As filed with the Securities and Exchange Commission on October 14, 1999
File Nos. 33-34841
811-6011
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 68
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 69
THE MONTGOMERY FUNDS
(Exact Name of Registrant as Specified in its Charter)
101 California Street
San Francisco, California 94111
(Address of Principal Executive Office)
(415) 572-3863
(Registrant's Telephone Number, Including Area Code)
Johanne Castro, Assistant Secretary
101 California Street
San Francisco, California 94111
(Name and Address of Agent for Service)
-------------------------
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to Rule 485(b)
_____ on ______________ pursuant to Rule 485(b)
_____ 60 days after filing pursuant to Rule 485(a)(1)
__X__ 75 days after filing pursuant to Rule 485(a)(2
_____ on ______________ pursuant to Rule 485(a)
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Please Send Copy of Communications to:
JULIE ALLECTA, ESQ.
DAVID A. HEARTH, ESQ.
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104
(415) 835-1600
<PAGE>
THE MONTGOMERY FUNDS
CONTENTS OF POST-EFFECTIVE AMENDMENT
This post-effective amendment to the registration statement of the Registrant
contains the following documents:
Facing Sheet
Contents of Post-Effective Amendment
Part A - Combined Prospectus for Montgomery Growth Select and
International Growth Select
Part B - Combined Statement of Additional Information for Montgomery
Growth Select and International Growth Select
Part C - Other Information
Signature Page
Exhibits
<PAGE>
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PART A
COMBINED PROSPECTUS FOR
MONTGOMERY GROWTH SELECT
MONTGOMERY INTERNATIONAL GROWTH SELECT
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<PAGE>
Prospectus
December 31, 1999
The Montgomery Funds(SM)
Growth Equity Select
International Growth Select
The Montgomery Funds has registered the Funds offered in this prospectus with
the U.S. Securities and Exchange Commission (SEC). That registration does not
imply, however, that the SEC endorses the Funds.
The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
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<PAGE>
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How to Contact Us
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[Sidebar]
Montgomery Web Site
www.montgomeryfunds.com
E-mail
Feedback @montgomeryasset.com
Montgomery Shareholder
Service Representatives
800.572.FUND [3863]
Available 6 A.M. to 5 P.M.
Pacific time
Address General
Correspondence to:
The Montgomery Funds
101 California Street
San Francisco, CA
94111-9361
TABLE OF CONTENTS
Growth Equity Select .......................................................
International Growth Select ................................................
Portfolio Management........................................................
Additional Investment Strategies and Related Risks..........................
Defensive Investments..................................................
Portfolio Turnover.....................................................
The Year 2000..........................................................
Internet Risks ........................................................
Account Information.........................................................
Becoming a Montgomery Shareholder......................................
How Fund Shares Are Priced.............................................
Buying Additional Shares...............................................
Exchanging Shares......................................................
Selling Shares.........................................................
Other Policies.........................................................
Tax Information........................................................
After You Invest.......................................................
2
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This prospectus contains important information about the investment objectives,
strategies and risks of the Montgomery Growth Equity Select and the Montgomery
International Growth Select (each a "Fund" and collectively, the Funds) that you
should know before you invest in the Funds. Please read it carefully and keep it
on hand for future reference. Please be aware that the Funds:
> Are not bank deposits
> Are not guaranteed, endorsed or insured by any financial institution or
government entity such as the Federal Deposit Insurance Corporation (FDIC)
You should also know that you could lose money by investing in the Funds.
3
<PAGE>
Growth Equity Select
Objective
[] Seeks long-term capital appreciation through concentrated exposure to
growth-oriented U.S. companies
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Strategy [clipart]
The Fund intends to invest in the stocks of 15 to 30 U.S. companies of any size,
but will invest at least 65% of its total assets in those companies whose shares
have a total stock market value (market capitalization) of at least $1 billion.
The Fund's strategy is to identify well-managed U.S. companies whose share
prices appear to be undervalued relative to the firms' growth potential. The
managers rigorously analyze all prospective holdings by subjecting them to the
following three steps of their investment process:
> Identify companies with improving business fundamentals
> Conduct in-depth analysis of each company's current business and future
prospects
> Analyze each company's price to determine whether its growth prospects have
been discovered by the market
Risks [clipart]
By investing in stocks, the Fund may expose you to certain risks that could
cause you to lose money, particularly a sudden decline in a holding's share
price or an overall decline in the stock market. As with any stock fund, the
value of your investment will fluctuate on a day-to-day basis with movements in
the stock market, as well as in response to the activities of individual
companies. Growth-oriented companies are widely regarded as having more volatile
stock prices than companies considered to be value-oriented. To the extent that
the Fund is overweighted in certain market sectors compared with the Standard
and Poor's 500 Composite Price Index, the Fund may be more volatile than the S&P
500. This is a non-diversified mutual fund that typically invests in the
securities of only 15 to 30 companies. Consequently, the value of an investment
in the Fund will vary more in response to developments or changes in market
value affecting particular stocks than an investment in a diversified mutual
fund investing in a greater number of securities.
When the Fund's portfolio managers think that market conditions are not
favorable or when they are unable to locate attractive investments, they may
(but are not required to) temporarily increase the Fund's cash position. Larger
cash positions can be a defensive measure in adverse market conditions. Should
the market advance, however, the Fund may not participate as much as it might
have if more of its assets were invested in stocks.
4
<PAGE>
- --------------------------------------------------------------------------------
Past Fund Performance The Fund was launched on December 31, 1999. Performance
results have not been provided because the Fund has not been in existence for a
full calendar year.
- --------------------------------------------------------------------------------
Fees & Expenses [clipart]
<TABLE>
The following table shows the fees and expenses you may pay if you buy and hold
shares of this Fund. Montgomery does not impose any front-end or deferred sales
loads on this Fund.
<CAPTION>
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Redemption Fee* 1.00%+
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) ++
Management Fee# 1.00%
Distribution/Service (12b-1) Fee 0.00%
Other Expenses## [0.20]%
- -------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.20%
<FN>
+ The 1.00% redemption fee applies to those shares redeemed within six months
from the date of purchase and is paid to the Fund. Shareholders who have
invested at least $___________ in the Fund (less any prior redemptions) are
not subject to the redemption fee. $10 will be deducted from redemption
proceeds sent by wire or overnight courier.
++ Montgomery Asset Management has contractually agreed to reduce its fees
and/or absorb expenses to limit the Fund's total annual operating expenses
(excluding interest and tax expense) to 1.20%. This contract has a rolling
ten-year term.
# The management fee of 1.00% will be reduced to 0.90% for those assets over
$500 million and to 0.80% for those assets over $1 billion.
## Other expenses are based on estimated amounts for the current fiscal year.
</FN>
</TABLE>
Example of Fund expenses: This example is intended to help you compare the cost
of investing in the Fund 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 no changes in expenses. This example
is for comparison purposes only. It does not necessarily represent the Fund's
actual expenses or returns.
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------
$122 $380 $658 $1,450
[clipart] [sidebar]
Portfolio Management
_______________
_______________
For more details see page __
For financial highlights
see page ___
5
<PAGE>
International Growth Select
Objective
[] Seeks long-term capital appreciation by investing in medium- and
large-cap companies in developed stock markets outside the United
States
- --------------------------------------------------------------------------------
Strategy [clipart]
The Fund invests at least 65% of its total assets in the common stocks of 15 to
30 companies outside the United States whose shares have a stock market value
(market capitalization) of more than $1 billion. The Fund currently concentrates
its investments in the stock markets of western Europe, particularly the United
Kingdom, France, Germany, Italy and the Netherlands, as well as developed
markets in Asia, such as Japan and Hong Kong. The Fund typically invests in at
least three countries outside the United States, with no more than 40% of its
assets in any one country.
The portfolio managers seek well-managed companies that they believe will be
able to increase their sales and corporate earnings on a sustained basis. In
addition, the portfolio managers purchase shares of companies that they consider
to be under- or reasonably-valued relative to their long-term prospects. The
managers favor companies that they believe 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 Fund's
portfolio managers and 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.
Risks [clipart]
By investing in stocks, the Fund may expose you to certain risks that could
cause you to lose money, particularly a sudden decline in a holding's share
price or an overall decline in the stock market. As with any stock fund, the
value of your investment will fluctuate on a day-to-day basis with movements in
the stock market, as well as in response to the activities of individual
companies. This is a non-diversified mutual fund that typically invests in the
securities of only 15 to 30 companies. Consequently, the value of an investment
in the Fund will vary more in response to developments or changes in market
value affecting particular stocks than an investment in a diversified mutual
fund investing in a greater number of securities.
By investing primarily in foreign stocks, the Fund 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 Fund invests are denominated in
foreign currencies, whose value may decline against the U.S. dollar.
6
<PAGE>
- --------------------------------------------------------------------------------
Past Fund Performance The Fund was launched on December 31, 1999. Performance
results have not been provided because the Fund has not been in existence for a
full calendar year.
- --------------------------------------------------------------------------------
Fees & Expenses [clipart]
<TABLE>
The following table shows the fees and expenses you may pay if you buy and hold
shares of this Fund. Montgomery does not impose any front-end or deferred sales
loads on this Fund.
<CAPTION>
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Redemption Fee* 1.00%+
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) ++
Management Fee# 1.10%
Distribution/Service (12b-1) Fee 0.00%
Other Expenses## [0.55]%
- -------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.65%
<FN>
+ The 1.00% redemption fee applies to those shares redeemed within six months
from the date of purchase and is paid to the Fund. Shareholders who have
invested at least $___________ in the Fund (less any prior redemptions) are
not subject to the redemption fee. $10 will be deducted from redemption
proceeds sent by wire or overnight courier.
++ Montgomery Asset Management has contractually agreed to reduce its fees
and/or absorb expenses to limit the Fund's total annual operating expenses
(excluding interest and tax expense) to 1.65%. This contract has a rolling
ten-year term.
# The management fee of 1.10% will be reduced to 1.00% for those assets over
$500 million and to 0.90% for those assets over $1 billion.
## Other expenses are based on estimated amounts for the current fiscal year.
</FN>
</TABLE>
Example of Fund expenses: This example is intended to help you compare the cost
of investing in the Fund 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 no changes in expenses. This example
is for comparison purposes only. It does not necessarily represent the Fund's
actual expenses or returns.
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------
$167 $519 $895 $1,947
[clipart] [sidebar]
Portfolio Management
John Boich
Oscar Castro
For more details see page ___
For financial highlights
see page ___
7
<PAGE>
PORTFOLIO MANAGEMENT
PORTFOLIO MANAGEMENT
The investment manager of the Fund is Montgomery Asset Management, LLC.
Founded in 1990, Montgomery Asset Management is a subsidiary of Commerzbank AG,
one of the largest publicly held commercial banks in Germany. As of September
30, 1999, Montgomery Asset Management managed approximately $x.x billion on
behalf of some xxx,xxx investors in The Montgomery Funds. Montgomery may rely on
the expertise, research and resources of Commerzbank AG and its worldwide
affiliates in managing the Fund.
Growth Equity Select
[To be named later.]
International Growth Select
[photo] JOHN BOICH, CFA, senior portfolio manager for the Montgomery
International Growth Select (since inception 1999). John Boich joined Montgomery
in 1993 as a senior portfolio manager and managing director. From 1990 to 1993,
John Boich was a 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.
[photo] OSCAR CASTRO, CFA, senior portfolio manager for the Montgomery
International Growth Select (since inception 1999). Oscar 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.
Management Fees and Operating Expense Limits
The table below shows the annual contractual management fee rate and the annual
contractual total operating expense limit (excluding interest and tax expense)
for each Fund. The management fee amounts actually paid to Montgomery Asset
Management may vary from year to year, depending on actual expenses. The actual
fee rates may be greater than the contractual rates only to the extent
Montgomery recouped previously deferred fees during the fiscal year.
MANAGEMENT TOTAL EXPENSE
FEES LIMIT
MONTGOMERY FUND (annual rate) (annual rate)
Growth Equity Select 1.00% 1.20%
International Growth Select 1.10% 1.65%
8
<PAGE>
Additional Investment Strategies and Related Risks
Defensive Investments
At the discretion of its portfolio manager(s), each Fund may invest up to 100%
of its assets in cash for temporary defensive purposes. No Fund is required or
expected to take such a defensive posture. But if used, such an unlikely stance
may help a Fund minimize or avoid losses during adverse market, economic or
political conditions. During such a period, a Fund may not achieve its
investment objective. For example, should the market advance during this period,
a Fund may not participate as much as it would have if it had been more fully
invested.
Portfolio Turnover
The Funds' portfolio managers will sell a security when they believe it is
appropriate to do so, regardless of how long a Fund has owned that security.
Buying and selling securities generally involves some expense to a Fund, such as
commission paid to brokers and other transaction costs. By selling a security, a
Fund may realize taxable capital gains that it will subsequently distribute to
shareholders. Generally speaking, the higher a Fund's annual portfolio turnover,
the greater its brokerage costs and the greater the likelihood that it will
realize taxable capital gains. Increased brokerage costs may adversely affect a
Fund's performance. Also, unless you are a tax-exempt investor or you purchase
shares through a tax-deferred account, the distribution of capital gains may
affect your after-tax return. Annual portfolio turnover of 100% or more, as is
expected for each Fund, is considered high.
The Year 2000
The common past practice in computer programming of using just two digits to
identify a year has resulted in the year 2000 challenge throughout the
information technology industry. If unchanged, many computer applications and
systems could misinterpret dates occurring after December 31, 1999, leading to
errors or failure. This failure could adversely affect a Fund's operations,
including pricing, securities trading and the servicing of shareholder accounts.
Montgomery is dedicated to providing uninterrupted, high-quality performance
from our computer systems before, during and after 2000. Although we have
completed tests on our internal systems, Montgomery continues to work diligently
with external partners, suppliers, vendors and other service providers to ensure
that the systems with which we interact will remain operational at all times.
In addition to taking reasonable steps to secure our internal systems and
external relationships, Montgomery has developed contingency plans intended to
ensure that unexpected systems failures will not adversely affect the Funds'
operations. Montgomery intends to monitor these processes through 2000 and to
quickly implement alternative solutions if necessary.
Despite Montgomery's efforts and contingency plans, however, noncompliant
computer systems could have a material adverse effect on a Fund's business,
operations or financial condition. Additionally, a Fund's performance could be
hurt if a computer-system failure at a company or governmental unit affects the
prices of securities the Fund owns. Issuers in countries outside of the United
States, particularly in emerging markets, may not be required to make the same
level of disclosure about year 2000 readiness as required in the United States.
The Manager, of course, cannot audit any company and its major suppliers to
verify their year 2000 readiness. Montgomery understands that many foreign
countries and companies are well behind their U.S. counterparts in preparing for
2000.
Internet Risks
An interruption in transmissions over the Internet generally, or a problem in
the transmission of our Web site in particular, could result in a delay or
interruption in your ability to access our Web site, to place purchase or sale
orders with a Fund, to receive certain shareholder information electronically or
otherwise to interact with a Fund.
9
<PAGE>
[table]
Investment Options
To open a new account, complete and mail the New Account application included
with this prospectus, or complete the application online by accessing our Web
site at www.montgomeryfunds.com.
- --------------------------------------------------------------------------------
Trade requests received after 1:00 P.M. Pacific time (4:00 P.M. eastern time)
will be executed at the following business day's closing price. Once a trade is
placed it may not be altered or canceled.
Checks should be made payable to:
Montgomery Select.
For investors that use our online application the minimum initial investment is
$1,000, otherwise, the Fund's minimum is $2,500. The minimum subsequent
investment is $100.
Once an account is established, you can:
[] Buy or sell shares online
Access the Funds at The Montgomery Funds Web site at
www.montgomeryfunds.com and follow the instructions.
[] Buy, sell or exchange shares by phone.
Contact The Montgomery Funds at 800.572.FUND [3863]. Press (1) for a
shareholder service representative. Press (2) for the automated Montgomery
Star System.
[] Buy or sell shares by mail
Mail buy/sell order(s) with your check:
By regular mail:
The Montgomery Funds
c/o DST Systems, Inc.
P.O. Box 419073
Kansas City, MO 64141-6073
By express or overnight service:
The Montgomery Funds
c/o DST Systems, Inc.
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1614
[] Buy or sell shares by wiring funds
To: Investors Fiduciary Trust Company
ABA #101003621
For: DST Systems, Inc.
Account #7526601
Attention: The Montgomery Funds
For Credit to: [shareholder(s) name]
Shareholder account number:
[shareholder(s) account number]
Name of Fund: [Montgomery Fund Name]
10
<PAGE>
ACCOUNT INFORMATION
What You Need to Know About Your Montgomery Account
You pay no sales charge to invest in the Funds. The minimum initial investment
for each Fund is $2,500 ($1,000 online). The minimum subsequent investment is
$100. Under certain conditions we may waive these minimums. If you buy shares
through a broker or investment advisor, different requirements may apply. All
investments must be made in U.S. dollars.
We must receive payment from you within three business days of your
purchase. In addition, the Funds and the Distributor each reserves the right to
reject all or part of any purchase.
From time to time, Montgomery may close and reopen the Funds to new
investors at its discretion. Shareholders who maintain open accounts which meet
the minimum required balance in a Fund when it closes may make additional
investments in it. If a Fund is closed and you redeem your total investment in
the Fund, your account will be closed and you will not be able to make any
additional investments in the Fund. The Montgomery Funds reserves the right to
close or liquidate a Fund at its discretion.
Becoming a Montgomery Shareholder
To open a new account:
[] Online You can access the Funds at www.montgomeryfunds.com. Complete the New
Account application online and send a check payable to Montgomery Select to the
appropriate address (see previous page).
[] By Mail Send your completed application (included with this prospectus or may
be downloaded by accessing our Web site at www.montgomeryfunds.com), with a
check payable to Montgomery Select, to the appropriate address (see column at
right). Your check must be in U.S. dollars and drawn only on a bank located in
the United States. Dividends do not accrue until your check has cleared. We do
not accept third-party checks, "starter" checks, credit-card checks,
instant-loan checks or cash investments. We may impose a charge on checks that
do not clear.
[] By Wire Call us at (800) 572-FUND [3863] to let us know that you intend to
make your initial investment by wire. Tell us your name, the amount you want to
invest and Fund(s) in which you want to invest. We will give you further
instructions and a fax number to which you should send your completed New
Account application. To ensure that we handle your investment accurately,
include complete account information in all wire instructions. Then request your
bank to wire money from your account to the attention of:
Investors Fiduciary Trust Company
ABA #101003621
For: DST Systems, Inc.
and include the following:
Account #7526601
Attention: The Montgomery Funds
For credit to: [shareholder(s) name]
Shareholder Account Number:
[shareholder(s) account number]
Name of Fund: [Montgomery Fund Name]
Please note: Your bank may charge a wire transfer fee.
[] By Phone To make an initial investment by phone, you must have been a current
Montgomery shareholder for at least 30 days. Shares for Individual Retirement
Accounts (IRAs) may not be purchased by phone. Your purchase of a new Fund must
meet its investment minimum and is limited to the total
11
<PAGE>
value of your existing accounts or $10,000, whichever is greater. To complete
the transaction, we must receive payment within three business days. We reserve
the right to collect any losses from your account if we do not receive payment
within that time.
[sidebar]
Getting Started
To invest, complete and send the New
Account application at the back of this
prospectus (or download it from our Web
site at www.montgomeryfunds.com), or
complete the application online. Send a
check payable to Montgomery Select.
Regular Mail
The Montgomery Funds
c/o DST Systems, Inc.
P.O. Box 219073
Kansas City, MO 64121-9073
Express Mail or Overnight Courier
The Montgomery Funds
c/o DST Systems, Inc.
210 West 10th Street
8th Floor
Kansas City, MO 64105-1614
Foreign Investors:
Foreign citizens and resident aliens of
the United States living abroad may not
invest in the Fund
How Fund Shares Are Priced
How and when we calculate the Funds' price or net asset value (NAV) determines
the price at which you will buy or sell shares. We calculate a Fund's NAV by
dividing the total net value of its assets by the number of outstanding shares.
We base the value of the Fund's investments on their market value, usually the
last price reported for each security before the close of market that day. A
market price may not be available for securities that trade infrequently.
Occasionally, an event that affects a security's value may occur after the
market closes. This is more likely to happen for foreign securities traded in
foreign markets that have different time zones from the United States. Major
developments affecting the price of those securities may happen after the
foreign markets in which such securities trade have closed, but before the Fund
calculates its NAV. In this case, Montgomery, subject to the supervision of the
Funds' Board of Trustees or Pricing Committee, will make a good-faith estimate
of the security's "fair value," which may be higher or lower than security's
closing price in its relevant market.
We calculate the NAV of each Fund after the close of trading on the New
York Stock Exchange (NYSE) every day the NYSE is open. We do not calculate NAVs
on the days on which the NYSE is closed for trading. An exception applies as
described below. If we receive your order by the close of trading on the NYSE,
you can purchase shares at the price calculated for that day. The NYSE usually
closes at 4:00 P.M. eastern time on weekdays, except for holidays. If your order
and payment are received after the NYSE has closed, your shares will be priced
at the next NAV we determine after receipt of your order. More details about how
we calculate the Fund's NAV are in the Statement of Additional Information.
[] The International Select invests in securities denominated in foreign
currencies and traded on foreign exchanges. To determine their value, we convert
their foreign-currency price into U.S. dollars by using the exchange rate last
quoted by a major bank. Exchange rates fluctuate frequently and may affect the
U.S. dollar value of foreign-denominated securities, even if their market price
does not change. In addition, some foreign exchanges are open for trading when
the U.S. market is closed. As a result, the
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Fund's foreign securities--and its price--may fluctuate during periods when you
can't buy, sell or exchange shares in the Fund.
[sidebar]
trading times
Whether buying, exchanging or selling
shares, transaction requests received
after 1:00 P.M. Pacific time (4:00 P.M.
eastern time) will be executed at the
next business day's closing price.
13
<PAGE>
[Table]
www.montgomeryfunds.com
Manage your account(s) online. Our Account Access area offers free, secure
access to your Montgomery Fund account(s) around-the-clock.
At www.montgomeryfunds.com Montgomery shareholders can:
> Check current account balances
> Buy, exchange or sell shares
> View the most recent account activity and up to 80 records of account
history within the past two years
> Receive current versions of a Fund's prospectus, annual and semi-annual
reports, proxy statements, confirmations and statements, and other
shareholder information electronically
> Order duplicate statements and tax forms
> View tax summaries
> Change address of record
Access your account(s) online today. Simply click on the Account Access tab and
follow the simple steps to create a secure Personal Identification Number (PIN).
It takes only a minute.
Please note that for your protection, this secure area of our site requires the
use of browsers with 128-bit encryption. If you are not sure what level of
security your browser supports, click on our convenient browser check.
[clipart]
14
<PAGE>
Buying Additional Shares
[] Online. To buy shares online, you must first set up an Electronic Link
(described in the note at above left). Then visit our Web site,
www.montgomeryfunds.com, where you can purchase up to $25,000 per day in
additional shares of either Fund, except those held in a retirement account. You
will be prompted to enter your PIN whenever you perform a transaction so that we
can be sure each purchase is secure. You will then be asked to (1) affirm your
consent to receive all Fund documentation electronically, (2) provide your
e-mail address, and (3) affirm that you have read the appropriate Prospectus.
Each Fund's current Prospectus will be readily available for viewing and
printing on our Web site. The cost of the shares will be automatically deducted
from your bank account.
[] By Mail. Complete the form at the bottom of any Montgomery statement and mail
it with your check payable to Montgomery Select. Or mail the check with a signed
letter noting the name of the Fund in which you want to invest, your account
number and telephone number. We will mail you a confirmation of your investment.
Note that we may impose a charge on checks that do not clear.
[] By Phone. Current shareholders are automatically eligible to buy shares by
phone. To buy shares in the Fund or to invest in a new Fund, call (800) 572-FUND
[3863]. Shares for IRAs may not be purchased by phone. Telephone purchases can
be made for up to five times your account value as of the previous day.
We must receive payment for your purchase within three business days of
your request. To ensure that we do, you can:
> Transfer money directly from your bank account by mailing a written request
and a voided check or deposit slip (for a savings account).
> Send us a check by overnight or second-day courier service.
> Instruct your bank to wire money to our affiliated bank using the information
in "Becoming A Montgomery Shareholder" (page ___).
[] By Wire. There is no need to contact us when buying additional shares by
wire. Instruct your bank to wire funds to our affiliated bank using the
information under "Becoming a Montgomery Shareholder" (page ___).
Exchanging Shares
You may exchange shares of each Fund for shares in the same class of another, in
accounts with the same registration, Taxpayer Identification Number and address.
There is a $100 minimum to exchange into a Fund you currently own and a $1,000
minimum for investing in a new Fund. Note that an exchange may result in a
realized gain or loss for tax purposes. You may exchange shares by phone, at
(800) 572-FUND [3863] or through our online shareholder service center at
www.montgomeryfunds.com.
Other Exchange Policies
[] We will process your exchange order at the next-calculated NAV.
[] You may exchange shares only if the Funds are qualified for sale in your
state. You may not exchange shares in one Fund for shares of another that is
currently closed to new shareholders unless you are already a shareholder in the
closed Fund.
[] Because excessive exchanges can harm a Fund's performance, we reserve the
right to terminate your exchange privileges if you make more than four exchanges
out of any one Fund during a 12-month period. We may also refuse an exchange
into a Fund from which you have sold shares within the previous 90 days
(accounts under common control and accounts having the same Taxpayer
Identification Number will be counted together).
15
<PAGE>
[sidebar]
Our Electronic Link program allows us to automatically debit or credit your bank
account for transactions made by phone or online. To take advantage of this
service, simply mail us a voided check or preprinted deposit slip from your bank
account along with a request to establish an Electronic Link.
[] We may restrict or refuse your exchanges if we receive, or anticipate
receiving, simultaneous orders affecting a large portion of a Fund's assets or
if we detect a pattern of exchanges that suggests a market-timing strategy.
[] We reserve the right to refuse exchanges into a Fund by any person or group
if, in our judgment, the Fund would be unable to effectively invest the money in
accordance with its investment objective and policies, or might be adversely
affected in other ways.
[] Any redemption fees will apply to exchanges or redemptions out of a Fund.
Selling Shares
You may sell some or all of your Fund shares on days that the New York Stock
Exchange is open for trading. Note that a redemption may result in a realized
gain or loss for tax purposes.
Your shares will be sold at the next NAV we calculate for the Fund after
receiving your order. We will promptly pay the proceeds to you, normally within
three business days of receiving your order and all necessary documents
(including a written redemption order with the appropriate signature guarantee).
We will mail or wire you the proceeds, depending on your instructions. Shares
purchased by check may not be redeemed until 15 days after the purchase date.
Within this 15-day period, you may choose to exchange into a Montgomery Money
Market fund provided you have received and read the prospectus for that Money
Market fund.
Aside from any applicable redemption fees, we generally will not charge you
any fees when you sell your shares, although there are some minor exceptions:
> For sharers sold by wire pay a $10 wire transfer fee that will be deducted
directly from their proceeds.
> For redemption checks requested by Federal Express, a $10 fee will be deducted
directly from the redemption proceeds.
In accordance with the rules of the Securities and Exchange Commission
(SEC) we reserve the right to suspend redemptions under extraordinary
circumstances.
Shares can be sold in several ways:
[] Online. You can sell up to $50,000 in shares in a regular account through our
online Shareholder Service Center at www.montgomeryfunds.com.
[] By Mail. Send us a letter including your name, Montgomery account number, the
Fund from which you would like to sell shares and the dollar amount or number of
shares you want to sell. You must sign the letter the same way your account is
registered. If you have a joint account, all accountholders must sign the
letter.
If you want the proceeds to go to a party other than the account owner(s)
or your predesignated bank account, or if the dollar amount of your redemption
exceeds $50,000, you must obtain a signature guarantee (not a notarization),
available from many commercial banks, savings associations, stock brokers and
other NASD member firms.
If you want to wire your redemption proceeds but do not have a
predesignated bank account, include a preprinted, voided check or deposit slip.
If you do not have a preprinted check, please send a signature-guaranteed letter
along with your bank instructions. The minimum wire amount is $500. Wire
charges, if any, will be deducted from the redemption proceeds. We may permit
lesser wire amounts or fees at our discretion. Call (800) 572-FUND [3863] for
more details.
16
<PAGE>
[sidebar]
Shareholder service is available Monday
through Friday from 6:00 a.m. to 5:00
P.M. Pacific time.
Shareholders can get information or
perform transactions around-the-clock
through the Montgomery Star System or
www.montgomeryfunds.com.
[] By Phone. You may accept or decline telephone redemption privileges on your
New Account application. If you accept, you will be able to sell up to $50,000
in shares through one of our shareholder service representatives or through our
automated Star System at (800) 572-FUND [3863]. You may not buy or sell shares
in an IRA account by phone. If you included bank wire information on your New
Account application or made arrangements later for wire redemptions, proceeds
can be wired to your bank account. Please allow at least two business days for
the proceeds to be credited to your bank account. If you want proceeds to arrive
at your bank on the same business day (subject to bank cutoff times), there is a
$10 fee. For more information about our telephone transaction policies, see
"Other Policies."
[] Redemption Fee. The redemption fee is intended to compensate each Fund for
the increased expenses to longer-term shareholders and the disruptive effect on
the portfolios caused by short-term investments. The redemption fee will be
assessed on the net asset value of the shares redeemed or exchanged and will be
deducted from the redemption proceeds otherwise payable to the shareholder. Each
Fund will retain the fee charged.
Other Policies
Minimum Account Balances
Due to the cost of maintaining small accounts, we require a minimum account
balance of $1,000. If your account balance falls below that amount for any
reason, we will ask you to add to your account. If your account balance is not
brought up to the minimum or you do not send us other instructions, we will
redeem your shares and send you the proceeds. We believe that this policy is in
the best interests of all our shareholders.
Expense Limitations
Montgomery Asset Management may reduce its management fees and absorb expenses
in order to maintain total operating expenses (excluding interest, taxes and
dividend expenses) for each Fund below its previously set operating expense
limit. The Investment Management Agreement allows Montgomery three years to
recoup amounts previously reduced or absorbed, provided the Fund remains within
the applicable expense limitation. Montgomery generally seeks to recoup the
oldest amounts before seeking payment of fees and expenses for the current year.
Uncashed Redemption Checks
If you receive your Fund redemption proceeds or distributions by check (instead
of by wire) and it does not arrive within a reasonable period of time, call us
at (800) 572-FUND [3863]. Please note that we are responsible only for mailing
redemption or distribution checks and are not responsible for tracking uncashed
checks or determining why checks are uncashed. If your check is returned to us
by the U.S. Postal Service or other delivery service, we will hold it on your
behalf for a reasonable period of time. We will not invest the proceeds in any
interest-bearing account. No interest will accrue on uncashed distribution or
redemption proceeds.
17
<PAGE>
Transaction Confirmation
If you notice any errors on your confirmation, you must notify the Funds of such
errors within 30 days following mailing of such confirmation. The Funds will not
be responsible for any loss, damage, cost or expense arising out of any
transaction that appears on your confirmation after this 30 period.
[sidebar]
BUYING AND SELLING SHARES THROUGH SECURITIES
ROKERS AND BENEFIT PLAN ADMINISTRATORS
You may purchase and sell shares through
securities brokers and benefit plan
administrators or their subagents. You
should contact them directly for
information regarding how to invest or
redeem through them. They may also
charge you service or transaction fees.
If you purchase or redeem shares through
them, you will receive the NAV
calculated after receipt of the order by
them (generally, 4:00 p.m. eastern time)
on any day the NYSE is open. If your
order is received by them after that
time, it will be purchased or redeemed
at the next-calculated NAV. Brokers and
benefit plan administrators who perform
shareholder servicing for the Funds may
receive fees from the Funds or
Montgomery for providing these services.
Telephone Transactions
By buying or selling shares over the phone, you agree to reimburse the Funds for
any expenses or losses incurred in connection with transfers of money from your
account. This includes any losses or expenses caused by your bank's failure to
honor your debit or act in accordance with your instructions. If your bank makes
erroneous payments or fails to make payment after you buy shares, we may cancel
the purchase and immediately terminate your telephone transaction privilege.
The shares you purchase by phone will be priced at the first net asset
value we determine after receiving your purchase. You will not actually own the
shares, however, until we receive your payment in full. If we do not receive
your payment within three business days of your request, we will cancel your
purchase. You may be responsible for any losses incurred by the Funds as a
result.
Please note that we cannot be held liable for following telephone
instructions that we reasonably believe to be genuine. We use several safeguards
to ensure that the instructions we receive are accurate and authentic, such as:
> Recording certain calls
> Requiring a special authorization number or other personal information not
likely to be known by others
> Sending a transaction confirmation to the investor
The Funds and our Transfer Agent may be held liable for any losses due to
unauthorized or fraudulent telephone transactions only if we have not followed
these reasonable procedures.
We reserve the right to revoke the telephone transaction privilege of any
shareholder at any time if he or she has used abusive language or misused the
phone privilege by making purchases and redemptions that appear to be part of a
systematic market-timing strategy.
If you notify us that your address has changed, we will temporarily suspend
your telephone redemption privileges until 30 days after your notification to
protect you and your account. We require all redemption requests made during
this period to be in writing with a signature guarantee.
Shareholders may experience delays in exercising telephone redemption
privileges during periods of volatile economic or market conditions. In these
cases you may want to transmit your redemption request:
18
<PAGE>
> Online
> Using the automated Star System
> By overnight courier
> By telegram
You may discontinue phone privileges at any time.
Tax Withholding Information
Be sure to complete the Taxpayer Identification Number (TIN) section of the New
Account application. If you don't have a Social Security Number or TIN, apply
for one immediately by contacting your local office of the Social Security
Administration or the Internal Revenue Service (IRS). If you do not provide us
with a TIN or a Social Security number, federal tax law may require us to
withhold 31% of your taxable dividends, capital-gain distributions, and
redemption and exchange proceeds (unless you qualify as an exempt payee under
certain rules).
Other rules about TINs apply for certain investors. For example, if you are
establishing an account for a minor under the Uniform Gifts to Minors Act, you
should furnish the minor's TIN. If the IRS has notified you that you are subject
to backup withholding because you failed to report all interest and dividend
income on your tax return, you must check the appropriate item on the New
Account application. Foreign shareholders should note that any dividends the
Fund pays to them may be subject to up to 30% withholding instead of backup
withholding.
[sidebar]
INVESTMENT MINIMUMS
For regular accounts and IRAs, the
minimum initial investment is $2,500
($1,000 online). Minimum subsequent
investment is $100.
After You Invest
Taxes
IRS rules require that the Funds distribute all of their net investment income
and capital gains, if any, to shareholders. Capital gains may be taxable at
different rates depending upon the length of time a Fund holds its assets. We
will inform you about the source of any dividends and capital gains upon
payment. After the close of each calendar year, we will advise you of their tax
status. The Funds' distributions, whether received in cash or reinvested, may be
taxable. Any redemption of a Fund's shares or any exchange of a Fund's shares
for another Fund will be treated as a sale, and any gain on the transaction may
be taxable.
Additional information about tax issues relating to the Funds can be found
in our Statement of Additional Information, available free by calling (800)
572-FUND [3863]. Consult your tax advisor about the potential tax consequences
of investing in the Funds.
Dividends and Distributions
As a shareholder in a Fund, you may receive income dividends and capital-gain
distributions for which you will owe taxes (unless you invest solely through a
tax-advantaged account such as an IRA or a 401(k) plan). Income dividends and
capital-gain distributions are paid to all shareholders who maintain accounts
with a Fund as of its "record date."
19
<PAGE>
If you would like to receive dividends and distributions in cash, indicate
that choice on your New Account application. Otherwise, the distribution will be
reinvested in additional Fund shares.
Keeping You Informed
After you invest you will receive, either by regular mail or electronically, our
Shareholder Services Guide, which includes more information about buying,
exchanging and selling shares in the Funds. It also describes in more detail
useful tools for investors such as the Montgomery Star System and online
transactions.
During the year, we will also send you, either by mail or electronically,
the following communications:
> Confirmation statements
> Account statements, sent after the close of each calendar quarter
> Annual and semiannual reports, sent approximately 60 days after June 30 and
December 31
> 1099 tax form, sent by January 31
> Annual updated prospectus, sent to existing shareholders in the fall
To save you money, we send only one copy of each shareholder report or
other mailings to your household if you hold accounts under common ownership or
at the same address (regardless of the number of shareholders or accounts at
that household or address), unless you request additional copies. You also have
the option of receiving the shareholder report or other mailings electronically.
Your consent to receive electronically these materials is effective until
further notice by the Funds or revocation by you.
[sidebar]
OUR PARTNERS
As a Montgomery shareholder, you may see
the names of our partners on a regular
basis. We all work together to ensure
that your investments are handled
accurately and efficiently.
Funds Distributor, Inc., located in New
York City and Boston, distributes the
Funds.
Investors Fiduciary Trust Company,
located in Kansas City, Missouri, is the
Funds' master transfer agent. It
performs certain record keeping and
accounting functions for the Funds.
DST Systems, Inc. also located in Kansas
City, Missouri, assists Investors
Fiduciary Trust with certain record
keeping and accounting functions for the
Funds.
<TABLE>
[table]
<CAPTION>
INCOME Dividends CAPITAL GAINS
<S> <C> <C>
Growth Equity Select Declared and paid in the last Declared and paid in the last
quarter of each calendar year* quarter of each calendar year*
International Growth Select Declared and paid in the last Declared and paid in the last
quarter of each calendar year* quarter of each calendar year*
<FN>
*Following their fiscal year end (June 30), the Funds may make additional
distributions to avoid the imposition of a tax.
</FN>
</TABLE>
20
<PAGE>
[sidebar]
HOW TO AVOID "BUYING A DIVIDEND"
If you plan to purchase shares in a
Fund, check if it is planning to make a
distribution in the near future. Here's
why: If you buy shares of a Fund just
before a distribution, you'll pay full
price for the shares but receive a
portion of your purchase price back as a
taxable distribution. This is called
"buying a dividend." Unless you hold
that Fund in a tax-deferred account, you
will have to include the distribution in
your gross income for tax purposes, even
though you may not have participated in
the increase of that Fund's
appreciation.
21
<PAGE>
[Outside back cover: The Montgomery Funds; Address; Contact Info; Logo]
You can find more information about the Funds' investment policies in the
Statement of Additional Information (SAI), incorporated by reference in this
prospectus, which is available free of charge.
To request a free copy of the SAI, call us at 800.572.FUND [3863]. You can
review and copy further information about the Funds, including the SAI, at the
Securities and Exchange Commission's (SEC's) Public Reference Room in
Washington, D.C. To obtain information on the operation of the Public Reference
Room please call 800.SEC.0330. Reports and other information about the Funds are
available at the SEC's Web site at www.sec.gov. You can also obtain copies of
this information, upon payment of a duplicating fee, by writing the Public
Reference Section of the SEC, Washington, D.C., 20549-6009
You can find further information about the Funds in our annual and semiannual
shareholder reports, which discuss the market conditions and investment
strategies that significantly affected the Funds' performance during its most
recent fiscal period. To request a copy of the most recent annual or semiannual
report, please call us at (800) 572-FUND [3863], option 3.
Corporate Headquarters:
The Montgomery Funds
101 California Street
- ---------------------------
(800) 572-FUND [3863]
www.montgomeryfunds.com
- ---------------------------
San Francisco, CA 94111-9361
SEC File Nos.: The Montgomery Funds 811-6011
Funds Distributor, Inc. 12/99
22
<PAGE>
---------------------------------------------------------------------
PART B
COMBINED STATEMENT OF ADDITIONAL INFORMATION FOR
MONTGOMERY GROWTH SELECT
MONTGOMERY INTERNATIONAL GROWTH SELECT
---------------------------------------------------------------------
<PAGE>
THE MONTGOMERY FUNDS
MONTGOMERY GROWTH EQUITY SELECT
MONTGOMERY INTERNATIONAL GROWTH SELECT
101 California Street
San Francisco, California 94111
(800) 572-FUND [3863]
STATEMENT OF ADDITIONAL INFORMATION
December 31, 1999
The Montgomery Funds is an open-end management investment company
organized as a Massachusetts business trust (the "Trust"), having different
series of shares of beneficial interest. The Montgomery Growth Equity Select and
the Montgomery International Growth Select (each a "Fund" and collectively, the
"Funds") are series of the Trust. This Statement of Additional Information
contains information in addition to that set forth in the combined prospectus
for the Funds dated December 31, 1999, as that prospectus may be revised from
time to time (the "Prospectus"). The Prospectus may be obtained without charge
at the address or telephone number provided above. This Statement of Additional
Information is not a prospectus and should be read in conjunction with the
Prospectus.
<PAGE>
TABLE OF CONTENTS
Page
----
STATEMENT OF ADDITIONAL INFORMATION............................................1
THE TRUST......................................................................3
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS................................3
RISK FACTORS..................................................................14
INVESTMENT RESTRICTIONS.......................................................16
DISTRIBUTIONS AND TAX INFORMATION.............................................18
TRUSTEES AND OFFICERS.........................................................22
INVESTMENT MANAGEMENT AND OTHER SERVICES......................................26
EXECUTION OF PORTFOLIO TRANSACTIONS...........................................29
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................31
DETERMINATION OF NET ASSET VALUE..............................................32
PRINCIPAL UNDERWRITER.........................................................34
PERFORMANCE INFORMATION.......................................................34
GENERAL INFORMATION...........................................................37
FINANCIAL STATEMENTS..........................................................39
APPENDIX......................................................................40
B-2
<PAGE>
THE TRUST
The Montgomery Funds is an open-end management investment company
organized as a Massachusetts business trust on May 10, 1990, and is registered
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"). The Trust currently offers shares of beneficial interest, $0.01 par value
per share, in various series. This Statement of Additional Information pertains
to the Montgomery Growth Equity Select (the "Growth Equity Select") and the
Montgomery International Growth Select (the "International Growth Select").
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
The Funds are managed by Montgomery Asset Management, LLC (the
"Manager") and their shares are distributed by Funds Distributor, Inc. (the
"Distributor"). The investment objectives and policies of the Funds are
described in detail in the combined Prospectus. The following discussion
supplements the discussion in the Prospectus.
Each Fund is a non-diversified series of The Montgomery Funds. The
achievement of each Fund's investment objective will depend upon market
conditions generally and on the Manager's analytical and portfolio management
skills.
Alternative Structures
Each Fund has reserved the right, if approved by the Board of Trustees,
to convert to a "master/feeder" structure. In this structure the assets of
mutual funds with common investment objectives and similar parameters are
combined in a pool, rather than being managed separately. The individual funds
are known as "feeder" funds and the pool as the "master" fund. Although
combining assets in this way allows for economies of scale and other advantages,
this change will not affect the investment objectives, philosophies or
disciplines currently employed by the Funds and the Manager. Each Fund would
notify its shareholders before it took any action to convert to this structure.
As of the date of this Statement of Additional Information, the Funds have not
proposed instituting this alternative structure.
Portfolio Securities
Depositary Receipts, Convertible Securities and Securities Warrants.
Each Fund may hold securities of foreign issuers in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depository Receipts ("GDRs"), and other similar global instruments available in
emerging markets, or other securities convertible into securities of eligible
issuers. These securities may not necessarily be denominated in the same
currency as the securities for which they may be exchanged. Generally, ADRs in
registered form are designed for use in U.S. securities markets, and EDRs and
other similar global instruments in bearer form are designed for use in European
securities markets. For purposes of a Fund's investment policies, a Fund's
investments in ADRs, EDRs and similar instruments will be deemed to be
investments in the equity securities representing the securities of foreign
issuers into which they may be converted. Each Fund may also invest in
convertible securities and securities warrants.
Other Investment Companies. Each Fund may invest in securities issued
by other investment companies. Those investment companies must invest in
securities in which the Fund can invest in a manner consistent with the Fund's
investment objective and policies. Applicable provisions of the Investment
Company Act require
B-3
<PAGE>
that a Fund limit its investments so that, as determined immediately after a
securities purchase is made: (a) not more than 10% of the value of a Fund's
total assets will be invested in the aggregate in securities of investment
companies as a group; and (b) either (i) a Fund and affiliated persons of that
Fund not own together more than 3% of the total outstanding shares of any one
investment company at the time of purchase (and that all shares of the
investment company held by that Fund in excess of 1% of the company's total
outstanding shares be deemed illiquid), or (ii) a Fund not invest more than 5%
of its total assets in any one investment company and the investment not
represent more than 3% of the total outstanding voting stock of the investment
company at the time of purchase.
Because of restrictions on direct investment by U.S. entities in
certain countries, other investment companies may provide the most practical or
only way for the International Growth Select to invest in certain markets. Such
investments may involve the payment of substantial premiums above the net asset
value of those investment companies' portfolio securities and are subject to
limitations under the Investment Company Act. The International Growth Select
also may incur tax liability to the extent that it invests in the stock of a
foreign issuer that is a "passive foreign investment company" regardless of
whether such "passive foreign investment company" makes distributions to the
Fund.
Each Fund does not intend to invest in other investment companies
unless, in the Manager's judgment, the potential benefits exceed associated
costs. As a shareholder in an investment company, these Funds bear their ratable
share of that investment company's expenses, including advisory and
administration fees, resulting in an additional layer of management fees and
expenses for shareholders. This duplication of expenses would occur regardless
of the type of investment company, i.e., open-end (mutual fund) or closed-end.
Debt Securities. Each Fund may purchase debt securities that complement
its objective of capital appreciation through anticipated favorable changes in
relative foreign exchange rates, in relative interest rate levels or in the
creditworthiness of issuers. Debt securities may constitute up to 35% of each
Fund's total assets. In selecting debt securities, the Manager seeks out good
credits and analyzes interest rate trends and specific developments that may
affect individual issuers. As an operating policy, which may be changed by the
Board, the Fund may invest up to 5% of its total assets in debt securities rated
lower than investment grade. Subject to this limitation, the Fund may invest in
any debt security, including securities in default. After its purchase by the
Fund, a debt security may cease to be rated or its rating may be reduced below
that required for purchase by the Fund. A security downgraded below the minimum
level may be retained if determined by the Manager and the Board to be in the
best interests of the Fund.
Debt securities may also consist of participation certificates in large
loans made by financial institutions to various borrowers, typically in the form
of large unsecured corporate loans. These certificates must otherwise comply
with the maturity and credit-quality standards of the Fund and will be limited
to 5% of the Fund's total assets.
In addition to traditional corporate, government and supranational debt
securities, the International Growth Select may invest in external (i.e., to
foreign lenders) debt obligations issued by the governments, government entities
and companies of emerging markets countries. The percentage distribution between
equity and debt will vary from country to country, based on anticipated trends
in inflation and interest rates; expected rates of economic and corporate
profits growth; changes in government policy; stability, solvency and expected
trends of government finances; and conditions of the balance of payments and
terms of trade.
B-4
<PAGE>
U.S. Government Securities. Each Fund may invest a substantial portion,
if not all, of its net assets in obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities, including repurchase agreements
backed by such securities ("U.S. government securities"). A Fund generally will
have a lower yield than if it purchased higher yielding commercial paper or
other securities with correspondingly greater risk instead of U.S. Government
securities.
Certain of the obligations, including U.S. Treasury bills, notes and
bonds, and mortgage-related securities of the GNMA, are issued or guaranteed by
the U.S. government. Other securities issued by U.S. government agencies or
instrumentalities are supported only by the credit of the agency or
instrumentality, such as those issued by the Federal Home Loan Bank, whereas
others, such as those issued by the FNMA, Farm Credit System and Student Loan
Marketing Association, have an additional line of credit with the U.S. Treasury.
Short-term U.S. government securities generally are considered to be among the
safest short-term investments. The U.S. government does not guarantee the net
asset value of a Fund's shares, however. With respect to U.S. government
securities supported only by the credit of the issuing agency or instrumentality
or by an additional line of credit with the U.S. Treasury, there is no guarantee
that the U.S. government will provide support to such agencies or
instrumentalities. Accordingly, such U.S. government securities may involve risk
of loss of principal and interest. The securities issued by these agencies are
discussed in more detail later.
Asset-Backed Securities. Each Fund may invest up to 5% of its total
assets in asset-backed securities. These are secured by and payable from pools
of assets, such as motor vehicle installment loan contracts, leases of various
types of real and personal property, and receivables from revolving credit
(e.g., credit card) agreements. Like mortgage-related securities, these
securities are subject to the risk of prepayment.
Structured Notes and Indexed Securities. Each Fund may invest in
structured notes and indexed securities. Structured notes are debt securities,
the interest rate or principal of which is determined by an unrelated indicator.
Indexed securities include structured notes as well as securities other than
debt securities, the interest rate or principal of which is determined by an
unrelated indicator. Index securities may include a multiplier that multiplies
the indexed element by a specified factor and, therefore, the value of such
securities may be very volatile. To the extent a Fund invests in these
securities, however, the Manager analyzes these securities in its overall
assessment of the effective duration of that Fund's portfolio in an effort to
monitor the Fund's interest rate risk.
Privatizations. The International Growth Select may invest in
privatizations. Foreign governmental programs of selling interests in
government-owned or -controlled enterprises ("privatizations") may represent
opportunities for significant capital appreciation and the Fund may invest in
privatizations. The ability of U.S. entities, such as the Fund, to participate
in privatizations may be limited by local law, or the terms for participation
may be less advantageous than for local investors. There can be no assurance
that privatization programs will be successful.
Special Situations. The International Growth Select may invest in
special situations. The Fund believes that carefully selected investments in
joint ventures, cooperatives, partnerships, private placements, unlisted
securities and similar vehicles (collectively, "special situations") could
enhance their capital appreciation potential. The Fund also may invest in
certain types of vehicles or derivative securities that represent indirect
investments in foreign markets or securities in which it is impracticable for
the Fund to invest directly. Investments in special situations may be illiquid,
as determined by the Manager based on criteria reviewed by the Board. The Fund
does not invest more than 15% of its net assets in illiquid investments,
including special situations.
B-5
<PAGE>
Risk Factors/Special Considerations Relating to Debt Securities
The International Growth Select may invest in debt securities that are
rated below BBB by S&P, Baa by Moody's or BBB by Fitch, or, if unrated, are
deemed to be of equivalent investment quality by the Manager. As an operating
policy, which may be changed by the Board of Trustees without shareholder
approval, the Fund will invest no more than 5% of its assets in debt securities
rated below Baa by Moody's or BBB by S&P, or, if unrated, of equivalent
investment quality as determined by the Manager. The market value of debt
securities generally varies in response to changes in interest rates and the
financial condition of each issuer. During periods of declining interest rates,
the value of debt securities generally increases. Conversely, during periods of
rising interest rates, the value of such securities generally declines. The net
asset value of the Fund will reflect these changes in market value.
Bonds rated C by Moody's are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing. Bonds rated C by S&P are obligations on
which no interest is being paid. Bonds rated below BBB or Baa are often referred
to as "junk bonds."
Although such bonds may offer higher yields than higher-rated
securities, low-rated debt securities generally involve greater price volatility
and risk of principal and income loss, including the possibility of default by,
or bankruptcy of, the issuers of the securities. In addition, the markets in
which low-rated debt securities are traded are more limited than those for
higher-rated securities. The existence of limited markets for particular
securities may diminish the ability of the Fund to sell the securities at fair
value either to meet redemption requests or to respond to changes in the economy
or financial markets and could adversely affect, and cause fluctuations in, the
per-share net asset value of the Fund.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low-rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low-rated debt securities may be more complex
than for issuers of higher-rated securities, and the ability of the Fund to
achieve its investment objectives may, to the extent it invests in low-rated
debt securities, be more dependent upon such credit analysis than would be the
case if the Fund invested in higher-rated debt securities.
Low-rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment-grade
securities. The prices of low-rated debt securities have been found to be less
sensitive to interest rate changes than higher-rated debt securities but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a sharper decline in the prices of low-rated debt
securities because the advent of a recession could lessen the ability of a
highly leveraged company to make principal and interest payments on its debt
securities. If the issuer of low-rated debt securities defaults, the Fund may
incur additional expenses to seek financial recovery. The low-rated bond market
is relatively new, and many of the outstanding low-rated bonds have not endured
a major business downturn.
Hedging and Risk Management Practices
The International Growth Select typically will not hedge against the
foreign currency exchange risks associated with its investments in foreign
securities. Consequently, the Fund will be very sensitive to any changes in
exchange rates for the currencies in which its foreign investments are
denominated or linked. The
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<PAGE>
Fund may enter into forward foreign currency exchange contracts ("forward
contracts") and foreign currency futures contracts, as well as purchase put or
call options on foreign currencies, as described below, in connection with
making an investment or, on rare occasions, to hedge against expected adverse
currency exchange rate changes. Despite their very limited use, the Fund may
enter into hedging transactions when, in fact, it is inopportune to do so and,
conversely, when it is more opportune to enter into hedging transactions the
Fund might not enter into such transactions. Such inopportune timing of
utilization of hedging practices could result in substantial losses to the Fund.
The International Growth Select also may conduct its foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market.
Each Fund may purchase options and futures and may write covered
options.
Forward Contracts. A forward contract, which is individually negotiated
and privately traded by currency traders and their customers, involves an
obligation to purchase or sell a specific currency for an agreed-upon price at a
future date.
The International Growth Select may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency or is expecting a dividend or interest payment
in order to "lock in" the U.S. dollar price of a security, dividend or interest
payment. When the Fund believes that a foreign currency may suffer a substantial
decline against the U.S. dollar, it may enter into a forward contract to sell an
amount of that foreign currency approximating the value of some or all of the
Fund's portfolio securities denominated in such currency, or when the Fund
believes that the U.S. dollar may suffer a substantial decline against a foreign
currency, it may enter into a forward contract to buy that currency for a fixed
dollar amount.
In connection with the Fund's forward contract transactions, an amount
of the Fund's assets equal to the amount of its commitments will be held aside
or segregated to be used to pay for the commitments. Accordingly, the Fund
always will have cash, cash equivalents or liquid equity or debt securities
denominated in the appropriate currency available in an amount sufficient to
cover any commitments under these contracts. Segregated assets used to cover
forward contracts will be marked to market on a daily basis. While these
contracts are not presently regulated by the Commodity Futures Trading
Commission ("CFTC"), the CFTC may in the future regulate them, and the ability
of the Fund to utilize forward contracts may be restricted. Forward contracts
may limit potential gain from a positive change in the relationship between the
U.S. dollar and foreign currencies. Unanticipated changes in currency prices may
result in poorer overall performance by the Fund than if it had not entered into
such contracts. The Fund generally will not enter into a forward foreign
currency exchange contract with a term greater than one year.
Futures Contracts and Options on Futures Contracts. Each Fund typically
will not hedge against movements in interest rates, securities prices or
currency exchange rates. The Fund may still occasionally purchase and sell
various kinds of futures contracts and options on futures contracts. The Fund
also may enter into closing purchase and sale transactions with respect to any
such contracts and options. Futures contracts may be based on various securities
(such as U.S. government securities), securities indices, foreign currencies and
other financial instruments and indices.
The Trust has filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" with the CFTC and the National
Futures Association, which regulate trading in the futures markets.
B-7
<PAGE>
Pursuant to Section 4.5 of the regulations under the Commodity Exchange Act, the
notice of eligibility included the representation that the Fund will use futures
contracts and related options for bona fide hedging purposes within the meaning
of CFTC regulations, provided that the Fund may hold positions in futures
contracts and related options that do not fall within the definition of bona
fide hedging transactions if the aggregate initial margin and premiums required
to establish such positions will not exceed 5% of the Fund's net assets (after
taking into account unrealized profits and unrealized losses on any such
positions) and that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded from such 5%.
The Fund will attempt to determine whether the price fluctuations in
the futures contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities held by the Fund for
which it expects to purchase. When used, the Fund's futures transactions
generally will be entered into only for traditional hedging purposes--i.e.,
futures contracts will be sold to protect against a decline in the price of
securities or currencies and will be purchased to protect the Fund against an
increase in the price of securities it intends to purchase (or the currencies in
which they are denominated). All futures contracts entered into by the Fund are
traded on U.S. exchanges or boards of trade licensed and regulated by the CFTC
or on foreign exchanges.
Positions taken in the futures markets are not normally held to
maturity but are instead liquidated through offsetting or "closing" purchase or
sale transactions, which may result in a profit or a loss. While the Fund's
futures contracts on securities or currencies will usually be liquidated in this
manner, the Fund may make or take delivery of the underlying securities or
currencies whenever it appears economically advantageous. A clearing corporation
associated with the exchange on which futures on securities or currencies are
traded guarantees that, if still open, the sale or purchase will be performed on
the settlement date.
By using futures contracts to hedge their positions, the Fund seeks to
establish more certainty than would otherwise be possible with respect to the
effective price, rate of return or currency exchange rate on portfolio
securities or securities that the Fund proposes to acquire. For example, when
interest rates are rising or securities prices are falling, the Fund can seek,
through the sale of futures contracts, to offset a decline in the value of its
current portfolio securities. When rates are falling or prices are rising, the
Fund, through the purchase of futures contracts, can attempt to secure better
rates or prices than might later be available in the market with respect to
anticipated purchases. Similarly, the Fund can sell futures contracts on a
specified currency to protect against a decline in the value of such currency
and its portfolio securities which are denominated in such currency. The Fund
can purchase futures contracts on a foreign currency to fix the price in U.S.
dollars of a security denominated in such currency the Fund has acquired or
expects to acquire.
As part of its hedging strategy, the Fund also may enter into other
types of financial futures contracts if, in the opinion of the Manager, there is
a sufficient degree of correlation between price trends for the Fund's portfolio
securities and such futures contracts. Although under some circumstances prices
of securities in the Fund's portfolio may be more or less volatile than prices
of such futures contracts, the Manager will attempt to estimate the extent of
this difference in volatility based on historical patterns and to compensate for
it by having the Fund enter into a greater or lesser number of futures contracts
or by attempting to achieve only a partial hedge against price changes affecting
the Fund's securities portfolio. When hedging of this character is successful,
any depreciation in the value of portfolio securities can be substantially
offset by appreciation in the value of the futures position. However, any
unanticipated appreciation in the value of the Fund's portfolio securities could
be offset substantially by a decline in the value of the futures position.
B-8
<PAGE>
The acquisition of put and call options on futures contracts gives the
Fund the right (but not the obligation), for a specified price, to sell or
purchase the underlying futures contract at any time during the option period.
Purchasing an option on a futures contract gives the Fund the benefit of the
futures position if prices move in a favorable direction, and limits its risk of
loss, in the event of an unfavorable price movement, to the loss of the premium
and transaction costs.
The Fund may terminate its position in an option contract by selling an
offsetting option on the same series. There is no guarantee that such a closing
transaction can be effected. The Fund's ability to establish and close out
positions on such options is dependent upon a liquid market.
Loss from investing in futures transactions by the Fund is potentially
unlimited.
The Fund will engage in transactions in futures contracts and related
options only to the extent such transactions are consistent with the
requirements of the Internal Revenue Code of 1986, as amended, for maintaining
its qualification as a regulated investment company for federal income tax
purposes.
Options on Securities, Securities Indices and Currencies. Each Fund may
purchase put and call options on securities in which it has invested, on foreign
currencies represented in its portfolios and on any securities index based in
whole or in part on securities in which that Fund may invest. A Fund also may
enter into closing sales transactions in order to realize gains or minimize
losses on options they have purchased.
A Fund normally will purchase call options in anticipation of an
increase in the market value of securities of the type in which it may invest or
a positive change in the currency in which such securities are denominated. The
purchase of a call option would entitle a Fund, in return for the premium paid,
to purchase specified securities or a specified amount of a foreign currency at
a specified price during the option period.
A Fund may purchase and sell options traded on U.S. and foreign
exchanges. Although a Fund will generally purchase only those options for which
there appears to be an active secondary market, there can be no assurance that a
liquid secondary market on an exchange will exist for any particular option or
at any particular time. For some options, no secondary market on an exchange may
exist. In such event, it might not be possible to effect closing transactions in
particular options, with the result that a Fund would have to exercise its
options in order to realize any profit and would incur transaction costs upon
the purchase or sale of the underlying securities.
Secondary markets on an exchange may not exist or may not be liquid for
a variety of reasons including: (i) insufficient trading interest in certain
options; (ii) restrictions on opening transactions or closing transactions
imposed by an exchange; (iii) trading halts, suspensions or other restrictions
may be imposed with respect to particular classes or series of options; (iv)
unusual or unforeseen circumstances which interrupt normal operations on an
exchange; (v) inadequate facilities of an exchange or the Options Clearing
Corporation to handle current trading volume at all times; or (vi)
discontinuance in the future by one or more exchanges for economic or other
reasons, of trading of options (or of a particular class or series of options),
in which event the secondary market on that exchange (or in that class or series
of options) would cease to exist, although outstanding options on that exchange
that had been issued by the Options Clearing Corporation as a result of trades
on that exchange would continue to be exercisable in accordance with their
terms.
Although the Funds do not currently intend to do so, they may, in the
future, write (i.e., sell) covered put and call options on securities,
securities indices and currencies in which they may invest. A covered call
option
B-9
<PAGE>
involves a Fund's giving another party, in return for a premium, the right to
buy specified securities owned by that Fund at a specified future date and price
set at the time of the contract. A covered call option serves as a partial hedge
against a price decline of the underlying security. However, by writing a
covered call option, a Fund gives up the opportunity, while the option is in
effect, to realize gain from any price increase (above the option exercise
price) in the underlying security. In addition, a Fund's ability to sell the
underlying security is limited while the option is in effect unless that Fund
effects a closing purchase transaction.
Each Fund also may write covered put options that give the holder of
the option the right to sell the underlying security to the Fund at the stated
exercise price. A Fund will receive a premium for writing a put option but will
be obligated for as long as the option is outstanding to purchase the underlying
security at a price that may be higher than the market value of that security at
the time of exercise. In order to "cover" put options it has written, a Fund
will cause its custodian to segregate cash, cash equivalents, U.S. Government
securities or other liquid equity or debt securities with at least the value of
the exercise price of the put options. A Fund will not write put options if the
aggregate value of the obligations underlying the put options exceeds 25% of
that Fund's total assets.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities of
the Options Clearing Corporation inadequate, and result in the institution by an
exchange of special procedures that may interfere with the timely execution of
the Funds' orders.
Equity-Linked Derivatives--SPDRs, WEBS, DIAMONDS and OPALS. Each Fund
may invest in Standard & Poor's ("S&P") Depository Receipts ("SPDRs") and S&P's
MidCap 400 Depository Receipts ("MidCap SPDRs"), World Equity Benchmark Series
("WEBS"), Dow Jones Industrial Average instruments ("DIAMONDS") and baskets of
Country Securities ("OPALS"). Each of these instruments is a derivative security
whose value follows a well-known securities index or baskets of securities.
SPDRs and MidCap SPDRs are designed to follow the performance of S&P
500 Index and the S&P MidCap 400 Index, respectively. WEBS are currently
available in 17 varieties, each designed to follow the performance of a
different Morgan Stanley Capital International country index. DIAMONDS are
designed to follow the performance of the Dow Jones Industrial Average which
tracks the composite stock performance of 30 major U.S. companies in a diverse
range of industries.
OPALS track the performance of adjustable baskets of stocks owned by
Morgan Stanley Capital (Luxembourg) S.A. (the "Counterparty") until a specified
maturity date. Holders of OPALS will receive semi-annual distributions
corresponding to dividends received on shares contained in the underlying basket
of stocks and certain amounts, net of expenses. On the maturity date of the
OPALS, the holders will receive the physical securities comprising the
underlying baskets. Opals, like many of these types of instruments, represent an
unsecured obligation and therefore carry with them the risk that the
Counterparty will default.
Because the prices of SPDRs, MidCap SPDRs, WEBS, DIAMONDS and OPALS are
correlated to diversified portfolios, they are subject to the risk that the
general level of stock prices may decline or that the underlying indices
decline. In addition, because SPDRs, MidCap SPDRs, WEBS, DIAMONDS and OPALS will
continue to be traded even when trading is halted in component stocks of the
underlying indices, price quotations for these securities may, at times, be
based upon non-current price information with respect to some of even all of the
stocks in the underlying indices. In addition to the risks disclosed in "Foreign
Securities"
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<PAGE>
below, because WEBS mirror the performance of a single country index, a economic
downturn in a single country could significantly adversely affect the price of
the WEBS for that country.
Other Investment Practices
Repurchase Agreements. Each Fund may enter into repurchase agreements.
A Fund's repurchase agreements will generally involve a short-term investment in
a U.S. Government security or other high-grade liquid debt security, with the
seller of the underlying security agreeing to repurchase it at a mutually
agreed-upon time and price. The repurchase price is generally higher than the
purchase price, the difference being interest income to that Fund.
Alternatively, the purchase and repurchase prices may be the same, with interest
at a stated rate due to a Fund together with the repurchase price on the date of
repurchase. In either case, the income to a Fund is unrelated to the interest
rate on the underlying security.
Under each repurchase agreement, the seller is required to maintain the
value of the securities subject to the repurchase agreement at not less than
their repurchase price. The Manager, acting under the supervision of the Board,
reviews on a periodic basis the suitability and creditworthiness, and the value
of the collateral, of those sellers with whom the Funds enter into repurchase
agreements to evaluate potential risk. All repurchase agreements will be made
pursuant to procedures adopted and regularly reviewed by the Board.
The Funds generally will enter into repurchase agreements of short
maturities, from overnight to one week, although the underlying securities will
generally have longer maturities. The Funds regard repurchase agreements with
maturities in excess of seven days as illiquid. A Fund may not invest more than
15% of the value of its net assets in illiquid securities, including repurchase
agreements with maturities greater than seven days.
For purposes of the Investment Company Act, a repurchase agreement is
deemed to be a collateralized loan from a Fund to the seller of the security
subject to the repurchase agreement. It is not clear whether a court would
consider the security acquired by a Fund subject to a repurchase agreement as
being owned by that Fund or as being collateral for a loan by that Fund to the
seller. If bankruptcy or insolvency proceedings are commenced with respect to
the seller of the security before its repurchase, a Fund may encounter delays
and incur costs before being able to sell the security. Delays may involve loss
of interest or a decline in price of the security. If a court characterizes such
a transaction as a loan and a Fund has not perfected a security interest in the
security, that Fund may be required to return the security to the seller's
estate and be treated as an unsecured creditor. As such, a Fund would be at risk
of losing some or all of the principal and income involved in the transaction.
As with any unsecured debt instrument purchased for a Fund, the Manager seeks to
minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the seller of the security.
Apart from the risk of bankruptcy or insolvency proceedings, a Fund
also runs the risk that the seller may fail to repurchase the security. However,
each Fund always requires collateral for any repurchase agreement to which it is
a party in the form of securities acceptable to it, the market value of which is
equal to at least 100% of the amount invested by the Fund plus accrued interest,
and each Fund makes payment against such securities only upon physical delivery
or evidence of book entry transfer to the account of its custodian bank. If the
market value of the security subject to the repurchase agreement becomes less
than the repurchase price (including interest), a Fund, pursuant to its
repurchase agreement, may require the seller of the security to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement equals or exceeds the repurchase price (including interest)
at all times.
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<PAGE>
The Funds may participate in one or more joint accounts with each other
and other series of the Trusts that invest in repurchase agreements
collateralized, subject to their investment policies, either by (i) obligations
issued or guaranteed as to principal and interest by the U.S. Government or by
one of its agencies or instrumentalities, or (ii) privately issued
mortgage-related securities that are in turn collateralized by securities issued
by GNMA, FNMA or FHLMC, and are rated in the highest rating category by a
nationally recognized statistical rating organization, or, if unrated, are
deemed by the Manager to be of comparable quality using objective criteria. Any
such repurchase agreement will have, with rare exceptions, an overnight,
over-the-weekend or over-the-holiday duration, and in no event have a duration
of more than seven days.
Reverse Repurchase Agreements. Each Fund may enter into reverse
repurchase agreements. A Fund typically will invest the proceeds of a reverse
repurchase agreement in money market instruments or repurchase agreements
maturing not later than the expiration of the reverse repurchase agreement. This
use of proceeds involves leverage, and a Fund will enter into a reverse
repurchase agreement for leverage purposes only when the Manager believes that
the interest income to be earned from the investment of the proceeds would be
greater than the interest expense of the transaction. A Fund also may use the
proceeds of reverse repurchase agreements to provide liquidity to meet
redemption requests when sale of the Fund's securities is disadvantageous.
The Funds cause their custodian to segregate liquid assets, such as
cash, U.S. Government securities or other liquid equity or debt securities equal
in value to their obligations (including accrued interest) with respect to
reverse repurchase agreements. Such assets are marked to market daily to ensure
that full collateralization is maintained.
Lending of Portfolio Securities. Although the Funds currently do not
intend to do so, a Fund may lend its portfolio securities in order to generate
additional income. Such loans may be made to broker-dealers or other financial
institutions whose creditworthiness is acceptable to the Manager. These loans
would be required to be secured continuously by collateral, including cash, cash
equivalents, irrevocable letters of credit, U.S. Government securities, or other
high-grade liquid debt securities, maintained on a current basis (i.e., marked
to market daily) at an amount at least equal to 100% of the market value of the
securities loaned plus accrued interest. A Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the income earned on the cash to the borrower or placing
broker. Loans are subject to termination at the option of a Fund or the borrower
at any time. Upon such termination, that Fund is entitled to obtain the return
of the securities loaned within five business days.
For the duration of the loan, a Fund will continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned, will receive proceeds from the investment of the collateral and will
continue to retain any voting rights with respect to those securities. As with
other extensions of credit, there are risks of delay in recovery or even losses
of rights in the securities loaned should the borrower of the securities fail
financially. However, the loans will be made only to borrowers deemed by the
Manager to be creditworthy, and when, in the judgment of the Manager, the income
which can be earned currently from such loans justifies the attendant risk.
When-Issued and Forward Commitment Securities. The Funds may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" or "delayed delivery" basis. The price of such securities
is fixed at the time the commitment to purchase or sell is made, but delivery
and payment for the securities take place at a later date. Normally, the
settlement date occurs within one month of the purchase; during the period
between purchase and settlement, no payment is made by a Fund to the issuer.
While the Funds reserve the right to sell when-issued or delayed delivery
securities prior to the settlement date,
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<PAGE>
the Funds intend to purchase such securities with the purpose of actually
acquiring them unless a sale appears desirable for investment reasons. At the
time a Fund makes a commitment to purchase a security on a when-issued or
delayed delivery basis, it will record the transaction and reflect the value of
the security in determining its net asset value. The market value of the
when-issued securities may be more or less than the settlement price. The Funds
do not believe that their net asset values will be adversely affected by their
purchase of securities on a when-issued or delayed delivery basis. The Funds
cause their custodian to segregate cash, U.S. Government securities or other
liquid equity or debt securities with a value equal in value to commitments for
when-issued or delayed delivery securities. The segregated securities either
will mature or, if necessary, be sold on or before the settlement date. To the
extent that assets of a Fund are held in cash pending the settlement of a
purchase of securities, that Fund will earn no income on these assets.
The Funds may seek to hedge investments or to realize additional gains
through forward commitments to sell high-grade liquid debt securities it does
not own at the time it enters into the commitments. Such forward commitments
effectively constitute a form of short sale. To complete such a transaction, the
Fund must obtain the security which it has made a commitment to deliver. If the
Fund does not have cash available to purchase the security it is obligated to
deliver, it may be required to liquidate securities in its portfolio at either a
gain or a loss, or borrow cash under a reverse repurchase or other short-term
arrangement, thus incurring an additional expense. In addition, the Fund may
incur a loss as a result of this type of forward commitment if the price of the
security increases between the date the Fund enters into the forward commitment
and the date on which it must purchase the security it is committed to deliver.
The Fund will realize a gain from this type of forward commitment if the
security declines in price between those dates. The amount of any gain will be
reduced, and the amount of any loss increased, by the amount of the interest or
other transaction expenses the Fund may be required to pay in connection with
this type of forward commitment. Whenever this Fund engages in this type of
transaction, it will segregate assets as discussed above.
Illiquid Securities. The Fund may invest up to 15% of its net assets in
illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which a Fund has valued the
securities and includes, among others, repurchase agreements maturing in more
than seven days, certain restricted securities and securities that are otherwise
not freely transferable. Illiquid securities also include shares of an
investment company held by a Fund in excess of 1% of the total outstanding
shares of that investment company. Restricted securities may be sold only in
privately negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the Securities Act of 1933, as amended
("1933 Act"). Illiquid securities acquired by a Fund may include those that are
subject to restrictions on transferability contained in the securities laws of
other countries. Securities that are freely marketable in the country where they
are principally traded, but that would not be freely marketable in the United
States, will not be considered illiquid. Where registration is required, a Fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time that Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, that Fund might obtain a less favorable price than prevailed when it
decided to sell.
In recent years a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including securities sold
in private placements, repurchase agreements, commercial paper, foreign
securities and corporate bonds and notes. These instruments often are restricted
securities because the securities are sold in transactions not requiring
registration. Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often depend either on an
efficient institutional market
B-13
<PAGE>
in which such unregistered securities can be resold readily or on an issuer's
ability to honor a demand for repayment. Therefore, the fact that there are
contractual or legal restrictions on resale to the general public or certain
institutions is not determinative of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a safe harbor from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
sold pursuant to Rule 144A in many cases provide both readily ascertainable
values for restricted securities and the ability to liquidate an investment to
satisfy share redemption orders. Such markets might include automated systems
for the trading, clearance and settlement of unregistered securities of domestic
and foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc. An insufficient number of qualified
buyers interested in purchasing Rule 144A-eligible restricted securities,
however, could adversely affect the marketability of such portfolio securities
and result in a Fund's inability to dispose of such securities promptly or at
favorable prices.
The Board has delegated the function of making day-to-day
determinations of liquidity to the Manager pursuant to guidelines approved by
the Board. The Manager takes into account a number of factors in reaching
liquidity decisions, including, but not limited to: (i) the frequency of trades
for the security, (ii) the number of dealers that quote prices for the security,
(iii) the number of dealers that have undertaken to make a market in the
security, (iv) the number of other potential purchasers, and (v) the nature of
the security and how trading is effected (e.g., the time needed to sell the
security, how bids are solicited and the mechanics of transfer). The Manager
monitors the liquidity of restricted securities in the Funds' portfolios and
reports periodically on such decisions to the Board.
RISK FACTORS
The following describes certain risks involved with investing in the
Funds in addition to those described in the prospectus or elsewhere in this
Statement of Additional Information.
Foreign Securities
The Funds may purchase securities in foreign countries. Accordingly,
shareholders should consider carefully the substantial risks involved in
investing in securities issued by companies and governments of foreign nations,
which are in addition to the usual risks inherent in domestic investments.
Foreign investments involve the possibility of expropriation, nationalization or
confiscatory taxation; taxation of income earned in foreign nations (including,
for example, withholding taxes on interest and dividends) or other taxes imposed
with respect to investments in foreign nations; foreign exchange controls (which
may include suspension of the ability to transfer currency from a given country
and repatriation of investments); default in foreign government securities, and
political or social instability or diplomatic developments that could adversely
affect investments. In addition, there is often less publicly available
information about foreign issuers than those in the United States. Foreign
companies are often not subject to uniform accounting, auditing and financial
reporting standards. Further, these Funds may encounter difficulties in pursuing
legal remedies or in obtaining judgments in foreign courts.
Brokerage commissions, fees for custodial services and other costs
relating to investments by the Funds in other countries are generally greater
than in the United States. Foreign markets have different clearance and
settlement procedures from those in the United States, and certain markets have
experienced times when settlements did not keep pace with the volume of
securities transactions which resulted in settlement difficulty.
B-14
<PAGE>
The inability of a Fund to make intended security purchases due to settlement
difficulties could cause it to miss attractive investment opportunities.
Inability to sell a portfolio security due to settlement problems could result
in loss to the Fund if the value of the portfolio security declined, or result
in claims against the Fund if it had entered into a contract to sell the
security. In certain countries there is less government supervision and
regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the United States. The securities markets of many of
the countries in which these Funds may invest may also be smaller, less liquid
and subject to greater price volatility than those in the United States.
Because certain securities may be denominated in foreign currencies,
the value of such securities will be affected by changes in currency exchange
rates and in exchange control regulations, and costs will be incurred in
connection with conversions between currencies. A change in the value of a
foreign currency against the U.S. dollar results in a corresponding change in
the U.S. dollar value of a Fund's securities denominated in the currency. Such
changes also affect the Fund's income and distributions to shareholders. A Fund
may be affected either favorably or unfavorably by changes in the relative rates
of exchange among the currencies of different nations, and a Fund may therefore
engage in foreign currency hedging strategies. Such strategies, however, involve
certain transaction costs and investment risks, including dependence upon the
Manager's ability to predict movements in exchange rates.
Some countries in which one of these Funds may invest may also have
fixed or managed currencies that are not freely convertible at market rates into
the U.S. dollar. Certain currencies may not be internationally traded. A number
of these currencies have experienced steady devaluation relative to the U.S.
dollar, and such devaluations in the currencies may have a detrimental impact on
the Fund. Many countries in which a Fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuation in inflation rates may have negative
effects on certain economies and securities markets. Moreover, the economies of
some countries may differ favorably or unfavorably from the U.S. economy in such
respects as the rate of growth of gross domestic product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments. Certain
countries also limit the amount of foreign capital that can be invested in their
markets and local companies, creating a "foreign premium" on capital investments
available to foreign investors such as the Funds. The Funds may pay a "foreign
premium" to establish an investment position which it cannot later recoup
because of changes in that country's foreign investment laws.
Exchange Rates and Policies
The International Growth Select endeavors to buy and sell foreign
currencies on favorable terms. Some price spreads on currency exchange (to cover
service charges) may be incurred, particularly when the Fund changes investments
from one country to another or when proceeds from the sale of shares in U.S.
dollars are used for the purchase of securities in foreign countries. Also, some
countries may adopt policies which would prevent the Fund from repatriating
invested capital and dividends, withhold portions of interest and dividends at
the source, or impose other taxes, with respect to the Fund's investments in
securities of issuers of that country. There also is the possibility of
expropriation, nationalization, confiscatory or other taxation, foreign exchange
controls (which may include suspension of the ability to transfer currency from
a given country), default in foreign government securities, political or social
instability, or diplomatic developments that could adversely affect investments
in securities of issuers in those nations.
The Fund may be affected either favorably or unfavorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, exchange control regulations and indigenous economic and
political developments.
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The Manager considers at least annually the likelihood of the
imposition by any foreign government of exchange control restrictions that would
affect the liquidity of the Fund's assets maintained with custodians in foreign
countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. The Manager also considers the
degree of risk attendant to holding portfolio securities in domestic and foreign
securities depositories (see "Investment Management and Other Services").
Interest Rates
The market value of debt securities that are interest rate sensitive is
inversely related to changes in interest rates. That is, an interest rate
decline produces an increase in a security's market value and an interest rate
increase produces a decrease in value. The longer the remaining maturity of a
security, the greater the effect of interest rate changes. Changes in the
ability of an issuer to make payments of interest and principal and in the
market's perception of its creditworthiness also affect the market value of that
issuer's debt securities.
Equity Swaps
The Funds may invest in equity swaps. Equity swaps allow the parties to
exchange the dividend income or other components of return on an equity
investment (e.g., a group of equity securities or an index) for a component of
return on another non-equity or equity investment. Equity swaps are derivatives,
and their values can be very volatile. To the extent that the Manager does not
accurately analyze and predict the potential relative fluctuation of the
components swapped with another party, a Fund may suffer a loss. The value of
some components of an equity swap (like the dividends on a common stock) may
also be sensitive to changes in interest rates. Furthermore, during the period a
swap is outstanding, the Fund may suffer a loss if the counterparty defaults.
Non-Diversified Portfolio
The Funds are "non-diversified" investment companies under the
Investment Company Act. This means that, with respect to 50% of each Fund's
total assets, it may not invest more than 5% of its total assets in the
securities of any one issuer (other than the U.S. government). The balance of
its assets may be invested in as few as two issuers. Thus, up to 25% of each
Fund's total assets may be invested in the securities of any one issuer. The
investment return on a non-diversified portfolio, however, typically is
dependent upon the performance of a smaller number of issuers relative to the
number of issuers held in a diversified portfolio. If the financial condition or
market assessment of certain issuers changes, a Fund's policy of acquiring large
positions in the obligations of a relatively small number of issuers may affect
the value of its portfolio to a greater extent than if its portfolio were fully
diversified.
INVESTMENT RESTRICTIONS
The following policies and investment restrictions have been adopted by
the Funds and (unless otherwise noted) are fundamental and cannot be changed
without the affirmative vote of a majority of the Funds' outstanding voting
securities as defined in the Investment Company Act. The Funds may not:
1. Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objective and
policies, (b) through the lending of up to 30% of its
portfolio securities as described above, or (c) to the extent
the entry into a repurchase agreement or a reverse dollar roll
transaction is deemed to be a loan.
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2. (a) Borrow money, except for temporary or emergency
purposes from a bank, or pursuant to reverse
repurchase agreements or dollar roll transactions and
then not in excess of one-third of the value of its
total assets (including the proceeds of such
borrowings, at the lower of cost or fair market
value). Any such borrowing 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.
3. Except as required in connection with permissible hedging
activities, purchase securities on margin or underwrite
securities. (This does not preclude a 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.)
4. Buy or sell real estate or commodities or commodity contracts;
however, the Fund, to the extent not otherwise prohibited in
the Prospectus or this 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 this Statement of Additional
Information.
5. Invest in securities of other investment companies, except to
the extent permitted by the Investment Company Act and
discussed in this Statement of Additional Information, or as
such securities may be acquired as part of a merger,
consolidation or acquisition of assets.
6. 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 a Fund.
(This is an operating policy that may be changed without
shareholder approval, consistent with the Investment Company
Act and changes in relevant SEC interpretations).
7. Invest in any issuer for purposes of exercising control or
management of the issuer. (This is an operating policy that
may be changed without shareholder approval, consistent with
the Investment Company Act.)
8. 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.
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<PAGE>
government, its agencies or instrumentalities.) For purposes
of this restriction, the Funds generally rely on the U.S.
Office of Management and Budget's Standard Industrial
Classifications.
9. Issue senior securities, as defined in the Investment Company
Act, except that this restriction shall not be deemed to
prohibit a Fund from (a) making any permitted borrowings,
mortgages or pledges, or (b) entering into permissible
repurchase and dollar roll transactions.
10. Except as described in this 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 a 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 a Fund's
total assets.
(This is an operating policy that may be changed without
shareholder approval.)
11. Except as described in the Prospectus and this Statement of
Additional Information, engage in short sales of securities.
(This is an operating policy that may be changed without
shareholder approval, consistent with applicable regulations.)
12. Purchase more than 10% of the outstanding voting securities of
any one issuer. (This is an operating policy that may be
changed without shareholder approval.)
13. Invest in commodities, except for futures contracts or options
on futures contracts if the investments are either (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 a 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
that 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.
DISTRIBUTIONS AND TAX INFORMATION
Distributions. The Funds receive income in the form of dividends and
interest earned on their investments in securities. This income, less the
expenses incurred in their operations, is the Funds' net investment income,
substantially all of which will be declared as dividends to the Funds'
shareholders.
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<PAGE>
The amount of ordinary income dividend payments by a Fund is dependent
upon the amount of net investment income received by that Fund from its
portfolio holdings, is not guaranteed and is subject to the discretion of the
Fund's Board. The Funds do not pay "interest" or guarantee any fixed rate of
return on an investment in its shares.
The Funds also may derive capital gains or losses in connection with
sales or other dispositions of their portfolio securities. Any net gain a Fund
may realize from transactions involving investments held less than the period
required for long-term capital gain or loss recognition or otherwise producing
short-term capital gains and losses (taking into account any carryover of
capital losses from the eight previous taxable years), although a distribution
from capital gains, will be distributed to shareholders with and as a part of
dividends giving rise to ordinary income. If during any year a Fund realizes a
net gain on transactions involving investments held for the period required for
long-term capital gain or loss recognition or otherwise producing long-term
capital gains and losses, that Fund will have a net long-term capital gain.
After deduction of the amount of any net short-term capital loss, the balance
(to the extent not offset by any capital losses carried over from the eight
previous taxable years) will be distributed and treated as long-term capital
gains in the hands of the shareholders regardless of the length of time the
Fund's shares may have been held by the shareholders.
The maximum long-term federal capital gains rate for individuals is 20%
with respect to capital assets held for more than 12 months. The maximum capital
gains rate for corporate shareholders is the same as the maximum tax rate for
ordinary income.
Any dividend or distribution per share paid by a Fund reduces its net
asset value per share on the date paid by the amount of the dividend or
distribution per share. Accordingly, a dividend or distribution paid shortly
after a purchase of shares by a shareholder would represent, in substance, a
partial return of capital (to the extent it is paid on the shares so purchased),
even though it would be subject to income taxes.
Dividends and other distributions will be reinvested in additional
shares of the Fund unless the shareholder has otherwise indicated. Investors
have the right to change their elections with respect to the reinvestment of
dividends and distributions by notifying the Transfer Agent in writing, but any
such change will be effective only as to dividends and other distributions for
which the record date is seven or more business days after the Transfer Agent
has received the written request.
Tax Information. Each Fund has elected and intends to continue to
qualify to be treated as a regulated investment company under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"), for each taxable
year by complying with all applicable requirements regarding the source of its
income, the diversification of its assets, and the timing of its distributions.
A Fund that has filed a tax return has so qualified and elected in prior tax
years. The Funds' policy is to distribute to their shareholders all of their
investment company taxable income and any net realized capital gains for each
fiscal year in a manner that complies with the distribution requirements of the
Code, so the Funds will not be subject to any federal income tax or excise taxes
based on net income. However, the Board of Trustees may elect to pay such excise
taxes if it determines that payment is, under the circumstances, in the best
interests of the Funds.
In order to qualify as a regulated investment company, each Fund must,
among other things, (a) derive at least 90% of its gross income each year from
dividends, interest, payments with respect to loans of stock and securities,
gains from the sale or other disposition of stock or securities or foreign
currency gains related to investments in stocks or other securities, or other
income (generally including gains from options, futures or forward contracts)
derived with respect to the business of investing in stock, securities or
currency, and (b)
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diversify its holdings so that, at the end of each fiscal quarter, (i) at least
50% of the market value of its assets is represented by cash, cash items, U.S.
Government securities, securities of other regulated investment companies and
other securities limited, for purposes of this calculation, in the case of other
securities of any one issuer to an amount not greater than 5% of that Fund's
assets or 10% of the voting securities of the issuer, and (ii) not more than 25%
of the value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities or securities of other regulated
investment companies). As such, and by complying with the applicable provisions
of the Code, the Funds will not be subject to federal income tax on taxable
income (including realized capital gains) that is distributed to shareholders in
accordance with the timing requirements of the Code. If a Fund is unable to meet
certain requirements of the Code, it may be subject to taxation as a
corporation.
Distributions of net investment income and net realized capital gains
by a Fund will be taxable to shareholders whether made in cash or reinvested in
shares. In determining amounts of net realized capital gains to be distributed,
any capital loss carryovers from the eight prior taxable years will be applied
against capital gains. Shareholders receiving distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share of a Fund on the
reinvestment date. Fund distributions also will be included in individual and
corporate shareholders' income on which the alternative minimum tax may be
imposed.
The Funds or any securities dealer effecting a redemption of the Funds'
shares by a shareholder will be required to file information reports with the
IRS with respect to distributions and payments made to the shareholder. In
addition, the Funds will be required to withhold federal income tax at the rate
of 31% on taxable dividends, redemptions and other payments made to accounts of
individual or other non-exempt shareholders who have not furnished their correct
taxpayer identification numbers and made certain required certifications on the
Account Application Form or with respect to which the Funds or the securities
dealer has been notified by the IRS that the number furnished is incorrect or
that the account is otherwise subject to withholding.
The Funds intend to declare and pay dividends and other distributions,
as stated in the Prospectus. In order to avoid the payment of any federal excise
tax based on net income, the Funds must declare on or before December 31 of each
year, and pay on or before January 31 of the following year, distributions at
least equal to 98% of its ordinary income for that calendar year and at least
98% of the excess of any capital gains over any capital losses realized in the
one-year period ending October 31 of that year, together with any undistributed
amounts of ordinary income and capital gains (in excess of capital losses) from
the previous calendar year.
The Funds may receive dividend distributions from U.S. corporations. To
the extent that a Fund receives such dividends and distributes them to its
shareholders, and meets certain other requirements of the Code, corporate
shareholders of that Fund may be entitled to the "dividends received" deduction.
Availability of the deduction is subject to certain holding period and
debt-financing limitations.
If more than 50% in value of the total assets of a Fund at the end of
its fiscal year is invested in stock or other securities of foreign
corporations, that Fund may elect to pass through to its shareholders the pro
rata share of all foreign income taxes paid by the Fund. If this election is
made, shareholders will be (i) required to include in their gross income their
pro rata share of any foreign income taxes paid by the Fund, and (ii) entitled
either to deduct their share of such foreign taxes in computing their taxable
income or to claim a credit for such taxes against their U.S. income tax,
subject to certain limitations under the Code, including certain holding period
requirements. In this case, shareholders will be informed in writing by that
Fund at the end of each calendar year regarding the availability of any credits
on and the amount of foreign source income (including or
B-20
<PAGE>
excluding foreign income taxes paid by the Fund) to be included in their income
tax returns. If 50% or less in value of a Fund's total assets at the end of its
fiscal year are invested in stock or other securities of foreign corporations,
that Fund will not be entitled under the Code to pass through to its
shareholders their pro rata share of the foreign income taxes paid by the Fund.
In this case, these taxes will be taken as a deduction by the Fund.
A Fund may be subject to foreign withholding taxes on dividends and
interest earned with respect to securities of foreign corporations. Each Fund
may invest up to 10% of its total assets in the stock of foreign investment
companies. Such companies are likely to be treated as "passive foreign
investment companies" ("PFICs") under the Code. Certain other foreign
corporations, not operated as investment companies, may nevertheless satisfy the
PFIC definition. A portion of the income and gains that a Fund derives from PFIC
stock may be subject to a non-deductible federal income tax at the Fund level.
In some cases, that Fund may be able to avoid this tax by electing to be taxed
currently on its share of the PFIC's income, whether or not such income is
actually distributed by the PFIC. Each Fund will endeavor to limit its exposure
to the PFIC tax by investing in PFICs only where the election to be taxed
currently will be made. Because it is not always possible to identify a foreign
issuer as a PFIC in advance of making the investment, a Fund may incur the PFIC
tax in some instances.
Hedging. The use of hedging strategies, such as entering into futures
contracts and forward contracts and purchasing options, involves complex rules
that will determine the character and timing of recognition of the income
received in connection therewith by a Fund. Income from foreign currencies
(except certain gains therefrom that may be excluded by future regulations) and
income from transactions in options, futures contracts and forward contracts
derived by a Fund with respect to its business of investing in securities or
foreign currencies will qualify as permissible income under Subchapter M of the
Code.
For accounting purposes, when a Fund purchases an option, the premium
paid by that Fund is recorded as an asset and is subsequently adjusted to the
current market value of the option. Any gain or loss realized by a Fund upon the
expiration or sale of such options held by that Fund generally will be capital
gain or loss.
Any security, option, or other position entered into or held by a Fund
that substantially diminishes that Fund's risk of loss from any other position
held by that Fund may constitute a "straddle" for federal income tax purposes.
In general, straddles are subject to certain rules that may affect the amount,
character and timing of a Fund's gains and losses with respect to straddle
positions by requiring, among other things, that the loss realized on
disposition of one position of a straddle be deferred until gain is realized on
disposition of the offsetting position; that a Fund's holding period in certain
straddle positions not begin until the straddle is terminated (possibly
resulting in the gain being treated as short-term capital gain rather than
long-term capital gain); and that losses recognized with respect to certain
straddle positions, which would otherwise constitute short-term capital losses,
be treated as long-term capital losses. Different elections are available to a
Fund that may mitigate the effects of the straddle rules.
Certain options, futures contracts and forward contracts that are
subject to Section 1256 of the Code ("Section 1256 Contracts") and that are held
by a Fund at the end of its taxable year generally will be required to be
"marked to market" for federal income tax purposes, that is, deemed to have been
sold at market value. Sixty percent of any net gain or loss recognized on these
deemed sales and 60% of any net gain or loss realized from any actual sales of
Section 1256 Contracts will be treated as long-term capital gain or loss, and
the balance will be treated as short-term capital gain or loss.
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<PAGE>
Section 988 of the Code contains special tax rules applicable to
certain foreign currency transactions that may affect the amount, timing and
character of income, gain or loss recognized by a Fund. Under these rules,
foreign exchange gain or loss realized with respect to foreign
currency-denominated debt instruments, foreign currency forward contracts,
foreign currency-denominated payables and receivables and foreign currency
options and futures contracts (other than options and futures contracts that are
governed by the mark-to-market and 60/40 rules of Section 1256 of the Code and
for which no election is made) is treated as ordinary income or loss. Some part
of a Fund's gain or loss on the sale or other disposition of shares of a foreign
corporation may, because of changes in foreign currency exchange rates, be
treated as ordinary income or loss under Section 988 of the Code, rather than as
capital gain or loss.
Redemptions and exchanges of shares of a Fund will result in gains or
losses for tax purposes to the extent of the difference between the proceeds and
the shareholder's adjusted tax basis for the shares. Any loss realized upon the
redemption or exchange of shares within six months from their date of purchase
will be treated as a long-term capital loss to the extent of distributions of
long-term capital gain dividends with respect to such shares during such
six-month period. All or a portion of a loss realized upon the redemption of
shares of a Fund may be disallowed to the extent shares of that Fund are
purchased (including shares acquired by means of reinvested dividends) within 30
days before or after such redemption.
Distributions and redemptions may be subject to state and local income
taxes, and the treatment thereof may differ from the federal income tax
treatment. Foreign taxes may apply to non-U.S. investors.
The above discussion and the related discussion in the Prospectus are
not intended to be complete discussions of all applicable federal tax
consequences of an investment in the Funds. The law firm of Paul, Hastings,
Janofsky & Walker LLP has expressed no opinion in respect thereof. Nonresident
aliens and foreign persons are subject to different tax rules, and may be
subject to withholding of up to 30% on certain payments received from the Funds.
Shareholders are advised to consult with their own tax advisers concerning the
application of foreign, federal, state and local taxes to an investment in the
Funds.
TRUSTEES AND OFFICERS
The Trustees of the Trust are responsible for the overall management of
the Funds, including establishing the Funds' policies, general supervision and
review of their investment activities. The officers (the Trust, as well as two
affiliated Trusts, The Montgomery Funds II and The Montgomery Funds III, have
the same officers), who administer the Funds' daily operations, are appointed by
the Board of Trustees. The current Trustees and officers of the Trust performing
a policy-making function and their affiliations and principal occupations for
the past five years are set forth below:
George A. Rio, President and Treasurer (born 1955)
60 State Street, Suite 1300, Boston, Massachusetts 02109. Mr. Rio is Executive
Vice President and Client Service Director of Funds Distributor, Inc. (since
April 1998). From June 1995 to March 1998, he was Senior Vice President, Senior
Key Account Manager for Putnam Mutual Funds. From May 1994 to June 1995, he was
Director of business development for First Data Corporation. From September 1993
to May 1994, he was Senior Vice President and Manager of Client Services; and
Director of Internal Audit at the Boston Company.
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Karen Jacoppo-Wood, Vice President and Assistant Secretary (born 1966)
60 State Street, Suite 1300, Boston, Massachusetts 02109. Ms. Jacoppo-Wood is
the Assistant Vice President of FDI and an officer of certain investment
companies advised or administered by Morgan, Waterhouse, RCM and Harris or their
respective affiliates. From June 1994 to January 1996, Ms. Jacoppo-Wood was a
Manager, SEC Registration, Scudder, Stevens & Clark, Inc. From 1988 to May 1994,
Ms. Jacoppo-Wood was a Senior Paralegal at The Boston Company Advisers, Inc.
(TBCA)
Margaret W. Chambers, Secretary (born 1959)
60 State Street, Suite 1300, Boston, Massachusetts 02109. Ms. Chambers is Senior
Vice President and General Counsel of Funds Distributor Inc. (since April 1998).
From August 1996 to March 1998, Ms. Chambers was Vice President and Assistant
General Counsel for Loomis, Sayles & Company, L.P. From January 1986 to July
1996, she was an associate with the law firm of Ropes & Gray.
Christopher J. Kelley, Vice President and Assistant Secretary (born 1964)
60 State Street, Suite 300, Boston, Massachusetts 02109. Mr. Kelley is the Vice
President and Associate General Counsel of FDI and Premier Mutual, and an
officer of certain investment companies advised or administered by Morgan,
Waterhouse and Harris or their respective affiliates. From April 1994 to July
1996, Mr. Kelley was Assistant Counsel at Forum Financial Group. From 1992 to
1994, Mr. Kelley was employed by Putnam Investments in Legal and Compliance
capacities. Prior to 1992, Mr. Kelley attended Boston College Law School, from
which he graduated in May 1992.
Mary A. Nelson, Vice President and Assistant Treasurer (born 1964)
60 State Street, Suite 1300, Boston, Massachusetts 02109. Ms. Nelson is the Vice
President and Manager of Treasury Services and Administration of FDI and Premier
Mutual, and an officer of certain investment companies advised or administered
by Morgan, Dreyfus, Waterhouse, RCM and Harris or their respective affiliates.
From 1989 to 1994 Ms. Nelson was Assistant Vice President and Client Manager for
The Boston Company, Inc.
Gary S. MacDonald, Vice President and Assistant Treasurer (born 1964)
60 State Street, Suite 1300, Boston, Massachusetts 02109. Mr. MacDonald is the
Vice President of FDI with which he has been associated since November 1996. He
also is an officer of certain investment companies advised or administered by
RCM. From September 1992 to November 1996 he was Vice President of Bay. Banks
Investment Management/Bay Bank Financial Services; and from April 1989 to
September 1992 he was an Analyst at Wellington Management Company.
Marie E. Connolly, Vice President and Assistant Treasurer (born 1957)
60 State Street, Suite 1300, Boston, Massachusetts 02109. Ms. Connolly is the
President, Chief Executive Officer, Chief Compliance Officer and Director of FDI
and Premier Mutual, and an officer of certain investment companies advised or
administered by Morgan and Dreyfus or their respective affiliates. From December
1991 to July 1994, Ms. Connolly was President and Chief Compliance Officer of
FDI. Prior to December 1991, Ms. Connolly served as Vice President and
Controller, and later Senior Vice President of TBCA.
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Douglas C. Conroy, Vice President and Assistant Treasurer (born 1969)
60 State Street, Suite 130, Boston, Massachusetts 02109. Mr. Conroy is the
Assistant Vice President and Manager of Treasury Services and Administration of
FDI and an officer of certain investment companies advised or administered by
Morgan and Dreyfus or their respective affiliates. Prior to April 1997, Mr.
Conroy was Supervisor of Treasury Services and Administration of FDI. From April
1993 to January 1995, Mr. Conroy was a Senior Fund Accountant for Investors Bank
& Trust Company. From December 1991 to March 1993, Mr. Conroy was employed as a
Fund Accountant at The Boston Company, Inc.
Joseph F. Tower, III, Vice President and Assistant Treasurer (born 1962)
60 State Street, Suite 1300, Boston, Massachusetts 02109. Mr. Tower is the
Executive Vice President, Treasurer and Chief Financial Officer, Chief
Administrative Officer and Director of FDI; Senior Vice President, Treasurer and
Chief Financial Officer, Chief Administrative Officer and Director of Premier
Mutual, and an officer of certain investment companies advised or administered
by Morgan, Dreyfus and Waterhouse or their respective affiliates. Prior to April
1997, Mr. Tower was Senior Vice President, Treasurer and Chief Financial
Officer, Chief Administrative Officer and Director of FDI. From July 1988 to
November 1993, Mr. Tower was Financial Manager of The Boston Company, Inc.
John P. Covino, Vice President (born 1964)
60 State Street, Suite 1300, Boston, Massachusetts 02109. Mr. Covino is a Vice
President and Treasury Group Manager of Treasury Servicing and Administration of
FDI. From February 1995 to November 1998, Mr. Covino was employed by Fidelity
Investments where he held multiple positions in its Institutional Brokerage
Group. Prior to joining Fidelity Mr. Covino was employed by SunGard Brokerage
systems where he was responsible for the technology and development of the
accounting product group.
John A. Farnsworth, Trustee (born 1941)
One California Street, Suite 1950, San Francisco, California 94111. Mr.
Farnsworth is a partner of Pearson, Caldwell & Farnsworth, Inc., an executive
search consulting firm. From May 1988 to September 1991, Mr. Farnsworth was the
Managing Partner of the San Francisco office of Ward Howell International, Inc.,
an executive recruiting firm. From May 1987 until May 1988, Mr. Farnsworth was
Managing Director of Jeffrey Casdin & Company, an investment management firm
specializing in biotechnology companies. From May 1984 until May 1987, Mr.
Farnsworth served as a Senior Vice President of Bank of America and head of the
U.S. Private Banking Division.
Andrew Cox, Trustee (born 1944)
750 Vine Street, Denver, Colorado 80206. Since June 1988, Mr. Cox has been
engaged as an independent investment consultant. From September 1976 until June
1988, Mr. Cox was a Vice President of the Founders Group of Mutual Funds,
Denver, Colorado, and Portfolio Manager or Co-Portfolio Manager of several of
the mutual funds in the Founders Group.
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Cecilia H. Herbert, Trustee (born 1949)
2636 Vallejo Street, San Francisco, California 94123. Ms. Herbert was Managing
Director of Morgan Guaranty Trust Company. From 1983 to 1991 she was General
Manager of the bank's San Francisco office, with responsibility for lending,
corporate finance and investment banking. Ms. Herbert is a member of the Board
of Schools of the Sacred Heart, and is a member of the Archdiocese of San
Francisco Finance Council, where she chairs the Investment Committee.
R. Stephen Doyle, Chairman of the Board of Trustees (born 1939).+
101 California Street, San Francisco, California 94111. R. Stephen Doyle, the
founder of Montgomery Asset Management, began his career in the financial
services industry in 1974. Before starting Montgomery Asset Management in 1990,
Mr. Doyle was a General Partner and member of the Management Committee at
Montgomery Securities with specific responsibility for private placements and
venture capital. Prior to joining Montgomery Securities, Mr. Doyle was at E. F.
Hutton & Co. as a Vice President with responsibility for both retail and
institutional accounts. Mr. Doyle was also with Connecticut General Insurance,
where he served as a Consultant to New York Stock Exchange Member Firms in the
area of financial planning.
<TABLE>
The officers of the Trust, and the Trustees who are considered
"interested persons" of the Trust, receive no compensation directly from the
Trust for performing the duties of their offices. However, those officers and
Trustees who are officers or partners of the Manager or the Distributor may
receive remuneration indirectly because the Manager will receive a management
fee from the Funds and Funds Distributor, Inc., will receive commissions for
executing portfolio transactions for the Funds. The Trustees who are not
affiliated with the Manager or the Distributor receive an annual retainer and
fees and expenses for each regular Board meeting attended. The aggregate
compensation to be paid by the Trust to each of the Trustees during the fiscal
year ending June 30, 2000, and the aggregate compensation to be paid to each of
the Trustees during the fiscal year ending June 30, 2000, by all of the
registered investment companies to which the Manager provides investment
advisory services, are set forth below.
<CAPTION>
-----------------------------------------------------------------------------------------
Fiscal Year Ended June 30, 1999
----------------------------------------------------------------------------------------------------------
Total Compensation From
Aggregate Pension or Retirement the Trust and Fund
Compensation from The Benefits Accrued as Part Complex
Name of Trustee Montgomery Funds of Fund Expenses* (2 additional Trusts)
---------------------------- -----------------------------------------------------------------------------
<S> <C> <C> <C>
R. Stephen Doyle None -- None
---------------------------- -----------------------------------------------------------------------------
John A. Farnsworth $25,000 -- $45,000
---------------------------- -----------------------------------------------------------------------------
Andrew Cox $25,000 -- $45,000
---------------------------- -----------------------------------------------------------------------------
Cecilia H. Herbert $25,000 -- $45,000
---------------------------- -----------------------------------------------------------------------------
<FN>
* The Trusts do not maintain pension or retirement plans.
</FN>
</TABLE>
Shares of the Funds are all sold without a sales load. Therefore, there
is no existing arrangement to reduce or eliminate any sales loads for Trustees
and other affiliated persons of the Trust.
- ----------
+ Trustee deemed an "interested person" of the Funds as defined in the
Investment Company Act.
B-25
<PAGE>
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Management Services. As stated in the Prospectus, investment
management services are provided to the Funds by Montgomery Asset Management LLC
(the "Manager"), pursuant to an Investment Management Agreement between the
Manager and The Montgomery Funds dated ____________ (the "Agreement").
The Agreement is in effect with respect to the Funds for two years
after each Funds' inclusion in its Trust's Agreement (on or around its beginning
of public operations) and then continue for periods not exceeding one year so
long as such continuation is approved at least annually by (1) the Board of the
Trust or the vote of a majority of the outstanding shares of the Funds, and (2)
a majority of the Trustees who are not interested persons of any party to the
Agreement, in each case by a vote cast in person at a meeting called for the
purpose of voting on such approval. The Agreement may be terminated at any time,
without penalty, by the Funds or the Manager upon 60 days' written notice, and
are automatically terminated in the event of its assignment as defined in the
Investment Company Act.
<TABLE>
For services performed under the Agreement, each Fund pays the Manager
a management fee (accrued daily but paid when requested by the Manager) based
upon the average daily net assets of the Fund at the following annual rates:
<CAPTION>
FUND AVERAGE DAILY NET ASSETS ANNUAL RATE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First $500 million
Montgomery Growth Equity Select Next $500 million 1.00%
Over $1 billion 0.90%
0.80%
First $500 million
Montgomery International Growth Select Next $500 million 1.10%
Over $1 billion 1.00%
0.90%
</TABLE>
As noted in the Prospectus, the Manager has agreed in an Operating
Expense Agreement with the Trust to reduce some or all of its management fee
(and to reimburse other Fund expenses) if necessary to keep total operating
expenses (excluding interest, taxes, dividend expenses and Rule 12b-1 Plan
fees), expressed on an annualized basis, at or below 1.20% of the Growth Equity
Select's average net assets, and at or below 1.65% of the International Growth
Select's average net assets.
The Operating Expense Agreement has a 10-year rolling term. The Manager
also may voluntarily reduce additional amounts to increase the return to the
Funds' investors. Any reductions made by the Manager in its fees are subject to
reimbursement by the Funds within the following three years provided the Funds
are able to effect such reimbursement and remain in compliance with the
foregoing expense limitations. The Manager generally seeks reimbursement for the
oldest reductions and waivers before payment by the Funds for fees and expenses
for the current year.
B-26
<PAGE>
Operating expenses for purposes of the Agreement include the Manager's
management fee but do not include any taxes, interest, brokerage commissions,
Rule 12b-1 fees, expenses incurred in connection with any merger or
reorganization or extraordinary expenses such as litigation.
The Agreement was approved with respect to the Funds by the Board at
duly called meetings. In considering the Agreement, the Trustees specifically
considered and approved the provision that permits the Manager to seek
reimbursement of any reduction made to its management fee within the three-year
period. The Manager's ability to request reimbursement is subject to various
conditions. First, any reimbursement is subject to the Funds' ability to effect
such reimbursement and remain in compliance with applicable expense limitations
in place at that time. Second, the Manager must specifically request the
reimbursement from the Board. Third, the Board must approve such reimbursement
as appropriate and not inconsistent with the best interests of the Funds and the
shareholders at the time such reimbursement is requested. Because of these
substantial contingencies, the potential reimbursements will be accounted for as
contingent liabilities that are not recordable on the balance sheet of the Funds
until collection is probable; but the full amount of the potential liability
will appear in a footnote to the Funds' financial statements. At such time as it
appears probable that the Funds are able to effect such reimbursement, that the
Manager intends to seek such reimbursement and that the Board of Trustees has or
is likely to approve the payment of such reimbursement, the amount of the
reimbursement will be accrued as an expense of the Funds for that current
period.
Information regarding advisory fees actually paid to the Manager has
not been provided since the Funds were launch on December 31, 1999.
The Manager also may act as an investment adviser or administrator to
other persons, entities, and corporations, including other investment companies.
Please refer to the table above, which indicates officers and trustees who are
affiliated persons of the Trust and who are also affiliated persons of the
Manager.
The use of the name "Montgomery" by the Trust and by the Fund is
pursuant to the consent of the Manager, which may be withdrawn if the Manager
ceases to be the Manager of the Funds.
The Distributor. Funds Distributor, Inc., the Distributor, may provide
certain administrative services to the Funds on behalf of the Manager. The
Distributor will also perform investment banking, investment advisory and
brokerage services for persons other than the Funds, including issuers of
securities in which the Funds may invest. These activities from time to time may
result in a conflict of interests of the Distributor with those of the Funds,
and may restrict the ability of the Distributor to provide services to the
Funds.
Referral Arrangements. The Distributor from time to time compensates
other parties for the solicitation of additional investments by existing
shareholders or new shareholder accounts. The Funds will not pay this
compensation out of their assets unless they have adopted a Rule 12b-1 plan. The
Distributor pays compensation only to those who have a written agreement with
the Distributor or the Manager. The only agreement currently in place is with
Round Hill Securities, Inc. ("Round Hill") and relates to a very limited number
of its registered representatives. The Distributor currently pays Round Hill at
the annual rate of 0.25% of average daily assets introduced and maintained in
customer accounts of these representatives. The Distributor also may reimburse
certain solicitation expenses.
The Custodian. The Chase Manhattan Bank serves as principal Custodian
of the Funds' assets, which are maintained at the Custodian's office at 4 Chase
MetroTech Center, Brooklyn, New York, 11245, and at the offices of its branches
and agencies throughout the world. The Board has delegated various foreign
custody
B-27
<PAGE>
responsibilities to the Custodian, as the "Foreign Custody Manager" for the
Funds to the extent permitted by Rule 17f-5. The Custodian has entered into
agreements with foreign sub-custodians in accordance with delegation
instructions approved by the Board pursuant to Rule 17f-5 under the Investment
Company Act. The Custodian, its branches and sub-custodians generally hold
certificates for the securities in their custody, but may, in certain cases,
have book records with domestic and foreign securities depositories, which in
turn have book records with the transfer agents of the issuers of the
securities. Compensation for the services of the Custodian is based on a
schedule of charges agreed on from time to time.
Administrative and Other Services. Montgomery Asset Management, LLC
("MAM") serves as the Administrator to the Fund a pursuant to an Administrative
Services Agreement among the Trusts and MAM (the "Agreement"). In approving the
Agreement, the Board of the Trust, including a majority of the independent
Trustees, recognizes that the Agreement involves an affiliate of the Trust;
however, it has made separate determinations that, among other things, the
nature and quality of the services rendered under the Agreement are at least
equal to the nature and quality of the service that would be provided by an
unaffiliated entity. Subject to the control of the Trust and the supervision of
the Board of the Trust, the Administrator performs the following types of
services for the Funds: (i) furnish performance, statistical and research data;
(ii) prepare and file various reports required by federal, state and other
applicable laws and regulations; (iii) prepare and print of all documents,
prospectuses and reports to shareholders; (iv) prepare financial statements; (v)
prepare agendas, notices and minutes for each meeting of the Board; (vi) develop
and monitor compliance procedures; (vii) monitor Blue Sky filings and (viii)
manage legal services. For its services performed under the Agreement, each Fund
pays the Administrator an administrative fee based upon a percentage of the
average daily net assets of each Fund. The fee may vary from an annual rate of
0.07% to 0.04% depending on the Fund and the level of assets.
Chase Global Funds Services Company ("Chase"), 73 Fremont Street,
Boston, Massachusetts 02108, serves as the Sub-Administrator to the Funds
pursuant to a Mutual Funds Service Agreement (the "Sub-Agreement") between Chase
and MAM. Subject to the control, direction and supervision of MAM and the
Trusts, Chase assists MAM in providing administrative services to the Funds. As
compensation for the services rendered pursuant to the Sub-Agreement, MAM pays
Chase an annual sub-administrative fee based upon a percentage of the average
net assets in the aggregate of the Trust, The Montgomery Funds II and The
Montgomery Funds III. The sub-administrative fee is paid monthly for the month
or portion of the month Chase assists MAM in providing administrative services
to the Funds. This fee is based on all assets of the Trust and related trusts or
funds and is equal to an annual rate of 0.01625% of the first $3 billion, plus
0.0125% of the next $2 billion and 0.0075% of amounts over $5 billion. The
sub-administrative fee paid to Chase is paid from the administrative fees paid
to MAM by the Fund. Chase succeeded First Data Corporation as sub-administrator.
Chase also serves as Fund Accountant to the Trusts pursuant to a Mutual
Funds Service Agreement ("Fund Accounting Agreement") entered into between the
Trust and Chase on May 3, 1999. By entering into the Fund Accounting Agreement,
Chase also succeeds First Data Corporation as Fund Accountant to the Trust. As
Fund Accountant, Chase provides the Trust with various services, including, but
are not limited to: (i) maintaining the books and records for the Funds' assets,
(ii) calculating net asset values of the Funds, (iii) accounting for dividends
and distributions made by the Funds, and (iv) assisting the Funds' independent
auditors with respect to the annual audit. This fee is based on all assets of
the Trust and related trusts or funds and is equal to an annual rate of 0.04875%
of the first $3 billion, plus 0.0375% of the next $2 billion and 0.0225% of
amounts over $5 billion.
B-28
<PAGE>
Information regarding administrative and accounting fees has not been
provided since the Funds were launch on December 31, 1999.
EXECUTION OF PORTFOLIO TRANSACTIONS
In all purchases and sales of securities for the Fund, the primary
consideration is to obtain the most favorable price and execution available. The
Manager determines which securities are to be purchased and sold by the Fund and
which broker-dealers are eligible to execute the Fund's portfolio transactions,
subject to the instructions of, and review by, the Fund and its Board. Purchases
and sales of securities within the U.S. other than on a securities exchange will
generally be executed directly with a "market-maker" unless, in the opinion of
the Manager or the Fund, a better price and execution can otherwise be obtained
by using a broker for the transaction.
Purchases of portfolio securities for the Fund also may be made
directly from issuers or from underwriters. Where possible, purchase and sale
transactions will be effected through dealers (including banks) which specialize
in the types of securities which the Fund will be holding, unless better
executions are available elsewhere. Dealers and underwriters usually act as
principals for their own account. Purchases from underwriters will include a
concession paid by the issuer to the underwriter and purchases from dealers will
include the spread between the bid and the asked price. If the execution and
price offered by more than one dealer or underwriter are comparable, the order
may be allocated to a dealer or underwriter that has provided research or other
services as discussed below.
In placing portfolio transactions, the Manager will use its best
efforts to choose a broker-dealer capable of providing the services necessary
generally to obtain the most favorable price and execution available. The full
range and quality of services available will be considered in making these
determinations, such as the firm's ability to execute trades in a specific
market required by the Fund, such as in an emerging market, the size of the
order, the difficulty of execution, the operational facilities of the firm
involved, the firm's risk in positioning a block of securities, and other
factors.
Provided the Trust's officers are satisfied that the Fund is receiving
the most favorable price and execution available, the Manager may also consider
the sale of the Fund's shares as a factor in the selection of broker-dealers to
execute their portfolio transactions. The placement of portfolio transactions
with broker-dealers who sell shares of the Fund is subject to rules adopted by
NASD Regulation, Inc.
While the Fund's general policy is to seek first to obtain the most
favorable price and execution available in selecting a broker-dealer to execute
portfolio transactions, weight may also be given to the ability of a
broker-dealer to furnish brokerage, research and statistical services to the
Fund or to the Manager, even if the specific services were not imputed just to
the Fund and may be lawfully and appropriately used by the Manager in advising
other clients. The Manager considers such information, which is in addition to,
and not in lieu of, the services required to be performed by it under the
Agreement, to be useful in varying degrees, but of indeterminable value. In
negotiating any commissions with a broker or evaluating the spread to be paid to
a dealer, the Fund may therefore pay a higher commission or spread than would be
the case if no weight were given to the furnishing of these supplemental
services, provided that the amount of such commission or spread has been
determined in good faith by the Fund and the Manager to be reasonable in
relation to the value of the brokerage and/or research services provided by such
broker-dealer, which services either produce a direct benefit to the Fund or
assist the Manager in carrying out its responsibilities to the Fund. The
standard of
B-29
<PAGE>
reasonableness is to be measured in light of the Manager's overall
responsibilities to the Fund. The Board reviews all brokerage allocations where
services other than best price and execution capabilities are a factor to ensure
that the other services provided meet the criteria outlined above and produce a
benefit to the Fund.
Investment decisions for the Fund are made independently from those of
other client accounts of the Manager or its affiliates, and suitability is
always a paramount consideration. Nevertheless, it is possible that at times the
same securities will be acceptable for one or more Funds and for one or more of
such client accounts. The Manager and its personnel may have interests in one or
more of those client accounts, either through direct investment or because of
management fees based on gains in the account. The Manager has adopted
allocation procedures to ensure the fair allocation of securities and prices
between the Fund and the Manager's various other accounts. These procedures
emphasize the desirability of bunching trades and price averaging (see below) to
achieve objective fairness among clients advised by the same portfolio manager
or portfolio team. Where trades cannot be bunched, the procedures specify
alternatives designed to ensure that buy and sell opportunities are allocated
fairly and that, over time, all clients are treated equitably. The Manager's
trade allocation procedures also seek to ensure reasonable efficiency in client
transactions, and they provide portfolio managers with reasonable flexibility to
use allocation methodologies that are appropriate to their investment discipline
on client accounts.
To the extent any of the Manager's client accounts and a Fund seek to
acquire the same security at the same general time (especially if that security
is thinly traded or is a small-cap stock), the Fund may not be able to acquire
as large a portion of such security as it desires, or it may have to pay a
higher price or obtain a lower yield for such security. Similarly, the Fund may
not be able to obtain as high a price for, or as large an execution of, an order
to sell any particular security at the same time. If one or more of such client
accounts simultaneously purchases or sells the same security that the Fund is
purchasing or selling, each day's transactions in such security generally will
be allocated between the Fund and all such client accounts in a manner deemed
equitable by the Manager, taking into account the respective sizes of the
accounts, the amount being purchased or sold and other factors deemed relevant
by the Manager. In many cases, the Fund's transactions are bunched with the
transactions for other client accounts. It is recognized that in some cases this
system could have a detrimental effect on the price or value of the security
insofar as the Fund is concerned. In other cases, however, it is believed that
the ability of the Fund to participate in volume transactions may produce better
executions for the Fund.
The Manager's sell discipline for investments in issuers is based on
the premise of a long-term investment horizon; however, sudden changes in
valuation levels arising from, for example, new macroeconomic policies,
political developments, and industry conditions could change the assumed time
horizon. Liquidity, volatility, and overall risk of a position are other factors
considered by the Manager in determining the appropriate investment horizon.
For the Fund, sell decisions at the country level are dependent on the
results of the Manager's asset allocation model. Some countries impose
restrictions on repatriation of capital and/or dividends which would lengthen
the Manager's assumed time horizon in those countries. In addition, the rapid
pace of privatization and initial public offerings creates a flood of new
opportunities which must continually be assessed against current holdings.
At the company level, sell decisions are influenced by a number of
factors including current stock valuation relative to the estimated fair value
range, or a high P/E relative to expected growth. Negative changes
B-30
<PAGE>
in the relevant industry sector, or a reduction in international competitiveness
and a declining financial flexibility may also signal a sell.
Information regarding brokerage commissions has not been provided since
the Fund was launched on December 31, 1999.
The Funds do not direct brokerage or effect securities transactions
through brokers in accordance with any formula, nor do they effect securities
transactions through such brokers solely for selling shares of the Funds.
However, brokers who execute brokerage transactions as described above may from
time to time effect purchases of shares of the Funds for their customers.
Depending on the Manager's view of market conditions, the Funds may or
may not purchase securities with the expectation of holding them to maturity,
although its general policy is to hold securities to maturity. The Funds may,
however, sell securities prior to maturity to meet redemptions or as a result of
a revised management evaluation of the issuer.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Trust reserves the right in its sole discretion to (i) suspend the
continued offering of Funds' shares, and (ii) reject purchase orders in whole or
in part when in the judgment of the Manager or the Distributor such suspension
or rejection is in the best interest of the Funds.
When in the judgment of the Manager it is in the best interests of a
Fund, an investor may purchase shares of a Fund by tendering payment in-kind in
the form of securities, provided that any such tendered securities are readily
marketable (e.g., the Fund will not acquire restricted securities), their
acquisition is consistent with that Fund's investment objective and policies,
and the tendered securities are otherwise acceptable to the Manager. Such
securities are acquired by that Fund only for the purpose of investment and not
for resale. For the purposes of sales of shares of that Fund for such
securities, the tendered securities shall be valued at the identical time and in
the identical manner that the portfolio securities of that Fund are valued for
the purpose of calculating the net asset value of that Fund's shares. A
shareholder who purchases shares of a Fund by tendering payment for the shares
in the form of other securities may be required to recognize gain or loss for
income tax purposes on the difference, if any, between the adjusted basis of the
securities tendered to that Fund and the purchase price of that Fund's shares
acquired by the shareholder.
Payments to shareholders for shares of a Fund redeemed directly from
that Fund will be made as promptly as possible but no later than three days
after receipt by the Transfer Agent of the written request in proper form, with
the appropriate documentation as stated in the Prospectus, except that that Fund
may suspend the right of redemption or postpone the date of payment during any
period when (i) trading on the New York Stock Exchange ("NYSE") is restricted as
determined by the SEC or the NYSE is closed for other than weekends and
holidays; (ii) an emergency exists as determined by the SEC (upon application by
that Fund pursuant to Section 22(e) of the Investment Company Act) making
disposal of portfolio securities or valuation of net assets of the Fund not
reasonably practicable; or (iii) for such other period as the SEC may permit for
the protection of that Fund's shareholders.
The Funds intend to pay cash (U.S. dollars) for all shares redeemed,
but, under abnormal conditions that make payment in cash unwise, the Funds may
make payment partly in its portfolio securities with a current amortized cost or
market value, as appropriate, equal to the redemption price. Although the Funds
do not
B-31
<PAGE>
anticipate that they will make any part of a redemption payment in securities,
if such payment were made, an investor may incur brokerage costs in converting
such securities to cash. The Trust has elected to be governed by the provisions
of Rule 18f-1 under the Investment Company Act, which require that the Funds pay
in cash all requests for redemption by any shareholder of record limited in
amount, however, during any 90-day period to the lesser of $250,000 or 1% of the
value of the Trust's net assets at the beginning of such period.
The value of shares on redemption or repurchase may be more or less
than the investor's cost, depending upon the market value of a Fund's portfolio
securities at the time of redemption or repurchase.
Retirement Plans. Shares of the Funds are available for purchase by any
retirement plan, including Keogh plans, 401(k) plans, 403(b) plans and
individual retirement accounts ("IRAs").
For individuals who wish to purchase shares of the Funds through an
IRA, there is available through the Funds a prototype individual retirement
account and custody agreement. The custody agreement provides that DST Systems,
Inc. will act as custodian under the plan, and will furnish custodial services
for an annual maintenance fee per participating account of $10. (These fees are
in addition to the normal custodian charges paid by the Funds and will be
deducted automatically from each Participant's account.) For further details,
including the right to appoint a successor custodian, see the plan and custody
agreements and the IRA Disclosure Statement as provided by the Funds. An IRA
that invests in shares of the Funds may also be used by employers who have
adopted a Simplified Employee Pension Plan. Individuals or employers who wish to
invest in shares of the Funds under a custodianship with another bank or trust
company must make individual arrangements with such institution.
Information about Roth IRAs is also available from those materials.
It is advisable for an investor considering the funding of any
retirement plan to consult with an attorney or to obtain advice from a competent
retirement plan consultant with respect to the requirements of such plans and
the tax aspects thereof.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Fund is calculated as follows:
all liabilities incurred or accrued are deducted from the valuation of total
assets, which includes accrued but undistributed income; the resulting net
assets are divided by the number of shares of the Fund outstanding at the time
of the valuation and the result (adjusted to the nearest cent) is the net asset
value per share.
As noted in the Prospectus, the net asset value of shares of each Fund
generally will be determined at least once daily as of 4:00 P.M. eastern time
(or earlier when trading closes earlier), on each day the NYSE is open for
trading. It is expected that the NYSE will be closed on Saturdays and Sundays
and for New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas. The
Funds may, but do not expect to, determine the net asset values of their shares
on any day when the NYSE is not open for trading if there is sufficient trading
in its portfolio securities on such days to affect materially per-share net
asset value.
Generally, trading in and valuation of foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. In addition, trading in and valuation of foreign securities may not take
place on every day in which the NYSE is open for trading. Furthermore, trading
takes place in various foreign markets on days in which the NYSE is not open for
trading and on which the Funds' net asset values are not calculated.
Occasionally, events affecting the values of such securities in U.S. dollars on
a day on which a Fund
B-32
<PAGE>
calculates its net asset value may occur between the times when such securities
are valued and the close of the NYSE that will not be reflected in the
computation of that Fund's net asset value unless the Board or its delegates
deem that such events would materially affect the net asset value, in which case
an adjustment would be made.
Generally, a Fund's investments are valued at market value or, in the
absence of a market value, at fair value as determined in good faith by the
Manager and the Trust's Pricing Committee pursuant to procedures approved by or
under the direction of the Board.
A Fund's equity securities, including ADRs, EDRs and GDRs, which are
traded on securities exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any reported sales, at the mean between
the last available bid and asked price. Equity securities that are traded on
more than one exchange are valued on the exchange determined by the Manager to
be the primary market. Securities traded in the over-the-counter market are
valued at the mean between the last available bid and asked price prior to the
time of valuation. Securities and assets for which market quotations are not
readily available (including restricted securities which are subject to
limitations as to their sale) are valued at fair value as determined in good
faith by or under the direction of the Board.
Short-term debt obligations with remaining maturities in excess of 60
days are valued at current market prices, as discussed above. Short-term
securities with 60 days or less remaining to maturity are, unless conditions
indicate otherwise, amortized to maturity based on their cost to a Fund if
acquired within 60 days of maturity or, if already held by that Fund on the 60th
day, based on the value determined on the 61st day.
Corporate debt securities and U.S. government securities held by a Fund
are valued on the basis of valuations provided by dealers in those instruments,
by an independent pricing service, or at fair value as determined in good faith
by procedures approved by the Board. Any such pricing service, in determining
value, will use information with respect to transactions in the securities being
valued, quotations from dealers, market transactions in comparable securities,
analyses and evaluations of various relationships between securities and
yield-to-maturity information.
An option that is written by a Fund is generally valued at the last
sale price or, in the absence of the last sale price, the last offer price. An
option that is purchased by a Fund is generally valued at the last sale price
or, in the absence of the last sale price, the last bid price. The value of a
futures contract equals the unrealized gain or loss on the contract that is
determined by marking the contract to the current settlement price for a like
contract on the valuation date of the futures contract if the securities
underlying the futures contract experience significant price fluctuations after
the determination of the settlement price. When a settlement price cannot be
used, futures contracts will be valued at their fair market value as determined
by or under the direction of the Board.
If any securities held by a Fund are restricted as to resale or do not
have readily available market quotations, the Manager and the Trust's Pricing
Committees determine their fair value, following procedures approved by the
Board. The Trustees periodically review such valuations and valuation
procedures. The fair value of such securities is generally determined as the
amount which a Fund could reasonably expect to realize from an orderly
disposition of such securities over a reasonable period of time. The valuation
procedures applied in any specific instance are likely to vary from case to
case. However, consideration is generally given to the financial position of the
issuer and other fundamental analytical data relating to the investment and to
the
B-33
<PAGE>
nature of the restrictions on disposition of the securities (including any
registration expenses that might be borne by a Fund in connection with such
disposition). In addition, specific factors are also generally considered, such
as the cost of the investment, the market value of any unrestricted securities
of the same class (both at the time of purchase and at the time of valuation),
the size of the holding, the prices of any recent transactions or offers with
respect to such securities and any available analysts' reports regarding the
issuer.
Any assets or liabilities initially expressed in terms of foreign
currencies are translated into U.S. dollars at the official exchange rate or,
alternatively, at the mean of the current bid and asked prices of such
currencies against the U.S. dollar last quoted by a major bank that is a regular
participant in the foreign exchange market or on the basis of a pricing service
that takes into account the quotes provided by a number of such major banks. If
neither of these alternatives is available or both are deemed not to provide a
suitable methodology for converting a foreign currency into U.S. dollars, the
Board in good faith will establish a conversion rate for such currency.
All other assets of the Funds are valued in such manner as the Board in
good faith deem appropriate to reflect their fair value.
PRINCIPAL UNDERWRITER
The Distributor, Funds Distributor, Inc., 60 State Street, Suite 1300,
Boston, Massachusetts 02109, also acts as the Funds' principal underwriter in a
continuous public offering of the Funds' shares. The Distributor is currently
registered as a broker-dealer with the SEC and in all 50 states, is a member of
most of the principal securities exchanges in the U.S., and is a member of the
National Association of Securities Dealers, Inc. The Underwriting Agreement
between the Funds and the Distributor is in effect for the Funds for the same
periods as the Agreement, and shall continue in effect thereafter for periods
not exceeding one year if approved at least annually by (i) the appropriate
Board or the vote of a majority of the outstanding securities of the Funds (as
defined in the Investment Company Act), and (ii) a majority of the Trustees who
are not interested persons of any such party, in each case by a vote cast in
person at a meeting called for the purpose of voting on such approval. The
Underwriting Agreement with respect to the Funds may be terminated without
penalty by the parties thereto upon 60 days' written notice and is automatically
terminated in the event of its assignment as defined in the Investment Company
Act. There are no underwriting commissions paid with respect to sales of the
Funds' shares. The Principal Underwriter has not been paid any underwriting
commissions for underwriting securities of the Funds during the Funds' last
three fiscal years.
PERFORMANCE INFORMATION
As noted in the Prospectus, the Funds may, from time to time, quote
various performance figures in advertisements and other communications to
illustrate its past performance. Performance figures will be calculated
separately for different classes of shares.
Average Annual Total Return. Total return may be stated for any
relevant period as specified in the advertisement or communication. Any
statements of total return for a Fund will be accompanied by information on that
Fund's average annual compounded rate of return over the most recent four
calendar quarters and the period from that Fund's inception of operations. A
Fund may also advertise aggregate and average total return information over
different periods of time. A Fund's "average annual total return" figures are
computed according to a formula prescribed by the SEC expressed as follows:
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<PAGE>
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical
$1,000 investment made at the beginning
of a 1-, 5- or 10-year period at the end
of each respective period (or fractional
portion thereof), assuming reinvestment
of all dividends and distributions and
complete redemption of the hypothetical
investment at the end of the measuring
period.
Aggregate Total Return. The Fund's "aggregate total return" figures
represent the cumulative change in the value of an investment in the Fund for
the specified period and are computed by the following formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1,000.
ERV = Ending Redeemable Value of a hypothetical
$1,000 investment made at the beginning
of a l-, 5- or 10-year period at the end
of a l-, 5- or 10-year period (or
fractional portion thereof), assuming
reinvestment of all dividends and
distributions and complete redemption of
the hypothetical investment at the end of
the measuring period.
A Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of that Fund's performance for any specified period in the
future. In addition, because performance will fluctuate, it may not provide a
basis for comparing an investment in a Fund with certain bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors
comparing a Fund's performance with that of other investment companies should
give consideration to the quality and maturity of the respective investment
companies' portfolio securities.
The information regarding average annual total returns for the Funds has not
been provided since the Funds were launched on December 31, 1999.
Comparisons. To help investors better evaluate how an investment in the
Funds might satisfy their investment objectives, advertisements and other
materials regarding the Funds may discuss various financial publications.
Materials may also compare performance (as calculated above) to performance as
reported by other investments, indices, and averages. Publications, indices and
averages, including but not limited to, the following may be used in discussion
of the Funds' performance or the investment opportunities it may offer:
a) Standard & Poor's 500 Composite Stock Index, one or more of
the Morgan Stanley Capital International Indices, and one or
more of the International Finance Corporation Indices.
b) Bank Rate Monitor--A weekly publication which reports various
bank investments, such as certificate of deposit rates,
average savings account rates and average loan rates.
c) Lipper Mutual Fund Performance Analysis and Lipper Fixed
Income Fund Performance Analysis--A ranking service that
measures total return and average current yield for the mutual
B-35
<PAGE>
fund industry and ranks individual mutual fund performance
over specified time periods assuming reinvestment of all
distributions, exclusive of any applicable sales charges.
d) Donoghue's Money Fund Report--Industry averages for 7-day
annualized and compounded yields of taxable, tax-free, and
government money funds.
e) Salomon Brothers Bond Market Roundup--A weekly publication
which reviews yield spread changes in the major sectors of the
money, government agency, futures, options, mortgage,
corporate, Yankee, Eurodollar, municipal, and preferred stock
markets. This publication also summarizes changes in banking
statistics and reserve aggregates.
f) Lehman Brothers indices--Lehman Brothers fixed-income indices
may be used for appropriate comparisons.
g) other indices--including Consumer Price Index, Ibbotson,
Micropal, CNBC/Financial News Composite Index, MSCI EAFE Index
(Morgan Stanley Capital International, Europe, Australasia,
Far East Index--a capitalization-weighted index that includes
all developed world markets except for those in North
America), Datastream, Worldscope, NASDAQ, Russell 2000 and IFC
Emerging Markets Database.
In addition, one or more portfolio managers or other employees of the
Manager may be interviewed by print media, such as by the Wall Street Journal or
Business Week, or electronic news media, and such interviews may be reprinted or
excerpted for the purpose of advertising regarding the Funds.
In assessing such comparisons of performance, an investor should keep
in mind that the composition of the investments in the reported indices and
averages is not identical to a Fund's portfolios, that the averages are
generally unmanaged, and that the items included in the calculations of such
averages may not be identical to the formulae used by that Fund to calculate its
figures.
The Funds may also publish its relative rankings as determined by
independent mutual fund ranking services like Lipper Analytical Services, Inc.
and Morningstar, Inc.
Investors should note that the investment results of the Funds will
fluctuate over time, and any presentation of the Funds' total return for any
period should not be considered as a representation of what an investment may
earn or what an investor's total return may be in any future period.
Reasons to Invest in the Funds. From time to time, the Funds may
publish or distribute information and reasons supporting the Manager's belief
that the Funds may be appropriate for investors at a particular time. The
information will generally be based on internally generated estimates resulting
from the Manager's research activities and projections from independent sources.
These sources may include, but are not limited to, Bloomberg, Morningstar,
Barings, WEFA, consensus estimates, Datastream, Micropal, I/B/E/S Consensus
Forecast, Worldscope and Reuters as well as both local and international
brokerage firms. For example, the Funds may suggest that certain countries or
areas may be particularly appealing to investors because of interest rate
movements, increasing exports and/or economic growth. The Funds may, by way of
further example, present a region as possessing the fastest growing economies
and may also present projected gross domestic product (GDP) for selected
economies.
B-36
<PAGE>
Research. The Manager has developed its own tradition of intensive
research and has made intensive research one of the important characteristics of
the Montgomery Funds style.
Extensive research into companies that are not well known--discovering
new opportunities for investment--is a theme that crosses a number of the
Montgomery Funds and is reflected in the number of Funds oriented towards
smaller capitalization businesses.
In-depth research, however, goes beyond gaining an understanding of
unknown opportunities. The portfolio analysts have also developed new ways of
gaining information about well-known parts of the domestic market. The growth
equity team, for example, has developed its own strategy and proprietary
database for analyzing the growth potential of U.S. companies, often large,
well-known companies.
From time to time, advertising and sales materials for the Montgomery
Funds may include biographical information about portfolio managers as well as
commentary by portfolio managers regarding investment strategy, asset growth,
current or past economic, political or financial conditions that may be of
interest to investors.
Also, from time to time, the Manager may refer to its quality and size,
including references to its total assets under management (as of September 30,
1999 approximately [$4.5 billion] for retail and institutional investors in The
Montgomery Funds) and total shareholders invested in the Funds (as of September
30, 1999, around [250,000]).
GENERAL INFORMATION
Investors in the Funds will be informed of the Funds' progress through
periodic reports. Financial statements will be submitted to shareholders
semi-annually, at least one of which will be certified by independent public
accountants. All expenses incurred in connection with the organization of The
Montgomery Funds and the registration of shares of the Small Cap Fund as the
initial series of the Trust have been assumed by the Small Cap Fund. Expenses
incurred in connection with the establishment and registration of shares of the
Funds constituting separate series of the Trust have been assumed by the Fund.
The Manager has agreed, to the extent necessary, to advance the organizational
expenses incurred by the Funds and will be reimbursed for such expenses during
the first fiscal year after commencement of the Funds' operations, subject to
the Funds' expense limitation.
As noted above, The Chase Manhattan Bank (the "Custodian") acts as
custodian of the securities and other assets of the Funds. The Custodian does
not participate in decisions relating to the purchase and sale of securities by
the Funds
DST Systems, Inc., 333 West 11th Street, Kansas City, Missouri 64105,
Funds' Master Transfer Agent and Paying Agent.
______________, 333 Market Street, San Francisco, California 94105, is
the independent auditor for the Fund.
The validity of shares offered hereby has been passed on by Paul,
Hastings, Janofsky & Walker LLP, 345 California Street, San Francisco,
California 94104.
B-37
<PAGE>
The shareholders of The Montgomery Funds as shareholders of a
Massachusetts business trust could, under certain circumstances, be held
personally liable as partners for its obligations. However, the Trust's
Agreement and Declaration of Trust ("Declaration of Trust") contains an express
disclaimer of shareholder liability for acts or obligations of the Trust. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the Funds' assets for any shareholder held personally liable for
obligations of the Funds or Trust. The Declaration of Trust provides that the
Trust shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Funds or Trust and satisfy any
judgment thereon. All such rights are limited to the assets of the Funds. The
Declaration of Trust further provides that the Trust may maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance) for
the protection of the Trust, its shareholders, Trustees, officers, employees and
agents to cover possible tort and other liabilities. Furthermore, the activities
of the Trust as an investment company as distinguished from an operating company
would not likely give rise to liabilities in excess of the Fund's total assets.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is extremely remote because it is limited to the unlikely
circumstances in which both inadequate insurance exists and the Fund itself is
unable to meet its obligations.
Among the Board's powers enumerated in the Agreement and Declaration of
Trust is the authority to terminate the Trust or any of its series, or to merge
or consolidate the Trust or one or more of its series with another trust or
company without the need to seek shareholder approval of any such action.
As of December 31, 1999, the sole initial shareholder of the Fund, the
Distributor, held substantially all the shares of the Funds for organizational
purposes.
The Trust is registered with the Securities and Exchange Commission as
non-diversified management investment companies. Such a registration does not
involve supervision of the management or policies of the Fund. The Prospectus
and this Statement of Additional Information omit certain of the information
contained in the Registration Statements filed with the SEC. Copies of the
Registration Statements may be obtained from the SEC upon payment of the
prescribed fee.
FINANCIAL STATEMENTS
There are no financial statements for the Funds since the Funds were
launched on December 31, 1999.
B-38
<PAGE>
Appendix
Description ratings for Standard & Poor's Ratings Group ("S&P");
Moody's Investors Service, Inc., ("Moody's"), Fitch Investors Service, L.P.
("Fitch") and Duff & Phelps Credit Rating Co. ("Duff & Phelps").
Standard & Poor's Rating Group
Bond Ratings
AAA Bonds rated AAA have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only
in small degree.
A Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories.
BBB Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated
categories.
BB Bonds rated BB have less near-term vulnerability to default
than other speculative grade debt. However, they face major
ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payments.
B Bonds rated B have a greater vulnerability to default but
presently have the capacity to meet interest payments and
principal repayments. Adverse business, financial or economic
conditions would likely impair capacity or willingness to pay
interest and repay principal.
CCC Bonds rated CCC have a current identifiable vulnerability to
default and are dependent upon favorable business, financial
and economic conditions to meet timely payments of interest
and repayment of principal. In the event of adverse business,
financial or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
CC The rating CC is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt
rating.
D Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
B-39
<PAGE>
S&P's letter ratings may be modified by the addition of a plus
(+) or a minus (-) sign designation, which is used to show relative
standing within the major rating categories, except in the AAA (Prime
Grade) category.
Commercial Paper Ratings
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no
more than 365 days. Issues assigned an A rating are regarded as having
the greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree
of safety.
A-1 This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) designation.
A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high
as for issues designated A-1.
A-3 Issues carrying this designation have a satisfactory capacity
for timely payment. They are, however, somewhat more
vulnerable to the adverse effects of changes in circumstances
than obligations carrying the higher designations.
B Issues carrying this designation are regarded as having only
speculative capacity for timely payment.
C This designation is assigned to short-term obligations with
doubtful capacity for payment.
D Issues carrying this designation are in default, and payment
of interest and/or repayment of principal is in arrears.
Moody's Investors Service, Inc.
Bond Ratings
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
generally are referred to as "gilt edge." Interest payments
are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
generally are known as high-grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
B-40
<PAGE>
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and, therefore, not well safeguarded during both
good and bad times in the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack the characteristics of
a desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.
Ca Bonds which are rated Ca present obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category
and in the categories below B. The modifier 1 indicates a ranking for
the security in the higher end of a rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of a rating category.
Commercial Paper Ratings
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity
for repayment of short-term promissory obligations, and ordinarily will
be evidenced by leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structures with moderate reliance on debt and ample
asset protection, broad margins in earnings coverage of fixed financial
charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate
liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have a
strong capacity for repayment of short-term promissory obligations.
This ordinarily will be evidenced by many of the characteristics cited
B-41
<PAGE>
above but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers (or related supporting institutions) rated Prime-3 (P-3) have
an acceptable capacity for repayment of short-term promissory
obligations. The effect of industry characteristics and market
composition may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection
measurements and the requirements for relatively high financial
leverage.
Adequate alternate liquidity is maintained.
Issuers (or related supporting institutions) rated Not Prime do not
fall within any of the Prime rating categories.
Fitch Investors Service, L.P.
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The
ratings take into consideration special features of the issue, its
relationship to other obligations of the issuer, the current financial
condition and operative performance of the issuer and of any guarantor,
as well as the political and economic environment that might affect the
issuer's future financial strength and credit quality.
AAA Bonds rated AAA are considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally
strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
AA Bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay
interest and repay principal is very strong, although not
quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these
issuers is generally rated F-1+.
A Bonds rated A are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
BB Bonds rated BB are considered speculative. The obligor's
ability to pay interest and repay principal may be affected
over time by adverse economic changes. However, business and
B-42
<PAGE>
financial alternatives can be identified which could assist
the obligor in satisfying its debt service requirements.
B Bonds rated B are considered highly speculative. While bonds
in this class are currently meeting debt service requirements,
the probability of continued timely payment of principal and
interest reflects the obligor's limited margin of safety and
the need for reasonable business and economic activity
throughout the life of the issue.
CCC Bonds rated CCC have certain identifiable characteristics,
which, if not remedied, may lead to default. The ability to
meet obligations requires an advantageous business and
economic environment.
CC Bonds rated CC are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C Bonds rated C are in imminent default in payment of interest
or principal.
DDD, DD and D Bonds rated DDD, DD and D are in actual default of
interest and/or principal payments. Such bonds are extremely
speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of
the obligor. DDD represents the highest potential for recovery
on these bonds and D represents the lowest potential for
recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category covering 12-36
months.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond
ratings on the existence of liquidity necessary to meet the issuer's
obligations in a timely manner.
F-1+ Exceptionally strong credit quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 Very strong credit quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F-1+.
F-2 Good credit quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payments, but the
margin of safety is not as great as the F-l+ and F-1
categories.
B-43
<PAGE>
F-3 Fair credit quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment
grade.
F-S Weak credit quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes
in financial and economic conditions.
D Default. Issues assigned this rating are in actual or imminent
payment default.
Duff & Phelps Credit Rating Co.
Bond Ratings
AAA Bonds rated AAA are considered highest credit quality. The
risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA Bonds rated AA are considered high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from
time to time because of economic conditions.
A Bonds rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater
in periods of economic stress.
BBB Bonds rated BBB are considered to have below average
protection factors but still considered sufficient for prudent
investment. There may be considerable variability in risk for
bonds in this category during economic cycles.
BB Bonds rated BB are below investment grade but are deemed by
Duff as likely to meet obligations when due. Present or
prospective financial protection factors fluctuate according
to industry conditions or company fortunes. Overall quality
may move up or down frequently within the category.
B Bonds rated B are below investment grade and possess the risk
that obligations will not be met when due. Financial
protection factors will fluctuate widely according to economic
cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in quality rating within this
category or into a higher or lower quality rating grade.
CCC Bonds rated CCC are well below investment grade securities.
Such bonds may be in default or have considerable uncertainty
as to timely payment of interest, preferred dividends and/or
principal. Protection factors are narrow and risk can be
substantial with unfavorable economic or industry conditions
and/or with unfavorable company developments.
DD Defaulted debt obligations. Issuer has failed to meet
scheduled principal and/or interest payments.
Plus (+) and minus (-) signs are used with a rating symbol (except AAA)
to indicate the relative position of a credit within the rating
category.
B-44
<PAGE>
Commercial Paper Ratings
Duff-1 The rating Duff-1 is the highest commercial paper rating
assigned by Duff. Paper rated Duff-1 is regarded as having
very high certainty of timely payment with excellent liquidity
factors which are supported by ample asset protection. Risk
factors are minor.
Duff-2 Paper rated Duff-2 is regarded as having good certainty of
timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are
small.
Duff-3 Paper rated Duff-3 is regarded as having satisfactory
liquidity and other protection factors. Risk factors are
larger and subject to more variation. Nevertheless, timely
payment is expected.
Duff-4 Paper rated Duff-4 is regarded as having speculative
investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors
and market access may be subject to a high degree of
variation.
Duff-5 Paper rated Duff-5 is in default. The issuer has failed to
meet scheduled principal and/or interest payments.
B-45
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----------------------------------------------------
PART C
OTHER INFORMATION
---------------------------------------------------
<PAGE>
THE MONTGOMERY FUNDS
--------------
FORM N-1A
--------------
PART C
--------------
Item 23. Exhibits
(a) Amended and Restated Agreement and Declaration of Trust as
incorporated by reference to Post-Effective Amendment No. 61
to the Registration Statement as filed with the Commission on
October 29, 1998 ("Post-Effective Amendment No. 61").
(b) Amended and Restated By-Laws is incorporated by reference to
Post-Effective Amendment No. 61.
(c) Instruments Defining Rights of Security Holder--Not
applicable.
(d) 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").
(e) Form of Underwriting Agreement is incorporated by reference to
Post-Effective Amendment No. 52.
(f) Bonus or Profit Sharing Contracts--Not applicable.
(g) Form of Custody Agreement is incorporated by reference to
Post-Effective Amendment No. 61.
(h) Other Material Contracts:
(1) Form of Administrative Services Agreement is
incorporated by reference to Post-Effective Amendment
No. 52.
(2) Form of Shareholder Services Plan is incorporated by
reference to Post-Effective Amendment No. 61.
(i) Opinion of Counsel as to legality of shares-Not applicable.
(j) Other Opinions: Independent Auditors' Consent - Not
applicable.
(k) Omitted Financial Statements - Not applicable.
(l) Initial Capital Agreements: Letter of Understanding re:
Initial Shares is incorporated by reference to Post-Effective
Amendment No. 61.
(m) Rule 12b-1 Plan: Form of Share Marketing Plan (Rule 12b-1
Plan) is incorporated by reference to Post-Effective Amendment
No. 52.
(n) Financial Data Schedule. Not applicable.
<PAGE>
(o) 18f-3 Plan--Form of Amended and Restated Multiple Class Plan
is incorporated by reference to Post-Effective Amendment No.
61.
Item 24. Persons Controlled by or Under Common Control with the Fund
Montgomery Asset Management, LLC, a Delaware limited liability company,
is the manager of each series of the Registrant, of The Montgomery Funds II, a
Delaware business trust, and of The Montgomery Funds III, a Delaware business
trust. Montgomery Asset Management, LLC is a subsidiary of Commerzbank AG based
in Frankfurt, Germany. The Registrant, The Montgomery Funds II and The
Montgomery Funds III are deemed to be under the common control of each of those
two entities.
Item 25. Indemnification
Article VII of the Agreement and Declaration of Trust empowers the
Trustees of the Trust, to the full extent permitted by law, to purchase with
Trust assets insurance for indemnification from liability and to pay for all
expenses reasonably incurred or paid or expected to be paid by a Trustee or
officer in connection with any claim, action, suit or proceeding in which he or
she becomes involved by virtue of his or her capacity or former capacity with
the Trust.
Article VI of the By-Laws of the Trust provides that the Trust shall
indemnify any person who was or is a party or is threatened to be made a party
to any proceeding by reason of the fact that such person is and other amounts or
was an agent of the Trust, against expenses, judgments, fines, settlement and
other amounts actually and reasonable incurred in connection with such
proceeding if that person acted in good faith and reasonably believed his or her
conduct to be in the best interests of the Trust. Indemnification will not be
provided in certain circumstances, however, including instances of willful
misfeasance, bad faith, gross negligence, and reckless disregard of the duties
involved in the conduct of the particular office involved.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "1933 Act"), may be permitted to the Trustees,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable in the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a Trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such Trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of the Investment Adviser
Effective July 31, 1997, Montgomery Asset Management, L.P. completed
the sale of substantially all of its assets to the current investment manager,
Montgomery Asset Management, LLC ("MAM, LLC"), a subsidiary of Commerzbank A.G.
Information about the officers and directors of MAM, LLC is provided below. The
address for the following persons is 101 California Street, San Francisco,
California 94111.
R. Stephen Doyle Chairman of the Board of Directors and
Chief Executive Officer of MAM, LLC
Mark B. Geist President and Director of MAM, LLC
F. Scott Tuck Executive Vice President of MAM, LLC
David E. Demarest Secretary, Treasurer and Executive Vice
President of MAM, LLC
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<PAGE>
The following directors of MAM, LLC also are officers of Commerzbank
AG. The address for the following persons is Neue Mainzer Strasse 32-36,
Frankfurt am Main, Germany.
Heinz Josef Hockmann Director of MAM, LLC
Dietrich-Kurt Frowein Director of MAM, LLC
Andreas Kleffel Director of MAM, LLC
Item 27. Principal Underwriter
(a) Funds Distributor, Inc. (the "Distributor") acts as principal
underwriter for the following investment companies.
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
BJB Investment Funds
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
Founders Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
J.P. Morgan Institutional Funds
J.P. Morgan Funds
JPM Series Trust
JPM Series Trust II
LaSalle Partners Funds, Inc.
Kobrick-Cendant Investment Trust
Merrimac Series
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
National Investors Cash Management Fund, Inc.
Orbitex Group of Funds
SG Cowen Funds, Inc.
SG Cowen Income + Growth Fund, Inc.
SG Cowen Standby Reserve Fund, Inc.
SG Cowen Standby Tax-Exempt Reserve Fund, Inc.
SG Cowen Series Funds, Inc.
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<PAGE>
St. Clair Funds, Inc.
The Skyline Funds
Waterhouse Investors Family of Funds, Inc.
WEBS Index Fund, Inc.
The Distributor is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. Funds Distributor is
located at 60 State Street, Suite 1300, Boston, Massachusetts
02109. Funds Distributor is an indirect wholly owned
subsidiary of Boston Institutional Group, Inc., a holding
company all of whose outstanding shares are owned by key
employees.
<TABLE>
(b) The following is a list of the executive officers, directors
and partners of Funds Distributor, Inc.
<CAPTION>
<S> <C>
Director, President and Chief Executive Officer Marie E. Connolly
Executive Vice President George A. Rio
Executive Vice President Donald R. Roberson
Executive Vice President William S. Nichols
Senior Vice President, General Counsel, Chief Margaret W. Chambers
Compliance Officer, Secretary and Clerk
Senior Vice President Michael S. Petrucelli
Director, Senior Vice President, Treasurer and Joseph F. Tower, III
Chief Financial Officer
Senior Vice President Paula R. David
Senior Vice President Allen B. Closser
Senior Vice President Bernard A. Whalen
Chairman and Director William J. Nutt
</TABLE>
(c) Not Applicable.
Item 28. Location of Accounts and Records.
The accounts, books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended (the "Investment
Company Act") will be kept by the Registrant's Transfer Agent, DST Systems,
Inc., P.O. Box 1004 Baltimore, Kansas City, Missouri 64105, except those records
relating to portfolio transactions and the basic organizational and Trust
documents of the Registrant (see Subsections (2)(iii), (4), (5), (6), (7), (9),
(10) and (11) of Rule 31a-1(b)), which will be kept by the Registrant at 101
California Street, San Francisco, California 94111.
Item 29. Management Services.
There are no management-related service contracts not discussed in
Parts A and B.
Item 30. Undertakings.
(a) Not applicable.
(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's last
annual report to shareholders, upon request and without
charge.
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<PAGE>
(c) Registrant has undertaken to comply with Section 16(a) of the
Investment Company Act which requires the prompt convening of
a meeting of shareholders to elect trustees to fill existing
vacancies in the Registrant's Board of Trustees in the event
that less than a majority of the trustees have been elected to
such position by shareholders. Registrant has also undertaken
promptly to call a meeting of shareholders for the purpose of
voting upon the question of removal of any Trustee or Trustees
when requested in writing to do so by the record holders of
not less than 10 percent of the Registrant's outstanding
shares and to assist its shareholders in communicating with
other shareholders in accordance with the requirements of
Section 16(c) of the Investment Company Act.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of San Francisco, the
State of California, on this 13th day of October, 1999.
THE MONTGOMERY FUNDS
By: George A. Rio*
--------------
George A. Rio
President and Principal Executive Officer;
Treasurer and Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registrant's Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
George A. Rio* President and October 13, 1999
- --------------
George A. Rio Principal Executive Officer,
Treasurer and Principal
Financial and Accounting
Officer
R. Stephen Doyle * Chairman of the October 13, 1999
- ------------------
R. Stephen Doyle Board of Trustees
Andrew Cox * Trustee October 13, 1999
- ------------
Andrew Cox
Cecilia H. Herbert * Trustee October 13, 1999
- --------------------
Cecilia H. Herbert
John A. Farnsworth * Trustee October 13, 1999
- --------------------
John A. Farnsworth
* By: /s/ Julie Allecta
-----------------
Julie Allecta, Attorney-in-Fact pursuant to Powers of Attorney
previously filed.
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