As filed with the Securities and Exchange Commission on February 5, 1996
Registration Nos. 33-34841
811-6011
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 33
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 34
THE MONTGOMERY FUNDS
(Exact Name of Registrant as Specified in its Charter)
600 Montgomery Street
San Francisco, California 94111
(Address of Principal Executive Office)
1-800-572-3863
(Registrant's Telephone Number, Including Area Code)
JACK G. LEVIN
600 Montgomery Street
San Francisco, California 94111
(Name and Address of Agent for Service)
-------------------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
---
X on March 1, 1996 pursuant to Rule 485(b)
---
60 days after filing pursuant to Rule 485(a)(1)
---
75 days after filing pursuant to Rule 485(a)(2)
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on pursuant to Rule 485(a)
----
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has registered an indefinite number of securities under the
Securities Act of 1933. The Rule 24f-2 Notice for the Registrant's fiscal year
ended June 30, 1995 was filed on August 28, 1995.
----------
Please Send Copy of Communications to:
JULIE ALLECTA, ESQ.
DAVID A. HEARTH, ESQ.
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104
(415) 772-6000
Total number of pages . Exhibit Index appears at .
<PAGE>
THE MONTGOMERY FUNDS
CONTENTS OF POST-EFFECTIVE AMENDMENT
This post-effective amendment to the registration statement of the Registrant
contains the following documents*:
Facing Sheet
Contents of Post-Effective Amendment
Cross-Reference Sheet for Class P shares of Montgomery Small Cap
Opportunities Fund (formerly, Montgomery Small Cap II Fund)
and Montgomery International Small Cap Fund
Part A - Prospectus for Class P Shares of Montgomery Small Cap
Opportunities Fund (formerly, Montgomery Small Cap II Fund)
and Montgomery International Small Cap Fund
Part C - Other Information
Signature Page
Exhibit
- --------
** This Amendment does not relate to the following documents: prospectuses
and statement of additional information for the Class R shares, Class P
shares and Class L shares for Montgomery Growth Fund, Montgomery Equity
Income Fund, Montgomery Small Cap Fund, Montgomery Small Cap
Opportunities Fund (except for the above), Montgomery Micro Cap Fund,
Montgomery Global Opportunities Fund, Montgomery Global Communications
Fund, Montgomery International Small Cap Fund (except for the above),
Montgomery International Growth Fund, Montgomery Emerging Markets Fund,
Montgomery Select 50 Fund, Montgomery Short Government Bond Fund,
Montgomery Government Reserve Fund, Montgomery California Tax-Free
Intermediate Bond Fund, Montgomery California Tax-Free Money Fund and
Montgomery Advisors Emerging Markets Fund; prospectus and statement of
additional information for Montgomery Technology Fund.
ii
<PAGE>
THE MONTGOMERY FUNDS
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN PROSPECTUS
(FOR COMBINED PROSPECTUS FOR CLASS P SHARES OF
MONTGOMERY SMALL CAP OPPORTUNITIES FUND AND
MONTGOMERY INTERNATIONAL SMALL CAP FUND)
LOCATION IN THE
N-1A REGISTRATION STATEMENT
ITEM NO. ITEM BY HEADING
- -------- ---- -----------------------
1. Cover Page Cover Page
2. Synopsis "Montgomery Funds"
"Fees and Expenses of the Funds"
3. Condensed Financial "Financial Highlights"
4. General Description Cover Page, "Montgomery Funds"
of Registrant "The Funds' Investment Objectives and
Policies," "Portfolio Securities," "Other
Investment Practices," "Risk Considerations"
and "General Information"
5. Management of "The Funds' Investment Objectives and
the Fund Policies," "Management of the Funds" and
"How to Invest in the Funds"
5A. Management's Discussion Not Applicable (contained in the Funds'
of Fund Performance Annual Report)
6. Capital Stock and "Montgomery Funds,"
Other Securities "Dividends and Distributions,"
"Taxation" and "General Information"
7. Purchase of Securities "How to Invest in the Funds,"
Being Offered "How Net Asset Value is Determined,"
"General Information" and
"Backup Withholding Instructions"
8. Redemption or "How to Redeem an Investment in the Funds"
Repurchase and "General Information"
9. Pending Legal Not Applicable
Proceedings
iii
<PAGE>
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PART A
COMBINED PROSPECTUS
(For Class P Shares of
Montgomery Small Cap Opportunities Fund and
Montgomery International Small Cap Fund)
---------------------------------------------------------------------
iv
<PAGE>
THE MONTGOMERY FUNDS
600 Montgomery Street
San Francisco, California 94111
(800) 572-FUND
PROSPECTUS
March 1, 1996
The following two mutual funds (individually, a "Fund" and, collectively, the
"Funds") are offered in this Prospectus:
o Montgomery Small Cap Opportunities Fund
o A Montgomery International Small Cap Fund
Each Fund's shares offered in this Prospectus (the Class P shares) are sold at
net asset value with no sales load, no commissions and no redemption or exchange
fees. The Class P shares are subject to a Rule 12b-1 distribution fee as
described in this Prospectus. In general, the minimum initial investment in each
Fund is $500, and subsequent investments must be at least $100. The Manager or
the Distributor, in either's discretion, may waive these minimums. See "How to
Invest in the Funds."
Each Fund is a separate series of The Montgomery Funds, an open-end management
investment company, and managed by Montgomery Asset Management, L.P. (the
"Manager"), an affiliate of Montgomery Securities (the "Distributor"). Each Fund
has its own investment objective and policies designed to meet different
investment goals. As is the case for all mutual funds, attainment of each Fund's
investment objective cannot be assured.
Please read this Prospectus before investing and retain it for future reference.
A Statement of Additional Information dated February 9, 1996, as may be revised,
has been filed with the Securities and Exchange Commission, is incorporated by
this reference and is available without charge by calling (800) 572-FUND. If you
are viewing the electronic version of this prospectus through an on-line
computer service, you may request a printed version free of charge by calling
(800) 572-FUND.
The Internet address for The Montgomery Funds is
http://www.xperts.montgomery.com/1.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
TABLE OF CONTENTS
- ------------------------------
The Montgomery Funds 3
Fees and Expenses of the Funds 4
Financial Highlights 6
The Funds' Investment Objectives and Policies 7
Portfolio Securities 8
Other Investment Practices 10
Risk Considerations 13
Management of the Funds 14
How To Invest in the Funds 17
How To Redeem an Investment in the Funds 20
Exchange Privileges and Restrictions 22
Brokers and Other Intermediaries 22
How Net Asset Value is Determined 23
Dividends and Distributions 23
Taxation 23
General Information 24
Backup Withholding Instructions 25
2
<PAGE>
THE MONTGOMERY FUNDS
The Funds' investment objectives are summarized below. See "The Funds'
Investment Objectives and Policies" beginning on page 7, "Portfolio Securities"
beginning on page 8, "Other Investment Practices" beginning on page 10 and "Risk
Considerations" beginning on page 13 for more detailed information.
MONTGOMERY SMALL CAP OPPORTUNITIES FUND
Seeks capital appreciation by investing primarily in equity securities, usually
common stocks, of small-capitalization domestic companies, which the Fund
currently considers to be companies having total market capitalizations of less
than $1 billion.
MONTGOMERY INTERNATIONAL SMALL CAP FUND
Seeks capital appreciation by investing primarily in equity securities of
companies outside the U.S. having total market capitalizations of less than $1
billion, sound fundamental values and potential for long-term growth at a
reasonable price.
The Funds offer other classes of shares to investors eligible to purchase those
shares. The other classes of shares may have different fees and expenses than
the class of shares offered in this Prospectus, and those different fees and
expenses may affect performance. To obtain information concerning the other
classes of shares not offered in this Prospectus, call The Montgomery Funds at
(800) 572-FUND or contact sales representatives or financial intermediaries who
offer those classes.
3
<PAGE>
FEES AND EXPENSES OF THE FUNDS
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
An investor would pay the following charges when buying or redeeming shares of a
Fund:
<CAPTION>
Maximum Sales Load Maximum Sales Load
Imposed on Purchases Imposed on Reinvested Dividends Deferred Sales Load Redemption Fees+ Exchange Fees
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NONE None None None None
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
THE EQUITY FUNDS
<CAPTION>
Montgomery Small Cap Opportunities Fund Montgomery International Small Cap Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fee* 1.20% 1.25%
- ---------------------------------------------------------------------------------------------------------------------------------
12b-1 Fee 0.25% 0.25%
- ---------------------------------------------------------------------------------------------------------------------------------
Other Expenses 0.30% 0.65%
(after reimbursement)*
- ---------------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses* 1.75% 2.15%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The previous tables are intended to assist the investor in understanding the
various direct and indirect costs and expenses of each Fund. Operating expenses
are paid out of a Fund's assets and are factored into the Fund's share price.
Each Fund estimates that it will have the expenses listed (expressed as a
percentage of average net assets) for the current fiscal year. Because Rule
12b-1 distribution charges are accounted for on a class-level basis (and not on
an individual shareholder-level basis), individual long-term investors in the
Class P shares of a Fund may over time pay more than the economic equivalent of
the maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc. ("NASD"), even though all shareholders of that Class in
the aggregate will not. This is recognized and permitted by the NASD.
+ Shareholders effecting redemptions via wire transfer may be required to pay
fees, including the wire fee and other fees, that will be directly deducted
from redemption proceeds. THE MONTGOMERY FUNDS RESERVE THE RIGHT UPON 60
DAYS' ADVANCE NOTICE TO SHAREHOLDERS TO IMPOSE A REDEMPTION FEE OF UP TO
1.00% ON SHARES REDEEMED WITHIN 90 DAYS OF PURCHASE. See "How to Redeem an
Investment in the Funds."
* Expenses for the Funds are based on actual expenses and expense limitations
for the fiscal year ended June 30, 1995 for another class of shares (but
adjusted to include the Rule 12b-1 fee for the Class P shares) because the
Class P shares were not offered that year. The Manager will reduce its fees
and may absorb or reimburse a Fund for certain expenses to the extent
necessary to limit total annual fund operating expenses to the lesser of the
amount indicated in the table for a Fund or the maximum allowed by
applicable state expense limitations. A Fund is required to reimburse the
Manager for any reductions in the Manager's fee only during the two years
following that reduction and only if such reimbursement can be achieved
within the foregoing expense limits. The Manager generally seeks
reimbursement for the oldest reductions and waivers before payment for fees
and expenses for the current year. Absent reduction and including the Rule
12b-1 fee for the Class P shares, actual total Fund operating expenses for
the period ended June 30, 1995 (annualized) would have been as follows:
Montgomery International Small Cap Fund, 2.75% (1.50% other expenses).
Absent reduction and including the Rule 12b-1 fee for the Class P shares,
actual total Fund operating expenses are estimated to be as follows:
Montgomery Small Cap Opportunities Fund, 3.35% (1.85% other expenses). The
Manager may terminate these voluntary reductions at any time. See
"Management of the Funds."
4
<PAGE>
EXAMPLE OF EXPENSES FOR THE FUNDS
Assuming, hypothetically, that each Fund's annual return is 5% and that its
operating expenses are as set forth above, an investor buying $1,000 of a Fund's
shares would have paid the following total expenses upon redeeming such shares:
MONTGOMERY SMALL CAP MONTGOMERY INTERNATIONAL SMALL CAP
OPPORTUNITIES FUND FUND
- --------------------------------------------------------------------------------
1 Year $18 $22
- --------------------------------------------------------------------------------
3 Years $55 $67
- --------------------------------------------------------------------------------
5 Years NA $115
- --------------------------------------------------------------------------------
10 Years NA $248
- --------------------------------------------------------------------------------
This example is to help potential investors understand the effect of expenses.
Investors should understand that this example does not represent past or future
expenses or returns and that actual expenses and returns may vary.
5
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS
The following financial information for the periods ended June 30, 1994 through
June 30, 1995 was audited by Deloitte & Touche LLP, whose report, dated August
11, 1995, appears in the 1995 Annual Report of the Funds. This financial
information relates to another class of shares of the Funds not subject to the
Class P Rule 12b-1 fee because the Class P shares were not offered during the
periods shown.
<TABLE>
MONTGOMERY INTERNATIONAL SMALL CAP FUND
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Inception1
Year Ended June 30, 1995 through
June 30, 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year...................... $12.02 $12.00
- ----------------------------------------------------------------------------------------------------------
Income From Investment Operations:
Net investment income (loss)........................... 0.12 0.00+
Net realized and unrealized gain (loss) on investments. (0.39) 0.02
------ ------
Total from investment operations....................... (0.27) 0.02
- ----------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income................... (0.00)+ --
Distributions from net realized capital gains.......... -- --
Distributions in excess of net realized capital gains.. -- --
-- --
Total Distributions.................................... (0.00)+ --
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of year............................ $11.75 $12.02
==========================================================================================================
Total Return............................................ (2.23)% 0.17%
- ----------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of year (thousands)..................... $28,516.00 $34,555.00
Ratio of net operating expense to average net assets
Before expense reimbursement......................... 2.50% 2.32%(2)
After expense reimbursement.......................... 1.91%* 1.99%(2)*
Ratio of net investment income (loss) to average net
assets............................................... 0.95% 0.04%(2)
Portfolio turnover rate................................. 156.13% 123.50%
- ----------------------------------------------------------------------------------------------------------
<FN>
* Annualized expense ratio excluding interest expense for the period or year indicated was 1.90%.
+ Amount represents less than $0.01 per share.
1 September 30, 1993 2 Annualized
</FN>
</TABLE>
6
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
The investment objective and general investment policies of each Fund are
described below. Specific portfolio securities that may be purchased by the
Funds are described in "Portfolio Securities" beginning on page 8. Specific
investment practices that may be employed by the Funds are described in "Other
Investment Practices" beginning on page 10. Certain risks associated with
investments in the Funds are described in those sections as well as in "Risk
Considerations" beginning on page 13.
THE DOMESTIC EQUITY FUND
o MONTGOMERY SMALL CAP OPPORTUNITIES FUND
The investment objective of Montgomery Small Cap Opportunities Fund (the "Small
Cap Opportunities Fund") is capital appreciation, which under normal conditions
it seeks by investing at least 65% of its total assets in equity securities of
small- capitalization domestic companies, which the Fund currently considers to
be companies having total market capitalizations of less than $1 billion. The
Small Cap Opportunities Fund generally invests the remaining 35% of its total
assets in a similar manner but may invest those assets in domestic and foreign
companies having total market capitalizations of $1 billion or more. During the
two to three-month period following commencement of the Fund's operations, the
Fund may have its assets invested substantially in cash and cash equivalents.
This Fund seeks to identify potential growth companies at an early stage or a
transitional point of the companies' developments, such as the introduction of
new products, favorable management changes, new marketing opportunities or
increased market share for existing product lines. Using fundamental research,
the Fund targets businesses having positive internal dynamics that can outweigh
unpredictable macro-economic factors, such as interest rates, commodity prices,
foreign currency rates and overall stock market volatility. The Fund searches
for companies with potential to gain market share within their respective
industries; achieve and maintain high and consistent profitability; produce
increases in quarterly earnings; and provide solutions to current or impending
problems in their respective industries or society at large. Early
identification of potential investments is a key to the Fund's investment style.
Heavy emphasis is placed on in-house research, which includes discussions with
company management. The Fund also draws on the expertise of brokerage firms,
including Montgomery Securities and regional firms that closely follow smaller
capitalization companies within their geographic regions.
This Fund invests primarily in common stock. It also may invest in other types
of equity and equity derivative securities (including options on equity
securities, warrants and futures contracts on equity securities). Any debt
securities purchased by the Fund must be rated within the three highest grades
by Standard & Poor's Corporation ("S&P") (AAA to A), Moody's Investors Services,
Inc. ("Moody's") (Aaa to A) or Fitch Investor Services, Inc. ("Fitch") (AAA to
A), or in unrated debt securities deemed to be of comparable quality by the
Manager using guidelines approved by the Board of Trustees. See "Portfolio
Securities." Current income from dividends, interest and other sources is only
incidental.
is responsible for managing the Small Cap Opportunities
Fund's portfolio. See "Management of the Fund."
THE INTERNATIONAL FUND
o MONTGOMERY INTERNATIONAL SMALL CAP FUND
The investment objective of Montgomery International Small Cap Fund (the
"International Small Cap Fund") is capital appreciation, which under normal
conditions it seeks by investing at least 65% of its total assets in equity
securities of companies outside the United States having total market
capitalizations of less than $1 billion. The Fund generally invests the
remaining 35% of its total assets in a similar manner but may invest those
assets in companies having market capitalizations of $1 billion or more, or in
debt securities, including up to 5% of its total assets in debt securities rated
below investment grade. See "Portfolio Securities," "Risk Considerations" and
the Appendix in the Statement of Additional Information.
This Fund targets companies with potential for above average, long-term growth
in sales and earnings on a sustained basis with securities reasonably priced at
the time of purchase, in the Manager's opinion, compared to the potential for
capital appreciation. In evaluating investments, the Fund considers a number of
factors, including a company's per-share sales and earnings growth; return on
capital; balance sheet; financial and accounting policies; overall financial
strength; industry sector; competitive advantages and disadvantages; research,
product development and marketing; new technologies or services; pricing
flexibility; quality of management; and general operating characteristics.
This Fund may invest substantially in securities denominated in one or more
foreign currencies. Under normal conditions, it invests in at least three
different countries outside the U.S., but no country may represent more than 40%
of its total assets. The Manager uses its financial expertise and research
capabilities in markets throughout the world in attempting to identify those
countries, currencies and companies providing the greatest potential for
long-term growth. See "Risk Considerations."
7
<PAGE>
Oscar A. Castro and John D. Boich are responsible for managing the International
Small Cap Fund's portfolio. See "Management of the Funds."
PORTFOLIO SECURITIES
EQUITY SECURITIES
In seeking their respective investment objectives, the Funds emphasize
investments in common stock. The Funds may also invest in other types of equity
securities and equity derivative securities such as preferred stocks,
convertible securities, warrants, units, rights, and options on securities and
on securities indices.
DEPOSITARY RECEIPTS
The Funds may invest in both sponsored and unsponsored American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") and other similar
global instruments. ADRs typically are issued by a U.S. bank or trust company
and evidence ownership of underlying securities issued by a foreign corporation.
EDRs, sometimes called Continental Depositary Receipts, are issued in Europe,
typically by foreign banks and trust companies, and evidence ownership of either
foreign or domestic underlying securities. Unsponsored ADR and EDR programs are
organized without the cooperation of the issuer of the underlying securities. As
a result, available information concerning the issuer may not be as current as
for sponsored ADRs and EDRs, and the prices of unsponsored ADRs and EDRs may be
more volatile.
CONVERTIBLE SECURITIES
The Funds may invest in convertible securities. A convertible security is a
fixed-income security (a bond or preferred stock) that may be converted at a
stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Convertible securities are
senior to common stock in a corporation's capital structure but are usually
subordinated to similar non-convertible securities. Through their conversion
feature, they provide an opportunity to participate in capital appreciation
resulting from a market price advance in the underlying common stock. The price
of a convertible security is influenced by the market value of the underlying
common stock and tends to increase as the common stock's market value rises and
decrease as the common stock's market value declines. For purposes of allocating
Fund investments, the Manager regards convertible securities as a form of equity
security.
SECURITIES WARRANTS
The Funds may invest up to 5% of their net assets in warrants, including up to
2% of net assets for warrants not listed on a securities exchange. A warrant
typically is a long-term option that permits the holder to buy a specified
number of shares of the issuer's underlying common stock at a specified exercise
price by a particular expiration date. Stock index warrants entitle the holder
to receive, upon exercise, an amount in cash determined by reference to
fluctuations in the level of a specified stock index. A warrant not exercised or
disposed of by its expiration date expires worthless.
PRIVATIZATIONS
The International Small Cap Fund believes that foreign government programs of
selling interests in government-owned or controlled enterprises
("privatizations") may represent opportunities for significant capital
appreciation, and the Fund may invest in privatizations. The ability of U.S.
entities, such as the Fund, to participate in privatizations may be limited by
local law, or the terms for participation may be less advantageous than for
local investors. There can be no assurance that privatization programs will be
successful.
SPECIAL SITUATIONS
The International Small Cap Fund believes that carefully selected investments in
joint ventures, cooperatives, partnerships, private placements, unlisted
securities and similar vehicles (collectively, "special situations") could
enhance their capital appreciation potential. The Fund also may invest in
certain types of vehicles or derivative securities that represent an indirect
investment in foreign markets or securities in which it is impracticable for the
Fund to directly invest. Investments in special situations may be illiquid, as
determined by the Manager based on criteria reviewed by the Board. The Fund does
not invest more than 15% of its net assets in illiquid investments, including
special situations.
INVESTMENT COMPANIES
Each Fund may invest up to 10% of its total assets in shares of other investment
companies investing exclusively in securities in which it may otherwise invest.
Because of restrictions on direct investment by U.S. entities in certain
countries, other investment companies may provide the most practical or only way
for the International Small Cap Fund to invest in certain markets. Such
investments may involve the payment of substantial premiums above the net asset
value of those investment
8
<PAGE>
companies' portfolio securities and are subject to limitations under the
Investment Company Act. The International Small Cap Fund also may incur tax
liability to the extent it invests in the stock of a foreign issuer that is a
"passive foreign investment company" regardless of whether such "passive foreign
investment company" makes distributions to the Fund. See the Statement of
Additional Information.
The Funds do not intend to invest in other investment companies unless, in the
Manager's judgment, the potential benefits exceed associated costs. As a
shareholder in an investment company, the Funds bear their ratable share of that
investment company's expenses, including advisory and administration fees. In
accordance with applicable state regulatory provisions, the Manager has agreed
to waive its own management fee with respect to the portion of the Funds' assets
invested in other open-end (but not closed-end) investment companies.
DEBT SECURITIES
The International Small Cap Fund may purchase debt securities that complements
its objective of capital appreciation through anticipated favorable changes in
relative foreign exchange rates, in relative interest rate levels, or in the
creditworthiness of issuers. In selecting debt securities, the Manager seeks out
good credits and analyzes interest rate trends and specific developments that
may affect individual issuers. As an operating policy which may be changed by
the Board, this Fund will not invest more than 5% of its total assets in debt
securities rated lower than BBB by S&P, Baa by Moody's or BBB by Fitch, or in
unrated debt securities deemed to be of comparable quality by the Manager using
guidelines approved by the Board of Trustees. Subject to this limitation, the
Fund may invest in any debt security, including securities in default. After its
purchase by the Fund a debt security may cease to be rated or its rating may be
reduced below that required for purchase by the Fund. Neither event would
require elimination of that security from the Fund's portfolio. However, a
security downgraded below the Fund's minimum credit levels generally would be
retained only if retention was determined by the Manager and subsequently by the
Board to be in the best interests of the Fund. See "Risk Considerations."
In addition to traditional corporate, government and supranational debt
securities, the International Small Cap Fund may invest in external (i.e., to
foreign lenders) debt obligations issued by the governments, governmental
entities and companies of emerging market countries.
The percentage distribution between equity and debt will vary from country to
country. The following factors, among others, will influence the proportion of
the International Small Cap Fund's assets to be invested in equity securities
versus debt securities: levels and anticipated trends in inflation and interest
rates; expected rates of economic growth and corporate profits growth; changes
in government policy, including regulations governing industry, trade, financial
markets, and foreign and domestic investment; stability, solvency and expected
trends of government finances; and conditions of the balance of payments and
changes in the terms of trade.
U.S. GOVERNMENT SECURITIES
The Funds may invest in fixed rate and floating or variable rate U.S. Government
securities. Certain of the obligations, including U.S. Treasury Bills, Notes and
Bonds, and mortgage-related securities of the Government National Mortgage
Association ("GNMA"), are issued or guaranteed by the U.S. Government. Other
securities issued by U.S. Government agencies or instrumentalities are supported
only by the credit of the agency or instrumentality, for example those issued by
the Federal Home Loan Bank, while others, such as those issued by the Federal
National Mortgage Association ("FNMA"), Farm Credit System and Student Loan
Marketing Association, have an additional line of credit with the U.S. Treasury.
Short-term U.S. Government securities generally are considered to be among the
safest short-term investments. However, the U.S. Government does not guarantee
the net asset value of the Funds' shares. With respect to U.S. Government
securities supported only by the credit of the issuing agency or instrumentality
or by an additional line of credit with the U.S. Treasury, there is no guarantee
that the U.S. Government will provide support to such agencies or
instrumentalities. Accordingly, such U.S. Government securities may involve risk
of loss of principal and interest.
STRUCTURED NOTES AND INDEXED SECURITIES
The Funds may invest in structured notes and indexed securities. Structured
notes are debt securities, the interest rate or principal of which is determined
by an unrelated indicator. Indexed securities include structured notes as well
as securities other than debt securities, the interest rate or principal of
which is determined by an unrelated indicator. Index securities may include a
multiplier that multiplies the indexed element by a specified factor and,
therefore, the value of such securities may be very volatile. To the extent
either Fund invests in these securities, however, the Manager analyzes these
securities in its overall assessment of the effective duration of the Fund's
portfolio in an effort to monitor the Fund's interest rate risk. See "Risk
Considerations -- Interest Rates."
9
<PAGE>
ASSET-BACKED SECURITIES
Each of the Funds may invest up to 5% of its total assets in asset-backed
securities, which represent a direct or indirect participation in, or are
secured by and payable from, pools of assets, such as motor vehicle installment
sales contracts, installment loan contracts, leases of various types of real and
personal property and receivables from revolving credit (e.g., credit card)
agreements. Payments or distributions of principal and interest on asset-backed
securities may be supported by credit enhancements, such as various forms of
cash collateral accounts or letters of credit. Like mortgage-related securities,
these securities are subject to the risk of prepayment. See "Risk
Considerations."
OTHER INVESTMENT PRACTICES
The Funds also may engage in the investment practices described below, each of
which may involve certain special risks. The Statement of Additional
Information, under the heading "Investment Objectives and Policies of the
Funds," contains more detailed information about certain of these practices,
including limitations designed to reduce risks.
REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements. Pursuant to a repurchase
agreement, a Fund acquires a U.S. Government security or other high-grade liquid
debt instrument from a financial institution that simultaneously agrees to
repurchase the same security at a specified time and price. The repurchase price
reflects an agreed-upon rate of return not determined by the coupon rate on the
underlying security. Under the Investment Company Act, repurchase agreements are
considered to be loans by a Fund and must be fully collateralized by cash,
letters of credit, U.S. Government Securities or other high-grade liquid debt
securities ("Segregable Assets"), either placed in a segregated account or
separately identified and rendered unavailable for investment. If the seller
defaults on its obligation to repurchase the underlying security, a Fund may
experience delay or difficulty in exercising its rights to realize upon the
security, may incur a loss if the value of the security declines and may incur
disposition costs in liquidating the security. See the Statement of Additional
Information for further information.
BORROWING
The Funds may borrow money from banks, each in an aggregate amount not to exceed
one-third of the value of the Fund's total assets, for temporary or emergency
purposes, and the Funds may pledge their assets in connection with such
borrowings. A Fund will not purchase any securities while any such borrowings
exceed 5% of its total assets, except that the International Small Cap Fund may
not purchase securities if such borrowings exceed 10% of its total assets.
REVERSE REPURCHASE AGREEMENTS
The International Small Cap Fund may enter into reverse repurchase agreements.
In a reverse repurchase agreement, a Fund sells to a financial institution a
security that it holds and agrees to repurchase the same security at an
agreed-upon price and date. If the Fund fully collateralizes a reverse
repurchase agreement with Segregable Assets, it does not aggregate that
transaction with its bank borrowings in applying its borrowing limit. See the
Statement of Additional Information for further information.
LEVERAGE
Each Fund may leverage its portfolio in an effort to increase total return.
Although leverage creates an opportunity for increased income and gain, it also
creates special risk considerations. For example, leveraging may magnify changes
in the net asset values of the Fund's shares and in the yield on its portfolio.
Although the principal of such borrowings will be fixed, the Fund's assets may
change in value while the borrowing is outstanding. Leveraging creates interest
expenses that can exceed the income from the assets retained. To the extent
income derived from securities purchased with borrowed funds exceeds the
interest owed, the Fund's net income will be greater than if leveraging were not
used and, to the extent such income is less, the Fund's net income will be less
than if leveraging were not used.
SECURITIES LENDING
The Funds may lend securities to brokers, dealers and other financial
organizations. These loans may not exceed 10% of the value of a Fund's total
assets. Each securities loan is collateralized with Segregable Assets in an
amount at least equal to the current market value of the loaned securities, plus
accrued interest. See Statement of Additional Information for further
information.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
The Funds may purchase U.S. Government or other securities on a "when-issued"
basis and may purchase or sell securities on a "forward commitment" or "delayed
delivery" basis. The price is fixed at the time the commitment is made, but
delivery
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and payment for the securities take place at a later date, normally 7 to 15 days
or, in the case of certain Collateralized Mortgage Obligation ("CMO") issues, 45
to 60 days later. When-issued securities and forward commitments may be sold
prior to the settlement date, but a Fund will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. No income accrues on securities that have been
purchased pursuant to a forward commitment or on a when-issued basis prior to
delivery to a Fund. If a Fund disposes of the right to acquire a when-issued
security prior to its acquisition or disposes of its right to deliver or receive
against a forward commitment, it may incur a gain or loss.
At the time a Fund enters into a transaction on a when-issued or forward
commitment basis, it causes its custodian to segregate Segregable Assets equal
to the value of the when-issued or forward commitment securities and causes the
Segregable Assets to be marked to market daily. There is a risk that the
securities may not be delivered and that the Fund may incur a loss.
HEDGING AND RISK MANAGEMENT PRACTICES
In seeking to protect against the effect of adverse changes in financial markets
or against currency exchange rate or interest rate changes that are adverse to
the present or prospective positions of the Funds, each of the Funds may employ
certain risk management practices using the following derivative securities and
techniques (known as "derivatives"): forward currency exchange contracts, stock
options, currency options, and stock and stock index options, futures contracts,
swaps and options on futures contracts on U.S. Government and foreign government
securities and currencies. The Board has adopted derivative guidelines that
require the Board to review each new type of derivative that may be used by the
Funds. Markets in some countries currently do not have instruments available for
hedging transactions relating to currencies or to securities denominated in such
currencies or to securities of issuers domiciled or principally engaged in
business in such countries. To the extent that such markets do not exist, the
Manager may not be able to hedge its investment effectively in such countries.
Furthermore, a Fund engages in hedging activities only when the Manager deems it
to be appropriate and does not necessarily engage in hedging transactions with
respect to each investment. See the Statement of Additional Information for
further information on related risks and other special considerations.
FORWARD CURRENCY CONTRACTS. A forward currency contract is individually
negotiated and privately traded by currency traders and their customers and
creates an obligation to purchase or sell a specific currency for an agreed-upon
price at a future date. A Fund normally conducts its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate in the foreign
currency exchange market at the time of the transaction, or through entering
into forward contracts to purchase or sell foreign currencies at a future date.
The Funds generally do not enter into forward contracts with terms greater than
one year.
A Fund generally enters into forward contracts only under two circumstances.
First, if a Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollar
price of the security by entering into a forward contract to buy the amount of a
foreign currency needed to settle the transaction. Second, if the Manager
believes that the currency of a particular foreign country will substantially
rise or fall against the U.S. dollar, it may enter into a forward contract to
buy or sell the currency approximating the value of some or all of a Fund's
portfolio securities denominated in such currency. A Fund will not enter into a
forward contract if, as a result, it would have more than one-third of total
assets committed to such contracts (unless it owns the currency that it is
obligated to deliver or has caused its custodian to segregate Segregable Assets
having a value sufficient to cover its obligations). Although forward contracts
are used primarily to protect a Fund from adverse currency movements, they
involve the risk that currency movements will not be accurately predicted.
OPTIONS ON SECURITIES, SECURITIES INDICES AND CURRENCIES. The Funds may purchase
put and call options on securities and currencies traded on U.S. exchanges and,
to the extent permitted by law, foreign exchanges. A Fund may purchase call
options on securities which it intends to purchase (or on currencies in which
those securities are denominated) in order to limit the risk of a substantial
increase in the market price of such security (or an adverse movement in the
applicable currency). A Fund may purchase put options on particular securities
(or on currencies in which those securities are denominated) in order to protect
against a decline in the market value of the underlying security below the
exercise price less the premium paid for the option (or an adverse movement in
the applicable currency relative to the U.S. dollar). Put options allow a Fund
to protect unrealized gain in an appreciated security that it owns without
selling that security. Prior to expiration, most options are expected to be sold
in a closing sale transaction. Profit or loss from the sale depends upon whether
the amount received is more or less than the premium paid plus transaction
costs.
The Funds also may purchase put and call options on stock indices in order to
hedge against risks of stock market or industry-wide stock price fluctuations. A
Fund may purchase options on currencies in order to hedge its positions in a
manner similar to its use of forward foreign exchange contracts and futures
contracts on currencies.
The Small Cap Opportunities Fund may seek to enhance income or hedge against a
decrease in its portfolio value by writing (i.e., selling) covered call options.
A call option is "covered" if the Fund owns the optioned securities or has the
right to acquire such securities without additional consideration, the Fund
causes its custodian to segregate Segregable Assets having a value sufficient to
meet its obligations under the option, or the Fund owns an offsetting call
option.
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FUTURES AND OPTIONS ON FUTURES. To protect against the effect of adverse changes
in interest rates, a Fund may purchase and sell interest rate futures contracts.
An interest rate futures contract is an agreement to purchase or sell debt
securities, usually U.S. Government securities, at a specified date and price. A
Fund may sell interest rate futures contracts (i.e., enter into a futures
contract to sell the underlying debt security) in an attempt to hedge against an
anticipated increase in interest rates and a corresponding decline in debt
securities it owns. Conversely, a Fund may purchase an interest rate futures
contract (i.e., enter into a futures contract to purchase an underlying
security) to hedge against interest rate decreases and corresponding increases
in the value of debt securities it anticipates purchasing. In addition, a Fund
may purchase and sell put and call options on interest rate futures contracts in
lieu of entering into the underlying interest rate futures contracts. Each Fund
segregates Segregable Assets equal to the purchase price of the portfolio
securities represented by the underlying interest rate futures contracts it has
an obligation to purchase.
A Fund does not enter into any futures contracts or related options if the sum
of initial margin deposits on futures contracts, related options (including
options on securities, securities indices and currencies) and premiums paid for
any such related options would exceed 5% of its total assets. A Fund does not
purchase futures contracts or related options if, as a result, more than
one-third of its total assets would be so invested.
HEDGING CONSIDERATIONS. There can be no assurance that hedging transactions by
the Funds will be successful, and a Fund may be exposed to risk if it is unable
to close out its futures or options positions due to an illiquid secondary
market. Futures, options and options on futures have effective durations that,
in general, are closely related to the effective duration of their underlying
securities. Holding purchased futures or call option positions (backed by
Segregable Assets) lengthens the effective duration of a Fund's portfolio. While
the utilization of options, futures contracts and related options and similar
instruments may be advantageous to a Fund, its performance will be impaired if
the Manager is unsuccessful in employing such instruments or in predicting
market changes. In addition, a Fund pays commissions and other costs in
connection with such investments. Further discussion of the possible risks is
contained in the Statement of Additional Information.
ILLIQUID SECURITIES
Neither Fund may invest more than 15% of its net assets in illiquid securities.
The Funds treat any securities subject to restrictions on repatriation for more
than seven days and securities issued in connection with foreign debt conversion
programs that are restricted as to remittance of invested capital or profit as
illiquid. The Funds also treat repurchase agreements with maturities in excess
of seven days as illiquid. Illiquid securities do not include securities that
are restricted from trading on formal markets for some period of time but for
which an active informal market exists or securities that meet the requirements
of Rule 144A under the Securities Act of 1933 and that, subject to the review by
the Board and guidelines adopted by the Board, the Manager has determined to be
liquid. State securities laws may impose further limitations on the amount of
illiquid or restricted securities a Fund may purchase.
DEFENSIVE INVESTMENTS AND PORTFOLIO TURNOVER
Notwithstanding its investment objective, each Fund may adopt up to a 100% cash
or cash equivalent position for temporary defensive purposes to protect against
erosion of its capital base. Depending upon the Manager's analysis of the
various markets and other considerations, all or part of the assets of a Fund
may be held in cash and cash equivalents (denominated in U.S. dollars or foreign
currencies), such as U.S. Government securities or obligations issued or
guaranteed by the government of a foreign country or by an international
organization designed or supported by multiple foreign governmental entities to
promote economic reconstruction or development, high-quality commercial paper,
time deposits, savings accounts, certificates of deposit, bankers' acceptances
and repurchase agreements with respect to all of the foregoing. Such investments
also may be made for temporary purposes pending investment in other securities
and following substantial new investment in a Fund.
Portfolio securities are sold whenever the Manager believes it appropriate,
regardless of how long the securities have been held. The Manager therefore
changes a Fund's investments whenever it believes doing so will further the
Fund's investment objective or when it appears that a position of the desired
size cannot be accumulated. Portfolio turnover generally involves some expense
to a Fund, including brokerage commissions, dealer mark-ups and other
transaction costs, and may result in the recognition of capital gains that may
be distributed to shareholders. Portfolio turnover in excess of 100% is
considered high and increases such costs. For the fiscal year ended June 30,
1995, the portfolio turnover for the International Small Cap Fund was 156% (124%
for 1994). The annual portfolio turnover for the Small Cap Opportunities Fund is
expected to be approximately 100%. However, even when portfolio turnover exceeds
100% for a Fund that Fund does not regard portfolio turnover as a limiting
factor.
INVESTMENT RESTRICTIONS
The investment objective of each Fund is fundamental and may not be changed
without shareholder approval but, unless otherwise stated, each Fund's other
investment policies may be changed by the Trust's Board. If there is a change in
the investment objective or policies of any Fund, shareholders should consider
whether that Fund remains an appropriate investment
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in light of their then-current financial positions and needs. The Funds are
subject to additional investment policies and restrictions described in the
Statement of Additional Information, some of which are fundamental.
The Small Cap Opportunities Fund has reserved the right, if approved by the
Board, to convert in the future to a "feeder" fund that would invest all of its
assets in a "master" fund having substantially the same investment objective,
policies and restrictions. At least 30 days' prior written notice of any such
action would be given to all shareholders if and when such a proposal is
approved, although no such action has been proposed as of the date of this
Prospectus.
RISK CONSIDERATIONS
SMALL COMPANIES
The Funds emphasize investments in smaller companies that may benefit from the
development of new products and services. Such smaller companies may present
greater opportunities for capital appreciation but may involve greater risk than
larger, mature issuers. Such smaller companies may have limited product lines,
markets or financial resources, and their securities may trade less frequently
and in more limited volume than those of larger, more mature companies. As a
result, the prices of their securities may fluctuate more than those of larger
issuers.
FOREIGN SECURITIES
Shareholders should understand that all investments involve risk and there can
be no guarantee against loss resulting from an investment in the Funds. The
Funds have the right to purchase securities in foreign countries. Accordingly,
shareholders should consider carefully the substantial risks involved in
investing in securities issued by companies and governments of foreign nations,
which are in addition to the usual risks inherent in domestic investments. The
International Small Cap Fund may invest in securities of companies domiciled in,
and in the markets of, so-called "emerging market countries." These investments
may be subject to higher risks than investments in more developed countries.
Foreign investments involve the possibility of expropriation, nationalization or
confiscatory taxation, taxation of income earned in foreign nations (including,
for example, withholding taxes on interest and dividends) or other taxes imposed
with respect to investments in foreign nations, foreign exchange controls (which
may include suspension of the ability to transfer currency from a given country
and repatriation of investments), default in foreign government securities, and
political or social instability or diplomatic developments that could adversely
affect investments. In addition, there is often less publicly available
information about foreign issuers than those in the U.S. Foreign companies are
often not subject to uniform accounting, auditing and financial reporting
standards. Further, the Funds may encounter difficulties in pursuing legal
remedies or in obtaining judgments in foreign courts. Additional risk factors,
including use of domestic and foreign custodian banks and depositories, are
described elsewhere in the Prospectus and in the Statement of Additional
Information.
Brokerage commissions, fees for custodial services and other costs relating to
investments by the Funds in other countries are generally greater than in the
U.S. Foreign markets, have different clearance and settlement procedures from
those in the U.S., and certain markets have experienced times when settlements
did not keep pace with the volume of securities transactions and resulted in
settlement difficulty. The inability of a Fund to make intended security
purchases due to settlement difficulties could cause it to miss attractive
investment opportunities. Inability to sell a portfolio security due to
settlement problems could result in loss to the Fund if the value of the
portfolio security declined or result in claims against the Fund if it had
entered into a contract to sell the security. In certain countries, there is
less government supervision and regulation of business and industry practices,
stock exchanges, brokers, and listed companies than in the U.S. The securities
markets of many of the countries in which the Funds may invest may also be
smaller, less liquid, and subject to greater price volatility than those in the
U.S.
Because the securities owned by the Funds may be denominated in foreign
currencies, the value of such securities will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of a
foreign currency against the U.S. dollar results in a corresponding change in
the U.S. dollar value of a Fund's securities denominated in the currency. Such
changes also affect the Fund's income and distributions to shareholders. A Fund
may be affected either favorably or unfavorably by changes in the relative rates
of exchange between the currencies of different nations, and a Fund may
therefore engage in foreign currency hedging strategies. Such strategies,
however, involve certain transaction costs and investment risks, including
dependence upon the Manager's ability to predict movements in exchange rates.
Some countries in which one of the Funds may invest may also have fixed or
managed currencies that are not freely convertible at market rates into the U.S.
dollar. Certain currencies may not be internationally traded. A number of these
currencies have experienced steady devaluation relative to the U.S. dollar, and
such devaluations in the currencies may have a detrimental impact on the Fund.
Many countries in which a Fund may invest have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuation in inflation rates may have negative effects on certain
economies and securities
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markets. Moreover, the economies of some countries may differ favorably or
unfavorably from the U.S. economy in such respects as the rate of growth of
gross domestic product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments.
LOWER QUALITY DEBT
The International Small Cap Fund is authorized to invest in medium-quality
(rated or equivalent to BBB by S&P or Fitch's 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.
As an operating policy, which may be changed by the Board without shareholder
approval, the International Small Cap Fund does not invest more than 5% of its
total assets in debt securities rated lower than BBB by S&P or Baa by Moody's
or, if unrated, deemed to be of comparable quality as determined by the Manager
using guidelines approved by the Board. The Board may consider a change in this
operating policy if, in its judgment, economic conditions change such that a
higher level of investment in high- risk, lower quality debt securities would be
consistent with the interests of the Fund and its shareholders. Unrated debt
securities are not necessarily of lower quality than rated securities but may
not be attractive to as many buyers. Regardless of rating levels, all debt
securities considered for purchase (whether rated or unrated) are analyzed by
the Manager to determine, to the extent reasonably possible, that the planned
investment is sound. From time to time, the Fund may purchase defaulted debt
securities if, in the opinion of the Manager, the issuer may resume interest
payments in the near future.
INTEREST RATES
The market value of debt securities that are sensitive to prevailing interest
rates is inversely related to actual changes in interest rates. That is, an
interest rate decline produces an increase in a security's market value and an
interest rate increase produces a decrease in value. The longer the remaining
maturity of a security, the greater the effect of interest rate change. Changes
in the ability of an issuer to make payments of interest and principal and in
the market's perception of its creditworthiness also affect the market value of
that issuer's debt securities.
Prepayments of principal of mortgage-related securities by mortgagors or
mortgage foreclosures affect the average life of the mortgage-related securities
in a Fund's portfolio. Mortgage prepayments are affected by the level of
interest rates and other factors, including general economic conditions and the
underlying location and age of the mortgage. In periods of rising interest
rates, the prepayment rate tends to decrease, lengthening the average life of a
pool of mortgage-related securities. In periods of falling interest rates, the
prepayment rate tends to increase, shortening the average life of a pool.
Reinvestment of prepayments may occur at higher or lower interest rates than the
original investment, affecting a Fund's yield. Thus, mortgage-related securities
may have less potential for capital appreciation in periods of falling interest
rates than other fixed-income securities of comparable duration, although they
may have a comparable risk of decline in market value in periods of rising
interest rates.
Duration is one of the fundamental tools used by the Manager in managing
interest rate risks including prepayment risks. Fixed-income securities with
effective durations of three years are more responsive to interest rate
fluctuations than those with effective durations of one year. If interest rates
rise by 1%, the value of securities having an effective duration of three years
will decrease by 3%. See "The Funds' Investment Objectives and Policies."
MANAGEMENT OF THE FUNDS
The Montgomery Funds (the "Trust") has a Board of Trustees that establishes the
Funds' policies and supervises and reviews their management. Day-to-day
operations of the Funds are administered by the officers of the Trust and by the
Manager pursuant to the terms of an investment management agreement with each
Fund.
Montgomery Asset Management, L.P., is the Funds' Manager. The Manager, a
California limited partnership, was formed in 1990 as an investment adviser
registered as such with the SEC under the Investment Advisers Act of 1940, as
amended, and since then has advised private accounts as well as the Funds. Its
general partner is Montgomery Asset Management, Inc., and its sole limited
partner is Montgomery Securities, the Funds' Distributor. Under the Investment
Company Act, both Montgomery Asset Management, Inc. and Montgomery Securities
may be deemed control persons of the Manager. Although the operations and
management of the Manager are independent from those of Montgomery Securities,
the Manager may draw upon the research and administrative resources of
Montgomery Securities in its discretion and consistent with applicable
regulations.
Founded in 1969, Montgomery Securities is a fully integrated and highly focused
investment banking partnership specializing in emerging growth companies. The
firm's areas of expertise include research, corporate finance, sales and
trading, and venture capital. Its research department is one of the largest,
most experienced groups headquartered outside the East Coast.
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Through its corporate finance department, Montgomery Securities is a well
recognized underwriter of public offerings and provides broad distribution of
securities through its sales and trading organization.
PORTFOLIO MANAGERS
MONTGOMERY SMALL CAP OPPORTUNITIES FUND
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MONTGOMERY INTERNATIONAL SMALL CAP FUND
Oscar A. Castro is a Managing Director and Portfolio Manager. Before joining the
Manager, he was vice president/portfolio manager at G.T. Capital Management,
Inc. from 1991 to 1993. From 1989 to 1990, he was co-founder and co-manager of
The Common Goal World Fund, a global equity partnership. From 1987 to 1989, he
was deputy portfolio manager/analyst at Templeton International.
John D. Boich is a Managing Director and Portfolio Manager. From 1990 to 1993,
he was vice president and portfolio manager at The Boston Company Institutional
Investors Inc. From 1989 to 1990, he was the founder and co-manager of The
Common Goal World Fund, a global equity partnership. From 1987 to 1989, Mr.
Boich worked as a financial adviser with Prudential-Bache Securities and E.F.
Hutton & Company.
MANAGEMENT FEES AND OTHER EXPENSES
The Manager provides the Funds with advice on buying and selling securities,
manages the Funds' investments, including the placement of orders for portfolio
transactions, furnishes the Funds with office space and certain administrative
services, and provides personnel needed by the Funds with respect to the
Manager's responsibilities under the Manager's Investment Management Agreement
with each Fund. The Manager also compensates the members of the Trust's Boards
of Trustees who are interested persons of the Manager, and assumes the cost of
printing prospectuses and shareholder reports for dissemination to prospective
investors. As compensation, each Fund pays the Manager a management fee (accrued
daily but paid when requested by the Manager) based upon the value of the
average daily net assets of that Fund, according to the following table.
The management fees for the Funds are higher than for most mutual funds.
Average Daily Net Assets Annual Rate
- --------------------------------------------------------------------------------
Montgomery Small Cap Opportunities Fund First $200 million 1.20%
Next $300 million 1.10%
Over $500 million 1.00%
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Montgomery International Small Cap Fund First $250 million 1.25%
Over $250 million 1.00%
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The Manager also serves as the Funds' Administrator (the "Administrator"). The
Administrator performs services with regard to various aspects of each Fund's
administrative operations. As compensation, the Funds pay the Administrator a
monthly fee at the following annual rates: seven one-hundredths of one percent
(0.07%) of average daily net assets (0.06% of daily net assets over $250
million).
Each Fund is responsible for its own operating expenses including, but not
limited to: the Manager's fees; taxes, if any; brokerage and commission
expenses, if any; interest charges on any borrowings; transfer agent,
administrator, custodian, legal and auditing fees; shareholder servicing fees
including fees to third party servicing agents; fees and expenses of Trustees
who are not interested persons of the Manager; salaries of certain personnel;
costs and expenses of calculating its daily net asset value; costs and expenses
of accounting, bookkeeping and recordkeeping required under the Investment
Company Act; insurance premiums; trade association dues; fees and expenses of
registering and maintaining registration of its shares for sale under federal
and applicable state securities laws; all costs associated with shareholders
meetings and the preparation and dissemination of proxy materials, except for
meetings called solely for the benefit of the Manager or its affiliates;
printing and mailing prospectuses, statements of additional information and
reports to shareholders; and other expenses relating to that Fund's operations,
plus any extraordinary and nonrecurring expenses that are not expressly assumed
by the Manager.
Rule 12b-1 adopted by the Securities and Exchange Commission (the "SEC") under
the Investment Company Act permits an investment company directly or indirectly
to pay expenses associated with the distribution of its shares ("distribution
expenses") in accordance with a plan adopted by the investment company's Board
of Trustees and approved by its shareholders. Pursuant to that Rule, the Trust's
Board of Trustees and the initial shareholder of the Class P shares of each Fund
have approved, and
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each Fund has entered into, a Share Marketing Plan (the "Plan") with the
Manager, as the distribution coordinator, for the Class P shares. Under the
Plan, each Fund will pay distribution fees to the Manager at an annual rate of
0.25% of the Fund's aggregate average daily net assets attributable to its Class
P shares, to reimburse the Manager for its distribution costs with respect to
that Class.
The Plan provides that the Manager may use the distribution fees received from
the Class to pay for the distribution expenses of that Class, including, but not
limited to (i) incentive compensation paid to the directors, officers and
employees of, agents for and consultants to, the Manager or any other
broker-dealer or financial institution that engages in the distribution of that
Class; and (ii) compensation to broker-dealers, financial institutions or other
persons for providing distribution assistance with respect to that Class.
Distribution fees may also be used for (i) marketing and promotional activities,
including, but not limited to, direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising for that Class; (ii) costs
of printing and distributing prospectuses, statements of additional information
and reports of the Funds to prospective investors in that Class; (iii) costs
involved in preparing, printing and distributing sales literature pertaining to
the Funds and that Class; and (iv) costs involved obtaining whatever
information, analysis and reports with respect to marketing and promotional
activities that the Funds may, from time to time, deem advisable with respect to
the distribution of that Class. Distribution fees are accrued daily and paid
monthly, and are charged as expenses of the Class P shares as accrued.
In adopting the Plan, the Board of Trustees determined that there was a
reasonable likelihood that the Plan would benefit the Funds and the shareholders
of Class P shares. Information with respect to distribution revenues and
expenses is presented to the Board of Trustees quarterly for their consideration
in connection with their deliberations as to the continuance of the Plan. In
their review of the Plan, the Board of Trustees are asked to take into
consideration expenses incurred in connection with the separate distribution of
the Class P shares.
The Class P shares are not obligated under the Plan to pay any distribution
expenses in excess of the distribution fee. Thus, if the Plan was terminated or
otherwise not continued, no amounts (other than current amounts accrued but not
yet paid) would be owed by the Class to the Manager.
The distribution fee attributable to the Class P shares is designed to permit an
investor to purchase Class P shares through financial planners, retirement and
pension plan administrators, broker-dealers and other financial intermediaries
without the assessment of a front-end sales charge and at the same time to
permit the Manager to compensate those persons on an ongoing basis in connection
with the sale of the Class P shares.
The Plan provides that it shall continue in effect from year to year provided
that a majority of the Board of Trustees of the Trusts, including a majority of
the Trustees who are not "interested persons" of the Trusts (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of the Plan or any agreement related to the Plan (the "Independent
Trustees"), vote annually to continue the Plan. The Plan may be terminated at
any time by vote of a majority of the Independent Trustees or of a majority of
the outstanding shares (as defined in the Investment Company Act) of the Class P
shares.
All distribution fees paid by the Funds under the Plan will be paid in
accordance with Article III, Section 26 of the Rules of Fair Practice of the
NASD, as such Section may change from time to time.
For certain Funds, the Manager has agreed to reduce its management fee if
necessary to keep total annual operating expenses at or below the lesser of the
maximum allowable by applicable state expense limitations or the following
percentages of each Fund's average net assets: the Small Cap Opportunities Fund,
one and seventy-five one-hundredths of one percent (1.75%); the International
Small Cap Fund, two and fifteen one-hundredths of one percent (2.15%). The
Manager also may voluntarily reduce additional amounts to increase the return to
a Fund's investors. The Manager may terminate these voluntary reductions at any
time. Any reductions made by the Manager in its fees are subject to
reimbursement by that Fund within the following two years, provided that the
Fund is able to effect such reimbursement and remain in compliance with
applicable expense limitations. The Manager generally seeks reimbursement for
the oldest reductions and waivers before payment by the Funds for fees and
expenses for the current year.
In addition, the Manager may elect to absorb operating expenses that a Fund is
obligated to pay in order to increase the return to that Fund's investors. To
the extent the Manager performs a service or assumes an operating expense for
which a Fund is obligated to pay and the performance of such service or payment
of such expense is not an obligation of the Manager under the Investment
Management Agreement, the Manager is entitled to seek reimbursement from that
Fund for the Manager's costs incurred in rendering such service or assuming such
expense. The Manager, out of its own funds, also may compensate broker-dealers
and other intermediaries that distribute a Fund's shares as well as other
service providers of shareholder and administrative services. In addition, the
Manager, out of its own funds, may sponsor seminars and educational programs on
the Funds for financial intermediaries and shareholders.
The Manager considers a number of factors in determining which brokers or
dealers to use for each Fund's portfolio transactions. While these factors are
more fully discussed in the Statement of Additional Information, they include,
but are
16
<PAGE>
not limited to, reasonableness of commissions, quality of services and execution
and availability of research that the Manager may lawfully and appropriately use
in its investment management and advisory capacities. Provided the Funds receive
prompt execution at competitive prices, the Manager also may consider sale of a
Fund's shares as a factor in selecting broker-dealers for that Fund's portfolio
transactions. It is anticipated that Montgomery Securities may act as one of the
Funds' brokers in the purchase and sale of portfolio securities and, in that
capacity, will receive brokerage commissions from the Funds. The Funds will use
Montgomery Securities as its broker only when, in the judgment of the Manager
and pursuant to review by the Board, Montgomery Securities will obtain a price
and execution at least as favorable as that available from other qualified
brokers. See "Execution of Portfolio Transactions" in the Statement of
Additional Information for further information regarding Fund policies
concerning execution of portfolio transactions.
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, serves as the master transfer agent for the Funds (the "Master Transfer
Agent") and performs certain recordkeeping and accounting functions. The Master
Transfer Agent delegates certain transfer agent functions to DST Systems, Inc.,
P.O. Box 419073, Kansas City, Missouri 64141-6073, the Funds' transfer agent
(the "Transfer Agent"). Morgan Stanley Trust Company, located at One Pierrepont
Plaza, Brooklyn, New York 11201, serves as the Funds' principal custodian (the
"Custodian").
HOW TO INVEST IN THE FUNDS
The Funds' shares are offered only through financial intermediaries and
financial professionals, with no sales load, at their next-determined net asset
value after receipt of an order with payment. The Funds' shares are offered for
sale by Montgomery Securities, the Funds' Distributor, 600 Montgomery Street,
San Francisco, California 94111, (800) 572-3863, and through selected securities
brokers and dealers.
If an order, together with payment in proper form, is received by the Transfer
Agent, or Montgomery Securities or certain administrators of 401(k) and other
retirement plans by 4:00 P.M., New York time, on any day that the New York Stock
Exchange ("NYSE") is open for trading, Fund shares will be purchased at the
Fund's next-determined net asset value. Orders for Fund shares received after
4:00 p.m., New York time, will be purchased at the next-determined net asset
value after receipt of the order.
The minimum initial investment in each Fund is $500 (including IRAs) and $100
for subsequent investments. Keogh plans, 401(k) plans and other retirement plans
may also be opened for $500, although the Funds do not act as custodians for
those accounts. The Manager or the Distributor, in its discretion, may waive
these minimums. Purchases may also be made in certain circumstances by payment
of securities. See the Statement of Additional Information for further details.
Complete information regarding your account must be included in all wire
instructions in order to facilitate the prompt and accurate handling of
investments. Investors may obtain further information from their own banks about
wire transfers and any fees that may be imposed. The Funds and the Distributor
each reserve the right to reject any purchase order in whole or in part.
INITIAL INVESTMENTS
Minimum Initial Investment (including IRAs): $500
Mail your completed application and any checks to:
The Montgomery Funds
c/o DST Systems, Inc.
P.O. Box 419073
Kansas City, MO 64141-6073
- --------------------------------------------------------------------------------
INITIAL INVESTMENTS BY CHECK
- --------------------------------------------------------------------------------
O Complete the Account Application.
O Tell us in which Funds you want to invest and make your
check payable to THE MONTGOMERY FUNDS.
O We do not accept third party checks or cash investments.
Checks must be in U.S. dollars and, to avoid fees and
delays, drawn only on banks located in the U.S.
O A charge may be imposed on checks that do not clear.
17
<PAGE>
- --------------------------------------------------------------------------------
INITIAL INVESTMENTS BY WIRE
- --------------------------------------------------------------------------------
O Notify the Transfer Agent at (800) 572-3863 that you intend
to make your initial investment by wire. Provide the
Transfer Agent with your name, dollar amount to be invested
and Fund(s) in which you want to invest. They will provide
you with further instructions to complete your purchase.
O Request your bank to transmit immediately available funds
by wire for purchase of shares i n your name to the
following:
Investors Fiduciary Trust Company
ABA #101003621
For: DST Systems, Inc.
Account #7526601
Attention: The Montgomery Funds
For Credit to: (shareholder(s) name)
Shareholder Account Number: shareholder(s) account number)
Name of Fund: (Montgomery Fund name)
O Your bank may charge a fee for any wire transfers.
- --------------------------------------------------------------------------------
SUBSEQUENT INVESTMENTS
Minimum Subsequent Investment (including IRAs): $100
Mail any checks and investment instructions to:
The Montgomery Funds
c/o DST Systems, Inc.
P.O. Box 419073
Kansas City, MO 64141-6073
- --------------------------------------------------------------------------------
SUBSEQUENT INVESTMENTS BY CHECK
- --------------------------------------------------------------------------------
O Make your check payable to The Montgomery Funds.
O Enclose an investment stub from your confirmation statement.
O If you do not have an investment stub, mail your check with
written instructions indicating the Fund name and account number
to which your investment should be credited.
O We do not accept third party checks or cash investments. Checks
must be made in U.S. dollars and, to avoid fees and delays,
drawn only on banks located in the U.S.
O A charge may be imposed on checks that do not clear.
- --------------------------------------------------------------------------------
SUBSEQUENT INVESTMENTS BY WIRE
- --------------------------------------------------------------------------------
O You do not need to contact the Transfer Agent prior to making
subsequent investments by wire. Instruct your bank to wire funds
to the Transfer Agent's affiliated bank by using the bank wire
information under "Initial Investments by Wire."
18
<PAGE>
- --------------------------------------------------------------------------------
SUBSEQUENT INVESTMENTS BY TELEPHONE
- --------------------------------------------------------------------------------
O Shareholders are automatically eligible to make telephone
purchases by calling the Transfer Agent at (800) 572-3863 before
the Fund cutoff time.
O The maximum telephone purchase is an amount up to five times
your account value on the previous day.
O Payments for shares purchased must be received by the Transfer
Agent within three business days after the purchase request.
O Shares for IRAs are not eligible for telephone purchases.
O You should do one of the following to ensure payment is received
in time:
O Transfer funds directly from your bank account by
sending a letter and a voided check or deposit slip
(for a savings account) to the Transfer Agent.
O Send a check by overnight or 2nd day courier service.
Address courier packages to THE MONTGOMERY FUNDS,
C/O DST SYSTEMS, INC., 1004 BALTIMORE ST., KANSAS CITY,
MO 64105.
O Instruct your bank to wire funds to the Transfer
Agent's affiliated bank by using the bank wire
information under the section titled "Initial
Investments by Wire."
- --------------------------------------------------------------------------------
AUTOMATIC ACCOUNT BUILDER
Under the Automatic Account Builder plan, a shareholder may arrange to make
additional purchases (minimum $100) of shares automatically on a monthly or
quarterly basis by electronic funds transfer from a checking or savings account,
if the bank at which the account is maintained is a member of the Automated
Clearing House, or by preauthorized checks drawn on the shareholder's bank
account. A shareholder may terminate the program at any time with seven business
days' notice by delivering a written instruction to the Transfer Agent. The
Account Application contains the requirements for this program. An initial
investment in check form of at least $500 must be submitted to the Transfer
Agent to initiate this program.
TELEPHONE TRANSACTIONS
You agree to reimburse the Funds for any expenses or losses that they may incur
in connection with transfers from your accounts, including any caused by your
bank's failure to act in accordance with your request or its failure to honor
your debit. If your bank makes erroneous payments or fails to make payment after
shares are purchased on your behalf, any such purchase may be canceled and this
privilege terminated immediately. This privilege may be discontinued at any time
by the Funds upon 30 days' written notice or at any time by you by written
notice to the Funds. Your request will be processed upon receipt.
Write your confirmed purchase number on any check. Although Fund shares are
priced at the net asset value next-determined after receipt of a purchase
request, shares are not purchased until payment is received. Should payment not
be received when required, the Transfer Agent will cancel the telephone purchase
request and you may be responsible for any losses incurred by a Fund. The Funds
employ reasonable procedures in an effort to confirm the authenticity of
telephone instructions, such as requiring the caller to give a special
authorization number. Provided these procedures are followed, the Funds and the
Transfer Agent shall not be responsible for any loss, expense or cost arising
out of any telephone instruction.
19
<PAGE>
RETIREMENT PLANS
Shares of the Funds are available for purchase by any retirement plan, including
Keogh plans, 401(k) plans, 403(b) plans and IRAs. None of the Funds or the
Manager administers retirement account plans. Certain of the Funds are available
for purchase through administrators for retirement plans. Investors who purchase
shares as part of a retirement plan should address inquiries and seek investment
servicing from their plan administrators. Plan administrators may receive
compensation from the Funds for performing shareholder services.
SHARE CERTIFICATES
Share certificates will not be issued by the Funds. All shares are held in
non-certificated form registered on the books of the Funds and the Transfer
Agent for the account of the shareholder.
HOW TO REDEEM AN INVESTMENT IN THE FUNDS
The Funds will redeem all or any portion of an investor's outstanding shares
upon request. Redemptions can be made on any day that the NYSE is open for
trading. The redemption price is the net asset value per share next determined
after the shares are validly tendered for redemption and such request is
received by the Transfer Agent or, in the case of repurchase orders, Montgomery
Securities or other securities dealers. Payment of redemption proceeds is made
promptly regardless of when redemption occurs and normally within three days
after receipt of all documents in proper form, including a written redemption
order with appropriate signature guarantee. Redemption proceeds will be mailed
or wired in accordance with the shareholder's instructions. The Funds may
suspend the right of redemption under certain extraordinary circumstances in
accordance with the rules of the SEC. In the case of shares purchased by check
and redeemed shortly after the purchase, the Transfer Agent will not mail
redemption proceeds until it has been notified that the monies used for the
purchase have been collected, which may take up to 15 days from the purchase
date. Shares tendered for redemptions through brokers or dealers (other than the
Distributor) may be subject to a service charge by such brokers or dealers.
Procedures for requesting a redemption are set forth below. SHAREHOLDERS SHOULD
NOTE THAT THE FUNDS RESERVE THE RIGHT UPON 60 DAYS' ADVANCE NOTICE TO
SHAREHOLDERS TO IMPOSE A REDEMPTION FEE OF UP TO 1.00% ON SHARES REDEEMED WITHIN
90 DAYS OF PURCHASE.
- --------------------------------------------------------------------------------
REDEEMING BY WRITTEN INSTRUCTION
- --------------------------------------------------------------------------------
O Write a letter indicating your name, account
number, the name of the Fund from which you wish
to redeem and the dollar amount or number of
shares you wish to redeem.
O Signature guarantee your letter if you want the
redemption proceeds to go to a party other than
the account owner(s), your predesignated bank
account or if the dollar amount of the redemption
exceeds $50,000. Signature guarantees may be
provided by an eligible guarantor institution such
as a commercial bank, an NASD member firm such as
a stock broker, a savings association or national
securities exchange. Contact the Transfer Agent if
you need more information.
O If you do not have a predesignated bank account
and want to wire your redemption proceeds, include
a voided check or deposit slip with your letter.
The minimum amount that may be wired is $500 (wire
charges, if any, will be deducted from redemption
proceeds). The Fund reserves the right to permit
lesser wire amounts or fees in the Manager's
discretion.
O Mail your instructions to:
The Montgomery Funds
c/o DST Systems, Inc.
P.O. Box 419073
Kansas City, MO 64141
20
<PAGE>
- --------------------------------------------------------------------------------
REDEEMING BY TELEPHONE
- --------------------------------------------------------------------------------
O Unless you have declined telephone redemption
privileges on your account application, you may
redeem shares up to $50,000 by calling the
Transfer Agent before the Fund cutoff time.
O If you included bank wire information on your
account application or made subsequent
arrangements to accommodate bank wire redemptions,
you may request that the Transfer Agent wire your
redemption proceeds to your bank account. Allow at
least two business days for redemption proceeds to
be credited to your bank account. If you want to
wire your redemption proceeds to arrive at your
bank on the same business day (subject to bank
cutoff times), there is a $10 fee.
- --------------------------------------------------------------------------------
By establishing telephone redemption privileges, a shareholder authorizes the
Funds and the Transfer Agent to act upon the instruction of the shareholder or
his or her designee by telephone to redeem from the account for which such
service has been authorized and transfer the proceeds to a bank or other account
designated in the Authorization. When a shareholder appoints a designee on the
Account Application or by other written authorization, the shareholder agrees to
be bound by the telephone redemption instructions given by the shareholder's
designee. Telephone redemption privileges will be suspended for 30 days after
any address change. All redemption requests during this period must be submitted
in writing with the signature guaranteed. The Funds may change, modify or
terminate these privileges at any time upon 60 days' notice to shareholders. The
Funds will not be responsible for any loss, damage, cost or expense arising out
of any transaction that appears on the shareholder's confirmation after 30 days
following mailing of such confirmation. See discussion of Fund telephone
procedures and liability under "Telephone Transactions."
Shareholders may decline telephone redemption privileges after an account is
opened by instructing the Transfer Agent in writing. Your request will be
processed upon receipt.
Shareholders may experience delays in exercising telephone redemption privileges
during periods of abnormal market activity. During periods of volatile economic
or market conditions, shareholders may wish to consider transmitting redemption
orders by telegram (not available for IRAs) or overnight courier.
SYSTEMATIC WITHDRAWAL PLAN
Under a Systematic Withdrawal Plan, a shareholder with an account value of $500
or more in a Fund may receive (or have sent to a third party) periodic payments
(by check or wire) of $100 or more from the shareholder's account 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. The redemption may result in
the recognition of gain or loss for income tax purposes. Dividends and
distributions on shares held in a Systematic Withdrawal Plan account will be
reinvested in additional shares of that Fund at net asset value.
SMALL ACCOUNTS/ANNUAL ACCOUNT MAINTENANCE FEE
Due to the relatively high cost of maintaining smaller accounts, each Fund
reserves the right to redeem shares or to impose a $20 annual account
maintenance fee for any account if at any time, because of redemptions by the
shareholder, the total value of a shareholder's account is less than $500. If a
Fund decides to make an involuntary redemption, the shareholder will first be
notified that the value of the shareholder's account is less than the minimum
level and will be allowed 30 days to make an additional investment to bring the
value of that account at least to the minimum investment required to open an
account before the Fund takes any action.
21
<PAGE>
EXCHANGE PRIVILEGES AND RESTRICTIONS
You may exchange shares from another Fund with the same registration, taxpayer
identification number and address. You should note that an exchange may result
in recognition of a gain or loss for income tax purposes. See the discussion of
Fund telephone procedures and limitations of liability under "Telephone
Transactions."
- --------------------------------------------------------------------------------
PURCHASING AND REDEEMING SHARES BY EXCHANGE
- --------------------------------------------------------------------------------
O You are automatically eligible to make telephone exchanges with your
Montgomery account.
O Exchange purchases and redemptions will be processed using the
next-determined net asset value (with no sales charge or exchange
fee) after your request is received. Your request is subject to the
Funds' cut-off times.
O Exchange purchases must meet the minimum investment requirements of
the Fund you intend to purchase.
O You may exchange for shares of a Fund only in states where that
Fund's shares are qualified for sale and only for Funds offered by
this prospectus.
O You may not exchange for shares of a Fund that is not open to new
shareholders unless you have an existing account with that Fund.
O BECAUSE EXCESSIVE EXCHANGES CAN HARM A FUND'S PERFORMANCE, THE TRUST
RESERVES THE RIGHT TO TERMINATE, EITHER TEMPORARILY OR PERMANENTLY,
YOUR EXCHANGE PRIVILEGES IF YOU MAKE MORE THAN FOUR EXCHANGES OUT OF
ANY ONE FUND DURING A TWELVE-MONTH PERIOD. THE FUND MAY ALSO REFUSE
AN EXCHANGE INTO A FUND FROM WHICH YOU HAVE REDEEMED SHARES WITHIN
THE PREVIOUS 90 DAYS (ACCOUNTS UNDER COMMON CONTROL AND ACCOUNTS WITH
THE SAME TAXPAYER IDENTIFICATION NUMBER WILL BE COUNTED TOGETHER). A
SHAREHOLDER'S EXCHANGES MAY BE RESTRICTED OR REFUSED IF A FUND
RECEIVES, OR THE MANAGER ANTICIPATES, SIMULTANEOUS ORDERS AFFECTING
SIGNIFICANT PORTIONS OF THAT FUND'S ASSETS AND, IN PARTICULAR, A
PATTERN OF EXCHANGES COINCIDING WITH A "MARKET TIMING" STRATEGY. THE
TRUST RESERVES THE RIGHT TO REFUSE EXCHANGES BY ANY PERSON OR GROUP
IF, IN THE MANAGER'S JUDGMENT, A FUND WOULD BE UNABLE TO EFFECTIVELY
INVEST THE MONEY IN ACCORDANCE WITH ITS INVESTMENT OBJECTIVE AND
POLICIES, OR WOULD OTHERWISE BE POTENTIALLY ADVERSELY AFFECTED.
ALTHOUGH THE TRUST ATTEMPTS TO PROVIDE PRIOR NOTICE TO AFFECTED
SHAREHOLDERS WHEN IT IS REASONABLE TO DO SO, IT MAY IMPOSE THESE
RESTRICTIONS AT ANY TIME. THE EXCHANGE LIMIT MAY BE MODIFIED FOR
ACCOUNTS IN CERTAIN INSTITUTIONAL RETIREMENT PLANS TO CONFORM TO PLAN
EXCHANGE LIMITS AND U.S. DEPARTMENT OF LABOR REGULATIONS (FOR THOSE
LIMITS, SEE PLAN MATERIALS). THE TRUST RESERVES THE RIGHT TO
TERMINATE OR MODIFY THE EXCHANGE PRIVILEGES OF FUND SHAREHOLDERS IN
THE FUTURE.
- --------------------------------------------------------------------------------
BROKERS AND OTHER INTERMEDIARIES
INVESTING THROUGH SECURITIES BROKERS, DEALERS AND FINANCIAL INTERMEDIARIES
Investors may purchase shares of a Fund from other selected securities brokers,
dealers or through financial intermediaries such as benefit plan administrators.
Investors should contact these agents directly for appropriate instructions, as
well as information pertaining to accounts and any service or transaction fees
that may be charged by these agents. Purchase orders through securities brokers,
dealers and other financial intermediaries are effected at the next-determined
net asset value after receipt of the order by such agent, provided the agent
transmits such order on a timely basis to the Transfer Agent so that it is
received by 4:00 p.m., New York time, on days that the Fund issues shares.
Orders received after that time will be purchased at the next-determined net
asset value. To the extent that these agents perform shareholder servicing
activities for the Fund, they may receive fees from the Fund for such services.
REPURCHASE ORDERS THROUGH BROKERAGE ACCOUNTS
Shareholders also may sell shares back to the Funds by wire or telephone through
Montgomery Securities or selected securities brokers or dealers. Shareholders
should contact their securities broker or dealer for appropriate instructions
and for information concerning any transaction or service fee that may be
imposed by the broker or dealer. Shareholders are entitled to the net asset
value next determined after receipt of a repurchase order by such broker-dealer,
provided the broker-dealer transmits such
22
<PAGE>
order on a timely basis to the Transfer Agent so that it is received by 4:00
p.m., New York time, on a day that the Fund redeems shares. Orders received
after that time are entitled to the net asset value next determined after
receipt.
HOW NET ASSET VALUE IS DETERMINED
The net asset value of each Fund is determined once daily as of 4:00 p.m., New
York time, on each day that the NYSE is open for trading. Per-share net asset
value is calculated by dividing the value of each Fund's total net assets by the
total number of that Fund's shares then outstanding.
As more fully described in the Statement of Additional Information, portfolio
securities are valued using current market valuations: either the last reported
sales price or, in the case of securities for which there is no reported last
sale and fixed income securities, the mean between the closing bid and asked
price. Securities for which market quotations are not readily available or which
are illiquid are valued at their fair values as determined in good faith under
the supervision of the Trust's officers, and by the manager and the Pricing
Committee of the Board, respectively, in accordance with methods that are
specifically authorized by the Board. Short-term obligations with maturities of
60 days or less are valued at amortized cost as reflecting fair value.
The value of securities denominated in foreign currencies and traded on foreign
exchanges or in foreign markets will be translated into U.S. dollars at the last
price of their respective currency denomination against U.S. dollars quoted by a
major bank or, if no such quotation is available, at the rate of exchange
determined in accordance with policies established in good faith by the Board.
Because the value of securities denominated in foreign currencies must be
translated into U.S. dollars, fluctuations in the value of such currencies in
relation to the U.S. dollar may affect the net asset value of Fund shares even
if there has not been any change in the foreign-currency denominated values of
such securities.
Because foreign securities markets may close prior to the time the Funds
determine their net asset values, events affecting the value of portfolio
securities occurring between the time prices are determined and the time the
Funds calculate their net asset value may not be reflected in the Funds'
calculation of net asset values unless the Manager, under supervision of the
Board, determines that a particular event would materially affect a Fund's net
asset value.
DIVIDENDS AND DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. Each Fund currently intends 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 such calendar year. Another
distribution of any undistributed capital gains may also be made following each
Fund's fiscal year end (June 30). The amount and frequency of Fund distributions
are not guaranteed and are at the discretion of the Board.
Unless investors request cash distributions in writing at least seven business
days prior to the distribution, or on the Account Application, all dividends and
other distributions will be reinvested automatically in additional Class P
shares of the applicable Fund and credited to the shareholder's account at the
closing net asset value on the reinvestment date.
TAXATION
Except for the newer Funds that intend to qualify and elect as soon as possible,
each of the Funds has qualified and elected and intends to continue to qualify
and elect to be treated as a regulated investment company under Subchapter M of
the Code, by distributing substantially all of its net investment income and net
capital gains to its shareholders and meeting other requirements of the Code
relating to the sources of its income and diversification of assets.
Accordingly, the Funds generally will not be liable for federal income tax or
excise tax based on net income except to the extent their earnings are not
distributed or are distributed in a manner that does not satisfy the
requirements of the Code pertaining to the timing of distributions. If a Fund is
unable to meet certain Code requirements, it may be subject to taxation as a
corporation. The International Small Cap Fund may also incur tax liability to
the extent it invests in "passive foreign investment companies." See "Portfolio
Securities" and the Statement of Additional Information.
23
<PAGE>
For federal income tax purposes, any dividends derived from net investment
income and any excess of net short-term capital gain over net long-term capital
loss that investors (other than certain tax-exempt organizations that have not
borrowed to purchase Fund shares) receive from the Funds are considered ordinary
income. Part of the distributions paid by the Funds may be eligible for the
dividends-received deduction allowed to corporate shareholders under the Code.
Distributions of the excess of net long-term capital gain over net short-term
capital loss from transactions of a Fund are treated by shareholders as
long-term capital gains regardless of the length of time the Fund's shares have
been owned. Distributions of income and capital gains are taxed in the manner
described above, whether they are taken in cash or are reinvested in additional
shares of the Funds.
Each Fund will inform its investors of the source of their dividends and
distributions at the time they are paid, and will promptly after the close of
each calendar year advise investors of the tax status of those distributions and
dividends. Investors (including tax-exempt and foreign investors) are advised to
consult their own tax advisers regarding the particular tax consequences to them
of an investment in shares of the Funds. Additional information on tax matters
relating to the Funds and their shareholders is included in the Statement of
Additional Information.
GENERAL INFORMATION
THE TRUST
All of the Funds are series of The Montgomery Funds, a Massachusetts business
trust organized on May 10, 1990. The Agreement and Declarations of the Trust
permits the Board to issue an unlimited number of full and fractional shares of
beneficial interest, $.01 par value, in any number of series. The assets and
liabilities of each series of the Trust are separate and distinct from each
other series.
This Prospectus relates only to the Class P shares of the Funds. The Funds have
designated other classes of shares and may in the future designate other classes
of shares for specific purposes.
SHAREHOLDER RIGHTS
Shares issued by the Funds have no preemptive, conversion or subscription
rights. Each whole share is entitled to one vote as to any matter on which it is
entitled to vote and each fractional share is entitled to a proportionate
fractional vote. Shareholders have equal and exclusive rights as to dividends
and distributions as declared by each Fund and to the net assets of each Fund
upon liquidation or dissolution. Each Fund, as a separate series of the Trust,
votes separately on matters affecting only that Fund (e.g., approval of the
Investment Management Agreement); all series of the Trust vote as a single class
on matters affecting all series of the Trust jointly or the Trust as a whole
(e.g., election or removal of Trustees). Voting rights are not cumulative, so
that the holders of more than 50% of the shares voting in any election of
Trustees can, if they so choose, elect all of the Trustees of the Trust. Except
as set forth herein, all classes of shares issued by a Fund shall have identical
voting, dividend, liquidation and other rights, preferences, and terms and
conditions. The only differences among the various classes of shares relate
solely to the following: (a) each class may be subject to different class
expenses; (b) each class may bear a different identifying designation; (c) each
class may have exclusive voting rights with respect to matters solely affecting
such class; (d) each class may have different exchange privileges; and (e) each
class may provide for the automatic conversion of that class into another class.
While the Trust is not required and does not intend to hold annual meetings of
shareholders, such meetings may be called by the Trust's Board at its
discretion, or upon demand by the holders of 10% or more of the outstanding
shares of the Trust for the purpose of electing or removing Trustees.
Shareholders may receive assistance in communicating with other shareholders in
connection with the election or removal of Trustees pursuant to the provisions
of Section 16(c) of the Investment Company Act.
PERFORMANCE INFORMATION
From time to time, the Funds may publish their total return, and, in the case of
certain Funds, current yield in advertisements and communications to investors.
Performance data may be quoted separately for the Class P shares as for other
classes. Total return information generally will include a Fund's average annual
compounded rate of return over the most recent four calendar quarters and over
the period from the Fund's inception of operations. A Fund may also advertise
aggregate and average total return information over different periods of time.
Each Fund's average annual compounded rate of return is determined by reference
to a hypothetical $1,000 investment that includes capital appreciation and
depreciation for the stated period according to a specific formula. Aggregate
total return is calculated in a similar manner, except that the results are not
annualized. Total return figures will reflect all recurring charges against each
Fund's income.
24
<PAGE>
Current yield as prescribed by the SEC is an annualized percentage rate that
reflects the change in value of a hypothetical account based on the income
received from the Fund during a 30-day period. It is computed by determining the
net change, excluding capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period. A hypothetical charge reflecting deductions from shareholder accounts
for management fees or shareholder services fees, for example, is subtracted
from the value of the account at the end of the period and the difference is
divided by the value of the account at the beginning of the base period to
obtain the base period return. The result is then annualized.
See "Performance Information" in the Statement of Additional Information.
Investment results of the Funds will fluctuate over time, and any presentation
of the Funds' total return or current yield for any prior period should not be
considered as a representation of what an investor's total return or current
yield may be in any future period. The Funds' Annual Report contains additional
performance information and is available upon request and without charge by
calling (800) 572-FUND.
LEGAL OPINION
The validity of shares offered by this Prospectus will be passed on by Heller,
Ehrman, White & McAuliffe, 333 Bush Street, San Francisco, California 94104.
SHAREHOLDER REPORTS AND INQUIRIES
Unless otherwise requested, only one copy of each shareholder report or other
material sent to shareholders will be mailed to each household with accounts
under common ownership and the same address regardless of the number of
shareholders or accounts at that household or address. A confirmation statement
will be mailed to your record address each time you request a transaction except
for pre-authorized automatic investment and redemption services (quarterly). All
transactions are recorded on quarterly account statements which you will receive
at the end of each calendar quarter. Your fourth-quarter account statement will
be a year-end statement, listing all transaction activity for the entire year.
Retain this statement for your tax records.
In general, shareholders who redeemed shares from a qualifying Montgomery
account should expect to receive an Average Cost Statement in February of the
following year. Your statement will calculate your average cost using the
average cost single-category method.
Any questions should be directed to The Montgomery Funds at 800-572-FUND
(800-572-3863).
BACKUP WITHHOLDING INSTRUCTIONS
Shareholders are required by law to provide the Funds with their correct Social
Security or other Taxpayer Identification Number ("TIN"), regardless of whether
they file tax returns. Failure to do so may subject a shareholder to penalties.
Failure to provide a correct TIN or to check the appropriate boxes in the
Account Application and to sign the shareholder's name could result in backup
withholding by the Funds of an amount of income tax equal to 31% of
distributions, redemptions, exchanges and other payments made to a shareholder's
account. Any tax withheld may be credited against taxes owed on a shareholder's
federal income tax return.
A shareholder who does not have a TIN should apply for one immediately by
contacting the local office of the Social Security Administration or the IRS.
Backup withholding could apply to payments made to a shareholder's account while
awaiting receipt of a TIN. Special rules apply for certain entities. For
example, for an account established under the Uniform Gifts to Minors Act, the
TIN of the minor should be furnished. If a shareholder has been notified by the
IRS that he or she is subject to backup withholding because he or she failed to
report all interest and dividend income on his or her tax return and the
shareholder has not been notified by the IRS that such withholding will cease,
the shareholder should cross out the appropriate item in the Account
Application. Dividends paid to a foreign shareholder's account by a Fund may be
subject to up to 30% withholding instead of backup withholding.
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A shareholder that is an exempt recipient should furnish a TIN and check the
appropriate box. Exempt recipients include certain corporations, certain
tax-exempt entities, tax-exempt pension plans and IRAs, governmental agencies,
financial institutions, registered securities and commodities dealers and
others. For further information, see Section 3406 of the Code and consult with a
tax adviser.
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This Prospectus is not an offering of the securities herein described in any
state in which the offering is unauthorized. No salesman, dealer or other person
is authorized to give any information or make any representation other than
those contained in this Prospectus, the Statement of Additional Information, or
in the Funds' official sales literature.
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MONTGOMERY INDIVIDUAL RETIREMENT ACCOUNT
CUSTODIAL AGREEMENT
Under Section 408(a) of the Internal Revenue Code
The Depositor whose name appears on the attached Application is establishing an
individual retirement account (under Section 408(a) of the Internal Revenue
Code) to provide for his or her retirement and for the support of his or her
beneficiaries after death.
The Custodian named on the attached Application has given the Depositor the
Disclosure Statement required under the Income Tax Regulations under Section
408(i) of the Code.
The Depositor has deposited with the Custodian an initial contribution in cash,
as set forth in the attached Application.
The Depositor and the Custodian make the following Agreement:
ARTICLE I
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in Section 402(c) of the Code (but only after December
31, 1992), 403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a
Simplified Employee Pension plan as described in Section 408(k). Rollover
contributions before January 1, 1993, include rollovers described in Section
402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8), 408(d)(3), or an employer
contribution to a Simplified Employee Pension Plan as described in Section
408(k).
ARTICLE II
The Depositor's interest in the balance in the Custodial Account is
nonforfeitable.
ARTICLE III
1. No part of the custodial funds may be invested life insurance contracts,
nor may the assets of the Custodial Account be commingled with other
property except in a common trust fund or common investment fund (within
the meaning of Section 408(a)(5) of the Code).
2. No part of the custodial funds may be invested in collectibles (within
the meaning of Section 408(m) of the Code) except as otherwise permitted
by Section 408(m)(3) which provides an exception for certain gold and
silver coins and coins issued under the laws of any state.
ARTICLE IV
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Depositor's interest in the Custodial Account shall
be made in accordance with the following requirements and shall
otherwise comply with Section 408(a)(6) and Proposed Regulations Section
1.40(a)(9)-2, the provisions of which are incorporated by reference.
2. Unless otherwise elected by the time distributions are required to begin
to the Depositor under paragraph 3, or to the surviving spouse under
paragraph 4, other than in the case of a life annuity, life expectancies
shall be recalculated annually. Such election shall be irrevocable as to
the Depositor and the surviving spouse and shall apply to all subsequent
years. The life expectancy of a non-spouse beneficiary may not be
recalculated.
3. The Depositor's entire interest in the Custodial Account must be, or
begin to be distributed by the Depositor's required beginning date
(April 1 following the calendar year end in which the Depositor reaches
age 70 1/2). By that date, the Depositor may elect, in a manner
acceptable to the Custodian, to have the balance in the Custodial
Account distributed in:
(a) A single-sum payment.
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(b) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the life of the
Depositor.
(c) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the joint and last
survivor lives of the Depositor and his or her designated
Beneficiary.
(d) Equal or substantially equal annual payments over a specified
period that may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified
period that may not be longer than the joint life and last survivor
expectancy of the Depositor and his or her designated Beneficiary.
4. If the Depositor dies before his or her entire interest is distributed
to him or her, the entire remaining interest will be distributed as
follows:
(a) If the Depositor dies on or after distribution of his or her
interest has begun, distribution must continue to be made in
accordance with paragraph 3.
(b) If the Depositor dies before distribution of his or her interest
has begun, the entire remaining interest will, at the election of
the Depositor or, if the Depositor has not so elected, at the
election of the Beneficiary or Beneficiaries, either
(i) Be distributed by the December 31 of the year containing the
fifth anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over
the life or life expectancy of the designated Beneficiary or
Beneficiaries starting by December 31 of the year following
the year of the Depositor's death. If, however, the
Beneficiary is the Depositor's surviving spouse, then this
distribution is not required to begin before December 31 of
the year in which the Depositor would have turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of Section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on
the Depositor's required beginning date, even though payments may
actually have been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the Beneficiary is other than the surviving
spouse, no additional cash contributions or rollover contributions
may be accepted in the account.
5. In the case of distribution over life expectancy in equal or
substantially equal annual payments, to determine the minimum annual
payment for each year, divide the Depositor's entire interest in the
Custodial Account as of the close of business on December 31 of the
preceding year by the life expectancy of the Depositor (or the joint
life and last survivor expectancy of the Depositor and the Depositor's
designated Beneficiary, or the life expectancy of the designated
Beneficiary, whichever applies). In the case of distributions under
paragraph 3, determine the initial life expectancy (or joint life and
last survivor expectancy) using the attained ages of the Depositor and
designated Beneficiary as of their birthdays in the year the Depositor
reaches age 70 1/2. In the case of a distribution in accordance with
paragraph 4(b)(ii), determine life expectancy using the attained age of
the designated Beneficiary as of the Beneficiary's birthday in the year
distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to
satisfy the minimum distribution requirements described above. This
method permits an individual to satisfy these requirements by taking
from one individual retirement account the amount required to satisfy
the requirement for another.
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ARTICLE V
1. The Depositor agrees to provide the Custodian with information necessary
for the Custodian to prepare any reports required under Section 408(i)
of the Code and Regulations Sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service
and the Depositor prescribed by the Internal Revenue Service.
ARTICLE VI
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with Section 408(a) of the Code and
the related regulations will be invalid.
ARTICLE VII
This Agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the Depositor and the Custodian.
ARTICLE VIII
DEFINITIONS AND OTHER
PARAGRAPH 8.1 - DEFINITIONS. The following definitions shall apply to terms
used in this Agreement:
a. "Application" shall mean the IRA Application submitted by the Depositor
to the Custodian.
b. "Code" shall mean the Internal Revenue Code of 1986, as amended,
including any regulations, procedures, rulings, or notices issued
thereunder.
c. "Company" shall mean The Montgomery Funds.
d. "Custodial Account" shall mean the custodial account established under
this Agreement.
e. "Custodian" shall mean Investors Fiduciary Trust Company and any
successor custodian.
f. "Depositor" shall mean the individual establishing this IRA by
completing and signing the Application.
PARAGRAPH 8.2 - INVESTMENT OF CONTRIBUTIONS. Contributions shall be invested in
shares of available series of the Company in accordance with the Depositor's
written instructions in the Application, and with subsequent written
instructions of the Depositor (or, following the death of the Depositor, his or
her beneficiary) in a form acceptable to and filed with the Custodian. By giving
such instructions, the Depositor (or beneficiary where applicable) will be
deemed to have acknowledged receipt of the then current prospectus for any
shares in which the Depositor (or beneficiary) directs the Custodian to invest
contributions. The Depositor, by making a rollover contribution, as described in
Article I, hereby certifies that the contribution meets all requirements for
rollover contributions. The amount of each contribution shall be applied to the
purchase of such shares at the price and in the manner in which such shares are
then being publicly offered by the Company in accordance with the then current
prospectus, and such shares shall be credited to the Custodial Account. All
dividends and capital gain distributions received on the shares of the fund held
in each Custodial Account shall be reinvested in such shares which shall be
credited to such Custodial Account. If any distribution on shares of the fund
may be received at the election of the shareholder in additional shares or in
cash or other property, the Custodian shall elect to receive such distribution
in additional shares. The Custodian shall not be liable for interest on any cash
balance in the Custodial Account. All Company shares acquired by the Custodian
shall be registered in the name of the Custodian or its registered nominee.
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PARAGRAPH 8.3 - VOTING WITH RESPECT TO SHARES. The Custodian shall not vote any
of the shares of a Company mutual fund held in the Custodial Account except in
accordance with written instructions of the Depositor, timely received, in a
form acceptable to the Custodian.
PARAGRAPH 8.4 - ALTERNATIVE DISTRIBUTION METHODS. Notwithstanding Article IV, a
Depositor may elect in writing in a form acceptable to and filed with the
Custodian, to have the balance in the Custodial Account distributed only in a
lump sum or in substantially equal payments over a period that does not exceed
the Depositor's life expectancy or the joint and last survivor life expectancy
of the Depositor and his or her designated beneficiary. For this purpose, life
expectancies must be determined by using applicable Internal Revenue Service
tables. Such election shall be irrevocable as to the Depositor and the surviving
spouse and shall apply to all subsequent years. The life expectancy of a
non-spouse beneficiary may not be recalculated. To receive an annuity
distribution, a Depositor may roll over a lump sum distribution to purchase an
individual retirement annuity payable in equal or substantially equal payments
over the Depositor's life expectancy or the joint and last survivor life
expectancy of the Depositor and his or her designated beneficiary. The
distribution option should be reviewed in the year the Depositor reaches age 70
1/2 to make sure the requirements of Code Section 408(a)(6) have been met.
Consistent with paragraph 4.6 of Article IV, the Custodian is not obligated to
make any distribution absent a specific written direction, in a form acceptable
to and filed with the Custodian, from the Depositor or designated beneficiary to
do so.
PARAGRAPH 8.5 - AMENDMENT AND TERMINATION. The Depositor may at any time and
from time to time terminate this Agreement in whole or in part by delivering to
the Custodian a signed written notice of such termination, in a form acceptable
to the Custodian. The Depositor and the Custodian delegate to the Company the
right to amend this Agreement (including retroactive amendments) by written
notice to the Custodian and the Depositor. The Depositor shall be deemed to have
consented to any such amendment, provided that (a) no amendment shall cause or
permit any part of the assets of the Custodial Account to be diverted to
purposes other than for the exclusive benefit of the Depositor or his or her
beneficiaries; (b) any amendment which affects the rights, duties or
responsibilities of the Custodian may only be made with the Custodian's consent;
and (c) no amendment shall be made except in accordance with any applicable laws
and regulations affecting this Agreement and the Custodial Account.
PARAGRAPH 8.6 - RESIGNATION OR REMOVAL OF CUSTODIAN. The Custodian may resign at
any time upon thirty (30) days' notice in writing to the Depositor and the
Company. Upon such resignation, the Company shall notify the Depositor and shall
appoint a successor custodian under this Agreement. The Company at any time may
remove the Custodian upon thirty (30) days' written notice to that effect in a
form acceptable to and filed with the Custodian. Such notice must include
designation of a successor custodian. The successor custodian shall satisfy the
requirements of section 408(h) of the Code. Upon receipt by the Custodian of
written acceptance of such appointment by the successor custodian, the Custodian
shall transfer and pay over to such successor the assets of and records relating
to the Custodial Account. The Custodian is authorized, however, to reserve such
sum of money as it may deem advisable for payment of all its fees, compensation,
costs and expenses, or for payment of any other liability constituting a charge
on or against the assets of the Custodial Account or on or against the
Custodian, and where necessary may liquidate shares in the Custodial Account for
such payments. Any balance of such reserve remaining after the payment of all
such items shall be paid over to the successor custodian. The Custodian shall
not be liable for the acts or omissions of any successor custodian.
PARAGRAPH 8.7 - CUSTODIAN'S ANNUAL FEES. The Depositor shall be charged by the
Custodian for its services under this Agreement in such amount as the Custodian
shall establish from time to time. Sufficient shares may be liquidated from the
Custodial Account to pay the fee. The annual fee in effect on the date of this
Agreement is set forth in the Application. A different fee may be substituted at
any time upon written notice to the Depositor. A Depositor who does not consent
to such new fee should terminate this Agreement pursuant to paragraph 8.5 of
Article VIII within thirty (30) days of the notice of the new fee. If no such
termination is made within thirty (30) days of the notice of the new fee, the
Depositor will be deemed to have consented to the new fee.
PARAGRAPH 8.8 - OTHER FEES AND EXPENSES. Any income or other taxes of any kind
whatsoever that may be levied or assessed upon or with respect to the Custodial
Account or the income thereof, any transfer taxes incurred in connection with
the investment and reinvestment of the assets of the Custodial Account, all
other reasonable administrative expenses incurred by the Custodian with respect
to any such taxes, or with respect to any controversies concerning the Custodial
Account,
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including, but not limited to, fees for legal services rendered to the Custodian
and related costs, and such reasonable compensation to the Custodian for acting
in that capacity with respect to any such taxes or controversies, may, in the
discretion of the Custodian, be charged against and paid from the assets of the
Custodial Account. Sufficient shares may be liquidated from the Custodial
Account to pay any such taxes, expenses and compensation.
PARAGRAPH 8.9 - INALIENABILITY OF ASSETS. No interest, right or claim in or to
any part of the Custodial Account, nor any assets held therein or benefits
provided hereunder shall be subject to alienation, assignment, garnishment,
attachment, execution or levy of any kind, and any attempt to cause any such
interest, right, claim, assets or benefits to be so subjected shall not be
recognized, except to the extent as may be required by law.
PARAGRAPH 8.10 - EXCHANGE PRIVILEGE. With respect to any Company shares held in
the Custodial Account, the Depositor (or beneficiary, where applicable) may,
upon submission of written or oral instructions in a form acceptable to and
filed with the Custodian, cause shares of any fund to be exchanged for shares of
any other fund of the Company meeting the requirements of this Agreement, upon
the terms and within the limitations imposed by the then current prospectus of
the fund of the Company whose shares are acquired in the exchange. By giving
such instructions, the Depositor (or beneficiary) will be deemed to have
acknowledged receipt of such prospectus.
PARAGRAPH 8.11 - DESIGNATION OF BENEFICIARY. The Depositor may designate a
beneficiary or change or revoke the designation of a beneficiary by written
notice in a form acceptable to and filed with the Custodian, prior to the
complete distribution of the balance in the Custodial Account. If the Depositor
has not by the date of his or her death properly designated a beneficiary in
accordance with the preceding sentence, or if no designated beneficiary survives
the Depositor, the Depositor's beneficiary shall be his or her estate. If a
beneficiary dies before receiving his or her entire interest in the Custodial
Account, his or her remaining interest in the Custodial Account shall be paid to
the beneficiary's estate.
PARAGRAPH 8.12 - RESPONSIBILITY AS TO CONTRIBUTIONS OR DISTRIBUTIONS. The
Custodian will not under any circumstances be responsible for the timing,
purpose or propriety of any contribution or of any distribution made hereunder,
nor shall the Custodian incur any liability or responsibility for any tax
imposed on account of any such contribution or distribution.
PARAGRAPH 8.13 - OTHER LIMITS ON RESPONSIBILITIES OF THE CUSTODIAN. The
Custodian shall not incur any liability or responsibility in taking or omitting
to take any action based on any notice, election, instruction or any written
instrument believed by the Custodian to be genuine and to have been properly
executed. The Custodian shall be under no duty of inquiry with respect to any
such notice, election, instruction or written instrument, but in its discretion
may request any tax waivers, proof of signatures or other evidence which it
reasonably deems necessary for its protection. The Depositor and the successors
of the Depositor including any executor or administrator of the Depositor shall,
to the extent permitted by law, indemnify the Custodian and its successors and
assigns against any and all claims, actions or liabilities of the Custodian to
the Depositor or the successors or beneficiaries of the Depositor whatsoever
(including, without limitation, all reasonable expenses incurred in defending
against or settlement of such claims, actions or liabilities) which may arise in
connection with this Agreement or the Custodial Account, except those due to the
Custodian's own bad faith, gross negligence or willful misconduct. The Custodian
shall not be under any duty to take any action not specified in this Agreement,
unless the Depositor shall furnish it with instructions in proper form and such
instructions shall have been specifically agreed to by the Custodian, or to
defend or engage in any suit with respect hereto unless it shall have first
agreed in writing to do so and shall have been fully indemnified to its
satisfaction.
PARAGRAPH 8.14 - NOTICES. All written notices required or permitted to be given
by the Custodian shall be deemed to have been given when sent by mail to the
Depositor at the Depositor's last address of record provided to the Custodian.
All written notices required or permitted to be given to the Custodian shall be
deemed to have been given when received by the Custodian if mailed to the
Custodian at DST Systems, Inc., P.O. Box 419073, Kansas City, MO 64141-6073 or
such other address as the Custodian shall provide to the Depositor from time to
time.
PARAGRAPH 8.15 - TIMING OF CONTRIBUTIONS. A contribution is deemed to have been
made on the last day of the preceding taxable year if the contribution is made
by the deadline for filing the Depositor's income tax return (not including
extensions) and if the Depositor designates the contribution as a
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contribution for the preceding taxable year in a manner acceptable to the
Custodian. However, shares shall be purchased on the day such contribution is
received by the Custodian. The Custodian will not be liable or responsible for
any consequences of postal delays or delays resulting from an incomplete
Application or a designation made in an unacceptable form. Applications received
postmarked after the deadline will be treated as a contribution for the
Depositor's current tax year. Improperly completed Applications will be returned
to the sender.
PARAGRAPH 8.16 - GOVERNING LAW. This Agreement and the Custodial Account shall
be construed, administered and enforced according to the laws of the State of
Missouri.
PARAGRAPH 8.17 - WHEN EFFECTIVE. This Agreement shall not become effective until
acceptance of the Application by the Custodian at its principal offices, as
evidenced by a written confirmation to the Depositor.
INTRODUCTION
The following information is provided to you in accordance with the requirements
of the Code and Treasury regulations and should be reviewed in conjunction with
the Individual Retirement Custodial Account Agreement (the "Custodial
Agreement"), the Application for your IRA (the "Application"), and the
prospectus for series of The Montgomery Funds that are allowable investments for
your IRA. The provisions of the Custodial Agreement, Application and prospectus
govern in any instance where the Disclosure Statement is incomplete or appears
to conflict. This Disclosure Statement reflects the provisions of the Code in
effect on January 1, 1993. This Disclosure Statement provides a nontechnical
summary of the law. Please consult with your tax advisor for more complete
information and refer to IRS Publication 590, Individual Retirement
Arrangements.
I. IRA STATUTORY REQUIREMENTS
An IRA is a trust or custodial account established for the exclusive benefit of
you and your beneficiaries. Current law requires that your IRA agreement be in
writing and that it meet the following requirements:
1. All contributions should be in U.S. dollars and should be drawn on U.S.
banks and, for any taxable year, cannot exceed 100% of your compensation
or $2,000, whichever is less, unless the contribution is a rollover
contribution or an employer contribution to a simplified employee
pension plan ("SEP").
2. The custodian or trustee must be a bank or other institution or person
that is approved by the Internal Revenue Service to administer your IRA
in accordance with current tax laws.
3. None of your IRA assets may be invested in life insurance contracts or
commingled with the assets of other people except in a common trust fund
or common investment fund.
4. Your interest in your IRA account is nonforfeitable.
5. Distributions from your IRA must be in accordance with certain minimum
distribution rules, which are explained in Section VII.
II. THE RIGHT TO REVOKE
You may revoke your IRA at any time within seven (7) days of the time your
Application is signed. To revoke your IRA, mail or deliver a written notice
stating "I hereby elect to revoke my Montgomery Funds IRA." Sign your name
exactly as it appears on your Application, include your social security number,
and mail the notice to:
DST Systems, Inc.
P.O. Box 419073
Kansas City, MO 64141-6073
Your notice will be considered mailed on the date of postmark, or the date of
certification or registration if it is sent by certified or registered mail.
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When the Custodian receives the proper notice of revocation, you will be
entitled to a refund of your full IRA contribution, without any adjustment for
expenses or market fluctuations. If your have any questions concerning your
right of revocation, please call 1-800-572-FUND.
III. ELIGIBILITY
You may make regular contributions to an IRA if you receive compensation from
employment, earnings from self-employment, or alimony and you have not reached
age 70 1/2 by the end of the tax year for which the contribution is made. In
addition, if you are married and file a joint tax return, you may make
contributions to an IRA for your spouse whether or not your spouse receives
compensation. You may make a rollover contribution to an IRA if you have
received an eligible rollover distribution from a qualified retirement plan or
tax-sheltered annuity or an eligible distribution from another IRA and elect
rollover treatment within 60 days. You may also make a trustee- to-trustee
transfer from another IRA. Finally, your employer may contribute to your IRA,
and if your employer sponsors a SEP, your employer can make contributions to a
SEP/IRA on your behalf.
IV. CONTRIBUTIONS
A. REGULAR CONTRIBUTIONS
You may contribute each year up to $2,000 or 100% of your compensation,
whichever is less, to your IRA. If you also establish a spousal IRA for your
spouse, you may contribute up to $2,250 or 100% of your compensation, if less,
which may be split between the two IRAs as you choose, provided that no more
than $2,000 may be contributed to either your IRA or the spousal IRA. If your
spouse has compensation in excess of $250, you and your spouse can make a larger
total contribution if you each contribute to a regular IRA. If your employer
contributes to your IRA, the contribution is treated as compensation paid to
you, whether or not the contribution is deductible, unless the contribution is
made under a SEP (see below). Compensation for these purposes means wages,
salaries, professional fees, or other amounts derived from or received for
personal services actually rendered. It includes earned income from self
employment and alimony or separate maintenance payments includable in income. It
does not include pension or annuity payments or deferred compensation.
B. TIME FOR MAKING REGULAR CONTRIBUTIONS
You may make regular contributions to your IRA and/or your spousal IRA anytime
during a year; up to and including the due date for filing your tax return for
the year (without extensions). No regular contributions may be made to an IRA
for the calendar year in which you reach age 70 1/2 or later years. No regular
contributions to a spousal IRA may be made for years in which your spouse is age
70 1/2 or older.
C. DEDUCTIBILITY
Regular IRA contributions are fully deductible unless you or your spouse are
active participants in a tax-qualified plan of an employer. If you or your
spouse are active participants in such a plan, then your allowable deduction for
regular IRA contributions is reduced or eliminated if your Adjusted Gross Income
("AGI") exceeds certain levels. (If you file separately and are married but live
apart from your spouse at all times during the year, you will be considered to
be single when applying the following rules regarding deduction limitations.)
The deductible amount is determined as follows:
1. If you (and your spouse) are not active participants in a tax-qualified
plan, any contribution up to the maximum amount is deductible.
2. If you (or your spouse) are an active participant in a tax-qualified
plan, and
(a) your AGI is $25,000 or less ($40,000 for a married couple filing a
joint return and $0 for a married person filing separately), any
contribution up to the maximum amount is deductible;
(b) your AGI is $35,000 or more ($50,000 for a married couple filing a
joint return and $10,000 for a married person filing separately), no IRA
contribution is deductible;
(c) your AGI is between $25,000 and $35,000 ($40,000 and $50,000 for a
married couple filing a joint return and $0 to $10,000 for a married
person filing separately), the deductible amount is
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reduced. In the case of a regular IRA, the reduction is $0.20 for each
$1.00 of AGI over $25,000 ($40,000 for a married couple filing a joint
return and $10,000 for a married person filing separately). For a
spousal IRA, the reduction is $0.225 for each $1.00 of AGI over $40,000
if filing jointly. The limit will not be reduced below $200 unless it is
eliminated entirely.
To the extent that the deductibility of IRA contributions is reduced or
eliminated, then nondeductible contributions may be made to your IRA. Earnings
on all IRA contributions, whether or not the contributions themselves are
deductible, are tax-deferred until receipt. You must designate the amount of
nondeductible IRA contributions when filing your tax return for the year. If you
overstate the amount of your nondeductible contributions you must pay a $100
penalty unless you can show that such overstatement was due to reasonable cause.
If you fail to report nondeductible IRA contributions you will be subject to a
$50 penalty unless your failure was due to reasonable cause.
D. ROLLOVER CONTRIBUTIONS
1. AMOUNTS ELIGIBLE FOR ROLLOVER FROM PLANS AND TAX-SHELTERED ANNUITIES
You may make a rollover contribution to your IRA of an "eligible rollover
distribution" from an employer tax-qualified plan (an "employer plan") or a
tax-sheltered annuity (including a 403(b)(7) account). The administrator of the
employer plan or the payor of a distribution from the tax-sheltered annuity
should be able to tell you what portion of your payment is an eligible rollover
distribution. The following types of payments cannot be rolled over:
Non-Taxable Payments. In general, only the "taxable portion" of your payment is
an eligible rollover distribution. If you have made "after-tax" employee
contributions to the plan or annuity these contributions will be non-taxable
when they are paid to you, and they cannot be rolled over. (After- tax employee
contributions generally are contributions you made from your own pay that were
already taxed.)
Payments Spread Over Long Periods. You cannot roll over a payment if it is part
of a series of equal (or almost equal) payments that are made at least once a
year and that will last for
o your lifetime (or your life expectancy), or
o your lifetime and your beneficiary's lifetime (or life expectancies), or
o a period of ten years or more.
Required Minimum Payments. Beginning in the year you reach age 70 1/2, a certain
portion of your payment cannot be rolled (or transferred) over because it is a
"required minimum payment" that must be paid to you.
2. DIRECT ROLLOVER
Generally, payment from an employer plan or a tax-sheltered annuity that is an
"eligible rollover distribution," as described above, will be subject to a
mandatory 20% income tax withholding. However, to avoid the 20% withholding you
can choose to make a direct rollover. In a direct rollover, the eligible
rollover distribution is paid directly from the plan or tax-sheltered annuity to
your IRA. If you choose a direct rollover, you are not taxed on a payment until
you later take it out of the IRA.
3. ROLLOVER OF PLAN PAYMENTS PAID TO YOU
A payment to you of an eligible rollover distribution from an employer plan or
tax-sheltered annuity is taxed in the year you receive it unless, within 60
days, you roll it over to an IRA (or another plan that accepts rollovers). If
you do not roll it over, special tax rules may apply if any portion of the
payment to you is an eligible rollover distribution, the payor is required by
law to withhold 20% of that amount. This amount is sent to the IRS as income tax
withholding.
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Sixty-Day Rollover Option. If you have an eligible rollover distribution paid to
you, you can still decide to roll over all or part of it to an IRA (or another
employer plan that accepts rollovers). If you decide to roll over, you must make
the rollover within 60 days after you receive the payment. The portion of your
payment that is rolled over will not be taxed until you take it out of the IRA
(or the employer plan).
You can roll over up to 100% of the eligible rollover distribution, including an
amount equal to the 20% that was withheld. If you choose to roll over 100%, you
must find other money within the 60- day period to contribute to the IRA or the
employer plan to replace the 20% that was withheld. (On the other hand, if you
roll over only the 80% that you received, you will be taxed on the 20% that was
withheld).
See the Special Tax Notice Regarding Plan Payments, that must be provided by the
plan administrator or payor of your employer plan or tax-sheltered annuity for
additional information on the rules governing rollover and taxation of plan
distributions, or consult your tax advisor for more details.
You should maintain a separate IRA account for any rollovers of funds from an
employer plan if you want to preserve your ability to later roll over these
funds and earnings into another employer plan. Similarly you should maintain a
separate account for any rollover of funds from a tax-sheltered annuity.
You can make a rollover from a tax-qualified plan of your spouse's employer if
you received all or a part of your spouse's share as a result of his or her
death. A spouse or former spouse who is a recipient of a distribution made under
a qualified domestic relations order may roll over all or part of the
distribution.
Because complex rules apply to the distribution and rollover of payments from
employer plans and tax-sheltered annuities, you should seek competent tax advice
whenever you contemplate receiving a distribution from a qualified plan or
tax-sheltered annuity or an IRA funded by a rollover from a qualified plan or
tax-sheltered annuity.
4. ROLLOVERS FROM OTHER IRAS
You may also make a rollover contribution of amounts held in another IRA. There
are no limits on the amount of rollover contributions made to an IRA from
another IRA, except you may not roll over (or transfer) the required minimum
amount (described in VII.D.). However, the distribution from the first IRA must
be rolled over within 60 days of receipt and no more than one distribution per
year from an IRA may be rolled over into another IRA.
5. TAX-DEFERRAL ON IRA ROLLOVER OR TRUSTEE-TO-TRUSTEE TRANSFER
An effective rollover allows you to postpone paying taxes on the amount
distributed from an employer plan, tax-sheltered annuity or IRA until it is
withdrawn from the recipient IRA. You do not report the distribution as income
and you do not take a deduction for the rollover contribution. Earnings on your
rollover IRA are tax-deferred until receipt. (Similarly, a trustee-to-trustee
transfer is not treated as a distribution and the amount transferred and
earnings are tax deferred until receipt.)
E. SEP CONTRIBUTIONS
If your employer has established a SEP, your employer may make contributions to
your SEP/IRA. If the SEP contains a salary reduction arrangement, you may elect
to reduce your salary by up to the lesser of 15% of compensation or $7,000
(indexed), and have that amount contributed to your SEP/IRA. The maximum SEP
contribution, including salary reduction amounts and employer contributions, is
the lesser of 15% of compensation or $30,000. SEP contributions are not included
in your taxable income.
V. EXCESS CONTRIBUTIONS
Amounts contributed to an IRA which exceed the maximum allowable contribution
are treated as "excess contributions" and are subject to a nondeductible 6%
penalty tax for each year in which the excess remains in the IRA. Excess
contributions may be corrected and the 6% penalty tax avoided by withdrawal of
the excess and any earnings thereon before the due date (including extensions)
of the
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federal income tax return for the tax year for which the excess contribution was
made. No deduction may be taken for the excess contributions and the earnings
must be included in taxable income for the year the contribution was made. The
earnings withdrawn may be subject to a 10% premature distribution tax if you are
underage 59 1/2. See Section VII.B.
An excess contribution may be withdrawn after the due date of the federal income
tax return (including extensions) with the following consequences:
(a) If your total contribution for the tax year for which the excess
contribution was made is $2,250 or less (or below the limit of your
employer's SEP contribution) the excess contribution may be withdrawn
without being included in income or being subject to the 10% premature
distribution tax. No deduction may be taken for the excess contribution.
Any earnings withdrawn will be includable in income in the year received
as a distribution and will be subject to any 10% premature distribution
tax that may apply.
(b) If your total contribution for the tax year the excess contribution was
made exceeds $2,250 (or, if higher, the limit of your employer's SEP
contribution) any excess contribution and any earnings on the excess
withdrawn after the due date for the federal income tax return
(including extensions), will be includable in income in the year
received and will be subject to any 10% premature distribution tax that
may apply. Additionally, no deduction may be taken for the excess
contribution for the year in which it is made.
(c) Any excess contribution withdrawn after the due date for the tax filing
(including extensions) for the year for which the contribution was made
is subject to the 6% penalty tax on the amount of the excess
contribution for the taxable year in which made and each tax year that
it is still in your IRA at the end of the year.
You may also correct an excess contribution to your IRA by treating the excess
amount as contributed to your IRA in a subsequent year to the extent that the
excess, when aggregated with your IRA contribution (if any) for the subsequent
year, does not exceed the maximum amount for that year. You may be entitled to a
deduction for the amount of the excess contribution that is applied in the
subsequent year.
VI. INVESTMENT OF ACCOUNT AND FINANCIAL DISCLOSURE
The assets in your IRA will be invested in mutual fund shares of series of The
Montgomery Funds in accordance with your instructions and Article VIII,
paragraphs 8.2 and 8.10 of the Custodial Agreement.
Growth in the value of your IRA cannot be guaranteed or projected. However, the
income and operating expenses of each allowable investment that you select for
your IRA will affect the value of its shares and, therefore, the value of your
IRA. The Montgomery Funds prospectus for such shares contains information
regarding current income and expenses of each of these investments. Reasonable
fees and other expenses of maintaining your IRA may be charged to you or your
IRA. The current annual Custodian's fee is set forth in the Application. A new
fee may be substituted from time to time as provided in paragraph 8.7 of the
Custodial Agreement.
VII. DISTRIBUTIONS
A. TAXATION OF DISTRIBUTION AS ORDINARY INCOME
In general, you must include distributions from your IRA in your gross income
for the year in which the distributions are received. There is a 10% additional
income tax assessed against premature distributions to the extent such
distributions are includable in income, as described in B. below. You may
exclude from your income that portion of a distribution that constitutes a
return of your properly reported nondeductible contributions. The amount of the
distribution excludable from income is the portion that bears the same ratio to
the total distribution that your aggregate nondeductible contributions (not
distributed in prior years) bear to the balance at the end of the year
(calculated after adding back distributions made during the year) of your IRA.
For this purpose, all of your IRAs are treated as a single IRA, and all
distributions from an IRA during a taxable year are to be treated as one
distribution.
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In addition, your gross income does not include any distribution from an IRA
that is properly rolled over. Except as provided in D. below, you may roll over
all or any part of property received in a distribution of assets, within 60 days
of receipt, into another IRA or individual retirement annuity and maintain the
tax-deferred status of such assets. A rollover from an IRA to another may be
made once every twelve months. Also, certain qualifying distributions which were
rolled over into an IRA from employer tax-qualified plans may be rolled over
into another employer tax-qualified plan. (You should seek competent tax advice
regarding these rollovers.)
As explained in Section V. certain distributions of excess contributions are not
included in income. In addition, IRA contributions for a taxable year which do
not exceed the contribution limits for such year may also be withdrawn without
being included in income or being subject to a 10% premature distribution tax,
as long as such contributions and earnings thereon are withdrawn prior to the
due date (including extensions) of your federal income tax return for the tax
year for which the contribution was made. The earnings withdrawn must be
included in taxable income for the year in which the contribution was made and
may be subject to the 10% premature distribution tax.
B. TAX ON PREMATURE DISTRIBUTIONS
To the extent they are included in income, distributions from your IRA made
before you reach age 59 1/2 will be subject to a 10% additional income tax (in
addition to being taxable as ordinary income) unless the distribution is subject
to an exception, including, a distribution made on account of your death or
disability or a distribution that is one of a scheduled series of payments over
your life expectancy or the joint life expectancies of you and your beneficiary.
C. TAX ON EXCESS DISTRIBUTIONS
There is a 15% excise tax assessed against annual distributions from tax-favored
retirement plans, including IRAs, which exceed the greater of $150,000 or
$112,500 adjusted after 1988 to reflect cost-of-living increases. To determine
whether you have distributions in excess of this limit, you must aggregate the
amounts of all distributions received by you during the calendar year from all
retirement plans, including IRAs. If you had account balances or accrued
benefits equal to at least $562,500 as of August 1,1986, you may have a portion
of the excess distributions exempted from the 15% additional tax. Please consult
with you tax advisor for more complete information, including the availability
of favorable elections.
D. REQUIRED MINIMUM DISTRIBUTIONS
1. DURING YOUR LIFE
The minimum distribution rules require that for your "70 1/2 year," and each
year thereafter, you must make withdrawals from your IRA accounts that are at
least equal to the "minimum distribution." Your 70 1/2 year is the calendar year
that contains the date six months after your 70th birthday.
Generally, you must withdraw an amount equal to at least the minimum
distribution by December 31 of each year. However, for your 70 1/2 year, you may
wait to withdraw the minimum distribution until April 1 of the following year.
(This means that if you wait to make your withdrawal for the 70 1/2 year until
April 1 of the following year, your total withdrawal in that year must equal the
minimum distributions for two years - a withdrawal by April 1 that is equal to
the minimum distribution for the 70 1/2 year and a second withdrawal by December
31 that is equal to the minimum distribution for that year.) In each year
thereafter, you must withdraw the minimum distribution for the year by December
31.
The amount of the minimum distribution is usually determined by dividing the
account balance of your IRA, as of December 31 of the prior year, by a divisor
(determined by Internal Revenue Service actuarial tables) that is based on your
life expectancy or the joint life and last survivor expectancy for you and your
beneficiary. See Article IV of the Custodial Agreement for a more detailed
explanation of how to calculate the minimum distribution. The distributions must
also satisfy the minimum distribution incidental benefit rule, which generally
will require distributions over a period less than the joint and last survivor
expectancy of you and your designated beneficiary unless your beneficiary is
your spouse or is no more than ten years younger than you. The IRS provides
tables for determining the distribution needed to satisfy incidental benefit
requirements.
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The minimum distribution required must be calculated separately for each IRA you
own, but the amounts so determined may be totalled and taken from any one or
more of your IRAs.
You will be subject to a 50% excise tax on the amount by which the distribution
you actually received in any year falls short of the minimum distribution
required for the year
You may take your distribution in:
o a lump sum;
o equal or substantially equal payments over a specified period no longer
than your life expectancy or the joint life and last survivor expectancy
of you and your designated beneficiary.
Also, as described in Section VII.A., you may roll over your lump sum
distribution to purchase an individual retirement annuity payable in equal or
substantially equal payments over your life or the joint and last survivor lives
of you and your designated beneficiary. (See Article IV and paragraph 8.4, of
the Custodial Agreement and IRS Publication 590, Individual Retirement
Arrangements, for a full description of permissible distribution methods.)
2. AFTER YOUR DEATH
If you die before you reach age 70 1/2, distribution must be made to your
beneficiary by December 31 of the fifth year following the year of your death
unless, by December 31 of the year following your death, your beneficiary begins
receiving distributions over a period not extending beyond your beneficiary's
life expectancy. When your beneficiary is your spouse, however, distributions
can be postponed until December 31 of the year in which you would have reached
age 70 1/2, at which time your spouse must take them over a period not extending
beyond his or her life expectancy. (See Article IV of the Custodial Agreement
and IRS Publication 590, Individual Retirement Arrangements, for a more detailed
explanation of how to calculate your minimum distribution.)
If you die after your required beginning date, the balance in the Custodial
Account must continue to be paid at least as rapidly as under the method of
payment being used prior to your death.
If your beneficiary is your spouse, your beneficiary can elect to treat your IRA
as his or her own IRA.
The minimum distribution required must be calculated separately for each IRA,
but the amounts so determined may be totalled and taken from any one or more
IRAs.
A payee is subject to a 50% excise tax on the amount by which a distribution for
the year falls short of the minimum distribution required.
Your beneficiary may take his or her distribution in:
o a lump sum;
o equal or substantially equal payments over a specified period no longer
than his or her life expectancy.
Also, as described in Section VII.A., a spousal beneficiary may roll over a lump
sum distribution to purchase an individual retirement annuity payable in equal
or substantially equal payments over his or her life expectancy. (See Article IV
and paragraph 8.4, of the Custodial Agreement and IRS Publication 590,
Individual Retirement Arrangements, for a full description of permissible
distribution methods.)
3. FURTHER INFORMATION.
This explanation only summarizes the minimum distribution rules. Other rules and
exceptions may apply to you that are not discussed in this summary including
rules which, in some cases, would prevent you from using certain options
described above. You should consult your personal tax advisor or IRS Publication
590, Individual Retirement Arrangements, for more detailed information.
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VIII. LOSS OF TAX-EXEMPT STATUS OF IRA
If you engage in any of the prohibited transactions listed in Section 4975 of
the Code (such as any sale, exchange, or leasing of any property between you and
your IRA) or if you take a loan from your IRA, your account will be disqualified
and the entire balance of your account will be treated as if it had been
distributed to you as of the first day of the year in which the prohibited
transaction occurred. The fair market value of your IRA will be included in
income in the year the prohibited transaction takes place and, if you are under
age 59 1/2 at the time, you may be subject to the 10% penalty tax on premature
distributions. Should you or your beneficiary pledge all or any portion of your
IRA as security for a loan, the portion so pledged will be treated as if
distributed to you, will be included in your income, and may be subject to the
10% premature distribution penalty during the year in which the pledge occurred.
IX. OTHER TAX CONSIDERATIONS
A. FEDERAL INCOME TAX WITHHOLDING
Federal income tax will be withheld on amounts distributed from your IRA unless
you elect not to have withholding apply. Generally, tax will be withheld at a
10% rate. At the time of distribution from your IRA, you will be notified of
your right to elect not to have withholding apply and will be provided with the
appropriate election form. If your IRA distribution is to be delivered outside
of the U.S., you may elect not to have withholding apply only if you certify to
the Custodian that you are not a U.S. citizen residing overseas or a "tax
avoidance expatriate" as described in Section 877 of the Code. (The distribution
may also be subject to state withholding laws.)
B. DISTRIBUTION NOT ELIGIBLE FOR LUMP-SUM AVERAGING OR CAPITAL GAINS TREATMENT
No distribution to you or anyone else from your account can qualify for capital
gains treatment under the federal income tax laws or for the five- or ten-year
averaging available with respect to certain lump sum distributions from other
types of retirement plans. The distribution is taxed to the person receiving it
as ordinary income.
C. GIFT TAX
If you elect during your lifetime to have all or any part of your account
payable to a beneficiary at or after your death, the election will not subject
you to any gift tax liability.
D. REPORTING FOR TAX PURPOSES
You must report deductible IRA contributions and distributions on your tax Form
1040 or 1040A for the taxable year in which the contributions or distributions
were made. If you make any nondeductible contributions, you must include the
amount of such nondeductible contributions and the aggregate account balance of
all your IRAs as of the end of the calendar year on Form 8606. Additional
reporting is required in the event that special taxes or penalties described
herein are due. You must file Form 5329 with the IRS for each taxable year in
which the contribution limits are exceeded, a premature distribution takes
place, less than the required minimum amount is distributed from your IRA, or
excess distributions are made.
X. IRS APPROVAL & INFORMATION
This IRA has not been submitted to the IRS for approval as to form because it
incorporates Form 5305-A issued by the IRS. This Disclosure Statement provides
only a summary of the laws governing IRAs. You should consult your personal tax
advisor or IRS Publication 590, Individual Retirement Arrangements, for more
detailed information. This publication is available from your local IRS office
or by calling 1-800-TAX-FORMS.
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INVESTMENT MANAGER
Montgomery Asset Management, L.P.
600 Montgomery Street
San Francisco, California 94111
1-800-572-FUND
DISTRIBUTOR
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
1-415-627-2485
CUSTODIAN
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
TRANSFER AGENT
DST Systems, Inc.
P.O. Box 419073
Kansas City, Missouri 64141-6073
1-800-572-3863
AUDITORS
Deloitte & Touche LLP
50 Fremont Street
San Francisco, California 94105
LEGAL COUNSEL
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104
<PAGE>
----------------------------------------------------
PART C
OTHER INFORMATION
---------------------------------------------------
v
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THE MONTGOMERY FUNDS
--------------
FORM N-1A
--------------
PART C
--------------
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Portfolio Investments as of June 30, 1995; Statements
of Assets and Liabilities as of June 30, 1995;
Statements of Operations For the Year Ended June 30,
1995; Statement of Cash Flows for year ended June 30,
1995; Statements of Changes in Net Assets for the
Year Ended June 30, 1995; Financial Highlights for a
Fund share outstanding throughout each year,
including the year ended June 30, 1995 for Montgomery
Growth Fund, Montgomery Micro Cap Fund, Montgomery
Small Cap Fund, Montgomery Equity Income Fund,
Montgomery Asset Allocation Fund, Montgomery Global
Opportunities Fund, Montgomery Global Communications
Fund, Montgomery International Small Cap Fund,
Montgomery Emerging Markets Fund, Montgomery Short
Government Bond Fund, Montgomery Government Reserve
Fund, Montgomery California Tax-Free Intermediate
Bond Fund and Montgomery California Tax-Free Money
Fund; Notes to Financial Statements; Independent
Auditors' Report on the foregoing, all incorporated
by reference to the Annual Report to Shareholders of
the above-named funds.
(b) 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").
(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) Specimen Share Certificate - Not applicable.
(5)(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").
(5)(B) Form of Amendment to Investment Management
Agreement is incorporated by reference to
Post-Effective Amendment No. 24 to the
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Registration Statement as filed with the Commission
on March 31, 1995 ("Post-Effective Amendment No.
24").
(6)(A) Form of Underwriting Agreement is incorporated by
reference to Pre- Effective Amendment No. 1.
(6)(B) Form of Selling Group Agreement is incorporated by
reference to Pre- Effective Amendment No. 1.
(7) Benefit Plan(s) - Not applicable.
(8) Custody Agreement is incorporated by reference to
Post-Effective Amendment No. 24.
(9)(A) Form of Administrative Services Agreement is
incorporated by reference to Post-Effective
Amendment No. 15.
(9)(B) Form of Multiple Class Plan is incorporated by
reference to Post-Effective Amendment No. 28.
(9)(C) Form of Shareholder Services Plan is incorporated
by reference to Post- Effective Amendment No. 28.
(10) Consent and Opinion of Counsel as to legality of
shares is incorporated by reference to
Pre-Effective Amendment No. 1.
(11) Consent of Independent Public Accountants.
(12) Financial Statements omitted from Item 23 - Not
applicable.
(13) Letter of Understanding re: Initial Shares is
incorporated by reference to Pre-Effective
Amendment No. 1.
(14) Model Retirement Plan Documents are incorporated by
reference to Post- Effective Amendment No. 2 to the
Registration Statement as filed with the Commission
on March 4, 1991 ("Post-Effective Amendment No.
2").
(15) Form of Share Marketing Plan is incorporated by
reference to Post- Effective Amendment No. 28.
(16)(A) Performance Computation for Montgomery Short
Government Bond Fund is incorporated by reference
to Post-Effective Amendment No. 13.
(16)(B) Performance Computation for Montgomery Government
Reserve Fund is incorporated by reference to
Post-Effective Amendment No. 12.
(16)(C) Performance Computation for Montgomery California
Tax-Free Intermediate Bond Fund is incorporated by
reference to Post-Effective Amendment No. 17.
(16)(D) Performance Computation for the other series of
Registrant is incorporated by reference to
Post-Effective Amendment No. 2.
(27) Financial Data Schedule
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Item 25. Persons Controlled by or Under Common Control with Registrant.
Montgomery Asset Management, L.P., a California limited
partnership, is the manager of each series of the Registrant, of The Montgomery
Funds II, a Delaware business trust, and of The Montgomery Funds III, a Delaware
business trust. Montgomery Asset Management, Inc., a California corporation is
the general partner of Montgomery Asset Management, L.P., and Montgomery
Securities is its sole limited partner. The Registrant, The Montgomery Funds II
and The Montgomery Funds III are deemed to be under the common control of each
of those three entities.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of December 31, 1995
-------------- -----------------------
Shares of Beneficial
Interest, $0.01 par value
Montgomery Small Cap Fund (Class R) 6,357
Montgomery Growth Fund (Class R) 47,768
Montgomery Emerging Markets
Fund (Class R) 46,154
Montgomery International Small Cap Fund (Class R) 1,871
Montgomery Global Opportunities Fund (Class R) 976
Montgomery Global Communications Fund (Class R) 14,809
Montgomery Equity Income Fund (Class R) 833
Montgomery Short Government Bond Fund (Class R) 546
Montgomery California Tax-Free
Intermediate Bond Fund (Class R) 142
Montgomery Government Reserve Fund (Class R) 5,107
Montgomery California Tax-Free
Money Fund (Class R) 665
Montgomery Micro Cap Fund (Class R) 11,701
Montgomery International Growth Fund (Class R) 271
Montgomery Advisors Emerging Markets Fund (Class R) 26
Montgomery Select 50 Fund (Class R) 2,454
Montgomery Small Cap Opportunities Fund 0
(formerly, Montgomery Small Cap II Fund)
Montgomery Technology Fund 0
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Item 27. 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 28. Business and Other Connections of Investment Adviser.
Montgomery Securities, which is a broker-dealer and the
principal underwriter of The Montgomery Funds, is the sole limited partner of
the investment manager, Montgomery Asset Management, L.P. ("MAM, L.P."). The
general partner of MAM, L.P. is a corporation, Montgomery Asset Management, Inc.
("MAM, Inc."), certain of the officers and directors of which serve in similar
capacities for MAM, L.P. One of these officers and directors, Mr. R. Stephen
Doyle, also is a capital limited partner of Montgomery Securities, and Mr. Jack
G. Levin, Secretary of The Montgomery Funds, is a Managing Director of
Montgomery Securities. R. Stephen Doyle is the Chairman and Chief Executive
Officer of MAM, L.P.; Mark B. Geist is the President; John T. Story is the
Managing Director of Mutual Funds and Executive Vice President; David E.
Demarest is Chief Administrative Officer; Mary Jane Fross is Manager of Mutual
Fund Administration and Finance; and Josephine Jimenez, Bryan L. Sudweeks,
Stuart O. Roberts, John H. Brown, William C. Stevens, Roger Honour, Oscar Castro
and John Boich are Managing Directors of MAM, L.P. Information about the
individuals who function as officers of MAM, L.P. (namely, R. Stephen Doyle,
Mark B. Geist, John T. Story, David E. Demarest, Mary Jane Fross and the eight
Managing Directors) is set forth in Part B.
Item 29. Principal Underwriter.
(a) Montgomery Securities is the principal underwriter of The
Montgomery Funds, The Montgomery Funds II and The Montgomery
Funds III. Montgomery Securities acts as the principal
underwriter, depositor and/or investment adviser and/or
trustee for The Montgomery Funds, an investment company
registered under the Investment Company Act of 1940, as
amended, and for the following private investment partnerships
or trusts:
Montgomery Bridge Fund Liquidating Trust
Montgomery Bridge Fund II, Liquidating Trust
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Montgomery Bridge Investments Limited
Montgomery Private Investments Partnership
Pathfinder Montgomery Fund I, L.P.
Montgomery Growth Partners, L.P.
Montgomery Growth Partners II, L.P.
Montgomery Capital Partners, L.P.
Montgomery Capital Partners II, L.P.
Montgomery Emerging Markets Fund Limited
Montgomery Emerging World Partners, L.P.
<TABLE>
(b) The following information is furnished with respect to the
officers and general partners of Montgomery Securities:
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH MONTGOMERY SECURITIES WITH REGISTRANT
- ------------------ -------------------------- ----------------------
<S> <C> <C>
J. Richard Fredericks Senior Managing Director None
Robert L. Kahan Senior Managing Director None
Kent A. Logan Senior Managing Director None
Jerome S. Markowitz Senior Managing Director Trustee Designate
Karl L. Matthies Senior Managing Director None
Joseph M. Schell Senior Managing Director None
John K. Skeen Senior Managing Director None
Alan L. Stein Senior Managing Director None
Thomas W. Weisel Chairman and Chief Executive None
Officer
John A. Berg Managing Director None
Howard S. Berl Managing Director None
Ralph E. Blair Managing Director None
Charles R. Brama Managing Director None
Robert V. Cheadle Managing Director None
M. Allen Chozen Managing Director None
Frank J. Connelly Managing Director None
Dennis Dugan Managing Director None
Michael Dovey Managing Director None
Frank M. Dunlevy Managing Director None
William A. Falk Managing Director None
R. Brandon Fradd Managing Director None
Clark L. Gerhardt, Jr. Managing Director None
Seth J. Gersch Managing Director None
P. Joseph Grasso Managing Director None
James C. Hale, III Managing Director None
Wilson T. Hileman, Jr. Managing Director None
C-5
<PAGE>
NAME AND PRINCIPAL POSITION AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH MONTGOMERY SECURITIES WITH REGISTRANT
- ------------------ -------------------------- ----------------------
Craig R. Johnson Managing Director None
Joseph A. Jolson Managing Director None
Scott Kovalik Managing Director None
David Lehman Managing Director None
Derek Lemke-von Ammon Managing Director None
Jack G. Levin Managing Director Secretary
Merrill S. Lichtenfeld Managing Director None
James F. McMahon Managing Director None
J. Sanford Miller Managing Director None
Michael G. Mueller Managing Director None
Daniel J. Murphy Managing Director None
Bernard M. Notas Managing Director None
Joseph J. Piazza Managing Director None
Bruce G. Potter Managing Director None
David B. Renderman Managing Director None
Alice A. Ruth Managing Director None
Richard A. Smith Managing Director None
Kathleen Smythe-de Urquieta Managing Director None
Thomas Tashjian Managing Director None
Thomas A. Thornhill, III Managing Director None
David M. Traversi Managing Director None
Otto V. Tschudi Managing Director None
Stephan P. Vermut Managing Director None
George M. Vetter, III Managing Director None
James F. Wilson Managing Director None
John W. Weiss Managing Director None
George W. Yandell, III Managing Director None
Ross Investments, Inc. General Partner None
P.J.J. Investments, Inc. General Partner None
RLK Investments, Inc. General Partner None
Logan Investments, Inc. General Partner None
SEWEL Investments, Inc. General Partner None
MMJ Investments, Inc. General Partner None
Skeen Investments, Inc. General Partner None
C-6
<PAGE>
<FN>
* The principal business address of persons and entities listed is 600
Montgomery Street, San Francisco, California 94111.
</FN>
</TABLE>
The above list does not include limited partners or special limited
partners who are not Managing Directors of Montgomery Securities.
Item 30. Location of Accounts and Records.
The accounts, books, or other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 will be kept
by the Registrant's Transfer Agent, DST Systems, Inc., 1004 Baltimore, Kansas
City, Missouri 64105, except those records relating to portfolio transactions
and the basic organizational and Trust documents of the Registrant (see
Subsections (2)(iii), (4), (5), (6), (7), (9), (10) and (11) of Rule 31a-1(b)),
which will be kept by the Registrant at 600 Montgomery Street, San Francisco,
California 94111.
Item 31. Management Services.
There are no management-related service contracts not
discussed in Parts A and B.
Item 32. Undertakings.
(a) Not applicable.
(b) Registrant hereby undertakes to file a post-effective
amendment including financial statements of Montgomery Advisors Emerging Markets
Fund, Montgomery Select 50 Fund, Montgomery Small Cap Opportunities Fund
(formerly, Montgomery Small Cap II Fund) and Montgomery Technology Fund, which
need not be certified, within four to six months from the later of the effective
date of those series of the Registrant or the commencement of operations of
those series.
(c) Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
(d) Registrant has undertaken to comply with Section 16(a) of
the Investment Company Act of 1940, as amended, which requires the prompt
convening of a meeting of shareholders to elect trustees to fill existing
vacancies in the Registrant's Board of Trustees in the event that less than a
majority of the trustees have been elected to such position by shareholders.
Registrant has also undertaken promptly to call a meeting of shareholders for
the purpose of voting upon the question of removal of any Trustee or Trustees
when requested in writing to do so by the record holders of not less than 10
percent of the Registrant's outstanding shares and to assist its shareholders in
communicating with other shareholders in accordance with the requirements of
Section 16(c) of the Investment Company Act of 1940, as amended.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets all
the requirements for effectiveness of this Amendment pursuant to Rule 485(b)
under the Securities Act of 1933, as amended, and that the Registrant has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of San Francisco and
State of California on this 2nd day of February, 1996.
THE MONTGOMERY FUNDS
By: R. Stephen Doyle*
----------------------------------------
R. Stephen Doyle
Chairman and Principal Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registrant's Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
R. Stephen Doyle* Principal Executive February 2, 1996
- ----------------- Officer; Principal
R. Stephen Doyle Financial and Accounting
Officer; and Trustee
Andrew Cox * Trustee February 2, 1996
- --------------------
Andrew Cox
Cecilia H. Herbert * Trustee February 2, 1996
- --------------------
Cecilia H. Herbert
John A. Farnsworth * Trustee February 2, 1996
- --------------------
John A. Farnsworth
* By: /s/ Julie Allecta
-------------------------------------------------
Julie Allecta, Attorney-in-Fact
pursuant to Power of Attorney previously filed.
8
<PAGE>
Exhibit(s) Index
Exhibit No. Document Page No.
- ----------- -------- --------
(11) Independent Auditors' Consent ____
Deloitte &
Touche LLP
- ------------ -----------------------------------------------------------------
50 Fremont Street Telephone: (415) 247-4000
San Francisco, California 94105-2230 Facsimile: (415) 247-4329
INDEPENDENT AUDITORS' CONSENT
The Montgomery Funds:
We consent to (a) the incorporation by reference in this Post-Effective
Amendment No. 33 to Registration Statement No. 33034841 of The Montgomery Funds
on Form N-1A of our report dated August 11, 1995 incorporated by reference in
Part C of Form N-1A and (b) the reference to us under the caption "Financial
Highlights" appearing in the Combined Prospectus (for Class P Shares of
Montgomery Small Cap Opportunities Fund and Montgomery International Small Cap
Fund), which is also a part of such Registration Statement.
Deloitte & Touche LLP
February 2, 1996
- ----------------
Deloitte Touche
Tohmatsu
International
- ----------------
