<PAGE>
Semi-Annual Report December 31, 1996
[LOGO OF MONTGOMERY FUNDS APPEARS HERE]
[PICTURE OF OWL APPEARS HERE] [PICTURE OF OWL APPEARS HERE]
[PICTURE OF OWL APPEARS HERE] [PICTURE OF OWL APPEARS HERE]
<PAGE>
--------------------
The Montgomery Funds
--------------------
Semi-Annual Report
--------------------
DECEMBER 31, 1996
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 billion on behalf of more than 275,000
individual investors, helping them meet their financial goals through a
combination of professional portfolio management and high-quality customer
service.
===============
C O N T E N T S
- ---------------
Portfolio Highlights and Investments
Montgomery U.S. Equity Funds
- ------------------------------------------
Growth Fund............................ 6
Micro Cap Fund......................... 9
Small Cap Fund......................... 13
Small Cap Opportunities Fund........... 17
Equity Income Fund..................... 20
Montgomery Global and
International Equity Funds
- ------------------------------------------
International Growth Fund.............. 23
International Small Cap Fund........... 27
Global Opportunities Fund.............. 30
Global Communications Fund............. 33
Emerging Markets Fund.................. 37
Emerging Asia Fund..................... 43
Montgomery Multi-Strategy Funds
- ------------------------------------------
Select 50 Fund......................... 46
Asset Allocation Fund.................. 49
Montgomery Fixed-Income Funds
- ------------------------------------------
Short Government Bond Fund............. 54
California Tax-Free
Intermediate Bond Fund................. 57
Government Reserve Fund................ 61
Federal Tax-Free Money Fund............ 61
California Tax-Free Money Fund......... 61
Financial Statements
- ------------------------------------------
Statements of Assets and Liabilities... 74
Statements of Operations............... 78
Statements of Changes in Net Assets.... 82
Transactions in Shares with a
Beneficial Interest.................... 86
Statement of Cash Flows................ 89
Financial Highlights................... 90
Notes to Financial Statements.......... 96
Tax Information........................108
The Montgomery Funds
101 California Street
San Francisco, CA 94111
(800) 572-3863
- ---------------------------
www.xperts.montgomery.com/1
- ---------------------------
<PAGE>
[LOGO APPEARS HERE]
C H A I R M A N 'S L E T T E R
February 1997
Dear Fellow Shareholders:
Most of us are awash in information these days. With the Internet and other
sources of real-time news, we can access instantaneous and seemingly endless
streams of data. These advances have the power to inform, educate and connect;
they also have the power to muddle. Lately, for instance, a split-second
mentality has crept into investing. Your local newsstand probably has rows of
magazines proclaiming the "10 Hottest Mutual Funds to Buy Now," or "15 Funds for
1997." Although our funds may show up on these lists from time to time, we are
convinced that what they really do best is sell magazines, not help you invest
wisely.
Investing wisely, to us, means staying focused on the long term and not being
swayed by short-term "noise" in the market or media. I was recently reminded of
how rewarding this philosophy can be. The Montgomery Micro Cap Fund's investment
in Renaissance Hotel Group, which owns and operates hotels, had passed the many
rigorous screen tests that our equity team applies to potential investments.
When its shares began to fall in late 1996, it was puzzling. Our team reviewed
the fundamentals that had attracted them in the first place, found them as solid
as ever and held on. Their patience was rewarded: As 1996 drew to a close,
Doubletree Corporation announced plans to acquire Renaissance at a premium to
its share price.
We put our own advice--focus on the long term--into practice all the time here
at The Montgomery Funds. We are confident enough to stay true to this
philosophy, even when it means departing from conventional wisdom. Montgomery
Asset Management brings together some of the country's most talented and
experienced investment professionals in an entrepreneurial environment in which,
we believe, they can best serve you, our shareholders. The goal of all these
efforts is to transform raw data into true, long-term investment insight--a much
rarer and far more valuable thing.
Staying focused on the long term goes hand-in-hand with another key to investing
wisely: That is to know yourself. Take stock of your financial situation and
your goals, decide on a plan that suits both and stay with it. This is not to
say that plans can't change. We have designed our lineup of funds--which now
ranges from emerging markets equity to money market funds and many points in
between--to suit shareholders with a variety of investment goals, at many stages
of life. You will find updates on all of our funds in the pages that follow.
Thank you for investing with Montgomery. As always, if you have any questions,
comments or suggestions, please call us at (800) 572-3863.
Sincerely,
/s/ R. Stephen Doyle
R. Stephen Doyle
Chairman and Chief Executive Officer
===========================
"Investing wisely, to us,
means staying focused on
the long term and not being
swayed by short-term `noise'
in the market or media."
- ---------------------------
3
<PAGE>
- --------------------
The Montgomery Funds
- --------------------
Semi-Annual Report
- --------------------
DECEMBER 31, 1996
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: SHADES OF PAMPLONA
After an inauspicious beginning, the U.S. stock market rallied to new highs in
the second half of 1996. July was marked by an equity correction that fell
harder on smaller-cap stocks. Though the market quickly recovered, by the end of
the year most small caps had not regained all the ground they lost during the
summer. Investors overwhelmingly favored liquid, defensive large caps,
especially those of the Dow Jones Industrial Average (DJIA) in the fourth
quarter, showering much less attention on shares of small companies and
cyclicals. November's election results spurred the DJIA to new highs. Among
industry groups, oil drilling and technology stocks (particularly
semiconductors) were exceptionally strong, while broadcasting stocks continued
to be depressed by the prospect of greater competition in that industry, among
other factors.
The strength of the U.S. market and the generally benign global economy helped
to lift most developed and some developing foreign stock markets during the
second half of 1996. Many European bourses were boosted by investor optimism
over monetary union and by declining interest rates. Among developed markets,
Japan was a stark exception; it continued to be depressed by investor pessimism.
As is often the case, the performance of emerging markets varied widely. Among
larger markets, Hong Kong and Brazil were standouts, whereas Thailand and South
Korea fell sharply. Meanwhile, a few smaller markets such as Russia and
Venezuela were exceptionally strong.
[CHART APPEARS HERE]
THE S&P 500 INDEX:
PERFORMANCE JUNE 30 TO DECEMBER 31, 1996
The U.S. market recovered quickly from its midsummer correction and, from then
until the end of the year, hardly took a breather from its bull run. The rally
was narrow, however, with the lion's share of attention going to the liquid
large-cap stocks of the Dow Jones Industrial Average.
Source: Bloomberg
[CHART APPEARS HERE]
U.S. TREASURY 30-YEAR BOND:
YIELD JUNE 30 TO DECEMBER 31, 1996
Finally breaking out of the narrow range it had been in for several months, the
yield on the bellwether 30-year bond rose to a second-half peak of 7.20% in
early August, fell below 6.40% by late October and bounced back up in the waning
days of 1996. All in all, it was a volatile period for the bond market.
BONDS: PROCEEDING WITH CAUTION
Throughout 1996, the U.S. bond market was acutely sensitive to new economic data
and to non-farm payroll figures in particular. Market sentiment shifted between
concern that the U.S. economy was overheating and fear that it was sinking into
a recession. This tendency carried over into the second half of the year. At the
start of the period, economic data suggested that the economy was slowing. The
bond market responded by rallying through November, with the yield on the
bellwether 30-year bond at one point dipping below 6.40%. In general, bond
investors also seemed to be encouraged by the outcome of November's elections,
either because they believe the Republican majority in Congress will continue to
rein in fiscal spending or because they believe a Democrat in the White House
and a Republican majority in Congress will lock horns and keep the government at
bay.
As the holiday season got into full swing, however, the market again became
wary of robust consumer spending and other inflationary pressures. By the end of
1996, the yield on the 30-year bond had climbed back above 6.60%. Looking ahead,
we expect the economy to remain in a mode of slow, steady growth, low inflation
and low interest rates. That said, we also think the bond market may become more
volatile in the months ahead, as investors will be carefully monitoring new
economic data and may react negatively if they sense a shift in the current
environment.
4
<PAGE>
--------------------
The Montgomery Funds
Performance Summary
DECEMBER 31, 1996
(Unaudited)
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/96
<TABLE>
<CAPTION>
Fund name (fund number) Inception date One year Three years Five years Since inception
<S> <C> <C> <C> <C> <C>
Montgomery U.S. Equity Funds
=============================================================================================================
Growth Fund (284) 9/30/93 20.20% 21.58% -- 26.13%
- -------------------------------------------------------------------------------------------------------------
Micro Cap Fund (294)* 12/30/94 19.12% -- -- 23.76%
- -------------------------------------------------------------------------------------------------------------
Small Cap Fund (276)* 7/13/90 18.69% 13.03% 14.49% 21.11%
- -------------------------------------------------------------------------------------------------------------
Small Cap Opportunities Fund (645) 12/29/95 37.28% -- -- 37.28%
- -------------------------------------------------------------------------------------------------------------
Equity Income Fund (293) 9/30/94 18.34% -- -- 22.71%
- -------------------------------------------------------------------------------------------------------------
Montgomery Global and International Equity Funds
=============================================================================================================
International Growth Fund (296) 7/3/95 20.96% -- -- 22.14%
- -------------------------------------------------------------------------------------------------------------
International Small Cap Fund (283) 9/30/93 14.97% 3.65% -- 7.45%
- -------------------------------------------------------------------------------------------------------------
Global Opportunities Fund (285) 9/30/93 20.18% 8.82% -- 13.91%
- -------------------------------------------------------------------------------------------------------------
Global Communications Fund (280) 6/1/93 8.02% 3.01% -- 11.44%
- -------------------------------------------------------------------------------------------------------------
Emerging Markets Fund (277) 3/1/92 12.32% (1.96%) -- 8.75%
- -------------------------------------------------------------------------------------------------------------
Emerging Asia Fund (648)+ 9/30/96 -- -- -- 21.06%
- -------------------------------------------------------------------------------------------------------------
Montgomery Multi-Strategy Funds
=============================================================================================================
Select 50 Fund (295) 10/2/95 20.46% -- -- 30.60%
- -------------------------------------------------------------------------------------------------------------
Asset Allocation Fund (291) 3/31/94 12.85% -- -- 23.64%
- -------------------------------------------------------------------------------------------------------------
Montgomery Fixed-Income Funds
=============================================================================================================
Short Government Bond Fund (279) 12/18/92 5.14% 5.84% -- 6.46%
- -------------------------------------------------------------------------------------------------------------
California Tax-Free Intermediate
Bond Fund (281) 7/1/93 4.51% 5.22% -- 5.15%
- -------------------------------------------------------------------------------------------------------------
As of 12/31/96: One-day yield Seven-day yield
- -------------------------------------------------------------------------------------------------------------
Government Reserve Fund (278) 9/14/92 5.38% 5.06%
- -------------------------------------------------------------------------------------------------------------
Federal Tax-Free Money Fund (647)+ 7/15/96 4.16% 3.92%
- -------------------------------------------------------------------------------------------------------------
California Tax-Free
Money Fund (292) 9/30/94 3.69% 3.34%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Closed to new investors.
+ Performance is cumulative and for a limited period of time.
Performance information is for Class R (Retail) shares only. 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 fluctuation 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
Growth Fund
PORTFOLIO HIGHLIGHTS
- --------------------
(Unaudited)
I N V E S T M E N T R E V I E W
Q: How did the Montgomery Growth Fund perform in the six months ended 12/31/96?
A: Although the Growth Fund underperformed the S&P 500 by 6.49 percentage points
in the second half of 1996, it kept pace with the market for the full year and
continues to lead the index by a wide margin since inception.
Q: Where was the Fund overweight during this period? Do you still have a
favorable outlook for these areas?
A: The Growth Fund was overweight in three sectors in the second half of 1996:
basic materials, such as paper and forest products; consumer cyclicals like
retail, lodging and building materials; and technology. Each of these sectors is
sensitive to the economic cycle. Although the economy is entering its sixth year
of expansion, we are optimistic about continued growth in the U.S. economy and
about the relative values offered by the stocks we own in these sectors.
A recent survey of U.S. paper and forest products companies, for instance,
revealed that over the next three years they plan to increase capacity only
marginally; many observers, in fact, expect the rate of expansion to be near an
all-time low. Industry inventories have also declined significantly in all
product areas over the past six months. At the same time, demand has risen
considerably, resulting in significantly higher industry operating rates. We
believe that these conditions should lead to an upturn in prices for paper and
forest products fairly soon. On top of these improving fundamentals, relative
stock prices in the group recently hit a 30-year low.
These trends represent the sort of important fundamental change that we look
for, and we believe they should help drive these stocks up in the near future.
Q: Isn't it unusual to find sectors such as basic industries and building
materials in a growth fund?
A: True, but we believe "growth is where you find it." A key element of our
process is that we're willing to look at companies and industries other
portfolios might overlook because these areas are not traditionally considered
growth-oriented. This can create a meaningful advantage for our shareholders. We
believe that the consistent returns of the Growth Fund, as well as its modest
historic volatility, are primarily attributable to our willingness to look
"outside the box" for our fund candidates. Remember, we are trying to find
companies combining the best future growth prospects at the most reasonable
prices.
Q: At the end of 1996, two stocks in the Growth Fund each made up more than 4%
of assets: Dayton Hudson and L.M. Ericsson. How did they perform during the
second half of 1996?
A: Both companies' stocks outperformed the overall market, and our outlook for
them remains favorable. Dayton Hudson rose about 14% in the last half of 1996,
after it reported earnings that surpassed the market's expectations and
=======================================
P O R T F O L I O M A N A G E M E N T
- ---------------------------------------
Roger Honour...Senior Portfolio Manager
Andrew Pratt..........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 12/31/96
- ---------------------------------------
Montgomery Growth Fund
Since inception (9/30/93).........26.13%
One year..........................20.20%
- ---------------------------------------
S&P 500 Index
Since 9/30/93.....................18.85%
One year..........................22.96%
- ---------------------------------------
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.
[CHART APPEARS HERE]
Growth of a $10,000 Investment
/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 669 funds.
6
<PAGE>
--------------------
The Montgomery Funds
Growth Fund
PORTFOLIO HIGHLIGHTS
--------------------
analysts raised their estimates of the company's future earnings. The
performance of Ericsson's shares was even more exceptional; they registered a
40% gain in the last half of the year.
It's important to note that both stocks became large positions in the Growth
Fund chiefly through capital appreciation.
Q: How will you manage the Growth Fund going forward?
A: As in the past, we will follow our multi-disciplined methodology and seek to
creatively provide shareholders with the best available returns, while at the
same time taking as little risk as possible. Our investment decisions are guided
by companies' business fundamentals, not by trying to guess the next hot trend
or sector of the market. We invest as we find opportunities that meet our
disciplines, and we believe that this approach will best serve our shareholders
over the long term.
- ----------------------------------------
T O P T E N H O L D I N G S
- ----------------------------------------
(as a percentage of total net assets)
Dayton-Hudson Corporation.......... 4.7%
Ericsson (L.M.) Telephone Company,
Class B, ADR.................... 4.2%
Masco Corporation.................. 3.6%
Canadian National Railway Company.. 3.1%
International Paper Company........ 3.0%
Golden West Financial Corporation.. 3.0%
Octel Communications Corporation... 3.0%
Sybase Inc......................... 2.7%
Nordstrom, Inc..................... 2.6%
Schlumberger Ltd................... 2.3%
- ----------------------------------------
T O P F I V E I N D U S T R I E S
- ----------------------------------------
(as a percentage of total net assets)
Retail Trade.......................11.0%
Telecommunications Equipment.......10.8%
Pulp and Paper..................... 5.7%
Banks/Savings and Loan............. 5.4%
Business Services.................. 4.7%
P O R T F O L I O I N V E S T M E N T S
December 31, 1996 (unaudited)
COMMON STOCKS -- 80.3%
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
Aerospace and Defense -- 0.6%
254,000 Gulfstream Aerospace Corporation ..........$ 6,159,500
Airlines -- 1.5%
350,000 Federal Express Corporation ............... 15,575,000
Apparel and Textiles -- 0.3%
50,000 VF Corporation ............................ 3,375,000
Auto/Auto Parts -- 1.3%
225,000 General Motors Corporation ................ 12,543,750
Banks/Savings and Loan -- 5.4%
125,000 BankAmerica Corporation ................... 12,468,750
110,000 Citicorp .................................. 11,330,000
475,000 Golden West Financial Corporation ......... 29,984,375
----------
53,783,125
Building Materials -- 3.6%
1,000,000 Masco Corporation ......................... 36,000,000
Business Services -- 4.7%
975,000 AccuStaff Inc .............................$ 20,596,875
125,000 Computer Sciences Corporation ............. 10,265,625
275,000 Netscape Communications Corporation ....... 15,640,625
----------
46,503,125
Conglomerates -- 1.1%
211,600 Tyco International Ltd .................... 11,188,350
Diversified Financial Services -- 1.1%
250,000 Norwest Corporation ....................... 10,875,000
Electronics -- 1.6%
200,000 Raychem Corporation ....................... 16,025,000
Food and Beverage -- 2.2%
617,400 Fleming Companies, Inc .................... 10,650,150
62,000 Unilever N.V., ADR ........................ 10,865,500
----------
21,515,650
Health Care -- 0.6%
100,000 Oxford Health Plans, Inc .................. 5,856,250
</TABLE>
7
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------
The Montgomery Funds
INVESTMENTS
- --------------------
Growth Fund
- --------------------
COMMON STOCKS -- (continued)
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
Leisure Time -- 1.4%
425,000 G-TECH Holdings Corporation............... $ 13,600,000
Lodging -- 2.7%
160,000 HFS, Inc.+................................ 9,560,000
600,000 Interstate Hotels Company+................ 16,950,000
----------
26,510,000
Machinery and Tools -- 1.5%
650,000 Measurex Corporation...................... 15,600,000
Metals and Mining -- 1.5%
500,000 Freeport-McMoRan Copper & Gold, Series B.. 14,937,500
Newspapers/Publishing -- 1.0%
500,000 World Color Press Inc.+................... 9,625,000
Oil -- 3.6%
250,000 Amerada Hess Corporation.................. 14,468,750
350,000 Belco Oil & Gas Corporation+.............. 9,581,250
400,000 Union Pacific Resources Group, Inc........ 11,700,000
----------
35,750,000
Oilfield Equipment -- 4.2%
225,000 Schlumberger Ltd.......................... 22,471,875
425,000 Tidewater Inc............................. 19,231,250
----------
41,703,125
Pipelines -- 1.0%
225,000 Enron Corporation......................... 9,703,125
Pulp and Paper -- 5.7%
511,600 Boise Cascade Corporation................. 16,243,300
325,000 Chesapeake Corporation.................... 10,196,875
750,000 International Paper Company............... 30,281,250
----------
56,721,425
Railroad -- 3.0%
800,000 Canadian National Railway Company......... 30,400,000
Real Estate -- 1.1%
200,000 Starwood Lodging Trust.................... 11,025,000
Retail Trade -- 11.0%
1,200,000 Dayton-Hudson Corporation................. 47,100,000
150,000 Gucci Group............................... 9,581,250
725,000 Nordstrom, Inc............................ 25,692,187
250,000 Saks Holdings Inc.+....................... 6,750,000
475,000 Staples, Inc.+............................ 8,579,688
250,000 TJX Companies, Inc........................ 11,843,750
----------
109,546,875
Semiconductors -- 2.0%
300,000 Analog Devices Inc.+...................... 10,162,500
156,000 Texas Instruments, Inc.................... 9,945,000
----------
20,107,500
Software Systems -- 3.7%
550,000 Macromedia Inc.+.......................... 9,968,750
1,600,000 Sybase Inc.+.............................. 26,700,000
----------
36,668,750
Technology -- Miscellaneous -- 2.1%
2,000,000 Avid Technology Inc.+..................... $ 20,875,000
Telecommunications Equipment -- 10.8%
1,400,000 Ericsson (L.M.) Telephone Company,
Class B, ADR.............................. 42,262,500
200,000 General Instruments Corporation, New+..... 4,325,000
340,000 Northern Telecom Ltd...................... 21,037,500
1,700,000 Octel Communications Corporation+......... 29,537,500
405,000 PictureTel Corporation+................... 10,479,375
----------
107,641,875
TOTAL COMMON STOCKS
(Cost $662,992,797)........................................ 799,814,925
-----------
</TABLE>
REPURCHASE AGREEMENTS -- 21.0%
<TABLE>
<CAPTION>
Principal Amount
<S> <C> <C>
$63,842,500 Agreement with Bear Stearns Companies
Inc., Tri-Party, 7.500% dated
12/31/96, to be repurchased at
$63,869,101 on 01/02/97,
collateralized by $65,614,684 market
value of U.S. government securities,
having various maturities and various
interest rates............................. 63,842,500
50,631,500 Agreement with Chase Manhattan
Corporation, Tri-Party, 7.500% dated
12/31/96, to be repurchased at
$50,652,596 on 01/02/97,
collateralized by $51,645,603 market
value of U.S. government securities,
having various maturities and various
interest rates............................. 50,631,500
95,000,000 Agreement with Nikko Securities
Company, Ltd., 7.000% dated 12/31/96,
to be repurchased at $95,036,944 on
01/02/97, collateralized by
$97,366,519 market value of U.S.
government securities, having various
maturities and various interest rates...... 95,000,000
----------
TOTAL REPURCHASE AGREEMENTS
(Cost $209,474,000).......................................... 209,474,000
-----------
TOTAL INVESTMENTS -- 101.3%
(Cost $872,466,797*)......................................... 1,009,288,925
OTHER ASSETS AND LIABILITIES -- (1.3%)
(Net)........................................................ (13,411,610)
----------
NET ASSETS -- 100.0%......................................... $995,877,315
============
</TABLE>
*Aggregate cost for federal tax purposes.
+Non-income-producing security.
Abbreviation:
ADR...American Depositary Receipt
The accompanying notes are an integral part of these financial statements.
8
<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
--------------------------------------
(Unaudited)
I N V E S T M E N T R E V I E W
Q: Even though the Micro Cap Fund outperformed its benchmark--the Russell 2000
Index--for the year, it underperformed during the last half of 1996. Why?
A: By implementing a disciplined investment process that led us to good growth
companies trading at reasonable valuations, the Fund outperformed its benchmark
in 1996. The Fund's performance for the six months ended 12/31/96 lagged the
Russell 2000's by 3.42 percentage points, however, due to the Fund's
underperformance during the third quarter. This quarter included the July
correction, which was particularly severe for smaller-cap companies. Note that
the weighted average market cap of the Russell 2000 is much larger than that of
the Micro Cap Fund, and it was the smallest caps that were hit the hardest.
(Investors in this fund should realize that smaller-cap stocks do tend to be
more volatile than larger caps.) Bigger-cap stocks rebounded in the coming
months, but smaller caps continued to lag as the market focused on big-cap,
more-liquid names.
We do not focus on sector positioning, but our 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. During the last half of 1996, Micro Cap benefited from
its weighting in energy services and was hurt by a relative underweighting in
financials. Stock selection is what has enabled us to consistently exceed the
annual returns of the Russell 2000.
Q: What holdings performed especially well, and why?
A: A holding that performed particularly well during the last six months was
Unit Corporation, which appreciated 49% over the period. Unit Corporation is an
energy company engaged in oil and gas exploration, production and contract
drilling. All of the company's business divisions are performing very well. The
U.S. drilling markets are realizing the highest rig utilization rates since the
early 1980s. Unit's drilling subsidiary has experienced a 90% increase in rigs
operating under contract since the end of 1995, with day rates continuing to
rise. Sharply higher gas prices, combined with increased rig deployment, are
driving up Unit's revenue, cash flow and earnings sharply. Another successful
investment was II-VI Inc., which appreciated 62% over the last half of 1996.
II-VI designs, manufactures and markets components for high-powered lasers and
laser systems. These applications include high-speed cutting and welding,
medical/cosmetic surgery and scientific instru- mentation. Customer demand for
these products continues to increase as lasers are used for more and more
applications, boosting backlog, revenues and earnings for II-VI.
Q: Are there any new positions that you're excited about?
A: A recent investment we think has great potential is Sinter Metals Inc. This
company is the largest producer of powder metal components in North America and
Europe for use principally in the automotive industry, but to a
==========================================
P O R T F O L I O M A N A G E M E N T
- ------------------------------------------
Roger Honour......Senior Portfolio Manager
Andrew Pratt.............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 12/31/96
- ------------------------------------------
Montgomery Micro Cap Fund
Since inception (12/30/94)......... 23.76%
One year........................... 19.12%
- ------------------------------------------
Russell 2000 Index
Since 12/31/94..................... 22.33%
One year........................... 16.50%
- ------------------------------------------
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.
[CHART APPEARS HERE]
Growth of a $10,000 Investment
/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 385
funds.
9
<PAGE>
- --------------------
The Montgomery Funds
- --------------------
Micro Cap Fund
- --------------------
PORTFOLIO HIGHLIGHTS
========================================
T O P T E N H O L D I N G S
- ----------------------------------------
(as a percentage of total net assets)
Manitowoc Company...................2.7%
Moog, Inc., Class A.................2.4%
Life RE Corporation.................2.3%
HA-LO Industries Inc. ..............2.3%
Pride Petroleum Services Inc. ......2.2%
Kronos, Inc. .......................2.1%
Unit Corporation....................2.0%
Actel Corporation...................2.0%
Varco International Inc. ...........1.9%
Ethan Allen Interiors Inc. .........1.9%
========================================
T O P F I V E I N D U S T R I E S
- ----------------------------------------
(as a percentage of total net assets)
Machinery and Tools.................9.9%
Building Materials..................9.9%
Software Systems....................6.9%
Oilfield Equipment..................5.5%
Broadcasting/Advertising............5.1%
lesser extent in the lawn and garden, power tool and home appliance industries.
Powder metal products offer precision designs at a lower cost than other
processes; therefore, automotive customers are increasing the number of these
components used in each vehicle. The company is the market leader of this highly
fragmented industry and is four times the size of its next largest competitor,
offering quality, scale and superior technology to its customers. Sinter Metals
is growing by increasing orders from existing customers, adding new customers
and acting as a consolidator in this fast-growing, fragmented industry.
Q: Were there any holdings that didn't do so well?
A: The stock of Renaissance Hotel Group, an upscale international hotel and
resort operator, declined throughout the second half of 1996 despite the fact
that upscale lodging industry fundamentals remained strong, the majority of the
other stocks in this group were appreciating and the company continued to
deliver in line with earnings expectations. At the end of 1996, Doubletree
Corporation recognized this undervalued growth company and announced a takeover
offer for Renaissance at a significant premium to the stock price.
Q: Has the Fund's strategy changed?
A: No. The Fund's strategy, as it has been since inception, is to use our stock
selection process for early identification of good micro cap growth companies
with improving business fundamentals trading at reasonable valuations. We use a
quantitative screen to uncover companies with improving growth, then perform
rigorous fundamental analysis to determine the validity and sustainability of a
company's prospects and finally apply valuation criteria to determine if this
good growth company is a good investment. Only after a stock meets all three
steps of our process do we add it to the portfolio. We continually subject the
stocks comprised by the Micro Cap Fund to the same process that got them into
the portfolio in the first place. If they no longer meet all three steps of the
process, we trim or sell them.
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 comprising 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. The portfolio continues to be
well diversified, with 80 stocks in 37 industries.
Q: Why is now a good time to be invested in the Micro Cap Fund?
A: In 1996 the returns of the largest-cap stocks far exceeded those of small
caps, causing a significant valuation discrepancy between the two groups. The
smallest-cap stocks, such as those comprised by the Micro Cap Fund, we believe,
offer the best value for strong growth. This market phenomenon, coupled with our
unique stock selection process, could prove to be a powerful combination.
10
<PAGE>
---------------------
The Montgomery Funds
---------------------
Micro Cap 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
December 31, 1996 (unaudited)
COMMON STOCKS -- 93.4%
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Aerospace and Defense -- 2.4%
312,200 Moog, Inc., Class A+ ..................... $ 7,297,675
Airlines -- 1.2%
152,000 Expeditors International of Washington, Inc. 3,477,000
Apparel and Textiles -- 1.0%
70,000 St. John Knits Inc. ...................... 3,045,000
Auto/Auto Parts -- 0.5%
115,000 Boyds Wheels, Inc.+ ...................... 1,588,437
Banks/Savings and Loans -- 1.0%
110,000 Bank United Corporation, Class A ......... 2,949,375
Broadcasting/Advertising -- 5.1%
250,000 HA-LO Industries Inc.+ ................... 6,890,625
180,000 Metro Networks Inc.+ ..................... 4,522,500
218,500 Norwood Promotional Products, Inc.+ ...... 3,878,375
---------
15,291,500
Building Materials -- 9.9%
200,000 Champion Enterprises, Inc.+ .............. 3,900,000
85,000 Fibreboard Corporation+ .................. 2,868,750
170,000 Interface, Inc. .......................... 3,400,000
130,000 NCI Building Systems, Inc.+ .............. 4,460,625
200,000 Republic Group Inc. ...................... 3,125,000
230,000 Shelter Components Corporation ........... 2,817,500
306,750 Southern Energy Homes, Inc.+ ............. 3,508,453
222,500 Triangle Pacific Corporation+ ............ 5,353,906
---------
29,434,234
Business Services -- 2.4%
136,500 Bell & Howell Company+ ................... 3,241,875
133,100 On Assignment Inc.+ ...................... 3,876,537
---------
7,118,412
Computers and Office Equipment -- 2.4%
160,000 Computer Products Inc.+ .................. 3,130,000
124,000 Dialogic Corporation+ .................... 3,887,500
---------
7,017,500
Consumer Cyclicals -- 1.6%
214,000 Cannondale Corporation+ .................. 4,761,500
Consumer Products -- 1.9%
100,000 Libbey, Inc. ............................. 2,787,500
211,500 RockShox, Inc.+ .......................... 3,027,094
---------
5,814,594
Containers and Packaging -- 1.3%
103,200 Continental Can Inc.+ .................... 1,457,700
150,000 SEDA Specialty Packaging Corporation+ .... 2,456,250
---------
3,913,950
Electrical Equipment -- 2.1%
74,400 Coherent, Inc.+ .......................... $ 3,180,600
178,000 Giga-Tronics Inc.+ ....................... 1,501,875
118,100 Woodhead Industries, Inc. ................ 1,616,494
---------
6,298,969
Electronics -- 2.0%
132,000 Cubic Corporation ........................ 3,052,500
67,900 GenRad, Inc.+ ............................ 1,578,675
125,000 Xicor, Inc.+ ............................. 1,281,250
---------
5,912,425
Finance -- 1.3%
130,000 Oxford Resources Corporation, Class A+ ... 3,989,375
Food and Beverage -- 2.3%
90,000 Morningstar Group, Inc.+ ................. 1,777,500
195,000 Nature's Sunshine Products, Inc. ......... 3,558,750
180,000 Unimark Group, Inc.+ ..................... 1,406,250
---------
6,742,500
Furniture -- 0.8%
175,000 O'Sullivan Industries Holdings, Inc. ..... 2,450,000
Heavy Construction -- 1.0%
148,000 Granite Construction, Inc. ............... 2,886,000
Insurance -- 4.8%
165,000 Amerin Corporation+ ...................... 4,238,437
197,700 AVEMCO Corporation ....................... 3,089,063
181,000 Life RE Corporation ...................... 6,991,125
---------
14,318,625
Lodging -- 1.0%
132,100 Renaissance Hotel Group N.V.+ ............ 3,104,350
Machinery and Tools -- 9.9%
100,000 Applied Power, Inc., Class A ............. 3,962,500
82,000 DT Industries, Inc. ...................... 2,849,500
150,000 II-VI Inc.+ .............................. 3,900,000
195,500 Manitowoc Company ........................ 7,917,750
121,800 Measurex Corporation ..................... 2,923,200
175,000 Sinter Metals Inc.+ ...................... 5,206,250
160,000 X-Rite Inc. .............................. 2,680,000
---------
29,439,200
Medical Products -- 3.3%
53,200 Cooper Companies, Inc.+ .................. 917,700
192,900 Maxicare Health Plans, Inc.+ ............. 4,340,250
202,700 Physio-Control International Corporation+ 4,510,075
---------
9,768,025
Metals and Mining -- 0.6%
195,500 Lindberg Corporation ..................... 1,906,125
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Micro 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>
Oil -- 2.4%
100,000 Key Energy Group, Inc.+ ..................... $ 1,175,000
600,000 Unit Corporation+ ........................... 5,925,000
---------
7,100,000
Oilfield Equipment -- 5.5%
102,400 Falcon Drilling Company, Inc.+ .............. 4,019,200
279,500 Pride Petroleum Services Inc.+ .............. 6,463,438
250,000 Varco International Inc.+ ................... 5,781,250
---------
16,263,888
Pollution Control -- 1.1%
125,000 Tetra Technologies, Inc.+ ................... 3,179,688
Real Estate -- 1.1%
62,000 Starwood Lodging Trust ...................... 3,417,750
Real Estate Investment Trust -- 1.3%
270,000 Innkeepers USA Trust ........................ 3,746,250
Restaurants -- 2.1%
108,300 Consolidated Products, Inc.+ ................ 2,111,850
167,500 Sonic Corporation+ .......................... 4,229,375
---------
6,341,225
Retail Trade -- 3.1%
145,000 Ethan Allen Interiors Inc. ................. 5,582,500
900,000 Filene's Basement Corporation+ ............. 3,712,500
---------
9,295,000
Semiconductors -- 4.2%
245,000 Actel Corporation+ .......................... 5,834,062
40,000 Cymer Inc.+. ................................ 1,927,500
207,500 International Rectifier Corporation+ ........ 3,164,375
100,000 Plexus Corporation+ ......................... 1,712,500
---------
12,638,437
Software Systems -- 6.9%
141,500 Barra Inc.+ ................................. 3,838,187
164,250 Boole and Babbage, Inc.+ .................... 4,024,125
152,900 CFI ProServices, Inc.+ ...................... 2,140,600
90,000 Henry (Jack) & Associates ................... 3,195,000
200,200 Kronos, Inc.+ ............................... 6,256,250
80,000 Versatility Inc.+ ........................... 1,205,000
---------
20,659,162
Steel -- 1.1%
190,000 Materials Science Corporation+ .............. 3,420,000
Technology -- Miscellaneous -- 1.8%
202,500 Data Research Associates, Inc. .............. 2,974,219
200,000 Firearms Training Systems, Inc.+ ............ 2,350,000
---------
5,324,219
Telecommunications -- 1.0%
120,000 SDL Inc.+ ................................... 3,120,000
Telecommunications Equipment -- 0.4%
80,000 Harmonic Lightwaves, Inc.+ .................. 1,225,000
Shares Value (Note 1)
Trucking -- 1.6%
200,000 Swift Transportation Company Inc.+ .......... $ 4,662,500
---------
TOTAL COMMON STOCKS
(Cost $212,385,207) .......................................... 278,917,890
-----------
REPURCHASE AGREEMENTS -- 6.2%
Principal Amount
$9,253,000 Agreement with Bear Stearns
Companies Inc., Tri-Party,
7.500% dated 12/31/96, to be
repurchased at $9,256,855 on
01/02/97, collateralized by
$9,509,851 market value of U.S.
government securities, having
various maturities and various
interest rates .................................. 9,253,000
9,253,000 Agreement with Chase Manhattan Corporation,
Tri-Party, 7.500% dated
12/31/96, to be repurchased at
$9,256,855 on 01/02/97,
collateralized by $9,438,329
market value of U.S. government
securities, having various
maturities and various interest
rates ........................................... 9,253,000
---------
TOTAL REPURCHASE AGREEMENTS
(Cost $18,506,000) .......................................... 18,506,000
----------
TOTAL INVESTMENTS -- 99.6%
(Cost $230,891,207*) ........................................ 297,423,890
OTHER ASSETS AND LIABILITIES -- 0.4%
(Net) ....................................................... 1,219,374
---------
NET ASSETS -- 100.0% ........................................$ 298,643,264
=============
</TABLE>
*Aggregate cost for federal tax purposes.
+Non-income--producing security.
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
--------------------------------------
The Montgomery Funds
--------------------------------------
Small Cap Fund
--------------------------------------
PORTFOLIO HIGHLIGHTS
(Unaudited)
I N V E S T M E N T R E V I E W
Q: How did the Montgomery Small Cap Fund perform versus its benchmark during the
six months ended December 31, 1996?
A: The Fund underperformed the Russell 2000 Index during the second half of 1996
by 4.88 percentage points. But it led that index during 1996 as a whole, and it
continues to outperform the Russell 2000 on an annualized basis since inception.
Q: What elements of the portfolio (i.e., individual holdings or industry
weightings) benefited the Fund most during this period?
A: A variety of stocks in the portfolio turned in good performances during the
second half. In fact, several stocks reached the price targets we had set for
them during the period, leading us to take profits on them. These included
Teltrend, a telecommunications equipment company, and World Color Press, which
is involved in publishing.
Q: Were any elements disappointing?
A: In December telecommunications service provider Frontier Corporation (a
long-standing position in the portfolio) announced that it would have trouble
continuing to expand its business at past rates, and its stock immediately
dropped 20%. Given this apparent fall-off in Frontier's business fundamentals,
we sold our position. LCI International, another telecommunications service
provider, fell 35% in sympathy with Frontier's problems, even though LCI's
management stated publicly that the company was not experiencing the same
problems that Frontier was. We are confident about LCI's growth prospects and we
believe that its share price will rebound as the company meets earnings
expectations.
Finally, Galoob Toys fell sharply in December when analysts reduced their
earnings forecasts for the company. We think the selling has been overdone,
however, and we're confident that Galoob's share price will either rebound or
the company's depressed share price will make it an attractive takeover target.
Q: Any new positions that you're excited about for the future?
A: Yes, there are quite a few. During the fourth quarter, we initiated a
position in ETEC Systems, which is a leading producer of specialized capital
equipment for the semiconductor industry. Other new additions include CareMatrix
Corporation, which owns and operates assisted-living facilities for seniors, and
Steris Corporation, a rapidly growing company that specializes in helping
hospitals keep their medical and surgical equipment sterile.
Q: The Fund's strategy is based on bottom-up corporate analysis, so you don't
actively "play" sectors. But are there any particular industries or sectors
where you're finding stocks that are fundamentally attractive?
A: At the start of 1997, the Fund's largest sector concentrations were in
telecommunications (13%) and business services (10.9%). The remaining assets are
in a variety of other industries, so, as you can see, the portfolio
<TABLE>
<CAPTION>
==========================================
P O R T F O L I O M A N A G E M E N T
- ------------------------------------------
<S> <C>
Stuart Roberts....Senior Portfolio Manager
Jerome Philpott..........Portfolio Manager
Bradford Kidwell.........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 12/31/96
- ------------------------------------------
<TABLE>
<CAPTION>
Montgomery Small Cap Fund
<S> <C>
Since inception (7/13/90)...........21.11%
One year............................18.69%
Five years..........................14.49%
- ------------------------------------------
Russell 2000 Index
Since 6/30/90.......................14.39%
One year............................16.50%
Five years..........................15.64%
- ------------------------------------------
</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.
[CHART APPEARS HERE]
Growth of a $10,000 Investment
/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 385
funds.
13
<PAGE>
- ----------------------------------------
The Montgomery Funds
- ----------------------------------------
Small Cap Fund
- ----------------------------------------
PORTFOLIO HIGHLIGHTS
- ----------------------------------------
T O P T E N H O L D I N G S
- ----------------------------------------
(as a percentage of total net assets)
ICG Communications, Inc. ...........3.5%
LCI International Inc. .............3.2%
Petroleum Geo-Services, ADR ........3.0%
OEA Inc. ...........................2.7%
National Data Corporation ..........2.7%
Caribiner International Inc. .......2.2%
OrNda Healthcorp ...................2.1%
SEACOR Holdings Inc. ...............2.0%
Commercial Federal Corporation .....2.0%
Conseco, Inc. ......................1.9%
- ----------------------------------------
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 ................13.0%
Business Services .................10.9%
Oil ................................9.6%
Health Care ........................6.8%
Insurance ..........................6.1%
remains fairly well diversified. Again, though, all these sector concentrations
are a function of our bottom-up analysis.
Q: How are you positioning the Fund for the year ahead?
A: As always, our decisions will be driven by a bottom-up, company-specific
investment discipline. Our ongoing research effort, which includes meeting with
several hundred firms a year, is the key to our process. Our goal is to identify
those companies that we believe will continue to offer consistently superior
earnings growth, among other qualities.
Q: Although the Fund is currently closed to new investors, what makes it a good
place for existing shareholders to invest additional money?
A: During the second half of 1996, the stocks of large-cap companies continued
to outperform those of smaller firms. Although this may have been cause for some
short-term disappointment, we think that the trend actually bodes well for
investors in this fund. Many small-cap stocks are now trading at valuations that
are attractive relative both to their levels over the past decade or so and to
the valuations of large caps in general. We continue to believe that as a group,
small caps represent the most attractive segment of the market--both in the near
term and over the long run. The small-cap sector continues to be the least
efficient segment of the U.S. market, and we're convinced that our hands-on
research gives us a true advantage in the investment process.
P O R T F O L I O I N V E S T M E N T S
December 31, 1996 (unaudited)
COMMON STOCKS -- 95.6%
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Aerospace and Defense -- 0.9%
95,000 Tracor, Inc.+ ............................... $ 2,030,625
Auto/Auto Parts -- 2.7%
130,300 OEA Inc. .................................... 5,961,225
Banks/Savings and Loans -- 3.3%
72,500 Bank United Corporation, Class A ............ 1,943,906
91,200 Commercial Federal Corporation .............. 4,377,600
28,800 OnBancorp Inc. .............................. 1,072,800
---------
7,394,306
Biotechnology -- 2.3%
108,000 Idec Pharmaceuticals Corporation+ ........... $2,558,250
138,600 Liposome Company, Inc.+ ..................... 2,659,387
---------
5,217,637
Broadcasting/Advertising -- 0.7%
66,300 HSN, Inc.+ .................................. 1,566,338
Building Materials -- 1.9%
178,900 AMRE, Inc.+ ................................. 290,713
97,700 Champion Enterprises, Inc.+ ................. 1,905,150
91,200 Oakwood Homes Corporation+ .................. 2,086,200
---------
4,282,063
</TABLE>
14
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------
The Montgomery Funds
--------------------
Small Cap Fund
--------------------
I N V E S T M E N T S
--------------------
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Business Services -- 10.9%
111,300 Billing Information Concepts+..............$ 3,220,744
66,800 BiSYS Group, Inc.+......................... 2,475,775
96,100 Caribiner International Inc.+.............. 4,829,025
74,900 DST Systems, Inc.+......................... 2,349,988
45,900 Envoy Corporation+......................... 1,729,856
136,800 National Data Corporation.................. 5,950,800
96,100 Personnel Group of America Inc.+........... 2,318,412
61,100 TeleTech Holdings, Inc.+................... 1,565,688
---------
24,440,288
Capital Goods -- 1.5%
74,500 Corrections Corporation of America+....... 2,281,563
122,200 Thermatrix Inc.+.......................... 1,122,712
---------
3,404,275
Computers and Office Equipment -- 0.7%
48,900 Dialogic Corporation+..................... 1,528,125
Diversified Financial Services -- 5.6%
48,000 Aames Financial Corporation............... 1,722,000
195,500 AmeriCredit Corporation+.................. 4,007,750
71,700 ContiFinancial Corporation+............... 2,590,162
134,220 Imperial Credit Industries................ 2,818,620
81,500 Union Acceptance Corporation+............. 1,426,250
---------
12,564,782
Finance -- 1.3%
111,800 Amresco, Inc.+............................ 2,976,675
Food and Beverage -- 2.5%
78,200 Canandaigua Wine Company, Inc., Class A+.. 2,223,813
86,700 Smithfield Foods Inc.+.................... 3,283,763
---------
5,507,576
Health Care -- 6.8%
182,500 Capstone Pharmacy Services, Inc.+......... 2,053,125
63,700 CareMatrix Corporation+................... 836,062
91,200 Omnicare, Inc............................. 2,929,800
162,900 OrNda Healthcorp+......................... 4,764,825
63,000 PhyMatrix Corporation+.................... 905,625
93,300 Physician Computer Network Inc.+.......... 793,050
96,000 Quorum Health Group, Inc.+................ 2,844,000
---------
15,126,487
Insurance -- 6.1%
91,200 CMAC Investment Corporation............... 3,351,600
65,200 Conseco, Inc.............................. 4,156,500
36,700 Equitable of Iowa Companies............... 1,683,612
89,600 Everest Reinsurance Holdings Inc.......... 2,576,000
47,600 Life RE Corporation....................... 1,838,550
---------
13,606,262
Leisure Time -- 3.0%
427,800 Alliance Gaming Corporation+.............. 1,844,887
91,200 K2 Resources, Inc......................... 2,508,000
73,300 Regal Cinemas Inc.+....................... 2,244,813
---------
6,597,700
Lodging -- 1.0%
162,904 ShoLodge, Inc.+........................... 2,138,115
Machinery and Tools -- 1.3%
94,500 Greenfield Industries Inc................. 2,888,156
Medical Products -- 5.2%
59,900 Arrow International....................... 1,699,662
97,700 I-Stat Corporation+....................... 2,308,163
84,700 Mentor Corporation........................ 2,488,062
107,400 Physio-Control International Corporation+. 2,389,650
65,200 Steris Corporation........................ 2,840,275
---------
11,725,812
Oil -- 9.6%
67,100 BJ Services Company+...................... 3,422,100
78,200 Camco International Inc................... 3,606,975
29,300 Nuevo Energy Company+..................... 1,523,600
172,400 Petroleum Geo-Services, ADR+.............. 6,723,600
71,700 SEACOR Holdings Inc.+..................... 4,517,100
70,900 Seagull Energy Corporation+............... 1,559,800
---------
21,353,175
Pharmacy/Drugs -- 5.6%
32,600 Agouron Pharmaceuticals Inc.+............. 2,204,575
84,700 AmeriSource Health Corporation, Class A+.. 4,086,775
113,000 MedImmune, Inc.+.......................... 1,949,250
63,500 North American Vaccine Inc.+.............. 1,539,875
61,600 Watson Pharmaceuticals Inc.+.............. 2,768,150
---------
12,548,625
Pollution Control -- 1.5%
135,200 TETRA Technologies Inc.+.................. 3,439,150
Retail Trade -- 3.6%
62,800 Black Box Corporation+.................... 2,566,950
39,100 Global DirectMail Corporation+............ 1,705,738
260,600 Renters Choice Inc.+...................... 3,729,837
---------
8,002,525
Semiconductors -- 0.7%
41,600 ETEC Systems, Inc.+....................... 1,570,400
Software Systems -- 0.4%
42,900 Midway Games Inc.+........................ 868,725
Steel -- 0.9%
122,200 Northwest Pipe Company+................... 1,985,750
</TABLE>
15
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------
The Montgomery Funds
- --------------------
Small Cap Fund
- --------------------
INVESTMENTS
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Telecommunications -- 13.0%
78,200 ACC Corporation+........................... $ 2,360,663
35,800 Globalstar Telecommunication Ltd.+......... 2,210,650
443,028 ICG Communications, Inc.+.................. 7,808,369
334,100 LCI International Inc.+.................... 7,183,150
100,900 McLeod, Inc.+.............................. 2,585,562
175,900 MIDCOM Communications, Inc.+............... 1,517,138
114,000 Primus Telecommunications Group, Inc.+..... 1,425,000
138,000 Tel-Save Holdings, Inc.+................... 3,993,375
---------
29,083,907
Telecommunications Equipment -- 1.7%
68,400 Comverse Technology Inc.+.................. 2,586,375
71,700 NICE Systems, Ltd., ADR+................... 1,277,156
---------
3,863,531
Toys -- 0.9%
144,200 Galoob Toys Inc.+.......................... 2,018,800
TOTAL COMMON STOCKS
(Cost $159,843,646)......................................... 213,691,035
-----------
REPURCHASE AGREEMENT -- 3.1%
(Cost $7,028,000)
Principal Amount Value (Note 1)
$7,028,000 Agreement with Chase Manhattan Corporation,
Tri-Party, 7.500% dated 12/31/96, to be
repurchased at $7,030,928 on 01/02/97,
collateralized by $7,168,764 market value of
U.S. government securities, having various
maturities and various interest rates....... $ 7,028,000
---------
TOTAL INVESTMENTS -- 98.7%
(Cost $166,871,646*)........................................ 220,719,035
OTHER ASSETS AND LIABILITIES -- 1.3%
(Net)....................................................... 2,908,908
---------
NET ASSETS -- 100.0%........................................ $223,627,943
============
</TABLE>
*Aggregate cost for federal tax purposes.
+Non-income-producing security.
Abbreviation:
ADR .....American Depositary Receipt
16
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------
The Montgomery Funds
--------------------
Small Cap
Opportunities Fund
--------------------
PORTFOLIO HIGHLIGHTS
(Unaudited)
INVESTMENT REVIEW
Q: The Small Cap Opportunities Fund had an outstanding year with the exception
of the fourth quarter, which adversely affected its performance in the last half
of 1996. What happened?
A: During the fourth quarter, the Fund was hurt by its exposure to consumer
stocks, especially retailers of sunglasses, and by radio and TV broadcasting
companies. We reduced holdings in these areas during the fourth quarter. For the
six-month period, however, the Fund performed in line with the Russell 2000, and
for the year, the Fund far outperformed it. In fact, its returns were more than
two times those of the benchmark's--all in all, an outstanding year for the
Fund's shareholders.
Q: What holdings performed especially well during the period?
A: Our top performer was Sanmina, a leading provider of contract manufacturing
services. Sanmina's excellent growth is attributable to its position as a key
manufacturing partner to companies making telecommunications, data networking,
industrial and medical equipment.
These companies turn increasingly to Sanmina because of its excellent service,
track record and ability to help them bring their products to market quickly.
Its success in attracting that business is reflected in its share price.
Q: Were there any holdings that didn't do so well?
A: The Men's Wearhouse, a retailer of men's apparel, didn't do well. The company
was hurt by a very competitive pricing environment during the period. The
company also had an outstanding year in 1995, which made 1996 comparisons
difficult. We have maintained our position in this stock, however, as we expect
the company to have a successful year in 1997, driven by better sales and less
competition.
Q: What is the Fund's strategy? Are you planning to position the Fund
differently for the year ahead?
A: The Fund's investment objective going into 1997 remains the same as it has
always been: to find high-quality, small-cap growth companies trading at
reasonable valuations. We execute this strategy using a three-step approach that
consists of screening companies for improving business fundamentals, extensively
analyzing market and industry trends and keeping a close eye on company
valuations. So we don't really "position" the portfolio, although we do make
sure that it is well diversified. Its makeup is basically a function of our
bottom-up stock selection process. That said, the Fund is entering 1997 with
less exposure to the specialty retailing area and more producer-durable stocks
than it had in mid-1996. As the year progresses, the Fund's positioning will
change as we identify undervalued growth opportunities in the market.
===========================================
P O R T F O L I O M A N A G E M E N T
- -------------------------------------------
Roger Honour.......Senior Portfolio Manager
Andrew Pratt..............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 12/31/96
- -------------------------------------------
Montgomery
Small Cap Opportunities Fund
Since inception (12/29/95).........37.28%
- -------------------------------------------
Russell 2000 Index
Since 12/31/95.....................16.50%
- -------------------------------------------
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]
/1/ The Russell 2000 Index is a capitalization-weighted total return index that
is comprised of 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 385
funds.
17
<PAGE>
- --------------------
The Montgomery Funds
- --------------------
Small Cap
Opportunities Fund
- --------------------
PORTFOLIO HIGHLIGHTS
<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>
Caribiner International Inc.........4.9%
Applied Graphics Technologies, Inc..4.6%
Cooper Companies, Inc...............3.2%
MedPartners, Inc....................3.0%
U.S. Office Products Company........3.0%
Unison Software, Inc................2.2%
Borders Group Inc...................2.2%
Sola International, Inc.............2.0%
Jones Apparel Group, Inc............2.0%
Marine Drilling Companies, Inc......1.9%
</TABLE>
<TABLE>
<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>
Business Services..................14.9%
Software Systems...................10.6%
Medical Products....................8.4%
Diversified Financial Services......5.3%
Broadcasting/Advertising............4.6%
</TABLE>
Q: Why should investors consider the Montgomery Small Cap Opportunities Fund
right now?
A: The past year was better for large-capitalization stocks than for small caps,
as measured by the Russell 2000 (up 16.50%) and the S&P 500 (up 22.95%).
Small-caps went through a very difficult period in July, going down roughly
twice as far as the large-cap indexes, even though the fundamentals of most
small caps hadn't changed. We think that small-cap stocks continue to represent
an attractive part of the market, if investment is conducted using a disciplined
process. The Small Cap Opportunities Fund provides investors with a way to
participate in small-cap stocks, using our unique discipline for stock selection
and prudent portfolio management techniques.
P O R T F O L I O I N V E S T M E N T S
December 31, 1996 (unaudited)
COMMON STOCKS -- 89.2%
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Apparel and Textiles -- 3.5%
105,000 Jones Apparel Group, Inc.+.................$ 3,924,375
130,000 The Men's Wearhouse Inc.+.................. 3,160,625
---------
7,085,000
Broadcasting/Advertising -- 4.6%
67,000 American Radio Systems Corporation+........ 1,825,750
40,000 Heftel Broadcasting Corporation, Class A+.. 1,245,000
71,000 Lin Television Corporation+................ 2,990,875
109,500 Norwood Promotional Products, Inc.+........ 1,943,625
40,000 Young Broadcasting Corporation, Class A+... 1,175,000
---------
9,180,250
Business Services -- 14.9%
318,000 Applied Graphics Technologies, Inc.+....... 9,142,500
194,000 Caribiner International Inc.+.............. 9,748,500
45,000 Computer Task Group, Inc.+................. 1,935,000
55,000 HCIA Inc.+................................. 1,907,812
176,400 U.S. Office Products Company+.............. 5,986,575
50,000 Whittman-Hart Inc.+........................ 1,268,750
---------
29,989,137
Capital Goods -- 1.5%
95,000 Waters Corporation+........................ 2,885,625
Computers and Office Equipment -- 0.9%
60,000 Dialogic Corporation+...................... $1,875,000
Consumer Products -- 2.2%
123,700 Borders Group Inc.+........................ 4,437,737
Consumer Services -- 2.8%
100,000 Carriage Services, Inc.+................... 2,218,750
212,500 Team Rental Group Inc.+.................... 3,453,125
---------
5,671,875
Diversified Financial Services -- 5.3%
53,000 Aames Financial Corporation................ 1,901,375
101,500 AmeriCredit Corporation+................... 2,080,750
170,000 BA Merchant Services, Inc.+................ 3,038,750
25,000 IMC Mortgage Company+...................... 831,250
50,000 Imperial Credit Industries................. 1,050,000
55,000 Southern Pacific Funding Corporation+...... 1,711,875
---------
10,614,000
Electrical Equipment -- 1.0%
95,000 MRV Communications Inc.+................... 2,072,187
</TABLE>
18
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------
The Montgomery Funds
--------------------
Small Cap
Opportunities Fund
--------------------
INVESTMENTS
COMMON STOCKS - continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Electronics -- 1.5%
80,000 SBS Technologies, Inc.+....................$ 2,940,000
Furniture -- 1.3%
60,500 Kimball International, Inc., Class B....... 2,503,188
Health Care -- 3.9%
285,900 MedPartners, Inc.+......................... 6,003,900
120,000 Orthodontic Centers of America, Inc.+...... 1,890,000
---------
7,893,900
Insurance -- 1.4%
55,000 Berkley (W.R.) Corporation................. 2,808,438
Lodging -- 2.8%
133,500 Interstate Hotels Company+................. 3,771,375
81,800 Renaissance Hotel Group N.V.+.............. 1,922,300
---------
5,693,675
Medical Products -- 8.4%
373,500 Cooper Companies, Inc.+.................... 6,442,875
30,000 ESC Medical Systems, Ltd.+................. 772,500
75,000 Fisher Scientific International+........... 3,534,375
95,100 Maxicare Health Plans, Inc.+............... 2,139,750
104,200 Sola International, Inc.+.................. 3,959,600
---------
16,849,100
Newspapers/Publishing -- 0.6%
65,000 World Color Press Inc.+.................... 1,251,250
Oil -- 3.4%
47,500 Cliffs Drilling Company+................... 2,986,563
195,000 Marine Drilling Companies, Inc.+........... 3,839,062
---------
6,825,625
Oilfield Equipment -- 1.5%
140,000 Hvide Marine, Inc., Class A+............... 3,036,250
Real Estate -- 0.9%
50,500 Redwood Trust Inc.......................... 1,862,188
Restaurants -- 2.0%
88,700 Boston Chicken Inc.+....................... 3,182,112
50,000 Quality Dining, Inc.+...................... 881,250
---------
4,063,362
Retail Trade -- 2.4%
30,000 Corporate Express, Inc.+................... 883,125
200,000 Kenneth Cole Productions Inc.+............. 3,100,000
33,500 Loehmann's Holdings, Inc.+................. 770,500
---------
4,753,625
Semiconductors -- 2.5%
80,000 Actel Corporation+......................... 1,905,000
54,100 Sanmina Corporation+....................... 3,056,650
---------
4,961,650
Services -- 1.3%
125,000 Education Management Corporation+.......... 2,593,750
Software Systems -- 10.6%
44,250 Boole and Babbage, Inc.+................... $1,084,125
30,000 Cognos, Inc.+.............................. 840,000
150,000 Enterprise Systems, Inc.+.................. 3,543,750
91,500 JDA Software Group, Inc.+.................. 2,579,156
100,000 Keane, Inc.+............................... 3,175,000
43,500 Kronos, Inc.+.............................. 1,359,375
370,000 Meridian Data Inc.+........................ 2,520,625
80,000 Structural Dynamics Research Corporation+.. 1,585,000
169,200 Unison Software, Inc.+..................... 4,483,800
---------
21,170,831
Telecommunications -- 2.1%
115,000 Boston Technology, Inc.+................... 3,299,063
30,000 P-Com, Inc.+............................... 892,500
---------
4,191,563
Telecommunications Equipment -- 3.3%
60,000 Comverse Technology Inc.+.................. 2,268,750
126,000 Ortel Corporation+......................... 2,992,500
50,000 PictureTel Corporation+.................... 1,293,750
---------
6,555,000
Toys -- 1.4%
157,500 Action Performance Companies, Inc.+........ 2,874,375
Trucking -- 1.2%
90,000 U.S. Freightways Corporation............... 2,469,375
---------
TOTAL COMMON STOCKS
(Cost $153,450,765).......................................... 179,107,956
-----------
REPURCHASE AGREEMENT -- 12.2%
(Cost $24,496,000)
Principal Amount
$24,496,000 Agreement with Bear Stearns Companies Inc.,
Tri-Party, 7.500% dated 12/31/96, to be
repurchased at $24,506,207 on 01/02/97,
collateralized by $25,175,977 market value
of U.S. government securities, having various
maturities and various interest rates...... 24,496,000
----------
TOTAL INVESTMENTS -- 101.4%
(Cost $177,946,765*)......................................... 203,603,956
OTHER ASSETS AND LIABILITIES -- (1.4%)
(Net)........................................................ (2,852,896)
NET ASSETS -- 100.0%......................................... $200,751,060
============
</TABLE>
*Aggregate cost for federal tax purposes.
+Non-income-producing security.
19
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------
The Montgomery Funds
- --------------------
Equity Income Fund
- --------------------
PORTFOLIO HIGHLIGHTS
(Unaudited)
===========================================
P O R T F O L I O M A N A G E M E N T
- -------------------------------------------
John Brown.........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 12/31/96
- -------------------------------------------
Montgomery Equity Income Fund
Since inception (9/30/94).......22.71%
One year........................18.34%
- -------------------------------------------
S&P 500 Index
Since 9/30/94...................26.29%
One year........................22.95%
- -------------------------------------------
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 CHART APPEARS HERE]
/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 160 funds.
I N V E S T M E N T R E V I E W
Q: How did the Montgomery Equity Income Fund perform relative to its benchmark
in the six months ended 12/31/96?
A: Thanks to solid stock selection, the Fund outperformed the Lipper Equity
Income category average by 1.01 percentage points, but it slightly lagged the
S&P 500 Index. That was largely because the Fund didn't have exposure to some of
the growth-oriented stocks of the S&P that investors favored during the second
half of the period.
Q: Which of the Fund's holdings performed especially well during the period?
A: Quite a few of the Fund's holdings in the financial sector performed well.
The direction of interest rates was less of a factor in drawing investors to
this sector in 1996 than it had been in the past, though; what really drove
these stocks last year were good earnings trends and other positive
fundamentals, especially for the big national banks. A variety of individual
positions like Bristol-Myers and Betzdearborn also helped the Fund during the
second half of 1996.
Q: What holdings underperformed?
A: As a group, the Fund's holdings in the electric utilities and telephone
sectors did poorly in the second half of 1996. Utilities in general have been
depressed by a number of factors, especially the threat of increased
competition. Market trends have also played a role, in that utilities have been
overlooked as investors have stampeded to more aggressive investments, like
technology stocks.
Q: Did you make any significant shifts to the portfolio in the second half of
1996?
A: We've been taking profits on the Fund's positions in financials--banks
specifically--which have had good runs lately. We've also been paring back on
energy stocks, which were one of the top performing sectors in 1996 as the price
of crude oil jumped.
Q: How are you positioning the Fund for the year ahead?
A: Two areas where we see unrecognized potential are paper and chemical
manufacturers. That might seem like two odd choices, if you consider only that
the U.S. economy seems to be in the later stages of its expansion. In fact, that
seems to be exactly what investors are doing, which makes these stocks quite a
bargain. But if synchronized global growth becomes a reality soon--and we think
it may--we believe that the paper and chemical companies we own should benefit
from an upsurge in demand for their goods.
20
<PAGE>
--------------------
The Montgomery Funds
--------------------
Equity Income Fund
--------------------
PORTFOLIO HIGHLIGHTS
Q: Why should an investor consider the Equity Income Fund right now?
A: The Equity Income Fund provides investors with what we believe is relatively
low-risk exposure to the stock market. Lately, of course, funds that have taken
on a great deal of risk have paid off as the market has reached a string of new
highs. Although no one can predict with certainty where it will go in the next
few months, investors might find our emphasis on stability reassuring.
- ----------------------------------------
T O P T E N H O L D I N G S
- ----------------------------------------
(as a percentage of total net assets)
Amoco Corporation...................3.6%
UST Inc.............................3.2%
Bristol-Myers Squibb Company........3.1%
Genuine Parts Company...............2.9%
Morgan (J.P.) & Company Inc.........2.8%
Anheuser-Busch Companies Inc........2.6%
Weyerhauser Company.................2.4%
Masco Corporation...................2.4%
Western Resources Inc...............2.4%
General Mills Inc...................2.3%
- ----------------------------------------
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.................12.5%
Oil.................................8.8%
Insurance...........................8.7%
Food and Beverage...................7.3%
Pulp and Paper......................7.1%
P O R T F O L I O I N V E S T M E N T S
December 31, 1996 (unaudited)
COMMON STOCKS -- 93.5%
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Auto/Auto Parts -- 4.3%
6,300 Eaton Corporation..........................$ 439,425
20,000 Genuine Parts Company...................... 892,500
-------
1,331,925
Banks/Savings and Loans -- 6.4%
6,300 Banc One Corporation....................... 270,900
10,000 Great Western Financial Corporation........ 290,000
9,000 Morgan (J.P.) & Company Inc................ 878,625
10,100 Wachovia Corporation....................... 570,650
-------
2,010,175
Building Materials -- 2.4%
21,000 Masco Corporation.......................... 756,000
Chemicals -- 6.2%
12,000 Betzdearborn, Inc.......................... 702,000
7,000 Dow Chemical Company....................... 548,625
5,000 Rohm & Haas Company........................ 408,125
9,000 Witco Corporation.......................... 274,500
-------
1,933,250
Computers and Office Equipment -- 0.9%
5,000 Pitney Bowes Inc........................... 272,500
Consumer Products -- 1.9%
7,000 Minnesota Mining & Manufacturing Company... 580,125
Cosmetics and Personal Care -- 4.3%
13,000 Bausch & Lomb Inc.......................... 461,500
19,000 Rubbermaid, Inc............................ 432,250
11,000 Tambrands Inc.............................. 449,625
-------
1,343,375
Electric Utilities -- 12.5%
26,000 Baltimore Gas & Electric Company........... 695,500
15,000 Central & South West Corporation........... 384,375
7,000 Dominion Resources Inc..................... 269,500
9,000 Florida Progress Corporation............... 290,250
21,500 PacifiCorp................................. 440,750
12,000 Union Electric Company..................... 462,000
24,000 Western Resources Inc...................... 741,000
23,000 Wisconsin Energy Corporation............... 618,125
-------
3,901,500
Electrical Equipment -- 1.0%
7,000 Hubbell Inc., Class B...................... 302,750
</TABLE>
21
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------
The Montgomery Funds
- --------------------
Equity Income Fund
- --------------------
INVESTMENTS
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Food and Beverage -- 7.3%
20,500 Anheuser-Busch Companies Inc. .............$ 820,000
11,500 General Mills Inc. ........................ 728,812
20,000 Heinz (H.J.) Company ...................... 720,000
-------
2,268,812
Gas Utilities -- 0.9%
8,000 Questar Corporation ....................... 294,000
Insurance -- 8.7%
7,000 American General Corporation .............. 286,125
9,000 Lincoln National Corporation Ltd. ......... 472,500
5,500 Marsh & McLennan Companies ................ 572,000
17,000 SAFECO Corporation ........................ 670,438
12,000 St. Paul Companies, Inc. .................. 703,500
-------
2,704,563
Machinery and Tools -- 1.9%
14,000 Cooper Industries Inc. .................... 589,750
Newspapers/Publishing -- 1.5%
10,000 McGraw-Hill Companies, Inc. ............... 461,250
Oil -- 8.8%
14,000 Amoco Corporation ......................... 1,130,500
2,000 Atlantic Richfield Company ................ 265,250
4,000 Chevron Corporation ....................... 260,000
13,000 Dresser Industries Inc. ................... 403,000
7,000 Exxon Corporation ......................... 686,000
-------
2,744,750
Pharmacy/Drugs -- 3.1%
9,000 Bristol-Myers Squibb Company .............. 978,750
Pulp and Paper -- 7.1%
12,000 Consolidated Papers Inc. .................. 589,500
7,000 Potlach Corporation ....................... 301,000
12,000 Union Camp Corporation .................... 573,000
16,000 Weyerhauser Company ....................... 758,000
-------
2,221,500
Retail Trade -- 2.2%
14,000 Penney (J.C.) Company, Inc. ............... 682,500
Telecommunications -- 7.1%
5,000 Ameritech Corporation ..................... 303,125
12,000 AT&T Corporation .......................... 522,000
5,000 Bell Atlantic Corporation ................. 323,750
4,000 BellSouth Corporation ..................... 161,500
10,000 GTE Corporation ........................... 455,000
9,000 Nynex Corporation ......................... 433,125
-------
2,198,500
Tobacco -- 5.0%
11,500 American Brands Inc. ...................... 570,687
31,000 UST Inc. .................................. 1,003,626
---------
1,574,313
TOTAL COMMON STOCKS
(Cost $27,010,396) ......................................... 29,150,288
----------
REPURCHASE AGREEMENT -- 4.5%
(Cost $1,385,000)
Principal Amount
$1,385,000 Agreement with Chase Manhattan Corporation,
Tri-Party, 7.500% dated 12/31/96, to be repurchased
at $1,385,577 on 01/02/97, collateralized by
$1,412,740 market value of U.S. government
Securities, having various maturities and
various interest rates ........................ 1,385,000
---------
TOTAL INVESTMENTS -- 98.0%
(Cost $28,395,396*) ........................................ 30,535,288
OTHER ASSETS AND LIABILITIES -- 2.0%
(Net) ...................................................... 634,848
-------
NET ASSETS -- 100.0% ....................................... $31,170,136
===========
</TABLE>
*Aggregate cost for federal tax purposes.
22
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------
The Montgomery Funds
--------------------
International
Growth Fund
--------------------
PORTFOLIO HIGHLIGHTS
(Unaudited)
INVESTMENT REVIEW
Q: How did the Montgomery International Growth Fund perform relative to its
benchmark in the six months ended 12/31/96?
A: The Montgomery International Growth Fund outperformed the Morgan Stanley EAFE
Index by more than four percentage points in the second half of 1996. Our
underweight position in the Japanese market, which is heavily represented in
EAFE, added to our relative performance. With the exception of Japan, most
international markets turned in healthy performances during the period,
benefiting from a macroeconomic backdrop of low interest rates, low inflation
and slow, steady growth. And as is often the case, the Fund benefited from our
focused, bottom-up stock-picking approach.
Q: What holdings performed especially well during this period?
A: During the second half of 1996, interest rates in many countries around the
world declined. That was positive for a number of the Fund's holdings in the
financial sector, including National Australia Bank, Assurances General de
France (a French insurance company), and ABN Amro (a Dutch bank-holding
company), for example. The Fund also benefited from newly acquired positions in
Hong Kong--mostly in large-cap property companies--as that market rallied
strongly in the second half of 1996. The Fund's weighting in Hong Kong was
approximately 4% of assets at the end of 1996.
Q: Which ones didn't live up to your expectations?
A: Japan's weakness over much of the period depressed our holdings there. Our
positions in Japanese non-life insurers were a particular disappointment. We
simply underestimated the impact that recent deregulation, which allows for
heightened competition, would have on the industry. This development led to
declines in non-life insurance stocks that were compounded by the market's
general weakness. Nonetheless, we think the poor performance of the Japanese
market presents some attractive opportunities at current prices.
Q: Have you changed the Fund's strategy at all?
A: No. We are committed to a strategy that's based on bottom-up analysis of
corporate fundamentals in the world's developed markets, and we typically don't
alter it in response to, or anticipation of, short-term market trends. We focus
on finding stocks with good earnings potential at attractive relative value,
while keeping the portfolio diversified across markets, sectors and individual
holdings.
Q: How are you positioning the Fund for the year ahead?
A: We continue to be optimistic about the opportunities presented by broad
trends such as privatization and deregulation in Europe. At the same time, we
believe that the obvious risk at this point of the global business cycle is an
upward drift in inflation and interest rates. For that reason, we're keeping a
close eye on macroeconomic developments.
============================================
P O R T F O L I O M A N A G E M E N T
- --------------------------------------------
John Boich..........Senior Portfolio Manager
Oscar A. Castro.....Senior Portfolio Manager
============================================
F U N D P E R F O R M A N C E
- --------------------------------------------
Aggregate total returns
for the period ended 12/31/96
- --------------------------------------------
Montgomery
International Growth Fund
Since inception (7/3/95).............22.14%
One year.............................20.96%
- --------------------------------------------
MSCI EAFE Index
Since 6/30/95.........................9.73%
One year..............................6.05%
- --------------------------------------------
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 GRAPHIC APPEARS HERE]
Growth of a $10,000 Investment
/1/ The Morgan Stanley Capital International EAFE Index is composed of 18
developed market countries in Europe, Australia and the Far East.
/2/ The Lipper International Growth Funds Average universe consists of 331
funds.
23
<PAGE>
- --------------------
The Montgomery Funds
- --------------------
International
Growth Fund
- --------------------
PORTFOLIO HIGHLIGHTS
- -------------------------------------------
T O P T E N H O L D I N G S
- -------------------------------------------
(as a percentage of total net assets)
Thistle Hotels PLC.................... 2.5%
Coflexip, Sponsored ADR............... 2.3%
Nokia Corporation AB, Series A ....... 2.3%
Axel Springer Verlag, Class A......... 2.3%
Novartis AG........................... 2.2%
Bell Cablemedia PLC, Sponsored ADR.... 2.1%
Empresa Nacional de Electricidad...... 2.0%
National Power PLC, ORD............... 2.0%
Dixons Group PLC, ORD................. 2.0%
Flughafen Wien AG..................... 1.9%
- -------------------------------------------
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........................ 16.4%
Japan................................ 13.6%
France............................... 10.9%
Germany.............................. 6.0%
Switzerland.......................... 5.1%
In terms of specific markets, we remain cautiously optimistic about Japan.
Despite--and in fact partly because of--the Nikkei's generally poor showing this
year, we're optimistic about that market for the year ahead. Valuations there,
particularly among the mid-cap segment of the market, have become more
attractive to us.
Q: Why should an investor consider the Montgomery International Growth Fund
right now?
A: Now--or any time, in fact--would be a good time to consider investing in the
Fund. We firmly believe that international equities should be a part of
virtually everyone's portfolio. They provide diversification and the potential
for better total returns than a portfolio of domestic equities alone might
provide. Remember, about 65% of the world's stock opportunities lies outside the
United States. This is easy to forget when the U.S. market is as strong as it
has been the past few years. The additional advantage an investor gains by
investing in the Montgomery International Growth Fund is the benefit of our very
selective stock-picking discipline.
P O R T F O L I O I N V E S T M E N T S
December 31, 1996 (unaudited)
COMMON STOCKS -- 88.7%
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Australia -- 1.6%
34,606 National Australia Bank, Ltd. (Banks) .....$ 407,097
Austria -- 1.9%
9,900 Flughafen Wien AG (Airlines) .............. 504,668
Belgium -- 1.6%
8,645 Audiofina Cie. (Broadcasting/Advertising).. 408,715
Canada -- 2.1%
8,360 Biochem Pharma, Inc. (Pharmacy/Drugs). 418,523
41,400 SoftQuad International, Inc.+ (Software Systems) 129,375
-------
547,898
China/Hong Kong -- 4.2%
216,405 First Pacific Company (Conglomerates) 281,191
59,000 Hutchison Whampoa Ltd. (Conglomerates) 463,411
53,000 New World Development Company Ltd.
(Holding) ................................. 358,039
-------
1,102,641
Finland -- 2.3%
10,400 Nokia Corporation AB, Series A
(Telecommunications Equipment) ............ 602,296
France -- 10.9%
7,900 AXA S.A. (Insurance) ...................... 502,457
4,530 Bouygues (Heavy Construction) ............. 469,720
6,800 Casino Guichard-Perrachon (Retail Trade) 316,639
2,770 Christian Dior S.A. (Cosmetics and
Personal Care) ............................ 446,852
23,240 Coflexip, Sponsored ADR
(Oilfield Equipment) ...................... 610,050
10,880 Credit Commercial de France
(Diversified Financial Services) .......... 503,267
-------
2,848,985
</TABLE>
24
The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
INTERNATIONAL
GROWTH FUND
-----------------------------
INVESTMENTS
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Germany -- 6.0%
3,350 Adidas AG (Footware)......................... $ 289,534
990 Axel Springer Verlag, Class A
(Newspapers/Publishing)...................... 588,654
9,200 Fresenius Medical Care AG,ADR+
Medical Products)............................ 258,750
3,380 SGL Carbon AG (Metals and Mining)............ 426,110
-------
1,563,048
Great Britain -- 16.4%
450,300 Aegis Group, ORD Broadcasting/Advertising) 470,394
35,250 Bell Cablemedia PLC, Sponsored ADR+
(Cable Television)........................... 539,766
72,400 Cortec International, Ltd.+ (Biotechnology).. 228,132
11,600 Danka Business Systems PLC, ADR (Furniture).. 411,800
56,199 Dixons Group PLC, ORD (Retail Trade)......... 522,106
62,700 National Power PLC, ORD (Electric Utilities). 525,057
36,300 Reuters Holding PLC
Broadcasting/Advertising).................... 467,160
206,200 Thistle Hotels PLC+ (Lodging)................ 640,908
46,300 United Utilities PLC, ORD (Water Utilities).. 492,383
-------
4,297,706
Ireland -- 3.0%
296,498 Anglo Irish Bank Corporation (Banks)......... 356,820
5,900 Axogen Ltd. Units (Pharmacy/Drugs)........... 138,650
8,800 Elan Corporation PLC, ADR+ (Pharmacy/Drugs).. 292,600
-------
788,070
Israel -- 1.4%
7,400 Teva Pharmaceuticals, ADR (Pharmacy/Drugs)... 370,463
Italy -- 5.0%
15,600 Bulgari SpA (Retail Trade).................. 316,730
6,540 Gucci Group (Retail Trade).................. 417,743
150,000 Telecom Italia Mobile SpA
(Telephone/Wireless)........................ 379,202
128,000 Telecom Italia Mobile SpA Risp
(Telephone/Wireless)........................ 182,676
-------
1,296,351
Japan -- 13.6%
12,100 Amway Japan NPV (Household Products)........ 388,671
11,000 Canon Sales Company
(Computers and Office Equipment)............ 245,057
9,900 Fujitsu Denso (Electrical Equipment)........ 347,068
12,000 Honda Motor Company (Auto/Auto Parts)....... 342,976
30,400 Laox (Retail Trade)......................... 461,998
34,000 Nippon Fire and Marine Insurance Company
(Insurance)................................. 154,132
1,030 Nippon Television Network Corporation
(Broadcasting/Advertising).................. 311,286
16 NTT Data Communication Systems
Corporation (Software Systems).............. 468,353
10,400 Nu Skin Asia Pacific Inc., Class A+
(Cosmetics and Personal Care)............... 321,100
5,200 Sony Corporation (Electronics).............. 340,800
18,000 Tokio Marine & Fire Insurance Company
(Insurance)................................. 169,415
-------
3,550,856
Korea -- 1.1%
290 Korea Mobile Telecommunications
(Telephone/Wireless)........................ 294,339
Netherlands -- 3.4%
6,243 ABN Amro Holdings (Banks)................... 406,178
9,900 ASM Lithography Holding NV+
(Machinery and Tools)....................... 493,762
-------
899,940
Norway -- 2.8%
70,700 UNI Storebrand ASA, Class A+ (Insurance).... 410,653
10,700 Union Bank of Norway (Banks)................ 335,105
-------
745,758
Portugal -- 0.4%
1,470 Telecel-Comunicacaoes Pessoais SA+
(Telecommunications/Wireless)............... 93,860
Spain -- 2.8%
7,500 Empresa Nacional de Electricidad (Endesa)
(Electric Utilities)........................ 533,795
9,000 Telefonica de Espana, ORD (Telephone/Networks) 209,012
-------
742,807
Sweden -- 3.1%
8,100 Astra AB, Class A (Pharmacy/Drugs).......... 400,299
13,000 Ericsson (L.M.) Telephone Company, Class B
(Telecommunications Equipment).............. 402,250
-------
802,549
Switzerland -- 5.1%
195 Compagnie Financiere Richemont, Series A
(Holding)................................... 273,888
445 Danzas Holdings (Airfreight Couriers)....... 493,706
500 Novartis AG (Pharmacy/Drugs)................ 572,656
-------
1,340,250
TOTAL COMMON STOCKS
(Cost $22,008,157)...................................... 23,208,297
----------
</TABLE>
25
The accompanying notes are an integral part of these financial statements.
<PAGE>
- -----------------------------
THE MONTGOMERY FUNDS
- -----------------------------
INTERNATIONAL
GROWTH FUND
- -----------------------------
INVESTMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
REPURCHASE AGREEMENTS -- 12.1%
Principal amount Value (Note 1)
$1,578,500 Agreement with Bear Stearns Companies Inc.,
Tri-Party, 7.500% dated 12/31/96, to be
repurchased at $1,579,158 on 01/02/97,
collateralized by $1,622,317 market value of
U.S. government securities, having various
maturities and various interest rates.......$ 1,578,500
1,578,500 Agreement with Chase Manhattan Corporation,
Tri-Party, 7.500% dated 12/31/96, to be
repurchased at $1,579,158 on 01/02/97,
collateralized by $1,610,116 market value of
U.S. government securities, having various
maturities and various interest rates....... 1,578,500
---------
TOTAL REPURCHASE AGREEMENTS
(Cost $3,157,000)........................................... 3,157,000
---------
TOTAL INVESTMENTS -- 100.8%
(Cost $25,165,157*)......................................... 26,365,297
OTHER ASSETS AND LIABILITIES -- (0.8%)
(Net)....................................................... (209,179)
--------
NET ASSETS -- 100.0%....................................... $26,156,118
----------
</TABLE>
*Aggregate cost for federal tax purposes.
+Non-income-producing security.
Abbreviations:
ADR....American Depositary Receipt
ORD....Ordinary
26
The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
INTERNATIONAL
SMALL CAP FUND
-----------------------------
PORTFOLIO HIGHLIGHTS
(UNAUDITED)
I N V E S T M E N T R E V I E W
Q: How did the Montgomery International Small Cap Fund perform relative to its
benchmark in the six months ended 12/31/96?
A: The Fund slightly outperformed the MSCI EAFE Index during the
second half of 1996. It's worth noting, however, that because the EAFE is a
market-cap weighted index, it comprises stocks that are a great deal larger than
those we own. On that basis, the benchmark is also heavily skewed toward Japan,
and to Japanese banks in particular. We believe it's always wise to keep those
idiosyncrasies in mind when considering the Fund's performance relative to EAFE.
We believe that a more appropriate benchmark is the Salomon Brothers World
Extended ex-U.S. Market Index, which encompasses more of the small caps that we
target. The Fund outperformed this index during the last half of 1996 as well as
for the entire 12-month period ended 12/31/96.
Q: What holdings and market weightings performed especially well?
A: European markets, where the Fund invests the bulk of its assets, were
generally healthy in the second half of 1996. They were driven up by a number of
factors, particularly the strength of the U.S. market and the generally benign
global economy.
On a sector basis, financials like Anglo-Irish Bank and Nordbanken con-tributed
significantly to the Fund's performance during the second half, as interest
rates declined in a number of European countries. Our holdings in European and
Japanese technology stocks also continued to do well, which led us to take some
profits.
Individual stock picking was another positive factor. The Fund has a position in
French oilfield equipment company Coflexip, for example, which performed well
during the period. Shares of the company, which manufactures flexible tubing for
petroleum extraction, soared during the second half.
Q: Were there any holdings that didn't live up to your expectations?
A: Japan's weakness over much of the period depressed our holdings there. Our
longtime favorite, Laox, for example, was taken down with other small-cap stocks
in that market during the fourth quarter. We view this current weakness as a
good opportunity to add to our favorite names, however. The poor recent
performance of the Japanese market presents some attractive opportunities at
current prices in the small- and mid-cap areas.
Q: Has the Fund's strategy changed in any way?
A: No. We are committed to a bottom-up strategy in which we closely analyze the
business fundamentals of companies in the world's developed markets (excluding
the United States). We typically don't alter it significantly in response to or
anticipation of short-term industry or market trends. Instead, we focus on
finding stocks that offer good earnings potential at
=========================================
P O R T F O L I O M A N A G E M E N T
- -----------------------------------------
John Boich.......Senior Portfolio Manager
Oscar A. Castro..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 12/31/96
- -----------------------------------------
Montgomery
International Small Cap Fund
Since inception (9/30/93)...........7.45%
One year...........................14.97%
- -----------------------------------------
MSCI EAFE Index
Since 9/30/93.......................7.94%
One year............................6.05%
- -----------------------------------------
Salomon Brothers World Extended ex-U.S.
Market Index
Since 9/30/93.......................3.33%
One year............................4.91%
- -----------------------------------------
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
[CHART APPEARS HERE]
1 The Morgan Stanley Capital International EAFE Index is composed of 18
developed market countries in Europe, Australia and the Far East.
2 The Lipper International Small Cap Funds Average universe consists of 12
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 22 countries.
27
<PAGE>
- -------------------------
THE MONTGOMERY FUNDS
- -------------------------
INTERNATIONAL
SMALL CAP FUND
- -------------------------
PORTFOLIO HIGHLIGHTS
========================================
T O P T E N H O L D I N G S
- ----------------------------------------
(as a percentage of total net assets)
Coflexip, Sponsored ADR.............2.8%
Freepages Group PLC.................2.8%
Cortefiel SA........................2.7%
Tyndall Australia Ltd...............2.7%
Anglo Irish Bank Corporation........2.7%
Voest Alpine Eisenbahnsystem........2.6%
Danzas Holding......................2.6%
Rofin-Sinar Technologies Inc........2.5%
Biochem Pharma, Inc.................2.4%
Bell Cablemedia PLC, Sponsored ADR..2.4%
========================================
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......................14.7%
Japan..............................11.7%
Germany............................10.2%
Italy...............................7.8%
Norway..............................7.4%
attractive relative value, while keeping the portfolio diversified across
markets, sectors and individual holdings.
Q: Why should investors consider the Montgomery International Small Cap Fund?
A: We firmly believe that international equities should be a part of virtually
everyone's portfolio, assuming they understand and are comfortable with the
risks involved. International stocks provide diversification and the potential
for higher total returns than a portfolio of domestic equities alone might
provide. Those benefits are easy to overlook when the U.S. market is as strong
as it has been recently.
In the case of international small-cap investing, there are many small companies
around the world that, because they are unexplored, are undervalued. Over the
long term, we think they may provide investors with potentially strong returns.
The additional advantage an investor gains by investing in the Montgomery
International Small Cap Fund is the benefit of our very selective, bottom-up
stock-picking discipline.
P O R T F O L I O I N V E S T M E N T S
December 31, 1996 (unaudited)
COMMON STOCKS -- 97.0%
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Australia -- 2.7%
636,715 Tyndall Australia Ltd. (Diversified
Financial Services).........................$ 1,088,100
Austria -- 3.5%
8,160 Burgenland Holdings AG (Electric Utilities) 361,712
9,393 Voest Alpine Eisenbahnsystem
(Heavy Construction)........................ 1,066,075
---------
1,427,787
Canada -- 3.4%
19,540 Biochem Pharma, Inc.+ (Pharmacy/Drugs) 978,221
131,500 SoftQuad International, Inc.
(Software Systems).......................... 410,938
-------
1,389,159
China/Hong Kong -- 3.3%
1,380,000 Four Seas Mercantile Holdings Ltd.
(Food and Beverage)......................... 722,606
765,000 Goldlion Holdings, Ltd., ORD
(Apparel and Textiles)...................... 628,063
-------
1,350,669
France -- 4.4%
4,600 Cardif SA (Insurance).......................$ 633,902
43,600 Coflexip, Sponsored ADR+
(Oilfield Equipment)........................ 1,144,500
---------
1,778,402
Germany -- 10.2%
7,160 Adidas AG (Footwear)........................ 618,826
1,590 Axel Springer Verlag, Class A
(Newspapers/Publishing)..................... 945,414
86,300 Rofin-Sinar Technologies Inc.+
(Machinery and Tools)....................... 1,003,238
6,930 SGL Carbon AG (Metals and Mining)........... 873,652
19,600 Vossloh AG (Building Materials)............. 700,523
-------
4,141,653
Great Britain -- 14.7%
698,400 Aegis Group (Broadcasting/Advertising)...... 729,566
63,200 Bell Cablemedia PLC, Sponsored ADR+
(Cable Television).......................... 967,750
151,700 Cortec International Ltd. + (Biotechnology). 478,006
</TABLE>
28
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> <C>
Great Britain -- continued
72,830 Eidos PLC+ (Computers and Office
Equipment)..................................$ 901,111
86,700 Ethical Holdings PLC, ADR+
(Pharmacy/Drugs)............................ 512,072
238,000 Firstbus PLC (Railroad)..................... 833,490
1,529,000 Freepages Group PLC+
(Broadcasting/Advertising).................. 1,139,009
114,500 M.A.I.D PLC+ (Software Systems)............. 395,103
-------
5,956,107
Ireland -- 3.4%
898,899 Anglo Irish Bank Corporation (Banks)........ 1,081,779
228,245 Anglo Irish Bank Corporation (UK) (Banks)... 274,681
-------
1,356,460
Israel -- 3.8%
43,700 Matav-Cable Systems Media Ltd., Sponsored
ADR+ (Cable Television)..................... 677,350
17,300 Teva Pharmaceuticals, ADR (Pharmacy/Drugs).. 866,081
-------
1,543,431
Italy -- 7.8%
40,400 Bulgari SpA (Retail Trade).................. 820,250
245,000 Editoriale L' Espresso SpA
(Newspapers/Publishing)..................... 678,313
12,300 Gucci Group (Retail Trade).................. 785,663
93,000 Mediolanum SpA+ (Insurance)................. 880,343
-------
3,164,569
Japan -- 11.7%
14,300 Amway Japan NPV (Household Products)........ 459,339
24,200 Canon Sales Company (Computers and
Office Equipment)........................... 539,124
110,000 Dowa Fire and Marine Insurance Company
(Insurance)................................. 423,625
11,000 Hokuto Corporation (Agricultural Commodities) 483,464
47,300 Laox (Retail Trade)......................... 718,833
70,000 Nichido Fire and Marine Insurance (Insurance) 398,929
33,000 Nichiha Corporation (Building Materials).... 584,146
22,440 Nissin Company (Diversified Financial Services) 486,352
54,000 Tohoku Misawa Homes (Heavy Construction).... 638,805
-------
4,732,617
Netherlands -- 4.0%
37,600 Elsag Bailey N.V.+ (Machinery and Tools).... 705,000
20,256 Ordina Beheer N.V. (Software Systems)....... 908,683
-------
1,613,683
New Zealand -- 3.6%
783,240 Tasman Agriculture Ltd. (Food and Beverage). 620,157
46,300 Trans Rail Holdings, ADR+ (Railroad)........ 818,931
-------
1,439,088
Norway -- 7.4%
25,300 CN Selmer A.S. (Heavy Construction)......... 905,543
36,700 Stolt-Nielson S.A., ADR (Shipping).......... 690,419
109,500 UNI Storebrand ASA, Class A+ (Insurance).... 636,018
24,900 Union Bank of Norway (Banks)................ 779,823
-------
3,011,803
Spain -- 6.5%
2,011 Azkoyen S.A. (Consumer Services)............ 247,532
36,700 Cortefiel SA (Retail Trade)................. 1,102,484
11,100 Gas y Electricidad (Electric Utilities)..... 709,648
19,174 Tele Pizza SA+ (Food and Beverage)......... 578,949
-------
2,638,613
Sweden -- 4.0%
31,200 Althin Medical AB (Medical Products)........ 677,152
55,700 Scandic Hotels AB+ (Lodging)................ 931,172
-------
1,608,324
Switzerland -- 2.6%
950 Danzas Holding (Airfreight Couriers)........ 1,053,978
---------
TOTAL COMMON STOCKS
(Cost $35,252,254)........................................... 39,294,443
----------
PREFERRED STOCKS -- 0.2%
(Cost $64,828)
Germany -- 0.2%
550 Villeroy & Boch AG (Household Products) 65,406
------
TOTAL SECURITIES
(Cost $35,317,082) 39,359,849
----------
REPURCHASE AGREEMENTS -- 3.4%
Principal amount
$683,000 Agreement with Bear Stearns Companies Inc.,
Tri-Party, 7.500% dated 12/31/96, to be
repurchased at $683,285 on 01/02/97,
collateralized by $701,959 market value of
U.S. government securities, having various
maturities and various interest rates......... 683,000
683,000 Agreement with Chase Manhattan Corporation,
Tri-Party, 7.500% dated 12/31/96, to be
repurchased at $683,285 on 01/02/97,
collateralized by $696,680 market value of
U.S. government securities, having various
maturities and various interest rates......... 683,000
-------
TOTAL REPURCHASE AGREEMENTS
(Cost $1,366,000)............................................ 1,366,000
----------
TOTAL INVESTMENTS -- 100.6%
(Cost $36,683,082*).......................................... 40,725,849
OTHER ASSETS AND LIABILITIES -- (0.6%)
(Net)........................................................ (225,951)
-------
NET ASSETS -- 100.0%......................................... $40,499,898
==========
</TABLE>
*Aggregate cost for federal tax purposes.
+Non-income-producing security.
29
Abbreviation:
ADR....American Depositary Receipt
The accompanying notes are an integral part of these financial statements.
<PAGE>
- -----------------------------
THE MONTGOMERY FUNDS
GLOBAL OPPORTUNITIES
FUND
PORTFOLIO HIGHLIGHTS
(Unaudited)
- -----------------------------------------
P O R T F O L I O M A N A G E M E N T
- -----------------------------------------
John Boich.......Senior Portfolio Manager
Oscar A. Castro..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 12/31/96
- -----------------------------------------
Montgomery
Global Opportunities Fund
Since inception (9/30/93)..........13.91%
One year...........................20.18%
- -----------------------------------------
MSCI World Index
Since 9/30/93......................12.41%
One year...........................13.48%
- -----------------------------------------
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
[CHART APPEARS HERE]
1 The Morgan Stanley Capital International World Index measures the
performance of 20 global stock markets.
2 The Lipper Global Funds Average universe consists of 162 funds.
I N V E S T M E N T R E V I E W
Q: How did the Global Opportunities Fund perform relative to its benchmark in
the six months ended 12/31/96?
A: The Fund underperformed its benchmark, the MSCI World Index, by slightly more
than two percentage points during the second half of 1996, but outperformed it
for the entire 12 months of 1996.
Q: What accounted for the performance in the second half?
A: The Fund's positions in Japan were generally weak, as that market has been
depressed by a number of factors. The bright side is that we think Japan's
market now offers some bargains--and we're looking into them.
Q: What were some of the positive factors?
A: In terms of countries, the Fund's emphasis on the U.S. and Hong Kong markets
was a benefit. Both markets were lifted by the benign global economic
environment, with its combination of slow, steady growth, low inflation and low
interest rates. Hong Kong was also driven up by positive economic news from
China and excitement over the upcoming reunification.
The Fund also benefited from solid stock selection. That points out one of the
Fund's best attributes. It provides investors with exposure to those stocks both
in and outside of the United States that we think offer the best capital
appreciation potential. In other words, it's typically not bound by borders.
Q: Were any holdings particularly strong?
A: A number of the portfolio's technology stocks, both in the United States and
abroad, were quite strong during the second half of 1996. But individual stock
picking also contributed to the Fund's performance. Among its holdings,
Coflexip, a French company that makes flexible tubing for extracting petroleum,
was a standout, as were its positions in luxury goods manufacturers like Gucci
and Bulgari.
Q: How are you positioning the Fund for the year ahead?
A: We've reduced the Fund's holdings in emerging markets-- not because we find
them unattractive on a macroeconomic basis, but simply because we haven't been
finding as many good bottom-up opportunities there. The Fund's strategy remains
the same: We focus on finding high-quality com-panies that we think offer the
potential for long-term growth of earnings and cash flow.
Q: Is now a good time for investors to consider the Montgomery Global
Opportunities Fund?
A: By most appearances, the global economy seems to be in great shape. The
current environment of slow, steady growth, low inflation and low interest rates
is ideal for global equities. With the U.S. market having rallied for many years
now, we think we can find better, cheaper opportunities overseas. And in any
case, we believe that at least some international exposure should be a part of
almost every investor's portfolio.
30
<PAGE>
--------------------
The Montgomery Funds
--------------------
Global Opportunities
Fund
--------------------
PORTFOLIO HIGHLIGHTS
-------------------------------------------
T O P T E N H O L D I N G S
-------------------------------------------
(as a percentage of total net assets)
Bell Cablemedia PLC, Sponsored ADR.....2.3%
Biochem Pharma, Inc....................2.2%
Astra AB, Class A......................2.2%
Reuters Holdings PLC...................2.1%
United Utilities PLC, ORD..............2.1%
ASM Lithography Holding N.V............2.1%
Coflexip, Sponsored ADR................2.1%
Telecom Italia Mobile SpA..............2.1%
Nokia Corporation AB, Series A.........2.1%
Gucci Group............................2.1%
-------------------------------------------
T O P F I V E C O U N T R I E S
-------------------------------------------
(as a percentage of total net assets)
United States.........................26.1%
Great Britain.........................14.8%
Japan..................................9.7%
Germany................................8.8%
France.................................6.6%
<TABLE>
<CAPTION>
P O R T F O L I O I N V E S T M E N T S
December 31, 1996 (unaudited)
COMMON STOCKS -- 103.7%
Shares Value (Note 1)
<S> <C> <C>
Australia -- 2.1%
51,120 National Australia Bank, Ltd., ORD (Banks) $ 601,364
Belgium -- 1.1%
7,000 Audiofina Cie. (Broadcasting/Advertising) 330,943
Canada -- 2.8%
12,850 Biochem Pharma, Inc.+ (Pharmacy/Drugs) 643,303
56,500 SoftQuad International, Inc.
(Software Systems).......................... 176,563
-----------
819,866
China/Hong Kong -- 4.8%
709,000 Goldlion Holdings, Ltd., ORD (Apparel
and Textiles)............................... 582,087
59,000 Hutchison Whampoa Ltd. (Conglomerates)...... 463,411
51,000 New World Development Company Ltd.
(Holding)................................... 344,528
-----------
1,390,026
Finland -- 2.1%
10,500 Nokia Corporation AB, Series A
(Telecommunications Equipment).............. 608,087
France -- 6.6%
5,786 Bouygues (Heavy Construction)............... 599,955
23,300 Coflexip, Sponsored ADR+ (Oilfield
Equipment).................................. 611,625
9,500 Credit Commercial de France (Diversified
Financial Services)......................... 439,433
20,000 Groupe AB SA, ADR+
(Broadcasting/Advertising).................. 287,500
-----------
1,938,513
Germany -- 8.8%
4,970 Adidas AG (Footwear)........................ 429,548
960 Axel Springer Verlag, Class A
(Newspapers/Publishing)..................... 570,816
13,800 Fresenius Medical Care AG, ADR
(Medical Products).......................... 388,125
51,800 Rofin-Sinar Technologies Inc.+
(Machinery and Tools)....................... 602,175
4,650 SGL Carbon AG (Metals and Mining)........... 586,217
-----------
2,576,881
Great Britain -- 14.8%
398,900 Aegis Group (Broadcasting/Advertising)...... 416,701
44,400 Bell Cablemedia PLC, Sponsored ADR+
(Cable Television).......................... 679,875
83,100 Cortec International, Ltd.+ (Biotechnology). 261,848
54,258 Dixons Group PLC, ORD (Retail Trade)........ 504,073
26,600 Dr. Solomon's Group PLC, ADR+
(Software Systems).......................... 450,538
39,800 Ethical Holdings PLC, ADR+
(Pharmacy/Drugs)............................ 235,069
63,100 National Power PLC, ORD (Electric Utilities) 528,407
48,990 Reuters Holdings PLC
(Broadcasting/Advertising).................. 630,473
59,100 United Utilities PLC, ORD (Water Utilities). 628,506
-----------
4,335,490
Ireland -- 1.9%
8,300 Axogen Ltd. Units+ (Pharmacy/Drugs)......... 195,050
10,400 Elan Corporation PLC, ADR+
(Pharmacy/Drugs)............................ 345,800
-----------
540,850
Israel -- 1.9%
11,300 Teva Pharmaceuticals, ADR
(Pharmacy/Drugs)............................ 565,706
Italy -- 5.1%
9,500 Gucci Group (Retail Trade).................. 606,813
201,900 Telecom Italia Mobile Di Risp
(Telephone/Wireless)........................ 288,143
241,900 Telecom Italia Mobile SpA
(Telephone/Wireless)........................ 611,527
-----------
1,506,483
</TABLE>
31
The accompanying notes are an integral part of these financial statements.
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Global Opportunites
Fund
- ---------------------
I N V E S T M E N T S
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
COMMON STOCKS -- continued
Japan -- 9.7%
12,700 Fujitsu Denso (Electrical Equipment)........ $ 445,229
17,000 Honda Motor Company (Auto/Auto Parts) 485,882
48,000 Nippon Fire and Marine Insurance
Company (Insurance)......................... 217,598
1,700 Nippon Television Network Corporation
(Broadcasting/Advertising).................. 513,773
15 NTT Data Communication Systems
Corporation (Software Systems).............. 439,081
7,900 Sony Corporation (Electronics).............. 517,753
23,000 Tokio Marine & Fire Insurance Company
(Insurance)................................. 216,475
-----------
2,835,791
Korea -- 1.3%
365 Korea Mobile Telecommunications
(Telephone/Wireless)........................ 370,462
Netherlands -- 4.0%
8,606 ABN Amro Holdings (Banks)................... 559,918
12,500 ASM Lithography Holding N.V.+
(Machinery and Tools)....................... 623,438
-----------
1,183,356
Spain -- 1.4%
17,500 Telefonica Nacional de Espana
(Telephone/Networks)........................ 406,412
Sweden -- 3.1%
12,800 Astra AB, Class A (Pharmacy/Drugs).......... 632,571
9,248 Ericsson (L.M.) Telephone Company, Class B
Telecommunications Equipment)............... 286,154
-----------
918,725
Switzerland -- 4.4%
235 Compagnie Financiere Richemont, Series A
(Holding)................................... 330,071
440 Danzas Holding (Airfreight Couriers)........ 488,158
420 Novartis AG (Pharmacy/Drugs)................ 481,031
-----------
1,299,260
United States -- 26.1%
4,801 American International Group, Inc.
(Insurance)................................. 519,708
8,000 Andrew Corporation+
(Telecommunications Equipment)............. 424,500
13,900 Autozone, Inc.+ (Auto/Auto Parts)........... 382,250
13,400 Cabletron Systems, Inc. (Computers and
Office Equipment)........................... 445,550
40,600 Carson, Inc.+ (Cosmetics and Personal Care). 563,325
15,100 Cephalon, Inc.+ (Biotechnology)............. 306,719
7,200 Cisco Systems Inc.+ (Computers and Office
Equipment).................................. 458,550
13,600 First USA, Inc. (Diversified Financial
Services)................................... 470,900
32,200 General Nutrition Center, Inc.+ (Retail Trade) 547,400
23,000 Gulfstream Aerospace Corporation+
(Aerospace and Defense)..................... 557,750
7,900 Itron, Inc.+ (Information/Business Services) 138,250
6,500 Lucent Technologies, Inc.
(Telecommunications Equipment).............. 300,625
11,000 MMI Company, Inc. (Insurance)............... 354,750
13,700 Omnipoint Corporation+ (Telephone/Wireless). 262,869
10,900 Pinkerton's, Inc.+ (Business Services)...... 273,863
14,900 Saks Holdings, Inc.+ (Retail Trade)......... 402,300
15,700 Sola International, Inc.+ (Cosmetics and
Personal Care).............................. 596,600
13,000 Trusted Information Systems, Inc.+
(Software Systems).......................... 141,375
16,930 Waters Corporation+ (Medical Products)...... 514,249
-----------
7,661,533
Venezuela -- 1.7%
17,800 Compania Anonima Telefonos de Venezuela
ADR+ (Telephone/Networks)................... 500,625
-----------
TOTAL COMMON STOCKS
(Cost $27,121,507)........................................... 30,390,373
-----------
TOTAL INVESTMENTS -- 103.7%
(Cost $27,121,507*).......................................... 30,390,373
OTHER ASSETS AND LIABILITIES -- (3.7%)
(Net)........................................................ (1,083,746)
-----------
NET ASSETS -- 100.0%......................................... $ 29,306,627
-----------
</TABLE>
*Aggregate cost for federal tax purposes.
+Non-income-producing security.
Abbreviations:
ADR American Depositary Receipt
ORD Ordinary
32
The accompanying notes are an integral part of these financial statements.
<PAGE>
----------------------
The Montgomery Funds
----------------------
Global
Communications Fund
----------------------
PORTFOLIO HIGHLIGHTS
(Unaudited)
INVESTMENT REVIEW
Q: How did the Fund perform relative to its benchmark in the six months ended
12/31/96?
A: The Fund underperformed the MSCI World Index by 8.19 percentage points during
the second half of 1996. It's important to note, however, that the index
reflects the performance of stocks in many different industries across 20 stock
markets. Although the sector in which the Fund invests is extremely large--we
estimate it to have a global market capitalization of about $US 1.6 trillion--it
is still a sector.* That makes it likely that the Fund's performance will
diverge from the index on a regular basis.
Q: What factors drove that performance?
A: A few factors depressed communications stocks in the second half of 1996. The
main concern among investors has been the threat of increased competition. With
the passage of the Telecommunications Act last year, the stage is set for
increased competition in the U.S. telecommunications industry. The problem is
that investors have been viewing this negatively, although we think it's
actually quite positive on the whole. Greater competition should drive prices
down, in the process increasing consumer demand for many communications goods
and services, such as cellular telephones and Internet access. In other words,
we think the whole "pie" will expand.
But throughout 1996, investors drove down the prices of communications stocks
and of established players like AT&T in particular because they believed that
these established players might not be able to compete effectively in the new
environment. Based on our extensive knowledge of them and of the industry, past
and present, we think some of them will, in fact, remain dominant.
Q: What other factors contributed to the Fund's performance?
A: The Fund has some exposure to communications stocks in emerging markets, and
that was a bit detrimental through 1996. We've found that investors in emerging
markets tend to treat communications stocks as a proxy for their markets. The
shares of Korea Mobile Telecom, for instance, appear to have been driven down at
least in part by poor investor sentiment about the South Korean economy as a
whole.
Q: What makes the Montgomery Global Communications Fund an attractive
investment?
A: We're optimistic that communications stocks will perform better in the coming
months. We find it encouraging that, although the stock market performance of
communications stocks has generally been poor lately, there has been a great
deal of activity among communications companies themselves. There were a number
of huge mergers and acquisitions in this sector during 1996, which tells us that
many communications firms believe that
============================================
PORTFOLIO MANAGEMENT
- --------------------------------------------
Oscar A. Castro.....Senior Portfolio Manager
============================================
FUND PERFORMANCE
- --------------------------------------------
Average annual total returns
for the periods ended 12/31/96
- --------------------------------------------
Montgomery Global Communications Fund
Since inception (6/1/93)..............11.44%
One year...............................8.02%
Three years............................3.01%
- --------------------------------------------
MSCI World Index
Since 5/31/93.........................12.35%
One year..............................13.48%
Three years...........................12.91%
- --------------------------------------------
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]
1 The Morgan Stanley Capital International World Index measures the performance
of 20 global stock markets.
2 The Lipper Global Funds Average universe consists of 162 funds.
33
<PAGE>
- --------------------------
The Montgomery Funds
- --------------------------
Global
Communications Fund
- --------------------------
PORTFOLIO HIGHLIGHTS
- -----------------------------------------
T O P T E N H O L D I N G S
- -----------------------------------------
(as a percentage of total net assets)
Global Telesystems Group, Inc........5.3%
Ionica...............................3.2%
Cisco Systems, Inc...................3.0%
Nokia Corporation AB, Series A.......2.7%
Ordina Beheer N.V....................2.6%
Bouygues.............................2.5%
Sony Corporation.....................2.3%
Nippon Television Network
Corporation..........................2.2%
Telecom Italia Mobile SpA............2.2%
ASM Lithography Holding N.V. ........2.1%
- -----------------------------------------
T O P F I V E C O U N T R I E S
- -----------------------------------------
(as a percentage of total net assets)
United States.......................21.4%
Great Britain.......................15.6%
Japan................................9.1%
Russia...............................7.4%
Italy................................5.6%
there are great investments to be made in this industry. Individual investors
have this opportunity open to them, too, through vehicles like the Global
Communications Fund.
Other broad trends that we find encouraging include privatization, deregulation
and liberalizations--all of which are taking place worldwide. These reforms are
opening up opportunities that we think will provide exceptional long-term
returns.
*Montgomery Asset Management's internally
generated estimates, based on data provided by WorldScope.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENTS
December 31, 1996 (unaudited)
COMMON STOCKS -- 97.4%
Shares Value (Note 1)
<S> <C> <C>
Belgium -- 1.1%
39,900 Audiofina Cie. (Broadcasting/Advertising) $ 1,886,376
Brazil -- 2.0%
99,600 Multicanal Participacoes, ADR+
(Cable Television).......................... 1,276,125
23,100 Telebras, ADR (Telephone/Networks).......... 1,767,150
901,693 Telecomunicacoes de Sao Paulo S.A.
(Telephone/Regional-Local).................. 194,908
------------
3,238,183
China/Hong Kong -- 3.8%
2,402,125 First Pacific Company (Conglomerates)....... 3,121,256
398,000 Hutchison Whampoa Ltd. (Conglomerates)...... 3,126,059
------------
6,247,315
Finland -- 2.7%
76,300 Nokia Corporation AB, Series A
(Telecommunications Equipment).............. 4,418,765
France -- 2.5%
39,284 Bouygues (Heavy Construction)............... 4,073,392
Germany -- 3.8%
5,550 Axel Springer Verlag, Class A
(Newspapers/Publishing)..................... 3,300,029
52,250 Veba AG (Electric Utilities)................ 3,021,899
------------
6,321,928
Great Britain -- 15.6%
3,178,800 Aegis Group, ORD
(Broadcasting/Advertising).................. 3,320,652
208,050 Bell Cablemedia PLC, Sponsored ADR+
(Cable Television).......................... 3,185,766
116,300 Colt Telecom Group PLC, ADR+
(Telephone/Networks)........................ 2,253,313
156,700 Dr. Solomon's Group PLC, ADR+
(Software Systems).......................... 2,654,106
4,230,000 Freepages Group PLC+
(Broadcasting/Advertising).................. 3,151,083
1,110,000 Ionica** (Telephone/Wireless)............... 5,227,403
262,300 Reuters Holdings PLC
(Broadcasting/Advertising).................. 3,375,651
597,234 Vodafone Group PLC (Telephone/Wireless)..... 2,521,110
------------
25,689,084
</TABLE>
34
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------
The Montgomery Funds
--------------------
Global
Communications Fund
--------------------
INVESTMENTS
<TABLE>
<CAPTION>
COMMON STOCKS -- continued
Shares Value (Note 1)
<S> <C> <C>
Indonesia -- 1.5%
70,600 PT Telekomunikasi Indonesia, ADR
(Telephone/Regional-Local).................. $ 2,435,700
Israel -- 1.6%
121,500 ECI Telecommunications, Ltd., ADR
(Telecommunications/Other).................. 2,574,281
Italy -- 5.6%
1,322,900 Telecom Italia Mobile SpA
(Telephone/Wireless)........................ 1,887,988
1,452,800 Telecom Italia Mobile SpA
(Telephone/Wireless)........................ 3,672,701
991,900 Telecom Italia SpA
(Telephone/Regional-Local).................. 2,576,194
585,100 Telecom Italia SpA Risp
(Telephone/Regional-Local).................. 1,141,659
------------
9,278,542
Japan -- 9.1%
249 DDI Corporation (Telephone/Networks)........ 1,646,956
71,300 Fujitsu Denso (Electrical Equipment)........ 2,499,594
12,170 Nippon Television Network Corporation
(Broadcasting/Advertising).................. 3,678,007
111 NTT Data Communication Systems
Corporation (Software Systems).............. 3,249,201
59,100 Sony Corporation (Electronics).............. 3,873,318
------------
14,947,076
Korea -- 3.3%
2,340 Korea Mobile Telecommunications
(Telephone/Wireless)........................ 2,375,016
20,050 Sungmi Telecom, ORD
(Telecommunications/Networking)............. 3,139,189
------------
5,514,205
Malaysia -- 1.0%
774,000 Leader Universal Holdings
(Telecommunications Equipment).............. 1,624,312
Mexico -- 1.4%
295,000 Grupo Iusacell, Series L, ADR+
(Telephone/Wireless)........................ 2,249,375
105,000 Grupo Mexicano de Video**+
(Leisure Time).............................. 50,216
------------
2,299,591
Netherlands -- 4.8%
70,600 ASM Lithography Holding N.V.+
(Machinery and Tools)....................... 3,521,175
97,000 Ordina Beheer N.V. (Software Systems)....... 4,351,412
------------
7,872,587
Portugal -- 0.9%
23,445 Telecel-Comunicacaoes Pessoais SA
(Telecommunications/Wireless)............... 1,496,972
Shares Value (Note 1)
Russia -- 7.4%
168,500 FGI Wireless** (Telephone/Wireless)......... 1,954,403
450,987 Global Telesystems Group, Inc.**
(Telephone/Networks)........................ 8,720,373
200,000 Russian Telecommunications Development
Corporation**+ (Telephone/Networks)......... 1,539,401
------------
12,214,177
Spain -- 1.7%
119,000 Telefonica de Espana, ORD
(Telephone/Networks)........................ 2,763,605
Sweden -- 1.5%
82,620 Ericsson (L.M.) Telephone Company, Class B
(Telecommunications Equipment).............. 2,556,451
Switzerland -- 1.5%
1,820 Compagnie Financiere Richemont, Series A
(Holding)................................... 2,556,294
Thailand -- 1.4%
341,000 Total Access Communications
(Telephone/Wireless)........................ 2,352,900
United States -- 21.4%
102,000 Airtouch Communications, Inc.+
(Telecommunications/Wireless)............... 2,575,500
46,475 Andrew Corporation+
(Telecommunications Equipment).............. 2,466,080
90,000 Brooks Fiber Properties Inc.+
(Telecommunications/Networking)............. 2,317,500
87,200 Cabletron Systems Inc.+ (Computers and
Office Equipment)........................... 2,899,400
147,000 CellNet Data Systems Inc.+
(Telephone/Wireless)........................ 2,159,063
76,884 Cisco Systems, Inc.+ (Computers and
Office Equipment)........................... 4,896,550
97,873 Comcast Corporation, Class A, Non-Voting
(Cable Television).......................... 1,743,363
69,000 Lucent Technologies, Inc.
(Telecommunications Equipment).............. 3,191,250
50,000 McLeod, Inc.+ (Telecommunications/Other).... 1,281,250
90,000 Montgomery Emerging Communications
Fund++ (Mutual Funds)....................... 978,750
128,200 Omnipoint Corporation+
(Telephone/Wireless)........................ 2,459,838
84,500 Scripps Company (E.W.)
(Broadcasting/Advertising).................. 2,957,500
45,500 TMP Worldwide Inc.+ (Other)................ 588,656
154,300 Trusted Information Systems, Inc.+
(Software Systems).......................... 1,678,013
120,008 Worldcom, Inc.+ (Telephone/Long Distance).. 3,127,709
------------
35,320,422
</TABLE>
35
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 TS
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Venezuela -- 1.8%
105,000 Compania Anonima Telefonos de Venezuela
ADR+ (Telephone/Networks)................ $ 2,953,125
------------
TOTAL COMMON STOCKS
(Cost $134,599,351)....................................... 160,635,283
------------
PREFERRED STOCKS -- 2.4%
Brazil -- 2.4%
15,332,898 Telec de Minas Gerais S.A.
(Telephone/Regional-Local)............... 1,896,138
9,340,000 Telec de Sao Paulo S.A.
(Telephone/Regional-Local)............... 2,022,423
------------
TOTAL PREFERRED STOCKS
(Cost $3,004,024)......................................... 3,918,561
------------
TOTAL INVESTMENTS -- 99.8%
(Cost $137,603,375*)...................................... 164,553,844
OTHER ASSETS AND LIABILITIES -- 0.2%
(Net)..................................................... 428,274
------------
NET ASSETS -- 100.0%...................................... $164,982,118
============
</TABLE>
- ------------
* Aggregate cost for federal tax purposes.
** Illiquid security or special situation security (see Note 7 to Financial
Statements).
+ Non-income-producing security.
++ See Note 2 to Financial Statements.
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 this
Fund's shares may vary in response to factors affecting the global
communications industry, and therefore may be more volatile than that 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.
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
---------------------
The Montgomery Funds
---------------------
Emerging Markets Fund
---------------------
PORTFOLIO HIGHLIGHTS
(Unaudited)
INVESTMENT REVIEW
Q: How did the Montgomery Emerging Markets Fund perform relative to its
benchmark in the six months ended 12/31/96?
A: The Fund outperformed the IFC Global Composite Index by approximately three
percentage points during the period.
Q: What markets and holdings performed especially well during the period?
A: Early in 1996 we increased the Fund's exposure to Brazil, a move that paid
off handsomely because that market was one of the strongest in the world during
1996. Brazil reached a high of nearly 19% of Fund assets in mid-1996. Also in
mid-1996, we raised the Fund's weighting in Hong Kong--another profitable move.
That market rallied strongly late in the year in response to growing enthusiasm
about the colony's impending reunification with China, recovering property
prices and attractive stock valuations.
Another positive move during the period was our decision to scale back on the
Fund's exposure to Mexico, following our visit to the state of Guerrero, the
seat of a recent uprising. On-target stock selection also benefited the Fund.
Q: What markets and holdings were disappointing?
A: Our exposure to Thailand and South Korea continued to hurt the Fund
throughout the second half of 1996. One of the factors that drew us to Thailand
in 1996 was that real interest rates there seemed high in comparison to those in
other Southeast Asia countries, leading us to believe that Thailand's central
bank might bring rates down. Unfortunately, this did not happen. The country
also had to grapple with political uncertainties and worries surrounding the
stability of its banking system. These factors drove that market down sharply
during the second half of 1996.
In South Korea, as in Thailand, a combination of factors drove the market down.
The weakness of the Japanese yen, for example, has been a problem for South
Korean exporters, because many of them compete directly with Japanese firms in
overseas markets. (A weaker yen makes the price of Japanese exports more
attractive.) Threats of a pending nationwide labor strike late in 1996 further
clouded the horizon.
Q: How are you positioning the Fund for the year ahead?
A: As always, we will keep the Fund diversified across roughly 30 markets and
about 200 individual holdings. We believe that the stage has been set for a
rally in the emerging markets across all regions in 1997. Beginning with Asia,
we believe that 1997 will present some unique opportunities. The reunification
of Hong Kong and China will redirect world attention, we think, to the
opportunities the 1.2 billion people in China can present, given the human and
financial capital that Hong Kong will bring to the table.
<TABLE>
<CAPTION>
=============================================
PORTFOLIO MANAGEMENT
- ---------------------------------------------
<S> <C>
Josephine Jimenez....Senior Portfolio Manager
Bryan Sudweeks.......Senior Portfolio Manager
Angeline Ee.................Portfolio Manager
Frank Chiang................Portfolio Manager
<CAPTION>
=============================================
FUND PERFORMANCE
- ---------------------------------------------
Average annual total returns
for the periods ended 12/31/96
- ---------------------------------------------
Montgomery
Emerging Markets Fund
<S> <C>
Since inception (3/1/92)................8.75%
One year...............................12.32%
- ---------------------------------------------
IFC Global Composite Index
Since 2/28/92...........................7.38%
One year................................7.89%
</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
[CHART APPEARS HERE]
Montgomery Emerging Markets Fund
IFC Global Composite Index/(1)/
Lipper Emerging Markets Funds Average/(2)/
1 The IFC Global Composite Index is comprised of more than 1,200 individual
stocks from 25 developing countries in Asia, Latin America, the Middle East,
Africa and Europe.
2 The Lipper Emerging Markets Funds Average universe consists of 88 funds.
37
<PAGE>
- ---------------------------------------------
The Montgomery Funds
- ---------------------------------------------
Emerging Markets Fund
- ---------------------------------------------
PORTFOLIO HIGHLIGHTS
=============================================
T O P T E N H O L D I N G S
- ---------------------------------------------
(as a percentage of total net assets)
<TABLE>
<S> <C>
Arab Malaysian Corporation...............2.3%
Electrobras, "B".........................2.3%
IJM Corporation Berhad...................2.2%
Petroleo Brasileiro......................2.1%
Banco Bradesco...........................1.9%
IOI Corporation Oxygen, Inc..............1.9%
Sonae InvestImentos......................1.8%
Bangkok Bank Public Company, Ltd.,
Local Series 2........................1.8%
Compania de Telefonos de Chile, ADR......1.5%
Alfa S.A. de C.V. .......................1.5%
<CAPTION>
=============================================
TOP FIVE COUNTRIES
- ---------------------------------------------
(as a percentage of total net assets)
<S> <C>
Brazil..................................15.6%
Malaysia................................14.9%
China/Hong Kong..........................9.1%
South Africa.............................6.2%
Taiwan...................................5.1%
</TABLE>
In Latin America we expect 1997 to be the year when Brazil will deliver the "big
ticket" reforms the world has been waiting for. Should these reforms go through
as planned, we also expect real interest rates to fall from their current level
of 15%. That, in turn, should stimulate further growth in the economy and the
stock market.
In Europe stronger economic growth in the region (led by Germany) augurs well
for the emerging economies there. In the Middle East, Israel's recent decision
to withdraw from Hebron is cause for some optimism about the peace process.
Q: Why should an investor consider the Montgomery Emerging Markets Fund right
now?
A: The emerging market economies continue to grow at a rate of nearly 6% a year.
Inflation and real interest rates in many of these nations are also headed down,
and we expect companies in them to post average real earnings growth of 20 to
25% a year. We are convinced that 1997 could prove to be the year of the
emerging markets bull run, and we believe that excellent long-term opportunities
are opening up for investors who have the wherewithal to wait out the inevitable
ups and downs of these markets.
PORTFOLIO INVESTMENTS
December 31, 1996 (unaudited)
COMMON STOCKS -- 81.3%
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
Argentina -- 3.4%
2,154,500 Astra Cia Argentina de Petroleo (Oil)....... $ 4,115,857
204,680 Banco Frances del Rio de la Plata, ADR
(Banks)..................................... 5,628,700
2,574,033 Cresud S.A.+ (Real Estate).................. 4,556,881
544,004 Inversiones y Representaciones (Real Estate) 1,746,576
29,648 Inversiones y Representaciones, GDR
(Real Estate)............................... 945,030
15,848 Inversiones y Representaciones, GDR (Euro)
(Real Estate)............................... 505,155
2,096,151 Siderar S.A. (Steel)........................ 6,038,032
283,100 Telefonica de Argentina, Sponsored ADR
(Telephone/Networks)........................ 7,325,213
---------
30,861,444
Bangladesh -- 0.3%
98,080 Apex Tannery (Apparel and Textiles)......... 2,701,464
Brazil -- 3.0%
3,330 Electrobras, GDS*** (Electric Utilities).... 310,739
97,200 Multicanal Participacoes, ADR+
(Cable Television).......................... 1,245,375
169,611 Telebras, ADR (Telephone/Networks).......... 12,975,242
810 Telebras, ADR*** (Telephone/Networks)....... 61,965
180,900,000 Telec Brasileiras-Telebras ON
(Telephone/Networks)........................ 12,969,926
578,151 Telec de Minas Gerais S.A.
(Telephone/Regional-Local).................. 72,326
766,225 Telec de Sao Paulo S.A.
(Telephone/Regional-Local).................. 165,626
-------
27,801,199
Chile -- 1.7%
138,300 Compania de Telefonos de Chile, ADR
(Telecommunications/Wireless)............... 13,985,587
37,916 Sociedad Quimica y Minera de Chile
(Chemicals)................................. 2,052,204
---------
16,037,791
China/Hong Kong -- 9.1%
873,000 Cheung Kong Holdings (Real Estate).......... 7,759,875
813,000 China Light and Power Company
(Electric Utilities)........................ 3,615,903
1,250,000 China Resources Enterprises Ltd. (Holding).. 2,812,076
3,788,000 Concord Land Development Company+
(Real Estate)............................... 1,640,675
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
---------------------
The Montgomery Funds
---------------------
Emerging Markets Fund
---------------------
PORTFOLIO HIGHLIGHTS
COMMON STOCKS -- continued
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
China/Hong Kong -- continued
1,082,000 Guoco Group, Ltd., ORD (Diversified
Financial Services)......................... $ 6,057,353
446,000 Henderson Land Development Company
(Real Estate)............................... 4,497,770
354,400 HSBC Holdings (Banks)....................... 7,583,321
1,490,000 Hutchison Whampoa Ltd. (Conglomerates)...... 11,703,084
1,864,000 New World Development Company Ltd.
(Holding)................................... 12,592,152
619,000 Shanghai Industrial Holdings Ltd.+
(Conglomerates)............................. 2,256,875
3,648,900 Shangri-La Asia (Lodging)................... 5,401,760
629,000 Sun Hung Kai Properties Ltd. (Real Estate).. 7,705,443
404,000 Swire Pacific Company Ltd., Class A (Holding) 3,852,221
1,830,000 Wheelock and Company, Ltd. (Holding)........ 5,217,079
---------
82,695,587
Czech Republic -- 3.0%
17,739 Cokoladovny (Food and Beverage)............. 2,259,933
116,900 Komercni Banka, GDR (Banks)................. 3,205,983
316,651 Komercni Banka I.F. (Mutual Funds).......... 8,009,997
203,010 PIF (Mutual Funds).......................... 2,582,596
25,960 SPT Telecom A.S.+ (Telephone/Networks)...... 3,231,876
457,500 The Czech Value Fund (Mutual Funds)......... 3,888,750
570,757 Vseobecny I.F. (Mutual Funds)............... 1,670,846
377,584 Vynosovy I.F. (Mutual Funds)................ 2,360,075
---------
27,210,056
Egypt -- 0.5%
123,435 Amreya Cement (Cement)...................... 2,328,345
94,240 Tora Cement (Cement)........................ 1,902,632
---------
4,230,977
Greece -- 0.1%
303,040 Aegek (Heavy Construction).................. 1,117,775
Hungary -- 0.3%
104,100 Borsodchem, GDR*** (Chemicals).............. 2,618,115
India -- 3.3%
154,300 Bajaj Auto, Ltd. (Auto/Auto Parts).......... 3,676,730
5,400 Bajaj Auto, Ltd., GDR*** (Auto/Auto Parts).. 179,901
771,100 Carrier Aircon, Ltd.** (Home Appliance)..... 3,828,614
502,300 Floatglass**+ (Chemicals)................... 278,822
50 Grasim Industries, Ltd.** (Conglomerates)... 583
380 Great Eastern Shipping, New (Shipping)...... 360
300,000 HDFC Bank, Ltd.** (Banks)................... 336,820
7,300 Hindustan Petroleum Corporation Ltd.** (Oil) 67,604
59,670 Housing Development and Finance
Corporation** (Banks)....................... 3,747,892
91,890 Indian Hotels Company Ltd.** (Lodging)...... 1,816,013
10,800 Indian Hotels, GDS (Euro) (Lodging)......... 273,348
155,700 Indian Hotels, GDS*** (Lodging)............. 3,940,767
165,800 Indian Petrochemicals Corporation Ltd.,
(Chemicals)................................. 1,914,990
28,259 Industrial Credit & Investment
Corporation** (Banks)....................... 46,310
300 Kotak Mahindra (Securities Brokerage)....... 592
3,400 Madras Cement Ltd. (Cement)................. 758,717
1,246,400 Mahanagar Telephone Nigam, Ltd.**
(Electric Utilities)........................ 8,239,799
42,400 State Bank of India** (Banks)............... 267,883
2,919 Tata Engineering & Locomotive Company,
Ltd.** (Auto/Auto Parts).................... 27,439
14,000 Tata Engineering & Locomotive Company,
Ltd., GDR (Auto/Auto Parts)................. 149,660
109,400 Tata Engineering & Locomotive Company,
Ltd., GDR*** (Auto/Auto Parts)............. 1,161,281
456 Titan Industries (Household Products)....... 1,068
-----
30,715,193
Indonesia -- 3.2%
1,484,000 Aneka Kimia Raya (F) (Chemicals)............ 879,594
1,690,000 Bimantara (F) (Conglomerates)............... 2,253,810
774,000 Ciputra Development (Auto/Auto Parts)....... 802,837
1,078,400 Hanjaya Mandala Sampoerna** (F) (Tobacco)... 5,752,684
1,140,000 Lippo Bank** (F) (Banks).................... 1,110,076
498,000 London Sumatra Indonesia+ (Agricultural
Commodities)................................ 1,301,926
2,932,000 Matahari Putra Prima (F) (Retail Trade)..... 3,413,633
3,686,400 Mulia Industrindo (F) (Building Materials).. 3,823,743
892,000 Semen Gresik (F) (Building Materials)....... 2,870,110
100,400 Tambang Timah, GDR***
(Metals and Mining)......................... 1,804,690
130,280 Telekomunikas Indonesia, ADR
(Telephone/Regional-Local).................. 4,494,660
480,000 Telekomunikas Indonesia (F)
(Telephone/Regional-Local).................. 828,112
------------
29,335,875
Israel -- 1.0%
50,000 Koor Industries, ADR (Holding).............. 850,000
115,800 Osem Investment, Ltd. (Food and Beverage)... 653,947
22,160 Supersol Ltd. (Food and Beverage)........... 544,037
13,870 Teva Pharmaceuticals (Pharmacy/Drugs)....... 6,947,524
------------
8,995,508
Korea -- 3.6%
253,234 Korea Electric Power Corporation, ADR
(Electric Utilities)........................ 7,372,256
6,623 Korea Mobile Telecommunications
(Telephone/Wireless)........................ 6,722,108
150,000 Korea Special Opportunities Fund
(Mutual Funds).............................. 1,650,000
87,380 Pohang Iron & Steel Company, Ltd. (Steel)... 5,001,083
20,212 Samsung Electronics Ltd. (F) (Electronics).. 1,215,348
64 Samsung Electronics Ltd., GDR, Voting***
(Electronics)............................... 2,569
213 Samsung Electronics Ltd., New., GDS***
(Electronics)............................... 8,813
25,089 Samsung Electronics Ltd., Refunding
1/1/97*** (Electronics)..................... 1,395,935
459,192 Shinhan Bank (Banks)........................ 7,285,502
104,997 Yukong, Ltd. (Oil).......................... 2,001,429
------------
32,655,043
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<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>
Malaysia -- 14.5%
4,208,000 Arab Malaysian Corporation (Diversified
Financial Services).................................$ 20,994,179
388,000 Arab Malaysian Finance (F) (Diversified
Financial Services)................................. 2,166,225
684,000 Genting Berhad (Leisure Time)....................... 4,712,572
1,073,000 Guinness Anchor Berhad (Food and Beverage).......... 2,634,171
884,000 Hong Leong Bank Berhad** (Banks).................... 3,080,261
8,384,000 IJM Corporation Berhad (Heavy Construction)......... 19,752,445
520,000 Innovest Berhad (Real Estate)...................... 1,853,098
11,163,000 IOI Corporation Oxygen, Inc. (Chemicals)............ 17,150,046
1,750,000 Leader Universal Holdings Berhad
(Telecommunications Equipment)...................... 3,672,540
299,000 Lingkaran Trans Kota Holdings Berhad
(Real Estate)....................................... 615,640
2,027,000 Metacorp Berhad (Chemicals)......................... 5,176,856
1,680,000 New Straits Times** (Newspapers/Publishing)......... 9,712,136
418,000 Oriental Holdings Berhad (Auto/Auto Parts).......... 2,846,803
275,000 Powertek Berhad+ (Electric Utilities)............... 542,269
3,135,000 Public Bank Berhad** (F) (Banks).................... 6,641,160
1,435,000 Renong Berhad (Heavy Construction).................. 2,545,555
370,000 Resorts World Berhad (Leisure Time)................. 1,684,815
876,000 Tanjong PLC (Leisure Time).......................... 3,503,306
638,000 Telekom Malaysia Berhad**
(Telecommunications/Other).......................... 5,684,023
1,293,000 UMW Holdings Berhad (Auto/Auto Parts)............... 6,041,338
1,205,700 United Engineers Berhad
(Heavy Construction)................................ 10,884,957
----------
131,894,395
Mexico -- 3.8%
3,007,141 Alfa S.A. de C.V. (Steel)........................... 13,885,871
951,500 Cementos Mexicanos, S.A. CPO
(Building Materials)................................ 3,408,575
29,000 Cementos Mexicanos, S.A., Class B
(Building Materials)................................ 113,097
357,000 Empresas La Moderna S.A. de C.V., Class A
(Tobacco)........................................... 1,745,998
330,000 Grupo Radio Central S.A. de C.V., ADR+
(Broadcasting/Advertising).......................... 2,268,750
1,392,594 Industrias Penoles CPO (Metals and Mining).......... 4,935,642
241,600 Kimberly Clark de Mexico, Class A
(Pulp and Paper).................................... 4,769,390
549,000 San Luis Corporacion S.A. de C.V.
(Metals and Mining)................................. 3,403,354
---------
34,530,677
Morocco -- 0.3%
18,884 Banque Marocaine du Commerce (Banks)................ 862,771
124,500 Banque Marocaine du Commerce, Exterieur
GDR ***+ (Banks).................................... 1,945,001
---------
2,807,772
Pakistan -- 0.3%
16,717 Adamjee Insurance Company (Insurance)............... 36,391
508,000 DG Khan Cement (Building Materials)................ 117,241
62,446 Engro Chemicals Pakistan** (Chemicals).............. 209,556
1,362,800 Fauji Fertilizer Company Ltd.**+
(Agriculture Commodities)........................... 2,295,140
77,022 Pakistan State Oil** (Oil).......................... 497,726
-------
3,156,054
Peru -- 1.0%
154,095 Credicorp, Ltd. (Banks)............................. 2,850,758
1,812,021 Ferreyros Enrique S.A. (Holding).................... 1,734,655
76,800 Minas Buenaventura, ADR
(Metals and Mining)................................. 1,310,400
1,404,210 Telefonica del Peru S.A., Class B
(Telephone/Networks)................................ 2,613,234
48,000 Telefonica del Peru S.A., Series B, ADR
(Telephone/Networks)................................ 906,000
-------
9,415,047
Philippines -- 2.4%
10,012,628 Aboitiz Equity Ventures+ (Conglomerates)............ 1,008,877
7,323,600 DMCI Holdings (Building Materials).................. 4,803,502
3,896,287 Keppel Philippines Holdings, Inc., Class B
(Shipping).......................................... 444,443
175,800 Manila Electric Company, Class B
(Electric Utilities)................................ 1,437,148
1,554,834,234 Manila Mining, Class B (Metals and Mining).......... 1,418,860
32,666,351 Metro Pacific Inc., Class B (Conglomerates)......... 8,073,433
190,000 Music Semiconductors Corporation+
(Semiconductor)..................................... 93,916
10,200,000 Petron Corporation (Oil)............................ 3,451,711
1,930 Philippine Long Distance Telephone, ADR
(Telephone/Long Distance)........................... 98,430
6,869,000 Republic Glass (Glass).............................. 1,332,011
1,217,000 Uniwide Holdings, Inc.+ (Retail Trade).............. 240,624
----------
22,402,955
Portugal -- 3.9%
173,800 Banco Totta E Acores, SA (Banks).................... 3,277,596
61,885 Capital Portugal Fund+ (Mutual Funds)............... 7,144,415
182,427 Electricas Empresa Fabril de Maquinas
(Electrical Equipment).............................. 1,511,888
889,900 Portucel Industries Empresa (Pulp and Paper)........ 5,165,495
524,350 Sonae InvestImentos (Conglomerates)................. 16,604,698
31,500 Telecel-Comunicacaoes Pessoai, SA+
(Telecommunications/Wireless)....................... 2,011,287
---------
35,715,379
Russia -- 2.3%
46,389 Global Telesystems Group, Inc.**
(Telephone/Networks)................................ 896,987
171 Irkutskenegro, RDC+ (Oilfield Equipment)............ 4,770,900
1,200 LukOil Company, ADR (Oil)........................... 56,400
125 LukOil Company, RDC*** (Oil)........................ 7,190,625
83,400 Mosenergo, ADS*** (Electric Utilities).............. 2,571,848
43,500 Mosenergo, Sponsored ADS (Electric Utilities)....... 1,341,431
11,500 Tatneft, ADR+ (Oil)................................. 531,875
75,500 Tatneft, Sponsored ADS***+ ( Oil)................... 3,624,000
---------
20,984,066
Singapore -- 1.2%
4,575,572 CDL Hotels International, Ltd. (Real Estate)........ 2,617,739
849,000 Far East Levingston (Heavy Construction)............ 4,429,143
544,000 Keppel Corporation, ORD (Shipping).................. 4,237,547
---------
11,284,429
</TABLE>
40
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>
Shares Value (Note 1)
<S> <C> <C>
Slovak Republic -- 0.3%
130,900 VUB Kupon Fund (Mutual Funds).......................$ 2,455,205
South Africa -- 5.9%
66,400 Anglo American Gold Investment Company
(Metals and Mining)................................. 5,056,108
213,200 Anglovaal, Ltd. (Conglomerates)..................... 6,288,682
146,230 Barlow, Ltd. (Building Materials)................... 1,297,113
1,828,700 Clinic Holdings (Health Care)....................... 1,915,278
5,895,000 Highstone Property Fund (Real Estate)............... 1,638,025
3,666,252 Lonrho (Conglomerates).............................. 7,789,365
32,000 Pepsi International Bottlers**+
(Food and Beverage)................................. 2,706,372
521,500 Randgold and Exploration Company
(Metals and Mining)................................. 3,539,088
508,486 Sappi, Ltd. (Pulp and Paper)........................ 4,564,799
848,336 Sasol, Ltd. (Metals and Mining)..................... 10,063,620
9,397,794 South Africa Iron & Steel Industrial
Corporation (Steel)................................. 6,709,123
1,350,790 Waltons Stationery Company (Retail Trade)........... 1,891,135
---------
53,458,708
Sri Lanka -- 0.1%
216,195 Aitken Spence and Company (Conglomerates)........... 457,314
61,300 Development Finance Corporation of
Ceylon (Banks)...................................... 275,542
-------
732,856
Taiwan -- 5.1%
486,000 Accton Technology Corporation**+
(Computers and Office Equipment).................... 1,731,927
8,382,360 Bank Sinopac** (Banks).............................. 9,083,430
1,084,716 Cathay Life Insurance** (Insurance)................. 6,902,738
2,550,000 China Development Corporation**
(Diversified Financial Services).................... 7,789,091
5,200,000 China Steel Corporation** (Steel)................... 4,878,545
7,681,451 Pacific Construction** (Heavy Construction)......... 6,564,149
2,260,280 Taiwan Semiconductor Company**
(Semiconductor)..................................... 4,643,848
1,153,600 Yageo Corporation** (Electronics)................... 2,265,251
269,350 Yageo Corporation, GDR*** (Electronics)............. 2,694,173
---------
46,553,152
Thailand -- 4.4%
167,361 Ban Pu Coal Public Company, Ltd. (F) (Coal)......... 3,106,287
2,209,700 Bangkok Bank Public Company, Ltd.,
Local Series 2 (F) (Banks).......................... 16,462,265
240,100 Central Pattana Public Company, Ltd. (F)
(Real Estate)....................................... 1,086,002
387,000 CH Karnchang Public Company (F)
(Heavy Construction)................................ 1,961,709
2,183,950 Electricity Generation Power Company (F)
(Electric Utilities)................................ 5,961,027
444,000 Industrial Finance Corporation of
Thailand (F) (Securities Brokerage)................. 1,203,229
219,600 PTT Exploration and Production Public
Company, Ltd. (F) (Oil)............................. 3,168,213
301,600 Regional Container Lines (F) (Shipping)............. 2,916,509
85,100 Siam Cement Public Company, Ltd.
(F) (Building Materials)............................ 2,681,151
37,300 Siam Cement Public Company, Ltd. Local,
Series 2 (Building Materials)....................... 1,175,323
---------
39,721,715
Turkey -- 1.8%
10,532,873 Efes Sinai Yatrium ve Ticaret**
(Food and Beverage)................................. 458,344
545,000 Erciyas Biracilik ve Malt, ADS
(Food and Beverage)................................. 1,171,750
17,063,166 Koc Holdings (Holding).............................. 2,989,397
3,479,400 Migros Turk T.A.S. (Retail Trade)................... 4,250,996
7,093,023 Tat Konserve (Food and Beverage).................... 1,062,809
22,714,389 Trakya Cam Sanayil (Glass).......................... 1,151,953
39,379,000 Turk Sise ve Cam (Glass)............................ 4,175,736
33,768,000 Yapi ve Kredi Bankasi A.S. (Banks).................. 840,698
-------
16,101,683
Ukraine -- 0.2%
721,000 Ukraine Enterprise Corporation+
(Mutual Funds)...................................... 1,605,673
Venezuela -- 1.2%
1,575,000 Electricidad de Caracas (Electric Utilities)........ 1,597,306
339,200 Compania Anonima Nacional Telefonos de
Venezuela, ADR+ (Telephone/Networks)................ 9,540,000
---------
11,137,306
Vietnam -- 0.1%
42,600 Southeast Asia Frontier Fund (Mutual Funds)......... 213,000
38,000 The Vietnam Frontier Fund+ (Mutual Funds)........... 389,500
-------
602,500
TOTAL COMMON STOCKS
(Cost $694,729,033)................................................. 741,535,599
-----------
PREFERRED STOCKS -- 13.2%
Brazil -- 12.6%
2,413,701,596 Banco Bradesco (Banks).............................. 17,491,265
6,163,000 Brahma (Food and Beverage).......................... 3,368,862
343,420,000 Cia Energetica de Minas Gerais
(Electric Utilities)................................ 11,699,613
55,457,000 Electrobras, "B" (Electric Utilities)............... 20,600,906
832,000 Electropaulo "B" (Electric Utilities)............... 122,906
76,433,143 Industrias Romi, S.A. (Machinery and Tools)......... 1,096,000
50,500 Kepler Weber S.A. (Machinery and Tools)............ 329,992
67,300,000 Lojas Americanas (Retail Trade)..................... 887,316
91,972,000 Lojas Renner S.A. (Retail Trade).................... 4,248,538
9,680,000 Marcopolo S.A., Series B (Auto/Auto Parts)......... 1,620,941
16,035,000 Metalurgica E Shultz S.A. (Steel)................... 270,053
117,921,300 Petroleo Brasileiro (Oil)........................... 18,781,614
72,785,194 Telebras (Telephone/Networks)....................... 5,603,710
42,810,000 Telec de Minas Gerais S.A.
(Telephone/Regional-Local).......................... 5,294,086
17,879,000 Telec de Sao Paulo S.A.
(Telephone/Regional-Local).......................... 3,871,403
</TABLE>
41
The accompanying notes are an integral part of these financial statements
<PAGE>
- ------------------------
The Montgomery Funds
- ------------------------
Emerging Markets Fund
- ------------------------
I N V E S T M E N T S
<TABLE>
<CAPTION>
PREFERRED STOCKS -- continued
Shares Value (Note 1)
<S> <C>
Brazil -- continued
77,210,007 Telec do Rio Janeiro S.A.
(Telephone/Networks)..................................$ 9,770,324
45,770,000 Uniao de Bancos Brasileiros (Banks)................... 1,493,218
Usiminas (Steel)...................................... 704,490
345,888 Vale do Rio Doce (Metals and Mining).................. 6,657,454
2,423,000 Weg S.A. (Furniture).................................. 1,142,595
-----------
115,055,286
Korea -- 0.1%
19,165 Samsung Electronics, Ltd. (F) (Electronics)........... 521,919
5,775 Samsung Electronics, Ltd., Refunding
1/1/97 (Electronics).................................. 149,098
-------
671,017
Philippines -- 0.5%
138,700 Philippine Long Distance Telephone,
Convertible Preferred, 5.750% 12/31/49
(Telephone/Long Distance)............................. 4,265,025
---------
TOTAL PREFERRED STOCKS
(Cost $96,674,625).................................................. 119,991,328
-----------
CONVERTIBLE BONDS -- 0.9%
Principal amount
Mexico -- 0.1%
$750,000 Alfa S.A. de C.V., 8.000% due 09/15/00***
(Steel)............................................... 827,813
Philippines -- 0.1%
530,000 Metro Pacific Inc., 2.500% due 04/11/03***
(Conglomerates)....................................... 561,800
South Africa -- 0.3%
2,550,000 Barlow, Ltd., 7.000% due 09/20/04***
(Building Materials).................................. 2,715,750
Thailand -- 0.4%
2,600,000 Central Pattana Public Company, Ltd.,
2.750% due 04/10/01 (Real Estate)..................... 2,720,251
1,500,000 Siam Sindhorn, 2.000% due 07/31/00
(Real Estate)......................................... 960,000
-------
3,680,251
---------
TOTAL CONVERTIBLE BONDS
(Cost $8,401,569)................................................... 7,785,614
---------
WARRANTS -- 0.4%
Shares
Czech Republic -- 0.0%#
81,300 The Czech Value Fund, Warrants Expire
09/13/98 (Mutual Funds)............................... 112,194
Malaysia -- 0.4%
2,317,500 Development and Commercial Bank Holdings
Corporation, Warrants Expire 12/27/99
(Banks)............................................... 3,487,034
TOTAL WARRANTS
(Cost $2,337,251)................................................... 3,599,228
---------
CORPORATE BONDS -- 0.2%
(Cost $1,660,548)
Principal amount
Philippines -- 0.2%
$1,905,000 Ayala Land, Inc., Zero Coupon
due 12/08/00 (Real Estate)............................ 1,659,731
---------
TOTAL SECURITIES
(Cost $803,803,026)................................................. 874,571,500
-----------
REPURCHASE AGREEMENTS -- 2.0%
9,219,500 Agreement with Bear Stearns Companies Inc.,
Tri-Party, 7.500% dated 12/31/96, to be
repurchased at $9,223,341 on 01/02/97,
collateralized by $9,475,421 market value of
U.S. government securities, having various
maturities and various interest rates................. 9,219,500
9,219,500 Agreement with Chase Manhattan Corporation,
Tri-Party, 7.500% dated 12/31/96, to be
repurchased at $9,223,341 on 01/02/97,
collateralized by $9,404,158 market value of
U.S. government securities, having various
maturities and various interest rates................. 9,219,500
---------
TOTAL REPURCHASE AGREEMENTS
(Cost $18,439,000).................................................. 18,439,000
----------
TOTAL INVESTMENTS -- 98.0%
(Cost $822,242,026*)................................................ 893,010,500
-----------
OTHER ASSETS AND LIABILITIES -- 2.0%
(Net)............................................................... 18,254,753
----------
NET ASSETS -- 100.0%................................................$911,265,253
============
</TABLE>
* Aggregate cost for Federal tax purposes.
** 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% of assets.
+ Non-income-producing security.
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
42
The accompanying notes are an integral part of these financial statements.
<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
(Unaudited)
INVESTMENT REVIEW
Q: The Fund opened on September 30. How did it perform from then until December
31, 1996?
A: The Fund performed very well during this short period, even though the
performance of Asian markets diverged dramatically from one another in late
1996. During the fourth quarter, Hong Kong and Malaysia gained 13% and 9%,
respectively, while Thailand sank 24% and South Korea fell 17%. Meanwhile, some
markets, such as the Philippines, turned in moderate performances. The Fund
benefited from the decision to favor Hong Kong and Malaysia during its first few
months in operation. They were the portfolio's two largest country weightings
during the period.
Q: What factors drove markets in Asia during the period?
A: In Hong Kong the rally was driven by a couple of factors. Investors in that
market have been encouraged by the benign interest rate environment in that of
the U.S., because the colony's monetary policy is tied to that of the United
States. The market was also driven up by good news from China; its economy has
been reviving as the government has relaxed the austerity measures it imposed in
1993 to cool rapid growth. That and other developments during the period seem to
pave the way for a smooth transition after Britain hands over Hong Kong to China
in mid-1997. In contrast, a few economies in the region--especially South Korea
and Thailand--continued to grapple with declining prices for their chief exports
and structural problems in their economies.
Q: Describe the Fund's strategy.
A: Our strategy is multi-tiered, combining both top-down and bottom-up analysis.
We believe that it's important to begin by analyzing the macroeconomic
landscape, because in Asia top-down factors are often the main determinant of
how a stock will perform. In other words, it's often better to hold shares in a
company with decent fundamentals in a solid market rather than a company with
excellent fundamentals in a declining market. Of course, we aim to find
excellent companies in markets that we believe have the best long-term
potential.
Q: What is your outlook for the next six months? How are you positioning the
Fund accordingly?
A: We're optimistic about what the next few months will bring for the Asian
markets, and especially for equities in Hong Kong and Taiwan. Britain will hand
over the colony to China in July 1997, if all goes as planned. We believe that
the transition will go smoothly and that the reunification will ultimately
benefit both Hong Kong and China. So we will continue to overweight Hong Kong
relative to its weighting in our benchmark index. We like Taiwan because its
economy is also benefiting from the recovery in China's economy and a nascent
rebound in the technology sector, which is a main source of exports for the
island.
================================================================================
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
Josephine Jimenez.......................................Senior Portfolio Manager
Bryan Sudweeks..........................................Senior Portfolio Manager
Angeline Ee....................................................Portfolio Manager
Frank Chiang...................................................Portfolio Manager
================================================================================
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Aggregate total returns
for the periods ended 12/31/96
- --------------------------------------------------------------------------------
Montgomery Emerging Asia Fund
Since inception (9/30/96).................................................21.06%
- --------------------------------------------------------------------------------
MSCI All-Country Asia-Free Japan
Since 9/30/96..............................................................2.05%
- --------------------------------------------------------------------------------
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.
43
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------
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
- -----------------------------------------
TOP TEN HOLDINGS
- -----------------------------------------
(as a percentage of total net assets)
<S> <C>
Shanghai Industrial Holdings Ltd. ...7.7%
China Resources Enterprises Ltd. ....6.6%
China Resources Beijing Land.........5.8%
Hong Leong Bank Berhad...............3.7%
Wheelock and Company, Ltd. ..........3.0%
Hutchison Whampoa Ltd. ..............3.0%
Renong Berhad........................2.8%
Public Bank Berhad (F)...............2.7%
Keppel Corporation...................2.6%
Leader Universal Holdings............2.5%
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
TOP FIVE COUNTRIES
- -----------------------------------------
(as a percentage of total net assets)
<S> <C>
China/Hong Kong.....................47.1%
Malaysia............................21.5%
Philippines..........................5.2%
Singapore............................4.9%
Indonesia............................4.0%
</TABLE>
At the same time, we are keeping a close eye on South Korea and Thailand.
Although they turned in disappointing performances in 1996, we think the
prospects are good for a turnaround in their economies and their markets in
1997. Having been depressed for a while now, they also offer some attractively
priced stocks. In addition, Indonesia and the Philippines continue to look
strong to us. So while we'll focus on Hong Kong and Malaysia, we think the
outlook is positive for Asian markets as a whole. Of course, investors in this
Fund should be aware that they face the potential for a great deal of risk. That
goes hand-in-hand with the potential for exceptional rewards.
Q: Why might now be a good time for an investor to consider the Montgomery
Emerging Asia Fund?
A: We think that Asian equity markets offer exceptional long-term opportunities
for investors who can tolerate considerable volatility. That's the nature of
these markets. We believe that the impending handover of Hong Kong to China
makes this an especially good time to invest in the region, as we think the
reunification will draw investors into the market over the short term and
benefit the Asian region over the long term.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENTS
December 31, 1996 (unaudited)
COMMON STOCKS -- 85.2%
Shares Value (Note 1)
<S> <C> <C>
China/Hong Kong -- 47.1%
172,000 Aeon Credit Services (Diversified
Financial Services)......................... $ 55,039
35,000 Cheung Kong Holdings (Real Estate).......... 311,106
66,000 China Light and Power Company
(Electric Utilities)........................ 293,542
1,730,000 China Resources Beijing Land+
(Conglomerates)............................. 1,095,998
554,000 China Resources Enterprises Ltd. (Holding).. 1,246,312
445,000 Concord Land Development Company
Ltd.+ (Real Estate)......................... 192,740
250,000 Goldlion Holdings, Ltd., ORD
(Apparel and Textiles)...................... 205,249
540,000 Guangnan Holdings (Holding)................. 464,283
45,000 Guoco Group, Ltd. (Diversified
Financial Services)......................... 251,923
20,800 HSBC Holdings (Banks)....................... 445,071
72,000 Hutchison Whampoa Ltd. (Conglomerates)...... 565,518
190,000 Lai Sun Development Company Ltd.
(Real Estate)............................... 287,413
57,000 New World Development Company Ltd.
(Holding)................................... 385,060
400,000 Shanghai Industrial Holdings Ltd.+
(Conglomerates)............................. 1,458,401
254,000 Sino Land Company (Holding)................. 310,337
25,000 Sun Hung Kai Properties Ltd. (Real Estate).. 306,258
50,000 Swire Pacific Company, Ltd., Class A
(Holding)................................... 476,760
200,000 Wheelock and Company, Ltd. (Holding)........ 570,173
------------
8,921,183
Indonesia -- 4.0%
275,000 Mulia Industrindo (F) (Building Materials).. 285,246
100,000 Semen Gresik (F) (Building Materials)....... 321,761
69,000 United Tractors (F) (Heavy Construction).... 144,602
------------
751,609
</TABLE>
The accompanying notes are an integral part of these financial statements
44
<PAGE>
----------------------------
The Montgomery Funds
----------------------------
Emerging Asia Fund
----------------------------
I n v e s t m e n t s
<TABLE>
<CAPTION>
COMMON STOCKS -- continued
Shares Value (Note 1)
<S> <C>
Malaysia -- 21.5%
146,000 Guinness Anchor Berhad
(Food and Beverage)............................... $ 358,424
200,000 Hong Leong Bank Berhad** (Banks).................. 696,892
121,000 IJM Corporation Berhad
(Heavy Construction).............................. 285,072
115,000 Innovest Berhad (Real Estate)..................... 409,820
228,000 Leader Universal Holdings
(Telecommunications Equipment).................... 478,480
240,000 Public Bank Berhad (F)** (Banks).................. 508,414
300,000 Renong Berhad (Heavy Construction)................ 532,172
90,000 Tanjong Plc (Leisure Time)........................ 359,929
50,000 United Engineers Berhad (Heavy Construction)...... 451,396
------------
4,080,599
Philippines -- 5.2%
40,000 Manila Electric Company, Class B
(Electric Utilities).............................. 326,996
833,000 Metro Pacific Inc. (Conglomerates)................ 205,875
303,000 PCI Leasing and Financing, Inc.**+
(Diversified Financial Services).................. 80,070
1,300 Philippine Long Distance Telephone
(Telephone/Long Distance)......................... 71,426
5,900 Philippine Long Distance Telephone, ADR
(Telephone/Long Distance)......................... 300,900
------------
985,267
Singapore -- 3.7%
64,000 Keppel Corporation (Shipping)..................... 498,535
50,000 Van Der Horst Ltd. (Heavy Construction)........... 209,033
------------
707,568
Taiwan -- 3.4%
82,000 Accton Technology Corporation**+
(Computers and Office Equipment).................. 292,218
200,000 CNET Technology Inc.**+
(Software Systems)................................ 304,000
14,550 United World Chinese Commercial Bank**+
(Banks)........................................... 38,359
------------
634,577
Thailand -- 0.3%
20,000 IFCT Finance and Securities PLC (F)
(Securities Brokerage)............................ 54,199
------------
TOTAL COMMON STOCKS
(Cost $14,254,998)........................................... 16,135,002
------------
WARRANTS -- 1.2%
(Cost $201,387)
Singapore -- 1.2%
64,000 Keppel Corporation, Warrants Expire 06/97+
(Shipping)........................................ 220,453
------------
TOTAL SECURITIES
(Cost $14,456,385)........................................... 16,355,455
------------
</TABLE>
<TABLE>
<CAPTION>
REPURCHASE AGREEMENTS -- 11.9%
Principal amount Value (Note 1)
<S> <C>
$ 1,122,500 Agreement with Bear Stearns Companies Inc.,
Tri-Party, 7.500% dated 12/31/96, to be
repurchased at $1,122,968 on 01/02/97,
collateralized by $1,153,659 market value of
U.S. government securities, having various
maturities and various interest rates....... $ 1,122,500
1,122,500 Agreement with Chase Manhattan Corporation,
Tri-Party, 7.500% dated 12/31/96, to be
repurchased at $1,122,968 on 01/02/97,
collateralized by $1,144,983 market value of
U.S. government securities, having various
maturities and various interest rates....... 1,122,500
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $2,245,000)........................................... 2,245,000
------------
TOTAL INVESTMENTS -- 98.3%
(Cost $16,701,385*).......................................... 18,600,455
OTHER ASSETS AND LIABILITIES -- 1.7%
(Net)........................................................ 331,035
------------
NET ASSETS -- 100.0%......................................... $18,931,490
============
</TABLE>
* Aggregate cost for federal tax purposes.
** Illiquid security or special situation security (see Note 7 to Financial
Statements).
+ Non-income-producing security.
Abbreviations:
ADR......American Depositary Receipt
(F)......Foreign or Alien Shares
ORD......Ordinary
The accompanying notes are an integral part of these financial statements.
45
<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
(Unaudited)
======================================
PORTFOLIO MANAGEMENT
- --------------------------------------
Montgomery Growth Team
Montgomery Micro Cap Team
Montgomery Equity Income Team
Montgomery International/Global Team
Montgomery Emerging Markets Team
======================================
FUND PERFORMANCE
- --------------------------------------
Average annual total returns
for the periods ended 12/31/96
- ------------------------------------
<TABLE>
<CAPTION>
Montgomery Select 50 Fund
<S> <C>
Since inception (10/2/95).....30.60%
One year......................20.46%
- ------------------------------------
S&P 500 Index
Since 9/30/95.................23.63%
One year......................22.96%
- ------------------------------------
</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 Chart appears here]
Montgomery Select 50 Fund
S&P 500 Index/(1)/
Lipper Capital Appreciation
Funds Average/(2)/
- ------------
/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 189
funds.
INVESTMENT REVIEW
Q: How did the Montgomery Select 50 Fund perform versus its benchmark in the six
months ended December 31, 1996?
A: Because the United States led world stock markets in the second half of 1996,
the Select 50 Fund, which has about 40% of its portfolio invested abroad,
underperformed the S&P 500 by 10.46 percentage points. In addition, the Select
50 Fund maintains a broad range of market capitalization exposure, including
both large- and small-cap companies. The fact that the U.S. market was led by
larger stocks during the second half of 1996 also worked against the Fund during
this period.
Q: What elements of the portfolio benefited the Fund's performance the most?
A: The stocks contributed by the Equity Income and Growth teams were the two
best-performing segments of the portfolio during the second half of 1996. This
reflected the market's preference during the period for the sort of liquid, mid-
to large-cap stocks that make up these portions of the Select 50 Fund.
Q: Were any elements of the portfolio disappointing?
A: The Fund's micro-cap exposure underperformed the S&P 500 during the second
half of 1996.
At the start of the period, the market was in the midst of a correction that hit
smaller-cap stocks particularly hard. Although they began to rebound in the
following months, by the end of 1996 most small-company stocks hadn't yet
regained all the ground they lost during the summer. The emerging markets
segment of the portfolio also underperformed the S&P 500 during the second half
of 1996, as investors focused most of their attention on U.S. stocks.
Q: How are you positioning the Fund for the year ahead?
A: The five teams that contribute stocks to the portfolio work in different
market segments and base their investment decisions on bottom-up stock analysis.
In addition, we structure the portfolio according to fairly strict parameters.
Each of our five disciplines contributes about 10 stocks, and we regularly
rebalance the portfolio to make sure that each portion is allocated
approximately 20% of assets.
Our team members will continue to focus on finding stocks that we believe have
strong capital appreciation potential into 1997 and beyond, because we think
this approach will serve our shareholders best over the long term.
Q: Why should an investor consider the Montgomery Select 50 Fund
right now?
A: The Select 50 Fund offers a convenient way to tap into what we believe are
some of the best stock opportunities we've uncovered. It combines aggressive
stock selection with diversification across markets and investment styles--an
approach that we think will help reduce risk over time.
46
<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
<TABLE>
<CAPTION>
=========================================
TOP TEN HOLDINGS
- -----------------------------------------
(as a percentage of total net assets)
<S> <C>
Irkutskenergo, RDC...................4.7%
Caribiner International Inc. ........3.4%
Freepages Group PLC..................2.7%
Ericsson (L.M.) Telephone Company,
Class B, ADR......................2.5%
UST Inc. ............................2.2%
HA-LO Industries Inc. ...............2.2%
Betzdearborn, Inc. ..................2.2%
Eidos PLC ...........................2.1%
SAFECO Corporation ..................2.1%
Masco Corporation ...................2.1%
</TABLE>
<TABLE>
<CAPTION>
=========================================
TOP FIVE INDUSTRIES
- -----------------------------------------
(as a percentage of total net assets)
<S> <C>
Software Systems.....................7.0%
Business Services....................6.3%
Telecommunications Equipment.........6.2%
Retail Trade.........................5.6%
Oilfield Equipment...................5.6%
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENTS
December 31, 1996 (unaudited)
COMMON STOCKS -- 83.4%
Shares Value (Note 1)
<S> <C> <C>
Apparel and Textiles -- 2.0%
2,192,000 Goldlion Holdings, Ltd. ORD
(China/Hong Kong)........................... $ 1,799,625
Biotechnology -- 1.0%
279,400 Cortec International, Ltd.+ (Great Britain). 880,389
Broadcasting/Advertising -- 4.8%
3,201,900 Freepages Group PLC+ (Great Britain)........ 2,385,214
70,812 HA-LO Industries Inc.+ (United States)...... 1,951,756
---------
4,336,970
Building Materials -- 2.1%
52,000 Masco Corporation (United States)........... 1,872,000
Business Services -- 6.3%
40,000 AccuStaff Inc.+ (United States)............. 845,000
61,200 Caribiner International Inc.+
(United States)............................. 3,075,300
30,000 Netscape Communications Corporation+
(United States)............................. 1,706,250
---------
5,626,550
Chemicals -- 2.2%
33,000 Betzdearborn, Inc. (United States).......... 1,930,500
5,800 Indian Petrochemicals Corporation Ltd.,
GDR** (India)............................... 66,990
------
1,997,490
Computers and Office Equipment -- 4.9%
55,600 Boise Cascade Corporation (United States)... 1,765,300
21,400 Dialogic Corporation+ (United States)....... 668,750
155,260 Eidos PLC+ (Great Britain).................. 1,921,002
---------
4,355,052
Conglomerates -- 0.8%
200,000 Shanghai Industrial Holdings Ltd.+
(China/Hong Kong)........................... 729,200
Cosmetics and Personal Care -- 1.8%
50,400 Nu Skin Asia Pacific Inc., Class A+ (Japan). 1,556,100
Consumer Services -- 0.3%
2,219 Azkoyen S.A. (Spain)........................ 273,134
Diversified Financial Services -- 0.1%
303,000 PCI Leasing and Financing Inc.+
(Philippines)............................... 80,070
Electric Utilities -- 1.4%
60,000 Pacific Gas & Electric Company
(United States)............................. 1,260,000
Electronics -- 1.6%
63,000 Moog Inc., Class A+ (United States)......... 1,472,625
Food and Beverage -- 2.1%
46,000 Anheuser-Busch Companies Inc.
(United States)............................. 1,840,000
Heavy Construction -- 1.1%
245,000 Van Der Horst Ltd. (Singapore).............. 1,024,262
Insurance -- 2.1%
48,000 SAFECO Corporation (United States).......... 1,893,000
Leisure Time -- 1.6%
100,000 RockShox Inc.+ (United States).............. 1,431,250
Machinery and Tools -- 2.6%
92,700 Elevadores Atlas SA+ (Brazil)............... 909,961
123,700 Rofin-Sinar Technologies Inc.+ (Germany).... 1,438,012
---------
2,347,973
Medical Products -- 3.1%
71,100 Cooper Companies, Inc. (United States)...... 1,226,475
56,100 Fresenius Medical Care AG, ADR+
(Germany)................................... 1,577,813
---------
2,804,288
Metals and Mining -- 1.0%
7,190 SGL Carbon AG (Germany)..................... 906,430
</TABLE>
47
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
<TABLE>
<CAPTION>
COMMON STOCKS -- continued
Shares Value (Note 1)
<S> <C> <C>
Oil -- 4.3%
21,000 Amoco Corporation (United States)........... $ 1,695,750
25,000 Belco Oil & Gas Corporation+
(United States)............................. 684,375
30,600 Tatneft, Sponsored ADS**+ (Russia).......... 1,468,800
---------
3,848,925
Oilfield Equipment -- 5.6%
20,900 Falcon Drilling Company, Inc.+
(United States)............................. 820,325
150 Irkutskenergo, RDC+ (Russia)................ 4,185,000
---------
5,005,325
Pharmacy/Drugs -- 2.1%
17,000 Bristol-Myers Squibb Company
(United States)............................. 1,848,750
Pulp and Paper -- 3.8%
40,000 International Paper Company
(United States)............................. 1,615,000
38,000 Weyerhauser Company (United States)......... 1,800,250
---------
3,415,250
Real Estate -- 0.6%
150,000 Innovest Berhad+ (Malaysia)................. 534,548
6,000 Johor Land Berhad+ (Malaysia)............... 10,501
------
545,049
Retail Trade -- 5.6%
45,000 Dayton-Hudson Corporation (United States)... 1,766,250
26,100 Gucci Group (Italy)......................... 1,667,137
33,000 Penney (J.C.) Company, Inc. (United States). 1,608,750
---------
5,042,137
Software Systems -- 7.0%
100,000 Avid Technology Inc.+ (United States)....... 1,043,750
45,000 Infinity Financial Technology, Inc.+
(United States)............................. 765,000
47,000 Kronos, Inc.+ (United States)............... 1,468,750
39,520 Ordina Beheer N.V. (Netherlands)........... 1,772,864
45,800 Unison Software, Inc.+ (United States)...... 1,213,700
---------
6,264,064
Telecommunications Equipment -- 6.2%
53,900 Ericsson (L.M.) Telephone Company,
Class B (Sweden)............................ 1,667,788
75,000 Ericsson (L.M.) Telephone Company,
Class B, ADR (Sweden)....................... 2,264,062
93,400 Octel Communications Corporation+
(United States)............................. 1,622,826
---------
5,554,676
Telephone/Networks -- 3.1%
8,500 Telebras, ADR (Brazil)...................... 650,250
14,290,000 Telec Brasileiras-Telebras ON (Brazil)...... 1,024,544
39,200 Compania Anonima Telefonos de
Venezuela ADR+ (Telephone/Networks)......... 1,102,500
---------
2,777,294
Tobacco -- 2.2%
60,500 UST Inc. (United States).................... 1,958,688
---------
TOTAL COMMON STOCKS
(Cost $66,945,262)........................................... 74,746,566
----------
PREFERRED STOCKS -- 1.8%
(Cost $2,019,423)
3,540,000 Industrias Villares S.A. (Brazil)........... 1,618,227
---------
TOTAL SECURITIES
(Cost $68,964,685)........................................... 76,364,793
----------
</TABLE>
<TABLE>
Principal amount Value (Note 1)
<S> <C> <C>
REPURCHASE AGREEMENTS -- 14.1%
$ 6,323,000 Agreement with Bear Stearns Companies Inc.,
Tri-Party, 7.500% dated 12/31/96, to be
repurchased at $6,325,635 on 01/02/97,
collateralized by $6,498,518 market value of
U.S. government securities, having various
maturities and various interest rates....... 6,323,000
6,323,000 Agreement with Chase Manhattan Corporation,
Tri-Party, 7.500% dated 12/31/96, to be
repurchased at $6,325,635 on 01/02/97,
collateralized by $6,449,644 market value of
U.S. government securities, having various
maturities and various interest rates....... 6,323,000
---------
TOTAL REPURCHASE AGREEMENTS
(Cost $12,646,000)........................................... 12,646,000
----------
TOTAL INVESTMENTS -- 99.3%
(Cost $81,610,685*).......................................... 89,010,793
OTHER ASSETS AND LIABILITIES -- 0.7%
(Net)........................................................ 657,926
-------
NET ASSETS -- 100.0%......................................... $ 89,668,719
============
</TABLE>
* Aggregate cost for federal tax purposes.
** 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.
+ Non-income-producing security.
Abbreviations:
ADR .... American Depositary Receipt
ADS .... American Depositary Share
GDR .... Global Depositary Receipt
ORD .... Ordinary
RDC .... Russian Depositary Receipt
48
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
(Unaudited)
I N V E S T M E N T R E V I E W
Q: How did the Asset Allocation Fund perform relative to its benchmarks in the
six months ended 12/31/96?
A: The Asset Allocation Fund lagged the Standard & Poor's 500 Index by 7.41
percentage points and the Lehman Aggregate Bond Index by slightly more than
one-half a percentage point in the second half of 1996. For the most part, the
Fund didn't have exposure to the largest stocks in the market during the second
half, and that was a drawback. Although the market seemed to make big gains
after the November elections, the bulk of the attention went to the large caps
of the Dow Jones Industrial Average. Smaller-cap stocks did well, but not as
well. We find most Dow stocks expensive by almost any yardstick, so for that and
other reasons, they aren't part of the portfolio.
Q: What elements of the Fund's strategy contributed positively to its
performance in the second half of 1996?
A: For most of 1996, the quantitative model that we employ in determining the
Fund's asset allocation favored equities. But from early July until early
November, we felt it was prudent to keep the portfolio divided 50/50 between
stocks and bonds, because we thought the Federal Reserve might step in to slow
the economy, among other reasons. The Fund's asset mix had been 70% stocks and
30% bonds for a year prior to that. We consider a 60/40 stock/bond mix to be
neutral.
In the fourth quarter, however, we decided to place a bit more emphasis on
equities. That proved to be a wise move, as stocks generally staged an
impressive post-election rally. Toward the end of 1996, however, we once again
decided to scale back on stocks, some of which have become more expensive than
we'd like.
Our choice of bonds also contributed positively to the Fund's performance in the
second half of 1996; as interest rates fell slightly in the latter part of the
year, the fixed-income portfolio modestly outperformed the Lehman Aggregate Bond
Index.
Q: What is the Fund's strategy?
A: We consider six main factors in determining what we believe is the
optimal mix of stocks, bonds and cash for the Asset Allocation Fund. These are
consumer sentiment, economic activity (as measured by statistics ranging from
auto and retail sales to wage growth), government policy, interest rates, market
liquidity and market valuation. Then we apply a disciplined, bottom-up
investment process to select individual stock and bond holdings for the
portfolio.
We're adamant about staying true to our investment process, and won't depart
from it simply to capitalize on short-term market or industry trends. The goal
of our disciplined stock selection process is to find growth at the right price.
We use proprietary, quantitative screening techniques to uncover companies with
accelerating growth, then use fundamental research to determine
<TABLE>
<CAPTION>
=============================================
PORTFOLIO MANAGEMENT
- ---------------------------------------------
<S> <C>
Roger Honour.........Senior Portfolio Manager
William Stevens......Senior Portfolio Manager
Andrew Pratt.........Portfolio Manager
Kathryn M. Peters....Portfolio Manager
</TABLE>
<TABLE>
<CAPTION>
=============================================
FUND PERFORMANCE
- ---------------------------------------------
Average annual total returns
for the periods ended 12/31/96
- ---------------------------------------------
Montgomery Asset Allocation Fund
<S> <C>
Since inception (3/31/94)..............23.64%
One year...............................12.85%
- ---------------------------------------------
S&P 500 Index
Since 3/31/94..........................23.37%
One year...............................22.96%
- ---------------------------------------------
Lehman Aggregate Bond Index
Index Since 3/31/94.....................7.73%
One year................................3.63%
- ---------------------------------------------
</TABLE>
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost.
Growth of a $10,000 Investment
[LINE CHART APPEARS HERE]
xxxx Montgomery Asset Allocation Fund
==== S&P 500 Index/(1)/
- ---- Lehman Aggregate
Bond Index/(2)/
.... Lipper Flexible Portfolio
Funds Average/(3)/
/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 Aggregate Bond Index includes Treasury, agency and corporate bond
issues and mortgage-backed securities.
/3/ The Lipper Flexible Portfolio Funds Average universe consists of 185 funds.
49
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------
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
=========================================
TOP TEN HOLDINGS
- -----------------------------------------
(as a percentage of total net assets)
<S> <C>
FNMA, 7.000% due TBA................6.2%
U.S. Treasury Notes,
6.625% due 06/30/01..............4.6%
U.S. Treasury Notes,
5.625% due 11/30/98..............4.1%
U.S. Treasury Bonds,
8.875% due 02/15/19..............3.8%
GNMA, Pool #320843,
8.000% due 05/15/22..............3.2%
U.S. Treasury Bonds,
6.250% due 08/15/23..............2.8%
Ericsson (L.M.) Telephone Company,
Class B, ADR.....................2.7%
Masco Corporation...................2.4%
Dayton-Hudson Corporation...........2.2%
U.S. Treasury Bonds,
6.125% due 12/31/01..............2.1%
<CAPTION>
=========================================
ASSET MIX
- -----------------------------------------
(as a percentage of total investments,
which excludes other liabilities)
<S> <C>
Stocks..............................46.2%
Bonds...............................53.8%
</TABLE>
whether that growth is sustainable. In essence, these two steps help us find
good companies. Then, rigorous valuation analysis helps us determine which of
those companies are good investments. Shareholders in this Fund can count on us
to adhere to that process and not to be swayed by short-term trends.
Q: How are you positioning the Fund for the year ahead?
A: At the beginning of 1997, the Fund had a slight underexposure to equities; we
review this position monthly, however, so it's subject to change.
That said, we've been intrigued lately by the prospects for some cycle-
sensitive equities, such as paper and forest products companies. We believe that
the global supply-and-demand picture is beginning to tilt in their favor. At the
moment, though, investors are shying away from cyclicals like these because they
think the U.S. economy is in the later stages of its expansion. That's driven
their share prices down, opening up what we think is a great opportunity to step
in. Not only do we think the U.S. economy will continue to grow, but we believe
growth may pick up worldwide--which should work in favor of the paper and forest
products companies we've been buying.
On the fixed-income side, we have added to the Fund's corporate exposure while
reducing its Treasury holdings. Although the debt markets were volatile at the
end of 1996, we foresee a relatively benign environment for bonds in 1997. A
good approach, we think, is to try to find extra yield without taking on too
much risk, and right now we're finding bonds that we think have those qualities
in the mortgage-backed and corporate bond arenas.
Q: Why should an investor consider the Asset Allocation Fund right now?
A: For investors who want exposure to both stocks and bonds, the Asset
Allocation Fund provides "one-stop shopping" for portfolio diversification. The
Fund may also appeal to investors who have neither the time nor the inclination
to follow all the factors that can determine the performance of different asset
classes. We review our proprietary market valuation model monthly to determine
what we believe is the optimum mixture of stocks and bonds. It's worth
reiterating, however, that we always maintain at least some exposure to both
stocks and bonds, with the goal being to provide growth and stability. Stock
market exposure provides the potential for capital growth, while bonds provide
current income and a degree of stability.
50
<PAGE>
---------------------
The Montgomery Funds
---------------------
Asset Allocation 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
December 31, 1996 (unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS -- 50.2%
Shares Value (Note 1)
<S> <C> <C>
Airlines -- 0.8%
25,700 Federal Express Corporation+.................$ 1,143,650
Apparel and Textiles -- 0.2%
3,700 VF Corporation............................... 249,750
Auto/Auto Parts -- 0.7%
17,500 General Motors Corporation................... 975,625
Banks/Savings and Loan -- 3.5%
11,900 BankAmerica Corporation...................... 1,187,025
9,500 Citicorp..................................... 978,500
45,000 Golden West Financial Corporation............ 2,840,625
---------
5,006,150
Building Materials -- 3.1%
48,000 Champion Enterprises, Inc.+.................. 936,000
96,000 Masco Corporation............................ 3,456,000
---------
4,392,000
Business Services -- 2.6%
82,000 AccuStaff Inc.+.............................. 1,732,250
8,400 Computer Sciences Corporation+............... 689,850
21,700 Netscape Communications Corporation+......... 1,234,188
---------
3,656,288
Conglomerates -- 0.6%
16,500 Tyco International Ltd....................... 872,438
Consumer Services -- 1.6%
81,250 Sabre Group Holdings Inc.+................... 2,264,845
Diversified Financial Services -- 0.7%
23,000 Norwest Corporation.......................... 1,000,500
Electronics -- 0.8%
14,850 Raychem Corporation.......................... 1,189,856
Food and Beverage -- 1.2%
51,500 Fleming Companies, Inc....................... 888,375
4,900 Unilever N.V., ADR........................... 858,725
---------
1,747,100
Health Care -- 0.4%
9,300 Oxford Health Plans, Inc.+................... 544,631
Insurance -- 1.1%
40,000 Life RE Corporation.......................... 1,545,000
Leisure Time -- 0.8%
35,000 G-TECH Holdings Corporation+................. 1,120,000
Lodging -- 1.5%
12,600 HFS, Inc.+................................... 752,850
49,800 Interstate Hotels Company+................... 1,406,850
---------
2,159,700
Machinery and Tools -- 2.8%
61,000 Manitowoc Company............................ 2,470,500
60,800 Measurex Corporation......................... 1,459,200
---------
3,929,700
Newspapers/Publishing -- 0.6%
46,300 World Color Press Inc.+...................... 891,275
Oil -- 2.1%
19,900 Amerada Hess Corporation..................... 1,151,713
28,000 Belco Oil & Gas Corporation+................. 766,500
36,800 Union Pacific Resources Group, Inc........... 1,076,400
---------
2,994,613
Oilfield Equipment -- 2.3%
17,900 Schlumberger Ltd............................. 1,787,762
33,600 Tidewater Inc................................ 1,520,400
---------
3,308,162
Pipelines -- 0.6%
19,200 Enron Corporation............................ 828,000
Pulp and Paper -- 2.6%
40,700 Boise Cascade Corporation.................... 1,292,225
59,000 International Paper Company.................. 2,382,125
---------
3,674,350
Railroad -- 1.9%
72,900 Canadian National Railway Company............ 2,770,200
Real Estate -- 0.6%
16,900 Starwood Lodging Trust....................... 931,612
Retail Trade -- 5.9%
80,400 Dayton-Hudson Corporation.................... 3,155,700
12,000 Gucci Group.................................. 766,500
67,300 Nordstrom, Inc............................... 2,384,944
23,000 Saks Holdings Inc.+.......................... 621,000
35,000 Staples, Inc.+............................... 632,187
19,000 TJX Companies, Inc........................... 900,125
---------
8,460,456
Semiconductors -- 1.2%
27,500 Analog Devices Inc.+......................... 931,562
12,400 Texas Instruments, Inc....................... 790,500
---------
1,722,062
Software Systems -- 2.3%
45,000 Macromedia Inc.+............................. 815,625
147,400 Sybase Inc.+................................. 2,459,738
---------
3,275,363
</TABLE>
51
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
<TABLE>
<CAPTION>
COMMON STOCKS -- continued
Shares Value (Note 1)
<S> <C> <C>
Technology -- Miscellaneous -- 1.2%
160,400 Avid Technology Inc.+........................$ 1,674,175
Telecommunications Equipment -- 5.6%
127,000 Ericsson (L.M.) Telephone Company,
Class B, ADR................................. 3,833,813
16,400 General Instruments Corporation, New+........ 354,650
160,000 Octel Communications Corporation+............ 2,780,000
37,600 PictureTel Corporation+...................... 972,900
-------
7,941,363
Trucking -- 0.9%
53,000 Swift Transportation Company Inc.+........... 1,235,562
---------
TOTAL COMMON STOCKS
(Cost $60,485,598)............................................ 71,504,426
----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.8%
Principal amount
$ 117,711 Residential Funding Mortgage, Series 1995-S7,
8.250% due 05/25/10.......................... 117,711
1,000,000 Vendee Mortgage Trust, Series 1994-1 (LIQ),
6.500% due 12/15/06.......................... 973,125
-------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $1,090,706)............................................. 1,090,836
---------
CORPORATE BONDS -- 8.6%
1,000,000 Associates Corporation N.A., Senior Notes,
6.000% due 03/15/00.......................... 987,500
1,000,000 Chrysler Financial Corporation, Notes,
7.250% due 03/18/97.......................... 1,003,200
2,430,483 Fleetwood Credit Corporation Grantor Trust,
Series 1990-A, 9.000% due 07/15/97........... 2,459,630
1,015,000 Ford Motor Company, Notes,
9.000% due 09/15/01.......................... 1,106,350
500,000 General Electric Capital Corporation, Notes,
6.125% due 04/15/97.......................... 500,825
1,000,000 Hunt (J.B.) Transport Services, Inc., Notes,
6.250% due 09/01/03.......................... 965,000
900,000 Kimco Realty, Notes,
7.910% due 04/26/05.......................... 941,625
110,000 Occidental Petroleum Corporation, MTN,
9.750% due 06/15/01.......................... 122,650
Price Real Estate Investment Trust Inc.,
Senior Notes:
250,000 7.250% due 11/01/00.......................... 251,875
1,000,000 7.500% due 11/05/06.......................... 997,500
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.......................... 495,000
Union Acceptance Corporation:
12,699,705 Series 1995-D, 3.000% due 02/07/99........... 345,076
31,046,162 Series 1995-C, 3.000% due 10/02/02........... 677,551
122,000 U.S. West Communications Corporation,
FRN, 5.500% due 03/15/99**................... 119,979
200,000 Wal-Mart Stores Inc., Notes,
5.500% due 09/15/97.......................... 199,740
-------
TOTAL CORPORATE BONDS
(Cost $12,134,846)............................................ 12,194,751
----------
FEDERAL HOME LOAN BANK (FHLB) -- 1.8%
500,000 5.276% (FLTR) due 08/04/97**................. 498,047
1,000,000 4.415% (FLTR) due 08/24/98**................. 973,750
650,000 4.940% (FLTR) due 03/22/00**................. 622,121
500,000 4.960% (FLTR) due 03/23/00**................. 475,508
-------
TOTAL FEDERAL HOME LOAN BANK
(Cost $2,572,147)............................................. 2,569,426
---------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 7.7%
37,751 Pool #200043, 9.000% due 07/01/01............ 39,131
1,332,507 Pool #380057, 9.000% due 09/01/04............ 1,380,187
22,242 Pool #E00261, 5.500% due 12/01/08............ 20,960
655,982 Pool #181330, 9.000% due 12/01/09............ 690,421
30,023 Pool #E00427, 5.500% due 03/01/11............ 28,292
53,343 Pool #E63564, 5.500% due 04/01/11............ 50,267
33,082 Pool #E63611, 5.500% due 04/01/11............ 31,174
54,388 Pool #E63672, 5.500% due 04/01/11............ 51,252
64,065 Pool #E63850, 5.500% due 04/01/11............ 60,372
220,577 Pool #E20247, 5.500% due 05/01/11............ 207,860
52,628 Pool #E63954, 5.500% due 05/01/11............ 49,594
52,679 Pool #E64062, 5.500% due 05/01/11............ 49,642
925,538 Pool #E64096, 5.500% due 05/01/11............ 872,175
896,175 Pool #E64157, 5.500% due 05/01/11............ 844,505
1,698,905 Pool #E64350, 5.500% due 05/01/11............ 1,600,953
1,724,413 Pool #E64361, 5.500% due 06/01/11............ 1,624,990
58,607 Pool #E20255, 5.500% due 06/01/11............ 55,228
FHLMC, REMIC:
95,512 1994-13PB (PAC), 5.250% due 09/25/00......... 95,512
22,182 1661PB (PAC), 5.250% due 10/15/00............ 22,182
51,471 1993-220PB (PAC), 4.350% due 06/25/03........ 51,471
259,625 G93-11 (PAC), 6.000% due 10/25/03............ 258,773
227,613 1991-146FB (PAC), 5.285% due 10/25/06........ 226,297
1,000,000 1657C (PAC), 5.500% due 11/15/11............. 990,000
1,000,000 1991-74L (PAC), 8.500% due 08/25/21.......... 1,051,406
462,411 1502PX (PAC), 7.000% due 04/15/23............ 397,168
171,000 1993-143D (PAC), 5.000% due 08/25/23......... 168,435
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION
(Cost $10,148,466)............................................ 10,918,247
----------
</TABLE>
52
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
<TABLE>
<CAPTION>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 7.9%
Principal amount Value (Note 1)
<S> <C> <C>
$ 9,000,000 7.000% due TBA...............................$ 8,808,750
1,000,000 5.332% due 10/01/97.......................... 992,500
500,000 5.000% due 04/21/00.......................... 479,375
FNMA, REMIC:
1,000,000 1584D (PAC), 5.500% due 12/15/12............. 993,125
-------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION
(Cost $11,044,708)............................................ 11,273,750
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 3.2%
(Cost $4,528,176)
4,490,347 Pool #320843, 8.000% due 05/15/22............ 4,615,936
---------
STUDENT LOAN MARKETING ASSOCIATION (SLMA) -- 0.9%
1,000,000 4.370% due 11/06/97**........................ 988,896
300,000 4.755% due 02/24/99**........................ 291,750
-------
TOTAL STUDENT LOAN MARKET ASSOCIATION
(Cost $1,277,314) 1,280,646
---------
U.S. TREASURY BONDS -- 8.8%
3,000,000 U.S. Treasury Bonds, 6.125% due 12/31/01..... 2,988,750
4,400,000 U.S. Treasury Bonds, 8.875% due 02/15/19..... 5,462,184
4,300,000 U.S. Treasury Bonds, 6.250% due 08/15/23..... 4,031,250
---------
TOTAL U.S. TREASURY BONDS
(Cost $12,390,496)............................................ 12,482,184
----------
U.S. TREASURY NOTES -- 9.8%
5,900,000 U.S. Treasury Notes, 5.625% due 11/30/98..... 5,873,267
1,500,000 U.S. Treasury Notes, 6.875% due 07/31/99..... 1,530,938
6,500,000 U.S. Treasury Notes, 6.625% due 06/30/01..... 6,605,625
---------
TOTAL U.S. TREASURY NOTES
(Cost $14,008,277)............................................ 14,009,830
----------
COMMERCIAL PAPER -- 0.7%
(Cost $1,000,000)
1,000,000 Simon Debartolo Loan Participation,
6.300% due 01/17/97.......................... 1,000,000
---------
TOTAL SECURITIES
(Cost $130,680,734)........................................... 142,940,032
-----------
REPURCHASE AGREEMENTS -- 8.2%
5,849,500 Agreement with Bear Stearns Companies, Inc.,
Tri-Party, 7.500% dated 12/31/96, to be
repurchased at $5,851,937 on 01/02/97,
collateralized by $6,011,874 market value of
U.S. government securities, having various
maturities and various interest rates........ 5,849,500
5,849,500 Agreement with Chase Manhattan Corporation,
Tri-Party, 7.500% dated 12/31/96, to be
repurchased at $5,851,937 on 01/02/97,
collateralized by $5,966,660 market value of
U.S. government securities, having various
maturities and various interest rates........ 5,849,500
---------
TOTAL REPURCHASE AGREEMENTS
(Cost $11,699,000)............................................ 11,699,000
----------
TOTAL INVESTMENTS -- 108.6%
(Cost $142,379,734*).......................................... 154,639,032
OTHER ASSETS AND LIABILITIES -- (8.6%)
(Net)......................................................... (12,298,146)
-----------
NET ASSETS -- 100.0%..........................................$142,340,886
============
</TABLE>
* Aggregate cost for federal tax purposes.
** Floating-rate note reflects the rate in effect at December 31, 1996.
+ Non-income-producing security.
Abbreviations:
ADR .....American Depositary Receipt
FLTR ....Floating-Rate Securities: bonds with coupon rates that adjust
in proportion to an index.
FRN .....Floating-Rate Notes: bonds with coupon rates that adjust periodically
at a spread to an index.
LIQ .....Bonds with a shorter, guaranteed final maturity.
MTN .....Medium-Term Note
PAC .....Planned Amortization Class: bonds that are protected in part from
variations in prepayments, generally resulting in greater stability.
SEQ .....Sequential: bonds that receive amortization from the deal in sequential
order. Their actual principal paydowns are dependent on how quickly the
underlying mortgages prepay. Overall, the sequential bonds have similar
risks to mortgage- backed pass-throughs.
REMIC ...Real Estate Mortgage Investment Conduit
TBA .....To-Be-Announced Security
53
The accompanying notes are an integral part of these financial statements
<PAGE>
- --------------------
The Montgomery Funds
- --------------------
Short Government
Bond Fund
- --------------------
Portfolio Highlights
(Unaudited)
- --------------------------------------------
PORTFOLIO MANAGEMENT
- --------------------------------------------
William Stevens.....Senior Portfolio Manager
Peter Wilson........Portfolio Manager
- --------------------------------------------
FUND PERFORMANCE
- --------------------------------------------
Average annual total returns
for the periods ended 12/31/96
- --------------------------------------------
Montgomery
Short Government Bond Fund
Since inception (12/18/92).............6.46%
One year...............................5.14%
- --------------------------------------------
Lehman Government Bond
1-3 Year Index
Since 12/31/92.........................5.39%
One year...............................5.08%
- --------------------------------------------
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]
/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 57
funds.
I N V E S T M E N T R E V I E W
Q: How did the Short Government Bond Fund perform relative to its benchmark in
the six months ended 12/31/96?
A: The Fund outperformed the Lehman Brothers Government Bond 1-3 Year Index by a
small margin during the period, with a total return of 3.82%. Slow but steady
gains like this are what we strive to deliver, because we believe that
consistency will ultimately best serve our shareholders.
We're pleased that the Fund has made strides toward meeting that goal throughout
its four years of existence. It ranks first out of 29 funds in the Lipper Short
U.S. Government Bond Fund category for its performance since inception. It
ranked tenth out of 57 funds in that group for the one-year period ended
December 31, 1996.
Q: What, if any, significant changes did you make to the portfolio during this
time?
A: We significantly reduced the Fund's position in Collateralized Mortgage
Obligations (CMOs), which in the past sometimes played a fairly big role in the
portfolio. We replaced some of the CMOs with mortgage pass-throughs, which look
more attractive to us, as well as some agency securities.
Q: How are you positioning the Fund for the year ahead?
A: We continue to think that the current interest rate environment will remain
benign, with rates staying in a narrow range. In fact, we think there's a
greater chance of interest rates going down rather than up. In a relatively
stable rate environment like the one we expect, it makes sense to focus on those
areas where we think we can gather extra yield without too much risk. And that's
what we plan to continue doing.
Q: Why should an investor consider the Short Government Bond Fund right now?
A: The current interest rate environment--with its combination of slow and
steady economic growth, low inflation and low interest rates--is fairly positive
for fixed-income investments. We don't see that changing dramatically in the
near future. Over the longer term, adding a fixed-income component to a
portfolio of equities may help stabilize it.
There are other good reasons to consider a fund that has duration parameters
like this one's. A recent article in the Journal of Fixed Income, for instance,
suggests that an investor is rewarded by moving out on the yield curve to a
duration of about two years, but that beyond that the rewards are not
significant. By charter, we strive to keep the Short Government Bond Fund's
average effective duration comparable to or less than a three-year U.S. Treasury
note's, and target two years.
Q: Who should consider the Fund?
A. Anyone in a money market fund and anyone rebalancing a portfolio after two
strong years of equity market returns.
54
<PAGE>
---------------------
The Montgomery Funds
---------------------
Short Government
Bond Fund
---------------------
I N V E S T M E N T S
- ------------------------------------- ======================================
Please note: The Montgomery Short T O P T E N H O L D I N G S
Government Bond Fund has been --------------------------------------
renamed Montgomery Short Duration (as a percentage of total net assets)
Government Bond Fund, effective
February 14, 1997. U.S. Treasury Note,
- ------------------------------------- 5.625% due 11/30/98............15.2%
FHLMC, Pool #A01658
9.500% due 02/01/17............11.4%
FHLMC, 5.500% Pass-through Pools
due 04/01/11-06/01/11...........9.4%
FHLB, 5.100% (FLTR)
due 04/05/00.....................7.3%
FHLMC, 9.000% Pass-throughs
due 06/01/01-05/01/20...........5.3%
FNMA, 7.000% due TBA...............5.0%
U.S. Treasury Note,
6.875% due 07/31/99.............3.9%
FHLMC, 1991-8E (PAC)
7.500% due 06/25/17.............3.7%
FHLMC, Pool #B00417
8.000% due 08/01/04.............3.1%
FHLMC, 1590CA (PAC)
4.500% due 08/15/10.............3.0%
--------------------------------------
A S S E T M I X
--------------------------------------
(as a percentage of total investments)
Mortgage Pass-throughs..............35%
Collateralized Mortgage Obligations.23%
Treasuries..........................23%
Agencies............................14%
Repurchase Agreements................4%
Asset-Backed Securities..............1%
P O R T F O L I O I N V E S T M E N T S
December 31, 1996 (unaudited)
<TABLE>
<CAPTION>
FEDERAL HOME LOAN BANK (FHLB) -- 12.4%
Principal amount Value (Note 1)
<S> <C> <C>
Agencies:
$ 1,050,000 4.110% (FLTR) due 08/20/97...................$ 1,039,527
500,000 4.590% (FLTR) due 02/25/98................... 492,344
500,000 5.045% (FLTR) due 03/24/99................... 489,219
3,000,000 5.100% (FLTR) due 04/05/00................... 2,885,391
---------
TOTAL FEDERAL HOME LOAN BANK
(Cost $4,899,018) 4,906,481
---------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 54.6%
CMOs:
16,299 G92-31J (AD) 8.000% due 01/25/97............. 16,299
67,362 1992-123E (AD) 7.500% due 02/25/97........... 67,141
31,050 G92-24G (AD) 6.500% due 04/25/97............. 30,953
267,603 1292ZA (LIQ) 5.750% due 06/15/97............. 267,059
108,186 1992-184D (AD) 7.000% due 06/25/97........... 108,017
924,032 1557FB (LIQ) 6.238% due 08/15/98............. 927,497
33,827 1994-13PB (PAC) 5.250% due 09/25/00.......... 33,827
202,034 1506C (PAC) 5.000% due 10/15/01.............. 201,340
1,174,606 1647PJ (PAC) 5.250% due 02/15/03............. 1,168,917
259,625 G93-11 (PAC) 6.000% due 10/25/03............. 258,773
650,000 1993-99D (AD) 6.700% due 03/25/04............ 645,531
1,170,000 1623PC (PAC) 5.000% due 11/15/07............. 1,164,698
390,478 24A (PAC) 4.650% due 02/25/08................ 387,733
280,311 1737B (PAC) 6.000% due 03/15/08.............. 279,742
1,177,286 1590CA (PAC) 4.500% due 08/15/10............. 1,170,480
151,003 5C (PAC) 5.750% due 10/25/10................. 150,414
66,573 G93-14C (PAC) 4.500% due 05/25/11............ 66,303
54,626 1491C (PAC) 4.000% due 08/15/11.............. 54,421
950,000 1584D (PAC) 5.500% due 12/12/12.............. 943,469
1,456,255 1991-8E (PAC) 7.500% due 06/25/17............ 1,457,620
286,006 1992-45C (SEQ) 8.000% due 02/25/18........... 285,426
74,951 1988-29B (TAC) 9.500% due 12/25/18........... 80,010
</TABLE>
55
The accompanying notes are an integral part of these financial statements.
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
Short Government
Bond Fund
- ---------------------
I N V E S T M E N T S
<TABLE>
<CAPTION>
FEDERAL HOME LOAN MORTGAGE CORPORATION -- continued
Principal amount Value (Note 1)
<S> <C> <C>
Pass-throughs:
$ 3,934,051 5.500% Pass-through Pools due
04/01/11-06/01/11............................$ 3,707,229
85,277 Pool #M12831 7.000% due 02/01/97............. 85,170
1,172,991 Pool #B00417 8.000% due 08/01/04............. 1,208,364
2,032,438 9.000% Pass-throughs due
06/01/01-05/01/20............................ 2,108,064
4,167,167 Pool #A01658 9.500% due 02/01/17............. 4,492,075
130,283 Pool #308601 9.500% due 10/01/18............. 140,665
Tiered Payment:
24,599 Pool #730223 9.50% due 01/01/06.............. 25,544
7,631 Pool #730288 8.50% due 07/01/06.............. 7,838
-----
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION
(Cost $21,430,564)............................................ 21,540,619
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 6.9%
Pass-throughs:
2,000,000 7.000% due TBA............................... 1,957,500
Agencies:
250,000 8.907% (FLTR) due 05/07/97................... 253,398
500,000 4.590% (FLTR) due 02/25/98................... 492,500
-------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION
(Cost $2,764,689)............................................. 2,703,398
---------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) -- 2.9%
Pass-throughs:
81,520 9.500% Pass-through Pools due
09/15/16-04/15/20............................ 88,144
45,603 10.250% Pass-through Pools due 04/15/98...... 46,550
948,051 8.000% Pass-through Pools due 06/15/22....... 974,567
GNMA II:
19,319 10.500% Pass-through Pools due 01/20/19...... 21,082
------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(Cost $1,103,274)............................................. 1,130,343
---------
UNION ACCEPTANCE CORPORATION (UAC) -- 0.9%
Asset-Backed Securities:
3,688,962 95-DI (ABS) 3.000% due 02/07/99.............. 100,236
11,564,689 95-CI (PAC) (ABS) 3.000% due 10/10/02........ 252,388
-------
TOTAL UNION ACCEPTANCE CORPORATION
(Cost $349,197)............................................... 352,624
-------
U.S. TREASURY NOTES -- 24.2%
6,000,000 U.S. Treasury Note, 5.625% due 11/30/98...... 5,972,814
1,500,000 U.S. Treasury Note, 6.875% due 07/31/99...... 1,530,935
1,000,000 U.S. Treasury Note, 6.625% due 06/30/01...... 1,016,250
1,000,000 U.S. Treasury Note, 6.500% due 10/15/06...... 1,009,531
---------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $9,532,230)............................................. 9,529,530
---------
TOTAL SECURITIES
(Cost $40,078,972)............................................ 40,162,995
----------
REPURCHASE AGREEMENTS -- 4.0%
783,000 Agreement with Bear Stearns Companies Inc.,
Tri-Party, 7.500% dated 12/31/96, to be
repurchased at $783,326 on 01/02/97,
collateralized by $804,735 market value of
U.S. government securities, having various
maturities and various interest rates........ 783,000
783,000 Agreement with Chase Manhattan Corporation,
Tri-Party, 7.500% dated 12/31/96, to be
repurchased at $783,326 on 01/02/97,
collateralized by $798,683 market value of
U.S. government securities, having various
maturities and various interest rates........ 783,000
-------
TOTAL REPURCHASE AGREEMENTS
(Cost $1,566,000) 1,566,000
---------
TOTAL INVESTMENTS -- 105.9%
(Cost $41,644,972*)........................................... 41,728,995
OTHER ASSETS AND LIABILITIES -- (5.9%)
(Net)......................................................... (2,320,509)
----------
NET ASSETS -- 100.0%.......................................... $39,408,486
===========
</TABLE>
*Aggregate cost for federal tax purposes.
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.
SEQ .....Sequential: bonds that receive amortization from the deal in sequential
order. Their actual principal paydowns are dependent on how quickly the
underlying mortgages prepay and overall have similar risks to
mortgage-backed pass-throughs.
TAC .....Targeted Amortization Class: bonds that are protected from
pre-payments. These bonds are usually less stable than PACs, however.
TBA .....To-Be-Announced Security
56
The accompanying notes are an integral part of these financial statements.
<PAGE>
----------------------
The Montgomery Funds
----------------------
California Tax-Free
Intermediate Bond Fund
----------------------
Portfolio Highlights
(Unaudited)
INVESTMENT REVIEW
Q: How did the Montgomery California Tax-Free Intermediate Bond Fund perform
relative to its benchmark in the six months ended 12/31/96?
A: The Fund outperformed the Merrill Lynch California Municipal Bond Index by
1.35 percentage points during the period. The municipal bond market in
California, as elsewhere, was fairly healthy in the second half of 1996. Among
the positive factors was the return of investors who had been spooked by talk of
a flat tax. That proposal has since faded into the background, and investors'
interest in municipal bonds has picked up again.
Q: How did the Fund's positioning change over this period?
A: We made only minor changes to the portfolio. We extended the portfolio's
duration early in the fourth quarter by buying discounts, but by the end of the
period we had shortened it back to its usual range of around 5.75 years.
Q: How have you positioned the Fund for the year ahead?
A: We are being careful when it comes to credit selection. California now seems
to be in much better shape economically than it was a few years ago, but we're
continuing to keep a close eye on ballot measures, such as California
Proposition 218, that may have an impact on the state's municipal bond market.
One of the chief provisions of Proposition 218 is that any proposed increases in
local taxes, fees and assessments must first be approved by voters. That could
put the revenue streams backing some municipal bonds in jeopardy, so we are
underweighted in cities and counties that could be most affected.
We are also keeping the portfolio fully invested, because we don't think
interest rates are in danger of rising significantly. In fact, we think there's
a greater chance of interest rates going down rather than up, and we are
expecting demand for municipal bonds to outstrip supply in the coming months.
Q: Why should an investor consider the California Tax-Free Intermediate Bond
Fund right now?
A: There are several good reasons, with the tax advantage that municipal bonds
offer being the perennial draw, of course. Right now, demand for California
municipal bonds is also heavier than supply, an imbalance that works to the
advantage of funds like ours that already own a portfolio of bonds.
The recently announced findings of the Boskin Commission suggest another good
reason to consider fixed-income funds, whether taxable or tax-exempt, right now.
The commission spent two years studying the methodology used to calculate the
Consumer Price Index, and concluded that the CPI overstates inflation by at
least 1.1 percentage points annually. If the commission's conclusion is
right--and we are convinced that it is--then real bond yields are quite
attractive.
===========================================
PORTFOLIO MANAGEMENT
- -------------------------------------------
William Stevens....Senior Portfolio Manager
Peter Wilson.......Portfolio Manager
===========================================
FUND PERFORMANCE
- -------------------------------------------
Average annual total returns
for the periods ended 12/31/96
- -------------------------------------------
Montgomery California Tax-Free
Intermediate Bond Fund
Since inception (7/1/93)............5.15%
One year............................4.51%
- -------------------------------------------
Merrill Lynch
California Municipal Bond Index
Since 6/30/93.......................3.79%
One year............................4.20%
- -------------------------------------------
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]
/1/ Comprising Merrill Lynch California 0 to 7 years from June 1993 to June 1996
and Merrill Lynch California Intermediate from July 1995 to September 1993.
/2/ Lipper's California Municipal Debt Funds Average universe consists of 28
funds.
57
<PAGE>
- ----------------------
The Montgomery Funds
- ----------------------
California Tax-Free
Intermediate 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)
Sacramento, California, Municipal
Utilities, Electric Revenue Refunding,
Series A, (MBIA Insured),
6.250% due 08/15/10...................3.7%
Castaic Lake, California, Water Agency,
Certificates of Participation, Refunding,
Water System Improvement Project,
Series A, (MBIA Insured),
7.250% due 08/01/08...................3.2%
San Francisco, California, City
and County, International Airport
Revenue, AMT, Second Series,
8.000% due 05/01/09...................3.2%
Chino Basin, California, Regional
Financing Authority Revenue,
(Municipal Water and District Sewer
Systems Project), (AMBAC Insured)
7.000% due 08/01/06...................3.1%
Santa Rosa, California, High School
District, (FGIC Insured),
7.000% due 05/01/01...................2.9%
California State, Public Works Board,
Facilities Lease Revenue, Various
Community College Projects, Series A,
6.000% due 03/01/05...................2.9%
Kern, California, High School
District, Refunding, Series A, (MBIA
Insured), 6.000% due 08/01/03.........2.6%
Metropolian Water District,
Southern California, Waterworks
Revenue, Refunding, Series B,
(MBIA Insured),
4.750% due 07/01/09...................2.6%
Saddleback Valley, California,
Unified School District, Public Financing
Authority, Special Tax Revenue Bonds,
(FSA Insured), 5.250% due 09/01/07....2.4%
Rancho, California, Water District
Financing Authority, Revenue Refunding,
(FGIC Insured), 6.500% due 11/01/05...2.4%
==============================
I N V E S T M E N T G R A D E
- ------------------------------
(as a percetage of total
net assets)
Aaa........................72.0%
Aa.........................19.0%
A...........................7.0%
BBB.........................2.0%
P O R T F O L I O I N V E S T M E N T S
December 31, 1996 (unaudited)
MUNICIPAL BONDS AND NOTES -- 89.9%
<TABLE>
<CAPTION>
Principal amount Value (Note 1)
<S> <C> <C>
California -- 89.9%
Alameda, California, School District:
$ 55,000 6.900% due 07/01/97..........................$ 55,871
315,000 6.900% due 07/01/99.......................... 335,081
200,000 Bakersfield, California, Hospital,
7.375% due 01/01/14.......................... 216,250
250,000 California Educational Authority Revenue,
University of San Francisco, (MBIA Insured),
6.000% due 10/01/08.......................... 271,875
350,000 California Health Facilities Financing
Authority, Revenue Refunding, Kaiser
Permanente, Series A, 6.250% due 03/01/21.... 367,062
205,000 California Housing Finance Agency, Housing
Revenue, Series C, (MBIA Insured),
6.150% due 08/01/14.......................... 205,000
California State:
40,000 6.800% due 03/01/99.......................... 42,150
260,000 6.200% due 11/01/02.......................... 282,425
100,000 6.750% due 04/01/04.......................... 112,500
145,000 7.000% due 08/01/09.......................... 170,375
250,000 (FGIC Insured), 7.000% due 04/01/06.......... 289,375
Public Works Board, Facilities Lease Revenue:
100,000 San Jose Facilities, Series A,
7.750% due 08/01/06.......................... 117,750
495,000 Various Community College Projects,
Series A, 6.000% due 03/01/05................ 534,600
Public Works Board, Lease Revenue:
265,000 Department of Corrections, Series A,
(AMBAC Insured), 6.000% due 01/01/06......... 286,862
300,000 Secretary of State, Series A, (AMBAC Insured),
6.200% due 12/01/05.......................... 330,000
75,000 University Revenue, (AMBAC Insured),
6.250% due 11/01/00.......................... 80,250
365,000 University Trust Certificates,
6.450% due 06/01/02.......................... 400,587
Veterans Bond:
25,000 Series AG, 8.100% due 10/01/98............... 26,687
70,000 Series AL, 9.600% due 04/01/01............... 83,912
100,000 Series AT, (FGIC Insured),
9.500%due 02/01/10........................... 139,750
250,000 California Statewide Communities,
Development Authority Revenue, Certificates
of Participation, (St. Joseph Health System
Group), 6.500% due 07/01/04.................. 276,250
100,000 Carpinteria, California, (FGIC Insured),
7.500% due 07/01/00.......................... 110,375
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.......... 597,500
</TABLE>
58
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)
<S> <C> <C>
California -- continued
$ 500,000 Chino Basin, California, Regional Financing
Authority Revenue, (Municipal Water and
District Sewer Systems Project), (AMBAC
Insured), 7.000% due 08/01/06................$ 583,125
300,000 Contra Costa, California, Transportation
Authority Sales Tax Revenue, Series A,
(FGIC Insured), 6.000% due 03/01/05.......... 325,875
300,000 Desert Hospital District, California, Hospital
Revenue, Certificates of Participation,
(CGIC Insured), 6.150% due 07/01/02.......... 322,875
East Bay, California:
100,000 Regional Parks District, Series B,
8.750% due 09/01/99.......................... 111,625
75,000 Utility District, Series M,
7.500% due 03/01/00.......................... 82,219
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................ 401,250
250,000 Elsinore Valley, California, Municipal Water
District, Certificates of Participation,
Refunding, Series A, (FGIC Insured),
6.000% due 07/01/12.......................... 266,562
270,000 Emeryville, California, Public Financing
Authority, Housing Revenue,
5.600% due 09/01/06.......................... 277,087
50,000 Estero, California, Series S-1,
7.000% due 07/01/00.......................... 54,250
290,000 Fresno, California, Sewer Revenue, Series A,
(MBIA Insured), 6.000% due 09/01/07.......... 316,100
450,000 Kern, California, High School District,
Refunding, Series A, (MBIA Insured),
6.000% due 08/01/03.......................... 486,563
175,000 Lafayette, California, Elementary School
District, 6.900% due 05/15/06................ 200,813
Los Angeles, California:
100,000 Series A, 6.400% due 09/01/98................ 103,750
350,000 Water and Power, 5.900% due 02/01/05......... 371,438
Los Angeles County, California:
Certificates of Participation:
200,000 6.700% due 03/01/99.......................... 208,750
200,000 6.708% due 06/01/15.......................... 203,250
50,000 Public Works, Revenue Anticipation Notes,
4.500% due 03/01/01.......................... 50,375
200,000 Transportation Authority,
5.625% due 07/01/18.......................... 199,250
Transportation Commission, Sales Revenue,
Proposition C, Second Series, Series A:
180,000 6.200% due 07/01/04.......................... 193,275
400,000 6.400% due 07/01/06.......................... 440,500
Metropolitan Water District, Southern
California Waterworks Revenue:
200,000 6.000% due 07/01/21.......................... 213,250
Refunding, Series B, (MBIA Insured):
500,000 4.750% due 07/01/09.......................... 479,375
400,000 4.875% due 07/01/10.......................... 384,000
20,000 Mt. Diablo, California, School District,
(FGIC Insured), 6.800% due 08/01/97.......... 20,397
250,000 Ontario, California, Redevelopment Financing
Authority, Revenue Refunding, (Ontario
Redevelopment Project No. 1), (MBIA Insured),
6.550% due 08/01/06.......................... 283,125
75,000 Paramount, California, Redevelopment Agency,
5.100% due 08/01/98.......................... 75,938
Piedmont, California, School District:
Series A:
75,000 8.300% due 08/01/01.......................... 87,000
45,000 7.100% due 08/01/02.......................... 50,850
40,000 Series C, 7.200% due 08/01/01................ 44,600
Rancho, California, Water District Financing
Authority, Revenue Refunding, (FGIC Insured):
400,000 6.500% due 11/01/02.......................... 440,500
400,000 6.500% due 11/01/05.......................... 448,000
340,000 Redwood City, California, Multi-Family
Housing, (Redwood Shores), Series B, Mandatory
Put 10/01/00, 5.200% due 10/01/08............ 340,000
625,000 Sacramento, California, Municipal Utilities,
Electric Revenue Refunding, Series A,
(MBIA Insured), 6.250% due 08/15/10.......... 690,625
450,000 Saddleback Valley, California, Unified School
District, Public Financing Authority, Special
Tax Revenue Bonds, (FSA Insured),
5.250% due 09/01/07.......................... 456,750
175,000 San Diego County, California, Water Authority
Revenue, Certificates of Participation, Series A,
6.000% due 05/01/01.......................... 184,844
San Francisco, California, City and County:
375,000 City Hall Improvement Project, Series A,
(FGIC Insured), 6.100% due 06/15/00.......... 396,094
100,000 GO, Series A, 6.100% due 12/15/98............ 103,875
500,000 International Airport Revenue, AMT, Second
Series, 8.000% due 05/01/09.................. 592,500
500,000 Santa Rosa, California, High School District,
(FGIC Insured), 7.000% due 05/01/01.......... 550,625
</TABLE>
59
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)
<S> <C> <C>
California -- continued
$ 400,000 Southern California Public Power Authority,
Refunding, Series A (AMBAC-TCRS
Insured), 5.500% due 07/01/12................$ 401,000
65,000 Watsonville, California, Water Revenue
(MBIA Insured), 6.100% due 05/15/99.......... 67,764
TOTAL MUNICIPAL BONDS AND NOTES
(Cost $16,496,485)............................................ 16,842,531
----------
SHORT-TERM MUNICIPAL BONDS AND NOTES -- 4.8%
California -- 4.8%
100,000 California Health Facilities Financing
Authority Revenue, Sutter Health, Series A,
5.000% due 03/01/20+......................... 100,000
California Pollution Control
Financing Authority:
100,000 5.000% due 10/01/10+......................... 100,000
300,000 4.800% due 11/01/26+......................... 300,000
100,000 Series A, 4.700% due 08/28/08................ 100,000
300,000 Series B, 4.700% due 08/28/08................ 300,000
TOTAL SHORT-TERM MUNICIPAL BONDS AND NOTES
(Cost $900,000)............................................... 900,000
-------
TOTAL INVESTMENTS -- 94.7%
(Cost $17,396,485*)........................................... 17,742,531
OTHER ASSETS AND LIABILITIES -- 5.3%
(Net)......................................................... 992,251
-------
NET ASSETS -- 100.0%.......................................... $18,734,782
===========
</TABLE>
* Aggregate cost for federal tax purposes.
+ Floating-rate note, rate resets daily.
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.
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
TCRS ....Transferable Custodial Receipts
60
The accompanying notes are an integral part of these financial statements.
<PAGE>
I N V E S T M E N T R E V I E W
Montgomery Government Reserve Fund
Montgomery Federal Tax-Free Money Fund
Montgomery California Tax-Free Money Fund
Q: How did Montgomery's money market funds perform in the six months ended
12/31/96?
A: The Government Reserve Fund had a total return of 2.48% during this period,
whereas the California Tax-Free Money Fund returned 1.45%. The Federal Tax-Free
Money Fund, which opened on July 15, 1996, returned 1.66% by December 31, 1996.
Q: How did the Funds' positioning change during this period, if at all?
A: The Funds' positioning changed a bit. We kept the Montgomery tax-exempt
money funds almost fully invested through the summer "note season," when
municipalities issue short-term notes to finance their budget shortfalls. This
season usually presents some good opportunities to replace maturing securities
at attractive yields. Notes have become expensive since then, though, so we
haven't been buying as many lately. That's shortened up the days to maturity of
both portfolios, and we expect that to continue until we see better
opportunities.
Q: How have you positioned the Funds for the year ahead?
A: We continue to keep the Funds positioned for a stable interest rate
environment, with the Federal Reserve staying on the sidelines. When we see
short rates drift above the Federal Funds rate, though, we let the Government
Reserve portfolio's maturity lengthen. We've also added notes with coupons that
can float, but only to a certain point. These securities extend the portfolio's
maturity without, we believe, adding much interest rate risk. So we think the
Fund has less interest rate risk than its days to maturity might indicate. We
have been improving the liquidity of our municipal bond portfolios because we
anticipate that note spreads will widen.
Q: Why should investors consider one of Montgomery's money market funds now?
A: Liquidity is a great reason to consider one of these funds. If you're new to
the stock or bond markets, a money market fund is a relatively safe place to
keep your money while you're deciding where to put it for the long term. Once
you've settled on a long-term strategy, you can easily transfer your money--all
at once or gradually--into other investments. It's always wise to leave a
portion of it in money market funds, though, to help ensure liquidity. If you're
already invested in the stock or bond markets and your financial circumstances
or goals change, you can use money market funds as a place to "park" your money
while you reassess your long-term investment strategy.
- --------------------------------------------
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
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------
P O R T F O L I O M A N A G E M E N T
- --------------------------------------------
<S> <C>
William Stevens.....Senior Portfolio Manager
Peter Wilson...............Portfolio Manager
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------
F U N D P E R F O R M A N C E
- --------------------------------------------
Yields for the periods ended 12/31/96
- --------------------------------------------
Montgomery
Government Reserve Fund
<S> <C>
One-day yield..........................5.38%
Seven-day yield........................5.06%
- --------------------------------------------
<CAPTION>
Montgomery
Federal Tax-Free Money Fund
<S> <C>
One-day yield..........................4.16%
Seven-day yield........................3.92%
- --------------------------------------------
<CAPTION>
Montgomery
California Tax-Free Money Fund
<S> <C>
One-day yield..........................3.69%
Seven-day yield........................3.34%
- --------------------------------------------
</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.
61
<PAGE>
- -----------------------
The Montgomery Funds
- -----------------------
Government Reserve
Fund
- -----------------------
I N V E S T M E N T S
<TABLE>
<CAPTION>
P O R T F O L I O I N V E S T M E N T S
December 31, 1996 (unaudited)
FEDERAL FARM CREDIT BANK (FFCB) -- 15.8%
Principal amount Value (Note 1)
<S> <C> <C>
$3,000,000 Discount Note due 01/16/97...................$ 2,993,338
12,000,000 Discount Note due 01/17/97................... 11,970,613
13,500,000 Discount Note due 01/21/97................... 13,460,033
7,445,000 3.984% due 01/27/97++........................ 7,435,751
3,000,000 Discount Note due 02/03/97................... 2,985,122
500,000 4.550% due 02/03/97.......................... 499,508
2,000,000 4.064% due 02/12/97++........................ 1,996,159
6,145,000 5.220% due 03/03/97.......................... 6,144,086
10,000,000 5.430% due 03/03/97.......................... 10,000,808
500,000 9.000% due 03/07/97.......................... 503,168
5,250,000 4.250% due 03/10/97.......................... 5,235,377
500,000 5.940% due 03/13/97.......................... 500,420
1,000,000 Discount Note due 03/26/97................... 987,633
6,000,000 5.620% due 09/03/97.......................... 6,001,496
---------
70,713,512
----------
FEDERAL HOME LOAN BANK (FHLB) -- 27.4%
1,750,000 4.750% due 01/13/97.......................... 1,749,475
1,000,000 4.064% due 01/15/97++........................ 999,308
5,000,000 Discount Note due 01/16/97................... 4,989,052
12,312,000 7.350% due 01/20/97.......................... 12,322,870
10,000,000 Discount Note due 01/23/97................... 9,967,947
9,933,775 4.530% due 01/24/97.......................... 9,927,578
5,000,000 Discount Note due 01/27/97................... 4,980,319
500,000 4.089% due 01/27/97++........................ 499,402
1,000,000 4.570% due 02/03/97.......................... 998,967
4,500,000 4.869% due 02/10/97++........................ 4,495,714
500,000 5.310% due 02/14/97+++....................... 499,956
7,000,000 4.089% due 02/18/97++........................ 6,984,554
5,000,000 Discount Note due 02/20/97................... 4,962,917
800,000 4.750% due 02/24/97.......................... 798,832
1,000,000 6.900% due 02/24/97.......................... 1,001,883
1,000,000 4.184% due 03/03/97++........................ 997,132
2,000,000 4.370% due 03/10/97+++....................... 1,995,747
22,150,000 5.275% due 03/14/97.......................... 22,138,134
500,000 4.560% due 03/20/97+++....................... 498,828
4,000,000 5.400% due 03/20/97.......................... 3,996,217
1,000,000 6.820% due 03/21/97.......................... 1,002,821
600,000 5.395% due 03/25/97.......................... 599,628
2,850,000 9.150% due 03/25/97.......................... 2,873,555
6,570,000 5.335% due 03/28/97.......................... 6,561,223
2,000,000 5.790% due 04/10/97+++....................... 2,001,590
500,000 5.980% due 04/14/97.......................... 500,758
500,000 6.745% due 04/17/97.......................... 501,847
2,000,000 5.840% due 06/27/97.......................... 2,001,307
1,000,000 4.489% due 07/28/97++........................ 993,982
500,000 4.080% due 10/14/97.......................... 494,208
5,000,000 5.150% due 12/10/97+......................... 4,998,188
5,000,000 5.445% due 12/16/97++........................ 4,997,670
---------
122,331,609
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 14.2%
380,267 7.000% due 01/01/97.......................... 380,267
105,587 7.000% due 01/01/97.......................... 105,587
153,404 7.000% due 01/01/97.......................... 153,404
777,453 7.500% due 01/01/97.......................... 777,453
262,346 6.000% due 02/01/97.......................... 262,346
1,533,081 6.500% due 02/01/97.......................... 1,533,081
457,112 7.000% due 02/01/97.......................... 457,112
350,983 6.500% due 03/01/97.......................... 350,983
618,132 7.000% due 04/01/97.......................... 618,680
285,771 7.000% due 04/01/97.......................... 285,878
1,414,798 7.500% due 05/01/97.......................... 1,417,067
1,094,869 8.000% due 06/01/97.......................... 1,099,378
1,314,990 9.000% due 06/01/97.......................... 1,316,358
982,980 6.288% due 07/15/97++........................ 984,756
11,015,352 6.500% due 08/01/97.......................... 11,032,432
10,486,523 6.838% due 08/15/97++........................ 10,531,232
885,490 10.000% due 09/01/97......................... 888,997
2,326,184 6.138% due 10/15/97++........................ 2,330,306
22,893,361 6.388% due 10/15/97++........................ 22,983,930
3,315,365 7.000% due 11/01/97.......................... 3,332,365
1,188,577 Zero Coupon due 11/15/97..................... 1,137,587
1,355,986 6.088% due 12/15/97++........................ 1,359,255
---------
63,338,454
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 1.0%
3,000,000 4.370%** due 02/06/97++...................... 2,997,158
101,357 6.650% due 03/25/97.......................... 101,374
1,125,000 4.370% due 06/04/97++........................ 1,119,076
---------
4,217,608
---------
STUDENT LOAN MARKETING ASSOCIATION (SLMA) -- 8.2%
500,000 5.700% due 01/21/97++++...................... 500,047
6,830,000 5.550% due 01/29/97+......................... 6,830,451
1,000,000 5.475% due 02/14/97+......................... 1,000,207
1,000,000 4.868% due 03/25/97++........................ 998,608
5,450,000 5.840% due 04/21/97+++....................... 5,455,126
15,000,000 5.870% due 06/30/97++++...................... 15,000,486
2,690,000 5.650% due 07/16/97+......................... 2,693,437
4,000,000 5.400% due 10/30/97+......................... 4,001,520
---------
36,479,882
----------
TENNESSEE VALLEY AUTHORITY (TVA) -- 4.2%
5,125,000 Discount Note due 01/09/97................... 5,119,044
10,342,000 6.000% due 01/15/97.......................... 10,343,438
1,040,000 Discount Note due 02/20/97................... 1,032,546
2,500,000 Discount Note due 03/11/97................... 2,474,508
---------
18,969,536
----------
</TABLE>
The accompanying notes are an integral part of these financial statements
62
<PAGE>
-----------------------
The Montgomery Funds
-----------------------
Government Reserve
Fund
-----------------------
I N V E S T M E N T S
<TABLE>
<CAPTION>
U.S. SOVEREIGN BONDS -- 0.3%
Principal amount Value (Note 1)
<S> <C> <C>
$ 1,106,641 AID-Israel, Series B,
5.750% due 01/09/99+........................$ 1,106,641
---------
U.S. TREASURY BILLS -- 0.6%
3,000,000 Discount Note due 11/13/97.................. 2,862,672
---------
U.S. TREASURY NOTES -- 1.1%
5,000,000 6.375% due 06/30/97......................... 5,021,743
---------
TOTAL SECURITIES............................................. 325,041,657
-----------
</TABLE>
REPURCHASE AGREEMENTS -- 26.3%
55,000,000 Agreement with Bear Stearns Companies Inc.,
Tri-Party, 7.500% dated 12/31/96, to be
repurchased at $55,022,917 on 01/02/97,
collateralized by $56,526,728 market value of
U.S. government securities, having various
maturities and various interest rates....... 55,000,000
20,000,000 Agreement with Chase Manhattan Corporation,
Tri-Party, 5.650% dated 12/31/96, to be
repurchased at $20,006,278 on 01/02/97,
collateralized by $20,402,402 market value of
U.S. government securities, having various
maturities and various interest rates....... 20,000,000
32,545,000 Agreement with Chase Manhattan Corporation,
Tri-Party, 7.500% dated 12/31/96, to be
repurchased at $32,558,560 on 01/02/97,
collateralized by $33,196,847 market value of
U.S. government securities, having various
maturities and various interest rates....... 32,545,000
10,000,000 Agreement with HSBC, Tri-Party, 5.610%
dated 12/31/96, to be repurchased at
$10,003,117 on 01/02/97, collateralized by
$10,200,678 market value of U.S. government
securities, having various maturities and
various interest rates...................... 10,000,000
----------
TOTAL REPURCHASE AGREEMENTS.................................. 117,545,000
-----------
TOTAL INVESTMENTS -- 99.1%
(At amortized cost*)......................................... 442,586,657
OTHER ASSETS AND LIABILITIES -- 0.9%
(Net)........................................................ 3,932,452
---------
NET ASSETS -- 100.0%......................................... $446,519,109
============
* 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.
The accompanying notes are an integral part of these financial statements.
63
<PAGE>
- -----------------------
The Montgomery Funds
- -----------------------
Federal Tax-Free
Money Fund
- -----------------------
I N V E S T M E N T S
<TABLE>
<CAPTION>
P O R T F O L I O I N V E S T M E N T S
December 31, 1996 (unaudited)
MUNICIPAL BONDS AND NOTES -- 100.0%
Principal amount Value (Note 1)
<S> <C> <C>
Alabama -- 0.2%
$ 250,000 Montgomery, Alabama, Special Care
Facilities Financing Authority Revenue,
Baptist Medical Center, (FGIC/MBIA-
IBC Insured), 6.500% due 05/15/97............$ 252,536
Arizona -- 3.6%
550,000 Arizona State, Transportation Board
Highway Revenue, 7.800% due 07/01/97......... 560,345
1,000,000 Glendale, Arizona, Water and Sewer
Revenue, 7.750% due 07/01/97................. 1,019,467
Maricopa County, Arizona:
100,000 School District No. 038, (Madison
Elementary School Improvement Project 1988),
Series B, 6.500% due 07/01/97................ 103,302
1,000,000 Unified School District No. 097, Tax
Anticipation Notes, (Deer Valley), Series A,
4.450% due 07/31/97.......................... 1,003,038
500,000 Tempe, Arizona, General Obligation Bonds,
6.000% due 07/01/97.......................... 505,970
425,000 University of Arizona, University Revenue,
6.000% due 06/01/97.......................... 425,881
-------
3,618,003
---------
California -- 2.2%
100,000 California Health Facilities Finance
Authority Revenue, (Catholic West Project),
Series B, (MBIA Insured),
4.000% due 07/01/05++........................ 100,000
1,300,000 California Pollution Control Financing
Authority, Pollution Control Revenue,
(Southern California Edison Company
Project), Series C, 4.700% due 02/28/08+..... 1,300,000
295,000 California State, Revenue Anticipation Notes,
Series A, 4.500% due 06/30/97................ 295,978
300,000 Lancaster, California, Redevelopment Agency,
Multi-Family Housing Revenue, (Westwood Park
Apartments Project), Series K, (LOC: Bank of
America), 4.000% due 12/01/07++.............. 300,000
Los Angeles, California:
50,000 State Building Authority, Lease Revenue,
State of California Department of General
Services, Series A, 6.400% due 03/01/97...... 50,190
50,000 Wastewater System Revenue, Series A ,
(MBIA Insured), 8.500% due 06/01/97.......... 50,860
50,000 Northern California Transmission Revenue,
(California-Oregon Transmission Project),
Series A, (MBIA Insured),
6.700% due 05/01/97.......................... 50,431
100,000 San Diego County, California, Multi-Family
Housing Revenue, (Country Hills Apartments
Project), Series A, 4.050% due 08/15/13++.... 100,000
-------
2,247,459
---------
Colorado -- 2.6%
1,000,000 Arapahoe County, Colorado, School District
No. 005, Tax Anticipation Notes
(Cherry Creek), 4.500% due 06/30/97.......... 1,002,832
300,000 Centennial Water
and Sanitation District,
Colorado, Revenue Refunding, Series A,
(LOC: Swiss Bank, New York),
4.750% due 12/01/97.......................... 302,668
Colorado Health Facilities
Authority Revenue:
300,000 (Boulder Community Hospital Project),
Series C, (MBIA Insured),
4.150% due 10/01/14++........................ 300,000
800,000 (Sisters of Charity Health Care System Inc.
Project), 4.150% due 05/15/25++.............. 800,000
Denver, Colorado, City and County:
100,000 General Obligation Bonds,
5.950% due 08/01/97.......................... 101,305
100,000 Multi-Family Housing Revenue, (Ogden
Residences Project), (LOC: Credit Lyonnais),
5.300% due 12/01/09+......................... 100,000
-------
2,606,805
---------
Delaware -- 0.1%
135,000 Delaware State, Revenue Refunding,
Series C, 4.500% due 07/01/97................ 135,493
District of Columbia -- 0.2%
185,000 District of Columbia, General Obligation
Bonds, Series A, 8.000% due 06/01/97......... 190,820
Florida -- 2.1%
1,000,000 Jacksonville Electric Authority,
Florida, Commercial Paper,
3.500% due 02/06/97.......................... 1,000,000
1,000,000 Sunshine State, Florida, Government
Finance, Commercial Paper,
3.450% due 01/14/97.......................... 1,000,000
100,000 Volusia County, Florida, Health Facilities
Authority, Health Facilities Revenue,
Alliance Community for Retirement Living,
(LOC: Rabobank Nederland),
5.000% due 09/01/20+......................... 100,000
-------
2,100,000
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
64
<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 -- 5.8%
$ 2,000,000 Burke County, Georgia, Development Authority,
Pollution Control Revenue, (Oglethorpe Power
Corporation), Series A, (FGIC Insured),
4.000% due 01/01/16++........................$ 2,000,000
700,000 De Kalb County, Georgia, General
Obligation Bonds, 7.300% due 01/01/98........ 714,000
Fulton County, Georgia:
200,000 Residential Care Facilities Revenue Refunding,
(Lenbrook Square Foundation Project),
(LOC: Rabobank Nederland),
5.000% due 01/01/18+......................... 200,000
470,000 School District, 7.050% due 05/01/97......... 488,771
1,345,000 Georgia Municipal Electric Authority, Power
Revenue, Series L, 7.750% due 01/01/97....... 1,371,900
1,000,000 Municipal Electric Authority of Georgia,
3.500% due 02/04/97.......................... 1,000,000
100,000 Savannah, Georgia, Downtown
Development Authority Revenue,
(Savannah Parking Facilities Project),
4.100% due 09/01/05++........................ 100,000
-------
5,874,671
---------
Hawaii -- 1.0%
1,000,000 City and County of Honolulu, Commercial
Paper, 3.500% due 02/06/97................... 1,000,000
Idaho -- 3.0%
3,000,000 Idaho State, Tax Anticipation Notes,
4.500% due 06/30/97.......................... 3,012,258
Illinois -- 7.8%
Chicago, Illinois:
1,000,000 Park District, Revenue Refunding,
(FGIC Insured), 4.400% due 01/01/97.......... 1,000,000
500,000 Public Building, Community College
Building Revenue, Community College
District No. 508, Series A, (MBIA Insured),
7.500% due 01/01/98.......................... 527,797
1,000,000 Tender Notes, Series C, (LOC: Societe Generale),
3.600% due 10/31/99+++....................... 1,000,000
200,000 Dekalb, Illinois, General Obligation Bonds,
6.400% due 12/01/97.......................... 206,555
Du Page, Illinois, Water Commission,
Water Revenue:
150,000 6.000% due 05/01/97.......................... 151,109
500,000 6.800% due 05/01/97.......................... 514,885
250,000 6.875% due 05/01/97.......................... 257,633
400,000 Illinois Health Facilities Authority Revenue,
(Swedish Covenant Hospital Project),
(AMBAC Insured), 4.150% due 08/01/25++....... 400,000
250,000 Illinois Regional Transportation Authority,
Series A, (AMBAC Insured),
4.750% due 06/01/97.......................... 251,065
Illinois State:
250,000 Sales Tax Revenue, Series E,
8.000% due 06/15/97.......................... 259,434
1,000,000 Toll Highway Authority, Toll Highway Priority
Revenue, 6.850% due 01/01/98................. 1,010,000
815,000 Illinois Student Assistance, Community College
Student Loan Revenue, Series M, (Guaranteed
Student Loan Association Insured),
5.450% due 03/01/97.......................... 817,187
1,400,000 Lisle, Illinois, Multi-Family Housing Revenue,
(Ashley of Lisle Project), (LOC: Credit Suisse),
4.000% due 12/15/25++........................ 1,400,000
---------
7,795,665
---------
Indiana -- 2.3%
1,000,000 Fort Wayne, Indiana, Hospital Authority,
Hospital Revenue, (Parkview Memorial
Hospital Inc. Project), Series D, (LOC: Bank
of America), 4.150% due 01/01/16++........... 1,000,000
300,000 Indiana Bond Bank, Advance Funding Notes,
4.250% due 01/09/97.......................... 300,030
1,000,000 Indianapolis, Indiana, Local Public
Improvement, Bank Bond Notes, Series A,
4.250% due 01/09/97.......................... 1,000,107
---------
2,300,137
---------
Iowa -- 0.7%
500,000 Davenport, Iowa, Revenue Refunding,
4.200% due 06/01/97.......................... 501,322
250,000 Iowa State, Certificates of Participation,
(AMBAC Insured), 5.500% due 07/01/97......... 252,193
-------
753,515
-------
Kansas -- 0.9%
635,000 Johnson County, Kansas, Water District
Revenue, No. 001, Series A,
3.700% due 06/01/97.......................... 634,598
300,000 Kansas City, Kansas, Industrial Development
Revenue, (PQ Corporation Project), (LOC:
Credit Suisse), 5.050% due 08/01/15+......... 300,000
-------
934,598
-------
Kentucky -- 2.6%
Kenton County, Kentucky, Airport Board,
Airport Revenue, Prerefunded Balance-1997A:
675,000 7.900% due 03/01/97.......................... 679,578
730,000 8.000% due 03/01/97.......................... 749,574
790,000 8.100% due 03/01/97.......................... 811,310
350,000 University of Kentucky, University Revenue,
Consolidated Education Building, Series J,
6.000% due 05/01/97.......................... 359,441
-------
2,599,903
---------
</TABLE>
65
The accompanying notes are an integral part of these financial statements.
<PAGE>
- -----------------------
The Montgomery Funds
- -----------------------
Federal Tax-Free
Money Fund
- -----------------------
INVESTMENTS
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES -- continued
Principal amount Value (Note 1)
<S> <C> <C>
Louisiana -- 4.2%
$ 700,000 De Soto Parish, Louisiana, Pollution Control
Revenue, (Central Louisiana Electric
Company Project), Series B, (LOC:
Swiss Bank), 4.050% due 07/01/18++...........$ 700,000
1,000,000 Louisiana Hospital Revenue, Commercial
Paper, 3.600% due 01/13/97................... 1,000,000
500,000 Louisiana State, Revenue Refunding,
Series A, 7.000% due 08/01/97................ 518,852
New Orleans, Louisiana, Aviation Board
Revenue Refunding, (MBIA Insured):
300,000 Series B, 4.100% due 08/01/16++.............. 300,000
200,000 Series C, 4.100% due 08/01/11++.............. 200,000
500,000 Rapides Parish, Louisiana, Industrial
Development Board, Pollution Control
Revenue Refunding, (Central Louisiana
Electric Company Project), (LOC: Swiss Bank),
4.050% due 07/01/18++........................ 500,000
100,000 St. Charles Parish, Louisiana, Pollution Control
Revenue Refunding, (Shell Oil Company
Project), Series B, 4.900% due 10/01/22++.... 100,000
900,000 West Feliciana Parish, Louisiana, Pollution
Control Revenue, (Gulf State Utilities
Company Project), (LOC: Canadian
Imperial Bank), 5.000% due 04/01/16+......... 900,000
-------
4,218,852
---------
Maryland -- 1.4%
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),
4.250% due 04/01/35++........................ 300,000
1,100,000 University of Maryland, University Revenue,
(Equipment Loan Program), Series A,
(Student Loan Marketing Association
Insured), 4.050% due 07/01/15++.............. 1,100,000
---------
1,400,000
---------
Massachusetts -- 0.2%
200,000 Commonwealth of Massachusetts, General
Obligation Bonds, Series B, (LOC: National
Westminster), 4.800% due 12/01/97+........... 200,000
Michigan -- 0.3%
250,000 Michigan State Building Authority
Revenue Refunding, Series I,
5.600% due 10/01/97.......................... 253,362
Minnesota -- 0.5%
385,000 Dakota and Washington County, Minnesota,
Housing and Redevelopment Authority,
Bloomington Single-Family Residential
Mortgage Revenue, (GNMA Insured),
7.400% due 09/01/97.......................... 393,467
100,000 St. Paul, Minnesota, Housing and
Redevelopment Authority, District Cooling
Revenue, Series I, (LOC: Credit Local de
France), 4.300% due 06/01/15++............... 100,000
-------
493,467
-------
Mississippi -- 5.9%
Jackson County, Mississippi:
4,500,000 Pollution Control Revenue Refunding,
(Chevron USA Inc. Project),
5.000% due 06/01/23+......................... 4,500,000
205,000 School District, Series B,
6.750% due 12/15/97.......................... 210,406
1,235,000 Perry County, Mississippi, Pollution Control
Revenue Refunding, (Leaf River Forest
Project), 5.000% due 03/01/02+............... 1,235,000
---------
5,945,406
---------
Missouri -- 0.5%
500,000 Missouri State, Health and Education
Facilities Authority, Education Facilities
Revenue, (Drury College), Series A, (LOC:
Chase Manhattan), 5.050% due 08/15/21+....... 500,000
Montana -- 1.0%
1,000,000 Montana State Board of Investment,
Municipal Finance Consolidated-Intercap
Revolving Program,
3.350% due 03/01/05+++....................... 997,911
Nebraska -- 1.2%
1,200,000 Buffalo County, Nebraska, Hospital Authority
Revenue, No. 1, (Sisters of Charity Richard
Young Memorial Hospital Project), (MBIA
Insured), 4.050% due 05/01/18++.............. 1,200,000
Nevada -- 0.3%
250,000 Washoe County, Improvement and Refunding,
(MBIA Insured), 7.100% due 07/01/97.......... 253,733
New Hampshire -- 0.5%
500,000 Manchester, New Hampshire,
Public Improvement Revenue,
7.300% due 09/01/97.......................... 521,558
</TABLE>
The accompanying notes are an integral part of these financial statements.
66
<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>
New Mexico -- 8.4%
Albuquerque, New Mexico:
$ 3,100,000 Hospital Revenue, St. Joseph's Sisters of
Charity, 4.150% due 05/15/22++...............$ 3,100,000
500,000 Water and Sewer System Revenue,
Series C, 6.650% due 07/01/97................ 507,430
1,000,000 Eddy County, New Mexico, Pollution Control
Revenue, (IMC Fertilizer Inc. Project),
(LOC: Rabobank Nederland),
4.150% due 02/01/03++........................ 1,000,000
3,800,000 Farmington, New Mexico, Pollution
Control Revenue, (Arizona Public Service
Company Project), Series B, (LOC: Barclays
Bank PLC), 5.000% due 09/01/24++............. 3,800,000
---------
8,407,430
---------
New York -- 10.2%
New York, New York:
General Obligation Bonds, Series B,
(MBIA Insured):
2,000,000 Subseries B-3, 5.000% due 08/15/04+.......... 2,000,000
500,000 Subseries B-4, 5.000% due 08/15/23+.......... 500,000
Series C:
360,000 6.700% due 02/01/97.......................... 360,885
1,000,000 (LOC: Morgan Guaranty Trust),
4.500% due 10/01/23+......................... 1,000,000
300,000 Subseries A-10, (LOC: Morgan Guaranty
Trust), 4.500% due 08/01/17+................. 300,000
4,300,000 Tax Anticipation Notes, Series A,
4.500% due 02/12/97.......................... 4,304,376
New York State:
100,000 General Obligation Bonds,
6.900% due 11/15/97.......................... 103,132
1,700,000 Local Government Assistance Corporation,
Series D, (LOC: Societe Generale, New York),
4.000% due 04/01/25++........................ 1,700,000
---------
10,268,393
----------
North Carolina -- 1.9%
1,200,000 Greensboro, North Carolina,
Enterprise System Revenue, Series B,
(LOC: Credit Local de France),
4.000% due 06/01/22++........................ 1,200,000
500,000 North Carolina Eastern Municipal Power
Agency, Power System Revenue Refunding,
Series A, 7.500% due 01/01/97................ 510,000
175,000 Vance County, North Carolina, Revenue
Refunding, 4.250% due 03/01/97............... 175,118
-------
1,885,118
---------
Ohio -- 2.2%
240,000 Columbus, Ohio, Sewer Improvement
Bonds, 9.000% due 09/15/97.................. 248,893
Ohio State, Air Quality Development
Authority Revenue:
1,000,000 Series A, (LOC: Union Bank of Switzerland),
4.700% due 12/01/15+......................... 1,000,000
1,000,000 Series B, (LOC: Morgan (J.P.) & Company
Inc.), 4.700% due 12/01/15+.................. 1,000,000
---------
2,248,893
---------
Oklahoma -- 0.3%
345,000 Tulsa, Oklahoma, Metropolitan Utility
Authority, Utility Revenue,
5.600% due 09/01/97.......................... 348,674
Pennsylvania -- 0.8%
800,000 Delaware Company, Pennsylvania,
Commercial Paper,
3.450% due 01/14/97.......................... 800,000
South Carolina -- 3.7%
1,500,000 Charleston County, South Carolina,
Industrial Development Revenue,
(Massey Coal Terminal South Carolina
Corporation Project), (LOC: Morgan
Guaranty Trust), 5.000% due 01/01/07+........ 1,500,000
250,000 Columbia, South Carolina, Waterworks
and Sewer Revenue Refunding,
4.100% due 02/01/97.......................... 250,094
1,000,000 Orangeburg County, South Carolina, Solid
Waste Disposal Facilities Revenue, (South
Carolina Electric and Gas Company Project),
(LOC: NationsBank of North Carolina),
5.000% due 10/01/24+......................... 1,000,000
1,000,000 South Carolina State, Capital Improvement
Revenue, Series A, 7.000% due 03/01/97....... 1,005,430
---------
3,755,524
---------
Tennessee -- 0.8%
240,000 Chattanooga, Tennessee, General Obligation
Bonds, 7.750% due 08/01/97................... 245,446
535,000 Hamilton County, Tennessee, Revenue
Refunding, Series A, 3.700% due 09/01/97 534,632
-------
780,078
-------
</TABLE>
The accompanying notes are an integral part of these financial statements.
67
<PAGE>
- -----------------------
The Montgomery Funds
- -----------------------
Federal Tax-Free
Money Fund
- -----------------------
INVESTMENTS
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES -- continued
Principal amount Value (Note 1)
<S> <C> <C>
Texas -- 9.3%
Brazos River Authority, Texas, Pollution
Control Revenue, (Texas Utilities Electric
Company Project), Series B:
$ 400,000 (AMBAC Insured), 4.750% due 06/01/30+........$ 400,000
200,000 (LOC: Union Bank of Switzerland),
4.750% due 06/01/30+......................... 200,000
200,000 Grapevine, Texas, Industrial Development
Authority, Multiple Mode Revenue, (American
Airlines Project), Series A1, (LOC: Morgan
Guaranty Trust), 4.950% due 12/01/24+........ 200,000
750,000 Harris County, Texas, Toll Road, Senior Lien
Revenue, 8.625% due 08/15/97................. 793,763
1,900,000 Lower Colorado River Authority, Texas,
Junior Lien Revenue, Third Supply Series,
(MBIA Insured),
4.000% due 01/01/13++........................ 1,900,000
500,000 Lubbock, Texas, Health Facilities
Development Corporation, Revenue
Refunding, (St. Joseph's Health System
Project), 5.000% due 07/01/13+............... 500,000
1,300,000 North Texas Higher Education Authority Inc.,
Texas Student Loan Revenue Refunding,
Series A, (AMBAC Insured),
4.250% due 04/01/36++........................ 1,300,000
250,000 Odessa, Texas, Junior College District Revenue,
(AMBAC Insured), 7.000% due 06/01/97......... 253,510
40,000 Round Rock, Texas, General Obligation Bonds,
(FGIC Insured), 6.800% due 08/01/97.......... 40,632
1,500,000 Sabine River Authority, Texas, Pollution
Control Revenue, (Utilities Electric Company
Project), (LOC: Union Bank of Switzerland),
4.700% due 06/01/30+......................... 1,500,000
200,000 San Antonio, Texas, Sewer Revenue,
Prior Lien Improvement Bonds,
7.900% due 05/01/97.......................... 205,714
100,000 Tarrant County, Texas, General Obligation
Bonds, 9.250% due 07/15/97................... 102,809
700,000 Texas Municipal Power Agency,
Revenue Refunding, (MBIA Insured),
6.250% due 09/01/97.......................... 725,692
1,000,000 Texas State, Tax and Revenue Anticipation
Notes, 4.750% due 08/29/97................... 1,005,057
200,000 Trinity River Authority, Texas, Ten Mile
Creek System Revenue, (AMBAC Insured),
4.625% due 08/01/97.......................... 200,813
-------
9,327,990
---------
Utah -- 0.1%
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
Virginia -- 6.3%
4,000,000 Hampton, Virginia, Redevelopment and
Housing Authority, Multi-Family Housing
Revenue, (Avalon at Hampton Project),
Series I-A, (FNMA Insured),
4.100% due 06/15/26++........................ 4,000,000
Henrico County, Virginia,
Industrial Development Authority:
500,000 Health Facility Revenue, (Hermitage Project),
(LOC: NationsBank of Virginia),
5.100% due 05/01/24+......................... 500,000
150,000 Public Facility Lease Revenue, (Henrico County
Regional Jail Project), 5.400% due 08/01/97.. 151,364
Norfolk, Virginia, General Obligation Bonds:
250,000 7.150% due 08/01/97.......................... 259,862
35,000 6.600% due 06/01/97.......................... 36,055
1,000,000 Peninsula Port Authority of Virginia, Revenue
Updates, (Shell Oil and Terminal Company
Project), 5.000% due 12/01/05+............... 1,000,000
250,000 Roanoke, Virginia, Revenue Refunding
and Improvement Bonds, Series B,
5.800% due 08/01/97.......................... 252,829
90,000 Upper Occoquan Sewer Authority, Virginia,
Regional Sewer Revenue, (MBIA
Insured), 5.600% due 07/01/97................ 90,781
------
6,290,891
---------
Washington -- 1.7%
250,000 Seattle, Washington, Metropolitan
Municipality, 7.200% due 01/01/97............ 255,000
105,000 Snohomish County, Washington, Public
Utility District No. 001, Electric Revenue
Refunding, Generation System, Series 86A,
(MBIA Insured), 7.375% due 01/01/97.......... 107,100
Washington State, Housing Finance Commission:
1,000,000 Multi-Family Housing Revenue, (Winterhill
Apartments Project), Series A, (FSA Insured),
4.300% due 07/01/28++........................ 1,000,000
290,000 Nonprofit Housing Revenue, (YMCA Greater
Seattle Project), (LOC: Bank of Washington),
5.250% due 07/01/11++........................ 290,000
50,000 Washington State, Revenue Refunding,
Series 89C, 6.800% due 02/01/97.............. 50,119
------
1,702,219
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
68
<PAGE>
-----------------------
The Montgomery Funds
-----------------------
Federal Tax-Free
Money Fund
-----------------------
INVESTMENTS
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES -- continued
<S> <C> <C>
Principal amount Value (Note 1)
West Virginia -- 1.0%
$ 155,000 Raleigh County, West Virginia, Board of
Education Revenue Refunding, (MBIA
Insured), 8.200% due 04/01/97................$ 156,654
845,000 West Virginia State, Hospital Finance
Authority Revenue Refunding, (United
Hospital Center Inc. Project), (FSA Insured),
7.875% due 04/01/97.......................... 870,408
-------
1,027,062
---------
Wisconsin -- 0.8%
425,000 Mukwonago, Wisconsin, School District
Revenue Refunding, (AMBAC Insured),
3.750% due 04/01/97.......................... 425,000
Wisconsin State:
200,000 General Obligation Bonds, Series C,
7.000% due 05/01/97.......................... 204,029
100,000 Revenue Refunding, 5.100% due 05/01/97....... 100,369
50,000 Revenue Refunding, Series 1, 4.200% due
05/01/97..................................... 50,005
------
779,403
-------
Wyoming -- 1.4%
Sweetwater County, Wyoming:
1,000,000 Pollution Control Revenue Refunding,
(Pacificorp Project), Series B, (LOC: Canadian
Imperial Bank), 4.700% due 01/01/14+......... 1,000,000
425,000 School District No. 2, Green River,
(School Board Guaranty Insured),
6.000% due 06/01/97.......................... 428,584
-------
1,428,584
---------
TOTAL INVESTMENTS -- 100.0%
(At amortized cost*)..........................................$100,556,411
OTHER ASSETS AND LIABILITIES -- 0.0%
(Net)......................................................... 29,816
------
NET ASSETS -- 100.0%..........................................$100,586,227
============
</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.
Abbreviations:
AMBAC...American Municipal Bond Assurance Corporation
FGIC....Federal Guaranty Insurance Corporation
FNMA....Federal National Mortgage Association
FSA.....Federal Security Assurance
GNMA....Government National Mortgage Association
IBC.....Secondarily Insured
LOC.....Line of Credit
MBIA....Municipal Bond Investors Assurance
The accompanying notes are an integral part of these financial statements.
69
<PAGE>
- ---------------------
The Montgomery Funds
- ---------------------
California 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
December 31, 1996 (unaudited)
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES -- 102.1%
<S> <C> <C>
Principal amount Value (Note 1)
California -- 102.1%
$ 695,000 Bakersfield, California, City School District,
Refunding, (MBIA Insured),
5.000% due 08/01/97..........................$ 700,512
400,000 Burbank, California, Redevelopment Agency
Revenue, Issue A, 3.000% due 11/01/10++...... 400,000
California State:
Commercial Paper:
1,200,000 3.500% due 01/01/97.......................... 1,200,000
2,000,000 3.350% due 01/14/97.......................... 2,000,000
100,000 GO, 8.200% due 05/01/97...................... 101,455
Health Facilities Finance Authority Revenue,
(CASMED): Catholic Healthcare, (MBIA Insured):
300,000 Series A, 4.000% due 07/01/09++.............. 300,000
300,000 Series B, 4.000% due 07/01/16++.............. 300,000
400,000 Series D, 4.000% due 07/01/21++.............. 400,000
St. Joseph Health System:
695,000 Series A, 5.000% due 07/01/13+............... 695,000
5,600,000 Series B, 5.100% due 07/01/09+............... 5,600,000
Sutter Healthcare:
3,300,000 Series A, 5.000% due 07/01/20+............... 3,300,000
1,350,000 Series C, 5.100% due 07/01/22+............... 1,350,000
700,000 Lease Financing Authority, Certificates of
Participation, CSAC Financing Corporation,
Pre-refunded, 7.850% due 04/01/09............ 713,978
Pollution Control Finance Authority:
Resource Recovery Revenue:
200,000 (Exxon Corporation Project),
4.650% due 12/01/12+......................... 200,000
(Homestake Mining Project):
200,000 Series 84A, 3.900% due 05/01/04++............ 200,000
1,800,000 Series 84B, 3.900% due 05/01/04++............ 1,800,000
(Pacific Gas and Electric Company Project):
1,500,000 Series C, 4.750% due 11/01/26+............... 1,500,000
900,000 Series F, 4.800% due 11/01/26+............... 900,000
Series A:
(Shell Oil Company Project):
500,000 5.000% due 10/01/06+......................... 500,000
200,000 5.000% due 10/01/07+......................... 200,000
600,000 5.000% due 10/01/08+......................... 600,000
1,700,000 5.000% due 10/01/10+......................... 1,700,000
1,000,000 Series B, 5.000% due 10/01/11+............... 1,000,000
400,000 Series C, 5.000% due 11/01/00+............... 400,000
(Southern California Edison Project):
4,000,000 Series A, 4.700% due 02/28/08+............... 4,000,000
2,000,000 Series B, 4.700% due 02/28/08+............... 2,000,000
970,000 (Stanislaus Project), 5.050% due 12/01/17+... 970,000
2,400,000 Revenue Anticipation Notes, Series A,
4.500% due 06/30/97.......................... 2,406,642
California Statewide Community
Development Authority Revenue:
$ 1,000,000 Apartment Development Revenue,
Sub-Series A-1, 3.900% due 05/15/25++........$ 1,000,000
1,800,000 Certificates of Participation, (Retired Officers),
5.000% due 06/01/26+......................... 1,800,000
Industrial Development:
750,000 (Encore Video Project),
4.050% due 08/01/07++........................ 750,000
1,000,000 (Fibrebond Inc. Project),
4.050% due 12/01/11++........................ 1,000,000
910,000 (Propak California Project), Series B,
4.050% due 11/01/09++........................ 910,000
840,000 Solid Waste Facilities Revenue,
(Chevron U.S.A. Inc. Project),
4.800% due 12/15/24+......................... 840,000
2,000,000 Sutter Healthcare Project, (AMBAC Insured),
5.000% due 07/01/15+......................... 2,000,000
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...................... 201,129
2,000,000 Conejo Valley, California, Unified School
District, TRANS, 4.500% due 07/02/97......... 2,006,720
2,000,000 Contra Costa, California, Community
College District, TRANS,
4.500% due 06/30/97.......................... 2,006,647
2,000,000 Emeryville, California, Public Finance
Authority Revenue, Series A, Pre-refunded,
8.100% due 02/01/17.......................... 2,047,158
Fremont, California:
500,000 Certificates of Participation, (Building and
Equipment Financing Project),
4.200% due 07/01/15++........................ 500,000
Multi-Family Housing Revenue:
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 Gardena, California, Public Financing
Agency, (Gardena Public Parking Project),
4.350% due 09/01/11++........................ 1,000,000
Kern, California:
1,250,000 Board of Education, TRANS,
4.500% due 06/30/97.......................... 1,254,836
1,500,000 Community College District, Certificates of
Participation, 4.650% due 01/01/25++......... 1,500,000
2,000,000 High School District, TRANS,
4.500% due 07/31/97.......................... 2,006,690
</TABLE>
The accompanying notes are an integral part of these financial statements.
70
<PAGE>
----------------------
The Montgomery Funds
----------------------
California 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>
California -- continued
Kern County, California:
Certificates of Participation:
$ 200,000 (MBIA Insured), 4.400% due 08/01/97..........$ 200,846
2,500,000 (Kern Public Facilities Project), Series B,
4.000% due 08/01/06++........................ 2,500,000
1,000,000 Lancaster, California, Redevelopment Agency,
Multi-Family Housing Revenue, (20th Street
Apartments Project), Series C,
3.950% due 12/01/26++........................ 1,000,000
1,000,000 Lassen, California, Municipal Utilities
District Revenue, Series A, (FSA Insured),
4.200% due 05/01/08++........................ 1,000,000
1,700,000 Livermore, California, Multi-Family Housing
Revenue, 4.050% due 08/01/18++............... 1,700,000
Los Angeles, California:
2,500,000 Department of Airports, Airport Revenue
Refunding, Series B, Pre-refunded,
7.250% due 05/01/02.......................... 2,577,484
Metropolitan Transportation Authority,
Commercial Paper:
2,500,000 3.600% due 01/06/97.......................... 2,500,000
2,000,000 3.500% due 01/09/97.......................... 2,000,000
Multi-Family Housing Revenue:
800,000 Series A, 5.250% due 08/01/26+............... 800,000
600,000 Series B, 3.750% due 12/01/26+............... 600,000
2,600,000 Series K, 3.550% due 07/01/10++.............. 2,600,000
Los Angeles County, California:
250,000 Public Works Financing Authority Revenue,
Regional Parks and Open Space, Series A,
4.700% due 10/01/97+......................... 251,724
1,000,000 Regional Airports Improvement Corporation,
Lease Revenue Bonds, (American Airlines Inc.
Project), Series A, 4.950% due 12/01/24...... 1,000,000
Transportation Commission, Sales Tax
Revenue Pre-refunded, Series A:
100,000 5.950% due 07/01/97.......................... 101,119
500,000 7.600% due 07/01/02.......................... 518,837
1,000,000 (FGIC Insured), 3.900% due 07/01/12++........ 1,000,000
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.......................... 100,387
1,000,000 Commercial Paper, 3.350% due 01/14/97........ 1,000,000
300,000 Modesto, California, Multi-Family Housing
Revenue, (Live Oak Apartments Project),
4.150% due 09/01/24++........................ 300,000
550,000 Mountain View, Los Altos, California,
Unified High School District, Series A,
3.850% due 08/01/97.......................... 550,520
115,000 Napa Valley, California, Unified School
District, Series A, 8.000% due 08/01/97...... 117,660
Palm Springs, California, Community
Redevelopment Agency, Certificates of Participation:
330,000 District No. 1, 4.000% due 12/01/14++........ 330,000
200,000 District No. 3, 4.000% due 12/01/14++........ 200,000
700,000 District No. 6, 4.000% due 12/01/14++........ 700,000
100,000 District No. 8, 4.000% due 12/01/14++........ 100,000
100,000 District No. 9, 3.900% due 12/01/14++........ 100,000
500,000 Redding, California, Joint Powers Financing
Authority, Electric Systems Revenue, Series A,
(MBIA Insured), 5.000% due 06/01/97.......... 502,938
4,590,000 Richmond, California, Joint Powers Finance
Authority, Port Terminal Lease Revenue,
4.900% due 09/01/04+......................... 4,590,000
200,000 Riverside County, California, Certificates of
Participation, Riverside County Public
Facilities, Series B, 2.850% due 12/01/15++.. 200,000
Sacramento, California:
100,000 Municipal Utilities District, Electric Revenue,
Series E, 4.300% due 05/15/97................ 100,233
700,000 TRANS, 4.500% due 09/30/97................... 704,445
405,000 Saint Helena, California, Water Revenue
Refunding, 4.000% due 06/01/97............... 405,657
1,500,000 San Bernardino County, California,
Industrial Development Authority Revenue,
4.050% due 05/01/09++........................ 1,500,000
San Diego, California:
Multi-family Housing Revenue:
2,200,000 (Country Hills Apartments Project),
4.050% due 08/15/03++........................ 2,200,000
210,000 (Nobel Court Apartments Project),
4.050% due 12/01/08++........................ 210,000
250,000 TRANS, Series A, 4.375% due 09/30/97......... 251,264
2,000,000 Unified School District, TRANS,
4.750% due 10/01/97.......................... 2,015,812
San Diego County, California:
1,900,000 Department of Transportation, Commercial
Paper, 3.350% due 02/06/97................... 1,900,000
1,000,000 Water Authority Revenue, Certificates of
Participation, Series A, Pre-refunded,
7.300% due 05/01/09.......................... 1,032,015
500,000 San Francisco, California, Bay Area Rapid
Transit, District Sales Tax Revenue,
Subordinated Notes, (AMBAC Insured),
4.600% due 07/01/97.......................... 500,062
</TABLE>
71
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
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES -- continued
Principal amount Value (Note 1)
<S> <C> <C>
California -- continue
$ 2,000,000 San Mateo County, California, TRANS,
4.500% due 07/01/97..........................$ 2,005,246
500,000 Santa Ana, California, Health Facilities
Revenue, Multi-Modal Town and Country,
4.800% due 10/01/20+......................... 500,000
Santa Clara County:
500,000 Multi-Family Housing Revenue, (Foxchase
Apartments Project), (FGIC Insured),
4.000% due 11/01/07++........................ 500,000
4,500,000 TRANS, 4.500% due 08/01/97................... 4,517,077
Southern California, Public Power
Authority Revenue:
2,000,000 (Palo Verde Project), Series C, (AMBAC
Insured), 3.900% due 07/01/17++.............. 2,000,000
3,500,000 University of California, Commercial Paper,
3.350% due 01/22/97.......................... 3,500,000
3,000,000 West Contra Costa, California, Unified School
District, TRANS, 4.250% due 12/11/97......... 3,012,182
2,800,000 Western Riverside County, California,
Regional Wastewater Authority Revenue,
5.000% due 04/01/28+......................... 2,800,000
TOTAL MUNICIPAL BONDS AND NOTES............................... 118,986,275
-----------
TOTAL INVESTMENTS -- 102.1%
(At amortized cost*).......................................... 118,986,275
OTHER ASSETS AND LIABILITIES -- (2.1%)
(Net)......................................................... (2,480,909)
----------
NET ASSETS -- 100.0%..........................................$116,505,366
------------
</TABLE>
*Aggregate cost for federal tax purposes.
+Floating-rate note, rate resets daily.
++Floating-rate note, rate resets weekly.
Abbreviations:
AMBAC....American Municipal Bond Assurance Corporation
FGIC.....Federal Guaranty Insurance 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.
72
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------
The Montgomery Funds
Semi-Annual Report
December 31, 1996
<TABLE>
<CAPTION>
- -----------------------------------------------
FINANCIAL STATEMENTS
- -----------------------------------------------
<S> <C>
Statements of Assets and Liabilities........74
Statements of Operations....................78
Statements of Changes in Net Assets.........82
Transactions in Shares with a
Beneficial Interest.........................86
Statement of Cash Flows.....................89
Financial Highlights........................90
Notes to Financial Statements...............96
Tax Information............................108
</TABLE>
73
<PAGE>
- ----------------------
The Montgomery Funds
Statements of
Assets and Liabilities
DECEMBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Growth Micro Cap
Fund Fund
Assets:
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (Note 1)
Securities......................................................................... $ 799,814,925 $ 278,917,890
Repurchase agreements.............................................................. 209,474,000 18,506,000
------------- ------------
Total Investments 1,009,288,925 297,423,890
Cash................................................................................... 47,336 277,707
Foreign currency, at value (Cost $373,485, $74,716 and $445,997, respectively)......... -- --
Forward foreign currency exchange contracts:
Forward foreign currency exchange contracts to buy, at value
(Contract cost $1,049,952, $131,882, $45,951 and $230,091, respectively) (Note 5).. -- --
Forward foreign currency exchange contracts to sell (Note 5)....................... -- --
Receivables:
Dividends.......................................................................... 650,368 168,190
Interest........................................................................... 42,321 3,856
Shares of beneficial interest sold................................................. 2,512,473 231,074
Investment securities sold......................................................... 8,348,324 2,034,159
Other Assets:
Organization costs (Note 1)........................................................ 9,438 4,265
------------- ------------
Total Assets 1,020,899,185 300,143,141
------------- ------------
Liabilities:
- ----------------------------------------------------------------------------------------------------------------------
Payable for forward foreign exchange contracts to buy (Note 5)..................... -- --
Payable for forward foreign currency exchange contracts to sell, at value
(Contract cost $2,151,051) (Note 5)................................................ -- --
Payables:
Shares of beneficial interest redeemed............................................. 1,013,001 245,108
Investment securities purchased.................................................... 22,986,651 1,047,587
Management fees.................................................................... 55,559 22,171
Administration fees................................................................ 53,083 17,005
Share marketing plan fees (Class P only)........................................... 77 --
Custodian fees..................................................................... 13,805 5,939
Dividends.......................................................................... -- --
Trustees' fees and expenses........................................................ 1,200 1,200
Due to custodian................................................................... -- --
Transfer agency and servicing fees................................................. 429,059 70,295
Accrued liabilities and expenses................................................... 469,435 90,572
------------- ------------
Total Liabilities 25,021,870 1,499,877
------------- ------------
Net Assets $ 995,877,315 $ 298,643,264
------------- ------------
Investments at Identified Cost......................................................... $ 872,466,797 $ 230,891,207
Net Assets Consist of:
- ----------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(accumulated net investment loss).................. $ 44,469 $ (1,019,507)
Accumulated net realized gain/(loss) on securities sold, forward foreign currency
exchange contracts, futures contracts, foreign currency transactions and
securities sold short.............................................................. 26,153,392 (722,229)
Net unrealized appreciation of investments, forward foreign currency exchange
contracts, foreign currency transactions and net other assets...................... 136,822,128 66,532,683
Shares of beneficial interest.......................................................... 494,305 176,634
Additional paid-in capital............................................................. 832,363,021 233,675,683
------------- ------------
Net Assets $ 995,877,315 $ 298,643,264
Net Assets:
- ----------------------------------------------------------------------------------------------------------------------
Class R Shares......................................................................... $ 995,738,395 $ 298,643,264
Class P Shares......................................................................... 138,920 N/A
------------- ------------
Net Assets $ 995,877,315 $ 298,643,264
Number of Fund shares outstanding:
Class R Shares......................................................................... 49,423,572 17,663,410
Class P Shares......................................................................... 6,887 N/A
------------- ------------
Total Shares 49,430,459 17,663,410
Class R Shares:
Net Asset Value, offering and redemption price per share outstanding............... $ 20.15 $ 16.91
Class P Shares:
Net Asset Value, offering and redemption price per share outstanding............... $ 20.17 N/A
</TABLE>
The accompanying notes are an integral part of these financial statements.
74
<PAGE>
<TABLE>
<CAPTION>
Small Cap Equity
Small Cap Opportunities Income
Fund Fund Fund
Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments in securities, at value (Note 1)
Securities......................................................................... $ 213,691,035 $ 179,107,956 $ 29,150,288
Repurchase agreements.............................................................. 7,028,000 24,496,000 1,385,000
------------ ------------ ------------
Total Investments 220,719,035 203,603,956 30,535,288
Cash................................................................................... 29,435 -- 760
Foreign currency, at value (Cost $373,485, $74,716 and $445,997, respectively)......... -- -- --
Forward foreign currency exchange contracts:
Forward foreign currency exchange contracts to buy, at value
(Contract cost $1,049,952, $131,882, $45,951 and $230,091, respectively) (Note 5).. -- -- --
Forward foreign currency exchange contracts to sell (Note 5)....................... -- -- --
Receivables:
Dividends.......................................................................... 32,400 52,835 88,385
Interest........................................................................... 1,464 5,103 289
Shares of beneficial interest sold................................................. 97,265 1,259,074 670,247
Investment securities sold......................................................... 4,066,715 894,213 --
Other Assets:
Organization costs (Note 1)........................................................ -- 10,866 7,671
------------ ------------ ------------
Total Assets 224,946,314 205,826,047 31,302,640
------------ ------------ ------------
Liabilities:
- ------------------------------------------------------------------------------------------------------------------------------------
Payable for forward foreign exchange contracts to buy (Note 5)..................... -- -- --
Payable for forward foreign currency exchange contracts to sell, at value
(Contract cost $2,151,051) (Note 5)................................................ -- -- --
Payables:
Shares of beneficial interest redeemed............................................. 326,086 505,779 42,367
Investment securities purchased.................................................... 784,389 4,263,233 --
Management fees.................................................................... 12,211 158,093 5,313
Administration fees................................................................ 8,148 11,043 1,856
Share marketing plan fees (Class P only)........................................... 1,275 6 60
Custodian fees..................................................................... 84,160 4,252 3,021
Dividends.......................................................................... 2,468 -- 43,118
Trustees' fees and expenses........................................................ 1,200 1,200 1,200
Due to custodian................................................................... -- 949 --
Transfer agency and servicing fees................................................. 27,471 59,228 7,324
Accrued liabilities and expenses................................................... 70,963 71,204 28,245
------------ ------------ ------------
Total Liabilities 1,318,371 5,074,987 132,504
------------ ------------ ------------
Net Assets $ 223,627,943 $ 200,751,060 $ 31,170,136
------------ ------------ ------------
Investments at Identified Cost......................................................... $ 166,871,646 $ 177,946,765 $ 28,395,396
Net Assets Consist of:
- ------------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(accumulated net investment loss).................. $ (973,249) $ (788,704) $ 10,172
Accumulated net realized gain/(loss) on securities sold, forward foreign currency
exchange contracts, futures contracts, foreign currency transactions and
securities sold short.............................................................. 18,064,449 (17,609,038) 593,727
Net unrealized appreciation of investments, forward foreign currency exchange
contracts, foreign currency transactions and net other assets...................... 53,847,389 25,657,191 2,139,892
Shares of beneficial interest.......................................................... 121,515 121,919 19,437
Additional paid-in capital............................................................. 152,567,839 193,369,692 28,406,908
------------ ------------ ------------
Net Assets $ 223,627,943 $ 200,751,060 $ 31,170,136
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Class R Shares......................................................................... $ 220,684,439 $ 200,745,116 $ 31,033,709
Class P Shares......................................................................... 2,943,504 5,944 136,427
------------ ------------ ------------
Net Assets $ 223,627,943 $ 200,751,060 $ 31,170,136
Number of Fund shares outstanding:
Class R Shares......................................................................... 11,991,170 12,191,551 1,935,235
Class P Shares......................................................................... 160,313 361 8,506
------------ ------------ ------------
Total Shares 12,151,483 12,191,912 1,943,741
Class R Shares:
Net Asset Value, offering and redemption price per share outstanding............... $ 18.40 $ 16.47 $ 16.04
------------ ------------ ------------
Class P Shares:
Net Asset Value, offering and redemption price per share outstanding............... $ 18.36 $ 16.47 $ 16.04
------------ ------------ ------------
<CAPTION>
International International Global
Growth Small Cap Opportunities
Fund* Fund Fund
Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments in securities, at value (Note 1)
Securities......................................................................... $ 23,208,297 $ 39,359,849 $ 30,390,373
Repurchase agreements.............................................................. 3,157,000 1,366,000 --
------------ ------------ -----------
Total Investments 26,365,297 40,725,849 30,390,373
Cash................................................................................... 429 -- --
Foreign currency, at value (Cost $373,485, $74,716 and $445,997, respectively)......... 379,287 71,461 --
Forward foreign currency exchange contracts:
Forward foreign currency exchange contracts to buy, at value
(Contract cost $1,049,952, $131,882, $45,951 and $230,091, respectively) (Note 5).. 1,061,463 132,859 46,359
Forward foreign currency exchange contracts to sell (Note 5)....................... -- -- --
Receivables:
Dividends.......................................................................... 51,936 56,370 51,628
Interest........................................................................... 658 285 --
Shares of beneficial interest sold................................................. 865,283 133,211 158,270
Investment securities sold......................................................... -- -- 504,623
Other Assets:
Organization costs (Note 1)........................................................ 7,347 9,804 9,597
------------ ------------ -----------
Total Assets 28,731,700 41,129,839 31,160,850
------------ ------------ ------------
Liabilities:
- ------------------------------------------------------------------------------------------------------------------------------------
Payable for forward foreign exchange contracts to buy (Note 5)..................... 1,049,952 131,882 45,951
Payable for forward foreign currency exchange contracts to sell, at value
(Contract cost $2,151,051) (Note 5)................................................ -- -- --
Payables:
Shares of beneficial interest redeemed............................................. 20,928 119,255 21,032
Investment securities purchased.................................................... 1,449,219 268,757 511,784
Management fees.................................................................... 15,998 37,633 29,375
Administration fees................................................................ 1,441 2,425 1,767
Share marketing plan fees (Class P only)........................................... 1 -- --
Custodian fees..................................................................... 6,004 8,987 5,629
Dividends.......................................................................... -- -- --
Trustees' fees and expenses........................................................ 1,200 1,200 1,200
Due to custodian................................................................... -- 723 1,209,130
Transfer agency and servicing fees................................................. 9,289 17,763 5,386
Accrued liabilities and expenses................................................... 21,550 41,316 22,969
------------ ------------ -----------
Total Liabilities 2,575,582 629,941 1,854,223
------------ ------------ -----------
Net Assets $ 26,156,118 $ 40,499,898 $ 29,306,627
------------ ------------ -----------
Investments at Identified Cost......................................................... $ 25,165,157 $ 36,683,082 $ 27,121,507
Net Assets Consist of:
- ------------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(accumulated net investment loss).................. $ 27,511 $ (160,984) $ (171,117)
Accumulated net realized gain/(loss) on securities sold, forward foreign currency
exchange contracts, futures contracts, foreign currency transactions and
securities sold short.............................................................. (38,105) (961,490) 509,719
Net unrealized appreciation of investments, forward foreign currency exchange
contracts, foreign currency transactions and net other assets...................... 1,205,637 4,038,239 3,272,879
Shares of beneficial interest.......................................................... 18,160 26,773 17,515
Additional paid-in capital............................................................. 24,942,915 37,557,360 25,677,631
------------ ------------ -----------
Net Assets $ 26,156,118 $ 40,499,898 $ 29,306,627
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Class R Shares......................................................................... $ 26,154,995 $ 40,499,898 $ 29,306,627
Class P Shares......................................................................... 1,123 N/A N/A
------------ ------------ -----------
Net Assets $ 26,156,118 $ 40,499,898 $ 29,306,627
Number of Fund shares outstanding:
Class R Shares......................................................................... 1,815,946 2,677,311 1,751,514
Class P Shares......................................................................... 78 N/A N/A
------------ ------------ -----------
Total Shares 1,816,024 2,677,311 1,751,514
Class R Shares:
Net Asset Value, offering and redemption price per share outstanding............... $ 14.40 $ 15.13 $ 16.73
------------ ------------ ------------
Class P Shares:
Net Asset Value, offering and redemption price per share outstanding............... $ 14.40 N/A N/A
------------ ------------ ------------
<CAPTION>
Global
Communications
Assets: Fund
- -------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (Note 1)
Securities......................................................................... $ 164,553,844
Repurchase agreements.............................................................. --
------------
Total Investments 164,553,844
Cash................................................................................... --
Foreign currency, at value (Cost $373,485, $74,716 and $445,997, respectively)......... 444,252
Forward foreign currency exchange contracts:
Forward foreign currency exchange contracts to buy, at value
(Contract cost $1,049,952, $131,882, $45,951 and $230,091, respectively) (Note 5).. 231,890
Forward foreign currency exchange contracts to sell (Note 5)....................... 2,151,051
Receivables:
Dividends.......................................................................... 47,161
Interest........................................................................... --
Shares of beneficial interest sold................................................. 121,716
Investment securities sold......................................................... 2,934,296
Other Assets:
Organization costs (Note 1)........................................................ 13,988
------------
Total Assets 170,498,198
Liabilities:
- -------------------------------------------------------------------------------------------------------
Payable for forward foreign exchange contracts to buy (Note 5)..................... 230,091
Payable for forward foreign currency exchange contracts to sell, at value
(Contract cost $2,151,051) (Note 5)................................................ 2,168,365
Payables:
Shares of beneficial interest redeemed............................................. 488,125
Investment securities purchased.................................................... 2,163,889
Management fees.................................................................... 11,288
Administration fees................................................................ 9,988
Share marketing plan fees (Class P only)........................................... --
Custodian fees..................................................................... 37,942
Dividends.......................................................................... --
Trustees' fees and expenses........................................................ 1,200
Due to custodian................................................................... 243,625
Transfer agency and servicing fees................................................. 69,901
Accrued liabilities and expenses................................................... 91,666
------------
Total Liabilities 5,516,080
------------
Net Assets $ 164,982,118
------------
Investments at Identified Cost......................................................... $ 137,603,375
Net Assets Consist of:
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income/(accumulated net investment loss).................. $ (1,918,417)
Accumulated net realized gain/(loss) on securities sold, forward foreign currency
exchange contracts, futures contracts, foreign currency transactions and
securities sold short.............................................................. 5,921,218
Net unrealized appreciation of investments, forward foreign currency exchange
contracts, foreign currency transactions and net other assets...................... 26,944,788
Shares of beneficial interest.......................................................... 98,528
Additional paid-in capital............................................................. 133,936,001
------------
Net Assets $ 164,982,118
Net Assets:
- -------------------------------------------------------------------------------------------------------
Class R Shares......................................................................... $ 164,982,118
Class P Shares......................................................................... N/A
------------
Net Assets $ 164,982,118
Number of Fund shares outstanding:
Class R Shares......................................................................... 9,852,843
Class P Shares......................................................................... N/A
------------
Total Shares 9,852,843
Class R Shares:
Net Asset Value, offering and redemption price per share outstanding............... $ 16.74
------------
Class P Shares:
Net Asset Value, offering and redemption price per share outstanding............... N/A
------------
</TABLE>
75
<PAGE>
- ----------------------
The Montgomery Funds
Statements of
Assets and Liabilities
December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Emerging Emerging
Markets Asia
Fund Fund
Assets:
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (Note 1)
Securities......................................................................... $ 874,571,500 $ 16,355,455
Repurchase agreements.............................................................. 18,439,000 2,245,000
------------- -----------
Total Investments 893,010,500 18,600,455
Cash................................................................................... 22,030,781 3,487
Foreign currency, at value (Cost $10,580,191 and $414,996, respectively)............... 10,416,333 414,951
Forward foreign currency exchange contracts:
Forward foreign currency exchange contracts to buy, at value
(Contract cost $447,453, $205,188 and $123,903, respectively) (Note 5)............. 449,238 205,180
Forward foreign currency exchange contracts to sell (Note 5)....................... 6,506,773 48,225
Receivables:
Dividends.......................................................................... 2,400,561 10,440
Interest........................................................................... 145,346 564
Expenses absorbed by Manager....................................................... -- --
Shares of beneficial interest sold................................................. 1,347,60 339,765
Investment securities sold......................................................... 10,110,625 99,634
Other Assets:
Organization costs (Note 1)............................................................ 2,801 26,585
------------- -----------
Total Assets 946,420,563 19,749,286
------------- -----------
Liabilities:
- ----------------------------------------------------------------------------------------------------------------------
Forward foreign exchange contracts:
Payable for forward foreign exchange contracts to buy (Note 5)................ 447,453 205,188
Payable for forward foreign exchange contracts to sell, at value
(Contract cost $6,506,773, $48,225 and $1,252,515 respectively) (Note 5)...... 6,527,601 48,223
Payables:
Deferred fee income on dollar roll transactions............................... -- --
Deferred gain on dollar roll transactions..................................... -- --
Shares of beneficial interest redeemed........................................ 2,325,744 248,725
Investment securities purchased............................................... 24,746,704 --
Management fees............................................................... 53,872 10,680
Administration fees........................................................... 47,767 975
Share marketing plan fees (Class P shares only)............................... 6 --
Custodian fees................................................................ 295,102 3,997
Dividends..................................................................... -- 288,384
Trustees' fees and expenses................................................... 1,200 800
Due to custodian.............................................................. -- --
Transfer agency and servicing fees............................................ 318,991 2,866
Accrued liabilities and expenses.............................................. 390,870 7,958
------------- -----------
Total Liabilities................................................................. 35,155,310 817,796
------------- -----------
Net Assets........................................................................ $ 911,265,253 $ 18,931,490
------------- -----------
Investments at Identified Cost................................................... $ 822,242,026 $ 16,701,385
Net Assets Consist of:
- ----------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(accumulated net investment loss) ............ $ (3,271,266) $ (4,676)
Accumulated net realized gain/(loss) on securities sold, forward foreign currency
exchange contracts, futures contracts, foreign currency transactions
and securities sold short..................................................... (24,894,852) 1,105
Net unrealized appreciation of investments, forward foreign currency exchange
contracts, foreign currency transactions and net other assets.................. 70,541,167 1,899,012
Shares of beneficial interest..................................................... 657,001 13,057
Additional paid-in capital........................................................ 868,233,203 17,022,992
------------- -----------
Net Assets........................................................................ $ 911,265,253 $ 18,931,490
Net Assets:
- ----------------------------------------------------------------------------------------------------------------------
Class R Shares.................................................................... $ 911,257,882 $ 18,931,490
Class P Shares.................................................................... 7,371 N/A
------------- -----------
Net Assets........................................................................ $ 911,265,253 $ 18,931,490
Number of Fund shares outstanding:
Class R Shares................................................................ 65,699,563 1,305,692
Class P Shares................................................................ 533 N/A
------------- -----------
Total Shares 65,700,096 1,305,69
Class R Shares:
Net Asset Value, offering and redemption price per share outstanding.......... $ 13.87 $ 14.50
------------- -----------
Class P Shares:
Net Asset Value, offering and redemption price per share outstanding.......... $ 13.83 N/A
------------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
76
<PAGE>
<TABLE>
<CAPTION>
Select Asset Short
50 Allocation Government
Fund Fund Bond Fund
Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments in securities, at value (Note 1)
Securities......................................................................... $ 76,364,793 $ 142,940,032 $ 40,162,995
Repurchase agreements.............................................................. 12,646,000 11,699,000 1,566,000
------------ ------------ -----------
Total Investments 89,010,793 154,639,032 41,728,995
Cash................................................................................... -- -- 12,211
Foreign currency, at value (Cost $10,580,191 and $414,996, respectively)............... -- -- --
Forward foreign currency exchange contracts:
Forward foreign currency exchange contracts to buy, at value
(Contract cost $447,453, $205,188 and $123,903, respectively) (Note 5)............. 124,737 -- --
Forward foreign currency exchange contracts to sell (Note 5)....................... 1,252,515 -- --
Receivables:
Dividends.......................................................................... 67,418 53,747 --
Interest........................................................................... 2,635 1,043,400 335,613
Expenses absorbed by Manager....................................................... -- -- --
Shares of beneficial interest sold................................................. 736,147 834,976 310,694
Investment securities sold......................................................... 3,064,202 1,061,858 248,638
Other Assets:
Organization costs (Note 1)............................................................ 6,556 15,087 9,339
------------ ------------ -----------
Total Assets 94,265,003 157,648,100 42,645,490
------------ ------------ -----------
</TABLE>
<TABLE>
<CAPTION>
Liabilities:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Forward foreign exchange contracts:
Payable for forward foreign exchange contracts to buy (Note 5)................ 123,903 -- --
Payable for forward foreign exchange contracts to sell, at value
(Contract cost $6,506,773, $48,225 and $1,252,515 respectively) (Note 5)...... 1,253,438 -- --
Payables:
Deferred fee income on dollar roll transactions............................... -- 5,646 1,254
Deferred gain on dollar roll transactions..................................... -- 113,203 25,156
Shares of beneficial interest redeemed........................................ 215,943 246,515 46,575
Investment securities purchased............................................... 2,668,981 14,495,844 3,107,619
Management fees............................................................... 90,848 100,154 4,011
Administration fees........................................................... 5,262 8,543 1,650
Share marketing plan fees (Class P shares only)............................... 7 21 2
Custodian fees................................................................ 8,136 3,193 1,062
Dividends..................................................................... -- -- 24,353
Trustees' fees and expenses................................................... 1,200 1,950 1,200
Due to custodian.............................................................. 155,175 206,083 --
Transfer agency and servicing fees............................................ 28,554 60,835 6,623
Accrued liabilities and expenses.............................................. 4,837 65,227 17,499
------------ ------------ -----------
Total Liabilities................................................................. 4,596,284 15,307,214 3,237,004
------------ ------------ -----------
Net Assets........................................................................ $ 89,668,719 $ 142,340,886 $ 39,408,486
------------ ------------ -----------
Investments at Identified Cost................................................... $ 81,610,685 $ 142,379,734 $ 41,644,972
Net Assets Consist of:
- ------------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(accumulated net investment loss) ............ $ (169,380) $ (90,252) $ (97,145)
Accumulated net realized gain/(loss) on securities sold, forward foreign currency
exchange contracts, futures contracts, foreign currency transactions
and securities sold short 147,396 1,094,135 (240,116)
Net unrealized appreciation of investments, forward foreign currency exchange
contracts, foreign currency transactions and net other assets.................. 7,388,871 12,259,298 84,023
Shares of beneficial interest..................................................... 55,937 78,699 39,412
Additional paid-in capital........................................................ 82,245,895 128,999,006 39,622,312
------------ ------------ -----------
Net Assets........................................................................ $ 89,668,719 $ 142,340,886 $ 39,408,48
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Class R Shares.................................................................... $ 89,617,883 $ 142,293,313 $ 39,407,545
Class P Shares.................................................................... 50,836 47,573 941
------------ ------------ -----------
Net Assets........................................................................ $ 89,668,719 $ 142,340,886 $ 39,408,486
Number of Fund shares outstanding:
Class R Shares................................................................ 5,590,511 7,867,228 3,941,105
Class P Shares................................................................ 3,172 2,626 94
------------ ------------ -----------
Total Shares 5,593,683 7,869,854 3,941,199
Class R Shares:
Net Asset Value, offering and redemption price per share outstanding.......... $ 16.03 $ 18.09 $ 10.00
------------ ------------ -----------
Class P Shares:
Net Asset Value, offering and redemption price per share outstanding.......... $ 16.03 $ 18.12 $ 10.01
------------ ------------ -----------
</TABLE>
<TABLE>
<CAPTION>
California
Tax-Free Government Federal
Intermediate Reserve Tax-Free Money
Bond Fund Fund Fund
Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments in securities, at value (Note 1)
Securities...................................................................... $ 17,742,531 $ 325,041,657 $ 100,556,411
Repurchase agreements........................................................... -- 117,545,000 --
----------- ------------ ------------
Total Investments 17,742,531 442,586,657 100,556,411
Cash................................................................................ 12,240 -- --
Foreign currency, at value (Cost $10,580,191 and $414,996, respectively)............ -- -- --
Forward foreign currency exchange contracts:
Forward foreign currency exchange contracts to buy, at value
(Contract cost $447,453, $205,188 and $123,903, respectively) (Note 5).......... -- -- --
Forward foreign currency exchange contracts to sell (Note 5).................... -- -- --
Receivables:
Dividends....................................................................... -- -- --
Interest........................................................................ 342,654 3,833,407 1,082,320
Expenses absorbed by Manager.................................................... -- -- 29,541
Shares of beneficial interest sold.............................................. 676,118 1,559,938 34,500
Investment securities sold...................................................... -- 10,502 --
Other Assets:
Organization costs (Note 1)......................................................... 12,701 6,962 12,008
----------- ------------ ------------
Total Assets 18,786,244 447,997,466 101,714,780
----------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
Liabilities:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Forward foreign exchange contracts:
Payable for forward foreign exchange contracts to buy (Note 5)................ -- -- --
Payable for forward foreign exchange contracts to sell, at value
(Contract cost $6,506,773, $48,225 and $1,252,515 respectively) (Note 5)...... -- -- --
Payables:
Deferred fee income on dollar roll transactions............................... -- -- --
Deferred gain on dollar roll transactions..................................... -- -- --
Shares of beneficial interest redeemed........................................ -- 1,174,237 --
Investment securities purchased............................................... -- -- 211,290
Management fees............................................................... 1,436 10,367 --
Administration fees........................................................... 762 17,723 8,264
Share marketing plan fees (Class P shares only)............................... -- 1 --
Custodian fees................................................................ 1,000 4,815 200
Dividends..................................................................... 26,930 33,361 381
Trustees' fees and expenses................................................... 1,200 1,200 1,200
Due to custodian.............................................................. -- 153,838 853,889
Transfer agency and servicing fees............................................ 1,616 28,799 2,316
Accrued liabilities and expenses.............................................. 18,518 54,016 51,013
----------- ------------ ------------
Total Liabilities................................................................. 51,462 1,478,357 1,128,553
----------- ------------ ------------
Net Assets........................................................................ $ 18,734,782 $ 446,519,109 $ 100,586,227
----------- ------------ ------------
Investments at Identified Cost................................................... $ 17,396,485 $ 442,586,657 $ 100,556,411
Net Assets Consist of:
- ------------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(accumulated net investment loss) ............ $ (1,392) $ (27,708) $ 78
Accumulated net realized gain/(loss) on securities sold, forward foreign currency
exchange contracts, futures contracts, foreign currency transactions
and securities sold short (133,713) (57,696) --
Net unrealized appreciation of investments, forward foreign currency exchange
contracts, foreign currency transactions and net other assets.................. 346,046 -- --
Shares of beneficial interest..................................................... 15,025 4,466,088 1,005,861
Additional paid-in capital........................................................ 18,508,816 442,138,425 99,580,288
------------ ------------- ------------
Net Assets........................................................................ $ 18,734,782 $ 446,519,109 $ 100,586,227
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Class R Shares.................................................................... $ 18,734,782 $ 446,518,179 $ 100,586,227
Class P Shares.................................................................... N/A 930 N/A
----------- ------------ ------------
Net Assets........................................................................ $ 18,734,782 $ 446,519,109 $ 100,586,227
Number of Fund shares outstanding:
Class R Shares................................................................ 1,502,507 446,607,888 100,586,149
Class P Shares................................................................ N/A 930 N/A
----------- ------------ ------------
Total Shares 1,502,507 446,608,818 100,586,149
Class R Shares:
Net Asset Value, offering and redemption price per share outstanding.......... $ 12.47 $ 1.00 $ 1.00
----------- ------------ ------------
Class P Shares:
Net Asset Value, offering and redemption price per share outstanding.......... N/A $ 1.00 N/A
----------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
California
Tax-Free Money
Fund
Assets:
- --------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (Note 1)
Securities......................................................................... $ 118,986,275
Repurchase agreements.............................................................. --
------------
Total Investments 118,986,275
Cash................................................................................... --
Foreign currency, at value (Cost $10,580,191 and $414,996, respectively)............... --
Forward foreign currency exchange contracts:
Forward foreign currency exchange contracts to buy, at value
(Contract cost $447,453, $205,188 and $123,903, respectively) (Note 5)............. --
Forward foreign currency exchange contracts to sell (Note 5)....................... --
Receivables:
Dividends.......................................................................... --
Interest........................................................................... 883,483
Expenses absorbed by Manager....................................................... --
Shares of beneficial interest sold................................................. 26,972
Investment securities sold......................................................... --
Other Assets:
Organization costs (Note 1)............................................................ 1,570
------------
Total Assets 119,898,300
------------
</TABLE>
<TABLE>
<CAPTION>
Liabilities:
- --------------------------------------------------------------------------------------------------------
<S> <C>
Forward foreign exchange contracts:
Payable for forward foreign exchange contracts to buy (Note 5)................ --
Payable for forward foreign exchange contracts to sell, at value
(Contract cost $6,506,773, $48,225 and $1,252,515 respectively) (Note 5)...... --
Payables:
Deferred fee income on dollar roll transactions............................... --
Deferred gain on dollar roll transactions..................................... --
Shares of beneficial interest redeemed........................................ 51,010
Investment securities purchased............................................... --
Management fees............................................................... 40,191
Administration fees...........................................................
Share marketing plan fees (Class P shares only)............................... --
Custodian fees................................................................
Dividends..................................................................... 11
Trustees' fees and expenses................................................... 800
Due to custodian.............................................................. 3,277,141
Transfer agency and servicing fees............................................ 3,084
Accrued liabilities and expenses.............................................. 13,899
------------
Total Liabilities................................................................. 3,392,934
------------
Net Assets........................................................................ $ 116,505,366
------------
Investments at Identified Cost................................................... $ 118,986,275
Net Assets Consist of:
- --------------------------------------------------------------------------------------------------------
Undistributed net investment income/(accumulated net investment loss) ............ $ (1,252)
Accumulated net realized gain/(loss) on securities sold, forward foreign currency
exchange contracts, futures contracts, foreign currency transactions
and securities sold short (6,745)
Net unrealized appreciation of investments, forward foreign currency exchange
contracts, foreign currency transactions and net other assets.................. --
Shares of beneficial interest..................................................... 1,165,134
Additional paid-in capital........................................................ 115,348,229
-------------
Net Assets........................................................................ $ 116,505,366
Net Assets:
- ---------------------------------------------------------------------------------------------------------
Class R Shares.................................................................... $ 116,505,366
Class P Shares.................................................................... N/A
-------------
Net Assets........................................................................ $ 116,505,366
Number of Fund shares outstanding:
Class R Shares................................................................ 116,513,363
Class P Shares................................................................ N/A
-------------
Total Shares 116,513,363
Class R Shares:
Net Asset Value, offering and redemption price per share outstanding.......... $ 1.00
-------------
Class P Shares:
Net Asset Value, offering and redemption price per share outstanding.......... N/A
-------------
</TABLE>
77
<PAGE>
- --------------------------
The Montgomery Funds
- --------------------------
Statements of Operations
- --------------------------
SIX MONTHS ENDED
DECEMBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Growth Micro Cap
Fund Fund
Net Investment Income:
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Interest.......................................................................... $ 5,391,916 $ 859,138
Dividends......................................................................... 4,255,233 671,209
------------- -----------
Total Income 9,647,149 1,530,347
------------- -----------
Expenses:
Management fee (Note 2)........................................................... 4,559,589 2,074,305
Custodian fee..................................................................... 20,841 16,236
Transfer agency and servicing fees................................................ 877,850 193,869
Administration fee (Note 2)....................................................... 301,825 100,024
Share marketing plan fee (Note 3)(Class P Shares only)............................ 116 --
Legal and audit fees.............................................................. 35,804 30,927
Trustees' fees.................................................................... 2,661 2,660
Registration fees................................................................. 64,962 20,603
Printing fees..................................................................... 199,765 19,869
Accounting fees................................................................... 192,274 56,425
Amortization of organization expenses (Note 1).................................... 2,858 1,246
Other............................................................................. 92,291 33,690
Interest expense.................................................................. -- --
------------- -----------
Total Expenses 6,350,836 2,549,854
Fees deferred and/or expenses absorbed by Manager (Note 2)........................ -- --
------------- -----------
Net Expenses 6,350,836 2,549,854
------------- -----------
Net Investment Income/(Loss) 3,296,313 (1,019,507)
------------- -----------
Net Realized and Unrealized Gain/(Loss) on Investments:
- -----------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Security transactions......................................................... 55,347,192 3,466,978
Forward foreign currency exchange contracts................................... -- --
Futures contracts............................................................. 2,412,458 --
Foreign currency transactions................................................. 412 --
------------- -----------
Net Realized Gain/(Loss) on Investments During the Period 57,760,062 3,466,978
------------- -----------
Net change in unrealized appreciation/(depreciation) of:
Securities.................................................................... (14,219,029) 3,216,026
Forward foreign currency exchange contracts................................... -- --
------------- -----------
Foreign currency transactions and net other assets............................ -- --
------------- -----------
Net Unrealized Appreciation/(Depreciation) of Investments During the Period (14,219,029) 3,216,026
------------- -----------
Net Realized and Unrealized Gain/(Loss) on Investments............................ 43,541,033 6,683,004
------------- -----------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 46,837,346 $ 5,663,497
------------- -----------
Foreign dividend withholding taxes................................................ $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
78
<PAGE>
<TABLE>
<CAPTION>
Small Cap Equity
Small Cap Oppurtunities Income
Net Investment Income: Fund Fund Fund
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Investment Income:
Interest.......................................................................... $ 297,476 $ 353,502 $ 41,687
Dividends......................................................................... 356,290 127,320 430,300
--------- --------- ---------
Total Income 653,766 480,822 471,987
--------- --------- ---------
Expenses:
Management fee (Note 2)........................................................... 1,302,042 1,130,588 92,008
Custodian fee..................................................................... 10,649 11,436 4,506
Transfer agency and servicing fees................................................ 67,339 195,746 16,826
Administration fee (Note 2)....................................................... 98,156 58,998 8,365
Share marketing plan fee (Note 3) (Class P Shares only)........................... 2,329 6 86
Legal and audit fees.............................................................. 30,628 28,050 13,077
Trustees' fees.................................................................... 2,661 2,660 2,661
Registration fees................................................................. 7,379 53,305 27,321
Printing fees..................................................................... 23,395 35,086 --
Accounting fees................................................................... 52,895 32,072 4,511
Amortization of organization expenses (Note 1).................................... -- 9,190 2,854
Other............................................................................. 29,542 13,666 1,741
Interest expense.................................................................. -- -- --
--------- --------- ---------
Total Expenses 1,627,015 1,570,803 173,956
Fees deferred and/or expenses absorbed by Manager (Note 2)........................ -- (300,898) (71,701)
--------- --------- ---------
Net Expenses 1,627,015 1,269,905 102,255
--------- --------- ---------
Net Investment Income/(Loss) (973,249) (789,083) 369,732
--------- --------- ---------
Net Realized and Unrealized Gain/(Loss) on Investments:
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Security transactions......................................................... 28,451,036 (16,549,360) 996,070
Forward foreign currency exchange contracts................................... -- -- --
Futures contracts............................................................. -- -- --
Foreign currency transactions................................................. -- -- --
----------- ------------ -----------
Net Realized Gain/(Loss) on Investments During the Period......................... 28,451,036 (16,549,360) 996,070
----------- ------------ -----------
Net change in unrealized appreciation/(depreciation) of:
Securities.................................................................... (25,047,775) 27,279,563 1,184,536
Forward foreign currency exchange contracts................................... -- -- --
Foreign currency transactions and net other assets............................ -- -- --
----------- ------------ -----------
Net Unrealized Appreciation/(Depreciation) of Investments During the Period (25,047,775) 27,279,563 1,184,536
----------- ------------ -----------
Net Realized and Unrealized Gain/(Loss) on Investments............................ 3,403,261 10,730,203 2,180,606
----------- ------------ -----------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 2,430,012 $ 9,941,120 $ 2,550,338
----------- ------------ -----------
Foreign dividend withholding taxes................................................ $ -- $ -- $ --
<CAPTION>
International International Global
Growth Small Cap Opportunities
Net Investment Income: Fund Fund Fund
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Investment Income:
Interest.......................................................................... $ 61,421 $ 89,726 $ 18,257
Dividends......................................................................... 104,392 142,776 129,806
----------- ------------ -----------
Total Income 165,813 232,502 148,063
----------- ------------ -----------
Expenses:
Management fee (Note 2)........................................................... 182,254 490,943 333,288
Custodian fee..................................................................... 12,742 19,103 12,778
Transfer agency and servicing fees................................................ 19,320 48,579 20,956
Administration fee (Note 2)....................................................... 6,800 14,456 9,541
Share marketing plan fee (Note 3) (Class P Shares only)........................... 1 -- --
Legal and audit fees.............................................................. 7,860 15,842 11,547
Trustees' fees.................................................................... 2,660 2,660 2,661
Registration fees................................................................. 21,593 20,810 14,573
Printing fees..................................................................... 707 11,472 5,309
Accounting fees................................................................... 8,006 18,206 11,613
Amortization of organization expenses (Note 1).................................... 1,050 3,194 3,047
Other............................................................................. 4,959 6,367 4,403
Interest expense.................................................................. -- -- --
----------- ------------ -----------
Total Expenses 267,952 651,632 429,716
Fees deferred and/or expenses absorbed by Manager (Note 2)........................ (106,853) (258,146) (170,376)
----------- ------------ -----------
Net Expenses 161,099 393,486 259,340
----------- ------------ -----------
Net Investment Income/(Loss) 4,714 (160,984) (111,277)
----------- ------------ -----------
Net Realized and Unrealized Gain/(Loss) on Investments:
- --------------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Security transactions......................................................... 34,719 1,076,869 981,123
Forward foreign currency exchange contracts................................... (43,065) (54,667) (29,568)
Futures contracts............................................................. -- -- --
Foreign currency transactions................................................. 13,647 10,738 2,043
----------- ------------ -----------
Net Realized Gain/(Loss) on Investments During the Period......................... 5,301 1,032,940 953,598
----------- ------------ -----------
Net change in unrealized appreciation/(depreciation) of:
Securities.................................................................... 1,122,943 (161,212) (82,351)
Forward foreign currency exchange contracts................................... 11,511 520 4,290
Foreign currency transactions and net other assets............................ (5,923) 82 688
----------- ------------ -----------
Net Unrealized Appreciation/(Depreciation) of Investments During the Period 1,128,531 (160,610) (77,373)
----------- ------------ -----------
Net Realized and Unrealized Gain/(Loss) on Investments............................ 1,133,832 872,330 876,225
----------- ------------ -----------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 1,138,546 $ 711,346 $ 764,948
----------- ------------ -----------
Foreign dividend withholding taxes................................................ $ -- $ 9,709 $ 18,569
<CAPTION>
Global
Opportunities
Net Investment Income: Fund
<S> <C>
- --------------------------------------------------------------------------------------------------
Investment Income:
Interest.......................................................................... $ 33,992
Dividends......................................................................... 424,522
------------
Total Income 458,514
------------
Expenses:
Management fee (Note 2)........................................................... 1,364,143
Custodian fee..................................................................... 112,455
Transfer agency and servicing fees................................................ 205,773
Administration fee (Note 2)....................................................... 64,974
Share marketing plan fee (Note 3) (Class P Shares only)........................... --
Legal and audit fees.............................................................. 26,046
Trustees' fees.................................................................... 2,661
Registration fees................................................................. 6,215
Printing fees..................................................................... 32,398
Accounting fees................................................................... 79,621
Amortization of organization expenses (Note 1).................................... 3,524
Other............................................................................. 19,567
Interest expense.................................................................. --
------------
Total Expenses 1,917,377
Fees deferred and/or expenses absorbed by Manager (Note 2)........................ (149,089)
------------
Net Expenses 1,768,288
------------
Net Investment Income/(Loss) (1,309,774)
------------
Net Realized and Unrealized Gain/(Loss) on Investments:
- --------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Security transactions......................................................... 8,289,682
Forward foreign currency exchange contracts................................... (362,673)
Futures contracts............................................................. --
Foreign currency transactions................................................. 112,811
------------
Net Realized Gain/(Loss) on Investments During the Period......................... 8,039,820
------------
Net change in unrealized appreciation/(depreciation) of:
Securities.................................................................... (11,376,221)
Forward foreign currency exchange contracts................................... (9,583)
Foreign currency transactions and net other assets............................ 27,967
------------
Net Unrealized Appreciation/(Depreciation) of Investments During the Period (11,357,837)
------------
Net Realized and Unrealized Gain/(Loss) on Investments............................ (3,318,017)
------------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ (4,627,791)
------------
Foreign dividend withholding taxes................................................ $ 27,806
</TABLE>
79
<PAGE>
- -------------------------------
The Montgomery Funds
- -------------------------------
Statements of Operations
SIX MONTHS ENDED
DECEMBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Emerging Emerging
Markets Asia
Net Investment Income: Fund Fund*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Interest.......................................................................... $ 1,130,551 $ 25,332
Dividends......................................................................... 6,790,080 27,128
--------- ---------
Total Income 7,920,631 52,460
--------- ---------
Expenses:
Management fee (Note 2)........................................................... 4,974,558 31,049
Custodian fee..................................................................... 839,748 6,892
Transfer agency and servicing fees................................................ 910,571 3,871
Administration fee (Note 2)....................................................... 281,914 1,738
Share marketing plan fee (Note 3)(Class P Shares only)............................ 5 --
Legal and audit fees.............................................................. 48,349 4,555
Trustees' fees.................................................................... 1,606 916
Registration fees................................................................. 35,857 4,669
Printing fees..................................................................... 162,181 1,760
Accounting expense................................................................ 407,249 1,831
Amortization of organization expenses (Note 1).................................... 8,541 5,092
Other............................................................................. 110,795 31
Interest expens................................................................... -- --
--------- ---------
Total Expenses 7,781,374 62,404
Fees deferred and/or expenses absorbed by Manager (Note 2)........................ -- (35,951)
--------- ---------
Net Expenses 7,781,374 26,453
--------- ---------
Net Investment Income/(Loss) 139,257 26,007
--------- ---------
Net Realized and Unrealized Gain/(Loss) on Investments:
- -------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Security transactions......................................................... 694,349 7,736
Forward foreign currency exchange contracts................................... (845,358) --
Futures contracts............................................................. -- --
Foreign currency transactions................................................. (168,865) (6,631)
--------- ---------
Net Realized Gain/(Loss) on Investments During the Period......................... (319,874) 1,105
--------- ---------
Net change in unrealized appreciation/(depreciation) of:
Securities.................................................................... (18,460,026) 1,899,070
Forward foreign currency exchange contracts................................... 6,083 (6)
Foreign currency transactions and net other assets............................ 19,994 (52)
------------ ---------
Net Unrealized Appreciation/(Depreciation) of Investments During the Period (18,433,949) 1,899,012
------------ ---------
Net Realized Gain/(Loss) on Investments........................................... (18,753,823) 1,900,117
------------ ---------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ (18,614,566) $ 1,926,124
------------ ---------
Foreign dividend withholding taxes................................................ $ 365,176 $ 2,467
</TABLE>
* Emerging Asia Fund and Federal Tax-Free Money Fund commenced operations on
September 30, 1996, and July 15, 1996, respectively.
The accompanying notes are an integral part of these financial statements.
80
<PAGE>
<TABLE>
<CAPTION>
Select Asset Short
50 Allocation Government
Net Investment Income: Fund Fund Bond Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income:
Interest.......................................................................... $ 255,444 $ 2,457,738 $ 175,669
Dividends......................................................................... 390,859 340,314 --
--------- --------- ---------
Total Income 646,303 2,798,052 1,175,669
--------- --------- ---------
Expenses:
Management fee (Note 2)........................................................... 593,538 693,300 92,607
Custodian fee..................................................................... 22,633 10,828 3,112
Transfer agency and servicing fees................................................ 87,409 156,681 21,093
Administration fee (Note 2)....................................................... 28,293 48,447 8,175
Share marketing plan fee (Note 3)(Class P Shares only)............................ 7 55 1
Legal and audit fees.............................................................. 13,569 20,520 12,590
Trustees' fees.................................................................... 2,661 3,991 2,661
Registration fees................................................................. 26,759 26,134 20,849
Printing fees..................................................................... 14,045 19,577 849
Accounting expense................................................................ 34,058 26,735 6,169
Amortization of organization expenses (Note 1).................................... 4,172 4,884 6,027
Other............................................................................. 8,943 15,364 6,809
Interest expense.................................................................. -- 76,499 121,644
--------- --------- ---------
Total Expenses 836,087 1,103,015 302,586
Fees deferred and/or expenses absorbed by Manager (Note 2)........................ (104,448) (120,803) (81,746)
--------- --------- ---------
Net Expenses 731,639 982,212 220,840
--------- --------- ---------
Net Investment Income/(Loss) (85,336) 1,815,840 954,829
--------- --------- ---------
Net Realized and Unrealized Gain/(Loss) on Investments:
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Security transactions......................................................... 275,366 4,291,006 150,413
Forward foreign currency exchange contracts................................... (72,419) 33 --
Futures contracts............................................................. -- 2,179 (16,266)
Foreign currency transactions................................................. 23,507 4 --
--------- --------- ---------
Net Realized Gain/(Loss) on Investments During the Period......................... 226,454 4,293,222 134,147
--------- --------- ---------
Net change in unrealized appreciation/(depreciation) of:
Securities.................................................................... 780,021 (392,117) 150,233
Forward foreign currency exchange contracts................................... 127 -- --
Foreign currency transactions and net other assets............................ (9,231) -- --
--------- --------- ---------
Net Unrealized Appreciation/(Depreciation) of Investments During the Period 770,917 (392,117) 150,233
--------- --------- ---------
Net Realized Gain/(Loss) on Investments........................................... 997,371 3,901,105 284,380
--------- --------- ---------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 912,035 $ 5,716,945 $ 1,239,209
--------- --------- ---------
Foreign dividend withholding taxes................................................ $ 2,971 $ 1,263 $ --
</TABLE>
<TABLE>
<CAPTION>
California
Tax-Free Government Federal
Intermediate Reserve Tax-Free Money
Net Investment Income: Bond Fund Fund Fund*
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income:
Interest.......................................................................... $ 390,441 $ 13,318,397 $ 920,272
Dividends......................................................................... -- -- --
--------- --------- --------
Total Income 390,441 13,318,397 920,272
--------- --------- --------
Expenses:
Management fee (Note 2)........................................................... 42,388 1,315,371 103,976
Custodian fee..................................................................... -- 15,709 1,916
Transfer agency and servicing fees................................................ 4,436 84,171 4,367
Administration fee (Note 2)....................................................... 3,931 109,359 12,997
Share marketing plan fee (Note 3)(Class P Shares only)............................ -- 1 --
Legal and audit fees.............................................................. 13,421 34,537 13,124
Trustees' fees.................................................................... 2,661 2,661 2,277
Registration fees................................................................. 5,428 39,268 49,994
Printing fees..................................................................... 536 21,409 3,143
Accounting expense................................................................ 3,003 93,337 9,147
Amortization of organization expenses (Note 1).................................... 4,257 5,605 8,809
Other............................................................................. 12,995 21,470 358
Interest expense.................................................................. -- -- --
--------- --------- --------
Total Expenses 93,056 1,742,898 210,108
Fees deferred and/or expenses absorbed by Manager (Note 2)........................ (39,307) (291,556) (210,108)
--------- --------- --------
Net Expenses 53,749 1,451,342 0
--------- --------- --------
Net Investment Income/(Loss) 336,692 11,867,055 920,272
--------- --------- --------
Net Realized and Unrealized Gain/(Loss) on Investments:
- --------------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Security transactions......................................................... 24,225 (14,801) --
Forward foreign currency exchange contracts................................... -- -- --
Futures contracts............................................................. -- -- --
Foreign currency transactions................................................. -- -- --
--------- --------- --------
Net Realized Gain/(Loss) on Investments During the Period......................... 24,225 (14,801) --
--------- --------- --------
Net change in unrealized appreciation/(depreciation) of:
Securities.................................................................... 275,430 -- --
Forward foreign currency exchange contracts................................... -- -- --
Foreign currency transactions and net other assets............................ -- -- --
--------- --------- --------
Net Unrealized Appreciation/(Depreciation) of Investments During the Period 275,430 -- --
--------- --------- --------
Net Realized Gain/(Loss) on Investments........................................... 299,655 (14,801) --
--------- --------- --------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 636,347 $ 11,852,254 $ 920,272
--------- --------- --------
Foreign dividend withholding taxes................................................ $ -- $ -- $ --
<CAPTION>
California
Tax-Free Money
Net Investment Income: Fund
- ---------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest.......................................................................... $ 1,844,754
Dividends......................................................................... --
---------
Total Income 1,844,754
---------
Expenses:
Management fee (Note 2)........................................................... 389,639
Custodian fee..................................................................... 6,808
Transfer agency and servicing fees................................................ 11,708
Administration fee (Note 2)....................................................... 26,818
Share marketing plan fee (Note 3)(Class P Shares only)............................ --
Legal and audit fees.............................................................. 15,001
Trustees' fees.................................................................... 2,260
Registration fees................................................................. --
Printing fees..................................................................... 2,002
Accounting expense................................................................ 20,370
Amortization of organization expenses (Note 1).................................... 285
Other............................................................................. 111
Interest expense.................................................................. --
---------
Total Expenses 475,002
Fees deferred and/or expenses absorbed by Manager (Note 2)........................ (163,911)
---------
Net Expenses 311,091
---------
Net Investment Income/(Loss) 1,533,663
---------
Net Realized and Unrealized Gain/(Loss) on Investments:
- ---------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Security transactions......................................................... --
Forward foreign currency exchange contracts................................... --
Futures contracts............................................................. --
Foreign currency transactions................................................. --
---------
Net Realized Gain/(Loss) on Investments During the Period......................... --
---------
Net change in unrealized appreciation/(depreciation) of:
Securities.................................................................... --
Forward foreign currency exchange contracts................................... --
Foreign currency transactions and net other assets............................ --
---------
Net Unrealized Appreciation/(Depreciation) of Investments During the Period --
---------
Net Realized Gain/(Loss) on Investments........................................... --
---------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 1,533,663
---------
Foreign dividend withholding taxes................................................ $ --
</TABLE>
81
<PAGE>
- --------------------------------
The Montgomery Funds
- --------------------------------
Statements of
Changes in Net Assets
- --------------------------------
SIX MONTHS ENDED
DECEMBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Growth Micro Cap
Fund Fund
Increase/(Decrease) in Net Assets from Operations:
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income/(loss)...................................................... $ 3,296,313 $ (1,019,507)
Net realized gain/(loss) on securities, forward foreign currency exchange
contracts, futures contracts and foreign currency transactions
during the period............................................................. 57,760,062 3,466,978
Net unrealized appreciation/(depreciation) of securities, forward foreign
currency exchange contracts, futures contracts, foreign currency
transactions and net other assets during the period........................... (14,219,029) 3,216,026
Net Increase/(Decrease) in Net Assets Resulting from Operations 46,837,346 5,663,497
Distributions to Shareholders:
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R Shares................................................................ (6,881,795) --
Class P Shares................................................................ (542) --
Distributions to shareholders from net realized gains on investments:
Class R Shares................................................................ (120,824,002) (20,853,200)
Class P Shares................................................................ (12,739) --
------------- ------------
Total distributions............................................................... (127,719,078) (20,853,200)
Beneficial Interest Transactions:
- ----------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (Note 4):
Class R Shares................................................................ 150,229,563 7,615,801
Class P Shares................................................................ 65,511 --
Net Increase/(Decrease) in Net Assets 69,413,342 (7,573,902)
Net Assets:
- ----------------------------------------------------------------------------------------------------------------------
Beginning of Period............................................................... 926,463,973 306,217,166
End of Period..................................................................... $ 995,877,315 $ 298,643,264
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss). $ 44,469 $ (1,019,507)
<CAPTION>
Emerging Emerging
Markets Asia
Fund Fund*
Increase/(Decrease) in Net Assets from Operations:
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income............................................................. $ 139,257 $ 26,007
Net realized gain/(loss) on securities, forward foreign currency exchange
contracts,futures contracts and foreign currency transactions
during the period............................................................. (319,874) 1,105
Net unrealized appreciation/(depreciation) of securities, forward foreign
currency exchange contracts, futures contracts, foreign currency
transactions and net other assets during the period........................... (18,433,949) 1,899,012
Net Increase/(Decrease) in Net Assets Resulting from Operations (18,614,566) 1,926,124
Distributions to Shareholders:
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R Shares................................................................ (4,538,875) (30,683)
Class P Shares................................................................ (18) --
Distributions to shareholders from net realized gains on investments:
Class R Shares................................................................ -- --
Class P Shares................................................................ -- --
------------- ------------
Total distributions........................................................... (4,538,893) (30,683)
Beneficial Interest Transactions:
- ----------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (Note 4):
Class R Shares................................................................ (59,966,429) 16,036,049
Class P Shares................................................................ 5,080 --
Net Increase/(Decrease) in Net Assets (83,114,808) 17,931,490
Net Assets:
- ----------------------------------------------------------------------------------------------------------------------
Beginning of Period............................................................... 994,380,061 1,000,000
End of Period $ 911,265,253 $ 18,931,490
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) $ (3,271,266) $ (4,676)
</TABLE>
* Emerging Asia Fund and Federal Tax-Free Money Fund commenced operations on
September 30, 1996, and July 15, 1996, respectively.
The accompanying notes are an integral part of these financial statements.
82
<PAGE>
<TABLE>
<CAPTION>
Small Cap Equity
Small Cap Opportunities Income
Fund Fund Fund
Increase/(Decrease) in Net Assets from Operations:
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss)...................................................... $ (973,249) $ (789,083) $ 369,732
Net realized gain/(loss) on securities, forward foreign currency exchange
contracts, futures contracts and foreign currency transactions
during the period............................................................. 28,451,036 (16,549,360) 996,070
Net unrealized appreciation/(depreciation) of securities, forward foreign
currency exchange contracts, futures contracts, foreign currency
transactions and net other assets during the period........................... (25,047,775) (27,279,563) 1,184,536
Net Increase/(Decrease) in Net Assets Resulting from Operations 2,430,012 9,941,120 2,550,338
Distributions to Shareholders:
- --------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R Shares................................................................ -- (40,528) (361,644)
Class P Shares................................................................ -- (1) (1,281)
Distributions to shareholders from net realized gains on investments:
Class R Shares................................................................ (40,473,959) -- (2,222,292)
Class P Shares................................................................ (417,004) -- (8,588)
------------ --------- -----------
Total distributions............................................................... (40,890,963) (40,529) (2,593,805)
Beneficial Interest Transactions:
- --------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (Note 4):
Class R Shares................................................................ (16,325,079) 54,705,056 11,764,278
Class P Shares................................................................ 3,352,445 5,200 135,477
Net Increase/(Decrease) in Net Assets (51,433,585) 64,610,847 11,856,288
Net Assets:
- --------------------------------------------------------------------------------------------------------------------------------
Beginning of Period............................................................... 275,061,528 136,140,213 19,313,848
End of Period..................................................................... $ 223,627,943 $ 200,751,060 $ 31,170,136
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss). $ (973,249) $ (788,704) $ 10,172
<CAPTION>
Select Asset Short
50 Allocation Government
Fund Fund Bond Fund
Increase/(Decrease) in Net Assets from Operations:
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income............................................................. $ (85,336) $ 1,815,840 $ 954,829
Net realized gain/(loss) on securities, forward foreign currency exchange
contracts,futures contracts and foreign currency transactions
during the period............................................................. 226,454 4,293,222 134,147
Net unrealized appreciation/(depreciation) of securities, forward foreign
currency exchange contracts, futures contracts, foreign currency
transactions and net other assets during the period........................... 770,917 (392,117) 150,233
Net Increase/(Decrease) in Net Assets Resulting from Operations 912,035 5,716,945 1,239,209
Distributions to Shareholders:
- --------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R Shares................................................................ (90,228) (2,908,045) (956,534)
Class P Shares................................................................ -- (834) (28)
Distributions to shareholders from net realized gains on investments:
Class R Shares................................................................ (3,066,732) (11,975,120) --
Class P Shares................................................................ -- (3,810) --
------------ --------- -----------
Total distributions........................................................... (3,156,960) (14,887,809) (956,562)
Beneficial Interest Transactions:
- --------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (Note 4):
Class R Shares................................................................ 13,908,567 18,949,029 16,443,833
Class P Shares................................................................ 50,400 9,387 25
Net Increase/(Decrease) in Net Assets 11,714,042 9,787,552 16,726,505
Net Assets:
- --------------------------------------------------------------------------------------------------------------------------------
Beginning of Period............................................................... 77,954,677 132,553,334 22,681,981
End of Period $ 89,668,719 $ 142,340,886 $ 39,408,486
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) $ (169,380) $ (90,252) $ (97,145)
</TABLE>
<TABLE>
<CAPTION>
International International Global
Growth Small Cap Opportunities
Fund Fund Fund
Increase/(Decrease) in Net Assets from Operations:
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss)...................................................... $ 4,714 $ (160,984) $ (111,277)
Net realized gain/(loss) on securities, forward foreign currency exchange
contracts, futures contracts and foreign currency transactions
during the period............................................................. 5,301 1,032,940 953,598
Net unrealized appreciation/(depreciation) of securities, forward foreign
currency exchange contracts, futures contracts, foreign currency
transactions and net other assets during the period........................... 1,128,531 (160,610) (77,373)
Net Increase/(Decrease) in Net Assets Resulting from Operations 1,138,546 711,346 764,948
Distributions to Shareholders:
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R Shares................................................................ -- -- --
Class P Shares................................................................ -- -- --
Distributions to shareholders from net realized gains on investments:
Class R Shares................................................................ (2,164,561) -- (1,395,342)
Class P Shares................................................................ (116) -- --
----------- ---------- -----------
Total distributions............................................................... (2,164,677) -- (1,395,342)
Beneficial Interest Transactions:
- -------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (Note 4):
Class R Shares................................................................ 8,878,281 (1,851,040) 1,441,520
Class P Shares................................................................ 116 -- --
Net Increase/(Decrease) in Net Assets 7,852,266 (1,139,694) 811,126
Net Assets:
- -------------------------------------------------------------------------------------------------------------------------------
Beginning of Period............................................................... 18,303,852 41,639,592 28,495,501
End of Period..................................................................... $ 26,156,118 $ 40,499,898 $29,306,627
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss). $ 27,511 $ (160,984) $ (171,117)
<CAPTION>
California Tax-Free Government Federal
Intermediate Reserve Tax-Free
Bond Fund Fund Money Fund*
Increase/(Decrease) in Net Assets from Operations:
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income............................................................. $ 336,692 $ 11,867,055 $ 920,272
Net realized gain/(loss) on securities, forward foreign currency exchange
contracts,futures contracts and foreign currency transactions
during the period............................................................. 24,225 (14,801) --
Net unrealized appreciation/(depreciation) of securities, forward foreign
currency exchange contracts, futures contracts, foreign currency
transactions and net other assets during the period........................... 275,430 -- --
Net Increase/(Decrease) in Net Assets Resulting from Operations 636,347 11,852,254 920,272
Distributions to Shareholders:
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R Shares................................................................ (338,468) (11,868,190) (920,194)
Class P Shares................................................................ -- (23) --
Distributions to shareholders from net realized gains on investments:
Class R Shares................................................................ -- -- --
Class P Shares................................................................ -- -- --
----------- ------------ -----------
Total distributions........................................................... (338,468) (11,868,213) (920,194)
Beneficial Interest Transactions:
- -------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (Note 4):
Class R Shares................................................................ 4,488,970 7,111,501 100,586,149
Class P Shares................................................................ -- 23 --
Net Increase/(Decrease) in Net Assets 4,786,849 7,095,565 100,586,227
Net Assets:
- -------------------------------------------------------------------------------------------------------------------------------
Beginning of Period............................................................... 13,947,933 439,423,544 --
End of Period $ 18,734,782 $ 446,519,109 $100,586,227
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) $ (1,392) $ (27,708)$ 78
</TABLE>
<TABLE>
<CAPTION>
Global
Communications
Fund
Increase/(Decrease) in Net Assets from Operations:
- -------------------------------------------------------------------------------------------------------
<S> <C>
Net investment income/(loss)...................................................... $ (1,309,774)
Net realized gain/(loss) on securities, forward foreign currency exchange
contracts, futures contracts and foreign currency transactions
during the period............................................................. 8,039,820
Net unrealized appreciation/(depreciation) of securities, forward foreign
currency exchange contracts, futures contracts, foreign currency
transactions and net other assets during the period........................... (11,357,837)
Net Increase/(Decrease) in Net Assets Resulting from Operations (4,627,791)
Distributions to Shareholders:
- ----------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R Shares................................................................ --
Class P Shares................................................................ --
Distributions to shareholders from net realized gains on investments:
Class R Shares................................................................ (9,157,321)
Class P Shares................................................................ --
-----------
Total distributions............................................................... (9,157,321)
Beneficial Interest Transactions:
- ----------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (Note 4):
Class R Shares................................................................ (27,903,505)
Class P Shares................................................................ --
Net Increase/(Decrease) in Net Assets (41,688,617)
Net Assets:
- ----------------------------------------------------------------------------------------------------
Beginning of Period............................................................... 206,670,735
End of Period..................................................................... $ 164,982,118
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss). $ (1,918,417)
</TABLE>
<TABLE>
<CAPTION>
California
Tax-Free
Money Fund
Increase/(Decrease) in Net Assets from Operations:
- ----------------------------------------------------------------------------------------------------
<S> <C>
Net investment income............................................................. $ 1,533,663
Net realized gain/(loss) on securities, forward foreign currency exchange
contracts,futures contracts and foreign currency transactions
during the period............................................................. --
Net unrealized appreciation/(depreciation) of securities, forward foreign
currency exchange contracts, futures contracts, foreign currency
transactions and net other assets during the period........................... --
Net Increase/(Decrease) in Net Assets Resulting from Operations 1,533,663
Distributions to Shareholders:
- ----------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R Shares................................................................ (1,534,021)
Class P Shares................................................................ --
Distributions to shareholders from net realized gains on investments:
Class R Shares................................................................ --
Class P Shares................................................................ --
-----------
Total distributions........................................................... (1,534,021)
Beneficial Interest Transactions:
- ----------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (Note 4):
Class R Shares................................................................ 18,371,705
Class P Shares................................................................ --
Net Increase/(Decrease) in Net Assets 18,371,347
Net Assets:
- ----------------------------------------------------------------------------------------------------
Beginning of Period............................................................... 98,134,019
End of Period $ 116,505,366
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) $ (1,252)
</TABLE>
83
<PAGE>
- -------------------------
The Montgomery Funds
- -------------------------
Statements of
Changes in Net Assets
- -------------------------
YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Growth Micro Cap
Fund Fund
Increase/(Decrease) in Net Assets from Operations:
- ---------------------------------------------------------------------------------------------------------------------
<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)
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 --
</TABLE>
* Small Cap Opportunities and International Growth Funds commenced operations on
December 29, 1995, and July 3,1995, respectively.
<TABLE>
<CAPTION>
Global Emerging
Communications Markets
Fund Fund
Increase/(Decrease) in Net Assets from Operations:
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income/(loss)...................................................... $ (2,259,151) $ 5,560,107
Net realized gain/(loss) on securities, forward foreign currency exchange
contracts, futures contracts, securities sold short and foreign
currency transactions during the year......................................... 27,699,185 (3,155,465)
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........................................................ 8,622,000 60,263,843
Net Increase in Net Assets Resulting from Operation 34,062,034 62,668,485
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................................................................ -- --
------------ -----------
Total distributions............................................................... -- --
Beneficial Interest Transactions:
- ---------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (Note 4):
Class R Shares................................................................ (37,035,505) (66,373,869)
Class P Shares................................................................ -- 2,050)
Net Increase/(Decrease) in Net Assets............................................. (2,973,471) (3,703,334)
Net Assets:
- ---------------------------------------------------------------------------------------------------------------------
Beginning of year................................................................. 209,644,206 998,083,395
End of Year $ 206,670,735 $ 994,380,061
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) $ (608,643) $ 1,128,370
</TABLE>
84
* Select 50 Fund commenced operations on October 2, 1995.
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Small Cap Equity
Small Cap Opportunities Income
Fund Fund* Fund
Increase/(Decrease) in Net Assets from Operations:
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss)...................................................... $ (1,104,198) $ 40,908 $ 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......................................... 45,933,860 (1,059,678) 1,936,696
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) 637,261
Net Increase/(Decrease) in Net Assets Resulting from Operations 78,614,978 (2,641,142) 3,080,173
Distributions to Shareholders:
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R Shares................................................................ -- -- (503,831)
Distributions to shareholders from net realized gains on investments:
Class R Shares................................................................ (20,796,972) -- (148,133)
------------ --------- ---------
Total distributions............................................................... (20,796,972) -- (651,964)
- -----------------------------------------------------------------------------------------------------------------------------------
Beneficial Interest Transactions:
Net increase/(decrease) from beneficial interest transactions (Note 4):
Class R Shares................................................................ 14,844,681 138,781,355 10,501,521
Class P Shares................................................................ -- -- 1,500
Net Increase in Net Assets 72,662,687 136,140,213 12,931,230
Net Assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Beginning of year................................................................. 202,398,841 -- 6,382,618
End of Year....................................................................... $ 275,061,528 $ 136,140,213 $ 19,313,848
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) -- $ 40,908 $ 3,365
<CAPTION>
Asset Short
Select 50 Allocation Government
Fund* Fund Bond Fund
Increase/(Decrease) in Net Assets from Operations:
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss)...................................................... $ 120,859 $ 2,019,472 $ 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......................................... 2,941,005 10,990,187 130,868
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........................................................ 6,617,954 9,246,054 (215,716)
Net Increase in Net Assets Resulting from Operation 9,679,818 22,255,713 1,014,542
Distributions to Shareholders:
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R Shares................................................................ (52,328) (1,517,599) (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................................................................ (15,678) (3,316,319) --
------------ --------- ---------
Total distributions............................................................... (68,006) (4,833,918) (1,102,605)
- -----------------------------------------------------------------------------------------------------------------------------------
Beneficial Interest Transactions:
Net increase/(decrease) from beneficial interest transactions (Note 4):
Class R Shares................................................................ 68,342,865 54,858,335 5,675,727
Class P Shares................................................................ -- 39,375 914
Net Increase/(Decrease) in Net Assets............................................. 77,954,677 72,319,505 5,588,578
Net Assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Beginning of year................................................................. -- 60,233,829 17,093,403
End of Year $ 77,954,677 $ 132,553,334 $ 22,681,981
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) $ 6,184 $ 1,002,787 $ (95,412)
<CAPTION>
International International Global
Growth Small Cap Opportunities
Fund* Fund Fund
Increase/(Decrease) in Net Assets from Operations:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss)...................................................... $ 22,797 $ 67,221 $ (106,085)
Net realized gain/(loss) on securities, forward foreign currency exchange
contracts, futures contracts, securities sold short and foreign
currency transactions during the year......................................... 2,121,271 4,138,058 2,286,996
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............ 77,106 3,651,702 2,235,123
Net Increase/(Decrease) in Net Assets Resulting from Operations 2,221,174 7,856,981 4,416,034
Distributions to Shareholders:
- ------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R Shares................................................................ -- (56,523) (80,877)
Distributions to shareholders from net realized gains on investments:
Class R Shares................................................................ -- -- --
--------- --------- ----------
Total distributions............................................................... -- (56,523) (80,877)
Beneficial Interest Transactions:
Net increase/(decrease) from beneficial interest transactions (Note 4):
Class R Shares................................................................ 16,081,678 5,323,541 10,483,273
Class P Shares................................................................ 1,000 -- --
Net Increase in Net Assets 18,303,852 13,123,999 14,818,430
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------
Beginning of year................................................................. -- 28,515,593 13,677,071
End of Year....................................................................... $ 18,303,852 $ 41,639,592 $ 28,495,501
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) $ 22,797 -- $ (59,840)
<CAPTION>
California Tax-Free Government California
Intermediate Reserve Tax-Free
Bond Fund Fund Money Fund
Increase/(Decrease) in Net Assets from Operations:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss)...................................................... $ 423,669 $ 16,813,604 $ 2,539,435
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) (29,717) (5,421)
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 in Net Assets Resulting from Operation 440,444 16,783,887 2,534,014
Distributions to Shareholders:
- ------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R Shares................................................................ (423,706) (16,816,058) (2,539,934)
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) (16,816,071) (2,539,934)
Beneficial Interest Transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (Note 4):
Class R Shares................................................................ 8,778,025 180,498,797 33,360,042
Class P Shares................................................................ -- 907 --
Net Increase/(Decrease) in Net Assets............................................. 8,794,763 180,467,520 33,354,122
Net Assets:
- -------------------------------------------------------------------------------------------------------------------------------
Beginning of year................................................................. 5,153,170 258,956,024 64,779,897
End of Year $ 13,947,933 $ 439,423,544 $98,134,019
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) $ 384 $ (26,550) $ (894)
</TABLE>
85
<PAGE>
- --------------------------
The Montgomery Funds
- --------------------------
Transactions in Shares
with a Beneficial Interest
- --------------------------
<TABLE>
<CAPTION>
GROWTH FUND
Six Months Ended 12/31/96 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:* (unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 7,233,545 $ 154,762,830 14,521,606 $ 296,489,571
- -----------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 6,074,057 124,929,133 3,640,887 68,571,076
- -----------------------------------------------------------------------------------------------------------
Redeemed (6,110,944) (129,462,400) (21,790,489) (434,941,907)
- -----------------------------------------------------------------------------------------------------------
Net increase/(decrease) 7,196,658 $ 150,229,563 (3,627,996) $ (69,881,26)
- -----------------------------------------------------------------------------------------------------------
P Shares:**
- -----------------------------------------------------------------------------------------------------------
Sold 2,575 $ 53,442 3,723 $ 74,369
- -----------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 589 12,069 -- --
- -----------------------------------------------------------------------------------------------------------
Redeemed -- -- -- --
- -----------------------------------------------------------------------------------------------------------
Net increase 3,164 $ 65,511 3,723 $ 74,369
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP OPPORTUNITY FUND
Six Months Ended 12/31/96 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:* (unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 6,149,524 $ 94,020,284 9,683,872 $ 155,336,055
- -----------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 2,522 39,639 -- --
- -----------------------------------------------------------------------------------------------------------
Redeemed (2,577,234) (39,354,867) (1,067,133) (16,554,700)
- -----------------------------------------------------------------------------------------------------------
Net increase 3,574,812 $ 54,705,056 8,616,739 $ 138,781,355
- -----------------------------------------------------------------------------------------------------------
P Shares:**
- -----------------------------------------------------------------------------------------------------------
Sold 361 $ 5,200
- -----------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends -- --
- -----------------------------------------------------------------------------------------------------------
Redeemed -- --
- -----------------------------------------------------------------------------------------------------------
Net increase 361 $ 5,200
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL SMALL CAP FUND
Six Months Ended 12/31/96 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:* (unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 1,255,632 $ 18,458,824 2,772,505 $ 37,233,535
- -----------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends -- -- 4,289 54,639
- -----------------------------------------------------------------------------------------------------------
Redeemed (1,381,242) (20,309,864) (2,400,503) (31,964,633)
- -----------------------------------------------------------------------------------------------------------
Net increase/(decrease) (125,610) $ (1,851,040) 376,291 $ 5,323,541
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EMERGING MARKETS FUND
Six Months Ended 12/31/96 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:* (unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 8,927,379 $ 122,668,688 41,685,260 $545,015,563
- -----------------------------------------------------------------------------------------------------------
Issued in exchange for shares of the
Montgomery Advisors Emerging Markets Fund 486,078 6,576,635 -- --
- -----------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 346,566 4,739,218 -- --
- -----------------------------------------------------------------------------------------------------------
Redeemed (14,134,718) (193,950,970) (47,406,852) (611,389,432)
- -----------------------------------------------------------------------------------------------------------
Net increase/(decrease) (4,374,695) $ (59,966,429) (5,721,592) $(66,373,869)
- -----------------------------------------------------------------------------------------------------------
P Shares:**
- -----------------------------------------------------------------------------------------------------------
Sold 376 $ 5,074 156 $ 2,050
- -----------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 2 18 -- --
- -----------------------------------------------------------------------------------------------------------
Redeemed (1) (12) -- --
- -----------------------------------------------------------------------------------------------------------
Net increase 377 $ 5,080 156 $ 2,050
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Small Cap Opportunities, International Growth, Emerging Asia and Select 50
Funds for Class R Shares commenced operations on December 29, 1995; July 3,
1995; September 30, 1996; and October 2, 1995, respectively.
** Growth, Small Cap, Small Cap Opportunities, Equity Income, International
Growth, Emerging Markets and Select 50 Funds for Class P Shares commenced
operations on January 12, 1996; July 1, 1996; July 29, 1996; March 12, 1996;
and December 12, 1996, respectively.
86
The accompanying notes are an integral part of these financial statement.
<PAGE>
<TABLE>
<CAPTION>
MICRO CAP FUND
Six Months Ended 12/31/96 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:* (unaudited)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 1,073,274 $17,780,892 10,060,282 $151,943,367
- --------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 1,256,244 20,414,000 178,801 2,612,298
- --------------------------------------------------------------------------------------------------------
Redeemed (1,847,842) (30,579,091) (4,907,671) (75,538,931)
- --------------------------------------------------------------------------------------------------------
Net increase/(decrease) 481,676 $ 7,615,801 5,331,412 $ 79,016,734
- --------------------------------------------------------------------------------------------------------
P Shares:**
- --------------------------------------------------------------------------------------------------------
Sold
- --------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends
- --------------------------------------------------------------------------------------------------------
Redeemed
- --------------------------------------------------------------------------------------------------------
Net increase
- --------------------------------------------------------------------------------------------------------
<CAPTION>
EQUITY INCOME FUND
Six Months Ended 12/31/96 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:* (unaudited)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 909,580 $14,650,020 1,944,146 $ 29,241,482
- --------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 154,166 2,406,365 35,834 542,721
- --------------------------------------------------------------------------------------------------------
Redeemed (329,096) (5,292,107) (1,256,320) (19,282,682)
- --------------------------------------------------------------------------------------------------------
Net increase 734,650 $11,764,278 723,660 $ 10,501,521
- --------------------------------------------------------------------------------------------------------
P Shares:**
- --------------------------------------------------------------------------------------------------------
Sold 7,830 $ 126,607 107 $ 1,500
- --------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 632 9,867 -- --
- --------------------------------------------------------------------------------------------------------
Redeemed (63) (997) -- --
- --------------------------------------------------------------------------------------------------------
Net increase 8,399 $ 135,477 107 $ 1,500
- --------------------------------------------------------------------------------------------------------
<CAPTION>
GLOBAL OPPORTUNITIES FUND
Six Months Ended 12/31/96 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:* (unaudited)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 756,457 $12,734,220 1,808,431 $ 27,971,751
- --------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 78,088 1,291,125 5,378 76,525
- --------------------------------------------------------------------------------------------------------
Redeemed (763,309) (12,583,825) (1,165,606) (17,565,003)
- --------------------------------------------------------------------------------------------------------
Net increase/(decrease) 71,236 $ 1,441,520 648,203 $ 10,483,273
- --------------------------------------------------------------------------------------------------------
<CAPTION>
EMERGING ASIA FUND
Six Months Ended 12/31/96
Shares Dollars
R Shares:* (unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Sold 1,399,983 $ 18,514,573
- --------------------------------------------------------------------------------------------------
Issued in exchange for shares of the
Montgomery Advisors Emerging Markets Fund -- --
- --------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 2,120 29,076
- --------------------------------------------------------------------------------------------------
Redeemed (179,744) (2,507,600)
- --------------------------------------------------------------------------------------------------
Net increase/(decrease) 1,222,359 $ 16,036,049
- --------------------------------------------------------------------------------------------------
Sold
- --------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends
- --------------------------------------------------------------------------------------------------
Redeemed
- --------------------------------------------------------------------------------------------------
Net increase
- --------------------------------------------------------------------------------------------------
<CAPTION>
SMALL CAP FUND
Six Months Ended 12/31/96 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:* (unaudited)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 975,466 $ 19,742,670 2,364,351 $45,287,531
- --------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 1,994,885 37,906,768 1,145,423 19,277,473
- --------------------------------------------------------------------------------------------------------
Redeemed (3,743,965) (73,974,517) (2,572,896) (49,720,323)
- --------------------------------------------------------------------------------------------------------
Net increase/(decrease) (773,614) $(16,325,079) 936,878 $14,844,681
- --------------------------------------------------------------------------------------------------------
P Shares:**
- --------------------------------------------------------------------------------------------------------
Sold 144,861 $ 3,070,586
- --------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 22,222 418,949
- --------------------------------------------------------------------------------------------------------
Redeemed (6,770) (137,090)
- --------------------------------------------------------------------------------------------------------
Net increase 160,313 $ 3,352,445
- --------------------------------------------------------------------------------------------------------
<CAPTION>
INTERNATIONAL GROWTH FUND
Six Months Ended 12/31/96 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:* (unaudited)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 1,029,062 $14,895,782 1,462,014 $19,648,978
- --------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 69,543 948,601 -- --
- --------------------------------------------------------------------------------------------------------
Redeemed (477,768) (6,966,102) (266,905) (3,567,300)
- --------------------------------------------------------------------------------------------------------
Net increase 620,837 $ 8,878,281 1,195,109 $16,081,678
- --------------------------------------------------------------------------------------------------------
P Shares:**
- --------------------------------------------------------------------------------------------------------
Sold -- $ -- 69 $ 1,000
- --------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 9 116 -- --
- --------------------------------------------------------------------------------------------------------
Redeemed -- -- -- --
- --------------------------------------------------------------------------------------------------------
Net increase 9 $ 116 69 $ 1,000
- --------------------------------------------------------------------------------------------------------
<CAPTION>
GLOBAL COMMUNICATIONS FUND
Six Months Ended 12/31/96 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:* (unaudited)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 668,886 $ 11,510,676 4,763,483 $ 79,349,650
- --------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 527,445 8,882,285 -- --
- --------------------------------------------------------------------------------------------------------
Redeemed (2,792,886) (48,296,466) (6,912,663) (116,385,155)
- --------------------------------------------------------------------------------------------------------
Net increase/(decrease) (1,596,554) $(27,903,505) (2,149,180) $(37,035,505)
- --------------------------------------------------------------------------------------------------------
<CAPTION>
SELECT 50 FUND
Six Months Ended 12/31/96 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:* (unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 2,728,801 $ 43,717,194 5,927,206 $ 86,339,891
- -----------------------------------------------------------------------------------------------------------
Issued in exchange for shares of the
Montgomery Advisors Emerging Markets Fund -- -- -- --
- -----------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 194,144 3,057,213 4,730 61,750
- -----------------------------------------------------------------------------------------------------------
Redeemed (2,069,605) (32,865,840) (1,194,765) (8,058,776)
- -----------------------------------------------------------------------------------------------------------
Net increase/(decrease) 853,340 $ 13,908,567 4,737,171 $68,342,865
- -----------------------------------------------------------------------------------------------------------
Sold 3,172 $ 50,400
- -----------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends -- --
- -----------------------------------------------------------------------------------------------------------
Redeemed -- --
- -----------------------------------------------------------------------------------------------------------
Net increase 3,172 $ 50,400
- -----------------------------------------------------------------------------------------------------------
</TABLE>
87
<PAGE>
- --------------------------
The Montgomery Funds
- --------------------------
Transactions in Shares
with a Beneficial Interest
- --------------------------
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
Six Months Ended 12/31/96 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:* (unaudited)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 1,507,058 $28,707,239 6,554,247 $115,780,937
- ------------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends 789,267 14,511,299 274,647 4,696,411
- ------------------------------------------------------------------------------------------------
Redeemed (1,284,025) (24,269,509) 3,662,598 (65,619,013)
- ------------------------------------------------------------------------------------------------
Net increase 1,012,300 $18,949,029 3,166,296 $ 54,858,335
- ------------------------------------------------------------------------------------------------
P Shares:**
- ------------------------------------------------------------------------------------------------
Sold 173 $ 4,744 2,200 $ 39,375
- ------------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends 253 4,643 -- --
- ------------------------------------------------------------------------------------------------
Redeemed -- -- -- --
- ------------------------------------------------------------------------------------------------
Net increase 426 $ 9,387 2,200 $ 39,375
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
Six Months Ended 12/31/96 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:* (unaudited)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 569,000 $ 7,049,625 1,161,660 $ 14,281,986
- ------------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends 14,680 181,841 23,748 292,096
- ------------------------------------------------------------------------------------------------
Redeemed (221,720) (2,742,496) (472,897) (5,796,057)
- ------------------------------------------------------------------------------------------------
Net increase 361,960 $4,488,970 712,511 $ 8,778,025
- ------------------------------------------------------------------------------------------------
P Shares:**
- ------------------------------------------------------------------------------------------------
Sold
- ------------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends
- ------------------------------------------------------------------------------------------------
Net increase
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FEDERAL TAX-FREE MONEY FUND
Six Months Ended 12/31/96
Shares and Dollars
R Shares:* (unaudited)
- ------------------------------------------------------------------------------------------------
<S> <C>
Sold $ 249,965,387
- ------------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends 861,447
- ------------------------------------------------------------------------------------------------
Redeemed (150,240,685)
- ------------------------------------------------------------------------------------------------
Net increase $ 100,586,149
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHORT GOVERNMENT BOND FUND
Six Months Ended 12/31/96 Year Ended 06/30/96
Shares Dollars Shares Dollars
R Shares:* (unaudited)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 2,828,151 $28,125,118 2,121,512 $21,194,163
- --------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends 83,707 834,842 101,272 1,010,094
- --------------------------------------------------------------------------------------------
Redeemed (1,258,138) (12,516,127) (1,653,638) (16,528,530)
- --------------------------------------------------------------------------------------------
Net increase 1,653,720 $16,443,833 569,146 $ 5,675,727
- --------------------------------------------------------------------------------------------
P Shares:**
- --------------------------------------------------------------------------------------------
Sold -- $ -- 102 $ 1,010
- --------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends 2 25 1 13
- --------------------------------------------------------------------------------------------
Redeemed -- -- (11) (109)
- --------------------------------------------------------------------------------------------
Net increase 2 $ 25) 92 $ 914
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT RESERVE FUND
Six Months Ended 12/31/96 Year Ended 06/30/96
Shares and Dollars Shares and Dollars
R Shares:* (unaudited)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Sold $1,684,950,991 $2,724,266,296
- --------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends 11,362,860 15,759,363
- --------------------------------------------------------------------------------------------
Redeemed (1,689,202,350) (2,559,526,862)
- --------------------------------------------------------------------------------------------
Net increase $ 7,111,501 $ 180,498,797
- --------------------------------------------------------------------------------------------
P Shares:**
- --------------------------------------------------------------------------------------------
Sold $ -- $ 900
- --------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends 23 7
- --------------------------------------------------------------------------------------------
Net increase $ 23 $ 907
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA TAX-FREE MONEY FUND
Six Months Ended 12/31/96 Year Ended 06/30/96
Shares and Dollars Shares and Dollars
R Shares:* (unaudited)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Sold $ 348,779,372 $ 618,931,453
- --------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends 1,481,966 2,443,423
- --------------------------------------------------------------------------------------------
Redeemed (331,889,633) (588,014,834)
- --------------------------------------------------------------------------------------------
Net increase $ 18,371,705 $ 33,360,042
- --------------------------------------------------------------------------------------------
</TABLE>
* Federal Tax-Free Money Fund for Class R Shares commenced operations on
July 15, 1996
** Asset Allocation, Short Government Bond and Government Reserve Funds for
Class P Shares commenced operations on January 3, 1996; March 12, 1996; and
March 12, 1996, respectively.
The accompanying notes are an integral part of these financial statements.
88
<PAGE>
--------------------------
The Montgomery Funds
--------------------------
Statement of Cash Flows
--------------------------
S I X M O N T H S E N D E D
D E C E M B E R 3 1 , 1 9 9 6
(Unaudited)
S H O R T G O V E R N M E N T B O N D F U N D
<TABLE>
<CAPTION>
Cash Flows from Operating Activities:
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income received............................................................................ $1,224,181
Fee income received........................................................................ 22,500
Operating expenses paid.................................................................... (99,567)
Proceeds from sales of long-term securities and purchased options.......................... 69,794,258
Net proceeds from futures transactions..................................................... (16,266)
Purchases of long-term securities and purchased options.................................... (89,178,189)
Net proceeds from short-term investments................................................... 3,122,294
Cash Used by Operating Activities $ (15,130,789)
Cash Flows from Financing Activities:
- -----------------------------------------------------------------------------------------------------------------------------------
Proceeds from subscriptions................................................................ 27,819,516
Payments on shares redeemed................................................................ (12,478,927)
Net dollar roll deferral................................................................... 25,156
Cash dividends paid*....................................................................... (108,218)
Reverse repurchase agreement interest expense.............................................. (121,644)
Cash Provided by Financing Activities 15,135,883
Increase in cash........................................................................... 5,094
Cash at beginning of period................................................................ 7,117
Cash at End of Period $ 12,211
Reconciliation of Net Increase in Net Assets from Operations to Cash Provided by
Operating Activities:
- -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations....................................... $ 1,239,209
Increase in investments........................................................... $(12,314,568)
Increase in interest and dividends receivable..................................... (128,508)
Decrease in deferred fee income from dollar roll transactions..................... 3,881
Decrease in other assets.......................................................... 10,401
Increase in receivables for investments sold...................................... (236,391)
Decrease in payable for investments purchased .................................... (3,815,685)
Decrease in accrued expenses...................................................... (10,772)
Interest expense.................................................................. 121,644
-----------
Total adjustments................................................................. (16,369,998)
-----------
Cash Used by Operating Activities $ (15,130,789)
</TABLE>
* Non-cash activities include reinvestment of dividends of $834,867.
The accompanying notes are an integral part of these financial statements.
89
<PAGE>
- --------------------------
The Montgomery Funds
- --------------------------
Financial Highlights
- --------------------------
<TABLE>
<CAPTION>
GROWTH FUND
Class R Shares Class P Shares
Selected per Share Data for the Year or Period Ended: 12/31/96 12/31/96
(unaudited) 1996 1995 1994(a) (unaudited) 1996(a)
<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) 0.07 0.17 0.12 0.04 0.04 0.03
Net realized and unrealized gain/(loss) on investments 1.06 4.32 3.91 3.31++ 1.06 2.69
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 1.13 4.49 4.03 3.35 1.10 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 $20.15 $21.94 $19.16 $15.27 $20.17 $21.94
- ----------------------------------------------------------------------------------------------------------------------------------
Total return** 5.19% 24.85% 26.53% 27.98% 5.04% 14.15%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $995,738 $926,382 $878,776 $149,103 $139 $82
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 0.69%+ 0.78% 0.98% 1.09%+ 0.44%+ 0.53%+
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.33%+ 1.35% 1.50% 1.49%+ 1.58%+ 1.60%+
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 43.75% 118.14% 128.36% 110.65% 43.75% 118.14%
- ----------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $0.0594 $0.0596 N/A N/A $0.0594 $0.0596
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager -- -- -- $0.03 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager -- -- -- 1.79%+ -- --
- ----------------------------------------------------------------------------------------------------------------------------------
(a) The Growth Fund's Class R Shares and Class P Shares commenced operations on
September 30, 1993 and January 12, 1996, respectively.
(b) 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.
</TABLE>
<TABLE>
<CAPTION>
MICRO CAP FUND SMALL CAP OPPORTUNITIES FUND
Class R Shares Class R Shares Class P Shares
Selected per Share Data for the Year or Period Ended: 12/31/96 12/31/96 12/31/96
(unaudited) 1996 1995(c)## (unaudited) 1996(d)## (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of year $17.82 $13.75 $12.00 $15.80 $12.00 $14.37
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.06) (0.04) 0.09 (0.07) 0.02 (0.08)
Net realized and unrealized gain/(loss) on investments 0.38 4.26 1.66 0.74 3.78++ 2.18
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
investment operations 0.32 4.22 1.75 0.67 3.80 2.10
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- (0.04) -- (0.00)# -- (0.00)#
Distributions from net realized capital gains (1.23) (0.11) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.23) (0.15) -- (0.00)# -- (0.00)#
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of year $16.91 $17.82 $13.75 $16.47 $15.80 $16.47
- ----------------------------------------------------------------------------------------------------------------------------------
Total return** 2.14% 30.95% 14.58% 4.26% 31.67% 14.64%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $298,643 $306,217 $162,949 $200,745 $136,140 $6
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to
average net assets (0.70)%+ (0.11)% 1.40%+ (0.94)%+ 0.23%+ (1.19)%+
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.75%+ 1.75% 1.75%+ 1.51%+ 1.50%+ 1.76%+
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 55.91% 88.98% 36.81% 86.20% 81.29% 86.20%
- ----------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $0.0563 $0.0573 N/A $0.0556 $0.0578 $0.0556
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager -- $ (0.05) $0.07 $(0.09) $(0.04) $(0.10)
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager 1.75%+ 1.79% 2.07%+ 1.86%+ 2.16%+ 2.11%+
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(c) Micro Cap Fund's Class R Shares commenced operations on December 30, 1994.
(d) Small Cap Opportunities Fund's Class R Shares and Class P Shares commenced
operations on December 29, 1995, and July 29, 1996, respectively.
(e) Equity Income Fund's Class R Shares and Class P Shares commenced operations
on September 30, 1994, and March 12, 1996, respectively.
(f) International Growth Fund's Class R Shares and Class P Shares commenced
operations on July 3, 1995, and March 12, 1996, respectively.
90
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
SMALL CAP FUND
Class R Shares
Selected per Share Data for the Year or Period Ended: 12/31/96
(unaudited) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of year $21.55 $17.11 $15.15 $16.83 $12.90 $13.24
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.08) (0.09) (0.10) (0.12) (0.11) (0.06)
Net realized and unrealized gain/(loss) on investments 0.21 6.31 3.04 (0.47) 4.04 3.25
- ------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.13 6.22 2.94 (0.59) 3.93 3.19
- ------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- -- -- -- -- --
Distributions from net realized capital gains (3.28) (1.78) (0.98) (1.09) -- (2.75)
Distributions in excess of net realized capital gains -- -- -- -- -- --
Distributions from capital -- -- -- -- -- (0.78)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (3.28) (1.78) (0.98) (1.09) -- (3.53)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of year $18.40 $21.55 $17.11 $15.15 $16.83 $12.90
- ------------------------------------------------------------------------------------------------------------------------------
Total return** 0.68% 39.28% 20.12% (1.59)% 30.47% 27.69%
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $220,684 $275,062 $202,399 $209,063 $219,968 $176,588
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.74)%+ (0.47)% (0.57)% (0.68)% (0.69)% (0.44)%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.23%+ 1.24% 1.37% 1.35% 1.40% 1.50%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 28.63% 80.00% 85.07% 95.22% 130.37% 80.67%
- ------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $0.0524 $0.0529 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP FUND
Class P Shares
Selected per Share Data for the Year or Period Ended: 12/31/96(b)
1991 1991(b) (unaudited)
<S> <C> <C> <C>
Net asset value -- beginning of year $10.05 $10.62 $21.73
- -----------------------------------------------------------------------------------------------
Net investment income/(loss) (0.06) (0.07) (0.06)
Net realized and unrealized gain/(loss) on investments 3.27 2.71 (0.03)
- -----------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 3.21 2.64 (0.09)
- -----------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- -- --
Distributions from net realized capital gains (0.02) (0.02) (3.28)
Distributions in excess of net realized capital gains -- -- --
Distributions from capital -- -- --
- -----------------------------------------------------------------------------------------------
Total distributions (0.02) (0.02) (3.28)
- -----------------------------------------------------------------------------------------------
Net asset value -- end of year $13.24 $13.24 $18.36
- -----------------------------------------------------------------------------------------------
Total return** 31.97% 24.89% (0.34)%
- -----------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- -----------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $27,181 $27,181 $2,944
- -----------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.47)% (0.45)%+ (0.98)%+
- -----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.50% 1.45%+ 1.48%+
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate 194.63% 188.16% 28.63%
- -----------------------------------------------------------------------------------------------
Average commission rate paid+++ N/A N/A $0.0524
- -----------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager -- -- --
- -----------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager -- -- --
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EQUITY INCOME FUND
Class R Shares Class P Shares
Selected per Share Data for the Year or Period Ended: 12/31/96 12/31/96
(unaudited) 1996 1995(e) (unaudited) 1996(e)
<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) 0.23 0.43 0.31 0.21 0.08
Net realized and unrealized gain/(loss) on investments 1.51 2.82 1.38 1.51 0.35
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
investment operations 1.74 3.25 1.69 1.72 0.43
- ----------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.23) (0.42) (0.31) (0.21) --
Distributions from net realized capital gains (1.56) (0.12) -- (1.56) --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (1.79) (0.54) (0.31) (1.77) --
- ----------------------------------------------------------------------------------------------------------------------
Net asset value -- end of year $16.04 $16.09 $13.38 $16.04 $16.09
- ----------------------------------------------------------------------------------------------------------------------
Total return** 11.36% 24.56% 14.26% 11.22% 2.75%
- ----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $31,034 $19,312 $6,383 $136 $2
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to
average net assets 3.10%+ 3.03% 4.06%+ 2.85%+ 2.78%+
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.85%+ 0.85% 0.84%+ 1.10%+ 1.10%+
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 26.46% 89.77% 29.46% 26.46% 89.77%
- -----------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $0.0595 $0.0423 N/A $0.0595 $0.0423
- -----------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $0.18 $0.34 $0.13 $0.07 $ 0.06
- -----------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager 1.45%+ 1.45% $3.16%+ 1.70%+ 1.70%+
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH FUND
Class R Shares Class R Shares
Selected per Share Data for the Year or Period Ended: 12/31/96 12/31/96
(unaudited) 1996(f) (unaudited) 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) 0.00# 0.02 0.00 0.00#
Net realized and unrealized gain/(loss) on investments 0.77 3.29 0.77 1.65
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
investment operations 0.77 3.31 0.77 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 $14.40 $15.31 $14.40 $15.31
- -----------------------------------------------------------------------------------------------------------
Total return** 5.63% 27.58% 5.71% 12.08%
- -----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $26,155 $18,303 $ 1 $ 1
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to
average net assets 0.05%+ 0.26%+ (0.20)%+ 0.01%+
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.66%+ 1.65%+ 1.91%+ 1.90%+
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 42.35% 238.91% 42.35% 238.91%
- ------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $0.0227 $0.0176 $0.0227 N/A
- ------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager$ $ (0.08) $ (0.07) $(0.08) $(0.05)
- -----------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager 2.76%+ $2.91%+ 3.01%+ 3.16%+
- ------------------------------------------------------------------------------------------------------------
</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.
91
<PAGE>
- --------------------
The Montgomery Funds
- --------------------
Financial Highlights
- --------------------
<TABLE>
<CAPTION>
INTERNATIONAL SMALL CAP FUND
Class R Shares
Selected per Share Data for the Year or Period Ended: 12/31/96
(unaudited) 1996 1995 1994(a)
<S> <C> <C> <C> <C>
Net asset value -- beginning of year $ 14.86 $ 11.75 $ 12.02 $ 12.00
- -----------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.06) 0.03 0.12 0.00#
Net realized and unrealized gain/(loss) on investments 0.33 3.10 (0.39) 0.02
- -----------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.27 3.13 (0.27) 0.02
- -----------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- (0.02) (0.00)# --
Distributions from net realized capital gains -- -- -- --
Distributions in excess of net realized capital gains -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
Total distributions -- (0.02) (0.00)# --
- -----------------------------------------------------------------------------------------------------------------
Net asset value -- end of year $ 15.13 $ 14.86 $ 11.75 $ 12.02
- -----------------------------------------------------------------------------------------------------------------
Total return** 1.82% 26.68% (2.23)% 0.17%
- -----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 40,500 $ 41,640 $ 28,516 $ 34,555
- -----------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.78)%+ 0.20% 0.95% 0.04%+
- -----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.91%+ 1.90% 1.90% 1.90%+
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 37.79% 177.36% 156.13% 123.50%
- -----------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $ 0.0142 $ 0.0123 N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Net investment income/(loss)
before deferral of fees by Manager (0.16) $ (0.08) $ 0.05 $ (0.02)
- -----------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager 3.16% 2.76% 2.50% 2.32%+
- -----------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense -- 1.96% 1.91% 1.99%+
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The International Small Cap Fund's Class R Shares commenced operations on
September 30, 1993.
(b) The Global Opportunities Fund's Class R Shares commenced operations on
September 30, 1993.
(c) The Global Communications Fund's Class R Shares commenced operations on
June 1, 1993.
<TABLE>
<CAPTION>
EMERGING MARKETS FUND
Class R Shares
Selected per Share Data for the Year or Period Ended: 12/31/96
(unaudited) 1996 1995## 1994 1993
<S> <C> <C> <C> <C> <C>
Net asset value -- beginning of year $ 14.19 $ 13.17 $ 13.68 $ 11.07 $ 9.96
- -------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.01 0.08 0.03 (0.03) 0.07
Net realized and unrealized gain/(loss) on investments (0.26) 0.94 0.25++ 2.92 1.05
- -------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations (0.25) 1.02 0.28 2.89 1.12
- -------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.07) -- -- -- (0.01)
Distributions from net realized capital gains -- -- (0.42) (0.28) (0.00)#
Distributions in excess of net realized capital gains -- -- (0.37) -- --
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (0.07) -- (0.79) (0.28) (0.01)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of year $ 13.87 $ 14.19 $ 13.17 $ 13.68 $ 11.07
- -------------------------------------------------------------------------------------------------------------------------
Total return** (1.77)% 7.74% 1.40% 26.10% 11.27%
- -------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 911,258 $ 994,378 $998,083 $ 654,960 $ 206,617
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 0.03%+ 0.58% 0.23% (0.14)% 0.66%
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding interest expense 1.67%+ 1.72% 1.80% 1.85% 1.90%
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 36.30% 109.92% 92.09% 63.79% 21.40%
- -------------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $ 0.0007 $ 0.0007 N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees
and absorption of expenses by Manager -- -- -- -- $ 0.06
- -------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees and absorption
of expenses by Manager, including interest expense -- -- -- -- 1.93%
- -------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EMERGING MARKETS FUND
Class P Shares
Selected per Share Data for the Year or Period Ended: 12/31/96
1992(d) (unaudited) 1996(d)
<S> <C> <C> <C>
Net asset value -- beginning of year $ 10.00 $ 14.19 $ 12.62
- ----------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.03 0.01 0.01
Net realized and unrealized gain/(loss) on investments (0.07) (0.31) 1.56
- ----------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations (0.04) (0.30) 1.57
- ----------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- (0.06) --
Distributions from net realized capital gains -- -- --
Distributions in excess of net realized capital gains -- -- --
- ----------------------------------------------------------------------------------------------------
Total distributions -- (0.06) --
- ----------------------------------------------------------------------------------------------------
Net asset value -- end of year $ 9.96 $ 13.83 $ 14.19
- ----------------------------------------------------------------------------------------------------
Total return** (0.40)% (2.12)% 12.44%
- ----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ----------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 54,625 $ 7 $ 2
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 1.70%+ (0.22)%+ 0.33%+
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding interest expense 1.90%+ 1.92%+ 1.97%+
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate 0.19% 36.30% 109.92%
- ----------------------------------------------------------------------------------------------------
Average commission rate paid+++ N/A $ 0.0007 $ 0.0007
- ----------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees
and absorption of expenses by Manager $ 0.01 -- --
- ----------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees and absorption
of expenses by Manager, including interest expense 2.80%+ -- --
- ----------------------------------------------------------------------------------------------------
Expense ratio including interest expense -- -- --
- ----------------------------------------------------------------------------------------------------
</TABLE>
(d) Emerging Markets Fund's Class R Shares and Class P Shares commenced
operations on March 1, 1992, and March 12, 1996, respectively.
(e) Emerging Asia Fund's Class R Shares commenced operations on September 30,
1996.
(f) Select 50 Fund's Class R Shares and Class P Shares commenced operations on
October 2, 1995, and December 12, 1996, respectively.
(g) Asset Allocation Fund's Class R Shares and Class P Shares commenced
operations on March 31, 1994, and January 3, 1996, respectively.
92
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
GLOBAL OPPORTUNITIES FUND
Class R Shares
Selected per Share Data for the Year or Period Ended: 12/31/96
(unaudited) 1996 1995 1994(b)
<S> <C> <C> <C> <C>
Net asset value -- beginning of year $ 16.96 $ 13.25 $ 12.92 $ 12.00
- ---------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.06) (0.06) 0.13 0.01
Net realized and unrealized gain/(loss) on investments 0.65 3.84 0.70 0.91
- ---------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.59 3.78 0.83 0.92
- ---------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- (0.07) -- --
Distributions from net realized capital gains (0.82) -- (0.50) --
Distributions in excess of net realized capital gains -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (0.82) (0.07) (0.50) --
- ---------------------------------------------------------------------------------------------------------------------
Net asset value -- end of year $ 16.73 $ 16.96 $ 13.25 $ 12.92
- ---------------------------------------------------------------------------------------------------------------------
Total return** 3.60% 28.64% 6.43% 7.67%
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 29,307 $ 28,496 $ 13,677 $ 12,504
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.82)%+ (0.56)% 1.03% 0.02%+
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.90%+ 1.90% 1.90% 1.90%+
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 53.45% 163.80% 118.75% 67.22%
- ---------------------------------------------------------------------------------------------------------------------
Average commission rate paid $ 0.0187 $ 0.0235 N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Net investment income/(loss)
before deferral of fees by Manager $ (0.16) $ (0.16) $ (0.01) $ (0.05)
- ---------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager 3.15%+ 3.10% 2.99% 2.75%+
- ---------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense -- 2.05% 1.91% 1.99%+
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GLOBAL COMMUNICATIONS FUND
Class R Shares
Selected per Share Data for the Year or Period Ended: 12/31/96
(unaudited) 1996 1995 1994 1993(c)
<S> <C> <C> <C> <C> <C>
Net asset value -- beginning of year $ 18.05 $ 15.42 $ 14.20 $ 12.45 $ 12.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.12) (0.20) (0.03) (0.05) 0.00#
Net realized and unrealized gain/(loss) on investments (0.28) 2.83 1.28 1.80++ 0.45
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations (0.40) 2.63 1.25 1.75 0.45
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- -- -- -- --
Distributions from net realized capital gains (0.91) -- -- -- --
Distributions in excess of net realized capital gains -- -- (0.03) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.91) -- (0.03) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of year $ 16.74 $ 18.05 $ 15.42 $ 14.20 $ 12.45
- ----------------------------------------------------------------------------------------------------------------------------------
Total return** (2.22)% 17.06% 8.83% 14.06% 3.75%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 164,982 $ 206,671 $ 209,644 $ 234,886 $ 4,670
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (1.41)%+ (1.01)% (0.10)% (0.46)% (0.05)%+
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.91%+ 1.90% 1.90% 1.90% 1.90%+
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 41.14% 103.73% 50.17% 29.20% 0.00%
- ----------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid $ 0.0075 $ 0.0129 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss)
before deferral of fees by Manager $ (0.14) $ (0.22) $ (0.07) $ (0.06) $ (0.04)
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager 2.07%+ 2.11% 2.09% 2.04% 8.96%+
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense -- 2.01% 1.91% 1.94% --
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EMERGING
ASIA FUND SELECT 50 FUND
Class R Shares Class R Shares Class P Shares
Selected per Share Data for the Year or Period Ended: 12/31/96(e) 12/31/96 12/31/96(f)
(unaudited) (unaudited) 1996(f) (unaudited)
<S> <C> <C> <C> <C>
Net asset value -- beginning of year $ 12.00 $ 16.46 $ 12.00 $ 15.89
- ----------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.02 (0.01) 0.06 --
Net realized and unrealized gain/(loss) on investments 2.51 0.20 4.45 0.14
- ----------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 2.53 0.19 4.51 0.14
- ----------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.03) (0.02) (0.04) --
Distributions from net realized capital gains -- (0.60) -- --
Distributions in excess of net realized capital gains -- -- (0.01) --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (0.03) (0.62) (0.05) --
- ----------------------------------------------------------------------------------------------------------------------
Net asset value -- end of year $ 14.50 $ 16.03 $ 16.46 $ 16.03
- ----------------------------------------------------------------------------------------------------------------------
Total return** 21.06% 1.22% 37.75% 0.88%
- ----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 18,931 $ 89,618 $ 77,955 $ 51
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 1.05%+ (0.21)%+ 0.42%+ (0.46)%+
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding interest expense 1.07%+ 1.81%+ 1.80%+ 2.06%+
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 4.24% 85.34% 105.98% 85.34%
- ----------------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $ 0.0123 $ 0.0070 $ 0.0097 $ 0.0070
- ----------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees
and absorption of expenses by Manager $ (0.01) $ (0.03) $ 0.02 $ (0.01)
- ----------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees and absorption
of expenses by Manager, including interest expense 2.52%+ 2.07%+ 2.11%+ 2.32%+
- ----------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
Class R Shares
Selected per Share Data for the Year or Period Ended: 12/31/96
(unaudited) 1996 1995 1994(f)
<S> <C> <C> <C> <C>
Net asset value -- beginning of year $ 19.33 $ 16.33 $ 12.24 $ 12.00
- ----------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.23 0.26 0.25 0.06
Net realized and unrealized gain/(loss) on investments 0.58 3.54 4.11 0.18
- ----------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.81 3.80 4.36 0.24
- ----------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.39) (0.25) (0.17) --
Distributions from net realized capital gains (1.66) (0.55) (0.10) --
Distributions in excess of net realized capital gains -- -- -- --
- ----------------------------------------------------------------------------------------------------------------
Total distributions (2.05) (0.80) (0.27) --
- ----------------------------------------------------------------------------------------------------------------
Net asset value -- end of year $ 18.09 $ 19.33 $ 16.33 $ 12.24
- ----------------------------------------------------------------------------------------------------------------
Total return** 4.27% 23.92% 35.99% 2.00%
- ----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 142,293 $132,511 $ 60,234 $ 1,548
- ----------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 2.62%+ 1.85% 3.43% 2.54%+
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding interest expense 1.30%+ 1.30% 1.30% 1.30%+
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 93.70% 225.91% 95.75% 190.94%
- ----------------------------------------------------------------------------------------------------------------
Average commission rate paid+++ $ 0.0603 $ 0.0595 N/A N/A
- ----------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees
and absorption of expenses by Manager $ 0.22 $ 0.24 $ 0.19 $ (0.11)
- ----------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees and absorption
of expenses by Manager, including interest expense 1.59%+ 1.55% 2.07% 9.00%+
- ----------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense 1.42%+ 1.42% 1.31% 1.43%+
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
Class P Shares
Selected per Share Data for the Year or Period Ended: 12/31/96
(unaudited) 1996(g)
<S> <C> <C>
Net asset value -- beginning of year $ 19.33 $ 17.86
- ------------------------------------------------------------------------------------
Net investment income/(loss) 0.21 0.09
Net realized and unrealized gain/(loss) on investments 0.58 1.38
- ------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.79 1.47
- ------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.34) --
Distributions from net realized capital gains (1.66) --
Distributions in excess of net realized capital gains -- --
- ------------------------------------------------------------------------------------
Total distributions (2.00) --
- ------------------------------------------------------------------------------------
Net asset value -- end of year $ 18.12 $ 19.33
- ------------------------------------------------------------------------------------
Total return** 4.18% 8.23%
- ------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 48 $ 43
- ------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 2.37%+ 1.60%+
- ------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding interest expense 1.55%+ 1.55%+
- ------------------------------------------------------------------------------------
Portfolio turnover rate 93.70% 225.91%
- ------------------------------------------------------------------------------------
Average commission rate paid+++ $ 0.0603 $ 0.0595
- ------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees
and absorption of expenses by Manager $ 0.20 $ 0.08
- ------------------------------------------------------------------------------------
Expense ratio before deferral of fees and absorption
of expenses by Manager, including interest expense 1.84%+ 1.80%+
- ------------------------------------------------------------------------------------
Expense ratio including interest expense 1.67%+ 1.67%+
- ------------------------------------------------------------------------------------
</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.
93
<PAGE>
- --------------------
The Montgomery Funds
Financial Highlights
<TABLE>
<CAPTION>
CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
Class R Shares
Selected per Share Data for the Year or Period Ended: 12/31/96
(unaudited) 1996 1995 1994(a)
<S> <C> <C> <C> <C>
Net asset value -- beginning of year $ 12.23 $ 12.04 $ 11.79 $ 12.00
- -----------------------------------------------------------------------------------------------------------
Net investment income 0.27 0.54 0.44 0.41
Net realized and unrealized gain/(loss) on investments 0.24 0.19 0.25 (0.21)
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
investment operations 0.51 0.73 0.69 0.20
- -----------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.27) (0.54) (0.44) (0.41)
Distributions in excess of net investment income -- -- -- --
Distributions from net realized capital gains -- -- (0.00)# --
Distributions in excess of net realized capital gains -- -- -- --
Distributions from capital -- -- -- --
- -----------------------------------------------------------------------------------------------------------
Total distributions (0.27) (0.54) (0.44) (0.41)
- -----------------------------------------------------------------------------------------------------------
Net asset value -- end of year $ 12.47 $ 12.23 $ 12.04 $ 11.79
- -----------------------------------------------------------------------------------------------------------
Total return** 4.19% 6.11% 6.03% 1.65%
- -----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 18,735 $ 13,948 $ 5,153 $ 11,556
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.28%+ 4.34% 3.71% 3.44%
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding interest expense 0.68%+ 0.61% 0.56% 0.23%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 13.89% 58.11% 37.93% 77.03%
- -----------------------------------------------------------------------------------------------------------
Net investment income before deferral of fees and
absorption of expenses by Manager $ 0.24 $ 0.43 $ 0.34 $ 0.25
- -----------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest expense 1.18%+ 1.43% 1.41% 1.63%
- -----------------------------------------------------------------------------------------------------------
Expense ratio including interest expense -- -- -- --
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(a) The California Tax-Free Intermediate Bond Fund's Class R Shares commenced
operations on July 1, 1993.
(b) The Short Government Bond Fund's Class R Shares and Class P Shares
commenced operations on December 18, 1992 and March 12, 1996, respectively.
<TABLE>
<CAPTION>
FEDERAL TAX-FREE CALIFORNIA
MONEY FUND TAX-FREE MONEY FUND
Class R Shares Class R Shares
Selected per Share Data for the Year or Period Ended: 12/31/96(c) 12/31/96
(unaudited) (unaudited) 1996 1995(d)
<S> <C> <C> <C> <C>
Net asset value -- beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.017 0.014 0.030 0.027
Net realized and unrealized gain on investments 0.000 0.000 0.000## 0.000##
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
investment operations 0.017 0.014 0.030 0.027
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.017) (0.014) (0.030) (0.027)
Distributions in excess of net investment income -- -- -- (0.000)##
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.017) (0.014) (0.030) (0.027)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total return** 1.66% 1.45% 3.03% 2.68%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 100,586 $ 116,505 $ 98,134 $ 64,780
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 3.54%+ 2.86%+ 2.99% 3.55%+
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding interest expense 0.00%+ 0.58%+ 0.59% 0.33%+
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income before deferral of fees
and absorption of expenses by Manager $ 0.013 $ 0.013 $ 0.028 $ 0.023
- -----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees and absorption
of expenses by Manager, including interest expense 0.81%+ 0.89%+ 0.80% 0.86%+
- -----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(c) Federal Tax-Free Money Fund's Class R shares commenced operations on
July 15, 1996.
(d) California Tax-Free Money Fund's Class R Shares commenced operations on
September 30,1994.
(e) Government Reserve Fund's Class R Shares and Class P Shares commenced
operations on September 14, 1992, and March 12, 1996, respectively.
The accompanying notes are an integral part of these financial statements.
94
<PAGE>
<TABLE>
<CAPTION>
SHORT GOVERNMENT BOND FUND
Class R Shares
Selected per Share Data for the Year or Period Ended: 12/31/96
(unaudited) 1996 1995 1994 1993(b)
<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 0.29 0.60 0.62 0.61 0.33
Net realized and unrealized gain/(loss) on investments 0.08 (0.04) 0.16 (0.34) 0.23
- ------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
investment operations 0.37 0.56 0.78 0.27 0.56
- ------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.29) (0.59) (0.62) (0.56) (0.33)
Distributions in excess of net investment income -- (0.00)# -- (0.07) --
Distributions from net realized capital gains -- -- -- -- --
Distributions in excess of net realized capital gains -- -- -- (0.07) --
Distributions from capital -- -- (0.01) -- 0.00#
- ------------------------------------------------------------------------------------------------------------------------
Total distributions (0.29) (0.59) (0.63) (0.70) (0.33)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of year $ 10.00 $ 9.92 $ 9.95 $ 9.80 $ 10.23
- ------------------------------------------------------------------------------------------------------------------------
Total return** 3.82% 5.74% 8.28% 2.49% 5.66%
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 39,408 $ 22,681 $ 17,093 $ 21,937 $ 22,254
- ------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 5.84%+ 5.88% 6.41% 5.93% 6.02%+
- ------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding interest expense 0.61%+ 0.60% 0.47% 0.25% 0.22%+
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 202.74% 349.62% 284.23% 603.07% 213.22%
- ------------------------------------------------------------------------------------------------------------------------
Net investment income before deferral of fees and
absorption of expenses by Manager $ 0.29 $ 0.52 $ 0.54 $ 0.51 $ 0.27
- ------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest expense 1.85%+ 2.31% 2.23% 1.75% 2.07%+
- ------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense 1.35%+ 1.55% 1.38% 0.71% --
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
BOND FUND
Class P Shares
Selected per Share Data for the Year or Period Ended: 12/31/96
(unaudited) 1996(b)
<S> <C> <C>
Net asset value -- beginning of year $ 9.92 $ 9.98
- -----------------------------------------------------------------------------------------
Net investment income 0.28 0.16
Net realized and unrealized gain/(loss) on investments 0.11 (0.05)
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from
investment operations 0.39 0.11
- -----------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.30) (0.17)
Distributions in excess of net investment income -- --
Distributions from net realized capital gains -- --
Distributions in excess of net realized capital gains -- --
Distributions from capital -- --
- -----------------------------------------------------------------------------------------
Total distributions (0.30) (0.17)
- -----------------------------------------------------------------------------------------
Net asset value -- end of year $ 10.01 $ 9.92
- -----------------------------------------------------------------------------------------
Total return** 3.95% 1.12%
- -----------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- -----------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 1 $ 1
- -----------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 5.59%+ 5.63%+
- -----------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding interest expense 0.86%+ 0.85%+
- -----------------------------------------------------------------------------------------
Portfolio turnover rate 202.74% 349.62%
- -----------------------------------------------------------------------------------------
Net investment income before deferral of fees and
absorption of expenses by Manager $ 0.25 $ 0.14
- -----------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest expense 2.10%+ 2.56%+
- -----------------------------------------------------------------------------------------
Expense ratio including interest expense 1.60%+ 1.80%+
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT RESERVE FUND
Class R Shares
Selected per Share Data for the Year or Period Ended: 12/31/96
(unaudited) 1996 1995 1994 1993(e)
<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 0.025 0.052 0.049 0.029 0.024
Net realized and unrealized gain on investments 0.000## 0.000## 0.000## 0.000## 0.000##
- --------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
investment operations 0.025 0.052 0.049 0.029 0.024
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.025) (0.052) (0.049) (0.029) (0.024)
Distributions in excess of net investment income
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.025) (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** 2.50% 5.28% 4.97% 2.96% 2.41%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 446,518 $ 439,423 $ 258,956 $211,129 $ 124,795
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.91%+ 5.17% 4.92% 2.99% 2.96%+
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding interest expense 0.60%+ 0.60% 0.60% 0.60% 0.38%+
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income before deferral of fees
and absorption of expenses by Manager $ 0.024 $ 0.050 $ 0.047 $ 0.028 $ 0.013
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees and absorption
of expenses by Manager, including interest expense 0.72%+ 0.74% 0.79% 0.71% 0.77%+
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense -- -- 0.63% -- --
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT RESERVE FUND
Class P Shares
Selected per Share Data for the Year or Period Ended: 12/31/96
(unaudited) 1996(e)
<S> <C> <C>
Net asset value -- beginning of year $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------
Net investment income 0.024 0.014
Net realized and unrealized gain on investments 0.000## 0.000##
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from
investment operations 0.024 0.014
- ----------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.024) (0.014)
Distributions in excess of net investment income
- ----------------------------------------------------------------------------------------------
Total distributions (0.024) (0.014)
- ----------------------------------------------------------------------------------------------
Net asset value -- end of year $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------
Total return** 2.48% 1.38%
- ----------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ----------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 1 $ 1
- ----------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.66%+ 4.91%+
- ----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets,
excluding interest expense 0.85%+ 0.85%+
- ----------------------------------------------------------------------------------------------
Portfolio turnover rate -- --
- ----------------------------------------------------------------------------------------------
Net investment income before deferral of fees
and absorption of expenses by Manager $ 0.023 $ 0.013
- ----------------------------------------------------------------------------------------------
Expense ratio before deferral of fees and absorption
of expenses by Manager, including interest expense 0.97%+ 0.99%+
- ----------------------------------------------------------------------------------------------
Expense ratio including interest expense -- --
- ----------------------------------------------------------------------------------------------
</TABLE>
** Total return represents aggregate total return for the periods indicated.
+ Annualized.
# Amount represents less than $0.01 per share.
## Amount represents less than $0.001 per share.
95
<PAGE>
- --------------------------------------
The Montgomery Funds
- --------------------------------------
Notes
- --------------------------------------
TO FINANCIAL STATEMENTS
(Unaudited)
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 December 31, 1996, the Trusts had nineteen publicly
offered series: Montgomery Growth Fund, Montgomery Micro Cap Fund, Montgomery
Small Cap Fund, Montgomery Small Cap Opportunities Fund, Montgomery Equity
Income Fund, Montgomery International Growth Fund, Montgomery International
Small Cap Fund, Montgomery Global Opportunities Fund, Montgomery Global
Communications Fund, Montgomery Emerging Markets Fund, Montgomery Emerging Asia
Fund, Montgomery Select 50 Fund, Montgomery Asset Allocation Fund, Montgomery
Short Government Bond Fund, Montgomery California Tax-Free Intermediate Bond
Fund, Montgomery Government Reserve Fund, Montgomery Federal Tax-Free Money
Fund, Montgomery California Tax-Free Money 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, L.P., 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, the Growth Fund, Small Cap Fund, Small Cap
Opportunities Fund, Equity Income Fund, International Growth Fund, Emerging
Markets Fund, Asset Allocation Fund, Short 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 preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosure 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.
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 are valued at the mean between the last available bid and ask price prior
to the time of valuation.
For the Government Reserve Fund, Federal Tax-Free Money Fund and California Tax-
Free Money Fund, portfolio securities are valued at amortized cost, which means
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 cost, initially, 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 which 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 Government Reserve Fund, Federal Tax-Free Money Fund and
California Tax-Free Money Fund which value all securities at amortized cost) are
carried at amortized cost, which approximates market value.
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.
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--------------------------------------
Notes
--------------------------------------
TO FINANCIAL STATEMENTS
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 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 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 that 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.
g. Reverse Purchase 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
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T O F I N A N C I A L S T A T E M E N T S
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 liquid high-grade 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 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
sold) 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. Dividends and Distributions
Dividends, if any, from net investment income of the Growth, Micro Cap, Small
Cap, Small Cap Opportunities, International Growth, International Small Cap,
Global Opportunities, Global Communications, Emerging Markets, Emerging Asia,
Select 50 and Asset Allocation Funds are declared and paid at least annually.
Dividends from net investment income of the Short Government Bond, California
Tax-Free Intermediate Bond, Government Reserve, Federal Tax-Free Money and
California Tax-Free Money Funds 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
98
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Notes
-------------------------------------------
T O F I N A N C I A L S T A T E M E N T S
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.
l.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 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.
m. Federal Income Taxes
Each Fund has elected and qualified and it is the intention of each Fund to
continue to qualify to be treated 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 of all or substantially
all federal income taxes.
n. 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 Small Cap Fund have been fully amortized.
o. 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.
p. 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. Montgomery Asset Management, L.P., is the Funds' Manager (the "Manager"). The
Manager, a California limited partnership, is an investment adviser registered
with the Securities and Exchange Commission under the Investment Advisers Act of
1940, as amended (the "Advisers Act"). The general partner of the Manager is
Montgomery Asset Management, Inc. Montgomery Securities, the Funds' principal
underwriter and distributor, and certain of its principals are affiliates of the
Manager. 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 of 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: 1.50% 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; 0.85% for the
Equity Income Fund; 1.65% for the International Growth Fund; 1.90% for the
International Small Cap Fund, Global Opportunities Fund, Global Communications
Fund, Emerging Markets Fund and Emerging Asia Fund; 1.80% for the Select 50
Fund; 1.30% for the Asset Allocation Fund; 0.70% for the Short Government Bond
Fund and California Tax-Free Intermediate Bond Fund; 0.60% for the Government
Reserve Fund, Federal Tax-Free
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Notes
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T O F I N A N C I A L S T A T E M E N T S
Money Fund and California Tax-Free Money 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:
<TABLE>
<CAPTION>
Management
Effective Fees Including Effective
Management Effect of Administration
Name of Fund Fee Fees Deferred Fee
- ------------ --- ------------- ---
<S> <C> <C> <C>
Growth Fund............................... 0.95% 0.95% 0.06%
Micro Cap Fund............................ 1.42% 1.42% 0.07%
Small Cap Fund............................ 0.99% 0.99% 0.07%
Small Cap Opportunities Fund.............. 1.34% 0.98% 0.07%
Equity Income Fund........................ 0.77% 0.17% 0.07%
International Growth Fund................. 1.88% 0.78% 0.07%
International Small Cap Fund.............. 2.38% 1.13% 0.07%
Global Opportunities Fund................. 2.45% 1.20% 0.07%
Global Communications Fund................ 1.47% 1.31% 0.07%
Emerging Markets Fund..................... 1.07% 1.07% 0.06%
Emerging Asia Fund........................ 1.26% 0.00% 0.07%
Select 50 Fund............................ 1.47% 1.21% 0.07%
Asset Allocation Fund..................... 1.00% 0.83% 0.07%
Short Government Bond Fund................ 0.57% 0.07% 0.05%
California Tax-Free Intermediate Bond Fund 0.54% 0.04% 0.05%
Government Reserve Fund................... 0.54% 0.42% 0.05%
Federal Tax-Free Money Fund............... 0.40% 0.00% 0.05%
California Tax-Free Money Fund............ 0.73% 0.42% 0.05%
</TABLE>
The Manager recouped previously deferred fees and/or absorbed expenses during
the six months ended December 31, 1996. These amounts have been included with
current six months' management fees in the Statement of Operations and are part
of the effective management fee shown. The amounts recouped during the six
months ended December 31, 1996, were $101,797; $119,487; $20,307; $75,401;
$232,797; $162,912; $203,919; $87,769; $139,622; $10,861; $3,081; $464,333 and
$175,094, for Micro Cap, Small Cap Opportunities, Equity Income, International
Growth, International Small Cap, Global Opportunities, Global Communications,
Select 50, Asset Allocation, Short Government Bond, California Tax-Free
Intermediate Bond, Government Reserve and California Tax-Free Money Funds,
respectively.
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The Montgomery Funds
--------------------------------
Notes
--------------------------------
TO FINANCIAL STATEMENTS
For the six months ended December 31, 1996, 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>
Small Cap Opportunities Fund.............. $300,898 -- $300,898
Equity Income Fund........................ 71,701 -- 199,958
International Growth Fund................. 106,853 -- 141,935
International Small Cap Fund.............. 258,146 -- 300,293
Global Opportunities Fund................. 170,376 -- 206,527
Global Communications Fund*............... 149,089* -- 142,874
Emerging Asia Fund........................ 31,049 $4,902 35,951
Select 50 Fund............................ 104,448 -- 104,448
Asset Allocation Fund..................... 120,803 -- 120,803
Short Government Bond Fund................ 81,746 -- 383,445
California Tax-Free Intermediate Bond Fund 39,307 -- 191,197
Government Reserve Fund................... 291,556 -- 291,556
Federal Tax-Free Money Fund............... 103,976 106,132 210,108
California Tax-Free Money Fund............ 163,911 -- 163,911
</TABLE>
*For the six months ended December 31, 1996, the Global Communications Fund
waived fees of $6,215.
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 three 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 six months ended December 31, 1996, the Funds' securities
transactions generated commissions of $5,774,760 of which $11,790 was paid to
Montgomery Securities.
d. The Class R Shares and Class P Shares of the Funds have no sales load.
e. At December 31, 1996, the Global Communications Fund owned 90,000 shares of
the Montgomery Emerging Communications Fund, which has the same investment
manager. For the six months ended December 31, 1996, 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
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: Growth Fund, Micro Cap Fund, Small
Cap Fund, Small Cap Opportunities Fund, Equity Income Fund, Select 50 Fund,
Asset Allocation Fund, International Growth Fund, International Small Cap Fund,
Global Opportunities Fund, Global Communications Fund, Emerging Markets Fund,
Emerging Asia Fund, Short Government Bond Fund and California Tax-Free
Intermediate 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 for Class P Shares of each Fund.
Pursuant to that Rule, the Trusts' Board of Trustees and the initial shareholder
of the Class P Shares of each Fund have 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
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Notes
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TO FINANCIAL STATEMENTS
rate of 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 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 and paid monthly, and are charged as
expenses of the Class P Shares are 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, Federal
Tax-Free Money Fund and 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 $1.00 per share, the
numbers of shares represented by such sales, reinvestments and redemptions are
the same as the dollar amounts shown for such transactions.
5. SECURITIES TRANSACTIONS:
a. The aggregate amount of purchases and sales of long-term securities,
excluding long-term U.S. government securities, during the six months ended
December 31, 1996, were:
<TABLE>
<CAPTION>
Name of Fund Purchases Sales
- ------------ --------- -----
<S> <C> <C>
Growth Fund................................. $342,773,382 $330,919,573
Micro Cap Fund.............................. 146,704,538 150,047,458
Small Cap Fund.............................. 73,113,060 130,080,509
Small Cap Opportunities Fund................ 177,570,023 133,315,789
Equity Income Fund.......................... 14,515,992 5,947,347
International Growth Fund................... 12,919,812 7,490,140
International Small Cap Fund................ 14,285,647 15,767,401
Global Opportunities Fund................... 15,738,237 14,340,872
Global Communications Fund.................. 75,275,545 113,829,363
Emerging Markets Fund....................... 321,391,415 367,446,393
Emerging Asia Fund.......................... 14,800,244 351,595
Select 50 Fund.............................. 66,868,505 61,110,662
Asset Allocation Fund....................... 40,210,150 42,526,356
Short Government Bond Fund.................. 4,985 707,893
California Tax-Free Intermediate Bond Fund.. 5,490,873 2,083,232
</TABLE>
The aggregate amount of purchases and sales of long-term U.S. government
securities, during the six months ended December 31, 1996, were:
<TABLE>
<CAPTION>
Name of Fund Purchases Sales
- ------------ --------- -----
<S> <C> <C>
Asset Allocation Fund...................... $91,065,508 $75,813,837
Short Government Bond Fund................. 85,345,301 69,293,490
</TABLE>
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T O F I N A N C I A L S T A T E M E N T S
b. At December 31, 1996, 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 was as follows:
<TABLE>
<CAPTION>
Tax Basis Tax Basis
Unrealized Unrealized
Name of Fund Appreciation Depreciation
- ------------ ------------ ------------
<S> <C> <C>
Growth Fund................................ $166,153,771 $29,331,643
Micro Cap Fund............................. 70,700,353 4,167,670
Small Cap Fund............................. 64,561,259 10,713,870
Small Cap Opportunities Fund............... 29,805,425 4,148,234
Equity Income Fund......................... 2,421,328 281,436
International Growth Fund.................. 2,208,582 1,008,442
International Small Cap Fund............... 6,173,829 2,131,062
Global Opportunities Fund.................. 4,591,706 1,322,840
Global Communications Fund................. 35,158,821 8,208,352
Emerging Markets Fund...................... 130,979,500 60,211,026
Emerging Asia Fund......................... 2,101,459 202,389
Select 50 Fund............................. 9,861,935 2,461,827
Asset Allocation Fund...................... 14,679,664 2,420,366
Short Government Bond Fund................. 181,906 97,883
California Tax-Free Intermediate Bond Fund 361,991 15,945
</TABLE>
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 Six Months 12/31/96 Six Months Six Months Six Months Earned
- ------------ ----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Asset Allocation Fund $13,949,531 $8,808,750 $9,965,098 7,256,074 $1.37 $106,150
Short Government Bond Fund 1,987,813 1,957,500 1,943,782 3,224,053 0.60 18,619
</TABLE>
The average amount outstanding during the period was calculated by totaling
borrowings at the end of each day and dividing the sum by the number of days in
the six months ended December 31, 1996.
d. Information regarding borrowing under reverse repurchase agreements is as
follows:
<TABLE>
<CAPTION>
Average
Maximum Average Average Debt
Amount Amount Shares per Share
Outstanding Outstanding Outstanding Outstanding Average
During During During During Interest Interest
Name of Fund Six Months Six Months Six Months Six Months Rate Expense
- ------------ ----------- ----------- ----------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Asset Allocation Fund $14,055,000 $3,045,221 7,256,074 $0.42 4.18% $76,499
Short Government Bond Fund 8,060,000 4,589,049 3,224,053 1.42 4.28% 121,644
</TABLE>
As of December 31, 1996, there were no reverse repurchase agreements
outstanding. The average amount outstanding during the period was calculated by
adding the borrowings at the end of each day and dividing the sum by the number
of days in the six months ended December 31, 1996.
103
<PAGE>
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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
e. The schedule of forward foreign currency exchange contracts at December 31,
1996, were as follows:
<TABLE>
<CAPTION>
Contract
Value Value
Date (Note 1)
-------- ----------
International Growth Fund:
Forward Foreign Currency Exchange Contracts to Buy:
<C> <S> <C> <C>
133,431 Dutch Guilder 01/02/97 $ 77,236
118,947 Australian Dollar 01/03/97 94,544
106,614 British Pound 01/03/97 182,575
35,979 Irish Pound 01/03/97 60,985
930,900 Norwegian Krone 01/03/97 146,139
14,672,036 Portuguese Escudo 01/03/97 94,627
3,661,764 Japanese Yen 01/06/97 31,629
6,457,294 Belgian Franc 01/08/97 203,580
881,144 French Franc 01/31/97 170,148
----------
Total Forward Foreign Currency Exchange
Contracts to Buy: (Contract cost $1,049,952) $1,061,463
==========
<CAPTION>
International Small Cap Fund:
Forward Foreign Currency Exchange Contracts to Buy:
<C> <S> <C> <C>
13,430,931 Spanish Peseta 01/03/97 $ 103,453
45,239 German Mark 01/08/97 29,406
----------
Total Forward Foreign Currency Exchange
Contracts to Buy: (Contract cost $131,882) $ 132,859
==========
<CAPTION>
Global Opportunities Fund:
Forward Foreign Currency Exchange Contracts to Buy:
<C> <S> <C> <C>
724,255 Belgian Franc 01/08/97 $ 22,834
36,191 German Mark 01/08/97 23,525
----------
Total Forward Foreign Currency Exchange
Contracts to Buy: (Contract cost $45,951) $ 46,359
==========
<CAPTION>
Global Communications Fund:
Forward Foreign Currency Exchange Contracts to Buy:
<C> <S> <C> <C>
16,418,707 Portuguese Escudo 01/03/97 $ 105,892
2,317,616 Belgian Franc 01/08/97 73,068
81,430 German Mark 01/08/97 52,930
----------
Total Forward Foreign Currency Exchange
Contracts to Buy: (Contract cost $230,091) $ 231,890
==========
<CAPTION>
Forward Foreign Currency Exchange
Contracts to Sell: (Contract cost $2,151,051)
<C> <S> <C> <C>
14,786,320 Swedish Krona 01/02/97 $2,168,365
==========
<CAPTION>
Emerging Markets Fund:
Forward Foreign Currency Exchange Contracts to Buy:
<C> <S> <C> <C>
19,864,879 Portuguese Escudo 01/03/97 $ 128,118
811,068 Malaysian Ringgit 01/06/96 321,120
----------
Total Forward Foreign Currency Exchange
Contracts to Buy: (Contract cost $447,453) $ 449,238
==========
<CAPTION>
Forward Foreign Currency Exchange Contracts to Sell:
<C> <S> <C> <C>
21,807,550 Philippine Peso 01/02/97 $ 829,176
3,826,479 Philippine Peso 01/03/97 145,493
10,861,026 Malaysian Ringgit 01/06/97 4,300,129
152,346,015 Portuguese Escudo 01/06/97 982,500
6,933,169 Thai Baht 01/06/97 270,303
----------
Total Forward Foreign Currency Exchange
Contracts to Sell: (Contract cost $6,506,773) $6,527,601
==========
<CAPTION>
Emerging Asia Fund:
Forward Foreign Currency Exchange
Contracts to Buy: (Contract cost $205,188)
<C> <S> <C> <C>
1,586,965 Hong Kong Dollar 01/03/97 $ 205,180
==========
<CAPTION>
Forward Foreign Currency Exchange
Contracts to Sell: (Contract cost $48,225)
<C> <S> <C> <C>
372,983 Hong Kong Dollar 01/03/97 $ 48,223
==========
<CAPTION>
Select 50 Fund:
Forward Foreign Currency Exchange
Contracts to Buy: (Contract cost $123,903)
<C> <S> <C> <C>
16,194,169 Spanish Peseta 01/03/97 $ 124,737
==========
<CAPTION>
Forward Foreign Currency Exchange Contracts to Sell:
<C> <S> <C> <C>
4,960,356 Hong Kong Dollar 01/03/97 $ 641,330
613,114 Singapore Dollar 01/03/97 438,167
439,289 Malaysian Ringgit 01/06/97 173,941
----------
Total Forward Foreign Currency Exchange
Contracts to Sell: (Contract cost $1,252,515) $1,253,438
==========
</TABLE>
f. Under an unsecured Revolving Credit Agreement with Deutsche Bank (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 Growth Fund, Small
Cap Opportunities Fund, Equity Income Fund, International Growth Fund,
International Small Cap Fund, Global Opportunities Fund, Emerging Asia Fund,
Select 50 Fund and the Asset Allocation Fund and up to
104
<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% of its net asset value for the Micro Cap Fund, Small Cap Fund, Global
Communications Fund, Emerging Markets Fund, Short Government Bond Fund,
California Tax-Free Intermediate Bond Fund, Government Reserve Fund, Federal
Tax-Free Money Fund and California Tax-Free Money Fund, provided that the
aggregate principal amount of outstanding loans under the agreement to all Funds
does not exceed $300,000,000. For the six months ended December 31, 1996, 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 certain 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
market 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 market 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 December 31, 1996. These securities are valued at market price.
<TABLE>
<CAPTION>
Global Communications Fund:
12/31/96 Market
Acquisition Market Value per % of Total
Security Date Shares Value Share Cost Net Assets
- -------- ---- ------ ----- ----- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
FGI Wireless................... 12/21/95 168,500 $ 1,954,403 $11.60 $2,198,925 1.18%
Ionica......................... 02/23/95 1,110,000 5,227,403 4.71 4,319,610 3.17
Global Telesystems Group, Inc.. 04/22/94 450,987 8,720,373 19.34 3,881,177 5.29
Grupo Mexicano de Video........ 09/03/93 105,000 50,216 0.48 1,865,000 0.03
Russian Telecommunications
Development Corporation..... 12/22/93 200,000 1,539,401 7.70 2,000,000 0.93
----------- -----
$17,491,796 10.60%
=========== =====
</TABLE>
<TABLE>
<CAPTION>
Emerging Markets Fund:
12/31/96 Market
Acquisition Market Value per % of Total
Security Date Shares Value Share Cost Net Assets
- -------- ---- ------ ----- ----- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Accton Technology Corporation.. 12/19/96 486,000 $ 1,731,927 $3.56 $1,628,577 0.19%
Bank Sinopac................... 07/03/96 8,382,360 9,083,430 1.08 7,672,111 1.00%
Cathay Life Insurance.......... 07/21/95 1,084,716 6,902,738 6.36 5,485,114 0.76%
China Development Corporation.. 09/12/96 2,550,000 7,789,091 3.05 7,093,326 0.85%
China Steel Corporation........ 03/07/96 5,200,000 4,878,545 0.94 4,899,700 0.53%
Efes Sinai Yatrium ve Ticaret.. 07/12/94 l0,532,873 458,344 0.04 624,751 0.05%
Global Telesystems Group, Inc.. 06/17/94 46,389 896,987 19.34 497,627 0.10%
Pacific Construction........... 06/04/96 7,681,451 6,564,149 0.85 6,314,331 0.72%
Pepsi International Bottlers... 12/27/95 32,000 2,706,372 84.57 3,200,000 0.30%
Taiwan Semiconductor Company... 07/20/95 2,260,280 4,643,848 2.05 4,836,496 0.51%
Yageo Corporation.............. 04/15/96 1,153,600 2,265,251 1.96 1,520,890 0.25%
----------- ----
$47,920,682 5.26%
=========== ====
</TABLE>
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
Emerging Asia Fund:
<TABLE>
<CAPTION>
12/31/96 Market
Acquisition Market Value per % of Total
Security Date Shares Value Share Cost Net Assets
- -------- ----------- --------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accton Technology Corporation 12/19/96 82,000 $ 292,218 $3.56 $ 271,487 1.54%
CNET Technology Inc. 12/19/96 200,000 304,000 1.52 292,191 1.61%
PCI Leasing and Financing, Inc. 12/26/96 303,000 80,070 0.26 81,628 0.42%
United World Chinese
Commercial Bank 12/04/96 14,550 38,359 2.64 36,990 0.20%
----------- ----------
$ 714,647 3.77%
=========== ==========
</TABLE>
Certain of the Funds hold foreign currency at December 31, 1996, which may be
illiquid because conversion to U.S. dollars could take more than seven days.
The following securities held by the Funds on December 31, 1996, are
unrestricted securities for which reliable market prices can be established.
These securities are valued at their market prices. Because the process of re-
registering 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 December 31, 1996. The Fund
bears the cost of re-registering these securities:
<TABLE>
<CAPTION>
Emerging Markets Fund:
12/31/96 Market
Acquisition Market Value per % of Total
Security Date Shares Value Share Cost Net Assets
- -------- ----------- --------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Carrier Aircon, Ltd. 01/22/96 200 $ 993 $4.97 $ 624 0.00%#
Engro Chemicals Pakistan 04/03/96 194 651 3.36 883 0.00 #
Fauji Fertilizer Company Ltd. 11/27/96 1,362,800 2,295,140 1.68 2,380,146 0.25
Floatglass 04/26/96 4,900 2,720 0.56 6,509 0.00 #
Grasim Industries, Ltd. 02/15/96 50 583 11.66 835 0.00 #
Hanjaya Mandala Sampoerna 03/28/96 533,700 2,847,002 5.33 2,311,726 0.31
HDFC Bank, Ltd. 08/05/96 11,000 12,350 1.12 11,587 0.00 #
Hindustan Petroleum Corporation Ltd. 11/01/96 7,300 67,604 9.26 64,493 0.01
Hong Leong Bank Berhad 12/06/96 860,000 2,996,634 3.48 2,979,935 0.33
Housing Development and Finance
Corporation 02/05/96 10 628 62.81 720 0.00 #
Indian Hotels Company Ltd. 04/22/96 26 514 19.76 279 0.00 #
Industrial Credit & Investment
Corporation 02/09/96 3,273 5,364 1.64 8,892 0.00 #
Lippo Bank (F) 11/22/96 989,000 963,040 0.97 799,820 0.11
Mahanagar Telephone Nigam, Ltd. 11/27/96 76,600 506,393 6.61 413,233 0.06
New Straits Times 08/16/96 1,680,000 9,712,136 5.78 8,347,665 1.07
Pakistan State Oil 12/16/96 31,128 201,153 6.46 165,000 0.02
Public Bank Berhad (F) 11/21/96 2,931,000 6,209,008 2.12 5,498,889 0.68
State Bank of India 03/26/96 34,050 215,128 6.32 230,281 0.02
Tata Engineering & Locomotive
Company, Ltd. 05/08/96 2,700 25,380 9.40 37,579 0.00 #
Telekom Malaysia Berhad (F) 10/04/96 638,000 5,684,023 8.91 5,642,692 0.62
----------- ----------
$31,746,444 3.48%
=========== ==========
Emerging Asia Fund:
Hong Leong Bank Berhad 12/10/96 200,000 $ 696,892 $3.48 $ 698,169 3.68%
Public Bank Berhad (F) 12/09/96 240,000 508,414 2.12 505,730 2.69
----------- ----------
$ 1,205,306 6.37%
=========== ==========
</TABLE>
# Amount equals less than 0.01%.
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
8. CAPITAL LOSS CARRYFORWARDS:
At June 30, 1996, the following Funds had available for federal tax purposes
unused capital losses as follows:
<TABLE>
<CAPTION>
Name of Fund Expiring in 2002 Expiring in 2003 Expiring in 2004
- ------------ ---------------- ---------------- ----------------
<S> <C> <C> <C>
Small Cap Opportunities Fund.................. -- -- $ 849,214
International Small Cap Fund.................. -- $790,579 1,144,985
Emerging Markets Fund......................... -- -- 4,534,725
Short Government Bond Fund.................... -- 374,263 --
California Tax-Free Intermediate Bond Fund.... -- 80,892 64,724
Government Reserve Fund....................... $12,270 20,906 5,378
California Tax-Free Money Fund................ -- -- 6,745
</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, 1996, the following Funds elected
to defer losses occurring, between November 1, 1995, and June 30, 1996, under
these rules as follows:
<TABLE>
<CAPTION>
Name of Fund Amount
- ------------ -----------
<S> <C>
Global Opportunities Fund $ 62,179
Global Communications Fund 503,263
Emerging Markets Fund 19,928,066
Select 50 Fund 58,481
California Tax-Free Intermediate Bond Fund 12,322
Government Reserve Fund 4,341
</TABLE>
Such deferred losses will be treated as arising on the first day of the fiscal
year ending June 30, 1997.
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:
<TABLE>
<S> <C>
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
</TABLE>
107
<PAGE>
- ---------------------------------
The Montgomery Funds
- ---------------------------------
Tax Information
- ---------------------------------
F I S C A L Y E A R E N D E D
D E C E M B E R 3 1, 1 9 9 6
(Unaudited)
The percentages of total net assets invested in U.S. government and U.S.
government agency obligations at March 31, 1996; June 30, 1996; September 30,
1996, and December 31, 1996, were as follows:
<TABLE>
<CAPTION>
3/31/96 6/30/96 9/30/96 12/31/96
<S> <C> <C> <C> <C>
Asset Allocation Fund:
Federal Home Loan Bank 3.9% 2.8% 1.5% 1.8%
Federal Home Loan Mortgage Corporation 2.2 3.1 5.4 7.7
Federal National Mortgage Association 13.5 12.3 13.5 7.9
Government National Mortgage Association -- -- 3.8 3.2
Student Loan Marketing Association -- -- 0.2 0.9
U.S. Treasury Bonds 3.1 3.0 6.3 8.8
U.S. Treasury Notes 11.9 9.5 13.8 9.8
Short Government Bond Fund:
Federal Home Loan Bank 10.1 12.9 10.9 12.4
Federal Home Loan Mortgage Corporation 21.5 28.1 34.5 54.6
Federal National Mortgage Association 38.7 34.1 27.0 6.9
Government National Mortgage Association 2.2 1.7 4.0 2.9
U.S. Treasury Notes 35.4 28.8 32.6 24.2
Government Reserve Fund:
Federal Farm Credit Bank 4.0 7.6 4.9 15.8
Federal Home Loan Bank 12.6 13.9 22.4 27.4
Federal Home Loan Mortgage Corporation 5.3 5.2 8.7 14.2
Federal Landbank -- 0.2 0.1
Federal National Mortgage Association 0.3 0.8 1.1 1.0
Student Loan Marketing Association 24.2 23.2 16.4 8.2
Tennessee Valley Authority -- 0.2 2.8 4.2
U.S. Treasury Bills 1.5 -- -- 0.6
U.S. Treasury Bonds -- -- -- --
U.S. Treasury Notes 8.5 8.0 6.9 1.1
</TABLE>
108
<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,
call (800) 572-3863 for a free prospectus. Read it carefully before you invest
or send money.
Montgomery Securities, Distributor. 2/97
<PAGE>
--------------
[ART WORK (OWL) APPEARS HERE] Bulk Rate
THE MONTGOMERY FUNDS U.S. POSTAGE
101 California Street PAID
San Francisco, CA 94111 Hudson, MA
(800) 572-3863 Permit No. 19
--------------
[ARTWORK APPEARS HERE]
