Montanaro earns 2m pay package

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The legal dispute was settled out of court on terms that were kept secret.

Montanaro had been seeking up to 2m in damages from the three, but the accounts of Montanaro Holdings, one of his private companies, give no indication whether any damages were received. In the past two years, the total charge against profits resulting from 'exceptional legal and advisory fees' was more than 900,000.

Montanaro is best known as investment manager of the small, but successful, Montanaro UK Smaller Companies Investment Trust ( MUSCIT).

Its shareholders are set to vote soon on a board proposal to double the basic investment fee paid to Montanaro Investment Managers from 0.5% to 1% of assets. It was halved in the late 1990s.

The bulk of Charles Montanaro's earnings last year flowed not from Montanaro Investment Managers, but from Montanaro Fund Managers, another of his companies.

Its accounts also show that the company paid 500,000 in fees to Harford Consultancy Services, a private company associated with Roger Pinnington, a Montanaro colleague and fellow director.

Montanaro's contract to run MUSCIT is once again being threatened by Millennium Partners, the aggressive US arbitrage firm that has built up a holding of just over 10%.

Millennium is pressing for a reconstruction or even a winding up so that shareholders can cash in at a price nearer net asset value.

It is the second time Millennium has taken a tilt at Montanaro.

On the earlier occasion 18 months ago, MUSCIT bought back a near 8% stake from the US arbs for 5.6m. This is unlikely to happen again.

'People are aware of what is best market practice and dealing with just one shareholder clearly is not,' said Tom Durie of HSBC, which recently replaced Merrill Lynch as MUSCIT's broker after the US house retreated from covering the investment trust sector.

MUSCIT's board, lead by former top accountant Brandon Gough, is expected to summon up enough support to defeat the Millennium proposals at the forthcoming annual meeting.

Robert Knapp of Millennium declined to comment on the annual meeting requisition. On the proposal to increase Montanaro Investment Managers' fee, he said: 'The lower the management fee, the better.'

However, HSBC is supporting the proposed fee increase. Durie said: 'The trust has performed very well and there has been a recognition that 0.5% is a low basic fee in view of increasing costs and the fact that the fund size has come down.' In net asset terms, MUSCIT has easily beaten its benchmark since its launch in 1995.

Charles Montanaro did not respond when asked to comment.

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