RULE 497(e):
33-34841;811-6011
PROSPECTUS
THE MONTGOMERY
SMALL CAP OPPORTUNITIES FUND
[OWL GRAPHIC}
THE MONTGOMERY FUNDS
Invest wisely.
TMF604411
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THE MONTGOMERY FUNDS
Supplements dated December 29, 1995 to
Prospectus dated December 29, 1995
For Ohio Investors
The Fund may invest more than 15% of its total assets in the securities of
issuers which together with any predecessor have a record of less than three
years of continuous operation or securities of issuers that are restricted as to
disposition. Ohio residents should be aware in this regard that this Fund does
not meet the guidelines set forth in paragraph (E) (12) of Rule 1301:6-3-09 of
the rules of the Ohio Securities Division. See "Other Investment Practices -
Illiquid Securities."
For Missouri Investors
The Fund may leverage its portfolio to create an opportunity for increased
return. This practice also creates special risks. See "Other Investment
Practices - Leverage."
Investors should note that the Fund may invest up to 35% of its assets in
securities of foreign companies. Accordingly, shareholders should consider
carefully the substantial risks involved in investing in securities issued by
companies and governments of foreign nations, which are in addition to the usual
risks inherent in domestic investments.
Foreign investments involve the possibility of expropriation, nationalization or
confiscatory taxation, taxation of income earned in foreign nations (including,
for example, withholding taxes on interest and dividends) or other taxes imposed
with respect to investments in foreign nations, foreign exchange controls (which
may include suspension of the ability to transfer currency from a given country
and repatriation of investments), default in foreign government securities, and
political or social instability or diplomatic developments that could adversely
affect investments. In addition, there is often less publicly available
information about foreign issuers than those in the U.S. Foreign companies are
often not subject to uniform accounting, auditing and financial reporting
standards. Further, the Fund may encounter difficulties in pursuing legal
remedies or in obtaining judgments in foreign courts. Additional risk factors,
including use of domestic and foreign custodian banks and depositories, are
described elsewhere in the Prospectus and in the Statement of Additional
Information.
Brokerage commissions, fees for custodial services and other costs relating to
investments by the Small Cap Opportunities Fund in other countries are generally
greater than in the U.S. Foreign markets have different clearance and settlement
procedures from those in the U.S., and certain markets have experienced times
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when settlements did not keep pace with the volume of securities transactions
and resulted in settlement difficulty. The inability of the Fund to make
intended security purchases due to settlement difficulties could cause it to
miss attractive investment opportunities. Inability to sell a portfolio security
due to settlement problems could result in loss to the Fund if the value of the
portfolio security declined or results in claims against the Fund if it had
entered into a contract to sell the security. In certain countries, there is
less government supervision and regulation of business and industry practices,
stock exchanges, brokers, and listed companies than in the U.S. The securities
markets of many of the countries in which the Fund may invest may also be
smaller, less liquid, and subject to greater price volatility than those in the
U.S.
Because the securities owned by the Small Cap Opportunities Fund may be
denominated in foreign currencies, the value of such securities will be affected
by changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies. A
change in the value of a foreign currency against the U.S. dollar results in a
corresponding change in the U.S. dollar value of the Fund's securities
denominated in the currency. Such changes also affect the Fund's income and
distributions to shareholders. The Fund may be affected either favorably or
unfavorably by changes in the relative rates of exchange between the currencies
of different nations, and the Fund may therefore engage in foreign currency
hedging strategies. Such strategies, however, involve certain transaction costs
and investment risks, including dependence upon the Manager's ability to predict
movements in exchange rates.
Some countries in which this Fund may invest may also have fixed or managed
currencies that are not freely convertible at market rates into the U.S. dollar.
Certain currencies may not be internationally traded. A number of these
currencies have experienced steady devaluation relative to the U.S. dollar, and
such devaluations in the currencies may have a detrimental impact on the Fund.
Many countries in which the Fund may invest have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuation in inflation rates may have negative effects on certain
economies and securities markets. Moreover, the economies of some countries may
differ favorably or unfavorably from the U.S. economy in such respects as the
rate of growth of gross domestic product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments.
For Texas Investors
Prospective investors should note that Montgomery Small Cap Opportunities Fund
reserves the right upon 60 days' notice to shareholders to impose a redemption
fee of up to 1.00% on shares redeemed within 90 days of purchase.
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THE MONTGOMERY FUNDS
600 Montgomery Street
San Francisco, California 94111
(800) 572-FUND
Prospectus
December 29, 1995
(As amended April 29, 1996)
Class R shares of the Montgomery Small Cap Opportunities Fund (the "Fund") are
offered in this Prospectus. The Fund seeks capital appreciation by investing
primarily in equity securities, usually common stocks, of small-capitalization
domestic companies, which the Fund currently considers to be companies having
total market capitalizations of less than $1 billion. As is the case for all
mutual funds, attainment of the Fund's investment objective cannot be assured.
The Fund's shares are sold at net asset value with no sales load, no
commissions, no Rule 12b-1 fees and no exchange fees. In general, the minimum
initial investment in the Fund is $1,000, and subsequent investments must be at
least $100. The Manager or the Distributor, under any circumstances that either
deems appropriate, may waive these minimums. See "How to Invest in the Fund."
The Fund, which is a separate series of The Montgomery Funds, an open-end
management investment company, is managed by Montgomery Asset Management, L.P.
(the "Manager"), an affiliate of Montgomery Securities (the "Distributor").
Please read this Prospectus before investing and retain it for future reference.
A Statement of Additional Information dated December 29, 1995, as may be
revised, has been filed with the Securities and Exchange Commission, is
incorporated by this reference and is available without charge by calling (800)
572-FUND.
The Internet address for The Montgomery Funds is:
http://www.xperts.montgomery.com/1.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The Fund may offer other classes of shares to investors eligible to purchase
those shares. The other classes of shares may have different fees and expenses
than the class of shares offered in this Prospectus, and those different fees
and expenses may affect performance. To obtain information concerning the other
classes of shares not offered in this Prospectus, call The Montgomery Funds at
(800) 572-FUND or contact sales representatives or financial intermediaries who
offer those classes.
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TABLE OF CONTENTS
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Fees and Expenses of the Fund 5
The Fund's Investment Objectives and Policies 6
Portfolio Securities 7
Other Investment Practices 9
Risk Considerations 14
Management of the Fund 15
How Net Asset Value is Determined 19
How To Invest in the Fund 19
How To Redeem an Investment in the Fund 24
Exchange Privileges and Restrictions 26
Dividends and Distributions 28
Taxation 29
General Information 30
Backup Withholding Instructions 32
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Fees And Expenses Of The Fund
Shareholder Transaction Expenses for the Fund
An investor would pay the following charges when buying or redeeming shares of
the Fund:
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Maximum Sales
Maximum Sales Load Imposed On
Load Imposed On Reinvested Deferred Sales
Purchases Dividends Load Redemption Fees+ Exchange Fees
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None None None None None
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Estimated Annual Operating Expenses
(as a percentage of average net assets)
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Montgomery Small Cap Opportunities Fund
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Management Fee* 1.20%
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Other Expenses (after reimbursement)* 0.30%
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Total Fund Operating Expenses* 1.50%
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The previous tables are intended to assist the investor in understanding the
various direct and indirect costs and expenses of the Fund. Operating expenses
are paid out of the Fund's assets and are factored into the Fund's share price.
The Fund estimates that it will have the expenses listed (expressed as a
percentage of average net assets) for the current fiscal year.
+ Shareholders effecting redemptions via wire transfer may be required to pay
fees, including the wire fee and other fees, that will be directly deducted from
redemption proceeds. The Fund reserves the right, upon 60 days' advance notice
to shareholders, to impose a redemption fee of up to 1.00% on shares redeemed
within 90 days of purchase. See "How to Redeem an Investment in the Fund
General."
* Expenses for the Fund are estimated. The Manager will reduce its fees and may
absorb or reimburse the Fund for certain expenses to the extent necessary to
limit total annual fund operating expenses to the lesser of the amount indicated
in the table for the Fund or the maximum allowed by applicable state expense
limitations. The Fund is required to reimburse the Manager for any reductions in
the Manager's fee only during the two years following that reduction and only if
such reimbursement can be achieved within the foregoing expense limits. The
Manager generally seeks reimbursement for the oldest reductions and waivers
before payment by the Fund for fees and expenses for the current year. Absent
the reduction, actual total Fund operating expenses are estimated to be 3.10%
(1.85%
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other expenses). The Manager may terminate these voluntary reductions at any
time. See "Management of the Fund."
Example of Expenses for the Fund
Assuming, hypothetically, that the Fund's annual return is 5% and that its
operating expenses are as set forth above, an investor buying $1,000 of the
Fund's shares would have paid the following total expenses upon redeeming such
shares:
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Montgomery Small Cap Opportunities Fund
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1 Year $15
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3 Years $47
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5 Years N/A
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10 Years N/A
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This example is to help potential investors understand the effect of expenses.
Investors should understand that this example does not represent past or future
expenses or returns and that actual expenses and returns may vary.
The Fund's Investment Objective And Policies
The investment objective and general investment policies of the Fund are
described below. Specific portfolio securities that may be purchased by the Fund
are described in "Portfolio Securities" beginning on page 7. Specific investment
practices that may be employed by the Fund are described in "Other Investment
Practices" beginning on page 9. Certain risks associated with investments in the
Fund are described in those sections as well as in "Risk Considerations"
beginning on page 14.
The investment objective of the Fund is capital appreciation, which under normal
conditions it seeks by investing at least 65% of its total assets in equity
securities of small-capitalization domestic companies, which the Fund currently
considers to be companies having total market capitalizations of less than $1
billion. The Fund generally invests the remaining 35% of its total assets in a
similar manner but may invest those assets in domestic and foreign companies
having total market capitalizations of $1 billion or more. During the two to
three-month period following commencement of the Fund's operations, the Fund may
have its assets invested substantially in cash and cash equivalents.
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The Fund seeks to identify potential growth companies at an early stage or a
transitional point of the companies' developments, such as the introduction of
new products, favorable management changes, new marketing opportunities or
increased market share for existing product lines. Using fundamental research,
the Fund targets businesses having positive internal dynamics that can outweigh
unpredictable macro-economic factors, such as interest rates, commodity prices,
foreign currency rates and overall stock market volatility. The Fund searches
for companies with potential to gain market share within their respective
industries; achieve and maintain high and consistent profitability; produce
increases in quarterly earnings; and provide solutions to current or impending
problems in their respective industries or society at large. Early
identification of potential investments is a key to the Fund's investment style.
Heavy emphasis is placed on in-house research, which includes discussions with
company management. The Fund also draws on the expertise of brokerage firms,
including Montgomery Securities and regional firms that closely follow smaller
capitalization companies within their geographic regions.
The Fund invests primarily in common stock. It also may invest in other types of
equity and equity derivative securities (including options on equity securities,
warrants and futures contracts on equity securities). Any debt securities
purchased by the Fund must be rated within the three highest grades by Standard
& Poor's Corporation (AAA to A), Moody's Investors Services, Inc. (Aaa to A) or
Fitch Investor Services, Inc. (AAA to A), or in unrated debt securities deemed
to be of comparable quality by the Manager using guidelines approved by the
Board of Trustees. See "Portfolio Securities." Current income from dividends,
interest and other sources is only incidental.
The Manager's Growth Equity Team is responsible for managing the Fund's
portfolio. Its key members are Roger W. Honour, Andrew Pratt and Michael Carmen.
See "Management of the Fund."
Portfolio Securities
Equity Securities
In seeking its investment objective, the Fund emphasizes investments in common
stock. The Fund may also invest in other types of equity securities and equity
derivative securities such as preferred stocks, convertible securities,
warrants, units, rights, and options on securities and on securities indices.
Depositary Receipts
The Fund may invest in both sponsored and unsponsored American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") and other similar
global instruments. ADRs typically are issued by a U.S. bank or trust company
and
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evidence ownership of underlying securities issued by a foreign corporation.
EDRs, sometimes called Continental Depositary Receipts, are issued in Europe,
typically by foreign banks and trust companies, and evidence ownership of either
foreign or domestic underlying securities. Unsponsored ADR and EDR programs are
organized without the cooperation of the issuer of the underlying securities. As
a result, available information concerning the issuer may not be as current as
for sponsored ADRs and EDRs, and the prices of unsponsored ADRs and EDRs may be
more volatile.
Convertible Securities
The Fund may invest in convertible securities. A convertible security is a
fixed-income security (a bond or preferred stock) that may be converted at a
stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Convertible securities are
senior to common stock in a corporation's capital structure but are usually
subordinated to similar non-convertible securities. Through their conversion
feature, they provide an opportunity to participate in capital appreciation
resulting from a market price advance in the underlying common stock. The price
of a convertible security is influenced by the market value of the underlying
common stock and tends to increase as the common stock's market value rises and
decrease as the common stock's market value declines. For purposes of allocating
Fund investments, the Manager regards convertible securities as a form of equity
security.
Securities Warrants
The Fund may invest up to 5% of its net assets in warrants, including up to 2%
of net assets for those not listed on a securities exchange. A warrant typically
is a long-term option that permits the holder to buy a specified number of
shares of the issuer's underlying common stock at a specified exercise price by
a particular expiration date. Stock index warrants entitle the holder to
receive, upon exercise, an amount in cash determined by reference to
fluctuations in the level of a specified stock index. A warrant not exercised or
disposed of by its expiration date expires worthless.
Investment Companies
The Fund may invest up to 10% of its total assets in shares of other investment
companies investing exclusively in securities in which it may otherwise invest.
Such investments may involve the payment of substantial premiums above the net
asset value of those investment companies' portfolio securities and are subject
to limitations under the Investment Company Act. See the Statement of Additional
Information.
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The Fund does not intend to invest in other investment companies unless, in the
Manager's judgment, the potential benefits exceed associated costs. As a
shareholder in an investment company, the Fund bears its ratable share of that
investment company's expenses, including advisory and administration fees. In
accordance with applicable state regulatory provisions, the Manager has agreed
to waive its own management fee with respect to the portion of the Fund's assets
invested in other open-end (but not closed-end) investment companies.
Debt Securities
The Fund may purchase debt securities that complement its objective of capital
appreciation through anticipated favorable changes in relative foreign exchange
rates, in relative interest rate levels, or in the creditworthiness of issuers.
In selecting debt securities, the Manager seeks out good credits and analyzes
interest rate trends and specific developments that may affect individual
issuers. After its purchase by the Fund a debt security may cease to be rated or
its rating may be reduced below that required for purchase by the Fund. Neither
event would require elimination of that security from the Fund's portfolio.
However, a security downgraded below the Fund's minimum credit levels generally
would be retained only if retention was determined by the Manager and
subsequently by the Board to be in the best interests of the Fund.
See "Risk Considerations."
Other Investment Practices
The Fund also may engage in the investment practices described below, each of
which may involve certain special risks. The Statement of Additional
Information, under the heading "Investment Objective and Policies of the Fund,"
contains more detailed information about certain of these practices, including
limitations designed to reduce risks.
U.S. Government Securities
The Fund may invest in fixed rate and floating or variable rate U.S. Government
securities. Certain of the obligations, including U.S. Treasury Bills, Notes and
Bonds, and mortgage-related securities of the Government National Mortgage
Association, are issued or guaranteed by the U.S. Government. Other securities
issued by U.S. Government agencies or instrumentalities are supported only by
the credit of the agency or instrumentality, for example those issued by the
Federal Home Loan Bank, while others, such as those issued by the Federal
National Mortgage Association, Farm Credit System and Student Loan Marketing
Association, have an additional line of credit with the U.S. Treasury. The U.S.
Government does not guarantee the net asset value of the Fund's shares.
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Repurchase Agreements
The Fund may enter into repurchase agreements. Pursuant to a repurchase
agreement, the Fund acquires a U.S. Government security or other high-grade
liquid debt instrument from a financial institution that simultaneously agrees
to repurchase the same security at a specified time and price. The repurchase
price reflects an agreed-upon rate of return not determined by the coupon rate
on the underlying security. Under the Investment Company Act, repurchase
agreements are considered to be loans by the Fund and must be fully
collateralized by cash, letters of credit, U.S. Government securities or other
high-grade liquid debt securities that the Fund's custodian, or a designated
sub-custodian, segregates from other Fund assets ("Segregable Assets"), which
are either placed in a segregated account or separately identified and rendered
unavailable for investment. If the seller defaults on its obligation to
repurchase the underlying security, the Fund may experience delay or difficulty
in exercising its rights to realize upon the security, may incur a loss if the
value of the security declines and may incur disposition costs in liquidating
the security. See the Statement of Additional Information for further
information.
Borrowing
The Fund may borrow money from banks, in an amount not to exceed one-third of
the value of its total assets to meet temporary or emergency purposes, and the
Fund may pledge its assets in connection with such borrowings. The Fund may not
purchase securities if such borrowings exceed 5% of its total assets.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements. In a reverse repurchase
agreement, the Fund sells to a financial institution a security that it holds
and agrees to repurchase the same security at an agreed-upon price and date. If
the Fund fully collateralizes a reverse repurchase agreement with Segregable
Assets, it does not aggregate that transaction with its bank borrowings in
applying its borrowing limits. See the Statement of Additional Information for
further information.
Leverage
The Fund may leverage its portfolio to increase total return. Although leverage
creates an opportunity for increased income and gain, it also creates special
risk considerations. For example, leveraging may magnify changes in the net
asset values of the Fund's shares and in the yield on its portfolio. Although
the principal of such borrowings will be fixed, the Fund's assets may change in
value while the borrowing is outstanding. Leveraging creates interest expenses
that can exceed the income from the assets retained. To the extent income
derived from securities
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purchased with borrowed funds exceeds the interest owed, the Fund's net income
will be greater than if leveraging were not used, and to the extent such income
is less, the Fund's net income will be less than if leveraging were not used.
Securities Lending
The Fund may lend securities to brokers, dealers and other financial
organizations. These loans may not exceed 10% of the Fund's total assets. Each
securities loan is collateralized with Segregable Assets in an amount at least
equal to the current market value of the loaned securities, plus accrued
interest. If the seller should default on its obligation to repurchase the
underlying security, the Fund may experience delay or difficulty in exercising
its rights to realize upon the security, may incur a loss if the security
declines in value and may incur disposition costs in liquidating the security.
See the Statement of Additional Information for further information.
Hedging and Risk Management Practices
In seeking to protect against the effect of adverse changes in financial markets
or against currency exchange rate or interest rate changes that are adverse to
the present or prospective positions of the Fund, the Fund may employ certain
risk management practices using the following derivative securities and
techniques (known as "derivatives"): forward currency exchange contracts, stock
options, currency options, and stock and stock index options, futures contracts,
swaps and options on futures contracts on foreign government securities and
currencies. Furthermore, the Fund engages in hedging activities only when the
Manager deems it to be appropriate and does not necessarily engage in hedging
transactions with respect to each investment. The Statement of Additional
Information contains further information on hedging and risk management
practices, including related risks and other special considerations.
Options on Securities, Securities Indices and Currencies. The Fund may purchase
put and call options on securities and currencies traded on U.S. exchanges and,
to the extent permitted by law, foreign exchanges, as well as in the
over-the-counter market. The Fund may purchase call options on securities which
it intends to purchase (or on currencies in which those securities are
denominated) in order to limit the risk of a substantial increase in the market
price of such security (or an adverse movement in the applicable currency). The
Fund may purchase put options on particular securities (or on currencies in
which those securities are denominated) in order to protect against a decline in
the market value of the underlying security below the exercise price less the
premium paid for the option (or an adverse movement in the applicable currency
relative to the U.S. dollar). Put options allow the Fund to protect unrealized
gain in an appreciated security that it
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owns without selling that security. Prior to expiration, most options are
expected to be sold in a closing sale transaction. Profit or loss from the sale
depends upon whether the amount received is more or less than the premium paid
plus transaction costs.
The Fund also may purchase put and call options on stock indices in order to
hedge against risks of stock market or industry-wide stock price fluctuations.
The Fund may purchase options on currencies in order to hedge for hedging its
positions in a manner similar to its use of forward foreign exchange contracts
and futures contracts on currencies.
The Fund will purchase and write options in the over-the-counter market ("OTC
options") to the same extent as it may engage in transactions in exchange-traded
options. OTC options differ from exchange-traded options in that they are
negotiated individually and the terms of a contract are not standardized.
Because no clearing corporation is involved in an OTC option, there is a risk of
non-performance by the option counterparty. However, the OTC options market
generally provides a wider range of expiration dates and exercise prices than do
the exchanges. It is the current position of the SEC staff that OTC options (and
their underlying securities) are illiquid except to the extent that they are
entered into with U.S. Government securities dealers designated by the Federal
Reserve Bank of New York under guidelines specified by the SEC staff.
Accordingly, the Fund treats OTC options as illiquid securities pending a change
in the SEC position. State securities laws may impose further limitations.
Futures and Options on Futures. To protect against the effect of adverse changes
in interest rates, the Fund may purchase and sell interest rate futures
contracts. An interest rate futures contract is an agreement to purchase or sell
debt securities, usually U.S. Government securities, at a specified date and
price. In addition, the Fund may purchase and sell put and call options on
interest rate futures contracts in lieu of entering into the underlying interest
rate futures contracts. The Fund segregates Segregable Assets equal to the
purchase price of the portfolio securities represented by the underlying
interest rate futures contracts it has an obligation to purchase.
The Fund does not enter into any futures contracts or related options if the sum
of initial margin deposits on futures contracts, related options (including
options on securities, securities indices and currencies) and premiums paid for
any such related options would exceed 5% of its total assets. The Fund does not
purchase futures contracts or related options if, as a result, more than
one-third of its total assets would be so invested.
Hedging Considerations. There can be no assurance that hedging transactions by
the Fund will be successful, and the Fund may be exposed to risk if it is unable
to close out its futures or options positions due to an illiquid secondary
market.
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Futures, options and options on futures have effective durations which, in
general, are closely related to the effective duration of their underlying
securities. Holding purchased futures or call option positions (backed by
Segregable Assets) lengthens the effective duration of the Fund's portfolio.
While the utilization of options, futures contracts and related options and
similar instruments may be advantageous to the Fund, its performance will be
impaired if the Manager is unsuccessful in employing such instruments in
managing the Fund's investments or in predicting market changes. In addition,
the Fund pays commissions and other costs in connection with such investments.
Further discussion of the possible risks is contained in the Statement of
Additional Information.
Illiquid Securities
The Fund may not invest more than 15% of its net assets in illiquid securities.
The Fund treats any securities subject to restrictions on repatriation for more
than seven days and securities issued in connection with foreign debt conversion
programs that are restricted as to remittance of invested capital or profit as
illiquid. The Fund also treats repurchase agreements with maturities in excess
of seven days as illiquid. Illiquid securities do not include securities that
are restricted from trading in formal markets for some period of time but for
which an active informal market exists, or securities that meet the requirements
of Rule 144A under the Securities Act of 1933 and that, subject to the review by
the Board and guidelines adopted by the Board, the Manager has determined to be
liquid. State securities laws may impose further limitations on the amount of
illiquid or restricted securities the Fund may purchase.
Defensive Investments and Portfolio Turnover
Notwithstanding its investment objective, the Fund may adopt up to a 100% cash
or cash equivalent position for temporary defensive purposes to protect against
erosion of its capital base. Depending upon the Manager's analysis of the
various markets and other considerations, all or part of the assets of the Fund
may be held in cash and cash equivalents (denominated in U.S. dollars or foreign
currencies), such as U.S. Government securities or obligations issued or
guaranteed by the government of a foreign country or by an international
organization designed or supported by multiple foreign governmental entities to
promote economic reconstruction or development, high-quality commercial paper,
time deposits, savings accounts, certificates of deposit, bankers' acceptances
and repurchase agreements with respect to all of the foregoing. Such investments
also may be made for temporary purposes pending investment in other securities
and following substantial new investment in the Fund.
Portfolio securities are sold whenever the Manager believes it appropriate,
regardless of how long the securities have been held. The Manager therefore
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changes the Fund's investments whenever it believes doing so will further the
Fund's investment objective or when it appears that a position of the desired
size cannot be accumulated. Portfolio turnover generally involves some expense
to the Fund, including brokerage commissions, dealer mark-ups and other
transaction costs, and may result in the recognition of capital gains that may
be distributed to shareholders. The annual portfolio turnover for the Fund is
expected to be approximately 100%. Higher portfolio turnover results in
additional costs such as additional brokerage commissions and potential tax
costs. Even if the portfolio turnover for the Fund is in excess of 100%, the
Fund would not consider portfolio turnover as a limiting factor.
Investment Restrictions
The investment objective of the Fund is fundamental and may not be changed
without shareholder approval, but unless otherwise stated, the Fund's other
investment policies may be changed by the Board. If there is a change in the
investment objective or policies of the Fund, shareholders should consider
whether the Fund remains an appropriate investment in light of their
then-current financial positions and needs. The Fund is subject to additional
investment policies and restrictions described in the Statement of Additional
Information, some of which are fundamental.
The Fund has reserved the right, if approved by the Board, to convert in the
future to a "feeder" fund that would invest all of its assets in a "master" fund
having substantially the same investment objective, policies and restrictions.
At least 30 days' prior written notice of any such action would be given to all
shareholders if and when such a proposal is approved, although no such action
has been proposed as of the date of this Prospectus.
Risk Considerations
Small Companies
The Fund will invest in smaller companies that may benefit from the development
of new products and services. These smaller companies may present greater
opportunities for capital appreciation but may involve greater risk than larger,
mature issuers. Such smaller companies may have limited product lines, markets
or financial resources, and their securities may trade less frequently and in
more limited volume than those of larger, more mature companies. As a result,
the prices of their securities may fluctuate more than the prices of the
securities of larger issuers.
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Interest Rates
The market value of debt securities sensitive to prevailing interest rates is
inversely related to actual changes in interest rates. That is, a decline in
interest rates produces an increase in the market value of these securities
while an increase in interest rates produces a decrease. Moreover, the longer
the remaining maturity of a security, the greater the effect of interest rate
change. Changes in the ability of an issuer to make payments of interest and
principal and in the market's perception of its creditworthiness also affect the
market value of that issuer's debt securities.
Management Of The Fund
The Montgomery Funds has a Board of Trustees that establishes the Fund's
policies and supervises and reviews its management. Day-to-day operations of the
Fund are administered by the officers of the Trust and by the Manager pursuant
to the terms of an investment management agreement with the Fund. Montgomery
Asset Management, L.P., is the Fund's Manager. The Manager, a California limited
partnership, was formed in 1990 as an investment adviser registered as such with
the SEC under the Investment Advisers Act of 1940, as amended, and since then
has advised private accounts as well as the Fund. Its general partner is
Montgomery Asset Management, Inc., and its sole limited partner is Montgomery
Securities, the Fund's Distributor. Under the Investment Company Act, both
Montgomery Asset Management, Inc. and Montgomery Securities may be deemed
control persons of the Manager. Although the operations and management of the
Manager are independent from those of Montgomery Securities, the Manager may
draw upon the research and administrative resources of Montgomery Securities in
its discretion and consistent with applicable regulations.
Founded in 1969, Montgomery Securities is a fully integrated and highly focused
investment banking partnership specializing in emerging growth companies. The
firm's areas of expertise include research, corporate finance, sales and
trading, and venture capital. Its research department is one of the largest,
most experienced groups headquartered outside the East Coast. Through its
corporate finance department, Montgomery Securities is a well recognized
underwriter of public offerings and provides broad distribution of securities
through its sales and trading organization.
Portfolio Managers
The Manager's Growth Equity Team, which consists of many experienced investment
professionals working as an investment committee, is responsible for managing
the Fund's portfolio. The key members of the team are Roger W. Honour, Andrew
Pratt and Michael Carmen.
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Roger W. Honour is a Managing Director and Senior Portfolio Manager. Prior to
joining Montgomery Asset Management in June 1993, Mr. Honour spent one year as
Vice President and Portfolio Manager at Twentieth Century Investors in Kansas
City, Missouri. From 1990 to 1992, he served as Vice President and Portfolio
Manager at Alliance Capital Management. From 1978 to 1990, Mr. Honour was a Vice
President with Merrill Lynch Capital Markets. Mr. Honour is the subject of a
settled SEC administrative proceeding (by Order dated September 29, 1995)
arising out of personal trading activities that created undisclosed conflicts of
interest. These activities occurred prior to Mr. Honour's joining Montgomery
Asset Management.
Andrew Pratt, CFA, is a Portfolio Manager. He joined Montgomery Asset Management
from Hewlett-Packard Company, where he was an equity analyst, managed a
portfolio of small capitalization technology companies, and researched private
placement and venture capital investments. From 1983 through 1988, he worked in
the Capital Markets Group at Fidelity Investments in Boston, Massachussetts.
Michael Carmen, CFA, is a Portfolio Manager. From 1993 until joining the Manager
in 1996, he was Vice President and Associate Portfolio Manager with State Street
Research and Management Company in Boston where he assisted with the management
of capital appreciation and growth portfolios. Before then, he was a Senior
Equity Analyst with State Street and, from 1991 to 1992, with Cigna Investments
in Hartford.
Management Fees and Other Expenses
The Manager provides the Fund with advice on buying and selling securities,
manages the Fund's investments, including the placement of orders for portfolio
transactions, furnishes the Fund with office space and certain administrative
services, and provides personnel needed by the Fund with respect to the
Manager's responsibilities under the Manager's Investment Management Agreement
with the Fund. The Manager also compensates the members of the Board who are
interested persons of the Manager, and assumes the cost of printing prospectuses
and shareholder reports for dissemination to prospective investors. As
compensation, the Fund pays the Manager a monthly management fee (accrued daily
but paid when requested by the Manager) based upon the value of its average
daily net assets, according to the following table. The management fee for the
Fund is higher than for most mutual funds.
- --------------------------------------------------------------------------------
Avg. Daily Net Assets Annual Rate
- --------------------------------------------------------------------------------
MONTGOMERY SMALL CAP
OPPORTUNITIES FUND First $200 million 1.20%
Next $300 million 1.10%
Over $500 million 1.00$
- --------------------------------------------------------------------------------
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The Manager also serves as the Fund's Administrator (the "Administrator"). The
Administrator performs services with regard to various aspects of the Fund's
administrative operations. As compensation, the Fund pays the Administrator a
monthly fee at the annual rate of seven one-hundredths of one percent (0.07%) of
average daily net assets (0.06% of daily net assets over $250 million).
The Fund is responsible for its own operating expenses including, but not
limited to: the Manager's fees; taxes, if any; brokerage and commission
expenses, if any; interest charges on any borrowings; transfer agent,
administrator, custodian, legal and auditing fees; shareholder servicing fees
including fees to third party servicing agents; fees and expenses of Trustees
who are not interested persons of the Manager; salaries of certain personnel;
costs and expenses of calculating its daily net asset value; costs and expenses
of accounting, bookkeeping and recordkeeping required under the Investment
Company Act; insurance premiums; trade association dues; fees and expenses of
registering and maintaining registration of its shares for sale under federal
and applicable state securities laws; all costs associated with shareholders
meetings and the preparation and dissemination of proxy materials, except for
meetings called solely for the benefit of the Manager or its affiliates;
printing and mailing prospectuses, statements of additional information and
reports to shareholders; and other expenses relating to the Fund's operations,
plus any extraordinary and nonrecurring expenses that are not expressly assumed
by the Manager.
The Manager has agreed to reduce its management fee if necessary to keep total
annual operating expenses at or below the lesser of the maximum allowable by
applicable state expense limitations or one and five-tenths of one percent
(1.50%) of the Fund's average net assets. The Manager also may voluntarily
reduce additional amounts to increase the return to the Fund's investors. The
Manager may terminate these voluntary reductions at any time. Any reductions
made by the Manager in its fees are subject to reimbursement by the Fund within
the following two years, provided that the Fund is able to effect such
reimbursement and remain in compliance with applicable expense limitations. The
Manager generally seeks reimbursement for the oldest reductions and waivers
before payment by the Fund for fees and expenses for the current year.
In addition, the Manager may elect to absorb operating expenses that the Fund is
obligated to pay in order to increase the return to the Fund's investors. To the
extent the Manager performs a service or assumes an operating expense for which
the Fund is obligated to pay and the performance of such service or payment of
such expense is not an obligation of the Manager under the Investment Management
Agreement, the Manager is entitled to seek reimbursement from the Fund for the
Manager's costs incurred in rendering such service or assuming such expense. The
Manager, out of its own funds, also may compensate broker-dealers and other
intermediaries who distribute the Fund's shares as well as other service
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providers of shareholder and administrative services. In addition, the Manager,
out of its own funds, may sponsor seminars and educational programs on the Funds
for financial intermediaries and shareholders.
The Manager considers a number of factors in determining which brokers or
dealers to use for the Fund's portfolio transactions. While these factors are
more fully discussed in the Statement of Additional Information, they include,
but are not limited to, reasonableness of commissions, quality of services and
execution and availability of research that the Manager may lawfully and
appropriately use in its investment management and advisory capacities. Provided
the Fund receives prompt execution at competitive prices, the Manager also may
consider sale of the Fund's shares as a factor in selecting broker-dealers for
the Fund's portfolio transactions.
It is anticipated that Montgomery Securities may act as one of the Fund's
brokers in the purchase and sale of portfolio securities and, in that capacity,
will receive brokerage commissions from the Fund. The Fund will use Montgomery
Securities as its broker only when, in the judgment of the Manager and pursuant
to review by the Board, Montgomery Securities will obtain a price and execution
at least as favorable as that available from other qualified brokers. See
"Execution of Portfolio Transactions" in the Statement of Additional Information
for further information regarding Fund policies concerning execution of
portfolio transactions.
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, serves as the master transfer agent for the Fund (the "Master Transfer
Agent") and performs certain recordkeeping and accounting functions. The Master
Transfer Agent delegates certain transfer agent functions to DST Systems, Inc.,
P.O. Box 419073, Kansas City, Missouri 64141-6073, the Fund's transfer agent
(the "Transfer Agent"). Morgan Stanley Trust Company, located at One Pierrepont
Plaza, Brooklyn, New York 11201, serves as the Fund's principal custodian (the
"Custodian").
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How Net Asset Value Is Determined
The net asset value of the Fund is determined once daily as of 4:00 p.m., New
York time, on each day that the NYSE is open for trading. Per-share net asset
value is calculated by dividing the value of the Fund's total net assets by the
total number of the Fund's shares then outstanding.
As more fully described in the Statement of Additional Information, portfolio
securities are valued using current market valuations: either the last reported
sales price or, in the case of securities for which there is no reported last
sale and fixed income securities, the mean between the closing bid and asked
price. Securities for which market quotations are not readily available or which
are illiquid are valued at their fair values as determined in good faith under
the supervision of the Trust's officers, and by the manager and the Pricing
Committee of the Board respectively, in accordance with methods that are
specifically authorized by the Board. Short-term obligations with maturities of
60 days or less are valued at amortized cost as reflecting fair value.
The value of securities denominated in foreign currencies and traded on foreign
exchanges or in foreign markets will be translated into U.S. dollars at the last
price of their respective currency denomination against U.S. dollars quoted by a
major bank or, if no such quotation is available, at the rate of exchange
determined in accordance with policies established in good faith by the Board of
Trustees. Because the value of securities denominated in foreign currencies must
be translated into U.S. dollars, fluctuations in the value of such currencies in
relation to the U.S. dollar may affect the net asset value of Fund shares even
if there has not been any change in the foreign-currency denominated values of
such securities.
Because foreign securities markets may close prior to the time the Fund
determines its net asset values, events affecting the value of portfolio
securities occurring between the time prices are determined and the time the
Fund calculates its net asset values may not be reflected in the Fund's
calculation of net asset value unless the Manager, under supervision of the
Board, determines that a particular event would materially affect the Fund's net
asset values.
How To Invest In The Fund
The Fund's shares are offered directly to the public, with no sales load, at
their next-determined net asset value after receipt of an order with payment.
The Fund's shares are offered for sale by Montgomery Securities, the Fund's
Distributor, 600 Montgomery Street, San Francisco, California 94111, (800)
572-3863, and through selected securities brokers and dealers.
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<PAGE>
If an order, together with payment in proper form, is received by the Transfer
Agent or Montgomery Securities by 4:00 p.m., New York time, on any day that the
New York Stock Exchange ("NYSE") is open for trading, Fund shares will be
purchased at the Fund's next-determined net asset value. Orders for Fund shares
received after 4:00 p.m., New York time will be purchased at the next-determined
net asset value after receipt of the order.
The minimum initial investment in the Fund is $1,000 (including IRAs) and $100
for subsequent investments. Keogh plans, 401(k) plans and other retirement plans
may also be opened for $1,000, although the Fund does not act as a custodian for
those accounts. The Manager or the Distributor, in its discretion, may waive
these minimums. Purchases may also be made in certain circumstances by payment
of securities. See the Statement of Additional Information for further details.
Complete information regarding your account must be included in all wire
instructions in order to facilitate the prompt and accurate handling of
investments. Investors may obtain further information from their own banks about
wire transfers and any fees that may be imposed. The Fund and the Distributor
each reserve the right to reject any purchase order in whole or in part.
Initial Investments
Minimum Initial Investment: $1,000
Mail your completed application and any checks to:
The Montgomery Funds
c/o DST Systems, Inc.
P.O. Box 419073
Kansas City, MO 64141-6073
Initial Investments by Check
. Complete the Account Application.
. Tell us you want to invest in the Fund and make your check payable to The
Montgomery Small Cap Opportunities Fund.
. We do not accept third party checks or cash investments. Checks must be
made in U.S. dollars and, to avoid fees and delays, drawn only on banks
located in the U.S.
. A charge may be imposed on checks that do not clear.
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<PAGE>
Initial Investments by Wire
. Notify the Transfer Agent at (800) 572-3863 that you intend to make your
initial investment by wire. Provide the Transfer Agent with your name,
dollar amount to be invested and the Fund in which you want to invest. They
will provide you with further instructions to complete your purchase.
. Request your bank to transmit immediately available funds by wire for
purchase of shares in your name to the following:
Investors Fiduciary Trust
Company ABA #101003621
For: DST Systems, Inc.
Account #7526601
Attention: The Montgomery Funds
For Credit to: (shareholder(s) name)
Shareholder Account Number:
(shareholder(s) account number)
Name of Fund: Montgomery Small Cap Opportunities Fund
. Your bank may charge a fee for any wire transfers.
Subsequent Investments
Minimum Subsequent Investment: $100
Mail any checks and investment instructions to:
The Montgomery Funds
c/o DST Systems, Inc.
P.O. Box 419073
Kansas City, MO 64141-6073
Subsequent Investments by Check
. Make your check payable to The Montgomery Small Cap Opportunities Fund.
. Enclose an investment stub from your confirmation statement.
. If you do not have an investment stub, mail your check with written
instructions indicating the Fund name and account number to which your
investment should be credited.
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<PAGE>
. We do not accept third party checks or cash investments. Checks must be
made in U.S. dollars and, to avoid fees and delays, drawn only on banks
located in the U.S.
. A charge may be imposed on checks that do not clear.
Subsequent Investments by Wire
. You do not need to contact the Transfer Agent prior to making subsequent
investments by wire. Instruct your bank to wire funds to the Transfer
Agent*s affiliated bank by using the bank wire information under "Initial
Investments by Wire."
Subsequent Investments by Telephone
. Shareholders are automatically eligible to make telephone purchases. To
make a purchase, call the Transfer Agent at (800) 572-3863 before the Fund
cutoff time.
. The maximum telephone purchase is an amount up to five times your account
value on the previous day.
. Payments for shares purchased must be received by the Transfer Agent
within three business days after the purchase request.
. Shares for IRAs are not eligible for telephone purchases.
. You should do one of the following to ensure payment is received in time:
. Transfer funds directly from your bank account by sending a letter and a
voided check or deposit slip (for a savings account) to the Transfer Agent.
. Send a check by overnight or 2nd day courier service. Address courier
packages to
The Montgomery Funds, c/o DST Systems, Inc.,
1004 Baltimore St., Kansas City, MO 64105.
. Instruct your bank to wire funds to theTransfer Agent's affiliated bank
by using the bank wire information under the section titled "Initial
Investments by Wire.
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<PAGE>
Automatic Account Builder
Under the Automatic Account Builder plan, a shareholder may arrange to make
additional purchases (minimum $100) of shares automatically on a monthly or
quarterly basis by electronic funds transfer from a checking or savings account,
if the bank at which the account is maintained is a member of the Automated
Clearing House, or by preauthorized checks drawn on the shareholder's bank
account. A shareholder may terminate the program at any time with seven business
days' notice by delivering a written instruction to the Transfer Agent. The
Account Application contains the requirements for this program. An initial
investment in check form of at least $1,000 must be submitted to the Transfer
Agent to initiate this program.
Telephone Transactions
You agree to reimburse the Fund for any expenses or losses that it may incur in
connection with transfers from your accounts, including any caused by your
bank's failure to act in accordance with your request or its failure to honor
your debit. If your bank makes erroneous payments or fails to make payment after
shares are purchased on your behalf, any such purchase may be canceled and this
privilege terminated immediately. This privilege may be discontinued at any time
by the Fund upon 30-days' written notice or any time by you by written notice to
the Fund. Your request will be processed upon receipt.
Write your confirmed purchase number on any check. Although Fund shares are
priced at the net asset value next-determined after receipt of a purchase
request, shares are not purchased until payment is received. Should payment not
be received when required, the Transfer Agent will cancel the telephone purchase
request and you may be responsible for any losses incurred by a Fund. The Fund
and the Transfer Agent will not be liable for following instructions
communicated by telephone reasonably believed to be genuine. The Fund employs
reasonable procedures to confirm that instructions communicated by telephone are
genuine. These procedures include recording the telephone conversation and
requiring the caller to give a special authorization number or other personal
information not likely to be known by others. The Fund and Transfer Agent may be
liable for any losses due to unauthorized or fraudulent telephone transactions
only if such reasonable procedures are not followed.
Retirement Plans
Shares of the Fund are available for purchase by any retirement plan, including
Keogh plans, 401(k) plans, 403(b) plans and IRAs. Neither the Fund nor the
Manager administers retirement account plans. The Fund may be available for
purchase through administrators for retirement plans. Investors who purchase
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<PAGE>
shares as a part of a retirement plan should address inquiries and seek
investment servicing from their plan administrators. Plan administrators may
receive compensation from the Fund for performing shareholder services.
Share Certificates
Share certificates will not be issued by the Fund. All shares are held in
non-certificated form registered on the books of the Fund and the Transfer Agent
for the account of the shareholder.
How To Redeem An Investment In The Fund
The Fund will redeem all or any portion of an investor's outstanding shares upon
request. Redemptions can be made on any day that the NYSE is open for trading.
The redemption price is the net asset value per share next determined after the
shares are validly tendered for redemption and such request is received by the
Transfer Agent or, in the case of repurchase orders, Montgomery Securities or
other securities dealers. Payment of redemption proceeds is made promptly
regardless of when redemption occurs and normally within three days after
receipt of all documents in proper form, including a written redemption order
with appropriate signature guarantee. Redemption proceeds will be mailed or
wired in accordance with the shareholder's instructions. The Fund may suspend
the right of redemption under certain extraordinary circumstances in accordance
with the rules of the SEC. In the case of shares purchased by check and redeemed
shortly after the purchase, the Transfer Agent will not mail redemption proceeds
until it has been notified that the monies used for the purchase have been
collected, which may take up to 15 days from the purchase date. Shares tendered
for redemptions through brokers or dealers (other than the Distributor) may be
subject to a service charge by such brokers or dealers. Procedures for
requesting a redemption are set forth below. Shareholders should note that the
Fund reserves the right upon 60 days' advance notice to shareholders to impose a
redemption fee of up to 1.00% on shares redeemed within 90 days of purchase.
Redeeming by Written Instruction
. Write a letter indicating your name, account number, that you wish to
redeem from Montgomery Small Cap Opportunities Fund and the dollar amount
or number of shares you wish to redeem.
. Signature guarantee your letter if you want the redemption proceeds to go
to a party other than the account owner(s), your predesignated bank account
or if the dollar amount of the redemption exceeds $50,000. Signature
guarantees may be provided by an eligible guarantor institution such as a
commercial bank, an NASD member firm such as a stock
24
<PAGE>
broker, a savings association or national securities exchange. Contact the
Transfer Agent if you need more information.
. If you do not have a predesignated bank account and want to wire your
redemption proceeds, include a voided check or deposit slip with your
letter. The minimum amount that may be wired is $500 (wire charges, if any,
will be deducted from redemption proceeds). The Fund reserves the right to
permit lesser wire amounts or fees in the Manager's discretion.
. Mail your instructions to:
The Montgomery Funds
c/o DST Systems, Inc.
P.O. Box 419073
Kansas City, MO 64141
Redeeming By Telephone
. Unless you have declined telephone redemption privileges on your account
application, you may redeem shares up to $50,000 by calling the Transfer
Agent before the Fund cutoff time.
. If you included bank wire information on your account application or made
subsequent arrangements to accommodate bank wire redemptions, you may
request that the Transfer Agent wire your redemption proceeds to your bank
account. Allow at least two business days for redemption proceeds to be
credited to your bank account. If you want to wire your redemption proceeds
to arrive at your bank on the same business day (subject to bank cutoff
times), there is a $10 fee.
. Shareholders may decline telephone redemption privileges after an account
is opened by instructing the Transfer Agent in writing. Your request will
be processed upon receipt.
By establishing telephone redemption privileges, a shareholder authorizes the
Fund and the Transfer Agent to act upon the instruction of the shareholder or
his or her designee by telephone to redeem from the account for which such
service has been authorized and transfer the proceeds to a bank or other account
designated in the Authorization. When a shareholder appoints a designee on the
Account Application or by written authorization, the shareholder agrees to be
bound by the telephone redemption instructions given by the shareholder's
designee. Telephone redemption privileges will be suspended for 30 days after
any address change. All redemption requests during this period must be submitted
in writing with the signature guaranteed. The Fund may change, modify or
terminate these privileges at any time upon 60-days' notice to shareholders. The
Fund will not be responsible for any loss, damage, cost or expense arising out
of any transaction that appears
25
<PAGE>
on the shareholder's confirmation after 30 days following mailing of such
confirmation. See discussion of Fund telephone procedures and liability under
"Telephone Transactions."
Shareholders may experience delays in exercising telephone redemption privileges
during periods of abnormal market activity. During periods of volatile economic
or market conditions, shareholders may wish to consider transmitting redemption
orders by telegram (not available for IRAs) or overnight courier.
Systematic Withdrawal Plan
Under a Systematic Withdrawal Plan, a shareholder with an account value of
$1,000 or more in the Fund may receive (or have sent to a third party) periodic
payments (by check or wire) of $100 or more from the shareholder's account on a
monthly or quarterly basis. Depending on the form of payment requested, shares
of the Fund will be redeemed up to five business days before redemption proceeds
are scheduled to be received by the shareholder. The redemption may result in
recognition of gain or loss for income tax purposes. Dividends and distributions
on shares held in a Systematic Withdrawal Plan account will be reinvested in
additional shares of the Fund at net asset value.
Small Accounts/Annual Account Maintenance Fee
Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to redeem shares or to impose a $20 annual account
maintenance fee for any account if at any time, because of redemptions by the
shareholder, the total value of a shareholder's account is less than $1,000. If
the Fund decides to make an involuntary redemption, the shareholder will first
be notified that the value of the shareholder's account is less than the minimum
level and will be allowed 30 days to make an additional investment to bring the
value of that account to at least $1,000 before the Fund takes any action.
Exchange Privileges And Restrictions
You may exchange shares from another Montgomery Fund with the same registration,
taxpayer identification number and address. You should note that an exchange may
result in recognition of a gain or loss for income tax purposes. See discussion
of Fund telephone procedures and limitations of liability under "Telephone
Transactions."
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<PAGE>
Purchasing and Redeeming Shares by Exchange
. You are automatically eligible to make telephone exchanges with your
Montgomery account.
. Exchange purchases and redemptions will be processed until the next
determined net asset value (with no sales charge or exchange fee) after
your request is received. Your request is subject to Fund cut-off times.
. Exchange purchases must meet the minimum investment requirements of the
Montgomery Fund you intend to purchase.
. You may exchange for shares of a Fund only in states where that
Montgomery Fund's shares are qualified for sale and only to Montgomery
Funds for which you have a current prospectus.
. You may not exchange for shares of a Montgomery Fund that is not open to
new shareholders unless you have an existing account with that Montgomery
Fund.
. Because excessive exchanges can harm a Montgomery Fund's performance, the
Trusts reserve the right to terminate, either temporarily or permanently,
your exchange privileges if you make more than four exchanges out of any
one Montgomery Fund during a twelve month period. The Montgomery Funds may
also refuse an exchange into a Montgomery Fund from which you have redeemed
shares within the previous 90 days (accounts under common control and
accounts with the same taxpayer identification number will be counted
together). Exchanges out of the Fixed Income Funds are exempt. A
shareholder's exchanges may be restricted or refused if a Montgomery Fund
receives, or the Manager anticipates, simultaneous orders affecting
significant portions of that Fund's assets and, in particular, a pattern of
exchanges coinciding with a "market timing" strategy. The Trusts reserve
the right to refuse exchanges by any person or group if, in the Manager's
judgment, a Montgomery Fund would be unable to effectively invest the money
in accordance with its investment objective and policies, or would
otherwise be potentially adversely affected. Although the Trusts attempt to
provide prior notice to affected shareholders when it is reasonable to do
so, they may impose these restrictions at any time. The exchange limit may
be modified for accounts in certain institutional retirement plans to
conform to plan exchange limits and U.S. Department of Labor regulations
(for those limits, see plan m materials). The Trusts reserve the right to
terminate or modify the exchange privileges of Montgomery Fund shareholders
in the future.
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<PAGE>
Brokers and Other Intermediaries
Investing through Securities Brokers, Dealers and Financial Intermediaries.
Investors may purchase shares of the Fund from other selected securities
brokers, dealers or through financial intermediaries such as benefit plan
administrators. Investors should contact these agents directly for appropriate
instructions, as well as information pertaining to accounts and any service or
transaction fees that may be charged by these agents. Purchase orders through
securities brokers, dealers and other financial intermediaries are effected at
the next-determined net asset value after receipt of the order by such agent,
provided the agent transmits such order on a timely basis to the Transfer Agent
so that it is received by 4:00 p.m., New York time, on days that the Fund issues
shares. Orders received after that time will be purchased at the next-determined
net asset value. To the extent these agents perform shareholder servicing
activities for the Fund, they may receive fees from the Fund for such services.
Repurchase Orders Through Brokerage Accounts
Shareholders also may sell shares back to the Fund by wire or telephone through
Montgomery Securities or selected securities brokers or dealers. Shareholders
should contact their securities broker or dealer for appropriate instructions
and for information concerning any transaction or service fee that may be
imposed by the broker or dealer. Shareholders are entitled to the net asset
value next determined after receipt of a repurchase order by such broker-dealer,
provided the broker-dealer transmits such order on a timely basis to the
Transfer Agent so that it is received by 4:00 p.m., New York time, on a day that
the Fund redeems shares. Orders received after that time are entitled to the net
asset value next determined after receipt.
Dividends And Distributions
The Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. The Fund currently intends to make one
or, if necessary to avoid the imposition of tax on the Fund, more distributions
during each calendar year. A distribution may be made between November 1 and
December 31 of each year with respect to any undistributed capital gains earned
during the one-year period ended October 31 of such calendar year. Another
distribution of any undistributed capital gains may also be made following the
Fund's fiscal year end (June 30).
The amount and frequency of Fund distributions are not guaranteed and are at the
discretion of the Board.
Unless investors request cash distributions in writing at least seven business
days prior to the distribution, or on the Account Application, all dividends and
other distributions
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<PAGE>
will be reinvested automatically in additional shares of the
Fund and credited to the shareholder's account at the closing net asset value on
the reinvestment date.
Taxation
The Fund intends to qualify and elect as soon as possible to be treated as a
regulated investment company under Subchapter+M of the Internal Revenue Code of
1986, as amended (the "Code") by distributing substantially all of its net
investment income and net capital gains to its shareholders and meeting other
requirements of the Code relating to the sources of its income and
diversification of assets. Accordingly, the Fund generally will not be liable
for federal income tax or excise tax based on net income except to the extent
its earnings are not distributed or are distributed in a manner that does not
satisfy the requirements of the Code pertaining to the timing of distributions.
If the Fund is unable to meet certain requirements of the Code, it may be
subject to taxation as a corporation. The Fund may also incur tax liability to
the extent it invests in "passive foreign investment companies." See the
Statement of Additional Information.
For federal income tax purposes, any dividends derived from net investment
income and any excess of net short-term capital gain over net long-term capital
loss that investors (other than certain tax-exempt organizations that have not
borrowed to purchase Fund shares) receive from the Fund are considered ordinary
income. Part of the distributions paid by the Fund may be eligible for the
dividends-received deduction allowed to corporate shareholders under the Code.
Distributions of the excess of net long-term capital gain over net short-term
capital loss from transactions of the Fund are treated by shareholders as
long-term capital gains regardless of the length of time the Fund's shares have
been owned. Distributions of income and capital gains are taxed in the manner
described above, whether they are taken in cash or are reinvested in additional
shares of the Fund.
The Fund will inform its investors of the source of their dividends and
distributions at the time they are paid, and will promptly after the close of
each calendar year advise investors of the tax status of those distributions and
dividends. Investors (including tax-exempt and foreign investors) are advised to
consult their own tax advisers regarding the particular tax consequences to them
of an investment in shares of the Fund. Additional information on tax matters
relating to the Fund and its shareholders is included in the Statement of
Additional Information.
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General Information
The Trust
The Fund is a series of The Montgomery Funds, a Massachusetts business trust
organized on May 10, 1990 (the "Trust"). The Trust's Agreement and Declaration
of Trust permits the Board to issue an unlimited number of full and fractional
shares of beneficial interest, $.01 par value, in any number of series. The
assets and liabilities of each series within the Trust are separate and distinct
from those of each other series.
This Prospectus relates only to the Class R shares of the Fund. The Fund has
designated other classes of shares and may in the future designate other classes
of shares for specific purposes.
Shareholder Rights
Shares issued by the Fund have no preemptive, conversion or subscription rights.
Each whole share is entitled to one vote as to any matter on which it is
entitled to vote and each fractional share is entitled to a proportionate
fractional vote. Shareholders have equal and exclusive rights as to dividends
and distributions as declared by the Fund and to the net assets of the Fund upon
liquidation or dissolution. The Fund, as a separate series of the Trust, votes
separately on matters affecting only the Fund (e.g., approval of the Investment
Management Agreement); all series of the Trust vote as a single class on matters
affecting all series of the Trust jointly or the Trust as a whole (e.g.,
election or removal of Trustees). Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in any election of Trustees can,
if they so choose, elect all of the Trustees. Except as set forth herein, all
classes of shares issued by the Fund shall have identical voting, dividend,
liquidation and other rights, preferences, and terms and conditions. The only
differences among the various classes of shares relate solely to the following:
(a) each class may be subject to different class expenses; (b) each class may
bear a different identifying designation; (c) each class may have exclusive
voting rights with respect to matters solely affecting such class; (d) each
class may have different exchange privileges; and (e) each class may provide for
the automatic conversion of that class into another class. While the Trust is
not required and does not intend to hold annual meetings of shareholders, such
meetings may be called by the Board at its discretion, or upon demand by the
holders of 10% or more of the outstanding shares of the Trust for the purpose of
electing or removing Trustees. Shareholders may receive assistance in
communicating with other shareholders in connection with the election or removal
of Trustees pursuant to the provisions of Section 16(c) of the Investment
Company Act.
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<PAGE>
Performance Information
From time to time, the Fund may publish its total return, such as in
advertisements and communications to investors. Total return information
generally will include the Fund's average annual compounded rate of return over
the most recent four calendar quarters and over the period from the Fund's
inception of operations. The Fund may also advertise aggregate and average total
return information over different periods of time. The Fund's average annual
compounded rate of return is determined by reference to a hypothetical $1,000
investment that includes capital appreciation and depreciation for the stated
period according to a specific formula. Aggregate total return is calculated in
a similar manner, except that the results are not annualized. Total return
figures will reflect all recurring charges against the Fund's income.
Investment results of the Fund will fluctuate over time, and any presentation of
the Fund's total return for any prior period should not be considered as a
representation of what an investor's total return or current yield may be in any
future period.
Legal Opinion
The validity of shares offered by this Prospectus will be passed on by Heller,
Ehrman, White & McAuliffe, 333 Bush Street, San Francisco, California 94104.
Shareholder Reports and Inquiries
Unless otherwise requested, only one copy of each shareholder report or other
material sent to shareholders will be sent to each household or address
regardless of the number of shareholders or accounts at that household with
accounts under common ownership and the same address.
A confirmation statement will be mailed to your record address each time you
request a transaction except for most money market transactions (monthly) and
pre-authorized automatic investment and redemption services (quarterly). All
transactions are recorded on quarterly account statements which you will receive
at the end of each calendar quarter. Your fourth-quarter account statement will
be a year-end statement, listing all transaction activity for the entire year.
Retain this statement for your tax records.
In general, shareholders who redeemed shares from a qualifying Montgomery
account should expect to receive an Average Cost Statement in February of the
following year. Your statement will calculate your average cost using the
average cost single-category method.
Any questions should be directed to The Montgomery Funds at 800-572-FUND
(800-572-3863).
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Backup Withholding Instructions
Shareholders are required by law to provide the Fund with their correct Social
Security or other Taxpayer Identification Number ("TIN"), regardless of whether
they file tax returns. Failure to do so may subject a shareholder to penalties.
Failure to provide a correct TIN or to check the appropriate boxes in the
Account Application and to sign the shareholder's name could result in backup
withholding by the Fund of an amount of income tax equal to 31% of
distributions, redemptions, exchanges and other payments made to a shareholder's
account. Any tax withheld may be credited against taxes owed on a shareholder's
federal income tax return.
A shareholder who does not have a TIN should apply for one immediately by
contacting the local office of the Social Security Administration or the IRS.
Backup withholding could apply to payments made to a shareholder's account while
awaiting receipt of a TIN. Special rules apply for certain entities. For
example, for an account established under the Uniform Gifts to Minors Act, the
TIN of the minor should be furnished. If a shareholder has been notified by the
IRS that he or she is subject to backup withholding because he or she failed to
report all interest and dividend income on his or her tax return and the
shareholder has not been notified by the IRS that such withholding will cease,
the shareholder should cross out the appropriate item in the Account
Application. Dividends paid to a foreign shareholder's account by the Fund may
be subject to up to 30% withholding instead of backup withholding.
A shareholder that is an exempt recipient should furnish a TIN and check the
appropriate box. Exempt recipients include certain corporations, certain
tax-exempt entities, tax-exempt pension plans and IRAs, governmental agencies,
financial institutions, registered securities and commodities dealers and
others. For further information, see Section 3406 of the Code and consult with a
tax adviser.
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This Prospectus is not an offering of the securities herein described in any
state in which the offering is unauthorized. No salesman, dealer or other person
is authorized to give any information or make any representation other than
those contained in this Prospectus, the Statement of Additional Information, or
in the Fund's official sales literature.
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Investment Manager
Montgomery Asset Management, L.P.
600 Montgomery Street
San Francisco, California 94111
1-800-572-FUND
Distributor
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
1-415-627-2485
Custodian
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
Transfer Agent
DST Systems, Inc.
P.O. Box 419073
Kansas City, Missouri 64141-6073
1-800-447-4210
Auditors
Deloitte & Touche llp
50 Fremont Street
San Francisco, California 94105
Legal Counsel
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104
33
