As filed with the Securities and Exchange Commission on September 11, 1996
File Nos.: 33-34841
811-6011
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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THE MONTGOMERY FUNDS
(Exact Name of Registrant as Specified in Charter)
1-800-572-3863
(Area Code and Telephone Number)
101 California Street
San Francisco, California 94111
(Address of Principal Executive Offices)
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Copy to:
JACK G. LEVIN JULIE ALLECTA, ESQ.
600 Montgomery Street DAVID A. HEARTH, ESQ.
San Francisco, California 94111 Heller, Ehrman, White & McAuliffe
(name and address of Agent for Service) 333 Bush Street
San Francisco, California 94104
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Approximate Date of Proposed Public Offering: As soon as practicable
after this Registration Statement becomes effective.
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It is proposed that this filing will become effective on October 14,
1996 but in no event later than October 31, 1996 pursuant to Rule 488.
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An indefinite amount of the Registrant's securities has been registered
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. In reliance on such Rule, no filing fee is being paid at
this time.
Total number of pages ____. Exhibit Index appears at ____.
<PAGE>
CROSS REFERENCE SHEET
Form N-14 Part A, Item Location in Prospectus/Proxy Statement
- ---------------------- --------------------------------------
1 Front Cover; Cross Reference
2 Table of Contents
3 Introduction; Description of the Proposed
Reorganization; Comparison of the Funds;
Risk Factors
4 Description of the Proposed Reorganization
5, 6 Comparison of the Funds; Risk Factors;
Further Information About the Acquired Fund
and the Acquiring Fund
7 Shares and Voting; Vote Required
8, 9 Not Applicable
Form N-14 Part B, Item Location in Statement of Additional Information
- ---------------------- -----------------------------------------------
10 Cover Page
11 Table of Contents
12 Incorporation of Documents by Reference
in Statement of Additional Information
13 Not Applicable
14 Incorporation of Documents by Reference
in Statement of Additional Information
Form N-14 Part C
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Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of Form N-14.
<PAGE>
THE FOLLOWING ITEMS ARE HEREBY INCORPORATED BY REFERENCE:
From Post-Effective Amendment No. 35 of The Montgomery Funds, filed June 7, 1996
(SEC File No. 33-34841):
Prospectus for Montgomery Emerging Markets Fund (with other funds of
The Montgomery Funds), dated June 30, 1996.
Statement of Additional Information for Montgomery Emerging Markets
Fund and Montgomery Advisors Emerging Markets Fund (with other
funds of The Montgomery Funds), dated June 30, 1996.
From Post-Effective Amendment No. 28 of The Montgomery Funds, filed September
13, 1995 (SEC File No. 33-34841):
Prospectus for Montgomery Advisors Emerging Markets Fund, dated
November 13, 1995.
As previously sent to shareholders of each fund and filed with the SEC pursuant
to Rule 30b2-1:
Annual Report for the Montgomery Emerging Markets Fund for the fiscal
year ended June 30, 1996, as contained in the Annual Report
for The Montgomery Funds dated as of and for the periods ended
June 30, 1996.
Annual Report for the Montgomery Advisors Emerging Markets Fund for
the period ended June 30, 1996.
<PAGE>
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PART A
COMBINED PROXY STATEMENT AND PROSPECTUS
FOR THE REORGANIZATION OF
MONTGOMERY ADVISORS EMERGING MARKETS FUND
INTO
MONTGOMERY EMERGING MARKETS FUND
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<PAGE>
PROXY
FOR SPECIAL MEETING OF SHAREHOLDERS OF
MONTGOMERY ADVISORS EMERGING MARKETS FUND
ON NOVEMBER ___, 1996
The undersigned hereby appoints Mark B. Geist and Mark B.
Sullivan, or each of them, proxies for the undersigned, with full power of
substitution, to represent the undersigned and to vote all of the shares of
Montgomery Advisors Emerging Markets Fund (the "Acquired Fund") of The
Montgomery Funds (the "Trust") which the undersigned is entitled to vote at the
Special Meeting of Shareholders of the Acquired Fund to be held on November ___,
1996 and at any adjournment thereof.
o Proposal to approve or disapprove a reorganization of the
Acquired Fund providing for (i) the transfer of all of the net
assets of the Acquired Fund to the Montgomery Emerging Markets
Fund (the "Acquiring Fund"), a separate series of the Trust,
in exchange for shares of the Acquiring Fund (the "Acquiring
Fund Shares") of equivalent value, (ii) the pro rata
distribution of such Acquiring Fund Shares to the shareholders
of the Acquired Fund in full redemption of such shareholders'
shares in the Acquired Fund, and (iii) the immediate
liquidation and termination of the Acquired Fund, as described
in the accompanying Combined Proxy Statement and Prospectus.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
And, in their discretion, to transact any other business that may lawfully come
before the Meeting or any adjournment(s) thereof.
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES AND
WILL BE VOTED AS DIRECTED HEREIN. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR EACH OF THE PROPOSALS.
Dated:_____________________, 1996
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Signature of Shareholder
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Signature of Shareholder
When shares are registered jointly in the names of two or more persons, ALL must
sign. Signature(s) must correspond exactly with the name(s) shown. Please sign,
date and return promptly in the enclosed envelope.
<PAGE>
THE MONTGOMERY FUNDS
101 California Street
San Francisco, California 94111
(800) 572-FUND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF
MONTGOMERY ADVISORS EMERGING MARKETS FUND
TO BE HELD November ___, 1996
To the Shareholders of
Montgomery Advisors Emerging Markets Fund:
NOTICE IS HEREBY GIVEN that a special meeting (the "Meeting")
of shareholders of Montgomery Advisors Emerging Markets Fund (the "Acquired
Fund"), a series of The Montgomery Funds (the "Trust"), will be held at the
offices of The Montgomery Funds, 101 California Street, 35th Floor, San
Francisco, California 94111 on November ___, 1996 at 10 a.m., local time, for
the following purposes:
1. To approve or disapprove a reorganization of the
Acquired Fund providing for (i) the transfer of all
of the net assets of the Acquired Fund to Montgomery
Emerging Markets Fund (the "Acquiring Fund"), a
series of the Trust, in exchange for shares of the
Acquiring Fund (the "Acquiring Fund Shares") of
equivalent value, (ii) the pro rata distribution of
such Acquiring Fund Shares to the shareholders of the
Acquired Fund in full redemption of such
shareholders' shares in the Acquired Fund, and (iii)
the immediate liquidation and termination of the
Acquired Fund.
2. To transact such other business as may properly come
before the Meeting or any adjournment(s) thereof.
<PAGE>
Only shareholders of record at the close of business on
September ___, 1996 (the "Record Date") will be entitled to notice of and to
vote at the Meeting or any adjournment thereof.
By Order of the Board of Trustees
------------------------
Mark B. Geist, President
October ___, 1996
YOUR VOTE IS IMPORTANT REGARDLESS OF HOW MANY
SHARES YOU OWNED ON THE RECORD DATE.
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PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY
FORM, DATE AND SIGN IT, AND RETURN IT IN THE PRE-ADDRESSED ENVELOPE PROVIDED. NO
POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES. IN ORDER TO AVOID THE
ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE REQUEST YOUR COOPERATION IN
MAILING YOUR PROXY PROMPTLY.
--------------------
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<PAGE>
THE MONTGOMERY FUNDS
MONTGOMERY ADVISORS EMERGING MARKETS FUND
and
MONTGOMERY EMERGING MARKETS FUND
COMBINED PROXY STATEMENT AND PROSPECTUS
DATED: October ___, 1996
This document, which includes a Notice of Special Meeting of
Shareholders, a Proxy Statement and a form of Proxy, is being furnished in
connection with the solicitation of proxies by the Board of Trustees (the "Board
of Trustees") of The Montgomery Funds (the "Trust") for use at the Special
Meeting (the "Meeting") of shareholders of the Montgomery Advisors Emerging
Markets Fund (the "Acquired Fund"), a separate series of the Trust, to be held
on November ___, 1996.
At the Meeting, the shareholders of the Acquired Fund will be
asked to approve or disapprove a proposed reorganization (the "Reorganization")
of the Acquired Fund into the Montgomery Emerging Markets Fund (the "Acquiring
Fund"), also a separate series of the Trust. The Reorganization will include (i)
the transfer of all of the net assets of the Acquired Fund to the Acquiring Fund
in exchange for shares of the Acquiring Fund (the "Acquiring Fund Shares") of
equivalent value to the net assets transferred, (ii) the pro rata distribution
of such Acquiring Fund Shares to shareholders of record of the Acquired Fund as
of the effective date of the Reorganization (the "Effective Date") in full
redemption of such shareholders' shares in the Acquired Fund, and (iii) the
immediate liquidation and termination of the Acquired Fund. As a result of the
Reorganization, each shareholder of the Acquired Fund as of the Effective Date
will hold Acquiring Fund Shares having the same aggregate net asset value as the
shares of the Acquired Fund held by such shareholder immediately before
consummation of the Reorganization. For federal income tax purposes, the
Reorganization should be treated as a tax-free reorganization that will not
cause the Acquired Fund's shareholders to recognize a gain or loss for federal
income tax purposes. See "Approval of the Proposed Reorganization -- Description
of the Proposed Reorganization -- Federal Income Tax Consequences."
The Trust is an open-end management investment company. The
investment objective of the Acquired Fund is to seek capital appreciation by
investing primarily in equity securities of companies in countries having
economies and markets that are or would be considered by the World Bank or the
United Nations to be emerging or developing. The Acquiring Fund has an identical
investment objective.
-3-
<PAGE>
The principal executive offices of the Trust are located at
101 California Street, 35th Floor, San Francisco, California 94111 (telephone:
(800) 572-3863).
This Combined Proxy Statement and Prospectus sets forth
concisely the information that a shareholder of the Acquired Fund should know
before voting on the proposed Reorganization. It should be read and retained for
future reference.
The combined Prospectus for the Acquiring Fund (as well as
other Montgomery Funds) dated June 30, 1996, the Prospectus for the Acquired
Fund dated November 13, 1995, the combined Statement of Additional Information
relating to the Acquired Fund and the Acquiring Fund (as well as the other
Montgomery Funds) dated June 30, 1996, and the Statement of Additional
Information relating to this Combined Proxy Statement and Prospectus of even
date herewith, are on file with the Securities and Exchange Commission (the
"SEC") and are incorporated by reference herein. A copy of the combined
Prospectus of the Acquiring Fund (as well as the other Montgomery Funds) dated
June 30, 1996 and a copy of the Prospectus of the Acquired Fund dated November
13, 1995 accompanies this document. The combined Statement of Additional
Information of the Acquiring Fund and the Acquired Fund (as well as the other
Montgomery Funds) dated June 30, 1996, and the Statement of Additional
Information relating to this Combined Proxy Statement and Prospectus of even
date herewith, are available without charge by writing to the Trust at 101
California Street, 35th Floor, San Francisco, California 94111, or by calling
(800) 572-3863.
The respective Annual Reports to Shareholders of the Acquired
Fund and the Acquiring Fund (as well as the other Montgomery Funds) for the
fiscal year ended June 30, 1996 containing audited financial statements of the
Acquired Fund and the Acquiring Fund, previously has been mailed to each
shareholder entitled to vote at the Meeting. An additional copy of that Annual
Report is available without charge by writing or telephoning the Trust at its
address and telephone number listed above. It is expected that this Combined
Proxy Statement and Prospectus will be mailed to shareholders on or about
October ___, 1996.
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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<PAGE>
TABLE OF CONTENTS
INTRODUCTION.................................................................6
Shares and Voting..........................................7
APPROVAL OF THE PROPOSED REORGANIZATION......................................9
BACKGROUND..........................................................9
DESCRIPTION OF THE PROPOSED REORGANIZATION..........................9
The Reorganization ........................................9
Effect of the Reorganization..............................11
Federal Income Tax Consequences...........................11
Description of the Acquiring Fund Shares..................11
Capitalization............................................12
COMPARISON OF THE FUNDS............................................12
Investment Objectives and Policies........................12
Investment Restrictions...................................14
Comparative Performance Information.......................17
Advisory Fees and Other Expenses..........................17
Distribution Services.....................................19
Comparative Summary of Investor Costs.....................20
Redemption and Exchange Procedures........................21
Income Dividends, Capital Gains Distributions
and Taxes...............................................21
Portfolio Transactions and Brokerage Commissions..........22
Shareholders' Rights......................................22
RISK FACTORS.......................................................23
RECOMMENDATION OF THE BOARD OF DIRECTORS...........................24
DISSENTERS' RIGHTS OF APPRAISAL....................................24
FURTHER INFORMATION ABOUT THE ACQUIRED FUND AND THE
ACQUIRED FUND....................................................24
VOTE REQUIRED......................................................25
OTHER BUSINESS..............................................................25
NEXT MEETING OF SHAREHOLDERS................................................25
LEGAL MATTERS...............................................................25
EXPERTS.....................................................................25
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<PAGE>
INTRODUCTION
The Meeting has been called for the purpose of allowing shareholders to
consider and vote on the proposed Reorganization of the Acquired Fund, as
described below. The Acquired Fund's shares are sold only through financial
intermediaries and financial professionals at net asset value with no sales
load, no commissions and no Rule 12b-1 fees. The minimum initial investment in
the Acquired Fund is $500,000, and subsequent investments must be at least
$5,000. As of June 11, 1996, however, the Acquired Fund had not been able to
attract sufficient assets to operate at a cost-efficient level. Furthermore, it
is unclear whether, under the current marketing structure of the Acquired Fund,
the assets of the Acquired Fund will ever increase to the level necessary to
permit it to operate efficiently in accordance with its investment policies and
objective. As a result, the Board of Trustees decided to close the Acquired Fund
to new investors as of June 11, 1996 and to approve the Reorganization subject
to the approval of the Acquired Fund's shareholders. If the proposed
Reorganization of the Acquired Fund into the Acquiring Fund is approved and
effected, the Acquiring Fund's assets will increase, which should create certain
economies of scale; and the Acquired Fund will become part of a fund with
similar investment objectives and policies and substantially larger assets which
will permit it to operate efficiently in accordance with its investment policies
and objective.
At the Meeting, the shareholders of the Acquired Fund will be asked to
approve the proposed Reorganization of the Acquired Fund into the Acquiring
Fund. The Reorganization will include the transfer of all of the net assets of
the Acquired Fund to the Acquiring Fund in exchange for shares of the Acquiring
Fund of equivalent value, the pro rata distribution of such Acquiring Fund
shares to the shareholders of the Acquired Fund in full redemption of such
shareholders' shares in the Acquired Fund, and the immediate liquidation and
termination of the Acquired Fund.
The Acquired Fund and the Acquiring Fund (collectively, the "Funds,"
and individually a "Fund") have similar investment objectives and policies. The
investment objective of the Acquired Fund is to seek capital appreciation by
investing primarily in equity securities of companies in countries having
economies and markets that are or would be considered by the World Bank or the
United Nations to be emerging or developing. The Acquiring Fund has an identical
investment objective.
Investments in the Funds are subject to similar risks. See "Approval of
the Proposed Reorganization -- Risk Factors" below.
The redemption and exchange arrangements of the Funds are substantially
identical. The Acquiring Fund and the Acquired Funds have different purchase and
distribution arrangements which
-6-
<PAGE>
are more fully discussed in the section "Approval of the Proposed Reorganization
- -- Comparison of the Funds" below.
The investment adviser to both Funds is Montgomery Asset Management,
L.P. (the "Manager"). As discussed below, the Board of Trustees of the Trust
believes that the proposed Reorganization is in the best interests of the
Acquired Fund and its shareholders, and that the interests of existing
shareholders of the Acquired Fund will not be diluted as a result of the
proposed Reorganization. See "Approval of the Proposed Reorganization --
Comparison of the Funds" and "Approval of the Proposed Reorganization --
Recommendation of the Board of Trustees."
The cost of the Reorganization and of the Meeting and solicitation of
proxies therefor, including the cost of copying, printing and mailing of proxy
materials, will be borne by the Manager and not by either Fund. In addition to
solicitations by mail, proxies may also be solicited by officers of the Trust,
without special compensation, by telephone, telegram or otherwise.
Shares and Voting
The Trust is a Massachusetts business trust and is registered with the
SEC as an open-end management investment company. The Trust currently has 18
operating series, or funds, outstanding, including the Funds. Each Fund has its
own investment objective and policies and operates independently for purposes of
investments, dividends, other distributions and redemptions. The Acquired Fund
has only one class of shares. The Acquiring Fund has designated three classes of
shares, each with its own fee and expense structure: Class R shares, Class P
shares and Class L shares. At present, only Class R and Class P shares of the
Acquiring Fund have been issued and sold to the public. The Acquired Fund
shareholders will receive Class R shares of the Acquiring Fund in exchange for
their Acquired Fund shares if the Reorganization is approved and consummated.
Information about the Class P and Class L shares of the Acquired Fund is
contained in the Prospectus for those shares of the Acquiring Fund. Those other
classes of shares have adopted a Rule 12b-1 plan and charge a Rule 12b-1 fee.
Each share of the Acquired Fund ("Shares"), or fraction thereof, is
entitled to one vote or corresponding fraction thereof at the Meeting. At the
close of business on September ___, 1996 (the "Record Date"), the record date
for the determination of shareholders entitled to vote at the Meeting
("Shareholders"), there were [463,731.1] Shares outstanding held by [37] record
holders (including omnibus accounts representing multiple underlying beneficial
owners).
All Shares represented by each properly signed proxy received prior to
the Meeting will be voted at the Meeting. If a Shareholder specifies how the
proxy is to be voted on any
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<PAGE>
business properly to come before the Meeting, it will be voted in accordance
with such instruction. If no choice is indicated, proxies will be voted FOR
approval of the Reorganization, as more fully described in this Combined Proxy
Statement and Prospectus. A proxy may be revoked by a Shareholder at any time
prior to its use by written notice to the Trust, by submission of a later-dated
proxy or by voting in person at the Meeting. If any other matters come before
the Meeting, proxies will be voted by the persons named therein as proxies in
accordance with such persons' best judgment.
The presence in person or by proxy of Shareholders entitled to cast 40%
of the votes entitled to be cast at the Meeting will constitute a quorum. When a
quorum is present, a majority of the Shares voted shall decide the proposal. The
meeting may be adjourned from time to time by a majority of the votes properly
cast upon the question of adjourning a meeting to another date and time, whether
or not a quorum is present, and the meeting may be held as adjourned within a
reasonable time after the date set for the original meeting without further
notice. The persons named in the proxy will vote in favor of such adjournment
those Shares which they are entitled to vote if such adjournment is necessary to
obtain a quorum or to obtain a favorable vote on any proposal. If the
adjournment requires the setting up of a new record date or the adjournment is
for more than 60 days from the date set for the original meeting (in which case
the Board of Trustees will set a new record date), the Trust will give notice of
the adjourned Meeting to the Shareholders. Business may be conducted once a
quorum is present and may continue until adjournment of the Meeting,
notwithstanding the withdrawal or temporary absence of sufficient Shares to
reduce the number present to less than a quorum.
All proxies voted, including abstentions and broker non-votes, will be
counted toward establishing a quorum. Approval of the Reorganization will occur
only if a sufficient number of votes are cast FOR that proposal. Accordingly,
abstentions and broker non-votes have the effect of a negative vote on the
proposal.
As of the Record Date, the Funds' shareholders of record and (to the
Trust's knowledge) beneficial owners who owned more than five percent of the
respective Funds' shares are as follows:
Percentage of Acquiring Fund's
Shareholder Outstanding Shares
----------- -------------------------------
[ ] [ %]
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<PAGE>
Percentage of Acquired Fund's
Shareholder Outstanding Shares
----------- ------------------------------
Charles Schwab 98.69%
& Co., Inc.
101 Montgomery Street
San Francisco, CA 94111
The officers and directors of the Trust, as a group, owned of record and
beneficially less than one percent of the outstanding voting securities of the
Acquired Fund and the Acquiring Fund, respectively, as of the Record Date.
APPROVAL OF THE PROPOSED REORGANIZATION
BACKGROUND
The Acquired Fund commenced operations on December 8, 1995.
The Acquired Fund's shares are sold only through financial intermediaries and
financial professionals at net asset value with no sales load, no commission and
no Rule 12b-1 fees. However, in general the minimum initial investment in the
Fund is $500,000, and subsequent investments must be at least $5,000. The
Acquired Fund is designed to be sold to high net-worth financial advisory
clients who are interested in investing in emerging markets. However, since the
Acquired Fund's inception, it has not been successful in attracting sufficient
assets to operate at a cost-efficient level. As a result, the Manager has
advised the Board of Trustees that it considers the asset levels of the Acquired
Fund ($8,269,476 as of June 30, 1996) too small to enable it to operate the
Acquired Fund prudently in accordance with the Acquired Fund's investment
objective and policies.
In view of these circumstances, the Board of Trustees of the
Trust, pursuant to a meeting on August ___, 1996, and as a result of their
deliberations, determined that the proposed Reorganization is in the best
interests of the Shareholders, and directed that the proposed Reorganization be
submitted to the Shareholders for approval. See "Approval of the Proposed
Reorganization -- Recommendation of the Board of Trustees."
DESCRIPTION OF THE PROPOSED REORGANIZATION
The Reorganization
If the Reorganization is approved, on the Effective Date the
Acquiring Fund will acquire the net assets of the Acquired Fund, and will issue
to the Acquired Fund the number of Acquiring Fund shares determined by dividing
the value of the Acquired Fund's net assets so transferred by the net asset
value of one Acquiring Fund Share. The net assets of the Acquired Fund and the
net asset value of the Acquiring Fund will be calculated at the close of
business on the date immediately preceding the Effective Date (the "Valuation
Date") in accordance with the Funds' valuation procedures described in their
respective
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<PAGE>
Prospectuses (in the case of the Acquiring Fund, the combined Prospectus dated
June 30, 1996 and, in the case of the Acquired Fund, the Prospectus dated
November 13, 1995). Contemporaneously with that asset transfer, the Acquired
Fund will distribute the Acquiring Fund Shares it received pro rata to each
remaining Shareholder of the Acquired Fund based on the percentage of the
outstanding shares of the Acquired Fund held of record by that Shareholder on
the Valuation Date. For example, on ________________, 1996, the value of the
aggregate net assets of the Acquired Fund was approximately ____________, the
total number of outstanding Acquired Fund shares was ________, and the net asset
value of each Acquiring Fund Share was $____. Therefore, if the Effective Date
had been ________, 1996, the Acquiring Fund would have issued a total of
________ Acquiring Fund Shares to the Acquired Fund, and the Acquired Fund would
then have redeemed each of its then outstanding shares in exchange for ________
Acquiring Fund Shares.
This distribution of the Acquiring Fund Shares by the Acquired
Fund to its shareholders in full redemption of such Shareholders' Acquired Fund
Shares will be accomplished by the establishment of book accounts on the
Acquiring Fund's share records in the name of the respective shareholders of the
Acquired Fund, representing the respective pro rata numbers of Acquiring Fund
shares deliverable to the Acquired Fund Shareholders. Fractional shares will be
carried to the third decimal place. Certificates evidencing the Acquiring Fund
Shares will not be issued to the Acquired Fund shareholders.
Immediately following the Acquired Fund's pro rata liquidating
distribution of the Acquiring Fund Shares to the Acquired Fund Shareholders, the
Acquired Fund will liquidate and terminate.
Consummation of the Reorganization is subject to approval by
the Shareholders of the Acquired Fund. The Reorganization may be abandoned at
any time before the Effective Date upon the vote of a majority of the Board of
Trustees.
The Manager will pay all costs and expenses of the
Reorganization, including those associated with the Meeting, the copying,
printing and distribution of this Combined Proxy Statement and Prospectus, and
the solicitation of proxies for the Meeting.
The above is a summary of the Reorganization. The Summary does
not purport to be a complete description of the terms of the Reorganization,
which are set forth in the Agreement and Plan of Reorganization attached as
Exhibit A to this document.
Effect of the Reorganization
If the Reorganization is approved and completed, Shareholders
of the Acquired Fund as of the Effective Date will
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<PAGE>
become shareholders of the Acquiring Fund, which will acquire the net assets of
the Acquired Fund. The net asset value of the Acquiring Fund shares held by each
Shareholder of the Acquired Fund immediately after consummation of the
Reorganization will be equivalent to the net asset value of the Acquired Fund
Shares held by that Shareholder immediately before consummation of the
Reorganization.
On or before the Effective Date the Acquired Fund intends to
distribute all of its then-remaining net investment income [and realized capital
gain].
After the Reorganization, the investment adviser and
distributor for the Acquiring Fund will continue to be Montgomery Asset
Management L.P. and Montgomery Securities, respectively. The Acquiring Fund will
be managed in accordance with its existing investment objective and policies.
Federal Income Tax Consequences
As a condition to the closing of the Reorganization, the Trust
must receive a favorable opinion from Heller, Ehrman, White & McAuliffe, counsel
to the Trust, substantially to the effect that, for federal income tax purposes:
(a) the Reorganization will constitute a "tax-free" reorganization within the
meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended
(the "Code"); (b) no gain or loss will be recognized by the Acquiring Fund or
the Acquired Fund as a result of the Reorganization; (c) no gain or loss will be
recognized by Shareholders of the Acquired Fund upon the exchange of their
Shares for shares of the Acquiring Fund; (d) the aggregate tax basis of the
Acquiring Fund Shares received by an Acquired Fund Shareholder pursuant to the
Reorganization will be the same as the basis of the Shares held by such
Shareholder immediately before the Reorganization; (e) the holding period of the
Acquiring Fund Shares so received will include the period during which the
Acquired Fund Shareholder held Shares of the Acquired Fund, provided such Shares
were held as a capital asset; (f) the tax basis of the Acquired Fund's assets
acquired by the Acquiring Fund will be the same as the basis of such assets
immediately before the Reorganization; and (g) the holding period of such assets
will include the period during which those assets were held by the Acquired
Fund. The Trust does not intend to seek a private letter ruling from the
Internal Revenue Service with respect to the tax effects of the Reorganization.
Description of the Acquiring Fund Shares
Each Acquiring Fund Share issued to Acquired Fund Shareholders
pursuant to the Reorganization will be duly authorized, validly issued, fully
paid and nonassessable when issued, will be transferable without restriction and
will have no preemptive or conversion rights. Each Acquiring Fund Share will
represent an equal interest in the assets of the Acquiring Fund. The Acquiring
Fund Shares will be sold and redeemed based upon
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<PAGE>
the net asset value of the Acquiring Fund next determined after receipt of the
purchase or redemption request, as described in the Acquiring Fund's Prospectus.
<TABLE>
Capitalization
The capitalization of the Funds as of September 30, 1996 and
their pro forma combined capitalization as of that date after giving effect to
the proposed Reorganization are as follows:
<CAPTION>
(Unaudited) (Unaudited)
Acquiring Acquired Pro Forma
Fund Fund Combined
----------------------------------------------------------
<S> <C> <C> <C>
Aggregate net assets............................... $[ ] $[ ] $[ ]
Shares outstanding*................................ [ ] [ ] [ ]
Net asset value per share.......................... $____ $____ $____
<FN>
- ---------------
* Each Fund is authorized to issue an indefinite number of shares.
</FN>
</TABLE>
COMPARISON OF THE FUNDS
A brief comparison of the Funds is set forth below. See
"Further Information About the Acquired Fund and the Acquiring Fund" for more
information.
Investment Objectives and Policies
The Acquired Fund / The Acquiring Fund. The investment
objective of the Acquired Fund is capital appreciation, which under normal
conditions it seeks by investing at least 65% of its total assets in equity
securities of companies in countries having emerging markets. The Acquired Fund
defines an emerging market country as a country having an economy and market
that are or would be considered by the World Bank or the United Nations to be
emerging or developing.
The Acquired Fund currently limits its investments to the
following emerging market countries: Latin America (Argentina, Brazil, Chile,
Colombia, Costa Rica, Jamaica, Mexico, Peru, Trinidad and Tobago, Uruguay,
Venezuela); Asia (China, India, Indonesia, Korea, Malaysia, Pakistan,
Philippines, Singapore, Sri Lanka, Taiwan, Thailand, Vietnam); Southern and
Eastern Europe (Czech Republic, Greece, Hungary, Poland, Portugal, Russia,
Turkey); Mid-East (Israel, Jordan); and Africa (Egypt, Ghana, Ivory Coast,
Kenya, Morocco, Nigeria, South Africa, Tunisia, Zimbabwe). In the future, the
Acquired Fund may invest in other emerging market countries. Under normal
conditions, the Acquired Fund maintains investments in at least five emerging
market countries at all times and invests no more than 35% of its total assets
in any one emerging market country.
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The Acquired Fund considers a company to be an emerging market
company if its securities are principally traded in the capital market of an
emerging market country; it derives at least 50% of its total revenue from
either goods produced or services rendered in emerging market countries or from
sales made in emerging market countries, regardless of where the securities of
such companies are principally traded; or it is organized under the laws of, and
with a principal office in, an emerging market country.
The Acquired Fund uses a proprietary, quantitative asset
allocation model created by the Manager. This model employs mean-variance
optimization, a process used in developed markets based on modern portfolio
theory and statistics. Mean-variance optimization helps determine the percentage
of assets to invest in each country to maximize expected returns for a given
risk level. The Acquired Fund's aims are to invest in those countries that are
expected to have the most optimal risk/reward trade-off when incorporated into a
total portfolio context and to construct a portfolio of emerging market
investments approximating the risk level of an internationally diversified
portfolio of securities in developed markets. This "top-down" country selection
is combined with "bottom-up" fundamental industry analysis and stock selection
based on original research and publicly available information and company
visits, although the Acquired Fund emphasizes "top-down," or strategic,
selection.
The Acquired Fund invests primarily in common stock but also
may invest in other types of equity and equity derivative securities (including
options on equity securities, warrants and futures contracts on equity
securities). It may invest up to 35% of its total assets in debt securities,
including up to 5% in debt securities rated below investment grade.
The Acquired Fund may invest in certain debt securities issued
by the governments of emerging market countries that are, or may be eligible
for, conversion into investments in emerging market companies under debt
conversion programs sponsored by such governments. If such securities are
convertible to equity investments, the Acquired Fund deems them to be equity
derivative securities. The Acquired Fund may invest up to 30% of its total
assets in the equity securities of companies constituting the Morgan Stanley
Capital International Europe, Australia, Far East Index (the "EAFE Index").
These companies typically have larger average market capitalizations than the
emerging market companies in which the Acquired Fund generally invests.
Accordingly, subject to its investment objective, the Acquired Fund invests in
EAFE Index companies for temporary defensive strategies.
The Acquiring Fund has an almost identical investment
objective and policies. The only differences are that under normal conditions,
the Acquiring Fund maintains investments in at least six emerging market
countries instead five as in the case of the Acquired Fund. Also, unlike the
Acquired Fund, the Acquiring Fund may not invest more than 20% of its total
assets
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<PAGE>
in the equity securities of companies constituting the EAFE Index.
Investment Restrictions
Both the Acquiring Fund and the Acquired Fund have identical
fundamental investment restrictions which cannot be changed without the
affirmative vote of a majority of each Fund's outstanding voting securities as
defined in the Investment Company Act of 1940 (the "1940 Act"). Neither the
Acquiring Fund nor the Acquired Fund may:
1. With respect to 75% of its total assets, invest in the
securities of any one issuer (other than the U.S. Government and its agencies
and instrumentalities) if immediately after and as a result of such investment
more than 5% of the total assets of a Fund would be invested in such issuer.
There are no limitations with respect to the remaining 25% of its total assets,
except to the extent other investment restrictions may be applicable.
2. Make loans to others, except (a) through the purchase of
debt securities in accordance with its investment objective and policies, (b)
through the lending of up to 10% of its portfolio securities as described above
and in its Prospectus, or (c) to the extent the entry into a repurchase
agreement or a reverse dollar roll transaction is deemed to be a loan.
3. (a) Borrow money, except temporarily for extraordinary or
emergency purposes from a bank and then not in excess of 10% of its total assets
(at the lower of cost or fair market value). Any such borrowing will be made
only if immediately thereafter there is an asset coverage of at least 300% of
all borrowings, and no additional investments may be made while any such
borrowings are in excess of 5% of total assets.
(b) Mortgage, pledge or hypothecate any of its assets
except in connection with permissible borrowings and permissible forward
contracts, futures contracts, option contracts or other hedging transactions.
4. Except as required in connection with permissible hedging
activities, purchase securities on margin or underwrite securities. (This does
not preclude a Fund from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities.)
5. Buy or sell real estate (including interests in real estate
limited partnerships or issuers that qualify as real estate investment trusts
under federal income tax law) or commodities or commodity contracts; however, a
Fund, to the extent not otherwise prohibited in the Prospectus or its Statement
of Additional Information, may invest in securities secured by real estate or
interests therein or issued by
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<PAGE>
companies which invest in real estate or interests therein, including real
estate investment trusts, and may purchase or sell currencies (including forward
currency exchange contracts), futures contracts and related options generally as
described in the Prospectus and the Statement of Additional Information. As an
operating policy which may be changed without shareholder approval, consistent
with the laws of the State of Texas, a Fund may invest in real estate investment
trusts only up to 10% of its total assets.
6. Buy or sell interests in oil, gas or mineral exploration or
development leases and programs. (This does not preclude permissible investments
in marketable securities of issuers engaged in such activities.)
7. Invest more than 5% of the value of its total assets in
securities of any issuer which has not had a record, together with its
predecessors, of at least three years of continuous operation. (This is an
operating policy which may be changed without shareholder approval consistent
with the regulations of the State of Arkansas.)
8. (a) Invest in securities of other investment companies,
except to the extent permitted by the 1940 Act and discussed in the Prospectus
or the Statement of Additional Information, or as such securities may be
acquired as part of a merger, consolidation or acquisition of assets.
(b) Invest in securities of other investment companies
except by purchase in the open market where no commission or profit to a sponsor
or dealer results from the purchase other than the customary broker's
commission, or except when the purchase is part of a plan of merger,
consolidation, reorganization or acquisition. (This is an operating policy which
may be changed without shareholder approval, consistent with the regulations of
the State of Ohio.)
9. Invest, in the aggregate, more than 15% of its net assets
in illiquid securities, including (under current SEC interpretations) restricted
securities (excluding liquid Rule 144A-eligible restricted securities),
securities which are not otherwise readily marketable, repurchase agreements
that mature in more than seven days and over-the-counter options (and securities
underlying such options) purchased by a Fund. (This is an operating policy which
may be changed without shareholder approval, consistent with the 1940 Act,
changes in relevant SEC interpretations).
10. Invest in any issuer for purposes of exercising control or
management of the issuer. (This is an operating policy which may be changed
without shareholder approval, consistent with the 1940 Act.)
11. Invest more than 25% of the market value of its total
assets in the securities of companies engaged in any one
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<PAGE>
industry. (This does not apply to investment in the securities of the U.S.
Government, its agencies or instrumentalities.) For purposes of this
restriction, the Funds generally rely on the U.S. Office of Management and
Budget's Standard Industrial Classifications.
12. Issue senior securities, as defined in the 1940 Act,
except that this restriction shall not be deemed to prohibit a Fund from (a)
making any permitted borrowings, mortgages or pledges, or (b) entering into
permissible reverse repurchase and dollar roll transactions.
13. Except as described in the Prospectus and the Statement of
Additional Information, acquire or dispose of put, call, straddle or spread
options subject to the following conditions:
(a) such options are written by other persons, and
(b) the aggregate premiums paid on all such options which
are held at any time do not exceed 5% of the Fund's total assets.
(This is an operating policy which may be changed without shareholder approval,
consistent with state regulations.)
14. (a) Except as described in the Prospectus and the
Statement of Additional Information, engage in short sales of securities. (This
is an operating policy which may be changed without shareholder approval,
consistent with applicable regulations.)
(b) A Fund may not invest more than 25% of its net assets
in short sales, and the value of the securities of any one issuer in which a
Fund is short may not exceed the lesser of 2% of the value of the Fund's net
assets or 2% of the securities of any class of any issuer. In addition, short
sales may be made only in those securities that are fully listed on a national
securities exchange. (This is an operating policy which may be changed without
shareholder approval, consistent with the regulations of the State of Texas.)
15. Invest in warrants, valued at the lower of cost or market,
in excess of 5% of the value of a Fund's net assets. Included in such amount,
but not to exceed 2% of the value of a Fund's net assets, may be warrants which
are not listed on the New York Stock Exchange or American Stock Exchange.
Warrants acquired by a Fund in units or attached to securities may be deemed to
be without value. (This is an operating policy which may be changed without
shareholder approval, consistent with the regulations of the State of Texas.)
16. (a) Purchase or retain in its portfolio any security if
any officer, trustee or shareholder of the issuer is
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<PAGE>
at the same time an officer, trustee or employee of the Trust or of its
investment adviser and such person owns beneficially more than 1/2 of 1% of the
securities and all such persons owning more than 1/2 of 1% own more than 5% of
the outstanding securities of the issuer.
(b) Purchase more than 10% of the outstanding voting
securities of any one issuer. (This is an operating policy which may be changed
without shareholder approval, consistent with the regulations of the State of
Ohio.)
17. Invest in commodities, except for futures contracts or
options on futures contracts if, as a result thereof, more than 5% of a Fund's
total assets (taken at market value at the time of entering into the contract)
would be committed to initial deposits and premiums on open futures contracts
and options on such contracts.
To the extent these restrictions reflect matters of
operating policy which may be changed without shareholder vote, these
restrictions may be amended upon approval by the Board and notice to
shareholders.
If a percentage restriction is adhered to at the time of
investment, a subsequent increase or decrease in a percentage resulting from a
change in the values of assets will not constitute a violation of that
restriction, except as otherwise noted.
Comparative Performance Information
The table below indicates the average annual total return
(with capital gains and all dividends and distributions reinvested) for each
Fund during the periods ending June 30, 1996.
Average Annual Total Return Inception(1)
--------------------------------- through
1996 1995 1994 1993 June 30, 1992
---- ---- ---- ---- -------------
Acquiring Fund 7.74% 1.40% 26.10% 11.27% (0.40%)
Acquired Fund 16.60%(2) N.A. N.A. N.A. N.A.
Additional performance information on the Funds may be found in their 1996
Annual Report to Shareholders.
- -------------------------
(1) March 1, 1992.
(2) Represents total return from December 8, 1995 (inception).
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<PAGE>
Advisory Fees and Other Expenses
The Manager serves as investment adviser to both Funds
pursuant to an Investment Management Agreement dated July 13, 1990 (the
"Management Contract"). The Acquiring Fund pays the Manager a management fee
(accrued daily but paid when requested by the Manager) calculated at an
annualized rate of 1.25% of the first $250 million of the Acquiring Fund's
average daily net assets and at 1.00% for average daily net assets above $250
million. The Acquired Fund pays the Manager a management fee (accrued daily but
paid when requested by the Manager) calculated at an annualized rate of 1.20% of
the first $300 million of the average daily net assets of the Acquired Fund;
1.00% of the next $700 million of the Acquired Fund's average daily net assets
and 0.90% of the Acquired Fund's average daily net assets over $1 billion.
Although the contractual management fee rate for the Acquired Fund is slightly
higher than the Acquiring Fund, the effective rate for the Acquiring Fund is
lower because of its substantially larger asset base.
The total expense limitation of the Acquiring Fund is slightly higher
than that of the Acquired Fund (1.90% to 1.50%). This is because the Manager has
voluntarily capped the Acquired Fund's expense ratio at a very low level
anticipating that the Acquired Fund would attract a large asset base. Because it
was expected that the average account size of the Acquired Fund would be much
bigger than that of the Acquiring Fund, the Manager expected that the Acquired
Fund could be managed in a more cost-effective manner. However, since the
inception of the Acquired Fund, asset size has not grown to a level that would
allow the Acquired Fund to operate at a cost-effective level. For the fiscal
year ended June 30, 1996, the ratio of the Acquired Fund's and the Acquiring
Fund's expenses to their average daily net assets (before fee and expense
waivers by the Manager) was 3.10% and 1.72%, respectively. The Manager is
unwilling to continue to maintain the expense cap at its current artificially
low level and would reset the cap at a much higher level. Thus, there would be
no operating expense advantage in the future.
For the period ended June 30, 1996, the Manager received
management fees of approximately [$10,262,601] from the Acquiring Fund. The
Manager received management fees of approximately [$43,843] from the Acquired
Fund. Of these fees the Manager waived or deferred approximately $43,843 and
absorbed $16,226 in expenses of the Acquired Fund.
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<PAGE>
Distribution Services
Montgomery Securities has served as distributor of the Funds'
shares since the inception of the Funds. The Distributor does not impose any
sales charge on purchases of shares. The Class R Acquiring Fund shares to be
issued in the Reorganization will not be subject to any sales charge. No sales
charge is imposed by either Fund on reinvestment of dividends or capital gains
distributions. Also, neither the Acquired Fund nor Class R shares of the
Acquiring Fund has adopted a "compensation-type" distribution plan (the "Plan")
pursuant to the provisions of Rule 12b-1 under the 1940 Act. Such a Plan, which
has been adopted with respect to the Class P shares and Class L shares of the
Acquiring Fund, would allow such classes of the Acquiring Fund to compensate the
Distributor for services provided and expenses incurred in the distribution of
the Fund's Class P and Class L shares, including advertising expenses and
printing costs. The Distributor may reallow all or a portion of the payments
received under the Plan to third parties, including banks. However, Class P
shares and Class L shares of the Acquiring Fund are not involved in the
Reorganization.
The Acquiring Fund generally requires a minimum initial
investment of $1,000, and subsequent investments of $100 or more. The Acquired
Fund generally requires a minimum initial investment of $500,000, and subsequent
investments of $5,000 or more. For investors in the Acquiring Fund, the
Distributor may waive the minimums for plans involving periodic investments.
Both Funds have automatic investment plans under which
selected amounts are electronically withdrawn from shareholders' accounts with
banks and are applied to purchase shares of the Funds.
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<PAGE>
Comparative Summary of Investor Costs
The operating expenses and maximum transaction expenses
expected to be associated with an investment in the Acquired Fund and Class R
shares of the Acquiring Fund are reflected in the following tables:
(Unaudited)
Montgomery
Montgomery Emerging Advisors Emerging
Markets Fund As of Markets Fund As of
June 30, 1996 June 30, 1996
-------------- -------------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge
Imposed on Purchases
(as a percentage of offering
price) None None
Sales Charge Imposed on
Dividend Reinvestments None None
Maximum Contingent
Deferred Sales Charge None None
Redemption Fees None(1) None(2)
Exchange Fees None None
ANNUAL OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fee 1.06% 1.20%
12b-1 Distribution and
Service Fees None None
Other Expenses 0.66% 0.25%
Total Fund Operating
Expenses (after fee waiver) 1.72% 1.45%
The Manager of the Montgomery Advisors Emerging Markets Fund has voluntarily
agreed to reduce its management fees and to pay certain Fund operating expenses,
to the extent necessary to limit total annual Fund operating expenses to the
lesser of the percentages listed above under "Total Fund Operating Expenses," or
the maximum allowed by the most stringent state expense limitations. The Manager
may terminate those voluntary reductions at any time.
(1) The Trust 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. Also, shareholders effecting
redemptions via wire transfer may be required to pay fees, including
wire fee and other fees, that will be directly deducted from redemption
proceeds.
(2) The Montgomery Advisors Emerging Markets Fund imposes a redemption fee
of up to 1.00% on shares redeemed within 90 days of purchase. Also,
shareholders effecting redemptions via wire transfer may be required to
pay fees, including wire fee and other fees, that will be directly
deducted from redemption proceeds.
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<PAGE>
Redemption and Exchange Procedures
Shareholders of both Funds may redeem their shares at the net
asset value next determined after receipt of a written redemption request or a
telephone redemption order without the imposition of any fee or other charge.
The Acquired Fund imposes a redemption fee of up to 1.00% on shares redeemed
within 90 days of purchase. The Acquiring Fund has reserved 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.
Due to the relatively high cost of maintaining smaller
accounts, each Fund may impose a $20 annual account maintenance fee or, with at
least 30-days' prior written notice, automatically redeem the shares of any
shareholder who does not maintain a net asset value that equals at least the
Fund's minimum initial investment in its/his/her account with that Fund
($500,000 in the case of the Acquired Fund, $1,000 in the case of the Acquiring
Fund). Automatic redemption will not occur if the net asset value falls below
the minimum initial investment solely as a result of fluctuations in the value
of the Fund's investment portfolio (rather than as a result of redemptions or
exchanges by the shareholder).
Each Fund's shareholders generally may exchange their shares
for shares of any of the Trust's other funds and of shares of funds offered by
The Montgomery Funds II in the same Prospectus, based on their respective net
asset values, without the imposition of any sales charges or exchange fees.
However, because excessive exchanges can harm a fund's performance, the Trust
reserves the right to terminate, either temporarily or permanently, exchange
privileges of any shareholder who makes more than four exchanges out of any one
Fund during a twelve-month period and to refuse an exchange into a Fund from
which a shareholder has redeemed shares within the previous 90 days (accounts
under common ownership or control and accounts with the same taxpayer
identification number will be counted together).
Shareholders of each Fund owning shares with a value the
equals or exceeds the minimum initial investment ($500,000 in the case of the
Acquired Fund, $1,000 in the case of the Acquiring Fund) may establish a monthly
systematic withdrawal plan. A participating shareholder will receive (or have
sent to a third party) periodic payments (by check or wire) of $5,000 or more
(in the case of the Acquired Fund) or $100 or more (in the case of the Acquiring
Fund) from the shareholder's account in that Fund on a monthly or quarterly
basis. Depending on the form of payment requested, shares will be redeemed up to
five business days before the redemption proceeds are scheduled to be received
by the shareholder.
Income Dividends, Capital Gains Distributions and Taxes
Each Fund distributes substantially all of its net investment
income and net capital gains to shareholders each
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year. Both Funds currently intend to make one or, if necessary to avoid the
imposition of tax on a 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 each calendar year. Another distribution of any
undistributed capital gains may also be made following the Funds' fiscal year
end (June 30 for both Funds).
Each Fund intends to qualify as a separate "regulated
investment company" under Subchapter M of the Code for federal income tax
purposes and to meet all other requirements that are necessary for it (but not
its shareholders) to pay no federal taxes on income and capital gains paid to
shareholders in the form of dividends. In order to accomplish this goal, each
Fund must, among other things, distribute substantially all of its ordinary
income and net capital gains on a current basis and maintain a portfolio of
investments which satisfies certain diversification criteria.
Portfolio Transactions and Brokerage Commissions
The Manager is responsible for decisions to buy and sell
securities for each Fund, broker-dealer selection, and negotiation of commission
rates. In placing orders for the Funds' portfolio transactions, the Manager's
primary consideration is to obtain the most favorable price and execution
available although the Manager also may consider a securities broker-dealer's
sale of Fund shares, or research and brokerage services provided by the
securities broker-dealer, as factors in considering through whom portfolio
transactions will be effected. The Funds may pay to those securities
broker-dealers who provide brokerage and research services to the Manager a
higher commission than that charged by other securities broker-dealers if the
Manager determines in good faith that the amount of the commission is reasonable
in relation to the value of those services in terms either of the particular
transaction, or in terms of the overall responsibility of the Manager and to any
other accounts over which the Manager exercises investment discretion.
Shareholders' Rights
The Trust is a Massachusetts business trust. Because each Fund
is a series of the Trust, its operations are governed by the Trust's Declaration
of Trust and By-laws and applicable Massachusetts law.
The Funds normally will not hold meetings of shareholders
except as required under the 1940 Act and Massachusetts law. However,
shareholders holding 10% or more of the outstanding shares of each Fund may call
meetings for the purpose of voting on removal of one or more of the Trustees.
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<PAGE>
Shareholders of each Fund have no preemptive, conversion or
subscription rights. The shares of each Fund have non-cumulative voting rights,
with each shareholder of the Fund entitled to one vote for each full share of
the Fund (and a fractional vote for each fractional share) held in the
shareholder's name on the books of the Fund as of the record date for the action
in question. On any matter submitted to a vote of shareholders, shares of each
Fund will be voted by that Fund's shareholders individually when the matter
affects the specific interest of that Fund only, such as approval of that Fund's
investment management arrangements. The shares of all the Funds will be voted in
the aggregate on other matters, such as the election of trustees and
ratification of the Board of Trustees' selection of the Funds' independent
accountants.
RISK FACTORS
The Acquiring Fund's portfolio, like that of the Acquired
Fund, is subject to risks associated with investing in securities of foreign
issuers. Such risks may include 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 investment in securities of issuers in
foreign nations. 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, and
auditing practices and requirements may often not be comparable to those in the
U.S. Further, the Funds may encounter difficulties in pursuing legal remedies or
in obtaining judgments in foreign courts.
Both Funds may also invest in medium quality (rated or
equivalent to BBB by S&P or Baa by Moody's) and in limited amounts of high risk,
lower quality debt securities (i.e., securities rated below BBB or Baa) or, if
unrated, deemed to be of equivalent investment quality as determined by the
Manager. Medium quality debt securities have speculative characteristics, and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than with higher
grade debt securities. Both Funds may also 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
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<PAGE>
securities may fluctuate more than the prices of the securities of larger
issuers.
RECOMMENDATION OF THE BOARD OF TRUSTEES
In response to the circumstances described above in "Approval of the
Proposed Reorganization," the Board of Trustees of the Trust has unanimously
determined that the Reorganization is in the best interests of the shareholders
of the Acquired Fund and that the interests of the existing shareholders of the
Acquired Fund would not be diluted thereby.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE ADOPTION OF THE PROPOSAL
DISSENTERS' RIGHTS OF APPRAISAL
Shareholders of the Acquired Fund who object to the proposed
Reorganization will not be entitled to any "dissenters' rights" under
Massachusetts law. However, such shareholders have the right at any time up to
the Effective Date to redeem their Acquired Fund Shares at net asset value or to
exchange such Shares for shares of the other funds offered by the Trust
(including the Acquiring Fund) without charge. After the Reorganization, such
shareholders will hold shares of the Acquiring Fund, which may also be redeemed
at net asset value in accordance with the procedures described in the Acquiring
Fund's Prospectus dated June 30, 1996, as supplemented, subject to the forward
pricing requirements of Rule 22c-1 under the 1940 Act.
FURTHER INFORMATION ABOUT THE ACQUIRED FUND AND THE ACQUIRING FUND
Further information about the Acquired Fund is contained in
its current Prospectus dated November 13, 1995 and the Statement of Additional
Information dated June 30, 1996, which are incorporated herein by reference.
Further information about the Acquiring Fund is contained in its current
Prospectus dated June 30, 1996 and the Statement of Additional Information dated
June 30, 1996. These documents are available, without charge, by writing to The
Montgomery Funds at 101 California Street, San Francisco, California 94111 or by
calling (800) 572-FUND. Copies of such Prospectuses also accompany this Combined
Proxy Statement and Prospectus.
The Trust is subject to the informational requirements of the
Securities and Exchange Act of 1934 and the 1940 Act, and in accordance
therewith files reports, proxy materials and other information with the SEC.
Such reports, proxy materials and other information can be inspected and copied
at the Public Reference Room maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such materials can be obtained at
prescribed rates from the
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<PAGE>
Public Reference Branch, Office of Consumer Affairs and Information Services, of
the SEC, Washington, D.C. 20549.
VOTE REQUIRED
Approval of the proposed Reorganization requires the
affirmative vote of the holders of a majority of the total number of Acquired
Fund Shares outstanding on the Record Date. If the Shareholders of the Acquired
Fund do not approve the proposed Reorganization, or if the Reorganization is not
consummated for any other reason, then the Board of Trustees will take such
further action as it deems to be in the best interest of the Acquired Fund and
its shareholders, including liquidation, subject to approval by the Shareholders
of the Acquired Fund if required by applicable law.
OTHER BUSINESS
The Board of Trustees of the Trust knows of no other business
to be brought before the Meeting. However, if any other matters come before the
Meeting, it is the Board's intention that proxies which do not contain specific
restrictions to the contrary will be voted on such matters in accordance with
the judgment of the persons named in the enclosed form of proxy.
NEXT MEETING OF SHAREHOLDERS
The Trust is not required and does not intend to hold annual
or other periodic meetings of shareholders except as required by the 1940 Act.
If the Reorganization is not consummated, the next meeting of the Shareholders
of the Acquired Fund will be held at such time as the Board of Trustees may
determine or at such time as may be legally required. Any shareholder proposal
intended to be presented at such meeting must be received by the Trust at its
office at a reasonable time before the meeting, as determined by the Board of
Trustees, to be included in the Trust's proxy statement and form of proxy
relating to such meeting, and must satisfy all other legal requirements.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the
Acquiring Fund Shares will be passed upon for the Trust by Heller, Ehrman, White
& McAuliffe.
EXPERTS
The financial statements of the Montgomery Emerging Markets
Fund for the year ended June 30, 1996 contained in the Trust's 1996 Annual
Report to Shareholders, and the financial statements of the Montgomery Advisors
Emerging Markets Fund for the period from December 8, 1995 (commencement of
operations) to June 30, 1996 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports, which are
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<PAGE>
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE
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<PAGE>
EXHIBIT A
Agreement and Plan of Reorganization
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is made as of this ___ day of ________, 1996, by The Montgomery Funds, a
Massachusetts business trust, for itself and on behalf of the Montgomery
Emerging Markets Fund (the "Acquiring Fund"), a series of The Montgomery Funds,
and on behalf of the Montgomery Advisors Emerging Markets Fund (the "Acquired
Fund"), a series of The Montgomery Funds.
In accordance with the terms and conditions set forth in this
Agreement, the parties desire that all of the assets of the Acquired Fund be
transferred to the Acquiring Fund, and that the Acquiring Fund assume the Stated
Liabilities (as defined in paragraph 1.3) of the Acquired Fund, in exchange for
shares of the Acquiring Fund ("Acquiring Fund Shares"), and that such Acquiring
Fund Shares be distributed immediately after the Closing, as defined in this
Agreement, by the Acquired Fund to its shareholders in liquidation of the
Acquired Fund. This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended (the "Code").
In consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto, intending to be legally
bound hereby, covenant and agree as follows:
1. REORGANIZATION OF ACQUIRED FUND
1.1 Subject to the terms and conditions herein set forth, and
on the basis of the representations and warranties contained herein, the
Acquired Fund shall assign, deliver and otherwise transfer its assets as set
forth in paragraph 1.2 (the "Fund Assets") to the Acquiring Fund and the
Acquiring Fund shall assume the Acquired Fund's Stated Liabilities. The
Acquiring Fund shall, as consideration therefor, on the Closing Date (as defined
in paragraph 3.1), deliver to the Acquired Fund full and fractional Acquiring
Fund Shares, the number of which shall be determined by dividing (a) the value
of the Acquired Fund Assets, net of the Acquired Fund's Stated Liabilities,
computed in the manner and as of the time and date set forth in paragraph 2.1,
by (b) the net asset value of one share of the Acquiring Fund computed in the
manner and as of the time and date set forth in paragraph 2.2. Such transfer,
delivery and assumption shall take place at the closing provided for in
paragraph 3.1 (hereinafter sometimes referred to as the "Closing"). Immediately
following the Closing, the Acquired Fund shall distribute the Acquiring Fund
Shares to the shareholders of the Acquired Fund in liquidation of the Acquired
Fund as provided in paragraph 1.4
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hereof. Such transactions are hereinafter sometimes collectively referred to as
the "Reorganization."
1.2 (a) With respect to the Acquired Fund, 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 Acquired
Fund, and any prepaid expenses shown as an asset on the Acquired Fund's books on
the Closing Date.
(b) Before the Closing Date, the Acquired Fund will
provide the Acquiring Fund with a schedule of its assets and its known
liabilities, and the Acquiring Fund will provide the Acquired Fund with a copy
of the current investment objective and policies applicable to the Acquiring
Fund. The Acquired Fund reserves the right to sell or otherwise dispose of any
of the securities or other assets shown on the list of the Acquired Fund's
Assets prior to the Closing Date but will not, without the prior approval of the
Acquiring Fund, acquire any additional securities other than securities which
the Acquiring Fund is permitted to purchase in accordance with its stated
investment objective and policies. Before the Closing Date, the Acquiring Fund
will advise the Acquired Fund of any investments of the Acquired Fund shown on
such schedule which the Acquiring Fund would not be permitted to hold, pursuant
to its stated investment objective and policies or otherwise. In the event that
the Acquired Fund holds any investments that the Acquiring Fund would not be
permitted to hold under its stated investment objective or policies, the
Acquired Fund, if requested by the Acquiring Fund, will dispose of such
securities prior to the Closing Date to the extent practicable. In addition, if
it is determined that the portfolios of the Acquired Fund and the Acquiring
Fund, when aggregated, would contain investments exceeding certain percentage
limitations to which the Acquiring Fund is or will be subject with respect to
such investments, the Acquired Fund, if requested by the Acquiring Fund, will
dispose of and/or reinvest a sufficient amount of such investments as may be
necessary to avoid violating such limitations as of the Closing Date.
1.3 The Acquired Fund will endeavor to discharge all of its
known liabilities and obligations prior to the Closing Date. The Acquiring Fund
will assume all liabilities and obligations reflected on an unaudited statement
of assets and liabilities of the Acquired Fund prepared by the Administrator of
The Montgomery Funds as of the Applicable Valuation Date (as defined in
paragraph 2.1), in accordance with generally accepted accounting principles
consistently applied from the prior audited period ("Stated Liabilities"). The
Acquiring Fund shall assume only the Stated Liabilities of the Acquired Fund,
and no other liabilities or obligations, whether absolute or contingent, known
or unknown, accrued or unaccrued.
1.4 Immediately following the Closing, the Acquired Fund will
distribute the Acquiring Fund Shares received by the
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Acquired Fund pursuant to paragraph 1.1 pro rata to its shareholders of record
determined as of the close of business on the Closing Date ("Acquired Fund
Investors") in complete liquidation of the Acquired Fund. Such distribution will
be accomplished by an instruction, signed by an appropriate officer of The
Montgomery Funds, to transfer the Acquiring Fund Shares then credited to the
Acquired Fund's account on the books of the Acquiring Fund to open accounts on
the books of the Acquiring Fund established and maintained by the Acquiring
Fund's transfer agent in the names of record of the Acquired Fund Investors and
representing the respective pro rata number of shares of the Acquiring Fund due
such Acquired Fund Investor. All issued and outstanding shares of the Acquired
Fund will be cancelled simultaneously therewith on the Acquired Fund's books,
and any outstanding share certificates representing interests in the Acquired
Fund will represent only the right to receive such number of Acquiring Fund
Shares after the Closing as determined in accordance with paragraph 1.1.
1.5 If any request shall be made for a change of the
registration of shares of the Acquiring Fund to another person from the account
of the stockholder in which name the shares are registered in the records of the
Acquired Fund, it shall be a condition of such registration of shares that there
be furnished to the Acquiring Fund an instrument of transfer properly endorsed,
accompanied by appropriate signature guarantees and otherwise in proper form for
transfer and that the person requesting such registration shall pay to the
Acquiring Fund any transfer or other taxes required by reason of such
registration or establish to the reasonable satisfaction of the Acquiring Fund
that such tax has been paid or is not applicable.
1.6 Following the transfer of assets by the Acquired Fund to
the Acquiring Fund, the assumption of the Acquired Fund's Stated Liabilities by
the Acquiring Fund, and the distribution by the Acquired Fund of the Acquiring
Fund Shares received by it pursuant to paragraph 1.4, The Montgomery Funds shall
terminate the qualification, classification and registration of the Acquired
Fund with all appropriate federal and state agencies. Any reporting or other
responsibility of The Montgomery Funds is and shall remain the responsibility of
The Montgomery Funds up to and including the date on which the Acquired Fund is
terminated and deregistered, subject to any reporting or other obligations
described in paragraph 4.9.
2. VALUATION
2.1 The value of the Acquired Fund's Fund Assets shall be the
value of such assets computed as of the time at which its net asset value is
calculated pursuant to the valuation procedures set forth in the Acquiring
Fund's then current Prospectus and Statement of Additional Information on the
business day immediately preceding the Closing Date, or at such time on such
earlier or later date as may mutually be agreed upon
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in writing among the parties hereto (such time and date being herein called the
"Applicable Valuation Date").
2.2 The net asset value of each share of the Acquiring Fund
shall be the net asset value per share computed on the Applicable Valuation
Date, using the market valuation procedures set forth in the Acquiring Fund's
then current Prospectus and Statement of Additional Information.
2.3 All computations of value contemplated by this Article 2
shall be made by the Acquiring Fund's Administrator in accordance with its
regular practice as pricing agent and reviewed by its independent auditors. The
Acquiring Fund shall cause its Administrator to deliver a copy of its valuation
report to The Montgomery Funds and to the Acquired Fund at the Closing.
3. CLOSING(S) AND CLOSING DATE
3.1 The Closing for the Reorganization shall occur on
_________, 1996 and/or on such other date(s) as may be mutually agreed upon in
writing by the parties hereto (each, a "Closing Date"). The Closing(s) shall be
held at the offices of Heller, Ehrman, White & McAuliffe, 333 Bush Street, San
Francisco, California 94104 or at such other location as is mutually agreeable
to the parties hereto. All acts taking place at the Closing(s) shall be deemed
to take place simultaneously as of 10:00 a.m., local time on the Closing Date
unless otherwise provided.
3.2 The Acquiring Fund's custodian shall deliver at the
Closing a certificate of an authorized officer stating that: (a) the Fund Assets
have been delivered in proper form to the Acquiring Fund on the Closing Date and
(b) all necessary taxes including all applicable federal and state stock
transfer stamps, if any, have been paid, or provision for payment shall have
been made, by the Acquired Fund in conjunction with the delivery of portfolio
securities.
3.3 Notwithstanding anything herein to the contrary, in the
event that on the Applicable Valuation Date (a) the New York Stock Exchange
shall be closed to trading or trading thereon shall be restricted or (b) trading
or the reporting of trading on such exchange or elsewhere shall be disrupted so
that, in the judgment of The Montgomery Funds, accurate appraisal of the value
of the net assets of the Acquiring Fund or the Acquired Fund is impracticable,
the Applicable Valuation Date shall be postponed until the first business day
after the day when trading shall have been fully resumed without restriction or
disruption and reporting shall have been restored.
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4. COVENANTS WITH RESPECT TO THE ACQUIRING FUND AND THE ACQUIRED
FUND
4.1 With respect to the Acquired Fund, The Montgomery Funds
has called or will call a meeting of Acquired Fund shareholders to consider and
act upon this Agreement and to take all other actions reasonably necessary to
obtain the approval of the transactions contemplated herein, including approval
for the Acquired Fund's liquidating distribution of Acquiring Fund Shares
contemplated hereby, and for The Montgomery Funds to terminate the Acquired
Fund's qualification, classification and registration if requisite approvals are
obtained with respect to the Acquired Fund. The Montgomery Funds, on behalf of
the Acquired Fund, shall prepare the notice of meeting, form of proxy and proxy
statement (collectively, "Proxy Materials") to be used in connection with such
meeting.
4.2 The Montgomery Funds, on behalf of the Acquired Fund,
covenants that the Acquiring Fund Shares to be issued hereunder are not being
acquired for the purpose of making any distribution thereof, other than in
accordance with the terms of this Agreement.
4.3 The Montgomery Funds, on behalf of the Acquired Fund, will
assist the Acquiring Fund in obtaining such information as the Acquiring Fund
reasonably requests concerning the beneficial ownership of shares of the
Acquired Fund.
4.4 Subject to the provisions hereof, The Montgomery Funds, on
its own behalf and on behalf of the Acquiring Fund and the Acquired Fund, will
take, or cause to be taken, all actions, and do, or cause to be done, all things
reasonably necessary, proper or advisable to consummate and make effective the
transactions contemplated herein.
4.5 The Montgomery Funds, on behalf of the Acquired Fund,
shall furnish to the Acquiring Fund on the Closing Date, a final statement of
the total amount of the Acquired Fund's assets and liabilities as of the Closing
Date.
4.6 The Montgomery Funds, on behalf of the Acquiring Fund, has
prepared and filed, or will prepare and file, with the Securities and Exchange
Commission (the "SEC") a registration statement on Form N-14 under the
Securities Act of 1933, as amended (the "1933 Act"), relating to the Acquiring
Fund Shares (the "Registration Statement"). The Montgomery Funds, on behalf of
the Acquired Fund, has provided or will provide the Acquiring Fund with the
Proxy Materials for inclusion in the Registration Statement, prepared in
accordance with paragraph 4.1, and with such other information and documents
relating to the Acquired Fund as are requested by the Acquiring Fund and as are
reasonably necessary for the preparation of the Registration Statement.
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4.7 As soon after the Closing Date as is reasonably
practicable, The Montgomery Funds, on behalf of the Acquired Fund: (a) shall
prepare and file all federal and other tax returns and reports of the Acquired
Fund required by law to be filed with respect to all periods ending on or before
the Closing Date but not theretofore filed and (b) shall pay all federal and
other taxes shown as due thereon and/or all federal and other taxes that were
unpaid as of the Closing Date.
4.8 Following the transfer of assets by the Acquired Fund to
the Acquiring Fund and the assumption of the Stated Liabilities of the Acquired
Fund in exchange for Acquiring Fund Shares as contemplated herein, The
Montgomery Funds will file any final regulatory reports, including but not
limited to any Form N-SAR and Rule 24f-2 filings with respect to the Acquired
Fund, promptly after the Closing Date and also will take all other steps as are
necessary and proper to effect the termination or declassification of the
Acquired Fund in accordance with the laws of the Commonwealth of Massachusetts
and other applicable requirements.
5. REPRESENTATIONS AND WARRANTIES
5.1 The Montgomery Funds, on behalf of the Acquiring Fund,
represents and warrants to the Acquired Fund as follows:
(a) The Montgomery Funds was duly created pursuant to
its Declaration of Trust by the Trustees for the purpose of acting as a
management investment company under the Investment Company Act of 1940 (the
"1940 Act") and is validly existing under the laws of the Commonwealth of
Massachusetts, and the Declaration of Trust directs the Trustees to manage the
affairs of The Montgomery Funds and grants them all powers necessary or
desirable to carry out such responsibility, including administering The
Montgomery Funds' business as currently conducted by The Montgomery Funds and as
described in the current Prospectuses of The Montgomery Funds. The Montgomery
Funds is registered as an investment company classified as an open-end
management company, under the 1940 Act and its registration with the SEC as an
investment company is in full force and effect;
(b) The Registration Statement, including the current
Prospectus and Statement of Additional Information of the Acquiring Fund,
conforms or will conform, at all times up to and including the Closing Date, in
all material respects to the applicable requirements of the 1933 Act and the
1940 Act and the regulations thereunder and do not include or will not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
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<PAGE>
(c) The Acquiring Fund is not in violation of, and
the execution, delivery and performance of this Agreement by The Montgomery
Funds for itself and on behalf of the Acquiring Fund does not and will not (i)
violate The Montgomery Funds' Declaration of Trust or By-Laws, or (ii) result in
a breach or violation of, or constitute a default under, any material agreement
or material instrument, to which The Montgomery Funds is a party or by which its
properties or assets are bound.
(d) Except as previously disclosed in writing to the
Acquired Fund, no litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to The Montgomery
Funds' knowledge, threatened against The Montgomery Funds or its business, the
Acquiring Fund or any of its properties or assets, which, if adversely
determined, would materially and adversely affect The Montgomery Funds or the
Acquiring Fund's financial condition or the conduct of their business, The
Montgomery Funds knows of no facts that might form the basis for the institution
of any such proceeding or investigation, and the Acquiring 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, or is reasonably
likely to materially and adversely affect, its business or its ability to
consummate the transactions contemplated herein;
(e) All issued and outstanding shares, including
shares to be issued in connection with the Reorganization, of the Acquiring Fund
will, as of the Closing Date, be duly authorized and validly issued and
outstanding, fully paid and non-assessable, the shares of each class of the
Acquiring Fund issued and outstanding prior to the Closing Date were offered and
sold in compliance with the applicable registration requirements, or exemptions
therefrom, of the 1933 Act, and all applicable state securities laws, and the
regulations thereunder, and the Acquiring Fund does not have outstanding any
option, warrants or other rights to subscribe for or purchase any of its shares
nor is there outstanding any security convertible into any of its shares;
(f) The execution, delivery and performance of this
Agreement on behalf of the Acquiring Fund will have been duly authorized prior
to the Closing Date by all necessary action on the part of The Montgomery Funds,
the Trustees and the Acquiring Fund, and this Agreement will constitute a valid
and binding obligation of The Montgomery Funds and the Acquiring Fund
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, arrangement, moratorium and other
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles;
(g) On the effective date of the Registration
Statement, at the time of the meeting of the Acquired Fund shareholders and on
the Closing Date, any written information
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<PAGE>
furnished by The Montgomery Funds with respect to the Acquiring Fund for use in
the Proxy Materials, the Registration Statement or any other materials provided
in connection with the Reorganization does not and will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the information provided not misleading;
(h) No governmental consents, approvals,
authorizations or filings are required under the 1933 Act, the Securities
Exchange Act of 1934 (the "1934 Act"), the 1940 Act or Massachusetts law for the
execution of this Agreement by The Montgomery Funds, for itself and on behalf of
the Acquiring Fund, or the performance of the Agreement by The Montgomery Funds
for itself and on behalf of the Acquiring Fund, except for such consents,
approvals, authorizations and filings as have been made or received, and except
for such consents, approvals, authorizations and filings as may be required
subsequent to the Closing Date;
(i) The Statement of Assets and Liabilities,
Statement of Operations and Statements of Changes in Net Assets of the Acquiring
Fund as of and for the year ended June 30, 1996, audited by Deloitte & Touche
LLP (copies of which have been or will be furnished to the Acquired Fund) fairly
present, in all material respects, the Acquiring Fund's financial condition as
of such date and its results of operations for such period in accordance with
generally accepted accounting principles consistently applied, and as of such
dates there were no liabilities of the Acquiring Fund (contingent or otherwise)
known to The Montgomery Funds that were not disclosed therein but that would be
required to be disclosed therein in accordance with generally accepted
accounting principles;
(j) Since the date of the most recent audited
financial statements, there has not been any material adverse change in the
Acquiring Fund's financial condition, assets, liabilities or business, other
than changes occurring in the ordinary course of business; or any incurrence by
the Acquiring Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred, except as otherwise disclosed in writing to and
accepted by the Acquired Fund, prior to the Closing Date (for the purposes of
this subparagraph (j), neither a decline in the Acquiring Fund's net asset value
per share nor a decrease in the Acquiring Fund's size due to redemptions shall
be deemed to constitute a material adverse change);
(k) For each full and partial taxable year from its
inception through the Closing Date, the Acquiring Fund has qualified as a
separate regulated investment company under the Code and has taken all necessary
and required actions to maintain such status; and
(l) All federal and other tax returns and reports of
The Montgomery Funds and the Acquiring Fund required by law to be filed on or
before the Closing Date shall have been filed, and
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<PAGE>
all taxes owed by The Montgomery Funds or the Acquiring Fund shall have been
paid so far as due, and to the best of The Montgomery Funds' knowledge, no such
return is currently under audit and no assessment has been asserted with respect
to any such return.
5.2 The Montgomery Funds, on behalf of the Acquired Fund,
represents and warrants to the Acquiring Fund as follows:
(a) The Montgomery Funds was duly created pursuant to
its Declaration of Trust by the Trustees for the purpose of acting as a
management investment company under the 1940 Act and is validly existing under
the laws of the Commonwealth of Massachusetts, and the Declaration of Trust
directs the Trustees to manage the affairs of The Montgomery Funds and grants
them all powers necessary or desirable to carry out such responsibility,
including administering The Montgomery Funds' business as currently conducted by
The Montgomery Funds and as described in the current Prospectuses of The
Montgomery Funds. The Montgomery Funds is registered as an investment company
classified as an open-end management company, under the 1940 Act and its
registration with the SEC as an investment company is in full force and effect;
(b) All of the issued and outstanding shares of the
Acquired Fund have been offered and sold in compliance in all material respects
with applicable registration requirements of the 1933 Act and state securities
laws; all issued and outstanding shares of each class of the Acquired Fund are,
and on the Closing Date will be, duly authorized and validly issued and
outstanding, and fully paid and non-assessable, and the Acquired Fund does not
have outstanding any options, warrants or other rights to subscribe for or
purchase any of its shares, nor is there outstanding any security convertible
into any of its shares;
(c) The Acquired Fund is not in violation of, and the
execution, delivery and performance of this Agreement by The Montgomery Funds
for itself and on behalf of the Acquired Fund does not and will not (i) violate
The Montgomery Funds' Declaration of Trust or By-Laws, or (ii) result in a
breach or violation of, or constitute a default under, any material agreement or
material instrument to which The Montgomery Funds is a party or by its
properties or assets are bound;
(d) Except as previously disclosed in writing to the
Acquiring Fund, no litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or, to The
Montgomery Funds' knowledge, threatened against the Acquired Fund or any of its
properties or assets which, if adversely determined, would materially and
adversely affect the Acquired Fund's financial condition or the conduct of its
business, The Montgomery Funds knows of no facts that might form the basis for
the institution of any such proceeding or investigation, and the Acquired Fund
is not a party
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<PAGE>
to or subject to the provisions of any order, decree or judgment of any court or
governmental body that materially and adversely affects, or is reasonably likely
to materially and adversely affect, its business or its ability to consummate
the transactions contemplated herein;
(e) The Statement of Assets and Liabilities,
Statements of Operations and Statements of Changes in Net Assets of the Acquired
Fund as of and for the period ended June 30, 1996, audited by Deloitte & Touche
LLP (copies of which have been or will be furnished to the Acquiring Fund)
fairly present, in all material respects, the Acquired Fund's financial
condition as of such date and its results of operations for such period in
accordance with generally accepted accounting principles consistently applied,
and as of such date there were no liabilities of the Acquired Fund (contingent
or otherwise) known to The Montgomery Funds that were not disclosed therein but
that would be required to be disclosed therein in accordance with generally
accepted accounting principles;
(f) Since the date of the most recent audited
financial statements, there has not been any material adverse change in the
Acquired Fund's financial condition, assets, liabilities or business, other than
changes occurring in the ordinary course of business, or any incurrence by the
Acquired Fund of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as otherwise disclosed in writing to and
accepted by the Acquiring Fund, prior to the Closing Date (for the purposes of
this subparagraph (f), neither a decline in the Acquired Fund's net asset value
per share nor a decrease in the Acquired Fund's size due to redemptions shall be
deemed to constitute a material adverse change);
(g) All federal and other tax returns and reports of
The Montgomery Funds and the Acquired Fund required by law to be filed on or
before the Closing Date shall have been filed, and all taxes owed by The
Montgomery Funds or the Acquired Fund shall have been paid so far as due, and to
the best of The Montgomery Funds' knowledge, no such return is currently under
audit and no assessment has been asserted with respect to any such return;
(h) For each full and partial taxable year from its
inception through the Closing Date, the Acquired Fund has qualified as a
separate regulated investment company under the Code and has taken all necessary
and required actions to maintain such status;
(i) At the Closing Date, the Acquired Fund will have
good and marketable title to the Fund Assets and full right, power and authority
to assign, deliver and otherwise transfer such Fund Assets hereunder, and upon
delivery and payment for such Fund Assets as contemplated herein, the Acquiring
Fund will acquire good and marketable title thereto, subject to no restrictions
on the ownership or transfer thereof other than such restrictions as might arise
under the 1933 Act;
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(j) The execution, delivery and performance of this
Agreement on behalf of the Acquired Fund will have been duly authorized prior to
the Closing Date by all necessary action on the part of The Montgomery Funds,
the Trustees and the Acquired Fund, and this Agreement will constitute a valid
and binding obligation of The Montgomery Funds and the Acquired Fund enforceable
in accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, arrangement, moratorium and other similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles;
(k) From the effective date of the Registration
Statement, through the time of the meeting of the Acquired Fund Investors, and
on the Closing Date, the Proxy Materials (exclusive of the portions of the
Acquiring Fund's Prospectus contained or incorporated by reference therein, and
exclusive of any written information furnished by The Montgomery Funds with
respect to the Acquiring Fund): (i) will comply in all material respects with
the applicable provisions of the 1933 Act, the 1934 Act and the 1940 Act and the
regulations thereunder and (ii) do 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 not misleading, and as of such dates
and times, any written information furnished by The Montgomery Funds, on behalf
of the Acquired Fund, for use in the Registration Statement or in any other
manner that may be necessary in connection with the transactions contemplated
hereby does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the information provided not misleading; and
(l) No governmental consents, approvals,
authorizations or filings are required under the 1933 Act, the 1934 Act, the
1940 Act or Massachusetts law for the execution of this Agreement by The
Montgomery Funds, for itself and on behalf of the Acquired Fund, or the
performance of the Agreement by The Montgomery Funds for itself and on behalf of
the Acquired Fund, except for such consents, approvals, authorizations and
filings as have been made or received, and except for such consents, approvals,
authorizations and filings as may be required subsequent to the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRED FUND
The obligations of The Montgomery Funds to consummate the
Reorganization with respect to the Acquired Fund shall be subject to the
performance by The Montgomery Funds, for itself and on behalf of the Acquiring
Fund, of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions with respect to
the Acquiring Fund:
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6.1 All representations and warranties of The Montgomery Funds
with respect to the Acquiring Fund contained herein shall be true and correct in
all material respects as of the date hereof and, except as they may be affected
by the transactions contemplated herein, as of the Closing Date with the same
force and effect as if made on and as of the Closing Date.
6.2 The Montgomery Funds, on behalf of the Acquiring Fund,
shall have delivered to the Acquired Fund at the Closing a certificate executed
on behalf of the Acquiring Fund by The Montgomery Funds' President, Secretary or
Assistant Secretary in a form reasonably satisfactory to the Acquired Fund and
dated as of the Closing Date, to the effect that the representations and
warranties of The Montgomery Funds with respect to the Acquiring Fund made
herein are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated herein, and as to such other matters
as the Acquired Fund shall reasonably request.
6.3 The Acquired Fund shall have received at the Closing a
favorable opinion of Heller, Ehrman, White & McAuliffe, counsel to The
Montgomery Funds, dated as of the Closing Date, in a form reasonably
satisfactory to the Acquired Fund, substantially to the effect that:
(a) The Montgomery Funds is a duly registered, open-end,
management investment company, and its registration with the
SEC as an investment company under the 1940 Act is in full
force and effect; (b) the Acquiring Fund is a separate
portfolio of The Montgomery Funds, which is a business trust
duly created pursuant to its Declaration of Trust, is validly
existing and in good standing under the laws of the
Commonwealth of Massachusetts, and the Declaration of Trust
directs the Trustees to manage the affairs of The Montgomery
Funds and grants them all powers necessary or desirable to
carry out such responsibility, including administering The
Montgomery Funds' business as described in the current
Prospectuses of The Montgomery Funds; (c) this Agreement has
been duly authorized, executed and delivered by The Montgomery
Funds on behalf of The Montgomery Funds and the Acquiring Fund
and, assuming due authorization, execution and delivery of
this Agreement on behalf of the Acquired Fund, is a valid and
binding obligation of The Montgomery Funds, enforceable
against The Montgomery Funds in accordance with its terms,
subject as to enforcement, to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other similar laws
of general applicability relating to or affecting creditors'
rights and to general equity principles; (d) the Acquiring
Fund Shares to be issued to the Acquired Fund and then
distributed to the Acquired Fund Investors pursuant to this
Agreement are duly registered under
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the 1933 Act on the appropriate form, and are duly authorized
and upon such issuance will be validly issued and outstanding
and fully paid and non-assessable, and no shareholder of the
Acquiring Fund has any preemptive rights to subscription or
purchase in respect thereof; (e) the Registration Statement
has become effective with the SEC and, to the best of such
counsel's knowledge, no stop order suspending the
effectiveness thereof has been issued and no proceedings for
that purpose have been instituted or are pending or
threatened; (f) no consent, approval, authorization, filing or
order of any court or governmental authority of the United
States or any state is required for the consummation of the
Reorganization with respect to the Acquiring Fund, except for
such consents, approvals, authorizations and filings as have
been made or received, and except for such consents,
approvals, authorizations and filings as may be required
subsequent to the Closing Date; and (g) to the best knowledge
of such counsel, no litigation or administrative proceeding or
investigation of or before any court or governmental body is
presently pending or threatened as to The Montgomery Funds or
the Acquiring Fund or any of their properties or assets and
neither The Montgomery Funds nor the Acquiring Fund is a party
to or subject to the provisions of any order, decree or
judgment of any court or governmental body that materially and
adversely affects its business.
6.4 As of the Closing Date, there shall have been no material
change in the investment objective, policies and restrictions nor any material
change in the investment management fees, fee levels payable pursuant to the
12b-1 plan of distribution, other fees payable for services provided to the
Acquiring Fund, fee waiver or expense reimbursement undertakings, or sales loads
of the Acquiring Fund from those fee amounts, undertakings and sales load
amounts described in the Prospectus of the Acquiring Fund delivered to the
Acquired Fund pursuant to paragraph 4.1 and in the Proxy Materials.
6.5 With respect to the Acquiring Fund, the Board of Trustees
of The Montgomery Funds shall have determined that the Reorganization is in the
best interests of the Acquiring Fund and that the interests of the existing
shareholders of the Acquiring Fund would not be diluted as a result of the
Reorganization.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRING FUND
The obligations of The Montgomery Funds to consummate the
Reorganization with respect to the Acquiring Fund shall be subject to the
performance by The Montgomery Funds of all the obligations to be performed by it
hereunder, with respect to the Acquired Fund, on or before the Closing Date and,
in addition thereto, the following conditions:
-13-
<PAGE>
7.1 All representations and warranties of The Montgomery Funds
with respect to the Acquired Fund contained herein shall be true and correct in
all material respects as of the date hereof and, except as they may be affected
by the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date.
7.2 The Montgomery Funds, on behalf of the Acquired Fund,
shall have delivered to the Acquiring Fund at the Closing a certificate executed
on behalf of the Acquired Fund, by The Montgomery Funds' President, Secretary or
Assistant Secretary, in form and substance satisfactory to the Acquiring Fund
and dated as of the Closing Date, to the effect that the representations and
warranties of The Montgomery Funds with respect to the Acquired Fund made herein
are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated herein and as to such other matters as
the Acquiring Fund shall reasonably request.
7.3 The Acquiring Fund shall have received at the Closing a
favorable opinion from Heller, Ehrman, White & McAuliffe, counsel to The
Montgomery Funds, dated as of the Closing Date, in a form reasonably
satisfactory to the Acquiring Fund, substantially to the effect that:
(a) The Montgomery Funds is a duly registered, open-end,
management investment company, and its registration with the
SEC as an investment company under the 1940 Act is in full
force and effect; (b) the Acquired Fund is a separate
portfolio of The Montgomery Funds, which is a business trust
duly created pursuant to its Declaration of Trust, is validly
existing and in good standing under the laws of the
Commonwealth of Massachusetts, and the Declaration of Trust
directs the Trustees to manage the affairs of The Montgomery
Funds and grants them all powers necessary or desirable to
carry out such responsibility, including administering The
Montgomery Funds' business as described in the current
Prospectuses of The Montgomery Funds; (c) this Agreement has
been duly authorized, executed and delivered by The Montgomery
Funds on behalf of The Montgomery Funds and the Acquired Fund
and, assuming due authorization, execution and delivery of
this Agreement on behalf of the Acquiring Fund, is a valid and
binding obligation of The Montgomery Funds, enforceable
against The Montgomery Funds in accordance with its terms,
subject as to enforcement, to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other similar laws
of general applicability relating to or affecting creditors'
rights and to general equity principles; (d) no consent,
approval, authorization, filing or order of any court or
governmental authority of the United Sates or any state is
required for the consummation of the
-14-
<PAGE>
Reorganization with respect to the Acquired Fund, except for
such consents, approvals, authorizations and filings as have
been made or received, and except for such consents,
approvals, authorizations and filings as may be required
subsequent to the Closing Date; and (e) to the best knowledge
of such counsel, no litigation or administrative proceeding or
investigation of or before any court or governmental body is
presently pending or threatened as to The Montgomery Funds or
the Acquired Fund or any of their properties or assets and
neither The Montgomery Funds nor the Acquired Fund is a party
to or subject to the provisions of any order, decree or
judgment of any court or governmental body that materially and
adversely effects its business.
7.4 With respect to the Acquired Fund, the Board of Trustees
of The Montgomery Funds shall have determined that the Reorganization is in the
best interests of the Acquired Fund.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE ACQUIRED FUND
The obligations of the Acquiring Fund and of the Acquired Fund
herein are each subject to the further conditions that on or before the Closing
Date with respect to the Acquiring Fund and the Acquired Fund:
8.1 This Agreement and the transactions contemplated herein
shall have been approved by the requisite vote of the holders of the outstanding
shares of the Acquired Fund in accordance with the provisions of The Montgomery
Funds' Declaration of Trust and the requirements of the 1940 Act, and certified
copies of the resolutions evidencing such approval shall have been delivered to
the Acquiring Fund.
8.2 On the Closing Date, no action, suit or other proceeding
shall be pending before any court or governmental agency in which it is sought
to restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or any of the transactions contemplated herein.
8.3 All consents of other parties and all other consents,
orders, approvals and permits of federal, state and local regulatory authorities
(including, without limitation, those of the SEC and of state securities
authorities) deemed necessary by The Montgomery Funds, on behalf of the
Acquiring Fund or the Acquired Fund, to permit consummation, in all material
respects, of the transactions contemplated herein shall have been obtained,
except where failure to obtain any such consent, order or permit would not, in
the opinion of the party asserting that the condition to closing has not been
satisfied, involve a risk of a material adverse effect on the assets or
properties of the Acquiring Fund or the Acquired Fund.
-15-
<PAGE>
8.4 The Registration Statement shall have become effective
under the 1933 Act, no stop orders suspending the effectiveness thereof shall
have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 1933 Act.
8.5 The Acquired Fund shall have declared a dividend or
dividends which, together with all previous such dividends, shall have the
effect of distributing to the Acquired Fund's shareholders substantially all of
the Acquired Fund's investment company taxable income for all taxable years
ending on or prior to the Closing Date (computed without regard to any deduction
for dividends paid) and substantially all of its net capital gain realized in
all taxable years ending on or prior to the Closing Date (after reduction for
any capital loss carryover).
8.6 The Montgomery Funds shall have received the opinion of
Heller, Ehrman, White & McAuliffe addressed to both the Acquiring Fund and the
Acquired Fund (and based on customary representation certificates from The
Montgomery Funds, the Acquiring Fund and the Acquired Fund) substantially to the
effect that, for federal income tax purposes:
(a) the transfer by the Acquired Fund of the Fund
Assets in exchange for the Acquiring Fund Shares and
the assumption by the Acquiring Fund of the Stated
Liabilities will constitute a "reorganization" within
the meaning of Section 368(a)(1)(C) of the Code and
the Acquiring Fund and the Acquired Fund each are a
"party to a reorganization" within the meaning of
Section 368(b) of the Code; (b) no gain or loss will
be recognized by the Acquiring Fund upon the receipt
of the Fund Assets solely in exchange for the
Acquiring Fund Shares and the assumption by the
Acquiring Fund of the Stated Liabilities; (c) no gain
or loss will be recognized by the Acquired Fund upon
the transfer of the Fund Assets to the Acquiring Fund
and the assumption by the Acquiring Fund of the
Stated Liabilities in exchange for the Acquiring Fund
Shares or upon the distribution (whether actual or
constructive) of the Acquiring Fund Shares to the
Acquired Fund shareholders in exchange for their
shares of the Acquired Fund; (d) no gain or loss will
be recognized by the Acquired Fund Shareholders upon
the exchange of their Acquired Fund Shares for the
Acquiring Fund Shares; (e) the aggregate tax basis
for the Acquiring Fund Shares received by each of the
Acquired Fund Shareholders pursuant to the
Reorganization will be the same as the aggregate tax
basis of the Acquired Fund shares held by such
shareholder immediately prior to the Reorganization,
and the holding period of the
-16-
<PAGE>
Acquiring Fund Shares to be received by each Acquired
Fund Shareholder will include the period during which
the Acquired Fund shares exchanged therefor were held
by such shareholder (provided the Acquired Fund
shares were held as capital assets on the date of the
Reorganization); and (f) the tax basis of the
Acquired Fund assets acquired by the Acquiring Fund
will be same as the tax basis of such assets to the
Acquired Fund immediately prior to the
Reorganization, and the holding period of the assets
of the Acquired Fund in the hands of the Acquiring
Fund will include the period during which those
assets were held by the Acquired Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Acquired Fund may waive the condition set forth in this paragraph 8.6.
9. EXPENSES
9.1 Except as may be otherwise provided herein, each of the
Acquired Fund and the Acquiring Fund shall be liable for its respective expenses
incurred in connection with entering into and carrying out the provisions of
this Agreement, whether or not the transactions contemplated hereby are
consummated. The expenses payable by the Acquired Fund hereunder shall include
(i) fees and expenses of its counsel and independent auditors incurred in
connection with the Reorganization; (ii) expenses associated with printing and
mailing the Prospectus/Proxy Statement and soliciting proxies in connection with
the meeting of shareholders of the Acquired Fund referred to in paragraph 4.1
hereof; (iii) all fees and expenses related to the liquidation of the Acquired
Fund; (iv) fees and expenses of the Acquired Fund's custodian and transfer
agent(s) incurred in connection with the Reorganization; and (v) any special
pricing fees associated with the valuation of the Acquired Fund's portfolio on
the Applicable Valuation Date. The expenses payable by the Acquiring Fund
hereunder shall include (i) fees and expenses of its counsel and independent
auditors incurred in connection with the Reorganization; (ii) expenses
associated with preparing this Agreement and preparing and filing the
Registration Statement under the 1933 Act covering the Acquiring Fund Shares to
be issued in the Reorganization; (iii) registration or qualification fees and
expenses of preparing and filing such forms, if any, as are necessary under
applicable state securities laws to qualify the Acquiring Fund Shares to be
issued in connection with the Reorganization; (iv) any fees and expenses of the
Acquiring Fund's custodian and transfer agent(s) incurred in connection with the
Reorganization; and (v) any special pricing fees associated with the valuation
of the Acquiring Fund's portfolio on the Applicable Valuation Date.
-17-
<PAGE>
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between
the parties and supersedes any prior or contemporaneous understanding or
arrangement with respect to the subject matter hereof.
10.2 The representations, warranties and covenants contained
in this Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated herein.
11. TERMINATION
11.1 This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time before the Closing by the
mutual written consent of the Acquiring Fund and the Acquired Fund.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in
such manner as may be mutually agreed upon in writing by the authorized officers
of The Montgomery Funds, acting on behalf of the Acquired Fund and the Acquiring
Fund; provided, however, that following the meeting of the shareholders of the
Acquired Fund, no such amendment may have the effect of changing the provisions
for determining the number of shares of the Acquiring Fund to be issued to the
Acquired Fund Investors under this Agreement to the detriment of such Acquired
Fund Investors, or otherwise materially and adversely affecting the Acquired
Fund, without the Acquired Fund obtaining the Acquired Fund Investors' further
approval except that nothing in this paragraph 12 shall be construed to prohibit
the Acquiring Fund and the Acquired Fund from amending this Agreement to change
the Closing Date or Applicable Valuation Date by mutual agreement.
13. NOTICES
Any notice, report, statement or demand required or permitted
by any provision of this Agreement shall be in writing and shall be given by
prepaid telegraph, telecopy, certified mail or overnight express courier
addressed to:
For The Montgomery Funds, on behalf of itself and the
Acquiring Fund and/or Acquired Fund:
R. Stephen Doyle
Chairman and CEO
The Montgomery Funds
101 California Street
San Francisco, California 94111
-18-
<PAGE>
With copies to:
Julie Allecta, Esq. and
David A. Hearth, Esq.
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION
OF LIABILITY
14.1 The article and paragraph headings contained herein are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All references herein to Articles, paragraphs,
subparagraphs or Exhibits shall be construed as referring to Articles,
paragraphs or subparagraphs hereof or Exhibits hereto, respectively. Whenever
the terms "hereto", "hereunder", "herein" or "hereof" are used in this
Agreement, they shall be construed as referring to this entire Agreement, rather
than to any individual Article, paragraph, subparagraph or sentence.
14.2 This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other parties. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
-19-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed by its authorized officer, and attested by its
Secretary.
The Montgomery Funds
for itself and on behalf of
the Montgomery Emerging
Markets Fund
By: _________________________
Title: _________________________
The Montgomery Funds
for itself and on behalf of
the Montgomery Advisors
Emerging Markets Fund
By: _________________________
Title: _________________________
-20-
<PAGE>
---------------------------------------------------------------------
PART B
STATEMENT OF ADDITIONAL INFORMATION
FOR THE REORGANIZATION OF
MONTGOMERY ADVISORS EMERGING MARKETS FUND
INTO
MONTGOMERY EMERGING MARKETS FUND
---------------------------------------------------------------------
<PAGE>
THE MONTGOMERY FUNDS
------------------
101 California Street
San Francisco, California 94111
1-800-572-FUND
------------------
STATEMENT OF ADDITIONAL INFORMATION
DATED OCTOBER ___, 1996
FOR REGISTRATION STATEMENT ON FORM N-14
This Statement of Additional Information is not a prospectus
and should be read in conjunction with the Combined Proxy Statement and
Prospectus dated October ___, 1996, which has been filed by The Montgomery Funds
(the "Trust") in connection with a Special Meeting of Shareholders of the
Montgomery Advisors Emerging Markets Fund (the "Acquired Fund") of the Trust
that has been called to vote on an Agreement and Plan of Reorganization (and the
transactions contemplated thereby). Copies of the Combined Proxy Statement and
Prospectus may be obtained at no charge by writing The Montgomery Funds at the
address indicated above or by calling toll-free 1-800-572-FUND.
Unless otherwise indicated, capitalized terms used herein and
not otherwise defined have the same meanings as are given to them in the
Combined Proxy Statement and Prospectus.
Further information about the Trust, the Acquired Fund and the
Montgomery Emerging Markets Fund (the "Acquiring Fund") is contained in the
Acquired Fund's Prospectus dated November 13, 1995, the Acquiring Fund's
Prospectus dated June 30, 1996, the Annual Report of the Acquiring Fund for the
fiscal year ended June 30, 1996 and the Annual Report of the Acquired Fund for
the fiscal period ended June 30, 1996. The Funds' Statement of Additional
Information, dated June 30, 1996, is incorporated by reference in this Statement
of Additional Information and is available without charge by calling The
Montgomery Funds toll-free at 1-800-572-FUND.
Pro-forma financial statements are not provided herewith
because as of September 30, 1996 the net asset value of the Acquired Fund did
not exceed ten percent of the net asset value of the Acquiring Fund.
TABLE OF CONTENTS
Page
----
General Information..................................................... B-2
B-1
<PAGE>
GENERAL INFORMATION
The shareholders of the Acquired Fund are being asked to
approve a form of Agreement and Plan of Reorganization (the "Plan") combining
the Acquired Fund into the Acquiring Fund (and the transactions contemplated
thereby). The Plan contemplates the transfer of all of the assets of the
Acquired Fund as of the Effective Date to the Acquiring Fund, and the assumption
by the Acquired Fund of stated liabilities of the Acquired Fund, in exchange for
shares of the Acquiring Fund. Immediately after the Effective Date, the Acquired
Fund will distribute to its shareholders of record as of the close of business
on the Effective Date the shares of the Acquiring Fund received. The shares of
the Acquiring Fund that will be issued for distribution to the Acquired Fund's
Shareholders will have an aggregate net asset value equal to the aggregate net
asset value of the shares of the Acquired Fund held as of the Closing Date. The
Trust will then take all necessary steps to terminate the qualification,
registration and classification of the Acquired Fund. All issued and outstanding
shares of the Acquired Fund will be cancelled on the Acquired Fund's books.
Shares of the Acquiring Fund will be represented only by book entries; no share
certificates will be issued.
A Special Meeting of the Acquired Fund's shareholders to
consider the transaction will be held at the offices of the Trust, 101
California Street, 35th Floor, San Francisco, California 94111 on November ___,
1996 at 10 a.m., local time.
For further information about the transaction, see the
Combined Proxy Statement and Prospectus. For further information about the
Trust, the Acquired Fund and the Acquiring Fund, see the Funds' Statement of
Additional Information, dated June 30, 1996, which is available without charge
by calling the Trust at 1-800-572-FUND.
B-2
<PAGE>
----------------------------------------------------
PART C
OTHER INFORMATION
---------------------------------------------------
<PAGE>
THE MONTGOMERY FUNDS
--------------
FORM N-14
--------------
PART C
--------------
Item 15. Indemnification
Article VII, Section 3 of the Agreement and Declaration of Trust
empowers the Trustees of the Trust, to the full extent permitted by law, to
purchase with Trust assets insurance for indemnification from liability and to
pay for all expenses reasonably incurred or paid or expected to be paid by a
Trustee or officer in connection with any claim, action, suit or proceeding in
which he or she becomes involved by virtue of his or her capacity or former
capacity with the Trust.
Article VI of the By-Laws of the Trust provides that the Trust shall
indemnify any person who was or is a party or is threatened to be made a party
to any proceeding by reason of the fact that such person is and other amounts or
was an agent of the Trust, against expenses, judgments, fines, settlement and
other amounts actually and reasonable incurred in connection with such
proceeding if that person acted in good faith and reasonably believed his or her
conduct to be in the best interests of the Trust. Indemnification will not be
provided in certain circumstances, however, including instances of willful
misfeasance, bad faith, gross negligence, and reckless disregard of the duties
involved in the conduct of the particular office involved.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to the Trustees, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable in the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
Item 16 Exhibits
--------
(1)(A) Agreement and Declaration of Trust is incorporated by
reference to the Registrant's Registration Statement
as filed with the Commission on May 16, 1990
("Registration Statement").
C-1
<PAGE>
(1)(B) Amendment to Agreement and Declaration of Trust is
incorporated by reference to Post-Effective Amendment
No. 17 to the Registration Statement as filed with
the Commission on December 30, 1993 ("Post-Effective
Amendment No. 17").
(1)(C) Amended and Restated Agreement and Declaration of
Trust is incorporated by reference to Post-Effective
Amendment No. 28 to the Registration Statement as
filed with the Commission on September 13, 1995
("Post-Effective Amendment No. 28").
(2) By-Laws are incorporated by reference to the
Registration Statement.
(3) Voting Trust Agreement - Not applicable.
(4) Form of Agreement and Plan of Reorganization is
included in Part A
(5) Specimen Share Certificate - Not applicable.
(6)(A) Form of Investment Management Agreement is
incorporated by reference to Pre-Effective Amendment
No. 1 to the Registration Statement as filed with the
Commission on July 5, 1990 ("Pre-Effective Amendment
No. 1").
(6)(B) Form of Amendment to Investment Management Agreement
is incorporated by reference to Post-Effective
Amendment No. 24 to the Registration Statement as
filed with the Commission on March 31, 1995
("Post-Effective Amendment No. 24").
(7)(A) Form of Underwriting Agreement is incorporated by
reference to Pre-Effective Amendment No. 1.
(7)(B) Form of Selling Group Agreement is incorporated by
reference to Pre-Effective Amendment No. 1.
(8) Benefit Plan(s) - Not applicable.
(9) Custody Agreement is incorporated by reference to
Post-Effective Amendment No. 24.
(10) Form of Shareholder Services Plan is incorporated by
reference to Post-Effective Amendment No. 28.
(11) Consent and Opinion of Counsel as to legality of
shares is incorporated by reference to Pre-Effective
Amendment No. 1.
(12) Opinion and Consent of Counsel as to Tax Matters is
filed herewith.
(13)(A) Form of Administrative Services Agreement is
incorporated by reference to Post-Effective Amendment
No. 15.
(13)(B) Form of Multiple Class Plan is incorporated by
reference to Post-Effective Amendment No. 28.
(14) Independent Auditors' Consent
(15) Not Applicable.
C-2
<PAGE>
(16) Powers of Attorney are filed herewith.
Item 17. Undertakings.
-------------
(1) Registrant agrees that, prior to any public
reoffering of the securities registered through the
use of a prospectus which is part of this
registration statement by any person or party who is
deemed to be an underwriter within the meaning of
Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information
called for by the applicable registration form for
the reofferings by persons who may be deemed
underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned registrant agrees that every
prospectus that is filed under paragraph (1) above
will be filed as part of an amendment to the
registration statement and will not be used until the
amendment is effective, and that, in determining any
liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new
registration statement for the securities offered
therein, and the offering of the securities at that
time shall be deemed to be the initial bona fide
offering of them.
C-3
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration
statement has been signed on behalf of the Registrant, in the City of San
Francisco and State of California, on the 11th day of September, 1996.
THE MONTGOMERY FUNDS
By: R. Stephen Doyle*
----------------------------------
R. Stephen Doyle
Chairman and Principal
Executive Officer
As required by the Securities Act of 1933, this registration statement has been
signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
R. Stephen Doyle* Principal Executive Officer; September 11, 1996
- ------------------- Principal Financial and Accounting
R. Stephen Doyle Officer; and Trustee
Andrew Cox* Trustee September 11, 1996
- -------------------
Andrew Cox
Cecilia H. Herbert* Trustee September 11, 1996
- -------------------
Cecilia H. Herbert
John A. Farnsworth* Trustee September 11, 1996
- -------------------
John A. Farnsworth
*By: /s/ Julie Allecta
-------------------------------
Julie Allecta, Attorney-in-Fact
pursuant to Power of Attorney
filed herewith.
C-4
<PAGE>
SEC FILE NO. 33-34841
THE MONTGOMERY FUNDS
FORM N-14
EXHIBIT INDEX
Exhibit
Number
- -------
12 Opinion and Consent of Counsel as to Tax Matters
14 Independent Auditors' Consent -- Deloitte & Touche LLP
16 Power of Attorney
EXHIBIT 12
[DRAFT TAX OPINION}
September _____, 1996
Montgomery Emerging Markets Fund
c/o The Montgomery Funds
101 California Street
San Francisco, California 94111
Montgomery Advisors Emerging Markets Fund
c/o The Montgomery Funds
101 California Street
San Francisco, California 94111
Ladies and Gentlemen:
You have requested our opinion as to certain United States federal
income tax consequences of the acquisition by Montgomery Emerging Markets Fund
(the "Acquiring Fund"), a portfolio of the Montgomery Funds (the "Trust"), a
Massachusetts business trust, of all of the assets and the assumption of certain
of the liabilities of Montgomery Advisors Emerging Markets Fund (the "Acquired
Fund"), a portfolio of the Trust, solely in exchange for voting shares of the
Acquiring Fund which shall thereafter be distributed to the shareholders of the
Acquired Fund and the assumption by the Acquiring Fund of certain liabilities of
the Acquired Fund pursuant to an Agreement and Plan of Reorganization dated
________, 1996 (the "Plan"). The transactions contemplated by the Plan are
referred to herein as the "Reorganization". At your request, we are rendering
our opinion concerning the material federal income tax consequences of the
Reorganization.
In rendering this opinion, we have examined and relied upon (i) the
Plan, (ii) the Registration Statement on Form N-14 (the "Registration
Statement") and the Combined Proxy Statement and Prospectus (the "Proxy
Statement/Prospectus") filed with the Securities and Exchange Commission on
_____________, 1996 in connection with the Reorganization, (iii) certain
representations concerning the Reorganization made to us by the Trust for itself
and on behalf of the Acquiring Fund and the Acquired Fund in a certificate dated
____________, 1996, and (iv) such other documents, financial and other reports
and corporate minutes that we deemed relevant or appropriate. We have assumed,
without independent investigation or review thereof, the accuracy and
completeness of the facts and representations and warranties contained in the
above documents. Any capitalized term used and not defined herein has the
meaning given to it in the Proxy Statement/Prospectus or the appendices thereto
(including the Plan).
We have also assumed that the transactions contemplated by the
Plan will be consummated in accordance therewith and as described in the Proxy
Statement/Prospectus and
<PAGE>
Montgomery Emerging Markets Fund
Montgomery Advisors Emerging Markets Fund
September ______, 1996
Page 2
that, as described in the Plan, prior to the Closing Date, the Acquired Fund
will dispose of and/or reinvest any investments which would violate stated
investment objectives or policies or certain percentage limitations of the
Acquiring Fund.
Based upon the foregoing and subject to the following, it is
our opinion that the Reorganization will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended
(the "Code"), that the Acquiring Fund and the Acquired Fund will each be a party
to that reorganization within the meaning of Section 368(b) of the Code, and
that, accordingly, the following will be the material federal income tax
consequences of the Reorganization:
(1) No gain or loss will be recognized by the Acquired Fund on the
transfer of its assets to the Acquiring Fund pursuant to the Plan solely in
exchange for Acquiring Fund shares and the assumption by the Acquiring Fund of
certain of the Acquired Fund's liabilities, or upon the distribution of the
Acquiring Fund Shares to shareholders of the Acquired Fund in exchange for their
shares of the Acquired Fund.
(2) No gain or loss will be recognized by the Acquiring Fund on the
receipt by the Acquiring Fund of the assets of the Acquired Fund pursuant to the
Plan solely in exchange for Acquiring Fund shares and the assumption by the
Acquiring Fund of certain of the Acquired Fund's liabilities.
(3) The basis to the Acquiring Fund of the assets of the Acquired Fund
received in the Reorganization will be the same as the basis of those assets in
the hands of the Acquired Fund immediately prior to the Reorganization.
(4) The holding period of the Acquiring Fund of the assets of the
Acquired Fund received in the Reorganization will include the period for which
such assets were held by the Acquired Fund.
(5) No gain or loss will be recognized by the shareholders of the
Acquired Fund on the exchange of their shares in the Acquired Fund solely for
shares of the Acquiring Fund pursuant to the terms of the Plan.
(6) The aggregate basis of the shares of the Acquiring Fund to be
received by a shareholder of the Acquired Fund pursuant to the Plan will be the
same as the aggregate basis of the shares of the Acquired Fund exchanged
therefor.
(7) The holding period for shares of the Acquiring Fund to be received
by a shareholder of the Acquired Fund will include the period during which the
Acquired Fund shares exchanged therefor were held, provided such Acquired Fund
shares were a capital asset in the hands of the shareholder on the date of the
exchange.
-2-
<PAGE>
Montgomery Emerging Markets Fund
Montgomery Advisors Emerging Markets Fund
September ______, 1996
Page 3
This opinion may not be applicable to certain classes of
Acquired Fund shareholders, including securities dealers, foreign persons and
persons who acquired their own stock pursuant to the exercise of employee stock
options or rights or otherwise as compensation.
No opinion is expressed regarding the federal income tax
consequences to the Acquiring Fund, the Acquired Fund, or the shareholders of
the Acquired Fund in the event that money or property other than Acquiring Fund
shares is paid by the Acquiring Fund or is distributed by the Acquired Fund to
its shareholders in connection with this transaction. No opinion is expressed
regarding whether the payment by Montgomery Asset Management, L.P. of expenses
of the Reorganization will cause the Acquiring Fund to recognize gross income
under Section 61 of the Code or qualifying income under Section 851(b)(2) of the
Code.
This opinion is based upon existing provisions of the Code,
regulations, judicial decisions, and administrative rulings. Legislative changes
in the tax law, or changes in the judicial, regulatory and administrative
interpretation of the law (including changes having retroactive application)
could occur at any time which would modify the federal income tax consequences
described in this opinion. This opinion is expressly limited to the matters
discussed herein and does not address any state, local or foreign tax
consequences of the Reorganization or any federal income tax matters not
specifically mentioned.
No opinion is expressed as to any transaction other than the
Reorganization or to any transaction whatsoever including the Reorganization if
all the transactions described in such Plan have not been consummated in
accordance with the terms of such Plan and without waiver of any material
provision thereof or if all of the representations, warranties, statements and
assumptions upon which we have relied are not true and accurate at all relevant
times. If any such representation, warranty, statement or assumption is not
true, correct and complete in all material respects, our opinion could be
adversely affected and should not be relied upon.
This opinion only represents our best judgment as to the
federal income tax consequences of the Reorganization and is not binding on the
Internal Revenue Service or the courts. We disclaim any obligation to advise of
any developments in areas covered by this opinion that occur after the date of
this opinion.
-3-
<PAGE>
Montgomery Emerging Markets Fund
Montgomery Advisors Emerging Markets Fund
September ______, 1996
Page 4
The foregoing opinion is intended solely for the Acquiring
Fund, the Acquired Fund and the shareholders of the Acquired Fund and, without
our consent may not be disclosed to any other person. We consent to the use of
this opinion as an exhibit to the registration statement on Form N-14 filed with
the Securities and Exchange Commission in connection with the Reorganization.
Very truly yours,
-4-
EXHIBIT 14
Independent Auditors' Consent -- Deloitte & Touche LLP
<PAGE>
Deloitte &
Touche LLP
- -------------- ---------------------------------------------------------------
50 Fremont Street Telepone: (415) 247-4000
San Francisco, California 94105-2230 Facsimile: (415) 247-4329
Exhibit 14
INDEPENDENT AUDITORS' CONSENT
We consent to (a) the incorporation by reference in this Registration Statement
No. 33-34841 of The Montgomery Funds on Form N-14 of our report dated August 16,
1996 appearing in the 1996 Annual Report of The Montgomery Funds for the periods
ended June 30, 1996 and our report dated August 16, 1996 appearing in the 1996
Report of Montgomery Advisors Emerging Markets Fund for the period from December
8, 1995 (commencement of operations) to June 30, 1996 and (b) the reference to
us under the heading "Experts" in the Combined Proxy Statement and Prospectus,
which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
September 3, 1996
- ------------------
Deloitte Touche
Tohmatsu
International
- ------------------
EXHIBIT 16
Power of Attorney
<PAGE>
POWER OF ATTORNEY
FOR
SECURITIES AND EXCHANGE COMMISSION
AND RELATED FILINGS
--------------------------
Each of the undersigned Trustees and Officers of THE MONTGOMERY FUNDS
(the "Trust") hereby appoints R. STEPHEN DOYLE, MARK B. GEIST, JULIE ALLECTA and
MITCHELL E. NICHTER (with full power to each of them to act alone), his or her
attorney-in-fact and agent, in all capacities, to execute and to file any
documents relating to the Registration Statement on Form N-14 under the
Securities Act of 1933, including any and all amendments thereto, covering the
reorganization of the Montgomery Advisors Emerging Markets Fund into the
Montgomery Emerging Markets Fund, including all exhibits and any and all
documents required to be filed with respect thereto with any regulatory
authority, including applications for exemptive orders or rulings. Each of the
undersigned grants to each of said attorneys full authority to do every act
necessary to be done in order to effectuate the same as fully, to all intents
and purposes, as he could do if personally present, thereby ratifying all that
said attorneys-in-fact and agents may lawfully do or cause to be done by virtue
hereof.
The undersigned Trustees and Officers hereby execute this Power of
Attorney as of this 30th day of August, 1996.
/s/ R. Stephen Doyle /s/ John A. Farnsworth
- ----------------------------- ----------------------------------
R. Stephen Doyle, John A. Farnsworth,
Principal Executive Officer, Trustee
Principal Financial Officer,
Principal Accounting Officer
and Trustee
/s/ Andrew Cox /s/ Cecilia H. Herbert
- ----------------------------- ----------------------------------
Andrew Cox, Cecilia H. Herbert,
Trustee Trustee
