As filed with the Securities and Exchange Commission on February 2, 1998
File Nos. 33-69686
811-8064
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 58
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 59
THE MONTGOMERY FUNDS
(Exact Name of Registrant as Specified in its Charter)
101 California Street
San Francisco, California 94111
(Address of Principal Executive Office)
(415) 572-3863
(Registrant's Telephone Number, Including Area Code)
Greg M. Siemons, Assistant Secretary
101 California Street
San Francisco, California 94104
(Name and Address of Agent for Service)
-------------------------
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to Rule 485(b)
__X__ on February 2, 1998 pursuant to Rule 485(b)
_____ 60 days after filing pursuant to Rule 485(a)(1)
_____ 75 days after filing pursuant to Rule 485(a)(2)
_____ on ________________ pursuant to Rule 485(a)
----------
Please Send Copy of Communications to:
JULIE ALLECTA, ESQ.
DAVID A. HEARTH, ESQ.
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104
(415) 835-1600
<PAGE>
THE MONTGOMERY FUNDS
CONTENTS OF REGISTRATION STATEMENT
This registration statement contains the following documents:
Facing Sheet
Contents of Registration Statement
Cross-Reference Sheet for the prospectus for Class P of shares of
Montgomery California Tax-Free Intermediate Bond Fund
Part A - Prospectus for Class P shares of Montgomery California
Tax-Free Intermediate Bond Fund
Part C - Other Information
Signature Page
Exhibits
<PAGE>
<TABLE>
THE MONTGOMERY FUNDS
CROSS REFERENCE SHEET
FORM N-1A
Part A: Information Required in Prospectus
(Prospectus for Class P shares of Montgomery California Tax-Free Intermediate Bond Fund)
<CAPTION>
N-1A Item No. Item Location in the Registration Statement by Heading
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis "Fees and Expenses of the Fund"
3. Condensed Financial Information "Financial Highlights"
4. General Description Cover Page, "The Fund's Investment Objective and
Policies," "Portfolio Securities," "Other
Investment Practices," "Risk Considerations" and
"General Information"
5. Management of the Fund "The Fund's Investment Objective and Policies,"
"Management of the Fund" and "How to Invest in the
Fund"
5A. Management's Discussion of Fund Not Applicable
Performance
6. Capital Stock and Distributions "Dividends and Distributions," "Taxation" and
"General Information"
7. Purchase of Securities Being "How to Invest in the Fund," "How Net Asset Value
Offered Is Determined," "General Information" and "Backup
Withholding Instructions"
8. Redemption or Repurchase "How to Redeem an Investment in the Fund" and
"General Information"
9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
---------------------------------------------------------------------
PART A
PROSPECTUS FOR CLASS P SHARES
MONTGOMERY CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
---------------------------------------------------------------------
<PAGE>
THE MONTGOMERY FUNDS
101 California Street
San Francisco, California 94111
(800) 572-FUND (3863)
www.montgomeryfunds.com
Invest wisely.(SM)
Montgomery California Tax-Free Intermediate Bond Fund
Prospectus
February 2, 1998
Class P shares of the Montgomery California Tax-Free Intermediate Bond Fund (the
"Fund") are offered in this prospectus. The Fund seeks maximum current income
exempt from federal income and California personal income taxes consistent with
preservation of capital and prudent investment management. The Fund does not
maintain a stable net asset value of $1.00 per share. As with all mutual funds,
attainment of the Fund's investment objective cannot be ensured.
The Fund's Class P shares are only sold through financial intermediaries and
financial professionals at net asset value ("NAV") with no sales load, no
commissions and no exchange fees. The Class P shares are subject to a Rule 12b-1
distribution fee as described in this prospectus. The minimum initial investment
in the Fund is $1,000, and subsequent investments must be at least $100. The
Manager or the Distributor may waive these minimums. See "How to Invest in the
Fund."
The Fund is a separate series of The Montgomery Funds, an open-end management
investment company (the "Trust") managed by Montgomery Asset Management, LLC
(the "Manager"), a subsidiary of Commerzbank AG. Funds Distributor, Inc., which
is not affiliated with the Manager, is the distributor of the Fund (the
"Distributor").
This prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Please read it and retain it
for future reference. A Statement of Additional Information dated December 30,
1997, as may be revised, has been filed with the Securities and Exchange
Commission (the "SEC"), is incorporated by this reference and is available
without charge by calling (800) 572-FUND (3863). If you are viewing the
electronic version of this prospectus through an on-line computer service, you
may request a printed version free of charge by calling (800) 572-FUND (3863).
The Internet World Wide Web site for The Montgomery Funds is
www.montgomeryfunds.com. The Securities and Exchange Commission maintains a Web
site (http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding The
Montgomery Funds.
Like all mutual funds, these securities have not been approved or disapproved by
the Securities and Exchange Commission or any state securities commission, nor
has the Securities and Exchange Commission or any state securities commission
passed upon the accuracy or adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
1
<PAGE>
TABLE OF CONTENTS
Fees and Expenses of the Fund 3
Financial Highlights 4
The Fund's Investment Objective and Policies 5
Portfolio Securities 5
Other Investment Practices 6
Risk Considerations 8
Management of the Fund 9
How to Contact the Fund 11
How to Invest in the Fund 11
How to Redeem an Investment in the Fund 14
Exchange Privileges And Restrictions 15
Brokers and Other Intermediaries 16
How Net Asset Value Is Determined 16
Dividends and Distributions 17
Taxation 17
General Information 18
Backup Withholding Instructions 19
Glossary 21
2
<PAGE>
Fees and Expenses of the Fund
Shareholder Transaction Expenses for the Fund
<TABLE>
An investor would pay the following charges when buying or redeeming shares of
the Fund:
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
MAXIMUM SALES LOAD MAXIMUM SALES LOAD MAXIMUM REDEMPTION FEES EXCHANGE FEES
IMPOSED ON PURCHASES IMPOSED ON REINVESTED DEFERRED SALES LOAD
DIVIDENDS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
None None None None+ None
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
+ Shareholders effecting redemptions via wire transfer may be required to pay
fees, including the wire fee and other fees, that will be directly deducted
from redemption proceeds. The Fund reserves the right, upon 60-days'
advance notice to shareholders, to impose a redemption fee of up to 1.00%
on shares redeemed within 90 days of purchase. See "How to Redeem an
Investment in the Fund."
</FN>
</TABLE>
Estimated Annual Operating Expenses (as a percentage of average net assets)
- --------------------------------------------------------------------------------
MONTGOMERY CALIFORNIA TAX-FREE INTERMEDIATE
BOND FUND
- --------------------------------------------------------------------------------
Management Fee 0.50%
- --------------------------------------------------------------------------------
Other Expenses (after reimbursement)* 0.18%
- --------------------------------------------------------------------------------
12b-1 Fee 0.25%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses* 0.93%
- --------------------------------------------------------------------------------
* Expenses for the Fund are estimated. The Manager will reduce its fees and
may absorb or reimburse the Fund for certain expenses to the extent
necessary to limit total annual Fund operating expenses to the lesser of
the amount indicated in the table for the Fund or the maximum allowed by
applicable state expense limitations. The Fund is required to reimburse the
Manager for any reductions in the Manager's fee only during the 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 by the
Fund for fees and expenses for the current year. Absent the reduction,
actual total Fund operating expenses are estimated to be 1.43% (0.93% other
expenses). The Manager may terminate these voluntary reductions at any
time. See "Management of the Fund."
The previous tables are intended to assist the investor in understanding the
various direct and indirect costs and expenses of the Fund. Operating expenses
are paid out of the Fund's assets and are factored into the Fund's share price.
The Fund estimates that it will have the expenses listed (expressed as a
percentage of average net assets) for the current fiscal year. Because Rule
12b-1 distribution charges are accounted for on a class-level basis (and not on
an individual shareholder-level basis), individual long-term investors in the
Class P shares of the Fund may over time pay more than the economic equivalent
of the maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc. (the "NASD"), even though all shareholders of that
Class in the aggregate will not. This is recognized and permitted by the NASD.
Example of Expenses for the Fund
Assuming, hypothetically, that the Fund's annual return is 5% and that its
operating expenses are as set forth above, an investor buying $1,000 of the
Fund's shares would have paid the following total expenses upon redeeming such
shares:
-------------------------------------------------------------------------------
MONTGOMERY CALIFORNIA TAX-FREE INTERMEDIATE
BOND FUND
-------------------------------------------------------------------------------
1 Year $9
-------------------------------------------------------------------------------
3 Years $30
-------------------------------------------------------------------------------
5 Years $51
-------------------------------------------------------------------------------
10 Years $114
-------------------------------------------------------------------------------
This example is to help potential investors understand the effect of expenses.
Investors should understand that this example does not represent past or future
expenses or returns and that actual expenses and returns may vary.
3
<PAGE>
Financial Highlights
Selected Per-Share Data and Ratios
<TABLE>
The following financial information for the periods ended June 30, 1994, through
June 30, 1997, was audited by Deloitte & Touche LLP, whose report, dated August
8, 1997, appears in the 1997 Annual Report of the Funds. The financial
information for periods indicated with the note "R" relate to another class of
shares of the Funds not subject to the Class P Rule 12b-1 fees because Class P
shares were not offered during those periods.
<CAPTION>
California Tax-Free Intermediate Bond Fund
FISCAL YEAR ENDED JUNE 30
SELECTED PER-SHARE DATA FOR THE YEAR ENDED: 1997R 1996R 1995R 1994R(A)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value--beginning of year $ 12.23 $ 12.04 $ 11.79 $ 12.00
Net investment income/(loss) 0.53 0.54 0.44 0.41
Net realized and unrealized gain/(loss) on
investments 0.30 0.19 0.25 (0.21)
Net increase/(decrease) in net assets resulting
from investment operations 0.83 0.73 0.69 0.20
Distributions:
Dividends from net investment income (0.53) (0.54) (0.44) (0.41)
Distributions in excess of net investment income -- -- (0.00)# --
Total distributions (0.53) (0.54) (0.44) (0.41)
Net asset value--end of year $ 12.53 $ 12.23 $ 12.04 $ 11.79
Total return** 6.91% 6.11% 6.03% 1.65%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $ 21,681 $ 13,948 $ 5,153 $ 11,556
Ratio of net investment income/(loss) to average
net assets 4.27% 4.34% 3.71% 3.44%
Net investment income/(loss) before deferral of
fees by Manager $ 0.47 $ 0.43 $ 0.34 $ 0.25
Portfolio turnover rate 25.60% 58.11% 37.93% 77.03%
Expense ratio before deferral of fees by Manager,
including interest expense N/A N/A N/A N/A
Expense ratio excluding interest expense N/A N/A N/A N/A
Expense ratio before deferral of fees by Manager 1.18% 1.43% 1.41% 1.63%
Expense ratio including interest expense 0.68% 0.61% 0.56% 0.23%
<FN>
(A) The California Tax-Free Intermediate Bond Fund's Class R shares and Class P
shares commenced operations on July 1, 1993, and February 2, 1998,
respectively.
** Total return represents aggregate total return for the periods indicated.
+ Annualized.
+++ Average commission rate paid per share of securities purchased and sold by
the Fund.
# Amount represents less than $0.01 per share.
### Amount represented less than $0.001 per share.
</FN>
</TABLE>
4
<PAGE>
The Fund's Investment Objective and Policies
The investment objective and general investment policies of the Fund are
described below. Specific portfolio securities that may be purchased by the Fund
are described in "Portfolio Securities." Specific investment practices that may
be employed by the Fund are described in "Other Investment Practices." Certain
risks associated with investing in the Fund are described in those sections as
well as in "Risk Considerations." Certain terms used in this prospectus are
defined in the Glossary at the end of this prospectus.
The investment objective of the Fund is to provide maximum current income exempt
from federal income and California personal income taxes consistent with
preservation of capital and prudent investment management. Under normal
circumstances, the Fund seeks to achieve its objective by investing at least 80%
of its net assets in municipal securities, the interest from which is, in the
opinion of counsel to the issuer, exempt from both federal income taxes and
California personal income taxes ("California municipal securities"). This
investment objective and percentage requirement is fundamental and may not be
changed without shareholder approval.
The Fund is designed primarily for investors who seek higher yields than
tax-free money market funds generally offer and are willing to accept some
fluctuation in the Fund's share value but who are not willing to accept the
greater fluctuations that long-term tax-free bond funds might entail. This Fund
is not an appropriate investment for investors whose primary investment
objective is absolute principal stability. Because the values of the securities
in which the Fund invests generally change with interest rates, the value of its
shares will fluctuate, unlike shares of a money market fund, which seeks to
maintain a stable net asset value of $1 per share. Consequently, the Fund seeks
to reduce such fluctuations by managing the effective duration, and thus the
interest risk, of its portfolio. (Effective duration is an indicator of a
security's sensitivity to interest rate change. See duration in the Glossary.)
Under normal conditions, the average dollar-weighted portfolio maturity of the
Fund is expected to stay within a range of 5 to 10 years. The Fund may invest in
securities of any maturity, however. The Fund is not suitable for investors who
cannot benefit from the tax-exempt character of its dividends, such as IRAs,
qualified retirement plans or tax-exempt entities.
At least 80% of the value of the Fund's net assets must consist of California
municipal securities that, at the time of purchase, are rated investment grade,
that is, within the four highest ratings of municipal securities (AAA to BBB)
assigned by S&P, (Aaa to Baa) assigned by Moody's, or (AAA to BBB) assigned by
Fitch; or have S&P's short-term municipal rating of SP-2 or higher, or a
municipal commercial paper rating of A-2 or higher; Moody's short-term municipal
securities rating of MIG-2 or higher, or VMIG-2 or higher or a municipal
commercial paper rating of P-2 or higher; or have Fitch's short-term municipal
securities rating of FIN-2 or higher or a municipal commercial paper rating of
Fitch-2 or higher; or, if unrated by S&P, Moody's or Fitch, are deemed by the
Manager to be of comparable quality, using guidelines approved by the Board of
Trustees ("the Board"), but not to exceed 20% of the Fund's net assets. Debt
securities rated in the lowest category of investment-grade debt may have
speculative characteristics; changes in economic conditions or other
circumstances are more likely to lead to weakened capacity to make principal and
interest payments than is the case with higher-grade bonds. There is no
assurance that any municipal issuers will make full payments of principal and
interest or remain solvent, however. For a description of the ratings, see the
Appendix in the Statement of Additional Information. See also "Risk
Considerations."
Under normal conditions, the Fund seeks to invest in California municipal
securities to the greatest extent practicable, but it may invest in other
municipal securities if, in the Manager's opinion, suitable California municipal
securities are not available. The Fund may invest up to 20%, of its net assets
in cash, U.S. government securities, and obligations of U.S. possessions,
commercial paper and other eligible debt securities, including corporate debt
instruments or instruments the interest from which is subject to the federal
alternative minimum tax ("AMT") for individuals. Additionally, the Fund may
invest up to 20% of its net assets in eligible municipal securities other than
California municipal securities. From time to time, the Fund may invest more
than 25% of its net assets in private activity bonds and industrial development
bonds of issuers located in California.
The Fund is managed by the Manager's Fixed Income Team, whose members include
William C. Stevens and Peter D. Wilson. See "Management of the Fund."
Portfolio Securities
Investment Companies
The Fund may invest up to 10% of its total assets in shares of other investment
companies investing exclusively in securities in which it may otherwise invest.
The Fund does not intend to invest in other investment companies unless, in the
Manager's
5
<PAGE>
judgment, the potential benefits exceed associated costs. As a shareholder in an
investment company, the Fund bears its ratable share of that investment
company's expenses, including advisory and administration fees.
Debt Securities
The Fund invests primarily in fixed-income securities. In selecting debt
securities, the Manager seeks out good credits and analyzes interest rate trends
and specific developments that may affect individual issuers. As an operating
policy, which may be changed by the Board, the Fund may invest up to 5% of its
total assets in debt securities rated lower than investment grade. Subject to
this limitation, the Fund may invest in any debt security, including securities
in default. After its purchase by the Fund, a debt security may cease to be
rated or its rating may be reduced below that required for purchase by the Fund.
A security downgraded below the minimum level may be retained if determined by
the Manager to be in the best interests of the Fund. See "Risk Considerations."
U.S. Government Securities
The Fund may invest in fixed-rate and floating- or variable-rate U.S. government
securities. Certain of the obligations, including U.S. Treasury bills, notes and
bonds, and mortgage-related securities of the GNMA, are issued or guaranteed by
the U.S. government. Other securities issued by U.S. government agencies or
instrumentalities are supported only by the credit of the agency or
instrumentality, such as those issued by the Federal Home Loan Bank, whereas
others, such as those issued by the FNMA, Farm Credit System and Student Loan
Marketing Association, have an additional line of credit with the U.S. Treasury.
Short-term U.S. government securities generally are considered to be among the
safest short-term investments. The U.S. government does not guarantee the net
asset value of the Fund's shares, however. With respect to U.S. government
securities supported only by the credit of the issuing agency or instrumentality
or by an additional line of credit with the U.S. Treasury, there is no guarantee
that the U.S. government will provide support to such agencies or
instrumentalities. Accordingly, such U.S. government securities may involve risk
of loss of principal and interest.
Structured Notes and Indexed Securities.
The Fund may invest in structured notes and indexed securities. Structured notes
are debt securities, the interest rate or principal of which is determined by an
unrelated indicator. Indexed securities include structured notes as well as
securities other than debt securities, the interest rate or principal of which
is determined by an unrelated indicator. Index securities may include a
multiplier that multiplies the indexed element by a specified factor and,
therefore, the value of such securities may be very volatile. To the extent the
Fund invests in these securities, however, the Manager analyzes these securities
in its overall assessment of the effective duration of the Fund's portfolio in
an effort to monitor the Fund's interest rate risk.
Zero Coupon Bonds
The Fund may invest in zero coupon bonds. Zero coupon bond prices are highly
sensitive to changes in market interest rates. The original issue discount on
the zero coupon bonds must be included ratably in the income of the Fund as the
income accrues even though payment has not been received. The Fund nevertheless
intends to distribute an amount of cash equal to the currently accrued original
issue discount, and this may require liquidating securities at times they might
not otherwise do so and may result in capital loss. See "Tax Information" in the
Statement of Additional Information.
Other Investment Practices
The Fund also may engage in the investment practices described below, each of
which may involve certain special risks. The Statement of Additional
Information, under the heading "Investment Objective and Policies of the Fund,"
contains more-detailed information about certain of these practices, including
limitations designed to reduce risks.
Repurchase Agreements
The Fund may enter into repurchase agreements. Pursuant to a repurchase
agreement, the Fund acquires a U.S. government security or other high-grade
liquid debt instrument from a financial institution that simultaneously agrees
to repurchase the same security at a specified time and price. The repurchase
price reflects an agreed-upon rate of return not determined by the coupon rate
on the underlying security. Under the Investment Company Act, repurchase
agreements are considered to be loans by the Fund and must be fully
collateralized by cash, letters of credit, U.S. government securities or other
high-grade liquid debt or equity securities ("collateral assets"). If the seller
defaults on its obligation to repurchase the underlying security, the Fund may
6
<PAGE>
experience delay or difficulty in exercising its rights to realize upon the
security, may incur a loss if the value of the security declines and may incur
disposition costs in liquidating the security.
Borrowing
The Fund may borrow money from banks and engage in reverse repurchase
transactions, in an amount not to exceed one-third of the value of its total
assets to meet temporary or emergency purposes, and the Fund may pledge its
assets in connection with such borrowings. The Fund may not purchase securities
if such borrowings exceed 10% of its total assets.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements. In a reverse repurchase
agreement, the Fund sells to a financial institution a security that it holds
and agrees to repurchase the same security at an agreed-upon price and date.
Leverage
The Fund may leverage its portfolio to increase total return. Although leverage
creates an opportunity for increased income and gain, it also creates special
risk considerations. For example, leveraging may magnify changes in the net
asset values of the Fund's shares and in the yield on its portfolio. Although
the principal of such borrowings will be fixed, the Fund's assets may change in
value while the borrowing is outstanding. Leveraging creates interest expenses
that can exceed the income from the assets retained.
Securities Lending
The Fund may lend securities to brokers, dealers and other financial
organizations. These loans may not exceed 30% of the Fund's total assets. Each
securities loan is collateralized with collateral assets in an amount at least
equal to the current market value of the loaned securities, plus accrued
interest. There is a risk of delay in receiving collateral or in recovering the
securities loaned or even a loss of rights in the collateral should the borrower
of the securities fail financially.
When-Issued and Forward Commitment Securities
The Fund may purchase U.S. government or other securities on a "when-issued"
basis and may purchase or sell securities on a "forward commitment" or "delayed
delivery" basis. The price is fixed at the time the commitment is made, but
delivery and payment for the securities take place at a later date, normally 7
to 15 days or, in the case of certain CMO issues, 45 to 60 days later.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. No income accrues on securities that have been
purchased pursuant to a forward commitment or on a when-issued basis prior to
delivery to the Fund. If the Fund disposes of the right to acquire a when-issued
security prior to its acquisition or disposes of its right to deliver or receive
against a forward commitment, it may incur a gain or loss.
At the time the Fund enters into a transaction on a when-issued or forward
commitment basis, it supports its obligation with collateral assets equal to the
value of the when-issued or forward commitment securities and causes the
collateral assets to be marked to market daily. There is a risk that the
securities may not be delivered and that the Fund may incur a loss.
Hedging and Risk Management Practices; Futures
To protect against the effect of adverse changes in interest rates, the Fund may
purchase and sell interest rate futures contracts. An interest rate futures
contract is an agreement to purchase or sell debt securities, usually U.S.
government securities, at a specified date and price. In addition, the Fund may
purchase and sell put and call options on interest rate futures contracts in
lieu of entering into the underlying interest rate futures contracts. The Fund
will have collateral assets equal to the purchase price of the portfolio
securities represented by the underlying interest rate futures contracts it has
an obligation to purchase.
The Fund does not enter into any futures contracts or related options if the sum
of initial margin deposits on futures contracts, related options and premiums
paid for any such related options would exceed 5% of its total assets. The Fund
does not purchase futures contracts or related options if, as a result, more
than one-third of its total assets would be so invested.
Hedging transactions involve certain risks. Although the Fund may benefit from
the use of hedging positions, unanticipated changes in interest rates or
securities prices may result in poorer overall performance for the Fund than if
it had not entered into a hedging position. If the correlation between a hedging
position and a portfolio position is not properly protected, the desired
protection may not be obtained and the Fund may be exposed to risk of financial
loss. In addition, the Fund pays commissions and other costs in connection with
such investments.
7
<PAGE>
Illiquid Securities
The Fund may not invest more than 15% of its net assets in illiquid securities.
The Fund treats as illiquid any securities subject to restrictions on
repatriation for more than seven days and securities issued in connection with
foreign debt conversion programs that are restricted as to remittance of
invested capital or profit. The Fund also treats as illiquid repurchase
agreements with maturities in excess of seven days. Illiquid securities do not
include securities that meet the requirements of Rule 144A under the Securities
Act of 1933 and that, subject to the review by the Board and guidelines adopted
by the Board, the Manager has determined to be liquid.
Defensive Investments and Portfolio Turnover
Notwithstanding its investment objective, the Fund may adopt up to a 100% cash
or cash equivalent position for temporary defensive purposes to protect against
erosion of its capital base. Depending upon the Manager's analysis of the
various markets and other considerations, all or part of the assets of the Fund
may be held in cash and cash equivalents (denominated in U.S. dollars), such as
U.S. government securities, high-quality commercial paper, time deposits,
savings accounts, certificates of deposit, bankers' acceptances and repurchase
agreements with respect to all of the foregoing. Such investments also may be
made for temporary purposes pending investment in other securities and following
substantial new investment in the Fund.
Portfolio securities are sold whenever the Manager believes it appropriate,
regardless of how long the securities have been held. The Manager therefore
changes the Fund's investments whenever it believes doing so will further the
Fund's investment objective or when it appears that a position of the desired
size cannot be accumulated. Portfolio turnover generally involves some expense
to the Fund, including brokerage commissions, dealer markups and other
transaction costs, and may result in the recognition of capital gains that may
be distributed to shareholders. Generally, portfolio turnover in excess of 100%
is considered high and increases such costs.
Investment Restrictions
The investment objective of the Fund is fundamental and may not be changed
without shareholder approval, but, unless otherwise stated, the Fund's other
investment policies may be changed by the Board. If there is a change in the
investment objective or policies of the Fund, shareholders should consider
whether the Fund remains an appropriate investment in light of their
then-current financial positions and goals. The Fund is subject to additional
investment policies and restrictions described in the Statement of Additional
Information, some of which are fundamental.
The Fund has reserved the right, if approved by the Board, to convert in the
future to a "feeder" fund that would invest all of its assets in a "master" fund
having substantially the same investment objective, policies and restrictions.
At least 30-days' prior written notice of any such action would be given to all
shareholders if and when such a proposal is approved, although no such action
has been proposed as of the date of this prospectus.
Risk Considerations
Below Investment Grade Debt Securities
The Fund may invest in fixed-income securities rated below investment grade
(sometimes called "junk bonds"). These debt securities have greater speculative
characteristics and are regarded as having a great vulnerability to default
although currently having the capacity to meet interest payments and principal
repayments. Securities rated immediately below investment grade (i.e. BB by S&P,
Fitch or Duff & Phelps) are regarded as having predominantly speculative
characteristics and, while such obligations have less near-term vulnerability to
default then other speculative grade debt, they face major ongoing uncertainties
or exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
Securities rated C by Moody's are regarded as having extremely poor prospects of
ever attaining any real investment standing. Securities rated D by S&P, Fitch
and Duff & Phelps are in default and the payment of interest and/or repayment of
principal is in arrears. Such securities, though high yielding, are
characterized by great risk. See "Appendix" in the Statement of Additional
Information for a general description of securities ratings. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The ability to maintain other terms of the
contract over any long period of time may be small.
Junk bonds are more subject to default during periods of economic downturns or
increases in interest rates and their yields will fluctuate over time. It may be
more difficult to dispose of or to value junk bonds, especially during an
economic recession which could disrupt severely the market of such securities.
8
<PAGE>
The ratings of Moody's S&P, Fitch and Duff & Phelps represent their opinions as
to the quality of the obligations, which they undertake to rate. Ratings are
relative and subjective and, although ratings may be useful in evaluating the
safety or interest and principal payments, they do not evaluate the market value
risk of such obligations. Even though these ratings may be an initial criterion
for selection of portfolio securities, achievement of the Fund's investment
objective is more dependent on the Manager's own credit analysis then is the
case for a fund that invests in higher rated securities.
Interest Rates
The market value of debt securities that are interest rate sensitive is
inversely related to changes in interest rates. That is, an interest rate
decline produces an increase in a security's market value and an interest rate
increase produces a decrease in value. The longer the remaining maturity of a
security, the greater the effect of interest rate changes. Changes in the
ability of an issuer to make payments of interest and principal and in the
market's perception of its creditworthiness also affect the market value of that
issuer's debt securities. Duration is one of the fundamental tools used by the
Manager in managing interest rate risks. See "Duration" in the Glossary.
Management of the Fund
The Montgomery Funds has a Board of Trustees (a "Board") that establishes the
Fund's policies and supervises and reviews its management. Day-to-day operations
of the Fund are administered by the officers of the Trust and by the Manager
pursuant to the terms of an investment management agreement with the Fund.
Montgomery Asset Management, LLC, is the Fund's Manager. The Manager, a Delaware
limited liability company, is a subsidiary of Commerzbank AG ("Commerzbank").
The Manager was formed in February 1997 as an investment adviser registered as
such with the SEC under the Investment Advisers Act of 1940, as amended. It
advises private accounts as well as the Fund. Commerzbank, one of the largest
publicly held commercial banks in Germany, had total assets of approximately
[$____ billion] as of December 31, 1997. Commerzbank and its affiliates had more
than [$____ billion] in assets under management as of December 31, 1997.
Commerzbank's asset management operations involve more than 1,000 employees in
13 countries worldwide.
Portfolio Manager
The Fund is managed by the Manager's Fixed Income Team, whose members include
William C. Stevens and Peter D. Wilson.
William C. Stevens is a senior portfolio manager and principal. At Barclays de
Zoete Wedd Securities from 1991 to 1992, he started its CMO and asset-backed
securities trading. Mr. Stevens traded stripped mortgage securities and
mortgage-related interest rate swaps for the First Boston Corporation from 1990
to 1991; and while with Drexel Burnham Lambert from 1984 to 1990, he was
responsible for the origination and trading of all derivative mortgage-related
securities.
Peter D. Wilson is a portfolio manager and principal. Mr. Wilson joined the
Manager's Fixed-Income team in April 1994. From 1992 to 1994, he was an
associate in the Fixed-Income Client Services Department of BARRA in Berkeley,
California. At BARRA, Mr. Wilson directed research and development teams on
mortgage, CMO and other fixed-income projects. Prior to that he was an associate
in the Structured Finance Department at Security Pacific Merchant Bank as well
as on the mortgage trading desk at Chemical Bank.
Management Fees and Other Expenses
The Manager provides the Fund with advice on buying and selling securities,
manages the Fund's investments, including the placement of orders for portfolio
transactions, furnishes the Fund with office space and certain administrative
services, and provides personnel needed by the Fund with respect to the
Manager's responsibilities under the Manager's Investment Management Agreement
with the Fund. The Manager also compensates the members of the Board who are
interested persons of the Manager, and assumes the cost of printing prospectuses
and shareholder reports for dissemination to prospective investors. As
compensation, the Fund pays the Manager a monthly management fee (accrued daily
but paid when requested by the Manager) based upon the value of its average
daily net assets, according to the following table.
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- --------------------------------------------------------------------------------
AVERAGE DAILY NET ASSETS MANAGEMENT FEE (ANNUAL
RATE)
- --------------------------------------------------------------------------------
Montgomery California Tax-Free First $500 million 0.50%
Intermediate Bond Fund Over $500 million 0.40%
- --------------------------------------------------------------------------------
The Manager also serves as the Fund's Administrator (the "Administrator"). The
Administrator performs services with regard to various aspects of the Fund's
administrative operations. As compensation, the Fund pays the Administrator a
monthly fee at the annual rate of five one-hundredths of one percent (0.05%) of
average daily net assets (0.04% of daily net assets over $500 million).
The Fund is responsible for its own operating expenses including, but not
limited to: the Manager's fees; taxes, if any; brokerage and commission
expenses, if any; interest charges on any borrowings; transfer agent,
administrator, custodian, legal and auditing fees; shareholder servicing fees
including fees to third-party servicing agents; fees and expenses of Trustees
who are not interested persons of the Manager; salaries of certain personnel;
costs and expenses of calculating its daily net asset value; costs and expenses
of accounting, bookkeeping and recordkeeping required under the Investment
Company Act; insurance premiums; trade association dues; fees and expenses of
registering and maintaining registration of its shares for sale under federal
and applicable state securities laws; all costs associated with shareholders
meetings and the preparation and dissemination of proxy materials, except for
meetings called solely for the benefit of the Manager or its affiliates;
printing and mailing prospectuses, Statements of Additional Information and
reports to shareholders; and other expenses relating to the Fund's operations,
plus any extraordinary and nonrecurring expenses that are not expressly assumed
by the Manager.
Rule 12b-1 adopted by the Securities and Exchange Commission (the "SEC") under
the Investment Company Act permits an investment company directly or indirectly
to pay expenses associated with the distribution of its shares ("distribution
expenses") in accordance with a plan adopted by the investment company's Board
of Trustees and approved by its shareholders. Pursuant to that Rule, the Trust's
Board of Trustees and the initial shareholder of the Class P shares of the Fund
have approved, and the Fund has entered into, a Share Marketing Plan (the
"Plan") with the Manager, as the distribution coordinator, for the Class P
shares. Under the Plan, the Fund will pay distribution fees to the Manager at an
annual rate of 0.25% of the Fund's aggregate average daily net assets
attributable to its Class P shares, to reimburse the Manager for its
distribution costs with respect to that Class.
The Plan provides that the Manager may use the distribution fees received from
the Class to pay for the distribution expenses of that Class, including, but not
limited to (i) incentive compensation paid to the directors, officers and
employees of, agents for and consultants to, the Manager or any other
broker-dealer or financial institution that engages in the distribution of that
Class; and (ii) compensation to broker-dealers, financial institutions or other
persons for providing distribution assistance with respect to that Class.
Distribution fees may also be used for (i) marketing and promotional activities,
including, but not limited to, direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising for that Class; (ii) costs
of printing and distributing prospectuses, Statements of Additional Information
and reports of the Fund to prospective investors in that Class; (iii) costs
involved in preparing, printing and distributing sales literature pertaining to
the Fund and that Class; and (iv) costs involved obtaining whatever information,
analysis and reports with respect to marketing and promotional activities that
the Fund may, from time to time, deem advisable with respect to the distribution
of that Class. Distribution fees are accrued daily and paid monthly, and are
charged as expenses of the Class P shares as accrued.
In adopting the Plan, the Board of Trustees determined that there was a
reasonable likelihood that the Plan would benefit the Fund and the shareholders
of Class P shares. Information with respect to distribution revenues and
expenses is presented to the Board of Trustees quarterly for its consideration
in connection with its deliberations as to the continuance of the Plan. In its
review of the Plan, the Board of Trustees is asked to take into consideration
expenses incurred in connection with the separate distribution of the Class P
shares.
The Class P shares are not obligated under the Plan to pay any distribution
expenses in excess of the distribution fee. Thus, if the Plan were terminated or
otherwise not continued, no amounts (other than current amounts accrued but not
yet paid) would be owed by the Class to the Manager.
The distribution fee attributable to the Class P shares is designed to permit an
investor to purchase Class P shares through broker-dealers without the
assessment of a front-end sales charge and at the same time to permit the
Manager to compensate broker-dealers on an ongoing basis in connection with the
sale of the Class P shares.
The Plan provides that it shall continue in effect from year to year provided
that a majority of the Board of Trustees of the Trust, including a majority of
the Trustees who are not "interested persons" of the Trust (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of the Plan or any agreement related to the Plan (the "Independent
Trustees"), vote annually to continue the Plan. The Plan may be terminated at
any time by vote of a majority of the Independent Trustees or of a majority of
the outstanding shares (as defined in the Investment Company Act) of the Class P
shares.
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<PAGE>
All distribution fees paid by the Fund under the Plan will be paid in accordance
with Rule 2830 of the NASD Rules of Conduct.
The Manager has agreed to reduce its management fee if necessary to keep total
annual operating expenses (excluding the Rule 12b-1 fees) at or below one and
two-tenths of one percent (0.70%) of the Fund's average net assets. The Manager
also may voluntarily reduce additional amounts to increase the return to the
Fund's investors. The Manager may terminate these voluntary reductions at any
time. Any reductions made by the Manager in its fees are subject to
reimbursement by the Fund within the following three years, provided that the
Fund is able to effect such reimbursement and remain in compliance with
applicable expense limitations. The Manager generally seeks reimbursement for
the oldest reductions and waivers before payment by the Fund for fees and
expenses for the current year.
In addition, the Manager may elect to absorb operating expenses that the Fund is
obligated to pay in order to increase the return to the Fund's investors. To the
extent the Manager performs a service or assumes an operating expense for which
the Fund is obligated to pay and the performance of such service or payment of
such expense is not an obligation of the Manager under the Investment Management
Agreement, the Manager is entitled to seek reimbursement from the Fund for the
Manager's costs incurred in rendering such service or assuming such expense. The
Manager, out of its own funds, also may compensate broker-dealers who distribute
the Fund's shares as well as other service providers of shareholder and
administrative services. The Manager may also sponsor seminars and educational
programs on the Fund for financial intermediaries and shareholders.
The Manager considers a number of factors in determining which brokers or
dealers to use for the Fund's portfolio transactions. These factors are more
fully discussed in the Statement of Additional Information; they include, but
are not limited to, reasonableness of commissions, quality of services, and
execution and availability of research that the Manager may lawfully and
appropriately use in its investment management and advisory capacities. Provided
the Fund receives prompt execution at competitive prices, the Manager also may
consider sale of the Fund's shares as a factor in selecting broker-dealers for
the Fund's portfolio transactions. See "Execution of Portfolio Transactions" in
the Statement of Additional Information for further information regarding Fund
policies concerning execution of portfolio transactions.
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, serves as the master transfer agent for the Fund (the "Master Transfer
Agent") and performs certain recordkeeping and accounting functions. The Master
Transfer Agent delegates certain transfer agent functions to DST Systems, Inc.,
P.O. Box 419073, Kansas City, Missouri 64141-6073, the Fund's transfer agent
(the "Transfer Agent"). Morgan Stanley Trust Company, located at One Pierrepont
Plaza, Brooklyn, New York 11201, serves as the Fund's principal custodian (the
"Custodian").
How to Contact the Fund
For information on the Fund or your account, call a Montgomery Shareholder
service representative at:
(800) 572-FUND (3863)
<TABLE>
Mail your completed application, any checks, investment or redemption
instructions and correspondence to:
<CAPTION>
- ---------------------------------------------------------------- --------------------------------------------------------------
REGULAR MAIL EXPRESS MAIL OR OVERNIGHT SERVICE
- ---------------------------------------------------------------- --------------------------------------------------------------
<S> <C>
The Montgomery Funds The Montgomery Funds
P.O. Box 419073 210 West 10th Street, 8th Floor
Kansas City, MO 64141-6073 Kansas City, MO 64105
- ---------------------------------------------------------------- --------------------------------------------------------------
</TABLE>
Visit the Montgomery Funds World Wide Web site at:
www.montgomeryfunds.com
How to Invest in the Fund
The Fund's shares are offered only through financial intermediaries and
financial professionals, with no sales load, at their next-determined net asset
value after receipt of an order with payment. The Fund's shares are offered for
sale by Funds Distributor, Inc., the Fund's Distributor, 101 California Street,
San Francisco, California 94111, (800) 572-FUND (3863), and through selected
securities brokers and dealers.
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<PAGE>
If an order, together with payment in proper form, is received by the Transfer
Agent, the Distributor or certain intermediaries that have an agreement with the
Fund, by the close of trading (generally, 4:00 P.M., eastern time except when
the market closes earlier due to a holiday or for any other reason), on any day
that the New York Stock Exchange (the "NYSE") is open for trading, Fund shares
will be purchased at the Fund's next-determined net asset value. Orders for Fund
shares received after the Fund's cutoff time will be purchased at the
next-determined net asset value after receipt of the order. Shares of the Fund
will not be priced on national bank holidays.
The minimum initial investment in the Fund is $1,000 (including IRAs) and $100
for subsequent investments. The Manager or the Distributor, at its discretion,
may waive these minimums. If you buy shares through a broker or investment
adviser instead of directly from the Distributor, different minimum investment
requirements may apply. The Fund does not accept third-party checks or cash
investments. Checks must be in U.S. dollars and, to avoid fees and delays, drawn
only on banks located in the United States. Purchases may also be made in
certain circumstances by payment of securities. See the Statement of Additional
Information for further details.
Initial Investment
Minimum initial investment (including IRAs): .............................$1,000
Initial Investment by Check
o Complete the New Account application. Tell us which Fund(s) you wish to
invest in and make your check payable to The Montgomery Funds.
o A charge may be imposed on checks that do not clear.
Initial Investment by Wire
o Call the Transfer Agent to tell it that you intend to make your initial
investment by wire. Provide the Transfer Agent with your name and the
dollar amount to be invested, and Fund(s) in which you want to invest. The
Transfer Agent will provide you with further instructions to complete your
purchase. Complete information regarding your account must be included in
all wire instructions to ensure accurate handling of your investment.
o A completed New Account application must be sent to the Transfer Agreement
by facsimile. The Transfer Agent will provide you with its fax number over
the phone.
o Request your bank to transmit immediately available funds by wire for
purchase of shares in your name to the following:
Investors Fiduciary Trust Company
ABA #101003621
For: DST Systems, Inc.
Account #7526601
Attention: The Montgomery Funds
For credit to: (shareholder(s) name)
Shareholder account number: (shareholder(s) account number)
Name of Fund: Montgomery California Tax-Free Intermediate Bond Fund
o Your bank may charge a fee for any wire transfers.
o The Fund and the Distributor each reserve the right to reject any purchase
order in whole or in part.
Subsequent Investments
Minimum subsequent investment (including IRAs): ............................$100
Subsequent Investments by Check
o Make your check payable to The Montgomery Funds. Enclose an investment stub
with your check. If you do not have an investment stub, mail your check
with written instructions indicating the Fund name and account number to
which your investment should be credited.
o A charge may be imposed on checks that do not clear.
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<PAGE>
Subsequent Investments by Wire
o You do not need to contact the Transfer Agent prior to making subsequent
investments by wire. Instruct your bank to wire funds to the Transfer
Agent's affiliated bank by using the bank wire information under "Initial
Investment by Wire" above.
Subsequent Investments by Telephone
o Shareholders are automatically eligible to make telephone purchases. To
make a purchase, call the Transfer Agent at (800) 572-FUND (3863) before
the Fund's cutoff time. Shares for IRAs may not be purchased by phone.
o The maximum telephone purchase is an amount up to five times your account
value on the previous day.
o Payments for shares purchased must be received by the Transfer Agent within
three business days after the purchase request. Write your confirmed
purchase number on your check or include it in your wire instructions.
o You should do one of the following to ensure that payment is received in
time:
o Transfer funds directly from your bank account by sending a letter and
a voided check or deposit slip (for a savings account) to the Transfer
Agent.
o Send a check by overnight or second-day courier service.
o Instruct your bank to wire funds to the Transfer Agent's affiliated
bank by using the bank wire information under "Initial Investment by
Wire" above.
Automatic Account Builder ("AAB")
o AAB will be established on existing accounts only. You may not use an AAB
investment to open a new account. The minimum automatic investment amount
is the Fund's subsequent investment minimum.
o Your bank must be a member of the Automated Clearing House.
o To establish AAB, attach a voided check (checking account) or preprinted
deposit slip (savings account) from your bank account to your Montgomery
New Account application or your letter of instruction. Investments will
automatically be transferred into your Montgomery account from your
checking or savings account.
o Investments may be transferred either monthly or quarterly on or up to two
business days before the 5th or 20th day of the month. If no day is
specified on your New Account application or your letter of instruction,
the 20th day of each month will be selected.
o You should allow 20 business days for this service to become effective.
o You may cancel your AAB at any time by sending a letter to the Transfer
Agent. Your request will be processed upon receipt.
Payroll Deduction
o Investments through payroll deduction will be established on existing
accounts only. You may not use payroll deduction to open a new account. The
minimum payroll deduction amount for the Fund is $100 per payroll deduction
period.
o You may automatically deposit a designated amount of your paycheck directly
into a Montgomery Fund account.
o Please call the Transfer Agent to receive instructions to establish this
service.
Telephone Transactions
You agree to reimburse the Fund for any expenses or losses incurred in
connection with transfers from your accounts, including any caused by your
bank's failure to act in accordance with your request or its failure to honor
your debit. If your bank makes erroneous payments or fails to make payment after
shares are purchased on your behalf, any such purchase may be canceled and this
privilege terminated immediately. This privilege may be discontinued by the Fund
at any time upon 30-days' written notice or at any time by you by written notice
to the Fund. Your request will be processed upon receipt.
Although Fund shares are priced at the net asset value next determined after
receipt of a purchase request, shares are not purchased until payment is
received. Should payment not be received when required, the Transfer Agent will
cancel the telephone purchase request and you may be responsible for any losses
incurred by the Fund. The Fund and the Transfer Agent will not be liable for
following instructions communicated by telephone reasonably believed to be
genuine. The Fund employs reasonable procedures to confirm that instructions
communicated by telephone are genuine. These procedures include recording
certain telephone calls, sending a confirmation and requiring the caller to give
an authorization number or other personal information not likely to be known by
others. The Fund and Transfer Agent may be liable for any losses due to
unauthorized or fraudulent telephone transactions only if such reasonable
procedures are not followed.
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<PAGE>
Telephone privileges may be revoked at any time by the Fund as to any
shareholder if the Fund believes that a shareholder has abused the telephone
privilege by using abusive language or by purchases and redemptions that appear
to be part of a systematic market-timing strategy.
Retirement Plans
Shares of the Fund are available for purchase by any retirement plan, including
Keogh plans, 401(k) plans, 403(b) plans and IRAs. The Fund may be available for
purchase through administrators for retirement plans. Investors who purchase
shares as part of a retirement plan should address inquiries and seek investment
servicing from their plan administrators. Plan administrators may receive
compensation from the Fund for performing shareholder services.
Share Certificates
Share certificates will not be issued by the Fund. All shares are held in
non-certificated form registered on the books of the Fund and the Transfer Agent
for the account of the shareholder.
How to Redeem an Investment in the Fund
The Fund will redeem all or any portion of an investor's outstanding shares upon
request. Redemptions can be made on any day that the NYSE is open for trading
(except national bank holidays). The redemption price is the net asset value per
share next determined after the shares are validly tendered for redemption and
such request is received by the Transfer Agent or, in the case of repurchase
orders, Montgomery Securities or other securities dealers. Payment of redemption
proceeds is made promptly regardless of when redemption occurs and normally
within three days after receipt of all documents in proper form, including a
written redemption order with appropriate signature guarantee. Redemption
proceeds will be mailed or wired in accordance with the shareholder's
instructions. The Fund may suspend the right of redemption under certain
extraordinary circumstances in accordance with the rules of the SEC. In the case
of shares purchased by check and redeemed shortly after the purchase, the
Transfer Agent will not mail redemption proceeds until 15 business days from the
purchase date. Shares tendered for redemptions through brokers or dealers (other
than the Distributor) may be subject to a service charge by such brokers or
dealers. Procedures for requesting redemption are set forth below.
Redeeming by Written Instruction
o Write a letter giving your name, account number, the name of the Fund from
which you wish to redeem and the dollar amount or number of shares you wish
to redeem.
o The letter must be signed the same way your account is registered. If you
have a joint account, all account holders must sign.
o Signature guarantee your letter if you want the redemption proceeds to go
to a party other than the account owner(s), your predesignated bank account
or if the dollar amount of the redemption exceeds $50,000. Signature
guarantees may be provided by an eligible guarantor institution such as a
commercial bank, an NASD member firm such as a stockbroker, a savings
association or a national securities exchange. Contact the Transfer Agent
for more information.
o If you do not have a predesignated bank account and want to wire your
redemption proceeds, include a voided check or deposit slip with your
letter. The minimum amount that may be wired is $500 (wire charges, if any,
will be deducted from redemption proceeds). The Fund reserves the right to
permit lesser wire amounts or fees at the Manager's discretion.
Redeeming By Telephone
o Unless you have declined telephone redemption privileges on your New
Account application, you may redeem shares up to $50,000 by calling the
Transfer Agent before the Fund cutoff time. Telephone redemption privileges
are not available for IRA accounts.
o If you included bank wire information on your New Account application or
made subsequent arrangements to accommodate bank wire redemptions, you may
request that the Transfer Agent wire your redemption proceeds to your bank
account. Allow at least two business days for redemption proceeds to be
credited to your bank account. If you want to wire your redemption proceeds
to arrive at your bank on the same business day (subject to bank cutoff
times), there is a $10 fee.
o Telephone redemption privileges will be suspended 30 days after an address
change. All redemption requests during this period must be in writing with
a guaranteed signature.
o Telephone redemption privileges may be cancelled after an account is opened
by instructing the Transfer Agent in writing. Your request will be
processed upon receipt.
14
<PAGE>
By establishing telephone redemption privileges, a shareholder authorizes the
Fund and the Transfer Agent to act upon the instruction of the shareholder or
his or her designee by telephone to redeem from the account for which such
service has been authorized and transfer the proceeds to a bank or other account
designated in the authorization. When a shareholder appoints a designee on the
New Account application or by other written authorization, the shareholder
agrees to be bound by the telephone redemption instructions given by the
shareholder's designee. The Fund may change, modify or terminate these
privileges at any time upon 60-days' notice to shareholders. The Fund will not
be responsible for any loss, damage, cost or expense arising out of any
transaction that appears on the shareholder's confirmation after 30 days
following mailing of such confirmation. See the discussion of Fund telephone
procedures and liability under "Telephone Transactions" above.
Shareholders may experience delays in exercising telephone redemption privileges
during periods of abnormal market activity. During periods of volatile economic
or market conditions, shareholders may wish to consider transmitting redemption
orders by telegram (not available for IRAs) or overnight courier.
Systematic Withdrawal Plan
Under a Systematic Withdrawal Plan, a shareholder with an account value of
$1,000 or more in the Fund may receive (or have sent to a third party) periodic
payments (by check or wire). The minimum payment amount is $100 from the Fund
account. Payments may be made either monthly or quarterly on the first of each
month. Depending on the form of payment requested, shares will be redeemed up to
five business days before the redemption proceeds are scheduled to be received
by the shareholder. The redemption may result in the recognition of gain or loss
for income tax purposes.
Uncashed Distribution or Redemption Checks
If you choose to receive your distribution or redemption by a check from the
Fund (instead of bank wire), you should follow up to ensure that you have
received the distribution or redemption in a timely manner. The Fund is
responsible only for mailing the distribution or redemption checks and is not
responsible for tracking uncashed checks or determining why checks are uncashed.
If the postal or other delivery service is unable to deliver a check and the
check is returned to the Fund, the Fund will hold the check in a separate
account on your behalf for a reasonable period of time but will not invest the
money in any interest-bearinig account. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
Small Accounts
Due to the relatively high cost of maintaining smaller accounts, the Fund will
redeem shares from any account if at any time, because of redemptions by the
shareholder, the total value of a shareholder's account is less than $1,000. If
the Fund decides to make such involuntary redemption, the shareholder will first
be notified that the value of the shareholder's account is less than the minimum
level and will be allowed 30 days to make an additional investment to bring the
value of that account to at least the minimum investment required to open an
account before the Fund takes any action.
Exchange Privileges And Restrictions
You may exchange shares from another Fund in the Montgomery Funds family with
the same registration, Taxpayer Identification number and address. An exchange
may result in a recognized gain or loss for income tax purposes. See the
discussion of telephone procedures and limitations of liability under "Telephone
Transactions," above.
Purchasing and Redeeming Shares by Exchange
o You are automatically eligible to make telephone exchanges with your
Montgomery account.
o Exchange purchases and redemptions will be processed using the
next-determined net asset value (with no sales charge or exchange fee)
after your request is received. Your request is subject to the Fund's
cut-off times.
o Exchange purchases must meet the minimum investment requirements of the
Fund you intend to purchase.
o You may exchange for shares of a Fund only in states where that Montgomery
Fund's shares are qualified for sale and only after you have reviewed a
prospectus of that Fund.
o You may not exchange for shares of a Montgomery Fund that is not open to
new shareholders unless you have an existing account with that Fund.
o Because excessive exchanges can harm a Fund's performance, the Trust
reserves the right to terminate your exchange privileges if you make more
than four exchanges out of any one Fund during a 12-month period. The Fund
may also refuse an exchange into a Fund from which you have redeemed shares
within the previous 90 days (accounts under
15
<PAGE>
common control and accounts with the same Taxpayer Identification number
will be counted together). A shareholder's exchanges may be restricted or
refused if the Fund receives, or the Manager anticipates, simultaneous
orders affecting significant portions of the Fund's assets and, in
particular, a pattern of exchanges coinciding with a market-timing
strategy. The Trust reserves the right to refuse exchanges by any person or
group if, in the Manager's judgment, a Fund would be unable to effectively
invest the money in accordance with its investment objective and policies,
or would otherwise be potentially adversely affected. Although the Trust
attempts to provide prior notice to affected shareholders when it is
reasonable to do so, it may impose these restrictions at any time. The
exchange limit may be modified for accounts in certain institutional
retirement plans to conform to plan exchange limits and U.S. Department of
Labor regulations (for those limits, see plan materials). The Trust
reserves the right to terminate or modify the exchange privileges of Fund
shareholders in the future.
Automatic Transfer Service ("ATS")
You may elect systematic exchanges out of the Fixed-Income Funds (which include
the Montgomery Short Government Bond Fund, the Montgomery Government Reserve
Fund, the Montgomery Total Return Bond Fund, the Montgomery Federal Tax-Free
Money Fund, the Montgomery California Tax-Free Intermediate Bond Fund and the
California Tax-Free Money Fund) into the Fund. The minimum exchange is $100.
Periodically investing a set dollar amount into the Fund is also referred to as
dollar-cost averaging, because the number of shares purchased will vary
depending on the price per share. Your account with the recipient Fund must meet
the applicable investment minimum for that Fund. Exchanges out of the
Fixed-Income Funds are exempt from the four exchanges limit policy.
Brokers and Other Intermediaries
Investing Through Securities Brokers, Dealers and Financial Intermediaries
Investors may purchase shares of the Fund from selected securities brokers,
dealers or through financial intermediaries such as benefit plan administrators.
Investors should contact these agents directly for appropriate instructions, as
well as for information pertaining to accounts and any service or transaction
fees that may be charged by these agents. Some of these agents may appoint
subagents. Purchase orders through securities brokers, dealers and other
financial intermediaries are effected at the next-determined net asset value
after receipt of the order by such agent before the Fund's daily cutoff time.
Orders received after that time will be purchased at the next-determined net
asset value. To the extent that these agents perform shareholder servicing
activities for the Fund, they may receive fees from the Fund or the Manager for
such services.
Redemption Orders Through Brokerage Accounts
Shareholders also may sell shares back to the Fund by wire or telephone through
the Distributor selected securities brokers or dealers. Shareholders should
contact their securities broker or dealer for appropriate instructions and for
information concerning any transaction or service fee that may be imposed by the
broker or dealer. Shareholders are entitled to the net asset value next
determined after receipt of a redemption order by such broker-dealer, provided
the broker-dealer transmits such order on a timely basis to the Transfer Agent
so that it is received before the Fund's cutoff time, on a day that the Fund
redeems shares. Orders received after that time are entitled to the net asset
value next determined after receipt.
How Net Asset Value Is Determined
The net asset value of the Fund is determined once daily as of the Fund's cutoff
time, on each day that the NYSE is open for trading (except for bank holidays).
Per-share net asset value is calculated by dividing the value of the Fund's
total net assets by the total number of the Fund's shares then outstanding.
As more fully described in the Statement of Additional Information, portfolio
securities are valued using current market valuations: either the last reported
sales price or, in the case of securities for which there is no reported last
sale and fixed-income securities, the mean between the closing bid and asked
price. Securities for which market quotations are not readily available or that
are illiquid are valued at their fair values as determined in good faith under
the supervision of the Trust's officers, and by the Manager and the Pricing
Committee of the Board, respectively, in accordance with methods that are
specifically authorized by the Board. Short-term obligations with maturities of
60 days or less are valued at amortized cost as reflecting fair value.
The value of securities denominated in foreign currencies and traded on foreign
exchanges or in foreign markets will be translated into U.S. dollars at the last
price of their respective currency denomination against U.S. dollars quoted by a
major bank or, if no
16
<PAGE>
such quotation is available, at the rate of exchange determined in accordance
with policies established in good faith by the Board of Trustees. Because the
value of securities denominated in foreign currencies must be translated into
U.S. dollars, fluctuations in the value of such currencies in relation to the
U.S. dollar may affect the net asset value of Fund shares even without any
change in the foreign currency-denominated values of such securities.
Because foreign securities markets may close before the Fund determines its net
asset values, events affecting the value of portfolio securities occurring
between the time prices are determined and the time the Fund calculates its net
asset values may not be reflected in the Fund's calculation of net asset values
unless the Manager, under the supervision of the Board, determines that a
particular event would materially affect the Fund's net asset values.
Dividends and Distributions
The Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. Dividends are declared daily and paid
monthly on or about the last business day of each month. Capital gains are
declared and paid in the last quarter of each year. Additional distributions, if
necessary, may be made following the Fund's fiscal year end (June 30) in order
to avoid the imposition of tax on the Fund. The amount and frequency of Fund
distributions are not guaranteed and are at the discretion of the Board.
Unless you request cash distributions in writing at least seven business days
prior to the distribution, or on the New Account application, all dividends and
other distributions will be reinvested automatically in additional Class P
shares of the Fund and credited to your account at the closing net asset value
on the reinvestment date. Furthermore, if you have elected to receive cash
distributions in cash and the postal or other delivery service is unable to
deliver checks to your address of record, your distribution option will
automatically be converted to having all dividend and other distributions
reinvested in additional shares. Also, as is the case for redemption checks, no
interest will accrue on amounts represented by uncashed distribution checks. See
"Uncashed Distribution or Redemptioin Checks" above.
Distributions Affect a Fund's Net Value
Distributions are paid to you as of the record date of a distribution of the
Fund, regardless of how long you have held the shares. Dividends and capital
gains awaiting distribution are included in the Fund's daily net asset value.
The share price of the Fund drops by the amount of the distribution, net of any
subsequent market fluctuations. For example, assume that on December 31, the
Fund declared a dividend in the amount of $0.50 per share. If the Fund's share
price was $10.00 on December 30, the Fund's share price on December 31 would be
$9.50, barring market fluctuations.
"Buying a Dividend"
If you buy shares of the Fund just before a distribution, you will pay the full
price for the shares and receive a portion of the purchase price back as a
taxable distribution. This is called "buying a dividend." In the example above,
if you bought shares on December 30, you would have paid $10.00 per share. On
December 31, the Fund would pay you $0.50 per share as a dividend, and your
shares would now be worth $9.50 per share. Unless your account is a tax-deferred
account, dividends paid to you would be included in your gross income for tax
purposes even though you may not have participated in the increase of net asset
value of the Fund, regardless whether you reinvested the dividends.
Taxation
The Fund has elected and intends to continue to qualify to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), by distributing substantially all of its net
investment income and net capital gains to its shareholders and meeting other
requirements of the Code relating to the sources of its income and
diversification of assets. Accordingly, the Fund generally will not be liable
for federal income tax or excise tax based on net income except to the extent
that its earnings are not distributed or are distributed in a manner that does
not satisfy the requirements of the Code pertaining to the timing of
distributions. If the Fund is unable to meet certain requirements of the Code,
it may be subject to taxation as a corporation. The Fund may also incur tax
liability to the extent that it invests in "passive foreign investment
companies." See "Portfolio Securities" and the Statement of Additional
Information.
For federal income tax purposes, any dividends derived from net investment
income and any excess of net short-term capital gain over net long-term capital
loss that investors (other than certain tax-exempt organizations that have not
borrowed to purchase Fund shares) receive from the Fund are considered ordinary
income. Part of the distributions paid by the Fund may be eligible for the
dividends-received deduction allowed to corporate shareholders under the Code.
Distributions of the excess of net long-term
17
<PAGE>
capital gain over net short-term capital loss from transactions of the Fund are
treated by shareholders as long-term capital gains regardless of the length of
time the Fund's shares have been owned. Distributions of income and capital
gains are taxed in the manner described above, whether they are taken in cash or
are reinvested in additional shares of the Fund.
The Fund will inform its investors of the source of their dividends and
distributions at the time they are paid, and will promptly after the close of
each calendar year advise investors of the tax status of those distributions and
dividends. Investors (including tax-exempt and foreign investors) are advised to
consult their own tax advisors regarding the particular tax consequences to them
of an investment in shares of the Fund. Additional information on tax matters
relating to the Fund and its shareholders is included in the Statement of
Additional Information.
General Information
The Trust
The Fund is a series of The Montgomery Funds, a Massachusetts business trust
organized on May 10, 1990. The Agreement and Declaration of Trust permits the
Board to issue an unlimited number of full and fractional shares of beneficial
interest, $0.01 par value, in any number of series. The assets and liabilities
of each series within the Trust are separate and distinct from each other
series.
This prospectus relates only to the Class P shares of the Fund. The Fund offers
other classes of shares to eligible investors and may, in the future, designate
other classes of shares for specific purposes. The other classes of shares may
have different fees and expenses that may affect performance. For information
concerning the other classes of shares not offered in this prospectus, call The
Montgomery Funds at (800) 572-FUND (3863) or contact sales representatives or
financial intermediaries who offer those classes.
Shareholder Rights
Shares issued by the Fund have no preemptive, conversion or subscription rights.
Each whole share is entitled to one vote as to any matter on which it is
entitled to vote and each fractional share is entitled to a proportionate
fractional vote. Shareholders have equal and exclusive rights as to dividends
and distributions as declared by the Fund and to the net assets of the Fund upon
liquidation or dissolution. The Fund, as a separate series of the Trust, votes
separately on matters affecting only the Fund (e.g., approval of the Investment
Management Agreement); all series of the Trust vote as a single class on matters
affecting all series of the Trust jointly or the Trust as a whole (e.g.,
election or removal of Trustees). Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in any election of Trustees can,
if they so choose, elect all of the Trustees. Except as set forth herein, all
classes of shares issued by the Fund shall have identical voting, dividend,
liquidation and other rights, preferences, and terms and conditions. The only
differences among the various classes of shares relate solely to the following:
(a) each class may be subject to different class expenses; (b) each class may
bear a different identifying designation; (c) each class may have exclusive
voting rights with respect to matters solely affecting such class; (d) each
class may have different exchange privileges; and (e) each class may provide for
the automatic conversion of that class into another class. While the Trust is
not required and does not intend to hold annual meetings of shareholders, such
meetings may be called by the Board at its discretion, or upon demand by the
holders of 10% or more of the outstanding shares of the Trust, for the purpose
of electing or removing Trustees. Shareholders may receive assistance in
communicating with other shareholders in connection with the election or removal
of Trustees pursuant to the provisions of Section 16(c) of the Investment
Company Act.
Performance Information
From time to time, the Fund may publish its total return, such as in
advertisements and communications to investors. Performance data may be quoted
separately for the Class P shares as for the other classes. Total return
information generally will include the Fund's average annual compounded rate of
return over the most recent four calendar quarters and over the period from the
Fund's inception of operations. The Fund may also advertise aggregate and
average total return information over different periods of time. The Fund's
average annual compounded rate of return is determined by reference to a
hypothetical $1,000 investment that includes capital appreciation and
depreciation for the stated period according to a specific formula. Aggregate
total return is calculated in a similar manner, except that the results are not
annualized. Total return figures will reflect all recurring charges against the
Fund's income.
From time to time, the Fund may publish its total return, current yield and tax
equivalent yield in advertisements and communications to investors. Total return
information generally will include the Fund's average annual compounded rate of
return over the most recent four calendar quarters and over the period from the
Fund's inception of operations. The Fund may also advertise aggregate and
average total return information over different periods of time. The Fund's
average annual compounded
18
<PAGE>
rate of return is determined by reference to a hypothetical $1,000 investment
that includes capital appreciation and depreciation for the stated period
according to a specific formula. Aggregate total return is calculated in a
similar manner, except that the results are not annualized. Total return figures
will reflect all recurring charges against the Fund's income.
Current yield as prescribed by the SEC is an annualized percentage rate that
reflects the change in value of a hypothetical account based on the income
received from the Fund during either a 7-day period or a 30-day period. For
yield computed from a 7-day period, base period return is simply annualized by
multiplying the base period return by 365 / 7; the effective yield computed from
a 7-day period is calculated by adding 1 to the base period return and raising
the result to the (365 / 7)th power and then subtracting 1. When the yield is
computed from a 30-day period, the yield is computed by determining the net
change, excluding capital changes, in the value of a hypothetical preexisting
account having a balance of one share at the beginning of the period. A
hypothetical charge reflecting deductions from shareholder accounts for
management fees or shareholder services fees, for example, is subtracted from
the value of the account at the end of the period, and the difference is divided
by the value of the account at the beginning of the base period to obtain the
base period return. The result is then annualized. The tax-equivalent yield is
the yield that a taxable investment must generate in order to equal (after
applicable taxes are deducted) the Fund's yield for an investor in the stated
federal income and California personal income tax brackets. See "Performance
Information" in the Statement of Additional Information.
Investment results of the Funds will fluctuate over time, and any presentation
of the Funds' total return or current yield for any prior period should not be
considered a representation of what an investor's total return or current yield
may be in any future period. The Funds' annual report contains additional
performance information and is available upon request and without charge by
calling (800) 572-FUND (3863).
Legal Opinion
The validity of shares offered by this prospectus will be passed on by Paul,
Hastings, Janofsky & Walker LLP, 345 California Street, San Francisco,
California 94104.
Shareholder Reports and Inquiries
During the year, the Fund will send you the following information:
o Confirmation statements are mailed after every transaction that affects
your account balance, except for most money market transactions (monthly)
and preauthorized automatic investment, exchange and redemption services
(quarterly).
o Account statements are mailed after the close of each calendar quarter.
(Retain your fourth-quarter statement for your tax records.)
o Annual and semiannual reports are mailed approximately 60 days after June
30 and December 31.
o 1099 tax form(s) are mailed by January 31.
o Annual updated prospectus is mailed to existing shareholders in October or
November.
Unless otherwise requested, only one copy of each shareholder report or other
material sent to shareholders will be mailed to each household with accounts
under common ownership and the same address regardless of the number of
shareholders or accounts at that household or address. Any questions should be
directed to The Montgomery Funds at (800) 572-FUND (3863).
Backup Withholding Instructions
Shareholders are required by law to provide the Fund with their correct Social
Security or other Taxpayer Identification number ("TIN"), regardless of whether
they file tax returns. Failure to do so may subject a shareholder to penalties.
Failure to provide a correct TIN or to check the appropriate boxes in the New
Account application and to sign the shareholder's name could result in backup
withholding by the Fund of an amount of federal income tax equal to 31% of
taxable dividends, capital-gains distributions, redemptions, exchanges and other
payments made to a shareholder's account. Any tax withheld may be credited
against taxes owed on a shareholder's federal income tax return.
A shareholder who does not have a TIN should apply for one immediately by
contacting the local office of the Social Security Administration or the
Internal Revenue Service (the "IRS"). Backup withholding could apply to payments
made to a shareholder's account while awaiting receipt of a TIN. Special rules
apply for certain entities. For example, for an account established under the
Uniform Gifts to Minors Act, the TIN of the minor should be furnished. If a
shareholder has been notified by the IRS that he or she is subject to backup
withholding because he or she failed to report all interest and dividend income
on his or her tax return and the
19
<PAGE>
shareholder has not been notified by the IRS that such withholding will cease,
the shareholder should cross out the appropriate item on the New Account
application. Dividends paid to a foreign shareholder's account by the Fund may
be subject to up to 30% withholding instead of backup withholding.
A shareholder who is an exempt recipient should furnish a TIN and check the
appropriate box. Exempt recipients include certain corporations, certain
tax-exempt entities, tax-exempt pension plans and IRAs, government agencies,
financial institutions, registered securities and commodities dealers and
others. For further information, see Section 3406 of the Code and consult with a
tax advisor.
---------------------------------
This prospectus is not an offering of the securities herein described in any
state in which such offering is unauthorized. No salesperson, dealer or other
person is authorized to give any information or make any representation other
than those contained in this prospectus, the Statement of Additional Information
or in the Fund's official sales literature.
20
<PAGE>
Glossary
below investment grade debt securities. Debt securities rated below "investment
grade."
cash equivalents. These are short-term, interest bearing instruments or deposits
and may include, for example, commercial paper, certificates of deposit,
repurchase agreements, bankers' acceptances, U.S. Treasury bills, bank money
market deposit accounts, master demand notes and money market mutual funds.
These consist of high-quality debt obligations, certificates of deposit and
bankers' acceptances rated at least A-1 by S&P or Prime-1 by Moody's, or the
issuer has an outstanding issue of debt securities rated at least A by S&P or
Moody's, or are of comparable quality in the opinion of the Manager.
covered call option. A call option is "covered" if the Fund owns the underlying
securities, has the right to acquire such securities without additional
consideration, has collateral assets sufficient to meet its obligations under
the option, or owns an offsetting call option.
covered put option. A put option is "covered" if the Fund has collateral assets
with a value not less than the exercise price of the option or holds a put
option on the underlying security.
derivatives. These include forward currency exchange contracts, stock options,
currency options, stock and stock index options, futures contracts, swaps and
options on futures contracts on U.S. government and foreign government
securities and currencies.
Duff & Phelps. Duff & Phelps Credit Rating Co., a nationally recognized
statistical rating organization.
duration. Traditionally, a debt security's "term to maturity" characterizes a
security's sensitivity to changes in interest rates. "Term to maturity,"
however, measures only the time until a debt security provides its final
payment, taking no account of pre-maturity payments. Most debt securities
provide interest ("coupon") payments in addition to a final ("par") payment
at maturity, and some securities have call provisions allowing the issuer to
repay the instrument in full before maturity date, each of which affect the
security's response to interest rate changes. "Duration" is considered a more
precise measure of interest rate risk than "term to maturity." Determining
duration may involve the Manager's estimates of future economic parameters,
which may vary from actual future values. Fixed-income securities with
effective durations of three years are more responsive to interest rate
fluctuations than those with effective durations of one year. For example, if
interest rates rise by 1%, the value of securities having an effective
duration of three years will generally decrease by approximately 3%.
Fitch. Fitch Investors Service, L.P., a nationally recognized statistical rating
organization.
forward currency contracts. This is a contract individually negotiated and
privately traded by currency traders and their customers and creates an
obligation to purchase or sell a specific currency for an agreed-upon price
at a future date. The Fund generally does not enter into forward contracts
with terms greater than one year. The Fund generally enters into forward
contracts only under two circumstances. First, if the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security by
entering into a forward contract to buy the amount of a foreign currency
needed to settle the transaction. Second, if the Manager believes that the
currency of a particular foreign country will substantially rise or fall
against the U.S. dollar, it may enter into a forward contract to buy or sell
the currency approximating the value of some or all of the Fund's portfolio
securities denominated in such currency. The Fund will not enter into a
forward contract if, as a result, it would have more than one-third of its
total assets committed to such contracts (unless it owns the currency that it
is obligated to deliver or has caused its custodian to segregate segreable
assets having a value sufficient to cover its obligations). Although forward
contracts are used primarily to protect the Fund from adverse currency
movements, they involve the risk that currency movements will not be
accurately predicted.
futures and options on futures. An interest rate futures contract is an
agreement to purchase or sell debt securities, usually U.S. government
securities, at a specified date and price. For example, the Fund may sell
interest rate futures contracts (i.e., enter into a futures contract to sell
the underlying debt security) in an attempt to hedge against an anticipated
increase in interest rates and a corresponding decline in debt securities it
owns. The Fund will have collateral assets equal to the purchase price of the
portfolio securities represented by the underlying interest rate futures
contracts it has an obligation to purchase.
illiquid securities. The Fund treats any securities subject to restrictions on
repatriation for more than seven days and securities issued in connection
with foreign debt conversion programs that are restricted as to remittance of
invested capital or profit as illiquid. The Fund also treats repurchase
agreements with maturities in excess of seven days as illiquid. Illiquid
securities do not include securities that are restricted from trading on
formal markets for some period of time but for which an active informal
market exists, or securities that meet the requirements of Rule 144A under
the Securities Act of 1933 and that, subject to the review by the Board and
guidelines adopted by the Board, the Manager has determined to be liquid.
21
<PAGE>
investment grade. Investment-grade debt securities are those rated within the
four highest grades by S&P (at least BBB), Moody's (at least Baa) or Fitch
(at least Baa) or in unrated debt securities deemed to be of comparable
quality by the Manager using guidelines approved by the Board of Trustees.
leverage. Some Funds may use leverage in an effort to increase return. Although
leverage creates an opportunity for increased income and gain, it also
creates special risk considerations. Leveraging also creates interest
expenses that can exceed the income from the assets retained.
Moody's. Moody's Investors Service, Inc., a nationally recognized statistical
rating organization.
repurchase agreement. With a repurchase agreement, a Fund acquires a U.S.
government security or other high-grade liquid debt instrument (for the Money
Market Funds, the instrument must be rated in the highest grade) from a
financial institution that simultaneously agrees to repurchase the same
security at a specified time and price.
reverse repurchase agreement. In a reverse repurchase agreement, a Fund sells to
a financial institution a security that it holds and agrees to repurchase the
same security at an agreed-upon price and date.
S&P. Standard & Poor's Ratings Group, a nationally recognized statistical rating
organization.
securities lending. A Fund may lend securities to brokers, dealers and other
financial organizations. Each securities loan is collateralized with
collateral assets in an amount at least equal to the current market value of
the loaned securities, plus accrued interest. There is a risk of delay in
receiving collateral or in recovering the securities loaned or even a loss of
rights in collateral should the borrower fail financially.
U.S. government securities. These include U.S. Treasury bills, notes, bonds and
other obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities.
when-issued and forward commitment securities. The Fund may purchase U.S.
government or other securities on a "when-issued" basis and may purchase or
sell securities on a "forward commitment" or "delayed delivery" basis. The
price is fixed at the time the commitment is made, but delivery and payment
for the securities take place at a later date. When-issued securities and
forward commitments may be sold prior to the settlement date, but a Fund will
enter into when-issued and forward commitments only with the intention of
actually receiving or delivering the securities. No income accrues on
securities that have been purchased pursuant to a forward commitment or on a
when-issued basis prior to delivery to a Fund. At the time a Fund enters into
a transaction on a when-issued or forward commitment basis, it supports its
obligation with collateral assets equal to the value of the when-issued or
forward commitment securities and causes the collateral assets to be marked
to market daily. There is a risk that the securities may not be delivered and
that the Fund may incur a loss.
zero coupon bonds. These are debt obligations that do not pay current interest
and are consequently issued at a significant discount from face value. The
discount approximates the total interest the bonds will accrue and compound
over the period to maturity or the first interest-payment date at a rate of
interest reflecting the market rate of interest at the time of issuance.
22
<PAGE>
Investment Manager
Montgomery Asset Management, LLC
101 California Street
San Francisco, California 94111
(800) 572-FUND (3863)
Distributor
Funds Distributor, Inc.
101 California Street
San Francisco, California 94111
(800) 572-FUND (3863)
Custodian
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
Transfer Agent
DST Systems, Inc.
P.O. Box 419073
Kansas City, Missouri 64141-6073
(800) 572-3863
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104
THE MONTGOMERY FUNDS
101 California Street
San Francisco, California 94111
(800) 572-FUND (3863)
www.montgomeryfunds.com
Invest wisely.(SM)
23
<PAGE>
----------------------------------------------------
PART C
OTHER INFORMATION
---------------------------------------------------
<PAGE>
THE MONTGOMERY FUNDS
--------------
FORM N-1A
--------------
PART C
--------------
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Portfolio Investments as of June 30, 1997; Statements
of Assets and Liabilities as of June 30, 1997;
Statements of Operations for the year ended June 30,
1997; Statement of Cash Flows for year ended June 30,
1997; Statements of Changes in Net Assets for the
year ended June 30, 1997; Financial Highlights for a
Fund share outstanding throughout each year,
including the year ended June 30, 1997 for Montgomery
Growth Fund, Montgomery Small Cap Fund, Montgomery
Micro Cap Fund, Montgomery Small Cap Opportunities
Fund, Montgomery Equity Income Fund, Montgomery
International Growth Fund, Montgomery International
Small Cap Fund, Montgomery Emerging Markets Fund,
Montgomery Global Opportunities Fund, Montgomery
Global Communications Fund, Montgomery Select 50
Fund, Montgomery Global Asset Allocation Fund,
Montgomery Short Duration Government Bond Fund,
Montgomery Government Reserve Fund, Montgomery
California Tax-Free Intermediate Bond Fund,
Montgomery California Tax-Free Money Fund and
Montgomery Federal Tax-Free Money Fund; Notes to
Financial Statements; Independent Auditors' Report on
the foregoing, all incorporated by reference to the
Annual Report to Shareholders of the above-named
funds.
(2) Portfolio Investments as of October 31, 1997;
Statements of Assets and Liabilities as of October
31, 1997; Statements of Operations for the period
ended October 31, 1997; Statements of Changes in Net
Assets for the period ended October 31, 1997;
Statement of Cash Flows for period ended October 31,
1997; Financial Highlights for a Fund share
outstanding for the period ended October 31, 1997 for
Montgomery Latin America Fund and Montgomery Total
Return Bond Fund; Notes to Financial Statements all
incorporated by reference to the Post Effective
Amendment No. 26 to the Registration Statement as
filed with the Commission on December 30, 1997 ("Post
Effective Amendment No. 17").
(b) Exhibits:
(1)(A) Agreement and Declaration of Trust is incorporated by
reference to the Registrant's Registration Statement
as filed with the Commission on May 16, 1990
("Registration Statement").
(1)(B) Amendment to Agreement and Declaration of Trust is
incorporated by reference to Post-Effective Amendment
No. 17 to the Registration Statement as filed with
the Commission on December 30, 1993 ("Post-Effective
Amendment No. 17").
(1)(C) Amended and Restated Agreement and Declaration of
Trust is incorporated by reference to Post-Effective
Amendment No. 28 to the Registration Statement as
filed with the Commission on September 13, 1995
("Post-Effective Amendment No. 28").
(2) By-Laws are incorporated by reference to the
Registration Statement.
C-1
<PAGE>
(3) Voting Trust Agreement - Not applicable.
(4) Specimen Share Certificate - Not applicable.
(5) 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")
(6)(A) Form of Underwriting Agreement is incorporated by
reference to Post-Effective Amendment No. 52.
(6)(B) Form of Selling Group Agreement is incorporated by
reference to Pre-Effective Amendment No. 1.
(7) Benefit Plan(s) - Not applicable.
(8) Custody Agreement is incorporated by reference to
Post-Effective Amendment No. 24.
(9)(A) Form of Administrative Services Agreement is
incorporated by reference to Post-Effective Amendment
No. 52.
(9)(B) Form of Multiple Class Plan is incorporated by
reference to Post-Effective Amendment No. 28.
(9)(C) Form of Shareholder Services Plan is incorporated by
reference to Post-Effective Amendment No. 28.
(10) Consent and Opinion of Counsel as to legality of
shares is incorporated by reference to Pre-Effective
Amendment No. 1.
(11) Independent Auditors' Consent - Not applicable
(12) Financial Statements omitted from Item 23 - Not
applicable.
(13) Letter of Understanding re: Initial Shares is
incorporated by reference to Pre-Effective Amendment
No. 1.
(14) Model Retirement Plan Documents are incorporated by
reference to Post-Effective Amendment No. 2 to the
Registration Statement as filed with the Commission
on March 4, 1991 ("Post-Effective Amendment No. 2").
(15) Form of Share Marketing Plan (Rule 12b-1 Plan) is
incorporated by reference to Post-Effective Amendment
No. 52.
(16)(A) Performance Computation for Montgomery Short
Government Bond Fund is incorporated by reference to
Post-Effective Amendment No. 13.
(16)(B) Performance Computation for Montgomery Government
Reserve Fund is incorporated by reference to
Post-Effective Amendment No. 12.
(16)(C) Performance Computation for Montgomery California
Tax-Free Intermediate Bond Fund is incorporated by
reference to Post-Effective Amendment No. 17.
(16)(D) Performance Computation for the other series of
Registrant is incorporated by reference to
Post-Effective Amendment No. 2.
(17) Financial Data for Montgomery Latin America Fund and
Montgomery Total Return Bond Fund filed herewith.
C-2
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant.
Montgomery Asset Management, LLC, a Delaware limited liability
company, is the manager of each series of the Registrant, of The
Montgomery Funds II, a Delaware business trust, and of The Montgomery
Funds III, a Delaware business trust. Montgomery Asset Management, LLC
is a subsidiary of Commerzbank AG based in Frankfurt, Germany. The
Registrant, The Montgomery Funds II and The Montgomery Funds III are
deemed to be under the common control of each of those two entities.
<TABLE>
Item 26. Number of Holders of Securities
Number of Record Holders
<CAPTION>
Title of Class as November 28, 1997
-------------- --------------------
Shares of Beneficial
Interest, $0.01 par value
-------------------------
<S> <C>
Montgomery Growth Fund (Class R) 58,753
Montgomery Small Cap Opportunities Fund (Class R) 16,746
Montgomery Small Cap Fund (Class R) 6,357
Montgomery Micro Cap Fund (Class R) 12,459
Montgomery Equity Income Fund (Class R) 1,836
Montgomery International Growth Fund (Class R) 1,177
Montgomery International Small Cap Fund (Class R) 2,159
Montgomery Emerging Markets Fund (Class R) 49,734
Montgomery Emerging Asia Fund 3,454
Montgomery Latin America Fund 1,062
Montgomery Global Opportunities Fund (Class R) 1,526
Montgomery Global Communications Fund (Class R) 12,268
Montgomery Global Asset Allocation Fund 360
Montgomery Select 50 Fund (Class R) 11,017
Montgomery Total Return Bond Fund 112
Montgomery Short Duration Government Bond Fund (Class R) 1,123
Montgomery Government Reserve Fund (Class R) 12,254
Montgomery California Tax-Free Intermediate Bond Fund (Class R) 226
Montgomery California Tax-Free Money Fund (Class R) 1,815
Montgomery Federal Tax-Free Money Fund (Class R) 1,256
C-3
<PAGE>
Montgomery Growth & Income Fund 0
Montgomery Technology Fund 0
</TABLE>
Item 27. Indemnification
Article VII of the Agreement and Declaration of Trust empowers
the Trustees of the Trust, to the full extent permitted by law, to
purchase with Trust assets insurance for indemnification from liability
and to pay for all expenses reasonably incurred or paid or expected to
be paid by a Trustee or officer in connection with any claim, action,
suit or proceeding in which he or she becomes involved by virtue of his
or her capacity or former capacity with the Trust.
Article VI of the By-Laws of the Trust provides that the Trust
shall indemnify any person who was or is a party or is threatened to be
made a party to any proceeding by reason of the fact that such person
is and other amounts or was an agent of the Trust, against expenses,
judgments, fines, settlement and other amounts actually and reasonable
incurred in connection with such proceeding if that person acted in
good faith and reasonably believed his or her conduct to be in the best
interests of the Trust. Indemnification will not be provided in certain
circumstances, however, including instances of willful misfeasance, bad
faith, gross negligence, and reckless disregard of the duties involved
in the conduct of the particular office involved.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "33 Act"), may be permitted to
the Trustees, officers and controlling persons of the Registrant
pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed
in the 33 Act 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 33 Act and will be
governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser.
Effective July 31, 1997, Montgomery Asset Management, L.P.
completed the sale of substantially all of its assets to the current
investment manager, Montgomery Asset Management, LLC ("MAM, LLC"), a
subsidiary of Commerzbank AG. Information about the officers and
directors of MAM, LLC is provided below. The address for the following
persons is 101 California Street, San Francisco, California 94111.
R. Stephen Doyle Chairman of the Board of Directors
and Chief Executive Officer of MAM,
LLC
Mark B. Geist President and Director of MAM, LLC
John T. Story Executive Vice President of MAM,
LLC
David E. Demarest Chief Administrative Officer and
Managing Director of MAM, LLC
The following directors of MAM, LLC also are officers of
Commerzbank AG. The address for the following persons is Neue Mainzer
Strasse 32-36, Frankfurt am Main, Germany.
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Heinz Josef Hockmann Director of MAM, LLC
Dietrich-Kurt Frowein Director of MAM, LLC
Andreas Kleffel Director of MAM, LLC
Before July 31, 1997, Montgomery Securities, which is a
broker-dealer and the prior principal underwriter of The Montgomery
Funds, was the sole limited partner of the prior investment manager,
Montgomery Asset Management, L.P. ("MAM, L.P."). The general partner of
MAM, L.P. was a corporation, Montgomery Asset Management, Inc. ("MAM,
Inc."), certain of the officers and directors of which now serve in
similar capacities for MAM, LLC.
Item 29. Principal Underwriter
(a) Funds Distributor, inc. currently acts as distributor for:
BJB Investment Funds
Burridge funds
The Brinson Funds
Fremont Mutual Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
The JPM Advisor Funds
The JPM Institutional Funds
The JPM Pierpoint Funds
The JPM Series Trust
The JPM Series Trust II
LKCM Fund
Monetta Trust
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc
Orbitex Group of Funds
The PanAgora Institutional Funds
RCM Capital Funds, Inc.
RCM Equity Funds, Inc.
St. Clair Funds, Inc.
The Skyline Funds
Waterhouse Investors Cash Management Fund, Inc.
WEBS Index Fund, Inc.
Funds Distributor, Inc. is registered with the Securities and
Exchange Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. Funds Distributor, Inc. is an
indirect wholly owned subsidiary of Boston Institutional Group, Inc., a
holding company all of whose outstanding shares are owned by key
employees.
(b) The following is a list of the executive officers, directors
and partners of Funds Distributor, Inc.:
Director, President and Chief Marie E. Connolly
Executive Officer
Executive Vice President Richard W. Ingram
Executive Vice President Donald R. Robertson
Senior Vice President Michael S. Petrucelli
Director, Senior Vice President Joseph F. Tower, III
Treasurer and Chief Financial
Officer
Senior Vice President Paula R. David
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Senior Vice President Bernard A. Whalen
Director William J. Nutt
(c) Not Applicable.
Item 30. Location of Accounts and Records.
The accounts, books, or other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 will
be kept by the Registrant's Transfer Agent, DST Systems, Inc., P.O. Box
1004 Baltimore, Kansas City, Missouri 64105, except those records
relating to portfolio transactions and the basic organizational and
Trust documents of the Registrant (see Subsections (2)(iii), (4), (5),
(6), (7), (9), (10) and (11) of Rule 31a-1(b)), which will be kept by
the Registrant at 101 California Street, San Francisco, California
94111.
Item 31. Management Services.
There are no management-related service contracts not
discussed in Parts A and B.
Item 32. Undertakings.
(a) Not applicable.
(b) Registrant hereby undertakes to file a post-effective
amendment including financial statements of
Montgomery Technology Fund, Montgomery Growth &
Income Fund and Montgomery High Yield Bond Fund,
which need not be certified, within four to six
months from the effective date of Registrant's 1933
Act registration statement as to those series.
(c) Registrant hereby undertakes to furnish each person
to whom a prospectus is delivered with a copy of the
Registrant's last annual report to Shareholders, upon
request and without charge.
(d) Registrant has undertaken to comply with Section
16(a) of the Investment Company Act of 1940, as
amended, which requires the prompt convening of a
meeting of shareholders to elect trustees to fill
existing vacancies in the Registrant's Board of
Trustees in the event that less than a majority of
the trustees have been elected to such position by
shareholders. Registrant has also undertaken promptly
to call a meeting of shareholders for the purpose of
voting upon the question of removal of any Trustee or
Trustees when requested in writing to do so by the
record holders of not less than 10 percent of the
Registrant's outstanding shares and to assist its
shareholders in communicating with other shareholders
in accordance with the requirements of Section 16(c)
of the Investment Company Act of 1940, as amended.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment pursuant to Rule 485(b)
under the Securities Act of 1933, as amended, and that the Registrant has duly
caused this Amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of San Francisco, the
State of California, on the 30th day of January, 1998.
THE MONTGOMERY FUNDS
By: Richard W. Ingram*
--------------------------------
Richard W. Ingram
President and Treasurer
(Principal Executive Officer
and Principal Accounting and
Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registrant's Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
R. Stephen Doyle * Trustee January 30, 1998
- --------------------
R. Stephen Doyle
Andrew Cox * Trustee January 30, 1998
- --------------------
Andrew Cox
Cecilia H. Herbert * Trustee January 30, 1998
- --------------------
Cecilia H. Herbert
John A. Farnsworth * Trustee January 30, 1998
- --------------------
John A. Farnsworth
* By: /s/ Julie Allecta
-------------------------
Julie Allecta, Attorney-in-Fact
pursuant to Powers of Attorney previously filed.
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