Rule 497(e)
File Nos. 33-69686 and 811-8064
THE MONTGOMERY PARTNERS SERIES
101 California Street
San Francisco, California 94111
(800) OWL-8758 (695-8758)
Invest wisely.SM
Prospectus
December 31, 1997, as supplemented May 5, 1998
Montgomery Global Long-Short Fund
Montgomery Emerging Markets Focus Fund
Class A, Class B and Class C shares of these Funds are offered in this
prospectus.
This prospectus sets forth concisely the information about the Funds that a
prospective investor should know before investing. Please read it and retain it
for future reference. A Statement of Additional Information dated December 31,
1997, as may be revised, has been filed with the Securities and Exchange
Commission (the "SEC"), is incorporated by this reference and is available
without charge by calling your financial consultant or (800) OWL-8758
(695-8758). If you are viewing the electronic version of this prospectus through
an on-line computer service, you may request a printed version free of charge by
calling (800) OWL-8758 (695-8758).
Each Fund is a separate series of The Montgomery Funds II, an openend management
investment company. The Securities and Exchange Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding The
Montgomery Funds II.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
bank. Shares are not insured by the FDIC, Federal Reserve Board or any other
agency, and are subject to investment risks, including possible loss of
principal amount invested.
Like all mutual funds, these securities have not been approved or disapproved by
the Securities and Exchange Commission or any state securities commission, nor
has the Securities and Exchange Commission or any state securities commission
passed upon the accuracy or adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
Table of Contents
Summary of Key Information 2
Fees and Expenses of the Funds 3
The Funds' Investment Objectives and Policies 5
Selecting the Correct Class of Shares 6
Sales Charge Reductions and Waivers 8
How to Invest in the Funds 9
How to Redeem an Investment in the Funds 11
Exchange Privileges and Restrictions 13
Portfolio Securities 14
Other Investment Practices 15
Risk Considerations 18
Management of the Funds 20
How Net Asset Value Is Determined 23
Dividends and Distributions 23
Taxation 24
General Information 25
Backup Withholding Instructions 26
Glossary 27
<PAGE>
Summary of Key Information
What is offered in this prospectus?
Class A, Class B and Class C shares of the following funds (the "Funds") are
offered in this prospectus:
Montgomery Global Long-Short Fund (the "Long-Short Fund")
Montgomery Emerging Markets Focus Fund (the "Emerging Markets Fund")
What is each Fund's investment objective?
Each Fund seeks capital appreciation.
What is each Fund's strategy?
The Long-Short Fund normally seeks to achieve its objective by investing at
least 65% of its total assets in long and short positions in equity securities
of publicly traded companies of any size worldwide.
The Emerging Markets Fund normally seeks to achieve its objective by investing
at least 65% of its total assets in equity securities of between three and ten
emerging markets countries. See "The Funds' Investment Objectives and Policies."
What is special about the Funds?
The Long-Short Fund uses sophisticated investment approaches that may present
substantially higher risks than most mutual funds. It may invest a larger
percentage of its assets in transactions using margin, leverage, short sales and
other forms of volatile financial derivatives such as options and futures. As a
result, the value of an investment in this Fund may be more volatile than
investments in other mutual funds. This Fund may not be an appropriate
investment for conservative investors.
The Emerging Markets Fund will invest a larger percentage of its assets in fewer
countries (three to ten) than other general emerging markets mutual funds. As a
result, the value of an investment in this Fund may be more volatile and subject
to higher risks than investments in other foreign stock mutual funds.
You should read this prospectus carefully and discuss your investment with your
financial consultant before investing. Like all mutual funds, there can be no
assurance that a Fund's investment objective will be attained. See "Risk
Considerations."
Who manages the Funds?
Each Fund is managed by Montgomery Asset Management, LLC (the "Manager"), a
subsidiary of Commerzbank AG. Commerzbank and its affiliates have worldwide
investment management operations and expertise. To benefit from these resources,
the Manager may consult with or rely on its affiliated investment advisory
organizations for research and other investment advice deemed useful by the
Manager. See "Management of the Funds."
How do you invest in the Funds?
The Funds' shares are sold primarily through financial intermediaries and
financial professionals. Certain classes of shares may be subject to a front-end
sales charge, a back-end contingent deferred sales charge and/or Rule 12b-1 fees
as described in this prospectus. In general, the minimum initial investment in
each Fund is $2,000 (including IRAs), and subsequent investments must be at
least $500. The Manager or the Distributor, under any circumstances that either
deems appropriate, may waive these minimums. See "Sales Charge Reductions and
Waivers" and "How to Invest in the Funds."
Which class of shares is best for you?
Each class has different expenses and sales charges. You should carefully review
"Fees and Expenses of the Funds" with your financial consultant. The alternative
purchase arrangements permit you to choose the method of buying shares that is
most beneficial to you given the amount of the purchase, the length of time you
expect to hold the shares and other circumstances. You should consider whether,
during the anticipated term of your investment, the accumulated continuing
distribution and service fees and contingent deferred sales charges of one class
would be more than the initial sales charge and accumulated continuing
distribution and service fees of another class of shares purchased at the same
time. See "Selecting the Correct Class of Shares" and "Sales Charge Reductions
and Waivers."
2
<PAGE>
Fees and Expenses of the Funds
Shareholder Transaction Expenses for the Funds
<TABLE>
An investor would pay, either directly or indirectly, the following charges when
buying or redeeming shares of a Fund:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: CLASS A CLASS B(a) CLASS C
(FOR EACH FUND)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge on purchases 5.50%(b) None None
(as a percentage of offering price)
- ------------------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- ------------------------------------------------------------------------------------------------------------
Maximum deferred sales charge None(c) 5.00%(d) 1.00%(e)
(as a percentage of redemption proceeds)
- ------------------------------------------------------------------------------------------------------------
Redemption fee(f) None(g) None None
- ------------------------------------------------------------------------------------------------------------
Exchange fee None None None
- ------------------------------------------------------------------------------------------------------------
Annual Portfolio Operating Expenses (as a percentage of average net assets)
- ------------------------------------------------------------------------------------------------------------
MONTGOMERY GLOBAL LONG-SHORT FUND CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------
Management fee(h) 1.50% 1.50% 1.50%
- ------------------------------------------------------------------------------------------------------------
Other expenses (after reimbursement)(h) 0.85% 0.85% 0.85%
- ------------------------------------------------------------------------------------------------------------
Shareholder servicing fee of 0.25% included
- ------------------------------------------------------------------------------------------------------------
Sub-total operating expenses 2.35% 2.35% 2.35%
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
12b-1 distribution fee None 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------------
Total fund operating expenses (after reimbursement) (h) 2.35% 3.10% 3.10%
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
MONTGOMERY EMERGING MARKETS FOCUS FUND CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------
Management fee(h) 1.25% 1.25% 1.25%
- ------------------------------------------------------------------------------------------------------------
Other expenses (after reimbursement)(h) 0.85% 0.85% 0.85%
- ------------------------------------------------------------------------------------------------------------
Shareholder servicing fee of 0.25% included
- ------------------------------------------------------------------------------------------------------------
Sub-total operating expenses 2.10% 2.10% 2.10%
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
12b-1 distribution fee None 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------------
Total Fund operating expenses (after reimbursement) (h) 2.10% 2.85% 2.85%
- ------------------------------------------------------------------------------------------------------------
Note: The Long-Short Fund, because of its use of leverage, is expected to incur
interest expenses that are higher than for other mutual funds. Total interest
expenses for the current year are estimated to be approximately 0.50% of average
net assets.
<FN>
(a) Class B shares convert to Class A shares automatically at the beginning of
the seventh year after purchase.
(b) Reduced for purchases of $25,000 and more. Class A purchases of $1,000,000
or more will not be subject to an initial sales charge.
(c) Class A shares are not subject to a contingent deferred sales charge (a
"CDSC"), except that certain purchases of $1,000,000 or more which are not
subject to an initial sales charge may instead be subject to a CDSC of
1.00% of amounts redeemed within the first year of purchase. Such a CDSC
may be waived in connection with redemptions to Fund participants in
certain fee-based programs.
(d) 5.00% during the first year, 4.00% during the second year, 3.00% during the
third and fourth years, 2.00% during the fifth year and 1.00% during the
sixth year. Class B shares automatically convert into Class A shares at the
beginning of the seventh year after purchase and thereafter will not be
subject to a CDSC.
(e) Class C shares are subject to a 1.00% CDSC if redeemed within the first
year after purchase.
(f) Shareholders effecting redemptions via wire transfer may be required to pay
fees, including the wire fee and other fees, that will be directly deducted
from redemption proceeds. See "How to Redeem an Investment in the Funds."
(g) Class A shares that (i) were not purchased throughcertain fee-based
programs, or (ii) were not subject to an initial sales charge or to a CDSC
will be subject to a redemption fee of 1.00% on amounts redeemed within the
first year of purchase.
(h) Expenses for the Funds are estimated. The Manager will reduce its fees and
may absorb or reimburse the Funds for certain expenses to the extent
necessary to limit total annual Fund operating expenses to the amount
indicated in the table for the Funds. The Funds are required to reimburse
the Manager for any reductions in the Manager's fee only during the three
years following that reduction and only if such reimbursement can be
achieved within the foregoing expense limits. The Manager generally seeks
reimbursement for the oldest reductions and waivers before payment by the
Funds for fees and expenses for the current year. Absent the reduction,
actual total Fund operating expenses are estimated to be: Long-Short Fund:
Class A, 3.10% (1.60% other expenses), Class B, 3.85% (1.60% other
expenses), and Class C, 3.85% (1.60% other expenses); Emerging Markets
Fund: Class A, 2.85% (1.60% other expenses), Class B, 3.60% (1.60% other
expenses), and Class C,
3
<PAGE>
3.60% (1.60% other expenses). The Manager may terminate these voluntary
reductions at any time. See "Management of the Funds."
</FN>
</TABLE>
The previous table is intended to assist the investor in understanding the
various direct and indirect costs and expenses of the Funds. Operating expenses
are paid out of the Funds' assets and are factored into the Funds' share prices.
The Funds estimate that they will have the expenses listed (expressed as a
percentage of average net assets) for the current fiscal year. Because Rule
12b-1 distribution charges are accounted for on a class-level basis (and not on
an individual shareholder-level basis), individual long-term investors in the
Class B and Class C shares of the Funds may over time pay more than the economic
equivalent of the maximum front-end sales charge permitted by NASD Regulation,
Inc. (the "NASDR"), even though all shareholders of those classes in the
aggregate may not.
4
<PAGE>
Example of Expenses for the Funds
<TABLE>
Assuming, hypothetically, that a Fund's annual return is 5% and that its
operating expenses are as set forth above, an investor buying $1,000 of a Fund's
shares would have paid the following total expenses upon redeeming such shares:
<CAPTION>
- -------------------------------------------------------------- -------------------------------- --------------------------------
Montgomery Global Long-Short Montgomery Emerging Markets
Fund Focus Fund
- -------------------------------------------------------------- --------------- ---------------- --------------- ----------------
1 YEAR 3 YEARS 1 YEAR 3 YEARS
- -------------------------------------------------------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Class A $77 $124 $75 $117
- -------------------------------------------------------------- --------------- ---------------- --------------- ----------------
Class B
- -------------------------------------------------------------- --------------- ---------------- --------------- ----------------
Assuming redemption at end of period $81 $124 $79 $118
- -------------------------------------------------------------- --------------- ---------------- --------------- ----------------
Assuming no redemption $31 $96 $29 $88
- -------------------------------------------------------------- --------------- ---------------- --------------- ----------------
Class C
- -------------------------------------------------------------- --------------- ---------------- --------------- ----------------
Assuming redemption at end of period $41 $96 $39 $88
- -------------------------------------------------------------- --------------- ---------------- --------------- ----------------
Assuming no redemption $31 $96 $29 $88
- -------------------------------------------------------------- --------------- ---------------- --------------- ----------------
</TABLE>
This example is to help potential investors understand the effect of expenses.
Investors should understand that this example does not represent past or future
expenses or returns and that actual expenses and returns may vary.
The Funds' Investment Objectives and Policies
The investment objectives and general investment policies of the Funds are
described below. Specific portfolio securities that may be purchased by the
Funds are described in "Portfolio Securities." Specific investment practices
that may be employed by the Funds are described in "Other Investment Practices."
Certain risks associated with investing in the Funds are described in those
sections as well as in "Risk Considerations." Certain terms used here are
defined in the Glossary at the end of this prospectus.
Montgomery Global Long-Short Fund
This Fund uses sophisticated investment approaches that may present
substantially higher risks than most mutual funds. It may invest a larger
percentage of its assets in transactions using margin, leverage, short sales and
other forms of volatile financial derivatives such as options and futures. As a
result, the value of an investment in this Fund may be more volatile than
investments in other mutual funds. This Fund may not be an appropriate
investment for conservative investors.
The Long-Short Fund's investment objective is to seek capital appreciation.
Under normal conditions, this Fund seeks to achieve its objective by investing
at least 65% of its total assets in long and short positions in equity
securities of publicly traded companies of any size worldwide. This Fund
measures short sale exposure by the current market value of the collateral used
to secure the short sale positions. Any income derived from dividends and
interest will be incidental to this Fund's investment objective. Investors
should note that this Fund uses an approach different from the traditional
long-term investment approach of most other mutual funds. The use of borrowing
and short sales may cause the Fund to have higher expenses (especially interest
expenses) than those of other equity mutual funds. Like all mutual funds, there
can be no assurance that the Fund's investment objective will be attained.
This Fund may employ margin leverage and engage in shortsales of securities it
does not own. This Fund also may use options and financial indices for hedging
purposes and/or to establish or increase its long or short positions. This Fund
invests primarily in common stocks (including depositary receipts) but also may
invest in other types of equity and equity-derivative securities. It may invest
up to 35% of its total assets in debt securities, including up to 5% in debt
securities rated below investment grade. See "Portfolio Securities," "Risk
Considerations" and the Appendix in the Statement of Additional Information.
This Fund may invest in certain debt securities issued by the governments of
emerging markets countries that are, or may be eligible for, conversion into
investments in emerging markets companies under debt conversion programs
sponsored by such governments. This Fund deems securities that are convertible
to equity investments to be equity-derivative securities.
Montgomery Emerging Markets Focus Fund
The Emerging Markets Fund's investment objective is to seek capital
appreciation. Under normal conditions, this Fund seeks to achieve its objective
by investing at least 65% of its total assets in equity securities of between
three and 10 emerging markets countries. This Fund may invest up to 50% of its
total assets in a single emerging markets country. The Manager currently regards
the following to be emerging markets countries: Latin America (Argentina,
Brazil, Chile, Colombia, Costa Rica, Jamaica, Mexico,
5
<PAGE>
Peru, Trinidad and Tobago, Uruguay and Venezuela); Asia (Bangladesh, China/Hong
Kong, India, Indonesia, Korea, Malaysia, Pakistan, the Philippines, Singapore,
Sri Lanka, Taiwan, Thailand and Vietnam); southern and eastern Europe (the Czech
Republic, Greece, Hungary, Kazakstan, Poland, Portugal, Romania, Russia,
Slovakia, Slovenia, Turkey and Ukraine); the Middle East (Israel and Jordan);
and Africa (Egypt, Ghana, Ivory Coast, Kenya, Morocco, Nigeria, South Africa,
Tunisia and Zimbabwe). In the future, this Fund may invest in other emerging
markets countries. Like all mutual funds, there can be no assurance that the
Fund's investment objective will be attained.
At times, this Fund may concentrate its investments in one or more market
sectors (without concentrating in a specific industry). When this Fund
concentrates its investments in a market sector, financial, economic, business
and other developments affecting issuers in that sector will have a greater
effect on the Fund than if it had not concentrated its assets in that sector.
This Fund invests primarily in common stocks (including depositary receipts) but
also may invest in other types of equity and equity-derivative securities. It
may invest up to 35% of its total assets in debt securities, including debt
securities rated below investment grade. See "Portfolio Securities," "Risk
Considerations" and the Appendix in the Statement of Additional Information.
This Fund may invest in certain debt securities issued by the governments of
emerging markets countries that are, or may be eligible for, conversion into
investments in emerging markets companies under debt conversion programs
sponsored by such governments. This Fund deems securities that are convertible
to equity investments to be equity-derivative securities.
Selecting the Correct Class of Shares
This prospectus offers Class A, Class B and Class C shares of each Fund. Each
class has its own cost structure, allowing you to choose the one that best meets
your requirements. Your financial consultant can help you decide. For estimated
expenses of each class, see the table under "Fees and Expenses of the Funds"
earlier in this prospectus.
Class A Shares - Initial Sales Charge
Class A shares will incur an initial sales charge when they are purchased (a
"front-end load") based on the dollar amount of the purchase. The maximum
initial sales charge is 5.5%, which will be reduced for purchases of $25,000 and
over. Sales charges also are reduced under a right of accumulation which takes
into account the investor's holdings of all classes of The Montgomery Partners
Series funds. Class A shares are subject to an ongoing shareholder servicing fee
of 0.25% of a Fund's average net assets attributable to Class A shares. Class A
shares will not be subject to any CDSC when they are redeemed. However, while
purchases of $1,000,000 or more may not be subject to an initial sales charge,
if the initial sales charge is waived, such purchase may be subject to a CDSC of
1.00% if the shares are redeemed within one year after purchase. Class A shares
that (i) were not purchased through certain fee-based programs, or (ii) were not
subject to an initial sales charge or to a CDSC will be subject to a redemption
fee of 1.00% on amounts redeemed within the first year of purchase. Class A
shares also will be issued upon conversion of Class B shares as described below
under "Class B shares."
Class B Shares - Deferred Sales Charge
Class B shares will not incur a sales charge when they are purchased, but they
are subject to an ongoing Rule 12b-1 distribution fee of 0.75% and an ongoing
shareholder servicing fee of 0.25% of a Fund's average net assets attributable
to Class B shares. Class B shares are subject to a CDSC if they are redeemed
within six years of purchase. At the beginning of the seventh year after
purchase, Class B shares will automatically convert into Class A shares of a
Fund, which are subject to the same shareholder servicing fee of 0.25%. If Class
B shares of a Fund are exchanged for Class B shares of another fund of The
Montgomery Partners Series, the conversion period applicable to the Class B
shares acquired in the exchange will apply, as will the Class A shareholder
servicing fee of the acquired fund upon the conversion. The holding period of
the exchanged shares will be tacked onto the holding period of the acquired
shares. Automatic conversion of Class B shares into Class A shares will occur at
least once a month on the basis of the relative net asset values of the shares
of the two classes on the conversion date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class A shares will
not be deemed a purchase or sale of the shares for federal income tax purposes.
Shares purchased through reinvestment of dividends and other distributions on
Class B shares also will convert automatically to Class A shares based on the
portion of purchased shares that convert.
Class C Shares - Pay As You Go
Class C shares do not incur a sales charge when they are purchased, but they are
subject to an ongoing Rule 12b-1 distribution fee of 0.75% and an ongoing
shareholder servicing fee of 0.25% of a Fund's average net assets attributable
to Class C shares. Class C shares also are subject to a 1.00% CDSC if they are
redeemed within one year of purchase. Although Class C shares are subject to a
CDSC for only one year (as compared to six years for Class B), Class C shares
have no conversion feature and, accordingly, an
6
<PAGE>
investor that purchases Class C shares will be subject to the 0.75% Rule 12b-1
distribution fee for an indefinite period subject to annual approval by the
Funds' Board of Trustees and subject to regulatory limitations.
Sales Charges
Class A Shares
<TABLE>
Part of the front-end sales charge is paid directly to the selling broker/dealer
(the "dealer reallowance"). The remainder is retained by the Distributor and may
be used to either promote the sale of the Funds or to compensate the Distributor
for its efforts to sell the Funds.
<CAPTION>
- ------------------------------------------------- ---------------------- ----------------------- ---------------------------------
YOUR INVESTMENT AS A PERCENTAGE OF AS A PERCENTAGE OF DEALER REALLOWANCE AS A
OFFERING PRICE YOUR INVESTMENT PERCENTAGE OF OFFERING PRICE
- ------------------------------------------------- ---------------------- ----------------------- ---------------------------------
<S> <C> <C> <C>
Less than $25,000 5.50% 5.82% 5.00%
- ------------------------------------------------- ---------------------- ----------------------- ---------------------------------
$25,000 or more, but less than $50,000 4.75% 4.99% 4.30%
- ------------------------------------------------- ---------------------- ----------------------- ---------------------------------
$50,000 or more, but less than $100,000 4.25% 4.44% 3.85%
- ------------------------------------------------- ---------------------- ----------------------- ---------------------------------
$100,000 or more, but less than $250,000 3.25% 3.36% 3.00%
- ------------------------------------------------- ---------------------- ----------------------- ---------------------------------
$250,000 or more, but less than $500,000 2.25% 2.30% 2.00%
- ------------------------------------------------- ---------------------- ----------------------- ---------------------------------
$500,000 or more, but less than $1,000,000 1.25% 1.27% 1.00%
- ------------------------------------------------- ---------------------- ----------------------- ---------------------------------
$1,000,000 or more 0.00%* 0.00%* 0.00%*
- ------------------------------------------------- ---------------------- ----------------------- ---------------------------------
<FN>
*The Manager may pay a dealer reallowance on purchases of $1 million or more
during a 13-month period. The dealer reallowance, as a percentage of
offering price, is as follows: 1.00% on purchases between $1 million and $2
million; plus 0.80% on the amount between $2 million and $3 million; plus
0.50% on the amount between $3 million and $50 million; plus 0.25% on the
amount between $50 million and $100 million; plus 0.15% of the amount
exceeding $100 million.
</FN>
</TABLE>
Class B Shares
Class B shares are offered at their net asset value per share, without any
initial sales charge, but are subject to a CDSC if redeemed within six years of
purchase (a "back-end load"). The Distributor pays the selling broker/dealer a
4.00% commission at the time of sale.
Class C Shares
Class C shares are offered at their net asset value per share without any
initial sales charge. Class C shares, however, are subject to a CDSC if they are
redeemed within one year of purchase. The Distributor may pay the selling
broker/dealer up to a 1.00% commission at the time of sale.
Contingent Deferred Sales Charge (CDSC)
Shareholders of Class B and Class C shares may be subject to a CDSC upon
redemption of their shares under the following conditions:
Class B Shares
- -----------------------------------------------------------------------------
YEARS AFTER PURCHASE CDSC ON SHARES BEING REDEEMED
- -----------------------------------------------------------------------------
1st year 5.00%
- -----------------------------------------------------------------------------
2nd year 4.00%
- -----------------------------------------------------------------------------
3rd year 3.00%
- -----------------------------------------------------------------------------
4th year 3.00%
- -----------------------------------------------------------------------------
5th year 2.00%
- -----------------------------------------------------------------------------
6th year 1.00%
- -----------------------------------------------------------------------------
After 6 years None
- -----------------------------------------------------------------------------
Class B shares will be automatically converted to Class A shares at the
beginning of the seventh year after purchase.
Class C Shares
Shareholders who redeem Class C shares within one year of purchase will be
charged a CDSC of 1.00% of shares redeemed. There is no CDSC imposed on Class C
shares acquired through reinvestment of dividends or capital gains.
7
<PAGE>
Class B and C Shares
The CDSC will be imposed on the lesser of the original purchase price or the net
asset value of the redeemed shares at the time of the redemption. CDSC
calculations are based on the specific shares involved, not the value of the
account. To keep your CDSC as low as possible, each time you place a request to
sell shares, we will first sell any shares in your account are not subject to a
CDSC. If there are not enough of these shares to meet your request, we will sell
your shares on a first-in, first-out basis. Your financial consultant or
institution may elect to waive some or all of the payment thereby reducing or
eliminating the otherwise applicable CDSC.
Sales Charge Reductions and Waivers
Reducing Sales Charges on Your Class A Shares. There are several ways you can
combine multiple purchases of Class A shares to take advantage of the
breakpoints in the sales charge schedule. These can be combined in any manner:
o Accumulation privilege--lets you add the value of shares of any Class A
shares you and your immediate family already own to the amount of your next
investment for purposes of calculating sales charges
o Letter of intent--lets you purchase Class A shares over a 13-month period
and receive the same sales charge as if all shares had been purchased at
once. See the New Account application and Statement of Additional
Information for terms and conditions
o Combination privilege--lets you combine purchases of Class A share of
multiple funds of The Montgomery Partners Series for the purpose of
reducing the sales charge
To use these privileges: complete the appropriate section on your New Account
application, or contact your financial consultant or The Montgomery Partners
Series to add these options to an existing account.
CDSC Waivers. In general, the CDSC may be waived on shares you sell for the
following reasons:
o Payments through certain systematic retirement plans and other employee
benefit plans
o Qualifying distributions from qualified retirement plans and other employee
benefit plans
o Distributions from custodial accounts under section 403(b)(7) of the
Internal Revenue Code as well as from Individual Retirement Accounts (IRAs)
due to death, disability or attainment of age 59 1/2
o Participation in certain fee-based programs
To use any of these waivers: contact your financial consultant or The Montgomery
Partners Series.
Reinstatement Privilege. If you sell shares of a Fund, you may invest some or
all of the proceeds in the same Fund within 90 days without a sales charge. If
you paid a CDSC when you sold your shares, you will be credited with the amount
of the CDSC. All accounts involved must have the same registration.
To use: contact your financial consultant or The Montgomery Partners Series.
Net Asset Value Purchases. Class A shares may be sold at net asset value to:
o Current or retired directors, trustees, partners, officers and employees of
the Trust, the Distributor, the Manager and its members, certain family
members of the above persons, and trusts or plans primarily for such
persons
o Current or retired registered representatives or full-time employees and
their spouses and minor children and plans of broker-dealers or other
institutions that have selling agreements with the Distributor
o Investors who exchange their shares from an unaffiliated investment company
that has a comparable sales charge, so long as shares are purchased within
60 days of the redemption
o Trustees or other fiduciaries purchasing shares for certain retirement
plans of organizations with 50 or more eligible employees
o Investment advisors, financial planners and certain financial institutions
that place trades for their own accounts or the accounts of their clients
either individually or through a master account and who charge a
management, consulting or other fee for their services
8
<PAGE>
o Employer-sponsored benefit plans in connection with purchases of shares of
Class A shares made as a result of participant-directed exchanges between
options in such a plan
o "Wrap accounts" for the benefit of clients of broker-dealers, financial
institutions or financial planners having sales or service agreements with
the Distributor or another broker-dealer or financial institution with
respect to sales of Class A shares
o Such other persons as are determined by the Board of Trustees (or by the
Distributor pursuant to guidelines established by the Board of Trustees
(the "Board")) to have acquired shares under circumstances not involving
any sales expense to the Trust or the Distributor
How to Invest in the Funds
Shares are sold at a public offering price based on the net asset value for the
class of shares selected, next determined after receipt of the order. Investors
may purchase shares of a Fund from selected financial professionals, securities
brokers, dealers or through financial intermediaries such as benefit plan
administrators. Investors should contact these agents directly for appropriate
instructions, as well as for information pertaining to accounts and any
servicing or transaction fees that may be charged. Some of these agents may
appoint sub-agents. The Funds' shares are also offered for sale directly by
Funds Distributor, Inc., the Funds' Distributor, 101 California Street, San
Francisco, California 94111, (800) OWL-8758 (695-8758).
If an order, together with payment in proper form, is received by the Transfer
Agent, the Distributor or securities brokers, dealers and other financial
intermediaries that have an agreement with the Distributor by the close of
trading (generally, 4:00 P.M. eastern time, except when the market closes
earlier due to a holiday or for any other reason) on any day that the New York
Stock Exchange (the "NYSE") is open, Fund shares will be purchased at the public
offering price calculated that day for the applicable class of shares. Orders
for Fund shares received after close of trading will be purchased at the next
day's public offering price.
The minimum initial investment in the Funds is $2,000 (including IRAs) and $500
for subsequent investments. The Manager or the Distributor, at its discretion,
may waive these minimums. The Funds do not accept third-party checks or cash
investments. Checks must be in U.S. dollars and, to avoid fees and delays, drawn
only on banks located in the United States. Purchases may also be made in
certain circumstances by payment of securities. See the Statement of Additional
Information for further details.
o The Funds and the Distributor each reserve the right to reject any purchase
order in whole or in part.
o See "Sales Charge Reductions and Waivers" for ways to make your initial
investment go farther.
Initial Investment by Check
o Complete the New Account application. Tell your financial consultant which
Fund(s) you wish to invest in and make your check payable to The Montgomery
Partners Series.
o A charge may be imposed on checks that do not clear.
Initial Investment by Wire
o Call your financial consultant or the Transfer Agent to say that you intend
to make your initial investment by wire. Provide your name, the dollar
amount to be invested, and the Fund(s) and Class(es) in which you want to
invest. You will receive further instructions to complete your purchase.
Complete information regarding your account must be included in all wire
instructions to ensure accurate handling of your investment.
o Complete the New Account application.
o Request your bank to transmit immediately available funds by wire for
purchase of shares in your name to the following:
Investors Fiduciary Trust Company
ABA #101003621
For: DST Systems, Inc.
Account No. 7519060
Attention: The Montgomery Partners Series
For credit to: [(shareholder(s) name)]
Shareholder account number: [(shareholder(s) account number)]
Name of Fund: [(Fund name)]
o Your bank may charge a fee for any wire transfers.
9
<PAGE>
Subsequent Investments
Minimum subsequent investment (including IRAs) for
Class A, Class B and Class C shares: ..................$500
Subsequent Investments by Check
o Make your check payable to The Montgomery Partners Series. Enclose an
investment stub with your check. If you do not have an investment stub,
mail your check with written instructions indicating the Fund name and
account number to which your investment should be credited.
o A charge may be imposed on checks that do not clear.
Subsequent Investments by Wire
o You do not need to contact your financial consultant or the Transfer Agent
before making subsequent investments by wire. Instruct your bank to wire
funds to the Transfer Agent's affiliated bank by using the bank wire
information under "Initial Investment by Wire" above.
Subsequent Investments by Telephone
o Shareholders are automatically eligible to make telephone purchases. To
make a purchase, call the Transfer Agent at (800) OWL-8758 (695-8758)
before the Funds' cutoff time.
o Shares for IRAs may not be purchased by phone.
o The maximum telephone purchase is an amount up to five times your account
value on the previous day.
o Payments for shares purchased must be received by the Transfer Agent within
three business days after the purchase request. Write your confirmed
purchase number on your check or include it in your wire instructions.
o You should do one of the following to ensure that payment is received in
time:
o Transfer funds directly from your bank account by sending a letter and
a voided check or deposit slip (for a savings account) to the Transfer
Agent.
o Send a check by overnight or second-day courier service to The
Montgomery Partners Series, 210 West 10th Street, 8th Floor, Kansas
City, MO 64105.
o Instruct your bank to wire funds to the Transfer Agent's affiliated
bank by using the bank wire information under "Initial Investment by
Wire" above.
Automatic Account Builder ("AAB")
With AAB you can periodically, either monthly or quarterly, make additional
purchases of Fund shares through automatic transfers from your checking or
savings account.
o AAB will be established on existing accounts only. You may not use an AAB
investment to open a new account. The minimum automatic investment amount
is the relevant Fund's subsequent investment minimum.
o Your bank must be a member of the Automated Clearing House.
o To establish AAB, attach a voided check (checking account) or preprinted
deposit slip (savings account) from your bank account to your New Account
application or your letter of instruction. Investments will automatically
be transferred into your account from your checking or savings account.
o Investments may be transferred either monthly or quarterly on or up to two
business days before the 5th or 20th day of the month. If no day is
specified on your New Account application or your letter of instruction,
the 20th day of each month will be selected.
o You should allow 20 business days for this service to become effective.
o You may cancel your AAB at any time by sending a letter to your financial
consultant or the Transfer Agent. Your request will be processed upon
receipt.
Payroll Deduction
o Investments through payroll deduction will be established on existing
accounts only. You may not use payroll deduction to open a new account. The
minimum payroll deduction amount for the Funds is $500 per payroll period.
10
<PAGE>
o You may automatically deposit a designated amount of your paycheck directly
into an account for a Fund in The Montgomery Partners Series.
o Please call your financial consultant or the Transfer Agent for
instructions on establishing this service.
Telephone Transactions
You agree to reimburse the Funds for any expenses or losses incurred in
connection with telephone transfers to or from your accounts, including any
caused by your bank's failure to act in accordance with your request or its
failure to honor your debit. If your bank makes erroneous payments or fails to
make payment after shares are purchased on your behalf, any such purchase may be
canceled and telephone privileges terminated immediately. This privilege may be
discontinued at any time by the Funds upon prior written notice or at any time
by you by written notice to the Funds. Your request will be processed upon
receipt.
Although Fund shares are priced based on the net asset value next determined
after receipt of a purchase request, share purchases are not considered final
until payment is received. Should payment not be received when required, the
Transfer Agent will cancel the telephone purchase request and you may be
responsible for any losses incurred by a Fund. While the Funds employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
the Funds and the Transfer Agent will not be liable for following instructions
communicated by telephone reasonably believed to be genuine. These procedures
include recording certain telephone calls, sending a confirmation and requiring
the caller to give an authorization number or other personal information not
likely to be known by others. The Funds and the Transfer Agent may be liable for
any losses due to unauthorized or fraudulent telephone transactions only if such
reasonable procedures are not followed.
Telephone privileges may be revoked at any time by the Funds as to any
shareholder if the Funds believe that the shareholder has abused the telephone
privilege by using abusive language or by purchases and redemptions that appear
to be part of a systematic market-timing strategy.
Retirement Plans
Shares of the Funds are available for purchase by any retirement plan, including
Keogh plans, 401(k) plans, 403(b) plans and IRAs. The Funds may be available for
purchase through administrators for retirement plans. Investors who purchase
shares as part of a retirement plan should address inquiries and seek investment
servicing from their plan administrators. Plan administrators may receive
compensation from the Funds for performing shareholder services.
Share Certificates
Share certificates will not be issued by the Funds. All shares are held in
non-certificated form, registered on the books of the Funds by the Transfer
Agent for the account of the shareholder or relevant financial intermediary.
Your financial consultant should always have a correct share balance for you.
General
The Distributor, at its expense, will from time to time also provide additional
compensation to dealers who sell shares of The Montgomery Partners Series funds.
Compensation may include financial assistance to dealers in connection with
conferences, sales training or promotional programs for their employees,
seminars for the public, advertising campaigns regarding one or more of the
Funds and/or other dealer-sponsored special events. In some instances, this
compensation will be made available only to dealers whose representatives have
sold or are expected to sell significant amounts of such shares. Dealers may not
use sales of any of the Funds' shares to qualify for this compensation to the
extent prohibited by the laws or regulations of any state or any self-regulatory
agency, such as the NASDR. Compensation may include payment for travel expenses,
including lodging at luxury resorts, incurred in connection with trips taken by
invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature.
How to Redeem an Investment in the Funds
You should contact your financial consultant for assistance with redemptions if
you own shares of a Fund in an account through a broker-dealer or other
financial intermediary. Your financial consultant will advise you concerning any
transaction or servicing fee that may be imposed by the financial consultant.
Each Fund also will redeem any portion or all of an investor's shares upon
request for accounts held directly with the Transfer Agent. Redemptions can be
made on any day that the NYSE is open for trading.
11
<PAGE>
Shareholders are entitled to the net asset value (less any applicable CDSC or
redemption fee) next determined after receipt of a redemption order from a
shareholder. Orders received after the cutoff time are entitled to the net asset
value next determined after receipt.
Payment of redemption proceeds is made promptly regardless of when redemption
occurs and normally within three business days after receipt of all documents in
proper form, including a written redemption order with appropriate signature
guarantee. Redemption proceeds will be mailed or wired in accordance with the
shareholder's instructions. The Funds may suspend the right of redemption under
certain extraordinary circumstances in accordance with the rules of the SEC. In
the case of shares purchased by check and redeemed shortly after the purchase,
redemption proceeds may not be mailed until the monies used for the purchase
have been collected, which may take up to 15 days from the day your check is
received. Shares tendered for redemption through brokers or dealers (other than
the Distributor) may be subject to a service charge (in addition to any CDSC) by
such brokers or dealers. Procedures for requesting redemptions are set forth
below.
Redeeming by Written Instruction
o Write a letter to your financial consultant or the Fund giving your name,
account number, the name of the Fund and class of shares which you wish to
redeem and the dollar amount (before deduction of any CDSC or redemption
fee) or number of shares you wish to redeem.
o The letter must be signed the same way your account is registered. If you
have a joint account, all accountholders must sign.
o Signature-guarantee your letter if you want the redemption proceeds to go
to a party other than the account owner(s) or your predesignated bank
account, or if the dollar amount of the redemption exceeds $50,000.
Signature guarantees may be provided by an eligible guarantor institution
such as a commercial bank, an NASD member firm such as a stockbroker, a
savings association or a national securities exchange. Contact your
financial consultant or the Transfer Agent for more information.
o If you do not have a predesignated bank account and want to wire your
redemption proceeds, include a voided check or deposit slip with your
letter. The minimum amount that may be wired is $500 (wire charges, if any,
will be deducted from redemption proceeds). Your broker-dealer and the
Funds reserve the right to permit lesser wire amounts or fees in their
discretion.
Redeeming By Telephone
o Unless you have declined telephone redemption privileges on your New
Account application, you may redeem shares up to $50,000 by calling your
financial consultant or the Transfer Agent before the Funds' cutoff time.
This service is not available for IRA accounts.
o If you included bank wire information on your New Account application or
made subsequent arrangements to accommodate bank wire redemptions, you may
request that your redemption proceeds be wired to your bank account. Allow
at least two business days for redemption proceeds to be credited to your
bank account. If you want to wire your redemption proceeds to arrive at
your bank on the same business day (subject to bank cutoff times), there is
a $10 fee.
o Telephone redemption privileges will be suspended for 30 days after an
address change. All redemption requests during this period must be in
writing with a signature guarantee.
o Telephone redemption privileges may be canceled by written request after an
account is opened. Your request will be processed upon receipt.
For shareholders holding shares directly with the Transfer Agent: By
establishing telephone redemption privileges, a shareholder authorizes the Funds
and the Transfer Agent to act upon the instruction of the shareholder or his or
her designee by telephone to redeem from the account for which such service has
been authorized and transfer the proceeds to a bank or other account designated
in the authorization. When a shareholder appoints a designee on the New Account
application or by other written authorization, the shareholder agrees to be
bound by the telephone redemption instructions given by the shareholder's
designee. The Funds may change, modify or terminate these privileges at any time
upon prior written notice to shareholders. The Funds will not be responsible for
any loss, damage, cost or expense arising out of any transaction that appears on
the shareholder's confirmation after 30 days following mailing of such
confirmation. See discussion of the Funds' telephone procedures and liability
under "Telephone Transactions" above.
Shareholders may experience delays in exercising telephone redemption privileges
during periods of abnormal market activity. During periods of volatile economic
or market conditions, shareholders may wish to consider transmitting redemption
orders by telegram (not available for IRAs) or overnight courier.
12
<PAGE>
Systematic Withdrawal Plan
For shareholders holding shares directly with the Transfer Agent: Under a
Systematic Withdrawal Plan, a shareholder with an account value of $2,000 or
more in a Fund may receive (or have sent to a third party) periodic payments (by
check or wire). The minimum payment amount is $100 from a Fund account. Payments
may be made either monthly or quarterly on the first day of each month.
Depending on the form of payment requested, shares will be redeemed up to five
business days before the redemption proceeds are scheduled to be received by the
shareholder. The redemption may result in the recognition of a gain or loss for
income tax purposes.
Uncashed Distribution or Redemption Checks
If you choose to receive your distribution or redemption by a check from a Fund
(instead of a bank wire), you should follow-up to ensure that you have received
the distribution or redemption in a timely manner. The Funds are responsible
only for mailing the distribution or redemption checks and are not responsible
for tracking uncashed checks or determining why checks are uncashed. If the
postal or other delivery service is unable to deliver a check and the check is
returned to a Fund, that Fund will hold the check in a separate account on your
behalf for a reasonable period of time but will not invest the money in any
interest-bearing account. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
Small Accounts
For shareholders holding shares directly with the Transfer Agent: Due to the
relatively high cost of maintaining smaller accounts, a Fund will redeem shares
from any account if at any time, because of redemptions by the shareholder, the
total value of a shareholder's account is less than $2,000. If a Fund decides to
make an involuntary redemption, the shareholder will first be notified that the
value of the shareholder's account is less than the minimum level and will be
allowed 30 days to make an additional investment to bring the value of that
account to at least the minimum investment required to open an account before
that Fund takes any action.
Exchange Privileges and Restrictions
You may exchange shares from an account in one Fund within The Montgomery
Partners Series into an account in another Fund offered by your broker-dealer or
financial intermediary within The Montgomery Partners Series with the same share
class, registration, Taxpayer Identification number and address. An exchange may
result in a recognized gain or loss for income tax purposes.
Purchasing and Redeeming Shares by Exchange
o You are automatically eligible to make telephone exchanges with your
account.
o Exchange purchases and redemptions will be processed using the
next-determined net asset value after your request is received. Your
request is subject to the Funds' cutoff time.
o Exchange purchases must meet the minimum investment requirements of the
Fund you intend to purchase.
o You may exchange for shares of a Fund only in states where that Fund's
shares are permitted to be sold and only after you have reviewed a
prospectus of that Fund.
o You may not exchange for shares of a fund of The Montgomery Partners Series
that is not open to new shareholders unless you have an existing account
with that Fund.
o Your broker-dealer or financial intermediary may impose limits on your
exchanges. In addition, because excessive exchanges can harm a Fund's
performance, the Trust reserves the right to terminate your exchange
privileges if you hold your shares directly with the Transfer Agent and
make more than four exchanges out of any one Fund during a 12-month period.
A Fund may also refuse an exchange into a Fund from which you have redeemed
shares within the previous 90 days (accounts under common control and
accounts with the same Taxpayer Identification number will be counted
together). A shareholder's exchanges may be restricted or refused if a Fund
receives, or the Manager or Distributor anticipates, simultaneous orders
affecting significant portions of the Fund's assets and, in particular, a
pattern of exchanges coinciding with a market-timing strategy. The Trust
reserves the right to refuse exchanges by any person or group if, in the
Manager's judgment, a Fund would be unable to effectively invest the money
in accordance with its investment objective and policies, or would
otherwise be potentially adversely affected. Although the Trust attempts to
provide prior notice to affected shareholders when it is reasonable to do
so, it may impose these restrictions at any time. The exchange limit may be
modified for accounts in certain institutional retirement plans to
13
<PAGE>
conform to plan exchange limits and U.S. Department of Labor regulations
(for those limits, see plan materials). The Trust reserves the right to
terminate or modify the exchange privileges of the Funds' shareholders in
the future.
Portfolio Securities
Equity Securities
The Funds may, within the limits described above, invest in common stocks and
may also invest in other types of equity securities (such as preferred stocks or
convertible securities) as well as equity-derivative securities.
Depositary Receipts, Convertible Securities and Securities Warrants
The Funds may invest in ADRs, EDRs and GDRs and convertible securities that the
Manager regards as a form of equity security. Each Fund also may invest up to 5%
of its net assets in warrants, whether or not listed on a securities exchange.
Privatizations
The Funds believe that foreign governmental programs of selling interests in
government-owned or -controlled enterprises ("privatizations") may represent
opportunities for significant capital appreciation, and the Funds may invest in
privatizations. The ability of U.S. entities, such as the Funds, to participate
in privatizations may be limited by local law, or the terms for participation
may be less advantageous than for local investors. Many privatization programs
have failed, and there can be no assurance that the Funds will invest in
successful programs.
Special Situations
The Funds believe 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 Funds 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 a Fund to invest directly.
Investments in special situations may be illiquid, as determined by the Manager
based on criteria reviewed by the Board. No Fund invests more than 15% of its
net assets in illiquid investments, including special situations.
Investment Companies
Each Fund may invest up to 10% of its total assets in shares of other investment
companies investing exclusively in securities in which it may otherwise invest.
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 a Fund 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 of 1940, as amended (the "Investment Company Act"). A
Fund 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 that
Fund. See the Statement of Additional Information.
The Funds do not intend to invest in other investment companies unless, in the
Manager's judgment, the potential benefits exceed the associated costs. As a
shareholder in an investment company, a Fund bears its ratable share of that
investment company's expenses, including advisory and administration fees. The
Manager has agreed to waive its own management fee with respect to the portion
of a Fund's assets invested in other open-end (but not closed-end) investment
companies.
Debt Securities
The Funds may purchase debt securities that complement their objective of
capital appreciation through anticipated favorable changes in relative foreign
exchange rates, in relative interest rate levels, or in the creditworthiness of
issuers. In selecting debt securities, the Manager seeks out good credits and
analyzes interest rate trends and specific developments that may affect
individual issuers. Each Fund, however, may also invest up to 5% (35% for the
Emerging Markets Fund) of its total assets in debt securities rated below
investment grade (commonly called "junk bonds"). This can include securities in
default. See "Risk Considerations."
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 Funds and will be limited to 5%
of each Fund's total assets.
14
<PAGE>
In addition to traditional corporate, government and supranational debt
securities, the Funds may invest in external (i.e., to foreign lenders') debt
obligations issued by the governments, governmental 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.
U.S. Government Securities
The Funds may invest in fixed-rate and floating- or variable-rate U.S.
government securities. Certain of the obligations, including U.S. Treasury
bills, notes and bonds, and mortgage-related securities of the Government
National Mortgage Association (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 Federal National Mortgage Association (the
"FNMA"), Farm Credit System and Student Loan Marketing Association, have an
additional line of credit with the U.S. Treasury. Short-term U.S. government
securities generally are considered to be among the safest short-term
investments. The U.S. government does not guarantee the net asset value of the
Funds' shares, however.
Structured Notes and Indexed Securities
The Funds 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 Fund's portfolio in an effort to monitor the
Fund's interest rate risk.
Other Investment Practices
The Funds also may engage in the investment practices described below, each of
which may involve certain risks. The Statement of Additional Information, under
the heading "Investment Objectives and Policies of the Funds," contains
more-detailed information about certain of these practices, including
limitations designed to reduce risks.
Short Sales
The Funds may effect short sales of securities. Short sales are transactions in
which a Fund sells a security or other asset which it does not own, in
anticipation of a decline in the market value of the security or other asset. A
Fund will realize a profit or incur a loss depending upon whether the price of
the security sold short decreases or increases in value between the date of the
short sale and the date on which the Fund replaces the borrowed security. Short
sales are speculative investments and involve special risks, including greater
reliance on the Manager's accurately anticipating the future value of a
security. Short sales also may result in a Fund's recognition of gain for
certain portfolio securities. See "Risk Considerations" below.
Repurchase Agreements
The Funds may enter into repurchase agreements. Pursuant to a repurchase
agreement, a Fund acquires a U.S. government security or other high-grade liquid
debt instrument from a financial institution that simultaneously agrees to
repurchase the same security at a specified time and price. Under the Investment
Company Act, repurchase agreements are considered to be loans by a Fund and must
be fully collateralized by cash, letters of credit, U.S. government securities
or other high-grade liquid debt or equity securities ("collateral assets"). If
the seller defaults on its obligation to repurchase the underlying security, a
Fund may experience delay or difficulty in exercising its rights to realize upon
the security, may incur a loss if the value of the security declines and may
incur disposition costs in liquidating the security.
Borrowing
The Funds may borrow money from banks and engage in reverse repurchase
transactions for temporary or emergency purposes. In a reverse repurchase
agreement, a Fund sells to a financial institution a security that it holds and
agrees to repurchase the same security at an agreed-upon price and date. The
Funds may borrow from broker-dealers and other institutions in order to leverage
a transaction. See "Leverage" below. Total borrowings may not exceed one-third
of the value of a Fund's assets, and a Fund may pledge its assets in connection
with such borrowing. The Emerging Markets Fund may not purchase securities if
such borrowing exceeds 10% of its total assets.
15
<PAGE>
Leverage
The Funds may leverage their portfolios through margin borrowing and other
techniques in an effort to increase total return. Although leverage creates an
opportunity for increased income and gain, it also creates special risk
considerations. For example, leveraging may magnify changes in the net asset
values of a Fund's shares and in the yield on its portfolio. Although the
principal of such borrowings will be fixed and margin borrowing will be covered
with collateral assets, a Fund's assets may change in value while the borrowing
is outstanding. Leveraging creates interest expenses that can exceed the income
from the assets retained.
Securities Lending
The Funds may lend securities to brokers, dealers and other financial
organizations. These loans may not exceed 30% of a Fund's total assets. Each
securities loan is collateralized with collateral assets in an amount at least
equal to the current market value of the loaned securities, plus accrued
interest. There is a risk of delay in receiving collateral or in recovering the
securities loaned or even a loss of rights in the collateral should the borrower
of the securities fail financially.
Hedging and Risk Management Practices
In seeking to protect against the effect of adverse changes in financial markets
or against currency exchange rate or interest rate changes that are adverse to
the present or prospective positions of the Funds, a Fund may employ certain
risk management practices using the following derivative securities and
techniques (known as "derivatives"): swaps, forward currency exchange contracts,
currency options, futures contracts and options on futures contracts on foreign
government securities, currencies, indices and securities. The Board has adopted
derivative guidelines that require the Board to review each new type of
derivative that may be used by the Funds. Markets in some countries currently do
not have instruments available for hedging transactions relating to currencies
or to securities denominated in such currencies or to securities of issuers
domiciled or principally engaged in business in such countries. To the extent
that such markets do not exist, the Manager may not be able to hedge its
investment effectively in such countries. Furthermore, a Fund engages in hedging
activities only when the Manager deems it to be appropriate and does not
necessarily engage in hedging transactions with respect to each investment. The
Funds also may use derivatives in an attempt to realize a greater return, also
regarded as using derivatives for "speculative" purposes, which may involve
greater risks.
Forward Currency Contracts
The Funds may invest a portion of their assets in forward currency contracts. A
forward currency contract is individually negotiated and privately traded by
currency traders and their customers and creates an obligation to purchase or
sell a specific currency for an agreed-upon price at a future date. The Funds
normally conduct their foreign-currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate in the foreign-currency exchange market at
the time of the transaction, or through entering into forward contracts to
purchase or sell foreign currencies at a future date. The Funds may enter into
forward contracts with terms greater than one year.
Options on Securities, Securities Indices and Currencies
The Funds may purchase put and call options on securities and currencies traded
on U.S. exchanges and, to the extent permitted by law, foreign exchanges, as
well as in the over-the-counter market. A Fund may purchase call options on
securities that it intends to purchase (or on currencies in which those
securities are denominated) in order to limit the risk of a substantial increase
in the market price of such security (or an adverse movement in the applicable
currency). A Fund may purchase put options on particular securities (or on
currencies in which those securities are denominated) in order to protect
against a decline in the market value of the underlying security below the
exercise price less the premium paid for the option (or an adverse movement in
the applicable currency). Put options allow a Fund to protect unrealized gains
in an appreciated security that it owns without selling that security. Prior to
expiration, most options are expected to be sold in a closing sale transaction.
Profit or loss from the sale depends upon whether the amount received is more or
less than the premium paid plus transaction costs.
The Funds also may purchase put and call options on stock indices in order to
hedge against risks of stock market or industry-wide stock price fluctuations. A
Fund may purchase options on currencies in order to hedge its positions in a
manner similar to its use of forward foreign-exchange contracts and futures
contracts on currencies.
The Funds may purchase put and call options and sell uncovered put and call
options in an attempt to realize a greater return. This speculative use of
options presents a greater risk of loss than using options only for hedging
purposes.
Futures and Options on Futures
The Funds may enter into futures contracts on securities indices and U.S.
government securities that are traded on exchanges licensed and regulated by the
U.S. Commodities Futures Trading Commission (the "CFTC") or on foreign
exchanges. The Funds will purchase and sell futures contracts and options
thereon for "bona fide hedging" purposes (as defined by the CFTC) and non-
16
<PAGE>
"bona fide hedging" purposes in accordance with CFTC regulations. The Funds'
policies regarding futures contracts and options thereon may be changed from
time to time to conform to regulatory changes.
The Funds may enter into futures contracts on securities indices such as the
Standard & Poor's 500 Composite Index (the "S&P 500"), the Russell Growth 2000
Index (the "Russell 2000") or foreign/international indices. A securities index
futures contract does not require the physical delivery of the securities
underlying the index. Changes in the market value of a particular securities
index futures contract reflect changes in the specified index of the securities
on which the futures contract is based.
The Funds may also purchase put and call options on futures contracts for "bona
fide hedging" purposes (as defined by the CFTC) and non-"bona fide hedging"
purposes. The purchase of an option on a futures contract requires a Fund to pay
a premium. If the option cannot be profitably exercised before it expires, a
Fund's loss will be limited to the amount of the premium and any transaction
costs. A Fund may enter into closing purchase or sale transactions in order to
terminate its position in a futures contract. There is no guarantee, however,
that such closing transaction can be effected. A Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
market, which may not be available at all times.
Although futures and options transactions, when used for hedging rather than
non-hedging purposes to pursue a Fund's investment objective, are intended to
enable a Fund to manage interest rate, stock market or currency exchange risks,
unanticipated changes in interest rates, market prices or currency exchange
rates could result in poorer performance than if that Fund had not entered into
these transactions.
Futures contracts and options thereon are derivative instruments. Losses that
may arise from certain futures transactions, particularly those involved in
non-hedging contexts to pursue a Fund's investment objective, are potentially
unlimited. Subject to the regulations of the CFTC, the Funds may invest in
futures contracts and options on futures contracts without limitation as to a
percentage of its assets.
Hedging Considerations
Hedging transactions involve certain risks. Although a Fund may benefit from the
use of hedging transactions, unanticipated changes in interest rates or
securities prices may result in poorer overall performance for a Fund than if it
had not entered into a hedging position. If the correlation between a hedging
position and a portfolio position is not properly protected, the desired
protection may not be obtained and a Fund may be exposed to risk of financial
loss. In addition, the Funds pay commissions and other costs in connection with
such investments.
Illiquid Securities
No Fund may invest more than 15% of its net assets in illiquid securities. The
Funds treat as illiquid any securities subject to restrictions on repatriation
for more than seven days and securities issued in connection with foreign debt
conversion programs that are restricted as to remittance of invested capital or
profit. The Funds also treat as illiquid repurchase agreements with maturities
in excess of seven days. Illiquid securities do not include securities that meet
the requirements of Rule 144A under the Securities Act of 1933, as amended, and
that, subject to the review by the Board and guidelines adopted by the Board,
the Manager has determined to be liquid. Limitations on resale may adversely
affect the marketability of illiquid securities and a Fund may not be able to
dispose of these securities at the desired price and time.
Equity Swaps
Each Fund may invest a portion of its total assets 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 value 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, the Fund may suffer a loss. The value
of some components of an equity swap (such as the dividends on a common stock)
may also be sensitive to changes in interest rates. Furthermore, during the
period a swap is outstanding, a Fund may suffer a loss if the counterparty
defaults. The Funds typically regard equity swaps as liquid securities because
they may be sold within seven days for approximately the amount at which the
Funds have valued them. However, certain equity swaps may be illiquid. See
"Illiquid Securities."
Leaps and Bounds
The Long-Short Fund may purchase long-term exchange-traded equity options called
Long-Term Equity Anticipation Securities ("LEAPs") and Buy-Write Options Unitary
Derivatives ("BOUNDs"). LEAPS provide a holder the opportunity to participate in
the underlying securities' appreciation in excess of a fixed dollar amount, and
BOUNDs provide a holder the opportunity to retain dividends on the underlying
securities while potentially participating in the underlying securities' capital
appreciation up to a fixed dollar amount. The Long-Short Fund will not purchase
these options with respect to more than 25% of the value of its net assets.
17
<PAGE>
Defensive Investments and Portfolio Turnover
Notwithstanding its investment objective, a Fund may adopt up to a 100% cash or
cash equivalent position for temporary defensive purposes to protect against
erosion of its capital base. Depending upon the Manager's analysis of the
various markets and other considerations, all or part of the assets of the Fund
may be held in cash and cash equivalents (denominated in U.S. dollars or foreign
currencies), such as U.S. government securities or obligations issued or
guaranteed by the government of a foreign country or by an international
organization designed or supported by multiple foreign governmental entities to
promote economic reconstruction or development, high-quality commercial paper,
time deposits, savings accounts, certificates of deposit, bankers' acceptances
and repurchase agreements with respect to all of the foregoing. Such investments
also may be made for temporary purposes pending investment in other securities
and following substantial new investment in a Fund.
Portfolio securities are sold whenever the Manager believes it appropriate,
regardless of how long the securities have been held. The Manager therefore
changes a Fund's investments whenever it believes doing so will further the
Fund's investment objective or when it appears that a position of the desired
size cannot be accumulated. The Long-Short Fund's investment program emphasizes
active portfolio management with a sensitivity to short-term market trends and
price changes in individual securities. Accordingly, the Long-Short Fund expects
to take frequent trading positions, resulting in portfolio turnover and
brokerage expenses that may exceed those of most investment companies of
comparable size. Portfolio turnover generally involves some expense to the
Funds, including brokerage commissions, dealer markups and other transaction
costs, and may result in the recognition of capital gains that may be
distributed to shareholders. Generally, portfolio turnover in excess of 100% is
considered high and increases such costs. The annual portfolio turnover is
expected to be approximately 300% for the Long-Short Fund and approximately 150%
for the Emerging Markets Fund. The Manager will not necessarily limit portfolio
turnover to these levels. High turnover that results in short-term gains may
subject a Fund to California income tax and reduce return. See "Taxation."
Investment Restrictions
The investment objective of each Fund is fundamental and may not be changed
without shareholder approval but, unless otherwise stated, the Fund's other
investment policies may be changed by the Board. If there is a change in the
investment objective or policies of a Fund, shareholders should consider whether
the Fund remains an appropriate investment in light of their then-current
financial positions and goals. Each Fund is subject to additional investment
policies and restrictions described in the Statement of Additional Information,
some of which are fundamental.
Each Fund has reserved the right, if approved by the Board, to convert in the
future to a "feeder" fund that would invest all of its assets in a "master" fund
having substantially the same investment objective, policies and restrictions.
At least 30-days' prior written notice of any such action would be given to all
shareholders if and when such a proposal is approved, although no such action
has been proposed as of the date of this prospectus.
Risk Considerations
Short Sales
When the Manager believes that a security is overvalued, it may sell the
security short and borrow the same security from a broker or other institution
to complete the sale. A Fund may make a profit or incur a loss depending upon
whether the market price of the security decreases or increases between the date
of the short sale and the date on which the Fund must replace the borrowed
security. An increase in the value of a security sold short by a Fund over the
price at which it was sold short will result in a loss to that Fund, and there
can be no assurance that a Fund will be able to close out the position at any
particular time or at an acceptable price. Although a Fund's gain is limited to
the amount at which it sold the security short, its potential loss is limited
only by the maximum attainable price of the security less the price at which the
security was sold. There also is a risk that the borrowed securities would need
to be returned to the brokerage firm on short notice. If that request for the
return of securities occurs at a time when other short sellers of the subject
security are receiving similar requests, a "short squeeze" can occur. This means
that a Fund might be compelled, at the most disadvantageous time, to replace
borrowed securities previously sold short with purchases on the open market,
possibly at prices significantly in excess of the proceeds received earlier. The
successful use of short selling may be adversely affected by an imperfect
correlation between movements in the price of the security sold short and the
securities being hedged. Short selling also may produce higher than normal
portfolio turnover and may result in increased transaction costs to a Fund.
A Fund also may make short sales against-the-box, in which it sells short
securities it owns or has the right to obtain without payment of additional
consideration. If a Fund makes a short sale against-the-box, it will be required
to set aside securities equivalent in kind and amount to the securities sold
short (or securities convertible or exchangeable into those securities) and will
be required to hold those securities while the short sale is outstanding. A Fund
will incur transaction costs, including interest
18
<PAGE>
expenses, in connection with opening, maintaining and closing short sales
against-the-box. Short sales against-the-box also result in a "constructive
sale" and require a Fund to recognize any taxable gain in the securities set
aside for the short sale.
Until a Fund replaces a borrowed security, it will instruct its Custodian to
identify as unavailable for investment cash, U.S. government securities, or
other liquid debt or equity securities such that the amount so identified plus
any amount deposited with a broker or other custodian as collateral will equal
the current value of the security sold short and will not be less than the value
of the security at the time it was sold short. Depending on arrangements made
with the broker or custodian, a Fund may not receive any payments (including
interest) on collateral deposited with the broker or custodian. A Fund will not
make a short sale if, after giving effect to the short sale, the market value of
all securities sold exceeds 100% (25% for the Emerging Markets Fund) of the
value of that Fund's total assets. A high level of short sales also may subject
a Fund to California income tax and reduce return. See "Taxation."
Small Companies
The Funds may make investments in smaller companies that may benefit from the
development of new products and services. Such smaller companies may present
greater opportunities for capital appreciation but may involve greater risk than
larger, more mature issuers. Such smaller companies may have limited product
lines, markets or financial resources, and their securities may trade less
frequently and in more limited volume than those of larger, more mature
companies. As a result, the prices of their securities may fluctuate more than
those of larger issuers.
Lower-Quality Debt
The Funds may invest in medium-quality and in high-risk debt securities below
investment grade (sometimes called "junk bonds"). Medium-quality debt securities
have speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than with higher-grade debt securities. Junk bonds offer
greater speculative characteristics and are regarded as having a great
vulnerability to default although currently having the capacity to meet interest
payments and principal repayments. Adverse business, financial or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The ability to maintain other terms of the contract over any long
period of time may be small. Junk bonds are more subject to default during
periods of economic downturns or increases in interest rates, and their yields
will fluctuate over time. It may be more difficult to dispose of or to value
junk bonds. Achievement of a Fund's investment objective may also be more
dependent on the Manager's own credit analysis to the extent a Fund's portfolio
includes junk bonds.
The Funds may also invest in unrated debt securities. Unrated debt securities
are not necessarily of lower quality than rated securities but may not be
attractive to as many buyers. Regardless of rating levels, all debt securities
considered for purchase (whether rated or unrated) are analyzed by the Manager
to determine, to the extent reasonably possible, that the planned investment is
sound. From time to time, the Funds may purchase defaulted debt securities if,
in the opinion of the Manager, the issuer may resume interest payments in the
near future.
Foreign Securities
The Funds may invest in foreign securities, including debt or equity securities
denominated in foreign currencies. In addition, the Emerging Markets Fund
emphasizes investments in emerging markets securities. Emerging markets
countries may present greater opportunity for gain, but also involve greater
risk than more developed markets. These countries tend to have less stable
governments and less established markets. The markets tend to be less liquid and
more volatile, and offer less regulatory protection for investors. The economies
of emerging markets countries may be predominantly based on only a few
industries or dependent on revenue from particular commodities, international
aid or other assistance. Risks associated with investing in foreign securities
are generally greater in emerging markets countries.
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, a Fund may encounter difficulties in pursuing
legal remedies or in obtaining judgments in foreign courts. Additional risk
factors, including use of domestic and foreign custodian banks and depositories,
are described elsewhere in this prospectus and in the Statement of Additional
Information.
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
19
<PAGE>
transactions, which resulted in settlement difficulty. 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 a Fund if the value
of the portfolio security declines, 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 the Funds may invest are
smaller, less liquid, and subject to greater price volatility than those in the
United States.
Because the securities owned by the Funds 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 that currency. Such
changes also affect the Funds' income and distributions to shareholders. The
Funds may be affected either favorably or unfavorably by changes in the relative
rates of exchange among the currencies of different nations, and the Funds 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 a Fund 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 Funds.
Many countries in which the Funds 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. A Fund 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.
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 debt security's market value, and an interest
rate increase produces a decrease in value. The longer the remaining maturity of
a debt 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.
Lack of Country Diversification
Diversifying a mutual fund's portfolio across a large number of emerging markets
countries can reduce the country-related risks involved with investing in
emerging markets countries by limiting the portion of your investment in any one
country, although it could also limit the potential reward. The Emerging Markets
Fund's primary investment policy is not to diversify but instead to concentrate
its investments in a small number of emerging markets countries (although it may
invest in a large number of companies in each selected country). Such a heavy
country concentration may make this Fund's net asset value extremely volatile
and, if economic downturns or other events occur that adversely affect one or
more of the countries this Fund invests in, such events' impact on this Fund
will be more magnified than if this Fund did not have such a narrow
concentration.
Management of the Funds
The Montgomery Funds II (the "Trust") has a Board of Trustees (the "Board") that
establishes the Funds' policies and supervises and reviews their management.
Day-to-day operations of the Funds are administered by the officers of the Trust
and by the Manager pursuant to the terms of an Investment Management Agreement
with the Funds.
Montgomery Asset Management, LLC, is the Funds' Manager. The Manager is a
Delaware limited liability company and is registered as an investment advisor
with the SEC under the Investment Advisers Act of 1940, as amended. The Manager
and its predecessor have advised private accounts and mutual funds since 1990.
The Manager is a subsidiary of Commerzbank AG.
20
<PAGE>
Commerzbank, one of the largest publicly held commercial banks in Germany, had
total assets of approximately $268 billion on December 31, 1996. Commerzbank and
its affiliates had more than $92 billion in assets under management as of
October 31, 1997. Commerzbank's asset management operations involve more than
1,000 employees in 13 countries worldwide.
To benefit from these resources, the Manager may consult with or rely on its
affiliated investment advisory organizations for research or other investment
advice deemed useful by the Manager.
Portfolio Management
Montgomery Global Long-Short Fund
This Fund is collectively managed by a team of portfolio managers representing
the Manager's domestic equity, international equity and emerging markets
disciplines.
Montgomery Emerging Markets Focus Fund
Josephine S. Jimenez, CFA, is a senior portfolio manager and principal. From
1988 until 1991, Ms. Jimenez worked at Emerging Markets Investors
Corporation/Emerging Markets Management in Washington, D.C., as a senior analyst
and portfolio manager.
Bryan L. Sudweeks, Ph.D., CFA, is a senior portfolio manager and principal.
Before joining the Manager in 1991, he was a senior analyst and portfolio
manager at Emerging Markets Investors Corporation/Emerging Markets Management in
Washington, D.C. Previously, he was a professor of international finance and
investments at George Washington University and served as adjunct professor of
international investments from 1988 until May 1991.
Angeline Ee is a portfolio manager and principal. From 1990 until joining the
Manager in July 1994, Ms. Ee was an Investment Manager with AIG Investment Corp.
in Hong Kong. From June 1989 until September 1990, Ms. Ee was a co-manager of a
portfolio of Asian equities and bonds at Chase Manhattan Bank in Singapore.
Frank Chiang is a portfolio manager and principal. From 1993 until joining the
Manager in 1996, Mr. Chiang was managing director and portfolio manager at TCW
Asia Ltd. in Hong Kong.
Jesus Isidoro Duarte is a portfolio manager and principal. Mr. Duarte joined the
Manager in 1994 from Latinvest Management Co. in Brazil, where he was director
and vice president responsible for research and portfolio management for the
firm's Latin American funds. Prior to Latinvest, Mr. Duarte worked at W.I. Carr
in Tokyo as a securities analyst of Japanese equities.
Management Fees and Other Expenses
The Manager provides the Funds with advice on buying and selling securities,
manages the Funds' investments, including the placement of orders for portfolio
transactions, furnishes the Funds with office space and certain administrative
services, and provides personnel needed by the Funds with respect to the
Manager's responsibilities under the Manager's Investment Management Agreement
with the Funds. The Manager also compensates the members of the Board who are
interested persons of the Manager. As compensation, the Funds pay the Manager a
management fee (accrued daily but paid when requested by the Manager) based upon
the value of its average daily net assets, according to the following table.
These fees are higher than for most mutual funds.
- --------------------------------------------------------------------------------
AVERAGE DAILY NET ASSETS ANNUAL RATE
- --------------------------------------------------------------------------------
Montgomery Global Long-Short Fund First $250 million 1.50%
Over $250 million 1.25%
- --------------------------------------------------------------------------------
Montgomery Emerging Markets Focus Fund First $500 million 1.25%
Over $500 million 1.00%
- --------------------------------------------------------------------------------
The Manager also serves as each Fund's administrator (the "Administrator"). The
Administrator performs services with regard to various aspects of each Fund's
administrative operations. As compensation, each Fund pays the Administrator a
monthly fee at the annual rate of seven one-hundredths of one percent (0.07%) of
that Fund's average daily net assets (six one-hundredths of one percent (0.06%)
of that Fund's average daily net assets over $250 million).
Each Fund is responsible for its own operating expenses including, but not
limited to: the Manager's fees; taxes, if any; brokerage and commission
expenses, if any; interest charges on any borrowings; transfer agent,
administrator, custodian, legal and auditing fees; shareholder servicing fees
including fees to third-party servicing agents; fees and expenses of Trustees
who are not interested persons of the Manager; salaries of certain personnel;
costs and expenses of calculating its daily net asset value; costs and expenses
of accounting, bookkeeping and recordkeeping required under the Investment
Company Act; insurance premiums; trade association dues; fees and expenses of
registering and maintaining registration of its shares for sale under federal
and applicable
21
<PAGE>
state securities laws; all costs associated with shareholders meetings and the
preparation and dissemination of proxy materials, except for meetings called
solely for the benefit of the Manager or its affiliates; printing and mailing
prospectuses, Statements of Additional Information and reports to shareholders;
and other expenses relating to the Funds' operations, plus any extraordinary and
nonrecurring expenses that are not expressly assumed by the Manager.
Rule 12b-1 adopted by the Securities and Exchange Commission under the
Investment Company Act permits an investment company directly or indirectly to
pay expenses associated with the distribution of its shares ("distribution
expenses") in accordance with a plan adopted by the investment company's Board
of Trustees and approved by its shareholders. Pursuant to that Rule, the Board
has approved, and each Fund has entered into, a Share Marketing Plan (the "12b-1
Plan") with the Distributor, as the distribution coordinator, for the Class B
and Class C shares. Under the Plan, each Fund will pay distribution fees to the
Distributor at an annual rate of seventy-five one-hundredths of one percent
(0.75%) of its aggregate average daily net assets attributable to its Class B
and Class C shares to reimburse the Distributor for its distribution costs with
respect to each such class.
The 12b-1 Plan provides that the Distributor may use the distribution fees
received from the class to pay for the distribution expenses of that class,
including, but not limited to (i) incentive compensation paid to the directors,
officers and employees of, agents for and consultants to, the Distributor or any
other broker-dealer or financial institution that engages in the distribution of
that class; and (ii) compensation to broker-dealers, financial institutions or
other persons for providing distribution assistance with respect to that class.
Distribution fees may also be used for (i) marketing and promotional activities,
including, but not limited to, direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising for that class; (ii) costs
of printing and distributing prospectuses, Statements of Additional Information
and reports of a Fund to prospective investors in that class; (iii) costs
involved in preparing, printing and distributing sales literature pertaining to
a Fund and that class; and (iv) costs involved obtaining whatever information,
analysis and reports with respect to marketing and promotional activities that a
Fund may, from time to time, deem advisable with respect to the distribution of
that class. Distribution fees are accrued daily and paid monthly, and are
charged as expenses of, respectively, Class B and Class C shares as accrued.
The Board also has adopted a Shareholder Servicing Plan (the "Servicing Plan")
for the Class A, Class B and Class C shares of the Funds. Under the Servicing
Plan, a Fund will pay servicing fees to the Distributor or Manager, as service
coordinators, at an annual rate of up to twenty-five one-hundredths of one
percent (0.25%) of the Fund's average daily net assets attributable to each
class of shares. The service fee is intended to reimburse the Distributor and
Manager for providing or arranging for services to shareholders of those
classes. The Distributor or Manager may pay certain banks, trust companies,
broker-dealers and other financial intermediaries to the extent they provide
shareholder services.
In adopting the 12b-1 Plan and the Servicing Plan (together, the "Plans"), the
Board determined that there was a reasonable likelihood that the Plans would
benefit the Funds and the shareholders of Class A, Class B and Class C shares.
Information with respect to distribution and servicing revenues and expenses is
presented to the Board quarterly for its consideration in connection with its
deliberations as to the continuance of the Plans. In its review of the Plans,
the Board is asked to take into consideration expenses incurred in connection
with the separate distribution and servicing of the Class A, Class B and Class C
shares of each Fund.
The Class A, Class B and Class C shares are not obligated under the Plans to pay
any distribution or servicing expenses in excess of the distribution and
servicing fees. Thus, if the Plans were terminated or otherwise not continued,
no amounts (other than current amounts accrued but not yet paid) would be owed
by the class to the Distributor.
The distribution fees attributable to the Class B and Class C shares are
designed to permit an investor to purchase Class B and Class C shares through
broker-dealers without the assessment of a front-end sales charge and at the
same time to permit the Distributor to compensate broker-dealers on an ongoing
basis in connection with assets in the Class B and Class C shares attributable
to those broker-dealers.
The Plans provide that they shall continue in effect from year to year provided
that a majority of the Board, including a majority of the Trustees who are not
"interested persons" of the Trust (as defined in the Investment Company Act) and
who have no direct or indirect financial interest in the operation of the Plans
or any agreements related to the Plans (the "Independent Trustees"), vote
annually to continue the Plans. The Plans may be terminated at any time by vote
of a majority of the Independent Trustees or of a majority of the outstanding
shares (as defined in the Investment Company Act) of the Class A, Class B and
Class C shares.
All distribution fees paid by the Funds under the 12b-1 Plan will be paid in
accordance with Rule 2830 of the NASDR Rules of Conduct.
The Manager has agreed to reduce its management fee if necessary to keep total
annual operating expenses for each class (excluding (i) the Rule 12b-1 fees, and
(ii) interest expenses related to borrowing transactions) at or below the
following with respect to the average net assets for that class: two and
thirty-five one-hundredths of one percent (2.35%) of the Long-Short Fund; and
two and one-tenth of one percent (2.10%) of the Emerging Markets Fund. The
Manager also may voluntarily reduce
22
<PAGE>
additional amounts to increase the return to a Fund's investors. The Manager may
terminate these voluntary reductions at any time. Any reductions made by the
Manager in its fees are subject to reimbursement by a Fund within the following
three years, provided that the Fund is able to effect such reimbursement and
remain in compliance with applicable expense limitations. The Manager generally
seeks reimbursement for the oldest reductions and waivers before payment by a
Fund of fees and expenses for the current year.
In addition, the Manager may elect to absorb operating expenses that a Fund is
obligated to pay in order to increase the return to the Fund's investors. To the
extent the Manager performs a service or assumes an operating expense for which
a Fund is obligated to pay and the performance of such service or payment of
such expense is not an obligation of the Manager under the Investment Management
Agreement, the Manager is entitled to seek reimbursement from the Fund for the
Manager's costs incurred in rendering such service or assuming such expense. The
Manager, out of its own funds, also may compensate the Distributor as well as
other service providers of shareholder and administrative services.
The Manager considers a number of factors in determining which brokers or
dealers to use for the Funds' portfolio transactions. These factors are more
fully discussed in the Statement of Additional Information; they include, but
are not limited to, reasonableness of commissions, quality of services, and
execution and availability of research that the Manager may lawfully and
appropriately use in its investment management and advisory capacities. Provided
that the Funds receive prompt execution at competitive prices, the Manager also
may consider sale of the Funds' shares as a factor in selecting broker-dealers
for the Funds' portfolio transactions. See "Execution of Portfolio Transactions"
in the Statement of Additional Information for further information regarding the
Funds' policies concerning execution of portfolio transactions.
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, serves as the master transfer agent for the Funds (the "Master Transfer
Agent") and performs certain recordkeeping and accounting functions. The Master
Transfer Agent delegates certain transfer agent functions to DST Systems, Inc.,
P.O. Box 419898, Kansas City, Missouri 64141-6898, the Funds' transfer agent
(the "Transfer Agent"). Morgan Stanley Trust Company, located at One Pierrepont
Plaza, Brooklyn, New York 11201, serves as the Funds' principal custodian (the
"Custodian").
How Net Asset Value Is Determined
The net asset value of each class of shares of the Funds is determined once
daily as of the Funds' cutoff time on each day that the NYSE is open for
trading. Generally this is 4:00 P.M. eastern time, or earlier when trading
closes earlier. Per-share net asset value is calculated by dividing the value of
each Fund's total net assets of a class by the total number of the Fund's shares
of that class then outstanding. Each class will have a different per-share net
asset value reflecting the specific expense structure of that class.
As more fully described in the Statement of Additional Information, portfolio
securities are valued using current market valuations: either the last reported
sales price or, in the case of securities for which there is no reported last
sale and fixed-income securities, the mean between the closing bid and ask
price. Securities for which market quotations are not readily available or which
are illiquid are valued at their fair values as determined in good faith under
the supervision of the Trust's officers, and by the Manager and the Pricing
Committee of the Board, respectively, in accordance with methods that are
specifically authorized by the Board. Short-term obligations with maturities of
60 days or less are valued at amortized cost as reflecting fair value.
The value of securities denominated in foreign currencies and traded on foreign
exchanges or in foreign markets will be translated into U.S. dollars at the last
price of their respective currency denomination against U.S. dollars quoted by a
major bank or, if no such quotation is available, at the rate of exchange
determined in accordance with policies established in good faith by the Board.
Because the value of securities denominated in foreign currencies must be
translated into U.S. dollars, fluctuations in the value of such currencies in
relation to the U.S. dollar may affect the net asset value of a Funds' shares
even if there has not been any change in the foreign currency-denominated values
of such securities.
Because foreign securities markets may close before the Funds determine their
net asset values, events affecting the value of portfolio securities occurring
between the time prices are determined and the time a Fund calculates its net
asset values may not be reflected in that Fund's calculation of net asset values
unless the Manager, under the supervision of the Board, determines that a
particular event would materially affect that Fund's net asset values.
Dividends and Distributions
Each Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. Dividends are declared and paid
annually. Capital gains are declared and paid in the last quarter of each year.
Additional distributions, if
23
<PAGE>
necessary, may be made following a Fund's fiscal year end (June 30) in order to
avoid the imposition of tax on the Fund. The amount and frequency of Fund
distributions are not guaranteed and are at the discretion of the Board.
Unless you request cash distributions in writing at least seven business days
prior to the distribution, or on the New Account application, all dividends and
other distributions will be reinvested automatically in additional shares of the
relevant Fund and credited to the shareholder's account at the closing net asset
value on the reinvestment date.
Distributions Affect a Fund's Net Asset Value
Distributions are paid to you as of the record date of a distribution of a Fund,
regardless of how long you have held the shares. Dividends and capital gains
awaiting distribution are included in a Fund's daily net asset value. The share
price of a Fund drops by the amount of the distribution, net of any subsequent
market fluctuations. For example, assume that on December 31 a Fund declared a
dividend in the amount of $0.50 per share. If the Fund's share price was $10.00
on December 30, the Fund's share price on December 31 would be $9.50, barring
market fluctuations.
If you buy shares of a Fund just before a distribution, you will pay the full
price for the shares and receive a portion of the purchase price back as a
taxable distribution. In the example above, if you bought shares on December 30,
you would have paid $10.00 per share. On December 31, the Fund would pay you
$0.50 per share as a dividend, and your shares would now be worth $9.50 per
share. Unless your account is a tax-deferred account, dividends paid to you
would be included in your gross income for tax purposes even though you may not
have participated in the increase of net asset value of the Fund, regardless of
whether you reinvested the dividends.
Taxation
Each Fund intends to qualify and elect as soon as possible to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), by distributing substantially all of its net
investment income and net capital gains to its shareholders and meeting other
requirements of the Code relating to the sources of its income and
diversification of assets. Accordingly, the Funds generally will not be liable
for federal income tax or excise tax based on net income except to the extent
that their earnings are not distributed or are distributed in a manner that does
not satisfy the requirements of the Code pertaining to the timing of
distributions. If a Fund is unable to meet certain requirements of the Code, it
may be subject to taxation as a corporation. A Fund may also incur tax liability
to the extent that it invests in "passive foreign investment companies." See
"Portfolio Securities" and the Statement of Additional Information.
For federal income tax purposes, any dividends derived from net investment
income and any excess of net short-term capital gains over net long-term capital
loss, that investors (other than certain tax-exempt organizations that have not
borrowed to purchase Fund shares) receive from a Fund are considered ordinary
income. Part of the distributions paid by a Fund may be eligible for the
dividends-received deduction allowed to corporate shareholders under the Code.
Distributions of the excess of net long-term capital gains over net short-term
capital losses from transactions of a Fund are treated by shareholders as
long-term capital gains regardless of the length of time that Fund's shares have
been owned. The maximum capital gains rate for individuals is 28% with respect
to assets held for more than 12 months, but not more than 18 months, and 20%
with respect to assets held for more than 18 months. The maximum capital gains
rate for corporate shareholders is the same as the maximum tax rate for ordinary
income. Distributions of income and capital gains are taxed in the manner
described above, whether they are taken in cash or are reinvested in additional
shares of the Funds.
Each Fund will inform its investors of the source of their dividends and
distributions at the time they are paid, and will promptly after the close of
each calendar year advise investors of the tax status of those distributions and
dividends. Investors (including tax-exempt and foreign investors) are advised to
consult their own tax advisors regarding the particular tax consequences to them
of an investment in shares of a Fund. Additional information on tax matters
relating to the Funds and their shareholders is included in the Statement of
Additional Information.
Special notice about California tax: Each Fund, particularly the Long-Short
Fund, may not qualify as a regulated investment company for California income
tax purposes and may be subject to California income tax equal to 8.84% of its
net income (without any deduction for distributions) if more than 30% of its
gross income is derived from the sale or disposition of securities held less
than 3 months. The Taxpayer Relief Act of 1997 recently removed a similar 30%
test for the federal corporate income tax on mutual funds. Although there can be
no assurances, California legislation is expected to remove this California 30%
requirement for this tax year. The Manager will not change its investment
strategy in order to avoid this California income tax, which would reduce a
Fund's total return for shareholders.
24
<PAGE>
General Information
The Trust
Each Fund is a series of The Montgomery Funds II, a Delaware business trust
organized on September 10, 1993 (the "Trust"). The Trust's Agreement and
Declaration of Trust permits the Board to issue an unlimited number of full and
fractional shares of beneficial interest, $0.01 par value, in any number of
series. The assets and liabilities of each series within the Trust are separate
and distinct from those of each other series.
This prospectus relates only to the Class A, Class B and Class C shares of the
Funds. The Funds have not designated other classes of shares but may in the
future designate other classes of shares for specific purposes.
Shareholder Rights
Shares issued by the Funds have no preemptive, conversion or subscription
rights. Each whole share is entitled to one vote as to any matter on which it is
entitled to vote and each fractional share is entitled to a proportionate
fractional vote. Shareholders have equal and exclusive rights as to dividends
and distributions as declared by a Fund and to the net assets of the Fund upon
liquidation or dissolution. Each Fund, as a separate series of the Trust, votes
separately on matters affecting only that Fund (e.g., approval of the Investment
Management Agreement); all series of the Trust vote as a single class on matters
affecting all series of the Trust jointly or the Trust as a whole (e.g.,
election or removal of Trustees). Voting rights are not cumulative, the holders
of more than 50% of the shares voting in any election of Trustees can, if they
so choose, elect all of the Trustees. Except as set forth herein, all classes of
shares issued by each Fund shall have identical voting, dividend, liquidation
and other rights, preferences, and terms and conditions. The only differences
among the various classes of shares relate solely to the following: (a) each
class may be subject to different class expenses; (b) each class may bear a
different identifying designation; (c) each class may have exclusive voting
rights with respect to matters solely affecting such class; (d) each class may
have different exchange privileges; and (e) each class may provide for the
automatic conversion of that class into another class. Although the Trust is not
required and does not intend to hold annual meetings of shareholders, such
meetings may be called by the Board at its discretion, or upon demand by the
holders of 10% or more of the outstanding shares of the Trust, for the purpose
of electing or removing Trustees. Shareholders may receive assistance in
communicating with other shareholders in connection with the election or removal
of Trustees pursuant to the provisions of Section 16(c) of the Investment
Company Act.
Performance Information
From time to time, a Fund may publish its total return, such as in
advertisements and communications to investors. Performance data may be quoted
separately for each class of shares. Total return information generally will
include a Fund's average annual compounded rate of return over the most recent
four calendar quarters and over the period from the Fund's inception of
operations. A Fund may also advertise aggregate and average total return
information over different periods of time. A Fund's average annual compounded
rate of return is determined by reference to a hypothetical $1,000 investment
that includes capital appreciation and depreciation for the stated period
according to a specific formula. Aggregate total return is calculated in a
similar manner, except that the results are not annualized. Total return figures
will reflect all recurring charges against a Fund's income.
Investment results of a Fund will fluctuate over time, and any presentation of a
Fund's total return for any prior period should not be considered a
representation of what an investor's total return or current yield may be in any
future period.
Legal Opinion
The validity of shares offered by this prospectus will be passed on by Paul,
Hastings, Janofsky & Walker LLP, 345 California Street, San Francisco,
California 94104.
Shareholder Reports and Inquiries
Each shareholder whose account is maintained at the Transfer Agent will receive
the following information during the year:
o Confirmation statements are mailed after every transaction that affects
your account balance, except for preauthorized automatic investment,
exchange and redemption services (quarterly).
o Account statements are mailed after the close of each calendar quarter.
(Retain your fourth-quarter statement for your tax records.)
o Annual and semi-annual reports are mailed approximately 60 days after June
30 and December 31.
o 1099 tax form(s) are mailed by January 31.
o An annual updated prospectus is mailed to existing shareholders in October
or November.
25
<PAGE>
Unless otherwise requested, only one copy of each shareholder report or other
material sent to shareholders will be mailed to each household for accounts
having the same address regardless of the number of shareholders or accounts at
that household or address. Any questions should be directed to The Montgomery
Partners Series at (800) OWL-8758 (695-8758).
Backup Withholding Instructions
Shareholders are required by law to provide the Funds with their correct Social
Security or other Taxpayer Identification number ("TIN"), regardless of whether
they file tax returns. Failure to do so may subject a shareholder to penalties.
Failure to provide a correct TIN or to check the appropriate boxes on the New
Account application and to sign the shareholder's name could result in backup
withholding by a Fund of an amount of federal income tax equal to 31% of taxable
dividends, capital-gains distributions, redemptions, exchanges and other
payments made to a shareholder's account. Any tax withheld may be credited
against taxes owed on a shareholder's federal income tax return.
A shareholder who does not have a TIN should apply for one immediately by
contacting the local office of the Social Security Administration or the
Internal Revenue Service (the "IRS"). Backup withholding could apply to payments
made to a shareholder's account while awaiting receipt of a TIN. Special rules
apply for certain entities. For example, for an account established under the
Uniform Gifts to Minors Act, the TIN of the minor should be furnished. If a
shareholder has been notified by the IRS that he or she is subject to backup
withholding because he or she failed to report all interest and dividend income
on his or her tax return and the shareholder has not been notified by the IRS
that such withholding will cease, the shareholder should cross out the
appropriate item on the New Account application. Dividends paid to a foreign
shareholder's account by a Fund may be subject to up to 30% withholding instead
of backup withholding.
A shareholder who is an exempt recipient should furnish a TIN and check the
appropriate box. Exempt recipients include certain corporations, certain
tax-exempt entities, tax-exempt pension plans and IRAs, government agencies,
financial institutions, registered securities and commodities dealers and
others. For further information see Section 3406 of the Code and consult a tax
advisor.
---------------------------------
This prospectus is not an offering of the securities herein described in any
state in which such offering is unauthorized. No salesperson, dealer or other
person is authorized to give any information or make any representation other
than those contained in this prospectus, the Statement of Additional Information
or in the Funds' official sales literature.
26
<PAGE>
Glossary
cash equivalents. These are short-term, interest-bearing instruments or deposits
and may include, for example, commercial paper, certificates of deposit,
repurchase agreements, bankers' acceptances, U.S. Treasury bills, bank money
market deposit accounts, master demand notes and money market mutual funds.
These consist of high-quality debt obligations, certificates of deposit and
bankers' acceptances rated at least A-1 by S&P or Prime-1 by Moody's, or the
issuer has an outstanding issue of debt securities rated at least A by S&P or
Moody's, or are of comparable quality in the opinion of the Manager.
convertible security. This is a fixed-income security (a bond or some preferred
stocks) that may be converted at a stated price within a specified period of
time into a certain quantity of the common stock of the same or a different
issuer. Convertible securities are senior to common stock in a corporation's
capital structure but are usually subordinated to similar non-convertible
securities. The price of a convertible security is influenced by the market
value of the underlying common stock.
covered call option. A call option is "covered" if a Fund owns the underlying
securities, has the right to acquire such securities without additional
consideration, has collateral assets sufficient to meet its obligations under
the option, or owns an offsetting call option.
covered put option. A put option is "covered" if a Fund has collateral assets
with a value not less than the exercise price of the option or holds a put
option on the underlying security.
CFTC. The U.S. Commodities Futures Trading Commission.
depositary receipts. These include American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs")
and other similar instruments. Depositary receipts are receipts typically
issued in connection with a U.S. or foreign bank or trust company and
evidence ownership of underlying securities issued by a foreign corporation.
derivatives. These include forward currency exchange contracts, currency
options, futures contracts, options, warrants, swaps and options on futures
contracts on U.S. government and foreign government securities, currencies
and indices.
FNMA. The Federal National Mortgage Association.
forward currency contracts. This is a contract individually negotiated and
privately traded by currency traders and their customers which creates an
obligation to purchase or sell a specific currency for an agreed-upon price
at a future date. A Fund generally may enter into forward contracts with
terms greater than one year.
futures and options on futures. A futures contract is an agreement to buy or
sell a security, instrument or commodity at an agreed-upon price sometime in
the future. Futures contracts also may relate to securities indices or the
underlying securities. These often are standardized agreements traded on
futures exchanges. Options on futures are the right, but not the obligation,
to buy or sell an underlying futures contract at a specific price during a
specified time period.
GNMA. The Government National Mortgage Association.
illiquid securities. A Fund treats as illiquid any securities subject to
restrictions on repatriation for more than seven days and securities issued
in connection with foreign debt conversion programs that are restricted as to
remittance of invested capital or profit. A Fund also treats as illiquid
repurchase agreements with maturities in excess of seven days. Illiquid
securities do not include securities that are restricted from trading on
formal markets for some period of time but for which an active informal
market exists, or securities that meet the requirements of Rule 144A under
the Securities Act of 1933 and that, subject to the review by the Board and
guidelines adopted by the Board, the Manager has determined to be liquid.
investment grade. Investment-grade debt securities are those rated within the
four highest grades by S&P (at least BBB), Moody's (at least Baa) or Fitch
(at least Baa) or in unrated debt securities deemed to be of comparable
quality by the Manager using guidelines approved by the Board.
leverage. Some Funds may use leverage in an effort to increase return. Although
leverage creates an opportunity for increased income and gain, it can also
magnify losses and create certain risk considerations. Leveraging also
creates interest expenses that can exceed any income from the assets
retained.
repurchase agreement. With a repurchase agreement, a Fund acquires a U.S.
government security or other high-grade liquid debt instrument from a
financial institution that simultaneously agrees to repurchase the same
security at a specified time and price.
reverse repurchase agreement. In a reverse repurchase agreement, a Fund sells to
a financial institution a security that it holds and agrees to repurchase the
same security at an agreed-upon price and date.
securities lending. A Fund may lend securities to brokers, dealers and other
financial organizations. Each securities loan is collateralized with
collateral assets in an amount at least equal to the current market value of
the loaned securities, plus accrued interest. There is a risk of delay in
receiving collateral or in recovering the securities loaned or
27
<PAGE>
even a loss of rights in collateral should the borrower fail financially.
U.S. government securities. These include U.S. Treasury bills, notes, bonds and
other obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities.
warrant. Typically, this warrant is a long-term option that permits the holder
to buy a specified number of shares of the issuer's underlying common stock
at a specified exercise price by a particular expiration date. A warrant not
exercised or disposed of by its expiration date expires worthless.
when-issued and forward commitment securities. A Fund may purchase U.S.
government or other securities on a "when-issued" basis and may purchase or
sell securities on a "forward commitment" or "delayed-delivery" basis. The
price is fixed at the time the commitment is made, but delivery and payment
for the securities take place at a later date. When-issued securities and
forward commitments may be sold prior to the settlement date, but a Fund will
enter into when-issued and forward commitments only with the intention of
actually receiving or delivering the securities. No income accrues on
securities that have been purchased pursuant to a forward commitment or on a
when-issued basis prior to delivery to a Fund. At the time a Fund enters into
a transaction on a when-issued or forward commitment basis, it supports its
obligation with collateral assets equal to the value of the when-issued or
forward commitment securities and causes the collateral assets to be
marked-to-market daily. There is a risk that the securities may not be
delivered and that a Fund may incur a loss.
28
<PAGE>
Investment Manager
Montgomery Asset Management, LLC
101 California Street
San Francisco, California 94111
(800) OWL-8758 (695-8758)
Distributor
Funds Distributor, Inc.
101 California Street
San Francisco, California 94111
(800) OWL-8758 (695-8758)
Custodian
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
Transfer Agent
DST Systems, Inc.
P.O. Box 419898
Kansas City, Missouri 64141-6898
(800) OWL-8758 (695-8758)
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104
THE MONTGOMERY PARTNERS SERIES
101 California Street
San Francisco, California 94111
(800) OWL-8758 (695-8758)
29
