As filed with the Securities and Exchange Commission on November 24, 1999
File No: __________
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
THE MONTGOMERY FUNDS II
(Exact Name of Registrant as Specified in Charter)
(800) 572-3863
(Registrant's Telephone Number, Including Area Code)
101 California Street
San Francisco, California 94111
(Address of Principal Executive Offices)
Dulce Daclison
Assistant Secretary
The Montgomery Funds II
101 California Street
San Francisco, CA 94111
(Name and Address of Agent for Service)
Copy to:
Julie Allecta, Esq.
David Hearth, Esq.
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective. The registrant hereby amends this
registration statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, as
amended, or until the registration statement shall become effective on such date
as the Commission, acting pursuant to said Section 8(a), may determine.
No filing fee is required under the Securities Act of 1933, as amended, because
an indefinite number of shares of beneficial interest, with par value $0.01 per
share, has previously been registered pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended.
<PAGE>
<TABLE>
CROSS REFERENCE SHEET
<CAPTION>
Form N-14 Part A, Item Location in Prospectus/Proxy Statement
- ---------------------- --------------------------------------
<S> <C>
1 Front Cover; Cross Reference
2 Table of Contents
3 Introduction; Description of the Proposed Reorganization; Comparison of the Funds;
Risk Factors
4 Introduction, The Transaction, The Proposal, Description of the Proposed
Reorganization
5, 6 The Transaction, Comparison of the Funds; Risk Factors; Further Information About
the Equity Income Fund and the Asset Allocation Fund
7 Shares and Voting; Vote Required
8 Not Applicable
9 Not Applicable
Form N-14 Part B, Item Location in Statement of Additional Information
10 Cover Page
11 Table of Contents
12 Incorporation of Documents by Reference in Statement of Additional Information
13 Not Applicable
14 Incorporation of Documents by Reference in Statement of Additional Information
Form N-14 Part C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of Form N-14.
</TABLE>
<PAGE>
THE FOLLOWING ITEMS ARE HEREBY INCORPORATED BY REFERENCE:
From Post-Effective Amendment No. 69 of The Montgomery Funds, filed October 29,
1999 (SEC File No. 811-6011):
Combined Prospectus for Montgomery Equity Income Fund (with other funds
of The Montgomery Funds and certain funds of The Montgomery Funds II),
dated October 31, 1999.
Combined Statement of Additional Information for Montgomery Equity
Income Fund (with other funds of The Montgomery Funds and certain funds
The Montgomery Funds II), dated October 31, 1999.
From Post-Effective Amendment No. 49 of The Montgomery Funds II, filed October
29, 1999 (SEC File No. 811-8064):
Combined Prospectus for Montgomery U.S. Asset Allocation Fund (with
other funds of The Montgomery Funds and another fund of The Montgomery
Funds II), dated October 31, 1999.
Combined Statement of Additional Information for Montgomery U.S. Asset
Allocation Fund (with other funds of The Montgomery Funds and another
fund of The Montgomery Funds II), dated October 31, 1999.
As previously sent to shareholders of the Montgomery Equity Income Fund and the
Montgomery U.S. Asset Allocation Fund for the fiscal year ended June 30, 1999,
as contained in the Annual Report for The Montgomery Funds dated as of and for
the periods ended June 30, 1999.
<PAGE>
-----------------------------------------
PART A
COMBINED PROXY STATEMENT AND PROSPECTUS
FOR THE REORGANIZATION OF
MONTGOMERY EQUITY INCOME FUND
INTO
MONTGOMERY U.S. ASSET ALLOCATION FUND
-----------------------------------------
<PAGE>
[Letterhead of Montgomery Asset Management, LLC]
January __, 2000
Dear Equity Income Fund Shareholder:
We are seeking your approval to reorganize the Equity Income
Fund, a series of The Montgomery Funds, into the U.S. Asset Allocation Fund, a
series of The Montgomery Funds II. As the manager of both Funds, we recommend
that you approve the reorganization because we believe that by consolidating
these Funds, you will enjoy greater diversification through an allocation of
assets among stocks, bonds and money market securities, while at the same time
maintaining an investment objective of current income and long-term capital
appreciation. Additionally, there could be more efficiencies if the Funds'
assets were combined.
The reorganization would not cause you to recognize and gains
or losses on your shares of the Equity Income Fund. We have agreed to pay all
expenses of the reorganization so that shareholders will not bear those costs.
The Board of Trustees of each of The Montgomery Funds and The
Montgomery Funds II has approved the transaction and urges your approval.
Please read the enclosed proxy materials and consider the
information provided. We encourage you to complete and mail your proxy card
promptly.
Sincerely,
MONTGOMERY ASSET MANAGEMENT, LLC
Mark B. Geist, President
<PAGE>
THE MONTGOMERY FUNDS
The Montgomery Funds II
101 California Street
San Francisco, California 94111
(800) 572-FUND [3863]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF
MONTGOMERY EQUITY INCOME FUND
TO BE HELD FEBRUARY __, 2000
To the Shareholders of the Montgomery Equity Income Fund:
Your Fund will host a special meeting of shareholders at the
offices of The Montgomery Funds, 101 California Street, 35th Floor, San
Francisco, California 94111 on February __, 2000, at 10:00 a.m., local time. At
the meeting, we will ask you to vote on:
1. A proposal to reorganize the Equity Income Fund into the U.S.
Asset Allocation Fund, a series of The Montgomery Funds II;
and
2. Any other business that properly comes before the meeting.
Only shareholders of record at the close of business on
December __, 1999 (the Record Date), will be entitled to receive this notice and
to vote at the meeting.
By Order of the Board of Trustees
Johanne Castro
Assistant Secretary
Your vote is important regardless of how many
shares you owned on the record date.
-------------------
Please vote on the enclosed proxy form, date and sign it, and return it in the
pre-addressed envelope provided. No postage is necessary if mailed in the United
States. You also may vote by Internet (www.proxyvote.com) and by telephone
(800.690.6903). In order to avoid the additional expense and disruption of
further solicitation, we request your cooperation in voting promptly.
<PAGE>
THE MONTGOMERY FUNDS
THE MONTOMGERY FUNDS II
101 California Street
San Francisco, California 94111
(800) 572-FUND [3863]
Montgomery Equity Income Fund
and
Montgomery U.S. Asset Allocation Fund
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated: January __, 2000
What is this document and why did we send it to you?
The Boards of Trustees of The Montgomery Funds ("TMF") and The
Montgomery Fund II ("TMF II") (collectively, the "Trusts") approved a plan to
reorganize the Montgomery Equity Income Fund (the "Equity Income Fund"), a
series of TMF, into the Montgomery U.S. Asset Allocation Fund (the "Asset
Allocation Fund"), a series of TMF II and a "fund-of-funds" that currently
invests in the following three series of TMF: Montgomery Growth Fund (the
"Growth Fund"), Montgomery Total Return Bond Fund (the "Total Return Bond Fund")
and Montgomery Government Money Market Fund (the "Money Market Fund") (that
transaction is referred to as the "Reorganization"). Shareholder approval is
needed to proceed with the Reorganization. The shareholder meeting will be held
on February __, 2000 (the "Shareholder Meeting"). We are sending this document
to you for your use in deciding whether to approve the Reorganization at the
Shareholder Meeting.
This document includes a Notice of Special Meeting of Shareholders, a
Combined Proxy Statement and Prospectus and a form of Proxy.
As a technical matter, the Reorganization will have four steps:
o the transfer of the assets and liabilities of the Equity Income Fund
to the Growth Fund,
o the Growth Fund will issue shares of equivalent value to the net
assets transferred from the Equity Income Fund and issue these
Growth Fund shares to the Asset Allocation Fund,
2
<PAGE>
o the pro rata distribution of shares of the Asset Allocation Fund to
shareholders of record of the Equity Income Fund as of the effective
date of the Reorganization (the "Effective Date") in full redemption
of those shareholders' shares in the Equity Income Fund, and
o the immediate liquidation and termination of the Equity Income Fund.
As a result of the Reorganization, each shareholder of the Equity
Income Fund would instead hold Asset Allocation Fund shares having the same
total value as the shares of the Equity Income Fund held immediately before the
Reorganization. Lawyers for the Equity Income Fund and the Asset Allocation Fund
will issue an opinion to the effect that, for federal income tax purposes, the
Reorganization will be treated as a tax-free reorganization that will not cause
the Equity Income Fund's shareholders to recognize a gain or loss for federal
income tax purposes. See Section II.A.3 below.
The investment objective of the Equity Income Fund is to seek current
income with a yield that is greater than the average yield of Standard and
Poor's 500 Composite Price Index stocks and to seek long-term capital
appreciation while striving to minimize portfolio volatility by investing in
large, dividend-paying U.S. companies. The Asset Allocation Fund is a
fund-of-funds whose investment objective is to seek to provide shareholders with
high total return (consisting of both capital appreciation and income) while
also seeking to reduce risk by actively allocating its assets among stocks,
bonds and money market securities. The Asset Allocation Fund currently invests
in three underlying Montgomery Funds: the Growth Fund, the Total Return Bond
Fund and the Government Money Market Fund.
This Combined Proxy Statement and Prospectus sets forth the basic
information that you should know before voting on the proposal. You should read
it and keep it for future reference.
What other important documents should I know about?
The Equity Income Fund is a series of TMF and the Asset Allocation Fund
is a series of TMF II (together, the "Funds"). TMF and TMF II are open-end
management investment companies. The following documents are on file with the
Securities and Exchange Commission (the "SEC") and are deemed to be legally part
of this document:
o Combined Prospectus for the Equity Income Fund and the Asset
Allocation Fund (as well as other series of TMF and TMF II) dated
October 31, 1999
o Combined Statement of Additional Information relating to the Equity
Income Fund and the Asset Allocation Fund (as well as other series
of TMF and TMF II ) also dated October 31, 1999
o Statement of Additional Information relating to this Combined Proxy
Statement and Prospectus
3
<PAGE>
Those documents are available without charge by writing to The
Montgomery Funds at 101 California Street, 35th Floor, San Francisco, California
94111, or by calling (800) 572-FUND [3863].
The Annual Report to Shareholders of the Equity Income Fund and the
Asset Allocation Fund for the fiscal year ended June 30, 1999, containing
audited financial statements of the Equity Income Fund and the Asset Allocation
Fund has been previously mailed to shareholders. If you do not have a copy,
additional copies of that Annual Report are available without charge by writing
or calling The Montgomery Funds at its address and telephone number listed
above. It is expected that this Combined Proxy Statement and Prospectus will be
mailed to shareholders on or about January __, 2000.
Like all mutual funds, the Securities and Exchange Commission has not approved
or disapproved these securities, nor has it passed on the accuracy or adequacy
of this combined proxy statement and prospectus. It is a criminal offense to
represent otherwise.
4
<PAGE>
TABLE OF CONTENTS
I. INTRODUCTION.............................................................6
A. GENERAL...............................................................6
B. THE PROPOSAL..........................................................6
C. COMPARISON OF EXPENSES................................................8
D. SHARES AND VOTING.....................................................9
II. THE PROPOSAL............................................................12
A. DESCRIPTION OF THE PROPOSED REORGANIZATION...........................12
1. The Reorganization................................................12
2. Effect of the Reorganization......................................13
3. Federal Income Tax Consequences...................................13
4. Description of the Asset Allocation Fund Shares...................14
5. Capitalization....................................................14
B. COMPARISON OF THE FUNDS..............................................16
1. Investment Objectives and Policies................................16
2. Investment Restrictions...........................................17
3. Comparative Performance Information...............................19
4. Advisory Fees and Other Expenses..................................21
5. Portfolio Managers................................................22
6. Distribution and Shareholder Services.............................23
7. Redemption and Exchange Procedures................................23
8. Income Dividends, Capital Gains Distributions and Taxes...........24
9. Portfolio Transactions and Brokerage Commissions..................25
10. Shareholders' Rights..............................................25
C. RISK FACTORS.........................................................25
D. RECOMMENDATION OF THE BOARD OF TRUSTEES..............................26
E. DISSENTERS' RIGHTS OF APPRAISAL......................................26
F. FURTHER INFORMATION ABOUT THE FUND AND THE
ACQUIRING FUND.......................................................27
G. VOTE REQUIRED........................................................27
H. FINANCIAL HIGHLIGHTS.................................................27
III. MISCELLANEOUS ISSUES.................................................33
A. OTHER BUSINESS.......................................................33
B. NEXT MEETING OF SHAREHOLDERS.........................................33
C. LEGAL MATTERS........................................................33
D. EXPERTS..............................................................33
5
<PAGE>
I. INTRODUCTION
A. GENERAL
The Board of Trustees of The Montgomery Funds called this shareholder
meeting to allow shareholders to consider and vote on the proposed
Reorganization of the Equity Income Fund. The Board of Trustees (including a
majority of the independent trustees, meaning those trustees who are not
"interested" persons under the Investment Company Act) voted on November 16,
1999, to approve the Reorganization subject to the approval of the Equity Income
Fund's shareholders.
Montgomery Asset Management, LLC, serves as the manager of each Fund
(the "Manager"). The Manager recommends that you approve the reorganization
because it believes that by consolidating these Funds, shareholders of the
Equity Income Fund will enjoy greater diversification through an allocation of
assets among stocks, bonds and money market securities, while at the same time
maintaining an investment objective of current income and long-term capital
appreciation. Additionally, there could be more efficiencies if the Funds'
assets were combined.
If the proposed Reorganization of the Equity Income Fund into the Asset
Allocation Fund is approved and completed, the Asset Allocation Fund's assets
will increase, which may create certain economies of scale; and the Equity
Income Fund will become part of a fund with similar investment objectives and
policies as well as larger assets which may permit it to operate more
efficiently in accordance with its investment policies and objective.
The Equity Income Fund sells its Class R shares directly to the public
at net asset value, without any sales load or Rule 12b-1 fee, and also offers
Class P shares that are subject to a 0.25% Rule 12b-1 distribution fee.
Likewise, the Asset Allocation Fund currently offers Class R shares directly to
the public at net asset value, without any sales load or Rule 12b-1 fee, and
also offers Class P shares that are subject to a 0.25% Rule 12b-1 distribution
fee. If the Reorganization is completed, all remaining holders of Class R and
Class P shares of the Equity Income Fund would receive respective Class R and
Class P shares of the Asset Allocation Fund.
B. THE PROPOSAL
At the Shareholder Meeting, the shareholders of the Equity Income Fund
will be asked to approve the proposed Reorganization of the Equity Income Fund
into the Asset Allocation Fund. The Reorganization will include the transfer of
substantially all of the assets and liabilities of the Equity Income Fund to the
Growth Fund, an underlying Fund of the Asset Allocation Fund. At that time, the
Growth Fund will issue to the Asset Allocation Fund a proportionate number of
Growth Fund shares. In exchange, the Asset Allocation Fund will issue to all
remaining Equity Income Fund shareholders, through the Equity Income Fund, a
proportionate number of Asset Allocation Fund shares. The Equity Income Fund
will then be terminated and liquidated.
6
<PAGE>
The investment objective of the Equity Income Fund is to seek current
income with a yield that is greater than the average yield of Standard and
Poor's 500 Composite Price Index stocks and to seek long-term capital
appreciation while striving to minimize portfolio volatility by investing in
large, dividend-paying U.S. companies. The Asset Allocation Fund is a
fund-of-funds whose investment objective is to seek to provide shareholders with
high total return (consisting of both capital appreciation and income) while
also seeking to reduce risk by actively allocating its assets among, stocks and
money market securities. The Asset Allocation Fund currently invests in three
underlying Montgomery Funds: the Growth Fund, the Total Return Bond Fund and the
Government Money Market Fund.
Investments in the Equity Income Fund are subject to the general risks
of the stock market. In comparison, investments in the Asset Allocation Fund are
subject only in part to stock market risks (to the extent the Asset Allocation
Fund invests in the Growth Fund), but also subject to interest rate risks from
the Asset Allocation Fund's investment in the Total Return Bond Fund. The growth
stocks the Growth Fund invests in tend to be more volatile than the large
dividend-paying stocks the Equity Income Fund invests in. However, that
volatility may, in part, be offset by the fixed-income assets represented by the
Asset Allocation Fund's investments in the Total Return Bond Fund and Government
Money Market Fund. See Section II.C. below. The purchase and redemption
arrangements of the Funds are identical. The Equity Income Fund and the Asset
Allocation Fund have the same distribution and exchange arrangements, which are
discussed in Section II.B. below.
The Manager and the Board of Trustees of each of The Montgomery Funds
and The Montgomery Funds II believe that the proposed Reorganization is in the
best interests of the Equity Income Fund, the Asset Allocation Fund and their
shareholders, and that the interests of existing shareholders of the Equity
Income and Asset Allocation Funds will not be diluted as a result of the
proposed Reorganization. See Section II.D. below.
The Manager will pay the costs of the Reorganization, the Shareholder
Meeting and solicitation of proxies, including the cost of copying, printing and
mailing proxy materials. In addition to solicitations by mail, the Manager and
the Board of Trustees of The Montgomery Funds also may solicit proxies, without
special compensation, by telephone, facsimile or otherwise.
7
<PAGE>
C. COMPARISON OF EXPENSES
<TABLE>
The following table shows the comparative fees and expenses you may pay
if you buy and hold shares of these Funds. The Funds do not impose any front-end
or deferred sales loads and they do not charge shareholders for exchanging
shares or reinvesting dividends.
Fees and Expenses of the Funds
<CAPTION>
Montgomery Montgomery
Montgomery Asset Asset
Equity Income Allocation Allocation
Fund Fund Fund
---- ---- ----
(Class R Shares) (Current) (Pro Forma)
<S> <C> <C> <C>
Shareholder Fees (fees paid directly from your
investment)
Redemption Fee 0.00% 0.00% 0.00%
Annual Fund Operating Expenses (expenses that
are deducted from Fund assets)+
Management Fee 0.60% 0.00% 0.00%
Distribution/Service (12b-1) Fee 0.00% 0.00% 0.00%
Other Expenses 0.85%
Top Fund Expenses 0.46% 0.46%
Underlying Fund Expenses 1.25% 1.25%
Total Annual Fund Operating Expenses 1.45% 1.71% 1.71%
Fee Reduction and/or Expense Reimbursement
(0.60%) (0.41%) (0.41%)
-------- -------- --------
Net Expenses 0.85% 1.30% 1.30%
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Montgomery Montgomery
Montgomery Asset Asset
Equity Income Allocation Allocation
Fund Fund Fund
---- ---- ----
(Class P Shares) (Current) (Pro Forma)
<S> <C> <C> <C>
Shareholder Fees (fees paid directly from your
investment)
Redemption Fee 0.00% 0.00% 0.00%
Annual Fund Operating Expenses (expenses that
are deducted from Fund assets)+
Management Fee 0.60% 0.00% 0.00%
Distribution/Service (12b-1) Fee 0.25% 0.25% 0.25%
Other Expenses 0.85%
Top Fund Expenses 0.46% 0.46%
Underlying Fund Expenses 1.25% 1.25%
Total Annual Fund Operating Expenses 1.70% 1.96% 1.96%
Fee Reduction and/or Expense Reimbursement (0.60%) (0.41%) (0.41%)
------- ------- -------
Net Expenses 1.10% 1.55% 1.55%
======= ======= =======
8
<PAGE>
<FN>
+ Montgomery Asset Management has contractually agreed to reduce its fees and/or
absorb expenses to limit total annual operating expenses (excluding Rule 12b-1
fees, interest and tax expenses) to 0.85% for the Equity Income Fund and 1.30%
for the Asset Allocation Fund. The 1.30% contractual limit will apply after the
Reorganization. This contract has a ten-year term. See Section II.B.4. for a
discussion of fees reduced and expenses reimbursed that may be recouped by the
Manager.
</FN>
</TABLE>
<TABLE>
Example of Fund expenses: This example is intended to help you compare the cost
of investing in the Funds with the cost of investing in other mutual funds. The
table below shows what you would pay in expenses over time, whether or not you
sold your shares at the end of each period. It assumes a $10,000 initial
investment, 5% total return each year and the changes specified above. This
example is for comparison purposes only. It does not necessarily represent the
Funds' actual expenses or returns.
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Equity Income Fund (Class R shares) $ 86 $271 $470 $1,046
- ------------------------------------------------- -------------- -------------- -------------- --------------
Asset Allocation Fund (current Class R shares) $132 $411 $711 $1,563
- ------------------------------------------------- -------------- -------------- -------------- --------------
Asset Allocation Fund (pro forma Class R shares) $132 $411 $711 $1,563
================================================= ============== ============== ============== ==============
Equity Income Fund (Class P shares) $112 $349 $605 $1,336
- ------------------------------------------------- -------------- -------------- -------------- --------------
Asset Allocation Fund (current Class P shares) $157 $488 $843 $1,839
- ------------------------------------------------- -------------- -------------- -------------- --------------
Asset Allocation Fund (pro forma Class P shares) $157 $488 $843 $1,839
</TABLE>
D. SHARES AND VOTING
The Montgomery Funds is a Massachusetts business trust and is
registered with the SEC as an open-end management investment company and
currently has seventeen operating series, or funds, including the Equity Income
Fund. Each Fund has its own investment objective and policies and operates
independently for purposes of investments, dividends, other distributions and
redemptions. The Equity Income Fund has three authorized classes of shares, each
with its own fee and expense structure: Class R shares, Class P shares and Class
L shares. At present, the Equity Income Fund has issued only Class R and Class P
shares. The Asset Allocation Fund, a series of The Montgomery Funds II, also has
three authorized classes of shares, each with its own fee and expense structure:
Class R shares, Class P shares and Class L shares. At present, the Asset
Allocation Fund has issued only Class R and Class P shares.
The Equity Income Fund's Class R and Class P shareholders will receive
respective Class R and Class P shares of the Asset Allocation Fund in exchange
for their shares if the Reorganization is approved and completed. Information
about Class L shares of the Asset Allocation Fund is contained in the Funds'
Combined Statement of Additional Information.
Each whole or fractional share of the Equity Income Fund is entitled to
one vote or corresponding fraction at the Shareholder Meeting. At the close of
business on December __, 1999, the record date for the determination of
shareholders entitled to vote at the Shareholder Meeting (the "Record Date"),
there were _____________ shares
9
<PAGE>
outstanding held by _________ record holders (including omnibus accounts
representing multiple underlying beneficial owners such as those in the names of
brokers).
All shares represented by each properly signed proxy received before
the meeting will be voted at the Shareholder Meeting. If a shareholder specifies
how the proxy is to be voted on any business properly to come before the
Shareholder Meeting, it will be voted in accordance with instruction given. If
no choice is indicated on the proxy, it will be voted FOR approval of the
Reorganization, as more fully described in this Combined Proxy Statement and
Prospectus. A proxy may be revoked by a shareholder at any time before its use
by written notice to The Montgomery Funds, by submission of a later-dated proxy
or by voting in person at the Shareholder Meeting. If any other matters come
before the Shareholder Meeting, proxies will be voted by the persons named as
proxies in accordance with their best judgment.
The presence in person or by proxy of shareholders entitled to cast 40%
of the votes entitled to be cast at the Shareholder Meeting will constitute a
quorum. When a quorum is present, a majority of the shares voted shall decide
the proposal. The Shareholder Meeting may be adjourned from time to time by a
majority of the votes properly voting on the question of adjourning a meeting to
another date and time, whether or not a quorum is present, and the meeting may
be held as adjourned within a reasonable time after the date set for the
original meeting without further notice. The persons named in the proxy will
vote those shares that they are entitled to vote in favor of adjournment if
adjournment is necessary to obtain a quorum or to obtain a favorable vote on any
proposal. If the adjournment requires setting a new record date or the
adjournment is for more than 60 days from the date set for the original meeting
(in which case the Board of Trustees will set a new record date), The Montgomery
Funds will give notice of the adjourned meeting to the shareholders. Business
may be conducted once a quorum is present and may continue until adjournment of
the meeting.
Proxies may be voted by mail or electronically by internet or
telephone. If voted electronically, the Equity Income Fund or its agent will use
reasonable procedures (such as requiring an identification number) to verify the
authenticity of the vote cast. Each shareholder who casts an electronic vote
also will be able to validate that his or her vote was received correctly.
All proxies voted, including abstentions and broker non-votes (where
the underlying holder has not voted and the broker does not have discretionary
authority to vote the shares), will be counted toward establishing a quorum.
Approval of the Reorganization will occur only if a sufficient number of votes
at the Meeting are cast FOR that proposal. Abstentions do not constitute a vote
"for" and effectively result in a vote "against." Broker non-votes do not
represent a vote "for" or "against" and are disregarded in determining whether
the proposal has received enough votes.
As of the Record Date, the Equity Income Fund's shareholders of record
and (to The Montgomery Funds' knowledge) beneficial owners who owned more than
five percent of the Equity Income Fund's shares are as follows:
10
<PAGE>
Percentage of the Equity Percentage of the Equity
Income Fund's Outstanding Income Fund's Outstanding
Shareholders Class R Shares Class P Shares
- --------------------------------------------------------------------------------
[The Officers and Trustees of The Montgomery Funds, as a group, owned
of record and beneficially less than one percent of the outstanding voting
securities of the Equity Income Fund as of the Record Date.]
11
<PAGE>
II. THE PROPOSAL
A. DESCRIPTION OF THE PROPOSED REORGANIZATION
1. The Reorganization
If the Reorganization is approved, on the Effective Date the Growth
Fund, an underlying fund of the Asset Allocation Fund, will acquire
substantially all of the assets and liabilities of the Equity Income Fund. At
that time, the Growth Fund will issue to the Asset Allocation Fund the number of
Class R and Class P Growth Fund shares determined by dividing the value of the
net assets of the Class R and Class P Equity Income Fund shares so transferred
by the net asset value of one Class R Growth Fund share and one Class P Growth
Fund share, respectively. In exchange, the Asset Allocation Fund will issue to
the Equity Income Fund the number of Class R and Class P Asset Allocation Fund
shares determined by dividing the value of the net assets of the Class R and
Class P Growth Fund shares so transferred by the net asset value of one Class R
Asset Allocation Fund share and one Class P Asset Allocation Fund share,
respectively. The net asset value of the Equity Income Fund, the net asset value
of the Growth Fund and the net asset value of the Asset Allocation Fund will be
calculated at the close of business on the date immediately preceding the
Effective Date (the "Valuation Date") in accordance with the Funds' valuation
procedures described in The Montgomery Funds Combined Prospectus dated October
31, 1999.
At the same time as that asset transfer, the Equity Income Fund will
distribute the Class R and Class P Asset Allocation Fund shares it receives pro
rata to each remaining shareholder of Class R and Class P Equity Income Fund
shares based on the percentage of the outstanding Class R and Class P Equity
Income Fund shares held of record by that shareholder on the Valuation Date. For
example, on June 30, 1999, the value of the aggregate net assets of Class R and
Class P Equity Income Fund shares was approximately $26,750,000 and $3,212,000,
respectively. The Class R Equity Income Fund shares were valued at $19.04 per
share and the Class P Equity Income Fund shares were valued at $19.01 per share.
The Class R Asset Allocation Fund shares were valued at $16.77 per share and the
Class P Asset Allocation Fund shares were valued at $16.74 per share. Therefore,
if the Effective Date had been June 30, 1999, the Equity Income Fund would then
have redeemed each of its then outstanding Class R shares in exchange for 1.135
Class R Asset Allocation Fund shares and each of its then outstanding Class P
shares in exchange for 1.136 Class P Asset Allocation Fund shares.
This distribution of the Asset Allocation Fund Class R shares to the
Equity Income Fund's shareholders will be accomplished by the establishment of
accounts on the Asset Allocation Fund's share records in the names of those
shareholders, representing the respective pro rata number of Asset Allocation
Fund shares deliverable to them. Fractional shares will be carried to the third
decimal place. Certificates evidencing the Asset Allocation Fund shares will not
be issued to the Equity Income Fund's shareholders.
12
<PAGE>
Immediately following the Equity Income Fund's pro rata liquidating
distribution of the Asset Allocation Fund shares to the Equity Income Fund
shareholders, the Equity Income Fund will liquidate and terminate.
Completion of the Reorganization is subject to approval by the
shareholders of the Equity Income Fund. The Reorganization may be abandoned at
any time before the Effective Date by a majority of the Board of Trustees of The
Montgomery Funds.
The Manager will pay all costs and expenses of the Reorganization,
including those associated with the Shareholder Meeting, the copying, printing
and distribution of this Combined Proxy Statement and Prospectus, and the
solicitation of proxies for the Shareholder Meeting.
The above is a summary of the Reorganization. The summary is not a
complete description of the terms of the Reorganization, which are set forth in
the Agreement and Plan of Reorganization attached as Exhibit A to this document.
2. Effect of the Reorganization
If the Reorganization is approved by the Equity Income Fund's
shareholders and completed, shareholders of the Equity Income Fund as of the
Effective Date will become shareholders of the Asset Allocation Fund. The total
net asset value of the Asset Allocation Fund shares held by each shareholder of
the Equity Income Fund immediately after completion of the Reorganization will
be equivalent to the total net asset value of the Equity Income Fund shares held
by that same shareholder immediately before completion of the Reorganization.
On or before the Effective Date the Equity Income Fund intends to
distribute all of its then-remaining net investment income and realized capital
gains.
After the Reorganization, the investment adviser for the Asset
Allocation Fund will continue to be Montgomery Asset Management, LLC. Funds
Distributor, Inc. will continue to be the Asset Allocation Fund's Distributor.
The Asset Allocation Fund will continue to be managed in accordance with its
existing investment objective and policies.
3. Federal Income Tax Consequences
As a condition to closing the Reorganization, the Equity Income Fund
and the Asset Allocation Fund must receive a favorable opinion from Paul,
Hastings, Janofsky & Walker LLP, counsel to the Equity Income Fund and Asset
Allocation Fund, substantially to the effect that, for federal income tax
purposes: (a) the transfer by the Equity Income Fund of substantially all of its
assets and liabilities to the Growth Fund solely in exchange for the Asset
Allocation Fund shares, as described above, is a reorganization within the
meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended
(the "Code"); (b) no gain or loss will be recognized by the Equity Income Fund
13
<PAGE>
upon the transfer of substantially all of its assets to the Growth Fund in
exchange solely for shares of the Asset Allocation Fund shares; (c) no gain or
loss will be recognized by the Growth Fund on receipt of the Equity Income
Fund's assets in exchange for the Asset Allocation Fund shares; (d) the
aggregate tax basis of the assets of the Equity Income Fund in the hands of the
Growth Fund is, in each instance, the same as the basis of those assets in the
hands of the Equity Income Fund immediately before the transaction; (e) the
holding period of the Equity Income Fund's assets in the hands of the Growth
Fund includes the period during which the assets were held by the Equity Income
Fund; (f) no gain or loss is recognized to the shareholders of the Equity Income
Fund upon the receipt of the Asset Allocation Fund shares solely in exchange for
the Equity Income Fund's shares; (g) the basis of the Asset Allocation Fund
shares received by the Equity Income Fund shareholders is, in each instance, the
same as the basis of the Equity Income Fund shares surrendered in exchange
therefor; and (h) the holding period of the Asset Allocation Fund shares
received by the Equity Income Fund shareholders includes the holding period
during which shares of the Equity Income Fund were held, provided that those
shares were held as a capital asset in the hands of the Equity Income Fund
shareholders on the date of the exchange. The Montgomery Funds does not intend
to seek a private letter ruling from the Internal Revenue Service with respect
to the tax effects of the Reorganization, and one is not required.
4. Description of the Asset Allocation Fund Shares
Each Asset Allocation Fund share issued to Equity Income Fund
shareholders pursuant to the Reorganization will be duly authorized, validly
issued, fully paid and nonassessable when issued, will be transferable without
restriction and will have no preemptive or conversion rights. Each Asset
Allocation Fund share will represent an equal interest in the assets of the
Asset Allocation Fund. The Asset Allocation Fund shares will be sold and
redeemed based upon the net asset value of the Asset Allocation Fund next
determined after receipt of the purchase or redemption request, as described in
the Asset Allocation Fund's Prospectus.
5. Capitalization
The capitalization of the Funds as of December 31, 1999 and their pro
forma combined capitalization as of that date after giving effect to the
proposed Reorganization are as follows:
14
<PAGE>
Asset Allocation Equity Income Pro Forma
Fund Fund Combined
----------------------------------------------------
Aggregate net assets
Shares outstanding*
Net asset value per share:
Class R shares
Class P shares
- -----------------------------
* Each Fund is authorized to issue an indefinite number of shares.
15
<PAGE>
B. COMPARISON OF THE FUNDS
A brief comparison of the Funds is set forth below. See Section II.F.
for more information.
1. Investment Objectives and Policies
The investment objective of the Equity Income Fund is to seek current
income with a yield greater than the average yield of Standard & Poor's 500
Composite Price Index stocks and to seek long-term capital appreciation while
striving to minimize portfolio volatility by investing in large, dividend-paying
U.S. companies.
The equity securities in which the Equity Income Fund invests generally
consist of common stock, preferred stock and securities convertible into or
exchangeable for common or preferred stock. Under normal market conditions, at
least 65% of the value of the Equity Income Fund's total assets will be invested
in dividend-paying stocks of large U.S. companies.
In selecting investments for the Equity Income Fund, the Manager
generally seeks to identify mature companies that have a history of paying
regular dividends to shareholders and offer a dividend yield well above their
historical average and/or the market's average. The Fund typical invests in
companies for two to four years. The Manager will usually begin to reduce the
Fund's position in a company as its share price moves up and its dividend yield
drops to the lower end of its historical range. The Manager may also pare back
or sell the Fund's position in a company that reduces or eliminates its dividend
or if its believes that the company is about to do so.
The investment objective of the Asset Allocation Fund is to seek to
provide shareholders with high total return (consisting of both capital
appreciation and income) while also seeking to reduce risk by actively
allocating its assets among stocks, bonds and money market securities. As a
"fund-of-funds," the Fund currently invests its assets in three underlying
Montgomery Funds:
o Growth Fund, for U.S. equity exposure. This Fund invests in U.S.
companies of any size, but usually invests in those undervalued,
growth-oriented companies whose shares have a market capitalization
of at least $1 billion
o Total Return Bond Fund, for U.S. bond exposure. This Fund invests in
a broad range of investment-grade bonds, including U.S. government
securities, corporate bonds, mortgage-related securities,
asset-backed securities and money market securities
o Government Money Market Fund, for cash exposure. This Fund invests
exclusively in short-term U.S. government securities
16
<PAGE>
The Fund's strategy is to analyze various market factors, including
relative risk and return, using a proprietary computer program to help the
Manager determines what it believes is an optimal asset allocation among stocks,
bonds and cash.
The Asset Allocation Fund's total equity and bond exposure may each
range from 20 to 80% of its assets. It may invest anywhere from 0% to 50% of its
assets in a Montgomery money market fund. At times, the Fund may invest in other
Montgomery Funds that have similar investment exposures to the Funds listed
above. The Manager regularly adjusts the proportion of assets allotted to the
underlying portfolios in response to changing market conditions.
2. Investment Restrictions
Both the Asset Allocation Fund and the Equity Income Fund have
substantially similar fundamental investment restrictions, which cannot be
changed without affirmative vote of a majority of each Fund's outstanding voting
securities as defined in the Investment Company Act. Neither the Asset
Allocation Fund nor the Equity Income Fund may:
(1) With respect to 75% of its total assets, invest in the securities
of any one issuer (other than the U.S. government and its agencies and
instrumentalities) if immediately after and as a result of such investment more
than 5% of the total assets of the Fund would be invested in such issuer. There
are no limitations with respect to the remaining 25% of its total assets, except
to the extent other investment restrictions may be applicable. This investment
restriction does not apply to the Asset Allocation Fund.
(2) Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objectives and policies, (b)
through the lending of up to 30% of its portfolio securities as described above
and in the Combined Statement of Additional Information, or (c) to the extent
the entry into a repurchase agreement or a reverse dollar transaction is deemed
to be a loan.
(3) (a) Borrow money, except for temporary or emergency purposes
from a bank, or pursuant to reverse repurchase agreements or dollar roll
transactions, in an amount not in excess of one-third of the value of its total
assets (including the proceeds of such borrowings, at the lower of cost or fair
market value). Any such borrowing will be made only if immediately thereafter
there is an asset coverage of at least 300% of all borrowings, and no additional
investments may be made while any such borrowings are in excess of 10% of total
assets. Transactions that are fully collateralized in a manner that does not
involve the prohibited issuance of a "senior security" within the meaning of
Section 18(f) of the Investment Company Act shall not be regarded as borrowings
for the purposes of this restriction.
(b) Mortgage, pledge or hypothecate any of its assets except
in connection with permissible borrowings and permissible forward contracts,
futures contracts, option contracts or other hedging transactions.
17
<PAGE>
(4) Except as required in connection with permissible hedging
activities, purchase securities on margin or underwrite securities. (This does
not preclude the Fund from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities or from
engaging in transactions that are fully collateralized in a manner that does not
involve the prohibited issuance of a senior security within the meaning of
Section 18(f) of the Investment Company Act.)
(5) Buy or sell real estate or commodities or commodity contracts;
however each Fund, to the extent not otherwise prohibited in the Combined
Prospectus or Combined Statement of Additional Information, may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein, including real estate
investment trusts, and may purchase or sell currencies (including forward
currency exchange contracts), futures contracts and related options generally as
described in the Combined Statement of Additional Information.
(6) Invest in securities of other investment companies, except to the
extent permitted by the Investment Company Act and discussed in the Combined
Prospectus or Combined Statement of Additional Information, or as such
securities may be acquired as part of a merger, consolidation or acquisition of
assets.
(7) Invest, in the aggregate, more than 15% of its net assets in
illiquid securities, including (under current SEC interpretations) restricted
securities (excluding liquid Rule 144A-eligible restricted securities),
securities which are not otherwise readily marketable, repurchase agreements
that mature in more than seven days and over-the-counter options (and securities
underlying such options) purchased by that Fund. (This is an operating policy
which may be changed without shareholder approval, consistent with the
Investment Company Act, and changes in relevant SEC interpretations).
(8) Invest in any issuer for purposes of exercising control or
management of the issuer. (This is an operating policy which may be changed
without shareholder approval, consistent with the Investment Company Act.)
(9) Invest more than 25% of the market value of its total assets in the
securities of companies engaged in any one industry. (This does not apply to
investment in the securities of the U.S. Government, its agencies or
instrumentalities.) For purposes of this restriction, each Fund generally relies
on the U.S. Office of Management and Budget's Standard Industrial
Classifications.
(10) Issue senior securities, as defined in the Investment Company Act,
except that this restriction shall not be deemed to prohibit that Funds from (a)
making any permitted borrowings, mortgages or pledges, or (b) entering into
permissible repurchase and dollar roll transactions.
(11) Except as described in the Combined Prospectus and the Combined
Statement of Additional Information, acquire or dispose of put, call, straddle
or spread options unless:
18
<PAGE>
(a) such options are written by other persons, or are put
options written with respect to securities
representing 24% or less of the Fund's total assets,
and
(b) the aggregate premiums paid on all such options which
are held at any time do not exceed 5% of that Fund's
total assets.
(This is an operating policy which may be changed without
shareholder approval.)
(12) Except as described in the Combined Prospectus and the Combined
Statement of Additional Information, engage in short sales of securities. (This
is an operating policy which may be changed without shareholder approval,
consistent with applicable regulations.)
(13) Purchase more than 10% of the outstanding voting securities of any
one issuer. (This is an operating policy which may be changed without
shareholder approval.)
(14) Invest in commodities, except for futures contracts or options on
futures contracts if the investments are either (a) for bona fide hedging
purposes within the meaning of CFTC regulations or (b) for other than bona fide
hedging purposes if, as a result, thereof no more than 5% of that Fund's total
assets (taken at market value at the time of entering into the contract) would
be committed to initial deposits and premiums on open futures contracts and
options on such contracts.
To the extent these restrictions reflect matters of operating policy
which may be changed without shareholder vote, these restrictions may be amended
upon approval by each Board of The Montgomery Funds and The Montgomery Funds II
and notice to shareholders.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except as
otherwise noted.
3. Comparative Performance Information
The chart below shows the risks of investing in each Fund and how each
Fund's total return has varied from year-to-year. The table compares each Fund's
performance to the most commonly used index for its market segment. Of course,
past performance is no guarantee of future results.
19
<PAGE>
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
1999 Return Through 9/30/99: -3.45% 1999 Return Through 9/30/99: 4.91%
*During the four-year period described above in the bar chart, the Equity Income
Fund's best quarter was Q4 1998 (+12.78%) and its worst quarter was Q3 1998
(-5.54%).
**During the four-year period described above in the bar chart, the Asset
Allocation Fund's best quarter was Q2 1997 (+11.94%) and its worst quarter was
Q3 1998 (-6.29%).
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
1999 Return Through 9/30/99: -3.53% 1999 Return Through 9/30/99: 4.37%
*During the two-year period described above in the bar chart, the Equity Income
Fund's best quarter was Q4 1998 (+12.60%) and its worst quarter was Q3 1998
(-5.60%).
**During the two-year period described above in the bar chart, the Asset
Allocation Fund's best quarter was Q2 1997 (+11.37%) and its worst quarter was
Q3 1998 (-6.38%).
20
<PAGE>
<TABLE>
Average Annual Returns through 12/31/98
<CAPTION>
Inception Inception
1 Year (9/30/94) (3/11/96)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity Income Fund - Class R 10.74% 20.55% N/A
----------------------------------------------------------------------------------------------------------
Equity Income Fund - Class P 10.11% N/A 18.42%
----------------------------------------------------------------------------------------------------------
S&P 500 Index 28.58% 28.47% 28.17%+
----------------------------------------------------------------------------------------------------------
<FN>
+ Calculated from 2/28/96
</FN>
</TABLE>
<TABLE>
<CAPTION>
Inception Inception
1 Year (3/31/94) (1/2/96)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation Fund - Class R 6.18% 18.77% N/A
----------------------------------------------------------------------------------------------------------
Asset Allocation Fund - Class P 6.03% N/A 12.38%
----------------------------------------------------------------------------------------------------------
S&P 500 Index 28.58% 26.50% 28.23%+
----------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index 8.69% 8.33% 7.29%+
----------------------------------------------------------------------------------------------------------
<FN>
+ Calculated from 12/31/95
</FN>
</TABLE>
4. Advisory Fees and Other Expenses
The Manager serves as investment adviser to both Funds pursuant to
Investment Management Agreements between the Manager and The Montgomery Funds
and The Montgomery Funds II, both dated July 31, 1997. The Equity Income Fund
pays the Manager a management fee (accrued daily but paid when requested by the
Manager) calculated at an annualized rate of 0.60% of the first $500 million of
the average daily net assets of the Equity Income Fund plus 0.50% of average
daily net assets over $500 million. The Asset Allocation Fund does not pay the
Manager any management fees since the management fees apply to the underlying
funds only. The management fees are accrued daily but paid when requested by the
Manager and are calculated at an annualized rate as follows:
Growth Fund 1.00% of the first $500 million of net
assets; plus 0.90% of the next $500
million of net assets; plus 0.80% of net
assets over $1 billion
Total Return Bond Fund 0.50% of the first $500 million of net
assets; plus 0.40% of net assets over
$500 million
Government Money Market Fund 0.40% of the first $250 million of net
assets; plus 0.30% of the next $250
million of net assets; plus 0.20% of net
assets over $500 million
21
<PAGE>
The total annual expense limitation of the Asset Allocation Fund
currently is higher than that of the Equity Income Fund (1.30% to 0.85%). The
Manager agreed to those expense limitations (excluding interest and taxes) under
a contract with a ten-year term. A Fund is required to reimburse the Manager for
any reductions in the Manager's fee or its payment of expenses only during the
three years following that reduction and only if such reimbursement can be
achieved within the foregoing expense limits. The Manager generally seeks
reimbursement for the oldest reductions and waivers before payment for fees and
expenses for the current year.
For the fiscal year ended June 30, 1999, the Manager absorbed expenses
of the Asset Allocation equal to approximately $207,593. The Manager received
management fees of approximately $303,646 from the Equity Income Fund. Of these
fees, the Manager reduced its fee or absorbed expenses of the Equity Income Fund
equal to approximately $217,211. The Manager may seek reimbursement for the
deferred management fee and absorbed expenses instead from the Asset Allocation
Fund after the Reorganization occurs, provided that reimbursement is effected
within three years after the original reduction and the reimbursement can be
achieved within the applicable expense limit.
5. Portfolio Managers
The investment manager of the both Funds is Montgomery Asset
Management, LLC. Founded in 1990, the Manager is a subsidiary of Commerzbank AG,
one of the largest publicly held commercial banks in Germany. As of June 30,
1999, the Manager managed approximately $3.9 billion on behalf of some 200,000
investors in The Montgomery Funds.
Equity Income Fund
WILLIAM KING, CFA, senior portfolio manager for the Equity Income Fund (since
1994). Before joining Montgomery in 1994 as a portfolio manager, Mr. King gained
analytical and portfolio management experiences at Merus Capital Management.
Previously, he was a financial analyst/manager for SEI and a division controller
and financial analyst for Kaiser Aluminum and Kaiser Industries.
Asset Allocation Fund
The portfolio managers listed below allocate assets among the underlying Funds
for the Asset Allocation Fund, which currently include the Growth Fund, the
Total Return Bind Fund and the Government Money Market Fund:
ROGER HONOUR, senior portfolio manager of the Growth Fund (since 1995). Prior to
joining the Manager in 1993 as a senior portfolio manager and managing director,
Mr. Honour was a vice president and portfolio manager at Twentieth Century
Investors in Kansas City, Missouri. From 1990 to 1992, he served as vice
president and portfolio manager at Alliance Capital Management.
22
<PAGE>
KATHRYN PETERS, portfolio manager of the Growth Fund (since 1995). Ms. Peters
joined Montgomery in 1995 as a portfolio manager. From 1992 to 1995, she was an
associate in the investment banking division of Donaldson, Lufkin & Jenrette in
New York. Prior to that she analyzed mezzanine investments for Barclays de Zoete
Wedd.
MARIE CHANDOHA, portfolio manager for the Total Return Bond Fund (since 1999).
Prior to joining Montgomery as a portfolio manager, Ms. Chandoha worked at
Goldman Sachs & Co., where she advised institutional clients on optimal asset
allocation strategies in the U.S. bond market. From 1994 to 1996, she held
positions as a managing director of global fixed-income and economics research
at Credit Suisse First Boston. Prior to that she was a research analyst in
mortgage securities at Morgan Stanley; and an economist at the Federal Reserve
Bank of New York.
WILLIAM STEVENS, senior portfolio manager for the Government Money Market Fund
(since 1992). Prior to joining Montgomery in 1992 as a senior portfolio manager
and managing director, Mr. Stevens worked at Barclays de Zoete Wedd Securities,
where he started its collateralized mortgage obligation (CMO) and asset-backed
securities trading. From 1990 to 1991, he traded stripped mortgage securities
and mortgage-related interest rate swaps for The First Boston Company.
6. Distribution and Shareholder Services
Funds Distributor, Inc. (the "Distributor"), 101 California Street, San
Francisco, California 94104, serves as the Funds' Distributor and principal
underwriter in a continuous public offering of the Funds' shares. The
Distributor does not impose any sales charge on purchases of Class R shares.
Class P shares have adopted a Share Marketing Plan (the "Plan") under Rule
12b-1.
Neither Fund currently offers Class L shares.
The Class R shares of the Asset Allocation Fund to be issued in the
Reorganization will not be subject to any sales charge. No sales charge is
imposed by either Fund on reinvestment of dividends or capital gains
distributions.
The Funds generally require a minimum initial investment of $1,000, and
subsequent investments of $100 or more. Both Funds have automatic investment
plans under which selected amounts are electronically withdrawn from
shareholders' accounts with banks and are applied to purchase shares of the
Funds.
7. Redemption and Exchange Procedures
Shareholders of both Funds may redeem their shares at the net asset
value next determined after receipt of a written redemption request or a
telephone redemption order without the imposition of any fee or other charge.
23
<PAGE>
Each Fund may involuntarily redeem a shareholder's shares if the
combined aggregate net asset value of the shares in a shareholder's account is
less than $1,000 due to redemptions or if purchases through a systematic
investment plan fails to meet that Fund's investment minimum within a
twelve-month period. If the shareholder's account balance is not brought up to
the minimum or the shareholder does not send the Fund other instructions, the
Fund will redeem the shares and send the shareholder the proceeds.
Montgomery shareholders may exchange Class R and Class P shares in one
Fund for respective Class R and Class P shares in another Fund with the same
shareholder account registration, taxpayer identification number and address
without the imposition of any sales charges or exchange fees. There is a $100
minimum to exchange into a Fund the shareholder currently owns and a $1,000
minimum for investing in a new Fund. An exchange may result in a realized gain
or loss for tax purposes. However, because excessive exchanges can harm a Fund's
performance, The Montgomery Funds reserves the right to terminate, either
temporarily or permanently, exchange privileges of any shareholder who makes
more than four exchanges out of any one Fund during a twelve-month period and to
refuse an exchange into a Fund from which a shareholder has redeemed shares
within the previous 90 days (accounts under common ownership or control and
accounts with the same taxpayer identification number will be counted together).
Shares can be exchanged by telephone at (800) 572-FUND[3863] or through the
online shareholder service center at www.montgomeryfunds.com.
Other restrictions may apply. Refer to the Combined Prospectus and the
Combined Statement of Additional Information for other exchange policies.
8. Income Dividends, Capital Gains Distributions and Taxes
Each Fund distributes substantially all of its net investment income
and net capital gains to shareholders each year, if any. Each Fund currently
intends to make quarterly or, if necessary to avoid the imposition of tax on the
Fund, additional distributions during each calendar year. A distribution may be
made between November 1 and December 31 of each year with respect to any
undistributed capital gains earned during the one-year period ended October 31
of each calendar year. Another distribution of any undistributed capital gains
may also be made following the Funds' fiscal year end (June 30 for both Funds).
Each Fund has elected and qualified as a separate "regulated investment
company" under Subchapter M of the Code for federal income tax purposes and
meets all other requirements that are necessary for it (but not its
shareholders) to pay no federal taxes on income and capital gains paid to
shareholders in the form of dividends. In order to accomplish this goal, each
Fund must, among other things, distribute substantially all of its ordinary
income and net capital gains on a current basis and maintain a portfolio of
investments which satisfies certain diversification criteria.
24
<PAGE>
9. Portfolio Transactions and Brokerage Commissions
The Manager is responsible for decisions to buy and sell securities for
each Fund, broker-dealer selection, and negotiation of commission rates. In
placing orders for each Fund's portfolio transactions, the Manager's primary
consideration is to obtain the most favorable price and execution available
although the Manager also may consider a securities broker-dealer's sale of Fund
shares, or research and brokerage services provided by the securities
broker-dealer, as factors in considering through whom portfolio transactions
will be effected. Each Fund may pay to those securities broker-dealers who
provide brokerage and research service to the Manager a higher commission than
that charged by other securities broker-dealers if the Manager determines in
good faith that the amount of the commission is reasonable in relation to the
value of those services in terms either of the particular transaction, or in
terms of the overall responsibility of the Manager and to any other accounts
over which the Manager exercises investment discretion.
10. Shareholders' Rights
The Montgomery Funds is a Massachusetts business trust and The
Montgomery Funds II is a Delaware business Trust. Because the Equity Income Fund
is a series of The Montgomery Funds and the Asset Allocation Fund is a series of
The Montgomery Funds II, their operations are governed by each Trust's
Declaration of Trust and By-laws and applicable Massachusetts and Delaware law.
The Funds normally will not hold meetings of shareholders except as
required under the Investment Company Act and Massachusetts and Delaware law.
However, shareholders holding 10% or more of the outstanding shares of each Fund
may call meetings for the purpose of voting on the removal of one or more of the
Trustees.
Shareholders of each Fund have no preemptive, conversion or
subscription rights. The shares of each Fund have non-cumulative voting rights,
with each shareholder of each Fund entitled to one vote for each full share of
that Fund (and a fractional vote for each fractional share) held in the
shareholder's name on the books of that Fund as of the record date for the
action in question. On any matter submitted to a vote of shareholders, shares of
each Fund will be voted by that Fund's shareholders individually when the matter
affects the specific interest of that Fund only, such as approval of that Fund's
investment management arrangements. The shares of all the Funds will be voted in
the aggregate on other matters, such as the election of trustees and
ratification of the Board of Trustees' selection of the Funds' independent
accountants.
C. RISK FACTORS
The Equity Income Fund's portfolio is subject to the general risks and
considerations associated with equity investing. As with any stock fund, the
value of the Equity Income Fund will fluctuate on a day-to-day basis with
movements in the stock market, as well as response to the activities of
individual companies. Although the Fund
25
<PAGE>
seeks to provide a consistent level of income to shareholders, its yield may
fluctuate significantly in the short term.
Like the Equity Income Fund, the Asset Allocation Fund's portfolio is
subject to the general risks and considerations associated with equity investing
(to the extent the Asset Allocation Fund invests in the Growth Fund). The growth
stocks the Growth Fund invests in tend to be more volatile than the large
dividend-paying stocks the Equity Income Fund invests in. However, that
volatility may, in part, be offset by the fixed-income assets represented by the
Asset Allocation Fund's investments in the Total Return Bond Fund and Government
Money Market Fund. The value of the Total Return Bond Fund will fluctuate along
with interest rates. When interest rates rise, a bond's market price generally
declines. In addition, if the Manager does not accurately predict changing
market conditions and other economic factors, the Fund's assets might be
allocated in a manner that is disadvantageous. See the Combined Prospectus and
Statement of Additional Information for more information on the risks of the
Asset Allocation Fund.
D. RECOMMENDATION OF THE BOARD OF TRUSTEES
The Board of Trustees of each of The Montgomery Funds and The
Montgomery Funds II (including a majority of the noninterested Trustees), after
due consideration, has unanimously determined that the Reorganization is in the
best interests of the shareholders of the Equity Income Fund and the Asset
Allocation Fund and that the interests of the existing shareholders of the
Equity Income and Asset Allocation Funds would not be diluted thereby. Each
Board specifically considered the following factors:
1. The Equity Income Fund's limited size and unlikely future
growth in assets from new shareholder investments.
2. The efficiencies that could occur if the Funds' assets
were combined.
3. The expected absence of adverse effects on the Asset
Allocation Fund by adding the Equity Income Fund's assets
to it.
The Board of Trustees unanimously recommends that
shareholders vote for the adoption of the Proposal.
E. DISSENTERS' RIGHTS OF APPRAISAL
Shareholders of the Equity Income Fund who object to the proposed
Reorganization will not be entitled to any "dissenters' rights" under
Massachusetts law. However, those shareholders have the right at any time up to
when the Reorganization occurs to redeem shares of the
26
<PAGE>
Equity Income Fund at net asset value or to exchange their shares for shares of
the other funds offered by The Montgomery Funds (including the Asset Allocation
Fund) without charge. After the Reorganization, shareholders of the Equity
Income Fund will hold shares of the Asset Allocation Fund, which may also be
redeemed at net asset value in accordance with the procedures described in the
Asset Allocation Fund's Prospectus dated October 31, 1999, subject to applicable
redemption procedures.
F. FURTHER INFORMATION ABOUT THE ACQUIRED FUND AND THE ACQUIRING FUND
Further information about the Equity Income Fund and the Asset
Allocation Fund is contained in the following documents:
o Combined Prospectus dated October 31, 1999.
o Combined Statement of Additional Information also dated October 31,
1999.
o Documents that relate to the Funds are available, without charge, by
writing to The Montgomery Funds at 101 California Street, San
Francisco, California 94111 or by calling (800) 572-FUND[3863]. A
copy of the Combined Prospectus also accompanies this Combined Proxy
Statement and Prospectus.
The Montgomery Funds is subject to the informational requirements of
the Securities Exchange Act of 1934 and the Investment Company Act, and it files
reports, proxy materials and other information with the SEC. These reports,
proxy materials and other information can be inspected and copied at the Public
Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of these materials can be obtained at prescribed rates from the
Public Reference Branch, Office of Consumer Affairs and Information Services, of
the SEC, Washington, D.C. 20549.
G. VOTE REQUIRED
Approval of the proposed Reorganization requires the affirmative vote
of the holders of a majority of the shares of the Equity Income Fund present or
voting by proxy at the Shareholder Meeting. If the shareholders of the Equity
Income Fund do not approve the proposed Reorganization, or if the Reorganization
is not consummated for any other reason, then the Board of Trustees will take
any further action as it deems to be in the best interest of the Equity Income
Fund and its shareholders, including liquidation, subject to approval by the
shareholders of the Equity Income Fund if required by applicable law.
H. FINANCIAL HIGHLIGHTS
The following selected per-share data and ratios for the period ended
June 30, 1999, were audited by ___________________________. Their August 18,
1999, report appears in the 1999 Annual Report of the Funds. Information for the
periods ended June 30, 1995, through June
27
<PAGE>
30, 1997, was audited by other independent accountants. Their report is not
included here.
28
<PAGE>
<TABLE>
<CAPTION>
Equity Income Fund
(Class R Shares)
SELECTED PER-SHARE DATA FOR THE YEAR OR PERIOD
ENDED JUNE 30: 1999 1998 1997## 1996 1995(a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value - beginning of year $ 18.27 $ 17.91 $ 16.09 $ 13.38 $ 12.00
Net investment income/(loss) 0.32 0.44 0.49 0.43 0.31
Net realized and unrealized gain/(loss)
on investments 2.30 2.27 3.35 2.82 1.38
Net increase/(decrease) in net assets
resulting from investment operations 2.62 2.71 3.84 3.25 1.69
Distributions:
Dividends from net investment income (0.31) (0.44) (0.46) (0.42) (0.31)
Distributions from net realized capital gains (1.54) (1.91) (1.56) (0.12) --
Distributions in excess of net realized
capital gains -- -- -- -- --
Total distributions (1.85) (2.35) (2.02) (0.54) (0.31)
Net asset value - end of year $ 19.04 $ 18.27 $ 17.91 $ 16.09 $ 13.38
======================================================================================================
Total return** 15.06% 15.83% 26.02% 24.56% 14.26%
Ratios to average net assets/supplemental data
Net assets, end of year (in 000s) $26,750 $40,260 $38,595 $19,312 $ 6,383
Ratio of net investment income/(loss) to
average net assets 1.71% 2.32% 2.93% 3.03% 4.06%+
Net investment income/(loss) before deferral
of fees by Manager $ 0.21 $ 0.34 $ 0.39 $ 0.34 $ 0.13
Portfolio turnover rate 57% 68% 62% 90% 29%
Expense ratio before deferral of fees by
Manager, including interest and tax expense 1.45% 1.38% 1.46% 1.45% 3.16%+
Expense ratio including interest and tax
expenses 0.85% 0.86% -- -- --
Expense ratio excluding interest and tax
expenses 0.85% 0.85% 0.86% 0.85% 0.84%+
<FN>
(a) The Equity Income Fund's Class R Shares commenced operations on September
30, 1994.
** Total return represents aggregate total return for the periods indicated.
+ Annualized.
## Per-share numbers have been calculated using the average share method,
which more appropriately represents the per-share data for the period,
since the use of the undistributed income method did not accord with the
results of operations.
</FN>
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Equity Income Fund
(Class P Shares)
SELECTED PER-SHARE DATA FOR THE YEAR OR PERIOD
ENDED JUNE 30: 1999 1998 1997## 1996(a)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of year $18.25 $17.90 $16.09 $15.66
Net investment income/(loss) 0.26 0.38 0.44 0.08
Net realized and unrealized gain/(loss)
on investments 2.31 2.27 3.35 0.35
Net increase/(decrease) in net assets
resulting from investment operations 2.57 2.65 3.79 0.43
Distributions:
Dividends from net investment income (0.27) (0.39) (0.42) --
Distributions from net realized capital gains (1.54) (1.91) (1.56) --
Distributions in excess of net realized
capital gains -- -- -- --
Total distributions (1.81) (2.30) (1.98) --
Net asset value--end of year $ 19.01 $ 18.25 $17.90 $16.09
=================================================================================================
Total return** 14.74% 15.49% 25.64% 2.75%
Ratios to average net assets/supplemental data
Net assets, end of year (in 000s) $3,212 $2,719 $868 $2
Ratio of net investment income/(loss) to
average net assets 1.46% 2.07% 1.68% 2.78%+
Net investment income/(loss) before deferral
of fees by Manager $ 0.15 $ 0.28 $ 0.34 $ 0.06
Portfolio turnover rate 57% 68% 62% 90%
Expense ratio before deferral of fees by
Manager, including interest and tax expense 1.70% 1.63% 1.71% 1.70%+
Expense ratio including interest and tax
expenses 1.10% 1.11% -- --
Expense ratio excluding interest and tax
expenses 1.10% 1.10% 1.11% 1.10%+
- --------------------------------------------------------------------------------------------------
<FN>
(a) The Equity Income Fund's Class P shares commenced operations on March 12,
1996.
** Total return represents aggregate total for the periods indicated.
+ Annualized.
## Per-share numbers have been calculated using the average share method,
which more appropriately represents the per-share data for the period,
since the use of the undistributed income method did not accord with
results of operations.
</FN>
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
U.S. Asset Allocation Fund
(Class R Shares)
SELECTED PER-SHARE DATA FOR THE YEAR OR
PERIOD ENDED JUNE 30: 1999## 1998(a) 1997## 1996 1995
---------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of year $ 19.08 $ 19.89 $ 19.33 $ 16.33 $ 12.24
Net investment income/(loss) 0.48 1.66 0.48 0.26 0.25
Net realized and unrealized gain/(loss) on
investments 1.23 0.99 2.13 3.54 4.11
Net increase/(decrease) in net assets
resulting from investment operations 1.71 2.65 2.61 3.80 4.36
Distributions:
Dividends from net investment income (0.93) (0.93) (0.39) (0.25) (0.17)
Distributions in excess of net
investment income -- (0.70) -- -- --
Distributions from net realized capital
gains (1.68) (1.83) (1.66) (0.55) (0.10)
Distributions in excess of net realized
capital gains (1.41) -- -- -- --
Total distributions (4.02) (3.46) (2.05) (0.80) (0.27)
Net asset value - end of year $ 16.77 $ 19.08 $ 19.89 $ 19.33 $ 16.33
==============================================================================================================
Total return** 11.93% 14.67% 14.65% 23.92% 35.99%
Ratios to average net assets/supplemental
data
Net assets, end of year (in 000s) $81,133 $128,075 $127,214 $132,511 $60,234
Ratio of net investment income/(loss) to
average net assets 2.63% 3.10% 2.55% 1.85% 3.43%
Net investment income/(loss) before
deferral of fees by Manager $ 0.45 $ 1.63 $ 0.47 $ 0.24 $ 0.19
Portfolio turnover rate 36% 84% 169% 226% 96%
Expense ratio before deferral of fees by
Manager, including interest and tax
expenses 0.46% 0.31% 1.49% 1.55% 2.07%
Expense ratio including interest and tax
expenses 0.25% 0.26% 1.43% 1.42% 1.31%
Expense ratio excluding interest and tax
expenses 0.25% 0.25% 1.31% 1.30% 1.30%
<FN>
(a) The Fund converted to a fund of funds structure effective July 1, 1998.
Expense ratios prior to that date do not reflect expenses borne indirectly.
** Total return represents aggregate total return for the periods indicated.
## Per-share numbers have been calculated using the average share method,
which more appropriately represents the per-share data for the period,
since the use of the undistributed income method did not accord with the
results of operations.
</FN>
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
U.S. Asset Allocation Fund
(Class P Shares)
SELECTED PER-SHARE DATA FOR THE YEAR OR
PERIOD ENDED JUNE 30: 1999## 1998++ 1997## 1996(a)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of year $19.11 $19.89 $ 19.33 $17.86
Net investment income/(loss) 0.44 1.62 0.43 0.09
Net realized and unrealized
gain/(loss) on investments 1.17 1.01 2.13 1.38
Net increase/(decrease) in net assets
resulting from investment operations 1.61 2.63 2.56 1.47
Distributions:
Dividends from net investment income (0.89) (0.84) (0.34) --
Distributions in excess of net
investment income -- (0.74) -- --
Distributions from net realized
capital gains (1.68) (1.83) (1.66) --
Distributions in excess of net
realized capital gains (3.98) -- -- --
Total distributions (3.98) (3.41) (2.00) --
Net asset value - end of year $16.74 $19.11 $ 19.89 $19.33
============================================================================================================
Total return** 11.15% 14.53% 14.35% 8.23%
Ratios to average net
assets/supplemental data
Net assets, end of year (in 000s) $ 56 $71 $74 $43
Ratio of net investment income/(loss)
to average net assets 2.68% 2.85% 2.30% 1.60%+
Net investment income/(loss) before
deferral of fees by Manager $ 0.41 $ 1.59 $ 0.42 $ 0.08
Portfolio turnover rate 36% 84% 169% 226%
Expense ratio before deferral of fees
by Manager, including interest and tax
expenses 0.71% 0.56% 1.74% 1.80%+
Expense ratio including interest and
tax expenses 0.50% 0.51% 1.68% 1.67%+
Expense ratio excluding interest and
tax expenses 0.50% 0.50% 1.56% 1.55%+
- ------------------------------------------------------------------------------------------------------------
<FN>
(a) The U.S. Asset Allocation Fund's Class P shares commenced operations on
January 3, 1996.
++ The Fund converted to a fund of funds structure
effective July 1, 1998. Expense ratios prior to that date do not reflect
expenses borne indirectly.
** Total return represents aggregate total for the periods indicated.
+ Annualized.
## Per-share numbers have been calculated using the average share method,
which more appropriately represents the per-share data for the period,
since the use of the undistributed income method did not accord with
results of operations.
</FN>
</TABLE>
32
<PAGE>
III. MISCELLANEOUS ISSUES
A. OTHER BUSINESS
The Board of Trustees of The Montgomery Funds knows of no other
business to be brought before the Shareholder Meeting. If any other matters come
before the Shareholder Meeting, it is the Board's intention that proxies that do
not containing specific restrictions to the contrary will be voted on those
matters in accordance with the judgment of the persons named in the enclosed
form of proxy.
B. NEXT MEETING OF SHAREHOLDERS
The Montgomery Funds is not required and does not intend to hold annual
or other periodic meetings of shareholders except as required by the Investment
Company Act. If the Reorganization is not completed, the next meeting of the
shareholders of the Equity Income Fund will be held at such time as the Board of
Trustees may determine or at such time as may be legally required. Any
shareholder proposal intended to be presented at such meeting must be received
by The Montgomery Funds at its office at a reasonable time before the meeting,
as determined by the Board of Trustees, to be included in The Montgomery Funds'
proxy statement and form of proxy relating to that meeting, and must satisfy all
other legal requirements.
C. LEGAL MATTERS
Certain legal matters as to the tax-free character of the
Reorganization and the valid issuance of the Asset Allocation Fund shares have
been or will be passed upon for The Montgomery Funds by Paul, Hastings, Janofsky
& Walker LLP.
D. EXPERTS
The financial statements of the Montgomery Equity Income Fund for the
year ended June 30, 1999, contained in The Montgomery Funds'1999 Annual Report
to Shareholders, and the financial statements of the Montgomery U.S. Asset
Allocation Fund for the year ended June 30, 1999, contained in The Montgomery
Funds II's 1999 Annual Report to Shareholders, have been audited by
___________________________, independent auditors, as stated in their reports,
which are incorporated herein by reference, and have been so incorporated in
reliance upon the reports of such firm given their authority as experts in
accounting and auditing.
Please complete, date and sign the enclosed proxy and
return it promptly in the enclosed envelope. You also may vote
by Internet (www.proxyvote.com) and telephone (800.609.6903).
33
<PAGE>
PROXY
FOR SPECIAL MEETING OF SHAREHOLDERS OF
MONTGOMERY EQUITY INCOME FUND
ON FEBRUARY __, 2000
The undersigned hereby appoints Johanne Castro and Dulce Daclison, and
each of them, proxies for the undersigned, with full power of substitution, to
represent the undersigned and to vote all of the shares of Montgomery Equity
Income Fund (the "Equity Income Fund") of The Montgomery Funds (the "Trust"),
which the undersigned is entitled to vote at the Special Meeting of Shareholders
of the Equity Income Fund to be held on February __, 2000 and at any adjournment
thereof.
o Proposal to approve or disapprove a reorganization of the Equity
Income Fund providing for (i) the transfer of substantially all of
the assets and liabilities of the Equity Income Fund to the
Montgomery to the Montgomery Growth Fund, an underlying Fund of the
Asset Allocation Fund (the "Asset Allocation Fund"), a separate
series of The Montgomery Funds II, in exchange for shares of the
Asset Allocation Fund (the "Asset Allocation Fund Shares") of
equivalent value, (ii) the pro rata distribution of those Asset
Allocation Fund Shares to the shareholders of the Equity Income Fund
in full redemption of those shareholders' shares in the Equity
Income Fund, and (iii) the immediate liquidation and termination of
the Equity Income Fund, all as described in the accompanying
Combined Proxy Statement and Prospectus.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
And, in their discretion, to transact any other business that may lawfully come
before the meeting or any adjournment(s) thereof.
34
<PAGE>
This proxy is solicited on behalf of the board of trustees and will be
voted as you direct on this form. If no direction is given, this proxy will be
voted FOR the proposal.
Dated: ___________________, 2000
__________________________________________
Signature of Shareholder
__________________________________________
Signature of Shareholder
When shares are registered jointly in the names of two or more persons, ALL must
sign. Signature(s) must correspond exactly with the name(s) shown. Please sign,
date and return promptly in the enclosed envelope.
35
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of this __ day of ___________, 1999, by The Montgomery Funds ("TMF"), a
Massachusetts business trust, for itself and on behalf of the Montgomery Equity
Income Fund (the "Acquired Fund"), a series of TMF, and by The Montgomery Funds
II ("TMF II"), a Delaware business trust, for itself and on behalf of the
Montgomery U.S. Asset Allocation Fund (the "Acquiring Fund"), a series of TMF
II.
In accordance with the terms and conditions set forth in this
Agreement, the parties desire that all of the assets of the Acquired Fund be
transferred to the Montgomery Growth Fund, a series of TMF an underlying fund of
the Acquiring Fund ("Underlying Fund"), and that the Underlying Fund assume the
Stated Liabilities (as defined in paragraph 1.3) of the Acquired Fund, in
exchange for Class R and Class P shares of the Acquiring Fund (collectively,
"Acquiring Fund Shares"), and that these Acquiring Fund Shares be distributed
immediately after the Closing, as defined in this Agreement, by the Acquired
Fund to its shareholders in liquidation of the Acquired Fund. This Agreement is
intended to be and is adopted as a plan of reorganization and liquidation within
the meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as
amended (the "Code").
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto, intending to be legally bound hereby,
covenant and agree as follows:
1. REORGANIZATION OF ACQUIRED FUND
1.1 Subject to the terms and conditions herein set forth, and on the
basis of the representations and warranties contained herein, the Acquired Fund
shall assign, deliver and otherwise transfer its assets as set forth in
paragraph 1.2 (the "Fund Assets") to the Underlying Fund and the Underlying Fund
shall assume the Acquired Fund's Stated Liabilities. The Underlying Fund shall,
on the Closing Date (as defined in paragraph 3.1), deliver to the Acquiring Fund
full and fractional shares of the Underlying Fund, the number of which shall be
determined by (i) dividing (a) the net asset value of the Acquired Fund Assets
attributable to the Class R shares of the Acquired Fund ("Acquired Class R
Shares"), net of the Acquired Fund's Stated Liabilities attributable to the
Acquired Class R Shares, computed in the manner and as of the time and date set
forth in paragraph 2.1, by (b) the net asset value of one Class R share of the
Underlying Fund computed in the manner and as of the time and date set forth in
paragraph 2.2, and by (ii) dividing (a) the net asset value of the Acquired Fund
Assets attributable to the Class P shares of the Acquired Fund ("Acquired Class
P Shares"), net of the Acquired Fund's Stated Liabilities attributable to the
Acquired Class P Shares, computed in the manner and as of the time and date set
forth in paragraph 2.1, by (b) the net asset value of one Class P share of the
Underlying Fund computed in the manner and as of the time and date set forth in
paragraph 2.2.
1
<PAGE>
The Acquiring Fund shall, as consideration therefor, on the Closing
Date (as defined in paragraph 3.1), deliver to the Acquired Fund full and
fractional Acquiring Fund Shares, the number of which shall be determined by (i)
dividing (a) the net asset value of the Acquired Fund Assets attributable to the
Acquired Class R Shares that were assigned, delivered and otherwise transferred
to the Underlying Fund, net of the Acquired Fund's Stated Liabilities
attributable to the Acquired Class R Shares, computed in the manner and as of
the time and date set forth in paragraph 2.1, by (b) the net asset value of one
Class R share of the Acquiring Fund computed in the manner and as of the time
and date set forth in paragraph 2.2., and by (ii) dividing the net asset value
of the Acquired Fund Assets attributable to the Acquired Class P Shares that
were assigned, delivered and otherwise transferred to the Underlying Fund, net
of the Acquired Fund's Stated Liabilities attributable to the Acquired Class P
Shares, computed in the manner and as of the time and date set forth in
paragraph 2.1, by (b) the net asset value of one Class P share of the Acquiring
Fund computed in the manner and as of the time and date set forth in paragraph
2.2. Such transfer, delivery and assumption shall take place at the closing
provided for in paragraph 3.1 (hereinafter sometimes referred to as the
"Closing"). Immediately following the Closing, the Acquired Fund shall
distribute the Acquiring Fund Shares to the respective Class R and Class P
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided in paragraph 1.4 hereof. Such transactions are hereinafter sometimes
collectively referred to as the "Reorganization."
1.2 (a) With respect to the Acquired Fund, the Fund Assets shall
consist of all property and assets of any nature whatsoever, including, without
limitation, all cash, cash equivalents, securities, instruments, claims and
receivables (including dividend and interest receivables) owned by the Acquired
Fund, and any prepaid expenses shown as an asset on the Acquired Fund's books on
the Closing Date.
(b) Before the Closing Date, the Acquired Fund will provide
the Underlying Fund with a schedule of its assets and its
known liabilities, and the Underlying Fund will provide the
Acquired Fund with a copy of the current investment objective
and policies applicable to the Underlying Fund. The Acquired
Fund reserves the right to sell or otherwise dispose of any of
the securities or other assets shown on the list of the
Acquired Fund's Fund Assets before the Closing Date but will
not, without the prior approval of the Underlying Fund,
acquire any additional securities other than securities which
the Underlying Fund is permitted to purchase in accordance
with its stated investment objective and policies. Before the
Closing Date, the Underlying Fund will advise the Acquired
Fund of any investments of the Acquired Fund shown on such
schedule which the Underlying Fund would not be permitted to
hold, pursuant to its stated investment objective and policies
or otherwise. If the Acquired Fund holds any investments that
the Underlying Fund would not be permitted to hold under its
stated investment objective or policies, the Acquired Fund, if
requested by the Underlying Fund, will dispose of those
securities prior to the Closing Date to the extent
practicable. In addition, if it is determined that the
portfolios of the Acquired Fund and the Underlying Fund, when
aggregated, would contain
2
<PAGE>
investments exceeding certain percentage limitations to which
the Underlying Fund is or will be subject with respect to such
investments, the Acquired Fund, if requested by the Underlying
Fund, will dispose of and/or reinvest a sufficient amount of
such investments as may be necessary to avoid violating such
limitations as of the Closing Date.
1.3 The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. The Underlying Fund will
assume all liabilities and obligations reflected on an unaudited statement of
assets and liabilities of the Acquired Fund prepared by the administrator of TMF
as of the Applicable Valuation Date (as defined in paragraph 2.1), in accordance
with generally accepted accounting principles consistently applied from the
prior audited period ("Stated Liabilities"). The Underlying Fund shall assume
only the Stated Liabilities of the Acquired Fund, and no other liabilities or
obligations, whether absolute or contingent, known or unknown, accrued or
unaccrued.
1.4 Immediately following the Closing, the Acquired Fund will
distribute the Acquiring Fund Shares received by the Acquired Fund pursuant to
paragraph 1.1 pro rata to its Class R and Class P shareholders of record
determined as of the close of business on the Closing Date ("Acquired Fund
Investors") in complete liquidation of the Acquired Fund. That distribution will
be accomplished by an instruction, signed by an appropriate officer of TMF, to
transfer the Acquiring Fund Shares then credited to the Acquired Fund's account
on the books of the Acquiring Fund to open accounts on the books of the
Acquiring Fund established and maintained by the Acquiring Fund's transfer agent
in the names of record of the Acquired Fund Investors and representing the
respective pro rata number of Class R and Class P shares of the Acquiring Fund
due such Acquired Fund Investor based on the respective net asset values per
share of the Class R and Class P shares of the Acquired Fund. All issued and
outstanding shares of the Acquired Fund will be cancelled simultaneously
therewith on the Acquired Fund's books, and any outstanding share certificates
representing interests in the Acquired Fund will represent only the right to
receive such number of Acquiring Fund Shares after the Closing as determined in
accordance with paragraph 1.l.
1.5 If any request shall be made for a change of the registration of
shares of the Acquiring Fund to another person from the account of the
stockholder in which name the shares are registered in the records of the
Acquired Fund, it shall be a condition of such registration of shares that there
be furnished to the Acquiring Fund an instrument of transfer properly endorsed,
accompanied by appropriate signature guarantees and otherwise in proper form for
transfer and that the person requesting such registration shall pay to the
Acquiring Fund any transfer or other taxes required by reason of such
registration or establish to the reasonable satisfaction of the Acquiring Fund
that such tax has been paid or is not applicable.
1.6 Following the transfer of assets by the Acquired Fund to the
Underlying Fund, the assumption of the Acquired Fund's Stated Liabilities by the
Underlying Fund, and the distribution by the Acquired Fund of the Acquiring Fund
Shares received by it pursuant to paragraph 1.4, TMF shall terminate the
qualification, classification and registration of the Acquired Fund with all
appropriate federal and state agencies. Any reporting or other
3
<PAGE>
responsibility of TMF is and shall remain the responsibility of TMF up to and
including the date on which the Acquired Fund is terminated and deregistered,
subject to any reporting or other obligations described in paragraph 4.8.
2. VALUATION
2.1 The value of the Acquired Fund's Fund Assets shall be the value of
those assets computed as of the time at which its net asset value is calculated
pursuant to the valuation procedures set forth in the Acquiring Fund or the
Underlying Fund's then-current respective Prospectus and Statement of Additional
Information on the business day immediately preceding the Closing Date, or at
such time on such earlier or later date as may mutually be agreed upon in
writing among the parties hereto (such time and date being herein called the
"Applicable Valuation Date").
2.2 The net asset value of each share of the Acquiring Fund and the
Underlying Fund shall be the net asset value per share computed on the
Applicable Valuation Date, using the market valuation procedures set forth in
the Acquiring Fund and the Underlying Fund's then-current respective Prospectus
and Statement of Additional Information.
2.3 All computations of value contemplated by this Article 2 shall be
made by the Acquiring Fund and the Underlying Fund's administrator in accordance
with its regular practice as pricing agent. The Acquiring Fund and the
Underlying Fund shall cause their administrator to deliver a copy of their
respective valuation report to TMF and to the Acquired Fund at the Closing.
3. CLOSING(S) AND CLOSING DATE
3.l The Closing for the Reorganization shall occur on February __,
2000, and/or on such other date(s) as may be mutually agreed upon in writing by
the parties hereto (each, a "Closing Date"). The Closing(s) shall be held at the
offices of Paul, Hastings, Janofsky & Walker LLP, 345 California Street, San
Francisco, California 94104 or at such other location as is mutually agreeable
to the parties hereto. All acts taking place at the Closing(s) shall be deemed
to take place simultaneously as of 10:00 a.m., local time on the Closing Date
unless otherwise provided.
3.2 The Underlying Fund's custodian shall deliver at the Closing a
certificate of an authorized officer stating that: (a) the Acquired Fund's Fund
Assets have been delivered in proper form to the Underlying Fund on the Closing
Date and (b) all necessary taxes including all applicable federal and state
stock transfer stamps, if any, have been paid, or provision for payment shall
have been made, by the Acquired Fund in conjunction with the delivery of
portfolio securities.
3.3 Notwithstanding anything herein to the contrary, if on the
Applicable Valuation Date (a) the New York Stock Exchange shall be closed to
trading or trading thereon shall be restricted or (b) trading or the reporting
of trading on such exchange or elsewhere shall be
4
<PAGE>
disrupted so that, in the judgment of TMF or TMF II, accurate appraisal of the
value of the net assets of the Acquiring Fund, the Underlying Fund or the
Acquired Fund is impracticable, the Applicable Valuation Date shall be postponed
until the first business day after the day when trading shall have been fully
resumed without restriction or disruption and reporting shall have been
restored.
4. COVENANTS WITH RESPECT TO THE ACQUIRING FUND AND THE ACQUIRED FUND
4.1 With respect to the Acquired Fund, TMF has called or will call a
meeting of Acquired Fund shareholders to consider and act upon this Agreement
and to take all other actions reasonably necessary to obtain the approval of the
transactions contemplated herein, including approval for the Acquired Fund's
liquidating distribution of Acquiring Fund Shares contemplated hereby, and for
TMF to terminate the Acquired Fund's qualification, classification and
registration if requisite approvals are obtained with respect to the Acquired
Fund. TMF, on behalf of the Acquired Fund, shall prepare the notice of meeting,
form of proxy and proxy statement (collectively, "Proxy Materials") to be used
in connection with that meeting.
4.2 TMF, on behalf of the Acquired Fund, covenants that the Acquiring
Fund Shares to be issued hereunder are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the terms of this
Agreement.
4.3 TMF, on behalf of the Acquired Fund, will assist the Underlying
Fund in obtaining such information as the Underlying Fund reasonably requests
concerning the beneficial ownership of shares of the Acquired Fund.
4.4 Subject to the provisions hereof, TMF, on its own behalf and on
behalf of the Underlying Fund and the Acquired Fund, and TMF II, on its own
behalf and on the behalf of the Acquiring Fund will take, or cause to be taken,
all actions, and do, or cause to be done, all things reasonably necessary,
proper or advisable to consummate and make effective the transactions
contemplated herein.
4.5 TMF, on behalf of the Acquired Fund, shall furnish to the
Underlying Fund on the Closing Date, a final statement of the total amount of
the Acquired Fund's assets and liabilities as of the Closing Date.
4.6 TMF II, on behalf of the Acquiring Fund, has prepared and filed, or
will prepare and file, with the Securities and Exchange Commission (the "SEC") a
registration statement on Form N-14 under the Securities Act of 1933, as amended
(the "1933 Act"), relating to the Acquiring Fund Shares (the "Registration
Statement"). TMF, on behalf of the Acquired Fund, has provided or will provide
the Acquiring Fund with the Proxy Materials for inclusion in the Registration
Statement, prepared in accordance with paragraph 4.1, and with such other
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information and documents relating to the Acquired Fund as are requested by the
Acquiring Fund and as are reasonably necessary for the preparation of the
Registration Statement.
4.7 As soon after the Closing Date as is reasonably practicable, TMF,
on behalf of the Acquired Fund: (a) shall prepare and file all federal and other
tax returns and reports of the Acquired Fund required by law to be filed with
respect to all periods ending on/or before the Closing Date but not theretofore
filed and (b) shall pay all federal and other taxes shown as due thereon and/or
all federal and other taxes that were unpaid as of the Closing Date.
4.8 Following the transfer of Fund Assets by the Acquired Fund to the
Underlying Fund and the assumption of the Stated Liabilities of the Acquired
Fund by the Underlying Fund in exchange for Acquiring Fund Shares as
contemplated herein, TMF will file any final regulatory reports, including but
not limited to any Form N-SAR and Rule 24f-2 filings with respect to the
Acquired Fund, promptly after the Closing Date and also will take all other
steps as are necessary and proper to effect the termination or declassification
of the Acquired Fund in accordance with the laws of the Commonwealth of
Massachusetts and other applicable requirements.
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5. REPRESENTATIONS AND WARRANTIES
5.1 TMF II, on behalf of the Acquiring Fund, represents and warrants to
the Acquired Fund as follows:
(a) TMF II was duly created pursuant to its Agreement and
Declaration of Trust by the Trustees for the purpose of acting as a
management investment company under the Investment Company Act of 1940
(the "1940 Act") and is validly existing under the laws of the State of
Delaware, and the Declaration of Trust directs the Trustees to manage
the affairs of TMF II and grants them all powers necessary or desirable
to carry out such responsibility, including administering TMF II's
business as currently conducted by TMF II and as described in the
current prospectuses of TMF II. TMF II is registered as an investment
company classified as an open-end management company, under the 1940
Act and its registration with the SEC as an investment company is in
full force and effect;
(b) The Registration Statement, including the current
prospectus and statement of additional information of the Acquiring
Fund, conforms or will conform, at all times up to and including the
Closing Date, in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the regulations thereunder and do
not include or will not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(c) The Acquiring Fund is not in violation of, and the
execution, delivery and performance of this Agreement by TMF II for
itself and on behalf of the Acquiring Fund does not and will not (i)
violate TMF II's Declaration of Trust or By-Laws, or (ii) result in a
breach or violation of, or constitute a default under, any material
agreement or material instrument, to which TMF II is a party or by
which its properties or assets are bound;
(d) Except as previously disclosed in writing to the Acquired
Fund, no litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to TMF
II's knowledge, threatened against TMF II or its business, the
Acquiring Fund or any of its properties or assets, which, if adversely
determined, would materially and adversely affect TMF II or the
Acquiring Fund's financial condition or the conduct of their business.
TMF II knows of no facts that might form the basis for the institution
of any such proceeding or investigation, and the Acquiring Fund is not
a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and
adversely affects, or is reasonably likely to materially and adversely
affect, its business or its ability to consummate the transactions
contemplated herein;
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(e) All issued and outstanding shares, including shares to be
issued in connection with the Reorganization, of the Acquiring Fund
will, as of the Closing Date, be duly authorized and validly issued and
outstanding, fully paid and nonassessable, the shares of each class of
the Acquiring Fund issued and outstanding before the Closing Date were
offered and sold in compliance with the applicable registration
requirements, or exemptions therefrom, of the 1933 Act, and all
applicable state securities laws, and the regulations thereunder, and
the Acquiring Fund does not have outstanding any option, warrants or
other rights to subscribe for or purchase any of its shares nor is
there outstanding any security convertible into any of its shares;
(f) The execution, delivery and performance of this Agreement
on behalf of the Acquiring Fund will have been duly authorized prior to
the Closing Date by all necessary action on the part of TMF II, the
Trustees and the Acquiring Fund, and this Agreement will constitute a
valid and binding obligation of TMF II and the Acquiring Fund
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, arrangement, moratorium and
other similar laws of general applicability relating to or affecting
creditors, rights and to general equity principles;
(g) On the effective date of the Registration Statement, at
the time of the meeting of the Acquired Fund shareholders and on the
Closing Date, any written information furnished by TMF II with respect
to the Acquiring Fund for use in the Proxy Materials, the Registration
Statement or any other materials provided in connection with the
Reorganization does not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
information provided not misleading;
(h) No governmental consents, approvals, authorizations or
filings are required under the 1933 Act, the Securities Exchange Act of
1934 (the "1934 Act"), the 1940 Act or Delaware law for the execution
of this Agreement by TMF II, for itself and on behalf of the Acquiring
Fund, or the performance of the Agreement by TMF II for itself and on
behalf of the Acquiring Fund, except for such consents, approvals,
authorizations and filings as have been made or received, and except
for such consents, approvals, authorizations and filings as may be
required after the Closing Date;
(i) The Statement of Assets and Liabilities, Statement of
Operations and Statements of Changes in Net Assets of the Acquiring
Fund as of and for the year ended June 30, 1999, audited by
_______________________ (copies of which have been or will be furnished
to the Acquired Fund) fairly present, in all material respects, the
Acquiring Fund's financial condition as of such date and its results of
operations for such period in accordance with generally accepted
accounting principles consistently applied, and as of such dates there
were no liabilities of the Acquiring Fund (contingent or otherwise)
known to TMF II that were not disclosed therein but that would be
required to be disclosed therein in accordance with generally accepted
accounting principles;
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(j) Since the date of the most recent audited financial
statements, there has not been any material adverse change in the
Acquiring Fund's financial condition, assets, liabilities or business,
other than changes occurring in the ordinary course of business; or any
incurrence by the Acquiring Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred, except as otherwise
disclosed in writing to and accepted by the Acquired Fund, prior to the
Closing Date (for the purposes of this subparagraph (j), neither a
decline in the Acquiring Fund's net asset value per share nor a
decrease in the Acquiring Fund's size due to redemptions shall be
deemed to constitute a material adverse change);
(k) For each full and partial taxable year from its inception
through the Closing Date, the Acquiring Fund has qualified as a
separate regulated investment company under the Code and has taken all
necessary and required actions to maintain such status; and
(1) All federal and other tax returns and reports of TMF II
and the Acquiring Fund required by law to be filed on or before the
Closing Date shall have been filed, and all taxes owed by TMF II or the
Acquiring Fund shall have been paid so far as due, and to the best of
TMF II's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to any such return.
5.2 TMF, on behalf of the Acquired Fund, represents and warrants to the
Acquiring Fund and Underlying Fund as follows:
(a) TMF was duly created pursuant to its Agreement and
Declaration of Trust by the Trustees for the purpose of acting as a
management investment company under the 1940 Act and is validly
existing under the laws of the Commonwealth of Massachusetts, and the
Agreement and Declaration of Trust directs the Trustees to manage the
affairs of TMF and grants them all powers necessary or desirable to
carry out such responsibility, including administering TMF's business
as currently conducted by TMF and as described in the current
prospectuses of TMF. TMF is registered as an investment company
classified as an open-end management company, under the 1940 Act and
its registration with the SEC as an investment company is in full force
and effect;
(b) All of the issued and outstanding shares of the Acquired
Fund have been offered and sold in compliance in all material respects
with applicable registration or notice requirements of the 1933 Act and
state securities laws; all issued and outstanding shares of each class
of the Acquired Fund are, and on the Closing Date will be, duly
authorized and validly issued and outstanding, and fully paid and
non-assessable, and the Acquired Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of
its shares, nor is there outstanding any security convertible into any
of its shares;
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<PAGE>
(c) The Acquired Fund is not in violation of, and the
execution, delivery and performance of this Agreement by TMF for itself
and on behalf of the Acquired Fund does not and will not (i) violate
TMF's Agreement and Declaration of Trust or By-Laws, or (ii) result in
a breach or violation of, or constitute a default under, any material
agreement or material instrument to which TMF is a party or by its
properties or assets are bound;
(d) Except as previously disclosed in writing to the Acquiring
Fund and the Underlying Fund, no litigation or administrative
proceeding or investigation of or before any court or governmental body
is presently pending or, to TMF's knowledge, threatened against the
Acquired Fund or any of its properties or assets which, if adversely
determined, would materially and adversely affect the Acquired Fund's
financial condition or the conduct of its business, TMF knows of no
facts that might form the basis for the institution of any such
proceeding or investigation, and the Acquired Fund is not a party to or
subject to the provisions of any order, decree or judgment of any court
or governmental body that materially and adversely affects, or is
reasonably likely to materially and adversely affect, its business or
its ability to consummate the transactions contemplated herein;
(e) The Statement of Assets and Liabilities, Statements of
Operations and Statements of Changes in Net Assets of the Acquired Fund
as of and for the period ended June 30, 1999, audited by
_____________________ (copies of which have been or will be furnished
to the Acquiring Fund and the Underlying Fund) fairly present, in all
material respects, the Acquired Fund's financial condition as of such
date and its results of operations for such period in accordance with
generally accepted accounting principles consistently applied, and as
of such date there were no liabilities of the Acquired Fund (contingent
or otherwise) known to TMF that were not disclosed therein but that
would be required to be disclosed therein in accordance with generally
accepted accounting principles;
(f) Since the date of the most recent audited financial
statements, there has not been any material adverse change in the
Acquired Fund's financial condition, assets, liabilities or business,
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred, except as otherwise
disclosed in writing to and accepted by the Acquiring Fund and the
Underlying Fund, prior to the Closing Date (for the purposes of this
subparagraph (f), neither a decline in the Acquired Fund's net asset
value per share nor a decrease in the Acquired Fund's size due to
redemptions shall be deemed to constitute a material adverse change);
(g) All federal and other tax returns and reports of TMF and
the Acquired Fund required by law to be filed on or before the Closing
Date shall have been filed, and all taxes owed by TMF or the Acquired
Fund shall have been paid so far as due, and to the best of TMF's
knowledge, no such return is currently under audit and no assessment
has been asserted with respect to any such return;
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(h) For each full and partial taxable year from its inception
through the Closing Date, the Acquired Fund has qualified as a separate
regulated investment company under the Code and has taken all necessary
and required actions to maintain such status;
(i) At the Closing Date, the Acquired Fund will have good and
marketable title to the Fund Assets and full right, power and authority
to assign, deliver and otherwise transfer such Fund Assets hereunder,
and upon delivery and payment for such Fund Assets as contemplated
herein, the Underlying Fund will acquire good and marketable title
thereto, subject to no restrictions on the ownership or transfer
thereof other than such restrictions as might arise under the 1933 Act;
(j) The execution, delivery and performance of this Agreement
on behalf of the Acquired Fund will have been duly authorized prior to
the Closing Date by all necessary action on the part of TMF, the
Trustees and the Acquired Fund, and this Agreement will constitute a
valid and binding obligation of TMF and the Acquired Fund enforceable
in accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, arrangement, moratorium and other similar
laws of general applicability relating to or affecting creditors,
rights and to general equity principles;
(k) From the effective date of the Registration Statement,
through the time of the meeting of the Acquired Fund Investors, and on
the Closing Date, the Proxy Materials (exclusive of the portions of the
Acquiring Fund's Prospectus contained or incorporated by reference
therein, and exclusive of any written information furnished by TMF II
with respect to the Acquiring Fund): (i) will comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act
and the 1940 Act and the regulations thereunder and (ii) do not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and as of such dates and times, any written
information furnished by TMF, on behalf of the Acquired Fund, for use
in the Registration Statement or in any other manner that may be
necessary in connection with the transactions contemplated hereby does
not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the information provided not
misleading; and
(1) No governmental consents, approvals, authorizations or
filings are required under the 1933 Act, the 1934 Act, the 1940 Act or
Massachusetts law for the execution of this Agreement by TMF, for
itself and on behalf of the Acquired Fund, or the performance of the
Agreement by TMF for itself and on behalf of the Acquired Fund, except
for such consents, approvals, authorizations and filings as have been
made or received, and except for such consents, approvals,
authorizations and filings as may be required subsequent to the Closing
Date.
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6. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRED FUND
The obligations of TMF II to consummate the Reorganization with respect
to the Acquired Fund shall be subject to the performance by TMF II, for itself
and on behalf of the Acquiring Fund, of all the obligations to be performed by
it hereunder on or before the Closing Date and, in addition thereto, the
following conditions with respect to the Acquiring Fund:
6.1 All representations and warranties of TMF II with respect to the
Acquiring Fund contained herein shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated herein, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date.
6.2 TMF II, on behalf of the Acquiring Fund, shall have delivered to
the Acquired Fund at the Closing a certificate executed on behalf of the
Acquiring Fund by TMF II's President, Vice President, Assistant Vice President,
Secretary or Assistant Secretary in a form reasonably satisfactory to the
Acquired Fund and dated as of the Closing Date, to the effect that the
representations and warranties of TMF II with respect to the Acquiring Fund made
herein are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated herein, and as to such other matters
as the Acquired Fund shall reasonably request.
6.3 Unless waived by the Acquired Fund, the Acquired Fund shall have
received at the Closing a favorable opinion of Paul, Hastings, Janofsky & Walker
LLP, counsel to TMF II, dated as of the Closing Date, in a form reasonably
satisfactory to the Acquired Fund, substantially to the effect that:
(a) TMF II is a duly registered, open-end, management
investment company, and its registration with the SEC as an investment
company under the 1940 Act is in full force and effect; (b) the
Acquiring Fund is a separate portfolio of TMF II, which is a business
trust duly created pursuant to its Agreement and Declaration of Trust,
is legally existing and in good standing under the laws of the State of
Delaware and the Agreement and Declaration of Trust directs the
Trustees to manage the affairs of TMF II and grants them all powers
necessary or desirable to carry out such responsibility, including
administering TMF II's business as described in the current
prospectuses of TMF II; (c) this Agreement has been duly authorized,
executed and delivered by TMF II on behalf of TMF II and the Acquiring
Fund and, assuming due authorization, execution and delivery of this
Agreement on behalf of the Acquired Fund, is a valid and binding
obligation of TMF II, enforceable against TMF II in accordance with its
terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other similar laws of
general applicability relating to or affecting creditors, rights and to
general equity principles; (d) the Acquiring Fund Shares to be issued
to the Acquired Fund and then distributed to the Acquired Fund
Investors pursuant to this Agreement are duly registered under the 1933
Act on the appropriate form, and are duly authorized and upon such
issuance will be validly issued and outstanding and fully paid
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and non-assessable, and no shareholder of the Acquiring Fund has any
preemptive rights to subscription or purchase in respect thereof; (e)
the Registration Statement has become effective with the SEC and, to
the best of such counsel's knowledge, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or threatened; (f) no
consent, approval, authorization, filing or order of any court or
governmental authority of the United States or any state is required
for the consummation of the Reorganization with respect to the
Acquiring Fund, except for such consents, approvals, authorizations and
filings as have been made or received, and except for such consents,
approvals, authorizations and filings as may be required after the
Closing Date; and (g) to the best knowledge of such counsel, no
litigation or administrative proceeding or investigation of or before
any court or governmental body is presently pending or threatened as to
TMF II or the Acquiring Fund or any of their properties or assets and
neither TMF II nor the Acquiring Fund is a party to or subject to the
provisions of any order, decree or judgment of any court or
governmental body that materially and adversely affects its business.
6.4 As of the Closing Date, there shall have been no material change in
the investment objective, policies and restrictions nor any material change in
the investment management fees, fee levels payable pursuant to any 12b-1 plan of
distribution, other fees payable for services provided to the Acquiring Fund,
fee waiver or expense reimbursement undertakings, or sales loads of the
Acquiring Fund from those fee amounts, undertakings and sales load amounts
described in the prospectus of the Acquiring Fund delivered to the Acquired Fund
pursuant to paragraph 4.1 and in the Proxy Materials.
6.5 With respect to the Acquiring Fund, the Board of Trustees of TMF II
shall have determined that the Reorganization is in the best interests of the
Acquiring Fund and that the interests of the existing shareholders of the
Acquiring Fund would not be diluted as a result of the Reorganization.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRING FUND
The obligations of TMF to consummate the Reorganization with respect to
the Acquiring Fund shall be subject to the performance by TMF of all the
obligations to be performed by it hereunder, with respect to the Acquired Fund,
on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of TMF with respect to the
Acquired Fund contained herein shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date, with the
same force and effect as if made on and as of the Closing Date.
7.2 TMF, on behalf of the Acquired Fund, shall have delivered to the
Acquiring Fund and the Underlying Fund at the Closing a certificate executed on
behalf of the Acquired
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Fund, by TMF's President, Vice President, Assistant Vice President, Secretary or
Assistant Secretary, in form and substance satisfactory to the Acquiring Fund
and dated as of the Closing Date, to the effect that the representations and
warranties of TMF with respect to the Acquired Fund made herein are true and
correct at and as of the Closing Date, except as they may be affected by the
transactions contemplated herein and as to such other matters as the Acquiring
Fund shall reasonably request.
7.3 Unless waived by the Acquiring Fund and the Underlying Fund, the
Acquiring Fund and the Underlying Fund shall have received at the Closing a
favorable opinion from Paul, Hastings, Janofsky & Walker LLP, counsel to TMF,
dated as of the Closing Date, in a form reasonably satisfactory to the Acquiring
Fund and the Underlying Fund, substantially to the effect that:
(a) TMF is a duly registered, open-end, management investment
company, and its registration with the SEC as an investment company
under the 1940 Act is in full force and effect; (b) the Acquired Fund
is a separate portfolio of TMF, which is a business trust duly created
pursuant to its Agreement and Declaration of Trust, is validly existing
and in good standing under the laws of the Commonwealth of
Massachusetts, and the Agreement and Declaration of Trust directs the
Trustees to manage the affairs of TMF and grants them all powers
necessary or desirable to carry out such responsibility, including
administering TMF's business as described in the current prospectuses
of TMF; (c) this Agreement has been duly authorized, executed and
delivered by TMF on behalf of TMF and the Acquired Fund and, assuming
due authorization, execution and delivery of this Agreement on behalf
of the Acquiring Fund and the Underlying Fund, is a valid and binding
obligation of TMF, enforceable against TMF in accordance with its
terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other similar laws of
general applicability relating to or affecting creditors, rights and to
general equity principles; (d) no consent, approval, authorization,
filing or order of any court or governmental authority of the United
States or any state is required for the consummation of the
Reorganization with respect to the Acquired Fund, except for such
consents, approvals, authorizations and filings as have been made or
received, and except for such consents, approvals, authorizations and
filings as may be required subsequent to the Closing Date; and (e) to
the best knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental body
is presently pending or threatened as to TMF or the Acquired Fund or
any of their properties or assets and neither TMF nor the Acquired Fund
is a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body that materially and
adversely effects its business.
7.4 With respect to the Acquired Fund, the Board of Trustees of TMF
shall have determined that the Reorganization is in the best interests of the
Acquired Fund.
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8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND
THE ACQUIRED FUND
The obligations of the Acquiring Fund and of the Acquired Fund herein
are each subject to the further conditions that on or before the Closing Date
with respect to the Acquiring Fund and the Acquired Fund:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of TMF's Agreement and
Declaration of Trust and the requirements of the 1940 Act, and certified copies
of the resolutions evidencing such approval shall have been delivered to the
Acquiring Fund and the Underlying Fund.
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or any of the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders,
approvals and permits of federal, state and local regulatory authorities
(including, without limitation, those of the SEC and of state securities
authorities) deemed necessary by TMF, on behalf of the Underlying Fund or the
Acquired Fund, and by TMF II, on behalf of the Acquiring Fund, to permit
consummation, in all material respects, of the transactions contemplated herein
shall have been obtained, except where failure to obtain any such consent, order
or permit would not, in the opinion of the party asserting that the condition to
closing has not been satisfied, involve a risk of a material adverse effect on
the assets or properties of the Acquiring Fund , the Underlying Fund or the
Acquired Fund.
8.4 The Registration Statement shall have become effective under the
1933 Act, no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5 The Acquired Fund shall have declared and paid a dividend or
dividends which, together with all previous such dividends, shall have the
effect of distributing to the Acquired Fund's shareholders substantially all of
the Acquired Fund's investment company taxable income for all taxable years
ending on or prior to the Closing Date (computed without regard to any deduction
for dividends paid) and substantially all of its net capital gain realized in
all taxable years ending on or prior to the Closing Date (after reduction for
any capital loss carryover).
8.6 The Montgomery Funds shall have received the opinion of Paul,
Hastings, Janofsky & Walker LLP addressed to the Acquiring Fund, the Underlying
Fund and the Acquired Fund (and based on customary representation certificates
from TMF, TMF II, the
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Acquiring Fund, the Underlying Fund and the Acquired Fund) substantially to the
effect that, for federal income tax purposes:
(a) the transfer by the Acquired Fund of the Fund Assets to
the Underlying Fund in exchange for the Acquiring Fund Shares and the
assumption by the Underlying Fund of the Stated Liabilities will
constitute a "reorganization" within the meaning of Section
368(a)(1)(C) of the Code and the Acquiring Fund, the Underlying Fund
and the Acquired Fund each are a "party to a reorganization" within the
meaning of Section 368(b) of the Code; (b) no gain or loss will be
recognized by the Underlying Fund upon the receipt of Fund Assets
solely in exchange for the Acquiring Fund Shares and the assumption by
the Underlying Fund of the Stated Liabilities; (c) no gain or loss will
be recognized by the Acquired Fund upon the transfer of the Fund Assets
to the Underlying Fund and the assumption by the Underlying Fund of the
Stated Liabilities in exchange for the Acquiring Fund Shares or upon
the distribution (whether actual or constructive) of the Acquiring Fund
Shares to the Acquired Fund shareholders in exchange for their shares
of the Acquired Fund; (d) no gain or loss will be recognized by the
Acquired Fund Investors upon the exchange of their Acquired Fund Shares
for the Acquiring Fund Shares; (e) the aggregate tax basis for the
Acquiring Fund Shares received by each of the Acquired Fund Investors
pursuant to the Reorganization will be the same as the aggregate tax
basis of the Acquired Fund shares held by such shareholder immediately
prior to the Reorganization, and the holding period of the Acquiring
Fund Shares to be received by each Acquired Fund Investors will include
the period during which the Acquired Fund shares exchanged therefor
were held by such shareholder (provided the Acquired Fund shares were
held as capital assets on the date of the Reorganization); and (f) the
tax basis of the Acquired Fund assets acquired by the Underlying Fund
will be same as the tax basis of such assets to the Acquired Fund
immediately prior to the Reorganization, and the holding period of the
assets of the Acquired Fund in the hands of the Underlying Fund will
include the period during which those assets were held by the Acquired
Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund, the
Underlying Fund nor the Acquired Fund may waive the condition set forth in this
paragraph 8.6.
9. EXPENSES
9.1 Except as may be otherwise provided herein, each of the Acquired
Fund and the Acquiring Fund shall be liable for its respective expenses incurred
in connection with entering into and carrying out the provisions of this
Agreement, whether or not the transactions contemplated hereby are consummated.
The expenses payable by the Acquired Fund hereunder shall include (i) fees and
expenses of its counsel and independent auditors incurred in connection with the
Reorganization; (ii) expenses associated with printing and mailing the
Prospectus/Proxy Statement and soliciting proxies in connection with the meeting
of shareholders of the Acquired Fund referred to in paragraph 4.1 hereof; (iii)
all fees and
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expenses related to the liquidation of the Acquired Fund; (iv) fees and expenses
of the Acquired Fund's custodian and transfer agent(s) incurred in connection
with the Reorganization; and (v) any special pricing fees associated with the
valuation of the Acquired Fund's portfolio on the Applicable Valuation Date.
Montgomery Asset Management, LLC, has agreed to reimburse the Acquired Fund for
the expenses listed in items (i), (ii), (iii) (iv) and (v) above. The expenses
payable by the Acquiring Fund hereunder shall include (i) fees and expenses of
its counsel and independent auditors incurred in connection with the
Reorganization; (ii) expenses associated with preparing this Agreement and
preparing and filing the Registration Statement under the 1933 Act covering the
Acquiring Fund Shares to be issued in the Reorganization; (iii) registration or
qualification fees and expenses of preparing and filing such forms, if any, as
are necessary under applicable state securities laws to qualify the Acquiring
Fund Shares to be issued in connection with the Reorganization; (iv) any fees
and expenses of the Acquiring Fund's custodian and transfer agent(s) incurred in
connection with the Reorganization; and (v) any special pricing fees associated
with the valuation of the Acquiring Fund's portfolio on the Applicable Valuation
Date. Montgomery Asset Management, LLC, has agreed to reimburse the Acquiring
Fund for the expenses listed in items (i), (ii), (iii), (iv) and (v) above.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the
parties and supersedes any prior or contemporaneous understanding or arrangement
with respect to the subject matter hereof.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated herein.
11. TERMINATION
11.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time before the Closing by the mutual written
consent of the Acquiring Fund, the Underlying Fund and the Acquired Fund.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of TMF,
acting on behalf of the Acquired Fund and the Underlying Fund and by the
authorized officers of TMF II, acting on behalf of the Acquiring Fund; provided,
however, that following the meeting of the shareholders of the Acquired Fund, no
such amendment may have the effect of changing the provisions for determining
the number of shares of the Acquiring Fund to be to the Acquired Fund Investors
under this Agreement to the detriment of such Acquired Fund Investors, or
otherwise materially and adversely affecting
17
<PAGE>
the Acquired Fund, without the Acquired Fund obtaining the Acquired Fund
Investors' further approval except that nothing in this paragraph 12 shall be
construed to prohibit the Acquiring Fund, the Underlying Fund and the Acquired
Fund from amending this Agreement to change the Closing Date or Applicable
Valuation Date by mutual agreement.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provision of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy, certified mail or overnight express courier addressed to:
For TMF, on behalf of itself and the
Acquired Fund and/or the Underlying
Fund or for TMF II, on behalf of
itself and the Acquiring Fund:
The Montgomery Funds
101 California Street
San Francisco, California 94111
Attention: ______________
______________
With a copy to:
David A. Hearth, Esq.
Paul, Hastings, Janofsky & Walker LLP
345 California St., 29th Floor
San Francisco, California 94104
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF
LIABILITY
14.1 The article and paragraph headings contained herein are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All references herein to Articles, paragraphs,
subparagraphs or Exhibits shall be construed as referring to Articles,
paragraphs or subparagraphs hereof or Exhibits hereto, respectively. Whenever
the terms "hereto", "hereunder", "herein" or "hereof" are used in this
Agreement, they shall be construed as referring to this entire Agreement, rather
than to any individual Article, paragraph, subparagraph or sentence.
14.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
18
<PAGE>
14.3 This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other parties. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed by its authorized officer.
The Montgomery Funds,
for itself and on behalf of
the Montgomery Equity Income Fund
By: /s/ Dulce Daclison
-------------------
Dulce Daclison
Assistant Vice President
The Montgomery Funds,
for itself and on behalf of
the Montgomery Growth Fund
By: /s/ Dulce Daclison
-------------------
Dulce Daclison
Assistant Vice President
The Montgomery Funds II,
for itself and on behalf of
the Montgomery U.S. Asset Allocation Fund
By: /s/ Dulce Daclison
---------------------
Dulce Daclison
Assistant Vice President
<PAGE>
-----------------------------------------
PART B
STATEMENT OF ADDITIONAL INFORMATION
FOR THE REORGANIZATION OF
MONTGOMERY EQUITY INCOME FUND
INTO
MONTGOMERY U.S. ASSET ALLOCATION FUND
-----------------------------------------
<PAGE>
THE MONTGOMERY FUNDS II
------------------------------
101 California Street
San Francisco, California 94111
1-800-572-FUND
-----------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY __, 2000
FOR REGISTRATION STATEMENT ON FORM N-14
This Statement of Additional Information is not a prospectus
and should be read in conjunction with the Combined Proxy Statement and
Prospectus dated January __, 2000, which has been filed by The Montgomery Funds
II (the "Trust") in connection with a Special Meeting of Shareholders of the
Montgomery Equity Income Fund (the "Equity Income Fund"), a series of The
Montgomery Funds ("TMF"), that has been called to vote on an Agreement and Plan
of Reorganization (and the transactions contemplated thereby). Copies of the
Combined Proxy Statement and Prospectus may be obtained at no charge by writing
The Montgomery Funds II at the address indicated above or by calling toll-free
(800) 572-FUND [3863].
Unless otherwise indicated, capitalized terms used herein and
not otherwise defined have the same meanings as are given to them in the
Combined Proxy Statement and Prospectus.
Further information about the Trust, TMF, the Equity Income
Fund, and the Montgomery U.S. Asset Allocation Fund (the "Asset Allocation
Fund"), a series of TMF II, (collectively, the "Funds") is contained in the
Funds' Combined Prospectus (including other series of The Montgomery Funds and
The Montgomery Funds II) dated October 31, 1999, and the Annual Report for the
Funds (including other series of The Montgomery Funds and The Montgomery Funds
II) for the fiscal year ended June 30, 1999. The Funds' Statement of Additional
Information (including other series of The Montgomery Funds and The Montgomery
Funds II), dated October 31, 1999, is incorporated by reference in this
Statement of Additional Information and is available without charge by calling
the Montgomery Funds toll-free at (800) 572-FUND [3863].
Pro-forma financial statements are attached hereto as Exhibit A.
TABLE OF CONTENTS
Page
General Information ........................................................ B-3
Exhibit A ...................................................................B-4
B-2
<PAGE>
GENERAL INFORMATION
The shareholders of the Equity Income Fund are being asked to
approve a form of Agreement and Plan of Reorganization (the "Plan") combining
the Equity Income Fund into the Asset Allocation Fund (and the transactions
contemplated thereby). The Plan contemplates the transfer of all of the assets
and liabilities of the Equity Income Fund as of the Effective Date to the
Montgomery Growth Fund, an underlying fund of the Asset Allocation Fund, and the
assumption by the Growth Fund of the liabilities of the Equity Income Fund, in
exchange for Class R and Class P shares of the Asset Allocation Fund.
Immediately after the Effective Date, the Equity Income Fund will distribute to
its Class R and Class P shareholders of record as of the close of business on
the Effective Date the Class R and Class P shares of the Asset Allocation Fund
received. The shares of the Asset Allocation Fund that will be issued for
distribution to the Equity Income Fund's shareholders will have an aggregate net
asset value equal to the aggregate net asset value of the shares of the Equity
Income Fund held as of the Closing Date. The Trust will then take all necessary
steps to terminate the qualification, registration and classification of the
Equity Income Fund. All issued and outstanding shares of the Equity Income Fund
will be canceled on the Equity Income Fund's books. Shares of the Asset
Allocation Fund will be represented only by book entries; no share certificates
will be issued.
A Special Meeting of the Equity Income Fund's shareholders to
consider the transaction will be held at the offices of the Trust, 101
California Street, 35th Floor, San Francisco, California 94111 on February __,
2000 at 10 a.m., local time.
For further information about the transaction, see the
Combined Proxy Statement and Prospectus. For further information about the
Trust, The Montgomery Funds, the Equity Income Fund and the Asset Allocation
Fund, see the Funds' Combined Statement of Additional Information, dated October
31, 1999, which is available without charge by calling the Trust at (800)
572-FUND [3863].
B-3
<PAGE>
Exhibit A
Pro Forma Financial Statements
[To be completed by Pre-Effective Amendment]
B-4
<PAGE>
-----------------------------------------
PART C
THE MONTGOMERY FUNDS II
OTHER INFORMATION
-----------------------------------------
<PAGE>
THE MONTGOMERY FUNDS II
-------------------------------
FORM N-14
-------------------------------
PART C
-------------------------------
ITEM 15. INDEMNIFICATION
Article VII, Section 3 of the Agreement and Declaration of Trust
empowers the Trustees of the Trust, to the full extent permitted by law, to
purchase with Trust assets insurance for indemnification from liability and to
pay for all expenses reasonably incurred or paid or expected to be paid by a
Trustee or officer in connection with any claim, action, suit or proceeding in
which he or she becomes involved by virtue of his or her capacity or former
capacity with the Trust.
Article VI of the By-Laws of the Trust provides that the Trust shall
indemnify any person who was or is a party or is threatened to be made a party
to any proceeding by reason of the fact that such person is or was an agent of
the Trust, against expenses, judgments, fines, settlement and other amounts
actually and reasonable incurred in connection with such proceeding if that
person acted in good faith and reasonably believed his or her conduct to be in
the best interests of the Trust. Indemnification will not be provided in certain
circumstances, however, including instances of willful misfeasance, bad faith,
gross negligence, and reckless disregard of the duties involved in the conduct
of the particular office involved.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to the Trustee, officers, and controlling persons
of the Registrant, pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable in the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issues.
ITEM 16 EXHIBITS
(1) Amended and Restated Agreement and Declaration of Trust is
incorporated by reference to Post-Effective Amendment No.37 to
Registration Statement N-1A (the "Registration Statement"), as
filed with the Commission on October 29, 1998 ("Post-Effective
Amendment No. 37") under File Nos. 33-69686 and 811-8064.
(2) Amended and Restated By-Laws are incorporated by reference to
Post-Effective Amendment No. 37.
(3) Voting Trust Agreement - Not applicable.
(4) Form of Agreement and Plan of Reorganization is included in
Part A.
C-2
<PAGE>
(5) Specimen Share Certificate - Not applicable.
(6) Investment Advisory Contracts--Form of Investment Management
Agreement is incorporated by reference to Post-Effective
Amendment No. 22 to the Registration Statement as filed with
the Commission on July 31, 1997 ("Post-Effective Amendment No.
22").
(7)(A) Form of Underwriting Agreement is incorporated by reference to
Post-Effective Amendment No. 22.
(7)(B) Form of Selling Group Agreement - No applicable.
(8) Benefit Plan(s) - Not applicable.
(9) Custody Agreement is incorporated by reference to
Post-Effective Amendment No. 37.
(10) Form of Shareholder Services Plan is incorporated by reference
to Post-Effective Amendment No. 37.
(11) Consent and Opinion of Counsel as to legality of shares Plan
is incorporated by reference to Post-Effective Amendment No.
49 as filed with the Commission on October 29, 1999.
(12) Opinion and Consent as to Tax Matters - Not applicable.
(13)(A) Form of Administrative Services Agreement is incorporated by
reference to Post-Effective Amendment No. 22.
(13)(B) 18f-3 Plan - Form of Amended and Restated Multiple Class Plan
is incorporated by reference to Post-Effective Amendment No.
37.
(14) Independent Auditors' Consent - Not applicable.
(15) Not Applicable.
(16) Power of Attorney - File herewith.
(17) Not Applicable.
C-3
<PAGE>
ITEM 17. UNDERTAKINGS.
(1) Registrant agrees that, prior to any public reoffering of the
securities registered through the use of a prospectus which is
part of this registration statement by any person or party who
is deemed to be an underwriter within the meaning of Rule
145(c) of the Securities Act of 1933, the reoffering
prospectus will contain the information called for by the
applicable registration form for the reofferings by persons
who may be deemed underwriters, in addition to the information
called for by the other items of the applicable.
(2) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (a) above will be filed as part of an
amendment to the Registration Statement and will not be used
until the amendment is effective, and that, in determining any
liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and
the offering of the securities at that time shall be deemed to
be the initial bona fide offering of them.
C-4
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration
statement has been signed on behalf of the Registrant, in the City of San
Francisco and State of California, on the 23rd day of November, 1999.
THE MONTGOMERY FUNDS II
George A. Rio*
------------------------------------------
George A. Rio
President and Principal Executive Officer;
Treasurer and Principal Financial and
Accounting Officer
<TABLE>
As required by the Securities Act of 1933, this registration statement has been
signed by the following persons in the capacities and on the dates indicated:.
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
George A. Rio* President and November 23, 1999
- ------------------ Principal Executive Officer;
George A. Rio Treasurer and Principal
Financial and Accounting Officer
R. Stephen Doyle* Chairman of the November 23, 1999
- ------------------ Board of Trustees
R. Stephen Doyle
Andrew Cox.* Trustee November 23, 1999
- -----------------
Andrew Cox
Cecilia H. Herbert* Trustee November 23, 1999
- -----------------
Cecilia H. Herbert
John A. Farnsworth* Trustee November 23, 1999
- -----------------
John A. Farnsworth
</TABLE>
*By: /s/ David A. Hearth
---------------------------------
David A. Hearth, Attorney-in-Fact
Pursuant to Power of Attorney
filed herewith
C-5
<PAGE>
SEC File No. 333-__________
THE MONTGOMERY FUNDS II
FORM N-14
EXHIBIT INDEX
Number Exhibit
- ------ -------
16 Power of Attorney
C-6
<PAGE>
EXHIBIT 16
Power of Attorney
C-7
POWER OF ATTORNEY
FOR
SECURITIES AND EXCHANGE COMMISSION
AND RELATED FILINGS
The undersigned officer of THE MONTGOMERY FUNDS and THE
MONTGOMERY FUNDS II (the "Trusts") hereby appoints MARK B. GEIST, JULIE ALLECTA,
MITCHELL E. NICHTER and DAVID A. HEARTH (with full power to each of them to act
alone), his or her attorney-in-fact and agent, in all capacities, to execute and
to file any documents relating to the Registration Statements on Forms N-1A and
N-14 under the Investment Company Act of 1940, as amended, and under the
Securities Act of 1933, as amended, and under the laws of all states and other
domestic and foreign jurisdictions, including any and all amendments thereto,
covering the registration and the sale of shares by the Trusts, including all
exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority, including applications for exemptive orders,
rulings or filings of proxy materials. The undersigned grants to each of said
attorneys full authority to do every act necessary to be done in order to
effectuate the same as fully, to all intents and purposes, as he could do if
personally present, thereby ratifying all that said attorneys-in-fact and agents
may lawfully do or cause to be done by virtue hereof.
The undersigned officer hereby executes this Power of Attorney as of
this 26th day of June, 1998.
/s/ George A. Rio
------------------------------------
George A. Rio
President and Principal Executive Officer;
Treasurer and Principal Financial and
Accounting Officer
<PAGE>
POWER OF ATTORNEY
FOR
SECURITIES AND EXCHANGE COMMISSION
AND RELATED FILINGS
The undersigned trustees of THE MONTGOMERY FUNDS and THE MONTGOMERY
FUNDS II and THE MONTGOMERY FUNDS III (the "Trusts") hereby appoints MARK B.
GEIST, JULIE ALLECTA, MITCHELL E. NICHTER and DAVID A. HEARTH (with full power
to each of them to act alone), his or her attorney-in-fact and agent, in all
capacities, to execute and to file any documents relating to the Registration
Statements on Forms N-1A and N-14 under the Investment Company Act of 1940, as
amended, and under the Securities Act of 1933, as amended, and under the laws of
all states and other domestic and foreign jurisdictions, including any and all
amendments thereto, covering the registration and the sale of shares by the
Trusts, including all exhibits and any and all documents required to be filed
with respect thereto with any regulatory authority, including applications for
exemptive orders, rulings or filings of proxy materials. The undersigned grants
to each of said attorneys full authority to do every act necessary to be done in
order to effectuate the same as fully, to all intents and purposes, as he could
do if personally present, thereby ratifying all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
The undersigned trustees hereby execute this Power of Attorney as of
this 4th day of August, 1997.
/s/ R. Stephen Doyle /s/ John A. Farnsworth
- ------------------------------ ------------------------------
R. Stephen Doyle John A. Farnsworth
Chairman of the Board of Trustees Trustee
/s/ Andrew Cox /s/ Cecilia H. Herbert
- ------------------------------ ------------------------------
Andrew Cox Cecilia H. Herbert
Trustee Trustee
