As filed with the Securities and Exchange Commission on January 15, 1999
File No: 333-69187
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
THE MONTGOMERY FUNDS
(Exact Name of Registrant as Specified in Charter)
1-800-572-3863
(Registrant's Telephone Number, Including Area Code)
101 California Street
San Francisco, California 94111
(Address of Principal Executive Offices)
Gregory M. Siemons
Assistant Secretary
The Montgomery Funds
101 California Street
San Francisco, CA 94111
(Name and Address of Agent for Service)
Copy to:
Julie Allecta, Esq.
David Hearth, Esq.
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective. The registrant hereby amends this
registration statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, as
amended, or until the registration statement shall become effective on such date
as the Commission, acting pursuant to said Section 8(a), may determine.
No filing fee is required under the Securities Act of 1933, as amended, because
an indefinite number of shares of beneficial interest, with par value $0.01 per
share, has previously been registered pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended.
<PAGE>
CROSS REFERENCE SHEET
Form N-14 Part A, Item Location in Prospectus/Proxy Statement
- ---------------------- --------------------------------------
1 Front Cover; Cross Reference
2 Table of Contents
3 Introduction; Description of the Proposed
Reorganization; Comparison of the Funds;
Risk Factors
4 Introduction, The Transaction, The Proposal,
Description of the Proposed Reorganization
5, 6 The Transaction, Comparison of the Funds;
Risk Factors; Further Information About the
Opportunities Fund and the Emerging Fund
7 Shares and Voting; Vote Required
8 Not Applicable
9 Not Applicable
Form N-14 Part B, Item Location in Statement of Additional Information
- ---------------------- -----------------------------------------------
10 Cover Page
11 Table of Contents
12 Incorporation of Documents by Reference in
Statement of Additional Information
13 Not Applicable
14 Incorporation of Documents by Reference in
Statement of Additional Information
Form N-14 Part C
- ----------------
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of Form N-14.
2
<PAGE>
THE FOLLOWING ITEMS ARE HEREBY INCORPORATED BY REFERENCE:
From Post-Effective Amendment No. 62 of The Montgomery Funds, filed October 30,
1998 (SEC File No. 811-6011):
Combined Prospectus for Montgomery U.S. Emerging Growth Fund and
Montgomery Small Cap Opportunities Fund (with other funds of The
Montgomery Funds), dated October 31, 1998.
Combined Statement of Additional Information for U.S. Emerging Growth
Fund and Montgomery Small Cap Opportunities Fund, dated October 31,
1998.
As previously sent to shareholders of the Montgomery Small Cap Opportunities
Fund and the Montgomery U.S. Emerging Growth Fund, and as filed with the SEC
pursuant to Rule 30b2-1:
Annual Report for the Montgomery Small Cap Opportunities Fund and the
Montgomery U.S. Emerging Growth Fund for the fiscal year ended June
30, 1998, as contained in the Annual Report for The Montgomery Funds
dated as of and for the periods ended June 30, 1998.
3
<PAGE>
-----------------------------------------
PART A
COMBINED PROXY STATEMENT AND PROSPECTUS
FOR THE REORGANIZATION OF
MONTGOMERY SMALL CAP OPPORTUNITIES FUND
INTO
MONTGOMERY U.S. EMERGING GROWTH FUND
-----------------------------------------
<PAGE>
[Letterhead of Montgomery Asset Management, LLC]
January 15, 1999
Dear Small Cap Opportunities Fund Shareholder:
We are seeking your approval to reorganize the Small Cap Opportunities
Fund into the U.S. Emerging Growth Fund. As the manager of both Funds, we
recommend that you approve the reorganization because we believe the efforts of
our Growth equity portfolio management team are best devoted to the success of
one small cap-oriented mutual fund. The Funds now emphasize the small cap and
emerging growth sectors of the U.S. market, respectively. By consolidating these
Funds, we can reduce the managerial inefficiencies of two funds with overlapping
market sectors. We believe this will allow us to take better advantage of those
exciting investment prospects that otherwise could be appropriate for both
Funds.
We have agreed to pay all expenses of the reorganization so that
shareholders will not bear those costs.
The Board of Trustees of The Montgomery Funds has approved the
transaction and urges your approval.
Please read the enclosed proxy materials and consider the information
provided. We encourage you to complete and mail your proxy card promptly.
Sincerely,
MONTGOMERY ASSET MANAGEMENT, LLC
Mark B. Geist, President
<PAGE>
THE MONTGOMERY FUNDS
101 California Street
San Francisco, California 94111
(800) 572-FUND [3863]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF
MONTGOMERY SMALL CAP OPPORTUNITIES FUND
TO BE HELD MARCH 1, 1999
To the Shareholders of the Montgomery Small Cap Opportunities Fund:
Your Fund will host a special meeting of shareholders at the offices of
The Montgomery Funds, 101 California Street, 35th Floor, San Francisco,
California 94111 on March 1, 1999, at 10:00 a.m., local time. At the meeting, we
will ask you to vote on:
1. A proposal to reorganize the Small Cap Opportunities Fund into another
Montgomery Fund, the U.S. Emerging Growth Fund.
2. Any other business that properly comes before the meeting.
Only shareholders of record at the close of business on December 28,
1998 (the Record Date), will be entitled to receive this notice and to vote at
the meeting.
By Order of the Board of Trustees
Gregory M. Siemons
Assistant Secretary
YOUR VOTE IS IMPORTANT REGARDLESS OF HOW MANY
SHARES YOU OWNED ON THE RECORD DATE.
-------------------
PLEASE VOTE ON THE ENCLOSED PROXY FORM, DATE AND SIGN IT, AND RETURN IT IN THE
PRE-ADDRESSED ENVELOPE PROVIDED. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED
STATES. YOU ALSO MAY VOTE BY INTERNET (www.proxyvote.com) AND BY TELEPHONE
(800.690.6903). IN ORDER TO AVOID THE ADDITIONAL EXPENSE AND DISRUPTION OF
FURTHER SOLICITATION, WE REQUEST YOUR COOPERATION IN VOTING PROMPTLY.
<PAGE>
THE MONTGOMERY FUNDS
101 California Street
San Francisco, California 94111
(800) 572-FUND [3863]
Montgomery Small Cap Opportunities Fund
and
Montgomery U.S. Emerging Growth Fund
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated: January 15, 1999
What is this document and why did we send it to you?
The Board of Trustees approved a plan to reorganize the Montgomery
Small Cap Opportunities Fund (the "Opportunities Fund") into the Montgomery U.S.
Emerging Growth Fund (the "Emerging Fund") (that transaction is referred to as
the "Reorganization"). Shareholder approval is needed to proceed with the
Reorganization. The shareholder meeting will be held on March 1, 1999 (the
"Shareholder Meeting"). We are sending this document to you for your use in
deciding whether to approve the Reorganization at the Shareholder Meeting.
This document includes a Notice of Special Meeting of Shareholders, a
Combined Proxy Statement and Prospectus and a form of Proxy.
As a technical matter, the Reorganization will have three steps:
o the transfer of the assets and liabilities of the Opportunities Fund to
the Emerging Fund in exchange for shares of the Emerging Fund (the
"Emerging Fund Shares") of equivalent value to the net assets
transferred,
o the pro rata distribution of those Emerging Fund Shares to shareholders
of record of the Opportunities Fund as of the effective date of the
Reorganization (the "Effective Date") in full redemption of those
shareholders' shares in the Opportunities Fund, and
o the immediate liquidation and termination of the Opportunities Fund.
As a result of the Reorganization, each shareholder of the
Opportunities Fund would instead hold Emerging Fund Shares having the same total
value as the shares of
2
<PAGE>
the Opportunities Fund held immediately before the Reorganization. Lawyers for
the Opportunities Fund and the Emerging Fund will issue an opinion to the effect
that, for federal income tax purposes, the Reorganization will be treated as a
tax-free reorganization that will not cause the Opportunities Fund's
shareholders to recognize a gain or loss for federal income tax purposes. See
Section II.A.3 below.
The investment objective of the Opportunities Fund is to seek long-term
capital appreciation by investing in growth-oriented U.S. small-cap companies
whose shares have a total stock market value (market capitalization) of $1.5
billion or less. The Emerging Fund's investment objective is to seek long-term
capital appreciation. It currently invests in growth-oriented U.S. smaller cap
companies whose shares have a total stock market value of $1 billion or less.
This Combined Proxy Statement and Prospectus sets forth the basic
information that you should know before voting on the proposal. You should read
it and keep it for future reference.
What other important documents should I know about?
The Opportunities Fund and Emerging Fund (together, the "Funds") are
series of The Montgomery Funds (the "Trust"), an open-end management investment
company. The following documents are on file with the Securities and Exchange
Commission (the "SEC") and are deemed to be legally part of this document:
o Combined Prospectus for the Emerging Fund and the Opportunities Fund
(as well as other Montgomery Funds) dated October 31, 1998
o Combined Statement of Additional Information relating to the
Opportunities Fund and the Emerging Fund (as well as other Montgomery
Funds) also dated October 31, 1998
o Statement of Additional Information relating to this Combined Proxy
Statement and Prospectus
Those documents are available without charge by writing to the Trust at
101 California Street, 35th Floor, San Francisco, California 94111, or by
calling (800) 572-FUND [3863].
The Annual Report to Shareholders of the Opportunities Fund and the
Emerging Fund for the fiscal year ended June 30, 1998, containing audited
financial statements of the Opportunities Fund and the Emerging Fund have been
previously mailed to shareholders. If you do not have a copy, additional copies
of that Annual Report are available without charge by writing or calling the
Trust at its address and telephone number listed above. It is expected that this
Combined Proxy Statement and Prospectus will be mailed to shareholders on or
about January 15, 1999.
3
<PAGE>
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED ON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
4
<PAGE>
TABLE OF CONTENTS
I. INTRODUCTION.............................................................6
A. THE TRANSACTION.......................................................6
B. THE PROPOSAL..........................................................6
C. COMPARISON OF EXPENSES................................................8
D. SHARES AND VOTING.....................................................9
II. THE PROPOSAL............................................................11
A. DESCRIPTION OF THE PROPOSED REORGANIZATION...........................11
1. The Reorganization................................................11
2. Effect of the Reorganization......................................12
3. Federal Income Tax Consequences...................................12
4. Description of the Emerging Fund Shares...........................13
5. Capitalization....................................................13
B. COMPARISON OF THE FUNDS..............................................14
1. Investment Objectives and Policies................................14
2. Investment Restrictions...........................................14
3. Comparative Performance Information...............................17
4. Advisory Fees and Other Expenses..................................17
5. Portfolio Managers................................................18
6. Distribution and Shareholder Services.............................19
7. Redemption and Exchange Procedures................................19
8. Income Dividends, Capital Gains Distributions and Taxes...........20
9. Portfolio Transactions and Brokerage Commissions..................20
10. Shareholders' Rights..............................................21
C. RISK FACTORS.........................................................21
D. RECOMMENDATION OF THE BOARD OF TRUSTEES..............................22
E. DISSENTERS' RIGHTS OF APPRAISAL......................................22
F. FURTHER INFORMATION ABOUT THE FUND AND THE
ACQUIRING FUND.......................................................22
G. VOTE REQUIRED........................................................23
H. FINANCIAL HIGHLIGHTS.................................................23
III. MISCELLANEOUS ISSUES.................................................26
A. OTHER BUSINESS.......................................................26
B. NEXT MEETING OF SHAREHOLDERS.........................................26
C. LEGAL MATTERS........................................................26
D. EXPERTS..............................................................26
5
<PAGE>
I. INTRODUCTION
A. GENERAL
The Board of Trustees called this shareholder meeting to allow
shareholders to consider and vote on the proposed Reorganization of the
Opportunities Fund. The Board of Trustees (including a majority of the
independent trustees, meaning those trustees who are not "interested" persons
under the Investment Company Act) voted on November 18, 1998, to approve the
Reorganization subject to the approval of the Opportunities Fund's shareholders.
Montgomery Asset Management, LLC, serves as the manager of each Fund
(the "Manager"). The Manager recommends that you approve the reorganization
because it believes the efforts of its Growth equity portfolio management team
are best devoted to one small cap-oriented mutual fund. By consolidating these
Funds, the Manager believes it can reduce the managerial inefficiencies of two
funds with overlapping market sectors. The Manager expects that this
consolidation will allow it to take better advantage of those exciting
investment prospects that otherwise could be appropriate for both Funds.
If the proposed Reorganization of the Opportunities Fund into the
Emerging Fund is approved and completed, the Emerging Fund's assets will
increase, which should create certain economies of scale; and the Opportunities
Fund will become part of a fund with similar investment objectives and policies
as well as larger assets which should permit it to operate more efficiently in
accordance with its investment policies and objective.
The Opportunities Fund sells its Class R shares directly to the public
at net asset value, without any sales load or Rule 12b-1 fee. The Opportunities
Fund has a very limited number of Class P shares that are subject to a 0.25%
Rule 12b-1 distribution fee. The holders of those Class P shares are expected to
redeem their shares before the Shareholder Meeting. The Emerging Fund currently
offers only its Class R shares directly to the public at net asset value,
without any sales load or Rule 12b-1 fee. If the Reorganization is completed,
all remaining holders of Class R and Class P shares of the Opportunities Fund
would receive Class R shares of the Emerging Fund.
B. THE PROPOSAL
At the Shareholder Meeting, the shareholders of the Opportunities Fund
will be asked to approve the proposed Reorganization of the Opportunities Fund
into the Emerging Fund. The Reorganization will include the transfer of
substantially all of the assets and liabilities of the Opportunities Fund to the
Emerging Fund. All remaining Class R and Class P Opportunities Fund shareholders
will receive Class R Emerging Fund Shares in exchange. The Opportunities Fund
will then be terminated and liquidated.
6
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The investment objective of the Opportunities Fund is to seek long-term
capital appreciation by investing in growth-oriented U.S. small-cap companies
whose shares have a total stock market value (market capitalization) of $1.5
billion or less. The Emerging Fund's investment objective is to seek long-term
capital appreciation by currently investing in smaller-cap U.S. growth-oriented
companies that have a market capitalization of $1 billion or less.
Investments in the Funds are subject to substantially similar risks.
See Section II.C. below. The purchase and redemption arrangements of the Funds
are identical. The Emerging Fund and the Opportunities Fund have the same
distribution and exchange arrangements, which are discussed in Section II.B.
below.
The Manager and the Board of Trustees believe that the proposed
Reorganization is in the best interests of the Opportunities Fund, the Emerging
Fund and their shareholders, and that the interests of existing shareholders of
the Opportunities and Emerging Funds will not be diluted as a result of the
proposed Reorganization. See Section II.D. below.
The Manager will pay the costs of the Reorganization, the Shareholder
Meeting and solicitation of proxies, including the cost of copying, printing and
mailing proxy materials. In addition to solicitations by mail, the Manager and
the Board also may solicit proxies, without special compensation, by telephone,
facsimile or otherwise.
7
<PAGE>
C. COMPARISON OF EXPENSES
The following table shows the comparative fees and expenses you may pay
if you buy and hold shares of these Funds. The Funds do not impose any front-end
or deferred sales loads and they do not charge shareholders for exchanging
shares or reinvesting dividends.
<TABLE>
Fees and Expenses of the Funds
<CAPTION>
Montgomery
Small Cap Montgomery Montgomery Montgomery
Opportunities Small Cap U.S. Emerging U.S. Emerging
Fund Opportunities Fund Growth Fund Growth Fund
---------------- ---------------- --------- -----------
(Class R Shares) (Class P Shares) (Current) (Pro Forma)
<S> <C> <C> <C> <C>
Shareholder Fees (fees paid
directly from your investment)
Redemption Fee 0.00% 0.00% 0.00% 0.00%
Annual Fund Operating Expenses
(expenses that are deducted from
Fund assets)+
Management Fee 1.20% 1.20% 1.33% 1.33%
Distribution/Service 0.00% 0.25% 0.00% 0.00%
(12b-1) Fee
Other Expenses 0.58% 0.58% 0.24% 0.24%
----- ----- ----- -----
Total Annual Fund Operating Expenses 1.78% 2.03% 1.57% 1.57%
=====
Fee Reduction and/or 0.28% 0.28% 0.07%
----- ----- -----
Expense Reimbursement
Net Expenses 1.50% 1.75% 1.50%
===== ===== =====
<FN>
+ Montgomery Asset Management has contractually agreed to reduce its fees and/or
absorb expenses to limit total annual operating expenses (excluding Rule 12b-1
fees, interest and tax expenses) to 1.50%. The 1.50% contractual limit will
apply to the Emerging Fund immediately after the Reorganization. This contract
has a one-year term, renewable at the end of each fiscal year. See Section
II.B.4. for a discussion of fees reduced and expenses reimbursed that may be
recouped by the Manager.
</FN>
</TABLE>
<TABLE>
Example of Fund expenses: This example is intended to help you compare the cost
of investing in the Funds with the cost of investing in other mutual funds. The
table below shows what you would pay in expenses over time, whether or not you
sold your shares at the end of each period. It assumes a $10,000 initial
investment, 5% total return each year and the changes specified above. This
example is for comparison purposes only. It does not necessarily represent a
Fund's actual expenses or returns.
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Opportunities Fund (Class R shares) $152 $532 $ 936 $2,063
- ------------------------------------------------- -------------- -------------- -------------- --------------
Opportunities Fund (Class P shares) $177 $608 $1,064 $2,326
- ------------------------------------------------- -------------- -------------- -------------- --------------
Emerging Fund (current Class R shares) $159 $495 $ 853 $1,860
- ------------------------------------------------- -------------- -------------- -------------- --------------
Emerging Fund (pro forma Class R shares) $152 $488 $ 846 $1,854
</TABLE>
The figures in the Example after the first year assume that the one-year
contract for the reduction in fees and expenses noted above is not renewed.
However, the Trust and the Manager currently expect to renew that agreement
throughout the periods shown.
8
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D. SHARES AND VOTING
The Trust is a Massachusetts business trust and is registered with the
SEC as an open-end management investment company. The Trust currently has
eighteen operating series, or funds, including the Funds. Each Fund has its own
investment objective and policies and operates independently for purposes of
investments, dividends, other distributions and redemptions. The Opportunities
Fund has three classes of shares, each with its own fee and expense structure:
Class R shares, Class P shares and Class L shares. At present, the Opportunities
Fund has issued only Class R and Class P shares. The Emerging Fund also has
three authorized classes of shares, each with its own fee and expense structure:
Class R shares, Class P shares and Class L shares. At present, only Class R
shares of the Emerging Fund have been issued and sold to the public.
The Opportunities Fund's Class R and Class P shareholders will receive
Class R shares of the Emerging Fund in exchange for their shares if the
Reorganization is approved and completed. Information about the Class P and
Class L shares of the Emerging Fund is contained in the Funds' Combined
Statement of Additional Information.
Each whole or fractional share of the Opportunities Fund is entitled to
one vote or corresponding fraction at the Shareholder Meeting. At the close of
business on December 28, 1998, the record date for the determination of
shareholders entitled to vote at the Shareholder Meeting (the "Record Date"),
there were 5,698,811.904 shares outstanding held by 12,269 record holders
(including omnibus accounts representing multiple underlying beneficial owners
such as those in the names of brokers).
All shares represented by each properly signed proxy received before
the meeting will be voted at the Shareholder Meeting. If a shareholder specifies
how the proxy is to be voted on any business properly to come before the
Shareholder Meeting, it will be voted in accordance with instruction given. If
no choice is indicated on the proxy, it will be voted FOR approval of the
Reorganization, as more fully described in this Combined Proxy Statement and
Prospectus. A proxy may be revoked by a shareholder at any time before its use
by written notice to the Trust, by submission of a later-dated proxy or by
voting in person at the Shareholder Meeting. If any other matters come before
the Shareholder Meeting, proxies will be voted by the persons named as proxies
in accordance with their best judgment.
The presence in person or by proxy of shareholders entitled to cast 40%
of the votes entitled to be cast at the Shareholder Meeting will constitute a
quorum. When a quorum is present, a majority of the shares voted shall decide
the proposal. The Shareholder Meeting may be adjourned from time to time by a
majority of the votes properly voting on the question of adjourning a meeting to
another date and time, whether or not a quorum is present, and the meeting may
be held as adjourned within a reasonable time after the date set for the
original meeting without further notice. The persons named in the proxy will
vote those shares that they are entitled to vote in favor of
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adjournment if adjournment is necessary to obtain a quorum or to obtain a
favorable vote on any proposal. If the adjournment requires setting a new record
date or the adjournment is for more than 60 days from the date set for the
original meeting (in which case the Board of Trustees will set a new record
date), the Trust will give notice of the adjourned meeting to the shareholders.
Business may be conducted once a quorum is present and may continue until
adjournment of the meeting.
Proxies may be voted by mail or electronically by internet or
telephone. If voted electronically, the Opportunities Fund or its agent will use
reasonable procedures (such as requiring an identification number) to verify the
authenticity of the vote cast. Each shareholder who casts an electronic vote
also will be able to validate that his or her vote was received correctly.
All proxies voted, including abstentions and broker non-votes (where
the underlying holder has not voted and the broker does not have discretionary
authority to vote the shares), will be counted toward establishing a quorum.
Approval of the Reorganization will occur only if a sufficient number of votes
are cast FOR that proposal. Abstentions do not constitute a vote "for" and
effectively result in a vote "against." Broker non-votes do not represent vote
"for" or "against"" and are disregarded in determining whether the proposal has
received enough votes.
As of the Record Date, the Opportunities Fund's shareholders of record
and (to the Trust's knowledge) beneficial owners who owned more than five
percent of the Fund's shares are as follows:
Percentage of the Opportunities Fund's
Shareholder Outstanding Shares
----------- ------------------
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104 30.58%
National Financial Services Corp.
For the Exclusive Benefit of Our Customers
Attn: Mutual Funds
P.O. Box 3730
Church Street Station
New York, NY 10008 11.13%
The Officers and Trustees of the Trust, as a group, owned of record and
beneficially less than one percent of the outstanding voting securities of the
Opportunities Fund as of the Record Date.
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II. THE PROPOSAL
A. DESCRIPTION OF THE PROPOSED REORGANIZATION
1. The Reorganization
If the Reorganization is approved, on the Effective Date the Emerging
Fund will acquire substantially all of the assets and liabilities of the
Opportunities Fund. At that time, the Emerging Fund will issue to the
Opportunities Fund the number of Emerging Fund Class R Shares determined by
dividing the value of the Opportunities Fund's net assets so transferred by the
net asset value of one Emerging Fund Share. The net asset value of the Emerging
Fund and the net asset value of the Opportunities Fund will be calculated at the
close of business on the date immediately preceding the Effective Date (the
"Valuation Date") in accordance with the Funds' valuation procedures described
in The Montgomery Funds Combined Prospectus dated October 31, 1998.
At the same time as that asset transfer, the Opportunities Fund will
distribute the Emerging Fund Shares it receives pro rata to each remaining
shareholder of the Opportunities Fund based on the percentage of the outstanding
shares of the Opportunities Fund held of record by that shareholder on the
Valuation Date. For example, on December 31, 1998, the value of the aggregate
net assets of the Opportunities Fund was approximately $91,236,849. The Class R
Opportunities Fund Shares were valued at $16.32 per share and the Class P Shares
at $15.95 per share. The net asset value of each Emerging Fund Class R Share was
$20.70. Therefore, if the Effective Date had been December 31, 1998, the
Opportunities Fund would then have redeemed each of its then outstanding Class R
shares in exchange for .788 Emerging Fund Shares.
This distribution of the Emerging Fund Class R Shares to the
Opportunities Fund's shareholders will be accomplished by the establishment of
accounts on the Emerging Fund's share records in the names of those
shareholders, representing the respective pro rata number of Emerging Fund
Shares deliverable to them. Fractional shares will be carried to the third
decimal place. Certificates evidencing the Emerging Fund Shares will not be
issued to the Opportunities Fund's shareholders.
Immediately following the Opportunities Fund's pro rata liquidating
distribution of the Emerging Fund Shares to the Opportunities Fund shareholders,
the Opportunities Fund will liquidate and terminate.
Completion of the Reorganization is subject to approval by the
shareholders of the Opportunities Fund. The Reorganization may be abandoned at
any time before the Effective Date by a majority of the Trust's Board of
Trustees.
The Manager will pay all costs and expenses of the Reorganization,
including those associated with the Shareholder Meeting, the copying, printing
and distribution of
11
<PAGE>
this Combined Proxy Statement and Prospectus, and the solicitation of proxies
for the Shareholder Meeting.
The above is a summary of the Reorganization. The summary is not a
complete description of the terms of the Reorganization, which are set forth in
the Agreement and Plan of Reorganization attached as Exhibit A to this document.
2. Effect of the Reorganization
If the Reorganization is approved by the Opportunities Fund's
shareholders and completed, shareholders of the Opportunities Fund as of the
Effective Date will become shareholders of the Emerging Fund. The total net
asset value of the Emerging Fund Shares held by each Shareholder of the
Opportunities Fund immediately after completion of the Reorganization will be
equivalent to the total net asset value of the Opportunities Fund Shares held by
that same shareholder immediately before completion of the Reorganization.
On or before the Effective Date the Opportunities Fund intends to
distribute all of its then-remaining net investment income and realized capital
gains.
After the Reorganization, the investment adviser for the Emerging Fund
will continue to be Montgomery Asset Management LLC. Funds Distributor, Inc.
will continue to be the Emerging Fund's Distributor. The Emerging Fund will
continue to be managed in accordance with its existing investment objective and
policies.
3. Federal Income Tax Consequences
As a condition to closing the Reorganization, the Opportunities Fund
and the Emerging Fund must receive a favorable opinion from Paul, Hastings,
Janofsky & Walker LLP, counsel to the Emerging Fund, substantially to the effect
that, for federal income tax purposes: (a) the transfer by the Opportunities
Fund of substantially all of its assets and liabilities to the Emerging Fund
solely in exchange for the Emerging Fund Shares, as described above, is a
reorganization within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code"); (b) no gain or loss will be
recognized by the Opportunities Fund upon the transfer of substantially all of
its assets to the Emerging Fund in exchange solely for shares of the Emerging
Fund Shares; (c) no gain or loss will be recognized by the Emerging Fund on
receipt of the Opportunities Fund's assets in exchange for the Emerging Fund
Shares; (d) the aggregate tax basis of the assets of the Opportunities Fund in
the hands of the Emerging Fund is, in each instance, the same as the basis of
those assets in the hands of the Opportunities Fund immediately before the
transaction; (e) the holding period of the Opportunities Fund's assets in the
hands of the Emerging Fund includes the period during which the assets were held
by the Opportunities Fund; (f) no gain or loss is recognized to the shareholders
of the Opportunities Fund upon the receipt of the Emerging Fund Shares solely in
exchange for the Fund's shares; (g) the basis of the Emerging Fund Shares
received by the Opportunities Fund shareholders is, in each instance, the same
as the basis of the
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Opportunities Fund shares surrendered in exchange therefor; and (h) the holding
period of the Emerging Fund Shares received by the Opportunities Fund
shareholders includes the holding period during which shares of the
Opportunities Fund were held, provided that those shares were held as a capital
asset in the hands of the Opportunities Fund shareholders on the date of the
exchange. The Trust does not intend to seek a private letter ruling from the
Internal Revenue Service with respect to the tax effects of the Reorganization,
and one is not required.
4. Description of the Emerging Fund Shares
Each Emerging Fund Share issued to Opportunities Fund shareholders
pursuant to the Reorganization will be duly authorized, validly issued, fully
paid and nonassessable when issued, will be transferable without restriction and
will have no preemptive or conversion rights. Each Emerging Fund Share will
represent an equal interest in the assets of the Emerging Fund. The Emerging
Fund Shares will be sold and redeemed based upon the net asset value of the
Emerging Fund next determined after receipt of the purchase or redemption
request, as described in the Emerging Fund's Prospectus.
5. Capitalization
The capitalization of the Funds as of December 31, 1998, and their pro
forma combined capitalization as of that date after giving effect to the
proposed Reorganization are as follows:
Emerging Opportunities Pro Forma
Fund Fund Combined
------------ ------------ ------------
Aggregate net assets $410,438,585 $ 91,236,849 $501,675,434
Shares outstanding* 19,823,717 5,592,478 25,416,195
Net asset value per share:
Class R shares $ 20.70 $ 16.32 $ 20.70
Class P shares N/A $ 15.95 N/A
- ---------------------------------------
* Each Fund is authorized to issue an indefinite number of shares.
13
<PAGE>
B. COMPARISON OF THE FUNDS
A brief comparison of the Funds is set forth below. See Section II.F.
for more information.
1. Investment Objectives and Policies
The investment objective of the Opportunities Fund is to seek long-term
capital appreciation by investing in growth-oriented U.S. small-cap companies
whose shares have a total stock market value (market capitalization) of $1.5
billion or less.
The equity securities in which the Opportunities Fund invests generally
consist of common stock, preferred stock and securities convertible into or
exchangeable for common or preferred stock. Under normal market conditions, at
least 65% of the value of the Opportunities Fund's total assets will be invested
in the equity securities of U.S. companies. The securities in which the Fund
invests are expected to be either listed on an exchange or traded in an
over-the-counter market.
In selecting investments for the Opportunities Fund, its portfolio
managers generally seek companies that they believe exhibit characteristics of
financial soundness and are undervalued by the market relative to their growth
potential. In seeking to identify financially sound companies, the Fund's
portfolio managers rigorously analyze all prospective holdings by subjecting
them to the following three steps of their investment process: (1) identify
companies with improving business fundamentals; (2) conduct an in-depth analysis
of each company's current business and future prospects; and (3) analyze each
company's price to determine whether its growth prospects have been discovered
by the market. The Fund's portfolio managers will often select investments for
the Opportunities Fund that are considered to be unattractive by other investors
or are unpopular with the financial press.
The Emerging Fund has identical investment objective and policies
except that currently it invests in U.S. companies whose shares have a total
stock market value of $1 billion or less.
2. Investment Restrictions
Both the Emerging Fund and the Opportunities Fund have identical
fundamental investment restrictions, which cannot be changed without the
affirmative vote of a majority of each Fund's outstanding voting securities as
defined in the Investment Company Act. Neither the Emerging Fund nor the
Opportunities Fund may:
(1) With respect to 75% of its total assets, invest in the securities
of any one issuer (other than the U.S. government and its agencies and
instrumentalities) if immediately after and as a result of such investment more
than 5% of the total assets of the Funds would be invested in such issuer. There
are no limitations with respect to the
14
<PAGE>
remaining 25% of its total assets, except to the extent other investment
restrictions may be applicable.
(2) Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objectives and policies; and, (b)
through the lending of up to 30% of its portfolio securities as described above
and in the Combined Statement of Additional Information;
(3) (a) Borrow money, except for temporary or emergency purposes
from a bank, or pursuant to reverse repurchase agreements or dollar roll
transactions, in an amount not exceeding 1/3 of the value of its total assets
(including the proceeds of such borrowings, at the lower of cost or fair market
value). Any such borrowings will be made only if immediately thereafter there is
an asset coverage of at least 300% of all borrowings, and no additional
investments may be made while any such borrowings are in excess of 10% of total
assets.
(b) Mortgage, pledge or hypothecate any of its assets except
in connection with permissible borrowings and permissible forward contracts,
futures contracts, option contracts or other hedging transactions.
(4) Except as required in connection with permissible hedging
activities, purchase securities on margin or underwrite securities. (This does
not preclude the Funds from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities.)
(5) Buy or sell real estate or commodities or commodity contracts;
however the Funds, to the extent not otherwise prohibited in the Combined
Prospectus or Combined Statement of Additional Information, may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein, including real estate
investment trusts, and may purchase or sell currencies (including forward
currency exchange contracts), futures contracts and related options generally as
described in the Combined Statement of Additional Information.
(6) Invest in securities of other investment companies, except to the
extent permitted by the Investment Company Act and discussed in the Combined
Prospectus or Combined Statement of Additional Information, or as such
securities may be acquired as part of a merger, consolidation or acquisition of
assets.
(7) Invest, in the aggregate, more than 15% of its net assets in
illiquid securities, including (under current SEC interpretations) restricted
securities (excluding liquid Rule 144A-eligible restricted securities),
securities which are not otherwise readily marketable, repurchase agreements
that mature in more than seven days and over-the-counter options (and securities
underlying such options) purchased by that Funds. (This is an operating policy
which may be changed without shareholder approval, consistent with the
Investment Company Act, and changes in relevant SEC interpretations).
15
<PAGE>
(8) Invest in any issuer for purposes of exercising control or
management of the issuer. (This is an operating policy which may be changed
without shareholder approval, consistent with the Investment Company Act.)
(9) Invest more than 25% of the market value of its total assets in the
securities of companies engaged in any one industry. (This does not apply to
investment in the securities of the U.S. Government, its agencies or
instrumentalities.) For purposes of this restriction, the Funds generally rely
on the U.S. Office of Management and Budget's Standard Industrial
Classifications.
(10) Issue senior securities, as defined in the Investment Company Act,
except that this restriction shall not be deemed to prohibit that Funds from (a)
making any permitted borrowings, mortgages or pledges, or (b) entering into
permissible repurchase and dollar roll transactions.
(11) Except as described in the Combined Prospectus and the Combined
Statement of Additional Information, acquire or dispose of put, call, straddle
or spread options subject to the following conditions:
(a) such options are written by other persons, and
(b) the aggregate premiums paid on all such options which
are held at any time do not exceed 5% of that Funds'
total assets. (This is an operating policy which may
be changed without shareholder approval.)
(12) Except as described in the Combined Prospectus and the Combined
Statement of Additional Information, engage in short sales of securities. (This
is an operating policy which may be changed without shareholder approval,
consistent with applicable regulations.)
(13) Purchase more than 10% of the outstanding voting securities of any
one issuer. (This is an operating policy which may be changed without
shareholder approval.)
(14) Invest in commodities, except for futures contracts or options on
futures contracts if, as a result thereof, more than 5% of that Fund's total
assets (taken at market value at the time of entering into the contract) would
be committed to initial deposits and premiums on open futures contracts and
options on such contracts.
To the extent these restrictions reflect matters of operating policy
which may be changed without shareholder vote, these restrictions may be amended
upon approval by the Board and notice to shareholders.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except as
otherwise noted.
16
<PAGE>
3. Comparative Performance Information
The chart below shows the risks of investing in each Fund and how each
Fund's total return has varied from year-to-year. The table compares each Fund's
performance to the most commonly used index for its market segment. Of course,
past performance is no guarantee of future results.
[BAR CHARTS] 1995 1996 1997 1998
---- ---- ---- ----
Small Cap Opportunities Fund* N/A 37.28% 16.45% (9.54)%
U.S. Emerging Growth Fund** 28.66% 19.12% 27.05% 7.94%
*During the three-year period described above in the bar chart, the
Opportunities Fund's best quarter was Q1 1996 (+22.92%) and its worst quarter
was Q3 1998 (-25.00%).
**During the four-year period described above in the bar chart, the Emerging
Fund's best quarter was Q4 1998 (+21.12%) and its worst quarter was Q3 1998
(-17.24%).
Average Annual Returns through 12/31/98
1 Year Inception Inception
(12/29/95) (12/30/94)
- -------------------------------------------------------------------------------
Small Cap Opportunities Fund - 9.54% 13.06% N/A
- -------------------------------------------------------------------------------
U.S. Emerging Growth Fund 7.94% N/A 20.39%
- -------------------------------------------------------------------------------
Russell 2000 Index 33.98% 30.75% 32.85%
- -------------------------------------------------------------------------------
4. Advisory Fees and Other Expenses
The Manager serves as investment adviser to both Funds pursuant to an
Investment Management Agreement between the Manager and The Montgomery Funds
dated July 31, 1997. The Emerging Fund pays the Manager a management fee
(accrued daily but paid when requested by the Manager) calculated at an
annualized rate of 1.40% of the first $200 million of the average daily net
assets of the Emerging Fund and 1.25% for average daily net assets above $200
million. The Opportunities Fund pays the Manager a management fee (accrued daily
but paid when requested by the Manager) calculated at an annualized rate of
1.20% for the first $200 million of the average daily net assets of the
Opportunities Fund; 1.10% of the next $300 million of the Opportunities
17
<PAGE>
Fund's average daily net assets, and 1.00% of the Opportunities Fund's average
daily net assets over $500 million. Although the contractual management fee rate
for the Emerging Fund is slightly higher than the effective rate for the
Opportunities Fund, the overall expenses are lower as discussed below.
The total annual expense limitation of the Emerging Fund currently is
higher than that of the Opportunities Fund (1.75% to 1.50%). The Manager agreed
to those expense limitations (excluding interest and taxes) under a contract
with a one-year term, renewable at the end of each fiscal year. A Fund is
required to reimburse the Manager for any reductions in the Manager's fee or its
payment of expenses only during the three years following that reduction and
only if such reimbursement can be achieved within the foregoing expense limits.
The Manager generally seeks reimbursement for the oldest reductions and waivers
before payment for fees and expenses for the current year. As part of the
Reorganization, the Manager will reduce the annual expense limitation on the
Emerging Fund to 1.50%. This means that shareholders of the Opportunities Fund
would not face increased expenses as a result of the Reorganization.
For the fiscal year ended June 30, 1998, the Manager received
management fees of approximately $4,997,558 from the Emerging Fund. The Manager
accrued management fees of approximately $3,268,221 from the Opportunities Fund.
Of these fees, the Manager reduced its fee or reimbursed expenses of the
Opportunities Fund equal to approximately $658,481. The Manager may seek
reimbursement for that amount instead from the Emerging Fund if the
Reorganization occurs, provided that reimbursement is effected within three
years after the original reduction and the reimbursement can be achieved within
the applicable expense limit.
5. Portfolio Managers
The investment manager of the both Funds is Montgomery Asset
Management, LLC. Founded in 1990, the Manager is a subsidiary of Commerzbank AG,
one of the largest publicly held commercial banks in Germany. As of June 30,
1998, the Manager managed approximately $5.5 billion on behalf of some 300,000
investors in The Montgomery Funds.
ROGER HONOUR, senior portfolio manager of the Opportunities (since 1995) and
Emerging Funds (since 1994). Prior to joining the Manager in June 1993, Roger
Honour was a vice president and portfolio manager at Twentieth Century Investors
in Kansas City, Missouri. From 1990 to 1992, he served as vice president and
portfolio manager at Alliance Capital Management.
KATHRYN PETERS, portfolio manager of the Opportunities (since 1995) and Emerging
Funds (since 1996). Kathy Peters joined the Manager in 1995. From 1992 to 1995,
she was an associate in the investment banking division of Donaldson, Lufkin &
Jenrette in New York. Prior to that she analyzed mezzanine investments for
Barclays de Zoete Wedd.
ANDREW PRATT, CFA, portfolio manager of the Opportunities (since 1995), and
Emerging Funds (since 1994). Andrew Pratt joined the Manager in 1993 from
Hewlett-Packard Company, where, as an equity analyst, he managed a portfolio of
small-cap technology companies and researched private placement and venture
capital investments.
18
<PAGE>
6. Distribution and Shareholder Services
Funds Distributor, Inc. (the "Distributor"), 101 California Street, San
Francisco, California 94104, serves as the Funds' Distributor and principal
underwriter in a continuous public offering of the Funds' shares. The
Distributor does not impose any sales charge on purchases of Class R shares.
Class P shares of the Opportunities Fund have adopted a Share Marketing Plan
(the "Plan") under Rule 12b-1 but no Class P shares are expected to be
outstanding at the shareholder meeting.
The Emerging Fund does not currently offer any Class P or Class L
shares.
The Class R shares of the Emerging Fund to be issued in the
Reorganization will not be subject to any sales charge. No sales charge is
imposed by either Fund on reinvestment of dividends or capital gains
distributions.
The Funds generally require a minimum initial investment of $1000, and
subsequent investments of $100 or more. Both Funds have automatic investment
plans under which selected amounts are electronically withdrawn from
shareholders' accounts with banks and are applied to purchase shares of the
Funds.
7. Redemption and Exchange Procedures
Shareholders of both Funds may redeem their shares at the net asset
value next determined after receipt of a written redemption request or a
telephone redemption order without the imposition of any fee or other charge.
The Funds may involuntarily redeem a shareholder's shares if the
combined aggregate net asset value of the shares in a shareholder's account is
less than $1000 due to redemptions or if purchases through a systematic
investment plan fails to meet the Funds' investment minimum within a
twelve-month period. If the shareholder's account balance is not brought up to
the minimum or the shareholder does not send the Funds other instructions, the
Funds will redeem the shares and send the shareholder the proceeds.
Montgomery shareholders may exchange Class R shares in one Fund for
Class R shares in another Fund with the same shareholder account registration,
taxpayer identification number and address without the imposition of any sales
charges or exchange fees. There is a $100 minimum to exchange into a Fund the
shareholder currently owns and a $1,000 minimum for investing in a new Fund. An
exchange may result in a realized gain or loss for tax purposes. However,
because excessive exchanges can harm a fund's performance, the Trust reserves
the right to terminate, either temporarily or permanently, exchange privileges
of any shareholder who makes more than four exchanges out of any one Fund during
a twelve-month period and to refuse an exchange into a Fund from which a
shareholder has redeemed shares within the previous
19
<PAGE>
90 days (accounts under common ownership or control and accounts with the same
taxpayer identification number will be counted together). Shares can be
exchanged by telephone at (800) 572-FUND[3863] or through the online shareholder
service center at www.montgomeryfunds.com.
Other restrictions may apply. Refer to the Combined Prospectus and the
Combined Statement of Additional Information for other exchange policies.
8. Income Dividends, Capital Gains Distributions and Taxes
Each Fund distributes substantially all of its net investment income
and net capital gains to shareholders each year, if any. Both Funds currently
intend to make one or, if necessary to avoid the imposition of tax on a Fund,
more distributions during each calendar year. A distribution may be made between
November 1 and December 31 of each year with respect to any undistributed
capital gains earned during the one-year period ended October 31 of each
calendar year. Another distribution of any undistributed capital gains may also
be made following the Funds' fiscal year end (June 30 for both Funds).
Each Fund has elected and qualified as a separate "regulated investment
company" under Subchapter M of the Code for federal income tax purposes and
meets all other requirements that are necessary for it (but not its
shareholders) to pay no federal taxes on income and capital gains paid to
shareholders in the form of dividends. In order to accomplish this goal, each
Fund must, among other things, distribute substantially all of its ordinary
income and net capital gains on a current basis and maintain a portfolio of
investments which satisfies certain diversification criteria.
9. Portfolio Transactions and Brokerage Commissions
The Manager is responsible for decisions to buy and sell securities for
each Fund, broker-dealer selection, and negotiation of commission rates. In
placing orders for the Funds' portfolio transactions, the Manager's primary
consideration is to obtain the most favorable price and execution available
although the Manager also may consider a securities broker-dealer's sale of Fund
shares, or research and brokerage services provided by the securities
broker-dealer, as factors in considering through whom portfolio transactions
will be effected. The Funds may pay to those securities broker-dealers who
provide brokerage and research service to the Manger a higher commission than
that charged by other securities broker-dealers if the Manger determines in good
faith that the amount of the commission is reasonable in relation to the value
of those services in terms either of the particular transaction, or in terms of
the overall responsibility of the Manager and to any other accounts over which
the Manager exercises investment discretion.
20
<PAGE>
10. Shareholders' Rights
The Trust is a Massachusetts business trust. Because each Fund is a
series of the Trust, its operations are governed by the Trust's Declaration of
Trust and By-laws and applicable Massachusetts law.
The Funds normally will not hold meetings of shareholders except as
required under the Investment Company Act and Massachusetts law. However,
shareholders holding 10% or more of the outstanding shares of a Fund may call
meetings for the purpose of voting on the removal of one or more of the
Trustees.
Shareholders of each Fund have no preemptive, conversion or
subscription rights. The shares of each Fund have non-cumulative voting rights,
with each shareholder of the Funds entitled to one vote for each full share of
the Funds (and a fractional vote for each fractional share) held in the
shareholder's name on the books of the Funds as of the record date for the
action in question. On any matter submitted to a vote of shareholders, shares of
each Fund will be voted by that Fund's shareholders individually when the matter
affects the specific interest of that Fund only, such as approval of that Fund's
investment management arrangements. The shares of all the Funds will be voted in
the aggregate on other matters, such as the election of trustees and
ratification of the Board of Trustees' selection of the Funds' independent
accountants.
C. RISK FACTORS
The Opportunities Fund's portfolio is subject to the general risks and
considerations associated with equity investing. Its focus on small-cap stocks
may expose shareholders to additional risks. Smaller companies typically have
more limited-product lines, markets and financial resources than larger
companies, and their securities may trade less frequently and in more-limited
volume than those of larger, more mature companies. As a result, small-cap
stocks--and therefore the Funds--may fluctuate significantly more in value than
larger-cap stocks and funds that focus on them. The Emerging Fund emphasizes
emerging growth companies that may be smaller than the companies emphasized by
the Opportunities Fund and, therefore, these risks may be greater for an
investment in shares of the Emerging Fund. See the Combined Prospectus and
Statement of Additional Information for more information on the risks of the
Emerging Fund.
21
<PAGE>
D. RECOMMENDATION OF THE BOARD OF TRUSTEES
The Board of Trustees of the Trust (including a majority of the
noninterested Trustees), after due consideration, has unanimously determined
that the Reorganization is in the best interests of the shareholders of the
Opportunities Fund and the Emerging Fund and that the interests of the existing
shareholders of the Opportunities and Emerging Funds would not be diluted
thereby. The Board specifically considered the following factors:
1. That the Manager's Growth equity portfolio management
team could better serve shareholders by managing a
single small cap-oriented fund rather than two
similar funds.
2. The efficiencies that could occur if the Funds'
assets were combined.
3. The expected absence of adverse effects on the
Emerging Fund by adding the Opportunities Fund's
assets to it.
The Board of Trustees unanimously recommends that shareholders vote for the
adoption of the Proposal.
E. DISSENTERS' RIGHTS OF APPRAISAL
Shareholders of the Opportunities Fund who object to the proposed
Reorganization will not be entitled to any "dissenters' rights" under
Massachusetts law. However, those shareholders have the right at any time up to
when the Reorganization occurs to redeem shares of the Opportunities Fund at net
asset value or to exchange their shares for shares of the other funds offered by
the Trust (including the Emerging Fund) without charge. After the
Reorganization, shareholders of the Opportunities Fund will hold shares of the
Emerging Fund, which may also be redeemed at net asset value in accordance with
the procedures described in the Emerging Fund's Prospectus dated October 31,
1998, subject to applicable redemption procedures.
F. FURTHER INFORMATION ABOUT THE ACQUIRED FUND AND THE ACQUIRING FUND
Further information about the Opportunities Fund and the Emerging Fund
is contained in the following documents:
o Combined Prospectus dated October 31, 1998.
o Combined Statement of Additional Information also dated
October 31, 1998.
22
<PAGE>
o Documents that relate to the Funds are available, without
charge, by writing to the Montgomery Funds at 101 California
Street, San Francisco, California 94111 or by calling (800)
572-FUND[3863]. A copy of the Combined Prospectus also
accompanies this Combined Proxy Statement and Prospectus.
The Trust is subject to the informational requirements of the
Securities Exchange Act of 1934 and the Investment Company Act, and it files
reports, proxy materials and other information with the SEC. These reports,
proxy materials and other information can be inspected and copied at the Public
Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of these materials can be obtained at prescribed rates from the
Public Reference Branch, Office of Consumer Affairs and Information Services, of
the SEC, Washington, D.C. 20549.
G. VOTE REQUIRED
Approval of the proposed Reorganization requires the affirmative vote
of the holders of a majority of the shares of the Opportunities Fund present or
voting by proxy at the Shareholder Meeting. If the shareholders of the
Opportunities Fund do not approve the proposed Reorganization, or if the
Reorganization is not consummated for any other reason, then the Board of
Trustees will take any further action as it deems to be in the best interest of
the Opportunities Fund and its shareholders, including liquidation, subject to
approval by the shareholders of the Opportunities Fund if required by applicable
law.
H. FINANCIAL HIGHLIGHTS
The following selected per-share data and ratios for the period ended
June 30, 1998, were audited by PricewaterhouseCoopers LLP. Their August 14,
1998, report appears in the 1998 Annual Report of the Funds. Information for the
periods ended June 30, 1991, through June 30, 1997, was audited by other
independent accountants. Their report is not included here.
23
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Small Cap Opportunities Fund
- ----------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA FOR
THE YEAR OR PERIOD ENDED JUNE 30: 1998## 1997 1996(a)##
<S> <C> <C> <C>
Net Asset Value - Beginning of Year $ 17.53 $ 15.80 $ 12.00
Net investment income/(loss) (0.20) (0.13) 0.02
Net realized and unrealized gain/(loss) on investments 2.25 1.86 3.78++
Net increase/(decrease) in net assets resulting
from investment operations 2.05 1.73 3.80
Distributions:
Dividends from net investment income -- (0.00)# --
Distribution from net realized capital gains (0.42) -- --
Distribution in excess of net realized capital gains -- -- --
Total Distributions (0.42) (0.00)# --
Net Asset Value - End of Year $ 19.16 $ 17.53 $ 15.80
Total Return** 11.86% 10.97% 31.67%
- ----------------------------------------------------------------------------------------------------------------
Ratios To Average Net Assets/Supplemental Data
Net assets, end of year (in 000's) $ 201,738 $ 226,318 $ 136,140
Ratio of net investment income/(loss) to
average net assets (1.05)% (0.86)% 0.23%+
Net investment income/(loss) before
deferral of fees by Manager $ (0.26) $ (0.16) $ (0.04)
Portfolio turnover rate 82.47% 154.50% 81.29%
Expense ratio before deferral of fees by
Manager, including interest and tax expense 1.78% 1.75% 2.16%+
Expense ratio including interest and tax expense 1.50% 1.50% 1.50%+
Expense ratio excluding interest and tax expense 1.50% -- --
- ----------------------------------------------------------------------------------------------------------------
<FN>
(a) The Small Cap Opportunities Fund's Class R shares commenced operations on December 29, 1995.
</FN>
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
U.S. Emerging Growth Fund
- -------------------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA FOR
THE YEAR OR PERIOD ENDED JUNE 30: 1998## 1997 1996 1995(b)##
<S> <C> <C> <C> <C>
Net Asset Value - Beginning of Year $ 19.00 $ 17.82 $ 13.75 $ 12.00
Net investment income/(loss) (0.18) (0.13) (0.04) 0.09
Net realized and unrealized gain/(loss) on investments 4.21 2.54 4.26 1.66
Net increase/(decrease) in net assets
resulting from investment operations 4.03 2.41 4.22 1.75
Distributions:
Dividends from net investment income -- -- (0.04) --
Distribution from net realized capital gains (1.14) (1.23) (0.11) --
Distribution in excess of net realized capital gains -- -- -- --
Total distributions (1.14) (1.23) (0.15) --
Net Asset Value - End of Year $ 21.89 $ 19.00 $ 17.82 $ 13.75
Total Return** 22.18% 14.77% 30.95% 14.58%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data
Net assets, end of year (in 000's) $ 391,973 $ 317,812 $ 306,217 $ 162,949
Ratio of net investment income/(loss) to
average net assets (0.84)% (0.75)% (0.11)% 1.40%+
Net investment income/(loss) before deferral
of fees by Manager $ (0.18) -- $ (0.05) $ 0.07
Portfolio turnover rate 23.63% 79.00% 88.98% 36.81%
Expense ratio before deferral of fees by
Manager, including interest and tax expense 1.57% -- 1.79% 2.07%+
Expense ratio including interest expense 1.57% 1.71% 1.75% 1.75%+
Expense ratio excluding interest expense 1.56% -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(b) The U.S. Emerging Growth Fund's Class R shares commenced operations on December 30, 1994.
** Total return represents aggregate total for the periods indicated.
+ Annualized.
++ The amount shown in this caption for each share outstanding throughout the period may not be in accord with the net
realized and unrealized gain/(loss) for the period because of the timing of purchases and withdrawal of shares in relation
to the fluctuating market values of the portfolio.
# Amount represents less than $0.01 per share.
## Per-share numbers have been calculated using the average share method, which more appropriately represents the per-share
data for the period, as use of the undistributed income method did not accord with the results of operations.
</FN>
</TABLE>
25
<PAGE>
III. MISCELLANEOUS ISSUES
A. OTHER BUSINESS
The Board of Trustees of the Trust knows of no other business to be
brought before the Shareholder Meeting. If any other matters come before the
Shareholder Meeting, it is the Board's intention that proxies that do not
containing specific restrictions to the contrary will be voted on those matters
in accordance with the judgment of the persons named in the enclosed form of
proxy.
B. NEXT MEETING OF SHAREHOLDERS
The Trust is not required and does not intend to hold annual or other
periodic meetings of shareholders except as required by the Investment Company
Act. If the Reorganization is not completed, the next meeting of the
shareholders of the Opportunities Fund will be held at such time as the Board of
Trustees may determine or at such time as may be legally required. Any
shareholder proposal intended to be presented at such meeting must be received
by the Trust at its office at a reasonable time before the meeting, as
determined by the Board of Trustees, to be included in the Trust's proxy
statement and form of proxy relating to that meeting, and must satisfy all other
legal requirements.
C. LEGAL MATTERS
Certain legal matters in connection with the issuance of the Emerging
Fund Shares will be passed upon for the Trust by Paul, Hastings, Janofsky &
Walker LLP.
D. EXPERTS
The financial statements of the Montgomery Small Cap Opportunities Fund
for the year ended June 30, 1998, contained in the Trust's 1998 Annual Report to
Shareholders, and the financial statements of the Montgomery U.S. Emerging
Growth Fund for the year ended June 30, 1998, contained in the Trust's 1998
Annual Report to Shareholders, have been audited by PricewaterhouseCoopers LLP,
independent auditors, as stated in their reports, which are incorporated herein
by reference, and have been so incorporated in reliance upon the reports of such
firm given their authority as experts in accounting and auditing.
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. YOU ALSO MAY
VOTE BY INTERNET (www.proxyvote.com) AND TELEPHONE (800.609.6903).
26
<PAGE>
PROXY
FOR SPECIAL MEETING OF SHAREHOLDERS OF
MONTGOMERY SMALL CAP OPPORTUNITIES FUND
ON MARCH 1, 1999
The undersigned hereby appoints Gregory M. Siemons and Downey L.
Hebble, and each of them, proxies for the undersigned, with full power of
substitution, to represent the undersigned and to vote all of the shares of
Montgomery Small Cap Opportunities Fund (the "Opportunities Fund") of The
Montgomery Funds (the "Trust"), which the undersigned is entitled to vote at the
Special Meeting of Shareholders of the Opportunities Fund to be held on March 1,
1999 and at any adjournment thereof.
o Proposal to approve or disapprove a reorganization of
the Opportunities Fund providing for (i) the transfer
of substantially all of the assets and liabilities of
the Opportunities Fund to the Montgomery U.S.
Emerging Growth Fund (the "Emerging Fund"), a
separate series of the Trust, in exchange for shares
of the Emerging Fund (the "Emerging Fund Shares") of
equivalent value, (ii) the pro rata distribution of
those Emerging Fund Shares to the shareholders of the
Opportunities Fund in full redemption of those
shareholders' shares in the Opportunities Fund, and
(iii) the immediate liquidation and termination of
the Opportunities Fund, all as described in the
accompanying Combined Proxy Statement and Prospectus.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
And, in their discretion, to transact any other business that may lawfully come
before the meeting or any adjournment(s) thereof.
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES AND WILL BE
VOTED AS YOU DIRECT ON THIS FORM. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR THE PROPOSAL.
Dated: ___________________, 1999
_________________________________________
Signature of Shareholder
_________________________________________
Signature of Shareholder
When shares are registered jointly in the names of two or more persons, ALL must
sign. Signature(s) must correspond exactly with the name(s) shown. Please sign,
date and return promptly in the enclosed envelope.
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of this 15th day of December, 1998, by The Montgomery Funds, a Massachusetts
business trust, for itself and on behalf of the Montgomery U.S. Emerging Growth
Fund (the "Acquiring Fund"), a series of the Montgomery Funds ("TMF"), and on
behalf of the Montgomery Small Cap Opportunities Fund (the "Acquired Fund"),
also a series of TMF.
In accordance with the terms and conditions set forth in this
Agreement, the parties desire that all of the assets of the Acquired Fund be
transferred to the Acquiring Fund, and that the Acquiring Fund assume the Stated
Liabilities (as defined in paragraph 1.3) of the Acquired Fund, in exchange for
Class R shares of the Acquiring Fund ("Acquiring Fund Shares"), and that these
Acquiring Fund Shares be distributed immediately after the Closing, as defined
in this Agreement, by the Acquired Fund to its shareholders in liquidation of
the Acquired Fund. This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended (the "Code").
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto, intending to be legally bound hereby,
covenant and agree as follows:
1. REORGANIZATION OF ACQUIRED FUND
1.1 Subject to the terms and conditions herein set forth, and on the
basis of the representations and warranties contained herein, the Acquired Fund
shall assign, deliver and otherwise transfer its assets as set forth in
paragraph 1.2 (the "Fund Assets") to the Acquiring Fund and the Acquiring Fund
shall assume the Acquired Fund's Stated Liabilities. The Acquiring Fund shall,
as consideration therefor, on the Closing Date (as defined in paragraph 3.1),
deliver to the Acquired Fund full and fractional Acquiring Fund Shares, the
number of which shall be determined by dividing (a) the value of the Acquired
Fund Assets, net of the Acquired Fund's Stated Liabilities, computed in the
manner and as of the time and date set forth in paragraph 2.1, by (b) the net
asset value of one Class R share of the Acquiring Fund computed in the manner
and as of the time and date set forth in paragraph 2.2. Such transfer, delivery
and assumption shall take place at the closing provided for in paragraph 3.1
(hereinafter sometimes referred to as the "Closing"). Immediately following the
Closing, the Acquired Fund shall distribute the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided in paragraph 1.4 hereof. Such transactions are hereinafter sometimes
collectively referred to as the "Reorganization."
1.2 (a) With respect to the Acquired Fund, the Fund Assets shall
consist of all property and assets of any nature whatsoever, including, without
limitation, all cash, cash equivalents, securities, instruments, claims and
receivables (including dividend and interest
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<PAGE>
receivables) owned by the Acquired Fund, and any prepaid expenses shown as an
asset on the Acquired Fund's books on the Closing Date.
(b) Before the Closing Date, the Acquired Fund will provide
the Acquiring Fund with a schedule of its assets and its known
liabilities, and the Acquiring Fund will provide the Acquired Fund with
a copy of the current investment objective and policies applicable to
the Acquiring Fund. The Acquired Fund reserves the right to sell or
otherwise dispose of any of the securities or other assets shown on the
list of the Acquired Fund's Assets before the Closing Date but will
not, without the prior approval of the Acquiring Fund, acquire any
additional securities other than securities which the Acquiring Fund is
permitted to purchase in accordance with its stated investment
objective and policies. Before the Closing Date, the Acquiring Fund
will advise the Acquired Fund of any investments of the Acquired Fund
shown on such schedule which the Acquiring Fund would not be permitted
to hold, pursuant to its stated investment objective and policies or
otherwise. If the Acquired Fund holds any investments that the
Acquiring Fund would not be permitted to hold under its stated
investment objective or policies, the Acquired Fund, if requested by
the Acquiring Fund, will dispose of those securities prior to the
Closing Date to the extent practicable. In addition, if it is
determined that the portfolios of the Acquired Fund and the Acquiring
Fund, when aggregated, would contain investments exceeding certain
percentage limitations to which the Acquiring Fund is or will be
subject with respect to such investments, the Acquired Fund, if
requested by the Acquiring Fund, will dispose of and/or reinvest a
sufficient amount of such investments as may be necessary to avoid
violating such limitations as of the Closing Date.
1.3 The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. The Acquiring Fund will
assume all liabilities and obligations reflected on an unaudited statement of
assets and liabilities of the Acquired Fund prepared by the administrator of TMF
as of the Applicable Valuation Date (as defined in paragraph 2.1), in accordance
with generally accepted accounting principles consistently applied from the
prior audited period ("Stated Liabilities"). The Acquiring Fund shall assume
only the Stated Liabilities of the Acquired Fund, and no other liabilities or
obligations, whether absolute or contingent, known or unknown, accrued or
unaccrued.
1.4 Immediately following the Closing, the Acquired Fund will
distribute the Acquiring Fund Shares received by the Acquired Fund pursuant to
paragraph 1.1 pro rata to its Class R and Class P shareholders of record
determined as of the close of business on the Closing Date ("Acquired Fund
Investors") in complete liquidation of the Acquired Fund. That distribution will
be accomplished by an instruction, signed by an appropriate officer of TMF, to
transfer the Acquiring Fund Shares then credited to the Acquired Fund's account
on the books of the Acquiring Fund to open accounts on the books of the
Acquiring Fund established and maintained by the Acquiring Fund's transfer agent
in the names of record of the Acquired Fund Investors and representing the
respective pro rata number of Class R and Class P shares of the
2
<PAGE>
Acquiring Fund due such Acquired Fund Investor based on the respective net asset
values per share of the Class R and Class P shares of the Acquired Fund. All
issued and outstanding shares of the Acquired Fund will be cancelled
simultaneously therewith on the Acquired Fund's books, and any outstanding share
certificates representing interests in the Acquired Fund will represent only the
right to receive such number of Acquiring Fund Shares after the Closing as
determined in accordance with paragraph 1.l.
1.5 If any request shall be made for a change of the registration of
shares of the Acquiring Fund to another person from the account of the
stockholder in which name the shares are registered in the records of the
Acquired Fund, it shall be a condition of such registration of shares that there
be furnished to the Acquiring Fund an instrument of transfer properly endorsed,
accompanied by appropriate signature guarantees and otherwise in proper form for
transfer and that the person requesting such registration shall pay to the
Acquiring Fund any transfer or other taxes required by reason of such
registration or establish to the reasonable satisfaction of the Acquiring Fund
that such tax has been paid or is not applicable.
1.6 Following the transfer of assets by the Acquired Fund to the
Acquiring Fund, the assumption of the Acquired Fund's Stated Liabilities by the
Acquiring Fund, and the distribution by the Acquired Fund of the Acquiring Fund
Shares received by it pursuant to paragraph 1.4, TMF shall terminate the
qualification, classification and registration of the Acquired Fund with all
appropriate federal and state agencies. Any reporting or other responsibility of
TMF is and shall remain the responsibility of TMF up to and including the date
on which the Acquired Fund is terminated and deregistered, subject to any
reporting or other obligations described in paragraph 4.8.
2. VALUATION
2.1 The value of the Acquired Fund's Fund Assets shall be the value of
those assets computed as of the time at which its net asset value is calculated
pursuant to the valuation procedures set forth in the Acquiring Fund's
then-current Prospectus and Statement of Additional Information on the business
day immediately preceding the Closing Date, or at such time on such earlier or
later date as may mutually be agreed upon in writing among the parties hereto
(such time and date being herein called the "Applicable Valuation Date").
2.2 The net asset value of each share of the Acquiring Fund shall be
the net asset value per share computed on the Applicable Valuation Date, using
the market valuation procedures set forth in the Acquiring Fund's then-current
Prospectus and Statement of Additional Information.
2.3 All computations of value contemplated by this Article 2 shall be
made by the Acquiring Fund's administrator in accordance with its regular
practice as pricing agent. The Acquiring Fund shall cause its administrator to
deliver a copy of its valuation report to TMF and to the Acquired Fund at the
Closing.
3
<PAGE>
3. CLOSING(S) AND CLOSING DATE
3.l The Closing for the Reorganization shall occur on March 1, 1999,
and/or on such other date(s) as may be mutually agreed upon in writing by the
parties hereto (each, a "Closing Date"). The Closing(s) shall be held at the
offices of Paul, Hastings, Janofsky & Walker LLP, 345 California Street, San
Francisco, California 94104 or at such other location as is mutually agreeable
to the parties hereto. All acts taking place at the Closing(s) shall be deemed
to take place simultaneously as of 10:00 a.m., local time on the Closing Date
unless otherwise provided.
3.2 The Acquiring Fund's custodian shall deliver at the Closing a
certificate of an authorized officer stating that: (a) the Fund Assets have been
delivered in proper form to the Acquiring Fund on the Closing Date and (b) all
necessary taxes including all applicable federal and state stock transfer
stamps, if any, have been paid, or provision for payment shall have been made,
by the Acquired Fund in conjunction with the delivery of portfolio securities.
3.3 Notwithstanding anything herein to the contrary, if on the
Applicable Valuation Date (a) the New York Stock Exchange shall be closed to
trading or trading thereon shall be restricted or (b) trading or the reporting
of trading on such exchange or elsewhere shall be disrupted so that, in the
judgment of TMF, accurate appraisal of the value of the net assets of the
Acquiring Fund or the Acquired Fund is impracticable, the Applicable Valuation
Date shall be postponed until the first business day after the day when trading
shall have been fully resumed without restriction or disruption and reporting
shall have been restored.
4. COVENANTS WITH RESPECT TO THE ACQUIRING FUND AND THE ACQUIRED FUND
4.1 With respect to the Acquired Fund, TMF has called or will call a
meeting of Acquired Fund shareholders to consider and act upon this Agreement
and to take all other actions reasonably necessary to obtain the approval of the
transactions contemplated herein, including approval for the Acquired Fund's
liquidating distribution of Acquiring Fund Shares contemplated hereby, and for
TMF to terminate the Acquired Fund's qualification, classification and
registration if requisite approvals are obtained with respect to the Acquired
Fund. The Montgomery Funds, on behalf of the Acquired Fund, shall prepare the
notice of meeting, form of proxy and proxy statement (collectively, "Proxy
Materials") to be used in connection with that meeting.
4.2 TMF, on behalf of the Acquired Fund, covenants that the Acquiring
Fund Shares to be issued hereunder are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the terms of this
Agreement.
4.3 TMF, on behalf of the Acquired Fund, will assist the Acquiring Fund
in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of shares of the Acquired Fund.
4
<PAGE>
4.4 Subject to the provisions hereof, TMF, on its own behalf and on
behalf of the Acquiring Fund and the Acquired Fund, will take, or cause to be
taken, all actions, and do, or cause to be done, all things reasonably
necessary, proper or advisable to consummate and make effective the transactions
contemplated herein.
4.5 TMF, on behalf of the Acquired Fund, shall furnish to the Acquiring
Fund on the Closing Date, a final statement of the total amount of the Acquired
Fund's assets and liabilities as of the Closing Date.
4.6 TMF, on behalf of the Acquiring Fund, has prepared and filed, or
will prepare and file, with the Securities and Exchange Commission (the "SEC") a
registration statement on Form N-14 under the Securities Act of 1933, as amended
(the "1933 Act"), relating to the Acquiring Fund Shares (the "Registration
Statement"). TMF, on behalf of the Acquired Fund, has provided or will provide
the Acquiring Fund with the Proxy Materials for inclusion in the Registration
Statement, prepared in accordance with paragraph 4.1, and with such other
information and documents relating to the Acquired Fund as are requested by the
Acquiring Fund and as are reasonably necessary for the preparation of the
Registration Statement.
4.7 As soon after the Closing Date as is reasonably practicable, TMF,
on behalf of the Acquired Fund: (a) shall prepare and file all federal and other
tax returns and reports of the Acquired Fund required by law to be filed with
respect to all periods ending on/or before the Closing Date but not theretofore
filed and (b) shall pay all federal and other taxes shown as due thereon and/or
all federal and other taxes that were unpaid as of the Closing Date.
4.8 Following the transfer of Fund Assets by the Acquired Fund to the
Acquiring Fund and the assumption of the Stated Liabilities of the Acquired Fund
in exchange for Acquiring Fund Shares as contemplated herein, TMF will file any
final regulatory reports, including but not limited to any Form N-SAR and Rule
24f-2 filings with respect to the Acquired Fund, promptly after the Closing Date
and also will take all other steps as are necessary and proper to effect the
termination or declassification of the Acquired Fund in accordance with the laws
of the Commonwealth of Massachusetts and other applicable requirements.
5
<PAGE>
5. REPRESENTATIONS AND WARRANTIES
5.1 TMF, on behalf of the Acquiring Fund, represents and warrants to
the Acquired Fund as follows:
(a) TMF was duly created pursuant to its Agreement and
Declaration of Trust by the Trustees for the purpose of acting as a
management investment company under the Investment Company Act of 1940
(the "1940 Act") and is validly existing under the laws of the
Commonwealth of Massachusetts, and the Declaration of Trust directs the
Trustees to manage the affairs of TMF and grants them all powers
necessary or desirable to carry out such responsibility, including
administering TMF's business as currently conducted by TMF and as
described in the current prospectuses of TMF. TMF is registered as an
investment company classified as an open-end management company, under
the 1940 Act and its registration with the SEC as an investment company
is in full force and effect;
(b) The Registration Statement, including the current
prospectus and statement of additional information of the Acquiring
Fund, conforms or will conform, at all times up to and including the
Closing Date, in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the regulations thereunder and do
not include or will not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(c) The Acquiring Fund is not in violation of, and the
execution, delivery and performance of this Agreement by TMF for itself
and on behalf of the Acquiring Fund does not and will not (i) violate
TMF's Declaration of Trust or By-Laws, or (ii) result in a breach or
violation of, or constitute a default under, any material agreement or
material instrument, to which TMF is a party or by which its properties
or assets are bound;
(d) Except as previously disclosed in writing to the Acquired
Fund, no litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to TMF's
knowledge, threatened against TMF or its business, the Acquiring Fund
or any of its properties or assets, which, if adversely determined,
would materially and adversely affect TMF or the Acquiring Fund's
financial condition or the conduct of their business. TMF knows of no
facts that might form the basis for the institution of any such
proceeding or investigation, and the Acquiring Fund is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects, or
is reasonably likely to materially and adversely affect, its business
or its ability to consummate the transactions contemplated herein;
6
<PAGE>
(e) All issued and outstanding shares, including shares to be
issued in connection with the Reorganization, of the Acquiring Fund
will, as of the Closing Date, be duly authorized and validly issued and
outstanding, fully paid and nonassessable, the shares of each class of
the Acquiring Fund issued and outstanding before the Closing Date were
offered and sold in compliance with the applicable registration
requirements, or exemptions therefrom, of the 1933 Act, and all
applicable state securities laws, and the regulations thereunder, and
the Acquiring Fund does not have outstanding any option, warrants or
other rights to subscribe for or purchase any of its shares nor is
there outstanding any security convertible into any of its shares;
(f) The execution, delivery and performance of this Agreement
on behalf of the Acquiring Fund will have been duly authorized prior to
the Closing Date by all necessary action on the part of TMF, the
Trustees and the Acquiring Fund, and this Agreement will constitute a
valid and binding obligation of TMF and the Acquiring Fund enforceable
in accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, arrangement, moratorium and other similar
laws of general applicability relating to or affecting creditors,
rights and to general equity principles;
(g) On the effective date of the Registration Statement, at
the time of the meeting of the Acquired Fund shareholders and on the
Closing Date, any written information furnished by TMF with respect to
the Acquiring Fund for use in the Proxy Materials, the Registration
Statement or any other materials provided in connection with the
Reorganization does not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
information provided not misleading;
(h) No governmental consents, approvals, authorizations or
filings are required under the 1933 Act, the Securities Exchange Act of
1934 (the "1934 Act"), the 1940 Act or Massachusetts law for the
execution of this Agreement by TMF, for itself and on behalf of the
Acquiring Fund, or the performance of the Agreement by The Montgomery
Funds for itself and on behalf of the Acquiring Fund, except for such
consents, approvals, authorizations and filings as have been made or
received, and except for such consents, approvals, authorizations and
filings as may be required after the Closing Date;
(i) The Statement of Assets and Liabilities, Statement of
Operations and Statements of Changes in Net Assets of the Acquiring
Fund as of and for the year ended June 30, 1998, audited by
PricewaterhouseCoopers LLP (copies of which have been or will be
furnished to the Acquired Fund) fairly present, in all material
respects, the Acquiring Fund's financial condition as of such date and
its results of operations for such period in accordance with generally
accepted accounting principles consistently applied, and as of such
dates there were no liabilities of the Acquiring Fund (contingent or
otherwise) known to TMF that were not disclosed therein but that would
be required to be disclosed therein in accordance with generally
accepted accounting principles;
7
<PAGE>
(j) Since the date of the most recent audited financial
statements, there has not been any material adverse change in the
Acquiring Fund's financial condition, assets, liabilities or business,
other than changes occurring in the ordinary course of business; or any
incurrence by the Acquiring Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred, except as otherwise
disclosed in writing to and accepted by the Acquired Fund, prior to the
Closing Date (for the purposes of this subparagraph (j), neither a
decline in the Acquiring Fund's net asset value per share nor a
decrease in the Acquiring Fund's size due to redemptions shall be
deemed to constitute a material adverse change);
(k) For each full and partial taxable year from its inception
through the Closing Date, the Acquiring Fund has qualified as a
separate regulated investment company under the Code and has taken all
necessary and required actions to maintain such status; and
(1) All federal and other tax returns and reports of TMF and
the Acquiring Fund required by law to be filed on or before the Closing
Date shall have been filed, and all taxes owed by TMF or the Acquiring
Fund shall have been paid so far as due, and to the best of TMF's
knowledge, no such return is currently under audit and no assessment
has been asserted with respect to any such return.
5.2 TMF, on behalf of the Acquired Fund, represents and warrants to the
Acquiring Fund as follows:
(a) TMF was duly created pursuant to its Agreement and
Declaration of Trust by the Trustees for the purpose of acting as a
management investment company under the 1940 Act and is validly
existing under the laws of the Commonwealth of Massachusetts, and the
Agreement and Declaration of Trust directs the Trustees to manage the
affairs of TMF and grants them all powers necessary or desirable to
carry out such responsibility, including administering TMF's business
as currently conducted by TMF and as described in the current
prospectuses of TMF. TMF is registered as an investment company
classified as an open-end management company, under the 1940 Act and
its registration with the SEC as an investment company is in full force
and effect;
(b) All of the issued and outstanding shares of the Acquired
Fund have been offered and sold in compliance in all material respects
with applicable registration or notice requirements of the 1933 Act and
state securities laws; all issued and outstanding shares of each class
of the Acquired Fund are, and on the Closing Date will be, duly
authorized and validly issued and outstanding, and fully paid and
non-assessable, and the Acquired Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of
its shares, nor is there outstanding any security convertible into any
of its shares;
8
<PAGE>
(c) The Acquired Fund is not in violation of, and the
execution, delivery and performance of this Agreement by TMF for itself
and on behalf of the Acquired Fund does not and will not (i) violate
TMF's Agreement and Declaration of Trust or By-Laws, or (ii) result in
a breach or violation of, or constitute a default under, any material
agreement or material instrument to which TMF is a party or by its
properties or assets are bound;
(d) Except as previously disclosed in writing to the Acquiring
Fund, no litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to TMF's
knowledge, threatened against the Acquired Fund or any of its
properties or assets which, if adversely determined, would materially
and adversely affect the Acquired Fund's financial condition or the
conduct of its business, TMF knows of no facts that might form the
basis for the institution of any such proceeding or investigation, and
the Acquired Fund is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body that
materially and adversely affects, or is reasonably likely to materially
and adversely affect, its business or its ability to consummate the
transactions contemplated herein;
(e) The Statement of Assets and Liabilities, Statements of
Operations and Statements of Changes in Net Assets of the Acquired Fund
as of and for the period ended June 30, 1998, audited by
PricewaterhouseCoopers LLP (copies of which have been or will be
furnished to the Acquiring Fund) fairly present, in all material
respects, the Acquired Fund's financial condition as of such date and
its results of operations for such period in accordance with generally
accepted accounting principles consistently applied, and as of such
date there were no liabilities of the Acquired Fund (contingent or
otherwise) known to TMF that were not disclosed therein but that would
be required to be disclosed therein in accordance with generally
accepted accounting principles;
(f) Since the date of the most recent audited financial
statements, there has not been any material adverse change in the
Acquired Fund's financial condition, assets, liabilities or business,
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred, except as otherwise
disclosed in writing to and accepted by the Acquiring Fund, prior to
the Closing Date (for the purposes of this subparagraph (f), neither a
decline in the Acquired Fund's net asset value per share nor a decrease
in the Acquired Fund's size due to redemptions shall be deemed to
constitute a material adverse change);
(g) All federal and other tax returns and reports of TMF and
the Acquired Fund required by law to be filed on or before the Closing
Date shall have been filed, and all taxes owed by TMF or the Acquired
Fund shall have been paid so far as due, and to the best of TMF's
knowledge, no such return is currently under audit and no assessment
has been asserted with respect to any such return;
9
<PAGE>
(h) For each full and partial taxable year from its inception
through the Closing Date, the Acquired Fund has qualified as a separate
regulated investment company under the Code and has taken all necessary
and required actions to maintain such status;
(i) At the Closing Date, the Acquired Fund will have good and
marketable title to the Fund Assets and full right, power and authority
to assign, deliver and otherwise transfer such Fund Assets hereunder,
and upon delivery and payment for such Fund Assets as contemplated
herein, the Acquiring Fund will acquire good and marketable title
thereto, subject to no restrictions on the ownership or transfer
thereof other than such restrictions as might arise under the 1933 Act;
(j) The execution, delivery and performance of this Agreement
on behalf of the Acquired Fund will have been duly authorized prior to
the Closing Date by all necessary action on the part of TMF, the
Trustees and the Acquired Fund, and this Agreement will constitute a
valid and binding obligation TMF and the Acquired Fund enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, arrangement, moratorium and other similar
laws of general applicability relating to or affecting creditors,
rights and to general equity principles;
(k) From the effective date of the Registration Statement,
through the time of the meeting of the Acquired Fund Investors, and on
the Closing Date, the Proxy Materials (exclusive of the portions of the
Acquiring Fund's Prospectus contained or incorporated by reference
therein, and exclusive of any written information furnished by TMF with
respect to the Acquiring Fund): (i) will comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act
and the 1940 Act and the regulations thereunder and (ii) do not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and as of such dates and times, any written
information furnished by TMF, on behalf of the Acquired Fund, for use
in the Registration Statement or in any other manner that may be
necessary in connection with the transactions contemplated hereby does
not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the information provided not
misleading; and
(l) No governmental consents, approvals, authorizations or
filings are required under the 1933 Act, the 1934 Act, the 1940 Act or
Massachusetts law for the execution of this Agreement by TMF, for
itself and on behalf of the Acquired Fund, or the performance of the
Agreement by TMF for itself and on behalf of the Acquired Fund, except
for such consents, approvals, authorizations and filings as have been
made or received, and except for such consents, approvals,
authorizations and filings as may be required subsequent to the Closing
Date.
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<PAGE>
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRED FUND
The obligations of TMF to consummate the Reorganization with respect to
the Acquired Fund shall be subject to the performance by TMF, for itself and on
behalf of the Acquiring Fund, of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the following
conditions with respect to the Acquiring Fund:
6.1 All representations and warranties of TMF with respect to the
Acquiring Fund contained herein shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated herein, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date.
6.2 TMF, on behalf of the Acquiring Fund, shall have delivered to the
Acquired Fund at the Closing a certificate executed on behalf of the Acquiring
Fund by TMF's President, Vice President, Assistant Vice President, Secretary or
Assistant Secretary in a form reasonably satisfactory to the Acquired Fund and
dated as of the Closing Date, to the effect that the representations and
warranties of TMF with respect to the Acquiring Fund made herein are true and
correct at and as of the Closing Date, except as they may be affected by the
transactions contemplated herein, and as to such other matters as the Acquired
Fund shall reasonably request.
6.3 Unless waived by the Acquired Fund, the Acquired Fund shall have
received at the Closing a favorable opinion of Paul, Hastings, Janofsky & Walker
LLP, counsel to TMF, dated as of the Closing Date, in a form reasonably
satisfactory to the Acquired Fund, substantially to the effect that:
(a) TMF is a duly registered, open-end, management investment
company, and its registration with the SEC as an investment company
under the 1940 Act is in full force and effect; (b) the Acquiring Fund
is a separate portfolio of TMF, which is a business trust duly created
pursuant to its Agreement and Declaration of Trust, is legally existing
and in good standing under the laws of the Commonwealth of
Massachusetts, and the Agreement and Declaration of Trust directs the
Trustees to manage the affairs of TMF and grants them all powers
necessary or desirable to carry out such responsibility, including
administering TMF's business as described in the current prospectuses
of TMF; (c) this Agreement has been duly authorized, executed and
delivered by TMF on behalf of TMF and the Acquiring Fund and, assuming
due authorization, execution and delivery of this Agreement on behalf
of the Acquired Fund, is a valid and binding obligation of TMF,
enforceable against TMF in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, arrangement,
moratorium and other similar laws of general applicability relating to
or affecting creditors, rights and to general equity principles; (d)
the Acquiring Fund Shares to be issued to the Acquired Fund and then
distributed to the Acquired Fund Investors pursuant to this Agreement
are duly registered under the 1933 Act on the appropriate form, and are
duly authorized and upon such issuance will be validly issued and
outstanding and fully paid and non-
11
<PAGE>
assessable, and no shareholder of the Acquiring Fund has any preemptive
rights to subscription or purchase in respect thereof; (e) the
Registration Statement has become effective with the SEC and, to the
best of such counsel's knowledge, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or threatened; (f) no
consent, approval, authorization, filing or order of any court or
governmental authority of the United States or any state is required
for the consummation of the Reorganization with respect to the
Acquiring Fund, except for such consents, approvals, authorizations and
filings as have been made or received, and except for such consents,
approvals, authorizations and filings as may be required after the
Closing Date; and (g) to the best knowledge of such counsel, no
litigation or administrative proceeding or investigation of or before
any court or governmental body is presently pending or threatened as to
TMF or the Acquiring Fund or any of their properties or assets and
neither TMF nor the Acquiring Fund is a party to or subject to the
provisions of any order, decree or judgment of any court or
governmental body that materially and adversely affects its business.
6.4 As of the Closing Date, there shall have been no material change in
the investment objective, policies and restrictions nor any material change in
the investment management fees, fee levels payable pursuant to any 12b-1 plan of
distribution, other fees payable for services provided to the Acquiring Fund,
fee waiver or expense reimbursement undertakings, or sales loads of the
Acquiring Fund from those fee amounts, undertakings and sales load amounts
described in the prospectus of the Acquiring Fund delivered to the Acquired Fund
pursuant to paragraph 4.1 and in the Proxy Materials.
6.5 With respect to the Acquiring Fund, the Board of Trustees of TMF
shall have determined that the Reorganization is in the best interests of the
Acquiring Fund and that the interests of the existing shareholders of the
Acquiring Fund would not be diluted as a result of the Reorganization.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRING FUND
The obligations of TMF to consummate the Reorganization with respect to
the Acquiring Fund shall be subject to the performance by TMF of all the
obligations to be performed by it hereunder, with respect to the Acquired Fund,
on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of TMF with respect to the
Acquired Fund contained herein shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date, with the
same force and effect as if made on and as of the Closing Date.
7.2 TMF, on behalf of the Acquired Fund, shall have delivered to the
Acquiring Fund at the Closing a certificate executed on behalf of the Acquired
Fund, by TMF's President, Vice President, Assistant Vice President, Secretary or
Assistant Secretary, in form and
12
<PAGE>
substance satisfactory to the Acquiring Fund and dated as of the Closing Date,
to the effect that the representations and warranties of TMF with respect to the
Acquired Fund made herein are true and correct at and as of the Closing Date,
except as they may be affected by the transactions contemplated herein and as to
such other matters as the Acquiring Fund shall reasonably request.
7.3 Unless waived by the Acquiring Fund, the Acquiring Fund shall have
received at the Closing a favorable opinion from Paul, Hastings, Janofsky &
Walker LLP, counsel to TMF, dated as of the Closing Date, in a form reasonably
satisfactory to the Acquiring Fund, substantially to the effect that:
(a) TMF is a duly registered, open-end, management investment
company, and its registration with the SEC as an investment company
under the 1940 Act is in full force and effect; (b) the Acquired Fund
is a separate portfolio of TMF, which is a business trust duly created
pursuant to its Agreement and Declaration of Trust, is validly existing
and in good standing under the laws of the Commonwealth of
Massachusetts, and the Agreement and Declaration of Trust directs the
Trustees to manage the affairs of TMF and grants them all powers
necessary or desirable to carry out such responsibility, including
administering TMF's business as described in the current prospectuses
of TMF; (c) this Agreement has been duly authorized, executed and
delivered by TMF on behalf of TMF and the Acquired Fund and, assuming
due authorization, execution and delivery of this Agreement on behalf
of the Acquiring Fund, is a valid and binding obligation of TMF,
enforceable against TMF in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, arrangement,
moratorium and other similar laws of general applicability relating to
or affecting creditors, rights and to general equity principles; (d) no
consent, approval, authorization, filing or order of any court or
governmental authority of the United Sates or any state is required for
the consummation of the Reorganization with respect to the Acquired
Fund, except for such consents, approvals, authorizations and filings
as have been made or received, and except for such consents, approvals,
authorizations and filings as may be required subsequent to the Closing
Date; and (e) to the best knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to TMF or the
Acquired Fund or any of their properties or assets and neither TMF nor
the Acquired Fund is a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body that
materially and adversely effects its business.
7.4 With respect to the Acquired Fund, the Board of Trustees of TMF
shall have determined that the Reorganization is in the best interests of the
Acquired Fund.
13
<PAGE>
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND
THE ACQUIRED FUND
The obligations of the Acquiring Fund and of the Acquired Fund herein
are each subject to the further conditions that on or before the Closing Date
with respect to the Acquiring Fund and the Acquired Fund:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of TMF's Agreement and
Declaration of Trust and the requirements of the 1940 Act, and certified copies
of the resolutions evidencing such approval shall have been delivered to the
Acquiring Fund.
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or any of the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders,
approvals and permits of federal, state and local regulatory authorities
(including, without limitation, those of the SEC and of state securities
authorities) deemed necessary by TMF, on behalf of the Acquiring Fund or the
Acquired Fund, to permit consummation, in all material respects, of the
transactions contemplated herein shall have been obtained, except where failure
to obtain any such consent, order or permit would not, in the opinion of the
party asserting that the condition to closing has not been satisfied, involve a
risk of a material adverse effect on the assets or properties of the Acquiring
Fund or the Acquired Fund.
8.4 The Registration Statement shall have become effective under the
1933 Act, no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5 The Acquired Fund shall have declared and paid a dividend or
dividends which, together with all previous such dividends, shall have the
effect of distributing to the Acquired Fund's shareholders substantially all of
the Acquired Fund's investment company taxable income for all taxable years
ending on or prior to the Closing Date (computed without regard to any deduction
for dividends paid) and substantially all of its net capital gain realized in
all taxable years ending on or prior to the Closing Date (after reduction for
any capital loss carryover).
8.6 The Montgomery Funds shall have received the opinion of Paul,
Hastings, Janofsky & Walker LLP addressed to both the Acquiring Fund and the
Acquired Fund (and based on customary representation certificates from TMF, the
Acquiring Fund and the Acquired Fund) substantially to the effect that, for
federal income tax purposes:
14
<PAGE>
(a) the transfer by the Acquired Fund of the Fund Assets in
exchange for the Acquiring Fund Shares and the assumption by the
Acquiring Fund of the Stated Liabilities will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code
and the Acquiring Fund and the Acquired Fund each are a "party to a
reorganization" within the meaning of Section 368(b) of the Code; (b)
no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the Fund Assets solely in exchange for the Acquiring Fund
Shares and the assumption by the Acquiring Fund of the Stated
Liabilities; (c) no gain or loss will be recognized by the Acquired
Fund upon the transfer of the Fund Assets to the Acquiring Fund and the
assumption by the Acquiring Fund of the Stated Liabilities in exchange
for the Acquiring Fund Shares or upon the distribution (whether actual
or constructive) of the Acquiring Fund Shares to the Acquired Fund
shareholders in exchange for their shares of the Acquired Fund; (d) no
gain or loss will be recognized by the Acquired Fund Investors upon the
exchange of their Acquired Fund Shares for the Acquiring Fund Shares;
(e) the aggregate tax basis for the Acquiring Fund Shares received by
each of the Acquired Fund Investors pursuant to the Reorganization will
be the same as the aggregate tax basis of the Acquired Fund shares held
by such shareholder immediately prior to the Reorganization, and the
holding period of the Acquiring Fund Shares to be received by each
Acquired Fund Investors will include the period during which the
Acquired Fund shares exchanged therefor were held by such shareholder
(provided the Acquired Fund shares were held as capital assets on the
date of the Reorganization); and (f) the tax basis of the Acquired Fund
assets acquired by the Acquiring Fund will be same as the tax basis of
such assets to the Acquired Fund immediately prior to the
Reorganization, and the holding period of the assets of the Acquired
Fund in the hands of the Acquiring Fund will include the period during
which those assets were held by the Acquired Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Acquired Fund may waive the condition set forth in this paragraph 8.6.
9. EXPENSES
9.1 Except as may be otherwise provided herein, each of the Acquired
Fund and the Acquiring Fund shall be liable for its respective expenses incurred
in connection with entering into and carrying out the provisions of this
Agreement, whether or not the transactions contemplated hereby are consummated.
The expenses payable by the Acquired Fund hereunder shall include (i) fees and
expenses of its counsel and independent auditors incurred in connection with the
Reorganization; (ii) expenses associated with printing and mailing the
Prospectus/Proxy Statement and soliciting proxies in connection with the meeting
of shareholders of the Acquired Fund referred to in paragraph 4.1 hereof; (iii)
all fees and expenses related to the liquidation of the Acquired Fund; (iv) fees
and expenses of the Acquired Fund's custodian and transfer agent(s) incurred in
connection with the Reorganization; and (v) any special pricing fees associated
with the valuation of the Acquired Fund's portfolio on the Applicable Valuation
Date. Montgomery Asset Management, LLC, has agreed to reimburse
15
<PAGE>
the Acquired Fund for the expenses listed in items (i), (ii), (iii) (iv) and (v)
above. The expenses payable by the Acquiring Fund hereunder shall include (i)
fees and expenses of its counsel and independent auditors incurred in connection
with the Reorganization; (ii) expenses associated with preparing this Agreement
and preparing and filing the Registration Statement under the 1933 Act covering
the Acquiring Fund Shares to be issued in the Reorganization; (iii) registration
or qualification fees and expenses of preparing and filing such forms, if any,
as are necessary under applicable state securities laws to qualify the Acquiring
Fund Shares to be issued in connection with the Reorganization; (iv) any fees
and expenses of the Acquiring Fund's custodian and transfer agent(s) incurred in
connection with the Reorganization; and (v) any special pricing fees associated
with the valuation of the Acquiring Fund's portfolio on the Applicable Valuation
Date. Montgomery Asset Management, LLC, has agreed to reimburse the Acquiring
Fund for the expenses listed in items (i), (ii), (iii), (iv) and (v) above.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the
parties and supersedes any prior or contemporaneous understanding or arrangement
with respect to the subject matter hereof.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated herein.
11. TERMINATION
11.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time before the Closing by the mutual written
consent of the Acquiring Fund and the Acquired Fund.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of TMF,
acting on behalf of the Acquired Fund and the Acquiring Fund; provided, however,
that following the meeting of the shareholders of the Acquired Fund, no such
amendment may have the effect of changing the provisions for determining the
number of shares of the Acquiring Fund to be to the Acquired Fund Investors
under this Agreement to the detriment of such Acquired Fund Investors, or
otherwise materially and adversely affecting the Acquired Fund, without the
Acquired Fund obtaining the Acquired Fund Investors' further approval except
that nothing in this paragraph 12 shall be construed to prohibit the Acquiring
Fund and the Acquired Fund from amending this Agreement to change the Closing
Date or Applicable Valuation Date by mutual agreement.
16
<PAGE>
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provision of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy, certified mail or overnight express courier addressed to:
For TMF, on behalf of itself and the Acquiring Fund and/or Acquired Fund:
The Montgomery Funds
101 California Street
San Francisco, California 94111
Attention: David J. Thelander, Esq.
General Counsel
With a copy to:
David A. Hearth, Esq.
Paul, Hastings, Janofsky & Walker LLP
345 California St., 29th Floor
San Francisco, California 94104
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF
LIABILITY
14.1 The article and paragraph headings contained herein are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All references herein to Articles, paragraphs,
subparagraphs or Exhibits shall be construed as referring to Articles,
paragraphs or subparagraphs hereof or Exhibits hereto, respectively. Whenever
the terms "hereto", "hereunder", "herein" or "hereof" are used in this
Agreement, they shall be construed as referring to this entire Agreement, rather
than to any individual Article, paragraph, subparagraph or sentence.
14.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other parties. Nothing herein expressed
or implied is intended or shall be construed to confer upon or
17
<PAGE>
give any person, firm or corporation, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason of
this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed by its authorized officer.
The Montgomery Funds,
for itself and on behalf of
the Montgomery U.S.
Emerging Growth Fund
By: /s/ Downey L. Hebble
-------------------------
Downey L. Hebble
Assistant Vice President
The Montgomery Funds,
for itself and on behalf of
the Montgomery Small Cap
Opportunities Fund
By: /s/ Downey L. Hebble
-------------------------
Downey L. Hebble
Assistant Vice President
18
<PAGE>
-----------------------------------------
PART B
STATEMENT OF ADDITIONAL INFORMATION
FOR THE REORGANIZATION OF
MONTGOMERY SMALL CAP OPPORTUNITIES FUND
INTO
MONTGOMERY U.S. EMERGING GROWTH FUND
-----------------------------------------
<PAGE>
THE MONTGOMERY FUNDS
------------------------------
101 California Street
San Francisco, California 94111
1-800-572-FUND
-----------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 15, 1999
FOR REGISTRATION STATEMENT ON FORM N-14
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Combined Proxy Statement and Prospectus dated
January 15, 1999, which has been filed by The Montgomery Funds (the "Trust") in
connection with a Special Meeting of Shareholders of the Montgomery Small Cap
Opportunities Fund (the "Opportunities Fund") of the Trust that has been called
to vote on an Agreement and Plan of Reorganization (and the transactions
contemplated thereby). Copies of the Combined Proxy Statement and Prospectus may
be obtained at no charge by writing The Montgomery Funds at the address
indicated above or by calling toll-free 1-800-572-FUND.
Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the Combined
Proxy Statement and Prospectus.
Further information about the Trust, the Opportunities Fund, and
Montgomery U.S. Emerging Growth Fund (the "Emerging Fund", and, together, the
"Funds") is contained in the Funds' Combined Prospectus (including other
Montgomery Funds) dated October 31, 1998, and the Annual Report of the Funds for
the fiscal year ended June 30, 1998. The Funds' Statement of Additional
Information (including other Montgomery Funds), dated October 31, 1998, is
incorporated by reference in this Statement of Additional Information and is
available without charge by calling the Montgomery Funds toll-free at
1-800-572-FUND.
Pro-forma financial statements are attached hereto as Exhibit A.
TABLE OF CONTENTS
Page
----
General Information ........................................................ B-2
Exhibit A .................................................................. B-3
B-2
<PAGE>
GENERAL INFORMATION
The shareholders of the Opportunities Fund are being asked to approve a
form of Agreement and Plan of Reorganization (the "Plan") combining the
Opportunities Fund into the Emerging Fund (and the transactions contemplated
thereby). The Plan contemplates the transfer of all substantially all of the
assets and liabilities of the Opportunities Fund as of the Effective Date to the
Emerging Fund, and the assumption by the Emerging Fund of the liabilities of the
Opportunities Fund, in exchange for Class R shares of the Emerging Fund.
Immediately after the Effective Date, the Opportunities Fund will distribute to
its Class R and Class P shareholders of record as of the close of business on
the Effective Date the Class R shares of the Emerging Fund received. The shares
of the Emerging Fund that will be issued for distribution to the Opportunities
Fund's Shareholders will have an aggregate net asset value equal to the
aggregate net asset value of the shares of the Opportunities Fund held as of the
Closing Date. The Trust will then take all necessary steps to terminate the
qualification, registration and classification of the Opportunities Fund. All
issued and outstanding shares of the Opportunities Fund will be canceled on the
Opportunities Fund's books. Shares of the Emerging Fund will be represented only
by book entries; no share certificates will be issued.
A Special Meeting of the Opportunities Fund's shareholders to consider
the transaction will be held at the offices of the Trust, 101 California Street,
35th Floor, San Francisco, California 94111 on March 1, 1999 at 10 a.m., local
time.
For further information about the transaction, see the Combined Proxy
Statement and Prospectus. For further information about the Trust, the
Opportunities Fund and the Emerging Fund, see the Opportunities Funds' Combined
Statement of Additional Information, dated October 31, 1998, which is available
without charge by calling the Trust at 1-800-572-FUND.
B-3
<PAGE>
Exhibit A
[Pro Forma Financial Statements]
B-4
<PAGE>
Montgomery U.S. Emerging Growth Fund
and
Montgomery Small Cap Opportunities Fund
Proforma Combining Financial Statements (Unaudited)
The accompanying unaudited proforma combining investment portfolio and statement
of assets and liabilities assumes that the exchange described in the next
paragraph occurred as of December 31, 1998 and the unaudited proforma combining
statements of operations of Montgomery U.S. Emerging Growth Fund as if the
combination with Montgomery Small Cap Opportunities Fund has been consummated at
July 1, 1998. These historical statements have been derived from Montgomery U.S.
Emerging Growth Fund's and Montgomery Small Cap Opportunities Fund's books and
records utilized in calculating daily net asset value at December 31, 1998, and
for the six-month period then ended.
The proforma statements give effect to the proposed transfer of all assets of
Montgomery Small Cap Opportunities Fund to Montgomery U.S. Emerging Growth Fund
in exchange for the assumption by Montgomery U.S. Emerging Growth Fund of all of
the liabilities of Montgomery Small Cap Opportunities Fund and for a number of
U.S. Emerging Growth Fund's shares equal in value to the value of the net assets
of Montgomery Small Cap Opportunities Fund. Under generally accepted accounting
principles, the historical cost of investment securities will be carried forward
to the surviving entity and the results of operations of Montgomery U.S.
Emerging Growth Fund for pre-combining periods will not be restated. The
proforma statements of assets and liabilities and of operations do not reflect
the expenses of either fund in carrying out its obligations under the Agreement
and Plan of Reorganization. Under the Agreement and Plan of Reorganization,
Montgomery Asset Management, LLC has agreed to reimburse the funds for expenses
incurred in connection with the reorganization.
The unaudited proforma combining statements should be read in conjunction with
the separate financial statements of Montgomery U.S. Emerging Growth Fund and
Montgomery Small Cap Opportunities Fund incorporated by reference in this
statement of additional information.
<PAGE>
Montgomery U.S. Emerging Growth Fund
and
Montgomery Small Cap Opportunities Fund
Notes to Proforma Combining Financial Statements (Unaudited)
December 31, 1998
The proforma adjustments to these proforma financial statements are comprised of
the following:
(A) Issuance of U.S. Emerging Growth Fund shares to the holders of shares
of Montgomery Small Cap Opportunities Fund.
(B) Elimination and reduction of duplicative expenses as a result of the
merger.
<PAGE>
<TABLE>
Montogmery U.S. Emerging Growth Fund
Schedule of Investments
December 31, 1998
<CAPTION>
Shares Description Value
<S> <C> <C>
Common Stocks:
Metal Fabrications
220,000 Encore Wire Corp. $ 2,035,000
Industrial Machinery/Components
275,000 Applied Power, Inc. 10,381,250
Construction/AG Equipment/Trucks
335,000 Manitowoc 14,865,625
Auto Parts: O.E.M.
200,000 Donnelly Corporation 2,600,000
Building Products
491,000 Elcor Corp 15,865,437
459,100 Interface, Inc. 4,261,021
57,500 TJ International 1,477,031
-----------
21,603,489
Electrical Products
160,000 Kollmorgen Corp. 2,440,000
Aerospace
310,100 Moog, Inc. 12,132,662
Engineering & Construction
232,000 Granite Construction, Inc. 7,786,500
<PAGE>
Building Materials
135,000 Republic Group Inc. 2,708,437
Specialty Chemicals
203,500 Tetra Technologies Inc. 2,213,062
Containers/Packaging
140,000 Aptargroup Inc. 4,826,750
98,650 Ivex Packaging Corp. 2,293,612
-----------
7,120,362
Specialty Steels
29,800 Carpenter Technology 1,011,337
Paints/Coatings
82,763 Ferro Corp Com 2,151,838
Environmental Services
240,000 Casella Waste Systems Inc.-A 8,895,000
128,000 Tetra Tech Inc. 3,452,000
-----------
12,347,000
Diversified Commercial Services
103,275 BA Merchant Services Inc. - A 2,078,409
293,600 Caribiner Int'l Inc. 2,679,100
62,000 Catalina Marketing Corp. 4,239,450
33,300 Fair Isaac & Co Inc Com 1,538,044
520,225 HA-LO Industries 19,573,466
105,000 Interim Services 2,454,375
31,500 Nova Corporation 1,092,656
290,000 Administaff Inc. 7,250,000
101,500 Bell & Howell Company 3,837,969
400,000 Intelligroup Inc. 7,125,000
250,000 Maximus Inc. 9,250,000
<PAGE>
396,000 On Assignment Inc. 13,525,875
200,000 Personnel Group Of America Inc. 3,500,000
320,000 Romac International, Inc. 7,100,000
-----------
85,244,344
Advertising
360,000 TMP Wordwide Inc. 15,322,499
100,000 Ackerley Group Inc. 1,825,000
200,000 Snyder Communications Inc. 6,750,000
-----------
23,897,499
Food Distributors
343,300 Fleming Companies, Inc. 3,561,737
Printing/Forms
75,000 Big Flower Holdings Inc. 1,654,687
45,250 World Color Press Inc. 1,377,297
-----------
3,031,984
Edp Services
229,200 Acxiom Corp Com 7,090,875
57,050 Analysts International Corp. 1,101,778
96,125 Computer Task Group, Inc. 2,607,391
-----------
10,800,044
Computer Software
70,000 Synopsys 3,793,125
317,500 Indus International Inc. 2,212,578
310,000 Micros Systems Inc. 10,075,000
325,000 Platinum Software Corp. 4,143,750
-----------
20,224,453
Other Consumer Services
160,000 Education Management Corporation 3,765,000
<PAGE>
Clothing/Shoe/Accessory Stores
65,100 The Men's Wearhouse Inc. 2,050,650
240,000 Ann Taylor Stores Corp. 9,465,000
-----------
11,515,650
Other Specialty Stores
175,500 Regis Corp. 7,014,516
325,000 Linens 'N Things Inc. 12,878,125
-----------
19,892,641
Catalog/Specialty Distribution
251,800 Coldwater Creek Inc. 3,493,724
Newspapers
290,000 Hollinger International 4,041,875
Restaurants
250,000 Consolidated Products, Inc. 5,156,250
145,000 CEC Entertainmen, Inc. 4,023,750
-----------
9,180,000
Drug Store Chains
425,000 Duane Reade Inc. 16,362,500
Major Pharmaceuticals
485,000 Catalytica Inc. 8,760,312
Medical Specialties
190,000 Cooper Companies Inc. 3,930,625
44,500 Cooper Companies Inc. 920,594
-----------
4,851,219
Medical/Nursing Services
170,725 Orthodontic Centers of America, Inc. 3,318,467
Oil & Gas Production
350,000 Belco Oil & Gas Corp. 1,946,875
<PAGE>
Contract Drilling
144,800 R&B Falcon 1,104,000
Oilfield Services/Equipment
290,000 Varco International 2,247,500
Semiconductors
129,000 Actel Corporation 2,596,125
Telecommunications Equipment
336,500 Aspect Telecommunications 5,867,719
106,350 Comverse Technology 7,547,526
153,000 Harmonic Lightwaves, Inc. 2,883,094
-----------
16,298,339
Electronic Components
240,000 Plexus Corp. 8,085,000
Military/Government/Technical
106,900 SBS Technologies, Inc. 1,940,903
84,300 Cubic Corp. 1,580,625
-----------
3,521,528
Precision Instruments
40,000 Waters Corporation 3,490,000
Office/Plant Automation
140,100 Kronos, Inc. 6,230,071
Trucking
315,000 Swift Transportation Co Inc. 8,760,937
77,700 USFreightways Corporation 2,263,012
-----------
11,023,949
Homebuilding
180,000 Champion Enterprises 4,927,500
191,625 Kaufman and Broad Home Corp. 5,509,219
<PAGE>
45,000 Champion Enterprises 1,231,875
-----------
11,668,594
Home Furnishings
75,000 Ethan Allen Interiors Inc. 3,075,000
150,730 Pillowtex Corp. 4,032,027
-----------
7,107,027
Consumer Electronics/Appliances
120,000 ITI Technolocy, Inc. 3,735,000
Recreational Products/Toys
65,200 Action Performance Companies, Inc. 2,302,375
Apparel
52,000 Jones Apparel Group 1,147,250
Package Goods/Cosmetics
457,800 Playtex Prods Inc. Com 7,353,412
Specialty Foods/candy
200,000 Celestial Seasonings 5,531,250
155,000 Nature's Sunshine Products, Inc. 2,344,375
90,000 Suiza Foods Corp 4,584,375
-----------
12,460,000
Savings & Loan Associations
190,000 Bank United Corp. 7,439,687
80,000 Commercial Federal Corp. 1,855,000
-----------
9,294,687
Investment Managers
363,000 Waddell & Reed Financial 8,598,651
<PAGE>
Specialty Insurers
138,000 Amerin Corporation 3,372,375
Property-Casualty Insurers
43,600 W.R. Berkley Corp. 1,471,500
Broadcasting
260,000 Metro Networks, Inc. 11,066,250
6,000 Lindberg Corp. 54,937
-----------
11,121,187
Repurchase Agreements:
17,692,000 Prudential, 5.15%, due 1/4/99 17,692,000
15,541,000 PaineWebber, 5.15%, due 1/4/99 15,541,000
-----------
33,233,000
-----------
Total Investments (cost $372,225,330) 502,746,456
===========
</TABLE>
<PAGE>
<TABLE>
Montgomery U.S. Emerging Growth Fund
Pro Forma Statement of Assets and Liabilities
December 31, 1998 (Unaudited)
<CAPTION>
U.S. Small Pro Pro
Emerging Cap Forma Forma
Assets Growth Opportunities Adjustments Combined
<S> <C> <C> <C> <C>
Investments in securities, at value (Identified cost $300,384,027,
$71,841,303, and $372,225,330, respectively) $410,889,168 $ 91,857,110 $502,746,278
Cash 321,224 506,873 828,097
Dividends and interest receivable 87,208 20,819 108,027
Receivable for securities sold 1,352,491 279,667 1,632,158
Variation margin 1,599,963 -- 1,599,963
Receivable for fund shares sold 89,208 1,475 90,683
Other receivables -- 119,087 119,087
----------------------------------------------------------
Total Assets 414,339,262 92,785,031 507,124,293
----------------------------------------------------------
Liabilities
Payable for investments purchased $ 3,467,599 $ 1,389,541 $ 4,857,140
Payable for fund shares redeemed 82,756 -- 82,756
Distribution payable to shareholders 1,453 4,426 5,879
Management fees payable 144,670 97,773 242,443
Administration fees payable 21,524 2,564 24,088
Share marketing plan fee payable (class P only) -- 23 23
Custodian fees payable 16,220 6,628 22,848
Trustees' fees and expenses payable 1,053 1,548 2,601
Transfer agency fees payable 53,878 6,677 60,555
Other accrued liabilities 111,524 39,002 150,526
----------------------------------------------------------
Total Liabilities 3,900,677 1,548,182 -- 5,448,859
----------------------------------------------------------
Net Assets $410,438,585 $ 91,236,849 $ -- $501,675,434
==========================================================
Net Assets:
Class R $410,438,585 $ 90,910,275 $ 326,574 $501,675,434
Class P n/a 326,574 (326,574) --
----------------------------------------------------------
Net Assets $410,438,585 $ 91,236,849 $ -- $501,675,434
==========================================================
Number of Fund shares outstanding:
Class R 19,823,717 5,572,009 (1,164,432)(A) 24,231,294
Class P n/a 20,469 (20,469)(A) --
----------------------------------------------------------
Total Shares 19,823,717 5,592,478 (1,184,901) 24,231,294
==========================================================
Class R shares:
Net asset value, offering and redemption
price per share outstanding $ 20.70 $ 16.32 $ 20.70
Class P shares:
Net asset value, offering and redemption
price per share outstanding n/a 15.95
</TABLE>
<PAGE>
<TABLE>
Montgomery U.S. Emerging Growth Fund
Pro Forma Statement of Operations
Six Months Ended December 31, 1998 (Unaudited)
<CAPTION>
U.S. Small Pro Pro
Emerging Cap Forma Forma
Growth Opportunities Adjustments Combined
<S> <C> <C> <C> <C>
Investment Income:
Interest $ 1,193,615 93,675 1,287,290
Dividends 477,408 145,789 623,197
Miscellaneous 22,493 9,021 31,514
----------------------------------------------------------------
Total Income 1,693,516 248,485 -- 1,942,001
----------------------------------------------------------------
Expenses:
Management fee $ 2,388,812 718,020 28,231 (B) 3,135,063
Transfer agency 168,805 113,269 -- 282,074
Administration fee 120,006 41,888 (17,335)(B) 144,559
Share marketing plan fee -- 4 (4)(B) --
Legal and audit 31,758 23,299 (15,057)(B) 40,000
Accounting expenses 68,957 22,611 -- 91,568
Printing fees 35,287 23,479 -- 58,766
Other 59,787 64,944 (14,334)(B) 110,397
----------------------------------------------------------------
Total Expenses 2,873,412 1,007,514 (18,499) 3,862,427
Fees deferred by manager -- (115,120) (166,711) (281,831)
----------------------------------------------------------------
Net Expenses 2,873,412 892,394 (185,210) 3,580,596
----------------------------------------------------------------
Net Investment Income/(Loss) (1,179,896) (643,909) 185,210 (1,638,595)
----------------------------------------------------------------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) from:
Securities transactions 24,975,222 (9,457,626) -- 15,517,596
Futures contracts 5,142,528 78,627 -- 5,221,155
Other -- -- -- --
----------------------------------------------------------------
Net Realized Gain/(Loss) on Investments 30,117,750 (9,378,999) -- 20,738,751
----------------------------------------------------------------
Net Change in unrealized appreciation/(depreciation) of:
Securities 110,505,141 20,015,807 -- 130,520,948
Futures contracts 1,448,931 -- -- 1,448,931
----------------------------------------------------------------
Net Unrealized Appreciation of Investments 111,954,072 20,015,807 -- 131,969,879
----------------------------------------------------------------
Net Realized and Unrealized Gain on Investments 142,071,822 10,636,808 -- 152,708,630
----------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $ 140,891,926 $ 9,992,899 $ 185,210 $ 151,070,035
----------------------------------------------------------------
</TABLE>
<PAGE>
-----------------------------------------
PART C
THE MONTGOMERY FUNDS
OTHER INFORMATION
-----------------------------------------
<PAGE>
THE MONTGOMERY FUNDS
-------------------------------
FORM N-14
-------------------------------
PART C
-------------------------------
ITEM 15. INDEMNIFICATION
Article VII, Section 3 of the Agreement and Declaration of Trust
empowers the Trustees of the Trust, to the full extent permitted by law, to
purchase with Trust assets insurance for indemnification from liability and to
pay for all expenses reasonably incurred or paid or expected to be paid by a
Trustee or officer in connection with any claim, action, suit or proceeding in
which he or she becomes involved by virtue of his or her capacity or former
capacity with the Trust.
Article VI of the By-Laws of the Trust provides that the Trust shall
indemnify any person who was or is a party or is threatened to be made a party
to any proceeding by reason of the fact that such person is or was an agent of
the Trust, against expenses, judgments, fines, settlement and other amounts
actually and reasonable incurred in connection with such proceeding if that
person acted in good faith and reasonably believed his or her conduct to be in
the best interests of the Trust. Indemnification will not be provided in certain
circumstances, however, including instances of willful misfeasance, bad faith,
gross negligence, and reckless disregard of the duties involved in the conduct
of the particular office involved.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to the Trustee, officers, and controlling persons
of the Registrant, pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable in the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
ITEM 16. EXHIBITS
(1) Amended and Restated Agreement and Declaration of Trust is
incorporated by reference to Post-Effective Amendment No.61 to
Registration Statement N-1A (the "Registration Statement"), as
filed with the Commission on October 29, 1998 ("Post-Effective
Amendment No. 61").
(2) Amended and Restated By-Laws are incorporated by reference to
Post-Effective Amendment No. 61.
(3) Voting Trust Agreement - Not applicable.
(4) Form of Agreement and Plan of Reorganization is included in
Part A.
(5) Specimen Share Certificate - Not applicable.
C-2
<PAGE>
(6) Investment Advisory Contracts--Form of Investment Management
Agreement is incorporated by reference to Post-Effective
Amendment No. 52 to the Registration Statement as filed with
the Commission on July 31, 1997 ("Post-Effective Amendment No.
52").
(7)(A) Form of Underwriting Agreement is incorporated by reference to
Post-Effective Amendment No. 52.
(7)(B) Form of Selling Group Agreement is incorporated by reference
to Pre-Effective Amendment No. 1.
(8) Benefit Plan(s) - Not applicable.
(9) Custody Agreement is incorporated by reference to
Post-Effective Amendment No. 61.
(10) Form of Shareholder Services Plan is incorporated by reference
to Post-Effective Amendment No. 61.
(11) Consent and Opinion of Counsel as to legality of shares is
incorporated by reference to Post-Effective Amendment No. 61.
(12) Opinion and Consent as to Tax Matters.
(13)(A) Form of Administrative Services Agreement is incorporated by
reference to Post-Effective Amendment No. 52.
(13)(B) 18f-3Plan--Form of Amended and Restated Multiple Class Plan is
incorporated by reference to Post-Effective Amendment No. 61.
(14) Independent Auditors' Consent.
(15) Not Applicable.
(16) Power of Attorney is incorporated by reference to the initial
filing of Form N-14 filed with the Commission on December 18,
1998.
(17) Not Applicable.
C-3
<PAGE>
ITEM 17. UNDERTAKINGS.
(1) Registrant agrees that, prior to any public reoffering of the
securities registered through the use of a prospectus which is
part of this registration statement by any person or party who
is deemed to be an underwriter within the meaning of Rule
145(c) of the Securities Act of 1933, the reoffering
prospectus will contain the information called for by the
applicable registration form for the reofferings by persons
who may be deemed underwriters, in addition to the information
called for by the other items of the applicable.
(2) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (a) above will be filed as part of an
amendment to the Registration Statement and will not be used
until the amendment is effective, and that, in determining any
liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and
the offering of the securities at that time shall be deemed to
be the initial bona fide offering of them.
C-4
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration statement
has been signed on behalf of the Registrant, in the City of San Francisco and
State of California, on the 12th day of January, 1999.
THE MONTGOMERY FUNDS
George A. Rio*
----------------------------
George A. Rio
President and Principal
Executive Officer; Treasurer
and Principal Financial and
Accounting Officer
As required by the Securities Act of 1933, this registration statement has been
signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
George A. Rio* President and January 12, 1999
- -------------------- Principal Executive Officer;
George A. Rio Treasurer and Principal
Financial and Accounting Officer
R. Stephen Doyle* Chairman of the January 12, 1999
- -------------------- Board of Trustees
R. Stephen Doyle
Andrew Cox.* Trustee January 12, 1999
- --------------------
Andrew Cox
Cecilia H. Herbert* Trustee January 12, 1999
- --------------------
Cecilia H. Herbert
John A. Farnsworth* Trustee January 12, 1999
- --------------------
John A. Farnsworth
*By: /s/ David A. Hearth
--------------------------------
David A. Hearth, Attorney-in-Fact
Pursuant to Power of Attorney
previously filed
C-5
<PAGE>
SEC File No. 333-69187
THE MONTGOMERY FUNDS
FORM N-14
EXHIBIT INDEX
Number Exhibit
- ------ -------
12 Opinion and Consent to Tax Matters - Paul, Hastings, Janofsky
& Walker LLP
14 Independent Auditors' Consent- PricewaterhouseCoopers LLP
C-6
EXHIBIT 12
Opinion and Consent to Tax Matters - Paul, Hastings, Janofsky & Walker LLP
C-7
<PAGE>
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Twenty-Third Floor
Los Angeles, California 90071-2371
January 12, 1999
27286.93178
The Montgomery Funds
101 California Street
San Francisco, California 94111
Re: Reorganization of Montgomery Small Cap Opportunities
Fund into Montgomery U.S. Emerging Growth Fund
Ladies and Gentlemen:
You have requested our opinion as counsel for The Montgomery Funds, a
Massachusetts business trust (the "Trust"), with respect to certain federal
income tax matters in connection with the reorganization by and between the
Montgomery U.S. Emerging Growth Fund (the "Acquiring Fund"), a series of the
Trust, and the Montgomery Small Cap Opportunities Fund (the "Acquired Fund"),
also a series of the Trust. This opinion is rendered in connection with the
transaction described in the Agreement and Plan of Reorganization dated as of
December 15, 1998 (the "Reorganization Agreement"), by the Trust for itself and
on behalf of the Acquiring Fund and the Acquired Fund, and adopts the applicable
defined terms therein.
This letter and the opinion expressed herein are for delivery to the
Trust and may be relied upon only by the Trust, the Acquiring Fund and Acquired
Fund, and their shareholders. This opinion also may be disclosed by the Trust,
Acquiring Fund and Acquired Fund, or any of their shareholders in connection
with an audit or other administrative proceeding before the Internal Revenue
Service (the "Service") affecting the Trust, Acquiring Fund and Acquired Fund,
or any of their shareholders or in connection with any judicial proceeding
relating to the federal, state or local tax liability of the Trust, Acquiring
Fund and Acquired Fund or any of their shareholders.
<PAGE>
The Montgomery Funds
January 12, 1999
Page 2
For purposes of this opinion we have assumed the truth and accuracy of
the following facts:
The Trust was duly created pursuant to its Agreement and Declaration of
Trust by the Trustees for the purpose of acting as a management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and is validly existing under the laws of the Commonwealth of Massachusetts. The
Trust is registered as an investment company classified as a diversified,
open-end management company, under the 1940 Act.
The Acquiring Fund is a series of the Trust duly established under the
laws of the State of Massachusetts, and is validly existing under the laws of
that State. The shares of the Acquiring Fund are widely held. The Acquiring Fund
has an authorized capital of an unlimited number of shares and each outstanding
share of the Acquired Fund is fully transferable and has full voting rights.
The Acquired Fund is a series of the Trust duly established under the
laws of the State of Massachusetts, and is validly existing under the laws of
that State. The shares of the Acquired Fund are widely held. The Acquired Fund
has an authorized capital of an unlimited number of shares and each outstanding
share of the Acquired Fund is fully transferable and has full voting rights.
For valid business purposes, the following transaction will take place
in accordance with the laws of the State of Massachusetts and pursuant to the
Reorganization Agreement:
(a) On the date of the closing (the "Closing Date"), the Trust will
cause the Acquired Fund to transfer substantially all of its assets to the
Acquiring Fund. Solely in exchange therefor, the Trust will cause the Acquiring
Fund to deliver to the Acquired Fund a number of Class R shares (the "Acquiring
Fund Shares") of voting common stock of the Acquiring Fund and to assume the
liabilities of the Acquired Fund as stated in the Reorganization Agreement.
(b) The Trust will then cause the Acquired Fund to liquidate and
distribute all of the Acquiring Fund Shares to the shareholders of Acquired Fund
in proportion to their respective interests in the Acquired Fund in exchange for
their shares in the Acquired Fund.
<PAGE>
The Montgomery Funds
January 12, 1999
Page 3
(c) The Trust will then cause the Acquired Fund to wind up and dissolve
as soon as practicable thereafter.
In rendering the opinions stated below, we have examined and relied
upon the following, assuming the truth and accuracy of any statements contained
therein:
(1) The Reorganization Agreement; and
(2) Such other documents, records and instruments as we
have deemed necessary in order to enable us to render
the opinions referred to in this letter.
For purposes of rendering the opinions stated below, we have in
addition relied upon the following representations by the Trust on behalf of
both the Acquired Fund and the Acquiring Fund, as applicable:
(A) The fair market value of the Acquiring Fund Shares received by each
shareholder of the Acquired Fund will be approximately equal to the fair market
value of the shares of the Acquired Fund surrendered in the exchange.
(B) There is no plan or intention by any shareholders of the Acquired
Fund who own five percent or more of the Acquired Fund, and to the best
knowledge of the management of the Acquired Fund, there is no plan or intention
on the part of any remaining Acquired Fund shareholders to sell, exchange, or
otherwise dispose of a number of the shares of the Acquiring Fund received in
the transaction that would reduce the Acquired Fund's shareholders' ownership of
the shares of the Acquiring Fund received to a number of shares having a value,
as of the date of the transaction, of less than 50 percent of the value of all
of the formerly outstanding shares of the Acquired Fund as of the same date. For
purposes of this representation, shares of Acquired Fund exchanged for cash or
other property, surrendered by dissenters have been treated as outstanding
shares of the Acquired Fund on the date of the transaction. Further, in making
this representation, the Acquired Fund has considered both shares of the
Acquired Fund and shares of the Acquiring Fund that were sold, redeemed, or
otherwise disposed of by the shareholders of the Acquired Fund (except for
shares which were required to be redeemed by the Acquired Fund or the Acquiring
Fund in the ordinary course of its business as series of an investment company).
<PAGE>
The Montgomery Funds
January 12, 1999
Page 4
(C) The Acquiring Fund will acquire at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair market value
of the gross assets held by the Acquired Fund immediately prior to the
transaction. For purposes of this representation, amounts used by the Acquired
Fund to pay its reorganization expenses, amounts paid by the Acquired Fund to
shareholders who receive cash or other property, and all redemptions and
distributions (except for distributions and redemptions occurring in the
ordinary course of the Acquired Fund's business as a series of an investment
company) made by the Acquired Fund immediately preceding the transfer have been
included as assets of the Acquired Fund held immediately prior to the
transaction.
(D) The Acquiring Fund has no plan or intention to reacquire any of its
shares issued in the transaction, except for acquisitions made in the ordinary
course of its business as a series of an investment company.
(E) After the transaction, the Acquiring Fund will use the assets
acquired from the Acquired Fund in the Acquiring Fund's business, except that
all or a portion of those assets may be sold or otherwise disposed of in the
ordinary course of the Acquiring Fund=s business, or may mature, and in either
case the proceeds will be reinveted in accordance with the Acquiring Fund=s
investment objectives. The Acquiring Fund has no plan or intention to sell or
otherwise dispose of the assets received in the transaction from the Acquired
Fund, except for dispositions made in the ordinary course of business.
(F) The Acquired Fund will distribute as soon as practicable the shares
of the Acquiring Fund it receives in the transaction.
(G) The liabilities of the Acquired Fund assumed by the Acquiring Fund
and the liabilities to which the transferred assets are subject were incurred by
the Acquired Fund in the ordinary course of business.
(H) The fair market value of the assets of the Acquired Fund
transferred to the Acquiring Fund will equal or exceed the sum of the
liabilities assumed by the Acquiring Fund, plus the amount of liabilities, if
any, to which the transferred assets are subject.
(I) Following the transaction, the Acquiring Fund will continue the
historic business of the Acquired Fund or use a significant portion of the
Acquired Fund's historic business assets in a business.
<PAGE>
The Montgomery Funds
January 12, 1999
Page 5
(J) The Acquiring Fund, the Acquired Fund, and the shareholders of the
Acquired Fund will pay their respective expenses, if any, incurred in connection
with the transaction.
(K) There is no intercorporate indebtedness existing between the
Acquired Fund and the Acquiring Fund that was issued, acquired, or will be
settled at a discount.
(L) The Acquired Fund and the Acquiring Fund each meet the requirements
of a regulated investment company as defined in Sections 368(a)(2)(F)(ii) and
(iii) of the Internal Revenue Code of 1986, as amended (the "Code").
(M) The Acquiring Fund does not own, directly or indirectly, not has it
owned during the past five years, directly or indirectly, any stock of the
Acquired Fund.
(N) No cash will be distributed to shareholders of the Acquired Fund in
lieu of fractional shares of the Acquiring Fund.
(O) Both the Acquired Fund and the Acquiring Fund has elected to be
taxed as a "regulated investment company" under Section 851 of the Code and, for
all of its taxable periods, (including the last short taxable period ending on
the date of the transaction for the Acquired Fund) has qualified for the special
tax treatment afforded regulated investment companies under the Code, and after
the transaction, the Acquiring Fund intends to continue to so qualify.
(P) The Acquired Fund is not under the jurisdiction of a court in a
case under Title 11 of the United States Code or a receivership, foreclosure, or
similar proceeding in a Federal or state court within the meaning of Code
Section 368(a)(3)(A).
Our opinions set forth in this letter are based upon the Code,
regulations of the Treasury Department, published administrative announcements
and rulings of the Service and court decisions, all as of the date of this
letter. Based on the foregoing facts and representations, and provided that the
transaction will take place in accordance with the terms of the Reorganization
Agreement, and further provided that the Acquired Fund distributes the shares of
Acquiring Fund received in the transaction as soon as practicable, we are of the
opinion that:
<PAGE>
The Montgomery Funds
January 12, 1999
Page 6
(1) The transfer by the Acquired Fund of substantially all of its
assets to the Acquiring Fund solely in exchange for shares of the Acquiring Fund
and the assumption by the Acquiring Fund of the Acquired Fund's liabilities,
followed by the distribution by the Acquired Fund of the Acquiring Fund Shares
to its shareholders in complete liquidation of the Acquired Fund will be a
reorganization within the meaning of Section 368(a)(1)(C) of the Code.
(2) The Acquired Fund will recognize no gain or loss on its transfer of
substantially all of its assets to the Acquiring Fund in exchange solely for the
Acquiring Fund Shares, or on distribution of such Acquiring Fund Shares to its
shareholders.
(3) The Acquiring Fund will recognize no gain or loss on its receipt of
substantially all of the assets of the Acquired Fund in exchange solely for the
Acquiring Fund Shares.
(4) The Acquiring Fund's basis in the assets received from the Acquired
Fund in the transaction will equal the basis of such assets in the hands of the
Acquired Fund immediately prior to the transaction.
(5) The Acquiring Fund's holding period for the assets received in the
Reorganization will include the period during which the Acquired Fund held such
assets.
(6) The shareholders of the Acquired Fund will recognize no gain or
loss on the receipt of the Acquiring Fund Shares (including any fractional share
interests to which they may be entitled) solely in exchange for their Acquired
Fund stock.
(7) The basis of the Acquiring Fund Shares received by each of the
Acquired Fund's shareholders in the transaction (including fractional shares to
which they may be entitled) will equal the basis of the Acquired Fund stock
surrendered in exchange therefor.
(8) The holding period of the Acquiring Fund Shares received by each of
the Acquired Fund's shareholders in exchange for their Acquired Fund stock
(including fractional shares to which they may be entitled) will include the
period that the shareholder held the Acquired Fund stock exchange therefor,
provided that the shareholder held such stock as a capital asset on the date of
the exchange.
<PAGE>
The Montgomery Funds
January 12, 1999
Page 7
The opinions set forth above represent our conclusions as to the
application of federal income tax law existing as of the date of this letter to
the transactions described above, and we can give no assurance that legislative
enactments, administrative changes or court decisions may not be forthcoming
which would require modifications or revocations of our opinions expressed
herein. Moreover, there can be no assurance that positions contrary to our
opinions will not be taken by the Service, or that a court considering the
issues would not hold contrary to such opinions. Further, all the opinions set
forth above represent our conclusions based upon the documents and facts
referred to above. Any material amendments to such documents or changes in any
significant facts would affect the opinions referred to herein. Although we have
made such inquiries and performed such investigation as we have deemed necessary
to fulfill our professional responsibilities, we have not undertaken an
independent investigation of the facts referred to in this letter.
We express no opinion as to any federal income tax issue or other
matter except those set forth above.
We hereby consent to the filing of this opinion as an exhibit to the
Trust=s Registration Statement on Form N-14 (and our being named therein) filed
by the Trust in connection with the Reorganization.
Very truly yours,
/s/ PAUL, HASTINGS, JANOFSKY & WALKER LLP
EXHIBIT 14
Independent Auditors' Consent - PricewaterhouseCoopers LLP
C-8
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus/Proxy
Statement and Statement of Additional Information constituting parts of this
Registration Statement on Form N-14 of our report dated August 14, 1998,
relating to the financial statements and financial highlights appearing in the
June 30, 1998 Annual Report to Shareholders of Montgomery Small Cap
Opportunities Fund and Montgomery U.S. Emerging Growth Fund. We also consent to
the references to us under the headings "Financial Highlights" and "Experts" in
the Prospectus/Proxy Statement. Further, we consent to the references to us
under the heading "Financial Highlights" in the Prospectus and under the heading
"Investment Management and Other Services" in the Statement of Additional
Information constituting parts of Post-Effective Amendment No. 62 to the
registration statement on Form N-1A dated October 31, 1998, which is also
incorporated by reference into this Registration Statement on Form N-14.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
January 12, 1999
