<PAGE>
Annual Report June 30, 1997
- --------------------
The
Montgomery
Funds
Invest wisely.
[ART APPEARS HERE]
<PAGE>
----------------------
The Montgomery Funds
----------------------
Annual Report
----------------------
J U N E 3 0, 1 9 9 7
The Montgomery Funds represent a growing family of no-load mutual funds
providing a comprehensive range of equity, fixed-income and global investment
opportunities.
We currently manage more than $4.7 billion on behalf of over 300,000 individual
investors, helping them meet their financial goals through a combination of
professional portfolio management and high-quality customer service.
The Montgomery Funds
101 California Street
San Francisco, CA 94111
(800) 572-FUND (3863)
- ------------------------
www.montgomeryfunds.com
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========================================
C O N T E N T S
- ----------------------------------------
Portfolio Highlights and Investments
Montgomery Foreign and
Global Equity Funds
- ----------------------------------------
Emerging Asia Fund.....................6
Emerging Markets Fund.................10
Global Communications Fund............17
Global Opportunities Fund.............21
International Growth Fund.............24
International Small Cap Fund..........28
Montgomery Multi-Strategy Funds
- ----------------------------------------
Asset Allocation Fund.................32
Global Asset Allocation Fund..........36
Select 50 Fund........................38
Montgomery U.S. Equity Funds
- ----------------------------------------
Equity Income Fund....................42
Growth Fund...........................45
Micro Cap Fund........................49
Small Cap Fund........................53
Small Cap Opportunities Fund..........57
Montgomery U.S. Fixed-Income
and Money Market Funds
- ----------------------------------------
California Tax-Free
Intermediate Bond Fund................60
Short Duration Government
Bond Fund.............................64
California Tax-Free Money Fund........67
Federal Tax-Free Money Fund...........67
Government Reserve Fund...............67
Financial Statements
- ----------------------------------------
Statements of Assets and Liabilities..78
Statements of Operations..............82
Statements of Changes in Net Assets...86
Transactions in Shares with a
Beneficial Interest ..................90
Statement of Cash Flows...............93
Financial Highlights .................94
Notes to Financial Statements........100
Independent Auditors' Report.........114
Tax Information......................115
.
<PAGE>
[ARTWORK (OWL) APPEARS HERE]
Invest wisely(SM)
The Montgomery Funds
================================================================================
"We at The Montgomery Funds have had such a strong belief in [the emerging
markets'] potential that we were among the first to introduce a no-load emerging
markets fund. In the past year, we also introduced two new regional funds:
Montgomery Emerging Asia Fund and Montgomery Latin America Fund."
- --------------------------------------------------------------------------------
C H A I R M A N'S L E T T E R
July 1997
Dear Fellow Shareholder:
In the Middle Ages, map makers had a standard practice for designating
unexplored territories. They would simply note: "Here Be Dragons."
Today there are no dragons. Technology has helped to dispel many of the myths
that once colored our view of the world, and even beyond. We can now log on to
the Internet to view the Pathfinder mission's photographs of Mars, beamed to us
across 100 million miles of space. We can travel anywhere in the world, from the
top of Mount Everest to the Costa Rican rain forest, with a camcorder or a
laptop to record our journey.
Given these new opportunities to explore and understand the world, it's
surprising that many people are still reluctant to invest overseas. Of those who
do, a great deal have no exposure to the emerging markets. But consider these
facts: The emerging markets are home to roughly 80% of the world's people, many
of whom are under the age of 20. These countries have vast natural resources and
are developing the capabilities to use them. Most exciting of all, many of them
are implementing economic and political reforms to achieve even greater
stability and growth in the future. We at The Montgomery Funds have had such a
strong belief in their potential that we were among the first to introduce a
no-load emerging markets fund. In the past year, we also introduced two new
regional funds: Montgomery Emerging Asia Fund and Montgomery Latin America Fund.
As I reviewed the following year-end reports from our portfolio managers, I was
struck by many other examples of the opportunities in emerging markets. Our
update on the Montgomery Global Communications Fund, for example, mentions a
striking fact recently cited in the Wall Street Journal: More than 80% of the
world's population has no telephone, and, of those, half have never even used
one. In other words, about 4 billion people lack something that most of us take
for granted every day, along with voice-mail, cellular phones and all the other
things that are rapidly becoming essential equipment in the developed world.
Even if a relatively small percentage of consumers in the emerging markets
embraced these technologies, the demand for them could grow exponentially.
Of course, the emerging markets are not without risk. Although they are making
rapid progress, they're bound to encounter obstacles along the way. But we at
The Montgomery Funds don't stop at communicating that potential risk to our
investors--we make every effort to minimize it. And in the emerging markets, as
in so many other areas of investing, a long-term view is indispensable. We
firmly believe that their potential will handsomely reward investors' patience
in the long run.
Thank you for investing with us.
Sincerely,
/s/ R. Stephen Doyle
R. Stephen Doyle
Chairman & Chief Executive Officer
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2
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<PAGE>
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The Montgomery Funds
----------------------
Annual Report
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J U N E 3 0, 1 9 9 7
S T O C K A N D B O N D M A R K E T O V E R V I E W
STOCKS: PORRIDGE--THE BREAKFAST OF CHAMPIONS?
In July 1996 the stock market was in turmoil. Investors were concerned about
potential interest rate increases and widespread earnings disappointments. These
worries largely dissipated by the fall, however, and stocks rallied into the new
year. Investors soon found themselves turning to a fairy-tale metaphor to
describe the economic backdrop, calling its combination of low inflation, low
interest rates and moderate growth a "Goldilocks economy." Like that fabled
porridge, it seemed not too hot, not too cold, but just right--and investors
responded by pushing the stock market into uncharted territory.
But the gains were not evenly distributed. Investors overwhelmingly favored the
very largest-capitalization stocks in the market, a trend that prevailed for
much of the period. (Market capitalization, sometimes abbreviated cap, refers to
the total value of a company's outstanding shares.) In part, that reflected
uncertainty about whether the economy was in fact as well balanced as it seemed;
investors favored these stocks because of their traditionally defensive
characteristics. But the more popular these shares became, the more expensive
they grew. Smaller-cap stocks, which we believe generally offer more-attractive
valuations and better growth prospects than large-caps, were given much less
attention. That changed quickly in the second quarter, when they rebounded
sharply.
THE S&P 500 INDEX:
PERFORMANCE JULY 1, 1996
TO JUNE 30, 1997
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
DATE PRICE DATE PRICE DATE PRICE
- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C>
M 7/1/96 M 7/8/96 652.54 M 7/15/96 629.80
T 7/2/96 673.61 T 7/9/96 654.75 T 7/16/96 628.37
W 7/3/96 672.40 W 7/10/96 656.06 W 7/17/96 634.07
T 7/4/96 T 7/11/96 645.67 T 7/18/96 643.56
F 7/5/96 657.44 F 7/12/96 646.19 F 7/19/96 638.73
M 7/22/96 633.77 M 7/29/96 630.91 M 8/5/96 660.23
T 7/23/96 626.87 T 7/30/96 635.26 T 8/6/96 662.38
W 7/24/96 L626.65 W 7/31/96 W 8/7/96 664.15
T 7/25/96 631.17 T 8/1/96 650.02 T 8/8/96 662.59
F 7/26/96 635.90 F 8/2/96 662.49 F 8/9/96 662.10
M 8/12/96 665.77 M 8/19/96 666.58 M 8/26/96 663.88
T 8/13/96 660.20 T 8/20/96 665.69 T 8/27/96 666.40
W 8/14/96 662.05 W 8/21/96 665.07 W 8/28/96 664.81
T 8/15/96 662.28 T 8/22/96 670.68 T 8/29/96 657.40
F 8/16/96 665.21 F 8/23/96 667.03 F 8/30/96 651.99
M 9/2/96 M 9/9/96 663.76 M 9/16/96 683.98
T 9/3/96 654.72 T 9/10/96 663.81 T 9/17/96 682.94
W 9/4/96 655.61 W 9/11/96 667.28 W 9/18/96 681.47
T 9/5/96 649.44 T 9/12/96 671.15 T 9/19/96 683.00
F 9/6/96 655.68 F 9/13/96 680.54 F 9/20/96 687.02
M 9/23/96 686.48 M 9/30/96 687.31 M 10/7/96 703.38
T 9/24/96 685.61 T 10/1/96 689.08 T 10/8/96 700.64
W 9/25/96 685.83 W 10/2/96 694.01 W 10/9/96 696.74
T 9/26/96 685.86 T 10/3/96 692.78 T 10/10/96 694.61
F 9/27/96 686.19 F 10/4/96 701.46 F 10/11/96 700.66
M 10/14/96 703.54 M 10/21/96 709.85 M 10/28/96 697.26
T 10/15/96 702.57 T 10/22/96 706.57 T 10/29/96 701.50
W 10/16/96 704.41 W 10/23/96 707.27 W 10/30/96 700.90
T 10/17/96 706.99 T 10/24/96 702.29 T 10/31/96 705.27
F 10/18/96 710.82 F 10/25/96 700.92 F 11/1/96 703.77
M 11/4/96 706.73 M 11/11/96 731.87 M 11/18/96 737.02
T 11/5/96 714.14 T 11/12/96 729.56 T 11/19/96 742.16
W 11/6/96 724.59 W 11/13/96 731.13 W 11/20/96 743.95
T 11/7/96 727.65 T 11/14/96 735.88 T 11/21/96 742.75
F 11/8/96 730.82 F 11/15/96 737.62 F 11/22/96 748.73
M 11/25/96 757.03 M 12/2/96 756.56 M 12/9/96 749.76
T 11/26/96 755.96 T 12/3/96 748.28 T 12/10/96 747.54
W 11/27/96 755.00 W 12/4/96 745.10 W 12/11/96 740.73
T 11/28/96 T 12/5/96 744.38 T 12/12/96 729.30
F 11/29/96 757.02 F 12/6/96 739.60 F 12/13/96 728.64
M 12/16/96 720.98 M 12/23/96 746.92 M 12/30/96 753.85
T 12/17/96 726.04 T 12/24/96 751.03 T 12/31/96
W 12/18/96 731.54 W 12/25/96 W 1/1/97
T 12/19/96 745.76 T 12/26/96 755.82 T 1/2/97 737.01
F 12/20/96 748.87 F 12/27/96 756.79 F 1/3/97 748.03
M 1/6/97 747.65 M 1/13/97 759.51 M 1/20/97 776.70
T 1/7/97 753.23 T 1/14/97 768.86 T 1/21/97 782.72
W 1/8/97 748.41 W 1/15/97 767.20 W 1/22/97 786.23
T 1/9/97 754.85 T 1/16/97 769.75 T 1/23/97 777.56
F 1/10/97 759.50 F 1/17/97 776.17 F 1/24/97 770.52
M 1/27/97 765.02 M 2/3/97 786.73 M 2/10/97 785.43
T 1/28/97 765.02 T 2/4/97 789.26 T 2/11/97 789.59
W 1/29/97 772.50 W 2/5/97 778.28 W 2/12/97 802.77
T 1/30/97 784.17 T 2/6/97 780.15 T 2/13/97 811.82
F 1/31/97 786.16 F 2/7/97 789.56 F 2/14/97 808.48
M 2/17/97 M 2/24/97 810.28 M 3/3/97 795.31
T 2/18/97 816.29 T 2/25/97 812.10 T 3/4/97 790.95
W 2/19/97 812.49 W 2/26/97 805.68 W 3/5/97 801.99
T 2/20/97 802.80 T 2/27/97 795.07 T 3/6/97 798.56
F 2/21/97 801.77 F 2/28/97 790.82 F 3/7/97 804.97
M 3/10/97 813.65 M 3/17/97 795.71 M 3/24/97 790.89
T 3/11/97 811.34 T 3/18/97 789.66 T 3/25/97 789.07
W 3/12/97 804.26 W 3/19/97 785.77 W 3/26/97 790.50
T 3/13/97 789.56 T 3/20/97 782.65 T 3/27/97 773.88
F 3/14/97 793.17 F 3/21/97 784.10 F 3/28/97
M 3/31/97 787.12 M 4/7/97 762.13 M 4/14/97 743.73
T 4/1/97 759.64 T 4/8/97 766.12 T 4/15/97 754.72
W 4/2/97 750.11 W 4/9/97 760.60 W 4/16/97 763.53
T 4/3/97 750.32 T 4/10/97 758.34 T 4/17/97 761.77
F 4/4/97 757.90 F 4/11/97 737.65 F 4/18/97 766.34
M 4/21/97 760.37 M 4/28/97 772.96 M 5/5/97 830.24
T 4/22/97 774.61 T 4/29/97 794.05 T 5/6/97 827.76
W 4/23/97 773.64 W 4/30/97 801.34 W 5/7/97 815.62
T 4/24/97 771.18 T 5/1/97 798.53 T 5/8/97 820.26
F 4/25/97 765.37 F 5/2/97 812.97 F 5/9/97 824.78
M 5/12/97 837.66 M 5/19/97 833.27 M 5/26/97
T 5/13/97 833.13 T 5/20/97 841.66 T 5/27/97 849.71
W 5/14/97 836.04 W 5/21/97 839.35 W 5/28/97 847.21
T 5/15/97 841.88 T 5/22/97 835.66 T 5/29/97 844.08
F 5/16/97 829.75 F 5/23/97 847.03 F 5/30/97 848.28
M 6/2/97 846.36 M 6/9/97 862.91 M 6/16/97 893.90
T 6/3/97 845.48 T 6/10/97 865.27 T 6/17/97 894.42
W 6/4/97 840.11 W 6/11/97 869.57 W 6/18/97 889.05
T 6/5/97 843.43 T 6/12/97 883.48 T 6/19/97 897.99
F 6/6/97 858.01 F 6/13/97 893.27 F 6/20/97 H898.70
M 6/23/97 878.62 M 6/30/97 885.14
T 6/24/97 896.34
W 6/25/97 888.99
T 6/26/97 883.68
F 6/27/97 887.30
</TABLE>
Source: Bloomberg
Wow. What other word could describe the performance of the S&P 500 from July 1,
1996, through June 30, 1997? After a shaky start, the U.S. market raced to new
highs, with a short but sharp decline in March and April 1997 the only
significant interruption in its rally.
Many stock markets in other parts of the world also rallied over the past fiscal
year. With inflation generally dormant, interest rates low and economic growth
moderate around the world, investors in foreign stock markets shared the
optimism of those in the United States. A number of developed stock exchanges in
Europe even exceeded the U.S. market's gains during this period, with several of
them setting all-time highs. Japan was a laggard for much of this period, but
even it turned around sharply in the spring as investors became less pessimistic
about its economy. In the emerging markets, some countries (such as Brazil and
Russia) staged even more-spectacular rallies, though there were a few exceptions
(such as those in Southeast Asia). Overall, we think that the outlook in the
emerging markets, as in the United States and developed markets, remains bright.
BONDS: "GREENSPANOLOGY" AND THE GHOST OF INFLATION
Over the past year, market participants kept a close watch on the pace of growth
in the U.S. economy. At some points they seemed to be fearing a replay of 1994,
when the Federal Reserve threw the bond market into a tailspin with a series of
interest rate hikes. At other times they expected the Fed to actually lower
rates. In fact, attempting to decipher the occasionally cryptic comments of Fed
Chairman Alan Greenspan became a major pastime in the bond market. As it turned
out, the Fed raised rates only once during the period, in March, and Greenspan
had made his intentions well known in advance. Of chief concern to Fed
policy-makers and many bond investors has been the level of wage growth. Wages
typically pick up at this stage of an economic expansion, kindling broader-based
inflation. So far in the current expansion, however, wage growth has been
constrained by trends like consolidations, layoffs, restructuring and
productivity gains. Given the lack of this and other kinds of inflationary
pressures, Greenspan recently went so far as to call the economy "exceptional."
In the longer run, we believe that a strong case can be made for a sustained
deflationary environment, accompanied by a potentially significant decline in
long-term interest rates.
--
3
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<PAGE>
- ----------------------
The Montgomery Funds
- ----------------------
Annual Report
- ----------------------
J U N E 3 0, 1 9 9 7
STOCK AND BOND MARKET OVERVIEW (continued)
The current economic expansion has been fueled by investment spending, with an
increasing percentage going toward information technology. Thirty years into the
Information Revolution, we are just beginning to see a meaningful increase in
productivity, only part of which reflects the impact of new time- and
labor-saving technology. These productivity gains could produce growth and
deflation in each new area where they occur. We firmly believe that this
powerful deflationary force, combined with declining budget deficits here and
abroad, could create an extremely bullish backdrop for bonds. And in our view,
the longer the Fed remains vigilant against the "Ghost of Inflation Past," the
more powerful this backdrop becomes.
U.S. TREASURY 30-YEAR BOND:
YIELD JULY 1, 1996, TO JUNE 30, 1997
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
DATE YIELD DATE YIELD DATE YIELD
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
M 7/1/96 M 7/22 7.01 M 8/12 6.69
T 7/2 6.94 T 7/23 6.97 T 8/13 6.79
W 7/3 6.94 W 7/24 7.04 W 8/14 6.79
T 7/4 6.93 T 7/25 7.01 T 8/15 6.80
F 7/5 H 7.19 F 7/26 7.01 F 8/16 6.77
M 7/8 7.18 M 7/29 7.09 M 8/19 6.80
T 7/9 7.13 T 7/30 7.04 T 8/20 6.80
W 7/10 7.08 W 7/31 6.97 W 8/21 6.84
T 7/11 7.06 T 8/1 6.84 T 8/22 6.84
F 7/12 7.03 F 8/2 6.74 F 8/23 6.96
M 7/15 7.07 M 8/5 6.77 M 8/26 7.00
T 7/16 7.03 T 8/6 6.76 T 8/27 6.97
W 7/17 7.03 W 8/7 6.77 W 8/28 6.98
T 7/18 6.93 T 8/8 6.79 T 8/29 7.04
F 7/19 6.97 F 8/9 6.69 F 8/30 7.12
<CAPTION>
DATE YIELD DATE YIELD DATE YIELD
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
M 9/2 7.12 M 9/23 7.03 M 10/14 6.84
T 9/3 7.05 T 9/24 6.98 T 10/15 6.84
W 9/4 7.10 W 9/25 6.92 W 10/16 6.86
T 9/5 7.15 T 9/26 6.89 T 10/17 6.79
F 9/6 7.11 F 9/27 6.91 F 10/18 6.80
M 9/9 7.07 M 9/30 6.92 M 10/21 6.81
T 9/10 7.11 T 10/1 6.87 T 10/22 6.85
W 9/11 7.11 W 10/2 6.84 W 10/23 6.83
T 9/12 7.08 T 10/3 6.83 T 10/24 6.85
F 9/13 6.95 F 10/4 6.74 F 10/25 6.82
M 9/16 6.95 M 10/7 6.79 M 10/28 6.83
T 9/17 7.02 T 10/8 6.80 T 10/29 6.68
W 9/18 7.01 W 10/9 6.83 W 10/30 6.70
T 9/19 7.04 T 10/10 6.88 T 10/31 6.64
F 9/20 7.04 F 10/11 6.84 F 11/1 6.68
<CAPTION>
DATE YIELD DATE YIELD DATE YIELD
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
M 11/4 6.66 M 11/25 6.43 M 12/16 6.62
T 11/5 6.59 T 11/26 6.45 T 12/17 6.65
W 11/6 6.62 W 11/27 6.43 W 12/18 6.70
T 11/7 6.53 T 11/28 6.43 T 12/19 6.58
F 11/8 6.51 F 11/29 L 6.35 F 12/20 6.61
M 11/11 6.51 M 12/2 6.36 M 12/23 6.58
T 11/12 6.44 T 12/3 6.36 T 12/24 6.58
W 11/13 6.46 W 12/4 6.39 W 12/25 6.58
T 11/14 6.42 T 12/5 6.51 T 12/26 6.58
F 11/15 6.46 F 12/6 6.51 F 12/27 6.56
M 11/18 6.47 M 12/9 6.46 M 12/30 6.54
T 11/19 6.43 T 12/10 6.50 T 12/31 6.64
W 11/20 6.41 W 12/11 6.63 W 1/1/97 6.64
T 11/21 6.42 T 12/12 6.63 T 1/2 6.74
F 11/22 6.44 F 12/13 6.57 F 1/3 6.73
<CAPTION>
DATE YIELD DATE YIELD DATE YIELD
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
M 1/6 6.77 M 1/27 6.94 M 2/17 6.53
T 1/7 6.79 T 1/28 6.92 T 2/18 6.55
W 1/8 6.84 W 1/29 6.91 W 2/19 6.58
T 1/9 6.76 T 1/30 6.87 T 2/20 6.66
F 1/10 6.84 F 1/31 6.79 F 2/21 6.64
M 1/13 6.85 M 2/3 6.74 M 2/24 6.66
T 1/14 6.77 T 2/4 6.70 T 2/25 6.66
W 1/15 6.79 W 2/5 6.75 W 2/26 6.78
T 1/16 6.82 T 2/6 6.76 T 2/27 6.80
F 1/17 6.82 F 2/7 6.70 F 2/28 6.80
M 1/20 6.83 M 2/10 6.70 M 3/3 6.83
T 1/21 6.78 T 2/11 6.70 T 3/4 6.87
W 1/22 6.83 W 2/12 6.71 W 3/5 6.83
T 1/23 6.86 T 2/13 6.62 T 3/6 6.88
F 1/24 6.89 F 2/14 6.52 F 3/7 6.81
<CAPTION>
DATE YIELD DATE YIELD DATE YIELD
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
M 3/10 6.81 M 3/31 7.10 M 4/21 7.09
T 3/11 6.85 T 4/1 7.08 T 4/22 7.04
W 3/12 6.88 W 4/2 7.08 W 4/23 7.09
T 3/13 6.96 T 4/3 7.07 T 4/24 7.13
F 3/14 6.94 F 4/4 7.12 F 4/25 7.14
M 3/17 6.96 M 4/7 7.07 M 4/28 7.11
T 3/18 6.96 T 4/8 7.10 T 4/29 6.98
W 3/19 6.93 W 4/9 7.10 W 4/30 6.96
T 3/20 6.96 T 4/10 7.11 T 5/1 6.92
F 3/21 6.97 F 4/11 7.17 F 5/2 6.87
M 3/24 6.92 M 4/14 7.17 M 5/5 6.88
T 3/25 6.97 T 4/15 7.09 T 5/6 6.88
W 3/26 6.98 W 4/16 7.10 W 5/7 6.96
T 3/27 7.09 T 4/17 7.07 T 5/8 6.93
F 3/28 7.09 F 4/18 7.05 F 5/9 6.89
<CAPTION>
DATE YIELD DATE YIELD DATE YIELD
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
M 5/12 6.89 M 6/2 6.90 M 6/23 6.71
T 5/13 6.92 T 6/3 6.87 T 6/24 6.69
W 5/14 6.88 W 6/4 6.88 W 6/25 6.74
T 5/15 6.87 T 6/5 6.88 T 6/26 6.78
F 5/16 6.90 F 6/6 6.77 F 6/27 6.74
M 5/19 6.92 M 6/9 6.83 M 6/30 6.78
T 5/20 6.90 T 6/10 6.84
W 5/21 6.96 W 6/11 6.83
T 5/22 6.99 T 6/12 6.78
F 5/23 6.99 F 6/13 6.72
M 5/26 6.99 M 6/16 6.70
T 5/27 7.03 T 6/17 6.72
W 5/28 7.03 W 6/18 6.68
T 5/29 6.98 T 6/19 6.68
F 5/30 6.91 F 6/20 6.66
</TABLE>
Source: Bloomberg
The yield of the bellwether 30-Year U.S. Treasury Bond (which moves inversely to
its price) bobbled up and down throughout the past year, reflecting shifting
views among bond investors about the direction of the economy and interest
rates.
- --
4
- --
<PAGE>
----------------------
The Montgomery Funds
----------------------
Performance Summary
----------------------
J U N E 3 0, 1 9 9 7
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/97
<TABLE>
<CAPTION>
Fund name (Fund number) Inception date One year Three years Five years Since inception
<S> <C> <C> <C> <C> <C>
Montgomery Foreign and Global Equity Funds
============================================================================================================================
Emerging Asia Fund (648)+ 9/30/96 -- -- -- 57.80%
- ----------------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund (277) 3/1/92 19.34% 9.25% 12.84% 11.91%
- ----------------------------------------------------------------------------------------------------------------------------
Global Communications Fund (280) 6/1/93 14.43% 13.39% -- 14.30%
- ----------------------------------------------------------------------------------------------------------------------------
Global Opportunities Fund (285) 9/30/93 18.71% 17.57% -- 16.09%
- ----------------------------------------------------------------------------------------------------------------------------
International Growth Fund (296) 7/3/95 19.20% -- -- 23.43%
- ----------------------------------------------------------------------------------------------------------------------------
International Small Cap Fund (283) 9/30/93 15.48% 12.67% -- 10.06%
- ----------------------------------------------------------------------------------------------------------------------------
Montgomery Multi-Strategy Funds
============================================================================================================================
Asset Allocation Fund (291) 3/31/94 14.65% 24.55% -- 23.21%
- ----------------------------------------------------------------------------------------------------------------------------
Global Asset Allocation Fund (649)+ 1/2/97 -- -- -- 11.17%
- ----------------------------------------------------------------------------------------------------------------------------
Select 50 Fund (295) 10/2/95 26.35% -- -- 37.38%
- ----------------------------------------------------------------------------------------------------------------------------
Montgomery U.S. Equity Funds
============================================================================================================================
Equity Income Fund (293) 9/30/94 26.02% -- -- 23.67%
- ----------------------------------------------------------------------------------------------------------------------------
Growth Fund (284) 9/30/93 20.44% 23.91% -- 26.78%
- ----------------------------------------------------------------------------------------------------------------------------
Micro Cap Fund (294)* 12/30/94 14.77% -- -- 24.26%
- ----------------------------------------------------------------------------------------------------------------------------
Small Cap Fund (276)* 7/13/90 6.81% 21.35% 18.07% 20.47%
- ----------------------------------------------------------------------------------------------------------------------------
Small Cap Opportunities Fund (645) 12/29/95 10.97% -- -- 28.65%
- ----------------------------------------------------------------------------------------------------------------------------
Montgomery U.S. Fixed-Income and Money Market Funds
============================================================================================================================
California Tax-Free Intermediate Bond Fund (281) 7/1/93 6.91% 6.35% -- 5.17%
- ----------------------------------------------------------------------------------------------------------------------------
Short Duration Government Bond Fund (279) 12/18/92 6.79% 6.93% -- 6.38%
- ----------------------------------------------------------------------------------------------------------------------------
As of 6/30/97: One-day yield Seven-day yield
- ----------------------------------------------------------------------------------------------------------------------------
California Tax-Free Money Fund (292) 9/30/94 3.22% 3.43%
- ----------------------------------------------------------------------------------------------------------------------------
Federal Tax-Free Money Fund (647) 7/15/96 3.39% 3.61%
- ----------------------------------------------------------------------------------------------------------------------------
Government Reserve Fund (278) 9/14/92 5.26% 5.10%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Closed to new investors.
+Performance is cumulative and for a limited period of time.
Performance information is for Class R (Retail) shares only. The performance
figures provided do not reflect the effect of (i) any securities purchased or
sold by the Funds after June 30 but that were effective on June 30 or (ii) any
purchases or redemptions of Fund shares completed after June 30 that were
effective on June 30. The performance figures for the Class R shares shown above
do not reflect the 0.25% Rule 12b-1 fees paid by the Class P shares that would
reduce performance. Past performance is no guarantee of future results. Net
asset value, investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost.
Income from tax-free funds may be subject to the alternative minimum tax and/or
state and local taxes.
An investment in one of our money market funds is neither insured nor guaranteed
by the government. There can be no assurance that the money market funds will be
able to maintain a stable net asset value of $1 per share. Yield may fluctuate.
There are certain risks associated with investing in foreign markets, such as
currency fluctuations and political and economic instability. There are also
additional risks associated with investing in small-cap companies. Investors are
encouraged to read the prospectus carefully before investing.
--
5
--
<PAGE>
- --------------------------------------
The Montgomery Funds
- --------------------------------------
Emerging Asia Fund
- --------------------------------------
P O R T F O L I O H I G H L I G H T S
- --------------------------------------
P O R T F O L I O M A N A G E M E N T
- --------------------------------------
Frank Chiang........Portfolio Manager
- --------------------------------------
F U N D P E R F O R M A N C E
- --------------------------------------
Aggregate total returns
for the period ended 6/30/97
- --------------------------------------
Montgomery Emerging Asia Fund
Since inception (9/30/96)......57.80%
- --------------------------------------
MSCI All-Country Asia-Free
ex-Japan Index
Since 9/30/96...................6.13%
- --------------------------------------
Performance is cumulative and for a limited period of time. Past performance is
no guarantee of future results. Net asset value, investment return and principal
value will fluctuate, so shares, when redeemed, may be worth more or less than
their original cost.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lipper All-Pacific MSCI All-Country
Montgomery Emerging ex-Japan Funds Asia-Free
Asia Fund Average /1/ ex-Japan Index /2/
--------- ----------- ------------------
Date Value Date Value Date Value
- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C>
09/30/96 $10,000 Oct-96 $10,000 Sep-96 $10,000
09/96 $10,000 Nov-96 $10,454 Oct-96 $9,810
10/96 $10,142 Dec-96 $10,421 Nov-96 $10,274
11/96 $11,750 Jan-97 $10,521 Dec-96 $10,238
12/96 $12,106 Feb-97 $10.632 Jan-97 $10,450
01/97 $12,807 Mar-97 $10,140 Feb-97 $10,539
02/97 $13,175 Apr-97 $10,072 Mar-97 $9,944
03/97 $13,275 May-97 $10,484 Apr-97 $9,795
04/97 $13,475 Jun-97 $10,866 May-97 $10,238
05/97 $14,502 Jun-97 $10,613
06/97 $15,780
</TABLE>
/1/The Lipper All-Pacific ex-Japan Funds Average consists of 83 funds.
/2/The MSCI All-Country Asia-Free ex-Japan Index comprises equities in 14
countries in the Asia Pacific region.
I N V E S T M E N T R E V I E W
Q: How did the Emerging Asia Fund perform from its inception on September 30,
1996, through June 30, 1997?
A: It gained 57.80%, dramatically outperforming its benchmark, the Morgan
Stanley Capital International All-Country Asia-Free ex-Japan Index. For the
second quarter of 1997 alone, it gained nearly 19%. Of course, this was a
relatively short period of time, and we also encourage investors to be prepared
for the possibility of more-moderate returns in the coming months.
Q: What drove that performance?
A: The most significant factor behind the Fund's performance was its
overweighting in Hong Kong/China relative to the index--and relative to most of
our competitors. Hong Kong's market rallied for much of the period, as
excitement grew about its reunification with China. Within Hong Kong the Fund's
exposure to "red chips"--companies listed on Hong Kong's exchange that have
strong connections to the Chinese mainland--was extremely profitable. That said,
these shares have run up a great deal lately, and we are taking profits on those
that we think have become fully valued.
Q: What's your outlook for Hong Kong and China now that the two have
been reunified?
A: We're very optimistic about their future. We were in Hong Kong to
witness the formal handover ceremonies, and we were impressed with the
smoothness of the transition. Both Hong Kong's new chief executive and Chinese
leaders took care to reassure the world that Hong Kong will retain a significant
degree of economic and political autonomy even under Chinese sovereignty. This
is not to say that it will remain isolated from China. We believe that the two
economies will continue to strengthen the symbiotic relationship that has
existed between them for some time. Right now, both economies are in excellent
shape; they are growing rapidly while keeping inflation under control.
Q: What were some of the major trends in other Asian markets during the period?
A: Northern Asia, South Korea and Taiwan were under some pressure during the
second half of 1996. This was in part because the electronics industry, a
keystone of both countries' economies, was depressed during the latter half of
the year. The two markets turned around in early 1997, however, and rallied
strongly through most of the first half.
Southeast Asian markets, on the other hand, have been in difficult straits over
the past several months. Thailand in particular has had a rough go of it, due to
structural problems in its economy and political system. Its neighbors have also
been grappling with high real interest rates.
- ----
6
- ----
<PAGE>
--------------------------------------
The Montgomery Funds
--------------------------------------
Emerging Asia Fund
--------------------------------------
P O R T F O L I O H I G H L I G H T S
Economies in south Asia, which includes India, have been slowing somewhat over
the past year. We find them attractive for a variety of reasons, though, and
have lately been increasing the Fund's exposure to these markets. India's stock
exchange, for example, has tended not to move in sync with the U.S. market, so
it lends defensive characteristics to a portfolio.
Q: What's your outlook for the coming year?
A: We're very optimistic about the investment opportunities to be had in many
Asian markets. In our view, China/Hong Kong has particularly bright long-term
prospects. At the same time, it's very possible that this market and others in
Asia will not perform as spectacularly as they have over the past year.
Investors need to be prepared for that possibility. Although we think that the
long-term investment opportunities in Asia are exceptional, there are bound to
be bumps and dips along the way.
<TABLE>
<CAPTION>
- -------------------------------------------
T O P T E N H O L D I N G S
- -------------------------------------------
(as a percentage of total net assets)
<S> <C>
China Everbright-IHD Holdings Ltd. ... 4.9%
China Merchants Hai Hong Holdings .... 3.7%
Concord Land Development Co., Ltd. ... 3.2%
China Resources Enterprises Ltd. ..... 2.2%
Shanghai Industrial Holdings Ltd. .... 2.1%
Guangzhou Investment Co. Ltd. ........ 2.1%
Hang Seng Bank Ltd. .................. 2.1%
Giordano International Ltd. .......... 1.8%
PT Bank Mashill Utama................. 1.5%
Hyundai Engineering
and Construction Company........... 1.5%
<CAPTION>
- -------------------------------------------
T O P F I V E C O U N T R I E S
- -------------------------------------------
(as a percentage of total net assets)
<S> <C>
China/Hong Kong...................... 41.1%
Korea................................ 9.8%
Taiwan............................... 9.0%
Singapore............................ 5.0%
Indonesia............................ 4.4%
</TABLE>
P O R T F O L I O I N V E S T M E N T S
June 30, 1997
COMMON STOCKS -- 81.6%
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
China/Hong Kong-- 41.1%
126,000 Beijing Enterprises Holdings Ltd.+
(Conglomerates)...................... $ 793,670
4,372,000 Beijing Yanhua Petrochemical Company
Ltd.+ (Chemicals).................... 948,067
1,500,000 Bengang Steel Plate**+ (Steel)....... 460,806
45,000 Cheung Kong Holdings (Real Estate)... 444,348
1,110,000 China Everbright-IHD Holdings Ltd.+
(Holding)............................ 3,316,833
100,000 China Light and Power Company
(Electric Utilities)................. 566,649
800,000 China Merchants Hai Hong Holdings+
(Chemicals).......................... 2,488,609
304,000 China Resources Enterprises Ltd.
(Holding)............................ 1,491,100
110,000 Citic Pacific Ltd. (Holding)......... 687,207
1,945,000 Concord Land Development Company Ltd.
(Real Estate)........................ 2,146,522
132,000 First Tractor Company Ltd.+
(Heavy Construction)................. 86,895
1,750,000 Giordano International Ltd.
(Retail Trade)....................... 1,197,191
350,000 Guangdong Kelon Electric Holding
(Home Appliance)..................... 334,310
2,608,000 Guangzhou Investment Company Ltd.
(Real Estate)........................ 1,439,108
100,000 Hang Seng Bank Ltd. (Banks).......... 1,426,303
550,000 Heilongjiang Electric Power Company+
(Electric Utilities)................. 440,000
200,000 Hong Kong Telecommunications Ltd.
(Telecommunications)................. 477,586
1,000,000 Hopewell Holdings (Real Estate)...... 632,478
20,800 HSBC Holdings (Banks)................ 625,560
72,000 Hutchison Whampoa Ltd.
(Conglomerates)...................... 622,669
1,000,000 Innovative International Holdings
(Computers & Office Equipment)....... 522,763
1,400,000 Jiangxi Copper Company Ltd.+
(Metals & Mining).................... 384,005
57,000 New World Development Company Ltd.
(Holding)............................ 339,912
</TABLE>
--
7
--
The accompanying notes are an integral part of these financial statements.
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Emerging Asia Fund
- ---------------------
I N V E S T M E N T S
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
China/Hong Kong -- continued
189,000 New World Infrastructure Ltd.+
(Heavy Construction)..................... $ 534,264
1,500,000 Pacific Concord Holdings (Conglomerates) 837,389
1,998,000 Pacific Ports Company+ (Shipping)........ 399,739
234,000 Shanghai Industrial Holdings Ltd.
(Conglomerates).......................... 1,455,836
500,000 Sing Tao+ (Newspapers/Publishing)........ 187,162
60,000 Swire Pacific Company, Ltd., Class A
(Holding)................................ 540,188
270,000 Union Bank of Hong Kong Ltd. (Banks)..... 780,659
1,000,000 Wafangfian Bearing Group Company, Ltd.+
(Auto/Auto Parts)........................ 647,968
1,624,000 Zhejiang Expressway Company Ltd.+
(Heavy Construction)..................... 394,088
30,000 Zindart Limited, ADR+ (Toys)............. 322,500
-------
27,972,384
India -- 0.7%
22,700 Videsh Sanchar Nigam Ltd.+
(Telecommunications)..................... 472,728
Indonesia -- 4.4%
1,322,600 PT Bank Mashill Utama (Banks)............ 1,033,281
85,000 PT Daya Guna Samudera**+ (F)
(Fishing Company)........................ 152,909
215,000 PT Daya Guna Samudera**+
(Fishing Company)........................ 386,770
310,000 PT Lippo Bank (Banks).................... 318,668
400,000 PT Matahari Putra Prima (Retail)......... 805,921
132,000 Semen Gresik (F) (Building Materials).... 295,806
-------
2,993,355
Korea -- 9.8%
100,000 Bank of Seoul+ (Banks)................... 454,617
80,000 Daewoo Corporation+ (Conglomerates)...... 650,450
50,000 Dongwon Securities Company+
(Securities Brokerage)................... 658,784
60,928 Hanwha Chemical Corporation (Chemicals).. 480,292
40,000 Hyundai Engineering and Construction
Company (Heavy Construction)............. 1,027,027
30,000 Hyundai Merchant Marine Company+
(Shipping)............................... 564,189
269 Kookmin Bank (Banks)..................... 5,030
28,000 Korea Electric Power Corporation
(Electric Utilities)..................... 835,586
15,000 LG Semiconductor+ (Semiconductor)........ 584,459
2,580 Pohang Iron & Steel Company Ltd. (Steel). 267,789
3,640 Samsung Electronics Company
(Electronics)............................ 408,425
30,000 Yukong Ltd. (Oil)........................ 726,351
-------
6,662,999
Malaysia-- 3.8%
90,000 Cahya Mata Sarawak Berhad (Cement)....... 734,548
146,000 Guinness Anchor Berhad (Food & Beverage). 323,930
200,000 Hong Leong Bank Berhad** (Banks)......... 503,170
200,000 Jaya Jusco Stores Berhad+ (Retail)....... 681,458
90,000 Tanjong Plc (Leisure Time)............... 310,222
-------
2,553,328
Pakistan -- 1.1%
250,000 Fauji Fertilizer Company Ltd.**
(Agriculture Commodities)................ 491,718
10,500 Hub Power Company Ltd.+
(Electric Utilities)..................... 257,250
-------
748,968
Philippines -- 2.4%
820,000 International Container Terminal Services,
Inc. (Shipping).......................... 419,700
84,500 Manila Electric Company, Class B
(Electric Utilities)..................... 416,477
619,000 PCI Leasing and Financing, Inc.+**
(Diversified Financial Services)......... 117,342
2,600 Philippine Long Distance Telephone
(Telephone/Long Distance)................ 84,281
5,900 Philippine Long Distance Telephone, ADR
(Telephone/Long Distance)................ 379,075
2,345,250 Republic Glass Holdings Corporation
(Glass).................................. 213,399
-------
1,630,274
Singapore -- 5.0%
262,000 Advanced Systems Automation Ltd.+
(Machinery & Tools)...................... 494,789
64,000 Keppel Corporation Ltd. (Shipping)....... 284,255
16,000 Keppel Corporation Ltd.-A shares
(Shipping)............................... 69,385
250,000 Pacific Century Regional Development+
(Real Estate)............................ 347,975
100,000 Singapore International Airlines
(Airlines)............................... 895,293
500,000 Thakral Corporation Ltd. (Home
Appliance)............................... 510,000
80,000 United Overseas Bank (Banks)............. 822,550
-------
3,424,247
Taiwan -- 9.0%
270,480 ASE (Semiconductor)...................... 1,026,462
55,000 China Development Corporation+
(Diversified Financial Services)......... 283,903
360,000 China Steel Corporation (Steel).......... 380,719
188,500 Compal Electronics
(Computers & Office Equipment)........... 745,863
138,000 Delta Electronic Industrial (Electrical
Equipment)............................... 853,813
300,000 Formosa Chemicals and Fibre Corporation
(Apparel & Textiles)..................... 435,971
</TABLE>
- --
8
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
---------------------
The Montgomery Funds
---------------------
Emerging Asia Fund
---------------------
I N V E S T M E N T S
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Taiwan -- continued
300,000 Hung Sheng Construction Ltd.
(Real Estate)............................... $ 512,590
240,000 Primax Electronics
(Computers & Office Equipment).............. 712,230
31,000 Synnex Technology International Corporation,
GDR (Computers & Office Equipment).......... 706,800
204,550 United World Chinese Commercial Bank**
(Banks)..................................... 489,301
-------
6,147,652
Thailand -- 4.3%
138,000 Bangkok Bank Company Ltd. (Banks)........... 986,506
200,000 Industrial Finance of Thailand
(Securities Brokerage)...................... 265,060
30,000 Siam Cement Public Company Ltd.
(Building Materials)........................ 539,759
165,000 Thai Farmers Bank Company Ltd. (Banks)...... 728,916
100,000 United Communication Industry Company
(Telecommunications)........................ 429,719
-------
2,949,960
TOTAL COMMON STOCKS
(Cost $46,088,860)...................................... 55,555,895
----------
PREFERRED STOCKS -- 0.0%#
(Cost $3,142)
Korea -- 0.0%#
60 Samsung Electronics Corporation (Electronics) 6,530
-----
RIGHTS -- 0.0%#
(Cost $5,454)
Malaysia -- 0.0%#
25,000 Hong Leong Bank Berhad, Rights,
Expire 07/21/97+ (Banks).................... 3,962
-----
TOTAL SECURITIES
(Cost $46,097,456)...................................... 55,566,387
----------
REPURCHASE AGREEMENTS -- 11.9%
<CAPTION>
Principal Amount Value (Note 1)
<S> <C> <C>
$4,037,000 Agreement with Bear Stearns, Tri-Party,
6.200% dated 06/30/97, to be repurchased
at $4,037,695 on 07/01/97, collateralized
by $4,117,740 market value of U.S.
government securities, having various
maturities and various interest rates....... $ 4,037,000
4,037,000 Agreement with Nikko Securities Company
International Inc., Tri-Party, 6.200% dated
06/30/97, to be repurchased at $4,037,695
on 07/01/97, collateralized by $4,136,333
market value of U.S. government securities,
having various maturities and various
interest rates.............................. 4,037,000
---------
TOTAL REPURCHASE AGREEMENTS
(Cost $8,074,000)....................................... 8,074,000
---------
TOTAL INVESTMENTS -- 93.5%
(Cost $54,171,456*)..................................... 63,640,387
OTHER ASSETS AND LIABILITIES -- 6.5%
(Net)................................................... 4,454,869
---------
NET ASSETS -- 100.0% ................................... $68,095,256
==========
</TABLE>
* Aggregate cost for federal tax purposes was $54,856,716.
**Illiquid Security or Special Situation Security (see note 7 to Financial
Statements).
+ Non-income producing security.
# Amount represents less than 0.1%.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
Abbreviations:
ADR ... American Depositary Receipt
(F) ... Foreign or Alien Shares
GDR ... Global Depositary Receipt
--
9
--
<PAGE>
- ---------------------------------------
The Montgomery Funds
- ---------------------------------------
Emerging Markets Fund
- ---------------------------------------
P O R T F O L I O H I G H L I G H T S
===========================================
P O R T F O L I O M A N A G E M E N T
- -------------------------------------------
Josephine S. Jimenez, CFA............Senior
Portfolio Manager
Bryan S. Sudweeks, Ph.D., CFA........Senior
Portfolio Manager
Angeline Ee...............Portfolio Manager
Frank Chiang..............Portfolio Manager
Jesus Duarte..............Portfolio Manager
===========================================
F U N D P E R F O R M A N C E
- -------------------------------------------
Average annual total returns
for the periods ended 6/30/97
- -------------------------------------------
Montgomery
Emerging Markets Fund
Since inception (3/1/92).............11.91%
One year.............................19.34%
Five years...........................12.84%
- -------------------------------------------
IFC Global Composite Index
Since 2/28/92.........................9.87%
One year.............................11.32%
Five years...........................12.31%
- -------------------------------------------
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
[GRAPH APPEARS HERE]
Growth of a $10,000 Investment
<TABLE>
<CAPTION>
IFC Global Montgomery Lipper Emerging
Composite Emerging Markets Funds
Index/1/ Markets Fund Average/2/
-------- ------------ ----------
Date Value Value Value
- ---- ----- ----- -----
<S> <C> <C> <C>
02/92 $10,000 $10,000 $10,000
03/92 $10,073 $9,970 $9,965
04/92 $9,908 $10,010 $10,114
05/92 $9,614 $10,140 $10,980
06/92 $9,247 $9,960 $10,184
07/92 $8,854 $9,750 $9,917
08/92 $8,677 $9,620 $9,682
09/92 $8,485 $9,570 $9,571
10/92 $8,915 $9,950 $9,733
11/92 $8,813 $9,880 $9,589
12/92 $8,951 $10,031 $9,640
01/93 $8,891 $10,242 $9,867
02/93 $9,313 $10,342 $10,313
03/93 $9,500 $10,482 $10,524
04/93 $9,669 $10,702 $10,974
05/93 $9,745 $10,922 $11,292
06/93 $9,955 $11,083 $11,374
07/93 $10,096 $11,263 $11,573
08/93 $10,558 $11,934 $12,490
09/93 $10,908 $12,324 $12,742
10/93 $11,755 $13,295 $13,847
11/93 $12,572 $13,689 $14,421
12/93 $14,993 $15,916 $16,749
01/94 $15,439 $16,110 $17,100
02/94 $14,913 $15,609 $16,634
03/94 $13,674 $14,445 $15,169
04/94 $13,751 $14,373 $14,882
05/94 $14,113 $14,731 $15,169
06/94 $13,853 $13,975 $14,425
07/94 $14,733 $14,782 $15,281
08/94 $16,336 $16,212 $16,717
09/94 $16,849 $16,437 $16,910
10/94 $16,492 $16,365 $16,531
11/94 $15,786 $15,591 $15,718
12/94 $14,914 $14,687 $14,579
01/95 $13,218 $13,170 $13,170
02/95 $13,053 $13,191 $13,114
03/95 $13,000 $13,105 $13,163
04/95 $13,205 $13,331 $13,560
05/95 $13,704 $14,160 $14,165
06/95 $13,678 $14,170 $14,196
07/95 $13,938 $14,569 $14,698
08/95 $13,395 $13,998 $14,344
09/95 $13,477 $13,837 $14,357
10/95 $13,079 $13,320 $13,712
11/95 $12,707 $12,912
12/95 $13,076 $13,353
01/96 $13,749 $14,235
02/96 $13,663 $13,912
03/96 $13,879 $14,170
04/96 $14,913 $14,891
05/96 $14,626 $15,160
06/96 $14,840 $15,268
07/96 $13,914 $14,321
08/96 $14,224 $14,773
09/96 $14,351 $14,870
10/96 $14,031 $14,555 $10,000
11/96 $14,232 $14,879 $10,533
12/96 $14,107 $14,998 $10,631
01/97 $15,056 $16,155 $10,767
02/97 $15,740 $16,685 $10,865
03/97 $15,461 $16,296 $10,344
04/97 $15,462 $16,306 $10,228
05/97 $15,583 $16,912 $10,909
06/97 $16,520 $18,220 $11,279
</TABLE>
/1/ The IFC G$10,096omposite Index comprises more than 1,200 individual stocks
from 27 developing countries in Asia, Latin America, the Middle East,
Africa and Europe.
/2/ The Lipper Emerging Markets Funds Average universe consists of six funds.
I N V E S T M E N T R E V I E W
Q: How did the Fund perform from July 1, 1996, through June 30, 1997?
A: The Fund gained 19.34% over that period, outpacing its benchmark, the IFC
Global Composite Index, by a considerable margin. It also continues to
outperform the index since inception.
Q: What were some of the most positive factors behind that performance?
A: We made some very profitable decisions in terms of both country and stock
selection over the past year.
Our decision in early 1996 to increase the Fund's weighting in Brazil paid off
handsomely throughout the second half of that year and the first half of this
one. Excitement has been growing in the Brazilian stock market over that
country's progress on privatization. The Fund also benefited from several of our
stock choices there. For example, Telebras (the country's monopoly telephone
operator) has had a tremendous performance. There is huge pent-up demand for
telecommunications in Brazil, and we believe Telebras will benefit from it. The
Brazilian market became more volatile in July 1997, due to concerns about the
stability of its currency. We think the downturn will be short-lived, however,
because the strong economic fundamentals that have been driving Brazil over the
past two years are still in place.
The Fund also profited from its overweighting in Russia relative to its
benchmark index (and to many of our competitors). This market has grown by leaps
and bounds, especially as international investors have begun to discover it.
Both the political and economic situation there appear to be stabilizing, though
of course considerable risk remains. The Russian market also offers what we
believe are phenomenal asset values.
Q: Were there any disappointments?
A: Although we have gradually reduced the Fund's exposure to Southeast Asia
markets over the past year, its weighting there, though light, continued to work
against us. One of the main factors weighing on these markets has been the high
level of real interest rates in a number of these countries, such as Malaysia.
They've also experienced some growing pains. Construction companies in Thailand,
for example, were a little overzealous in 1996, and the country is now facing
the consequences of the resulting property glut. That has depressed the Thai
stock market, but we strongly believe that the problem will work itself out in
the coming year.
Q: What's your outlook for the emerging markets over the
coming year?
A: In Latin America we think Brazil (the region's largest economy) will
continue to drive performance. Mexico, the other major Latin American economy,
appears to be in good shape, too. We are encouraged by the results of the recent
election there, which signal a move toward a democratic political system.
- --
10
- --
<PAGE>
--------------------------------------
The Montgomery Funds
--------------------------------------
Emerging Markets Fund
--------------------------------------
P O R T F O L I O H I G H L I G H T S
We have a mixed outlook for Asian markets, but believe that China/Hong Kong is
poised to grow rapidly, with inflation under control. Investors will undoubtedly
watch it carefully in the coming year to see whether China lives up to its
promise of maintaining "one country, two systems" with respect to Hong Kong.
Emerging Europe should benefit from economic recovery in Germany, a major
trading partner of many countries in the region. As always, politics will
continue to dictate the mood of Middle Eastern stock markets. We see some
dynamic opportunities in North Africa (such as the cement industry in Egypt),
but remain cautious on South Africa, where the economy suffers from a
dangerously low level of foreign reserves, and corporate profits are being hurt
by lower gold prices.
On that note, it's important for investors in the emerging markets to be
prepared at all times for short-term shocks and downturns. These markets are
prone to greater economic and political risks than the United States and other
developed markets, though we believe that they are gradually becoming more
stable on both fronts. And their potential for higher risk goes hand-in-hand
with the potential for greater returns over time.
Q: Why should an investor consider the Montgomery Emerging Markets Fund
right now?
A: We're continually impressed with the strides that developing economies are
making and we expect to see more progress in the future. These countries are
restructuring their economies and laying the foundations for future growth.
What's especially remarkable is that most investors still don't seem to have
discovered them. That creates opportunities for investors who already recognize
both the risks and exceptional long-term potential they present.
======================================
T O P T E N H O L D I N G S
- --------------------------------------
(as a percentage of total net assets)
Petroleo Brasileiro..............2.6%
Alfa S.A. de C.V.................2.2%
Electrobras, "B".................2.0%
China Development Corporation....2.0%
Telec Brasileiras-Telebras ON....1.9%
Banco Bradesco...................1.9%
Tatneft, Sponsored ADS...........1.9%
Telebras, ADR....................1.7%
Mahanagar Telephone Nigam, Ltd...1.4%
Cia Energetica de Minas Gerais...1.4%
=====================================
T O P F I V E C O U N T R I E S
- -------------------------------------
(as a percentage of total net assets)
Brazil..........................19.0%
Taiwan...........................8.8%
Russia...........................7.1%
Malaysia.........................7.1%
India............................6.0%
P O R T F O L I O I N V E S T M E N T S
June 30, 1997
COMMON STOCKS -- 79.1%
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Argentina-- 2.6%
224,480 Banco Frances del Rio de la Plata, ADR
(Banks)..............................................$ 7,295,600
2,193,483 Cresud S.A.+ (Real Estate)........................... 4,892,225
403,404 Inversiones y Representaciones (Real Estate)......... 1,755,079
29,648 Inversiones y Representaciones, GDR
(Real Estate)........................................ 1,297,100
15,848 Inversiones y Representaciones, GDR (Euro)
(Real Estate)........................................ 693,350
1,612,451 Siderar S.A. (Steel)................................. 6,628,201
304,500 Telefonica de Argentina, Sponsored ADR
(Telephone/Networks)................................. 10,543,313
----------
33,104,868
Bangladesh-- 0.1%
98,080 Apex Tannery (Apparel & Textiles).................... 1,481,581
Brazil -- 5.9%
18,166,000 Cia Saneamento Basico Estado
(Water Utilities).................................... 5,534,762
5,700,000 Electrobras (Electric Utilities)..................... 3,187,404
3,330 Electrobras, GDS***+ (Electric Utilities)............ 467,657
250,000 Souza Cruz S.A. (Tobacco)............................ 2,635,735
138,311 Telebras, ADR (Telephone/Networks)................... 20,988,694
180,900,000 Telec Brasileiras-Telebras ON
(Telephone/Networks)................................. 24,533,371
</TABLE>
--
11
--
The accompanying notes are an integral part of these financial statements.
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Emerging Markets Fund
- ---------------------
I N V E S T M E N T S
<TABLE>
<CAPTION>
COMMON STOCKS -- continued
Shares Value (Note 1)
<S> <C> <C>
Brazil -- continued
4,562,257 Telec de Ceara+ (Telecommunications Equipment)........$ 1,865,360
766,225 Telec de Sao Paulo S.A. (Telephone/Regional-Local).... 225,975
397,200 Uniao de Bancos Brasileiros S.A.-Unibanco
GDR+ (Banks).......................................... 14,746,050
----------
74,185,008
Chile -- 1.2%
62,075 Compania de Telefonos de Chile, ADR
(Telecommunications/Wireless)......................... 2,048,475
316,200 Empresa Nacional Electricidad S.A.
(Electric Utilities).................................. 7,134,263
37,916 Sociedad Quimica Minera de Chile (Chemicals).......... 2,507,196
211,300 Supermercados Unimarc S.A.+ (Retail Trade)............ 3,961,875
----------
15,651,809
China/Hong Kong -- 5.1%
15,370,000 Beijing Yanhua Petrochemical Company
Ltd.+ (Chemicals)..................................... 3,332,981
521,000 Cheung Kong Holdings (Real Estate).................... 5,144,567
1,025,000 China Light and Power Company
(Electric Utilities).................................. 5,808,153
1,250,000 China Resources Enterprises Ltd. (Holding)............ 6,131,168
830,000 Citic Pacific Ltd. (Holding).......................... 5,185,290
148,000 First Tractor Company+ (Heavy Construction)........... 97,427
6,800,000 Guangzhou Investment Company Ltd.
(Real Estate)......................................... 3,752,275
194,400 HSBC Holdings (Banks)................................. 5,846,579
610,000 Hutchison Whampoa Ltd. (Conglomerates)................ 5,275,386
1,213,000 New World Development Company Ltd. (Holding).......... 7,233,565
1,199,000 Shanghai Industrial Holdings Ltd. (Conglomerates)..... 7,459,605
340,000 Sun Hung Kai Properties Ltd. (Real Estate)............ 4,092,393
1,768,000 Union Bank of Hong Kong Ltd. (Banks).................. 5,111,871
---------
64,471,260
Colombia -- 0.6%
876,000 Almacenes Exito S.A. (Retail Trade).................. 3,211,732
698,085 Bavaria (Food & Beverage)............................ 5,010,088
---------
8,221,820
Czech Republic -- 1.7%
160,400 Komercni Banka, GDR+ (Banks)......................... 3,340,330
11,000 Komercni Banka, GDR***+ (Banks)...................... 229,075
360,642 Komercni Banka I.F.+ (Mutual Funds).................. 5,361,631
283,010 PIF+ (Mutual Funds).................................. 3,317,103
677,500 The Czech Value Fund+ (Mutual Funds)................. 4,322,450
973,268 Vseobecny I.F. (Mutual Funds)........................ 2,011,919
492,584 Vynosovy I.F.+ (Mutual Funds)........................ 2,491,711
---------
21,074,219
Egypt -- 0.8%
222,000 Al-Ahram Beverages Company, GDR***+
(Food & Beverage).................................... 4,545,450
125,435 Amreya Cement (Cement)............................... 3,055,835
81,240 Tora Cement** (Cement)............................... 2,055,650
---------
9,656,935
Hungary -- 0.2%
251,700 Zalakeramia Rt., GDR***
(Building Materials)................................. 1,969,553
India -- 6.0%
408,350 Bajaj Auto, Ltd.** (Auto/Auto Parts)................. 10,505,317
747,900 Bharat Petroleum Corporation Ltd.** (Oil)............ 9,400,978
771,100 Carrier Aircon, Ltd. (Home Appliance)................ 5,277,081
297,350 Castrol (India) Ltd.** (Chemicals)................... 4,323,203
1,600 Floatglass**+ (Glass)................................ 735
1,100 HDFC Bank, Ltd.** (Banks)............................ 1,897
420,000 Hindustan Petroleum Corporation Ltd.** (Oil)......... 5,326,257
59,170 Housing Development and Finance
Corporation** (Banks)................................ 6,747,942
133,884 Indian Hotels Company Ltd.**+ (Lodging).............. 2,438,334
10,800 Indian Hotels, GDS (Euro) (Lodging).................. 256,500
176,700 Indian Hotels, GDS*** (Lodging)...................... 4,196,625
150 Industrial Credit & Investment
Corporation** (Banks)................................ 328
12,715 Madras Cement Ltd.** (Cement)........................ 2,867,978
2,127,900 Mahanagar Telephone Nigam, Ltd.**
(Telephone/Regional-Local)........................... 18,054,459
108,000 Oil and Natural Gas Corporation Ltd.**+ (Oil)........ 1,119,972
3,500 State Bank of India**+ (Banks)....................... 33,265
739 Tata Engineering & Locomotive Company,
Ltd.** (Auto/Auto Parts)............................. 9,330
51,800 Videsh Sanchar Nigam Ltd.**
(Telephone/Long Distance)............................ 1,678,436
141,600 Videsh Sanchar Nigam Ltd., GDR***+
(Telephone/Long Distance)............................ 2,948,820
---------
75,187,457
Indonesia -- 3.0%
2,562,000 Bimantara (F)** (Conglomerates)...................... 4,477,179
1,288,400 Hanjaya Mandala Sampoerna (F) (Tobacco).............. 4,913,614
3,358,000 Lippo Bank (F)** (Banks)............................. 3,451,891
4,065,000 Lippo Securities** (Diversified Financial
Services)............................................ 2,883,275
749,000 London Sumatra Indonesia**
(Agriculture Commodities) ........................... 2,371,423
3,578,000 Matahari Putra Prima (F)** (Retail Trade)............ 7,208,964
8,164,800 Mulia Industrindo (F) (Glass)........................ 4,280,477
311,000 Putra Surya Multidana (F)+
(Diversified Financial Services)..................... 495,528
1,909,000 Semen Gresik (F)** (Building Materials).............. 4,277,981
</TABLE>
- --
12
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
---------------------
The Montgomery Funds
---------------------
Emerging Markets Fund
---------------------
I N V E S T M E N T S
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
Indonesia -- continued
102,280 Telekomunikas Indonesia, ADR
(Telephone/Regional-Local)........................$ 3,324,100
480,000 Telekomunikas Indonesia (F)
(Telephone/Regional-Local)........................ 784,539
-------
38,468,971
Israel -- 1.0%
1,551,600 Supersol Ltd. (Retail Trade)...................... 4,978,414
108,700 Teva Pharmaceuticals (Pharmacy/Drugs)............. 7,029,584
18,000 Teva Pharmaceuticals, ADR
(Pharmacy/Drugs).................................. 1,166,625
---------
13,174,623
Korea -- 5.7%
550,000 Daewoo Corporation (Conglomerates)................ 4,471,847
300,000 Dongwon Securities (Securities Brokerage)......... 3,952,703
283,633 Hanwha Chemical Corporation+ (Chemicals).......... 2,235,842
260,000 Hyundai Engineering and Construction
Company (Heavy Construction)...................... 6,675,676
200,000 Hyundai Merchant Marine+ (Shipping)............... 3,761,261
269 Kookmin Bank (Banks).............................. 5,030
493,204 Korea Electric Power Corporation, ADR
(Electric Utilities).............................. 14,718,363
50,000 Korea Special Opportunities Fund
(Mutual Funds).................................... 575,000
114,000 LG Semiconductor Company+
(Semiconductor)................................... 4,441,892
89,960 Pohang Iron & Steel Company, Ltd. (Steel)......... 9,337,313
48,941 Samsung Electronics Ltd. (F) (Electronics)........ 5,491,403
2 Samsung Electronics Ltd., New, GDR+
(Electronics)..................................... 116
277 Samsung Electronics Ltd., New, GDS ***+
(Electronics)..................................... 16,101
475,000 SeoulBank+ (Banks)................................ 1,963,119
459,192 Shinhan Bank (Banks).............................. 6,721,733
299,997 Yukong, Ltd. (Oil)................................ 7,263,441
---------
71,630,840
Malaysia -- 7.1%
2,992,000 Arab Malaysian Corporation
(Diversified Financial Services).................. 11,142,948
776,000 Arab Malaysian Finance (F)
(Diversified Financial Services).................. 252,108
1,120,000 Guinness Anchor Berhad (Food & Beverage).......... 2,484,945
858,000 Hong Leong Bank Berhad (Banks).................... 2,158,597
3,870,000 IJM Corporation Berhad
(Heavy Construction).............................. 8,126,387
12,163,000 IOI Corporation Oxygen, Inc.
(Agriculture Commodities)......................... 13,878,542
1,325,000 Leader Universal Holdings Berhad
(Telecommunications Equipment).................... 2,383,320
531,000 Malakoff Berhad (Electric Utilities).............. 2,314,184
1,488,000 New Straits Times (Newspapers/Publishing)......... 8,725,198
842,000 Oriental Holdings Berhad (Auto/Auto Parts)........ 6,338,352
275,000 Powertek Berhad+ (Electric Utilities)............. 420,563
700,000 Public Bank Berhad (Banks)........................ 998,415
3,295,000 Public Bank Berhad (F) (Banks).................... 5,143,542
2,679,000 Renong Berhad (Heavy Construction)................ 3,502,655
371,000 Sime UEP Properties Berhad (Real Estate).......... 801,090
2,314,000 Tan Chong Motor Holdings Berhad
(Auto/Auto Parts)................................. 4,363,962
786,000 Tanjong PLC (Leisure Time)........................ 2,709,271
930,000 Telekom Malaysia Berhad
(Telecommunications/Other)........................ 4,347,861
1,278,700 United Engineers Berhad
(Heavy Construction).............................. 9,220,420
---------
89,312,360
Mexico -- 5.4%
725,000 Acer Computer Latino America S.A. de C.V.+
(Computers & Office Equipment).................... 2,517,773
4,107,141 Alfa S.A. de C.V. (Conglomerates)................. 27,958,015
2,300,000 Cifra S.A. de C.V., ADR (Retail Trade)............ 4,151,500
357,000 Empresas La Moderna S.A. de C.V.,
Class A+ (Tobacco)................................ 1,897,861
330,000 Grupo Radio Central S.A. de C.V., ADR
(Broadcasting/Advertising)........................ 3,877,500
1,392,594 Industrias Penoles CPO (Metals & Mining).......... 6,640,996
1,208,000 Kimberly Clark de Mexico, Class A
(Pulp & Paper).................................... 4,833,520
749,000 San Luis Corporacion S.A. de C.V.
(Metals & Mining)................................. 5,541,516
210,370 Telefonos de Mexico S.A., ADR
(Telephone/Long Distance)......................... 10,045,168
----------
67,463,849
Morocco -- 0.3%
60,000 Banque Marocaine du Commerce Exterieur
(Banks)........................................... 3,772,695
2 Banque Marocaine du Commerce Exterieur,
GDR*** (Banks).................................... 39
--
3,772,734
Pakistan -- 0.3%
3,396 Adamjee Insurance Company** (Insurance)........... 7,646
242 Engro Chemicals Pakistan** (Chemicals)............ 856
1,362,800 Fauji Fertilizer Company Ltd.
(Agriculture Commodities)......................... 2,680,454
77,022 Pakistan State Oil** (Oil)........................ 621,214
-------
3,310,170
Peru -- 1.1%
155,514 Credicorp, Ltd. (Banks)........................... 3,421,308
1,812,021 Ferreyros Enrique S.A. (Holding).................. 2,083,568
44,400 Ferreyros Enrique S.A. ADS***
(Metals & Mining)................................. 1,071,150
1,167,810 Telefonica del Peru S.A., Class B
(Telephone/Networks).............................. 3,068,666
143,800 Telefonica del Peru S.A., Series B, ADR
(Telephone/Networks) ............................. 3,765,763
---------
13,410,455
</TABLE>
--
13
--
The accompanying notes are an integral part of these financial statements.
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Emerging Markets Fund
- ---------------------
I N V E S T M E N T S
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
Philippines-- 2.5%
20,861,000 Belle Corporation+ (Real Estate).................$ 6,089,995
15,578,000 DMCI Holdings+ (Heavy Construction).............. 5,138,330
6,435,500 International Container Terminal Services,
Inc.+ (Shipping)................................. 3,293,875
2,307,276 Keppel Philippines Holdings, Inc., Class B+
(Shipping)....................................... 279,924
490,000 La Tondena Distillers Inc. (Food & Beverage)..... 1,179,671
1,554,834,234 Manila Mining, Class B+ (Metals & Mining)........ 766,335
6,587,351 Metro Pacific Inc., Class B (Conglomerates)...... 1,423,563
4,980,000 Music Semiconductors Corporation+
(Semiconductor).................................. 2,596,110
7,060,000 PCI Leasing and Finance, Inc.+
(Diversified Financial Services)................. 1,338,338
24,527,520 Petron Corporation (Oil)......................... 6,230,451
1,930 Philippine Long Distance Telephone, ADR
(Telephone/Long Distance)........................ 124,003
9,186,250 Republic Glass (Glass)........................... 835,874
13,377,000 Uniwide Holdings, Inc.+ (Retail Trade) .......... 2,637,261
---------
31,933,730
Portugal -- 2.7%
33,455 Capital Portugal Fund+ (Mutual Funds)............ 5,071,762
504,000 Cimpor-Cimentos de Portugal
(Building Materials)............................. 11,747,304
96,000 Electricidad de Portugal+ (Electric Utilities)... 1,761,918
362,150 Sonae InvestImentos (Retail Trade)............... 15,143,257
----------
33,724,241
Romania -- 0.1%
118,811 Romania Growth Fund PLC+
(Mutual Funds)................................... 1,188,110
Russia -- 7.1%
46,389 Global Telesystems Group, Inc.**+
(Telephone/Networks)............................. 868,322
145,000 Irkutskenergo, ADR (Electric Utilities).......... 2,501,250
221 Irkutskenergo, RDC***+ (Electric Utilities)...... 15,005,900
95,700 LukOil Company, ADR (Oil)........................ 7,446,656
125 LukOil Company, RDC*** (Oil)..................... 12,193,750
575 Russian Regional Telecommunications
Certificates*** (Telephone/Regional-Local)....... 7,648,928
272,700 Surgutneftegaz, ADR (Oil)........................ 14,606,494
56,500 Tatneft, ADR+ (Oil).............................. 6,059,625
219,400 Tatneft, Sponsored ADS***+ (Oil)................. 23,530,650
----------
89,861,575
Singapore -- 0.7%
740,000 Keppel Corporation, ORD
(Heavy Construction)............................. 2,505,141
1,397,000 Sunright Ltd.+ (Electronics)..................... 2,540,533
2,500,000 Thakral Corporation Ltd.
(Home Appliance)................................. 2,550,000
480,000 Wong's Circuits Holdings Ltd.+
(Semiconductor).................................. 806,400
-------
8,402,074
Slovenia-- 0.1%
115,000 BTC, GDR***+ (Electric Utilities)................ $ 1,127,000
South Africa -- 3.5%
219,200 Anglovaal, Ltd. (Conglomerates).................. 5,845,978
281,230 Barlow, Ltd. (Building Materials)................ 3,059,004
5,895,000 Highstone Property Fund (Real Estate)............ 1,689,112
740,000 JCI Ltd. (Diversified Financial Services)........ 5,692,308
4,377,976 Lonrho (Conglomerates)........................... 9,379,309
32,000 Pepsi International Bottlers**+
(Food & Beverage)................................ 2,784,000
1,223,336 Sasol, Ltd. (Oil)................................ 16,043,309
----------
44,493,020
Sri Lanka -- 0.1%
216,195 Aitken Spence and Company
(Conglomerates).................................. 683,811
61,300 Development Finance Corporation of
Ceylon (Banks)................................... 298,692
-------
982,503
Taiwan -- 8.8%
1,945,800 ASE+ (Semiconductor)............................. 7,384,241
360 Bank Sinopac (Banks)............................. 344
4,800,000 China Development Corporation+
(Diversified Financial Services)................. 24,776,978
4,980,000 China Steel Corporation (Steel).................. 5,266,619
2,600,000 Compal Electronics+
(Computers & Office Equipment)................... 10,287,770
2,179,000 Delta Electronic Industrial
(Electrical Equipment)........................... 13,481,583
3,700,000 Formosa Chemicals and Fiber Corporation
(Apparel & Textiles)............................. 5,376,978
3,000,000 Hung Sheng Construction Ltd. (Real Estate)....... 5,125,899
6,890,266 Pacific Construction+ (Heavy Construction)....... 7,361,183
2,160,000 Primax Electronics Ltd.
(Computers & Office Equipment)................... 6,410,072
2,250,420 Taiwan Semiconductor Company+
(Semiconductor).................................. 9,997,369
2,000,000 United World Chinese Commercial Bank
(Banks).......................................... 4,784,173
1,373,600 Yageo Corporation+ (Electronics)................. 5,780,978
269,350 Yageo Corporation, GDR***+ (Electronics)......... 4,713,625
---------
110,747,812
Thailand -- 1.8%
240,100 Central Pattana Public Company, Ltd. (F)
(Real Estate).................................... 347,133
337,000 CH Karnchang Public Company (F)
(Heavy Construction)............................. 920,321
2,435,950 Electricity Generation Power Company (F)
(Electric Utilities)............................. 6,212,162
66,400 Industrial Finance Corporation of
Thailand (F) (Securities Brokerage).............. 88,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --
14
- --
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Emerging Markets Fund
- ---------------------
I N V E S T M E N T S
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
Thailand -- continued
164,900 Pizza Public Company Ltd.
(Food & Beverage)................................$ 880,791
502,800 PTT Exploration and Production Public
Company, Ltd. (F) (Oil).......................... 7,592,482
301,600 Regional Container Lines (F) (Shipping).......... 1,865,317
85,100 Siam Cement Public Company, Ltd. (F)
(Building Materials)............................. 1,531,116
144,150 Siam Cement Public Company, Ltd. Local,
Series 2 (Building Materials).................... 2,234,325
566,800 Thai Airways International Public Company,
Ltd. (F) (Airlines).............................. 864,996
-------
22,536,643
Turkey -- 2.2%
25,060,000 Akcansa Cimento A.S. (Cement).................... 3,458,879
10,532,873 Efes Sinai Yatrium ve Ticaret**
(Food & Beverage)................................ 754,481
17,063,165 Koc Holdings (Holding)........................... 4,020,944
5,836,950 Migros Turk T.A.S. (Retail Trade)................ 4,126,442
17,732,556 Tat Konserve (Food & Beverage)................... 1,313,302
120,208,000 Turk Sise ve Cam+ (Glass)........................ 7,607,845
127,768,000 Yapi Ve Kredi Bankasi A.S. (Banks)............... 2,924,836
169,931,440 Yapi Ve Kredi Bankasi A.S., New (Banks).......... 3,890,031
---------
28,096,760
Ukraine -- 0.1%
721,000 Ukraine Enterprise Corporation+
(Mutual Funds)................................... 1,279,156
Venezuela -- 1.3%
224,400 Compania Anonima Nacional Telefonos de
Venezuela, ADR (Telephone/Networks).............. 9,677,250
4,359,437 Electricidad de Caracas (Electric Utilities) 6,984,610
---------
16,661,860
Vietnam -- 0.0%#
42,600 Southeast Asia Frontier Fund+ (Mutual Funds)..... 117,150
38,000 The Vietnam Frontier Fund+ (Mutual Funds)........ 323,000
-------
440,150
TOTAL COMMON STOCKS
(Cost $839,744,955)............................................. 997,023,146
-----------
PREFERRED STOCKS -- 13.4%
Brazil -- 13.1%
2,408,701,596 Banco Bradesco (Banks)........................... 24,276,079
343,420,000 Cia Energetica de Minas Gerais
(Electric Utilities)............................. 17,704,528
419,583,000 Cia Paranaense de Energi (Electric Utilities).... 7,794,956
6,700,000 Copene-Petroquimica do Nordests S.A.
(Chemicals)...................................... 2,483,210
42,392,000 Electrobras, "B" (Electric Utilities)............ 25,280,446
76,433,143 Industrias Romi, S.A. (Machinery & Tools)........ 1,561,961
7,990,000 Itausa Investimentos Itau (Holding).............. 7,347,638
50,500 Kepler Weber S.A.+ (Machinery & Tools)........... 260,346
67,300,000 Lojas Americanas+ (Retail Trade)................. 912,712
91,972,000 Lojas Renner S.A. (Retail Trade)................. 4,715,856
8,680,000 Marcopolo S.A., Series B (Auto/Auto Parts)....... 1,552,088
11,780,000 Metalurgica E Shultz S.A. (Steel)................ 177,266
96,937,500 Odebrecht S.A. (Heavy Construction).............. 823,908
117,921,300 Petroleo Brasileiro (Oil)........................ 32,752,448
72,785,194 Telebras(Telephone/Networks)..................... 11,040,660
43,340,988 Telec de Minas Gerais S.A.
(Telephone/Regional-Local)....................... 7,669,368
18,691,516 Telec de Sao Paulo S.A.
(Telephone/Regional-Local)....................... 6,102,892
45,076,418 Telec do Rio Janeiro S.A.
(Telephone/Networks)............................. 6,950,616
53,530,000 Uniao de Bancos Brasileiros (Banks).............. 1,963,587
69,060 Usiminas (Steel)................................. 769,151
72,988 Vale do Rio Doce (Metals & Mining)............... 1,614,272
487,888 Vale do Rio Doce, "B" (Metals & Mining).......... 0
2,423,000 Weg S.A. (Furniture)............................. 1,665,524
---------
165,419,512
Korea -- 0.1%
24,940 Samsung Electronics, Ltd. (F) (Electronics)...... 1,194,901
Philippines -- 0.2%
67,700 Philippine Long Distance Telephone,
Convertible Preferred, 5.750% 12/31/49
(Telephone/Long Distance)........................ 2,483,913
---------
TOTAL PREFERRED STOCKS
(Cost $100,894,122)............................................. 169,098,326
-----------
CONVERTIBLE BONDS -- 0.6%
Principal Amount
Mexico -- 0.1%
$ 750,000 Alfa S.A. de C.V., 8.000% due 09/15/00***
(Conglomerates).................................. 1,070,625
South Africa -- 0.3%
3,150,000 Barlow, Ltd., 7.000% due 09/20/04***
(Building Materials)............................. 4,000,500
Thailand -- 0.2%
2,660,000 Central Pattana Public Company, Ltd.,
2.750% due 04/10/01*** (Real Estate)............. 2,440,550
50,000 Central Pattana Public Company, Ltd.,
2.750% due 04/10/01*** (Real Estate)............. 45,875
------
2,486,425
TOTAL CONVERTIBLE BONDS
(Cost $7,092,312)............................................... 7,557,550
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
--
15
--
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Emerging Markets Fund
- ---------------------
I N V E S T M E N T S
<TABLE>
<CAPTION>
RIGHTS -- 0.0%#
Shares Value (Note 1)
<S> <C>
Korea -- 0.0%#
812 Samsung Electronics Ltd., Expires 01/01/98+
(Electronics)......................................$ 88,377
Malaysia -- 0.0%#
25 DCB Sakura+ (Banks).................................. 0
110,500 Hong Leong Bank Berhad, Expires 07/21/97+
(Banks)............................................ 17,512
------
17,512
------
TOTAL RIGHTS
(Cost $42,520)................................................... 105,889
-------
WARRANTS -- 0.0%#
Czech Republic -- 0.0%#
81,300 The Czech Value Fund, Expires 09/13/98+
(Mutual Funds)..................................... 30,894
Malaysia -- 0.0%#
500 Development and Commercial Bank
Holdings Corporation, Expires 12/27/99+
(Banks)............................................ 576
---
TOTAL WARRANTS
(Cost $171,000).................................................. 31,470
------
TOTAL SECURITIES
(Cost $947,944,909).............................................. 1,173,816,381
=============
<CAPTION>
REPURCHASE AGREEMENTS -- 6.7%
Principal Amount Value (Note 1)
<S> <C>
$42,033,000 Agreement with Greenwich Capital, Tri-Party,
6.200% dated 06/30/97, to be repurchased at
$42,040,239 on 07/01/97, collateralized by
$42,874,675 market value of U.S. government
securities, having various maturities and
various interest rates.............................$ 42,033,000
42,033,000 Agreement with Nikko Securities Company
International Inc., Tri-Party, 6.200% dated
06/30/97, to be repurchased at $42,040,239
on 07/01/97, collateralized by $43,067,250
market value of U.S. government securities,
having various maturities and various
interest rates..................................... 42,033,000
----------
TOTAL REPURCHASE AGREEMENTS
(Cost $84,066,000)............................................... 84,066,000
----------
TOTAL INVESTMENTS -- 99.8%
(Cost $1,032,010,909*)........................................... 1,257,882,381
OTHER ASSETS AND LIABILITIES -- 0.2%
(Net) ........................................................... 2,181,549
---------
NET ASSETS -- 100.0% ............................................$1,260,063,930
==============
</TABLE>
* Aggregate cost for federal tax purposes was $1,044,289,426.
** Illiquid Security or Special Situation Security (see note 7 to Financial
Statements).
*** Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
# Amount represents less than 0.1%.
+ Non-income producing security.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
Abbreviations:
ADR.....American Depositary Receipt
ADS.....American Depositary Share
(F).....Foreign or Alien Shares
GDR.....Global Depositary Receipt
GDS.....Global Depositary Share
ORD.....Ordinary
RDC.....Russian Depositary Certificate
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
--------------------------------------
The Montgomery Funds
--------------------------------------
Global
Communications Fund
--------------------------------------
P O R T F O L I O H I G H L I G H T S
I N V E S T M E N T R E V I E W
Q: How did the Fund perform from July 1, 1996, through June 30, 1997?
A: The portfolio gained 14.43%, lagging its benchmark, the Morgan Stanley World
Index. Since inception, the Fund has underperformed that benchmark by about 40
basis points on an annualized basis.
Q: What were the positive factors contributing to that performance?
A: Many different individual positions contributed to the gain over the past
year. That's really the beauty of this fund: Although it technically invests in
a single sector, the "sector" is so wide that it can encompass everything from
Telebras, Brazil's state-owned telephone monopoly, to Sony, the huge media
conglomerate based in Japan. These holdings, and many others, performed well
over the past year. So good stock selection contributed to the plus side.
Q: Were there any disappointments?
A: Yes, there were a few. For part of the period, investors shied away from
telecommunications stocks in the United States and elsewhere, apparently waiting
for the dust surrounding deregulation to settle. The Telecommunications Act
passed in the United States last year, the World Trade Organization accord
passed this year and similar reforms in other countries have set the stage for
dramatic change in the industry. Of course, with any major transition like this,
there's bound to be some uncertainty about who will emerge as the winners and
who will end up the losers. We think these reforms will ultimately be very
positive for the industry. For one thing, the demand for communications goods
and services appears to be so great that it will support not only the strongest
"incumbent" players in the industry but also the savviest newcomers.
Q: Besides the move toward deregulation, what were the other major trends in
the global communications arena over the past year?
A: The sector continued to grow and develop in a lot of different ways. Many
countries, both developed and developing, made progress on implementing long-
term reforms like privatization of their communications industries. During the
past year, for example, Germany brought its monopoly telephone operator,
Deutsche Telekom, to the auction block in Europe's largest-ever privatization.
It was very well received by investors. Likewise, India and Venezuela are just
two of the several emerging markets that privatized their state-owned telephone
monopolies over the past year.
Another major trend was an almost continuous series of mergers, acquisitions and
alliances between communications companies worldwide. Among the most significant
were British Telecommunications' acquisition of MCI and WorldCom's purchase of
MFS Communications. In Europe there were also myriad alliances between major
communications
==========================================
P O R T F O L I O M A N A G E M E N T
- ------------------------------------------
Oscar A. Castro, CFA................Senior
Portfolio Manager
==========================================
F U N D P E R F O R M A N C E
- ------------------------------------------
Average annual total returns
for the periods ended 6/30/97
- ------------------------------------------
Montgomery
Global Communications Fund
<TABLE>
<S> <C>
Since inception (6/1/93)..........14.30%
One year..........................14.43%
Three years.......................13.39%
<CAPTION>
- ------------------------------------------
MSCI World Index
<S> <C>
Since 5/31/93.....................14.71%
One year..........................22.27%
Three years.......................17.03%
</TABLE>
- ------------------------------------------
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
[LINE CHART APPEARS HERE]
Growth of a $10,000 Investment
<TABLE>
<CAPTION>
Montgomery
Global MSCI
Communications MSCI World Telecommunications Lipper Global
Fund Index/1/ Index/2/ Funds Average/3/
-------------- ---------- ------------------ ---------------
Date Value Value Value Value
- ---- -------------- ---------- ------------------ ---------------
<S> <C> <C> <C> <C>
May-93 $10,000 $10,000.00 $10,000 $10,000
Jun-93 $9,877 $10,222.42 $9,914 $10,375
Jul-93 $10,054 $10,322.50 $10,115 $10,625
Aug-93 $10,647 $10,926.62 $10,576 $11,675
Sep-93 $10,691 $10,753.92 $10,378 $12,017
Oct-93 $11,128 $11,224.74 $10,662 $12,867
Nov-93 $10,810 $10,633.67 $10,056 $12,067
Dec-93 $11,685 $10,826.21 $10,546 $13,483
Jan-94 $12,205 $11,289.13 $11,239 $14,050
Feb-94 $11,931 $10,524.82 $11,091 $13,558
Mar-94 $11,398 $10,179.59 $10,610 $12,558
Apr-94 $11,567 $10,495.95 $10,936 $12,742
May-94 $11,555 $10,540.39 $10,962 $12,608
Jun-94 $11,332 $10,474.40 $10,929 $11,833
Jul-94 $11,664 $10,772.38 $11,134 $12,342
Aug-94 $12,087 $11,096.25 $11,467 $13,217
Sep-94 $11,870 $10,762.79 $11,163 $12,950
Oct-94 $12,052 $10,984.54 $11,478 $13,117
Nov-94 $11,512 $10,218.92 $10,977 $12,068
Dec-94 $11,383 $10,178.04 $11,081 $11,675
Jan-95 $11,026 $10,394.72 $10,912 $11,007
Feb-95 $11,198 $10,376.05 $11,069 $10,982
Mar-95 $11,484 $10,567.71 $11,599 $11,241
Apr-95 $11,859 $10,692.30 $12,001 $11,700
May-95 $12,095 $10,844.01 $12,101 $12,260
Jun-95 $12,296 $11,012.18 $12,095 $12,878
Jul-95 $12,944 $11,262.25 $12,697 $13,571
Aug-95 $12,774 $11,507.81 $12,411 $13,596
Sep-95 $13,006 $12,184.28 $12,770 $14,297
Oct-95 $12,703 $12,031.70 $12,566 $13,629
Nov-95 $12,929 $12,101.60 $13,000 $13,763
Dec-95 $13,154 $12,471.68 $13,377 $13,646
Jan-96 $13,531 $12,681.42 $13,617 $13,947
Feb-96 $13,677 $12,569.04 $13,697 $14,064
Mar-96 $13,922 $12,376.44 $13,922 $14,180
Apr-96 $14,400 $12,767.54 $14,246 $15,158
May-96 $14,566 $12,627.66 $14,256 $15,124
Jun-96 $14,486 $12,589.88 $14,325 $15,074
Jul-96 $13,801 $11,739.67 $13,816 $14,172
Aug-96 $14,171 $11,792.36 $13,972 $14,456
Sep-96 $14,565 $12,221.62 $14,516 $14,932
Oct-96 $14,542 $12,457.80 $14,614 $14,499
Nov-96 $15,234 $13,129.67 $15,430 $15,107
Dec-96 $15,232 $13,421.90 $15,180 $14,740
Jan-97 $15,552 $13,551.05 $15,360 $15,497
Feb-97 $15,614 $13,693.86 $15,534 $15,180
Mar-97 $15,357 $13,259.87 $15,224 $14,863
Apr-97 $15,558 $13,402.58 $15,719 $15,189
May-97 $16,480 $14,220.08 $16,686 $16,440
Jun-97 $17,175 $14,820.55 $17,516 $17,250
</TABLE>
/1/ The Morgan Stanley Capital International World Index measures the
performance of 22 global stock markets.
/2/ The MSCI Telecommunications Index measures the performance of equity
securities of approximately 25 communications companies in developed
countries.
/3/ The Lipper Global Funds Average universe consists of 66 funds.
--
17
--
<PAGE>
- --------------------------------------
The Montgomery Funds
- --------------------------------------
Global
Communications Fund
- --------------------------------------
P O R T F O L I O H I G H L I G H T S
======================================
T O P T E N H O L D I N G S
- --------------------------------------
(as a percentage of total net assets)
<TABLE>
<S> <C>
Global Telesystems Group, Inc....5.5%
Grupo Iusacell, Series L, ADR....3.5%
Nokia Corporation AB, Series A...3.0%
Ionica...........................2.8%
Sony Corporation.................2.6%
WorldCom, Inc....................2.5%
Cable and Wireless PLC...........2.5%
Scripps Company (E.W.)...........2.3%
Telebras, ADR....................2.3%
Advantest Corporation............2.3%
</TABLE>
======================================
T O P F I V E C O U N T R I E S
- --------------------------------------
(as a percentage of total net assets)
<TABLE>
<S> <C>
Great Britain...................17.3%
United States...................13.4%
Russia...........................7.5%
Japan............................6.8%
Brazil...........................6.4%
</TABLE>
players designed to give these companies an edge when greater competition is
introduced there at the start of 1998.
Q: Why should an investor consider the Montgomery Global Communications Fund
right now?
A: Although the market has been concerned lately about how deregulation and
other changes will affect the industry, that concern actually allows investors
who believe in its long-term potential to invest at attractive prices. And
they're in very good company: Many of the major players--well-respected names
like British Telecommunications, WorldCom and SBC Communications--have been
actively forging strategic alliances with others in the industry. In other
words, these companies (which one would expect to have a uniquely privileged
outlook on the sector) see a great deal of potential in the global
communications arena and have been willing to pay premium prices to take
advantage of those opportunities. We think many more investors on the market
level will eventually wake up to the promise.
There are also some extremely powerful long-term trends driving the sector.
Earlier this year a Wall Street Journal article on the changes taking place in
the communications field cited an arresting fact: Roughly 80% of the world's
people don't own a telephone, and about half have never even used one. Given how
integral the telephone, the television and, increasingly, other forms of
communication like the Internet, are to most of our lives in the developed
world, there could be tremendous opportunities in the global communications
sector if even a small percentage of the developing world adopts these
technologies.
P O R T F O L I O I N V E S T M E N T S
June 30, 1997
<TABLE>
<CAPTION>
COMMON STOCKS -- 87.7%
Shares Value (Note 1)
<S> <C> <C>
Belgium -- 1.6%
58,500 Audiofina Cie.,***
(Broadcasting/Advertising)..............................$ 2,405,668
Brazil -- 2.5%
23,100 Telebras, ADR (Telephone/Networks)...................... 3,505,425
901,693 Telecomunicacoes de Sao Paulo S.A.+
(Telephone/Regional-Local).............................. 265,931
-------
3,771,356
Canada -- 3.0%
73,400 Cognos, Inc.+ (Software Systems)........................ 2,289,163
213,300 Manitoba Telecom Services Inc.
(Telephone/Regional-Local).............................. 2,270,546
---------
4,559,709
China/Hong Kong -- 4.0%
1,724,125 First Pacific Company*** (Conglomerates)................ 2,203,198
401,000 Hutchison Whampoa Ltd. (Conglomerates).................. 3,467,918
242,500 Smartone Telecommunications+
(Telecommunications/Wireless)........................... 550,902
-------
6,222,018
Finland -- 3.0%
62,200 Nokia Corporation AB, Series A
(Telecommunications Equipment).......................... 4,644,562
France -- 4.6%
24,435 Axime (Ex Segin)+ (Software Systems).................... 2,889,772
15,700 Eaux (Cie Generale des) (Conglomerates)................. 2,011,690
10,835 Europe 1 Communication
(Broadcasting/Advertising).............................. 2,221,685
---------
7,123,147
</TABLE>
- --
18
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
---------------------
The Montgomery Funds
---------------------
Global
Communications Fund
---------------------
I N V E S T M E N T S
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
Germany-- 4.9%
2,345 Axel Springer Verlag, Class A
(Newspapers/Publishing)...........................$ 2,084,205
5,740 Mannesmann AG (Auto/Auto Parts)................... 2,557,401
52,250 Veba AG***(Electric Utilities).................... 2,936,151
---------
7,577,757
Great Britain -- 17.3%
3,178,800 Aegis Group, ORD
(Broadcasting/Advertising)........................ 3,321,771
221,000 Azlan Group PLC
(Telecommunications/Networks)..................... 2,042,575
721,819 Cable and Wireless PLC+
(Telecommunications/Others)....................... 3,828,516
116,300 Colt Telecom Group PLC, ADR***+
(Telephone/Regional-Local)........................ 2,384,150
52,100 Dr. Solomon's Group PLC, ADR+
(Software Systems)................................ 1,331,806
4,230,000 Freepages Group PLC+
(Broadcasting/Advertising)........................ 2,571,142
1,110,000 Ionica (Telephone/Wireless)....................... 4,320,832
15,600 MISYS PLC
(Computers & Office Equipment).................... 353,960
628,900 Orange PLC+ (Telephone/Wireless).................. 2,078,906
262,300 Reuters Holdings PLC
(Broadcasting/Advertising)........................ 2,764,998
318,750 Vodafone Group PLC (Telephone/Wireless)........... 1,552,633
---------
26,551,289
Greece -- 1.5%
99,000 Hellenic Telecommunication Organization
S.A. (Telephone/Networks)......................... 2,324,197
Italy -- 5.4%
208,000 S.T.E.T. di Risp*** (Telecommunications).......... 721,925
282,300 S.T.E.T. Societa Finanziaria Telefonica
SpA*** (Telephone/Networks)....................... 1,644,079
392,600 Telecom Italia Mobile SpA
(Telephone/Wireless).............................. 702,102
491,000 Telecom Italia Mobile SpA
(Telephone/Wireless).............................. 1,588,623
888,500 Telecom Italia SpA***
(Telephone/Regional-Local)........................ 2,864,274
392,700 Telecom Italia SpA Risp***
(Telephone/Regional-Local)........................ 777,361
-------
8,298,364
Japan -- 6.8%
45,200 Advantest Corporation (Semiconductor)............. 3,470,401
96,000 Fujitsu Denso (Telecommunications
Equipment)........................................ 2,948,305
46,500 Sony Corporation*** (Electronics)................. 4,053,003
---------
10,471,709
Mexico -- 3.5%
295,000 Grupo Iusacell, Series L, ADR+
(Telephone/Wireless).............................. 5,420,625
105,000 Grupo Mexicano de Video**+ (Leisure Time)......... 10,435
------
5,431,060
Netherlands -- 1.7%
43,600 ASM Lithography Holding N.V. ***+
(Semiconductor).................................. 2,546,513
Russia -- 7.5%
450,987 Global Telesystems Group, Inc.**+
(Telephone/Networks).............................. 8,441,702
200,000 Russian Telecommunications Development
Corporation**+ (Telephone/Networks).............. 1,490,207
40,521 Vimpel-Communications, ADR**+
(Telecommunications/Wireless)..................... 1,539,798
---------
11,471,707
Spain -- 2.1%
113,700 Telefonica de Espana, ORD
(Telephone/Networks).............................. 3,287,153
Sweden -- 1.8%
70,220 Ericsson (L.M.) Telephone Company, Class B
(Telecommunications Equipment).................... 2,764,138
Switzerland -- 1.7%
1,820 Compagnie Financiere Richemont, Series A
(Holding)........................................ 2,629,013
United States -- 13.4%
102,000 Airtouch Communications, Inc.***+
(Telephone/Wireless).............................. 2,792,250
90,000 Brooks Fiber Properties Inc.+
(Telephone/Networking)............................ 3,043,125
87,200 Cabletron Systems Inc.+
(Computers & Office Equipment).................... 2,468,850
33,884 Cisco Systems, Inc.+
(Computers & Office Equipment).................... 2,275,522
50,000 McLeod, Inc.+
(Telecommunications/Regional-Local)............... 1,681,250
90,000 Montgomery Emerging Communications
Fund++ (Holding).................................. 1,035,450
84,500 Scripps Company (E.W.)
(Broadcasting/Advertising)........................ 3,517,312
120,008 WorldCom, Inc.+ (Telephone/Long Distance)......... 3,836,506
---------
20,650,265
Venezuela -- 1.4%
51,500 Compania Anonima Telefonos de Venezuela
ADR (Telephone/Networks).......................... 2,220,938
---------
TOTAL COMMON STOCKS
(Cost $104,651,090)........................................... 134,950,563
-----------
</TABLE>
--
19
--
The accompanying notes are an integral part of these financial statements.
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Global
Communications Fund
- ---------------------
I N V E S T M E N T S
<TABLE>
<CAPTION>
PREFERRED STOCKS -- 3.9%
Shares Value (Note 1)
<S> <C>
Brazil -- 3.9%
15,523,077 Telec de Minas Gerais S.A.
(Telephone/Regional-Local)........................ $ 2,746,873
9,786,309 Telec de Sao Paulo S.A.
(Telephone/Regional-Local)........................ 3,195,288
---------
TOTAL PREFERRED STOCKS
(Cost $3,165,437)............................................. 5,942,161
---------
TOTAL SECURITIES
(Cost $107,816,527)........................................... 140,892,724
-----------
<CAPTION>
REPURCHASE AGREEMENTS -- 5.2%
Principal Amount
<S> <C>
$4,028,000 Agreement with Bear Stearns, Tri-Party,
6.200% dated 06/30/97, to be repurchased at
$4,028,694 on 07/01/97, collateralized by
$4,108,560 market value of U.S. government
securities, having various maturities and various
interest rates.................................... 4,028,000
4,028,000 Agreement with Nikko Securities Company
International Inc., Tri-Party, 6.200% dated
06/30/97, to be repurchased at $4,028,694
on 07/01/97, collateralized by $4,127,112
market value of U.S. government securities,
having various maturities and various
interest rates.................................... 4,028,000
---------
TOTAL REPURCHASE AGREEMENTS
(Cost $8,056,000)............................................. 8,056,000
---------
TOTAL INVESTMENTS -- 96.8%
(Cost $115,872,527*).......................................... $148,948,724
OTHER ASSETS AND LIABILITIES -- 3.2%
(Net)......................................................... 5,006,377
---------
NET ASSETS -- 100.0%........................................... $153,955,101
============
</TABLE>
* Aggregate cost for federal tax purposes was $116,007,977.
** Illiquid Security or Special Situation Security (see note 7 to Financial
Statements).
***Securities on loan at June 30, 1997, which have an aggregate market value of
$14,121,376, represent 9.2% of the total net assets of the Fund (see note 5
to Financial Statements).
+ Non-income producing security.
++ See note 2 to Financial Statements.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
Abbreviations:
ADR.....American Depositary Receipt
ORD.....Ordinary
The Montgomery Global Communications Fund concentrates its investments in the
global communications industry. Because of this concentration, the value of the
Fund's shares may vary in response to factors affecting the global
communications industry, and therefore may be more volatile than those of
investment companies that do not similarly concentrate their investments. The
global communications industry may be subject to greater changes in governmental
policies and governmental regulation than many other industries, and regulatory
approval requirements may materially affect the products and services of this
industry.
- --
20
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
INVESTMENT REVIEW
Q: How did the Fund perform from July 1, 1996, through June 30, 1997?
A: Although the Fund underperformed its benchmark, the Morgan Stanley World
Index, for the year, it has outpaced that index over the past three years and
since its September 1993 inception.
Q: What were the main factors behind that performance?
A: For most of the past year, the Japanese market was depressed. Although
the Fund had a relatively light weighting there, it generally hampered
performance in absolute terms.
But several of our holdings in that country still managed to outperform the
overall market. Our emphasis on Japanese exporters such as Sony and Honda Motor
Company, for example, was profitable. They were helped by the Japanese yen's
weakness versus the U.S. dollar over much of the period, which made their goods
more competitive on the global market.
Japan's market then rebounded strongly in the second quarter, as investors
became a little less pessimistic about that country's economy. We expect it to
gain more momentum going into 1998. And even with the rally, we think there are
still some great opportunities in that market, especially among mid- to
small-cap companies.
Q: What about Europe, the United States and the other markets where the
Fund invests?
A: Our exposure to the United States and most European markets generally
benefited the Fund. They had a strong run over the past year, but not without
some pauses. The U.S. market came under pressure in July 1996 and again in March
and April of this year. But its rally in the second quarter went a long way
toward making up the ground that it had lost. Likewise, many European markets
went on a bull run in the second half of 1996 and the first half of 1997.
They've been driven up by some of the same factors supporting the U.S. market:
relatively low inflation and interest rates, accelerating economic growth and
positive earnings trends.
In Europe as in other parts of the world, solid stock selection also benefited
the Fund. Last year, for example, we invested in a number of technology
companies that we found attractive from a bottom-up standpoint, and many of
those performed very well in the second half of 1996 and early 1997. We
subsequently took some profits on those holdings.
The Fund's emerging markets exposure was also beneficial at various times over
the past year. Our positions in Hong Kong were particularly strong as that
market rallied. But over the year, we pared down the Fund's emerging markets
exposure because we simply weren't finding as many fundamentally attractive
companies there.
- ---------------------------------------
The Montgomery Funds
- ---------------------------------------
Global Opportunities
Fund
- ---------------------------------------
P O R T F O L I O H I G H L I G H T S
=======================================
P O R T F O L I O M A N A G E M E N T
- ---------------------------------------
John D. Boich, CFA.............Senior
Portfolio Manager
Oscar A. Castro, CFA..........Senior
Portfolio Manager
=======================================
F U N D P E R F O R M A N C E
- ---------------------------------------
Average annual total returns
for the periods ended 6/30/97
- --------------------------------------
Montgomery
Global Opportunities Fund
<TABLE>
<S> <C>
Since inception (9/30/93)......16.09%
One year.......................18.71%
Three years....................17.57%
</TABLE>
- ---------------------------------------
MSCI World Index
<TABLE>
<S> <C>
Since 9/30/93..................14.98%
One year.......................22.27%
Three years....................17.03%
</TABLE>
- ---------------------------------------
Past performance is no guarantee of
future results. Net asset value, investment
return and principal value will fluctuate,
so shares, when redeemed, may be worth more
or less than their original cost.
Growth of a 10,000 Investment
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Montgomery Global MSCI World Lipper Global
Opportunites Fund Index /1/ Funds Average/2/
----------------- ---------
Date Value Date Value Value
- ---- ----- ---- ----- -----
<S> <C> <C> <C> <C>
09/93 $10,000 Sep-93 $10,000 $10,000
10/93 $10,692 Oct-93 $10,273 $10,406
11/93 $10,708 Nov-93 $9,690 $10,113
12/93 $11,850 Dec-93 $10,161 $10,904
01/94 $12,533 Jan-94 $10,829 $11,405
02/94 $12,350 Feb-94 $10,687 $11,155
03/94 $11,508 Mar-94 $10,224 $10,662
04/94 $11,650 Apr-94 $10,537 $10,832
05/94 $11,517 May-94 $10,562 $10,814
06/94 $10,767 Jun-94 $10,530 $10,599
07/94 $11,217 Jul-94 $10,728 $10,910
08/94 $11,858 Aug-94 $11,049 $11,305
09/94 $11,608 Sep-94 $10,756 $11,094
10/94 $11,883 Oct-94 $11,059 $11,265
11/94 $11,096 Nov-94 $10,577 $10,761
12/94 $10,836 Dec-94 $10,677 $10,657
01/95 $10,292 Jan-95 $10,514 $10,341
02/95 $10,421 Feb-95 $10,665 $10,504
03/95 $10,343 Mar-95 $11,177 $10,767
04/95 $10,663 Apr-95 $11,563 $11,109
05/95 $10,983 May-95 $11,660 $11,344
06/95 $11,459 Jun-95 $11,654 $11,537
07/95 $12,082 Jul-95 $12,234 $12,122
08/95 $11,866 Aug-95 $11,959 $11,967
09/95 $12,315 Sep-95 $12,305 $12,204
10/95 $12,030 Oct-95 $12,108 $11,940
11/95 $12,403 Nov-95 $12,526 $12,153
12/95 $12,707 Dec-95 $12,890 $12,366
01/96 $12,985 Jan-96 $13,120 $12,719
02/96 $13,289 Feb-96 $13,197 $12,862
03/96 $13,733 Mar-96 $13,414 $13,093
04/96 $14,550 Apr-96 $13,727 $13,536
05/96 $14,923 May-96 $13,736 $13,691
06/96 $14,741 Jun-96 $13,803 $13,630
07/96 $13,786 Jul-96 $13,312 $13,007
08/96 $14,280 Aug-96 $13,462 $13,345
09/96 $14,880 Sep-96 $13,987 $13,728
10/96 $14,822 Oct-96 $14,081 $13,720
11/96 $15,453 Nov-96 $14,868 $14,380
12/96 $15,271 Dec-96 $14,627 $14,372
01/97 $15,956 Jan-97 $14,800 $14,701
02/97 $15,700 Feb-97 $14,968 $14,765
03/97 $15,508 Mar-97 $14,669 $14,532
04/97 $15,563 Apr-97 $15,146 $14,745
05/97 $16,704 May-97 $16,078 $15,608
06/97 $17,498 Jun-97 $16,877 $16,271
</TABLE>
--
21
--
<PAGE>
- ---------------------------------------
The Montgomery Funds
- ---------------------------------------
Global Opportunities
Fund
- ---------------------------------------
P O R T F O L I O H I G H L I G H T S
=======================================
T O P T E N H O L D I N G S
- ---------------------------------------
(as a percentage of total net assets)
<TABLE>
<S> <C>
Sola International, Inc. ........2.8%
General Nutrition Center, Inc. ..2.8%
Rofin-Sinar Technologies Inc. ...2.6%
Cable and Wireless PLC ..........2.5%
Nokia Corporation AB, Series A ..2.4%
Advantest Corporation ...........2.3%
Telefonica Nacional de Espana ...2.1%
Sony Corporation ................2.1%
Coflexip, Sponsored ADR .........2.1%
Fujitsu Denso ...................2.1%
</TABLE>
=====================================
T O P F I V E C O U N T R I E S
- -------------------------------------
(as a percentage of total net assets)
<TABLE>
<S> <C>
United States...................22.6%
Great Britain...................18.4%
Japan............................9.7%
France...........................8.6%
Italy............................6.2%
</TABLE>
Q: What attributes do you consider in selecting stocks? And why do you think
your strategy makes this fund a good place to invest?
A: Our strategy is to seek out high-quality companies that we think offer the
potential for long-term growth of earnings and cash flow, and trade at
attractive valuations. We have a great deal of flexibility in where we can look
for just such companies. That's one of the key benefits of this fund. Through
it, investors can gain exposure to what we think are some of the most dynamic
companies in the world, whether they're located in the United States, developed
foreign economies or the emerging markets.
P O R T F O L I O I N V E S T M E N T S
June 30, 1997
COMMON STOCKS -- 96.9%
<TABLE>
<CAPTION>
Shares Value (Note 1)
<C> <S> <C>
Belgium -- 1.4%
10,700 Audiofina Cie (Broadcasting/Advertising)........$ 440,011
Canada -- 4.8%
25,700 Biochem Pharma, Inc.+ (Pharmacy/Drugs).......... 571,825
15,500 Cognos, Inc.+ (Software Systems)................ 483,406
45,800 Manitoba Telecom Services Inc.
(Telephone/Regional-Local)...................... 487,534
---------
1,542,765
Finland -- 2.4%
10,500 Nokia Corporation AB, Series A
(Telecommunications Equipment).................. 784,050
France -- 8.6%
7,100 AXA S.A. (Insurance)............................ 441,583
5,115 Axime (Ex Segin)+
(Information/Business Services)................. 604,919
22,700 Coflexip, Sponsored ADR**
(Oilfield Equipment)............................ 688,095
15,100 Credit Commercial de France
(Diversified Financial Services)................ 639,797
3,300 Eaux (Cie Generale des) (Conglomerates)......... 422,839
---------
2,797,233
Germany -- 3.1%
520 Axel Springer Verlag, Class A
(Newspapers/Publishing)......................... 462,169
1,200 Mannesmann AG (Auto/Auto Parts)................. 534,649
-------
996,818
Great Britain -- 18.4%
559,900 Aegis Group (Broadcasting/Advertising).......... 585,082
47,300 Azlan Group PLC (Telephone/Networks)............ 437,167
154,044 Cable and Wireless PLC+
(Telecommunications)............................ 817,047
49,900 Corporate Services Group PLC
(Consumer Services)............................. 156,641
11,000 Dr. Solomon's Group PLC, ADR+
(Software Systems).............................. 281,188
29,400 Glaxo Wellcome PLC (Pharmacy/Drugs)............. 607,102
3,200 MISYS PLC
(Computers & Office Equipment).................. 72,607
33,300 National Power PLC, ORD (Electric Utilities).... 289,473
135,000 Orange PLC+ (Telephone/Wireless)................ 446,259
43,842 Reckitt and Colman PLC
(Cosmetic & Personal Care)...................... 653,806
48,990 Reuters Holdings PLC
(Broadcasting/Advertising)...................... 516,421
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --
22
- --
<PAGE>
---------------------
The Montgomery Funds
---------------------
Global Opportunities
Fund
---------------------
I N V E S T M E N T S
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<C> <S> <C>
Great Britain -- continued
60,324 United Utilities PLC, ORD (Water Utilities).....$ 663,523
45,200 Waste Management International PLC,
ADR+ (Pollution Control)........................ 412,450
-------
5,938,766
Greece -- 1.5%
21,000 Hellenic Telecommunications Inc.
(Telephone/Networks)............................ 493,012
Hong Kong -- 5.8%
346,000 First Pacific Company (Conglomerates)........... 442,141
834,000 Goldlion Holdings, Ltd., ORD
(Apparel & Textiles)............................ 465,588
59,000 Hutchison Whampoa Ltd. (Conglomerates).......... 510,242
74,000 New World Development Company Ltd.
(Holding)....................................... 441,289
-------
1,859,260
Ireland -- 1.6%
1,100 Axogen Ltd. Units+ (Pharmacy/Drugs)............. 35,200
10,400 Elan Corporation PLC, ADR**+
(Pharmacy/Drugs)................................ 470,600
-------
505,800
Italy -- 6.2%
71,900 ENI SpA (Oil)................................... 407,105
9,500 Gucci Group (Retail Trade)...................... 611,563
61,300 S.T.E.T. Societa Finanziaria Telefonica
SpA** (Telephone/Networks)...................... 357,003
45,100 S.T.E.T. di Risp International**
(Telecommunications)............................ 156,533
93,200 Telecom Italia Mobile Di Risp
(Telephone/Wireless)............................ 166,673
97,600 Telecom Italia Mobile SpA
(Telephone/Wireless)............................ 315,783
-------
2,014,660
Japan -- 9.7%
9,680 Advantest Corporation (Semiconductor)........... 743,218
22,400 Fujitsu Denso (Telecommunication Equipment)..... 687,938
32,000 Laox** (Retail Trade)........................... 449,505
36,000 Mori Seiki (Machinery & Tools).................. 577,934
7,900 Sony Corporation (Electronics).................. 688,575
-------
3,147,170
Netherlands -- 1.6%
9,000 ASM Lithography Holding N.V. **+
(Semiconductor)................................. 525,656
Spain -- 2.1%
24,000 Telefonica Nacional de Espana
(Telephone/Networks)............................ 693,858
Sweden -- 2.6%
9,248 Ericsson (L.M.) Telephone Company, Class B
(Telecommunications Equipment).................. 364,038
22,000 Sparbanken Sverige AB (Banks)................... 489,173
-------
853,211
Switzerland -- 4.5%
235 Compagnie Financiere Richemont, Series A
(Holding)....................................... 339,461
2,200 Danzas Holding (Airfreight Couriers)............ 429,246
420 Novartis AG (Pharmacy/Drugs).................... 671,103
-------
1,439,810
United States -- 22.6%
13,900 Autozone, Inc.+ (Auto/Auto Parts)............... 327,518
13,400 Cabletron Systems, Inc.+
(Computers & Office Equipment).................. 379,387
52,900 Carson, Inc.+ (Cosmetics & Personal Care)....... 568,675
7,200 Cisco Systems Inc.+
(Computers & Office Equipment).................. 483,525
16,000 Danka Business Systems PLC, ADR**
(Computers & Office Equipment).................. 652,000
32,200 General Nutrition Center, Inc.+ (Retail Trade).. 899,588
13,200 Itron, Inc.**+ (Information/Business Services).. 339,075
11,000 MMI Company, Inc. (Insurance)................... 287,375
21,900 Pinkerton's, Inc.+ (Business Services).......... 673,425
43,600 Rofin-Sinar Technologies Inc.+
(Machinery & Tools)............................. 833,850
8,400 Samsonite Corporation+ (Retail Trade)........... 371,175
26,900 Sola International, Inc.+
(Cosmetics & Personal Care)..................... 901,150
16,930 Waters Corporation+ (Medical Products).......... 607,363
-------
7,324,106
TOTAL COMMON STOCKS
(Cost $26,866,808).............................................. 31,356,186
----------
REPURCHASE AGREEMENT -- 1.9%
(Cost $621,000)
<CAPTION>
Principal Amount
<C> <S> <C>
$ 621,000 Agreement with HSBC Securities, Inc.,
Tri-Party, 6.200% dated 06/30/97, to be
repurchased at $621,107 on 07/01/97,
collateralized by $633,420 market value of
U.S. government securities, having various
maturities and various interest rates........... 621,000
-------
TOTAL INVESTMENTS -- 98.8%
(Cost $27,487,808*)............................................. 31,977,186
OTHER ASSETS AND LIABILITIES -- 1.2%
(Net)........................................................... 393,737
-------
NET ASSETS -- 100.0% ...........................................$ 32,370,923
==========
</TABLE>
*Aggregate cost for federal tax purposes.
**Securities on loan at June 30, 1997, which have an aggregate market value of
$3,145,701, represent 9.7% of the total net asset value of the Fund (see note
5 to Financial Statements).
+Non-income producing security.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
----
Abbreviations: 23
----
ADR......American Depositary Receipt
ORD......Ordinary
The accompanying notes are an integral part of these financial statements.
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
International
Growth Fund
- ---------------------
PORTFOLIO HIGHLIGHTS
====================================
PORTFOLIO MANAGEMENT
- ------------------------------------
John D. Boich, CFA............Senior
Portfolio Manager
Oscar A. Castro, CFA..........Senior
Portfolio Manager
====================================
FUND PERFORMANCE
- ------------------------------------
Average annual total returns
for the period ended 6/30/97
- ------------------------------------
Montgomery
International Growth Fund
Since inception (7/3/95)......23.43%
One year......................19.20%
- ------------------------------------
MSCI EAFE Index
Since 6/30/95.................13.06%
One year......................12.84%
- ------------------------------------
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
Growth of a $10,000 Investment
<TABLE>
<CAPTION>
Montgomery International MSCI EAFE Lipper International
Growth Fund Index /1/ Growth Funds Average
----------- --------- --------------------
Date Value Value Value
- ---- ----- ----- -----
<S> <C> <C> <C>
06/95 $10,000 $10,000 $10,000
07/95 $10,083 $10,623 $10,535
08/95 $10,058 $10,217 $10,337
09/95 $10,417 $10,417 $10,489
10/95 $10,675 $10,137 $10,275
11/95 $10,783 $10,419 $10,384
12/95 $11,142 $10,839 $10,700
01/96 $11,392 $10,883 $10,938
02/96 $11,617 $10,920 $10,982
03/96 $11,842 $11,152 $11,173
04/96 $12,600 $11,476 $11,532
05/96 $12,925 $11,265 $11,496
06/96 $12,758 $11,328 $11,575
07/96 $12,183 $10,997 $11,141
08/96 $12,500 $11,021 $11,264
09/96 $12,717 $11,314 $11,506
10/96 $12,737 $11,198 $11,425
11/96 $13,420 $11,644 $11,908
12/96 $13,477 $11,494 $11,949
01/97 $13,768 $11,092 $11,905
02/97 $13,683 $11,273 $12,060
03/97 $13,730 $11,314 $12,088
04/97 $13,739 $11,374 $12,105
05/97 $14,572 $12,114 $12,823
06/97 $15,208 $12,782 $13,422
</TABLE>
/1/The Morgan Stanley Capital International EAFE Index is composed of 20
developed market countries in Europe, Australia and the Far East.
/2/The Lipper International Growth Funds Average universe consists of 91 funds.
I N V E S T M E N T R E V I E W
Q: How did the Fund perform from July 1, 1996, through June 30, 1997?
A: The Fund gained 19.20%, compared with 12.84% for its benchmark, the Morgan
Stanley Capital International EAFE (Europe, Australia and Far East) Index. It
has also outperformed that benchmark by a considerable margin since inception.
Q: What were some of the most positive factors driving that performance?
A: One of the most significant factors was the Fund's relatively light weighting
in Japan, which is a very large component of the EAFE Index. Until recently,
Japan's market was depressed by what we believe was overly pessimistic sentiment
about its economy. Some investors were concerned about the lingering effects of
that country's banking crisis, among other things, despite positive factors such
as low interest rates, steady economic growth and, until recently, the weak yen.
The latter factor made Japanese exporters, an area we focused on for much of the
past fiscal year, more competitive in the global market. So not only was our
relatively light weighting in Japan positive, but so was our stock selection
within that country.
In the second quarter, Japan rebounded dramatically. This rally seemed long
overdue to us, because market sentiment had simply become too gloomy. We expect
the Japanese economy to grow moderately in the coming year, though perhaps with
somewhat higher inflation and interest rates. And even with the rally, we think
there's still plenty of opportunity to be had in that market, especially among
small- to medium-sized companies.
Q: What about Europe?
A: Most European markets rallied during the period. In fact, a number of them
reached all-time highs. The economic situation on the Continent is much like the
one we've been enjoying in the U.S., with moderate economic growth, relatively
low inflation and low interest rates.
As in Japan, good stock selection benefited the Fund in Europe. Our shares in
restructuring companies and technology firms generally performed well, for
example; those are just two of the areas in which Europe has been following the
lead of the United States. The difference is that many U.S. companies have
already adopted time- and labor-saving technology, as well as completed
restructuring, but most European corporations are just embracing those two
things. Both of these trends have been major factors behind the U.S. market's
rally over the past six years, and we think they may also have a similar impact
on European bourses.
- ----
24
- ----
<PAGE>
---------------------
The Montgomery Funds
---------------------
International
Growth Fund
---------------------
PORTFOLIO HIGHLIGHTS
Q: There were a few major political changes in Europe this past year--most
recently, the Labor Party's landslide victory in Britain and the Socialists' win
over the ruling party in France. Do these kind of developments have a big impact
on your strategy?
A: Although we pay careful attention to macroeconomic and political factors,
they're secondary to our main focus: bottom-up corporate analysis. That's where
we differ from other international funds. Many of them shift assets from country
to country on a regular basis. We believe a better strategy is to seek out the
most promising firms in developed foreign markets, not rotate into and out of
countries. History shows that it's been notoriously difficult to succeed at that
kind of maneuvering. Our goal is to invest in companies that offer good earnings
potential at attractive relative value, while keeping the portfolio diversified
across markets, sectors and individual holdings. So in essence, our country
weightings are simply a by-product of our individual stock choices.
Q: Why is now a good time to invest in the Montgomery International Growth
Fund?
A: We strongly believe that most investors should have at least some exposure to
foreign stocks. If you confine yourself to the United States, you're missing a
huge number of potentially rewarding opportunities. Surprisingly, though, many
investors still do just that--which presents an opportunity for those who do
recognize the potential of international markets, because they can invest in
rapidly growing companies abroad at relatively inexpensive prices.
=====================================
T O P T E N H O L D I N G S
- -------------------------------------
(as a percentage of total net assets)
Novartis AG......................2.7%
Nokia Corporation AB, Series A...2.4%
Cable and Wireless PLC...........2.3%
Danka Business Systems PLC, ADR..2.3%
Advantest Corporation............2.2%
Telefonica de Espana, ORD........2.2%
Reckitt and Coleman PLC..........2.1%
Baer (Julius) Holdings AG-B......2.1%
Hutchison Whampoa Ltd. ..........2.1%
Coflexip, Sposored ADR...........2.0%
=====================================
T O P F I V E C O U N T R I E S
- -------------------------------------
(as a percentage of total net assets)
Great Britain...................18.1%
Japan...........................14.2%
France..........................12.0%
Germany..........................9.1%
Switzerland......................7.9%
P O R T F O L I O I N V E S T M E N T S
June 30, 1997
<TABLE>
<CAPTION>
COMMON STOCKS -- 94.9%
Shares Value (Note 1)
<C> <S> <C>
Australia-- 1.4%
33,359 National Australia Bank, Ltd.** (Banks)......$ 478,444
Austria -- 1.5%
12,340 Flughafen Wien AG (Airlines-Airport)......... 521,231
Belgium -- 1.4%
11,145 Audiofina Cie. (Broadcasting/Advertising).... 458,311
Canada -- 2.8%
20,720 Biochem Pharma, Inc. (Pharmacy/Drugs)........ 461,020
15,600 Cognos, Inc.+ (Software Systems).............. 486,525
-------
947,545
China/Hong Kong -- 4.4%
172,405 First Pacific Company** (Conglomerates)...... 220,310
82,000 Hutchison Whampoa Ltd. (Conglomerates)........ 709,150
93,000 New World Development Company Ltd.
(Conglomerates) ............................. 554,593
-------
1,484,053
Finland-- 2.4%
10,970 Nokia Corporation AB, Series A
(Telecommunications Equipment)............... 819,145
France -- 12.0%
7,620 AXA S.A. (Insurance)......................... 473,924
5,658 Axime (Ex Segin)+
(Information/Business Services)
13,360 Casino Guichard-Perrachon (Retail Trade)..... 661,328
3,810 Christian Dior S.A.
(Cosmetics & Personal Care).................. 628,873
22,540 Coflexip, Sponsored ADR**
(Oilfield Equipment)......................... 683,244
11,100 Credit Commercial de France
(Diversified Financial Services)............. 470,315
3,870 Eaux (Cie Generale des) (Conglomerates)...... 495,875
-------
4,082,695
--
25
--
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCKS -- continued
Shares Value (Note 1)
<C> <S> <C>
Germany-- 9.1%
4,580 Adidas AG (Footwear)....................... $ 506,861
520 Axel Springer Verlag, Class A
(Newspapers/Publishing)..................... 462,169
6,370 CKAG Colonia Konzern AG (Insurance)
1,505 Mannesmann AG (Conglomerates)............... 670,538
2,260 SGL Carbon AG (Metals & Mining)
1,200 Viag AG** (Electric Utilities).............. 545,658
Great Britain -- 18.1%
599,100 Aegis Group, ORD
(Broadcasting/Advertising)................... 626,045
145,543 Cable and Wireless PLC+
(Telecommunications/Other)................... 771,958
18,800 Danka Business Systems PLC, ADR**
(Computers & Office Equipment)............... 766,100
30,860 Glaxo Wellcome PLC (Pharmacy/Drugs).......... 637,251
8,020 MISYS PLC (Business Services)............... 181,972
35,300 National Power PLC, ORD
(Electric Utilities)......................... 306,858
138,200 Orange PLC+
(Telecommunications/Wireless)................ 456,837
47,996 Reckitt and Coleman PLC
(Cosmetics & Personal Care).................. 715,753
41,950 Reuters Holding PLC (Business Services)..... 442,210
61,259 United Utilities PLC, ORD (Water Utilities) 673,807
62,200 Waste Management International PLC,
ADR+ (Pollution Control)..................... 567,575
6,146,366
Ireland -- 1.5%
3,700 Axogen Ltd. Units+ (Pharmacy/Drugs).......... 118,400
8,800 Elan Corporation PLC, ADR**
(Pharmacy/Drugs)............................. 398,200
-------
516,600
Italy -- 6.3%
76,500 Eni SpA** (Oil)............................. 433,150
10,140 Gucci Group (Retail Trade).................. 652,763
46,700 S.T.E.T. di Risp International**
(Telecommunications/Other).................. 162,086
63,400 S.T.E.T. International**
(Telephone/Networks)........................ 369,234
158,100 Telecom Italia Mobile SpA
(Telephone/Wireless)........................ 511,530
-------
2,128,763
Japan -- 14.2%
9,910 Advantest Corporation
(Electrical Equipment)...................... 760,878
15,400 Amway Japan NPV**
(Household Products)........................ 521,328
23,000 Canon Sales Company**
(Computers & Office Equipment).............. 535,794
20,100 Fujitsu Denso
(Telecommunications Equipment).............. $ 617,301
33,000 Laox** (Retail Trade)........................ 463,552
40,000 Mori Seiki (Machinery & Tools)............... 642,150
23,300 Nu Skin Asia Pacific Inc., Class A+
(Cosmetics & Personal Care).................. 617,450
7,600 Sony Corporation (Electronics)............... 662,426
-------
4,820,879
Netherlands -- 5.3%
33,952 ABN Amro Holdings (Banks).................... 633,065
9,000 ASM Lithography Holding NV**
(Electronics Equipment)...................... 525,656
3,000 Unilever NV (Cosmetics & Personal Care)..... 642,188
-------
1,800,909
Norway -- 1.4%
16,450 Union Bank of Norway (Banks)................. 487,045
Spain -- 2.2%
25,400 Telefonica de Espana, ORD
(Telephone/Networks)......................... 734,333
Sweden -- 3.0%
13,000 Ericsson (L.M.) Telephone Company, Class B
(Telecommunications Equipment)............... 511,732
23,200 Sparbanken Sverige AB, Swedbank (Banks)...... 515,855
-------
1,027,587
Switzerland -- 7.9%
465 Baer (Julius) Holdings AG-B
(Diversified Financial Services)............. 711,491
349 Compagnie Financiere Richemont, Series A
(Holding).................................... 504,135
2,750 Danzas Holdings (Airfreight Couriers)........ 536,558
570 Novartis AG (Pharmacy/Drugs)................. 910,783
-------
2,662,967
TOTAL COMMON STOCKS
(Cost $28,921,044)...................................... 32,199,635
----------
REPURCHASE AGREEMENTS -- 3.8%
Principal Amount
$ 643,000 Agreement with Bear Stearns, Tri-Party,
6.200% dated 06/30/97, to be repurchased
at $643,111 on 07/01/97, collateralized by
$655,860 market value of U.S. government
securities, having various maturities and
various interest rates...................... 643,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REPURCHASE AGREEMENTS -- continued
Principal Amount Value (Note 1)
<C> <S> <C>
$ 643,000 Agreement with Nokia Corporation,
Tri-Party, 6.200% dated 06/30/97, to be
repurchased at $643,111 on 07/01/97,
collateralized by $658,821 market value
of U.S. government securities, having
various maturities and various
interest rates. $ 643,000
-------
TOTAL REPURCHASE AGREEMENTS
(Cost $1,286,000)...................................... 1,286,000
----------
TOTAL INVESTMENTS -- 98.7%
(Cost $30,207,044*).................................... 33,485,635
----------
OTHER ASSETS AND LIABILITIES -- 1.3%
(Net).................................................. 432,063
-------
NET ASSETS-- 100.0% .......................... $ 33,917,698
==========
</TABLE>
* Aggregate cost for federal tax purposes was $30,209,652.
** Securities on loan at June 30, 1997, which have an aggregate market value of
$4,922,628, represent 14.5% of the total net assets of the Fund (see note 5
to Financial Statements).
+ Non-income producing security.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
Abbreviations:
ADR.....American Depositary Receipt
ORD.....Ordinary
<PAGE>
- --------------------
The Montgomery Funds
- --------------------
International
Small Cap Fund
- --------------------
P O R T F O L I O H I G H L I G H T S
=======================================
P O R T F O L I O M A N A G E M E N T
- ---------------------------------------
John D. Boich, CFA.............. Senior
Portfolio Manager
===============================
F U N D P E R F O R M A N C E
- -------------------------------
Average annual total returns
for the period ended 6/30/97
- -------------------------------
Montgomery
International Small Cap Fund
Since inception (9/30/93) 10.06%
One year................. 15.48%
Three years.............. 12.67%
- --------------------------------
MSCI EAFE Index
Since 9/30/93............ 9.92%
One year................. 12.84%
Three years.............. 9.12%
- --------------------------------
Salomon Brothers World Extended
ex-U.S. Market Index
Since 9/30/93............ 6.17%
One year................. 2.19%
Three years.............. 4.48%
- --------------------------------
Pase performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lipper International Salomon Brothers World
Montgomery International MSCI EAFE Small Cap Funds Extended ex-U.S.
Small Cap Fund Index /1/ Average /2/ Market Index /3/
-------------- --------- ----------- ----------------
Date Value Date Value Date Value Date Value
- ---- ----- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
11/93 $10,492 Sep-93 $10,000 Nov-93 $10,197 12/31/93 9,717.99
12/93 $11,342 Oct-93 $10,308 Dec-93 $11,145 01/31/94 10,688.81
01/94 $12,117 Nov-93 $9,407 Jan-94 $12,063 02/28/94 10,763.00
02/94 $12,083 Dec-93 $10,086 Feb-94 $12,106 03/31/94 10,587.11
03/94 $11,158 Jan-94 $10,939 Mar-94 $11,534 04/30/94 10,901.72
04/94 $10,817 Feb-94 $10,909 Apr-94 $11,662 02/31/94 10,748.79
05/94 $10,625 Mar-94 $10,439 May-94 $11,539 06/30/94 10,974.51
06/94 $10,017 Apr-94 $10,882 Jun-94 $11,318 07/31/91 11,099.02
07/94 $10,450 May-94 $10,819 Jul-94 $11,530 08/31/94 11,317.38
08/94 $10,825 Jun-94 $10,972 Aug-94 $11,825 09/30/94 10,906.46
09/94 $10,517 Jul-94 $11,078 Sep-94 $11,528 10/31/94 11,093.69
10/94 $10,642 Aug-94 $11,340 Oct-94 $11,614 11/30/94 10,401.44
11/94 $ 9,951 Sep-94 $10,983 Nov-94 $10,930 12/31/94 10,560.82
12/94 $ 9,835 Oct-94 $11,349 Dec-94 $10,794 01/21/95 10,198.23
01/95 $ 9,318 Nov-94 $10,803 Jan-95 $10,310 02/28/95 10,049.35
02/95 $ 9,409 Dec-94 $10,871 Feb-95 $10,318 03/31/95 10,476.45
03/95 $ 9,301 Jan-95 $10,453 Mar-95 $10,294 04/30/95 10,790.74
04/95 $ 9,543 Feb-95 $10,423 Apr-95 $10,607 05/31/95 10,601.90
05/95 $ 9,635 Mar-95 $11,073 May-95 $10,688 06/30/95 10,271.50
06/95 $ 9,793 Apr-95 $11,490 Jun-95 $10,755 07/31/95 11,081.99
07/95 $10,285 May-95 $11,353 Jul-95 $11,275 08/31/95 10,801.61
08/95 $10,260 Jun-95 $11,154 Aug-95 $11,159 09/30/95 10,885.87
09/95 $10,751 Jul-95 $11,848 Sep-95 $11,368 10/31/95 10,572.35
10/95 $10,651 Aug-95 $11,396 Oct-95 $11,082 11/30/95 10,684.42
11/95 $10,586 Sep-95 $11,619 Nov-95 $10,940 12/31/95 11,083.69
12/95 $10,987 Oct-95 $11,307 Dec-95 $11,299 01/31/96 11,291.10
01/96 $11,413 Nov-95 $11,621 Jan-96 $11,677 02/29/96 11,467.34
02/96 $11,429 Dec-95 $12,089 Feb-96 $11,912 03/31/96 11,730.64
03/96 $11,671 Jan-96 $12,139 Mar-96 $12,129 04/30/96 12,347.54
04/96 $12,164 Feb-96 $12,180 Apr-96 $12,567 05/31/96 12,247.27
05/96 $12,490 Mar-96 $12,439 May-96 $12,791 06/30/96 12,248.87
06/96 $12,406 Apr-96 $12,800 Jun-96 $12,860 07/31/96 11,785.68
07/96 $11,997 May-96 $12,565 Jul-96 $12,404 08/31/96 11,906.22
08/96 $12,348 Jun-96 $12,635 Aug-96 $12,589 09/30/96 11,971.39
09/96 $12,423 Jul-96 $12,266 Sep-96 $12,647 10/31/96 11,924.37
10/96 $12,281 Aug-96 $12,293 Oct-96 $12,617 11/30/96 12,119.40
11/96 $12,773 Sep-96 $12,620 Nov-96 $12,996 12/31/96 11,896.48
12/96 $12,631 Oct-96 $12,490 Dec-96 $13,022 01/31/97 11,639.40
01/97 $13,041 Nov-96 $12,987 Jan-97 $13,176 02/28/97 11,834.94
02/97 $13,199 Dec-96 $12,820 Feb-97 $13,366 03/31/97 11,678.01
03/97 $13,032 Jan-97 $12,372 Mar-97 $13,294 04/30/97 11,503.43
04/97 $12,924 Feb-97 $12,574 Apr-97 $13,130 05/31/97 12,240.52
05/97 $13,959 Mar-97 $12,620 May-97 $13,875 08/30/97 12,517.36
06/97 $14,326 Apr-97 $12,687 Jun-97 $14,210
May-97 $13,512
June-97 $14,257
</TABLE>
/1/The Morgan Stanley Capital International EAFE Index is composed of 20
developed market countries in Europe, Australia and the Far East.
/2/The Lipper International Small Cap Funds Average universe consists of five
funds.
/3/The Salomon Brothers World Extended ex-U.S. Market Index is a comprehensive
float-weighted equity index consisting of every company with an investable
market capitalization of over $100 million in 21 countries.
I N V E S T M E N T R E V I E W
Q: How did the Fund perform over the past fiscal year?
A: It outperformed the Salomon Brothers World Extended Market ex-U.S. Index and
the Morgan Stanley Capital International EAFE (Europe, Australia and Far East)
Index during that period. We believe that the Salomon Brothers Index, which
tracks small-cap stocks in the world's developed markets outside the United
States, provides a more relevant benchmark than the MSCI EAFE, which comprises
some of the very largest-cap stocks in those markets.
Q: What factors explained that outperformance?
A: The Fund had more exposure than the indices do to European markets, which
were generally quite strong over the period, and less to Japan, which until
recently was weak. Over the past year, many European stock exchanges were driven
up by the same kind of economic equilibrium that we have been enjoying in the
United States--with low inflation, relatively low interest rates and moderate
economic growth. Positive earnings trends there also helped to fuel their
rallies. In fact, several continental European markets reached new highs.
Japan, on the other hand, was depressed for much of the period by sentiment that
we believed was overly pessimistic. Although Japan still faces some problems,
such as the lingering effects of a banking crisis, we believe that its economy
is gaining momentum. And even after its rally this spring, we continue to see
exceptional values there, especially among the shares of mid- to small-cap
companies.
Good decisions when it came to individual stocks within both Japan and Europe
also helped the Fund to outperform the indices. During the second quarter, for
example, many of our Japanese and European holdings performed even better than
their respective markets during their rallies.
Q: Were there any disappointments?
A: Yes, there were some, but fortunately most of them proved to be only
temporary. In December, for instance, Japanese authorities announced plans to
deregulate the country's property and casualty insurance industry. The
initiative caused shares in the sector--including some of the Fund's holdings
there--to decline by more than 20% in some instances. Deregulation generally
leads to price competition in the industry in which it occurs, so it tends to
make investors uncertain about who will emerge as the winners and the losers
down the road.
Although that kind of episode can make for some short-term disappointment, it
can also create an opportunity for us to invest rather cheaply in companies that
we think will carve out a dominant position. After all, deregulation is becoming
more commonplace, and we think it's important to approach it constructively.
That's one of the reasons
- --
28
- --
<PAGE>
---------------------------------------
The Montgomery Funds
---------------------------------------
International
Small Cap Fund
---------------------------------------
P O R T F O L I O H I G H L I G H T S
why we invest only in companies that have qualities like seasoned management
teams, strong cash-generating capabilities, consistently solid earnings growth
and dominant market share. We think that these attributes will enable the
companies to not only survive in a more competitive environment, but actually
thrive in it.
Q: The strength of the U.S. dollar against the Japanese yen and several major
European currencies made headlines over the past year. How do currency trends
like this affect your strategy?
A: Our policy, which is one we share with all of Montgomery's foreign and global
stock funds, is not to hedge against currency fluctuations. Hedging is not only
difficult to execute well, but can also be expensive at times. We don't entirely
ignore the impact of currency relationships, though. When the U.S. dollar
strengthens against the currency of a country that we invest in, for example, it
can diminish the Fund's returns from that market. But the same trend can also
put that country's exporters at an advantage to their U.S. competitors. So in
that situation, we may decide to emphasize exporters in that country, so long as
their corporate fundamentals meet our investment criteria. That, in fact, is
what we did over the past year in a number of countries, such as Japan. (The
opposite trend--the dollar weakening--likewise has positive and negative
repercussions for international investors.)
So, broadly speaking, we do pay careful attention to macroeconomic trends like
this, but bottom-up corporate fundamentals remain our chief focus.
Q: Why should an investor consider the International Small Cap Fund right now?
A: First of all, there are many dynamic small companies outside the United
States, and most of them haven't yet been discovered by investors. That presents
an opportunity for shareholders in the International Small Cap Fund to invest in
them at attractive prices. In addition, many of the structural changes that have
driven up the U.S. market over the past six years are still in their early
stages overseas. As we mentioned, deregulation can give innovative small
companies a chance to become market leaders. These are just some of the reasons
why we're excited about the Fund's prospects.
======================================
T O P T E N H O L D I N G S
- --------------------------------------
(as a percentage of total net assets)
Nissin Company...................2.5%
Tyndall Australia Ltd............2.5%
Turbon International AG..........2.5%
Rofin-Sinar Technologies Inc.....2.4%
CN Selmer A.S....................2.2%
Cable and Wireless PLC...........2.2%
Villeroy & Boch AG...............2.1%
Coflexip, Sponsored ADR..........2.0%
Laox.............................2.0%
Cortefiel SA.....................2.0%
=====================================
T O P F I V E C O U N T R I E S
- -------------------------------------
(as a percentage of total net assets)
Japan...........................18.1%
Great Britain...................16.5%
Germany.........................10.7%
Sweden...........................6.8%
Spain............................5.7%
P O R T F O L I O I N V E S T M E N T S
June 30, 1997
COMMON STOCKS -- 90.6%
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
Australia-- 2.5%
784,215 Tyndall Australia Ltd.
(Diversified Financial Services)..................$ 1,334,038
Austria -- 3.3%
20,400 Flughafen Wien AG (Airlines)...................... 861,679
9,393 Voest Alpine Eisenbahnsystem
(Heavy Construction).............................. 929,075
-------
1,790,754
Canada -- 1.8%
51,640 InMedia Presentations Inc.+
(Software Systems)................................ 93,486
84,000 Manitoba Telecom Services Inc.
(Telephone/Wireless).............................. 894,167
-------
987,653
China/Hong Kong -- 5.1%
1,390,000 Esprit Asia Holdings Ltd. (Retail Trade).......... 986,795
1,380,000 Four Seas Mercantile Holdings Ltd.
(Food & Beverage)................................. 810,476
</TABLE>
--
29
--
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------
The Montgomery Funds
- --------------------
International
Small Cap Fund
- --------------------
I N V E S T M E N T S
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
China/Hong Kong-- continued
1,351,000 Goldlion Holdings, Ltd., ORD
(Apparel & Textiles)..............................$ 754,208
81,000 Smartone Telecommunications+
(Telephone/Wireless) ............................. 184,012
-------
2,735,491
France -- 5.5%
8,050 Cardif SA (Insurance) ............................ 993,117
35,700 Coflexip, Sponsored ADR***
(Oilfield Equipment) ............................. 1,082,156
4,350 Europe 1 Communication
(Broadcasting/Advertising) ....................... 891,955
-------
2,967,228
Germany -- 8.6%
805 Axel Springer Verlag, Class A
(Newspapers/Publishing) .......................... 715,474
68,500 Rofin-Sinar Technologies Inc.+
(Machinery & Tools) .............................. 1,310,062
3,610 SGL Carbon AG (Metals & Mining) .................. 494,319
43,370 Turbon International AG+
(Computers & Office Equipment) ................... 1,318,048
15,560 Vossloh AG (Building Materials) .................. 789,621
-------
4,627,524
Great Britain -- 16.5%
786,400 Aegis Group (Broadcasting/Advertising)............ 821,769
379,100 Avis Europe PLC+ (Retail Trade)................... 861,746
76,400 Azlan Group PLC
(Telephone/Networks).............................. 706,121
219,269 Cable and Wireless PLC+
(Telecommunications/Wireless) .................... 1,163,001
79,300 Corporate Services Group PLC
(Employment Services) ............................ 248,930
41,700 Doncasters PLC, ADR+
(Aerospace & Defense) ............................ 964,312
12,000 Dr. Solomon's Group PLC, ADR+
(Software Systems) ............................... 306,750
63,430 Eidos PLC+
(Computers & Office Equipment) ................... 776,381
61,600 ECsoft Group PLC, ADR+ (Software Systems) ........ 858,550
86,700 Ethical Holdings PLC, ADR+
(Pharmacy/Drugs) ................................. 384,731
238,000 Firstbus PLC (Railroad) .......................... 824,391
1,529,000 Freepages Group PLC+
(Broadcasting/Advertising) ....................... 929,380
-------
8,846,062
Ireland -- 1.9%
780,999 Anglo Irish Bank Corporation (Banks) ............. 993,243
Israel -- 1.6%
49,200 Matav-Cable Systems Media Ltd.,
Sponsored ADR+ (Cable Television) ................ 848,700
Italy -- 3.3%
286,000 Editoriale L' Espresso SpA***
(Newspapers/Publishing)........................... 952,268
12,300 Gucci Group (Retail Trade) ....................... 791,812
-------
1,744,080
Japan -- 18.1%
28,200 Amway Japan NPV*** (Household Products)........... 954,639
38,000 Canon Sales Company***
(Computers & Office Equipment) ................... 885,224
9,500 Fast Retailing Company Ltd. (Retail Trade) ....... 306,679
34,400 Fujitsu Denso (Electrical Equipment) ............. 1,056,476
57,000 Fuso Lexel Inc. (Real Estate) .................... 576,888
77,000 Laox***+ (Retail Trade) .......................... 1,081,621
45,550 Mirai Industry Company, Ltd. (Electronics) ....... 1,041,234
50,000 Nichiha Corporation (Building Materials) ......... 785,238
44,840 Nissin Company
(Diversified Financial Services) ................. 1,349,719
11,000 Otsuka Kagu Ltd. (Retail Trade) .................. 870,479
70,000 Tohoku Misawa Homes***
(Heavy Construction) ............................. 781,748
-------
9,689,945
Netherlands -- 1.6%
11,700 BE Semiconductor Industries N.V.***+
(Semiconductor) .................................. 168,684
37,600 Elsag Bailey N.V.+ (Machinery & Tools) ........... 690,900
-------
859,584
New Zealand -- 1.5%
46,300 Trans Rail Holdings, ADR (Railroad) .............. 787,100
Norway -- 4.9%
101,200 CN Selmer A.S. (Heavy Construction) .............. 1,180,565
36,700 Stolt-Nielson S.A., ADR (Shipping) ............... 713,357
24,900 Union Bank of Norway (Banks) ..................... 737,229
-------
2,631,151
Spain -- 5.7%
8,275 Azkoyen S.A. (Consumer Services) ................. 1,027,706
3,900 Catalana Occidente SA (Insurance) ................ 194,272
24,400 Cortefiel SA (Retail Trade) ...................... 1,064,758
13,350 Tele Pizza SA+ (Food & Beverage) ................. 786,413
-------
3,073,149
Sweden -- 6.8%
102,100 Hemkopskedjan AB (Food & Beverage) .............. 1,049,312
67,270 Nobel Biocare AB (Medical Products) ............. 947,893
50,100 Prosolvia AB**+ (Software Systems) .............. 770,720
55,700 Scandic Hotels AB+ (Lodging) .................... 878,469
-------
3,646,394
Switzerland -- 1.9%
5,125 Danzas Holding (Airfreight Couriers) ............ 999,949
TOTAL COMMON STOCKS
(Cost $42,437,855) .......................................... 48,562,045
----------
</TABLE>
- --
30
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
---------------------
The Montgomery Funds
---------------------
International
Small Cap Fund
---------------------
I N V E S T M E N T S
<TABLE>
<CAPTION>
PREFERRED STOCK -- 2.1%
(Cost $873,642)
Shares Value (Note 1)
<S> <C>
Germany-- 2.1%
6,920 Villeroy & Boch AG (Household Products)...........$ 1,122,945
---------
<CAPTION>
CORPORATE BONDS -- 1.4%
(Cost $755,184)
Principal Amount
<S> <C>
Japan -- 1.4%
$1,000,000 Sugimoto & Company (Metal Products),
0.375% due 09/30/00............................... 766,756
-------
TOTAL SECURITIES
(Cost $44,066,681)............................................ 50,451,746
----------
REPURCHASE AGREEMENTS -- 6.8%
1,821,000 Agreement with Bear Stearns, Tri-Party,
6.200% dated 06/30/97, to be repurchased
at $1,821,314 on 07/01/97, collateralized by
$1,857,420 market value of U.S. government
securities, having various maturities and
various interest rates............................ 1,821,000
1,821,000 Agreement with Nikko Securities Company
International Inc., Tri-Party, 6.200% dated
06/30/97, to be repurchased at $1,821,314
on 07/01/97, collateralized by $1,865,807
market value of U.S. government securities,
having various maturities and various
interest rates.................................... 1,821,000
---------
TOTAL REPURCHASE AGREEMENTS
(Cost $3,642,000)............................................. 3,642,000
---------
TOTAL INVESTMENTS -- 100.9%
(Cost $47,708,681*)...........................................$ 54,093,746
OTHER ASSETS AND LIABILITIES -- (0.9%)
(Net)......................................................... (476,607)
---------
NET ASSETS -- 100.0% .........................................$ 53,617,139
==========
</TABLE>
*Aggregate cost for federal tax purposes was $47,712,692.
**Illiquid Security or Special Situation Security (see note 7 to Financial
Statements).
***Security on loan at June 30, 1997, has an aggregate market value of
$4,385,615, which represents 8.2% of the total net assets of the Fund (see
note 5 to Financial Statements).
+Non-income producing security.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
Abbreviations:
ADR.....American Depositary Receipt
ORD.....Ordinary
--
31
--
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------
The Montgomery Funds
- --------------------------------------
Asset Allocation Fund
- --------------------------------------
P O R T F O L I O H I G H L I G H T S
======================================
P O R T F O L I O M A N A G E M E N T
- --------------------------------------
Kevin T. Hamilton, CFA
Chair, Investment Oversight Committee
Growth Team
Fixed-Income Team
======================================
F U N D P E R F O R M A N C E
- --------------------------------------
Average annual total returns
for the periods ended 6/30/97
- --------------------------------------
Montgomery
Asset Allocation Fund
Since inception (3/31/94)......23.21%
One year.......................14.65%
Three years....................24.55%
- -------------------------------------
S&P 500 Index
Since 3/31/94..................26.51%
One year.......................34.68%
Three years....................28.83%
- -------------------------------------
Lehman Brothers
Aggregate Bond Index
Since 3/31/94...................7.50%
One year........................8.15%
Three years.....................8.53%
- -------------------------------------
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Montgomery Lehman Lipper
Asset Brothers Flexible
Allocation S&P 500 Aggregate Portfolio
Fund Index Bond Index Funds Average
---------- ------- ---------- -------------
Date Value Value Value Value
- -------- ---------- ------- ---------- -------------
<S> <C> <C> <C> <C>
03/94 $10,000 $10,000 $10,000 $10,000
04/94 $10,158 $10,128 $9,920 $10,019
05/94 $10,375 $10,294 $9,919 $10,060
06/94 $10,200 $10,042 $9,897 $9,899
07/94 $10,742 $10,371 $10,093 $10,101
08/94 $11,042 $10,796 $10,106 $10,338
09/94 $11,142 $10,532 $9,957 $10,177
10/94 $11,533 $10,768 $9,948 $10,247
11/94 $11,934 $10,376 $9,926 $10,010
12/94 $11,976 $10,530 $9,995 $10,083
01/95 $12,095 $10,803 $10,193 $10,195
02/95 $12,495 $11,223 $10,435 $10,493
03/95 $12,877 $11,554 $10,499 $10,699
04/95 $12,953 $11,894 $10,646 $10,912
05/95 $13,437 $12,369 $11,058 $11,285
06/95 $13,871 $12,656 $11,139 $11,513
07/95 $14,295 $13,075 $11,114 $11,811
08/95 $14,491 $13,108 $11,248 $11,894
09/95 $14,788 $13,661 $11,357 $12,168
10/95 $14,788 $13,612 $11,505 $12,106
11/95 $15,553 $14,209 $11,677 $12,485
12/95 $15,882 $14,482 $11,841 $12,664
01/96 $15,864 $14,975 $11,920 $12,917
02/96 $16,264 $15,114 $11,713 $12,986
03/96 $16,486 $15,259 $11,631 $13,064
04/96 $16,976 $15,484 $11,566 $13,221
05/96 $17,349 $15,883 $11,542 $13,396
06/96 $17,189 $15,943 $11,697 $13,387
07/96 $16,664 $15,239 $11,729 $13,011
08/96 $17,047 $15,561 $11,710 $13,233
09/96 $17,465 $16,436 $11,914 $13,701
10/96 $17,747 $16,890 $12,178 $13,949
11/96 $18,332 $18,165 $12,386 $14,611
12/96 $17,923 $17,805 $12,271 $14,457
01/97 $18,201 $18,917 $12,309 $14,934
02/97 $18,062 $19,065 $12,339 $14,912
03/97 $17,675 $18,284 $12,203 $14,494
04/97 $18,240 $19,374 $12,385 $14,906
05/97 $19,271 $20,559 $12,502 $15,545
06/97 $19,707 $21,473 $12,651 $16,019
</TABLE>
/1/The Standard & Poor's 500 Index is composed of 500 widely held common stocks
listed on the NYSE, AMEX and OTC market.
/2/The Lehman Brothers Aggregate Bond Index comprises all bonds that are
investment grade, are in excess of $25 million and have at least one year to
maturity.
/3/The Lipper Flexible Portfolio Funds Average universe consists of 112 funds.
I N V E S T M E N T R E V I E W
Q: How did the Fund perform over the past year?
A: The Fund lagged the S&P 500, but led the Lehman Brothers Aggregate Bond
Index. The Fund also underperformed our custom benchmark (60% S&P 500 and 40%
Lehman Brothers Aggregate Bond Index), which we believe provides a more relevant
comparison.
Q: What role did asset allocation decisions play in that performance?
A: Until the final three months of the fiscal year (the second quarter of 1997),
our asset allocation decisions had a positive impact on the Fund's performance.
At the very start of the period--July 1996--we decided to scale back the Fund's
stock exposure to 50% of assets from 70% at the end of June, for several
reasons. (We consider a 60/40 stock/bond mix to be neutral.) An important
consideration was the relatively high valuations of the bellwether S&P 500 Index
and the Dow Jones Industrial Average. The economy also appeared to be
strengthening, which made it more likely that the Federal Reserve would raise
interest rates. That tends to weigh on the stock market, because it usually
slows the economy and makes bonds more attractive to investors. Given that the
market was weak in July 1996, the lighter stock weighting got the Fund's fiscal
year off to a good start.
By November the economy appeared to have slowed, and we decided to increase the
Fund's equity exposure to 65% of assets. That paid off as the market rallied
into late 1996. In the following months, however, we gradually reduced the
Fund's stock weighting, to 55% in December and 45% in April, where we kept it
through the end of the fiscal year. Not only did it seem likely to us that the
Fed would hike interest rates in the first quarter, but the market was also
becoming more and more expensive. In fact, at the end of first half 1997, the
S&P 500 was at an unprecedented level by almost all significant measures.
Our decision to underweight equities worked against us in the second quarter,
but we think it's wise to take a cautious stance, given the stock market's
current level and the economy's somewhat uncertain direction.
Q: What impact did individual securities have on the Fund's performance?
A: Our bond holdings performed relatively well for much of the past fiscal year.
Our equity portfolio was somewhat at a disadvantage, however, as investors
heavily favored the very largest-cap stocks in the U.S. market--even as these
shares became more and more expensive. We think that there are much better
opportunities to be had outside that narrow segment of the market. Not only do
small and mid-sized shares generally have more-attractive valuations than
large-caps, but we also think that they have better growth prospects. We're
confident that the market will also come to that realization soon, and that
smaller-caps will begin to outperform in the coming months.
- --
32
- --
<PAGE>
--------------------------------------
The Montgomery Funds
--------------------------------------
Asset Allocation Fund
--------------------------------------
P O R T F O L I O H I G H L I G H T S
Q: The Fund converted to a fund-of-funds structure on July 1, 1997. Will that
affect its strategy?
A: No, the only difference is that instead of investing directly in stocks,
bonds and cash, the Fund will invest in three Montgomery funds (Growth, Total
Return Bond and Government Reserve) that respectively focus on those areas. As
we have since the Fund's inception, we will continue to monitor six main factors
in determining how to allocate the Fund's assets: consumer sentiment, economic
activity (which includes statistics ranging from auto and retail sales to wage
growth), government policy, interest rates, market liquidity and valuation. In
short, our ultimate goal hasn't changed: We seek to provide shareholders in the
Asset Allocation Fund with a high degree of diversification and solid long-term
returns while minimizing risk.
======================================
T O P T E N H O L D I N G S
- --------------------------------------
(as a percentage of total net assets)
U.S. Treasury Bonds,
8.875% due 02/15/19............3.8%
U.S. Treasury Notes,
6.500% due 05/15/05............3.7%
GNMA, Pool #320843,
8.000% due 05/15/22............3.4%
U.S. Treasury Notes,
6.625% due 06/30/01............2.9%
U.S. Treasury Bonds,
6.500% due 11/15/26............2.8%
Avid Technology, Inc.............2.8%
Nordstrom, Inc...................2.6%
Octel Communications Corporation.2.3%
Dayton-Hudson Corporation........2.2%
International Paper Company......2.0%
======================================
A S S E T M I X
- --------------------------------------
(as a percentage of total investments,
which excludes other liabilities)
Stocks..........................51.2%
Bonds...........................48.8%
P O R T F O L I O I N V E S T M E N T S
June 30, 1997
COMMON STOCKS -- 48.4%
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
Airlines -- 1.4%
30,800 Federal Express Corporation+ .................. $1,778,700
Apparel and Textiles -- 0.6%
8,700 VF Corporation ................................ 737,325
Auto/Auto Parts -- 1.5%
23,850 General Motors Corporation .................... 1,328,147
11,400 PACCAR, Inc. .................................. 529,388
----------
1,857,535
Banks/Savings and Loan -- 3.1%
12,400 BankAmerica Corporation ....................... 800,575
5,950 Citicorp ...................................... 717,346
35,000 Golden West Financial Corporation ............. 2,450,000
----------
3,967,921
Building Materials -- 2.0%
59,400 Masco Corporation ............................. 2,479,950
Business Services -- 0.5%
8,900 Computer Sciences Corporation+ ................ 641,913
Chemicals -- 0.6%
8,500 Dow Chemical Company........................... 740,562
Conglomerates -- 0.9%
17,000 Tyco International Ltd. ....................... 1,182,562
Cosmetics and Personal Care -- 0.6%
3,500 Unilever N.V., ADR ............................ 763,000
Diversified Financial Services -- 0.5%
11,400 Norwest Corporation ........................... 641,250
Electronics -- 0.8%
13,450 Raychem Corporation ........................... 1,000,344
Food and Beverage -- 1.0%
73,000 Fleming Companies, Inc. ....................... 1,314,000
</TABLE>
--
33
--
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Asset Allocation Fund
- ---------------------
I N V E S T M E N T S
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Health Care -- 0.6%
6,600 Healthcare COMPARE Corporation+.................... $ 346,088
6,000 Oxford Health Plans, Inc.+ ........................ 430,688
-------
776,776
Lodging -- 2.3%
18,800 HFS, Inc.+ ........................................ 1,090,400
62,200 Interstate Hotels Company+ ........................ 1,831,012
---------
2,921,412
Machinery and Tools -- 2.3%
125,000 Octel Communications Corporation+ ................. 2,925,781
Metals and Mining -- 1.3%
12,700 Aluminum Company of America ....................... 957,263
23,600 Freeport-McMoRan Copper & Gold, Inc. .............. 734,550
----------
1,691,813
Newspapers/Publishing -- 1.2%
15,400 Time Warner, Inc. ................................. 743,050
34,000 World Color Press Inc.+ ........................... 807,500
-------
1,550,550
Oil -- 2.9%
28,300 Amerada Hess Corporation .......................... 1,572,419
19,300 Belco Oil & Gas Corporation+ ...................... 412,537
66,200 Union Pacific Resources Group, Inc. ............... 1,646,725
----------
3,631,681
Oilfield Equipment -- 1.8%
11,800 Schlumberger Ltd. ................................. 1,475,000
17,000 Tidewater Inc. .................................... 748,000
----------
2,223,000
Pipelines -- 0.6%
19,200 Enron Corporation ................................. 783,600
Pulp and Paper -- 4.8%
65,400 Boise Cascade Corporation ......................... 2,309,437
18,400 Champion International Corporation ................ 1,016,600
8,000 Chesapeake Corporation ............................ 270,000
52,900 International Paper Company ....................... 2,568,956
----------
6,164,993
Railroad -- 2.0%
57,600 Canadian National Railway Company ................. 2,520,000
Retail Trade -- 5.4%
51,900 Dayton-Hudson Corporation ......................... 2,760,431
67,300 Nordstrom, Inc. ................................... 3,301,906
31,200 TJX Companies, Inc. ............................... 822,900
-------
6,885,237
Semiconductors -- 0.9%
16,500 Analog Devices Inc.+ .............................. 438,281
7,700 Texas Instruments, Inc. ........................... 647,281
-------
1,085,562
Software Systems -- 4.4%
134,000 Avid Technology Inc.+ ............................. 3,542,625
2,900 Structural Dynamics Research Corporation+ 76,216
138,000 Sybase Inc.+ 2,044,125
---------
5,662,966
Telecommunications -- 0.7%
21,750 Newbridge Networks Corporation+.................... 946,125
Telecommunications Equipment -- 3.7%
17,850 Ascend Communications, Inc.+ ...................... 701,170
55,300 Aspect Telecommunications Corporation+ ............ 1,223,513
49,400 Ericsson (L.M.) Telephone Company, Class B, ADR ... 1,946,669
4,000 Northern Telecom Ltd. ............................. 364,000
51,500 PictureTel Corporation+ ........................... 490,055
-------
4,725,407
TOTAL COMMON STOCKS
(Cost $47,253,071) .............................................. 61,599,965
----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.1%
Principal Amount
$2,048,582 Fleetwood Credit Corporation Grantor Trust,
Series 1990-A, 9.000% due 07/15/97................... 2,044,341
350,000 Household Affinity Credit Card Master Trust I,
Series 1994-2, 7.000% due 12/15/99................... 351,507
250,000 UCFC Home Equity Loan, Series 1996-B1A2,
7.075% due 04/15/10.................................. 252,152
-------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $2,650,408)................................................ 2,648,000
---------
CORPORATE BONDS -- 8.9%
805,000 Ford Motor Company, Senior Notes,
6.500% due 02/28/02 ................................. 793,931
200,000 Franchise Finance Corporation, MTN,
6.780% due 02/20/02 ................................. 198,000
650,000 General Motors Acceptance Corporation,
Senior Notes, 6.750% due 02/07/02 . ................. 648,375
1,000,000 Hunt (J.B.) Transport Services, Inc., Notes,
6.250% due 09/01/03 ................................. 957,500
875,000 IRT Property Company, Notes,
7.450% due 04/01/01 ................................. 887,031
Kimco Realty Corporation:
900,000 Notes, 7.910% due 04/26/05 .......................... 939,375
650,000 Senior Notes, 6.500% due 10/01/03 ................... 633,750
110,000 Occidental Petroleum Corporation, MTN,
9.750% due 06/15/01 ................................. 120,863
1,230,000 Penney (J.C.) & Company, Notes,
7.600% due 04/01/07 ................................. 1,265,363
1,000,000 Security Capital Pacific Trust, Notes,
7.550% due 08/01/08 ................................. 1,021,250
500,000 Smith Barney Holdings, MTN,
5.625% due 11/15/98 ................................. 497,015
Union Acceptance Corporation:
9,339,185 Series 1995-D, 3.000% due 02/07/99 .................. 195,665
21,446,076 Series 1995-C, 3.000% due 10/02/02 .................. 338,869
</TABLE>
- --
34
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
---------------------
The Montgomery Funds
---------------------
Asset Allocation Fund
---------------------
I N V E S T M E N T S
CORPORATE BONDS -- continued
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C> <C>
$1,900,000 United Dominion Realty Trust, MTN,
7.020% due 11/15/05 ................................ $ 1,876,250
122,000 U.S. West Communications Corporation,
MTN, 5.500% due 03/15/99** ......................... 120,170
645,000 Vastar Resources, MTN,
6.960% due 02/26/07 ................................ 634,519
200,000 Wal-Mart Stores Inc., Notes,
5.500% due 09/15/97 ................................ 199,918
-------
TOTAL CORPORATE BONDS
(Cost $11,227,273) ............................................. 11,327,844
FEDERAL HOME LOAN BANK (FHLB) -- 5.6%
500,000 4.006% (FLTR) due 07/16/98** ....................... 486,094
1,000,000 4.720% (FLTR) due 08/24/98** ....................... 985,156
500,000 5.590% (FLTR) due 09/29/98** ....................... 485,781
1,000,000 4.805% (FLTR) due 03/15/00** ....................... 961,094
650,000 4.815% (FLTR) due 03/22/00** ....................... 624,711
2,500,000 4.790% (FLTR) due 03/23/00** ....................... 2,393,359
350,000 4.500% (FLTR) due 04/14/00** ....................... 336,055
1,000,000 4.230% (FLTR) due 06/01/00** ....................... 922,560
-------
TOTAL FEDERAL HOME LOAN BANK
(Cost $7,189,648)............................................... 7,194,810
---------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 8.0%
535,416 Pool #181330, 9.000% due 12/01/09 .................. 559,258
51,020 Pool #E63564, 5.500% due 04/01/11 .................. 48,302
32,312 Pool #E63611, 5.500% due 04/01/11 .................. 30,590
62,428 Pool #E63850, 5.500% due 04/01/11 .................. 59,102
212,491 Pool #E20247, 5.500% due 05/01/11 .................. 201,169
1,613,413 Pool #E64350, 5.500% due 05/01/11 .................. 1,527,448
1,747,976 Pool #E64361, 5.500% due 06/01/11 .................. 1,654,841
FHLMC, REMIC:
2,500,000 4.234% due 08/26/97 ................................ 2,495,312
550,000 5.050% due 05/19/03 ................................ 511,328
1,000,000 1657C (PAC), 5.500% due 11/15/11 ................... 992,500
1,300,000 1560PD (PAC), 5.500% due 01/15/13 .................. 1,295,125
882,765 1502PX (PAC), 7.000% due 04/15/23 .................. 769,385
-------
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION
(Cost $10,077,129).............................................. 10,144,360
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 5.0%
1,250,000 5.440% due 10/01/97 ................................ 1,249,414
1,000,000 7.000% due TBA ..................................... 981,563
2,500,000 COFI, due TBA ...................................... 2,472,656
500,000 5.115% due 03/03/00 ................................ 483,984
55,002 1991-146FB, 5.272% due 10/25/06 .................... 54,778
171,000 1993-143D, 5.000% due 08/25/23 ..................... 169,504
1,033,656 1993-159PK, Zero Coupon due 01/25/21 ............... 942,242
-------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION
(Cost $6,324,921)............................................... 6,354,141
---------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) -- 3.4%
(Cost $4,203,969)
$4,169,822 Pool #320843, 8.000% due 05/15/22................... 4,298,826
---------
U.S. TREASURY BONDS -- 6.5%
3,900,000 U.S. Treasury Bonds,
8.875% due 02/15/19................................. 4,772,625
3,700,000 U.S. Treasury Bonds,
6.500% due 11/15/26................................. 3,548,522
---------
TOTAL U.S. TREASURY BONDS
(Cost $8,149,948)............................................... 8,321,147
---------
U.S. TREASURY NOTES -- 6.6%
3,650,000 U.S. Treasury Notes,
6.625% due 06/30/01................................. 3,684,201
4,690,000 U.S. Treasury Notes,
6.500% due 05/15/05................................. 4,681,183
---------
TOTAL U.S. TREASURY NOTES
(Cost $8,265,118)............................................... 8,365,384
---------
TOTAL INVESTMENTS -- 94.5%
(Cost $105,341,485*)............................................ 120,254,477
OTHER ASSETS AND LIABILITIES -- 5.5%
(Net)........................................................... 7,033,518
---------
NET ASSETS -- 100.0% ........................................... $127,287,995
============
</TABLE>
* Aggregate cost for federal tax purposes was $105,730,371.
** Floating-rate note reflects the rate in effect at June 30, 1997.
+ Non-income producing security.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
Abbreviations:
ADR......American Depositary Receipt
FLTR.....Floating-Rate Securities: bonds with coupon rates that adjust in
proportion to an index.
MTN......Medium-Term Note
PAC......Planned Amortization Class: bonds that are protected in part from
variations in prepayments, generally resulting in greater stability.
REMIC....Real Estate Mortgage Investment Conduit
TBA......To-Be-Announced Security
--
35
--
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------
The Montgomery Funds
- --------------------------------------
Global
Asset Allocation Fund
- --------------------------------------
P O R T F O L I O H I G H L I G H T S
======================================
P O R T F O L I O M A N A G E M E N T
- --------------------------------------
Kevin T. Hamilton, CFA
Chair, Investment Oversight Committee
U.S. Growth Team
International Team
Emerging Markets Team
U.S. Fixed-Income Team
======================================
F U N D P E R F O R M A N C E
- --------------------------------------
Aggregate total returns
for the period ended 6/30/97
- --------------------------------------
Montgomery
Global Asset Allocation Fund
Since inception (1/2/97)........11.17%
- --------------------------------------
MSCI All-Country World Free Index
Since 1/2/97....................16.12%
- --------------------------------------
Lehman Brothers
Aggregate Bond Index
Since 1/2/97.....................3.09%
- --------------------------------------
Performance is cumulative and for a
limited period of time. Past perform-
ance is no guarantee of future
results. Net asset value, investment
return and principal value will
fluctuate, so shares, when redeemed,
may be worth more or less than their
original cost.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Montgomery Global MSCI All- Lehman Brothers Lipper Global
Asset Allocation Country World Aggregate Bond Flexible Portfolio
Fund Free Index/1/ Index/2/ Funds Average/3/
---- ------------- -------- ----------------
Date Value Date Value Value Value
- ------------------- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C>
12/96 [TO COME] Dec-96 $10,000 $10,000 $10,000
01/02/97 $10,000 Jan-97 $10,168 $10,031 $10,165
01/97 $10,300 Feb-97 $10,306 $10,056 $10,222
02/97 $10,317 Mar-87 $10,100 $9,944 $10,071
03/97 $10,242 Apr-97 $10,425 $10,093 $10,177
04/97 $10,325 May-97 $11,047 $10,188 $10,613
05/97 $10,750 Jun-97 $11,612 $10,309 $10,955
06/97 $11,117
</TABLE>
/1/ The MSCI All-Country World Free Index measures the performance of selected
equities in 47 developed and emerging markets countries around the world.
/2/ The Lehman Brothers Aggregate Bond Index comprises all bonds that are
investment grade, are in excess of $25 million and have at least one year to
maturity.
/3/ The Lipper Global Flexible Portfolio Funds Average universe consists of 87
funds.
I N V E S T M E N T R E V I E W
Q: How did the Fund perform in its first six months of operation?
A: Although it gained 11.17%, the Fund slightly underperformed its custom
benchmark--70% of which reflects the performance of the Morgan Stanley Capital
International All-Country World Free Index (MSCI AC Free) and 30% the Lehman
Brothers Aggregate Bond Index.
Q: What factors drove the Fund's performance over the past year?
A: The Global Asset Allocation Fund invests in five Montgomery funds that each
represent a different asset class: Growth (mid- to large-cap growth- oriented
U.S. stocks), International Growth (equities in developed foreign markets),
Emerging Markets (stocks from developing foreign markets), Short Duration
Government Bond (U.S. government bonds) and Government Reserve (cash). (As of
June 30, 1997, the Fund's bond component will no longer invest in the Montgomery
Short Duration Government Bond Fund. Instead, it will invest in the Montgomery
Total Return Bond Fund.)
For most of the period, the Fund had about 39% of its assets invested in the
International Growth Fund, 28% in Short Duration Government Bond, 17% in Growth,
14% in Emerging Markets and 0% in Government Reserve. So relative to the MSCI AC
Free, the Fund had a light weighting in the United States, which was very strong
over the first half of 1997. (As of July 1, U.S. shares made up about 42% of the
MSCI AC Free Index.) That was one of the main factors that put the Fund at a
slight disadvantage to its custom benchmark.
Q: What factors determine how you allocate the Fund's assets?
A: First of all, we work within well-established parameters that set a maximum
and a minimum limit on the Fund's exposure to each of the five asset classes.
With that as a framework, we analyze a variety of macroeconomic and market
statistics such as interest rates, market valuations and economic trends. We
then try to determine which asset classes may outperform in the future and we
find stocks within those areas that are fundamentally attractive.
Q: How do each of the Fund's managers select holdings for their parts of the
portfolio?
A: Each team's strategy is unique, but there are some commonalties: All of our
portfolio managers put a strong emphasis on analyzing the fundamentals of each
potential holding, whether it's a bond backed by a U.S. government agency or a
stock issued by a Russian company. They also seek securities that offer good
relative value, whether compared with other securities or with their own
historical trends.
- ----
36
- ----
<PAGE>
--------------------------------------
The Montgomery Funds
--------------------------------------
Global
Asset Allocation Fund
--------------------------------------
P O R T F O L I O H I G H L I G H T S
Q: Why would an investor want to consider the Montgomery Global Asset
Allocation Fund?
A: The Fund might be an especially good choice for investors who don't have the
time or the inclination to allocate their own assets on an ongoing basis. It's a
convenient way for them to instantly diversify their portfolio across countries
and asset classes. And it also allows them to take advantage of Montgomery's
expertise in a variety of investment disciplines.
P O R T F O L I O I N V E S T M E N T S
June 30, 1997
INVESTMENT COMPANY SECURITIES -- 98.2%
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Bond Mutual Fund-Taxable -- 28.2%
46,734 Montgomery Short Duration Government
Bond Fund............................................$ 466,872
-------
Emerging Markets Equity Mutual Fund -- 14.3%
14,074 Montgomery Emerging Markets Fund..................... 237,145
-------
Equity Mutual Fund -- 16.9%
12,088 Montgomery Growth Fund............................... 278,873
-------
International Equity Mutual Fund -- 38.8%
39,484 Montgomery International Growth Fund 641,217
-------
<CAPTION>
TOTAL INVESTMENTS -- 98.2%
Value (Note 1)
<S> <C>
(Cost $1,517,830*)............................................... 1,624,107
OTHER ASSETS AND LIABILITIES -- 1.8%
(Net)............................................................ 29,345
------
NET ASSETS -- 100.0% ............................................$ 1,653,452
=========
</TABLE>
* Aggregate cost for federal tax purposes was $1,520,917.
Descriptions of securities have note been audited by Deloitte & Touche LLP.
----
37
----
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------
The Montgomery Funds
- --------------------------------------
Select 50 Fund
- --------------------------------------
P O R T F O L I O H I G H L I G H T S
======================================
P O R T F O L I O M A N A G E M E N T
- --------------------------------------
Kevin T. Hamilton, CFA,
Chair, Investment Oversight Committee
Montgomery U.S. Growth Equity
Montgomery U.S. Small Cap
Montgomery U.S. Equity Income
Montgomery International/Global
Montgomery Emerging Markets
======================================
F U N D P E R F O R M A N C E
- --------------------------------------
Average annual total returns
for the periods ended 6/30/97
- --------------------------------------
Montgomery Select 50 Fund
Since inception (10/2/95).......37.38%
One year........................26.35%
- --------------------------------------
S&P 500 Index
Since 9/30/95...................29.49%
One year........................34.68%
- --------------------------------------
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lipper Capital
Montgomery Appreciation
Select 50 S&P 500 Funds
Fund Index/1/ Average/2/
---- -------- ----------
Date Value Date Value Value
- ------------------- ------ ------- -------
<S> <C> <C> <C> <C>
9/95 [TO COME] Sep-95 $10,000 $10,000
10/02/95 $10,000 Oct-95 $9,964 $9,795
10/95 $10,417 Nov-95 $10,401 $10,156
11/95 $11,080 Dec-95 $10,602 $10,265
12/95 $11,574 Jan-96 $10,962 $10,439
01/96 $11,951 Mar-96 $11,064 $10,727
02/96 $12,160 Mar-96 $11,170 $10,880
03/96 $12,520 Apr-96 $11,335 $11,357
04/96 $13,281 May-96 $11,627 $11,736
05/96 $14,068 Jun-96 $11,671 $11,389
06/96 $13,775 Jul-96 $11,156 $10,568
07/96 $12,704 Aug-96 $11,391 $11,025
08/96 $13,298 Sep-96 $12,032 $11,606
09/96 $13,700 Oct-96 $12,364 $11,501
10/96 $13,629 Nov-96 $13,297 $11,994
11/96 $14,142 Dec-96 $13,034 $11,913
12/96 $13,942 Jan-97 $13,848 $12,433
01/97 $14,960 Feb-97 $13,957 $12,113
02/97 $15,125 Mar-97 $13,384 $11,509
03/97 $14,647 Apr-97 $14,183 $11,660
04/97 $14,969 May-97 $15,050 $12,584
05/97 $16,526 Jun-97 $15,719 $13,042
06/97 $17,404
</TABLE>
/1/ The Standard & Poor's 500 Index is composed of 500 widely held common
stocks listed on the NYSE, AMEX and OTC market.
/2/ The Lipper Capital Appreciation Funds Average universe consists of 165
funds.
I N V E S T M E N T R E V I E W
Q: How did the Fund perform from July 1, 1996, through June 30, 1997?
A: It underperformed its benchmark, the S&P 500 Index, over the past year. Since
the Fund opened, however, its annualized returns have led the S&P's by nearly
eight percentage points.
Q: What were some of the major factors behind that performance?
A: The Fund's smaller-cap holdings put it at somewhat of a disadvantage over the
past year, given that the largest-cap shares in the U.S. market dramatically
outperformed their smaller counterparts. Investors heavily favored large-cap
stocks, even as they became more and more expensive. In contrast, shares of
smaller companies came under severe selling pressure at a couple of points
during the year--especially in July 1996 and, to a lesser extent, in this past
March and April. That affected the Select 50 Fund's Small Cap component in
particular. But many of those stocks rebounded sharply in the second quarter of
1997, and we believe that they continue to offer attractive relative value and
excellent growth potential.
Q: And what were the most positive factors?
A: All of the Fund's five segments contributed gains at various times during the
year, but three were especially strong: Equity Income, Growth and Emerging
Markets. Positive stock selection in each of these areas helped the Fund's total
returns.
Q: Do you ever alter the Fund's strategy in response to market trends like the
ones you just described?
A: No. Our strategy is very well defined, and we don't try to tailor it to
short-term market trends.
The five teams that contribute stocks to the portfolio focus on different market
segments and base their investment decisions on bottom-up stock analysis. We
also make sure that the portfolio stays within certain parameters. For instance,
each of the five teams contributes about 10 stocks from their respective
disciplines, and we regularly rebalance the portfolio to ensure that each
component is allocated approximately 20% of the Fund's total assets. This
strategy allows our five portfolio teams to focus on the stocks that they think
have the best capital appreciation potential in their area of expertise. It also
ensures that the Fund remains well diversified.
Q: Why should an investor consider the Select 50 Fund?
A: The Select 50 Fund combines diversification across regions and investment
styles with a focus on stocks that our managers believe offer the best capital
appreciation potential. It showcases Montgomery's expertise in five different
market segments: Equity Income, which focuses primarily on large-cap,
value-oriented U.S. stocks; Growth, which emphasizes mid- to large-cap
- ----
38
- ----
<PAGE>
--------------------------------------
The Montgomery Funds
--------------------------------------
Select 50 Fund
--------------------------------------
P O R T F O L I O H I G H L I G H T S
domestic growth stocks; Small Cap, which specializes in small U.S. companies;
International, which invests in developed foreign stock exchanges; and Emerging
Markets, which focuses on developing foreign markets. So it's a great way for an
investor to tap into Montgomery's capabilities in various investment styles and
achieve instant diversification across company size, sectors and countries.
<TABLE>
<CAPTION>
=====================================
T O P T E N H O L D I N G S
- -------------------------------------
(as a percentage of total net assets)
<S> <C>
Tatneft, Sponsored ADS...........5.6%
International Paper Company......3.7%
Mahanagar Telephone Nigam Ltd. ..3.2%
Falcon Drilling Company, Inc.....3.1%
Unibanco GDR.....................3.1%
Glaxo Wellcome PLC,
Sponsored ADR.................3.0%
HA-LO Industries, Inc............2.7%
Avid Technology Inc..............2.7%
Octel Communications Corporation.2.6%
Cooper Companies, Inc............2.6%
<CAPTION>
=====================================
T O P F I V E I N D U S T R I E S
- -------------------------------------
(as a percentage of total net assets)
<S> <C>
Oil..............................9.3%
Pulp and Paper...................7.6%
Telephones/Networks..............7.4%
Telecommunications Equipment.....6.2%
Machinery and Tools..............5.6%
</TABLE>
P O R T F O L I O I N V E S T M E N T S
June 30, 1997
COMMON STOCKS -- 93.8%
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
Aerospace -- 1.2%
66,100 Moog Inc., Class A+ (United States)..................$ 2,082,150
Apparel and Textiles-- 0.8%
2,592,000 Goldlion Holdings, Ltd. ORD
(China/Hong Kong) ................................... 1,447,007
Broadcasting/Advertising -- 3.9%
3,201,900 Freepages Group PLC+ (Great Britain)................. 1,946,227
201,312 HA-LO Industries, Inc.+ (United States).............. 4,718,250
---------
6,664,477
Building Materials -- 1.2%
50,000 Masco Corporation (United States).................... 2,087,500
Business Services -- 2.8%
85,600 Caribiner International, Inc.+
(United States)...................................... 2,792,700
53,500 On Assignment, Inc.+ (United States)................. 2,093,187
---------
4,885,887
Computers and Office Equipment-- 4.4%
21,500 Axime+ (France)...................................... 2,542,668
88,000 Danka Business Systems, ADR
(Great Britain)...................................... 3,586,000
115,000 Eidos PLC+ (Great Britain)........................... 1,407,596
---------
7,536,264
Conglomerates -- 1.7%
50,000 HFS, Inc. (United States)............................ 2,900,000
Consumer Services -- 2.1%
22,760 Azkoyen S.A. (Spain)................................. 2,826,658
246,200 Corporate Services Group PLC
(Great Britain)....................................... 772,845
-------
3,599,503
Cosmetics and Personal Care -- 2.1%
238,298 Reckitt and Coleman PLC (Great Britain).............. 3,553,683
Diversified Financial Services -- 4.6%
25,000 Morgan J.P. & Company, Inc. (United States).......... 2,609,375
1,700,000 Uniao de Banco Brasiliero SA (Brazil)................ 62,359
143,000 Unibanco GDR+ (United States)........................ 5,308,875
---------
7,980,609
</TABLE>
----
39
----
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------
The Montgomery Funds
- --------------------
Select 50 Fund
- --------------------
I N V E S T M E N T S
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<C> <S> <C>
Electric Utilities -- 2.2%
66,700 Irkutskenergo, ADR (Russia)................$ 1,150,575
40 Irkutskenergo, RDC**+ (Russia)............. 2,716,000
---------
3,866,575
Electronics -- 2.1%
370,100 Delta Electronics Public Company Limited
(Thailand)................................. 2,348,426
403,000 Venture Manufacturing Ltd. (Singapore)..... 1,313,548
---------
3,661,974
Food and Beverage -- 1.7%
70,000 Anheuser-Busch Companies Inc.
(United States) ........................... 2,935,625
Machinery and Tools -- 5.6%
60,000 Cooper Industries, Inc. (United States).... 2,985,000
92,700 Elevadores Atlas SA (Brazil)............... 1,207,670
64,500 Manitowoc Company, Inc. (United States).... 3,015,375
123,700 Rofin-Sinar Technologies, Inc.+
(United States)............................ 2,365,762
---------
9,573,807
Medical Products -- 2.6%
190,000 Cooper Companies, Inc. (United States)..... 4,417,500
Oil-- 9.3%
53,000 Amoco Corporation (United States) ......... 3,042,813
89,300 Tatneft, Sponsored ADS**+ (Russia)......... 9,577,425
140,000 Union Pacific Resources Group, Inc
(United States)............................ 3,482,500
---------
16,102,738
Oilfield Equipment and Services -- 3.1%
93,000 Falcon Drilling Company, Inc.+
(United States) ........................... 5,359,125
Pharmacy/Drugs -- 4.9%
40,000 Bristol-Myers Squibb Company
(United States) ........................... 3,240,000
123,000 Glaxo Wellcome PLC, Sponsored ADR
(Great Britain)............................ 5,142,938
---------
8,382,938
Pulp and Paper -- 7.6%
94,400 Boise Cascade Corporation (United States).. 3,333,500
132,000 International Paper Company
(United States) ........................... 6,410,250
65,000 Weyerhaeuser Company (United States)....... 3,380,000
---------
13,123,750
Railroad -- 2.0%
35,000 Norfolk Southern Corporation
(United States)............................ 3,526,250
Retail Trade-- 4.6%
25,000 Dayton-Hudson Corporation (United States).. 1,329,687
53,100 Gucci Group (Italy)........................ 3,418,313
110,000 Linens 'N Things, Inc.+ (United States).... 3,258,750
---------
8,006,750
Software Systems -- 4.9%
175,000 Avid Technology Inc.+ (United States)...... 4,626,563
255,000 Sybase Inc.+ (United States)............... 3,777,187
---------
8,403,750
Telecommunications Equipment -- 6.2%
100,000 Aspect Telecommunications Corporation+
(United States)............................ 2,212,500
53,900 Ericsson (L.M.) Telephone Company,
Class B, Free (Sweden) .................... 2,121,718
45,000 Ericsson (L.M.) Telephone Company ADR,
Class B (Sweden)........................... 1,773,281
195,000 Octel Communications Corporation+
(United States) ........................... 4,564,219
---------
10,671,718
Telephone/Networks -- 7.4%
49,000 Ameritech Corporation (United States)...... 3,328,938
660,000 Mahanagar Telephone Nigam Ltd.*** (India).. 5,599,860
8,500 Telebras, ADR (Brazil) .................... 1,289,875
14,290,000 Telec Brasileiras-Telebras ON (Brazil)..... 1,937,987
1,360,747 Teleceara PN `C'+ (Brazil)................. 556,366
---------
12,713,026
Tobacco -- 3.9%
95,000 Fortune Brands, Inc. (United States)....... 3,544,688
108,000 General Cigar Holdings, Inc.+
(United States)............................ 3,179,250
---------
6,723,938
Toys -- 0.9%
65,000 Action Performance Companies, Inc.+
(United States)............................ 1,580,312
---------
TOTAL COMMON STOCKS
(Cost $135,046,282)............................................ 161,786,856
-----------
PREFERRED STOCK -- 0.6%
(Cost $881,251)
1,522,000 Industrias Villares S.A. (Brazil).................. 1,017,918
---------
TOTAL SECURITIES
(Cost $135,927,533)............................................ 162,804,774
-----------
</TABLE>
- --
40
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------------------
The Montgomery Funds
--------------------------------------
Select 50 Fund
--------------------------------------
I N V E S T M E N T S
REPURCHASE AGREEMENTS -- 10.1%
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<C> <S> <C>
$8,758,000 Agreement with Bear Stearns, Tri-Party,
6.200% dated 06/30/97, to be repurchased
at $8,759,508 on 07/01/97, collateralized by
$8,933,160 market value of U.S. government
securities, having various maturities and
various interest rates.............................$ 8,758,000
8,758,000 Agreement with HSBC Securities Inc.,
Tri-Party, 6.200% dated 06/30/97, to be
repurchased at $8,759,508 on 07/01/97,
collateralized by $8,933,175 market value
of U.S. government securities, having various
maturities and various interest rates.............. 8,758,000
---------
TOTAL REPURCHASE AGREEMENTS
(Cost $17,516,000)............................................. 17,516,000
----------
TOTAL INVESTMENTS -- 104.5%
(Cost $153,443,533*)........................................... 180,320,774
-----------
OTHER ASSETS AND LIABILITIES -- (4.5%)
(Net).......................................................... (7,802,798)
---------
NET ASSETS -- 100.0%...........................................$172,517,976
-----------
</TABLE>
* Aggregate cost for federal tax purposes was $153,796,070.
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
*** Illiquid Security or Special Situation Security (see note 7 to Financial
Statements).
+ Non-income producing security.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
Abbreviations:
ADR.....American Depositary Receipt
ADS.....American Depositary Share
GDR.....Global Depositary Receipt
ORD.....Ordinary
RDC.....Russian Depositary Certificate
--
41
--
<PAGE>
- --------------------------------------
The Montgomery Funds
- --------------------------------------
Equity Income Fund
- --------------------------------------
P O R T F O L I O H I G H L I G H T S
======================================
P O R T F O L I O M A N A G E M E N T
- --------------------------------------
John H. Brown, CFA............. Senior
Portfolio Manager
=====================================
F U N D P E R F O R M A N C E
- -------------------------------------
Average annual total returns
for the periods ended 6/30/97
- -------------------------------------
Montgomery Equity Income Fund
Since inception (9/30/94)......23.67%
One year.......................26.02%
- -------------------------------------
S&P 500 Index
Since 9/30/94..................29.57%
One year.......................34.68%
- -------------------------------------
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lipper Equity
Montgomery Equity S&P 500 Income Funds
Income Fund Index/1/ Average/2/
----------- -------- ----------
Date Value Value Value
- ---- ----- ----- -----
<S> <C> <C> <C>
09/94 $10,000 $10,000 $10,000
10/94 $10,083 $10,224 $10,060
11/94 $9,825 $9,852 $9,681
12/94 $9,907 $9,998 $9,755
01/95 $10,336 $10,257 $9,945
02/95 $10,597 $10,657 $10,267
03/95 $10,824 $10,971 $10,512
04/95 $11,028 $11,294 $10,750
05/95 $11,392 $11,744 $11,076
06/95 $11,426 $12,017 $11,215
07/95 $11,562 $12,415 $11,517
08/95 $11,742 $12,446 $11,638
09/95 $12,280 $12,971 $12,027
10/95 $12,280 $12,924 $11,900
11/95 $12,899 $13,491 $12,412
12/95 $13,392 $13,751 $12,726
01/96 $13,610 $14,219 $13,031
02/96 $13,705 $14,351 $13,139
03/96 $13,784 $14,489 $13,310
04/96 $13,828 $14,702 $13,456
05/96 $14,065 $15,081 $13,672
06/96 $14,232 $15,138 $13,696
07/96 $13,834 $14,470 $13,202
08/96 $14,108 $14,776 $13,543
09/96 $14,639 $15,607 $14,059
10/96 $15,126 $16,037 $14,386
11/96 $16,028 $17,248 $15,202
12/96 $15,848 $16,906 $15,122
01/97 $16,174 $17,962 $15,691
02/97 $16,668 $18,103 $15,877
03/97 $16,232 $17,361 $15,389
04/97 $16,511 $18,396 $15,848
05/97 $17,356 $19,521 $16,762
06/97 $17,935 $20,388 $17,390
</TABLE>
/1/ The Standard & Poor's 500 Index is composed of 500 widely held common stocks
listed on the NYSE, AMEX and OTC market.
/2/ The Lipper Equity Income Funds Average universe consists of 113 funds.
I N V E S T M E N T R E V I E W
Q: How did the Fund perform from July 1, 1996, through June 30, 1997?
A: It gained 26.02% over that period. Although we're pleased with that
performance in absolute terms, it trailed the S&P 500 Index and, by a small
margin, the Lipper Equity Income category average. That was largely because the
Fund has relatively light exposure to growth-oriented large-caps, which
investors strongly favored over the past year.
Q: Which of the Fund's holdings performed especially well during the period?
A: Several of our positions in the financial sector contributed a great deal to
our returns, reflecting their positive earnings trends. We've been taking
profits in that area lately, as holdings have become fully valued. The Fund also
benefited from its exposure to the consumer staples sector over the past year.
Investors have been favoring high-quality, well-established companies such as
Bristol-Myers, which they think will perform well if the market heads south.
Q: Were there any disappointments?
A: During the first half of the period--from July 1996 through the end of the
calendar year--our holdings in the electric utilities sector lagged the market
during its rapid rise. In the first half of 1997, they performed a little
better, though they didn't keep up with higher-growth areas of the market.
Utilities are sensitive to the direction of interest rates, so from time to time
over the past year investors' concerns that rates will rise have worked against
these stocks. The utilities sector is also in the midst of deregulation, which
has given some investors another reason to shy away from it. We're confident in
the utilities companies that we invest in, however, and believe that they should
fare well even in a more competitive environment.
Q: Did you make any significant shifts in the portfolio over the past year?
A: No. For a while now, we've kept the portfolio somewhat defensively
positioned. One of the forces driving the stock market's tremendous rally over
the past several years is the huge profitability gains that many companies have
made through restructuring. Investors have built up high expectations for these
companies, so their shares could be very vulnerable to a reversal of that trend.
After all, a company can't restructure indefinitely. That's why we've kept a
significant percentage of the Fund's assets in companies that haven't been as
much a part of that wave. Of this group, we have about 20% in utilities, which
are traditionally defensive industries, and 10% in the oil sector. We also
invest a portion of the Fund's assets in cyclical stocks that have tended to
hold up well, even when the economy slows.
- --
42
- --
<PAGE>
--------------------------------------
The Montgomery Funds
--------------------------------------
Equity Income Fund
--------------------------------------
P O R T F O L I O H I G H L I G H T S
In a broad sense, one of the more important things we have emphasized over the
past year--and continue to focus on--is making sure that the companies we invest
in are of very high quality. By that we mean they are in solid financial shape
and have excellent, seasoned management, among other qualities.
Q: Why should an investor consider the Montgomery Equity Income Fund right now?
A: First of all, it's always wise for an investor to diversify his or her
portfolio across different segments of the market. Our Fund, which focuses on
large-cap value-oriented investments, may be a good complement to
more-aggressive growth-oriented funds.
Right now the Equity Income Fund may also be especially attractive to investors
who are a little uncertain about the market's direction. As we said at the end
of 1996, for several years now the market has rewarded funds that have taken on
a great deal of risk. Our aim with the Equity Income Fund is to be competitive
and to perform defensively in a more difficult environment.
=====================================
T O P T E N H O L D I N G S
- -------------------------------------
(as a percentage of total net assets)
Amoco Corporation................3.3%
General Mills Inc................3.0%
Genuine Parts Company............2.8%
Cooper Industries Inc............2.8%
Weyerhaeuser Company.............2.8%
UST Inc..........................2.7%
Penney (J.C.) Company, Inc.......2.5%
Betzdearborn, Inc................2.5%
Dow Chemical Company.............2.4%
Ameritech Corporation ...........2.4%
=====================================
T O P F I V E I N D U S T R I E S
- -------------------------------------
(as a percentage of total net assets)
Electric Utilities..............11.2%
Pulp and Paper..................10.0%
Oil..............................9.2%
Food and Beverage................8.7%
Chemicals........................7.5%
P O R T F O L I O I N V E S T M E N T S
June 30, 1997
COMMON STOCKS -- 98.4%
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Auto/Auto Parts-- 4.4%
7,000 Eaton Corporation....................................$ 611,188
33,000 Genuine Parts Company................................ 1,117,875
---------
1,729,063
Banks/Savings and Loans -- 3.8%
9,000 Morgan (J.P.) & Company Inc.......................... 939,375
11,000 National City Corporation............................ 577,500
-------
1,516,875
Building Materials -- 1.9%
18,000 Masco Corporation**.................................. 751,500
Business Services -- 1.0%
17,000 Pall Corporation..................................... 395,250
Chemicals -- 7.5%
15,000 Betzdearborn, Inc.................................... 990,000
11,000 Dow Chemical Company................................. 958,375
10,000 Lubrizol Corporation................................. 419,375
15,000 Nalco Chemical Company............................... 579,375
-------
2,947,125
Computers and Office Equipment-- 1.0%
6,000 Pitney Bowes Inc..................................... 417,000
Electric Utilities -- 11.2%
28,000 Baltimore Gas & Electric Company**................... 747,250
5,000 Dominion Resources, Inc.............................. 183,125
8,000 Duke Energy Corporation ............................. 383,500
19,000 Florida Progress Corporation......................... 594,938
19,000 PacifiCorp........................................... 418,000
14,000 SCANA Corporation ................................... 347,375
16,000 Union Electric Company............................... 603,000
18,000 Western Resources, Inc............................... 583,875
23,000 Wisconsin Energy Corporation......................... 572,125
-------
4,433,188
Electrical Equipment -- 1.7%
4,000 General Signal Corporation........................... 174,500
11,000 Hubbell Inc., Class B................................ 484,000
-------
658,500
Food and Beverage -- 8.7%
22,000 Anheuser-Busch Companies Inc......................... 922,625
18,000 General Mills Inc.................................... 1,172,250
</TABLE>
----
43
----
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Equity Income Fund
- ---------------------
I N V E S T M E N T S
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Food and Beverage -- continued
20,000 Heinz (H.J.) Company................................... $ 922,500
16,000 McCormack & Company, Inc., Non-Voting
Shares.................................................. 405,000
-------
3,422,375
Gas Utilities -- 2.0%
7,000 Consolidated National Gas Company....................... 376,688
10,000 Questar Corporation..................................... 403,750
-------
780,438
Household Products -- 2.0%
27,000 Rubbermaid, Inc. ....................................... 803,250
Insurance -- 7.2%
9,000 American General Corporation............................ 429,750
12,000 Marsh & McLennan Companies.............................. 856,500
17,000 SAFECO Corporation...................................... 794,219
10,000 St. Paul Companies, Inc. ............................... 762,500
-------
2,842,969
Leisure Time -- 1.1%
14,000 Fleetwood Enterprises, Inc.**........................... 417,375
Machinery and Tools -- 2.8%
22,000 Cooper Industries Inc. ................................. 1,094,500
Medical Products -- 1.1%
9,000 Bausch & Lomb, Inc. .................................... 424,125
Newspapers/Publishing -- 1.3%
9,000 McGraw-Hill Companies, Inc. ............................ 529,313
Oil -- 9.2%
15,000 Amoco Corporation....................................... 1,304,063
10,500 Atlantic Richfield Company.............................. 740,250
6,000 Chevron Corporation..................................... 443,625
11,000 Dresser Industries Inc. ................................ 409,750
12,000 Exxon Corporation....................................... 738,000
-------
3,635,688
Pharmacy/Drugs -- 3.3%
9,000 Bristol-Myers Squibb Company............................ 729,000
17,000 Pharmacia & Upjohn, Inc. ............................... 590,750
-------
1,319,750
Pulp and Paper -- 10.0%
13,000 Consolidated Papers Inc. ............................... 702,000
16,000 International Paper Company............................. 777,000
9,000 Potlatch Corporation.................................... 407,250
19,000 Union Camp Corporation.................................. 950,000
21,000 Weyerhaeuser Company.................................... 1,092,000
---------
3,928,250
Railroads -- 1.0%
4,000 Norfolk Southern Corporation............................ 403,000
Retail Trade -- 2.5%
19,000 Penney (J.C.) Company, Inc.**........................... 991,563
Telephone/Long Distance -- 1.0%
11,000 AT&T Corporation........................................ 385,688
Telephone/Regional-Local -- 6.6%
14,000 Ameritech Corporation................................... 951,125
8,000 Bell Atlantic Corporation............................... 607,000
9,000 BellSouth Corporation................................... 417,375
11,000 Nynex Corporation....................................... 633,875
-------
2,609,375
Telephone Networks -- 2.0%
18,000 GTE Corporation......................................... 789,750
Tobacco -- 4.1%
14,000 Fortune Brands, Inc. ................................... 522,372
39,000 UST Inc. ............................................... 1,082,250
---------
1,604,622
TOTAL COMMON STOCKS
(Cost $34,395,778).................................................. 38,830,532
----------
TOTAL INVESTMENTS -- 98.4%
(Cost $34,395,778*)................................................. 38,830,532
OTHER ASSETS AND LIABILITIES -- 1.6%
(Net)............................................................... 631,976
-------
NET ASSETS -- 100.0%............................................... $ 39,462,508
===========
</TABLE>
*Aggregate cost for federal tax purposes was $34,439,863.
**Securities on loan at June 30, 1997, which have an aggregate market value of
$2,306,600, represent 5.8% of the total net assets of the Fund (see note 5 to
Financial Statements).
Descriptions of securities have not been audited by Deloitte & Touche LLP.
- ----
44
- ----
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------------------
The Montgomery Funds
--------------------------------------
Growth Fund
--------------------------------------
P O R T F O L I O H I G H L I G H T S
I N V E S T M E N T R E V I E W
Q: How did the Fund perform from July 1, 1996, through June 30, 1997?
A: The Fund gained 20.44% over that time frame. And though that is solid
performance in absolute terms, it did lag the S&P 500. This reflects a
significant trend over the past year: The largest companies in the stock market
generated the highest returns for investors. In fact, the 35 largest stocks in
the S&P 500 accounted for approximately 50% of its total return over that time
period. Our focus on buying the best combination of growth stocks that are
available at the most attractive prices has led us to somewhat smaller
companies, so we were a bit disadvantaged over the most recent year compared
with the S&P 500.
Q: The Fund turned in a double-digit gain during the second quarter of 1997.
What were some of the factors behind that performance?
A: Many individual stock positions contributed to the Fund's performance over
this period. This was a time when market leadership broadened out. New areas of
the market in which we have identified attractive opportunities, including some
cycle-sensitive and smaller names, participated in the advance. This was
positive for the Fund's performance. We should reiterate, however, that we do
not make portfolio decisions based on broad trends or themes. Our investment
approach is bottom-up, and our weightings are a by-product of that process.
Q: What's your perspective on the U.S. economy right now?
A: Economic growth has moderated somewhat, after an unsustainably strong first
quarter. Demand continues to ease, inflation remains dormant and interest rates
have declined. The Federal Reserve did not tighten monetary policy at either its
May 20 or July 2 meeting. The stock market reacted very favorably to this
positive environment, although investors and economists continue to debate
whether demand has moderated sufficiently to defuse pressure on already tight
labor markets. So far, wage-based inflation remains under control, as
consolidations, layoffs, restructuring and productivity gains have helped keep a
lid on costs.
Q: And your view of the stock market?
A: If you take the S&P 500 as a proxy for the market, it appears to be fully
valued from a historical perspective. Over the past 100 years, the S&P 500's
price/earnings (P/E) multiple has ranged from around 11 times on the low end to
about 18 times on the high side. Right now the S&P 500 is trading at a P/E of
nearly 20 times its expected 1998 earnings. As a result, we doubt that further
P/E expansion is likely. Stocks should be able to continue appreciating along
with earnings growth, so long as the backdrop remains benign. At the moment,
consensus expectations for the S&P 500's 1998 earnings-growth rate is in the 6
to 8% range. It is therefore unlikely that the backdrop for a dramatic rally is
in place unless interest rates continue to decline.
==========================================
P O R T F O L I O M A N A G E M E N T
- ------------------------------------------
Roger W. Honour...Senior Portfolio Manager
Andrew G. Pratt, CFA.....Portfolio Manager
Kathryn M. Peters........Portfolio Manager
=====================================
F U N D P E R F O R M A N C E
- -------------------------------------
Average annual total returns
for the periods ended 6/30/97
- -------------------------------------
Montgomery Growth Fund
Since inception (9/30/93)......26.78%
One year.......................20.44%
Three years....................23.91%
- -------------------------------------
S&P 500 Index
Since 9/30/93..................22.09%
One year.......................34.68%
Three years....................28.83%
- -------------------------------------
Past performance is no guarantee of
future results. Net asset value,
investment return and principal value
will fluctuate, so shares, when
redeemed, may be worth more or less
than their original cost.
<TABLE>
<CAPTION>
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
Montgomery S&P 500 Lipper Growth
Growth Fund Index/1/ Funds Average/2/
----------- -------- ----------------
Date Value Value Value
- ----- ------ ------- -------
<S> <C> <C> <C>
09/93 $10,000 $10,000 $10,000
10/93 $10,400 $10,207 $10,136
11/93 $10,983 $10,109 $9,953
12/93 $11,836 $10,232 $10,237
01/94 $12,488 $10,579 $10,561
02/94 $12,647 $10,292 $10,394
03/94 $12,530 $9,844 $9,906
04/94 $12,982 $9,970 $9,946
05/94 $13,116 $10,133 $9,994
06/94 $12,798 $9,885 $9,656
07/94 $13,259 $10,210 $9,907
08/94 $13,929 $10,627 $10,376
09/94 $13,846 $10,368 $10,180
10/94 $14,348 $10,600 $10,345
11/94 $13,919 $10,215 $9,960
12/94 $14,309 $10,366 $10,055
01/95 $13,996 $10,635 $10,127
02/95 $14,537 $11,049 $10,520
03/95 $15,128 $11,374 $10,817
04/95 $15,230 $11,709 $11,054
05/95 $15,568 $12,176 $11,390
06/95 $16,193 $12,459 $11,880
07/95 $16,869 $12,872 $12,454
08/95 $16,920 $12,904 $12,547
09/95 $17,360 $13,448 $12,919
10/95 $17,081 $13,400 $12,736
11/95 $17,664 $13,987 $13,184
12/95 $17,692 $14,257 $13,232
01/96 $17,932 $14,742 $13,524
02/96 $18,641 $14,879 $13,826
03/96 $19,157 $15,022 $13,943
04/96 $19,904 $15,243 $14,379
05/96 $20,668 $15,636 $14,746
06/96 $20,217 $15,695 $14,548
07/96 $19,295 $15,002 $13,699
08/96 $20,042 $15,319 $14,168
09/96 $20,613 $16,181 $14,978
10/96 $20,977 $16,627 $15,102
11/96 $21,878 $17,882 $16,037
12/96 $21,267 $17,528 $15,781
01/97 $21,847 $18,623 $16,598
02/97 $21,636 $18,769 $16,379
03/97 $21,045 $17,999 $15,638
04/97 $21,921 $19,073 $16,248
05/97 $23,704 $20,239 $17,411
06/97 $24,348 $21,138 $18,090
</TABLE>
/1/ The Standard & Poor's 500 Index is composed of 500 widely held common stocks
listed on the NYSE, AMEX and OTC market.
/2/ The Lipper Growth Funds Average universe consists of 401 funds.
----
45
----
<PAGE>
- --------------------------------------
The Montgomery Funds
- --------------------------------------
Growth Fund
- --------------------------------------
P O R T F O L I O H I G H L I G H T S
======================================
T O P T E N H O L D I N G S
- --------------------------------------
(as a percentage of total net assets)
Avid Technology Inc. .............4.6%
Nordstrom, Inc. ..................3.9%
Dayton-Hudson Corporation.........3.6%
Octel Communications Corporation..3.6%
International Paper Company.......3.4%
Masco Corporation.................3.3%
Canadian National Railway Company.3.3%
Golden West Financial Corporation.3.1%
Boise Cascade Corporation.........2.8%
Sybase Inc........................2.7%
======================================
T O P F I V E I N D U S T R I E S
- --------------------------------------
(as a percentage of total net assets)
Telecommunications Equipment.....11.1%
Retail Trade......................8.5%
Pulp and Paper....................8.4%
Software Systems..................7.4%
Banks/Savings and Loan............5.1%
Q: How will these views affect your portfolio strategy, if at all?
A: We think that the most attractive opportunities in the U.S. market right now
lie in somewhat smaller-cap stocks and selected cycle-sensitive issues.
Investors have ignored some of these areas for quite a while, creating a
valuation disparity. A great many medium-sized and smaller companies also offer
higher growth rates than those in the S&P 500. We expect that the broadening of
interest to these types of companies will continue, as more investors recognize
the potential in these segments of the market.
Q: Can you discuss a portfolio company that is an example of this?
A: Nordstrom, a company that we have invested in for quite a while, is the
largest independently owned fashion retailer in the United States, offering a
wide variety of high-quality apparel, shoes and accessories for women, men and
children through 62 full-line stores. Nordstrom prides itself on quality, value,
selection and service. It has been in business for 97 years, and the Nordstrom
family still owns 23% of its outstanding shares, thereby aligning management's
interests with those of other shareholders. The company is extremely well
financed, which should allow it to continue expanding as opportunities are
presented. Unlike many retailers, Nordstrom is consistently profitable, not just
in the Christmas quarter. The company recently reported better-than-expected
earnings and had upbeat comments about its future prospects and expansion
possibilities. Even when Nordstrom was underperforming, it remained one of the
most profitable retailers in the business.
Despite all this, Nordstrom's stock price is about the same as it was six years
ago. In fact, at the end of the second quarter its shares were trading at a
discount to the market for the first time in more than a decade. Herein lies the
opportunity, we believe, for investors to recognize Nordstrom's improving
fundamentals and reward its shares with a higher valuation.
Q: Why should an investor consider the Montgomery Growth Fund right now?
A: Although we have a generally positive view of the market, we believe that its
historically high valuations make it more crucial than ever for investors to
maintain a dual focus on growth and value. Our investment philosophy strikes a
balance between the two. We use proprietary, quantitative screening techniques
to pinpoint long-term, positive, fundamental change in a company's business and
its expected earnings. We then conduct fundamental analysis to determine whether
this improvement is sustainable and to project what we believe the appropriate
valuation of the stock should be. Our goal is to identify long-term, fundamental
improvement before that potential is widely recognized by the market, and to
avoid overpaying for the future prospects of the company. Over the long term, we
think that this strategy will best serve the interests of our shareholders.
- ----
46
- ----
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
---------------------
The Montgomery Funds
---------------------
Growth Fund
---------------------
I N V E S T M E N T S
The Montgomery Growth Fund remains well diversified, with more than 50 companies
across 29 different industries. The portfolio's weighted average market cap is
approximately $9 billion. The average 1997 earnings growth of our holdings
(based on consensus expectations) is 28%. Again, that contrasts with expected
earnings growth of about 10% for the S&P 500. The P/E ratio of our portfolio is
about 18 times. In other words, we expect our portfolio to deliver nearly triple
the earnings growth of the S&P 500 at a slightly lower P/E.
PORTFOLIO INVESTMENTS
June 30, 1997
COMMON STOCKS -- 83.1%
<TABLE>
<CAPTION>
Shares Value (Note 1)
<C> <S> <C>
Aerospace and Defense -- 0.5%
200,000 Gulfstream Aerospace Corporation+...................$ 5,900,000
Air Freight Courier -- 2.3%
450,000 Federal Express Corporation+........................ 25,987,500
Apparel and Textiles -- 1.0%
135,000 VF Corporation...................................... 11,441,250
Auto/Auto Parts -- 2.4%
350,000 General Motors Corporation.......................... 19,490,625
158,800 PACCAR Inc.......................................... 7,374,275
----------
26,864,900
Banks/Savings and Loan -- 5.1%
190,000 BankAmerica Corporation ............................ 12,266,875
90,000 Citicorp............................................ 10,850,625
500,000 Golden West Financial Corporation................... 35,000,000
----------
58,117,500
Building Materials -- 3.3%
900,000 Masco Corporation**................................. 37,575,000
Business Services -- 1.9%
450,000 AccuStaff Inc.**+................................... 10,659,375
150,000 Computer Sciences Corporation**+.................... 10,818,750
----------
21,478,125
Chemicals -- 1.0%
130,000 Dow Chemical Company................................ 11,326,250
Conglomerates -- 2.9%
280,000 HFS, Inc.**+........................................ 16,240,000
250,000 Tyco International Ltd.**........................... 17,390,625
----------
33,630,625
Cosmetics and Personal Care -- 1.0%
55,000 Unilever N.V., ADR**................................ 11,990,000
Diversified Financial Services -- 0.9%
175,000 Norwest Corporation................................. 9,843,750
Electronics -- 1.3%
200,000 Raychem Corporation................................. 14,875,000
Food and Beverage -- 1.9%
1,200,000 Fleming Companies, Inc. ............................ 21,600,000
Health Care -- 0.9%
100,000 HealthCare COMPARE Corporation+..................... 5,243,750
75,000 Oxford Health Plans, Inc.+.......................... 5,383,594
----------
10,627,344
Lodging -- 2.4%
925,000 Interstate Hotels Company+.......................... 27,229,687
Metals and Mining -- 2.5%
175,000 Aluminum Company of America......................... 13,190,625
500,000 Freeport-McMoRan Copper & Gold,
Series B............................................ 15,562,500
----------
28,753,125
Newspapers/Publishing -- 2.1%
231,000 Time Warner, Inc.................................... 11,145,750
525,000 World Color Press Inc.+............................. 12,468,750
----------
23,614,500
Oil -- 5.0%
450,000 Amerada Hess Corporation**.......................... 25,003,125
305,000 Belco Oil & Gas Corporation+........................ 6,519,375
1,000,000 Union Pacific Resources Group, Inc.................. 24,875,000
----------
56,397,500
Oilfield Equipment -- 2.9%
175,000 Schlumberger Ltd.................................... 21,875,000
260,000 Tidewater Inc....................................... 11,440,000
----------
33,315,000
Pipelines -- 0.9%
250,000 Enron Corporation**................................. 10,203,125
</TABLE>
--
47
--
The accompanying notes are an integral part of these financial statements.
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Growth Fund
- ---------------------
I N V E S T M E N T S
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<C> <S> <C>
Pulp and Paper -- 8.4%
900,000 Boise Cascade Corporation**.........................$ 31,781,250
250,000 Champion International Corporation.................. 13,812,500
331,900 Chesapeake Corporation ............................. 11,201,625
800,000 International Paper Company......................... 38,850,000
----------
95,645,375
Railroad -- 3.3%
850,000 Canadian National Railway Company................... 37,187,500
Real Estate -- 0.6%
168,300 Starwood Lodging Trust ............................. 7,184,307
Retail Trade -- 8.5%
775,000 Dayton-Hudson Corporation........................... 41,220,313
900,000 Nordstrom, Inc.**................................... 44,156,250
450,000 TJX Companies, Inc.**............................... 11,868,750
----------
97,245,313
Semiconductors -- 1.6%
250,000 Analog Devices Inc.**+.............................. 6,640,625
132,000 Texas Instruments, Inc. ............................ 11,096,250
----------
17,736,875
Software Systems -- 7.4%
1,970,000 Avid Technology Inc.+............................... 52,081,875
43,600 Structural Dynamics Research+....................... 1,145,863
2,100,000 Sybase Inc.+........................................ 31,106,250
----------
84,333,988
Telecommunications Equipment -- 11.1%
270,000 Ascend Communications, Inc.**+...................... 10,605,937
840,000 Aspect Telecommunications Corporation+.............. 18,585,000
750,000 Ericsson (L.M.) Telephone Company,
Class B, ADR**...................................... 29,554,688
325,000 Newbridge Networks Corporation+..................... 14,137,500
60,000 Northern Telecom Ltd................................ 5,460,000
1,750,000 Octel Communications Corporation+................... 40,960,937
700,000 PictureTel Corporation+............................. 6,660,937
-----------
125,964,999
TOTAL COMMON STOCKS
(Cost $710,802,359)............................................. 946,068,538
-----------
<CAPTION>
REPURCHASE AGREEMENTS -- 17.0%
Principal Amount Value (Note 1)
<C> <S> <C>
$53,536,000 Agreement with Bear Stearns, Tri-Party,
6.200% dated 06/30/97, to be repurchased
at $53,545,220 on 07/01/97, collateralized
by $54,606,720 market value of U.S.
government securities, having various
maturities and various interest rates............... $ 53,536,000
30,950,000 Agreement with Greenwich Capital, Tri-Party,
6.200% dated 06/30/97, to be repurchased at
$30,955,330 on 07/01/97, collateralized by
$31,569,747 market value of U.S. government
securities, having various maturities and
various interest rates.............................. 30,950,000
48,000,000 Agreement with HSBC Securities, Inc.,
Tri-Party, 6.200% dated 06/30/97, to be
repurchased at $48,008,267 on 07/01/97,
collateralized by $48,960,080 market value
of U.S. government securities, having various
maturities and various interest rates............... 48,000,000
60,464,000 Agreement with Nikko Securities Company
International, Inc., Tri-Party, 6.200% dated
06/30/97, to be repurchased at $60,474,413
on 07/01/97, collateralized by $61,951,757
market value of U.S. government securities,
having various maturities and various
interest rates...................................... 60,464,000
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $192,950,000)............................................. 192,950,000
-----------
TOTAL INVESTMENTS -- 100.1%
(Cost $903,752,359*)............................................ 1,139,018,538
OTHER ASSETS AND LIABILITIES -- (0.1%)
(Net)........................................................... (1,463,073)
----------
NET ASSETS -- 100.0%............................................ $1,137,555,465
=============
</TABLE>
* Aggregate cost for federal tax purposes was $915,335,264.
** Securities on loan at June 30, 1997, which have an aggregate market value of
$71,417,163, represent 6.3% of the total net assets of the Fund (see note 5
to Financial Statements).
+ Non-income producing security.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
Abbreviation:
ADR.....American Depositary Receipt
- --
48
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------------------
The Montgomery Funds
--------------------------------------
Micro Cap Fund
--------------------------------------
P O R T F O L I O H I G H L I G H T S
I N V E S T M E N T R E V I E W
Q: How did the Micro Cap Fund perform for the fiscal year ended June 30, 1997,
and the first six months of calendar 1997?
A: For the fiscal year ended June 30, 1997, the Micro Cap Fund was up 14.77%.
This performance compares with the Russell 2000 Index, which was up 16.33%, and
the Russell 2000 Growth Index, which was up 4.6%. The reason for the difference
between the Russell 2000 Index and the Micro Cap Fund is that the first quarter
of fiscal 1997 included the July 1996 correction, which was particularly severe
for smaller-cap companies. The weighted average market cap of the Micro Cap Fund
is much less than that of the Russell 2000, therefore, these stocks were hit
harder, but rebounded as the year progressed. On the other hand, the Fund
significantly outperformed the Russell 2000 Growth Index over the past fiscal
year.
For the first six months of 1997, the Micro Cap Fund was up 12.36%, while the
Russell 2000 Index was up 10.2% and the Russell 2000 Growth Index was up 5.23%.
The Fund outperformed both indices by following our disciplined investment
process, which led us to good growth companies trading at reasonable valuations.
This relative performance is particularly favorable given that we have been in a
market environment where the larger-capitalization stocks have been performing
much better than the smaller-capitalization stocks, and the weighted average
market cap of the Russell 2000 is much bigger than that of the Micro Cap Fund.
Q: What holdings performed especially well in the last year and why?
A: In the December 1996 semiannual report, we discussed a recent investment that
we were excited about--Sinter Metals, Inc. This company is the largest producer
of powder metal components in North America and Europe. Powder metal products,
used principally in the automotive industry, offer precision designs at a lower
cost than other processes; therefore, automotive customers are increasing the
number of these components in each vehicle. Sinter Metals is the market leader
in this highly fragmented industry and is four times the size of its
next-largest competitor, offering quality, scale and superior technology to its
customers. On January 1, 1997, the stock traded at $29.75. Not only were we
excited about this investment, but so was GKN plc, which, on April 30, announced
a tender offer for Sinter Metals at $37 in cash per share, 76% above where we
initiated our position in the stock.
Another successful investment is Plexus Corporation, which we began buying in
October 1996. Through June 30, 1997, the stock had appreciated 224%. This
company is a contract provider of design, manufacturing and testing services to
the electronics industry. Plexus has experienced rapid growth in 1997 through
higher orders from existing customers and the addition of new customers. This
growth, combined with significant margin improvement, has captured investors'
attention, driving the stock price upward.
========================================
P O R T F O L I O M A N A G E M E N T
- ----------------------------------------
Roger W. Honour.Senior Portfolio Manager
Andrew G. Pratt, CFA...Portfolio Manager
Kathryn M. Peters......Portfolio Manager
========================================
F U N D P E R F O R M A N C E
- ----------------------------------------
Average annual total returns
for the periods ended 6/30/97
- ----------------------------------------
Montgomery Micro Cap Fund
Since inception (12/30/94)........24.26%
One year..........................14.77%
- ----------------------------------------
Russell 2000 Index
Since 12/31/94....................22.15%
One year..........................16.33%
- ----------------------------------------
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lipper Small
Montgomery Micro Russell 2000 Company Growth
Cap Fund Index/1/ Funds Average/2/
-------- -------- ----------------
Date Value Value Value
- ---- ----- ----- -----
<S> <C> <C> <C>
12/94 $10,000 $10,000 $10,000
01/95 $10,083 $9,874 $9,880
02/95 $10,208 $10,285 $10,284
03/95 $10,558 $10,462 $10,572
04/95 $10,683 $10,694 $10,707
05/95 $10,792 $10,878 $10,877
06/95 $11,458 $11,443 $11,538
07/95 $12,083 $12,102 $12,417
08/95 $12,292 $12,352 $12,612
09/95 $12,475 $12,573 $12,942
10/95 $12,058 $12,010 $12,523
11/95 $12,571 $12,515 $13,011
12/95 $12,866 $12,845 $13,202
01/96 $12,790 $12,831 $13,083
02/96 $13,161 $13,231 $13,634
03/96 $13,590 $13,501 $13,981
04/96 $14,752 $14,222 $15,049
05/96 $15,838 $14,783 $15,668
06/96 $15,005 $14,176 $15,025
07/96 $13,464 $12,938 $13,691
08/96 $14,079 $13,689 $14,535
09/96 $14,584 $14,224 $15,301
10/96 $14,544 $14,005 $14,960
11/96 $14,866 $14,582 $15,410
12/96 $15,326 $14,964 $15,611
01/97 $16,015 $15,263 $15,981
02/97 $15,082 $14,893 $15,256
03/97 $14,493 $14,190 $14,441
04/97 $14,438 $14,230 $14,348
05/97 $16,070 $15,813 $16,066
06/97 $17,221 $16,491 $16,888
</TABLE>
/1/ The Russell 2000 Index is a capitalization-weighted total return index that
comprises 2,000 of the smallest-capitalized U.S. domiciled companies whose
common stock is traded in the U.S. on NYSE, AMEX and NASDAQ.
/2/ The Lipper Small Company Growth Funds Average universe consists of 11 funds.
----
49
----
<PAGE>
- --------------------------------------
The Montgomery Funds
- --------------------------------------
Micro Cap Fund
- --------------------------------------
P O R T F O L I O H I G H L I G H T S
<TABLE>
<CAPTION>
======================================
T O P T E N H O L D I N G S
- --------------------------------------
(as a percentage of total net assets)
<S> <C>
Moog, Inc., Class A .............3.0%
HA-LO Industries Inc. ...........3.0%
Manitowoc Company................2.9%
Cooper Companies, Inc............2.6%
Life RE Corporation..............2.4%
On Assignment Inc................2.3%
Triangle Pacific Corporation.....2.2%
Applied Power, Inc...............1.9%
Pride Petroleum Services Inc.....1.8%
Varco International Inc. ........1.8%
<CAPTION>
=====================================
T O P F I V E I N D U S T R I E S
- -------------------------------------
(as a percentage of total net assets)
<S> <C>
Machinery and Tools..............8.7%
Oilfield Equipment and Services..6.2%
Building Materials...............5.6%
Business Services................4.9%
Broadcasting/Advertising.........4.4%
</TABLE>
Q: Is there a holding that underperformed the market since the semiannual
report that you are still excited about?
A: HA-LO Industries, Inc., is the nation's leading distributor of advertising
specialty and premium promotional products; it specializes in integrated
marketing services such as event planning, sports marketing, advertising and
telemarketing. Our Micro Cap Fund has owned stock in HA-LO Industries since
February 1995. We first started buying it at less than $4.50 per share, and it
has been a terrific investment. The stock reached a high of $31.59 in December
1996, up 607% from our initial investment. When the company reported its
fourth-quarter earnings in February 1997, it appeared that revenue growth had
slowed. This, coupled with the fact that Montgomery Ward, a large customer of
HA-LO, was in precarious financial condition, caused HA-LO's stock to decline
sharply, falling to a low of $12.50. We strongly believed that neither
circumstance constituted a change in the company's fundamentals or its strong
future growth potential. We also had a great deal of confidence in its
management's ability to continue delivering superior performance. This was a
tremendous buying opportunity, and we used the price weakness to accumulate more
shares. HA-LO's management continued to execute its growth strategy, and as of
June 30, 1997, the stock was back to $23.63.
Q: What is the Fund's investment strategy?
A: As it has since its inception, the Fund's strategy continues to be centered
on our stock selection process, which seeks to identify good, micro-cap growth
companies with improving business fundamentals that are trading at reasonable
valuations before that potential is fully recognized by the market. We seek
companies that will not always be micro-cap, but have the potential to become
large, successful companies providing superior returns. We use a quantitative
screen to uncover companies with improving growth, then perform rigorous
fundamental analysis to determine the validity and sustainability of the
company's prospects. Finally, we apply valuation criteria to determine if the
good growth company is a solid investment. Only after a stock meets all three
steps of our process do we invest in it. We continually subject the stocks in
our portfolio to the same process that got them there in the first place. If
they no longer meet all three criteria, we trim or sell the position.
Q: How are you positioning the Micro Cap Fund for the year ahead?
A: Micro Cap's strategy is based on stock selection; therefore, we do not
position the Fund in response to, or in anticipation of, short-term market
moves. We have a fund composed of what we believe are good growth companies with
solid business fundamentals trading at reasonable valuations, which we think
will be good investments over the coming year. We do not focus on sector
positioning, but our investment process often uncovers a number of companies in
the same industry that are showing improved business fundamentals; therefore, it
is a bottom-up, not top-down, approach to building industry concentrations. The
portfolio continues to be well diversified, with 76 stocks across 35 industries
as of June 30, 1997.
- ----
50
- ----
<PAGE>
---------------------
The Montgomery Funds
---------------------
Micro Cap Fund
---------------------
I N V E S T M E N T S
Q: Why is now a good time to be invested in the Micro Cap Fund?
A: During 1996 and continuing into the first half of 1997, the returns of the
largest-cap stocks far exceeded those of the small-caps, causing a significant
valuation disparity between the two groups. We believe that the smallest-cap
stocks, such as those in the Micro Cap Fund, offer the best combination of
growth and value in the market, and therefore provide an opportunity for
tremendous upside potential.
<TABLE>
<CAPTION>
P O R T F O L I O I N V E S T M E N T S
June 30, 1997
COMMON STOCKS -- 92.4%
Shares Value (Note 1)
<S> <C> <C>
Aerospace -- 3.9%
200,000 Firearms Training Systems, Inc.+........$ 2,787,500
305,100 Moog, Inc., Class A+.................... 9,610,650
---------
12,398,150
Air Freight Couriers -- 1.0%
107,000 Expeditors International of
Washington, Inc......................... 3,042,813
Apparel and Textiles -- 2.9%
138,200 Fieldcrest Cannon, Inc.+................ 2,625,800
130,000 Interface, Inc.......................... 2,900,625
70,000 St. John Knits Inc...................... 3,780,000
---------
9,306,425
Auto/Auto Parts -- 0.9%
170,000 Donnelly Corporation.................... 2,847,500
Banks/Savings and Loans -- 1.3%
110,000 Bank United Corporation, Class A........ 4,200,625
Basic Materials-Chemical -- 0.5%
56,000 Furon Company........................... 1,757,000
Broadcasting/Advertising -- 4.4%
405,500 HA-LO Industries Inc.................... 9,503,906
180,000 Metro Networks Inc.+.................... 4,387,500
---------
13,891,406
Building Materials -- 5.6%
110,000 NCI Building Systems, Inc.+............. 3,554,375
220,000 Republic Group Inc...................... 4,427,500
225,000 Shelter Components Corporation ......... 2,671,875
222,500 Triangle Pacific Corporation+........... 7,064,375
---------
17,718,125
Business Services -- 4.9%
156,500 Bell & Howell Company+.................. 4,822,156
185,100 On Assignment Inc.+..................... 7,242,038
164,000 National TechTeam, Inc.+................ 3,495,250
---------
15,559,444
Computers and Office Equipment -- 2.9%
170,000 Computer Products Inc.**+............... 4,260,625
120,000 MICROS Systems, Inc.+................... 5,017,500
---------
9,278,125
Consumer Services-- 0.5%
60,000 Equity Corporation International+....... 1,451,250
Containers and Packaging -- 2.3%
150,000 Continental Can Inc.+................... 2,981,250
150,000 SEDA Specialty Packaging Corporation+... 4,331,250
---------
7,312,500
Electrical Equipment -- 1.2%
178,000 Giga-Tronics Inc.+ ..................... 1,246,000
138,100 Woodhead Industries, Inc................ 2,649,794
---------
3,895,794
Electronics -- 3.4%
120,000 Cubic Corporation....................... 3,120,000
130,000 Kollmorgen Corporation.................. 2,055,625
100,000 Plexus Corporation+..................... 5,590,625
---------
10,766,250
Financial Services -- 2.0%
94,000 Barra Inc.+............................. 3,066,750
135,000 Henry (Jack) & Associates............... 3,307,500
---------
6,374,250
Food and Beverage -- 4.2%
165,000 Dominick's Supermarkets, Inc.+.......... 4,393,125
135,000 Morningstar Group, Inc.+................ 3,969,844
275,000 Nature's Sunshine Products, Inc......... 4,950,000
---------
13,312,969
Furniture -- 2.4%
75,000 Ethan Allen Interiors Inc............... 4,275,000
200,000 O'Sullivan Industries Holdings, Inc.+... 3,312,500
---------
7,587,500
Glass -- 1.0%
90,000 Libbey, Inc............................. 3,150,000
Health Care Services -- 2.6%
150,000 Maxicare Health Plans, Inc.+............ 3,370,313
140,000 MAXIMUS, Inc.+.......................... 2,502,500
130,000 Transition Systems, inc.**+............. 2,368,438
---------
8,241,251
Heavy Construction -- 0.9%
148,000 Granite Construction, Inc............... 2,913,750
</TABLE>
----
51
----
The accompanying notes are an integral part of these financial statements.
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Micro Cap Fund
- ---------------------
I N V E S T M E N T S
<TABLE>
<CAPTION>
COMMON STOCKS -- continued
Shares Value (Note 1)
<S> <C> <C>
Insurance -- 3.7%
170,000 Amerin Corporation+............................ $ 4,122,500
163,000 Life RE Corporation............................ 7,599,875
---------
11,722,375
Leisure Time -- 2.3%
200,000 Cannondale Corporation**+...................... 3,506,250
211,500 RockShox, Inc.+................................ 3,674,813
---------
7,181,063
Machinery and Tools -- 8.7%
115,000 Applied Power, Inc., Class A................... 5,936,875
75,000 Chart Industries, Inc.......................... 2,053,125
90,000 DT Industries, Inc............................. 3,206,250
195,000 II-VI Inc.+.................................... 4,192,500
195,000 Manitowoc Company.............................. 9,116,250
160,000 X-Rite Inc..................................... 3,060,000
---------
27,565,000
Medical Products -- 3.3%
356,200 Cooper Companies, Inc.+........................ 8,281,650
157,700 Physio-Control International
Corporation+................................... 2,365,500
---------
10,647,150
Metal Fabricator -- 1.5%
195,500 Lindberg Corporation........................... 1,759,500
207,000 Materials Science Corporation+................. 3,195,562
---------
4,955,062
Oil -- 1.3%
400,000 Unit Corporation+.............................. 4,175,000
Oilfield Equipment and Services -- 6.2%
87,400 Falcon Drilling Company, Inc.+................. 5,036,425
175,000 Key Energy Group, Inc.**+...................... 3,117,188
244,500 Pride Petroleum Services Inc.+................. 5,860,359
175,000 Varco International Inc.+...................... 5,643,750
---------
19,657,722
Pulp and Paper -- 0.5%
75,000 Fibermark, Inc................................. 1,565,624
Real Estate Investment Trust -- 2.1%
220,000 Innkeepers USA Trust........................... 3,300,000
80,300 Starwood Lodging Trust......................... 3,427,805
---------
6,727,805
Restaurants -- 0.7%
119,130 Consolidated Products, Inc.+................... 2,218,795
Retail Trade -- 2.7%
720,000 Filene's Basement Corporation+................. 4,747,500
125,000 Linens 'N Things, Inc.+........................ 3,703,125
---------
8,450,625
Semiconductors -- 3.1%
245,000 Actel Corporation+............................. 4,165,000
35,000 Cymer Inc.+.................................... 1,704,063
207,500 International Rectifier Corporation+........... 3,864,688
---------
9,733,751
Software Systems -- 3.9%
207,250 Boole and Babbage, Inc.**...................... 4,365,203
150,000 Business Objects S.A.**+....................... 1,471,875
175,100 Kronos, Inc.+.................................. 4,705,813
145,000 Versatility Inc.+.............................. 1,839,688
---------
12,382,579
Specialty Chemical -- 1.0%
135,000 Tetra Technologies, Inc.+...................... 3,197,812
Telecommunications Equipment -- 1.6%
67,900 GenRad, Inc.+.................................. 1,536,238
213,000 Harmonic Lightwaves, Inc.**+................... 3,634,312
---------
5,170,550
Trucking -- 1.0%
110,000 Swift Transportation Company Inc.+............. 3,272,500
TOTAL COMMON STOCKS
(Cost $204,683,638)........................................ 293,628,540
-----------
REPURCHASE AGREEMENTS -- 6.8%
Principal Amount
$10,877,500 Agreement with Bear Stearns, Tri-Party,
6.200% dated 06/30/97, to be repurchased
at $10,879,373 on 07/01/97, collateralized
by $11,095,030 market value of U.S.
government securities, having various
maturities and various interest rates 10,877,500
10,877,500 Agreement with Greenwich Capital, Tri-Party,
6.200% dated 06/30/97, to be repurchased
at $10,879,373 on 07/01/97, collateralized
by $11,095,313 market value of U.S.
government securities, having various
maturities and various interest rates 10,877,500
----------
TOTAL REPURCHASE AGREEMENTS
(Cost $21,755,000)......................................... 21,755,000
----------
TOTAL INVESTMENTS -- 99.2%
(Cost $226,438,638*)....................................... 315,383,540
OTHER ASSETS AND LIABILITIES -- 0.8%
(Net)...................................................... 2,428,144
---------
NET ASSETS-- 100.0% ..................................... $317,811,684
===========
</TABLE>
*Aggregate cost for federal tax purposes was $226,951,193.
**Securities on loan at June 30, 1997, which have an aggregate market value of
$12,080,682, represent 3.8% of the total net assets of the Fund (see Note 5 to
Financial Statements).
+Non-income producing security.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
- ----
52
- ----
The accompanying notes are an integral part of these fiancial statements.
<PAGE>
--------------------------------------
The Montgomery Funds
--------------------------------------
Small Cap Fund
--------------------------------------
P O R T F O L I O H I G H L I G H T S
I N V E S T M E N T R E V I E W
Q: How did the Fund perform from July 1, 1996, through June 30, 1997?
A: The Fund gained 6.81% over that period, though it underperformed its
benchmark, the Russell 2000 Index. That was largely because the index is made up
of both value- and growth-oriented stocks, whereas we focus almost exclusively
on the latter. Unfortunately, the past year was a rough stretch for small-cap
growth stocks. Although the market environment was difficult, we're pleased that
the Fund fared well against what we believe is a more relevant benchmark, the
Russell 2000 Growth Index. That index rose only 4.6% over the past fiscal year.
Q: What were some of the most positive factors behind that performance?
A: We benefited from good stock selection during the period. One example of this
was our success with Seacor (recently renamed Seacor Smit), which was one of the
Fund's top 10 holdings at the start of 1997. The company's main line of business
is operating a fleet of ships used in oil and natural-gas exploration. Most
stocks in the energy sector haven't been performing very well since the price of
crude oil peaked in early 1997. But Seacor and a few other oil-services
companies have been exceptions to that trend, because the new technology they
employ makes drilling for oil easier and more efficient. We took profits on
Seacor in the second quarter.
Many of our holdings in the financial sector also performed well over the past
year, due mostly to their strong earnings trends. As bottom-up investors, we had
uncovered many attractive investment opportunities in this sector over the past
few years. With their strong recent performance, we've taken profits on several
of these holdings.
Q: Were there any disappointments?
A: In general, the past year was a trying one for small-cap growth investors,
and we were no exception. At the very beginning of the period, in July 1996,
shares of small companies came under intense selling pressure. Although they
rebounded in the following months, they fell off again in March and April. For a
lot of fundamental reasons, we thought that these corrections were overdone to
the point of being irrational. Even in cases in which investors might have had a
valid reason for losing confidence in particular companies--for instance, when
they reported an earnings shortfall--the subsequent declines in their share
prices often dramatically overstated the severity of the problem.
As for our portfolio, we believe that the contraction in price/earnings
multiples had more to do with sentiment than individual company performance.
That was borne out by their recent results; the vast majority of companies in
our portfolio met or exceeded earnings expectations.
=============================================
P O R T F O L I O M A N A G E M E N T
- ---------------------------------------------
Stuart O. Roberts....Senior Portfolio Manager
Jerome C. Philpott, CFA.....Portfolio Manager
Bradford D. Kidwell.........Portfolio Manager
=====================================
F U N D P E R F O R M A N C E
- -------------------------------------
Average annual total returns
for the periods ended 6/30/97
- -------------------------------------
Montgomery Small Cap Fund
Since inception (7/13/90)......20.47%
One year........................6.81%
Five years.....................18.07%
- -------------------------------------
Russell 2000 Index
Since 6/30/90..................14.88%
One year.......................16.33%
Five years.....................17.88%
- -------------------------------------
Past performance is no guarantee of
future results. Net asset value,
investment return and principal value
will fluctuate, so shares, when
redeemed, may be worth more or less
than their original cost.
<TABLE>
<CAPTION>
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
Montgomery Lipper Small
Small Cap Russell 2000 Company Growth
Fund Index/1/ Funds Average/2/
---- ------- -----------------
Date Value Value Value
- ------------------- ------- -------
<S> <C> <C> <C>
07/13/90 $10,000 $10,000
07/90 $9,539 $9,640
08/90 $8,569 $8,438
09/90 $7,853 $7,726
10/90 $7,552 $7,420
11/90 $8,154 $8,008
12/90 $8,820 $8,445
01/91 $10,055 $9,173
02/91 $11,319 $9,964
03/91 $12,310 $10,595
04/91 $12,083 $10,518
05/91 $12,979 $11,005
06/91 $12,489 $10,416
07/91 $13,764 $11,043
08/91 $14,917 $11,517
09/91 $15,371 $11,587
10/91 $16,384 $11,978
11/91 $15,313 $11,467
12/91 $17,529 $12,813
01/92 $18,407 $13,418
02/92 $18,370 $13,645
03/92 $17,541 $13,077
04/92 $16,602 $12,487
05/92 $16,577 $12,476
06/92 $15,947 $11,920
07/92 $16,379 $12,324
08/92 $15,749 $12,074
09/92 $16,231 $12,354
10/92 $16,787 $12,890
11/92 $18,740 $13,954
12/92 $19,210 $14,422
01/93 $19,495 $14,740
02/93 $18,555 $14,177
03/93 $19,396 $14,672
04/93 $18,876 $14,209
05/93 $20,323 $14,992
06/93 $20,805 $15,109
07/93 $20,941 $15,208
08/93 $22,393 $15,975
09/93 $23,432 $16,531
10/93 $24,369 $16,806
11/93 $22,624 $16,208
12/93 $23,881 $16,903
01/94 $24,651 $17,348
02/94 $24,313 $17,336
03/94 $22,800 $15,881 $16,385
04/94 $22,800 $15,975 $16,397
05/94 $21,651 $15,796 $16,090
06/94 $20,475 $15,259 $15,509
07/94 $21,097 $15,510 $15,774
08/94 $23,002 $16,374 $16,745
09/94 $22,718 $16,319 $16,873
10/94 $22,489 $16,255 $17,140
11/94 $21,475 $15,598 $16,533
12/94 $21,503 $16,018 $16,908
01/95 $21,475 $15,815 $16,724
02/95 $22,236 $16,473 $17,410
03/95 $22,811 $16,797 $17,888
04/95 $22,768 $17,130 $18,115
05/95 $23,214 $17,424 $18,388
06/95 $24,594 $18,328 $19,531
07/95 $26,103 $19,384 $21,019
08/95 $27,310 $19,785 $21,365
09/95 $27,828 $20,138 $21,967
10/95 $26,405 $19,237 $21,321
11/95 $27,276 $20,046 $22,103
12/95 $29,056 $20,575 $22,351
01/96 $29,008 $20,552 $22,142
02/96 $30,137 $21,193 $23,069
03/96 $31,519 $21,624 $23,574
04/96 $33,459 $22,781 $25,397
05/96 $35,382 $23,679 $26,415
06/96 $34,253 $22,706 $25,343
07/96 $31,837 $20,723 $25,005
08/96 $33,045 $21,926 $24,435
09/96 $34,794 $22,783 $25,750
10/96 $34,036 $22,432 $25,121
11/96 $34,929 $23,356 $25,841
12/96 $34,487 $23,968 $26,167
01/97 $35,143 $24,447 $26,870
02/97 $33,138 $23,855 $25,674
03/97 $30,457 $22,729 $24,272
04/97 $29,708 $22,793 $24,121
05/97 $34,318 $25,328 $26,970
06/97 $36,586 $26,414 $28,333
</TABLE>
/1/ The Russell 2000 Index is a capitalization-weighted total return index that
comprises 2,000 of the smallest-capitalized U.S. domiciled com-panies whose
common stock is traded in the U.S. on NYSE, AMEX and NASDAQ.
/2/ The Lipper Small Company Growth Funds Average universe consists of 76 funds.
----
53
----
<PAGE>
- --------------------------------------
The Montgomery Funds
- --------------------------------------
Small Cap Fund
- --------------------------------------
P O R T F O L I O H I G H L I G H T S
=====================================
T O P T E N H O L D I N G S
- -------------------------------------
(as a percentage of total net assets)
ICG Communications, Inc..........4.5%
Smithfield Foods, Inc............3.2%
LCI International Inc............2.8%
OEA Inc..........................2.6%
Renters Choice, Inc..............2.5%
Billing Information Concepts.....2.3%
Petroleum Geo-Services, ADR......2.1%
Commercial Federal Corporation...2.1%
AmeriCredit Corporation..........2.1%
Watson Pharmaceuticals, Inc......2.1%
=====================================
T O P F I V E I N D U S T R I E S
- -------------------------------------
(as a percentage of total net assets)
Telephone........................9.5%
Business Services................7.0%
Medical Products.................6.2%
Diversified Financial Services...6.0%
Oil..............................5.9%
Q: What's your outlook for the next year?
A: Despite--or rather because of--the tough times in the small-cap growth market
over the past year, we're excited about the future. The recovery of
small-company shares in the second quarter suggested that investors have become
more optimistic about this market segment, with good reason. Small-cap stocks,
in our opinion, generally offer both better value and higher growth potential
than large-cap stocks. As the Dow Jones Industrial Average has climbed to one
new high after another, its stocks have become very expensive. We think that
investors will eventually turn their attention to the small-cap sector for
better opportunities.
Q: The Fund is closed to new investors. But why should current shareholders
consider adding to their investment in the Small Cap Fund?
A: Right now small-caps are especially attractive for the reasons we've already
cited. As a group they offer higher expected earnings-growth rates than most
large-cap stocks, at more reasonable multiples. Over the long term, small-caps
have tended to offer greater capital appreciation (though at correspondingly
higher risk) than large-cap stocks. They also, of course, provide
diversification.
In addition, we consider the small-cap sector to be the least-efficient segment
of the U.S. market, which allows us to identify promising, undervalued companies
through our disciplined, bottom-up investment process.
P O R T F O L I O I N V E S T M E N T S
June 30, 1997
COMMON STOCKS -- 98.4%
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Aerospace and Defense-- 1.1%
95,000 Tracor, Inc.+........................................$ 2,375,000
Airfreight Couriers -- 1.7%
100,000 Atlas Air Inc.+...................................... 3,453,125
Auto/Auto Parts -- 2.6%
134,300 OEA Inc.............................................. 5,304,850
Banks -- 5.5%
44,000 Bank United Corporation, Class A..................... 1,680,250
30,000 Charter One Financial, Inc........................... 1,618,125
116,000 Commercial Federal Corporation....................... 4,306,500
84,000 Dime Bancorp, Inc.................................... 1,470,000
84,000 Glendale Federal Bank+............................... 2,194,500
---------
11,269,375
Biotechnology -- 1.9%
96,000 Cephalon Inc.+....................................... 1,107,000
116,000 Idec Pharmaceuticals Corporation+.................... 2,834,750
---------
3,941,750
</TABLE>
- ----
54
- ----
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------------------
The Montgomery Funds
--------------------------------------
Small Cap Fund
--------------------------------------
I N V E S T M E N T S
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Broadcasting/Advertising-- 1.7%
112,000 HSN, Inc.+...........................................$ 3,507,000
Building Materials -- 2.2%
160,000 Champion Enterprises, Inc.+.......................... 2,380,000
91,200 Oakwood Homes Corporation............................ 2,188,800
---------
4,568,800
Business Services -- 7.0%
136,000 Billing Information Concepts+........................ 4,734,500
66,800 BiSYS Group, Inc.+................................... 2,803,512
56,000 Envoy Corporation**+................................. 1,869,000
3,700 HCIA, Inc.+.......................................... 123,950
80,000 National Data Corporation............................ 3,465,000
48,000 Personnel Group of America Inc.**+................... 1,383,000
---------
14,378,962
Casino Services -- 0.0%#
619 Autotote Corporation+................................ 735
Chemicals -- 1.6%
135,200 TETRA Technologies Inc.+............................. 3,202,550
Computers and Office Equipment -- 0.9%
43,100 Encad, Inc.+......................................... 1,796,731
Diversified Financial Services -- 6.0%
205,000 AmeriCredit Corporation+............................. 4,305,000
122,800 Amresco, Inc.+....................................... 2,647,875
73,300 ContiFinancial Corporation+.......................... 2,675,450
80,000 Firstplus Financial Group, Inc.**+................... 2,720,000
---------
12,348,325
Food and Beverage -- 4.5%
78,200 Canandaigua Wine Company, Inc., Class A+............. 2,653,912
108,000 Smithfield Foods Inc.+............................... 6,648,750
---------
9,302,662
Furniture -- 2.2%
110,000 Heilig-Meyers Company................................ 2,158,750
100,000 Knoll, Inc.+......................................... 2,375,000
---------
4,533,750
Health Care -- 5.6%
108,500 Capstone Pharmacy Services, Inc.+.................... 1,176,547
96,000 Coventry Corporation+................................ 1,461,000
84,800 Nellcor Puritan Bennett Inc. ........................ 1,542,300
63,000 PhyMatrix Corporation**+............................. 976,500
93,300 Physician Computer Network Inc.+..................... 629,775
111,900 Quorum Health Group, Inc.+........................... 3,986,437
70,600 Trigon Healthcare Inc.+.............................. 1,712,050
---------
11,484,609
Insurance -- 5.1%
44,000 CMAC Investment Corporation.......................... 2,101,000
40,000 Conseco, Inc. ....................................... 1,480,000
36,700 Equitable of Iowa Companies.......................... 2,055,200
64,000 Everest Reinsurance Holdings Inc. ................... 2,536,000
47,600 Life RE Corporation ................................. 2,219,350
---------
10,391,550
Leisure Time-- 2.8%
104,000 K2 Resources, Inc. .................................. 3,295,500
73,300 Regal Cinemas Inc. .................................. 2,414,319
---------
5,709,819
Lodging -- 2.2%
74,000 Interstate Hotels Company+........................... 2,178,375
162,904 ShoLodge, Inc.+...................................... 2,423,197
---------
4,601,572
Machinery and Tools -- 1.3%
94,500 Greenfield Industries Inc. .......................... 2,575,125
Medical Products -- 6.2%
28,900 Advanced Technology Laboratories+.................... 1,239,087
80,000 Arrow International.................................. 2,345,000
97,700 I-Stat Corporation**+................................ 1,685,325
88,000 Mentor Corporation................................... 2,609,750
107,400 Physio-Control International Corporation+............ 1,611,000
88,000 Steris Corporation+.................................. 3,278,000
---------
12,768,162
Oil -- 5.9%
76,000 BJ Services Company+................................. 4,075,500
104,000 Domain Energy Corporation+........................... 1,404,000
40,000 Camco International Inc. ............................ 2,190,000
90,000 Petroleum Geo-Services, ADR+......................... 4,398,750
---------
12,068,250
Oilfield Equipment and Services -- 1.1%
40,000 Falcon Drilling Company, Inc.+....................... 2,305,000
Pharmacy/Drugs -- 5.7%
80,000 AmeriSource Health Corporation, Class A+............. 3,990,000
113,000 MedImmune, Inc.+..................................... 2,118,750
72,000 North American Vaccine Inc.**+....................... 1,390,500
100,000 Watson Pharmaceuticals, Inc.+........................ 4,218,750
---------
11,718,000
Retail Trade -- 3.8%
60,000 Proffitt's, Inc.+.................................... 2,628,750
260,600 Renters Choice, Inc.+................................ 5,163,138
---------
7,791,888
Semiconductors -- 1.0%
60,000 Vitesse Semiconductor Corporation ................... 1,959,375
Software Systems -- 0.9%
82,000 Midway Games Inc.**+................................. 1,763,000
Telecommunications Equipment -- 5.1%
72,000 Boston Technology, Inc.+............................. 2,128,500
68,400 Comverse Technology Inc.+............................ 3,569,625
71,600 Globalstar Telecommunication Ltd..................... 2,183,800
82,800 NICE Systems, Ltd., ADR+............................. 2,489,175
---------
10,371,100
</TABLE>
----
55
----
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------
The Montgomery Funds
- --------------------------------------
Small Cap Fund
- --------------------------------------
I N V E S T M E N T S
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Telephone -- 9.5%
480,000 ICG Communications, Inc.+............................$ 9,210,000
261,500 LCI International Inc.+.............................. 5,720,313
100,900 McLeod USA, Inc.+ ................................... 3,392,762
114,000 Primus Telecommunications Group, Inc.+............... 1,175,625
---------
19,498,700
Telephone/Long Distance -- 1.5%
98,100 ACC Corporation...................................... 3,034,969
Telephone Networks -- 0.5%
175,900 MIDCOM Communications, Inc.+......................... 945,463
Toys -- 1.3%
144,200 Galoob (Lewis) Toys Inc.+............................ 2,721,775
---------
TOTAL COMMON STOCKS
(Cost $154,055,488).............................................. 201,691,972
-----------
<CAPTION>
REPURCHASE AGREEMENT -- 2.0%
(Cost $3,994,000)
Principal Amount Value (Note 1)
<S> <C>
$3,994,000 Agreement with HSBC Securities Inc.,
Tri-Party, 6.200% dated 06/30/97, to be
repurchased at $3,994,688 on 07/01/97,
collateralized by $4,073,887 market value
of U.S. government securities, having various
maturities and various interest rates................$ 3,994,000
TOTAL INVESTMENTS -- 100.4%
(Cost $158,049,488*)............................................. 205,685,972
OTHER ASSETS AND LIABILITIES -- (0.4%)
(Net)............................................................ (731,202)
---------
NET ASSETS -- 100.0% ............................................$ 204,954,770
===========
</TABLE>
* Aggregate cost for federal tax purposes was $158,058,458.
** Securities on loan at June 30, 1997, which have an aggregate market value of
$11,425,075, represent 5.6% of the total net assets of the Fund (see note 5
to Financial Statements).
+ Non-income producing security.
# Amount represents less than 0.1%.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
Abbreviation:
ADR.....American Depositary Receipt
- ----
56
- ----
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------------------
The Montgomery Funds
--------------------------------------
Small Cap
Opportunities Fund
--------------------------------------
P O R T F O L I O H I G H L I G H T S
I N V E S T M E N T R E V I E W
Q: How did the Fund perform over the past year?
A: The Small Cap Opportunities Fund was up 10.97% for the 12-month period, while
the Russell 2000 Index gained 16.33% and the Russell 2000 Growth Index increased
4.6%. This return put us below the broader small-cap universe, but above the
more growth-oriented small-cap index. This is not inconsistent with our
investment process, which attempts to marry a growth style of investing with a
value bias.
Q: What stocks/groups helped the Fund's performance over the past 12 months?
A: One group that has been successful this year is the information technology
service area. These are firms that provide companies with specialized personnel
to meet their information technology needs. Many companies feel that, because of
the changing needs in technology, it is better to outsource this function rather
than hire permanent staff. Technology-proficient employees also like working in
temporary assignments to maximize their exposure to new technology and
companies. Portfolio firms specializing in this area include Keane and Computer
Task Group.
Q: What stocks/groups didn't work out so well?
A: Stocks that didn't work out so well included a couple of technology
companies: Actel and SBS Technologies. Actel is a semiconductor company, whereas
SBS makes specialized embedded computer components for industrial applications.
Both companies reported quarters in 1997 that slightly lagged expectations. They
are still in the portfolio, however, because we believe that their longer-term
stories are still intact and we find their valuations compelling. It is
interesting to note that The Men's Warehouse, which we mentioned as a poor
performer in the December 1996 semiannual report, was one of our best performers
through June. Patience can pay off in investing!
Q: What looks exciting right now?
A: We continue to find opportunities in the outsourcing area. Outsourcing is a
very general term that refers to companies that provide a function to other
companies that choose not to handle that task themselves. This would include
such firms as Keane and Computer Task Group, mentioned above, as well as
companies like Caribiner International and Applied Graphics Technologies.
Caribiner produces meetings, special events, training programs and other
communications services for business. Applied Graphics provides digital prepress
services to companies in the publishing business as well those that produce
advertising material.
==========================================
P O R T F O L I O M A N A G E M E N T
- ------------------------------------------
Roger W. Honour...Senior Portfolio Manager
Andrew G. Pratt, CFA.....Portfolio Manager
Kathryn M. Peters........Portfolio Manager
==========================================
F U N D P E R F O R M A N C E
- ------------------------------------------
Average annual total returns
for the periods ended 6/30/97
- ------------------------------------------
Montgomery
Small Cap Opportunities Fund
Since inception (12/29/95)..........28.65%
One year................... ........10.97%
- ------------------------------------------
Russell 2000 Index
Since 12/31/95......................18.12%
One year............................16.33%
- -------------------------------------------
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Montgomery Small Lipper Small
Cap Opportunities Russell 2000 Company Growth
Fund Index /1/ Funds Average/2/
---- --------- ----------------
Date Value Value Value
---- ----- ----- -----
<S> <C> <C> <C>
12/95 $10,000 $10,000 $10,000
01/96 $10,992 $9,989 $9,955
02/96 $11,692 $10,301 $10,380
03/96 $12,292 $10,510 $10,655
04/96 $13,100 $11,072 $11,478
05/96 $13,725 $11,509 $11,967
06/96 $13,167 $11,036 $11,487
07/96 $11,958 $10,072 $10,488
08/96 $12,750 $10,657 $11,125
09/96 $13,675 $11,073 $11,702
10/96 $12,608 $10,903 $11,476
11/96 $12,842 $11,352 $11,827
12/96 $13,728 $11,650 $11,997
01/97 $14,120 $11,882 $12,293
02/97 $13,403 $11,594 $11,782
03/97 $12,311 $11,047 $11,186
04/97 $12,136 $11,078 $11,111
05/97 $13,803 $12,311 $12,425
06/97 $14,612 $12,838 $13,074
</TABLE>
/1/ The Russell 2000 Index is a capitalization-weighted total return index that
comprises 2,000 of the smallest-capitalized U.S. domiciled companies whose
common stock is traded in the U.S. on NYSE, AMEX and NASDAQ.
/2/ The Lipper Small Company Growth Funds Average universe consists of 366
funds.
--
57
--
<PAGE>
- ---------------------------------------
The Montgomery Funds
- ---------------------------------------
Small Cap
Opportunites Fund
- ---------------------------------------
P O R T F O L I O H I G H L I G H T S
<TABLE>
<CAPTION>
- --------------------------------------------------
T O P T E N H O L D I N G S
- --------------------------------------------------
(as a percentage of total net assets)
<S> <C>
Cooper Companies, Inc.........................3.2%
Octel Communications Corporation..............2.4%
Waters Corporation............................2.2%
Budget Group, Inc.............................2.2%
Whole Foods Market, Inc. .....................2.2%
Sola International, Inc.......................2.1%
Acxiom Corporation ...........................2.1%
Synopsis, Inc.................................2.1%
The Men's Warehouse, Inc......................2.0%
Jones Apparel Group, Inc......................2.0%
<CAPTION>
- --------------------------------------------------
T O P F I V E I N D U S T R I E S
- --------------------------------------------------
(as a percentage of total net assets)
<S> <C>
Software Systems.............................13.7%
Business Services............................12.1%
Medical Products.............................10.9%
Retail Trade..................................6.8%
Health Care...................................5.1%
</TABLE>
Q: Do the examples you just mentioned--for instance, that the Fund benefited
from its information-technology holdings recently--mean that you try to take
advantage of sector trends?
A: We spend our time focusing on finding high-quality growth companies that are
trading at reasonable valuations. When we get behind the reasons for improving
fundamentals at each company, we might spot a trend that positively affects
others in the same industry. This could lead us to other investments in that
area, even though our original thrust was company-specific.
Q: The economic backdrop has been very favorable for stocks over the past few
years. What could change that?
A: As we mentioned above, we focus on company fundamentals rather than worry
about the economy or the market. We do, however, stay cognizant of the backdrop,
especially during a time when it has been so favorable. The biggest worry
currently would be the appearance of inflation. The economy has been cruising
along, with moderate to strong growth and limited price inflation. This has
allowed the Federal Reserve to remain on hold and the economic expansion to keep
on rolling. Any signs of accelerating economic growth or higher consumer and/or
producer prices right now could create some concerns among investors that
interest rates will head higher, which is a potential negative for stocks.
P O R T F O L I O I N V E S T M E N T S
June 30, 1997
<TABLE>
<CAPTION>
COMMON STOCKS -- 96.4%
Shares Value (Note 1)
<S> <C> <C> <C>
Airfreight Couriers -- 1.8%
118,000 Atlas Air, Inc.+ ...............................$ 4,074,687
Apparel and Textiles -- 4.0%
95,000 Jones Apparel Group, Inc.+ ..................... 4,536,250
145,500 The Men's Wearhouse, Inc.+ ..................... 4,610,531
---------
9,146,781
Auto/Auto Parts -- 1.3%
185,000 Miller Industries, Inc.+ ....................... 2,960,000
Banks -- 1.0%
60,000 Commercial Federal Corporation.................. 2,227,500
Broadcasting/Advertising -- 2.6%
63,000 Catalina Marketing Corporation+ ................ 3,031,875
171,300 Precision Response Corporation**+ .............. 2,783,625
---------
5,815,500
Business Services -- 12.1%
139,300 Alternative Resources Corporation+ ............. 2,833,884
82,500 Applied Graphics Technologies, Inc.+ ........... 3,269,063
227,000 BA Merchant Services, Inc.+ .................... 4,327,188
104,000 Caribiner International Inc.**+ ................ 3,393,000
92,000 Computer Task Group, Inc........................ 3,427,000
220,000 PMT Services, Inc. ............................. 3,348,125
70,600 Technology Solutions Company.................... 2,784,287
133,500 U.S. Office Products Company** ................. 4,067,578
---------
27,450,125
Consumer Services -- 3.3%
142,500 Budget Group, Inc. ............................. 4,916,250
100,000 Education Management Corporation 2,575,000
---------
7,491,250
Diversified Financial Services -- 1.3%
140,000 Imperial Credit Industries...................... 2,883,125
Electrical Equipment -- 1.8%
140,600 MRV Communication Inc.** ....................... 4,165,275
Electronics -- 3.5%
60,800 Sanmina Corporation** .......................... 3,807,600
173,000 SBS Technologies, Inc. ......................... 4,033,062
---------
7,840,662
Food and Beverages -- 2.2%
148,000 Whole Foods Market, Inc.** ..................... 4,893,250
Furniture -- 1.2%
66,500 Kimball International, Inc., Class B............ 2,672,469
</TABLE>
- --
58
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
---------------------
The Montgomery Funds
---------------------
Small Cap
Opportunities Fund
---------------------
I N V E S T M E N T S
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Health Care -- 5.1%
138,000 FPA Medical Management, Inc.+ ..................$ 3,268,875
216,000 Orthodontic Centers of America, Inc.**+ ........ 3,935,250
157,500 Renal Treatment Centers, Inc.+ ................. 4,232,812
---------
11,436,937
Insurance -- 1.6%
61,000 Berkley (W.R.) Corporation...................... 3,568,500
Lodging -- 3.1%
127,200 Interstate Hotels Company+ ..................... 3,744,450
169,000 Prime Hospitality Corporation+ ................. 3,337,750
---------
7,082,200
Machinery and Tools -- 2.4%
230,000 Octel Communications Corporation+ .............. 5,383,438
Medical Products -- 10.9%
313,500 Cooper Companies, Inc.+ ........................ 7,288,875
96,600 ESC Medical Systems, Ltd.+ ..................... 2,469,337
55,900 Fisher Scientific International................. 2,655,250
110,100 Maxicare Health Plans, Inc.+ ................... 2,473,809
145,000 Sola International, Inc.+ ...................... 4,857,500
137,800 Waters Corporation+ ............................ 4,943,575
---------
24,688,346
Newspapers/Publishing -- 1.0%
100,000 World Color Press Inc.+ ........................ 2,375,000
Oil -- 1.4%
166,000 Marine Drilling Companies, Inc.+ ............... 3,247,375
Oilfield Equipment and Services -- 1.5%
15,000 Hanover Compressor Company+ .................... 292,500
142,100 Hvide Marine, Inc., Class A+ ................... 3,135,081
---------
3,427,581
Retail Trade -- 6.8%
149,000 Borders Group Inc.+ ............................ 3,594,625
163,300 Corporate Express, Inc.+ ....................... 2,352,541
96,000 Mac Frugals Bargains Close-Outs, Inc.+ ......... 2,616,000
77,000 Proffitt's, Inc.+ .............................. 3,373,562
79,000 Samsonite Corporation+ ......................... 3,490,812
---------
15,427,540
Semiconductors -- 1.3%
169,000 Actel Corporation+ ............................. 2,873,000
Software Systems -- 13.7%
234,500 Acxiom Corporation.............................. 4,821,906
68,000 Analysts International Corporation.............. 2,278,000
156,100 Boole and Babbage, Inc.+ ....................... 3,287,856
91,800 Fair Isaac & Company, Inc....................... 4,090,838
21,000 Great Plains Software, Inc.**+ ................. 569,625
130,000 Henry Jack & Associates......................... 3,185,000
24,600 Keane, Inc.+ ................................... 1,279,200
122,300 Kronos, Inc.+ .................................. 3,286,813
134,000 Structural Dynamics Research Corporation+ ...... 3,521,688
126,200 Synopsis, Inc.+ ................................ 4,657,569
---------
30,978,495
Steel -- 1.5%
78,500 Carpenter Technology Corporation ............... 3,591,375
Telecommunications Equipment -- 4.4%
99,100 Boston Technology, Inc.+ ....................... 2,929,644
72,000 Comverse Technology Inc.+ ...................... 3,757,500
99,000 P-Com, Inc.+ ................................... 3,254,625
---------
9,941,769
Tobacco -- 1.4%
105,000 General Cigar Holdings, Inc.**+ ................ 3,090,938
Toys -- 1.9%
174,200 Action Performance Companies, Inc.+ ............ 4,235,238
Transportation -- 1.0%
99,300 Halter Marine Group, Inc.+ ..................... 2,383,200
Trucking -- 1.3%
110,000 U.S. Freightways Corporation.................... 2,839,375
TOTAL COMMON STOCKS
(Cost $176,321,448)............................................. 218,190,931
-----------
REPURCHASE AGREEMENTS -- 4.3%
Principal Amount
$ 4,859,500 Agreement with Bear Stearns, Tri-Party,
6.200% dated 06/30/97, to be repurchased
at $4,860,337 on 07/01/97, collateralized by
$4,956,690 market value of U.S. government
securities, having various maturities and
various interest rates.......................... 4,859,500
4,859,500 Agreement with HSBC Securities Inc.,
Tri-Party, 6.200% dated 06/30/97, to be
repurchased at $4,860,337 on 07/01/97,
collateralized by $4,956,690 market value of
U.S. government securities, having various
maturities and various interest rates........... 4,859,500
---------
TOTAL REPURCHASE AGREEMENTS
(Cost $9,719,000)............................................... 9,719,000
---------
TOTAL INVESTMENTS -- 100.7%
(Cost $186,040,448*)............................................ 227,909,931
OTHER ASSETS AND LIABILITIES -- (0.7%)
(Net)........................................................... (1,582,201)
-----------
NET ASSETS -- 100.0%............................................$ 226,327,730
===========
</TABLE>
* Aggregate cost for federal tax purposes was $187,800,478.
** Securities on loan at June 30, 1997, which have an aggregate market value of
$19,584,453, represent 8.7% of the total net assets of the Fund (see note 5
to Financial Statements).
+ Non-income producing security.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
--
59
--
The accompanying notes are an integral part of these financial statements.
<PAGE>
- ----------------------------------------
The Montgomery Funds
- ----------------------------------------
California Tax-Free
Intermediate Bond Fund
- ----------------------------------------
P O R T F O L I O H I G H L I G H T S
========================================
P O R T F O L I O M A N A G E M E N T
- ----------------------------------------
<TABLE>
<S> <C>
William C. Stevens................Senior
Portfolio Manager
Peter Wilson...........Portfolio Manager
</TABLE>
========================================
F U N D P E R F O R M A N C E
- ----------------------------------------
Average annual total returns
for the periods ended 6/30/97
- ----------------------------------------
Montgomery California Tax-Free
Intermediate Bond Fund
<TABLE>
<S> <C>
Since inception (7/1/93)...........5.17%
One year...........................6.91%
Three years........................6.35%
</TABLE>
- ----------------------------------------
Merrill Lynch
California Municipal Bond Index
<TABLE>
<S> <C>
Since 6/30/93......................4.23%
One year...........................6.41%
Three years........................6.16%
</TABLE>
- ----------------------------------------
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Montgomery California Lipper California Merrill Lynch
Tax-Free Intermediate Muni Debt Funds California Municipal
Bond Fund Average /2/ Bond Index /1/
--------- ----------- --------------
Date Value Date Value Date Value
- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C>
07/01/93 $10,000 Jun-93 $10,000 Jul-93 $9,938.25
07/93 $9,991 Jul-93 $9,995 Aug-93 $9,946.20
08/93 $10,077 Aug-93 $10,231 Sep-93 $9,949.48
09/93 $10,121 Sep-93 $10,362 Oct-93 $10,035.99
10/93 $10,150 Oct-93 $10,380 Nov-93 $10,025.71
11/93 $10,144 Nov-93 $10,257 Dec-93 $10,159.20
12/93 $10,233 Dec-93 $10,465 Jan-94 $10,215.53
01/94 $10,295 Jan-94 $10,581 Feb-94 $10,104.03
02/94 $10,185 Feb-94 $10,321 Mar-94 $10,015.97
03/94 $10,086 Mar-94 $9,853 Apr-94 $10,018.53
04/94 $10,117 Apr-94 $9,862 May-94 $10,082.24
05/94 $10,175 May-94 $9,952 Jun-94 $9,864.97
06/94 $10,171 Jun-94 $9,884 Jul-94 $10,010.88
07/94 $10,264 Jul-94 $10,076 Aug-94 $10,030.80
08/94 $10,285 Aug-94 $10,099 Sep-94 $10,008.23
09/94 $10,271 Sep-94 $9,931 Oct-94 $10,007.93
10/94 $10,233 Oct-94 $9,732 Nov-94 $9,939.37
11/94 $10,187 Nov-94 $9,512 Dec-94 $9,898.16
12/94 $10,238 Dec-94 $9,682 Jan-95 $10,073.80
01/95 $10,352 Jan-95 $10,018 Feb-95 $10,215.84
02/95 $10,486 Feb-95 $10,349 Mar-95 $10,276.27
03/95 $10,583 Mar-95 $10,447 Apr-95 $10,328.21
04/95 $10,645 Apr-95 $10,450 May-95 $10,513.61
05/95 $10,777 May-95 $10,813 Jun-95 $10,534.84
06/95 $10,784 Jun-95 $10,644 Jul-95 $10,657.57
07/95 $10,849 Jul-95 $10,702 Aug-95 $10,730.05
08/95 $10.970 Aug-95 $10,820 Sep-95 $10,754.51
09/95 $11,054 Sep-95 $10,899 Oct-95 $10,815.06
10/95 $11,187 Oct-95 $11,098 Nov-95 $10,991.45
11/95 $11,327 Nov-95 $11,336 Dec-95 $10,974.52
12/95 $11,406 Dec-95 $11,483 Jan-96 $11,107.65
01/96 $11,495 Jan-96 $11,525 Feb-96 $11,097.98
02/96 $11,470 Feb-96 $11,436 Mar-96 $11,021.18
03/96 $11,373 Mar-96 $11,230 Apr-96 $11,031.98
04/96 $11,368 Apr-96 $11,187 May-96 $11,028.01
05/96 $11,355 May-96 $11,199 Jun-96 $11,090.98
06/96 $11,442 Jun-96 $11,326 Jul-96 $11,199.45
07/96 $11,531 Jul-96 $11,451 Aug-96 $11,203.26
08/96 $11,536 Aug-96 $11,451 Sep-96 $11,276.64
09/96 $11,634 Sep-96 $11,625 Oct-96 $11,378.92
10/96 $11,761 Oct-96 $11,753 Nov-96 $11,504.32
11/96 $11,964 Nov-96 $11,978 Dec-96 $11,481.65
12/96 $11,921 Dec-96 $11,918 Jan-97 $11,506.68
01/97 $11,964 Jan-97 $11,898 Feb-97 $11,584.58
02/97 $12,042 Feb-97 $12,005 Mar-97 $11,500.83
03/97 $11,901 Mar-97 $11,834 Apr-97 $11,533.03
04/97 $11,962 Apr-97 $11,941 May-97 $11,071.77
05/97 $12,112 May-97 $12,129 Jun-97 $11,801.80
06/97 $12,233 Jun-97 $12,259
</TABLE>
/1/ From 6/30/93 to 6/30/95, blended index comprising 50% of the Merrill Lynch
California Muni (0-3 year) Bond Index and 50% of the Merrill Lynch
California Intermediate (3-7 year) Bond Index. From 7/1/95, index is 100%
Merrill Lynch California Intermediate (3-7 year) Bond Index.
/2/ Lipper's California Municipal Debt Funds Average universe consists of 15
funds.
I N V E S T M E N T R E V I E W
Q: How did the Fund perform over the past fiscal year?
A: It modestly outpaced its benchmark, the Merrill Lynch California
Municipal Bond Index, as it has since inception. It also outperformed the Lipper
California Municipal Debt Funds Average over the past fiscal year.
Q: What were some of the trends in the California municipal bond market during
this period?
A: During the first part of the period--from July 1996 through the end of last
year--the market was generally healthy. This was due in part to the positive
economic environment and in part to greater demand for municipal bonds.
Investors who had been driven out of the muni market by talk of a flat tax
gradually returned in the second half of 1996, as the possibility of that
happening became more and more remote. California's economy has also been
booming, which has substantially boosted the tax receipts of many municipalities
and increased the creditworthiness of their bonds.
Q: Washington recently lowered the capital-gains tax rate. What impact do you
think that will have on the California municipal bond market?
A: It will probably make municipal bonds less attractive to some investors. But
we think it could also create a short-term muni rally, if investors take
advantage of the lower capital-gains tax to take profits in the stock market and
shift money into the safer municipal bond market. The possibility of a flat tax
being enacted, which now seems unlikely, would have represented a much bigger
hurdle for the municipal bond market.
Q: How have you positioned the Fund for the year ahead?
A: We are continuing to be careful when it comes to credit selection. As we
mentioned in the semiannual report, ballot measures such as California's
Proposition 218 (which dictated that any proposed increase in local taxes, fees
and assessments must first be approved by voters) could have an impact on
certain kinds of California municipal bonds. For that reason, we've been
underweighting munis issued by cities and counties that we think could be most
affected.
We're also avoiding bonds backed by power-generation facilities. Deregulation is
causing profound changes in that sector right now, and it's still not clear who
will come out of it the winners.
Q: Why should an investor consider the California Tax-Free Intermediate Bond
Fund right now?
A: Despite some uncertainty, California municipal bonds still offer some great
benefits to investors in the higher tax brackets--their tax exemption being the
chief one, of course. And we've structured our portfolio defensively, with
excellent credit quality; bonds rated AAA make up nearly two-thirds of its
assets. By charter we also keep the portfolio's interest rate exposure fairly
- ----
60
- ----
<PAGE>
------------------------
The Montgomery Funds
------------------------
California Tax-Free
Intermediate Bond Fund
------------------------
I N V E S T M E N T S
moderate. (Its duration at the end of the period was 5.61 years.)
In addition, we think bonds in general, including California municipals, are
attractive right now. The current economic environment--with its balance of
moderate economic growth, low inflation and relatively low interest
rates--continues to be favorable for fixed-income investments. In fact, the
annual inflation rate in the United States, as measured by the Consumer Price
Index (CPI), dropped from 3.3 to 2.3% in the past six months, but the bond
market so far has not fully responded to this decline. And even at 2.3%, we
believe, the CPI overstates the underlying inflation rate. That makes bonds very
attractive to us right now, because we think interest rates could decline
substantially to reflect the real inflation rate.
P O R T F O L I O I N V E S T M E NT S
June 30, 1997
MUNICIPAL BONDS AND NOTES -- 90.1%
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<C> <S> <C>
California
$ 55,000 Alameda, California, School District,
6.900% due 07/01/97.............................$ 55,000
200,000 Bakersfield, California, Hospital,
7.375% due 01/01/14............................. 213,250
250,000 California Educational Authority Revenue,
University of San Francisco (MBIA Insured),
6.000% due 10/01/08............................. 274,063
350,000 California Health Facilities Financing Authority,
Revenue Refunding, Kaiser Permanente,
Series A, 6.250% due 03/01/21................... 366,188
200,000 California Housing Finance Agency,
Housing Revenue, Series C (MBIA Insured),
6.150% due 08/01/14............................. 206,750
California State:
40,000 6.800% due 03/01/99............................. 41,750
260,000 6.200% due 11/01/02............................. 281,450
100,000 6.750% due 04/01/04............................. 112,000
115,000 7.000% due 04/01/06............................. 132,825
145,000 7.000% due 08/01/09............................. 170,375
250,000 (FGIC Insured),
7.000% due 04/01/06............................. 291,250
1,000,000 Pollution Control Finance Authority,
San Diego Gas & Electric, Series A,
5.900% due 06/01/14 ............................ 1,055,000
Public Works Board, Facilities Lease Revenue:
100,000 San Jose Facilities, Series A,
7.750% due 08/01/06............................. 117,875
495,000 Various Community College Projects, Series A,
6.000% due 03/01/05............................. 535,219
</TABLE>
The accompanying notes are an integral part of these financial statements.
===================================================
TOP TEN LONG-TERM HOLDINGS
- ---------------------------------------------------
<TABLE>
<S> <C>
San Diego County, California,
Regional Transportation
Commission Sales Tax Revenue,
6.000% due 04/01/05.........................5.4%
California State, Pollution Control
Finance Authority, San Diego Gas
& Electric, Series A,
5.900% due 06/01/14 ........................4.9%
Sacramento, California, Municipal
Utilities, Electric Revenue Refunding,
Series A (MBIA Insured),
6.250% due 08/15/10.........................3.2%
Metropolitan Water District, Southern
California Waterworks Revenue,
Series C, 6.000% due 07/01/08 ..............3.0%
Castaic Lake, California, Water Agency,
Certificates of Participation,
Refunding, Water System
Improvement Project,
Series A (MBIA Insured),
7.250% due 08/01/08 ........................2.8%
San Francisco, California, City and
County, International Airport
Revenue, AMT, Second Series,
8.000% due 05/01/09 ........................2.8%
Chino Basin, California, Regional
Financing Authority Revenue,
Municipal Water and District Sewer
Systems Project (AMBAC Insured),
7.000% due 08/01/06 ........................2.7%
Santa Rosa, California, High
School District (FGIC Insured),
7.000% due 05/01/01.........................2.5%
Contra Costa, California,
Transportation Authority Sales Tax
Revenue, Series A (FGIC Insured),
6.000% due 03/01/07.........................2.5%
California State, Public Works Board,
Facilities Lease Revenue, Various
Community College Projects, Series A,
6.000% due 03/01/05.........................2.5%
</TABLE>
==================================================
I N V E S T M E N T G R A D E
- --------------------------------------------------
(as a percentage of total net assets)
(Unaudited)
<TABLE>
<S> <C>
Aaa............................................65%
Aa.............................................21%
A..............................................12%
BBB.............................................2%
</TABLE>
--
61
--
<PAGE>
- ----------------------
The Montgomery Funds
- ----------------------
California Tax-Free
Intermediate Bond Fund
- ----------------------
I N V E S T M E N T S
MUNICIPAL BONDS AND NOTES -- continued
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<C> <S> <C>
Public Works Board, Lease Revenue:
$ 265,000 Department of Corrections, Series A
(AMBAC Insured), 6.000% due 01/01/06............$ 287,194
300,000 Secretary of State, Series A (AMBAC Insured),
6.200% due 12/01/05............................. 330,375
75,000 University Revenue (AMBAC Insured),
6.250% due 11/01/00............................. 79,781
365,000 University Trust Certificates,
6.450% due 06/01/02............................. 396,481
Veterans Bond:
25,000 Series AG, 8.100% due 10/01/98.................. 26,281
70,000 Series AL, 9.600% due 04/01/01.................. 82,425
100,000 Series AT (FGIC Insured),
9.500% due 02/01/10............................. 140,125
250,000 California Statewide Communities,
Development Authority Revenue, Certificates
of Participation (St. Joseph Health System
Group), 6.500% due 07/01/04..................... 273,125
100,000 Carpinteria, California (FGIC Insured),
7.500% due 07/01/00............................. 109,250
500,000 Castaic Lake, California, Water Agency,
Certificates of Participation, Refunding,
Water System Improvement Project, Series A
(MBIA Insured), 7.250% due 08/01/08............. 598,125
Chino Basin, California, Regional Financing
Authority Revenue:
Municipal Water and District Sewer Systems
Project (AMBAC Insured):
500,000 7.000% due 08/01/06............................. 581,250
240,000 7.000% due 08/01/08 282,000
Contra Costa, California:
Transportation Authority Sales Tax Revenue,
Series A (FGIC Insured):
300,000 6.000% due 03/01/05............................. 325,125
500,000 6.000% due 03/01/07 545,000
300,000 Desert Hospital District, California, Hospital
Revenue, Certificates of Participation
(CGIC Insured), 6.150% due 07/01/02............. 323,250
East Bay, California:
100,000 Regional Parks District, Series B,
8.750% due 09/01/99............................. 109,500
75,000 Utility District, Series M,
7.500% due 03/01/00............................. 81,094
375,000 Eastern Municipal Water District, California,
Water and Sewer Revenue, Certificates of
Participation, Refunding, Series A (FGIC
Insured), 6.250% due 07/01/05................... 399,843
250,000 Elsinore Valley, California, Municipal Water
District, Certificates of Participation,
Refunding, Series A (FGIC Insured),
6.000% due 07/01/12............................. 267,813
270,000 Emeryville, California, Public Financing
Authority, Housing Revenue,
5.600% due 09/01/06............................. 278,100
50,000 Estero, California, Series S-1,
7.000% due 07/01/00............................. 53,563
290,000 Fresno, California, Sewer Revenue, Series A
(MBIA Insured), 6.000% due 09/01/07............. 318,275
450,000 Kern, California, High School District,
Refunding, Series A (MBIA Insured),
6.000% due 08/01/03............................. 484,875
175,000 Lafayette, California, Elementary School
District, 6.900% due 05/15/06................... 200,156
Los Angeles, California:
100,000 Series A, 6.400% due 09/01/98................... 102,875
350,000 Water and Power, 5.900% due 02/01/05............ 368,375
Los Angeles County, California:
Certificates of Participation:
200,000 6.700% due 03/01/99............................. 207,000
200,000 6.708% due 06/01/15............................. 204,000
50,000 Public Works, Revenue Anticipation Notes,
4.500% due 03/01/01............................. 50,188
200,000 Transportation Authority,
5.625% due 07/01/18............................. 199,500
Transportation Commission, Sales Revenue,
Proposition C, Second Series, Series A:
180,000 6.200% due 07/01/04............................. 193,050
400,000 6.400% due 07/01/06............................. 441,000
Metropolitan Water District,
Southern California Waterworks Revenue:
200,000 6.000% due 07/01/21............................. 212,250
500,000 Refunding, Series B (MBIA Insured),
4.750% due 07/01/09............................. 487,500
600,000 Series C, 6.000% due 07/01/08................... 651,750
20,000 Mt. Diablo, California, School District
(FGIC Insured), 6.800% due 08/01/97............. 20,047
250,000 Ontario, California, Redevelopment
Financing Authority, Revenue Refunding
(Ontario Redevelopment Project No. 1)
(MBIA Insured), 6.550% due 08/01/06............. 284,375
65,000 Paramount, California, Redevelopment
Agency, 5.100% due 08/01/98..................... 65,540
Piedmont, California, School District,
Series A:
75,000 8.300% due 08/01/01............................. 85,781
45,000 7.100% due 08/01/02............................. 50,175
40,000 Series C, 7.200% due 08/01/01 .................. 44,100
Rancho, California, Water District
Financing Authority, Revenue
Refunding (FGIC Insured):
400,000 6.500% due 11/01/02............................. 438,000
400,000 6.500% due 11/01/05............................. 448,000
335,000 Redwood City, California, Multi-Family
Housing (Redwood Shores), Series B,
Mandatory Put 10/01/00,
5.200% due 10/01/08............................. 335,413
</TABLE>
- --
62
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
----------------------
The Montgomery Funds
----------------------
California Tax-Free
Intermediate Bond Fund
----------------------
I N V E S T M E N T S
MUNICIPAL BONDS AND NOTES -- continued
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<C> <S> <C>
$ 625,000 Sacramento, California, Municipal Utilities,
Electric Revenue Refunding, Series A (MBIA
Insured), 6.250% due 08/15/10...................$ 694,531
450,000 Saddleback Valley, California, Unified School
District, Public Financing Authority, Special
Tax Revenue Bonds (FSA Insured),
5.250% due 09/01/07............................. 461,250
San Diego County, California:
175,000 Water Authority Revenue,
Certificates of Participation, Series A,
6.000% due 05/01/01............................. 184,406
1,075,000 Regional Transportation Commission
Sales Tax Revenue,
6.000% due 04/01/05............................. 1,162,344
San Francisco, California, City and County:
375,000 City Hall Improvement Project, Series A
(FGIC Insured), 6.100% due 06/15/00............. 394,219
100,000 GO, Series A, 6.100% due 12/15/98............... 103,125
500,000 International Airport Revenue, AMT,
Second Series, 8.000% due 05/01/09.............. 598,125
500,000 Santa Rosa, California, High School District
(FGIC Insured), 7.000% due 05/01/01............. 545,625
65,000 Watsonville, California, Water Revenue
(MBIA Insured), 6.100% due 05/15/99............. 67,275
------
TOTAL MUNICIPAL BONDS AND NOTES
(Cost $19,095,253).............................................. 19,525,825
----------
SHORT-TERM MUNICIPAL BONDS AND NOTES -- 8.3%
California -- 8.3%
300,000 California Health Facilities Financing
Authority Revenue, St. Joseph Health
Systems, Series A, 3.700% due 07/01/13+ ........ 300,000
400,000 California Statewide Communities,
Development Authority Northern California
(Retired Officers), 4.100% due 06/01/26+ ....... 400,000
Pollution Control Finance Authority:
800,000 Richmond, California, Joint Powers
Financing Authority,
4.000% due 09/01/04+ ........................... 800,000
300,000 Southern California Edison, Series A,
5.200% due 02/28/08+ ........................... 300,000
-------
TOTAL SHORT-TERM MUNICIPAL BONDS AND NOTES
(Cost $1,800,000)............................................... 1,800,000
---------
TOTAL INVESTMENTS -- 98.4%
(Cost $20,895,253*).............................................$ 21,325,825
OTHER ASSETS AND LIABILITIES -- 1.6%
(Net)........................................................... 355,510
-------
NET ASSETS -- 100.00%...........................................$ 21,681,335
==========
</TABLE>
* Aggregate cost for federal tax purposes.
+ Floating-rate note, rate resets daily.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
Abbreviations:
AMBAC........American Municipal Bond Assurance Corporation
AMT..........Alternative Minimum Tax
CGIC.........Capital Guaranty Insurance Corporation
FGIC.........Federal Guaranty Insurance Corporation
FSA..........Federal Security Assurance
MBIA.........Municipal Bond Investors Assurance
The Montgomery California Tax-Free Intermediate Bond Fund concentrates in
California municipal securities. Certain California constitutional amendments,
legislative measures, executive orders, administrative regulations, court
decisions and voter initiatives could result in certain adverse consequences,
including impairing the ability of certain issuers of California municipal
securities to pay principal and interest on their obligations.
--
63
--
<PAGE>
- --------------------------------------
The Montgomery Funds
- --------------------------------------
Short Duration
Government Bond Fund
- --------------------------------------
P O R T F O L I O H I G H L I G H T S
======================================
P O R T F O L I O M A N A G E M E N T
- --------------------------------------
William C. Stevens...Portfolio Manager
Peter Wilson.........Portfolio Manager
======================================
F U N D P E R F O R M A N C E
- --------------------------------------
Average annual total returns
for the periods ended 6/30/97
- --------------------------------------
Montgomery
Short Government Bond Fund
Since inception (12/18/92).......6.38%
One year.........................6.79%
Three years......................6.93%
- --------------------------------------
Lehman Brothers Government
Bond 1-3 Year Index
Since 12/31/92...................5.44%
One year.........................6.57%
Three years......................6.65%
- --------------------------------------
Past performance is no guarantee of
future results. Net asset value,
investment return and principal value
will fluctuate, so shares, when
redeemed, may be worth more or less
than their original cost.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Montgomery Short Lehman Brothers Lipper Short
Duration Government Government Bond U.S. Government
Bond Fund 1-3 Year Index/1/ Funds Average/2/
--------- --------- ---------
Date Value Value Value
- ------ --------- --------- ---------
<S> <C> <C> <C>
12/92 $10,043 $10,000 $10,000
01/93 $10,175 $10,105 $10,099
02/93 $10,268 $10,185 $10,179
03/93 $10,350 $10,216 $10,207
04/93 $10,425 $10,278 $10,264
05/93 $10,442 $10,254 $10,254
06/93 $10,565 $10,330 $10,329
07/93 $10,623 $10,352 $10,357
08/93 $10,699 $10,438 $10,430
09/93 $10,758 $10,472 $10,456
10/93 $10,796 $10,495 $10,472
11/93 $10,797 $10,497 $10,463
12/93 $10,856 $10,538 $10,502
01/94 $10,940 $10,604 $10,569
02/94 $10,880 $10,540 $10,509
03/94 $10,831 $10,487 $10,438
04/94 $10,791 $10,447 $10,401
05/94 $10,799 $10,461 $10,411
06/94 $10,829 $10,487 $10,426
07/94 $10,938 $10,581 $10,502
08/94 $10,971 $10,616 $10,528
09/94 $10,938 $10,592 $10,511
10/94 $10,961 $10,616 $10,531
11/94 $10,940 $10,572 $10,501
12/94 $10,979 $10,593 $10,526
01/95 $11,133 $10,737 $10,646
02/95 $11,287 $10,883 $10,776
03/95 $11,351 $10,944 $10,833
04/95 $11,448 $11,042 $10,916
05/95 $11,651 $11,231 $11,082
06/95 $11,725 $11,291 $11,134
07/95 $11,752 $11,336 $11,164
08/95 $11,835 $11,404 $11,233
09/95 $11,918 $11,459 $11,288
10/95 $12,004 $11,554 $11,371
11/95 $12,135 $11,653 $11,461
12/95 $12,242 $11,741 $11,544
01/96 $12,336 $11,840 $11,623
02/96 $12,281 $11,794 $11,583
03/96 $12,280 $11,786 $11,575
04/96 $12,277 $11,797 $11,589
05/96 $12,288 $11,823 $11,604
06/96 $12,398 $11,909 $11,681
07/96 $12,448 $11,956 $11,725
08/96 $12,485 $11,999 $11,755
09/96 $12,598 $12,109 $11,852
10/96 $12,760 $12,245 $11,969
11/96 $12,887 $12,335 $12,057
12/96 $12,872 $12,337 $12,053
01/97 $12,936 $12,397 $12,109
02/97 $12,957 $12,427 $12,140
03/97 $12,930 $12,417 $12,130
04/97 $13,045 $12,518 $12,222
05/97 $13,136 $12,605 $12,294
06/97 $13,240 $12,692 $12,372
</TABLE>
/1/ The Lehman Brothers Government Bond 1-3 Year Index is composed of all U.S.
government issues with maturities of one to three years.
/2/ The Lipper Short U.S. Government Funds Average universe consists of 29
funds.
I N V E S T M E N T R E V I E W
Q: How did the Fund perform over the past fiscal year?
A: The Fund outperformed its benchmark, the Lehman Brothers Government Bond 1-3
Year Index, as it has since inception. The Fund also outperformed the Lipper
Short U.S. Government Bond category average. Our goal is to produce slow, steady
gains like this over time, not unsustainable short-term pops.
Q: What were some of the major trends in the bond market during this period? How
did economic trends affect it?
A: Market sentiment has veered back and forth between optimism and pessimism for
a while now. Bond investors have been alternately elated that the economy is
still healthy in its sixth year of expansion, and worried that such growth could
kindle higher inflation. As a result, they were usually most active when major
economic data were released. Unemployment figures came under especially close
scrutiny, because at this point in the economic cycle wages tend to increase,
creating broader-based inflation.
Everyone kept a close eye on the Federal Reserve, trying to decipher the
comments of Chairman Alan Greenspan for signs that he was about to hike interest
rates. As it turned out, the Fed raised rates only once during the past fiscal
year, in March. With that out of the way, the bond market went on to rally in
the second quarter.
Q: What, if any, significant changes did you make to the portfolio over the
period? And how do you decide whether to make those changes?
A: A key element of our investment process is to seek out relative value among
the various sectors of the bond market. During the second half of 1996, for
example, we pared back the Fund's exposure to a type of bond called a
collateralized mortgage obligation (CMO), which we thought had become pricey. We
shifted some of the proceeds from those sales into mortgage pass-throughs and
bonds issued by agencies of the U.S. government. CMOs became more attractive
during the first half of 1997, so we increased the Fund's exposure to them and
scaled back on its weighting in mortgage-backed bonds. We also continue to favor
agency-backed bonds, which offer good relative value, in our opinion.
Q: What's your outlook for the coming year?
A: The current economic environment--combining moderate economic growth, low
inflation and relatively low interest rates--continues to be favorable for the
bond market. In fact, the annual inflation rate in the United States, as
measured by the Consumer Price Index (CPI), dropped from 3.3 to 2.3% in the past
six months, but the bond market did not respond much to this positive
development. Even at 2.3%, we believe that the CPI overstates the underlying
rate. That makes bonds very attractive right
- ----
64
- ----
<PAGE>
---------------------
The Montgomery Funds
---------------------
Short Duration
Government Bond Fund
---------------------
I N V E S T M E N T S
==================================================
T O P T E N H O L D I N G S
- --------------------------------------------------
(as a percentage of total net assets)
U.S. Treasury Note,
6.250% due 05/31/99.......................13.8%
FHLMC, 5.500% Pass-through Pools
due 04/01/11-06/01/11..................... 8.1%
U.S. Treasury Note,
6.250% due 01/31/02....................... 7.0%
FHLMC, CMO, 1673C
5.350% (PAC) due 03/15/12................. 5.5%
FHLMC, 4.234% (FLTR)
due 08/26/97.............................. 5.3%
FHLB, 5.215% (FLTR)
due 03/24/99.............................. 5.2%
FNMA, Zero Coupon due TBA.................... 4.2%
U.S. Treasury Note,
6.875% due 07/31/99....................... 3.2%
FHLMC, CMO, 1603D
5.250% (PAC) due 11/15/15................. 3.2%
FHLMC, CMO, 1620PD
5.500% (PAC) due 07/15/12................. 3.2%
==================================================
A S S E T M I X
- --------------------------------------------------
(as a percentage of total investments)
Collateralized Mortgage Obligations........... 32%
Treasuries.................................... 29%
Agencies...................................... 15%
Mortgage Pass-throughs........................ 13%
Others........................................ 11%
now, because interest rates could decline to more accurately reflect the real
inflation rate. It therefore looks to us like an opportune time for investors to
move the cash in their portfolios into investments like the Short Duration
Government Bond Fund that are slightly more sensitive to interest rates.
Another good reason to consider the Fund is that the compensation for
taking risks in the bond market has been steadily declining over the past seven
years. In other words, we think it simply doesn't pay to take an aggressive
stance on the credit-quality front these days. Unlike a number of other bond
fund managers, we pay careful attention not only to generating income and total
returns for our shareholders, but also to keeping the portfolio's risk level
fairly mild.
P O R T F O L I O I N V E S T M E N T S
June 30, 1997
FEDERAL HOME LOAN BANK (FHLB) -- 15.5%
Principal Amount Value (Note 1)
Agencies:
$250,000 4.472% (FLTR) due 07/28/97......................$ 249,753
1,500,000 4.735% (FLTR) due 05/11/98...................... 1,482,422
500,000 3.780% (FLTR) due 06/02/98...................... 488,359
750,000 3.830% (FLTR) due 06/30/98...................... 729,375
500,000 3.800% (FLTR) due 07/28/98...................... 484,219
2,500,000 5.215% (FLTR) due 03/24/99...................... 2,458,984
1,500,000 4.890% (FLTR) due 03/22/00...................... 1,442,109
---------
TOTAL FEDERAL HOME LOAN BANK
(Cost $7,328,384)............................................... 7,335,221
---------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 38.3%
$2,500,000 4.234% (FLTR) due 08/26/97......................$ 2,495,313
CMOs:
924,032 1557FB 6.300% (LIQ) due 08/15/98................ 926,775
697,166 1647PJ 5.250% (PAC) due 02/15/03................ 694,878
1,000,000 1471E 6.250% (PAC) due 04/15/05................. 994,688
621,567 1623PC 5.000% (PAC) due 11/15/07................ 619,819
88,826 24A 4.650% (PAC) due 02/25/08................... 88,465
1,000,000 1544E 6.250% (PAC) due 06/15/08................. 994,531
353,518 1590CA 4.500% (PAC) due 08/15/10................ 352,469
2,652,000 1673C 5.350% (PAC) due 03/15/12................. 2,618,021
1,500,000 1620PD 5.500% (PAC) due 07/15/12................ 1,489,219
1,500,000 1603D 5.250% (PAC) due 11/15/15................. 1,489,219
The accompanying notes are an integral part of these financial statements.
--
65
--
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Short Duration
Government Bond Fund
- ---------------------
I N V E S T M E N T S
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) -- continued
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
Pass-throughs:
<S> <C> <C>
$ 4,024,733 5.500% Pass-through Pools due
04/01/11-06/01/11................................$ 3,810,290
624,571 Pool #645074 ARM 6.613% due 08/01/15 622,449
777,361 9.000% Pass-throughs due
10/01/17-05/01/20................................ 816,214
56,526 Pool #308601 9.500% due 10/01/18 60,156
Tiered Payment:
20,728 Pool #730223 9.50% due 01/01/06.................. 21,894
7,334 Pool #730288 8.50% due 07/01/06.................. 7,526
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION
(Cost $18,036,639)............................................... 18,101,926
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 14.1%
2,000,000 Zero Coupon due TBA.............................. 1,978,125
CMOs:
1,425,683 1991-127 6.369% (FLTR) due 09/25/98.............. 1,432,144
650,000 1993-99D 6.700% (AD) due 03/25/04................ 642,789
1,000,000 X-225C 5.200% (PAC) due 09/25/15................. 987,813
641,261 1991-8E 7.500% (PAC) due 06/25/17................ 640,359
998,014 1994-23 5.125% (PAC) due 07/25/17................ 965,890
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION
(Cost $6,647,335)................................................ 6,647,120
---------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) -- 2.2%
Pass-throughs:
70,496 9.500% Pass-through Pools due
09/15/16-04/15/20................................ 76,415
19,126 Pool #288579 10.250% due 04/15/98................ 19,302
896,520 Pool #323144 8.000% due 06/15/22................. 924,256
GNMA II,
18,042 Pool #1123 10.500% due 01/20/19.................. 19,612
------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(Cost $1,011,562)................................................ 1,039,585
---------
STUDENT LOAN MARKETING ASSOCIATION (SLMA) -- 0.7%
(Cost $345,382)
350,000 4.865% (FLTR) due 06/01/98.................. 346,117
-------
UNION ACCEPTANCE CORPORATION (UAC) -- 0.4%
Asset-Backed Securities:
$ 2,712,811 95-DI 3.000% (ABS) due 02/07/99..................$ 56,836
7,988,659 95-CI 3.000% (PAC) (ABS) due 10/10/02............ 126,230
TOTAL UNION ACCEPTANCE CORPORATION
(Cost $168,467) ................................................. 183,066
U.S. TREASURY NOTES -- 28.8%
6,500,000 U.S. Treasury Note, 6.250% due 05/31/99......... 6,518,265
1,500,000 U.S. Treasury Note, 6.875% due 07/31/99......... 1,521,795
3,350,000 U.S. Treasury Note, 6.250% due 01/31/02......... 3,331,676
1,250,000 U.S. Treasury Note, 6.250% due 06/30/02......... 1,242,575
1,000,000 U.S. Treasury Note, 6.500% due 05/15/05......... 998,120
TOTAL U.S. TREASURY NOTES
(Cost $13,595,762)............................................... 13,612,431
----------
TOTAL INVESTMENTS -- 100.0%
(Cost $47,133,531*).............................................. 47,265,466
OTHER ASSETS AND LIABILITIES -- (0.0%)#
(Net)............................................................ (745)
-----
NET ASSETS -- 100.0% ............................................$ 47,264,721
----------
</TABLE>
* Aggregate cost for federal tax purposes was $47,135,162.
# Amount represents less than 0.1%.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
Abbreviations:
ABS.......Asset-Backed Securities
AD........Accretion Directed: These bonds receive, as principal, the negative
amortization from the accrual tranche(s) in a deal. These securities
often have guaranteed final maturities.
CMO.......Collateralized Mortgage Obligation
FLTR......Floating-Rate Securities: bonds with coupon rates that adjust in
proportion to an index.
LIQ.......Bonds with a shorter, guaranteed final maturity.
PAC.......Planned Amortization Class: bonds that are protected in part from
variations in prepayments, generally resulting in greater stability.
TBA.......To-Be-Announced Security
- ----
66
- ----
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------
The Montgomery Funds
--------------------
Money Market Funds
--------------------
P O R T F O L I O H I G H L I G H T S
INVESTMENT REVIEW
Montgomery California Tax-Free Money Fund
Montgomery Federal Tax-Free Money Fund
Montgomery Government Reserve Fund
Q: How did the Funds perform over the past 12 months?
A: The California Tax-Free Money Fund modestly outperformed its benchmark, the
Lipper California Tax-Exempt Money Market Funds Average, and continues to lead
it since inception. The Federal Tax-Free Money Fund, which began operations on
July 15, 1996, also outpaced the Lipper Tax-Exempt Money Market Funds Average
over that partial-year period. Finally, the Government Reserve Fund gained a bit
more than its benchmark, the Lipper Government Money Market Funds Average, and
continues to outpace it since inception.
Q: What were the major bond market trends during this period?
A: Bond investors scrutinized every piece of data about the economy for signs
that it was moving out of equilibrium. For many, its balance of moderate
economic growth, relatively low interest rates and all-but-dormant inflation
simply seemed too good to be true. But with a few minor exceptions, most
economic data over the period pointed to a continuation of those trends. For its
part, the Federal Reserve appeared to be satisfied with the state of the economy
and raised interest rates only once, in March. And after coming under some
pressure a few times during the first half of 1997, the bond market ended the
period with a 35-basis-point rally. (There are 100 basis points in one
percentage point.)
In the municipal bond market, demand picked up as investors who had been
sidelined by talk of a flat tax during the presidential campaign returned to the
market. But Washington's debate about reducing the capital-gains tax again
injected some uncertainty into the market, because this initiative is likely to
make municipal bonds less attractive to some investors.
Q: Did you make any significant changes to the Funds' portfolios during this
period?
A: We typically don't make any dramatic shifts in the portfolios. Our strategy
focuses on finding relative value among bond sectors and taking advantage of
short-term dislocations in supply or demand. So most of the changes we make are
relatively minor.
At the very beginning and the very end of the period, for instance, the
municipal bond market's "note season" provided us with an opportunity to replace
maturing holdings at attractive yields. This is when municipalities issue
short-term notes to finance their budget shortfalls, boosting supply.
As for the Government Reserve Fund, we extended its days-to-maturity (a
measure of interest rate sensitivity) toward the end of the period. We have
also reduced its exposure to Treasuries, as foreign buying over the period has
driven their yields to unattractively low levels.
<TABLE>
<CAPTION>
==================================================
P O R T F O L I O M A N A G E M E N T
- --------------------------------------------------
<S> <C>
William C. Stevens..........................Senior
Portfolio Manager
Peter Wilson.....................Portfolio Manager
<CAPTION>
==================================================
F U N D P E R F O R M A N C E
- --------------------------------------------------
Yields as of 6/30/97
- --------------------------------------------------
Montgomery
California Tax-Free Money Fund
<S> <C>
One-day yield................................3.22%
Seven-day yield..............................3.43%
- --------------------------------------------------
Montgomery
Federal Tax-Free Money Fund
One-day yield................................3.39%
Seven-day yield..............................3.61%
- --------------------------------------------------
Montgomery
Government Reserve Fund
One-day yield................................5.26%
Seven-day yield..............................5.10%
- --------------------------------------------------
</TABLE>
Yield will fluctuate. An investment in one of our money market funds is neither
insured nor guaranteed by the government. There can be no assurance that the
money market funds will be able to maintain a stable net asset value of $1 per
share.
--
67
--
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
California Tax-Free
Money Fund
- ---------------------
I N V E S T M E N T S
Q: What's your interest rate outlook? Do you think it's a good time for
investors to consider a money market fund?
A: We expect to see stable to lower interest rates in the coming months. The
Federal Reserve has been staying on the sidelines, and we don't think that that
will change unless the economy kicks into high gear or slows considerably.
We do think that money market funds can play a role in anyone's investment
strategy--and not just now, but at any time. They provide liquidity and can lend
stability to even the most aggressive portfolio over the long run. An investor
can also use them as a "weigh station" for his or her money while reassessing
long-term financial goals.
<TABLE>
<CAPTION>
P O R T F O L I O I N V E S T M E N T S
June 30, 1997
MUNICIPAL BONDS AND NOTES -- 99.5%
Principal Amount Value (Note 1)
<S> <C> <C>
California
$ 695,000 Bakersfield, California, City School District,
Refunding (MBIA Insured),
5.000% due 08/01/97.............................$ 695,806
California State:
Commercial Paper,
3,800,000 3.700% due 08/06/97............................. 3,800,000
General Obligations:
700,000 5.000% due 09/01/97............................. 701,468
100,000 6.700% due 09/01/97............................. 100,472
Health Facilities Finance Authority
Revenue, (CASMED):
125,000 Adventist Health Systems, (MBIA Insured):
Class A, 6.050% due 03/01/98.................... 126,829
300,000 Catholic Healthcare (MBIA Insured),
4.050% due 07/01/09++ .......................... 300,000
220,000 Centinela Hospital (MBIA Insured),
5.200% due 09/01/97............................. 220,515
Saint Joseph Health System:
Class A,
65,000 3.700% due 07/01/13+ ........................... 65,000
600,000 3.750% due 07/01/24+ ........................... 600,000
1,900,000 Series B, 3.750% due 07/01/09+ ................. 1,900,000
Sutter Healthcare, (AMBAC Insured):
1,400,000 Series B, 3.750% due 07/01/12+ ................. 1,400,000
4,100,000 Series B (Morgan Guaranty Trust Insured),
3.750% due 03/01/20+ ........................... 4,100,000
400,000 Series D, 4.050% due 07/01/21++ ................ 400,000
Pollution Control Finance Authority,
Resource Recovery Revenue:
200,000 (Exxon Corporation Project),
3.750% due 12/01/12+ ........................... 200,000
California State Pollution Control
Finance Authority, Resource Recovery Revenue:
1,500,000 (Pacific Gas and Electric Company Project):
Series C, 3.850% due 11/01/26+ ................. 1,500,000
Series A,
200,000 (Shell Oil Company Project):
3.700% due 10/01/07+ ........................... 200,000
3,850,000 Series B, 3.700% due 10/01/11+ ................. 3,850,000
800,000 Series C, 3.700% due 11/01/00+ ................. 800,000
970,000 (Southern California Edison Project)
(Stanislaus Project), 3.850% due 12/01/17+ ..... 970,000
250,000 California State Department of Veteran Affairs:
Home Development Revenue,
Series A, 7.400% due 08/01/97................... 250,706
200,000 California State Department of Water:
Reservoir Project, Series D,
7.400% due 12/01/07+ ........................... 205,991
California State Department of Water,
Commercial Paper:
1,407,000 3.650% due 08/05/97............................. 1,407,000
1,000,000 3.650% due 09/09/97............................. 1,000,000
907,000 3.550% due 08/11/97............................. 907,000
1,000,000 California State Educational Facilities,
Claremont Mckenna,
4.100% due 06/01/27+ ........................... 1,000,000
California State Public Works:
150,000 California State University,
Class A, 5.300% due 10/01/97.................... 150,474
110,000 Community College Projects,
Class A, 4.900% due 12/01/97.................... 110,501
</TABLE>
- --
68
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
---------------------
The Montgomery Funds
---------------------
California Tax-Free
Money Fund
---------------------
I N V E S T M E N T S
MUNICIPAL BONDS AND NOTES -- continued
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C> <C>
California Statewide Community
Development Authority Revenue:
$ 2,000,000 Apartment Development Revenue,
Sub-Series A-1, 3.900% due 05/15/25 ...........$ 2,000,000
Industrial Development:
140,000 (Lutheran Homes), 4.450% due 11/15/97........... 140,176
840,000 Solid Waste Facilities Revenue (Chevron
U.S.A. Inc. Project), 4.000% due 12/15/24+ ..... 840,000
1,000,000 Chula Vista, California, Multi-Family
Housing Revenue (Terra Nova Association),
Series A, 4.200% due 03/01/05++ ................ 1,000,000
200,000 Clovis, California, Unified School District,
GO, 4.700% due 08/01/97......................... 200,165
2,000,000 Conejo Valley, California, Unified School
District, TRANS, 4.500% due 07/02/97............ 2,000,037
Fremont, California:
775,000 Certificates of Participation (Building and
Equipment Financing Project),
4.200% due 07/01/15++ .......................... 775,000
1,200,000 (Mission Wells Project)
Series E, 4.200% due 09/01/07++ ................ 1,200,000
500,000 (TreeTops Apartments Project)
Series A, 4.100% due 08/15/26++ ................ 500,000
1,000,000 Fresno County, California, TRANS,
California, TRANS, 4.750% due 09/29/97.......... 1,002,278
1,000,000 Gardena, California, Public Financing
Agency (Gardena Public Parking Project),
4.250% due 09/01/11++ .......................... 1,000,000
1,000,000 Irvine, California, Improvement Board,
3.750% due 09/02/15+ ........................... 1,000,000
Kern, California:
2,000,000 Board of Education,
4.500% due 07/31/97............................. 2,000,951
1,500,000 Community College District,
Certificates of Participation,
4.700% due 01/01/25++ .......................... 1,500,000
Kern County, California:
Certificates of Participation:
200,000 (MBIA Insured)
4.400% due 08/01/97............................. 200,124
1,500,000 (Kern Public Facilities Project)
Series B, 4.000% due 08/01/06++ ................ 1,500,000
900,000 Lassen, California, Municipal Utilities
District Revenue,
Series A (FSA Insured),
4.200% due 05/01/08++ .......................... 900,000
1,700,000 Livermore, California, Multi-Family
Housing Revenue,
4.000% due 08/01/18++ .......................... 1,700,000
500,000 Long Beach, California,
Tax & Revenue,California, TRANS,
4.750% due 10/09/97 ............................ 501,191
Los Angeles, California:
California, Metropolitan Transportation Authority,
Commercial Paper:
4,900,000 3.700% due 08/07/97............................. 4,900,000
2,000,000 3.650% due 08/13/97............................. 2,000,000
2,500,000 3.550% due 08/14/97............................. 2,500,000
800,000 Series A, 4.250% due 08/01/26+ ................. 800,000
600,000 Series B, 4.250% due 12/01/26+ ................. 600,000
2,600,000 Series K, 3.750% due 07/01/10++ ................ 2,600,000
1,000,000 Waste Water System,
7.000% due 11/01/97............................. 1,010,390
Los Angeles County, California:
1,500,000 Housing Authority Revenue,
Series A, 3.950% due 02/01/09+ ................. 1,500,000
Public Works Financing Authority
Revenue, Regional Parks and Open Space,
Series A:
250,000 4.700% due 10/01/97+ ........................... 250,581
400,000 4.500% due 09/01/97............................. 400,496
1,000,000 Regional Airports Improvement
Corporation, Lease Revenue Bonds
(American Airlines Inc. Project),
Series A, 4.100% due 12/01/24+ ................. 1,000,000
Transportation Commission,
Sales Tax Revenue Pre-refunded,
Series A:
100,000 5.950% due 07/01/97............................. 100,000
500,000 7.600% due 07/01/02+ ........................... 510,000
1,230,000 Madera, California, Public Financing
Authority, Lease Revenue,
(Municipal Golf Course Project),
4.300% due 11/01/23++ .......................... 1,230,000
Metropolitan Water District,
Southern California Waterworks Revenue:
100,000 4.500% due 07/01/97............................. 100,000
Commercial Paper:
1,600,000 3.650% due 07/22/97............................. 1,600,000
2,000,000 3.800% due 09/09/97............................. 2,000,000
100,000 Modesto, California, Redevelopment Agency,
8.100% due 11/01/97............................. 103,351
1,000,000 Moreno Valley, California, School District
Revenue, 4.500% due 06/30/98.................... 1,005,750
550,000 Mountain View, Los Altos, California,
Unified High School District, Series A,
3.850% due 08/01/97............................. 550,076
115,000 Napa Valley, California, Unified School
District, Series A, 8.000% due 08/01/97......... 115,389
Palm Springs, California, Community
Redevelopment Agency, Certificates of
Participation:
330,000 District No. 1, 3.900% due 12/01/14++ .......... 330,000
200,000 District No. 3, 3.900% due 12/01/14++ .......... 200,000
</TABLE>
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69
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The accompanying notes are an integral part of these financial statements.
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
California Tax-Free
Money Fund
- ---------------------
I N V E S T M E N T S
MUNICIPAL BONDS AND NOTES -- continued
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C> <C>
$ 3,960,000 Richmond, California, Joint Powers Finance
Authority, Port Terminal Lease Revenue,
4.000% due 09/01/04+ ...........................$ 3,960,000
Riverside County, California,
200,000 Certificates of Participation,
Riverside County Public Facilities,
Series B, 4.000% due 12/01/15++ ................ 200,000
500,000 Sewer Revenue (AMBAC Insured),
7.700% due 08/01/97............................. 511,706
Sacramento, California:
5,000,000 Commercial Paper, 3.850% due 08/14/97........... 5,000,000
1,200,000 TRANS, 4.500% due 09/30/97...................... 1,202,621
1,000,000 Salinas, California, Multi-Family
Housing Revenue, 4.000% due 05/15/27++ ......... 1,000,000
San Bernardino County, California:
1,440,000 Industrial Development Authority Revenue,
4.100% due 05/01/09++ .......................... 1,440,000
2,000,000 Multi-Family Housing Revenue,
4.100% due 08/01/05++ .......................... 2,000,000
San Diego, California:
Multi-Family Housing Revenue:
210,000 (Nobel Court Apartments Project),
4.050% due 12/01/08++ .......................... 210,000
Regional Building Authority,
Lease Revenue, Series A,
4,520,000 7.750% due 11/01/97............................. 4,668,967
TRANS, Series A,
200,000 5.000% due 04/01/98............................. 201,454
250,000 4.375% due 09/30/97............................. 250,423
2,000,000 Unified School District, TRANS,
4.750% due 10/01/97............................. 2,005,329
1,500,000 San Diego, California, Multi-Family Housing,
California, Multi Family, HSG,
University Town Center Apartments,
4.050% due 10/01/15+ ........................... 1,500,000
San Diego County, California,
Commercial Paper:
2,000,000 Industrial Development, 3.650%
due 08/05/97.................................... 2,000,000
2,000,000 Department of Transportation,
3.700% due 08/13/97............................. 2,000,000
500,000 San Francisco, California, Bay Area Rapid
Transit, District Sales Tax Revenue,
Subordinated Notes, (AMBAC Insured),
4.600% due 07/01/97............................. 500,000
2,000,000 San Mateo County, California, TRANS,
4.500% due 07/01/97............................. 2,000,000
400,000 Santa Ana, California, Health Facilities
Revenue, Multi-Modal Town and Country,
3.890% due 10/01/20+ ........................... 400,000
Santa Barbara County,
500,000 TRANS, Series A, 4.750% due 10/01/97............ 501,451
4,500,000 Santa Clara County, TRANS,
Series A, 4.500% due 08/01/97................... 4,502,497
University of California, Commercial Paper:.....
3,500,000 3.650% due 09/18/97............................. 3,500,000
1,250,000 Series A, 6.900% due 09/18/97................... 1,281,288
5,000,000 West Contra Costa, California,
Unified School District, TRANS,
4.250% due 12/11/97............................. 5,008,324
---------
TOTAL MUNICIPAL BONDS AND NOTES ................................ 118,171,777
-----------
TOTAL INVESTMENTS -- 99.5%
(At amortized cost*)............................................ 118,171,777
OTHER ASSETS AND LIABILITIES -- 0.5%
(Net)........................................................... 551,285
-------
NET ASSETS -- 100.0%.............................................$ 118,723,062
===========
</TABLE>
* Aggregate cost for federal tax purposes.
+ Floating-rate note, rate resets daily.
++ Floating-rate note, rate resets weekly.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
Abbreviations:
AMBAC.........American Municipal Bond Assurance Corporation
FSA...........Federal Security Assurance
GO............General Obligation
MBIA..........Municipal Bond Investors Assurance
TRANS.........Tax and Revenue Anticipation Notes
The Montgomery California Tax-Free Money Fund concentrates in California
municipal securities. Certain California constitutional amendments, legislative
measures, executive orders, administrative regulations, court decisions and
voter initiatives could result in certain adverse consequences, including
impairing the ability of certain issuers of California municipal securities to
pay principal and interest on their obligations.
- --
70
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
---------------------
The Montgomery Funds
---------------------
Federal Tax-Free
Money Fund
---------------------
I N V E S T M E N T S
P O R T F O L I O I N V E S T M E N T S
June 30, 1997
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES -- 101.1%
Principal Amount Value (Note 1)
<S> <C> <C>
Alaska -- 0.5%
$600,000 Anchorage, Alaska, Series B,
4.150% due 08/01/97.............................$ 600,248
Alabama -- 0.6%
680,000 Alabama Higher Education Loan Corporation,
6.200% due 09/01/97............................. 682,761
Arkansas -- 1.5%
310,000 Arkansas State Development Finance,
State Police Headquarters,
3.800% due 06/01/98............................. 309,724
1,400,000 Fayetteville, Arkansas, Public Facilities
Board Revenue, Butterfield Trail Village,
4.250% due 09/01/27+............................ 1,400,000
---------
1,709,724
Arizona -- 4.1%
950,000 Arizona State, Transportation
Board Highway Revenue,
7.800% due 07/01/97............................. 950,000
1,000,000 Glendale, Arizona, Water and Sewer Revenue,
7.750% due 07/01/97............................. 1,000,000
Maricopa County, Arizona:
100,000 School District No. 038 (Madison Elementary
School Improvement Project 1988), Series B,
6.500% due 07/01/97............................. 102,000
1,000,000 School District No. 069, Tax
Anticipation Notes (Paradise Valley),
5.250% due 07/01/97............................. 1,000,000
1,000,000 Unified School District No. 097,
Tax Anticipation Notes (Deer Valley),
Series A, 4.450% due 07/31/97................... 1,000,432
100,000 Pima County, Arizona, General Obligation,
4.800% due 07/01/97............................. 100,000
500,000 Tempe, Arizona, General Obligation Bonds,
6.000% due 07/01/97............................. 500,000
---------
4,652,432
California -- 2.6%
3,000,000 Richmond, California, Joint Powers
Financing Authority,
4.000% due 09/01/04+............................ 3,000,000
Colorado -- 2.9%
300,000 Centennial Water and Sanitation District,
Colorado, Revenue Refunding, Series A
(LOC: Swiss Bank, New York),
4.750% due 12/01/97............................. 301,261
Colorado Health Facilities Authority Revenue:
300,000 (Boulder Community Hospital Project),
Series C (MBIA Insured),
4.150% due 10/01/14++........................... 300,000
Denver, Colorado, City and County:
General Obligation Bonds:
2,590,000 5.000% due 10/01/97............................. 2,598,913
100,000 5.950% due 08/01/97............................. 100,191
---------
3,300,365
Connecticut -- 1.7%
Connecticut State:
200,000 5.000% due 12/15/97............................. 200,973
1,700,000 State of Connecticut, Health & Education
Commercial Paper, 3.750% due 07/23/97........... 1,700,000
---------
1,900,973
Delaware -- 0.1%
135,000 Delaware State, Revenue Refunding,
Series C, 4.500% due 07/01/97................... 135,000
Florida -- 6.4%
1,200,000 Atlantic Beach, Florida, Revenue, Fleet
Landing, Class B, 4.350% due 10/01/24+.......... 1,200,000
2,000,000 City of Orlando, Commercial Paper,
3.700% due 08/13/97............................. 2,000,000
250,000 Florida State Board of Education Capital
Outlay, Series C, 6.250% due 06/01/98........... 255,009
Jacksonville Electric Authority Revenue, Florida:
250,000 Series 6-C, 6.200% due 10/01/97................. 251,452
200,000 Series 2 1987A-1, 6.800% due 10/01/97........... 201,585
Commercial Paper,
700,000 3.900% due 07/18/97............................. 700,000
1,000,000 3.700% due 08/14/97............................. 1,000,000
1,000,000 Sunshine State, Florida, Government Finance,
Commercial Paper, 3.700% due 07/22/97........... 1,000,000
700,000 Volusia County, Florida, Health Facilities
Authority, Health Facilities Revenue,
Alliance Community for Retirement Living
(LOC: Rabobank Nederland),
4.250% due 09/01/20+............................ 700,000
---------
7,308,046
Georgia -- 2.5%
Fulton County, Georgia:
1,900,000 Municipal Electric Authority of Georgia,
4.100% due 01/01/20+............................ 1,900,000
900,000 Residential Care Facilities Revenue Refunding
(Lenbrook Square Foundation Project)
(LOC: Rabobank Nederland),
4.250% due 01/01/18+............................ 900,000
</TABLE>
--
71
--
The accompanying notes are an integral part of these financial statements.
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Federal Tax-Free
Money Fund
- ---------------------
I N V E S T M E N T S
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES -- continued
Principal Amount Value (Note 1)
<S> <C> <C>
Georgia -- continued
Fulton County, Georgia:
$ 100,000 Savannah, Georgia, Downtown
Development Authority Revenue
(Savannah Parking Facilities Project),
4.200% due 09/01/05++..........................$ 100,000
---------
2,900,000
Hawaii -- 4.7%
State of Hawaii:
City and County of Honolulu:
1,000,000 Commercial Paper,
3.700% due 08/14/97............................. 1,000,000
2,500,000 Series A,
5.300% due 03/01/98............................. 2,524,278
Series B,
400,000 6.900% due 10/01/97............................. 403,269
200,000 4.200% due 10/01/97............................. 200,090
500,000 General Obligation, 6.700% due 09/01/97......... 502,634
700,000 Housing Finance & Development Corporation
Revenue, 4.200% due 07/01/24+................... 700,000
---------
5,330,271
Illinois -- 5.2%
Chicago, Illinois:
500,000 Public Building, Community College Building
Revenue, Community College District No.508,
Series A, (MBIA Insured),
7.500% due 01/01/98............................. 518,972
1,000,000 Tender Notes, Series C, (LOC: Societe
Generale), 3.600% due 10/31/99+++............... 1,000,000
400,000 Cook County, Illinois, General Obligations,
6.600% due 11/01/97............................. 403,340
200,000 Dekalb, Illinois, General Obligation Bonds,
6.400% due 12/01/03+............................ 204,086
200,000 Du Page, Illinois, General Obligation,
7.800% due 11/01/01+............................ 206,436
1,000,000 Illinois Development Finance Authority
Revenue, Chicago Academy of Science,
4.150% due 01/01/31+............................ 1,000,000
400,000 Illinois Health Facilities Authority Revenue
(Swedish Covenant Hospital Project)
(AMBAC Insured), 4.150% due 08/01/25++.......... 400,000
Illinois State:
400,000 General Obligations,
8.000% due 10/01/04+............................ 411,941
1,800,000 O'Hare International Airport Revenue,
Series C, 4.100% due 01/01/18+.................. 1,800,000
---------
5,944,775
Indiana -- 2.4%
1,100,000 Indiana Health Facility Financing Authority
Hospital Revenue,
7.100% due 09/01/97............................. 1,106,366
1,000,000 Indiana Secondary Market, Series B,
4.250% due 12/01/14+++.......................... 1,000,000
600,000 Jasper County, Indiana, Pollution Control
Revenue, Northern Indiana Public Services,
Series B, 4.050% due 06/02/13++................. 600,000
---------
2,706,366
Iowa -- 0.9%
250,000 Iowa State, Certificates of Participation,
(AMBAC Insured), 5.500% due 07/01/97............ 250,000
725,000 Polk County, Iowa, Health Facilities Revenue,
Mercy Health Center, 6.100% due 11/01/97........ 730,205
---------
980,205
Kansas -- 1.1%
1,000,000 Kansas State,
Development Finance Authority Revenue
(MBIA Insured), 4.550% due 10/01/97............. 1,002,415
250,000 Witchita, Kansas, Water & Sewer Utilities,
Series B, 4.800% due 04/01/98................... 251,181
---------
1,253,596
Kentucky -- 1.6%
Kentucky State, Property & Buildings
Commission Revenue:
1,000,000 Project No. 40, Toyota Project,
7.900% due 11/01/97............................. 1,013,810
300,000 Project No. 57,
4.000% due 11/01/97............................. 300,046
500,000 Murray State University, Kentucky,
Series G, 8.000% due 05/01/98................... 526,720
---------
1,840,576
Louisiana -- 5.3%
500,000 Louisiana Public Facilities Authority Revenue,
Kenner Hotel Ltd, 4.150% due 12/01/15++......... 500,000
1,000,000 Louisiana Public Facilities Authority, Revenue
Commercial Paper, 3.700% due 08/14/97........... 1,000,000
1,040,000 Louisiana State, Revenue Refunding, Series A,
7.000% due 08/01/97............................. 1,063,579
500,000 Louisiana State Correctional Facilities
Corporation, (FSA Insured),
4.600% due 12/15/97............................. 501,094
750,000 Louisiana State Offshore Terminal Authority,
4.000% due 09/01/08+............................ 750,000
West Feliciana Parish, Louisiana, Pollution
Control Revenue, (Gulf State Utilities Company
Project) (LOC: Canadian Imperial Bank):
1,000,000 4.100% due 04/01/16+........................... 1,000,000
1,300,000 Series D, 4.100% due 12/01/15+.................. 1,300,000
---------
6,114,673
Maine -- 0.1%
100,000 Maine State, General Purpose Obligation,
6.000% due 07/01/97............................. 100,000
</TABLE>
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72
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The accompanying notes are an integral part of these financial statements.
<PAGE>
---------------------
The Montgomery Funds
---------------------
Federal Tax-Free
Money Fund
---------------------
I N V E S T M E N T S
MUNICIPAL BONDS AND NOTES -- continued
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C> <C>
Maryland -- 1.6%
$ 250,000 Baltimore, Maryland, (MBIA Insured),
9.000% due 10/15/97............................. $ 253,542
300,000 Maryland State, Health and Higher Education
Facilities Authority Revenue (Pooled Loan
Program), Series B (General Obligation of
Institutions Insured) (LOC: First National
Bank of Chicago), 4.150% due 04/01/35++......... 300,000
250,000 Montgomery County, Maryland, Series A,
6.750% due 04/01/00+............................ 260,131
750,000 Prince Georges County, Maryland, Series A,
6.600% due 02/01/02+............................ 776,861
225,000 Washington County, Maryland,
5.950% due 01/01/98............................. 227,336
-------
1,817,870
Michigan -- 0.2%
250,000 Michigan State Building Authority Revenue
Refunding, Series I, 5.600% due 10/01/97........ 251,133
Minnesota -- 2.4%
1,000,000 Cohasset, Minnesota, Minnesota Power
& Light Company, Class A,
4.250% due 06/01/20++........................... 1,000,000
900,000 Duluth, Minnesota, Health Facilities Revenue
Bonds, 4.250% due 06/01/19++.................... 900,000
385,000 Dakota and Washington Counties, Minnesota,
Housing and Redevelopment Authority,
Bloomington Single-Family Residential
Mortgage Revenue (GNMA Insured),
7.400% due 09/01/97............................. 387,160
Minnesota State:
250,000 4.700% due 08/01/97............................. 250,181
200,000 6.500% due 08/01/97............................. 200,494
---------
2,737,835
Mississippi -- 1.3%
Jackson County, Mississippi:
205,000 School District, Series B,
6.750% due 12/15/97............................. 207,611
250,000 Mississippi State, Series C,
4.500% due 12/01/97............................. 250,859
1,000,000 Perry County, Mississippi, Pollution Control
Revenue Refunding (Leaf River Forest Project),
4.050% due 03/01/02+............................ 1,000,000
---------
1,458,470
Missouri -- 5.7%
1,000,000 Independence, Missouri, Water Utility
Commercial Paper, 3.750% due 08/13/97........... 1,000,000
Kansas City, Missouri, Industrial
Development Authority:
1,500,000 Multi-Family Housing Revenue,
Willow Creek IV Apartments,
4.150% due 09/01/25++........................... 1,500,000
Resh Health Services System,
1,000,000 4.050% due 04/15/15+............................ 1,000,000
1,000,000 4.050% due 10/15/15+............................ 1,000,000
2,000,000 Missouri State, Health and Education
Facilities Authority, Health Facilities Revenue
(Bethesda Barclay House), Series A
(LOC: Mercantile Bank St. Louis),
4.400% due 08/15/26+ ........................... 2,000,000
---------
6,500,000
Nebraska -- 1.7%
180,000 Buffalo County, Nebraska, Hospital Authority
Revenue, No. 1 (Sisters of Charity Richard
Young Memorial Hospital Project)
(MBIA Insured), 4.050% due 05/01/18++........... 180,000
1,800,000 Nebraska Higher Education Loan Program,
4.300% due 12/01/16++........................... 1,800,000
---------
1,980,000
Nevada -- 3.3%
Clark County, Nevada:
3,000,000 Industrial Development Revenue,
4.150% due 11/01/20++........................... 3,000,000
375,000 Sanitation District, 5.250% due 07/01/97........ 375,000
Nevada State:
100,000 General Obligations, 6.600% due 08/01/97........ 100,210
250,000 Washoe County, Improvement and Refunding
(MBIA Insured), 7.100% due 07/01/97............. 250,000
---------
3,725,210
New Hampshire -- 0.4%
500,000 Manchester, New Hampshire, Public
Improvement Revenue, 7.300% due 09/01/97........ 512,949
New Jersey -- 0.9%
1,000,000 Passaic Valley, New Jersey, Series C,
7.100% due 12/01/20+............................ 1,033,612
New Mexico - 1.4%
500,000 Albuquerque, New Mexico, Water
and Sewer System Revenue, Series C,
6.650% due 07/01/97............................. 500,000
1,100,000 Farmington, New Mexico, Pollution Control
Revenue, Series B, 4.050% due 09/01/24++........ 1,100,000
---------
1,600,000
New York -- 0.9%
300,000 New York, New York, General Obligation
Bonds, Series B (FGIC Insured),
5.500% due 10/01/22+............................ 300,000
410,000 New York State, Medical Care Facilities
Finance Agency, 7.700% due 02/15/18+............ 427,769
340,000 Roslyn, New York, Free School District,
5.150% due 01/15/98............................. 342,783
---------
1,070,552
</TABLE>
--
73
--
The accompanying notes are an integral part of these financial statements.
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Federal Tax-Free
Money Fund
- ---------------------
I N V E S T M E N T S
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES -- continued
Principal Amount Value (Note 1)
<S> <C> <C>
Ohio -- 0.2%
$ 240,000 Columbus, Ohio, Sewer Improvement
Bonds, 9.000% due 09/15/97......................$ 242,630
Oklahoma -- 0.3%
345,000 Tulsa, Oklahoma, Metropolitan Utility
Authority, Utility Revenue,
5.600% due 09/01/97............................. 345,937
Pennsylvania -- 2.3%
1,600,000 Cambria County, Pennsylvania, Industrial
Development Authority, Resource Recovery
Revenue, 4.200% due 09/01/19+................... 1,600,000
1,000,000 Pennsylvania State Higher Education
Assistance Agency Student Loan Revenue,
4.2500% due 03/01/27+........................... 1,000,000
---------
2,600,000
South Carolina -- 0.4%
400,000 Orangeburg County, South Carolina, Solid
Waste Disposal Facilities Revenue (South
Carolina Electric and Gas Company Project)
(LOC: NationsBank of North Carolina),
4.150% due 11/01/24+............................ 400,000
Tennessee -- 0.7%
240,000 Chattanooga, Tennessee, General Obligation
Bonds, 7.750% due 08/01/97...................... 240,796
535,000 Hamilton County, Tennessee, Revenue
Refunding, Series A, 3.700% due 09/01/97........ 534,906
-------
775,702
Texas -- 8.9%
1,250,000 Dallas, Texas, General Obligations,
6.000% due 02/15/98............................. 1,267,066
1,000,000 Dallas County, Texas, General Obligations,
4.000% due 08/15/97............................. 1,000,257
Harris County, Texas:
700,000 Health Facilities Development Corporation,
Hospital Revenue, 8.600% due 10/01/00++......... 722,154
750,000 Toll Road, Senior Lien Revenue,
8.625% due 08/15/97............................. 776,734
1,000,000 Lower Neches Valley Authority, Texas,
Chevron U.S.A. Inc. Project,
3.500% due 02/15/17++........................... 1,000,000
Northside, Texas, Independent School District:
500,000 8.600% due 08/01/97............................. 502,051
750,000 8.750% due 08/01/98............................. 753,062
1,200,000 North Texas Higher Education Authority Inc.,
Texas Student Loan Revenue Refunding,
Series A, 4.250% due 04/01/20++................. 1,200,000
40,000 Round Rock, Texas, General Obligation Bonds
(FGIC Insured), 6.800% due 08/01/97............. 40,092
Sabine River Authority, Texas:
500,000 Pollution Control Revenue (Texas Utilities
Electric Company Project), (Credit Insured
AMBAC), 4.050% due 03/01/26+.................... 500,000
400,000 Water Supply Facilities Revenue,
6.100% due 12/01/97............................. 403,360
100,000 Tarrant County, Texas, General Obligation
Bonds, 9.250% due 07/15/97...................... 100,202
700,000 Texas Municipal Power Agency, Revenue
Refunding, 6.250% due 09/01/10+................. 716,983
1,000,000 Texas State, Tax and Revenue Anticipation
Notes, 4.750% due 08/29/97...................... 1,001,243
200,000 Trinity River Authority, Texas, Ten Mile
Creek System Revenue (AMBAC Insured),
4.625% due 08/01/97............................. 200,119
----------
10,183,323
Utah -- 0.6%
600,000 Intermountain Power Agency, Utah Power
Supply Revenue, 8.375% due 07/01/12+............ 612,000
100,000 Utah State Board of Regents, Student Loan
Revenue, Series A (Student Loan Marketing
Association Insured), 4.250% due 11/01/23++..... 100,000
-------
712,000
Virginia -- 5.3%
1,000,000 Alexandria, Virginia, General Obligation,
7.000% due 08/01/97............................. 1,002,599
150,000 Public Facility Lease Revenue (Henrico
County Regional Jail Project),
5.400% due 08/01/97............................. 150,199
550,000 Norfolk, Virginia, General Obligation Bonds,
7.150% due 08/01/99+ ........................... 562,481
4,000,000 Peninsula Port Authority of Virginia,
Revenue Updates (Shell Oil and Terminal
Company Project), 4.050% due 12/01/05+.......... 4,000,000
250,000 Roanoke, Virginia, Revenue Refunding
and Improvement Bonds, Series B,
5.800% due 08/01/97............................. 250,414
90,000 Upper Occoquan Sewer Authority,
Virginia, Regional Sewer Revenue
(MBIA Insured), 5.600% due 07/01/97............ 90,000
---------
6,055,693
Washington -- 12.3%
285,000 King County, Washington, Series A,
9.000% due 12/01/97............................. 290,803
1,000,000 Seattle, Washington, Metropolitan
Municipality, 7.375% due 01/01/30+ ............. 1,038,168
630,000 Snohomish County, Washington, Series A,
4.500% due 12/01/97............................. 631,794
</TABLE>
- --
74
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
---------------------
The Montgomery Funds
---------------------
Federal Tax-Free
Money Fund
---------------------
I N V E S T M E N T S
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES -- continued
Principal Amount Value (Note 1)
<S> <C> <C>
Washington -- continued
Washington State, Health Care Facilities
(Sisters Providence):
$ 3,490,000 Series B (Rabobank Nederland Insured),
4.050% due 10/01/05++...........................$ 3,490,000
2,600,000 Series E (Rabobank Nederland Insured),
4.050% due 10/01/05++........................... 2,600,000
Washington State, Housing Finance Commission:
1,450,000 Multi-Family Housing Revenue, Series A
(LOC Pacific First Federal Savings),
4.200% due 07/01/20++........................... 1,450,000
Nonprofit Housing Revenue:
1,350,000 Panorama City Project, (LOC Key Bank
of Washington), 5.600% due 01/01/07+............ 1,350,000
2,800,000 YMCA Snohomish County Program
(LOC Bank of Washington),
5.350% due 08/01/19+............................ 2,800,000
400,000 Washington State, General Obligations,
3.900% due 08/01/97............................. 400,095
----------
14,050,860
Wisconsin -- 2.8%
200,000 Slinger, Wisconsin, School District,
6.500% due 04/01/98............................. 203,940
Wisconsin State:
2,000,000 Operating Notes, 4.500% due 06/15/98............ 2,011,980
1,000,000 Series A, 6.400% due 05/01/00+.................. 1,030,333
---------
3,246,253
Wyoming -- 3.3%
800,000 Platte County, Wyoming, Pollution Control
Revenue, 4.200% due 07/01/14+................... 800,000
2,950,000 Uinta County, Wyoming, Pollution Control
Revenue (Chevron U.S.A. Inc.),
4.000% due 12/01/22+............................ 2,950,000
---------
3,750,000
TOTAL INVESTMENTS -- 101.1%
(At amortized cost*)............................................$ 115,510,040
OTHER ASSETS AND LIABILITIES -- (1.1%)
(Net)........................................................... (1,312,945)
---------
NET ASSETS -- 100.0% ...........................................$ 114,197,095
===========
</TABLE>
* Aggregate cost for federal tax purposes.
+ Floating-rate note, rate resets daily.
++ Floating-rate note, rate resets weekly.
+++ Floating-rate note, rate resets annually.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
Abbreviations:
AMBAC.... American Municipal Bond Assurance Corporation
FGIC..... Federal Guaranty Insurance Corporation
FSA...... Federal Security Assurance
GNMA..... Government National Mortgage Association
LOC...... Line of Credit
MBIA..... Municipal Bond Investors Assurance
--
75
--
The accompanying notes are an integral part of these financial statements.
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Government Reserve
Fund
- ---------------------
I N V E S T M E N T S
P O R T F O L I O I N V E S T M E N T S
June 30, 1997
FEDERAL FARM CREDIT BANK (FFCB) -- 12.9%
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C> <C>
$ 5,925,000 5.340% due 07/01/97..............................$ 5,925,000
7,000,000 5.550% due 07/01/97.............................. 7,000,000
3,310,000 5.930% due 07/01/97.............................. 3,310,000
5,000,000 Discount Note due 07/22/97....................... 4,983,900
17,150,000 5.380% due 08/01/97.............................. 17,150,260
5,000,000 5.550% due 08/01/97.............................. 4,999,243
2,000,000 5.850% due 08/01/97.............................. 2,000,029
500,000 4.600%** due 08/14/97+++......................... 499,053
6,000,000 5.620% due 09/03/97.............................. 6,000,391
500,000 Discount Note due 09/15/97....................... 494,237
500,000 11.900% due 10/20/97............................. 508,993
500,000 5.900%** due 11/18/97++++........................ 499,821
425,000 5.950%** due 11/19/97++++........................ 424,773
395,000 7.950% due 01/02/98.............................. 398,698
1,000,000 4.800% due 01/14/98.............................. 993,624
3,000,000 4.650%** due 03/02/98+++......................... 2,977,300
1,100,000 5.450% due 03/03/98.............................. 1,097,743
750,000 Medium-Term Note, 6.280% due 03/30/98............ 751,028
1,000,000 5.900% due 04/01/98.............................. 999,523
----------
61,013,616
----------
FEDERAL HOME LOAN BANK (FHLB) -- 27.1%
2,203,000 Discount Note due 07/01/97....................... 2,203,000
4,000,000 Discount Note due 07/07/97....................... 3,996,347
500,000 5.920% due 07/07/97.............................. 500,003
500,000 5.250%** due 07/16/97............................ 499,896
1,000,000 5.850% due 07/18/97.............................. 1,000,026
500,000 5.240% due 07/20/98.............................. 496,530
1,000,000 Discount Note due 07/23/97....................... 996,663
2,000,000 4.472%** due 07/28/97++.......................... 1,998,247
1,000,000 4.858%** due 07/30/97+++......................... 999,347
2,750,000 Discount Note due 08/04/97....................... 2,735,845
500,000 5.531%** due 08/04/97++++........................ 500,051
525,000 Discount Note due 08/08/97....................... 521,980
2,100,000 4.450%** due 08/20/97++.......................... 2,095,913
1,000,000 4.260%** due 09/03/97++.......................... 997,096
500,000 5.945% due 09/05/97.............................. 500,115
1,000,000 4.710%** due 09/15/97++.......................... 997,625
1,450,000 4.242%** due 09/24/97++.......................... 1,444,540
7,000,000 6.000% due 09/24/97.............................. 7,002,868
645,000 4.660%** due 10/14/97++.......................... 642,212
1,500,000 4.302%** due 10/16/97++.......................... 1,492,679
810,000 Discount Note due 10/16/97....................... 796,472
25,000,000 Discount Note due 10/23/97....................... 24,556,350
1,300,000 7.230% due 10/28/97.............................. 1,305,494
5,000,000 Discount Note due 11/13/97....................... 4,895,375
1,000,000 7.490% due 11/17/97.............................. 1,006,379
4,000,000 5.450% due 12/02/97.............................. 3,992,460
5,000,000 5.260%** due 12/10/97+........................... 4,999,144
535,000 7.870% due 12/15/97.............................. 539,510
5,000,000 5.528%** due 12/16/97++.......................... 4,998,879
1,500,000 5.330% due 12/19/97.............................. 1,497,437
5,620,000 Discount Note due 01/02/98....................... 5,462,312
3,700,000 7.930% due 01/20/98.............................. 3,743,998
2,750,000 4.647%** due 02/12/98++.......................... 2,730,298
2,500,000 4.647%** due 02/25/98++.......................... 2,477,737
4,500,000 4.840%** due 02/25/98+++......................... 4,469,302
500,000 5.875% due 02/26/98.............................. 499,216
710,000 5.670% due 03/10/98.............................. 708,153
1,500,000 4.500%** due 03/16/98++++........................ 1,487,173
500,000 4.550%** due 03/16/98++++........................ 495,334
400,000 5.790% due 03/18/98.............................. 400,046
5,000,000 5.690% due 03/25/98.............................. 4,994,367
500,000 5.260% due 04/27/98.............................. 497,241
20,000,000 Discount Note due 07/07/98....................... 19,982,256
-----------
128,155,916
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 10.1%
315,922 1323D, 6.350%** due 07/15/97++................... 316,048
9,012,056 90123, 6.500% due 08/01/97....................... 9,012,056
7,177,986 1357, 6.900%** due 08/15/97++.................... 7,177,986
490,397 490011, 10.000% due 09/01/97..................... 490,409
2,086,529 1402E, 6.200%** due 10/15/97++................... 2,088,065
19,764,155 1405E, 6.450%** due 10/15/97++................... 19,782,025
3,037,405 90154, 7.000% due 11/01/97....................... 3,037,405
1,188,577 1431, 0.000% (CMO) due 11/15/97.................. 1,170,453
774,667 M90163, 7.000% due 12/01/97...................... 776,395
1,253,944 1427F, 6.150%** due 12/15/97++................... 1,254,408
941,651 M19081, 5.500% due 02/01/98...................... 938,562
365,941 17211, 6.500% due 02/01/98....................... 366,443
500,000 4.650%** due 03/11/98+++......................... 496,435
1,000,000 4.500%** due 03/25/98+++......................... 990,046
-----------
47,896,736
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 4.5%
1,000,000 5.360% due 07/11/97.............................. 999,990
229,836 50335, 9.500% due 08/01/97....................... 229,836
300,000 4.980%** due 08/05/97++.......................... 299,669
1,500,000 4.322%** due 09/22/97++.......................... 1,494,667
87,850 070620, 9.000% due 10/01/97...................... 87,850
20,440 106988, 9.000% due 10/01/97...................... 20,445
2,000,000 4.322%** due 10/06/97++.......................... 1,991,063
470,000 5.650% due 10/20/97.............................. 469,614
3,877 107590, 9.000% due 11/01/97...................... 3,878
740,123 124691, 9.500% due 11/01/97...................... 740,075
48,333 050380, 9.000% due 12/01/97...................... 48,425
500,000 6.050% due 12/19/97.............................. 500,772
66,989 112363, 9.000% due 01/01/98...................... 67,158
</TABLE>
- --
76
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
---------------------
The Montgomery Funds
---------------------
Government Reserve
Fund
---------------------
I N V E S T M E N T S
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- continued
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<C> <S> <C>
$ 37,705 050395, 9.000% due 01/01/98.....................$ 37,777
1,500,000 4.900%** due 01/06/98++......................... 1,491,901
750,000 4.525%** due 01/28/98++......................... 744,197
1,000,000 6.000%** due 02/17/98+++........................ 1,000,281
4,210,000 4.840%** due 02/25/98+++........................ 4,176,452
4,050,000 4.840%** due 02/25/98+++........................ 4,017,199
750,000 4.805%** due 03/10/98++++....................... 745,165
2,000,000 8.050% due 07/14/04............................. 2,001,563
-----------
21,167,977
-----------
HOUSING AND URBAN DEVELOPMENT (HUD) -- 0.2%
1,000,000 5.850% due 08/01/97............................. 1,000,021
---------
STUDENT LOAN MARKETING ASSOCIATION (SLMA) -- 17.9%
12,875,000 Discount Note due 07/01/97...................... 12,875,000
6,675,000 5.610%** due 07/16/97........................... 6,675,655
1,000,000 5.260%** due 07/17/97+.......................... 999,800
5,000,000 5.250%** due 08/21/97+.......................... 5,000,000
6,500,000 Medium-Term Note,
5.965% due 09/12/97............................. 6,501,842
5,000,000 5.740% due 10/03/97............................. 5,003,308
285,000 5.180% due 10/16/97 ............................ 284,705
5,000,000 5.420%** due 10/30/97+.......................... 5,000,900
1,750,000 5.000%** due 11/06/97++......................... 1,745,190
100,000 5.640% due 11/26/97............................. 99,829
1,310,000 4.720%** due 12/18/97++......................... 1,303,478
8,750,000 5.630% due 12/24/97............................. 8,737,525
2,000,000 5.420%** due 01/21/98+.......................... 2,001,584
5,000,000 5.275%** due 02/05/98+.......................... 4,998,682
1,150,000 4.820%** due 02/11/98++++....................... 1,141,640
500,000 5.370%** due 02/17/98+.......................... 500,267
648,000 5.535% due 02/25/98............................. 646,022
8,825,000 7.000% due 03/03/98............................. 8,891,941
1,650,000 5.315%** due 04/21/98+.......................... 1,649,623
10,500,000 5.305%** due 11/06/98+.......................... 10,499,579
-----------
84,556,570
-----------
U.S. SOVEREIGN BONDS -- 0.2%
903,850 AID-Israel, Series B,
5.879% due 01/01/99+............................ 903,850
-----------
U.S. TREASURY NOTES -- 1.3%
3,000,000 5.000% due 01/31/98............................. 2,985,779
3,000,000 6.125% due 03/31/98............................. 3,007,978
---------
5,993,757
-----------
TOTAL SECURITIES ............................................... 350,688,443
-----------
REPURCHASE AGREEMENTS -- 31.3%
20,000,000 Agreement with Bear Stearns, Tri-Party,
5.550% dated 06/24/97, to be
repurchased at $20,021,583 on 07/01/97,
collateralized by $20,400,000 market
value of U.S. government securities,
having various maturities and various
interest rates..................................... 20,000,000
52,043,500 Agreement with Bear Stearns, Tri-Party,
6.200% dated 06/30/97, to be
repurchased at $52,052,463 on 07/01/97,
collateralized by $53,084,370 market value of
U.S. government securities, having various
maturities and various interest rates.............. 52,043,500
35,139,500 Agreement with Greenwich Capital,
Tri-Party, 6.200% dated 06/30/97,
to be repurchased at $35,145,552 on
07/01/97, collateralized by $35,842,290
market value of U.S. government securities,
having various maturities and various
interest rates .................................... 35,139,500
41,022,000 Agreement with HSBC Securities Inc.,
Tri-Party, 6.200% dated 06/30/97,
to be repurchased at $41,029,065 on
07/01/97, collateralized by $41,842,509
market value of U.S. government securities,
having various maturities and
various interest rates............................. 41,022,000
-----------
TOTAL REPURCHASE AGREEMENTS ...................................... 148,205,000
-----------
TOTAL INVESTMENTS -- 105.5%
(At amortized cost*)................................................498,893,443
OTHER ASSETS AND LIABILITIES -- (5.5%)
(Net)...............................................................(25,739,450)
-----------
NET ASSETS -- 100.0% ........................................... $ 473,153,993
===========
</TABLE>
* Aggregate cost for federal tax purposes.
** Rate represents annualized yield at date of purchase.
+ Floating-rate note, rate resets weekly.
++ Floating-rate note, rate resets monthly.
+++ Floating-rate note, rate resets quarterly.
++++ Floating-rate note, rate resets annually.
Descriptions of securities have not been audited by Deloitte & Touche LLP.
Abbreviations:
CMO..Collateralized Mortgage Obligation --
77
--
The accompanying notes are an integral part of these financial statements.
<PAGE>
- -----------------------
The Montgomery Funds
- -----------------------
Statements of
Assets and Liabilities
- -----------------------
J U N E 3 0, 1 9 9 7
<TABLE>
<CAPTION>
Emerging Asia Emerging Markets
Fund Fund
Assets:
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (note 1)
Securities.................................................................... $ 55,566,387 $ 1,173,816,381
Repurchase agreements......................................................... 8,074,000 84,066,000
------------ -------------
Total Investments 63,640,387 1,257,882,381
Cash.............................................................................. 499,832 2,091,231
Foreign currency, at value (Cost $5,166, $15,446,683, $724,600, $119,516, $491,869,
$524,018 and $1,155,883, respectively)........................................ 5,268 15,184,509
Forward foreign currency exchange contracts:
Forward foreign currency exchange contracts to buy, at value (Contract cost
$537,552, $5,108,462, $943,526, $255,048, $128,386, $1,176,277
and $3,020,280, respectively (note 5)....................................... 537,181 5,090,710
Forward foreign currency exchange contracts to sell (note 5)................ 183,765 2,921,926
Receivables:
Dividends..................................................................... 83,592 4,735,404
Interest...................................................................... 1,391 223,960
Equity swaps.................................................................. 380,933 --
Expenses absorbed by Manager ................................................. -- --
Shares of beneficial interest sold............................................ 1,782,339 5,588,196
Investment securities sold.................................................... 281,528 7,823,616
Other Assets:
Segregated cash for equity swap agreements.................................... 3,250,700 --
Organization costs (note 1)................................................... 17,341 --
------------ -------------
Total Assets 70,664,257 1,301,541,933
------------ -------------
Liabilities:
- ----------------------------------------------------------------------------------------------------------------------------------
Forward foreign currency exchange contracts:
Forward foreign currency exchange contracts to buy (note 5)................... 537,552 5,108,462
Forward foreign currency exchange contracts to sell, at value (Contract
cost $183,765, $2,921,926, $564,098, $149,970, $271,226, $220,470 and
$700,063, respectively) (note 5)........................................... 183,658 2,946,178
Payables:
Deferred fee income on dollar roll transactions............................... -- --
Deferred gain on dollar roll transactions..................................... -- --
Shares of beneficial interest redeemed........................................ 36,007 8,247,075
Investment securities purchased............................................... 1,672,543 23,793,049
Repurchases of investments under dollar roll agreements....................... -- --
Management fees............................................................... 49,596 287,916
Administration fees........................................................... 3,377 60,354
Share marketing plan fees (Class P shares only)............................... -- 280
Custodian fees................................................................ 16,342 337,819
Trustees' fees and expenses................................................... 1,000 1,000
Cash overdrafts............................................................... -- --
Transfer agency and servicing fees............................................ 13,797 320,717
Accrued liabilities and expenses.............................................. 55,129 375,153
------------ -------------
Total Liabilities 2,569,001 41,478,003
------------ -------------
Net Assets $ 68,095,256 $ 1,260,063,930
------------ -------------
Investments at Identified Cost.................................................... $ 54,171,456 $ 1,032,010,909
Net Assets Consist of:
- ----------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(accumulated net investment loss)............. $ (142,648) $ 990,404
Accumulated net realized gain on securities sold, forward foreign currency exchange
contracts, futures contracts, foreign currency transactions and
securities sold short......................................................... 3,025,393 22,266,405
Net unrealized appreciation of investments, forward foreign currency exchange
contracts, foreign currency transactions, equity swaps and net other assets... 9,910,245 225,531,707
Shares of beneficial interest..................................................... 36,020 747,815
Additional paid-in capital........................................................ 55,266,246 1,010,527,599
------------ -------------
Net Assets $ 68,095,256 $ 1,260,063,930
Net Assets:
- ----------------------------------------------------------------------------------------------------------------------------------
Class R shares................................................................ $ 68,095,256 $ 1,259,456,785
Class P shares................................................................ N/A 607,145
------------ -------------
Net Assets $ 68,095,256 $ 1,260,063,930
Number of Fund shares outstanding:
Class R shares................................................................ 3,601,959 74,745,323
Class P shares................................................................ N/A 36,215
------------ -------------
Total Shares 3,601,959 74,781,538
Class R Shares:
Net Asset Value, offering and redemption price per share outstanding.......... $ 18.91 $ 16.85
------------ -------------
Class P shares:
Net Asset Value, offering and redemption price per share outstanding.......... N/A $ 16.77
------------ -------------
</TABLE>
- --
78
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Global Global International
Communications Opportunities Growth
Fund Fund Fund
Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments in securities, at value (note 1)
Securities.................................................................... $ 140,892,724 $ 31,356,186 $ 32,199,635
Repurchase agreements......................................................... 8,056,000 621,000 1,286,000
------------ ----------- -----------
Total Investments 148,948,724 31,977,186 33,485,635
Cash.............................................................................. 457 377 855
Foreign currency, at value (Cost $5,166, $15,446,683, $724,600, $119,516, $491,869,
$524,018 and $1,155,883, respectively)........................................ 720,077 119,056 491,112
Forward foreign currency exchange contracts:
Forward foreign currency exchange contracts to buy, at value (Contract cost
$537,552, $5,108,462, $943,526, $255,048, $128,386, $1,176,277
and $3,020,280, respectively (note 5)....................................... 939,562 254,074 127,867
Forward foreign currency exchange contracts to sell (note 5)................ 564,098 149,970 271,226
Receivables:
Dividends..................................................................... 304,923 90,532 122,344
Interest...................................................................... 1,387 107 222
Equity swaps.................................................................. -- -- --
Expenses absorbed by Manager ................................................. -- -- --
Shares of beneficial interest sold............................................ 260,562 63,006 15,152
Investment securities sold.................................................... 5,199,741 541,714 364,295
Other Assets:
Segregated cash for equity swap agreements.................................... -- -- --
Organization costs (note 1)................................................... 9,602 6,739 5,972
------------ ----------- -----------
Total Assets 156,949,133 33,202,761 34,884,680
------------ ----------- -----------
Liabilities:
- ------------------------------------------------------------------------------------------------------------------------------------
Forward foreign currency exchange contracts:
Forward foreign currency exchange contracts to buy (note 5)................... 943,526 255,048 128,386
Forward foreign currency exchange contracts to sell, at value (Contract
cost $183,765, $2,921,926, $564,098, $149,970, $271,226, $220,470 and
$700,063, respectively) (note 5)........................................... 562,988 149,785 272,893
Payables:
Deferred fee income on dollar roll transactions............................... -- -- --
Deferred gain on dollar roll transactions..................................... -- -- --
Shares of beneficial interest redeemed........................................ 260,033 15,266 7,377
Investment securities purchased............................................... 988,062 352,718 451,579
Repurchases of investments under dollar roll agreements....................... -- -- --
Management fees............................................................... 41,737 23,404 32,445
Administration fees........................................................... 8,608 1,814 1,899
Share marketing plan fees (Class P shares only)............................... -- -- 4
Custodian fees................................................................ 31,886 4,874 9,500
Trustees' fees and expenses................................................... 1,000 1,000 1,000
Cash overdrafts............................................................... -- -- --
Transfer agency and servicing fees............................................ 53,076 3,357 9,969
Accrued liabilities and expenses.............................................. 103,116 24,572 51,930
------------ ----------- -----------
Total Liabilities 2,994,032 831,838 966,982
------------ ----------- -----------
Net Assets $ 153,955,101 $ 32,370,923 $ 33,917,698
------------ ----------- -----------
Investments at Identified Cost.................................................... $ 115,872,527 $ 27,487,808 $ 30,207,044
Net Assets Consist of:
- ------------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(accumulated net investment loss)............. $ (142,563) $ (10,145) $ 37,597
Accumulated net realized gain on securities sold, forward foreign currency exchange
contracts, futures contracts, foreign currency transactions and
securities sold short......................................................... 21,664,944 3,153,311 1,567,555
Net unrealized appreciation of investments, forward foreign currency exchange
contracts, foreign currency transactions, equity swaps and net other assets... 33,061,579 4,488,011 3,275,166
Shares of beneficial interest..................................................... 78,502 16,886 20,880
Additional paid-in capital........................................................ 99,292,639 24,722,860 29,016,500
------------ ----------- -----------
Net Assets $ 153,955,101 $ 32,370,923 $ 33,917,698
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Class R shares................................................................ $ 153,955,101 $ 32,370,923 $ 33,912,264
Class P shares................................................................ N/A N/A 5,434
------------ ----------- -----------
Net Assets $ 153,955,101 $ 32,370,923 $ 33,917,698
Number of Fund shares outstanding:
Class R shares................................................................ 7,850,158 1,688,611 2,087,652
Class P shares................................................................ N/A N/A 335
------------ ----------- -----------
Total Shares 7,850,158 1,688,611 2,087,987
Class R Shares:
Net Asset Value, offering and redemption price per share outstanding.......... $ 19.61 $ 19.17 $ 16.24
------------ ----------- -----------
Class P shares:
Net Asset Value, offering and redemption price per share outstanding.......... N/A N/A $ 16.22
------------ ----------- -----------
<CAPTION>
International Asset
Small Cap Allocation
Fund Fund
Assets:
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (note 1)
Securities.................................................................... $ 50,451,746 $ 120,254,477
Repurchase agreements......................................................... 3,642,000 --
----------- ------------
Total Investments 54,093,746 120,254,477
Cash.............................................................................. 644 10,060,575
Foreign currency, at value (Cost $5,166, $15,446,683, $724,600, $119,516, $491,869,
$524,018 and $1,155,883, respectively)........................................ 519,915 --
Forward foreign currency exchange contracts:
Forward foreign currency exchange contracts to buy, at value (Contract cost
$537,552, $5,108,462, $943,526, $255,048, $128,386, $1,176,277
and $3,020,280, respectively (note 5)....................................... 1,170,834 --
Forward foreign currency exchange contracts to sell (note 5)................ 220,470 --
Receivables:
Dividends..................................................................... 68,779 30,158
Interest...................................................................... 1,244 780,639
Equity swaps.................................................................. -- --
Expenses absorbed by Manager ................................................. -- --
Shares of beneficial interest sold............................................ 131,822 72,960
Investment securities sold.................................................... 599,362 1,056,946
Other Assets:
Segregated cash for equity swap agreements.................................... -- --
Organization costs (note 1)................................................... 6,884 11,632
----------- ------------
Total Assets 56,813,700 132,267,387
----------- ------------
Liabilities:
- ---------------------------------------------------------------------------------------------------------------------
Forward foreign currency exchange contracts:
Forward foreign currency exchange contracts to buy (note 5)................... 1,176,277 --
Forward foreign currency exchange contracts to sell, at value (Contract
cost $183,765, $2,921,926, $564,098, $149,970, $271,226, $220,470 and
$700,063, respectively) (note 5)........................................... 220,838 --
Payables:
Deferred fee income on dollar roll transactions............................... -- 1,565
Deferred gain on dollar roll transactions..................................... -- 10,547
Shares of beneficial interest redeemed........................................ 136,905 242,210
Investment securities purchased............................................... 1,511,647 4,491,933
Repurchases of investments under dollar roll agreements....................... -- 5,156
Management fees............................................................... 58,684 94,784
Administration fees........................................................... 3,039 7,338
Share marketing plan fees (Class P shares only)............................... 1 65
Custodian fees................................................................ 11,027 5,521
Trustees' fees and expenses................................................... 1,000 1,600
Cash overdrafts............................................................... -- --
Transfer agency and servicing fees............................................ 19,232 50,516
Accrued liabilities and expenses.............................................. 57,911 68,157
----------- ------------
Total Liabilities 3,196,561 4,979,392
----------- ------------
Net Assets $ 53,617,139 $ 127,287,995
----------- ------------
Investments at Identified Cost.................................................... $ 47,708,681 $ 105,341,485
Net Assets Consist of:
- ---------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(accumulated net investment loss)............. $ (2,447) $ 1,505,327
Accumulated net realized gain on securities sold, forward foreign currency exchange
contracts, futures contracts, foreign currency transactions and
securities sold short......................................................... 2,441,650 8,887,666
Net unrealized appreciation of investments, forward foreign currency exchange
contracts, foreign currency transactions, equity swaps and net other assets... 6,376,976 14,912,985
Shares of beneficial interest..................................................... 31,244 64,008
Additional paid-in capital........................................................ 44,769,716 101,918,009
----------- ------------
Net Assets $ 53,617,139 $ 127,287,995
Net Assets:
- ---------------------------------------------------------------------------------------------------------------------
Class R shares................................................................ $ 53,601,950 $ 127,213,717
Class P shares................................................................ 15,189 74,278
----------- ------------
Net Assets $ 53,617,139 $ 127,287,995
Number of Fund shares outstanding:
Class R shares................................................................ 3,123,507 6,397,093
Class P shares................................................................ 885 3,734
----------- ------------
Total Shares 3,124,392 6,400,827
Class R Shares:
Net Asset Value, offering and redemption price per share outstanding.......... $ 17.16 $ 19.89
----------- ------------
Class P shares:
Net Asset Value, offering and redemption price per share outstanding.......... $ 17.16 $ 19.89
----------- ------------
<CAPTION>
Global
Asset Allocation Select 50
Fund Fund
Assets:
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (note 1)
Securities.................................................................... $ 1,624,107 $ 162,804,774
Repurchase agreements......................................................... -- 17,516,000
---------- ------------
Total Investments 1,624,107 180,320,774
Cash.............................................................................. -- 799,989
Foreign currency, at value (Cost $5,166, $15,446,683, $724,600, $119,516, $491,869,
$524,018 and $1,155,883, respectively)........................................ -- 1,130,261
Forward foreign currency exchange contracts:
Forward foreign currency exchange contracts to buy, at value (Contract cost
$537,552, $5,108,462, $943,526, $255,048, $128,386, $1,176,277
and $3,020,280, respectively (note 5)....................................... -- 3,013,143
Forward foreign currency exchange contracts to sell (note 5)................ -- 700,063
Receivables:
Dividends..................................................................... -- 175,007
Interest...................................................................... -- 3,017
Equity swaps.................................................................. -- --
Expenses absorbed by Manager ................................................. 12,650 --
Shares of beneficial interest sold............................................ 10,066 964,015
Investment securities sold.................................................... -- 1,453,359
Other Assets:
Segregated cash for equity swap agreements.................................... -- --
Organization costs (note 1)................................................... 21,116 5,690
---------- ------------
Total Assets 1,667,939 188,565,318
---------- ------------
Liabilities:
- -----------------------------------------------------------------------------------------------------------------------
Forward foreign currency exchange contracts:
Forward foreign currency exchange contracts to buy (note 5)................... -- 3,020,280
Forward foreign currency exchange contracts to sell, at value (Contract
cost $183,765, $2,921,926, $564,098, $149,970, $271,226, $220,470 and
$700,063, respectively) (note 5)........................................... -- 701,385
Payables:
Deferred fee income on dollar roll transactions............................... -- --
Deferred gain on dollar roll transactions..................................... -- --
Shares of beneficial interest redeemed........................................ -- 187,921
Investment securities purchased............................................... 5,467 11,820,685
Repurchases of investments under dollar roll agreements....................... -- --
Management fees............................................................... -- 177,674
Administration fees........................................................... -- 9,374
Share marketing plan fees (Class P shares only)............................... -- 47
Custodian fees................................................................ -- 8,791
Trustees' fees and expenses................................................... 1,000 1,000
Cash overdrafts............................................................... 5 --
Transfer agency and servicing fees............................................ 1,325 37,911
Accrued liabilities and expenses.............................................. 6,690 82,274
---------- ------------
Total Liabilities 14,487 16,047,342
---------- ------------
Net Assets $ 1,653,452 $ 172,517,976
---------- ------------
Investments at Identified Cost.................................................... $ 1,517,830 $ 153,443,533
Net Assets Consist of:
- -----------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(accumulated net investment loss)............. $ 8,065 $ 4,401
Accumulated net realized gain on securities sold, forward foreign currency exchange
contracts, futures contracts, foreign currency transactions and
securities sold short......................................................... 19,162 8,365,379
Net unrealized appreciation of investments, forward foreign currency exchange
contracts, foreign currency transactions, equity swaps and net other assets... 106,277 26,828,650
Shares of beneficial interest..................................................... 1,240 86,206
Additional paid-in capital........................................................ 1,518,708 137,233,340
---------- ------------
Net Assets $ 1,653,452 $ 172,517,976
Net Assets:
- -----------------------------------------------------------------------------------------------------------------------
Class R shares................................................................ $ 1,653,452 $ 172,509,344
Class P shares................................................................ N/A 8,632
---------- ------------
Net Assets $ 1,653,452 $ 172,517,976
Number of Fund shares outstanding:
Class R shares................................................................ 124,000 8,620,123
Class P shares................................................................ N/A 432
---------- ------------
Total Shares 124,000 8,620,555
Class R Shares:
Net Asset Value, offering and redemption price per share outstanding.......... $ 13.33 $ 20.01
---------- ------------
Class P shares:
Net Asset Value, offering and redemption price per share outstanding.......... N/A $ 19.98
---------- ------------
</TABLE>
--
79
--
The accompanying notes are an integral part of these financial statements.
<PAGE>
- ----------------------
The Montgomery Funds
- ----------------------
Statements of
Assets and Liabilities
- ----------------------
JUNE 30, 1997
<TABLE>
<CAPTION>
Equity Income Growth Micro Cap
Fund Fund Fund
Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments in securities, at value (note 1)
Securities............................................................... $ 38,830,532 $ 946,068,538 $ 293,628,540
Repurchase agreements.................................................... -- 192,950,000 21,755,000
------------- ------------- -------------
Total Investments 38,830,532 1,139,018,538 315,383,540
Cash......................................................................... -- 68,801 --
Receivables:
Dividends................................................................ 100,233 454,705 82,630
Interest ................................................................ -- 33,230 8,280
Shares of beneficial interest sold....................................... 35,810 787,948 52,879
Investment securities sold............................................... 958,513 11,362,989 5,354,986
Sale of investments under dollar roll agreements......................... -- -- --
Other Assets:
Organization costs (note 1).............................................. 6,243 6,627 3,540
------------- ------------- -------------
Total Assets 39,931,331 1,151,732,838 320,885,855
------------- ------------- -------------
Liabilities:
- ------------------------------------------------------------------------------------------------------------------------------------
Payables:
Deferred fee income on dollar roll transactions.......................... -- -- --
Deferred gain on dollar roll transactions................................ -- -- --
Shares of beneficial interest redeemed................................... 18,557 931,394 425,032
Investment securities purchased.......................................... 223,843 12,337,571 2,322,999
Reverse repurchase agreement............................................. -- -- --
Management fees.......................................................... 7,881 231,341 92,089
Administration fees...................................................... 2,294 59,744 17,281
Share marketing plan fees (Class P shares only).......................... 401 178 --
Custodian fees........................................................... 1,794 17,481 7,090
Dividends................................................................ -- -- --
Trustees' fees and expenses.............................................. 1,000 1,000 1,000
Cash overdraft........................................................... 143,057 -- 417
Transfer agency and servicing fees....................................... 17,895 257,338 56,163
Accrued liabilities and expenses......................................... 52,101 341,326 152,100
------------- ------------- -------------
Total Liabilities 468,823 14,177,373 3,074,171
------------- ------------- -------------
Net Assets $ 39,462,508 $1,137,555,465 $ 317,811,684
------------- ------------- -------------
Investments at Identified Cost............................................... $ 34,395,778 $ 903,752,359 $ 226,438,638
Net Assets Consist of:
- ------------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(accumulated net investment loss)........ $ -- $ 3,540,859 $ --
Accumulated net realized gain/(loss) on securities sold, forward foreign
currency exchange contracts, futures contracts, foreign currency
transactions and securities sold short................................... 2,310,263 68,776,914 13,294,331
Net unrealized appreciation of investments, forward foreign currency exchange
contracts, foreign currency transactions and net other assets............ 4,434,754 235,265,991 88,944,902
Shares of beneficial interest................................................ 22,039 493,195 167,308
Additional paid-in capital .................................................. 32,695,452 829,478,506 215,405,143
------------- ------------- -------------
Net Assets $ 39,462,508 $1,137,555,465 $ 317,811,684
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Class R shares............................................................... $ 38,594,751 $1,137,343,033 $ 317,811,684
Class P shares............................................................... 867,757 212,432 N/A
------------- ------------- -------------
Net Assets $ 39,462,508 $1,137,555,465 $ 317,811,684
Number of Fund shares outstanding:
Class R shares............................................................... 2,155,439 49,310,340 16,730,791
Class P shares............................................................... 48,468 9,189 N/A
------------- ------------- -------------
Total Shares 2,203,907 49,319,529 16,730,791
Class R shares:
Net Asset Value, offering and redemption price per share outstanding..... $ 17.91 $ 23.07 $ 19.00
------------- ------------- -------------
Class P shares:
Net Asset Value, offering and redemption price per share outstanding..... $ 17.90 $ 23.12 N/A
------------- ------------- -------------
</TABLE>
- --
80
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Small Cap California Tax-Free
Small Cap Opportunities Intermediate
Fund Fund Bond Fund
Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments in securities, at value (note 1)
Securities............................................................... $ 201,691,972 $218,190,931 $ 21,325,825
Repurchase agreements.................................................... 3,994,000 9,719,000 --
------------ ----------- -----------
Total Investments 205,685,972 227,909,931 21,325,825
Cash......................................................................... 630,675 -- --
Receivables:
Dividends................................................................ 23,010 44,020 --
Interest ................................................................ 11,334 18,169 366,989
Shares of beneficial interest sold....................................... 28,705 108,479 26,035
Investment securities sold............................................... -- 712,435 --
Sale of investments under dollar roll agreements......................... -- -- --
Other Assets:
Organization costs (note 1).............................................. -- 9,490 8,497
------------ ----------- -----------
Total Assets 206,379,696 228,802,524 21,727,346
------------ ----------- -----------
Liabilities:
- ------------------------------------------------------------------------------------------------------------------------------------
Payables:
Deferred fee income on dollar roll transactions.......................... -- -- --
Deferred gain on dollar roll transactions................................ -- -- --
Shares of beneficial interest redeemed................................... 87,779 548,686 500
Investment securities purchased.......................................... 1,194,721 1,686,449 --
Reverse repurchase agreement............................................. -- -- --
Management fees.......................................................... 44,291 59,638 2,437
Administration fees...................................................... 11,514 12,984 883
Share marketing plan fees (Class P shares only).......................... 2,894 14 --
Custodian fees........................................................... 3,536 4,748 --
Dividends................................................................ -- -- --
Trustees' fees and expenses.............................................. 1,000 1,000 1,000
Cash overdraft........................................................... -- -- 2,076
Transfer agency and servicing fees....................................... 15,481 63,409 2,206
Accrued liabilities and expenses......................................... 63,710 97,866 36,909
------------ ----------- -----------
Total Liabilities 1,424,926 2,474,794 46,011
------------ ----------- -----------
Net Assets $ 204,954,770 $226,327,730 $ 21,681,335
------------ ----------- -----------
Investments at Identified Cost............................................... $ 158,049,488 $186,040,448 $ 20,895,253
Net Assets Consist of:
- ------------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(accumulated net investment loss)........ $ -- $ -- $ 1,392
Accumulated net realized gain/(loss) on securities sold, forward foreign
currency exchange contracts, futures contracts, foreign currency
transactions and securities sold short................................... 18,908,238 (18,338,691) (131,998)
Net unrealized appreciation of investments, forward foreign currency exchange
contracts, foreign currency transactions and net other assets............ 47,636,484 41,869,483 430,572
Shares of beneficial interest................................................ 105,006 129,116 17,307
Additional paid-in capital .................................................. 138,305,042 202,667,822 21,364,062
------------ ----------- -----------
Net Assets $ 204,954,770 $226,327,730 $ 21,681,335
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Class R shares............................................................... $ 198,298,458 $226,318,384 $ 21,681,335
Class P shares............................................................... 6,656,312 9,346 N/A
------------ ----------- -----------
Net Assets $ 204,954,770 $226,327,730 $ 21,681,335
Number of Fund shares outstanding:
Class R shares............................................................... 10,158,853 12,911,019 1,730,704
Class P shares............................................................... 341,778 533 N/A
------------ ----------- -----------
Total Shares 10,500,631 12,911,552 1,730,704
Class R shares:
Net Asset Value, offering and redemption price per share outstanding..... $ 19.52 $ 17.53 $ 12.53
------------ ----------- -----------
Class P shares:
Net Asset Value, offering and redemption price per share outstanding..... $ 19.48 $ 17.53 N/A
------------ ----------- -----------
<CAPTION>
Short Duration California
Government Tax-Free Money
Bond Fund Fund
Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (note 1)
Securities............................................................... $ 47,265,466 $ 118,171,777
Repurchase agreements.................................................... -- --
---------- -----------
Total Investments 47,265,466 118,171,777
Cash......................................................................... 7,474,382 385,697
Receivables:
Dividends................................................................ -- --
Interest ................................................................ 517,915 1,261,924
Shares of beneficial interest sold....................................... 662,240 4,100
Investment securities sold............................................... 15,008 --
Sale of investments under dollar roll agreements......................... 5,938 --
Other Assets:
Organization costs (note 1).............................................. 4,278 906
---------- -----------
Total Assets 55,945,227 119,824,404
---------- -----------
Liabilities:
- ------------------------------------------------------------------------------------------------------------------------------------
Payables:
Deferred fee income on dollar roll transactions.......................... 719 --
Deferred gain on dollar roll transactions................................ 1,875 --
Shares of beneficial interest redeemed................................... 41,173 9,002
Investment securities purchased.......................................... 1,979,375 1,005,750
Reverse repurchase agreement............................................. 6,548,750 --
Management fees.......................................................... 5,929 31,511
Administration fees...................................................... 1,949 5,433
Share marketing plan fees (Class P shares only).......................... 3 --
Custodian fees........................................................... 1,437 2,735
Dividends................................................................ 45,818 --
Trustees' fees and expenses.............................................. 1,000 1,000
Cash overdraft........................................................... -- --
Transfer agency and servicing fees....................................... 6,078 3,511
Accrued liabilities and expenses......................................... 46,400 42,400
---------- -----------
Total Liabilities 8,680,506 1,101,342
---------- -----------
Net Assets $ 47,264,721 $ 118,723,062
---------- -----------
Investments at Identified Cost............................................... $ 47,133,531 $ 118,171,777
Net Assets Consist of:
- ------------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(accumulated net investment loss)........ $ (45,774) $ (71)
Accumulated net realized gain/(loss) on securities sold, forward foreign
currency exchange contracts, futures contracts, foreign currency
transactions and securities sold short................................... (256,789) (6,745)
Net unrealized appreciation of investments, forward foreign currency exchange
contracts, foreign currency transactions and net other assets............ 131,935 --
Shares of beneficial interest................................................ 47,309 1,187,307
Additional paid-in capital .................................................. 47,388,040 117,542,571
---------- -----------
Net Assets $ 47,264,721 $ 118,723,062
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Class R shares............................................................... $ 47,264,511 $ 118,723,062
Class P shares............................................................... 210 N/A
---------- -----------
Net Assets $ 47,264,721 $ 118,723,062
Number of Fund shares outstanding:
Class R shares............................................................... 4,730,829 118,730,654
Class P shares............................................................... 21 N/A
---------- -----------
Total Shares 4,730,850 118,730,654
Class R shares:
Net Asset Value, offering and redemption price per share outstanding..... $ 9.99 $ 1.00
---------- -----------
Class P shares:
Net Asset Value, offering and redemption price per share outstanding..... $ 9.99 N/A
---------- -----------
<CAPTION>
Federal Government
Tax-Free Money Reserve
Fund Fund
Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (note 1)
Securities............................................................... $ 115,510,040 $ 350,688,443
Repurchase agreements.................................................... -- 148,205,000
----------- -----------
Total Investments 115,510,040 498,893,443
Cash......................................................................... 384,346 5,483,128
Receivables:
Dividends................................................................ -- --
Interest ................................................................ 1,244,398 3,495,224
Shares of beneficial interest sold....................................... -- 365,125
Investment securities sold............................................... -- 592,705
Sale of investments under dollar roll agreements......................... -- --
Other Assets:
Organization costs (note 1).............................................. 3,087 1,771
----------- -----------
Total Assets 117,141,871 508,831,396
----------- -----------
Liabilities:
- ------------------------------------------------------------------------------------------------------------------------------------
Payables:
Deferred fee income on dollar roll transactions.......................... -- --
Deferred gain on dollar roll transactions................................ -- --
Shares of beneficial interest redeemed................................... 100,468 259,402
Investment securities purchased.......................................... 2,727,691 35,184,249
Reverse repurchase agreement............................................. -- --
Management fees.......................................................... 39,115 43,559
Administration fees...................................................... 4,380 17,762
Share marketing plan fees (Class P shares only).......................... -- 1
Custodian fees........................................................... 2,896 5,527
Dividends................................................................ 355 43,524
Trustees' fees and expenses.............................................. 1,000 1,000
Cash overdraft........................................................... -- --
Transfer agency and servicing fees....................................... 3,748 38,375
Accrued liabilities and expenses......................................... 65,123 84,004
----------- -----------
Total Liabilities 2,944,776 35,677,403
----------- -----------
Net Assets $ 114,197,095 $ 473,153,993
----------- -----------
Investments at Identified Cost............................................... $ 115,510,040 $ 498,893,443
Net Assets Consist of:
- ------------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(accumulated net investment loss)........ $ (355) $ (42,883)
Accumulated net realized gain/(loss) on securities sold, forward foreign
currency exchange contracts, futures contracts, foreign currency
transactions and securities sold short................................... (1,588) (54,899)
Net unrealized appreciation of investments, forward foreign currency exchange
contracts, foreign currency transactions and net other assets............ -- --
Shares of beneficial interest................................................ 1,141,992 4,732,561
Additional paid-in capital .................................................. 113,057,046 468,519,214
----------- -----------
Net Assets $ 114,197,095 $ 473,153,993
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Class R shares............................................................... $ 114,197,095 $ 473,153,786
Class P shares............................................................... N/A 207
----------- -----------
Net Assets $ 114,197,095 $ 473,153,993
Number of Fund shares outstanding:
Class R shares............................................................... 114,199,207 473,255,873
Class P shares............................................................... N/A 207
----------- -----------
Total Shares 114,199,207 473,256,080
Class R shares:
Net Asset Value, offering and redemption price per share outstanding..... $ 1.00 $ 1.00
----------- -----------
Class P shares:
Net Asset Value, offering and redemption price per share outstanding..... N/A $ 1.00
----------- -----------
</TABLE>
--
81
--
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------
The Mongomery Funds
- --------------------------------------
Statement of Operations
- --------------------------------------
YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Emerging Asia Emerging Markets
Fund* Fund
<S> <C> <C>
Net Investment Income:
- --------------------------------------------------------------------------------------------------------------------------------
Investment Income:
Interest................................................................................$ 102,105 $ 2,557,231
Dividends............................................................................... 263,401 18,879,883
------------- ------------
Total Income 365,506 21,437,114
------------- ------------
Expenses:
Management fee (note 2)................................................................. 257,092 10,621,310
Custodian fee........................................................................... 50,696 1,857,862
Transfer agency and servicing fees...................................................... 42,660 1,928,564
Administration fee (note 2)............................................................. 14,405 614,941
Share marketing plan fee (note 3) (Class P shares only)................................. -- --
Legal and audit fees.................................................................... 30,719 110,616
Trustees' fees.......................................................................... 3,876 5,096
Registration fees....................................................................... 24,798 64,258
Accounting expenses..................................................................... 15,789 848,397
Amortization of organization expenses (note 1).......................................... 15,102 11,342
Other................................................................................... 16,130 586,022
Interest expense on equity swap agreements (note 1)..................................... 14,625 27,535
Swap agreement expense (note 1)......................................................... 68,080 --
Interest expense........................................................................ -- --
------------- ------------
Total Expenses 553,972 16,675,943
Fees deferred and/or expenses absorbed by Manager (note 2).............................. (101,227) --
------------- ------------
Net Expenses 452,745 16,675,943
------------- ------------
Net Investment Income/(Loss) (87,239) 4,761,171
------------- ------------
Net Realized and Unrealized Gain/(Loss) on Investments:
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Security transactions (Net of capital gains tax of $57 for Emerging Markets Fund)... 3,025,393 49,078,699
Forward foreign currency exchange contracts......................................... (43,687) (1,989,573)
Futures contracts................................................................... -- --
Investments sold short.............................................................. -- --
Foreign currency transactions....................................................... 18,972 (469,128)
------------- ------------
Net Realized Gain on Investments During the Year 3,000,678 46,619,998
------------- ------------
Net change in unrealized appreciation/(depreciation) of:
Securities......................................................................... 9,468,932 136,642,972
Equity swaps....................................................................... 441,016 --
Forward foreign currency exchange contracts........................................ (264) (16,878)
Foreign currency transactions and net other assets................................. 561 (69,503)
------------- ------------
Net Unrealized Appreciation/(Depreciation) of Investments During the Year 9,910,245 136,556,591
------------- ------------
Net Realized and Unrealized Gain on Investments......................................... 12,910,923 183,176,589
------------- ------------
Net Increase in Net Assets Resulting from Operations $ 12,823,684 $187,937,760
------------- ------------
Foreign dividend withholding taxes......................................................$ 26,730 $ 1,214,326
------------- ------------
</TABLE>
*Montgomery Emerging Asia and Global Asset Allocation Funds commenced operations
on September 30, 1996, and January 2, 1997, respectively.
- --
82
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Global Global International
Communications Opportunities Growth
Fund Fund Fund
<S> <C> <C> <C>
Net Investment Income:
- ----------------------------------------------------------------------------------------------------------------------------------
Investment Income:
Interest.............................................................................. $ 29,702 $ 26,584 $ 112,467
Dividends............................................................................. 1,399,616 345,002 429,521
------------ ----------- ------------
Total Income 1,429,318 371,586 541,988
------------ ----------- ------------
Expenses:
Management fee (note 2)............................................................... 2,298,528 562,210 378,515
Custodian fee......................................................................... 210,743 26,612 34,254
Transfer agency and servicing fees.................................................... 398,283 63,279 40,572
Administration fee (note 2)........................................................... 117,299 20,336 17,056
Share marketing plan fee (note 3) (Class P shares only)............................... -- -- 6
Legal and audit fees.................................................................. 52,641 23,561 25,730
Trustees' fees........................................................................ 5,221 5,221 5,220
Registration fees..................................................................... 13,096 16,485 28,638
Accounting expenses................................................................... 141,555 23,797 21,242
Amortization of organization expenses (note 1)........................................ 7,910 5,905 2,425
Other................................................................................. 109,666 16,362 24,321
Interest expense on equity swap agreements (note 1)................................... -- -- --
Swap agreement expense (note 1)....................................................... -- -- --
Interest expense...................................................................... -- -- --
------------ ----------- ------------
Total Expenses 3,354,942 763,768 577,979
Fees deferred and/or expenses absorbed by Manager (note 2)............................ (161,958) (210,682) (174,274)
------------ ----------- ------------
Net Expenses 3,192,984 553,086 403,705
------------ ----------- ------------
Net Investment Income/(Loss) (1,763,666) (181,500) 138,283
------------ ----------- ------------
Net Realized and Unrealized Gain/(Loss) on Investments:
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Security transactions (Net of capital gains tax of $57 for Emerging Markets Fund). 26,489,813 3,921,109 1,589,049
Forward foreign currency exchange contracts....................................... (390,999) 83,395) (90,589)
Futures contracts................................................................. -- -- --
Investments sold short............................................................ -- -- --
Foreign currency transactions..................................................... (85,920) (9,276) (10,097)
------------ ----------- ------------
Net Realized Gain on Investments During the Year 26,012,894 3,828,438 1,488,363
------------ ----------- ------------
Net change in unrealized appreciation/(depreciation) of:
Securities....................................................................... (5,250,493) 1,138,161 3,201,394
Equity swaps..................................................................... -- -- --
Forward foreign currency exchange contracts...................................... 3,077 3,093 (2,186)
Foreign currency transactions and net other assets............................... 6,370 (3,495) (1,148)
------------ ----------- ------------
Net Unrealized Appreciation/(Depreciation) of Investments During the Year (5,241,046) 1,137,759 3,198,060
------------ ----------- ------------
Net Realized and Unrealized Gain on Investments....................................... 20,771,848 4,966,197 4,686,423
------------ ----------- ------------
Net Increase in Net Assets Resulting from Operations $19,008,182 $4,784,697 $ 4,824,706
------------ ----------- ------------
Foreign dividend withholding taxes.................................................... $ 114,134 $ 46,302 $ 61,967
------------ ----------- ------------
<CAPTION>
International Asset
Small Cap Allocation
Fund Fund
<S> <C> <C>
Net Investment Income:
- ---------------------------------------------------------------------------------------------------------------------------
Investment Income:
Interest.............................................................................. $ 139,801 $ 4,665,649
Dividends............................................................................. 548,017 664,020
----------- ------------
Total Income 687,818 5,329,669
----------- ------------
Expenses:
Management fee (note 2)............................................................... 823,594 1,211,759
Custodian fee......................................................................... 43,208 23,396
Transfer agency and servicing fees.................................................... 96,086 296,793
Administration fee (note 2)........................................................... 30,724 93,812
Share marketing plan fee (note 3) (Class P shares only)............................... 1 129
Legal and audit fees.................................................................. 33,225 40,330
Trustees' fees........................................................................ 5,220 8,401
Registration fees..................................................................... 29,979 34,111
Accounting expenses................................................................... 37,441 52,839
Amortization of organization expenses (note 1)........................................ 6,114 8,339
Other................................................................................. 33,817 68,972
Interest expense on equity swap agreements (note 1)................................... -- --
Swap agreement expense (note 1)....................................................... -- --
Interest expense...................................................................... -- 164,598
----------- ------------
Total Expenses 1,139,409 2,003,479
Fees deferred and/or expenses absorbed by Manager (note 2)............................ (303,672) (88,455)
----------- ------------
Net Expenses 835,737 1,915,024
----------- ------------
Net Investment Income/(Loss) (147,919) 3,414,645
----------- ------------
Net Realized and Unrealized Gain/(Loss) on Investments:
- --------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Security transactions (Net of capital gains tax of $57 for Emerging Markets Fund). 4,732,141 12,116,610
Forward foreign currency exchange contracts....................................... (87,293) (50)
Futures contracts................................................................. -- (31,706)
Investments sold short............................................................ -- (1,212)
Foreign currency transactions..................................................... (63,296) (3)
----------- ------------
Net Realized Gain on Investments During the Year 4,581,552 12,083,639
----------- ------------
Net change in unrealized appreciation/(depreciation) of:
Securities....................................................................... 2,181,086 2,261,577
Equity swaps..................................................................... -- --
Forward foreign currency exchange contracts...................................... (6,268) --
Foreign currency transactions and net other assets............................... 3,309 (7)
----------- ------------
Net Unrealized Appreciation/(Depreciation) of Investments During the Year 2,178,127 2,261,570
----------- ------------
Net Realized and Unrealized Gain on Investments....................................... 6,759,679 14,345,209
----------- ------------
Net Increase in Net Assets Resulting from Operations $6,611,760 $17,759,854
----------- ------------
Foreign dividend withholding taxes.................................................... $ 61,686 $ 7,658
----------- ------------
<CAPTION>
Global
Asset Allocation Select 50
Fund* Fund
<S> <C> <C>
Net Investment Income:
- ---------------------------------------------------------------------------------------------------------------------------
Investment Income:
Interest.............................................................................. $ -- $ 743,116
Dividends............................................................................. 10,979 1,161,242
--------- ------------
Total Income 10,979 1,904,358
--------- ------------
Expenses:
Management fee (note 2)............................................................... 1,231 1,366,989
Custodian fee......................................................................... -- 49,260
Transfer agency and servicing fees.................................................... 4,311 215,256
Administration fee (note 2)........................................................... -- 71,610
Share marketing plan fee (note 3) (Class P shares only)............................... -- 47
Legal and audit fees.................................................................. 5,634 39,531
Trustees' fees........................................................................ 2,832 5,221
Registration fees..................................................................... 5,233 52,811
Accounting expenses................................................................... 505 82,884
Amortization of organization expenses (note 1)........................................ 8,885 5,038
Other................................................................................. 1,174 74,166
Interest expense on equity swap agreements (note 1)................................... -- --
Swap agreement expense (note 1)....................................................... -- --
Interest expense...................................................................... -- --
--------- ------------
Total Expenses 29,805 1,962,813
Fees deferred and/or expenses absorbed by Manager (note 2)............................ (26,891) (103,117)
--------- ------------
Net Expenses 2,914 1,859,696
--------- ------------
Net Investment Income/(Loss) 8,065 44,662
--------- ------------
Net Realized and Unrealized Gain/(Loss) on Investments:
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Security transactions (Net of capital gains tax of $57 for Emerging Markets Fund). 19,162 8,562,146
Forward foreign currency exchange contracts....................................... -- (115,562)
Futures contracts................................................................. -- --
Investments sold short............................................................ -- --
Foreign currency transactions..................................................... -- 43,567
--------- ------------
Net Realized Gain on Investments During the Year 19,162 8,490,151
--------- ------------
Net change in unrealized appreciation/(depreciation) of:
Securities....................................................................... 106,277 20,257,154
Equity swaps..................................................................... -- --
Forward foreign currency exchange contracts...................................... -- (8,243)
Foreign currency transactions and net other assets............................... -- (38,215)
--------- ------------
Net Unrealized Appreciation/(Depreciation) of Investments During the Year 106,277 20,210,696
--------- ------------
Net Realized and Unrealized Gain on Investments....................................... 125,439 28,700,847
--------- ------------
Net Increase in Net Assets Resulting from Operations $133,504 $28,745,509
--------- ------------
Foreign dividend withholding taxes.................................................... $ -- $ 37,408
--------- ------------
</TABLE>
--
83
--
<PAGE>
- -----------------------------------------
The Montgomery Funds
- -----------------------------------------
Statements of Operations
- -----------------------------------------
Y E A R E N D E D J U N E 3 0, 1 9 9 7
<TABLE>
<CAPTION>
Equity Income Growth Micro Cap
Fund Fund Fund
Net Investment Income:
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income:
Interest........................................................ $ 97,498 $ 11,084,257 $ 1,551,381
Dividends....................................................... 1,049,308 8,464,578 1,259,640
----------- ------------ -----------
Total Income 1,146,806 19,548,835 2,811,021
----------- ------------ -----------
Expenses:
Management fee (note 2)......................................... 244,249 9,429,758 4,042,815
Custodian fee................................................... 8,198 58,803 30,809
Transfer agency and servicing fees.............................. 65,647 1,585,063 360,401
Administration fee (note 2)..................................... 21,235 638,777 199,769
Share marketing plan fee (note 3) (Class P shares only)......... 671 335 --
Legal and audit fees............................................ 32,640 78,190 60,961
Trustees' fees.................................................. 5,221 5,221 5,220
Registration fees............................................... 32,315 73,567 19,986
Accounting fees................................................. 14,461 389,724 112,944
Amortization of organization expenses (note 1).................. 4,282 5,669 1,971
Pricing expense................................................. -- -- --
Other........................................................... 12,852 398,470 156,316
Interest expense................................................ -- -- --
----------- ------------ -----------
Total Expenses 441,771 12,663,577 4,991,192
Fees deferred and/or expenses absorbed by Manager (note 2)...... (181,845) -- --
----------- ------------ -----------
Net Expenses.................................................... 259,926 12,663,577 4,991,192
----------- ------------ -----------
Net Investment Income/(Loss).................................... 886,880 6,885,258 (2,180,171)
----------- ------------ -----------
<CAPTION>
Net Realized and Unrealized Gain/(Loss) on Investments:
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net realized gain/(loss) from:
Security transactions...................................... 2,720,229 97,882,966 17,465,531
Futures contracts.......................................... -- 2,412,458 --
Investments sold short..................................... -- -- --
Foreign currency transactions................................... -- (451) --
----------- ------------ -----------
Net Realized Gain/(Loss) on Investments During the Year 2,720,229 100,294,973 17,465,531
----------- ------------ -----------
Net change in unrealized appreciation/(depreciation) of:
Securities................................................. 3,479,398 84,225,022 25,628,245
Foreign currency transactions and net other assets.............. -- (188) --
----------- ------------ -----------
Net Unrealized Appreciation/(Depreciation) of Investments
During the Year 3,479,398 84,224,834 25,628,245
----------- ------------ -----------
Net Realized and Unrealized Gain/(Loss) on Investments.......... 6,199,627 184,519,807 43,093,776
----------- ------------ -----------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 7,086,507 $191,405,065 $40,913,605
----------- ------------ -----------
</TABLE>
- ----
84
- ----
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Small Cap California Tax-Free Short Duration
Small Cap Opportunities Intermediate Government
Fund Fund Bond Fund Bond Fund
Net Investment Income:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest........................................................ $ 430,930 $ 940,482 $ 894,741 $2,885,637
Dividends....................................................... 525,648 265,625 -- --
----------- ----------- --------- ----------
Total Income 956,578 1,206,107 894,741 2,885,637
----------- ----------- --------- ----------
Expenses:
Management fee (note 2)......................................... 2,290,187 2,352,549 103,992 231,870
Custodian fee................................................... -- 24,452 -- 6,991
Transfer agency and servicing fees.............................. 120,647 425,062 10,933 47,039
Administration fee (note 2)..................................... 172,324 130,558 9,036 19,451
Share marketing plan fee (note 3) (Class P shares only)......... 8,506 14 -- 2
Legal and audit fees............................................ 54,576 58,808 31,407 33,978
Trustees' fees.................................................. 5,221 5,220 5,221 5,221
Registration fees............................................... 9,496 70,999 8,054 32,508
Accounting fees................................................. 88,976 70,502 7,511 15,151
Amortization of organization expenses (note 1).................. -- 10,567 8,461 11,088
Pricing expense................................................. -- -- 14,304 --
Other........................................................... 19,218 110,557 15,233 26,442
Interest expense................................................ -- -- -- 367,833
----------- ----------- --------- ----------
Total Expenses 2,769,151 3,259,288 214,152 797,574
Fees deferred and/or expenses absorbed by Manager (note 2)...... -- (452,538) (90,361) (194,525)
----------- ----------- --------- ----------
Net Expenses.................................................... 2,769,151 2,806,750 123,791 603,049
----------- ----------- --------- ----------
Net Investment Income/(Loss).................................... (1,812,573) (1,600,643) 770,950 2,282,588
----------- ----------- --------- ----------
Net Realized and Unrealized Gain/(Loss) on Investments:
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Security transactions.................................. 29,292,354 (17,279,013) 24,435 134,881
Futures contracts...................................... -- -- 2,748 (34,669)
Investments sold short................................. -- -- -- (254)
Foreign currency transactions................................... -- -- -- --
----------- ----------- --------- ----------
Net Realized Gain/(Loss) on Investments During the Year 29,292,354 (17,279,013) 27,183 99,958
----------- ----------- --------- ----------
Net change in unrealized appreciation/(depreciation) of:
Securities............................................. (31,258,680) 43,491,855 359,956 198,145
Foreign currency transactions and net other assets.............. -- -- -- --
----------- ----------- --------- ----------
Net Unrealized Appreciation/(Depreciation) of Investments
During the Year (31,258,680) 43,491,855 359,956 198,145
----------- ----------- --------- ----------
Net Realized and Unrealized Gain/(Loss) on Investments.......... (1,966,326) 26,212,842 387,139 298,103
----------- ----------- --------- ----------
Net Increase/(Decrease) in Net Assets Resulting from Operations $(3,778,899) $24,612,199 $1,158,089 $ 2,580,691
----------- ----------- --------- ----------
<CAPTION>
California Federal Government
Tax-Free Money Tax-Free Money Reserve
Fund Fund Fund
Net Investment Income:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income:
Interest........................................................ $ 4,068,359 $ 2,849,415 $ 27,058,893
Dividends -- -- --
----------- ----------- ------------
Total Income 4,068,359 2,849,415 27,058,893
----------- ----------- ------------
Expenses:
Management fee (note 2)......................................... 640,819 319,348 2,175,561
Custodian fee................................................... 14,433 11,336 31,683
Transfer agency and servicing fees.............................. 26,538 16,035 194,373
Administration fee (note 2)..................................... 58,217 39,920 220,705
Share marketing plan fee (note 3) (Class P shares only)......... -- -- 2
Legal and audit fees............................................ 34,686 29,746 60,343
Trustees' fees.................................................. 5,220 4,836 5,177
Registration fees............................................... 1,766 71,426 62,401
Accounting fees................................................. 43,736 31,496 191,293
Amortization of organization expenses (note 1).................. 948 17,730 10,796
Pricing expense................................................. -- -- --
Other........................................................... 28,949 7,791 89,046
Interest expense................................................ -- -- --
----------- ----------- ------------
Total Expenses 855,312 549,664 3,041,380
Fees deferred and/or expenses absorbed by Manager (note 2)...... (180,007) (287,066) (105,801)
----------- ----------- ------------
Net Expenses.................................................... 675,305 262,598 2,935,579
----------- ----------- ------------
Net Investment Income/(Loss).................................... 3,393,054 2,586,817 24,123,314
----------- ----------- ------------
Net Realized and Unrealized Gain/(Loss) on Investments:
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Security transactions.................................. -- (1,588) (28,731)
Futures contracts...................................... -- -- --
Investments sold short................................. -- -- --
Foreign currency transactions................................... -- -- --
----------- ----------- ------------
Net Realized Gain/(Loss) on Investments During the Year -- (1,588) (28,731)
----------- ----------- ------------
Net change in unrealized appreciation/(depreciation) of:
Securities............................................. -- -- --
Foreign currency transactions and net other assets.............. -- -- --
----------- ----------- ------------
Net Unrealized Appreciation/(Depreciation) of Investments
During the Year -- -- --
----------- ----------- ------------
Net Realized and Unrealized Gain/(Loss) on Investments.......... -- (1,588) (28,731)
----------- ----------- ------------
Net Increase/(Decrease) in Net Assets Resulting from Operations $3,393,054 $ 2,585,229 $24,094,583
----------- ----------- ------------
</TABLE>
--
85
--
<PAGE>
- ------------------------
The Montgomery Funds
- ------------------------
Statement of
Changes in Net Assets
- ------------------------
YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Global
Emerging Emerging Communications
Increase/(Decrease) in Net Assets from Operations: Asia Fund* Markets Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss)..............................................$ (87,239) $ 4,761,171 $ (1,763,666)
Net realized gain on securities, forward foreign currency exchange
contracts, futures contracts, securities sold short, equity swaps and
foreign currency transactions during the year......................... 3,000,678 46,619,998 26,012,894
Net unrealized appreciation/(depreciation) of securities, forward foreign
currency exchange contracts, securities sold short, equity swaps,
foreign currency transactions and net other assets during the year.... 9,910,245 136,556,591 (5,241,046)
Net Increase in Net Assets Resulting from Operations 12,823,684 187,937,760 19,008,182
Distributions to Shareholders:
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares........................................................ -- (4,538,958) --
Class P shares........................................................ -- (18) --
Distributions to shareholders in excess of net investment income:
Class R shares........................................................ (30,694) -- --
Distributions to shareholders from net realized gains on investments:
Class R shares........................................................ -- -- (9,155,989)
----------- ----------- -----------
Class P shares........................................................ -- -- --
Total distributions....................................................... (30,694) (4,538,976) (9,155,989)
Beneficial Interest Transactions:
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 4):
Class R Shares........................................................ 55,302,266 81,773,907 (62,567,827)
Class P Shares........................................................ -- 551,178 --
Net Increase/(Decrease) in Net Assets 68,095,256 265,683,869 (52,715,634)
Net Assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Beginning of Year......................................................... -- 994,380,061 206,670,735
End of Year $68,095,256 $1,260,063,930 $153,955,101
Accumulated Undistributed Net Investment Income/(Accumulated Net
Investment Loss) $ (142,648) $ 990,404 $ (142,563)
</TABLE>
* Montgomery Emerging Asia and Global Asset Allocation Funds commenced
operations on September 30, 1996, and January 2, 1997, respectively.
<TABLE>
<CAPTION>
Equity Income Growth Micro Cap
Increase/(Decrease) in Net Assets from Operations: Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss)..............................................$ 886,880 $ 6,885,258 $ (2,180,171)
Net realized gain/(loss) on securities, futures contracts, securities sold
short and foreign currency transactions during the year............... 2,720,229 100,294,973 17,465,531
Net unrealized appreciation/(depreciation) of securities, foreign currency
transactions and net other assets during the year..................... 3,479,398 84,224,834 25,628,245
Net Increase/(Decrease) in Net Assets Resulting from Operations 7,086,507 191,405,065 40,913,605
Distributions to Shareholders:
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares........................................................ (881,077) (6,881,794) --
Class P shares........................................................ (9,168) (542) --
Distributions to shareholders in excess of net investment income:
Class R shares........................................................ -- -- --
Distributions to shareholders from net realized gains on investments:
Class R shares........................................................ (2,229,868) (120,827,947) (20,853,034)
----------- ----------- -----------
Class P shares........................................................ (8,635) (12,739) --
Total distributions....................................................... (3,128,748) (127,723,022) (20,853,034)
Beneficial Interest Transactions:
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 4):
Class R shares........................................................ 15,381,763 147,296,738 (8,466,053)
Class P shares........................................................ 809,138 112,711 --
Net Increase/(Decrease) in Net Assets 20,148,660 211,091,492 11,594,518
Net Assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Beginning of Year......................................................... 19,313,848 926,463,973 306,217,166
End of Year $39,462,508 $1,137,555,465 $317,811,684
Accumulated Undistributed Net Investment Income/(Accumulated Net
Investment Loss) $ -- $ 3,540,859 $ --
</TABLE>
- --
86
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Global International International
Opportunities Growth Small Cap
Increase/(Decrease) in Net Assets from Operations: Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss).............................................. $ (181,500) $ 138,283 $ (147,919)
Net realized gain on securities, forward foreign currency exchange
contracts, futures contracts, securities sold short, equity swaps and
foreign currency transactions during the year......................... 3,828,438 1,488,363 4,581,552
Net unrealized appreciation/(depreciation) of securities, forward foreign
currency exchange contracts, securities sold short, equity swaps,
foreign currency transactions and net other assets during the year.... 1,137,759 3,198,060 2,178,127
Net Increase in Net Assets Resulting from Operations 4,784,697 4,824,706 6,611,760
Distributions to Shareholders:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares........................................................ -- -- --
Class P shares........................................................ -- -- --
Distributions to shareholders in excess of net investment income:
Class R shares........................................................ -- -- --
Distributions to shareholders from net realized gains on investments:
Class R shares........................................................ (1,395,395) (2,164,570) --
------------ ------------ ------------
Class P shares........................................................ -- (116) --
Total distributions....................................................... (1,395,395) (2,164,686) --
Beneficial Interest Transactions:
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 4):
Class R Shares........................................................ 486,120 12,949,863 5,350,787
Class P Shares........................................................ -- 3,963 15,000
Net Increase/(Decrease) in Net Assets 3,875,422 15,613,846 11,977,547
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of Year......................................................... 28,495,501 18,303,852 41,639,592
End of Year $ 32,370,923 $33,917,698 $53,617,139
Accumulated Undistributed Net Investment Income/(Accumulated Net
Investment Loss) $ (10,145) $ 37,597 $ (2,447)
<CAPTION>
Asset Global
Allocation Asset Allocation Select 50
Increase/(Decrease) in Net Assets from Operations: Fund Fund* Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss)..............................................$ 3,414,645 $ 8,065 $ 44,662
Net realized gain on securities, forward foreign currency exchange
contracts, futures contracts, securities sold short, equity swaps and
foreign currency transactions during the year......................... 12,083,639 19,162 8,490,151
Net unrealized appreciation/(depreciation) of securities, forward foreign
currency exchange contracts, securities sold short, equity swaps,
foreign currency transactions and net other assets during the year.... 2,261,570 106,277 20,210,696
Net Increase in Net Assets Resulting from Operations 17,759,854 133,504 28,745,509
Distributions to Shareholders:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares........................................................ (2,906,566) -- (559,887)
Class P shares........................................................ (2,425) -- --
Distributions to shareholders in excess of net investment income:
Class R shares........................................................ -- -- --
Distributions to shareholders from net realized gains on investments:
Class R shares........................................................ (11,975,120) -- (2,599,004)
------------ ------------ ------------
Class P shares........................................................ (3,810) -- --
Total distributions....................................................... (14,887,921) -- (3,158,891)
Beneficial Interest Transactions:
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 4):
Class R Shares........................................................ (8,166,667) 1,519,948 68,970,865
Class P Shares........................................................ 29,395 -- 5,816
Net Increase/(Decrease) in Net Assets (5,265,339) 1,653,452 94,563,299
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of Year......................................................... 132,553,334 -- 77,954,677
End of Year $127,287,995 $ 1,653,452 $172,517,976
Accumulated Undistributed Net Investment Income/(Accumulated Net
Investment Loss) $ 1,505,327 $ 8,065 $ 4,401
</TABLE>
* Montgomery Emerging Asia and Global Asset Allocation Funds commenced
operations on September 30, 1996, and January 2, 1997, respectively.
<TABLE>
<CAPTION>
Small Cap California Tax-Free
Small Cap Opportunities Intermediate
Increase/(Decrease) in Net Assets from Operations: Fund Fund Bond Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss).............................................. $ (1,812,573) $ (1,600,643) $ 770,950
Net realized gain/(loss) on securities, futures contracts, securities sold
short and foreign currency transactions during the year............... 29,292,354 (17,279,013) 27,183
Net unrealized appreciation/(depreciation) of securities, foreign currency
transactions and net other assets during the year..................... (31,258,680) 43,491,855 359,956
Net Increase/(Decrease) in Net Assets Resulting from Operations (3,778,899) 24,612,199 1,158,089
Distributions to Shareholders:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares........................................................ -- (40,517) (771,185)
Class P shares........................................................ -- (1) --
Distributions to shareholders in excess of net investment income:
Class R shares........................................................ -- -- --
Distributions to shareholders from net realized gains on investments:
Class R shares........................................................ (40,471,488) -- --
------------ ------------ ------------
Class P shares........................................................ (417,004) -- --
Total distributions....................................................... (40,888,492) (40,518) (771,185)
Beneficial Interest Transactions:
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 4):
Class R shares........................................................ (32,078,430) 65,607,686 7,346,498
Class P shares........................................................ 6,639,063 8,150 --
Net Increase/(Decrease) in Net Assets (70,106,758) 90,187,517 7,733,402
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of Year......................................................... 275,061,528 136,140,213 13,947,933
End of Year $204,954,770 $226,327,730 $ 21,681,335
Accumulated Undistributed Net Investment Income/(Accumulated Net
Investment Loss) $ -- $ -- $ 1,392
<CAPTION>
Short Duration California
Government Tax-Free Money
Increase/(Decrease) in Net Assets from Operations: Bond Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income/(loss).............................................. $ 2,282,588 $ 3,393,054
Net realized gain/(loss) on securities, futures contracts, securities sold
short and foreign currency transactions during the year............... 99,958 --
Net unrealized appreciation/(depreciation) of securities, foreign currency
transactions and net other assets during the year..................... 198,145 --
Net Increase/(Decrease) in Net Assets Resulting from Operations 2,580,691 3,393,054
Distributions to Shareholders:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares........................................................ (2,277,499) (3,393,007)
Class P shares........................................................ (38) --
Distributions to shareholders in excess of net investment income:
Class R shares........................................................ (8,172) --
Distributions to shareholders from net realized gains on investments:
Class R shares........................................................ -- --
------------ ------------
Class P shares........................................................ -- --
Total distributions....................................................... (2,285,709) (3,393,007)
Beneficial Interest Transactions:
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 4):
Class R shares........................................................ 24,288,468 20,588,996
Class P shares........................................................ (710) --
Net Increase/(Decrease) in Net Assets 24,582,740 20,589,043
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of Year......................................................... 22,681,981 98,134,019
End of Year $47,264,721 $118,723,062
Accumulated Undistributed Net Investment Income/(Accumulated Net
Investment Loss) $ (45,774) $ (71)
<CAPTION>
Federal Government
Tax-Free Money Reserve
Increase/(Decrease) in Net Assets from Operations: Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income/(loss).............................................. $ 2,586,817 $ 24,123,314
Net realized gain/(loss) on securities, futures contracts, securities sold
short and foreign currency transactions during the year............... (1,588) (28,731)
Net unrealized appreciation/(depreciation) of securities, foreign currency
transactions and net other assets during the year..................... -- --
Net Increase/(Decrease) in Net Assets Resulting from Operations 2,585,229 24,094,583
Distributions to Shareholders:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares........................................................ (2,586,817) (24,122,890)
Class P shares........................................................ -- (30)
Distributions to shareholders in excess of net investment income:
Class R shares........................................................ (524) --
Distributions to shareholders from net realized gains on investments:
Class R shares........................................................ -- --
------------ ------------
Class P shares........................................................ -- --
Total distributions....................................................... (2,587,341) (24,122,920)
Beneficial Interest Transactions:
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 4):
Class R shares........................................................ 114,199,207 33,759,486
Class P shares........................................................ -- (700)
Net Increase/(Decrease) in Net Assets 114,197,095 33,730,449
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of Year......................................................... -- 439,423,544
End of Year $114,197,095 $473,153,993
Accumulated Undistributed Net Investment Income/(Accumulated Net
Investment Loss) $ (355) $ (42,883)
</TABLE>
--
87
--
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------
The Montgomery Funds
- --------------------------------------------
Statements of
Changes in Net Assets
- --------------------------------------------
Y E A R E N D E D J U N E 3 0, 1 9 9 6
<TABLE>
<CAPTION>
Emerging Global
Markets Communications
Increase/(Decrease) in Net Assets from Operations: Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income/(loss) ............................................................... $ 5,560,107 $ (2,259,151)
Net realized gain/(loss) on securities, forward foreign currency exchange
contracts, futures contracts, securities sold short and foreign currency
transactions during the year ........................................................... (3,155,465) 27,699,185
Net unrealized appreciation of securities, forward foreign currency exchange
contracts, futures contracts, securities sold short, foreign currency
transactions and net other assets during the year ...................................... 60,263,843 8,622,000
Net Increase in Net Assets Resulting from Operations ....................................... 62,668,485 34,062,034
Distributions to Shareholders:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ......................................................................... -- --
Distributions to shareholders from net realized gains on investments:
Class R shares ......................................................................... -- --
------------- -------------
Total distributions ....................................................................... -- --
Beneficial Interest Transactions:
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 4):
Class R shares ......................................................................... (66,373,869) (37,035,505)
Class P shares ......................................................................... 2,050 --
Net Increase/(Decrease) in Net Assets ...................................................... (3,703,334) (2,973,471)
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of Year .......................................................................... 998,083,395 209,644,206
End of Year ................................................................................ $ 994,380,061 $ 206,670,735
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) .......... $ 1,128,370 $ (608,643)
*Montgomery International Growth Fund and Montgomery Select 50 Fund commenced operations on July 3, 1995, and October 2, 1995,
respectively.
<CAPTION>
Growth Micro Cap
Increase/(Decrease) in Net Assets from Operations: Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income/(loss) ............................................................... $ 6,767,326 $ (301,127)
Net realized gain/(loss) on securities, forward foreign currency exchange
contracts, futures contracts, securities sold short and foreign currency
transactions during the year ........................................................... 130,190,463 18,612,352
Net unrealized appreciation/(depreciation) of securities, forward foreign currency
exchange contracts, futures contracts, securities sold short, foreign currency
transactions and net other assets during the year ...................................... 50,658,955 48,603,938
Net Increase/(Decrease) in Net Assets Resulting from Operations ............................ 187,616,744 66,915,163
Distributions to Shareholders:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ......................................................................... (6,829,130) (704,275)
Class P shares ......................................................................... -- --
Distributions to shareholders in excess of net investment income:
Class R shares ......................................................................... -- --
Distributions to shareholders from net realized gains on investments:
Class R shares ......................................................................... (63,292,460) (1,959,952)
------------- -------------
Total distributions ........................................................................ (70,121,590) (2,664,227)
Beneficial Interest Transactions:
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 4):
Class R shares ......................................................................... (69,881,260) 79,016,734
Class P shares ......................................................................... 74,369 --
Net Increase in Net Assets ................................................................. 47,688,263 143,267,670
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of Year .......................................................................... 878,775,710 162,949,496
End of Year ................................................................................ $ 926,463,973 $ 306,217,166
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) .......... $ 3,630,493 $ --
**Montgomery Small Cap Opportunities Fund commenced operations on December 29, 1995.
</TABLE>
- --
88
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Global International International
Opportunities Growth Small Cap
Increase/(Decrease) in Net Assets from Operations: Fund Fund* Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss).................................................... $ (106,085) $ 22,797 $ 67,221
Net realized gain/(loss) on securities, forward foreign currency exchange
contracts, futures contracts, securities sold short and foreign currency
transactions during the year................................................ 2,286,996 2,121,271 4,138,058
Net unrealized appreciation of securities, forward foreign currency exchange
contracts, futures contracts, securities sold short, foreign currency
transactions and net other assets during the year........................... 2,235,123 77,106 3,651,702
Net Increase in Net Assets Resulting from Operations............................ 4,416,034 2,221,174 7,856,981
Distributions to Shareholders:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares............................................................... (80,877) -- (56,523)
Distributions to shareholders from net realized gains on investments:
Class R shares............................................................... -- -- --
------------ ------------ -------------
Total distributions............................................................. (80,877) -- (56,523)
Beneficial Interest Transactions:
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 4):
Class R shares............................................................... 10,483,273 16,081,678 5,323,541
Class P shares............................................................... -- 1,000 --
Net Increase/(Decrease) in Net Assets............................................ 14,818,430 18,303,852 13,123,999
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of Year................................................................ 13,677,071 -- 28,515,593
End of Year...................................................................... $ 28,495,501 $ 18,303,852 $ 41,639,592
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) $ (59,840) $ 22,797 $ --
<CAPTION>
Asset
Allocation Select 50 Equity Income
Increase/(Decrease) in Net Assets from Operations: Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) .................................................... $ 2,019,472 $ 120,859 $ 506,216
Net realized gain/(loss) on securities, forward foreign currency exchange
contracts, futures contracts, securities sold short and foreign currency
transactions during the year ................................................ 10,990,187 2,941,005 1,936,696
Net unrealized appreciation of securities, forward foreign currency exchange
contracts, futures contracts, securities sold short, foreign currency
transactions and net other assets during the year ........................... 9,246,054 6,617,954 637,261
Net Increase in Net Assets Resulting from Operations ............................ 22,255,713 9,679,818 3,080,173
Distributions to Shareholders:
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares .............................................................. (1,517,599) (52,328) (503,831)
Distributions to shareholders from net realized gains on investments:
Class R shares .............................................................. (3,316,319) (15,678) (148,133)
-------------- ------------- -------------
Total distributions ............................................................ (4,833,918) (68,006) (651,964)
Beneficial Interest Transactions:
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 4):
Class R shares .............................................................. 54,858,335 68,342,865 10,501,521
Class P shares .............................................................. 39,375 -- 1,500
Net Increase/(Decrease) in Net Assets ........................................... 72,319,505 77,954,677 $ 12,931,230
Net Assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Beginning of Year ............................................................... 60,233,829 -- 6,382,618
End of Year ..................................................................... $132,553,334 $ 77,954,677 $ 19,313,848
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) $ 1,002,787 $ 6,184 $ 3,365
<CAPTION>
Small Cap Short Duration
Small Cap Opportunities Government
Increase/(Decrease) in Net Assets from Operations: Fund Fund** Bond Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) ....................................................... $ (1,104,198) $ 40,908 $ 1,099,390
Net realized gain/(loss) on securities, forward foreign currency exchange
contracts, futures contracts, securities sold short and foreign currency
transactions during the year ................................................... 45,933,860 1,059,678) 130,868
Net unrealized appreciation/(depreciation) of securities, forward foreign
currency exchange contracts, futures contracts, securities sold short,
foreign currency transactions and net other assets during the year ............. 33,785,316 (1,622,372) (215,716)
Net Increase/(Decrease) in Net Assets Resulting from Operations .................... 78,614,978 (2,641,142) 1,014,542
Distributions to Shareholders:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ................................................................. -- -- (1,094,372)
Class P shares ................................................................. -- -- (15)
Distributions to shareholders in excess of net investment income:
Class R shares ................................................................. -- -- (8,218)
Distributions to shareholders from net realized gains on investments:
Class R shares ................................................................. (20,796,972) -- --
-------------- ------------- -------------
Total distributions ................................................................ (20,796,972) -- (1,102,605)
Beneficial Interest Transactions:
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 4):
Class R shares ................................................................. 14,844,681 138,781,355 5,675,727
Class P shares ................................................................. -- -- 914
Net Increase in Net Assets ......................................................... 72,662,687 136,140,213 5,588,578
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of Year .................................................................. 202,398,841 -- 17,093,403
End of Year ........................................................................ $275,061,528 $136,140,213 $ 22,681,981
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) .. $ -- $ 40,908 $ (95,412)
<CAPTION>
California Tax-Free California Government
Intermediate Tax-Free Reserve
Increase/(Decrease) in Net Assets from Operations: Bond Fund Money Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) ....................................................... $ 23,669 $ 2,539,435 $ 16,813,604
Net realized gain/(loss) on securities, forward foreign currency exchange
contracts, futures contracts, securities sold short and foreign currency
transactions during the year ................................................... (15,010) (5,421) (29,717)
Net unrealized appreciation/(depreciation) of securities, forward foreign currency
exchange contracts, futures contracts, securities sold short, foreign currency
transactions and net other assets during the year .............................. 31,785 -- --
Net Increase/(Decrease) in Net Assets Resulting from Operations .................... 440,444 2,534,014 16,783,887
Distributions to Shareholders:
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ................................................................. (423,706) (2,539,934) (16,816,058)
Class P shares ................................................................. -- -- (13)
Distributions to shareholders in excess of net investment income:
Class R shares ................................................................. -- -- --
Distributions to shareholders from net realized gains on investments:
Class R shares ................................................................. -- -- --
------------- ------------- --------------
Total distributions ................................................................ (423,706) (2,539,934) (16,816,071)
Beneficial Interest Transactions:
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 4):
Class R shares ................................................................. 8,778,025 33,360,042 180,498,797
Class P shares ................................................................. -- -- 907
Net Increase in Net Assets ......................................................... 8,794,763 33,354,122 180,467,520
Net Assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Beginning of Year .................................................................. 5,153,170 64,779,897 258,956,024
End of Year ........................................................................ $ 13,947,933 $ 98,134,019 $439,423,544
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) .. $ 384 $ (894) $ (26,550)
</TABLE>
* Montgomery International Growth Fund and Montgomery Select 50 Fund commenced
operations on July 3, 1995, and October 2, 1995, respectively.
** Montgomery Small Cap Opportunities Fund commenced operations on December 29,
1995
--
89
--
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------
The Montgomery Funds
- --------------------------
Transactions in shares
with a Beneficial Interest
- --------------------------
<TABLE>
<CAPTION>
EMERGING ASIA FUND
Period Ended 6/30/97
Shares Dollars
R Shares:*
====================================================================================================================================
<S> <C> <C>
Sold 6,926,941 $ 108,517,381
- ------------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 2,124 29,137
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemed (3,327,106) (53,244,252)
====================================================================================================================================
Net increase/(decrease) 3,601,959 $ 55,302,266
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
EMERGING MARKETS FUND
Year Ended 06/30/97 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:
====================================================================================================================================
<S> <C> <C> <C> <C>
Sold 34,686,183 $ 519,924,852 41,685,260 $ 545,015,563
- ------------------------------------------------------------------------------------------------------------------------------------
Issued in exchange for shares of the Montgomery
Advisors Emerging Market Fund 486,078 6,576,635 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 313,619 4,247,945 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemed (30,814,815) (449,015,525) (47,406,852) (611,389,432)
====================================================================================================================================
Net increase/(decrease) 4,671,065 $ 81,733,907 (5,721,592) $ (66,373,869)
P Shares:**
====================================================================================================================================
Sold 38,561 $ 588,778 156 $ 2,050
- ------------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 2 18 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemed (2,504) (37,618) -- --
====================================================================================================================================
Net increase 36,059 $ 551,178 156 $ 2,050
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ASSET ALLOCATION FUND
Year Ended 06/30/97 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:*
====================================================================================================================================
<S> <C> <C> <C> <C>
Sold 2,671,291 $ 50,247,753 6,554,247 $ 115,780,937
- ------------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 789,255 14,511,412 274,647 4,696,411
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemed (3,918,381) (72,925,832) (3,662,598) (65,619,013)
====================================================================================================================================
Net increase/(decrease) (457,835) $ (8,166,667) 3,166,296 $ 54,858,335
P Shares:**
====================================================================================================================================
Sold 1,378 $ 26,534 2,200 $ 39,375
- ------------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 253 4,643 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemed (97) (1,782) -- --
====================================================================================================================================
Net increase 1,534 $ 29,395 2,200 $ 39,375
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
EQUITY INCOME FUND
Year Ended 06/30/97 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:*
====================================================================================================================================
<S> <C> <C> <C> <C>
Sold 1,908,279 $ 31,459,740 1,944,146 $ 29,241,482
- ------------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 182,143 2,889,405 35,834 542,721
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemed (1,135,568) (18,967,382) (1,256,320) (19,282,682)
====================================================================================================================================
Net increase/(decrease) 954,854 $ 15,381,763 723,660 $ 10,501,521
P Shares:**
====================================================================================================================================
Sold 49,516 $ 829,352 107 $ 1,500
- ------------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 1,088 17,834 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemed (2,243) (38,048) -- --
====================================================================================================================================
Net increase 48,361 $ 809,138 107 $ 1,500
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Emerging Asia, International Growth, Select 50 and Global Asset
Allocation Funds Class R shares commenced operations on September 30, 1996;
July 3, 1995; October 2, 1995; and January 2, 1997, respectively.
** The Emerging Markets, International Growth, International Small Cap, Asset
Allocation, Select 50, Equity Income and Growth Funds Class P shares
commenced operations on March 12, 1996; March 12, 1996; June 9, 1997; January
3, 1996; December 12, 1996; March 12, 1996; and January 12, 1996,
respectively.
- --
90
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
GLOBAL COMMUNICATIONS FUND
Year Ended 06/30/97 Year Ended 6/30/96
Shares Dollars Shares Dollars
R Shares:*
===================================================================================================================================
<S> <C> <C> <C> <C>
Sold 1,553,395 $ 27,424,685 4,763,483 $ 79,349,650
- -----------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 527,423 8,880,420 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemed (5,680,057) (98,872,932) (6,912,663) (116,385,155)
===================================================================================================================================
Net increase/(decrease) (3,599,239) $ (62,567,827) (2,149,180) $ (37,035,505)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INTERNATIONAL GROWTH FUND
Year Ended 06/30/97 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:
===================================================================================================================================
<S> <C> <C> <C> <C>
Sold 2,118,300 $ 31,194,055 1,462,014 $ 19,648,978
- -----------------------------------------------------------------------------------------------------------------------------------
Issued in exchange for shares of the Montgomery
Advisors Emerging Market Fund -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 69,551 948,742 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemed (1,295,308) (19,192,934) (266,905) (3,567,300)
===================================================================================================================================
Net increase/(decrease) 892,543 $ 12,949,863 1,195,109 $ 16,081,678
P Shares:**
===================================================================================================================================
Sold 335 $ 5,001 69 $ 1,000
- -----------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 9 116 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemed (78) (1,154) -- --
===================================================================================================================================
Net increase 266 $ 3,963 69 $ 1,000
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
GLOBAL ASSET ALLOCATION FUND
Period Ended 06/30/97
Shares Dollars
R Shares:*
===================================================================================================================================
<S> <C> <C>
Sold 182,005 $ 2,243,696
- -----------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemed (58,005) (723,748)
===================================================================================================================================
Net increase/(decrease) 124,000 $ 1,519,948
P Shares:**
===================================================================================================================================
Sold
- -----------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemed
===================================================================================================================================
Net increase
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
GROWTH FUND
Year Ended 06/30/97 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:
===================================================================================================================================
<S> <C> <C> <C> <C>
Sold 14,533,171 $ 306,808,623 14,521,606 $ 296,489,571
- -----------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 6,074,664 124,941,420 3,640,887 68,571,076
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemed (13,524,409) (284,453,305) (21,790,489) (434,941,907)
===================================================================================================================================
Net increase/(decrease) 7,083,426 $ 147,296,738 (3,627,996) $ (69,881,260)
P Shares:**
===================================================================================================================================
Sold 5,296 $ 109,131 3,723 $ 74,369
- -----------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 589 12,069 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemed (419) (8,489) -- --
===================================================================================================================================
Net increase 5,466 $ 112,711 3,723 $ 74,369
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
GLOBAL OPPORTUNITIES FUND
Year Ended 6/30/97 Year Ended 6/30/96
Shares Dollars Shares Dollars
R Shares:*
===================================================================================================================================
<S> <C> <C> <C> <C>
Sold 1,552,210 $ 26,712,712 1,808,431 $ 27,971,751
- -----------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 78,091 1,291,178 5,378 76,525
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemed (1,621,968) (27,517,770) (1,165,606) (17,565,003)
===================================================================================================================================
Net increase/(decrease) 8,333 $ 486,120 648,203 $ 10,483,273
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INTERNATIONAL SMALL CAP FUND
Year Ended 06/30/97 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:
===================================================================================================================================
<S> <C> <C> <C> <C>
Sold 2,921,746 $ 44,958,978 2,772,505 $ 37,233,535
- -----------------------------------------------------------------------------------------------------------------------------------
Issued in exchange for shares of the Montgomery
Advisors Emerging Market Fund -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends -- -- 4,289 54,639
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemed (2,601,160) (39,608,191) (2,400,503) (31,964,633)
===================================================================================================================================
Net increase/(decrease) 320,586 $ 5,350,787 376,291 $ 5,323,541
P Shares:**
===================================================================================================================================
Sold 855 $ 15,000
- -----------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemed -- --
===================================================================================================================================
Net increase 855 $ 15,000
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SELECT 50 FUND
Year Ended 06/30/97 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:*
===================================================================================================================================
<S> <C> <C> <C> <C>
Sold 7,588,001 $ 130,776,571 5,927,206 $ 86,339,891
- -----------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 194,339 3,061,479 4,730 61,750
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemed (3,899,388) (64,867,185) (1,194,765) (18,058,776)
===================================================================================================================================
Net increase/(decrease) 3,882,952 $ 68,970,865 4,737,171 $ 68,342,865
P Shares:**
===================================================================================================================================
Sold 3,579 $ 58,050
- -----------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemed (3,147) (52,234)
===================================================================================================================================
Net increase 432 $ 5,816
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MICRO CAP FUND
Year Ended 06/30/97 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:
===================================================================================================================================
<S> <C> <C> <C> <C>
Sold 2,139,966 $ 35,696,484 10,060,282 $ 151,943,367
- -----------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 1,256,280 20,414,858 178,801 2,612,298
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemed (3,847,189) (64,577,395) (4,907,671) (75,538,931)
===================================================================================================================================
Net increase/(decrease) (450,943) $ (8,466,053) 5,331,412 $ 79,016,734
P Shares:**
===================================================================================================================================
Sold
- -----------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemed
===================================================================================================================================
Net increase
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Emerging Asia, International Growth, Select 50 and Global Asset
Allocation Funds Class R shares commenced operations on September 30, 1996;
July 3, 1995; October 2, 1995; and January 2, 1997, respectively.
** The Emerging Markets, International Growth, International Small Cap, Asset
Allocation, Select 50, Equity Income and Growth Funds Class P shares
commenced operations on March 12, 1996; March 12, 1996; June 9, 1997; January
3, 1996; December 12, 1996; March 12, 1996; and January 12, 1996,
respectively.
--
91
--
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------
The Montgomery Funds
- --------------------------
Transactions in Shares
with a Beneficial Interest
- --------------------------
<TABLE>
<CAPTION>
SMALL CAP FUND SMALL CAP OPPORTUNITIES FUND
Year Ended 06/30/97 Year Ended 06/30/96 Year Ended 06/30/97 Year Ended 06/30/96
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
R Shares:
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sold 1,765,254 $ 33,679,540 2,364,351 $ 45,287,531 10,983,697 $ 171,594,561 9,683,872 $ 155,336,055)
- ------------------------------------------------------------------------------------------------------------------------------------
Issued as
reinvestment
of dividends 1,995,154 37,911,061 1,145,423 19,277,473 2,521 39,628 --
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemed (6,366,339) (103,669,031) (2,572,896) (49,720,323) (6,691,938) (106,026,503) (1,067,133) (16,554,700)
====================================================================================================================================
Net increase
/(decrease) (2,605,931) $ (32,078,430) 936,878 $ 14,844,681 4,294,280 $ 65,607,686 8,616,739 $ 138,781,355
P Shares:**
====================================================================================================================================
Sold 359,494 $ 6,929,517 558 $ 8,550
- ------------------------------------------------------------------------------------------------------------------------------------
Issued as
reinvestment
of dividends 22,222 418,949 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemed (39,938) (709,403) (25) (400)
====================================================================================================================================
Net increase 341,778 $ 6,639,063 533 $ 8,150
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND SHORT DURATION GOVERNMENT BOND FUND
Year Ended 06/30/97 Year Ended 06/30/96 Year Ended 06/30/97 Year Ended 06/30/96
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
R Shares:
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sold 1,175,026 $ 14,606,989 1,161,660 $ 14,281,986 5,462,262 $ 54,326,915 2,121,512 $ 21,194,163
- ------------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends 36,878 457,824 23,748 292,096 195,195 1,945,143 101,272 1,010,094
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemed (621,747) (7,718,315) (472,897) (5,796,057) (3,214,013) (31,983,590) (1,653,638) (16,528,530)
====================================================================================================================================
Net increase 590,157 $ 7,346,498 712,511 $ 8,778,025 2,443,444 $ 24,288,468 569,146 $ 5,675,727
P Shares:**
====================================================================================================================================
Sold -- -- 102 $ 1,010
- ------------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends 3 30 1 13
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemed (74) (740) (11) (109)
====================================================================================================================================
Net increase/(decrease) (71) $ (710) 92 $ 914
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CALIFORNIA TAX-FREE MONEY FUND FEDERAL TAX-FREE MONEY FUND
Year Ended 06/30/97 Year Ended 06/30/96 Period Ended 06/30/97
Shares and Dollars Shares and Dollars Shares and Dollars
R Shares:*
====================================================================================================================================
<S> <C> <C> <C>
Sold $ 800,562,011 $ 618,931,453 $ 697,918,747
- ------------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends 3,271,172 2,443,423 2,441,561
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemed (783,244,187) (588,014,834) (586,161,101)
====================================================================================================================================
Net increase $ 20,588,996 $ 33,360,042 $ 114,199,207
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
GOVERNMENT RESERVE FUND
Year Ended 06/30/97 Year Ended 06/30/96
Shares and Dollars Shares and Dollars
R Shares:
====================================================================================================================================
<S> <C> <C>
Sold $ 3,645,527,042 $ 2,724,266,296
- ------------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends 22,892,029 15,759,363
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemed (3,634,659,585) (2,559,526,862)
====================================================================================================================================
Net increase $ 33,759,486 $ 180,498,797
P Shares:**
====================================================================================================================================
Sold -- $ 900
- ------------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends 29 7
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemed (729) --
====================================================================================================================================
Net increase/(decrease)$ (700) $ 907
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Federal Tax-Free Money Fund Class R shares commenced operations on July
15, 1996.
** The Small Cap, Small Cap Opportunities, Short Duration Government Bond and
Government Reserve Funds Class P shares commenced operations on July 1,
1996; July 29, 1996; March 12, 1996; and March 12, 1996, respectively.
- --
92
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
------------------------------------------
The Montgomery Funds
------------------------------------------
Statement of Cash Flows
------------------------------------------
Y E A R E N D E D J U N E 3 0, 1 9 9 7
SHORT DURATION GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
Cash Flows from Operating Activities:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income received................................................................. $ 2,799,778
Fee income received ............................................................ 29,297
Operating expenses paid ........................................................ (199,777)
Proceeds from sales of long-term securities and purchased options .............. 181,359,783
Net proceeds from futures and short sales transactions ......................... (34,923)
Purchases of long-term securities and purchased options ........................ (206,110,760)
Net proceeds from short-term investments ....................................... 2,029,434
Cash Used by Operating Activities .............................................. $ (20,127,168)
Cash Flows from Financing Activities:
- ------------------------------------------------------------------------------------------------------------------------------------
Proceeds from subscriptions..................................................... $ 53,669,767
Payments on shares redeemed .................................................... (31,952,532)
Net dollar roll deferral ....................................................... 1,875
Cash dividends paid* ........................................................... (305,594)
Reverse repurchase agreements .................................................. 6,548,750
Reverse repurchase agreement interest expense .................................. (367,833)
Cash Provided by Financing Activities .......................................... 27,594,433
Increase in cash ............................................................... 7,467,265
Cash at beginning of year ...................................................... 7,117
Cash at end of year ............................................................ $ 7,474,382
Reconciliation of Net Increase in Net Assets from Operations to Cash Provided by Operating Activities:
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations ........................... $ 2,580,691
Increase in investments $ ..................................................... $(17,851,039)
Increase in interest and dividends receivable ................................. (310,810)
Decrease in deferred fee income from dollar roll transactions ................. 3,346
Increase in other assets ...................................................... 15,462
Increase in receivables for investments sold and dollar roll transactions ..... (8,699)
Decrease in payable for investments purchased ................................. (4,943,929)
Increase in accrued expenses .................................................. 19,977
Interest expense .............................................................. 367,833
-------------
Total adjustments ............................................................. (22,707,859)
Cash Used by Operating Activities .............................................. $(20,127,168)
</TABLE>
* Non-cash activities include reinvestment of dividends of $1,945,173.
----
93
----
The accompanying notes are an integral part of these Financial statements.
<PAGE>
- --------------------
The Montgomery Funds
- --------------------
Financial Highlights
- --------------------
<TABLE>
<CAPTION>
EMERGING ASIA
FUND GLOBAL COMMUNICATIONS FUND
Selected per-Share Data for the Year or Period Ended: Class R Class R
Shares Shares
1997(a) 1997 1996 1995 1994 1993(b)
<S> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of year $ 12.00 $ 18.05 $ 15.42 $ 14.20 $ 12.45 $ 12.00
===============================================================================================================================
Net investment income/(loss) (0.01) (0.25) (0.20) (0.03) (0.05) 0.00#
Net realized and unrealized gain/(loss) on investments 6.95 2.72 2.83 1.28 1.80++ 0.45
- -------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 6.94 2.47 2.63 1.25 1.75 0.45
- -------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- -- -- -- -- --
Distributions in excess of net investment income (0.03) -- -- -- -- --
Distributions from net realized capital gains -- (0.91) -- -- -- --
Distributions in excess of net realized capital gains -- -- -- (0.03) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.03) (0.91) -- (0.03) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of year $ 18.91 $ 19.61 $ 18.05 $ 15.42 $ 14.20 $ 12.45
===============================================================================================================================
Total return** 57.80% 14.43% 17.06% 8.83% 14.06% 3.75%
===============================================================================================================================
Ratios to Average Net Assets/Supplemental Data:
===============================================================================================================================
Net assets, end of year (in 000s) $ 68,095 $153,955 $206,671 $209,644 $234,886 $ 4,670
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.42)%+ (1.05)% (1.01)% (0.10)% (0.46)% (0.05)%+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by
Manager $ (0.02) $ (0.27) $ (0.22) $ (0.07) $ (0.06) $ (0.04)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 72.18% 75.79% 103.73% 50.17% 29.20% 0.00%
- -------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $ 0.0077 $ 0.0104 $ 0.0129 N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense 2.20%+ -- 2.01% 1.91% 1.94% --
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest expense 2.69%+ 2.00% 2.11% 2.09% 2.04% 8.96%+
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest expense 2.13+ 1.91% 1.90% 1.90% 1.90% 1.90%+
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Emerging Asia Fund's Class R shares commenced operations on September
30, 1996.
(b) The Global Communications Fund's Class R shares commenced operations on
June 1, 1993.
(c) The Emerging Markets Fund's Class R shares and Class P shares commenced
operations on March 1, 1992, and March 12, 1996, respectively.
<TABLE>
<CAPTION>
GLOBAL OPPORTUNITIES FUND
Selected per-Share Data for the Year or Period Ended: Class R Shares
1997 1996 1995 1994(d)
<S> <C> <C> <C> <C>
Net asset value -- beginning of year $ 16.96 $ 13.25 $ 12.92 $ 12.00
====================================================================================================================================
Net investment income/(loss) (0.11) (0.06) 0.13 0.01
Net realized and unrealized gain/(loss) on investments 3.14 3.84 0.70 0.91
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 3.03 3.78 0.83 0.92
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- (0.07) -- --
Distributions from net realized capital gains (0.82) -- (0.50) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.82) (0.07) (0.50) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of year $ 19.17 $ 16.96 $ 13.25 $ 12.92
====================================================================================================================================
Total return** 18.71% 28.64% 6.43% 7.67%
====================================================================================================================================
Ratios to Average Net Assets/Supplemental Data:
====================================================================================================================================
Net assets, end of year (in 000s) $ 32,371 $ 28,496 $ 13,677 $ 12,504
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to avg. net assets 0.62)% (0.56) 1.03% 0.02%+
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.23) $ (0.16) $ (0.01) $ (0.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 117.10% 163.80% 118.75% 67.22%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $ 0.0240 $ 0.0235 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense -- 2.05% 1.91% 1.99%+
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest expense 2.62% 3.10% 2.99% 2.75%+
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest expense 1.90% 1.90% 1.90% 1.90%+
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(d) The Global Opportunities Fund's Class R shares commenced operations on
September 30, 1993.
(e) The International Small Cap Fund's Class R shares and Class P shares
commenced operations on September 30, 1993, and June 9, 1997, respectively.
(f) The International Growth Fund's Class R shares and Class P shares commenced
operations on July 3, 1995, and March 12, 1996, repsectively.
- --
94
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
EMERGING MARKETS FUND
Class R Shares
1997 1996 1995## 1994
<S> <C> <C> <C> <C>
Net asset value -- beginning of year $ 14.19 $ 13.17 $ 13.68 $ 11.07
========================================================================================================================
Net investment income/(loss) 0.07 0.08 0.03 (0.03)
Net realized and unrealized gain/(loss) on investments 2.66 0.94 0.25++ 2.92
- ------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 2.73 1.02 0.28 2.89
- ------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.07) -- -- --
Distributions in excess of net investment income -- -- -- --
Distributions from net realized capital gains -- -- (0.42) (0.28)
Distributions in excess of net realized capital gains -- -- (0.37) --
- ------------------------------------------------------------------------------------------------------------------------
Total distributions (0.07) -- (0.79) (0.28)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of year $ 16.85 $ 14.19 $ 13.17 $ 13.68
========================================================================================================================
Total return** 19.34% 7.74% 1.40% 26.10%
========================================================================================================================
Ratios to Average Net Assets/Supplemental Data:
========================================================================================================================
Net assets, end of year (in 000s) $1,259,457 $994,378 $998,083 $654,960
- ------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 0.48% 0.58% 0.23% (0.14)%
- ------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 83.08% 109.92% 92.09% 63.79%
- ------------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $ 0.0011 $ 0.0007 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest expense -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest expense 1.67% 1.72% 1.80% 1.85%
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
EMERGING MARKETS FUND
Class P Shares
1993 1992(c) 1997 1996(c)
<S> <C> <C> <C> <C>
Net asset value -- beginning of year $ 9.96 $ 10.00 $ 14.19 $ 12.62
==========================================================================================================================
Net investment income/(loss) 0.07 0.03 0.06 0.01
Net realized and unrealized gain/(loss) on investments 1.05 (0.07) 2.58 1.56
- --------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 1.12 (0.04) 2.64 1.57
- --------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.01) -- (0.06) --
Distributions in excess of net investment income -- -- -- --
Distributions from net realized capital gains (0.00)# -- -- --
Distributions in excess of net realized capital gains -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (0.01) -- (0.06) --
- --------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of year $ 11.07 $ 9.96 $ 16.77 $ 14.19
==========================================================================================================================
Total return** 11.27% (0.40)% 18.62% 12.44%
==========================================================================================================================
Ratios to Average Net Assets/Supplemental Data:
==========================================================================================================================
Net assets, end of year (in 000s) $206,617 $ 54,625 $ 607 $ 2
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 0.66% 1.70%+ 0.23% 0.33%+
- --------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.06 $ 0.01 -- --
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 21.40% 0.19% 83.08% 109.92%
- --------------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ N/A N/A $ 0.0011 $ 0.0007
- --------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest expense 1.93% 2.80%+ -- --
- --------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest expense 1.90% 1.90%+ 1.92% 1.97%+
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL SMALL CAP FUND
Selected per-Share Data for the Year or Period Ended: Class R Shares Class R Shares
1997 1996 1995 1994(e) 1997
<S> <C> <C> <C> <C> <C>
Net asset value -- beginning of year $ 14.86 $ 11.75 $ 12.02 $ 12.00 $ 16.96
===================================================================================================================================
Net investment income/(loss) (0.05) 0.03 0.12 0.00# 0.00#
Net realized and unrealized gain/(loss) on investments 2.35 3.10 (0.39) 0.02 0.20
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 2.30 3.13 (0.27) 0.02 0.20
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- (0.02) (0.00)# -- --
Distributions from net realized capital gains -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (0.02) (0.00)# -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of year $ 17.16 $ 14.86 $ 11.75 $ 12.02 $ 17.16
===================================================================================================================================
Total return** 15.48% 26.68% (2.23)% 0.17% 1.18%
===================================================================================================================================
Ratios to Average Net Assets/Supplemental Data:
===================================================================================================================================
Net assets, end of year (in 000s) $ 53,602 $ 41,640 $ 28,516 $ 34,555 $ 15
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to avg. net assets (0.34)% 0.20% 0.95% 0.04%+ (0.59)%+
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.14) $ (0.08) $ 0.05 $ (0.02) $ (0.01)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 84.91% 177.36% 156.13% 123.50% 84.91%
- -----------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $ 0.0157 $ 0.0123 N/A N/A $ 0.0157
- -----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense 1.90% 1.96% 1.91% 1.99%+ 2.15%+
- -----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest expense 2.60% 2.76% 2.50% 2.32%+ 2.85%+
- -----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest expense 1.90% 1.90% 1.90% 1.90%+ 2.15%+
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INTERNATIONAL GROWTH FUND
Selected per-Share Data for the Year or Period Ended: Class R Shares Class P Shares
1997## 1996(f) 1997## 1996(f)
<S> <C> <C> <C> <C>
Net asset value -- beginning of year $ 15.31 $ 12.00 $ 15.31 $ 13.66
====================================================================================================================================
Net investment income/(loss) 0.08 0.02 0.05 0.00#
Net realized and unrealized gain/(loss) on investments 2.53 3.29 2.54 1.65
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 2.61 3.31 2.59 1.65
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- -- -- --
Distributions from net realized capital gains (1.68) -- (1.68) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.68) -- (1.68) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of year $ 16.24 $ 15.31 $ 16.22 $ 15.31
====================================================================================================================================
Total return** 19.20% 27.58% 19.13% 12.08%
====================================================================================================================================
Ratios to Average Net Assets/Supplemental Data:
====================================================================================================================================
Net assets, end of year (in 000s) $ 33,912 $ 18,303 $ 5 $ 1
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to avg. net assets 0.57% 0.26%+ 0.32% 0.01%+
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.02) $ (0.07) $ (0.06) $ (0.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 95.02% 238.91% 95.02% 238.91%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $ 0.0217 $ 0.0176 $ 0.0217 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest expense 2.37% 2.91%+ 2.62% 3.16%+
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest expense 1.66% 1.65%+ 1.91% 1.90%+
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Total return represents aggregate total return 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.
+++ Average commission rate paid per share of securities purchased and sold by
Fund.
# 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 since the
use of the undistributed income method did not accord with results of
operations.
--
95
--
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Financial Highlights
- ---------------------
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
Selected per-Share Data for the Year or Period Ended: Class R Shares Class P Shares
1997## 1996 1995 1994(a) 1997## 1996(a)
<S> <C> <C> <C> <C> <C> <C>
Net asset value-- beginning of year $ 19.33 $ 16.33 $ 12.24 $ 12.00 $ 19.33 $ 17.86
====================================================================================================================================
Net investment income/(loss) 0.48 0.26 0.25 0.06 0.43 0.09
Net realized and unrealized gain on investments 2.13 3.54 4.11 0.18 2.13 1.38
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
investment operations 2.61 3.80 4.36 0.24 2.56 1.47
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.39) (0.25) (0.17) -- (0.34) --
Distributions from net realized capital gains (1.66) (0.55) (0.10) -- (1.66) --
Distributions in excess of net realized capital gains -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.05) (0.80) (0.27) -- (2.00) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of Year $ 19.89 $ 19.33 $ 16.33 $ 12.24 $ 19.89 $ 19.33
====================================================================================================================================
Total return** 14.65% 23.92% 35.99% 2.00% 14.35% 8.23%
====================================================================================================================================
Ratios to Average Net Assets/Supplemental Data:
====================================================================================================================================
Net assets, end of year (in 000s) $ 127,214 $ 132,511 $ 60,234 $ 1,548 $ 74 $ 43
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 2.55% 1.85% 3.43% 2.54%+ 2.30% 1.60%+
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees
by Manager $ 0.47 $ 0.24 $ 0.19 $ (0.11) $ 0.42 $ 0.08
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 168.51% 225.91% 95.75% 190.94% 168.51% 225.91%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $ 0.0448 $ 0.0595 N/A N/A $ 0.0448 $ 0.0595
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense 1.43% 1.42% 1.31% 1.43%+ 1.68% 1.67%+
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest expense 1.49% 1.55% 2.07% 9.00%+ 1.74% 1.80%+
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest expense 1.31% 1.30% 1.30% 1.30%+ 1.56% 1.55%+
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Asset Allocation Fund's Class R shares and Class P shares commenced
operations on March 31, 1994, and January 3, 1996, respectively.
(b) The Select 50 Fund's Class R Shares and Class P shares commenced operations
on October 2, 1995, and December 12, 1996, respectively.
(c) The Equity Income Fund's Class R shares and Class P shares commenced
operations on September 30, 1994, and March 12, 1996, respectively.
<TABLE>
<CAPTION>
GROWTH FUND
Selected per-Share Data for the Year or Period Ended: Class R Shares Class P Shares
1997## 1996 1995 1994(d) 1997## 1996(d)
<S> <C> <C> <C> <C> <C> <C>
Net asset value-- beginning of year $ 21.94 $ 19.16 $ 15.27 $ 12.00 $ 21.94 $19.22
====================================================================================================================================
Net investment income/(loss) 0.15 0.17 0.12 0.04 0.09 0.03
Net realized and unrealized gain on investments 3.90 4.32 3.91 3.31++ 3.96 2.69
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
investment operations 4.05 4.49 4.03 3.35 4.05 2.72
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.15) (0.17) (0.07) (0.01) (0.10) --
Distributions from net realized capital gains (2.77) (1.54) (0.07) -- (2.77) --
Distributions in excess of net realized capital gains -- -- -- (0.07) -- --
Distributions from capital -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.92) (1.71) (0.14) (0.08) (2.87) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value-- end of year $ 23.07 $ 21.94 $ 19.16 $ 15.27 $ 23.12 $21.94
====================================================================================================================================
Total return** 20.44% 24.85% 26.53% 27.98% 20.41% 14.15%
====================================================================================================================================
Ratios to Average Net Assets/Supplemental Data:
====================================================================================================================================
Net assets, end of year (in 000s) $1,137,343 $ 926,382 $ 878,776 $ 149,103 $ 212 $ 82
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average
net assets 0.69% 0.78% 0.98% 1.09%+ 0.44% 0.53%+
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income before deferral of fees
by Manager -- -- -- $ 0.03 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 61.10% 118.14% 128.36% 110.65% 61.10% 118.14%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $ 0.0595 $ 0.0596 N/A N/A $ 0.0595 $ 0.0596
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager -- -- -- 1.79%+ -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense 1.27% 1.35% 1.50% 1.49%+ 1.52% 1.60%+
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(d) The Growth Fund's Class R shares and Class P shares commenced operations on
September 30, 1993, and January 12, 1996, respectively.
(e) The Small Cap Fund's Class R shares became available for investment by the
public on July 13, 1990. The Fund's Class P shares commenced operations on
July 1, 1996.
- --
96
- --
<PAGE>
<TABLE>
<CAPTION>
GLOBAL ASSET
ALLOCATION FUND SELECT 50 FUND
Selected per-Share Data for the Year or Period Ended: Class R Shares Class R Shares Class P Shares
1997## 1997## 1996(b) 1997(b)##
<S> <C> <C> <C> <C>
Net asset value-- beginning of year $ 12.00 $ 16.46 $ 12.00 $ 15.89
==================================================================================================================================
Net investment income/(loss) 0.09 0.01 0.06 (0.02)
Net realized and unrealized gain on investments 1.24 4.16 4.45 4.11
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
investment operations 1.33 4.17 4.51 4.09
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- (0.10) (0.04) --
Distributions from net realized capital gains -- (0.52) -- --
Distributions in excess of net realized capital gains -- -- (0.01) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (0.62) (0.05) --
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value-- end of year $ 13.33 $ 20.01 $ 16.46 $ 19.98
==================================================================================================================================
Total return** 11.17% 26.35% 37.75% 25.74%
==================================================================================================================================
Ratios to Average Net Assets/Supplemental Data:
==================================================================================================================================
Net assets, end of year (in 000s) $ 1,653 $ 172,509 $ 77,955 $ 9
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 1.31%+ 0.04% 0.42%+ (0.21)%+
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees
by Manager $ (0.21) $ (0.01) $ 0.02 $ (0.03)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 89.52% 157.93% 105.98% 157.93%
- ----------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ N/A $ 0.0011 $ 0.0097 $ 0.0011
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest expense 4.84%+ 1.92% 2.11%+ 2.17%+
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest expense 0.47%+ 1.82% 1.80%+ 2.07%+
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
EQUITY INCOME FUND
Selected per-Share Data for the Year or Period Ended: Class R Shares Class P Shares
1997## 1996 1995(c) 1997## 1996(c)
<S> <C> <C> <C> <C> <C>
Net asset value-- beginning of year $ 16.09 $ 13.38 $ 12.00 $ 16.09 $ 15.66
==================================================================================================================================
Net investment income/(loss) 0.49 0.43 0.31 0.44 0.08
Net realized and unrealized gain on investments 3.35 2.82 1.38 3.35 0.35
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
investment operations 3.84 3.25 1.69 3.79 0.43
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.46) (0.42) (0.31) (0.42) --
Distributions from net realized capital gains (1.56) (0.12) -- (1.56) --
Distributions in excess of net realized capital gains -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.02) (0.54) (0.31) (1.98) --
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of year $ 17.91 $ 16.09 $ 13.38 $ 17.90 $ 16.09
==================================================================================================================================
Total return** 26.02% 24.56% 14.26% 25.64% 2.75%
==================================================================================================================================
Ratios to Average Net Assets/Supplemental Data:
==================================================================================================================================
Net assets, end of year (in 000s) $ 38,595 $ 19,312 $ 6,383 $ 868 $ 2
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 2.93% 3.03% 4.06%+ 2.68% 2.78%+
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees
by Manager $ 0.39 $ 0.34 $ 0.13 $ 0.34 $ 0.06
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 62.31% 89.77% 29.46% 62.31% 89.77%
- ----------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $ 0.0598 $ 0.0423 N/A $ 0.0598 $ 0.0423
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest expense 1.46% 1.45% 3.16%+ 1.71% 1.70%+
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest expense 0.86% 0.85% 0.84%+ 1.11% 1.10%+
- ----------------------------------------------------------------------------------------------------------------------------------
(a) The Asset Allocation Fund's Class R shares and Class P shares commenced operations on March 31, 1994, and January 3, 1996,
respectively.
(b) The Select 50 Fund's Class R Shares and Class P shares commenced operations on October 2, 1995, and December 12, 1996,
respectively.
(c) The Equity Income Fund's Class R shares and Class P shares commenced operations on September 30, 1994, and March 12, 1996,
respectively.
<CAPTION>
SMALL CAP FUND
Selected per-Share Data for the Year or Period Ended: Class R Shares
1997 1996 1995 1994
<S> <C> <C> <C> <C>
Net asset value-- beginning of year $ 21.55 $ 17.11 $ 15.15 $ 16.83
==================================================================================================================================
Net investment income/(loss) (0.18) (0.09) (0.10) (0.12)
Net realized and unrealized gain on investments 1.43 6.31 3.04 (0.47)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
investment operations 1.25 6.22 2.94 (0.59)
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- -- -- --
Distributions from net realized capital gains (3.28) (1.78) (0.98) (1.09)
Distributions in excess of net realized capital gains -- -- -- --
Distributions from capital -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (3.28) (1.78) (0.98) (1.09)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value-- end of year $ 19.52 $ 21.55 $ 17.11 $ 15.15
==================================================================================================================================
Total return** 6.81% 39.28% 20.12% (1.59)%
==================================================================================================================================
Ratios to Average Net Assets/Supplemental Data:
==================================================================================================================================
Net assets, end of year (in 000s) $ 198,298 $ 275,062 $ 202,399 $ 209,063
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.78)% (0.47)% (0.57)% (0.68)%
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income before deferral of fees by Manager -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 58.71% 80.00% 85.07% 95.22%
- ----------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $ 0.0522 $ 0.0529 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest expense 1.20% 1.24% 1.37% 1.35%
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SMALL CAP FUND
Selected per-Share Data for the Year or Period Ended: Class P Shares
1993 1992 1991 1991(e) 1997(e)
<S> <C> <C> <C> <C> <C>
Net asset value-- beginning of year $ 12.90 $ 13.24 $ 10.05 $ 10.62 $ 21.73
==================================================================================================================================
Net investment income/(loss) (0.11) (0.06) (0.06) (0.07) (0.10)
Net realized and unrealized gain on investments 4.04 3.25 3.27 2.71 1.13
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
investment operations 3.93 3.19 3.21 2.64 1.03
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- -- -- -- --
Distributions from net realized capital gains -- (2.75) (0.02) (0.02) (3.28)
Distributions in excess of net realized capital gains -- -- -- -- --
Distributions from capital -- (0.78) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (3.53) (0.02) (0.02) (3.28)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value-- end of year $ 16.83 $ 12.90 $ 13.24 $ 13.24 $ 19.48
==================================================================================================================================
Total return** 30.47% 27.69% 31.97% 24.89% 5.74%
==================================================================================================================================
Ratios to Average Net Assets/Supplemental Data:
==================================================================================================================================
Net assets, end of year (in 000s) $219,968 $176,588 $ 27,181 $ 27,181 $ 6,656
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (0.69)% (0.44)% (0.47)% (0.45)%+ (1.03)%+
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income before deferral of fees by Manager -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 130.37% 80.67% 194.63% 188.16% 58.71%
- ----------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ N/A N/A N/A N/A $ 0.0522
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest expense 1.40% 1.50% 1.50% 1.45%+ 1.45%+
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(d) The Growth Fund's Class R shares and Class P shares commenced operations on
September 30, 1993, and January 12, 1996, respectively.
(e) The Small Cap Fund's Class R shares became available for investment by the
public on July 13, 1990. The Fund's Class P shares commenced operations on
July 1, 1996.
** Total return represents aggregate total return 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.
+++ Average commission rate paid per share of securities purchased and sold by
the Fund.
# 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 since the
use of the undistributed income method did not accord with results of
operations.
----
97
----
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Financial Highlights
- ---------------------
<TABLE>
<CAPTION>
MICRO CAP FUND
Selected per-Share Data for the Year or Period Ended: Class R Shares
1997 1996 1995(a)##
<S> <C> <C> <C>
Net asset value--beginning of year $ 17.82 $ 13.75 $ 12.00
======================================================================================================
Net investment income/(loss) (0.13) (0.04) 0.09
Net realized and unrealized gain/(loss) on investments 2.54 4.26 1.66
- ------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from investment operations 2.41 4.22 1.75
- ------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- (0.04) --
Distributions in excess of net investment income -- -- --
Distributions from net realized capital gains (1.23) (0.11) --
- ------------------------------------------------------------------------------------------------------
Total distributions (1.23) (0.15) --
- ------------------------------------------------------------------------------------------------------
Net asset value--end of year $ 19.00 $ 17.82 $ 13.75
======================================================================================================
Total return** 14.77% 30.95% 14.58%
======================================================================================================
Ratios to Average Net Assets/Supplemental Data:
======================================================================================================
Net assets, end of year (in 000s) $317,812 $306,217 $162,949
- ------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.75)% (0.11)% 1.40%+
- ------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager -- $ (0.05) $ 0.07
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate 79.00% 88.98% 36.81%
- ------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $ 0.0569 $ 0.0573 N/A
- ------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager -- 1.79% 2.07%+
- ------------------------------------------------------------------------------------------------------
Expense ratio including interest expense 1.71% 1.75% 1.75%+
- ------------------------------------------------------------------------------------------------------
<CAPTION>
SMALL CAP OPPORTUNITIES FUND
Selected per-Share Data for the Year or Period Ended: Class R Shares Class P Shares
1997 1996(b)## 1997(b)
<S> <C> <C> <C>
Net asset value--beginning of year $ 15.80 $ 12.00 $ 14.37
========================================================================================================
Net investment income/(loss) (0.13) 0.02 (0.11)
Net realized and unrealized gain/(loss) on investments 1.86 3.78++ 3.27
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from investment operations 1.73 3.80 3.16
- --------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.00)# -- (0.00)#
Distributions in excess of net investment income -- -- --
Distributions from net realized capital gains -- -- --
- --------------------------------------------------------------------------------------------------------
Total distributions (0.00)# -- (0.00)#
- --------------------------------------------------------------------------------------------------------
Net asset value--end of year $ 17.53 $ 15.80 $ 17.53
========================================================================================================
Total return** 10.97% 31.67% 22.09%
========================================================================================================
Ratios to Average Net Assets/Supplemental Data:
========================================================================================================
Net assets, end of year (in 000s) $226,318 $136,140 $ 9
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.86)% 0.23%+ (1.11)%+
- --------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.16) $ (0.04) $ (0.14)
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 154.50% 81.29% 154.50%
- --------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $ 0.0562 $ 0.0578 $ 0.0562
- --------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager 1.75% 2.16%+ 2.00%+
- --------------------------------------------------------------------------------------------------------
Expense ratio including interest expense 1.50% 1.50%+ 1.75%+
- --------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Micro Cap Fund's Class R shares commenced operations on December 30,
1994.
(b) The Small Cap Opportunities Fund's Class R shares and Class P shares
commenced operations on December 29, 1995, and July 29, 1996, respectively.
(c) The California Tax-Free Intermediate Bond Fund's Class R shares commenced
operations on July 1, 1993.
(d) The Federal Tax-Free Money Fund's Class R shares commenced operations on
July 15, 1996.
(e) The California Tax-Free Money Fund's Class R shares commenced operations on
September 30, 1994.
<TABLE>
<CAPTION>
SHORT DURATION GOVERNMENT BOND FUND
Selected per-Share Data for the Year or Period Ended: Class R Shares
1997## 1996 1995 1994 1993(f)
<S> <C> <C> <C> <C> <C>
Net asset value--beginning of year $ 9.92 $ 9.95 $ 9.80 $ 10.23 $ 10.00
======================================================================================================================
Net investment income 0.59 0.60 0.62 0.61 0.33
Net realized and unrealized gain/(loss) on investments 0.07 (0.04) 0.16 (0.34) 0.23
- ----------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.66 0.56 0.78 0.27 0.56
- ----------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.59) (0.59) (0.62) (0.56) (0.33)
Distributions in excess of net investment income (0.00)# (0.00)# -- (0.07) --
Distributions in excess of net realized capital gains -- -- -- (0.07) --
Distributions from capital -- -- (0.01) -- (0.00)#
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (0.59) (0.59) (0.63) (0.70) (0.33)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value--end of year $ 9.99 $ 9.92 $ 9.95 $ 9.80 $ 10.23
======================================================================================================================
Total return** 6.79% 5.74% 8.28% 2.49% 5.66%
======================================================================================================================
Ratios to Average Net Assets/Supplemental Data:
======================================================================================================================
Net assets, end of year (in 000s) $ 47,265 $ 22,681 $ 17,093 $ 21,937 $ 22,254
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net
assets 5.87% 5.88% 6.41% 5.93% 6.02%+
- ----------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees
by Manager $ 0.54 $ 0.52 $ 0.54 $ 0.51 $ 0.27
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 450.98% 349.62% 284.23% 603.07% 213.22%
- ----------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest expense 2.05% 2.31% 2.23% 1.75% 2.07%+
- ----------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense 1.55% 1.55% 1.38% 0.71% --
- ----------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest expense 0.60% 0.60% 0.47% 0.25% 0.22%+
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Selected per-Share Data for the Year or Period Ended: Class P Shares
1997## 1996(f)
<S> <C> <C>
Net asset value--beginning of year $ 9.92 $ 9.98
==================================================================================
Net investment income 0.59 0.16
Net realized and unrealized gain/(loss) on investments 0.06 (0.05)
- ----------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.65 0.11
- ----------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.58) (0.17)
Distributions in excess of net investment income (0.00)# --
Distributions in excess of net realized capital gains -- --
Distributions from capital -- --
- ----------------------------------------------------------------------------------
Total distributions (0.58) (0.17)
- ----------------------------------------------------------------------------------
Net asset value--end of year $ 9.99 $ 9.92
==================================================================================
Total return** 6.69% 1.12%
==================================================================================
Ratios to Average Net Assets/Supplemental Data:
==================================================================================
Net assets, end of year (in 000s) $ 0 $ 1
- ----------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net
assets 5.62% 5.63%+
- ----------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees
by Manager $ 0.54 $ 0.14
- ----------------------------------------------------------------------------------
Portfolio turnover rate 450.98% 349.62%
- ----------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest expense 2.30% 2.56%+
- ----------------------------------------------------------------------------------
Expense ratio including interest expense 1.80% 1.80%+
- ----------------------------------------------------------------------------------
Expense ratio excluding interest expense 0.85% 0.85%+
- ----------------------------------------------------------------------------------
</TABLE>
(f) The Short Duration Government Bond Fund's Class R shares and Class P shares
commenced operations on December 18, 1992, and March 12, 1996, respectively.
(g) The Government Reserve Fund's Class R shares and Class P shares commenced
operations on September 14, 1992, and March 12, 1996, respectively.
- --
98
- --
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
FEDERAL TAX-FREE
CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND MONEY FUND
Selected per-Share Data for the Year or Period Ended: Class R Shares Class R Shares
1997 1996 1995 1994(c) 1997(d)
<S> <C> <C> <C> <C> <C>
Net asset value--beginning of year $ 12.23 $ 12.04 $ 11.79 $ 12.00 $ 1.00
================================================================================================================================
Net investment income/(loss) 0.53 0.54 0.44 0.41 0.032
Net realized and unrealized gain/(loss) on investments 0.30 0.19 0.25 (0.21) 0.000###
- --------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from investment operations 0.83 0.73 0.69 0.20 0.032
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.53) (0.54) (0.44) (0.41) (0.032)
Distributions in excess of net investment income -- -- (0.00)# -- (0.000)###
Distributions from net realized capital gains -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.53) (0.54) (0.44) (0.41) (0.032)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value--end of year $ 12.53 $ 12.23 $ 12.04 $ 11.79 $ 1.00
================================================================================================================================
Total return** 6.91% 6.11% 6.03% 1.65% 3.26%
================================================================================================================================
Ratios to Average Net Assets/Supplemental Data:
================================================================================================================================
Net assets, end of year (in 000s) $ 21,681 $ 13,948 $ 5,153 $ 11,556 $114,197
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 4.27% 4.34% 3.71% 3.44% 3.24%+
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.47 $ 0.43 $ 0.34 $ 0.25 $ 0.030
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 25.60% 58.11% 37.93% 77.03% --
- --------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager 1.18% 1.43% 1.41% 1.63% 0.69%+
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense 0.68% 0.61% 0.56% 0.23% 0.33%+
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CALIFORNIA TAX-FREE
MONEY FUND
Selected per-Share Data for the Year or Period Ended: Class R Shares
1997 1996 1995(e)
<S> <C> <C> <C>
Net asset value--beginning of year $ 1.00 $ 1.00 $ 1.00
=========================================================================================================
Net investment income/(loss) 0.029 0.030 0.027
Net realized and unrealized gain/(loss) on investments 0.000### 0.000### 0.000###
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from investment operations 0.029 0.030 0.027
- ---------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.029)# (0.030) (0.027)
Distributions in excess of net investment income -- -- (0.000)###
Distributions from net realized capital gains -- -- --
- ---------------------------------------------------------------------------------------------------------
Total distributions (0.029) (0.030) (0.027)
- ---------------------------------------------------------------------------------------------------------
Net asset value--end of year $ 1.00 $ 1.00 $ 1.00
=========================================================================================================
Total return** 2.95% 3.03% 2.68%
=========================================================================================================
Ratios to Average Net Assets/Supplemental Data:
=========================================================================================================
Net assets, end of year (in 000s) $118,723 $ 98,134 $ 64,780
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 2.91% 2.99% 3.55%+
- ---------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.028 $ 0.028 $ 0.023
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate -- -- --
- ---------------------------------------------------------------------------------------------------------
Average commission rate paid+++ N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager 0.73% 0.80% 0.86%+
- ---------------------------------------------------------------------------------------------------------
Expense ratio including interest expense 0.58% 0.59% 0.33%+
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT RESERVE FUND
Selected per-Share Data for the Year or Period Ended: Class R Shares
1997 1996 1995 1994 1993(g)
<S> <C> <C> <C> <C> <C>
Net asset value--beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==========================================================================================================================
Net investment income 0.049 0.052 0.049 0.029 0.024
Net realized and unrealized gain/(loss) on investments 0.000### 0.000### 0.000### 0.000### 0.000###
- --------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.049 0.052 0.049 0.029 0.024
- --------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.049) (0.052) (0.049) (0.029) (0.024)
Distributions in excess of net investment income -- -- -- -- --
Distributions in excess of net realized capital gains -- -- -- -- --
Distributions from capital -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (0.049) (0.052) (0.049) (0.029) (0.024)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value--end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==========================================================================================================================
Total return** 5.03% 5.28% 4.97% 2.96% 2.41%
==========================================================================================================================
Ratios to Average Net Assets/Supplemental Data:
==========================================================================================================================
Net assets, end of year (in 000s) $473,154 $439,423 $258,956 $211,129 $124,795
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net
assets 4.93% 5.17% 4.92% 2.99% 2.96%+
- --------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees
by Manager $ 0.049 $ 0.050 $ 0.047 $ 0.028 $ 0.013
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest expense 0.62% 0.74% 0.79% 0.71% 0.77%+
- --------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense -- -- 0.63% -- --
- --------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest expense 0.60% 0.60% 0.60% 0.60% 0.38%+
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Selected per-Share Data for the Year or Period Ended: Class P Shares
1997 1996(g)
<S> <C> <C>
Net asset value--beginning of year $ 1.00 $ 1.00
=====================================================================================
Net investment income 0.048 0.014
Net realized and unrealized gain/(loss) on investments 0.000### 0.000###
- -------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.048 0.014
- -------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.048) (0.014)
Distributions in excess of net investment income -- --
Distributions in excess of net realized capital gains -- --
Distributions from capital -- --
- -------------------------------------------------------------------------------------
Total distributions (0.048) (0.014)
- -------------------------------------------------------------------------------------
Net asset value--end of year $ 1.00 $ 1.00
=====================================================================================
Total return** 4.88% 1.38%
=====================================================================================
Ratios to Average Net Assets/Supplemental Data:
=====================================================================================
Net assets, end of year (in 000s) $ 0 $ 1
- -------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net
assets 4.68% 4.91%+
- -------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees
by Manager $ 0.048 $ 0.013
- -------------------------------------------------------------------------------------
Portfolio turnover rate -- --
- -------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest expense 0.87% 0.99%+
- -------------------------------------------------------------------------------------
Expense ratio including interest expense -- --
- -------------------------------------------------------------------------------------
Expense ratio excluding interest expense 0.85% 0.85%+
- -------------------------------------------------------------------------------------
</TABLE>
** Total return represents aggregate total return 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.
+++ Average commission rate paid per share of securities purchased and sold by
the Fund.
# 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 since the
use of the undistributed income method did not accord with results of
operations.
### Amount represents less than $0.001 per share.
--
99
--
<PAGE>
- -------------------------------------------
The Montgomery Funds
- -------------------------------------------
Notes
- -------------------------------------------
T O F I N A N C I A L S T A T E M E N T S
1. SIGNIFICANT ACCOUNTING POLICIES:
The Montgomery Funds and The Montgomery Funds II (individually, the "Trust" and,
collectively, the "Trusts") are registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as diversified, open-end management
investment companies. As of June 30, 1997, the Trusts had 20 publicly offered
series: Montgomery Emerging Asia Fund, Montgomery Emerging Markets Fund,
Montgomery Global Communications Fund, Montgomery Global Opportunities Fund,
Montgomery International Growth Fund, Montgomery International Small Cap Fund,
Montgomery Asset Allocation Fund, Montgomery Global Asset Allocation Fund,
Montgomery Select 50 Fund, Montgomery Equity Income Fund, Montgomery Growth
Fund, Montgomery Micro Cap Fund, Montgomery Small Cap Fund, Montgomery Small Cap
Opportunities Fund, Montgomery California Tax-Free Intermediate Bond Fund,
Montgomery Short Duration Government Bond Fund (formerly Montgomery Short
Government Bond Fund), Montgomery California Tax-Free Money Fund, Montgomery
Federal Tax-Free Money Fund, Montgomery Government Reserve Fund, and Montgomery
Institutional Series: Emerging Markets Portfolio (individually, the "Fund" and,
collectively, the "Funds").
The Montgomery Funds were organized as a Massachusetts business trust on May 10,
1990, and commenced operations with the Montgomery Small Cap Fund. The
Montgomery Funds II were organized as a Delaware business trust on September 8,
1993, and commenced operations with the Montgomery Institutional Series:
Emerging Markets Portfolio. Prior to the public offerings of shares of each
Fund, a limited number of shares were sold to Montgomery Asset Management, L.P.,
and/or affiliated persons of Montgomery Asset Management in private placement
offerings. Otherwise, no Fund had any significant operations prior to the date
on which it commenced operations (i.e., commenced selling shares to the public).
On December 1, 1995, Emerging Markets Fund, International Growth Fund,
International Small Cap Fund, Asset Allocation Fund, Select 50 Fund, Equity
Income Fund, Growth Fund, Small Cap Fund, Small Cap Opportunities Fund, Short
Duration Government Bond Fund and Government Reserve Fund commenced offering
Class P Shares. Any shares outstanding prior to December 1, 1995, were
designated as Class R Shares.
The Global Asset Allocation Fund allocates its assets among a diversified group
of five funds from The Montgomery Funds family: Montgomery Emerging Markets
Fund, Montgomery International Growth Fund, Montgomery Growth Fund, Montgomery
Short Duration Government Bond Fund and Montgomery Government Reserve Fund
(collectively, the "Underlying Funds").
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. Information presented in these
financial statements pertains to all the above Funds except for Montgomery
Institutional Series: Emerging Markets Portfolio, which is presented under
separate cover.
The following is a summary of significant accounting policies.
a. Portfolio Valuation
Portfolio securities are valued using current market valuations: either the last
reported sales price, or, in the case of securities for which there is no
reported last sale and in the case of fixed-income securities, the mean of the
closing bid and asked prices. The Underlying Funds are valued according to their
stated net asset value.
Portfolio securities that are traded primarily on foreign securities exchanges
or for which market quotations are readily available are generally valued at the
last reported sales price on the respective exchanges or markets; except that
when an occurrence subsequent to the time that a value was so established is
likely to have changed said value, the fair value of those securities will be
determined by consideration of other factors by or under the direction of the
Board of Trustees or its delegates. Securities traded on the over-the-counter
market or on the NASDAQ National Market are valued at the mean between the last
available bid and ask price prior to the time of valuation. The value of equity
swap agreements will be the value of the underlying security.
For the California Tax-Free Money Fund, Federal Tax-Free Money Fund and the
Government Reserve Fund, portfolio securities are valued at amortized cost,
which means that they are valued at acquisition cost (as adjusted for
amortization of premium or discount) rather than at current market value.
Amortized cost involves valuing a portfolio security instrument at its initial
cost, and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. Calculations are made to compare the value
of the Fund's investments valued at amortized cost with market values. Market
valuations are obtained by using actual quotations provided by market makers,
estimates of market value, or values obtained from yield data relating to
classes of money market instruments.
Securities for which market quotations are not readily available (including
restricted securities that are subject to limitations as to their sale) are
valued at fair market value as determined in good faith by or under the
supervision of the Trusts' officers in accordance with methods authorized by the
Trusts' Board of Trustees. Short-term securities with maturities of 60 days or
less (excluding the California Tax-Free Money Fund, Federal Tax-Free Money Fund
and the Government Reserve Fund, which value all securities at amortized cost)
are carried at amortized cost, which approximates market value.
- -----
100
- -----
<PAGE>
-------------------------------------------
The Montgomery Funds
-------------------------------------------
Notes
-------------------------------------------
T O F I N A N C I A L S T A T E M E N T S
b. Forward Foreign Currency Exchange Contracts
Certain Funds may engage in forward foreign currency exchange contracts with
off-balance sheet risk in the normal course of investing activities in order to
manage exposure to market risks. Forward foreign currency exchange contracts are
valued at the forward rate and are marked-to-market daily. The change in market
value is recorded by the Fund as an unrealized gain or loss.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed. Forward foreign currency exchange contracts
have been used solely to establish a rate of exchange for settlement of
transactions. Although forward foreign currency exchange contracts limit the
risk of loss due to a decline in the value of the hedged currency, they also
limit any potential gain that might result should the value of the currency
increase. In addition, a Fund could be exposed to risks if the counterparties to
the contracts are unable to meet the terms of their contracts.
c. Foreign Currency
Foreign currencies, investments and other assets and liabilities are translated
into U.S. dollars at the exchange rates prevailing at the end of the period, and
purchases and sales of investment securities and income and expenses are
translated on the respective dates of such transactions. Unrealized gains and
losses that result from changes in foreign currency exchange rates on
investments have been included in the unrealized appreciation/(depreciation) of
securities. Net realized foreign currency gains and losses resulting from
movement in exchange rates include foreign currency gains and losses between
trade date and settlement date on investment securities transactions, foreign
currency transactions and the difference between the amounts of interest and
dividends recorded on the books of a Fund and the amount actually received and
the portion of foreign currency gains and losses related to fluctuations in
exchange rates between the initial purchase trade date and subsequent sale trade
date.
d. Repurchase Agreements
Each Fund may engage in repurchase agreement transactions either individually or
jointly through a joint repurchase account with other series of the Trusts
pursuant to a joint repurchase agreement. Under the terms of a typical
repurchase agreement, a Fund writes a financial contract with a counterparty and
takes possession of a government debt obligation as collateral. The Fund also
agrees with the counterparty to allow the counterparty to repurchase the
financial contract at a specified date and price, thereby determining the yield
during the Fund's holding period. This arrangement results in a fixed rate of
return that is not subject to market fluctuations during the Fund's holding
period. The value of the collateral is at least equal at all times to the total
amount of the repurchase obligations, including interest. In the event of
counterparty default, a Fund has the right to use the collateral to offset
losses incurred. There could be potential loss to the Fund in the event a Fund
is delayed or prevented from exercising its rights to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period while a Fund seeks to assert its rights.
The Fund's investment manager, acting under the supervision of the Board of
Trustees, reviews the value of the collateral and the creditworthiness of those
banks and dealers with which a Fund enters into repurchase agreements to
evaluate potential risks. The Funds may also participate on an individual or
joint basis in tri-party repurchase agreements which involve a counterparty and
a custodian bank.
e. Dollar Roll Transactions
Certain Funds may enter into dollar roll transactions with financial
institutions to take advantage of opportunities in the mortgage market. A dollar
roll transaction involves a sale by the Fund of securities with a simultaneous
agreement to repurchase substantially similar securities at an agreed-upon price
at a future date. The securities repurchased will bear the same interest as
those sold, but generally will be collateralized by different pools of mortgages
with different prepayment histories. During the period between the sale and
repurchase, a Fund will not be entitled to receive interest and principal
payments on the securities sold. The Fund will invest the proceeds of the sale
in additional instruments, the income from which, together with any additional
fee income received for the dollar roll, may or may not generate income for the
Fund exceeding the yield on the securities sold. Dollar roll transactions
involve the risk that the market value of the securities sold by the Fund may
decline below the repurchase price of those securities.
f. Short Sales/Forward Commitments
Certain Funds may seek to hedge investments through forward commitments to sell
high-grade liquid debt securities. In some cases, a Fund may enter into forward
commitments to sell securities the Fund does not yet own (but has the right to
acquire). Such forward commitments effectively constitute a form of short sale
and have been limited to date to the Short Duration Government Bond Fund and to
securities issued by the Federal Home Loan Mortgage Corporation ("FHLMC") in
connection with certain FHLMC conversion programs. To complete such a
transaction, a Fund must obtain a security that is convertible into the security
it has made a commitment to deliver. Forward commitments involve transaction
costs and entail risk to the extent interest rates move in a direction different
from that anticipated. There is a risk that the market price will increase for
the security the Fund must purchase. Whenever a Fund engages in this type of
transaction, it maintains other high-quality liquid debt securities equal in
value to the forward commitment in a segregated account with its custodian.
---
101
---
<PAGE>
- -------------------------------------------
The Montgomery Funds
- -------------------------------------------
Notes
- -------------------------------------------
T O F I N A N C I A L S T A T E M E N T S
g. Reverse Repurchase Agreements
Certain Funds may enter into reverse repurchase agreement transactions with
member banks on the Federal Reserve Bank of New York's list of reporting dealers
for leverage purposes. A reverse repurchase agreement involves a sale by the
Fund of securities that it holds with an agreement by the Fund to repurchase the
same securities at an agreed-upon price and date. A reverse repurchase agreement
involves the risk that the market value of the securities sold by the Fund may
decline below the repurchase price of the securities. In the event the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, the Fund's use of the proceeds of the agreement may be restricted
pending a determination by the party, or its trustee or receiver, whether to
enforce the Fund's obligation to repurchase the securities. Each Fund
establishes a segregated account with its custodian in which the Fund maintains
cash, U.S. government securities or other high-grade liquid debt obligations
equal in value to its obligations with respect to reverse repurchase agreements.
h. Reverse Dollar Roll Transactions
Certain Funds may enter into reverse dollar roll transactions. When a Fund
engages in a reverse dollar roll, it purchases a security from a financial
institution and concurrently agrees to resell a similar security to that
institution at a later date at an agreed-upon price. Under the 1940 Act, reverse
dollar roll transactions are considered to be loans by a Fund and must be fully
collateralized. If the seller defaults on its obligation to repurchase the
underlying security, a Fund may experience delay or difficulty in exercising its
rights to realize upon the sold security, may incur a loss if the value of the
security declines and may incur disposition costs in liquidating the security.
i. Futures Contracts
Certain Funds may enter into futures contracts. Upon entering into a futures
contract, a Fund is required to deposit with the custodian on behalf of the
broker an amount of cash or cash equivalents equal to a certain percentage of
the contract amount. This is known as the "initial margin." Subsequent payments
("variation margin") are made or received by a Fund each day, depending on the
daily fluctuation of the value of the contract.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in value of the hedged investments. In addition, there is the risk a Fund
may not be able to enter into a closing transaction because of an illiquid
secondary market.
j. Options
Certain Funds may enter into options contracts. Upon the purchase of a put
option or a call option by the Fund, the premium paid is recorded as an
investment, the value of which is marked-to-market daily. When a purchased
option expires, the Fund will realize a loss in the amount of the cost of the
option. When the Fund enters in a closing sale transaction, the Fund will
realize a gain or loss depending on whether the sales proceeds from the closing
sale transaction are greater or less than the cost of the option. When the Fund
exercises a put option, the proceeds from such sale will be decreased by the
premium originally paid. When the Fund exercises a call option, the cost of the
security that the Fund purchases upon exercise will be increased by the premium
originally paid. When purchased index options are exercised, settlement is made
in cash.
When the Fund writes a call option or a put option, an amount equal to the
premium received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain (or loss if the cost of the
closing purchase transaction exceeds the premium received when the option was
written) without regard to any unrealized gain or loss on the underlying
security or index, and the liability related to such option is eliminated. When
a call option is exercised, the Fund realizes a gain or loss from the sale of
the underlying security and the proceeds from such sale are increased by the
premium originally received. When a put option is exercised, the amount of the
premium originally received will reduce the cost of the security that the Fund
purchased upon exercise. When written index options are exercised, settlement is
made in cash.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forgo the
opportunity for profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk that
the Fund may not be able to enter into a closing transaction because of an
illiquid secondary market.
k. Equity Swaps
Certain Funds have entered into equity swap agreements in order to participate
in foreign markets not currently accessible to the Fund. Pursuant to these
agreements, the Fund pays a swap fee in cash, equal to a fixed percentage based
on a notional amount equal to the Fund's acquisition cost of the underlying
security (the "notional amount"). Additionally, the Fund will make semiannual
payments to the swap counterparty equal to any capital depreciation on the
underlying security, plus a floating rate payment based on the notional amount
and the six-month LIBOR rate. The swap counterparty will make semiannual
payments to the Fund equal to any capital appreciation and any dividends
received on the underlying security. During the terms of the agreements,
102
<PAGE>
-------------------------------------------
The Montgomery Funds
-------------------------------------------
Notes
-------------------------------------------
T O F I N A N C I A L S T A T E M E N T S
changes in the underlying value of the swaps are recorded as unrealized gains or
losses and are based on changes in the value of the underlying security. Amounts
received from (paid to) the swap counterparty representing capital appreciation
(depreciation) and dividends on the underlying security are recorded as realized
gain (loss). The Fund is exposed to credit risk in the event of non-performance
by the swap counterparty; however, the Fund does not anticipate non-performance
by the counterparty. The Fund has segregated cash as a reserve for the payment
of liabilities under the equity swap agreements.
l. Dividends and Distributions
Dividends, if any, from net investment income of the Emerging Asia Fund,
Emerging Markets Fund, Global Communications Fund, Global Opportunities Fund,
International Growth Fund, International Small Cap Fund, Growth Fund, Micro Cap
Fund, Small Cap Fund, Small Cap Opportunities Fund, Asset Allocation Fund,
Global Asset Allocation Fund and Select 50 Fund are declared and paid at least
annually. Dividends from net investment income of the California Tax-Free
Intermediate Bond Fund, Short Duration Government Bond Fund, California Tax-Free
Money Fund, Federal Tax-Free Money Fund and Government Reserve Fund are declared
daily and paid monthly. Dividends from net investment income of the Equity
Income Fund are declared and paid quarterly.
Distributions of any short-term capital gains earned by a Fund are distributed
no less frequently than annually. Additional distributions of net investment
income and capital gains for each Fund may be made in order to avoid the
application of a 4% non-deductible excise tax on certain undistributed amounts
of ordinary income and capital gains. Income distributions and capital-gain
distributions are determined in accordance with income tax regulations, which
may differ from generally accepted accounting principles. These differences are
primarily due to differing treatments of income and gains on various investment
securities held by a Fund, timing differences and differing characterization of
distributions made by a Fund. During the year ended June 30, 1997, the Select 50
Fund recharacterized $469,542 from realized gains to net investment income and
the Equity Income Fund recharacterized $4,539 from net investment income to
realized gains.
Permanent differences incurred during the year ended June 30, 1997, resulting
from differences in book and tax accounting have been reclassified at year end
to undistributed net investment income, accumulated net realized gain/(loss) and
paid-in capital as follows:
<TABLE>
<CAPTION>
Increase/(Decrease) Increase/(Decrease)
Increase/ Undistributed Net Accumulated
(Decrease) Investment Net Realized
Name of Fund Paid-in Capital Income Gain/(Loss)
- ------------ --------------- ------ -----------
<S> <C> <C> <C>
Emerging Asia Fund............................................... -- $ (24,715) $ 24,715
Emerging Markets Fund............................................ 138,776 (360,161) 221,385
Global Communications Fund....................................... 934 2,229,746 (2,230,680)
Global Opportunities Fund........................................ -- 231,195 (231,195)
International Growth Fund........................................ 876 (123,483) 122,607
International Small Cap Fund..................................... -- 145,472 (145,472)
Asset Allocation Fund............................................ -- (3,114) 3,114
Select 50 Fund................................................... -- 513,442 (513,442)
Growth Fund...................................................... -- (92,556) 92,556
Micro Cap Fund................................................... (2,198,012) 2,180,171 17,841
Small Cap Fund................................................... (1,812,573) 1,812,573 --
Small Cap Opportunities Fund..................................... (1,600,253) 1,600,253 --
California Tax-Free Intermediate Bond Fund....................... -- 1,243 (1,243)
Short Duration Government Bond Fund.............................. (70,275) 52,759 17,516
California Tax-Free Money Fund................................... (776) 776 --
Federal Tax-Free Money Fund...................................... (169) 169 --
Government Reserve Fund.......................................... -- (16,727) 16,727
</TABLE>
- --------------------------------------------------------------------------------
m. Securities Transactions and Investment Income
Securities transactions are recorded on a trade date basis. Realized gain and
loss from securities transactions are recorded on the specific identified cost
basis. Dividend income is recognized on the ex-dividend date. Dividend income on
foreign securities is recognized as soon as a Fund is informed of the ex-
dividend date. Interest income, including, where applicable, amortization of
discount on short-term investments, is recognized on the accrual basis.
Securities purchased on a when-issued or delayed-delivery basis
-----
103
-----
<PAGE>
- -------------------------------------------
The Montgomery Funds
- -------------------------------------------
Notes
- -------------------------------------------
T O F I N A N C I A L S T A T E M E N T S
may be settled a month or more after the trade date; interest income is not
accrued until settlement date. The Funds instruct their custodian to segregate
assets in a separate account with a current value at least equal to the amount
of its when-issued purchase commitments.
n. Federal Income Taxes
Each Fund has elected and qualified, and it is the intention of each Fund to
continue to qualify, as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), by complying with the
provisions available to certain investment companies, as defined in applicable
sections of the Code, and to make distributions of taxable income to
shareholders sufficient to relieve each Fund from all or substantially all
federal income taxes.
o. Organization Costs
Expenses incurred in connection with the organization of each Fund are amortized
on a straight-line basis over a period of five years from the commencement of
operations. All such costs for the Emerging Markets Fund and the Small Cap Fund
have been fully amortized.
p. Cash
Cash, as used in the Statement of Cash Flows, is the amount reported in the
Statement of Assets and Liabilities. The Fund issues and redeems its shares,
invests in securities and distributes dividends from net investment income and
net realized gains (which are either paid in cash or reinvested at the
discretion of shareholders). These activities are reported in the Statement of
Changes in Net Assets. Information on cash payments is presented in the
Statement of Cash Flows. Accounting practices that do not affect reporting
activities on a cash basis include unrealized gain or loss on investment
securities and accretion income recognized on investment securities.
q. Expenses
General expenses of the Trusts are allocated to the relevant Funds based upon
relative net assets. Operating expenses directly attributable to a Fund or a
class of shares are charged to that Fund's or class's operations. Expenses of
each Fund not directly attributable to the operations of any class of shares or
Fund are prorated among the classes based on the relative average net assets of
each class of shares or Fund.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES AND OTHER CONTRACTUAL
COMMITMENTS:
a. During the fiscal year ended June 30, 1997, Montgomery Asset Management,
L.P., was the Funds' Manager (the "Manager") (see note 10). The Manager, a
California limited partnership, is an investment advisor registered with the
Securities and Exchange Commission under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"). Its general partner is Montgomery Asset
Management, Inc., and its sole limited partner is an affiliate of Montgomery
Securities, the Funds' distributor. Under the Advisers Act, both Montgomery
Asset Management, Inc., and Montgomery Securities may be deemed controlling
persons of the Manager. Although the operations and management of the Manager
are independent from those of Montgomery Securities, it is expected that the
Manager may draw upon the research and administrative resources of Montgomery
Securities at its discretion in a manner consistent with applicable regulations.
Pursuant to investment management agreements ("Investment Management
Agreements"), the Manager provides each Fund with advice on buying and selling
securities, manages the investments of each Fund including the placement of
orders for portfolio transactions, furnishes each Fund with office space and
certain administrative services, and provides the personnel needed by the Trusts
with respect to the Manager's responsibilities under such agreement. The Manager
has agreed to reduce some or all of its management fee or absorb fund expenses
if necessary to keep each Fund's annual operating expenses, exclusive of
interest and taxes, at or below the following percentages of each Fund's average
net assets: 1.90% for the Emerging Asia Fund, the Emerging Markets Fund, the
Global Communications Fund, the Global Opportunities Fund and the International
Small Cap Fund; 1.65% for the International Growth Fund; 1.30% for the Asset
Allocation Fund; 0.50% for the Global Asset Allocation Fund (excluding expenses
relating to the Underlying Funds or 1.75% including total expenses of the
Underlying Funds); 1.80% for the Select 50 Fund; 0.85% for the Equity Income
Fund; 1.50% for the Growth Fund; 1.75% for the Micro Cap Fund; 1.40% for the
Small Cap Fund; 1.50% for the Small Cap Opportunities Fund; 0.70% for the
California Tax-Free Intermediate Bond Fund and the Short Duration Government
Bond Fund; 0.60% for the California Tax-Free Money Fund, the Federal Tax-Free
Money Fund and the Government Reserve Fund. Any reductions or absorptions made
to a Fund by the Manager are subject to recovery within the following two years
(three years for the Asset Allocation Fund), provided a Fund is able to affect
such reimbursement and remain in compliance with applicable expense limitations.
The Manager may terminate these reductions or absorptions at any time.
Montgomery Asset Management, L.P., serves as the Funds' administrator (the
"Administrator"). The Administrator performs services with regard to various
aspects of each Fund's administrative operations.
As compensation, each Fund has accrued a monthly management and administration
fee (accrued daily) based upon the average daily net assets of each Fund. The
following effective management fee annual rates include current-year accrued
fees and recoupment of prior-year deferrals, but do not include the effect of
current year fee deferrals or expense absorptions:
- -----
104
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<PAGE>
-------------------------------------------
The Montgomery Funds
-------------------------------------------
Notes
-------------------------------------------
T O F I N A N C I A L S T A T E M E N T S
<TABLE>
<CAPTION>
Management
Effective Fee Including Effective
Management Effect of Administration
Name of Fund Fee Fees Deferred Fee
- ------------ -------- -------------- ----------
<S> <C> <C> <C>
Emerging Asia Fund............................................ 1.25% 0.76% 0.07%
Emerging Markets Fund......................................... 1.06 1.06 0.06
Global Communications Fund.................................... 1.37 1.28 0.07
Global Opportunities Fund..................................... 1.93 1.21 0.07
International Growth Fund..................................... 1.55 0.84 0.07
International Small Cap Fund.................................. 1.88 1.18 0.07
Asset Allocation Fund......................................... 0.90 0.84 0.07
Global Asset Allocation Fund.................................. 0.20 0.00 0.00
Select 50 Fund................................................ 1.34 1.23 0.07
Equity Income Fund............................................ 0.81 0.21 0.07
Growth Fund................................................... 0.95 0.95 0.06
Micro Cap Fund................................................ 1.39 1.39 0.07
Small Cap Fund................................................ 0.99 0.99 0.07
Small Cap Opportunities Fund.................................. 1.26 1.02 0.07
California Tax-Free Intermediate Bond Fund.................... 0.58 0.08 0.05
Short Duration Government Bond Fund........................... 0.60 0.10 0.05
California Tax-Free Money Fund................................ 0.55 0.40 0.05
Federal Tax-Free Money Fund................................... 0.38 0.04 0.05
Government Reserve Fund....................................... 0.44 0.42 0.05
</TABLE>
- -------------------------------------------------------------------------------
The Manager recouped previously deferred fees and/or absorbed expenses during
the year ended June 30, 1997. These amounts have been included with current
annual management fees in the Statement of Operations and are part of the
effective management fee shown. The amounts recouped during the year ended June
30, 1997, were $203,919, $199,063, $110,483, $274,944, $139,622, $87,769,
$62,404, $101,797, $119,487, $14,587, $38,211, $175,094 and $464,333, for the
Global Communications, Global Opportunities, International Growth, International
Small Cap, Asset Allocation, Select 50, Equity Income, Micro Cap, Small Cap
Opportunities, California Tax-Free Intermediate Bond, Short Duration Government
Bond, California Tax-Free Money and Government Reserve Funds, respectively.
For the year ended June 30, 1997, the Manager has deferred fees and/or absorbed
expenses and has deferred management fees and absorbed expenses subject to
recoupment as follows:
<TABLE>
<CAPTION>
Deferred Management
Fees and Absorbed
Fees Expenses Expenses Subject to
Name of Fund Deferred Absorbed Recoupment
- ------------ -------- -------- --------------
<S> <C> <C> <C>
Emerging Asia Fund............................................ $101,227 -- $101,227
Global Communications Fund.................................... 161,958* -- 149,697
Global Opportunities Fund..................................... 210,682 -- 210,682
International Growth Fund..................................... 174,274 -- 174,274
International Small Cap Fund.................................. 303,672 -- 303,672
Asset Allocation Fund......................................... 88,455 -- 88,455
Global Asset Allocation Fund.................................. 1,231 $25,660 26,891
Select 50 Fund................................................ 103,117 -- 103,117
Equity Income Fund............................................ 181,845 -- 268,005
Small Cap Opportunities Fund.................................. 452,538 -- 452,538
California Tax-Free Intermediate Bond Fund.................... 90,361 -- 170,692
Short Duration Government Bond Fund........................... 194,525 -- 336,742
California Tax-Free Money Fund................................ 180,007 -- 180,007
Federal Tax-Free Money Fund................................... 287,066 287,066
Government Reserve Fund....................................... 105,801 -- 105,801
</TABLE>
*For the year ended June 30, 1997, the Global Communications Fund also waived
fees of $12,261.
---
105
---
<PAGE>
- -------------------------------------------
The Montgomery Funds
- -------------------------------------------
Notes
- -------------------------------------------
T O F I N A N C I A L S T A T E M E N T S
b. Certain officers and Trustees of the Trusts are, with respect to the
Trusts' Manager and/or principal underwriter, "affiliated persons" as defined in
the 1940 Act. Each Trustee who is not an "affiliated person" will receive an
annual retainer and quarterly meeting fee totaling $35,000 per annum, as well as
reimbursement for expenses, for service as a Trustee of all Trusts advised by
the Manager ($25,000 of which will be allocated to the Montgomery Funds and
$5,000 to the Montgomery Funds II).
c. For the year ended June 30, 1997, the Funds' securities transactions
generated commissions of $12,725,341 of which $27,015 was paid to Montgomery
Securities.
d. The Class R shares and Class P shares of the Funds have no sales load.
e. At June 30, 1997, the Global Communications Fund owned 90,000 shares of the
Montgomery Emerging Communications Fund, which has the same investment
manager. For the year ended June 30, 1997, the Global Communications Fund
received no dividend income from the Montgomery Emerging Communications Fund.
f. Certain Funds are parties to agreements with financial intermediaries and
recordkeepers related to the Funds' participation in various purchase,
marketplace and retirement programs. The Funds that participate in the programs
make payments to the financial intermediaries and recordkeepers for certain
services provided to shareholders who own shares of the Funds through such
programs. These fees are paid for shareholder servicing and recordkeeping and
are reflected in the Funds' financial statement as "servicing fees." The
Manager, out of its own resources, may make additional payments to financial
intermediaries and recordkeepers in connection with the Funds' participation in
these programs. The following Funds participate in one or more of these
programs: Emerging Markets Fund, Global Communications Fund, Global
Opportunities Fund, International Growth Fund, International Small Cap Fund,
Asset Allocation Fund, Global Asset Allocation Fund, Select 50 Fund, Equity
Income Fund, Growth Fund, Micro Cap Fund, Small Cap Fund, Small Cap
Opportunities Fund, California Tax-Free Intermediate Bond Fund and Short
Duration Government Bond Fund.
3. SHARE MARKETING PLAN:
Class P shares of each Fund have adopted a Share Marketing Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act (the "Rule"). Pursuant to that Rule,
the Trusts' Board of Trustees has approved, and each Fund has entered into, the
Plan with the Manager, as the distribution coordinator, for the Class P shares.
Under the Plan, each Fund will pay distribution fees to the Manager at an annual
rate of up to 0.25% of the Fund's aggregate average daily net assets
attributable to its Class P shares, to reimburse the Manager for its
distribution costs with respect to that Class.
The Plan provides that the Manager may use the distribution fees received from
the Class to pay for the distribution expenses of that Class, including, but not
limited to, (i) incentive compensation paid to the directors, officers and
employees of, agents for and consultants to the Manager or any other broker-
dealer or financial institution that engages in the distribution of that Class;
and (ii) compensation to broker-dealers, financial institutions or other persons
for providing distribution assistance with respect to that Class. Distribution
fees may also be used for (i) marketing and promotional activities, including,
but not limited to, direct-mail promotions and television, radio, newspaper,
magazine and other mass media advertising for that Class; (ii) costs of printing
and distributing prospectuses, statements of additional information and reports
of the Funds to prospective investors in that Class; (iii) costs involved in
preparing, printing and distributing sales literature pertaining to the Funds
and that Class; and (iv) costs involved in obtaining whatever information,
analysis and reports with respect to marketing and promotional activities that
the Funds may, from time to time, deem advisable with respect to the
distribution of that Class. Distribution fees are accrued daily, paid monthly,
and are charged as expenses of the Class P shares as accrued.
4. TRANSACTIONS IN SHARES OF A BENEFICIAL INTEREST:
The Trusts have authorized an unlimited number of shares of beneficial interest
which have a par value of $0.01. Because the Government Reserve Fund, the
Federal Tax-Free Money Fund and the California Tax-Free Money Fund are money
market funds, and money market funds sell shares, issue shares for reinvestment
of dividends and redeem shares normally at a constant net asset value of $1 per
share, the numbers of shares represented by such sales, reinvestments and
redemptions are the same as the dollar amounts shown for such transactions.
- -----
106
- -----
<PAGE>
-------------------------------------------
The Montgomery Funds
-------------------------------------------
Notes
-------------------------------------------
T O F I N A N C I A L S T A T E M E N T S
5. SECURITIES TRANSACTIONS:
a. The aggregate amount of purchases and sales of long-term securities,
excluding long-term U.S. government securities, during the year ended June 30,
1997, were:
<TABLE>
<CAPTION>
Name of Fund Purchases Sales
- ------------ --------- -----
<S> <C> <C>
Emerging Asia Fund................................................... $ 64,337,282 $ 16,674,642
Emerging Markets Fund................................................ 846,730,372 796,967,945
Global Communications Fund........................................... 125,896,476 211,900,496
Global Opportunities Fund............................................ 33,572,149 35,369,479
International Growth Fund............................................ 34,250,373 23,462,145
International Small Cap Fund......................................... 40,125,867 37,268,477
Asset Allocation Fund................................................ 65,872,656 85,189,790
Global Asset Allocation Fund......................................... 2,508,836 1,010,168
Select 50 Fund....................................................... 207,547,268 144,544,246
Equity Income Fund................................................... 32,984,590 18,754,722
Growth Fund.......................................................... 632,573,150 609,234,228
Micro Cap Fund....................................................... 210,645,729 235,688,771
Small Cap Fund/*/.................................................... 132,927,381 196,524,306
Small Cap Opportunities Fund......................................... 330,501,461 262,646,891
California Tax-Free Intermediate Bond Fund........................... 10,384,133 4,315,371
Short Duration Government Bond Fund.................................. 4,985 707,893
</TABLE>
/*/Redemptions in kind for the year ended June 30, 1997, were $51,488,745. In
addition, the redemption-in-kind transaction resulted in a net realized gain of
$16,335,677.
The aggregate amount of purchases and sales of long-term U.S. government
securities, during the year ended June 30, 1997, were:
<TABLE>
<CAPTION>
Name of Fund Purchases Sales
- ------------ --------- -----
<S> <C> <C>
Asset Allocation Fund................................................ $144,041,500 $137,113,796
Short Duration Government Bond Fund.................................. 201,131,112 180,667,312
</TABLE>
b. At June 30, 1997, aggregate gross unrealized appreciation for all securities
in which there was an excess of value over tax cost and aggregate gross
unrealized depreciation for all securities in which there was an excess of tax
cost over value were as follows:
<TABLE>
<CAPTION>
Tax Basis Tax Basis
Unrealized Unrealized
Name of Fund Appreciation Depreciation
- ------------ ------------ ------------
<S> <C> <C>
Emerging Asia Fund................................................... $ 11,969,798 $ 3,186,127
Emerging Markets Fund................................................ 281,863,246 68,270,291
Global Communications Fund........................................... 37,073,275 4,132,528
Global Opportunities Fund............................................ 5,434,860 945,482
International Growth Fund............................................ 3,983,421 707,438
International Small Cap Fund......................................... 7,766,837 1,385,783
Asset Allocation Fund................................................ 15,701,618 1,177,512
Global Asset Allocation Fund......................................... 103,190 --
Select 50 Fund....................................................... 28,331,391 1,806,687
Equity Income Fund................................................... 4,641,409 250,740
Growth Fund.......................................................... 236,279,124 12,595,850
Micro Cap Fund....................................................... 91,842,620 3,410,273
Small Cap Fund....................................................... 53,957,959 6,330,445
Small Cap Opportunities Fund......................................... 42,953,369 2,843,916
California Tax-Free Intermediate Bond Fund........................... 438,529 7,957
Short Duration Government Bond Fund.................................. 149,522 19,218
</TABLE>
---
107
---
<PAGE>
- -------------------------------------------
The Montgomery Funds
- -------------------------------------------
Notes
- -------------------------------------------
T O F I N A N C I A L S T A T E M E N T S
c. Information regarding transactions under dollar roll transactions was as
follows:
<TABLE>
<CAPTION>
Average
Maximum Average Average Debt
Amount Amount Amount Shares per Share
Outstanding Outstanding Outstanding Outstanding Outstanding Fee
During as of During During During Income
Name of Fund Year 06/30/97 Year Year Year Earned
- ------------ ---- -------- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Asset Allocation Fund........... $13,949,531 $3,454,219 $7,583,081 7,099,872 $1.07 $143,650
Short Duration Government
Bond Fund...................... 2,957,813 1,978,125 1,901,363 3,887,625 0.49 25,951
</TABLE>
The average amount outstanding during the year was calculated by totaling
borrowings at the end of each day and dividing the sum by the number of days in
the year ended June 30, 1997.
d. Information regarding borrowing under reverse repurchase agreements is as
follows:
<TABLE>
<CAPTION>
Maximum Average Average Average Debt
Amount Amount Shares per Share
Outstanding Outstanding Outstanding Outstanding Average
During During During During Interest Interest
Name of Fund Year Year Year Year Rate Expense
- ------------ ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Asset Allocation Fund.......... $14,055,000 $3,170,999 7,099,872 $0.45 4.24% $164,598
Short Duration Government
Bond Fund..................... 16,785,125 7,013,708 3,887,625 1.80 4.15% 367,833
</TABLE>
<TABLE>
<CAPTION>
Short Duration Government Bond Fund:
<S> <C> <C>
$6,548,750 Reverse repurchase agreement with Morgan Stanley & Co. dated 06/30/97
bearing 5.200%, to be repurchased at $6,549,696, collateralized by U.S. government
securities having various maturities and various interest rates......................................$6,548,750
</TABLE>
As of June 30, 1997, there were no reverse repurchase agreements outstanding for
the Asset Allocation Fund. The average amount outstanding during the year was
calculated by adding the borrowings at the end of each day and dividing the sum
by the number of days in the year ended June 30, 1997.
e. The schedule of forward foreign currency exchange contracts at June 30,
1997, was as follows:
<TABLE>
<CAPTION>
Contract Value Value
Date (Note 1)
---- --------
<S> <C> <C>
Emerging Asia Fund:
Forward Foreign Currency Exchange Contracts to Buy:
544,600,000 Indonesian Rupee 07/01/97 $ 223,931
761,876,400 Indonesian Rupee 07/03/97 313,250
-------
Total Forward Foreign Currency Exchange
Contracts to Buy: (Contract cost $537,552) $ 537,181
=======
Forward Foreign Currency Exchange Contracts to Sell:
203,420 Singapore Dollars 07/01/97 $ 142,282
320,560 Hong Kong Dollars 07/07/97 41,376
Total Forward Foreign Currency Exchange -------
Contracts to Sell: (Contract cost $183,765) $ 183,658
=======
<CAPTION>
Contract Value Value
Date (Note 1)
---- --------
<S> <C> <C>
Emerging Markets Fund:
Forward Foreign Currency Exchange Contracts to Buy:
7,257,723 Indonesian Rupee 07/01/97 $ 202,730
37,746,591 Philippine Pesos 07/01/97 1,431,096
5,317,490 South African
Commercial Rand 07/01/97 1,172,028
4,429,254 Czech Koruna 07/02/97 136,609
3,725,945 Philippine Pesos 07/02/97 141,263
12,758,475 Indonesian Rupee 07/03/97 356,382
10,198,123 Philippine Pesos 07/03/97 386,617
4,336,527 South African
Commercial Rand 07/03/97 955,703
11,036,508 Indonesian Rupee 07/07/97 308,282
-------
Total Forward Foreign Currency Exchange
Contracts to Buy: (Contract cost $5,108,462) $ 5,090,710
===========
Forward Foreign Currency Exchange Contracts to Sell:
116,736 Indonesian Rupee 07/01/97 $ 3,261
499,949 Malaysian Ringgit 07/01/97 198,078
580,332,901 Greek Drakma 07/02/97 2,112,299
111,320,749 Portuguese Escudo 07/02/97 632,540
-------
Total Forward Foreign Currency Exchange
Contracts to Sell: (Contract cost $2,921,926) $ 2,946,178
===========
</TABLE>
- -----
108
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<PAGE>
-------------------------------------------
The Montgomery Funds
-------------------------------------------
Notes
-------------------------------------------
T O F I N A N C I A L S T A T E M E N T S
<TABLE>
<CAPTION>
Contract Value Value
Date (Note 1)
---- --------
<S> <C> <C>
Global Communications Fund:
Forward Foreign Currency Exchange Contracts to Buy:
210,504 Great Britain Pound 07/01/97 $ 350,553
3,453,802 French Franc 07/31/97 589,009
-------
Total Forward Foreign Currency Exchange
Contracts to Buy: (Contract cost $943,526) $ 939,562
-------
Forward Foreign Currency Exchange Contracts to Sell:
(Contract cost $564,098)
82,956,322 Spanish Peseta 07/01/97 $ 562,988
-------
Global Opportunities Fund:
Forward Foreign Currency Exchange Contracts to Buy:
35,871 Great Britain Pound 07/01/97 $ 59,735
43,181 Great Britain Pound 07/03/97 71,909
717,898 French Franc 07/31/97 122,430
-------
Total Forward Foreign Currency Exchange
Contracts to Buy: (Contract cost $255,048) $ 254,074
-------
Forward Foreign Currency Exchange Contracts to Sell:
17,464,488 Spanish Peseta 07/01/97 $ 118,524
18,772 Great Britain Pound 07/03/97 31,261
------
Total Forward Foreign Currency Exchange
Contracts to Sell: (Contract cost $149,970) $ 149,785
-------
International Growth Fund:
Forward Foreign Currency Exchange Contracts to Buy:
33,735 Great Britain Pound 07/03/97 $ 56,179
420,364 French Franc 07/31/97 71,688
------
Total Forward Foreign Currency Exchange
Contracts to Buy: (Contract cost $128,386) $ 127,867
-------
Forward Foreign Currency Exchange Contracts to Sell:
14,844,815 Spanish Peseta 07/01/97 $ 100,745
47,295,843 Greek Drakma 07/02/97 172,148
-------
Total Forward Foreign Currency Exchange
Contracts to Sell: (Contract cost $271,226) $ 272,893
-------
<CAPTION>
Contract Value Value
Date (Note 1)
---- --------
<S> <C> <C>
International Small Cap Fund:
Forward Foreign Currency Exchange Contracts to Buy:
61,521 Great Britain Pound 07/01/97 $ 102,451
1,193,136 Swedish Krona 07/01/97 154,242
3,095,848 Swedish Krona 07/02/97 400,215
61,970,319 Italian Lira 07/02/97 36,455
137,860,434 Italian Lira 07/03/97 81,098
2,912,795 Swedish Krona 07/03/97 376,555
33,691,419 Italian Lira 07/07/97 19,818
------
Total Forward Foreign Currency Exchange
Contracts to Buy: (Contract cost $1,176,277) $ 1,170,834
---------
Forward Foreign Currency Exchange Contracts to Sell:
26,026,434 Spanish Peseta 07/02/97 $ 176,630
26,547 Great Britain Pound 07/03/97 44,208
------
Total Forward Foreign Currency Exchange
Contracts to Sell: (Contract cost $220,470) $ 220,838
-------
Select 50 Fund:
Forward Foreign Currency Exchange Contracts to Buy:
716,202 Great Britain Pound 07/01/97 $ 1,192,691
841,270 Singapore Dollar 07/01/97 588,424
760,491 Singapore Dollar 07/02/97 531,927
284,706 Singapore Dollar 07/03/97 199,141
7,776,288 Indonesian Rupee 07/08/97 217,215
10,158,058 Indonesian Rupee 07/10/97 283,745
-------
Total Forward Foreign Currency Exchange
Contracts to Buy: (Contract cost $3,020,280) $ 3,013,143
---------
Forward Foreign Currency Exchange Contracts to Sell:
321,436 Great Britain Pound 07/02/97 $ 535,288
99,740 Great Britain Pound 07/03/97 166,097
-------
Total Forward Foreign Currency Exchange
Contracts to Sell: (Contract cost $700,063) $ 701,385
-------
</TABLE>
................................................................................
f. Certain Funds have entered into equity swap agreements with Robert Flemings
& Co. Limited, London ("Flemings"), with respect to the holdings of foreign
equity securities. Each equity swap is for a period of three years. At June 30,
1997, the Emerging Asia Fund had the following open equity swap agreements:
<TABLE>
<CAPTION>
Unrealized
Underlying Notional Termination Appreciation/
Security Amount Swap Fee Rate Floating Rate Date Depreciation
-------- ------ ------------- ------------- ---- ------------
<S> <C> <C> <C> <C> <C>
ONGC 493,356 1.5% LIBOR + 0.50% 5/8/00 786
Bajaj Auto 513,276 1.5% LIBOR + 0.50% 6/5/00 (72)
MTNL 499,422 1.5% LIBOR + 0.50% 6/5/00 (70)
BHARAT Petroleum 495,444 1.5% LIBOR + 0.50% 6/5/00 69
Bajaj Auto 50,398 1.5% LIBOR + 0.50% 6/18/00 7
MTNL 304,986 1.5% LIBOR + 0.50% 6/18/00 43
ONGC 100,701 1.5% LIBOR + 0.50% 6/18/00 14
BHARAT Petroleum 282,219 1.5% LIBOR + 0.50% 6/18/00 39
Hindustan Petroleum 827,489 1.5% LIBOR + 0.50% 6/18/00 116
Hindustan Petroleum 127,488 1.5% LIBOR + 0.50% 7/8/00 53
Castrol India Ltd. 760,966 1.5% LIBOR + 0.50% 6/30/00 0
Hindustan Petroleum 127,873 1.5% LIBOR + 0.50% 6/30/00 0
</TABLE>
---
109
---
<PAGE>
- -----------------------
The Montgomery Funds
- -----------------------
Notes
- -----------------------
TO FINANCIAL STATEMENTS
g. Certain Funds may lend securities to brokers, dealers and other financial
organizations. Each security loan is collateralized with collateral assets in an
amount equal to the current market value of the loaned securities, plus accrued
interest. There is a risk of delay in receiving collateral or in recovering the
securities loaned or even a loss of rights in collateral should the borrower
fail financially.
At June 30, 1997, the Fund had outstanding loans of securities to certain
brokers, dealers or other financial institutions for which the Fund has
segregated cash equivalent to 102% of the market value of loans of domestic
securities and 105% for loans of international securities as collateral with the
Fund's custodian.
h. Under an unsecured Revolving Credit Agreement with Deutschebank (New York),
each of the Funds of The Montgomery Funds and The Montgomery Funds II may, for
one year starting August 6, 1996, borrow (consistent with applicable law and its
investment policies) up to 10% of its net asset value for the Global
Opportunities Fund, International Growth Fund, International Small Cap Fund,
Asset Allocation Fund, Select 50 Fund, Equity Income Fund, Growth Fund and Small
Cap Opportunities Fund, and up to 5% of its net asset value for the Emerging
Markets Fund, Global Communications Fund, Micro Cap Fund, Small Cap Fund,
California Tax-Free Intermediate Bond Fund, Short Duration Government Bond Fund,
California Tax-Free Money Fund, Federal Tax-Free Money Fund and Government
Reserve Fund, provided that the aggregate principal amount of outstanding loans
under the agreement to all Funds does not exceed $300,000,000. For the year
ended June 30, 1997, there were no borrowings under this agreement.
6. FOREIGN SECURITIES:
Certain Funds may purchase securities on foreign security exchanges. Securities
of foreign companies and foreign governments involve special risks and
considerations not typically associated with investing in U.S. companies and the
U.S. government. These risks include, among others, revaluation of currencies,
less-reliable information about issuers, different securities transactions
clearance and settlement practices and potential future adverse political and
economic developments. These risks are heightened for investments in emerging
markets countries. Moreover, securities of many foreign companies and foreign
governments and their markets may be less liquid and their prices more volatile
than those of securities of comparable U.S. companies and the U.S. government.
The Emerging Markets Fund invests at least 65% of its total assets in the equity
securities of companies in emerging markets countries.
7. ILLIQUID AND SPECIAL
SITUATION SECURITIES:
Each Fund may not invest more than 15% (10% for Government Reserve Fund, Federal
Tax-Free Money Fund and California Tax-Free Money Fund) of its net assets in
illiquid securities. The securities shown in the table below have been
determined by the Manager to be illiquid because they are restricted or because
there is an exceptionally low trading volume in the primary trading market for
the security at June 30, 1997. These securities are valued at market price.
<TABLE>
<CAPTION>
06/30/97 Market
Acquisition Market Value per % of Total
Security Date Shares Value Share Cost Net Assets
- -------- ---- ------ ----- ----- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Emerging Asia Fund:
Bengang Steel Plate..................... 06/10/97 1,500,000 $ 460,806 $ 0.31 $ 465,702 0.80%
======= =====
Emerging Markets Fund:
Efes Sinai Yatrium ve Ticaret........... 07/19/94 10,532,873 $ 754,481 $ 0.07 $ 624,751 0.06%
Global Telesystems Group, Inc........... 06/21/94 46,389 868,322 18.72 497,627 0.07
Pepsi International Bottlers............ 03/20/97 32,000 2,784,000 87.00 3,200,000 0.22
--------- -----
$ 4,406,803 0.35%
========= =====
Global Communications Fund:
Global Telesystems Group, Inc........... 04/22/94 450,987 $ 8,441,702 $ 18.72 $3,881,177 5.48%
Grupo Mexicano de Video................. 09/03/93 105,000 10,435 0.10 1,865,000 0.01
Russian Telecommunications
Development Corporation.............. 12/22/93 200,000 1,490,207 7.45 2,000,000 0.97
Vimpel-Communications, ADR.............. 05/30/97 40,521 1,539,798 38.00 1,215,630 1.00
--------- -----
$ 11,482,142 7.46%
========== =====
International Small Cap Fund:
Prosolvia AB............................ 06/11/97 50,100 $ 770,720 $ 15.38 $ 814,424 1.44%
======= =====
</TABLE>
- ---
110
- ---
<PAGE>
-----------------------
The Montgomery Funds
-----------------------
Notes
-----------------------
TO FINANCIAL STATEMENTS
Certain of the Funds hold foreign currency at June 30, 1997, which may be
illiquid because conversion to U.S. dollars could take more than seven days.
The securities shown in the table below were held by the Funds on June 30, 1997,
and are unrestricted securities for which reliable market prices can be
established. These securities are valued at their market prices. Because the
process of reregistering the securities in the Fund's name can take more than
seven days, however, the following shares of each of these securities were
deemed temporarily restricted in the hands of the Fund at June 30, 1997. The
Fund bears the cost of reregistering these securities.
<TABLE>
<CAPTION>
06/30/97 Market
Acquisition Market Value per % of Total
Security Date Shares Value Share Cost Net Assets
- -------- ---- ------ ----- ----- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Emerging Asia Fund:
PT Daya Guna Samudera................... 06/27/97 215,000 $ 386,770 $ 1.80 $ 365,245 0.57%
PT Daya Guna Samudera (F)............... 06/30/97 85,000 152,909 1.80 152,956 0.22
Fauji Fertilizer Company Ltd. .......... 05/02/97 250,000 491,718 1.97 530,304 0.72
------- -----
$1,031,397 1.51%
========= =====
Emerging Markets Fund:
Adamjee Insurance Company............... 06/17/97 3,054 $ 6,876 $ 2.25 $ 6,444 0.00%#
Bajaj Auto, Ltd. ....................... 06/12/97 188,200 4,841,690 25.73 4,613,148 0.39
Bharat Petroleum Corporation Ltd. ...... 03/25/97 200 2,514 12.57 2,206 0.00#
Bimantara (F)........................... 06/26/97 28,000 48,930 1.75 48,683 0.01
Castrol (India) Ltd. ................... 06/20/97 297,350 4,323,203 14.54 4,223,815 0.34
Engro Chemicals Pakistan................ 04/01/97 242 856 3.54 881 0.00#
Floatglass.............................. 04/26/96 1,100 505 0.46 1,078 0.00#
HDFC Bank, Ltd. ........................ 08/05/96 300 517 1.72 309 0.00#
Hindustan Petroleum Corporation Ltd. ... 06/12/97 420,000 5,326,257 12.68 5,273,442 0.42
Housing Development and Finance
Corporation.......................... 02/05/96 10 1,140 114.00 711 0.00#
Indian Hotels Company, Ltd. ............ 03/21/97 846 15,408 18.21 16,759 0.00#
Industrial Credit and Investment
Corporation.......................... 02/09/96 105 230 2.19 286 0.00#
Lippo Bank (F).......................... 06/03/97 631,000 648,668 1.03 617,429 0.05
Lippo Securities........................ 06/26/97 2,265,000 1,606,565 0.71 1,664,861 0.13
London Sumatra Indonesia................ 06/26/97 15,000 47,492 3.17 47,531 0.00#
Madras Cement Ltd. ..................... 06/13/97 9,315 2,101,079 225.56 1,868,591 0.17
Mahanagar Telephone Nigam, Ltd. ........ 06/25/97 672,300 5,704,197 8.48 5,377,214 0.45
Matahari Putra Prima (F)................ 06/26/97 27,000 54,400 2.00 54,444 0.00#
Oil and Natural Gas Corporation Ltd. ... 06/02/97 108,000 1,119,972 10.37 772,573 0.09
Pakistan State Oil...................... 12/16/96 28,708 231,542 8.07 161,207 0.02
Semen Gresik (F)........................ 06/17/97 135,000 302,535 2.24 298,830 0.03
State Bank of India..................... 03/26/96 1,600 15,207 9.50 10,752 0.00#
Tata Engineering and Locomotive
Company, Ltd. ....................... 05/08/96 533 6,729 12.62 7,419 0.00#
Tora Cement............................. 12/17/96 6,310 159,664 25.30 107,303 0.01
Videsh Sanchar Nigam Ltd. .............. 06/20/97 51,800 1,678,436 32.40 1,461,193 0.13
--------- -----
$28,244,612 2.24%
========== =====
Select 50 Fund:
Mahanagar Telephone Nigam Ltd. ......... 06/26/97 660,000 $ 5,599,860 $8.48 $5,520,717 3.25%
========= =====
</TABLE>
#Amount equals less than 0.01%.
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111
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<PAGE>
- -----------------------
The Montgomery Funds
- -----------------------
Notes
- -----------------------
TO FINANCIAL STATEMENTS
8. CAPITAL LOSS CARRYFORWARDS:
At June 30, 1997, the following Funds had available for federal tax purposes
unused capital losses as follows:
<TABLE>
<CAPTION>
Expiring Expiring Expiring Expiring
Name of Fund in 2002 in 2003 in 2004 in 2005
- ------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
Small Cap Opportunities Fund................... -- -- $ 849,214 $7,369,128
California Tax-Free Intermediate Bond Fund..... -- $ 67,274 67,724 --
Short Duration Government Bond Fund............ -- 192,868 -- --
California Tax-Free Money Fund................. -- -- 6,745 --
Government Reserve Fund........................ $9,889 20,906 5,378 --
</TABLE>
Under current tax law, net capital and currency losses realized after October 31
may be deferred and treated as occurring on the first day of the following
fiscal year. In the fiscal year ended June 30, 1997, the following Funds elected
to defer losses occurring, between November 1, 1996, and June 30, 1997, under
these rules as follows:
<TABLE>
<CAPTION>
Name of Fund Amount
- ------------ ------
<S> <C>
Small Cap Opportunities Fund......................... $8,360,319
Short Duration Government Bond Fund.................. 62,290
Federal Tax-Free Money Fund.......................... 1,588
Government Reserve Fund.............................. 18,726
</TABLE>
Such deferred losses will be treated as arising on the first day of the fiscal
year ending June 30, 1998.
9. REORGANIZATION:
On December 19, 1996, Montgomery Emerging Markets Fund (the Acquiring Fund)
acquired the assets and certain liabilities of Montgomery Advisors Emerging
Markets Fund (the Acquired Fund), in a tax-free exchange for shares of the
Acquiring Fund, pursuant to a plan of reorganization approved by the Acquired
Fund's shareholders. Total shares issued by the Acquiring Fund, the value of the
shares issued by the Acquiring Fund, the total net assets of the Acquired Fund
and the Acquiring Fund and any unrealized depreciation included in the Acquired
Fund's total net assets at the acquisition date are as follows:
Acquiring Fund..................................Emerging Markets Fund
Acquired Fund..........................Advisors Emerging Markets Fund
Date.........................................................12/19/96
Shares Issued by Acquiring Fund...............................486,078
Value of Shares Issued by Acquiring Fund...................$6,576,635
Total Net Assets of Acquired Fund..........................$6,578,531
Total Net Assets of Acquiring Fund.......................$883,874,833
Total Net Assets of Acquiring Fund After Acquisition.....$890,453,364
Acquired Fund's Unrealized Depreciation......................$161,504
- ---
112
- ---
<PAGE>
-----------------------
The Montgomery Funds
-----------------------
Notes
-----------------------
TO FINANCIAL STATEMENTS
10. SUBSEQUENT EVENTS:
On July 1, 1997, the Asset Allocation Fund was reorganized as a fund-of-funds
structure. The Asset Allocation Fund now seeks to achieve its investment
objective by investing in three other mutual funds advised by the Manager. Each
of the three mutual funds has an identical investment objective as one of the
three separate target investment categories of the Asset Allocation Fund. (The
equity securities formerly held by the Asset Allocation Fund were transferred to
a newly created fund, the Asset Allocation Fund II, to manage in the same manner
as before the reorganization. This temporary component of the Asset Allocation
Fund's assets was necessary to avoid unnecessary gain recognition as part of the
reorganization.)
On March 25, 1997, Montgomery Securities, the Manager and CAM Acquisition LLC
("CAM"), a newly organized subsidiary of Commerzbank Aktiengesellschaft, entered
into an agreement providing for the transfer of substantially all the assets
composing the Manager's business to CAM. On June 23, 1997, the shareholders of
each Fund approved a new Investment Management Agreement with CAM (renamed
Montgomery Asset Management, LLC) that became effective upon the closing of the
Manager's transaction with CAM. Such transaction closed on July 31, 1997.
---
113
---
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Independent Audiotrs'
- ---------------------
R E P O R T
TO THE BOARD OF TRUSTEES AND THE SHAREHOLDERS OF THE MONTGOMERY FUNDS AND THE
MONTGOMERY FUNDS II:
We have audited the accompanying statements of assets and liabilities, including
the portfolios investments, of Montgomery Emerging Asia, Montgomery Emerging
Markets, Montgomery Global Communications, Montgomery Global Opportunities,
Montgomery International Growth, Montgomery International Small Cap, Montgomery
Asset Allocation, Montgomery Global Asset Allocation, Montgomery Select 50,
Montgomery Equity Income, Montgomery Growth, Montgomery Micro Cap, Montgomery
Small Cap, Montgomery Small Cap Opportunities, Montgomery California Tax-Free
Intermediate Bond, Montgomery Short Duration Government Bond (formerly,
Montgomery Short Government Bond), Montgomery California Tax-Free Money,
Montgomery Federal Tax-Free Money and Montgomery Government Reserve Funds (the
"Funds") (all portfolios of The Montgomery Funds, except for the Asset
Allocation Fund, which is a portfolio of The Montgomery Funds II) as of June 30,
1997, and the related statements of operations for the period ended June 30,
1997, the statements of changes in net assets and transactions in shares with a
beneficial interest for the periods ended June 30, 1997 and 1996, the statement
of cash flows for the period ended June 30, 1997, and financial highlights for
each of the periods ended June 30, 1997, 1996, 1995, 1994, 1993 and 1992. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
Montgomery Small Cap Fund's financial highlights for the year ended June 30,
1991, and for the period July 13, 1990 (effective date of registration), to June
30, 1991, were audited by other auditors whose report dated July 31, 1991,
expressed an unqualified opinion on such financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at June 30,
1997, by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of the Funds as of June
30, 1997, the results of their operations, the changes in their net assets, the
transactions in shares with a beneficial interest, their cash flows, and their
financial highlights for the respective stated periods, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Francisco, California
August 8, 1997
- ---
114
- ---
<PAGE>
-------------------------------
The Montgomery Funds
-------------------------------
Tax Information
-------------------------------
FISCAL YEAR ENDED JUNE 30, 1997
Unaudited
The amounts of long-term capital gains paid for the fiscal year ended June 30,
1997, were as follows:
Global Communications Fund...................$ 9,155,989
Global Opportunities Fund.................... 1,051,697
Asset Allocation Fund........................ 1,152,405
Equity Income Fund........................... 696,611
Growth Fund.................................. 55,139,817
Micro Cap Fund............................... 11,224,861
Small Cap Fund............................... 31,532,444
Of the distributions made from investment income, the following percentages are
tax exempt for regular Federal income tax purposes:
California Tax-Free Intermediate Bond Fund..... 99.86%
California Tax-Free Money Fund................. 100.00%
Federal Tax-Free Money Fund.................... 99.98%
Of the distributions made from investment income, the following percentages may
be subject to the alternative minimum tax:
California Tax-Free Intermediate Bond Fund..... 2.08%
California Tax-Free Money Fund................. 4.25%
Federal Tax-Free Money Fund.................... 7.90%
Please consult your personal tax advisor.
Of the distributions made by the following Funds, the corresponding percentage
represents the amount of each distribution which will qualify for the
dividends-received deduction available to corporate shareholders:
Global Opportunities Fund...................... 0.63%
Asset Allocation Fund.......................... 8.99%
Select 50 Fund................................. 9.30%
Equity Income Fund............................. 49.17%
Growth Fund.................................... 16.36%
Of the distributions made by the following Funds from investment income, the
corresponding percentage represents the portion of each distribution derived
from investments in U.S. government and U.S. government agency obligations. All
or a portion of the distributions made from this income may be exempt from
taxation at the state level. Please consult your tax advisor for state-specific
information:
Asset Allocation Fund.......................... 18.26%
Short Duration Government Bond Fund............ 40.48%
Government Reserve Fund........................ 44.02%
For the fiscal year ended June 30, 1997, foreign income and foreign taxes paid
relating to foreign sources and possessions in the United States on a per-share
basis were as follows:
<TABLE>
<CAPTION>
Foreign Foreign
Income Taxes
------ -----
<S> <C> <C>
Emerging Asia Fund............ $0.1089 $0.0046
Emerging Markets Fund......... 0.3029 0.0227
Global Communications Fund.... 0.0000 0.0131
Global Opportunities Fund..... 0.0000 0.0208
International Growth Fund..... 0.2893 0.0237
International Small Cap Fund.. 0.0000 0.0189
</TABLE>
The above figures may differ from those cited elsewhere in this report due to
differences in the calculation of income and capital gains for Securities and
Exchange Commission (book) purposes and Internal Revenue Service (tax) purposes.
The percentages of total net assets invested in U.S. government and U.S.
government agency obligations at March 31, 1997, and June 30, 1997, were as
follows:
<TABLE>
<CAPTION>
3/31/97 6/30/97
------- -------
<S> <C> <C>
Asset Allocation Fund:
Federal Home Loan Bank.............. 3.2% 5.6%
Federal Home Loan Mortgage
Corporation...................... 7.3% 8.0%
Federal National Mortgage Association 9.5% 5.0%
Government National
Mortgage Association............. 3.5% 3.4%
Student Loan Marketing Association.. 0.8% --
U.S. Treasury Bonds................. 8.0% 6.5%
U.S. Treasury Notes................. 7.5% 6.6%
Short Duration Government Bond Fund:
Federal Home Loan Bank.............. 28.2% 15.5%
Federal Home Loan Mortgage
Corporation...................... 24.2% 38.3%
Federal National Mortgage Association 13.4% 14.1%
Government National Mortgage
Association...................... 2.2% 2.2%
Student Loan Marketing Association.. 1.0% 0.7%
Union Acceptance Corporation........ 0.5% 0.4%
U.S. Treasury Notes................. 38.7% 28.8%
Government Reserve Fund:
Federal Farm Credit Bank............ 12.1% 12.9%
Federal Home Loan Bank.............. 16.8% 27.1%
Federal Home Loan Mortgage
Corporation...................... 9.7% 10.1%
Federal National Mortgage Association 0.6% 4.5%
Housing and Urban Development....... -- 0.2%
Student Loan Marketing Association.. 11.9% 17.9%
U.S. Treasury Bills................. 0.5% --
U.S. Sovereign Bonds................ 0.2% 0.2%
U.S. Treasury Notes................. 4.3% 1.3%
</TABLE>
---
115
---
<PAGE>
This report and the financial
statements contained herein are
provided for the general
information of the shareholders
of The Montgomery Funds. This
report is not authorized for
distribution to prospective
investors in the funds unless
preceded or accompanied by an
effective prospectus.
Mutual fund shares are not
deposits or obligations of, or
guaranteed by, any depository
institution. Shares are not
insured by the FDIC or any other
agency and are subject to
investment risk, including the
possible loss of principal.
Neither The Montgomery Funds nor
Montgomery Securities is a bank.
For more information on any
Montgomery fund, including
charges and expenses, visit our
Web site at
www.montgomeryfunds.com or call
(800) 572-fund (3863) for a free
prospectus. Read it carefully
before you invest or send money.
Funds Distributor, Inc. 8/97
<PAGE>
[LOGO OF THE MONTGOMERY FUNDS ---------------
APPEARS HERE] Bulk Rate
U.S. POSTAGE
PAID
101 California Street Chicago, IL
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---------------
