As filed with the Securities and Exchange Commission on December 18, 1998
File No:________
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
THE MONTGOMERY FUNDS
(Exact Name of Registrant as Specified in Charter)
1-800-572-3863
(Registrant's Telephone Number, Including Area Code)
101 California Street
San Francisco, California 94111
(Address of Principal Executive Offices)
Gregory M. Siemons
Assistant Secretary
The Montgomery Funds
101 California Street
San Francisco, CA 94111
(Name and Address of Agent for Service)
Copy to:
Julie Allecta, Esq.
David Hearth, Esq.
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective. The registrant hereby amends this
registration statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, as
amended, or until the registration statement shall become effective on such date
as the Commission, acting pursuant to said Section 8(a), may determine.
No filing fee is required under the Securities Act of 1933, as amended, because
an indefinite number of shares of beneficial interest, with par value $0.01 per
share, has previously been registered pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended.
<PAGE>
CROSS REFERENCE SHEET
Form N-14 Part A, Item Location in Prospectus/Proxy Statement
- ---------------------- --------------------------------------
1 Front Cover; Cross Reference
2 Table of Contents
3 Introduction; Description of the
Proposed Reorganization; Comparison of
the Funds; Risk Factors
4 Introduction, The Transaction, The
Proposal, Description of the Proposed
Reorganization
5, 6 The Transaction, Comparison of the
Funds; Risk Factors; Further Information
About the Fund and the Emerging Fund
7 Shares and Voting; Vote Required
8 Not Applicable
9 Not Applicable
Form N-14 Part B, Item Location in Statement of Additional Information
- ---------------------- -----------------------------------------------
10 Cover Page
11 Table of Contents
12 Incorporation of Documents by Reference
in Statement of Additional Information
13 Not Applicable
14 Incorporation of Documents by Reference
in Statement of Additional Information
Form N-14 Part C
- ----------------
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of Form N-14.
2
<PAGE>
THE FOLLOWING ITEMS ARE HEREBY INCORPORATED BY REFERENCE:
From Post-Effective Amendment No. 62 of The Montgomery Funds, filed October 30,
1998 (SEC File No. 811-6011):
Combined Prospectus for Montgomery U.S. Emerging Growth Fund and
Montgomery Small Cap Opportunities Fund (with other funds of The
Montgomery Funds), dated October 31, 1998.
Combined Statement of Additional Information for U.S. Emerging Growth
Fund and Montgomery Small Cap Opportunities Fund, dated October 31,
1998.
As previously sent to shareholders of the Montgomery Small Cap Opportunities
Fund and the Montgomery U.S. Emerging Growth Fund, and as filed with the SEC
pursuant to Rule 30b2-1:
Annual Report for the Montgomery Small Cap Opportunities Fund and the
Montgomery U.S. Emerging Growth Fund for the fiscal year ended June
30, 1998, as contained in the Annual Report for The Montgomery Funds
dated as of and for the periods ended June 30, 1998.
3
<PAGE>
-----------------------------------------
PART A
------
COMBINED PROXY STATEMENT AND PROSPECTUS
FOR THE REORGANIZATION OF
MONTGOMERY SMALL CAP OPPORTUNITIES FUND
INTO
MONTGOMERY U.S. EMERGING GROWTH FUND
-----------------------------------------
<PAGE>
[Letterhead of Montgomery Asset Management, LLC]
January __, 1999
Dear Small Cap Opportunities Fund Shareholder:
We are seeking your approval to reorganize the Small Cap Opportunities
Fund into the U.S. Emerging Growth Fund. As the manager of both Funds, we
recommend that you approve the reorganization because we believe the efforts of
our Growth Team are best devoted to the success of one small cap-oriented mutual
fund. The Funds now emphasize the small cap and emerging growth sectors of the
U.S. market, respectively. By consolidating these Funds, we can reduce the
managerial inefficiencies of two funds with overlapping market sectors. We
believe this will allow us to take better advantage of those exciting investment
prospects that otherwise could be appropriate for both Funds.
We have agreed to pay all expenses of the reorganization so that
shareholders will not bear those costs.
The Board of Trustees of The Montgomery Funds has approved the
transaction and urges your approval.
Please read the enclosed proxy materials and consider the information
provided. We encourage you to complete and mail your proxy card promptly.
Sincerely,
MONTGOMERY ASSET MANAGEMENT, LLC
Mark B. Geist, President
<PAGE>
THE MONTGOMERY FUNDS
101 California Street
San Francisco, California 94111
(800) 572-FUND [3863]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF
MONTGOMERY SMALL CAP OPPORTUNITIES FUND
TO BE HELD MARCH 1, 1999
To the Shareholders of the Montgomery Small Cap Opportunities Fund:
Your Fund will host a special meeting of shareholders at the offices of
The Montgomery Funds, 101 California Street, 35th Floor, San Francisco,
California 94111 on March 1, 1999, at 10:00 a.m., local time. At the meeting, we
will ask you to vote on:
1. A proposal to reorganize the Small Cap Opportunities Fund into another
Montgomery Fund, the U.S. Emerging Growth Fund.
2. Any other business that properly comes before the meeting.
Only shareholders of record at the close of business on December 28,
1998 (the Record Date), will be entitled to receive this notice and to vote at
the meeting.
By Order of the Board of Trustees
Gregory M. Siemons
Assistant Secretary
YOUR VOTE IS IMPORTANT REGARDLESS OF HOW MANY
SHARES YOU OWNED ON THE RECORD DATE.
-------------------
Please vote on the enclosed proxy form, date and sign it, and return it in the
pre-addressed envelope provided. No postage is necessary if mailed in the United
States. You also may vote by internet (www.___________________.com) and by
telephone (800.___.____). In order to avoid the additional expense and
disruption of further solicitation, we request your cooperation in voting
promptly.
<PAGE>
THE MONTGOMERY FUNDS
101 California Street
San Francisco, California 94111
(800) 572-FUND [3863]
Montgomery Small Cap Opportunities Fund
and
Montgomery U.S. Emerging Growth Fund
COMBINED PROXY STATEMENT AND PROSPECTUS
---------------------------------------
Dated: January ___, 1999
What is this document and why did we send it to you?
The Board of Trustees approved a plan to reorganize (the
"Reorganization") the Montgomery Small Cap Opportunities Fund (the
"Opportunities Fund") into the Montgomery U.S. Emerging Growth Fund (the
"Emerging Fund"). Shareholder approval is needed to proceed with the
Reorganization. The shareholder meeting will be held on March 1, 1999. We are
sending this document to you for your use in deciding whether to approve the
Reorganization at the special meeting of shareholders.
This document includes a Notice of Special Meeting of Shareholders, a
Combined Proxy Statement and Prospectus and a form of Proxy.
As a technical matter, the Reorganization will have three steps:
o the transfer of the assets and liabilities of the
Opportunities Fund to the Emerging Fund in exchange for shares
of the Emerging Fund (the "Emerging Fund Shares") of
equivalent value to the net assets transferred,
o the pro rata distribution of those Emerging Fund Shares to
shareholders of record of the Opportunities Fund as of the
effective date of the Reorganization (the "Effective Date") in
full redemption of those shareholders' shares in the
Opportunities Fund, and
o the immediate liquidation and termination of the Opportunities
Fund.
As a result of the Reorganization, each shareholder of the
Opportunities Fund would instead hold Emerging Fund Shares having the same total
value as the shares of the Opportunities Fund held immediately before the
Reorganization. Lawyers for the
2
<PAGE>
Opportunities Fund and the Emerging Fund will issue an opinion to the effect
that, for federal income tax purposes, the Reorganization will be treated as a
tax-free reorganization that will not cause the Opportunities Fund's
shareholders to recognize a gain or loss for federal income tax purposes. See
Section II.A.3 below.
The investment objective of the Opportunities Fund is to seek long-term
capital appreciation by investing in growth-oriented U.S. small-cap companies
whose shares have a total stock market value (market capitalization) of $1.5
billion or less. The Emerging Fund's investment objective is to seek long-term
capital appreciation. Currently, it invests in growth-oriented U.S. smaller cap
companies whose shares have a total stock market value of $1 billion or less.
This Combined Proxy Statement and Prospectus sets forth the basic
information that you should know before voting on the proposal. You should read
it and keep it for future reference.
What other important documents should I know about?
The Opportunities Fund and Emerging Fund (together, the "Funds") are
series of The Montgomery Funds (the "Trust"), an "open-end management investment
company." The following documents are on file with the Securities and Exchange
Commission (the SEC) and are deemed to be legally part of this document:
o Combined Prospectus for the Emerging Fund and the
Opportunities Fund (as well as other Montgomery Funds) dated
October 31, 1998
o Combined Statement of Additional Information relating to the
Opportunities Fund and the Emerging Fund (as well as other
Montgomery Funds) also dated October 31, 1998
o Statement of Additional Information relating to this Combined
Proxy Statement and Prospectus
Those documents are available without charge by writing to the Trust at
101 California Street, 35th Floor, San Francisco, California 94111, or by
calling (800) 572-FUND [3863].
The Annual Report to Shareholders of the Opportunities Fund and the
Emerging Fund for the fiscal year ended June 30, 1998, containing audited
financial statements of the Opportunities Fund and the Emerging Fund have been
previously mailed to shareholders. If you do not have a copy, additional copies
of that Annual Report are available without charge by writing or calling the
Trust at its address and telephone number listed above. It is expected that this
Combined Proxy Statement and Prospectus will be mailed to shareholders on or
about January 15, 1999.
3
<PAGE>
The Securities and Exchange Commission has not approved or disapproved these
securities or passed on the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
4
<PAGE>
TABLE OF CONTENTS
I. INTRODUCTION........................................................... 6
A. THE TRANSACTION.................................................... 6
B. THE PROPOSAL....................................................... 6
C. COMPARISON OF EXPENSES............................................. 7
D. SHARES AND VOTING.................................................. 8
II. THE PROPOSAL........................................................... 10
A. DESCRIPTION OF THE PROPOSED REORGANIZATION......................... 10
1. The Reorganization.............................................. 10
2. Effect of the Reorganization.................................... 11
3. Federal Income Tax Consequences................................. 11
4. Description of the Emerging Fund Shares......................... 12
5. Capitalization.................................................. 12
B. COMPARISON OF THE FUNDS............................................ 13
1. Investment Objectives and Policies.............................. 13
2. Investment Restrictions......................................... 13
3. Comparative Performance Information............................. 16
4. Advisory Fees and Other Expenses................................ 16
5. Portfolio Managers.............................................. 17
6. Distribution and Shareholder Services........................... 18
7. Redemption and Exchange Procedures.............................. 18
8. Income Dividends, Capital Gains Distributions and Taxes......... 19
9. Portfolio Transactions and Brokerage Commissions................ 19
10. Shareholders'Rights............................................. 20
C. RISK FACTORS....................................................... 20
D. RECOMMENDATION OF THE BOARD OF TRUSTEES............................ 20
E. DISSENTERS'RIGHTS OF APPRAISAL..................................... 21
F. FURTHER INFORMATION ABOUT THE FUND AND THE ACQUIRING FUND.......... 21
G. VOTE REQUIRED...................................................... 22
H. FINANCIAL HIGHLIGHTS............................................... 22
III. MISCELLANEOUS ISSUES............................................... 24
A. OTHER BUSINESS..................................................... 24
B. NEXT MEETING OF SHAREHOLDERS....................................... 24
C. LEGAL MATTERS...................................................... 24
D. EXPERTS............................................................ 24
5
<PAGE>
I. INTRODUCTION
A. GENERAL
The Board of Trustees called this shareholder meeting to allow
shareholders to consider and vote on the proposed Reorganization of the
Opportunities Fund. The Board of Trustees (including a majority of the
independent trustees, meaning those trustees who are not "interested" persons
under the Investment Company Act) voted on November 18, 1998, to approve the
Reorganization subject to the approval of the Opportunities Fund's shareholders.
Montgomery Asset Management, LLC, serves as the manager of each Fund
(the "Manager"). The Manager recommends that you approve the reorganization
because it believes the efforts of its Growth Team are best devoted to one small
cap-oriented mutual fund. By consolidating these Funds, the Manager believes it
can reduce the managerial inefficiencies of two funds with overlapping market
sectors. The Manager expects that this consolidation will allow it to take
better advantage of those exciting investment prospects that otherwise could be
appropriate for both Funds.
If the proposed Reorganization of the Opportunities Fund into the
Emerging Fund is approved and completed, the Emerging Fund's assets will
increase, which should create certain economies of scale; and the Opportunities
Fund will become part of a fund with similar investment objectives and policies
as well as larger assets which should permit it to operate more efficiently in
accordance with its investment policies and objective.
The Opportunities Fund sells its Class R shares directly to the public
at net asset value, without any sales load or Rule 12b-1 fee. The Opportunities
Fund has a very limited number of Class P shares that are subject to a 0.25%
Rule 12b-1 distribution fee. But those Class P shares are not expected to be
outstanding by the time of the shareholder meeting. Similarly, the Emerging Fund
currently offers only its Class R shares directly to the public at net asset
value, without any sales load or Rule 12b-1 fee.
B. THE PROPOSAL
At the shareholder meeting, the shareholders of the Opportunities Fund
will be asked to approve the proposed Reorganization of the Opportunities Fund
into the Emerging Fund. The Reorganization will include the transfer of
substantially all of the assets and liabilities of the Opportunities Fund to the
Emerging Fund. Opportunities Fund shareholders will receive Emerging Fund Shares
in exchange. The Opportunities Fund will then be terminated and liquidated.
The investment objective of the Opportunities Fund is to seek long-term
capital appreciation by investing in growth-oriented U.S. small-cap companies
whose shares have a total stock market value (market capitalization) of $1.5
billion or less. The Emerging Fund's investment objective is to seek long-term
capital appreciation by
6
<PAGE>
currently investing in smaller-cap U.S. growth-oriented companies that have a
market capitalization of $1 billion or less.
Investments in the Funds are subject to substantially similar risks.
See Section II.C. below. The purchase and redemption arrangements of the Funds
are identical. The Emerging Fund and the Opportunities Fund have the same
distribution and exchange arrangements, which are discussed in Section II.B.
below.
The Manager and the Board of Trustees believe that the proposed
Reorganization is in the best interests of the Opportunities Fund and its
shareholders, and that the interests of existing shareholders of the
Opportunities Fund will not be diluted as a result of the proposed
Reorganization. See Section II.D. below.
The Manager will pay the costs of the Reorganization, the meeting and
solicitation of proxies, including the cost of copying, printing and mailing
proxy materials. In addition to solicitations by mail, the Manager and the Board
also may solicit proxies, without special compensation, by telephone, facsimile
or otherwise.
C. COMPARISON OF EXPENSES
The following table shows the comparative fees and expenses you may pay
if you buy and hold shares of these Funds. The Funds do not impose any front-end
or deferred sales loads and they do not charge shareholders for exchanging
shares or reinvesting dividends.
<TABLE>
Fees and Expenses of the Funds
<CAPTION>
Montgomery
Small Cap Montgomery
Opportunities U.S. Emerging
Fund Growth Fund
---- -----------
<S> <C> <C>
Shareholder Fees (fees paid directly from your investment)
Redemption Fee 0.00% 0.00%
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)+
Management Fee 1.20% 1.33%
Distribution/Service (12b-1) Fee 0.00% 0.00%
Other Expenses 0.58% 0.24%
----- -----
Total Annual Fund Operating Expenses 1.78% 1.57%
Fee Waiver and/or Expense Reimbursement 0.28% 0.07%*
----- -----
Net Expenses 1.50% 1.50%*
<FN>
+ Montgomery Asset Management has contractually agreed to reduce its fees and/or
absorb expenses to limit total annual operating expenses (excluding interest and
tax expenses) to 1.50%. This contract has a one-year term, renewable at the end
of each fiscal year.
* After the Reorganization.
</FN>
</TABLE>
Example of Fund expenses: This example is intended to help you compare the cost
of investing in the Funds with the cost of investing in other mutual funds. The
table below shows what you would pay in expenses over time, whether or not you
sold your shares at
7
<PAGE>
the end of each period. It assumes a $10,000 initial investment, 5% total return
each year and the changes specified above. This example is for comparison
purposes only. It does not necessarily represent the Fund's actual expenses or
returns.
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------
$152 $473 $816 $1,784
D. SHARES AND VOTING
The Trust is a Massachusetts business trust and is registered with the
SEC as an open-end management investment company. The Trust currently has
eighteen operating series, or funds, including the Funds. Each Fund has its own
investment objective and policies and operates independently for purposes of
investments, dividends, other distributions and redemptions. The Opportunities
Fund has three classes of shares, each with its own fee and expense structure:
Class R shares, Class P shares and Class L shares. At present, the Opportunities
Fund has issued only Class R and Class P shares. The Emerging Fund also has
three authorized classes of shares, each with its own fee and expense structure:
Class R shares, Class P shares and Class L shares. At present, only Class R
shares of the Emerging Fund have been issued and sold to the public.
The Opportunities Fund's shareholders will receive Class R shares of
the Emerging Fund in exchange for their shares if the Reorganization is approved
and completed. Information about the Class P and Class L shares of the Emerging
Fund is contained in the Funds' Combined Statement of Additional Information.
Each whole or fractional share of the Opportunities Fund is entitled to
one vote or corresponding fraction at the meeting. At the close of business on
December 28, 1998, the record date for the determination of shareholders
entitled to vote at the Meeting (the "Record Date"), there were
_________________ shares outstanding held by _____ record holders (including
omnibus accounts representing multiple underlying beneficial owners such as
those in the names of brokers).
All shares represented by each properly signed proxy received before
the meeting will be voted at the meeting. If a shareholder specifies how the
proxy is to be voted on any business properly to come before the meeting, it
will be voted in accordance with instruction given. If no choice is indicated on
the proxy, it will be voted FOR approval of the Reorganization, as more fully
described in this Combined Proxy Statement and Prospectus. A proxy may be
revoked by a shareholder at any time before its use by written notice to the
Trust, by submission of a later-dated proxy or by voting in person at the
meeting. If any other matters come before the meeting, proxies will be voted by
the persons named as proxies in accordance with their best judgment.
The presence in person or by proxy of shareholders entitled to cast 40%
of the votes entitled to be cast at the meeting will constitute a quorum. When a
quorum is present, a majority of the shares voted shall decide the proposal. The
meeting may be adjourned from time to time by a majority of the votes properly
voting on the question of adjourning a meeting to another date and time, whether
or not a quorum is present, and
8
<PAGE>
the meeting may be held as adjourned within a reasonable time after the date set
for the original meeting without further notice. The persons named in the proxy
will vote those shares that they are entitled to vote in favor of adjournment if
adjournment is necessary to obtain a quorum or to obtain a favorable vote on any
proposal. If the adjournment requires setting a new record date or the
adjournment is for more than 60 days from the date set for the original meeting
(in which case the Board of Trustees will set a new record date), the Trust will
give notice of the adjourned meeting to the shareholders. Business may be
conducted once a quorum is present and may continue until adjournment of the
meeting.
Proxies may be voted by mail or electronically by internet or
telephone. If voted electronically, the Opportunities Fund or its agent will use
reasonable procedures (such as requiring an identification number) to verify the
authenticity of the vote cast. Each shareholder who casts an electronic vote
also will be able to validate that his or her vote was received correctly.
All proxies voted, including abstentions and broker non-votes (where
the underlying holder has not voted and the broker does not have discretionary
authority to vote the shares), will be counted toward establishing a quorum.
Approval of the Reorganization will occur only if a sufficient number of votes
are cast FOR that proposal. Abstentions do not constitute a vote "for" and
effectively result in a vote "against." Broker non-votes do not represent vote
"for" or "against"" and are disregarded in determining whether the proposal has
received enough votes.
As of the Record Date, the Opportunities Fund's shareholders of record
and (to the Trust's knowledge) beneficial owners who owned more than five
percent of the Fund's shares are as follows:
Percentage of the Opportunities
Shareholder Fund's Outstanding Shares
----------- -------------------------
[Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
[_____%]
[National Financial Services Corp.
For the Exclusive Benefit of
Our Customers
Attn: Mutual Funds
P.O. Box 3730
Church Street Station
New York, NY 10008] [_____%]
The Officers and Trustees of the Trust, as a group, owned of record and
beneficially less than one percent of the outstanding voting securities of the
Opportunities Fund as of the Record Date.
9
<PAGE>
II. THE PROPOSAL
A. DESCRIPTION OF THE PROPOSED REORGANIZATION
1. The Reorganization
If the Reorganization is approved, on the Effective Date the Emerging
Fund will acquire substantially all of the assets and liabilities of the
Opportunities Fund. At that time, the Emerging Fund will issue to the
Opportunities Fund the number of Emerging Fund Shares determined by dividing the
value of the Opportunities Fund's net assets so transferred by the net asset
value of one Emerging Fund Share. The net asset value of the Emerging Fund and
the net asset value of the Opportunities Fund will be calculated at the close of
business on the date immediately preceding the Effective Date (the "Valuation
Date") in accordance with the Funds' valuation procedures described in The
Montgomery Funds Combined Prospectus dated October 31, 1998.
At the same time as that asset transfer, the Opportunities Fund will
distribute the Emerging Fund Shares it receives pro rata to each remaining
shareholder of the Opportunities Fund based on the percentage of the outstanding
shares of the Opportunities Fund held of record by that shareholder on the
Valuation Date. For example, on June 30, 1998, the value of the aggregate net
assets of the Opportunities Fund was approximately $201,747,727. The Class R
Opportunities Fund Shares were valued at $19.16 per share. The net asset value
of each Emerging Fund Class R Share was $21.89. Therefore, if the Effective Date
had been June 30, 1998, the Opportunities Fund would then have redeemed each of
its then outstanding Class R shares in exchange for .875 Emerging Fund Shares.
This distribution of the Emerging Fund Shares to the Opportunities
Fund's shareholders will be accomplished by the establishment of accounts on the
Emerging Fund's share records in the names of those shareholders, representing
the respective pro rata number of Emerging Fund Shares deliverable to them.
Fractional shares will be carried to the third decimal place. Certificates
evidencing the Emerging Fund Shares will not be issued to the Opportunities
Fund's shareholders.
Immediately following the Opportunities Fund's pro rata liquidating
distribution of the Emerging Fund Shares to the Opportunities Fund shareholders,
the Opportunities Fund will liquidate and terminate.
Completion of the Reorganization is subject to approval by the
shareholders of the Opportunities Fund. The Reorganization may be abandoned at
any time before the Effective Date by a majority of the Trust's Board of
Trustees.
The Manager will pay all costs and expenses of the Reorganization,
including those associated with the meeting, the copying, printing and
distribution of this
10
<PAGE>
Combined Proxy Statement and Prospectus, and the solicitation of proxies for the
meeting.
The above is a summary of the Reorganization. The summary is not a
complete description of the terms of the Reorganization, which are set forth in
the Agreement and Plan of Reorganization attached as Exhibit A to this document.
2. Effect of the Reorganization
If the Reorganization is approved by the Opportunities Fund's
shareholders and completed, shareholders of the Opportunities Fund as of the
Effective Date will become shareholders of the Emerging Fund. The total net
asset value of the Emerging Fund Shares held by each Shareholder of the
Opportunities Fund immediately after completion of the Reorganization will be
equivalent to the total net asset value of the Opportunities Fund Shares held by
that same shareholder immediately before completion of the Reorganization.
On or before the Effective Date the Opportunities Fund intends to
distribute all of its then-remaining net investment income and realized capital
gains.
After the Reorganization, the investment adviser for the Emerging Fund
will continue to be Montgomery Asset Management LLC. Funds Distributor, Inc.
will continue to be the Emerging Fund's Distributor. The Emerging Fund will
continue to be managed in accordance with its existing investment objective and
policies.
3. Federal Income Tax Consequences
As a condition to closing the Reorganization, the Opportunities Fund
and the Emerging Fund must receive a favorable opinion from Paul, Hastings,
Janofsky & Walker LLP, counsel to the Emerging Fund, substantially to the effect
that, for federal income tax purposes: (a) the transfer by the Opportunities
Fund of substantially all of its assets and liabilities to the Emerging Fund
solely in exchange for the Emerging Fund Shares, as described above, is a
reorganization within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code"); (b) no gain or loss will be
recognized by the Opportunities Fund upon the transfer of substantially all of
its assets to the Emerging Fund in exchange solely for shares of the Emerging
Fund Shares; (c) no gain or loss will be recognized by the Emerging Fund on
receipt of the Opportunities Fund's assets in exchange for the Emerging Fund
Shares; (d) the aggregate tax basis of the assets of the Opportunities Fund in
the hands of the Emerging Fund is, in each instance, the same as the basis of
those assets in the hands of the Opportunities Fund immediately before the
transaction; (e) the holding period of the Opportunities Fund's assets in the
hands of the Emerging Fund includes the period during which the assets were held
by the Opportunities Fund; (f) no gain or loss is recognized to the shareholders
of the Opportunities Fund upon the receipt of the Emerging Fund Shares solely in
exchange for the Fund's shares; (g) the basis of the Emerging Fund Shares
received by the Opportunities Fund shareholders is, in each instance, the same
as the basis of the
11
<PAGE>
Opportunities Fund shares surrendered in exchange therefor; and (h) the holding
period of the Emerging Fund Shares received by the Opportunities Fund
shareholders includes the holding period during which shares of the
Opportunities Fund were held, provided that those shares were held as a capital
asset in the hands of the Opportunities Fund shareholders on the date of the
exchange. The Trust does not intend to seek a private letter ruling from the
Internal Revenue Service with respect to the tax effects of the Reorganization,
and one is not required.
4. Description of the Emerging Fund Shares
Each Emerging Fund Share issued to Opportunities Fund shareholders
pursuant to the Reorganization will be duly authorized, validly issued, fully
paid and nonassessable when issued, will be transferable without restriction and
will have no preemptive or conversion rights. Each Emerging Fund Share will
represent an equal interest in the assets of the Emerging Fund. The Emerging
Fund Shares will be sold and redeemed based upon the net asset value of the
Emerging Fund next determined after receipt of the purchase or redemption
request, as described in the Emerging Fund's Prospectus.
5. Capitalization
<TABLE>
The capitalization of the Funds as of June 30, 1998, and their pro
forma combined capitalization as of that date after giving effect to the
proposed Reorganization are as follows:
<CAPTION>
Emerging Opportunities Pro Forma
Fund Fund Combined
--------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Aggregate net assets $391,972,859 $201,747,727 $593,720,586
Shares outstanding* 17,907,127 10,530,649 27,121,445
Net asset value per share:
Class R shares $21.89 $19.16 $21.89
Class P shares N/A $18.89 N/A
<FN>
- ---------------------------------------
* Each Fund is authorized to issue an indefinite number of shares.
</FN>
</TABLE>
12
<PAGE>
B. COMPARISON OF THE FUNDS
A brief comparison of the Funds is set forth below. See Section II.F.
for more information.
1. Investment Objectives and Policies
The investment objective of the Opportunities Fund is to seek long-term
capital appreciation by investing in growth-oriented U.S. small-cap companies
whose shares have a total stock market value (market capitalization) of $1.5
billion or less.
The equity securities in which the Opportunities Fund invests generally
consist of common stock, preferred stock and securities convertible into or
exchangeable for common or preferred stock. Under normal market conditions, at
least 65% of the value of the Opportunities Fund's total assets will be invested
in the equity securities of U.S. companies. The securities in which the Fund
invests are expected to be either listed on an exchange or traded in an
over-the-counter market.
In selecting investments for the Opportunities Fund, its portfolio
managers generally seek companies that they believe exhibit characteristics of
financial soundness and are undervalued by the market relative to their growth
potential. In seeking to identify financially sound companies, the Fund's
portfolio managers rigorously analyze all prospective holdings by subjecting
them to the following three steps of their investment process: (1) identify
companies with improving business fundamentals; (2) conduct an in-depth analysis
of each company's current business and future prospects; and (3) analyze each
company's price to determine whether its growth prospects have been discovered
by the market. The Fund's portfolio managers will often select investments for
the Opportunities Fund that are considered to be unattractive by other investors
or are unpopular with the financial press.
The Emerging Fund has identical investment objective and policies
except that currently it invests in U.S. companies whose shares have a total
stock market value of $1 billion or less.
2. Investment Restrictions
Both the Emerging Fund and the Opportunities Fund have identical
fundamental investment restrictions, which cannot be changed without the
affirmative vote of a majority of each Fund's outstanding voting securities as
defined in the Investment Company Act. Neither the Emerging Fund nor the
Opportunities Fund may:
(1) With respect to 75% of its total assets, invest in the securities
of any one issuer (other than the U.S. government and its agencies and
instrumentalities) if immediately after and as a result of such investment more
than 5% of the total assets of the Funds would be invested in such issuer. There
are no limitations with respect to the
13
<PAGE>
remaining 25% of its total assets, except to the extent other investment
restrictions may be applicable.
(2) Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objectives and policies; and, (b)
through the lending of up to 30% of its portfolio securities as described above
and in the Combined Statement of Additional Information;
(3) (a) Borrow money, except for temporary or emergency purposes
from a bank, or pursuant to reverse repurchase agreements or dollar roll
transactions, in an amount not exceeding 1/3 of the value of its total assets
(including the proceeds of such borrowings, at the lower of cost or fair market
value). Any such borrowings will be made only if immediately thereafter there is
an asset coverage of at least 300% of all borrowings, and no additional
investments may be made while any such borrowings are in excess of 10% of total
assets.
(b) Mortgage, pledge or hypothecate any of its assets except
in connection with permissible borrowings and permissible forward contracts,
futures contracts, option contracts or other hedging transactions.
(4) Except as required in connection with permissible hedging
activities, purchase securities on margin or underwrite securities. (This does
not preclude the Funds from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities.)
(5) Buy or sell real estate or commodities or commodity contracts;
however the Funds, to the extent not otherwise prohibited in the Combined
Prospectus or Combined Statement of Additional Information, may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein, including real estate
investment trusts, and may purchase or sell currencies (including forward
currency exchange contracts), futures contracts and related options generally as
described in the Combined Statement of Additional Information.
(6) Invest in securities of other investment companies, except to the
extent permitted by the Investment Company Act and discussed in the Combined
Prospectus or Combined Statement of Additional Information, or as such
securities may be acquired as part of a merger, consolidation or acquisition of
assets.
(7) Invest, in the aggregate, more than 15% of its net assets in
illiquid securities, including (under current SEC interpretations) restricted
securities (excluding liquid Rule 144A-eligible restricted securities),
securities which are not otherwise readily marketable, repurchase agreements
that mature in more than seven days and over-the-counter options (and securities
underlying such options) purchased by that Funds. (This is an operating policy
which may be changed without shareholder approval, consistent with the
Investment Company Act, and changes in relevant SEC interpretations).
14
<PAGE>
(8) Invest in any issuer for purposes of exercising control or
management of the issuer. (This is an operating policy which may be changed
without shareholder approval, consistent with the Investment Company Act.)
(9) Invest more than 25% of the market value of its total assets in the
securities of companies engaged in any one industry. (This does not apply to
investment in the securities of the U.S. Government, its agencies or
instrumentalities.) For purposes of this restriction, the Funds generally rely
on the U.S. Office of Management and Budget's Standard Industrial
Classifications.
(10) Issue senior securities, as defined in the Investment Company Act,
except that this restriction shall not be deemed to prohibit that Funds from (a)
making any permitted borrowings, mortgages or pledges, or (b) entering into
permissible repurchase and dollar roll transactions.
(11) Except as described in the Combined Prospectus and the Combined
Statement of Additional Information, acquire or dispose of put, call, straddle
or spread options subject to the following conditions:
(a) such options are written by other persons, and
(b) the aggregate premiums paid on all such options which
are held at any time do not exceed 5% of that Funds'
total assets. (This is an operating policy which may
be changed without shareholder approval.)
(12) Except as described in the Combined Prospectus and the Combined
Statement of Additional Information, engage in short sales of securities. (This
is an operating policy which may be changed without shareholder approval,
consistent with applicable regulations.)
(13) Purchase more than 10% of the outstanding voting securities of any
one issuer. (This is an operating policy which may be changed without
shareholder approval.)
(14) Invest in commodities, except for futures contracts or options on
futures contracts if, as a result thereof, more than 5% of that Fund's total
assets (taken at market value at the time of entering into the contract) would
be committed to initial deposits and premiums on open futures contracts and
options on such contracts.
To the extent these restrictions reflect matters of operating policy
which may be changed without shareholder vote, these restrictions may be amended
upon approval by the Board and notice to shareholders.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except as
otherwise noted.
15
<PAGE>
3. Comparative Performance Information
The chart below shows the risks of investing in each Fund and how each
Fund's total return has varied from year-to-year. The table compares each Fund's
performance to the most commonly used index for its market segment. Of course,
past performance is no guarantee of future results. [UPDATE FOR 12/31/98
PERFORMANCE]
[Bar Chart] [Bar Chart]
Small Cap Opportunities Fund* U.S. Emerging Growth Fund**
----------------------------- ---------------------------
1996 1997 1995 1996 1997
---- ---- ---- ---- ----
37.28% 16.45% 28.66% 19.12% 27.05%
*During the two-year period described above in the bar chart, the Opportunities
Fund's best quarter was Q1 1996 (+22.92%) and its worst quarter was Q1 1997
(-10.32%). The Opportunities Fund's 1998 return through 9/30/98 was -23.32%.
**During the three-year period described above in the bar chart, the Emerging
Fund's best quarter was Q2 1997 (+18.82%) and its worst quarter was Q1 1997
(-5.44%). The Emerging Fund's 1998 return through 9/30/98 was -10.88%.
Average Annual Returns through 12/31/97
1 Year Inception Inception
(12/29/95) (12/30/94)
- --------------------------------------------------------------------------------
Small Cap Opportunities Fund 16.45% 26.36% N/A
- --------------------------------------------------------------------------------
U.S. Emerging Growth Fund 27.05% N/A 24.85%
- --------------------------------------------------------------------------------
Russell 2000 Index 22.36% 19.39% 22.34%
- --------------------------------------------------------------------------------
4. Advisory Fees and Other Expenses
The Manager serves as investment adviser to both Funds pursuant to an
Investment Management Agreement between the Manager and The Montgomery Funds
dated July 31, 1997. The Emerging Fund pays the Manager a management fee
(accrued daily but paid when requested by the Manager) calculated at an
annualized rate of 1.40% of the first $200 million of the average daily net
assets of the Emerging Fund and 1.25% for average daily net assets above $200
million. The Opportunities Fund pays the Manager a management fee (accrued daily
but paid when requested by the Manager) calculated at an annualized rate of
1.20% for the first $200 million of the average daily net assets of the
Opportunities Fund; 1.10% of the next $300 million of the Opportunities Fund's
average daily net assets, and 1.00% of the Opportunities Fund's average daily
net
16
<PAGE>
assets over $500 million. Although the contractual management fee rate for the
Emerging Fund is slightly higher than the effective rate for the Opportunities
Fund, the overall expenses are lower as discussed below.
The total annual expense limitation of the Emerging Fund currently is
higher than that of the Opportunities Fund (1.75% to 1.50%). The Manager agreed
to those expense limitations (excluding interest and taxes) under a contract
with a one-year term, renewable at the end of each fiscal year. A Fund is
required to reimburse the Manager for any reductions in the Manager's fee or its
payment of expenses only during the three years following that reduction and
only if such reimbursement can be achieved within the foregoing expense limits.
The Manager generally seeks reimbursement for the oldest reductions and waivers
before payment for fees and expenses for the current year.
As part of the Reorganization, the Manager will reduce the annual
expense limitation on the Emerging Fund to 1.50%. This means that shareholders
of the Opportunities Fund would not face increased expenses as a result of the
Reorganization.
For the fiscal year ended June 30, 1998, the Manager received
management fees of approximately $4,997,558 from the Emerging Fund. The Manager
accrued management fees of approximately $3,268,221 from the Opportunities Fund.
Of these fees, the Manager waived or deferred approximately $658,481 in expenses
of the Opportunities Fund.
5. Portfolio Managers
The investment manager of the both Funds is Montgomery Asset
Management, LLC. Founded in 1990, the Manager is a subsidiary of Commerzbank AG,
one of the largest publicly held commercial banks in Germany. As of June 30,
1998, the Manager managed approximately $5.5 billion on behalf of some 300,000
investors in The Montgomery Funds.
ROGER HONOUR, senior portfolio manager of the Small Cap (since 1995) and
Emerging Funds (since 1994). Prior to joining the Manager in June 1993, Roger
Honour was a vice president and portfolio manager at Twentieth Century Investors
in Kansas City, Missouri. From 1990 to 1992, he served as vice president and
portfolio manager at Alliance Capital Management.
KATHRYN PETERS, portfolio manager of the Small Cap Opportunities (since 1995)
and Emerging Funds (since 1996). Kathy Peters joined the Manager in 1995. From
1992 to 1995, she was an associate in the investment banking division of
Donaldson, Lufkin & Jenrette in New York. Prior to that she analyzed mezzanine
investments for Barclays de Zoete Wedd.
ANDREW PRATT, CFA, portfolio manager of the Small Cap (since 1995), and Emerging
Funds (since 1994). Andrew Pratt joined the Manager in 1993 from Hewlett-Packard
Company, where, as an equity analyst, he managed a portfolio of small-cap
technology companies and researched private placement and venture capital
investments.
17
<PAGE>
6. Distribution and Shareholder Services
Funds Distributor, Inc. (the "Distributor"), 101 California Street, San
Francisco, California 94104, serves as the Funds' Distributor and principal
underwriter in a continuous public offering of the Funds' shares. The
Distributor does not impose any sales charge on purchases of Class R shares.
Class P shares of the Opportunities Fund have adopted a Share Marketing Plan
(the "Plan") under Rule 12b-1 but no Class P shares are expected to be
outstanding at the shareholder meeting.
The Emerging Fund does not currently offer any Class P or Class L
shares.
The Class R shares of the Emerging Fund to be issued in the
Reorganization will not be subject to any sales charge. No sales charge is
imposed by either Fund on reinvestment of dividends or capital gains
distributions.
The Funds generally require a minimum initial investment of $1000, and
subsequent investments of $100 or more. Both Funds have automatic investment
plans under which selected amounts are electronically withdrawn from
shareholders' accounts with banks and are applied to purchase shares of the
Funds.
7. Redemption and Exchange Procedures
Shareholders of both Funds may redeem their shares at the net asset
value next determined after receipt of a written redemption request or a
telephone redemption order without the imposition of any fee or other charge.
The Funds may involuntarily redeem a shareholder's shares if the
combined aggregate net asset value of the shares in a shareholder's account is
less than $1000 due to redemptions or if purchases through a systematic
investment plan fails to meet the Funds' investment minimum within a
twelve-month period. If the shareholder's account balance is not brought up to
the minimum or the shareholder does not send the Funds other instructions, the
Funds will redeem the shares and send the shareholder the proceeds.
Montgomery shareholders may exchange Class R shares in one Fund for
Class R shares in another Fund with the same shareholder account registration,
taxpayer identification number and address without the imposition of any sales
charges or exchange fees. There is a $100 minimum to exchange into a Fund the
shareholder currently owns and a $1,000 minimum for investing in a new Fund. An
exchange may result in a realized gain or loss for tax purposes. However,
because excessive exchanges can harm a fund's performance, the Trust reserves
the right to terminate, either temporarily or permanently, exchange privileges
of any shareholder who makes more than four exchanges out of any one Fund during
a twelve-month period and to refuse an exchange into a Fund from which a
shareholder has redeemed shares within the previous 90 days (accounts under
common ownership or control and accounts with the same
18
<PAGE>
taxpayer identification number will be counted together). Shares can be
exchanged by telephone at (800) 572-FUND[3863] or through the online shareholder
service center at www.montgomeryfunds.com.
Other restrictions may apply. Refer to the Combined Prospectus and the
Combined Statement of Additional Information for other exchange policies.
8. Income Dividends, Capital Gains Distributions and Taxes
Each Fund distributes substantially all of its net investment income
and net capital gains to shareholders each year, if any. Both Funds currently
intend to make one or, if necessary to avoid the imposition of tax on a Fund,
more distributions during each calendar year. A distribution may be made between
November 1 and December 31 of each year with respect to any undistributed
capital gains earned during the one-year period ended October 31 of each
calendar year. Another distribution of any undistributed capital gains may also
be made following the Funds' fiscal year end (June 30 for both Funds).
Each Fund has elected and qualified as a separate "regulated investment
company" under Subchapter M of the Code for federal income tax purposes and
meets all other requirements that are necessary for it (but not its
shareholders) to pay no federal taxes on income and capital gains paid to
shareholders in the form of dividends. In order to accomplish this goal, each
Fund must, among other things, distribute substantially all of its ordinary
income and net capital gains on a current basis and maintain a portfolio of
investments which satisfies certain diversification criteria.
9. Portfolio Transactions and Brokerage Commissions
The Manager is responsible for decisions to buy and sell securities for
each Fund, broker-dealer selection, and negotiation of commission rates. In
placing orders for the Funds' portfolio transactions, the Manager's primary
consideration is to obtain the most favorable price and execution available
although the Manager also may consider a securities broker-dealer's sale of Fund
shares, or research and brokerage services provided by the securities
broker-dealer, as factors in considering through whom portfolio transactions
will be effected. The Funds may pay to those securities broker-dealers who
provide brokerage and research service to the Manger a higher commission than
that charged by other securities broker-dealers if the Manger determines in good
faith that the amount of the commission is reasonable in relation to the value
of those services in terms either of the particular transaction, or in terms of
the overall responsibility of the Manager and to any other accounts over which
the Manager exercises investment discretion.
19
<PAGE>
10. Shareholders' Rights
The Trust is a Massachusetts business trust. Because each Fund is a
series of the Trust, its operations are governed by the Trust's Declaration of
Trust and By-laws and applicable Massachusetts law.
The Funds normally will not hold meetings of shareholders except as
required under the Investment Company Act and Massachusetts law. However,
shareholders holding 10% or more of the outstanding shares of a Fund may call
meetings for the purpose of voting on the removal of one or more of the
Trustees.
Shareholders of each Fund have no preemptive, conversion or
subscription rights. The shares of each Fund have non-cumulative voting rights,
with each shareholder of the Funds entitled to one vote for each full share of
the Funds (and a fractional vote for each fractional share) held in the
shareholder's name on the books of the Funds as of the record date for the
action in question. On any matter submitted to a vote of shareholders, shares of
each Fund will be voted by that Fund's shareholders individually when the matter
affects the specific interest of that Fund only, such as approval of that Fund's
investment management arrangements. The shares of all the Funds will be voted in
the aggregate on other matters, such as the election of trustees and
ratification of the Board of Trustees' selection of the Funds' independent
accountants.
C. RISK FACTORS
The Emerging Fund's portfolio, like that of the Opportunities Fund's
portfolio, is subject to the general risks and considerations associated with
equity investing. The Funds' focus on small-cap stocks may expose shareholders
to additional risks. Smaller companies typically have more limited-product
lines, markets and financial resources than larger companies, and their
securities may trade less frequently and in more-limited volume than those of
larger, more mature companies. As a result, small-cap stocks--and therefore the
Fund--may fluctuate significantly more in value than larger-cap stocks and funds
that focus on them. See the Combined Prospectus and Statement of Additional
Information for more information on the risks of the Emerging Fund.
D. RECOMMENDATION OF THE BOARD OF TRUSTEES
The Board of Trustees of the Trust (including a majority of the
noninterested Trustees), after due consideration, has unanimously determined
that the Reorganization is in the best interests of the shareholders of the
Opportunities Fund and that the interests of the existing shareholders of the
Opportunities Fund would not be diluted thereby. The Board specifically
considered the following factors:
1. That the Manager's Growth team could better serve
shareholders by managing a single small cap-oriented
fund rather than two similar funds.
20
<PAGE>
2. The efficiencies that could occur if the Funds'
assets were combined.
3. The expected absence of adverse effects on the
Emerging Fund by adding the Opportunities Fund's
assets to it.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE ADOPTION OF THE PROPOSAL.
E. DISSENTERS' RIGHTS OF APPRAISAL
Shareholders of the Fund who object to the proposed Reorganization will
not be entitled to any "dissenters' rights" under Massachusetts law. However,
those shareholders have the right at any time up to when the Reorganization
occurs to redeem shares of the Opportunities Fund at net asset value or to
exchange their shares for shares of the other funds offered by the Trust
(including the Emerging Fund) without charge. After the Reorganization,
shareholders of the Opportunities Fund will hold shares of the Emerging Fund,
which may also be redeemed at net asset value in accordance with the procedures
described in the Emerging Fund's Prospectus dated October 31, 1998, subject
applicable redemption procedures.
F. FURTHER INFORMATION ABOUT THE ACQUIRED FUND AND THE ACQUIRING FUND
Further information about the Opportunities Fund and the Emerging Fund
is contained in the following documents:
o Combined Prospectus dated October 31, 1998.
o Combined Statement of Additional Information also dated
October 31, 1998.
o Documents that relate to the Funds are available, without
charge, by writing to the Montgomery Funds at 101 California
Street, San Francisco, California 94111 or by calling (800)
572-FUND[3863]. A copy of the Combined Prospectus also
accompanies this Combined Proxy Statement and Prospectus.
The Trust is subject to the informational requirements of the
Securities Exchange Act of 1934 and the Investment Company Act, and it files
reports, proxy materials and other information with the SEC. These reports,
proxy materials and other information can be inspected and copied at the Public
Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of these materials can be obtained at prescribed rates from the
Public Reference Branch, Office of Consumer Affairs and Information Services, of
the SEC, Washington, D.C. 20549.
21
<PAGE>
G. VOTE REQUIRED
Approval of the proposed Reorganization requires the affirmative vote
of the holders of a majority of the shares of the Opportunities Fund present or
voting by proxy at the shareholder meeting. If the shareholders of the
Opportunities Fund do not approve the proposed Reorganization, or if the
Reorganization is not consummated for any other reason, then the Board of
Trustees will take any further action as it deems to be in the best interest of
the Opportunities Fund and its shareholders, including liquidation, subject to
approval by the shareholders of the Opportunities Fund if required by applicable
law.
H. FINANCIAL HIGHLIGHTS
<TABLE>
The following selected per-share data and ratios for the period ended
June 30, 1998, were audited by PricewaterhouseCoopers LLP. Their August 14,
1998, report appears in the 1998 Annual Report of the Funds. Information for the
periods ended June 30, 1991, through June 30, 1997, was audited by other
independent accountants. Their report is not included here.
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Opportunities Fund
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA FOR 1998## 1997 1996(a)##
THE YEAR OR PERIOD ENDED JUNE 30:
<S> <C> <C> <C>
Net Asset Value - Beginning of Year $ 17.53 $ 15.80 $ 12.00
Net investment income/(loss) (0.20) (0.13) 0.02
Net realized and unrealized gain/(loss) on investments 2.25 1.86 3.78++
Net increase/(decrease) in net assets resulting from investment operations 2.05 1.73 3.80
Distributions:
Dividends from net investment income -- (0.00)# --
Distribution from net realized capital gains (0.42) -- --
Distribution in excess of net realized capital gains -- -- --
Total Distributions (0.42) (0.00)# --
Net Asset Value - End of Year $ 19.16 $ 17.53 $ 15.80
Total Return** 11.86% 10.97% 31.67%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios To Average Net Assets/
Supplemental Data
Net assets, end of year (in 000's) $ 201,738 $ 226,318 $ 136,140
Ratio of net investment income/(loss) to average net assets (1.05)% (0.86)% 0.23%+
Net investment income/(loss) before deferral of fees by Manager $ (0.26) $ (0.16) $ (0.04)
Portfolio turnover rate 82.47% 154.50% 81.29%
Expense ratio before deferral of fees by
Manager, including interest and tax expense 1.78% 1.75% 2.16%+
Expense ratio including interest and tax expense 1.50% 1.50% 1.50%+
Expense ratio excluding interest and tax expense 1.50% -- --
- ------------------------------------------------------------------------------------------------------------------------------------
22
<PAGE>
<FN>
(a) The Small Cap Opportunities Fund's Class R shares commenced operations on
December 29, 1995.
</FN>
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Emerging Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA FOR 1998## 1997 1996 1995(b)##
THE YEAR OR PERIOD ENDED JUNE 30:
<S> <C> <C> <C> <C>
Net Asset Value - Beginning of Year $ 19.00 $ 17.82 $ 13.75 $ 12.00
Net investment income/(loss) (0.18) (0.13) (0.04) 0.09
Net realized and unrealized gain/(loss) on investments 4.21 2.54 4.26 1.66
Net increase/(decrease) in net assets resulting from
investment operations 4.03 2.41 4.22 1.75
Distributions:
Dividends from net investment income -- -- (0.04) --
Distribution from net realized capital gains (1.14) (1.23) (0.11) --
Distribution in excess of net realized capital gains -- -- -- --
Total distributions (1.14) (1.23) (0.15) --
Net Asset Value - End of Year $ 21.89 $ 19.00 $ 17.82 $ 13.75
Total Return** 22.18% 14.77% 30.95% 14.58%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data
Net assets, end of year (in 000's) $ 391,973 $ 317,812 $ 306,217 $ 162,949
Ratio of net investment income/(loss) to average net assets (0.84)% (0.75)% (0.11)% 1.40%+
Net investment income/(loss) before deferral of fees by Manager $ (0.18) -- $ (0.05) $ 0.07
Portfolio turnover rate 23.63% 79.00% 88.98% 36.81%
Expense ratio before deferral of fees by Manager, including
interest and tax expense 1.57% -- 1.79% 2.07%+
Expense ratio including interest expense 1.57% 1.71% 1.75% 1.75%+
Expense ratio excluding interest expense 1.56% -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(b) The U.S. Emerging Growth Fund's Class R shares commenced operations on
December 30, 1994.
** Total return represents aggregate total for the periods indicated.
+ Annualized.
++ The amount shown in this caption for each share outstanding throughout
the period may not be in accord with the net realized and unrealized
gain/(loss) for the period because of the timing of purchases and
withdrawal of shares in relation to the fluctuating market values of
the portfolio.
# Amount represents less than $0.01 per share.
## Per-share numbers have been calculated using the average share method,
which more appropriately represents the per-share data for the period,
as use of the undistributed income method did not accord with the
results of operations.
</FN>
</TABLE>
23
<PAGE>
III. MISCELLANEOUS ISSUES
A. OTHER BUSINESS
The Board of Trustees of the Trust knows of no other business to be
brought before the meeting. If any other matters come before the meeting, it is
the Board's intention that proxies that do not containing specific restrictions
to the contrary will be voted on those matters in accordance with the judgment
of the persons named in the enclosed form of proxy.
B. NEXT MEETING OF SHAREHOLDERS
The Trust is not required and does not intend to hold annual or other
periodic meetings of shareholders except as required by the Investment Company
Act. If the Reorganization is not completed, the next meeting of the
shareholders of the Opportunities Fund will be held at such time as the Board of
Trustees may determine or at such time as may be legally required. Any
shareholder proposal intended to be presented at such meeting must be received
by the Trust at its office at a reasonable time before the meeting, as
determined by the Board of Trustees, to be included in the Trust's proxy
statement and form of proxy relating to that meeting, and must satisfy all other
legal requirements.
C. LEGAL MATTERS
Certain legal matters in connection with the issuance of the Emerging
Fund Shares will be passed upon for the Trust by Paul, Hastings, Janofsky &
Walker LLP.
D. EXPERTS
The financial statements of the Montgomery Small Cap Opportunities Fund
for the year ended June 30, 1998, contained in the Trust's 1998 Annual Report to
Shareholders, and the financial statements of the Montgomery U.S. Emerging
Growth Fund for the year ended June 30, 1998, contained in the Trust's 1998
Annual Report to Shareholders have been audited by PricewaterhouseCoopers LLP,
independent auditors, as stated in their reports, which are incorporated herein
by reference, and have been so incorporated in reliance upon the reports of such
firm given their authority as experts in accounting and auditing.
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. YOU ALSO MAY
VOTE BY INTERNET (www.___________.com) AND TELEPHONE
(800.___.____).
24
<PAGE>
PROXY
FOR SPECIAL MEETING OF SHAREHOLDERS OF
MONTGOMERY SMALL CAP OPPORTUNITIES FUND
ON [MARCH 1, 1999]
The undersigned hereby appoints Gregory M. Siemons and Downey L.
Hebble, and each of them, proxies for the undersigned, with full power of
substitution, to represent the undersigned and to vote all of the shares of
Montgomery Small Cap Opportunities Fund (the "Opportunities Fund") of The
Montgomery Funds (the "Trust"), which the undersigned is entitled to vote at the
Special Meeting of Shareholders of the Opportunities Fund to be held on March 1,
1999 and at any adjournment thereof.
o Proposal to approve or disapprove a reorganization of the
Opportunities Fund providing for (i) the transfer of
substantially all of the assets and liabilities of the
Opportunities Fund to the Montgomery U.S. Emerging Growth Fund
(the "Emerging Fund"), a separate series of the Trust, in
exchange for shares of the Emerging Fund (the "Emerging Fund
Shares") of equivalent value, (ii) the pro rata distribution
of those Emerging Fund Shares to the shareholders of the
Opportunities Fund in full redemption of those shareholders'
shares in the Opportunities Fund, and (iii) the immediate
liquidation and termination of the Opportunities Fund, all as
described in the accompanying Combined Proxy Statement and
Prospectus.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
And, in their discretion, to transact any other business that may lawfully come
before the meeting or any adjournment(s) thereof.
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES AND WILL BE
VOTED AS YOU DIRECT ON THIS FORM. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR THE PROPOSAL.
---
Dated: ___________________, 1999
____________________________________
Signature of Shareholder
____________________________________
Signature of Shareholder
When shares are registered jointly in the names of two or more persons, ALL must
sign. Signature(s) must correspond exactly with the name(s) shown. Please sign,
date and return promptly in the enclosed envelope.
2
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of this 15th day of December, 1998, by The Montgomery Funds, a Massachusetts
business trust, for itself and on behalf of the Montgomery U.S. Emerging Growth
Fund (the "Acquiring Fund"), a series of ("TMF"), and on behalf of the
Montgomery Small Cap Opportunities Fund (the "Acquired Fund"), also a series of
TMF.
In accordance with the terms and conditions set forth in this
Agreement, the parties desire that all of the assets of the Acquired Fund be
transferred to the Acquiring Fund, and that the Acquiring Fund assume the Stated
Liabilities (as defined in paragraph 1.3) of the Acquired Fund, in exchange for
Class R shares of the Acquiring Fund ("Acquiring Fund Shares"), and that these
Acquiring Fund Shares be distributed immediately after the Closing, as defined
in this Agreement, by the Acquired Fund to its shareholders in liquidation of
the Acquired Fund. This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended (the "Code").
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto, intending to be legally bound hereby,
covenant and agree as follows:
1. REORGANIZATION OF ACQUIRED FUND
1.1 Subject to the terms and conditions herein set forth, and on the
basis of the representations and warranties contained herein, the Acquired Fund
shall assign, deliver and otherwise transfer its assets as set forth in
paragraph 1.2 (the "Fund Assets") to the Acquiring Fund and the Acquiring Fund
shall assume the Acquired Fund's Stated Liabilities. The Acquiring Fund shall,
as consideration therefor, on the Closing Date (as defined in paragraph 3.1),
deliver to the Acquired Fund full and fractional Acquiring Fund Shares, the
number of which shall be determined by dividing (a) the value of the Acquired
Fund Assets, net of the Acquired Fund's Stated Liabilities, computed in the
manner and as of the time and date set forth in paragraph 2.1, by (b) the net
asset value of one Class R share of the Acquiring Fund computed in the manner
and as of the time and date set forth in paragraph 2.2. Such transfer, delivery
and assumption shall take place at the closing provided for in paragraph 3.1
(hereinafter sometimes referred to as the "Closing"). Immediately following the
Closing, the Acquired Fund shall distribute the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided in paragraph 1.4 hereof. Such transactions are hereinafter sometimes
collectively referred to as the "Reorganization."
1.2 (a) With respect to the Acquired Fund, the Fund Assets shall
consist of all property and assets of any nature whatsoever, including, without
limitation, all cash, cash equivalents, securities, instruments, claims and
receivables (including dividend and interest
1
<PAGE>
receivables) owned by the Acquired Fund, and any prepaid expenses shown as an
asset on the Acquired Fund's books on the Closing Date.
(b) Before the Closing Date, the Acquired Fund will provide
the Acquiring Fund with a schedule of its assets and its known
liabilities, and the Acquiring Fund will provide the Acquired
Fund with a copy of the current investment objective and
policies applicable to the Acquiring Fund. The Acquired Fund
reserves the right to sell or otherwise dispose of any of the
securities or other assets shown on the list of the Acquired
Fund's Assets before the Closing Date but will not, without
the prior approval of the Acquiring Fund, acquire any
additional securities other than securities which the
Acquiring Fund is permitted to purchase in accordance with its
stated investment objective and policies. Before the Closing
Date, the Acquiring Fund will advise the Acquired Fund of any
investments of the Acquired Fund shown on such schedule which
the Acquiring Fund would not be permitted to hold, pursuant to
its stated investment objective and policies or otherwise. If
the Acquired Fund holds any investments that the Acquiring
Fund would not be permitted to hold under its stated
investment objective or policies, the Acquired Fund, if
requested by the Acquiring Fund, will dispose of those
securities prior to the Closing Date to the extent
practicable. In addition, if it is determined that the
portfolios of the Acquired Fund and the Acquiring Fund, when
aggregated, would contain investments exceeding certain
percentage limitations to which the Acquiring Fund is or will
be subject with respect to such investments, the Acquired
Fund, if requested by the Acquiring Fund, will dispose of
and/or reinvest a sufficient amount of such investments as may
be necessary to avoid violating such limitations as of the
Closing Date.
1.3 The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. The Acquiring Fund will
assume all liabilities and obligations reflected on an unaudited statement of
assets and liabilities of the Acquired Fund prepared by the administrator of TMF
as of the Applicable Valuation Date (as defined in paragraph 2.1), in accordance
with generally accepted accounting principles consistently applied from the
prior audited period ("Stated Liabilities"). The Acquiring Fund shall assume
only the Stated Liabilities of the Acquired Fund, and no other liabilities or
obligations, whether absolute or contingent, known or unknown, accrued or
unaccrued.
1.4 Immediately following the Closing, the Acquired Fund will
distribute the Acquiring Fund Shares received by the Acquired Fund pursuant to
paragraph 1.1 pro rata to its Class R and Class P shareholders of record
determined as of the close of business on the Closing Date ("Acquired Fund
Investors") in complete liquidation of the Acquired Fund. That distribution will
be accomplished by an instruction, signed by an appropriate officer of TMF, to
transfer the Acquiring Fund Shares then credited to the Acquired Fund's account
on the books of the Acquiring Fund to open accounts on the books of the
Acquiring Fund established and maintained by the Acquiring Fund's transfer agent
in the names of record of the Acquired Fund Investors and representing the
respective pro rata number of Class R and Class P shares of the
2
<PAGE>
Acquiring Fund due such Acquired Fund Investor based on the respective net asset
values per share of the Class R and Class P shares of the Acquired Fund. All
issued and outstanding shares of the Acquired Fund will be cancelled
simultaneously therewith on the Acquired Fund's books, and any outstanding share
certificates representing interests in the Acquired Fund will represent only the
right to receive such number of Acquiring Fund Shares after the Closing as
determined in accordance with paragraph 1.l.
1.5 If any request shall be made for a change of the registration of
shares of the Acquiring Fund to another person from the account of the
stockholder in which name the shares are registered in the records of the
Acquired Fund, it shall be a condition of such registration of shares that there
be furnished to the Acquiring Fund an instrument of transfer properly endorsed,
accompanied by appropriate signature guarantees and otherwise in proper form for
transfer and that the person requesting such registration shall pay to the
Acquiring Fund any transfer or other taxes required by reason of such
registration or establish to the reasonable satisfaction of the Acquiring Fund
that such tax has been paid or is not applicable.
1.6 Following the transfer of assets by the Acquired Fund to the
Acquiring Fund, the assumption of the Acquired Fund's Stated Liabilities by the
Acquiring Fund, and the distribution by the Acquired Fund of the Acquiring Fund
Shares received by it pursuant to paragraph 1.4, TMF shall terminate the
qualification, classification and registration of the Acquired Fund with all
appropriate federal and state agencies. Any reporting or other responsibility of
TMF is and shall remain the responsibility of TMF up to and including the date
on which the Acquired Fund is terminated and deregistered, subject to any
reporting or other obligations described in paragraph 4.8.
2. VALUATION
2.1 The value of the Acquired Fund's Fund Assets shall be the value of
those assets computed as of the time at which its net asset value is calculated
pursuant to the valuation procedures set forth in the Acquiring Fund's
then-current Prospectus and Statement of Additional Information on the business
day immediately preceding the Closing Date, or at such time on such earlier or
later date as may mutually be agreed upon in writing among the parties hereto
(such time and date being herein called the "Applicable Valuation Date").
2.2 The net asset value of each share of the Acquiring Fund shall be
the net asset value per share computed on the Applicable Valuation Date, using
the market valuation procedures set forth in the Acquiring Fund's then-current
Prospectus and Statement of Additional Information.
2.3 All computations of value contemplated by this Article 2 shall be
made by the Acquiring Fund's administrator in accordance with its regular
practice as pricing agent. The Acquiring Fund shall cause its administrator to
deliver a copy of its valuation report to TMF and to the Acquired Fund at the
Closing.
3
<PAGE>
3. CLOSING(S) AND CLOSING DATE
3.l The Closing for the Reorganization shall occur on March 1, 1999,
and/or on such other date(s) as may be mutually agreed upon in writing by the
parties hereto (each, a "Closing Date"). The Closing(s) shall be held at the
offices of Paul, Hastings, Janofsky & Walker LLP, 345 California Street, San
Francisco, California 94104 or at such other location as is mutually agreeable
to the parties hereto. All acts taking place at the Closing(s) shall be deemed
to take place simultaneously as of 10:00 a.m., local time on the Closing Date
unless otherwise provided.
3.2 The Acquiring Fund's custodian shall deliver at the Closing a
certificate of an authorized officer stating that: (a) the Fund Assets have been
delivered in proper form to the Acquiring Fund on the Closing Date and (b) all
necessary taxes including all applicable federal and state stock transfer
stamps, if any, have been paid, or provision for payment shall have been made,
by the Acquired Fund in conjunction with the delivery of portfolio securities.
3.3 Notwithstanding anything herein to the contrary, if on the
Applicable Valuation Date (a) the New York Stock Exchange shall be closed to
trading or trading thereon shall be restricted or (b) trading or the reporting
of trading on such exchange or elsewhere shall be disrupted so that, in the
judgment of TMF, accurate appraisal of the value of the net assets of the
Acquiring Fund or the Acquired Fund is impracticable, the Applicable Valuation
Date shall be postponed until the first business day after the day when trading
shall have been fully resumed without restriction or disruption and reporting
shall have been restored.
4. COVENANTS WITH RESPECT TO THE ACQUIRING FUND AND THE ACQUIRED FUND
4.1 With respect to the Acquired Fund, TMF has called or will call a
meeting of Acquired Fund shareholders to consider and act upon this Agreement
and to take all other actions reasonably necessary to obtain the approval of the
transactions contemplated herein, including approval for the Acquired Fund's
liquidating distribution of Acquiring Fund Shares contemplated hereby, and for
TMF to terminate the Acquired Fund's qualification, classification and
registration if requisite approvals are obtained with respect to the Acquired
Fund. The Montgomery Funds, on behalf of the Acquired Fund, shall prepare the
notice of meeting, form of proxy and proxy statement (collectively, "Proxy
Materials") to be used in connection with that meeting.
4.2 TMF, on behalf of the Acquired Fund, covenants that the Acquiring
Fund Shares to be issued hereunder are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the terms of this
Agreement.
4
<PAGE>
4.3 TMF, on behalf of the Acquired Fund, will assist the Acquiring Fund
in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of shares of the Acquired Fund.
4.4 Subject to the provisions hereof, TMF, on its own behalf and on
behalf of the Acquiring Fund and the Acquired Fund, will take, or cause to be
taken, all actions, and do, or cause to be done, all things reasonably
necessary, proper or advisable to consummate and make effective the transactions
contemplated herein.
4.5 TMF, on behalf of the Acquired Fund, shall furnish to the Acquiring
Fund on the Closing Date, a final statement of the total amount of the Acquired
Fund's assets and liabilities as of the Closing Date.
4.6 TMF, on behalf of the Acquiring Fund, has prepared and filed, or
will prepare and file, with the Securities and Exchange Commission (the "SEC") a
registration statement on Form N-14 under the Securities Act of 1933, as amended
(the "1933 Act"), relating to the Acquiring Fund Shares (the "Registration
Statement"). TMF, on behalf of the Acquired Fund, has provided or will provide
the Acquiring Fund with the Proxy Materials for inclusion in the Registration
Statement, prepared in accordance with paragraph 4.1, and with such other
information and documents relating to the Acquired Fund as are requested by the
Acquiring Fund and as are reasonably necessary for the preparation of the
Registration Statement.
4.7 As soon after the Closing Date as is reasonably practicable, TMF,
on behalf of the Acquired Fund: (a) shall prepare and file all federal and other
tax returns and reports of the Acquired Fund required by law to be filed with
respect to all periods ending on/or before the Closing Date but not theretofore
filed and (b) shall pay all federal and other taxes shown as due thereon and/or
all federal and other taxes that were unpaid as of the Closing Date.
4.8 Following the transfer of Fund Assets by the Acquired Fund to the
Acquiring Fund and the assumption of the Stated Liabilities of the Acquired Fund
in exchange for Acquiring Fund Shares as contemplated herein, TMF will file any
final regulatory reports, including but not limited to any Form N-SAR and Rule
24f-2 filings with respect to the Acquired Fund, promptly after the Closing Date
and also will take all other steps as are necessary and proper to effect the
termination or declassification of the Acquired Fund in accordance with the laws
of the Commonwealth of Massachusetts and other applicable requirements.
5
<PAGE>
5. REPRESENTATIONS AND WARRANTIES
5.1 TMF, on behalf of the Acquiring Fund, represents and warrants to
the Acquired Fund as follows:
(a) TMF was duly created pursuant to its Agreement and
Declaration of Trust by the Trustees for the purpose of acting as a
management investment company under the Investment Company Act of 1940
(the "1940 Act") and is validly existing under the laws of the
Commonwealth of Massachusetts, and the Declaration of Trust directs the
Trustees to manage the affairs of TMF and grants them all powers
necessary or desirable to carry out such responsibility, including
administering TMF's business as currently conducted by TMF and as
described in the current prospectuses of TMF. TMF is registered as an
investment company classified as an open-end management company, under
the 1940 Act and its registration with the SEC as an investment company
is in full force and effect;
(b) The Registration Statement, including the current
prospectus and statement of additional information of the Acquiring
Fund, conforms or will conform, at all times up to and including the
Closing Date, in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the regulations thereunder and do
not include or will not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(c) The Acquiring Fund is not in violation of, and the
execution, delivery and performance of this Agreement by TMF for itself
and on behalf of the Acquiring Fund does not and will not (i) violate
TMF's Declaration of Trust or By-Laws, or (ii) result in a breach or
violation of, or constitute a default under, any material agreement or
material instrument, to which TMF is a party or by which its properties
or assets are bound;
(d) Except as previously disclosed in writing to the Acquired
Fund, no litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to TMF's
knowledge, threatened against TMF or its business, the Acquiring Fund
or any of its properties or assets, which, if adversely determined,
would materially and adversely affect TMF or the Acquiring Fund's
financial condition or the conduct of their business. TMF knows of no
facts that might form the basis for the institution of any such
proceeding or investigation, and the Acquiring Fund is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects, or
is reasonably likely to materially and adversely affect, its business
or its ability to consummate the transactions contemplated herein;
6
<PAGE>
(e) All issued and outstanding shares, including shares to be
issued in connection with the Reorganization, of the Acquiring Fund
will, as of the Closing Date, be duly authorized and validly issued and
outstanding, fully paid and nonassessable, the shares of each class of
the Acquiring Fund issued and outstanding before the Closing Date were
offered and sold in compliance with the applicable registration
requirements, or exemptions therefrom, of the 1933 Act, and all
applicable state securities laws, and the regulations thereunder, and
the Acquiring Fund does not have outstanding any option, warrants or
other rights to subscribe for or purchase any of its shares nor is
there outstanding any security convertible into any of its shares;
(f) The execution, delivery and performance of this Agreement
on behalf of the Acquiring Fund will have been duly authorized prior to
the Closing Date by all necessary action on the part of TMF, the
Trustees and the Acquiring Fund, and this Agreement will constitute a
valid and binding obligation of TMF and the Acquiring Fund enforceable
in accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, arrangement, moratorium and other similar
laws of general applicability relating to or affecting creditors,
rights and to general equity principles;
(g) On the effective date of the Registration Statement, at
the time of the meeting of the Acquired Fund shareholders and on the
Closing Date, any written information furnished by TMF with respect to
the Acquiring Fund for use in the Proxy Materials, the Registration
Statement or any other materials provided in connection with the
Reorganization does not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
information provided not misleading;
(h) No governmental consents, approvals, authorizations or
filings are required under the 1933 Act, the Securities Exchange Act of
1934 (the "1934 Act"), the 1940 Act or Massachusetts law for the
execution of this Agreement by TMF, for itself and on behalf of the
Acquiring Fund, or the performance of the Agreement by The Montgomery
Funds for itself and on behalf of the Acquiring Fund, except for such
consents, approvals, authorizations and filings as have been made or
received, and except for such consents, approvals, authorizations and
filings as may be required after the Closing Date;
(i) The Statement of Assets and Liabilities, Statement of
Operations and Statements of Changes in Net Assets of the Acquiring
Fund as of and for the year ended June 30, 1998, audited by
PricewaterhouseCoopers LLP (copies of which have been or will be
furnished to the Acquired Fund) fairly present, in all material
respects, the Acquiring Fund's financial condition as of such date and
its results of operations for such period in accordance with generally
accepted accounting principles consistently applied, and as of such
dates there were no liabilities of the Acquiring Fund (contingent or
otherwise) known to TMF that were not disclosed therein but that would
be required to be disclosed therein in accordance with generally
accepted accounting principles;
7
<PAGE>
(j) Since the date of the most recent audited financial
statements, there has not been any material adverse change in the
Acquiring Fund's financial condition, assets, liabilities or business,
other than changes occurring in the ordinary course of business; or any
incurrence by the Acquiring Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred, except as otherwise
disclosed in writing to and accepted by the Acquired Fund, prior to the
Closing Date (for the purposes of this subparagraph (j), neither a
decline in the Acquiring Fund's net asset value per share nor a
decrease in the Acquiring Fund's size due to redemptions shall be
deemed to constitute a material adverse change);
(k) For each full and partial taxable year from its inception
through the Closing Date, the Acquiring Fund has qualified as a
separate regulated investment company under the Code and has taken all
necessary and required actions to maintain such status; and
(1) All federal and other tax returns and reports of TMF and
the Acquiring Fund required by law to be filed on or before the Closing
Date shall have been filed, and all taxes owed by TMF or the Acquiring
Fund shall have been paid so far as due, and to the best of TMF's
knowledge, no such return is currently under audit and no assessment
has been asserted with respect to any such return.
5.2 TMF, on behalf of the Acquired Fund, represents and warrants to the
Acquiring Fund as follows:
(a) TMF was duly created pursuant to its Agreement and
Declaration of Trust by the Trustees for the purpose of acting as a
management investment company under the 1940 Act and is validly
existing under the laws of the Commonwealth of Massachusetts, and the
Agreement and Declaration of Trust directs the Trustees to manage the
affairs of TMF and grants them all powers necessary or desirable to
carry out such responsibility, including administering TMF's business
as currently conducted by TMF and as described in the current
prospectuses of TMF. TMF is registered as an investment company
classified as an open-end management company, under the 1940 Act and
its registration with the SEC as an investment company is in full force
and effect;
(b) All of the issued and outstanding shares of the Acquired
Fund have been offered and sold in compliance in all material respects
with applicable registration or notice requirements of the 1933 Act and
state securities laws; all issued and outstanding shares of each class
of the Acquired Fund are, and on the Closing Date will be, duly
authorized and validly issued and outstanding, and fully paid and
non-assessable, and the Acquired Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of
its shares, nor is there outstanding any security convertible into any
of its shares;
8
<PAGE>
(c) The Acquired Fund is not in violation of, and the
execution, delivery and performance of this Agreement by TMF for itself
and on behalf of the Acquired Fund does not and will not (i) violate
TMF's Agreement and Declaration of Trust or By-Laws, or (ii) result in
a breach or violation of, or constitute a default under, any material
agreement or material instrument to which TMF is a party or by its
properties or assets are bound;
(d) Except as previously disclosed in writing to the Acquiring
Fund, no litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to TMF's
knowledge, threatened against the Acquired Fund or any of its
properties or assets which, if adversely determined, would materially
and adversely affect the Acquired Fund's financial condition or the
conduct of its business, TMF knows of no facts that might form the
basis for the institution of any such proceeding or investigation, and
the Acquired Fund is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body that
materially and adversely affects, or is reasonably likely to materially
and adversely affect, its business or its ability to consummate the
transactions contemplated herein;
(e) The Statement of Assets and Liabilities, Statements of
Operations and Statements of Changes in Net Assets of the Acquired Fund
as of and for the period ended June 30, 1998, audited by
PricewaterhouseCoopers LLP (copies of which have been or will be
furnished to the Acquiring Fund) fairly present, in all material
respects, the Acquired Fund's financial condition as of such date and
its results of operations for such period in accordance with generally
accepted accounting principles consistently applied, and as of such
date there were no liabilities of the Acquired Fund (contingent or
otherwise) known to TMF that were not disclosed therein but that would
be required to be disclosed therein in accordance with generally
accepted accounting principles;
(f) Since the date of the most recent audited financial
statements, there has not been any material adverse change in the
Acquired Fund's financial condition, assets, liabilities or business,
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred, except as otherwise
disclosed in writing to and accepted by the Acquiring Fund, prior to
the Closing Date (for the purposes of this subparagraph (f), neither a
decline in the Acquired Fund's net asset value per share nor a decrease
in the Acquired Fund's size due to redemptions shall be deemed to
constitute a material adverse change);
(g) All federal and other tax returns and reports of TMF and
the Acquired Fund required by law to be filed on or before the Closing
Date shall have been filed, and all taxes owed by TMF or the Acquired
Fund shall have been paid so far as due, and to the best of TMF's
knowledge, no such return is currently under audit and no assessment
has been asserted with respect to any such return;
9
<PAGE>
(h) For each full and partial taxable year from its inception
through the Closing Date, the Acquired Fund has qualified as a separate
regulated investment company under the Code and has taken all necessary
and required actions to maintain such status;
(i) At the Closing Date, the Acquired Fund will have good and
marketable title to the Fund Assets and full right, power and authority
to assign, deliver and otherwise transfer such Fund Assets hereunder,
and upon delivery and payment for such Fund Assets as contemplated
herein, the Acquiring Fund will acquire good and marketable title
thereto, subject to no restrictions on the ownership or transfer
thereof other than such restrictions as might arise under the 1933 Act;
(j) The execution, delivery and performance of this Agreement
on behalf of the Acquired Fund will have been duly authorized prior to
the Closing Date by all necessary action on the part of TMF, the
Trustees and the Acquired Fund, and this Agreement will constitute a
valid and binding obligation TMF and the Acquired Fund enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, arrangement, moratorium and other similar
laws of general applicability relating to or affecting creditors,
rights and to general equity principles;
(k) From the effective date of the Registration Statement,
through the time of the meeting of the Acquired Fund Investors, and on
the Closing Date, the Proxy Materials (exclusive of the portions of the
Acquiring Fund's Prospectus contained or incorporated by reference
therein, and exclusive of any written information furnished by TMF with
respect to the Acquiring Fund): (i) will comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act
and the 1940 Act and the regulations thereunder and (ii) do not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and as of such dates and times, any written
information furnished by TMF, on behalf of the Acquired Fund, for use
in the Registration Statement or in any other manner that may be
necessary in connection with the transactions contemplated hereby does
not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the information provided not
misleading; and
(1) No governmental consents, approvals, authorizations or
filings are required under the 1933 Act, the 1934 Act, the 1940 Act or
Massachusetts law for the execution of this Agreement by TMF, for
itself and on behalf of the Acquired Fund, or the performance of the
Agreement by TMF for itself and on behalf of the Acquired Fund, except
for such consents, approvals, authorizations and filings as have been
made or received, and except for such consents, approvals,
authorizations and filings as may be required subsequent to the Closing
Date.
10
<PAGE>
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRED FUND
The obligations of TMF to consummate the Reorganization with respect to
the Acquired Fund shall be subject to the performance by TMF, for itself and on
behalf of the Acquiring Fund, of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the following
conditions with respect to the Acquiring Fund:
6.1 All representations and warranties of TMF with respect to the
Acquiring Fund contained herein shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated herein, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date.
6.2 TMF, on behalf of the Acquiring Fund, shall have delivered to the
Acquired Fund at the Closing a certificate executed on behalf of the Acquiring
Fund by TMF's President, Vice President, Assistant Vice President, Secretary or
Assistant Secretary in a form reasonably satisfactory to the Acquired Fund and
dated as of the Closing Date, to the effect that the representations and
warranties of TMF with respect to the Acquiring Fund made herein are true and
correct at and as of the Closing Date, except as they may be affected by the
transactions contemplated herein, and as to such other matters as the Acquired
Fund shall reasonably request.
6.3 Unless waived by the Acquired Fund, the Acquired Fund shall have
received at the Closing a favorable opinion of Paul, Hastings, Janofsky & Walker
LLP, counsel to TMF, dated as of the Closing Date, in a form reasonably
satisfactory to the Acquired Fund, substantially to the effect that:
(a) TMF is a duly registered, open-end, management investment
company, and its registration with the SEC as an investment company
under the 1940 Act is in full force and effect; (b) the Acquiring Fund
is a separate portfolio of TMF, which is a business trust duly created
pursuant to its Agreement and Declaration of Trust, is legally existing
and in good standing under the laws of the Commonwealth of
Massachusetts, and the Agreement and Declaration of Trust directs the
Trustees to manage the affairs of TMF and grants them all powers
necessary or desirable to carry out such responsibility, including
administering TMF's business as described in the current prospectuses
of TMF; (c) this Agreement has been duly authorized, executed and
delivered by TMF on behalf of TMF and the Acquiring Fund and, assuming
due authorization, execution and delivery of this Agreement on behalf
of the Acquired Fund, is a valid and binding obligation of TMF,
enforceable against TMF in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, arrangement,
moratorium and other similar laws of general applicability relating to
or affecting creditors, rights and to general equity principles; (d)
the Acquiring Fund Shares to be issued to the Acquired Fund and then
distributed to the Acquired Fund Investors pursuant to this Agreement
are duly registered under the 1933 Act on the appropriate form, and are
duly authorized and upon such issuance will be validly issued and
outstanding and fully paid and non-
11
<PAGE>
assessable, and no shareholder of the Acquiring Fund has any preemptive
rights to subscription or purchase in respect thereof; (e) the
Registration Statement has become effective with the SEC and, to the
best of such counsel's knowledge, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or threatened; (f) no
consent, approval, authorization, filing or order of any court or
governmental authority of the United States or any state is required
for the consummation of the Reorganization with respect to the
Acquiring Fund, except for such consents, approvals, authorizations and
filings as have been made or received, and except for such consents,
approvals, authorizations and filings as may be required after the
Closing Date; and (g) to the best knowledge of such counsel, no
litigation or administrative proceeding or investigation of or before
any court or governmental body is presently pending or threatened as to
TMF or the Acquiring Fund or any of their properties or assets and
neither TMF nor the Acquiring Fund is a party to or subject to the
provisions of any order, decree or judgment of any court or
governmental body that materially and adversely affects its business.
6.4 As of the Closing Date, there shall have been no material change in
the investment objective, policies and restrictions nor any material change in
the investment management fees, fee levels payable pursuant to any 12b-1 plan of
distribution, other fees payable for services provided to the Acquiring Fund,
fee waiver or expense reimbursement undertakings, or sales loads of the
Acquiring Fund from those fee amounts, undertakings and sales load amounts
described in the prospectus of the Acquiring Fund delivered to the Acquired Fund
pursuant to paragraph 4.1 and in the Proxy Materials.
6.5 With respect to the Acquiring Fund, the Board of Trustees of TMF
shall have determined that the Reorganization is in the best interests of the
Acquiring Fund and that the interests of the existing shareholders of the
Acquiring Fund would not be diluted as a result of the Reorganization.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRING FUND
The obligations of TMF to consummate the Reorganization with respect to
the Acquiring Fund shall be subject to the performance by TMF of all the
obligations to be performed by it hereunder, with respect to the Acquired Fund,
on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of TMF with respect to the
Acquired Fund contained herein shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date, with the
same force and effect as if made on and as of the Closing Date.
7.2 TMF, on behalf of the Acquired Fund, shall have delivered to the
Acquiring Fund at the Closing a certificate executed on behalf of the Acquired
Fund, by TMF's President, Vice President, Assistant Vice President, Secretary or
Assistant Secretary, in form and
12
<PAGE>
substance satisfactory to the Acquiring Fund and dated as of the Closing Date,
to the effect that the representations and warranties of TMF with respect to the
Acquired Fund made herein are true and correct at and as of the Closing Date,
except as they may be affected by the transactions contemplated herein and as to
such other matters as the Acquiring Fund shall reasonably request.
7.3 Unless waived by the Acquiring Fund, the Acquiring Fund shall have
received at the Closing a favorable opinion from Paul, Hastings, Janofsky &
Walker LLP, counsel to TMF, dated as of the Closing Date, in a form reasonably
satisfactory to the Acquiring Fund, substantially to the effect that:
(a) TMF is a duly registered, open-end, management investment
company, and its registration with the SEC as an investment company
under the 1940 Act is in full force and effect; (b) the Acquired Fund
is a separate portfolio of TMF, which is a business trust duly created
pursuant to its Agreement and Declaration of Trust, is validly existing
and in good standing under the laws of the Commonwealth of
Massachusetts, and the Agreement and Declaration of Trust directs the
Trustees to manage the affairs of TMF and grants them all powers
necessary or desirable to carry out such responsibility, including
administering TMF's business as described in the current prospectuses
of TMF; (c) this Agreement has been duly authorized, executed and
delivered by TMF on behalf of TMF and the Acquired Fund and, assuming
due authorization, execution and delivery of this Agreement on behalf
of the Acquiring Fund, is a valid and binding obligation of TMF,
enforceable against TMF in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, arrangement,
moratorium and other similar laws of general applicability relating to
or affecting creditors, rights and to general equity principles; (d) no
consent, approval, authorization, filing or order of any court or
governmental authority of the United Sates or any state is required for
the consummation of the Reorganization with respect to the Acquired
Fund, except for such consents, approvals, authorizations and filings
as have been made or received, and except for such consents, approvals,
authorizations and filings as may be required subsequent to the Closing
Date; and (e) to the best knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to TMF or the
Acquired Fund or any of their properties or assets and neither TMF nor
the Acquired Fund is a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body that
materially and adversely effects its business.
7.4 With respect to the Acquired Fund, the Board of Trustees of TMF
shall have determined that the Reorganization is in the best interests of the
Acquired Fund.
13
<PAGE>
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND
THE ACQUIRED FUND
The obligations of the Acquiring Fund and of the Acquired Fund herein
are each subject to the further conditions that on or before the Closing Date
with respect to the Acquiring Fund and the Acquired Fund:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of TMF's Agreement and
Declaration of Trust and the requirements of the 1940 Act, and certified copies
of the resolutions evidencing such approval shall have been delivered to the
Acquiring Fund.
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or any of the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders,
approvals and permits of federal, state and local regulatory authorities
(including, without limitation, those of the SEC and of state securities
authorities) deemed necessary by TMF, on behalf of the Acquiring Fund or the
Acquired Fund, to permit consummation, in all material respects, of the
transactions contemplated herein shall have been obtained, except where failure
to obtain any such consent, order or permit would not, in the opinion of the
party asserting that the condition to closing has not been satisfied, involve a
risk of a material adverse effect on the assets or properties of the Acquiring
Fund or the Acquired Fund.
8.4 The Registration Statement shall have become effective under the
1933 Act, no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5 The Acquired Fund shall have declared and paid a dividend or
dividends which, together with all previous such dividends, shall have the
effect of distributing to the Acquired Fund's shareholders substantially all of
the Acquired Fund's investment company taxable income for all taxable years
ending on or prior to the Closing Date (computed without regard to any deduction
for dividends paid) and substantially all of its net capital gain realized in
all taxable years ending on or prior to the Closing Date (after reduction for
any capital loss carryover).
8.6 The Montgomery Funds shall have received the opinion of Paul,
Hastings, Janofsky & Walker LLP addressed to both the Acquiring Fund and the
Acquired Fund (and based on customary representation certificates from TMF, the
Acquiring Fund and the Acquired Fund) substantially to the effect that, for
federal income tax purposes:
14
<PAGE>
(a) the transfer by the Acquired Fund of the Fund Assets in
exchange for the Acquiring Fund Shares and the assumption by the
Acquiring Fund of the Stated Liabilities will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code
and the Acquiring Fund and the Acquired Fund each are a "party to a
reorganization" within the meaning of Section 368(b) of the Code; (b)
no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the Fund Assets solely in exchange for the Acquiring Fund
Shares and the assumption by the Acquiring Fund of the Stated
Liabilities; (c) no gain or loss will be recognized by the Acquired
Fund upon the transfer of the Fund Assets to the Acquiring Fund and the
assumption by the Acquiring Fund of the Stated Liabilities in exchange
for the Acquiring Fund Shares or upon the distribution (whether actual
or constructive) of the Acquiring Fund Shares to the Acquired Fund
shareholders in exchange for their shares of the Acquired Fund; (d) no
gain or loss will be recognized by the Acquired Fund Investors upon the
exchange of their Acquired Fund Shares for the Acquiring Fund Shares;
(e) the aggregate tax basis for the Acquiring Fund Shares received by
each of the Acquired Fund Investors pursuant to the Reorganization will
be the same as the aggregate tax basis of the Acquired Fund shares held
by such shareholder immediately prior to the Reorganization, and the
holding period of the Acquiring Fund Shares to be received by each
Acquired Fund Investors will include the period during which the
Acquired Fund shares exchanged therefor were held by such shareholder
(provided the Acquired Fund shares were held as capital assets on the
date of the Reorganization); and (f) the tax basis of the Acquired Fund
assets acquired by the Acquiring Fund will be same as the tax basis of
such assets to the Acquired Fund immediately prior to the
Reorganization, and the holding period of the assets of the Acquired
Fund in the hands of the Acquiring Fund will include the period during
which those assets were held by the Acquired Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Acquired Fund may waive the condition set forth in this paragraph 8.6.
9. EXPENSES
9.1 Except as may be otherwise provided herein, each of the Acquired
Fund and the Acquiring Fund shall be liable for its respective expenses incurred
in connection with entering into and carrying out the provisions of this
Agreement, whether or not the transactions contemplated hereby are consummated.
The expenses payable by the Acquired Fund hereunder shall include (i) fees and
expenses of its counsel and independent auditors incurred in connection with the
Reorganization; (ii) expenses associated with printing and mailing the
Prospectus/Proxy Statement and soliciting proxies in connection with the meeting
of shareholders of the Acquired Fund referred to in paragraph 4.1 hereof; (iii)
all fees and expenses related to the liquidation of the Acquired Fund; (iv) fees
and expenses of the Acquired Fund's custodian and transfer agent(s) incurred in
connection with the Reorganization; and (v) any special pricing fees associated
with the valuation of the Acquired Fund's portfolio on the Applicable Valuation
Date. The Acquired Fund expects its investment manager, Montgomery
15
<PAGE>
Asset Management, LLC, to reimburse it for the expenses listed in items (i),
(ii), (iii) (iv) and (v) above. The expenses payable by the Acquiring Fund
hereunder shall include (i) fees and expenses of its counsel and independent
auditors incurred in connection with the Reorganization; (ii) expenses
associated with preparing this Agreement and preparing and filing the
Registration Statement under the 1933 Act covering the Acquiring Fund Shares to
be issued in the Reorganization; (iii) registration or qualification fees and
expenses of preparing and filing such forms, if any, as are necessary under
applicable state securities laws to qualify the Acquiring Fund Shares to be
issued in connection with the Reorganization; (iv) any fees and expenses of the
Acquiring Fund's custodian and transfer agent(s) incurred in connection with the
Reorganization; and (v) any special pricing fees associated with the valuation
of the Acquiring Fund's portfolio on the Applicable Valuation Date. The
Acquiring Fund expects its investment manager, Montgomery Asset Management, LLC,
to reimburse it for the expenses listed in items (i), (ii), (iv) and (v) (but
not (iii)) above.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the
parties and supersedes any prior or contemporaneous understanding or arrangement
with respect to the subject matter hereof.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated herein.
11. TERMINATION
11.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time before the Closing by the mutual written
consent of the Acquiring Fund and the Acquired Fund.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of TMF,
acting on behalf of the Acquired Fund and the Acquiring Fund; provided, however,
that following the meeting of the shareholders of the Acquired Fund, no such
amendment may have the effect of changing the provisions for determining the
number of shares of the Acquiring Fund to be to the Acquired Fund Investors
under this Agreement to the detriment of such Acquired Fund Investors, or
otherwise materially and adversely affecting the Acquired Fund, without the
Acquired Fund obtaining the Acquired Fund Investors' further approval except
that nothing in this paragraph 12 shall be construed to prohibit the Acquiring
Fund and the Acquired Fund from amending this Agreement to change the Closing
Date or Applicable Valuation Date by mutual agreement.
16
<PAGE>
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provision of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy, certified mail or overnight express courier addressed to:
For TMF, on behalf of itself and the
Acquiring Fund and/or Acquired Fund:
The Montgomery Funds
101 California Street
San Francisco, California 94111
Attention: David J. Thelander, Esq.
General Counsel
With copies to:
David A. Hearth, Esq.
Paul, Hastings, Janofsky & Walker LLP
345 California St., 29th Floor
San Francisco, California 94104
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF
LIABILITY
14.1 The article and paragraph headings contained herein are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All references herein to Articles, paragraphs,
subparagraphs or Exhibits shall be construed as referring to Articles,
paragraphs or subparagraphs hereof or Exhibits hereto, respectively. Whenever
the terms "hereto", "hereunder", "herein" or "hereof" are used in this
Agreement, they shall be construed as referring to this entire Agreement, rather
than to any individual Article, paragraph, subparagraph or sentence.
14.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other
17
<PAGE>
parties. Nothing herein expressed or implied is intended or shall be construed
to confer upon or give any person, firm or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed by its authorized officer.
The Montgomery Funds,
for itself and on behalf of
the Montgomery U.S.
Emerging Growth Fund
By: ___________________________
Downey L. Hebble
Assistant Vice President
The Montgomery Funds,
for itself and on behalf of
the Montgomery Small Cap
Opportunities Fund
By: ___________________________
Downey L. Hebble
Assistant Vice President
18
<PAGE>
-----------------------------------------
PART B
------
STATEMENT OF ADDITIONAL INFORMATION
FOR THE REORGANIZATION OF
MONTGOMERY SMALL CAP OPPORTUNITIES FUND
INTO
MONTGOMERY U.S. EMERGING GROWTH FUND
-----------------------------------------
<PAGE>
THE MONTGOMERY FUNDS
------------------------------
101 California Street
San Francisco, California 94111
1-800-572-FUND
-----------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY __, 1999
FOR REGISTRATION STATEMENT ON FORM N-14
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Combined Proxy Statement and Prospectus dated
January __, 1999, which has been filed by The Montgomery Funds (the "Trust") in
connection with a Special Meeting of Shareholders of the Montgomery Small Cap
Opportunities Fund (the "Small Cap Fund") of the Trust that has been called to
vote on an Agreement and Plan of Reorganization (and the transactions
contemplated thereby). Copies of the Combined Proxy Statement and Prospectus may
be obtained at no charge by writing The Montgomery Funds at the address
indicated above or by calling toll-free 1-800-572-FUND.
Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the Combined
Proxy Statement and Prospectus.
Further information about the Trust, the Small Cap Fund, and Montgomery
U.S. Emerging Growth Fund (the "Emerging Fund", and, together, the "Funds") is
contained in the Funds' Combined Prospectus (including other Montgomery Funds)
dated October 31, 1998, and the Annual Report of the Funds for the fiscal year
ended June 30, 1998. The Funds' Statement of Additional Information (including
other Montgomery Funds), dated October 31, 1998, is incorporated by reference in
this Statement of Additional Information and is available without charge by
calling the Montgomery Funds toll-free at 1-800-572-FUND.
Pro-forma financial statements are attached hereto as Exhibit A.
TABLE OF CONTENTS
Page
----
General Information ...................................................... B-2
Exhibit A ................................................................ B-3
B-2
<PAGE>
GENERAL INFORMATION
The shareholders of the Fund are being asked to approve a form of
Agreement and Plan of Reorganization (the "Plan") combining the Fund into the
Emerging Fund (and the transactions contemplated thereby). The Plan contemplates
the transfer of all substantially all of the assets and liabilities of the Small
Cap Fund as of the Effective Date to the Emerging Fund, and the assumption by
the Emerging Fund of the liabilities of the Small Cap Fund, in exchange for
shares of the Emerging Fund. Immediately after the Effective Date, the Fund will
distribute to its shareholders of record as of the close of business on the
Effective Date the shares of the Emerging Fund received. The shares of the
Emerging Fund that will be issued for distribution to the Small Cap Fund's
Shareholders will have an aggregate net asset value equal to the aggregate net
asset value of the shares of the Small Cap Fund held as of the Closing Date. The
Trust will then take all necessary steps to terminate the qualification,
registration and classification of the Small Cap Fund. All issued and
outstanding shares of the Small Cap Fund will be canceled on the Small Cap
Fund's books. Shares of the Emerging Fund will be represented only by book
entries; no share certificates will be issued.
A Special Meeting of the Fund's shareholders to consider the
transaction will be held at the offices of the Trust, 101 California Street,
35th Floor, San Francisco, California 94111 on March 1, 1999 at 10 a.m., local
time.
For further information about the transaction, see the Combined Proxy
Statement and Prospectus. For further information about the Trust, the Small Cap
Fund and the Emerging Fund, see the Funds' Combined Statement of Additional
Information, dated October 31, 1998, which is available without charge by
calling the Trust at 1-800-572-FUND.
B-3
<PAGE>
<TABLE>
Exhibit A
---------
[TO BE COMPLETED BY PRE-EFFECTIVE AMENDMENT]
Montgomery Small Cap Opportunities Fund
Pro Forma Portfolio of Investments as of _________, 1998
Long-Term Investments -- ____%
<CAPTION>
- ---------------------------------------- -------------------------------------------------------- --------------------
Shares Issuer Value
- ---------------------------------------- -------------------------------------------------------- --------------------
<S> <C> <C>
Common Stock--___%
- ---------------------------------------- -------------------------------------------------------- --------------------
Aerospace--___%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
Banking--_____%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
Computers/Computer Hardware--____%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
Construction Materials--_____%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
Consumer Products--______%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
Electronics/Electrical Equipment--_____%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
Environmental Services--______%
- ---------------------------------------- -------------------------------------------------------- --------------------
B-4
<PAGE>
- ---------------------------------------- -------------------------------------------------------- --------------------
Financial Services---_____%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
Health Care/Health Care Services--_____%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
Insurance--______%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
Manufacturing--______%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
Metals/Mining--_____%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
Oil & Gas--______%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
Paper/Forest Products--_______%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
Pharmaceuticals--______%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
Printing & Publishing--______%
- ---------------------------------------- -------------------------------------------------------- --------------------
B-5
<PAGE>
- ---------------------------------------- -------------------------------------------------------- --------------------
Retailing--_______%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
Shipping/Transportation--______%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
Textiles--_______%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
Tire & Rubber--______%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
Wholesaling--______%
- ---------------------------------------- -------------------------------------------------------- --------------------
- ---------------------------------------- -------------------------------------------------------- --------------------
</TABLE>
Total Long-Term Investments
$___________
(Cost $______________)
Short-Term Investments--______%
<TABLE>
<CAPTION>
- ------------------------------------- -------------------------------------------------- --------------------
Principal Amount Type Value
- ------------------------------------- -------------------------------------------------- --------------------
<S> <C> <C>
U.S. Government Obligations--_____%
- ------------------------------------- -------------------------------------------------- --------------------
- ------------------------------------- -------------------------------------------------- --------------------
Commercial Paper--_______%
- ------------------------------------- -------------------------------------------------- --------------------
B-6
<PAGE>
- ------------------------------------- -------------------------------------------------- --------------------
- ------------------------------------- -------------------------------------------------- --------------------
- ------------------------------------- -------------------------------------------------- --------------------
- ------------------------------------- -------------------------------------------------- --------------------
- ------------------------------------- -------------------------------------------------- --------------------
- ------------------------------------- -------------------------------------------------- --------------------
- ------------------------------------- -------------------------------------------------- --------------------
Total Short-Term Investments -- ____% $___________
(Cost $____________)
Total Investments--100% $__________
(Cost $_________)
</TABLE>
B-7
<PAGE>
<TABLE>
Pro Forma Statement of Assets and Liabilities as of________________ 1998 (Unaudited)
<CAPTION>
- -------------------------------- ---------------------------- -------------------- --------------------------
Montgomery Small Pro Forma Pro Forma Combined
Cap Opportunities Adjustments
Fund
- -------------------------------- ---------------------------- -------------------- --------------------------
<S> <C> <C> <C>
ASSETS:
- -------------------------------- ---------------------------- -------------------- --------------------------
Investment Securities,
at value
- -------------------------------- ---------------------------- -------------------- --------------------------
Cash
- -------------------------------- ---------------------------- -------------------- --------------------------
Receivables:
- -------------------------------- ---------------------------- -------------------- --------------------------
Investment Securities
Sold
- -------------------------------- ---------------------------- -------------------- --------------------------
Interest and Dividends
- -------------------------------- ---------------------------- -------------------- --------------------------
Other Assets
- -------------------------------- ---------------------------- -------------------- --------------------------
Total Assets
- -------------------------------- ---------------------------- -------------------- --------------------------
Liabilities
- -------------------------------- ---------------------------- -------------------- --------------------------
Payable for investment
securities purchased
- -------------------------------- ---------------------------- -------------------- --------------------------
Payable for Fund shares
redeemed
- -------------------------------- ---------------------------- -------------------- --------------------------
Accrued liabilities:
- -------------------------------- ---------------------------- -------------------- --------------------------
Administration fees
- -------------------------------- ---------------------------- -------------------- --------------------------
Custodian
- -------------------------------- ---------------------------- -------------------- --------------------------
Other
- -------------------------------- ---------------------------- -------------------- --------------------------
Total Liabilities
- -------------------------------- ---------------------------- -------------------- --------------------------
NET ASSETS
- -------------------------------- ---------------------------- -------------------- --------------------------
Paid-in capital
- -------------------------------- ---------------------------- -------------------- --------------------------
Accumulated undistributed net
investment income
- -------------------------------- ---------------------------- -------------------- --------------------------
Accumulated undistributed net
realized gain (loss)
- -------------------------------- ---------------------------- -------------------- --------------------------
Net unrealized
appreciation/depreciation of
investment
- -------------------------------- ---------------------------- -------------------- --------------------------
Net Assets
- -------------------------------- ---------------------------- -------------------- --------------------------
B-8
<PAGE>
Pro Forma Statement of Assets ____________, 1998 (Unaudited)
(continues)
Shares of beneficial interest outstanding ($.001 par value; unlimited number of shares authorized):
- ------------------------------------- ----------------------------------- -----------------------------------
Class of Shares
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
Class R Shares
- ------------------------------------- ----------------------------------- -----------------------------------
Net asset value, redemption price
and Maximum offering price per share
- ------------------------------------- ----------------------------------- -----------------------------------
Cost of Investments
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
Class P Shares
- ------------------------------------- ----------------------------------- -----------------------------------
Net asset value, redemption price
and Maximum offering price per share
- ------------------------------------- ----------------------------------- -----------------------------------
Cost of Investments
- ------------------------------------- ----------------------------------- -----------------------------------
</TABLE>
B-9
<PAGE>
<TABLE>
Pro Forma Statements of Operations
For the period _________ through ____________, 1998 (Unaudited)
<CAPTION>
- ---------------------------------- -------------------------- -------------------- --------------------------
Montgomery Small Cap Pro Forma Pro Forma
Opportunities Fund Adjustments Montgomery U.S.
Emerging Growth Fund
- ---------------------------------- -------------------------- -------------------- --------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
- ---------------------------------- -------------------------- -------------------- --------------------------
Dividends
- ---------------------------------- -------------------------- -------------------- --------------------------
Interest
- ---------------------------------- -------------------------- -------------------- --------------------------
Foreign Taxes Withheld
- ---------------------------------- -------------------------- -------------------- --------------------------
Total Investment Income
- ---------------------------------- -------------------------- -------------------- --------------------------
EXPENSES
- ---------------------------------- -------------------------- -------------------- --------------------------
Administration fees
- ---------------------------------- -------------------------- -------------------- --------------------------
Distribution fees
- ---------------------------------- -------------------------- -------------------- --------------------------
Investment Advisory Fees
- ---------------------------------- -------------------------- -------------------- --------------------------
Shareholder Servicing Fees
- ---------------------------------- -------------------------- -------------------- --------------------------
Custodian Fees
- ---------------------------------- -------------------------- -------------------- --------------------------
Printing and postage
- ---------------------------------- -------------------------- -------------------- --------------------------
Professional fees
- ---------------------------------- -------------------------- -------------------- --------------------------
Registration costs
- ---------------------------------- -------------------------- -------------------- --------------------------
Transfer Agent fees
- ---------------------------------- -------------------------- -------------------- --------------------------
Trustees fees and expenses
- ---------------------------------- -------------------------- -------------------- --------------------------
Other
- ---------------------------------- -------------------------- -------------------- --------------------------
Total Expenses
- ---------------------------------- -------------------------- -------------------- --------------------------
Less amounts waived
- ---------------------------------- -------------------------- -------------------- --------------------------
Less expenses borne by the
Distributor
- ---------------------------------- -------------------------- -------------------- --------------------------
Net expenses
- ---------------------------------- -------------------------- -------------------- --------------------------
Net investment income
- ---------------------------------- -------------------------- -------------------- --------------------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
- ---------------------------------- -------------------------- -------------------- --------------------------
Net realized gain (loss) on:
Investments
- ---------------------------------- -------------------------- -------------------- --------------------------
Change in net realized
appreciation/depreciation on:
- ---------------------------------- -------------------------- -------------------- --------------------------
Investments
- ---------------------------------- -------------------------- -------------------- --------------------------
Net realized gain and unrealized
gain (loss) on investments
- ---------------------------------- -------------------------- -------------------- --------------------------
Net increase in net assets from
operations
- ---------------------------------- -------------------------- -------------------- --------------------------
- ---------------------------------- -------------------------- -------------------- --------------------------
Total Expenses
- ---------------------------------- -------------------------- -------------------- --------------------------
<FN>
See notes to financial statements
</FN>
</TABLE>
B-10
<PAGE>
Notes to the Pro-Forma Financial Statements
1. Basis of presentation
The Pro Forma Portfolio of Investments, Statement of Assets and
Liabilities and Statement of Operations ("Pro forma Statements") reflect the
accounts of the Montgomery Small Cap Opportunities Fund at _______, 199_.
The Pro Forma Statements give effect to the proposed transfer of all
assets and liabilities of the Montgomery Small Cap Opportunities Fund to the
Montgomery U.S. Emerging Growth Fund in exchange for shares of such Montgomery
Small Cap Opportunities Portfolio.
The Pro Forma Statements should be read in conjunction with the
historical financial statements of the Portfolio included in the Statement of
Additional Information.
2. Shares of Beneficial Interest
The pro forma net asset value per share and shares outstanding assume
the issuance of additional shares of the Montgomery U.S. Emerging Growth Fund on
_____________, 1999 in connection with the proposed reorganization, the
additional shares (________) to be issued for the Montgomery Small Cap
Opportunities Shares were based on the ___________, 199_ net assets
($__________) of the Small Cap Opportunities Portfolio and the net asset value
per share of such Fund ($____).
3. Pro Forma Operating Expenses
B-11
<PAGE>
-----------------------------------------
PART C
------
THE MONTGOMERY FUNDS
OTHER INFORMATION
-----------------------------------------
<PAGE>
THE MONTGOMERY FUNDS
-------------------------------
FORM N-14
-------------------------------
PART C
-------------------------------
ITEM 15. INDEMNIFICATION
Article VII, Section 3 of the Agreement and Declaration of Trust
empowers the Trustees of the Trust, to the full extent permitted by law, to
purchase with Trust assets insurance for indemnification from liability and to
pay for all expenses reasonably incurred or paid or expected to be paid by a
Trustee or officer in connection with any claim, action, suit or proceeding in
which he or she becomes involved by virtue of his or her capacity or former
capacity with the Trust.
Article VI of the By-Laws of the Trust provides that the Trust shall
indemnify any person who was or is a party or is threatened to be made a party
to any proceeding by reason of the fact that such person is 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 Trustee, officers, and controlling persons
of the Registrant, pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable in the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
ITEM 16 EXHIBITS
--------
(1) Amended and Restated Agreement and Declaration of Trust is
incorporated by reference to Post-Effective Amendment No.61 to
Registration Statement N-1A (the "Registration Statement"), as
filed with the Commission on October 29, 1998 ("Post-Effective
Amendment No. 61").
(2) Amended and Restated By-Laws is incorporated by reference to
Post-Effective Amendment No. 61.
(3) Voting Trust Agreement - Not applicable.
(4) Form of Agreement and Plan of Reorganization is included in
Part A.
(5) Specimen Share Certificate - Not applicable.
C-2
<PAGE>
(6) Investment Advisory Contracts--Form of Investment Management
Agreement is incorporated by reference to Post-Effective
Amendment No. 52 to the Registration Statement as filed with
the Commission on July 31, 1997 ("Post-Effective Amendment No.
52").
(7)(A) Form of Underwriting Agreement is incorporated by reference to
Post-Effective Amendment No. 52.
(7)(B) Form of Selling Group Agreement is incorporated by reference
to Pre-Effective Amendment No. 1.
(8) Benefit Plan(s) - Not applicable.
(9) Custody Agreement is incorporated by reference to
Post-Effective Amendment No. 61.
(10) Form of Shareholder Services Plan is incorporated by reference
to Post-Effective Amendment No. 61.
(11) Consent and Opinion of Counsel as to legality of shares is
incorporated by reference to Post-Effective Amendment No. 61.
(12) Opinion and Consent as to Tax Matters will be filed by
pre-effective amendment.
(13)(A) Form of Administrative Services Agreement is incorporated by
reference to Post-Effective Amendment No. 52.
(13)(B) 18f-3Plan--Form of Amended and Restated Multiple Class Plan is
incorporated by reference to Post-Effective Amendment No. 61.
(14) Independent Auditors' Consent.
(15) Not Applicable.
(16) Power of Attorney.
(17) Not Applicable.
C-3
<PAGE>
ITEM 17. UNDERTAKINGS.
------------
(1) Registrant agrees that, prior to any public reoffering of the
securities registered through the use of a prospectus which is
part of this registration statement by any person or party who
is deemed to be an underwriter within the meaning of Rule
145(c) of the Securities Act of 1933, the reoffering
prospectus will contain the information called for by the
applicable registration form for the reofferings by persons
who may be deemed underwriters, in addition to the information
called for by the other items of the applicable.
(2) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (a) above will be filed as part of an
amendment to the Registration Statement and will not be used
until the amendment is effective, and that, in determining any
liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and
the offering of the securities at that time shall be deemed to
be the initial bona fide offering of them.
C-4
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration
statement has been signed on behalf of the Registrant, in the City of San
Francisco and State of California, on the 17th day of December 1998.
THE MONTGOMERY FUNDS
George A. Rio*
-----------------------------
George A. Rio
President and Principal Executive Officer;
Treasurer and Principal Financial and
Accounting Officer
<TABLE>
As required by the Securities Act of 1933, this registration statement has been
signed by the following persons in the capacities and on the dates indicated:.
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
George A. Rio* President and December 17, 1998
- --------------------- Principal Executive Officer;
George A. Rio Treasurer and Principal
Financial and Accounting Officer
R. Stephen Doyle* Chairman of the December 17, 1998
- --------------------- Board of Trustees
R. Stephen Doyle
Andrew Cox.* Trustee December 17, 1998
- ---------------------
Andrew Cox
Cecilia H. Herbert* Trustee December 17, 1998
- ---------------------
Cecilia H. Herbert
John A. Farnsworth* Trustee December 17, 1998
- ---------------------
John A. Farnsworth
<FN>
*By: /s/ David A. Hearth
----------------------------------
David A. Hearth, Attorney-in-Fact
Pursuant to Power of Attorney
filed herewith
</FN>
</TABLE>
C-5
<PAGE>
SEC File No. ____________
THE MONTGOMERY FUNDS
FORM N-14
EXHIBIT INDEX
Number Exhibit
- ------ -------
14 Independent Auditors' Consent-- PricewaterhouseCoopers LLP
16 Power of Attorney
C-6
EXHIBIT 14
Independent Auditors' Consent - PricewaterhouseCoopers LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus/Proxy
Statement and Statement of Additional Information constituting parts of this
Registration Statement on Form N-14 of our report dated August 14, 1998,
relating to the financial statements and financial highlights appearing in the
June 30, 1998 Annual Report to Shareholders of Montgomery Small Cap
Opportunities Fund and Montgomery U.S. Emerging Growth Fund. We also consent to
the references to us under the headings "Financial Highlights" and "Experts" in
the Prospectus/Proxy Statement. Further, we consent to the references to us
under the heading "Financial Highlights" in the Prospectus and under the heading
"Investment Management and Other Services" in the Statement of Additional
Information constituting parts of Post-Effective Amendment No. 62 to the
registration statement on Form N-1A dated October 31, 1998, which is also
incorporated by reference into this Registration Statement on Form N-14.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
December 17, 1998
C-7
EXHIBIT 16
Power of Attorney
C-8
<PAGE>
POWER OF ATTORNEY
FOR
SECURITIES AND EXCHANGE COMMISSION
AND RELATED FILINGS
----------------------------------------
The undersigned officer of THE MONTGOMERY FUNDS and THE MONTGOMERY
FUNDS II (the "Trusts") hereby appoints MARK B. GEIST, JULIE ALLECTA, MITCHELL
E. NICHTER and DAVID A. HEARTH (with full power to each of them to act alone),
his or her attorney-in-fact and agent, in all capacities, to execute and to file
any documents relating to the Registration Statements on Forms N-1A and N-14
under the Investment Company Act of 1940, as amended, and under the Securities
Act of 1933, as amended, and under the laws of all states and other domestic and
foreign jurisdictions, including any and all amendments thereto, covering the
registration and the sale of shares by the Trusts, including all exhibits and
any and all documents required to be filed with respect thereto with any
regulatory authority, including applications for exemptive orders, rulings or
filings of proxy materials. The undersigned grants to each of said attorneys
full authority to do every act necessary to be done in order to effectuate the
same as fully, to all intents and purposes, as he could do if personally
present, thereby ratifying all that said attorneys-in-fact and agents may
lawfully do or cause to be done by virtue hereof.
The undersigned officer hereby executes this Power of Attorney as of
this 26th day of June, 1998.
/s/ George A. Rio
-----------------------------------
George A. Rio
President and Principal Executive Officer;
Treasurer and Principal Financial and
Accounting Officer
C-9
<PAGE>
POWER OF ATTORNEY
FOR
SECURITIES AND EXCHANGE COMMISSION
AND RELATED FILINGS
----------------------------------------
The undersigned trustees of THE MONTGOMERY FUNDS and THE MONTGOMERY
FUNDS II and THE MONTGOMERY FUNDS III (the "Trusts") hereby appoints MARK B.
GEIST, JULIE ALLECTA, MITCHELL E. NICHTER and DAVID A. HEARTH (with full power
to each of them to act alone), his or her attorney-in-fact and agent, in all
capacities, to execute and to file any documents relating to the Registration
Statements on Forms N-1A and N-14 under the Investment Company Act of 1940, as
amended, and under the Securities Act of 1933, as amended, and under the laws of
all states and other domestic and foreign jurisdictions, including any and all
amendments thereto, covering the registration and the sale of shares by the
Trusts, including all exhibits and any and all documents required to be filed
with respect thereto with any regulatory authority, including applications for
exemptive orders, rulings or filings of proxy materials. The undersigned grants
to each of said attorneys full authority to do every act necessary to be done in
order to effectuate the same as fully, to all intents and purposes, as he could
do if personally present, thereby ratifying all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
The undersigned trustees hereby execute this Power of Attorney as of
this 4th day of August, 1997.
/s/ R. Stephen Doyle /s/ John A. Farnsworth
- --------------------------------- ---------------------------
R. Stephen Doyle John A Farnsworth,
Chairman of the Board of Trustees Trustee
/s/ Andrew Cox /s/ Cecilia H. Herbert
- --------------------------------- ---------------------------
Andrew Cox, Cecilia H. Herbert,
Trustee Trustee
C-10
