As filed with the Securities and Exchange Commission on October 18, 1996
File Nos.: 333-11799
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
Pre-Effective Amendment No. 1
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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 25,
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
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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>
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 25, 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 25, 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
October 25, 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
November 7, 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>
PROXY
FOR SPECIAL MEETING OF SHAREHOLDERS OF
MONTGOMERY ADVISORS EMERGING MARKETS FUND
ON NOVEMBER 25, 1996
PLEASE VOTE, SIGN BELOW AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.
TO VOTE, MARK BLOCK BELOW AS FOLLOWS: |X|
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 25,
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.
o FOR o AGAINST o 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
---------------------------------
Signature of Shareholder
---------------------------------
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
MONTGOMERY ADVISORS EMERGING MARKETS FUND
and
MONTGOMERY EMERGING MARKETS FUND
COMBINED PROXY STATEMENT AND PROSPECTUS
DATED: October 31, 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 25, 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.
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<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 November 7, 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.
-4-
<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 TRUSTEES .............................. 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.
SHAREHOLDERS OF THE ACQUIRED FUND MAY ALWAYS
REDEEM ACQUIRED FUND SHARES, UP TO AND INCLUDING
THE DATE OF THE REORGANIZATION.
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 October 31, 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).
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<PAGE>
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 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:
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<PAGE>
Percentage of Acquired Fund's
Shareholder Outstanding Shares
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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
approved on August 30, 1996, by unanimous consent resolutions, the proposed
Reorganization, after having determined that it is in the best interest of the
Shareholders, and directed that the proposed Reorganization be submitted to the
Shareholders for approval. The consent resolutions were ratified by the full
Board of Trustees during their September 26, 1996 regular meeting. 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
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<PAGE>
Effective Date (the "Valuation Date") in accordance with the Funds' valuation
procedures described in their respective 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 September 30,
1996, the value of the aggregate net assets of the Acquired Fund was $7,567,185,
the total number of outstanding Acquired Fund shares was 446,596, and the net
asset value of each Acquiring Fund Share was $13.82. Therefore, if the Effective
Date had been September 30, 1996, the Acquiring Fund would have issued a total
of 547,553.219 Acquiring Fund Shares to the Acquired Fund, and the Acquired Fund
would then have redeemed each of its then outstanding shares in exchange for
1.226 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.
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<PAGE>
Effect of the Reorganization
If the Reorganization is approved and completed, Shareholders of the
Acquired Fund as of the Effective Date will become shareholders of the Acquiring
Fund, which will acquire the net assets of the Acquired Fund. The total net
asset value of all Acquiring Fund shares held by each Shareholder of the
Acquired Fund immediately after consummation of the Reorganization will be
equivalent to the total net asset value of all 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 Acquired Fund 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
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<PAGE>
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 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.
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:
(Unaudited) (Unaudited)
Acquiring Acquired Pro Forma
Fund Fund Combined
--------------------------------------------
Aggregate net assets............... $933,198,186 $7,567,185 $940,765,371
Shares outstanding*................ 67,533,158 446,596 68,080,711
Net asset value per share.......... $13.82 $16.95 $13.82
- -------------------------------------------------------
* Each Fund is authorized to issue an indefinite number of shares.
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
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five emerging market countries at all times and invests no more than 35% of its
total assets in any one emerging market country.
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
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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 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
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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 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.)
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<PAGE>
11. Invest more than 25% of the market value of its total assets in the
securities of companies engaged in any one 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.)
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16. (a) Purchase or retain in its portfolio any security if any
officer, trustee or shareholder of the issuer is 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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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 earned
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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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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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 Markets Advisors Emerging
Fund As of Markets Fund As of Pro Forma
June 30, 1996 June 30, 1996 (Combined)
---------------- ------------------ ----------
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases
(as a percentage of
offering price) None None None
Sales Charge Imposed on
Dividend Reinvestments None None None
Maximum Contingent
Deferred Sales Charge None None None
Redemption Fees None(1) 1.00%(2) None(1)
Exchange Fees None None None
ANNUAL OPERATING EXPENSES:
(as a percentage of average
net assets)
Management Fee 1.06% 1.20% 1.06%
12b-1 Distribution and
Service Fees None None None
Other Expenses 0.66% 0.25% 0.66%
Total Fund Operating
Expenses (after fee waiver) 1.72% 1.45% 1.72%
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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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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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
<PAGE>
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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<PAGE>
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
-3-
<PAGE>
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.
-4-
<PAGE>
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.
-5-
<PAGE>
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;
-6-
<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
-7-
<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
-9-
<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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<PAGE>
(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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<PAGE>
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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<PAGE>
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:
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<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
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<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.
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<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 and paid 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
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<PAGE>
Reorganization, and the holding period of the 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
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<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 31, 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 31, 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 25, 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 will be filed
with post-effective amendment No. 1 which the Registrant
undertakes to file pursuant to Item 17 below.
(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.
C-2
<PAGE>
(14) Independent Auditors' Consent is incorporated by reference to
the Registrant's Registration Statement filed with the
Commission on September 11, 1996.
(15) Not Applicable.
(16) Powers of Attorney are incorporated by reference to the
Registrant's Registration Statement filed with the Commission
on September 11, 1996.
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.
(3) Registrant hereby undertakes to file a post-effective
amendment to this Registration Statement including a signed
tax opinion from Heller, Ehrman, White & McAuliffe opining on
the tax-free nature of the reorganization.
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 17th day of October, 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 October 17, 1996
- -------------------
R. Stephen Doyle Officer; Principal
Financial and Accounting
Officer; and Trustee
Andrew Cox* Trustee October 17, 1996
- -------------------
Andrew Cox
Cecilia H. Herbert* Trustee October 17, 1996
- -------------------
Cecilia H. Herbert
John A. Farnsworth* Trustee October 17, 1996
- -------------------
John A. Farnsworth
*By: /s/ Julie Allecta
-------------------------------
Julie Allecta, Attorney-in-Fact
pursuant to Power of Attorney
filed herewith.
C-4
