-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MkaZ33tUC6PgK2LKJ3l/xdL0A85W946LZx4zv9oJ3wPZZDXucGjKO8NhAMHywvor xO38OZy95fH/vluOxe4UsQ== 0000930413-98-000888.txt : 19980918 0000930413-98-000888.hdr.sgml : 19980918 ACCESSION NUMBER: 0000930413-98-000888 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980917 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIFORNIA MUNI FUND CENTRAL INDEX KEY: 0000715756 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 136828244 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-03674 FILM NUMBER: 98710955 BUSINESS ADDRESS: STREET 1: 90 WASHINGTON ST - 19TH FL CITY: NEW YORK STATE: NY ZIP: 10006 BUSINESS PHONE: 2126353000 MAIL ADDRESS: STREET 1: 90 WASHINGTON ST STREET 2: 19TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10006 N-30D 1 SEMI-ANNUAL REPORT (left column) NEW YORK MUNI FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- ASSETS Investment in securities at value (Note 4) (cost $115,673,095)......... $109,253,516 Cash............................... 2,738,187 Receivables: Interest............................. 2,535,099 Fund shares sold..................... 8,852,366 ------------ Total assets....................... 123,379,168 ------------ LIABILITIES Payables: Fund shares redeemed.................. 61,499 Dividend declared..................... 36,115 Due to advisor........................ 98,337 Accrued expenses...................... 578,622 ------------ Total liabilities................... 774,573 ------------ NET ASSETS consisting of: Distributions in excess of net investment income......... $ (27,444) Accumulated net realized loss (22,988,897) Unrealized depreciation of securities ............... (6,419,579) Paid-in-capital applicable to 148,441,499 shares of $.01 par value capital stock.... 152,040,515 ----------- $122,604,595 ============ NET ASSET VALUE PER SHARE................. $.83 ==== (right column) STATEMENT OF OPERATIONS Six Months Ended June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME Interest income........................... $ 3,266,313 EXPENSES (Notes 2 and 3) Management fee................. $261,782 Custodian and accounting fees.. 67,128 Transfer agent fees............ 117,263 Professional fees.............. 220,099 Directors' fees................ 10,823 Printing and postage........... 50,459 Interest....................... 518,778 Distribution expenses.......... 183,315 Operating expenses on defaulted bonds.............. 60,758 Other.......................... 93,297 --------- 1,583,702 Expenses waived................ (51,200) --------- Total expenses........................ 1,532,502 ---------- Net investment income................. 1,733,811 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain on investments.1,295,863 Net unrealized depreciation of investments..................(1,745,720) --------- Net gain (loss) on investments .......... (449,857) ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS........................... $1,283,954 ========== (double column) STATEMENTS OF CHANGES IN NET ASSETS - -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended June 30, 1998 December 31, (Unaudited) 1997 ------------ ------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income...................................................... $ 1,733,811 $ 2,899,806 Net realized gain on investments........................................... 1,295,863 (2,367,322) Unrealized appreciation (depreciation) on investments ..................... (1,745,720) 5,608,133 ------------ ------------ Net (decrease) increase in net assets from operations................ 1,283,954 6,140,617 DISTRIBUTIONS: Distributions from investment income....................................... (1,733,811) (2,899,806) Distributions in excess of net investment income........................... -- (27,444) Return of capital distribution............................................. -- (551,666) Distributions from net realized gain from investments...................... -- (24,556) CAPITAL SHARE TRANSACTIONS (Note 5)........................................ (11,540,955) (64,787,531) ------------ ------------ Total decrease....................................................... (11,990,812) (62,150,386) NET ASSETS: Beginning of period........................................................ 134,595,407 196,745,793 ------------ ------------ End of period.............................................................. $122,604,595 $134,595,407 ============ ============
See Notes to Financial Statements. 1 NEW YORK MUNI FUND STATEMENT OF CASH FLOWS Six Months Ended June 30, 1998 (Unaudited) - ----------------------------------------------------------------------------------------------------------------------------------- CASH PROVIDED (USED) BY FINANCING ACTIVITIES: Sales of capital shares.................................................... $945,287,186 Repurchase of capital shares............................................... (957,884,541) ------------ Cash provided by capital share transactions ............................... (12,597,355) Cash provided by borrowings................................................ (38,177,582) Distributions paid in cash ................................................ (677,411) ($51,452,348) ------------ ----------- CASH (USED) PROVIDEDBYOPERATIONS: Purchases of investments................................................... (250,545,693) Net proceeds from short-term investments................................... (4,000,000) Proceeds from sales of investments......................................... 258,752,820 ------------ 4,207,127 ------------ Increase in deposit at brokers and custodian for short sales............... 0 Net investment income...................................................... 1,733,811 Net change in receivables/payables related to operations................... 48,249,597 ------------ 49,983,408 54,190,535 ------------ ----------- Net Increase in Cash....................................................... 2,738,187 Cash, Beginning of Period.................................................. 0 ----------- Cash, End of Period........................................................ $ 2,738,187
See Notes to Financial Statements. 2 NEW YORK MUNI FUND STATEMENT OF INVESTMENTS June 30, 1998 (Unaudited) - -----------------------------------------------------------------------------------------------------------------------------------
Principal Amount Issue Type Rating Value -------- ----- ---- ----- ----- $ 1,000,000 Amherst NY Industrial Development Agency Lease Rev, SurfaceRink Complex, LOC Keyhawk, 5.65%, 10/01/22................................................... FCLT A $ 1,025,876 5,200,000 First Albany Corporation Municipal Trust Certificate Series 98-2, IFRN*, AMBAC, 6.60%, 07/01/28.................................................. LRIB NR 4,966,607 (Trust Certificates relating to PR Comwlth Ser B, AMBAC, 5.00%, 07/01/28) 8,650,000 First Albany Corporation Municipal Trust Certificate Series 98-1, IFRN*, AMBAC, 6.87%, 07/01/24.................................................. LRIB NR 8,541,271 (Trust Certificates relating to NY MTA Ser B, AMBAC, 5.13%, 07/01/24) 500,000 Long Island Power Authority, New York Electrical Systems Revenue Bond, Series A, 5.25%, 12/01/26...................................................... FCLT A 494,878 5,500,000 Long Island Power Authority, New York Electrical Systems Revenue Bond, Series A, 5.50%, 12/01/29...................................................... FCLT A 5,567,908 5,955,000 MTA, NY Commuter Facilities Revenue Bond, Series A, 5.25%, 07/01/28............... FCLT A- 5,884,052 300,000 MTA, NY Transportation Facilities Rev SVC Contract, Series 8, 5.375%, 07/01/21 ... FCLT A- 302,231 14,600,000x New York NY Inverse Floating Rate Notes*, 3.48%, 08/15/17......................... INLT A- 14,618,104 2,100,000 New York NY GO, Series F-4, Credit Facility with Landesbank Hessen, 3.35%, 02/15/20................................................................ FCSI Aaa 2,100,000 500,000 New York NY Series B, 5.25%, 08/01/15............................................. FCLT A- 502,481 4,000,000 New York City, MWFA, Water &Sewer Systems Rev Floating Rate Tr Rcpts, Series 29, 3.70%, 06/15/30..................................................... LRIB Aaa 4,000,000 6,700,000 New York City, MWFA, Water &Sewer Systems Rev Residual Int Tr Rcpts, Series 29, FGIC Insured, 6.89%, 06/15/30....................................... LRIB Aaa 6,498,804 6,000,000 New York City Transitional Finance Authority Revenue Bond Future Tax Secured, Ser B, 4.75%, 11/15/18......................................................... LRIB Aa 5,764,871 3,970,000 New York State, DAR, City University Systems Series C, 5.00%, 07/01/17 ........... FCLT Baa1 3,851,558 850,000 New York State, DAR, City University Series F, FGIC TCRS Insured, 5.00%, 07/01/20................................................................ FCLT Aaa 833,329 2,000,000 New York State, DAR, Mental Health Series E, AMBAC, 5.25%, 02/15/18............... FCLT Aaa 2,014,456 1,950,000 New York State, DAR, St. Vincent DePaul Residence, LOC Allied Banks PLC, 5.30%, 07/01/18................................................................ FCLT Aa3 1,977,686 1,900,000 New York State, DAR, TRS 27, 3.70%, 07/01/24, City University, Floating Rate Trust Receipts 27, MBIA Insured, Liquidity The Bank of New York...................... LRIB Aaa 1,900,000 4,500,000 New York State, DAR, City University System Residual Int Tr Recpts 27, MBIA Insured, Liquidity The Bank of New York, 8.79%, 07/01/24.................. LRIB Aaa 4,939,006 13,460,000 New York State, DAR, City University System Residual Int Tr Recpts 28, AMBAC Insured, Liquidity The Bank of New York, 8.16%, 07/01/25................. LRIB Aaa 14,179,543 500,000 New York State, DAR, Eger Health Care Center, FHA 232, 5.10%, 02/01/28............ FCLT Aaa 489,509 2,000,000 New York State, DAR, FHA, Highland Hospital Rochester Series A, MBIA Insured, 5.45%, 08/01/37.................................................. FCLT Aaa 2,034,292 9,805,000x# Niagara County, NY, IDA, Falls Street Faire Project AMT, 10.00%, 09/01/06 (see Note 4 to Financial Statements)........................................... FCSI NR 3,509,700 5,870,000x# Niagara Falls, NY, URA, Old Falls Street Improvement Project, 11.00%, 05/01/99 (see Note 4 to Financial Statements)........................................... FCSI NR 2,101,167
3 NEW YORK MUNI FUND STATEMENT OF INVESTMENTS (continued) June 30, 1998 (Unaudited) - ---------------------------------------------------------------------------------------------------------------------------------
Principal Amount Issue Type Rating Value -------- ----- ---- ----- ----- $ 1,370,000 Otsego County, NY Industrial Development Agency, Civic Facility Revenue, MBIA, Bassett Healthcare Project Series A, 5.35%, 11/01/20........................... FCLT Aaa $ 1,389,684 1,280,000 Otsego County, NY Industrial Development Agency, Civic Facility Revenue, MBIA, Bassett Healthcare Project Series B, 5.38%, 11/01/20........................... FCLT Aaa 1,294,881 6,500,000 Puerto Rico Commonwealth GO, Capital Appreciation, Public Improvement, 07/01/16....................................................................... FCLT A 2,676,439 3,000,000 Puerto Rico Commonwealth GO, Capital Appreciation, Public Improvement, 4.50%, 07/01/23................................................................ FCLT A 2,719,719 3,000,000 Puerto Rico Electric Power Authority Revenue Bond, MBIA, 5.25%, 07/01/16.......... FCLT AAA 3,075,248 ------------ Total Investments (Cost $115,673,095)**................... $109,253,516 ============ * Inverse Floating Rate Notes (IFRN) are instruments whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index. Rates shown are at June 30, 1998. ** Cost is approximately the same for income tax purposes. # The value of these non-income producing securities has been estimated by persons designated by the Fund's Board of Directors using methods the Director's believe reflect fair value. See Note 4 to the financial statements. x The Fund, or its affiliates, own 100% of the security. See Note 4 to the financial statements. Legend oType FCLT --Fixed Coupon Long Term FCSI --Fixed Coupon Short or Intermediate Term LRIB --Residual Interest Bond Long Term INLT --Indexed Inverse Floating Rate Bond Long Term Ratings If a security has a split rating the highest applicable rating is used, including published ratings on identical credits for individual ecurities not individually rated. NR--Not Rated ooolssue AMBAC American Municipal Bond Assurance Corporation AMT Alternative Minimum Tax CAB Capital Appreciation Bond CFR Civic Facility Revenue COP Certificates of Participation DAR Dormitory Authority Revenue ECF Educational Construction Fund EFC Environmental Facilities Corp. ETM Escrowed to Maturity FGIC Financial Guaranty Insurance Corporation FHA Federal Housing Administration FSA Financial Security Association GO General Obligation HDA Housing Development Agency HFA Housing Finance Agency HIC Hospital Improvement Corporation IDA Industrial Development Authority ITEMECF Industrial, Tourist, Education, Medical and Environmental Control Facilities LOC Letter of Credit MBIA Municipal Bond Insurance Assurance Corp. MCF Medical Care Facilities MCFFA Medical Care Facilities Finance Agency MTA Metropolitan Transit Authority MWFA Municipal Water Finance Authority NHRB Nursing Home Revenue Bond RB Revenue Bond RDA Research and Development Authority SWMA Solid Waste Management Authority URA Urban Renewal Authority
See Notes to Financial Statements. 4 NEW YORK MUNI FUND NOTES TO FINANCIAL STATEMENTS June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant Accounting Policies New York Muni Fund (the Fund) is a series of Fundamental Funds, Inc. (the "Company"). The Company is an open-end management investment company registered under the Investment Company Act of 1940. The Fund seeks to provide a high level of income that is excluded from gross income for Federal income tax purposes and exempt from New York State and New York City personal income taxes. The Fund intends to achieve its objective by investing substantially all of its total assets in municipal obligations of New York State, its political subdivisions and its duly constituted authorities and corporations. The Fund employs leverage in attempting to achieve this objective. The following is a summary of significant accounting policies followed in the preparation of its financial statements: Valuation of Securities--The Fund's portfolio securities are valued on the basis of prices provided by an independent pricing service when, in the opinion of persons designated by the Fund's directors, such prices are believed to reflect the fair market value of such securities. Prices of non-exchange traded portfolio securities provided by independent pricing services are generally determined without regard to bid or last sale prices but take into account institutional size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. Securities traded or dealt in upon a securities exchange and not subject to restrictions against resale as well as options and futures contracts listed for trading on a securities exchange or board of trade are valued at the last quoted sales price, or, in the absence of a sale, at the mean of the last bid and asked prices. Options not listed for trading on a securities exchange or board of trade for which over-the-counter market quotations are readily available are valued at the mean of the current bid and asked prices. Money market and short-term debt instruments with a remaining maturity of 60 days or less will be valued on an amortized cost basis. Municipal daily or weekly variable rate demand instruments will be priced at par value plus accrued interest. Securities not priced in a manner described above and other assets are valued by persons designated by the Fund's directors using methods which the directors believe reflect fair value. Futures Contracts and Options Written on Future Contracts--Initial margin deposits with respect to these contracts are maintained by the Fund's custodian in segregated asset accounts. Subsequent changes in the daily valuation of open contracts are recognized as unrealized gains or losses. Variation margin payments are made or received as daily appreciation or depreciation in the value of these contracts occurs. Realized gains or losses are recorded when a contract is closed. Federal Income Taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to "regulated investment companies" and to distribute all of its taxable and tax exempt income to its shareholders. Therefore, no provision for federal income tax is required. Distributions--The Fund declares dividends daily from its net investment income and pays such dividends on the last business day of each month. Distributions of net capital gains, if any, realized on sales of investments are made annually, as declared by the Fund's Board of Directors. Dividends are reinvested at the net asset value unless shareholders request payment in cash. General--Securities transactions are accounted for on a trade date basis. Interest income is accrued as earned. Premiums and original issue discount on securities purchased are amortized over the life of the respective securities. Realized gains and losses from the sale of securities are recorded on an identified cost basis. Net operating expenses incurred on properties collateralizing defaulted bonds are charged to operating expenses as incurred. Costs incurred to restructure defaulted bonds are charged to realized loss as incurred. Accounting Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. 5 NEW YORK MUNI FUND NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- 2. Investment Advisory Fees and Other Transactions with Affiliates Management Agreement The Series had a Management Agreement with Fundamental Portfolio Advisors ("FPA") until May 31, 1998. Effective June 1, 1998, the Board of Directors terminated the agreement with FPA, and selected Tocqueville Asset Management L.P. ("TAM") as interim manager until a permanent manager is selected. Pursuant to the agreement the investment adviser to the Series is responsible for the overall management of the business affairs and assets of the Series subject to the authority of the Fund's Board of Directors. In consideration for the services provided under the agreement, the Series will pay an annual management fee in an amount equal to .50% of the Series' average daily net assets up to $100 million, and decreasing by .02% of each $100 million increase in net assets down to 0.4% of net assets in excess of $500 million. During its tenure as manager, FPA waived fees and reimbursed expenses of $51,200 for the five month period ended May 31, 1998. TAM earned fees of $49,810 for the one month ended June 30, 1998. Total management fees for the six months ended June 30, 1998 are set forth in the Statement of Operations. Plan of Distribution The Series has adopted a Distribution and Marketing Plan, pursuant to Rule 12b-1, promulgated under the Investment Company Act of 1940, under which the Series paid Fundamental Shareholder Services, Inc. ("FSC"), an affiliate of FPA, the former manager, a fee which accrued daily and paid monthly at an annual rate of .25% of the Series' average daily net assets. Amounts paid under the plan were to compensate FSC for the services it provided and the expenses it bore in distributing the Series' shares to investors. On June 1, 1998 the Board of Directors ceased authorizing payments to be paid pursuant to the plan. The amount incurred by the Series pursuant to the agreement for the six months ended June 30, 1998 is set forth in the Statement of Operations. Regulatory Proceedings Against The Former Manager And Other Affiliates On September 30, 1997, the Securities &Exchange Commission announced that it instituted public administrative and cease-and-desist proceedings against FPA, the former portfolio manager of the Fund, the former president of FPA and FSC, the Series' distributor until May 31, 1998. The proceeding arises for the alleged failure of the Series to disclose the risks of the Series portfolio strategy, and of FPA's failure to disclose its soft dollar arrangements to the Fund's Board of Directors. On July 7, 1998, FPA's former president settled the administrative proceeding instituted by the Securities & Exchange Commission. Without admitting to or denying the allegations made pursuant to the administrative proceeding, FPA's former president consented to a fine of $25,000 and a bar from the industry for a period of one year. A hearing has been scheduled with respect to the other parties named in the proceedings with an administrative law judge to determine whether the allegations are true, and if so, what remedial action, if any, is appropriate. On February 19, 1998 FSC and two of its executives, without admitting or denying guilt entered into an agreement with the National Association of Securities Dealers, Inc. ("NASD") whereby they accepted fines totaling $125,000 and other stipulated sanctions as well as a result of the NASD's findings that they had distributed advertising materials relating to the Series which violated NASD rules governing advertisements. Indemnification Payments to Affiliates FPA and FSC (on behalf of certain of their directors, officers, shareholders, employees and control persons) (the "Indemnitees") received payment during the fiscal year ended December 31, 1997 from the Fund in the amount of $50,230. Upon learning of the payments, the Independent Board Members of the Fund directed that the Indemnitees return all of the payments to the Fund or place them in escrow pending their receipt of an opinion of an independent legal counsel to the effect that the Indemnitees are entitled to receive them. The Articles of Incorporation and contracts that call for indemnification specify that no indemnification shall be provided to a person who shall be found to have engaged in "disabling conduct" as defined by applicable law. The Indemnities have undertaken to reimburse the Fund for any indemnification expenses for which it is determined that they were not entitled to as a result of "disabling conduct" net of any reimbursements already made to the fund in the form of fees forgone or other similar payments. FSC waived fees in the amount of $51,200 for the year ended December 31, 1997. FSC has asserted that they elected to forgo these fees because the Fund was paying legal expenses pursuant to indemnification. The independent Directors instructed FPA to escrow the full amount incurred by the Series of $50,230. In addition the Board of Directors has not authorized the payment of management fees in the amount of $48,528 for services rendered prior to the termination of the management agreement. 6 NEW YORK MUNI FUND NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- 3. Directors' Fees All of the Directors of the Fund are also directors or trustees of two other affiliated mutual funds for which the Manager acts as investment adviser. For services and attendance at Board meetings and meetings of committees which are common to each Fund, each Director who is not affiliated with the Manager is compensated at the rate of $6,500 per quarter pro rated among the funds based on their respective average net assets. The Directors also receive additional compensation for special services as requested by the Board. 4.Complex Securities, Concentrations of Credit Risk, and Investment Transactions Inverse Floating Rate Notes (IFRN): The Fund invests in variable rate securities commonly called "inverse floaters". The interest rates on these securities have an inverse relationship to the interest rate of other securities or the value of an index. Changes in interest rate on the other security or index inversely affect the rate paid on the inverse floater, and the inverse floater's price will be more volatile than that of a fixed-rate bond. Additionally, some of these securities contain a "leverage factor"whereby the interest rate moves inversely by a "factor" to the benchmark rate. For example, the rates on the inverse floating rate note may move inversely at three times the benchmark rate. Certain interest rate movements and other market factors can substantially affect the liquidity of IFRN's. Concentration of Credit Risk and Transactions in Defaulted Bonds: The Fund owned 100% of two Niagara Falls Industrial Development Agency bonds ("IDA Bonds") due to mature on September 1, 2006, and 98.3% of a Niagara Falls New York Urban Renewal Agency 11% bond ("URA Bond") due to mature on May 1, 2009 which are in default. The IDA Bonds are secured by commercial retail and office buildings known as the Falls Street Faire and Falls Street Station Projects ("Projects"). The URA Bond is secured by certain rental payments from the Projects. The Fund, through its investment banker and manager, negotiated the sale of the Falls Street Station project. The net proceeds received on the sale of approximately $2,800,000 were accounted for as a pro rata recovery of principal of each of the bonds. The remaining principal value of the Fall Street Station IDA Bond of approximately $3,887,000 was charged to realized loss on investments. The remaining two securities are being valued under methods approved by the Board of Directors. The aggregate value of these securities is $5,610,867 (35.8% to their aggregate face value of $15,675,000). There is uncertainty as to the timing of events and the subsequent ability of the Projects to generate cash flows sufficient to provide repayment of the bonds. No interest income was accrued on these bonds during the six months ended June 30, 1998. The Fund through its investment banker, engaged a property manager to maintain the Projects on its behalf, and the Fund is paying the net operating expenses of the Project. Net operating expenses related to the Projects for the six months ended June 30, 1998 are disclosed in the statement of operations, and cumulatively from October 6, 1992 to June 30, 1998 totaled approximately $745,387. Additionally, the Fund owns 100% of several securities as indicated in the Statement of Investments. As a result of its ownership position there is no active trading in these securities. Valuations of these securities are provided by a pricing service and are believed by the Manager to reflect fair value. The market value of securities owned 100% by the Fund was approximately $20,229,187 (16% of net assets) at June 30, 1998. Other Investment Transactions: During the six months ended June 30, 1998, purchases and sales of investment securities, other than short-term obligations, were $241,479,852 and $258,868,098, respectively. 7 NEW YORK MUNI FUND NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- As of June 30, 1998 net unrealized depreciation of portfolio securities on a federal income tax basis amounted to $6,419,579 composed of unrealized appreciation of $3,073,454 and unrealized depreciation of $9,493,033. The Fund has capital loss carryforwards available to offset future capital gains as follows: Amount Expiration ------- --------- $18,503,000 December 31, 2002 3,430,000 December 31, 2004 2,214,000 December 31, 2005 ----------- $24,147,000 =========== 5. Capital Stock As of June 30, 1998 there were 500,000,000 shares of $.01 par value capital stock authorized. Transactions in capital stock were as follows:
Six Months Year Ended June 30, 1998 December 31, 1997 -------------------------- -------------------------- Shares Amount Shares Amount ------------- ------------- ------------- -------------- Shares sold......................... 1,134,645,381 $ 945,287,186 2,692,167,470 $2,280,916,160 Shares issued on reinvestment of dividends........................ 1,269,328 1,056,400 3,788,810 3,223,013 Shares redeemed .................... (1,144,309,582) (957,884,541) (2,765,077,644) (2,348,926,704) ------------- ------------- ------------- -------------- Net (decrease) ..................... (8,394,873) $ (11,540,955) (69,121,364) $ (64,787,531) ============= ============= ============= ==============
6.Line of Credit The Fund has line of credit agreements with banks collateralized by cash and portfolio securities. Borrowings under these agreements bear interest linked to the banks' prime rate. The maximum month end and the average borrowings outstanding during the six months ended June 30, 1998 were $35,000,000 and $14,728,177, respectively. 7. Agreement and Plan of Reorganization On July 16, 1997 each of Fundamental's mutual funds (consisting of: New York Muni Fund, The California Muni Fund, Fundamental Fixed Income Fund: Tax Free Money Market Series, High Yield Municipal Bond Series, and Fundamental U.S. Government Strategic Income Fund Series) have adopted, subject to shareholder approval, an Agreement and Plan of Reorganization (the "Plan") under which each fund (the "Fundamental Fund") will transfer all of its assets and liabilities to a newly-created corresponding series of The Tocqueville Trust (the "Tocqueville Fund") in exchange for shares of the Tocqueville Fund. Shareholders of each Fundamental Fund will receive shares of the corresponding Tocqueville Fund equal in value to their shares in the Fundamental Fund. Shareholders will not have to pay a sales load upon receiving shares of the Tocqueville Fund. The corresponding Tocqueville Fund will have investment objectives, polices and restrictions substantially identical to those of the Fundamental Fund. The Board of Trustees of the Tocqueville Funds is comprised of individuals other than those who currently serve as Directors (Trustees) of the Fundamental Funds. Tocqueville Asset Management L.P. is the investment adviser to the Tocqueville Funds. A majority of Fundamental's Board Members determined that the Plan would be in the best interests of shareholders of the Fundamental Funds and recommended that shareholders of each of the Fundamental Funds approve the Plan at a meeting anticipated to be held in the Spring of 1998. 8. Subsequent Event On July 10, 1998 the Board of Directors of the Fund adopted resolutions authorizing the Fund to terminate and abandon the Agreement and Plan of Reorganization adopted by the Board of Directors on July 16, 1997. 8 NEW YORK MUNI FUND NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- 9. Selected Financial Information
Six Months Ended June 30, Years Ended December 31, 1998 ------------------------------------------------ (Unaudited) 1997 1996 1995 1994 1993 ----------- ---- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net Asset Value, Beginning of Period .......................... $0.86 $0.87 $0.98 $0.88 $1.18 $1.21 ---- ---- ---- ---- ---- ---- Income from investment operations: Net investment income ......................................... .013 .021 .035 .035 .056 .065 Net realized and unrealized gains (losses) on investments .............................................. (.030) (.009) (.110) .101 (.290) .082 ---- ---- ---- ---- ---- ---- Total from investment operations ........................ (.017) .012 (.075) .136 (.234) .147 ---- ---- ---- ---- ---- ---- Less Distributions: Dividends from net investment income .......................... (.013) (.019) (.035) (.035) (.056) (.065) Return of capital distributions ............................... - (.003) - - - - Dividends from net realized gains ............................. - - - (.001) (.010) (.112) ---- ---- ---- ---- ---- ---- Total distributions ..................................... (.013) (.022) (.035) (.036) (.066) (.177) ---- ---- ---- ---- ---- ---- Net Asset Value, End of Period ................................ $0.83 $0.86 $0.87 $0.98 $0.88 $1.18 ==== ==== ==== ==== ==== ==== Total Return .................................................. 1.26% 1.46% (7.73%) 15.67% (20.47%) 12.58% RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (000) .............................. $122,605 $134,595 $196,746 $226,692 $212,665 $275,552 Ratios to Average Net Assets: Interest expense ........................................... .98% 1.10% 2.11% 2.09% 1.59% .61% Operating expenses .......................................... 1.92% 2.64% 1.66% 1.55% 1.62% 1.44% ---- ---- ---- ---- ---- ---- Total expenses .......................................... 2.90%+ 3.74%+ 3.77% 3.64% 3.21% 2.05% ==== ==== ==== ==== ==== ==== Net investment income ................................... 3.29%+ 2.23%+ 3.89% 3.81% .34% 5.20% Portfolio turnover rate ...................................... 206.67% 399.38% 347.44% 347.50% 289.69% 404.05% BANK LOANS Amount outstanding at end of period (000 omitted) .............................................. $ 0 $ 38,178 $ 1,200 $ 64,575 $ 20,000 $ 20,873 Average amount of bank loans outstanding during the period (000 omitted) .............................................. $ 14,728 $ 20,631 $ 49,448 $ 49,603 $ 54,479 $ 24,100 Average number of shares outstanding during the period (000 omitted) ............................................... 127,017 153,535 178,456 191,692 206,323 184,664 Average amount of debt per share during the period ............ $ .116 $ .134 $ .277 $ .259 $ .264 $ .131
+These ratios are after expense reimbursement of .03% for the year ended December 31, 1997 and .11% for the six month period ended June 30, 1998. 9 (left column) THE CALIFORNIA MUNI FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- ASSETS Investment in securities at value (cost $15,070,542) ............................ $15,296,078 Interest receivable ...................................... 465,498 ----------- Total assets ....................................... 15,761,576 ----------- LIABILITIES Bank overdraft ........................................... 1,888,878 Dividend Payable ......................................... 51,597 Due to Advisor ........................................... 12,229 Accrued expenses ......................................... 69,227 ----------- Total liabilities .................................. 2,021,931 ----------- NET ASSETS consisting of: Accumulated net realized gain .............. $ 219,191 Unrealized appreciation of securities ............................... 225,536 Paid-in-capital applicable to 1,705,639 shares of beneficial interest (Note 4) ........................ 13,294,918 ----------- ----------- $13,739,645 =========== NET ASSET VALUE PER SHARE .................................. $8.06 ===== (right column) STATEMENT OF OPERATIONS Six Months Ended June 30, 1998 (Unaudited) INVESTMENT INCOME Interest income .................................. $483,555 EXPENSES (Notes 2 and 3) Management fee ................................. $31,027 Custodian and accounting fees .................. 14,565 Transfer agent fees ............................ 13,110 Professional fees .............................. 64,801 Printing and postage ........................... 12,377 Distribution expenses .......................... 25,259 Trustees' fees ................................. 1,264 Other .......................................... 10,109 ------- Total expenses ........................... 172,512 ------- -------- Net investment income .................... 311,043 -------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized loss on investments ............... (1,598) Unrealized depreciation of investments for the year ..................... (40,611) -------- Net loss on investments . ................ (42,209) -------- NET INCREASE IN NET ASSETS FROM OPERATIONS ....................................... $268,834 ======== (two column) STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Six Months Ended Year Ended June 30, 1998 December 31, (Unaudited) 1997 ------------- ------------ INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS Net investment income ................................................. $ 311,043 $ 580,253 Net realized gain (loss) on investments ............................... (1,598) 493,308 Unrealized appreciation (depreciation) of investments for the year .... (40,611) 374,518 ----------- ----------- Net increase (decrease) in net assets from operations ............. 268,834 1,448,079 DIVIDENDS PAID TO SHAREHOLDERS FROM Net investment income ................................................. (311,043) (580,253) CAPITAL SHARE TRANSACTIONS (Note 4) ..................................... (50,150) (3,287,401) ----------- ----------- Total increase (decrease) ....................................... (92,359) (2,419,575) NET ASSETS: Beginning of year ..................................................... 13,832,004 16,251,579 ----------- ----------- End of year ........................................................... $13,739,645 $13,832,004 =========== ===========
See Notes to Financial Statements. 10 THE CALIFORNIA MUNI FUND STATEMENT OF CASH FLOWS Six Months Ended June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- CASH PROVIDED (USED) BY FINANCING ACTIVITIES: Sales of capital shares ........................................... $93,166,980 Repurchase of capital shares ...................................... (93,348,180) ----------- Cash provided by capital share transactions ....................... (181,200) Cash provided by borrowings ....................................... 1,385,860 Distributions paid in cash ........................................ (179,993) $1,024,667 ----------- ---------- CASH (USED) PROVIDED BY OPERATIONS: Purchases of investments .......................................... (25,807,868) Net proceeds from short-term investments .......................... 0 Proceeds from sales of investments ................................ 19,653,412 ----------- (6,154,456) Increase in deposit at brokers and custodian for short sales ...... 0 Net investment income ............................................. 311,043 Net change in receivables/payables related to operations .......... 4,818,746 ----------- 5,129,789 (1,024,667) ----------- ---------- Net Increase/Decrease in Cash ..................................... 0 Cash, Beginning of Year ........................................... 0 ---------- Cash, End of Year ................................................. $ 0 ==========
See Notes to Financial Statements. 11
Principal Amount Issue Type Rating Value --------- ----- ---- ------ ----- $ 100,000# Arvin, Development Corporation, COP, RB, 8.75%, 09/01/18 ............... FCLT NR $ 24,505 200,000 Beverly Hills, PFA, RB, IFRN*, MBIA Insured, 7.32%, 06/01/15 ........... LRIB AAA 210,928 100,000 CSAC Finance Corp, COP, Sutter County Health Facilities Project, 7.80%, 01/01/21 ...................................................... FCLT Baa1 101,973 70,000 California, HFA, Home Mortgage, RB, Series A, MBIA Insured, 5.70%, 08/01/10 ...................................................... FCSI Aaa 74,012 300,000 California Statewide Communities Development Authority, Cedars Sinai Medical Project, COP, RB, IFRN*, 6.87%, 11/01/15 ............... LRIB A1 303,044 300,000 East Bay, Wastewater System Project, RB, Refunding, AMBAC Insured, IFRN*, 6.87%, 06/01/20 ...................................... LRIB AAA 313,133 3,550,000 First Albany Corporation Trust Certificate Series 98-2, IFRN*, AMBAC, 3.95%, 07/01/28 ............................................... LRIB NR 3,550,000 (Trust Certificates relating to PR Comwlth Ser B, AMBAC, 5.00, 07/01/28) 1,500,000 First Albany Corporation Municipal Trust Certificate Series 98-2, IFRN*, AMBAC, 6.60%, 07/01/28 ........................................ LRIB NR 1,432,675 (Trust Certificates relating to PR Comwlth Ser B, AMBAC, 5.00, 07/01/28) 220,000 Hawthorne, CRA, TAR, 6.75%, 09/01/24 ................................... FCLT Baa 242,459 170,000 Lake Elsinore, USD, Refunding, COP, 6.90%, 02/01/20 .................... FCLT BBB 184,698 10,000 Los Angeles, Home Mortgage, RB, 9.00%, 06/15/18 ........................ FCLT A 10,043 1,505,192 Los Angeles, HFA, MFH Project C, CAB, RB, 12.00%, 12/01/29 ............. FCLT NR 1,114,034 250,000 Northern California Power Agency, Multiple Capital Facilities, RB, MBIA Insured, IFRN*, 8.89%, 08/01/25 ................................. LRIB AAA 289,705 250,000 Northern California Transmission Agency, CA-ORE Transmission Project, RB, MBIA Insured, IFRN*, 6.78%, 04/29/24 .................... LRIB AAA 250,737 500,000 Orange County Airport, RB, Refunding, MBIA Insured, 5.63%, 07/01/12 ............................................................. FCLT Aaa 534,730 250,000 Orange County, LTA, RB, IFRN*, 8.27%, 02/14/11 ......................... LRIB AA 297,642 250,000 Orange County, LTA, RB, IFRN*, 7.91%, 02/14/11 ......................... LRIB AAA 285,441 185,000 Panoche, Water District, COP, 7.50%, 12/01/08 .......................... FCSI BBB 198,283 3,000,000 Puerto Rico Commonwealth GO, CAB, 07/01/17 ............................. LRIB A 1,169,348 250,000 Rancho, Water District Financing Authority, RB, Prerefunded @ 104, AMBAC Insured, IFRN*, 9.07%, 08/17/21 ........................... LRIB AAA 298,892 250,000 Redding, Electric System, COP, Series A, FGIC Insured, IFRN*, 7.08%, 06/01/19 ...................................................... LRIB AAA 263,494 175,000 Riverside, HFA, Riverside Apartment Project, RB, 7.88%, 11/01/19 ....... FCLT BB- 179,549 500,000 San Bernardino, COP, Series B. MBIA Insured, IFRN*, 7.45%, 07/01/16 ............................................................. INLT AAA 529,656 900,000 San Bernardino, COP, Series PA38, IFRN*, 14.42%, 07/01/16, Rule 144A Security (restricted as to resale except to qualified institutions) ........................................................ LRIB NR 1,023,154 200,000 San Diego Water Authority, COP, FGIC Insured, IFRN*, 7.40%, 04/22/09 ............................................................. LRIB AAA 238,325
12
Principal Amount Issue Type Rating Value --------- ----- ---- ------ ----- $1,440,000x San Jose, CRA, Series PA-38, TAB, MBIA Insured, IFRN*, 8.51%, 08/01/16, Rule 144A Security (restricted as to resale except to qualified institutions) .............................................. LRIB NR $ 1,477,541 250,000 Southern California Public Power Authority, FGIC Isured, IFRN*, 6.62%, 07/01/17 ...................................................... LRIB AAA 241,119 45,000 Tri City, HFA, FNMA/GNMA Collateralized, AMT, 6.45%, 12/01/28 .......... FCLT AAA 48,657 30,000 Tri City, HFA, FNMA/GNMA Collateralized, AMT, Series B, 6.30%, 12/01/28 ............................................................. FCLT AAA 32,477 250,000 Tri City, HFA, FNMA/GNMA Collateralized, AMT, Series E, 6.40%, 12/01/28 ............................................................. FCLT AAA 271,979 100,000 Upland, HFA, RB, 7.85%, 07/02/20 ....................................... FCLT BBB 103,845 Total Investments (Cost $15,070,542**) ........................... $15,296,078 *Inverse Floating Rate Notes (IFRN) are instruments whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index. Rates shown are at June 30, 1998. **Cost is the same for Federal income tax purposes. #Denotes non-income producing security: Security is in default. xThe Fund owns 100% of the security and therefore there is no trading in the security. (left column) Legend Type FCLT -Fixed Coupon Long Term FCSI -Fixed Coupon Short or Intermediate Term LRIB -Residual Interest Bond Long Term INLT -Indexed Inverse Floating Rate Bond Long Term Ratings If a security has a split rating the highest applicable rating is used, including published ratings on identicial credits for individual securities not individually rated. Ratings are unaudited. NR -Not Rated Issue AMBAC American Municipal Bond Assurance Corporation AMT Alternative Minimum Tax CAB Capital Appreciation Bond CGIC Capital Guaranty Insurance Company (right column) COP Certificate of Participation CRA California Redevelopment Agency FGIC Financial Guaranty Insurance Corporation FNMA Federal National Mortgage Association FSA Financial Security Assurance, Inc. GNMA Government National Mortgage Association HFA Housing Finance Authority LTA Local Transportation Authority MBIA Municipal Bond Insurance Assurance Corporation MFH Multi Family Housing PFA Public Financing Authority RB Revenue Bond TAB Tax Allocation Bond TAR Tax Allocation Refunding USD Unified School District
See Notes to Financial Statements. 13 THE CALIFORNIA MUNI FUND NOTES TO FINANCIAL STATEMENTS June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- (left column) 1. Significant Accounting Policies The California Muni Fund (the Fund) was organized as a Massachusetts business trust and is registered as an open end management investment company under the Investment Company Act of 1940. The Fund's objective is to provide as high a level of income that is excluded from gross income for Federal income tax purposes and exempt from California personal income tax as is consistent with the preservation of capital. The Fund employs leverage in attempting to achieve its objective. The following is a summary of significant accounting policies followed in the preparation of its financial statements: Valuation of Securities-The Fund's portfolio securities are valued on the basis of prices provided by an independent pricing service when, in the opinion of persons designated by the Fund's trustees, such prices are believed to reflect the fair market value of such securities. Prices of non-exchange traded portfolio securities provided by independent pricing services are generally determined without regard to bid or last sale prices but take into account institutional size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. Securities traded or dealt in upon a securities exchange and not subject to restrictions against resale as well as options and futures contracts listed for trading on a securities exchange or board of trade are valued at the last quoted sales price, or, in the absence of a sale, at the mean of the last bid and asked prices. Options not listed for trading on a securities exchange or board of trade for which over-the-counter market quotations are readily available are valued at the mean of the current bid and asked prices. Money market and short-term debt instruments with a remaining maturity of 60 days or less will be valued on an amortized cost basis. Securities not priced in a manner described above and other assets are valued by persons designated by the Fund's trustees using methods which the trustees believe accurately reflects fair value. Federal Income Taxes-It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to "regulated investment companies" and to distribute all of its taxable and tax exempt income to its shareholders. Therefore, no provision for federal income tax is required. (right column) Distributions-The Fund declares dividends daily from its net investment income and pays such dividends on the last business day of each month. Distributions of net capital gains, if any, realized on sales of investments are made annually, as declared by the Fund's Board of Trustees. Dividends are reinvested at the net asset value unless shareholders request payment in cash. General-Securities transactions are accounted for on a trade date basis. Interest income is accrued as earned. Premiums and original issue discount on securities purchased are amortized over the life of the respective securities. Realized gains and losses from the sale of securities are recorded on an identified cost basis. Accounting Estimates-The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. 2. Investment Advisory Fees and Other Transactions With Affiliates Management Agreement The Series had a Management Agreement with Fundamental Portfolio Advisors ("FPA") until May 31, 1998. Effective June 1, 1998, the Board of Trustees terminated the agreement with FPA, and selected Tocqueville Asset Management L.P. ("TAM") as interim manager until a permanent manager is selected. Pursuant to the agreement the investment adviser to the Series is responsible for the overall management of the business affairs and assets of the Series subject to the authority of the Fund's Board of Trustees. In consideration for the services provided under the agreement, the Series will pay an annual management fee in an amount equal to .50% of the Series' average daily net assets up to $100 million, and decreasing by .02% of each $100 million increase in net assets down to 0.4% of net assets in excess of $500 million. TAM earned fees of $5,768 for the one month ended June 30, 1998. Total management fees for 14 THE CALIFORNIA MUNI FUND NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- (left column) the six months ended June 30,1998 are set forth in the Statement of Operations. Plan of Distribution The Series has adopted a Distribution and Marketing Plan, pursuant to Rule 12b-1, promulgated under the Investment Company Act of 1940, under which the Series paid Fundamental Shareholder Services, Inc. ("FSC"), an affiliate of FPA, the former manager, a fee which accrued daily and paid monthly at an annual rate of .25% of the Series' average daily net assets. Amounts paid under the plan were to compensate FSC for the services it provided and the expenses it bore in distributing the Series' shares to investors. On June 1,1998 the Board of Trustees ceased authorizing payments to be paid pursuant to the plan. The amount incurred by the Series pursuant to the agreement for the six months ended June 30,1998 is set forth in the Statement of Operations. Regulatory Proceedings Against The Former Manager And Other Affiliates On September 30,1997, the Securities & Exchange Commission announced that it instituted public administrative and cease-and-desist proceedings against FPA, the former portfolio manager of the Fund, the former president of FPA and FSC, the Series' distributor until May 31, 1998. The proceeding arises for the alleged failure of the Series to disclose the risks of the Series portfolio strategy, and of FPA's failure to disclose its soft dollar arrangements to the Fund's Board of Trustees. On July 7, 1998, FPA's former president settled the administrative proceeding instituted by the Securities & Exchange Commission. Without admitting to or denying the allegations made pursuant to the administrative proceeding, FPA's former president consented to a fine of $25,000 and a bar from the industry for a period of one year. A hearing has been scheduled with respect to the other parties named in the proceedings with an administrative law judge to determine whether the allegations are true, and if so, what remedial action, if any, is appropriate. On February 19,1998 FSC and two of its executives, without admitting or denying guilt entered into an agreement with the National Association of Securities Dealers, Inc. ("NASD") whereby they accepted fines totaling (right column) $125,000 and other stipulated sanctions as well as a result of the NASD's findings that they had distributed advertising materials relating to the Series which violated NASD rules governing advertisements. Indemnification Payments to Affiliates FPA and FSC (on behalf of certain of their directors, officers, shareholders, employees and control persons) (the "Indemnitees") received payment during the fiscal year ended December 31, 1997 from the Fund in the amount of approximately $4,000. Upon learning of the payments, the Independent Board Members of the Fund directed that the Indemnitees return all of the payments to the Fund or place them in escrow pending their receipt of an opinion of an independent legal counsel to the effect that the Indemnitees are entitled to receive them. The Declaration of Trust and contracts that call for indemnification specify that no indemnification shall be provided to a person who shall be found to have engaged in "disabling conduct" as defined by applicable law. The Indemnities have undertaken to reimburse the Fund for any indemnification expenses for which it is determined that they were not entitled to as a result of "disabling conduct" net of any reimbursements already made to the fund in the form of fees forgone or other similar payments. Pending clarification of the legal issues involved, the Indemnitees have placed into an escrow account $4,000 as of April 30, 1998. 3. Trustees' Fees All of the Trustees of the Fund are also directors or trustees of two other affiliated mutual funds for which the Manager acts as investment adviser. For services and attendance at Board meetings and meetings of committees which are common to each Fund, each Trustee who is not affiliated with the Manager is compensated at the rate of $6,500 per quarter pro rated among the funds based on their respective average net assets. The Trustees also receive additional compensation for special services as requested by the Board. 4. Shares of Beneficial Interest As of June 30, 1998 there were an unlimited number of shares of beneficial interest (no par value) authorized and capital paid in which amounted to $13,294,918. Transactions in shares were as follows: 15 THE CALIFORNIA MUNI FUND NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- (left column) Six Months Ended Year Ended June 30, 1998 December 31, 1997 ------------- ----------------- (Unaudited) Shares Amount Shares Amount ------ ------ ------ ------ Shares sold 11,599,347 $ 93,166,981 32,632,214 $256,708,018 Shares issued on reinvest- ment of dividends 16,268 131,049 51,101 419,765 Shares redeemed (11,542,892) (93,348,180) (33,097,092) (260,415,184) ---------- ------------ ---------- ------------ Net increase (decrease) 32,722 (50,150) (413,777) (3,287,401) ========== ============ ========== ============ 5. Complex Securities and Investment Transactions Inverse Floating Rate Notes: The Fund invests in variable rate securities commonly called "inverse floaters". The interest rates on these securities have an inverse relationship to the interest rate of other securities or the value of an index. Changes in interest rate on the other security or index inversely affect the rate paid on the inverse floater, and the inverse floater's price will be more volatile than that of a fixed rate bond. Certain interest rate movements and other market factors can substantially affect the liquidity of IFRN's. Investment Transactions: During the six months ended June 30, 1998, the cost of purchases and proceeds from sales of investment securities, other than short-term obligations, were $25,807,869 and $19,653,000, respectively. As of June 30, 1998 the net unrealized appreciation of portfolio securities amounted to $225,536 composed of unrealized appreciation of $770,048 and unrealized depreciation of $544,512. (right column) 6. Line of Credit The Fund has a line of credit agreement with a bank collateralized by portfolio securities. Borrowings under this agreement bear interest linked to the bank's prime rate. 7. Agreement and Plan of Reorganization On July 16, 1997 each of Fundamental's mutual funds (consisting of: New York Muni Fund, The California Muni Fund, Fundamental Fixed Income Fund: Tax Free Money Market Series, High Yield Municipal Bond Series, and Fundamental U.S. Government Strategic Income Fund Series) have adopted, subject to shareholder approval, an Agreement and Plan of Reorganization (the "Plan") under which each fund (the "Fundamental Fund") will transfer all of its assets and liabilities to a newly-created corresponding series of The Tocqueville Trust (the "Tocqueville Fund") in exchange for shares of the Tocqueville Fund. Shareholders of each Fundamental Fund will receive shares of the corresponding Tocqueville Fund equal in value to their shares in the Fundamental Fund. Shareholders will not have to pay a sales load upon receiving shares of the Tocqueville Fund. The corresponding Tocqueville Fund will have investment objectives, polices and restrictions substantially identical to those of the Fundamental Fund. The Board of Trustees of the Tocqueville Funds is comprised of individuals other than those who currently serve as Directors (Trustees) of the Fundamental Funds. Tocqueville Asset Management L.P. is the investment adviser to the Tocqueville Funds. A majority of Fundamental's Board Members determined that the Plan would be in the best interests of shareholders of the Fundamental Funds and recommended that shareholders of each of the Fundamental Funds approve the Plan at a meeting anticipated to be held in the Spring of 1998. 16 8. Subsequent Event On July 10, 1998 the Board of Trustees of the Fund adopted resolution authorizing the Fund to terminate and abandon the agreement and plan of reorganization adopted by the Board of Trustees on July 16, 1997. 9. Selected Financial Information
Six Months Ended June 30, Years Ended December 31, 1998 ------------------------------------------------ (Unaudited) 1997 1996 1995 1994 1993 ----------- ---- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net Asset Value, Beginning of Year .............................. $ 8.27 $ 7.79 $ 8.91 $ 7.10 $ 9.49 $ 8.81 Income from investment operations: Net investment income ........................................... .218 .376 .409 .419 .553 .563 Net realized and unrealized gains (losses) on investments ................................................ (.210) .480 (1.120) 1.810 (2.390) .876 Total from investment operations ........................ .008 .856 (.711) 2.229 (1.837) 1.439 Less Distributions: Dividends from net investment income ............................ (.218) (.376) (.409) (.419) (.553) (.563) Dividends from net realized gains ............................... - - - - - (.196) Total distributions ..................................... (.218) (.376) (.409) (.419) (.553) (.759) Net Asset Value, End of Year .................................... $ 8.06 $ 8.27 $ 7.79 $ 8.91 $ 7.10 $ 9.49 Total Return .................................................... 6.41% 11.33% (8.01%) 32.02% (19.89%) 16.80% RATIOS/SUPPLEMENTAL DATA Net Assets, End of Year (000) ................................... 13,740 13,832 16,252 12,622 10,558 16,280 Ratios to Average Net Assets: Interest expense .............................................. 0 .42 .45% .39% .98% .39% Operating expenses ............................................ 2.78% 2.95* 2.81% 2.81% 2.50% 1.77%* Total expenses .......................................... 2.78% 3.37* 3.26% 3.20% 3.48% 2.16%* Net investment income ................................... 5.01% 4.55%* 4.88% 5.02% 6.80% 6.04%* Portfolio turnover rate ......................................... 152.70% 70.86% 89.83% 53.27% 15.88% 51.26% BANK LOANS Amount outstanding at end of year (000 omitted) ................. $ 0 $ 503 $ 0 $ 0 $1,292 $3,714 Average amount of bank loans outstanding during the period (000 omitted) .......................................... $ 0 $ 664 $ 823 $ 642 $1,620 $ 958 Average number of shares outstanding during the period (000 omitted) ................................................. 1,550 1,609 1,768 1,635 1,711 1,517 Average amount of debt per share during the period .............. $ 0 $ .41 $ .47 $ .39 $ .95 $ .63 **These ratios are after expense reimbursement of .03%, and .50% for the years ended December 31, 1997 and 1993.
17 (left column) FUNDAMENTAL FIXED-INCOME FUND TAX-FREE MONEY MARKET SERIES STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- ASSETS Investment in securities at value (cost $12,050,000) $12,050,000 Receivables: Fund shares sold 38,320 Interest 191,987 ----------- Total assets 12,280,307 ----------- LIABILITIES Fund shares redeemed 8,880,153 Dividends 599 Due to advisor 10,487 Accrued expenses 24,598 Other liabilities 198,122 ----------- Total liabilities 9,113,959 ----------- NET ASSETS equivalent to $1.00 per share on 3,172,207 shares of beneficial interest outstanding (Note 4) $ 3,166,348 =========== (right column) STATEMENT OF OPERATIONS Six Months Ended June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME Interest income ................................... $623,224 EXPENSES (Notes 2 and 3) Investment advisory fees .......................... $ 92,445 Custodian and accounting fees ..................... 31,632 Transfer agent fees ............................... 44,131 Trustees' fees .................................... 12,181 Professional fees ................................. 12,391 Distribution fees ................................. 90,267 Postage and printing .............................. 3,315 Other ............................................. 29,060 -------- Total expenses .............................. 315,422 Less: Expenses paid indirectly (Note 6) ............... (3,888) -------- Net expenses ................................ 311,534 -------- NET INCREASE IN NET ASSETS FROM OPERATIONS ........................................ $311,690 ======== (two column) STATEMENTS OF CHANGES IN NET ASSETS Six Months Ended Year Ended June 30, 1998 December 31, (Unaudited) 1997 ------------- ------------ INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS Net investment income $ 311,690 $ 1,025,345 ----------- ----------- Net increase in net assets from operations 311,690 1,025,345 DIVIDENDS PAID TO SHAREHOLDERS FROM Investment income (311,690) (1,025,345) CAPITAL SHARE TRANSACTIONS (Note 4) (10,096,820) 8,642,404 ----------- ----------- Total (decrease) increase (10,096,820) 8,642,404 NET ASSETS: Beginning of period 13,263,168 4,620,764 ----------- ----------- End of period $ 3,166,348 $13,263,168 =========== =========== See Notes to Financial Statements. 18 FUNDAMENTAL FIXED-INCOME FUND TAX-FREE MONEY MARKET SERIES STATEMENT OF INVESTMENTS June 30, 1998 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Issue Value --------- ----- ----- $ 75,000 Cuyahoga County, OH, IDR S & R Playhouse Realty, VRDN*, LOC Marine Midland Bank, 4.00%, 12/01/09 ............................................... $ 75,000 200,000 Delaware County, PA, SWDF, Scott Paper Project, Kimberly-Clark Corp. Guaranty, VRDN*, 3.45%, 12/01/18 ............................................ 200,000 450,000 First Albany Corporation Municipal Trust Certificate Series 98-2, IFRN*, AMBAC, 3.95%, 07/01/28 ...................................................... 450,000 (Trust Certificates relating to PR Comwlth Ser B, AMBAC, 5.00, 07/01/28) 200,000 Fulton County, GA, PCR, General Motors Project, VRDN*, 3.60%, 04/01/10 ............................................................. 200,000 200,000 Garfield County, OK, PCR, Oklahoma Gas & Electric Co. Project A, VRDN*, 3.60%, 01/01/25 ............................................................. 200,000 300,000 Illinois HFAR, Franciscan Sisters Project, LOC Toronto Dominion Bank, VRDN*, 3.55%, 09/01/15 ...................................................... 300,000 200,000 Jasper County, IN, PCR, Northern Indiana Public Service, 3.80%, 08/01/10 ...... 200,000 200,000 McIntosh, AL, PCR, Ciba Geigy Project, LOC Swiss Bank Corp. VRDN*, 3.60%, 12/01/03 ............................................................. 200,000 300,000 Missouri, PCR, Monsanto Project, VRDN*, 3.70%, 02/01/09 ....................... 300,000 200,000 Missouri, Third Street Building Project, SPA First Chicago, VRDN*, 3.60%, 08/01/99 .................................................................... 200,000 200,000 Nebraska Higher Education Loan Program, SPA, SLMA, MBIA Insured, VRDN*, 3.70%, 12/01/15 ...................................................... 200,000 400,000 New York NY GO, Series F-4, Credit Facility with Landesbank Hessen, 3.35%, 02/15/20 ............................................................. 400,000 8,800,000x New York State, DAR, TRS 27, 3.70%, 07/01/24, City University, Floating Rate Trust Receipts 27, MBIA Insured, Liquidity The Bank of New York ........ 8,800,000 125,000 Scioto County, OH, HFR, VHA, Central Capital Project, AMBAC Insured, VRDN*, 3.50%, 12/01/25 ...................................................... 125,000 200,000 University of Michigan Rev, Ser A, University of Michigan Hospital, VRDN*, 3.80%, 12/01/27 ............................................................. 200,000 ----------- Total Investments (Cost $12,050,000**) ........................................ $12,050,000 =========== *Variable Rate Demand Notes (VRDN) are instruments whose interest rate changes on a specific date and/or whose interest rates vary with changes in a designated base rate. **Cost is the same for Federal income tax purposes. xThe Fund, or its affiliates, own 100% of the security and therefore there is no trading in the security.
19 FUNDAMENTAL FIXED-INCOME FUND TAX-FREE MONEY MARKET SERIES STATEMENT OF INVESTMENTS (continued) June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- Legend Issue AMBAC American Municipal Bond Assurance Corporation AMT Alternative Minimum Tax GO General Obligation ETM Escrowed to Maturity HFAR Health Facilities Authority Revenue HFR Hospital Facilities Revenue IDB Industrial Development Bond IDR Industrial Development Revenue LOC Letter of Credit MBIA Municipal Bond Insurance Assurance Corporation PCR Pollution Control Revenue PHA Public Housing Authority RB Revenue Bond SLMA Student Loan Marketing Association SPA Stand By Bond Purchase Agreement SWDF Solid Waste Disposal Facility TRANS Tax Revenue Anticipation Notes See Notes to Financial Statements. 20 FUNDAMENTAL FIXED-INCOME FUND TAX-FREE MONEY MARKET SERIES NOTES TO FINANCIAL STATEMENTS June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant Accounting Policies Fundamental Fixed-Income Fund (the Fund) is an open-end management investment company registered under the Investment Company Act of 1940. The Fund acts as a series company currently issuing three classes of shares of beneficial interest, the Tax-Free Money Market Series, the High-Yield Municipal Bond Series and the Fundamental U.S. Government Strategic Income Fund Series. Each series is considered a separate entity for financial reporting and tax purposes. The Tax-Free Money Market Series (the Series') investment objective is to provide as high a level of current income exempt from federal income tax as is consistent with the preservaton of capital and liquidity. The following is a summary of significant accounting policies followed in the preparation of the Series' financial statements: Valuation of Securities: Investments are stated at amortized cost. Under this valuation method, a portfolio instrument is valued at cost and any premium or discount is amortized on a constant basis to the maturity of the instrument. Amortization of premium is charged to income, and accretion of market discount is credited to unrealized gains. The maturity of investments is deemed to be the longer of the period required before the Fund is entitled to receive payment of the principal amount or the period remaining until the next interest adjustment. Federal Income Taxes: It is the Series' policy to comply with the requirements of the Internal Revenue Code applicable to "regulated investment companies" and to distribute all of its taxable and tax exempt income to its shareholders. Therefore, no provision for federal income tax is required. Distributions: The Series declares dividends daily from its net investment income and pays such dividends on the last business day of each month. Distributions of net capital gains are made annually, as declared by the Fund's Board of Trustees. Dividends are reinvested at the net asset value unless shareholders request payment in cash. General: Securities transactions are accounted for on a trade date basis. Interest income is accrued as earned. Realized gains and losses from the sale of securities are recorded on an identified cost basis. Accounting Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. 21 FUNDAMENTAL FIXED-INCOME FUND TAX-FREE MONEY MARKET SERIES NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- 2. Investment Advisory Fees and Other Transactions with Affiliates Management Agreement The Series had a Management Agreement with Fundamental Portfolio Advisors ("FPA") until May 31, 1998. Effective June 1, 1998, the Board of Trustees terminated the agreement with FPA, and selected Tocqueville Asset Management L.P. ("TAM") as interim manager until a permanent manager is selected. Pursuant to the agreement the investment adviser to the Series is responsible for the overall management of the business affairs and assets of the Series subject to the authority of the Fund's Board of Trustees. In consideration for the services provided under the agreement, the Series will pay an annual management fee in an amount equal to .50% of the Series' average daily net assets up to $100 million, and decreasing by .02% of each $100 million increase in net assets down to 0.4% of net assets in excess of $500 million. TAM earned fees of $2,177 for the one month ended June 30, 1998. Total management fees for the six months ended June 30,1998 are set forth in the Statement of Operations. Plan of Distribution The Series has adopted a Distribution and Marketing Plan, pursuant to Rule 12b-1, promulgated under the Investment Company Act of 1940, under which the Series paid Fundamental Shareholder Services, Inc. ("FSC"), an affiliate of FPA, the former manager, a fee which accrued daily and paid monthly at an annual rate of .25% of the Series' average daily net assets. Amounts paid under the plan were to compensate FSC for the services it provided and the expenses it bore in distributing the Series' shares to investors. On June 1,1998 the Board of Trustees ceased authorizing payments to be paid pursuant to the plan. The amount incurred by the Series pursuant to the agreement for the six months ended June 30,1998 is set forth in the Statement of Operations. Regulatory Proceedings Against The Former Manager And Other Affiliates On September 30,1997, the Securities & Exchange Commission announced that it instituted public administrative and cease-and-desist proceedings against FPA, the former portfolio manager of the Fund, the former president of FPA and FSC, the Series' distributor until May 31, 1998. The proceeding arises for the alleged failure of the Series to disclose the risks of the Series portfolio strategy, and of FPA's failure to disclose its soft dollar arrangements to the Fund's Board of Trustees. On July 7, 1998, FPA's former president settled the administrative proceeding instituted by the Securities & Exchange Commission. Without admitting to or denying the allegations made pursuant to the administrative proceeding, FPA's former president consented to a fine of $25,000 and a bar from the industry for a period of one year. A hearing has been scheduled with respect to the other parties named in the proceedings with an administrative law judge to determine whether the allegations are true, and if so, what remedial action, if any, is appropriate. On February 19,1998 FSC and two of its executives, without admitting or denying guilt entered into an agreement with the National Association of Securities Dealers, Inc. ("NASD") whereby they accepted fines totaling $125,000 and other stipulated sanctions as well as a result of the NASD's findings that they had distributed advertising materials relating to the Series which violated NASD rules governing advertisements. Indemnification Payments to Affiliates FPA and FSC (on behalf of certain of their directors, officers, shareholders, employees and control persons) (the "Indemnitees") received payment during the fiscal year ended December 31, 1997 from three of the Fundamental Funds for attorneys' fees incurred by them in defending certain proceedings. Upon learning of the payments, the Independent Board Members of the Fundamental Funds directed that the Indemnitees return all of the payments to the Funds or place them in escrow pending their receipt of an opinion of an independent legal counsel to the effect that the Indemnitees are entitled to receive them. The charter documents and contracts that call for 22 FUNDAMENTAL FIXED-INCOME FUND TAX-FREE MONEY MARKET SERIES NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- indemnification specify that no indemnification shall be provided to a person who shall be found to have engaged in "disabling conduct" as defined by applicable law. The Indemnities have undertaken to reimburse the Fundamental Funds for any indemnification expenses for which it is determined that they were not entitled to as a result of "disabling conduct" net of any reimbursements already made to the Fund in the form of fees forgone or other similar payments. FPA and FSC waived fees during the year ended December 31, 1997, and have asserted that they elected to forgo these fees because the Fundamental Funds were paying legal expenses pursuant to indemnification. Pending clarification of the legal issues involved, the Indemnitees have placed into an escrow account $106,863 as of April 30, 1998. The independent trustees instructed FPA to escrow the full amount incurred by the Fundamental Funds of approximately $287,000. In addition the Board of Trustees has not authorized the payment of management fees to the amount of $8,310 prior to the termination of the management agreement. 3. Trustees' Fees All of the Trustees of the Fund are also directors or trustees of two other affiliated mutual funds for which the Manager acts as investment adviser. For services and attendance at Board meetings and meetings of committees which are common to each Fund, each Trustee who is not affiliated with the Manager is compensated at the rate of $6,500 per quarter pro rated among the funds based on their respective average net assets. The Trustees also receive additional compensation for special services as requested by the Board. 4. Shares of Beneficial Interest As of June 30, 1998 there were an unlimited number of shares of beneficial interest (no par value) authorized and capital paid in amounted to $3,172,207. Transactions in shares of beneficial interest, all at $1.00 per share were as follows: Six Months Ended Year ended June 30, 1998 December 31, (Unaudited) 1997 ------------- ----------- Shares sold $1,039,649,010 $2,566,332,934 Shares issued on reinvestment of dividends 36,506 1,048,578 Shares redeemed (1,049,782,336) (2,558,739,108) -------------- -------------- Net (decrease) increase (10,096,820) $ 8,642,404 ============== ============== 5. Line of Credit The Fund has a line of credit agreement with its custodian bank collateralized by cash and portfolio securities for $500,000. Borrowings under this agreement bear interest linked to the bank's prime rate. The Series had no borrowing under the line of credit agreement as of or during the six months ended June 30, 1998. 6. Expenses Paid Indirectly The Fund has an arrangement with its custodian whereby credits earned on cash balances maintained at the custodian are used to offset custody charges. These credits amounted to approximately $3,888 for the six months ended June 30, 1998. 7. Agreement and Plan of Reorganization On July 16, 1997 each of Fundamental's mutual funds (consisting of: New York Muni Fund, The California Muni Fund, Fundamental Fixed Income Fund: Tax Free Money Market Series, High Yield Municipal Bond Series, and Fundamental U.S. Government Strategic Income Fund Series) have adopted, subject to shareholder approval, an Agreement and Plan of Reorganization (the "Plan") under which each fund (the "Fundamental Fund") will transfer all of its assets and liabilities to a newly-created corresponding series of The Tocqueville Trust 23 FUNDAMENTAL FIXED-INCOME FUND TAX-FREE MONEY MARKET SERIES NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- (the "Tocqueville Fund") in exchange for shares of the Tocqueville Fund. Shareholders of each Fundamental Fund will receive shares of the corresponding Tocqueville Fund equal in value to their shares in the Fundamental Fund. Shareholders will not have to pay a sales load upon receiving shares of the Tocqueville Fund. The corresponding Tocqueville Fund will have investment objectives, polices and restrictions substantially identical to those of the Fundamental Fund. The Board of Trustees of the Tocqueville Funds is comprised of individuals other than those who currently serve as Directors (Trustees) of the Fundamental Funds. Tocqueville Asset Management L.P. is the investment adviser to the Tocqueville Funds. A majority of Fundamentals' Board Members determined that the Plan would be in the best interests of shareholders of the Fundamental Funds and recommended that shareholders of each of the Fundamental Funds approve the Plan at a meeting anticipated to be held in the Spring of 1998. 8. Subsequent Event On July 10, 1988 the Board of Trustees of the Fund adopted resolutions authorizing the Fund to terminate and abandon the Agreement and Plan of Reorganization adopted by the Board of Trustees on July 16, 1997. 9. Selected Financial Information
Six Months Ended Years Ended December 31, June 30, 1998 ------------------------------------------------- (Unaudited) 1997 1996 1995 1994 1993 ----------- ---- ---- ---- ---- ---- PER SHARE DATA AND RATIOS (for a share outstanding throughout the period) Net Asset Value, Beginning of Year ............... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ------ ------ ------ ------ ------ ------ Income from investment operations: Net investment income ............................ 0.022 0.022 0.023 0.026 0.017 0.014 ------ ------ ------ ------ ------ ------ Less Distributions: Dividends from net investment income ............. (0.022) (0.022) (0.023) (0.026) (0.017) (0.014) ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period ................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ====== ====== ====== ====== ====== ====== Total Return ..................................... 1.85% 2.19% 2.28% 2.60% 1.69% 1.62% RATIOS/SUPPLEMENTAL DATA Net Assets, End of Year (000 omitted) ............ 3,166 13,263 4,621 11,251 9,004 5,830 Ratios to Average Net Assets Expenses ..................................... 1.69% 1.52%#+ 1.54%# 1.53%# 0.91%+ .95%+ Net investment income ........................ 1.69% 2.10% 2.04% 2.43% 1.55% 1.25% BANK LOANS Amount outstanding at end of period (000 omitted) .................................. $ - $ - $ 218 $ - $ 451 $ 290 Average amount of bank loans outstanding during the period (000 omitted) ................ $ - $ - $ - $ 41 $ 53 $ 111 Average number of shares outstanding during the period (000 omitted) ....................... 37,284 48,801 56,876 44,432 56,267 25,786 Average amount of debt per share during the period ..................................... $ - $ - $ - $ .001 $ .001 $.004 +These ratios are after expense reimbursement of .02%, .44% and .67%, for each of the years ended December 31, 1997, 1994 and 1993, respectively. #These ratios would have been 1.44%, 1.40% and 1.35% net of expense offsets of .08%, .14% and .18% for the years ended December 31, 1997, 1996 and 1995, respectively.
24 FUNDAMENTAL FIXED-INCOME FUND HIGH-YIELD MUNICIPAL BOND SERIES (LEFT COLUMN) STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited) - ------------------------------------------------------------- ASSETS Investment in securities at value (Note 5) (cost $2,358,739) .......................... $2,414,086 Interest receivable .......................... 47,032 ---------- Total assets ......................... 2,461,118 ---------- LIABILITIES Due to advisor ............................... 8,731 Accrued expenses ............................. 14,115 Bank overdraft payable ....................... 119,692 Dividend payable ............................. 4,578 ---------- Total liabilities .................... 147,116 ---------- NET ASSETS consisting of: Accumulated net realized loss .......................... $ (147,351) Unrealized appreciation of securities ................. 55,347 Paid-in-capital applicable to 315,190 shares of beneficial interest (Note 4) ...................... 2,406,006 ---------- $2,314,002 ========== NET ASSET VALUE PER SHARE ..................... $ 7.34 ========== (RIGHT COLUMN) STATEMENT OF OPERATIONS Six Months Ended June 30, 1998 (Unaudited) - ------------------------------------------------------------- INVESTMENT INCOME Interest income ............................. $86,295 EXPENSES (Notes 2 and 3) Investment advisory fees ........ $ 8,730 Custodian and accounting fees ... 5,646 Transfer agent fees ............. 5,255 Trustee fees .................... 278 Distribution fees ............... 4,503 Professional fees ............... 3,558 Postage and printing ............ 12,469 Other ........................... 4,331 ------- Total expenses ......... 44,770 -------- Net investment income .............. 41,525 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain on investments . 11,363 Change in unrealized appreciation of investments for the year ....... (37,390) ------- Net loss on investments ............ (26,027) -------- NET INCREASE IN NET ASSETS FROM OPERATIONS .................................. $15,498 ======== STATEMENTS OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------- Six Months Ended Year Ended June 30, 1998 December 31, (Unaudited) 1997 ------------- ------------ INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS Net investment income .......................... $ 41,525 $ 93,414 Net realized gain on investments ............... 11,363 17,891 Unrealized (depreciation) appreciation of investments for the year ..................... (37,390) 166,782) ---------- ---------- Net increase in net assets from operations 15,498 278,087 DIVIDENDS PAID TO SHAREHOLDERS FROM Net investment income .......................... (41,525) (93,414) CAPITAL SHARE TRANSACTIONS (Note 4) .............. 85,044 212,100 ---------- ---------- Total increase ......................... 59,017 396,773 NET ASSETS: Beginning of year .............................. 2,254,985 1,858,212 ---------- ---------- End of year .................................... $2,314,002 $2,254,985 ========== ========== See Notes to Financial Statements. 25 FUNDAMENTAL FIXED-INCOME FUND HIGH-YIELD MUNICIPAL BOND SERIES STATEMENT OF INVESTMENTS June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- Principal Amount Issue(d) Value --------- -------- ----- $ 40,000 Brookhaven, NY, IDA, CFR, Dowling College, 6.75%, 03/01/23 ...................................... $ 42,703 300,000 Burke County GA Development Authority, PCR, 3.95%, 07/01/24 ...................................... 300,000 250,000 Colorado Health Facilities Authority, RHR, Liberty Heights Project, ETM CAB, 07/15/24 ................... 60,856 100,000 Corona, CA, COP, Vista Hospital Systems Inc., 8.38%, 07/01/11 ...................................... 110,487 100,000 Escambia, FL, Housing Corporation, Royal Arms Project, Series B, 9.00%, 07/01/16 ............................ 103,816 100,000 First Albany Corporation Municipal Trust Certificate Series 98-1, IFRN*, AMBAC 6.60%, 01/01/22 ............ 95,512 (Trust Certificates relating to NY MTA Ser B, AMBAC, 5.13%, 07/01/24) 100,000 First Albany Corporation Municipal Trust Certificate Series 98-2, IFRN*, AMBAC 6.87%, 07/01/24 ............ 98,743 (Trust Certificates relating to PR Comwlth Ser B, AMBAC, 5.00, 07/01/28) 500,000 Foothill/Eastern TCA, Toll Road Revenue, CAB, 01/01/26 113,950 25,000 Hidalgo County, TX, Health Services, Mission Hospital Inc. Project 6.88%, 08/15/26 ........................ 26,630 50,000+ Illinois Development Financial Authority, Solid Waste Disposal, RB, Ford Heights Waste Tire Project, 7.88%, 04/01/11 ..................................... 10,577 45,000 Illinois Health Facilities Authority, Midwest Physician Group Ltd Project, RB 8.13%, 11/15/19 ............... 55,435 35,000 Indianapolis, IN, RB, Robin Run Village Project, 7.63%, 10/01/22 ..................................... 38,331 50,000 Joplin, MO, IDA, Hospital Facilities Revenue, Tri State Osteopathic 8.25%, 12/15/14 ......................... 57,618 630,000 Marengo County, AL, Port Authority Facilities, RB, CAB, Series A, 03/01/19 .................................. 151,352 85,000 Montgomery County, TX, Health Facilities Development Corp., The Woodlands Medical Center, 8.85%, 08/15/14 91,455 100,000 New York City, NY, Municipal Water Finance Authority, Water & Sewer RB TR Receipts Series 29, 6.89%, 06/15/30 ..................................... 96,997 100,000 New York State, DAR, City University System Residual Int Tr Recpts 27 MBIA Insured, Liquidity The Bank of New York, 8.79%, 07/01/24 ........................ 109,756 100,000 New York State, DAR, City University System Residual Int Tr Recpts 28 AMBAC Insured, Liquidity The Bank of New York, 8.16%, 07/01/25 ........................ 105,346 100,000#x Niagara Falls, NY, URA, Old Falls Street Improvement Project, 11.00%, 05/01/09 ........................... 35,795 50,000 Northeast, TX, Hospital Authority Revenue, Northeast Medical Center 7.25%, 07/01/22 ...................... 57,049 75,000 Perdido, FL, Housing Corporation, RB, Series B, 9.25%, 11/01/16 ..................................... 74,992 30,000 Philadelphia, PA, HEHA, Graduate Health Systems Project, 7.25%, 07/01/18 ..................................... 31,089 60,000 Port Chester, NY, IDA, Nadal Industries Inc. Project, 7.00%, 02/01/16 ..................................... 62,327 75,000 San Antonio, TX, HFC, Multi Family Housing, RB, Agape Metro Housing Project Series A, 8.63%, 12/01/26 ..... 76,005 75,000 San Bernadino, CA, San Bernadino Community Hospital, RB 7.88%, 12/01/19 .................................. 77,016 100,000 San Bernadino County, CA, COP, Series PA-38, MBIA Insured, IFRN* 14.42%, 07/01/16, Rule 144A Security (restricted as to resale except to qualified institutions) ............................. 113,684 60,000x San Jose, CA, Redevelopment Agency, Tax Allocation Bonds, IFRN*, MBIA Insured 8.51%, 08/01/16, MBIA Insured, Rule 144A Security (restricted as to resale except to qualified institutions) ............ 61,564 26 FUNDAMENTAL FIXED-INCOME FUND HIGH-YIELD MUNICIPAL BOND SERIES STATEMENT OF INVESTMENTS (continued) June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- Principal Amount Issue(d) Value --------- -------- ----- $ 150,000 Savannah, GA Economic Development Authority Revenue, ETM, CAB, 12/01/21 ...................................$ 41,898 40,000 Schuylkill County, PA, IDA Resource Recovery, Schuykill Energy Res Inc. AMT, 6.50%, 01/01/10 ................. 40,235 15,000#+ Troy, NY, IDA, Hudson River Project, 11.00%, 12/01/04 .. 6,150 75,000@+ Villages at Castle Rock, CO, Metropolitan District #4, 8.50%, 06/01/31 ...................................... 39,148 25,000 Wayne, MI, AFR, Northwest Airlines Inc. 6.75%, 12/01/15 27,570 ---------- 3,640,000 Total Investments (Cost $2,358,739**) ..................$2,414,086 ========== * Inverse Floating Rate Notes (IFRN) are instruments whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index. Rates shown are as of June 30, 1998. ** Cost is approximately the same for income tax purposes. # The value of this non-income producing security has been estimated by persons designated by the Fund's Board of Trustees using methods the Trustees believe reflect fair value. See note 5 to the financial statements. + Denotes non-income producing security. @ Security in default. Interest paid on cash flow basis. Rate shown as of June 30, 1998. x The Fund, or its affiliates, own 100% of the security and therefore there is no trading in this security. Legend (d)Issue AFR Airport Facilities Revenue AMBAC American Municipal Bond Assurance Corporation AMT Subject to Alternative Minimum Tax CAB Capital Appreciation Bond COP Certificate of Participation CFR Civic Facility Revenue DAR Dorm Authority Revenue ETM Escrowed to Maturity FHA Federal Housing Administration HEHA Higher Education and Health Authority HFC Housing Finance Corporation IDA Industrial Development Authority MBIA Municipal Bond Insurance Assurance Corporation RB Revenue Bond RHR Retirement Housing Revenue TCA Transportation Corridor Agency URA Urban Renewal Agency See Notes to Financial Statements. 27 FUNDAMENTAL FIXED-INCOME FUND HIGH-YIELD MUNICIPAL BOND SERIES NOTES TO FINANCIAL STATEMENTS June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant Accounting Policies Fundamental Fixed-Income Fund (the Fund) is an open-end management investment company registered under the Investment Company Act of 1940. The Fund operates as a series company currently issuing three classes of shares of beneficial interest, the Tax-Free Money Market Series, the High-Yield Municipal Bond Series and the Fundamental U.S. Government Strategic Income Fund Series (the Series). Each series is considered a separate entity for financial reporting and tax purposes. The High-Yield Municipal Bond Series (the Series) seeks to provide a high level of current income exempt from federal income tax through investment in a portfolio of lower quality municipal bonds, generally referred to as "junk bonds." These bonds are considered speculative because they involve greater price volatility and risk than higher rated bonds. The following is a summary of significant accounting policies followed in the preparation of the Series' financial statements: Valuation of Securities: The Fund's portfolio securities are valued on the basis of prices provided by an independent pricing service when, in the opinion of persons designated by the Fund's trustees, such prices are believed to reflect the fair market value of such securities. Prices of non-exchange traded portfolio securities provided by independent pricing services are generally determined without regard to bid or last sale prices but take into account institutional size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. Securities traded or dealt in upon a securities exchange and not subject to restrictions against resale as well as options and futures contracts listed for trading on a securities exchange or board of trade are valued at the last quoted sales price, or, in the absence of a sale, at the mean of the last bid and asked prices. Options not listed for trading on a securities exchange or board of trade for which over-the-counter market quotations are readily available are valued at the mean of the current bid and asked prices. Money market and short-term debt instruments with a remaining maturity of 60 days or less will be valued on an amortized cost basis. Securities not priced in a manner described above and other assets are valued by persons designated by the Fund's trustees using methods which the trustees believe accurately reflects fair value. Federal Income Taxes: It is the Series' policy to comply with the requirements of the Internal Revenue Code applicable to "regulated investment companies" and to distribute all of its taxable and tax exempt income to its shareholders. Therefore, no provision for federal income tax is required. Distributions: The Series declares dividends daily from its net investment income and pays such dividends on the last business day of each month. Distributions of net capital gain, if any, realized on sales of investments are anticipated to be made before the close of the Series' fiscal year, as declared by the Board of Trustees. Dividends are reinvested at the net asset value unless shareholders request payment in cash. General: Securities transactions are accounted for on a trade date basis. Interest income is accrued as earned. Realized gain and loss from the sale of securities are recorded on an identified cost basis. Original issue discounts and premiums are amortized over the life of the respective securities. Premiums are amortized and charged against interest income and original issue discounts are accreted to interest income. 28 FUNDAMENTAL FIXED-INCOME FUND HIGH-YIELD MUNICIPAL BOND SERIES NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- Accounting Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. 2. Investment Advisory Fees and Other Transactions with Affiliates Management Agreement The Series had a Management Agreement with Fundamental Portfolio Advisors ("FPA") until May 31, 1998. Effective June 1, 1998, the Board of Trustees terminated the agreement with FPA, and selected Tocqueville Asset Management L.P. ("TAM") as interim manager until a permanent manager is selected. Pursuant to the agreement the investment adviser to the Series is responsible for the overall management of the business affairs and assets of the Series subject to the authority of the Fund's Board of Trustees. In consideration for the services provided under the agreement, the Series will pay an annual management fee in an amount equal to .80% of the Series' average daily net assets up to $100 million, and decreasing by .02% of each $100 million increase in net assets down to .70% of net assets in excess of $500 million. TAM earned fees of $1,526 for the one month ended June 30, 1998. Total management fees for the six months ended June 30,1998 are set forth in the Statement of Operations. Plan of Distribution The Series has adopted a Distribution and Marketing Plan, pursuant to Rule 12b-1, promulgated under the Investment Company Act of 1940, under which the Series paid Fundamental Shareholder Services, Inc. ("FSC"), an affiliate of FPA, the former manager, a fee which accrued daily and paid monthly at an annual rate of .25% of the Series' average daily net assets. Amounts paid under the plan were to compensate FSC for the services it provided and the expenses it bore in distributing the Series' shares to investors. On June 1,1998 the Board of Trustees ceased authorizing payments to be paid pursuant to the plan. The amount incurred by the Series pursuant to the agreement for the six months ended June 30,1998 is set forth in the Statement of Operations. Regulatory Proceedings Against The Former Manager And Other Affiliates On September 30,1997, the Securities & Exchange Commission announced that it instituted public administrative and cease-and-desist proceedings against FPA, the former portfolio manager of the Fund, the former president of FPA and FSC, the Series' distributor until May 31, 1998. The proceeding arises for the alleged failure of the Series to disclose the risks of the Series portfolio strategy, and of FPA's failure to disclose its soft dollar arrangements to the Fund's Board of Trustees. On July 7, 1998, FPA's former president settled the administrative proceeding instituted by the Securities & Exchange Commission. Without admitting to or denying the allegations made pursuant to the administrative proceeding, FPA's former president consented to a fine of $25,000 and a bar from the industry for a period of one year. A hearing has been scheduled with respect to the other parties named in the proceedings with an administrative law judge to determine whether the allegations are true, and if so, what remedial action, if any, is appropriate. 29 FUNDAMENTAL FIXED-INCOME FUND HIGH-YIELD MUNICIPAL BOND SERIES NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- On February 19,1998 FSC and two of its executives, without admitting or denying guilt entered into an agreement with the National Association of Securities Dealers, Inc. ("NASD") whereby they accepted fines totaling $125,000 and other stipulated sanctions as well as a result of the NASD's findings that they had distributed advertising materials relating to the Series which violated NASD rules governing advertisements. Indemnification Payments to Affiliates FPA and FSC (on behalf of certain of their directors, officers, shareholders, employees and control persons) (the "Indemnitees") received payment during the fiscal year ended December 31, 1997 from three of the Fundamental Funds for attorneys' fees incurred by them in defending certain proceedings. Upon learning of the payments, the Independent Board Members of the Fundamental Funds directed that the Indemnitees return all of the payments to the Funds or place them in escrow pending their receipt of an opinion of an independent legal counsel to the effect that the Indemnitees are entitled to receive them. The charter documents and contracts that call for indemnification specify that no indemnification shall be provided to a person who shall be found to have engaged in "disabling conduct" as defined by applicable law. The Indemnities have undertaken to reimburse the Fundamental Funds for any indemnification expenses for which it is determined that they were not entitled to as a result of "disabling conduct" net of any reimbursements already made to the Funds in the form of fees forgone or other similar payments. FPA and FSC waived fees during the year ended December 31, 1997, and have asserted that they elected to forgo these fees because the Fundamental Funds were paying legal expenses pursuant to indemnification. Pending clarification of the legal issues involved, the Indemnitees have placed into an escrow account $106,863 as of April 30, 1998. The independent trustees instructed FPA to escrow the full amount incurred by the Fundamental Funds of approximately $287,000. 3. Trustees' Fees All of the Trustees of the Fund are also directors or trustees of two other affiliated mutual funds for which the Manager acts as investment adviser. For services and attendance at Board meetings and meetings of committees which are common to each fund, each Trustee who is not affiliated with the Manager is compensated at the rate of $6,500 per quarter pro rated among the funds based on their respective average net assets. The Trustees also receive additional compensation for special services as requested by the Board. 4. Shares of Beneficial Interest As of June 30, 1998, there were an unlimited number of shares of beneficial interest (no par value) authorized and capital paid in amounted to $2,406,006. Transactions in shares of beneficial interest were as follows: Six Months Ended June 30, 1998 Year Ended (Unaudited) December 31, 1997 ------------------- ------------------- Shares Amount Shares Amount ------ ------ ------ ------ Shares sold .................. 1,121,245 $8,335,346 2,941,324 $20,530,136 Shares issued on reinvestment of dividends ............... 3,488 26,039 11,426 79,995 Shares redeemed .............. (1,109,015) (8,276,341) (2,924,097) (20,398,031) --------- --------- --------- ----------- Net increase ............. 15,718 $ 85,044 28,653 $ 212,100 ========= ========= ========= =========== 30 FUNDAMENTAL FIXED-INCOME FUND HIGH-YIELD MUNICIPAL BOND SERIES NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- 5. Investment Transactions The Fund invests in variable rate securities commonly called "inverse floaters." The interest rates on these securities have an inverse relationship to the interest rate of other securities or the value of an index. Changes in interest rate on the other security or index inversely affect the rate paid on the inverse floater, and the inverse floater's price will be more volatile than that of a fixed-rate bond. Certain interest rate movements and other market factors can substantially affect the liquidity of IFRN's. The Fund invests in lower rated or unrated ("junk") securities which are more likely to react to developments affecting market risk and credit risk than would higher rated securities which react primarily to interest rate fluctuations. The Fund held securities in default with an aggregate value of $91,670 at June 30, 1998 (4.0% of net assets). As indicated in the Statement of Investments, the Troy, NY Industrial Revenue Bond, 11% due December 1, 2014 with a par value of $15,000 and a value of $6,150 at June 30, 1998 has been estimated in good faith under methods determined by the Board of Trustees. The Fund owns 1.7% of a Niagara Falls New York Urban Renewal Agency 11% Bond ("URA Bond") due to mature on May 1, 2009 which has missed interest and sinking fund payments. An affiliated investment company owns 98.3% of this bond issue. The Fund was party to an agreement whereby certain related bonds owned by an affiliate were to be subject to repayment under a debt assumption agreement. The agreement allowed the affiliate to allocate a portion of the debt services it receives to the URA Bond. In exchange the Fund forfeited certain rights it had as holder of the URA bond. The debt assumption was not completed and the timing and amount of debt service payments is uncertain. The value of this bond is $35,795 and is valued at 35.80% of face value at June 30, 1998 under methods determined by the Board of Trustees. During the six months ended June 30, 1998, the cost of purchases and proceeds from sales of investment securities, other than short-term obligations, were $200,119 and $910,363, respectively. As of June 30, 1998 net unrealized appreciation of portfolio securities amounted to $55,347, composed of unrealized appreciation of $194,096 and unrealized depreciation of $138,749. The Fund has capital loss carryforwards to offset future capital gains as follows: Amount Expiration ------- ---------- $23,500 12/31/1998 22,200 12/31/1999 20,500 12/31/2000 54,300 12/31/2002 40,000 12/31/2003 -------- $160,500 ======== 6. Agreement and Plan of Reorganization On July 16, 1997 each of Fundamental's mutual funds (consisting of: New York Muni Fund, The California Muni Fund, Fundamental Fixed Income Fund: Tax Free Money Market Series, High Yield Municipal Bond Series, and Fundamental U.S. Government Strategic Income Fund Series) have adopted, subject to shareholder approval, an Agreement and Plan of Reorganization (the "Plan") under which each fund (the "Fundamental Fund") will transfer all of its assets and liabilities to a newly-created corresponding series of The Tocqueville Trust (the "Tocqueville Fund") in exchange for shares of the Tocqueville Fund. Shareholders of each Fundamental Fund will receive shares of the corresponding Tocqueville Fund equal in value to their shares in the Fundamental Fund. Shareholders will not have to pay a sales load upon receiving shares of the Tocqueville Fund. 31 FUNDAMENTAL FIXED-INCOME FUND HIGH-YIELD MUNICIPAL BOND SERIES NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- The corresponding Tocqueville Fund will have investment objectives, polices and restrictions substantially identical to those of the Fundamental Fund. The Board of Trustees of the Tocqueville Funds is comprised of individuals other than those who currently serve as Directors (Trustees) of the Fundamental Funds. Tocqueville Asset Management L.P. is the investment adviser to the Tocqueville Funds. A majority of Fundamental's Board members determined that the Plan would be in the best interests of shareholders of the Fundamental Funds and recommended that shareholders of each of the Fundamental Funds approve the Plan at a meeting anticipated to be held in the Spring of 1998. 7. Subsequent Event On July 10, 1998 the Board of Trustees of the Fund adopted resolutions authorizing the Fund to terminate and abandon the Agreement and Plan of Reorganization adopted by the Board of Trustees on July 16, 1997. 8. Selected Financial Information
Six Months Ended Years Ended December 31, June 30, 1998 ------------------------------------------- (Unaudited) 1997 1996 1995 1994 1993 ----------- ---- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ............. $7.53 $6.86 $7.07 $5.92 $7.27 $7.30 ----- ----- ----- ----- ----- ----- Income from investment operations: Net investment income .......................... 0.15 0.37 0.47 0.34 0.43 0.39 Net realized and unrealized gains (losses) on investments .................................. (0.19) 0.67 (0.21) 1.15 (1.35) (0.03) ----- ----- ----- ----- ----- ----- Total from investment operations ............... (0.04) 1.04 0.26 1.49 (0.92) 0.36 ----- ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income ............. (0.15) (0.37) (0.47) (0.34) (0.43) (0.39) ----- ----- ----- ----- ----- ----- Net asset value, end of period ................... $7.34 $7.53 $6.86 $7.07 $5.92 $7.27 ===== ===== ===== ===== ===== ===== Total Return .....................................10.16% 15.71% 4.05% 25.70% (12.92%) 5.11% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) .......... 2,314 2,255 1,858 1,457 979 1,087 Ratios to average net assets: Expenses* .................................... 4.10% 2.58% 2.49% 2.50% 2.50% 2.50% Net investment income* ....................... 3.80% 5.12% 6.85% 5.15% 6.70% 5.40% Portfolio turnover rate .......................... 8.02% 133.79% 139.26% 43.51% 75.31% 84.89% BANK LOANS Amount outstanding at end of period (000 omitted) .................................. $ - $ - 228 379 $ - $ - Average amount of bank loans outstanding during the period (000 omitted) ................ $ - $ - $ - 61 $ - $ - Average number of shares outstanding during the period (000 omitted) ....................... 296 260 237 183 156 145 Average amount of debt per share during the period ......................................... $ - $ - $ - $0.33 $ - $ - **These ratios are after expense reimbursements of 3.52%, 4.59%, 6.22%, 6.20% and 5.76%, for each of the years ended December 31, 1997, 1996, 1995, 1994 and 1993, respectively.
32 FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND (LEFT COLUMN) STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited) - -------------------------------------------------------------------- ASSETS Investment in securities, at value (cost $7,575,429) (Notes 5 and 6) ............... $7,850,987 Cash .............................................. 397,242 Receivables: Interest ........................................ 14,985 ---------- Total assets .............................. 8,263,214 ---------- LIABILITIES Payables: Due to advisor .................................. 11,245 Dividends declared .............................. 11,538 Accrued expenses ............................... 51,176 ---------- Total liabilities ......................... 73,959 ---------- NET ASSETS consisting of: Accumulated net realized loss ...... $(16,947,949) Unrealized appreciation of securities .................... 275,558 Paid-in-capital applicable to 6,311,587 shares of beneficial interest ......................... 24,861,646 ----------- $8,189,255 ========== NET ASSET VALUE PER SHARE ........................... $1.30 ===== (RIGHT COLUMN) STATEMENT OF OPERATIONS Six Months Ended June 30, 1998 (Unaudited) - -------------------------------------------------------------------- INVESTMENT INCOME Interest income, net of $101,589 of interest expense ............................. $ 494,662 EXPENSES (Notes 2, 3 and 6) Investment advisory fees ........... 35,223 Custodian and accounting fees ...... 11,354 Transfer agent fees ................ 17,308 Professional fees .................. 73,842 Trustees' fees ..................... 1,454 Printing and postage ............... 14,931 Interest on bank borrowing ......... 1,006 Distribution expenses .............. 9,991 Other .............................. 7,662 --------- Total expense .............. 172,771 Net investment income ..................... 321,891 --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain on: Investments ...................... 1,125,973 Futures and options on futures ... (240,362) 885,611 --------- Change in unrealized appreciation (depreciation) of investments, options and futures contracts For the period: Investments .................... (1,724,395) Option contracts ............... (8,176) Futures contracts .............. 103,270 (1,629,301) --------- --------- Net loss on investments ......................... (743,690) --------- NET DECREASE IN NET ASSETS FROM OPERATIONS ................................... $(421,799) ========= STATEMENTS OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------- Six Months Ended Year Ended June 30, 1998 December 31, (Unaudited) 1997 ------------ ------------ INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS Net investment income ........................... $ 321,891 $ 807,458 Net realized gain on investments, options and futures contracts ......................... 885,611 71,015 Unrealized (depreciation) on investments, options and futures contracts ................. (1,629,301) (273,480) ----------- ----------- Net (decrease) increase in net assets from operations ............ (421,799) 604,993 DIVIDENDS PAID TO SHAREHOLDERS FROM Investment income ............................... (321,891) (807,458) CAPITAL SHARE TRANSACTIONS (Note 4) ............... (1,097,401) (2,991,556) ----------- ----------- Total decrease ........................ (1,841,091) (3,194,021) NET ASSETS Beginning of period ............................. 10,030,346 13,224,367 ----------- ----------- End of period ...................................$ 8,189,255 $10,030,346 =========== =========== See Notes to Financial Statements. 33 FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND STATEMENT OF CASH FLOWS Six Months Ended June 30, 1998 (Unaudited) - ------------------------------------------------------------------------------- CASH PROVIDED (USED) BY FINANCING ACTIVITIES: Sales of capital shares ......................... $ 301,890 Repurchase of capital shares .................... (1,629,288) ----------- Cash provided by capital share transactions ..... (1,327,398) Cash provided by borrowings ..................... (225,907) Distributions paid in cash ...................... (91,894) $(1,645,199) ----------- ----------- CASH (USED) PROVIDED BY OPERATIONS: Purchases of investments ........................ (53,701,743) Net proceeds from short-term investments ........ 0 Proceeds from sales of investments .............. 55,376,179 ----------- 1,674,436 ----------- Increase in deposit at brokers and custodian for short sales ..................... 0 Net investment income ........................... 321,891 Net change in receivables/payables related to operations ......................... 46,114 ----------- 368,005 2,042,441 ----------- ----------- Net Increase in Cash ............................ 397,242 Cash, Beginning of Year ......................... 0 ----------- Cash, End of Year ............................... $ 397,242 =========== See Notes to Financial Statements. 34 FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND STATEMENT OF INVESTMENTS June 30, 1998 (Unaudited) - ------------------------------------------------------------------------------- Principal Interest Maturity Amount Rate(d) Date Value -------- -------- -------- ----- United States Treasury Securities-100.0% United States Treasury Bills 500,000 4.81% ZCS 09/03/98 $ 495,653 1,000,000 5.00% ZCS 12/03/98 978,343 1,000,000 5.04% ZCS 03/04/99 965,423 1,000,000 5.07% ZCS 05/27/99 953,342 United States Treasury Notes 1,000,000 4.75% 09/30/98 999,063 1,000,000 5.13% 12/31/98 999,063 United States Treasury Bonds 3,900,000 0.00% PS 11/15/06 2,460,100 ---------- Total Investments (Cost $7,575,429*) $7,850,987 ========== *Cost is the same for Federal income tax purposes (d)Legend-ZCS: Zero Coupon Securities are instruments whose interest and principal are paid at maturity. PS: Principal Stripped Bonds are instruments whose principle and coupon have been separated and sold separately. See Notes to Financial Statements. 35 FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND NOTES TO FINANCIAL STATEMENTS June 30, 1998 (Unaudited) - ------------------------------------------------------------------------------- 1. Significant Accounting Policies Fundamental Fixed-Income Fund (the Fund) is an open-end management investment company registered under the Investment Company Act of 1940. The Fund operates as a series company currently issuing three classes of shares of beneficial interest, the Tax-Free Money Market Series, the High-Yield Municipal Bond Series and the Fundamental U.S. Government Strategic Income Fund Series (the Series). The objective of the Series is to provide high current income with minimum risk of principal and relative stability of net asset value. The Series seeks to achieve its objective by investing primarily in U.S. Government Obligations. U.S. Government Obligations consist of marketable securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities (hereunder collectively referred to as "Government Securities"). The Series also uses leverage in seeking to achieve its investment objective. Each series is considered a separate entity for financial reporting and tax purposes. Valuation of Securities-The Series portfolio securities are valued on the basis of prices provided by an independent pricing service when, in the opinion of persons designated by the Fund's trustees, such prices are believed to reflect the fair market value of such securities. Prices of non-exchange traded portfolio securities provided by independent pricing services are generally determined without regard to bid or last sale prices but take into account institutional size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. Securities traded or dealt in upon a securities exchange and not subject to restrictions against resale as well as options and futures contracts listed for trading on a securities exchange or board of trade are valued at the last quoted sales price, or, in the absence of a sale, at the mean of the last bid and asked prices. Options not listed for trading on a securities exchange or board of trade for which over-the-counter market quotations are readily available are valued at the mean of the the current bid and asked prices. Money market and short-term debt instruments with a remaining maturity of 60 days or less will be valued on an amortized cost basis. Securities not priced in a manner described above and other assets are valued by persons designated by the Fund's trustees using methods which the trustees believe reflect fair value. Futures Contracts-Initial margin deposits with respect to these contracts are maintained by the Fund's custodian in segregated asset accounts. Subsequent changes in the daily valuation of open contracts are recognized as unrealized gains or losses. Variation margin payments are made or received as daily appreciation or depreciation in the value of these contracts occurs. Realized gains or losses are recorded when a contract is closed. Repurchase Agreements-The Series may invest in repurchase agreements, which are agreements pursuant to which securities are acquired from a third party with the commitment that they will be repurchased by the seller at a fixed price on an agreed upon date. The Series may enter into repurchase agreements with banks or lenders meeting the creditworthiness standards established by the Board of Trustees. The resale price reflects the purchase price plus an agreed upon market rate of interest which is unrelated to the coupon rate or date of maturity of the purchased security. The Series' repurchase agreements will at all times be fully collateralized in an amount equal to the purchase price including accrued interest earned on the underlying security. 36 FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - ------------------------------------------------------------------------------- Reverse Repurchase Agreements-The Series may enter into reverse repurchase agreements with the same parties with whom it may enter into repurchase agreements. Under a reverse repurchase agreement, the Series sells securities and agrees to repurchase them at a mutually agreed upon date and price. Under the Investment Company Act of 1940 reverse repurchase agreements are generally regarded as a form of borrowing. At the time the Series enters into a reverse repurchase agreement it will establish and maintain a segregated account with its custodian containing securities from its portfolio having a value not less than the repurchase price including accrued interest. Federal Income Taxes-It is the Series' policy to comply with the requirements of the Internal Revenue Code applicable to "regulated investment companies" and to distribute all of its taxable and tax exempt income to its shareholders. Therefore, no provision for federal income tax is required. Distributions-The Series declares dividends daily from its net investment income and pays such dividends on the last business day of each month. Distributions of net capital gain, if any, realized on sales of investments are anticipated to be made before the close of the Series' fiscal year, as declared by the Board of Trustees. Dividends are reinvested at the net asset value unless shareholders request payment in cash. General-Securities transactions are accounted for on a trade date basis. Interest income is accrued as earned. Realized gain and loss from the sale of securities are recorded on an identified cost basis. Discounts and premiums are amortized over the life of the respective securities. Premiums are charged against interest income and discounts are accreted to interest income. Accounting Estimates-The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. 2. Investment Advisory Fees and Other Transactions With Affiliates Management Agreement The Series had a Management Agreement with Fundamental Portfolio Advisors ("FPA") until May 31, 1998. Effective June 1, 1998, the Board of Trustees terminated the agreement with FPA, and selected Tocqueville Asset Management L.P. ("TAM") as interim manager until a permanent manager is selected. Pursuant to the agreement the investment adviser to the Series is responsible for the overall management of the business affairs and assets of the Series subject to the authority of the Fund's Board of Trustees. In consideration for the services provided under the respective agreements, the Series will pay an annual management fee in an amount equal to .75% of the Series' average daily net assets up to $500 million, .725% on the next $500 million, and .70% per annum on assets over $1 billion. TAM earned fees of $5,250 for the one month ended June 30, 1998. Total management fees for the six months ended June 30,1998 are set forth in the Statement of Operations. 37 FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - ------------------------------------------------------------------------------- Plan of Distribution The Series has adopted a Distribution and Marketing Plan, pursuant to Rule 12b-1, promulgated under the Investment Company Act of 1940, under which the Series paid Fundamental Shareholder Services, Inc. ("FSC"), an affiliate of FPA, the former manager, a fee which accrued daily and paid monthly at an annual rate of .25% of the Series' average daily net assets. Amounts paid under the plan were to compensate FSC for the services it provided and the expenses it bore in distributing the Series' shares to investors. On June 1,1998 the Board of Trustees ceased authorizing payments to be paid pursuant to the plan. The amount incurred by the Series pursuant to the agreement for the six months ended June 30,1998 is set forth in the Statement of Operations. Regulatory Proceedings Against The Former Manager And Other Affiliates On September 30,1997, the Securities & Exchange Commission announced that it instituted public administrative and cease-and-desist proceedings against FPA, the former portfolio manager of the Fund, the former president of FPA and FSC, the Series' distributor until May 31, 1998. The proceeding arises for the alleged failure of the Series to disclose the risks of the Series portfolio strategy, and of FPA's failure to disclose its soft dollar arrangements to the Fund's Board of Trustees. On July 7, 1998, FPA's former president settled the administrative proceeding instituted by the Securities & Exchange Commission. Without admitting to or denying the allegations made pursuant to the administrative proceeding, FPA's former president consented to a fine of $25,000 and a bar from the industry for a period of one year. A hearing has been scheduled with respect to the other parties named in the proceedings with an administrative law judge to determine whether the allegations are true, and if so, what remedial action, if any, is appropriate. On February 19,1998, FSC and two of its executives, without admitting or denying guilt entered into an agreement with the National Association of Securities Dealers, Inc. ("NASD") whereby they accepted fines totaling $125,000 and other stipulated sanctions as well as a result of the NASD's findings that they had distributed advertising materials relating to the Series which violated NASD rules governing advertisements. Indemnification Payments to Affiliates FPA and FSC (on behalf of certain of their directors, officers, shareholders, employees and control persons) (the "Indemnitees") received payment during the fiscal year ended December 31, 1997 from the Fund in the amount of approximately $232,500. Upon learning of the payments, the Independent Board Members of the Fund directed that the Indemnitees return all of the payments to the Fund or place them in escrow pending their receipt of an opinion of an independent legal counsel to the effect that the Indemnitees are entitled to receive them. The Declaration of Trust, and contracts that call for indemnification specify that no indemnification shall be provided to a person who shall be found to have engaged in "disabling conduct" as defined by applicable law. The Indemnities have undertaken to reimburse the Fund for any indemnification expenses for which it is determined that they were not entitled to as a result of "disabling conduct" net of any reimbursements already made to the fund in the form of fees forgone or other similar payments. FPA and FSC waived fees in the amount of $96,077 and $29,560, respectively for the year ended December 31, 1997. FPA and FSC have asserted that they elected to forgo these fees because the Fund was paying legal expenses pursuant to indemnification. Pending clarification of the legal issues involved, the Indemnitees have placed into an escrow account $102,863 as of April 30, 1998. The independent trustees instructed FPA to escrow the full amount incurred by the Series of approximately $232,500. In addition the Board of Trustees has not authorized the payment of management fees to the amount of $5,996 prior to the termination of the management agreement. 38 FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - ------------------------------------------------------------------------------- Commissions Paid to Affiliate The Series effects a significant portion of its futures and options transactions through LAS Investments, Inc. (LAS), an affiliated broker-dealer. Commissions paid to LAS amounted to approximately $6,752 for the six months ended June 30, 1998. 3. Trustees' Fees All of the Trustees of the Fund are also directors or trustees of two other affiliated mutual funds for which the Manager acts as investment adviser. For services and attendance at Board meetings and meetings of committees which are common to each fund, each Trustee who is not affiliated with the Manager is compensated at the rate of $6,500 per quarter pro rated among the funds based on their respective average net assets. The Trustees also receive additional compensation for special services as requested by the Board. 4. Shares of Beneficial Interest As of June 30, 1998 there were an unlimited number of shares of beneficial interest (no par value) authorized and capital paid-in amounted to $24,861,646. Transactions in shares of beneficial interest were as follows: Six Months Ended June 30, 1998 Year Ended (Unaudited) December 31, 1997 ---------------- ----------------- Shares Amount Shares Amount ------ ------ ------ ------ Shares sold ................ 217,007 $ 301,890 521,491 $ 732,057 Shares issued on reinvestment of dividends 164,781 229,997 457,380 642,058 Shares redeemed ............ (1,186,889) (1,629,288) (3,119,211) (4,365,671) --------- ---------- --------- --------- Net decrease ............... (805,101) ($1,097,401) (2,140,340)($2,991,556) ========= ========== ========= ========== 5. Complex Services, Off Balance Sheet Risks and Investment Transactions Two-Tiered Index Floating Rate Bonds (TTIB): The Fund invests in Two-Tiered Index Floating Rate Bonds. The term two-tiered refers to the two coupon levels that the TTIB's coupon can reset to. The "first tier" is the TTIB's fixed rate coupon, effective as long as the underlying index is at or below the strike level. Above the strike, the TTIB coupon resets to a formula similar to an inverse floating rate note. See discussion of inverse floating rate notes below. Changes in interest rate on the underlying security or index affect the rate paid on the TTIB, and the TTIB's price will be more volatile than that of a fixed-rate bond. Inverse Floating Rate Notes (IFRN): The Fund invests in variable rate securities commonly called "inverse floaters". The interest rates on these securities have an inverse relationship to the interest rate of other securities or the value of an index. Changes in interest rate on the other security or index inversely affect the rate paid on the inverse floater, and the inverse floater's price will be more volatile than that of a fixed-rate bond. Certain interest rate movements and other market factors can substantially affect the liquidity of IFRN's. 39 FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - ------------------------------------------------------------------------------- Futures Contracts and Options on Futures Contracts: The Fund invests in futures contracts consisting primarily of US Treasury Bond Futures. A futures contract is an agreement between two parties to buy and sell a security for a set price on a future date. Futures contracts are traded on designated "contract markets" which through their clearing corporations, guarantee performance of the contracts. In addition the fund invests in options on US Treasury Bond Futures which gives the holder a right to buy or sell futures contracts in the future. Unlike a futures contract which requires the parties to the contract to buy and sell a security on a set date, an option on a futures contract entitles its holder to decide before a future date whether to enter into such a futures contract. Both types of contracts are marked to market daily and changes in valuation will affect the net asset value of the Fund. The Fund's principal objective in holding or issuing derivative financial instruments is as a hedge against interest-rate fluctuations in its US Government bond portfolio, and to enhance its total return. The Fund's principal objective is to maximize the level of interest income while maintaining acceptable levels of interest-rate and liquidity risk. To achieve this objective, the Fund uses a combination of derivative financial instruments principally consisting of US Treasury Bond Futures and Options on US Treasury Bond Futures. Typically the Fund sells treasury bond futures contracts or writes treasury bond option contracts. These activities create off balance sheet risk since the Fund may be unable to enter into an offsetting position and under the terms of the contract deliver the security at a specified time at a specified price. The cost to the Fund of acquiring the security to deliver may be in excess of recorded amounts and result in a loss to the Fund. The following table summarizes option contracts written by the Series for the six months ended June 30, 1998: Number of Premiums Realized Contracts Received Cost Gain --------- -------- ---- -------- Contracts outstanding December 31, 1997 .............. 40 $ 18,801 Options written .................. 315 162,717 Contracts closed or expired ...... (355) (181,518) $135,070 $46,448 --- -------- Contracts outstanding June 30, 1998 .................. 0 $ 0 === ======== Other Investment Transactions For the six months ended June 30, 1998, the cost of purchases and proceeds from sales of investment securities, other than short-term obligations, were $7,806 and $12,043,063, respectively. As of June 30, 1998, the Fund had no unrealized appreciation or depreciation for tax purposes since it has elected to recognize market value changes each day for tax purposes. 40 FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - ------------------------------------------------------------------------------- The Fund has capital loss carryforwards to offset future capital gains as follows: Amount Expiration ------ ---------- $15,000,500 12/31/2002 588,100 12/31/2004 202,500 12/31/2005 ----------- $15,791,100 =========== 6. Borrowing The Fund has line of credit agreements with banks collateralized by cash and portfolio securities to the extent of the amounts borrowed. Borrowings under this agreement bear interest linked to the bank's prime rate. The Series enters into reverse repurchase agreements collateralized by portfolio securities equal in value to the repurchase price. The maximum month-end and the average amount of borrowing outstanding under these arrangements during the six months ended June 30, 1998 were approximately $4,140,000 and $4,083,750. 7. Agreement and Plan of Reorganization On July 16, 1997 each of Fundamental's mutual funds (consisting of: New York Muni Fund, The California Muni Fund, Fundamental Fixed Income Fund: Tax Free Money Market Series, High Yield Municipal Bond Series, and Fundamental U.S. Government Strategic Income Fund Series) have adopted, subject to shareholder approval, an Agreement and Plan of Reorganization (the "Plan") under which each fund (the "Fundamental Fund") will transfer all of its assets and liabilities to a newly-created corresponding series of The Tocqueville Trust (the "Tocqueville Fund") in exchange for shares of the Tocqueville Fund. Shareholders of each Fundamental Fund will receive shares of the corresponding Tocqueville Fund equal in value to their shares in the Fundamental Fund. Shareholders will not have to pay a sales load upon receiving shares of the Tocqueville Fund. The corresponding Tocqueville Fund will have investment objectives, polices and restrictions substantially identical to those of the Fundamental Fund. The Board of Trustees of the Tocqueville Funds is comprised of individuals other than those who currently serve as Directors (Trustees) of the Fundamental Funds. Tocqueville Asset Management L.P. is the investment adviser to the Tocqueville Funds. A majority of Fundamental's Board members determined that the Plan would be in the best interests of shareholders of the Fundamental Funds and recommended that shareholders of each of the Fundamental Funds approve the Plan at a meeting anticipated to be held in the Spring of 1998. 8. Subsequent Event On July 10, 1998 the Board of Trustees of the Fund adopted resolutions authorizing the Fund to terminate and abandon the Agreement and Plan of Reorganization adopted by the Board of Trustees on July 16, 1997. 41 FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1998 (Unaudited) - ------------------------------------------------------------------------------- 9. Selected Financial Information
Six Months Year Year Year Year Year Ended Ended Ended Ended Ended Ended June 30,1998 December 31, December 31, December 31, December 31, December 31, Unaudited 1997 1996 1995 1994 1993 ----------- ---- ---- ---- ---- ---- Per share operating performance (for a share outstanding throughout the period) Net asset value, beginning of period $ 1.41 $ 1.43 $ 1.49 $ 1.37 $ 2.01 $ 2.02 ------ ------ ------ ------ ------ ------ Income from investment operations Net investment income 0.05 0.10 0.13 0.08 0.14 0.16 Net realized and unrealized gain/(loss) on investments (0.11) (0.02) (0.06) 0.12 (0.64) - ------ ------ ------ ------ ------ ------ Total from investment operations (0.06) 0.08 0.07 0.20 (0.50) 0.16 ------ ------ ------ ------ ------ ------ Less distributions Dividends from net investment income (0.05) (0.10) (0.13) (0.08) (0.14) (0.16) Dividends from net realized gains - - - - - (0.01) ------ ------ ------ ------ ------ ------ Net asset value, end of period $ 1.30 $ 1.41 $ 1.43 $ 1.49 $ 1.37 $ 2.01 ====== ====== ====== ====== ====== ====== Total return (1.08%) 5.51% 5.02% 15.43% (25.57%) 8.14% Ratios/supplemental data: Net assets, end of period (000 omitted) $8,189 $10,030 $13,224 $15,194 $19,020 $63,182 Ratios to average net assets Interest expense (a) 0% 2.75% 2.61% 3.00% 2.01% 1.54% Operating expenses 3.66% 5.75% 3.41% 3.05% 2.16% 1.39% ------ ------ ------ ------ ------ ------ Total expenses+ (a) 3.66% 8.50% 6.02% 6.05% 4.17% 2.93% ====== ====== ====== ====== ====== ====== Net investment income+ 6.86% 6.83% 9.01% 5.91% 8.94% 7.85% Portfolio turnover rate 0.06% 12.55% 12.65% 114.36% 60.66% 90.59% Borrowings Amount outstanding at end of period (000 omitted) - $ 4,969 $ 6,610 $ 7,481 $ 9,674 $31,072 Average amount of debt outstanding during the period (000 omitted) - $ 5,967 $ 6,577 $ 7,790 $16,592 $28,756 Average number of shares outstanding during the period (000 omitted) 6,833 8,433 9,764 11,571 21,436 28,922 Average amount of debt per share during the period - $ .71 $ .67 $ .67 $ .77 $ .99 +These ratios are after expense reimbursement of 1.37%, 2.02%, 1.0% and .13% for the years ended December 31, 1997, 1996, 1995 and 1993, respectively. (a)The ratios for each of the years in the four year period ending December 31, 1996 have been reclassified to conform with the 1997 presentations.
42 (left colmun) Interim Investment Adviser Tocqueville Asset Management L.P. 1675 Broadway New York, New York 10019 Independent Auditors McGladrey & Pullen, LLP New York, New York 10017 Legal Counsel Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, New York 10022 These reports and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. These reports are not authorized for distribution to prospective investors in the Funds unless preceded or accompanied by an effective prospectus. (right column) - -------------------------------------------------------------------------------- Semi-Annual Report June 30, 1998 NEW YORK MUNI FUND(R) THE CALIFORNIA MUNI FUND FUNDAMENTAL FIXED-INCOME FUND TAX-FREE MONEY MARKET SERIES HIGH-YIELD MUNICIPAL MARKET SERIES FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND FUNDAMENTAL Fundamental Family of Funds - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----