-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ClfifRp37R4uXPATuE0wBo9raz8yPBRGYyBpYS5AAa+peuIxsaM59yqDwMpkqsMO RQABeGoi+nghoPaEqNUcRw== 0000950007-96-000156.txt : 19960829 0000950007-96-000156.hdr.sgml : 19960829 ACCESSION NUMBER: 0000950007-96-000156 CONFORMED SUBMISSION TYPE: N-30D/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960828 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: N-30D/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-05063 FILM NUMBER: 96622474 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 N-30D/A 1 SEMI-ANNUAL FUNDAMENTAL FIXED INCOME FUND U.S. GOVERNMENT STRATEGIC INCOME FUND Dear Fellow Shareholder: Interest rates rose sharply in this year's first half, and bond prices consequently fell. As a result, the Net Asset Value of the Fundamental U.S. Government Strategic Income Fund dropped from $1.49 per share at year end 1995, to $1.39 per share on June 30, 1996. However, with the spread between short and long term interest rates widening in the period, the Fund's 30-day yield was 11.23% as of June 30, 1996. 1996 began with a high degree of optimism in the global financial markets that Congress and the Clinton Administration would reach a bipartisan agreement to eliminate the federal budget deficit by the turn of the century. This hope seemed to be shattered in mid-winter. At the same time, evidence began to surface that economic activity was accelerating. This raised anxieties about a possible credit tightening move by the Federal Reserve, which drove down bond prices. None of this seemed to concern the equity market. Strong money flows propelled equity prices to new heights. By mid-year the yield on long term Treasury bonds climbed from about 6% to over 7%, meaning that the price of thirty year Treausry bonds fell by nearly 12%, while the Dow Jones Industrial Average posted a 10.5% advance. Mosts measures began to flash signals that equities were becoming quite expensive compared to fixed income securities. We were disappointed by the collapse of federal budget negotiations, although in our view this was providing a buying opportunity for fixed income investors. After all, despite the political stalemate, policies toward deficit reduction remain firmly entrenched, and the deficit continues to shrink both absolutely and as a share of the economy. Meanwhile, while the economy is continuing to grow, this growth is moderate and noninflationary. For these reasons we have not thought the Federal Reserve would tighten credit by raising short term interest rates. But even if the Federal Reserve is so inclined, any tightening is likely to be minor, and not indicative of a trend. The Fundamental U.S. Government Strategic Income Fund employs leverage attempting to boost its yield. A widening gap between short and long term interest rates is beneficial to this strategy. Looking ahead, we think it is likely that the widening gap that was evident in this year's first half will narrow. We believe a narrowing will likely occur as short term interest rates remain relatively stable while long term rates fall, so as to more accurately reflect a slow growth and low inflation environment. The result of such a narrowing is that the high yield that the Fund generated in this year's first half may fall somewhat in the second half. But the flip side of this is that the rise in bond prices that would occur as long term interest rates moderate should be beneficial to the Fund's Net Asset Value. If you have been reinvesting your dividends this period, and if we are right in our overall assessment, the benefits of reinvestment will be evident as the rest of 1996 unfolds. On balance, we think the outlook is favorable for fixed income markets, and we expect bond markets to make up some of the ground that was lost to equity markets as the year progresses. We thank you for your continued trust and we look forward to continuing to serve you in the future. Sincerely, Dr. Vincent J. Malanga President FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND (Left Column) STATEMENT OF ASSETS AND LIABILITIES June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- ASSETS Investment in securities, at value (cost $18,898,611) (Notes 5 and 6) ............. $20,196,947 Receivables: Investments sold ......................... 73,531 Interest ................................. 100,909 Capital shares sold ...................... 1,450 ----------- Total assets ......................... 20,372,837 ----------- LIABILITIES Notes payable .............................. 527,000 Options written at value (premiums received $128,484) (Note 5) .............. 180,625 Securities sold subject to repurchase (Note 6) ................................. 5,693,733 Payables: Capital stock redeemed ................... 287 Dividends declared ....................... 29,954 Accrued expenses ......................... 241,704 Variation margin ......................... 128,431 ----------- Total liabilities .................... 6,801,734 ----------- NET ASSETS consisting of: Accumulated net realized loss ............. $(17,186,108) Unrealized appreciation of securities ..... 1,298,336 Unrealized depreciation of options written . (52,141) Unrealized depreciation of open future contracts ................................ (120,636) Paid-in-capital applicable to 9,732,137 shares of beneficial interest ............ 29,631,652 ------------ $13,571,103 =========== NET ASSET VALUE PER SHARE .................... $1.39 ===== (Right Column) STATEMENT OF OPERATIONS Six Months Ended June 30, 1996 (Unaudited) - ------------------------------------------------------------------------------- INVESTMENT INCOME Interest income, net of $175,660 of interest expense ...................... $ 857,531 EXPENSES (Notes 2, 3 and 6) Investment advisory fees ................... $ 53,169 Custodian and accounting fees .............. 10,222 Transfer agent fees ........................ 34,074 Professional fees .......................... 158,409 Trustees' fees ............................. 2,941 Printing and postage ....................... 283 Interest on bank borrowing ................. 6,491 Distribution expenses ...................... 17,772 Other ...................................... 7,443 ---------- 290,804 ---------- Fees waived .................................. 70,941 ---------- Total expenses ....................... 219,863 ---------- Net investment income ................ 637,668 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain on: Investments .............................. 63,633 Future and options on futures ............ 1,088,007 1,151,640 ---------- Change in unrealized appreciation (depreciation) of investments, options and futures contracts for the period: Investments ............................ (2,165,016) Open option contracts written .......... (21,106) Open futures contracts ................. 63,135 (2,122,997) ---------- ---------- Net gain on investments (971,357) ---------- NET (DECREASE) IN NET ASSETS FROM OPERATIONS ............................. $ (333,689) =========== STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- Six Months Ended Year Ended June 30, 1996 December (Unaudited) 31, 1995 ----------- -------- INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS Net investment income ............................ $ 637,668 $ 962,726 Net realized gain (loss) on investments .......... 1,151,640 (14,388,126) Unrealized appreciation (depreciation) on investments, options and futures contracts ..... (2,122,997) 15,662,974) Net increase (decrease) in net assets from operations ........................... (333,689) 2,237,574 DIVIDENDS PAID TO SHAREHOLDERS FROM Investment income ................................ (637,668) (962,726) CAPITAL SHARE TRANSACTIONS (Note 4) ................ (651,769) (5,170,959) ---------- ---------- Total decrease ............................. (1,623,126) (3,896,111) NET ASSETS Beginning of period .............................. 15,194,229 19,090,340 ---------- ---------- End of period .................................... $13,571,103 $15,194,229 ---------- ---------- See Notes to Financial Statements. 2 FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND STATEMENT OF CASH FLOWS June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH CASH FLOWS FROM OPERATING ACTIVITIES Net decrease in net assets from operations ........................ $ (333,689) Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities: Purchase of investment securities ............................. (1,835,057) Proceeds on sale of securities ................................ 2,410,093 Premiums received for options written ......................... 244,261 Premiums paid to close options written ........................ (44,961) Decrease in interest receivable ............................... 10,080 Increase in variation margin receivable ....................... 101,950 Decrease in accrued expenses .................................. 142,439 Net accretion of discount on securities ....................... (117,369) Net realized (gain) loss: Investments ................................................. (65,024) Options written ............................................. (133,141) Unrealized appreciation on securities and options written for the period .............................................. 2,186,122 ----------- Total adjustments ......................................... 2,899,393 ----------- Net cash provided by operating activities ................. 2,565,704 ----------- CASH FLOWS FROM FINANCING ACTIVITIES:* Net repayments on sale of securities sold subject to repurchase . (1,737,312) Net borrowings of note payable .................................. 464,000 Proceeds on shares sold ......................................... 1,044,678 Payment on shares repurchased ................................... (2,171,608) Cash dividends paid ............................................. (165,462) ----------- Net cash provided by financing activities ................. (2,565,704) ----------- Net increase in cash ...................................... 0 ----------- CASH AT BEGINNING OF PERIOD ....................................... 0 CASH AT END OF PERIOD ............................................. $ 0 ----------- *Non-cash financing activities not included herein consist of reinvestment of dividends of $466,036. Cash payments for interest expense totaled $7,933 for the period. STATEMENT OF OPTIONS WRITTEN June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- Number of Expiration Contracts++ Options Written Month Value - ----------- --------------- ------- ----- 40 U.S. Treasury Bonds, Call @ $108 ... September 1996 $105,625 40 U.S. Treasury Bonds, Call @ $110 ... September 1996 60,000 20 U.S. Treasury Bonds, Call @ $112 ... September 1996 15,000 -------- $180,625 ======== ++Each contract represents $100,000 face value of U.S. Treasury Bond Futures. See Notes to Financial Statements. 3 FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND STATEMENT OF INVESTMENTS June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- Principal Interest Maturity Amount Rate* Date Value ------ ---- ---- ----- United States Treasury Securities-46.43% United States Treasury Bonds 85,000++ 0.00% ZCS 11/15/03 $ 51,844 4,300,000++ 0.00% PS 11/15/06 2,131,876 5,900,000* 9.00% 11/15/18 7,194,313 ---------- (Cost $8,640,617) 9,378,033 ---------- United States Agency Backed Securities-53.57% Federal Home Loan Mortgage Corporation 843,718* 9.25% 08/15/23 894,572 258,705* 6.50% Z-bond 12/15/23 201,110 750,000 15.50% IFRN 05/15/24 728,063 261,112 16.80% IFRN 05/25/24 260,631 FNMA-Federal National Mortgage Assoc. 356,450* 15.50% TTIB 03/25/23 362,204 3,671,204* 15.33% TTIB 03/25/23 3,769,261 490,760 15.49% TTIB 05/25/23 495,721 465,436* 12.50% TTIB 08/25/23 413,861 1,519,480* 13.50% TTIB 11/25/23 1,233,210 980,392 13.26% TTIB 11/25/23 843,529 REFCO-Resolution Funding Corporation 600,000 0.00% ZCS 07/15/10 223,788 Department of Navy, FNMA Guaranteed 100,000 0.00% ZCS 04/01/09 39,156 ---------- (Cost $9,168,776) 9,465,106 ---------- FICO-Financing Corporation (U.S. Government Agency) ZCS 138,000++ 02/03/11 47,209 100,000* 02/03/12 31,594 148,000++ 05/11/12 45,756 100,000++ 11/02/12 29,805 100,000++ 05/02/14 26,526 281,000++ 05/30/14 74,097 250,000 10/06/14 64,123 119,000++ 11/11/14 30,304 125,000 05/02/15 30,669 182,000++ 06/06/15 44,338 137,000++ 08/03/15 32,982 259,000++ 10/05/15 61,562 261,000++ 11/30/15 61,342 208,000 02/03/16 48,242 118,000++ 08/03/16 26,315 444,000* 08/08/16 98,915 100,000 10/05/16 21,994 164,000++ 11/30/16 35,623 4 FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND STATEMENT OF INVESTMENTS June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- Principal Interest Maturity Amount Rate* Date Value ------ ---- ---- ----- FICO-Financing Corporation (U.S. Government Agency) ZCS (continued) 100,000* 02/08/17 $ 21,380 205,000++* 04/06/17 43,299 200,000++ 04/06/17 42,243 167,000++ 08/08/17 34,388 100,000* 10/05/17 20,349 240,000++ 10/06/17 51,289 129,000 10/06/17 26,245 320,000* 11/11/17 64,636 108,000* 11/30/17 21,730 109,000* 12/06/17 21,901 217,000* 04/05/18 42,534 100,000++ 08/03/18 19,125 144,000 08/03/18 27,540 200,000* 11/02/18 37,551 375,000++ 04/05/19 68,204 ----------- (Cost $1,089,218) 1,353,810 ----------- Total investments (Cost $18,898,611(DD)) $20,196,949 =========== + Collateral or partial collateral for securities sold subject to repurchase (Note 6) ++ Segregated, in whole or part, as initial margin for futures contracts (Note 5) (DD) Cost is approximately the same for Federal income tax purposes (degree)Legend-TTIB: Two-Tiered Index Floating Rate Bonds are instruments whose interest rates are fixed over various ranges of the interest rate on another security or the value of an index, but variable within certain ranges of the same security or index. Coupons shown are at June 30, 1996. ZCS: Zero Coupon Securities are instruments whose interest and principle are paid at maturity. Z Bond: A Z Bond is an instrument whose monthly interest coupon is paid at a fixed rate in additional principle. Principle is paid at maturity. PS: Principle Stripped Bonds are instruments whose principle and coupon have been separated and sold separately. IFRN: Inverse Floating Rate Notes are instruments whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index. Coupons shown are at June 30, 1996. See Notes to Financial Statements. 5 FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND NOTES TO FINANCIAL STATEMENTS June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant Accounting Policies Fundamental Fixed-Income Fund (the Fund) is an open-end management investment company registered under the Investment Company Act of 1940. The Fund operates as a series company currently issuing three classes of shares of beneficial interest, the Tax-Free Money Market Series, the High-Yield Municipal Bond Series and the U.S. Government Strategic Income Fund (the Series). The objective of the Series is to provide high current income with minimum risk of principal and relative stability of net asset value. The Series seeks to achieve its objective by investing primarily in U.S. Government Obligations. U.S. Government Obligations consist of marketable securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities (hereunder collectively referred to as "Government Securities"). The Series also uses leverage in seeking to achieve its investment objective. Each series is considered a separate entity for financial reporting and tax purposes. Valuation of Securities-The Series portfolio securities are valued on the basis of prices provided by an independent pricing service when, in the opinion of persons designated by the Fund's trustees, such prices are believed to reflect the fair market value of such securities. Prices of non-exchange traded portfolio securities provided by independent pricing services are generally determined without regard to bid or last sale prices but take into account institutional size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. Securities traded or dealt in upon a securities exchange and not subject to restrictions against resale as well as options and futures contracts listed for trading on a securities exchange or board of trade are valued at the last quoted sales price, or, in the absence of a sale, at the mean of the last bid and asked prices. Options not listed for trading on a securities exchange or board of trade for which over-the-counter market quotations are readily available are valued at the mean of the the current bid and asked prices. Money market and short-term debt instruments with a remaining maturity of 60 days or less will be valued on an amortized cost basis. Securities not priced in a manner described above and other assets are valued by persons designated by the Fund's trustees using methods which the trustees believe reflect fair value. Futures Contracts-Initial margin deposits with respect to these contracts are maintained by the Fund's custodian in segregated asset accounts. Subsequent changes in the daily valuation of open contracts are recognized as unrealized gains or losses. Variation margin payments are made or received as daily appreciation or depreciation in the value of these contracts occurs. Realized gains or losses are recorded when a contract is closed. Repurchase Agreements-The Series may invest in repurchase agreements, which are agreements pursuant to which securities are acquired from a third party with the commitment that they will be repurchased by the seller at a fixed price on an agreed upon date. The Series may enter into repurchase agreements with banks or lenders meeting the creditworthiness standards established by the Board of Trustees. The resale price reflects the purchase price plus an agreed upon market rate of interest which is unrelated to the coupon rate or date of maturity of the purchased security. The Series' repurchase agreements will at all times be fully collateralized in an amount equal to the purchase price including accrued interest earned on the underlying security. Reverse Repurchase Agreements-The Series may enter into reverse repurchase agreements with the same parties with whom it may enter into repurchase agreements. Under a reverse repurchase agreement, the Series sells securities and agrees to repurchase them at a mutually agreed upon date and price. Under the Investment Company Act of 1940 reverse repurchase agreements are generally regarded as a form of borrowing. At the time the Series enters into a reverse repurchase agreement it will establish and maintain a segregated account with its custodian containing securities from its portfolio having a value not less than the repurchase price including accrued interest. 6 FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND NOTES TO FINANCIAL STATEMENTS June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- Federal Income Taxes-It is the Series' policy to comply with the requirements of the Internal Revenue Code applicable to "regulated investment companies" and to distribute all of its taxable and tax exempt income to its shareholders. Therefore, no provision for federal income tax is required. Distributions-The Series declares dividends daily from its net investment income and pays such dividends on the last business day of each month. Distributions of net capital gain, if any, realized on sales of investments are anticipated to be made before the close of the Series' fiscal year, as declared by the Board of Trustees. Dividends are reinvested at the net asset value unless shareholders request payment in cash. General-Securities transactions are accounted for on a trade date basis. Interest income is accrued as earned. Realized gain and loss from the sale of securities are recorded on an identified cost basis. Original issue discounts and premiums are amortized over the life of the respective securities. Premiums are charged against interest income and original issue discounts are accreted to interest income. Accounting Estimates-The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. 2. Investment Advisory Fees and Other Transactions With Affiliates The Series has a Management Agreement with Fundamental Portfolio Advisors, Inc. (the Manager). Pursuant to the agreement the Manager serves as investment adviser to the Series and is responsible for the overall management of the business affairs and assets of the Series subject to the authority of the Fund's Board of Trustees. In compensation for the services provided by the Manager, the Series will pay an annual management fee in an amount equal to .75% of the Series' average daily net assets up to $500 million, .725% on the next $500 million, and .70% per annum on assets over $1 billion. The Manager is required to reimburse the Series for its expenses (excluding interest, taxes, brokerage fees and extraordinary expenses) to the extent that such expenese, including the management fees, exceed the limits on investment company expenses prescribed in any state in which the Series' shares are qualified for sale. The manager voluntarily waived fees of $53,169 for the six months ended June 30, 1996. The Series has adopted a Distribution and Marketing Plan, pursuant to Rule 12b-1, promulgated under the Investment Company Act of 1940, under which the Series pays to Fundamental Service Corporation (FSC), an affiliate of the Manager, a fee which is accrued daily and paid monthly at an annual rate of 0.25% of the Series' average daily net assets. Amounts paid under the plan are to compensate FSC for the services it provides and the expenses it bears in distributing the Series' shares to investors. The amount incurred by the Series pursuant to the agreement for the six months ended June 30, 1996 is set forth in the statement of operations. FSC has waived fees in the amount of $17,772. The Series compensates Fundamental Shareholders Services, Inc. (FSSI), an affiliate of the Manager, for services it provides under a Transfer Agent and Service Agreement. The amount incurred by the Series pursuant to the agreement for the six months ended June 30, 1996 is set forth in the Statement of Operations. The Series effects a significant portion of its futures and options transactions through LAS Investments, Inc. (LAS), an affiliated broker-dealer. Commissions paid to LAS amounted to approximately $1,800 for the six months ended June 30, 1996. 3. Trustees' Fees All of the Trustees of the Fund are also directors or trustees of two other affiliated mutual funds for which the Manager acts as investment adviser. For services and attendance at board meetings and meetings of committees which are common to each fund, each Trustee who is not affiliated with the Manager is compensated at the rate of $6,500 per quarter pro rated among the funds based on their respective average net assets. 7 FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- 4. Shares of Beneficial Interest As of June 30, 1996 there were an unlimited number of shares of beneficial interest (no par value) authorized and capital paid-in amounted to $29,631,653. Transactions in shares of beneficial interest were as follows: Six Months Ended Year Ended June 30, 1996 December 31, 1995 ------------------- ----------------- Shares Amount Shares Amount ------ ------ ------ ------ Shares sold ................... 730,808 $1,046,128 1,300,415 $1,819,736 Shares issued on reinvestment of dividends ................ 327,194 466,036 554,101 779,070 Shares redeemed ............... (1,517,296) (2,163,933) (5,559,992) (7,769,765) --------- --------- --------- ---------- Net decrease .................. (459,294) ($ 651,769) (3,705,476) ($5,170,959) ========= ========= ========= ========== 5. Complex Services, Off Balance Sheet Risks and Investment Transactions Two-Tiered Index Floating Rate Bonds (TTIB): The Fund invests in variable rate securities commonly called "TTIBs". The interest rate on these securities are fixed over various ranges of the interest rate on another security or the value of an index, but variable within certain ranges of the same security or index. Changes in interest rate on the other security or index affect the rate paid on the TTIB, and the TTIB's price will be more volatile than that of a fixed-rate bond. Inverse Floating Rate Notes (IFRN): The Fund invests in variable rate securities commonly called "inverse floaters". The interest rates on these securities have an inverse relationship to the interest rate of other securities or the value of an index. Changes in interest rate on the other security or index inversely affect the rate paid on the inverse floater, and the inverse floater's price will be more volatile than that of a fixed-rate bond. Certain interest rate movements and other market factors can substantially affect the liquidity of IFRN's. Futures Contracts and Options on Futures Contracts: The Fund invests in futures contracts consisting primarily of US Treasury Bond Futures. A futures contract is an agreement between two parties to buy and sell a security for a set price on a future date. Futures contracts are traded on designated "contract markets" which through their clearing corporations, guarantee performance of the contracts. In addition the fund invests in options on US Treasury Bond Futures which gives the holder a right to buy or sell futures contracts in the future. Unlike a futures contract which requires the parties to the contract to buy and sell a security on a set date, an option on a futures contract entitles its holder to decide before a future date whether to enter into such a futures contract. Both types of contracts are marked to market daily and changes in valuation will affect the net asset value of the Fund. The Fund's principal objective in holding or issuing derivative financial instruments is as a hedge against interest-rate fluctuations in its municipal bond portfolio, and to enhance its total return. The Fund's principal objective is to maximize the level of interest income while maintaining acceptable levels of interest-rate and liquidity risk. To achieve this objective, the Fund uses a combination of derivative financial instruments principally consisting of US Treasury Bond Futures and Options on US Treasury Bond Futures. Typically the Fund sells treasury bond futures contracts or writes treasury bond option contracts. These activities create off balance sheet risk since the Fund may be unable to enter into an offsetting position and under the terms of the contract deliver the security at a specified time at a specified price. The cost to the Fund of acquiring the security to deliver may be in excess of recorded amounts and result in a loss to the Fund. For the six months ended June 30, 1996, the Fund had daily average notional amounts outstanding of approximately $11,890,110 and $6,296,703 of short positions on US Treasury Bond Futures and Options Written on US Treasury Bond Futures respectively. Realized gains and losses from these transactions are stated separately in the Statement of Operations. 8 FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued)0 June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- The Fund had the following open futures contracts at June 30, 1996. Principal Expiration Unrealized Type Amount Position Month Loss ---- ------ -------- ----- ---- U.S. Treasury Bond ........... $11,000,000 Short 9/96 ($120,636) Portfolio securities with an aggregate value of approximately $2,925,000 have been segregated as initial margin as of June 30, 1996. In addition, the following table summarizes option contracts written by the Series for the six months ended June 30, 1996: Number of Premiums Realized Contracts Received Cost Loss --------- -------- ---- ---- Contracts outstanding December 31, 1995 ........... 75 $62,325 Options written ............... 250 244,261 Contracts closed or expired ... (225) (178,102) $44,961 ($133,141) --- -------- Contracts outstanding June 30, 1996 ............... 100 $128,484 === ======== Other Investment Transactions For the six months ended June 30, 1996, the cost of purchases and proceeds from sales of investment securities, other than short-term obligations, were $1,835,057 and $1,512,904, respectively. As of June 30, 1996, net unrealized appreciation of portfolio securities amounted to $1,298,336 composed of unrealized appreciation of $1,391,822 and unrealized depreciation of $93,486. Net unrealized depreciation of options written amounted to $52,141 composed of unrealized appreciation of $5,494 and unrealized depreciation of $57,635. 6. Borrowing The Fund has a line of credit agreement with its custodian bank collateralized by cash and portfolio securities to the extent of the amounts borrowed. Borrowings under this agreement bear interest linked to the bank's prime rate. The Series enters into reverse repurchase agreements collateralized by portfolio securities equal in value to the repurchase price. Portfolio securities with an aggregate value of approximately $8,168,851 have been segregated as collateral for securities sold subject to repurchase as of June 30, 1996. The maximum month-end and the average amount of borrowing outstanding under these arrangements during the six months ended June 30, 1996 were approximately $6,611,752 and $7,459,222. 7. Contingencies The Fund was named as a defendant in two class action lawsuits: Schur v. Fundamental U.S. Government Strategic Income Fund, et al., United States District Court, Southern District of New York and Vandyke, et al, v. Fundamental U.S. Government Strategic Income Fund, et al., United States District Court, Southern District of California (which was transferred to the United States District Court, Southern District of New York). Also named as defendants in one or both of these actions were the Trust, the Manager, the Distributor, and alleged control persons of the Fund. The suits were filed in July and Augusts of 1994, respectively, and alleged that the Fund invested in certain financial instruments, primarily "derivatives," that were inconsistent with the Fund's stated objectives as set forth in its prospectus. The suits claimed that defendants are liable under Sections 11 and/or 12 of the Securities Act of 1933 because there existed material misstatements or omissions in the prospectus that rendered it misleading. They also claimed that defendants are liable under Section 10(b) of the Securities and Exchange Act of 1934 (and Rule 10b-5 promulgated thereunder) for making material misstatements or omissions in connection with the purchase or sale of securities. The Vandyke action also alleged common law claims, including fraud. By Stipulation of Settlement dated April 5, 1996, a settlement was reached with the plaintiffs. By Final Judgement and Order of Consolidation and Dismissal with Prejudice dated July 17, 1996, the Stipulation of Settlement was approved by the Court. The settlement requires a payment of approximately $500,000 or more under certain future circumstances by the Fund's investment adviser to the class members as set forth in the Stipulation of Settlement. Under no circumstances will the settlement result in any liability or cost to the Fund or its shareholders. The settlement has, however, resulted in the dismissal of the lawsuits and a release from liability issuing in favor of all defendants including the Fund. The Stipulation of Settlement also expressly states that the settlement does not constitute an admission of wrongdoing by the Fund or any of the other defendants. In addition, Management is cooperating in an investigation being conducted by the Securities and Exchange Commission concerning the Fund, the Manager and affiliated entities. Among other things, the investigation concerns the sufficiency of disclosures set forth in the Fund's prior advertising and prospectus, the consistency of the Fund's practices with those disclosures, the Fund's investment in inverse floating rate notes between 1993 and 1995, the valuation of the Fund's portfolio securities, and the Manager's designation of brokerage commissions or fees on portfolio transactions effected on behalf of the Fund and its affiliates in consideration of the receipt of research services. 9 FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- 8. Selected Financial Information
Six Months Ended Year Year Year February 18, June 30, Ended Ended Ended 1992* to 1996 December 31 December 31, December 31, December 31, (Unaudited) 1995 1994 1993 1992 ----------- -------- -------- -------- -------- Per share operating performance (for a share outstanding throughout the period) Net asset value, beginning of period ................ $ 1.49 $ 1.37 $ 2.01 $ 2.02 $ 2.00 ------ ------ ------ ------ ------ Income from investment operations Net investment income ............................... 0.06 0.08 0.14 0.16 0.15 Net realized and unrealized gain/(loss) on investments ....................................... (0.10) 0.12 (0.64) - 0.02 ------ ------ ------ ------ ------ Total from investment operations ........... (0.04) 0.20 (0.50) 0.16 0.17 ------ ------ ------ ------ ------ Less distributions Dividends from net investment income ................ (0.06) (0.08) (0.14) (0.16) (0.15) Dividends from net realized gains ................... - - - (0.01) - ------ ------ ------ ------ ------ Net asset value, end of period ...................... $ 1.39 $ 1.49 $ 1.37 $ 2.01 $ 2.02 ====== ====== ====== ====== ====== Total return ........................................ (2.42%) 15.43% (25.57%) 8.14% 10.76%** Ratios/supplemental data: Net assets, end of period (000 omitted) ............. 13,157 15,194 19,020 63,182 40,500 Interest expense .................................. 0.09% 0.20% 0.12% 0.05% 0.09% Operating expenses ................................ 3.00% 3.05% 2.16% 1.39% 0.96% ------ ------ ------ ------ ------ Total expenses+ ............................ 3.09%+** 3.25%+ 2.28%+ 1.44%+ 1.05%+ ====== ====== ====== ====== ====== Net investment income ............................. 8.97%** 5.91% 8.94% 7.85% 8.50% Portfolio turnover rate ............................. 8.53% 114.36% 60.66% 90.59% 115.39% Borrowings Amount outstanding at end of period (000 omitted) ..................................... 5,694 7,481 9,674 31,072 19,666 Average amount of debt outstanding during the period (000 omitted) .............................. 6,612 7,790 16,592 28,756 13,779 Average number of shares outstanding during the period (000 omitted) .......................... 9,942 11,571 21,436 28,922 12,683 Average amount of debt per share during the period ............................................ .67 .67 .77 .99 1.09 **Commencement of operations. **Annualized. *These ratios are after expense reimbursement of 1.0%** for the six months ended June 30, 1996, 1.0% and .13% for the years ended December 31, 1995 and 1993, respectively, and 1.05% for the period March 2, 1992 to December 31, 1992. These ratios exclude 2.47%** for the six months ended June 30, 1996, 2.8%, 1.9% and 1.4% for the years ended December 31, 1995, 1994 and 1993, respectively, and 1.2% for the period March 2, 1992 to December 31, 1992 of interest expense on securities sold subject to repurchase which was netted against interest income.
10 (Left Column) FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND 90 Washington Street New York NY 10006 1-800-322-6864 This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus. (Right Column) Semi-Annual Report June 30, 1996 (Unaudited) (LOGO) FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND (LOGO) FUNDAMENTAL Fundamental Family of Funds (left column) FUNDAMENTAL FIXED-INCOME FUND TAX-FREE MONEY MARKET SERIES STATEMENT OF ASSETS AND LIABILITIES June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- ASSETS Investment in securities at value (cost $92,429,766) .......................................... $92,429,766 Cash .......................................................... 625,625 Receivables: Interest .................................................... 250,660 Capital shares sold ......................................... 9,186 ----------- Total assets .......................................... 93,315,237 ----------- LIABILITIES Payables: Capital shares redeemed ..................................... 63,075,124 Investments purchased ....................................... 201,052 Dividends ................................................... 757 Accrued expenses .............................................. 334,929 ----------- Total liabilities ..................................... 63,611,862 ----------- NET ASSETS equivalent to $1.00 per share on 29,712,263 shares of beneficial interest outstanding (Note 4) .......................................... $29,703,375 =========== (Right Column) STATEMENT OF OPERATIONS Six Months Ended June 30, 1996 (Unaudited) - ------------------------------------------------------------------------------- INVESTMENT INCOME Interest income ................................... $976,679 EXPENSES (Notes 2 and 3) Investment advisory fees .......................... $146,232 Custodian and accounting fees ..................... 42,582 Transfer agent fees ............................... 34,882 Trustees' fees .................................... 12,132 Professional fees ................................. 48,899 Distribution fees ................................. 146,232 Interest .......................................... 32 Postage and printing .............................. 2,736 Registration ...................................... 2,577 Other ............................................. 278 -------- 436,582 Less: Expense offset (Note 6) ..................... (39,000) -------- Total expenses ........................... 397,582 -------- NET INCREASE IN NET ASSETS FROM OPERATIONS ........................................ $579,097 ======== STATEMENTS OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------- For the Six For the Year Months Ended Ended June 30, 1996 December 31, (Unaudited) 1995 ------------- ------------ INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS Net investment income ........................ $ 579,097 $ 1,078,563 DIVIDENDS PAID TO SHAREHOLDERS FROM Investment income ............................ (579,097) (1,078,563) CAPITAL SHARE TRANSACTIONS (Note 4) ............ 18,452,828 2,246,999 ----------- ----------- Total increase ........................ 18,452,828 2,246,999 NET ASSETS: Beginning of period .......................... 11,250,547 9,003,548 ----------- ----------- End of period ................................ $29,703,375 $11,250,547 =========== =========== See Notes to Financial Statements. 1 FUNDAMENTAL FIXED-INCOME FUND TAX-FREE MONEY MARKET SERIES STATEMENT OF INVESTMENTS June 30, 1996 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------- Principal Amount Issue(degree) Value - --------- ------------- ----- $ 200,000 Alameda County, CA, TRANS, 4.50, 6/30/97 .................................................... $ 201,052 4,400,000 Anchorage, AK, Higher Educational, Pacific University Project, LOC Seattle First National Bank, VRDN*, 3.55, 7/01/17 ................................................................ 4,400,000 87,000+ Clermont County, OH, HFR, Mercy Health Care Project, MBIA Insured, VRDN*, 3.35, 12/01/05 .... 87,000 80,000 Cuyahoga County, OH, IDR, S & R Playhouse Realty, VRDN*, LOC Wells Fargo Bank, 3.75, 12/01/09 ............................................................................ 80,000 200,000 Delaware County, PA, SWDF, Scott Paper Project, Kimberly-Clark Corp Guaranty, VRDN*, 3.20, 12/01/18 ..................................................................... 200,000 200,000 District of Columbia, General Recovery Fund, LOC Westduetsche Landesbank, VRDN*, 3.75, 6/01/03 ............................................................................. 200,000 4,000,000 District of Columbia, GO, LOC Bank of Nova Scotia, VRDN*, 3.80, 10/01/07 .................... 4,000,000 3,800,000 District of Columbia, GO, LOC National Westminster, VRDN*, 3.80, 10/01/07 ................... 3,800,000 200,000 Fulton County, GA, PCR, General Motors Project, VRDN*, 3.50, 4/01/10 ........................ 200,000 135,000 Genesee County, NY, IDR, Orcon Industries, AMT, LOC Fleet Bank, VRDN*, 4.25, 12/01/98 ....... 135,000 300,000+ Illinois Educational Facility Authority, RB, Art Institute of Chicago, Northern Trust Liquidity, VRDN*, 3.35, 3/01/27 ........................................................... 300,000 300,000 Illinois HFAR, Franciscan Sisters Project, LOC Toronto Dominion Bank, VRDN*, 3.40, 9/01/15 .. 300,000 200,000 Illinois HFAR, West Suburban Hospital Medical Center, LOC First Chicago Bank, VRDN*, 3.35, 7/01/05 ............................................................................. 200,000 200,000+ Jasper County, IN, PCR, Northern Indiana Public Service Project, Series B, 3.80, 6/01/13 .... 200,000 300,000+ Jasper County, IN, PCR, Northern Indiana Public Service Project, Series C, 3.80, 4/01/19 .... 300,000 2,000,000 Los Angeles, CA, Regional Airports Improvement Corp, LOC Societe Generale, VRDN*, 3.65, 12/1/25 ............................................................................. 2,000,000 85,000 Maryland Department of Housing & Community Development, Single Family Program, Putable Semiannually, 3.60, 4/01/17 ....................................................... 85,000 7,000,000 Massachusetts Health & Educational Facilities Authority, Capital Assist Project, MBIA Insured, Credit Suisse Liquidity ..................................................... 7,000,000 200,000 McIntosh, AL, PCR, Ciba Geigy Project, LOC Swiss Bank Corp. VRDN*, 3.40, 12/01/03 ........... 200,000 7,000,000 Michigan Strategic Fund, Series 95C, Detroit Edison Project, LOC Barclays Bank, VRDN*, 3.55, 9/01/30 ...................................................................... 7,000,000 6,625,000 Midland County, Ml, Economic Development Corp, Dow Chemical Project, VRDN*, 3.55,12/01/15 ... 6,625,000 200,000 Missouri, Third Street Building Project, VRDN*, 3.65, 8/01/99 ............................... 200,000 300,000 Missouri, PCR, Monsanto Project, VRDN*, 3.30, 2/01/09 ....................................... 300,000 300,000+ Montgomery, AL, Baptist Medical Center, Special Care Facilities Financing Authority, AMBAC Insured, VRDN*, 3.35, 12/01/3 ....................................................... 300,000 200,000+ Nebraska Higher Education Loan Program, SLMA, MBIA Insured, VRDN*, SPA, 3.40, 12/01/15 ...... 200,000 5,050,000 New Hampshire HEHFA, VHA New England Inc. AMBAC Insured, Mellon Bank Liquidity, VRDN*, 3.35, 12/01/25 ............................................................................ 5,050,000 2,600,000 New York City, NY, GO, LOC Union Bank of Switzerland, VRDN*, 3.20, 2/15/12 .................. 2,600,000 1,500,000 New York City, NY, Municipal Water Finance Authority, FGIC Insured, VRDN*, 3.60, 6/15/23 .... 1,500,000 11,000,000 New York City, NY, Municipal Water Finance Authority, FGIC Insured, VRDN*, 3.55, 6/15/24 .... 11,000,000 2,600,000 New York City, NY, Municipal Water Finance Authority, FGIC Insured, VRDN*, 3.75, 6/15/25 .... 2,600,000 300,000 New York State Job Development Authority, State Guaranteed, Fuji Bank Liquidity, VRDN*, 3.85, 3/01/05 ............................................................................. 300,000
2 FUNDAMENTAL FIXED-INCOME FUND TAX-FREE MONEY MARKET SERIES STATEMENT OF INVESTMENTS (continued) June 30, 1996 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------- Principal Amount Issue(degree) Value - --------- ------------- ----- $2,125,000 New York State Job Development Authority, State Guaranteed, LOC Sumitomo, VRDN*, 3.65, 3/01/07 ............................................................................. $ 2,125,000 4,400,000 North Central, TX, HFDC, YMCA Metro Dallas Project, LOC Bank of Tokyo/Mitsubishi Bank, VRDN*, 3.60, 6/01/21 ...................................................................... 4,400,000 2,000,000 Peninsula, VA Port Authority, Shell Oil Company, VRDN*, 3.55, 12/01/15 ...................... 2,000,000 3,850,000 Phenix City, AL, Industrial Development Bond, Georgia Kraft Company Project, LOC Deutsche Bank, VRDN*, 3.60,12/01/15 ....................................................... 3,850,000 200,000 Purdue University, IN, Student Fee Bonds, Series K, VRDN*, 3.30, 7/01/20 .................... 200,000 300,000 San Francisco, CA, City & County Unified School District, TRANS, 4.50, 7/29/96 .............. 300,112 7,015,000 Schuykill County, PA, Industrial Development Authority, Northwestern Power Company, LOC Sumitomo, VRDN*, 3.60,12/01/11 ............................................... 7,015,000 125,000 Scioto County, OH, HFR, VHA Central Capital Project, AMBAC Insured, VRDN*, 3.25,12/01/25 .... 125,000 250,000 Texas State, TRANS, 4.75, 8/30/96 ........................................................... 250,277 100,000 Thorton, CO, Development Authority Tax Increment, RB, BIGI insured, 7.00, 12/01/96 .......... 101,325 5,300,000 Triborough Bridge & Tunnel Authority, NY, Special Obligation, FGIC Insured, VRDN*, 3.05,1/01/24 .............................................................................. 5,300,000 5,000,000 Unita County, WY, PCR, Chevron Project, VRDN*, 3.50, 8/15/20 ................................ 5,000,000 200,000+ Wake County, NC, PCR, Carolina Power & Light Project, LOC Sumitomo Bank, VRDN*, 3.35, 10/01/15 .................................................. 200,000 ----------- Total Investments (Cost $92,429,766**) .................................................... $92,429,766 =========== *Variable Rate Demand Notes (VRDN) are instruments whose interest rate changes on a specific date and/or whose interest rates vary with changes in a designated base rate. Coupons shown are as of June 30, 1996. **Cost is the same for Federal income tax purposes. +Approximately $1,028,000 market value of securities are segregated in whole or in part as collateral securing a line of credit.
Legend (degree)Issue AMBAC American Municipal Bond Assurance Corporation AMT Alternative Minimum Tax BIGI Bond Insurance Guaranty Inc. GO General Obligation HEHFA Higher Education and Health Facilities Authority HFA Housing Finance Authority HFAR Health Facilities Authority Revenue HFDC Health Facilities Development Corporation HFR Hospital Facilities Revenue IDR Industrial Development Revenue LOC Letter of Credit MBIA Municipal Bond Insurance Assurance Corporation PCR Pollution Control Revenue RB Revenue Bond SLMA Student Loan Marketing Association SPA Stand By Bond Purchase Agreement SWDF Solid Waste Disposal Facility TRANS Tax and Revenue Anticipation Note VHA Voluntary Hospital of America See Notes to Financial Statements. 3 FUNDAMENTAL FIXED-INCOME FUND TAX-FREE MONEY MARKET SERIES NOTES TO FINANCIAL STATEMENTS June 30, 1996 (Unaudited) - ------------------------------------------------------------------------------- 1. Significant Accounting Policies Fundamental Fixed-Income Fund (the Fund) is an open-end management investment company registered under the Investment Company Act of 1940. The Fund acts as a series company currently issuing three classes of shares of beneficial interest, the Tax-Free Money Market Series, the High-Yield Municipal Bond Series and the U.S. Government Strategic Income Fund. Each series is considered a separate entity for financial reporting and tax purposes. The Fund's investment objective is to provide as high a level of current income exempt from federal income tax as is consistent with the preservation of capital and liquidity. The following is a summary of significant accounting policies followed in the preparation of the Series' financial statements: Valuation of Securities: Investments are stated at amortized cost. Under this valuation method, a portfolio instrument is valued at cost and any premium or discount is amortized on a constant basis to the maturity of the instrument. Amortization of premium is charged to income, and accretion of market discount is credited to unrealized gains. The maturity of investments is deemed to be the longer of the period required before the Fund is entitled to receive payment of the principal amount or the period remaining until the next interest adjustment. Federal Income Taxes: It is the Series' policy to comply with the requirements of the Internal Revenue Code applicable to "regulated investment companies" and to distribute all of its taxable and tax exempt income to its shareholders. Therefore, no provision for federal income tax is required. Distributions: The Series declares dividends daily from its net investment income and pays such dividends on the last Wednesday of each month. Distributions of net capital gains are made annually, as declared by the Fund's Board of Trustees. Dividends are reinvested at the net asset value unless shareholders request payment in cash. General: Securities transactions are accounted for on a trade date basis. Interest income is accrued as earned. Realized gains and losses from the sale of securities are recorded on an identified cost basis. Accounting Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. 4 FUNDAMENTAL FIXED-INCOME FUND TAX-FREE MONEY MARKET SERIES NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1996 (Unaudited) - ------------------------------------------------------------------------------- 2. Investment Advisory Fees and Other Transactions with Affiliates The Fund has a Management Agreement with Fundamental Portfolio Advisors, Inc. (the Manager). Pursuant to the agreement, the Manager serves as investment adviser to the Tax-Free Money Market Series and is responsible for the overall management of the business affairs and assets of the Series subject to the authority of the Fund's Board of Trustees. In compensation for the services provided by the Manager the Series will pay an annual management fee in an amount equal to 0.5% of the Series' average daily net assets up to $100 million and decreasing by .02% for each $100 million increase in net assets down to 0.4% of net assets in excess of $500 million. The Manager is required to reimburse the Series on a monthly basis for its expenses (exclusive of interest, taxes, brokerage fees and expenses paid pursuant to the Plan of Distribution, and extraordinary expenses) to the extent that such expenses, including the management fee, exceed the limits on investment company expenses prescribed in any state in which the Series' shares are qualified for sale. No expense reimbursement was required for the six months ended June 30, 1996. The Fund has adopted a Plan of Distribution, pursuant to Rule 12b-1 promulgated under the Investment Company Act of 1940, under which the Series pays to Fundamental Service Corporation (FSC), an affiliate of the Manager, a fee, which is accrued daily and paid monthly, at an annual rate of 0.5% of the Series' average daily net assets. The amounts paid under the plan compensate FSC for the services it provides and the expenses it bears in distributing the Series' shares to investors. Distribution fees for the six months ended June 30, 1996 are set forth in the Statement of Operations. The Fund compensates Fundamental Shareholder Services, Inc., an affiliate of the Manager, for the services it provides under a Transfer Agent and Service Agreement. Transfer agent fees for the six months ended June 30, 1996 are set forth in the Statement of Operations. 3. Trustees' Fees All of the Trustees of the Fund are also directors or trustees of two other affiliated mutual funds for which the Manager acts as investment adviser. For services and attendance at board meetings and meetings of committees which are common to each Fund, each Trustee who is not affiliated with the Manager is compensated at the rate of $6,500 per quarter pro rated among the funds based on their respective average net assets. 4. Shares of Beneficial Interest As of June 30, 1996 there were an unlimited number of shares of beneficial interest (no par value) authorized and capital paid in amounted to $29,712,263. Transactions in shares of beneficial interest, all at $1.00 per share were as follows: Six Months Year Ended Ended December 31, June 30, 1996 1995 -------------- ------------ Shares sold $1,714,179,666 $3,142,235,917 Shares issued on reinvestment of dividends 572,848 1,075,300 Shares redeemed (1,696,299,686) (3,141,064,218) -------------- -------------- Net increase $ 18,452,828 $ 2,246,999 ============== ============== 5 FUNDAMENTAL FIXED-INCOME FUND TAX-FREE MONEY MARKET SERIES NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1996 (Unaudited) - ------------------------------------------------------------------------------- 5. Line of Credit The Fund has a line of credit agreement with its custodian bank collateralized by cash and portfolio securities for $500,000. Borrowings under this agreement bear interest linked to the bank's prime rate. 6. Expense Offset Arrangement The Fund has an arrangement with its custodian whereby credits earned on cash balances maintained at the custodian are used to offset custody charges. These credits amounted to approximately $39,000 for the six months ended June 30, 1996. 7. Selected Financial Information
Six Months Ended Years Ended December 31, June 30, ------------------------------------------------------- 1996 1995 1994 1993 1992 ----------- -------- -------- -------- -------- PER SHARE DATA AND RATIOS (for a share outstanding throughout the period) Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------- ------- ------- ------- ------- Income from investment operations: Net investment income 0.011 0.026 0.017 0.014 0.028 ------- ------- ------- ------- ------- Less Distributions: Dividends from net investment income (0.011) (0.026) (0.017) (0.014) (0.028) ------- ------- ------- ------- ------- Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= ======= ======= Total Return 1.07% 2.60% 1.69% 1.62% 2.79% RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (000 omitted) 29,703 11,251 9,004 5,830 32,488 Ratios to Average Net Assets: Expenses 1.49%#* 1.53%# 0.91%+ .95%+ .42%+ Net investment income 4.69%* 2.43% 1.55% 1.25% 2.76% BANK LOANS Amount outstanding at end of period (000 omitted) $ - $ - $ 451 $ 290 $ 20 Average amount of bank loans outstanding during the period (000 omitted) $ - $ 41 $ 53 $ 111 $ 69 Average number of shares outstanding during the period (000 omitted) 58,814 44,432 56,267 25,786 7,980 Average amount of debt per share during the period $ - $ .001 $ .001 $ .004 $ .009 +These ratios are after expense reimbursements of .44%, .67%, 1.66%, and 1.57%, for each of the years ended December 31, 1994, 1993, 1992 and 1991, respectively. #These ratios would have been 1.36%* net of expense offsets of .13%* for the six months ended June 30, 1996 and 1.35% net of expense offsets of .18% for the year ended December 31, 1995, respectively. **Annualized.
6 (Left Column) FUNDAMENTAL FIXED-INCOME FUND 90 Washington Street New York NY 10006 1-800-322-6864 This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus. (Right Column) Semi-Annual Report June 30, 1996 (Unaudited) (LOGO) FUNDAMENTAL FIXED-INCOME FUND Tax-Free Money Market Series (LOGO) FUNDAMENTAL Fundamental Family of Funds FUNDAMENTAL FIXED-INCOME FUND HIGH-YIELD MUNICIPAL BOND SERIES - -------------------------------------------------------------------------------- Dear Fellow Shareholder: Interest rates rose sharply in this year's first half, and bond prices consequently fell. As a result, the Net Asset Value of Fundamental's High-Yield Municipal Bond Series dropped from $7.07 per share at year end 1995 to $6.58 per share on June 30, 1996. This was disappointing. However, municipal bonds generally outperformed taxable bonds in the period. This reflected improving credit conditions for municipals, favorable supply conditions, and diminished expectations of tax reform legislation. 1996 began with a high degree of optimism in the global financial markets that Congress and the Clinton Administration would reach a bipartisan agreement to eliminate the federal budget deficit by the turn of the century. This hope seemed to be shattered in mid-winter. At the same time, evidence began to surface that economic activity was accelerating. This raised anxieties about a possible credit tightening move by the Federal Reserve, which drove down bond prices. None of this seemed to concern the equity market. Srong money flows propelled equity prices to new heights. By mid-year the Bond Buyer Municipal Bond Index dropped by 6.7% from year end 1995, while the Dow Jones Industrial Average posted a 10.5% advance. No doubt some investors shifted funds from bonds to equities in the period. This weakened the entire fixed income market, and eventually made equities become expensive relative to bonds by most measures. We were disappointed by the collapse of budget negotiations, but view this as a buying opportunity in the fixed income markets. After all, despite the political stalemate, policies toward deficit reduction remain firmly entrenched, and the deficit continues to shrink both absolutely and as a share of the economy. Meanwhile, although the economy is continuing to grow, this growth is moderate and noninflationary. For these reasons we have not thought the Federal Reserve would tighten credit by raising short term interest rates. But even if the Fed were so inclined, any tightening is likely to be minor, and not indicative of a trend. Given this, the Fund's portfolio was positioned to benefit from a decline in municipal bond interest rates in 1996. A large portion of the Fund's assets, relative to other Funds with similar investment objectives, were in municipal bonds having a high degree of sensitivity to interest rates. This approach worked well in 1995. However, it was disadvantageous in the first half of this year. Our expectation is it will be beneficial going forward if the bond market climate improves as we expect. Moreover, municipals face an extremely favorable net supply conditions going forward as bond calls, redemptions, prepayments, and coupon payments will exceed the amount of new municipal bond issuance in the next year. Thus, if there is any rechanneling of funds out of equities and into fixed income securities, a dramatic improvement in municipal bond prices could be expected. We thank you for your continued trust, and we look forward to continue serving you in the future. Sincerely, Dr. Vincent J. Malanga President (left column) FUNDAMENTAL FIXED-INCOME FUND HIGH-YIELD MUNICIPAL BOND SERIES STATEMENT OF ASSETS AND LIABILITIES June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- ASSETS Investment in securities at value (Note 5) (cost $2,014,350) .............................................. $1,878,203 Receivables: Interest ......................................................... 38,145 Capital shares sold .............................................. 100 ---------- Total assets ............................................... 1,916,448 ---------- LIABILITIES Notes payable .................................................... 172,318 Dividend payable ................................................. 1,734 Accrued expenses ................................................. 19,040 ---------- Total liabilities .......................................... 193,092 ---------- NET ASSETS consisting of: Accumulated net realized loss ........................................... $ (201,668) Unrealized depreciation of securities .................................. (136,147) Paid-in-capital applicable to 261,864 shares of beneficial interest ............................ 2,061,171 ---------- $1,723,356 ========== NET ASSET VALUE PER SHARE .................................. $ 6.58 ========== (right column) STATEMENT OF OPERATIONS Six Months Ended June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME Interest income ...................................... $ 68,981 EXPENSES (Notes 2, 3 and 6) Investment advisory fees ............................. $ 6,055 Custodian and accounting fees ........................ 15,208 Transfer agent fees .................................. 3,556 Trustees' fees ....................................... 314 Distribution fees .................................... 3,785 Professional fees .................................... 20,757 Postage and printing ................................. 5,829 Other ................................................ 1,643 -------- 57,147 Less: Expenses waived or reimbursed by the manager and affiliates ...................... (38,215) -------- Total expenses 18,932 -------- Net investment income .......................... 50,049 REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized loss on investments ..................... (2,769) Change in unrealized depreciation of investments for the year ........................... (84,835) -------- Net (loss) on investments ...................... (87,604) -------- NET DECREASE IN NET ASSETS FROM OPERATIONS ........................................... $(37,555) ======== (bottom) STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Six Months Ended Year Ended June 30, 1996 December 31, (Unaudited) 1995 ---------- ---------- INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS Net investment income ........................................................ $ 50,049 $ 61,591 Net realized (loss) on investments .......................................... (2,769) (39,968) Unrealized (depreciation) of investments for the period ..................... (84,835) 253,452 ---------- ---------- Net increase (decrease) in net assets from operations .................. (37,555) 275,075 DIVIDENDS PAID TO SHAREHOLDERS FROM Investment income ............................................................ (50,049) (61,591) CAPITAL SHARE TRANSACTIONS (Note 4) ............................................ 353,525 264,793 ---------- ---------- Total increase ......................................................... 265,921 478,277 NET ASSETS: Beginning of period .......................................................... 1,457,435 979,158 ---------- ---------- End of period ................................................................ $1,723,356 $1,457,435 ========== ==========
See Notes to Financial Statements. 2 FUNDAMENTAL FIXED-INCOME FUND HIGH-YIELD MUNICIPAL BOND SERIES STATEMENT OF INVESTMENTS June 30, 1996 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Issueo Value ------ ------ ----- $ 40,000 Allegheny County, PA, IDA, AFR, USAir Inc., 8.87, 3/01/21 ......................................... $ 41,280 40,000 Brookhaven, NY, IDA, CFR, Dowling College, 6.75, 3/01/23 .......................................... 40,996 95,000 California Health Facilities Authority, Valley Presbyterian Hospital Project, RB, Series A, 9.00, 5/01/12 ................................................................................... 96,064 35,000 Cass County, MO, IDA, 7.37, 10/01/22 .............................................................. 36,195 45,000 Cheboygan County, Ml, Economic Development Corp, K-M1 Association Project, K-Mart Corp, 10.00, 6/01/05 ............................................................................ 44,810 250,000 Colorado Health Facilities Authority, RHR, Liberty Heights Project, ETM, CAB, 7/15/24 ............. 36,495 100,000 Corona, CA, COP, Vista Hospital System, Series C, 8.37, 7/01/11 ................................... 99,745 75,000 Florence County, SC, IDA, RB, Stone Container Project, 7.37, 2/01/07 .............................. 76,736 500,000 Foothill / Eastern TCA, Toll Road Revenue, CAB, 1/01/26 ........................................... 66,975 50,000++ Illinois Development Financial Authority, Solid Waste Disposal, RB, Ford Heights Waste Tire Project, 7.87, 4/01/11 ..................................................................... 19,048 45,000 Illinois Health Facilities Authority, Midwest Physician Group Ltd Project, RB, 8.12, 1/15/19 ......................................................................................... 46,817 35,000 Indianapolis, IN, RB, Robin Run Village Project, 7.62, 10/01/22 ................................... 37,354 50,000 Joplin, MO, IDA, Hospital Facilities Revenue, Tri State Osteopathic, 8.25, 12/15/14 ............... 51,395 75,000 Liberty, MO, IDA, K-Mart Corp Project, 6.80, 11/01/04 ............................................. 69,287 50,000 Los Angeles, CA, Regional Airport, Continental Airlines, AMT, 9.25, 8/01/24 ....................... 55,363 35,000 Maine Finance Authority, Solid Waste RFR, Bowater Inc Project, 7.75, 10/01/22 ..................... 37,628 75,000 Minot, ND, IDA, RB, K-Mart Corp Project, 8.87, 1/15/06 ............................................ 71,531 35,000 Montgomery County, PA, HEHA, Hospital Revenue, Series A, 8.37, 11/01/11 ........................... 39,818 95,000 Montgomery County, TX, Health Facilities Development Corp., The Woodlands Medical Center, 8.85, 8/15/14 ........................................................................... 102,579 100,000+ Niagara Falls, NY, URA, Old Falls Street Improvement Project, 11.00, 5/01/99 ...................... 49,336 50,000 Northeast, TX, Hospital Authority Revenue, Northeast Medical Center, 7.25, 7/01/22 ................ 51,631 30,000 Philadelphia, PA, HEHA, Graduate Health Systems Project, 7.25, 7/01/18 ............................ 30,972 100,000 Port Authority of NY & NJ, Special Obligation, RB, K1AC Partners Project, AMT, 6.75, 10/01/19 ........................................................................................ 100,336 60,000 Port Chester, NY, IDA, Nadel Industries Inc Project, AMT, 7.00, 2/01/16 ........................... 57,652 75,000 San Bernardino, CA, San Bernardino Community Hospital, RB, 7.87, 12/01/19 ......................... 75,058 100,000 San Bernardino County, CA, COP, IFRN*, 13.91, 7/01/16 ............................................. 80,578 40,000 San Joaquin Hills, CA, TCA, Toll Road Revenue, 7.00, 1/01/30 ...................................... 41,742 60,000 San Jose, CA, Redevelopment Agency, Tax Allocation Bonds, IFRN*, MBIA Insured, 9.15, 8/01/16 ................................................................................... 41,294 250,000 Savannah, GA, Economic Development Authority Revenue, ETM, CAB, 12/01/21 .......................... 45,775 45,000 Schuylkill County, PA, IDA Resouce Recovery, Schuylkill Energy Resource Inc., AMT, 6.50, 1/01/10 ................................................................................... 45,120 20,000++ Tri-State Health Care Corp., PA, First Humanics Corp., Henry Clay Project, 13.75, 12/01/14 ........................................................................................ 4,021
3 FUNDAMENTAL FIXED-INCOME FUND HIGH-YIELD MUNICIPAL BOND SERIES STATEMENT OF INVESTMENTS (continued) June 30, 1996 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Issueo Value ------ ------ ----- $ 15,000+ Troy, NY, IDA, Hudson River Project, 11.00, 12/01/94 .............................................. $ 11,250 75,000++ Villages at Castle Rock, CO, Metropolitan District #4, 8.50, 6/01/31 .............................. 26,306 100,000 Wayne MI, AFR, Northwest Airlines Inc. 6.75, 12/01/15 ............................................. 100,319 50,000 Wisconsin Health & Educational Facilities Authority, National Agency of New Berlin Project, RB, 8.00, 8/15/25 ...................................................................... 46,700 ---------- Total Investments (Cost $2,014,350**) ............................................................. $1,878,203 ========== **Cost is approximately the same for income tax purposes. *Inverse Floating Rate Notes (IFRN) are instruments whose rates bear an inverse relationship to the interest rate on another security or the value of an index. Coupons shown are as of June 30, 1996. +The value of this non-income producing security has been estimated by persons designated by the Fund's Board of Trustees using methods the Trustees believe reflect fair value. See note 5 to the financial statements. ++Non-income producing security.
Legend oIssue AFR Airport Facilities Revenue AMT Subject to Alternative Minimum Tax CAB Capital Appreciation Bond COP Certificate of Participation CFR Civic Facility Revenue ETM Escrowed to Maturity HEHA Higher Education and Health Authority IDA Industrial Development Authority MBIA Municipal Bond Insurance Assurance Corporation RFR Recycling Facility Revenue RHR Retirement Housing Revenue RB Revenue Bond TCA Transportation Corridor Agency URA Urban Renewal Agency See Notes to Financial Statements. 4 FUNDAMENTAL FIXED-INCOME FUND HIGH-YIELD MUNICIPAL BOND SERIES NOTES TO FINANCIAL STATEMENTS June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant Accounting Policies Fundamental Fixed-Income Fund (the Fund) is an open-end management investment company registered under the Investment Company Act of 1940. The Fund operates as a series company currently issuing three classes of shares of beneficial interest, the Tax-Free Money Market Series, the High-Yield Municipal Bond Series and the U.S. Government Strategic Income Fund (the Series). Each series is considered a separate entity for financial reporting and tax purposes. The Series seeks to provide a high level of current income exempt from federal income tax through investment in a portfolio of lower quality municipal bonds, generally referred to as "junk bonds." These bonds are considered speculative because they involve greater price volatility and risk than higher rated bonds. The following is a summary of significant accounting policies followed in the preparation of the Series' financial statements: Valuation of Securities: The Fund's portfolio securities are valued on the basis of prices provided by an independent pricing service when, in the opinion of persons designated by the Fund's trustees, such prices are believed to reflect the fair market value of such securities. Prices of non-exchange traded portfolio securities provided by independent pricing services are generally determined without regard to bid or last sale prices but take into account institutional size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. Securities traded or dealt in upon a securities exchange and not subject to restrictions against resale as well as options and futures contracts listed for trading on a securities exchange or board of trade are valued at the last quoted sales price, or, in the absence of a sale, at the mean of the last bid and asked prices. Options not listed for trading on a securities exchange or board of trade for which over-the-counter market quotations are readily available are valued at the mean of the current bid and asked prices. Money market and short-term debt instruments with a remaining maturity of 60 days or less will be valued on an amortized cost basis. Securities not priced in a manner described above and other assets are valued by persons designated by the Fund's trustees using methods which the trustees believe accurately reflects fair value. Federal Income Taxes: It is the Series' policy to comply with the requirements of the Internal Revenue Code applicable to "regulated investment companies" and to distribute all of its taxable and tax exempt income to its shareholders. Therefore, no provision for federal income tax is required. Distributions: The Series declares dividends daily from its net investment income and pays such dividends on the last business day of each month. Distributions of net capital gain, if any, realized on sales of investments are anticipated to be made before the close of the Series' fiscal year, as declared by the Board of Trustees. Dividends are reinvested at the net asset value unless shareholders request payment in cash. 5 FUNDAMENTAL FIXED-INCOME FUND HIGH-YIELD MUNICIPAL BOND SERIES NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- General: Securities transactions are accounted for on a trade date basis. Interest income is accrued as earned. Realized gain and loss from the sale of securities are recorded on an identified cost basis. Original issue discounts and premiums are amortized over the life of the respective securities. Premiums are amortized and charged against interest income and original issue discounts are accreted to interest income. Accounting Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. 2. Investment Advisory Fees and Other Transactions with Affiliates The Fund has a Management Agreement with Fundamental Portfolio Advisors, Inc. (the Manager). Pursuant to the agreement, the Manager serves as investment adviser to the High-Yield Municipal Bond Series and is responsible for the overall management of the business affairs and assets of the Series subject to the authority of the Funds' Board of Trustees. In compensation for the services provided by the Manager, the Series will pay an annual management fee in an amount equal to 0.8% of the Series' average daily net assets up to $100 million and decreasing by .02% for each $100 million increase in net assets down to 0.7% of net assets in excess of $500 million. The Manager is required to reimburse the Series on a monthly basis for its expenses (exclusive of interest, taxes, brokerage fees and expenses paid pursuant to the Plan of Distribution, and extraordinary expenses) to the extent that such expenses, including the management fee, exceed the limits on investment company expenses prescribed in any state in which the Series' shares are qualified for sale. The Manager voluntarily waived fees and reimbursed expenses of $34,430 for the six months ended June 30, 1996. The Fund has adopted a Plan of Distribution, pursuant to Rule 12b-1 promulgated under the Investment Company Act of 1940, under which the Series pays to Fundamental Service Corporation (FSC), an affiliate of the Manager, a fee, which is accrued daily and paid monthly, at an annual rate of 0.5% of the Series' average daily net assets. Amounts paid under the plan are to compensate FSC for the services it provides and the expenses it bears in distributing the Series' shares to investors. FSC has waived all fees in the amount of $3,785 for the six months ended June 30, 1996. The Fund compensates Fundamental Shareholder Services, Inc., an affiliate of the Manager, for the services it provides under a Transfer Agent and Service Agreement. Transfer agent fees are set forth in the Statement of Operations. 6 FUNDAMENTAL FIXED-INCOME FUND HIGH-YIELD MUNICIPAL BOND SERIES NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- 3. Trustees' Fees All of the Trustees of the Fund are also directors or trustees of two other affiliated mutual funds for which the Manager acts as investment adviser. For services and attendance at board meetings and meetings of committees which are common to each fund, each Trustee who is not affiliated with the Manager is compensated at the rate of $6,500 per quarter pro rated among the funds based on their respective average net assets. 4. Shares of Beneficial Interest As of June 30, 1996, there were an unlimited number of shares of beneficial interest (no par value) authorized and capital paid in amounted to $2,061,171. Transactions in shares of beneficial interest were as follows:
Six Months Ended Year Ended June 30, 1996 December 31, 1995 ----------------- ------------------ Shares Amount Shares Amount ------- ---------- ------- -------- Shares sold .................................... 738,206 $4,929,566 137,251 $921,557 Shares issued on reinvestment of dividends ..... 6,175 41,541 8,305 54,195 Shares redeemed ................................ (688,751) (4,617,582) (104,760) (710,959) ------- ---------- ------- -------- Net increase ................................. 55,630 $ 353,525 40,796 $264,793 ======= ========== ======= ========
5. Investment Transactions The Fund invests in variable rate securities commonly called "inverse floaters." The interest rates on these securities have an inverse relationship to the interest rate of other securities or the value of an index. Changes in interest rate on the other security or index inversely affect the rate paid on the inverse floater, and the inverse floater's price will be more volatile than that of a fixed-rate bond. The Fund invests in lower rated or unrated ("junk") securities which are more likely to react to developments affecting market risk and credit risk than would higher rated securities which react primarily to interest rate fluctuations. The Fund held securities in default with an aggregate value of $60,625 at June 30, 1996 (3.5% of net assets). A bond with a par value of $15,000 and a value of $11,250 at June 30, 1996 has been estimated in good faith under methods determined by the Board of Trustees. The Fund owns 1.7% of a Niagara Falls New York Urban Renewal Agency 11% Bond ("URA Bond") due to mature on May 1, 2009 which has missed interest and sinking fund payments. An affiliated investment company owns 98.3% of this bond issue. The ability of this bond issue to make future payments is dependent on the ability of the underlying projects making certain rental payments. There is uncertainty as to the timing of events and the subsequent ability of this bond issue to make service debt payments. The value of this bond was $49,336. The bond is valued at 49.33% of face value at June 30, 1996 under methods determined by the Board of Trustees. During the six months ended June 30, 1996, the cost of purchases and proceeds from sales of investment securities, other than short-term obligations, were $948,191 and $773,682, respectively. As of June 30, 1996 net unrealized depreciation of portfolio securities amounted to $136,147, composed of unrealized appreciation of $60,519 and unrealized depreciation of $196,666. 7 FUNDAMENTAL FIXED-INCOME FUND HIGH-YIELD MUNICIPAL BOND SERIES NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- 6. Selected Financial Information
Six Months Ended June 30, 1996 Years Ended December 31, ---------------------------------- (unaudited) 1995 1994 1993 1992 ----------- ----- ----- ----- ----- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ................................ $7.07 $5.92 $7.27 $7.30 $7.29 ----- ----- ----- ----- ----- Income from investment operations: Net investment income ............................................. 0.23 0.34 0.43 0.39 0.43 Net realized and unrealized gains (losses) on investments ......... (0.49) 1.15 (1.35) (0.03) 0.01 ----- ----- ----- ----- ----- Total from investment operations (0.26) 1.49 (0.92) 0.36 0.44 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income ................................ (0.23) (0.34) (0.43) (0.39) (0.43) ----- ----- ----- ----- ----- Net asset value, end of period ...................................... $6.58 $7.07 $5.92 $7.27 $7.30 ===== ===== ===== ===== ===== Total Return ........................................................ (3.76%) 25.70% (12.92%) 5.11% 6.26% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) ............................. 1,723 1,457 979 1,087 1,050 Ratios to average net assets: Expenses ........................................................ 2.50%+* 2.50%* 2.50%* 2.50%* 2.87%* Net investment income ........................................... 6.61%+* 5.15%* 6.70%* 5.40%* 5.89%* Portfolio turnover rate ............................................. 48.66% 43.51% 75.31% 84.89 100.21% BANK LOANS Amount outstanding at end of period (000 omitted) ................... $ - $ 379 $ - $ - $ 20 Average amount of bank loans outstanding during the period (000 omitted) ..................................................... $ - $ 61 $ - $ - $ 57 Average number of shares outstanding during the period (000 omitted) ..................................................... 156 183 156 145 144 Average amount of debt per share during the period .................. $ - $0.33 $ - $ - $0.40 *These ratios are after expense reimbursements of 5.05%+ for the six months ended June 30, 1996 and 6.22%, 6.20%, 5.76% and 4.83%, for each of the years ended December 31, 1995, 1994, 1993 and 1992, respectively. +Annualized.
8 (left column) FUNDAMENTAL FIXED-INCOME FUND 90 Washington Street New York NY 10006 1-800-322-6864 The financial statements contained herein are submitted for the general information of the shareholders of the Fund. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus. (right column) Semi-Annual Report June 30, 1996 (Unaudited) FUNDAMENTAL FIXED-INCOME FUND High-Yield Municipal Bond Series FUNDAMENTAL Fundamental Family of Funds -----END PRIVACY-ENHANCED MESSAGE-----