-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, FSCzR/XoMKLplDqgJFgbE5WhqwUaixvdGSp9hfuCP+YZIR3m5+5juUmeW0ULnyZN xMrHKOsz9Eg5du7e2W+ljg== 0000922423-95-000138.txt : 19950626 0000922423-95-000138.hdr.sgml : 19950626 ACCESSION NUMBER: 0000922423-95-000138 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19950623 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FUNDAMENTAL FIXED INCOME FUND CENTRAL INDEX KEY: 0000811668 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-12738 FILM NUMBER: 95548760 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-05063 FILM NUMBER: 95548761 BUSINESS ADDRESS: STREET 1: 90 WASHINGTON ST - 19TH FL CITY: NEW YORK STATE: NY ZIP: 10006 BUSINESS PHONE: 2126353005 FORMER COMPANY: FORMER CONFORMED NAME: FUNDAMENTAL PORTFOLIO ADVISORS FIXED INCOME FUND DATE OF NAME CHANGE: 19870715 485APOS 1 As filed with the Securities and Exchange Commission on June 23, 1995. File No. 33-12738 ICA No. 811-5063 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Pre-Effective Amendment No. _____ [ ] Post-Effective Amendment No. 16 [X] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] Amendment No. 18 [X] Fundamental Fixed Income Fund (Exact name of registrant as specified in charter) 90 Washington Street 19th Floor New York, New York 10006 (Address of principal executive office) (212) 635-3000 (Area code and telephone number) Copies to: Vincent J. Malanga Carl Frischling, Esq. 90 Washington Street Kramer, Levin, Naftalis, 19th Floor Nessen, Kamin & Frankel New York, New York 10006 919 Third Avenue New York, New York 10022 ________________________________________________________________ (Name and Address of Agent for Service) PAGE It is proposed that this filing will become effective: /_/ Immediately upon filing /_/ on ( ) pursuant to pursuant to paragraph (b) paragraph (b) /_/ 60 days after filing /_/ on ( ) pursuant to pursuant to paragraph (a)(1) paragraph (a)(1) /X/ 75 days after filing /_/ on ( ) pursuant to pursuant to paragraph (a)(2) of paragraph (a)(2) rule 485. If appropriate, check the following box: /_/ This post-effective amendment designates a new effective date for a previously filed post-effective amendment. Registrant has registered an indefinite number of Shares pursuant to Rule 24f-2 and its Rule 24f-2 Notice for its 1994 fiscal year was filed on February 24, 1995, in accordance with Rule 24f-2. PAGE FUNDAMENTAL FIXED INCOME FUND DAILY CASH RESERVES SERIES REGISTRATION STATEMENT ON FORM N-1A CROSS REFERENCE SHEET Form N-1A Item Number Prospectus Part A Prospectus Caption Page Number 1. Cover Page............................ 1 2. Fee Table............................. 3 3. * 4. Investment Objective and Policies; Other Information..................... 5; 7; 21 5.(a) Management............................ 12 (b) Management (c) * (d) General Information................... 21 (e) Management............................ 12 (f) * 5A. * 6.(a) General Information................... (b) * (c) * (d) * (e) Other Information; Cover Page......... 21; 1 (f) Information about Shares of Daily Cash Reserves................. 20 (g) Information about Shares of Daily Cash Reserves................. 20 7.(a) Information about Shares of Daily Cash Reserves................. 20 (a) Information about Shares of Daily Cash Reserves................. 20 (c) Information about Shares of Daily Cash Reserves................. 20 (d) Information about Shares of Daily Cash Reserves................. 20 (e) * (f) Information about Shares of Daily Cash Reserves................. 20 8. Information about Shares of Daily Cash Reserves................. 20 9. * __________________ * Not Applicable PAGE Statement of Statement of Additional Information Additional Information Part B Caption Page Number 10. Cover Page.................. 1 11. Table of Contents........... 2 12. * 13. Investment Objectives and Policies.............. 3 14. Management of the Fund...... 10 15. Other Information........... 36 16.(a) Management of the Fund; Investment Manager........ 15; 20 (b) Investment Manager.......... 20 (c) * (d) * (e) * (f) Distribution Plan........... 18 (g) * (h) Custodian and Independent Accountants............... 24 (i) * 17.(a) Portfolio Transactions...... 22 (b) * (c) Portfolio Transactions...... 22 (d) * (e) * 18. Description of Shares....... 32 19.(a) See prospectus under Purchase of Shares and Net Asset Value - How to Purchase Shares (b) Determination of Net Asset Value............... 33 (c) * 20. Dividends and Tax Matters... 24 21. Distribution Plan........... 18 22. Calculation of Yield........ 34 23. * Part C Information required to be included in Part C is set forth under the appropriate Item so numbered in Part C to this Registration Statement. __________________________ *Not Applicable PAGE FUNDAMENTAL FIXED-INCOME FUND REGISTRATION STATEMENT ON FORM N-1A CROSS REFERENCE SHEET High-Yield Municipal Bond Series Tax-Free Money Market Series Form N-1A Item Number Part A Prospectus Caption 1. Cover Page 2. Annual Operating Expenses 3. Financial Highlights 4. Investment Objective and Policies; Investment Considerations and Restrictions; General Information 5.(a) Management (b) Management (c) * (d) General Information - Investor Services (e) Management (f) * 6.(a) Information About Shares - Description of Shares (b) * (c) * (d) * (e) General Information; Cover Page (f) Information About Shares - Dividends and Taxes (g) Information About Shares - Dividends and Taxes 7.(a) Information About Shares - Distribution Expenses (b) Information About Shares - Purchase Price and Net Asset Value (c) General Information - Exchangeability of Shares (d) Information About Shares - How to Purchase Shares (e) * (f) Distribution Expenses 8. Information About Shares - Redemptions 9. * ___________ * Not Applicable Part B. Statement Caption 10. Cover Page 11. Table of Contents 12. * 13. Investment Objective and Policies 14. Management of the Fund 15. Other Information 16.(a) Management of the Fund; Investment Manager (b) Investment Manager (c) * (d) * (e) * (f) Distribution Plan (g) * (h) Custodian and Independent Accountants (i) * 17.(a) Portfolio Transactions (b) * (c) Portfolio Transactions (d) * (e) * 18. Description of Shares 19.(a) See prospectus under Information About Shares - How to Purchase Shares (b) Determination of Net Asset Value (c) * 20. Taxes 21. Distribution Plan 22. Calculation of Yield and Average Annual Total Return 23. Financial Statements Part C Information required to be included in Part C is set forth under the appropriate Item so numbered in Part C to this Registration Statement. _________________________ * Not Applicable Fundamental Family of Funds Daily Cash Reserves 90 Washington Street New York, New York 10006 1-800-225-6864 Prospectus , 1995 This Prospectus pertains to Daily Cash Reserves Series ("Daily Cash Reserves") of the Fundamental Fixed-Income Fund (the "Fund"), an open-end, non-diversified management investment company (commonly referred to as a mutual fund). The investment objective of Daily Cash Reserves is to seek to provide as high a level of current income as is consistent with the preservation of capital and liquidity. Shares of Daily Cash Reserves are neither insured nor guaranteed by the United States Government. There is no assurance that Daily Cash Reserves will be able to maintain a stable net asset value of $1.00 per share or that Daily Cash Reserves' investment objective will be achieved. Mutual fund shares are not deposits of or guaranteed by any depository institution, bank or the FDIC and are subject to investment risk including the possible loss of principal. This Prospectus concisely sets forth the information about Daily Cash Reserves that you should know before investing. You should read and retain this Prospectus for your future reference. More information about Daily Cash Reserves is included in the Statement of Additional Information, also dated , 1995, which has been filed with the Securities and Exchange Commission and is incorporated into this Prospectus by reference. A copy of the Statement of Additional Information may be obtained free of charge by writing to the Fund at the address listed above, or by calling (800) 322-6864. Shareholder inquiries may also be placed through this number. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES AGENCY NOR HAS THE COMMISSION OR ANY STATE SECURITIES AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PAGE Contents Fee Table. . . . . . . . . . . . . . . . . . . . . . . . . . 3 Investment Objective and Policies. . . . . . . . . . . . . . 4 Obligations Issued by Banks (U.S. and Foreign). . . . . 4 Short-Term Corporate Obligations. . . . . . . . . . . . 5 Repurchase Agreements . . . . . . . . . . . . . . . . . 6 Reverse Repurchase Agreements . . . . . . . . . . . . . 6 Delayed Delivery Arrangements and When-Issued Securities . . . . . . . . . . . . . . . . . . . . 7 Investment Restrictions. . . . . . . . . . . . . . . . . . . 8 Management . . . . . . . . . . . . . . . . . . . . . . . . . 8 Information about Shares of Daily Cash Reserves. . . . . . . . . . . . . . . . . . . . . 10 Description of Shares . . . . . . . . . . . . . . . . . 10 How to Purchase Shares. . . . . . . . . . . . . . . . . 11 Methods of Payment. . . . . . . . . . . . . . . . . . . 11 Purchase Price and Net Asset Value. . . . . . . . . . . 12 Distribution Expenses . . . . . . . . . . . . . . . . . 12 Redemptions . . . . . . . . . . . . . . . . . . . . . . 13 Transfers . . . . . . . . . . . . . . . . . . . . . . . 16 Tax Sheltered Retirement Plans. . . . . . . . . . . . . 16 Dividends and Taxes . . . . . . . . . . . . . . . . . . 17 General Information. . . . . . . . . . . . . . . . . . . . . 17 Investor Services . . . . . . . . . . . . . . . . . . . 17 Calculation of Yield. . . . . . . . . . . . . . . . . . 18 Exchangeability of Shares . . . . . . . . . . . . . . . 18 Statement of Additional Information . . . . . . . . . . 19 Other Information . . . . . . . . . . . . . . . . . . . 19 PAGE FEE TABLE The following table sets forth the estimated annual operating expenses of Daily Cash Reserves expressed as a percentage of the average net assets of Daily Cash Reserves and a hypothetical illustration of the amount of operating expenses of Daily Cash Reserves that would be incurred by an investor purchasing $1000 of shares of Daily Cash Reserves who redeems his or her investment at the end of one and three years. Estimated Annual Operating Expenses (as a percentage of average net assets) Management fees .50% 12b-1 fees1 .50% Other expenses, net of reimbursement .25% Total operating expenses 1.25% Example: You would pay the following expenses on a $1000 investment assuming (1) a 5% annual return and (2) redemption at the end of each time period: 1 Year 3 Years $13 $40 1As a result of distribution fees of .50% per annum of the Fund's average daily net assets, a long-term shareholder may pay more than the economic equivalent of the maximum front-end sales charge permitted by the National Association of Securities Dealers, Inc. The purpose of the preceding table is to assist an investor in Daily Cash Reserves in understanding the various costs and expenses that will be directly or indirectly borne by such investor. The example set forth in the above table is for information purposes only and should not be considered as a representation of past or future expenses of Daily Cash Reserves or of past or future returns on an investment in Daily Cash Reserves. Actual expenses of Daily Cash Reserves and the return on an investment in Daily Cash Reserves may vary significantly from the expenses and investment return assumed in the above example. For further information regarding management fees, 12b-1 fees, and other expenses of Daily Cash Reserves, see "Management" and "Information about Shares of Daily Cash Reserves Distribution Expenses" in this Prospectus and "Management of the Fund" and Distribution Plan in the Statement of Additional Information. 1 PAGE INVESTMENT OBJECTIVE AND POLICIES Daily Cash Reserves seeks to provide as high a level of current income as is consistent with the preservation of capital and liquidity. The investment objective of Daily Cash Reserves is a fundamental policy, which may not be changed without the approval of the shareholders of Daily Cash Reserves. Daily Cash Reserves invests only in U.S. dollar-denominated securities which are rated in one of the two highest rating categories for debt obligations by at least two nationally recognized statistical rating organizations ("NRSROs") (or one NRSRO if the instrument was rated by only one such organization) or, if unrated, are of comparable quality as determined in accordance with procedures established by the Board of Trustees. The NRSROs currently rating instruments of the type Daily Cash Reserves may purchase are Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff and Phelps, Inc., Fitch Investors Service, Inc., IBCA Limited and IBCA Inc. (See the SAI for information with respect to rating criteria for each NRSRO.) Investments in rated securities not rated in the highest category by at least two NRSROs (or one NRSRO if the instrument was rated by only one such organization), and unrated securities not determined by the Board of Trustees to be comparable to those rated in the highest category, will be limited to 5% of Daily Cash Reserves's total assets, with the investment in any such issuer being limited to not more than the greater of 1% of Daily Cash Reserves's total assets or $1 million. Daily Cash Reserves may invest in obligations issued or guaranteed by the U.S. Government without any such limitation. Daily Cash Reserves invests in such high quality debt obligations with relatively short maturities. Unless otherwise stated, the investment policies and restrictions set forth below and in the SAI are not fundamental policies, and may be changed by the Board of Trustees, with notice to shareholders. Daily Cash Reserves seeks to achieve its objective by investing at least 80% of its assets in U.S. Government Obligations (which consist of marketable securities and instruments issued or guaranteed by the U.S. Government or by its agencies or instrumentalities), in bank instruments, in corporate commercial instruments and in other corporate instruments which mature in thirteen months or less (collectively, "Money Market Obligations"). 2 PAGE Obligations Issued by Bank (U.S. and Foreign) Daily Cash Reserves may invest up to 100% of its assets in obligations issued by banks, and up to 10% of its assets in obligations issued by any one bank, subject to the provisions of Rule 2a-7 of the Investment Company Act of 1940 (the "1940 Act"). If the bank is a domestic bank, it must be a member of the FDIC. Daily Cash Reserves may invest in U.S. dollar-denominated obligations issued by foreign branches of domestic banks or foreign branches of foreign banks ("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee dollar" obligations). Daily Cash Reserves will limit its aggregate investments in foreign bank obligations, including Eurodollar obligations and Yankee dollar obligations, to 25% of its total assets at the time of purchase, provided that there is no limitation upon Daily Cash Reserves' investments in (a) Eurodollar obligations, if the domestic parent of the foreign branch issuing the obligation is unconditionally liable in the event that the foreign branch fails to pay on the Eurodollar obligation for any reason; and (b) Yankee dollar obligations, if the United States branch of the foreign bank is subject to the same regulation as the United States banks. Eurodollar, Yankee dollar and other foreign bank obligations include time deposits, which are non-negotiable deposits maintained in a bank for a specified period of time at a stated interest rate. Daily Cash Reserves will limit its purchases of time deposits to those which mature in seven days or less, and will limit its purchases of time deposits maturing in two to seven days to 10% of Daily Cash Reserves' total assets at the time of purchase. Eurodollar, Yankee dollar and other foreign obligations involve special investment risks, including the possibility that liquidity could be impaired because of future political and economic developments, that the obligations may be less marketable than comparable domestic obligations of domestic issuers, that a foreign jurisdiction might impose withholding taxes on interest income payable on those obligations, that deposits may be seized or nationalized, that foreign governmental restrictions such as exchange controls may be adopted which might adversely affect the payment of principal and interest on those obligations, that the selection of foreign obligations may be more difficult because there may be less information publicly available concerning foreign issuers, that there may be difficulties in enforcing a judgment against a foreign issuer or that the accounting, auditing and financial reporting standards, practices and requirements applicable to foreign issuers may differ from those applicable to domestic issuers. In addition, foreign banks are not subject to examination by U. S. Government agencies or instrumentalities. PAGE Short-Term Corporate Obligations Daily Cash Reserves may invest in short-term corporate obligations and instruments, including but not limited to corporate commercial paper, notes, bonds and debentures. Corporate commercial instruments generally consist of short-term unsecured promissory notes issued by corporations. Daily Cash Reserves may also purchase variable amount master demand notes, which are unsecured demand notes that permit investment of fluctuating amounts of money at variable rates of interest pursuant to arrangements with issuers who meet the foregoing quality criteria. The interest rate on a variable amount master demand note is periodically redetermined according to a prescribed formula. Although there is no secondary market in master demand notes, the payee may demand payment of the principal and interest upon notice not exceeding five business or seven calendar days. Daily Cash Reserves may also invest in participation interests in loans extended by banks to companies, provided that both such banks and such companies meet the quality standards set forth above. (See the SAI for information with respect to corporate commercial instruments and bond ratings.) Daily Cash Reserves may also invest in fixed or variable rate debt units representing an undivided interest in a trust's distributions of principal and interest that the trust receives from an underlying portfolio of bonds issued by a highly rated corporate or U.S. Government agency issuer and/or payments from re-characterized distributions made possible by the swap of certain payments due on the underlying bonds. Daily Cash Reserves' investment will be limited solely to the debt units and in each case, must meet the credit quality standards under Rule 2a-7 of the 1940 Act. Debt units will be purchased by Daily Cash Reserves as an institutional accredited investor pursuant to a private placement memorandum. Sale of debt units will be effected pursuant to Rule 144A or other exemptions from registration under the Securities Act of 1933, subject to the eligibility of the transferee and compliance with trust agreement requirements. The Manager will monitor the liquidity of the debt units under the supervision of the Fund's Board of Trustees. In the pursuit of its objective and policies, from time to time Daily Cash Reserves may engage in the following strategies: Repurchase Agreements Under a repurchase agreement, Daily Cash Reserves acquires ownership of an obligation and the seller agrees, at the time of the sale, to repurchase the obligation at a mutually agreed upon time and price, thereby determining the yield during Daily Cash Reserves' holding period. This arrangement results in a fixed rate of return insulated from market fluctuations during such period. Although the underlying collateral for repurchase agreements may have maturities exceeding one year, Daily Cash Reserves will not enter into a repurchase agreement if as a result of such investment more than 10% of Daily Cash Reserves' total assets would be invested in illiquid securities, including repurchase agreements which expire in more than seven days. Daily Cash Reserves may, however, enter into a "continuing contract" or "open" repurchase agreement under which the seller is under a continuing obligation to repurchase the underlying obligation from Daily Cash Reserves on demand and the effective interest rate is negotiated on a daily basis. In general, Daily Cash Reserves will enter into repurchase agreements only with domestic banks with total assets of at least $1.5 billion or with primary dealers in U.S. Government securities. However, the total assets of a bank will not be the sole factor determining Daily Cash Reserves's investment decisions, and Daily Cash Reserves may enter into repurchase agreements with other institutions which the Board of Trustees believes present minimal credit risk. Nevertheless, if the seller of a repurchase agreement fails to repurchase the obligation in accordance with the terms of the agreement, Daily Cash Reserves may incur a loss to the extent that the proceeds realized on the sale of the underlying obligation are less than the repurchase price. Repurchase agreements may be considered loans to the seller of the underlying security. Reverse Repurchase Agreements Daily Cash Reserves may also enter into reverse repurchase agreements, which involve the sale by Daily Cash Reserves of a portfolio security at an agreed upon price, date and interest payment. Daily Cash Reserves will enter into reverse repurchase agreements for temporary or defensive purposes to facilitate the orderly sale of portfolio securities to accommodate abnormally heavy redemption requests should they occur, or in some cases as a technique to enhance income. Daily Cash Reserves will generally use reverse repurchase agreements when the interest income to be earned from the investment of the proceeds is greater than the interest expense of the reverse repurchase transaction. Daily Cash Reserves will enter into reverse repurchase agreements only in amounts up to 10% of the value of its total assets at the time of entering into such agreements. Reverse repurchase agreements involve the risk that the market value of securities retained by Daily Cash Reserves in lieu of liquidation may decline below the repurchase price of the securities sold by Daily Cash Reserves which it is obligated to repurchase. The risk, if encountered, could cause a reduction in the net asset value of Daily Cash Reserves' shares. Reverse repurchase agreements are considered to be borrowings under the 1940 Act. (See "Investment Restrictions" in the SAI for percentage limitations on borrowings.) PAGE Delayed Delivery Arrangements and When-Issued Securities Delayed delivery agreements are commitments by Daily Cash Reserves to dealers or issuers to acquire securities beyond the customary same-day settlement for money market instruments. These commitments fix the payment price and interest rate to be received on the investment. Delayed delivery agreements will not be used as a speculative or leverage technique. Rather, from time to time, Daily Cash Reserves' investment advisor can anticipate that cash for investment purposes will result from scheduled maturities of existing portfolio instruments or from net sales of shares of Daily Cash Reserves; therefore, to assure that Daily Cash Reserves will be as fully invested as possible in instruments meeting its investment objective, Daily Cash Reserves may enter into delayed delivery agreements, but only to the extent of anticipated funds available for investment during a period of not more than five business days. Daily Cash Reserves will enter into when-issued and delayed delivery transactions only when the time period between trade date and settlement date is at least 30 days and not more than 120 days. Money Market Obligations are sometimes offered on a "when-issued" basis; that is, the date for delivery of and payment for the securities is not fixed at the date of purchase, but is set after the securities are issued (normally within forty-five days after the date of the transaction). The payment obligation and the interest rate that will be received on the securities are fixed at the time the buyer enters into the commitment. Daily Cash Reserves will only make commitments to purchase such Money Market Obligations with the intention of actually acquiring such securities, but Daily Cash Reserves may sell these securities before the settlement date if it is deemed advisable. If Daily Cash Reserves enters into a delayed delivery agreement or purchases a when-issued security, Daily Cash Reserves will direct its custodian bank to place cash or other high grade securities (including Money Market Obligations) in a separate account of Daily Cash Reserves in an amount equal to its delayed delivery agreements or when-issued commitments. If the market value of such securities declines, additional cash or securities will be placed in the account on a daily basis so that the market value of the account will equal the amount of such Daily Cash Reserves Series' delayed delivery agreements and when-issued commitments. To the extent that funds are in a separate account, they will not be available for new investment or to meet redemptions. Investments in securities on a when-issued basis and use of delayed delivery agreements may increase Daily Cash Reserves' exposure to market fluctuation, or may increase the possibility that Daily Cash Reserves will incur a short-term loss, if Daily Cash Reserves must engage in portfolio PAGE transactions in order to honor a when-issued commitment or accept delivery of a security under a delayed delivery agreement. Daily Cash Reserves will employ techniques designed to minimize these risks. No additional delayed delivery agreements or when-issued commitments will be made if, as a result, more than 25% of Daily Cash Reserves' net assets would become so committed. INVESTMENT RESTRICTIONS Daily Cash Reserves' investment programs are subject to a number of investment restrictions which reflect self-imposed standards as well as Federal and state regulatory limitations. The most significant of these restrictions provide that Daily Cash Reserves will not: (1) purchase securities of any issuer (other than obligations of the U.S. Government, its agencies or instrumentalities and repurchase agreements fully secured by such obligations) if as a result more than 5% of Daily Cash Reserves's total assets would be invested in the securities of such issuer, except that in the case of certificates of deposit and bankers' acceptances, up to 25% of the value of Daily Cash Reserves' total assets may be invested without regard to such 5% limitation, but shall instead be subject to a 10% limitation (in each case, subject to the provisions of Rule 2a-7 of the 1940 Act); (2) purchase any corporate commercial instruments which would cause 25% of the value of Daily Cash Reserves' total assets at the time of such purchase to be invested in securities of one or more issuers conducting their principal business activities in the same industry; (3) borrow money or pledge, mortgage or hypothecate its assets except for temporary or emergency purposes and then only in an amount not exceeding 33 1/3% of the value of Daily Cash Reserves's total assets, except that Daily Cash Reserves may enter into delayed delivery or reverse repurchase agreements and may make commitments to purchase when-issued securities consistent with its investment objective and policies (and Daily Cash Reserves will not make additional investments while borrowings other than when-issued and delayed delivery purchases and reverse repurchase agreements are outstanding); or (4) lend money or securities except to the extent that the investments of Daily Cash Reserves may be considered loans. Maturities Consistent with its objective of stability of principal, Daily Cash Reserves attempts to maintain a constant net asset value of $1.00 per share and, to this end, values its assets by the amortized cost method and rounds the per share net asset value to the nearest whole cent in compliance with applicable rules and regulations. Accordingly, Daily Cash Reserves invests in Money Market Obligations having remaining maturities of thirteen months PAGE or less and maintains a weighted average maturity for Daily Cash Reserves of 90 days or less. However, there can be no assurance that Daily Cash Reserves's net asset value per share of $1.00 will be maintained. MANAGEMENT The Board of Trustees of the Fund has the overall responsibility for the management and supervision of Daily Cash Reserves. The trustees meet regularly each quarter. By virtue of the functions performed by Fundamental Portfolio Advisors, Inc. (the "Manager"), the investment adviser of Daily Cash Reserves, neither the Fund nor Daily Cash Reserves require any employees other than the executive officers of the Fund, all of whom receive their compensation from the Manager or other sources. The Statement of Additional Information contains the names and general background of each trustee and executive officer of the Fund. Dr. Lance Brofman is the Fund's portfolio manager. Dr. Brofman received an M.B.A. and a Ph.D. in Economics and Finance from New York University in 1978. He is currently the Chief Portfolio Strategist for the Fundamental Family of Funds. Pursuant to a management agreement between the Fund and the Manager, the Manager serves as investment adviser to Daily Cash Reserves and is responsible for the overall management of the business affairs and assets of Daily Cash Reserves, subject to the authority of the Fund's board of trustees. The Manager's address is 90 Washington Street, New York, New York 10006-2214. Under the terms of the management agreement, the Manager is also authorized to buy and sell securities for the account of Daily Cash Reserves, in its discretion, subject to the right of the Fund's trustees to disapprove any such purchase or sale (in which case the transaction would be reversed). Daily Cash Reserves pays all brokerage commissions in connection with its portfolio transactions. Daily Cash Reserves also bears the expense, pro rata with the other series of the Fund, of maintaining the Fund's registration as an investment company under the 1940 Act and of registering its shares under the Securities Act of 1933. Daily Cash Reserves also pays certain other costs and expenses, which are more fully described in the Statement of Additional Information under the caption Investment Adviser. As compensation for the performance of its management services and the assumption of certain expenses of Daily Cash Reserves and the Fund, the Manager is entitled under the management agreement to an annual management fee (which is PAGE computed daily and paid monthly) from Daily Cash Reserves equal to 0.5% of Daily Cash Reserves' average daily net asset value up to $100,000,000 and decreasing by .02% for each $100,000,000 increase in net assets down to 0.4% of net assets in excess of $500,000,000. Under the management agreement and pursuant to authority granted by the trustees, the Manager is authorized to place portfolio transactions with dealer firms that have provided assistance in the distribution of shares of Daily Cash Reserves or shares of other series of the Fund or other funds for which the Manager acts as investment adviser if it reasonably believes that the quality of the transaction and the amount of the spread are comparable to what they would be with other qualified dealers. In addition to paying a management fee to the Manager, Daily Cash Reserves also pays a distribution fee to Fundamental Service Corporation, an affiliate of the Manager. See "Information about Shares of Daily Cash Reserves--Distribution Expenses." The Manager also manages and serves as investment adviser to two other investment companies, New York Muni Fund, Inc. and The California Muni Fund. The Manager is a Delaware corporation that was incorporated in 1986. INFORMATION ABOUT SHARES OF DAILY CASH RESERVES Description of Shares The Fund is an open-end, non-diversified management investment company that was organized as a Massachusetts business trust on March 19, 1987. Daily Cash Reserves is a non-diversified portfolio of the Fund and thus by itself does not constitute a balanced investment plan. The Declaration of Trust under which the Fund was organized authorizes the trustees of the Fund to issue an unlimited number of shares of beneficial interest in the Fund, without par value, which may be divided into such separate series as the trustees may establish. The Fund currently has four series of shares: Daily Cash Reserves, the Tax-Free Money Market Series, the High-Yield Municipal Bond Series and the Fundamental U.S. Government Strategic Income Fund Series. The trustees may establish additional series of shares. As an open-end investment company, the Fund continuously offers shares of its Daily Cash Reserves Series to the public and under normal conditions must redeem these shares on demand of any registered holder at the then-current net asset value per share. PAGE Each share of Daily Cash Reserves represents an equal proportionate interest in Daily Cash Reserves with each other share in the series. Shares entitle their holders to one vote per share. Investors in Daily Cash Reserves are entitled to vote in the election of trustees, on the adoption of any management contract or distribution plan, on any change in a fundamental investment policy with respect to Daily Cash Reserves and on other matters submitted to shareholder vote, as provided in the Fund's Declaration of Trust. Shares of the Fund are voted by individual series, except (1) when required by the 1940 Act they are voted in the aggregate, and (2) when the trustees determine that a matter affects only one or more particular series of shares, only the shares of such series are entitled to vote on such matter. Shares of Daily Cash Reserves have no cumulative voting rights, preemptive rights, or subscription rights. The shares are freely transferable and fully paid and except as set forth in the Statement of Additional Information, are non-assessable. Daily Cash Reserves has its own assets, which are recorded separately on the Fund's books from the assets of the Fund's other series and held by the trustees of the Fund in trust for investors in Daily Cash Reserves. All income and proceeds earned and expenses incurred by Daily Cash Reserves are allocated to Daily Cash Reserves, and the portion of all income and expenses earned or incurred by the Fund, rather than by an individual series of the Fund, which is properly allocable to Daily Cash Reserves, is allocated to Daily Cash Reserves. On liquidating the Fund or Daily Cash Reserves, investors in Daily Cash Reserves would be entitled to share pro rata in the net assets of Daily Cash Reserves available for distribution to shareholders. Shares will remain on deposit with the transfer agent for Daily Cash Reserves and certificates will not be issued. How to Purchase Shares Shares of Daily Cash Reserves may be purchased either directly from Daily Cash Reserves or through securities dealers, banks, or other financial institutions. Daily Cash Reserves has a minimum initial purchase requirement of $1000. The minimum subsequent purchase requirement is $100. Subsequent purchases are made in the same manner as initial purchases. Investors can purchase shares without a sales charge if they purchase the shares directly from Daily Cash Reserves. However, investors may be charged a fee if they purchase shares through securities dealers, banks, or other financial institutions. Investors opening a new account for Daily Cash Reserves must PAGE complete and submit a purchase application along with payment of the purchase price for their initial investment. Investors purchasing additional shares of Daily Cash Reserves should include their account number along with payment of the purchase price for additional shares being purchased. Investors may re-open an account with a minimum investment of $100 and without filing a purchase application during the year in which the account was closed or during the following calendar year if the information on the original purchase application is still applicable. Daily Cash Reserves may require the filing of a statement that all information on the original purchase application remains applicable. For customers of certain financial institutions who offer the service, investors may have their "free-credit" cash balances automatically invested in shares of Daily Cash Reserves. These investments are not subject to the minimum purchase requirements described above. A purchase order becomes effective immediately on receipt by Fundamental Shareholder Services, Inc., as agent for Daily Cash Reserves, if it is received before 4:00 P.M. on any business day. After a purchase order becomes effective, confirmation of the purchase is sent to the investor, and the purchase is credited to the investor's account. The Fund, or any series thereof, reserves the right to reject any purchase order. Shares of Daily Cash Reserves may be purchased only in states where the shares are qualified for sale. Methods of Payment Payment of the purchase price for shares of Daily Cash Reserves may be made in any of the following manners. Payment by Wire. An expeditious method of purchasing shares involves transmitting federal funds by bank wire to United States Trust Company of New York. To purchase shares by wire transfer, instruct a commercial bank to wire money to United States Trust Company of New York, ABA #021001318, For Credit to Acct.: 20-7391-9, FBO: Fundamental Shareholder Services, Inc., for the account of the Fundamental Daily Cash Reserves Series. The wire transfer should be accompanied by the investor's name, address, and social security number (in the case of new investors) or account number (in the case of persons already owning shares of that series). Important: Call 1-800-322-6864 for wire instructions. PAGE Payment by Check. Shares may also be purchased by check. Checks should be made payable to Fundamental Family of Funds and mailed to Fundamental Shareholder Services, Inc., Agent, P.O. Box 1013, Bowling Green Station, New York, N.Y. 10274-1013. If your check does not clear, Fundamental Shareholder Services, Inc. will cancel your purchase and you could be liable for any losses or fees incurred. The Fund reserves the right to limit the number of checks processed at any one time and will notify investors prior to exercising this right. Exchange of Shares. Persons holding shares of any other series of the Fund or any other mutual fund for which Fundamental Portfolio Advisors, Inc., the Fund's investment adviser, acts as investment adviser may purchase shares of Daily Cash Reserves by exchanging shares of such other series or mutual fund. See "General Information--Exchangeability of Shares." Purchase Price and Net Asset Value Each share of Daily Cash Reserves is sold at its net asset value next determined after a purchase order becomes effective. It is the intention of Daily Cash Reserves to maintain a per share net asset value of $1.00, although no such net asset value can be guaranteed. The net asset value per share of Daily Cash Reserves is determined as of the close of trading on the New York Stock Exchange (currently 4:00 P.M. New York time) on each day that both the New York Stock Exchange and the Fund's custodian bank are open for business. The net asset value per share of Daily Cash Reserves is also determined on any other day that the level of trading in its portfolio securities is sufficiently high that the current net asset value per share might be materially affected by changes in the value of its portfolio securities. On any day on which no purchase orders for the shares of Daily Cash Reserves become effective and no shares are tendered for redemption, the net asset value per share will not be determined. The net asset value per share of Daily Cash Reserves is computed by taking the amount of the value of all of its assets, less its liabilities, and dividing it by the number of outstanding shares. For purposes of determining net asset value, expenses of Daily Cash Reserves are accrued daily and taken into account. The portfolio securities of Daily Cash Reserves are valued on an amortized cost basis. Under this valuation method, a portfolio instrument is valued at cost and any premium or discount is amortized on a constant basis until maturity. Other assets are valued at fair value as determined in good faith by persons designated by the Fund's trustees using methods determined by the trustees. PAGE Distribution Expenses The Fund has adopted a plan of distribution pursuant to Rule 12b-1 of the 1940 Act (the plan), under which Daily Cash Reserves pays to Fundamental Service Corporation ("FSC") a fee, which is accrued daily and paid monthly, at an annual rate of .50% of Daily Cash Reserves' average daily net assets. Amounts paid under the plan are paid to FSC to compensate it for services it provides and expenses it bears in distributing Daily Cash Reserves' shares to investors, including payment of compensation by FSC to securities dealers and other financial institutions and organizations, such as banks, trust companies, savings and loan associations, and investment advisers to obtain various distribution related and/or administrative services for Daily Cash Reserves. Expenses of FSC also include expenses of its employees, who engage in or support distribution of shares or service shareholder accounts, including overhead and telephone expenses; printing and distributing prospectuses and reports used in connection with the offering of Daily Cash Reserves' shares; and preparing, printing, and distributing sales literature and advertising materials. FSC is an affiliate of the Manager. The Glass-Steagall Act prohibits banks from engaging in the business of underwriting, selling, or distributing securities, such as shares of a mutual fund. Although the scope of this prohibition under the Glass-Steagall Act has not been fully defined, in FSC's opinion it should not prohibit banks from being paid for performing shareholder-servicing functions under the plan. If, because of changes in law or regulation or due to new interpretations of existing law, a bank or the Fund were prevented from continuing these arrangements, it is expected that the Fund's trustees would make other arrangements for these services and shareholders would not suffer adverse financial consequences. At any given time, FSC may incur expenses in distributing shares of Daily Cash Reserves pursuant to the plan that would be in excess of the total of payments made by Daily Cash Reserves pursuant to the plan. For example, if during a year of the plan FSC incurs $500,000 of expenses pursuant to the plan on sales of $100 million of Daily Cash Reserves and FSC receives a distribution fee calculated at the annual rate of 0.50% of Daily Cash Reserves' average daily net assets (assuming $50 million in average daily net assets), FSC would have incurred, at the end of such year, $250,000 in excess expenses under the plan during such year. Because there is no requirement under the plan to reimburse FSC for all its expenses or any requirement to continue the plan from year to year, this excess amount does not constitute a liability of Daily Cash Reserves, and Daily Cash Reserves will PAGE not reimburse FSC for any such excess amount. Although payments under the plan by Daily Cash Reserves may not be directly used to finance distribution of shares of other series of the Fund, under the plan and similar plans adopted by other series of the Fund, FSC may pay for distribution expenses of any such series from any source available to it, including any profits it may realize. Accordingly, it is possible but not likely until Daily Cash Reserves has at least $150,000,000 in net assets, that FSC may use profits it realizes from Daily Cash Reserves to finance another series of the Fund. Redemptions Each investor in Daily Cash Reserves has the right to cause Daily Cash Reserves to redeem his or her shares, by making a request to Fundamental Shareholder Services, Inc. in accordance with the procedures of either the regular redemption procedure, the telephone redemption privilege, the expedited redemption privilege, or the check redemption privilege, as described in the following paragraphs. If Fundamental Shareholder Services, Inc. receives a redemption request before the close of trading on any day the Fund is open for business , the redemption will become effective on that day and be made at the net asset value per share of Daily Cash Reserves, as determined at the close of trading on that day, and payment will be made on the following business day. If Fundamental Shareholder Services, Inc. receives a redemption request following the close of trading on that either the New York Stock Exchange, or on any day that either the New York Stock Exchange or the Fund's custodian bank are not open for business, the redemption will become effective on the next day that both the New York Stock Exchange and the Fund's custodian bank are open for business and be made at the net asset value per share of Daily Cash Reserves, as determined at the close of trading on that day, and payment will be made on the following business day. Investors are entitled to receive all dividends on shares being redeemed that are declared on or before the effective date of the redemption of such shares. The net asset value per share of Daily Cash Reserves received by an investor on redeeming shares may be more or less than the purchase price per share paid by such investor, depending on the market value of the portfolio of Daily Cash Reserves at the time of redemption. Regular Redemption Procedure. Investors may redeem their shares by sending a written redemption request to Fundamental Shareholder Services, Inc., which request must specify the number of shares to be redeemed and be signed by the investor of record. For redemptions exceeding $5000 (and for all written redemptions, regardless of amount, made within 30 days following any change in account registration), the signature of the investor on the PAGE redemption request must be guaranteed by an eligible guarantor institution approved by Fundamental Shareholder Services, Inc. Signature guarantees in proper form generally will be accepted from domestic banks, a member of a national securities exchange, credit unions and savings associations, as well as from participants in the Securities Transfer Agents Medallion Program ("STAMP"). If you have any questions with respect to signature guarantees, please call the transfer agent at (800) 322-6864. Fundamental Shareholder Services, Inc. may, at its option, request further documentation from corporations, executors, administrators, trustees, or guardians. If a redemption request is sent to Daily Cash Reserves, Daily Cash Reserves will forward it to Fundamental Shareholder Services, Inc. Redemption requests will not become effective until all proper documents have been received by Fundamental Shareholder Services, Inc. Requests for redemption that are subject to any special condition, or specify an effective date other than as provided herein, cannot be accepted and will be returned to the investor. Telephone Redemption Privilege. An investor may, by either completing the appropriate section of the purchase application, or by later making a written request to Fundamental Shareholder Services, Inc., containing his or her signature guaranteed by an eligible guarantor (see above), obtain the telephone redemption privilege for any of his or her accounts. Provided that your account registration has not changed within the last 30 days, an investor may redeem shares from an account for which he or she has the telephone redemption privilege by making a telephone redemption request to Fundamental Shareholder Services, Inc., at (800) 322-6864. All calls will be recorded. A check for the proceeds of such a redemption will be issued in the name of the investor of record and mailed to the investor's address as it appears on the records of Daily Cash Reserves. Both Daily Cash Reserves and Fundamental Shareholder Services, Inc. reserve the right to refuse or limit a telephone redemption request and to modify the telephone redemption privilege at any time. Neither the Fund nor its transfer agent will be liable for following instructions communicated by telephone that they reasonably believe to be genuine. It is the Fund's policy to provide that a written confirmation statement of all telephone call transactions will be mailed to shareholders at their address of record within 3 business days after the telephone call transaction. Since you will bear the risk of loss, you should verify the accuracy of telephone transactions immediately upon receipt of your confirmation statement. PAGE Expedited Redemption Privilege. An investor in any series of the Fund may, by either completing the appropriate section of the purchase application, or by later making a written request to Fundamental Shareholder Services, Inc., containing his or her signature guaranteed by an eligible guarantor (see above), obtain the expedited redemption privilege for any of his or her accounts. The expedited redemption privilege allows the investor to have the proceeds of any redemption of shares in any amount of $5000 or more transferred by wiring federal funds to the commercial bank or savings and loan institution specified in his or her purchase application or written request for the expedited redemption privilege. Expedited redemption requests may be made by either mail (to the address specified under regular redemption procedure) or by telephone (to the number specified under telephone redemption privilege). The proceeds of such a redemption may be subject to a deduction of the usual and customary charge. An investor may change the account or commercial bank designated to receive the redemption proceeds by sending a written request to Fundamental Shareholder Services, Inc., containing his or her signature guaranteed in the manner just described. Both Daily Cash Reserves and Fundamental Shareholder Services, Inc. reserve the right to refuse or limit an expedited redemption request and to modify the expedited redemption privilege at any time. Check Redemption Privilege. An investor in any series of the Fund may, by either completing the appropriate section of the purchase application, or by later making a written request to Daily Cash Reserves, obtain redemption checks for any of his or her accounts. These checks may be used by the investor in any lawful manner and may be payable to the order of any person or company in an amount of $100 or more. When a check is presented to Fundamental Shareholder Services, Inc. for payment, Fundamental Shareholder Services, Inc., as agent for the investor, will cause Daily Cash Reserves to redeem a sufficient number of shares in the investor's account to cover the amount of the check. Investors using the check redemption privilege will be subject to the same rules and regulations applicable to other checking accounts at United States Trust Company of New York. There is no charge to the investor for using the check redemption privilege, except that a fee may be imposed by Fundamental Shareholder Services, Inc. if an investor requests that it stop payment of a Redemption Check or if it cannot honor a Redemption Check due to insufficient funds or other valid reasons. The check redemption privilege may not be used to close an account. The check redemption privilege may be modified or terminated at any time by either Daily Cash Reserves or Fundamental Shareholder Services, Inc. PAGE At times, Daily Cash Reserves may be requested to redeem shares for which it has not yet received good payment. Daily Cash Reserves may delay, or cause to be delayed, payment of redemption proceeds until such time as it has assured itself that good payment has been received for the purchase of such shares, which may take up to 15 days. In the case of payment by check, the determination of whether the check has been paid by the paying institution can generally be made within 7 days, but may take longer. Investors may avoid the possibility of any such delay by purchasing shares by wire. In the event of delays in paying redemption proceeds, Daily Cash Reserves will take all available steps to expedite collection of the investment check. If shares are purchased by check, you may write checks against such shares only after 15 days from the date the purchase was executed. Shareholders who draw against shares purchased fewer than 15 days from the date of original purchase, will be charged usual and customary bank fees. Daily Cash Reserves reserves the right to suspend the right of redemption or postpone the day of payment with respect to its shares (1) during any period when the New York Stock Exchange is closed (other than customary weekend and holiday closings); (2) during any period when trading markets that Daily Cash Reserves normally uses are restricted or an emergency exists as determined by the Securities and Exchange Commission, so that disposal of Daily Cash Reserves' investments or determination of its net asset value is not reasonably practicable; or (3) for such other periods as the Securities and Exchange Commission by order may permit to protect investors. If an investor's account has an aggregate net asset value of less than $100, Daily Cash Reserves may redeem the shares held in such account if the net asset value of such account has not been increased to at least $100 within 60 days of notice by Daily Cash Reserves to such investor of its intention to redeem the shares in such account. Daily Cash Reserves will not redeem the shares of an account with a net asset value of less than $100 if the account was reduced from the initial minimum investment of $1000 or more to below $100 as a result of market activity. Transfers An investor may transfer shares of Daily Cash Reserves by submitting to Fundamental Shareholder Services, Inc. a written request for transfer, signed by the registered holder of the shares and indicating the name of, the social security number or taxpayer identification number of, and the distribution and redemption options elected by, the new registered holder. PAGE Fundamental Shareholder Services, Inc. may, at its option, request further documentation from transferors who are corporations, executors, administrators, trustees, or guardians. Tax Sheltered Retirement Plans Certain types of Prototype Pension and Profit Sharing Plans, including IRAs, SEP-IRA Plans, IRA Rollover Accounts and 403(b) Plans are available. Check redemption and telephone redemption privileges are not available to Retirement account holders. Plan support services are available by calling us at 1-800-322-6864. Dividends and Taxes Daily Cash Reserves will declare on each business day just prior to the calculation of its net asset value all of its net investment income (consisting of earned interest income less expenses) as a dividend on shares of record at the close of business on the preceding business day. Dividends are generally distributed on the last business day of the month. Daily Cash Reserves normally distributes capital gains, if any, before the end of its fiscal year. All dividends and capital gains distributions by Daily Cash Reserves will be in the form of additional shares unless the investor has made an election, either on his or her purchase application or in a subsequent written request to Fundamental Shareholder Services, Inc., to receive such distributions in cash. An investor may change his or her distribution election by filing a written request with Fundamental Shareholder Services, Inc. at least four days prior to the date of a distribution. As with any investment, you should consider how your investment in Daily Cash Reserves will be taxed. If your account is not a tax-deferred retirement account, be aware of these tax implications. Distributions are subject to federal income tax, and may also be subject to state or local taxes. If you live outside the United States, your distributions could also be taxed by the country in which you reside. Your distributions are taxable when they are paid, whether you take them in cash or reinvest them. However, distributions declared in December and paid in January are taxable as if they were paid on December 31. For federal tax purposes, Daily Cash Reserves' income and short-term capital gain distributions are taxed as dividends; long-term capital gain distributions, if any, are taxed as long-term capital gains. Every January, Daily Cash Reserves will send you and the IRS a statement showing the taxable distributions paid to you in the previous year. PAGE The foregoing description relates only to federal income tax consequences for investors who are U.S. citizens or corporations. Investors should consult their own advisers regarding these matters and state, local, and other applicable tax laws. Daily Cash Reserves may be required by federal law to withhold 31% of reportable payments (which may include ordinary income dividends, capital gain dividends, and redemptions) paid to investors who have not complied with IRS regulations. In order to avoid this withholding requirement, investors must certify on their application or a separate W-9 form, that their social security or taxpayer identification number is correct and that they are not currently subject to backup withholding or that they are exempt from backup withholding. The federal income tax status of all distributions by Daily Cash Reserves will be reported to investors annually. GENERAL INFORMATION Investor Services Fundamental Shareholder Services, Inc. is the transfer agent and dividend-paying agent for shares of Daily Cash Reserves and United States Trust Company of New York acts as custodian for assets of Daily Cash Reserves. Inquiries regarding Daily Cash Reserves should be addressed to Fundamental Shareholder Services, Inc. It is anticipated that The Chase Manhattan Bank, N.A. ("Chase"), New York, New York, will act as the Fund's custodian and bookkeeping agent following consummation of a transaction pursuant to which Chase has agreed to acquire the United States Trust Company unit responsible for safekeeping of fund assets and for performing fund accounting activities. Fundamental Shareholder Services, Inc. maintains an account for each investor in Daily Cash Reserves, and all of the investor's transactions are recorded in this account. Confirmation statements showing details of transactions are sent to investors following each transaction, and each investor is sent a monthly account summary. Annual and semi-annual reports of Daily Cash Reserves together with the list of securities held by Daily Cash Reserves in its portfolio are mailed to each investor in Daily Cash Reserves. Investors whose shares are held in the name of an investment broker-dealer or other party will not normally have an account with Daily Cash Reserves and may not be able to use some of the services available to investors of record. PAGE Calculation of Yield Daily Cash Reserves may from time to time advertise Daily Cash Reserves' yield and effective yield. Daily Cash Reserves' yield refers to the income generated by an investment in Daily Cash Reserves over a seven-day period (which period will be stated in the advertisement). This income is then annualized; that is, the amount of income generated by the investment during the seven-day period is assumed to be generated each week over a 52-week period and is shown as a percentage of the investment. The effective yield is calculated similarly, but when annualized, the income earned by an investment in Daily Cash Reserves is assumed to be reinvested. The effective yield will be slightly higher than the yield because of the compounding effect of the assumed reinvestment. Both yield and effective yield quotations are based on historical earnings of Daily Cash Reserves. Both yields will fluctuate over time and are not necessarily representative of future income or distributions or the actual return to be earned by an investor, nor are they necessarily a sound basis for comparing Daily Cash Reserves with bank deposits or other fixed-income investments. Exchangeability of Shares Investors may exchange shares of Daily Cash Reserves having an aggregate net asset value of $1000 or more for shares of any other series of the Fund or any other mutual fund for which the Manager acts as the investment adviser by either (1) delivering to Fundamental Shareholder Services, Inc. a written request specifying the number of shares of Daily Cash Reserves to be exchanged and the series of the Fund or the mutual fund in which they wish to invest after such an exchange, or (2) in the case of those investors who have the telephone redemption privilege, making such a request by telephone. (See "Redemption--Telephone Redemption Privilege" for a discussion of the Fund's policy with respect to losses resulting from unauthorized telephone transactions). The exchange is effected by redeeming the investor's shares of Daily Cash Reserves and issuing to the investor shares of the series or mutual fund in which he or she is investing. The shares of both Daily Cash Reserves and the series or mutual fund being invested in are valued for purposes of this exchange at the net asset value per share of Daily Cash Reserves and such other series or fund, respectively, as next determined after receipt by Fundamental Shareholder Services, Inc. of the exchange request. PAGE The exchange privilege is available only in those states where such exchange can legally be made and exchanges may only be made between accounts with identical account registration and account numbers and is subject to the suitability requirements, if any, of the series or fund for which an exchange is proposed to be made. Prior to effecting an exchange, an investor should consider the investment policies of the series or mutual fund he or she is investing in. Any exchange is, in effect, a redemption of shares in one fund and a purchase of the other fund. A capital gain or loss for federal income tax purposes may be realized by the investor with the exchange. Statement of Additional Information The Statement of Additional Information for Daily Cash Reserves, dated the date of this Prospectus, contains more detailed information about Daily Cash Reserves, including information relating to (1) its investment policies and restrictions, (2) its investment adviser and the trustees and officers of the Fund, (3) portfolio trading, (4) various services provided for investors in Daily Cash Reserves, (5) the method used to calculate yield and effective yield and (6) financial statements and certain other financial information. Other Information The Code of Ethics of Fundamental Portfolio Advisors, Inc. and the Fund prohibits all affiliated personnel from engaging in personal investment activities which compete with or attempt to take advantage of the Fund's planned portfolio transactions. The objective of the Code of Ethics of both the Fund and Fundamental Portfolio Advisors, Inc. is that their operations be carried out for the exclusive benefit of the Fund's shareholders. Both organizations maintain careful monitoring of compliance with the Code of Ethics. FUNDAMENTAL FAMILY OF FUNDS 90 Washington Street New York NY 10006 1-800-225-6864 Transfer Agent Fundamental Shareholder Services, Inc. P.O. Box 1013 New York, NY 10274 1-800-322-6864 PAGE Counsel to the Fund Kramer, Levin, Naftalis, Nessen, Kamin & Frankel New York, New York Independent Accountants McGladrey & Pullen, LLP New York, New York No person has been authorized to give any information or to make any representations other than those contained in this Prospectus and in the Fund's official sales literature in connection with the offer of the Fund's shares, and, if given or made, such other information or representations must not be relied upon as having been authorized by the Fund. This Prospectus does not constitute an offer in any State in which, or to any person to whom, such offering may not lawfully be made. FUNDAMENTAL FAMILY OF FUNDS Daily Cash Reserves Prospectus , 1995 FUNDAMENTAL FIXED INCOME FUND DAILY CASH RESERVES SERIES 90 Washington Street New York, New York 10006 STATEMENT OF ADDITIONAL INFORMATION ___________, 1995 This Statement of Additional Information provides certain detailed information concerning the Daily Cash Reserves Series ("Daily Cash Reserves") of the Fundamental Fixed Income Fund (the "Fund"). Daily Cash Reserves seeks to provide as high a level of current income as is consistent with the preservation of capital and liquidity. Of course, there can be no assurance that the investment objective will be achieved. Shares of the Daily Cash Reserves are neither insured nor guaranteed by the United States Government. There is no assurance that Daily Cash Reserves will be able to maintain a stable net asset value of $1.00 per share. This Statement of Additional Information is not a Prospectus and should be read in conjunction with the Daily Cash Reserves' current Prospectus, a copy of which may be obtained by writing to Fundamental Service Corporation ("FSC") at P.O. Box 1013, Bowling Green Station, New York, New York 10274-1013, or by calling (800) 322-6864. This Statement of Additional Information relates to the Daily Cash Reserves' Prospectus dated _________, 1995. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. PAGE TABLE OF CONTENTS Page INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . 1 INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . 5 MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . 7 DISTRIBUTION PLAN. . . . . . . . . . . . . . . . . . . . . 9 INVESTMENT MANAGER . . . . . . . . . . . . . . . . . . . . 11 PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . 13 CUSTODIAN AND INDEPENDENT ACCOUNTANTS. . . . . . . . . . . 14 DIVIDENDS AND TAX MATTERS. . . . . . . . . . . . . . . . . 15 DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . 22 CERTAIN LIABILITIES. . . . . . . . . . . . . . . . . . . . 22 DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . 23 CALCULATION OF YIELD . . . . . . . . . . . . . . . . . . . 24 APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . INVESTMENT OBJECTIVE AND POLICIES The Prospectus of Daily Cash Reserves dated _________, 1995 (the "Prospectus") identifies the investment objective and the principal investment policies of Daily Cash Reserves. Other investment policies and a further description of certain of the policies described in the Prospectus are set forth below. Information concerning the fundamental investment objectives of Daily Cash Reserves is set forth in the Prospectus under the caption "Investment Objective and Policies." The principal features of the investment program and the primary risks associated with the investment program of Daily Cash Reserves are discussed in the Prospectus under the aforementioned caption. The following is a more detailed description of the portfolio instruments eligible for purchase by Daily Cash Reserves which augments the summary of the investment program which appears in the Prospectus, under the aforementioned caption. Daily Cash Reserves seeks to achieve its objective by investing in a portfolio of short-term instruments rated high quality by a major rating service or determined to be of high quality in accordance with procedures established by the Board of Trustees. Subsequent to its purchase by Daily Cash Reserves, a particular issue of Money Market Obligations, as defined in the Prospectus may cease to be rated or its rating may be reduced below the minimum required for purchase by Daily Cash Reserves. Neither event requires the elimination of such obligation from Daily Cash Reserves' portfolio, but Fundamental Portfolio Advisors, Inc. (the "Manager") will consider such an event to be relevant in its determination of whether Daily Cash Reserves should continue to hold such obligation in its portfolio. To the extent that the ratings accorded by a nationally recognized statistical rating organization ("NRSRO") for Money Market Obligations may change as a result of changes in these rating systems, Daily Cash Reserves will attempt to use comparable ratings as standards for its investments in Money Market Obligations and Municipal Securities in accordance with the investment policies contained herein. The investment objective and policies of Daily Cash Reserves are "fundamental" only where noted. Fundamental policies may only be changed by a vote of the majority of the outstanding shares of Daily Cash Reserves. (See "Description of Shares.") There can be no assurance that Daily Cash Reserves' objective will be achieved. 1 PAGE The following is a more detailed description of the portfolio instruments eligible for purchase by Daily Cash Reserves which augments the summary of the investment program which appears in the Prospectus under the caption "Investment Objective and Policies." Daily Cash Reserves seeks to achieve its objective by investing in a portfolio of money market instruments. Daily Cash Reserves may invest in U.S. Government Obligations consisting of marketable securities and instruments issued or guaranteed by the U.S. Government or by certain of its agencies or instrumentalities. Direct obligations are issued by the U.S. Treasury and include bills, certificates of indebtedness, notes and bonds. Obligations of U.S. Government agencies and instrumentalities ("Agencies") are issued by government-sponsored agencies and enterprises acting under authority of Congress. Certain Agencies are backed by the full faith and credit of the U.S. Government, and others are not. In addition to direct U.S. Government Obligations, Daily Cash Reserves may invest in the following: 1) Agencies that are not backed by the full faith and credit of the U.S. Government, such as obligations of the Federal Home Loan Bank System and the Federal Farm Credit Bank. 2) Bank Instruments which consist mainly of certificates of deposit, bankers' acceptances and time deposits. Certificates of deposit represent short-term interest-bearing deposits of commercial banks and against which certificates bearing fixed rates of interest are issued. Bankers' acceptances are short-term negotiable drafts endorsed by commercial banks, which arise primarily from international commercial transactions. Time deposits are nonnegotiable deposits maintained in a bank for a specified period of time at a stated interest rate. Daily Cash Reserves limits investments to bank instruments described in the Prospectus under the caption "Investment Objective and Policies." 3) Corporate Commercial Instruments consisting of short-term unsecured promissory notes issued by corporations to finance short-term credit needs. (See "Investment Limitations" in this Statement of Additional Information for information with respect to commercial paper ratings.) Among the instruments that Daily Cash Reserves may purchase are variable amount master demand notes, which are unsecured demand notes that permit investment of fluctuating amounts of money at variable rates of interest pursuant to arrangements between the issuer and the payee or its agent whereby the indebtedness on the notes may vary and the interest rate is periodically redetermined. PAGE 4) In addition, Daily Cash Reserves may purchase loan participations, which consist of interests in loans made by banks to corporations, where both the bank and the corporation meet the Fund's credit standards. Daily Cash Reserves generally purchases loan participation certificates maturing in seven days or less. Daily Cash Reserves may enter into the following arrangements: 1) Repurchase Agreements under which the purchaser (for example, Daily Cash Reserves) acquires ownership of an obligation (e.g., a debt instrument or time deposit) and the seller agrees, at the time of the sale, to repurchase the obligation at a mutually agreed upon time and price, thereby determining the yield during the purchaser's holding period. This arrangement results in a fixed rate of return insulated from market fluctuations during such period. Although the underlying collateral for repurchase agreements may have maturities exceeding one year, Daily Cash Reserves will not enter into a repurchase agreement if as a result of such transaction more than 10% of Daily Cash Reserves' total assets would be invested in illiquid securities, including repurchase agreements expiring in more than seven days. Daily Cash Reserves may, however, enter into a "continuing contract" or "open" repurchase agreement under which the seller is under a continuing obligation to repurchase the underlying obligation from Daily Cash Reserves on demand and the effective interest rate is negotiated on a daily basis. In general, Daily Cash Reserves will enter into repurchase agreements only with domestic banks with total assets of at least $1.5 billion or with primary dealers in U.S. Government securities, but total assets will not be the sole determinative factor, and Daily Cash Reserves may enter into repurchase agreements with other institutions which the Board of Trustees believes present minimal credit risks. Nevertheless, if the seller of a repurchase agreement fails to repurchase the debt instrument in accordance with the terms of the agreement, Daily Cash Reserves may incur a loss to the extent that the proceeds it realizes on the sale of the underlying obligation are less than the repurchase price. Repurchase agreements are considered to be loans by Daily Cash Reserves under the Investment Company Act of 1940 (the "1940 Act"). 2) Reverse Repurchase Agreements involving the sale of money market instruments held by Daily Cash Reserves, with an agreement that Daily Cash Reserves will repurchase the instruments at an agreed upon price and date. Daily Cash Reserves will employ reverse repurchase agreements when necessary to meet unanticipated net redemptions so as to avoid liquidating other money market instruments during unfavorable market conditions, or in some cases as a technique to enhance income, and only in amounts up to 10% of the value of Daily Cash Reserves' total assets at the time it enters into a reverse repurchase agreement. At the time it enters into a reverse repurchase agreement, Daily Cash Reserves will place in a segregated custodial account high-quality debt securities having a dollar value equal to the repurchase price. Daily Cash Reserves will utilize reverse repurchase agreements when the interest income to be earned from portfolio investments which would otherwise have to be liquidated to meet redemptions is greater than the interest expense incurred as a result of the reverse repurchase transactions. 3) Delayed Delivery Agreements involving commitments by Daily Cash Reserves to dealers or issuers to acquire securities or instruments at a specified future date beyond the customary same-day settlement for money market instruments. These commitments may fix the payment price and interest rate to be received on the investment. Delayed delivery agreements will not be used as a speculative or leverage technique. Rather, from time to time, the Manager can anticipate that cash for investment purposes will result from scheduled maturities of existing portfolio instruments or from net sales of shares of Daily Cash Reserves. To assure that Daily Cash Reserves will be as fully invested as possible in instruments meeting its investment objective, Daily Cash Reserves may enter into delayed delivery agreements, but only to the extent of anticipated funds available for investment during a period of not more than five business days. Until the settlement date, Daily Cash Reserves will set aside in a segregated account high-quality debt securities of a dollar value sufficient at all times to make payment for the delayed delivery securities. Not more than 25% of Daily Cash Reserves' total assets will be committed to delayed delivery agreements and when-issued securities, as described below. The delayed delivery securities, which will not begin to accrue interest until the settlement date, will be recorded as an asset of Daily Cash Reserves and will be subject to the risks of market fluctuation. The purchase price of the delayed delivery securities is a liability of Daily Cash Reserves until settlement. Absent extraordinary circumstances, Daily Cash Reserves will not sell or otherwise transfer the delayed delivery securities prior to settlement. If cash is not available to Daily Cash Reserves at the time of settlement, Daily Cash Reserves may be required to dispose of portfolio securities that it would otherwise hold to maturity in order to meet its obligation to accept under a delayed delivery agreement. The Board of Trustees has determined that entering into delayed delivery agreements does not present a materially increased risk of loss to shareholders, but the PAGE Board of Trustees may restrict the use of delayed delivery agreements if the risk of loss is determined to be material or if it affects the constant net asset value of Daily Cash Reserves. Many new issues of Money Market Obligations are offered on a "when-issued" basis, that is, the date for delivery of and payment for the securities is not fixed at the date of purchase, but is set after the securities are issued (normally within forty-five days after the date of the transaction). The payment obligation and the interest rate that will be received on the securities are fixed at the time the buyer enters into the commitment. Daily Cash Reserves will only make commitments to purchase such Money Market Obligations with the intention of actually acquiring such securities, but Daily Cash Reserves may sell these securities before the settlement date if it is deemed advisable. No additional when-issued commitments will be made if as a result more than 25% of Daily Cash Reserves' net assets would become committed to purchases of when-issued securities and delayed delivery agreements. If Daily Cash Reserves purchases a when-issued security, it will direct its custodian bank to collateralize the when-issued commitment by establishing a segregated account in the same fashion as required for a Delayed Delivery Agreement. The special custody account will likewise be marked-to-market, and the amount in the special custody account will be increased if necessary to maintain adequate coverage of the when-issued commitments. Securities purchased on a when-issued basis and the securities held in Daily Cash Reserves' portfolio are subject to changes in market value based upon the public's perception of the creditworthiness of the issuer and changes in the level of interest rates (which will generally result in all of those securities changing in value in the same way, i.e., all those securities experiencing appreciation when interest rates rise). Therefore, if, in order to achieve higher interest income, Daily Cash Reserves is to remain substantially fully invested at the same time that it has purchased securities on a when-issued basis, there will be a possibility that the market value of Daily Cash Reserves' assets will fluctuate to a greater degree. Furthermore, when the time comes for Daily Cash Reserves to meet its obligations under when-issued commitments, Daily Cash Reserves will do so by using then-available cash flow, by sale of the securities held in the separate account, by sale of other securities or, although it would not normally expect to do so, by directing the sale of the when-issued securities themselves (which may have a market value greater or less than Daily Cash Reserves' payment obligation). PAGE A sale of securities to meet such obligations carries with it a greater potential for the realization of net short-term capital gains, which are not exempt from federal income taxes. The value of when-issued securities on the settlement date may be more or less than the purchase price. Portfolio Turnover. Pursuit by Daily Cash Reserves of its investment objective may lead to frequent changes in the securities held in its portfolio, which is known as "portfolio turnover." Portfolio turnover may involve payments by Daily Cash Reserves of broker commissions, dealer spreads and other transaction costs relating to the purchase and the sale of securities. Portfolio turnover rate for a given fiscal year is calculated by dividing the lesser of the cost of purchases or the proceeds on sales of portfolio securities during the year by the monthly average of the value of the portfolio securities during the year. INVESTMENT LIMITATIONS Daily Cash Reserves has adopted the following policies as "fundamental policies," which cannot be changed without the approval of the holders of a majority of the shares of Daily Cash Reserves (which, as used in this Statement of Additional Information, means the lesser of (i) more than 50% of the outstanding shares, or (ii) 67% or more of the shares present at a meeting at which holders of more than 50% of the outstanding shares are represented in person or by proxy). Daily Cash Reserves may not: 1) purchase any Money Market Obligation, if, as a result of such purchase, more than 5% of Daily Cash Reserves' total assets would be invested in securities of issuers, which, with their predecessors, have been in business for less than three years; 2) invest in shares of any other investment company, other than in connection with a merger, consolidation, reorganization or acquisition of assets; 3) invest more than 10% of the value of Daily Cash Reserves' total assets in illiquid securities, including variable amount master demand notes (if such notes provide for prepayment penalties) and repurchase agreements with remaining maturities in excess of seven days; 4) invest in companies for the purpose of exercising control; PAGE 5) underwrite any issue of securities, except to the extent that the purchase of securities, either directly from the issuer or from an underwriter for an issuer, and the later disposition of such securities in accordance with Daily Cash Reserves' investment programs, may be deemed an underwriting; 6) purchase or sell real estate, but this shall not prevent investments in securities secured by real estate or interests therein; 7) sell securities short or purchase any securities on margin, except for such short-term credits as are necessary for the clearance of transactions; 8) purchase or retain securities of an issuer if, to the knowledge of the Fund, the trustees and officers of the Fund and directors and officers of the Manager, each of whom owns more than 1/2 of 1% of such securities, together own more than 5% of the securities of such issuer; 9) mortgage, pledge or hypothecate any assets except to secure permitted borrowings and reverse repurchase agreements and then only in an amount up to 15% of the value of Daily Cash Reserves' total assets at the time of borrowing or entering into a reverse repurchase agreement; or 10) purchase or sell commodities or commodity futures contracts or interests in oil, gas or other mineral exploration or development program (Daily Cash Reserves may, however, purchase and sell securities of companies engaged in the exploration, development, production, refining, transporting and marketing of oil, gas or minerals). In order to permit the sale of Daily Cash Reserves' shares in certain states, the Fund may make commitments on behalf of Daily Cash Reserves that are more restrictive than the restrictions described above. Should the Fund determine that any such commitment is no longer in the best interest of Daily Cash Reserves and its shareholders it will revoke the commitment by terminating sales of its shares in the state(s) involved. If a percentage restriction is adhered to at the time of investment, a later increase or decrease in percentage resulting from a change in values or assets will not constitute a violation of such restriction. PAGE MANAGEMENT OF THE FUND The Fund's Board of Trustees provides broad supervision over the affairs of the Fund and of Daily Cash Reserves. The officers of the Fund are responsible for the operations of Daily Cash Reserves. The Trustees and executive officers of the Fund are listed below, together with their principal occupations during the last five years. Each Trustee who is considered to be an "interested person" of the Fund, as defined by the 1940 Act, is indicated by an asterisk (*). James C. Armstrong: Trustee of the Fund. Mr. Armstrong is a partner in Armstrong/Seltzer Communications, Inc., a New York management, consulting and public relations firm. He was formerly Executive Director, Global Public Affairs Institute at New York University and Professor, Bell of Pennsylvania Chair in Telecommunications, Temple University, and is a management consultant. He was with American Telephone and Telegraph Company for 15 years. His last position with AT&T was Director, Corporate Policy Analysis. Mr. Armstrong previously held positions at the Institute for Defense Analysis, the Office of the Postmaster General, and on the faculty of the University of Maryland. He has been a consultant to government, academic and business organizations, and has served on various government- industry task forces and committees. Mr. Armstrong was an Officer in the United States Navy and holds a Ph.D. in nuclear physics. Mr. Armstrong's address is 51 Mt. Pleasant Road, Morristown, New Jersey 07960. James A. Bowers: Trustee of the Fund. Mr. Bowers is a consultant for Prototypes (formerly Director of Finance and Administration), The American Telephone and Telegraph Company, The RAND Corporation and CogniTech Services Corporation. He was employed at AT&T for 23 years. His latest position with AT&T was in the Treasury Department as District Manager- Securities and Exchange Commission Reporting. Mr. Bowers holds Bachelor of Science and Master of Arts degrees in Economics from Florida Atlantic University. Mr. Bowers' address is 60 East Eighth Street, New York, N.Y. 10003. Stanley M. Brandt: Trustee of the Fund. Mr. Brandt retired in 1980 from his position as Vice President of Alexander & Alexander, a publicly held international insurance and reinsurance firm, after 16 years of service with it and with Bleichroeder Bing & Co., a privately held firm acquired by Alexander & Alexander in 1975. Previously, Mr. Brandt was associated with privately held insurance and merchant banking firms, principally as a Vice President of Frenkel & Co., Inc. which he joined in 1944 and with Bingham & Co., Inc. which he joined in 1938. Mr. Brandt's address is 75C Heritage Hills, Somers, New York 10589. PAGE Clark L. Bullock: Trustee of the Fund. Mr. Bullock is Chairman of the Board of Shelter Rock Investors Services Corp., a privately-held, New York-based investment company. Mr. Bullock received a Masters of Science degree in Mathematical Economics from Purdue University in 1972 and a Bachelor of Arts degree in International Relations from the University of Arizona. Mr. Bullock's address is c/o Shelter Rock Investors, 150 Hopper Avenue, Waldwick, NJ 07463. L. Greg Ferrone: Trustee of the Fund. Mr. Ferrone is a consultant with IntraNet, Inc., a provider of computer systems to the domestic and international banking industry. Previously he was the Director of Sales & Marketing for RAV Communications Inc., Vice President/Regional Manager with National Westminster Bank USA and an officer at Security Pacific Bank. Mr. Ferrone received a Bachelor of Science degree from Rensselaer Polytechnic Institute in 1972 and studied at the Stonier Graduate School of Banking. Mr. Ferrone's address is 83 Ronald Court, Ramsey, New Jersey 07446. *Vincent J. Malanga: Chairman of the Board, Chief Executive Officer, President and Treasurer of the Fund, The California Muni Fund and New York Muni Fund, Inc. Mr. Malanga is President, Treasurer and a Director of Fundamental Portfolio Advisors, Inc., Executive Vice President, Secretary and a Director of Fundamental Service Corporation, and President, LaSalle Economics Inc., an economic consulting firm. Prior thereto, he was a Vice President and Senior Economist at A. Gary Shilling & Company, Inc., an economic consulting and brokerage firm. He previously served as an Economist at White, Weld & Co. (an investment banking and brokerage firm) and so served from 1976 to 1978. Prior thereto, Mr. Malanga, who holds a Ph.D. in Economics from Fordham University, was an Economist at the Federal Reserve Bank of New York. Mr. Malanga's address is 90 Washington Street, 19th Floor, New York, New York 10006. David P. Wieder: Vice President and Secretary of the Fund. Mr. Wieder is Secretary of Fundamental Portfolio Advisors, Inc., and President, Treasurer and a Director of Fundamental Shareholder Services, Inc. Mr. Wieder holds a Bachelor of Science degree in Economics from Cornell University. Mr. Wieder's address is 90 Washington Street, 19th Floor, New York, New York 10006. All of the Trustees of the Fund are also Trustees or Directors of New York Muni Fund, Inc. and The California Muni Fund. All of the officers of the Fund hold similar offices with New York Muni Fund, Inc. and The California Muni Fund. PAGE Daily Cash Reserves does not pay any salary or compensation to any of its officers, all of whom are officers or employees of the Manager. For services and attendance at board meetings and meetings of committees which are common to the Fund, New York Muni Fund, Inc. and The California Muni Fund (other affiliated mutual fund entities for which the Manager acts as the investment adviser), each Trustee of the Fund who is not affiliated with the Manager is compensated at the rate of $6,500 per quarter prorated among the three fund entities based on their respective average net assets at the end of each quarter. Each such Trustee is also reimbursed by the three fund entities, on the same basis, for actual out-of-pocket expenses relating to his attendance at meetings. The Manager pays the compensation of the Fund's officers and of the one Trustee that is affiliated with the Manager. In May, 1987 Mr. Brandt made an initial investment of $10,857 to become a limited partner of LPM Financial Futures Fund I, Limited Partnership. Additional investments in the aggregate amount of $22,963 were made at various times thereafter, through January, 1988. In September, 1988 Mr. Brandt made an investment of $10,000 to become a limited partner of LPM Equities Fund Limited Partnership. Mr. Brandt has since disposed of his interests in these two limited partnerships. Mr. Malanga is Vice President, Secretary and a 50% shareholder of LaSalle Portfolio Management, Inc., the general partner of both LPM Financial Futures Fund I, Limited Partnership and LPM Equities Fund Limited Partnership. Messrs. Ferrone and Malanga are first cousins. Transfer Agent Fundamental Shareholder Services, Inc., P.O. Box 1013, Bowling Green Station, New York, New York 10274-1013, an affiliate of the Manager and Fundamental Service Corporation ("FSC"), performs all services in connection with the transfer of shares of Daily Cash Reserves, acts as its dividend disbursing agent, and as administrator of the exchange, check redemption, telephone redemption and expedited redemption privileges of Daily Cash Reserves pursuant to a Transfer Agency and Service Agreement dated as of _________________, 1995. DISTRIBUTION PLAN As discussed in the Prospectus, the Fund has entered into a Distribution Agreement with FSC. FSC is a Delaware corporation which is owned approximately 43.7% by each of Messrs. Thomas W. Buckingham, a consultant to the Manager, and Vincent J. Malanga, a Trustee and officer of the Fund and a director and officer of the Manager, and 9.8% by Dr. Lance M. Brofman, an PAGE employee of the Manager. The Trustees who are not, and were not at the time they voted, interested persons of the Fund, as defined in the 1940 Act (the "Independent Trustees"), have approved the Distribution Agreement. The Distribution Agreement provides that FSC will bear the distribution expenses of Daily Cash Reserves not borne by Daily Cash Reserves. The Distribution Agreement was approved by action of the Trustees of the Fund and entered into by the Fund and FSC on January 25, 1995. The Distribution Agreement will continue in effect for an initial period of two years and thereafter from year to year if it is specifically approved, at least annually, in the manner required by the 1940 Act. FSC bears all expenses it incurs in providing services under the Distribution Agreement. Such expenses include compensation to it and to securities dealers and other financial institutions and organizations such as banks, trust companies, savings and loan associations and investment advisors for distribution related and/or administrative services performed for Daily Cash Reserves. FSC also pays certain expenses in connection with the distribution of Daily Cash Reserves' shares, including the cost of preparing, printing and distributing advertising or promotional materials, and the cost of printing and distributing prospectuses and supplements thereto to prospective shareholders. Daily Cash Reserves bears the cost of registering its shares under federal and state securities law. The Fund and FSC have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act of 1933, as amended. Under the Distribution Agreement, FSC will use its best efforts in rendering services to the Fund. The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under the 1940 Act (the "Plan") pursuant to which Daily Cash Reserves pays FSC compensation accrued daily and paid monthly at the annual rate of .50% of Daily Cash Reserves' average daily net assets. The Plan was adopted by a majority vote of the Board of Trustees, including all of the Independent Trustees (none of whom had or have any direct or indirect financial interest in the operation of the Plan), cast in person at a meeting called for the purpose of voting on the Plan on January 25, 1995. Pursuant to the Plan, FSC provides the Fund, for review by the Trustees, and the Trustees review, at least quarterly, a written report of the amounts expended under the Plan and the purpose for which such expenditures were made. PAGE No interested person of the Fund nor any Trustee of the Fund who is not an interested person of the Fund, as defined in the 1940 Act, has any direct financial interest in the operation of the Plan except to the extent that FSC and certain of its employees may be deemed to have such an interest as a result of receiving a portion of the amounts expended thereunder by the Fund. The Plan will continue in effect until January 25, 1996. The Plan will continue in effect from year-to-year thereafter, provided such continuance is approved annually by vote of the Trustees in the manner described above. It may not be amended to increase materially the amount to be spent for the services described therein without approval of the shareholders of the Fund, and material amendments of the Plan must also be approved by the Trustees in the manner described above. The Plan may be terminated at any time, without payment of any penalty, by vote of the majority of the Trustees who are not interested persons of the Fund, and with no direct or indirect financial interest in the operations of the Plan, or by a vote of a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act). The Plan will automatically terminate in the event of its assignment (as defined in the 1940 Act). So long as the Plan is in effect, the election and nomination of the Independent Trustees shall be committed to the discretion of the Independent Trustees. In the Trustees' quarterly review of the Plan, they will consider its continued appropriateness and the level of compensation provided therein. The Glass-Steagall Act prohibits banks from engaging in the business of underwriting, selling or distributing securities. Although the scope of this prohibition under the Glass-Steagall Act has not been clearly defined by the courts or appropriate regulatory agencies, FSC believes that the Glass-Steagall Act should not preclude a bank from performing shareholder support services, servicing and recordkeeping functions. FSC intends to engage banks only to perform such functions. However, changes in federal or state statutes and regulations pertaining to the permissible activities of banks and their affiliates or subsidiaries, as well as further judicial or administrative decisions or interpretations, could prevent a bank from continuing to perform all or a part of the contemplated services. If a bank were prohibited from so acting, the Trustees would consider what actions, if any, would be necessary to continue to provide efficient and effective shareholder services. In such event, changes in the operation of Daily Cash Reserves might occur, including possible termination of any automatic investment or redemption or other services then provided by a bank. It is not expected that shareholders would suffer any adverse financial consequences as a result of any of these occurrences. Daily Cash PAGE Reserves may execute portfolio transactions with and purchase securities issued by depository institutions that indirectly receive payments under the Plan. No preference will be shown in the selection of investments for the instruments of such depository institutions. INVESTMENT MANAGER The Fund has entered into an agreement (the "Management Agreement") with Fundamental Portfolio Advisors, Inc. (the "Manager"), P.O. Box 1013, Bowling Green Station, New York, New York 10274-1013, to act as its investment adviser. The Management Agreement will continue in effect until January 25, 1997 and will continue in effect for an initial period of two years and thereafter from year to year if it is specifically approved, at least annually, by the vote of a majority of the Board of Trustees of the Fund (including a majority of the Board of Trustees who are not parties to the Management Agreement or interested persons of any such parties) cast in person at a meeting called for the purpose of voting on such renewal. The Board of Trustees approved the Management Agreement on January 25, 1995. The Management Agreement terminates if assigned and may be terminated without penalty by either party by vote of its Board of Directors or Trustees or a majority of its outstanding voting securities and the giving of sixty days' written notice. Under the terms of the Management Agreement, the Manager serves as investment adviser to Daily Cash Reserves and is responsible for the overall management of the business affairs and assets of Daily Cash Reserves, subject to the authority of the Fund's Board of Trustees. The Manager also is authorized under the Management Agreement to buy and sell securities for the account of Daily Cash Reserves, in its discretion, subject to the right of the Fund's Trustees to disapprove any such purchase or sale. The Manager pays all of the ordinary operating expenses of Daily Cash Reserves, including executive salaries and the rental of office space, with the exception of the following, which are to be paid by Daily Cash Reserves: (1) charges and expenses for determining from time-to-time the net asset value of Daily Cash Reserves and the keeping of its books and records, (2) the charges and expenses of any auditors, custodian, transfer agent, plan agent, dividend disbursing agent and registrar performing services for Daily Cash Reserves, (3) brokers' commissions, and issue and transfer taxes, chargeable to Daily Cash Reserves in connection with securities transactions, (4) insurance premiums, interest charges, dues and fees for membership in trade associations and all taxes and fees payable by Daily Cash Reserves to federal, state or other governmental agencies, (5) fees and expenses involved in registering and PAGE maintaining registrations of the shares of Daily Cash Reserves with the Securities and Exchange Commission, (6) all expenses of shareholders' and Trustees' meetings and of preparing, printing and distributing notices, proxy statements and all reports to shareholders and to governmental agencies, (7) charges and expenses of legal counsel to the Fund, (8) compensation of those Trustees of the Fund as such who are not affiliated with or interested persons of the Manager or the Fund (other than as Trustees), (9) fees and expenses incurred pursuant to the 12b-1 Plan and (10) such nonrecurring or extraordinary expenses as may arise, including litigation affecting the Fund or Daily Cash Reserves and any indemnification by the Fund of its trustees, officers, employees or agents with respect thereto. To the extent any of the foregoing charges or expenses are incurred by the Fund for the benefit of each of the Fund's series, Daily Cash Reserves is responsible for payment of the portion of such charges or expenses which are properly allocable to Daily Cash Reserves. As compensation for the performance of its management services and the assumption of certain expenses of Daily Cash Reserves and the Fund, the Manager is entitled under the Management Agreement to an annual management fee (which is computed daily and paid monthly) from Daily Cash Reserves equal to the percentage listed below of the average daily net asset value of Daily Cash Reserves. Average Daily Net Asset Value Annual Fee Payable Net asset value to $100,000,000 .50% Net asset value of $100,000,000 or more but less than $200,000,000 .48% Net asset value of $200,000,000 or more but less than $300,000,000 .46% Net asset value of $300,000,000 or more but less than $400,000,000 .44% Net asset value of $400,000,000 or more but less than $500,000,000 .42% Net asset value of $500,000,000 or more .40% However, if for any fiscal year in which the aggregate operating expenses of Daily Cash Reserves (including the management fee but exclusive of taxes, interest expenses, brokerage fees and commissions, fees and expenses paid pursuant to the Plan and extraordinary expenses beyond the control of, and not caused by bad faith, negligence or malfeasance of, the Manager, if any), are in excess of the expense limitation of any state having jurisdiction over Daily Cash Reserves, the Manager will reimburse Daily Cash Reserves on a monthly basis for the amount of such excess. PAGE Mr. Vincent J. Malanga, a trustee and officer of the Fund, and Dr. Lance M. Brofman, chief portfolio strategist of Daily Cash Reserves, each own approximately 48.5% of the outstanding shares of voting capital stock of the Manager. PORTFOLIO TRANSACTIONS All orders for the purchase or sale of portfolio securities are placed on behalf of Daily Cash Reserves by the Manager pursuant to authority contained in the Management Agreement. The Manager is and may in the future also be responsible for the placement of transaction orders for the other series of the Fund and other funds for which the Manager acts as investment advisor. Securities purchased and sold on behalf of Daily Cash Reserves will be traded on a net basis (i.e., without commission) through dealers acting for their own account and not as brokers or otherwise involve transactions directly with the issuer of the instrument. In selecting brokers or dealers, the Manager will consider various relevant factors, including, but not limited to, the size and type of the transaction; the nature and character of the markets for the security to be purchased or sold; the execution efficiency, settlement capability, and financial condition of the dealer; the dealer's execution services rendered on a continuing basis; and the reasonableness of any dealer spreads. Dealers may be selected who provide brokerage and/or research services to the Fund or Daily Cash Reserves and/or other investment companies over which the Manager exercises investment discretion. Such services may include advice concerning the value of securities; the advisability of investing in, purchasing or selling securities; the availability of securities or the purchasers or sellers of securities; furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). The Manager maintains a listing of dealers who provide such services on a regular basis. However, because it is anticipated that many transactions on behalf of Daily Cash Reserves, other series of the Fund and other funds over which the Manager exercises investment discretion are placed with dealers (including dealers on the list) without regard to the furnishing of such services, it is not possible to estimate the proportion of such transactions directed to such dealers solely because such services were provided. PAGE The receipt of research from dealers may be useful to the Manager in rendering investment management services to Daily Cash Reserves and/or other series of the Fund and other funds over which the Manager exercises investment discretion, and conversely, such information provided by brokers or dealers who have executed transaction orders on behalf of such other clients of the Manager may be useful to the Manager in carrying out its obligations to Daily Cash Reserves. The receipt of such research has not reduced the Manager's normal independent research activities; however, it enables the Manager to avoid the additional expenses which might otherwise be incurred if it were to attempt to develop comparable information through its own staff. Dealers who execute portfolio transactions on behalf of Daily Cash Reserves may receive spreads or commissions which are in excess of the amount of spreads or commissions which other brokers or dealers would have charged for effecting such transactions. In order to cause Daily Cash Reserves to pay such higher spreads or commissions, the Manager must determine in good faith that such spreads or commissions are reasonable in relation to the value of the brokerage and/or research services provided by such executing broker or dealer viewed in terms of a particular transaction or the Manager's overall responsibilities to Daily Cash Reserves, the Fund or the Manager's other clients. In reaching this determination, the Manager will not attempt to place a specific dollar value on the brokerage and/or research services provided or to determine what portion of the compensation should be related to those services. The Manager is authorized to place portfolio transactions with dealer firms that have provided assistance in the distribution of shares of Daily Cash Reserves or shares of other series of the Fund or other funds for which the Manager acts as investment adviser if it reasonably believes that the quality of the transaction and the amount of the spread are comparable to what they would be with other qualified dealers. The Funds' Trustees and brokerage allocation committee (comprised solely of non-interested Trustees) periodically review the Manager's performance of its responsibilities in connection with the placement of portfolio transactions on behalf of Daily Cash Reserves and the Fund and review the dealer spreads paid by Daily Cash Reserves and the Fund over representative periods of time to determine if they are reasonable in relation to the benefits to the Fund and its portfolios. PAGE CUSTODIAN AND INDEPENDENT ACCOUNTANTS United States Trust Company of New York (the "Bank"), 114 West 47th Street, New York, New York, acts as Custodian of the Fund's cash and securities. The Bank also acts as bookkeeping agent for the Fund, and in that capacity monitors the Fund's accounting records and calculates its net asset value. It is anticipated that The Chase Manhattan Bank, N.A. ("Chase"), New York, New York, will act as the Fund's custodian and bookkeeping agent following consummation of a transaction pursuant to which Chase has agreed to acquire the Bank's unit responsible for safekeeping of fund assets and performing fund accounting obligations. McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York, acts as independent public accountants for the Fund, performing an annual audit of the Fund's financial statements and preparing its tax returns. DIVIDENDS AND TAX MATTERS Dividends All of the net income earned by Daily Cash Reserves is declared daily as dividends to the respective holders of record of Daily Cash Reserves. Net income for Daily Cash Reserves for dividend purposes (from the time of the immediately preceding determination thereof) consists of (a) interest accrued and discount earned, if any, on the assets of Daily Cash Reserves and any general income of the Fund prorated to Daily Cash Reserves based on the relative net assets of Daily Cash Reserves, less (b) amortization of premium and accrued expenses for the applicable dividend period attributable directly to Daily Cash Reserves and general expenses of the Fund prorated to Daily Cash Reserves based on the relative net assets of Daily Cash Reserves. The amount of discount or premium on instruments in Daily Cash Reserves' portfolio is fixed at the time of purchase of the instruments. See "Determination of Net Asset Value." Realized gains and losses on portfolio securities held by Daily Cash Reserves will be reflected in the net asset value of Daily Cash Reserves. Daily Cash Reserves expects to distribute any net realized short-term gains of Daily Cash Reserves at least once each year, although it may distribute them more frequently if necessary in order to maintain Daily Cash Reserves' net asset value at $1.00 per share. Daily Cash Reserves do not expect to realize net long-term capital gains. PAGE Should Daily Cash Reserves incur or anticipate any unusual expense, loss or depreciation which would adversely affect the net asset value per share or net income per share of Daily Cash Reserves for a particular period, the Board of Trustees would at that time consider whether to adhere to the present dividend policy described above or to revise it in light of then prevailing circumstances. For example, if the net asset value per share of Daily Cash Reserves were reduced, or was anticipated to be reduced, below $1.00, the Board of Trustees may suspend further dividend payments with respect to Daily Cash Reserves until the net asset value per share returns to $1.00. Thus, such expense or loss or depreciation might result in a shareholder receiving no dividends for the period during which he held shares of Daily Cash Reserves and/or in his receiving upon redemption a price per share lower than the price which he paid. Dividends on Daily Cash Reserves' shares are normally payable on the first day following the date that a share purchase or exchange order is effective and on the date that a redemption order is effective. The net income of Daily Cash Reserves for dividend purposes is determined as of 4:00 p.m. Eastern time on each "business day" of the Fund immediately prior to the determination of Daily Cash Reserves' net asset value on that day. A "business day" of the Fund means any day on which both the New York Stock Exchange and United States Trust Company of New York (the "Custodian"), the Fund's custodian, are open for business. It is expected that the New York Stock Exchange and/or the Custodian will be closed on Saturdays and Sundays, New Year's Day, Martin Luther King, Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas. Dividends are declared daily and reinvested in the form of additional full and fractional shares of Daily Cash Reserves at net asset value. A shareholder may elect to have the aggregate dividends declared and paid monthly to him by check. Tax Matters The following is only a summary of certain additional tax considerations generally affecting Daily Cash Reserves and its shareholders that are not described in the Prospectus. No attempt is made to present a detailed explanation of the tax treatment of Daily Cash Reserves or its shareholders, and the discussions here and in the Prospectus are not intended as substitutes for careful tax planning. PAGE Qualification as a Regulated Investment Company Daily Cash Reserves has elected to be taxed as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a regulated investment company, Daily Cash Reserves is not subject to federal income tax on the portion of its net investment income (i.e., taxable interest, dividends and other taxable ordinary income, net of expenses) and capital gain net income (i.e., the excess of capital gains over capital losses) that it distributes to shareholders, provided that it distributes at least 90% of its investment company taxable income (i.e., net investment income and the excess of net short-term capital gain over net long-term capital loss) and at least 90% of its tax-exempt income (net of expenses allocable thereto) for the taxable year (the "Distribution Requirement"), and satisfies certain other requirements of the Code that are described below. Distributions by Daily Cash Reserves made during the taxable year or, under specified circumstances, within twelve months after the close of the taxable year, will be considered distributions of income and gains of the taxable year and can therefore satisfy the Distribution Requirement. In addition to satisfying the Distribution Requirement, a regulated investment company must: (1) derive at least 90% of its gross income from dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock or securities or foreign currencies (to the extent such currency gains are directly related to the regulated investment company's principal business of investing in stock or securities) and other income (including but not limited to gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies (the "Income Requirement"); and (2) derive less than 30% of its gross income (exclusive of certain gains on designated hedging transactions that are offset by realized or unrealized losses on offsetting positions) from the sale or other disposition of stock, securities or foreign currencies (or options, futures or forward contracts thereon) held for less than three months (the "Short-Short Gain Test"). However, foreign currency gains, including those derived from options, futures and forwards, will not in any event be characterized as Short-Short Gain if they are directly related to the regulated investment company's investments in stock or securities (or options or futures thereon). Because of the Short-Short Gain Test, Daily Cash Reserves may have to limit the sale of appreciated securities that it has held for less than three months. However, the Short-Short Gain Test will not prevent Daily Cash Reserves from disposing of investments at a loss, since the recognition of a loss before the expiration PAGE of the three-month holding period is disregarded for this purpose. Interest (including original issue discount) received by Daily Cash Reserves at maturity or upon the disposition of a security held for less than three months will not be treated as gross income derived from the sale or other disposition of such security within the meaning of the Short-Short Gain Test. However, income that is attributable to realized market appreciation will be treated as gross income from the sale or other disposition of securities for this purpose. In general, gain or loss recognized by Daily Cash Reserves on the disposition of an asset will be a capital gain or loss. However, gain recognized on the disposition of a debt obligation purchased by Daily Cash Reserves at a market discount (generally, at a price less than its principal amount) will be treated as ordinary income to the extent of the portion of the market discount which accrued during the period of time Daily Cash Reserves held the debt obligation. Treasury Regulations permit a regulated investment company, in determining its investment company taxable income and net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss) for any taxable year, to elect (unless it has made a taxable year election for excise tax purposes as discussed below) to treat all or any part of any net capital loss, any net long-term capital loss or any net foreign currency loss incurred after October 31 as if it had been incurred in the succeeding year. In addition to satisfying the requirements described above, Daily Cash Reserves must satisfy an asset diversification test in order to qualify as a regulated investment company. Under this test, at the close of each quarter of Daily Cash Reserves' taxable year, at least 50% of the value of Daily Cash Reserves' assets must consist of cash and cash items, U.S. Government securities, securities of other regulated investment companies, and securities of other issuers (as to which Daily Cash Reserves has not invested more than 5% of the value of Daily Cash Reserves' total assets in securities of such issuer and as to which Daily Cash Reserves does not hold more than 10% of the outstanding voting securities of such issuer), and no more than 25% of the value of its total assets may be invested in the securities of any one issuer (other than U.S. Government securities and securities of other regulated investment companies), or in two or more issuers which Daily Cash Reserves controls and which are engaged in the same or similar trades or businesses. For purposes of asset diversification testing, obligations issued or guaranteed by agencies or instrumentalities of the U.S. Government such as the Federal Agricultural Mortgage Corporation, the Farm Credit System Financial Assistance PAGE Corporation, a Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Government National Mortgage Corporation, and the Student Loan Marketing Association are treated as U.S. Government securities. If for any taxable year Daily Cash Reserves does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any deduction for distributions to shareholders, and such distributions will be taxable to the shareholders as ordinary dividends to the extent of Daily Cash Reserves' current and accumulated earnings and profits. Such distributions generally will be eligible for the dividends-received deduction in the case of corporate shareholders. Excise Tax on Regulated Investment Companies A 4% nondeductible excise tax is imposed on a regulated investment company that fails to distribute in each calendar year an amount equal to 98% of ordinary taxable income for the calendar year and 98% of capital gain net income for the one-year period ended on October 31 of such calendar year (or, at the election of a regulated investment company having a taxable year ending November 30 or December 31, for its taxable year (a "taxable year election")). The balance of such income must be distributed during the next calendar year. For the foregoing purposes, a regulated investment company is treated as having distributed any amount on which it is subject to income tax for any taxable year ending in such calendar year. For purposes of the excise tax, a regulated investment company shall: (1) reduce its capital gain net income (but not below its net capital gain) by the amount of any net ordinary loss for the calendar year; and (2) exclude foreign currency gains and losses incurred after October 31 of any year (or after the end of its taxable year if it has made a taxable year election) in determining the amount of ordinary taxable income for the current calendar year (and, instead, include such gains and losses in determining ordinary taxable income for the current calendar year). Daily Cash Reserves intends to make sufficient distributions or deemed distributions of its ordinary taxable income and capital gain net income prior to the end of each calendar year to avoid liability for the excise tax. However, investors should note that Daily Cash Reserves may in certain circumstances be required to liquidate portfolio investments to make sufficient distributions to avoid excise tax liability. PAGE Distributions Daily Cash Reserves anticipates distributing substantially all of its investment company taxable income for each taxable year. Such distributions will be taxable to shareholders as ordinary income and treated as dividends for federal income tax purposes, but they will not qualify for the 70% dividends received deduction for corporate shareholders. Daily Cash Reserves may either retain or distribute to shareholders its net capital gain for each taxable year. Daily Cash Reserves currently intends to distribute any such amounts. If net capital gain is distributed and designated as a capital gain dividend, it will be taxable to shareholders as long-term capital gain, regardless of the length of time the shareholder has held his shares or whether such gain was recognized by Daily Cash Reserves prior to the date on which the shareholder acquired his shares. Conversely, if Daily Cash Reserves elects to retain its net capital gain, Daily Cash Reserves will be taxed thereon (except to the extent of any available capital loss carryovers) at the 35% corporate tax rate. If Daily Cash Reserves elects to retain its net capital gain, it is expected that Daily Cash Reserves also will elect to have shareholders of record on the last day of its taxable year treated as if each received a distribution of his pro rata share of such gain, with the result that each shareholder will be required to report his pro rata share of such gain on his tax return as long-term capital gain, will receive a refundable tax credit for his pro rata share of tax paid by Daily Cash Reserves on the gain, and will increase the tax basis for his shares by an amount equal to the deemed distribution less the tax credit. Investment income that may be received by Daily Cash Reserves from sources within foreign countries may be subject to foreign taxes withheld at the source. The United States has entered into tax treaties with many foreign countries which entitle Daily Cash Reserves to a reduced rate of, or exemption from, taxes on such income. It is impossible to determine the effective rate of foreign tax in advance since the amount of Daily Cash Reserves' assets to be invested in various countries is not known. Distributions by Daily Cash Reserves that do not constitute ordinary income dividends, exempt-interest dividends or capital gain dividends will be treated as a return of capital to the extent of (and in reduction of) the shareholder's tax basis in his shares; any excess will be treated as gain from the sale of his shares, as discussed below. PAGE Distributions by Daily Cash Reserves will be treated in the manner described above regardless of whether such distributions are paid in cash or reinvested in additional shares of Daily Cash Reserves (or of another fund). Shareholders receiving a distribution in the form of additional shares will be treated as receiving a distribution in an amount equal to the fair market value of the shares received, determined as of the reinvestment date. In addition, if the net asset value at the time a shareholder purchases shares of Daily Cash Reserves reflects undistributed net investment income or recognized capital gain net income, or unrealized appreciation in the value of the assets of Daily Cash Reserves, distributions of such amounts will be taxable to the shareholder in the manner described above, although such distributors economically constitute a return of capital to the shareholder. Ordinarily, shareholders are required to take distributions by Daily Cash Reserves into account in the year in which the distributions are made. However, dividends declared in October, November or December of any year and payable to shareholders of record on a specified date in such a month will be deemed to have been received by the shareholders (and made by Daily Cash Reserves) on December 31 of such calendar year if such dividends are actually paid in January of the following year. Shareholders will be advised annually as to the U.S. federal income tax consequences of distributions made (or deemed made) during the year. Daily Cash Reserves will be required in certain cases to withhold and remit to the U.S. Treasury 31 % of ordinary income dividends and capital gain dividends, and the proceeds of redemption of shares, paid to any shareholder (1) who has provided either an incorrect tax identification number or no number at all, (2) who is subject to backup withholding by the IRS for failure to report the receipt of interest or dividend income properly, or (3) who has failed to certify to Daily Cash Reserves that it is not subject to backup withholding or that it is a corporation or other "exempt recipient." Sale or Redemption of Shares Daily Cash Reserves seeks to maintain a stable net asset value of $1.00 per share; however, there can be no assurance that Daily Cash Reserves will do this. In such a case, a shareholder will recognize gain or loss on the sale or redemption of shares of Daily Cash Reserves in an amount equal to the difference between the proceeds of the sale or redemption and the shareholder's adjusted tax basis in the shares. All or a portion of any loss so recognized may be disallowed if the PAGE shareholder purchases other shares of Daily Cash Reserves within 30 days before or after the sale or redemption. In general, any gain or loss arising from (or treated as arising from) the sale or redemption of shares of Daily Cash Reserves will be considered capital gain or loss and will be long-term capital gain or loss if the shares were held for longer than one year. However, any capital loss arising from the sale or redemption of shares held for six months or less will be disallowed to the extent of the amount of exempt-interest dividends received on such shares and (to the extent not disallowed will be treated as a long-term capital loss to the extent of the amount of capital gain dividends received on such shares. For this purpose, the special holding period rules of Code Section 246(c)(3) and (4) generally will apply in determining the holding period of shares. Long-term capital gains of noncorporate taxpayers are currently taxed at a maximum rate 11.6% lower than the maximum rate applicable to ordinary income. Capital losses in any year are deductible only to the extent of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income. Foreign Shareholders Taxation of a shareholder who, as to the United States, is a nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership ("foreign shareholder"), depends on whether the income from Daily Cash Reserves is "effectively connected" with a U.S. trade or business carried on by such shareholder. If the income from Daily Cash Reserves is not effectively connected with a U.S. trade or business carried on by a foreign shareholder, ordinary income dividends paid to a foreign shareholder will be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon the gross amount of the dividend. Such a foreign shareholder would generally be exempt from U.S. federal income tax on gains realized on the sale of shares of Daily Cash Reserves, capital gain dividends and exempt-interest dividends and amounts retained by Daily Cash Reserves that are designated as undistributed capital gains. If the income from Daily Cash Reserves is effectively connected with a U.S. trade or business carried on by a foreign shareholder, then ordinary income dividends, capital gain dividends, and any gains realized upon the sale of shares of Daily Cash Reserves will be subject to U.S. federal income tax at the rates applicable to U.S. citizens or domestic corporations. PAGE In the case of foreign noncorporate shareholders, Daily Cash Reserves may be required to withhold U.S. federal income tax at a rate of 31% on distributions that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless such shareholders furnish Daily Cash Reserves with proper notification if its foreign status. The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different from those described herein. Foreign shareholders are urged to consult their own tax advisers with respect to the particular tax consequences to them of an investment in Daily Cash Reserves, including the applicability of foreign taxes. Effect of Future Legislation and Local Tax Considerations The foregoing general discussion of U.S. federal income tax consequences is based on the Code and the Treasury Regulations issued thereunder as in effect on the date of this Statement of Additional Information. Future legislative or administrative changes or court decisions may significantly change the conclusions expressed herein, and any such changes or decisions may have a retroactive effect with respect to transactions contemplated herein. Rules of state and local taxation of ordinary income dividends, exempt-interest dividends and capital gain dividends from regulated investment companies often differ from the rules for U.S. federal income taxation described above. Shareholders are urged to consult their tax advisers as to the consequences of these and other state and local tax rules affecting investment in Daily Cash Reserves. DESCRIPTION OF SHARES The Fund's Declaration of Trust permits its Board of Trustees to authorize the issuance of an unlimited number of full and fractional shares of beneficial interest (without par value), which may be divided into such separate series as the Trustees may establish. The Fund currently has four series of shares: the Daily Cash Reserves Series, the Tax-Free Money Market Series, the High-Yield Municipal Bond Series and the Fundamental U.S. Government Strategic Income Fund Series. The Trustees may establish additional series of shares, and may divide or combine the shares into a greater or lesser number of shares without thereby changing the proportionate beneficial interests in the Fund. Each share represents an equal proportionate interest in the Fund with each other share. The shares of any additional PAGE series would participate equally in the earnings, dividends and assets of the particular series, and would be entitled to vote separately to approve investment advisory agreements or changes in investment restrictions, but shareholders of all series would vote together in the election and selection of Trustees and accountants. Upon liquidation of the Fund, the Fund's shareholders are entitled to share pro rata in the Fund's net assets available for distribution to shareholders. Shareholders are entitled to one vote for each share held and may vote in the election of Trustees and on other matters submitted to meetings of shareholders. Although Trustees are not elected annually by the shareholders, shareholders have under certain circumstances the right to remove one or more Trustees. No material amendment may be made to the Fund's Declaration of Trust without the affirmative vote of a majority of its shares. Shares have no preemptive or conversion rights. Shares are fully paid and non-assessable, except as set forth below. See "Certain Liabilities." CERTAIN LIABILITIES As a Massachusetts business trust, the Fund's operations are governed by its Declaration of Trust dated March 19, 1987, a copy of which is on file with the office of the Secretary of The Commonwealth of Massachusetts. Theoretically, shareholders of a Massachusetts business trust may, under certain circumstances, be held personally liable for the obligations of the trust. However, the Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Fund or any series of the Fund and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Fund or its Trustees. Moreover, the Declaration of Trust provides for the indemnification out of Fund property of any shareholders held personally liable for any obligations of the Fund or any series of the Fund. The Declaration of Trust also provides that the Fund shall, upon request, assume the defense of any claim made against any shareholder for any act or obligation of the Fund and satisfy any judgment thereon. Thus, the risk of a shareholder incurring financial loss beyond his or her investment because of shareholder liability would be limited to circumstances in which the Fund itself will be unable to meet its obligations. In light of the nature of the Fund's business, the possibility of the Fund's liabilities exceeding its assets, and therefore a shareholder's risk of personal liability, is extremely remote. PAGE The Declaration of Trust further provides that the Fund shall indemnify each of its Trustees and officers against liabilities and expenses reasonably incurred by them, in connection with, or arising out of, any action, suit or proceeding, threatened against or otherwise involving such Trustee or officer, directly or indirectly, by reason of being or having been a Trustee or officer of the Fund. The Declaration of Trust does not authorize the Fund to indemnify any Trustee or officer against any liability to which he or she would otherwise be subject by reason of or for willful misfeasance, bad faith, gross negligence or reckless disregard of such person's duties. DETERMINATION OF NET ASSET VALUE The net asset value per share of Daily Cash Reserves is determined as of the close of trading (currently 4:00 P.M., New York time) on each business day of the Fund. The net asset value per share of Daily Cash Reserves is also determined on any other day in which the level of trading in its portfolio securities is sufficiently high that the current net asset value per share might be materially affected by changes in the value of its portfolio securities. On any day in which no purchase orders for the shares of Daily Cash Reserves become effective and no shares are tendered for redemption, the net asset value per share is not determined. Except as set forth in the following paragraph, Daily Cash Reserves' portfolio instruments are valued on each business day on the basis of amortized cost. This technique involves valuing an instrument at its cost and thereafter assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. While this method provides certainty in valuation, it may result in periods during which value, as determined by amortized cost, is higher or lower than the price the Fund would receive if it sold the instrument. During periods of declining interest rates, the daily yield on shares of Daily Cash Reserves computed as described above may tend to be higher than a like computation made by a fund with identical investments utilizing a method of valuation based upon market prices and estimates of market prices for all of its portfolio instruments. Thus, if the use of amortized cost by Daily Cash Reserves resulted in a lower aggregate portfolio value on a particular day, a prospective investor in Daily Cash Reserves would be able to obtain a somewhat higher yield than would result from investment in a fund utilizing solely market values and existing investors in Daily Cash Reserves would receive less investment income. The converse would apply in a period of rising interest rates. PAGE Standby commitments will be valued at zero in determining net asset value. "When-issued" securities will be valued at the value of the security at the time the commitment to purchase is entered into. The valuation of Daily Cash Reserves' portfolio instruments based upon their amortized cost and the concomitant maintenance of Daily Cash Reserves' per share net asset value of $1.00 is permitted in accordance with Rule 2a-7 under the 1940 Act, pursuant to which Daily Cash Reserves must adhere to certain conditions. Daily Cash Reserves must maintain a dollar-weighted average portfolio maturity of 90 days or less, purchase only instruments having remaining maturities of 13 months or less and invest only in securities determined by the Trustees to present minimal credit risks. (See the Prospectus for additional information). The maturities of variable rate demand instruments held in Daily Cash Reserves' portfolio will be deemed to be the longer of the demand period, or the period remaining until the next interest rate adjustment, although stated maturities may be in excess of one year. The Trustees must establish procedures designed to stabilize, to the extent reasonably possible, Daily Cash Reserves' price per share as computed for the purpose of sales and redemptions at a single value. It is the intention of Daily Cash Reserves to maintain a per-share net asset value of $1.00 but there can be no assurance of this. Such procedures will include review of Daily Cash Reserves' portfolio holdings by the Trustees, at such intervals as they may deem appropriate, to determine whether Daily Cash Reserves' net asset value calculated by using available market quotations deviates from $1.00 per share and, if so, whether such deviation may result in material dilution or is otherwise unfair to existing shareholders. In the event the Trustees determine that such a deviation exists, they have agreed to take such corrective action as they regard as necessary and appropriate, including the sale of portfolio instruments prior to maturity to realize capital gains or losses or to shorten average portfolio maturity; withholding dividends; redeeming shares in kind; or establishing a net asset value per share by using available market quotations. CALCULATION OF YIELD Daily Cash Reserves' yield quotations as they may appear in the Prospectus, this Statement of Additional Information or in advertising and sales material are calculated by a standard method prescribed by the Securities and Exchange Commission. Under this method, the yield quotation is based on a hypothetical account having a balance of exactly one share at the beginning of a seven-day period. PAGE The yield quotation is computed as follows: The net change, exclusive of capital changes (i.e., realized gains and losses from the sale of securities and unrealized appreciation and depreciation), in the value of a hypothetical pre-existing account having a balance of one share at the beginning of the base period is determined by subtracting a hypothetical charge reflecting expense deductions from the hypothetical account, and dividing the net change in value by the value of the share at the beginning of the base period. This base period return is then multiplied by 365/7 with the resulting yield figure carried to the nearest 100th of 1%. The determination of net change in account value reflects the value of additional shares purchased with dividends from the original share, dividends declared on both the original share and any such additional shares, and all fees that are charged to Daily Cash Reserves, in proportion to the length of the base period and Daily Cash Reserves' average account size (with respect to any fees that vary with the size of an account). Daily Cash Reserves also may advertise a quotation of effective yield. Effective yield is computed by compounding the unannualized base period return determined as in the preceding paragraph by adding 1 to the base period return, raising the sum to a power equal to 365 divided by 7, and subtracting one from the result, according to the following formula: Effective Yield = [(Base Period Return + 1) 365/7] - 1. PAGE APPENDIX The following is a description of the two highest commercial paper, bond and other short- and long-term categories assigned by Standard & Poor's Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service, Inc. ("Fitch"), Duff and Phelps ("Duff"), and IBCA Inc. and IBCA Limited ("IBCA"): Commercial Paper and Short-Tenn Ratings The designation A-1 by S&P indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus sign (+) designation. Capacity for timely payment on issues with an A-2 designation is strong. However, the relative degree of safety is not as high as for issues designated A-1. The rating Prime-1 (P-1) is the highest commercial paper rating assigned by Moody's. Issuers of P-1 paper must have a superior capacity for repayment of short-term promissory obligations, and ordinarily will be evidenced by leading market positions in well-established industries, high rates of return of funds employed, conservative capitalization structures with moderate reliance on debt and ample asset protection, broad margins in earnings coverage of fixed financial charges and high internal cash generation, and well established access to a range of financial markets and assured sources of alternate liquidity. Issues rated Prime-2 (P-2) have a strong capacity for repayment of short-term promissory obligations. This ordinarily will be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. The rating Fitch-1 (Highest Grade) is the highest commercial rating assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade) is the second highest commercial paper rating assigned by Fitch which reflects an assurance of timely payment only slightly less in degree than the strongest issues. The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper rated Duff-1 is regarded as having very high certainty of timely payment with excellent liquidity factors which are supported by ample asset protection. Risk factors are minor. Paper rated Duff-2 is regarded as having PAGE good certainty of timely payment, good access to capital markets and sound liquidity factors and company fundamentals. Risk factors are small. The designation Al by IBCA indicates that the obligation is supported by a very strong capacity for timely repayment. Those obligations rated Al+ are supported by the highest capacity for timely repayment. Obligations rated A2 are supported by a strong capacity for timely repayment, although such capacity may be susceptible to adverse changes in business, economic or financial conditions. Bond and Long-Term Ratings Bonds rated AAA are considered by S&P to be the highest grade obligations and possess an extremely strong capacity to pay principal and interest. Bonds rated AA by S&P are judged by S&P to have a very strong capacity to pay principal and interest, and in the majority of instances, differ only in small degrees from issues rated AAA. Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are general referred to as "gilt edge." Bonds Rated Aa by Moody's are judged by Moody's to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than Aaa bonds because margins of protection may not be as large or fluctuations of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger. Moody's applies numerical modifiers 1, 2 and 3 in the Aa rating category. The modifier 1 indicates a ranking for the security in the higher end of this rating category, the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates a ranking in the lower end of the rating category. Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly marketable, suitable for investment by trustees and fiduciary institutions and are liable to but slight market fluctuation other than through changes in the money rate. The prime feature of an AAA bond is a showing of earnings several times or many times interest requirements, with such stability of applicable earnings that safety is beyond reasonable question whatever changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety virtually beyond question and are readily salable, whose merits are not unlike those of the AAA class, but whose margin of safety is less strikingly broad. The issue may be the obligation of a small company, strongly secured but influenced as to rating by the lesser financial power of the enterprise and more local type market. PAGE Bonds rated Duff-1 are judged by Duff to be of the highest credit quality with negligible risk factors; only slightly more than U.S. Treasury debt. Bonds rated Duff-2, 3 and 4 are judged by Duff to be of high credit quality with strong protection factors. Risk is modest but may vary slightly from time to time because of economic conditions. Obligations rated AAA by IBCA have the lowest expectation of investment risk. Capacity for timely repayment of principal and interest is substantial, such that adverse changes in business, economic or financial conditions are unlikely to increase investment risk significantly. Obligations for which there is a very low expectation of investment risk are rated AA by IBCA. Capacity for timely repayment of principal and interest is substantial. Adverse changes in business, economic or financial conditions may increase investment risk albeit not very significantly. S&P Tax-Exempt Demand Bonds Ratings S&P assigns "dual" ratings to all long-term debt issues that have as part of their provisions a demand feature. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity, and the commercial paper rating symbols are used to denote the put option (e.g., "AAA/A-1+"). Moody's Tax-Exempt Demand Ratings Moody's assigns issues which have demand features (i.e., variable rate demand obligations) a VMIG symbol. This symbol reflects such characteristics as payment upon periodic demand rather than fixed maturity, and payment relying on external liquidity. The VMIG rating is modified by the numbers 1, 2 or 3. VMIG1 represents the best quality in the VMIG category and VMIG2 represents high quality. International and U.S. Bank Ratings An IBCA bank rating represents IBCA's current assessment of the strength of the bank and whether such bank would receive support should it experience difficulties. In its assessment of a bank, IBCA uses a dual rating system comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns banks Long- and Short-Term Ratings as used in the corporate ratings discussed above. Legal Ratings, which range in gradation PAGE from 1 through 5, address the question of whether the bank would receive support provided by central banks or shareholders if it experienced difficulties, and such ratings are considered by IBCA to be a prime factor in its assessment of credit risk. Individual Ratings, which range in gradations from A through E, represent IBCA's assessment of a bank's economic merits and address the question of how the bank would be viewed if it were entirely independent and could not rely on support from state authorities or its owners. PART C. OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) Financial Statements for each Fund: In Part A: None. In Part B: None. (b) Exhibits: (1) Declaration of Trust (2) By-Laws of Registrant* (3) None (4) None (5) Form of Management Agreement* (6) Form of Distribution Agreement* (7) None (8) Form of Custody Agreement* (9) None (10) (a) Opinion of Counsel* (b) Consent of Counsel (c) Not Applicable (11) Consent of McGladrey & Pullen (12) None (13) Form of Stock Purchase Agreement* (14) None (15) Form of Marketing Plan pursuant to Rule 12b-1* (16) Schedule for Computation of Performance Quotations* Item 25. Persons Controlled by or under Common Control with Registrant None. Item 26. Number of Holders of securities The following sets forth the number of record holders of the Registrant as of May 30, 1995: Title of Class Number of Record Holders Daily Cash Reserves Series 0 ___________________ * Previously filed. PAGE Item 27. Indemnification Except pursuant to the Declaration of Trust, dated March 13, 1987, establishing the Registrant as a Trust under Massachusetts law, there is no contract, arrangement or statute under which any Trustee, director, officer, underwriter, distributor or affiliated person of the Registrant is insured or indemnified. The Declaration of Trust provides that no Trustee or officer will be indemnified against any liability to which the Registrant would otherwise be subject by reason of or for willful misfeasance, bad faith, gross negligence or reckless disregard of such person's duties. See the Registrant's undertaking with respect to indemnification in Item 32 below. Item 28. Business and other Connections of Investment Advisor All of the information required by this item is set forth in the Forms ADV, as amended, of Fundamental Portfolio Advisors, Inc. The following sections of such Forms ADV are incorporated herein by reference: (a) Items 1 and 2 of Part 2; and (b) Item 6, Business Background, of each Schedule D. Item 29. Principal Underwriters (a) FSC is the distributor of shares of the Fundamental U.S. Government Strategic Income Fund Series, the High-Yield Municipal Bond Series and the Tax-Free Money Market Series of the Registrant, a Massachusetts business trust, under distribution contracts entered into pursuant to a separate 12b-1 Plan with each such series. FSC also performs distribution services for the New York Muni Fund, Inc., a Maryland corporation, and The California Muni Fund, a Massachusetts business trust. PAGE (b) Positions and Positions and Offices with Offices with Name* Distributor Registrant Thomas W. Buckingham Director and None President Vincent J. Malanga Director, Executive Trustee, Vice President and President and Secretary Treasurer Item 30. Location of Accounts and Records The accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the rules promulgated thereunder are in the possession of Registrant, 90 Washington Street, 19th Floor, New York, N.Y. and United States Trust Company of New York, 114 West 47th Street, New York, N.Y., the Registrant's Custodian. Item 31. Management Services The Registrant is a party to one contract for each of the Fundamental U.S. Government Strategic Income Fund Series, the Tax-Free Money Market Series and the High-Yield Municipal Bond Series, each as described in the Prospectus and the Statement of Additional Information of each series of the Registrant. Under such contracts, each series of the Registrant receives management and advisory services from FPA. Item 32. Undertakings The Registrant undertakes to limit indemnification of officers and Trustees as follows: Indemnification Section 1. The Registrant shall indemnify each of its Trustees and officers (including persons who serve at the Registrant's request as directors, trustees or officers of another organization in which the Registrant has any interest as a shareholder, creditor or otherwise) (hereinafter referred to as a "Covered Person") against all liabilities and expenses, including but not limited to amounts paid in satisfaction of _____________ *Address of each such person listed above is 90 Washington Street, 19th Floor, New York, New York 10006 PAGE judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by any Covered Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or legislative body, in which such Covered Person may be or may have been involved as a party or been threatened, while in office or thereafter, by reason of being or having been such a Covered Person except with respect to any matter as to which such Covered Person shall have been finally adjudicated in any such action, suit or other proceeding (a) not to have acted in good faith in the reasonable belief that such Covered Persons action was in the best interest of the Registrant or (b) to be liable to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office ("disabling conduct"). Expenses, including counsel fees so incurred by any such Covered Person (but excluding amounts paid in satisfaction of judgments, in compliance or as fines or penalties) shall be paid from time to time by the Registrant in advance of the final disposition of any such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Covered Person to repay amounts so paid to the Registrant if it is ultimately determined that indemnification of such expenses is not authorized under Sections 1, 2 and 3 hereof, provided, however, that either (a) such Covered Person shall have provided appropriate security of such undertaking, (b) the Registrant shall be insured against losses arising from any such advance payments or (c) either a majority of the disinterested Trustees acting on the matter (provided that a majority of the disinterested Trustees then in office act on the matter), or independent legal counsel in a written opinion shall have determined, based upon a review of readily available facts (as opposed to a full trial type inquiry) that there is reason to believe that such Covered Person will be found entitled to indemnification under Sections 1 and 2 hereof. Compromise Payment Section 2. Its to any matter disposed of (whether by a compromise payment, pursuant to a consent decree or otherwise) without an adjudication to a court, or by any body before which the proceeding was brought, that such Covered Person either (a) did not act in good faith in the reasonable belief that his or her action was in the best interests of the Registrant or (b) is liable to the Registrant or its shareholders by reason of disabling conduct, indemnification shall be proved if (a) it is approved as in the best interests of the Registrant, after notice that it involves such indemnification, by at least a majority of the disinterested Trustees acting on the matter (provided that a PAGE majority of the disinterested Trustees then in office act on the matter) upon a determination, based upon a review of readily available facts (as opposed to a full trial type inquiry) that such Covered Person acted in good faith in the reasonable belief that his or her action was in the best interests of the Registrant and is not liable to the Registrant or its shareholders Iq reasons of disabling conduct, or (b) there has been obtained an opinion in writing of independent legal counsel, based upon a review of readily available facts (as opposed to a full trial type inquiry) to the effect that such Covered Person appears to have acted in good faith in the reasonable belief that his or her action was in the best interests of the Registrant and that such indemnification would not protect such Covered Person against any liability to the Registrant to which he or she would otherwise be subject by reason of disabling conduct. Any approval pursuant to this Section shall not prevent the recovery from any Covered Person of any amount paid to such Covered Person in accordance with this Section as indemnification if such Covered Person is subsequently adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that such Covered Person's action was in the best interests of the Registrant or to have been liable to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct or such Covered Person's office. Indemnification Not Exclusive Section 3. The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which such Covered Person may be entitled. As used in Sections 1, 2 and 3 hereof, the term "Covered Persons" shall include such person's heirs, executors and administrators, and a "disinterested Trustee" is a Trustee who is not an "interested person" of the Registrant as defined in Section 2(a)(19) of the 1940 Act, as amended (or who has been exempt from being an "interested person" by any rule, regulation or order of the Commission and against whom none of such actions, suits or other proceedings or another action, suit or other proceeding on the same or similar grounds is then or has been pending). Nothing contained in Sections 1, 2 and 3 hereof shall affect any rights to indemnification to which personnel of the Registrant, other than Trustees or officers, and other persons may be entitled by contract or otherwise under law, nor the power of the Registrant to purchase and maintain liability insurance on behalf of any such person; provided, however, that the Registrant shall not purchase or maintain any such liability insurance in contravention of applicable law, including without limitation the 1940 Act, and the rules and regulations thereunder. PAGE (b) Registrant undertakes to file a post-effective amendment for Daily Cash Reserves Series, using financial statements which need not be certified, within four to six months from the effective date of this Registration Statement or the initial public offering thereof, whichever is later. (c) Registrant undertakes to furnish to each person to whom a prospectus relating to its Fundamental U.S. Government Strategic Income Fund Series, Tax-Free Money Market Series or High-Yield Municipal Bond Series is delivered, a copy of the Fund's latest annual report to shareholders, upon request and without charge. PAGE SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Amendment to its Registration Statement to be signed on its behalf by the Undersigned, thereunto duly authorized, in the City of New York and State of New York, on the 13th day of June, 1995. Registrant: FUNDAMENTAL FIXED INCOME FUND By: /s/ Vincent J. Malanga Vincent J. Malanga, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement or Amendment has been signed below by the following persons in the capacities and on the dates indicated. SIGNATURES TITLE DATE /s/ Vincent J. Malanga Trustee, Principal June 13, 1995 Vincent J. Malanga Executive Officer and Principal Financial and Accounting Officer * James C. Armstrong Trustee June 13, 1995 James C. Armstrong * James A. Bowers Trustee June 13, 1995 James A. Bowers * Stanley M. Brandt Trustee June 13, 1995 Stanley M. Brandt Clark L. Bullock Trustee * L. Greg Ferrone Trustee June 13, 1995 L. Gregg Ferrone *By: /s/ Jules Buchwald Jules Buchwald, Attorney-in-Fact, pursuant to powers of attorney dated April 24, 1991, previously filed with the Securities and Exchange Commission EX-23 2 June 15, 1995 Fundamental Fixed Income Fund 90 Washington Street New York, New York 10006 Re: Fundamental Fixed Income Fund Registration No. 33-12738 Gentlemen: We hereby consent to the reference to our firm as counsel in Post-Effective Amendment No. 15 to Registration Statement No. 33-12738. Very truly yours, /s/ Kramer, Levin, Naftalis, Nessen, Kamin & Frankel EX-99 3 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm in the Statement of Additional Information under the caption "Custodian and Independent Accountants" in Post-Effective Amendment No. 16 to the Registration Statement on Form N-1A, File No. 33-1278 as filed with the Securities and Exchange Commission. /s/ McGladrey & Pullen, LLP New York, New York June 19, 1995 -----END PRIVACY-ENHANCED MESSAGE-----