As filed with the Securities and Exchange Commission on November 24, 1999
File No: __________
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
THE MONTGOMERY FUNDS
(Exact Name of Registrant as Specified in Charter)
(800) 572-3863
(Registrant's Telephone Number, Including Area Code)
101 California Street
San Francisco, California 94111
(Address of Principal Executive Offices)
Dulce Daclison
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>
<TABLE>
CROSS REFERENCE SHEET
<CAPTION>
Form N-14 Part A, Item Location in Prospectus/Proxy Statement
- ---------------------- --------------------------------------
<S> <C>
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 International Growth Fund and the International Small Cap 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
</TABLE>
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.
<PAGE>
THE FOLLOWING ITEMS ARE HEREBY INCORPORATED BY REFERENCE:
From Post-Effective Amendment No. 69 of The Montgomery Funds, filed October 29,
1999 (SEC File No. 811-6011):
Combined Prospectus for Montgomery International Small Cap Fund and
Montgomery International Growth Fund (with other funds of The
Montgomery Funds and another Registrant), dated October 31, 1999.
Combined Statement of Additional Information for Montgomery
International Small Cap Fund and Montgomery International Growth Fund
(with other funds of The Montgomery Funds and another Registrant),
dated October 31, 1999.
As previously sent to shareholders of the Montgomery International Small Cap
Fund and the Montgomery International Growth Fund for the fiscal year ended June
30, 1999, as contained in the Annual Report for The Montgomery Funds dated as of
and for the periods ended June 30, 1999.
<PAGE>
-----------------------------------------
PART A
COMBINED PROXY STATEMENT AND PROSPECTUS
FOR THE REORGANIZATION OF
MONTGOMERY INTERNATIONAL SMALL CAP FUND
INTO
MONTGOMERY INTERNATIONAL GROWTH FUND
-----------------------------------------
<PAGE>
[Letterhead of Montgomery Asset Management, LLC]
January __, 2000
Dear International Small Cap Fund Shareholder:
We are seeking your approval to reorganize the International
Small Cap Fund into the International Growth Fund. As the manager of both Funds,
we recommend that you approve the reorganization because we believe we can
increase the managerial efficiencies of these two Funds if they are merged. We
believe this will allow us to take better advantage of those exciting investment
prospects that otherwise could be appropriate for both Funds.
The reorganization would not cause you to recognize any gains
or losses on your shares in the International Small Cap Fund. 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 INTERNATIONAL SMALL CAP FUND
TO BE HELD FEBRUARY __, 2000
To the Shareholders of the Montgomery International Small Cap 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 February __, 2000, at 10:00 a.m., local time. At
the meeting, we will ask you to vote on:
1. A proposal to reorganize the International Small Cap Fund into
another Montgomery Fund, the International Growth Fund.
2. Any other business that properly comes before the meeting.
Only shareholders of record at the close of business on
December __, 1999 (the Record Date), will be entitled to receive this notice and
to vote at the meeting.
By Order of the Board of Trustees
Dulce Daclison
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 International Small Cap Fund
and
Montgomery International Growth Fund
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated: January __, 2000
What is this document and why did we send it to you?
The Board of Trustees approved a plan to reorganize the Montgomery
International Small Cap Fund (the "International Small Cap Fund") into the
Montgomery International Growth Fund (the "International Growth 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 February __, 2000 (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 International
Small Cap Fund to the International Growth Fund in exchange for
shares of the International Growth Fund (the "International Growth
Fund Shares") of equivalent value to the net assets transferred,
o the pro rata distribution of those International Growth Fund
Shares to shareholders of record of the International Small Cap
Fund as of the effective date of the Reorganization (the
"Effective Date") in full redemption of those shareholders' shares
in the International Small Cap Fund, and
o the immediate liquidation and termination of the International
Small Cap Fund.
2
<PAGE>
As a result of the Reorganization, each shareholder of the
International Small Cap Fund would instead hold International Growth Fund Shares
having the same total value as the shares of the International Small Cap Fund
held immediately before the Reorganization. Lawyers for the International Small
Cap Fund and the International Growth 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 International Small Cap 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 International Small Cap Fund is to seek
long-term capital appreciation by investing in small-cap companies in developed
stock markets outside the United States whose shares have a market value (market
capitalization) profile consistent with the Salomon Smith Barney World Extended
Market Index excluding the United States. (This index had a weighted average
market cap of $2.3 billion and a median market cap of $404 million as of March
31, 1999.) The International Growth Fund's investment objective is to seek
long-term capital appreciation by investing in medium- and large-cap companies
in developed stock markets outside the United States whose shares have a stock
market value of more than $1 billion.
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 International Small Cap Fund and International Growth 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 International Growth Fund and the
International Small Cap Fund (as well as other Montgomery Funds)
dated October 31, 1999
o Combined Statement of Additional Information relating to the
International Small Cap Fund and the International Growth Fund (as
well as other Montgomery Funds) also dated October 31, 1999
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].
3
<PAGE>
The Annual Report to Shareholders of the International Small Cap Fund
and the International Growth Fund for the fiscal year ended June 30, 1999,
containing audited financial statements of the International Small Cap Fund and
the International Growth Fund has 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 __, 2000.
Like all mutual funds, the Securities and Exchange Commission has not approved
or disapproved these securities, nor has it passed on the accuracy or adequacy
of this combined proxy statement and prospectus. It is a criminal offense to
represent otherwise.
4
<PAGE>
TABLE OF CONTENTS
I. INTRODUCTION.............................................................6
A. GENERAL...............................................................6
B. THE PROPOSAL..........................................................6
C. COMPARISON OF EXPENSES................................................7
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 International Growth 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..................................18
5. Portfolio Managers................................................19
6. Distribution and Shareholder Services.............................20
7. Redemption and Exchange Procedures................................20
8. Income Dividends, Capital Gains Distributions and Taxes...........21
9. Portfolio Transactions and Brokerage Commissions..................21
10. Shareholders' Rights..............................................22
C. RISK FACTORS.........................................................22
D. RECOMMENDATION OF THE BOARD OF TRUSTEES..............................23
E. DISSENTERS' RIGHTS OF APPRAISAL......................................23
F. FURTHER INFORMATION ABOUT THE FUND AND THE
ACQUIRING FUND.......................................................23
G. VOTE REQUIRED........................................................24
H. FINANCIAL HIGHLIGHTS.................................................24
III. MISCELLANEOUS ISSUES.................................................27
A. OTHER BUSINESS.......................................................27
B. NEXT MEETING OF SHAREHOLDERS.........................................27
C. LEGAL MATTERS........................................................27
D. EXPERTS..............................................................27
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
International Small Cap 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 of 1940) voted on November 16, 1999, to approve
the Reorganization subject to the approval of the International Small Cap 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 it can increase the managerial efficiencies of these two
funds if they are merged. This is possible since each Fund invests in
well-managed international companies that the Manager believes will be able to
increase their sales and corporate earnings on a sustained basis.
If the proposed Reorganization of the International Small Cap Fund into
the International Growth Fund is approved and completed, the International
Growth Fund's assets will increase, which may create certain economies of scale;
and the International Small Cap Fund will become part of a fund with similar
investment objectives and policies as well as larger assets which may permit it
to operate more efficiently in accordance with its investment policies and
objective.
The International Small Cap Fund sells its Class R shares directly to
the public at net asset value, without any sales load or Rule 12b-1 fee, and
also offers Class P shares that are subject to a 0.25% Rule 12b-1 distribution
fee. Likewise, the International Growth Fund currently offers Class R shares
directly to the public at net asset value, without any sales load or Rule 12b-1
fee, and also offers Class P shares that are subject to a 0.25% Rule 12b-1
distribution fee. If the reorganization is completed, all remaining holders of
Class R and Class P shares of the Equity Income Fund would receive respective
Class R and Class P shares of the International Growth Fund.
B. THE PROPOSAL
At the Shareholder Meeting, the shareholders of the International Small
Cap Fund will be asked to approve the proposed Reorganization of the
International Small Cap Fund into the International Growth Fund. The
Reorganization will include the transfer of substantially all of the assets and
liabilities of the International Small Cap Fund to the International Growth
Fund. The International Small Cap Fund will then be terminated and liquidated.
The investment objective of the International Small Cap Fund is to seek
long-term capital appreciation by investing in small-cap companies in developed
stock markets outside the United States whose shares have a total market value
(market capitalization)
6
<PAGE>
profile consistent with the Salomon Smith Barney World Extended Market Index
excluding the United States. (The index had a weighted average market cap of
$2.3 billion and a median market cap of $404 million as of March 31, 1999.) The
International Growth Fund's investment objective is to seek long-term capital
appreciation by investing in medium- and large-cap companies in developed stock
markets outside the United States whose shares have a stock market value of more
than $1 billion.
Investments in the Funds are subject to substantially similar risks,
with the exception that the International Growth Fund, under normal
circumstances, is not exposed to the types of risks inherent with investments in
small-cap companies since, unlike the International Small Cap Fund, it invests
in medium- and large-cap companies. See Section II.C. below. The purchase and
redemption arrangements of the Funds are identical. The International Growth
Fund and the International Small Cap 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 International Small Cap Fund, the
International Growth Fund and their shareholders, and that the interests of
existing shareholders of the International Small Cap and International Growth
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.
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.
7
<PAGE>
<TABLE>
Fees and Expenses of the Funds
<CAPTION>
Montgomery Montgomery Montgomery
International International International
Small Cap Growth Growth
Fund Fund Fund
---- ---- ----
(Class R Shares) (Current) (Pro Forma)
<S> <C> <C> <C>
Shareholder Fees (fees paid directly from
your investment)
Redemption Fee 0.00% 0.00% 0.00%
Annual Fund Operating Expenses (expenses that
are deducted from Fund assets)+
Management Fee 1.25% 1.10% 1.10%
Distribution/Service (12b-1) Fee 0.00% 0.00% 0.00%
Other Expenses 1.31% 0.64% 0.64%
----- ----- -----
Total Annual Fund Operating Expenses 2.56% 1.74% 1.74%
Fee Reduction and/or Expense
Reimbursement (0.65%) (0.08%) (0.08%)
------- ------- -------
Net Expenses 1.91% 1.66% 1.66%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Montgomery Montgomery Montgomery
International International International
Small Cap Growth Growth
Fund Fund Fund
---- ---- ----
(Class P Shares) (Current) (Pro Forma)
<S> <C> <C> <C>
Shareholder Fees (fees paid directly from
your investment)
Redemption Fee 0.00% 0.00% 0.00%
Annual Fund Operating Expenses (expenses that
are deducted from Fund assets)+
Management Fee 1.25% 1.10% 1.10%
Distribution/Service (12b-1) Fee 0.25% 0.25% 0.25%
Other Expenses 1.31% 0.64% 0.64%
----- ----- -----
Total Annual Fund Operating Expenses 2.81% 1.96% 1.96%
Fee Reduction and/or Expense
Reimbursement (0.65%) (0.08%) (0.08%)
------- ------- -------
Net Expenses 2.16% 1.91% 1.91%
===== ===== =====
<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 1.90% for the International Small Cap Fund
and 1.65% for the International Growth Fund. The contractual limit immediately
after the Reorganization will be 1.65%. This contract has a ten-year term. See
Section II.B.4. for a discussion of fees reduced and expenses reimbursed that
may be recouped by the Manager.
</FN>
</TABLE>
Example of Fund expenses: This example is intended to help you compare the cost
of investing in the Funds with the cost of investing in other mutual funds. The
table below shows what you would pay in expenses over time, whether or not you
sold your shares at the end of each period. It assumes a $10,000 initial
investment, 5% total return each year and the changes specified above. This
example is for comparison purposes only. It does not necessarily represent the
Funds' actual expenses or returns.
8
<PAGE>
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Small Cap Fund (Class R shares) $193 $599 $1,029 $2,223
- --------------------------------------------------------------------------------------------------------------
International Small Cap Fund (Class P shares) $218 $674 $1,156 $2,481
==============================================================================================================
International Growth Fund (Class R shares) $168 $522 $900 $1,958
- --------------------------------------------------------------------------------------------------------------
International Growth Fund (Class P shares) $193 $599 $1,029 $2,223
</TABLE>
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
seventeen 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 International
Small Cap Fund 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, the International Small Cap Fund has issued only Class R and Class P
shares. The International Growth 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, the International Growth Fund has issued
only Class R and Class P shares.
The International Small Cap Fund's Class R and Class P shareholders
will receive respective Class R and Class P shares of the International Growth
Fund in exchange for their shares if the Reorganization is approved and
completed. Information about Class L shares of the International Growth Fund is
contained in the Funds' Combined Statement of Additional Information.
Each whole or fractional share of the International Small Cap Fund is
entitled to one vote or corresponding fraction at the Shareholder Meeting. At
the close of business on December __, 1999, the record date for the
determination of shareholders entitled to vote at the Shareholder Meeting (the
"Record Date"), there were __________ shares outstanding held by __________
record holders (including omnibus accounts representing multiple underlying
beneficial owners such as those in the names of brokers).
All shares represented by each properly signed proxy received before
the meeting will be voted at the 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
9
<PAGE>
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 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 International Small Cap 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
at the Meeting 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 a vote "for" or "against" and are disregarded in determining whether
the proposal has received enough votes.
As of the Record Date, the International Small Cap Fund's shareholders
of record and (to the Trust's knowledge) beneficial owners who owned more than
five percent of the Fund's Class R and Class P shares are as follows:
Percentage of the International Percentage of the International
Small Cap Fund's Outstanding Small Cap Fund's Outstanding
Shareholder Class R Shares Class P Shares
- --------------------------------------------------------------------------------
[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 International Small Cap Fund as of the Record Date.]
10
<PAGE>
II. THE PROPOSAL
A. DESCRIPTION OF THE PROPOSED REORGANIZATION
1. The Reorganization
If the Reorganization is approved, on the Effective Date the
International Growth Fund will acquire substantially all of the assets and
liabilities of the International Small Cap Fund. At that time, the International
Growth Fund will issue to the International Small Cap Fund the number of
International Growth Fund Class R and Class P Shares determined by dividing the
value of the net assets of the Class R and Class P Shares of the International
Small Cap Fund so transferred by the net asset value of one International Growth
Fund Class R Share and one International Growth Fund Class P Share,
respectively. The net asset value of the International Growth Fund and the net
asset value of the International Small Cap 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, 1999.
At the same time as that asset transfer, the International Small Cap
Fund will distribute the International Growth Fund Shares it receives pro rata
to each remaining shareholder of the International Small Cap Fund based on the
percentage of the outstanding shares of the International Small Cap Fund held of
record by that shareholder on the Valuation Date. For example, on June 30, 1999,
the value of the aggregate net assets of the International Small Cap Fund was
approximately $38,057,000. The Class R International Small Cap Fund Shares were
valued at $14.49 per share and the Class P shares at $14.42 per share. The net
asset value of each International Growth Fund Class R Share was $18.97 and each
Class P Share was $18.92 per share. Therefore, if the Effective Date had been
June 30, 1999, the International Small Cap Fund would then have redeemed each of
its then outstanding Class R shares in exchange for .764 Class R International
Growth Fund Shares and each of its then outstanding Class P Shares in exchange
for .762 Class P International Growth Fund Shares.
This distribution of the International Growth Fund Class R and Class P
Shares to the International Small Cap Fund's shareholders will be accomplished
by the establishment of accounts on the International Growth Fund's share
records in the names of those shareholders, representing the respective pro rata
number of International Growth Fund Shares deliverable to them. Fractional
shares will be carried to the third decimal place. Certificates evidencing the
International Growth Fund Shares will not be issued to the International Small
Cap Fund's shareholders.
Immediately following the International Small Cap Fund's pro rata
liquidating distribution of the International Growth Fund Shares to the
International Small Cap Fund shareholders, the International Small Cap Fund will
liquidate and terminate.
11
<PAGE>
Completion of the Reorganization is subject to approval by the
shareholders of the International Small Cap 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 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 International Small Cap Fund's
shareholders and completed, shareholders of the International Small Cap Fund as
of the Effective Date will become shareholders of the International Growth Fund.
The total net asset value of the International Growth Fund Shares held by each
Shareholder of the International Small Cap Fund immediately after completion of
the Reorganization will be equivalent to the total net asset value of the
International Small Cap Fund Shares held by that same shareholder immediately
before completion of the Reorganization.
On or before the Effective Date the International Small Cap Fund
intends to distribute all of its then-remaining net investment income and
realized capital gains.
After the Reorganization, the investment adviser for the International
Growth Fund will continue to be Montgomery Asset Management, LLC. Funds
Distributor, Inc. will continue to be the International Growth Fund's
Distributor. The International Growth 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 International Small
Cap Fund and the International Growth Fund must receive a favorable opinion from
Paul, Hastings, Janofsky & Walker LLP, counsel to the International Small Cap
Fund and the International Growth Fund, substantially to the effect that, for
federal income tax purposes: (a) the transfer by the International Small Cap
Fund of substantially all of its assets and liabilities to the International
Growth Fund solely in exchange for the International Growth 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 International Small Cap Fund upon the transfer of
substantially all of its assets to the International Growth Fund in exchange
solely for shares of the International Growth Fund Shares; (c) no gain or loss
will be recognized by the International Growth Fund on receipt of the
International Small Cap
12
<PAGE>
Fund's assets in exchange for the International Growth Fund Shares; (d) the
aggregate tax basis of the assets of the International Small Cap Fund in the
hands of the International Growth Fund is, in each instance, the same as the
basis of those assets in the hands of the International Small Cap Fund
immediately before the transaction; (e) the holding period of the International
Small Cap Fund's assets in the hands of the International Growth Fund includes
the period during which the assets were held by the International Small Cap
Fund; (f) no gain or loss is recognized to the shareholders of the International
Small Cap Fund upon the receipt of the International Growth Fund Shares solely
in exchange for the International Small Cap Fund's shares; (g) the basis of the
International Growth Fund Shares received by the International Small Cap Fund
shareholders is, in each instance, the same as the basis of the International
Small Cap Fund shares surrendered in exchange therefor; and (h) the holding
period of the International Growth Fund Shares received by the International
Small Cap Fund shareholders includes the holding period during which shares of
the International Small Cap Fund were held, provided that those shares were held
as a capital asset in the hands of the International Small Cap 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 International Growth Fund Shares
Each International Growth Fund Share issued to International Small Cap
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
International Growth Fund Share will represent an equal interest in the assets
of the International Growth Fund. The International Growth Fund Shares will be
sold and redeemed based upon the net asset value of the International Growth
Fund next determined after receipt of the purchase or redemption request, as
described in the International Growth Fund's Prospectus.
5. Capitalization
<TABLE>
The capitalization of the Funds as of December 31, 1999, and their pro
forma combined capitalization as of that date after giving effect to the
proposed Reorganization are as follows:
<CAPTION>
International International
Growth Small Cap Pro Forma
Fund Fund Combined
-----------------------------------------------------------------
<S> <C> <C> <C>
Aggregate net assets
Shares outstanding*
Net asset value per share:
Class R shares
Class P shares
<FN>
- ---------------------------------------
* Each Fund is authorized to issue an indefinite number of shares.
</FN>
</TABLE>
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 International Small Cap Fund is to seek
long-term capital appreciation by investing in small-cap companies in developed
stock markets outside the United States whose shares have a stock market value
(market capitalization) profile consistent with the Salomon Smith Barney World
Extended Market Index (the "Index") excluding the United States. (This Index had
a weighted average market cap of $2.3 billion and a median market cap of $404
million on March 31, 1999.)
The equity securities in which the International Small Cap Fund invests
generally consist of common stock, preferred stock and securities convertible
into or exchangeable for common or preferred stock. Under normal conditions, at
least 65% of the value of the International Small Cap Fund's total assets will
be invested in the stocks of companies outside the United States whose shares
have a market capitalization profile consistent with the Index. The Fund
typically invests most of its assets in the developed stock markets of western
Europe and Asia, particularly the United Kingdom, France, Germany, Italy, Sweden
and Japan. The Fund invests in at least three different countries outside the
United States, with no more than 40% of its assets in any one country.
In selecting investments for the International Small Cap Fund, the
Manager generally seeks well-managed, small-cap companies that it believes will
be able to increase sales and corporate earnings on a sustained basis. The
Manager must consider the shares of these companies to be under- or reasonably
valued relative to their long-term prospects and favors companies that it
believes have a competitive advantage, offer innovative products or services and
may profit from such trends as deregulation and privatization. On a strategic
basis, the Fund's assets may be allocated among countries in an attempt to take
advantage of market trends. The Manager and the Fund's analysts frequently
travel to the countries in which the Fund invests or may invest to gain
firsthand insight into the economic, political and social trends that affect
investments in those countries.
The International Growth Fund has identical investment objective and
policies except that it invests in international companies whose shares have a
stock market value of more than $1 billion.
2. Investment Restrictions
Both the International Growth Fund and the International Small Cap 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
14
<PAGE>
the Investment Company Act. Neither the International Growth Fund nor the
International Small Cap 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 Fund would be invested in such issuer. There
are no limitations with respect to the 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, (b)
through the lending of up to 30% of its portfolio securities as described above
and in the Combined Statement of Additional Information, (c) to the extent the
entry into a repurchase agreement or a reverse dollar roll transaction is deemed
to be a loan.
(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.
Transactions that are fully collateralized in a manner that does not involve the
prohibited issuance of a "senior security" within the meaning of Section 18(f)
of the Investment Company Act shall not be regarded as borrowings for the
purposes of this restriction.
(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 Fund from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities or from
engaging in transactions that are fully collateralized in a manner that does not
involve the prohibited issuance of a "senior security" within the meaning of
Section 18(f) of the Investment Company Act.)
(5) Buy or sell real estate or commodities or commodity contracts;
however the Fund, 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.
15
<PAGE>
(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 the Fund. (This is an operating policy
which may be changed without shareholder approval, consistent with the
Investment Company Act, and changes in relevant SEC interpretations).
(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 Fund generally relies
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 the Fund 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 unless:
(a) such options are written by other persons or are put
options written with respect to securities
representing 25% or less of the Fund's total assets,
and
(b) the aggregate premiums paid on all such options which
are held at any time do not exceed 5% of the Fund's
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.)
16
<PAGE>
(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 the investments are (a) for bona fide hedging purposes
within the meaning of CFTC regulations or (b) for other than bona fide hedging
purposes if, as a result thereof, no more than 5% of the 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.
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.
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
1999 Return Through 9/30/99: 0.00% 1999 Return Through 9/30/99: -2.38%
*During the five-year period described above in the bar chart, the International
Small Cap Fund's best quarter was Q1 1998 (+19.64%) and its worst quarter was Q3
1998 (-16.45%).
**During the three-year period described above in the bar chart, the
International Growth Fund's best quarter was Q4 1998 (+23.03%) and its worst
quarter was Q3 1998 (-17.17%).
17
<PAGE>
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
1999 Return Through 9/30/99: -0.29% 1999 Return Through 9/30/99: -2.44%
*During the one-year period described above in the bar chart, the International
Small Cap Fund's best quarter was Q1 1998 (+19.64%) and its worst quarter was Q3
1998 (-16.52%).
**During the two-year period described above in the bar chart, the International
Growth Fund's best quarter was Q4 1998 (+23.14%) and its worst quarter was Q3
1998 (-17.24%).
<TABLE>
Average Annual Returns through 12/31/98
<CAPTION>
Inception Inception
1 Year 5 Years (9/30/93) (6/9/97)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Small Cap Fund - Class R 10.58% 4.09% 6.41% N/A
- -------------------------------------------------------------------------------------------------------------
International Small Cap Fund - Class P 10.33% N/A N/A -1.66%
- -------------------------------------------------------------------------------------------------------------
Salomon Smith Barney World Extended (ex-U.S.)
Market Index 12.15% 4.46% 3.68% -0.79%+
- -------------------------------------------------------------------------------------------------------------
<FN>
+ Calculated from 5/31/97
</FN>
</TABLE>
<TABLE>
<CAPTION>
Inception Inception
1 Year 5 Years (7/3/95) (3/11/96)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Growth Fund - Class R 28.690 N/A 20.34% N/A
- -------------------------------------------------------------------------------------------------------------
International Growth Fund - Class P 28.65% N/A N/A 20.14%
- -------------------------------------------------------------------------------------------------------------
MSCI EAFE Index 20.00% N/A 10.18%++ 9.27%+
- -------------------------------------------------------------------------------------------------------------
<FN>
+ Calculated from 2/8/96
++Calculated from 6/30/95
</FN>
</TABLE>
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 contractual management fee rate for the International
Growth Fund is lower than the effective rate for the International Small Cap
Fund. The
18
<PAGE>
International Growth Fund pays the Manager a management fee (accrued daily but
paid when requested by the Manager) calculated at an annualized rate of 1.10% of
the first $500 million of the average daily net assets of the International
Growth Fund, plus 1.00% for average daily net assets of the next $500 million,
plus 0.90% of net assets over $1 billion. The International Small Cap Fund pays
the Manager a management fee (accrued daily but paid when requested by the
Manager) calculated at an annualized rate of 1.25% for the first $250 million of
the average daily net assets plus 1.00% of net assets over $250 million.
The total annual expense limitation of the International Growth Fund
(1.65%) is lower than that of the International Small Cap Fund (1.90%). The
Manager agreed to those expense limitations (excluding interest and taxes) under
a contract with a ten-year term. 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
retain the annual expense limitation on the International Growth Fund to 1.65%.
This means that shareholders of the International Small Cap Fund would not face
increased expenses as a result of the Reorganization.
For the fiscal year ended June 30, 1999, the Manager received
management fees of approximately $2,215,164 from the International Growth Fund.
Of these fees, the Manager reduced its fee or reimbursed expenses of the
International Growth Fund equal to approximately $160,139. The Manager accrued
management fees of approximately $855,638 from the International Small Cap Fund.
Of these fees, the Manager reduced its fee or reimbursed expenses of the
International Small Cap Fund equal to approximately $299,803. The Manager may
seek reimbursement for that amount instead from the International Growth Fund
after 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 September
30, 1999, the Manager managed approximately $3.9 billion on behalf of some
200,000 investors in The Montgomery Funds.
JOHN BOICH, CFA, senior portfolio manager for the International Small Cap Fund
(since 1993) and the International Growth Fund (since 1995). Mr. Boich joined
Montgomery in 1993 as a senior portfolio manager and managing director. From
1991 to 1993, he was vice president and portfolio manager at The Boston Company
Institutional Investors, Inc. From 1989 to 1990, he was co-founder and
co-manager of The Common Goal World Fund, a global equity partnership.
19
<PAGE>
OSCAR CASTRO, CFA, senior portfolio manager for the International Growth Fund
(since 1995). Mr. Castro joined Montgomery in 1993 as a senior portfolio manager
and managing director. From 1991 to 1993, he was a vice president and portfolio
manager at G.T. Capital Management, Inc. From 1989 to 1990, he was co-founder
and co-manager of The Common Goal World Fund, a global equity partnership.
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 have adopted a Share Marketing Plan (the "Plan") under Rule
12b-1.
Neither Fund currently offers Class L shares.
The Class R shares of the International Growth 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 $1,000, 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 each Fund 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.
Each Fund 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 $1,000 due to redemptions or if purchases through a systematic
investment plan fails to meet that Fund's 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 Fund other instructions, the
Fund will redeem the shares and send the shareholder the proceeds.
Montgomery shareholders may exchange Class R and Class P shares in one
Fund for respective Class R and Class 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
20
<PAGE>
makes more than four exchanges out of any one Fund during a twelve-month period
and to refuse an exchange into a Fund from which a shareholder has redeemed
shares within the previous 90 days (accounts under common ownership or control
and accounts with the same 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 each Fund's 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. Each Fund may pay to those securities broker-dealers who
provide brokerage and research service to the Manager a higher commission than
that charged by other securities broker-dealers if the Manager 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.
21
<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 each Fund entitled to one vote for each full share of
that Fund (and a fractional vote for each fractional share) held in the
shareholder's name on the books of that Fund 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 International Small Cap 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 Fund--may fluctuate significantly more in
value than larger-cap stocks and funds that focus on them. The International
Growth Fund emphasizes medium- and large-cap companies whose shares have a
greater stock market value than the companies emphasized by the International
Small Cap Fund. Therefore, the International Growth Fund tends to provide
greater stability than the International Small Cap Fund. However, by investing
primarily in foreign stocks, both Funds may expose shareholders to additional
risks. Foreign stock markets tend to be more volatile than the U.S. market due
to economic and political instability and regulatory conditions in some
countries. In addition, most of the securities in which the Funds invest are
denominated in foreign currencies, whose values may decline against the United
States dollar. See the Combined Prospectus and Statement of Additional
Information for more information on the risks of the International Growth Fund.
22
<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
International Small Cap Fund and the International Growth Fund and that the
interests of the existing shareholders of the International Small Cap and
International Growth Funds would not be diluted thereby. The Board specifically
considered the following factors:
1. That the Manager's international equity portfolio
management team could better serve shareholders by
managing a single international 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
International Growth Fund by adding the International
Small Cap 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 International Small Cap 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 International Small Cap
Fund at net asset value or to exchange their shares for shares of the other
Funds offered by the Trust (including the International Growth Fund) without
charge. After the Reorganization, shareholders of the International Small Cap
Fund will hold shares of the International Growth Fund, which may also be
redeemed at net asset value in accordance with the procedures described in the
International Growth Fund's Prospectus dated October 31, 1999, subject to
applicable redemption procedures.
F. FURTHER INFORMATION ABOUT THE ACQUIRED FUND AND THE ACQUIRING FUND
Further information about the International Small Cap Fund and the
International Growth Fund is contained in the following documents:
o Combined Prospectus dated October 31, 1999.
o Combined Statement of Additional Information also dated October
31, 1999.
23
<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 International Small Cap Fund
present or voting by proxy at the Shareholder Meeting. If the shareholders of
the International Small Cap 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 International Small Cap Fund and its shareholders, including liquidation,
subject to approval by the shareholders of the International Small Cap Fund if
required by applicable law.
H. FINANCIAL HIGHLIGHTS
The following selected per-share data and ratios for the period ended
June 30, 1999, were audited by ___________________________. Their August 18,
1999, report appears in the 1999 Annual Report of the Funds. Information for the
periods ended June 30, 1995 through June 30, 1997, was audited by other
independent accountants. Their report is not included here.
24
<PAGE>
<TABLE>
<CAPTION>
International Growth Fund International Small Cap Fund
(Class R Shares) (Class R Shares)
SELECTED PER-SHARE DATA FOR THE YEAR OR
PERIOD ENDED JUNE 30: 1999 1998## 1997## 1996(a) 1999## 1998## 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value-beginning of year $18.67 $16.24 $15.31 $12.00 $15.14 $17.16 $14.86 $11.75 $12.02
Net investment income/(loss) 0.09 0.04 0.08 0.02 0.01 (0.01) (0.05) 0.03 0.12
Net realized and unrealized gain/(loss)
on investments 0.31 3.48 2.53 3.29 (0.65) 0.31 2.35 3.10 (0.39)
Net increase/(decrease) in net assets
resulting from investment operations 0.40 3.52 2.61 3.31 (0.64) 0.30 2.30 3.13 (0.27)
Distributions:
Dividends from net investment income -- (0.02) -- -- -- -- -- (0.02) (0.00)#
Distributions in excess of net
investment income -- (0.00)# -- -- (0.01) (0.13) -- -- --
Distributions from net realized capital
gains (0.10) (1.07) (1.68) -- -- (2.19) -- -- --
Distributions in excess of net
realized capital gains -- -- -- -- -- -- -- --
Total distributions (0.10) (1.09) (1.68) -- (0.01) (2.32) -- (0.02) (0.00)#
Net asset value-beginning of year $18.97 $18.67 $16.24 $15.31 $14.49 $15.14 $17.16 $14.86 $11.75
====================================================================================================================================
Total return** 2.34% 23.27% 19.20% 27.58% (3.82)% 4.46% 15.48% 26.68% (2.23)%
Ratios to average net assets/supplemental
data
Net assets, end of year (in 000s) $227,287 $64,820 $33,912 $ 18,303 $38,054 $50,491 $53,602 $41,640 $28,516
Ratio of net investment income/(loss) to
average net assets 0.41% 0.22% 0.57% 0.26%+ 0.07% (0.03)% (0.34)% 0.20% 0.95%
Net investment income/(loss) before
deferral of fees by Manager $0.09 $(0.04) $(0.02) $(0.07) $0.01 $(0.10) $(0.14) $(0.08) $0.05
Portfolio turnover rate 150% 127% 95% 239% 117% 111% 85% 177% 156%
Expense ratio before deferral of fees by
Manager, including interest and tax
expense 1.74% 2.13% 2.37% 2.91%+ 2.56% 2.53% 2.60% 2.76% 2.50%
Expense ratio including interest and tax
expense 1.66% 1.66% -- -- 1.91% 1.92% -- 1.96% 1.91%
Expense ratio excluding interest and tax
expense 1.65% 1.65% 1.66% 1.65%+ 1.90% 1.90% 1.90% 1.90% 1.90%
<FN>
(a) The International Growth Fund's Class R shares commenced operations on July 3, 1995.
** Total return represents aggregate total return for the periods indicated.
+ Annualized.
# 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, since the use of the undistributed income method did not accord with the results of operations.
</FN>
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
International Growth Fund International Small Cap Fund
(Class P Shares) (Class P Shares)
SELECTED PER-SHARE DATA FOR THE YEAR OR PERIOD
ENDED JUNE 30: 1999 1998## 1997## 1996 (a) 1999## 1998## 1997(b)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value--beginning of year $18.64 $16.22 $15.31 $13.66 $15.13 $17.16 $16.96
Net investment income/(loss) 0.12 (0.01) 0.05 0.00# (0.02)++ (0.05) 0.00#
Net realized and unrealized gain/(loss) on
investments 0.26 3.50 2.54 1.65 (0.69) 0.30 0.20
Net increase/(decrease) in net assets resulting
from investment operations 0.38 3.49 2.59 1.65 (0.71) 0.25 0.20
Distributions:
Dividends from net investment income -- -- -- -- -- -- --
Distributions in excess of net investment
income -- 0.00# -- -- -- (0.09) --
Distributions from net realized capital gains (0.10) (1.07) (1.68) -- -- (2.19) --
Distributions in excess of net realized
capital gains -- -- -- -- -- -- --
Total distributions (0.10) (1.07) (1.68) -- -- (2.28) --
Net asset value--end of year $18.92 $18.64 $16.22 $15.31 $14.42 $15.13 $17.16
====================================================================================================================================
Total return** 2.18% 23.03% 19.13% 12.08% (4.03)% 4.13% 1.18%
Ratios to average net assets/supplemental data
Net assets, end of year (in 000s) $2,352 $5 $5 $1 $3 $5 $15
Ratio of net investment income/(loss) to
average net assets 0.16% (0.03)% 0.32% 0.01%+ (4.03)% 4.13% 1.18%
Net investment income/(loss) before deferral of
fees by Manager $0.12 $(0.08) $(0.06) $(0.05) + $(0.03) $(0.16) $(0.01)
Portfolio turnover rate 150% 127% 95% 139% 117% 111% 85%
Expense ratio before deferral of fees by
Manager, including interest and tax expense 1.99% 2.38% 2.62% 3.16%+ 2.81% 2.78% 2.85%+
Expense ratio including interest and tax expense 1.91% 1.91% -- -- 2.16% 2.17% --
Expense ratio excluding interest and tax expense 1.90% 1.90% 1.91% 1.90%+ 2.15% 2.15% 2.15%+
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) The International Growth Fund's Class P shares commenced operations on March 11, 1996.
(b) The International Small Cap Fund's Class P shares commenced operations on June 9, 1997.
** 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, since the use of the undistributed income method did not accord with results of operations.
</FN>
</TABLE>
26
<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 International Small Cap 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 as to the tax-free character of the
Reorganization and the valid issuance of the International Growth Fund shares
have been or will be passed upon for the Trust by Paul, Hastings, Janofsky &
Walker LLP.
D. EXPERTS
The financial statements of the Montgomery International Small Cap Fund
for the year ended June 30, 1999, contained in the Trust's 1999 Annual Report to
Shareholders, and the financial statements of the Montgomery International
Growth Fund for the year ended June 30, 1999, contained in the Trust's 1999
Annual Report to Shareholders, have been audited by __________________________,
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).
27
<PAGE>
PROXY
FOR SPECIAL MEETING OF SHAREHOLDERS OF
MONTGOMERY INTERNATIONAL SMALL CAP FUND
ON FEBRUARY __, 2000
The undersigned hereby appoints Johanne Castro and Dulce Daclison, 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
International Small Cap Fund (the "International Small Cap Fund") of The
Montgomery Funds (the "Trust"), which the undersigned is entitled to vote at the
Special Meeting of Shareholders of the International Small Cap Fund to be held
on February __, 2000 and at any adjournment thereof.
o Proposal to approve or disapprove a reorganization of the
International Small Cap Fund providing for (i) the transfer of
substantially all of the assets and liabilities of the
International Small Cap Fund to the Montgomery International
Growth Fund (the "International Growth Fund"), a separate series
of the Trust, in exchange for shares of the International Growth
Fund (the "International Growth Fund Shares") of equivalent value,
(ii) the pro rata distribution of those International Growth Fund
Shares to the shareholders of the International Small Cap Fund in
full redemption of those shareholders' shares in the International
Small Cap Fund, and (iii) the immediate liquidation and
termination of the International Small Cap 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: ___________________, 2000
----------------------------------
Signature of Shareholder
----------------------------------
Signature of Shareholder
When shares are registered jointly in the names of two or more persons, ALL must
sign. Signature(s) must correspond exactly with the name(s) shown. Please sign,
date and return promptly in the enclosed envelope.
2
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of this __ day of ___________, 1999, by The Montgomery Funds, a Massachusetts
business trust, for itself and on behalf of the Montgomery International Growth
Fund (the "Acquiring Fund"), a series of The Montgomery Funds ("TMF"), and on
behalf of the International Small Cap 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 and Class P shares of the Acquiring Fund (collectively, "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 (i) dividing (a) the net asset value of
the Acquired Fund Assets attributable to the Class R shares of the Acquired Fund
("Acquired Class R Shares"), net of the Acquired Fund's Stated Liabilities
attributable to the Acquired Class R Shares, 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., and by (ii) dividing the net asset value
of the Acquired Fund Assets attributable to the Class P shares of the Acquired
Fund ("Acquired Class P Shares"), net of the Acquired Fund's Stated Liabilities
attributable to the Acquired Class P Shares, 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 P 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 respective Class
R and Class P shareholders of the Acquired Fund in liquidation
1
<PAGE>
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 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 Fund 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
2
<PAGE>
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 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.
3
<PAGE>
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. CLOSING(S) AND CLOSING DATE
3.l The Closing for the Reorganization shall occur on February __,
2000, 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
<PAGE>
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.
4.4 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, 1999, audited by
_____________________ (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, 1999, audited by
___________________ (copies of which have been or will be furnished to
the Acquiring Fund) fairly present, in all material respects, the
Acquired Fund's financial condition as of such date and its results of
operations for such period in accordance with generally accepted
accounting principles consistently applied, and as of such date there
were no liabilities of the Acquired Fund (contingent or otherwise)
known to TMF that were not disclosed therein but that would be required
to be disclosed therein in accordance with generally accepted
accounting principles;
(f) Since the date of the most recent audited financial
statements, there has not been any material adverse change in the
Acquired Fund's financial condition, assets, liabilities or business,
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred, except as otherwise
disclosed in writing to and accepted by the Acquiring Fund, prior to
the Closing Date (for the purposes of this subparagraph (f), neither a
decline in the Acquired Fund's net asset value per share nor a decrease
in the Acquired Fund's size due to redemptions shall be deemed to
constitute a material adverse change);
(g) All federal and other tax returns and reports of TMF and
the Acquired Fund required by law to be filed on or before the Closing
Date shall have been filed, and all taxes owed by TMF or the Acquired
Fund shall have been paid so far as due, and to the best of TMF's
knowledge, no such return is currently under audit and no assessment
has been asserted with respect to any such return;
9
<PAGE>
(h) For each full and partial taxable year from its inception
through the Closing Date, the Acquired Fund has qualified as a separate
regulated investment company under the Code and has taken all necessary
and required actions to maintain such status;
(i) At the Closing Date, the Acquired Fund will have good and
marketable title to the Fund Assets and full right, power and authority
to assign, deliver and otherwise transfer such Fund Assets hereunder,
and upon delivery and payment for such Fund Assets as contemplated
herein, the Acquiring Fund will acquire good and marketable title
thereto, subject to no restrictions on the ownership or transfer
thereof other than such restrictions as might arise under the 1933 Act;
(j) The execution, delivery and performance of this Agreement
on behalf of the Acquired Fund will have been duly authorized prior to
the Closing Date by all necessary action on the part of TMF, the
Trustees and the Acquired Fund, and this Agreement will constitute a
valid and binding obligation TMF and the Acquired Fund enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, arrangement, moratorium and other similar
laws of general applicability relating to or affecting creditors,
rights and to general equity principles;
(k) From the effective date of the Registration Statement,
through the time of the meeting of the Acquired Fund Investors, and on
the Closing Date, the Proxy Materials (exclusive of the portions of the
Acquiring Fund's Prospectus contained or incorporated by reference
therein, and exclusive of any written information furnished by TMF with
respect to the Acquiring Fund): (i) will comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act
and the 1940 Act and the regulations thereunder and (ii) do not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and as of such dates and times, any written
information furnished by TMF, on behalf of the Acquired Fund, for use
in the Registration Statement or in any other manner that may be
necessary in connection with the transactions contemplated hereby does
not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the information provided not
misleading; and
(1) No governmental consents, approvals, authorizations or
filings are required under the 1933 Act, the 1934 Act, the 1940 Act or
Massachusetts law for the execution of this Agreement by TMF, for
itself and on behalf of the Acquired Fund, or the performance of the
Agreement by TMF for itself and on behalf of the Acquired Fund, except
for such consents, approvals, authorizations and filings as have been
made or received, and except for such consents, approvals,
authorizations and filings as may be required subsequent to the Closing
Date.
10
<PAGE>
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRED FUND
The obligations of TMF to consummate the Reorganization with respect to
the Acquired Fund shall be subject to the performance by TMF, for itself and on
behalf of the Acquiring Fund, of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the following
conditions with respect to the Acquiring Fund:
6.1 All representations and warranties of TMF with respect to the
Acquiring Fund contained herein shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated herein, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date.
6.2 TMF, on behalf of the Acquiring Fund, shall have delivered to the
Acquired Fund at the Closing a certificate executed on behalf of the Acquiring
Fund by TMF's President, Vice President, Assistant Vice President, Secretary or
Assistant Secretary in a form reasonably satisfactory to the Acquired Fund and
dated as of the Closing Date, to the effect that the representations and
warranties of TMF with respect to the Acquiring Fund made herein are true and
correct at and as of the Closing Date, except as they may be affected by the
transactions contemplated herein, and as to such other matters as the Acquired
Fund shall reasonably request.
6.3 Unless waived by the Acquired Fund, the Acquired Fund shall have
received at the Closing a favorable opinion of Paul, Hastings, Janofsky & Walker
LLP, counsel to TMF, dated as of the Closing Date, in a form reasonably
satisfactory to the Acquired Fund, substantially to the effect that:
(a) TMF is a duly registered, open-end, management investment
company, and its registration with the SEC as an investment company
under the 1940 Act is in full force and effect; (b) the Acquiring Fund
is a separate portfolio of TMF, which is a business trust duly created
pursuant to its Agreement and Declaration of Trust, is legally existing
and in good standing under the laws of the Commonwealth of
Massachusetts, and the Agreement and Declaration of Trust directs the
Trustees to manage the affairs of TMF and grants them all powers
necessary or desirable to carry out such responsibility, including
administering TMF's business as described in the current prospectuses
of TMF; (c) this Agreement has been duly authorized, executed and
delivered by TMF on behalf of TMF and the Acquiring Fund and, assuming
due authorization, execution and delivery of this Agreement on behalf
of the Acquired Fund, is a valid and binding obligation of TMF,
enforceable against TMF in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, arrangement,
moratorium and other similar laws of general applicability relating to
or affecting creditors, rights and to general equity principles; (d)
the Acquiring Fund Shares to be issued to the Acquired Fund and then
distributed to the Acquired Fund Investors pursuant to this Agreement
are duly registered under the 1933 Act on the appropriate form, and are
duly authorized and upon such issuance will be validly issued and
outstanding and fully paid and non-
11
<PAGE>
assessable, and no shareholder of the Acquiring Fund has any preemptive
rights to subscription or purchase in respect thereof; (e) the
Registration Statement has become effective with the SEC and, to the
best of such counsel's knowledge, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or threatened; (f) no
consent, approval, authorization, filing or order of any court or
governmental authority of the United States or any state is required
for the consummation of the Reorganization with respect to the
Acquiring Fund, except for such consents, approvals, authorizations and
filings as have been made or received, and except for such consents,
approvals, authorizations and filings as may be required after the
Closing Date; and (g) to the best knowledge of such counsel, no
litigation or administrative proceeding or investigation of or before
any court or governmental body is presently pending or threatened as to
TMF or the Acquiring Fund or any of their properties or assets and
neither TMF nor the Acquiring Fund is a party to or subject to the
provisions of any order, decree or judgment of any court or
governmental body that materially and adversely affects its business.
6.4 As of the Closing Date, there shall have been no material change in
the investment objective, policies and restrictions nor any material change in
the investment management fees, fee levels payable pursuant to any 12b-1 plan of
distribution, other fees payable for services provided to the Acquiring Fund,
fee waiver or expense reimbursement undertakings, or sales loads of the
Acquiring Fund from those fee amounts, undertakings and sales load amounts
described in the prospectus of the Acquiring Fund delivered to the Acquired Fund
pursuant to paragraph 4.1 and in the Proxy Materials.
6.5 With respect to the Acquiring Fund, the Board of Trustees of TMF
shall have determined that the Reorganization is in the best interests of the
Acquiring Fund and that the interests of the existing shareholders of the
Acquiring Fund would not be diluted as a result of the Reorganization.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRING FUND
The obligations of TMF to consummate the Reorganization with respect to
the Acquiring Fund shall be subject to the performance by TMF of all the
obligations to be performed by it hereunder, with respect to the Acquired Fund,
on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of TMF with respect to the
Acquired Fund contained herein shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date, with the
same force and effect as if made on and as of the Closing Date.
7.2 TMF, on behalf of the Acquired Fund, shall have delivered to the
Acquiring Fund at the Closing a certificate executed on behalf of the Acquired
Fund, by TMF's President, Vice President, Assistant Vice President, Secretary or
Assistant Secretary, in form and
12
<PAGE>
substance satisfactory to the Acquiring Fund and dated as of the Closing Date,
to the effect that the representations and warranties of TMF with respect to the
Acquired Fund made herein are true and correct at and as of the Closing Date,
except as they may be affected by the transactions contemplated herein and as to
such other matters as the Acquiring Fund shall reasonably request.
7.3 Unless waived by the Acquiring Fund, the Acquiring Fund shall have
received at the Closing a favorable opinion from Paul, Hastings, Janofsky &
Walker LLP, counsel to TMF, dated as of the Closing Date, in a form reasonably
satisfactory to the Acquiring Fund, substantially to the effect that:
(a) TMF is a duly registered, open-end, management investment
company, and its registration with the SEC as an investment company
under the 1940 Act is in full force and effect; (b) the Acquired Fund
is a separate portfolio of TMF, which is a business trust duly created
pursuant to its Agreement and Declaration of Trust, is validly existing
and in good standing under the laws of the Commonwealth of
Massachusetts, and the Agreement and Declaration of Trust directs the
Trustees to manage the affairs of TMF and grants them all powers
necessary or desirable to carry out such responsibility, including
administering TMF's business as described in the current prospectuses
of TMF; (c) this Agreement has been duly authorized, executed and
delivered by TMF on behalf of TMF and the Acquired Fund and, assuming
due authorization, execution and delivery of this Agreement on behalf
of the Acquiring Fund, is a valid and binding obligation of TMF,
enforceable against TMF in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, arrangement,
moratorium and other similar laws of general applicability relating to
or affecting creditors, rights and to general equity principles; (d) no
consent, approval, authorization, filing or order of any court or
governmental authority of the United Sates or any state is required for
the consummation of the Reorganization with respect to the Acquired
Fund, except for such consents, approvals, authorizations and filings
as have been made or received, and except for such consents, approvals,
authorizations and filings as may be required subsequent to the Closing
Date; and (e) to the best knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to TMF or the
Acquired Fund or any of their properties or assets and neither TMF nor
the Acquired Fund is a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body that
materially and adversely effects its business.
7.4 With respect to the Acquired Fund, the Board of Trustees of TMF
shall have determined that the Reorganization is in the best interests of the
Acquired Fund.
13
<PAGE>
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND
THE ACQUIRED FUND
The obligations of the Acquiring Fund and of the Acquired Fund herein
are each subject to the further conditions that on or before the Closing Date
with respect to the Acquiring Fund and the Acquired Fund:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of TMF's Agreement and
Declaration of Trust and the requirements of the 1940 Act, and certified copies
of the resolutions evidencing such approval shall have been delivered to the
Acquiring Fund.
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or any of the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders,
approvals and permits of federal, state and local regulatory authorities
(including, without limitation, those of the SEC and of state securities
authorities) deemed necessary by TMF, on behalf of the Acquiring Fund or the
Acquired Fund, to permit consummation, in all material respects, of the
transactions contemplated herein shall have been obtained, except where failure
to obtain any such consent, order or permit would not, in the opinion of the
party asserting that the condition to closing has not been satisfied, involve a
risk of a material adverse effect on the assets or properties of the Acquiring
Fund or the Acquired Fund.
8.4 The Registration Statement shall have become effective under the
1933 Act, no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5 The Acquired Fund shall have declared and paid a dividend or
dividends which, together with all previous such dividends, shall have the
effect of distributing to the Acquired Fund's shareholders substantially all of
the Acquired Fund's investment company taxable income for all taxable years
ending on or prior to the Closing Date (computed without regard to any deduction
for dividends paid) and substantially all of its net capital gain realized in
all taxable years ending on or prior to the Closing Date (after reduction for
any capital loss carryover).
8.6 The Montgomery Funds shall have received the opinion of Paul,
Hastings, Janofsky & Walker LLP addressed to both the Acquiring Fund and the
Acquired Fund (and based on customary representation certificates from TMF, the
Acquiring Fund and the Acquired Fund) substantially to the effect that, for
federal income tax purposes:
14
<PAGE>
(a) the transfer by the Acquired Fund of the Fund Assets in
exchange for the Acquiring Fund Shares and the assumption by the
Acquiring Fund of the Stated Liabilities will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code
and the Acquiring Fund and the Acquired Fund each are a "party to a
reorganization" within the meaning of Section 368(b) of the Code; (b)
no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the Fund Assets solely in exchange for the Acquiring Fund
Shares and the assumption by the Acquiring Fund of the Stated
Liabilities; (c) no gain or loss will be recognized by the Acquired
Fund upon the transfer of the Fund Assets to the Acquiring Fund and the
assumption by the Acquiring Fund of the Stated Liabilities in exchange
for the Acquiring Fund Shares or upon the distribution (whether actual
or constructive) of the Acquiring Fund Shares to the Acquired Fund
shareholders in exchange for their shares of the Acquired Fund; (d) no
gain or loss will be recognized by the Acquired Fund Investors upon the
exchange of their Acquired Fund Shares for the Acquiring Fund Shares;
(e) the aggregate tax basis for the Acquiring Fund Shares received by
each of the Acquired Fund Investors pursuant to the Reorganization will
be the same as the aggregate tax basis of the Acquired Fund shares held
by such shareholder immediately prior to the Reorganization, and the
holding period of the Acquiring Fund Shares to be received by each
Acquired Fund Investors will include the period during which the
Acquired Fund shares exchanged therefor were held by such shareholder
(provided the Acquired Fund shares were held as capital assets on the
date of the Reorganization); and (f) the tax basis of the Acquired Fund
assets acquired by the Acquiring Fund will be same as the tax basis of
such assets to the Acquired Fund immediately prior to the
Reorganization, and the holding period of the assets of the Acquired
Fund in the hands of the Acquiring Fund will include the period during
which those assets were held by the Acquired Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Acquired Fund may waive the condition set forth in this paragraph 8.6.
9. EXPENSES
9.1 Except as may be otherwise provided herein, each of the Acquired
Fund and the Acquiring Fund shall be liable for its respective expenses incurred
in connection with entering into and carrying out the provisions of this
Agreement, whether or not the transactions contemplated hereby are consummated.
The expenses payable by the Acquired Fund hereunder shall include (i) fees and
expenses of its counsel and independent auditors incurred in connection with the
Reorganization; (ii) expenses associated with printing and mailing the
Prospectus/Proxy Statement and soliciting proxies in connection with the meeting
of shareholders of the Acquired Fund referred to in paragraph 4.1 hereof; (iii)
all fees and expenses related to the liquidation of the Acquired Fund; (iv) fees
and expenses of the Acquired Fund's custodian and transfer agent(s) incurred in
connection with the Reorganization; and (v) any special pricing fees associated
with the valuation of the Acquired Fund's portfolio on the Applicable Valuation
Date. 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: _________________
_________________
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
17
<PAGE>
parties. Nothing herein expressed or implied is intended or shall be construed
to confer upon or give any person, firm or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed by its authorized officer.
The Montgomery Funds,
for itself and on behalf of
the Montgomery International Growth Fund
By: /s/ Dulce Daclison
-----------------------------
Dulce Daclison
Assistant Vice President
The Montgomery Funds,
for itself and on behalf of
the Montgomery International Small Cap
Fund
By: /s/ Dulce Daclison
-----------------------------
Dulce Daclison
Assistant Vice President
18
<PAGE>
-----------------------------------------
PART B
STATEMENT OF ADDITIONAL INFORMATION
FOR THE REORGANIZATION OF
MONTGOMERY INTERNATIONAL SMALL CAP FUND
INTO
MONTGOMERY INTERNATIONAL GROWTH FUND
-----------------------------------------
<PAGE>
THE MONTGOMERY FUNDS
------------------------------
101 California Street
San Francisco, California 94111
1-800-572-FUND
-----------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY __, 2000
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 __, 2000, which has been filed by The Montgomery Funds
(the "Trust") in connection with a Special Meeting of Shareholders of the
Montgomery International Small Cap Fund (the "International Small Cap Fund") of
the Trust that has been called to vote on an Agreement and Plan of
Reorganization (and the transactions contemplated thereby). Copies of the
Combined Proxy Statement and Prospectus may be obtained at no charge by writing
The Montgomery Funds at the address indicated above or by calling toll-free
(800) 572-FUND [3863].
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 International Small
Cap Fund, and the Montgomery International Growth Fund (the "International
Growth Fund") (collectively, the "Funds") is contained in the Funds' Combined
Prospectus (including other Montgomery Funds) dated October 31, 1999, and the
Annual Report for the Funds (including other Montgomery Funds) for the fiscal
year ended June 30, 1999. The Funds' Statement of Additional Information
(including other Montgomery Funds), dated October 31, 1999, is incorporated by
reference in this Statement of Additional Information and is available without
charge by calling the Montgomery Funds toll-free at (800) 572-FUND [3863].
Pro-forma financial statements are attached hereto as Exhibit
A.
TABLE OF CONTENTS
Page
----
General Information ........................................................ B-3
Exhibit A .................................................................. B-4
B-2
<PAGE>
GENERAL INFORMATION
The shareholders of the International Small Cap Fund are being
asked to approve a form of Agreement and Plan of Reorganization (the "Plan")
combining the International Small Cap Fund into the International Growth Fund
(and the transactions contemplated thereby). The Plan contemplates the transfer
of all of the assets and liabilities of the International Small Cap Fund as of
the Effective Date to the International Growth Fund, and the assumption by the
International Growth Fund of the liabilities of the International Small Cap
Fund, in exchange for Class R and Class P shares of the International Growth
Fund. Immediately after the Effective Date, the International Small Cap 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 and Class P shares of the
International Growth Fund received. The shares of the International Growth Fund
that will be issued for distribution to the International Small Cap Fund's
shareholders will have an aggregate net asset value equal to the aggregate net
asset value of the shares of the International Small Cap Fund held as of the
Closing Date. The Trust will then take all necessary steps to terminate the
qualification, registration and classification of the International Small Cap
Fund. All issued and outstanding shares of the International Small Cap Fund will
be canceled on the International Small Cap Fund's books. Shares of the
International Growth Fund will be represented only by book entries; no share
certificates will be issued.
A Special Meeting of the International Small Cap 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
February __, 2000 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 International Small Cap Fund and the International Growth Fund, see
the Funds' Combined Statement of Additional Information, dated October 31, 1999,
which is available without charge by calling the Trust at (800) 572-FUND [3863].
B-3
<PAGE>
Exhibit A
Pro Forma Financial Statements
[To be completed by Pre-Effective Amendment]
B-4
<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 issues.
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") under File Nos. 33-34841 and 811-6011.
(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.
C-2
<PAGE>
(5) Specimen Share Certificate - Not applicable.
(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 - No applicable.
(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 Plan
is incorporated by reference to Post-Effective Amendment No.
69 as filed with the Commission on October 29, 1999.
(12) Opinion and Consent as to Tax Matters - Not applicable.
(13)(A) Form of Administrative Services Agreement is incorporated by
reference to Post-Effective Amendment No. 52.
(13)(B) 18f-3 Plan - Form of Amended and Restated Multiple Class Plan
is incorporated by reference to Post-Effective Amendment No.
61.
(14) Independent Auditors' Consent - Not applicable.
(15) Not Applicable.
(16) Power of Attorney - File herewith.
(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 23rd day of November, 1999.
THE MONTGOMERY FUNDS
George A. Rio*
------------------------------------------
George A. Rio
President and Principal Executive Officer;
Treasurer and Principal Financial and
Accounting Officer
<TABLE>
As required by the Securities Act of 1933, this registration statement has been
signed by the following persons in the capacities and on the dates indicated:.
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
George A. Rio* President and November 23, 1999
- -------------- Principal Executive Officer;
George A. Rio Treasurer and Principal
Financial and Accounting Officer
R. Stephen Doyle* Chairman of the November 23, 1999
- ----------------- Board of Trustees
R. Stephen Doyle
Andrew Cox.* Trustee November 23, 1999
- --------------------
Andrew Cox
Cecilia H. Herbert* Trustee November 23, 1999
- --------------------
Cecilia H. Herbert
John A. Farnsworth* Trustee November 23, 1999
- --------------------
John A. Farnsworth
*By: /s/ David A. Hearth
---------------------------------
David A. Hearth, Attorney-in-Fact
Pursuant to Power of Attorney
filed herewith
</TABLE>
C-5
<PAGE>
SEC File No. 333-__________
THE MONTGOMERY FUNDS
FORM N-14
EXHIBIT INDEX
Number Exhibit
- ------ -------
16 Power of Attorney
C-6
<PAGE>
EXHIBIT 16
Power of Attorney
C-7
POWER OF ATTORNEY
FOR
SECURITIES AND EXCHANGE COMMISSION
AND RELATED FILINGS
The undersigned officer of THE MONTGOMERY FUNDS and THE
MONTGOMERY FUNDS II (the "Trusts") hereby appoints MARK B. GEIST, JULIE ALLECTA,
MITCHELL E. NICHTER and DAVID A. HEARTH (with full power to each of them to act
alone), his or her attorney-in-fact and agent, in all capacities, to execute and
to file any documents relating to the Registration Statements on Forms N-1A and
N-14 under the Investment Company Act of 1940, as amended, and under the
Securities Act of 1933, as amended, and under the laws of all states and other
domestic and foreign jurisdictions, including any and all amendments thereto,
covering the registration and the sale of shares by the Trusts, including all
exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority, including applications for exemptive orders,
rulings or filings of proxy materials. The undersigned grants to each of said
attorneys full authority to do every act necessary to be done in order to
effectuate the same as fully, to all intents and purposes, as he could do if
personally present, thereby ratifying all that said attorneys-in-fact and agents
may lawfully do or cause to be done by virtue hereof.
The undersigned officer hereby executes this Power of Attorney as of
this 26th day of June, 1998.
/s/ George A. Rio
------------------------------------
George A. Rio
President and Principal Executive Officer;
Treasurer and Principal Financial and
Accounting Officer
<PAGE>
POWER OF ATTORNEY
FOR
SECURITIES AND EXCHANGE COMMISSION
AND RELATED FILINGS
The undersigned trustees of THE MONTGOMERY FUNDS and THE MONTGOMERY
FUNDS II and THE MONTGOMERY FUNDS III (the "Trusts") hereby appoints MARK B.
GEIST, JULIE ALLECTA, MITCHELL E. NICHTER and DAVID A. HEARTH (with full power
to each of them to act alone), his or her attorney-in-fact and agent, in all
capacities, to execute and to file any documents relating to the Registration
Statements on Forms N-1A and N-14 under the Investment Company Act of 1940, as
amended, and under the Securities Act of 1933, as amended, and under the laws of
all states and other domestic and foreign jurisdictions, including any and all
amendments thereto, covering the registration and the sale of shares by the
Trusts, including all exhibits and any and all documents required to be filed
with respect thereto with any regulatory authority, including applications for
exemptive orders, rulings or filings of proxy materials. The undersigned grants
to each of said attorneys full authority to do every act necessary to be done in
order to effectuate the same as fully, to all intents and purposes, as he could
do if personally present, thereby ratifying all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
The undersigned trustees hereby execute this Power of Attorney as of
this 4th day of August, 1997.
/s/ R. Stephen Doyle /s/ John A. Farnsworth
- ------------------------------ ------------------------------
R. Stephen Doyle John A. Farnsworth
Chairman of the Board of Trustees Trustee
/s/ Andrew Cox /s/ Cecilia H. Herbert
- ------------------------------ ------------------------------
Andrew Cox Cecilia H. Herbert
Trustee Trustee
