-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Asz2SXArqRWCtIEVmwc24Ypw+FiX0ThTg/JSLeruJeCwkMKT8UEt73ARaSRUBi2x n6DuNdlD8FZC0kWU0vWPYQ== 0000950005-99-000013.txt : 19990121 0000950005-99-000013.hdr.sgml : 19990121 ACCESSION NUMBER: 0000950005-99-000013 CONFORMED SUBMISSION TYPE: N-14/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19990120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONTGOMERY FUNDS I CENTRAL INDEX KEY: 0000863435 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 946625703 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-14/A SEC ACT: SEC FILE NUMBER: 333-69187 FILM NUMBER: 99508436 BUSINESS ADDRESS: STREET 1: 600 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4156272482 MAIL ADDRESS: STREET 1: 600 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94111 N-14/A 1 FORM N-14/A As filed with the Securities and Exchange Commission on January 20, 1999 File No: 333-69187 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. 2 THE MONTGOMERY FUNDS (Exact Name of Registrant as Specified in Charter) 1-800-572-3863 (Registrant's Telephone Number, Including Area Code) 101 California Street San Francisco, California 94111 (Address of Principal Executive Offices) Gregory M. Siemons Assistant Secretary The Montgomery Funds 101 California Street San Francisco, CA 94111 (Name and Address of Agent for Service) Copy to: Julie Allecta, Esq. David Hearth, Esq. Paul, Hastings, Janofsky & Walker LLP 345 California Street San Francisco, California 94104 Approximate Date of Proposed Public Offering: As soon as practicable after this Registration Statement becomes effective. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. No filing fee is required under the Securities Act of 1933, as amended, because an indefinite number of shares of beneficial interest, with par value $0.01 per share, has previously been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended. CROSS REFERENCE SHEET Form N-14 Part A, Item Location in Prospectus/Proxy Statement - ---------------------- -------------------------------------- 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 Opportunities Fund and the Emerging 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. 2 THE FOLLOWING ITEMS ARE HEREBY INCORPORATED BY REFERENCE: From Post-Effective Amendment No. 62 of The Montgomery Funds, filed October 30, 1998 (SEC File No. 811-6011): Combined Prospectus for Montgomery U.S. Emerging Growth Fund and Montgomery Small Cap Opportunities Fund (with other funds of The Montgomery Funds), dated October 31, 1998. Combined Statement of Additional Information for U.S. Emerging Growth Fund and Montgomery Small Cap Opportunities Fund, dated October 31, 1998. As previously sent to shareholders of the Montgomery Small Cap Opportunities Fund and the Montgomery U.S. Emerging Growth Fund, and as filed with the SEC pursuant to Rule 30b2-1: Annual Report for the Montgomery Small Cap Opportunities Fund and the Montgomery U.S. Emerging Growth Fund for the fiscal year ended June 30, 1998, as contained in the Annual Report for The Montgomery Funds dated as of and for the periods ended June 30, 1998. 3 ----------------------------------------- PART A COMBINED PROXY STATEMENT AND PROSPECTUS FOR THE REORGANIZATION OF MONTGOMERY SMALL CAP OPPORTUNITIES FUND INTO MONTGOMERY U.S. EMERGING GROWTH FUND ----------------------------------------- [Letterhead of Montgomery Asset Management, LLC] January 15, 1999 Dear Small Cap Opportunities Fund Shareholder: We are seeking your approval to reorganize the Small Cap Opportunities Fund into the U.S. Emerging Growth Fund. As the manager of both Funds, we recommend that you approve the reorganization because we believe the efforts of our Growth equity portfolio management team are best devoted to the success of one small cap-oriented mutual fund. The Funds now emphasize the small cap and emerging growth sectors of the U.S. market, respectively. By consolidating these Funds, we can reduce the managerial inefficiencies of two funds with overlapping market sectors. We believe this will allow us to take better advantage of those exciting investment prospects that otherwise could be appropriate for both Funds. We have agreed to pay all expenses of the reorganization so that shareholders will not bear those costs. The Board of Trustees of The Montgomery Funds has approved the transaction and urges your approval. Please read the enclosed proxy materials and consider the information provided. We encourage you to complete and mail your proxy card promptly. Sincerely, MONTGOMERY ASSET MANAGEMENT, LLC Mark B. Geist, President THE MONTGOMERY FUNDS 101 California Street San Francisco, California 94111 (800) 572-FUND [3863] NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF MONTGOMERY SMALL CAP OPPORTUNITIES FUND TO BE HELD MARCH 1, 1999 To the Shareholders of the Montgomery Small Cap Opportunities 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 March 1, 1999, at 10:00 a.m., local time. At the meeting, we will ask you to vote on: 1. A proposal to reorganize the Small Cap Opportunities Fund into another Montgomery Fund, the U.S. Emerging Growth Fund. 2. Any other business that properly comes before the meeting. Only shareholders of record at the close of business on December 28, 1998 (the Record Date), will be entitled to receive this notice and to vote at the meeting. By Order of the Board of Trustees Gregory M. Siemons 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. THE MONTGOMERY FUNDS 101 California Street San Francisco, California 94111 (800) 572-FUND [3863] Montgomery Small Cap Opportunities Fund and Montgomery U.S. Emerging Growth Fund COMBINED PROXY STATEMENT AND PROSPECTUS Dated: January 15, 1999 What is this document and why did we send it to you? The Board of Trustees approved a plan to reorganize the Montgomery Small Cap Opportunities Fund (the "Opportunities Fund") into the Montgomery U.S. Emerging Growth Fund (the "Emerging 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 March 1, 1999 (the "Shareholder Meeting"). We are sending this document to you for your use in deciding whether to approve the Reorganization at the Shareholder Meeting. This document includes a Notice of Special Meeting of Shareholders, a Combined Proxy Statement and Prospectus and a form of Proxy. As a technical matter, the Reorganization will have three steps: o the transfer of the assets and liabilities of the Opportunities Fund to the Emerging Fund in exchange for shares of the Emerging Fund (the "Emerging Fund Shares") of equivalent value to the net assets transferred, o the pro rata distribution of those Emerging Fund Shares to shareholders of record of the Opportunities Fund as of the effective date of the Reorganization (the "Effective Date") in full redemption of those shareholders' shares in the Opportunities Fund, and o the immediate liquidation and termination of the Opportunities Fund. As a result of the Reorganization, each shareholder of the Opportunities Fund would instead hold Emerging Fund Shares having the same total value as the shares of 2 the Opportunities Fund held immediately before the Reorganization. Lawyers for the Opportunities Fund and the Emerging 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 Opportunities 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 Opportunities Fund is to seek long-term capital appreciation by investing in growth-oriented U.S. small-cap companies whose shares have a total stock market value (market capitalization) of $1.5 billion or less. The Emerging Fund's investment objective is to seek long-term capital appreciation. It currently invests in growth-oriented U.S. smaller cap companies whose shares have a total stock market value of $1 billion or less. 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 Opportunities Fund and Emerging Fund (together, the "Funds") are series of The Montgomery Funds (the "Trust"), an open-end management investment company. The following documents are on file with the Securities and Exchange Commission (the "SEC") and are deemed to be legally part of this document: o Combined Prospectus for the Emerging Fund and the Opportunities Fund (as well as other Montgomery Funds) dated October 31, 1998 o Combined Statement of Additional Information relating to the Opportunities Fund and the Emerging Fund (as well as other Montgomery Funds) also dated October 31, 1998 o Statement of Additional Information relating to this Combined Proxy Statement and Prospectus Those documents are available without charge by writing to the Trust at 101 California Street, 35th Floor, San Francisco, California 94111, or by calling (800) 572-FUND [3863]. The Annual Report to Shareholders of the Opportunities Fund and the Emerging Fund for the fiscal year ended June 30, 1998, containing audited financial statements of the Opportunities Fund and the Emerging Fund have been previously mailed to shareholders. If you do not have a copy, additional copies of that Annual Report are available without charge by writing or calling the Trust at its address and telephone number listed above. It is expected that this Combined Proxy Statement and Prospectus will be mailed to shareholders on or about January 15, 1999. 3 THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED ON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 4 TABLE OF CONTENTS I. INTRODUCTION.............................................................6 A. THE TRANSACTION.......................................................6 B. THE PROPOSAL..........................................................6 C. COMPARISON OF EXPENSES................................................8 D. SHARES AND VOTING.....................................................9 II. THE PROPOSAL............................................................11 A. DESCRIPTION OF THE PROPOSED REORGANIZATION...........................11 1. The Reorganization................................................11 2. Effect of the Reorganization......................................12 3. Federal Income Tax Consequences...................................12 4. Description of the Emerging Fund Shares...........................13 5. Capitalization....................................................13 B. COMPARISON OF THE FUNDS..............................................14 1. Investment Objectives and Policies................................14 2. Investment Restrictions...........................................14 3. Comparative Performance Information...............................17 4. Advisory Fees and Other Expenses..................................17 5. Portfolio Managers................................................18 6. Distribution and Shareholder Services.............................19 7. Redemption and Exchange Procedures................................19 8. Income Dividends, Capital Gains Distributions and Taxes...........20 9. Portfolio Transactions and Brokerage Commissions..................20 10. Shareholders' Rights..............................................21 C. RISK FACTORS.........................................................21 D. RECOMMENDATION OF THE BOARD OF TRUSTEES..............................22 E. DISSENTERS' RIGHTS OF APPRAISAL......................................22 F. FURTHER INFORMATION ABOUT THE FUND AND THE ACQUIRING FUND.......................................................22 G. VOTE REQUIRED........................................................23 H. FINANCIAL HIGHLIGHTS.................................................23 III. MISCELLANEOUS ISSUES.................................................26 A. OTHER BUSINESS.......................................................26 B. NEXT MEETING OF SHAREHOLDERS.........................................26 C. LEGAL MATTERS........................................................26 D. EXPERTS..............................................................26 5 I. INTRODUCTION A. GENERAL The Board of Trustees called this shareholder meeting to allow shareholders to consider and vote on the proposed Reorganization of the Opportunities 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 18, 1998, to approve the Reorganization subject to the approval of the Opportunities 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 the efforts of its Growth equity portfolio management team are best devoted to one small cap-oriented mutual fund. By consolidating these Funds, the Manager believes it can reduce the managerial inefficiencies of two funds with overlapping market sectors. The Manager expects that this consolidation will allow it to take better advantage of those exciting investment prospects that otherwise could be appropriate for both Funds. If the proposed Reorganization of the Opportunities Fund into the Emerging Fund is approved and completed, the Emerging Fund's assets will increase, which should create certain economies of scale; and the Opportunities Fund will become part of a fund with similar investment objectives and policies as well as larger assets which should permit it to operate more efficiently in accordance with its investment policies and objective. The Opportunities Fund sells its Class R shares directly to the public at net asset value, without any sales load or Rule 12b-1 fee. The Opportunities Fund has a very limited number of Class P shares that are subject to a 0.25% Rule 12b-1 distribution fee. The holders of those Class P shares are expected to redeem their shares before the Shareholder Meeting. The Emerging Fund currently offers only its Class R shares directly to the public at net asset value, without any sales load or Rule 12b-1 fee. If the Reorganization is completed, all remaining holders of Class R and Class P shares of the Opportunities Fund would receive Class R shares of the Emerging Fund. B. THE PROPOSAL At the Shareholder Meeting, the shareholders of the Opportunities Fund will be asked to approve the proposed Reorganization of the Opportunities Fund into the Emerging Fund. The Reorganization will include the transfer of substantially all of the assets and liabilities of the Opportunities Fund to the Emerging Fund. All remaining Class R and Class P Opportunities Fund shareholders will receive Class R Emerging Fund Shares in exchange. The Opportunities Fund will then be terminated and liquidated. 6 The investment objective of the Opportunities Fund is to seek long-term capital appreciation by investing in growth-oriented U.S. small-cap companies whose shares have a total stock market value (market capitalization) of $1.5 billion or less. The Emerging Fund's investment objective is to seek long-term capital appreciation by currently investing in smaller-cap U.S. growth-oriented companies that have a market capitalization of $1 billion or less. Investments in the Funds are subject to substantially similar risks. See Section II.C. below. The purchase and redemption arrangements of the Funds are identical. The Emerging Fund and the Opportunities Fund have the same distribution and exchange arrangements, which are discussed in Section II.B. below. The Manager and the Board of Trustees believe that the proposed Reorganization is in the best interests of the Opportunities Fund, the Emerging Fund and their shareholders, and that the interests of existing shareholders of the Opportunities and Emerging Funds will not be diluted as a result of the proposed Reorganization. See Section II.D. below. The Manager will pay the costs of the Reorganization, the Shareholder Meeting and solicitation of proxies, including the cost of copying, printing and mailing proxy materials. In addition to solicitations by mail, the Manager and the Board also may solicit proxies, without special compensation, by telephone, facsimile or otherwise. 7 C. COMPARISON OF EXPENSES The following table shows the comparative fees and expenses you may pay if you buy and hold shares of these Funds. The Funds do not impose any front-end or deferred sales loads and they do not charge shareholders for exchanging shares or reinvesting dividends. Fees and Expenses of the Funds
Montgomery Small Cap Montgomery Montgomery Montgomery Opportunities Small Cap U.S. Emerging U.S. Emerging Fund Opportunities Fund Growth Fund Growth Fund ---------------- ---------------- --------- ----------- (Class R Shares) (Class P Shares) (Current) (Pro Forma) Shareholder Fees (fees paid directly from your investment) Redemption Fee 0.00% 0.00% 0.00% 0.00% Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+ Management Fee 1.20% 1.20% 1.33% 1.33% Distribution/Service 0.00% 0.25% 0.00% 0.00% (12b-1) Fee Other Expenses 0.58% 0.58% 0.24% 0.24% ----- ----- ----- ----- Total Annual Fund Operating Expenses 1.78% 2.03% 1.57% 1.57% ===== Fee Reduction and/or 0.28% 0.28% 0.07% ----- ----- ----- Expense Reimbursement Net Expenses 1.50% 1.75% 1.50% ===== ===== ===== + Montgomery Asset Management has contractually agreed to reduce its fees and/or absorb expenses to limit total annual operating expenses (excluding Rule 12b-1 fees, interest and tax expenses) to 1.50%. The 1.50% contractual limit will apply to the Emerging Fund immediately after the Reorganization. This contract has a one-year term, renewable at the end of each fiscal year. See Section II.B.4. for a discussion of fees reduced and expenses reimbursed that may be recouped by the Manager.
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 a Fund's actual expenses or returns.
Fund 1 Year 3 Years 5 Years 10 Years - ------------------------------------------------- -------------- -------------- -------------- -------------- Opportunities Fund (Class R shares) $152 $532 $ 936 $2,063 - ------------------------------------------------- -------------- -------------- -------------- -------------- Opportunities Fund (Class P shares) $177 $608 $1,064 $2,326 - ------------------------------------------------- -------------- -------------- -------------- -------------- Emerging Fund (current Class R shares) $159 $495 $ 853 $1,860 - ------------------------------------------------- -------------- -------------- -------------- -------------- Emerging Fund (pro forma Class R shares) $152 $488 $ 846 $1,854
The figures in the Example after the first year assume that the one-year contract for the reduction in fees and expenses noted above is not renewed. However, the Trust and the Manager currently expect to renew that agreement throughout the periods shown. 8 D. SHARES AND VOTING The Trust is a Massachusetts business trust and is registered with the SEC as an open-end management investment company. The Trust currently has eighteen operating series, or funds, including the Funds. Each Fund has its own investment objective and policies and operates independently for purposes of investments, dividends, other distributions and redemptions. The Opportunities Fund has three classes of shares, each with its own fee and expense structure: Class R shares, Class P shares and Class L shares. At present, the Opportunities Fund has issued only Class R and Class P shares. The Emerging Fund also has three authorized classes of shares, each with its own fee and expense structure: Class R shares, Class P shares and Class L shares. At present, only Class R shares of the Emerging Fund have been issued and sold to the public. The Opportunities Fund's Class R and Class P shareholders will receive Class R shares of the Emerging Fund in exchange for their shares if the Reorganization is approved and completed. Information about the Class P and Class L shares of the Emerging Fund is contained in the Funds' Combined Statement of Additional Information. Each whole or fractional share of the Opportunities Fund is entitled to one vote or corresponding fraction at the Shareholder Meeting. At the close of business on December 28, 1998, the record date for the determination of shareholders entitled to vote at the Shareholder Meeting (the "Record Date"), there were 5,698,811.904 shares outstanding held by 12,269 record holders (including omnibus accounts representing multiple underlying beneficial owners such as those in the names of brokers). All shares represented by each properly signed proxy received before the meeting will be voted at the Shareholder Meeting. If a shareholder specifies how the proxy is to be voted on any business properly to come before the Shareholder Meeting, it will be voted in accordance with instruction given. If no choice is indicated on the proxy, it will be voted FOR approval of the Reorganization, as more fully described in this Combined Proxy Statement and Prospectus. A proxy may be revoked by a shareholder at any time before its use by written notice to the Trust, by submission of a later-dated proxy or by voting in person at the Shareholder Meeting. If any other matters come before the Shareholder Meeting, proxies will be voted by the persons named as proxies in accordance with their best judgment. The presence in person or by proxy of shareholders entitled to cast 40% of the votes entitled to be cast at the Shareholder Meeting will constitute a quorum. When a 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 9 adjournment if adjournment is necessary to obtain a quorum or to obtain a favorable vote on any proposal. If the adjournment requires setting a new record date or the adjournment is for more than 60 days from the date set for the original meeting (in which case the Board of Trustees will set a new record date), the Trust will give notice of the adjourned meeting to the shareholders. Business may be conducted once a quorum is present and may continue until adjournment of the meeting. Proxies may be voted by mail or electronically by internet or telephone. If voted electronically, the Opportunities 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 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 vote "for" or "against"" and are disregarded in determining whether the proposal has received enough votes. As of the Record Date, the Opportunities Fund's and the Emerging Fund's shareholders of record and (to the Trust's knowledge) beneficial owners who owned more than five percent of the Fund's shares are as follows:
Percentage of the Percentage of the Opportunities Fund's Emerging Fund's Shareholder Outstanding Shares Outstanding Shares ----------- ------------------ ------------------ Charles Schwab & Co., Inc. 101 Montgomery Street 30.58% 36.05% San Francisco, CA 94104 (34.95% after the Reorg.) National Financial Services Corp. For the Exclusive Benefit of Our Customers Attn: Mutual Funds P.O. Box 3730 Church Street Station 11.13% 5.76% New York, NY 10008 (6.70% after the Reorg.)
The Officers and Trustees of the Trust, as a group, owned of record and beneficially less than one percent of the outstanding voting securities of the Opportunities Fund and the Emerging Fund as of the Record Date. 10 II. THE PROPOSAL A. DESCRIPTION OF THE PROPOSED REORGANIZATION 1. The Reorganization If the Reorganization is approved, on the Effective Date the Emerging Fund will acquire substantially all of the assets and liabilities of the Opportunities Fund. At that time, the Emerging Fund will issue to the Opportunities Fund the number of Emerging Fund Class R Shares determined by dividing the value of the Opportunities Fund's net assets so transferred by the net asset value of one Emerging Fund Share. The net asset value of the Emerging Fund and the net asset value of the Opportunities 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, 1998. At the same time as that asset transfer, the Opportunities Fund will distribute the Emerging Fund Shares it receives pro rata to each remaining shareholder of the Opportunities Fund based on the percentage of the outstanding shares of the Opportunities Fund held of record by that shareholder on the Valuation Date. For example, on December 31, 1998, the value of the aggregate net assets of the Opportunities Fund was approximately $91,236,849. The Class R Opportunities Fund Shares were valued at $16.32 per share and the Class P Shares at $15.95 per share. The net asset value of each Emerging Fund Class R Share was $20.70. Therefore, if the Effective Date had been December 31, 1998, the Opportunities Fund would then have redeemed each of its then outstanding Class R shares in exchange for .788 Emerging Fund Shares. This distribution of the Emerging Fund Class R Shares to the Opportunities Fund's shareholders will be accomplished by the establishment of accounts on the Emerging Fund's share records in the names of those shareholders, representing the respective pro rata number of Emerging Fund Shares deliverable to them. Fractional shares will be carried to the third decimal place. Certificates evidencing the Emerging Fund Shares will not be issued to the Opportunities Fund's shareholders. Immediately following the Opportunities Fund's pro rata liquidating distribution of the Emerging Fund Shares to the Opportunities Fund shareholders, the Opportunities Fund will liquidate and terminate. Completion of the Reorganization is subject to approval by the shareholders of the Opportunities Fund. The Reorganization may be abandoned at any time before the Effective Date by a majority of the Trust's Board of Trustees. The Manager will pay all costs and expenses of the Reorganization, including those associated with the Shareholder Meeting, the copying, printing and distribution of 11 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 Opportunities Fund's shareholders and completed, shareholders of the Opportunities Fund as of the Effective Date will become shareholders of the Emerging Fund. The total net asset value of the Emerging Fund Shares held by each Shareholder of the Opportunities Fund immediately after completion of the Reorganization will be equivalent to the total net asset value of the Opportunities Fund Shares held by that same shareholder immediately before completion of the Reorganization. On or before the Effective Date the Opportunities Fund intends to distribute all of its then-remaining net investment income and realized capital gains. After the Reorganization, the investment adviser for the Emerging Fund will continue to be Montgomery Asset Management LLC. Funds Distributor, Inc. will continue to be the Emerging Fund's Distributor. The Emerging 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 Opportunities Fund and the Emerging Fund must receive a favorable opinion from Paul, Hastings, Janofsky & Walker LLP, counsel to the Emerging Fund, substantially to the effect that, for federal income tax purposes: (a) the transfer by the Opportunities Fund of substantially all of its assets and liabilities to the Emerging Fund solely in exchange for the Emerging 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 Opportunities Fund upon the transfer of substantially all of its assets to the Emerging Fund in exchange solely for shares of the Emerging Fund Shares; (c) no gain or loss will be recognized by the Emerging Fund on receipt of the Opportunities Fund's assets in exchange for the Emerging Fund Shares; (d) the aggregate tax basis of the assets of the Opportunities Fund in the hands of the Emerging Fund is, in each instance, the same as the basis of those assets in the hands of the Opportunities Fund immediately before the transaction; (e) the holding period of the Opportunities Fund's assets in the hands of the Emerging Fund includes the period during which the assets were held by the Opportunities Fund; (f) no gain or loss is recognized to the shareholders of the Opportunities Fund upon the receipt of the Emerging Fund Shares solely in exchange for the Fund's shares; (g) the basis of the Emerging Fund Shares received by the Opportunities Fund shareholders is, in each instance, the same as the basis of the 12 Opportunities Fund shares surrendered in exchange therefor; and (h) the holding period of the Emerging Fund Shares received by the Opportunities Fund shareholders includes the holding period during which shares of the Opportunities Fund were held, provided that those shares were held as a capital asset in the hands of the Opportunities Fund shareholders on the date of the exchange. The Trust does not intend to seek a private letter ruling from the Internal Revenue Service with respect to the tax effects of the Reorganization, and one is not required. 4. Description of the Emerging Fund Shares Each Emerging Fund Share issued to Opportunities 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 Emerging Fund Share will represent an equal interest in the assets of the Emerging Fund. The Emerging Fund Shares will be sold and redeemed based upon the net asset value of the Emerging Fund next determined after receipt of the purchase or redemption request, as described in the Emerging Fund's Prospectus. 5. Capitalization The capitalization of the Funds as of December 31, 1998, and their pro forma combined capitalization as of that date after giving effect to the proposed Reorganization are as follows: Emerging Opportunities Pro Forma Fund Fund Combined ------------ ------------ ------------ Aggregate net assets $410,438,585 $ 91,236,849 $501,675,434 Shares outstanding* 19,823,717 5,592,478 25,416,195 Net asset value per share: Class R shares $ 20.70 $ 16.32 $ 20.70 Class P shares N/A $ 15.95 N/A - --------------------------------------- * Each Fund is authorized to issue an indefinite number of shares. 13 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 Opportunities Fund is to seek long-term capital appreciation by investing in growth-oriented U.S. small-cap companies whose shares have a total stock market value (market capitalization) of $1.5 billion or less. The equity securities in which the Opportunities 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 Opportunities Fund's total assets will be invested in the equity securities of U.S. companies. The securities in which the Fund invests are expected to be either listed on an exchange or traded in an over-the-counter market. In selecting investments for the Opportunities Fund, its portfolio managers generally seek companies that they believe exhibit characteristics of financial soundness and are undervalued by the market relative to their growth potential. In seeking to identify financially sound companies, the Fund's portfolio managers rigorously analyze all prospective holdings by subjecting them to the following three steps of their investment process: (1) identify companies with improving business fundamentals; (2) conduct an in-depth analysis of each company's current business and future prospects; and (3) analyze each company's price to determine whether its growth prospects have been discovered by the market. The Fund's portfolio managers will often select investments for the Opportunities Fund that are considered to be unattractive by other investors or are unpopular with the financial press. The Emerging Fund has identical investment objective and policies except that currently it invests in U.S. companies whose shares have a total stock market value of $1 billion or less. 2. Investment Restrictions Both the Emerging Fund and the Opportunities Fund have identical fundamental investment restrictions, which cannot be changed without the affirmative vote of a majority of each Fund's outstanding voting securities as defined in the Investment Company Act. Neither the Emerging Fund nor the Opportunities 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 Funds would be invested in such issuer. There are no limitations with respect to the 14 remaining 25% of its total assets, except to the extent other investment restrictions may be applicable. (2) Make loans to others, except (a) through the purchase of debt securities in accordance with its investment objectives and policies; and, (b) through the lending of up to 30% of its portfolio securities as described above and in the Combined Statement of Additional Information; (3) (a) Borrow money, except for temporary or emergency purposes from a bank, or pursuant to reverse repurchase agreements or dollar roll transactions, in an amount not exceeding 1/3 of the value of its total assets (including the proceeds of such borrowings, at the lower of cost or fair market value). Any such borrowings will be made only if immediately thereafter there is an asset coverage of at least 300% of all borrowings, and no additional investments may be made while any such borrowings are in excess of 10% of total assets. (b) Mortgage, pledge or hypothecate any of its assets except in connection with permissible borrowings and permissible forward contracts, futures contracts, option contracts or other hedging transactions. (4) Except as required in connection with permissible hedging activities, purchase securities on margin or underwrite securities. (This does not preclude the Funds from obtaining such short-term credit as may be necessary for the clearance of purchases and sales of its portfolio securities.) (5) Buy or sell real estate or commodities or commodity contracts; however the Funds, 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 Funds. (This is an operating policy which may be changed without shareholder approval, consistent with the Investment Company Act, and changes in relevant SEC interpretations). 15 (8) Invest in any issuer for purposes of exercising control or management of the issuer. (This is an operating policy which may be changed without shareholder approval, consistent with the Investment Company Act.) (9) Invest more than 25% of the market value of its total assets in the securities of companies engaged in any one industry. (This does not apply to investment in the securities of the U.S. Government, its agencies or instrumentalities.) For purposes of this restriction, the Funds generally rely 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 subject to the following conditions: (a) such options are written by other persons, and (b) the aggregate premiums paid on all such options which are held at any time do not exceed 5% of that Funds' 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, as a result thereof, 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 the Board and notice to shareholders. If a percentage restriction is adhered to at the time of investment, a subsequent increase or decrease in a percentage resulting from a change in the values of assets will not constitute a violation of that restriction, except as otherwise noted. 16 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. [BAR CHARTS] 1995 1996 1997 1998 ---- ---- ---- ---- Small Cap Opportunities Fund* N/A 37.28% 16.45% (9.54)% U.S. Emerging Growth Fund** 28.66% 19.12% 27.05% 7.94% *During the three-year period described above in the bar chart, the Opportunities Fund's best quarter was Q1 1996 (+22.92%) and its worst quarter was Q3 1998 (-25.00%). **During the four-year period described above in the bar chart, the Emerging Fund's best quarter was Q4 1998 (+21.12%) and its worst quarter was Q3 1998 (-17.24%). Average Annual Returns through 12/31/98 1 Year Inception Inception (12/29/95) (12/30/94) - ------------------------------------------------------------------------------- Small Cap Opportunities Fund - 9.54% 13.06% N/A - ------------------------------------------------------------------------------- U.S. Emerging Growth Fund 7.94% N/A 20.39% - ------------------------------------------------------------------------------- Russell 2000 Index 33.98% 30.75% 32.85% - ------------------------------------------------------------------------------- 4. Advisory Fees and Other Expenses The Manager serves as investment adviser to both Funds pursuant to an Investment Management Agreement between the Manager and The Montgomery Funds dated July 31, 1997. The Emerging Fund pays the Manager a management fee (accrued daily but paid when requested by the Manager) calculated at an annualized rate of 1.40% of the first $200 million of the average daily net assets of the Emerging Fund and 1.25% for average daily net assets above $200 million. The Opportunities Fund pays the Manager a management fee (accrued daily but paid when requested by the Manager) calculated at an annualized rate of 1.20% for the first $200 million of the average daily net assets of the Opportunities Fund; 1.10% of the next $300 million of the Opportunities 17 Fund's average daily net assets, and 1.00% of the Opportunities Fund's average daily net assets over $500 million. Although the contractual management fee rate for the Emerging Fund is slightly higher than the effective rate for the Opportunities Fund, the overall expenses are lower as discussed below. The total annual expense limitation of the Emerging Fund currently is higher than that of the Opportunities Fund (1.75% to 1.50%). The Manager agreed to those expense limitations (excluding interest and taxes) under a contract with a one-year term, renewable at the end of each fiscal year. A Fund is required to reimburse the Manager for any reductions in the Manager's fee or its payment of expenses only during the three years following that reduction and only if such reimbursement can be achieved within the foregoing expense limits. The Manager generally seeks reimbursement for the oldest reductions and waivers before payment for fees and expenses for the current year. As part of the Reorganization, the Manager will reduce the annual expense limitation on the Emerging Fund to 1.50%. This means that shareholders of the Opportunities Fund would not face increased expenses as a result of the Reorganization. For the fiscal year ended June 30, 1998, the Manager received management fees of approximately $4,997,558 from the Emerging Fund. The Manager accrued management fees of approximately $3,268,221 from the Opportunities Fund. Of these fees, the Manager reduced its fee or reimbursed expenses of the Opportunities Fund equal to approximately $658,481. 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, 1998, the Manager managed approximately $5.5 billion on behalf of some 300,000 investors in The Montgomery Funds. ROGER HONOUR, senior portfolio manager of the Opportunities (since 1995) and Emerging Funds (since 1994). Prior to joining the Manager in June 1993, Roger 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. KATHRYN PETERS, portfolio manager of the Opportunities (since 1995) and Emerging Funds (since 1996). Kathy Peters joined the Manager in 1995. 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. ANDREW PRATT, CFA, portfolio manager of the Opportunities (since 1995), and Emerging Funds (since 1994). Andrew Pratt joined the Manager in 1993 from Hewlett-Packard Company, where, as an equity analyst, he managed a portfolio of small-cap technology companies and researched private placement and venture capital investments. 18 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 of the Opportunities Fund have adopted a Share Marketing Plan (the "Plan") under Rule 12b-1 but no Class P shares are expected to be outstanding at the shareholder meeting. The Emerging Fund does not currently offer any Class P or Class L shares. The Class R shares of the Emerging 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 $1000, 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. The Funds 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 $1000 due to redemptions or if purchases through a systematic investment plan fails to meet the Funds' 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 Funds other instructions, the Funds will redeem the shares and send the shareholder the proceeds. Montgomery shareholders may exchange Class R shares in one Fund for Class R shares in another Fund with the same shareholder account registration, taxpayer identification number and address without the imposition of any sales charges or exchange fees. There is a $100 minimum to exchange into a Fund the shareholder currently owns and a $1,000 minimum for investing in a new Fund. An exchange may result in a realized gain or loss for tax purposes. However, because excessive exchanges can harm a fund's performance, the Trust reserves the right to terminate, either temporarily or permanently, exchange privileges of any shareholder who 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 19 90 days (accounts under common ownership or control and accounts with the same taxpayer identification number will be counted together). Shares can be exchanged by telephone at (800) 572-FUND[3863] or through the online shareholder service center at www.montgomeryfunds.com. Other restrictions may apply. Refer to the Combined Prospectus and the Combined Statement of Additional Information for other exchange policies. 8. Income Dividends, Capital Gains Distributions and Taxes Each Fund distributes substantially all of its net investment income and net capital gains to shareholders each year, if any. Both Funds currently intend to make one or, if necessary to avoid the imposition of tax on a Fund, more distributions during each calendar year. A distribution may be made between November 1 and December 31 of each year with respect to any undistributed capital gains earned during the one-year period ended October 31 of each calendar year. Another distribution of any undistributed capital gains may also be made following the Funds' fiscal year end (June 30 for both Funds). Each Fund has elected and qualified as a separate "regulated investment company" under Subchapter M of the Code for federal income tax purposes and meets all other requirements that are necessary for it (but not its shareholders) to pay no federal taxes on income and capital gains paid to shareholders in the form of dividends. In order to accomplish this goal, each Fund must, among other things, distribute substantially all of its ordinary income and net capital gains on a current basis and maintain a portfolio of investments which satisfies certain diversification criteria. 9. Portfolio Transactions and Brokerage Commissions The Manager is responsible for decisions to buy and sell securities for each Fund, broker-dealer selection, and negotiation of commission rates. In placing orders for the Funds' 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. The Funds may pay to those securities broker-dealers who provide brokerage and research service to the Manger a higher commission than that charged by other securities broker-dealers if the Manger 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. 20 10. Shareholders' Rights The Trust is a Massachusetts business trust. Because each Fund is a series of the Trust, its operations are governed by the Trust's Declaration of Trust and By-laws and applicable Massachusetts law. The Funds normally will not hold meetings of shareholders except as required under the Investment Company Act and Massachusetts law. However, shareholders holding 10% or more of the outstanding shares of a Fund may call meetings for the purpose of voting on the removal of one or more of the Trustees. Shareholders of each Fund have no preemptive, conversion or subscription rights. The shares of each Fund have non-cumulative voting rights, with each shareholder of the Funds entitled to one vote for each full share of the Funds (and a fractional vote for each fractional share) held in the shareholder's name on the books of the Funds 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 Opportunities Fund's portfolio is subject to the general risks and considerations associated with equity investing. Its focus on small-cap stocks may expose shareholders to additional risks. Smaller companies typically have more limited-product lines, markets and financial resources than larger companies, and their securities may trade less frequently and in more-limited volume than those of larger, more mature companies. As a result, small-cap stocks--and therefore the Funds--may fluctuate significantly more in value than larger-cap stocks and funds that focus on them. The Emerging Fund emphasizes emerging growth companies that may be smaller than the companies emphasized by the Opportunities Fund and, therefore, these risks may be greater for an investment in shares of the Emerging Fund. See the Combined Prospectus and Statement of Additional Information for more information on the risks of the Emerging Fund. 21 D. RECOMMENDATION OF THE BOARD OF TRUSTEES The Board of Trustees of the Trust (including a majority of the noninterested Trustees), after due consideration, has unanimously determined that the Reorganization is in the best interests of the shareholders of the Opportunities Fund and the Emerging Fund and that the interests of the existing shareholders of the Opportunities and Emerging Funds would not be diluted thereby. The Board specifically considered the following factors: 1. That the Manager's Growth equity portfolio management team could better serve shareholders by managing a single small cap-oriented fund rather than two similar funds. 2. The efficiencies that could occur if the Funds' assets were combined. 3. The expected absence of adverse effects on the Emerging Fund by adding the Opportunities 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 Opportunities 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 Opportunities Fund at net asset value or to exchange their shares for shares of the other funds offered by the Trust (including the Emerging Fund) without charge. After the Reorganization, shareholders of the Opportunities Fund will hold shares of the Emerging Fund, which may also be redeemed at net asset value in accordance with the procedures described in the Emerging Fund's Prospectus dated October 31, 1998, subject to applicable redemption procedures. F. FURTHER INFORMATION ABOUT THE ACQUIRED FUND AND THE ACQUIRING FUND Further information about the Opportunities Fund and the Emerging Fund is contained in the following documents: o Combined Prospectus dated October 31, 1998. o Combined Statement of Additional Information also dated October 31, 1998. 22 o Documents that relate to the Funds are available, without charge, by writing to the Montgomery Funds at 101 California Street, San Francisco, California 94111 or by calling (800) 572-FUND[3863]. A copy of the Combined Prospectus also accompanies this Combined Proxy Statement and Prospectus. The Trust is subject to the informational requirements of the Securities Exchange Act of 1934 and the Investment Company Act, and it files reports, proxy materials and other information with the SEC. These reports, proxy materials and other information can be inspected and copied at the Public Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of these materials can be obtained at prescribed rates from the Public Reference Branch, Office of Consumer Affairs and Information Services, of the SEC, Washington, D.C. 20549. G. VOTE REQUIRED Approval of the proposed Reorganization requires the affirmative vote of the holders of a majority of the shares of the Opportunities Fund present or voting by proxy at the Shareholder Meeting. If the shareholders of the Opportunities 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 Opportunities Fund and its shareholders, including liquidation, subject to approval by the shareholders of the Opportunities Fund if required by applicable law. H. FINANCIAL HIGHLIGHTS The following selected per-share data and ratios for the period ended June 30, 1998, were audited by PricewaterhouseCoopers LLP. Their August 14, 1998, report appears in the 1998 Annual Report of the Funds. Information for the periods ended June 30, 1991, through June 30, 1997, was audited by other independent accountants. Their report is not included here. 23
- ---------------------------------------------------------------------------------------------------------------- Small Cap Opportunities Fund - ---------------------------------------------------------------------------------------------------------------- SELECTED PER-SHARE DATA FOR THE YEAR OR PERIOD ENDED JUNE 30: 1998## 1997 1996(a)## Net Asset Value - Beginning of Year $ 17.53 $ 15.80 $ 12.00 Net investment income/(loss) (0.20) (0.13) 0.02 Net realized and unrealized gain/(loss) on investments 2.25 1.86 3.78++ Net increase/(decrease) in net assets resulting from investment operations 2.05 1.73 3.80 Distributions: Dividends from net investment income -- (0.00)# -- Distribution from net realized capital gains (0.42) -- -- Distribution in excess of net realized capital gains -- -- -- Total Distributions (0.42) (0.00)# -- Net Asset Value - End of Year $ 19.16 $ 17.53 $ 15.80 Total Return** 11.86% 10.97% 31.67% - ---------------------------------------------------------------------------------------------------------------- Ratios To Average Net Assets/Supplemental Data Net assets, end of year (in 000's) $ 201,738 $ 226,318 $ 136,140 Ratio of net investment income/(loss) to average net assets (1.05)% (0.86)% 0.23%+ Net investment income/(loss) before deferral of fees by Manager $ (0.26) $ (0.16) $ (0.04) Portfolio turnover rate 82.47% 154.50% 81.29% Expense ratio before deferral of fees by Manager, including interest and tax expense 1.78% 1.75% 2.16%+ Expense ratio including interest and tax expense 1.50% 1.50% 1.50%+ Expense ratio excluding interest and tax expense 1.50% -- -- - ---------------------------------------------------------------------------------------------------------------- (a) The Small Cap Opportunities Fund's Class R shares commenced operations on December 29, 1995.
24
- ------------------------------------------------------------------------------------------------------------------------------- U.S. Emerging Growth Fund - ------------------------------------------------------------------------------------------------------------------------------- SELECTED PER-SHARE DATA FOR THE YEAR OR PERIOD ENDED JUNE 30: 1998## 1997 1996 1995(b)## Net Asset Value - Beginning of Year $ 19.00 $ 17.82 $ 13.75 $ 12.00 Net investment income/(loss) (0.18) (0.13) (0.04) 0.09 Net realized and unrealized gain/(loss) on investments 4.21 2.54 4.26 1.66 Net increase/(decrease) in net assets resulting from investment operations 4.03 2.41 4.22 1.75 Distributions: Dividends from net investment income -- -- (0.04) -- Distribution from net realized capital gains (1.14) (1.23) (0.11) -- Distribution in excess of net realized capital gains -- -- -- -- Total distributions (1.14) (1.23) (0.15) -- Net Asset Value - End of Year $ 21.89 $ 19.00 $ 17.82 $ 13.75 Total Return** 22.18% 14.77% 30.95% 14.58% - ------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data Net assets, end of year (in 000's) $ 391,973 $ 317,812 $ 306,217 $ 162,949 Ratio of net investment income/(loss) to average net assets (0.84)% (0.75)% (0.11)% 1.40%+ Net investment income/(loss) before deferral of fees by Manager $ (0.18) -- $ (0.05) $ 0.07 Portfolio turnover rate 23.63% 79.00% 88.98% 36.81% Expense ratio before deferral of fees by Manager, including interest and tax expense 1.57% -- 1.79% 2.07%+ Expense ratio including interest expense 1.57% 1.71% 1.75% 1.75%+ Expense ratio excluding interest expense 1.56% -- -- -- - ------------------------------------------------------------------------------------------------------------------------------- (b) The U.S. Emerging Growth Fund's Class R shares commenced operations on December 30, 1994. ** Total return represents aggregate total for the periods indicated. + Annualized. ++ The amount shown in this caption for each share outstanding throughout the period may not be in accord with the net realized and unrealized gain/(loss) for the period because of the timing of purchases and withdrawal of shares in relation to the fluctuating market values of the portfolio. # Amount represents less than $0.01 per share. ## Per-share numbers have been calculated using the average share method, which more appropriately represents the per-share data for the period, as use of the undistributed income method did not accord with the results of operations.
25 III. MISCELLANEOUS ISSUES A. OTHER BUSINESS The Board of Trustees of the Trust knows of no other business to be brought before the Shareholder Meeting. If any other matters come before the Shareholder Meeting, it is the Board's intention that proxies that do not containing specific restrictions to the contrary will be voted on those matters in accordance with the judgment of the persons named in the enclosed form of proxy. B. NEXT MEETING OF SHAREHOLDERS The Trust is not required and does not intend to hold annual or other periodic meetings of shareholders except as required by the Investment Company Act. If the Reorganization is not completed, the next meeting of the shareholders of the Opportunities Fund will be held at such time as the Board of Trustees may determine or at such time as may be legally required. Any shareholder proposal intended to be presented at such meeting must be received by the Trust at its office at a reasonable time before the meeting, as determined by the Board of Trustees, to be included in the Trust's proxy statement and form of proxy relating to that meeting, and must satisfy all other legal requirements. C. LEGAL MATTERS Certain legal matters in connection with the issuance of the Emerging Fund Shares will be passed upon for the Trust by Paul, Hastings, Janofsky & Walker LLP. D. EXPERTS The financial statements of the Montgomery Small Cap Opportunities Fund for the year ended June 30, 1998, contained in the Trust's 1998 Annual Report to Shareholders, and the financial statements of the Montgomery U.S. Emerging Growth Fund for the year ended June 30, 1998, contained in the Trust's 1998 Annual Report to Shareholders, have been audited by PricewaterhouseCoopers LLP, 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). 26 PROXY FOR SPECIAL MEETING OF SHAREHOLDERS OF MONTGOMERY SMALL CAP OPPORTUNITIES FUND ON MARCH 1, 1999 The undersigned hereby appoints Gregory M. Siemons and Downey L. Hebble, 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 Small Cap Opportunities Fund (the "Opportunities Fund") of The Montgomery Funds (the "Trust"), which the undersigned is entitled to vote at the Special Meeting of Shareholders of the Opportunities Fund to be held on March 1, 1999 and at any adjournment thereof. o Proposal to approve or disapprove a reorganization of the Opportunities Fund providing for (i) the transfer of substantially all of the assets and liabilities of the Opportunities Fund to the Montgomery U.S. Emerging Growth Fund (the "Emerging Fund"), a separate series of the Trust, in exchange for shares of the Emerging Fund (the "Emerging Fund Shares") of equivalent value, (ii) the pro rata distribution of those Emerging Fund Shares to the shareholders of the Opportunities Fund in full redemption of those shareholders' shares in the Opportunities Fund, and (iii) the immediate liquidation and termination of the Opportunities 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. 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: ___________________, 1999 _________________________________________ Signature of Shareholder _________________________________________ Signature of Shareholder When shares are registered jointly in the names of two or more persons, ALL must sign. Signature(s) must correspond exactly with the name(s) shown. Please sign, date and return promptly in the enclosed envelope. 2 AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of this 15th day of December, 1998, by The Montgomery Funds, a Massachusetts business trust, for itself and on behalf of the Montgomery U.S. Emerging Growth Fund (the "Acquiring Fund"), a series of the Montgomery Funds ("TMF"), and on behalf of the Montgomery Small Cap Opportunities Fund (the "Acquired Fund"), also a series of TMF. In accordance with the terms and conditions set forth in this Agreement, the parties desire that all of the assets of the Acquired Fund be transferred to the Acquiring Fund, and that the Acquiring Fund assume the Stated Liabilities (as defined in paragraph 1.3) of the Acquired Fund, in exchange for Class R shares of the Acquiring Fund ("Acquiring Fund Shares"), and that these Acquiring Fund Shares be distributed immediately after the Closing, as defined in this Agreement, by the Acquired Fund to its shareholders in liquidation of the Acquired Fund. This Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the "Code"). In consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto, intending to be legally bound hereby, covenant and agree as follows: 1. REORGANIZATION OF ACQUIRED FUND 1.1 Subject to the terms and conditions herein set forth, and on the basis of the representations and warranties contained herein, the Acquired Fund shall assign, deliver and otherwise transfer its assets as set forth in paragraph 1.2 (the "Fund Assets") to the Acquiring Fund and the Acquiring Fund shall assume the Acquired Fund's Stated Liabilities. The Acquiring Fund shall, as consideration therefor, on the Closing Date (as defined in paragraph 3.1), deliver to the Acquired Fund full and fractional Acquiring Fund Shares, the number of which shall be determined by dividing (a) the value of the Acquired Fund Assets, net of the Acquired Fund's Stated Liabilities, 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. 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 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 1 receivables) owned by the Acquired Fund, and any prepaid expenses shown as an asset on the Acquired Fund's books on the Closing Date. (b) Before the Closing Date, the Acquired Fund will provide the Acquiring Fund with a schedule of its assets and its known liabilities, and the Acquiring Fund will provide the Acquired Fund with a copy of the current investment objective and policies applicable to the Acquiring Fund. The Acquired Fund reserves the right to sell or otherwise dispose of any of the securities or other assets shown on the list of the Acquired Fund's Assets before the Closing Date but will not, without the prior approval of the Acquiring Fund, acquire any additional securities other than securities which the Acquiring Fund is permitted to purchase in accordance with its stated investment objective and policies. Before the Closing Date, the Acquiring Fund will advise the Acquired Fund of any investments of the Acquired Fund shown on such schedule which the Acquiring Fund would not be permitted to hold, pursuant to its stated investment objective and policies or otherwise. If the Acquired Fund holds any investments that the Acquiring Fund would not be permitted to hold under its stated investment objective or policies, the Acquired Fund, if requested by the Acquiring Fund, will dispose of those securities prior to the Closing Date to the extent practicable. In addition, if it is determined that the portfolios of the Acquired Fund and the Acquiring Fund, when aggregated, would contain investments exceeding certain percentage limitations to which the Acquiring Fund is or will be subject with respect to such investments, the Acquired Fund, if requested by the Acquiring Fund, will dispose of and/or reinvest a sufficient amount of such investments as may be necessary to avoid violating such limitations as of the Closing Date. 1.3 The Acquired Fund will endeavor to discharge all of its known liabilities and obligations prior to the Closing Date. The Acquiring Fund will assume all liabilities and obligations reflected on an unaudited statement of assets and liabilities of the Acquired Fund prepared by the administrator of TMF as of the Applicable Valuation Date (as defined in paragraph 2.1), in accordance with generally accepted accounting principles consistently applied from the prior audited period ("Stated Liabilities"). The Acquiring Fund shall assume only the Stated Liabilities of the Acquired Fund, and no other liabilities or obligations, whether absolute or contingent, known or unknown, accrued or unaccrued. 1.4 Immediately following the Closing, the Acquired Fund will distribute the Acquiring Fund Shares received by the Acquired Fund pursuant to paragraph 1.1 pro rata to its Class R and Class P shareholders of record determined as of the close of business on the 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 2 Acquiring Fund due such Acquired Fund Investor based on the respective net asset values per share of the Class R and Class P shares of the Acquired Fund. All issued and outstanding shares of the Acquired Fund will be cancelled simultaneously therewith on the Acquired Fund's books, and any outstanding share certificates representing interests in the Acquired Fund will represent only the right to receive such number of Acquiring Fund Shares after the Closing as determined in accordance with paragraph 1.l. 1.5 If any request shall be made for a change of the registration of shares of the Acquiring Fund to another person from the account of the stockholder in which name the shares are registered in the records of the Acquired Fund, it shall be a condition of such registration of shares that there be furnished to the Acquiring Fund an instrument of transfer properly endorsed, accompanied by appropriate signature guarantees and otherwise in proper form for transfer and that the person requesting such registration shall pay to the Acquiring Fund any transfer or other taxes required by reason of such registration or establish to the reasonable satisfaction of the Acquiring Fund that such tax has been paid or is not applicable. 1.6 Following the transfer of assets by the Acquired Fund to the Acquiring Fund, the assumption of the Acquired Fund's Stated Liabilities by the Acquiring Fund, and the distribution by the Acquired Fund of the Acquiring Fund Shares received by it pursuant to paragraph 1.4, TMF shall terminate the qualification, classification and registration of the Acquired Fund with all appropriate federal and state agencies. Any reporting or other responsibility of TMF is and shall remain the responsibility of TMF up to and including the date on which the Acquired Fund is terminated and deregistered, subject to any reporting or other obligations described in paragraph 4.8. 2. VALUATION 2.1 The value of the Acquired Fund's Fund Assets shall be the value of those assets computed as of the time at which its net asset value is calculated pursuant to the valuation procedures set forth in the Acquiring Fund's then-current Prospectus and Statement of Additional Information on the business day immediately preceding the Closing Date, or at such time on such earlier or later date as may mutually be agreed upon in writing among the parties hereto (such time and date being herein called the "Applicable Valuation Date"). 2.2 The net asset value of each share of the Acquiring Fund shall be the net asset value per share computed on the Applicable Valuation Date, using the market valuation procedures set forth in the Acquiring Fund's then-current Prospectus and Statement of Additional Information. 2.3 All computations of value contemplated by this Article 2 shall be made by the Acquiring Fund's administrator in accordance with its regular practice as pricing agent. The Acquiring Fund shall cause its administrator to deliver a copy of its valuation report to TMF and to the Acquired Fund at the Closing. 3 3. CLOSING(S) AND CLOSING DATE 3.l The Closing for the Reorganization shall occur on March 1, 1999, and/or on such other date(s) as may be mutually agreed upon in writing by the parties hereto (each, a "Closing Date"). The Closing(s) shall be held at the offices of Paul, Hastings, Janofsky & Walker LLP, 345 California Street, San Francisco, California 94104 or at such other location as is mutually agreeable to the parties hereto. All acts taking place at the Closing(s) shall be deemed to take place simultaneously as of 10:00 a.m., local time on the Closing Date unless otherwise provided. 3.2 The Acquiring Fund's custodian shall deliver at the Closing a certificate of an authorized officer stating that: (a) the Fund Assets have been delivered in proper form to the Acquiring Fund on the Closing Date and (b) all necessary taxes including all applicable federal and state stock transfer stamps, if any, have been paid, or provision for payment shall have been made, by the Acquired Fund in conjunction with the delivery of portfolio securities. 3.3 Notwithstanding anything herein to the contrary, if on the Applicable Valuation Date (a) the New York Stock Exchange shall be closed to trading or trading thereon shall be restricted or (b) trading or the reporting of trading on such exchange or elsewhere shall be disrupted so that, in the judgment of TMF, accurate appraisal of the value of the net assets of the Acquiring Fund or the Acquired Fund is impracticable, the Applicable Valuation Date shall be postponed until the first business day after the day when trading shall have been fully resumed without restriction or disruption and reporting shall have been restored. 4. COVENANTS WITH RESPECT TO THE ACQUIRING FUND AND THE ACQUIRED FUND 4.1 With respect to the Acquired Fund, TMF has called or will call a meeting of Acquired Fund shareholders to consider and act upon this Agreement and to take all other actions reasonably necessary to obtain the approval of the transactions contemplated herein, including approval for the Acquired Fund's liquidating distribution of Acquiring Fund Shares contemplated hereby, and for TMF to terminate the Acquired Fund's qualification, classification and registration if requisite approvals are obtained with respect to the Acquired Fund. The Montgomery Funds, on behalf of the Acquired Fund, shall prepare the notice of meeting, form of proxy and proxy statement (collectively, "Proxy Materials") to be used in connection with that meeting. 4.2 TMF, on behalf of the Acquired Fund, covenants that the Acquiring Fund Shares to be issued hereunder are not being acquired for the purpose of making any distribution thereof, other than in accordance with the terms of this Agreement. 4.3 TMF, on behalf of the Acquired Fund, will assist the Acquiring Fund in obtaining such information as the Acquiring Fund reasonably requests concerning the beneficial ownership of shares of the Acquired Fund. 4 4.4 Subject to the provisions hereof, TMF, on its own behalf and on behalf of the Acquiring Fund and the Acquired Fund, will take, or cause to be taken, all actions, and do, or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated herein. 4.5 TMF, on behalf of the Acquired Fund, shall furnish to the Acquiring Fund on the Closing Date, a final statement of the total amount of the Acquired Fund's assets and liabilities as of the Closing Date. 4.6 TMF, on behalf of the Acquiring Fund, has prepared and filed, or will prepare and file, with the Securities and Exchange Commission (the "SEC") a registration statement on Form N-14 under the Securities Act of 1933, as amended (the "1933 Act"), relating to the Acquiring Fund Shares (the "Registration Statement"). TMF, on behalf of the Acquired Fund, has provided or will provide the Acquiring Fund with the Proxy Materials for inclusion in the Registration Statement, prepared in accordance with paragraph 4.1, and with such other information and documents relating to the Acquired Fund as are requested by the Acquiring Fund and as are reasonably necessary for the preparation of the Registration Statement. 4.7 As soon after the Closing Date as is reasonably practicable, TMF, on behalf of the Acquired Fund: (a) shall prepare and file all federal and other tax returns and reports of the Acquired Fund required by law to be filed with respect to all periods ending on/or before the Closing Date but not theretofore filed and (b) shall pay all federal and other taxes shown as due thereon and/or all federal and other taxes that were unpaid as of the Closing Date. 4.8 Following the transfer of Fund Assets by the Acquired Fund to the Acquiring Fund and the assumption of the Stated Liabilities of the Acquired Fund in exchange for Acquiring Fund Shares as contemplated herein, TMF will file any final regulatory reports, including but not limited to any Form N-SAR and Rule 24f-2 filings with respect to the Acquired Fund, promptly after the Closing Date and also will take all other steps as are necessary and proper to effect the termination or declassification of the Acquired Fund in accordance with the laws of the Commonwealth of Massachusetts and other applicable requirements. 5 5. REPRESENTATIONS AND WARRANTIES 5.1 TMF, on behalf of the Acquiring Fund, represents and warrants to the Acquired Fund as follows: (a) TMF was duly created pursuant to its Agreement and Declaration of Trust by the Trustees for the purpose of acting as a management investment company under the Investment Company Act of 1940 (the "1940 Act") and is validly existing under the laws of the Commonwealth of Massachusetts, and the Declaration of Trust directs the Trustees to manage the affairs of TMF and grants them all powers necessary or desirable to carry out such responsibility, including administering TMF's business as currently conducted by TMF and as described in the current prospectuses of TMF. TMF is registered as an investment company classified as an open-end management company, under the 1940 Act and its registration with the SEC as an investment company is in full force and effect; (b) The Registration Statement, including the current prospectus and statement of additional information of the Acquiring Fund, conforms or will conform, at all times up to and including the Closing Date, in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the regulations thereunder and do not include or will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (c) The Acquiring Fund is not in violation of, and the execution, delivery and performance of this Agreement by TMF for itself and on behalf of the Acquiring Fund does not and will not (i) violate TMF's Declaration of Trust or By-Laws, or (ii) result in a breach or violation of, or constitute a default under, any material agreement or material instrument, to which TMF is a party or by which its properties or assets are bound; (d) Except as previously disclosed in writing to the Acquired Fund, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or, to TMF's knowledge, threatened against TMF or its business, the Acquiring Fund or any of its properties or assets, which, if adversely determined, would materially and adversely affect TMF or the Acquiring Fund's financial condition or the conduct of their business. TMF knows of no facts that might form the basis for the institution of any such proceeding or investigation, and the Acquiring Fund is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects, or is reasonably likely to materially and adversely affect, its business or its ability to consummate the transactions contemplated herein; 6 (e) All issued and outstanding shares, including shares to be issued in connection with the Reorganization, of the Acquiring Fund will, as of the Closing Date, be duly authorized and validly issued and outstanding, fully paid and nonassessable, the shares of each class of the Acquiring Fund issued and outstanding before the Closing Date were offered and sold in compliance with the applicable registration requirements, or exemptions therefrom, of the 1933 Act, and all applicable state securities laws, and the regulations thereunder, and the Acquiring Fund does not have outstanding any option, warrants or other rights to subscribe for or purchase any of its shares nor is there outstanding any security convertible into any of its shares; (f) The execution, delivery and performance of this Agreement on behalf of the Acquiring Fund will have been duly authorized prior to the Closing Date by all necessary action on the part of TMF, the Trustees and the Acquiring Fund, and this Agreement will constitute a valid and binding obligation of TMF and the Acquiring Fund enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, arrangement, moratorium and other similar laws of general applicability relating to or affecting creditors, rights and to general equity principles; (g) On the effective date of the Registration Statement, at the time of the meeting of the Acquired Fund shareholders and on the Closing Date, any written information furnished by TMF with respect to the Acquiring Fund for use in the Proxy Materials, the Registration Statement or any other materials provided in connection with the Reorganization does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the information provided not misleading; (h) No governmental consents, approvals, authorizations or filings are required under the 1933 Act, the Securities Exchange Act of 1934 (the "1934 Act"), the 1940 Act or Massachusetts law for the execution of this Agreement by TMF, for itself and on behalf of the Acquiring Fund, or the performance of the Agreement by The Montgomery Funds for itself and on behalf of the Acquiring Fund, except for such consents, approvals, authorizations and filings as have been made or received, and except for such consents, approvals, authorizations and filings as may be required after the Closing Date; (i) The Statement of Assets and Liabilities, Statement of Operations and Statements of Changes in Net Assets of the Acquiring Fund as of and for the year ended June 30, 1998, audited by PricewaterhouseCoopers LLP (copies of which have been or will be furnished to the Acquired Fund) fairly present, in all material respects, the Acquiring Fund's financial condition as of such date and its results of operations for such period in accordance with generally accepted accounting principles consistently applied, and as of such dates there were no liabilities of the Acquiring Fund (contingent or otherwise) known to TMF that were not disclosed therein but that would be required to be disclosed therein in accordance with generally accepted accounting principles; 7 (j) Since the date of the most recent audited financial statements, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business, other than changes occurring in the ordinary course of business; or any incurrence by the Acquiring Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed in writing to and accepted by the Acquired Fund, prior to the Closing Date (for the purposes of this subparagraph (j), neither a decline in the Acquiring Fund's net asset value per share nor a decrease in the Acquiring Fund's size due to redemptions shall be deemed to constitute a material adverse change); (k) For each full and partial taxable year from its inception through the Closing Date, the Acquiring Fund has qualified as a separate regulated investment company under the Code and has taken all necessary and required actions to maintain such status; and (1) All federal and other tax returns and reports of TMF and the Acquiring Fund required by law to be filed on or before the Closing Date shall have been filed, and all taxes owed by TMF or the Acquiring Fund shall have been paid so far as due, and to the best of TMF's knowledge, no such return is currently under audit and no assessment has been asserted with respect to any such return. 5.2 TMF, on behalf of the Acquired Fund, represents and warrants to the Acquiring Fund as follows: (a) TMF was duly created pursuant to its Agreement and Declaration of Trust by the Trustees for the purpose of acting as a management investment company under the 1940 Act and is validly existing under the laws of the Commonwealth of Massachusetts, and the Agreement and Declaration of Trust directs the Trustees to manage the affairs of TMF and grants them all powers necessary or desirable to carry out such responsibility, including administering TMF's business as currently conducted by TMF and as described in the current prospectuses of TMF. TMF is registered as an investment company classified as an open-end management company, under the 1940 Act and its registration with the SEC as an investment company is in full force and effect; (b) All of the issued and outstanding shares of the Acquired Fund have been offered and sold in compliance in all material respects with applicable registration or notice requirements of the 1933 Act and state securities laws; all issued and outstanding shares of each class of the Acquired Fund are, and on the Closing Date will be, duly authorized and validly issued and outstanding, and fully paid and non-assessable, and the Acquired Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of its shares, nor is there outstanding any security convertible into any of its shares; 8 (c) The Acquired Fund is not in violation of, and the execution, delivery and performance of this Agreement by TMF for itself and on behalf of the Acquired Fund does not and will not (i) violate TMF's Agreement and Declaration of Trust or By-Laws, or (ii) result in a breach or violation of, or constitute a default under, any material agreement or material instrument to which TMF is a party or by its properties or assets are bound; (d) Except as previously disclosed in writing to the Acquiring Fund, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or, to TMF's knowledge, threatened against the Acquired Fund or any of its properties or assets which, if adversely determined, would materially and adversely affect the Acquired Fund's financial condition or the conduct of its business, TMF knows of no facts that might form the basis for the institution of any such proceeding or investigation, and the Acquired Fund is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body that materially and adversely affects, or is reasonably likely to materially and adversely affect, its business or its ability to consummate the transactions contemplated herein; (e) The Statement of Assets and Liabilities, Statements of Operations and Statements of Changes in Net Assets of the Acquired Fund as of and for the period ended June 30, 1998, audited by PricewaterhouseCoopers LLP (copies of which have been or will be furnished to the Acquiring Fund) fairly present, in all material respects, the Acquired Fund's financial condition as of such date and its results of operations for such period in accordance with generally accepted accounting principles consistently applied, and as of such date there were no liabilities of the Acquired Fund (contingent or otherwise) known to TMF that were not disclosed therein but that would be required to be disclosed therein in accordance with generally accepted accounting principles; (f) Since the date of the most recent audited financial statements, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities or business, other than changes occurring in the ordinary course of business, or any incurrence by the Acquired Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed in writing to and accepted by the Acquiring Fund, prior to the Closing Date (for the purposes of this subparagraph (f), neither a decline in the Acquired Fund's net asset value per share nor a decrease in the Acquired Fund's size due to redemptions shall be deemed to constitute a material adverse change); (g) All federal and other tax returns and reports of TMF and the Acquired Fund required by law to be filed on or before the Closing Date shall have been filed, and all taxes owed by TMF or the Acquired Fund shall have been paid so far as due, and to the best of TMF's knowledge, no such return is currently under audit and no assessment has been asserted with respect to any such return; 9 (h) For each full and partial taxable year from its inception through the Closing Date, the Acquired Fund has qualified as a separate regulated investment company under the Code and has taken all necessary and required actions to maintain such status; (i) At the Closing Date, the Acquired Fund will have good and marketable title to the Fund Assets and full right, power and authority to assign, deliver and otherwise transfer such Fund Assets hereunder, and upon delivery and payment for such Fund Assets as contemplated herein, the Acquiring Fund will acquire good and marketable title thereto, subject to no restrictions on the ownership or transfer thereof other than such restrictions as might arise under the 1933 Act; (j) The execution, delivery and performance of this Agreement on behalf of the Acquired Fund will have been duly authorized prior to the Closing Date by all necessary action on the part of TMF, the Trustees and the Acquired Fund, and this Agreement will constitute a valid and binding obligation TMF and the Acquired Fund enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, arrangement, moratorium and other similar laws of general applicability relating to or affecting creditors, rights and to general equity principles; (k) From the effective date of the Registration Statement, through the time of the meeting of the Acquired Fund Investors, and on the Closing Date, the Proxy Materials (exclusive of the portions of the Acquiring Fund's Prospectus contained or incorporated by reference therein, and exclusive of any written information furnished by TMF with respect to the Acquiring Fund): (i) will comply in all material respects with the applicable provisions of the 1933 Act, the 1934 Act and the 1940 Act and the regulations thereunder and (ii) do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and as of such dates and times, any written information furnished by TMF, on behalf of the Acquired Fund, for use in the Registration Statement or in any other manner that may be necessary in connection with the transactions contemplated hereby does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the information provided not misleading; and (l) No governmental consents, approvals, authorizations or filings are required under the 1933 Act, the 1934 Act, the 1940 Act or Massachusetts law for the execution of this Agreement by TMF, for itself and on behalf of the Acquired Fund, or the performance of the Agreement by TMF for itself and on behalf of the Acquired Fund, except for such consents, approvals, authorizations and filings as have been made or received, and except for such consents, approvals, authorizations and filings as may be required subsequent to the Closing Date. 10 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRED FUND The obligations of TMF to consummate the Reorganization with respect to the Acquired Fund shall be subject to the performance by TMF, for itself and on behalf of the Acquiring Fund, of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions with respect to the Acquiring Fund: 6.1 All representations and warranties of TMF with respect to the Acquiring Fund contained herein shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated herein, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 6.2 TMF, on behalf of the Acquiring Fund, shall have delivered to the Acquired Fund at the Closing a certificate executed on behalf of the Acquiring Fund by TMF's President, Vice President, Assistant Vice President, Secretary or Assistant Secretary in a form reasonably satisfactory to the Acquired Fund and dated as of the Closing Date, to the effect that the representations and warranties of TMF with respect to the Acquiring Fund made herein are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated herein, and as to such other matters as the Acquired Fund shall reasonably request. 6.3 Unless waived by the Acquired Fund, the Acquired Fund shall have received at the Closing a favorable opinion of Paul, Hastings, Janofsky & Walker LLP, counsel to TMF, dated as of the Closing Date, in a form reasonably satisfactory to the Acquired Fund, substantially to the effect that: (a) TMF is a duly registered, open-end, management investment company, and its registration with the SEC as an investment company under the 1940 Act is in full force and effect; (b) the Acquiring Fund is a separate portfolio of TMF, which is a business trust duly created pursuant to its Agreement and Declaration of Trust, is legally existing and in good standing under the laws of the Commonwealth of Massachusetts, and the Agreement and Declaration of Trust directs the Trustees to manage the affairs of TMF and grants them all powers necessary or desirable to carry out such responsibility, including administering TMF's business as described in the current prospectuses of TMF; (c) this Agreement has been duly authorized, executed and delivered by TMF on behalf of TMF and the Acquiring Fund and, assuming due authorization, execution and delivery of this Agreement on behalf of the Acquired Fund, is a valid and binding obligation of TMF, enforceable against TMF in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, arrangement, moratorium and other similar laws of general applicability relating to or affecting creditors, rights and to general equity principles; (d) the Acquiring Fund Shares to be issued to the Acquired Fund and then distributed to the Acquired Fund Investors pursuant to this Agreement are duly registered under the 1933 Act on the appropriate form, and are duly authorized and upon such issuance will be validly issued and outstanding and fully paid and non- 11 assessable, and no shareholder of the Acquiring Fund has any preemptive rights to subscription or purchase in respect thereof; (e) the Registration Statement has become effective with the SEC and, to the best of such counsel's knowledge, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or threatened; (f) no consent, approval, authorization, filing or order of any court or governmental authority of the United States or any state is required for the consummation of the Reorganization with respect to the Acquiring Fund, except for such consents, approvals, authorizations and filings as have been made or received, and except for such consents, approvals, authorizations and filings as may be required after the Closing Date; and (g) to the best knowledge of such counsel, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened as to TMF or the Acquiring Fund or any of their properties or assets and neither TMF nor the Acquiring Fund is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body that materially and adversely affects its business. 6.4 As of the Closing Date, there shall have been no material change in the investment objective, policies and restrictions nor any material change in the investment management fees, fee levels payable pursuant to any 12b-1 plan of distribution, other fees payable for services provided to the Acquiring Fund, fee waiver or expense reimbursement undertakings, or sales loads of the Acquiring Fund from those fee amounts, undertakings and sales load amounts described in the prospectus of the Acquiring Fund delivered to the Acquired Fund pursuant to paragraph 4.1 and in the Proxy Materials. 6.5 With respect to the Acquiring Fund, the Board of Trustees of TMF shall have determined that the Reorganization is in the best interests of the Acquiring Fund and that the interests of the existing shareholders of the Acquiring Fund would not be diluted as a result of the Reorganization. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRING FUND The obligations of TMF to consummate the Reorganization with respect to the Acquiring Fund shall be subject to the performance by TMF of all the obligations to be performed by it hereunder, with respect to the Acquired Fund, on or before the Closing Date and, in addition thereto, the following conditions: 7.1 All representations and warranties of TMF with respect to the Acquired Fund contained herein shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date, with the same force and effect as if made on and as of the Closing Date. 7.2 TMF, on behalf of the Acquired Fund, shall have delivered to the Acquiring Fund at the Closing a certificate executed on behalf of the Acquired Fund, by TMF's President, Vice President, Assistant Vice President, Secretary or Assistant Secretary, in form and 12 substance satisfactory to the Acquiring Fund and dated as of the Closing Date, to the effect that the representations and warranties of TMF with respect to the Acquired Fund made herein are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated herein and as to such other matters as the Acquiring Fund shall reasonably request. 7.3 Unless waived by the Acquiring Fund, the Acquiring Fund shall have received at the Closing a favorable opinion from Paul, Hastings, Janofsky & Walker LLP, counsel to TMF, dated as of the Closing Date, in a form reasonably satisfactory to the Acquiring Fund, substantially to the effect that: (a) TMF is a duly registered, open-end, management investment company, and its registration with the SEC as an investment company under the 1940 Act is in full force and effect; (b) the Acquired Fund is a separate portfolio of TMF, which is a business trust duly created pursuant to its Agreement and Declaration of Trust, is validly existing and in good standing under the laws of the Commonwealth of Massachusetts, and the Agreement and Declaration of Trust directs the Trustees to manage the affairs of TMF and grants them all powers necessary or desirable to carry out such responsibility, including administering TMF's business as described in the current prospectuses of TMF; (c) this Agreement has been duly authorized, executed and delivered by TMF on behalf of TMF and the Acquired Fund and, assuming due authorization, execution and delivery of this Agreement on behalf of the Acquiring Fund, is a valid and binding obligation of TMF, enforceable against TMF in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, arrangement, moratorium and other similar laws of general applicability relating to or affecting creditors, rights and to general equity principles; (d) no consent, approval, authorization, filing or order of any court or governmental authority of the United Sates or any state is required for the consummation of the Reorganization with respect to the Acquired Fund, except for such consents, approvals, authorizations and filings as have been made or received, and except for such consents, approvals, authorizations and filings as may be required subsequent to the Closing Date; and (e) to the best knowledge of such counsel, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened as to TMF or the Acquired Fund or any of their properties or assets and neither TMF nor the Acquired Fund is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body that materially and adversely effects its business. 7.4 With respect to the Acquired Fund, the Board of Trustees of TMF shall have determined that the Reorganization is in the best interests of the Acquired Fund. 13 8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE ACQUIRED FUND The obligations of the Acquiring Fund and of the Acquired Fund herein are each subject to the further conditions that on or before the Closing Date with respect to the Acquiring Fund and the Acquired Fund: 8.1 This Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Acquired Fund in accordance with the provisions of TMF's Agreement and Declaration of Trust and the requirements of the 1940 Act, and certified copies of the resolutions evidencing such approval shall have been delivered to the Acquiring Fund. 8.2 On the Closing Date, no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or any of the transactions contemplated herein. 8.3 All consents of other parties and all other consents, orders, approvals and permits of federal, state and local regulatory authorities (including, without limitation, those of the SEC and of state securities authorities) deemed necessary by TMF, on behalf of the Acquiring Fund or the Acquired Fund, to permit consummation, in all material respects, of the transactions contemplated herein shall have been obtained, except where failure to obtain any such consent, order or permit would not, in the opinion of the party asserting that the condition to closing has not been satisfied, involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund. 8.4 The Registration Statement shall have become effective under the 1933 Act, no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act. 8.5 The Acquired Fund shall have declared and paid a dividend or dividends which, together with all previous such dividends, shall have the effect of distributing to the Acquired Fund's shareholders substantially all of the Acquired Fund's investment company taxable income for all taxable years ending on or prior to the Closing Date (computed without regard to any deduction for dividends paid) and substantially all of its net capital gain realized in all taxable years ending on or prior to the Closing Date (after reduction for any capital loss carryover). 8.6 The Montgomery Funds shall have received the opinion of Paul, Hastings, Janofsky & Walker LLP addressed to both the Acquiring Fund and the Acquired Fund (and based on customary representation certificates from TMF, the Acquiring Fund and the Acquired Fund) substantially to the effect that, for federal income tax purposes: 14 (a) the transfer by the Acquired Fund of the Fund Assets in exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund of the Stated Liabilities will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code and the Acquiring Fund and the Acquired Fund each are a "party to a reorganization" within the meaning of Section 368(b) of the Code; (b) no gain or loss will be recognized by the Acquiring Fund upon the receipt of the Fund Assets solely in exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund of the Stated Liabilities; (c) no gain or loss will be recognized by the Acquired Fund upon the transfer of the Fund Assets to the Acquiring Fund and the assumption by the Acquiring Fund of the Stated Liabilities in exchange for the Acquiring Fund Shares or upon the distribution (whether actual or constructive) of the Acquiring Fund Shares to the Acquired Fund shareholders in exchange for their shares of the Acquired Fund; (d) no gain or loss will be recognized by the Acquired Fund Investors upon the exchange of their Acquired Fund Shares for the Acquiring Fund Shares; (e) the aggregate tax basis for the Acquiring Fund Shares received by each of the Acquired Fund Investors pursuant to the Reorganization will be the same as the aggregate tax basis of the Acquired Fund shares held by such shareholder immediately prior to the Reorganization, and the holding period of the Acquiring Fund Shares to be received by each Acquired Fund Investors will include the period during which the Acquired Fund shares exchanged therefor were held by such shareholder (provided the Acquired Fund shares were held as capital assets on the date of the Reorganization); and (f) the tax basis of the Acquired Fund assets acquired by the Acquiring Fund will be same as the tax basis of such assets to the Acquired Fund immediately prior to the Reorganization, and the holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund. Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor the Acquired Fund may waive the condition set forth in this paragraph 8.6. 9. EXPENSES 9.1 Except as may be otherwise provided herein, each of the Acquired Fund and the Acquiring Fund shall be liable for its respective expenses incurred in connection with entering into and carrying out the provisions of this Agreement, whether or not the transactions contemplated hereby are consummated. The expenses payable by the Acquired Fund hereunder shall include (i) fees and expenses of its counsel and independent auditors incurred in connection with the Reorganization; (ii) expenses associated with printing and mailing the Prospectus/Proxy Statement and soliciting proxies in connection with the meeting of shareholders of the Acquired Fund referred to in paragraph 4.1 hereof; (iii) all fees and expenses related to the liquidation of the Acquired Fund; (iv) fees and expenses of the Acquired Fund's custodian and transfer agent(s) incurred in connection with the Reorganization; and (v) any special pricing fees associated with the valuation of the Acquired Fund's portfolio on the Applicable Valuation Date. Montgomery Asset Management, LLC, has agreed to reimburse 15 the Acquired Fund for the expenses listed in items (i), (ii), (iii) (iv) and (v) above. The expenses payable by the Acquiring Fund hereunder shall include (i) fees and expenses of its counsel and independent auditors incurred in connection with the Reorganization; (ii) expenses associated with preparing this Agreement and preparing and filing the Registration Statement under the 1933 Act covering the Acquiring Fund Shares to be issued in the Reorganization; (iii) registration or qualification fees and expenses of preparing and filing such forms, if any, as are necessary under applicable state securities laws to qualify the Acquiring Fund Shares to be issued in connection with the Reorganization; (iv) any fees and expenses of the Acquiring Fund's custodian and transfer agent(s) incurred in connection with the Reorganization; and (v) any special pricing fees associated with the valuation of the Acquiring Fund's portfolio on the Applicable Valuation Date. Montgomery Asset Management, LLC, has agreed to reimburse the Acquiring Fund for the expenses listed in items (i), (ii), (iii), (iv) and (v) above. 10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES 10.1 This Agreement constitutes the entire agreement between the parties and supersedes any prior or contemporaneous understanding or arrangement with respect to the subject matter hereof. 10.2 The representations, warranties and covenants contained in this Agreement or in any document delivered pursuant hereto or in connection herewith shall survive the consummation of the transactions contemplated herein. 11. TERMINATION 11.1 This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time before the Closing by the mutual written consent of the Acquiring Fund and the Acquired Fund. 12. AMENDMENTS This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by the authorized officers of TMF, acting on behalf of the Acquired Fund and the Acquiring Fund; provided, however, that following the meeting of the shareholders of the Acquired Fund, no such amendment may have the effect of changing the provisions for determining the number of shares of the Acquiring Fund to be to the Acquired Fund Investors under this Agreement to the detriment of such Acquired Fund Investors, or otherwise materially and adversely affecting the Acquired Fund, without the Acquired Fund obtaining the Acquired Fund Investors' further approval except that nothing in this paragraph 12 shall be construed to prohibit the Acquiring Fund and the Acquired Fund from amending this Agreement to change the Closing Date or Applicable Valuation Date by mutual agreement. 16 13. NOTICES Any notice, report, statement or demand required or permitted by any provision of this Agreement shall be in writing and shall be given by prepaid telegraph, telecopy, certified mail or overnight express courier addressed to: For TMF, on behalf of itself and the Acquiring Fund and/or Acquired Fund: The Montgomery Funds 101 California Street San Francisco, California 94111 Attention: David J. Thelander, Esq. General Counsel With a copy to: David A. Hearth, Esq. Paul, Hastings, Janofsky & Walker LLP 345 California St., 29th Floor San Francisco, California 94104 14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY 14.1 The article and paragraph headings contained herein are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All references herein to Articles, paragraphs, subparagraphs or Exhibits shall be construed as referring to Articles, paragraphs or subparagraphs hereof or Exhibits hereto, respectively. Whenever the terms "hereto", "hereunder", "herein" or "hereof" are used in this Agreement, they shall be construed as referring to this entire Agreement, rather than to any individual Article, paragraph, subparagraph or sentence. 14.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 14.3 This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 14.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or 17 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 U.S. Emerging Growth Fund By: /s/ Downey L. Hebble ------------------------- Downey L. Hebble Assistant Vice President The Montgomery Funds, for itself and on behalf of the Montgomery Small Cap Opportunities Fund By: /s/ Downey L. Hebble ------------------------- Downey L. Hebble Assistant Vice President 18 ----------------------------------------- PART B STATEMENT OF ADDITIONAL INFORMATION FOR THE REORGANIZATION OF MONTGOMERY SMALL CAP OPPORTUNITIES FUND INTO MONTGOMERY U.S. EMERGING GROWTH FUND ----------------------------------------- THE MONTGOMERY FUNDS ------------------------------ 101 California Street San Francisco, California 94111 1-800-572-FUND ----------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION DATED JANUARY 15, 1999 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 15, 1999, which has been filed by The Montgomery Funds (the "Trust") in connection with a Special Meeting of Shareholders of the Montgomery Small Cap Opportunities Fund (the "Opportunities Fund") of the Trust that has been called to vote on an Agreement and Plan of Reorganization (and the transactions contemplated thereby). Copies of the Combined Proxy Statement and Prospectus may be obtained at no charge by writing The Montgomery Funds at the address indicated above or by calling toll-free 1-800-572-FUND. Unless otherwise indicated, capitalized terms used herein and not otherwise defined have the same meanings as are given to them in the Combined Proxy Statement and Prospectus. Further information about the Trust, the Opportunities Fund, and Montgomery U.S. Emerging Growth Fund (the "Emerging Fund", and, together, the "Funds") is contained in the Funds' Combined Prospectus (including other Montgomery Funds) dated October 31, 1998, and the Annual Report of the Funds for the fiscal year ended June 30, 1998. The Funds' Statement of Additional Information (including other Montgomery Funds), dated October 31, 1998, is incorporated by reference in this Statement of Additional Information and is available without charge by calling the Montgomery Funds toll-free at 1-800-572-FUND. Pro-forma financial statements are attached hereto as Exhibit A. TABLE OF CONTENTS Page ---- General Information ........................................................ B-2 Exhibit A .................................................................. B-3 B-2 GENERAL INFORMATION The shareholders of the Opportunities Fund are being asked to approve a form of Agreement and Plan of Reorganization (the "Plan") combining the Opportunities Fund into the Emerging Fund (and the transactions contemplated thereby). The Plan contemplates the transfer of all substantially all of the assets and liabilities of the Opportunities Fund as of the Effective Date to the Emerging Fund, and the assumption by the Emerging Fund of the liabilities of the Opportunities Fund, in exchange for Class R shares of the Emerging Fund. Immediately after the Effective Date, the Opportunities 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 shares of the Emerging Fund received. The shares of the Emerging Fund that will be issued for distribution to the Opportunities Fund's Shareholders will have an aggregate net asset value equal to the aggregate net asset value of the shares of the Opportunities Fund held as of the Closing Date. The Trust will then take all necessary steps to terminate the qualification, registration and classification of the Opportunities Fund. All issued and outstanding shares of the Opportunities Fund will be canceled on the Opportunities Fund's books. Shares of the Emerging Fund will be represented only by book entries; no share certificates will be issued. A Special Meeting of the Opportunities 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 March 1, 1999 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 Opportunities Fund and the Emerging Fund, see the Opportunities Funds' Combined Statement of Additional Information, dated October 31, 1998, which is available without charge by calling the Trust at 1-800-572-FUND. B-3 Exhibit A [Pro Forma Financial Statements] B-4 Montgomery U.S. Emerging Growth Fund and Montgomery Small Cap Opportunities Fund Proforma Combining Financial Statements (Unaudited) The accompanying unaudited proforma combining investment portfolio and statement of assets and liabilities assumes that the exchange described in the next paragraph occurred as of December 31, 1998 and the unaudited proforma combining statements of operations of Montgomery U.S. Emerging Growth Fund as if the combination with Montgomery Small Cap Opportunities Fund has been consummated at July 1, 1998. These historical statements have been derived from Montgomery U.S. Emerging Growth Fund's and Montgomery Small Cap Opportunities Fund's books and records utilized in calculating daily net asset value at December 31, 1998, and for the six-month period then ended. The proforma statements give effect to the proposed transfer of all assets of Montgomery Small Cap Opportunities Fund to Montgomery U.S. Emerging Growth Fund in exchange for the assumption by Montgomery U.S. Emerging Growth Fund of all of the liabilities of Montgomery Small Cap Opportunities Fund and for a number of U.S. Emerging Growth Fund's shares equal in value to the value of the net assets of Montgomery Small Cap Opportunities Fund. Under generally accepted accounting principles, the historical cost of investment securities will be carried forward to the surviving entity and the results of operations of Montgomery U.S. Emerging Growth Fund for pre-combining periods will not be restated. The proforma statements of assets and liabilities and of operations do not reflect the expenses of either fund in carrying out its obligations under the Agreement and Plan of Reorganization. Under the Agreement and Plan of Reorganization, Montgomery Asset Management, LLC has agreed to reimburse the funds for expenses incurred in connection with the reorganization. The unaudited proforma combining statements should be read in conjunction with the separate financial statements of Montgomery U.S. Emerging Growth Fund and Montgomery Small Cap Opportunities Fund incorporated by reference in this statement of additional information. Montgomery U.S. Emerging Growth Fund and Montgomery Small Cap Opportunities Fund Notes to Proforma Combining Financial Statements (Unaudited) December 31, 1998 The proforma adjustments to these proforma financial statements are comprised of the following: (A) Issuance of U.S. Emerging Growth Fund shares to the holders of shares of Montgomery Small Cap Opportunities Fund. (B) Elimination and reduction of duplicative expenses as a result of the merger. Montgomery U.S. Emerging Growth Fund Schedule of Investments December 31, 1998
Share Amounts Description ---------------------------------------------------- --------------- Small Cap U.S. Emerging Opportunities Pro Forma Growth Fund Fund Combining ----------- ---- --------- Common Stocks: Metal Fabrications 220,000 220,000 Encore Wire Corp. Industrial Machinery/Components 275,000 275,000 Applied Power, Inc. Construction/AG Equipment/Trucks 335,000 335,000 Manitowoc Auto Parts: O.E.M. 200,000 200,000 Donnelly Corporation Building Products 491,000 491,000 Elcor Corp 350,000 109,100 459,100 Interface, Inc. 57,500 57,500 TJ International Electrical Products 160,000 160,000 Kollmorgen Corp. Aerospace 310,100 310,100 Moog, Inc. Engineering & Construction 232,000 232,000 Granite Construction, Inc. Building Materials 135,000 135,000 Republic Group Inc. Specialty Chemicals 203,500 203,500 Tetra Technologies Inc. Containers/Packaging 140,000 32,000 172,000 Aptargroup Inc. 98,650 98,650 Ivex Packaging Corp. Specialty Steels 29,800 29,800 Carpenter Technology Paints/Coatings 82,763 82,763 Ferro Corp Com Description Value - --------------- ------------------------------------------------- Small Cap U.S. Emerging Opportunities Pro Forma Growth Fund Fund Combining ----------- ---- --------- Metal Fabrications Encore Wire Corp. $ 2,035,000 $ 2,035,000 Industrial Machinery/Components Applied Power, Inc. 10,381,250 10,381,250 Construction/AG Equipment/Trucks Manitowoc 14,865,625 14,865,625 Auto Parts: O.E.M. Donnelly Corporation 2,600,000 2,600,000 Building Products Elcor Corp 15,865,437 15,865,437 Interface, Inc. 3,248,437 $ 1,012,584 4,261,021 TJ International 1,477,031 1,477,031 ----------- 21,603,489 Electrical Products Kollmorgen Corp. 2,440,000 2,440,000 Aerospace Moog, Inc. 12,132,662 12,132,662 Engineering & Construction Granite Construction, Inc. 7,786,500 7,786,500 Building Materials Republic Group Inc. 2,708,437 2,708,437 Specialty Chemicals Tetra Technologies Inc. 2,213,062 2,213,062 Containers/Packaging Aptargroup Inc. 3,928,750 898,000 4,826,750 Ivex Packaging Corp. 2,293,612 2,293,612 ----------- 7,120,362 Specialty Steels Carpenter Technology 1,011,337 1,011,337 Paints/Coatings Ferro Corp Com 2,151,838 2,151,838 Environental Services 240,000 240,000 Casella Waste Systems Inc.-A 128,000 128,000 Tetra Tech Inc. Diversified Commercial Services 103,275 103,275 BA Merchant Services Inc. A 234,000 59,600 293,600 Caribiner Int'l Inc. 62,000 62,000 Catalina Marketing Corp. 33,300 33,300 Fair Isaac & Co Inc Com 425,000 95,225 520,225 HA-LO Industries 105,000 105,000 Interim Services 31,500 31,500 Nova Corporation 290,000 290,000 Administaff Inc. 101,500 101,500 Bell & Howell Company 400,000 400,000 Intelligroup Inc. 250,000 250,000 Maximus Inc. 396,000 396,000 On Assignment Inc. 200,000 200,000 Personnel Group Of America Inc. 320,000 320,000 Romac International, Inc. Advertising 287,500 72,500 360,000 TMP Wordwide Inc. 100,000 100,000 Ackerley Group Inc. 200,000 200,000 Snyder Communications Inc. Food Distributors 343,300 343,300 Fleming Companies, Inc. Printing/Forms 75,000 75,000 Big Flower Holdings Inc. 45,250 45,250 World Color Press Inc. Edp Services 229,200 229,200 Acxiom Corp Com 57,050 57,050 Analysts International Corp. 96,125 96,125 Computer Task Group, Inc. Computer Software 70,000 70,000 Synopsys 317,500 317,500 Indus International Inc. 310,000 310,000 Micros Systems Inc. 325,000 325,000 Platinum Software Corp. Other Consumer Services 160,000 160,000 Education Management Corporation Clothing/Shoe/Accessory Stores Environental Services Casella Waste Systems Inc.-A 8,895,000 8,895,000 Tetra Tech Inc. 3,452,000 3,452,000 ----------- 12,347,000 Diversified Commercial Services BA Merchant Services Inc. A 2,078,409 2,078,409 Caribiner Int'l Inc. 2,135,250 543,850 2,679,100 Catalina Marketing Corp. 4,239,450 4,239,450 Fair Isaac & Co Inc Com 1,538,044 1,538,044 HA-LO Industries 15,990,625 3,582,841 19,573,466 Interim Services 2,454,375 2,454,375 Nova Corporation 1,092,656 1,092,656 Administaff Inc. 7,250,000 7,250,000 Bell & Howell Company 3,837,969 3,837,969 Intelligroup Inc. 7,125,000 7,125,000 Maximus Inc. 9,250,000 9,250,000 On Assignment Inc. 13,525,875 13,525,875 Personnel Group Of America Inc. 3,500,000 3,500,000 Romac International, Inc. 7,100,000 7,100,000 ----------- 85,244,344 Advertising TMP Wordwide Inc. 12,236,718 3,085,781 15,322,499 Ackerley Group Inc. 1,825,000 1,825,000 Snyder Communications Inc. 6,750,000 6,750,000 ----------- 23,897,499 Food Distributors Fleming Companies, Inc. 3,561,737 3,561,737 Printing/Forms Big Flower Holdings Inc. 1,654,687 1,654,687 World Color Press Inc. 1,377,297 1,377,297 ----------- 3,031,984 Edp Services Acxiom Corp Com 3,093,750 3,997,125 7,090,875 Analysts International Corp. 1,101,778 1,101,778 Computer Task Group, Inc. 2,607,391 2,607,391 ----------- 10,800,044 Computer Software Synopsys 3,793,125 3,793,125 Indus International Inc. 2,212,578 2,212,578 Micros Systems Inc. 10,075,000 10,075,000 Platinum Software Corp. 4,143,750 4,143,750 ----------- 20,224,453 Other Consumer Services Education Management Corporation 3,765,000 3,765,000 Clothing/Shoe/Accessory Stores 65,100 65,100 The Men's Wearhouse Inc. 240,000 240,000 Ann Taylor Stores Corp. Other Specialty Stores 140,000 35,500 175,500 Regis Corp. 325,000 325,000 Linens 'N Things Inc. Catalog/Specialty Distribution 200,500 51,300 251,800 Coldwater Creek Inc. Newspapers 290,000 290,000 Hollinger International Restaurants 250,000 250,000 Consolidated Products, Inc. 145,000 145,000 CEC Entertainmen, Inc. Drug Store Chains 425,000 425,000 Duane Reade Inc. Major Pharmaceuticals 485,000 485,000 Catalytica Inc. Medical Specialties 190,000 44,500 234,500 Cooper Companies Inc. Medical/Nursing Services 170,725 170,725 Orthodontic Centers of America, Inc. Oil & Gas Production 350,000 350,000 Belco Oil & Gas Corp. Contract Drilling 144,800 144,800 R&B Falcon Oilfield Services/Equipment 290,000 290,000 Varco International Semiconductors 129,000 129,000 Actel Corporation Telecommunications Equipment 270,000 66,500 336,500 Aspect Telecommunications 55,000 51,350 106,350 Comverse Technology 153,000 153,000 Harmonic Lightwaves, Inc. Electronic Components 240,000 240,000 Plexus Corp. The Men's Wearhouse Inc. 2,050,650 2,050,650 Ann Taylor Stores Corp. 9,465,000 9,465,000 ----------- 11,515,650 Other Specialty Stores Regis Corp. 5,595,625 1,418,891 7,014,516 Linens 'N Things Inc. 12,878,125 12,878,125 ----------- ----------- 19,892,641 Catalog/Specialty Distribution Coldwater Creek Inc. 2,781,937 711,787 3,493,724 Newspapers Hollinger International 4,041,875 4,041,875 Restaurants Consolidated Products, Inc. 5,156,250 5,156,250 CEC Entertainmen, Inc. 4,023,750 4,023,750 ------------ 9,180,000 Drug Store Chains Duane Reade Inc. 16,362,500 16,362,500 Major Pharmaceuticals Catalytica Inc. 8,760,312 8,760,312 Medical Specialties Cooper Companies Inc. 3,930,625 920,594 4,851,219 Medical/Nursing Services Orthodontic Centers of America, Inc. 3,318,467 3,318,467 Oil & Gas Production Belco Oil & Gas Corp. 1,946,875 1,946,875 Contract Drilling R&B Falcon 1,104,000 1,104,000 Oilfield Services/Equipment Varco International 2,247,500 2,247,500 Semiconductors Actel Corporation 2,596,125 2,596,125 Telecommunications Equipment Aspect Telecommunications 4,708,125 1,159,594 5,867,719 Comverse Technology 3,903,281 3,644,245 7,547,526 Harmonic Lightwaves, Inc. 2,883,094 2,883,094 ----------- 16,298,339 Electronic Components Plexus Corp. 8,085,000 8,085,000 Military/Government/Technical 106,900 106,900 SBS Technologies, Inc. 84,300 84,300 Cubic Corp. Precision Instruments 40,000 40,000 Waters Corporation Office/Plant Automation 62,000 78,100 140,100 Kronos, Inc. Trucking 315,000 315,000 Swift Transportation Co. Inc. 77,700 77,700 USFreightways Corporation Homebuilding 180,000 45,000 225,000 Champion Enterprises 120,000 71,625 191,625 Kaufman and Broad Home Corp. Home Furnishings 75,000 75,000 Ethan Allen Interiors Inc. 150,730 150,730 Pillowtex Corp. Consumer Electronics/Appliances 120,000 120,000 ITI Technology, Inc. Recreational Products/Toys 65,200 65,200 Action Performance Companies, Inc. Apparel 52,000 52,000 Jones Apparel Group Package Goods/Cosmetics 370,000 87,800 457,800 Playtex Prods Inc. Com Specialty Foods/candy 200,000 200,000 Celestial Seasonings 155,000 155,000 Nature's Sunshine Products, Inc. 90,000 90,000 Suiza Foods Corp Savings & Loan Associations 190,000 190,000 Bank United Corp. 80,000 80,000 Commercial Federal Corp. Investment Managers 300,000 63,000 363,000 Waddell & Reed Financial Military/Government/Technical SBS Technologies, Inc. 1,940,903 1,940,903 Cubic Corp. 1,580,625 1,580,625 ----------- 3,521,528 Precision Instruments Waters Corporation 3,490,000 3,490,000 Office/Plant Automation Kronos, Inc. 2,757,062 3,473,009 6,230,071 Trucking Swift Transportation Co. Inc. 8,760,937 8,760,937 USFreightways Corporation 2,263,012 2,263,012 ----------- 11,023,949 Homebuilding Champion Enterprises 4,927,500 1,231,875 6,159,375 Kaufman and Broad Home Corp. 3,450,000 2,059,219 5,509,219 ----------- 11,668,594 Home Furnishings Ethan Allen Interiors Inc. 3,075,000 3,075,000 Pillowtex Corp. 4,032,027 4,032,027 ----------- 7,107,027 Consumer Electronics/Appliances ITI Technology, Inc. 3,735,000 3,735,000 Recreational Products/Toys Action Performance Companies, Inc. 2,302,375 2,302,375 Apparel Jones Apparel Group 1,147,250 1,147,250 Package Goods/Cosmetics Playtex Prods Inc. Com 5,943,125 1,410,287 7,353,412 Specialty Foods/candy Celestial Seasonings 5,531,250 5,531,250 Nature's Sunshine Products, Inc. 2,344,375 2,344,375 Suiza Foods Corp 4,584,375 4,584,375 ----------- 12,460,000 Savings & Loan Associations Bank United Corp. 7,439,687 7,439,687 Commercial Federal Corp. 1,855,000 1,855,000 ----------- 9,294,687 Investment Managers Waddell & Reed Financial 7,106,250 1,492,312 8,598,651 Specialty Insurers 138,000 138,000 Amerin Corporation Property-Casualty Insurers 43,600 43,600 W.R. Berkley Corp. Broadcasting 260,000 260,000 Metro Networks, Inc. 6,000 6,000 Lindberg Corp. Repurchase Agreements: 17,692,000 Prudential, 5.15%, due 1/4/99 15,541,000 Paine Weber, 5.15%, due 1/4/99 Total Investments (cost $372,225,330) Specialty Insurers Amerin Corporation 3,372,375 3,372,375 Property-Casualty Insurers W.R. Berkley Corp. 1,471,500 1,471,500 Broadcasting Metro Networks, Inc. 11,066,250 11,066,250 Lindberg Corp. 54,937 54,937 ----------- 11,121,187 Prudential, 5.15%, due 1/4/99 17,692,000 Paine Weber, 5.15%, due 1/4/99 15,541,000 ----------- 33,233,000 ----------- 502,746,456 ===========
Montgomery U.S. Emerging Growth Fund Pro Forma Statement of Assets and Liabilities December 31, 1998 (Unaudited)
U.S. Small Pro Pro Emerging Cap Forma Forma Assets Growth Opportunities Adjustments Combined Investments in securities, at value (Identified cost $300,384,027, $71,841,303, and $372,225,330, respectively) $410,889,168 $ 91,857,110 $502,746,278 Cash 321,224 506,873 828,097 Dividends and interest receivable 87,208 20,819 108,027 Receivable for securities sold 1,352,491 279,667 1,632,158 Variation margin 1,599,963 -- 1,599,963 Receivable for fund shares sold 89,208 1,475 90,683 Other receivables -- 119,087 119,087 ---------------------------------------------------------- Total Assets 414,339,262 92,785,031 507,124,293 ---------------------------------------------------------- Liabilities Payable for investments purchased $ 3,467,599 $ 1,389,541 $ 4,857,140 Payable for fund shares redeemed 82,756 -- 82,756 Distribution payable to shareholders 1,453 4,426 5,879 Management fees payable 144,670 97,773 242,443 Administration fees payable 21,524 2,564 24,088 Share marketing plan fee payable (class P only) -- 23 23 Custodian fees payable 16,220 6,628 22,848 Trustees' fees and expenses payable 1,053 1,548 2,601 Transfer agency fees payable 53,878 6,677 60,555 Other accrued liabilities 111,524 39,002 150,526 ---------------------------------------------------------- Total Liabilities 3,900,677 1,548,182 -- 5,448,859 ---------------------------------------------------------- Net Assets $410,438,585 $ 91,236,849 $ -- $501,675,434 ========================================================== Net Assets: Class R $410,438,585 $ 90,910,275 $ 326,574 $501,675,434 Class P n/a 326,574 (326,574) -- ---------------------------------------------------------- Net Assets $410,438,585 $ 91,236,849 $ -- $501,675,434 ========================================================== Number of Fund shares outstanding: Class R 19,823,717 5,572,009 (1,164,432)(A) 24,231,294 Class P n/a 20,469 (20,469)(A) -- ---------------------------------------------------------- Total Shares 19,823,717 5,592,478 (1,184,901) 24,231,294 ========================================================== Class R shares: Net asset value, offering and redemption price per share outstanding $ 20.70 $ 16.32 $ 20.70 Class P shares: Net asset value, offering and redemption price per share outstanding n/a 15.95
Montgomery U.S. Emerging Growth Fund Pro Forma Statement of Operations Six Months Ended December 31, 1998 (Unaudited)
U.S. Small Pro Pro Emerging Cap Forma Forma Growth Opportunities Adjustments Combined Investment Income: Interest $ 1,193,615 93,675 1,287,290 Dividends 477,408 145,789 623,197 Miscellaneous 22,493 9,021 31,514 ---------------------------------------------------------------- Total Income 1,693,516 248,485 -- 1,942,001 ---------------------------------------------------------------- Expenses: Management fee $ 2,388,812 718,020 28,231 (B) 3,135,063 Transfer agency 168,805 113,269 -- 282,074 Administration fee 120,006 41,888 (17,335)(B) 144,559 Share marketing plan fee -- 4 (4)(B) -- Legal and audit 31,758 23,299 (15,057)(B) 40,000 Accounting expenses 68,957 22,611 -- 91,568 Printing fees 35,287 23,479 -- 58,766 Other 59,787 64,944 (14,334)(B) 110,397 ---------------------------------------------------------------- Total Expenses 2,873,412 1,007,514 (18,499) 3,862,427 Fees deferred by manager -- (115,120) (166,711) (281,831) ---------------------------------------------------------------- Net Expenses 2,873,412 892,394 (185,210) 3,580,596 ---------------------------------------------------------------- Net Investment Income/(Loss) (1,179,896) (643,909) 185,210 (1,638,595) ---------------------------------------------------------------- Net Realized and Unrealized Gain/(Loss) on Investments: Net realized gain/(loss) from: Securities transactions 24,975,222 (9,457,626) -- 15,517,596 Futures contracts 5,142,528 78,627 -- 5,221,155 Other -- -- -- -- ---------------------------------------------------------------- Net Realized Gain/(Loss) on Investments 30,117,750 (9,378,999) -- 20,738,751 ---------------------------------------------------------------- Net Change in unrealized appreciation/(depreciation) of: Securities 110,505,141 20,015,807 -- 130,520,948 Futures contracts 1,448,931 -- -- 1,448,931 ---------------------------------------------------------------- Net Unrealized Appreciation of Investments 111,954,072 20,015,807 -- 131,969,879 ---------------------------------------------------------------- Net Realized and Unrealized Gain on Investments 142,071,822 10,636,808 -- 152,708,630 ---------------------------------------------------------------- Net Increase in Net Assets Resulting from Operations $ 140,891,926 $ 9,992,899 $ 185,210 $ 151,070,035 ----------------------------------------------------------------
----------------------------------------- PART C THE MONTGOMERY FUNDS OTHER INFORMATION ----------------------------------------- THE MONTGOMERY FUNDS ------------------------------- FORM N-14 ------------------------------- PART C ------------------------------- ITEM 15. INDEMNIFICATION Article VII, Section 3 of the Agreement and Declaration of Trust empowers the Trustees of the Trust, to the full extent permitted by law, to purchase with Trust assets insurance for indemnification from liability and to pay for all expenses reasonably incurred or paid or expected to be paid by a Trustee or officer in connection with any claim, action, suit or proceeding in which he or she becomes involved by virtue of his or her capacity or former capacity with the Trust. Article VI of the By-Laws of the Trust provides that the Trust shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding by reason of the fact that such person is or was an agent of the Trust, against expenses, judgments, fines, settlement and other amounts actually and reasonable incurred in connection with such proceeding if that person acted in good faith and reasonably believed his or her conduct to be in the best interests of the Trust. Indemnification will not be provided in certain circumstances, however, including instances of willful misfeasance, bad faith, gross negligence, and reckless disregard of the duties involved in the conduct of the particular office involved. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to the Trustee, officers, and controlling persons of the Registrant, pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable in the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such Trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. ITEM 16. EXHIBITS (1) Amended and Restated Agreement and Declaration of Trust is incorporated by reference to Post-Effective Amendment No.61 to Registration Statement N-1A (the "Registration Statement"), as filed with the Commission on October 29, 1998 ("Post-Effective Amendment No. 61"). (2) Amended and Restated By-Laws are incorporated by reference to Post-Effective Amendment No. 61. (3) Voting Trust Agreement - Not applicable. (4) Form of Agreement and Plan of Reorganization is included in Part A. (5) Specimen Share Certificate - Not applicable. C-2 (6) Investment Advisory Contracts--Form of Investment Management Agreement is incorporated by reference to Post-Effective Amendment No. 52 to the Registration Statement as filed with the Commission on July 31, 1997 ("Post-Effective Amendment No. 52"). (7)(A) Form of Underwriting Agreement is incorporated by reference to Post-Effective Amendment No. 52. (7)(B) Form of Selling Group Agreement is incorporated by reference to Pre-Effective Amendment No. 1. (8) Benefit Plan(s) - Not applicable. (9) Custody Agreement is incorporated by reference to Post-Effective Amendment No. 61. (10) Form of Shareholder Services Plan is incorporated by reference to Post-Effective Amendment No. 61. (11) Consent and Opinion of Counsel as to legality of shares is incorporated by reference to Post-Effective Amendment No. 61. (12) Opinion and Consent as to Tax Matters is incorporated by reference to Pre-Effective Amendment No. 1 filed with the Commission on January 15, 1999. (13)(A) Form of Administrative Services Agreement is incorporated by reference to Post-Effective Amendment No. 52. (13)(B) 18f-3Plan--Form of Amended and Restated Multiple Class Plan is incorporated by reference to Post-Effective Amendment No. 61. (14) Independent Auditors' Consent. (15) Not Applicable. (16) Power of Attorney is incorporated by reference to the initial filing of Form N-14 filed with the Commission on December 18, 1998. (17) Not Applicable. C-3 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 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 19th day of January, 1999. THE MONTGOMERY FUNDS George A. Rio* ---------------------------- George A. Rio President and Principal Executive Officer; Treasurer and Principal Financial and Accounting Officer 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: SIGNATURE TITLE DATE - --------- ----- ---- George A. Rio* President and January 19, 1999 - -------------------- Principal Executive Officer; George A. Rio Treasurer and Principal Financial and Accounting Officer R. Stephen Doyle* Chairman of the January 19, 1999 - -------------------- Board of Trustees R. Stephen Doyle Andrew Cox.* Trustee January 19, 1999 - -------------------- Andrew Cox Cecilia H. Herbert* Trustee January 19, 1999 - -------------------- Cecilia H. Herbert John A. Farnsworth* Trustee January 19, 1999 - -------------------- John A. Farnsworth *By: /s/ David A. Hearth -------------------------------- David A. Hearth, Attorney-in-Fact Pursuant to Power of Attorney previously filed C-5 SEC File No. 333-69187 THE MONTGOMERY FUNDS FORM N-14 EXHIBIT INDEX Number Exhibit - ------ ------- 14 Independent Auditors' Consent- PricewaterhouseCoopers LLP C-6 EX-14 2 INDEPENDENT AUDITORS' CONSENT EXHIBIT 14 Independent Auditors' Consent - PricewaterhouseCoopers LLP C-8 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus/Proxy Statement and Statement of Additional Information constituting parts of this Registration Statement on Form N-14 of our report dated August 14, 1998, relating to the financial statements and financial highlights appearing in the June 30, 1998 Annual Report to Shareholders of Montgomery Small Cap Opportunities Fund and Montgomery U.S. Emerging Growth Fund. We also consent to the references to us under the headings "Financial Highlights" and "Experts" in the Prospectus/Proxy Statement. Further, we consent to the references to us under the heading "Financial Highlights" in the Prospectus and under the heading "Investment Management and Other Services" in the Statement of Additional Information constituting parts of Post-Effective Amendment No. 62 to the registration statement on Form N-1A dated October 31, 1998, which is also incorporated by reference into this Registration Statement on Form N-14. /s/ PricewaterhouseCoopers LLP San Francisco, California January 12, 1999 -----END PRIVACY-ENHANCED MESSAGE-----