SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
<TABLE>
<S> <C>
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission Only (as
permitted by Rule 14a-6(e)(2)
</TABLE>
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
- --------------------------------------------------------------------------------
The Montgomery Funds II
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 (1)
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration no:
Schedule 14A;33-69686; 811-8064
- --------------------------------------------------------------------------------
(3) Filing Party: The Montgomery Funds II
- --------------------------------------------------------------------------------
(4) Date Filed: May 13, 1997
- --------------------------------------------------------------------------------
<PAGE>
THE MONTGOMERY FUNDS II
101 California Street
San Francisco, California 94111
(415)248-6330
Joint Notice of Special Meeting of Shareholders
To Be Held June 23, 1997
To the shareholders of the Montgomery Institutional Series: Emerging
Markets Portfolio (the "Fund"):
notice is hereby given that a Special Meeting (the "Meeting") of shareholders of
the Fund will be held on Monday, June 23, 1997, at 9:00 a.m., local time, at 101
California Street, San Francisco, California 94111. The Fund is a separate
series of The Montgomery Funds II, a Delaware business trust (the "Trust").
At the Meeting, you and the other shareholders of the Fund will be
asked to consider and vote on the following proposals:
1. To approve a new Investment Management Agreement between the Fund
and CAM Acquisition, LLC ("New Montgomery") pursuant to which New Montgomery
will act as adviser with respect to the assets of the Fund, to become effective
upon the closing of the transaction by which substantially all the assets of
Montgomery Asset Management, L.P. (the "Manager") will be acquired by New
Montgomery, a subsidiary of Commerzbank AG, as further described in the
accompanying Proxy Statement;
2. To authorize the Board of Trustees to approve any future conversion
of the Fund to a feeder fund in a master/feeder fund structure;
3. To approve certain changes to the fundamental investment
restrictions of the Fund; and
4. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
1
<PAGE>
Shareholders of record at the close of business on April 25, 1997 are
entitled to notice of, and to vote at, the Meeting. Shareholders of the Fund
will vote together to approve each proposal. Please complete the proxy card you
receive. Please read the accompanying Proxy Statement. Regardless of whether you
plan to attend the Meeting, PLEASE COMPLETE, SIGN AND RETURN PROMPTLY THE
ENCLOSED PROXY CARD so that a quorum will be present and a maximum number of
shares may be voted. If you attend the Meeting, you may change your vote at that
time.
By Order of the Board of Trustees of
The Montgomery Funds II
R. Stephen Doyle
Chairman and Chief Executive Officer
San Francisco, California
May 12, 1997
2
<PAGE>
THE MONTGOMERY FUNDS II
101 California Street
San Francisco, California 94111
(415)248-6330
PROXY STATEMENT
To the shareholders of the Montgomery Institutional Series: Emerging
Markets Portfolio (the "Fund"):
a Special Meeting of shareholders of the Fund will be held on Monday, June 23,
1997, at 9:00 a.m. local time, at the offices of the Trust, 101 California
Street, San Francisco, California 94111.
----------
GENERAL INFORMATION ABOUT THE MEETING
Q: Who is asking for my vote?
The Trustees of The Montgomery Funds II, who are responsible for
overseeing the Fund have asked that you vote on several matters. The vote will
be formally taken at the special meeting (the "Meeting") of shareholders to be
held at the offices of the Trust at 101 California Street, San Francisco,
California 94111 on Monday, June 23, 1997 at 9:00 a.m. local time and at any and
all adjournments thereof.
Q: How can I vote?
You may vote in person at the Meeting, or you may vote by returning the
enclosed proxy card before the Meeting. You may revoke your proxy at any time
before it is exercised by delivering a written notice to The Montgomery Funds II
expressly revoking your proxy, by signing and forwarding to the Trust a proxy
with a later date, or by attending the Meeting and casting your votes in person.
The Trust will request broker-dealer firms, custodians, nominees and
fiduciaries to forward proxy materials to the beneficial owners of the shares of
record by such persons. Montgomery Asset Management, L.P. (the "Manager") will
reimburse such broker-dealer firms, custodians, nominees and fiduciaries for
their reasonable expenses incurred in connection with such proxy solicitation.
The cost of soliciting these proxies, to the extent they are incurred in
connection with Proposal no. 1 and Proposal no. 2, will be borne by the Manager.
Costs that are not related to those two proposals will be borne by the Fund,
unless such costs are voluntarily paid for by the Manager. In addition to
solicitations by mail, some of the officers and employees of the Manager and its
affiliates, without any extra compensation, may conduct additional solicitations
by telephone, facsimile and personal interviews. The Manager has hired First
Data Investor Services Group, Inc. of Boston to solicit proxies from brokers,
banks, other institutional holders and individual shareholders. It is expected
that this proxy statement will first be mailed to shareholders on or about May
12, 1997.
<PAGE>
Q: Who is eligible to vote?
Only shareholders of record at the close of business on April 25, 1997
are entitled to vote at the Meeting and any adjournment thereof.
Q: What is a quorum and what is the required quorum?
In order to conduct business at the Meeting, a quorum must be present.
A quorum is the minimum number of shares that are required to be present at the
Meeting before any business can be conducted that relates to the Fund. For each
proposal, forty percent (40%) of the shares of the Fund entitled to vote shall
constitute a quorum.
Q: What is the required vote to approve a proposal?
For each proposal, all shares of the Fund shall vote together. For each
proposal, the affirmative vote of a majority of the net asset value of the
outstanding shares is required for approval. Under this method, votes are
counted using the net asset value of shares voted, also known as dollar-based
voting. The term "majority" is defined by the Investment Company Act of 1940, as
amended (the "Investment Company Act"), as the lesser of (i) 67% of the net
asset value of the shares represented at the Meeting if more than 50% of the net
asset value of the outstanding shares is represented, or (ii) shares
representing more than 50% of the net asset value of the Fund's outstanding
shares.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial owners or
other persons entitled to vote, and the broker does not have discretionary
voting authority. Abstentions and broker non-votes will be counted as shares
present for purposes of determining whether a quorum is present but will not be
voted for or against any adjournment or proposal. Accordingly, abstentions and
broker non-votes effectively will be a vote against adjournment and against
those proposals where the required vote is a percentage of the shares present or
outstanding. Thus, broker non-votes will count against the each proposal.
----------
The Fund is a separate series of The Montgomery Funds II, a Delaware
business trust (the "TMFII Trust"). At the Meeting, the shareholders of the Fund
will be asked to consider and vote on the following proposals:
1. To approve a new Investment Management Agreement between the Fund
and CAM Acquisition, LLC ("New Montgomery") pursuant to which New Montgomery
will act as adviser with respect to the assets of the Fund, to become effective
upon the closing of the transaction by which substantially all the assets of
Montgomery Asset Management, L.P. (the "Manager") will be acquired by New
Montgomery, a subsidiary of Commerzbank AG;
2. To authorize the Board of Trustees to approve any future conversion
of the Fund to a feeder fund in a master/feeder fund structure;
4
<PAGE>
3. To approve certain changes to the fundamental investment
restrictions of the Fund; and
4. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
If sufficient votes are not received by the date of the Meeting, a
person named as proxy may propose one or more adjournments of the Meeting for a
period or periods not more than 120 days in the aggregate to permit further
solicitation of proxies. The persons named as proxies will vote all proxies in
favor of adjournment that voted in favor of Proposal no. 1 (or abstained) and
vote against adjournment all proxies that voted against Proposal no. 1.
Shareholders of the Fund at the close of business on April 25, 1997
will be entitled to be present and vote at the Meeting. As of that date, the
Fund has 5,699,821 shares outstanding and its total net assets is $297,017,688.
To the knowledge of the Trust's management, at the close of business on
April 25, 1997, the officers and Trustees of the Trust owned, as a group, less
than 1% of the shares of the Fund.
To the knowledge of the Trust's management at the close of business of
April 25, 1997, the only persons owning beneficially more than 5% of the
outstanding shares of the Fund were those listed in Exhibit A.
The Fund's current investment adviser and administrator is Montgomery
Asset Management, L.P., 101 California Street, San Francisco, California 94111.
The Fund's current distributor is Montgomery Securities, 600 Montgomery Street,
San Francisco, California 94111.
The persons named in the accompanying proxy will vote in each case as
directed in the proxy but, in the absence of such direction, they intend to vote
FOR Proposal no. 1, FOR Proposal no. 2, FOR Proposal no. 3 and may vote in their
discretion with respect to other matters not now known to the Board of Trustees
but that are presented to the Meeting.
5
<PAGE>
PROPOSAL NO. 1:
APPROVAL OF NEW INVESTMENT
MANAGEMENT AGREEMENT BETWEEN
THE FUND AND NEW MONTGOMERY
Q: Why are shareholders being asked to vote on this proposal?
The Meeting has been called for the purpose of considering a new
Investment Management Agreement (the "New Management Agreement") for the Fund as
a result of a proposed transaction (the "Proposed Transaction") whereby New
Montgomery, a subsidiary of Commerzbank AG, would acquire substantially all the
assets of Montgomery Asset Management, L.P., the current investment adviser of
the Fund. The Proposed Transaction is discussed further below in "What should I
know about the Proposed Transaction?" As required by the Investment Company Act,
the existing Investment Management Agreement with the Fund (the "Existing
Management Agreement") provides for its automatic termination if an "assignment"
occurs. Because the Proposed Transaction would represent an ownership and
control change of the Manager, it would constitute an "assignment" and terminate
the Existing Management Agreement. Accordingly, the Existing Management
Agreement will not be transferred to New Montgomery and, instead, shareholders
of the Fund are being asked to approve the New Management Agreement for the
Fund.
The New Management Agreement for the Fund embodies exactly the same
terms and fees as its Existing Management Agreement, except that the New
Management Agreement would change the effective and termination dates. See "What
are the terms of the Existing Management Agreement and the New Management
Agreement?" The Manager currently serves as the adviser for the Fund under a
Management Agreement dated November 18, 1993 with the TMFII Trust (the "Existing
Management Agreement").
The Trust's Board of Trustees have approved the New Management
Agreement, subject to approval by the shareholders of the Fund, to become
effective on the consummation of the Proposed Transaction.
Q: What are the terms of the Existing Management Agreement and the New
Management Agreement?
The initial shareholder of the Fund approved the Existing Management
Agreement on November 18, 1993. The Board of Trustees of the Trust, including a
majority of the "disinterested" Trustees, most recently approved continuation of
the Existing Management Agreement on May 2, 1996. Under the Existing Management
Agreement, the Manager is entitled to receive from the Fund a management fee
(accrued daily but paid when requested by the Manager), based on the value of
the average daily net assets of the Fund, according to the following table:
6
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------- -------------------------------- --------------------
Fund Name Average Daily Net Assets Management Fee
(Annual Rate)
- --------------------------------------------------------------- -------------------------------- --------------------
<S> <C> <C>
Montgomery Institutional Series: Emerging Markets Portfolio First $50 million 1.25%
Next $50 million 1.00%
Over $100 million 0.90%
- --------------------------------------------------------------- -------------------------------- --------------------
</TABLE>
The management fees for the Fund is higher than for most mutual funds.
However, this comparison does not take into consideration the differences in
management fees based on the type of funds (e.g., emerging markets funds
compared to index funds).
The terms of the New Management Agreement are identical in all respects
to the Existing Management Agreement, except for different effective and
termination dates. A form of the New Management Agreement for the Trust is
attached to this Proxy Statement as Exhibit B. The following description of the
New Management Agreement is only a summary. You should refer to Exhibit B for
the complete New Management Agreement.
Under the New Management Agreement, New Montgomery would provide
certain investment advisory services to the Fund, including deciding what
securities will be purchased and sold by the Fund, when such purchases and sales
are to be made, and arranging for those purchases and sales, all in accordance
with the provisions of the Investment Company Act and the rules thereunder, the
governing documents of the Trust, the fundamental policies of the Fund, as
reflected in its registration statement, and any policies and determinations of
the Board of Trustees. Similar to the current arrangement between the Manager
and the Trust, New Montgomery would be required to provide, after the closing of
the Proposed Transaction, at its expense, junior officers of the Trust who are
affiliated persons of New Montgomery, and office space, facilities and equipment
for carrying out its duties under the New Management Agreement. All other
expenses incurred in the operation of the Fund will be borne by the Fund. Fund
expenses include legal and auditing fees, fees and expenses of its custodian,
accounting services and third-party shareholder servicing agents, Trustees'
fees, the cost of communicating with shareholders and registration fees, as well
as its other operating expenses.
As compensation for its services to the Fund under the New Management
Agreement, New Montgomery will be entitled to receive from the Fund fees
calculated at the same rate as those charged under the Existing Management
Agreement described above. The New Management Agreement will continue in effect
for two years from its effective date, and will continue in effect thereafter
for successive annual periods, provided its continuance is specifically approved
at least annually by (1) a majority vote, cast in person at a meeting called for
that purpose, of the Trust's Board of Trustees or (2) a vote of the holders of a
majority of the outstanding voting securities (as defined in the Investment
Company Act and the rules thereunder) of the Fund, and (3) in either event by a
majority of the Trustees who are not parties to the New Management Agreement or
interested persons of the Trust or of any such party. The New Management
Agreement provides that it may be terminated with respect to the Fund at any
time, without penalty, by either party upon 60-days' written notice, provided
that such termination by the Fund shall be directed or approved by a vote of the
Trustees of the Trust, or by a vote of holders of a majority of the shares of
the Fund.
7
<PAGE>
<TABLE>
The Fund currently offers only one class of shares although it may, in
the future, offer additional classes. Although New Montgomery is not required to
do so, the New Management Agreement, like the Existing Management Agreement,
permits New Montgomery to reimburse the Fund to the extent necessary so that the
Fund's ratio of operating expenses to average net assets will not exceed certain
voluntary expense limits. The Manager and New Montgomery have agreed to the
following expense limits:
<CAPTION>
- ------------------------------------------------------------------------- ----------------------------------
Fund Name Voluntary Expense Limit
- ------------------------------------------------------------------------- ----------------------------------
<S> <C>
Montgomery Institutional Series: Emerging Markets Portfolio 1.25%
- ------------------------------------------------------------------------- ----------------------------------
</TABLE>
These limitations are described in the prospectus for the Fund and are
voluntary on the part of the Manager and New Montgomery. The Manager (and New
Montgomery) may remove these limitations at any time by amending the prospectus
and notifying shareholders.
The New Management Agreement provides, like the Existing Management
Agreement, that New Montgomery would have no liability to a Fund or any
shareholders of the Fund for any act or omission in connection with rendering
services under the New Management Agreement, including any error of judgment,
mistake of law or any loss arising out of any investment, except for liability
resulting from willful misfeasance, bad faith, gross negligence or reckless
disregard on the part of New Montgomery of its duties under the New Management
Agreement ("Disabling Conduct"), and except to the extent specified in Section
36(b) of the Investment Company Act with respect to a loss resulting from the
breach of fiduciary duty with respect to receipt of compensation for services.
The New Management Agreement provides that a Fund shall indemnify New Montgomery
and its employees, officers and directors from any liability arising from New
Montgomery's conduct under the New Management Agreement, except for Disabling
Conduct, to the extent permitted by the Fund's governing documents and
applicable law.
The New Management Agreement, like the Existing Management Agreement,
permits New Montgomery to reduce its advisory fee and to absorb or reimburse the
Fund for expenses otherwise the responsibility of the Fund. New Montgomery has
voluntarily agreed to expense limitations for the Fund as listed previously. The
Manager may seek reimbursement for advisory fees previously waived or operating
expenses (other than distribution expenses) absorbed within three years of that
waiver under the Existing Management Agreement.
The New Management Agreement clarifies that New Montgomery may seek
reimbursement for the oldest reductions and waivers before payment for current
fees and expenses. The Manager effectively recaptures more waived fees and
expenses over time using this first-in first-out method because fewer are lost
by being too old to recapture. This practice is described in the Fund's
prospectus and the Manager believes it is permitted under the Existing
Management Agreement.
During the fiscal year ended June 30, 1996, the Manager earned
$2,827,007 in advisory fees under the Existing Management Agreement. Additional
investment advisory fees payable under the
8
<PAGE>
Existing Management Agreement may have instead been waived by the Manager, but
may be subject to reimbursement in the future by the Fund.
During the fiscal year ended June 30, 1996, the Fund's total securities
transactions generated commissions of $2,251,340, none of which was paid to
Montgomery Securities, the Fund's' distributor and an affiliated broker of the
Manager. During that period, Montgomery Securities was the sole limited partner
of the Manager.
Q: What should I know about the Proposed Transaction?
On March 25, 1997, Montgomery Securities ("MS"), the Manager and CAM
Acquisition, LLC ("CAM"), a newly organized subsidiary of Commerzbank
Aktiengesellschaft ("Commerzbank"), entered into an agreement (the "Asset
Purchase Agreement") providing for the transfer of substantially all the assets
comprising the Manager's business to CAM. The purchase price paid to the Manager
will have two components. The first component is essentially a fixed price,
subject to adjustment for (a) intercompany arrangements between MS and the
Manager, (b) failures to obtain client consents to new advisory agreements, (c)
certain balance sheet adjustments and (d) transaction expenses. The second
component of the purchase price will be determined based on the distributable
income of the Manager as of March 31, 1997, subject to adjustments substantially
similar to the adjustments to the fixed purchase price and certain further
adjustments. The purchase price will be paid in cash or, at the election of the
Manager, partially in the form of a promissory note guaranteed by Commerzbank.
Under the Asset Purchase Agreement, the Manager is obligated to pay a portion of
the purchase it receives to certain senior employees of the Manager, as noted
below.
CAM, a Delaware limited liability company, presently has two members.
Commerzbank directly holds a 99.99% interest; Commerzbank Asset Management USA
Corporation ("CAM USA"), a Delaware corporation, which is an indirect subsidiary
of Commerzbank, holds the remaining 0.01% interest. Upon the closing of the
transaction, CAM USA will withdraw as a member of CAM. CAM will change its name
to Montgomery Asset Management, LLC ("New Montgomery"). CAM will file an
application for registration as an investment adviser with the Securities and
Exchange Commission and all relevant state securities commissions. It is
expected that all such registrations will be effective before the closing of the
Proposed Transaction.
Commerzbank, the third largest publicly held commercial bank in
Germany, has total assets of approximately $268 billion. Commerzbank's shares
are traded on all of Germany's stock exchanges and on other exchanges around the
world. Commerzbank's shares are widely held and, to its knowledge, there is no
stockholder owing 5% or more of its stock. Commerzbank and its affiliates had
over $79 billion in assets under management as of December 31, 1996 for both its
domestic and institutional clients. Commerzbank's asset management operations
involve more than 1,000 employees in 13 countries worldwide.
As of the closing of the Proposed Transaction, Commerzbank will hold
the majority of the voting interests in New Montgomery; certain officers and
employees of the Manager, including substantially all of those who will receive
a portion of the purchase price, will hold the remaining
9
<PAGE>
interests (in the aggregate, a significant minority equity interest) in New
Montgomery. The interests of the officers and employees of the Manager will be
subject to various put and call rights and to repurchase in the event of an
individual's termination of service for New Montgomery. An individual's rights
with respect to his or her interest in New Montgomery differ depending upon both
the nature and the timing of his or her termination of service for New
Montgomery. As of the closing, no officer or employee of the Fund will hold 10%
or more of the voting interests in New Montgomery. In connection with the
transaction, Mr. R. Stephen Doyle, a trustee of the Fund, will be an officer and
director of New Montgomery. Mr. Doyle will purchase approximately 2.75% of the
equity interests in New Montgomery. In consideration for the performance of
future services, Mr. Doyle will receive additional equity interests in New
Montgomery subject to vesting. All of Mr. Doyle's interests in New Montgomery
will be subject to the put, call and repurchase rights noted above. At all
times, Commerzbank will retain the majority of the voting interests in New
Montgomery.
Certain senior officers and employees of the Manager, including Mr.
Doyle, are expected to enter into employment agreements with New Montgomery,
with terms ranging from 4 1/2 to 6 years. In addition, such senior officers and
employees, as well as certain other senior employees of the Manager, will be
eligible to receive a special bonus if they provide services to New Montgomery
for the period ending December 31, 1997, or if their service for New Montgomery
terminates during 1997 due to death, disability, a termination without cause or
a termination for good reason.
The following officers and employees of the Manager who are also
officers or trustees of the Fund will receive a portion of the purchase price
and will be eligible to receive the special 1997 bonus from New Montgomery: John
D. Boich, John H. Brown, Oscar A. Castro, David E. Demarest, R. Stephen Doyle,
Mark B. Geist, Kevin T. Hamilton, Roger W. Honour, Josephine S. Jimenez, Dana
Schmidt, Bryan L. Sudweeks, William C. Stevens and John T. Story. These officers
and employees of the Manager, together with selected other employees of the
Manager, are expected to acquire, in the aggregate, a significant minority
interest in New Montgomery at the closing.
It is presently anticipated that the transaction will close on July 31,
1997, subject to satisfaction of conditions to closing, which include (a)
approval of the New Management Agreement between the Fund and New Montgomery;
(b) consents of clients accounting for specified fee revenues during the
12-month period prior to March 31, 1997; (c) execution of employment agreements
by specified senior employees of the Manager; and (d) approval of the Board of
Governors of the Federal Reserve System. The Federal Reserve may require
satisfaction of certain conditions as part of its approval, which could affect
the terms of the Proposed Transaction or the services New Montgomery can provide
to the Fund.
As required by the Investment Company Act, the Existing Management
Agreement provides for its automatic termination upon its "assignment." The
completion of the Proposed Transaction is expected to cause an assignment, as
that term is defined in the Investment Company Act, of the Existing Management
Agreement and, consequently, its termination. Accordingly, the New Management
Agreement with New Montgomery to take effect upon the closing of the transaction
is being proposed with respect to the Fund, as more fully described below. If
the New Management
10
<PAGE>
Agreement is not approved by the Fund's shareholders, the Existing Management
Agreement of the Fund will continue in effect in accordance with its terms. In
that event, the Fund understands that the parties to the Asset Purchase
Agreement could nevertheless agree to proceed with the transaction and, if the
transaction occurs, the Existing Management Agreement would be deemed to
terminate automatically upon the consummation of the transaction. If such a
termination were to occur, the Trustees of the Fund would then make arrangements
for the management of the Fund's investments as they believed appropriate and in
the best interests of the shareholders.
It is expected that New Montgomery will continue to operate with the
same investment personnel and that the same persons who are presently
responsible for the investment policies of the Manager will continue to direct
the investment policies of New Montgomery following the closing of Proposed
Transaction. No changes in the Manager's method of operation, or the location
where it conducts its business, are contemplated. More information about New
Montgomery and Commerzbank is provided under "What else should I know about New
Montgomery and Commerzbank?"
Q: Who will be the distributor and administrator of the Fund following the
Proposed Transaction?
The Manager anticipates that, after the closing of the Proposed
Transaction, Montgomery Securities (the current Distributor for the Fund) will
no longer serve as the Distributor for the Fund. The Manager expects that an
entity not affiliated with the Manager or New Montgomery, will be the
distributor of the Fund.
After the closing of the Proposed Transaction, New Montgomery will
replace the Manager as administrator of the Fund.
Q: Do any special legal requirements apply to the Proposed Transaction?
Section 15(f) of the Investment Company Act provides that, when a
change in control of an investment adviser occurs, the investment adviser and
its affiliated persons may receive any amount or benefit as long as two
conditions are satisfied. First, no "unfair burden" may be imposed on the
investment company as a result of the transaction relating to the change of
control, or as a result of any express or implied terms, conditions or
understandings. The term "unfair burden," as defined in the Investment Company
Act, includes any arrangement during the two-year period after the change in
control whereby the investment adviser (or predecessor or successor adviser), or
any interested person of any such adviser, may directly or indirectly receive
anything of value from the investment company or its shareholders (other than
fees for bona fide investment advisory or other services) or from any person as
part of a securities or property transaction with the investment company (other
than fees for bona fide principal underwriting services). No arrangements that
would constitute an "unfair burden" are contemplated in the Proposed
Transaction. In the Asset Purchase Agreement, New Montgomery has agreed not to
take or recommend any action that would cause the imposition of an unfair burden
on the Fund.
11
<PAGE>
The second condition is that, during the three-year period immediately
following consummation of the transaction, at least 75% of the investment
company's board of directors must not be "interested persons" of the investment
adviser or predecessor investment adviser within the meaning of the Investment
Company Act. In the Asset Purchase Agreement, New Montgomery has agreed to use
its best efforts to ensure that the second condition is met.
In order to ensure that this condition is satisfied from the date of
the consummation of the Proposed Transaction, Jerome S. Markowitz, who is
currently a Trustee of the Trust and who is considered an "interested person"
because of his position with Montgomery Securities, will resign as a Trustee.
Q: What should I know about the Manager?
Montgomery Asset Management, L.P. is the Fund's Manager. The Manager, a
California limited partnership, was formed in 1990 as an investment adviser
registered as such with the Securities and Exchange Commission under the
Investment Advisers Act of 1940, as amended. Since then, the Manager has advised
private accounts as well as the Fund. Its general partner is Montgomery Asset
Management, Inc., and its sole limited partner is Montgomery Group Holdings,
LLC, whose members are also owners of Montgomery Securities, the Fund's
distributor. Under the Investment Company Act, both Montgomery Asset Management,
Inc. and Montgomery Securities may be deemed control persons of the Manager.
After the Proposed Transaction Commerzbank and a number of employees who are
currently employees of the Manager will have ownership interests in New
Montgomery, as described under "What should I know about the Proposed
Transaction?"
<TABLE>
The Manager's principal executive officers are set forth below. The
address of each, as it relates to his duties at the Manager, is the same as that
of the Manager.
<CAPTION>
Name Age Position with the Manager
- ---- --- -------------------------
<S> <C> <C>
R. Stephen Doyle 57 Chairman and Chief Executive Officer of the Manager
since 1990.
Mark B. Geist 44 President of the Manager since 1990.
John T. Story 56 Executive Vice President of the Manager. Mr. Story
joined the Manager in 1994.
David E. Demarest 43 Managing Director and Chief Administrative Officer of
the Manager. Mr. Demarest joined the Manager in 1994.
Mary Jane Fross 45 Vice President and Controller for the Manager. Ms.
Fross joined the Manager in 1993.
12
<PAGE>
Dana E. Schmidt 34 Principal and Chief Compliance Officer of the Manager.
Ms. Schmidt joined the Manager in 1992.
Kevin T. Hamilton 35 Managing Director and chair of the Investment Oversight
Committee for the Manager. Mr. Hamilton joined the
Manager in 1991.
Roger W. Honour 42 Managing Director and Senior Portfolio Manager for the
Manager. Mr. Honour joined the Manager in 1993.
Oscar A. Castro 42 Managing Director and Senior Portfolio Manager for the
Manager. Mr. Castro joined the Manager in 1993.
Stuart O. Roberts 42 Managing Director and Senior Portfolio Manager for the
Manager. Mr. Roberts joined the Manager in 1990.
John D. Boich 36 Managing Director and Senior Portfolio Manager for the
Manager. Mr. Boich joined the Manager in 1993.
Josephine S. Jimenez 42 Managing Director and Senior Portfolio Manager for the
Manager. Ms. Jimenez joined the Manager in 1991.
Bryan L. Sudweeks, Ph.D. 42 Managing Director and Senior Portfolio Manager for the
Manager. Dr. Sudweeks joined the Manager in 1991.
William C. Stevens 41 Managing Director and Senior Portfolio Manager for the
Manager. Mr. Stevens joined the Manager in 1992.
John H. Brown 35 Managing Director and Senior Portfolio Manager for the
Manager. Mr. Brown joined the Manager in 1994.
</TABLE>
13
<PAGE>
Q: What else should I know about New Montgomery and Commerzbank?
Commerzbank Aktiengesellschaft, a corporation organized under the laws
of Germany, is Germany's third largest publicly held commercial bank. To the
knowledge of Commerzbank, no person owns 5% or more of its stock.
CAM, a Delaware limited liability corporation, is currently owned by
Commerzbank and CAM USA, an indirect subsidiary of Commerzbank. CAM was
organized for the purpose of the proposed transaction. It presently has no
operations and, therefore, no principal office. Its President is Dr. Heinz J.
Hockmann and its Secretary and Treasurer is Martin Schuller, each of whom is an
employee of Commerzbank. The principal offices of Commerzbank are located at
Neue Mainzer Strasse 32-36, Frankfurt am Main, Germany. The address of Dr.
Hockmann and Mr. Schuller is Gutleustrasse 82, Frankfurt am Main, Germany.
Management of New Montgomery will be the responsibility of a Board of Directors
elected by the members of New Montgomery. The initial directors of New
Montgomery are expected to be Martin Kohlhaussen, Chairman of the Board of
Managing Directors of Commerzbank; Dietrich-Kurt Frowein, member of the Board of
Managing Directors of Commerzbank; Dr. Heinz J. Hockmann, Executive Vice
President of Commerzbank; Andreas Kleffel, Executive Vice President of
Commerzbank, R. Stephen Doyle; and Mark B. Geist. With the exceptions of Mr.
Doyle and Mr. Geist, each of whom will be employees of New Montgomery, the other
directors are employees of Commerzbank. The address of Mr. Kohlhaussen and Mr.
Frowein is Neue Mainzer Strasse 32-36, Frankfurt am Main, Germany. The address
of Dr. Hockmann is Gutleustrasse 82, Frankfurt am Main, Germany. The address of
Mr. Kleffel is Two World Financial Center, New York, New York 10281. The address
of Mr. Doyle and Mr. Geist is 101 California Street, San Francisco, California.
Q: What factors did the Trustees consider in approving the New Management
Agreement?
The Board of Trustees of the Trust believes that the terms of the New
Management Agreement are fair to, and in the best interest of, the Trust, the
Fund and the shareholders. The Board of Trustees, including all of the
disinterested Trustees, recommends that the shareholders of the Fund approve the
New Management Agreement between New Montgomery and the Fund.
On January 20, 1997, February 21, 1997 and February 27, 1997, the
members of the Board of Trustees of the Trust who are not affiliated with the
Manager met with representatives of the Manager and with the disinterested
Trustees' separate legal counsel to review the terms of the Proposed Transaction
and to consider the possible effects of the Proposed Transaction on the Fund.
They also met with Dr. Heinz J. Hockmann, an executive Vice President of
Commerzbank and head of its Asset Management Division on January 20, 1997. On
February 27, 1997, the Board of Trustees for the Trust determined to approve in
principle the New Management Agreement and recommend the New Management
Agreement to shareholders of the Fund for their approval. The Trustees expect to
complete their consideration of the Proposed Transaction in May 1997. The
Trustees currently know of no reason that would cause them to disapprove the
Proposed Transaction.
14
<PAGE>
In evaluating the New Management Agreement, the Board of Trustees
reviewed materials furnished by the Manager and Commerzbank. Those materials
included information regarding the Manager, Commerzbank, their respective
affiliates and their personnel, operations and financial condition and the terms
of the Proposed Transaction and the possible effects on the Fund and the
shareholders of the Fund as a result of the Proposed Transaction.
Representatives of the Manager discussed the anticipated effects on the Fund
and, together with representatives of Commerzbank, indicated their belief that
as a consequence of the Proposed Transaction, the operations of the Trust and
the capability of the Manager to provide services to the Fund would not be
adversely affected and could be enhanced from the resources of Commerzbank,
although there could be no assurance as to any particular benefits that would
result.
In making this recommendation, the Trustees deemed to be especially
important the experience of the Manager's key personnel in portfolio management,
the arrangements made to secure the continued service of the key personnel in
portfolio management, the high quality of services New Montgomery is expected to
continue to provide to the Fund, and the fair and reasonable compensation
proposed to be paid to New Montgomery. The Trustees also specifically considered
the following to be relevant to their recommendations: (1) that the fee and
expense ratios of the Fund are reasonable given the quality of services expected
to be provided and the fee and expense ratios of comparable mutual funds; (2)
the favorable relative performance of the Fund since commencement of operations;
(3) the research-intensive nature and quality of the services expected to be
rendered to the Fund by New Montgomery; (4) the importance of such research and
services to the fulfillment of the particular investment objective and policies
of the Fund; (5) that the compensation payable to New Montgomery by the Fund
under the New Management Agreement will be at the same rate as the compensation
now payable by the Fund to the Manager under the Existing Management Agreement;
(6) that the terms of the Existing Management Agreement will be unchanged under
the New Management Agreement except for different effective and termination
dates and other minor differences discussed elsewhere in this Proxy Statement;
(7) the favorable history, reputation, qualification and background of the
Manager and Commerzbank, as well as the qualifications of their personnel and
their respective financial conditions; (8) the commitment of New Montgomery to
pay or reimburse the Fund for the expenses incurred in connection with the
Proposed Transaction so that shareholders of the Fund would not bear those
expenses; (9) the benefits expected to be realized as a result of New
Montgomery's affiliation with Commerzbank, including the resources of
Commerzbank that would be available to New Montgomery; and (10) other factors
they deemed relevant.
The Manager has advised the Board of Trustees that it expects that
there will be no diminution in the scope and quality of advisory services
provided to the Fund as a result of the Proposed Transaction. Accordingly, the
Board of Trustees believes that the Fund should receive investment advisory
services under the New Management Agreement equal or superior to those it
currently receives under the Existing Management Agreement, at the same fee
levels.
15
<PAGE>
Q: What is the required vote to approve the New Management Agreement and
the Trustees' recommendation?
At the Meeting, shareholders of the Fund will vote together on the New
Management Agreement proposed for the Fund. The Board of Trustees of the Trust
recommends that the shareholders of the Fund approve the New Management
Agreement.
For the Fund, the affirmative vote of the holders of a majority of the
net asset value of the outstanding shares of the Fund is required to approve the
New Management Agreement. "Majority" for this purpose under the Investment
Company Act means the lesser of (i) 67% of the net asset value of the shares
represented at the Meeting if more than 50% of such net asset value of the
outstanding shares is represented, or (ii) shares representing more than 50% of
the net asset value of the Fund's outstanding shares. See "General Information
- -- What is the required vote to approve a proposal?"
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT SHAREHOLDERS OF THE
FUND APPROVE THE NEW MANAGEMENT AGREEMENT.
* * * * *
16
<PAGE>
PROPOSAL NO. 2:
APPROVAL OF THE
POSSIBLE FUTURE CONVERSION OF
THE FUND TO A MASTER-FEEDER STRUCTURE
Q: What are shareholders being asked to approve?
Shareholders of the Fund are requested to authorize the Board of
Trustees of the Trust to convert the Fund, if deemed appropriate, to a feeder
fund in a master-feeder structure. No such conversion is now contemplated. The
Fund has not expressly reserved the right to convert to a feeder fund without
shareholders approval. Although the Board probably could now authorize the
conversion of the Fund to such a structure, approval of this proposal would
remove some uncertainty in the law about the Board's authority in this matter.
Q: What is a master-feeder structure?
Under a master-feeder structure, the assets of mutual funds with common
investment objectives and substantially the same investment policies are pooled
together and, rather than being managed separately, are "fed" into a combined
pool for portfolio management purposes. The individual funds are known as
"feeder" funds and the pool (which may be a domestic or foreign entity) is known
as the "master" fund. Generally, it is believed that a master fund, which pools
the assets of multiple feeder funds, is an efficient vehicle to provide an
effective means of creating large asset pools, thereby providing economies of
scale and reduction of per share operating expenses.
In a master-feeder structure, a Fund (after it has become a feeder
fund), may withdraw its investment in a master fund at any time if the Board of
Trustees determines that it is in the best interests of the shareholders of the
Fund to do so or if the investment policies or restrictions of the master fund
change so that they are inconsistent with the policies and restrictions of the
feeder Fund. Upon any such withdrawal, the Board of Trustees of the Trust would
consider what action might be taken, including the investment of all of the
assets of the Fund in another pooled investment entity having substantially the
same investment objectives and policies as the Fund or the investment of the
Fund's assets directly in accordance with its investment objective and policies.
If another pooled investment vehicle with substantially the same investment
objectives and policies cannot be found, the shareholders of the Fund would not
be able to derive the benefits of the master-feeder fund structure.
Q: If the shareholders approve the conversion, when would the actual
conversion occur?
The Board of Trustees of the Trust would approve a conversion of the
Fund only if it believes that such a conversion is in the best interests of the
Fund and its shareholders. Shareholders also would be given at least 30-days'
prior written notice of any such action.
The time and terms of the conversion of the Fund, if it happens at all,
will be decided by the Trustees for the Fund as fiduciaries of the shareholders
of the Fund. The timing of such conversion would depend upon the existence of
opportunities to pool assets with those of other related feeder
17
<PAGE>
funds. Currently, the Fund has no plan to convert to a master-feeder structure.
It is, however, more economical and efficient to have shareholders'
authorization in place. Otherwise, a special meeting of shareholders of the Fund
may have to be called when the Fund decides to convert to a master-feeder
structure. This may result in added expenses and delay the Fund's ability to
participate in appropriate business opportunities.
Q: What are the benefits of converting the Fund to a master-feeder
structure?
As discussed above, the primary benefit of converting a Fund to a
"feeder fund" in a master-feeder structure is the potential reduction of per
share total operating expenses that may result through economies of scale
derived from the Fund's investing in a much larger pool of assets. Furthermore,
a master-feeder structure would also allow the Manager to attract additional
investments in the fund complex that are not otherwise available to the Fund
through the normal distribution channels under its current multi-class
structure, thereby further assisting the Fund in achieving better economies of
scale. For example, certain foreign investments are extremely complex and
expensive to complete. In those cases where the foreign investment is suitable
for more than one fund, a single, master fund could more efficiently and
economically make the investment rather than several separate funds.
Q: What is the required vote to approve the conversion for the Fund?
At the Meeting, shareholders of the Fund will vote to grant the
requested authority to the Board of Trustees with respect to the Fund. The Board
of Trustees of the Trust recommends that the shareholders of the Fund approve
this authorization. The affirmative vote of the holders of a majority of the net
asset value of the outstanding shares of the Fund is required to approve this
proposal with respect to the Fund. "Majority" for this purpose under the
Investment Company Act means the lesser of (i) 67% of the net asset value of the
shares represented at the meeting if more than 50% of such net asset value of
the outstanding shares is represented, or (ii) shares representing more than 50%
of the net asset value of the Fund's outstanding shares. See "General
Information -- What is the required vote to approve a proposal?"
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT THE SHAREHOLDERS
OF THE FUND APPROVE THE GRANT OF AUTHORITY TO THE BOARD OF TRUSTEES
CONCERNING THE POSSIBLE FUTURE CONVERSION OF THE FUND TO A
MASTER-FEEDER STRUCTURE.
* * * * *
18
<PAGE>
PROPOSAL NO. 3:
APPROVAL OF
CERTAIN CHANGES TO THE FUNDAMENTAL
INVESTMENT RESTRICTIONS OF THE FUND
Q: What are shareholders being asked to approve?
<TABLE>
Shareholders are requested to approve two changes to the fundamental
investment restrictions of the Fund. Currently, the (1) borrowing limitations
and (2) securities lending restrictions differ among the different funds of The
Montgomery Funds family. The table below shows the current borrowing limitations
and securities lending restrictions for the Fund:
<CAPTION>
- ----------------------------------------------- ---------------------------------- ----------------------------------
Borrowing Limitation Securities Lending Restrictions
- ----------------------------------------------- ---------------------------------- ----------------------------------
Not To Exceed Not To Exceed Not to Exceed Not to Exceed
10% of Total One-Third of 10% of Total 30% of Total
Fund Assets Total Fund Fund Assets Fund Assets
Assets
- ----------------------------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C>
Montgomery Institutional Series: Emerging X X
Markets Portfolio
- ----------------------------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
Shareholders of the Fund are requested to approve a change in the fundamental
investment restrictions to the Fund so that the Fund may (1) enter into
borrowings not to exceed one-third of total Fund assets and (2) engage in
securities lending not to exceed the maximum amount permitted by law, currently
30% of total Fund assets. The exact wording of the investment restriction would
be as follows:
Borrowing Limitation
"[The Fund may not] borrow money, except for temporary or emergency
purposes from a bank, and then not in excess of one-third of the
value of its total assets (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 (excluding any fully collateralized reverse repurchase
agreements and dollar roll transactions the Fund may enter into),
and no additional investments may be made while any such borrowings
are in excess of 10% of total assets."
Securities Lending Restrictions
"[The Fund may not] make loans to others, except (a) through the
purchase of debt securities in accordance with its investment
objective and policies, (b)
19
<PAGE>
through the lending of its portfolio securities up to the maximum
amount permitted by law, currently 30% of total fund assets, as
described above and in its Prospectus, or (c) to the extent the
entry into a repurchase agreement is deemed to be a loan."
Q: What are the reasons for changing the investment restrictions?
Since July, 1990, when the first mutual fund of The Montgomery Funds --
the Montgomery Small Cap Fund -- offered its shares to the public, there has
been a significant increase in the number of funds offered (each, a "Montgomery
Fund"). Before shares of each new Montgomery Fund can be publicly offered, a
prospectus and statement of additional information must be reviewed by the staff
of the Securities and Exchange Commission and, until recently, also other state
securities commissions for compliance with securities laws and regulations and
current staff disclosure preferences. Over time, different regulators (typically
state regulators) who have reviewed different Montgomery Funds have requested
certain initial investment restrictions be established at different levels. In
addition, the Manager's operational and investment needs with respect to these
restrictions have changed over time. The cumulative effects of these ad hoc
regulatory comments and shifting needs have resulted in inconsistencies of
investment restrictions among the Montgomery Funds, even for funds with similar
investment objectives. Such inconsistencies in the Montgomery Funds' fundamental
investment restrictions have made it more difficult for compliance personnel to
monitor the Fund and other Montgomery Funds' compliance with those restrictions
and may have indirectly increased the operating expenses of the Fund and other
Montgomery Funds. The confusion caused by different investment restrictions also
has complicated the Fund and other Montgomery Funds' business relationships. For
example, the varied borrowing restrictions for the Fund and the other Montgomery
Funds have created complications in negotiating and documenting the Fund and
other Montgomery Funds' credit line. The Manager believes that the current
differences in these investment restrictions are not justified under present
circumstances and not likely to be justified under future circumstances.
Shareholders of the Fund should note that there is an increased risk of
loss when the Fund uses a larger portion of its assets to engage in borrowing
and securities lending transactions. Shareholders are also reminded that
borrowing involves certain risks including interest rate risk and increased
expenses to the Fund. Securities lending also involves certain risks including
the potential default of the counterparty, which may cause a loss to the Fund.
Q: What is the required vote to approve the changes to the investment
restrictions?
At the Meeting, shareholders of the Fund will vote on the changes to
the investment restrictions of the Fund. The Board of Trustees of the Trust
recommends that the shareholders of the Fund approve the changes to the
investment restrictions. The affirmative vote of the holders of a majority of
the outstanding shares of the Fund is required to approve the changes with
respect to the Fund. "Majority" for this purpose under the Investment Company
Act means the lesser of (i) 67% of the shares represented at the meeting if more
than 50% of the outstanding shares is represented, or (ii)
20
<PAGE>
shares representing more than 50% of the net asset value of the Fund's
outstanding shares. See "General Information -- What is the required vote to
approve a proposal?"
THE BOARD OF TRUSTEES OF THE FUND RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND
APPROVE THE CHANGE IN INVESTMENT RESTRICTIONS OF THE FUND.
21
<PAGE>
GENERAL INFORMATION
Other Matters to Come Before the Meeting
The Trust's management does not know of any matters to be presented at
the Meeting other than those described in this Proxy Statement. If other
business should properly come before the Meeting, the proxyholders will vote
thereon in accordance with their best judgment.
Shareholder Proposals
The Meeting is a special meeting of shareholders. The Trust is not
required to, nor does it intends to, hold regular annual meetings of its
shareholders. If an annual meeting is called, any shareholder who wishes to
submit a proposal for consideration at the meeting should submit the proposal
promptly to the Trust. Any proposal to be considered for submission to
shareholders must comply with Rule 14a-8 under the Securities Exchange Act of
1934.
Reports to Shareholders
The Trust will furnish, without charge, a copy of the most recent
Annual Report to Shareholders of the Trust and the most recent Semi-Annual
Report succeeding such Annual Report on request. Requests for such reports
should be directed to The Montgomery Funds II, 101 California Street, San
Francisco, California 94111, (415) 248-6330 (toll free).
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING MAY BE ASSURED,
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
R. Stephen Doyle
Chairman and Chief Executive
Officer
San Francisco, California
May 12, 1997
22
<PAGE>
EXHIBITS LIST
-------------
Exhibit A List of persons owning beneficially more than 5% of the
outstanding shares of the Fund
Exhibit B Form of new Investment Management Agreement
23
<PAGE>
Exhibit A
List of persons owning beneficially more than 5% of the
outstanding shares of the Fund
24
<PAGE>
EXHIBIT A
LIST OF 5% SHAREHOLDERS
<TABLE>
As of the record date, to the knowledge of the Fund, the following
shareholders owned of record 5 percent or more of the shares of the Fund:
<CAPTION>
Percent
Number of Shares Owned (in of Shares
Name and Address of Record Owner thousands) (rounded)
- -------------------------------- ---------- ---------
<S> <C> <C>
Leland Stanford Junior University 1,171 21%
Merged Endowment Pool
Attn: Daniel Kingston
2770 Sand Hill Road
Menlo Park, CA 94025-7020
Pacific Gas & Electric Company 1,052 19%
Retirement Plan
444 Market Street Suite 1900
Mail Code T19A
PO Box 770000
San Francisco, CA 94111-5330
Asea Brown Boveri Master Trust 613 11%
c/o Eric W. Wood
PO Box 120071
Stamford, CT 06912-0071
General Electric Pension Trust 526 9%
3003 Summer Street
Stamford, CT 06905-4316
Chase Manhattan Bank Tr 522 9%
Reynolds Metals Retirement Trust
PO Box 27003
Richmond, VA 23261-7003
Annuity Board of The 388 7%
Southern Baptist Convention
PO Box 2190
Dallas, TX 75221-2190
Bankers Trust of CA NA TR 294 5%
U/A Jan 2 1997
Pacificorp Retirement Trust
300 S, Grand Avenue 40th Fl
Los Angeles, CA 90071-3110
</TABLE>
1
<PAGE>
Exhibit B
Form of new Investment Management Agreement
25
<PAGE>
EXHIBIT B
FORM OF NEW INVESTMENT MANAGEMENT AGREEMENT
INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT made as of the _____th day of
_______________________, 1997, by and between THE MONTGOMERY FUNDS II, a
Delaware business trust (hereinafter called the "Trust"), on behalf of each
series of the Trust listed in Appendix A hereto, as such may be amended from
time to time (hereinafter referred to individually as a "Fund" and collectively
as the "Funds") and MONTGOMERY ASSET MANAGEMENT, L.L.C., a limited liability
company organized and existing under the laws of the State of Delaware
(hereinafter called the "Manager").
WITNESSETH:
WHEREAS, the Trust is an open-end management investment company,
registered as such under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and is engaged in the business of
supplying investment advice, investment management and administrative services,
as an independent contractor; and
WHEREAS, the Trust desires to retain the Manager to render advice and
services to the Funds pursuant to the terms and provisions of this Agreement,
and the Manager is interested in furnishing said advice and services;
1
<PAGE>
NOW, THEREFORE, in consideration of the covenants and the mutual
promises hereinafter set forth, the parties hereto, intending to be legally
bound hereby, mutually agree as follows:
1. Appointment of Manager. The Trust hereby employs the Manager and the
Manager hereby accepts such employment, to render investment advice and
management services with respect to the assets of the Funds for the period and
on the terms set forth in this Agreement, subject to the supervision and
direction of the Trust's Board of Trustees.
2. Duties of Manager.
(a) General Duties. The Manager shall act as investment
manager to the Funds and shall supervise investments of the Funds on behalf of
the Funds in accordance with the investment objectives, programs and
restrictions of the Funds as provided in the Trust's governing documents,
including, without limitation, the Trust's Agreement and Declaration of Trust
and By-Laws, or otherwise and such other limitations as the Trustees may impose
from time to time in writing to the Manager. Without limiting the generality of
the foregoing, the Manager shall: (i) furnish the Funds with advice and
recommendations with respect to the investment of each Fund's assets and the
purchase and sale of portfolio securities for the Funds, including the taking of
such other steps as may be necessary to implement such advice and
recommendations; (ii) furnish the Funds with reports, statements and other data
on securities, economic conditions and other pertinent subjects which the
Trust's Board of Trustees may reasonably request; (iii) manage the investments
of the Funds, subject to the ultimate supervision and direction of the Trust's
Board of Trustees; (iv) provide persons satisfactory to the Trust's Board of
Trustees to act as officers and employees of the Trust and the Funds (such
officers and
2
<PAGE>
employees, as well as certain trustees, may be trustees, directors, officers,
partners, or employees of the Manager or its affiliates) but not including
personnel to provide administrative service or distribution services to the
Fund; and (v) render to the Trust's Board of Trustees such periodic and special
reports with respect to each Fund's investment activities as the Board may
reasonably request.
(b) Brokerage. The Manager shall place orders for the purchase
and sale of securities either directly with the issuer or with a broker or
dealer selected by the Manager. In placing each Fund's securities trades, it is
recognized that the Manager will give primary consideration to securing the most
favorable price and efficient execution, so that each Fund's total cost or
proceeds in each transaction will be the most favorable under all the
circumstances. Within the framework of this policy, the Manager may consider the
financial responsibility, research and investment information, and other
services provided by brokers or dealers who may effect or be a party to any such
transaction or other transactions to which other clients of the Manager may be a
party.
It is also understood that it is desirable for the Funds that the
Manager have access to investment and market research and securities and
economic analyses provided by brokers and others. It is also understood that
brokers providing such services may execute brokerage transactions at a higher
cost to the Funds than might result from the allocation of brokerage to other
brokers on the basis of seeking the most favorable price and efficient
execution. Therefore, the purchase and sale of securities for the Funds may be
made with brokers who provide such research and analysis, subject to review by
the Trust's Board of Trustees from time to time with respect to the extent and
continuation of this practice to determine whether each Fund benefits,
3
<PAGE>
directly or indirectly, from such practice. It is understood by both parties
that the Manager may select broker-dealers for the execution of the Funds'
portfolio transactions who provide research and analysis as the Manager may
lawfully and appropriately use in its investment management and advisory
capacities, whether or not such research and analysis may also be useful to the
Manager in connection with its services to other clients.
On occasions when the Manager deems the purchase or sale of a security
to be in the best interest of one or more of the Funds as well as of other
clients, the Manager, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be so purchased or sold in order to
obtain the most favorable price or lower brokerage commissions and the most
efficient execution. In such event, allocation of the securities so purchased or
sold, as well as the expenses incurred in the transaction, will be made by the
Manager in the manner it considers to be the most equitable and consistent with
its fiduciary obligations to the Funds and to such other clients.
(c) Administrative Services. The Manager shall oversee the
administration of the Funds' business and affairs although the provision of
administrative services, to the extent not covered by subparagraphs (a) or (b)
above, is not the obligation of the Manager under this Agreement.
Notwithstanding any other provisions of this Agreement, the Manager shall be
entitled to reimbursement from the Funds for all or a portion of the reasonable
costs and expenses, including salary, associated with the provision by Manager
of personnel to render administrative services to the Funds.
3. Best Efforts and Judgment. The Manager shall use its best judgment
and efforts in rendering the advice and services to the Funds as contemplated by
this Agreement.
4
<PAGE>
4. Independent Contractor. The Manager shall, for all purposes herein,
be deemed to be an independent contractor, and shall, unless otherwise expressly
provided and authorized to do so, have no authority to act for or represent the
Trust or the Funds in any way, or in any way be deemed an agent for the Trust or
for the Funds. It is expressly understood and agreed that the services to be
rendered by the Manager to the Funds under the provisions of this Agreement are
not to be deemed exclusive, and the Manager shall be free to render similar or
different services to others so long as its ability to render the services
provided for in this Agreement shall not be impaired thereby.
5. Manager's Personnel. The Manager shall, at its own expense, maintain
such staff and employ or retain such personnel and consult with such other
persons as it shall from time to time determine to be necessary to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Manager shall be
deemed to include persons employed or retained by the Manager to furnish
statistical information, research, and other factual information, advice
regarding economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and assistance as
the Manager or the Trust's Board of Trustees may desire and reasonably request.
6. Reports by Funds to Manager. Each Fund will from time to time
furnish to the Manager detailed statements of its investments and assets, and
information as to its investment objective and needs, and will make available to
the Manager such financial reports, proxy statements, legal and other
information relating to each Fund's investments as may be in its
5
<PAGE>
possession or available to it, together with such other information as the
Manager may reasonably request.
7. Expenses.
(a) With respect to the operation of each Fund, the Manager is
responsible for (i) the compensation of any of the Trust's trustees, officers,
and employees who are affiliates of the Manager (but not the compensation of
employees performing services in connection with expenses which are the Fund's
responsibility under Subparagraph 7(b) below), (ii) the expenses of printing and
distributing the Funds' prospectuses, statements of additional information, and
sales and advertising materials (but not the legal, auditing or accounting fees
attendant thereto) to prospective investors (but not to existing shareholders),
and (iii) providing office space and equipment reasonably necessary for the
operation of the Funds.
(b) Each Fund is responsible for and has assumed the
obligation for payment of all of its expenses, other than as stated in
Subparagraph 7(a) above, including but not limited to: fees and expenses
incurred in connection with the issuance, registration and transfer of its
shares; brokerage and commission expenses; all expenses of transfer, receipt,
safekeeping, servicing and accounting for the cash, securities and other
property of the Trust for the benefit of the Funds including all fees and
expenses of its custodian, shareholder services agent and accounting services
agent; interest charges on any borrowings; costs and expenses of pricing and
calculating its daily net asset value and of maintaining its books of account
required under the 1940 Act; taxes, if any; expenditures in connection with
meetings of each Fund's Shareholders and Board of Trustees that are properly
payable by the Fund; salaries and expenses of officers and fees and expenses of
members of the Trust's Board of Trustees or members of any advisory
6
<PAGE>
board or committee who are not members of, affiliated with or interested persons
of the Manager; insurance premiums on property or personnel of each Fund which
inure to its benefit, including liability and fidelity bond insurance; the cost
of preparing and printing reports, proxy statements, prospectuses and statements
of additional information of the Fund or other communications for distribution
to existing shareholders; legal, auditing and accounting fees; trade association
dues; fees and expenses (including legal fees) of obtaining and maintaining any
required registration or notification for its shares for sale under federal and
applicable state and foreign securities laws; all expenses of maintaining and
servicing shareholder accounts, including all charges for transfer, shareholder
recordkeeping, dividend disbursing, redemption, and other agents for the benefit
of the Funds, if any; and all other charges and costs of its operation plus any
extraordinary and non-recurring expenses, except as herein otherwise prescribed.
(c) To the extent the Manager incurs any costs by assuming
expenses which are an obligation of a Fund as set forth herein, such Fund shall
promptly reimburse the Manager for such costs and expenses, except to the extent
the Manager has otherwise agreed to bear such expenses. To the extent the
services for which a Fund is obligated to pay are performed by the Manager, the
Manager shall be entitled to recover from such Fund to the extent of the
Manager's actual costs for providing such services.
8. Investment Advisory and Management Fee.
(a) Each Fund shall pay to the Manager, and the Manager agrees
to accept, as full compensation for all administrative and investment management
and advisory services furnished or provided to such Fund pursuant to this
Agreement, a management fee as set forth in
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the Fee Schedule attached hereto as Appendix B, as may be amended in writing
from time to time by the Trust and the Manager.
(b) The management fee shall be accrued daily by each Fund and
paid to the Manager upon its request.
(c) The initial fee under this Agreement shall be payable on
the first business day of the first month following the effective date of this
Agreement and shall be prorated as set forth below. If this Agreement is
terminated prior to the end of any month, the fee to the Manager shall be
prorated for the portion of any month in which this Agreement is in effect which
is not a complete month according to the proportion which the number of calendar
days in the month during which the Agreement is in effect bears to the number of
calendar days in the month, and shall be payable within ten (10) days after the
date of termination.
(d) The Manager may reduce any portion of the compensation or
reimbursement of expenses due to it pursuant to this Agreement and may agree to
make payments to limit the expenses which are the responsibility of a Fund under
this Agreement. Any such reduction or payment shall be applicable only to such
specific reduction or payment and shall not constitute an agreement to reduce
any future compensation or reimbursement due to the Manager hereunder or to
continue future payments. Any such reduction will be agreed to prior to accrual
of the related expense or fee and will be estimated daily and reconciled and
paid on a monthly basis. To the extent such an expense limitation has been
agreed to by the Manager and such limit has been disclosed to shareholders of a
Fund in a prospectus, the Manager may not change the limitation without first
disclosing the change in an updated prospectus. Any fee withheld pursuant to
this paragraph from the Manager shall be reimbursed by the appropriate
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Fund to the Manager in the first, second or third (or any combination thereof)
fiscal year next succeeding the fiscal year of the withholding if the aggregate
expenses for the next succeeding fiscal year or second succeeding fiscal year or
third succeeding fiscal year do not exceed any more restrictive limitation to
which the Manager has agreed. The Manager generally may request and receive
reimbursement for the oldest reductions and waivers before payment for fees and
expenses for the current year.
(e) The Manager may agree not to require payment of any
portion of the compensation or reimbursement of expenses otherwise due to it
pursuant to this Agreement prior to the time such compensation or reimbursement
has accrued as a liability of the Fund. Any such agreement shall be applicable
only with respect to the specific items covered thereby and shall not constitute
an agreement not to require payment of any future compensation or reimbursement
due to the Manager hereunder.
9. Fund Share Activities of Managers Partners, Officers and Employees.
The Manager agrees that neither it nor any of its partners, officers or
employees shall take any short position in the shares of the Funds. This
prohibition shall not prevent the purchase of such shares by any of the officers
and partners or bona fide employees of the Manager or any trust, pension,
profit-sharing or other benefit plan for such persons or affiliates thereof, at
a price not less than the net asset value thereof at the time of purchase, as
allowed pursuant to rules promulgated under the 1940 Act.
10. Conflicts with Trust's Governing Documents and Applicable Laws.
Nothing herein contained shall be deemed to require the Trust or the Funds to
take any action contrary to the Trust's Agreement and Declaration of Trust,
By-Laws, or any applicable statute or regulation,
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or to relieve or deprive the Board of Trustees of the Trust of its
responsibility for and control of the conduct of the affairs of the Trust and
Funds.
11. Manager's Liabilities.
(a) In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the obligations or duties hereunder on the
part of the Manager, the Manager shall not be subject to liability to the Trust
or the Funds or to any shareholder of the Funds for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security by the
Funds.
(b) The Funds shall indemnify and hold harmless the Manager,
its general partner and the shareholders, directors, officers and employees of
each of them (any such person, an "Indemnified Party") against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating and defending any alleged loss, liability, claim, damage or
expenses and reasonable counsel fees incurred in connection therewith) arising
out of the Indemnified Party's performance or non-performance of any duties
under this Agreement provided, however, that nothing herein shall be deemed to
protect any Indemnified Party against any liability to which such Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith or
negligence in the performance of duties hereunder or by reason of reckless
disregard of obligations and duties under this Agreement.
(c) No provision of this Agreement shall be construed to
protect any Trustee or officer of the Trust, or partner or officer of the
Manager, from liability in violation of Sections 17(h) and (i) of the 1940 Act.
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12. Non-Exclusivity. The Trust's employment of the Manager is not an
exclusive arrangement, and the Trust may from time to time employ other
individuals or entities to furnish it with the services provided for herein. In
the event this Agreement is terminated with respect to any Fund, this Agreement
shall remain in full force and effect with respect to all other Funds listed on
Appendix A hereto, as the same may be amended.
13. Term. This Agreement shall become effective on the date that is the
latest of (1) the execution of this Agreement, (2) the approval of this
Agreement by the Board of Trustees of the Trust and (3) the approval of this
Agreement by the shareholders of each Fund in a special meeting of shareholders
of the Fund. This Agreement shall remain in effect for a period of two (2)
years, unless sooner terminated as hereinafter provided. This Agreement shall
continue in effect thereafter for additional periods not exceeding one (l) year
so long as such continuation is approved for each Fund at least annually by (i)
the Board of Trustees of the Trust or by the vote of a majority of the
outstanding voting securities of each Fund and (ii) the vote of a majority of
the Trustees of the Trust who are not parties to this Agreement nor interested
persons thereof, cast in person at a meeting called for the purpose of voting on
such approval.
14. Termination. This Agreement may be terminated by the Trust on
behalf of any one or more of the Funds at any time without payment of any
penalty, by the Board of Trustees of the Trust or by vote of a majority of the
outstanding voting securities of a Fund, upon sixty (60) days' written notice to
the Manager, and by the Manager upon sixty (60) days' written notice to a Fund.
15. Termination by Assignment. This Agreement shall terminate
automatically in the event of any transfer or assignment thereof, as defined in
the 1940 Act.
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16. Transfer, Assignment. This Agreement may not be transferred,
assigned, sold or in any manner hypothecated or pledged without the affirmative
vote or written consent of the holders of a majority of the outstanding voting
securities of each Fund.
17. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute or rule, or shall be otherwise
rendered invalid, the remainder of this Agreement shall not be affected thereby.
18. Definitions. The terms "majority of the outstanding voting
securities" and "interested persons" shall have the meanings as set forth in the
1940 Act.
19. Notice of Declaration of Trust. The Manager agrees that the Trust's
obligations under this Agreement shall be limited to the Funds and to their
assets, and that the Manager shall not seek satisfaction of any such obligation
from the shareholders of the Funds nor from any trustee, officer, employee or
agent of the Trust or the Funds.
20. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect.
21. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California without giving effect to
the conflict of laws principles thereof; provided that nothing herein shall be
construed to preempt, or to be inconsistent with, any federal law, regulation or
rule, including the 1940 Act and the Investment Advisors Act of 1940 and any
rules and regulations promulgated thereunder.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers, all on the day and
year first above written.
THE MONTGOMERY FUNDS II MONTGOMERY ASSET MANAGEMENT, LLC
By: ____________________________ By: _________________________________
Title: __________________________ Title: _________________________________
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Appendix A
FORM OF PROXY
THE MONTGOMERY FUNDS II
SPECIAL MEETING OF SHAREHOLDERS
OF MONTGOMERY INSTITUTIONAL SERIES:
EMERGING MARKETS PORTFOLIO
June 23, 1997
SOLICITED ON BEHALF OF
THE BOARD OF TRUSTEES OF
THE MONTGOMERY FUNDS II
The undersigned hereby appoints Mark B. Geist and David E. Demarest,
and each of them, as proxies of the undersigned, each with the power to appoint
his substitute, for the Special Meeting of Shareholders of the Montgomery
Institutional Series: Emerging Markets Portfolio (the "Fund"), a separate series
of The Montgomery Funds II (the "Trust"), to be held on June 23, 1997 at the
offices of The Montgomery Funds II, 101 California Street, San Francisco,
California 94111, and at any and all adjournments thereof (the "Meeting"), to
vote, as designated below, all shares of the Fund, held by the undersigned at
the close of business on April 25, 1997. Capitalized terms used without
definition have the meanings given to them in the accompanying Proxy Statement.
A signed proxy will be voted in favor of the Proposals listed below unless you
have specified otherwise. Please sign, date and return this proxy promptly. You
may vote only if you held shares in the Fund at the close of business on April
25, 1997. Your signature authorizes the proxies to vote in their discretion on
such other business as may properly come before the Meeting including, without
limitation, all matters incident to the conduct of the Meeting.
1. To approve a new Investment Management Agreement between the Fund
and CAM Acquisition, LLC ("New Montgomery") pursuant to which New Montgomery
will act as adviser with respect to the assets of the Fund, to become
effective upon the closing of the transaction by which substantially all the
assets of Montgomery Asset Management, L.P. will be acquired by New
Montgomery, a subsidiary of Commerzbank AG:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. To authorize the Board of Trustees to approve any future conversion
of the Fund to a feeder fund in a master/feeder fund structure:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
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3. To approve certain changes to the fundamental investment
restrictions of the Fund:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Dated: ,1997
---------------
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Signature(s) (if held jointly)
[Shareholder Name] ----------------------------------
Title (if applicable)
[Address]
[Address]
[Shares Held]
Please sign exactly as name or names appear on your shareholder account
statement. When signing as attorney, trustee, executor, administrator,
custodian, guardian or corporate officer, please give full title. If shares are
held jointly, each shareholder should sign.
You may use this Proxy only to vote shares of the above-named Fund. If you own
share of more than one Fund in the Montgomery family of mutual funds, you will
receive a separate Proxy for each Fund. You may not use this Proxy to vote for
another Fund, or to vote shares of more than one Fund.
