As filed with the Securities and Exchange Commission on February 6, 1997
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. 46
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 47
THE MONTGOMERY FUNDS
(Exact Name of Registrant as Specified in its Charter)
101 California 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)
-- on __________, 1996 pursuant to Rule 485(b)
X 60 days after filing pursuant to Rule 485(a)(1)
--
75 days after filing pursuant to Rule 485(a)(2)
--
-- 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, 1996 was filed on August 28, 1996.
----------
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 shares of Montgomery Emerging Asia Fund
Part A - Prospectus for Class R shares of Montgomery Emerging Asia Fund
Part A - Prospectus for Class P shares of Montgomery Emerging Asia Fund
Part A - Prospectus for Class L shares of Montgomery Emerging Asia Fund
Part C - Other Information
Signature Page
Exhibit
<PAGE>
THE MONTGOMERY FUNDS
CROSS REFERENCE SHEET
FORM N-1A
<TABLE>
Part A: Information Required in Prospectus
(For Each Prospectus)
<CAPTION>
Location in the
N-1A Registration Statement
Item No. Item by Heading
- ------- ---- ----------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis "Fees and Expenses of the Fund"
3. Condensed Financial Not Applicable
4. General Description of Registrant Cover Page, "The Fund's Investment Objective and Policies,"
"Portfolio Securities," "Other Investment Practices," "Risk
Considerations" and "General Information"
5. Management of "The Fund's Investment Objective and Policies,"
the Fund "Management of the Fund" and
"How to Invest in the Fund"
5A. Management's Discussion Not Applicable (contained in the Fund's Annual
of Fund Performance Report)
6. Capital Stock and "Dividends and Distributions,"
Other Securities "Taxation" and "General Information"
7. Purchase of Securities "How to Invest in the Fund,"
Being Offered "How Net Asset Value is Determined,"
"General Information" and
"Backup Withholding Instructions"
8. Redemption or "How to Redeem an Investment in the Fund" and
Repurchase "General Information"
9. Pending Legal Not Applicable
Proceedings
</TABLE>
<PAGE>
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PART A
PROSPECTUS FOR CLASS R SHARES
MONTGOMERY EMERGING ASIA FUND
---------------------------------------------------------------------
<PAGE>
The Montgomery Funds
101 California Street
San Francisco, California 94111
(800) 572-FUND
Prospectus
April 7, 1997
Class R shares of the Montgomery Emerging Asia Fund (the "Fund") are offered in
this Prospectus. The Fund seeks long-term capital appreciation through
investment primarily in the equity securities of emerging Asian companies. As is
the case for all mutual funds, attainment of the Fund's investment objective
cannot be assured.
The Fund's shares are sold at net asset value with no sales load, no
commissions, no Rule 12b-1 fees and no exchange fees. In general, the minimum
initial investment in the Fund is $1,000, and subsequent investments must be at
least $100. The Manager or the Distributor, under any circumstances that either
deems appropriate, may waive these minimums. See "How to Invest in the Fund."
The Fund, which is a separate series of The Montgomery Funds, an open-end
management investment company, is managed by Montgomery Asset Management, L.P.
(the "Manager"), an affiliate of Montgomery Securities (the "Distributor").
Please read this Prospectus before investing and retain it for future reference.
A Statement of Additional Information dated November 12, 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 www.xperts.montgomery.com/1.
The Fund may offer other classes of shares to investors eligible to purchase
those shares. The other classes of shares may have different fees and expenses
than the class of shares offered in this Prospectus, and those different fees
and expenses may affect performance. To obtain information concerning the other
classes of shares not offered in this Prospectus, call The Montgomery Funds at
(800) 572-FUND or contact sales representatives or financial intermediaries who
offer those classes.
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
- --------------------------------------------------------------------------------
Fees and Expenses of the Fund 3
- --------------------------------------------------------------------------------
The Fund's Investment Objectives and Policies 4
- --------------------------------------------------------------------------------
Portfolio Securities 4
- --------------------------------------------------------------------------------
Other Investment Practices 6
- --------------------------------------------------------------------------------
Risk Considerations 9
- --------------------------------------------------------------------------------
Management of the Fund 11
- --------------------------------------------------------------------------------
How To Invest in the Fund 13
- --------------------------------------------------------------------------------
How To Redeem an Investment in the Fund 17
- --------------------------------------------------------------------------------
Exchange Privileges and Restrictions 19
- --------------------------------------------------------------------------------
How Net Asset Value is Determined 20
- --------------------------------------------------------------------------------
Dividends and Distributions 20
- --------------------------------------------------------------------------------
Taxation 20
- --------------------------------------------------------------------------------
General Information 21
- --------------------------------------------------------------------------------
Backup Withholding Instructions 22
- --------------------------------------------------------------------------------
2
<PAGE>
Fees And Expenses Of The Fund
Shareholder Transaction Expenses for the Fund
<TABLE>
An investor would pay the following charges when buying or redeeming shares of
the Fund:
<CAPTION>
Maximum Sales Load
Maximum Sales Load Imposed on Reinvested
Imposed on Purchases Dividends Deferred Sales Load Redemption Fees Exchange Fees
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
None None None None+ None
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Estimated Annual Operating Expenses (as a percentage of average net assets)
Montgomery Emerging Asia Fund
- --------------------------------------------------------------------------------
Management Fee* 1.25%
- --------------------------------------------------------------------------------
Other Expenses 0.65%
(after reimbursement)*
- --------------------------------------------------------------------------------
Total Fund Operating Expenses* 1.90%
- --------------------------------------------------------------------------------
The previous tables are intended to assist the investor in understanding the
various direct and indirect costs and expenses of the Fund. Operating expenses
are paid out of the Fund's assets and are factored into the Fund's share price.
The Fund estimates that it will have the expenses listed (expressed as a
percentage of average net assets) for the current fiscal year.
+ Shareholders effecting redemptions via wire transfer may be required to pay
fees, including the wire fee and other fees, that will be directly deducted
from redemption proceeds. The Fund reserves the right, upon 60 days' advance
notice to shareholders, to impose a redemption fee of up to 1.00% on shares
redeemed within 90 days of purchase. The Fund also reserves the right to
impose a $20 annual account maintenance fee on accounts that fall below the
minimum investment because of redemption. See "How to Redeem an Investment in
the Fund."
* Expenses for the Fund are estimated. The Manager will reduce its fees and may
absorb or reimburse the Fund for certain expenses to the extent necessary to
limit total annual fund operating expenses to the lesser of the amount
indicated in the table for the Fund or the maximum allowed by applicable
state expense limitations. The Fund is required to reimburse the Manager for
any reductions in the Manager's fee only during the two years following that
reduction and only if such reimbursement can be achieved within the foregoing
expense limits. The Manager generally seeks reimbursement for the oldest
reductions and waivers before payment by the Fund for fees and expenses for
the current year. Absent the reduction, actual total Fund operating expenses
are estimated to be 3.25% (2.00% other expenses). The Manager may terminate
these voluntary reductions at any time. See "Management of the Fund."
Example of Expenses for the Fund
Assuming, hypothetically, that the Fund's annual return is 5% and that its
operating expenses are as set forth above, an investor buying $1,000 of the
Fund's shares would have paid the following total expenses upon redeeming such
shares:
Montgomery Emerging Asia Fund
- --------------------------------------------------------------------------------
1 Year $19
- --------------------------------------------------------------------------------
3 Years $55
- --------------------------------------------------------------------------------
5 Years N/A
- --------------------------------------------------------------------------------
10 Years N/A
- --------------------------------------------------------------------------------
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.
3
<PAGE>
The Fund's Investment Objective And Policies
The investment objective and general investment policies of the Fund are
described below. Specific portfolio securities that may be purchased by the Fund
are described in "Portfolio Securities" beginning on page 4. Specific investment
practices that may be employed by the Fund are described in "Other Investment
Practices" beginning on page 6. Certain risks associated with investments in the
Fund are described in those sections as well as in "Risk Considerations"
beginning on page 9.
The Investment objective of the Fund is long term capital appreciation, which
under normal conditions it seeks by investing at least 65% of its total assets
in equity securities of companies that have their principal activities in
emerging Asian countries. The Fund currently considers the following to be
emerging Asian countries: Bangladesh, China and Hong Kong (the fund considers
China and Hong Kong to be one single emerging Asia country), India, Indonesia,
Korea, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka, Taiwan and
Thailand. The Fund does not expect to invest in Japanese securities, however. In
the future, the Fund may invest in other countries in Asia when their markets
become sufficiently developed. Under normal conditions, the Fund maintains
investments in at least three emerging Asian countries at all times and invests
no more than one-third of its total assets in any one emerging Asian country
(other than China and Hong Kong or Malaysia where the Fund may invest without
being subject to the one-third of total assets limit). As part of the remaining
35% of its total assets, the Fund may invest in more developed Asian countries,
such as Japan, that may serve defensive purposes in an Asian portfolio.
Alternatively, companies in more developed Asian markets may have significant
operations in emerging Asian countries.
The Fund considers a company to be an emerging Asian company if its securities
are principally traded in the capital market of an emerging Asian country; it
derives at least 50% of its total revenue from either goods produced or services
rendered in emerging Asian countries or from sales made in such emerging Asian
countries, regardless of where the securities of such company are primarily
traded; or it is organized under the laws of, and with a principal office in an
emerging Asian country.
Emerging Asian countries are in various stages of economic development with most
being considered emerging markets. Each country has its unique risks. Most
emerging Asian countries are heavily dependent on international trade. Some have
prosperous economies, but are sensitive to world commodity prices. Others are
especially vulnerable to recession in other countries. Some emerging Asian
countries have experienced rapid growth, although many suffer from obsolete
financial systems, economic problems, or archaic legal systems. The return of
Hong Kong to Chinese dominion will affect emerging Asian countries in the
Pacific region. For information on risks, see "Portfolio Securities," "Risk
Considerations" and the Statement of Additional Information.
The Fund invests primarily in common stock but also may invest in other types of
equity and equity derivative securities. It may invest up to 35% of its total
assets in debt securities, including up to 5% in high yield debt securities
rated below investment grade (also known as "junk bonds.") See "Portfolio
Securities" and "Risk Considerations." 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.
The Fund may invest in certain debt securities issued by the governments of
emerging Asian countries that are, or may be eligible for, conversion into
investments in emerging Asian companies under debt conversion programs sponsored
by such governments. If such securities are convertible to equity investments,
the Fund deems them to be equity derivative securities. See "Portfolio
Securities."
Josephine S. Jimenez, Bryan L. Sudweeks, Angeline Ee and Frank Chiang are
responsible for managing the Fund's portfolio. See "Management of the Fund."
Portfolio Securities
Equity Securities
In seeking its investment objective, the Fund emphasizes investments in common
stock. The Fund also may invest in other types of equity securities and equity
derivative securities such as preferred stocks, convertible securities,
warrants, units, rights, and options on securities and on securities indices.
Depositary Receipts
The Fund may invest in both sponsored and unsponsored American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs") 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. GDRs are issued in foreign countries, typically by foreign banks and
trust companies, and evidence ownership of either foreign or domestic
securities. Unsponsored ADR, EDR
4
<PAGE>
and GDR 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, EDRs and GDRs, and the prices of
unsponsored ADRs, EDRs and GDRs may be more volatile.
Convertible Securities
The Fund may invest in convertible securities. A convertible security is a
fixed-income security (a bond or preferred stock) that may be converted at a
stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Convertible securities are
senior to common stock in a corporation's capital structure but are usually
subordinated to similar non-convertible securities. Through their conversion
feature, they provide an opportunity to participate in capital appreciation
resulting from a market price advance in the underlying common stock. The price
of a convertible security is influenced by the market value of the underlying
common stock and tends to increase as the common stock's market value rises and
decrease as the common stock's market value declines. For purposes of allocating
Fund investments, the Manager regards convertible securities as a form of equity
security.
Securities Warrants and Rights
The Fund may invest up to 5% of its net assets in warrants and rights, including
up to 2% of net assets for those not listed on a securities exchange. A warrant
typically is a long-term option that permits the holder to buy a specified
number of shares of the issuer's underlying common stock at a specified exercise
price by a particular expiration date. Stock index warrants entitle the holder
to receive, upon exercise, an amount in cash determined by reference to
fluctuations in the level of a specified stock index. A right (also called a
subscription right) is a privilege granted to existing shareholders of a
corporation to subscribe to shares of a new issue of common stock before it is
offered to the public, which entitles the holder to buy the new common stock
below the public offering price. A right, like a warrant, is transferable. Also,
a warrant or a right not exercised or disposed of by its expiration date expires
worthless.
Privatizations
The 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 Fund believes that carefully selected investments in joint ventures,
cooperatives, partnerships, private placements, unlisted securities and similar
vehicles (collectively, "special situations") could enhance its capital
appreciation potential. The Fund also may invest in certain types of vehicles or
derivative securities that represent indirect investments in foreign markets or
securities in which it is impractical for the Fund to invest directly.
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
The Fund may invest up to 10% of its total assets in shares of other investment
companies investing exclusively in securities in which it may otherwise invest.
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 Fund to invest in certain markets. Such investments may involve the
payment of substantial premiums above the net asset value of those investment
companies' portfolio securities and are subject to limitations under the
Investment Company Act. The 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 Fund does not intend to invest in other investment companies unless, in the
Manager's judgment, the potential benefits exceed associated costs. As a
shareholder in an investment company, the Fund bears its ratable share of that
investment company's expenses, including advisory and administration fees. In
accordance with applicable state regulatory provisions, the Manager has agreed
to waive its own management fee with respect to the portion of the Fund's assets
invested in other open-end (but not closed-end) investment companies.
5
<PAGE>
Debt Securities
The Fund may purchase debt securities that complement its objective of capital
appreciation through anticipated favorable changes in relative foreign exchange
rates, in relative interest rate levels, or in the creditworthiness of issuers.
In selecting debt securities, the Manager seeks out good credits and analyzes
interest rate trends and specific developments that may affect individual
issuers. As an operating policy which may be changed by the Board, the 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 Fund may invest in external (i.e., to foreign lenders) debt
obligations issued by the governments, governmental entities and companies of
emerging Asia 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 Fund's assets to be invested in equity securities versus debt securities:
levels and anticipated trends in inflation and interest rates; expected rate 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 Fund may invest in fixed rate and floating or variable rate U.S. Government
securities. Certain of the obligations, including U.S. Treasury Bills, Notes and
Bonds, and mortgage-related securities of the Government National Mortgage
Association ("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 Fund's 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.
Other Investment Practices
The Fund also may engage in the investment practices described below, each of
which may involve certain special risks. The Statement of Additional
Information, under the heading "Investment Objective and Policies of the Fund,"
contains more detailed information about certain of these practices, including
limitations designed to reduce risks.
Repurchase Agreements
The Fund may enter into repurchase agreements. Pursuant to a repurchase
agreement, the Fund acquires a U.S. Government security or other high-grade
liquid debt instrument from a financial institution that simultaneously agrees
to repurchase the same security at a specified time and price. The repurchase
price reflects an agreed-upon rate of return not determined by the coupon rate
on the underlying security. Under the Investment Company Act, repurchase
agreements are considered to be loans by the Fund and must be fully
collateralized by cash, letters of credit, U.S. Government securities or other
high-grade liquid debt or equity securities that the Fund's custodian, or a
designated sub-custodian either places in a segregated account or separately
identifies and renders unavailable for investment ("Segregable Assets"). If the
seller defaults on its obligation to repurchase the underlying security, the
Fund may experience delay or difficulty in exercising its rights to realize upon
the security, may incur a loss if the value of the security declines and may
incur disposition costs in liquidating the security.
6
<PAGE>
Borrowing
The Fund may borrow money from banks and engage in reverse repurchase
transactions, in an amount not to exceed one-third of the value of its total
assets to meet temporary or emergency purposes, and the Fund may pledge its
assets in connection with such borrowings. The Fund may not purchase securities
if such borrowings exceed 10% of its total assets.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements. In a reverse repurchase
agreement, the Fund sells to a financial institution a security that it holds
and agrees to repurchase the same security at an agreed-upon price and date.
Leverage
The Fund may leverage its portfolio to increase total return. Although leverage
creates an opportunity for increased income and gain, it also creates special
risk considerations. For example, leveraging may magnify changes in the net
asset values of the Fund's shares and in the yield on its portfolio. Although
the principal of such borrowings will be fixed, the Fund's assets may change in
value while the borrowing is outstanding. Leveraging creates interest expenses
that can exceed the income from the assets retained.
Securities Lending
The Fund may lend securities to brokers, dealers and other financial
organizations. These loans may not exceed 30% of the Fund's total assets. Each
securities loan is collateralized with Segregable Assets in an amount at least
equal to the current market value of the loaned securities, plus accrued
interest. There is a risk of delay in receiving collateral or in recovering the
securities loaned or even a loss of rights in the collateral should the borrower
of the securities fail financially.
When-Issued and Forward Commitment Securities
The Fund 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 and payment for the securities take place at a later date, normally 7
to 15 days or, in the case of certain CMO issues, 45 to 60 days later.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the 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 the Fund. If the 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 the 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 Fund, the Fund may employ certain
risk management practices using the following derivative securities and
techniques (known as "derivatives"): forward currency exchange contracts, stock
options, currency options, and stock and stock index options, futures contracts
and options on futures contracts on foreign government securities and
currencies. The Board of the Trust has adopted derivative guidelines that
require the Board to review each new type of derivative that may be used by the
Fund. 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, the Fund engages in hedging activities only when the Manager deems
it to be appropriate and does not necessarily engage in hedging transactions
with respect to each investment.
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. The 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
7
<PAGE>
market at the time of the transaction, or through entering into forward
contracts to purchase or sell foreign currencies at a future date. The Fund
generally does not enter into forward contracts with terms greater than one
year.
The Fund generally enters into forward contracts only under two circumstances.
First, if the 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 the Fund's
portfolio securities denominated in such currency. The 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 the 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 Fund may purchase put and call options on securities and currencies traded
on U.S. exchanges and, to the extent permitted by law, foreign exchanges, as
well as in the over-the-counter market. The Fund may purchase call options on
securities which it intends to purchase (or on currencies in which those
securities are denominated) in order to limit the risk of a substantial increase
in the market price of such security (or an adverse movement in the applicable
currency). The Fund may purchase put options on particular securities (or on
currencies in which those securities are denominated) in order to protect
against a decline in the market value of the underlying security below the
exercise price less the premium paid for the option (or an adverse movement in
the applicable currency relative to the U.S. dollar). Put options allow the Fund
to protect unrealized gain in an appreciated security that it owns without
selling that security. Prior to expiration, most options are expected to be sold
in a closing sale transaction. Profit or loss from the sale depends upon whether
the amount received is more or less than the premium paid plus transaction
costs.
The Fund also may purchase put and call options on stock indices in order to
hedge against risks of stock market or industry-wide stock price fluctuations.
The Fund may purchase options on currencies in order to hedge its positions in a
manner similar to its use of forward foreign exchange contracts and futures
contracts on currencies.
Futures and Options on Futures
To protect against the effect of adverse changes in interest rates, the Fund may
purchase and sell interest rate futures contracts. An interest rate futures
contract is an agreement to purchase or sell debt securities, usually U.S.
Government securities, at a specified date and price. In addition, the Fund may
purchase and sell put and call options on interest rate futures contracts in
lieu of entering into the underlying interest rate futures contracts. The Fund
segregates Segregable Assets equal to the purchase price of the portfolio
securities represented by the underlying interest rate futures contracts it has
an obligation to purchase.
The Fund does not enter into any futures contracts or related options if the sum
of initial margin deposits on futures contracts, related options (including
options on securities, securities indices and currencies) and premiums paid for
any such related options would exceed 5% of its total assets. The Fund does not
purchase futures contracts or related options if, as a result, more than
one-third of its total assets would be so invested.
Hedging Considerations
Hedging transactions involve certain risks. While the Fund may benefit from the
use of hedging transactions, unanticipated changes in interest rates or
securities prices may result in poorer overall performance for the Fund than if
it had not entered into a hedging position. If the correlation between a hedging
position and a portfolio position is not properly protected, the desired
protection may not be obtained and the Fund may be exposed to risk of financial
loss. In addition, the Fund pays commissions and other costs in connection with
such investments.
Illiquid Securities
The Fund may not invest more than 15% of its net assets in illiquid securities.
The Fund treats any securities subject to restrictions on repatriation for more
than seven days and securities issued in connection with foreign debt conversion
programs that are restricted as to remittance of invested capital or profit as
illiquid. The Fund also treats repurchase agreements with maturities in excess
of seven days as illiquid. Illiquid securities do not include securities that
meet the requirements of Rule 144A under the Securities Act of 1933 and that,
subject to the review by the Board and guidelines adopted by the Board, the
Manager has determined to be liquid. State securities laws may impose further
limitations on the amount of illiquid or restricted securities the Fund may
purchase.
8
<PAGE>
Defensive Investments and Portfolio Turnover
Notwithstanding its investment objective, the Fund may adopt up to a 100% cash
or cash equivalent position for temporary defensive purposes to protect against
erosion of its capital base. Depending upon the Manager's analysis of the
various markets and other considerations, all or part of the assets of the Fund
may be held in cash and cash equivalents (denominated in U.S. dollars or foreign
currencies), such as U.S. Government securities or obligations issued or
guaranteed by the government of a foreign country or by an international
organization designed or supported by multiple foreign governmental entities to
promote economic reconstruction or development, high-quality commercial paper,
time deposits, savings accounts, certificates of deposit, bankers' acceptances
and repurchase agreements with respect to all of the foregoing. Such investments
also may be made for temporary purposes pending investment in other securities
and following substantial new investment in the Fund.
Portfolio securities are sold whenever the Manager believes it appropriate,
regardless of how long the securities have been held. The Manager therefore
changes the Fund's investments whenever it believes doing so will further the
Fund's investment objective or when it appears that a position of the desired
size cannot be accumulated. Portfolio turnover generally involves some expense
to the Fund, including brokerage commissions, dealer mark-ups and other
transaction costs, and may result in the recognition of capital gains that may
be distributed to shareholders. Portfolio turnover in excess of 100% is
considered high and increases such costs. The annual portfolio turnover for the
Fund is expected to be approximately 125%. Even if the portfolio turnover for
the Fund is in excess of 125%, the Fund would not consider portfolio turnover as
a limiting factor.
Investment Restrictions
The investment objective of the Fund is fundamental and may not be changed
without shareholder approval, but unless otherwise stated, the Fund's other
investment policies may be changed by the Board. If there is a change in the
investment objective or policies of the Fund, shareholders should consider
whether the Fund remains an appropriate investment in light of their
then-current financial positions and needs. The Fund is subject to additional
investment policies and restrictions described in the Statement of Additional
Information, some of which are fundamental.
The Fund has reserved the right, if approved by the Board, to convert in the
future to a "feeder" fund that would invest all of its assets in a "master" fund
having substantially the same investment objective, policies and restrictions.
At least 30 days' prior written notice of any such action would be given to all
shareholders if and when such a proposal is approved, although no such action
has been proposed as of the date of this Prospectus.
Risk Considerations
Concentration in Securities of Emerging Asian Companies
The Fund concentrates its investments in companies that have their principal
activities in emerging Asian countries. Consequently, the Fund's share value may
be more volatile than that of investment companies not sharing this geographic
concentration. The value of the Fund's shares may vary in response to political
and economic factors affecting issuers in emerging Asian countries. Although the
Fund normally does not expect to invest in Japanese companies, some emerging
Asian economies are directly affected by Japanese capital investment in the
region and by Japanese consumer demands. Many of the emerging Asian countries
are developing both economically and politically. Emerging Asia countries may
have relatively unstable governments, economies based on only a few commodities
or industries, and securities markets trading infrequently or in low volumes.
Some emerging Asian countries restrict the extent to which foreigners may invest
in their securities markets. Securities of issuers located in some emerging Asia
countries tend to have volatile prices and may offer significant potential for
loss as well as gain. Further, certain companies in emerging Asia may not have
firmly established product markets, may lack depth of management, or may be more
vulnerable to political or economic developments such as nationalization of
their own industries. Moreover, as long as the Fund invests in at least three
emerging Asia countries, it may invest more than 90% of its assets in China and
Hong Kong. Alternatively, it may invest more than 90% of its assets in Malaysia.
Such a heavy concentration of investment in a few countries may make the Fund's
share value extremely volatile and, in the event of any economic downturn or
other events adversely affecting those countries, such events' impact on the
Fund will be more magnified than if the Fund did not have such a narrow
concentration.
Small Companies
The Fund may invest in smaller companies that may benefit from the development
of new products and services. These smaller companies may present greater
opportunities for capital appreciation but may involve greater risk than larger,
more mature issuers. Such smaller companies may have limited product lines,
markets or financial resources, and their securities may trade less frequently
and in more limited volume than those of larger, more mature companies. As a
result, the prices of their securities may fluctuate more than the prices of the
securities of larger issuers.
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<PAGE>
Foreign Securities
In addition to the special risks of investing in emerging Asian countries
discussed above, there are general risk associated with investments in foreign
securities.
Foreign investments involve the possibility of expropriation, nationalization or
confiscatory taxation, taxation of income earned in foreign nations (including,
for example, withholding taxes on interest and dividends) or other taxes imposed
with respect to investments in foreign nations, foreign exchange controls (which
may include suspension of the ability to transfer currency from a given country
and repatriation of investments), default in foreign government securities, and
political or social instability or diplomatic developments that could adversely
affect investments. In addition, there is often less publicly available
information about foreign issuers than those in the U.S. Foreign companies are
often not subject to uniform accounting, auditing and financial reporting
standards. Further, the Fund may encounter difficulties in pursuing legal
remedies or in obtaining judgments in foreign courts. Additional risk factors,
including use of domestic and foreign custodian banks and depositories, are
described elsewhere in the Prospectus and in the Statement of Additional
Information.
Brokerage commissions, fees for custodial services and other costs relating to
investments by the Fund in other countries are generally greater than in the
U.S. Foreign markets, have different clearance and settlement procedures from
those in the U.S., and certain markets have experienced times when settlements
did not keep pace with the volume of securities transactions and resulted in
settlement difficulty. The inability of the Fund to make intended security
purchases due to settlement difficulties could cause it to miss attractive
investment opportunities. Inability to sell a portfolio security due to
settlement problems could result in loss to the Fund if the value of the
portfolio security declined or 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 Fund may invest may also be
smaller, less liquid, and subject to greater price volatility than those in the
U.S.
Because the securities owned by the Fund may be denominated in foreign
currencies, the value of such securities will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of a
foreign currency against the U.S. dollar results in a corresponding change in
the U.S. dollar value of the Fund's securities denominated in the currency. Such
changes also affect the Fund's income and distributions to shareholders. The
Fund may be affected either favorably or unfavorably by changes in the relative
rates of exchange between the currencies of different nations, and the Fund may
therefore engage in foreign currency hedging strategies. Such strategies,
however, involve certain transaction costs and investment risks, including
dependence upon the Manager's ability to predict movements in exchange rates.
Some countries in which the Fund may invest may also have fixed or managed
currencies that are not freely convertible at market rates into the U.S. dollar.
Certain currencies may not be internationally traded. A number of these
currencies have experienced steady devaluation relative to the U.S. dollar, and
such devaluations in the currencies may have a detrimental impact on the Fund.
Many countries in which the Fund may invest have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuation in inflation rates may have negative effects on certain
economies and securities markets. Moreover, the economies of some countries may
differ favorably or unfavorably from the U.S. economy in such respects as the
rate of growth of gross domestic product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments.
Certain countries also limit the amount of foreign capital that can be invested
in their markets and local companies, creating a "foreign premium" on capital
investments available to foreign investors such as the Fund. The Fund may pay a
"foreign premium" to establish an investment position which it cannot later
recoup because of changes in that country's foreign investment laws.
Lower Quality Debt
The 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 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
10
<PAGE>
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 sensitive to prevailing interest rates is
inversely related to actual changes in interest rates. That is, a decline in
interest rates produces an increase in the market value of these securities
while an increase in interest rates produces a decrease. Moreover, the longer
the remaining maturity of a security, the greater the effect of interest rate
change. Changes in the ability of an issuer to make payments of interest and
principal and in the market's perception of its creditworthiness also affect the
market value of that issuer's debt securities.
Management Of The Fund
The Montgomery Funds has a Board of Trustees that establishes the Fund's
policies and supervises and reviews its management. Day-to-day operations of the
Fund are administered by the officers of the Trust and by the Manager pursuant
to the terms of an investment management agreement with the Fund.
Montgomery Asset Management, L.P., is the Fund's Manager. The Manager, a
California limited partnership, was formed in 1990 as an investment adviser
registered as such with the SEC under the Investment Advisers Act of 1940, as
amended, and since then has advised private accounts as well as the Fund. Its
general partner is Montgomery Asset Management, Inc., and its sole limited
partner is Montgomery Securities, the Fund's Distributor. Under the Investment
Company Act, both Montgomery Asset Management, Inc. and Montgomery Securities
may be deemed control persons of the Manager. Although the operations and
management of the Manager are independent from those of Montgomery Securities,
the Manager may draw upon the research and administrative resources of
Montgomery Securities in its discretion and consistent with applicable
regulations.
Founded in 1969, Montgomery Securities is a fully integrated and highly focused
investment banking partnership specializing in emerging growth companies. The
firm's areas of expertise include research, corporate finance, sales and
trading, and venture capital. Its research department is one of the largest,
most experienced groups headquartered outside the East Coast. Through its
corporate finance department, Montgomery Securities is a well recognized
underwriter of public offerings and provides broad distribution of securities
through its sales and trading organization.
Portfolio Managers
The Fund is managed by Josephine S. Jimenez, Bryan L. Sudweeks, Angeline Ee and
Frank Chiang.
Josephine S. Jimenez, CFA, is a Managing Director and Senior Portfolio Manager.
From 1988 through 1991, Ms. Jimenez worked at Emerging Markets Investors
Corporation/Emerging Markets Management in Washington, D.C. as senior analyst
and portfolio manager.
Bryan L. Sudweeks, Ph.D., CFA, is a Managing Director and Senior Portfolio
Manager. Before joining the Manager, he was a senior analyst and portfolio
manager at Emerging Markets Investors Corporation/Emerging Markets Management in
Washington, D.C. Previously, he was a Professor of International Finance and
Investments at George Washington University and served as Adjunct Professor of
International Investments from 1988 until May 1991.
Angeline Ee is a Portfolio Manager. From 1990 until joining the Manager in July
1994, Ms. Ee was an Investment Manager with AIG Investment Corp. in Hong Kong.
From June 1989 until September 1990, Ms. Ee was a co-manager of a portfolio of
Asian equities and bonds at Chase Manhattan Bank in Singapore.
Frank Chiang is a Portfolio Manager. From 1993 until joining the Manager in
1996, Mr. Chiang was Managing Director and Portfolio Manager at TCW Asia Ltd. in
Hong Kong.
11
<PAGE>
Management Fees and Other Expenses
The Manager provides the Fund with advice on buying and selling securities,
manages the Fund's investments, including the placement of orders for portfolio
transactions, furnishes the Fund with office space and certain administrative
services, and provides personnel needed by the Fund with respect to the
Manager's responsibilities under the Manager's Investment Management Agreement
with the Fund. The Manager also compensates the members of the Board who are
interested persons of the Manager, and assumes the cost of printing prospectuses
and shareholder reports for dissemination to prospective investors. As
compensation, the Fund pays the Manager a monthly management fee (accrued daily
but paid when requested by the Manager) based upon the value of its average
daily net assets, according to the following table. The management fee for the
Fund is higher than for most mutual funds.
Average Daily Net Assets Annual Rate
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Montgomery Emerging Asia Fund First $500 million 1.25%
Next $500 million 1.10%
Over $1 billion 1.00%
- --------------------------------------------------------------------------------
The Manager also serves as the Fund's Administrator (the "Administrator"). The
Administrator performs services with regard to various aspects of the Fund's
administrative operations. As compensation, the Fund pays the Administrator a
monthly fee at the annual rate of seven one-hundredths of one percent (0.07%) of
average daily net assets (0.06% of daily net assets over $500 million).
The Fund is responsible for its own operating expenses including, but not
limited to: the Manager's fees; taxes, if any; brokerage and commission
expenses, if any; interest charges on any borrowings; transfer agent,
administrator, custodian, legal and auditing fees; shareholder servicing fees
including fees to third party servicing agents; fees and expenses of Trustees
who are not interested persons of the Manager; salaries of certain personnel;
costs and expenses of calculating its daily net asset value; costs and expenses
of accounting, bookkeeping and recordkeeping required under the Investment
Company Act; insurance premiums; trade association dues; fees and expenses of
registering and maintaining registration of its shares for sale under federal
and applicable state securities laws; all costs associated with shareholders
meetings and the preparation and dissemination of proxy materials, except for
meetings called solely for the benefit of the Manager or its affiliates;
printing and mailing prospectuses, statements of additional information and
reports to shareholders; and other expenses relating to the Fund's operations,
plus any extraordinary and nonrecurring expenses that are not expressly assumed
by the Manager.
The Manager has agreed to reduce its management fee if necessary to keep total
annual operating expenses at or below the lesser of the maximum allowable by
applicable state expense limitations or one and nine-tenths of one percent
(1.90%) of the Fund's average net assets. The Manager also may voluntarily
reduce additional amounts to increase the return to the Fund's investors. The
Manager may terminate these voluntary reductions at any time. Any reductions
made by the Manager in its fees are subject to reimbursement by the Fund within
the following two years, provided that the Fund is able to effect such
reimbursement and remain in compliance with applicable expense limitations. The
Manager generally seeks reimbursement for the oldest reductions and waivers
before payment by the Fund for fees and expenses for the current year.
In addition, the Manager may elect to absorb operating expenses that the Fund is
obligated to pay in order to increase the return to the Fund's investors. To the
extent the Manager performs a service or assumes an operating expense for which
the Fund is obligated to pay and the performance of such service or payment of
such expense is not an obligation of the Manager under the Investment Management
Agreement, the Manager is entitled to seek reimbursement from the Fund for the
Manager's costs incurred in rendering such service or assuming such expense. The
Manager, out of its own funds, also may compensate broker-dealers who distribute
the 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 Fund for financial
intermediaries and shareholders.
The Manager considers a number of factors in determining which brokers or
dealers to use for the Fund's portfolio transactions. While these factors are
more fully discussed in the Statement of Additional Information, they include,
but are not limited to, reasonableness of commissions, quality of services and
execution and availability of research that the Manager may lawfully and
appropriately use in its investment management and advisory capacities. Provided
the Fund receives prompt execution at competitive prices, the Manager also may
consider sale of the Fund's shares as a factor in selecting broker-dealers for
the Fund's portfolio transactions. It is anticipated that Montgomery Securities
may act as one of the Fund's brokers in the purchase and sale of portfolio
securities and, in that capacity, will receive brokerage commissions from the
Fund. The Fund will use Montgomery Securities as its broker only when, in the
judgment of the Manager and pursuant to review by the Board, Montgomery
Securities will obtain a price and execution at least as favorable as that
available from other qualified brokers. See "Execution of Portfolio
Transactions" in the Statement of Additional Information for further information
regarding Fund policies concerning execution of portfolio transactions.
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<PAGE>
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, serves as the master transfer agent for the Fund (the "Master Transfer
Agent") and performs certain recordkeeping and accounting functions. The Master
Transfer Agent delegates certain transfer agent functions to DST Systems, Inc.,
P.O. Box 419073, Kansas City, Missouri 64141-6073, the Fund's transfer agent
(the "Transfer Agent"). Morgan Stanley Trust Company, located at One Pierrepont
Plaza, Brooklyn, New York 11201, serves as the Fund's principal custodian (the
"Custodian").
How To Invest In The Fund
The Fund's shares are offered directly to the public, with no sales load, at
their next-determined net asset value after receipt of an order with payment.
The Fund's shares are offered for sale by Montgomery Securities, the Fund's
Distributor, 600 Montgomery Street, San Francisco, California 94111, (800)
572-3863, and through selected securities brokers and dealers.
If an order, together with payment in proper form, is received by the Transfer
Agent, 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 the Fund is $1,000 (including IRAs) and $100
for subsequent investments. 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.
Initial Investments
Minimum Initial Investment (including IRAs): $1,000
Mail your completed application and any checks to:
The Montgomery Funds
c/o DST Systems, Inc.
P.O. Box 419073
Kansas City, MO 64141-6073
- --------------------------------------------------------------------------------
Initial Investments by Check
- --------------------------------------------------------------------------------
o Complete the Account Application. Tell us which Fund(s) 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 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.
- --------------------------------------------------------------------------------
Initial Investments by Wire
- --------------------------------------------------------------------------------
13
<PAGE>
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 the
Fund in which you want to invest. They will provide you with
further instructions to complete your purchase. Complete
information regarding your account must be included in all
wire instructions to ensure accurate handling of your
investment.
o Request your bank to transmit immediately available funds by
wire for purchase of shares in your name to the following:
Investors Fiduciary Trust Company
ABA #101003621
For: DST Systems, Inc.
Account #7526601
Attention: The Montgomery Funds
For Credit to: (shareholder(s) name)
Shareholder Account Number: (shareholder(s) account number)
Name of Fund: Montgomery Emerging Asia Fund
o Your bank may charge a fee for any wire transfers.
o The Fund and the Distributor each reserve the right to reject
any purchase order in whole or in part.
- --------------------------------------------------------------------------------
Subsequent Investments
Minimum Subsequent Investment: $100
Mail any checks and investment instructions to:
The Montgomery Funds
c/o DST Systems, Inc.
P.O. Box 419073
Kansas City, MO 64141-6073
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Subsequent Investments by Check
- --------------------------------------------------------------------------------
o Make your check payable to The Montgomery Emerging
Asia Fund.
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
- --------------------------------------------------------------------------------
14
<PAGE>
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."
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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 Shares of IRAs are not eligible for telephone purchases.
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.
Write your confirmed purchase number on your check or include
it in your wire instructions.
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.
- --------------------------------------------------------------------------------
15
<PAGE>
Complete information regarding your account must be included in all wire
instructions in order to facilitate the prompt and accurate handling of
investments. Investors may obtain further information from their own banks about
wire transfers and any fees that may be imposed. The Fund and the Distributor
each reserve the right to reject any purchase order in whole or in part.
Automatic Account Builder ("AAB")
o AAB will be established on existing accounts only. You may not
use an AAB investment to open a new account.
o The minimum automatic investment amount is the Fund's
subsequent investment minimum.
o Your bank must be a member of the Automated Clearing House.
o To establish AAB, attach a voided check (checking account) or
preprinted deposit slip (savings account) from your bank
account to your Montgomery account application or your letter
of instruction. Investments will automatically be transferred
into your Montgomery account from your checking or savings
account.
o Investments may be transferred either monthly or quarterly on
or up to two business days before the 5th or 20th day of the
month. If no day is specified on your account application or
your letter of instruction, the 20th of each month will be
selected.
o You should allow 20 business days for this service to become
effective.
o You may cancel your AAB at any time by sending a letter to the
Transfer Agent. Your request will be processed upon receipt.
Payroll Deduction
o Investment through payroll deduction will be established on
existing accounts only. You may not use payroll deduction to
open a new account. The minimum payroll deduction amount is
the Fund's subsequent investment minimum.
o You may automatically deposit a designated amount of your
paycheck directly into a Montgomery Fund account.
o Please call the Transfer Agent to receive instructions to
establish this service.
Telephone Transactions
You agree to reimburse the Fund for any expenses or losses that it may incur in
connection with transfers from your accounts, including any caused by your
bank's failure to act in accordance with your request or its failure to honor
your debit. If your bank makes erroneous payments or fails to make payment after
shares are purchased on your behalf, any such purchase may be canceled and this
privilege terminated immediately. This privilege may be discontinued at any time
by the Fund upon 30-days' written notice or any time by you by written notice to
the Fund. Your request will be processed upon receipt.
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 the Fund. The Fund and the Transfer Agent will not be liable for
following instructions communicated by telephone reasonably believed to be
genuine. The Fund employs reasonable procedures to confirm that instructions
communicated by telephone are genuine. These procedures include recording the
telephone call, sending a confirmation and requiring the caller to give a
special authorization number or other personal information not likely to be
known by others. The Fund and Transfer Agent may be liable for any losses due to
unauthorized or fraudulent telephone transactions only if such reasonable
procedures are not followed.
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<PAGE>
Retirement Plans
Shares of the Fund are available for purchase by any retirement plan, including
Keogh plans, 401(k) plans, 403(b) plans and IRAs. Neither the Fund nor the
Manager administers or acts as custodian for retirement account plans. The Fund
may be available for purchase through administrators for retirement plans.
Investors who purchase shares as a part of a retirement plan should address
inquiries and seek investment servicing from their plan administrators. Plan
administrators may receive compensation from the Fund for performing shareholder
services.
Share Certificates
Share certificates will not be issued by the Fund. All shares are held in
non-certificated form registered on the books of the Fund and the Transfer Agent
for the account of the shareholder.
How To Redeem An Investment In The Fund
The Fund will redeem all or any portion of an investor's outstanding shares upon
request. Redemptions can be made on any day that the NYSE is open for trading.
The redemption price is the net asset value per share next determined after the
shares are validly tendered for redemption and such request is received by the
Transfer Agent or, in the case of repurchase orders, Montgomery Securities or
other securities dealers. Payment of redemption proceeds is made promptly
regardless of when redemption occurs and normally within three days after
receipt of all documents in proper form, including a written redemption order
with appropriate signature guarantee. Redemption proceeds will be mailed or
wired in accordance with the shareholder's instructions. The Fund may suspend
the right of redemption under certain extraordinary circumstances in accordance
with the rules of the SEC. In the case of shares purchased by check and redeemed
shortly after the purchase, the Transfer Agent will not mail redemption proceeds
until it has been notified that the monies used for the purchase have been
collected, which may take up to 15 days from the purchase date. Shares tendered
for redemptions through brokers or dealers (other than the Distributor) may be
subject to a service charge by such brokers or dealers. Procedures for
requesting a redemption are set forth below. Shareholders should note that the
Fund reserves the right upon 60 days' advance notice to shareholders to impose a
redemption fee of up to 1.00% on shares redeemed within 90 days of purchase.
- --------------------------------------------------------------------------------
Redeeming by Written Instruction
- --------------------------------------------------------------------------------
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
17
<PAGE>
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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.
o Telephone redemption privileges will be suspended 30 days
after an address change. All redemption requests during this
period must be in writing with a guaranteed signature.
o This service is not available for IRA accounts.
o Telephone redemption privileges may be cancelled after an
account is opened by instructing the Transfer Agent in
writing. Your request will be processed upon receipt.
- --------------------------------------------------------------------------------
By establishing telephone redemption privileges, a shareholder authorizes the
Fund and the Transfer Agent to act upon the instruction of the shareholder or
his or her designee by telephone to redeem from the account for which such
service has been authorized and transfer the proceeds to a bank or other account
designated in the Authorization. When a shareholder appoints a designee on the
Account Application or by written authorization, the shareholder agrees to be
bound by the telephone redemption instructions given by the shareholder's
designee. The Fund may change, modify or terminate these privileges at any time
upon 60-days' notice to shareholders. The Fund will not be responsible for any
loss, damage, cost or expense arising out of any transaction that appears on the
shareholder's confirmation after 30 days following mailing of such confirmation.
See discussion of Fund telephone procedures and liability under "Telephone
Transactions."
Shareholders may experience delays in exercising telephone redemption privileges
during periods of abnormal market activity. During periods of volatile economic
or market conditions, shareholders may wish to consider transmitting redemption
orders by telegram (not available for IRAs) or overnight courier.
Systematic Withdrawal Plan
Under a Systematic Withdrawal Plan, a shareholder with an account value of
$1,000 or more in the Fund may receive (or have sent to a third party) periodic
payments (by check or wire). The minimum payment amount is $100 from the Fund
account. Payments may be made either monthly or quarterly on the 1st of each
month. Depending on the form of payment requested, shares of the Fund will be
redeemed up to five business days before redemption proceeds are scheduled to be
received by the shareholder. The redemption may result in recognition of gain or
loss for income tax purposes.
Small Accounts/Annual Account Maintenance Fee
Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to redeem shares or to impose a $20 annual account
maintenance fee for any account if at any time, because of redemptions by the
shareholder, the total value of a shareholder's account is less than $1,000. If
the Fund decides to make an involuntary redemption, the shareholder will first
be notified that the value of the shareholder's account is less than the minimum
level and will be allowed 30 days to make an additional investment to bring the
value of that account at least to $1,000 before the Fund takes any action.
18
<PAGE>
Exchange Privileges And Restrictions
Exchange Privileges
Shares of the Fund may be exchanged for shares of the other series of the Trust
and The Montgomery Funds II (together with the Fund, the "Montgomery Funds"),
with restrictions noted below, on the basis of their relative net asset values
(with no sales charge or exchange fee) next determined after the time of the
exchange request and provided that you have the current prospectus for the fund
into which you are exchanging shares of the Fund. You are automatically eligible
to make telephone exchanges with your Montgomery account. See discussion of Fund
telephone procedures and limitations of liability under "Telephone
Transactions." Shareholders should note that an exchange may result in
recognition of a gain or loss for income tax purposes.
Exchange Restrictions
A shareholder's privilege of exchanging shares of the Fund has the following
restrictions:
o Shareholders may exchange for shares of a Montgomery fund only in states
where that fund's shares are qualified for sale.
o A shareholder may not exchange for shares of a Montgomery fund that is not
open to new shareholders unless the shareholder has an existing account with
that Montgomery fund.
o Shares of the Fund may not be exchanged for shares of another Montgomery fund
unless the amount to be received in the exchange satisfies that fund's
minimum investment requirement.
o Because excessive exchanges can harm the Fund's performance, the Trust
reserves the right to terminate, either temporarily or permanently, exchange
privileges of any shareholder who makes more than four exchanges out of the
Fund during a twelve-month period and to refuse an exchange into a Montgomery
fund from which the shareholder has redeemed shares within the previous 90
days (accounts under common ownership or control and accounts with the same
taxpayer identification number will be counted together). This 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 refuse exchanges
by any person or group if, in the Manager's judgment, the Fund would be
unable effectively to invest the money in accordance with its investment
objective and policies, or would otherwise be potentially adversely affected.
A shareholder's exchanges may be restricted or refused if the Fund receives,
or the Manager anticipates, simultaneous orders affecting significant
portions of the Fund's assets and, in particular, a pattern of exchanges
coinciding with a "market timing" strategy. 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 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 the Fund from other selected securities
brokers, dealers or through financial intermediaries such as benefit plan
administrators. Investors should contact these agents directly for appropriate
instructions, as well as information pertaining to accounts and any service or
transaction fees that may be charged by these agents. Purchase orders through
securities brokers, dealers and other financial intermediaries are effected at
the next-determined net asset value after receipt of the order by such agent,
provided the agent transmits such order on a timely basis to the Transfer Agent
so that it is received by 4:00 p.m., New York time, on days that the Fund issues
shares. Orders received after that time will be purchased at the next-determined
net asset value. To the extent these agents perform shareholder servicing
activities for the Fund, they may receive fees from the Fund for such services.
Repurchase Orders Through Brokerage Accounts
Shareholders also may sell shares back to the Fund by wire or telephone through
Montgomery Securities or selected securities brokers or dealers. Shareholders
should contact their securities broker or dealer for appropriate instructions
and for information concerning any transaction or service fee that may be
imposed by the broker or dealer. Shareholders are entitled to the net asset
value next determined after receipt of a repurchase order by such broker-dealer,
provided the broker-dealer transmits such
19
<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 the Fund is determined once daily as of 4:00 p.m., New
York time, on each day that the NYSE is open for trading. Per-share net asset
value is calculated by dividing the value of the Fund's total net assets by the
total number of the Fund's shares then outstanding.
As more fully described in the Statement of Additional Information, portfolio
securities are valued using current market valuations: either the last reported
sales price or, in the case of securities for which there is no reported last
sale and fixed income securities, the mean between the closing bid and asked
price. Securities for which market quotations are not readily available or which
are illiquid are valued at their fair values as determined in good faith under
the supervision of the Trust's officers, and by the manager and the Pricing
Committee of the Board respectively, in accordance with methods that are
specifically authorized by the Board. Short-term obligations with maturities of
60 days or less are valued at amortized cost as reflecting fair value.
The value of securities denominated in foreign currencies and traded on foreign
exchanges or in foreign markets will be translated into U.S. dollars at the last
price of their respective currency denomination against U.S. dollars quoted by a
major bank or, if no such quotation is available, at the rate of exchange
determined in accordance with policies established in good faith by the Board of
Trustees. Because the value of securities denominated in foreign currencies must
be translated into U.S. dollars, fluctuations in the value of such currencies in
relation to the U.S. dollar may affect the net asset value of Fund shares even
if there has not been any change in the foreign-currency denominated values of
such securities.
Because foreign securities markets may close prior to the time the Fund
determines its net asset values, events affecting the value of portfolio
securities occurring between the time prices are determined and the time the
Fund calculates its net asset values may not be reflected in the Fund's
calculation of net asset values unless the Manager, under supervision of the
Board, determines that a particular event would materially affect the Fund's net
asset values.
Dividends And Distributions
The Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. The Fund currently intends to make one
or, if necessary to avoid the imposition of tax on the Fund, more distributions
during each calendar year. A distribution may be made between November 1 and
December 31 of each year with respect to any undistributed capital gains earned
during the one-year period ended October 31 of such calendar year. Another
distribution of any undistributed capital gains may also be made following the
Fund's fiscal year end (June 30). The amount and frequency of Fund distributions
are not guaranteed and are at the discretion of the Board.
Unless investors request cash distributions in writing at least seven business
days prior to the distribution, or on the Account Application, all dividends and
other distributions will be reinvested automatically in additional shares of the
Fund and credited to the shareholder's account at the closing net asset value on
the reinvestment date.
Taxation
The Fund intends to qualify and elect as soon as possible to be treated as a
regulated investment company under Subchapter M of the Code, by distributing
substantially all of its net investment income and net capital gains to its
shareholders and meeting other requirements of the Code relating to the sources
of its income and diversification of assets. Accordingly, the Fund generally
will not be liable for federal income tax or excise tax based on net income
except to the extent its earnings are not distributed or are distributed in a
manner that does not satisfy the requirements of the Code pertaining to the
timing of distributions. If the Fund is unable to meet certain requirements of
the Code, it may be subject to taxation as a corporation. The Fund may also
incur tax liability to the extent it invests in "passive foreign investment
companies." See the Statement of Additional Information.
For federal income tax purposes, any dividends derived from net investment
income and any excess of net short-term capital gain over net long-term capital
loss that investors (other than certain tax-exempt organizations that have not
borrowed to purchase Fund shares) receive from the Fund are considered ordinary
income. Part of the distributions paid by the Fund may be eligible for the
dividends-received deduction allowed to corporate shareholders under the Code.
Distributions of the excess of net long-term capital gain over net short-term
capital loss from transactions of the Fund are treated by shareholders as
20
<PAGE>
long-term capital gains regardless of the length of time the Fund's shares have
been owned. Distributions of income and capital gains are taxed in the manner
described above, whether they are taken in cash or are reinvested in additional
shares of the Fund.
The Fund will inform its investors of the source of their dividends and
distributions at the time they are paid, and will promptly after the close of
each calendar year advise investors of the tax status of those distributions and
dividends. Investors (including tax-exempt and foreign investors) are advised to
consult their own tax advisers regarding the particular tax consequences to them
of an investment in shares of the Fund. Additional information on tax matters
relating to the Fund and its shareholders is included in the Statement of
Additional Information.
General Information
The Trust
The Fund is a series of The Montgomery Funds, a Massachusetts business trust
organized on May 10, 1990 (the "Trust"). The Trust's Agreement and Declaration
of Trust permits the Board to issue an unlimited number of full and fractional
shares of beneficial interest, $.01 par value, in any number of series. The
assets and liabilities of each series within the Trust are separate and distinct
from those of each other series.
This Prospectus relates only to the Class R shares of the Fund. The Fund has
designated other classes of shares and may in the future designate other classes
of shares for specific purposes.
Shareholder Rights
Shares issued by the Fund have no preemptive, conversion or subscription rights.
Each whole share is entitled to one vote as to any matter on which it is
entitled to vote and each fractional share is entitled to a proportionate
fractional vote. Shareholders have equal and exclusive rights as to dividends
and distributions as declared by the Fund and to the net assets of the Fund upon
liquidation or dissolution. The Fund, as a separate series of the Trust, votes
separately on matters affecting only the Fund (e.g., approval of the Investment
Management Agreement); all series of the Trust vote as a single class on matters
affecting all series of the Trust jointly or the Trust as a whole (e.g.,
election or removal of Trustees). Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in any election of Trustees can,
if they so choose, elect all of the Trustees. Except as set forth herein, all
classes of shares issued by the Fund shall have identical voting, dividend,
liquidation and other rights, preferences, and terms and conditions. The only
differences among the various classes of shares relate solely to the following:
(a) each class may be subject to different class expenses; (b) each class may
bear a different identifying designation; (c) each class may have exclusive
voting rights with respect to matters solely affecting such class; (d) each
class may have different exchange privileges; and (e) each class may provide for
the automatic conversion of that class into another class. While the Trust is
not required and does not intend to hold annual meetings of shareholders, such
meetings may be called by the Board at its discretion, or upon demand by the
holders of 10% or more of the outstanding shares of the Trust for the purpose of
electing or removing Trustees. Shareholders may receive assistance in
communicating with other shareholders in connection with the election or removal
of Trustees pursuant to the provisions of Section 16(c) of the Investment
Company Act.
Performance Information
From time to time, the Fund may publish its total return, such as in
advertisements and communications to investors. Total return information
generally will include the Fund's average annual compounded rate of return over
the most recent four calendar quarters and over the period from the Fund's
inception of operations. The Fund may also advertise aggregate and average total
return information over different periods of time. The Fund's average annual
compounded rate of return is determined by reference to a hypothetical $1,000
investment that includes capital appreciation and depreciation for the stated
period according to a specific formula. Aggregate total return is calculated in
a similar manner, except that the results are not annualized. Total return
figures will reflect all recurring charges against the Fund's income.
Investment results of the Fund will fluctuate over time, and any presentation of
the Fund's total return for any prior period should not be considered as a
representation of what an investor's total return or current yield may be in any
future period.
21
<PAGE>
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 Fund with their correct Social
Security or other Taxpayer Identification Number ("TIN"), regardless of whether
they file tax returns. Failure to do so may subject a shareholder to penalties.
Failure to provide a correct TIN or to check the appropriate boxes in the
Account Application and to sign the shareholder's name could result in backup
withholding by the Fund of an amount of federal income tax equal to 31% of
distributions, redemptions, exchanges and other payments made to a shareholder's
account. Any tax withheld may be credited against taxes owed on a shareholder's
federal income tax return.
A shareholder who does not have a TIN should apply for one immediately by
contacting the local office of the Social Security Administration or the IRS.
Backup withholding could apply to payments made to a shareholder's account while
awaiting receipt of a TIN. Special rules apply for certain entities. For
example, for an account established under the Uniform Gifts to Minors Act, the
TIN of the minor should be furnished. If a shareholder has been notified by the
IRS that he or she is subject to backup withholding because he or she failed to
report all interest and dividend income on his or her tax return and the
shareholder has not been notified by the IRS that such withholding will cease,
the shareholder should cross out the appropriate item in the Account
Application. Dividends paid to a foreign shareholder's account by the Fund may
be subject to up to 30% withholding instead of backup withholding.
A shareholder that is an exempt recipient should furnish a TIN and check the
appropriate box. Exempt recipients include certain corporations, certain
tax-exempt entities, tax-exempt pension plans and IRAs, governmental agencies,
financial institutions, registered securities and commodities dealers and
others. For further information, see Section 3406 of the Code and consult with a
tax adviser.
---------------------------------
This Prospectus is not an offering of the securities herein described in any
state in which the offering is unauthorized. No salesman, dealer or other person
is authorized to give any information or make any representation other than
those contained in this Prospectus, the Statement of Additional Information, or
in the Fund's official sales literature.
22
<PAGE>
Investment Manager
Montgomery Asset Management, L.P.
101 California Street
San Francisco, California 94111
1-800-572-FUND
Distributor
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
1-415-627-2485
Custodian
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
Transfer Agent
DST Systems, Inc.
P.O. Box 419073
Kansas City, Missouri 64141-6073
1-800-447-4210
Legal Counsel
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104
<PAGE>
---------------------------------------------------------------------
PART A
PROSPECTUS FOR CLASS P SHARES
MONTGOMERY EMERGING ASIA FUND
---------------------------------------------------------------------
<PAGE>
The Montgomery Funds
101 California Street
San Francisco, California 94111
(800) 572-FUND
Prospectus
April 7, 1997
Class P shares of the Montgomery Emerging Asia Fund (the "Fund") are offered in
this Prospectus. The Fund seeks long-term capital appreciation through
investment primarily in the equity securities of emerging Asian companies. As is
the case for all mutual funds, attainment of the Fund's investment objective
cannot be assured.
The Fund's Class P shares are only sold through financial intermediaries and
financial professionals at net asset value with no sales load, no commissions
and no 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 the Fund is $500, and subsequent investments must be at
least $100. The Manager or the Distributor, under any circumstances that either
deems appropriate, may waive these minimums. See "How to Invest in the Fund."
The Fund, which is a separate series of The Montgomery Funds, an open-end
management investment company, is managed by Montgomery Asset Management, L.P.
(the "Manager"), an affiliate of Montgomery Securities (the "Distributor").
Please read this Prospectus before investing and retain it for future reference.
A Statement of Additional Information dated November 12, 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 www.xperts.montgomery.com/1.
The Fund may offer other classes of shares to investors eligible to purchase
those shares. The other classes of shares may have different fees and expenses
than the class of shares offered in this Prospectus, and those different fees
and expenses may affect performance. To obtain information concerning the other
classes of shares not offered in this Prospectus, call The Montgomery Funds at
(800) 572-FUND or contact sales representatives or financial intermediaries who
offer those classes.
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
- --------------------------------------------------------------------------------
Fees and Expenses of the Fund 3
- --------------------------------------------------------------------------------
The Fund's Investment Objective and Policies 4
- --------------------------------------------------------------------------------
Portfolio Securities 4
- --------------------------------------------------------------------------------
Other Investment Practices 6
- --------------------------------------------------------------------------------
Risk Considerations 9
- --------------------------------------------------------------------------------
Management of the Fund 11
- --------------------------------------------------------------------------------
How To Invest in the Fund 13
- --------------------------------------------------------------------------------
How To Redeem an Investment in the Fund 17
- --------------------------------------------------------------------------------
Exchange Privileges and Restrictions 19
- --------------------------------------------------------------------------------
How Net Asset Value is Determined 20
- --------------------------------------------------------------------------------
Dividends and Distributions 20
- --------------------------------------------------------------------------------
Taxation 20
- --------------------------------------------------------------------------------
General Information 21
- --------------------------------------------------------------------------------
Backup Withholding Instructions 22
- --------------------------------------------------------------------------------
2
<PAGE>
Fees And Expenses Of The Fund
Shareholder Transaction Expenses for the Fund
<TABLE>
An investor would pay the following charges when buying or redeeming shares of
the Fund:
<CAPTION>
Maximum Sales Load
Maximum Sales Load Imposed on Reinvested
Imposed on Purchases Dividends Deferred Sales Load Redemption Fees+ Exchange Fees
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
None None None 1.00% None
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Estimated Annual Operating Expenses (as a percentage of average net assets)
Montgomery Emerging Asia Fund
- --------------------------------------------------------------------------------
Management Fee* 1.25%
- --------------------------------------------------------------------------------
12b-1 Fee 0.25%
- --------------------------------------------------------------------------------
Other Expenses 0.65%
(after reimbursement)*
- --------------------------------------------------------------------------------
Total Fund Operating Expenses* 2.15%
- --------------------------------------------------------------------------------
The previous tables are intended to assist the investor in understanding the
various direct and indirect costs and expenses of the Fund. Operating expenses
are paid out of the Fund's assets and are factored into the Fund's share price.
The Fund estimates that it will have the expenses listed (expressed as a
percentage of average net assets) for the current fiscal year. 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 the 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 Fund reserves the right, upon 60 days' advance
notice to shareholders, to impose a redemption fee of up to 1.00% on shares
redeemed within 90 days of purchase. The Fund also reserves the right to
impose a $20 annual account maintenance fee on accounts that fall below the
minimum investment because of redemption. See "How to Redeem an Investment in
the Fund."
* Expenses for the Fund are estimated. The Manager will reduce its fees and may
absorb or reimburse the Fund for certain expenses to the extent necessary to
limit total annual fund operating expenses to the lesser of the amount
indicated in the table for the Fund or the maximum allowed by applicable
state expense limitations. The Fund is required to reimburse the Manager for
any reductions in the Manager's fee only during the two years following that
reduction and only if such reimbursement can be achieved within the for going
expense limits. The Manager generally seeks reimbursement for the oldest
reductions and waivers before payment by the Fund for fees and expenses for
the current year. Absent the reduction, actual total Fund operating expenses
are estimated to be 3.50% (2.00% other expenses). The Manager may terminate
these voluntary reductions at any time. See "Management of the Fund."
Example of Expenses for the Fund
Assuming, hypothetically, that the Fund's annual return is 5% and that its
operating expenses are as set forth above, an investor buying $1,000 of the
Fund's shares would have paid the following total expenses upon redeeming such
shares:
Montgomery Emerging Asia Fund
- --------------------------------------------------------------------------------
1 Year $22
- --------------------------------------------------------------------------------
3 Years $67
- --------------------------------------------------------------------------------
5 Years N/A
- --------------------------------------------------------------------------------
10 Years N/A
- --------------------------------------------------------------------------------
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.
3
<PAGE>
The Fund's Investment Objective And Policies
The investment objective and general investment policies of the Fund are
described below. Specific portfolio securities that may be purchased by the Fund
are described in "Portfolio Securities" beginning on page 4. Specific investment
practices that may be employed by the Fund are described in "Other Investment
Practices" beginning on page 6. Certain risks associated with investments in the
Fund are described in those sections as well as in "Risk Considerations"
beginning on page 9.
The Investment objective of the Fund is long term capital appreciation, which
under normal conditions it seeks by investing at least 65% of its total assets
in equity securities of companies that have their principal activities in
emerging Asian countries. The Fund currently considers the following to be
emerging Asian countries: Bangladesh, China and Hong Kong (the fund considers
China and Hong Kong to be one single emerging Asia country), India, Indonesia,
Korea, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka, Taiwan and
Thailand. The Fund does not expect to invest in Japanese securities, however. In
the future, the Fund may invest in other countries in Asia when their markets
become sufficiently developed. Under normal conditions, the Fund maintains
investments in at least three emerging Asian countries at all times and invests
no more than one-third of its total assets in any one emerging Asian country
(other than China and Hong Kong or Malaysia where the Fund may invest without
being subject to the one-third of total assets limit.) As part of the remaining
35% of its total assets, the Fund may invest in more developed Asian countries,
such as Japan, that may serve defensive purposes in an Asian portfolio.
Alternatively, companies in more developed Asian markets may have significant
operations in emerging Asian countries.
The Fund considers a company to be an emerging Asian company if its securities
are principally traded in the capital market of an emerging Asian country; it
derives at least 50% of its total revenue from either goods produced or services
rendered in emerging Asian countries or from sales made in such emerging Asian
countries, regardless of where the securities of such company are primarily
traded; or it is organized under the laws of, and with a principal office in an
emerging Asian country.
Emerging Asian countries are in various stages of economic development with most
being considered emerging markets. Each country has its unique risks. Most
emerging Asian countries are heavily dependent on international trade. Some have
prosperous economies, but are sensitive to world commodity prices. Others are
especially vulnerable to recession in other countries. Some emerging Asian
countries have experienced rapid growth, although many suffer from obsolete
financial systems, economic problems, or archaic legal systems. The return of
Hong Kong to Chinese dominion will affect emerging Asian countries in the
Pacific region. For information on risks, see "Portfolio Securities," "Risk
Considerations" and the Statement of Additional Information.
The Fund invests primarily in common stock but also may invest in other types of
equity and equity derivative securities. It may invest up to 35% of its total
assets in debt securities, including up to 5% in high yield debt securities
rated below investment grade (also known as "junk bond.") See "Portfolio
Securities" and "Risk Considerations." 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.
The Fund may invest in certain debt securities issued by the governments of
emerging Asian countries that are, or may be eligible for, conversion into
investments in emerging Asian companies under debt conversion programs sponsored
by such governments. If such securities are convertible to equity investments,
the Fund deems them to be equity derivative securities. See "Portfolio
Securities."
Josephine S. Jimenez, Bryan L. Sudweeks, Angeline Ee and Frank Chiang are
responsible for managing the Fund's portfolio. See "Management of the Fund."
Portfolio Securities
Equity Securities
In seeking its investment objective, the Fund emphasizes investments in common
stock. The Fund also may invest in other types of equity securities and equity
derivative securities such as preferred stocks, convertible securities,
warrants, units, rights, and options on securities and on securities indices.
Depositary Receipts
The Fund may invest in both sponsored and unsponsored American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs") 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. GDRs are issued in foreign countries, typically by foreign banks and
trust companies, and evidence ownership of either foreign or domestic
securities. Unsponsored ADR, EDR
4
<PAGE>
and GDR 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, EDRs and GDRs, and the prices of
unsponsored ADRs, EDRs and GDRs may be more volatile.
Convertible Securities
The Fund may invest in convertible securities. A convertible security is a
fixed-income security (a bond or preferred stock) that may be converted at a
stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Convertible securities are
senior to common stock in a corporation's capital structure but are usually
subordinated to similar non-convertible securities. Through their conversion
feature, they provide an opportunity to participate in capital appreciation
resulting from a market price advance in the underlying common stock. The price
of a convertible security is influenced by the market value of the underlying
common stock and tends to increase as the common stock's market value rises and
decrease as the common stock's market value declines. For purposes of allocating
Fund investments, the Manager regards convertible securities as a form of equity
security.
Securities Warrants and Rights
The Fund may invest up to 5% of its net assets in warrants and rights, including
up to 2% of net assets for those not listed on a securities exchange. A warrant
typically is a long-term option that permits the holder to buy a specified
number of shares of the issuer's underlying common stock at a specified exercise
price by a particular expiration date. Stock index warrants entitle the holder
to receive, upon exercise, an amount in cash determined by reference to
fluctuations in the level of a specified stock index. A right (also called a
subscription right) is a privilege granted to existing shareholders of a
corporation to subscribe to shares of a new issue of common stock before it is
offered to the public, which entitles the holder to buy the new common stock
below the public offering price. A right, like a warrant, is transferable. Also,
a warrant or a right not exercised or disposed of by its expiration date expires
worthless.
Privatizations
The 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 Fund believes that carefully selected investments in joint ventures,
cooperatives, partnerships, private placements, unlisted securities and similar
vehicles (collectively, "special situations") could enhance its capital
appreciation potential. The Fund also may invest in certain types of vehicles or
derivative securities that represent indirect investments in foreign markets or
securities in which it is impractical for the Fund to invest directly.
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
The Fund may invest up to 10% of its total assets in shares of other investment
companies investing exclusively in securities in which it may otherwise invest.
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 Fund to invest in certain markets. Such investments may involve the
payment of substantial premiums above the net asset value of those investment
companies' portfolio securities and are subject to limitations under the
Investment Company Act. The 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 Fund does not intend to invest in other investment companies unless, in the
Manager's judgment, the potential benefits exceed associated costs. As a
shareholder in an investment company, the Fund bears its ratable share of that
investment company's expenses, including advisory and administration fees. In
accordance with applicable state regulatory provisions, the Manager has agreed
to waive its own management fee with respect to the portion of the Fund's assets
invested in other open-end (but not closed-end) investment companies.
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Debt Securities
The Fund may purchase debt securities that complement its objective of capital
appreciation through anticipated favorable changes in relative foreign exchange
rates, in relative interest rate levels, or in the creditworthiness of issuers.
In selecting debt securities, the Manager seeks out good credits and analyzes
interest rate trends and specific developments that may affect individual
issuers. As an operating policy which may be changed by the Board, the 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 Fund may invest in external (i.e., to foreign lenders) debt
obligations issued by the governments, governmental entities and companies of
emerging Asia 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 Fund's assets to be invested in equity securities versus debt securities:
levels and anticipated trends in inflation and interest rates; expected rate 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 Fund may invest in fixed rate and floating or variable rate U.S. Government
securities. Certain of the obligations, including U.S. Treasury Bills, Notes and
Bonds, and mortgage-related securities of the Government National Mortgage
Association ("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 Fund's 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.
Other Investment Practices
The Fund also may engage in the investment practices described below, each of
which may involve certain special risks. The Statement of Additional
Information, under the heading "Investment Objective and Policies of the Fund,"
contains more detailed information about certain of these practices, including
limitations designed to reduce risks.
Repurchase Agreements
The Fund may enter into repurchase agreements. Pursuant to a repurchase
agreement, the Fund acquires a U.S. Government security or other high-grade
liquid debt instrument from a financial institution that simultaneously agrees
to repurchase the same security at a specified time and price. The repurchase
price reflects an agreed-upon rate of return not determined by the coupon rate
on the underlying security. Under the Investment Company Act, repurchase
agreements are considered to be loans by the Fund and must be fully
collateralized by cash, letters of credit, U.S. Government securities or other
high-grade liquid debt or equity securities that the Fund's custodian, or a
designated sub-custodian, either places in a segregated account or separately
identifies and renders unavailable for investment ("Segregable Assets"). If the
seller defaults on its obligation to repurchase the underlying security, the
Fund may experience delay or difficulty in exercising its rights to realize upon
the security, may incur a loss if the value of the security declines and may
incur disposition costs in liquidating the security.
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Borrowing
The Fund may borrow money from banks and engage in reverse repurchase
transactions, in an amount not to exceed one-third of the value of its total
assets to meet temporary or emergency purposes, and the Fund may pledge its
assets in connection with such borrowings. The Fund may not purchase securities
if such borrowings exceed 10% of its total assets.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements. In a reverse repurchase
agreement, the Fund sells to a financial institution a security that it holds
and agrees to repurchase the same security at an agreed-upon price and date.
Leverage
The Fund may leverage its portfolio to increase total return. Although leverage
creates an opportunity for increased income and gain, it also creates special
risk considerations. For example, leveraging may magnify changes in the net
asset values of the Fund's shares and in the yield on its portfolio. Although
the principal of such borrowings will be fixed, the Fund's assets may change in
value while the borrowing is outstanding. Leveraging creates interest expenses
that can exceed the income from the assets retained.
Securities Lending
The Fund may lend securities to brokers, dealers and other financial
organizations. These loans may not exceed 30% of the Fund's total assets. Each
securities loan is collateralized with Segregable Assets in an amount at least
equal to the current market value of the loaned securities, plus accrued
interest. There is a risk of delay in receiving collateral or in recovering the
securities loaned or even a loss of rights in the collateral should the borrower
of the securities fail financially.
When-Issued and Forward Commitment Securities
The Fund 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 and payment for the securities take place at a later date, normally 7
to 15 days or, in the case of certain CMO issues, 45 to 60 days later.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the 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 the Fund. If the 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 the 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 Fund, the Fund may employ certain
risk management practices using the following derivative securities and
techniques (known as "derivatives"): forward currency exchange contracts, stock
options, currency options, and stock and stock index options, futures contracts
and options on futures contracts on foreign government securities and
currencies. The Board of the Trust has adopted derivative guidelines that
require the Board to review each new type of derivative that may be used by the
Fund. 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, the Fund engages in hedging activities only when the Manager deems
it to be appropriate and does not necessarily engage in hedging transactions
with respect to each investment.
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. The 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
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market at the time of the transaction, or through entering into forward
contracts to purchase or sell foreign currencies at a future date. The Fund
generally does not enter into forward contracts with terms greater than one
year.
The Fund generally enters into forward contracts only under two circumstances.
First, if the 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 the Fund's
portfolio securities denominated in such currency. The 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 the 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 Fund may purchase put and call options on securities and currencies traded
on U.S. exchanges and, to the extent permitted by law, foreign exchanges, as
well as in the over-the-counter market. The Fund may purchase call options on
securities which it intends to purchase (or on currencies in which those
securities are denominated) in order to limit the risk of a substantial increase
in the market price of such security (or an adverse movement in the applicable
currency). The Fund may purchase put options on particular securities (or on
currencies in which those securities are denominated) in order to protect
against a decline in the market value of the underlying security below the
exercise price less the premium paid for the option (or an adverse movement in
the applicable currency relative to the U.S. dollar). Put options allow the Fund
to protect unrealized gain in an appreciated security that it owns without
selling that security. Prior to expiration, most options are expected to be sold
in a closing sale transaction. Profit or loss from the sale depends upon whether
the amount received is more or less than the premium paid plus transaction
costs.
The Fund also may purchase put and call options on stock indices in order to
hedge against risks of stock market or industry-wide stock price fluctuations.
The Fund may purchase options on currencies in order to hedge its positions in a
manner similar to its use of forward foreign exchange contracts and futures
contracts on currencies.
Futures and Options on Futures
To protect against the effect of adverse changes in interest rates, the Fund may
purchase and sell interest rate futures contracts. An interest rate futures
contract is an agreement to purchase or sell debt securities, usually U.S.
Government securities, at a specified date and price. In addition, the Fund may
purchase and sell put and call options on interest rate futures contracts in
lieu of entering into the underlying interest rate futures contracts. The Fund
segregates Segregable Assets equal to the purchase price of the portfolio
securities represented by the underlying interest rate futures contracts it has
an obligation to purchase.
The Fund does not enter into any futures contracts or related options if the sum
of initial margin deposits on futures contracts, related options (including
options on securities, securities indices and currencies) and premiums paid for
any such related options would exceed 5% of its total assets. The Fund does not
purchase futures contracts or related options if, as a result, more than
one-third of its total assets would be so invested.
Hedging Considerations
Hedging transactions involve certain risks. While the Fund may benefit from the
use of hedging transactions, unanticipated changes in interest rates or
securities prices may result in poorer overall performance for the Fund than if
it had not entered into a hedging position. If the correlation between a hedging
position and a portfolio position is not properly protected, the desired
protection may not be obtained and the Fund may be exposed to risk of financial
loss. In addition, the Fund pays commissions and other costs in connection with
such investments.
Illiquid Securities
The Fund may not invest more than 15% of its net assets in illiquid securities.
The Fund treats any securities subject to restrictions on repatriation for more
than seven days and securities issued in connection with foreign debt conversion
programs that are restricted as to remittance of invested capital or profit as
illiquid. The Fund also treats repurchase agreements with maturities in excess
of seven days as illiquid. Illiquid securities do not include securities that
meet the requirements of Rule 144A under the Securities Act of 1933 and that,
subject to the review by the Board and guidelines adopted by the Board, the
Manager has determined to be liquid. State securities laws may impose further
limitations on the amount of illiquid or restricted securities the Fund may
purchase.
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Defensive Investments and Portfolio Turnover
Notwithstanding its investment objective, the Fund may adopt up to a 100% cash
or cash equivalent position for temporary defensive purposes to protect against
erosion of its capital base. Depending upon the Manager's analysis of the
various markets and other considerations, all or part of the assets of the Fund
may be held in cash and cash equivalents (denominated in U.S. dollars or foreign
currencies), such as U.S. Government securities or obligations issued or
guaranteed by the government of a foreign country or by an international
organization designed or supported by multiple foreign governmental entities to
promote economic reconstruction or development, high-quality commercial paper,
time deposits, savings accounts, certificates of deposit, bankers' acceptances
and repurchase agreements with respect to all of the foregoing. Such investments
also may be made for temporary purposes pending investment in other securities
and following substantial new investment in the Fund.
Portfolio securities are sold whenever the Manager believes it appropriate,
regardless of how long the securities have been held. The Manager therefore
changes the Fund's investments whenever it believes doing so will further the
Fund's investment objective or when it appears that a position of the desired
size cannot be accumulated. Portfolio turnover generally involves some expense
to the Fund, including brokerage commissions, dealer mark-ups and other
transaction costs, and may result in the recognition of capital gains that may
be distributed to shareholders. Portfolio turnover in excess of 100% is
considered high and increases such costs. The annual portfolio turnover for the
Fund is expected to be approximately 125%. Even if the portfolio turnover for
the Fund is in excess of 125%, the Fund would not consider portfolio turnover as
a limiting factor.
Investment Restrictions
The investment objective of the Fund is fundamental and may not be changed
without shareholder approval, but unless otherwise stated, the Fund's other
investment policies may be changed by the Board. If there is a change in the
investment objective or policies of the Fund, shareholders should consider
whether the Fund remains an appropriate investment in light of their
then-current financial positions and needs. The Fund is subject to additional
investment policies and restrictions described in the Statement of Additional
Information, some of which are fundamental.
The Fund has reserved the right, if approved by the Board, to convert in the
future to a "feeder" fund that would invest all of its assets in a "master" fund
having substantially the same investment objective, policies and restrictions.
At least 30 days' prior written notice of any such action would be given to all
shareholders if and when such a proposal is approved, although no such action
has been proposed as of the date of this Prospectus.
Risk Considerations
Concentration in Securities of Emerging Asian Companies
The Fund concentrates its investments in companies that have their principal
activities in the emerging Asian countries. Consequently, the Fund's share value
may be more volatile than that of investment companies not sharing this
geographic concentration. The value of the Fund's shares may vary in response to
political and economic factors affecting issuers in emerging Asian countries.
Although the Fund normally does not expect to invest in Japanese companies, some
emerging Asian economies are directly affected by Japanese capital investment in
the region and by Japanese consumer demands. Many of the emerging Asian
countries are developing both economically and politically. Emerging Asia
countries may have relatively unstable governments, economies based on only a
few commodities or industries, and securities markets trading infrequently or in
low volumes. Some emerging Asian countries restrict the extent to which
foreigners may invest in their securities markets. Securities of issuers located
in some emerging Asia countries tend to have volatile prices and may offer
significant potential for loss as well as gain. Further, certain companies in
the emerging Asia may not have firmly established product markets, may lack
depth of management, or may be more vulnerable to political or economic
developments such as nationalization of their own industries. Moreover, as long
as the Fund invests in at least three emerging Asia countries, it may invest
more than 90% of its assets in China and Hong Kong. Alternatively, it may invest
up to more than 90% of its assets in Malaysia. Such a heavy concentration of
investment in a few countries may make the Fund's share value extremely volatile
and, in the event of any economic downturn or other events adversely affecting
those countries, such events' impact on the Fund will be more magnified than if
the Fund did not have such a narrow concentration.
Small Companies
The Fund may invest in smaller companies that may benefit from the development
of new products and services. These smaller companies may present greater
opportunities for capital appreciation but may involve greater risk than larger,
more mature issuers. Such smaller companies may have limited product lines,
markets or financial resources, and their securities may trade
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less frequently and in more limited volume than those of larger, more mature
companies. As a result, the prices of their securities may fluctuate more than
the prices of the securities of larger issuers.
Foreign Securities
In addition to the special risks of investing in emerging Asian countries
discussed above, there are general risk associated with investments in foreign
securities.
Foreign investments involve the possibility of expropriation, nationalization or
confiscatory taxation, taxation of income earned in foreign nations (including,
for example, withholding taxes on interest and dividends) or other taxes imposed
with respect to investments in foreign nations, foreign exchange controls (which
may include suspension of the ability to transfer currency from a given country
and repatriation of investments), default in foreign government securities, and
political or social instability or diplomatic developments that could adversely
affect investments. In addition, there is often less publicly available
information about foreign issuers than those in the U.S. Foreign companies are
often not subject to uniform accounting, auditing and financial reporting
standards. Further, the Fund may encounter difficulties in pursuing legal
remedies or in obtaining judgments in foreign courts. Additional risk factors,
including use of domestic and foreign custodian banks and depositories, are
described elsewhere in the Prospectus and in the Statement of Additional
Information.
Brokerage commissions, fees for custodial services and other costs relating to
investments by the Fund in other countries are generally greater than in the
U.S. Foreign markets, have different clearance and settlement procedures from
those in the U.S., and certain markets have experienced times when settlements
did not keep pace with the volume of securities transactions and resulted in
settlement difficulty. The inability of the Fund to make intended security
purchases due to settlement difficulties could cause it to miss attractive
investment opportunities. Inability to sell a portfolio security due to
settlement problems could result in loss to the Fund if the value of the
portfolio security declined or 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 Fund may invest may also be
smaller, less liquid, and subject to greater price volatility than those in the
U.S.
Because the securities owned by the Fund may be denominated in foreign
currencies, the value of such securities will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of a
foreign currency against the U.S. dollar results in a corresponding change in
the U.S. dollar value of the Fund's securities denominated in the currency. Such
changes also affect the Fund's income and distributions to shareholders. The
Fund may be affected either favorably or unfavorably by changes in the relative
rates of exchange between the currencies of different nations, and the Fund may
therefore engage in foreign currency hedging strategies. Such strategies,
however, involve certain transaction costs and investment risks, including
dependence upon the Manager's ability to predict movements in exchange rates.
Some countries in which the Fund may invest may also have fixed or managed
currencies that are not freely convertible at market rates into the U.S. dollar.
Certain currencies may not be internationally traded. A number of these
currencies have experienced steady devaluation relative to the U.S. dollar, and
such devaluations in the currencies may have a detrimental impact on the Fund.
Many countries in which the Fund may invest have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuation in inflation rates may have negative effects on certain
economies and securities markets. Moreover, the economies of some countries may
differ favorably or unfavorably from the U.S. economy in such respects as the
rate of growth of gross domestic product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments.
Certain countries also limit the amount of foreign capital that can be invested
in their markets and local companies, creating a "foreign premium" on capital
investments available to foreign investors such as the Fund. The Fund may pay a
"foreign premium" to establish an investment position which it cannot later
recoup because of changes in that country's foreign investment laws.
Lower Quality Debt
The 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.
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As an operating policy, which may be changed by the Board without shareholder
approval, the 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 sensitive to prevailing interest rates is
inversely related to actual changes in interest rates. That is, a decline in
interest rates produces an increase in the market value of these securities
while an increase in interest rates produces a decrease. Moreover, the longer
the remaining maturity of a security, the greater the effect of interest rate
change. Changes in the ability of an issuer to make payments of interest and
principal and in the market's perception of its creditworthiness also affect the
market value of that issuer's debt securities.
Management Of The Fund
The Montgomery Funds has a Board of Trustees that establishes the Fund's
policies and supervises and reviews its management. Day-to-day operations of the
Fund are administered by the officers of the Trust and by the Manager pursuant
to the terms of an investment management agreement with the Fund.
Montgomery Asset Management, L.P., is the Fund's Manager. The Manager, a
California limited partnership, was formed in 1990 as an investment adviser
registered as such with the SEC under the Investment Advisers Act of 1940, as
amended, and since then has advised private accounts as well as the Fund. Its
general partner is Montgomery Asset Management, Inc., and its sole limited
partner is Montgomery Securities, the Fund's Distributor. Under the Investment
Company Act, both Montgomery Asset Management, Inc. and Montgomery Securities
may be deemed control persons of the Manager. Although the operations and
management of the Manager are independent from those of Montgomery Securities,
the Manager may draw upon the research and administrative resources of
Montgomery Securities in its discretion and consistent with applicable
regulations.
Founded in 1969, Montgomery Securities is a fully integrated and highly focused
investment banking partnership specializing in emerging growth companies. The
firm's areas of expertise include research, corporate finance, sales and
trading, and venture capital. Its research department is one of the largest,
most experienced groups headquartered outside the East Coast. Through its
corporate finance department, Montgomery Securities is a well recognized
underwriter of public offerings and provides broad distribution of securities
through its sales and trading organization.
Portfolio Managers
The Fund is managed by Josephine S. Jimenez, Bryan L. Sudweeks, Angeline Ee and
Frank Chiang.
Josephine S. Jimenez, CFA, is a Managing Director and Senior Portfolio Manager.
From 1988 through 1991, Ms. Jimenez worked at Emerging Markets Investors
Corporation/Emerging Markets Management in Washington, D.C. as senior analyst
and portfolio manager.
Bryan L. Sudweeks, Ph.D., CFA, is a Managing Director and Senior Portfolio
Manager. Before joining the Manager, he was a senior analyst and portfolio
manager at Emerging Markets Investors Corporation/Emerging Markets Management in
Washington, D.C. Previously, he was a Professor of International Finance and
Investments at George Washington University and served as Adjunct Professor of
International Investments from 1988 until May 1991.
Angeline Ee is a Portfolio Manager. From 1990 until joining the Manager in July
1994, Ms. Ee was an Investment Manager with AIG Investment Corp. in Hong Kong.
From June 1989 until September 1990, Ms. Ee was a co-manager of a portfolio of
Asian equities and bonds at Chase Manhattan Bank in Singapore.
Frank Chiang is a Portfolio Manager. From 1993 until joining the Manager in
1996, Mr. Chiang was Managing Director and Portfolio Manager at TCW Asia Ltd. in
Hong Kong.
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Management Fees and Other Expenses
The Manager provides the Fund with advice on buying and selling securities,
manages the Fund's investments, including the placement of orders for portfolio
transactions, furnishes the Fund with office space and certain administrative
services, and provides personnel needed by the Fund with respect to the
Manager's responsibilities under the Manager's Investment Management Agreement
with the Fund. The Manager also compensates the members of the Board who are
interested persons of the Manager, and assumes the cost of printing prospectuses
and shareholder reports for dissemination to prospective investors. As
compensation, the Fund pays the Manager a monthly management fee (accrued daily
but paid when requested by the Manager) based upon the value of its average
daily net assets, according to the following table. The management fee for the
Fund is higher than for most mutual funds.
Average Daily Net Assets Annual Rate
- --------------------------------------------------------------------------------
Montgomery Emerging Asia Fund First $500 million 1.25%
Next $500 million 1.10%
Over $1 billion 1.00%
- --------------------------------------------------------------------------------
The Manager also serves as the Fund's Administrator (the "Administrator"). The
Administrator performs services with regard to various aspects of the Fund's
administrative operations. As compensation, the Fund pays the Administrator a
monthly fee at the annual rate of seven one-hundredths of one percent (0.07%) of
average daily net assets (0.06% of daily net assets over $500 million).
The Fund is responsible for its own operating expenses including, but not
limited to: the Manager's fees; taxes, if any; brokerage and commission
expenses, if any; interest charges on any borrowings; transfer agent,
administrator, custodian, legal and auditing fees; shareholder servicing fees
including fees to third party servicing agents; fees and expenses of Trustees
who are not interested persons of the Manager; salaries of certain personnel;
costs and expenses of calculating its daily net asset value; costs and expenses
of accounting, bookkeeping and recordkeeping required under the Investment
Company Act; insurance premiums; trade association dues; fees and expenses of
registering and maintaining registration of its shares for sale under federal
and applicable state securities laws; all costs associated with shareholders
meetings and the preparation and dissemination of proxy materials, except for
meetings called solely for the benefit of the Manager or its affiliates;
printing and mailing prospectuses, statements of additional information and
reports to shareholders; and other expenses relating to the Fund's operations,
plus any extraordinary and nonrecurring expenses that are not expressly assumed
by the Manager.
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 the Fund
have approved, and the 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, the 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 Fund to prospective investors in that Class; (iii) costs
involved in preparing, printing and distributing sales literature pertaining to
the Fund and that Class; and (iv) costs involved obtaining whatever information,
analysis and reports with respect to marketing and promotional activities that
the Fund 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 Fund and the shareholders
of Class P shares. Information with respect to distribution revenues and
expenses is presented to the Board of Trustees quarterly for its consideration
in connection with its deliberations as to the continuance of the Plan. In its
review of the Plan, the Board of Trustees is asked to take into consideration
expenses incurred in connection with the separate distribution of the Class P
shares.
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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 were 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 broker-dealers without the
assessment of a front-end sales charge and at the same time to permit the
Manager to compensate broker-dealers 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 Trust, including a majority of
the Trustees who are not "interested persons" of the Trust (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 Fund 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.
The Manager has agreed to reduce its management fee if necessary to keep total
annual operating expenses (excluding the Rule 12b-1 fee) at or below the lesser
of the maximum allowable by applicable state expense limitations or one and
nine-tenths of one percent (1.90%) of the Fund's average net assets. The Manager
also may voluntarily reduce additional amounts to increase the return to the
Fund's investors. The Manager may terminate these voluntary reductions at any
time. Any reductions made by the Manager in its fees are subject to
reimbursement by the Fund within the following two years, provided that the Fund
is able to effect such reimbursement and remain in compliance with applicable
expense limitations. The Manager generally seeks reimbursement for the oldest
reductions and waivers before payment by the Fund for fees and expenses for the
current year.
In addition, the Manager may elect to absorb operating expenses that the Fund is
obligated to pay in order to increase the return to the Fund's investors. To the
extent the Manager performs a service or assumes an operating expense for which
the Fund is obligated to pay and the performance of such service or payment of
such expense is not an obligation of the Manager under the Investment Management
Agreement, the Manager is entitled to seek reimbursement from the Fund for the
Manager's costs incurred in rendering such service or assuming such expense. The
Manager, out of its own funds, also may compensate broker-dealers who distribute
the 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 Fund for financial
intermediaries and shareholders.
The Manager considers a number of factors in determining which brokers or
dealers to use for the Fund's portfolio transactions. While these factors are
more fully discussed in the Statement of Additional Information, they include,
but are not limited to, reasonableness of commissions, quality of services and
execution and availability of research that the Manager may lawfully and
appropriately use in its investment management and advisory capacities. Provided
the Fund receives prompt execution at competitive prices, the Manager also may
consider sale of the Fund's shares as a factor in selecting broker-dealers for
the Fund's portfolio transactions. It is anticipated that Montgomery Securities
may act as one of the Fund's brokers in the purchase and sale of portfolio
securities and, in that capacity, will receive brokerage commissions from the
Fund. The Fund will use Montgomery Securities as its broker only when, in the
judgment of the Manager and pursuant to review by the Board, Montgomery
Securities will obtain a price and execution at least as favorable as that
available from other qualified brokers. See "Execution of Portfolio
Transactions" in the Statement of Additional Information for further information
regarding Fund policies concerning execution of portfolio transactions.
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, serves as the master transfer agent for the Fund (the "Master Transfer
Agent") and performs certain recordkeeping and accounting functions. The Master
Transfer Agent delegates certain transfer agent functions to DST Systems, Inc.,
P.O. Box 419073, Kansas City, Missouri 64141-6073, the Fund's transfer agent
(the "Transfer Agent"). Morgan Stanley Trust Company, located at One Pierrepont
Plaza, Brooklyn, New York 11201, serves as the Fund's principal custodian (the
"Custodian").
How To Invest In The Fund
The Fund's 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 Fund's shares are offered for
sale by Montgomery Securities, the Fund's Distributor, 600 Montgomery Street,
San Francisco, California 94111, (800) 572-3863, and through selected securities
brokers and dealers.
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If an order, together with payment in proper form, is received by the Transfer
Agent, 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 the Fund is $500 (including IRAs) and $100 for
subsequent investments. 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.
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<PAGE>
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
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Initial Investments by Check
- --------------------------------------------------------------------------------
o Complete the Account Application. Tell us which Fund(s) 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 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.
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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 the
Fund in which you want to invest. They will provide you with
further instructions to complete your purchase. Complete
information regarding your account must be included in all
wire instructions to ensure accurate handling of your
investment.
o Request your bank to transmit immediately available funds by
wire for purchase of shares in your name to the following:
Investors Fiduciary Trust Company
ABA #101003621
For: DST Systems, Inc.
Account #7526601
Attention: The Montgomery Funds
For Credit to: (shareholder(s) name)
Shareholder Account Number: (shareholder(s) account number)
Name of Fund: Montgomery Emerging Asia Fund
o Your bank may charge a fee for any wire transfers.
o The Fund and the Distributor each reserve the right to reject
any purchase order in whole or in part.
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Subsequent Investments
Minimum Subsequent Investment: $100
Mail any checks and investment instructions to:
The Montgomery Funds
c/o DST Systems, Inc.
P.O. Box 419073
Kansas City, MO 64141-6073
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<PAGE>
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Subsequent Investments by Check
- --------------------------------------------------------------------------------
o Make your check payable to The Montgomery Emerging
Asia Fund.
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.
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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."
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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 Shares of IRAs are not eligible for telephone purchases.
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.
Write your confirmed purchase number on your check or include
it in your wire instructions.
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.
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<PAGE>
Complete information regarding your account must be included in all wire
instructions in order to facilitate the prompt and accurate handling of
investments. Investors may obtain further information from their own banks about
wire transfers and any fees that may be imposed. The Fund and the Distributor
each reserve the right to reject any purchase order in whole or in part.
Automatic Account Builder ("AAB")
o AAB will be established on existing accounts only. You may not
use an AAB investment to open a new account.
o The minimum automatic investment amount is the Fund's
subsequent investment minimum.
o Your bank must be a member of the Automated Clearing House.
o To establish AAB, attach a voided check (checking account) or
preprinted deposit slip (savings account) from your bank
account to your Montgomery account application or your letter
of instruction. Investments will automatically be transferred
into your Montgomery account from your checking or savings
account.
o Investments may be transferred either monthly or quarterly on
or up to two business days before the 5th or 20th day of the
month. If no day is specified on your account application or
your letter of instruction, the 20th of each month will be
selected.
o You should allow 20 business days for this service to become
effective.
o You may cancel your AAB at any time by sending a letter to the
Transfer Agent. Your request will be processed upon receipt.
Payroll Deduction
o Investment through payroll deduction will be established on
existing accounts only. You may not use payroll deduction to
open a new account. The minimum payroll deduction amount is
the Fund's subsequent investment minimum.
o You may automatically deposit a designated amount of your
paycheck directly into a Montgomery Fund account.
o Please call the Transfer Agent to receive instructions to
establish this service.
Telephone Transactions
You agree to reimburse the Fund for any expenses or losses that it may incur in
connection with transfers from your accounts, including any caused by your
bank's failure to act in accordance with your request or its failure to honor
your debit. If your bank makes erroneous payments or fails to make payment after
shares are purchased on your behalf, any such purchase may be canceled and this
privilege terminated immediately. This privilege may be discontinued at any time
by the Fund upon 30-days' written notice or any time by you by written notice to
the Fund. Your request will be processed upon receipt.
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 the Fund. The Fund and the Transfer Agent will not be liable for
following instructions communicated by telephone reasonably believed to be
genuine. The Fund employs reasonable procedures to confirm that instructions
communicated by telephone are genuine. These procedures include recording the
telephone call, sending a confirmation and requiring the caller to give a
special authorization number or other personal information not likely to be
known by others. The Fund and Transfer Agent may be liable for any losses due to
unauthorized or fraudulent telephone transactions only if such reasonable
procedures are not followed.
Retirement Plans
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<PAGE>
Shares of the Fund are available for purchase by any retirement plan, including
Keogh plans, 401(k) plans, 403(b) plans and IRAs. Neither the Fund nor the
Manager administers or acts as custodian for retirement account plans. The Fund
may be available for purchase through administrators for retirement plans.
Investors who purchase shares as a part of a retirement plan should address
inquiries and seek investment servicing from their plan administrators. Plan
administrators may receive compensation from the Fund for performing shareholder
services.
Share Certificates
Share certificates will not be issued by the Fund. All shares are held in
non-certificated form registered on the books of the Fund and the Transfer Agent
for the account of the shareholder.
How To Redeem An Investment In The Fund
The Fund will redeem all or any portion of an investor's outstanding shares upon
request. Redemptions can be made on any day that the NYSE is open for trading.
The redemption price is the net asset value per share next determined after the
shares are validly tendered for redemption and such request is received by the
Transfer Agent or, in the case of repurchase orders, Montgomery Securities or
other securities dealers. Payment of redemption proceeds is made promptly
regardless of when redemption occurs and normally within three days after
receipt of all documents in proper form, including a written redemption order
with appropriate signature guarantee. Redemption proceeds will be mailed or
wired in accordance with the shareholder's instructions. The Fund may suspend
the right of redemption under certain extraordinary circumstances in accordance
with the rules of the SEC. In the case of shares purchased by check and redeemed
shortly after the purchase, the Transfer Agent will not mail redemption proceeds
until it has been notified that the monies used for the purchase have been
collected, which may take up to 15 days from the purchase date. Shares tendered
for redemptions through brokers or dealers (other than the Distributor) may be
subject to a service charge by such brokers or dealers. Procedures for
requesting a redemption are set forth below. Shareholders should note that the
Fund reserves the right upon 60 days' advance notice to shareholders to impose a
redemption fee of up to 1.00% on shares redeemed within 90 days of purchase.
- --------------------------------------------------------------------------------
Redeeming by Written Instruction
- --------------------------------------------------------------------------------
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
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<PAGE>
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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.
o Telephone redemption privileges will be suspended 30 days
after an address change. All redemption requests during this
period must be in writing with a guaranteed signature.
o This service is not available for IRA accounts.
o Telephone redemption privileges may be cancelled after an
account is opened by instructing the Transfer Agent in
writing. Your request will be processed upon receipt.
- --------------------------------------------------------------------------------
By establishing telephone redemption privileges, a shareholder authorizes the
Fund and the Transfer Agent to act upon the instruction of the shareholder or
his or her designee by telephone to redeem from the account for which such
service has been authorized and transfer the proceeds to a bank or other account
designated in the Authorization. When a shareholder appoints a designee on the
Account Application or by written authorization, the shareholder agrees to be
bound by the telephone redemption instructions given by the shareholder's
designee. The Fund may change, modify or terminate these privileges at any time
upon 60-days' notice to shareholders. The Fund will not be responsible for any
loss, damage, cost or expense arising out of any transaction that appears on the
shareholder's confirmation after 30 days following mailing of such confirmation.
See discussion of Fund telephone procedures and liability under "Telephone
Transactions."
Shareholders may experience delays in exercising telephone redemption privileges
during periods of abnormal market activity. During periods of volatile economic
or market conditions, shareholders may wish to consider transmitting redemption
orders by telegram (not available for IRAs) or overnight courier.
Systematic Withdrawal Plan
Under a Systematic Withdrawal Plan, a shareholder with an account value of $500
or more in the Fund may receive (or have sent to a third party) periodic
payments (by check or wire). The minimum payment amount is $100 from the Fund
account. Payments may be made either monthly or quarterly on the 1st of each
month. Depending on the form of payment requested, shares of the Fund will be
redeemed up to five business days before redemption proceeds are scheduled to be
received by the shareholder. The redemption may result in recognition of gain or
loss for income tax purposes.
Small Accounts/Annual Account Maintenance Fee
Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to redeem shares or to impose a $20 annual account
maintenance fee for any account if at any time, because of redemptions by the
shareholder, the total value of a shareholder's account is less than $500. If
the Fund decides to make an involuntary redemption, the shareholder will first
be notified that the value of the shareholder's account is less than the minimum
level and will be allowed 30 days to make an additional investment to bring the
value of that account at least to $500 before the Fund takes any action.
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<PAGE>
Exchange Privileges And Restrictions
Exchange Privileges
Shares of the Fund may be exchanged for Class P shares of the other series of
the Trust and The Montgomery Funds II (together with the Fund, the "Montgomery
Funds"), with restrictions noted below, on the basis of their relative net asset
values (with no sales charge or exchange fee) next determined after the time of
the exchange request and provided that you have the current prospectus for the
fund into which you are exchanging shares of the Fund. You are automatically
eligible to make telephone exchanges with your Montgomery account. See
discussion of Fund telephone procedures and limitations of liability under
"Telephone Transactions." Shareholders should note that an exchange may result
in recognition of a gain or loss for income tax purposes.
Exchange Restrictions
A shareholder's privilege of exchanging shares of the Fund has the following
restrictions:
o Shareholders may exchange for shares of a Montgomery fund only in states
where that fund's shares are qualified for sale.
o A shareholder may not exchange for shares of a Montgomery fund that is not
open to new shareholders unless the shareholder has an existing account with
that Montgomery fund.
o Shares of the Fund may not be exchanged for shares of another Montgomery fund
unless the amount to be received in the exchange satisfies that fund's
minimum investment requirement.
o Because excessive exchanges can harm the Fund's performance, the Trust
reserves the right to terminate, either temporarily or permanently, exchange
privileges of any shareholder who makes more than four exchanges out of the
Fund during a twelve-month period and to refuse an exchange into a Montgomery
fund from which the shareholder has redeemed shares within the previous 90
days (accounts under common ownership or control and accounts with the same
taxpayer identification number will be counted together). This 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 refuse exchanges
by any person or group if, in the Manager's judgment, the Fund would be
unable effectively to invest the money in accordance with its investment
objective and policies, or would otherwise be potentially adversely affected.
A shareholder's exchanges may be restricted or refused if the Fund receives,
or the Manager anticipates, simultaneous orders affecting significant
portions of the Fund's assets and, in particular, a pattern of exchanges
coinciding with a "market timing" strategy. 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 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 the Fund from other selected securities
brokers, dealers or through financial intermediaries such as benefit plan
administrators. Investors should contact these agents directly for appropriate
instructions, as well as information pertaining to accounts and any service or
transaction fees that may be charged by these agents. Purchase orders through
securities brokers, dealers and other financial intermediaries are effected at
the next-determined net asset value after receipt of the order by such agent,
provided the agent transmits such order on a timely basis to the Transfer Agent
so that it is received by 4:00 p.m., New York time, on days that the Fund issues
shares. Orders received after that time will be purchased at the next-determined
net asset value. To the extent these agents perform shareholder servicing
activities for the Fund, they may receive fees from the Fund for such services.
Repurchase Orders Through Brokerage Accounts
Shareholders also may sell shares back to the Fund by wire or telephone through
Montgomery Securities or selected securities brokers or dealers. Shareholders
should contact their securities broker or dealer for appropriate instructions
and for information concerning any transaction or service fee that may be
imposed by the broker or dealer. Shareholders are entitled to the net asset
value next determined after receipt of a repurchase order by such broker-dealer,
provided the broker-dealer transmits such
20
<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 the Fund is determined once daily as of 4:00 p.m., New
York time, on each day that the NYSE is open for trading. Per-share net asset
value is calculated by dividing the value of the Fund's total net assets by the
total number of the Fund's shares then outstanding.
As more fully described in the Statement of Additional Information, portfolio
securities are valued using current market valuations: either the last reported
sales price or, in the case of securities for which there is no reported last
sale and fixed income securities, the mean between the closing bid and asked
price. Securities for which market quotations are not readily available or which
are illiquid are valued at their fair values as determined in good faith under
the supervision of the Trust's officers, and by the manager and the Pricing
Committee of the Board respectively, in accordance with methods that are
specifically authorized by the Board. Short-term obligations with maturities of
60 days or less are valued at amortized cost as reflecting fair value.
The value of securities denominated in foreign currencies and traded on foreign
exchanges or in foreign markets will be translated into U.S. dollars at the last
price of their respective currency denomination against U.S. dollars quoted by a
major bank or, if no such quotation is available, at the rate of exchange
determined in accordance with policies established in good faith by the Board of
Trustees. Because the value of securities denominated in foreign currencies must
be translated into U.S. dollars, fluctuations in the value of such currencies in
relation to the U.S. dollar may affect the net asset value of Fund shares even
if there has not been any change in the foreign-currency denominated values of
such securities.
Because foreign securities markets may close prior to the time the Fund
determines its net asset values, events affecting the value of portfolio
securities occurring between the time prices are determined and the time the
Fund calculates its net asset values may not be reflected in the Fund's
calculation of net asset values unless the Manager, under supervision of the
Board, determines that a particular event would materially affect the Fund's net
asset values.
Dividends And Distributions
The Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. The Fund currently intends to make one
or, if necessary to avoid the imposition of tax on the Fund, more distributions
during each calendar year. A distribution may be made between November 1 and
December 31 of each year with respect to any undistributed capital gains earned
during the one-year period ended October 31 of such calendar year. Another
distribution of any undistributed capital gains may also be made following the
Fund's fiscal year end (June 30). The amount and frequency of Fund distributions
are not guaranteed and are at the discretion of the Board.
Unless investors request cash distributions in writing at least seven business
days prior to the distribution, or on the Account Application, all dividends and
other distributions will be reinvested automatically in additional Class P
shares of the Fund and credited to the shareholder's account at the closing net
asset value on the reinvestment date.
Taxation
The Fund intends to qualify and elect as soon as possible to be treated as a
regulated investment company under Subchapter M of the Code, by distributing
substantially all of its net investment income and net capital gains to its
shareholders and meeting other requirements of the Code relating to the sources
of its income and diversification of assets. Accordingly, the Fund generally
will not be liable for federal income tax or excise tax based on net income
except to the extent its earnings are not distributed or are distributed in a
manner that does not satisfy the requirements of the Code pertaining to the
timing of distributions. If the Fund is unable to meet certain requirements of
the Code, it may be subject to taxation as a corporation. The Fund may also
incur tax liability to the extent it invests in "passive foreign investment
companies." See the Statement of Additional Information.
For federal income tax purposes, any dividends derived from net investment
income and any excess of net short-term capital gain over net long-term capital
loss that investors (other than certain tax-exempt organizations that have not
borrowed to purchase Fund shares) receive from the Fund are considered ordinary
income. Part of the distributions paid by the Fund may be eligible for the
dividends-received deduction allowed to corporate shareholders under the Code.
Distributions of the excess of net long-term capital gain over net short-term
capital loss from transactions of the Fund are treated by shareholders as
21
<PAGE>
long-term capital gains regardless of the length of time the Fund's shares have
been owned. Distributions of income and capital gains are taxed in the manner
described above, whether they are taken in cash or are reinvested in additional
shares of the Fund.
The Fund will inform its investors of the source of their dividends and
distributions at the time they are paid, and will promptly after the close of
each calendar year advise investors of the tax status of those distributions and
dividends. Investors (including tax-exempt and foreign investors) are advised to
consult their own tax advisers regarding the particular tax consequences to them
of an investment in shares of the Fund. Additional information on tax matters
relating to the Fund and its shareholders is included in the Statement of
Additional Information.
General Information
The Trust
The Fund is a series of The Montgomery Funds, a Massachusetts business trust
organized on May 10, 1990 (the "Trust"). The Trust's Agreement and Declaration
of Trust permits the Board to issue an unlimited number of full and fractional
shares of beneficial interest, $.01 par value, in any number of series. The
assets and liabilities of each series within the Trust are separate and distinct
from those of each other series.
This Prospectus relates only to the Class P shares of the Fund. The Fund has
designated other classes of shares and may in the future designate other classes
of shares for specific purposes.
Shareholder Rights
Shares issued by the Fund have no preemptive, conversion or subscription rights.
Each whole share is entitled to one vote as to any matter on which it is
entitled to vote and each fractional share is entitled to a proportionate
fractional vote. Shareholders have equal and exclusive rights as to dividends
and distributions as declared by the Fund and to the net assets of the Fund upon
liquidation or dissolution. The Fund, as a separate series of the Trust, votes
separately on matters affecting only the Fund (e.g., approval of the Investment
Management Agreement); all series of the Trust vote as a single class on matters
affecting all series of the Trust jointly or the Trust as a whole (e.g.,
election or removal of Trustees). Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in any election of Trustees can,
if they so choose, elect all of the Trustees. Except as set forth herein, all
classes of shares issued by the Fund shall have identical voting, dividend,
liquidation and other rights, preferences, and terms and conditions. The only
differences among the various classes of shares relate solely to the following:
(a) each class may be subject to different class expenses; (b) each class may
bear a different identifying designation; (c) each class may have exclusive
voting rights with respect to matters solely affecting such class; (d) each
class may have different exchange privileges; and (e) each class may provide for
the automatic conversion of that class into another class. While the Trust is
not required and does not intend to hold annual meetings of shareholders, such
meetings may be called by the Board at its discretion, or upon demand by the
holders of 10% or more of the outstanding shares of the Trust for the purpose of
electing or removing Trustees. Shareholders may receive assistance in
communicating with other shareholders in connection with the election or removal
of Trustees pursuant to the provisions of Section 16(c) of the Investment
Company Act.
Performance Information
From time to time, the Fund may publish its total return, such as 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 the Fund's average annual compounded rate of return over
the most recent four calendar quarters and over the period from the Fund's
inception of operations. The Fund may also advertise aggregate and average total
return information over different periods of time. The Fund's average annual
compounded rate of return is determined by reference to a hypothetical $1,000
investment that includes capital appreciation and depreciation for the stated
period according to a specific formula. Aggregate total return is calculated in
a similar manner, except that the results are not annualized. Total return
figures will reflect all recurring charges against the Fund's income.
Investment results of the Fund will fluctuate over time, and any presentation of
the Fund's total return for any prior period should not be considered as a
representation of what an investor's total return or current yield may be in any
future period.
22
<PAGE>
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 Fund with their correct Social
Security or other Taxpayer Identification Number ("TIN"), regardless of whether
they file tax returns. Failure to do so may subject a shareholder to penalties.
Failure to provide a correct TIN or to check the appropriate boxes in the
Account Application and to sign the shareholder's name could result in backup
withholding by the Fund of an amount of federal income tax equal to 31% of
distributions, redemptions, exchanges and other payments made to a shareholder's
account. Any tax withheld may be credited against taxes owed on a shareholder's
federal income tax return.
A shareholder who does not have a TIN should apply for one immediately by
contacting the local office of the Social Security Administration or the IRS.
Backup withholding could apply to payments made to a shareholder's account while
awaiting receipt of a TIN. Special rules apply for certain entities. For
example, for an account established under the Uniform Gifts to Minors Act, the
TIN of the minor should be furnished. If a shareholder has been notified by the
IRS that he or she is subject to backup withholding because he or she failed to
report all interest and dividend income on his or her tax return and the
shareholder has not been notified by the IRS that such withholding will cease,
the shareholder should cross out the appropriate item in the Account
Application. Dividends paid to a foreign shareholder's account by the Fund may
be subject to up to 30% withholding instead of backup withholding.
A shareholder that is an exempt recipient should furnish a TIN and check the
appropriate box. Exempt recipients include certain corporations, certain
tax-exempt entities, tax-exempt pension plans and IRAs, governmental agencies,
financial institutions, registered securities and commodities dealers and
others. For further information, see Section 3406 of the Code and consult with a
tax adviser.
---------------------------------
This Prospectus is not an offering of the securities herein described in any
state in which the offering is unauthorized. No salesman, dealer or other person
is authorized to give any information or make any representation other than
those contained in this Prospectus, the Statement of Additional Information, or
in the Fund's official sales literature.
23
<PAGE>
Investment Manager
Montgomery Asset Management, L.P.
101 California Street
San Francisco, California 94111
1-800-572-FUND
Distributor
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
1-415-627-2485
Custodian
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
Transfer Agent
DST Systems, Inc.
P.O. Box 419073
Kansas City, Missouri 64141-6073
1-800-447-4210
Legal Counsel
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104
<PAGE>
---------------------------------------------------------------------
PART A
PROSPECTUS FOR CLASS L SHARES
MONTGOMERY EMERGING ASIA FUND
---------------------------------------------------------------------
<PAGE>
The Montgomery Funds
101 California Street
San Francisco, California 94111
(800) 572-FUND
Prospectus
April 7, 1997
Class L shares of the Montgomery Emerging Asia Fund (the "Fund") are offered in
this Prospectus. The Fund seeks long-term capital appreciation through
investment primarily in the equity securities of emerging Asian companies. As is
the case for all mutual funds, attainment of the Fund's investment objective
cannot be assured.
The Fund's Class L shares are only sold through financial intermediaries and
financial professionals at net asset value with no sales load, no commissions
and no exchange fees. The Class L shares are subject to a Rule 12b-1
distribution fee as described in this Prospectus. In general, the minimum
initial investment in the Fund is $500, and subsequent investments must be at
least $100. The Manager or the Distributor, under any circumstances that either
deems appropriate, may waive these minimums. See "How to Invest in the Fund."
The Fund, which is a separate series of The Montgomery Funds, an open-end
management investment company, is managed by Montgomery Asset Management, L.P.
(the "Manager"), an affiliate of Montgomery Securities (the "Distributor").
Please read this Prospectus before investing and retain it for future reference.
A Statement of Additional Information dated November 12, 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 www.xperts.montgomery.com/1.
The Fund may offer other classes of shares to investors eligible to purchase
those shares. The other classes of shares may have different fees and expenses
than the class of shares offered in this Prospectus, and those different fees
and expenses may affect performance. To obtain information concerning the other
classes of shares not offered in this Prospectus, call The Montgomery Funds at
(800) 572-FUND or contact sales representatives or financial intermediaries who
offer those classes.
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
- --------------------------------------------------------------------------------
Fees and Expenses of the Fund 3
- --------------------------------------------------------------------------------
The Fund's Investment Objective and Policies 4
- --------------------------------------------------------------------------------
Portfolio Securities 4
- --------------------------------------------------------------------------------
Other Investment Practices 6
- --------------------------------------------------------------------------------
Risk Considerations 9
- --------------------------------------------------------------------------------
Management of the Fund 11
- --------------------------------------------------------------------------------
How To Invest in the Fund 13
- --------------------------------------------------------------------------------
How To Redeem an Investment in the Fund 17
- --------------------------------------------------------------------------------
Exchange Privileges and Restrictions 19
- --------------------------------------------------------------------------------
How Net Asset Value is Determined 20
- --------------------------------------------------------------------------------
Dividends and Distributions 20
- --------------------------------------------------------------------------------
Taxation 20
- --------------------------------------------------------------------------------
General Information 21
- --------------------------------------------------------------------------------
Backup Withholding Instructions 22
- --------------------------------------------------------------------------------
2
<PAGE>
Fees And Expenses Of The Fund
Shareholder Transaction Expenses for the Fund
<TABLE>
An investor would pay the following charges when buying or redeeming shares of
the Fund:
<CAPTION>
Maximum Sales Load
Maximum Sales Load Imposed on Reinvested
Imposed on Purchases Dividends Deferred Sales Load Redemption Fees+ Exchange Fees
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
None None None 1.00% None
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Estimated Annual Operating Expenses (as a percentage of average net assets)
Montgomery Emerging Asia Fund
- --------------------------------------------------------------------------------
Management Fee* 1.25%
- --------------------------------------------------------------------------------
12b-1 Fee 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.65%
(after reimbursement)*
- --------------------------------------------------------------------------------
Total Fund Operating Expenses* 2.65%
- --------------------------------------------------------------------------------
The previous tables are intended to assist the investor in understanding the
various direct and indirect costs and expenses of the Fund. Operating expenses
are paid out of the Fund's assets and are factored into the Fund's share price.
The Fund estimates that it will have the expenses listed (expressed as a
percentage of average net assets) for the current fiscal year. 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 L shares of the 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 Fund reserves the right, upon 60 days' advance
notice to shareholders, to impose a redemption fee of up to 1.00% on shares
redeemed within 90 days of purchase. The Fund also reserves the right to
impose a $20 annual account maintenance fee on accounts that fall below the
minimum investment because of redemption. See "How to Redeem an Investment in
the Fund."
* Expenses for the Fund are estimated. The Manager will reduce its fees and may
absorb or reimburse the Fund for certain expenses to the extent necessary to
limit total annual fund operating expenses to the lesser of the amount
indicated in the table for the Fund or the maximum allowed by applicable
state expense limitations. The Fund is required to reimburse the Manager for
any reductions in the Manager's fee only during the two years following that
reduction and only if such reimbursement can be achieved within the for going
expense limits. The Manager generally seeks reimbursement for the oldest
reductions and waivers before payment by the Fund for fees and expenses for
the current year. Absent the reduction, actual total Fund operating expenses
are estimated to be 4.00% (2.00% other expenses). The Manager may terminate
these voluntary reductions at any time. See "Management of the Fund."
Example of Expenses for the Fund
Assuming, hypothetically, that the Fund's annual return is 5% and that its
operating expenses are as set forth above, an investor buying $1,000 of the
Fund's shares would have paid the following total expenses upon redeeming such
shares:
Montgomery Emerging Asia Fund
- --------------------------------------------------------------------------------
1 Year $27
- --------------------------------------------------------------------------------
3 Years $82
- --------------------------------------------------------------------------------
5 Years N/A
- --------------------------------------------------------------------------------
10 Years N/A
- --------------------------------------------------------------------------------
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.
3
<PAGE>
The Fund's Investment Objective And Policies
The investment objective and general investment policies of the Fund are
described below. Specific portfolio securities that may be purchased by the Fund
are described in "Portfolio Securities" beginning on page 4. Specific investment
practices that may be employed by the Fund are described in "Other Investment
Practices" beginning on page 6. Certain risks associated with investments in the
Fund are described in those sections as well as in "Risk Considerations"
beginning on page 9.
The Investment objective of the Fund is long term capital appreciation, which
under normal conditions it seeks by investing at least 65% of its total assets
in equity securities of companies that have their principal activities in
emerging Asian countries. The Fund currently considers the following to be
emerging Asian countries: Bangladesh, China and Hong Kong (the fund considers
China and Hong Kong to be one single emerging Asia country), India, Indonesia,
Korea, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka, Taiwan and
Thailand. The Fund does not expect to invest in Japanese securities, however. In
the future, the Fund may invest in other countries in Asia when their markets
become sufficiently devleoped. Under normal conditions, the Fund maintains
investments in at least three emerging Asian countries at all times and invests
no more than one-third of its total assets in any one emerging Asian country
(other than China and Hong Kong or Malaysia where the Fund may invest without
being subject to the one-third of total assets limit). As part of the remaining
35% of its total assets, the Fund may invest in more developed Asian countries,
such as Japan, that may serve defensive purposes in an Asian portfolio.
Alternatively, companies in more developed Asian markets may have significant
operations in emerging Asian countries.
The Fund considers a company to be an emerging Asian company if its securities
are principally traded in the capital market of an emerging Asian country; it
derives at least 50% of its total revenue from either goods produced or services
rendered in emerging Asian countries or from sales made in such emerging Asian
countries, regardless of where the securities of such company are primarily
traded; or it is organized under the laws of, and with a principal office in an
emerging Asian country.
Emerging Asian countries are in various stages of economic development with most
being considered emerging markets. Each country has its unique risks. Most
emerging Asian countries are heavily dependent on international trade. Some have
prosperous economies, but are sensitive to world commodity prices. Others are
especially vulnerable to recession in other countries. Some emerging Asian
countries have experienced rapid growth, although many suffer from obsolete
financial systems, economic problems, or archaic legal systems. The return of
Hong Kong to Chinese dominion will affect emerging Asian countries in the
Pacific region. For information on risks, see "Portfolio Securities," "Risk
Considerations" and the Statement of Additional Information.
The Fund invests primarily in common stock but also may invest in other types of
equity and equity derivative securities. It may invest up to 35% of its total
assets in debt securities, including up to 5% in high yield debt securities
rated below investment grade (also known as "junk bonds.") See "Portfolio
Securities" and "Risk Considerations." 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.
The Fund may invest in certain debt securities issued by the governments of
emerging Asian countries that are, or may be eligible for, conversion into
investments in emerging Asian companies under debt conversion programs sponsored
by such governments. If such securities are convertible to equity investments,
the Fund deems them to be equity derivative securities. See "Portfolio
Securities."
Josephine S. Jimenez, Bryan L. Sudweeks, Angeline Ee and Frank Chiang are
responsible for managing the Fund's portfolio. See "Management of the Fund."
Portfolio Securities
Equity Securities
In seeking its investment objective, the Fund emphasizes investments in common
stock. The Fund also may invest in other types of equity securities and equity
derivative securities such as preferred stocks, convertible securities,
warrants, units, rights, and options on securities and on securities indices.
Depositary Receipts
The Fund may invest in both sponsored and unsponsored American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs") 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. GDRs are issued in foreign countries, typically by foreign banks and
trust companies, and evidence ownership of either foreign or domestic
securities. Unsponsored ADR, EDR
4
<PAGE>
and GDR 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, EDRs and GDRs, and the prices of
unsponsored ADRs, EDRs and GDRs may be more volatile.
Convertible Securities
The Fund may invest in convertible securities. A convertible security is a
fixed-income security (a bond or preferred stock) that may be converted at a
stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Convertible securities are
senior to common stock in a corporation's capital structure but are usually
subordinated to similar non-convertible securities. Through their conversion
feature, they provide an opportunity to participate in capital appreciation
resulting from a market price advance in the underlying common stock. The price
of a convertible security is influenced by the market value of the underlying
common stock and tends to increase as the common stock's market value rises and
decrease as the common stock's market value declines. For purposes of allocating
Fund investments, the Manager regards convertible securities as a form of equity
security.
Securities Warrants and Rights
The Fund may invest up to 5% of its net assets in warrants and rights, including
up to 2% of net assets for those not listed on a securities exchange. A warrant
typically is a long-term option that permits the holder to buy a specified
number of shares of the issuer's underlying common stock at a specified exercise
price by a particular expiration date. Stock index warrants entitle the holder
to receive, upon exercise, an amount in cash determined by reference to
fluctuations in the level of a specified stock index. A right (also called a
subscription right) is a privilege granted to existing shareholders of a
corporation to subscribe to shares of a new issue of common stock before it is
offered to the public, which entitles the holder to buy the new common stock
below the public offering price. A right, like a warrant, is transferable. Also,
a warrant or a right not exercised or disposed of by its expiration date expires
worthless.
Privatizations
The 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 Fund believes that carefully selected investments in joint ventures,
cooperatives, partnerships, private placements, unlisted securities and similar
vehicles (collectively, "special situations") could enhance its capital
appreciation potential. The Fund also may invest in certain types of vehicles or
derivative securities that represent indirect investments in foreign markets or
securities in which it is impractical for the Fund to invest directly.
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
The Fund may invest up to 10% of its total assets in shares of other investment
companies investing exclusively in securities in which it may otherwise invest.
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 Fund to invest in certain markets. Such investments may involve the
payment of substantial premiums above the net asset value of those investment
companies' portfolio securities and are subject to limitations under the
Investment Company Act. The 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 Fund does not intend to invest in other investment companies unless, in the
Manager's judgment, the potential benefits exceed associated costs. As a
shareholder in an investment company, the Fund bears its ratable share of that
investment company's expenses, including advisory and administration fees. In
accordance with applicable state regulatory provisions, the Manager has agreed
to waive its own management fee with respect to the portion of the Fund's assets
invested in other open-end (but not closed-end) investment companies.
5
<PAGE>
Debt Securities
The Fund may purchase debt securities that complement its objective of capital
appreciation through anticipated favorable changes in relative foreign exchange
rates, in relative interest rate levels, or in the creditworthiness of issuers.
In selecting debt securities, the Manager seeks out good credits and analyzes
interest rate trends and specific developments that may affect individual
issuers. As an operating policy which may be changed by the Board, the 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 Fund may invest in external (i.e., to foreign lenders) debt
obligations issued by the governments, governmental entities and companies of
emerging Asia 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 Fund's assets to be invested in equity securities versus debt securities:
levels and anticipated trends in inflation and interest rates; expected rate 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 Fund may invest in fixed rate and floating or variable rate U.S. Government
securities. Certain of the obligations, including U.S. Treasury Bills, Notes and
Bonds, and mortgage-related securities of the Government National Mortgage
Association ("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 Fund's 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.
Other Investment Practices
The Fund also may engage in the investment practices described below, each of
which may involve certain special risks. The Statement of Additional
Information, under the heading "Investment Objective and Policies of the Fund,"
contains more detailed information about certain of these practices, including
limitations designed to reduce risks.
Repurchase Agreements
The Fund may enter into repurchase agreements. Pursuant to a repurchase
agreement, the Fund acquires a U.S. Government security or other high-grade
liquid debt instrument from a financial institution that simultaneously agrees
to repurchase the same security at a specified time and price. The repurchase
price reflects an agreed-upon rate of return not determined by the coupon rate
on the underlying security. Under the Investment Company Act, repurchase
agreements are considered to be loans by the Fund and must be fully
collateralized by cash, letters of credit, U.S. Government securities or other
high-grade liquid debt or equity securities that the Fund's custodian, or a
designated sub-custodian, either places in a segregated account or separately
identifies and renders unavailable for investment ("Segregable Assets"). If the
seller defaults on its obligation to repurchase the underlying security, the
Fund may experience delay or difficulty in exercising its rights to realize upon
the security, may incur a loss if the value of the security declines and may
incur disposition costs in liquidating the security.
6
<PAGE>
Borrowing
The Fund may borrow money from banks and engage in reverse repurchase
transactions, in an amount not to exceed one-third of the value of its total
assets to meet temporary or emergency purposes, and the Fund may pledge its
assets in connection with such borrowings. The Fund may not purchase securities
if such borrowings exceed 10% of its total assets.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements. In a reverse repurchase
agreement, the Fund sells to a financial institution a security that it holds
and agrees to repurchase the same security at an agreed-upon price and date.
Leverage
The Fund may leverage its portfolio to increase total return. Although leverage
creates an opportunity for increased income and gain, it also creates special
risk considerations. For example, leveraging may magnify changes in the net
asset values of the Fund's shares and in the yield on its portfolio. Although
the principal of such borrowings will be fixed, the Fund's assets may change in
value while the borrowing is outstanding. Leveraging creates interest expenses
that can exceed the income from the assets retained.
Securities Lending
The Fund may lend securities to brokers, dealers and other financial
organizations. These loans may not exceed 30% of the Fund's total assets. Each
securities loan is collateralized with Segregable Assets in an amount at least
equal to the current market value of the loaned securities, plus accrued
interest. There is a risk of delay in receiving collateral or in recovering the
securities loaned or even a loss of rights in the collateral should the borrower
of the securities fail financially.
When-Issued and Forward Commitment Securities
The Fund 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 and payment for the securities take place at a later date, normally 7
to 15 days or, in the case of certain CMO issues, 45 to 60 days later.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the 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 the Fund. If the 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 the 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 Fund, the Fund may employ certain
risk management practices using the following derivative securities and
techniques (known as "derivatives"): forward currency exchange contracts, stock
options, currency options, and stock and stock index options, futures contracts
and options on futures contracts on foreign government securities and
currencies. The Board of the Trust has adopted derivative guidelines that
require the Board to review each new type of derivative that may be used by the
Fund. 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, the Fund engages in hedging activities only when the Manager deems
it to be appropriate and does not necessarily engage in hedging transactions
with respect to each investment.
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. The 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
7
<PAGE>
market at the time of the transaction, or through entering into forward
contracts to purchase or sell foreign currencies at a future date. The Fund
generally does not enter into forward contracts with terms greater than one
year.
The Fund generally enters into forward contracts only under two circumstances.
First, if the 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 the Fund's
portfolio securities denominated in such currency. The 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 the 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 Fund may purchase put and call options on securities and currencies traded
on U.S. exchanges and, to the extent permitted by law, foreign exchanges, as
well as in the over-the-counter market. The Fund may purchase call options on
securities which it intends to purchase (or on currencies in which those
securities are denominated) in order to limit the risk of a substantial increase
in the market price of such security (or an adverse movement in the applicable
currency). The Fund may purchase put options on particular securities (or on
currencies in which those securities are denominated) in order to protect
against a decline in the market value of the underlying security below the
exercise price less the premium paid for the option (or an adverse movement in
the applicable currency relative to the U.S. dollar). Put options allow the Fund
to protect unrealized gain in an appreciated security that it owns without
selling that security. Prior to expiration, most options are expected to be sold
in a closing sale transaction. Profit or loss from the sale depends upon whether
the amount received is more or less than the premium paid plus transaction
costs.
The Fund also may purchase put and call options on stock indices in order to
hedge against risks of stock market or industry-wide stock price fluctuations.
The Fund may purchase options on currencies in order to hedge its positions in a
manner similar to its use of forward foreign exchange contracts and futures
contracts on currencies.
Futures and Options on Futures
To protect against the effect of adverse changes in interest rates, the Fund may
purchase and sell interest rate futures contracts. An interest rate futures
contract is an agreement to purchase or sell debt securities, usually U.S.
Government securities, at a specified date and price. In addition, the Fund may
purchase and sell put and call options on interest rate futures contracts in
lieu of entering into the underlying interest rate futures contracts. The Fund
segregates Segregable Assets equal to the purchase price of the portfolio
securities represented by the underlying interest rate futures contracts it has
an obligation to purchase.
The Fund does not enter into any futures contracts or related options if the sum
of initial margin deposits on futures contracts, related options (including
options on securities, securities indices and currencies) and premiums paid for
any such related options would exceed 5% of its total assets. The Fund does not
purchase futures contracts or related options if, as a result, more than
one-third of its total assets would be so invested.
Hedging Considerations
Hedging transactions involve certain risks. While the Fund may benefit from the
use of hedging transactions, unanticipated changes in interest rates or
securities prices may result in poorer overall performance for the Fund than if
it had not entered into a hedging position. If the correlation between a hedging
position and a portfolio position is not properly protected, the desired
protection may not be obtained and the Fund may be exposed to risk of financial
loss. In addition, the Fund pays commissions and other costs in connection with
such investments.
Illiquid Securities
The Fund may not invest more than 15% of its net assets in illiquid securities.
The Fund treats any securities subject to restrictions on repatriation for more
than seven days and securities issued in connection with foreign debt conversion
programs that are restricted as to remittance of invested capital or profit as
illiquid. The Fund also treats repurchase agreements with maturities in excess
of seven days as illiquid. Illiquid securities do not include securities that
meet the requirements of Rule 144A under the Securities Act of 1933 and that,
subject to the review by the Board and guidelines adopted by the Board, the
Manager has determined to be liquid. State securities laws may impose further
limitations on the amount of illiquid or restricted securities the Fund may
purchase.
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<PAGE>
Defensive Investments and Portfolio Turnover
Notwithstanding its investment objective, the Fund may adopt up to a 100% cash
or cash equivalent position for temporary defensive purposes to protect against
erosion of its capital base. Depending upon the Manager's analysis of the
various markets and other considerations, all or part of the assets of the Fund
may be held in cash and cash equivalents (denominated in U.S. dollars or foreign
currencies), such as U.S. Government securities or obligations issued or
guaranteed by the government of a foreign country or by an international
organization designed or supported by multiple foreign governmental entities to
promote economic reconstruction or development, high-quality commercial paper,
time deposits, savings accounts, certificates of deposit, bankers' acceptances
and repurchase agreements with respect to all of the foregoing. Such investments
also may be made for temporary purposes pending investment in other securities
and following substantial new investment in the Fund.
Portfolio securities are sold whenever the Manager believes it appropriate,
regardless of how long the securities have been held. The Manager therefore
changes the Fund's investments whenever it believes doing so will further the
Fund's investment objective or when it appears that a position of the desired
size cannot be accumulated. Portfolio turnover generally involves some expense
to the Fund, including brokerage commissions, dealer mark-ups and other
transaction costs, and may result in the recognition of capital gains that may
be distributed to shareholders. Portfolio turnover in excess of 100% is
considered high and increases such costs. The annual portfolio turnover for the
Fund is expected to be approximately 125%. Even if the portfolio turnover for
the Fund is in excess of 125%, the Fund would not consider portfolio turnover as
a limiting factor.
Investment Restrictions
The investment objective of the Fund is fundamental and may not be changed
without shareholder approval, but unless otherwise stated, the Fund's other
investment policies may be changed by the Board. If there is a change in the
investment objective or policies of the Fund, shareholders should consider
whether the Fund remains an appropriate investment in light of their
then-current financial positions and needs. The Fund is subject to additional
investment policies and restrictions described in the Statement of Additional
Information, some of which are fundamental.
The Fund has reserved the right, if approved by the Board, to convert in the
future to a "feeder" fund that would invest all of its assets in a "master" fund
having substantially the same investment objective, policies and restrictions.
At least 30 days' prior written notice of any such action would be given to all
shareholders if and when such a proposal is approved, although no such action
has been proposed as of the date of this Prospectus.
Risk Considerations
Concentration in Securities of Emerging Asian Companies
The Fund concentrates its investments in companies that have their principal
activities in the emerging Asian countries. Consequently, the Fund's share value
may be more volatile than that of investment companies not sharing this
geographic concentration. The value of the Fund's shares may vary in response to
political and economic factors affecting issuers in emerging Asian countries.
Although the Fund normally does not expect to invest in Japanese companies, some
emerging Asian economies are directly affected by Japanese capital investment in
the region and by Japanese consumer demands. Many of the emerging Asian
countries are developing both economically and politically. Emerging Asia
countries may have relatively unstable governments, economies based on only a
few commodities or industries, and securities markets trading infrequently or in
low volumes. Some emerging Asia countries restrict the extent to which
foreigners may invest in their securities markets. Securities of issuers located
in some emerging Asia countries tend to have volatile prices and may offer
significant potential for loss as well as gain. Further, certain companies in
the emerging Asia may not have firmly established product markets, may lack
depth of management, or may be more vulnerable to political or economic
developments such as nationalization of their own industries. Moreover, as long
as the Fund invests in at least three emerging Asia countries, it may invest
more than 90% of its assets in China and Hong Kong. Alternatively, it may invest
more than 90% of its assets in Malaysia. Such heavy concentration of investment
in a few countries may make the Fund's share value extremely volatile and, in
the event of any economic downturn or other events adversely affecting those
countries, such events' impact on the Fund will be more magnified than if the
Fund did not have such a narrow concentration.
Small Companies
The Fund may invest in smaller companies that may benefit from the development
of new products and services. These smaller companies may present greater
opportunities for capital appreciation but may involve greater risk than larger,
more mature issuers. Such smaller companies may have limited product lines,
markets or financial resources, and their securities may trade
9
<PAGE>
less frequently and in more limited volume than those of larger, more mature
companies. As a result, the prices of their securities may fluctuate more than
the prices of the securities of larger issuers.
Foreign Securities
In addition to the special risks of investing in emerging Asian countries
discussed above, there are general risk associated with investments in foreign
securities.
Foreign investments involve the possibility of expropriation, nationalization or
confiscatory taxation, taxation of income earned in foreign nations (including,
for example, withholding taxes on interest and dividends) or other taxes imposed
with respect to investments in foreign nations, foreign exchange controls (which
may include suspension of the ability to transfer currency from a given country
and repatriation of investments), default in foreign government securities, and
political or social instability or diplomatic developments that could adversely
affect investments. In addition, there is often less publicly available
information about foreign issuers than those in the U.S. Foreign companies are
often not subject to uniform accounting, auditing and financial reporting
standards. Further, the Fund may encounter difficulties in pursuing legal
remedies or in obtaining judgments in foreign courts. Additional risk factors,
including use of domestic and foreign custodian banks and depositories, are
described elsewhere in the Prospectus and in the Statement of Additional
Information.
Brokerage commissions, fees for custodial services and other costs relating to
investments by the Fund in other countries are generally greater than in the
U.S. Foreign markets, have different clearance and settlement procedures from
those in the U.S., and certain markets have experienced times when settlements
did not keep pace with the volume of securities transactions and resulted in
settlement difficulty. The inability of the Fund to make intended security
purchases due to settlement difficulties could cause it to miss attractive
investment opportunities. Inability to sell a portfolio security due to
settlement problems could result in loss to the Fund if the value of the
portfolio security declined or 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 Fund may invest may also be
smaller, less liquid, and subject to greater price volatility than those in the
U.S.
Because the securities owned by the Fund may be denominated in foreign
currencies, the value of such securities will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of a
foreign currency against the U.S. dollar results in a corresponding change in
the U.S. dollar value of the Fund's securities denominated in the currency. Such
changes also affect the Fund's income and distributions to shareholders. The
Fund may be affected either favorably or unfavorably by changes in the relative
rates of exchange between the currencies of different nations, and the Fund may
therefore engage in foreign currency hedging strategies. Such strategies,
however, involve certain transaction costs and investment risks, including
dependence upon the Manager's ability to predict movements in exchange rates.
Some countries in which the Fund may invest may also have fixed or managed
currencies that are not freely convertible at market rates into the U.S. dollar.
Certain currencies may not be internationally traded. A number of these
currencies have experienced steady devaluation relative to the U.S. dollar, and
such devaluations in the currencies may have a detrimental impact on the Fund.
Many countries in which the Fund may invest have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuation in inflation rates may have negative effects on certain
economies and securities markets. Moreover, the economies of some countries may
differ favorably or unfavorably from the U.S. economy in such respects as the
rate of growth of gross domestic product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments.
Certain countries also limit the amount of foreign capital that can be invested
in their markets and local companies, creating a "foreign premium" on capital
investments available to foreign investors such as the Fund. The Fund may pay a
"foreign premium" to establish an investment position which it cannot later
recoup because of changes in that country's foreign investment laws.
Lower Quality Debt
The 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.
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<PAGE>
As an operating policy, which may be changed by the Board without shareholder
approval, the 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 sensitive to prevailing interest rates is
inversely related to actual changes in interest rates. That is, a decline in
interest rates produces an increase in the market value of these securities
while an increase in interest rates produces a decrease. Moreover, the longer
the remaining maturity of a security, the greater the effect of interest rate
change. Changes in the ability of an issuer to make payments of interest and
principal and in the market's perception of its creditworthiness also affect the
market value of that issuer's debt securities.
Management Of The Fund
The Montgomery Funds has a Board of Trustees that establishes the Fund's
policies and supervises and reviews its management. Day-to-day operations of the
Fund are administered by the officers of the Trust and by the Manager pursuant
to the terms of an investment management agreement with the Fund.
Montgomery Asset Management, L.P., is the Fund's Manager. The Manager, a
California limited partnership, was formed in 1990 as an investment adviser
registered as such with the SEC under the Investment Advisers Act of 1940, as
amended, and since then has advised private accounts as well as the Fund. Its
general partner is Montgomery Asset Management, Inc., and its sole limited
partner is Montgomery Securities, the Fund's Distributor. Under the Investment
Company Act, both Montgomery Asset Management, Inc. and Montgomery Securities
may be deemed control persons of the Manager. Although the operations and
management of the Manager are independent from those of Montgomery Securities,
the Manager may draw upon the research and administrative resources of
Montgomery Securities in its discretion and consistent with applicable
regulations.
Founded in 1969, Montgomery Securities is a fully integrated and highly focused
investment banking partnership specializing in emerging growth companies. The
firm's areas of expertise include research, corporate finance, sales and
trading, and venture capital. Its research department is one of the largest,
most experienced groups headquartered outside the East Coast. Through its
corporate finance department, Montgomery Securities is a well recognized
underwriter of public offerings and provides broad distribution of securities
through its sales and trading organization.
Portfolio Managers
The Fund is managed by Josephine S. Jimenez, Bryan L. Sudweeks, Angeline Ee and
Frank Chiang.
Josephine S. Jimenez, CFA, is a Managing Director and Senior Portfolio Manager.
From 1988 through 1991, Ms. Jimenez worked at Emerging Markets Investors
Corporation/Emerging Markets Management in Washington, D.C. as senior analyst
and portfolio manager.
Bryan L. Sudweeks, Ph.D., CFA, is a Managing Director and Senior Portfolio
Manager. Before joining the Manager, he was a senior analyst and portfolio
manager at Emerging Markets Investors Corporation/Emerging Markets Management in
Washington, D.C. Previously, he was a Professor of International Finance and
Investments at George Washington University and served as Adjunct Professor of
International Investments from 1988 until May 1991.
Angeline Ee is a Portfolio Manager. From 1990 until joining the Manager in July
1994, Ms. Ee was an Investment Manager with AIG Investment Corp. in Hong Kong.
From June 1989 until September 1990, Ms. Ee was a co-manager of a portfolio of
Asian equities and bonds at Chase Manhattan Bank in Singapore.
Frank Chiang is a Portfolio Manager. From 1993 until joining the Manager in
1996, Mr. Chiang was Managing Director and Portfolio Manager at TCW Asia Ltd. in
Hong Kong.
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<PAGE>
Management Fees and Other Expenses
The Manager provides the Fund with advice on buying and selling securities,
manages the Fund's investments, including the placement of orders for portfolio
transactions, furnishes the Fund with office space and certain administrative
services, and provides personnel needed by the Fund with respect to the
Manager's responsibilities under the Manager's Investment Management Agreement
with the Fund. The Manager also compensates the members of the Board who are
interested persons of the Manager, and assumes the cost of printing prospectuses
and shareholder reports for dissemination to prospective investors. As
compensation, the Fund pays the Manager a monthly management fee (accrued daily
but paid when requested by the Manager) based upon the value of its average
daily net assets, according to the following table. The management fee for the
Fund is higher than for most mutual funds.
Average Daily Net Assets Annual Rate
- -------------------------------------------------------------------------------
Montgomery Emerging Asia Fund First $500 million 1.25%
Next $500 million 1.10%
Over $1 billion 1.00%
- -------------------------------------------------------------------------------
The Manager also serves as the Fund's Administrator (the "Administrator"). The
Administrator performs services with regard to various aspects of the Fund's
administrative operations. As compensation, the Fund pays the Administrator a
monthly fee at the annual rate of seven one-hundredths of one percent (0.07%) of
average daily net assets (0.06% of daily net assets over $500 million).
The Fund is responsible for its own operating expenses including, but not
limited to: the Manager's fees; taxes, if any; brokerage and commission
expenses, if any; interest charges on any borrowings; transfer agent,
administrator, custodian, legal and auditing fees; shareholder servicing fees
including fees to third party servicing agents; fees and expenses of Trustees
who are not interested persons of the Manager; salaries of certain personnel;
costs and expenses of calculating its daily net asset value; costs and expenses
of accounting, bookkeeping and recordkeeping required under the Investment
Company Act; insurance premiums; trade association dues; fees and expenses of
registering and maintaining registration of its shares for sale under federal
and applicable state securities laws; all costs associated with shareholders
meetings and the preparation and dissemination of proxy materials, except for
meetings called solely for the benefit of the Manager or its affiliates;
printing and mailing prospectuses, statements of additional information and
reports to shareholders; and other expenses relating to the Fund's operations,
plus any extraordinary and nonrecurring expenses that are not expressly assumed
by the Manager.
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 L shares of the Fund
have approved, and the Fund has entered into, a Share Marketing Plan (the
"Plan") with the Manager, as the distribution coordinator, for the Class L
shares. Under the Plan, the Fund will pay distribution fees to the Manager at an
annual rate of 0.75% of the Fund's aggregate average daily net assets
attributable to its Class L 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 Fund to prospective investors in that Class; (iii) costs
involved in preparing, printing and distributing sales literature pertaining to
the Fund and that Class; and (iv) costs involved obtaining whatever information,
analysis and reports with respect to marketing and promotional activities that
the Fund 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 L shares as accrued.
In adopting the Plan, the Board of Trustees determined that there was a
reasonable likelihood that the Plan would benefit the Fund and the shareholders
of Class L shares. Information with respect to distribution revenues and
expenses is presented to the Board of Trustees quarterly for its consideration
in connection with its deliberations as to the continuance of the Plan. In its
review of the Plan, the Board of Trustees is asked to take into consideration
expenses incurred in connection with the separate distribution of the Class L
shares.
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<PAGE>
The Class L shares are not obligated under the Plan to pay any distribution
expenses in excess of the distribution fee. Thus, if the Plan were 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 L shares is designed to permit an
investor to purchase Class L shares through broker-dealers without the
assessment of a front-end sales charge and at the same time to permit the
Manager to compensate broker-dealers on an ongoing basis in connection with the
sale of the Class L 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 Trust, including a majority of
the Trustees who are not "interested persons" of the Trust (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 L
shares.
All distribution fees paid by the Fund 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.
The Manager has agreed to reduce its management fee if necessary to keep total
annual operating expenses (excluding the Rule 12b-1 fee) at or below the lesser
of the maximum allowable by applicable state expense limitations or one and
nine-tenths of one percent (1.90%) of the Fund's average net assets. The Manager
also may voluntarily reduce additional amounts to increase the return to the
Fund's investors. The Manager may terminate these voluntary reductions at any
time. Any reductions made by the Manager in its fees are subject to
reimbursement by the Fund within the following two years, provided that the Fund
is able to effect such reimbursement and remain in compliance with applicable
expense limitations. The Manager generally seeks reimbursement for the oldest
reductions and waivers before payment by the Fund for fees and expenses for the
current year.
In addition, the Manager may elect to absorb operating expenses that the Fund is
obligated to pay in order to increase the return to the Fund's investors. To the
extent the Manager performs a service or assumes an operating expense for which
the Fund is obligated to pay and the performance of such service or payment of
such expense is not an obligation of the Manager under the Investment Management
Agreement, the Manager is entitled to seek reimbursement from the Fund for the
Manager's costs incurred in rendering such service or assuming such expense. The
Manager, out of its own funds, also may compensate broker-dealers who distribute
the 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 Fund for financial
intermediaries and shareholders.
The Manager considers a number of factors in determining which brokers or
dealers to use for the Fund's portfolio transactions. While these factors are
more fully discussed in the Statement of Additional Information, they include,
but are not limited to, reasonableness of commissions, quality of services and
execution and availability of research that the Manager may lawfully and
appropriately use in its investment management and advisory capacities. Provided
the Fund receives prompt execution at competitive prices, the Manager also may
consider sale of the Fund's shares as a factor in selecting broker-dealers for
the Fund's portfolio transactions. It is anticipated that Montgomery Securities
may act as one of the Fund's brokers in the purchase and sale of portfolio
securities and, in that capacity, will receive brokerage commissions from the
Fund. The Fund will use Montgomery Securities as its broker only when, in the
judgment of the Manager and pursuant to review by the Board, Montgomery
Securities will obtain a price and execution at least as favorable as that
available from other qualified brokers. See "Execution of Portfolio
Transactions" in the Statement of Additional Information for further information
regarding Fund policies concerning execution of portfolio transactions.
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, serves as the master transfer agent for the Fund (the "Master Transfer
Agent") and performs certain recordkeeping and accounting functions. The Master
Transfer Agent delegates certain transfer agent functions to DST Systems, Inc.,
P.O. Box 419073, Kansas City, Missouri 64141-6073, the Fund's transfer agent
(the "Transfer Agent"). Morgan Stanley Trust Company, located at One Pierrepont
Plaza, Brooklyn, New York 11201, serves as the Fund's principal custodian (the
"Custodian").
How To Invest In The Fund
The Fund's 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 Fund's shares are offered for
sale by Montgomery Securities, the Fund's Distributor, 600 Montgomery Street,
San Francisco, California 94111, (800) 572-3863, and through selected securities
brokers and dealers.
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<PAGE>
If an order, together with payment in proper form, is received by the Transfer
Agent, 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 the Fund is $500 (including IRAs) and $100 for
subsequent investments. 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.
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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. Tell us which Fund(s) 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 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.
- --------------------------------------------------------------------------------
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 the
Fund in which you want to invest. They will provide you with
further instructions to complete your purchase. Complete
information regarding your account must be included in all
wire instructions to ensure accurate handling of your
investment.
o Request your bank to transmit immediately available funds by
wire for purchase of shares in your name to the following:
Investors Fiduciary Trust Company
ABA #101003621
For: DST Systems, Inc.
Account #7526601
Attention: The Montgomery Funds
For Credit to: (shareholder(s) name)
Shareholder Account Number: (shareholder(s) account number)
Name of Fund: Montgomery Emerging Asia Fund
o Your bank may charge a fee for any wire transfers.
o The Fund and the Distributor each reserve the right to reject
any purchase order in whole or in part.
- --------------------------------------------------------------------------------
Subsequent Investments
Minimum Subsequent Investment: $100
Mail any checks and investment instructions to:
The Montgomery Funds
c/o DST Systems, Inc.
P.O. Box 419073
Kansas City, MO 64141-6073
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<PAGE>
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Subsequent Investments by Check
- --------------------------------------------------------------------------------
o Make your check payable to The Montgomery Emerging
Asia Fund.
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."
- --------------------------------------------------------------------------------
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 Shares of IRAs are not eligible for telephone purchases.
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.
Write your confirmed purchase number on your check or include
it in your wire instructions.
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.
- --------------------------------------------------------------------------------
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<PAGE>
Complete information regarding your account must be included in all wire
instructions in order to facilitate the prompt and accurate handling of
investments. Investors may obtain further information from their own banks about
wire transfers and any fees that may be imposed. The Fund and the Distributor
each reserve the right to reject any purchase order in whole or in part.
Automatic Account Builder ("AAB")
o AAB will be established on existing accounts only. You may not
use an AAB investment to open a new account.
o The minimum automatic investment amount is the Fund's
subsequent investment minimum.
o Your bank must be a member of the Automated Clearing House.
o To establish AAB, attach a voided check (checking account) or
preprinted deposit slip (savings account) from your bank
account to your Montgomery account application or your letter
of instruction. Investments will automatically be transferred
into your Montgomery account from your checking or savings
account.
o Investments may be transferred either monthly or quarterly on
or up to two business days before the 5th or 20th day of the
month. If no day is specified on your account application or
your letter of instruction, the 20th of each month will be
selected.
o You should allow 20 business days for this service to become
effective.
o You may cancel your AAB at any time by sending a letter to the
Transfer Agent. Your request will be processed upon receipt.
Payroll Deduction
o Investment through payroll deduction will be established on
existing accounts only. You may not use payroll deduction to
open a new account. The minimum payroll deduction amount is
the Fund's subsequent investment minimum.
o You may automatically deposit a designated amount of your
paycheck directly into a Montgomery Fund account.
o Please call the Transfer Agent to receive instructions to
establish this service.
Telephone Transactions
You agree to reimburse the Fund for any expenses or losses that it may incur in
connection with transfers from your accounts, including any caused by your
bank's failure to act in accordance with your request or its failure to honor
your debit. If your bank makes erroneous payments or fails to make payment after
shares are purchased on your behalf, any such purchase may be canceled and this
privilege terminated immediately. This privilege may be discontinued at any time
by the Fund upon 30-days' written notice or any time by you by written notice to
the Fund. Your request will be processed upon receipt.
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 the Fund. The Fund and the Transfer Agent will not be liable for
following instructions communicated by telephone reasonably believed to be
genuine. The Fund employs reasonable procedures to confirm that instructions
communicated by telephone are genuine. These procedures include recording the
telephone call, sending a confirmation and requiring the caller to give a
special authorization number or other personal information not likely to be
known by others. The Fund and Transfer Agent may be liable for any losses due to
unauthorized or fraudulent telephone transactions only if such reasonable
procedures are not followed.
Retirement Plans
17
<PAGE>
Shares of the Fund are available for purchase by any retirement plan, including
Keogh plans, 401(k) plans, 403(b) plans and IRAs. Neither the Fund nor the
Manager administers or acts as custodian for retirement account plans. The Fund
may be available for purchase through administrators for retirement plans.
Investors who purchase shares as a part of a retirement plan should address
inquiries and seek investment servicing from their plan administrators. Plan
administrators may receive compensation from the Fund for performing shareholder
services.
Share Certificates
Share certificates will not be issued by the Fund. All shares are held in
non-certificated form registered on the books of the Fund and the Transfer Agent
for the account of the shareholder.
18
<PAGE>
How To Redeem An Investment In The Fund
The Fund will redeem all or any portion of an investor's outstanding shares upon
request. Redemptions can be made on any day that the NYSE is open for trading.
The redemption price is the net asset value per share next determined after the
shares are validly tendered for redemption and such request is received by the
Transfer Agent or, in the case of repurchase orders, Montgomery Securities or
other securities dealers. Payment of redemption proceeds is made promptly
regardless of when redemption occurs and normally within three days after
receipt of all documents in proper form, including a written redemption order
with appropriate signature guarantee. Redemption proceeds will be mailed or
wired in accordance with the shareholder's instructions. The Fund may suspend
the right of redemption under certain extraordinary circumstances in accordance
with the rules of the SEC. In the case of shares purchased by check and redeemed
shortly after the purchase, the Transfer Agent will not mail redemption proceeds
until it has been notified that the monies used for the purchase have been
collected, which may take up to 15 days from the purchase date. Shares tendered
for redemptions through brokers or dealers (other than the Distributor) may be
subject to a service charge by such brokers or dealers. Procedures for
requesting a redemption are set forth below. Shareholders should note that the
Fund reserves the right upon 60 days' advance notice to shareholders to impose a
redemption fee of up to 1.00% on shares redeemed within 90 days of purchase.
- --------------------------------------------------------------------------------
Redeeming by Written Instruction
- --------------------------------------------------------------------------------
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
19
<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.
o Telephone redemption privileges will be suspended 30 days
after an address change. All redemption requests during this
period must be in writing with a guaranteed signature.
o This service is not available for IRA accounts.
o Telephone redemption privileges may be cancelled after an
account is opened by instructing the Transfer Agent in
writing. Your request will be processed upon receipt.
- --------------------------------------------------------------------------------
By establishing telephone redemption privileges, a shareholder authorizes the
Fund and the Transfer Agent to act upon the instruction of the shareholder or
his or her designee by telephone to redeem from the account for which such
service has been authorized and transfer the proceeds to a bank or other account
designated in the Authorization. When a shareholder appoints a designee on the
Account Application or by written authorization, the shareholder agrees to be
bound by the telephone redemption instructions given by the shareholder's
designee. The Fund may change, modify or terminate these privileges at any time
upon 60-days' notice to shareholders. The Fund will not be responsible for any
loss, damage, cost or expense arising out of any transaction that appears on the
shareholder's confirmation after 30 days following mailing of such confirmation.
See discussion of Fund telephone procedures and liability under "Telephone
Transactions."
Shareholders may experience delays in exercising telephone redemption privileges
during periods of abnormal market activity. During periods of volatile economic
or market conditions, shareholders may wish to consider transmitting redemption
orders by telegram (not available for IRAs) or overnight courier.
Systematic Withdrawal Plan
Under a Systematic Withdrawal Plan, a shareholder with an account value of $500
or more in the Fund may receive (or have sent to a third party) periodic
payments (by check or wire). The minimum payment amount is $100 from the Fund
account. Payments may be made either monthly or quarterly on the 1st of each
month. Depending on the form of payment requested, shares of the Fund will be
redeemed up to five business days before redemption proceeds are scheduled to be
received by the shareholder. The redemption may result in recognition of gain or
loss for income tax purposes.
Small Accounts/Annual Account Maintenance Fee
Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to redeem shares or to impose a $20 annual account
maintenance fee for any account if at any time, because of redemptions by the
shareholder, the total value of a shareholder's account is less than $500. If
the Fund decides to make an involuntary redemption, the shareholder will first
be notified that the value of the shareholder's account is less than the minimum
level and will be allowed 30 days to make an additional investment to bring the
value of that account at least to $500 before the Fund takes any action.
20
<PAGE>
Exchange Privileges And Restrictions
Exchange Privileges
Shares of the Fund may be exchanged for Class L shares of the other series of
the Trust and The Montgomery Funds II (together with the Fund, the "Montgomery
Funds"), with restrictions noted below, on the basis of their relative net asset
values (with no sales charge or exchange fee) next determined after the time of
the exchange request and provided that you have the current prospectus for the
fund into which you are exchanging shares of the Fund. You are automatically
eligible to make telephone exchanges with your Montgomery account. See
discussion of Fund telephone procedures and limitations of liability under
"Telephone Transactions." Shareholders should note that an exchange may result
in recognition of a gain or loss for income tax purposes.
Exchange Restrictions
A shareholder's privilege of exchanging shares of the Fund has the following
restrictions:
o Shareholders may exchange for shares of a Montgomery fund only in states
where that fund's shares are qualified for sale.
o A shareholder may not exchange for shares of a Montgomery fund that is not
open to new shareholders unless the shareholder has an existing account with
that Montgomery fund.
o Shares of the Fund may not be exchanged for shares of another Montgomery fund
unless the amount to be received in the exchange satisfies that fund's
minimum investment requirement.
o Because excessive exchanges can harm the Fund's performance, the Trust
reserves the right to terminate, either temporarily or permanently, exchange
privileges of any shareholder who makes more than four exchanges out of the
Fund during a twelve-month period and to refuse an exchange into a Montgomery
fund from which the shareholder has redeemed shares within the previous 90
days (accounts under common ownership or control and accounts with the same
taxpayer identification number will be counted together). This 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 refuse exchanges
by any person or group if, in the Manager's judgment, the Fund would be
unable effectively to invest the money in accordance with its investment
objective and policies, or would otherwise be potentially adversely affected.
A shareholder's exchanges may be restricted or refused if the Fund receives,
or the Manager anticipates, simultaneous orders affecting significant
portions of the Fund's assets and, in particular, a pattern of exchanges
coinciding with a "market timing" strategy. 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 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 the Fund from other selected securities
brokers, dealers or through financial intermediaries such as benefit plan
administrators. Investors should contact these agents directly for appropriate
instructions, as well as information pertaining to accounts and any service or
transaction fees that may be charged by these agents. Purchase orders through
securities brokers, dealers and other financial intermediaries are effected at
the next-determined net asset value after receipt of the order by such agent,
provided the agent transmits such order on a timely basis to the Transfer Agent
so that it is received by 4:00 p.m., New York time, on days that the Fund issues
shares. Orders received after that time will be purchased at the next-determined
net asset value. To the extent these agents perform shareholder servicing
activities for the Fund, they may receive fees from the Fund for such services.
Repurchase Orders Through Brokerage Accounts
Shareholders also may sell shares back to the Fund by wire or telephone through
Montgomery Securities or selected securities brokers or dealers. Shareholders
should contact their securities broker or dealer for appropriate instructions
and for information concerning any transaction or service fee that may be
imposed by the broker or dealer. Shareholders are entitled to the net asset
value next determined after receipt of a repurchase order by such broker-dealer,
provided the broker-dealer transmits such
21
<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 the Fund is determined once daily as of 4:00 p.m., New
York time, on each day that the NYSE is open for trading. Per-share net asset
value is calculated by dividing the value of the Fund's total net assets by the
total number of the Fund's shares then outstanding.
As more fully described in the Statement of Additional Information, portfolio
securities are valued using current market valuations: either the last reported
sales price or, in the case of securities for which there is no reported last
sale and fixed income securities, the mean between the closing bid and asked
price. Securities for which market quotations are not readily available or which
are illiquid are valued at their fair values as determined in good faith under
the supervision of the Trust's officers, and by the manager and the Pricing
Committee of the Board respectively, in accordance with methods that are
specifically authorized by the Board. Short-term obligations with maturities of
60 days or less are valued at amortized cost as reflecting fair value.
The value of securities denominated in foreign currencies and traded on foreign
exchanges or in foreign markets will be translated into U.S. dollars at the last
price of their respective currency denomination against U.S. dollars quoted by a
major bank or, if no such quotation is available, at the rate of exchange
determined in accordance with policies established in good faith by the Board of
Trustees. Because the value of securities denominated in foreign currencies must
be translated into U.S. dollars, fluctuations in the value of such currencies in
relation to the U.S. dollar may affect the net asset value of Fund shares even
if there has not been any change in the foreign-currency denominated values of
such securities.
Because foreign securities markets may close prior to the time the Fund
determines its net asset values, events affecting the value of portfolio
securities occurring between the time prices are determined and the time the
Fund calculates its net asset values may not be reflected in the Fund's
calculation of net asset values unless the Manager, under supervision of the
Board, determines that a particular event would materially affect the Fund's net
asset values.
Dividends And Distributions
The Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. The Fund currently intends to make one
or, if necessary to avoid the imposition of tax on the Fund, more distributions
during each calendar year. A distribution may be made between November 1 and
December 31 of each year with respect to any undistributed capital gains earned
during the one-year period ended October 31 of such calendar year. Another
distribution of any undistributed capital gains may also be made following the
Fund's fiscal year end (June 30). The amount and frequency of Fund distributions
are not guaranteed and are at the discretion of the Board.
Unless investors request cash distributions in writing at least seven business
days prior to the distribution, or on the Account Application, all dividends and
other distributions will be reinvested automatically in additional Class L
shares of the Fund and credited to the shareholder's account at the closing net
asset value on the reinvestment date.
Taxation
The Fund intends to qualify and elect as soon as possible to be treated as a
regulated investment company under Subchapter M of the Code, by distributing
substantially all of its net investment income and net capital gains to its
shareholders and meeting other requirements of the Code relating to the sources
of its income and diversification of assets. Accordingly, the Fund generally
will not be liable for federal income tax or excise tax based on net income
except to the extent its earnings are not distributed or are distributed in a
manner that does not satisfy the requirements of the Code pertaining to the
timing of distributions. If the Fund is unable to meet certain requirements of
the Code, it may be subject to taxation as a corporation. The Fund may also
incur tax liability to the extent it invests in "passive foreign investment
companies." See the Statement of Additional Information.
For federal income tax purposes, any dividends derived from net investment
income and any excess of net short-term capital gain over net long-term capital
loss that investors (other than certain tax-exempt organizations that have not
borrowed to purchase Fund shares) receive from the Fund are considered ordinary
income. Part of the distributions paid by the Fund may be eligible for the
dividends-received deduction allowed to corporate shareholders under the Code.
Distributions of the excess of net long-term capital gain over net short-term
capital loss from transactions of the Fund are treated by shareholders as
22
<PAGE>
long-term capital gains regardless of the length of time the Fund's shares have
been owned. Distributions of income and capital gains are taxed in the manner
described above, whether they are taken in cash or are reinvested in additional
shares of the Fund.
The Fund will inform its investors of the source of their dividends and
distributions at the time they are paid, and will promptly after the close of
each calendar year advise investors of the tax status of those distributions and
dividends. Investors (including tax-exempt and foreign investors) are advised to
consult their own tax advisers regarding the particular tax consequences to them
of an investment in shares of the Fund. Additional information on tax matters
relating to the Fund and its shareholders is included in the Statement of
Additional Information.
General Information
The Trust
The Fund is a series of The Montgomery Funds, a Massachusetts business trust
organized on May 10, 1990 (the "Trust"). The Trust's Agreement and Declaration
of Trust permits the Board to issue an unlimited number of full and fractional
shares of beneficial interest, $.01 par value, in any number of series. The
assets and liabilities of each series within the Trust are separate and distinct
from those of each other series.
This Prospectus relates only to the Class L shares of the Fund. The Fund has
designated other classes of shares and may in the future designate other classes
of shares for specific purposes.
Shareholder Rights
Shares issued by the Fund have no preemptive, conversion or subscription rights.
Each whole share is entitled to one vote as to any matter on which it is
entitled to vote and each fractional share is entitled to a proportionate
fractional vote. Shareholders have equal and exclusive rights as to dividends
and distributions as declared by the Fund and to the net assets of the Fund upon
liquidation or dissolution. The Fund, as a separate series of the Trust, votes
separately on matters affecting only the Fund (e.g., approval of the Investment
Management Agreement); all series of the Trust vote as a single class on matters
affecting all series of the Trust jointly or the Trust as a whole (e.g.,
election or removal of Trustees). Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in any election of Trustees can,
if they so choose, elect all of the Trustees. Except as set forth herein, all
classes of shares issued by the Fund shall have identical voting, dividend,
liquidation and other rights, preferences, and terms and conditions. The only
differences among the various classes of shares relate solely to the following:
(a) each class may be subject to different class expenses; (b) each class may
bear a different identifying designation; (c) each class may have exclusive
voting rights with respect to matters solely affecting such class; (d) each
class may have different exchange privileges; and (e) each class may provide for
the automatic conversion of that class into another class. While the Trust is
not required and does not intend to hold annual meetings of shareholders, such
meetings may be called by the Board at its discretion, or upon demand by the
holders of 10% or more of the outstanding shares of the Trust for the purpose of
electing or removing Trustees. Shareholders may receive assistance in
communicating with other shareholders in connection with the election or removal
of Trustees pursuant to the provisions of Section 16(c) of the Investment
Company Act.
Performance Information
From time to time, the Fund may publish its total return, such as in
advertisements and communications to investors. Performance data may be quoted
separately for the Class L shares as for other classes. Total return information
generally will include the Fund's average annual compounded rate of return over
the most recent four calendar quarters and over the period from the Fund's
inception of operations. The Fund may also advertise aggregate and average total
return information over different periods of time. The Fund's average annual
compounded rate of return is determined by reference to a hypothetical $1,000
investment that includes capital appreciation and depreciation for the stated
period according to a specific formula. Aggregate total return is calculated in
a similar manner, except that the results are not annualized. Total return
figures will reflect all recurring charges against the Fund's income.
Investment results of the Fund will fluctuate over time, and any presentation of
the Fund's total return for any prior period should not be considered as a
representation of what an investor's total return or current yield may be in any
future period.
23
<PAGE>
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 Fund with their correct Social
Security or other Taxpayer Identification Number ("TIN"), regardless of whether
they file tax returns. Failure to do so may subject a shareholder to penalties.
Failure to provide a correct TIN or to check the appropriate boxes in the
Account Application and to sign the shareholder's name could result in backup
withholding by the Fund of an amount of federal income tax equal to 31% of
distributions, redemptions, exchanges and other payments made to a shareholder's
account. Any tax withheld may be credited against taxes owed on a shareholder's
federal income tax return.
A shareholder who does not have a TIN should apply for one immediately by
contacting the local office of the Social Security Administration or the IRS.
Backup withholding could apply to payments made to a shareholder's account while
awaiting receipt of a TIN. Special rules apply for certain entities. For
example, for an account established under the Uniform Gifts to Minors Act, the
TIN of the minor should be furnished. If a shareholder has been notified by the
IRS that he or she is subject to backup withholding because he or she failed to
report all interest and dividend income on his or her tax return and the
shareholder has not been notified by the IRS that such withholding will cease,
the shareholder should cross out the appropriate item in the Account
Application. Dividends paid to a foreign shareholder's account by the Fund may
be subject to up to 30% withholding instead of backup withholding.
A shareholder that is an exempt recipient should furnish a TIN and check the
appropriate box. Exempt recipients include certain corporations, certain
tax-exempt entities, tax-exempt pension plans and IRAs, governmental agencies,
financial institutions, registered securities and commodities dealers and
others. For further information, see Section 3406 of the Code and consult with a
tax adviser.
---------------------------------
This Prospectus is not an offering of the securities herein described in any
state in which the offering is unauthorized. No salesman, dealer or other person
is authorized to give any information or make any representation other than
those contained in this Prospectus, the Statement of Additional Information, or
in the Fund's official sales literature.
24
<PAGE>
Investment Manager
Montgomery Asset Management, L.P.
101 California Street
San Francisco, California 94111
1-800-572-FUND
Distributor
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
1-415-627-2485
Custodian
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
Transfer Agent
DST Systems, Inc.
P.O. Box 419073
Kansas City, Missouri 64141-6073
1-800-447-4210
Legal Counsel
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104
<PAGE>
---------------------------------------------------
PART C
OTHER INFORMATION
---------------------------------------------------
<PAGE>
THE MONTGOMERY FUNDS
--------------
FORM N-1A
--------------
PART C
--------------
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Portfolio Investments as of June 30, 1996;
Statements of Assets and Liabilities as of June 30,
1996; Statements of Operations For the Year Ended
June 30, 1996; Statement of Cash Flows for year
ended June 30, 1996; Statements of Changes in Net
Assets for the Year Ended June 30, 1996; Financial
Highlights for a Fund share outstanding throughout
each year, including the year ended June 30, 1996
for Montgomery Growth Fund, Montgomery Micro Cap
Fund, Montgomery Small Cap Fund, Montgomery Small
Cap Opportunities Fund, Montgomery Equity Income
Fund, Montgomery Asset Allocation Fund, Montgomery
Select 50 Fund, Montgomery Global Opportunities
Fund, Montgomery Global Communications Fund,
Montgomery International Small Cap Fund, Montgomery
International Growth 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").
<PAGE>
(5)(B) Form of Amendment to Investment Management Agreement is
incorporated by reference to Post-Effective Amendment No.
24 to the Registration Statement as filed with the
Commission on March 31, 1995 ("Post-Effective Amendment
No. 24").
(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) Independent Auditors' Consent. - Not Applicable.
(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 is incorporated by reference to Form
N-SAR filed for the period ended June 30, 1996.
C-2
<PAGE>
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, 1996
-------------- -----------------------
Shares of Beneficial
Interest, $0.01 par value
-------------------------
Montgomery Small Cap Fund (Class R) 7,204
Montgomery Growth Fund (Class R) 59,109
Montgomery Emerging Markets 55,952
Fund (Class R)
Montgomery International Small Cap Fund (Class R) 2,538
Montgomery Global Opportunities Fund (Class R) 1,614
Montgomery Global Communications Fund (Class R) 16,531
Montgomery Equity Income Fund (Class R) 1,614
Montgomery Short Duration Government Bond Fund 1,280
(Class R)
Montgomery California Tax-Free 250
Intermediate Bond Fund (Class R)
Montgomery Government Reserve Fund (Class R) 11,180
Montgomery California Tax-Free 1,478
Money Fund (Class R)
Montgomery Micro Cap Fund (Class R) 12,145
Montgomery International Growth Fund (Class R) 831
Montgomery Select 50 Fund (Class R) 6,916
Montgomery Small Cap Opportunities Fund (Class R) 13,991
Montgomery Federal Tax-Free Money Fund (Class R) 497
Montgomery Technology Fund 0
Montgomery Emerging Asia Fund 1,207
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<PAGE>
Montgomery Global Asset Allocation Fund 0
Montgomery Total Return Bond Fund 0
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:
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<PAGE>
Montgomery Bridge Fund Liquidating Trust
Montgomery Bridge Fund II, Liquidating Trust
Montgomery Bridge Investments Limited, Liquidating Trust
Montgomery Private Investments Partnership, Liquidating Trust
Pathfinder Montgomery Fund I, L.P., Liquidating Trust
Montgomery Growth Partners, L.P.
Montgomery Small Cap Partners II, L.P.
Montgomery Small Cap Partners III, 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>
Lewis W. Coleman Senior Managing Director None
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
J. Sanford Miller Senior Managing Director None
Joseph M. Schell Senior Managing Director None
John K. Skeen Senior Managing Director None
Thomas W. Weisel Chairman and Chief Executive Officer None
Stephen T. Aiello Managing Director None
John A. Berg Managing Director None
Howard S. Berl Managing Director None
Charles R. Brama Managing Director None
Robert V. Cheadle Managing Director None
Jeffrey B. Child Managing Director None
C-5
<PAGE>
Name and Principal Position and Offices Positions and Offices
Business Address* with Montgomery Securities with Registrant
---------------- -------------------------- ---------------
M. Allen Chozen Managing Director None
Frank J. Connelly Managing Director None
David K. Crossen Managing Director None
Glen C. Dailey Managing Director None
Michael G. Dorey Managing Director None
Dennis Dugan Managing Director None
Frank M. Dunlevy Managing Director None
William A. Falk Managing Director None
Paul G. Fox Managing Director None
Clark L. Gerhardt, Jr. Managing Director None
Seth J. Gersch Managing Director None
Robert G. Goddard Managing Director None
P. Joseph Grasso Managing Director None
James C. Hale, III Managing Director None
Wilson T. Hileman, Jr. Managing Director None
Brett A. Hodess Managing Director None
Ben Howe Managing Director None
Craig R. Johnson Managing Director None
Joseph A. Jolson Managing Director None
Scott C. Kovalik Managing Director None
Kurt H. Kruger Managing Director None
Guy A. Lampard Managing Director None
David S. Lehmann Managing Director None
Derek Lemke-von Ammon Managing Director None
Jack G. Levin, Esq. Managing Director Secretary
C-6
<PAGE>
Name and Principal Position and Offices Positions and Offices
Business Address* with Montgomery Securities with Registrant
---------------- -------------------------- ---------------
Merrill S. Lichtenfeld Managing Director None
James F. McMahon Managing Director None
Michael G. Mueller Managing Director None
Bernard M. Notas Managing Director None
Bruce G. Potter Managing Director None
David B. Readerman Managing Director None
Rand Rosenberg Managing Director None
Alice S. Ruth Managing Director None
Richard A. Smith Managing Director None
Kathleen Smythe-de Urquieta Managing Director None
Peter B. Stoneberg Managing Director None
Thomas Tashjian Managing Director None
Thomas A. Thornhill, III Managing Director None
John Tinker Managing Director None
Otto V. Tschudi Managing Director None
Stephan P. Vermut Managing Director None
John W. Weiss Managing Director None
George W. Yandell, III Managing Director None
Ross Investments, Inc. General Partner None
LWC 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
</TABLE>
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<PAGE>
* The principal business address of persons and entities listed is 600
Montgomery Street, San Francisco, California 94111.
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 101 California 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 Technology Fund, Montgomery Growth
& Income Fund, Montgomery Federal Tax-Free Money Fund, Montgomery Emerging Asia
Fund, Montgomery Global Asset Allocation Fund or Montgomery Total Return Bond
Fund, which need not be certified, within four to six months from the effective
date of Registrant's 1933 Act registration statement as to 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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, 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 4th day of February, 1997.
THE MONTGOMERY FUNDS
By: R. Stephen Doyle*
--------------------------------
Chairman and Principal Executive
Officer
<TABLE>
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.
<CAPTION>
<S> <C> <C>
R. Stephen Doyle* Officer; Principal February 4, 1997
- -----------------
R. Stephen Doyle Financial and Accounting
Officer; and Trustee
Andrew Cox * Trustee February 4, 1997
- ------------
Andrew Cox
Cecilia H. Herbert * Trustee February 4, 1997
- --------------------
Cecilia H. Herbert
John A. Farnsworth * Trustee February 4, 1997
- --------------------
John A. Farnsworth
* By: /s/ Julie Allecta
-------------------------
Julie Allecta, Attorney-in-Fact
pursuant to Power of Attorney previously filed.
</TABLE>
