares, including the cost of preparing, printing and
distributing advertising or promotional materials, and the cost
of printing and distributing prospectuses and supplements thereto
to prospective shareholders. Daily Cash Reserves bears the cost
of registering its shares under federal and state securities law.
The Fund and FSC have agreed to indemnify each other
against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. Under the Distribution
Agreement, FSC will use its best efforts in rendering services to
the Fund.
The Fund has adopted a plan of distribution pursuant to
Rule 12b-1 under the 1940 Act (the "Plan") pursuant to which
Daily Cash Reserves pays FSC compensation accrued daily and paid
monthly at the annual rate of .50% of Daily Cash Reserves'
average daily net assets. The Plan was adopted by a majority
vote of the Board of Trustees, including all of the Independent
Trustees (none of whom had or have any direct or indirect
financial interest in the operation of the Plan), cast in
person at a meeting called for the purpose of voting on the Plan
on January 25, 1995.
Pursuant to the Plan, FSC provides the Fund, for review
by the Trustees, and the Trustees review, at least quarterly, a
written report of the amounts expended under the Plan and the
purpose for which such expenditures were made.
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No interested person of the Fund nor any Trustee of the
Fund who is not an interested person of the Fund, as defined in
the 1940 Act, has any direct financial interest in the operation
of the Plan except to the extent that FSC and certain of its
employees may be deemed to have such an interest as a result of
receiving a portion of the amounts expended thereunder by the
Fund.
The Plan will continue in effect until January 25,
1996. The Plan will continue in effect from year-to-year
thereafter, provided such continuance is approved annually by
vote of the Trustees in the manner described above. It may not
be amended to increase materially the amount to be spent for the
services described therein without approval of the shareholders
of the Fund, and material amendments of the Plan must also be
approved by the Trustees in the manner described above.
The Plan may be terminated at any time, without payment of any
penalty, by vote of the majority of the Trustees who are not
interested persons of the Fund, and with no direct or indirect
financial interest in the operations of the Plan, or by a vote of
a majority of the outstanding voting securities of the Fund (as
defined in the 1940 Act). The Plan will automatically terminate
in the event of its assignment (as defined in the 1940 Act). So
long as the Plan is in effect, the election and nomination of the
Independent Trustees shall be committed to the discretion of the
Independent Trustees. In the Trustees' quarterly review of the
Plan, they will consider its continued appropriateness and the
level of compensation provided therein.
The Glass-Steagall Act prohibits banks from engaging in
the business of underwriting, selling or distributing securities.
Although the scope of this prohibition under the Glass-Steagall
Act has not been clearly defined by the courts or appropriate
regulatory agencies, FSC believes that the Glass-Steagall Act
should not preclude a bank from performing shareholder support
services, servicing and recordkeeping functions. FSC intends to
engage banks only to perform such functions. However, changes in
federal or state statutes and regulations pertaining to the
permissible activities of banks and their affiliates or
subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from
continuing to perform all or a part of the contemplated services.
If a bank were prohibited from so acting, the Trustees would
consider what actions, if any, would be necessary to continue to
provide efficient and effective shareholder services. In such
event, changes in the operation of Daily Cash Reserves might
occur, including possible termination of any automatic investment
or redemption or other services then provided by a bank. It is
not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences. Daily Cash
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Reserves may execute portfolio transactions with and purchase
securities issued by depository institutions that indirectly
receive payments under the Plan. No preference will be shown in
the selection of investments for the instruments of such
depository institutions.
INVESTMENT MANAGER
The Fund has entered into an agreement (the "Management
Agreement") with Fundamental Portfolio Advisors, Inc. (the
"Manager"), P.O. Box 1013, Bowling Green Station, New York, New
York 10274-1013, to act as its investment adviser. The
Management Agreement will continue in effect until January 25,
1997 and will continue in effect for an initial period of two
years and thereafter from year to year if it is specifically
approved, at least annually, by the vote of a majority of the
Board of Trustees of the Fund (including a majority of the Board
of Trustees who are not parties to the Management Agreement or
interested persons of any such parties) cast in person at a
meeting called for the purpose of voting on such renewal. The
Board of Trustees approved the Management Agreement on January
25, 1995. The Management Agreement terminates if assigned and
may be terminated without penalty by either party by vote of its
Board of Directors or Trustees or a majority of its outstanding
voting securities and the giving of sixty days' written notice.
Under the terms of the Management Agreement, the
Manager serves as investment adviser to Daily Cash Reserves and
is responsible for the overall management of the business affairs
and assets of Daily Cash Reserves, subject to the authority of
the Fund's Board of Trustees. The Manager also is authorized
under the Management Agreement to buy and sell securities for the
account of Daily Cash Reserves, in its discretion, subject to the
right of the Fund's Trustees to disapprove any such purchase or
sale. The Manager pays all of the ordinary operating expenses
of Daily Cash Reserves, including executive salaries and the
rental of office space, with the exception of the following,
which are to be paid by Daily Cash Reserves: (1) charges and
expenses for determining from time-to-time the net asset value of
Daily Cash Reserves 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 Daily Cash Reserves, (3) brokers'
commissions, and issue and transfer taxes, chargeable to Daily
Cash Reserves 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 Daily Cash Reserves to federal, state or other governmental
agencies, (5) fees and expenses involved in registering and
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maintaining registrations of the shares of Daily Cash
Reserves with the Securities and Exchange Commission, (6) all
expenses of shareholders' and Trustees' 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 Trustees of the Fund as such who are
not affiliated with or interested persons of the Manager or the
Fund (other than as Trustees), (9) fees and expenses incurred
pursuant to the 12b-1 Plan and (10) such nonrecurring or
extraordinary expenses as may arise, including litigation
affecting the Fund or Daily Cash Reserves and any indemnification
by the Fund of its trustees, officers, employees or agents with
respect thereto. To the extent any of the foregoing charges or
expenses are incurred by the Fund for the benefit of each of the
Fund's series, Daily Cash Reserves is responsible for payment of
the portion of such charges or expenses which are properly
allocable to Daily Cash Reserves.
As compensation for the performance of its management
services and the assumption of certain expenses of Daily Cash
Reserves and the Fund, the Manager is entitled under the
Management Agreement to an annual management fee (which is
computed daily and paid monthly) from Daily Cash Reserves equal
to the percentage listed below of the average daily net asset
value of Daily Cash Reserves.
Average Daily Net Asset Value Annual Fee Payable
Net asset value to $100,000,000 .50%
Net asset value of $100,000,000
or more but less than $200,000,000 .48%
Net asset value of $200,000,000
or more but less than $300,000,000 .46%
Net asset value of $300,000,000
or more but less than $400,000,000 .44%
Net asset value of $400,000,000
or more but less than $500,000,000 .42%
Net asset value of $500,000,000 or more .40%
However, if for any fiscal year in which the aggregate
operating expenses of Daily Cash Reserves (including the
management fee but exclusive of taxes, interest expenses,
brokerage fees and commissions, fees and expenses paid pursuant
to the Plan and extraordinary expenses beyond the control of, and
not caused by bad faith, negligence or malfeasance of, the
Manager, if any), are in excess of the expense limitation of any
state having jurisdiction over Daily Cash Reserves, the Manager
will reimburse Daily Cash Reserves on a monthly basis for the
amount of such excess.
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Mr. Vincent J. Malanga, a trustee and officer of the
Fund, and Dr. Lance M. Brofman, chief portfolio strategist of
Daily Cash Reserves, each own approximately 48.5% of the
outstanding shares of voting capital stock of the Manager.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio
securities are placed on behalf of Daily Cash Reserves by the
Manager pursuant to authority contained in the Management
Agreement. The Manager is and may in the future also be
responsible for the placement of transaction orders for the other
series of the Fund and other funds for which the Manager acts as
investment advisor. Securities purchased and sold on behalf of
Daily Cash Reserves will be traded on a net basis (i.e., without
commission) through dealers acting for their own account and not
as brokers or otherwise involve transactions directly with the
issuer of the instrument. In selecting brokers or dealers, the
Manager will consider various relevant factors, including, but
not limited to, the size and type of the transaction; the nature
and character of the markets for the security to be purchased or
sold; the execution efficiency, settlement capability, and
financial condition of the dealer; the dealer's execution
services rendered on a continuing basis; and the reasonableness
of any dealer spreads.
Dealers may be selected who provide brokerage and/or
research services to the Fund or Daily Cash Reserves and/or other
investment companies over which the Manager exercises investment
discretion. Such services may include advice concerning the
value of securities; the advisability of investing in, purchasing
or selling securities; the availability of securities or the
purchasers or sellers of securities; furnishing analyses and
reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy and performance of
accounts; and effecting securities transactions and performing
functions incidental thereto (such as clearance
and settlement). The Manager maintains a listing of dealers who
provide such services on a regular basis. However, because it is
anticipated that many transactions on behalf of Daily Cash
Reserves, other series of the Fund and other funds over which
the Manager exercises investment discretion are placed with
dealers (including dealers on the list) without regard to the
furnishing of such services, it is not possible to estimate the
proportion of such transactions directed to such dealers solely
because such services were provided.
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The receipt of research from dealers may be useful to
the Manager in rendering investment management services to Daily
Cash Reserves and/or other series of the Fund and other funds
over which the Manager exercises investment discretion,
and conversely, such information provided by brokers or dealers
who have executed transaction orders on behalf of such other
clients of the Manager may be useful to the Manager in carrying
out its obligations to Daily Cash Reserves. The receipt of such
research has not reduced the Manager's normal independent
research activities; however, it enables the Manager to avoid the
additional expenses which might otherwise be incurred if it were
to attempt to develop comparable information through its own
staff.
Dealers who execute portfolio transactions on behalf of
Daily Cash Reserves may receive spreads or commissions which are
in excess of the amount of spreads or commissions which other
brokers or dealers would have charged for effecting such
transactions. In order to cause Daily Cash Reserves to pay such
higher spreads or commissions, the Manager must determine in good
faith that such spreads or commissions are reasonable in relation
to the value of the brokerage and/or research services provided
by such executing broker or dealer viewed in terms of a
particular transaction or the Manager's overall responsibilities
to Daily Cash Reserves, the Fund or the Manager's other clients.
In reaching this determination, the Manager will not
attempt to place a specific dollar value on the brokerage and/or
research services provided or to determine what portion of the
compensation should be related to those services.
The Manager is authorized to place portfolio
transactions with dealer firms that have provided assistance in
the distribution of shares of Daily Cash Reserves or shares of
other series of the Fund or other funds for which the Manager
acts as investment adviser if it reasonably believes that the
quality of the transaction and the amount of the spread are
comparable to what they would be with other qualified dealers.
The Funds' Trustees and brokerage allocation committee
(comprised solely of non-interested Trustees) periodically review
the Manager's performance of its responsibilities in connection
with the placement of portfolio transactions on behalf of Daily
Cash Reserves and the Fund and review the dealer spreads paid by
Daily Cash Reserves and the Fund over representative periods of
time to determine if they are reasonable in relation to the
benefits to the Fund and its portfolios.
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CUSTODIAN AND INDEPENDENT ACCOUNTANTS
United States Trust Company of New York (the "Bank"),
114 West 47th Street, New York, New York, acts as Custodian of
the Fund's cash and securities. The Bank also acts as
bookkeeping agent for the Fund, and in that capacity monitors
the Fund's accounting records and calculates its net asset value.
It is anticipated that The Chase Manhattan Bank, N.A. ("Chase"),
New York, New York, will act as the Fund's custodian and
bookkeeping agent following consummation of a transaction
pursuant to which Chase has agreed to acquire the Bank's unit
responsible for safekeeping of fund assets and performing fund
accounting obligations.
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York,
New York, acts as independent public accountants for the Fund,
performing an annual audit of the Fund's financial statements and
preparing its tax returns.
DIVIDENDS AND TAX MATTERS
Dividends
All of the net income earned by Daily Cash Reserves is
declared daily as dividends to the respective holders of record
of Daily Cash Reserves. Net income for Daily Cash Reserves for
dividend purposes (from the time of the immediately preceding
determination thereof) consists of (a) interest accrued and
discount earned, if any, on the assets of Daily Cash Reserves and
any general income of the Fund prorated to Daily Cash Reserves
based on the relative net assets of Daily Cash Reserves, less
(b) amortization of premium and accrued expenses for the
applicable dividend period attributable directly to Daily Cash
Reserves and general expenses of the Fund prorated to Daily Cash
Reserves based on the relative net assets of Daily Cash Reserves.
The amount of discount or premium on instruments in Daily Cash
Reserves' portfolio is fixed at the time of purchase of the
instruments. See "Determination of Net Asset Value." Realized
gains and losses on portfolio securities held by Daily Cash
Reserves will be reflected in the net asset value of Daily Cash
Reserves. Daily Cash Reserves expects to distribute any net
realized short-term gains of Daily Cash Reserves at least
once each year, although it may distribute them more frequently
if necessary in order to maintain Daily Cash Reserves' net asset
value at $1.00 per share. Daily Cash Reserves do not expect to
realize net long-term capital gains.
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Should Daily Cash Reserves incur or anticipate any
unusual expense, loss or depreciation which would adversely
affect the net asset value per share or net income per share of
Daily Cash Reserves for a particular period, the Board of
Trustees would at that time consider whether to adhere to the
present dividend policy described above or to revise it in light
of then prevailing circumstances. For example, if the net asset
value per share of Daily Cash Reserves were reduced, or was
anticipated to be reduced, below $1.00, the Board of Trustees may
suspend further dividend payments with respect to Daily Cash
Reserves until the net asset value per share returns to $1.00.
Thus, such expense or loss or depreciation might result in a
shareholder receiving no dividends for the period during which he
held shares of Daily Cash Reserves and/or in his receiving upon
redemption a price per share lower than the price which he paid.
Dividends on Daily Cash Reserves' shares are normally
payable on the first day following the date that a share purchase
or exchange order is effective and on the date that a redemption
order is effective. The net income of Daily Cash Reserves for
dividend purposes is determined as of 4:00 p.m. Eastern time on
each "business day" of the Fund immediately prior to the
determination of Daily Cash Reserves' net asset value on that
day. A "business day" of the Fund means any day on which both
the New York Stock Exchange and United States Trust Company of
New York (the "Custodian"), the Fund's custodian, are open for
business. It is expected that the New York Stock Exchange and/or
the Custodian will be closed on Saturdays and Sundays, New Year's
Day, Martin Luther King, Jr.'s Birthday, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus
Day, Veterans' Day, Thanksgiving Day and Christmas. Dividends
are declared daily and reinvested in the form of additional full
and fractional shares of Daily Cash Reserves at net asset value.
A shareholder may elect to have the aggregate dividends declared
and paid monthly to him by check.
Tax Matters
The following is only a summary of certain additional
tax considerations generally affecting Daily Cash Reserves and
its shareholders that are not described in the Prospectus. No
attempt is made to present a detailed explanation of the tax
treatment of Daily Cash Reserves or its shareholders, and the
discussions here and in the Prospectus are not intended as
substitutes for careful tax planning.
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Qualification as a Regulated Investment Company
Daily Cash Reserves has elected to be taxed as a
regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). As a regulated
investment company, Daily Cash Reserves is not subject to
federal income tax on the portion of its net investment income
(i.e., taxable interest, dividends and other taxable ordinary
income, net of expenses) and capital gain net income (i.e., the
excess of capital gains over capital losses) that it distributes
to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income
and the excess of net short-term capital gain over net long-term
capital loss) and at least 90% of its tax-exempt income (net of
expenses allocable thereto) for the taxable year (the
"Distribution Requirement"), and satisfies certain other
requirements of the Code that are described below. Distributions
by Daily Cash Reserves made during the taxable year or, under
specified circumstances, within twelve months after the close of
the taxable year, will be considered distributions of income and
gains of the taxable year and can therefore satisfy the
Distribution Requirement.
In addition to satisfying the Distribution Requirement,
a regulated investment company must: (1) derive at least 90% of
its gross income from dividends, interest, certain payments with
respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the
extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or
securities) and other income (including but not limited
to gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or
currencies (the "Income Requirement"); and (2) derive less than
30% of its gross income (exclusive of certain gains on designated
hedging transactions that are offset by realized or unrealized
losses on offsetting positions) from the sale or other
disposition of stock, securities or foreign currencies (or
options, futures or forward contracts thereon) held for less
than three months (the "Short-Short Gain Test"). However,
foreign currency gains, including those derived from options,
futures and forwards, will not in any event be characterized as
Short-Short Gain if they are directly related to the regulated
investment company's investments in stock or securities (or
options or futures thereon). Because of the Short-Short Gain
Test, Daily Cash Reserves may have to limit the sale of
appreciated securities that it has held for less than three
months. However, the Short-Short Gain Test will not prevent
Daily Cash Reserves from disposing of investments at a loss,
since the recognition of a loss before the expiration
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of the three-month holding period is disregarded for this
purpose. Interest (including original issue discount) received
by Daily Cash Reserves at maturity or upon the disposition of a
security held for less than three months will not be treated as
gross income derived from the sale or other disposition of such
security within the meaning of the Short-Short Gain Test.
However, income that is attributable to realized market
appreciation will be treated as gross income from the sale or
other disposition of securities for this purpose.
In general, gain or loss recognized by Daily Cash
Reserves on the disposition of an asset will be a capital gain or
loss. However, gain recognized on the disposition of a debt
obligation purchased by Daily Cash Reserves at a market discount
(generally, at a price less than its principal amount) will be
treated as ordinary income to the extent of the portion of the
market discount which accrued during the period of time Daily
Cash Reserves held the debt obligation.
Treasury Regulations permit a regulated investment
company, in determining its investment company taxable income and
net capital gain (i.e., the excess of net long-term capital gain
over net short-term capital loss) for any taxable year, to elect
(unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or any part of any net
capital loss, any net long-term capital loss or any net foreign
currency loss incurred after October 31 as if it had been
incurred in the succeeding year.
In addition to satisfying the requirements described
above, Daily Cash Reserves must satisfy an asset diversification
test in order to qualify as a regulated investment company.
Under this test, at the close of each quarter of Daily Cash
Reserves' taxable year, at least 50% of the value of Daily Cash
Reserves' assets must consist of cash and cash items, U.S.
Government securities, securities of other regulated investment
companies, and securities of other issuers (as to which Daily
Cash Reserves has not invested more than 5% of the value of Daily
Cash Reserves' total assets in securities of such issuer and as
to which Daily Cash Reserves does not hold more than 10% of the
outstanding voting securities of such issuer), and no more
than 25% of the value of its total assets may be invested in the
securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment
companies), or in two or more issuers which Daily Cash Reserves
controls and which are engaged in the same or similar trades or
businesses. For purposes of asset diversification testing,
obligations issued or guaranteed by agencies or instrumentalities
of the U.S. Government such as the Federal Agricultural Mortgage
Corporation, the Farm Credit System Financial Assistance
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Corporation, a Federal Home Loan Bank, the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association,
the Government National Mortgage Corporation, and the Student
Loan Marketing Association are treated as U.S. Government
securities.
If for any taxable year Daily Cash Reserves does not
qualify as a regulated investment company, all of its taxable
income (including its net capital gain) will be subject to tax at
regular corporate rates without any deduction for distributions
to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of Daily Cash
Reserves' current and accumulated earnings and profits. Such
distributions generally will be eligible for the
dividends-received deduction in the case of corporate
shareholders.
Excise Tax on Regulated Investment Companies
A 4% nondeductible excise tax is imposed on a regulated
investment company that fails to distribute in each calendar year
an amount equal to 98% of ordinary taxable income for the
calendar year and 98% of capital gain net income for the one-year
period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year
ending November 30 or December 31, for its taxable year (a
"taxable year election")). The balance of such income must be
distributed during the next calendar year. For the foregoing
purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for
any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment
company shall: (1) reduce its capital gain net income (but not
below its net capital gain) by the amount of any net ordinary
loss for the calendar year; and (2) exclude foreign currency
gains and losses incurred after October 31 of any year (or after
the end of its taxable year if it has made a taxable year
election) in determining the amount of ordinary taxable income
for the current calendar year (and, instead, include such gains
and losses in determining ordinary taxable income for the current
calendar year).
Daily Cash Reserves intends to make sufficient
distributions or deemed distributions of its ordinary taxable
income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However,
investors should note that Daily Cash Reserves may in certain
circumstances be required to liquidate portfolio investments to
make sufficient distributions to avoid excise tax liability.
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Distributions
Daily Cash Reserves anticipates distributing
substantially all of its investment company taxable income for
each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they will not qualify for the
70% dividends received deduction for corporate shareholders.
Daily Cash Reserves may either retain or distribute to
shareholders its net capital gain for each taxable year. Daily
Cash Reserves currently intends to distribute any such amounts.
If net capital gain is distributed and designated as a capital
gain dividend, it will be taxable to shareholders as long-term
capital gain, regardless of the length of time the shareholder
has held his shares or whether such gain was recognized by Daily
Cash Reserves prior to the date on which the shareholder acquired
his shares.
Conversely, if Daily Cash Reserves elects to retain its
net capital gain, Daily Cash Reserves will be taxed thereon
(except to the extent of any available capital loss carryovers)
at the 35% corporate tax rate. If Daily Cash Reserves elects
to retain its net capital gain, it is expected that Daily Cash
Reserves also will elect to have shareholders of record on the
last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result
that each shareholder will be required to report his pro rata
share of such gain on his tax return as long-term capital gain,
will receive a refundable tax credit for his pro rata share of
tax paid by Daily Cash Reserves on the gain, and will increase
the tax basis for his shares by an amount equal to the deemed
distribution less the tax credit.
Investment income that may be received by Daily Cash
Reserves from sources within foreign countries may be subject to
foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries which
entitle Daily Cash Reserves to a reduced rate of, or exemption
from, taxes on such income. It is impossible to determine the
effective rate of foreign tax in advance since the amount of
Daily Cash Reserves' assets to be invested in various countries
is not known.
Distributions by Daily Cash Reserves that do not
constitute ordinary income dividends, exempt-interest dividends
or capital gain dividends will be treated as a return of capital
to the extent of (and in reduction of) the shareholder's tax
basis in his shares; any excess will be treated as gain from the
sale of his shares, as discussed below.
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Distributions by Daily Cash Reserves will be treated in
the manner described above regardless of whether such
distributions are paid in cash or reinvested in additional
shares of Daily Cash Reserves (or of another fund). Shareholders
receiving a distribution in the form of additional shares will be
treated as receiving a distribution in an amount equal to the
fair market value of the shares received, determined as of the
reinvestment date. In addition, if the net asset value at the
time a shareholder purchases shares of Daily Cash Reserves
reflects undistributed net investment income or recognized
capital gain net income, or unrealized appreciation in the value
of the assets of Daily Cash Reserves, distributions of such
amounts will be taxable to the shareholder in the manner
described above, although such distributors economically
constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take
distributions by Daily Cash Reserves into account in the year in
which the distributions are made. However, dividends declared in
October, November or December of any year and payable to
shareholders of record on a specified date in such a month will
be deemed to have been received by the shareholders (and made by
Daily Cash Reserves) on December 31 of such calendar year if such
dividends are actually paid in January of the following year.
Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made)
during the year.
Daily Cash Reserves will be required in certain cases
to withhold and remit to the U.S. Treasury 31 % of ordinary
income dividends and capital gain dividends, and the proceeds of
redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no
number at all, (2) who is subject to backup withholding by the
IRS for failure to report the receipt of interest or dividend
income properly, or (3) who has failed to certify to Daily Cash
Reserves that it is not subject to backup withholding or that it
is a corporation or other "exempt recipient."
Sale or Redemption of Shares
Daily Cash Reserves seeks to maintain a stable net
asset value of $1.00 per share; however, there can be no
assurance that Daily Cash Reserves will do this. In such a
case, a shareholder will recognize gain or loss on the sale or
redemption of shares of Daily Cash Reserves in an amount equal to
the difference between the proceeds of the sale or redemption and
the shareholder's adjusted tax basis in the shares. All or a
portion of any loss so recognized may be disallowed if the
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shareholder purchases other shares of Daily Cash Reserves within
30 days before or after the sale or redemption. In general, any
gain or loss arising from (or treated as arising from) the
sale or redemption of shares of Daily Cash Reserves will be
considered capital gain or loss and will be long-term capital
gain or loss if the shares were held for longer than one year.
However, any capital loss arising from the sale or redemption of
shares held for six months or less will be disallowed to the
extent of the amount of exempt-interest dividends received on
such shares and (to the extent not disallowed will be
treated as a long-term capital loss to the extent of the amount
of capital gain dividends received on such shares. For this
purpose, the special holding period rules of Code Section
246(c)(3) and (4) generally will apply in determining the holding
period of shares. Long-term capital gains of noncorporate
taxpayers are currently taxed at a maximum rate 11.6% lower than
the maximum rate applicable to ordinary income. Capital losses
in any year are deductible only to the extent of capital gains
plus, in the case of a noncorporate taxpayer, $3,000 of ordinary
income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States,
is a nonresident alien individual, foreign trust or estate,
foreign corporation, or foreign partnership ("foreign
shareholder"), depends on whether the income from Daily Cash
Reserves is "effectively connected" with a U.S. trade or business
carried on by such shareholder.
If the income from Daily Cash Reserves is not
effectively connected with a U.S. trade or business carried on by
a foreign shareholder, ordinary income dividends paid to a
foreign shareholder will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) upon the gross amount of
the dividend. Such a foreign shareholder would generally be
exempt from U.S. federal income tax on gains realized on the sale
of shares of Daily Cash Reserves, capital gain dividends and
exempt-interest dividends and amounts retained by Daily Cash
Reserves that are designated as undistributed capital gains.
If the income from Daily Cash Reserves is effectively
connected with a U.S. trade or business carried on by a foreign
shareholder, then ordinary income dividends, capital gain
dividends, and any gains realized upon the sale of shares of
Daily Cash Reserves will be subject to U.S. federal income tax at
the rates applicable to U.S. citizens or domestic corporations.
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In the case of foreign noncorporate shareholders, Daily
Cash Reserves may be required to withhold U.S. federal income tax
at a rate of 31% on distributions that are otherwise exempt from
withholding tax (or taxable at a reduced treaty rate) unless such
shareholders furnish Daily Cash Reserves with proper notification
if its foreign status.
The tax consequences to a foreign shareholder entitled
to claim the benefits of an applicable tax treaty may be
different from those described herein. Foreign shareholders are
urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in Daily
Cash Reserves, including the applicability of foreign taxes.
Effect of Future Legislation and Local Tax Considerations
The foregoing general discussion of U.S. federal income
tax consequences is based on the Code and the Treasury
Regulations issued thereunder as in effect on the date of this
Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or
decisions may have a retroactive effect with respect to
transactions contemplated herein.
Rules of state and local taxation of ordinary income
dividends, exempt-interest dividends and capital gain dividends
from regulated investment companies often differ from the rules
for U.S. federal income taxation described above. Shareholders
are urged to consult their tax advisers as to the consequences of
these and other state and local tax rules affecting investment in
Daily Cash Reserves.
DESCRIPTION OF SHARES
The Fund's Declaration of Trust permits its Board of
Trustees to authorize the issuance of an unlimited number of full
and fractional shares of beneficial interest (without par value),
which may be divided into such separate series as the Trustees
may establish. The Fund currently has four series of shares: the
Daily Cash Reserves Series, the Tax-Free Money Market Series, the
High-Yield Municipal Bond Series and the Fundamental U.S.
Government Strategic Income Fund Series. The Trustees may
establish additional series of shares, and may divide or combine
the shares into a greater or lesser number of shares without
thereby changing the proportionate beneficial interests in the
Fund. Each share represents an equal proportionate interest
in the Fund with each other share. The shares of any additional
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series would participate equally in the earnings, dividends and
assets of the particular series, and would be entitled to vote
separately to approve investment advisory agreements or
changes in investment restrictions, but shareholders of all
series would vote together in the election and selection of
Trustees and accountants. Upon liquidation of the Fund, the
Fund's shareholders are entitled to share pro rata in the Fund's
net assets available for distribution to shareholders.
Shareholders are entitled to one vote for each share
held and may vote in the election of Trustees and on other
matters submitted to meetings of shareholders. Although Trustees
are not elected annually by the shareholders, shareholders have
under certain circumstances the right to remove one or more
Trustees. No material amendment may be made to the Fund's
Declaration of Trust without the affirmative vote of a majority
of its shares. Shares have no preemptive or conversion rights.
Shares are fully paid and non-assessable, except as set forth
below. See "Certain Liabilities."
CERTAIN LIABILITIES
As a Massachusetts business trust, the Fund's
operations are governed by its Declaration of Trust dated March
19, 1987, a copy of which is on file with the office of the
Secretary of The Commonwealth of Massachusetts. Theoretically,
shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable for the obligations of
the trust. However, the Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of
the Fund or any series of the Fund and requires that notice of
such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Fund or
its Trustees. Moreover, the Declaration of Trust provides for
the indemnification out of Fund property of any shareholders held
personally liable for any obligations of the Fund or any series
of the Fund. The Declaration of Trust also provides that the
Fund shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the Fund and
satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss beyond his or her investment because of
shareholder liability would be limited to circumstances in which
the Fund itself will be unable to meet its obligations. In light
of the nature of the Fund's business, the possibility of the
Fund's liabilities exceeding its assets, and therefore a
shareholder's risk of personal liability, is extremely remote.
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The Declaration of Trust further provides that the Fund
shall indemnify each of its Trustees and officers against
liabilities and expenses reasonably incurred by them, in
connection with, or arising out of, any action, suit or
proceeding, threatened against or otherwise involving such
Trustee or officer, directly or indirectly, by reason of being or
having been a Trustee or officer of the Fund. The Declaration
of Trust does not authorize the Fund to indemnify any Trustee or
officer against any liability to which he or she would otherwise
be subject by reason of or for willful misfeasance, bad faith,
gross negligence or reckless disregard of such person's duties.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of Daily Cash Reserves is
determined as of the close of trading (currently 4:00 P.M., New
York time) on each business day of the Fund. The net asset value
per share of Daily Cash Reserves is also determined on any
other day in which the level of trading in its portfolio
securities is sufficiently high that the current net asset value
per share might be materially affected by changes in the value of
its portfolio securities. On any day in which no purchase orders
for the shares of Daily Cash Reserves become effective and no
shares are tendered for redemption, the net asset value per share
is not determined.
Except as set forth in the following paragraph, Daily
Cash Reserves' portfolio instruments are valued on each business
day on the basis of amortized cost. This technique involves
valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the
market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than
the price the Fund would receive if it sold the instrument.
During periods of declining interest rates, the daily yield on
shares of Daily Cash Reserves computed as described above may
tend to be higher than a like computation made by a fund with
identical investments utilizing a method of valuation based upon
market prices and estimates of market prices for all of its
portfolio instruments. Thus, if the use of amortized cost by
Daily Cash Reserves resulted in a lower aggregate portfolio value
on a particular day, a prospective investor in Daily Cash
Reserves would be able to obtain a somewhat higher yield than
would result from investment in a fund utilizing solely market
values and existing investors in Daily Cash Reserves would
receive less investment income. The converse would apply in a
period of rising interest rates.
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Standby commitments will be valued at zero in
determining net asset value. "When-issued" securities will be
valued at the value of the security at the time
the commitment to purchase is entered into.
The valuation of Daily Cash Reserves' portfolio
instruments based upon their amortized cost and the concomitant
maintenance of Daily Cash Reserves' per share net asset value of
$1.00 is permitted in accordance with Rule 2a-7 under the
1940 Act, pursuant to which Daily Cash Reserves must adhere to
certain conditions. Daily Cash Reserves must maintain a
dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of 13
months or less and invest only in securities determined by the
Trustees to present minimal credit risks. (See the Prospectus
for additional information). The maturities of variable rate
demand instruments held in Daily Cash Reserves' portfolio will be
deemed to be the longer of the demand period, or the period
remaining until the next interest rate adjustment, although
stated maturities may be in excess of one year. The Trustees
must establish procedures designed to stabilize, to the extent
reasonably possible, Daily Cash Reserves' price per share as
computed for the purpose of sales and redemptions at a single
value. It is the intention of Daily Cash Reserves to maintain
a per-share net asset value of $1.00 but there can be no
assurance of this. Such procedures will include review of Daily
Cash Reserves' portfolio holdings by the Trustees, at such
intervals as they may deem appropriate, to determine whether
Daily Cash Reserves' net asset value calculated by using
available market quotations deviates from $1.00 per share and, if
so, whether such deviation may result in material dilution or is
otherwise unfair to existing shareholders. In the event the
Trustees determine that such a deviation exists, they have agreed
to take such corrective action as they regard as necessary and
appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten
average portfolio maturity; withholding dividends; redeeming
shares in kind; or establishing a net asset value per share by
using available market quotations.
CALCULATION OF YIELD
Daily Cash Reserves' yield quotations as they may
appear in the Prospectus, this Statement of Additional
Information or in advertising and sales material are calculated
by a standard method prescribed by the Securities and
Exchange Commission. Under this method, the yield quotation is
based on a hypothetical account having a balance of exactly one
share at the beginning of a seven-day period.
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The yield quotation is computed as follows: The net
change, exclusive of capital changes (i.e., realized gains and
losses from the sale of securities and unrealized appreciation
and depreciation), in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the
base period is determined by subtracting a hypothetical charge
reflecting expense deductions from the hypothetical account, and
dividing the net change in value by the value of the
share at the beginning of the base period. This base period
return is then multiplied by 365/7 with the resulting yield
figure carried to the nearest 100th of 1%. The determination of
net change in account value reflects the value of additional
shares purchased with dividends from the original share,
dividends declared on both the original share and any such
additional shares, and all fees that are charged to Daily
Cash Reserves, in proportion to the length of the base period and
Daily Cash Reserves' average account size (with respect to any
fees that vary with the size of an account).
Daily Cash Reserves also may advertise a quotation of
effective yield. Effective yield is computed by compounding the
unannualized base period return determined as in the preceding
paragraph by adding 1 to the base period return, raising the sum
to a power equal to 365 divided by 7, and subtracting one from
the result, according to the following formula:
Effective Yield = [(Base Period Return + 1) 365/7] - 1.
PAGE
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APPENDIX
The following is a description of the two highest
commercial paper, bond and other short- and long-term categories
assigned by Standard & Poor's Corporation ("S&P"), Moody's
Investors Service, Inc. ("Moody's"), Fitch Investors Service,
Inc. ("Fitch"), Duff and Phelps ("Duff"), and IBCA Inc. and IBCA
Limited ("IBCA"):
Commercial Paper and Short-Tenn Ratings
The designation A-1 by S&P indicates that the degree of
safety regarding timely payment is either overwhelming or very
strong. Those issues determined to possess overwhelming safety
characteristics are denoted with a plus sign (+) designation.
Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as
for issues designated A-1.
The rating Prime-1 (P-1) is the highest commercial
paper rating assigned by Moody's. Issuers of P-1 paper must have
a superior capacity for repayment of short-term promissory
obligations, and ordinarily will be evidenced by leading market
positions in well-established industries, high rates of return of
funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad
margins in earnings coverage of fixed financial charges and high
internal cash generation, and well established access to a range
of financial markets and assured sources of alternate liquidity.
Issues rated Prime-2 (P-2) have a strong capacity for repayment
of short-term promissory obligations. This ordinarily will be
evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound,
will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
The rating Fitch-1 (Highest Grade) is the highest
commercial rating assigned by Fitch. Paper rated Fitch-1 is
regarded as having the strongest degree of assurance for timely
payment. The rating Fitch-2 (Very Good Grade) is the second
highest commercial paper rating assigned by Fitch which reflects
an assurance of timely payment only slightly less in degree than
the strongest issues.
The rating Duff-1 is the highest commercial paper
rating assigned by Duff. Paper rated Duff-1 is regarded as
having very high certainty of timely payment with excellent
liquidity factors which are supported by ample asset protection.
Risk factors are minor. Paper rated Duff-2 is regarded as having
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good certainty of timely payment, good access to capital markets
and sound liquidity factors and company fundamentals. Risk
factors are small.
The designation Al by IBCA indicates that the
obligation is supported by a very strong capacity for timely
repayment. Those obligations rated Al+ are supported by the
highest capacity for timely repayment. Obligations rated A2 are
supported by a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in business,
economic or financial conditions.
Bond and Long-Term Ratings
Bonds rated AAA are considered by S&P to be the highest
grade obligations and possess an extremely strong capacity to pay
principal and interest. Bonds rated AA by S&P are judged by S&P
to have a very strong capacity to pay principal and interest, and
in the majority of instances, differ only in small degrees from
issues rated AAA.
Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are general referred to as "gilt edge." Bonds Rated Aa by
Moody's are judged by Moody's to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than
Aaa bonds because margins of protection may not be as large or
fluctuations of protective elements may be of greater amplitude
or there may be other elements present which make the long-term
risks appear somewhat larger. Moody's applies numerical
modifiers 1, 2 and 3 in the Aa rating category. The modifier 1
indicates a ranking for the security in the higher end of this
rating category, the modifier 2 indicates a mid-range ranking,
and the modifier 3 indicates a ranking in the lower end of the
rating category.
Bonds rated AAA by Fitch are judged by Fitch to be
strictly high grade, broadly marketable, suitable for investment
by trustees and fiduciary institutions and are liable to but
slight market fluctuation other than through changes in the money
rate. The prime feature of an AAA bond is a showing of earnings
several times or many times interest requirements, with such
stability of applicable earnings that safety is beyond reasonable
question whatever changes occur in conditions. Bonds rated AA
by Fitch are judged by Fitch to be of safety virtually beyond
question and are readily salable, whose merits are not unlike
those of the AAA class, but whose margin of safety is less
strikingly broad. The issue may be the obligation of a small
company, strongly secured but influenced as to rating by the
lesser financial power of the enterprise and more local type
market.
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Bonds rated Duff-1 are judged by Duff to be of the
highest credit quality with negligible risk factors; only
slightly more than U.S. Treasury debt. Bonds rated Duff-2, 3 and
4 are judged by Duff to be of high credit quality with strong
protection factors. Risk is modest but may vary slightly from
time to time because of economic conditions.
Obligations rated AAA by IBCA have the lowest
expectation of investment risk. Capacity for timely repayment of
principal and interest is substantial, such that adverse changes
in business, economic or financial conditions are unlikely to
increase investment risk significantly. Obligations for which
there is a very low expectation of investment risk are rated AA
by IBCA. Capacity for timely repayment of principal and interest
is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not very
significantly.
S&P Tax-Exempt Demand Bonds Ratings
S&P assigns "dual" ratings to all long-term debt issues
that have as part of their provisions a demand feature.
The first rating addresses the likelihood of repayment
of principal and interest as due, and the second rating addresses
only the demand feature. The long-term debt rating symbols are
used for bonds to denote the long-term maturity, and the
commercial paper rating symbols are used to denote the put option
(e.g., "AAA/A-1+").
Moody's Tax-Exempt Demand Ratings
Moody's assigns issues which have demand features
(i.e., variable rate demand obligations) a VMIG symbol. This
symbol reflects such characteristics as payment upon periodic
demand rather than fixed maturity, and payment relying on
external liquidity. The VMIG rating is modified by the numbers
1, 2 or 3. VMIG1 represents the best quality in the VMIG category
and VMIG2 represents high quality.
International and U.S. Bank Ratings
An IBCA bank rating represents IBCA's current
assessment of the strength of the bank and whether such bank
would receive support should it experience difficulties. In its
assessment of a bank, IBCA uses a dual rating system comprised of
Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate
ratings discussed above. Legal Ratings, which range in gradation
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from 1 through 5, address the question of whether the bank would
receive support provided by central banks or shareholders if it
experienced difficulties, and such ratings are considered by IBCA
to be a prime factor in its assessment of credit risk.
Individual Ratings, which range in gradations from A through E,
represent IBCA's assessment of a bank's economic merits and
address the question of how the bank would be viewed if it were
entirely independent and could not rely on support from state
authorities or its owners.
<PAGE>
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements for each Fund:
In Part A: None.
In Part B: None.
(b) Exhibits:
(1) Declaration of Trust
(2) By-Laws of Registrant*
(3) None
(4) None
(5) Form of Management Agreement*
(6) Form of Distribution Agreement*
(7) None
(8) Form of Custody Agreement*
(9) None
(10) (a) Opinion of Counsel*
(b) Consent of Counsel
(c) Not Applicable
(11) Consent of McGladrey & Pullen
(12) None
(13) Form of Stock Purchase Agreement*
(14) None
(15) Form of Marketing Plan pursuant to Rule
12b-1*
(16) Schedule for Computation of Performance
Quotations*
Item 25. Persons Controlled by or under Common Control with
Registrant
None.
Item 26. Number of Holders of securities
The following sets forth the number of record holders
of the Registrant as of May 30, 1995:
Title of Class Number of Record Holders
Daily Cash Reserves Series 0
___________________
* Previously filed.
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Item 27. Indemnification
Except pursuant to the Declaration of Trust, dated
March 13, 1987, establishing the Registrant as a Trust under
Massachusetts law, there is no contract, arrangement or statute
under which any Trustee, director, officer, underwriter,
distributor or affiliated person of the Registrant is insured
or indemnified. The Declaration of Trust provides that no
Trustee or officer will be indemnified against any liability
to which the Registrant would otherwise be subject by reason
of or for willful misfeasance, bad faith, gross negligence or
reckless disregard of such person's duties. See the
Registrant's undertaking with respect to indemnification in
Item 32 below.
Item 28. Business and other Connections of Investment Advisor
All of the information required by this item is set
forth in the Forms ADV, as amended, of Fundamental Portfolio
Advisors, Inc. The following sections of such Forms ADV are
incorporated herein by reference:
(a) Items 1 and 2 of Part 2; and
(b) Item 6, Business Background, of each Schedule D.
Item 29. Principal Underwriters
(a) FSC is the distributor of shares of the
Fundamental U.S. Government Strategic Income
Fund Series, the High-Yield Municipal Bond
Series and the Tax-Free Money Market Series
of the Registrant, a Massachusetts business
trust, under distribution contracts entered
into pursuant to a separate 12b-1 Plan with
each such series. FSC also performs
distribution services for the New York Muni
Fund, Inc., a Maryland corporation, and The
California Muni Fund, a Massachusetts
business trust.
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(b)
Positions and Positions and
Offices with Offices with
Name* Distributor Registrant
Thomas W. Buckingham Director and None
President
Vincent J. Malanga Director, Executive Trustee,
Vice President and President and
Secretary Treasurer
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940
and the rules promulgated thereunder are in the possession of
Registrant, 90 Washington Street, 19th Floor, New York, N.Y. and
United States Trust Company of New York, 114 West 47th Street,
New York, N.Y., the Registrant's Custodian.
Item 31. Management Services
The Registrant is a party to one contract for each of
the Fundamental U.S. Government Strategic Income Fund Series, the
Tax-Free Money Market Series and the High-Yield Municipal Bond
Series, each as described in the Prospectus and the Statement of
Additional Information of each series of the Registrant. Under
such contracts, each series of the Registrant receives management
and advisory services from FPA.
Item 32. Undertakings
The Registrant undertakes to limit indemnification of
officers and Trustees as follows:
Indemnification
Section 1. The Registrant shall indemnify each of its
Trustees and officers (including persons who serve at the
Registrant's request as directors, trustees or officers of
another organization in which the Registrant has any interest as
a shareholder, creditor or otherwise) (hereinafter referred to as
a "Covered Person") against all liabilities and expenses,
including but not limited to amounts paid in satisfaction of
_____________
*Address of each such person listed above is 90 Washington
Street, 19th Floor, New York, New York 10006
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judgments, in compromise or as fines and penalties, and counsel
fees reasonably incurred by any Covered Person in connection with
the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person
may be or may have been involved as a party or been threatened,
while in office or thereafter, by reason of being or having been
such a Covered Person except with respect to any matter as to
which such Covered Person shall have been finally adjudicated in
any such action, suit or other proceeding (a) not to have acted
in good faith in the reasonable belief that such Covered Persons
action was in the best interest of the Registrant or (b) to be
liable to the Registrant or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's
office ("disabling conduct"). Expenses, including counsel fees
so incurred by any such Covered Person (but excluding amounts
paid in satisfaction of judgments, in compliance or as fines or
penalties) shall be paid from time to time by the Registrant in
advance of the final disposition of any such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
Covered Person to repay amounts so paid to the Registrant if it
is ultimately determined that indemnification of such expenses is
not authorized under Sections 1, 2 and 3 hereof, provided,
however, that either (a) such Covered Person shall have provided
appropriate security of such undertaking, (b) the Registrant
shall be insured against losses arising from any such advance
payments or (c) either a majority of the disinterested Trustees
acting on the matter (provided that a majority of the
disinterested Trustees then in office act on the matter), or
independent legal counsel in a written opinion shall have
determined, based upon a review of readily available facts (as
opposed to a full trial type inquiry) that there is reason to
believe that such Covered Person will be found entitled to
indemnification under Sections 1 and 2 hereof.
Compromise Payment
Section 2. Its to any matter disposed of (whether by a
compromise payment, pursuant to a consent decree or otherwise)
without an adjudication to a court, or by any body before which
the proceeding was brought, that such Covered Person either (a)
did not act in good faith in the reasonable belief that his or
her action was in the best interests of the Registrant or (b) is
liable to the Registrant or its shareholders by reason of
disabling conduct, indemnification shall be proved if (a) it is
approved as in the best interests of the Registrant, after notice
that it involves such indemnification, by at least a majority of
the disinterested Trustees acting on the matter (provided that a
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<PAGE>
majority of the disinterested Trustees then in office act on the
matter) upon a determination, based upon a review of readily
available facts (as opposed to a full trial type inquiry) that
such Covered Person acted in good faith in the reasonable belief
that his or her action was in the best interests of the
Registrant and is not liable to the Registrant or its
shareholders Iq reasons of disabling conduct, or (b) there has
been obtained an opinion in writing of independent legal counsel,
based upon a review of readily available facts (as opposed to a
full trial type inquiry) to the effect that such Covered Person
appears to have acted in good faith in the reasonable belief that
his or her action was in the best interests of the Registrant and
that such indemnification would not protect such Covered Person
against any liability to the Registrant to which he or she would
otherwise be subject by reason of disabling conduct. Any
approval pursuant to this Section shall not prevent the recovery
from any Covered Person of any amount paid to such Covered Person
in accordance with this Section as indemnification if such
Covered Person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in the
reasonable belief that such Covered Person's action was in the
best interests of the Registrant or to have been liable to the
Registrant or its shareholders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct or such Covered Person's office.
Indemnification Not Exclusive
Section 3. The right of indemnification hereby provided
shall not be exclusive of or affect any other rights to which
such Covered Person may be entitled. As used in Sections 1, 2
and 3 hereof, the term "Covered Persons" shall include such
person's heirs, executors and administrators, and a
"disinterested Trustee" is a Trustee who is not an "interested
person" of the Registrant as defined in Section 2(a)(19) of the
1940 Act, as amended (or who has been exempt from being an
"interested person" by any rule, regulation or order of the
Commission and against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the
same or similar grounds is then or has been pending). Nothing
contained in Sections 1, 2 and 3 hereof shall affect any rights
to indemnification to which personnel of the Registrant, other
than Trustees or officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Registrant
to purchase and maintain liability insurance on behalf of any
such person; provided, however, that the Registrant shall not
purchase or maintain any such liability insurance in
contravention of applicable law, including without limitation the
1940 Act, and the rules and regulations thereunder.
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(b) Registrant undertakes to file a post-effective
amendment for Daily Cash Reserves Series, using financial
statements which need not be certified, within four to six months
from the effective date of this Registration Statement or the
initial public offering thereof, whichever is later.
(c) Registrant undertakes to furnish to each person to
whom a prospectus relating to its Fundamental U.S. Government
Strategic Income Fund Series, Tax-Free Money Market Series or
High-Yield Municipal Bond Series is delivered, a copy of the
Fund's latest annual report to shareholders, upon request and
without charge.
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SIGNATURES
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, the Registrant has
duly caused this Amendment to its Registration Statement to be
signed on its behalf by the Undersigned, thereunto duly
authorized, in the City of New York and State of New York, on
the 13th day of June, 1995.
Registrant: FUNDAMENTAL FIXED INCOME FUND
By: /s/ Vincent J. Malanga
Vincent J. Malanga, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of
1933, this Registration Statement or Amendment has been signed
below by the following persons in the capacities and on the dates
indicated.
SIGNATURES TITLE DATE
/s/ Vincent J. Malanga Trustee, Principal June 13, 1995
Vincent J. Malanga Executive Officer
and Principal
Financial and
Accounting Officer
* James C. Armstrong Trustee June 13, 1995
James C. Armstrong
* James A. Bowers Trustee June 13, 1995
James A. Bowers
* Stanley M. Brandt Trustee June 13, 1995
Stanley M. Brandt
Clark L. Bullock Trustee
* L. Greg Ferrone Trustee June 13, 1995
L. Gregg Ferrone
*By: /s/ Jules Buchwald
Jules Buchwald, Attorney-in-Fact,
pursuant to powers of attorney
dated April 24, 1991, previously
filed with the Securities and
Exchange Commission
<PAGE>
June 15, 1995
Fundamental Fixed Income Fund
90 Washington Street
New York, New York 10006
Re: Fundamental Fixed Income Fund
Registration No. 33-12738
Gentlemen:
We hereby consent to the reference to our firm as
counsel in Post-Effective Amendment No. 15 to Registration
Statement No. 33-12738.
Very truly yours,
/s/ Kramer, Levin, Naftalis, Nessen,
Kamin & Frankel
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm in the Statement
of Additional Information under the caption "Custodian and
Independent Accountants" in Post-Effective Amendment No. 16 to
the Registration Statement on Form N-1A, File No. 33-1278 as
filed with the Securities and Exchange Commission.
/s/ McGladrey & Pullen, LLP
New York, New York
June 19, 1995
<PAGE>
