As filed, via EDGAR, with the Securities and Exchange Commission
on June 19, 1998.
File No.:33-12738
ICA No.: 811-5063
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the registrant |X|
Filed by a party other than the registrant | |
Check the appropriate box:
|X| Preliminary proxy statement |_| Confidential, for Use of the
|_| Definitive proxy statement Commission Only
|_| Definitive additional materials (as permitted by Rule 14a-6(e)(2))
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
FUNDAMENTAL FIXED-INCOME FUND
-----------------------------
(Name of Registrant as Specified in Its Charter)
Peter Song
----------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the form or schedule and the
date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
Fundamental Fixed-Income Fund
(Fundamental U.S. Government Strategic Income Fund)
(High-Yield Municipal Bond Series)
(Tax-Free Money Market Series)
The California Muni Fund
Fundamental Funds, Inc.
(New York Muni Fund)
1675 Broadway
New York, New York 10019
_______, 1998
Dear Shareholder:
A Special Meeting of Shareholders of Fundamental U.S.
Government Strategic Income Fund, High-Yield Municipal Bond Series and Tax-Free
Money Market Series of Fundamental Fixed-Income Fund, The California Muni Fund
and the New York Muni Fund series of Fundamental Funds, Inc. (the "Funds") will
be held at ______________ New York, New York, at __________ (Eastern Time) on
__________, 1998. Because this transaction affects five Funds and because much
of the information required to be included in the proxy materials for each Fund
is substantially identical, we believe it is more efficient and cost-effective
to prepare a single, "combined" Proxy Statement for use by shareholders of all
of the Funds.
By the enclosed proxy materials you are being asked to
consider and approve an Agreement and Plan of Reorganization (the "Plan")
providing for the transfer of the assets of your Fund to a separate
newly-created series of The Tocqueville Trust (the "Tocqueville Trust"). As part
of the transaction (collectively,the "Reorganization"), each shareholder of your
Fund will receive a certain number of shares of the corresponding Tocqueville
Trust series having the same aggregate value as the shares you owned in the Fund
immediately prior to the Reorganization. Details of the proposed reorganization
of your Fund, which is intended to be tax-free, are described in the Proxy
Statement, to which you are asked to give your prompt attention.
Under a SEPARATE Proxy Statement, Fundamental Portfolio Advisors,
Inc. ("FPA") has asked you to vote AGAINST the Reorganization and FOR its
proposals to amend the Articles of Incorporation with respect to the New York
Muni Fund so that directors may be removed by a majority of votes cast by
Shareholders; and with respect to each Fund, (i) terminating all plans formed
under Rule 12b-1 of the Investment Company Act of 1940; (ii) removing all
current Board Members; and (iii) electing new Board Members.
THE REMAINING INDEPENDENT BOARD MEMBERS URGE YOU TO VOTE FOR THE
REORGANIZATION, THEREBY RETAINING TOCQUEVILLE ASSET MANAGEMENT L.P. AS
INVESTMENT ADVISER TO YOUR FUND.
THE REMAINING INDEPENDENT BOARD MEMBERS URGE YOU TO VOTE AGAINST
FPA'S PROPOSALS FOR THE FOLLOWING REASONS:
1. The proposed Board Members have no prior mutual fund [or other
public company] board experience, were never interviewed as to
their qualifications to serve, but rather, were selected by Lance
Brofman, the former Chief Portfolio Strategist of the Funds who
was directed by the Independent Board Members in December 1996 to
have no further involvement in the management or operation of the
Funds.
2. The new proposed Board Members can be expected to vote in favor
of FPA as adviser to the Funds, notwithstanding FPA's poor record
of performance and FPA's failure to disclose material information
to the Board Members, as alleged in a pending administrative
proceeding commenced by the Securities and Exchange Commission
("SEC") against FPA and its two principal shareholders, Vincent
J. Malanga and Lance Brofman.
3. FPA's poor long-term performance record as evidenced by last
place rankings for all of the Funds for five-and ten-year periods
designated by Lipper Analytical Services, Inc. ("Lipper") (with
only one exception). FPA's poor performance record may be
summarized as follows:
(i) According to Lipper, the New York Muni Fund, for the
five-year period from 12/31/92 to 12/31/97 ("5 Year
Period"), had a total cumulative reinvested performance
of -2.84% which earned the Fund a ranking of 45th place
out of 45 other New York municipal bond funds in its
Lipper category. For the ten-year period from 12/31/87
to 12/31/97 ("10 Year Period"), the Fund had a total
cumulative reinvested performance of 51.86%, which
earned the Fund a ranking of 27th place out of 27 other
municipal bond funds in its Lipper category.
(ii) According to Lipper, the California Muni Fund, for the
5 Year Period, had a total cumulative reinvested
performance of 26.49% which earned the Fund a ranking
of 51st place out of 51 other California municipal bond
funds in its Lipper Category. For the 10 Year Period,
the Fund had a total cumulative reinvested performance
of 86.42%, which earned the Fund a ranking of 30th
place out of 30 other California municipal bond funds
in its Lipper category.
(iii)According to Lipper, the Tax Free Money Market Series,
for the 5 Year Period, had a total cumulative
reinvested performance of 10.34% which earned the Fund
a ranking of 98th place out of 98 other tax-exempt
money market funds in its Lipper category. For the 10
Year Period, the Fund had a total cumulative reinvested
performance of 37.73%, which earned the Fund a ranking
of 62nd place out of 62 other tax-exempt money market
funds in its Lipper category.
(iv) According to Lipper, the High-Yield Municipal Bond
Series, for the 5 Year Period, had a total cumulative
reinvested performance of 38.45% which earned the Fund
a ranking of 14th place out of 21 other high-yield
municipal bond funds in its Lipper category. For the 10
Year Period, the Fund had a total cumulative reinvested
performance of 66.80%, which earned the Fund a ranking
of 16th place out of 16 other high-yield municipal bond
funds in its Lipper category.
(v) According to Lipper, the Fundamental U.S. Government
Strategic Income Fund, for the 5 Year Period, had a
total cumulative reinvested performance of 2.93% which
earned the Fund a ranking of 42nd place out of 42 other
government funds in its Lipper category (no returns for
the 10 Year Period are available because the Fund has
been in existence less than ten years).
On July 15, 1997 your Fund's Board unanimously approved each
Plan and recommended that shareholders approve the transactions contemplated by
them. The possibility of a transaction reorganizing your Fund into the
Tocqueville Trust series was first presented to your Fund's Board in early 1997
and, after reviewing a number of alternative courses of action, the Board
Members at such time recommended that your Fund transfer its assets to a
corresponding Tocqueville Trust series, in exchange for shares of the
Tocqueville Trust series, and thereafter liquidate and dissolve.
The Boards' deliberations are described under "Proposal 1 --
Consideration of the Boards -- July 15 Approval." Based on certain occurrences
described under "Subsequent Events" which became known after the Boards first
unanimously approved the Plans, two former independent Board Members have
concluded that the Reorganization is not in the best interest of the Funds and
their shareholders. The sole interested Board Member has also concluded that the
Reorganization is not in the best interest of the Funds and their shareholders,
having changed his views in March, 1998. See "Views of the Interested Board
Member." The Reorganization is proceeding because the remaining independent
Board Members, which constitutes a majority of the remaining Boards, continues
to believe that the Reorganization is in the best interest of the Funds and
their shareholders. See "Views of the Remaining Independent Board Members."
The remaining independent Board Members of each Fund believe
that the capabilities and resources of Tocqueville Asset Management L.P.,
adviser to the Tocqueville Trust, and Tocqueville Securities L.P., the
<PAGE>
distributor of shares of the Tocqueville Trust, may possibly provide greater
economies of scale and diversity of investments if the proposed transaction is
approved because your new Tocqueville Trust series has greater asset potential.
Since the investment objectives and policies of your Fund and the Tocqueville
Trust series are substantially identical, we expect that you will continue to be
able to meet your personal investment objectives as a shareholder of the
Tocqueville Trust series.
WE ASK YOU TO TAKE THE TIME TO CONSIDER THIS IMPORTANT MATTER
AND VOTE NOW. IN ORDER TO MAKE SURE THAT YOUR VOTE IS
REPRESENTED, PLEASE INDICATE YOUR VOTE ON THE ENCLOSED PROXY
CARD AND DATE, SIGN AND RETURN IT IN THE ENCLOSED ENVELOPE.
Your prompt response will ensure that your shares are counted
at the meeting. Every vote counts! If you later find that you are able to attend
the meeting in person, you may revoke your proxy at the meeting and vote in
person.
Sincerely,
------------------
<PAGE>
FUNDAMENTAL FIXED-INCOME FUND
(Fundamental U.S. Government Strategic Income Fund)
(High-Yield Municipal Bond Series)
(Tax-Free Money Market Series)
THE CALIFORNIA MUNI FUND
FUNDAMENTAL FUNDS, INC.
(New York Muni Fund)
1675 Broadway
New York, New York 10019
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ______, 1998
A special meeting of the shareholders of Fundamental U.S. Government
Strategic Income Fund, High-Yield Municipal Bond Series and Tax-Free Money
Market Series of Fundamental Fixed-Income Fund, The California Muni Fund and New
York Muni Fund series of Fundamental Funds, Inc. (each, a "Fund" and,
collectively, the "Funds") will be held at ______ (Eastern time) at
______________ on ___________ 1998, for the purposes indicated below:
1. With respect to each Fund, to approve an Agreement and Plan of
Reorganization (the "Plan"), and the transactions contemplated
thereby, providing for (i) the transfer of all the assets of the
Fund into a separate newly-created series of The Tocqueville
Trust (the "New Series") in exchange for shares of the New
Series; (ii) the pro rata distribution of the shares of the New
Series to the Shareholders of the Fund; and (iii) the dissolution
of the Fund. A vote for approval of this proposal will authorize
your Fund, as the sole shareholder of the New Series prior to the
reorganization, to approve (a) the proposed investment advisory
agreement for the New Series and (b) the proposed distribution
plan for the shares of the New Series.
2. With respect to Fundamental Funds, Inc., the New York Muni Fund
Series, to amend the Articles of Incorporation so that directors
may be removed without cause by a majority of votes cast by
shareholders.
3. With respect to each Fund, to terminate all plans formed under
Rule 12b-1 of the Investment Company Act of 1940 (the "12b-1
Plans").
4. With respect to each Fund, to remove the all current Board
Members.
5. With respect to each Fund, to elect new Board Members.
In addition, to transact such other business as may properly come
before the meeting or any adjournment thereof.
Shareholders of record as of the close of business on ________
1998 are entitled to receive notice of, and to vote at, the meeting and any and
all adjournments thereof. Your attention is called to the accompanying Proxy
Statement.
By Order of the Boards of The
Fundamental Funds
------------------
_______, 1998
YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP LETTERS TO
ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY. IF YOU ARE UNABLE TO
ATTEND THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY SO
THAT THE NECESSARY QUORUM MAY BE REPRESENTED AT THE MEETING. THE ENCLOSED
ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
FUNDAMENTAL FIXED-INCOME FUND
(Fundamental U.S. Government Strategic Income Fund)
(High-Yield Municipal Bond Series)
(Tax-Free Money Market Series)
THE CALIFORNIA MUNI FUND
FUNDAMENTAL FUNDS, INC.
(New York Muni Fund)
1675 Broadway
New York, New York 10019
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Trustees of Fundamental
Fixed-Income Fund, on behalf of its Fundamental U.S. Government Strategic Income
Fund, High-Yield Municipal Bond Series and Tax-Free Money Market Series, the
Board of Trustees of The California Muni Fund and the Board of Directors of
Fundamental Funds, Inc. on behalf of its New York Muni Fund series (each, a
"Fund" and, collectively, the "Funds"). Fundamental Fixed-Income Fund, The
California Muni Fund and New York Muni Fund (referred to herein collectively as
the "Fundamental Funds") are each registered open-end investment companies
having their executive office at 1675 Broadway, New York, New York 10019. The
proxy is revocable at any time before it is voted by sending written notice of
the revocation to the Fundamental Funds or by appearing personally at the
_______, 1998 special meeting of shareholders (the "Meeting").
A COPY OF EACH FUND'S ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31,
1997 (WHICH CONTAINS INFORMATION PERTAINING TO THE FUND) MAY BE OBTAINED,
WITHOUT CHARGE, BY CALLING THE FUND'S TRANSFER AGENT, FIRSTAR TRUST COMPANY,
MUTUAL FUND SERVICES, P.O. BOX 701, MILWAUKEE, WI 53201-0701 AT 1-800-322-6864.
This combined Proxy Statement and notice of meeting and proxy card are
first being mailed to shareholders on or about ______, 1998.
INTRODUCTION
The Meeting is being called to approve the reorganization of each Fund
into a corresponding new series (each, a "New Series") of The Tocqueville Trust
(the "Tocqueville Trust") by the transfer of substantially all of the assets of
such Fund to the corresponding series of the Tocqueville Trust in exchange for
shares of such series and to transact such other business as may properly come
before the Meeting or any adjournment thereof.
<PAGE>
DESCRIPTION OF VOTING
Approval of the Proposal requires the affirmative vote of (i) with
respect to the California Muni Fund and New York Muni Fund, a majority of each
Fund's outstanding shares of beneficial interest/common stock ("Shares"), (ii)
with respect to Fundamental U.S. Government Strategic Income Fund, High-Yield
Municipal Bond Series and Tax-Free Money Market Series, a "majority of the
outstanding voting securities," within the meaning of the Investment Company Act
of 1940, as amended (the "1940 Act") of each Fund. The term "majority of the
outstanding voting securities" is defined under the 1940 Act to mean: (a) 67% or
more of the outstanding Shares present at the Meeting, if the holders of more
than 50% of the outstanding Shares are present or represented by proxy, or (b)
more than 50% of the outstanding Shares of a Fund, whichever is less.
Shareholders of record at the close of business on _________ 1998 (the
"Record Date"), will be entitled to notice of, and to vote at, the Meeting,
including any adjournment thereof. As of the Record Date, the Fundamental Funds
had the number of Shares outstanding set forth below, each Share being entitled
to one vote:
Total Shares
Fund Outstanding
---- -----------
Fundamental U.S. Government Strategic Income Fund
High-Yield Municipal Bond Series
Tax-Free Money Market Series
The California Muni Fund
New York Muni Fund
Each shareholder will be entitled to one vote for each share and a
fractional vote for each fractional share held. Shareholders holding a majority
(one-third, with respect to The California Muni Fund) of the outstanding Shares
of a Fund at the close of business on the Record Date present in person or by
proxy will constitute a quorum for the transaction of business with respect to
the Fund at the Meeting. For purposes of determining the presence of a quorum
and counting votes on the matters presented, Shares represented by abstentions
and "broker non-votes" will be counted as present, but not as votes cast, at the
Meeting. The issued and outstanding shares of the New York Muni Fund series
constitute all of the issued and outstanding shares of Fundamental Funds, Inc.
and the reorganization of the New York Muni Fund series into a corresponding
series of the Tocqueville Trust will constitute a reorganization of Fundamental
Funds, Inc. into the Tocqueville Trust.
Any proxy which is properly executed and returned in time to be voted
at the Meeting will be counted in determining whether a quorum is present with
respect to a Fund and will be voted as marked. In the absence of any
instructions, such proxy will be voted to approve the Proposal. If a quorum is
not present at the Meeting with respect to a Fund, or if a quorum is present but
sufficient votes to approve the Proposal are not received, the persons named as
proxies may propose one or more adjournments of the Meeting to permit further
solicitation of proxies. In determining whether to adjourn the Meeting, the
following factors may be considered: the nature of the Proposal that is the
subject of the Meeting, the percentage of votes actually cast, the percentage of
negative votes actually cast, the nature of any further solicitation and the
information to be provided to shareholders with respect to the reasons for the
solicitation. Any adjournment will require the affirmative vote of a majority of
those shares of a Fund represented at the Meeting in person or by proxy. A
shareholder vote may be taken for the Proposal in this Proxy Statement prior to
any adjournment if sufficient votes have been received for approval. If a
shareholder abstains from voting as to any matter, then the shares held by such
shareholder shall be deemed present at the Meeting for purposes of determining a
quorum and for purposes of calculating the vote with respect to such matter, but
shall not be deemed to have been voted in favor of such matter. A shareholder
may revoke his or her proxy at any time prior to its exercise by delivering
written notice of revocation or by executing and delivering a later dated proxy
to the address set forth on the cover page of this Proxy Statement, or by
attending and voting at the Meeting.
The cost of preparing and mailing proxy materials will be borne
by________________. Proxy solicitations will be made primarily by mail, but may
also be made by telephone, facsimile or personal interview conducted by
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<PAGE>
certain officers or employees of the Fundamental Funds or Tocqueville Asset
Management L.P., the Fundamental Funds' interim manager ("Tocqueville").
______________ has engaged ________________, on behalf of the Funds, to assist
with proxy solicitations, at an estimated cost of $________.
If the Proposal is approved, it is anticipated that it will become
effective as soon as practical thereafter.
MATTERS TO BE ACTED ON
PROPOSAL 1
APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION
The Boards of the Fundamental Funds have approved Agreements and Plans
of Reorganization (each a "Plan" and collectively, the "Plans") which provide
for the reorganization (the "Reorganization") of the Fundamental U.S.
Governmental Strategic Income Fund (the "Fundamental Government Fund") into the
Tocqueville U.S. Government Strategic Income Fund Series (the "Tocqueville
Government Series"), the High-Yield Municipal Bond Series (the "Fundamental
High-Yield Fund") into the High-Yield Municipal Bond Fund Series (the
"Tocqueville High-Yield Series"), the Tax-Free Money Market Series (the
"Fundamental Money Market Fund") into the Tocqueville Tax-Free Money Market Fund
Series (the "Tocqueville Money Market Series"), The California Muni Fund (the
"Fundamental California Fund") into the Tocqueville California Muni Fund Series
(the "Tocqueville California Series") and New York Muni Fund (the "Fundamental
New York Fund") into the New York Muni Fund Series (the "Tocqueville New York
Series") of the Tocqueville Trust. The series of the Tocqueville Trust are
referred to, collectively, as the "New Series." The New Series do not currently
have any assets; they are being registered as series of the Tocqueville Trust
for the sole purpose of receiving the assets of the corresponding Fund. Each New
Series has substantially the same investment objectives, policies and
restrictions as its corresponding Fund, except as described below in the
subheading "Description of the New Series." However, each New Series will have
the same investment adviser, distributor, transfer agent, custodian, counsel and
auditors as its corresponding Fund. However, the Tocqueville Trust has a Board
of Trustees which is different from the Boards of the Fundamental Funds.
Each New Series has been organized and registered for the purpose of
continuing the investment operations of its corresponding Fund. Because of the
continuation of investment operations, and to avoid the need to call another
shareholders' meeting after a Reorganization, shareholders of each Fund are also
being asked to authorize the Fund, as the sole shareholder of the New Series
prior to the Reorganization, to approve the proposed investment advisory
agreement for the New Series and the proposed distribution plan for the New
Series. A vote in favor of the Reorganization is also a vote to authorize the
relevant Fund to take such actions. The issued and outstanding shares of
Fundamental New York Fund constitute all of the issued and outstanding shares of
Fundamental Funds, Inc. and the reorganization of the Fundamental New York Fund
into the Tocqueville New York Series will constitute a reorganization of
Fundamental Funds, Inc. into the Tocqueville Trust.
Each Reorganization is described in the respective Agreement and Plan
of Reorganization pertaining to the Reorganization and includes the transfer by
the Fund (and in the case of Fundamental New York Fund, Fundamental Funds, Inc.)
of substantially all of its assets to the corresponding New Series in exchange
for a number of full and fractional shares of beneficial interest of the New
Series having an aggregate net asset value equal to the aggregate net asset
value of the Fund's shares, the assumption by the New Series of certain
identified liabilities attributable to the Fund, the distribution by the Fund to
its shareholders of the shares of the New Series, and the dissolution of the
Fund (and, in the case of Fundamental New York Fund, Fundamental Funds, Inc.).
The foregoing is a summary of each Reorganization and is subject to and
qualified in its entirety by reference to the relevant Agreement and Plan of
Reorganization pertaining to each Reorganization. A vote in favor of the
Reorganization will constitute approval and authorization of each action and
transaction included in the Reorganization.
-3-
<PAGE>
In the event the Reorganization is not approved by shareholders of a
Fund and FPA's proposals also are not approved by shareholders of the same Fund,
the Boards of the Fundamental Funds will consider what other course of action,
if any, should be taken with respect to such Fund, which could include the
adoption of a plan to liquidate such Fund.
NO COMMISSIONS, SALES LOADS, REDEMPTION FEES OR OTHER SIMILAR CHARGES
WILL BE INCURRED BY SHAREHOLDERS OF A FUND IN CONNECTION WITH THE
REORGANIZATION. HOWEVER, AS DESCRIBED BELOW IN THE SUBHEADING "COMPARISON OF
FEES AND EXPENSES," THE NEW SERIES AND THE FUNDS ARE SUBJECT TO RULE 12B-1
DISTRIBUTION FEES. FURTHERMORE, SHAREHOLDERS OF THE FUNDAMENTAL FUNDS WILL BE
"GRANDFATHERED" BY THE TOCQUEVILLE TRUST AND GIVEN THE PERMANENT RIGHT TO
PURCHASE ADDITIONAL SHARES OF THE NEW SERIES AND ALL OTHER SERIES OF THE
TOCQUEVILLE TRUST AT NET ASSET VALUE, WITHOUT THE IMPOSITION OF COMMISSIONS,
SALES LOADS, REDEMPTION FEES OR OTHER SIMILAR CHARGES.
Background
On July 15, 1997, the Boards of the Fundamental Funds
unanimously approved the Plans and recommended that shareholders of each Fund
approve the transactions contemplated by them. Prior to taking this action, the
Board Members of the Fundamental Funds who were not "interested persons" of
Fundamental Portfolio Advisors, Inc. ("FPA"), the former manager of the Funds,
within the meaning of the 1940 Act (the "Independent Board Members"), retained
an investment banking firm to seek fund organizations willing to manage the
Funds and to submit requests for proposals. The Independent Board Members had
concluded that it was unlikely that a majority of the Funds' Independent Board
Members would approve the continuance of the then current management agreements
beyond December 31, 1997. FPA advised the Independent Board Members that it had
already received a proposal from Tocqueville contemplating investment company
reorganizations pursuant to which Tocqueville would serve as successor
investment adviser to the Funds. Therefore, in addition to submitting requests
for proposals to mutual fund organizations recommended by the investment banking
firm, a request for proposal was also submitted to Tocqueville.
In seeking alternative arrangements for the advisory role, the
Independent Board Members were represented by independent counsel for the
purpose of assisting them in reaching a determination and to review alternative
courses of action available to the Funds.
AS DESCRIBED BELOW, ULTIMATELY, THE BOARDS' RECOMMENDED
APPROVAL WAS NOT UNANIMOUS, WITH TWO FORMER INDEPENDENT BOARD MEMBERS AND ONE
INTERESTED BOARD MEMBER CONCLUDING THAT PROCEEDING WITH THE REORGANIZATION IS
NOT IN THE BEST INTEREST OF THE FUNDS AND THEIR SHAREHOLDERS. SEE "VIEWS OF
FORMER BOARD MEMBERS," "VIEWS OF THE REMAINING INDEPENDENT BOARD MEMBERS," AND
"VIEWS OF THE INTERESTED BOARD MEMBER."
CONSIDERATIONS OF THE BOARDS
JULY 15 APPROVAL
In determining, on July 15, 1997, to recommend approval of the
proposed reorganization to shareholders of the Fundamental Funds, the
Independent Board Members met separately with their independent counsel numerous
times, inquired into a number of matters, and considered the factors set forth
below, among others. The Boards considered the Reorganization at special
meetings held on July 10 and July 15, 1997. At the special meeting of the Boards
held on July 15, 1997 (the "July 15th Meeting"), the Board Members unanimously
determined that the Reorganization and the Plans would not result in the
dilution of the interests of, and would be in the best interest of, the
shareholders of each Fund. Accordingly, the Board Members of the Fundamental
Funds approved, and resolved to recommend to the shareholders of the Funds that
they approve, the Reorganization and the Plans. The Board Members present at the
July 15th Meeting constituted all of the Independent Board Members.
Proposal 1, below, relates to the approval of a reorganization of the
Funds into corresponding series of the Tocqueville Trust. In approving the
proposed transaction, the Board Members, considering the best interest of the
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<PAGE>
shareholders of the Funds, took into account all such factors as they deemed
relevant, but gave no greater weight to any of the following factors.
The Board Members, assisted by independent counsel and an investment
banking firm, narrowed their review to the consideration of two mutual fund
organizations and interviewed representatives of both organizations. At a
special meeting of the Fund Boards held on July 10, 1997, representatives of one
mutual fund organization indicated that they were prepared to proceed with their
proposal only if all parties (each independent Board Member and FPA) unanimously
agreed that they do so. Since the independent Board Members were split on their
views, their attention was directed to Tocqueville, the second mutual fund
organization under consideration. In making their decision to recommend
Tocqueville as the new manager, the Board Members conducted several interviews
with the principals of Tocqueville, as well as with the proposed portfolio
manager. Among the factors considered were the nature and extent of the services
to be furnished by Tocqueville; the advantages and possible disadvantages of
having a manager which also serves other mutual funds and private accounts; the
investment record of Tocqueville; possible economies of scale; comparative data
as to advisory fees; Tocqueville's New York presence and interest in maintaining
the integrity of the Funds; Tocqueville's intention to continue checkwriting
privileges for all Funds, not solely for the Money Market Fund; Tocqueville's
interest in employing certain Fundamental employees (compliance officer, trader
and assistant to the portfolio manager, shareholder servicing agents and
clerical personnel) to provide continuity of service to shareholders; the fact
that Fund shareholders will be able to invest in other funds managed by
Tocqueville, and thus will be offered convenient access to a broader range of
investment opportunities; possible benefits to Tocqueville from serving as
manager to the Funds; the financial resources and distribution capabilities of
Tocqueville and the importance of obtaining high quality professional services
for the Funds. The Board Members' decision to recommend approval of the proposed
transaction by shareholders was based on the totality of the facts and
circumstances; however, the following were the main points in Tocqueville's
favor: (i) Tocqueville had a clear understanding of the Funds' portfolios; (ii)
the other organization did not offer the same shareholder privileges that the
Funds currently offer and that Tocqueville would continue to offer; and (iii)
the Board Members had determined that Tocqueville would be able to provide
superior levels of support and service to the Funds and their shareholders.
The Board Members also considered the fact that the management services
to be performed under the new investment advisory agreements are substantially
similar to those under the Funds' then existing management agreements and that
Tocqueville has voluntarily agreed to waive a portion of its fees or reimburse
the Funds, if necessary, so that the expense ratio (excluding interest,
incremental professional fees, incremental directors'/trustees' expenses and
other extraordinary expenses) of each Fund for a period of two years following
the consummation of the transaction does not exceed 3.36% for the Tocqueville
Government Series, 6.48% for the Tocqueville High- Yield Series, 1.54% for the
Tocqueville Money Market Series, 2.78% for the Tocqueville California Series and
1.77% for the Tocqueville New York Series. Each expense ratio cap is less than
the expense ratio for the most recent fiscal year-end for the following
Fundamental Funds: Fundamental Government Fund, Fundamental California Fund and
Fundamental New York Fund and, absent voluntary waiver and/or reimbursement,
less than the most current fiscal year-end expense ratio for Fundamental
High-Yield and Fundamental Money Market Funds.
The Board Members considered that the Reorganization will be
accomplished by transferring the assets of each Fund to a corresponding New
Series having substantially the same investment policies and objectives as those
of such Fund and Tocqueville's representation that each New Series will be kept
intact for at least two years following the consummation of the proposed
transaction, subject to the overall direction of the Board of Trustees of the
Tocqueville Trust.
In addition to their attendance at the Board meetings held on July 10
and July 15, 1997, the Independent Board Members met separately with their
counsel on such dates as well as upon a number of other occasions to consider
the Reorganization. In conducting their evaluation, the Independent Board
Members reviewed and discussed various materials provided pursuant to the
requests for proposals and at the specific request of the Independent Board
Members. Included among these materials were: (i) data concerning historical
performance of the existing series of the Tocqueville Trust; (ii) comparative
information with respect to expenses of the New Series, presented on a pro forma
basis, and other mutual funds with similar investment objectives to those of the
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Funds; (iii) biographical information concerning the Trustees of the Tocqueville
Trust and the portfolio managers for the New Series; and (iv) information
concerning the marketing capabilities of Tocqueville.
The Board Members considered that there will be no sales charge imposed
in effecting the Reorganization. In addition, by keeping the Funds together
within the same family of funds, shareholders will benefit from the ability to
make exchanges among the Funds and among the other series of the Tocqueville
Trust without incurring sales charges. Also considered was the fact that the
Reorganization is intended to qualify as a tax-free exchange.
At the time of the July 15, 1997 meeting, the Board Members were
advised that FPA and/or its affiliates agreed to provide certain services as
part of the transition to Tocqueville as well as certain other services to
shareholders of the Funds following completion of the Reorganization, to assist
in assuring continuity for the shareholders in their dealings with the Funds.
The Board Members also were advised that FPA and/or its affiliates were eligible
to receive fees from Tocqueville for any bona fide services rendered to
Tocqueville. Such fees were intended to compensate the Manager for maintaining
relationships with shareholders during the transitional period both in advance
of, and immediately following, the Reorganization, responding to shareholder
inquiries and providing information on their investments, and for other
shareholder liaison and consulting services as may have been provided to
Tocqueville (collectively, "Consulting Services"). Any such compensation (at the
expense of Tocqueville and not by the Funds or the New Series) may be paid for
an unlimited duration. However, it should be noted that it was agreed that any
such fees would not exceed 25 basis points per year of a Fund's average annual
net assets, the maximum charges allowed by NASD Rules (the "Rules"), which Rules
do not apply to FPA, Tocqueville, or to any other non-member of the NASD. In
addition, the Rules do not apply to any amounts that may be paid by Tocqueville
(i.e., the compensation for the Consulting Services) out of Tocqueville's own
assets. The Funds do not currently pay any service fees to NASD members as
compensation for providing personal service and maintenance of shareholder
accounts.
Other factors considered by the Boards in recommending shareholder
approval of the Reorganization included, among other things:
(1) the terms and conditions of the Reorganization;
(2) the federal tax consequences to the Funds, the New Series and the
shareholders resulting from the proposed Reorganization, and the likelihood that
no recognition of income, gain or loss for federal income tax purposes to the
Funds, the New Series, or the shareholders will occur as a result thereof; and
(3) that the interests of the shareholders of the Funds will not be
diluted as a result of the proposed Reorganization.
Based upon these factors, the Board Members unanimously determined that
the transaction would not result in dilution of the interests of, and would be
in the best interest of, the shareholders of each Fund and recommended that the
shareholders of each Fund approve the Reorganization and the Plans.
As described above, on July 15, 1997, the Boards unanimously approved
the Reorganization. Based on certain occurrences described under "Subsequent
Events" and "Views of the Interested Board Member" which became known after the
Boards first approved the Plans, two former Independent Board Members and one
Interested Board Member have concluded that the Reorganization is not in the
best interest of the Funds and their shareholders. The Reorganization is
proceeding because two Independent Board Members, which constitutes a majority
of the Fund Boards, continue to believe that the Reorganization Plan is in the
best interest of the Funds and their shareholders.
SUBSEQUENT EVENTS
ADMINISTRATIVE PROCEEDINGS. On or about October 24, 1997, the
Commission filed a corrected order instituting public proceedings (the
"Administrative Proceeding") pursuant to Section 8A of the Securities Act of
1933, Sections 15(b), 19(h), and 21C of the Securities Exchange Act of 1934,
Sections 9(b) and (f) of the Investment Company Act, and Sections 203(e), (f)
and (k) of the Investment Advisers Act of 1940 (the "Advisers Act") against FPA,
Dr. Vincent J. Malanga, Dr. Lance M. Brofman and Fundamental Service Corporation
("FSC") (the "Respondents"). Mr. Bronfman is the former Chief Portfolio
Strategist for the Funds and a 48.5% shareholder of FPA.
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The Administrative Proceeding relates to the activities of FPA, which
is registered as an investment adviser since October 17, 1986. The Division of
Enforcement alleges that false and misleading statements were made in the
prospectus and sales literature of the Fundamental Government Fund. The Division
of Enforcement further alleges that the Fundamental Government Fund was marketed
as a relatively safe and conservative investment, designed to provide "high
current income with minimum risk of principal and relative stability of net
asset value; that as a U.S. government bond fund, interest rate risk posed the
greatest risk to the Fund's net asset value ("NAV"); that according to the
Fund's prospectus and sales materials, the Fund sought to limit that risk, and
thus to maximize stability of NAV, by limiting the Fund's "duration" to three
years or less; that the term "duration" generally refers to the sensitivity of
the value of a security or a portfolio of securities to changes in interest
rates (although measured in years, an instrument's duration is not necessarily
the same as its term to maturity); that duration is a measure of the price
sensitivity of a fixed income fund, such as a U.S. government bond fund, to
changes in interest rates; that a portfolio with a low duration will be less
sensitive to changes in interest rates than a high duration portfolio.
The Division of Enforcement further alleges that certain
antifraud provisions of the federal securities laws were violated because the
Fundamental Government Fund was marketed as a safe investment, offering relative
stability of NAV ("low volatility"), when it was not; that contrary to the
representations in the Fundamental Government Fund's prospectus and sales
literature, the Fundamental Government Fund had a heightened sensitivity to
changes in interest rates, due in large part to its substantial investment in
inverse floating collateralized mortgage obligations ("inverse floaters"); that
further, the Fundamental Government Fund's duration was not limited to three
years or less; that when interest rates rose in 1994, the Fundamental Government
Fund incurred substantial losses; that in 1994, the Fundamental Government
Fund's NAV declined approximately 32%, significantly more than almost all other
U.S. government bond funds.
The Division of Enforcement further alleges that this
proceeding also involves Dr. Malanga's and Dr. Brofman's failure to disclose
FPA's soft dollar arrangements to the Board of the Fundamental Government Fund
and other Funds managed by FPA. The term "soft dollars" generally describes an
arrangement whereby an investment adviser uses commission dollars generated by
securities trades executed in advisory client accounts to pay for research,
brokerage, or other products, services, or expenses, including soft dollar
credits generated by syndicate designations.
Respondents filed a joint answer denying the Commission's
allegations to the extent that they allege any wrongdoing or that they have
violated antifraud provisions of the federal securities laws by marketing the
Fundamental Government Fund as a safe investment, offering relative stability of
NAV and further denying that the Fundamental Government Fund's investment in
inverse floaters gave it a heightened sensitivity to changes in interest rates
as opposed to other securities in which the Fundamental Government Fund could
have appropriately invested. Respondents further denied that the Fundamental
Government Fund's duration ever exceeded three years. Respondents further denied
that their conduct with respect to soft dollars violated any law or regulation
to warrant the proceedings initiated against them.
Respondents and the Division of Enforcement are engaged in
discovery and expect the Administrative Proceeding to be tried in July 1998. If
tried, FPA believes a decision will be made significantly after July 1998.
In the event the Commission prevails in the Administrative
Proceeding, the Commission could, among other things, (i) bar FPA from acting as
future adviser to the Funds, (ii) bar Dr. Malanga from associating with
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FPA in any capacity and associating with any other investment adviser, or
company, and (iii) bar Dr. Malanga from serving as a Board Member of any of the
Funds.
Relating to the same allegations, but separately, NASD Regulation, Inc.
(the "NASD") entered into a Letter of Acceptance, Waiver and Consent with FSC,
the former distributor of the Fundamental Government Fund, Dr. Malanga and Mr.
David P. Wieder that imposed a total of $125,000 in fines and other stipulated
sanctions on FSC, Dr. Malanga, and Wieder for distributing advertising materials
for the Fundamental Government Fund that the NASD deemed to be false and
misleading. All fines have been paid.
As a stipulated non-monetary sanction FSC agreed that, for a period of
three years, FSC will prefile all advertising and sales literature with the NASD
Advertising Department before use, and will retain an outside consultant to
report on FSC's compliance policies with respect to advertising and sales
literature and other compliance policies. Dr. Malanga has also agreed to a
30-day suspension from associating, in any capacity, with any NASD member firm,
which suspension has been completed.
FSC, Dr. Malanga and the other FSC officer neither admitted nor denied
the allegations and filed a Mitigation Statement in response to the Letter of
Acceptance, Waiver and Consent.
CHRISTOPHER P. CULP. To assist in the investment management of the
Funds following the transfer of portfolio management responsibilities from the
portfolio manager to an investment committee, FPA arranged for Mr. Christopher
P. Culp to join the investment committee responsible for the selection of
specific securities which the Funds may invest, hold, sell or exchange. Mr.
Culp, a portfolio co-manager affiliated with Tocqueville, joined Dr. Vincent J.
Malanga, a portfolio strategist affiliated with FPA, and Jane Tubis, a trading
assistant affiliated with FPA, as members of the investment committee. Mr. Culp
served on FPA's investment committee on an interim basis without compensation
from February 18, 1997 until August 27, 1997, acting as the principal portfolio
manager of the Funds. He did so in his capacity as an employee of FPA,
representing to the Boards that he was working without salary or other
compensation. At the same time, he continued to be employed by Tocqueville.
Between April 17, 1997 and July 24, 1997, Mr. Culp engaged Tocqueville
Securities L.P. ("Tocqueville Securities"), an affiliate of Tocqueville, as
agent, to effect eight separate over-the-counter purchase transactions of
municipal obligations on behalf of Fundamental New York Fund. Fundamental New
York Fund's Board has concluded that the commissions paid to Tocqueville
Securities in connection with these transactions (a portion of which was paid to
Mr. Culp) were not justified and that Fundamental New York Fund bore unnecessary
expenses as a result of the sale of its securities to another party and the
subsequent repurchase of them through Tocqueville Securities. Based upon a
report initiated by Tocqueville Securities and prepared by Fundamental New York
Fund's independent auditors, and upon the Board's own analysis, the Board
directed that FPA terminate Mr. Culp's services as a portfolio manager. At the
Board's request and in order to reimburse Fundamental New York Fund for all of
its losses, Tocqueville Securities, on September 15, 1997, voluntarily paid
$260,000 to Fundamental New York Fund, an amount which significantly exceeds the
total commissions ($184,920.60) received by Tocqueville Securities in connection
with these transactions. The staff of the Commission and the NASD have been
informed of these events by Tocqueville Securities.
RECENT EVENTS
APRIL 17, 1998 PROXY SOLICITING MATERIALS IN OPPOSITION TO THE
REORGANIZATION. On April 17, 1998, FPA filed with the Commission, preliminary
proxy soliciting materials opposing the Reorganization.
APRIL 17, 1998 PROXY STATEMENT SEEKING TO REPLACE THE REMAINING
INDEPENDENT BOARD MEMBERS. On April 17, 1998, FPA also filed with the
Commission, a second preliminary Proxy Statement seeking to remove and replace
the current Board Members. On May 11, FPA filed with the Commission, a
definitive version of the Proxy Statement that they had filed on April 17.
Shortly thereafter, on May 14, FPA mailed to shareholders a Notice of Special
Meeting to be held on May 29, 1998 (the "Special Meeting"), for the purposes
noted in their Proxy
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Statement. FPA did not, however, file a definitive copy of the Notice of Special
Meeting with the Commission and did not inform the Remaining Independent Board
Members of the calling of such Special Meeting. In response to FPA's actions,
the Remaining Independent Board Members authorized and directed that Kramer,
Levin, Naftalis & Frankel, the Funds' legal counsel, seek a temporary
restraining order enjoining the Special Meeting.
MAY 27, 1998 TEMPORARY RESTRAINING ORDER. On May 27, 1998, the Funds
and James C. Armstrong, one of the Independent Board Members, commenced an
action (referred to as the "Lawsuit") in the United States District Court for
the Southern District of New York against Fundamental Portfolio Advisors, Inc.
("FPA") and its principal officer, directors and shareholders, Vincent J.
Malanga and Lance Brofman, to enjoin a Special Meeting of Shareholders then
scheduled for May 29, 1998 (the "May 29 Special Meeting"). The Lawsuit sought to
enjoin the defendants, and those acting in concert with them, from holding the
May 29 Special Meeting, from voting shares or proxies obtained in violation of
the Securities Exchange Act of 1934 (the "Exchange Act"), and from soliciting
further proxies.
The Funds obtained a temporary restraining order on May 27, 1998 entered
by District Judge Richard Owen which enjoined the defendants, pending the
hearing and determination of plaintiffs' application for a preliminary
injunction, from holding the May 29 Special Meeting or any similar special
meeting until further order of the Court; from voting any shares of the Funds
except for purposes of adjourning the May 29 Special Meeting sine die or
cancelling it; or from soliciting shareholders of the Funds for any additional
proxies in connection with the May 29 Special Meeting. A hearing was scheduled
for June 8, 1998 which was then adjourned by mutual consent to June 11, 1998.
The Lawsuit charged violations of the Exchange Act and State law to the
effect that FPA illegally noticed the May 29 Special Meeting; failed to have a
proper record date set by the Board; circulated proxy materials that were
inaccurate and misleading; and proposed to ask shareholders to vote on issues
not properly before them. The Lawsuit charged Dr. Malanga with secretly and
illegally calling the May 29 Special Meeting without notification to the Board
and doing so for the purpose of perpetuating FPA's management agreements with
the Funds in violation of his fiduciary duties as director and officer of the
Funds. The Lawsuit further charged the defendants with failing to disclose that
Lance Brofman, the former Chief Portfolio Strategist of the Funds, intended to
resume his former role in managing the portfolios and had masterminded the
attempt by FPA to take control of the Funds, including handpicking the proposed
new Board members.
On June 8, 1998, the Lawsuit was settled on an interim basis by the
signing of a stipulation staying the Lawsuit for a period of 60 days during
which time the defendants agreed to remain subject to the terms of the temporary
restraining order. In that time, the Funds will file proxy materials with the
Commission seeking a shareholder vote on the Reorganization and other matters
and call a New Special Meeting for the purpose of placing before the
shareholders issues raised in the FPA Proxy Material and the Funds' Proxy
Material. All parties agreed to use their best efforts to insure that
shareholders are provided a full and fair opportunity to consider and vote upon
these proposals on a simultaneous basis. In addition, FPA waived any claims for
damages or other relief against the Independent Board Members for any actions
taken by them on July 15, 1997 and May 30, 1998 with respect to the Tocqueville
Trust, Tocqueville Asset Management L.P. and Tocqueville Securities L.P.
MAY 30, 1998 BOARD MEETING. On May 30, 1998, the Boards held a Special
Joint Board Meeting ("May 30 Meeting"). During the May 30 Meeting, the Boards
did not approve the continuance of the Funds' management agreements then in
effect with FPA. In addition, with respect to the Fundamental Fixed-Income Fund,
the Boards did not approve the continuance of the following Funds' distribution
agreements then in effect with FSC: Fundamental Government Fund, Fundamental
High-Yield Fund, and Fundamental Money Market Fund. Consequently, all of these
agreements expired on May 31, 1998.
<PAGE>
At the May 30 Meeting, the Boards approved Tocqueville as manager for
the Fundamental Funds on an interim basis, effective June 1, 1998. Tocqueville
has agreed to act as interim manager for a period of up to 120 days from its
appointment on June 1, that is, to September 29, 1998. Mr. Drew Rankin of
Tocqueville is currently managing the Fundamental Funds' assets and will be
assisted by Mr. Kleinschmidt. Mr. Rankin has been a portfolio manager for
approximately 17 years and has managed assets at Tocqueville since 1993. During
the interim period, Tocqueville will manage the Fundamental Funds' assets at the
same fee rates that were paid to FPA.
In connection with the retention of Tocqueville as interim manager, the
Boards also appointed Tocqueville Securities as distributor for the following
three Fundamental Funds commencing June 1, 1998: Fundamental Government Fund,
Fundamental High-Yield Fund, and Fundamental Money Market Fund. Tocqueville has
agreed that, for a period of two years commencing June 1, 1998, it will not
effect portfolio transactions on behalf of any of the Fundamental Funds through
any affiliated broker-dealers, including Tocqueville Securities.
At the May 30 Meeting, the Boards also approved the continuation of the
Funds' plans of distribution under Rule 12b-1 of the 1940 Act ("12b-1 Plans").
The Boards directed, however, that no payments be made under the 12b-1 Plans at
the present time.
At the May 30 Meeting, the Boards approved amendments to the By-laws of
The California Muni Fund and Fundamental Fixed-Income Fund to permit a person
other than a trustee to hold the position of President of The California Muni
Fund and Fundamental Fixed-Income Fund. In conjunction with these amendments to
the Bylaws, the Boards removed Dr. Malanga as President of the Funds. The Boards
also elected Mr. Joe Neuberger as Secretary of the Funds. Mr. Neuberger serves
as Vice President and Manager of Fund Administration and Compliance Services at
Firstar Trust Company, which serves as Administrator, Transfer Agent, and
Custodian for the Funds.
JUNE 2, 1998 BOARD MEETING. On June 2, 1998, the Boards held a Special
Joint Board Meeting ("June 2 Meeting"). At the June 2 Meeting, the Boards
elected Mr. Robert W. Kleinschmidt as President of the Funds. In addition, the
Boards removed Dr. Malanga as Treasurer, Principal Financial Officer, and
Accounting Officer, and elected Mr. Kieran Lyons of Tocqueville as Vice
President and Chief Financial Officer of the Funds.
JUNE 17, 1998 BOARD MEETING. On June 17, 1998, the Boards held a
Special Joint Board Meeting which considered an amendment to the Articles of
Incorporation of Fundamental Funds, Inc. which would permit the removal of
directors without cause, an amendment that would make the Articles consistent
with the current provisions of the Declarations of Trust of the Fundamental
Fixed-Income Fund and The California Muni Fund. The Boards approved such an
amendment and recommend such a change to the shareholders.
INDEMNIFICATION. FPA and FSC on behalf of certain of their directors,
officers, shareholders, employees and control persons) (the "Indemnitees")
received payments during the fiscal year ended December 31, 1997 from three of
the Fundamental Funds for attorneys' fees incurred by them in defending certain
proceedings. The payments were as follows: Fundamental Government Fund
(approximately $232,500); Fundamental New York Fund (approximately $50,000); and
Fundamental California Fund (approximately $4,000). Upon learning of the
payments, the Remaining Independent Board Members of the Fundamental Funds
directed that the Indemnitees return all of the payments to the Funds or place
them in escrow pending their receipt of an opinion of an independent legal
counsel to the effect that the Indemnitees are entitled to receive them.
On April 30,1998, the Indemnitees placed $106,863 into an escrow
account pending clarification of certain legal issues. FPA and FSC have asserted
that they waived fees during the year ended December 31, 1997 and that
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the amount placed in escrow should be net of any reimbursements already made to
the Funds in the form of fees foregone. Upon learning that only $106,863 was
placed into an escrow account on behalf of the Funds, the Remaining Independent
Board Members referred FPA and FSC to their prior directive and asked that the
entire amount of all payments received by such entities ($286,500) be placed
into said escrow account. To date, FPA has failed to escrow the entire amount
directed by the Boards.
VIEWS OF FORMER BOARD MEMBERS
As a result of the circumstances described under "Subsequent Events,"
the Boards reexamined the appropriateness of proceeding with the Reorganization.
After consideration, Messrs. James A. Bowers and Clark L. Bullock, two former
Independent Board Members, determined, for the reasons set forth below, that
proceeding with the Reorganization with Tocqueville was not in the best interest
of the Funds and their shareholders:
o Lack of Experienced Portfolio Manager. Messrs. Bowers and Bullock's
original determination to vote in favor of the Reorganization was greatly
dependent on the confidence they had in Mr. Culp's ability to manage the
portfolios of Fundamental New York Fund and Fundamental California Fund. During
the six-month period ended August 27, 1997, Mr. Culp had been managing the
portfolios of these Funds and made regular presentations to the Boards at which
he described his investment approach and detailed his trading discipline.
Messrs. Bowers and Bullock believed that Mr. Culp managed the portfolios well
and that, because of his presence, Tocqueville -- which otherwise had no
experience managing investment companies investing in municipal obligations
("Municipal Bond Funds") -- could properly perform its investment advisory
duties on behalf of these Funds after the Reorganization. Mr. Culp is no longer
employed by Tocqueville. Messrs. Bowers and Bullock believe that Tocqueville has
not demonstrated that it now has investment professionals with sufficient
experience managing Municipal Bond Funds to warrant proceeding with the
Reorganization, although representatives of Tocqueville have indicated their
intention to seek to hire such person or persons. Furthermore, while they have
no factual basis to believe other Tocqueville personnel violated any laws in
connection with the actions taken by Mr. Culp, Messrs. Bowers and Bullock are
concerned about transferring responsibility for managing the Fund's assets to
Tocqueville until it has been demonstrated that there were no other violations,
that the staff of the Commission does not intend to investigate Tocqueville in
connection with these matters and that Tocqueville has put in place internal
controls to ensure that its activities on behalf of the New Series would not
violate any laws.
o Excessive Fees. In connection with the Board Members' approval of the
Reorganization at the July 15th Meeting, representatives of Tocqueville and FPA
advised the Boards that Tocqueville intended to engage FPA to perform Consulting
Services in connection with the Funds' existing shareholders and to pay FPA a
fee at the rate of .25% annually of the assets of Fund shareholders remaining in
the New Series after the Reorganization. Tocqueville advised the Boards in
writing that these fees would be paid only for bona fide services rendered.
Messrs. Bowers and Bullock believed, at the time of the July 15, 1997
approval, that FPA intended to maintain its organization with staff to service
Fund shareholders. The Board thereafter was advised that FPA intended only to
retain the services of its principal shareholders, Drs. Vincent J. Malanga and
Lance M. Brofman (the Board having determined in December, 1996, that Dr.
Brofman should have nothing to do with the Funds' operations), and two other
employees to perform these functions.
Messrs. Bowers and Bullock believe it is inappropriate for Tocqueville
to pay Drs. Brofman and Malanga and two other employees an annual fee of
approximately $425,000 (based on current asset levels) for Consulting Services
and that some portion of that amount should be retained by shareholders in the
form of lower management or other fees. The other Board Members disagreed.
o Failure to Consider Alternatives. In light of the foregoing, Messrs.
Bowers and Bullock requested that the Boards attempt to determine whether
representatives of another mutual fund complex that had proposed, on or about
July 15, 1997, to enter into a transaction with the Funds similar to the
Reorganization were interested in pursuing a transaction. The other Board
Members determined not to do so. Messrs. Bowers and Bullock believe it would
have been in the best interest of shareholders to make this inquiry and seek
alternatives to Tocqueville.
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Because of the Board Members' failure to act in a manner which they
believe is consistent with shareholders' interest, Messrs. Bullock and Bowers
have tendered their resignations as Board Members and their resignations have
been accepted effective November 2 and 3, 1997, respectively.
VIEWS OF THE REMAINING INDEPENDENT BOARD MEMBERS.
The factual assertions that frame the conclusion reached by two former
Independent Board Members, that proceeding with the Reorganization is not in the
best interests of the Funds and their shareholders in light of the above
referenced events, are that (i) Tocqueville does not now have experienced
municipal bond fund portfolio managers; (ii) the Boards need to further evaluate
Tocqueville's internal compliance control system and personnel; (iii) a portion
of the payments for Consulting Services intended to be paid to the principal
shareholders and two other employees of FPA for any bona fide services to be
rendered are excessive and should be retained by shareholders of the Funds in
the form of lower management or other fees; and (iv) the remaining Board Members
failed to consider pursuing a transaction similar to the Reorganization with
another mutual fund organization. Messrs. James C. Armstrong and L. Greg Ferrone
("Remaining Independent Board Members") believe that the concerns of the two
former Board Members were both unwarranted and premature and rather believe that
the Reorganization is in the best interest of the Funds and their shareholders
for the reasons set forth below. At the time of the July 15th Meeting and until
sometime in March, 1998, Dr. Malanga shared the views of the Remaining
Independent Board Members. However, after reviewing the testimony that Mr. Culp
made to the Commission, Dr. Malanga concluded that the Reorganization is not in
the best interest of the Funds and their shareholders. See "Views of the
Interested Board Member."
o LACK OF EXPERIENCED PORTFOLIO MANAGER. It should be noted that in
evaluating the Tocqueville proposal, the Remaining Independent Board Members
(and Dr. Malanga at the time of the July 15 Meeting) placed a great deal of
emphasis upon the depth of Tocqueville's investment staff and the number and
status of its personnel and service providers devoted to legal and accounting
compliance. While the Remaining Independent Board Members (and Dr. Malanga) were
confident that Mr. Culp had adequate knowledge and experience with respect to
managing the Fundamental Government Fund and the three municipal bond fund
portfolios, the Remaining Independent Board Members (and Dr. Malanga) considered
the entire Tocqueville organization. The Remaining Independent Board Members
(and Dr. Malanga) did not vote for Mr. Culp's investment acumen alone. This is
why the Fund Boards reviewed the investment performance of every series of the
Tocqueville Trust and not just Tocqueville Government Fund, the one fund that
Mr. Culp co-managed with Mr. Robert Kleinschmidt, Tocqueville's President.
Tocqueville currently manages approximately $____ million in investment
assets. Of such amount, $____ million represents investments in fixed-income
obligations and $____ million represents management of four mutual fund
portfolios. Tocqueville's assets under management in municipal bond obligations
will vary as a function of asset allocation, but usually range between $__
million and $___million. Tocqueville currently has 8 investment professionals on
its staff, including portfolio managers, traders and analysts of whom 4 have
substantial experience managing municipal bond portfolios and 4 of whom have
experience in managing mutual fund portfolios. At the September 9, 1997 meeting
of the Fund Boards, Mr. Kleinschmidt represented that Tocqueville, following
consummation of the Reorganization, planned to hire an additional junior
research analyst experienced in municipal bond obligations, a decision that was
reached prior to the events leading to Mr. Culp's departure. At such meeting,
Mr. Kleinschmidt also stated that he is willing to personally co-manage the New
Series with Mr. Drew Rankin, a senior investment person with approximately 17
years of experience in municipal bond portfolios, together with the additional
support of an experienced investment management team, and research capability;
that Tocqueville has adequate capital resources to perform all of its
obligations under the proposed management agreements with the New Series and the
ability to attract and retain investment personnel with proven ability,
including Mr. Culp's replacement. The Remaining Independent Board Members
believe that, while unfortunate and regrettable, Mr. Culp's actions do not taint
or impinge upon the professionalism, advisory or other capabilities of
Tocqueville. In addition, the Remaining Independent Board Members believe, based
on the representations of Mr. Kleinschmidt and their interview of Mr. Rankin,
that Mr. Rankin and other individuals currently employed by Tocqueville are
eminently capable of managing the New Series, and that Mr. Culp's termination
will not affect the advisory services to be provided to the Funds.
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Mr. Rankin has been a portfolio manager with Tocqueville since 1993.
From 1986 through 1993, Mr. Rankin served as a portfolio manager for an
investment firm, managing over $100 million for high net worth individuals, of
which approximately 30% was invested in municipal bond obligations. From 1982
through 1986, Mr. Rankin managed fixed-income portfolios for high net worth
individuals at the Columbia University Endowment Fund, where he also assisted
the Treasurer's office as a liaison to the New York State Dormitory Authority.
From 1972 through 1982, Mr. Rankin was employed at The Bank of New York and
Irving Trust Company managing municipal portfolios for high net worth
individuals; he was also a member of the investment policy committee and managed
a national municipal bond portfolio and a fixed-income portfolio. Ms. Jane
Tubis, an employee of the Manager, is expected to join the Tocqueville Trust as
an assistant portfolio manager.
At the September 9, 1997 meeting of the Fund Boards, Mr. Kleinschmidt
recommended that the Board Members meet with Mr. Rankin to determine for
themselves his ability to manage a municipal bond fund. The Remaining Board
Members believed it would have been in the best interest of shareholders for all
of the Board Members to interview Mr. Rankin, but the former Board Members
declined to do so. The Remaining Board Members met with Mr. Rankin on November
4, 1997 and found him to be a highly competent, seasoned portfolio manager;
that, based upon Mr. Rankin's many years of experience in managing municipal
bond portfolios, coupled with the additional support of Tocqueville investment
staff, Mr. Rankin was qualified to manage a municipal bond fund. Accordingly,
Mr. Rankin received their full endorsement with respect to his qualifications.
See "Views of the Interested Board Member" for Dr. Malanga's current position
with respect to Tocqueville.
o INTERNAL COMPLIANCE CONTROL. The Remaining Independent Board Members
believe that Mr. Culp's actions represent one isolated incident and are not
indicative of a lack of internal controls. His trading practice, once detected,
was promptly and adequately addressed. The forthrightness of Tocqueville in
taking responsibility and its resolution of the matter is but one indication of
the serious attention that Tocqueville pays to compliance matters. Tocqueville,
in its response to the Funds' Request for Proposal, noted that neither the firm
nor any of its principals or investment professionals has been the subject of
any legal, regulatory or compliance investigations within the last five years.
The Remaining Independent Board Members met with Tocqueville's compliance
officer on November 4, 1997 to discuss matters of internal compliance control.
Based upon such meeting, the Remaining Independent Board Members have reached
the conclusion that Tocqueville's compliance officer is properly performing his
oversight duties. Furthermore, as part of the Fundamental Fund Boards' ongoing
due diligence review, the Remaining Independent Board Members and their
designees have verified through Tocqueville's counsel, its independent auditors
and its compliance officer that there are no shortcomings in Tocqueville's
internal compliance control systems, that adequate procedures are in place to
monitor investment activity and to ensure that they are kept fully apprised of
any regulatory developments affecting Tocqueville and its affiliates prior to
consummation of the Reorganization. The Remaining Board members have confirmed
that Tocqueville had no prior knowledge that Fundamental New York Fund bore
unnecessary expenses as a result of Mr. Culp's sales of its securities to
another party and subsequent repurchase of them through Tocqueville Securities.
Moreover, following an exchange of letters between counsel to the Remaining
Independent Board Members and Tocqueville, Tocqueville has agreed that, for a
period of two years commencing June 1, 1998, it will not effect portfolio
transactions on behalf of any of the Fundamental Funds through any affiliated
broker-dealers, including Tocqueville Securities.
o EXCESSIVE FEES. The Remaining Independent Board Members do not
believe that the advisory fee rates payable under the New Agreement are
excessive. Although the former Board Members believe circumstances have changed
(see "Subsequent Events" and "Excessive Fees" above), the rates payable under
the New Agreement are the same for each New Series as the advisory fee rates
payable under the then current Agreements, which Agreements were unanimously
approved for continuance by each member of the Fundamental Fund Boards on
December 31, 1996. The trustees of the Tocqueville Trust, including a majority
of the independent trustees, approved the New Agreements, including the
reasonableness of the fees, on July 31, 1997. Upon consummation of the
Tocqueville transaction, the reasonableness of the fees and the nature and
quality of Tocqueville's services to be provided to each New Series under the
New Agreements will be factors to be considered by the trustees of the
Tocqueville Trust in light of their fiduciary duty to the shareholders of the
Tocqueville funds. Mr. Kleinschmidt
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<PAGE>
has represented that Tocqueville's proposal on July 15, 1997 was its best and
final offer with regard to fees and expense caps.
The trustees of the Tocqueville Trust approved the Agreement and Plan
of Reorganization on behalf of each New Series on the basis and understanding
that payments for Consulting Services will not be paid out of the management
fees or distribution plan payments received by Tocqueville and/or its affiliates
from each of the New Series. Thus, any payments for services provided by former
Fundamental personnel will have no effect on the fees and expenses of the New
Series. If the payments for Consulting Services following consummation of the
Reorganization are in accordance with the representations made to the
Fundamental Fund Boards (comparable to industry fee payments for such services,
derived from sources other than Fund payments to Tocqueville and/or its
affiliates, and are for bona fide services rendered to assist continuity and
service to Fund shareholders in their dealings with the New Series, all at
Tocqueville's expense), the Remaining Independent Board Members believe that
such payments should not be considered to be assets properly belonging to the
Funds. Any payments for services provided will come from Tocqueville. Therefore,
payments for such services will not reduce any New Series' assets or the amounts
available to pay dividends to any New Series' shareholders and will not add to
any New Series' net expenses.
While the Fundamental Fund Boards did determine in December, 1996 and
January, 1997, that Dr. Brofman should not be involved in the operations of the
Funds, it was also noted that Dr. Brofman is a substantial shareholder of FPA
and, of course, would be entitled to his rights as a shareholder. Also, that Dr.
Brofman conceivably could have performed Fund functions if they were delineated
clearly and presented to the Fundamental Fund Boards for approval. At the time
of the July 15 Meeting, the Remaining Independent Board Members believed that
Dr. Brofman should not be prohibited from rendering services to other persons;
that his services may be useful to Tocqueville to help mitigate the potentially
adverse effects upon the Funds and the New Series of redemptions that may result
during the transition period, both in advance of, and immediately following, the
Reorganization; and that Tocqueville's continued retention of Dr. Brofman and
others performing Consulting Services following the transition period are
appropriate matters to be considered by the Trustees of the Tocqueville Trust.
o FAILURE TO CONSIDER ALTERNATIVES. The Remaining Independent Board
Members (and Dr. Malanga at the time of the July 15th Meeting) determined not to
consider alternatives based on their belief that the other mutual fund complex
did not wish to proceed with the transaction and certain conditions associated
with the other potential proposal that they believed were not acceptable, such
as its lack of a commitment to continue to manage and distribute the existing
Funds and its desire to merge the Funds out of existence, its inability to
continue all of the existing shareholder services and privileges and its absence
of a New York presence, as well as the extraordinary time and effort expended by
all of the Board Members when they had sought to consider alternatives after
Tocqueville was proposed. Moreover, in the opinion of the Remaining Independent
Board Members (and Dr. Malanga at the time of the July 15 Meeting), any such
action would have been premature. (See "Best Interest of Shareholders" below).
o BEST INTEREST OF SHAREHOLDERS. Based upon their due diligence
inquiries, the Remaining Independent Board Members have concluded that
consummation of the Reorganization is in the best interest of shareholders. It
should be noted that the Agreements and Plans of Reorganization between the
Fundamental Funds and the Tocqueville Trust permit the Boards of the Fundamental
Funds to terminate the Agreements and Plans and abandon the Reorganizations
contemplated thereby at any time prior to closing, even if approved by
shareholders of the Funds if, in the judgment of the Fundamental Fund Boards,
proceeding with the Reorganizations would be inadvisable. Before the Fund Boards
considered possible alternatives, the Remaining Board Members wanted to meet and
interview Mr. Rankin. This meeting occurred on November 4, 1997. The Remaining
Independent Board Members believe that Tocqueville has adequately addressed the
Fundamental Boards' concerns. The Remaining Independent Board Members have
verified with Tocqueville and its counsel that, as of the date of this Proxy
Statement, no regulatory issues relating to Mr. Culp's portfolio transactions on
behalf of the Fundamental New York Fund have been raised by the staff of the
Commission with respect to Tocqueville. Moreover, Tocqueville has agreed that it
will not effect portfolio transactions, on behalf of any of the Fundamental
Funds through broker-dealer affiliates for a period of two years commencing June
1, 1998. Tocqueville is cooperating in an investigation being conducted by the
staff of the Commission concerning Mr. Culp's portfolio transactions.
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<PAGE>
VIEWS OF THE INTERESTED BOARD MEMBER.
In March of 1998, after reviewing the testimony that Mr. Culp made to
the Commission, Dr. Malanga concluded that (i) the Plans are not in the best
interest of the Funds' shareholders, (ii) the Remaining Independent Board
Members should investigate fully the allegations which FPA believes Mr. Culp
made in his testimony before the Commission, and (iii) because the current
Boards have failed to fully investigate the allegations which FPA believes Mr.
Culp made, the current Boards should be replaced.
DESCRIPTION OF THE NEW SERIES
The New Series are series of the Tocqueville Trust which is organized
as a business trust under the laws of The Commonwealth of Massachusetts. The
Tocqueville Trust's Declaration of Trust, filed September 17, 1986, permits the
trustees to issue an unlimited number of shares of beneficial interest with a
par value of $0.01 per share in the Tocqueville Trust in an unlimited number of
series of shares. In addition to the New Series, the Tocqueville Trust has four
other series, The Tocqueville Fund, The Tocqueville Small Cap Value Fund, The
Tocqueville International Value Fund and The Tocqueville Government Fund. Each
share of beneficial interest has one vote and shares equally in dividends and
distributions when and if declared by a series and in a series' net assets upon
liquidation. All shares, when issued, are fully paid and nonassessable. There
are no preemptive, conversion or exchange rights. Tocqueville Trust shares do
not have cumulative voting rights and, as such, holders of at least 50% of the
shares voting for trustees can elect all trustees and the remaining shareholders
would not be able to elect any trustees. The Tocqueville Trust's Board of
Trustees may classify or reclassify any unissued shares of the Trust into shares
of any series by setting or changing in any one or more respects, from time to
time, prior to the issuance of such shares, the preference, conversion or other
rights, voting powers, restrictions, limitations as to dividends, or
qualifications of such shares. Shareholders of each series vote as a series to
change, among other things, a fundamental policy and to approve the investment
advisory agreement.
The Tocqueville Trust is not required to hold annual meetings of
shareholders but will hold special meetings of shareholders when, in the
judgment of the trustees, it is necessary or desirable to submit matters for a
shareholder vote. Shareholders have, under certain circumstances, the right to
communicate with other shareholders in connection with requesting a meeting of
shareholders for the purpose of removing one or more trustees. Shareholders also
have, in certain circumstances, the right to remove one or more trustees without
a meeting. No material amendment may be made to the Tocqueville Trust's
Declaration of Trust without the affirmative vote of the holders of a majority
of the outstanding shares of each series affected by the amendment.
Under Massachusetts law, shareholders of a Massachusetts business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the Tocqueville Trust's Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the
Tocqueville Trust and provides for indemnification and reimbursement of expenses
out of the trust property for any shareholder held personally liable for the
obligations of the Tocqueville Trust. The Tocqueville Trust's Declaration of
Trust further provides that obligations of the Tocqueville Trust are not binding
upon the trustees individually but only upon the property of the Trust and that
the trustees will not be liable for any action or failure to act, errors of
judgment or mistakes of fact or law, but nothing in the Declaration of Trust
protects a trustee against any liability to which he would otherwise be subject
by reason of wilful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Each New Series has the same investment objective as its corresponding
Fund. In addition, except as described in this section, each New Series has the
same investment policies and restrictions as its corresponding Fund.
FUNDAMENTAL CALIFORNIA FUND. Currently, as a non-fundamental policy,
Fundamental California Fund may not invest more than 10% of its total assets in
municipal obligations of California issuers which are illiquid or which have
limited marketability. Illiquid securities are securities that are not readily
marketable or cannot be disposed of promptly within seven days and in the usual
course of business at approximately the price at which the
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Fund has valued them. Tocqueville California Fund will have the ability to
invest up to 15% of its net assets in illiquid securities.
FUNDAMENTAL MONEY MARKET FUND. Fundamental Money Market Fund's
prospectus currently states that the Fund "anticipates that it may from time to
time invest a portion of its assets, on a temporary basis, in short-term
fixed-income obligations whose interest is subject to federal income tax," that
such investments will be made only for "defensive measures" and that all such
investments must be (1) rated AA or higher, (2) U.S. Government Securities, or
(3) obligations of banks with at least $1,000,000,000 in assets. No more than
50% of the assets of the Fund may be invested in taxable obligations at any one
time, and the Fund anticipates that on a 12-month average, taxable obligations
will constitute less than 10% of the value of its total investments. These
restrictions will all remain in the New Series, however, the prospectus of the
New Series will also state that "defensive measures" could include situations
where the rates available on tax-exempt obligations that meet all of the credit,
maturity and diversification requirements of the New Series, were such that even
after the application of the highest effective tax rate, the after-tax rate on
taxable investments that meet all of the credit, maturity and diversification
requirements of the New Series would still be more favorable than what could be
obtained on comparable tax-exempt obligations.
FUNDAMENTAL HIGH-YIELD FUND. Currently, Fundamental High-Yield Fund
must invest at least 65% of its assets in securities rated BB or lower. The New
Series will, as a non-fundamental policy, invest at least 65% of its assets in
securities rated BBB or lower.
FUNDAMENTAL GOVERNMENT FUND. Currently, Fundamental Government Fund
seeks high current income and greater price stability than comparable longer
term higher yielding investments by investing in higher yielding U.S. Government
securities and then using derivatives such as treasury bond futures and options
on treasury bond futures to continue to hedge the portfolio so that the average
weighted duration of its investment portfolio is three years or less. The New
Series will invest primarily in intermediate-term (three to fifteen-year
maturities) U.S. Government Securities and may engage in futures and options
transactions for the purposes of seeking to maintain principal and liquidity,
but it will not be limited to a specific duration number. Experience has shown
that being required to maintain an average weighted portfolio duration of three
years or less, when there are various methods of calculating duration, can have
the effect of requiring a greater number of derivative positions to be entered
into than might be most advantageous in the opinion of management with regard to
maximizing the total return to shareholders under economic and market conditions
expected. Also, a rigid policy of using futures and options positions to hedge
to a three year or less duration can require the portfolio to include a greater
number of derivative collateralized mortgage obligations in its securities
portfolio than it might otherwise have.
Duration is expressed in years and is that point in time representing
the half-life of the present value of all cash flows expected from a bond over
its life (from coupon payments, sinking fund, if any, principal at maturity,
etc.). Duration provides a yardstick to bond price volatility with respect to
changes in rates. As maturity lengthens or as the coupon rate or
yield-to-maturity is reduced, volatility increases. Duration captures all three
factors and expresses them in a single number. For example, a portfolio
consisting only of bonds with a ten-year duration (ten-year zero coupon bonds,
for example), could lose 10% of its value if interest rates on ten-year zero
coupon bonds rose by approximately 100 basis points. If the same portfolio were
hedged by having a short position in futures and options contracts, so that the
weighted portfolio duration were three years, it could be expected that the 100
basis point rise in interest rates would generate gains in the short futures and
options position to offset enough of the decline in the volume of the 10-year
zero coupon bonds so that after the hedge is considered the portfolio would have
lost only 3% of its value.
SHAREHOLDERS' RIGHTS
The operations of Fundamental Funds, Inc. are governed by its Articles
of Incorporation ("Articles"), Bylaws and applicable Maryland law. The
operations of Fundamental Fixed-Income Fund, The California Muni Fund and the
Tocqueville Trust are governed by their respective Declaration of Trust, By-laws
and applicable Massachusetts law.
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<PAGE>
Fundamental Funds, Inc.'s Articles provide for the issuance of one
billion shares of common stock, $.001 par value of which, five hundred million
shares have been classified as New York Muni Fund series. Fundamental Funds,
Inc. has no shares which have been classified as any series other than the "New
York Muni Fund" and no issued and outstanding stock other than shares of the New
York Muni Fund series. Each Declaration of Trust provides for the issuance of an
unlimited number of shares of beneficial interest. Shares of the Tocqueville
Trust have a par value of $.01, shares of Fundamental Fixed-Income Fund and The
California Muni Fund have no par value.
Shares of the Funds have no preemptive, conversion or exchange rights.
Shares of the Tocqueville Trust have no preemptive, conversion or exchange
rights. With respect to all shares, voting rights are not cumulative.
Neither the Funds nor the Tocqueville Trust intend to hold annual
meetings of shareholders. Such meetings may be called, however, at the
discretion of their respective boards, and if requested to do so by the holders
of at least 10% of the outstanding shares of a fund, a special meeting of
shareholders will be called for the purpose of voting upon the removal of a
director or trustee.
INVESTMENT ADVISER
Currently, Tocqueville Asset Management L.P. ("Tocqueville") which was
organized in _____, manages each Fund's investments on an interim basis pursuant
to separate management agreements (the "Agreements"). Tocqueville is an
investment adviser registered with the Securities and Exchange Commission, and
manages nine mutual fund portfolios including the five Fundamental Funds.
Under the terms of the Agreements, Tocqueville has agreed to act as
interim investment adviser for the Funds for a period of up to 120 days from
June 1, 1998. Tocqueville is responsible for the overall management of the
business affairs and assets of each Fund, subject to the authority of its Board.
Tocqueville manages and supervises each Fund's investment portfolio and directs
the purchase and sale of its investment securities subject to the right of the
Fund's Board Members to disapprove such purchase or sale.
Tocqueville pays all of the ordinary operating expenses of each Fund,
including executive salaries and the rental of office space, with the exception
of the following, which are to be paid by the Fund: (1) charges and expenses for
determining from time-to-time, the net asset value of the Fund and the keeping
of its books and records, (2) the charges and expenses of any auditors,
custodian, transfer agent, plan agent, dividend disbursing agent and registrar
performing services for the Fund, (3) brokers' commissions, and issue and
transfer taxes, chargeable to the Fund in connection with securities
transactions, (4) insurance premiums, interest charges, dues and fees for
membership in trade associations and all taxes and fees payable by the Fund to
federal, state or other governmental agencies, (5) fees and expenses involved in
registering and maintaining registrations of the shares of the Fund with the
Securities and Exchange Commission and under the securities laws or regulations
of states and other jurisdictions, (6) all expenses of shareholders' and Board
meetings, and of preparing, printing and distributing notices, proxy statements
and all reports to shareholders and to governmental agencies, (7) charges and
expenses of legal counsel to the Fund, (8) compensation of those Board Members
of the Fund as such who are not affiliated with or interested persons of
Tocqueville or the Fund (other than as Board Members), (9) fees and expenses
incurred pursuant to the distribution and marketing plan and (10) such
nonrecurring or extraordinary expenses as may arise, including litigation
affecting the Fund and any indemnification by the Fund of its Board Members,
officers, employees or agents with respect thereto. To the extent any of the
foregoing charges or expenses are incurred by the Fundamental Funds for the
benefit of each of its series, the Fund is responsible for payment of the
portion of such charges or expenses which are properly allocable to the Fund.
For the services it provides under the terms of the Agreements,
Tocqueville receives monthly fees as follows:
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Fundamental Government Fund:
<TABLE>
<CAPTION>
Average Daily Net Asset Value Annual Fee Payable
----------------------------- ------------------
<S> <C>
Net asset value to $500,000,000 .75%
Net asset value of $500,000,000 or more but less than $1,000,000,000 .72%
Net asset value of $1,000,000,000 or more .70%
Fundamental High-Yield Fund:
Average Daily Net Asset Value Annual Fee Payable
----------------------------- ------------------
Net asset value to $100,000,000 .80%
Net asset value of $100,000,000 or more but less than $200,000,000 .78%
Net asset value of $200,000,000 or more but less than $300,000,000 .76%
Net asset value of $300,000,000 or more but less than $400,000,000 .74%
Net asset value of $400,000,000 or more but less than $500,000,000 .72%
Net asset value of $500,000,000 or more .70%
Fundamental Money Market Fund; Fundamental California Fund; Fundamental New York Fund:
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%
</TABLE>
Tocqueville may, from time to time, voluntarily waive all or a portion
of its fees payable under each Agreement.
If the Reorganization is approved, Tocqueville will manage the
investments and business affairs of each New Series under a new investment
advisory agreement (the "New Agreement"). For each New Series, the advisory fee
rate payable under the New Agreement is the same as the advisory fee rate
payable under the current interim Agreements.
The New Agreement provides that Tocqueville identify and analyze
possible investments for the New Series, determine the amount and timing of such
investments, and the form of investment. Tocqueville will be responsible for
monitoring and reviewing each Fund's portfolio, and, on a regular basis, to
recommend the ultimate disposition of such investments. Under the terms of the
New Agreement, it is Tocqueville's responsibility to cause the purchase and sale
of securities in each fund's portfolio, subject at all times to the policies set
forth by the Tocqueville Trust's Board of Trustees. In addition, Tocqueville
will also provide certain administrative and managerial services to the Fund.
Under the terms of the New Agreement, each New Series pays all of its
expenses (other than those expenses specifically assumed by Tocqueville and the
New Series' distributor) including the costs incurred in connection with the
maintenance of its registration under the Securities Act of 1933, as amended,
and the 1940 Act, printing of prospectuses distributed to shareholders, taxes or
governmental fees, brokerage commissions, custodial, transfer and shareholder
servicing agents, expenses of outside counsel and independent accountants,
preparation of shareholder reports, and expenses of Trustee and shareholder
meetings.
The New Agreement terminates on assignment and may be terminated
without penalty on 60 days' written notice by a vote of the majority of the
Tocqueville Trust's Board of Trustees or by Tocqueville, or by holders of a
majority of a New Series' outstanding shares. The New Agreement will continue
for two years from its effective
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date and from year-to-year thereafter provided it is approved, at least
annually, in the manner stipulated in the 1940 Act. This requires that the New
Agreement and any renewal thereof be approved by a vote of the majority of a New
Series' Trustees who are not parties thereto or interested persons of any such
party, cast in person at a meeting specifically called for the purpose of voting
on such approval.
DISTRIBUTION AGREEMENT AND MARKETING PLAN. FUNDAMENTAL GOVERNMENT,
FUNDAMENTAL HIGH-YIELD AND FUNDAMENTAL MONEY MARKET FUNDS. Tocqueville
Securities L.P., 1675 Broadway, New York, New York, a limited partnership, which
is an affiliated company of Tocqueville, acts as principal distributor for the
following three Funds: Fundamental Government Fund, Fundamental High-Yield Fund,
and Fundamental Money Market Fund. Tocqueville Securities has the exclusive
right to distribute shares directly or through other broker-dealers.
Pursuant to the Marketing Plans, each Fund may incur distribution
expenses not to exceed .50% (.25%, with respect to Fundamental Government Fund)
per annum of its average daily net assets. The Marketing Plans will only permit
payments for expenses actually incurred. The Marketing Plans allow for the
carry-over of expenses from year-to-year and, if a Marketing Plan is terminated
or not continued in accordance with its terms, the Fund's obligation to make
payments pursuant to the Plan will cease and the Fund will not be required to
make any payments past the date the Marketing Plan terminates.
On May 30, 1998, the Boards of the Funds approved the continuance of
the Marketing Plans, but directed that no payments be made under the Marketing
Plans at the present time.
DISTRIBUTION PLAN. FUNDAMENTAL CALIFORNIA AND FUNDAMENTAL NEW YORK
FUNDS. Fundamental California and Fundamental New York Funds, as issuer-dealers,
distribute their own shares directly. The Board of each Fund has approved a plan
of distribution under Rule 12b-1 of the 1940 Act (the "Distribution Plan").
Pursuant to the Distribution Plan, a Fund may pay certain promotional and
advertising expenses and compensate certain registered securities dealers and
financial institutions for services provided in connection with the processing
of orders for purchase or redemption of the shares of the Fund and furnishing
other shareholder services.
Payments by a Fund shall not in the aggregate in any fiscal year of the
Fund exceed 1/2 of 1% of daily net assets of the Fund for expenses incurred in
the distribution and promotion of the Fund's shares. The Distribution Plan will
only make payments for expenses actually incurred by such dealers and financial
institutions. The Distribution Plan will not carry over expenses from
year-to-year and if the Distribution Plan is terminated in accordance with its
terms, the obligations of a Fund to make payments pursuant to the Distribution
Plan will cease and the Fund will not be required to make any payments for
expenses incurred after the date the Distribution Plan terminates. A Fund may
enter into shareholder processing and service agreements (the "Shareholder
Service Agreements") with any securities dealer who is registered under the
Securities Exchange Act of 1934 and a member in good standing of the National
Association of Securities Dealers, Inc., and with banks and other financial
institutions, who may wish to establish accounts or sub-accounts on behalf of
their customers ("Shareholder Service Agents").
The fees payable to Shareholder Service Agents under Shareholder
Service Agreements will be negotiated by the Funds' management. The Funds'
management will report quarterly to the Funds' Boards on the rate to be paid
under each such agreement and the amounts paid or payable under such agreements.
It will be based upon an analysis of (1) the contribution that the Shareholder
Service Agent makes to a Fund by increasing Fund assets and reducing expense
ratios; (2) the nature, quality and scope of services being provided by the
Shareholder Service Agent; (3) the cost to a Fund if shareholder services were
provided directly by the Fund or other authorized persons; (4) the costs
incurred by the Shareholder Service Agent in connection with providing services
to the shareholders; and (5) the need to respond to competitive offers of others
which could result in assets being withdrawn from a Fund and an increase in the
expense ratio for the Fund.
On May 30, 1998, the Boards of the Funds approved the continuance of
the Distribution Plans, but directed that no payments be made under the
Distribution Plans at the present time.
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<PAGE>
DISTRIBUTION PLAN. THE NEW SERIES. The New Series will adopt a plan of
distribution pursuant to Rule 12b-1 of the 1940 Act (the "New Distribution
Plan"), under which each New Series will pay to Tocqueville Securities a fee,
which is accrued daily and paid monthly, at an annual rate of .50% of each New
Series' average daily net assets. Amounts paid under the plan are paid to
Tocqueville Securities to compensate it for services it provides and expenses it
bears in distributing the New Series' shares to investors, including payment of
compensation by Tocqueville Securities 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 the New Series. Expenses of Tocqueville
Securities 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 the New Series' shares; and preparing, printing,
and distributing sales literature and advertising materials. Tocqueville
Securities is an affiliate of Tocqueville. Amounts payable under the New
Distribution Plan include servicing shareholder accounts, but do not include any
payments by Tocqueville to compensate FPA for bona fide services rendered to
Tocqueville at Tocqueville's expense. (See "Considerations of the Boards - July
15 Approval" for a description of such services.) The New Distribution Plan will
not carry over expenses from year-to-year and if the New Distribution Plan is
terminated in accordance with its terms, the obligations of the New Series to
make payments pursuant to the New Distribution Plan will cease and the New
Series will not be required to make any payments for expenses incurred after the
New Distribution Plan terminates. The New Distribution Plan permits payments by
the New Series in excess of the expenses actually incurred by Tocqueville
Securities.
The New Distribution Plan provides that it will remain in effect for
one year from the date of its adoption and thereafter may continue in effect for
successive annual periods provided it is approved by the shareholders or by the
Board of Trustees, including a majority of Trustees who are not interested
persons of the Tocqueville Trust and who have no direct or indirect interest in
the operation of the New Distribution Plan or in any agreement related to the
New Distribution Plan. The New Distribution Plan further provides that it may
not be amended to increase materially the costs which may be borne by the New
Series for distribution pursuant to the New Distribution Plan without
shareholder approval and that other material amendments of the New Distribution
Plan must be approved by the Trustees in the manner described above. The New
Distribution Plan may be terminated at any time by a vote of the Board of
Trustees or, with respect to the New Series, by the New Series' shareholders.
ADMINISTRATIVE SERVICES AGREEMENT. THE NEW SERIES. Under an
Administrative Services Agreement, Tocqueville will supervise the administration
of all aspects of the New Series' operations, including the New Series' receipt
of services for which it is obligated to pay, provide the New Series with
general office facilities and provide, at the New Series' expense, the services
of persons necessary to perform such supervisory, administrative and clerical
functions as are needed to effectively operate the New Series. Those persons, as
well as certain employees and Trustees of the New Series, including Messrs.
Francois Daniel Sicart and Robert Kleinschmidt, interested persons of the New
Series, may be partners, trustees, directors, officers or employees of (and
persons providing services to the New Series may include) Tocqueville and its
affiliates. For these services and facilities, Tocqueville receives with respect
to the New Series a fee computed and paid monthly at an annual rate of .15% of
the average daily net assets of each New Series. Certain administrative
responsibilities, such as regulatory, blue sky and Internal Revenue Code
compliance, financial and tax reporting, preparation of board meeting materials
and generally providing assistance to the Funds' independent counsel and
independent auditors, are delegated to, and performed by, Firstar Trust Company
at Tocqueville's expense at a rate ranging between .03% and .05% of average
daily net assets.
PORTFOLIO TRANSACTIONS
Subject to the supervision of the Board of Trustees, decisions to buy
and sell securities for the New Series of the Tocqueville Trust will be made by
Tocqueville. Tocqueville, subject to obtaining the best price and execution, may
allocate brokerage transactions in a manner that takes into account the sale of
shares of a New Series. Generally, the primary consideration in placing
portfolio securities transactions with broker-dealers for execution is to
obtain, and maintain the availability of, execution at the best net price
available and in the most effective manner possible. The brokerage allocation
policies may permit a New Series to pay a broker-dealer which furnishes research
services a higher commission than that which might be charged by another
broker-dealer which does not
-19-
<PAGE>
furnish research services, provided that such commission is deemed reasonable in
relation to the value of the services provided by such broker-dealer.
Tocqueville Securities has agreed that, for a period of two years commencing
June 1, 1998, that it will not effect portfolio transactions on behalf of the
Funds through any affiliated broker-dealers, including Tocqueville Securities.
COMPARISON OF FEES AND EXPENSES
If the Reorganization is approved by shareholders, Tocqueville has
voluntarily undertaken to waive fees and/or reimburse expenses so that the New
Series' expense ratios (excluding interest, incremental professional fees,
incremental directors'/trustees' expenses and other extraordinary expenses) will
not exceed 3.36% for the Tocqueville U.S. Government Series, 6.48% for the
Tocqueville High-Yield Series, 1.54% for the Tocqueville Money Market Series,
2.78% for the Tocqueville California Muni Series and 1.77% for the Tocqueville
New York Muni Series for a period of two years following the Reorganization.
The following tables summarize and compare the fees and expenses of the
Funds and the New Series. These tables are intended to assist shareholders in
comparing the various costs and expenses that shareholders indirectly bear with
respect to an investment in a Fund and those that they can expect to bear
indirectly as shareholders of the corresponding New Series. Fees and expenses
for the Fundamental Funds are reflected as of December 31, 1997, the Fundamental
Funds' most recently completed fiscal year-end. Actual expenses may be more or
less than those set forth below. In addition, the "Example" set forth below
should not be considered a representation of future expenses, which will vary
depending upon actual investment returns and expenses.
-20-
<PAGE>
<TABLE>
<CAPTION>
Fundamental Tocqueville
Fundamental Tocqueville Fundamental Tocqueville Money Money
Government Government High-Yield High-Yield Market Market
Fund Series Fund Series Fund Series
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
MAXIMUM SALES COMMISSION IMPOSED
on Purchases (as a percentage of
offering price)* NONE 4.00% NONE 4.00% NONE NONE
Maximum Sales Commission Imposed on
Reinvested Dividends (as a
percentage of offering price) NONE NONE NONE NONE NONE NONE
Maximum Contingent Deferred Sales
Commission (as a percentage of
original purchase price or
redemption proceeds, as
applicable) NONE NONE NONE NONE NONE NONE
Redemption Fees (as a percentage of
amount redeemed, if applicable) NONE NONE NONE NONE NONE NONE
Exchange Fee NONE NONE NONE NONE NONE NONE
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
Advisory Fees .00% .75% .00% .80% .50% .50%
12b-1 Fees(1) .00% .50% .50% .50% .50% .50%
Other Expenses, net of reimbursement
Interest 2.75% NONE NONE NONE NONE NONE
Other 5.75% 1.50% 2.08% 5.00% .52% .50%
----- ----- ----- ----- ---- ----
Total Fund Operating Expenses (after 8.50% 2.75% 2.58% 6.30% 1.52% 1.50%
waiver and/or reimbursement)
Expenses Waived and/or reimbursed 1.37 -- 3.52% -- .02% --
---- ---- ----- ---- ------ ---
Total Fund Operating Expense (before 9.87% 2.75%(2) 6.10% 6.30%(2) 1.54% 1.50%(2)
waiver and/or reimbursement) ===== ===== ===== ======== ===== ========
Fundamental Tocqueville Fundamental Tocqueville
California California New York New York
Fund Series Fund Series
---- ------ ---- ------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Commission Imposed
on Purchases (as a percentage of
offering price)* NONE 4.00% NONE 4.00%
Maximum Sales Commission Imposed
on Reinvested Dividends (as a
percentage of offering price) NONE NONE NONE NONE
Maximum Contingent Deferred Sales
Commission (as a percentage of
original purchase price or
redemption proceeds, as applicable) NONE NONE NONE NONE
Redemption Fees (as a percentage of
amount redeemed, if applicable) NONE NONE NONE NONE
Exchange Fee NONE NONE NONE NONE
- --------
* Shareholders of the Fundamental Funds pay no sales charge on
the transfer of the Funds' assets to the Successor Series and
may make additional purchases of the Successor Series, and all
other series of the Tocqueville Trust, at net asset value,
without the imposition of a sales charge.
-21-
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
Advisory Fees .50% .50% .49% .50%
12b-1 Fees(1) .50% .50% .50% .50%
Other Expenses, net of reimbursement
Interest .42% NONE 1.10% NONE
Other 1.95% 1.50% 1.65% .75%
----- ----- ----- ----
Total Fund Operating Expenses (after 3.37% 2.50% 3.74% 1.75%
waiver and/or reimbursement)
Expenses waived and/or reimbursed .03 -- -- --
----- ---- ---- ---
Total Fund Operating Expenses (before 3.40% 2.50(2) 3.74% 1.75%(2)
waiver and/or reimbursement ===== ======= ===== ========
</TABLE>
(1) As a result of distribution fees, a long-term shareholder may pay more than
the economic equivalent of the maximum front- end sales charge permitted by
the rules of the National Association of Securities Dealers, Inc.
(2) Total Fund Operating Expenses exclude interest and other extraordinary
expenses.
Example:
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return, (2) reinvestment of all dividends and distributions and (3)
redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Fundamental Government Fund $84 $242 $389 $715
Tocqueville Government Series 28 86 147 311
Fundamental High-Yield Fund 26 80 137 291
Tocqueville High-Yield Series 62 184 303 587
Fundamental Money Market Fund 16 49 84 183
Tocqueville Money Market Series 16 48 83 182
Fundamental California Fund 34 104 175 366
Tocqueville California Series 26 79 135 287
Fundamental New York Fund 38 114 193 398
Tocqueville New York Series 18 56 96 210
</TABLE>
The purpose of the table above is to assist you in understanding the
various costs and expenses a shareholder of a Fund will bear directly or
indirectly. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
DESCRIPTION OF TRUSTEES OF THE TOCQUEVILLE TRUST
The Tocqueville Trust has a Board of Trustees comprised of the
individuals listed below. These individuals are different from the current Board
Members of the Funds. The operations of each New Series will continue to be
subject to substantially the same investment objectives, restrictions and
policies of each Fund and the New Series will continue to be managed in
conformity with such investment objectives, restrictions and policies by the new
investment adviser subject to the general oversight of the Tocqueville Trust
Board.
-22-
<PAGE>
Principal Occupation During
Name Age the Past Five Years
---- --- -------------------
Francois Daniel Sicart* 54 Chairman, Principal Executive Officer and
Trustee. Chairman and Chief Executive Officer,
Tocqueville Management Corporation, the General
Partner of Tocqueville Asset Management L.P. and
Tocqueville Securities L.P. from January, 1990
to present.
Lucille G. Bono 64 Trustee. Financial services consultant, 1997 to
present; Operations and administrative manager,
Tocqueville Asset Management L.P. and
Tocqueville Securities L.P. from January 1990 to
November 1997; similar responsibilities,
Tocqueville Asset Management Corp., December
1985 to January 1990; operations and
administration staff, Tucker Anthony Inc. (and
predecessors), April 1954 to January 1990.
Bernard F. Combemale 68 Trustee. Investment Management Consultant, 1981
to present; Chairman of the Executive Committee
& Director, Western World Insurance Company,
1981 to present; Director, Westco Holding
Corporation, 1981 to present; Director, The
French-American Foundation, 1980 to present;
Trustee, The Princess Grace Foundation - U.S.A.,
1980 to present.
James B. Flaherty 62 Trustee. President and Partner, Troutbeck
Conference Center and Country Inn from October,
1979 to present; Vice President, Leedsville
Realty and Construction Corp. from 1980 to
present.
Inge Heckel 58 Trustee. Management Consultant, 1988 to present;
Member, Art Advisory Board, Mount Holyoke
College Art Museum.
Robert Kleinschmidt* 48 President, Principal Operating Officer and
Trustee. President, Tocqueville Asset Management
L.P. from January, 1994 to present and Managing
Director from July, 1991 to January, 1994.
Francois Letaconnoux** 47 Trustee. President, Lepercq de Neuflize & Co.
from July, 1993 to present; President, Lepercq,
de Neuflize Securities Inc. (a registered
broker-dealer) from May 1995 to present;
Director, Lepercq 99 First Management Inc. from
1988 to present; Director, from 1988, and
President, from May 1995, to present, Lepercq de
Neuflize & Co., Inc. (investment bank); Managing
Director, Lepercq Capital Partners (real estate
investment firm), from 1974 to present.
Larry M. Senderhauf 49 Trustee. President, LMS 33 Corp., 1983 to
present; Vice President, NCCI Corp. 1985 to
present; President, Cash Unlimited, 1980-1986;
President, Financial Exchange Corp., 1981-1986;
President, LMS Development Corp., 1986-1995;
Vice President, Pacific Ring Enterprises,
1982-1995.
-23-
<PAGE>
* Interested person of the Tocqueville Trust, as defined in the 1940 Act, as
an affiliated person of Tocqueville.
** Interested person of the Tocqueville Trust, as defined in the 1940 Act, as
an affiliated person of Lepercq, de Neuflize Securities Inc., a
broker-dealer registered under the Securities Exchange Act of 1934.
LEGAL COUNSEL TO THE TOCQUEVILLE TRUST
The law firm of Kramer, Levin, Naftalis & Frankel ("Kramer Levin")
serves as legal counsel to the Tocqueville Trust. Kramer Levin also serves as
legal counsel to the Fundamental Funds. It should be noted, however, that within
Kramer Levin, the group of partners and associates that provide legal services
to the Tocqueville Trust is different from the group of partners and associates
that provide legal services to the Fundamental Funds.
THE AGREEMENT AND PLAN OF REORGANIZATION
Each Plan provides that all of the assets of a Fund will be transferred
to its corresponding New Series in exchange for shares of the New Series and the
assumption by the New Series of certain identified liabilities of the
corresponding Fund. No sales charges will be charged to effect such exchange of
shares. In addition, under the Plans, the Tocqueville Trust has agreed to, under
certain conditions described in the Plans, indemnify and advance expenses to
each person who at the time of execution of the Plan served as an Independent
Board Member of the Funds. Copies of the Plans are included as Exhibits A-C to
this Proxy Statement. (Exhibit A pertains to Fundamental Government, Fundamental
High-Yield and Fundamental Money Market Funds, Exhibit B pertains to Fundamental
California Fund and Exhibit C pertains to Fundamental New York Fund.)
As a result of each Reorganization, an account will be established for
each shareholder in the relevant New Series, which will be credited with full
and fractional shares of the New Series equal in value to the value of the
shares of the Fund held by the shareholder immediately prior to the
Reorganization.
On the effective date of the Reorganization (the "Closing Date"), each
of the Funds will transfer all of its assets to the corresponding New Series in
exchange for the assumption by the New Series of certain identified liabilities
of the current Fund and the issuance of shares of beneficial interest of that
New Series ("New Series Shares") to the current Fund. The New Series Shares
issued with respect to a current Fund will have an aggregate net asset value
equal to the aggregate net asset value of the current Fund's Shares (as
determined by using the procedures set forth in the current Prospectus) on the
Closing Date. It is anticipated that initially, the New Series Shares will have
a net asset value of $10.00 per share, except for shares of the Money Market
Series which will have a $1.00 net asset value per share. Following distribution
of the New Series Shares to each of the current Funds, and as soon as
practicable thereafter, the Fundamental Funds will be liquidated and dissolved.
Upon completion of the Reorganization, each shareholder will be the owner of
full and fractional New Series Shares equal in aggregate net asset value to the
shareholder's current Fund Shares. Shares of the New Series will be represented
by book entries and no share certificates will be issued.
The Reorganization is subject to the satisfaction of a number of
conditions set forth in each Plan, including approval of the Plan and the
transactions contemplated by the Plan by shareholders of the Funds. Each Plan
may be terminated and the Reorganization abandoned at any time by the Fund or
the New Series without liability to the other (unless the terminating party is
in default or in breach of the Plan) if certain conditions exist. In addition, a
Fund Board may terminate a Plan and abandon the Reorganization, notwithstanding
approval thereof by shareholders of the Fund if, in the judgment of such Board,
proceeding with the Reorganization would be inadvisable.
Shareholders in the Funds have no dissenters' rights or appraisal
rights. All shareholders have the right at any time up to the business day
preceding the Closing Date to redeem their Fund shares at their then current net
asset value.
-24-
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Reorganization is subject to the condition that the
Funds receive an opinion from Kramer, Levin, Naftalis & Frankel, counsel to the
Funds, stating that for federal income tax purposes: (i) the transfer of all of
the assets of a Fund to its New Series in exchange for the assumption of certain
identified liabilities of such Fund by such New Series, the delivery to such
Fund of New Series Shares, the distribution by such Fund pro rata to its
shareholders of such New Series Shares and the termination of such Fund,
pursuant to the Reorganization Plan, will constitute a reorganization within the
meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as amended;
(ii) a Fund will not recognize any gain or loss as a result of the
Reorganization; (iii) a New Series will not recognize any gain or loss on the
receipt of the assets of a Fund in exchange for New Series Shares; (iv) the
shareholders of a Fund will not recognize any gain or loss on the exchange of
their shares of a Fund for New Series Shares; (v) the aggregate tax basis of the
New Series Shares received by each shareholder of a Fund in the Reorganization
will be the same as the aggregate tax basis of the shares of the Fund exchanged
therefor; (vi) a New Series' adjusted tax bases in the assets received from a
Fund in the Reorganization will be the same as the adjusted tax bases of such
assets in the hands of a Fund immediately prior to the Reorganization; (vii) the
holding period of each former shareholder of a Fund in the New Series Shares
received in the Reorganization will include the period for which such
shareholder held his shares of the Fund as a capital asset; and (viii) the New
Series' holding periods in the assets received from a Fund in the Reorganization
will include the holding periods of such assets in the hands of the
corresponding Fund immediately prior to the Reorganization.
As of December 31, 1997, the Funds have capital loss carryforwards,
expiring through December 31, 2005, as follows: Fundamental High-Yield Fund:
$160,500; Fundamental New York Fund: $24,147,000; and Fundamental Government
Fund: $15,791,000. A capital loss carryforward can offset capital gain for the
eight taxable years succeeding the year in which the loss arises, after which
time the unused portion of the carryforward will expire. Thus, while generally
capital gain is distributed and currently taxed to shareholders, capital gain
realized by a Fund may be offset by the capital loss carryforwards and not
distributed to shareholders.
As a consequence of the Reorganization, each Fund's capital loss
carryforwards will become carryforwards of its corresponding New Series and
their benefits will therefore be shared with the shareholders of its
corresponding New Series. In addition, the Funds' current tax year will
terminate and, as a result, any unused capital loss will expire one year sooner
than they would have if the Reorganization did not take place.
The Reorganization is unlikely to cause an ownership change of a Fund
under Code section 382 because of the overlapping ownership of a Fund and its
corresponding New Series and, therefore, the capital loss carryforwards will not
be subject to limitation under Code section 383. If the Reorganization does
cause an ownership change, Fund capital loss carryforwards available to offset
its corresponding New Series capital gain would be limited for any year after
the Reorganization to an amount equal to the long-term tax-exempt rate
multiplied by the equity value of such Fund. For example, if an ownership change
occurs at a time when the equity value of such Fund is $26,000,000 and the
long-term tax-exempt rate is 5.3%, the capital gain that could be offset by the
New Series capital loss carryforwards would be limited to $1,378,000 per year.
Changes in share ownership in the New Series occurring subsequent to
the Reorganization could cause an ownership change that would limit the ability
of the New Series to use the capital loss carryforwards. The types of owner
shifts that could cause such limitation include the acquisition of another fund
by the New Series and acquisitions of shares of the New Series by persons who
acquire 5% or more of its outstanding shares.
The Funds and the New Series have not sought a tax ruling from the
Internal Revenue Service (the "IRS") with respect to the tax aspects of the
Reorganization, but will act in reliance upon the opinion of counsel discussed
above. Such opinion is not binding on the IRS and does not preclude the IRS from
adopting a contrary position. If for any reason the Reorganization did not
qualify as a tax-free Reorganization for federal income tax purposes, then the
Reorganization would be treated as a taxable asset sale and purchase. In such
event, a Fund would recognize gain or loss on the transaction measured by the
difference between the consideration received by a Fund (including liabilities
of the Fund assumed by the New Series) and the tax basis of Fund assets, which
such gain, if any, would likely be offset by the availability of a dividends
paid deduction; the tax basis of the assets acquired by the New Series would
equal the purchase price plus the amount of any liabilities assumed by the New
Series; and upon distribution of New Series Shares in dissolution of the Fund,
the shareholders of the Fund would recognize gain or loss on the disposition of
their Fund shares measured by the difference between the fair market value of
the New Series Shares received by them and the basis of Fund shares held by
them. Shareholders should consult their
-25-
<PAGE>
own advisers concerning the potential tax consequences of the Reorganization to
them, including state and local income tax consequences.
-26-
<PAGE>
REQUIRED VOTE AND RECOMMENDATION OF THE BOARDS
Approval of the Reorganization with respect to a Fund requires the
affirmative vote of (i) with respect to the Fundamental California Fund and
Fundamental New York Fund, a majority of each Fund's outstanding shares of
beneficial interest/common stock ("Shares"), (ii) with respect to Fundamental
Government Fund, Fundamental High-Yield Fund and Fundamental Money Market Fund,
a "majority of the outstanding voting securities," within the meaning of the
1940 Act of each Fund. The term "majority of the outstanding voting securities"
is defined under the 1940 Act to mean: (a) 67% or more of the outstanding Shares
present at the Meeting, if the holders of more than 50% of the outstanding
Shares are present or represented by proxy, or (b) more than 50% of the
outstanding Shares of a Fund, whichever is less. Approval of the Reorganization
by shareholders will constitute approval of the amendment of any investment
restrictions of the Funds which might be deemed to prohibit the transactions
contemplated by the Reorganization. After carefully considering all the issues
involved, the Remaining Independent Board Members, Mr. James C. Armstrong and
Mr. L. Greg Ferrone, have concluded that the proposal is in the best interests
of the Funds and their shareholders and that the interest of existing
shareholders in the Funds will not be diluted as a result of the Reorganization.
The Interested Board Member, Dr. Vincent J. Malanga, opposes the consummation of
the Reorganization. If the Reorganization is approved at the Meeting, the
Closing Date is expected to be on or about _______, 1998.
VOTING INFORMATION AND DISCRETION OF ATTORNEYS NAMED IN THE PROXY
While the Meeting is called to act upon any other business that may
properly come before it, at the date of this Proxy Statement the only business
which the management intends to present or knows that others will present is the
business mentioned in the Notice of Meeting. If any other matters lawfully come
before the Meeting, and in all procedural matters at the Meeting, it is the
intention that the enclosed proxy shall be voted in accordance with the best
judgment of the attorneys named therein, or their substitutes, present and
acting at the Meeting.
As of the Record Date, the Fundamental Funds believed that the
following persons beneficially owned more than 5% of Shares of the Funds:
FUNDAMENTAL NEW YORK FUND
Names & Address Number of Shares Percentage of
_______________ Owned Outstanding Shares
FUNDAMENTAL CALIFORNIA FUND
Names & Address Number of Shares Percentage of
_______________ Owned Outstanding Shares
FUNDAMENTAL MONEY MARKET FUND
Names & Address Number of Shares Percentage of
_______________ Owned Outstanding Shares
-27-
<PAGE>
FUNDAMENTAL HIGH-YIELD FUND
Names & Address Number of Shares Percentage of
_______________ Owned Outstanding Shares
SUBMISSION OF PROPOSALS FOR THE NEXT MEETING OF SHAREHOLDERS
Under the Funds' Declaration of Trust/Articles of Incorporation and
By-Laws, annual meetings of shareholders are not required to be held unless
necessary under the 1940 Act (for example, when fewer than a majority of the
Board Members have been elected by shareholders). Therefore, the Fundamental
Funds do not hold shareholder meetings on an annual basis. A shareholder
proposal intended to be presented at any meeting hereafter called should be sent
to the Fundamental Funds at 1675 Broadway, New York, New York 10019, and must be
received by the Fundamental Funds within a reasonable time before the
solicitation relating thereto is made in order to be included in the notice or
proxy statement related to such meeting. The submission by a shareholder of a
proposal for inclusion in a proxy statement does not guarantee that it will be
included. Shareholder proposals are subject to certain regulations under federal
securities law.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. IF YOU DO NOT EXPECT TO
ATTEND THE MEETING, PLEASE SIGN YOUR PROXY CARD PROMPTLY AND RETURN IT IN THE
ENCLOSED ENVELOPE TO AVOID UNNECESSARY EXPENSE AND DELAY. NO POSTAGE IS
NECESSARY.
_______, 1998
BY ORDER OF THE BOARDS OF THE FUNDAMENTAL FUNDS
---------------------
---------------------
Name & Title
-28-
<PAGE>
Exhibit A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is made as of the 15th day of July, 1997, by and between Fundamental
Fixed-Income Fund, a Massachusetts business trust (the "Fundamental Fund") for
itself and on behalf of its Fundamental U.S. Government Strategic Income Fund,
High- Yield Municipal Bond Series and Tax-Free Money Market Series (each, a
"Fund") and The Tocqueville Trust, a Massachusetts business trust (the
"Tocqueville Trust"), for itself and on behalf of its Tocqueville U.S.
Government Strategic Income Fund Series, Tocqueville High-Yield Municipal Bond
Fund Series and Tocqueville Tax-Free Money Market Fund Series (each, a
"Successor Series").
This Agreement shall constitute a separate Agreement and Plan of
Reorganization for each Fund and its corresponding Successor Series. It is
expressly agreed that the respective rights and obligations of each Fund and its
corresponding Successor Series, as provided for hereunder, are separate from the
rights and obligations of any other funds managed by Fundamental Portfolio
Advisors, Inc. and successor series of the Tocqueville Trust, and that neither
the rights and obligations of any Fund nor of any Successor Series shall be
construed to be joint rights or obligations of the other funds managed by
Fundamental Portfolio Advisors, Inc. or their corresponding successor series,
respectively, notwithstanding the fact that such other funds and successor
series may be subject to a separate agreement and plan of reorganization
containing terms and conditions which are substantially the same as the terms
and conditions set forth herein.
In consideration of the mutual promises herein contained, Fundamental
Fund, for itself and on behalf of each Fund, and the Tocqueville Trust, for
itself and on behalf of each Successor Series, hereby agree as follows:
1. APPROVAL BY SHAREHOLDERS.
A special meeting of the shareholders of the Fund (the
"Meeting") will be called for the purpose of considering adoption of this
Agreement and Plan of Reorganization and considering such other business as may
properly come before the Meeting. The agenda for such Meeting may include such
other proposals as the Board of Trustees of Fundamental Fund may deem
appropriate.
2. PLAN OF REORGANIZATION.
(i) Subject to the terms and conditions set forth in
this Agreement, the Fund will convey, transfer and deliver to the Successor
Series at the closing provided for in Section 3 (hereinafter called the
"Closing") all of its assets as set forth in paragraph 2(i) (the "Fund Assets").
In consideration thereof, and subject to the terms and conditions set forth in
this Agreement, at the Closing the Successor Series will (a) assume certain
identified liabilities attributable to the Fund and (b) deliver to the Fund a
number of full and fractional shares of beneficial interest of the Successor
Series, $.01 par value (the "Shares"), having an aggregate net asset value
("NAV") equal to the aggregate net asset value of the current Fund's shares of
beneficial interest (as determined in accordance with the Investment Company Act
of 1940, as amended (the "1940 Act"), and the Fund's current Prospectus) on the
Closing Date.
(ii) The Fund Assets shall consist of all property
and assets of any nature whatsoever, including, without limitation, all cash,
cash equivalents, securities, claims and receivables (including dividend and
interest receivables) owned by the Fund, and any deferred or prepaid expenses
shown as an asset on the Fund's books on the Closing Date, as defined in
paragraph 4.
At least five (5) days prior to the Closing Date, the Fund will provide
its corresponding Successor Series with (i) a list of the Fund Assets and (ii) a
list of the Fund's Identified Liabilities, as defined below.
(iii) The Fund will, to the extent consistent with
its ordinary course of business and historical practices, discharge all of its
known liabilities and obligations prior to the Closing Date. The Successor
Series will assume all liabilities and obligations reflected on an unaudited
statement of assets and liabilities of its
<PAGE>
corresponding Fund prepared by the Fund's accountant as of the Valuation Date
(as defined in paragraph 3(i), in accordance with generally accepted accounting
principles consistently applied from the prior audited period (the "Identified
Liabilities"). The Successor Series shall assume only the Identified Liabilities
of its corresponding Fund, and no other liabilities or obligations, whether
absolute or contingent, known or unknown, accrued or unaccrued, other than those
described in Section 9 of this Agreement.
(iv) Upon consummation of the transactions described
in Section 2(i) hereof, the Fund will distribute to persons who are shareholders
of record of the Fund at the Closing the Shares received by the Fund pursuant to
Section 2(i), such distribution to be made pro rata to the shareholders based
upon the ratio that the percentage of the outstanding shares of the Fund owned
by each such shareholder at the Closing bears to the total number of Shares
received by the Fund from the Successor Series. Such distribution will be
accomplished by the establishment of an open account on the stock records of the
Successor Series in the name of each such shareholder of the Fund and setting
forth the number of Shares due such shareholder in accordance with the
foregoing. Fractional Shares will be carried to the third decimal place.
Certificates representing Shares will not be issued.
(v) As soon as is reasonably practicable after the
Closing, Fundamental Fund will take all necessary steps under its Declaration of
Trust and Massachusetts law to effect a complete liquidation and dissolution of
the Fund.
(vi) The transactions contemplated in this Section 2
are referred to as the "Reorganization."
3. VALUATION
(i) The value of the Fund Assets shall be the value
of such assets computed as of the close of business on the business day
immediately preceding the Closing (such time and date being referred to as an
"Valuation Date"), using the valuation procedures set forth in the Fund's then
current Prospectus and Statement of Additional Information.
(ii) The net asset value of each share of beneficial
interest of the Successor Series shall be its net asset value per share computed
on the Valuation Date, using the valuation procedures set forth in the Successor
Series's then-current Prospectus and Statement of Additional Information.
(iii) All computations of value contemplated by this
Section 3 shall be made by the Successor Series's fund accountant. The Successor
Series shall cause its fund accountant to deliver a copy of its valuation report
to Fundamental Fund and to the Tocqueville Trust at the Closing.
4. CLOSING.
The Closing will occur prior to the commencement of business
on December 15, 1997 (the "Closing Date") or such other time and date as may be
mutually agreed upon by the parties. In the event that the NAV calculations of
the Fund or the Successor Series are not readily determinable for purposes of
the Reorganization due to market disruption, the Closing shall occur on the next
successive business day.
5. CONDITIONS TO OBLIGATIONS OF FUNDAMENTAL FUND AND THE
FUND.
The obligations of Fundamental Fund and the Fund in connection
with the consummation of the Reorganization shall be subject to the satisfaction
of each of the following conditions:
(i) Fundamental Fund shall have received the opinion
of legal counsel for the Tocqueville Trust, dated as of the date of the Closing
and addressed to Fundamental Fund, to the effect that: (a) the Tocqueville Trust
is established as a business trust and is validly existing under the laws of The
Commonwealth of Massachusetts, (b) the Tocqueville Trust is an open-end
investment company of the management type registered under the 1940 Act, and the
Successor Series is a duly established series of the Tocqueville Trust, (c) this
Agreement, and the Reorganization provided for herein, and the execution and
delivery of this Agreement have been duly authorized and approved by all
requisite action of the Board of Trustees of the Tocqueville Trust and this
Agreement has been duly executed and delivered by the Tocqueville Trust and is a
valid and binding obligation of the Tocqueville Trust and the Successor Series,
enforceable in accordance with its terms, and (d) the Shares to be
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issued in the Reorganization will be duly authorized and upon issuance thereof
in accordance with this Agreement will be validly issued, fully paid and
non-assessable Shares of the Successor Series. In rendering such opinion, such
legal counsel may rely on an opinion of Massachusetts counsel reasonably
acceptable to Fundamental Fund with respect to matters of Massachusetts law, and
on certificates of officers or trustees of the Tocqueville Trust, in each case
reasonably acceptable to Fundamental Fund.
(ii) The Tocqueville Trust and the Successor Series
shall have complied with each of their covenants contained herein and each of
the representations and warranties of the Tocqueville Trust and the Successor
Series contained herein shall be true in all material respects as of the
Closing, and the Tocqueville Trust shall have delivered to Fundamental Fund a
certificate from appropriate officers of the Tocqueville Trust reasonably
acceptable to Fundamental Fund to such effect.
6. CONDITIONS TO OBLIGATIONS OF THE TOCQUEVILLE TRUST AND THE
SUCCESSOR SERIES.
The obligations of the Tocqueville Trust and the Successor
Series in connection with the consummation of the Reorganization shall be
subject to the satisfaction of each of the following conditions:
(i) The Tocqueville Trust shall have received the
opinion of legal counsel for Fundamental Fund, dated as of the date of the
Closing and addressed to the Tocqueville Trust, to the effect that: (a)
Fundamental Fund is established as a Massachusetts business trust and is validly
existing under the laws of The Commonwealth of Massachusetts, (b) Fundamental
Fund is an open-end investment company of the management type registered under
the 1940 Act, (c) this Agreement and the Reorganization provided for herein and
the execution and delivery of this Agreement have been duly authorized and
approved by all requisite action of the Board of Trustees of Fundamental Fund
and this Agreement has been duly executed and delivered by Fundamental Fund and
is a valid and binding obligation of Fundamental Fund and the Fund, enforceable
in accordance with its terms, and (d) the outstanding shares of the Fund have
been duly authorized. In rendering such opinion, such legal counsel may rely on
an opinion of Massachusetts counsel reasonably acceptable to the Tocqueville
Trust with respect to matters of Massachusetts law, and on certificates of
officers or trustees of Fundamental Fund, in each case reasonably acceptable to
the Tocqueville Trust.
(ii) Fundamental Fund shall have complied with each
of its covenants contained herein and each of the representations and warranties
of Fundamental Fund shall be true in all material respects as of the Closing,
and Fundamental Fund shall have delivered to the Tocqueville Trust a certificate
from appropriate officers of Fundamental Fund reasonably acceptable to the
Tocqueville Trust to such effect.
(iii) The Board of Trustees of Fundamental Fund,
including a majority of the trustees who are not "interested persons" of
Fundamental Fund (as defined by the 1940 Act) shall have determined that this
Agreement and the transactions contemplated hereby are in the best interests of
the Fund and that the interests of the shareholders in the Fund would not be
diluted as a result of such transactions.
7. CONDITIONS TO OBLIGATIONS OF FUNDAMENTAL FUND AND THE
TOCQUEVILLE TRUST.
The obligations of Fundamental Fund and the Tocqueville Trust
in connection with the consummation of the Reorganization shall be subject to
the satisfaction of each of the following conditions:
(i) The Tocqueville Trust and Fundamental Fund shall
have received an opinion of legal counsel to Fundamental Fund, dated as of the
date of the Closing, addressed to and in form and substance satisfactory to the
Tocqueville Trust and Fundamental Fund to the effect that: (a) the transfer of
all of the assets of the Fund to the Successor Series in exchange for the
assumption of the Identified Liabilities of the Fund by the Successor Series,
the delivery to the Fund of shares of the Successor Series, the distribution by
the Fund pro rata to its shareholders of such shares of the Successor Series,
and the termination of such Fund, pursuant to the Reorganization Plan, will
constitute a reorganization within the meaning of Section 368(a)(1) of the
Internal Revenue Code of 1986, as amended; (b) the Fund will not recognize any
gain or loss as a result of the Reorganization; (c) the Successor Series will
not recognize any gain or loss on the receipt of the assets of the Fund in
exchange for shares of the Successor Series; (d) the shareholders of the Fund
will not recognize any gain or loss on the exchange of their shares of the Fund
for shares of the Successor Series; (e) the aggregate tax basis of the Successor
Series received by each shareholder of the Fund in the Reorganization will be
the same as the aggregate tax basis of the shares of the Fund exchanged
therefor; (f) the Successor Series' adjusted tax bases in the assets received
from the
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Fund in the Reorganization will be the same as the adjusted tax bases of such
assets in the hands of the Fund immediately prior to the Reorganization; (g) the
holding period of each former shareholder of the Fund in the shares of the
Successor Series received in the Reorganization will include the period for
which such shareholder held his shares of the Fund as a capital asset; and (h)
the Successor Series' holding periods in the assets received from the Fund in
the Reorganization will include the holding periods of such assets in the hands
of the Fund immediately prior to the Reorganization.
(ii) Such authority, including "no-action" letters
and orders from the Securities and Exchange Commission (the "Commission") and
state securities commissions, as may be necessary to permit the parties to carry
out the transactions contemplated by this Agreement shall have been received.
(iii) The Shares shall have been duly qualified for
offering to the public in such jurisdictions (except where such qualifications
are not required) so as to permit the transfers contemplated by this Agreement
to be consummated.
(iv) This Agreement and the Reorganization and, if
necessary, a temporary amendment of the investment restrictions that might
otherwise preclude the consummation of the Reorganization, shall have been
approved by the holders of the requisite number of shares of beneficial interest
of the Fund entitled to vote on the matter under Fundamental Fund's Declaration
of Trust.
(v) On the Closing Date, (a) the Commission shall not
have issued an unfavorable advisory report under Section 25(b) of the 1940 Act
nor instituted nor threatened to institute any proceeding seeking to enjoin
consummation of the Reorganization contemplated hereby under Section 25(c) of
the 1940 Act and (b) no other action, suit or other proceeding shall be
threatened or pending before any court or governmental agency which seeks to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
At any time prior to the Closing, any of the foregoing
conditions in Section 4, 5 or 6 may be waived by the Fund or the Successor
Series, as the case may be, if, in the judgment of such party, such waiver will
not have a material adverse effect on the benefits intended under this Agreement
to the shareholders of the Fund or the Successor Series, as the case may be.
8. REPRESENTATIONS AND WARRANTIES.
a. FUNDAMENTAL FUND. Fundamental Fund, with respect to
itself and the Fund, represents and warrants to the Tocqueville Trust as
follows:
(i) Fundamental Fund is a business trust duly
organized, validly existing and in good standing under the laws of The
Commonwealth of Massachusetts;
(ii) Fundamental Fund is a registered investment
company, classified as a management company of the open-end type, and its
registration with the Commission as an investment company under the 1940 Act is
in full force and effect;
(iii) Fundamental U.S. Government Strategic Income
Fund, High-Yield Municipal Bond Series and Tax-Free Money Market Series are duly
established series of Fundamental Fund;
(iv) Fundamental Fund is not, and the execution,
delivery and performance of this Agreement will not result, in material
violation of Fundamental Fund's Declaration of Trust or By-laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to which
Fundamental Fund is a party or is bound;
(v) Fundamental Fund has no material contracts or
other commitments (other than this Agreement) which will be terminated with
liability to the Fund prior to the Closing, except contracts entered into in the
ordinary course of its business and this Agreement;
(vi) Except as otherwise disclosed in writing to and
accepted by the Tocqueville Trust, there is no litigation or administrative
proceeding or investigation of or before any court or governmental body
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pending or to Fundamental Fund's knowledge threatened against Fundamental Fund
with respect to the Fund or its properties or assets, and Fundamental Fund knows
of no fact which might form the basis for the institution of such proceedings,
and neither Fundamental Fund nor the Fund is a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects their respective businesses or their
ability to consummate the transactions contemplated herein;
(vii) The Statement of Assets and Liabilities of the
Fund at the last day of its most recently completed fiscal year, certified by
McGladrey and Pullen, LLP as independent auditors (as supplemented by any
unaudited semi-annual report as of the last day of its most recently completed
semi-annual fiscal period, if available) has been prepared in accordance with
generally accepted accounting principles consistently applied, fairly reflects
the financial condition of the Fund as of such date, and there are no known
liabilities (contingent or otherwise) of the Fund as of such date which are
required to be and are not disclosed therein;
(viii) From the date of the most recent report
referred to in paragraph (vii) above, there has not been any material adverse
change in the Fund's financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business or as a result of this
transaction (for the purposes of this paragraph (viii), a decline in net assets
of the Fund shall not constitute a material adverse change);
(ix) All shares of beneficial interest, no par value,
of the Fund are, and at the Closing will be, duly authorized, legally issued,
fully paid and non-assessable, and the Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any shares of the
Fund (other than dividend reinvestment plans of the Fund or as set forth in this
Agreement) nor are there outstanding any securities convertible into any shares
of the Fund (except pursuant to any exchange privileges described in the current
Prospectus or Registration Statement of the Fund under the Securities Act of
1933 (the "1933 Act"));
(x) At the Closing, the Fund will have good and
marketable title to the Fund Assets to be transferred to the Successor Series
and full right, power and authority to assign, transfer and deliver such assets
hereunder, and, upon delivery and payment for such assets, the Successor Series
will acquire good and marketable title thereto, subject to no restrictions on
the full transfer thereof, including such restrictions as might arise under the
1933 Act;
(xi) Fundamental Fund has full power and authority to
enter into and perform its obligations under this Agreement; the execution,
delivery and performance of this Agreement have been duly authorized by all
necessary action on the part of the Board of Trustees of Fundamental Fund; and,
subject to the approval of the shareholders of the Fund, this Agreement
constitutes a valid and binding obligation of Fundamental Fund and the Fund,
enforceable against Fundamental Fund and the Fund in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights and by equitable principles;
(xii) Fundamental Fund has provided the Tocqueville
Trust with the Fund's most recent Form N-1A Registration Statement under the
1933 Act, which does not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such statements
were made, not materially misleading;
(xiii) The information furnished by the Fund for use
in proxy materials and other documents in connection with the transactions
contemplated hereby, and the Registration Statement on Form N-1A of the
Successor Series (other than the portions of such materials which relate to this
transaction), is accurate and complete in all material respects and complies in
all material respects with federal securities and other laws and regulations
thereunder applicable thereto; and
(xiv) The Proxy Statement to be used in connection
with the transactions contemplated hereby (only insofar as it relates to
Fundamental Fund) on its effective date and at the Closing, will comply in all
material respects with the provisions of the 1933 Act, the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and the 1940 Act and the rules and
regulations thereunder, and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which such
statements were made, not materially misleading.
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<PAGE>
b. THE TOCQUEVILLE TRUST. The Tocqueville Trust, with respect
to itself and the Successor Series, represents and warrants to Fundamental Fund
as follows:
(i) The Tocqueville Trust is a business trust duly
organized, validly existing and in good standing under the laws of The
Commonwealth of Massachusetts;
(ii) The Tocqueville Trust is a registered investment
company classified as a management company of the open-end type, and its
registration with the Commission as an investment company under the 1940 Act is
in full force and effect;
(iii) The Successor Series is a duly established
series of the Tocqueville Trust;
(iv) The Tocqueville Trust is not, and the execution,
delivery and performance of this Agreement will not result, in material
violation of the Tocqueville Trust's Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to which
the Tocqueville Trust is a party or is bound;
(v) Except as otherwise disclosed in writing to and
accepted by Fundamental Fund, there is no litigation or administrative
proceeding or investigation of or before any court or governmental body pending
or to the Tocqueville Trust's knowledge threatened against the Tocqueville Trust
with respect to the Successor Series or its properties or assets, and the
Tocqueville Trust knows of no fact which might form the basis for the
institution of such proceedings, and neither the Tocqueville Trust nor the
Successor Series is a party or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and adversely
affects their respective businesses or their respective abilities to consummate
the transactions contemplated herein;
(vi) At the Closing all shares of beneficial interest
in the Successor Series will be duly authorized, legally issued, fully paid and
non-assessable, and the Successor Series does not have outstanding any options,
warrants or other rights to subscribe for or purchase any shares of the
Successor Series (other than dividend reinvestment plans of the Successor Series
or as set forth in this Agreement), nor are there outstanding any securities
convertible into any shares of the Successor Series (except pursuant to exchange
privileges described in the current Prospectus or Registration Statement of the
Successor Series under the 1933 Act);
(vii) The Tocqueville Trust has full power and
authority to enter into and perform its obligations under this Agreement; the
execution, delivery and performance of this Agreement have been duly authorized
by all necessary action on the part of the Board of Trustees of the Tocqueville
Trust; and this Agreement constitutes a valid and binding obligation of the
Tocqueville Trust and the Successor Series, enforceable against the Tocqueville
Trust and the Successor Series in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights and by
equitable principles;
(viii) The Tocqueville Trust will provide to the Fund
the Form N-1A Registration Statement under the 1933 Act concerning the Successor
Series, which does not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make any
statements therein, in light of the circumstances under which such statements
were made, not materially misleading;
(ix) The information to be furnished by the
Tocqueville Trust for use in Registration Statements, proxy materials and other
documents, in connection with the transactions contemplated hereby, will be
accurate and complete in all material respects and will comply in all material
respects with federal securities laws and other laws and regulations thereunder
applicable thereto; and
(x) The Proxy Statement to be used in connection with
the transactions contemplated hereby (only insofar as it relates to the
Successor Series or the Tocqueville Trust), on its effective date and at the
Closing, will conform in all material respects with the provisions of the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder, and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were made,
not materially misleading.
A-6
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9. COVENANTS OF THE TOCQUEVILLE TRUST
The Tocqueville Trust covenants to Fundamental Fund and the
Fund as follows:
(i) The Tocqueville Trust will use its best efforts
and take all actions as may be necessary or advisable to effectuate the
Reorganization and to continue the Successor Series in operation thereafter,
including the obtaining of any regulatory approvals required to be obtained by
it.
(ii) The Tocqueville Trust, on behalf of the
Successor Series, agrees, for the period beginning at the Closing and ending not
less than two years thereafter, to indemnify and advance expenses to each person
who at the time of the execution of this Agreement serves as an independent
trustee ("Indemnified Person") of Fundamental Fund, against all costs and
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement, actually and reasonably incurred by such Indemnified Person in
connection with any claim, whether the basis for which is known or unknown on
the date hereof, that is asserted against such Indemnified Person arising out of
such person's service as an independent trustee of Fundamental Fund, provided
that such indemnification and advancement of expenses shall be permitted under
Massachusetts law. This paragraph 9 (ii) shall not protect any such Indemnified
Person against any liability to Fundamental Fund, the Tocqueville Trust or their
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or from reckless disregard of the
duties involved in the conduct of his office. An Indemnified Person seeking
indemnification shall be entitled to advances from the Tocqueville Trust for
payment of the reasonable expenses incurred by him in connection with the matter
as to which he is seeking indemnification in the manner and to the fullest
extent permissible under Massachusetts law. Such Indemnified Person shall
provide to the Tocqueville Trust a written affirmation of his good faith belief
that the standard of conduct necessary for indemnification by the Tocqueville
Trust has been met and a written undertaking to repay any advance if it should
ultimately be determined that the standard of conduct has not been met. In
addition, at least one of the following additional conditions shall be met: (a)
the Indemnified Person shall provide security in form and amount acceptable to
the Tocqueville Trust for its undertaking; or (b) either a majority of a quorum
of disinterested non-party trustees of the Tocqueville Trust, or independent
legal counsel experienced in mutual fund matters, selected by the Indemnified
Person, in a written opinion, shall have determined, based on a review of facts
readily available to the Tocqueville Trust at the time the advance is proposed
to be made, that there is reason to believe that the Indemnified Person will
ultimately be found to be entitled to indemnification.
The Tocqueville Trust agrees that in the event it or the
Successor Series is subsequently acquired by merger, acquisition or the sale of
substantially all of its assets ("Subsequent Merger"), or it reorganizes or
changes its domicile ("Subsequent Redomestication"), it will provide under the
terms of such Subsequent Merger or Subsequent Redomestication that the
indemnification provided for above shall continue in full force and effect. In
the event that the Tocqueville Trust enters into negotiation for a Subsequent
Merger or Subsequent Redomestication, the Tocqueville Trust shall promptly
notify the Indemnified Person of such intended Subsequent Merger or Subsequent
Redomestication.
10. COVENANTS OF FUNDAMENTAL FUND
Fundamental Fund covenants to the Tocqueville Trust and the
Successor Series as follows:
(i) Fundamental Fund will use its best efforts and
take all actions as may be necessary or advisable to effectuate the
Reorganization, including the obtaining of any regulatory approvals, as may be
required to be obtained by it.
(ii) Except as otherwise contemplated by this
Agreement, Fundamental Fund will use its best efforts to conduct the business of
the Fund in the ordinary course until the consummation of the Reorganization.
(iii) The Fund will duly supplement its Prospectus in
the manner prescribed by Rule 497(e) of the 1933 Act and all other applicable
law and regulations.
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11. BROKERAGE FEES AND EXPENSES
(i) Fundamental Fund represents and warrants to the
Tocqueville Trust, and the Tocqueville Trust represents and warrants to
Fundamental Fund, that there are no brokers or finders entitled to receive any
payments in connection with the transactions provided for herein.
(ii) Fundamental Fund and the Tocqueville Trust
confirm their understanding that Fundamental Portfolio Advisors, Inc. and
Tocqueville Asset Management L.P. will be responsible for all expenses in
connection with the Reorganization.
12. TERMINATION.
The Board of Trustees of Fundamental Fund may terminate this
Agreement and abandon the Reorganization contemplated hereby at any time prior
thereto, notwithstanding approval thereof by the shareholders of the Fund if, in
the judgment of such Board proceeding with the Reorganization would be
inadvisable or if any of the conditions set forth in Sections 5 or 7 hereof have
not been satisfied. The Board of Trustees of the Tocqueville Trust may terminate
this Agreement and abandon the Reorganization contemplated hereby if any of the
conditions set forth in Sections 6 or 7 hereof have not been satisfied. In the
event of any such termination, there shall be no liability for damages on the
part of either party to the other.
13. ENTIRE AGREEMENT.
This Agreement embodies the entire Agreement between the
parties and there are no agreements, understandings, restrictions or warranties
among the parties other than those set forth herein or herein provided for. This
Agreement may not be amended without the consent in writing of both parties
hereto. Furthermore, after approval of this Agreement by the shareholders of the
Fund, no amendments may be made that materially adversely affect the interests
of shareholders of the Fund unless such amendments are submitted for shareholder
approval.
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties made in this Agreement
shall not survive the Closing.
15. FURTHER ASSURANCES.
Fundamental Fund and the Tocqueville Trust shall take such
further action as may be reasonably necessary or desirable and proper to
consummate the transactions contemplated hereby.
16. GOVERNING LAW.
This Agreement and the transactions contemplated hereby shall
be governed by and construed and enforced in accordance with the laws of The
Commonwealth of Massachusetts, without regard to principles of conflicts of law.
17. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
Copies of the Declaration of Trust of Fundamental Fund and the
Tocqueville Trust are on file with The Commonwealth of Massachusetts and notice
is hereby given that it is executed on behalf of the trustees of Fundamental
Fund and the Tocqueville Trust as trustees and not individually and that the
obligations of Fundamental Fund and the Tocqueville Trust pursuant to this
Agreement and the other agreements contemplated hereby are not binding upon any
of the trustees or shareholders individually but binding only upon the assets
and property of Fundamental Fund and the Tocqueville Trust.
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18. NOTICES.
All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and deemed properly given if
hand delivered or deposited in the U.S. mail, return receipt requested or
certified, postage prepaid, or with an overnight delivery service, as follows:
a. if to Fundamental Fund:
Fundamental Fixed-Income Fund
90 Washington Street, 19th Floor
New York, New York 10006
Attention: Dr. Vincent J. Malanga
and additional copies to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Carl Frischling, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attention: Stuart Coleman, Esq.
b. if to the Tocqueville Trust:
The Tocqueville Trust
1675 Broadway
New York, New York 10019
Attention: Robert Kleinschmidt
and an additional copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Susan Penry-Williams, Esq.
or to such other person or address as Fundamental Fund or the Tocqueville Trust,
respectively, shall furnish to the other in writing.
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<PAGE>
IN WITNESS WHEREOF, each of Fundamental Fund and the
Tocqueville Trust have caused this Agreement and Plan of Reorganization to be
executed on its behalf by its Chairman, President or a Vice President and
attested by its Secretary or Assistant Secretary, all as of the day and year
first above written.
Fundamental Fixed-Income Fund, for itself
and on behalf of Fundamental U.S.
Government Strategic Income Fund,
High-Yield Municipal Bond Series and
Tax-Free Money Market Series
By: /s/ Vincent J. Malanga
----------------------
Name: Vincent J. Malanga
Title: President
ATTEST:
By: /s/ Carole M. Laible
--------------------
Name: Carole M. Laible
Title: Secretary
The Tocqueville Trust, for itself and on
behalf of the U.S. Government Strategic
Income Fund Series, High-Yield
Municipal Bond Fund Series and Tax-
Free Money Market Fund Series.
By: /s/ Robert Kleinschmidt
-----------------------
Name: Robert Kleinschmidt
Title: President
ATTEST:
By:/s/ Kieran Lyons
----------------
Name: Kieran Lyons
Title: Vice President
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<PAGE>
Exhibit B
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is made as of the 15th day of July, 1997, by and between The California Muni
Fund, a Massachusetts business trust (the "Fund"), and The Tocqueville Trust, a
Massachusetts business trust (the "Tocqueville Trust"), for itself and on behalf
of its Tocqueville California Muni Series (the "Successor Series").
This Agreement shall constitute a separate Agreement and Plan of
Reorganization for the Fund and the Successor Series. It is expressly agreed
that the respective rights and obligations of the Fund and the Successor Series,
as provided for hereunder, are separate from the rights and obligations of any
other funds managed by Fundamental Portfolio Advisors, Inc. and successor series
of the Tocqueville Trust, and that neither the rights and obligations of the
Fund nor of the Successor Series shall be construed to be joint rights or
obligations of the other funds managed by Fundamental Portfolio Advisors, Inc.
or their corresponding successor series, respectively, notwithstanding the fact
that such other funds and successor series may be subject to a separate
agreement and plan of reorganization containing terms and conditions which are
substantially the same as the terms and conditions set forth herein.
In consideration of the mutual promises herein contained, the
Fund and the Tocqueville Trust, for itself and on behalf of the Successor
Series, hereby agree as follows:
1. APPROVAL BY SHAREHOLDERS.
A special meeting of the shareholders of the Fund (the
"Meeting") will be called for the purpose of considering adoption of this
Agreement and Plan of Reorganization and considering such other business as may
properly come before the Meeting. The agenda for such Meeting may include such
other proposals as the Board of Trustees of the Fund may deem appropriate.
2. PLAN OF REORGANIZATION.
(i) Subject to the terms and conditions set forth in
this Agreement, the Fund will convey, transfer and deliver to the Successor
Series at the closing provided for in Section 3 (hereinafter called the
"Closing") all of its assets as set forth in paragraph 2(i) (the "Fund Assets").
In consideration thereof, and subject to the terms and conditions set forth in
this Agreement, at the Closing the Successor Series will (a) assume certain
identified liabilities attributable to the Fund and (b) deliver to the Fund a
number of full and fractional shares of beneficial interest of the Successor
Series, $.01 par value (the "Shares"), having an aggregate net asset value
("NAV") equal to the aggregate net asset value of the current Fund's shares of
beneficial interest (as determined in accordance with the Investment Company Act
of 1940, as amended (the "1940 Act") and the Fund's current Prospectus) on the
Closing Date.
(ii) The Fund Assets shall consist of all property
and assets of any nature whatsoever, including, without limitation, all cash,
cash equivalents, securities, claims and receivables (including dividend and
interest receivables) owned by the Fund, and any deferred or prepaid expenses
shown as an asset on the Fund's books on the Closing Date, as defined in
paragraph 4.
At least five (5) days prior to the Closing Date, the Fund will provide
the Successor Series with (i) a list of the Fund Assets and (ii) a list of the
Fund's Identified Liabilities, as defined below.
(iii) The Fund will, to the extent consistent with
its ordinary course of business and historical practices, discharge all of its
known liabilities and obligations prior to the Closing Date. The Successor
Series will assume all liabilities and obligations reflected on an unaudited
statement of assets and liabilities of its corresponding Fund prepared by the
Fund's accountant as of the Valuation Date (as defined in paragraph 3(i), in
accordance with generally accepted accounting principles consistently applied
from the prior audited period (the "Identified Liabilities"). The Successor
Series shall assume only the Identified Liabilities of its corresponding Fund,
<PAGE>
and no other liabilities or obligations, whether absolute or contingent, known
or unknown, accrued or unaccrued, other than those described in Section 9 of
this Agreement.
(iv) Upon consummation of the transactions described
in Section 2(i) hereof, the Fund will distribute to persons who are shareholders
of record of the Fund at the Closing the Shares received by the Fund pursuant to
Section 2(i), such distribution to be made pro rata to the shareholders based
upon the ratio that the percentage of the outstanding shares of the Fund owned
by each such shareholder at the Closing bears to the total number of Shares
received by the Fund from the Successor Series. Such distribution will be
accomplished by the establishment of an open account on the stock records of the
Successor Series in the name of each such shareholder of the Fund and setting
forth the number of Shares due such shareholder in accordance with the
foregoing. Fractional Shares will be carried to the third decimal place.
Certificates representing Shares will not be issued.
(v) As soon as is reasonably practicable after the
Closing, Fundamental Fund will take all necessary steps under its Declaration of
Trust and Massachusetts law to effect a complete liquidation and dissolution of
the Fund.
(vi) The transactions contemplated in this Section 2
are referred to as the "Reorganization."
3. VALUATION
(i) The value of the Fund Assets shall be the value
of such assets computed as of the close of business on the business day
immediately preceding the Closing (such time and date being referred to as an
"Valuation Date"), using the valuation procedures set forth in the Fund's then
current Prospectus and Statement of Additional Information.
(ii) The net asset value of each share of beneficial
interest of the Successor Series shall be its net asset value per share computed
on the Valuation Date, using the valuation procedures set forth in the Successor
Series' then-current Prospectus and Statement of Additional Information.
(iii) All computations of value contemplated by this
Section 3 shall be made by the Successor Series' fund accountant. The Successor
Series shall cause its fund accountant to deliver a copy of its valuation report
to the Fund and to the Tocqueville Trust at the Closing.
4. CLOSING.
The Closing will occur prior to the commencement of business
on December 15, 1997 (the "Closing Date") or such other time and date as may be
mutually agreed upon by the parties. In the event that the NAV calculations of
the Fund or the Successor Series are not readily determinable for purposes of
the Reorganization due to market disruption, the Closing shall occur on the next
successive business day.
5. CONDITIONS TO OBLIGATIONS OF THE FUND.
The obligations of the Fund in connection with the
consummation of the Reorganization shall be subject to the satisfaction of each
of the following conditions:
(i) The Fund shall have received the opinion of legal
counsel for the Tocqueville Trust, dated as of the date of the Closing and
addressed to the Fund, to the effect that: (a) the Tocqueville Trust is
established as a business trust and is validly existing under the laws of The
Commonwealth of Massachusetts, (b) the Tocqueville Trust is an open-end
investment company of the management type registered under the 1940 Act, and the
Successor Series is a duly established series of the Tocqueville Trust, (c) this
Agreement, and the Reorganization provided for herein, and the execution and
delivery of this Agreement have been duly authorized and approved by all
requisite action of the Board of Trustees of the Tocqueville Trust and this
Agreement has been duly executed and delivered by the Tocqueville Trust and is a
valid and binding obligation of the Tocqueville Trust and the Successor Series,
enforceable in accordance with its terms, and (d) the Shares to be issued in the
Reorganization will be duly authorized and upon issuance thereof in accordance
with this Agreement will be validly issued, fully paid and non-assessable Shares
of the Successor Series. In rendering such opinion, such legal counsel may rely
on an opinion of Massachusetts counsel reasonably acceptable to the Fund with
respect to matters of
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Massachusetts law, and on certificates of officers or trustees of the
Tocqueville Trust, in each case reasonably acceptable to the Fund.
(ii) The Tocqueville Trust and the Successor Series
shall have complied with each of their covenants contained herein and each of
the representations and warranties of the Tocqueville Trust and the Successor
Series contained herein shall be true in all material respects as of the
Closing, and the Tocqueville Trust shall have delivered to the Fund a
certificate from appropriate officers of the Tocqueville Trust reasonably
acceptable to the Fund to such effect.
6. CONDITIONS TO OBLIGATIONS OF THE TOCQUEVILLE TRUST AND THE
SUCCESSOR SERIES.
The obligations of the Tocqueville Trust and the Successor
Series in connection with the consummation of the Reorganization shall be
subject to the satisfaction of each of the following conditions:
(i) The Tocqueville Trust shall have received the
opinion of legal counsel for the Fund, dated as of the date of the Closing and
addressed to the Tocqueville Trust, to the effect that: (a) the Fund is
established as a Massachusetts business trust and is validly existing under the
laws of The Commonwealth of Massachusetts, (b) Fundamental Fund is an open-end
investment company of the management type registered under the 1940 Act, (c)
this Agreement and the Reorganization provided for herein and the execution and
delivery of this Agreement have been duly authorized and approved by all
requisite action of the Board of Trustees of the Fund and this Agreement has
been duly executed and delivered by the Fund and is a valid and binding
obligation of the Fund, enforceable in accordance with its terms, and (d) the
outstanding shares of the Fund have been duly authorized. In rendering such
opinion, such legal counsel may rely on an opinion of Massachusetts counsel
reasonably acceptable to the Tocqueville Trust with respect to matters of
Massachusetts law, and on certificates of officers or trustees of the Fund, in
each case reasonably acceptable to the Tocqueville Trust.
(ii) The Fund shall have complied with each of its
covenants contained herein and each of the representations and warranties of the
Fund shall be true in all material respects as of the Closing, and the Fund
shall have delivered to the Tocqueville Trust a certificate from appropriate
officers of the Fund reasonably acceptable to the Tocqueville Trust to such
effect.
(iii) The Board of Trustees of the Fund, including a
majority of the trustees (directors) who are not "interested persons" of the
Fund (as defined by the 1940 Act) shall have determined that this Agreement and
the transactions contemplated hereby are in the best interests of the Fund and
that the interests of the shareholders in the Fund would not be diluted as a
result of such transactions.
7. CONDITIONS TO OBLIGATIONS OF THE FUND AND THE TOCQUEVILLE
TRUST.
The obligations of the Fund and the Tocqueville Trust in
connection with the consummation of the Reorganization shall be subject to the
satisfaction of each of the following conditions:
(i) The Tocqueville Trust and the Fund shall have
received an opinion of legal counsel to the Fund, dated as of the date of the
Closing, addressed to and in form and substance satisfactory to the Tocqueville
Trust and the Fund to the effect that: (a) the transfer of all of the assets of
the Fund to the Successor Series in exchange for the assumption of the
Identified Liabilities of the Fund by the Successor Series, the delivery to the
Fund of shares of the Successor Series, the distribution by the Fund pro rata to
its shareholders of such shares of the Successor Series, and the termination of
such Fund, pursuant to the Reorganization Plan, will constitute a reorganization
within the meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended; (b) the Fund will not recognize any gain or loss as a result of the
Reorganization; (c) the Successor Series will not recognize any gain or loss on
the receipt of the assets of the Fund in exchange for shares of the Successor
Series; (d) the shareholders of the Fund will not recognize any gain or loss on
the exchange of their shares of the Fund for shares of the Successor Series; (e)
the aggregate tax basis of the Successor Series received by each shareholder of
the Fund in the Reorganization will be the same as the aggregate tax basis of
the shares of the Fund exchanged therefor; (f) the Successor Series' adjusted
tax bases in the assets received from the Fund in the Reorganization will be the
same as the adjusted tax bases of such assets in the hands of the Fund
immediately prior to the Reorganization; (g) the holding period of each former
shareholder of the Fund in the shares of the Successor Series received in the
Reorganization will include the period for which such shareholder held his
shares of the Fund as a capital asset; and (h) the Successor Series' holding
periods in the assets received from the Fund in the
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<PAGE>
Reorganization will include the holding periods of such assets in the hands of
the Fund immediately prior to the Reorganization.
(ii) Such authority, including "no-action" letters
and orders from the Securities and Exchange Commission (the "Commission") and
state securities commissions, as may be necessary to permit the parties to carry
out the transactions contemplated by this Agreement shall have been received.
(iii) The Shares shall have been duly qualified for
offering to the public in such jurisdictions (except where such qualifications
are not required) so as to permit the transfers contemplated by this Agreement
to be consummated.
(iv) This Agreement and the Reorganization and, if
necessary, a temporary amendment of the investment restrictions that might
otherwise preclude the consummation of the Reorganization, shall have been
approved by the holders of the requisite number of shares of beneficial interest
of the Fund entitled to vote on the matter under Fundamental Fund's Declaration
of Trust.
(v) On the Closing Date, (a) the Commission shall not
have issued an unfavorable advisory report under Section 25(b) of the 1940 Act
nor instituted nor threatened to institute any proceeding seeking to enjoin
consummation of the Reorganization contemplated hereby under Section 25(c) of
the 1940 Act and (b) no other action, suit or other proceeding shall be
threatened or pending before any court or governmental agency which seeks to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
At any time prior to the Closing, any of the foregoing
conditions in Section 4, 5 or 6 may be waived by the Fund or the Successor
Series, as the case may be, if, in the judgment of such party, such waiver will
not have a material adverse effect on the benefits intended under this Agreement
to the shareholders of the Fund or the Successor Series, as the case may be.
8. REPRESENTATIONS AND WARRANTIES.
a. THE FUND. The Fund represents and warrants to the
Tocqueville Trust as follows:
(i) The Fund is a business trust duly organized,
validly existing and in good standing under the laws of The Commonwealth of
Massachusetts;
(ii) The Fund is a registered investment company,
classified as a management company of the open-end type, and its registration
with the Commission as an investment company under the 1940 Act is in full force
and effect;
(iii) The Fund is not, and the execution, delivery
and performance of this Agreement will not result, in material violation of the
Fund's Declaration of Trust or By-laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the Fund is a party or
is bound;
(iv) The Fund has no material contracts or other
commitments (other than this Agreement) which will be terminated with liability
to the Fund prior to the Closing, except contracts entered into in the ordinary
course of its business and this Agreement;
(v) Except as otherwise disclosed in writing to and
accepted by the Tocqueville Trust, there is no litigation or administrative
proceeding or investigation of or before any court or governmental body pending
or to the Fund's knowledge threatened against the Fund or its properties or
assets, and the Fund knows of no fact which might form the basis for the
institution of such proceedings, and the Fund is not a party to or subject to
the provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects their respective businesses or their
ability to consummate the transactions contemplated herein;
(vi) The Statement of Assets and Liabilities of the
Fund at the last day of its most recently completed fiscal year, certified by
McGladrey and Pullen, LLP as independent auditors (as supplemented by any
unaudited semi-annual report as of the last day of its most recently completed
semi-annual fiscal period, if available) has been prepared in accordance with
generally accepted accounting principles consistently applied, fairly
B-4
<PAGE>
reflects the financial condition of the Fund as of such date, and there are no
known liabilities (contingent or otherwise) of the Fund as of such date which
are required to be and are not disclosed therein;
(vii) From the date of the most recent report
referred to in paragraph (vi) above, there has not been any material adverse
change in the Fund's financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business or as a result of this
transaction (for the purposes of this paragraph (vii), a decline in net assets
of the Fund shall not constitute a material adverse change);
(viii) All shares of beneficial interest, no par
value, of the Fund are, and at the Closing will be, duly authorized, legally
issued, fully paid and non-assessable, and the Fund does not have outstanding
any options, warrants or other rights to subscribe for or purchase any shares of
the Fund (other than dividend reinvestment plans of the Fund or as set forth in
this Agreement) nor are there outstanding any securities convertible into any
shares of the Fund (except pursuant to any exchange privileges described in the
current Prospectus or Registration Statement of the Fund under the Securities
Act of 1933 (the "1933 Act"));
(ix) At the Closing, the Fund will have good and
marketable title to the Fund Assets to be transferred to the Successor Series
and full right, power and authority to assign, transfer and deliver such assets
hereunder, and, upon delivery and payment for such assets, the Successor Series
will acquire good and marketable title thereto, subject to no restrictions on
the full transfer thereof, including such restrictions as might arise under the
1933 Act;
(x) The Fund has full power and authority to enter
into and perform its obligations under this Agreement; the execution, delivery
and performance of this Agreement have been duly authorized by all necessary
action on the part of the Board of Trustees of the Fund; and, subject to the
approval of the shareholders of the Fund, this Agreement constitutes a valid and
binding obligation of the Fund and the Fund, enforceable against the Fund and
the Fund in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium and other laws relating to
or affecting creditors' rights and by equitable principles;
(xi) The Fund has provided the Tocqueville Trust with
the Fund's most recent Form N-1A Registration Statement under the 1933 Act,
which does not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such statements
were made, not materially misleading;
(xii) The information furnished by the Fund for use
in proxy materials and other documents in connection with the transactions
contemplated hereby, and the Registration Statement on Form N-1A of the
Successor Series (other than the portions of such materials which relate to this
transaction), is accurate and complete in all material respects and complies in
all material respects with federal securities and other laws and regulations
thereunder applicable thereto; and
(xiii) The Proxy Statement to be used in connection
with the transactions contemplated hereby (only insofar as it relates to
Fundamental Fund) on its effective date and at the Closing, will comply in all
material respects with the provisions of the 1933 Act, the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and the 1940 Act and the rules and
regulations thereunder, and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which such
statements were made, not materially misleading.
b. THE TOCQUEVILLE TRUST. The Tocqueville Trust, with respect
to itself and the Successor Series, represents and warrants to the Fund as
follows:
(i) The Tocqueville Trust is a business trust duly
organized, validly existing and in good standing under the laws of The
Commonwealth of Massachusetts;
(ii) The Tocqueville Trust is a registered investment
company classified as a management company of the open-end type, and its
registration with the Commission as an investment company under the 1940 Act is
in full force and effect;
(iii) The Successor Series is a duly established
series of the Tocqueville Trust;
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<PAGE>
(iv) The Tocqueville Trust is not, and the execution,
delivery and performance of this Agreement will not result, in material
violation of the Tocqueville Trust's Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to which
the Tocqueville Trust is a party or is bound;
(v) Except as otherwise disclosed in writing to and
accepted by the Fund, there is no litigation or administrative proceeding or
investigation of or before any court or governmental body pending or to the
Tocqueville Trust's knowledge threatened against the Tocqueville Trust with
respect to the Successor Series or its properties or assets, and the Tocqueville
Trust knows of no fact which might form the basis for the institution of such
proceedings, and neither the Tocqueville Trust nor the Successor Series is a
party or subject to the provisions of any order, decree or judgment of any court
or governmental body which materially and adversely affects their respective
businesses or their respective abilities to consummate the transactions
contemplated herein;
(vi) At the Closing all shares of beneficial interest
in the Successor Series will be duly authorized, legally issued, fully paid and
non-assessable, and the Successor Series does not have outstanding any options,
warrants or other rights to subscribe for or purchase any shares of the
Successor Series (other than dividend reinvestment plans of the Successor Series
or as set forth in this Agreement), nor are there outstanding any securities
convertible into any shares of the Successor Series (except pursuant to exchange
privileges described in the current Prospectus or Registration Statement of the
Successor Series under the 1933 Act);
(vii) The Tocqueville Trust has full power and
authority to enter into and perform its obligations under this Agreement; the
execution, delivery and performance of this Agreement have been duly authorized
by all necessary action on the part of the Board of Trustees of the Tocqueville
Trust; and this Agreement constitutes a valid and binding obligation of the
Tocqueville Trust and the Successor Series, enforceable against the Tocqueville
Trust and the Successor Series in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights and by
equitable principles;
(viii) The Tocqueville Trust will provide to the Fund
the Form N-1A Registration Statement under the 1933 Act concerning the Successor
Series, which does not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make any
statements therein, in light of the circumstances under which such statements
were made, not materially misleading;
(ix) The information to be furnished by the
Tocqueville Trust for use in Registration Statements, proxy materials and other
documents, in connection with the transactions contemplated hereby, will be
accurate and complete in all material respects and will comply in all material
respects with federal securities laws and other laws and regulations thereunder
applicable thereto; and
(x) The Proxy Statement to be used in connection with
the transactions contemplated hereby (only insofar as it relates to the
Successor Series or the Tocqueville Trust), on its effective date and at the
Closing, will conform in all material respects with the provisions of the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder, and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were made,
not materially misleading.
9. COVENANTS OF THE TOCQUEVILLE TRUST
The Tocqueville Trust covenants to the Fund as follows:
(i) The Tocqueville Trust will use its best efforts
and take all actions as may be necessary or advisable to effectuate the
Reorganization and to continue the Successor Series in operation thereafter,
including the obtaining of any regulatory approvals required to be obtained by
it.
(ii) The Tocqueville Trust, on behalf of the
Successor Series, agrees, for the period beginning at the Closing and ending not
less than two years thereafter, to indemnify and advance expenses to each person
who at the time of the execution of this Agreement serves as an independent
trustee ("Indemnified Person") of the Fund, against all costs and expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by such Indemnified Person in connection with
any claim, whether the
B-6
<PAGE>
basis for which is known or unknown on the date hereof, that is asserted against
such Indemnified Person arising out of such person's service as an independent
trustee of the Fund, provided that such indemnification and advancement of
expenses shall be permitted under Massachusetts law. This paragraph 9 (ii) shall
not protect any such Indemnified Person against any liability to the Fund, the
Tocqueville Trust or their shareholders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or from reckless
disregard of the duties involved in the conduct of his office. An Indemnified
Person seeking indemnification shall be entitled to advances from the
Tocqueville Trust for payment of the reasonable expenses incurred by him in
connection with the matter as to which he is seeking indemnification in the
manner and to the fullest extent permissible under Massachusetts law. Such
Indemnified Person shall provide to the Tocqueville Trust a written affirmation
of his good faith belief that the standard of conduct necessary for
indemnification by the Tocqueville Trust has been met and a written undertaking
to repay any advance if it should ultimately be determined that the standard of
conduct has not been met. In addition, at least one of the following additional
conditions shall be met: (a) the Indemnified Person shall provide security in
form and amount acceptable to the Tocqueville Trust for its undertaking; or (b)
either a majority of a quorum of disinterested non-party trustees of the
Tocqueville Trust, or independent legal counsel experienced in mutual fund
matters, selected by the Indemnified Person, in a written opinion, shall have
determined, based on a review of facts readily available to the Tocqueville
Trust at the time the advance is proposed to be made, that there is reason to
believe that the Indemnified Person will ultimately be found to be entitled to
indemnification.
The Tocqueville Trust agrees that in the event it or the
Successor Series is subsequently acquired by merger, acquisition or the sale of
substantially all of its assets ("Subsequent Merger"), or it reorganizes or
changes its domicile ("Subsequent Redomestication"), it will provide under the
terms of such Subsequent Merger or Subsequent Redomestication that the
indemnification provided for above shall continue in full force and effect. In
the event that the Tocqueville Trust enters into negotiation for a Subsequent
Merger or Subsequent Redomestication, the Tocqueville Trust shall promptly
notify the Indemnified Person of such intended Subsequent Merger or Subsequent
Redomestication.
10. COVENANTS OF THE FUND
The Fund covenants to the Tocqueville Trust and the Successor
Series as follows:
(i) The Fund will use its best efforts and take all
actions as may be necessary or advisable to effectuate the Reorganization,
including the obtaining of any regulatory approvals, as may be required to be
obtained by it.
(ii) Except as otherwise contemplated by this
Agreement, the Fund will use its best efforts to conduct the business of the
Fund in the ordinary course until the consummation of the Reorganization.
(iii) The Fund will duly supplement its Prospectus in
the manner prescribed by Rule 497(e) of the 1933 Act and all other applicable
law and regulations.
11. BROKERAGE FEES AND EXPENSES
(i) The Fund represents and warrants to the
Tocqueville Trust, and the Tocqueville Trust represents and warrants to the
Fund, that there are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
(ii) The Fund and the Tocqueville Trust confirm their
understanding that Fundamental Portfolio Advisors, Inc. and Tocqueville Asset
Management L.P. will be responsible for all expenses in connection with the
Reorganization.
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<PAGE>
12. TERMINATION.
The Board of Trustees of the Fund may terminate this Agreement
and abandon the Reorganization contemplated hereby at any time prior thereto,
notwithstanding approval thereof by the shareholders of the Fund if, in the
judgment of such Board proceeding with the Reorganization would be inadvisable
or if any of the conditions set forth in Sections 5 or 7 hereof have not been
satisfied. The Board of Trustees of the Tocqueville Trust may terminate this
Agreement and abandon the Reorganization contemplated hereby if any of the
conditions set forth in Sections 6 or 7 hereof have not been satisfied. In the
event of any such termination, there shall be no liability for damages on the
part of either party to the other.
13. ENTIRE AGREEMENT.
This Agreement embodies the entire Agreement between the
parties and there are no agreements, understandings, restrictions or warranties
among the parties other than those set forth herein or herein provided for. This
Agreement may not be amended without the consent in writing of both parties
hereto. Furthermore, after approval of this Agreement by the shareholders of the
Fund, no amendments may be made that materially adversely affect the interests
of shareholders of the Fund unless such amendments are submitted for shareholder
approval.
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties made in this Agreement
shall not survive the Closing.
15. FURTHER ASSURANCES.
The Fund and the Tocqueville Trust shall take such further
action as may be reasonably necessary or desirable and proper to consummate the
transactions contemplated hereby.
16. GOVERNING LAW.
This Agreement and the transactions contemplated hereby shall
be governed by and construed and enforced in accordance with the laws of The
Commonwealth of Massachusetts, without regard to principles of conflicts of law.
17. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
Copies of the Declaration of Trust of the Fund and the
Tocqueville Trust are on file with The Commonwealth of Massachusetts and notice
is hereby given that it is executed on behalf of the trustees of the Fund and
the Tocqueville Trust as trustees and not individually and that the obligations
of the Fund and the Tocqueville Trust pursuant to this Agreement and the other
agreements contemplated hereby are not binding upon any of the trustees or
shareholders individually but binding only upon the assets and property of the
Fund and the Tocqueville Trust.
18. NOTICES.
All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and deemed properly given if
hand delivered or deposited in the U.S. mail, return receipt requested or
certified, postage prepaid, or with an overnight delivery service, as follows:
a. if to the Fund:
The California Muni Fund
90 Washington Street, 19th Floor
New York, New York 10006
Attention: Dr. Vincent J. Malanga
and additional copies to:
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<PAGE>
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Carl Frischling, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attention: Stuart Coleman, Esq.
b. if to the Tocqueville Trust:
The Tocqueville Trust
1675 Broadway
New York, New York 10019
Attention: Robert Kleinschmidt
and an additional copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Susan Penry-Williams, Esq.
or to such other person or address as the Fund or the Tocqueville Trust,
respectively, shall furnish to the other in writing.
IN WITNESS WHEREOF, each of the Fund and the Tocqueville Trust
have caused this Agreement and Plan of Reorganization to be executed on its
behalf by its Chairman, President or a Vice President and attested by its
Secretary or Assistant Secretary, all as of the day and year first above
written.
The California Muni Fund
By:/s/ Vincent J. Malanga
----------------------
Name: Vincent J. Malanga
Title: President
ATTEST:
By:/s/ Carole M. Laible
--------------------
Name: Carole M. Laible
Title: Secretary
The Tocqueville Trust, for itself and on
behalf of the
California Muni Fund Series
By: /s/ Robert Kleinschmidt
-----------------------
Name: Robert Kleinschmidt
Title: President
ATTEST:
By:/s/ Kieran Lyons
----------------
Name: Kieran Lyons
Title: Vice President
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<PAGE>
Exhibit C
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is made as of the 15th day of July, 1997, by and between Fundamental Funds,
Inc., a Maryland corporation (the "Fundamental Fund"), for itself and on behalf
of its New York Muni Fund (the "Fund"), and The Tocqueville Trust, a
Massachusetts business trust ("the Tocqueville Trust"), for itself and on behalf
of its Tocqueville New York Muni Fund Series (the "Successor Series").
This Agreement shall constitute a separate Agreement and Plan of
Reorganization for the Fund and the Successor Series. It is expressly agreed
that the respective rights and obligations of the Fund and the Successor Series,
as provided for hereunder, are separate from the rights and obligations of any
other funds managed by Fundamental Portfolio Advisors, Inc. and successor series
of the Tocqueville Trust, and that neither the rights and obligations of the
Fund nor of the Successor Series shall be construed to be joint rights or
obligations of the other funds managed by Fundamental Portfolio Advisors, Inc.
or their corresponding successor series, respectively, notwithstanding the fact
that such other funds and successor series may be subject to a separate
agreement and plan of reorganization containing terms and conditions which are
substantially the same as the terms and conditions set forth herein. For
purposes of Maryland corporate law this Agreement shall constitute a separate
Agreement and Plan of Reorganization for Fundamental Fund and Tocqueville Trust.
In consideration of the mutual promises herein contained, Fundamental
Fund, for itself and on behalf of the Fund, and the Tocqueville Trust, for
itself and on behalf of the Successor Series, hereby agree as follows:
1. APPROVAL BY SHAREHOLDERS.
A special meeting of the shareholders of the Fund (which
constitute all of the shareholders of Fundamental Fund) (the "Meeting") will be
called for the purpose of considering adoption of this Agreement and Plan of
Reorganization and considering such other business as may properly come before
the Meeting. The agenda for such Meeting may include such other proposals as the
Board of Trustees of Fundamental Fund may deem appropriate.
2. PLAN OF REORGANIZATION.
(i) Subject to the terms and conditions set forth in
this Agreement, the Fund will convey, transfer and deliver to the Successor
Series at the closing provided for in Section 3 (hereinafter called the
"Closing") all of its assets as set forth in paragraph 2(ii) (which constitute
all of the assets of Fundamental Fund) (the "Fund Assets"). In consideration
thereof, and subject to the terms and conditions set forth in this Agreement, at
the Closing the Successor Series will (a) assume certain identified liabilities
attributable to the Fund and (b) deliver to the Fund and Fundamental Fund a
number of full and fractional shares of beneficial interest of the Successor
Series, $.01 par value (the "Shares"), having an aggregate net asset value
("NAV") equal to the aggregate net asset value of the Fund's shares of common
stock (as determined in accordance with the Investment Company Act of 1940, as
amended (the "1940 Act") and the Fund's current Prospectus) on the Closing Date.
(ii) The Fund Assets shall consist of all property
and assets of any nature whatsoever, including, without limitation, all cash,
cash equivalents, securities, claims and receivables (including dividend and
interest receivables) owned by the Fund (which constitute all of the assets of
Fundamental Fund), and any deferred or prepaid expenses shown as an asset on the
Fund's books on the Closing Date, as defined in paragraph 4.
At least five (5) days prior to the Closing Date, the Fund will provide
the Successor Series with (i) a list of the Fund Assets and (ii) a list of the
Fund's Identified Liabilities, as defined below.
(iii) The Fund will, to the extent consistent with
its ordinary course of business and historical practices, discharge all of its
known liabilities and obligations prior to the Closing Date. The Successor
Series will assume all liabilities and obligations reflected on an unaudited
statement of assets and liabilities of its Fund prepared by the Fund's
accountant as of the Valuation Date (as defined in paragraph 3(i), in accordance
with
<PAGE>
generally accepted accounting principles consistently applied from the prior
audited period (the "Identified Liabilities"). The Successor Series shall assume
only the Identified Liabilities of its Fund, and no other liabilities or
obligations, whether absolute or contingent, known or unknown, accrued or
unaccrued, other than those described in Section 9 of this Agreement.
(iv) Upon consummation of the transactions described
in Section 2(i) hereof, the Fund will distribute to persons who are shareholders
of record of the Fund at the Closing the Shares received by the Fund pursuant to
Section 2(i), such distribution to be made pro rata to the shareholders based
upon the ratio that the percentage of the outstanding shares of the Fund owned
by each such shareholder at the Closing bears to the total number of Shares
received by the Fund from the Successor Series. Such distribution will be
accomplished by the establishment of an open account on the stock records of the
Successor Series in the name of each such shareholder of the Fund and setting
forth the number of Shares due such shareholder in accordance with the
foregoing. Fractional Shares will be carried to the third decimal place.
Certificates representing Shares will not be issued.
(v) As soon as is reasonably practicable after the
Closing, Fundamental Fund will take all necessary steps under its Articles of
Incorporation and Maryland law to effect a complete liquidation and dissolution
of the Fund.
(vi) The transactions contemplated in this Section 2
are referred to as the "Reorganization."
3. VALUATION
(i) The value of the Fund Assets shall be the value
of such assets computed as of the close of business on the business day
immediately preceding the Closing (such time and date being referred to as an
"Valuation Date"), using the valuation procedures set forth in the Fund's then
current Prospectus and Statement of Additional Information.
(ii) The net asset value of each share of beneficial
interest of the Successor Series shall be its net asset value per share computed
on the Valuation Date, using the valuation procedures set forth in the Successor
Series's then-current Prospectus and Statement of Additional Information.
(iii) All computations of value contemplated by this
Section 3 shall be made by the Successor Series's fund accountant. The Successor
Series shall cause its fund accountant to deliver a copy of its valuation report
to Fundamental Fund and to the Tocqueville Trust at the Closing.
4. CLOSING.
The Closing will occur prior to the commencement of business
on December 15, 1997 (the "Closing Date") or such other time and date as may be
mutually agreed upon by the parties. In the event that the NAV calculations of
the Fund or the Successor Series are not readily determinable for purposes of
the Reorganization due to market disruption, the Closing shall occur on the next
successive business day.
5. CONDITIONS TO OBLIGATIONS OF FUNDAMENTAL FUND AND THE
FUND.
The obligations of Fundamental Fund and the Fund in connection
with the consummation of the Reorganization shall be subject to the satisfaction
of each of the following conditions:
(i) Fundamental Fund shall have received the opinion
of legal counsel for the Tocqueville Trust, dated as of the date of the Closing
and addressed to Fundamental Fund, to the effect that: (a) the Tocqueville Trust
is established as a business trust and is validly existing under the laws of The
Commonwealth of Massachusetts, (b) the Tocqueville Trust is an open-end
investment company of the management type registered under the 1940 Act, and the
Successor Series is a duly established series of the Tocqueville Trust, (c) this
Agreement, and the Reorganization provided for herein, and the execution and
delivery of this Agreement have been duly authorized and approved by all
requisite action of the Board of Trustees of the Tocqueville Trust and this
Agreement has been duly executed and delivered by the Tocqueville Trust and is a
valid and binding obligation of the Tocqueville Trust and the Successor Series,
enforceable in accordance with its terms, and (d) the Shares to be issued in the
Reorganization will be duly authorized and upon issuance thereof in accordance
with this Agreement
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<PAGE>
will be validly issued, fully paid and non-assessable Shares of the Successor
Series. In rendering such opinion, such legal counsel may rely on an opinion of
Massachusetts counsel reasonably acceptable to Fundamental Fund with respect to
matters of Massachusetts law, and on certificates of officers or trustees of the
Tocqueville Trust, in each case reasonably acceptable to Fundamental Fund.
(ii) The Tocqueville Trust and the Successor Series
shall have complied with each of their covenants contained herein and each of
the representations and warranties of the Tocqueville Trust and the Successor
Series contained herein shall be true in all material respects as of the
Closing, and the Tocqueville Trust shall have delivered to Fundamental Fund a
certificate from appropriate officers of the Tocqueville Trust reasonably
acceptable to Fundamental Fund to such effect.
6. CONDITIONS TO OBLIGATIONS OF THE TOCQUEVILLE TRUST AND THE
SUCCESSOR SERIES.
The obligations of the Tocqueville Trust and the Successor
Series in connection with the consummation of the Reorganization shall be
subject to the satisfaction of each of the following conditions:
(i) The Tocqueville Trust shall have received the
opinion of legal counsel for Fundamental Fund, dated as of the date of the
Closing and addressed to the Tocqueville Trust, to the effect that: (a)
Fundamental Fund is established as a Maryland corporation and is validly
existing under the laws of the State of Maryland, (b) Fundamental Fund is an
open-end investment company of the management type registered under the 1940
Act, (c) this Agreement and the Reorganization provided for herein and the
execution and delivery of this Agreement have been duly authorized and approved
by all requisite action of the Board of Directors of Fundamental Fund and this
Agreement has been duly executed and delivered by Fundamental Fund and is a
valid and binding obligation of Fundamental Fund and the Fund, enforceable in
accordance with its terms, and (d) the outstanding shares of the Fund have been
duly authorized. In rendering such opinion, such legal counsel may rely on an
opinion of Maryland counsel reasonably acceptable to the Tocqueville Trust with
respect to matters of Maryland law, and on certificates of officers or directors
of Fundamental Fund, in each case reasonably acceptable to the Tocqueville
Trust.
(ii) Fundamental Fund shall have complied with each
of its covenants contained herein and each of the representations and warranties
of Fundamental Fund shall be true in all material respects as of the Closing,
and Fundamental Fund shall have delivered to the Tocqueville Trust a certificate
from appropriate officers of Fundamental Fund reasonably acceptable to the
Tocqueville Trust to such effect.
(iii) The Board of Directors of Fundamental Fund,
including a majority of the directors who are not "interested persons" of
Fundamental Fund (as defined by the 1940 Act) shall have determined that this
Agreement and the transactions contemplated hereby are in the best interests of
the Fund and that the interests of the shareholders in the Fund would not be
diluted as a result of such transactions.
7. CONDITIONS TO OBLIGATIONS OF FUNDAMENTAL FUND AND THE
TOCQUEVILLE TRUST.
The obligations of Fundamental Fund and the Tocqueville Trust
in connection with the consummation of the Reorganization shall be subject to
the satisfaction of each of the following conditions:
(i) The Tocqueville Trust and Fundamental Fund shall
have received an opinion of legal counsel to Fundamental Fund, dated as of the
date of the Closing, addressed to and in form and substance satisfactory to the
Tocqueville Trust and Fundamental Fund to the effect that: (a) the transfer of
all of the assets of the Fund to the Successor Series in exchange for the
assumption of the Identified Liabilities of the Fund by the Successor Series,
the delivery to the Fund of shares of the Successor Series, the distribution by
the Fund pro rata to its shareholders of such shares of the Successor Series,
and the termination of such Fund, pursuant to the Reorganization Plan, will
constitute a reorganization within the meaning of Section 368(a)(1) of the
Internal Revenue Code of 1986, as amended; (b) the Fund will not recognize any
gain or loss as a result of the Reorganization; (c) the Successor Series will
not recognize any gain or loss on the receipt of the assets of the Fund in
exchange for shares of the Successor Series; (d) the shareholders of the Fund
will not recognize any gain or loss on the exchange of their shares of the Fund
for shares of the Successor Series; (e) the aggregate tax basis of the Successor
Series received by each shareholder of the Fund in the Reorganization will be
the same as the aggregate tax basis of the shares of the Fund exchanged
therefor; (f) the Successor Series' adjusted tax bases in the assets received
from the Fund in the Reorganization will be the same as the adjusted tax bases
of such assets in the hands of the Fund
C-3
<PAGE>
immediately prior to the Reorganization; (g) the holding period of each former
shareholder of the Fund in the shares of the Successor Series received in the
Reorganization will include the period for which such shareholder held his
shares of the Fund as a capital asset; and (h) the Successor Series' holding
periods in the assets received from the Fund in the Reorganization will include
the holding periods of such assets in the hands of the Fund immediately prior to
the Reorganization.
(ii) Such authority, including "no-action" letters
and orders from the Securities and Exchange Commission (the "Commission") and
state securities commissions, as may be necessary to permit the parties to carry
out the transactions contemplated by this Agreement shall have been received.
(iii) The Shares shall have been duly qualified for
offering to the public in such jurisdictions (except where such qualifications
are not required) so as to permit the transfers contemplated by this Agreement
to be consummated.
(iv) This Agreement and the Reorganization and, if
necessary, a temporary amendment of the investment restrictions that might
otherwise preclude the consummation of the Reorganization, shall have been
approved by the holders of the requisite number of shares of common stock of the
Fund entitled to vote on the matter under Fundamental Fund's Articles of
Incorporation.
(v) On the Closing Date, (a) the Commission shall not
have issued an unfavorable advisory report under Section 25(b) of the 1940 Act
nor instituted nor threatened to institute any proceeding seeking to enjoin
consummation of the Reorganization contemplated hereby under Section 25(c) of
the 1940 Act and (b) no other action, suit or other proceeding shall be
threatened or pending before any court or governmental agency which seeks to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
At any time prior to the Closing, any of the foregoing
conditions in Section 4, 5 or 6 may be waived by the Fund or the Successor
Series, as the case may be, if, in the judgment of such party, such waiver will
not have a material adverse effect on the benefits intended under this Agreement
to the shareholders of the Fund or the Successor Series, as the case may be.
8. REPRESENTATIONS AND WARRANTIES.
a. FUNDAMENTAL FUND. Fundamental Fund, with respect to
itself and the Fund, represents and warrants to the Tocqueville Trust as
follows:
(i) Fundamental Fund is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland;
(ii) Fundamental Fund is a registered investment
company, classified as a management company of the open-end type, and its
registration with the Commission as an investment company under the 1940 Act is
in full force and effect;
(iii) New York Muni Fund is a duly established series
of Fundamental Fund;
(iv) Fundamental Fund is not, and the execution,
delivery and performance of this Agreement will not result, in material
violation of Fundamental Fund's Articles of Incorporation or By-laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to which
Fundamental Fund is a party or is bound;
(v) Fundamental Fund has no material contracts or
other commitments (other than this Agreement) which will be terminated with
liability to the Fund prior to the Closing, except contracts entered into in the
ordinary course of its business and this Agreement;
(vi) Except as otherwise disclosed in writing to and
accepted by the Tocqueville Trust, there is no litigation or administrative
proceeding or investigation of or before any court or governmental body pending
or to Fundamental Fund's knowledge threatened against Fundamental Fund with
respect to the Fund or its properties or assets, and Fundamental Fund knows of
no fact which might form the basis for the institution of such
C-4
<PAGE>
proceedings, and neither Fundamental Fund nor the Fund is a party to or subject
to the provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects their respective businesses or their
ability to consummate the transactions contemplated herein;
(vii) The Statement of Assets and Liabilities of the
Fund at the last day of its most recently completed fiscal year, certified by
McGladrey and Pullen, LLP as independent auditors (as supplemented by any
unaudited semi-annual report as of the last day of its most recently completed
semi-annual fiscal period, if available) has been prepared in accordance with
generally accepted accounting principles consistently applied, fairly reflects
the financial condition of the Fund as of such date, and there are no known
liabilities (contingent or otherwise) of the Fund as of such date which are
required to be and are not disclosed therein;
(viii) From the date of the most recent report
referred to in paragraph (vii) above, there has not been any material adverse
change in the Fund's financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business or as a result of this
transaction (for the purposes of this paragraph (viii), a decline in net assets
of the Fund shall not constitute a material adverse change);
(ix) All shares of common stock, $.001 par value, of
the Fund are, and at the Closing will be, duly authorized, legally issued, fully
paid and non-assessable, and the Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any shares of the Fund
(other than dividend reinvestment plans of the Fund or as set forth in this
Agreement) nor are there outstanding any securities convertible into any shares
of the Fund (except pursuant to any exchange privileges described in the current
Prospectus or Registration Statement of the Fund under the Securities Act of
1933 (the "1933 Act"));
(x) At the Closing, the Fund will have good and
marketable title to the Fund Assets to be transferred to the Successor Series
and full right, power and authority to assign, transfer and deliver such assets
hereunder, and, upon delivery and payment for such assets, the Successor Series
will acquire good and marketable title thereto, subject to no restrictions on
the full transfer thereof, including such restrictions as might arise under the
1933 Act;
(xi) Fundamental Fund has full power and authority to
enter into and perform its obligations under this Agreement; the execution,
delivery and performance of this Agreement have been duly authorized by all
necessary action on the part of the Board of Directors of Fundamental Fund; and,
subject to the approval of the shareholders of the Fund, this Agreement
constitutes a valid and binding obligation of Fundamental Fund and the Fund,
enforceable against Fundamental Fund and the Fund in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights and by equitable principles;
(xii) Fundamental Fund has provided the Tocqueville
Trust with the Fund's most recent Form N-1A Registration Statement under the
1933 Act, which does not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such statements
were made, not materially misleading;
(xiii) The information furnished by the Fund for use
in proxy materials and other documents in connection with the transactions
contemplated hereby, and the Registration Statement on Form N-1A of the
Successor Series (other than the portions of such materials which relate to this
transaction), is accurate and complete in all material respects and complies in
all material respects with federal securities and other laws and regulations
thereunder applicable thereto; and
(xiv) The Proxy Statement to be used in connection
with the transactions contemplated hereby (only insofar as it relates to
Fundamental Fund) on its effective date and at the Closing, will comply in all
material respects with the provisions of the 1933 Act, the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and the 1940 Act and the rules and
regulations thereunder, and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which such
statements were made, not materially misleading.
C-5
<PAGE>
b. THE TOCQUEVILLE TRUST. The Tocqueville Trust, with respect
to itself and the Successor Series, represents and warrants to Fundamental Fund
as follows:
(i) The Tocqueville Trust is a business trust duly
organized, validly existing and in good standing under the laws of The
Commonwealth of Massachusetts;
(ii) The Tocqueville Trust is a registered investment
company classified as a management company of the open-end type, and its
registration with the Commission as an investment company under the 1940 Act is
in full force and effect;
(iii) The Successor Series is a duly established
series of the Tocqueville Trust;
(iv) The Tocqueville Trust is not, and the execution,
delivery and performance of this Agreement will not result, in material
violation of the Tocqueville Trust's Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to which
the Tocqueville Trust is a party or is bound;
(v) Except as otherwise disclosed in writing to and
accepted by Fundamental Fund, there is no litigation or administrative
proceeding or investigation of or before any court or governmental body pending
or to the Tocqueville Trust's knowledge threatened against the Tocqueville Trust
with respect to the Successor Series or its properties or assets, and the
Tocqueville Trust knows of no fact which might form the basis for the
institution of such proceedings, and neither the Tocqueville Trust nor the
Successor Series is a party or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and adversely
affects their respective businesses or their respective abilities to consummate
the transactions contemplated herein;
(vi) At the Closing all shares of beneficial interest
in the Successor Series will be duly authorized, legally issued, fully paid and
non-assessable, and the Successor Series does not have outstanding any options,
warrants or other rights to subscribe for or purchase any shares of the
Successor Series (other than dividend reinvestment plans of the Successor Series
or as set forth in this Agreement), nor are there outstanding any securities
convertible into any shares of the Successor Series (except pursuant to exchange
privileges described in the current Prospectus or Registration Statement of the
Successor Series under the 1933 Act);
(vii) The Tocqueville Trust has full power and
authority to enter into and perform its obligations under this Agreement; the
execution, delivery and performance of this Agreement have been duly authorized
by all necessary action on the part of the Board of Trustees of the Tocqueville
Trust; and this Agreement constitutes a valid and binding obligation of the
Tocqueville Trust and the Successor Series, enforceable against the Tocqueville
Trust and the Successor Series in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights and by
equitable principles;
(viii) The Tocqueville Trust will provide to the Fund
the Form N-1A Registration Statement under the 1933 Act concerning the Successor
Series, which does not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make any
statements therein, in light of the circumstances under which such statements
were made, not materially misleading;
(ix) The information to be furnished by the
Tocqueville Trust for use in Registration Statements, proxy materials and other
documents, in connection with the transactions contemplated hereby, will be
accurate and complete in all material respects and will comply in all material
respects with federal securities laws and other laws and regulations thereunder
applicable thereto; and
(x) The Proxy Statement to be used in connection with
the transactions contemplated hereby (only insofar as it relates to the
Successor Series or the Tocqueville Trust), on its effective date and at the
Closing, will conform in all material respects with the provisions of the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder, and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were made,
not materially misleading.
C-6
<PAGE>
9. COVENANTS OF THE TOCQUEVILLE TRUST
The Tocqueville Trust covenants to Fundamental Fund and the
Fund as follows:
(i) The Tocqueville Trust will use its best efforts
and take all actions as may be necessary or advisable to effectuate the
Reorganization and to continue the Successor Series in operation thereafter,
including the obtaining of any regulatory approvals required to be obtained by
it.
(ii) The Tocqueville Trust, on behalf of the
Successor Series, agrees, for the period beginning at the Closing and ending not
less than two years thereafter, to indemnify and advance expenses to each person
who at the time of the execution of this Agreement serves as an independent
director ("Indemnified Person") of Fundamental Fund, against all costs and
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement, actually and reasonably incurred by such Indemnified Person in
connection with any claim, whether the basis for which is known or unknown on
the date hereof, that is asserted against such Indemnified Person arising out of
such person's service as an independent director of Fundamental Fund, provided
that such indemnification and advancement of expenses shall be permitted under
Massachusetts law and other applicable law. This paragraph 9 (ii) shall not
protect any such Indemnified Person against any liability to Fundamental Fund,
the Tocqueville Trust or their shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or from
reckless disregard of the duties involved in the conduct of his office. An
Indemnified Person seeking indemnification shall be entitled to advances from
the Tocqueville Trust for payment of the reasonable expenses incurred by him in
connection with the matter as to which he is seeking indemnification in the
manner and to the fullest extent permissible under Massachusetts law and other
applicable law. Such Indemnified Person shall provide to the Tocqueville Trust a
written affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Tocqueville Trust has been met and a
written undertaking to repay any advance if it should ultimately be determined
that the standard of conduct has not been met. In addition, at least one of the
following additional conditions shall be met: (a) the Indemnified Person shall
provide security in form and amount acceptable to the Tocqueville Trust for its
undertaking; or (b) either a majority of a quorum of disinterested non- party
trustees of the Tocqueville Trust, or independent legal counsel experienced in
mutual fund matters, selected by the Indemnified Person, in a written opinion,
shall have determined, based on a review of facts readily available to the
Tocqueville Trust at the time the advance is proposed to be made, that there is
reason to believe that the Indemnified Person will ultimately be found to be
entitled to indemnification.
The Tocqueville Trust agrees that in the event it or the
Successor Series is subsequently acquired by merger, acquisition or the sale of
substantially all of its assets ("Subsequent Merger"), or it reorganizes or
changes its domicile ("Subsequent Redomestication"), it will provide under the
terms of such Subsequent Merger or Subsequent Redomestication that the
indemnification provided for above shall continue in full force and effect. In
the event that the Tocqueville Trust enters into negotiation for a Subsequent
Merger or Subsequent Redomestication, the Tocqueville Trust shall promptly
notify the Indemnified Person of such intended Subsequent Merger or Subsequent
Redomestication.
10. COVENANTS OF FUNDAMENTAL FUND
Fundamental Fund covenants to the Tocqueville Trust and the
Successor Series as follows:
(i) Fundamental Fund will use its best efforts and
take all actions as may be necessary or advisable to effectuate the
Reorganization, including the obtaining of any regulatory approvals, as may be
required to be obtained by it.
(ii) Except as otherwise contemplated by this
Agreement, Fundamental Fund will use its best efforts to conduct the business of
the Fund in the ordinary course until the consummation of the Reorganization.
(iii) The Fund will duly supplement its Prospectus in
the manner prescribed by Rule 497(e) of the 1933 Act and all other applicable
law and regulations.
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<PAGE>
11. BROKERAGE FEES AND EXPENSES
(i) Fundamental Fund represents and warrants to the
Tocqueville Trust, and the Tocqueville Trust represents and warrants to
Fundamental Fund, that there are no brokers or finders entitled to receive any
payments in connection with the transactions provided for herein.
(ii) Fundamental Fund and the Tocqueville Trust
confirm their understanding that Fundamental Portfolio Advisors, Inc. and
Tocqueville Asset Management L.P. will be responsible for all expenses in
connection with the Reorganization.
12. TERMINATION.
The Board of Directors of Fundamental Fund may terminate this
Agreement and abandon the Reorganization contemplated hereby at any time prior
thereto, notwithstanding approval thereof by the shareholders of the Fund if, in
the judgment of such Board proceeding with the Reorganization would be
inadvisable or if any of the conditions set forth in Sections 5 or 7 hereof have
not been satisfied. The Board of Trustees of the Tocqueville Trust may terminate
this Agreement and abandon the Reorganization contemplated hereby if any of the
conditions set forth in Sections 6 or 7 hereof have not been satisfied. In the
event of any such termination, there shall be no liability for damages on the
part of either party to the other.
13. ENTIRE AGREEMENT.
This Agreement embodies the entire Agreement between the
parties and there are no agreements, understandings, restrictions or warranties
among the parties other than those set forth herein or herein provided for. This
Agreement may not be amended without the consent in writing of both parties
hereto. Furthermore, after approval of this Agreement by the shareholders of the
Fund, no amendments may be made that materially adversely affect the interests
of shareholders of the Fund unless such amendments are submitted for shareholder
approval.
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties made in this Agreement
shall not survive the Closing.
15. FURTHER ASSURANCES.
Fundamental Fund and the Tocqueville Trust shall take such
further action as may be reasonably necessary or desirable and proper to
consummate the transactions contemplated hereby.
16. GOVERNING LAW.
This Agreement and the transactions contemplated hereby shall
be governed by and construed and enforced in accordance with the laws of The
Commonwealth of Massachusetts, without regard to principles of conflicts of law.
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<PAGE>
17. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
Copies of the Declaration of Trust of the Tocqueville Trust
are on file with The Commonwealth of Massachusetts and notice is hereby given
that it is executed on behalf of the trustees of the Tocqueville Trust as
trustees and not individually and that the obligations of the Tocqueville Trust
pursuant to this Agreement and the other agreements contemplated hereby are not
binding upon any of the trustees or shareholders individually but binding only
upon the assets and property of the Tocqueville Trust.
18. NOTICES.
All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and deemed properly given if
hand delivered or deposited in the U.S. mail, return receipt requested or
certified, postage prepaid, or with an overnight delivery service, as follows:
a. if to Fundamental Funds:
Fundamental Funds, Inc.:
90 Washington Street, 19th Floor
New York, New York 10006
Attention: Dr. Vincent J. Malanga
and additional copies to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Carl Frischling, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attention: Stuart Coleman, Esq.
b. if to the Tocqueville Trust:
The Tocqueville Trust
1675 Broadway
New York, New York 10019
Attention: Robert Kleinschmidt
and an additional copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Susan-Penry Williams, Esq.
or to such other person or address as Fundamental Fund or the Tocqueville Trust,
respectively, shall furnish to the other in writing.
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<PAGE>
IN WITNESS WHEREOF, each of Fundamental Fund and the
Tocqueville Trust have caused this Agreement and Plan of Reorganization to be
executed on its behalf by its Chairman, President or a Vice President and
attested by its Secretary or Assistant Secretary, all as of the day and year
first above written.
Fundamental Funds, Inc., for itself and
on behalf of New York Muni Fund
By: /s/ Vincent J. Malanga
----------------------
Name: Vincent J. Malanga
Title: President
ATTEST:
By:/s/ Carole M. Laible
--------------------
Name: Carole M. Laible
Title: Secretary
The Tocqueville Trust, for itself and on
behalf of the
New York Muni Fund Series
By:/s/ Robert Kleinschmidt
-----------------------
Name: Robert Kleinschmidt
Title: President
ATTEST:
By:/s/ Kieran Lyons
----------------
Name: Kieran Lyons
Title: Vice President
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<PAGE>
FUNDAMENTAL FIXED-INCOME FUND
FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND
SPECIAL MEETING OF SHAREHOLDERS -- _________, 1998
Please refer to the Proxy Statement for a discussion of these matters. THE
UNDERSIGNED HOLDER(S) OF SHARES OF BENEFICIAL INTEREST OF THE FUNDAMENTAL U.S.
GOVERNMENT STRATEGIC INCOME FUND SERIES OF FUNDAMENTAL FIXED-INCOME FUND HEREBY
CONSTITUTES AND APPOINTS ________________ AND _______________, OR EITHER OF
THEM, THE ATTORNEYS AND PROXIES OF THE UNDERSIGNED, WITH FULL POWER OF
SUBSTITUTION, TO VOTE THE SHARES LISTED BELOW AS DIRECTED, AND HEREBY REVOKES
ANY PRIOR PROXIES. To vote, mark an X in blue or black ink on the proxy card
below. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF FUNDAMENTAL
FIXED-INCOME FUND
---Detach card at perforation and mail in postage paid envelope provided---
1. Vote on Proposal to approve an Agreement and Plan of Reorganization.
FOR AGAINST ABSTAIN
|_| |_| |_|
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
<PAGE>
---Detach card at perforation and mail in postage paid envelope provided---
FUNDAMENTAL FIXED-INCOME FUND
FUNDAMENTAL U.S. GOVERNMENT STRATEGIC INCOME FUND
PROXY
This proxy, when properly executed and returned, will be voted in the manner
directed herein by the undersigned. If no direction is made, this proxy will be
voted FOR approval of proposal 1.
Please sign exactly as name appears on this card. When account is joint tenants,
all should sign. When signing as administrator, trustee or guardian, please give
title. If a corporation or partnership, sign in entity's name and by authorized
person.
x____________________________
x____________________________
Dated:___________________, 1998
<PAGE>
FUNDAMENTAL FIXED-INCOME FUND
HIGH-YIELD MUNICIPAL BOND SERIES
SPECIAL MEETING OF SHAREHOLDERS -- _________, 1998
Please refer to the Proxy Statement for a discussion of these matters. THE
UNDERSIGNED HOLDER(S) OF SHARES OF BENEFICIAL INTEREST OF THE HIGH-YIELD
MUNICIPAL BOND SERIES OF FUNDAMENTAL FIXED- INCOME FUND HEREBY CONSTITUTES AND
APPOINTS ________________ AND _______________, OR EITHER OF THEM, THE ATTORNEYS
AND PROXIES OF THE UNDERSIGNED, WITH FULL POWER OF SUBSTITUTION, TO VOTE THE
SHARES LISTED BELOW AS DIRECTED, AND HEREBY REVOKES ANY PRIOR PROXIES. To vote,
mark an X in blue or black ink on the proxy card below. THIS PROXY IS SOLICITED
ON BEHALF OF THE BOARD OF TRUSTEES OF FUNDAMENTAL FIXED-INCOME FUND
---Detach card at perforation and mail in postage paid envelope provided---
1. Vote on Proposal to approve an Agreement and Plan of Reorganization.
FOR AGAINST ABSTAIN
|_| |_| |_|
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
<PAGE>
---Detach card at perforation and mail in postage paid envelope provided---
FUNDAMENTAL FIXED-INCOME FUND
HIGH-YIELD MUNICIPAL BOND SERIES
PROXY
This proxy, when properly executed and returned, will be voted in the manner
directed herein by the undersigned. If no direction is made, this proxy will be
voted FOR approval of proposal 1.
Please sign exactly as name appears on this card. When account is joint tenants,
all should sign. When signing as administrator, trustee or guardian, please give
title. If a corporation or partnership, sign in entity's name and by authorized
person.
x____________________________
x____________________________
Dated:___________________, 1998
<PAGE>
FUNDAMENTAL FIXED-INCOME FUND
TAX-FREE MONEY MARKET SERIES
SPECIAL MEETING OF SHAREHOLDERS -- _________, 1998
Please refer to the Proxy Statement for a discussion of these matters. THE
UNDERSIGNED HOLDER(S) OF SHARES OF BENEFICIAL INTEREST OF THE TAX-FREE MONEY
MARKET SERIES OF FUNDAMENTAL FIXED-INCOME FUND HEREBY CONSTITUTES AND APPOINTS
________________ AND _______________, OR EITHER OF THEM, THE ATTORNEYS AND
PROXIES OF THE UNDERSIGNED, WITH FULL POWER OF SUBSTITUTION, TO VOTE THE SHARES
LISTED BELOW AS DIRECTED, AND HEREBY REVOKES ANY PRIOR PROXIES. To vote, mark an
X in blue or black ink on the proxy card below. THIS PROXY IS SOLICITED ON
BEHALF OF THE BOARD OF TRUSTEES OF FUNDAMENTAL FIXED-INCOME FUND
---Detach card at perforation and mail in postage paid envelope provided---
1. Vote on Proposal to approve an Agreement and Plan of Reorganization.
FOR AGAINST ABSTAIN
|_| |_| |_|
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
<PAGE>
---Detach card at perforation and mail in postage paid envelope provided---
FUNDAMENTAL FIXED-INCOME FUND
TAX-FREE MONEY MARKET SERIES
PROXY
This proxy, when properly executed and returned, will be voted in the manner
directed herein by the undersigned. If no direction is made, this proxy will be
voted FOR approval of proposal 1.
Please sign exactly as name appears on this card. When account is joint tenants,
all should sign. When signing as administrator, trustee or guardian, please give
title. If a corporation or partnership, sign in entity's name and by authorized
person.
x____________________________
x____________________________
Dated:___________________, 1998
