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[PICTURE APPEARS HERE]
The Montgomery Funds(SM)
Annual Report
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June 30, 1999
Invest wisely
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The Montgomery Funds
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Annual Report
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June 30, 1999
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CONTENTS
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Chairman's Letter ...................................................... 1
Stock and Bond Market Overview ......................................... 2
Performance Summary .................................................... 4
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Portfolio Highlights and Investments
Montgomery U.S. Equity Funds
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Growth Fund ............................................................ 5
U.S. Emerging Growth Fund .............................................. 9
Small Cap Fund ......................................................... 13
Equity Income Fund ..................................................... 17
Montgomery International
and Global Equity Funds
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International Growth Fund .............................................. 21
International Small Cap Fund ........................................... 25
Global Opportunities Fund .............................................. 29
Global Communications Fund ............................................. 33
Emerging Markets Fund .................................................. 37
Emerging Asia Fund ..................................................... 43
Montgomery Multi-Strategy Funds
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Global Long-Short Fund ................................................. 48
Select 50 Fund ......................................................... 59
U.S. Asset Allocation Fund ............................................. 63
Montgomery U.S. Fixed-Income
and Money Market Funds
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Total Return Bond Fund ................................................. 65
Short Duration Government
Bond Fund .............................................................. 69
California Tax-Free
IntermediateBondFund ................................................... 73
Government Money Market Fund ........................................... 79
Federal Tax-Free Money Fund ............................................ 79
California Tax-Free Money Fund ......................................... 79
Financial Statements
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Statements of Assets and Liabilities ................................... 92
Statements of Operations ............................................... 98
Statements of Changes in Net Assets .................................... 102
Statements of Cash Flows ............................................... 106
Financial Highlights ................................................... 110
Notes to Financial Statements .......................................... 130
Independent Auditors' Report ........................................... 146
Tax Information ........................................................ 147
The Montgomery Funds are a comprehensive family of no-load mutual funds,
offering U.S. equity, international and global, and U.S. fixed-income investment
strategies.
We currently manage more than $4.2 billion in the Funds on behalf of over
200,000 individual investors, helping them meet their financial goals through a
combination of professional portfolio management and high-quality customer
service.
[LOGO OF THE MONTGOMERY FUNDS APPEARS HERE]
The Montgomery Funds(SM)
101 California Street
San Francisco, CA 94111-9361
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The Montgomery Funds
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Annual Report
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June 30, 1999
CHAIRMAN'S LETTER
August 1999
Dear Fellow Shareholder:
The investment climate over the past 12 months wasn't suited for the faint of
heart. We began the fiscal year (on July 1, 1998) with a significant global
market correction, followed by rapid recoveries in some markets juxtaposed with
painfully slower reform in others. In an unexpected twist, companies in age-old
industries such as industrial materials appeared to give way to newer
ones--mainly Internet-related--only to stage an eleventh-hour comeback. Like a
wild roller-coaster ride, the reversal of fortune for many markets and sectors
was rapid, often catching unwitting investors by surprise.
Reflecting on these extremes, I find myself dwelling on two themes very familiar
to Montgomery shareholders: the importance of keeping a long-term perspective
and the equally critical need to maintain a diversified portfolio.
Keeping Perspective
All too often, we find ourselves tempted to believe the pundits when they tell
us that the world has fundamentally changed. But it is crucial for us to
decipher between reality and short-term trends. Did we really believe that
investors would never return to the emerging markets, that nobody would ever
invest in anything other than a growth stock and that inflation was dead?
Let's take the recent experience in emerging markets as an example. In my view,
the exodus from the emerging markets asset class at its lowest point over the
past 12 months is an example of blurred perspective. There can be no denying
that it was hard for emerging markets investors to watch the value of their
holdings diminish while the S&P 500 Index seemed to be powering forever upward.
But those who stayed focused on their belief in the long-term prospects for
these markets have seen them rapidly appreciate in 1999. Similarly, many
investors shifted their portfolio concentration to large-cap growth funds that
included heavy exposure to Inter-net issues and abandoned the less-mainstream
growth funds, which rebounded sharply as many Internet companies gave up their
leadership in the second quarter of 1999.
Diversify, Diversify, Diversify
One tried-and-true way to help maintain your perspective is to spread your
portfolio risk across investments. The short-term distractions and frustrations
associated with trying to identify the next hot market segment or asset
class--in my view, an impossible task--are of less concern if you hold a
diversified portfolio of stocks and bonds. As Nobel Prize-winning economist
Harry Markowitz pointed out in the 1950s, diversification produces far superior
risk-adjusted returns. Any investor whose portfolio included mutual funds with
exposure to both the S&P 500 and this year's rapidly appreciating emerging Asia
markets can attest to the benefits of such diversification.
I urge you to remain focused on your long-term investment goals and objectives,
regardless of short-term market fluctuations. Keep in mind that it is a wise
investor who sets an appropriate asset allocation plan and sticks with it.
As always, thank you for your continued support of The Montgomery Funds.
Sincerely,
/s/ R. Stephen Doyle Chairman
R. Stephen Doyle Chairman
[PHOTO OF R. STEPHEN DOYLE APPEARS HERE]
R. Stephen Doyle
Chairman and
Chief Executive Officer
Funds Distributor, Inc. This material is intended for use only when preceded or
accompanied by a prospectus. Please read the prospectus carefully before you
invest.
1
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The Montgomery Funds
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Annual Report
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June 30, 1999
STOCK AND BOND MARKET OVERVIEW
U.S. Stocks
The health of the global economy proved to be the dominant influence over U.S.
stocks during the financial year ended June 30, 1999. The beginning of the
period was marked by a steep correction in U.S. equities. This was due not to
any obvious weakening in the U.S. economy, which remained remarkably robust over
the period, but to the stock market's inability to avoid the negative investor
sentiment that swept global markets in August and September 1998. A series of
interest rate cuts by the U.S. Federal Reserve, combined with coordinated cuts
in other developed countries, allayed fears of a global recession and reversed
the downward momentum of the market. An economic slowdown in Europe and a
recession in Japan and most of the developing world, however, had a lingering
impact on U.S. stocks.
Into the beginning of 1999, with the exception of Internet-related stocks,
investors continued to express a narrow preference for large-cap stocks over
small- and mid-caps. The outperformance of a handful of large-cap growth and
Internet securities masked the weaker returns of the broader market, especially
of small-caps and cyclicals. Against a backdrop of high domestic growth and low
inflation, this narrow bias reflected ongoing concerns about the prospects for
the global economy outside the United States.
By March 1999, however, the market's emphasis shifted dramatically. The world
economy appeared to be on the road to recovery, changing investors' perceptions
of risk. In addition, the benign interest rate environment that had favored
growth stocks began to change. An improvement in commodity prices, partly
triggered by an increase in oil prices as OPEC held to promised production cuts,
coupled with stronger than anticipated economic growth, led to increasing
concern about inflation.
[GRAPH APPEARS HERE]
THE S & P 500 INDEX
PERFORMANCE:
July 1, 1998, to June 30, 1999
Date S & P Index 500 Date S & P Index 500
---- --------------- ---- ---------------
30-Jun-99 1372.71
6/30/98 1133.84 29-Jun-99 1351.45
7/2/98 1146.42 28-Jun-99 1331.35
7/10/98 1164.33 25-Jun-99 1315.31
7/17/98 1186.75 24-Jun-99 1315.78
7/24/98 1140.8 23-Jun-99 1333.06
7/31/98 1120.67 22-Jun-99 1335.88
8/7/98 1089.45 21-Jun-99 1349
8/14/98 1062.75 18-Jun-99 1342.84
8/21/98 1081.18 17-Jun-99 1339.9
8/28/98 1027.14 16-Jun-99 1330.41
9/4/98 973.89 15-Jun-99 1301.16
9/11/98 1009.06 14-Jun-99 1294
9/18/98 1020.09 11-Jun-99 1293.64
9/25/98 1044.75 10-Jun-99 1302.82
10/2/98 1002.6 9-Jun-99 1318.64
10/9/98 984.39 8-Jun-99 1317.33
10/16/98 1056.42 7-Jun-99 1334.52
10/23/98 1070.67 4-Jun-99 1327.75
10/30/98 1098.67 3-Jun-99 1299.54
11/6/98 1141.01 2-Jun-99 1294.81
11/13/98 1125.72 1-Jun-99 1294.26
11/20/98 1163.55 28-May-99 1301.84
11/27/98 1192.29 27-May-99 1281.41
12/4/98 1176.74 26-May-99 1304.76
12/11/98 1166.46 25-May-99 1284.4
12/18/98 1188.03 24-May-99 1306.65
12/24/98 1226.27 21-May-99 1330.29
12/31/98 1229.23 20-May-99 1338.83
1/8/99 1275.09 19-May-99 1344.23
1/15/99 1243.26 18-May-99 1333.32
1/22/99 1225.19 17-May-99 1339.49
1/29/99 1279.64 14-May-99 1337.8
2/5/99 1239.4 13-May-99 1367.56
2/12/99 1230.13 12-May-99 1364
2/19/99 1239.19 11-May-99 1355.61
2/26/99 1238.33 10-May-99 1340.3
3/5/99 1275.47 7-May-99 1345
3/12/99 1294.59 6-May-99 1332.05
3/19/99 1299.29 5-May-99 1347.31
3/26/99 1282.8 4-May-99 1332
4/1/99 1293.72 3-May-99 1354.63
4/9/99 1348.35 30-Apr-99 1335.18
4/16/99 1319 29-Apr-99 1342.83
4/23/99 1356.85 28-Apr-99 1350.91
4/30/99 1335.18 27-Apr-99 1362.8
5/7/99 1345 26-Apr-99 1360.04
5/14/99 1337.8 23-Apr-99 1356.85
5/21/99 1330.29 22-Apr-99 1358.83
5/28/99 1301.84 21-Apr-99 1336.12
6/4/99 1327.75 20-Apr-99 1306.17
6/11/99 1293.64 19-Apr-99 1289.48
6/18/99 1342.84 16-Apr-99 1319
6/25/99 1315.31 15-Apr-99 1322.85
6/30/99 1372.71 14-Apr-99 1328.44
13-Apr-99 1349.82
12-Apr-99 1358.63
9-Apr-99 1348.35
8-Apr-99 1343.98
7-Apr-99 1326.89
6-Apr-99 1317.89
5-Apr-99 1321.12
1-Apr-99 1293.72
31-Mar-99 1286.37
30-Mar-99 1300.75
29-Mar-99 1310.17
26-Mar-99 1282.8
25-Mar-99 1289.99
24-Mar-99 1268.59
23-Mar-99 1262.14
22-Mar-99 1297.01
19-Mar-99 1299.29
18-Mar-99 1316.55
17-Mar-99 1297.82
16-Mar-99 1306.36
15-Mar-99 1307.26
12-Mar-99 1294.59
11-Mar-99 1297.68
10-Mar-99 1286.84
9-Mar-99 1279.84
8-Mar-99 1282.73
5-Mar-99 1275.47
4-Mar-99 1246.64
3-Mar-99 1227.7
2-Mar-99 1225.5
1-Mar-99 1236.16
26-Feb-99 1238.33
25-Feb-99 1245.02
24-Feb-99 1253.41
23-Feb-99 1271.18
22-Feb-99 1272.14
19-Feb-99 1239.19
18-Feb-99 1237.28
17-Feb-99 1224.03
16-Feb-99 1241.87
12-Feb-99 1230.13
11-Feb-99 1254.04
10-Feb-99 1223.55
9-Feb-99 1216.14
8-Feb-99 1243.77
5-Feb-99 1239.4
4-Feb-99 1248.49
3-Feb-99 1272.07
2-Feb-99 1261.99
1-Feb-99 1273
29-Jan-99 1279.64
28-Jan-99 1265.37
27-Jan-99 1243.17
26-Jan-99 1252.31
25-Jan-99 1233.98
22-Jan-99 1225.19
21-Jan-99 1235.16
20-Jan-99 1256.62
19-Jan-99 1252
15-Jan-99 1243.26
14-Jan-99 1212.19
13-Jan-99 1234.4
12-Jan-99 1239.51
11-Jan-99 1263.88
8-Jan-99 1275.09
7-Jan-99 1269.73
6-Jan-99 1272.34
5-Jan-99 1244.78
4-Jan-99 1228.1
31-Dec-98 1229.23
30-Dec-98 1231.93
29-Dec-98 1241.81
28-Dec-98 1225.49
24-Dec-98 1226.27
23-Dec-98 1228.54
22-Dec-98 1203.57
21-Dec-98 1202.84
18-Dec-98 1188.03
17-Dec-98 1179.98
16-Dec-98 1161.94
15-Dec-98 1162.83
14-Dec-98 1141.2
11-Dec-98 1166.46
10-Dec-98 1165.02
9-Dec-98 1183.49
8-Dec-98 1181.38
7-Dec-98 1187.7
4-Dec-98 1176.74
3-Dec-98 1150.14
2-Dec-98 1171.25
1-Dec-98 1175.28
30-Nov-98 1163.63
27-Nov-98 1192.29
25-Nov-98 1186.87
24-Nov-98 1182.99
23-Nov-98 1188.21
20-Nov-98 1163.55
19-Nov-98 1152.61
18-Nov-98 1144.48
17-Nov-98 1139.32
16-Nov-98 1135.86
13-Nov-98 1125.72
12-Nov-98 1117.69
11-Nov-98 1120.97
10-Nov-98 1128.26
9-Nov-98 1130.2
6-Nov-98 1141.01
5-Nov-98 1133.85
4-Nov-98 1118.67
3-Nov-98 1110.84
2-Nov-98 1111.6
30-Oct-98 1098.67
29-Oct-98 1085.93
28-Oct-98 1068.09
27-Oct-98 1065.34
26-Oct-98 1072.32
23-Oct-98 1070.67
22-Oct-98 1078.48
21-Oct-98 1069.92
20-Oct-98 1063.93
19-Oct-98 1062.39
16-Oct-98 1056.42
15-Oct-98 1047.49
14-Oct-98 1005.53
13-Oct-98 994.8
12-Oct-98 997.71
9-Oct-98 984.39
8-Oct-98 959.44
7-Oct-98 970.68
6-Oct-98 984.59
5-Oct-98 988.56
2-Oct-98 1002.6
1-Oct-98 986.39
30-Sep-98 1017.01
29-Sep-98 1049.02
28-Sep-98 1048.69
25-Sep-98 1044.75
24-Sep-98 1042.72
23-Sep-98 1066.09
22-Sep-98 1029.63
21-Sep-98 1023.89
18-Sep-98 1020.09
17-Sep-98 1018.87
16-Sep-98 1045.48
15-Sep-98 1037.68
14-Sep-98 1029.72
11-Sep-98 1009.06
10-Sep-98 980.19
9-Sep-98 1006.2
8-Sep-98 1023.46
4-Sep-98 973.89
3-Sep-98 982.26
2-Sep-98 990.47
1-Sep-98 994.24
31-Aug-98 957.28
28-Aug-98 1027.14
27-Aug-98 1042.59
26-Aug-98 1084.19
25-Aug-98 1092.86
24-Aug-98 1088.14
21-Aug-98 1081.18
20-Aug-98 1091.6
19-Aug-98 1098.06
18-Aug-98 1101.2
17-Aug-98 1083.67
14-Aug-98 1062.75
13-Aug-98 1074.91
12-Aug-98 1084.22
11-Aug-98 1068.98
10-Aug-98 1083.14
7-Aug-98 1089.45
6-Aug-98 1089.63
5-Aug-98 1081.43
4-Aug-98 1072.12
3-Aug-98 1112.44
31-Jul-98 1120.67
30-Jul-98 1142.95
29-Jul-98 1125.21
28-Jul-98 1130.24
27-Jul-98 1147.27
24-Jul-98 1140.8
23-Jul-98 1139.75
22-Jul-98 1164.08
21-Jul-98 1165.07
20-Jul-98 1184.1
17-Jul-98 1186.75
16-Jul-98 1183.99
15-Jul-98 1174.81
14-Jul-98 1177.58
13-Jul-98 1165.19
10-Jul-98 1164.33
9-Jul-98 1158.56
8-Jul-98 1166.37
7-Jul-98 1154.66
6-Jul-98 1157.31
2-Jul-98 1146.42
1-Jul-98 1148.56
30-Jun-98 1133.84
The S&P 500 Index achieved new highs during the year, resuming its upward trend
after an initial bout of volatility. Although index gains were focused on a
narrow group of stocks for much of the year, by June more stocks had begun to
participate.
These events cooled investor enthusiasm for highly valued growth stocks, and the
market broadened as cyclicals and smaller-caps returned to favor. In particular,
investors saw opportunities in stocks that had been depressed by the Asian
crisis. In a reversal of recent trends, large-cap growth stocks that had led the
market for more than six quarters underperformed while value-oriented and
small-cap stocks that had badly lagged regained investor atteion.
U.S. Bonds
The financial year can be split into two distinctive segments in terms of the
bond market: During the period from July 1, 1998, to February 1999, concerns of
global recession and deflation were the dominant themes, whereas by the latter
half of February a series of reports suggesting that economic activity was
stronger than expected reawakened fears about inflationary pressures.
While deflationary concerns persisted, investors continued favoring the most
liquid, high-quality bond issues. As a result, the yield on the 30-year Treasury
bond sunk to lows not seen since the late 1960s. In response to slowing global
economic activity and loss of liquidity, the Federal Reserve reduced the
overnight bank-lending rate to a mere 4.8% in a series of three cuts.
By the first quarter of 1999, however, negative economic factors began to offset
the positive factors that had previously driven bond prices higher. Inflation
remained low as a result of high productivity and worldwide manufacturing
overcapacity, while tight labor markets, bottoming commodity markets and strong
consumer spending were all of increasing concern to the bond market. The
clearest manifestation of these concerns was the fall in bond prices in
February, as stronger than anticipated economic data and comments by Federal
Reserve Chairman Alan Greenspan dampened hopes of further short-term interest
rate reductions.
The behavior of the market in general had largely returned to normal by the
final three months of the financial year. In response to heightened inflationary
concerns, the Fed announced a tightening bias. Increasing rates, which have
risen as much as 1.0% since February, have led to abnormally low bond market
returns. Underlying the upward trend in rates has been the Fed's determination
to slow growth to head off inflation. U.S. rates are quite attractive by
international standards, but the country's trade deficit is daunting and
commodity prices have stopped declining. Nevertheless, the Lehman Brothers
Aggregate Bond Index has never had two consecutive first and second half-years
of negative returns. We now believe that bond yields are nearing their highs.
2
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The Montgomery Funds
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Annual Report
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June 30, 1999
U.S. TREASURY 30-YEAR
BOND YIELD:
July 1, 1998, to June 30, 1999
[GRAPH APPEARS HERE]
U. S. Treasury U. S. Treasury
Date 30 Year Bond Date 30 Year Bond
---- -------------- ---- --------------
6/30/98 5.627 6/30/98 5.627
7/3/98 5.599 7/1/98 5.629
7/10/98 5.625 7/2/98 5.6
7/17/98 5.746 7/3/98 5.599
7/24/98 5.686 7/6/98 5.572
7/31/98 5.713 7/7/98 5.603
8/7/98 5.631 7/8/98 5.626
8/14/98 5.54 7/9/98 5.605
8/21/98 5.433 7/10/98 5.625
8/28/98 5.338 7/13/98 5.692
9/4/98 5.288 7/14/98 5.717
9/11/98 5.229 7/15/98 5.705
9/18/98 5.147 7/16/98 5.727
9/25/98 5.109 7/17/98 5.746
10/2/98 4.84 7/20/98 5.713
10/9/98 5.115 7/21/98 5.663
10/16/98 4.978 7/22/98 5.681
10/23/98 5.178 7/23/98 5.657
10/30/98 5.157 7/24/98 5.686
11/6/98 5.387 7/27/98 5.708
11/13/98 5.25 7/28/98 5.74
11/20/98 5.218 7/29/98 5.769
11/27/98 5.159 7/30/98 5.722
12/4/98 5.04 7/31/98 5.713
12/11/98 5.024 8/3/98 5.659
12/18/98 4.998 8/4/98 5.631
12/25/98 5.216 8/5/98 5.671
1/1/99 5.095 8/6/98 5.671
1/8/99 5.272 8/7/98 5.631
1/15/99 5.107 8/10/98 5.624
1/22/99 5.082 8/11/98 5.602
1/29/99 5.086 8/12/98 5.609
2/5/99 5.349 8/13/98 5.65
2/12/99 5.422 8/14/98 5.54
2/19/99 5.387 8/17/98 5.546
2/26/99 5.576 8/18/98 5.556
3/5/99 5.596 8/19/98 5.556
3/12/99 5.526 8/20/98 5.513
3/19/99 5.56 8/21/98 5.433
3/26/99 5.589 8/24/98 5.471
4/2/99 5.596 8/25/98 5.428
4/9/99 5.46 8/26/98 5.417
4/16/99 5.572 8/27/98 5.344
4/23/99 5.597 8/28/98 5.338
4/30/99 5.662 8/31/98 5.267
5/7/99 5.813 9/1/98 5.341
5/14/99 5.922 9/2/98 5.333
5/21/99 5.751 9/3/98 5.303
5/28/99 5.828 9/4/98 5.288
6/4/99 5.963 9/7/98 5.284
6/11/99 6.159 9/8/98 5.363
6/18/99 5.972 9/9/98 5.262
6/25/99 6.149 9/10/98 5.204
6/30/99 5.963 9/11/98 5.229
9/14/98 5.23
9/15/98 5.26
9/16/98 5.221
9/17/98 5.179
9/18/98 5.147
9/21/98 5.125
9/22/98 5.152
9/23/98 5.168
9/24/98 5.164
9/25/98 5.109
9/28/98 5.141
9/29/98 5.094
9/30/98 4.978
10/1/98 4.882
10/2/98 4.84
10/5/98 4.716
10/6/98 4.735
10/7/98 4.86
10/8/98 4.999
10/9/98 5.115
10/12/98 5.117
10/13/98 5.089
10/14/98 5.031
10/15/98 4.967
10/16/98 4.978
10/19/98 4.982
10/20/98 5.069
10/21/98 5.071
10/22/98 5.137
10/23/98 5.178
10/26/98 5.107
10/27/98 5.089
10/28/98 5.12
10/29/98 5.078
10/30/98 5.157
11/2/98 5.244
11/3/98 5.215
11/4/98 5.325
11/5/98 5.355
11/6/98 5.387
11/9/98 5.289
11/10/98 5.288
11/11/98 5.288
11/12/98 5.249
11/13/98 5.25
11/16/98 5.288
11/17/98 5.294
11/18/98 5.249
11/19/98 5.243
11/20/98 5.218
11/23/98 5.252
11/24/98 5.217
11/25/98 5.187
11/26/98 5.186
11/27/98 5.159
11/30/98 5.063
12/1/98 5.036
12/2/98 5.023
12/3/98 5.003
12/4/98 5.04
12/7/98 5.034
12/8/98 4.993
12/9/98 4.982
12/10/98 4.955
12/11/98 5.024
12/14/98 4.99
12/15/98 5.025
12/16/98 4.994
12/17/98 5.012
12/18/98 4.998
12/21/98 5.06
12/22/98 5.138
12/23/98 5.177
12/24/98 5.213
12/25/98 5.216
12/28/98 5.152
12/29/98 5.1
12/30/98 5.087
12/31/98 5.095
1/1/99 5.095
1/4/99 5.151
1/5/99 5.208
1/6/99 5.163
1/7/99 5.224
1/8/99 5.272
1/11/99 5.306
1/12/99 5.22
1/13/99 5.132
1/14/99 5.057
1/15/99 5.107
1/18/99 5.115
1/19/99 5.149
1/20/99 5.168
1/21/99 5.131
1/22/99 5.082
1/25/99 5.116
1/26/99 5.129
1/27/99 5.127
1/28/99 5.107
1/29/99 5.086
2/1/99 5.183
2/2/99 5.239
2/3/99 5.254
2/4/99 5.288
2/5/99 5.349
2/8/99 5.341
2/9/99 5.302
2/10/99 5.366
2/11/99 5.366
2/12/99 5.422
2/15/99 5.427
2/16/99 5.341
2/17/99 5.308
2/18/99 5.378
2/19/99 5.387
2/22/99 5.355
2/23/99 5.43
2/24/99 5.508
2/25/99 5.652
2/26/99 5.576
3/1/99 5.67
3/2/99 5.614
3/3/99 5.696
3/4/99 5.7
3/5/99 5.596
3/8/99 5.588
3/9/99 5.531
3/10/99 5.554
3/11/99 5.563
3/12/99 5.526
3/15/99 5.521
3/16/99 5.476
3/17/99 5.507
3/18/99 5.488
3/19/99 5.56
3/22/99 5.568
3/23/99 5.541
3/24/99 5.531
3/25/99 5.585
3/26/99 5.589
3/29/99 5.64
3/30/99 5.58
3/31/99 5.625
4/1/99 5.671
4/2/99 5.596
4/5/99 5.588
4/6/99 5.519
4/7/99 5.503
4/8/99 5.443
4/9/99 5.46
4/12/99 5.452
4/13/99 5.49
4/14/99 5.507
4/15/99 5.526
4/16/99 5.572
4/19/99 5.519
4/20/99 5.507
4/21/99 5.524
4/22/99 5.603
4/23/99 5.597
4/26/99 5.575
4/27/99 5.538
4/28/99 5.583
4/29/99 5.53
4/30/99 5.662
5/3/99 5.655
5/4/99 5.713
5/5/99 5.706
5/6/99 5.791
5/7/99 5.813
5/10/99 5.79
5/11/99 5.835
5/12/99 5.827
5/13/99 5.75
5/14/99 5.922
5/17/99 5.892
5/18/99 5.889
5/19/99 5.803
5/20/99 5.827
5/21/99 5.751
5/24/99 5.757
5/25/99 5.748
5/26/99 5.804
5/27/99 5.851
5/28/99 5.828
5/31/99 5.828
6/1/99 5.924
6/2/99 5.934
6/3/99 5.963
6/4/99 5.963
6/7/99 5.965
6/8/99 5.994
6/9/99 6.026
6/10/99 6.063
6/11/99 6.159
6/14/99 6.099
6/15/99 6.111
6/16/99 6.066
6/17/99 5.963
6/18/99 5.972
6/21/99 6.019
6/22/99 6.057
6/23/99 6.146
6/24/99 6.16
6/25/99 6.149
6/28/99 6.094
6/29/99 6.067
6/30/99 5.963
It was a challenging year for the bond market. From July through December,
deflationary fears hurt all sectors other than Treasuries. In 1999, however,
renewed inflationary concerns pushed up Treasury yields and led to a decline in
absolute returns.
International Equities
The financial year started badly for international equity markets. Following the
devaluation of the Russian ruble in August, there was massive capital flight
from the emerging markets. In Europe the lingering effects of recession in Asia
began to feed through into corporate earnings, resulting in a downgrade in
expectations for economic growth and weaker markets. By the end of 1998, the
markets had recovered from their lows, helped by interest rate cuts in the
United States and Europe and the stabilization of the yen. There were still
enough global uncertainties, however, to make it difficult to predict what the
New Year might bring.
Confounding even many optimists, 1999 brought better news than expected. In the
first three months of this year, both the developed and the emerging economies
of Asia showed significant signs of recovery. Japanese companies, facing few
alternatives, finally began substantial restructuring efforts, spurred by a
change in the government's attitude toward corporate bailouts. By March even
skeptics were convinced that the recovery was more than an illusion. Evidence of
recovery was borne out by Japan's seasonally adjusted first-quarter GDP (gross
domestic product) numbers, which indicated a slight increase in consumer
spending--an important component to a sustainable return to economic growth.
In much of the rest of Asia, currencies stabilized, interest rates declined and
the current account deficits that had proved so problematic at the beginning of
the Asian crisis had been eliminated. In addition, companies that had survived
were beginning to restructure and improve their global competitiveness.
Reflecting such good news, capital flooded back into the equity markets, which
began to appreciate rapidly.
The Asian emerging markets weren't the only ones to enjoy good fortune. In Latin
America, Brazil rebounded surprisingly quickly after devaluing its currency in
January. Hyperinflation failed to take hold, and interest rates have been
gradually declining. Rising commodity prices were also a boon to Brazil as well
as to emerging markets in the rest of Latin America, Asia and Africa/ Middle
East. Nevertheless, Brazil still faces significant hurdles in its recovery
process, which are reflected in its current valuation.
The most disappointing region in terms of performance, particularly in the past
six months, has been Europe. These markets failed to recover as rapidly as their
U.S. counterpart in the final months of 1998. Major markets such as the United
Kingdom and Germany were suffering decelerating growth, and a weak euro affected
dollar returns for the continental European markets. By June, however, there
were subtle signs of improvement. We believe that the United Kingdom and France
are beginning a phase of accelerating growth and we have seen evidence that
inspires some optimism for the German market. Looking forward, because of the
attractive valuations in these markets, we believe that there are likely to be
plenty of interesting investment opportunities.
3
<PAGE>
====================
The Montgomery Funds
- --------------------
Performance Summary
- --------------------
June 30, 1999
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/99
<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 11.41% 16.33% 19.98% 22.30%
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Emerging Growth Fund (294) 12/30/94 (4.07)% 10.26% -- 16.80%
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Fund (276) 7/13/90 (4.14)% 8.06% 16.12% 17.72%
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund (293) 9/30/94 15.06% 18.87% -- 20.13%
- ------------------------------------------------------------------------------------------------------------------------------------
Montgomery International and Global Equity Funds
- ------------------------------------------------------------------------------------------------------------------------------------
International Growth Fund (296) 7/3/95 2.34% 14.57% -- 17.72%
- ------------------------------------------------------------------------------------------------------------------------------------
International Small Cap Fund (283) 9/30/93 (3.82)% 5.08% 7.50% 6.54%
- ------------------------------------------------------------------------------------------------------------------------------------
GlobalOpportunitiesFund (285) 9/30/93 15.68% 20.41% 19.02% 17.86%
- ------------------------------------------------------------------------------------------------------------------------------------
GlobalCommunications Fund (280) 6/1/93 31.66% 29.89% 22.79% 21.71%
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund (277) 3/1/92 3.85% (9.00)% (3.82)% 1.93%
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Asia Fund (648) 9/30/96 97.44% -- -- 4.84%
- ------------------------------------------------------------------------------------------------------------------------------------
Montgomery Multi-Strategy Funds
- ------------------------------------------------------------------------------------------------------------------------------------
Global Long-Short Fund (1478) 12/31/97 51.78% -- -- 65.67%
- ------------------------------------------------------------------------------------------------------------------------------------
Select 50 Fund (295) 10/2/95 13.89% 18.43% -- 24.73%
- ------------------------------------------------------------------------------------------------------------------------------------
Asset Allocation Fund (291) 3/31/94 11.93% 13.74% 19.92% 19.33%
- ------------------------------------------------------------------------------------------------------------------------------------
Montgomery U.S. Fixed-Income and Money Market Funds
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return Bond Fund (650) 6/30/97 3.20% -- -- 6.99%
- ------------------------------------------------------------------------------------------------------------------------------------
Short Duration Government Bond Fund (279) 12/18/92 4.82% 6.39% 6.63% 6.32%
- ------------------------------------------------------------------------------------------------------------------------------------
California Tax-Free Intermediate Bond Fund (281) 7/1/93 2.71% 5.47% 5.71% 5.03%
- ------------------------------------------------------------------------------------------------------------------------------------
As of 6/30/99 One-day yield Seven-day yield
- ------------------------------------------------------------------------------------------------------------------------------------
Government Money Market Fund* (278) 9/14/92 4.32% 4.04%
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Tax-Free Money Fund (647) 7/15/96 2.91% 3.17%
- ------------------------------------------------------------------------------------------------------------------------------------
California Tax-Free Money Fund (292) 9/30/94 2.53% 2.73%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
Performance information is for Class R (Retail) shares only. The performance
figures provided do not reflect the effect of (i) any securities purchased or
sold by the Funds after 6/30/99 but that were effective on 6/30/99 or (ii) any
purchases or redemptions of Fund shares completed after 6/30/99 that were
effective on 6/30/99. The performance figures for the Class R shares shown above
do not reflect the 0.25% Rule 12b-1 fees paid by the ClassP shares that would
reduce performance.
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. Yields may fluctuate.
There are certain risks associated with investing in foreign markets, such as
currency fluctuations and political and economic instability. There are also
additional risks associated with investing in small-cap companies. Investors are
encouraged to read the prospectus carefully before investing.
* Formerly named the Montgomery Government Reserve Fund.
4
<PAGE>
====================
The Montgomery Funds
--------------------
Growth Fund
--------------------
Portfolio Highlights
INVESTMENT REVIEW
Q: How did the Fund perform for the quarter and year ended June 30, 1999?
A: For the quarter ended June 30, 1999, the Fund dramatically outperformed its
benchmark, returning 17.5% versus the S&P 500 Index's return of 7.0%. In our
1998 year-end shareholder letter, we discussed the fact that stock market
results were being driven by a small group of very large cap companies with
extremely high stock valuations. The first quarter of 1999 showed a continuation
of these trends. Market dynamics shifted abruptly as we moved into the second
quarter, resulting in the Fund's outperforming the S&P 500 by more than 1,000
basis points. Because of the three prior quarters, however, for the 12-month
period the Fund returned 11.4%, versus a return of 22.7% for the S&P 500.
Q: What trends had the most impact on performance over that period?
A: Although the Fund invests primarily in U.S.-based companies, global trends
had the biggest impact on performance during the year. Following a long period
of impressive growth in the economies of Asia, the subsequent crisis in the
region had a tremendous negative effect on world commodity prices and demand for
capital goods. It was this effect that caused the ripple that brought down so
many other markets and contributed to the correction in the U.S. market in the
third quarter of 1998. Against this backdrop investors fled to the largest, most
liquid securities, which they believed could offer sustainable earnings growth
regardless of the global economic climate.
By April 1999, however, signs of a recovery in Asia, coupled with substantial,
continued strength in the U.S. economy, led to rising commodity prices
(especially energy). This helped awaken investors to opportunities in a broad
array of attractively valued companies likely to benefit from a resumption of
global growth. As a result, there was a market rotation away from richly valued
growth stocks into the previously neglected cyclical and smaller-cap sectors, in
which the Fund has a higher concentration of its assets.
Q: Did you make any significant changes to the portfolio in response to such
shifting market conditions?
A: In spite of the very narrow focus of the market through three of the four
quarters of the fiscal year, we maintained our strategy, which emphasizes buying
companies that exhibit reasonable valuations yet have substantial future growth
prospects. Today two-thirds of the market capitalization of the S&P 500 Index
trades at an average price-to-earnings multiple above 40, more than double the
historical norm. Furthermore, these historically high valuations are based on
company earnings that are themselves at historic highs (i.e., record net profit
margins).
In our opinion the narrowness of the market was due to a set of very unusual
global circumstances that caused investors to focus on the near term without
taking into consideration the long-term potential and risks. Our strategy, in
contrast, involves seeking out companies that are undergoing positive, long-term
fundamental change and are attractively valued. This led the portfolio to be
================================================================================
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
Roger Honour........................................... Senior Portfolio Manager
Kathryn Peters................................................ Portfolio Manager
================================================================================
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/99
- --------------------------------------------------------------------------------
Montgomery Growth Fund
Since inception (9/30/93)................................................ 22.30%
One year................................................................. 11.41%
Five years............................................................... 19.98%
- --------------------------------------------------------------------------------
S&P 500 Index
Since 9/30/93............................................................ 23.57%
One year................................................................. 22.74%
Five years............................................................... 27.86%
- --------------------------------------------------------------------------------
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. Fund performance presented is for
Class R shares.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Montgomery S&P 500 Lipper Growth Montgomery S&P 500 Lipper Growth
Date Growth Fund Index/1/ Funds Average/2/ Date Growth Fund Index/1/ Funds Average/2/
---- ----------- -------- ---------------- ---- ----------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
9/93 10,000 10,000 10,000 1/97 21,847 18,623.62 16,716.22
10/93 10,400 10,203.3 10,139.37 2/97 21,636 18,772.98 16,540.12
11/93 10,983 10,107.18 9,959.69 3/97 21,045 17,992.22 15,802.65
12/93 11,834 10,231.4 10,239.89 4/97 21,921 19,065.63 16,445.99
1/94 12,488 10,573.64 10,575.6 5/97 23,704 20,235.88 17,606.16
2/94 12,647 10,278.84 10,402.23 6/97 24,348 21,125.65 18,286.91
3/94 12,530 9,840.11 9,920.03 7/97 26,913 22,803.03 19,819.45
4/94 12,982 9,967.54 9,960.78 8/97 26,586 21,539.28 19,125.61
5/94 13,116 10,130.61 10,017.46 9/97 28,021 22,713.82 20,186.46
6/94 12,798 9,880.18 9,683.76 10/97 26,744 21,966.31 19,421
7/94 13,259 10,206.92 9,940.11 11/97 26,786 22,973.9 19,791.78
8/94 13,929 10,622.24 10,405.78 12/97 26,405 23,362.16 20,015.95
9/94 13,846 10,365.92 10,200.56 1/98 25,826 23,626.62 20,138.93
10/94 14,349 10,602.99 10,361.77 2/98 28,094 25,324.43 21,659.69
11/94 13,919 10,213.76 9,974.14 3/98 29,312 26,624.34 22,600.36
12/94 14,309 10,362.98 10,063.45 4/98 29,758 26,900.16 22,858.19
1/95 13,996 10,632.42 10,144.96 5/98 28,805 26,432.37 22,211.9
2/95 14,537 11,044.95 10,535.34 6/98 28,564 27,506.05 23,002.25
3/95 15,128 11,371.99 10,835.75 7/98 27,153 27,213.66 22,499.86
4/95 15,230 11,705.42 11,075.81 8/98 22,521 23,285.1 18,810.98
5/95 15,568 12,168.02 11,423.18 9/98 23,052 24,793.04 19,917.8
6/95 16,193 12,454.21 11,900.44 10/98 25,054 26,800.04 21,393.3
7/95 16,869 12,869.43 12,460.36 11/98 26,526 28,424.92 22,694.8
8/95 16,920 12,904.44 12,550.78 12/98 26,959 30,078.97 24,445.48
9/95 17,360 13,446.3 12,929.31 1/99 27,350 31,317.02 25,464
10/95 17,081 13,398.83 12,757.07 2/99 26,368 30,344.31 24,443
11/95 17,664 13,988.65 13,211.84 3/99 27,088 31,563.25 26,507
12/95 17,692 14,247.3 13,261.63 4/99 30,146 32,765.17 26,254
1/96 17,932 14,737.98 13,566.4 5/99 29,923 32,007.64 25,766
2/96 18,641 14,879.61 13,870.83 6/99 31,817 33,757.18 27,306
3/96 19,157 15,022.15 13,982.55
4/96 19,904 15,243.43 14,401.1
5/96 20,668 15,636.25 14,761.16
6/96 20,217 15,699.74 14,575.4
7/96 19,295 15,000.63 13,742.15
8/96 20,042 15,319.24 14,200.75
9/96 20,613 16,180.34 15,009.89
10/96 20,977 16,623.19 15,159.76
11/96 21,878 17,885.06 16,114.83
12/96 21,267 17,535.05 15,874.26
</TABLE>
(1) The Standard & Poor's 500 Index is composed of 500 widely held common stocks
listed on the NYSE, AMEX and OTC markets.
(2) The Lipper Growth Funds Average universe consists of 338 funds.
5
<PAGE>
=====================
The Montgomery Funds
- --------------------
Growth Fund
- --------------------
Portfolio Highlights
================================================================================
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
Alcoa, Inc. ............................................................. 4.4%
Amerada Hess Corporation ................................................ 3.5%
Dow Chemical Company .................................................... 3.4%
Boise Cascade Corporation ............................................... 3.2%
Union Pacific Corporation ............................................... 3.0%
Golden West Financial Corporation ....................................... 2.9%
Union Pacific Resources Group, Inc. ..................................... 2.9%
First Health Group Corporation .......................................... 2.9%
Raychem Corporation ..................................................... 2.8%
Republic Services, Inc. ................................................. 2.5%
================================================================================
TOP FIVE INDUSTRIES
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
Paper ................................................................... 6.0%
Railroads ............................................................... 5.4%
Aluminum ................................................................ 4.4%
Telecommunications Equipment ............................................ 3.6%
Computer Software ....................................................... 3.5%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
overweighted in basic materials stocks, global industrial stocks and
smaller-capitalization issues.
Q: Can you give an example of a stock that has performed well since the
prospects of a global economic recovery have broadened investor interest in the
market?
A: Alcoa (4.4% of net assets as of 6/30/99) is one of the portfolio's commodity
sector holdings. It is the world's leading aluminum producer, and its shares
have performed very well since the market has begun to broaden. While prices of
aluminum were depressed, the company had undergone significant restructuring to
enable it to grow earnings even during periods of weak commodity prices. As a
result, any aluminum price increase will contribute directly to profits, a fact
that is now being recognized by the market.
Q: Which sectors do you think are the riskiest now that the market is trading at
all-time highs?
A: We believe that the highly valued growth stocks still represent the biggest
investment risk. Even though some of these stocks corrected from March through
June 1999, most are still expensive. Although many of these companies have
strong fundamentals, their excessive valuations make them risky investments. The
market is discounting a long stretch of rapid sales and earnings growth within
areas of the economy that typically have the greatest amount of vulnerability to
competition and technological change. Against a background of rising interest
rates, these risks intensify.
By contrast, in our view there is still a lot of value to be found in the
broader market. Many cyclical companies may do well in a global recovery, and we
do not think their current potential is reflected in their stock prices.
Q: How is the Fund positioned in relation to these risks?
A: We have taken the opportunity to trim or eliminate stocks in companies that
we believe had become fully valued. In spite of the rally in stocks owned in the
portfolio, we believe that our current holdings continue to represent attractive
long-term investments. Companies such as Alcoa are global players and still have
a lot of ability to improve prices as world economic growth reaccelerates.
6
<PAGE>
====================
The Montgomery Funds
--------------------
Growth Fund
--------------------
Investments
PORTFOLIO INVESTMENTS
June 30, 1999
Shares Value (Note 1)
COMMON STOCKS -- 94.6%
Advertising -- 1.1%
220,000 Snyder Communications, Inc.#+ ......................... $ 7,205,000
Aerospace/Defense -- 1.5%
280,000 Lockheed Martin Corporation ........................... 10,430,000
Air Freight/Delivery Services -- 1.9%
235,000 FDX Corporation+ ...................................... 12,748,750
Aluminum -- 4.4%
480,000 Alcoa, Inc. ........................................... 29,700,000
Books/Magazines -- 1.1%
140,000 Harcourt General, Inc. ................................ 7,218,750
Clothing/Shoe/Accessory Stores -- 3.0%
380,000 Nordstrom, Inc. ....................................... 12,730,000
225,000 TJX Companies, Inc. ................................... 7,495,312
-------------
20,225,312
Computer Software -- 3.5%
360,000 Autodesk, Inc.# ....................................... 10,653,750
800,000 Avid Technology, Inc.+ ................................ 12,825,000
-------------
23,478,750
Construction/Agriculture Equipment/Trucks -- 1.7%
220,000 PACCAR, Inc. .......................................... 11,742,500
Consumer Electronics/Appliances -- 2.2%
200,000 Whirlpool Corporation ................................. 14,800,000
Discount Stores -- 1.7%
700,000 Kmart Corporation+ .................................... 11,506,250
Diversified Electronic Products -- 1.8%
60,000 Matsushita Electric Industrial Co., Ltd., ADR .......... 11,898,750
Diversified Financial Services -- 1.6%
350,000 Stancorp Financial Group, Inc.+ ....................... 10,500,000
Diversified Manufacture -- 1.3%
90,000 Tyco International Ltd. ................................ 8,527,500
EDP Services -- 3.1%
100,000 Computer Sciences Corporation+ ........................ 6,918,750
240,000 Electronic Data Systems Corporation ................... 13,575,000
-------------
20,493,750
Electrical Products -- 2.8%
500,000 Raychem Corporation ................................... 18,500,000
Electronic Production Equipment -- 1.2%
75,000 Sony Corporation, ADR .................................. 8,278,125
Environmental Services -- 2.5%
682,700 Republic Services, Inc., Class A+ ..................... 16,896,825
Farming/Seeds/Milling -- 0.7%
310,000 Seminis, Inc.+ ........................................ 4,659,703
Finance Companies -- 1.5%
180,000 Capital One Financial Corporation ..................... 10,023,750
Food Distributors -- 1.5%
850,000 Fleming Companies, Inc. ............................... 9,881,250
Forest Products -- 1.6%
160,000 Weyerhaeuser Company .................................. 11,000,000
Integrated Oil Companies -- 3.5%
390,000 Amerada Hess Corporation .............................. 23,205,000
Major Banks -- 2.0%
180,000 Bank of America Corporation ........................... 13,196,250
Major Chemicals -- 3.4%
180,000 Dow Chemical Company .................................. 22,837,500
Managed Health Care -- 2.9%
900,000 First Health Group Corporation+ ....................... 19,378,125
Media Conglomerates -- 1.1%
240,000 News Corporation Ltd., ADR ............................ 7,575,000
Medical Specialties -- 2.3%
200,000 Bausch & Lomb, Inc. ................................... 15,300,000
Motor Vehicles -- 1.8%
180,000 General Motors Corporation ............................ 11,880,000
Movies/Television -- 1.3%
325,000 Fox Entertainment Group, Inc., Class A+ ............... 8,754,688
Multi-Sector Companies -- 1.3%
110,000 Loews Corporation ..................................... 8,703,750
Office/Plant Automation -- 1.3%
300,000 Newbridge Networks Corporation+ ....................... 8,625,000
Oil and Gas Production -- 2.9%
1,200,000 Union Pacific Resources Group, Inc. ................. 19,575,000
Oilfield Services/Equipment -- 2.3%
240,000 Schlumberger Ltd. ..................................... 15,285,000
Other Metals/Minerals -- 2.0%
200,000 Rio Tinto PLC, ADR .................................... 13,450,000
Package Goods/Cosmetics -- 0.8%
80,357 Unilever N.V. .......................................... 5,604,901
Paper -- 6.0%
500,000 Boise Cascade Corporation ............................. 21,500,000
170,000 Chesapeake Corporation ................................ 6,364,375
240,000 International Paper Company ........................... 12,120,000
-------------
39,984,375
Printing/Forms -- 2.5%
450,000 Donnelley (R.R.) & Sons Company# ...................... 16,678,125
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
====================
The Montgomery Funds
- --------------------
Growth Fund
- --------------------
Investments
Shares Value (Note 1)
COMMON STOCKS - continued
Railroads -- 5.4%
240,000 Canadian National Railway Company ................... $ 16,080,000
340,000 Union Pacific Corporation ........................... 19,826,250
-------------
35,906,250
Real Estate Investment Trusts -- 0.9%
525,000 Host Marriott Corporation ........................... 6,234,375
Savings and Loan Associations -- 2.9%
200,000 Golden West Financial Corporation ................... 19,600,000
Specialty Chemicals -- 1.7%
220,000 Nalco Chemical Company .............................. 11,412,500
Specialty Steels -- 1.0%
240,000 Carpenter Technology Corporation .................... 6,855,000
Telecommunications Equipment -- 3.6%
180,000 Comverse Technology, Inc.+ .......................... 13,578,750
110,000 Motorola, Inc. ...................................... 10,422,500
-------------
24,001,250
TOTAL COMMON STOCKS
(Cost $471,189,228) ............................................ 633,757,054
-------------
Principal Amount
REPURCHASE AGREEMENTS -- 6.7%
$45,284,000 Agreement with Paine Webber Group,
Tri-Party, 5.05% dated 06/30/99, to be
repurchased at $45,290,265 on 07/01/99,
collateralized by $45,374,039 market value
of U.S. government and mortgage-backed
securities, having various maturities and
interest rates.
(Cost $45,284,000) ................................. 45,284,000
-------------
TOTAL INVESTMENTS -- 101.3%
(Cost $516,473,228*) ........................................... 679,041,054
OTHER ASSETS AND LIABILITIES -- (1.3)%
(Net) .......................................................... (9,033,749)
-------------
NET ASSETS -- 100.0% ........................................... $ 670,007,305
=============
* Aggregate cost for federal tax purposes $527,737,071.
# All or a portion of this security is on loan at June 30, 1999 (see Note 4 to
Financial Statements).
+ Non-income-producing security.
Abbreviations
ADR American Depositary Receipt
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
====================
The Montgomery Funds
--------------------
U.S. Emerging
Growth Fund
--------------------
Portfolio Highlights
INVESTMENT REVIEW
Q: How did the Fund perform for the quarter and year ended June 30, 1999?
A: The Fund rebounded strongly from a difficult first quarter in 1999, returning
10.2% in the quarter ended June 30, 1999. Over the 12-month period, the Fund
returned -4.1%, versus 1.5% for the benchmark Russell 2000 Index.
Q: What factors affected the Fund's underperformance?
A: The Fund's performance in the period ended June 30, 1999, reflected the
highly unusual and somewhat contradictory nature of the small-cap benchmark. The
growth that fueled the rise of the Russell 2000 Index in the first six months of
1999 was largely attributable to a handful of Internet names that profited
tremendously from the investor exuberance surrounding the Internet sector. In
the first six months of 1999, six of the seven best-performing stocks were
Internet stocks. By our estimate the combined return of five of the Internet
stocks contributed more than two-thirds of the total return of all the stocks in
the index.
Prior to January 1, 1999, the Internet investment fervor had already pushed the
market capitalization of many of the largest Internet stocks in the Russell 2000
well into the mid-cap sector. The rapid appreciation of these stocks during the
six months dramatically increased their market cap and thus their weighting in
the index. The two largest "small-cap" stocks within the Russell 2000 illustrate
this point quite well: Both CMGI, Inc., and E*TRADE Group, Inc., achieved
market-cap peaks of $16.9 billion in April 1999. Because the Russell 2000 is a
market-cap weighted index, such highly capitalized Internet stocks skewed the
performance of the index as a whole.
Indices are reconstituted regularly to avoid precisely this kind of distortion.
Unlike the S&P 500 Index, however, which is rebalanced quarterly, the Russell
2000 is reconstituted annually. In the most recent rebalancing on June 30, 1999,
the largest outperforming Internet names were removed because they were no
longer small-cap, and the more traditional small-cap profile of the index was
restored. The Fund underperformed its benchmark primarily because it remained
true to its small cap mandate, and in general avoided the Internet sector.
Q: Why didn't the Fund invest heavily in the Internet sector?
A: The Fund has chosen not to invest in some of the more celebrated Internet
names because of their exceedingly high valuations. Using a bottom-up approach
to analysis, the Fund seeks to identify small- and micro-cap growth companies
that have improving business fundamentals whose growth potential has not been
fully recognized by the market. These are typically profitable, growth-oriented
companies with proven business models that meet our risk criteria. We believe
that the growth potential of many of the Internet companies is already fully
reflected in their stock price. We have little doubt that some of these
companies will be successful over the long term but we are concerned that their
current high valuations carry a comparably high level of risk for our investors.
================================================================================
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
Roger Honour.......................................... Senior Portfolio Manager
Kathryn Peters............................................... Portfolio Manager
================================================================================
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/99
- --------------------------------------------------------------------------------
Montgomery U.S.
Emerging Growth Fund
Since inception (12/30/94).............................................. 16.80%
One year................................................................ (4.07)%
Three years............................................................. 10.26%
- --------------------------------------------------------------------------------
Russell 2000 Index
Since 12/30/94.......................................................... 16.00%
One year................................................................ 1.50%
Three years............................................................. 11.22%
- --------------------------------------------------------------------------------
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]
Montgomery Lipper
U.S. Emerging Russell Small Cap
Date Growth Fund 2000 Index/1/ Funds Average/2/
---- ----------- ------------- ---------------
12/94 $10,000 $10,000 $10,000
01/95 10,083 9,873.83 9,897.15
02/95 10,208 10,284.57 10,300.98
03/95 10,558 10,461.69 10,580.81
04/95 10,683 10,694.31 10,724.75
05/95 10,792 10,878.2 10,897.6
06/95 11,458 11,442.51 11,543.39
07/95 12,083 12,101.62 12,409.43
08/95 12,292 12,351.96 12,608.54
09/95 12,475 12,572.55 12,928.95
10/95 12,058 12,010.28 12,521.45
11/95 12,571 12,514.88 13,010.66
12/95 12,866 12,845.08 13,210.65
01/96 12,790 12,831.26 13,116
02/96 13,161 13,231.21 13,652.18
03/96 13,590 13,500.53 14,005.77
04/96 14,752 14,222.42 15,049.34
05/96 15,838 14,782.93 15,668.06
06/96 15,005 14,175.9 15,047.37
07/96 13,464 12,937.78 13,737.34
08/96 14,079 13,688.94 14,570.38
09/96 14,584 14,223.94 15,324.8
10/96 14,544 14,004.72 15,005.54
11/96 14,866 14,581.77 15,455.85
12/96 15,326 14,963.96 15,659.48
01/97 16,015 15,262.94 16,045.25
02/97 15,082 14,892.86 15,331.97
03/97 14,493 14,190.13 14,532.99
04/97 14,438 14,229.86 14,445.24
05/97 16,070 15,812.93 16,159.27
06/97 17,221 16,490.6 16,991.53
07/97 18,181 17,257.93 18,033.56
08/97 19,070 17,652.82 18,343.50
09/97 20,420 18,944.89 19,724.27
10/97 19,758 18,112.67 18,837.26
11/97 19,414 17,995.51 18,567.54
12/97 19,472 18,310.49 18,709.52
01/98 19,530 18,021.18 18,380.88
02/98 21,045 19,353.72 19,802.31
03/98 21,936 20,151.92 20,705.52
04/98 21,927 20,262.42 20,852.29
05/98 21,064 19,172.09 19,651.07
06/98 20,968 19,212.42 19,838.51
07/98 19,520 17,657.1 18,395.67
08/98 16,587 14,228.45 14,667.09
09/98 17,354 15,341.93 15,559.86
10/98 18,494 15,967.59 16,200.01
11/98 19,559 16,804.16 17,251.38
12/98 21,018 17,844.03 18,548.25
01/99 19,993 18,081 18,594
02/99 18,166 16,617 17,086
03/99 18,257 16,876 17,401
04/99 19,181 17,388 18,521
05/99 18,876 18,657 18,875
06/99 20,114 19,501 20,136
/1/ The Russell 2000 Index is a capitalization-weighted total return index that
includes the smallest 2,000 companies within the Russell 3000 Index.
/2/ The Lipper Small Cap Funds Average universe consists of 283 funds.
9
<PAGE>
====================
The Montgomery Funds
- --------------------
U.S. Emerging
Growth Fund
- --------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
Manitowoc Company, Inc. .................................................. 4.5%
Elcor Corporation ........................................................ 4.3%
Duane Reade,Inc. ......................................................... 3.9%
MICROS Systems, Inc. ..................................................... 3.0%
Comverse Technology, Inc. ................................................ 2.8%
Metro Networks, Inc. ..................................................... 2.7%
Moog, Inc. ............................................................... 2.5%
On Assignment, Inc. ...................................................... 2.5%
Bank United Corporation, Class A ......................................... 2.2%
Commercial Federal Corporation ........................................... 2.0%
- --------------------------------------------------------------------------------
TOP FIVE INDUSTRIES
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
Diversified Commercial Services .......................................... 7.8%
Computer Software ........................................................ 6.2%
Construction/Agriculture
Equipment/Trucks ........................................................ 4.5%
Building Products ........................................................ 4.3%
Savings and Loan Associations ............................................ 4.2%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
There are risks associated with investing in small-cap companies, which tend to
be more volatile and less liquid than stocks of large companies, including the
increased risks of price fluctuations.
While the Fund has been selective, it's important to note that it has not
ignored the Internet sector. Many companies within the portfolio are currently
leveraging the Internet to promote business growth and development and to
provide superior customer service. Catalina Marketing (1.0% of net assets as of
6/30/99) is an example of this type of investment. Catalina is a leading
provider of in-store electronic marketing services with proprietary networks
that deliver coupons to shoppers at the checkout stand. Catalina has broadened
its coupon distribution by giving targeted promotions to consumers via the
Internet. The company has one of the leading shopping sites on the Internet as
well as an alliance with America Online.
Q: Why is this a good time to be invested in the U.S. Emerging Growth Fund?
A: In second quarter 1999, we began to see evidence of increasing breadth in the
U.S. stock market. Not only did small-cap stocks rally, but also an increased
number of large-cap companies participated in the ongoing market expansion.
While these developments attest to the continuing strength of the U.S. market,
they also indicate that investor appetite is expanding beyond the narrow band of
large-cap stocks that have received the lion's share of investor attention for
some time. The rally in small-caps suggests that the market is reassessing the
very high valuations assigned to the large-cap sector and is beginning to
address the significant valuation disparities that exist between the asset
classes.
Relative to the large-cap market, small-cap stocks are still trading at their
lowest levels in several decades. The pricing multiples applied to many of these
stocks are not without historic precedent, as they currently are for the growth
stocks in the S&P 500. The large-cap companies themselves have begun to
recognize the value of smaller-cap stocks and are actively acquiring these
lower-priced companies as an inexpensive means of growing revenues and earnings.
We believe that this rising awareness of small-cap values will present very real
and very promising investment opportunities in the months ahead and that the
Montgomery U.S. Emerging Growth Fund is well positioned to take advantage of
these developments.
Q: Did the merger with the Montgomery Small Cap Opportunities Fund have any
impact on the U.S. Emerging Growth Fund?
A: We are pleased to report that the merger (completed in March 1999) went
exceptionally well, and the impact on shareholders of both Funds was minimal. We
had decided on our approach to the merger well in advance of the actual
consolidation date and had successfully identified all the material investment
and operational issues that needed to be addressed. This enabled us to
transition smoothly and quickly without any unwelcome distractions from our core
investment responsibilities.
10
<PAGE>
====================
The Montgomery Funds
--------------------
U.S. Emerging
Growth Fund
--------------------
Investments
PORTFOLIO INVESTMENTS
June 30, 1999
Shares Value (Note 1)
COMMON STOCKS -- 97.3%
Advertising -- 1.8%
164,000 Snyder Communications, Inc.#+ ......................... $ 5,371,000
23,000 TMP Worldwide, Inc.+ .................................. 1,464,813
-------------
6,835,813
Aerospace/Defense -- 2.5%
280,000 Moog, Inc., Class A+ .................................. 9,625,000
Apparel -- 0.4%
89,250 Cutter & Buck, Inc.+ ................................... 1,489,359
Broadcasting -- 2.7%
191,000 Metro Networks, Inc.+ ................................. 10,182,687
Building Products -- 4.3%
373,000 Elcor Corporation ..................................... 16,295,437
Clothing/Shoe/Accessory Stores -- 3.2%
90,000 AnnTaylor Stores Corporation+ ......................... 4,050,000
140,000 Men's Wearhouse, Inc. (The) ........................... 3,596,250
126,000 Talbots, Inc. ......................................... 4,803,750
-------------
12,450,000
Computer Communications -- 1.2%
31,200 Juniper Networks, Inc.+ ............................... 4,653,675
Computer Software -- 6.2%
193,100 Genesys Telecomm Laboratories, Inc.+ .................. 4,821,466
88,400 Macromedia, Inc.+ ..................................... 3,140,962
336,000 MICROS Systems, Inc.+ ................................. 11,466,000
75,500 Synopsys, Inc.+ ....................................... 4,164,297
-------------
23,592,725
Construction/Agriculture Equipment/Trucks -- 4.5%
410,000 Manitowoc Company, Inc. ............................... 17,066,250
Containers/Packaging -- 1.1%
137,000 AptarGroup, Inc. ...................................... 4,110,000
Contract Drilling -- 1.0%
400,000 R&B Falcon Corporation+ ............................... 3,750,000
Diversified Commercial Services -- 7.8%
120,000 Administaff, Inc.+ .................................... 1,920,000
121,800 Bell & Howell Company+ ................................ 4,605,563
41,000 Catalina Marketing Corporation+ ....................... 3,772,000
640,087 HA-LO Industries, Inc.+ ............................... 6,320,859
123,000 MAXIMUS, Inc.+ ........................................ 3,536,250
368,000 On Assignment, Inc.+ .................................. 9,591,000
-------------
29,745,672
Diversified Financial Services -- 1.4%
183,000 Stancorp Financial Group, Inc.+ ....................... 5,490,000
Drug Store Chains -- 3.9%
490,000 Duane Reade, Inc.#+ ................................... 15,006,250
EDP Services -- 1.4%
218,200 Acxiom Corporation+ ................................... 5,448,181
Electrical Products -- 1.4%
150,000 Raychem Corporation ................................... 5,550,000
Electronic Components -- 3.4%
12,500 Optical Coating Laboratories, Inc. .................... 1,044,922
240,000 Plexus Corporation+ ................................... 7,155,000
64,000 Sanmina Corporation+ .................................. 4,856,000
-------------
13,055,922
Engineering and Construction -- 1.8%
232,000 Granite Construction, Inc. ............................ 6,800,500
Environmental Services -- 3.5%
181,500 Casella Waste Systems, Inc., Class A#+ ................ 4,696,312
200,700 Republic Services, Inc., Class A+ ..................... 4,967,325
217,150 TETRA Technologies, Inc.+ ............................. 3,610,119
-------------
13,273,756
Farming/Seeds/Milling -- 1.0%
253,400 Seminis, Inc.+ ........................................ 3,808,931
Finance -- 1.4%
111,992 Radian Group, Inc. .................................... 5,466,610
Food Distributors -- 1.0%
343,300 Fleming Companies, Inc. ............................... 3,990,863
Homebuilding -- 2.2%
225,000 Champion Enterprises, Inc.+ ........................... 4,190,625
165,000 Kaufman & Broad Home Corporation ...................... 4,104,375
-------------
8,295,000
Industrial Machinery/Components -- 1.8%
255,000 Applied Power, Inc., Class A .......................... 6,964,688
Investment Bankers/Brokers/Services -- 1.2%
173,000 Waddell & Reed Financial, Inc., Class A ............... 4,746,688
Major Banks -- 1.2%
67,000 Republic New York Corporation ......................... 4,568,563
Major Pharmaceuticals -- 1.9%
510,000 Catalytica, Inc.+ ..................................... 7,124,062
Managed Health Care -- 1.0%
243,500 Oxford Health Plans, Inc.+ ............................ 3,781,859
Medical Specialties -- 0.7%
129,600 Cerus Corporation+ .................................... 2,867,400
Newspapers -- 0.9%
290,000 Hollinger International Inc. .......................... 3,443,750
Office/Plant Automation -- 1.9%
164,950 Kronos, Inc.+ ......................................... 7,350,584
Oil and Gas Production -- 0.6%
330,000 Belco Oil & Gas Corporation+ .......................... 2,289,375
Oilfield Services/Equipment -- 0.8%
290,000 Varco International, Inc.+ ............................ 3,171,875
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
====================
The Montgomery Funds
- --------------------
U.S. Emerging
Growth Fund
- --------------------
Investments
Shares Value (Note 1)
COMMON STOCKS -- continued
Other Consumer Services -- 2.4%
200,000 Education Management Corporation+ ...................... $ 4,143,750
257,000 Regis Corporation ...................................... 4,923,156
-----------
9,066,906
Other Specialty Stores -- 1.5%
135,000 Linens 'N Things, Inc.+ ............................... 5,906,250
Other Telephone/Communication -- 1.4%
125,000 Esat Telecom Group PLC, ADR+ .......................... 5,468,750
Package Goods/Cosmetics -- 1.9%
457,800 Playtex Products, Inc.+ ............................... 7,124,512
Paper -- 3.3%
155,000 Mead Corporation ...................................... 6,471,250
136,000 Willamette Industries, Inc. ........................... 6,264,500
-----------
12,735,750
Restaurants -- 2.5%
130,000 CEC Entertainment, Inc.+ .............................. 5,492,500
225,000 Consolidated Products, Inc.+ .......................... 4,050,000
-----------
9,542,500
Retail Department Stores -- 1.1%
91,000 Ames Department Stores, Inc.+ ......................... 4,151,875
Savings and Loan Associations -- 4.2%
205,000 Bank United Corporation, Class A ...................... 8,232,031
335,000 Commercial Federal Corporation ........................ 7,767,813
-----------
15,999,844
Specialty Foods/Candy -- 2.0%
185,000 Celestial Seasonings, Inc.+ ........................... 3,931,250
90,000 Suiza Foods Corporation+ .............................. 3,768,750
-----------
7,700,000
Telecommunications Equipment -- 4.2%
121,100 Carrier Access Corporation #+ ......................... 5,301,910
141,525 Comverse Technology, Inc.+ ............................ 10,676,292
-----------
15,978,202
Trucking -- 1.7%
292,750 Swift Transportation Company, Inc.+ ................... 6,431,352
TOTAL COMMON STOCKS
(Cost $262,662,738) .............................................. 372,397,416
-----------
Principal Amount Value (Note 1)
REPURCHASE AGREEMENTS -- 3.4%
$ 12,813,000 Agreement with Prudential Securities,
Tri-Party, 5.100% dated 06/30/99,
to be repurchased at $12,814,790 on
07/01/99, collateralized by
$13,069,280 market value of U.S.
government and mortgage-backed
securities, having various maturities
and interest rates
(Cost $12,813,000) .................................. $12,813,000
-----------
TOTAL INVESTMENTS -- 100.7%
(Cost $275,475,738*) ............................................. 385,210,416
OTHER ASSETS AND LIABILITIES -- (0.7)%
(Net) ............................................................ (2,727,906)
-----------
NET ASSETS-- 100.0% .............................................. $382,482,510
===========
* Aggregate cost for federal tax purposes $275,704,663.
# All or a portion of this security is on loan at June 30, 1999 (see Note 4 to
Financial Statements).
+ Non-income-producing security.
Abbreviations
ADR American Depositary Receipt
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
====================
The Montgomery Funds
--------------------
Small Cap Fund
--------------------
Portfolio Highlights
INVESTMENT REVIEW
Q: How did the Fund perform for the year ended June 30, 1999?
A: In spite of a very strong finish to the year, the Fund underperformed its
benchmark, the Russell 2000 Index, for the financial year, returning -4.1%
versus a return for the index of 1.5%.
Q: What factors affected performance most over the period?
A: The Fund's performance was badly affected by the extreme volatility of the
U.S. market from August through September 1998. In fact, all of the Fund's
underperformance occurred during these months. Small-cap stocks were sold off
disproportionately to larger-cap issues, as investors signaled their preference
for more-liquid, brand-name stocks that were perceived to be less risky. In
addition, as a result of our individual stock selections, the Fund was
overweighted in sectors such as telecommunications and consumer services, which
fared even worse than the average small-cap stock.
As the market recovered, however, and especially as these small-caps returned to
favor in the latter part of the financial year, our positions in these same
sectors were major contributors to the Fund's outperformance. As a result of the
inclusion of fundamentally strong telecommunications and consumer services
companies, and also of our holdings in biotech and select technology stocks, the
Fund regained performance and actually outperformed relative to the benchmark in
the final quarter.
Q: Were there any changes in the Fund's strategy resulting from the changing
market environment?
A: No. We continue to be fundamental investors, basing our investment decisions
on bottom-up stock selection rather than sector or macroeconomic criteria.
Although minor adjustments were made to the Fund's positioning following the
challenging market correction at the beginning of the financial year, they were
based on our individual stock analysis rather than due to sector considerations.
On the whole we remained pleased with our stock selections throughout the year.
We were very encouraged by the earnings of the companies in the Fund's
portfolio, even though these did not necessarily translate into higher
valuations. For most of the year, 87% of the companies in our portfolio reported
earnings in line with or exceeding expectations. We believe that this
illustrates the fact that the underperformance of the small-cap sector during
much of the year was due to sentiment rather than earnings related. This has
been borne out by the recovery in the small-cap sector since the world economy
has begun to improve, making investors less risk averse and more willing to add
attractively valued yet less-liquid companies to their portfolios.
Q: Do you believe that small-cap stocks can sustain their current momentum?
A: We believe that the broader participation in this quarter's strong
performance is a leading indicator of a more sustained interest in small-cap
stocks. But as we look at the current conditions in the financial markets, we
also believe that there are a number of compelling reasons why the small-cap
sector may continue its outperformance.
================================================================================
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
Stuart Roberts..........................................Senior Portfolio Manager
Brad Kidwell.................................................. Portfolio Manager
Cam Philpott, CFA............................................. Portfolio Manager
================================================================================
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/99
- --------------------------------------------------------------------------------
Montgomery Small Cap Fund
Since inception (7/13/90).............................................. 17.72%
One year............................................................... (4.14)%
Five years............................................................. 16.12%
================================================================================
Russell 2000 Index
- --------------------------------------------------------------------------------
Since 7/13/90.......................................................... 13.45%
One year............................................................... 1.50%
Five years............................................................. 15.40%
- --------------------------------------------------------------------------------
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. Fund performance presented is for
Class R shares.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
Lipper
Montgomery Russell Small Cap Funds
Date Small Cap Fund 2000 Index/1/ Average/2/
---- -------------- ------------ ----------------
07/90 $10,000 $10,000.00 $10,000.00
07/90 9,539 9,560.16 9,641.42
08/90 8,569 8,286.94 8,439.82
09/90 7,853 7,553.63 7,742.45
10/90 7,552 7,092.49 7,443.32
11/90 8,154 7,633.29 8,026.90
12/90 8,820 7,936.16 8,463.57
01/91 10,055 8,653.86 9,184.70
02/91 11,319 9,618.89 9,972.39
03/91 12,310 10,295.95 10,596.61
04/91 12,083 10,270.05 10,536.60
05/91 12,979 10,759.57 11,016.92
06/91 12,489 10,132.54 10,443.59
07/91 13,764 10,488.11 11,045.01
08/91 14,917 10,876.32 11,518.31
09/91 15,371 10,961.48 11,585.41
10/91 16,384 11,251.40 11,962.56
11/91 15,313 10,731.00 11,484.61
12/91 17,529 11,590.29 12,788.01
01/92 18,607 12,529.41 13,399.23
02/92 18,370 12,894.91 13,649.10
03/92 17,541 12,458.44 13,099.81
04/92 16,602 12,021.97 12,534.65
05/92 16,577 12,181.83 12,531.98
06/92 15,947 11,605.72 11,982.81
07/92 16,379 12,009.55 12,396.83
08/92 15,749 11,670.66 12,140.31
09/92 16,231 11,939.82 12,419.48
10/92 16,787 12,319.34 12,925.47
11/92 18,740 13,262.01 13,943.17
12/92 19,210 13,724.03 14,408.70
01/93 19,495 14,188.54 14,715.40
02/93 18,555 13,860.83 14,165.26
03/93 19,396 14,310.61 14,665.39
04/93 18,876 13,917.79 14,193.30
05/93 20,323 14,533.64 14,963.88
06/93 20,805 14,624.30 15,069.49
07/93 20,941 14,826.22 15,174.65
08/93 22,393 15,466.73 15,938.14
09/93 23,432 15,903.20 16,480.58
10/93 24,369 16,312.53 16,723.13
11/93 22,624 15,775.63 16,164.30
12/93 23,881 16,315.01 16,842.15
01/94 24,651 16,826.54 17,262.00
02/94 24,313 16,765.68 17,250.53
03/94 22,800 15,880.49 16,331.11
04/94 22,800 15,974.85 16,360.59
05/94 21,651 15,795.50 16,064.01
06/94 20,475 15,259.14 15,493.85
07/94 21,097 15,509.84 15,745.40
08/94 23,002 16,374.09 16,691.21
09/94 22,718 16,319.27 16,798.53
10/94 22,489 16,254.86 17,044.23
11/94 21,475 15,598.38 16,431.69
12/94 21,503 16,017.46 16,759.27
01/95 21,475 15,815.37 16,609.11
02/95 22,236 16,473.28 17,284.34
03/95 22,811 16,756.98 17,753.82
04/95 22,768 17,129.58 17,979.90
05/95 23,214 17,424.11 18,255.44
06/95 24,594 18,328.00 19,370.53
07/95 26,130 19,383.73 20,835.37
08/95 27,310 19,784.71 21,183.61
09/95 27,828 20,130.04 21,747.49
10/95 26,405 19,237.42 21,103.65
11/95 27,276 20,045.66 21,879.87
12/95 29,056 20,574.55 22,151.08
01/96 29,008 20,552.43 21,952.65
02/96 30,137 21,193.05 22,848.63
03/96 31,519 21,624.43 23,355.13
04/96 33,459 22,780.71 25,102.94
05/96 35,382 23,678.51 26,121.58
06/96 34,253 22,706.21 25,100.60
07/96 31,837 20,723.04 22,825.14
08/96 33,045 21,926.21 24,213.18
09/96 34,794 22,783.10 25,510.31
10/96 34,036 22,432.01 24,905.65
11/96 34,929 23,356.30 25,599.83
12/96 34,487 23,968.46 25,933.69
01/97 35,143 24,447.35 26,634.98
02/97 33,138 23,854.59 25,472.38
03/97 30,457 22,729.98 24,116.36
04/97 29,708 22,792.63 23,961.16
05/97 34,318 25,328.30 26,753.33
06/97 36,586 26,413.75 28,101.34
07/97 38,629 27,642.82 29,801.37
08/97 38,873 28,275.34 30,263.36
09/97 42,903 30,344.91 32,533.99
10/97 41,628 29,011.89 31,107.44
11/97 41,347 28,824.24 30,710.95
12/97 42,716 29,328.76 30,987.69
01/98 40,759 28,865.35 30,506.58
02/98 45,195 30,999.74 32,819.12
03/98 47,740 32,278.26 34,339.46
04/98 47,175 32,456.85 34,567.10
05/98 43,847 30,708.82 32,667.84
06/98 45,087 30,773.43 33,140.41
07/98 41,085 28,282.20 30,870.01
08/98 29,971 22,790.36 24,724.36
09/98 30,493 24,573.88 26,225.65
10/98 32,472 25,576.02 27,357.18
11/98 35,495 26,916.00 29,132.33
12/98 39,330 28,581.61 31,464.29
01/99 39,566 28,962.00 31,543.00
02/99 36,148 26,616.00 28,985.00
03/99 36,879 27,031.00 29,518.00
04/99 39,228 29,454.00 31,419.00
05/99 39,463 29,884.00 32,019.00
06/99 43,220 31,235.00 34,158.00
/1/ The Russell 2000 Index is a capitalization-weighted total return index that
includes the smallest 2,000 companies within the Russell 3000 Index. Fund
performance presented is for Class R shares.
/2/ The Lipper Small Cap Funds Average universe consists of 80 funds.
13
<PAGE>
====================
The Montgomery Funds
- --------------------
Small Cap Fund
- --------------------
Portfolio Highlights
================================================================================
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
Echostar Communications, Class A ......................................... 7.3%
Smithfield Foods, Inc. ................................................... 4.0%
AT&T Corporation Liberty Media,
Class A .................................................................. 4.0%
USA Networks, Inc. ....................................................... 3.8%
ICG Communications, Inc. ................................................. 3.2%
Winstar Communications, Inc. ............................................. 2.9%
SFX Entertainment, Inc. .................................................. 2.8%
Conexant Systems, Inc. ................................................... 2.8%
Gilead Sciences, Inc. .................................................... 2.6%
Canandaigua Wine Company, Inc.,
Class A .................................................................. 2.5%
================================================================================
TOP FIVE INDUSTRIES
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
Other Telephone/Communication ............................................ 10.4%
Media Conglomerates ....................................................... 7.8%
Cable Television ......................................................... 7.6%
Biotechnology ............................................................ 6.9%
EDP Services ............................................................. 6.2%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
There are risks associated with investing in small-cap companies, which tend to
be more volatile and less liquid than stocks of large companies, including the
increased risks of price fluctuations.
First, investors seem comfortable with the larger, global macroeconomic issues
that have dominated investor psychology for the past 12 to 18 months. In
addition, the interest rate environment appears stable following the Federal
Reserve's last Federal Open Market Committee meeting. With stable macro
elements, we expect that investors will focus on specific company fundamentals.
We believe that the higher-growth, lower-valuation companies in our portfolio
will continue to attract investors' attention.
Second, at the end of the financial year, the Dow Jones Industrial Average, the
S&P 500 and the NASDAQ Composite Indices were all trading near their historic
highs, while the Russell 2000 was approximately 7% below its April 1998 peak. We
believe that this disparity represents an opportunity for investors in
small-caps.
Finally, because of changes to accounting rules, we believe that large companies
seeking to bolster slowing growth rates will accelerate their pace of
acquisition of smaller companies.
Q: What do you currently consider the most interesting opportunities for
small-cap investors?
A: We are very excited by the opportunities in the small-cap sector. There
remains a wide valuation disparity between small-cap and large-cap stocks, even
though we believe that the fundamentals of many small-caps are very strong and
offer good earnings versus their overvalued large-cap peers. What's more, in
spite of the recent appreciation in some small-cap stocks, we believe it is
possible to find value in many different sectors.
Applying our stock selection criteria, we have recently identified a number of
additions to the portfolio. These operate in such different areas as retail and
financial services. The features they have in common are that we expect them all
to enjoy positive business momentum, and they are all attractively valued
relative to both their potential earnings growth and their large-cap peers.
14
<PAGE>
====================
The Montgomery Funds
--------------------
Small Cap Fund
--------------------
Investments
PORTFOLIO INVESTMENTS
June 30, 1999
Shares Value (Note 1)
COMMON STOCKS -- 91.0%
Advertising -- 0.3%
12,000 Snyder Communications, Inc.#+ ........................... $ 393,000
Alcoholic Beverages -- 2.5%
64,000 Canandaigua Wine Company, Inc., Class A+ ................ 3,354,000
Biotechnology -- 6.9%
36,000 Alkermes, Inc.+ ......................................... 828,000
68,000 Gilead Sciences, Inc.+ .................................. 3,548,750
32,000 IDEC Pharmaceuticals Corporation+ ....................... 2,465,000
36,000 Medimmune, Inc.+ ........................................ 2,444,625
------------
9,286,375
Cable Television -- 7.6%
64,000 Echostar Communications, Class A#+ ...................... 9,822,000
8,600 Pegasus Communications Corporation+ ..................... 338,894
------------
10,160,894
Computer Communications -- 1.5%
24,000 Applied Micro Circuits Corporation+ ..................... 1,993,500
Computer Software -- 0.2%
23,000 Avant! Corporation+ ..................................... 289,656
Department Chains -- 1.0%
30,000 Ames Department Stores, Inc.+ ........................... 1,366,875
Diversified Commercial Services -- 1.2%
66,100 Nova Corporation (Georgia)+ ............................. 1,652,500
Diversified Financial Services -- 1.1%
48,000 Stancorp Financial Group, Inc.+ ......................... 1,440,000
EDP Services -- 6.2%
110,400 CSG Systems International, Inc.+ ........................ 2,894,550
16,000 DST Systems, Inc.+ ...................................... 1,006,000
56,000 National Data Corporation ............................... 2,394,000
34,000 The BISYS Group, Inc.+ .................................. 1,990,062
------------
8,284,612
Electronic Components -- 2.3%
28,000 Flextronics International, Ltd.+ ........................ 1,547,875
21,000 RF Micro Devices, Inc.+ ................................. 1,567,781
------------
3,115,656
Electronic Production Equipment -- 3.3%
32,000 Advanced Energy Industries, Inc.+ ....................... 1,297,000
44,300 Kulicke & Soffa Industries, Inc.+ ....................... 1,180,872
57,600 MKS Instruments, Inc.+ .................................. 1,074,600
24,000 PRI Automation, Inc.+ ................................... 873,000
------------
4,425,472
Finance Companies -- 4.7%
200,000 AmeriCredit Corporation+ ................................ 3,200,000
40,000 Heller Financial, Inc. .................................. 1,112,500
40,000 Radian Group, Inc. ...................................... 1,952,500
------------
6,265,000
Food Chains -- 1.0%
28,000 Whole Foods Market, Inc.#+ $ ............................ 1,344,875
Home Furnishings -- 1.2%
40,350 Ethan Allen Interiors, Inc. ............................. 1,523,213
Homebuilding -- 2.2%
160,000 Champion Enterprises, Inc.+ ............................. 2,980,000
Insurance Brokers/Services -- 1.8%
36,000 E. W. Blanch Holdings, Inc. ............................. 2,454,750
Internet Services -- 0.2%
6,400 Intermedia Communications, Inc. ......................... 181,200
Investment Managers -- 1.1%
48,000 Affiliated Managers Group, Inc.+ ........................ 1,449,000
Life Insurance -- 0.5%
30,000 Annuity and Life Re (Holdings), Ltd. .................... 674,063
Major Banks -- 0.4%
16,000 Unionbancal Corporation ................................. 578,000
Managed Health Care -- 1.7%
62,600 Trigon Healthcare, Inc.+ ................................ 2,277,075
Meat/Poultry/Fish -- 4.0%
160,000 Smithfield Foods, Inc.+ ................................. 5,325,000
Media Conglomerates -- 7.8%
144,000 AT&T Corporation Liberty Media,
Class A+ .......................................................... 5,292,000
128,000 USA Networks, Inc.+ ..................................... 5,132,000
------------
10,424,000
Medical Specialties -- 0.9%
64,000 Steris Corporation+ ..................................... 1,240,000
Medical/Dental Distributors -- 1.5%
80,000 Amerisource Health Corporation, Class A+ ................ 2,040,000
Movies/Entertainment -- 3.4%
56,000 SFX Entertainment, Inc.+ ................................ 3,724,000
23,400 TCI Music, Inc., Class A+ ............................... 829,237
------------
4,553,237
Oilfield Services/Equipment -- 0.7%
64,000 Petroleum Geo-Services, ADR+ ............................ 952,000
Other Specialty Stores -- 3.5%
36,000 Linens 'N Things, Inc.+ ................................. 1,575,000
116,900 Rent-A-Center, Inc.+ .................................... 2,801,947
24,100 Trans World Entertainment Corporation+ .................. 269,619
------------
4,646,566
Other Telephone/Communication -- 10.4%
200,000 ICG Communications, Inc.+ ............................... 4,256,250
52,000 McLeod USA, Inc.+ ....................................... 2,856,750
52,000 Viatel, Inc.+ ........................................... 2,912,000
80,000 Winstar Communications, Inc.+ ........................... 3,902,500
------------
13,927,500
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
====================
The Montgomery Funds
- --------------------
Small Cap Fund
- --------------------
Investments
Shares Value (Note 1)
COMMON STOCKS -- continued
Rental/Leasing Companies -- 0.6%
32,800 Rent-Way, Inc.+ ................................. $ 807,700
Restaurants -- 0.8%
40,000 Brinker International, Inc.+ .................... 1,087,500
Savings and Loan Associations -- 2.6%
45,700 Bank United Corporation, Class A ................ 1,835,141
72,000 Commercial Federal Corporation .................. 1,669,500
-----------
3,504,641
Semiconductors -- 2.8%
64,000 Conexant Systems, Inc.+ ......................... 3,714,000
Telecommunications Equipment -- 3.1%
72,000 Commscope, Inc.+ ................................ 2,214,000
16,000 Gilat Satellite Networks Ltd.+ .................. 841,000
23,000 L-3 Communications Corporation+ ................. 1,111,187
-----------
4,166,187
TOTAL COMMON STOCKS
(Cost $81,025,880) ............................................. 121,878,047
-----------
Principal Amount
REPURCHASE AGREEMENTS -- 12.4%
$16,578,000 Agreement with Paine Webber Group,
Tri-Party, 5.050% dated 06/30/99, to be
repurchased at $16,580,294 on 07/01/99,
collateralized by $16,610,962 market
value of U.S. government and mortgage-
backed securities, having various
maturities and interest rates
(Cost $16,578,000) 16,578,000
-----------
TOTAL INVESTMENTS -- 103.4%
(Cost $97,603,880*) ............................................ 138,456,047
OTHER ASSETS AND LIABILITIES -- (3.4)%
(Net) .......................................................... (4,526,827)
-----------
NET ASSETS -- 100.0% ........................................... $ 133,929,220
===========
* Aggregate cost for federal tax purposes $97,603,880.
# All or a portion of this security is on loan at June 30, 1999 (see note 4 to
Financial Statements).
+ Non-income-producing security.
Abbreviations
ADR American Depositary Receipt
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
====================
The Montgomery Funds
--------------------
Equity Income Fund
--------------------
Portfolio Highlights
INVESTMENT REVIEW
Q: How did the Fund perform in the 12 months ended June 30, 1999?
A: The Fund provided a 15.1% total return during the period, compared with 22.7%
for the S&P 500 Index. The portfolio performed best relative to the S&P 500 in
the most recent quarter, when it returned 8.1% against the S&P 500's return of
7.0%. Our broad market focus is paying off now that the market appears to be
normalizing. We continue to invest in what we believe are higher-quality blue
chip companies that may perform well over the long term in most market
environments, providing consistent and stable returns.
Q: What factors most affected relative performance over the period?
A: The major factor affecting relative Fund performance over the period was the
extremely narrow performance of the S&P 500 Index. Until the second quarter of
1999, the strongest performance was concentrated in the 50 largest companies in
the index, only a few of which met our stock selection criteria, primarily due
to their high valuations and low dividend yields. Fortunately, the market is
beginning to broaden. For the second quarter, we found that the 50 largest
companies in the S&P 500, which represent 56% of the index, returned only 4.0%.
The remaining 450 companies, representing 44% of the index, returned 10.2%.
On the positive side, Fund performance was helped by its commodities exposure,
especially energy and paper stocks. Also, though we are still underweighted
relative to the market, as a result of our stock selection process we have
increased our technology exposure, which to date has paid off nicely.
Q: Were there any changes in Fund strategy to reflect the prevailing investment
environment?
A: The Fund's objective is to generate income as well as capital appreciation.
Due to the inherent income component, our investment guideline has been to
select stocks with a relative yield at least 40% greater than that of the S&P
500. Because this investment guideline limited our exposure to technology and
health care, we changed our policy slightly. We now allow up to 20% of the Fund
to be invested in stocks that are attractive relative to their historic yield,
if not relative to the benchmark index. There are a number of good companies
that possess the characteristics and valuations desired by the Fund but that
also have a lower dividend yield. This change increased the size of our
universe, so we were able to take a meaningful position in technology, adding
Hewlett-Packard (3.4% of net assets as of 6/30/99), Electronic Data Systems
(2.1% of net assets as of 6/30/99) and Autodesk (1.4% of net assets as of
6/30/99).
Q: Which of the Fund's holdings did especially well during the period?
A: Hewlett-Packard is one stock we're very excited about. It was the first
company added to the Fund under the guideline change. Hewlett-Packard is a
leading computer
================================================================================
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
William King, CFA ............................................ Portfolio Manager
================================================================================
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/99
- --------------------------------------------------------------------------------
Montgomery Equity Income Fund
Since inception (9/30/94)................................................ 20.13%
One year................................................................. 15.06%
Three years.............................................................. 18.87%
- --------------------------------------------------------------------------------
S&P 500 Index
Since 9/30/94........................................................... 28.22%
One year................................................................ 22.74%
Three years............................................................. 29.07%
- --------------------------------------------------------------------------------
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. Fund performance presented is for
Class R shares.
Lipper Equity
Montgomery Income Funds
Date Equity Income S&P 500 Index/1/ Average
----- ------------- ---------------- -------------
9/94 10,000 10,000.00 10,000.00
10/94 10,083 10,228.70 10,061.03
11/94 9,825 9,853.20 9,687.36
12/94 9,907 9,997.16 9,764.84
1/95 10,336 10,257.09 9,954.51
2/95 10,597 10,655.06 10,286.68
3/95 10,824 10,970.56 10,533.98
4/95 11,028 11,292.21 10,779.82
5/95 11,392 11,738.48 11,108.59
6/95 11,426 12,014.57 11,238.70
7/95 11,562 12,415.14 11,535.35
8/95 11,742 12,448.91 11,652.72
9/95 12,280 12,971.64 12,037.71
10/95 12,280 12,925.85 11,920.92
11/95 12,899 13,494.84 12,452.72
12/95 13,392 13,744.36 12,766.42
1/96 13,610 14,217.72 13,074.35
2/96 13,705 14,354.35 13,184.18
3/96 13,784 14,491.86 13,356.10
4/96 13,828 14,705.33 13,495.62
5/96 14,065 15,084.29 13,703.55
6/96 14,232 15,145.53 13,732.34
7/96 13,834 14,471.10 13,252.77
8/96 14,108 14,778.46 13,599.74
9/96 14,639 15,609.16 14,117.15
10/96 15,126 16,036.38 14,443.57
11/96 16,028 17,253.71 15,250.80
12/96 15,848 16,916.05 15,170.61
1/97 16,174 17,966.20 15,719.63
2/97 16,668 18,110.29 15,921.18
3/97 16,232 17,357.08 15,445.67
4/97 16,511 18,392.60 15,907.56
5/97 17,356 19,521.54 16,817.03
6/97 17,935 20,379.90 17,441.98
7/97 18,936 21,998.07 18,557.43
8/97 18,285 20,778.94 17,994.26
9/97 19,148 21,912.01 18,881.09
10/97 18,412 21,190.89 18,306.90
11/97 19,430 22,162.91 18,879.01
12/97 19,984 22,537.47 19,334.30
1/98 19,827 22,792.59 19,303.94
2/98 20,783 24,430.47 20,390.12
3/98 21,711 25,684.48 21,331.57
4/98 21,248 25,950.57 21,331.37
5/98 20,819 25,499.29 21,001.95
6/98 20,774 26,535.07 21,143.49
7/98 20,126 26,253.01 20,526.97
8/98 18,409 22,463.12 17,983.66
9/98 19,623 23,917.83 18,937.59
10/98 21,087 25,853.98 20,038.18
11/98 21,796 27,421.51 20,902.12
12/98 22,130 29,017.17 21,453.60
1/99 21,979 30,211.51 21,394.00
2/99 21,654 29,273.14 20,945.00
3/99 22,115 30,449.05 21,410.00
4/99 23,794 31,608.55 22,923.00
5/99 23,018 30,877.76 22,692.00
6/99 23,902 32,565.54 23,388.00
/1/ The Standard & Poor's 500 Index is composed of 500 widely held common stocks
listed on the NYSE, AMEX and OTC markets.
/2/ The Lipper Equity Income Funds Average universe consists of 113 funds.
17
<PAGE>
====================
The Montgomery Funds
- --------------------
Equity Income Fund
- --------------------
Portfolio Highlights
================================================================================
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
Ameritech Corporation .................................................... 3.8%
Halliburton Company ...................................................... 3.5%
American General Corporation ............................................. 3.5%
Bank of America Corporation .............................................. 3.4%
Hewlett-Packard Company .................................................. 3.4%
Marsh &McLennan Companies ................................................ 3.3%
McGraw-Hill Companies, Inc. .............................................. 3.2%
Kimberly-Clark Corporation ............................................... 3.2%
Pharmacia & Upjohn, Inc. ................................................. 3.2%
Household International, Inc. ............................................ 3.0%
================================================================================
TOP FIVE INDUSTRIES
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
Major Pharmaceuticals ................................................... 8.1%
Major U.S. Telecommunications ........................................... 8.1%
Major Banks ............................................................. 7.1%
Paper ................................................................... 5.8%
Oilfield Services/Equipment ............................................. 5.3%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
company with new products for the Internet, but in recent years its growth had
slowed considerably. Management indicated that they were interested in making
changes to increase growth. Shortly after we added the position, the company
announced that it was making positive management changes and spinning off its
medical division.
Q: Were there any disappointments?
A: Obvious disappointments are the narrow performance of the market and the
excessive valuation accorded to certain sectors, which made stock selection
particularly difficult. One action we took was the modification to guidelines
discussed earlier. We also diligently continue our research so that we can react
quickly as opportunities present themselves.
Q: How are you positioning the Equity Income Fund for next year?
A: We're selling stocks that reach their price targets or are underperforming,
and switching into stocks that we expect to have greater capital appreciation.
For example, we sold our position in Weyerhaeuser when it reached its price
target, and added positions in Bowater (0.9% of net assets as of 6/30/99) and
Westvaco (1.0% of net assets as of 6/30/99). This keeps us exposed to the paper
and forest products sector while increasing our expected return. Another switch
we've made is to significantly lower our utility holdings and to emphasize gas
utilities, which we believe have higher return potential.
We continue to monitor technology for attractive candidates. Much of the excess
valuation in the market is concentrated in that sector. We find that we have to
wait and watch this group to identify a company that moves down into our buy
range. One benefit of all the market volatility is that this does happen, and we
are prepared to act quickly.
The Fund is also well positioned in oil services, owning Halliburton (3.5% of
net assets as of 6/30/99) and Baker Hughes (1.8% of net assets as of 6/30/99).
In addition, the Fund has excellent exposure in telecommunications, with
holdings in Ameritech (3.8% of net assets as of 6/30/99), Bell Atlantic (2.5% of
net assets as of 6/30/99) and GTE (1.8% of net assets as of 6/30/99). These
holdings have performed especially well in the past two quarters, and the
outlook is still very favorable. We believe that a broadening market should
continue to prove more favorable to Fund performance going forward.
18
<PAGE>
====================
The Montgomery Funds
--------------------
Equity Income Fund
--------------------
Investments
PORTFOLIO INVESTMENTS
June 30, 1999
Shares Value (Note 1)
COMMON STOCKS -- 96.7%
Alcoholic Beverages -- 2.2%
9,500 Anheuser-Busch Companies, Inc. ........................ $ 673,906
Apparel -- 2.0%
14,000 VF Corporation ........................................ 598,500
Books/Magazines -- 0.9%
5,000 Harcourt General, Inc. ................................ 257,813
Building Products -- 2.8%
29,000 Masco Corporation ..................................... 837,375
Computer Software -- 1.4%
14,000 Autodesk, Inc. ........................................ 414,313
Department Chains -- 2.7%
19,500 May Department Stores Company ......................... 797,062
Diversified Electronic Products -- 3.4%
10,000 Hewlett-Packard Company ............................... 1,005,000
Diversified Financial Services -- 1.7%
11,000 Citigroup, Inc. ....................................... 522,500
Diversified Manufacture -- 1.8%
4,700 Honeywell, Inc. ....................................... 544,613
EDP Services -- 2.1%
11,000 Electronic Data Systems Corporation ................... 622,188
Electric Utilities: South -- 0.7%
5,000 Texas Utilities Company ............................... 206,250
Finance Companies -- 3.0%
19,000 Household International, Inc. ......................... 900,125
Financial Publishing/Services -- 3.2%
18,000 McGraw-Hill Companies, Inc. ........................... 970,875
Food Chains -- 2.4%
14,000 Albertsons, Inc. ...................................... 721,875
Home Furnishings -- 2.0%
13,000 Newell Rubbermaid, Inc. ............................... 604,500
Industrial Machinery/Components -- 2.5%
9,000 Illinois Tool Works, Inc. ............................. 738,000
Insurance Brokers/Services -- 3.3%
13,000 Marsh & McLennan Companies ............................ 981,500
Integrated Oil Companies -- 2.6%
5,000 Chevron Corporation ................................... 475,937
4,000 Exxon Corporation ..................................... 308,500
----------
784,437
Life Insurance -- 3.5%
14,000 American General Corporation .......................... 1,055,250
Major Banks -- 7.1%
14,000 Bank of America Corporation ........................... 1,026,375
7,000 Fleet Financial Group, Inc. ........................... 310,625
5,000 National City Corporation ............................. 327,500
5,500 Wachovia Corporation .................................. 470,594
----------
2,135,094
Major Chemicals -- 0.7%
3,000 du Pont (E.I.) de Nemours and Company ................. 204,938
Major Pharmaceuticals -- 8.1%
14,000 American Home Products Corporation .................... 805,000
9,000 Merck & Company, Inc. ................................. 666,000
17,000 Pharmacia & Upjohn, Inc. .............................. 965,812
----------
2,436,812
Major U.S. Telecommunications -- 8.1%
15,500 Ameritech Corporation ................................. 1,139,250
11,500 Bell Atlantic Corporation ............................. 751,812
7,000 GTE Corporation ....................................... 530,250
----------
2,421,312
Medical Specialties -- 2.9%
4,000 Bausch & Lomb, Inc. ................................... 306,000
9,000 Baxter International, Inc. ............................ 545,625
----------
851,625
Motor Vehicles -- 1.8%
8,000 General Motors Corporation ............................ 528,000
Motor Vehicles & Parts -- 0.9%
4,000 Johnson Controls, Inc. ................................ 277,250
Office Equipment/Supplies -- 2.3%
10,500 Pitney-Bowes, Inc. .................................... 674,625
Oil/Gas Transmission -- 3.0%
15,000 Coastal Corporation ................................... 600,000
5,000 Columbia Energy Group ................................. 313,437
----------
913,437
Oilfield Services/Equipment -- 5.3%
16,000 Baker Hughes, Inc. .................................... 536,000
23,500 Halliburton Company ................................... 1,063,375
----------
1,599,375
Package Goods/Cosmetics -- 3.2%
17,000 Kimberly-Clark Corporation ............................ 969,000
Paints/Coatings -- 0.8%
4,000 PPG Industries, Inc. .................................. 236,250
Paper -- 5.8%
6,000 Bowater, Inc. ......................................... 283,500
14,000 International Paper Company ........................... 707,000
10,000 Westvaco Corporation .................................. 290,000
10,000 Willamette Industries, Inc. ........................... 460,625
----------
1,741,125
Printing/Forms -- 2.5%
20,000 Donnelley (R.R.) & Sons Company# ...................... 741,250
TOTAL COMMON STOCKS
(Cost $23,160,532) ............................................... 28,966,175
----------
19
The accompanying notes are an integral part of these financial statements.
<PAGE>
====================
The Montgomery Funds
- --------------------
Equity Income Fund
- --------------------
Investments
Principal Amount Value (Note 1)
REPURCHASE AGREEMENTS -- 4.3%
$ 1,308,000 Agreement with Prudential Securities,
Tri-Party, 5.100% dated 06/30/99, to be
repurchased at $1,308,183 on 07/01/99,
collateralized by $1,334,162 market value
of U.S. government and mortgage-backed
securities, having various maturities and
interest rates
(Cost $1,308,000) ................................... $ 1,308,000
-----------
TOTAL INVESTMENTS -- 101.0%
(Cost $24,468,532*) ............................................. 30,274,175
OTHER ASSETS AND LIABILITIES -- (1.0)%
(Net) ........................................................... (312,198)
-----------
NET ASSETS -- 100.0% ............................................ $ 29,961,977
============
* Aggregate cost for federal tax purposes $24,504,924.
# All or a portion of this security is on loan at June 30, 1999 (see note 4 to
Financial Statements).
20
The accompanying notes are an integral part of these financial statements.
<PAGE>
=========================
The Montgomery Funds
-------------------------
International Growth Fund
-------------------------
Portfolio Highlights
INVESTMENT REVIEW
Q: How did the Fund perform during the year ended June 30, 1999?
A: Two very strong quarters of performance were not sufficient to offset two
weaker quarters, as market conditions proved very challenging for the
international growth style of investing during the period. As a result, the Fund
underperformed its benchmark for the year, returning 2.3% versus a 7.9% return
for its benchmark, the Morgan Stanley Capital International Europe Australasia
Far East (MSCI EAFE) Index.
In recognition of its good long-term track record, however, Morningstar awarded
an overall four-star rating to the Fund for its risk-adjusted performance and
four stars for the three-year period ended June 30, 1999, among 987
international equity funds.*
Q: What contributed to the Fund's underperformance during the period?
A: There were two events that detracted from the Fund's relative performance
during the course of the year: the August through September turmoil in global
financial markets and the rotation out of growth stocks and into industrial
cyclicals in 1999. Strong stock selection has enabled us to offset the negative
impact of the latter trend in recent months.
At the beginning of the financial year, the Fund's relative performance suffered
as global markets corrected sharply. Growth stocks were particularly affected by
this volatility. Although our fully invested positioning initially hurt relative
performance, it allowed us to take full advantage of the subsequent recovery.
In maintaining our focus on good stock selection, the Fund enjoyed strong
outperformance against the benchmark during the final quarter of the financial
year. Stocks such as KAO Corp. (2.0% of net assets as of 6/30/99) and Equant
(1.9% of net assets as of 6/30/99), appreciated rapidly, contributing to the
Fund's outperformance.
Q: There has been some excitement that Japan is finally beginning to emerge from
recession. Did you make any adjustments to the portfolio in recognition of this?
A: We have made some adjustments to the portfolio in recent months, but
primarily as a result of our bottom-up approach to investment analysis that
favors original research at the country, sector and company levels. For much of
the financial year, we maintained a strong overweight position in Europe. The
introduction of the euro and continuing efforts toward deregulation have created
a favorable long-term growth environment, and we have identified many dynamic
European companies with strong management teams that we believe will be solid
performers in 1999.
We are starting to see some signs of improvement in Japan. Although much of the
positive gross domestic product (GDP) surprise in the first quarter of 1999 was
the result of temporary fiscal stimuli, we did see evidence of improving
domestic consumption, which is an important confirmation of improving economic
fundamentals. We have added several companies to the Fund that are undergoing
positive fundamental change and whose earnings will benefit from improving
business momentum in Japan. We continue to watch Japan closely, as
follow-through on pend-
================================================================================
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
John Boich, CFA....................................... Senior Portfolio Manager
Oscar Castro, CFA..................................... Senior Portfolio Manager
================================================================================
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/99
- --------------------------------------------------------------------------------
Montgomery
International Growth Fund
Since inception (7/3/95)................................................ 17.72%
One year................................................................ 2.34%
Three years............................................................. 14.57%
- --------------------------------------------------------------------------------
MSCI EAFE Index
Since 7/3/95............................................................ 10.23%
One year................................................................ 7.92%
Three years............................................................. 9.12%
- --------------------------------------------------------------------------------
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. Fund performance presented is for
Class R shares.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
Montgomery Lipper
International MSCI EAFE International
Growth Index/1/ Funds Average
------ --------- -------------
06/95 $10,000 $10,000.00 $10,000.00
07/95 10,083 10,622.56 10,535.91
08/95 10,058 10,217.35 10,339.11
09/95 10,417 10,416.90 10,495.93
10/95 10,675 10,136.89 10,286.61
11/95 10,783 10,418.93 10,396.57
12/95 11,142 10,838.72 10,708.57
01/96 11,392 10,883.21 10,949.63
02/96 11,617 10,920.00 10,995.95
03/96 11,842 11,151.90 11,186.91
04/96 12,600 11,476.12 11,540.05
05/96 12,925 11,264.94 11,508.20
06/96 12,758 11,328.34 11,585.43
07/96 12,183 10,997.25 11,150.67
08/96 12,500 11,021.34 11,278.40
09/96 12,717 11,314.13 11,521.57
10/96 12,737 11,198.36 11,444.71
11/96 13,420 11,643.92 11,933.52
12/96 13,477 11,494.13 11,976.28
01/97 13,748 11,091.87 11,932.77
02/97 13,683 11,273.29 12,085.45
03/97 13,730 11,314.11 12,118.03
04/97 13,739 11,374.14 12,118.00
05/97 14,572 12,114.30 12,136.05
06/97 15,208 12,782.37 12,853.97
07/97 15,704 12,989.16 13,453.37
08/97 14,899 12,019.08 12,815.77
09/97 15,789 12,692.37 13,615.29
10/97 14,572 11,716.78 12,571.16
11/97 14,750 11,597.33 12,453.90
12/97 14,845 11,698.49 12,552.73
01/98 15,478 12,233.50 12,862.04
02/98 16,937 13,018.47 13,712.55
03/98 17,862 13,419.33 14,414.36
04/98 18,506 13,525.55 14,615.61
05/98 18,717 13,459.90 14,632.53
06/98 18,747 13,561.80 14,527.51
07/98 19,129 13,699.30 14,763.50
08/98 16,283 12,002.10 12,643.20
09/98 15,529 11,634.14 12,174.74
10/98 17,078 12,846.89 13,087.66
11/98 18,144 13,505.05 13,759.60
12/98 19,105 14,037.82 14,192.05
01/99 19,862 13,996.00 14,307.00
02/99 18,791 13,663.00 13,932.00
03/99 18,468 14,233.00 14,420.00
04/99 18,994 14,810.00 15,083.00
05/99 18,519 14,047.00 14,466.00
06/99 19,186 14,595.00 15,227.00
(1) The Morgan Stanley Capital International EAFE Index is composed of 20
developed market countries in Europe, Australasia and the Far East.
(2) The Lipper International Funds Average universe consists of 269 funds.
* Morningstar proprietary ratings reflect historical risk-adjusted performance
through 6/30/99. The ratings are subject to change every month, and past
performance is no guarantee of future results. Morningstar ratings are
calculated from the funds' three-, five-, and 10-year average annual returns
(if applicable) in excess of 90-day Treasury bill returns, with appropriate
fee adjustments and a risk factor that reflects fund performance below
90-day T-bill returns. The top 10% of the funds in a broad asset class
receive five stars; the next 22.5% receive four stars. Ratings are for Class
R shares only; other classes may vary.
21
<PAGE>
==========================
The Montgomery Funds
- --------------------------
International Growth Fund
- --------------------------
Portfolio Highlights
================================================================================
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
Total S.A., Class B ..................................................... 2.9%
Alstom .................................................................. 2.6%
Vivendi ................................................................. 2.4%
Orange PLC .............................................................. 2.4%
Veba AG ................................................................. 2.2%
Cable &Wireless Optus Ltd. .............................................. 2.2%
Railtrack Group PLC ..................................................... 2.2%
Nissan Motor Company,Ltd. ................................................ 2.2%
Cap Gemini S.A. ......................................................... 2.1%
Kirin Brewery Company, Ltd. ............................................. 2.1%
================================================================================
TOP FIVE COUNTRIES
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
United Kingdom .......................................................... 24.6%
France .................................................................. 17.8%
Japan ................................................................... 16.2%
Netherlands ............................................................. 8.7%
Germany ................................................................. 5.9%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
Investors should be aware that there are risks associated with investing in
funds of this type that invest in securities of foreign countries, such as
erratic market conditions, economic and political instability, and fluctuations
in currency exchange rates.
ing policy initiatives will be vital if that country is to maintain its current
economic and market momentum.
Q: You appear to be more optimistic about the prospects for Japan; what are your
views on Europe?
A: There have been subtle improvements in the outlook for the European economies
in recent months. As a result, the consensus view is for an improvement in
economic growth in the region for the second half of 1999. However, this
positive growth outlook is likely to be accompanied by the possibility of higher
interest rates as inflationary concerns increase. There are two countries that
we are particularly excited about--France and the United Kingdom. Both have
shown encouraging signs of accelerating growth, and we believe that their equity
markets may perform well.
Q: How have you positioned the Fund to take advantage of trends in Asia and
Europe?
A: As mentioned, we have been increasing the Fund's exposure to Japan. We have
also added to our holdings in France and the United Kingdom. In both these
countries, we have identified companies in the industrial growth cyclical and
consumer durables sectors that are attractively valued and that we believe will
profit from accelerating economic growth.
Although we currently anticipate stronger growth in Japan and Europe, there are
risks, including the possibility of higher interest rates, that may change this
outlook. We believe that our stock selection process, which combines primary
original research, expert industry knowledge and the advantage of good insight,
should help offset unfavorable macroeconomic trends.
22
<PAGE>
=========================
The Montgomery Funds
-------------------------
International Growth Fund
-------------------------
Investments
PORTFOLIO INVESTMENTS
June 30, 1999
Shares Value (Note 1)
COMMON STOCKS - 94.8%
Australia - 4.0%
563,034 Australia & New Zealand Banking Group
Ltd. (Non-U.S. Banks) .................................. $ 4,124,379
2,231,400 Cable & Wireless Optus Ltd.
(Other Telephone/Communication) ........................ 5,061,566
-----------
9,185,945
Austria - 1.6%
70,000 Bank Austria AG (Non-U.S. Banks) ....................... 3,686,189
Belgium - 1.3%
69,400 Acec-Union Miniere S.A.
(Metal Fabrications) ................................... 2,866,347
Finland - 3.3%
82,900 Helsinki Telephone#
(Other Telephone/Communication) ........................ 3,937,510
40,180 Nokia Oyj
(Telecommunications Equipment) ......................... 3,526,454
-----------
7,463,964
France - 17.8%
187,400 Alstom+ (Electrical Products) .......................... 5,901,722
2,400 Alstom, ADR+ (Electrical Products) ..................... 76,800
40,400 Banque Nationale de Paris(Non-U.S.Banks) ............... 3,370,560
31,220 Cap Gemini S.A.# (EDP Services) ........................ 4,912,779
38,440 Coflexip (Metal Fabrications) .......................... 3,304,281
8,220 Groupe Danone (Packaged Foods) ......................... 2,121,882
22,230 Lafarge S.A. (Building Materials) ...................... 2,116,312
94,690 Lagardere S.C.A. (Aerospace/Defense) ................... 3,529,561
64,700 Societe BIC S.A. (Consumer Specialties) ................ 3,417,113
51,400 Total S.A., Class B+
(Oil Refining/Marketing) ............................... 6,639,414
68,911 Vivendi+ (Non-U.S. Utilities) .......................... 5,589,128
-----------
40,979,552
Germany - 4.2%
29,920 Mannesmann AG (Cellular Telephone) ..................... 4,470,329
86,990 Veba AG (Non-U.S. Utilities) ........................... 5,119,806
9,590,135
Japan - 16.2%
543 East Japan Railway Company (Railroads) ................. 2,920,079
518,000 Fuji Heavy Industries Ltd.#(Motor Vehicles) ............ 4,002,747
491,000 Hitachi Ltd.
(Diversified Electronic Products) ...................... 4,610,615
392 Japan Tobacco, Inc. (Tobacco) .......................... 4,345,826
161,000 KAO Corporation
(Package Goods/Cosmetics) .............................. 4,528,833
406,000 Kirin Brewery Company, Ltd.
(Alcoholic Beverages) .................................. 4,870,522
1,051,000 Nissan Motor Company, Ltd.
(Motor Vehicles) ....................................... 5,025,879
42,000 Sony Corporation
(Consumer Electronics/Appliances) ...................... 4,534,624
326,000 Sumitomo Rubber Industries, Ltd.
(Automotive Aftermarket) ............................... 2,308,728
-----------
37,147,853
Netherlands - 8.7%
45,800 Equant N.V.+
(Other Telephone/Communication) ........................ 4,310,925
73,300 ING Groep N.V. (Oil Refining/Marketing) ................ 3,973,494
94,519 Koninklijke KPN, N.V.
(Other Telephone/Communication) ........................ 4,440,582
51,200 United Pan-Europe Communications
N.V.#+(Cable Television) ............................... 2,780,770
164,761 Vendex N.V. (Department Chains) ........................ 4,406,193
-----------
19,911,964
Portugal - 1.0%
18,300 Telecel-Comunicacoes Pessoais S.A.
(Cellular Telephone) ................................... 2,361,949
Russia - 1.8%
51,800 Global TeleSystems Group, Inc.+
(Other Telephone/Communication) ........................ 4,194,181
Spain - 5.1%
150,380 Argentaria S.A. (Non-U.S. Banks) ....................... 3,430,008
444,600 Banco Santander Central Hispano S.A.
(Non-U.S. Banks) ....................................... 4,636,606
76,403 Telefonica de Espana S.A.+
(Other Telephone/Communication) ........................ 3,684,933
-----------
11,751,547
Sweden - 1.7%
133,200 Enator AB# (EDP Services) .............................. 4,010,627
Switzerland - 3.5%
1,403 Julius Baer Holding AG
(Investment Banks/Brokers)) ............................ 4,005,472
10,455 Swisscom AG
(Other Telephone/Communication) ........................ 3,941,596
-----------
7,947,068
United Kingdom - 24.6%
198,000 Abbey National PLC
(Diversified Financial Services) ....................... 3,723,061
219,500 Alliance & Leicester PLC (Non-U.S. Banks) .............. 2,963,924
128,600 Barclays PLC (Non-U.S. Banks) .......................... 3,746,852
635,900 British Airways PLC (Airlines) ......................... 4,398,627
340,000 British American Tobacco PLC (Tobacco) ................. 3,201,931
389,100 Diageo PLC (Alcoholic Beverages) ....................... 4,093,980
677,300 Enterprise Oil PLC
(Oil and Gas Production) ............................... 4,385,842
23
The accompanying notes are an integral part of these financial statements.
<PAGE>
=========================
The Montgomery Funds
- -------------------------
International Growth Fund
- -------------------------
Investments
Shares Value (Note 1)
COMMON STOCKS - continued
United Kingdom - continued
112,703 Glaxo Wellcome PLC
(Major Pharmaceuticals) ............................... $ 3,132,565
270,000 Great Universal Stores PLC
(Catalog/Specialty Distribution) ...................... 2,985,661
107,200 HSBC Holdings PLC
(Diversified Financial Services) ...................... 3,799,763
151,000 Lloyds TSB Group PLC
(Diversified Financial Services) ...................... 2,055,637
374,254 Orange PLC (Cellular Telephone) ....................... 5,481,596
246,648 Railtrack Group PLC (Railroads) ....................... 5,046,337
352,700 Scottish & Southern Energy PLC
(Non-U.S. Utilities) .................................. 3,621,972
842,500 Somerfield PLC (Food Chains) .......................... 3,953,808
-------------
56,591,556
TOTAL COMMON STOCKS
(Cost $209,929,276) .............................................. 217,688,877
-------------
PREFERRED STOCK - 1.7%
Germany - 1.7%
1,610 Porsche AG (Motor Vehicles)
(Cost $3,899,460) ..................................... 3,790,269
-------------
TOTAL SECURITIES
(Cost $213,828,736) .............................................. 221,479,146
-------------
Principal Amount
REPURCHASE AGREEMENT - 3.2%
$7,390,000 Agreement with Prudential Securities,
Tri-Party, 5.100% dated 06/30/99, to be
repurchased at $7,391,033 on 07/01/99,
collateralized by $7,537,812 market value
of U.S. government and mortgage-backed
securities, having various maturities and
interest rates
(Cost $7,390,000) ..................................... 7,390,000
-------------
TOTAL INVESTMENTS - 99.7%
(Cost $221,218,736*) ............................................. 228,869,146
OTHER ASSETS AND LIABILITIES - 0.3%
(Net) ............................................................ 769,838
-------------
NET ASSETS - 100.0% .............................................. $ 229,638,984
=============
* Aggregate cost for federal tax purposes $221,334,613.
# All or a portion of this security is on loan at June 30, 1999 (see note 4 to
Financial Statements).
+ Non-income-producing security.
Abbreviations
ADR American Depositary Receipt
ORD Ordinary
24
The accompanying notes are an integral part of these financial statements.
<PAGE>
====================
The Montgomery Funds
--------------------
International
Small Cap Fund
--------------------
Portfolio Highlights
INVESTMENT REVIEW
Q: How did the Fund perform from July 1 through June 30, 1999?
A: Following a challenging year for international small-cap investors, the Fund
returned -3.8% versus a return of 3.4% for its benchmark, the Salomon Smith
Barney World Extended Market (ex-U.S.) Index.
Q: What factors contributed to this underperformance?
A: A difficult quarter at the beginning of the financial year negatively
impacted the Fund's absolute returns throughout the year. The international
small-cap sector was particularly affected by the financial turmoil that
engulfed global markets in August and September 1998. Although global markets
have since recovered, in the small-cap sector this recovery has been largely
confined to the Pacific Rim, specifically Japan. In Europe, with the exception
of technology stocks, small-cap securities have continued to underperform their
large-cap peers.
The largest contributing factor to the Fund's lower returns versus the benchmark
was its underweight position in Japan. Although we had begun increasing our
exposure to Japan to take advantage of any improvement in its economy, our
weighting was still significantly under the benchmark's when the November
announcement of a stimulus package led to a rapid appreciation in the value of
the yen. Driven by our disciplined stock selection process as much as by
macroeconomic considerations, we maintained a cautious approach to Japan
throughout the year, adding only stocks that we believed were undergoing
positive fundamental change and would benefit from positive business momentum.
The Fund benefited from our increased exposure to this market in the first three
months of 1999, but in the final three months we began reducing our exposure.
Because of strong price appreciation, our holdings rapidly exceeded their price
targets and we took profits. Although this decision may have detracted from
short-term returns, we believe that the rally in this market has nearly run its
course; and because Japanese small-cap stocks are typically very illiquid, it is
wise to sell into strength during market rallies.
Offsetting our underweight position in Japan, our overweight position in the
U.K. market helped returns over the period. The FTSE Small Cap Index
outperformed the rest of the European small-cap sector as well as U.K. large-cap
stocks during the year.
Q: Which stocks performed well over the period?
A: Inevitably, the stocks that performed particularly well over the year include
many of the Fund's Japanese holdings, which made a very positive contribution to
performance. For example, we were particularly pleased with the returns of Fast
Retailing, an apparel company similar to The Gap in the United States. This
company reached its price target during the rally in Japanese small-cap stocks,
and we took profits, selling out of our position. Other portfolio holdings in
the recovering Asian markets also performed well: Natsteel Electronics (2.2% of
net assets as of 6/30/99), a Singapore manufacturer of circuit boards and
devices for mobile phone handsets, and Esprit Holdings (1.7% of net assets as of
================================================================================
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
John Boich, CFA .................................... Senior Portfolio Manager
================================================================================
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/99
- --------------------------------------------------------------------------------
Montgomery International
Small Cap Fund
Since inception (9/30/93) ............................................. 6.54%
One year .............................................................. (3.82)%
Five years ............................................................ 7.50%
- --------------------------------------------------------------------------------
Salomon Smith Barney World
Extended Market (ex-U.S.) Index
Since 9/30/93 ......................................................... 4.69%
One year .............................................................. 3.40%
Five years ............................................................ 3.47%
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. Fund performance presented is for
Class R shares.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
Salomon Smith Barney Montgomery Lipper International
Extended Market International Small Cap
Date (ex-U.S.) Index Small Cap Fund Funds Average/2/
---- --------------- -------------- ----------------
9/93 $10,000 $10,000.00 $10,000.00
10/93 10,433 9,964.00 10,492.44
11/93 10,492 9,130.01 10,254.07
12/93 11,342 9,717.99 11,222.30
01/94 12,117 10,688.81 12,132.78
02/94 12,083 10,763.63 12,134.62
03/94 11,158 10,587.11 11,585.28
04/94 10,817 10,904.72 11,706.52
05/94 10,625 10,748.79 11,611.83
06/94 10,017 10,974.51 11,370.82
07/94 10,450 11,099.62 11,628.65
08/94 10,825 11,217.28 11,935.75
9/94 10,517 10,896.46 11,639.84
10/94 10,642 11,093.69 11,749.61
11/94 9,951 10,401.44 11,076.17
12/94 9,835 10,540.82 10,927.22
01/95 9,318 10,198.24 10,476.14
02/95 9,409 10,049.35 10,512.67
03/95 9,301 10,476.45 11,370.82
04/95 9,543 10,790.74 11,628.65
05/95 9,635 10,601.90 11,935.75
06/95 9,793 10,471.50 11,639.84
07/95 10,285 11,081.99 11,749.61
08/95 10,260 10,801.61 11,076.17
9/95 10,751 10,885.87 10,927.22
10/95 10,651 10,572.35 10,476.14
11/95 10,586 10,684.42 10,512.67
12/95 10,987 11,093.63 11,554.35
01/96 11,413 11,291.10 11,946.28
02/96 11,429 11,467.24 12,203.36
03/96 11,671 11,730.64 12,419.20
04/96 12,164 12,347.54 12,853.14
05/96 12,490 12,247.27 13,075.09
06/96 12,406 12,248.87 13,140.47
07/96 11,997 11,785.68 12,682.47
08/96 12,348 11,905.22 12,895.08
9/96 12,423 11,971.39 12,973.36
10/96 12,281 11,924.37 13,010.08
11/96 12,773 12,119.40 13,395.03
12/96 12,631 11,896.48 13,507.89
01/97 13,041 11,639.40 13,658.66
02/97 13,199 11,834.94 13,856.64
03/97 13,032 11,678.02 13,856.64
04/97 12,924 11,503.43 13,646.41
05/97 13,959 12,240.52 14,353.95
06/97 14,326 12,517.26 14,737.35
07/97 14,193 12,327.86 14,725.38
08/97 13,892 11,802.02 14,313.31
9/97 14,118 12,011.78 14,750.80
10/97 13,241 11,537.33 13,937.77
11/97 12,515 11,022.21 13,519.26
12/97 12,533 10,778.46 13,378.46
01/98 12,958 11,227.80 13,567.51
02/98 14,016 12,065.30 14,580.09
03/98 14,955 12,632.20 15,489.03
04/98 15,212 12,728.39 15,802.43
05/98 15,182 12,965.75 15,927.92
06/98 14,965 12,587.53 15,433.99
07/98 15,331 12,501.14 15,442.28
08/98 12,524 10,968.25 13,304.22
9/98 12,504 10,682.92 12,864.69
10/98 12,830 11,436.81 13,375.34
11/98 13,304 11,803.26 13,849.71
12/98 13,859 12,088.46 14,175.85
01/99 14,344 12,051.46 14,441.00
02/99 14,067 11,817.53 14,406.00
03/99 14,048 12,261.16 14,850.00
04/99 14,691 12,924.41 15,951.00
05/99 14,344 12,586.05 15,571.00
06/99 14,393 13,015.24 16,778.00
/1/ The Salomon Smith Barney World Extended Market (ex-U.S.) Index is a
comprehensive float-weighted equity index consisting of every company with
an investable market capitalization of more than $100 million in developed
countries. Within this index, the Extended (ex-U.S.) Market Index defines
the small-capitalization stock universe.
/2/ The Lipper International Small Cap Funds Average universe consists of six
funds.
25
<PAGE>
====================
The Montgomery Funds
- --------------------
International
Small Cap Fund
- --------------------
Portfolio Highlights
================================================================================
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
AT&T Canada, Inc. ....................................................... 5.1%
Henlys Group PLC ........................................................ 3.7%
Esat TelecomGroup PLC, ADR .............................................. 3.6%
Baron de Ley S.A. ....................................................... 3.6%
Banca Lombarda SpA ...................................................... 3.1%
Primacom AG ............................................................. 2.9%
Global TeleSystems Group, Inc. .......................................... 2.7%
Virgin Express Holdings PLC; Sponsored ADR .............................. 2.7%
Ordina Beheer N.V. ...................................................... 2.7%
Wickes PLC .............................................................. 2.6%
================================================================================
TOP FIVE COUNTRIES
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
United Kingdom .......................................................... 18.4%
Germany ................................................................. 12.8%
Ireland ................................................................. 8.8%
Spain ................................................................... 8.2%
Canada .................................................................. 5.5%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
There are risks associated with investing in funds of this type that invest in
securities of foreign countries, such as erratic market conditions, economic and
political instability, and fluctuations in currency exchange rates.
There are also risks associated with investing in small-cap companies, which
tend to be more volatile and less liquid than stocks of large companies,
including the increased risk of price fluctuations.
6/30/99), a Hong Kong apparel company. The latter typifies the companies that
our strategy tries to identify--ones that have benefited from restructuring and
have therefore been able to achieve immediate earnings expansion independent of
revenue growth. This and the recovery of the Hong Kong market helped Esprit
appreciate strongly in the second quarter of 1999.
The Fund also enjoyed some notable successes in Europe, in spite of a
challenging small-cap environment. Our best results were in such industries as
telecommunications, where we have strong industry expertise, can draw on the
benefit of good insight and have excellent access to senior management. One such
outperformer was Global TeleSystems Group (2.7% of net assets as of 6/30/99), a
Belgium-domiciled provider of local and long-distance calling combined with data
transmission and Internet service.
Q: What trends do you see developing in international small-caps in the coming
year?
A: Recently released Japanese economic statistics suggest a fledgling recovery
in domestic consumption in the first three months of 1999. This is significant
in that consumer spending is key to a sustainable economic recovery. We continue
to monitor developments carefully, believing that for a sustainable recovery,
the extended session of the Japanese Diet (parliament) will have to pass a
further fiscal stimulus package, pass a proposed bill on debt relief and tighten
bankruptcy laws. Against this background we may begin to explore other
interesting opportunities in the Japanese small-cap sector, although after the
recent rally we believe many are too highly valued at present.
We are more excited about the prospects for the European small-cap sector. We
believe that at this point in the economic cycle it remains wise to monitor
developments very carefully, but we are beginning to see subtle improvements,
particularly in France and the United Kingdom. With the exception of technology
stocks, European small-cap stocks have underperformed relative to the benchmark
and their large-cap peers for most of the past 12 months, but in the final few
months of the year interest has begun to revive. We believe that a recovery in
European growth could lead small-cap stocks to outperform and that the Fund will
be well positioned to take advantage of this.
Q: How is the Fund positioned to take advantage of these trends?
A: Based on our stock selection process, we continue to add to our exposure in
Europe. We have been able to identify some attractively valued companies, which
have the potential to perform well if interest in the European small-cap sector
continues to grow. Whatever the macroeconomic outcome, however, we remain
committed to portfolio positioning decisions based on our stock selection
process, which seeks to identify companies with high earnings visibility that
are undergoing positive fundamental change and business momentum, and that we
believe have the ability to perform well in any macroeconomic environment.
26
<PAGE>
====================
The Montgomery Funds
--------------------
International
Small Cap Fund
--------------------
Investments
PORTFOLIO INVESTMENTS
June 30, 1999
Shares Value (Note 1)
COMMON STOCKS -- 95.6%
Australia -- 1.7%
285,900 Cable & Wireless Optus Ltd.+
(Other Telephone/Communication) ......................... $ 648,517
Austria -- 4.3%
14,400 Bank Austria AG (Non-U.S. Banks) ........................ 758,302
5,910 EVN AG (Non-U.S. Utilities) ............................. 865,312
----------
1,623,614
Canada -- 5.2%
30,600 AT&T Canada, Inc.+
(Other Telephone/Communication) ......................... 1,955,531
51,640 InMedia Presentations, Inc.+
(Computer Software) ..................................... 26,624
----------
1,982,155
China/Hong Kong -- 3.8%
202,000 Dah Sing Financial Group
(Diversified Financial Services) ........................ 769,382
984,000 Esprit Holdings Ltd.
(Clothing/Shoe/Accessory Stores) ........................ 665,868
----------
1,435,250
France -- 3.1%
9,800 Etam Development S.A.
(Clothing/Shoe/Accessory Stores) ........................ 434,103
14,040 Societe BIC S.A. (Consumer Specialties) ................. 741,519
----------
1,175,622
Germany -- 10.3%
615 Hugo Boss AG# (Apparel) ................................. 739,158
23,500 Moebel Walther AG (Other Specialty Stores) .............. 359,120
24,020 Primacom AG+ (Cable Television) ......................... 1,091,277
38,190 Vossloh AG
(Diversified Electronic Products) ....................... 867,524
39,330 Winkler & Duennebier AG
(Industrial Machinery/Components) ....................... 852,811
----------
3,909,890
Greece -- 1.3%
21,700 STET Hellas Telecommunications S.A.,
ADR+ (Other Telephone/Communication) .................... 485,538
Ireland -- 8.8%
277,719 Anglo Irish Bank Corporation PLC
(Non-U.S. Banks) ........................................ 688,218
31,400 Esat Telecom Group PLC, ADR+
(Other Telephone/Communication) ......................... 1,373,750
59,633 Irish Permanent PLC
(Diversified Financial Services) ........................ 621,895
12,900 Ryanair Holdings PLC, ADR+ (Airlines) ................... 682,088
----------
3,365,951
Israel -- 0.7%
39,000 Paradigm Geophysical Ltd.+
(Oilfield Services/Equipment) ........................... 262,031
Italy -- 5.1%
97,200 Banca Lombarda SpA (Non-U.S. Banks) ..................... 1,197,035
170,900 Monte dei Paschi di Siena SpA+
(Non-U.S. Banks) ........................................ 752,258
----------
1,949,293
Japan -- 4.6%
28,300 Aiwa Company Ltd.
(Consumer Electronics/Appliances) ....................... 936,543
34,500 Shimano, Inc. (Recreational Products/Toys) .............. 817,759
----------
1,754,302
Netherlands -- 4.3%
11,281 Benckiser N.V., "B" Shares
(Package Goods/Cosmetics) ............................... 602,791
35,464 Ordina Beheer N.V.+ (EDP Services) ...................... 1,025,310
----------
1,628,101
New Zealand -- 2.0%
375,500 Air New Zealand Ltd., Class B (Airlines) ................ 776,304
Norway -- 3.4%
148,400 Christiania Bank OG Kreditkasse
(Non-U.S. Banks) ........................................ 534,078
92,100 Selmer ASA (Engineering and Construction) ............... 781,799
----------
1,315,877
Portugal -- 1.5%
4,300 Telecel-Comunicacoes Pessoais S.A.
(Cellular Telephone) .................................... 554,993
Russia -- 2.7%
12,700 Global TeleSystems Group, Inc.+
(Other Telephone/Communication) ......................... 1,028,303
Singapore -- 2.2%
190,200 Natsteel Electronics Ltd.#
(Diversified Electronic Products) ....................... 832,373
Spain -- 8.2%
35,265 Azkoyen S.A.
(Industrial Machinery/Components) ....................... 910,318
16,400 Banco Pastor S.A. (Non-U.S. Banks) ...................... 837,374
39,650 Baron de Ley S.A. (Alcoholic Beverages) ................. 1,367,411
----------
3,115,103
Sweden -- 2.3%
82,600 Scandic Hotels AB# (Hotels/Resorts) ..................... 882,666
Switzerland -- 1.7%
225 Julius Baer Holding AG (Non-U.S. Banks) ................. 642,360
United Kingdom-- 18.4%
53,000 Alliance & Leicester PLC (Non-U.S. Banks) ............... 715,663
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
====================
The Montgomery Funds
- --------------------
International
Small Cap Fund
- --------------------
Investments
Shares Value (Note 1)
COMMON STOCKS -- continued
United Kingdom -- continued
11,300 Colt Telecom Group, ADR+
(Other Telephone/Communication) ........................ $ 971,447
149,674 Henlys Group PLC (Motor Vehicles) ...................... 1,402,463
150,900 Jarvis PLC (Engineering and Construction) .............. 710,546
39,850 National Express Group PLC (Railroads) ................. 636,476
900,000 Scoot Company PLC
(Other Consumer Services) .............................. 532,393
111,500 Virgin Express Holdings PLC, Sponsored
ADR+ (Airlines) ........................................ 1,027,891
163,800 Wickes PLC (Building Material Chains) .................. 992,210
------------
6,989,089
TOTAL COMMON STOCKS
(Cost $34,028,804) ................................................ 36,357,332
------------
PREFERRED STOCKS -- 2.5%
Germany -- 2.5%
18,250 Fielmann AG (Other Specialty Stores) ................... 676,498
400 Wella AG (Package Goods/Cosmetics) ..................... 291,178
------------
TOTAL PREFERRED STOCKS
(Cost $1,064,098) ................................................. 967,676
------------
WARRANTS -- 0.3%
Canada -- 0.3%
215,706 InMedia Presentations, Inc.+
(Computer Software)
(Cost $177,771) ........................................ 111,212
------------
TOTAL INVESTMENTS-- 98.4%
(Cost $35,270,673*) ............................................... 37,436,220
OTHER ASSETS AND LIABILITIES -- 1.6%
(Net) ............................................................. 620,515
------------
NET ASSETS -- 100.0% .............................................. $ 38,056,735
============
* Aggregate cost for federal tax purposes $35,290,545.
# All or a portion of this security is on loan at June 30, 1999 (see note 4 to
Financial Statements).
+ Non-income producing security.
Abbreviations
ADR American Depositary Receipt
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
=========================
The Montgomery Funds
-------------------------
Global Opportunities Fund
-------------------------
Portfolio Highlights
INVESTMENT REVIEW
Q: How did the Fund perform from July 1, 1998, through June 30, 1999?
A: The Fund matched the Morgan Stanley Capital International (MSCI) World Index
benchmark with a return of 15.7% for the period. The portfolio performed well
during most of the financial year, outperforming its benchmark in three of the
four quarters. In recognition of the Fund's strong long-term performance,
Morningstar awarded it an overall five-star rating among 978 international
equity funds for its risk-adjusted returns over the various periods ended June
30, 1999. The Fund was rated among 987 and 498 international equity funds over
the respective three- and five-year periods ended 6/30/99 and received five
stars for each period.*
Q: Did you change your positioning in response to shifts in the global
investment environment over the course of the year?
A: Changes in the Fund's positioning during the year resulted from our bottom-up
stock selection process rather than macroeconomic themes, and it was this that
led us to emphasize certain industries and countries. At the beginning of the
financial year, the Fund was overweighted in several industries, such as
communications, that were particularly hard hit by the volatility in global
markets. We stayed consistent with our investment process and were rewarded by
strong performance in the subsequent three quarters. Our stock selections in
these two industries in particular helped boost the Fund's relative performance.
Based on the fundamentals of the companies and helped by our expertise and
insight in these areas, we continue to be overweighted in these sectors.
Q: Which of your stock selections contributed most to performance over the
period?
A: Several stocks made particularly favorable contributions to performance over
the course of the year. Among the strongest were Japanese electronics firms Aiwa
(1.5% of net assets as of 6/30/99) and Hitachi (2.3% of net assets as of
6/30/99), communications company AT&T Canada (3.7% of net assets as of 6/30/99)
and computer component assembler Hon Hai Precision Industry of Taiwan (2.0% of
net assets as of 6/30/99).
These holdings reflect our emphasis on well-managed companies undergoing
positive fundamental change that are in industries we like for their long-range
growth prospects. Aiwa and Hitachi benefited from corporate restructuring, which
has improved the growth potential and financial health of both companies. AT&T
Canada is a beneficiary of the global communications revolution. With its recent
merger and acquisition activity, AT&T Canada has created Canada's largest
facilities-based voice, data and Internet communications provider. Hon Hai is a
well-managed company in an industry whose growth prospects are improving.
================================================================================
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
John Boich, CFA ..................................... Senior Portfolio Manager
Oscar Castro, CFA ................................... Senior Portfolio Manager
================================================================================
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/99
- --------------------------------------------------------------------------------
Montgomery
Global Opportunities Fund
Since inception (9/30/93) ............................................. 17.86%
One year .............................................................. 15.68%
Five years ............................................................ 19.02%
- --------------------------------------------------------------------------------
MSCI World Index
Since 9/30/93 ......................................................... 15.45%
One year .............................................................. 15.67%
Five years ............................................................ 16.75%
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Montgomery Lipper Montgomery Lipper
Global MSCI Global Global MSCI Global
Opportunities World Funds Opportunities World Funds
Date Fund Index/1/ Average/2/ Date Fund Index/1/ Average/2/
---- ---- -------- ---------- ---- ---- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
9/93 $10,000 $10,000.00 $10,000.00 1/97 $15,956 $14,800.42 $14,936.98
10/93 10,692 10,273.16 10,414.67 2/97 15,700 14,967.87 15,014.54
11/93 10,708 9,689.62 10,134.58 3/97 15,508 14,669.01 14,823.53
12/93 11,850 10,161.38 10,926.79 4/97 15,563 15,145.70 15,047.95
1/94 12,533 10,829.21 11,441.64 5/97 16,704 16,077.79 15,921.76
2/94 12,350 10,686.68 11,195.61 6/97 17,498 16,876.91 16,621.20
3/94 11,508 10,223.56 10,705.24 7/97 18,292 17,651.45 17,462.06
4/94 11,650 10,537.56 10,886.60 8/97 17,480 16,467.87 16,440.17
5/94 11,517 10,561.93 10,867.98 9/97 18,420 17,359.75 17,445.45
6/94 10,767 10,530.18 10,647.50 10/97 16,750 16,443.28 16,321.21
7/94 11,217 10,727.96 10,970.54 11/97 16,941 16,731.46 16,402.20
8/94 11,858 11,048.59 11,368.42 12/97 16,959 16,932.57 16,607.58
9/94 11,608 10,755.85 11,154.33 1/98 17,654 17,401.64 16,819.89
10/94 11,883 11,059.33 11,336.46 2/98 19,648 18,575.94 18,019.92
11/94 11,096 10,577.23 10,834.02 3/98 21,085 19,357.49 18,928.31
12/94 10,836 10,677.17 10,735.18 4/98 22,070 19,543.74 19,263.60
1/95 10,292 10,514.34 10,430.83 5/98 21,966 19,295.89 19,137.64
2/95 10,421 10,665.08 10,615.97 6/98 22,244 19,750.91 19,227.15
3/95 10,343 11,176.54 10,880.26 7/98 22,963 19,716.29 19,269.87
4/95 10,663 11,563.46 11,232.46 8/98 18,477 17,084.11 16,350.26
5/95 10,983 11,659.76 11,475.98 9/98 17,712 17,383.32 16,323.32
6/95 11,459 11,653.55 11,664.75 10/98 19,428 18,951.79 17,414.88
7/95 12,082 12,234.00 12,257.59 11/98 20,888 20,075.87 18,422.84
8/95 11,866 11,958.82 12,080.26 12/98 22,514 21,053.62 19,258.84
9/95 12,315 12,304.54 12,321.30 1/99 24,202 21,512.00 19,667.00
10/95 12,030 12,108.17 12,077.59 2/99 23,438 20,936.00 19,091.00
11/95 12,403 12,525.95 12,289.57 3/99 23,921 21,805.00 19,807.00
12/95 12,707 12,889.52 12,520.65 4/99 24,270 22,661.00 20,779.00
1/96 12,985 13,120.03 13,197.24 5/99 24,015 21,830.00 20,187.00
2/96 13,289 13,197.24 12,984.70 6/99 25,732 22,845.00 21,296.00
3/96 13,733 13,414.11 13,209.46
4/96 14,550 13,726.78 13,614.50
5/96 14,923 13,735.90 13,738.61
6/96 14,741 13,802.60 13,725.60
7/96 13,768 13,312.04 13,144.73
8/96 14,280 13,462.28 13,459.75
9/96 14,880 13,986.58 13,867.65
10/96 14,822 14,081.45 13,898.98
11/96 15,453 14,867.78 14,590.42
12/96 15,271 14,626.88 14,614.76
</TABLE>
(1) The Morgan Stanley Capital International World Index measures the
performance of selected stocks in 22 developed countries. The index is
presented net of dividend withholding taxes.
(2) The Lipper Global Funds Average universe consists of 59 funds.
* Morningstar proprietary ratings reflect historical risk-adjusted performance
through 6/30/99. The ratings are subject to change every month, and past
performance is no guarantee of future results. Morningstar ratings are
calculated from the funds, three-, five-, and 10-year average annual returns
(if applicable) in excess of 90-day Treasury bill returns, with appropriate
fee adjustments and a risk factor that reflects funds' performance below
90-day T-bill returns. The top 10% of the funds in a broad asset class
receive five stars. Ratings are for Class R shares only; other classes may
vary.
29
<PAGE>
==========================
The Montgomery Funds
- --------------------------
Global Opportunities Fund
- --------------------------
Portfolio Highlights
================================================================================
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
AT&T Canada, Inc........................................................ 3.7%
MCI WorldCom, Inc....................................................... 2.6%
Sprint Corporation...................................................... 2.6%
Total S.A., Class B..................................................... 2.5%
Hitachi Ltd............................................................. 2.3%
Orange PLC.............................................................. 2.3%
Vivendi................................................................. 2.2%
Global TeleSystems Group, Inc........................................... 2.2%
Veba AG................................................................. 2.2%
Nissan Motor Company.................................................... 2.1%
================================================================================
TOP FIVE COUNTRIES
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
United Kingdom.......................................................... 18.2%
United States........................................................... 13.9%
France.................................................................. 13.4%
Netherlands............................................................. 7.7%
Spain................................................................... 7.5%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
There are risks associated with investing in a fund of this type that invests in
securities of foreign countries, such as erratic market conditions, economic and
political instability, and fluctuations in currency exchange rates.
Q: Were there any disappointments?
A: There were few disappointments during the year. In general, stocks that lost
value during the global markets crisis recovered, and we were pleased with the
performance of most of our stock selections. Toward the end of the financial
year, our position in Cable & Wireless Optus (2.1% of net assets as of 6/30/99)
suffered, as the market rotated from growth stocks into cyclicals. We continue
to be positive about the company's long-term fundamentals, however, and believe
that it will recover.
Q: What opportunities are you most excited about, looking forward, and how is
the Fund positioned to take advantage of them?
A: We believe that the rebound of the global economy is likely to continue and
that an improving global outlook will support additional corporate earnings
growth, which will in turn be a positive for the growth-oriented stocks in the
Fund. We also continue to be optimistic about the prospects in the rapidly
evolving technology and communications sectors. Through our stock selection
process and our in-depth knowledge of technology and communications, we have
identified several exciting companies in these sectors and believe that the Fund
is well positioned to take advantage of their strong growth prospects in the
coming months.
30
<PAGE>
=========================
The Montgomery Funds
-------------------------
Global Opportunities Fund
-------------------------
Investments
PORTFOLIO INVESTMENTS
June 30, 1999
Shares Value (Note 1)
COMMON STOCKS -- 95.1%
Australia -- 2.1%
534,100 Cable & Wireless Optus Ltd.
(Other Telephone/Communication) ...................... $ 1,211,518
Austria -- 1.5%
16,900 Bank Austria AG (Non-U.S. Banks) ..................... 889,951
Canada -- 3.7%
32,900 AT&T Canada, Inc.+
(Other Telephone/Communication) ...................... 2,102,516
Finland -- 1.5%
9,680 Nokia Oyj, Class A
(Telecommunications Equipment) ....................... 849,579
France -- 13.4%
59,600 Air France#+ (Airlines) .............................. 1,064,638
36,300 Alstom+ (Electrical Products) ........................ 1,143,183
9,630 Banque Nationale de Paris
(Non-U.S. Banks) ..................................... 803,428
7,470 Cap Gemini S.A.# (EDP Services) ...................... 1,175,479
9,070 Coflexip S.A. (Metal Fabrications) ................... 779,652
10,970 Total S.A., Class B+
(Oil Refining/Marketing) ............................. 1,417,011
15,728 Vivendi+ (Non-U.S. Utilities) ........................ 1,275,643
-------------
7,659,034
Germany -- 4.1%
7,160 Mannesmann AG (Cellular Telephone) ................... 1,069,771
21,380 Veba AG (Non-U.S. Utilities) ......................... 1,258,322
-------------
2,328,093
Italy -- 3.5%
74,900 Banca Lombarda SpA (Non-U.S. Banks) .................. 922,406
240,300 Monte dei Paschi di Siena SpA+
(Non-U.S. Banks) ..................................... 1,057,739
-------------
1,980,145
Japan -- 7.4%
25,300 Aiwa Company Ltd.
(Consumer Electronics/Appliances) .................... 837,263
139,000 Hitachi Ltd. (Electrical Products) ................... 1,305,246
255,000 Nissan Motor Company (Motor Vehicles) ................ 1,219,409
8,000 Sony Corporation
(Consumer Electronics/Appliances) .................... 863,738
-------------
4,225,656
Netherlands -- 7.7%
11,600 Equant N.V.+
(Other Telephone/Communication) ...................... 1,091,850
23,415 Koninklijke KPN N.V.
(Other Telephone/Communication) ...................... 1,100,056
29,600 Libertel N.V.+ (Cellular Telephone) .................. 580,704
33,852 Ordina Beheer N.V.+ (EDP Services) ................... 978,705
12,500 United Pan-Europe Communications
N.V.+ (Cable Television) ............................. 678,899
-------------
4,430,214
Portugal -- 1.5%
6,700 Telecel-Comunicacoes Pessoais S.A.
(Cellular Telephone) ................................. 864,757
Russia -- 2.2%
15,600 Global TeleSystems Group, Inc.+
(Other Telephone/Communication) ...................... 1,263,112
Spain -- 7.5%
33,700 Argentaria S.A. (Non-U.S. Banks) ..................... 768,661
108,600 Banco Santander Central Hispano S.A.
(Non-U.S. Banks) ..................................... 1,132,558
22,500 Baron de Ley S.A. (Alcoholic Beverages) .............. 775,958
21,386 Telefonica de Espana S.A.+
(Other Telephone/Communication) ...................... 1,031,452
28,000 Telefonica Publicidad e Informacion S.A.+
(Advertising) ........................................ 559,433
-------------
4,268,062
Sweden -- 1.7%
31,800 Enator AB# (EDP Services) ............................ 957,492
Switzerland -- 3.2%
311 Julius Baer Holding AG
(Non-U.S. Banks) ..................................... 887,884
2,530 Swisscom AG
(Other Telephone/Communication) ...................... 953,825
-------------
1,841,709
Taiwan -- 2.0%
124,000 Hon Hai Precision Industry+
(Electronic Components) .............................. 1,120,991
United Kingdom -- 18.2%
53,100 Alliance & Leicester PLC (Non-U.S. Banks) ............ 717,013
30,800 Barclays PLC (Non-U.S. Banks) ........................ 897,380
80,000 British Airways PLC (Airlines) ....................... 553,373
9,600 Colt Telecom Group PLC+
(Other Telephone/Communication) ...................... 202,016
13,200 Colt Telecom Group PLC, ADR+
(Other Telephone/Communication) ...................... 1,134,788
92,700 Diageo PLC (Alcoholic Beverages) ..................... 975,359
26,600 Glaxo Wellcome PLC
(Major Pharmaceuticals) .............................. 739,343
23,300 HSBC Holdings PLC
(Diversified Financial Services) ..................... 825,881
36,700 Lloyds TSB Group PLC
(Diversified Financial Services) ..................... 499,615
52,630 National Express Group PLC (Railroads) ............... 840,596
88,400 Orange PLC (Cellular Telephone) ...................... 1,294,771
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
=========================
The Montgomery Funds
- -------------------------
Global Opportunities Fund
- -------------------------
Investments
Shares Value (Note 1)
COMMON STOCKS -- continued
United Kingdom -- continued
44,439 Railtrack Group PLC (Railroads) ....................... $ 909,207
4,050 Vodafone Group PLC, ADR
(Other Telephone/Communication) ....................... 797,850
------------
10,387,192
United States -- 13.9%
13,500 BMC Software, Inc.+ (Computer Software) ............... 728,578
21,500 Carrier Access Corporation#+
(Telecommunications Equipment) ........................ 941,297
13,100 Cisco Systems, Inc.+
(Computer Communications) ............................. 843,722
16,800 Estee Lauder Companies, Class A
(Package Goods/Cosmetics) ............................. 842,100
9,075 Lucent Technologies, Inc.
(Telecommunications Equipment) ........................ 611,995
17,400 MCI WorldCom, Inc.+
(Major U.S. Telecommunications) ....................... 1,496,944
4,300 New Era of Networks, Inc.
(Computer Software) ................................... 188,797
9,300 Project Software & Development, Inc.+
(Computer Software) ................................... 288,881
20,500 Seagate Technology, Inc.+
(EDP Peripherals) ..................................... 525,313
26,000 Sprint Corporation+
(Major U.S. Telecommunications) ....................... 1,485,250
------------
7,952,877
TOTAL COMMON STOCKS
(Cost $46,030,130) ................................................ 54,332,898
------------
PREFERRED STOCK -- 1.7%
Germany -- 1.7%
400 Porsche AG (Motor Vehicles)
(Cost $968,380) ....................................... 941,682
------------
TOTAL SECURITIES
(Cost $46,998,510) ................................................ 55,274,580
------------
Principal Amount
REPURCHASE AGREEMENTS -- 4.0%
$ 2,303,000 Agreement with Prudential Securities,
Tri-Party, 5.100% dated 06/30/99, to be
repurchased at $2,303,322 on 07/01/99,
collateralized by $2,349,064 market value
of U.S. government and mortgage-backed
securities, having various maturities and
interest rates
(Cost $2,303,000) ..................................... 2,303,000
------------
TOTAL INVESTMENTS -- 100.8%
(Cost $49,301,510*) ............................................... $ 57,577,580
OTHER ASSETS AND LIABILITIES -- (0.8)%
(Net) ............................................................. (432,040)
------------
NET ASSETS -- 100.0% .............................................. $ 57,145,540
============
* Aggregate cost for federal tax purposes $49,290,216.
# All or a portion of this security is on loan at June 30, 1999 (see note 4 to
Financial Statements).
+ Non-income-producing security.
Abbreviations
ADR American Depositary Receipt
ORD Ordinary
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
=====================
The Montgomery Funds
---------------------
Global Communications
Fund
---------------------
Portfolio Highlights
INVESTMENT REVIEW
Q: How did the Fund perform in the financial year ended June 30, 1999?
A: The Fund returned 31.7% for the 12-month period ended June 30, 1999 due to
particularly strong performance in the latter half of the financial year.
Despite this solid absolute performance, however, the Fund underperformed its
benchmark, the Morgan Stanley Capital International (MSCI) Telecommunications
Index, which returned 38.2% for the same period.
During the global equity markets' sell-off in August and September 1998, the
Fund's exposure to wireless companies proved disadvantageous, as wireless stocks
corrected more sharply than those of other communications companies. Although
the Fund's positioning in wireless companies hurt relative performance in the
short run, we believed its wireless holdings to be well-managed, fundamentally
sound companies with excellent long-term growth prospects. Our faith in this
industry proved justified as the markets began to recover, and wireless stocks
were among the best performers.
Q: What factors contributed positively to performance?
A: Throughout the period, the Fund benefited from strong investor interest in
the communications sector. Although wireless stocks underperformed during the
global market correction, they have rebounded strongly from their lows and have
recorded positive gains for the year. We were particularly pleased with the
performance of several of our holdings such as Vodafone/AirTouch (1.5% of net
assets as of 6/30/99) and Nokia Oyj (1.5% of net assets as of 6/30/99).
Q: Were there any disappointments?
A: There were two areas in which we believe we missed opportunities during the
financial year. The Fund had low exposures to both the emerging markets and the
U.S. cable TV industry. As a result, we did not benefit from the sharp recovery
of the emerging markets during the first half of 1999. We continue to seek
emerging markets companies with attractive fundamental outlooks and will add
emerging markets stocks that we believe will be positive contributors to the
Fund.
Cable TV stocks also rallied strongly in the first quarter of 1999, as investors
were attracted to companies trying to reinvent themselves as alternative
telecommunications providers. Although the Fund's underweighting in cable stocks
detracted from relative performance during the first quarter, valuations of
cable stocks have since fallen. Concern about new regulations that could force
cable operators to make their newly built-out networks available to competing
firms on an "unbundled" basis--in other words, to allow any competing company
who wants access to the network to use it-- has made cable companies appear less
attractive.
We believe that the regulatory issue will likely be resolved in an equitable
manner and, given the pullback in valuations, we are considering an increase in
our exposure to U.S. cable stocks. We are particularly interested in companies
that can combine
================================================================================
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
Oscar Castro, CFA...................................... Senior Portfolio Manager
================================================================================
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/99
- --------------------------------------------------------------------------------
Montgomery
Global Communications Fund
Since inception (6/1/93)................................................ 21.71%
One year................................................................ 31.66%
Five years.............................................................. 22.79%
- --------------------------------------------------------------------------------
MSCI Telecommunications Index
Since 5/31/93........................................................... 17.99%
One year................................................................ 38.24%
Five years.............................................................. 21.17%
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Montgomery
Global MSCI Lipper
Communications Telecommunications Telecommunications
Date Fund Index/1/ Funds Average/2/
---- ---- -------- ----------------
<S> <C> <C> <C>
6/93 $10,375 $10,222.42 $10,453.97
7/93 10,625 10,322.50 10,754.21
8/93 11,675 10,926.62 11,538.95
9/93 12,017 10,753.92 11,643.76
10/93 12,867 11,224.74 12,034.04
11/93 12,067 10,633.67 11,360.88
12/93 13,483 10,826.21 11,842.93
1/94 14,050 11,289.13 12,245.83
2/94 13,558 10,524.82 11,789.47
3/94 12,558 10,179.59 11,272.63
4/94 12,742 10,495.95 11,491.94
5/94 12,608 10,540.39 11,457.14
6/94 11,833 10,474.40 11,341.20
7/94 12,342 10,772.38 11,832.70
8/94 13,217 11,096.25 12,191.48
9/94 12,950 10,762.79 11,942.34
10/94 13,117 10,984.54 12,198.77
11/94 12,068 10,218.92 11,646.41
12/94 11,675 10,178.04 11,520.18
1/95 11,007 10,394.72 11,525.91
2/95 10,982 10,376.05 11,426.82
3/95 11,241 10,567.71 11,467.08
4/95 11,700 10,692.30 11,869.62
5/95 12,260 10,844.01 12,005.18
6/95 12,878 11,012.18 12,580.47
7/95 13,571 11,262.25 13,405.51
8/95 13,596 11,507.81 13,770.25
9/95 14,297 12,184.28 14,104.30
10/95 13,629 12,031.70 13,553.11
11/95 13,763 12,101.60 13,831.37
12/95 13,646 12,471.68 14,243.71
1/96 13,947 12,681.42 14,534.61
2/96 14,064 12,569.04 14,410.07
3/96 14,180 12,376.44 14,332.34
4/96 15,158 12,767.54 15,214.74
5/96 15,124 12,627.66 15,517.57
6/96 15,074 12,589.88 15,350.74
7/96 14,172 11,739.67 14,016.27
8/96 14,456 11,792.36 14,326.09
9/96 14,932 11,926.72 14,626.12
10/96 14,499 12,157.20 14,437.30
11/96 15,107 12,812.85 15,068.48
12/96 14,740 13,098.04 14,998.14
1/97 15,497 13,224.07 15,631.18
2/97 15,180 13,363.43 15,432.16
3/97 14,863 12,939.91 14,520.67
4/97 15,189 13,079.18 14,949.77
5/97 16,440 13,876.96 16,359.27
6/97 17,250 14,462.94 17,302.49
7/97 18,271 14,723.79 18,236.38
8/97 17,118 13,799.20 17,269.87
9/97 18,297 14,732.82 19,051.34
10/97 16,862 14,516.83 18,227.38
11/97 16,792 15,485.77 18,938.50
12/97 17,074 16,052.89 19,079.86
1/98 17,940 16,979.46 20,021.78
2/98 21,559 17,646.00 21,298.62
3/98 23,675 19,178.56 23,465.40
4/98 24,289 18,974.30 23,214.86
5/98 23,905 19,031.81 22,343.53
6/98 25,090 19,789.20 23,381.86
7/98 26,581 20,948.95 23,995.97
8/98 20,221 19,019.91 19,752.23
9/98 20,023 19,422.47 20,896.55
10/98 22,436 20,738.09 22,552.31
11/98 24,388 21,673.58 24,084.58
12/98 26,459 24,044.69 27,874.81
1/99 29,757 26,376.91 30,256.00
2/99 28,190 26,087.64 29,085.00
3/99 28,957 25,377.72 31,490.00
4/99 30,231 26,204.00 33,338.00
5/99 30,035 26,253.68 32,962.00
6/99 33,034 27,355.60 35,365.00
</TABLE>
(1) The Morgan Stanley Capital International Telecommunications Index is a
capitalization-weighted index comprising equity securities of communications
companies in developed countries worldwide.
(2) The Lipper Telecommunication Funds Average universe consists of six funds.
33
<PAGE>
=====================
The Montgomery Funds
- ---------------------
Global Communications
Fund
- ---------------------
Portfolio Highlights
================================================================================
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
AT&T Canada, Inc. ....................................................... 3.3%
Global TeleSystems Group, Inc. .......................................... 3.1%
MCI WorldCom, Inc. ...................................................... 2.8%
Cable & Wireless Optus Ltd. ............................................. 2.6%
Esat Telecom Group PLC, ADR ............................................. 2.5%
Sprint Corporation ...................................................... 2.3%
Vivendi ................................................................. 2.3%
Cap Gemini S.A. ......................................................... 2.3%
Hitachi Ltd. ............................................................ 2.3%
Sony Corporation ........................................................ 2.2%
================================================================================
TOP FIVE COUNTRIES
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
United States ........................................................... 24.4%
United Kingdom .......................................................... 11.2%
Netherlands ............................................................. 7.7%
Japan ................................................................... 6.0%
France .................................................................. 4.5%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
Funds whose investments are concentrated in a specific industry or sector are
subject to a higher degree of risk than funds whose investments are diversified
and may not be suitable for all investors. In addition, technology securities
tend to be relatively volatile as compared with other types of investments.
content ownership with efficient network distribution in order to succeed in an
increasingly competitive environment.
Q: What trends are currently driving growth in the communications market?
A: The themes that currently dominate the communications sector are
deregulation, merger and acquisition (M&A) activity, and increasing demand for
broadband services that can transmit large volumes of data. We expect
deregulation to continue to drive growth, as regulatory barriers that previously
prevented competition are removed. The combination of regulatory reform and
technological advancement make further convergence likely among cable companies,
Internet service providers and telecommunications companies. The convergence of
voice and data communications services makes additional M&A activity likely,
particularly in Europe.
Q: How is the Fund positioned to take advantage of these trends?
A: Our current portfolio of stocks is broad based and includes exposure to such
industry leaders as MCI WorldCom (2.8% of net assets as of 6/30/99);
well-managed new entrants such as U.K.-based Colt Telecom (2.4% of net assets as
of 6/30/99); equipment providers set to benefit from broadband network
expansion, such as Cisco Systems; and innovative, less well known companies such
as ADC Telecommunications (1.1% of net assets as of 6/30/99).
We expect that many communications companies will encounter some significant
management challenges as they branch out into unfamiliar territory. In view of
this, we will continue to focus on companies with strong management teams that
we perceive to be better equipped to manage the pace of growth and industry
change.
34
<PAGE>
=====================
The Montgomery Funds
---------------------
Global Communications
Fund
---------------------
Investments
PORTFOLIO INVESTMENTS
June 30, 1999
Shares Value (Note 1)
COMMON STOCKS -- 87.9%
Australia -- 2.6%
4,065,800 Cable & Wireless Optus Ltd.
(Other Telephone/Communication) ..................... $ 9,222,602
Canada -- 3.3%
182,100 AT&T Canada, Inc.+
(Other Telephone/Communication) ..................... 11,637,328
Denmark -- 1.7%
249,900 Navision Software AS+
(Computer Communications) ........................... 6,142,351
Finland-- 3.4%
103,800 Helsinki Telephone
(Other Telephone/Communication) ..................... 4,930,200
59,160 Nokia Oyj
(Telecommunications Equipment) ...................... 5,192,260
144,000 Perlos Oyj+ (Semiconductors) ........................ 2,111,350
-------------
12,233,810
France -- 4.5%
51,190 Cap Gemini S.A. (EDP Services) ...................... 8,055,258
99,799 Vivendi+ (Non-U.S. Utilities) ....................... 8,094,345
-------------
16,149,603
Germany -- 4.1%
49,060 Mannesmann AG (Cellular Telephone) .................. 7,330,024
122,600 Veba AG (Non-U.S. Utilities) ........................ 7,215,637
-------------
14,545,661
Greece -- 1.2%
185,900 STET Hellas Telecommunications S.A.,
ADR+ (Other Telephone/Communication) ................ 4,159,513
Ireland -- 2.5%
203,100 Esat Telecom Group PLC, ADR+
(Other Telephone/Communication) ..................... 8,885,625
Japan -- 6.0%
158,600 Aiwa Company Ltd.
(Consumer Electronics/Appliances) ................... 5,248,614
851,000 Hitachi Ltd.
(Diversified Electronics Products) .................. 7,991,106
73,000 Sony Corporation
(Consumer Electronics/Appliances) ................... 7,881,609
-------------
21,121,329
Korea -- 1.5%
130,500 Korea Telecom Corporation, ADR+
(Other Telephone/Communication) ..................... 5,220,000
Netherlands -- 7.7%
75,000 Equant N.V.+
(Other Telephone/Communication) ..................... 7,059,375
140,169 Koninklijke KPN, N.V.
(Other Telephone/Communication) ..................... 6,585,257
181,800 Libertel N.V.+ (Cellular Telephone) ................. 3,566,620
209,560 Ordina Beheer N.V.+ (EDP Services) .................. 6,058,648
75,200 United Pan-Europe Communications
N.V.+ (Cable Television) ............................ 4,084,256
-------------
27,354,156
New Zealand -- 1.5%
1,244,600 Telecom Corporation of New Zealand
Ltd.# (Other Telephone/Communication) ............... 5,344,066
Portugal -- 1.4%
38,800 Telecel-Comunicacoes Pessoais S.A.
(Cellular Telephone) ................................ 5,007,847
Russia-- 3.1%
134,780 Global TeleSystems Group, Inc.+
(Other Telephone/Communication) ..................... 10,912,968
200,000 Russian Telecommunication Development
Corporations.(s)(a)
(Other Telephone/Communication) ..................... 109,597
-------------
11,022,565
South Africa -- 0.9%
683,492 Dimensions Data Holding Ltd.
(EDP Services) ...................................... 3,024,151
Spain-- 1.5%
109,187 Telefonica de Espana S.A.+
(Other Telephone/Communication) ..................... 5,266,113
Sweden -- 1.9%
228,000 Enator AB (EDP Services) ............................ 6,865,037
Switzerland -- 1.6%
15,175 Swisscom AG
(Other Telephone/Communication) ..................... 5,721,064
Taiwan -- 1.9%
755,000 Hon Hai Precision Industry+
(Electronic Data Processing) ........................ 6,825,387
United Kingdom-- 11.2%
77,400 Colt Telecom Group PLC
(Other Telephone/Communication) ..................... 1,628,754
79,900 Colt Telecom Group PLC, ADR+
(Other Telephone/Communication) ..................... 6,868,903
530,400 Orange PLC (Cellular Telephone) ..................... 7,768,624
375,190 Pearson PLC
(Financial Publishing/Services) ..................... 7,705,857
635,900 Securicor Group PLC
(Cellular Telephone) ................................ 5,607,372
693,200 The Future Network PLC+ (Media) ..................... 4,620,021
27,350 Vodafone Group PLC, ADR
(Other Telephone/Communication) ..................... 5,387,950
-------------
39,587,481
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
=====================
The Montgomery Funds
- ---------------------
Global Communications
Fund
- ---------------------
Investments
Shares Value (Note 1)
COMMON STOCKS -- continued
United States -- 24.4%
84,900 ADC Telecommunications, Inc.+
(Telecommunications Equipment) ....................... $ 3,865,603
41,200 At Home Corporation+ (Internet Services) ............. 2,223,513
59,200 AT&T Corporation
(Major U.S. Telecommunications) ...................... 3,304,100
153,800 Atmel Corporation+ (Semiconductors) .................. 4,022,831
87,300 Bell Atlantic Corporation
(Major U.S. Telecommunications) ...................... 5,707,238
81,100 BMC Software, Inc.+ (Computer Software) .............. 4,376,866
129,000 Carrier Access Corporation+
(Telecommunications Equipment) ....................... 5,647,781
82,678 Cisco Systems, Inc.+
(Computer Communications) ............................ 5,324,980
100,650 Covad Communications Group, Inc.+
(Other Telephone/Communication) ...................... 5,362,758
256,900 Fox Entertainment Group, Inc.+
(Media Conglomerates) ................................ 6,920,244
65,340 Lucent Technologies, Inc.
(Telecommunications Equipment) ....................... 4,406,366
116,048 MCI WorldCom, Inc.+
(Major U.S. Telecommunications) ...................... 9,983,754
108,700 McLeod USA, Inc., Class A+
(Other Telephone/Communication) ...................... 5,971,706
26,300 New Era of Networks, Inc.
(Computer Software) .................................. 1,154,734
57,900 Project Software & Development, Inc.+
(Computer Software) .................................. 1,798,519
98,800 SBC Communications, Inc.
(Other Telephone/Communication) ...................... 5,730,400
99,000 Seagate Technology, Inc.
(EDP Peripherals) .................................... 2,536,875
144,700 Sprint Corporation+
(Major U.S. Telecommunications) ...................... 8,265,987
-------------
86,604,255
TOTAL COMMON STOCKS
(Cost $236,520,128) .............................................. 311,939,944
-------------
PREFERRED STOCKS -- 0.0%@
Brazil -- 0.0%@
200,650 Telecomunicacoes de Minas Gerais-
Telemig, Series B
(Other Telephone/Communication)
(Cost $0) ............................................ 4,978
-------------
TOTAL SECURITIES
(Cost $236,520,128) .............................................. 311,944,922
-------------
Principal Amount Value (Note 1)
REPURCHASE AGREEMENTS -- 11.4%
$ 40,277,000 Agreement with Prudential Securities,
Tri-Party, 5.100% dated 06/30/99, to be
repurchased at $40,282,628 on 07/01/99,
collateralized by $41,082,604 market value
of U.S. government and mortgage-backed
securities, having various maturities and
interest rates
(Cost $40,277,000) .................................. $ 40,277,000
-------------
TOTAL INVESTMENTS -- 99.3%
(Cost $276,797,128*) ............................................. 352,221,922
OTHER ASSETS AND LIABILITIES -- 0.7%
(Net)............................................................. 2,508,263
-------------
NET ASSETS -- 100.0% ............................................. $ 354,730,185
=============
* Aggregate cost for federal tax purposes $276,742,221.
(S) Valued in good faith at fair value using procedures approved by the Board of
Trustees.
# All or a portion of this security on loan at June 30, 1999 (see note 4 to
Financial Statements).
+ Non-income-producing security.
@ Amount represents less than 0.1%.
(a) Restricted security: At June 30, 1999 the Fund owned the following
restricted security constituting 0.03% of net assets which may not be
publicly sold without registration under Securities Act of 1933 (Note 1).
Additional information on the security is as follows:
Russian Telecommunication Development Corporation
Value per
Acquisition Date Shares Cost Share
- --------------------------------------------------------------------------------
12/22/97 200,000 $2,000,000 $0.55
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 those of
investment companies that do not similarly concentrate their investments. The
global communications industry may be subject to greater changes in governmental
policies and governmental regulation than many other industries, and regulatory
approval requirements may materially affect the products and services of this
industry.
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
=====================
The Montgomery Funds
---------------------
Emerging Markets Fund
---------------------
Portfolio Highlights
INVESTMENT REVIEW
Q: How did the Fund perform during the year ended June 30, 1999?
A: In an extremely challenging year for emerging markets, the Fund returned 3.9%
versus a 28.7% return for the benchmark Morgan Stanley Capital International
(MSCI) Emerging Markets Free Index. Although this underperformance is
disappointing, the Fund lost most ground during the difficult market conditions
in the second half of 1998. We are pleased to report that by the end of June,
our relative performance against the benchmark improved considerably.
Q: What factors contributed to these results?
A: There were a couple of factors. First, the Fund's bias toward small- and
mid-cap stocks placed it in a much more vulnerable position than many of its
peers during the severe correction in global markets and the subsequent "flight
to quality." Smaller-cap companies felt the most severe impact of such capital
outflows, as investors who remained in the emerging markets sought the relative
safety of large-cap, highly liquid securities.
Second, our cautious approach to the rebounding markets of South Korea and
Indonesia meant that we did not fully participate in these markets'
fourth-quarter 1998 rally, detracting from relative returns. In our view,
because of the tentative nature of the Korean recovery and political upheaval in
Indonesia, the inherent risks outweighed the potential rewards.
A much more benign investment environment for most of the latter half of the
financial year proved more favorable to the Fund's performance. Our strategy
maintains its slight bias toward small- and mid-cap companies. We believe that
by identifying smaller, well-managed, fundamentally sound and attractively
valued companies before the rest of the market recognizes their potential we can
add value to the Fund. Interest in such stocks is beginning to improve,
especially in Asia, where market liquidity has improved considerably in recent
months. In addition, the Fund's overweight position in the outperforming Pacific
Rim markets, specifically in South Korea and Thailand in the three months ended
June 30, 1999, contributed to strong returns and a considerable improvement in
the Fund's relative performance against both its benchmark and its peers.
Q: You mentioned the recovery in Asian markets as a contributing factor to
improved performance. Were there any other trends that increased returns over
the period?
A: The recovery in commodity prices during the final three months of the
financial year proved beneficial to the emerging markets in general--which tend
to be large exporters of primary products such as metals and oil--and to the
Fund's performance. Recognizing the potential for a rebound in this sector at
the end of March, we increased the Fund's exposure to companies that would
profit from such a recovery. As a result, 57% of the portfolio holdings were in
countries likely to benefit from this trend by June 30, 1999.
================================================================================
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
Josephine Jimenez, CFA ................................. Sr. Portfolio Manager
Bryan Sudweeks,
Ph.D.,CFA .............................................. Sr. Portfolio Manager
Frank Chiang ........................................... Portfolio Manager
================================================================================
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/99
- --------------------------------------------------------------------------------
Montgomery Emerging Markets Fund
Since inception (3/1/92) .............................................. 1.93%
One year .............................................................. 3.85%
Five years ............................................................ (3.82)%
- --------------------------------------------------------------------------------
MSCI Emerging Markets Free Index
Since 3/1/92 .......................................................... 5.07%
One year .............................................................. 28.71%
Five years ............................................................ (0.83)%
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost. Fund performance presented is for
Class R shares.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
Montgomery MSCI Lipper
Emerging Emerging Emerging
Markets Markets Markets
Date Fund Free Index/1/ Funds Average/1/
2/92 10,000 10,000.00 10,000 10,000.00
3/92 9,970 10,338.49 10,073 9,964.65
4/92 10,010 10,266.75 9,908 10,114.17
5/92 10,140 10,229.72 9,614 10,379.93
6/92 9,960 9,215.03 9,247 10,184.29
7/92 9,750 9,315.26 8,854 9,916.73
8/92 9,620 8,880.95 8,677 9,682.22
9/92 9,570 8,911.25 8,485 9,570.51
10/92 9,950 9,388.03 8,915 9,732.72
11/92 9,880 9,286.77 8,813 9,589.49
12/92 10,031 9,559.99 8,951 9,639.89
1/93 10,242 9,606.09 8,891 9,867.28
2/93 10,342 9,767.18 9,313 10,313.37
3/93 10,482 10,090.13 9,500 10,523.51
4/93 10,702 10,322.17 9,669 10,973.89
5/93 10,922 10,609.82 9,745 11,292.26
6/93 11,083 10,924.56 9,955 11,373.58
7/93 11,263 11,213.06 10,096 11,572.56
8/93 11,934 12,159.89 10,558 12,490.06
9/93 12,324 12,604.56 10,908 12,741.52
10/93 13,295 13,735.53 11,795 13,846.62
11/93 13,689 14,343.35 12,572 14,420.62
12/93 15,916 16,714.06 14,993 16,749.29
1/94 16,110 17,018.36 15,439 17,100.33
2/94 15,609 16,715.61 14,913 16,634.48
3/94 14,445 15,202.91 13,674 15,168.89
4/94 14,373 14,898.87 13,751 14,881.64
5/94 14,731 15,408.80 14,113 15,169.18
6/94 13,975 14,984.07 13,853 14,424.52
7/94 14,782 15,915.62 14,733 15,280.65
8/94 16,212 17,891.12 16,336 16,717.19
9/94 16,437 18,094.42 16,849 16,909.57
10/94 16,365 17,768.11 16,492 16,530.75
11/94 15,591 16,844.06 15,786 15,717.78
12/94 14,687 15,491.41 14,914 14,573.25
1/95 13,170 13,843.26 13,218 13,170.26
2/95 13,191 13,488.10 13,053 13,113.58
3/95 13,105 13,573.79 13,000 13,162.65
4/95 13,331 14,182.73 13,205 13,559.57
5/95 14,160 14,937.25 13,704 14,165.12
6/95 14,170 14,981.43 13,678 14,196.34
7/95 14,569 15,317.71 13,938 14,697.81
8/95 13,998 14,956.90 13,395 14,343.77
9/95 13,837 14,885.92 13,477 14,357.03
10/95 13,320 14,316.08 13,079 13,712.42
11/95 12,912 14,060.78 12,707 13,467.78
12/95 13,353 14,684.40 13,076 13,979.56
1/96 14,235 15,728.20 13,749 15,391.52
2/96 13,912 15,478.12 13,663 15,197.02
3/96 14,170 15,598.68 13,879 15,262.52
4/96 14,891 16,222.36 14,913 15,814.51
5/96 15,160 16,149.92 14,626 15,920.64
6/96 15,268 16,250.77 14,840 15,938.37
7/96 14,321 15,140.13 13,914 14,974.68
8/96 14,773 15,527.67 14,224 15,426.63
9/96 14,870 15,662.18 14,351 15,609.46
10/96 14,555 15,244.47 14,031 15,191.11
11/96 14,879 15,499.91 14,232 15,628.45
12/96 14,998 15,570.01 14,107 15,814.98
1/97 16,155 16,632.04 15,056 16,944.61
2/97 16,685 17,344.31 15,740 17,594.47
3/97 16,296 16,888.71 15,461 16,960.72
4/97 16,306 16,918.55 15,464 16,838.31
5/97 16,912 17,402.76 15,718 17,341.59
6/97 18,220 18,344.11 16,522 17,922.09
7/97 18,869 18,607.79 16,782 18,447.45
8/97 16,847 16,239.97 14,965 16,156.64
9/97 17,518 16,689.94 15,036 16,771.74
10/97 14,468 13,951.33 12,747 13,848.22
11/97 13,982 13,442.28 12,012 13,190.43
12/97 14,527 13,766.21 12,055 13,297.36
1/98 12,853 12,686.53 11,368 12,160.16
2/98 13,729 14,010.69 12,539 13,288.30
3/98 14,145 14,618.70 12,943 13,763.63
4/98 14,302 14,459.45 12,839 13,881.30
5/98 12,437 12,477.92 11,311 12,053.34
6/98 11,078 11,169.03 10,146 10,967.42
7/98 11,606 11,523.16 10,437 11,261.67
8/98 8,067 8,191.36 7,784 8,003.58
9/98 8,348 8,710.98 8,170 8,309.40
10/98 8,741 9,628.26 9,005 9,109.88
11/98 9,493 10,429.02 9,678 9,702.50
12/98 8,965 10,277.88 9,515 9,573.32
1/99 8,594 10,112.00 8,594 9,803.00
2/99 8,314 10,210.00 8,314 9,743.00
3/99 9,449 11,556.00 9,449 10,829.00
4/99 10,325 9,433.00 10,595 12,254.00
5/99 10,798 9,378.00 10,382 12,106.00
6/99 14,375 12,901.00 11,505 11,505.00
(1) The Morgan Stanley Capital International Emerging Markets Free Index is an
unmanaged, capitalization-weighted composite index that covers individual
securities within the equity markets of approximately 25 emerging markets
countries.
(2) The Lipper Emerging Markets Funds Average universe consists of seven funds.
37
<PAGE>
=====================
The Montgomery Funds
- ---------------------
Emerging Markets Fund
- ---------------------
Portfolio Highlights
================================================================================
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
Samsung Electronics Company ............................................. 3.3%
Telefonos de Mexico S.A., ADR ........................................... 3.2%
Korea Electric Power Corporation, ADR ................................... 2.4%
Korea Telecom Corporation ............................................... 2.1%
Samsung Display Devices Company ......................................... 2.0%
Hon Hai Precision Industry .............................................. 1.9%
Synnex Technology International Corporation ............................. 1.9%
Egyptian Mobile Phone Network ........................................... 1.8%
STET Hellas Telecommunications S.A., ADR ................................ 1.7%
Petroleo Brasileiro S.A. ................................................ 1.6%
================================================================================
TOP FIVE COUNTRIES
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
Korea ................................................................... 15.5%
Brazil .................................................................. 10.9%
Mexico .................................................................. 11.0%
South Africa ............................................................ 9.5%
India ................................................................... 7.4%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
There are risks associated with investing in a fund of this type that invests in
securities of foreign countries, such as erratic market conditions, economic and
political instability, and fluctuations in currency exchange rates.
There were a number of stocks across the emerging markets regions that boosted
performance. These included low-cost copper producer Grupo Mexico (0.5% of net
assets as of 6/30/99) and South Africa's Anglo American Platinum (0.7% of net
assets as of 6/30/99).
Q: Where do you believe that the best opportunities are likely to be in the
emerging markets in the coming year?
A: We are confident that the recovery we have seen in the emerging markets since
the beginning of 1999 is likely to continue. We are especially optimistic about
the prospects for Asia. The economic fundamentals of the region continue to
improve, and significant progress has been made in bank reform and corporate
restructuring. Although Asian markets appreciated rapidly during the second
quarter, we believe that there are still some attractively valued companies
whose potential has yet to be widely recognized. We particularly like the
prospects for India and China. We believe that the combination of strong
economic growth and a possible resolution of its conflict with Pakistan over
Kashmir and may boost the Indian market. Selected Chinese stocks are likely to
benefit from the country's possible entry into the World Trade Organization
(WTO).
Elsewhere, in Latin America we are optimistic about the outlook for the
Brazilian market. Interest rates in Brazil have fallen, and inflation is running
at a rate lower than even the most optimistic analysts had predicted at the
beginning of the year. In view of such rapidly improving fundamentals, we
believe Brazil will outperform. We also like the prospects for selected stocks
in Egypt and South Africa.
Q: How is the Fund positioned to take advantage of any opportunities?
A: The Fund remains overweighted in Asia, specifically in South Korea and
Thailand, but we are also researching opportunities in India and have begun to
build positions in Chinese stocks that we believe may benefit from WTO
membership.
In Latin America the Fund has an overweight position in Brazil, and we are
looking for interesting opportunities in Chile. In the Middle East and Africa,
we continue to like the prospects for the Fund's existing holdings in
commodities stocks and Egyptian cellular phone services. We are optimistic that
if we maintain our strong focus on asset allocation and good stock selection, we
should continue to improve our relative performance against the benchmark.
38
<PAGE>
=====================
The Montgomery Funds
---------------------
Emerging Markets Fund
---------------------
Investments
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENTS
June 30, 1999
Shares Value (Note 1)
COMMON STOCKS -- 84.6%
<S> <C> <C>
Argentina -- 0.6%
68,149 Telefonica de Argentina ADR
(Other Telephone/Communication)................. $ 2,138,175
Brazil -- 2.3%
159,200 Cia Cervejaria Brahma ADR
(Non-U.S. Utilities)............................ 1,800,950
238,100 Embratel Participacoes ADR
(Other Telephone/Communication)................. 3,303,637
155,800 Pao de Acucar, ADR (Casinos/Gambling) 2,911,513
-----------
8,016,100
Chile -- 0.5%
67,674 Cia de Telecom Chile de S.A. ADR
(Other Telephone/Communication)................. 1,674,932
China/Hong Kong -- 1.6%
147,000 Cheung Kong (Holdings) Ltd.
(Real Estate)................................... 1,307,374
15,600 China Telecom Ltd., ADR+
(Other Telephone/Communication)................. 889,200
2,350,000 Cosco Pacific Ltd. (Marine Transportation)...... 1,953,714
34,800 HSBC Holdings PLC (Non-U.S. Banks).............. 1,269,402
-----------
5,419,690
Czech Republic -- 0.5%
54,520 Ceske Radiokomunikace, GDR+
(Other Telephone/Communication)................. 1,880,940
Egypt -- 2.9%
24,135 Al-Ahram Beverages Company
(Alcoholic Beverages)........................... 1,347,514
77,000 Al-Ahram Beverages Company, GDR+
(Alcoholic Beverages)........................... 2,188,725
283,333 Egyptian Mobile Phone Network
(Cellular Telephone)............................ 6,385,098
200 Tourah Portland Cement Company
(Building Materials)............................ 3,515
-----------
9,924,852
Greece -- 3.2%
81,663 Alpha Credit Bank (Non-U.S. Banks).............. 5,270,926
255,100 STET Hellas Telecommunications S.A.,
ADR+ (Other Telephone/Communication)............ 5,707,862
-----------
10,978,788
Hungary -- 1.8%
45,610 Borsodchem Rt. (Paints/Coatings)................ 1,113,337
55,000 EGIS Rt. (Other Pharmaceuticals)................ 1,317,515
115,000 Mol Magyar Olaj-es Gazipari Rt.
(Integrated Oil Companies)...................... 2,773,836
28,190 OTP Bank Rt. (Non-U.S. Banks)................... 1,176,794
-----------
6,381,482
India -- 7.4%
276,701 Bajaj Auto Ltd. (Motor Vehicles)................ 3,448,802
100 Bharat Petroleum Corporation Ltd.
(Oil Refining/Marketing)........................ 606
250 BSES Ltd. (Non-U.S. Utilities)+................. 859
420 Castrol (India) Ltd.
(Oil Refining/Marketing)........................ 4,018
200 Cummins India Ltd.
(Auto Parts: O.E.M.)............................ 1,930
125,800 Dr. Reddy's Laboratories Ltd.
(Generic Drugs)................................. 2,414,560
311,000 Hindustan Petroleum Corporation Ltd.
(Oil Refining/Marketing)........................ 1,780,521
93,398 Housing Development and Finance
Corporation (Finance Companies)................. 4,781,255
240 Indian Hotels Company Ltd.
(Hotels/Resorts)................................ 1,924
220,103 ITC Ltd. (Diversified Manufacture).............. 5,555,186
582,000 Mahanagar Telephone Nigam Ltd.
(Other Telephone/Communication)................. 2,493,998
79,800 Satyam Computer (Computer Software)............. 2,331,123
150 State Bank of India (Non-U.S. Banks)............ 818
10 Tata Engineering & Locomotive Company
(Motor Vehicles)................................ 47
201,500 Videsh Sanchar Nigam Ltd., GDR
(Other Telephone/Communication)................. 2,581,719
-----------
25,397,366
Indonesia -- 2.1%
91,000 Asia Pulp & Paper Company Ltd., ADR+
(Paper)......................................... 875,875
58,800 Gulf Indonesia Resources Ltd.+
(Other Metals/Minerals)......................... 676,200
4,035,000 PT Indah Kiat Pulp & Paper Corporation
(Paper)......................................... 1,864,549
1,308,000 PT Indofood Sukses Makmur Tbk+
(Food Distributors)............................. 1,775,480
3,834,000 PT Telekomunikasi Indonesia
(Other Telephone/Communication)................. 2,214,585
-----------
7,406,689
Israel -- 3.1%
2,060,000 Bank Leumi Le-Israel (Non-U.S. Banks)........... 3,894,788
390,350 Bezeq Israeli Telecommunication
Corporation Ltd.
(Other Telephone/Communication)................. 1,572,604
33,300 Koor Industries Ltd.
(Multi-Sector Companies)........................ 3,841,179
49 Makhteshim-Agan Industries Ltd.+
(Speciality Chemicals).......................... 110
</TABLE>
39
The accompanying notes are an integral part of these financial statements.
<PAGE>
=====================
The Montgomery Funds
- ---------------------
Emerging Markets Fund
- ---------------------
Investments
<TABLE>
<CAPTION>
Shares Value (Note 1)
COMMON STOCKS -- continued
<S> <C> <C>
Israel -- continued
446,256 Supersol Ltd. (Food Chains)..................... $ 1,311,489
-----------
10,620,170
Korea -- 15.5%
140,000 Hyundai Motor Company (Motor Vehicles).......... 3,320,086
88,000 Kookmin Bank (Non-U.S. Banks)................... 1,786,609
401,700 Korea Electric Power Corporation, ADR
(Non-U.S. Utilities)............................ 8,234,850
111,100 Korea Telecom Corporation
(Other Telephone/Communication)................. 7,371,473
22,255 Korea Telecom Corporation, ADR+
(Other Telephone/Communication)................. 890,200
111,800 LG Chemical Ltd. (Major Chemicals).............. 3,042,505
43,291 Pohang Iron & Steel Company Ltd.
(Steel/Iron Ore)................................ 5,213,527
71,400 Pohang Iron & Steel Company, ADS
(Steel/Iron Ore)................................ 2,400,825
125,000 Samsung Display Devices Company
(Industrial Specialties)........................ 6,803,456
104,309 Samsung Electronics Company
(Diversified Electronic Products)............... 11,444,702
56 Samsung Electronics Ltd., GDR
(Diversified Electronic Products)............... 2,999
52,744 Sindo Ricoh Company
(Office Equipment/Supplies)..................... 2,825,165
-----------
53,336,397
Malaysia -- 3.0%
4,000,000 Public Bank Berhad (Non-U.S. Banks)............. 2,585,783
1,487,000 Tenaga Nasional Berhad(Non-U.S.Utilities)....... 2,910,403
1,158,000 YTL Corporation Berhad
(Engineering and Construction).................. 2,072,205
3,368,000 YTL Power International Berhad
(Non-U.S. Utilities)............................ 2,742,254
-----------
10,310,645
Mexico -- 10.8%
757,100 Carso Global Telecom, Series A1+
(Other Telephone/Communication)................. 4,796,654
1,093,952 Corporacion Interamericana
Entertainment S.A., Series B+
(Movies/Entertainment).......................... 3,558,275
133,200 Fomento Economico Mexicano S.A. de
C.V. (Soft Drinks).............................. 5,311,350
610,000 Grupo Carso S.A., Series A+ (Textiles).......... 2,828,929
1,487,000 Grupo Financiero Banamex Accival S.A. de
C.V. Series B-Banacci+ (Non-U.S. Banks)......... 3,755,768
760,000 Grupo Industrial Bimbo S.A. de C.V.
(Specialty Foods/Candy)......................... 1,685,663
438,000 Grupo Mexico S.A.
(Other Metals/Minerals)......................... 1,863,929
466,600 Grupo Radio Central S.A. de C.V., ADR+
(Broadcasting).................................. 2,449,650
138,600 Telefonos de Mexico S.A., ADR
(Other Telephone/Communication)................. 11,200,612
-----------
37,450,830
Morocco -- 0.0%@
2 Banque Marocaine du Commerce
Exterieur, GDR+ (Non-U.S. Banks)................ 43
Pakistan -- 0.0%@
333 Engro Chemical Pakistan
(Agricultural Chemicals)........................ 469
Peru -- 1.2%
18,500 Compania de Minas Buenaventura S.A.,
ADR (Precious Metals)........................... 283,281
78,200 Credicorp Ltd. (Non-U.S. Banks)................. 860,200
68,826 Ferreyros Enrique S.A., ADR
(Construction/Agriculture
Equipment/Trucks)............................... 903,341
1,099,788 Ferreyros S.A.(Construction/Agriculture
Equipment/Trucks)............................... 722,416
83,700 Telefonica del Peru S.A., ADR
(Other Telephone/Communication)................. 1,265,963
-----------
4,035,201
Philippines -- 2.2%
6,360,000 Ayala Corporation
(Multi-Sector Companies)........................ 2,093,482
500,000 Bank of Philippine Islands
(Non-U.S. Banks)................................ 1,790,652
591,000 Manila Electric Company, Series B
(Non-U.S. Utilities)............................ 2,132,113
52,837 Philippine Long Distance Telephone, ADR
(Other Telephone/Communication)................. 1,591,715
-----------
7,607,962
Poland -- 1.3%
45,900 Agora S.A., GDR (Broadcasting)+................. 534,735
70,600 Elektrim Spolka Akcyjna S.A.
(Wholesale Distributors)........................ 997,023
115,500 Prokom Software, GDR+
(EDP Services).................................. 1,894,200
154,200 Telekomunikacja Polska S.A., GDR+
(Other Telephone/Communication)................. 1,087,110
-----------
4,513,068
Singapore -- 0.7%
18,000 Pacific Internet Ltd.+ (Internet Services)...... 858,938
88,000 Singapore Press Holdings Ltd.
(Newspapers).................................... 1,499,104
-----------
2,358,042
South Africa -- 9.5%
159,000 ABSA Group Ltd. (Finance Companies)............. 899,801
109,900 Anglo American Platinum Corporation
Ltd. (Precious Metals).......................... 2,564,242
49,300 AngloGold Ltd. (Precious Metals)................ 2,124,120
</TABLE>
40
The accompanying notes are an integral part of these financial statements.
<PAGE>
=====================
The Montgomery Funds
---------------------
Emerging Markets Fund
---------------------
Investments
<TABLE>
<CAPTION>
Shares Value (Note 1)
COMMON STOCKS -- continued
<S> <C> <C>
South Africa -- continued
1 B.O.E. Corporation Ltd.
(Investment Managers)........................... $ 1
4,696,794 B.O.E. Corporation Ltd., "N" Shares
(Investment Managers)........................... 3,735,953
732,452 Barlow Ltd. (Multi-Sector Companies)............ 4,223,934
177,000 De Beers Centenary AG
(Other Metals/Minerals)......................... 4,241,312
63 Iscor Ltd. (Steel/Iron Ore)..................... 20
124,621 Liberty International PLC
(Finance Companies)............................. 825,024
267,288 Liberty Life Association of Africa Ltd.
(Life Insurance)................................ 3,423,873
1,040,500 Molope Group Ltd.+
(Diversified Commercial Services)............... 681,080
1,400,900 Molope Group Ltd., "N" Shares+
(Diversified Commercial Services)............... 789,305
533,500 Nasionale Pers Beperk, "N" Shares
(Newspapers).................................... 3,204,802
37,000 Nedcor Bank Ltd. (Non-U.S. Banks)............... 837,551
18,970 Pepsi International Bottlers+(S)(a)
(Soft Drinks)................................... 159,917
523,936 Sasol Ltd. (Coal Mining)........................ 3,737,749
876,451 Wooltru, Ltd., "N" Shares, Series B
(Food Chains)................................... 1,423,352
-----------
32,872,036
Taiwan -- 7.3%
4,670,450 China Steel Corporation
(Steel/Iron Ore)................................ 3,528,142
2,570,000 Far East Textile Ltd.+ (Textiles)............... 3,819,195
715,000 Hon Hai Precision Industry+
(Electronic Data Processing).................... 6,463,777
1,241,225 Synnex Technology
International Corporation
(Diversified Electronic Products)............... 6,455,907
1,254,305 Taiwan Semiconductor Manufacturing
Company Ltd.+
(Electronic Production Equipment)............... 4,795,872
-----------
25,062,893
Thailand -- 3.8%
3,541,000 Bank of Ayudhya Public Company Ltd.(F)
(Non-U.S. Banks)................................ 2,424,027
5,455,800 Industrial Finance of Thailand(F)
(Finance Companies)............................. 3,475,974
823,000 National Finance PLC(F)
(Non-U.S. Banks)................................ 496,455
316,200 PTT Exploration and Production Public
Company Ltd.(F) (Oil and Gas Production)........ 2,417,471
1,419,600 Thai Farmers Bank Public Company
Ltd.(F) (Non-U.S. Banks)........................ 4,387,540
-----------
13,201,467
Turkey -- 3.3%
102,587,500 Haci Omer Sebanci Holding S.A.
(Real Estate)................................... 2,286,967
2,165,000 Migros Turk T.A.S. (Food Chains)................ 2,695,596
25,500,000 Tupras-Turkie Petrol Rafinerileri
(Oil Refining/Marketing)........................ 1,693,308
135,740,000 Turkiye Is Bankasi, Class C
(Non-U.S. Banks)................................ 2,414,386
165,472,470 Yapi Ve Kredi Bankasi S.A.
(Non-U.S. Banks)................................ 2,393,829
-----------
11,484,086
Vietnam -- 0.0%@
37,064 The Vietnam Frontier Fund, ORD+
(Mutual Funds).................................. 138,990
TOTAL COMMON STOCKS
(Cost $253,879,287)............................................... 292,211,313
-----------
PREFERRED STOCK -- 9.5%
Brazil -- 8.6%
337,400,000 Banco do Brasil S.A. (Non-U.S. Banks)........... 1,769,467
35,200,000 Banco do Estado de Sao Paulo
S.A.-Banespa (Non-U.S. Banks)................... 1,497,915
125,900,000 Cia Energetica de Minas Gerais
(Non-U.S. Utilities)............................ 2,646,781
392,783,000 Cia Paranaense de Energi
(Non-U.S. Utilities)............................ 3,196,426
2,826,000 Itausa Investimentos Itau
(Multi-Sector Companies)........................ 1,485,267
39,700 Keplar Weber S.A.+
(Construction/Agricultureal
Equipment/Trucks)............................... 26,250
36,477,000 Petroleo Brasileiro S.A.
(Integrated Oil Companies)...................... 5,648,317
560,224 Telec de Minas Gerais
(Other Telephone/Communication)................. 13,899
30,200,000 Telec de Sao Paulo S.A.-Telesp
(Other Telephone/Communication)................. 3,566,996
4,556,835 Telecel-Comunicacoes Pessoais S.A.+
(Cellular Telephone)............................ 257,521
24,507,000 Telecomunicacoes Bras
(Other Telephone/Communication)................. 1,156,448
66,859,988 Telemig Celular S.A., Series C
(Cellular Telephone)............................ 600,776
41,305,828 Telesp Celular S.A., Series B
(Cellular Telephone)............................ 2,147,576
939,000 Usinas Siderurgicas de
Minas Gerais, GDR (Steel/Iron Ore).............. 3,162,724
135,300 Vale do Rio Doce, "A" Shares
(Other Metals/Minerals)......................... 2,676,180
</TABLE>
41
The accompanying notes are an integral part of these financial statements.
<PAGE>
=====================
The Montgomery Funds
- ---------------------
Emerging Markets Fund
- ---------------------
Investments
<TABLE>
<CAPTION>
Shares Value (Note 1)
PREFERRED STOCK -- continued
Brazil -- continued
<S> <C> <C>
487,888 Vale do Rio Doce, "B" Shares
(Other Metals/Minerals)........................ $ 3
------------
29,852,546
Russia -- 0.6%
270,000 LUKoil Company, ADR
(Integrated Oil Companies)..................... 1,957,500
Thailand -- 0.3%
622,000 Siam Commercial Bank+
(Non-U.S. Banks)............................... 885,319
TOTAL PREFERRED STOCKS
(Cost $35,077,872)............................................... 32,695,365
------------
WARRANTS -- 0.4%
Philippines -- 0.4%
2,907,000 Jollibee Food Company, Warrants, expiring
03/24/03+ (Restaurants) (Cost $1,423,445)...... 1,492,732
Principal Amount
FIXED-INCOME SECURITIES -- 0.2%
Mexico -- 0.2%
$750,000 Alpha S.A. de C.V., 8.00% due 09/15/00
(Major Chemicals) (Cost $772,626).............. 738,750
TOTAL INVESTMENTS -- 94.7%
(Cost $291,153,230*)............................................. 327,138,160
OTHER ASSETS AND LIABILITIES -- 5.3%
(Net)............................................................ 18,289,016
------------
NET ASSETS -- 100.0%............................................. $345,427,176
============
</TABLE>
* Aggregate cost for federal tax purposes $293,465,066.
(s) Valued in good faith using procedures approved by the Board of Trustees.
+ Non-income-producing security.
@ Amount represents less than 0.1%.
Abbreviations
ADR American Depositary Receipt
ADS American Depositary Share
(F) Foreign or Alien Shares
GDR Global Depositary Receipt
ORD Ordinary
(a) Restricted securities: At June 30, 1999, the Fund owned the following
restricted securities, constituting less than 0.05% of net assets, which
may not be publicly sold without registration under Securities Act of 1933
(Note 1). Additional information on the securities is as follows:
<TABLE>
<CAPTION>
Pepsi International Bottlers
Value per
Acquisition Date Shares Cost Share
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
3/20/97 18,970 $569,100 $8.43
</TABLE>
42
The accompanying notes are an integral part of these financial statements.
<PAGE>
=====================================
The Montgomery Funds
-------------------------------------
Emerging Asia Fund
-------------------------------------
Portfolio Highlights
INVESTMENT REVIEW
Q: How did the Fund perform during the year ended June 30, 1999?
A: We are very pleased with the Fund s overall results. The Fund returned 97.4%
versus 78.1% for its benchmark, the Morgan Stanley Capital International (MSCI)
All-Country Asia Free (ex-Japan) Index. This strong performance was aided by
good stock selection and the recovery of the Asian economies and markets over
the period.
Q: How much did your investment strategy change in response to the pace of
recovery from the economic crisis in Asia?
A: Over the course of the year, we sought out investment opportunities in
companies, sectors and countries in the regions that we believed were best
positioned to profit from the various stages of recovery. This stock selection
strategy proved to be a significant factor in the Fund s outperformance against
its benchmark.
Having been defensively invested through much of the Asian economic crisis in
companies such as those in the utilities sector that we believed were unlikely
to fail, we began to reposition the portfolio at the end of the third quarter of
1998. This was in response to the recognition of an improvement in the economies
of Southeast Asia and South Korea. We began to build the Fund s positions in
companies that were restructuring in markets that we felt had the best recovery
prospects, such as in Thai-land and South Korea. This allowed us to fully
participate in the September 1998 rallies in these markets.
Other shifts in strategy that benefited performance included our decision at the
end of the first quarter of 1999 to increase the Fund s exposure to cyclical
stocks through the purchase of well-managed oil, steel, and pulp and paper
companies in anticipation of a recovery in those sectors. At the same time, in
line with our view that regional governments would begin to reflate their
economies to stimulate demand, we added stocks that would benefit from an
improvement in domestic demand.
Throughout the year we remained mindful of economic conditions on a
country-by-country basis. For example, toward the end of the financial year we
increased our exposure to markets that had underperformed due to political and
economic concerns except where the situation had begun to improve, such as in
Indonesia and Malaysia. These markets subsequently outperformed, and our
exposure to them boosted returns from April through June 1999.
Q: Which of the Fund s positions contributed most to performance?
A: A number of positions made strong contributions to performance over the
course of the year. At the beginning of the period, companies likely to survive
the crisis and benefit from restructuring and lower interest rates, such as Thai
Farmers Bank (1.2% of net assets as of 6/30/99), increased returns.
========================================
PORTFOLIO MANAGEMENT
- ----------------------------------------
Frank Chiang.......... Portfolio Manager
========================================
FUND PERFORMANCE
- ----------------------------------------
Average annual total returns
for the period ended 6/30/99
- ----------------------------------------
Montgomery Emerging Asia Fund
Since inception (9/30/96)....... 4.84%
One year........................ 97.44%
- ----------------------------------------
MSCI All-Country Asia Free
(ex-Japan) Index
Since 9/30/96................... (7.17)%
One year........................ 78.07%
- ----------------------------------------
Past performance is no guarantee of
future results. Net asset value,
investment return and principal value
will fluctuate, so shares, when redeemed,
may be worth more or less than their
original cost.
<TABLE>
<CAPTION>
- ----------------------------------------
Growth of a $10,000 Investment
[BAR GRAPH APPEARS HERE]
(MSCI) Lipper
All-County All-Pacific
Montgomery Asia Free (ex-Japan)
Emerging (ex-Japan) Funds
Date Asia Fund Index/1/ Average/2/
- ----------------------------------------
<S> <C> <C> <C>
Sep-96 10,000 10,000 10,000
Oct-96 10,142 9,810.4 9,857.86
Nov-96 11,750 10,273.81 10,353.55
Dec-96 12,106 10,238.21 10,437.75
Jan-97 12,807 10,449.83 10,581.45
Feb-97 13,175 10,539.17 10,668.58
Mar-97 13,275 9,943.77 10,168.77
Apr-97 13,475 9,795.14 10,012.89
May-97 14,502 10,238.27 10,619.62
Jun-97 15,780 10,612.98 10,954.03
Jul-97 16,256 10,701.75 11,115.05
Aug-97 14,928 8,803.84 9,464.41
Sep-97 14,035 8,764.44 9,393.41
Oct-97 9,785 6,815.87 7,364.74
Nov-97 8,992 6,348.51 6,950.66
Dec-97 8,680 6,111.6 6,753.05
Jan-98 7,130 5,583.2 6,111.33
Feb-98 9,015 6,767.04 7,083.27
Mar-98 8,698 6,667.43 6,997.09
Apr-98 7,681 6,083.05 6,596.57
May-98 6,636 5,154.73 5,024.48
Jun-98 5,768 4,576.2 5,204.71
Jul-98 5,366 4,460.09 5,096.83
Aug-98 4,582 3,817.86 4,453.09
Sep-98 5,506 4,196.41 4,884.74
Oct-98 7,065 5,108.64 5,635.5
Nov-98 7,522 5,521.02 5,978.12
Dec-98 7,402 5,635.8 6,057.64
Jan-99 6,777 5,546 5,905
Feb-99 6,459 5,438 5,754
Mar-99 7,066 6,090 5,299
Apr-99 9,194 7,203 6,342
May-99 9,064 7,047 6,283
Jun-99 11,388 8,149 7,271
</TABLE>
/1/ The Morgan Stanley Capital International All-Country Asia Free (ex-Japan)
Index comprises equities in 11 countries in the Asia Pacific region.
/2/ The Lipper All-Pacific (ex-Japan) Funds Average universe consists of 67
funds.
43
<PAGE>
======================================
The Montgomery Funds
- --------------------------------------
Emerging Asia Fund
- --------------------------------------
Portfolio Highlights
================================================================================
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
<TABLE>
<S> <C>
China Shipping Development
Company, Ltd. ......................................................... 4.4%
HSBC Holdings PLC ....................................................... 3.4%
Kiatnakin Finance and Securities
Public Company Ltd. ................................................... 2.4%
Kiatnakin Finance, Ltd., Warrants ....................................... 2.3%
Singapore Press Holdings Ltd. ........................................... 2.2%
Industrial Finance Corp. of Thailand .................................... 2.1%
Reliance Industries Ltd., GDR ........................................... 1.8%
HonHai Precision Industry ............................................... 1.6%
Jardine Matheson Holdings Ltd. .......................................... 1.6%
Hengan International Group Co., Ltd. .................................... 1.6%
<CAPTION>
================================================================================
TOP FIVE COUNTRIES
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
China/Hong Kong ......................................................... 33.8%
Thailand ................................................................ 18.7%
Singapore ............................................................... 8.5%
Taiwan .................................................................. 6.8%
Indonesia ............................................................... 5.7%
</TABLE>
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
Please be aware that foreign investing, particularly in a single geographical
area such as the Asia Pacific region, involves certain risks, including currency
fluctuations and political and economic instability.
In the second half of the financial year, companies such as Kiatnakin Finance
and Securities (2.4% of net assets as of 6/30/99), one of the few Thai finance
companies that survived the country s economic crisis, and China Shipping
Development Company (4.4% of net assets as of 6/30/99), the largest state-owned
shipping line, performed particularly well. Kiatnakin Finance is a
conservatively managed company that holds an undervalued portfolio of assets
formally owned by bankrupt competitors which were auctioned off by the
government at very low prices. As a result, it is well positioned to take
advantage of improving consumer demand, a fact recognized by the market. China
Shipping is a prime beneficiary of reflation in China, because of the improving
regional economic outlook and restructuring.
Q: Were there any disappointments?
A: There were few notable disappointments over the period, but at the beginning
of 1999 performance was negatively affected by our overweight position in
China/Hong Kong. These markets corrected sharply on unfounded rumors of a
possible Chinese currency devaluation and the collapse of a Chinese investment
company. By March, however, they rebounded sharply, and many of the Fund s
investments in these markets enjoyed strong gains as a result.
Q: What major trends do you see in Asia that might have an impact on Fund
performance in the coming year, and how is the Fund positioned to take advantage
of them?
A: In contrast to our earlier, more cautious stance, because of signs of
recovery in domestic demand we believe that economic recovery may have finally
taken hold in Asia. Looking forward, we are likely to continue seeking to
exploit the theme of a recovery in domestic consumption. We believe that the
market has yet to recognize the benefit of this trend toward many well-managed,
domestically focused smaller companies. Meanwhile, we are also exploring other
themes, such as the continuing restructuring and recapitalization trend and the
growth of the Internet. We are looking for opportunities in companies and
sectors that we believe are most likely to benefit from such trends. We believe
that selected shipping companies are good examples of the former, and that
telecommunications companies with a good modern infrastructure in place will
likely benefit from the latter.
44
<PAGE>
=====================================
The Montgomery Funds
-------------------------------------
Emerging Asia Fund
-------------------------------------
Investments
PORTFOLIO INVESTMENTS
<TABLE>
<CAPTION>
June 30, 1999
Shares Value (Note 1)
<S> <C> <C>
COMMON STOCKS -- 87.4%
China/Hong Kong -- 33.8%
5,000,000 Anhui Conch Cement Company Ltd.
(Building Materials).......................... $ 850,702
147,000 Beijing Enterprises Holdings Ltd.
(Diversified Manufacture)..................... 303,159
4,625,000 Benefun International Holdings Ltd.
(Apparel)..................................... 321,913
100,000 Cheung Kong Holdings Ltd. (Real Estate)....... 889,370
1,000,000 China Everbright Ltd.
(Other Specialty Stores)...................... 998,930
2,000,000 China Pharmaceutical Enterprise and
Investment Corporation
(Major Pharmaceuticals)....................... 404,728
3,000,000 China Resources Beijing Land
(Real Estate)................................. 688,295
300,000 China Resources Enterprises Ltd.
(Real Estate)................................. 529,755
12,000,000 China Shipping Development Company
Ltd.+ (Marine Transportation)................. 2,768,648
1,000,000 Citic Ka Wah Bank Ltd. (Non-U.S. Banks)....... 409,239
648,000 Cosco Pacific Ltd. (Marine Transportation).... 538,726
8,000,000 Guangnan Holdings (Food Distributors)......... 536,200
1,000,000 HKR International Ltd. (Real Estate).......... 863,591
58,800 HSBC Holdings PLC (Non-U.S. Banks)............ 2,144,851
2,000,000 Hengan International Group Company
Ltd. (Consumer Sundries)...................... 1,011,820
206,377 Jardine Matheson Holdings Ltd.
(Multi-Sector Companies)...................... 1,031,885
948,000 JCG Holdings, Ltd.
(Diversified Financial Services).............. 452,109
253,000 New World Development Company Ltd.
(Real Estate)................................. 758,188
938,000 Pacific Century Insurance Holdings Ltd.+
(Insurance Brokers/Services).................. 759,270
2,550,000 Shandong International Power
Development Company Ltd.+
(Electrical Utility).......................... 575,191
3,080,000 Shanghai Industrial Holdings Ltd.
(Speciality Chemicals)........................ 726,499
2,160,000 Shum Yip Investment Ltd. (Real Estate)........ 563,783
Sino Land Company (Real Estate)............... 670,514
3,376,000 Sinopec Kantons Holdings+
(Oil/Gas Transmission)........................ 526,528
158,000 Smartone Telecommunications
(Cellular Telephone).......................... 562,082
100,000 Sun Hung Kai Properties Ltd. (Real Estate).... 911,927
2,800,000 Zhejiang Expressway Company Ltd.
(Other Transportation)........................ 555,792
------------
21,353,695
India -- 5.0%
33,300 Bajaj Auto Ltd., GDR (Motor Vehicles)......... 546,120
35,000 Hindalco Industries Ltd., GDR+
(Aluminum).................................... 680,750
114,700 Reliance Industries Ltd., GDR (Textiles)...... 1,152,735
60,000 Videsh Sanchar Nigam Ltd., GDR
(Other Telephone/Communication)............... 768,750
------------
3,148,355
Indonesia -- 5.7%
615,000 PT Astra International, Inc.
(Auto and Agricultural........................ 279,747
Holdings)
2,600,000 PT Bank Internasional
Indonesia
(Non-U.S. Banks).............................. 75,090
128,000 PT Hanjay Mandala Sampoerna
(Tobacco)..................................... 292,043
1,770,000 PT Indah Kiat Pulp & Paper Corporation
(Paper)....................................... 817,906
500,000 PT Indofood Sukses Makmur Tbk+
(Food Distributors)........................... 678,701
4,590,000 PT Mayora Indah (Food Chains)................. 646,246
1,404,000 PT Telekomunikasi
(Other Telephone/Communication)............... 810,975
------------
3,600,708
Korea -- 4.1%
36,400 Korea Electric Power Corporation ADR
(Non-U.S. Utilities).......................... 746,200
29,050 LG Chemical Ltd. (Major Chemicals)............ 790,562
38,000 Samsung Display Devices Company,
GDR+ (Industrial Specialties)................. 486,400
50,000 Shinhan Bank Company Ltd.
(Non-U.S. Banks).............................. 561,555
------------
2,584,717
Malaysia -- 3.7%
200,000 Malaysian Pacific Industries Berhad
(Electronic Components)....................... 474,209
750,000 Malaysian Resources Corporation
(Engineering and Construction)................ 469,736
230,000 Tenaga Nasional Berhad
(Non-U.S. Utilities).......................... 450,163
134,900 WEBS-Malaysia Index Series
(Mutual Funds)................................ 927,438
------------
2,321,546
Philippines -- 4.8%
1,480,000 Ayala Land, Inc. (Real Estate)................ 467,676
</TABLE>
45
The accompanying notes are an integral part of these financial statements.
<PAGE>
=====================
The Montgomery Funds
- ---------------------
Emerging Asia Fund
- ---------------------
Investments
<TABLE>
<CAPTION>
Shares Value (Note 1)
COMMON STOCKS -- Continued
<S> <C> <C>
Philippines -- continued
270,400 Bank of the Philippine Islands
(Non-U.S. Banks)............................... $ 968,384
650,000 Belle Corporation (Real Estate)................ 69,322
250,000 Manila Electronics Company, Series B
(Non-U.S. Utilities)........................... 901,909
300,000 San Miguel Corporation, Class B
(Alcoholic Beverages).......................... 655,695
------------
3,062,986
Singapore -- 8.5%
100,000 City Developments Ltd. (Real Estate)........... 640,291
450,000 First Capital Corporation Ltd. (Real Estate)... 700,502
183,000 Keppel Corporation Ltd.
(Multi-Sector Companies)....................... 623,491
275,000 Keppel Land Ltd. (Real Estate)................. 516,933
258,000 Keppel Tatlee Bank Ltd.
(Non-U.S. Banks)............................... 572,879
117,700 Overseas Union Bank Ltd.
(Non-U.S. Banks)............................... 566,946
7,800 Pacific Internet Ltd.+ (Internet Services)..... 372,206
80,352 Singapore Press Holdings Ltd.
(Newspapers)................................... 1,368,818
------------
5,362,066
Taiwan -- 6.8%
509,250 China Steel Corporation (Steel/Iron Ore)....... 384,697
580,000 Far East Textiles Ltd.+ (Textiles)............. 861,919
1,160,000 Far Eastern International Bank+
(Non-U.S. Banks)............................... 425,573
115,000 Hon Hai Precision Industry+
(Electronic Data Processing)................... 1,039,628
396,000 Nan Ya Plastic Corporation
(Speciality Chemicals)......................... 655,913
971,000 Yageo Corporation+
(Electronic Components)........................ 937,932
------------
4,305,662
Thailand -- 15.0%
593,100 Bangkok Expressway Public Company Ltd.
(Other Transportation)......................... 389,933
1,204,000 Bank of Ayudhya Public Company Ltd.
(Non-U.S. Banks)............................... 824,210
2,050,000 Industrial Finance Corporation of
Thailand (Finance Companies)................... 1,306,087
786,000 Kiatnakin Finance and Securities Public
Company Ltd.+ (Finance Companies).............. 1,491,663
930,000 National Finance Company Ltd.
(Non-U.S. Banks)............................... 561,000
118,800 PTT Exploration and Production Public
Company Ltd. (F) (Oil and Gas Production)...... 908,272
46,000 Shin Corporations Public Company Ltd.
(Electronics Distributors)..................... 214,504
1,000,000 Shinawatra Satellite Public Company Ltd.
(Other Telephone/Communication)................ 928,562
9,700 Siam Cement Public Company Ltd.
(Building Materials)........................... 294,537
317,500 Siam Panich Leasing Public Company Ltd.
(Rental/Leasing Companies)..................... 477,735
241,000 Thai Farmers Bank Public Company Ltd.
(Non-U.S. Banks)............................... 744,856
1,630,000 Thai Telephone & Telecommunication
Company Ltd.
(Other Telephone/Communication)................ 618,680
668,000 The Book Club Finance and Securities
Public+ (Finance Companies).................... 728,941
------------
9,488,980
TOTAL COMMON STOCKS
(Cost $44,799,876)............................................... 55,228,715
------------
Principal Amount
CONVERTIBLE BONDS -- 1.0%
United Kingdom -- 1.0%
$ 600,000 New World Capital Finance
3.00% due 06/09/04 (Real Estate)
(Cost $600,000)................................ 615,000
Shares
WARRANTS -- 4.4%
Philippines -- 0.7%
800,000 Jollibee Food Company,
Warrants, expiring 03/24/03+
(Restaurants).................................. 410,796
Singapore -- 0.0%@
7,500 Asia Pulp & Paper, Warrants, expiring
07/27/00+ (Paper).............................. 19,687
Thailand -- 3.7%
977,100 Kiatnakin Finance, Ltd., Warrants,
05/10/09+ (Finance Companies).................. 1,470,220
2,000,000 Securities One Public Company Ltd.,
Warrants, expiring 05/31/01+
(Investment Bankers/Brokers/Services).......... 151,823
575,000 Siam Commercial Bank Ltd., Warrants,
expiring 05/10/02+ (Non-U.S. Banks)............ 370,239
400,000 TISCO Finance Public Company Ltd.
Warrants, expiring 05/31/02+
(Finance Companies)............................ 374,136
------------
2,366,418
TOTAL WARRANTS
(Cost $1,036,246)................................................ 2,796,901
------------
TOTAL SECURITIES
(Cost $46,436,122)............................................... 58,640,616
------------
</TABLE>
46
The accompanying notes are an integral part of these financial statements.
<PAGE>
=====================
The Montgomery Funds
---------------------
Emerging Asia Fund
---------------------
Investments
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C> <C>
REPURCHASE AGREEMENTS -- 8.1%
$ 5,150,000 Agreement with Paine Webber, Tri-Party,
5.050% dated 06/30/99, to be repurchased
at $5,150,713, collateralized by $5,160,240
market value of U.S. government and
mortgage-backed securities, having various
maturities and interest rates
(Cost $5,150,000).............................. $ 5,150,000
------------
TOTAL INVESTMENTS -- 100.9%
(Cost $51,586,122*).............................................. 63,790,616
OTHER ASSETS AND LIABILITIES -- (0.9)%
(Net)............................................................ (594,727)
------------
NET ASSETS -- 100.0%............................................. $ 63,195,889
============
</TABLE>
* Aggregate cost for federal tax purposes $52,981,889.
+ Non-income-producing security.
@ Amount represents less than 0.1%
Abbreviations
ADR American Depositary Receipt
(F) Foreign or Alien Shares
GDR Global Depositary Receipt
47
The accompanying notes are an integral part of these financial statements.
<PAGE>
======================================
The Montgomery Funds
- --------------------------------------
Global Long-Short Fund
- --------------------------------------
Portfolio Highlights
================================================================================
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
Nancy Kukacka................................................ Portfolio Manager
Angeline Ee.................................................. Portfolio Manager
================================================================================
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/99
- --------------------------------------------------------------------------------
Montgomery
Global Long-Short Fund
Since inception (12/31/97)............................................... 65.67%
One year................................................................. 51.78%
- --------------------------------------------------------------------------------
MSCI All-Country World Free Index
Since 12/31/97........................................................... 21.51%
One year................................................................. 16.71%
- --------------------------------------------------------------------------------
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. Fund performance presented is for
Class R shares.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment*
[BAR GRAPH APPEARS HERE]
Montgomery Global MISCI All-Country Lipper Global funds
Date Long-Short Fund World Free Index/1/ Average/2/
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Dec-97 9,450 10,000 10,000
Jan-98 9,979 10,220 10,096
Feb-98 11,198 10,919 10,811
Mar-98 12,020 11,385 11,349
Apr-98 12,833 11,492 11,507
May-98 12,871 11,274 11,361
Jun-98 13,249 11,477 11,398
Jul-98 13,514 11,481 11,361
Aug-98 12,767 9,872 9,658
Sep-98 12,720 10,069 9,741
Oct-98 13,154 10,988 10,400
Nov-98 13,665 11,655 10,977
Dec-98 14,495 12,197 11,485
Jan-99 15,679 12,446 11,727
Feb-99 15,060 12,133 11,383
Mar-99 16,812 12,679 11,811
Apr-99 18,365 13,227 12,394
May-99 18,242 12,759 12,040
Jun-99 20,110 13,394 12,704
</TABLE>
/1/ The Morgan Stanley Capital International All-Country World Free Index is an
unmanaged, capitalization-weighted monthly total return index composed of
securities available for purchase by foreigners that are listed on the
stock exchanges of more than 45 developed and emerging countries, including
the United States.
/2/ The Lipper Global Funds Average universe consists of 223 funds.
* The chart above shows the performance of the Montgomery Global Long-Short
Fund's Class R shares since the Fund's inception versus the index. This
represents a cumulative return of 101.14%. The chart assumes a hypothetical
$10,000 initial investment in the Fund's Class R shares and reflects all
Fund expenses and the maximum 5.5% sales charge (applicable only to shares
purchased prior to 1/29/99). A $10,000 investment in the Fund's Class B
shares at inception on December 31, 1997, would have been valued at $17,737
on June 30, 1999. This figure reflects all Fund expenses and the applicable
contingent deferred sales charge (5% in the first year, decreasing to 0%
after six years), assuming a complete redemption at the end of the period.
A $10,000 investment in the Fund's Class C shares at inception, December
31, 1997, would have been worth $18,232 on June 30, 1999.
INVESTMENT REVIEW
Q: How did the Fund perform from July 1, 1998, to June 30, 1999?
A: We were very pleased with the Fund's performance over the period a return of
51.8%, versus 16.7% for its most comparable benchmark, the Morgan Stanley
Capital International (MSCI) All-Country World Free Index.
Q: Did the Fund's ability to sell stocks short contribute to this performance?
A: Although we attribute the Fund's good returns mainly to strong stock
selection, our ability to hedge the Fund's long positions by short selling
certainly helped minimize volatility during a challenging year for global
markets. The Fund has continued to maintain a long bias throughout the financial
year. During the third quarter of 1998, however, a correction in global
financial markets resulted in an unusual situation in which the Fund's short
positions nearly equaled its long positions. This short exposure gave the Fund a
definite advantage relative to its benchmark, and to long-only global funds, as
stock valuations fell sharply.
We believe that knowing when to reduce the number of short positions in
improving market conditions is as important as using those positions to hedge
against negative market movements. Our decision to decrease our short exposure
during the first two quarters of 1999, however, particularly in the rapidly
appreciating emerging markets, also contributed to the Fund's returns. In this
environment some of our most successful short positions, such as those we
established against selected Internet stocks, were opportunistic. Nevertheless,
the Fund's objective to reduce volatility of returns has meant that we have
generally maintained a level of at least 20% of the portfolio in short positions
to act as a hedge against negative movements in our long positions.
Q: Which of the Fund's long ideas were particularly helpful in boosting returns?
A: In the developed markets, our long strategy emphasized fundamentally good
companies in high-growth sectors such as telecommunications and technology that
we believed had the potential to increase their earnings at a rapid rate. This
strategy has worked well for us. For example, in the U.S. wireless
communications sector, cell phone market penetration has risen 30% in the past
year, and there has been a 50% increase in Nokia s sales of wireless handsets
and equipment. This has benefited our portfolio holding in Nokia (0.8% of net
assets as of 6/30/99). Other communications companies that made a positive
contribution to performance include Colt Telecom (1.0% of net assets as of
6/30/99) of the United Kingdom and Equant (0.8% of net assets as of 6/30/99), a
data communications company servicing Europe and the United States. Although the
valuations of these companies increased rapidly, their earnings did too, so we
maintained our positions for much of the year.
In the emerging markets, the ideas that contributed most to performance were
slightly different. We had a higher exposure to the recovering commodities
sector than in the developed markets, and investments in stocks such as YPL, an
Argentine oil company (no longer in the portfolio since it was acquired in the
second quarter of 1999), performed particularly well. The Fund's overweight
position in the rapidly appreciating Asian markets also helped boost returns
over the period.
48
<PAGE>
======================================
The Montgomery Funds
--------------------------------------
Global Long-Short Fund
--------------------------------------
Portfolio Highlights
Q: What is your outlook for the global markets, and how is the Fund positioned
in relation to this view?
A: In the developed markets, although we remain overweighted in the United
States, mainly in telecommunications and technology, we have reduced our
positions due to concerns over current valuations and inflation. An increase in
inflation may translate into higher interest rates, which would have a negative
impact on growth stocks. In recognition of this latter risk, we have adopted a
slightly more cautious approach by reducing exposure to growth stocks and
marginally increasing our weighting in cyclicals.
In other developed markets, we remain underweighted in Europe and Japan. The
strong performance of our Japanese stock selections, such as Softbank
Corporation (0.7% of net assets as of 6/30/99), Japan's equivalent to Yahoo!,
have made up for this underweight position as the Japanese market has
appreciated, and we remain confident that these will continue to do well.
In the emerging markets, we continue to like the prospects for Asia,
specifically South Korea, India and China/Hong Kong. We remain heavily
overweighted in these markets, because their economic fundamentals have
continued to improve. We are also seeing a revival in consumer demand, an
important element in any sustainable recovery. These countries are benefiting
from ongoing financial and fiscal restructuring and as a result continue to
present the Fund with interesting opportunities to add value. We have limited
exposure to Latin America and are underweighted in emerging Europe.
Q: How is the Fund positioned in terms of its long and short exposure, and do
you foresee any changes to this positioning?
A: At the end of the period, the Fund was invested 95% net long. We had fewer
short positions in the emerging markets due to our optimism that they will
continue to rebound. In the developed markets, however, we have recently adopted
a slightly more cautious stance, increasing our short positions in line with
rising interest rate risk. We are also holding more cash. We don't anticipate
any significant changes to this positioning in the short term, but will continue
to monitor the markets carefully and make adjustments where warranted.
================================================================================
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
(long positions as a percentage
of total net assets)
Societe Generale ........................................................ 1.4%
General Nutrition Companies, Inc. ....................................... 1.2%
Teradyne, Inc. .......................................................... 1.2%
Global TeleSystems Group, Inc. .......................................... 1.1%
Xilinx, Inc. ............................................................ 1.1%
Canal Plus .............................................................. 1.1%
The Mens Wearhouse,Inc. ................................................. 1.1%
Verisign, Inc. .......................................................... 1.0%
Doubleclick, Inc. ....................................................... 1.0%
Advantest Corporation ................................................... 1.0%
================================================================================
TOP FIVE COUNTRIES
- --------------------------------------------------------------------------------
(long positions as a percentage
of total net assets)
United States ........................................................... 53.6%
France .................................................................. 10.4%
United Kingdom .......................................................... 8.7%
China/Hong Kong ......................................................... 4.8%
Brazil .................................................................. 4.2%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
This Fund uses sophisticated investment approaches that may present
substantially higher risks than most mutual funds. It may invest a larger
percentage of its assets in transactions using margin, leverage, short sales and
other forms of volatile financial derivatives such as options and futures. As a
result, the value of an investment in the Fund may be more volatile that
investments in other mutual funds. This Fund may not be appropriate for
conservative investors.
49
<PAGE>
======================
The Montgomery Funds
- ----------------------
Global Long-Short Fund
- ----------------------
Investments
PORTFOLIO INVESTMENTS
June 30, 1999
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS -- 120.5%
Argentina -- 0.5%
86,000 Perez Companc S.A.
(Oil and Gas Production)..................... $ 494,564
12,100 Telecom Argentina S.A., ADR
(Other Telephone/Communication).............. 323,675
14,400 Telefonica de Argentina, Sponsored ADR
(Other Telephone/Communication).............. 451,800
-------------
1,270,039
Brazil -- 2.0%
35,400 Aracruz Celulose S.A., ADR (Paper)........... 778,800
46,600 Cia Cervejaria Brahma, ADR
(Alcoholic Beverages)........................ 527,162
25,800 Cia Vale do Rio Doce
(Other Metals/Minerals)...................... 363,052
15,100,000 Gerdau S.A. (Speciality Steels).............. 251,738
38,200 Petroleo Brasileiro S.A., ADR
(Integrated Oil Companies)................... 580,162
15,300 Tele Celular Sul Participacoes S.A., ADR
(Cellular Telephone)......................... 331,819
2,800 Tele Centro Sul Participacoes S.A., ADR
(Cellular Telephone)......................... 155,400
25,400 Tele Sudeste Celular Participacoes S.A.,
ADR (Cellular Telephone)..................... 736,600
9,500 Telebras, ADR
(Other Telephone/Communication).............. 856,781
1,000,00 Telec de Sao Paulo S.A.
(Cellular Telephone)......................... 83,074
10,100 Telesp Participacoes S.A., ADR
(Cellular Telephone)......................... 231,038
-------------
4,895,626
Canada -- 1.7%
26,600 AT&T Canada, Inc.+#
(Other Telephone/Communication).............. 1,699,906
48,500 TLC The Laser Center, Inc.+
(Medical Specialties)........................ 2,328,000
-------------
4,027,906
China/Hong Kong -- 4.8%
426,000 Amoy Properties Ltd. (Real Estate)........... 400,835
141,000 Asia Satellite Telecommunications
Holdings Ltd.
(Other Telephone/Communication).............. 331,677
2,300,000 Beijing Yanhua Petrochemical Company
Ltd., "H" Shares (Major Chemicals)........... 518,799
45,000 Cheung Kong Holdings Ltd.
(Real Estate)................................ 400,217
1,356,00 China Hong Kong Photo Products
Holdings, Ltd. (Photographic Products)....... 216,728
231,000 Citic Pacific Ltd. (Wholesale Distributors).. 736,920
345,000 Cosco Pacific Ltd. (Marine Transportation)... 286,822
184,000 DahSing Financial Group (Non-U.S.Banks)...... 700,824
418,000 Dairy Farm International Holdings Ltd.
(Food Chains)................................ 501,600
339,000 Guangdong Kelon Electrical Holdings
Company Ltd.
(Consumer Electronics/Appliances)............ 395,441
2,918,000 Guangshen Railway Company, Ltd. (Railroads).. 447,575
230,000 Guoco Group Ltd.
(Diversified Financial Services)............. 616,630
472,000 Hongkong and Shanghai Hotels Ltd.
(Hotels/Resorts)............................. 401,531
424,000 Hopewell Holdings Ltd.
(Engineering and Construction)............... 322,442
35,600 HSBC Holdings PLC (Non-U.S. Banks)........... 1,298,583
1,784,000 Huaneng Power International, Inc.
(Integrated Oil Companies)................... 747,328
38,000 Hutchison Whampoa Ltd.
(Multi-Sector Companies)...................... 344,083
1,575,000 IDT International Ltd.
(Diversified Electronic Products)............. 324,813
358,000 Mandarin Oriental International Ltd.
(Hotels/Resorts).............................. 315,040
188,000 New World Development Company Ltd.
(Real Estate)................................. 563,397
134,000 New World Infrastructure Ltd.
(Other Transportation)........................ 252,169
1,700,000 Shandong International Power
Development Company Ltd.+
(Non-U.S. Utilities).......................... 383,460
382,000 Shaw Brothers (Hong Kong) Ltd.
(Media Conglomerates)......................... 260,959
345,000 Wheelock and Company Ltd.
(Real Estate)................................. 473,590
1,400,000 Zhejiang Expressway Company, Ltd.,
Class H (Other Transportation)................ 277,896
-------------
11,519,359
Egypt -- 0.1%
14,920 Suez Cement Company, GDR
(Building Materials).......................... 214,848
Estonia -- 0.1%
15,000 AS Eesti Telekom, GDR
(Other Telephone/Communication)............... 295,125
Finland -- 0.8%
20,400 Nokia Corporation, Sponsored ADR
(Telecommunications Equipment)................ 1,867,875
</TABLE>
50
The accompanying notes are an integral part of these financial statements.
<PAGE>
======================
The Montgomery Funds
- ----------------------
Global Long-Short Fund
- ----------------------
Investments
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
COMMON STOCKS -- continued
France -- 10.4%
5,870 Altran Technologies S.A.
(Engineering and Construction)................ $ 1,551,627
8,960 Axa (Multi-Line Insurance).................... 1,094,465
17,330 Banque Nationale de Paris
(Non-U.S. Banks).............................. 1,445,837
11,400 Brice S.A.+
(Clothing/Shoe/Accessory Stores).............. 629,750
9,465 Canal Plus (Cable Television)................. 2,659,246
54,000 Coflexip S.A., ADR (Metal Fabrications) ...... 2,369,250
21,780 Eiffage# (Engineering and Construction)....... 1,621,446
12,600 Galeries Lafayette (Department Stores)........ 1,669,193
17,300 Groupe SEB S.A. (Consumer
Electronics/Appliances)....................... 1,295,071
14,170 Marc Orian S.A. (Consumer Specialties) ....... 1,562,609
9,100 PSA Peugeot Citroen (Motor Vehicles).......... 1,437,614
8,000 Publicis S.A. (Advertising)................... 1,693,375
15,950 Rexel S.A. (Wholesale Distributors)........... 1,237,653
13,000 Sidel S.A. (Industrial Machinery/Components).. 1,582,583
18,600 Societe Generale, Class A (Non-U.S. Banks).... 3,282,195
-------------
25,131,914
Germany -- 2.1%
28,900 Deutsche Bank AG (Non-U.S. Banks)............. 1,765,070
29,080 Kinowelt Median AG+ (Movies/Entertainment).... 2,116,864
8,000 Mannesmann AG (Cellular Telephone)............ 1,195,275
-------------
5,077,209
Greece -- 0.7%
3,060 Alpha Credit Bank (Non-U.S. Banks)............ 197,507
37,000 Alpha Credit Bank, ADR (Non-U.S. Banks)....... 591,075
33,085 Hellenic Telecommunication Organization S.A.
(Other Telephone/Communication)............... 710,069
8,000 Hellenic Telecommunication Organization
S.A., ADR (Other Telephone/Communication)..... 85,800
8,300 STET Hellas Telecommunications S.A., ADR+#
(Other Telephone/Communication)............... 185,713
-------------
1,770,164
Hungary -- 0.6%
9,750 Borsodchem Rt. (Paints/Coatings).............. 237,997
24,000 Matav Rt., ADR
(Other Telephone/Communication)............... 129,877
20,400 MOL Magyar Olaj-es Gazipari Rt.
(Integrated Oil Companies).................... 492,054
22,500 MOL Magyar Olaj-es Gazipari Rt., GDR
(Integrated Oil Companies).................... 538,875
-------------
1,398,803
India -- 2.3%
26,600 Hindalco Industries Ltd., GDR
(Aluminum).................................... 517,370
89,000 Larsen & Toubro Ltd., GDR
(Building Materials).......................... 1,372,825
23,800 Mahanagar Telephone Nigam Ltd., GDR
(Other Telephone/Communication)............... 235,620
12,300 Ranbaxy Laboratories Ltd., GDR
(Other Pharmaceuticals)....................... 203,565
88,100 Reliance Industries Ltd., GDR+
(Textiles).................................... 885,405
48,100 State Bank of India, GDR
(Non-U.S. Banks).............................. 590,427
79,000 Tata Engineering and Locomotive
Company Ltd. (Motor Vehicles)................. 458,200
26,600 Videsh Sanchar Nigam Ltd., GDR
(Other Telephone/Communication)............... 340,813
40,000 Videsh Sanchar Nigam Ltd., Sponsored
GDR (Other Telephone/Communication)........... 512,500
10,000 Zee Telefilms Ltd.+ (Movies/Entertainment).... 335,215
-------------
5,451,940
Indonesia -- 0.6%
1,714,800 PT Astra Agro Lestari Tbk
(Farming/Seeds/Milling)....................... 594,299
590,000 PT Indah Kiat Pulp & Paper Corporation
Tbk (Paper)................................... 272,635
130,500 PT Semen Gresik Tbk
(Building Materials).......................... 282,671
550,800 PT Telekomunikasi Indonesia
(Other Telephone/Communication)............... 318,152
-------------
1,467,757
Ireland -- 1.4%
70,400 Bank of Ireland (Non-U.S. Banks).............. 1,173,963
51,400 Esat Telecom Group PLC, ADR+
(Other Telephone/Communication)............... 2,248,750
-------------
3,422,713
Israel -- 0.1%
12,400 Nice Systems Ltd., ADR+
(Telecommunication Equipment)................. 343,325
Italy -- 2.0%
495,000 Banca Intesa SpA (Non-U.S. Banks)............. 1,102,976
118,800 Gruppo Editoriale L Expresso
(Newspapers).................................. 1,916,295
1,285,000 Seat Pagine Gialle SpA
(Printing/Forms).............................. 1,751,404
-------------
4,770,675
Japan -- 3.8%
22,000 Advantest Corporation
(Electronic Production Equipment)............. 2,420,783
105,000 Makita Corporation (Tools/Hardware)........... 1,189,253
</TABLE>
51
The accompanying notes are an integral part of these financial statements.
<PAGE>
======================
The Montgomery Funds
- ----------------------
Global Long-Short Fund
- ----------------------
Investments
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS -- continued
Japan -- continued
30,000 Promise Company Ltd.
(Finance Companies)............................ $ 1,774,634
61,000 Shin-Etsu Chemical Company Ltd.
(Major Chemicals).............................. 2,043,931
8,300 Softbank Corporation
(Electronics Distributors)..................... 1,683,073
-------------
9,111,674
Korea -- 3.9%
44,900 Comtec System Company Ltd.
(Motor Vehicles)............................... 397,603
40,300 Daewoo Securities Company (Investment
Bankers/Brokers/Services)...................... 783,369
16,069 Daou Technology, Inc.+
(Computer Software)............................ 174,225
7,100 Dongwon Securities Company
(Investment Bankers/Brokers/Services).......... 130,652
47,700 Hana Bank (Non-U.S. Banks)..................... 700,562
70,600 Hyundai Industrial Development &
Construction Company
(Engineering and Construction)................. 988,095
153,900 Ichon Iron & Steel Company
(Steel/Iron Ore)............................... 977,248
13,500 Korea Electric Power Corporation
(Non-U.S. Utilities)........................... 560,994
13,100 Korea Telecom Corporation
(Other Telephone/Communication)................ 869,184
9,100 Korea Zinc Company (Metal
Fabrications).................................. 275,162
48,000 LG Electronics, Sponsored GDR+
(Diversified Electronic Products).............. 306,000
12,100 Pohang Iron & Steel Company, ADR
(Steel/Iron Ore)............................... 406,862
417 Samsung Electronics Company
(Diversified Electronic Products).............. 45,753
440 Samsung Electronics Company, GDR
(Computer Software)............................ 23,562
555 Samsung Fire & Marine Insurance
(Insurance Brokers/Services)................... 390,778
55,140 Shinhan Bank (Non-U.S. Banks).................. 619,283
57,000 Sungmi Telecom Electronics Company
(Telecommunications Equipment)................. 339,784
10,400 Tae Young Corporation
(Construction/Agriculture Equipment/Trucks).... 593,002
12,000 Tong Yang Confectionery Company
(Specialty Foods/Candy)........................ 357,667
12,100 Trigem Computer, Inc.+
(Electronic Data Processing)................... 470,410
-------------
9,410,195
Malaysia -- 0.7%
254,400 WEBS-Malaysia Index Series
(Mutual Funds)................................. 1,749,000
Mexico -- 2.4%
223,000 Cemex S.A. de C.V., Class B
(Building Materials)........................... 1,107,545
39,700 Coca-Cola Femsa S.A., ADR+
(Soft Drinks).................................. 769,187
298,000 Grupo Financiero Banamex Accival
S.A. de C.V.+ (Diversified Financial
Services)...................................... 752,669
37,200 Grupo Iusacell, Sponsored ADR,
Series L+ (Cellular Telephone)................. 483,600
231,000 Grupo Mexico S.A., Series B
(Other Metals/Minerals)........................ 983,031
74,000 Grupo Radio Centro S.A. de C.V.,
ADR (Broadcasting)............................. 388,500
7,300 Grupo Televisa S.A., GDR+ (Broadcasting)....... 326,219
13,500 Panamerica Beverages, Inc. (Soft Drinks)....... 321,469
3,400 Telefonos de Mexico S.A., ADR
(Other Telephone/Communication)................ 274,763
32,300 TV Azteca S.A. de C.V., Sponsored
ADR+ (Textiles)................................ 167,556
36,000 Vitro S.A., ADR (Home Furnishings)............. 184,500
-------------
5,759,039
Netherlands -- 2.8%
38,000 ASM Lithography Holding N.V.+
(Electronic Production Equipment).............. 2,250,312
19,900 Equant N.V.+
(Other Telephone/Communication)................ 1,873,088
19,000 Gucci Group N.V.+# (Apparel)................... 1,330,000
36,400 Ordina Beheer N.V.+# (EDP Services)............ 33,826
77,066 Vedior N.V.
(Other Telephone/Communications)............... 1,312,974
-------------
6,800,200
Norway -- 0.6%
93,500 Petroleum Geo-Services, Sponsored ADR+
(Oilfield Services/Equipment).................. 1,390,813
Peru -- 0.1%
10,100 Telefonica del Peru S.A., ADR
(Other Telephone/Communications)............... 152,763
Philippines -- 0.7%
2,143,000 Benpres Holdings Corporation+ (Broadcasting)... 507,887
650,000 Cosmos Bottling Corporation
(Soft Drinks).................................. 47,070
2,300,000 International Container Terminal Services,
Inc.+ (Other Transportation)................... 299,803
94,000 Philippine Commercial International Bank
(Non-U.S. Banks)............................... 643,581
10,800 Philippine Long Distance Telephone Company
(Other Telephone/Communications)............... 329,901
-------------
1,828,242
Poland -- 0.4%
7,550 @ Entertainment, Inc.+ (Cable Television)...... 141,327
</TABLE>
52
The accompanying notes are an integral part of these financial statements.
<PAGE>
======================
The Montgomery Funds
----------------------
Global Long-Short Fund
----------------------
Investments
<TABLE>
<CAPTION>
Shares Value (Note 1)
COMMON STOCKS -- continued
<S> <C> <C>
Poland -- continued
59,000 Mostostal-Warszawa S.A.+
(Diversified Manufacture)................... $ 355,801
59,000 Telekomunikacja Polska S.A.
(Other Telephone/Communications)............ 412,850
-------------
909,978
Russia -- 1.1%
33,900 Global TeleSystems Group, Inc.+
(Other Telephone/Communication)............. 2,744,841
Singapore -- 3.7%
88,000 Cycle & Carriage Ltd.
(Other Specialty Stores).................... 506,594
431,000 DBS Land (Real Estate)...................... 860,810
372,000 GES International Ltd. (EDP Peripherals).... 402,079
700,000 Hersing Corporation Ltd. (Real Estate)...... 351,573
397,000 Inchcape Motors Ltd.
(Automotive Aftermarket).................... 638,987
799,000 Keppel Land Ltd. (Real Estate).............. 1,501,924
210,000 Lindeteves-Jacoberg Ltd.
(Diversified Commercial Services)........... 298,529
375,000 Neptune Orient Lines Ltd.
(Marine Transportation)..................... 458,190
26,800 Pacific Internet Ltd.+ (Internet
Services) .................................. 1,278,862
1,644,000 Popular Holdings Ltd.
(Office Equipment/Supplies)................. 777,408
37,000 Singapore Press Holdings Ltd. (Newspapers).. 630,305
735,000 Singapore Telecommunications Ltd.
(Other Telephone/Communication)............. 1,260,728
-------------
8,965,989
South Africa -- 0.7%
45,800 Barlow Ltd. (Multi-Sector Companies)........ 264,121
1,024 Edgars Consolidated Stores Ltd.
(Clothing/Shoe/Accessory Stores)............ 7,959
14,630 JCI Gold Ltd.+ (Precious Metals)............ 13,334
20,000 Liberty Life Association of Africa
Ltd.# (Life Insurance)...................... 256,194
116,200 Naspers Ltd., "N" Shares+ (Newspapers)...... 698,028
69,200 Sasol Ltd. (Coal Mining).................... 493,671
-------------
1,733,307
Spain -- 1.5%
194,600 Banco Santander Central Hispano S.A.+
(Non-U.S. Banks)............................ 2,029,427
137,300 Prosegur, CIA de Seguridad S.A.
(Diversified Commercial Services)........... 1,533,936
-------------
3,563,363
Sweden -- 1.4%
98,800 Modern Times Group AB, "B" Shares+
(Broadcasting).............................. 2,152,391
109,500 Scandic Hotels AB (Hotels/Resorts).......... 1,170,121
-------------
3,322,512
Taiwan -- 2.8%
167,900 Acer Peripherals, Inc.
(Electronic Data Processing)................ 415,851
30,000 Asustek Computer, Inc.
(Electronic Components)..................... 338,081
589,000 Chung Hwa Pulp Corporation+ (Paper)......... 421,235
144,300 Compeq Manufacturing Company Ltd.+
(Electronic Components)..................... 844,356
264,000 Evergreen Marine Corporation+
(Marine Transportation)..................... 330,204
905,000 Far Eastern International Bank+
(Non-U.S. Banks)............................ 332,020
31,000 Hon Hai Precision Industry+
(Electronic Data Processing)................ 280,248
174,000 Nien Hsing Textile Corporation Ltd.+
(Textiles).................................. 406,718
496,000 Powerchip Semiconductor Corporation+
(Semiconductors)............................ 340,904
172,000 Siliconware Precision Industries
Company+ (Semiconductors)................... 327,492
165,000 Standard Foods Taiwan Ltd.
(Specialty Foods/Candy)..................... 197,183
259,000 Systex Corporation+
(Electronic Components)..................... 741,718
191,880 Taiwan Semiconductor Manufacturing
Company Ltd.+
(Electronic Production Equipment)........... 733,659
2,700 Taiwan Semiconductor Company Ltd.,
ADR+ (Electronic Production Equipment)...... 91,800
7,250 Ulead Systems, Inc.+ (Electrical
Products)................................... 31,873
427,800 United Microelectronics Corporation,
Ltd.+ (Semiconductors)...................... 920,499
-------------
6,753,841
Thailand -- 1.0%
115,000 BEC World PCL
(Movies/Entertainment)...................... 717,094
30,000 PTT Exploration and Production PCL
(Oil and Gas Production).................... 229,361
131,200 Shin Corporations PCL
(Electronics Distributors).................. 611,804
60,000 Siam City Cement PCL (Building Materials)... 247,255
215,703 United Broadcasting Corporation PCL
(Cable Television).......................... 169,592
466,900 United Communication Industry PCL
(Other Telephone/Communications)............ 430,381
-------------
2,405,487
Turkey -- 0.4%
4,620,000 Akbank T.A.S. (Non-U.S. Banks).............. 67,932
4,810,000 Vestel Elektronik Sanayi ve Ticaret A.S.+
(EDP Peripherals)........................... 524,736
6,400,000 Yapi Ve Kredi Bankasi A.S.
(Non-U.S. Banks)............................ 92,586
</TABLE>
53
The accompanying notes are an integral part of these financial statements.
<PAGE>
======================
The Montgomery Funds
- ----------------------
Global Long-Short Fund
- ----------------------
Investments
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS -- continued
Turkey -- continued
13,040 Yapi Ve Kredi Bankasi A.S., GDR
(Non-U.S. Banks)............................. $ 192,992
------------
878,246
United Kingdom -- 8.7%
8,800 ARM Holdings PLC, ADR+
(Semiconductors)............................. 307,450
31,200 Astrazeneca PLC
(Multi-Sector Companies)..................... 1,208,764
594,000 British Steel PLC (Steel/Iron Ore)........... 1,539,042
32,000 Colt Telecom Group PLC+
(Other Telephone/Communication).............. 673,387
21,000 Colt Telecom Group PLC, ADR+
(Other Telephone/Communication).............. 1,805,344
58,500 Energis PLC
(Other Telephone/Communication).............. 1,396,219
9,323 Liberty International PLC
(Finance Companies).......................... 61,721
160,400 Orange PLC# (Cellular Telephone)............. 2,349,335
102,600 Pearson PLC
(Financial Publishing/Services).............. 2,107,255
162,000 Racal Electronics PLC
(Military/Government/Technical).............. 987,696
46,000 Reckitt & Colman PLC
(Consumer Sundries).......................... 480,006
493,600 Saatchi & Saatchi PLC (Advertising).......... 1,662,385
227,000 Securicor Group PLC (Cellular Telephone)..... 2,001,688
294,600 Somerfield PLC (Food Chains)................. 1,382,542
341,800 Telewest Communications PLC
(Cable Television)........................... 1,538,000
243,300 The Future Network PLC+ (Media).............. 1,621,539
------------
21,122,373
United States -- 53.6%
153,000 Actv, Inc.+ (Broadcasting)................... 2,118,094
26,500 Adaptec, Inc.+#
(Computer Communications).................... 934,953
89,750 Administaff, Inc.+#
(Diversified Commercial Services)............ 1,436,000
9,500 America Online, Inc.+# (Internet Services)... 1,049,750
35,000 American Home Products Corporation#
(Major Pharmaceuticals)...................... 2,012,500
48,100 Ann Taylor Stores Corporation+#
(Clothing/Shoe/Accessory Stores)............. 2,164,500
10,100 Ariba, Inc.+ (Internet Services)............. 986,644
24,000 At Home Corporation+ (Other Specialty Stores) 1,295,250
61,400 AT&T Corp. Liberty Media Group,
Class B+# (Broadcasting)..................... 2,256,450
36,500 Aware, Inc.+
(Telecommunications Equipment)............... 1,679,000
48,000 Bally Total Fitness Holdings Corporation+#
(Other Consumer Services).................... 1,362,000
31,700 BMC Software,Inc.+# (ComputerSoftware)....... 1,710,809
17,000 Careinsite, Inc.+ (Assisted Living Services). 806,438
50,000 Centocor, Inc.+# (Biotechnology)............. 2,332,812
22,000 Cerus Corporation+ (Medical Specialties)..... 486,750
32,500 Chancellor Media Corporation, Class A+#
(Broadcasting)............................... 1,790,547
25,500 Circuit City Stores Circuit City Group#
(Computer/Video Chains)...................... 2,371,500
31,000 Cisco Systems, Inc.+#
(Computer Communications).................... 1,996,594
36,000 Citigroup, Inc.
(Diversified Financial Services)............. 1,710,000
62,000 Comcast Corporation, Class A#
(Cable Television)........................... 2,383,125
29,000 Comverse Technology, Inc.+
(Telecommunications Equipment)............... 2,187,687
37,000 Conexant Systems, Inc.+# (Semiconductors).... 2,147,156
40,000 Cooper Cameron Corporation+
(Oilfield Services/Equipment)................ 1,482,500
18,750 Covad Communications Group, Inc.+
(Other Telephone/Communication).............. 999,023
76,800 Cymer, Inc.+
(Electronic Production Equipment)............ 1,920,000
27,000 Doubleclick, Inc.+# (Advertising)............ 2,471,344
64,000 Dril-Quip, Inc.+#
(Oilfield Services/Equipment)................ 1,468,000
7,400 EMC Corporation+ (EDP Peripherals)........... 407,000
20,000 Emulex Corporation+
(Computer Communications).................... 2,231,875
24,000 Equitable Companies, Inc.#
(Diversified Financial Services)............. 1,608,000
45,660 Firstar Corporation (Mid-Sized Banks)........ 1,278,480
36,500 Forest Laboratories, Inc., Class A+
(Other Pharmaceuticals)...................... 1,688,125
45,000 Fox Entertainment Group, Inc.+#
(Media Conglomerates)........................ 1,212,188
128,000 General Nutrition Companies, Inc.+#
(Other Specialty Stores)..................... 2,980,000
32,000 Guidant Corporation (Medical Specialties).... 1,646,000
16,000 Healtheon Corporation+#
(Services to the Health Industry)............ 1,234,000
40,000 Infinity Broadcasting Corporation,
Class A+# (Broadcasting)..................... 1,190,000
42,000 Insight Enterprises, Inc.+
(Catalog/Specialty Distribution)............. 1,038,188
65,800 International Integration Corporation+
(EDP Services)............................... 1,488,725
57,000 International Network Services+
(EDP Services)............................... 2,288,906
48,000 Lam Research Corporation+
(Semiconductors)............................. 2,239,500
21,450 Lucent Technologies, Inc.
(Telecommunications Equipment)............... 1,446,534
</TABLE>
54
The accompanying notes are an integral part of these financial statements.
<PAGE>
======================
The Montgomery Funds
----------------------
Global Long-Short Fund
----------------------
Investments
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS -- continued
United States -- continued
90,000 Marine Drilling Company, Inc.+
(Oil and Gas Production).................... $ 1,231,875
21,000 MCI WorldCom, Inc.+#
(Major U.S. Telecommunications)............. 1,806,656
46,000 Medquist, Inc.+ (Medical Specialties)....... 2,011,063
49,500 Micron Technology, Inc.+#
(Semiconductors)............................ 1,995,469
32,600 MIH Ltd.+ (Broadcasting).................... 870,013
39,000 New Era of Networks, Inc.+#
(Computer Software)......................... 1,712,344
26,000 NTL Incorporated+#
(Other Telephone/Communication)............. 2,241,687
7,500 PathoGenesis Corporation+
(Biotechnology)............................. 106,172
74,500 Peregrine Systems, Inc.+
(Computer Software)......................... 1,911,391
13,500 Priceline.com, Inc.+ (Internet Services).... 1,559,672
24,000 Rambus, Inc.+# (Semiconductors)............. 2,211,750
25,500 Realnetworks, Inc.+ (Internet Services)..... 1,757,109
40,000 Realty Information Group, Inc.+
(Real Estate)............................... 1,727,500
4,400 Rhythms Netconnections, Inc.+
(Internet Services)......................... 257,125
28,000 Safeway, Inc.+# (Food Chains)............... 1,386,000
17,000 Sangstat Medical Corporation+#
(Biotechnology)............................. 289,531
30,000 Security First Technologies+
(Savings and Loan Associations)............. 1,351,875
84,000 Sola International, Inc.+
(Consumer Sundries)......................... 1,632,750
33,500 Sprint Corporation+# (Cellular Telephone)... 1,913,688
31,000 Sun Mircosystems, Inc.+#
(Electronic Data Processing)................ 2,136,094
125,000 Sunglass Hut International, Inc.+#
(Other Specialty Stores).................... 2,144,531
34,000 Synetic, Inc.+#
(Services to the Health Industry)........... 2,338,562
41,000 Teradyne, Inc.+#
(Electronic Production Equipment)........... 2,941,750
10,500 Texas Instruments, Inc.#
(Semiconductors)............................ 1,522,500
103,500 The Men's Wearhouse, Inc.+#
(Clothing/Shoe/Accessory Stores)............ 2,658,656
104,000 The Sports Authority, Inc.+
(Other Specialty Stores).................... 461,500
25,200 TMP Worldwide, Inc.+ (Restaurants).......... 1,604,925
12,000 Uniphase Corporation+#
(Diversified Electronic Products)........... 1,993,500
28,500 United International Holdings,
Inc., Class A+ (Cable Television)........... 1,928,203
38,600 Unsinternetworking, Inc.+#
(Computer Software)......................... 1,619,994
29,000 Verisign, Inc.+# (Internet Services)........ 2,501,250
20,500 Veritas Software Corporation+#
(Computer Software)......................... 1,946,859
13,000 Warner Lambert Company#
(Major Pharmaceuticals)..................... 901,875
41,400 Weatherford International, Inc.#
(Oilfield Services/Equipment)............... 1,516,275
40,500 Wet Seal, Inc.,
Class A+# (Clothing/Shoe/Accessory Stores).. 1,151,719
46,500 Xilinx, Inc.+ (Semiconductors).............. 2,663,578
------------
129,542,388
TOTAL COMMON STOCKS
(Cost $254,368,539)............................................ 291,069,529
------------
PREFERRED STOCKS -- 2.9%
Brazil -- 2.2%
5,000,000 Banco do Estado de Sao Paulo S.A.
(Non-U.S. Banks)............................. 212,772
41,100,000 Cia Paranaense de Energi S.A.
(Non-U.S. Utilities)......................... 334,467
80,300,000 Cia Siderurgica de Tubarao S.A.
(Steel/Iron Ore)............................. 862,221
30,900 Cia Vale do Rio Doce S.A., Series A
(Other Metals/Minerals)...................... 611,190
5,100,000 Petroleo Brasileiro S.A.
(Integrated Oil Companies)................... 789,714
4,500,000 Telepar Celular S.A., Series B+
(Cellular Telephone)......................... 241,594
33,500,000 Telerj Celular S.A., Series B
(Cellular Telephone)......................... 1,097,104
20,090,000 Telesp Celular S.A., Series B
(Cellular Telephone)......................... 1,044,521
------------
5,193,583
Germany -- 0.3%
324 Porsche AG# (Motor Vehicles)................. 762,762
Thailand -- 0.4%
740,000 Siam Commercial Bank+ (Non-U.S. Banks)....... 1,053,274
TOTAL PREFERRED STOCKS
(Cost $6,101,908)............................................... 7,009,619
------------
Principal Amount
BONDS -- 0.4%
Mexico -- 0.4%
$ 840,000 Telefonos de Mexico S.A.,
4.250% due 06/15/04
(Cost $840,000)............................... 865,200
------------
</TABLE>
55
The accompanying notes are an integral part of these financial statements.
<PAGE>
======================
The Montgomery Funds
- ----------------------
Global Long-Short Fund
- ----------------------
Investments
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C> <C>
RIGHTS -- 0.0%@
Korea -- 0.0%@
$ 10,984 Hyundai Industrial Development and
Construction Company Rights,
Expire 07/2/99+
(Engineering and Construction)............. $ 62,630
69 S1 Corporation Rights+..................... 3,136
TOTAL RIGHTS
(Cost $0).................................................... 65,766
------------
WARRANTS -- 0.0%@
Thailand -- 0.0%@
350,000 Securities One PCL.Warrants,
Expire 05/31/01+
(Investment Bankers/Brokers/Services)
(Cost $0).................................. 49,342
------------
TOTAL INVESTMENTS -- 123.8%
(Cost $261,310,447*)......................................... 299,059,456
TOTAL SHORT SALES -- (28.5)%
(Proceeds $63,592,826)....................................... (68,980,966)
TOTAL OPTIONS WRITTEN -- (0.1)%
(Premium Received $131,401).................................. (227,150)
OTHER ASSETS AND LIABILITIES -- 4.8%
(Net)........................................................ 12,361,723
NET ASSETS -- 100.0%......................................... $ 242,213,063
============
</TABLE>
* Aggregate cost for federal tax purposes $261,636,962.
+ Non-income-producing security.
# Security, or a portion thereof, designated as short-sale collateral.
@ Amount represents less than 0.1%.
Abbreviations
ADR American Depositary Receipt
GDR Global Depositary Receipt
56
The accompanying notes are an integral part of these financial statements.
<PAGE>
========================
The Montgomery Funds
------------------------
Global Long-Short Fund
------------------------
Schedule of Short Sales
SCHEDULE OF SHORT SALES
June 30, 1999
Shares Proceeds Value (Note 1)
SHORT SALES -- 28.5%
Brazil -- 0.2%
31,600 Centrais Eletricas Brasileiras
S.A. (Non-U.S. Utilities) .......... $ 317,965 $ 319,950
10,100 Telesp Participacoes S.A., ADR
(Cellular Telephone) ............... 265,141 231,038
--------- ---------
583,106 550,988
--------- ---------
China/Hong Kong -- 0.5%
166,000 Dao Heng Bank Group Ltd.
(Non-U.S. Banks) ................... 626,516 744,596
162,000 Wharf (Holdings) Ltd.
(Real Estate)....................... 518,658 505,317
--------- ---------
1,145,174 1,249,913
--------- ---------
France -- 1.4%
18,000 Dassault Systemes S.A., ADR
(Computer Software) ................ 738,163 595,688
4,385 Essilor International S.A.
(Medical Specialties) .............. 1,541,582 1,372,350
36,000 Michelin (C.G.D.E), Class B
(Automotive Aftermarket) ........... 1,535,690 1,474,599
--------- ---------
3,815,435 3,442,637
--------- ---------
Germany -- 1.8%
16,140 Adidas AG
(Shoe Manufacturing) ............... 1,486,795 1,604,034
38,900 Deutsche Telekom AG (Other
Telephone/Communication) ........... 1,440,692 1,634,758
38,900 Deutsche Telekom AG, Rights
(Other Telephone/
Communication) ..................... -- --
30,000 Kamps AG
(Specialty Foods/Candy) ............ 931,821 1,223,567
--------- ---------
3,859,308 4,462,359
--------- ---------
Greece -- 0.0%@
199 National Bank of Greece, GDR,
Rights (Non-U.S. Banks) ............ -- 4,562
Indonesia -- 0.3%
17,300 PT Indosat Tbk, ADR
(Other Telephone/
Communication) ..................... 351,488 337,350
33,480 PT Telekomunikasi
Indonesia, ADR
(Other Telephone/
Communication)...................... 286,606 416,408
--------- ---------
638,094 753,758
--------- ---------
Italy -- 0.6%
169,800 Mediaset SpA (Broadcasting) ........ 1,479,286 1,513,241
Japan -- 0.8%
81,000 Ibiden Company Ltd.
(Electronic Components) ............ 1,311,845 1,340,283
56,000 NGK Spark Plug Company Ltd.
(Auto Parts: O.E.M.) ............... 641,776 576,818
--------- ---------
1,953,621 1,917,101
--------- ---------
Korea -- 0.2%
30,000 SK Telecom Company
Ltd. ADR
(Other Telephone/
Communication)...................... 455,685 510,000
Mexico -- 0.4%
186,000 Grupo Modelo S.A., Series C
(Consumer Electronics/
Appliances) ........................ 493,299 530,977
88,000 Organizacion Soriana S.A. de
C.V. (Other Specialty Stores) ...... 347,416 414,645
--------- ---------
840,715 945,622
--------- ---------
Netherlands -- 0.7%
37,600 Randstad Holdings N.V.
(Diversified Commercial
Services) .......................... 1,737,090 1,657,773
Philippines -- 0.4%
29,400 Philippine Long Distance
Telephone Company, ADR
(Other Telephone/
Communication) .................... 852,957 885,675
Singapore -- 0.7%
166,000 Natsteel Ltd.
(Metal Fabrications) .............. 153,227 290,586
31,000 Oversea-Chinese Banking
Corporation Ltd.
(Non-U.S. Banks)................... 269,702 258,584
388,000 Serial System Ltd.
(Electronic Components) ........... 355,455 337,322
74,000 Singapore Airlines Ltd.
(Airlines) ........................ 687,271 704,203
--------- ---------
1,465,655 1,590,695
--------- ---------
South Africa -- 0.1%
6,800 De Beers
(Other Metals/Minerals) ........... 145,725 162,943
Spain -- 0.9%
429,400 TelePizza S.A. (Restaurants) ...... 2,872,721 2,225,743
Sweden -- 0.2%
21,000 Atlas Copco AB, Series B
(Industrial Machinery/
Components) ....................... 484,948 565,356
Switzerland -- 1.3%
5,870 Clariant AG
(Speciality Chemicals) ............ 2,486,897 2,421,087
1,030 Rieter Holdings AG (Industrial
Machinery/Components) ............. 601,886 619,978
--------- ---------
3,088,783 3,041,065
--------- ---------
Taiwan -- 0.2%
15,500 Taiwan Semiconductor
Manufacturing Company Ltd.,
ADR (Electronic Production
Equipment) ........................ 483,729 527,000
The accompanying notes are an integral part of these financial statements.
57
<PAGE>
=======================
The Montgomery Funds
- -----------------------
Global Long-Short Fund
- -----------------------
Schedule of Short Sales
Shares Proceeds Value (Note 1)
Thailand -- 0.2%
77,700 Bangkok Bank PCL
(Non-U.S. Banks) ................. $ 249,737 $ 290,703
71,000 Thai Farmers Bank Ltd.
(Non-U.S. Banks) ................. 232,831 219,439
----------- -----------
482,568 510,142
----------- -----------
Turkey -- 0.0%@
34,120 Turkiye Garanti Bankasi A.S.,
Rights (Non-U.S. Banks) .......... -- 51,603
United Kingdom -- 2.0%
4,826 Anglo American PLC, ADR
(Precious Metals) ................ 234,580 229,235
82,200 F.I. Group PLC
(EDP Services) ................... 343,038 422,715
117,000 PowderJect Pharmaceuticals
PLC (Other Pharmaceuticals) ...... 1,532,163 1,541,101
123,400 Sema Group PLC
(EDP Services) ................... 1,165,318 1,191,311
148,000 W.H. Smith Group PLC
(Other Specialty Stores) ......... 1,462,380 1,422,965
----------- -----------
4,737,479 4,807,327
----------- -----------
United States -- 15.6%
48,000 American Eagle Outfitters
(Clothing/Shoe/Accessory
Stores) .......................... 1,371,020 2,185,500
31,000 Apple Computers, Inc.
(Electronic Data Processing) ..... 1,219,147 1,437,625
42,500 Autozone, Inc.
(Other Specialty Stores) ......... 1,355,511 1,280,313
26,500 Barnes & Noble, Inc.
(Other Specialty Stores) ......... 896,377 725,437
30,000 Beringer Wine Estates, Series B
(Alcoholic Beverages) ............ 1,069,735 1,251,563
19,300 Best Buy Company, Inc.
(Other Specialty Stores) ......... 879,900 1,302,750
40,000 BioChem Pharma, Inc.
(Other Pharmaceuticals) .......... 797,333 748,750
32,000 Central Parking Corporation
(Other Consumer Services) ........ 998,076 1,096,000
18,600 Cintas Corporation
(Diversified Commercial
Services) ........................ 972,943 1,249,106
28,000 Darden Restaurants, Inc.
(Restaurants) .................... 439,879 610,750
63,000 Delia s, Inc. (Catalog/Specialty
Distribution)..................... 1,218,831 844,594
26,000 Ecolab, Inc.
(Industrial Specialties) ......... 807,378 1,134,250
35,000 Hollywood Entertainment
Corporation
(Computer/Video Chains) .......... 846,191 683,594
16,000 International Paper Company
(Paper) .......................... 879,329 808,000
30,450 Intimate Brands, Inc.
(Clothing/Shoe/Accessory
Stores)........................... 739,181 1,442,569
37,750 Lamar Advertising Company
(Advertising) .................... 1,038,642 1,544,211
57,200 Metris Companies, Inc.
(Finance Companies) .............. 1,686,118 2,330,900
31,300 Miami Computer Supply
Corporation
(Electronics Distributors) ....... 622,192 591,766
28,500 Monsanto Company
(Major Chemicals) ................ 1,283,085 1,123,969
47,000 Papa John's International,
Inc. (Restaurants) ............... 2,005,229 2,098,844
32,500 PC Connection, Inc.
(Catalog/Specialty
Distribution) ................... 502,952 393,047
12,000 Perot Systems Corporation,
Class A (EDP Services) ........... 808,371 354,000
51,500 Reebok International Ltd.
(Shoe Manufacturing) ............. 1,000,246 959,187
22,000 Rent-A-Center, Inc.
(Other Specialty Stores) ......... 546,658 527,312
26,000 Restoration Hardware, Inc.
(Other Specialty Stores) ......... 709,515 346,125
15,300 Siebel Systems, Inc. (Computer
Software) ........................ 620,657 1,014,103
47,000 Staples, Inc.
(Other Specialty Stores) ......... 1,129,280 1,452,594
44,000 Starbucks Corporation
(Restaurants) .................... 958,191 1,648,625
16,400 Tiffany & Company
(Other Specialty Stores) ......... 996,665 1,582,600
18,500 Timberland Company, Class A
(Shoe Manufacturing) ............. 805,157 1,259,156
5,286 uBid, Inc. (Internet Services) ... 165,698 169,317
19,300 Value America, Inc.
(Internet Services) .............. 589,288 367,906
22,000 Whole Foods Market, Inc.
(Food Chains) .................... 764,475 1,056,687
57,000 Williams Sonoma, Inc.
(Other Specialty Stores) ......... 1,747,497 1,984,313
----------- -----------
32,470,747 37,605,463
----------- -----------
TOTAL SHORT SALES .................................. $63,592,826 $68,980,966
=========== ===========
@ Amount represents less than 0.1%.
Abbreviations
ADR American Depositary Receipt
58
The accompanying notes are an integral part of these financial statements.
<PAGE>
====================
The Montgomery Funds
--------------------
Select 50 Fund
--------------------
Portfolio Highlights
INVESTMENT REVIEW
Q: How did the Fund perform in the year ended June 30, 1999?
A: A strong relative outperformance for the six months ended June 30, 1999, was
not enough to offset disappointing results in the previous six months. As a
result, the Fund underperformed relative to both the Morgan Stanley Capital
International (MSCI) World and the S&P 500 Indices, returning 13.9% versus 15.7%
and 22.7%, respectively.
Q: What factors contributed to this underperformance?
A: During the unusual period of turbulence in global financial markets at the
beginning of the financial year, the Fund's diversified asset class exposure
included some the worst-hit sectors and markets, specifically the emerging
markets and U.S. small-cap stocks. As investors fled all but the largest, most
liquid assets, virtually no emerging market escaped unscathed. Because the
small-cap market too was perceived to more risky, investors also sold these
stocks disproportionately. Even as the developed markets began to recover,
investors continued to favor a relatively small number of large-cap growth
stocks, especially in the United States. As a result, the broader exposure of
the Fund hurt relative performance.
As the economic outlook for Europe, Japan and the emerging markets has improved,
however, the global investment environment has changed dramatically. In stark
contrast to 1998, in 1999 the emerging markets, particularly those in Asia, have
outperformed the developed markets. And, against a background of global growth,
interest in the U.S. market has broadened to include the small-cap and cyclical
stocks which had been out of favor during 1998. This broadening trend has
particularly suited the Fund's diversified nature, so it performed very well
against its benchmarks in the latter half of the financial year.
Q: Did you alter the Fund's strategy to reflect changing market conditions?
A: The Fund's globally oriented strategy remains unchanged. The Fund continues
to focus on bottom-up stock selection, drawing upon the resources of
Montgomery's five equity investment disciplines--growth equity, emerging growth,
equity income, international equity and emerging markets. Each team selects 10
of its best capital appreciation ideas to construct a diversified portfolio of
approximately 50 stocks. Under normal conditions, the Select 50 Fund will have a
portfolio exposure of 60% to the U.S. market and 40% to international markets.
We believe that the Fund offers a powerful combination of concentrated
investment ideas with a systematic allocation to five independent disciplines
for diversification and capital appreciation. In the long run, we believe that
this combination will offer excellent absolute and relative returns.
================================================================================
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
Portfolio Managers from
each equity team representing:
U.S. Growth Equity
U.S. Emerging Growth
U.S. Equity Income
International Equity
Emerging Markets
================================================================================
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/99
- --------------------------------------------------------------------------------
Montgomery Select 50 Fund
Since inception (10/2/95) ............................................... 24.73%
One year ................................................................ 13.89%
Three years ............................................................. 18.43%
- --------------------------------------------------------------------------------
S&P 500 Index
Since 9/30/95 ........................................................... 27.82%
One year ................................................................ 22.74%
Three years ............................................................. 29.07%
- --------------------------------------------------------------------------------
MSCI World Index
Since 9/30/95 ........................................................... 17.94%
One year ................................................................ 15.67%
Three years ............................................................. 18.29%
- --------------------------------------------------------------------------------
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. Fund performance presented is for
Class R shares.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
Montgomery
Select 50 S&P 500 MSCI World Lipper Global
Date Fund Index Index Funds Average/3/
------ ---------- -------- ---------- ----------------
Sep-95 10,000 10,000.00 10,000.00 10,000.00
Oct-95 10,417 9,964.70 9,840.40 9,804.26
Nov-95 11,080 10,403.35 10,179.93 9,979.30
Dec-95 11,574 10,595.70 10,475.42 10,176.36
Jan-96 11,951 10,960.62 10,662.75 10,446.06
Feb-96 12,160 11,065.95 10,725.50 10,563.78
Mar-96 12,520 11,171.96 10,901.75 10,728.28
Apr-96 13,281 11,336.53 11,155.86 11,101.71
May-96 14,068 11,628.67 11,163.27 11,230.04
Jun-96 13,775 11,675.88 11,217.48 11,215.00
Jul-96 12,704 11,155.95 10,818.79 10,716.94
Aug-96 13,298 11,392.91 10,940.90 10,993.91
Sep-96 13,700 12,033.30 11,367.01 11,330.87
Oct-96 13,629 12,362.65 11,444.11 11,337.68
Nov-96 14,142 13,301.10 12,083.16 11,892.06
Dec-96 13,942 13,040.80 11,887.38 11,904.28
Jan-97 14,960 13,850.37 12,028.41 12,184.20
Feb-97 15,125 13,961.45 12,164.51 12,218.01
Mar-97 14,647 13,380.80 11,921.62 12,024.76
Apr-97 14,969 14,179.09 12,309.03 12,182.09
May-97 16,526 15,049.41 13,066.54 12,939.45
Jun-97 17,404 15,711.13 13,716.00 13,478.45
Jul-97 18,735 16,958.59 14,345.47 14,165.16
Aug-97 18,587 16,018.75 13,383.57 13,416.36
Sep-97 19,657 16,892.25 14,108.40 14,238.96
Oct-97 18,396 16,336.33 13,363.58 13,314.70
Nov-97 18,082 17,085.67 13,597.79 13,341.45
Dec-97 18,023 17,374.42 13,761.23 13,505.32
Jan-98 17,631 17,571.10 14,142.45 13,602.78
Feb-98 18,942 18,833.76 15,096.81 14,560.76
Mar-98 20,158 19,800.50 15,731.98 15,299.41
Apr-98 20,789 20,005.63 15,883.35 15,523.08
May-98 20,301 19,657.73 15,681.93 15,326.86
Jun-98 20,091 20,456.23 16,051.72 15,396.90
Jul-98 19,679 20,238.78 16,023.58 15,394.52
Aug-98 16,138 17,317.11 13,884.39 13,037.89
Sep-98 16,654 18,438.56 14,127.56 13,105.76
Oct-98 17,669 19,931.17 15,402.27 13,966.75
Nov-98 18,952 21,139.59 16,315.82 14,725.76
Dec-98 19,717 22,369.71 17,110.45 15,439.87
Jan-99 19,790 23,290.44 17,482.62 15,767.00
Feb-99 19,099 22,567.04 17,015.08 15,305.00
Mar-99 19,842 23,473.56 17,721.04 15,879.00
Apr-99 21,295 24,367.43 18,417.14 16,659.00
May-99 21,367 23,804.06 17,741.67 16,184.00
Jun-99 22,882 25,105.19 18,566.68 17,073.00
/1/ The Standard & Poor s 500 Index is composed of 500 widely held common
stocks listed on the NYSE, AMEX and OTC markets.
/2/ The Morgan Stanley Capital International World Index measures the
performance of selected stocks in 22 developed countries. The index is
presented net of dividend withholding taxes.
/3/ The Lipper Global Funds Average universe consists of 130 funds.
59
<PAGE>
====================
The Montgomery Funds
- --------------------
Select 50 Fund
- --------------------
Portfolio Highlights
================================================================================
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
AT&T Canada, Inc. ............................................... 4.1%
Alcoa, Inc. ..................................................... 3.2%
Manitowoc Company, Inc. ......................................... 3.1%
Elcor Corporation ............................................... 3.0%
Duane Reade, Inc. ............................................... 2.9%
Reliance Industries, Ltd. ....................................... 2.8%
Korea Telecom Corporation ....................................... 2.7%
Amerada Hess Corporation ........................................ 2.6%
Lockheed Martin Corporation ..................................... 2.5%
Telebras, ADR ................................................... 2.5%
================================================================================
TOP FIVE INDUSTRIES
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
Other Telephone/Communication ................................... 17.7%
Construction/Agriculture
Equipment/Trucks ................................................ 4.3%
Major Banks ..................................................... 3.9%
Telecommunications Equipment .................................... 3.9%
Aerospace/Defense ............................................... 3.8%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
This Fund invests in stocks of both small-cap companies and foreign companies.
There are risks associated with investing in small-cap companies, which tend to
be more volatile and less liquid than stocks of large companies, including the
increased risk of price fluctuations. There are also risks associated with
investing in securities of foreign countries, such as erratic market conditions,
economic and political instability, and fluctuations in currency exchange rates.
Q: Can you comment on some of the stock ideas that have made a positive
contribution to performance over the period?
A: Among the top positive contributors to Fund performance were: Nokia (2.3% of
net assets as of 6/30/99), DBS Land (2.3% of net assets as of 6/30/99) and a
more recent addition, Korea Telecom (2.7% of net assets as of 6/30/99). Nokia is
a telecommunications equipment manufacturer and a market leader in the mobile
phone segment of the industry.
Both DBS Land, a Singapore property company, and Korea Telecom have profited
from the recovery of the Asian markets. Their share prices have outperformed due
to the fact that both are likely to benefit from major restructuring. DBS is
further along in this effort; it began to restructure at the bottom of the
market and has since acquired more properties. The company is now reaping the
rewards of its earlier efforts, as mortgage rates have fallen and demand for
property is recovering. In contrast, recently privatized Korea Telecom is at the
beginning of the restructuring process but, as the country's largest telecom
provider, offers investors great potential.
Stocks benefiting from the broadening trend in the United States include Alcoa
(3.2% of net assets as of 6/30/99) and Manitowoc (3.1% of net assets as of
6/30/99).
Q: What is your outlook for the coming year, and how can the Fund potentially
benefit?
A: We believe that the broadening trend in the U.S. market will continue and
that excellent opportunities in international and emerging markets remain. This
type of global market environment is favorable to the Fund's strategy and is an
environment that we believe will support a continuation of the strong absolute
and relative performance enjoyed by the Fund to date in 1999.
60
<PAGE>
====================
The Montgomery Funds
--------------------
Select 50 Fund
--------------------
Investments
PORTFOLIO INVESTMENTS
June 30, 1999
Shares Value (Note 1)
COMMON STOCKS -- 93.3%
Advertising -- 0.6%
25,000 Snyder Communications, Inc.+
(United States) ................... $ 818,750
Aerospace/Defense -- 3.8%
92,500 Lockheed Martin Corporation
(United States) ................... 3,445,625
52,200 Moog, Inc., Class A+ (United
States) ........................... 1,794,375
-----------
5,240,000
Aluminum -- 3.2%
70,000 Alcoa, Inc. (United States) ....... 4,331,250
Apparel -- 1.5%
29,000 Gucci Group N.V. (Netherlands)..... 2,030,000
Building Materials -- 3.0%
95,400 Elcor Corporation (United States).. 4,167,788
Building Products -- 1.8%
85,000 Masco Corporation (United States).. 2,454,375
Cable Television -- 1.8%
8,600 Canal Plus (France) ............... 2,416,219
Cellular Telephone -- 2.0%
185,000 Orange PLC (United Kingdom) ....... 2,709,645
Clothing/Shoe/Accessory Stores -- 1.6%
67,000 Nordstrom, Inc. (United States)... 2,244,500
Computer Software -- 2.9%
182,600 Avid Technology, Inc.+ (United
States) ........................... 2,927,306
1,100 Clarent Corporation (United States) 30,800
29,600 MICROS Systems, Inc.+ (United
States) ........................... 1,010,100
-----------
3,968,206
Construction/Agriculture Equipment/Trucks -- 4.3%
251,000 Larsen & Tourbo Ltd. (India) ...... 1,656,756
102,325 Manitowoc Company, Inc. (United
States) ........................... 4,259,278
-----------
5,916,034
Diversified Commercial Services -- 3.3%
175,000 HA-LO Industries, Inc.+ (United
States) ........................... 1,728,125
106,600 On Assignment, Inc.+ (United
States) ........................... 2,778,262
-----------
4,506,387
Diversified Electronic Products -- 1.6%
22,000 Hewlett-Packard Company
(United States) ................... 2,211,000
Drug Store Chains -- 2.9%
129,000 Duane Reade, Inc.+ (United States). 3,950,625
Finance Companies -- 1.9%
56,000 Household International, Inc.
(United States) ................... 2,653,000
Food Chains -- 1.9%
51,000 Albertson's, Inc. (United States).. 2,629,688
Industrial Machinery/Components -- 1.0%
48,100 Applied Power, Inc., Class A
(United States) ................... 1,313,731
Integrated Oil Companies -- 2.6%
59,500 Amerada Hess Corporation
(United States) ................... 3,540,250
Internet Services -- 0.5%
13,100 Pacific Internet Ltd.+ (Singapore). 625,116
Major Banks -- 3.9%
41,000 Bank of America Corporation
(United States) ................... 3,005,812
35,000 National City Corporation
(United States) ................... 2,292,500
-----------
5,298,312
Major Chemicals -- 2.5%
26,500 Dow Chemical Company
(United States) ................... 3,362,188
Major Pharmaceuticals -- 1.1%
27,000 Glaxo Wellcome PLC, ADR
(United Kingdom) .................. 1,528,875
Managed Health Care -- 2.2%
140,000 First Health Group Corporation+
(United States) ................... 3,014,375
Metal Fabrication -- 1.5%
47,600 Coflexip S.A., ADR (France)........ 2,088,450
Oil & Gas Production -- 0.6%
58,400 Petroleo Brasileiro S.A., ADR
(Brazil) .......................... 886,950
Oil/Gas Transmission -- 2.1%
71,500 The Coastal Corporation (United
States) ........................... 2,860,000
Oilfield Services/Equipment -- 2.0%
60,000 Halliburton Company (United
States) ........................... 2,715,000
Other Pharmaceuticals -- 1.9%
171,000 Ranbaxy Laboratories, Ltd. (India). 2,576,523
Other Specialty Stores -- 1.5%
46,300 Linens 'N Things, Inc.+ (United
States) ........................... 2,025,625
Other Telephone/Communication -- 17.7%
87,200 AT&T Canada, Inc.+ (United States). 5,572,625
69,300 Colt Telecom Group PLC+
(United Kingdom) .................. 1,458,302
11,800 Colt Telecom Group PLC, ADR+
(United Kingdom) .................. 1,014,432
26,500 Equant N.V. (Netherlands) ......... 2,494,313
33,500 Global TeleSystems Group, Inc.+
(United States) ................... 2,712,453
61
The accompanying notes are an integral part of these financial statements.
<PAGE>
====================
The Montgomery Funds
- --------------------
Select 50 Fund
- --------------------
Investments
Shares Value (Note 1)
COMMON STOCKS -- continued
Other Telephone/Communication -- continued
112,550 Hellenic Telecommunication
Organization S.A. (Greece) ........ $ 2,415,543
54,900 Korea Telecom Corporation (Korea).. 3,642,609
152,500 Matav Rt. (Hungary) ............... 825,262
21,700 Matav Rt., ADR (Hungary) .......... 596,750
38,300 Telebras, ADR (Brazil) ............ 3,454,182
-----------
24,186,471
Package Goods/Cosmetics -- 1.7%
41,000 Kimberly-Clark Corporation
(United States) ................... 2,337,000
Paper -- 2.1%
57,000 International Paper Company
(United States) ................... 2,878,500
Real Estate -- 2.2%
1,531,000 DBS Land Ltd. (Singapore) ......... 3,057,773
Soft Drinks -- 0.2%
15,600 Coca-Cola Femsa S.A., ADR+
(Mexico) .......................... 302,250
Telecommunications Equipment -- 3.9%
30,000 Comverse Technology, Inc.+
(United States) ................... 2,263,125
34,200 Nokia Corporation, ADR (Finland)... 3,131,437
-----------
5,394,562
Textiles -- 2.8%
927,100 Reliance Industries, Ltd.
(India)............................ 3,774,187
Trucking -- 1.2%
75,000 Swift Transportation Company,
Inc.+ (United States) ............. 1,647,656
TOTAL COMMON STOCKS
(Cost $102,372,266) ................................. 127,661,261
-----------
PREFERRED STOCK -- 0.2%
Paper -- 0.2%
10,100,000 Caemi Mineracao e Metalurgia
S.A.+ (Brazil)(Cost $344,075) ..... 342,470
TOTAL SECURITIES
(Cost $102,716,341) ................................. 128,003,731
-----------
Principal Amount
REPURCHASE AGREEMENT -- 2.3%
$3,120,000 Agreement with Prudential
Securities, Tri-Party,
5.100% dated 06/30/99,
to be repurchased at
$3,120,436, collateralized
by $3,182,405 market value of U.S.
government and mortgage-backed
securities, having various
maturities and interest rates
(Cost $3,120,000) ................ 3,120,000
-----------
Value (Note 1)
TOTAL INVESTMENTS -- 95.8%
(Cost $105,836,341*) ............................... $131,123,731
OTHER ASSETS AND LIABILITIES -- 4.2%
(Net) .............................................. 5,723,438
-----------
NET ASSETS -- 100.0% ............................... $136,847,169
===========
* Aggregate cost for federal tax purposes $106,999,755.
+ Non-income-producing security.
Abbreviations
ADR American Depositary Receipt
62
The accompanying notes are an integral part of these financial statements.
<PAGE>
==========================
The Montgomery Funds
- --------------------------
U.S. Asset Allocation Fund
- --------------------------
Portfolio Highlights
INVESTMENT REVIEW
Q: How did the Fund perform during its fiscal year?
A: The Fund returned 11.9% over the 12 months ended June 30, 1999,
underperforming its benchmark, a blend of 60% S&P 500 Index and 40% Lehman
Brothers Aggregate Bond Index, which returned 15.3% during the same period.
The Fund's underperformance was concentrated in the third and fourth quarters of
1998, however, and were pleased to report that its relative performance
improved in the second half of the financial year. Since the beginning of 1999,
the Fund has returned 11.7%, against a return for the benchmark of only 6.7%.
Q: What factors contributed to the Fund's improved performance in 1999?
A: The Fund's strong recent performance is primarily attributable to its
allocation in the Montgomery Growth Fund, which performed strongly during the
second quarter of 1999, returning 17.5% versus 7.1% for the S&P 500 Index. A
broadening of the market was the most important factor behind this stellar
performance. In the first quarter of 1999, the performance of the S&P 500 was
driven by fewer than 20 stocks, most of which were among the narrow group of
high-valuation growth companies that have fueled S&P 500 returns over the past
few years. In contrast, in the second quarter of 1999, S&P 500 performance
broadened significantly, with more than 70 stocks driving returns. The Fund
benefited from being invested in previously neglected areas of the market,
namely those growth stocks with reasonable valuations.
For example, the market became enamored of basic materials firms, including such
Montgomery Growth Fund holdings (as of 6/30/99), as Alcoa (4.4% of net assets),
Dow Chemical (3.4% of net assets) and Boise Cascade (3.2% of net assets). Global
industrial concerns such as Matsushita (1.8% of net assets), Rio Tinto (2.0% of
net assets) and Sony (1.2% of net assets) also performed well, as did
smaller-company stocks such as First Health (2.9% of net assets). The strength
of the global economy and the firming of global commodity prices were key
considerations that caused investors to look at companies like these.
Q: What about the fixed-income portion of the portfolio? How did that fare?
A: The fixed-income allocation has performed very well throughout the year,
beating the Lehman Brothers Aggregate Bond Index during the 12-month period.
This portion of the Fund -- represented by its investment in the Montgomery
Total Return Bond Fund switched from an overweighting in Treasury securities
during the first part of the year to higher-yielding spread securities such as
corporates and mortgages starting in December.
These moves were predicated on achieving the best rewards at the lowest possible
risk, a philosophy that helped the Fund benefit from the strong Treasury rally
during the first part of the fiscal year and prosper from the relative
outperformance of spread sectors during their rebound in the first half of 1999.
================================================================================
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
Fund of Funds, including:
Montgomery Growth Fund
Montgomery Total Return Bond Fund
Montgomery Government Money Market Fund*
================================================================================
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/99
- --------------------------------------------------------------------------------
Montgomery
U.S. Asset Allocation Fund
Since inception (3/31/94) ............................................... 19.33%
One year ................................................................ 11.93%
Five years .............................................................. 19.92%
- --------------------------------------------------------------------------------
S&P 500 Index
Since 3/31/94 ........................................................... 26.47%
One year ................................................................ 22.74%
Five years .............................................................. 27.86%
- --------------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond Index
Since 3/31/94 ............................................................ 7.22%
One year ................................................................. 3.14%
Five years ............................................................... 7.82%
- --------------------------------------------------------------------------------
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. Fund performance presented is for
Class R shares.
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE[
US Asset
Allocation (Lehman) S&P 500 Lipper
Mar-94 10,000 10,000 10,000 10,000
Apr-94 10,158 9,920.15 10,128.12 10,023.71
May-94 10,374 9,918.76 10,293.68 10,071.35
Jun-94 10,199 9,896.84 10,041.78 9,905.52
Jul-94 10,741 10,093.42 10,371.29 10,110.38
Aug-94 11,040 10,105.95 10,795.52 10,355.87
Sep-94 11,141 9,957.2 10,531.75 10,190.12
Oct-94 11,533 9,948.33 10,768.02 10,257.92
Nov-94 11,933 9,926.24 10,376.35 10,020.23
Dec-94 11,976 9,994.78 10,529.97 10,087.66
Jan-95 12,095 10,192.58 10,802.85 10,197.28
Feb-95 12,494 10,434.92 11,223.45 10,493.49
Mar-95 12,876 10,498.94 11,554.1 10,704.09
Apr-95 12,952 10,645.59 11,894.07 10,922.85
May-95 13,436 11,057.55 12,368.74 11,303.1
Jun-95 13,869 11,138.62 12,655.53 11,540.45
Jul-95 14,293 11,113.74 13,075.02 11,838.41
Aug-95 14,489 11,247.87 13,107.66 11,918.02
Sep-95 14,786 11,357.29 13,660.52 12,191.77
Oct-95 14,786 11,504.99 13,611.11 12,127.57
Nov-95 15,551 11,677.39 14,205.57 12,506.87
Dec-95 15,880 11,841.27 14,482.26 12,694.27
Jan-96 15,863 11,919.91 14,974.6 12,953.46
Feb-96 16,263 11,712.71 15,113.91 13,018.39
Mar-96 16,486 11,631.29 15,259.42 13,087.23
Apr-96 16,975 11,565.88 15,481.19 13,249.23
May-96 17,347 11,542.4 15,882.04 13,416.59
Jun-96 17,187 11,697.4 15,943.39 13,418.81
Jul-96 16,663 11,729.41 15,239.4 13,042.92
Aug-96 17,045 11,709.75 15,561.34 13,270.41
Sep-96 17,462 11,913.82 16,436.39 13,745.16
Oct-96 17,743 12,177.72 16,899.54 13,989.62
Nov-96 18,329 12,386.71 18,165.06 14,656.57
Dec-96 17,921 12,271.14 17,805.22 14,517
Jan-97 18,200 12,308.72 18,917.01 15,010.08
Feb-97 18,061 12,339.34 19,065.52 15,000.84
Mar-97 17,674 12,202.6 18,283.61 14,580.67
Apr-97 18,239 12,385.27 19,374.15 14,986.6
May-97 19,270 12,502.35 20,558.64 15,648.2
Jun-97 19,705 12,650.74 21,472.6 16,135.32
Jul-97 21,152 12,991.89 23,180.71 17,063.19
Aug-97 20,923 12,881.08 21,883.06 16,542.42
Sep-97 21,655 13,071.05 23,080.84 17,244.65
Oct-97 21,339 13,260.67 22,310.87 16,856.47
Nov-97 21,389 13,321.74 23,342.84 17,146.37
Dec-97 21,330 13,455.86 23,743.44 17,368.57
Jan-98 21,247 13,628.61 24,005.8 17,476.69
Feb-98 22,123 13,618.35 25,736.19 18,329.99
Mar-98 22,645 13,665.15 27,053.05 18,941.99
Apr-98 22,858 13,736.47 27,330.08 19,123.24
May-98 22,597 13,866.78 26,860.96 18,885.52
Jun-98 22,598 13,984.38 27,951.24 19,230.4
Jul-98 22,112 14,014.13 27,655.83 18,973.3
Aug-98 20,714 14,242.2 23,660.22 17,078.24
Sep-98 21,176 14,575.69 25,177.22 17,753.97
Oct-98 21,888 14,498.63 27,222 18,642.71
Nov-98 22,527 14,580.91 28,871.2 19,412.08
Dec-98 22,648 14,624.75 30,534.8 20,160.82
Jan-99 22,889 14,729 31,825.88 20,522
Feb-99 22,346 14,472 30,837.37 19,904
Mar-99 22,918 14,552 32,076.11 20,426
Apr-99 24,513 14,598 33,297.57 21,120
May-99 24,332 14,470 32,527.73 20,772
Jun-99 25,295 14,423 34,305.69 21,428
/1/ The Standard & Poor s 500 Index is composed of 500 widely held common stocks
listed on the NYSE, AMEX and OTC markets.
/2/ The Lehman Brothers Aggregate Bond Index comprises all bonds that are
investment grade, are in excess of $25 million and have at least one year to
maturity.
/3/ The Lipper Flexible Portfolio Funds Average universe consists of 92 funds.
* Formerly named Montgomery Government Reserve Fund.
63
<PAGE>
==========================
The Montgomery Funds
- --------------------------
U.S. Asset Allocation Fund
- --------------------------
Portfolio Highlights
Q: What asset allocation moves were made over the course of the year?
A: Going into the third quarter of 1998, the Fund was positioned with target
weightings of 40% equities and 60% bonds, a cautious stance relative to the
Fund's neutral weighting of 60% equities and 40% bonds. During the turmoil that
hit the market in the third quarter, this was a beneficial position to take. By
the beginning of the first quarter of 1999, the Fund had moved back to its
neutral weighting. That position was changed in May, when the Fund's exposure to
equities was increased to 65% and the bond portion was reduced to 35%. This
apportionment was maintained through the end of the second quarter of 1999.
Overall, the shift to an overweighting in equities helped the Fund's performance
in the final months of the financial year. Our rationale for the increase in
equities was based on the strengthening of global economies, the positive
outlook for corporate earnings and the continued low rates of inflation.
Nevertheless, our enthusiasm toward the equity market was tempered somewhat by
concerns about rising interest rates, the war in Kosovo and the resignation of
U.S. Treasury Secretary Robert Rubin.
Q: What is your outlook for the rest of 1999?
A: We continue to be optimistic about the prospects for equity markets. We
believe that we are entering a period of accelerating world growth and are
optimistic that the broadening of market performance that began in the second
quarter will continue into 1999. Looking at the fixed-income portion, we believe
that bond yields may be nearing their highs, despite the fact that the Federal
Reserve Board is poised to raise interest rates in the event that inflationary
pressures grow. The Total Return Bond Fund is currently overweighted in
mortgages to take advantage of their attractive yields, underweighted in
corporates for technical reasons and underweighted in Treasuries.
PORTFOLIO INVESTMENTS
June 30, 1999
Shares Value (Note 1)
INVESTMENT COMPANY SECURITIES--100.0%
Bond Mutual Fund Taxable--34.8%
2,421,962 Montgomery Total Return Bond Fund ............. $ 28,240,074
Equity Mutual Fund--65.2%
2,175,809 Montgomery Growth Fund ........................ 52,959,187
TOTAL INVESTMENTS--100.0%
(Cost $77,061,264*) ............................................. 81,199,261
------------
OTHER ASSETS AND LIABILITIES--0.0%@
(Net) ........................................................... (9,766)
------------
NET ASSETS--100.0% .............................................. $ 81,189,495
============
* Aggregate cost for federal tax purposes $79,795,112.
@ Amount represents less than 0.1%.
64
The accompanying notes are an integral part of these financial statements.
<PAGE>
======================
The Montgomery Funds
- ----------------------
Total Return Bond Fund
- ----------------------
Portfolio Highlights
INVESTMENT REVIEW
Q: How did the Fund perform in the year ended June 30, 1999?
A: We are very encouraged by the performance of the Fund given the challenging
investment environment over the past 12 months. The Fund returned 3.2%, enjoying
strong relative performance against its benchmark, the Lehman Brothers Aggregate
Bond Index, which returned 3.1%.
Q: Did changes in Federal Reserve Bank interest rate policy have an impact on
Fund strategy over the course of the year?
A: Throughout the year we focused on achieving the highest returns at the lowest
possible risk. Changes in Federal Reserve policy tended to follow the lead of
the bond market throughout the financial year and affected strategy only insofar
as they marked turning points in the fortunes of different sectors of the bond
market. The three rate cuts that the Fed implemented to calm the financial
markets and respond to concerns about deflation at the end of 1998 contributed
to a strong Treasury bond rally. As concern over inflationary pressures grew in
1999, the Fed's announcement of a tightening bias helped restore some sense of
normality to the market by the end of the financial year.
The changing risk/reward relationship created by Fed policy shifts led us to
make some adjustments to the portfolio. For example, in December 1998, we
switched from an overweight position in Treasury bonds to an overweight position
in higher-yielding spread securities, such as corporate bonds and mortgages.
This major shift in strategy reflected our belief that on a risk-weighted basis
the potential returns offered by higher-yielding spread products were now
greater than those offered by Treasuries. This emphasis on the risk/reward
relationship enabled us to make profitable sector calls during the course of the
year.
Q: What other factors affected performance over the period?
A: Due to the release of stronger than anticipated economic growth statistics in
fourth quarter 1998, inflation became a renewed concern for the bond markets by
February 1999. This led to a 1% rise in long-term interest rates from February
through June 30, 1999, as market sentiment shifted 180 degrees and bond prices
fell. Our research indicates that there have been four semiannual bond
performances that have been worse over the past 20 years. As a result, absolute
bond market returns were unusually low, and the performance of the Fund was
similarly affected. In spite of lower absolute returns, our switch into
higher-yielding issues resulted in the strong returns relative to the benchmark.
Q: Now that the bond markets have returned to normal, where do you believe
the best opportunities to add value to the Fund are to be found?
A: Despite the fact that the Fed appears determined to slow growth in order to
stifle inflationary pressures against a background of rising commodity prices
and a daunting trade deficit, we believe that bond yields (interest rates) may
be nearing their
================================================================================
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
William Stevens........................................ Senior Portfolio Manager
Marie Chandoha................................................ Portfolio Manager
================================================================================
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/99
- --------------------------------------------------------------------------------
Montgomery
Total Return Bond Fund
Since inception (6/30/97) ................................................ 6.99%
One year ................................................................. 3.20%
- --------------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond Index
Since 6/30/97 ............................................................ 6.78%
One year ................................................................. 3.14%
- --------------------------------------------------------------------------------
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]
Total Return/1/ (Lehman) Lipper/2/
Jun-97 10,000.00 10,000.00 10,000.00
Jul-97 10,276.00 10,269.67 10,261.46
Aug-97 10,176.00 10,182.07 10,170.54
Sep-97 10,333.00 10,332.24 10,316.37
Oct-97 10,493.00 10,482.13 10,434.05
Nov-97 10,543.00 10,530.40 10,464.53
Dec-97 10,646.00 10,636.42 10,559.13
Jan-98 10,792.00 10,772.97 10,696.33
Feb-98 10,779.00 10,764.86 10,681.51
Mar-98 10,824.00 10,801.85 10,720.30
Apr-98 10,860.00 10,858.23 10,766.05
May-98 10,985.00 10,961.23 10,859.99
Jun-98 11,092.00 11,054.19 10,937.90
Jul-98 11,110.00 11,077.71 10,957.49
Aug-98 11,326.00 11,257.99 11,085.45
Sep-98 11,569.00 11,521.61 11,324.79
Oct-98 11,479.00 11,460.69 11,235.09
Nov-98 11,506.00 11,525.74 11,288.92
Dec-98 11,575.00 11,560.39 11,327.14
Jan-99 11,663.00 11,643.00 11,397.00
Feb-99 11,454.00 11,440.00 11,190.00
Mar-99 11,546.00 11,503.00 11,271.00
Apr-99 11,569.00 11,539.00 11,306.00
May-99 11,474.00 11,438.00 11,188.00
Jun-99 11,447.00 11,401.00 11,146.00
/1/The Lehman Brothers Aggregate Bond Index comprises all bonds that are
investment grade, are in excess of $25 million and have at least one year to
maturity.
/2/The Lipper Intermediate Investment-Grade Debt Funds Average universe consists
of 215 funds.
65
<PAGE>
======================
The Montgomery Funds
- ----------------------
Total Return Bond Fund
- ----------------------
Portfolio Highlights
================================================================================
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
FNMA, 9.000% Pass-through Pool
#B00688 due 09/01/05 ............................................12.8%
U.S. Treasury Notes
5.625% due 05/15/01 ............................................. 9.8%
FNMA, TBA Jul., 30 Yr.,
6.000% due 06/29/29 ............................................. 9.8%
U.S. Treasury Bonds,
8.875% due 02/15/19 ............................................. 8.0%
U.S. Treasury Notes,
7.000% due 07/15/06 ............................................. 6.5%
FNMA, TBA Aug., 30 Yr.
7.000% due 06/29/29 ............................................. 6.4%
FHLMC, 2098VA (PAC),
6.000% due 10/15/05 ............................................. 5.5%
Premier Trust, Series B1,
10.500% due 12/20/05 ............................................ 5.2%
FHLMC, 1676KD (AD),
6.250% due 03/15/06 ............................................. 3.8%
Bristol-Myers Squibb Company, Debentures,
6.800% due 11/15/26 ............................................. 3.1%
================================================================================
ASSET MIX
- --------------------------------------------------------------------------------
(as a percentage of total investments)
Corporate Bonds and Notes................................................. 23.4%
Treasuries................................................................ 20.7%
Collateralized Mortgage Obligations....................................... 16.7%
Agencies.................................................................. 16.3%
Mortgage Pass-throughs.................................................... 12.8%
Asset-Backed Securities................................................... 6.4%
Other..................................................................... 3.7%
================================================================================
INVESTMENT GRADE
- --------------------------------------------------------------------------------
(as a percentage of total investments)
Aaa ....................................................................... 71%
Aa ........................................................................ 2%
A ......................................................................... 8%
Baa ....................................................................... 11%
Nonrated .................................................................. 8%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
highs. Our optimism is in part based on historical precedent. The Lehman
Brothers Aggregate Bond Index has never had two consecutive six-month periods of
negative returns. If we are proven correct, the market is likely to offer plenty
of ways in which to add value to the Fund in the coming year.
On the technical side, we have identified three areas particularly worth
exploring. First, the declining Treasury supply is a new dynamic in the U.S.
fixed-income market that is gaining momentum. Second, as the number of indexers
has grown, so have the opportunities to take advantage of them. Third, the Y2K
issue may also create some opportunities.
In addition, improved liquidity is permitting us to take advantage of relative-
value ideas. Rates are high enough that we believe that over a five-year period
we will provide high returns relative to inflation. Mortgage-backed securities
are cheap enough that they make sense even if they never attain the tighter
spreads we saw a year ago. Corporate bonds appear to be properly pricing based
on the possibility of a recession. In this market we believe there are ample
opportunities for us to add value.
Q: How is the Fund positioned to take advantage of these opportunities?
A: Currently, we are overweighted in mortgages to take advantage of the yield,
underweighted in corporates (on a risk basis, not a dollar basis) for technical
reasons and underweighted in Treasuries. Although we think real yields are
attractive, we are at the benchmark for duration, expecting a better entry point
sometime in the third quarter. We believe the spread between the 10-year and
30-year Treasury to be too narrow and are overweighted in the intermediate part
of the curve.
66
<PAGE>
======================
The Montgomery Funds
- ----------------------
Total Return Bond Fund
- ----------------------
Investments
PORTFOLIO INVESTMENTS
June 30, 1999
Principal Amount Value (Note 1)
ASSET-BACKED SECURITIES -- 7.5%
$ 620,000 DLJ Commercial Mortgage Corporation,
Series 1999-CG2, A1B,
7.30% due 06/10/09 ............................ $ 629,300
250,768 Master Financial Asset
Securitization Trust,
Series 1998-1A2,
6.22% due 08/20/11 ............................ 250,727
2,034,773 Premier Trust, Series B1,
10.50% due 12/20/05 ........................... 2,006,897
-----------
TOTAL ASSET-BACKED SECURITIES
(Cost $2,907,863) ............................................... 2,886,924
-----------
CORPORATE BONDS AND NOTES -- 27.6%
850,000 AT&T Corporation, Notes,
6.500% due 03/15/29 ........................... 767,125
1,200,000 Bristol-Myers Squibb Company,
Debentures,
6.800% due 11/15/26 ........................... 1,174,500
600,000 Ford Motor Credit Company, Notes,
5.800% due 01/12/09 ........................... 548,250
200,000 Franchise Finance Corporation, MTN,
6.780% due 02/20/02 ........................... 195,000
1,205,000 Hunt (J.B.) Transport Services,
Inc., Notes,
6.250% due 09/01/03 ........................... 1,168,850
875,000 IRT Property Company, Notes,
7.450% due 04/01/01 ........................... 867,344
650,000 Kimco Realty Corporation, Senior
Notes,
6.500% due 10/01/03 ........................... 633,750
950,000 Lockheed Martin Corporation, Notes,
7.200% due 05/01/36 ........................... 955,937
1,175,000 Northern States Power, MTN,
6.500% due 03/01/28 ........................... 1,067,781
110,000 Occidental Petroleum Corporation,
MTN,
9.750% due 06/15/01 ........................... 115,913
575,000 Occidental Petroleum Corporation,
Senior Notes,
7.650% due 02/15/06 ........................... 580,031
550,000 Price Reit, Inc., Senior Notes,
7.250% due 11/01/00 ........................... 556,100
650,000 Raytheon Company, Notes,
6.750% due 08/15/07 ........................... 640,250
700,000 Tele-Communications, Inc., Senior
Notes,
7.250% due 08/01/05 ........................... 712,250
645,000 Vastar Resources, MTN,
6.960% due 02/26/07 ........................... 648,225
-----------
TOTAL CORPORATE BONDS AND NOTES
(Cost $11,133,060) .............................................. 10,631,306
-----------
FEDERAL HOME LOAN BANK (FHLB) -- 3.0%
Agencies:
$ 1,150,000 5.500% (FLTR) due 04/14/00++#
(Cost $1,143,200) ............................. $ 1,149,425
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) -- 12.9%
CMOs:
1,050,000 1604IA (PAC)
6.000% due 09/15/08 ........................... 1,037,058
1,480,000 1676KD (AD)#
6.250% due 03/15/06 ........................... 1,467,859
2,138,920 2098VA (PAC)#
6.000% due 10/15/05 ........................... 2,120,507
328,060 2114VM (AD)#
6.000% due 09/15/04 ........................... 321,689
-----------
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION
(Cost $4,994,989) ............................................... 4,947,113
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 37.4%
Agencies:
4,000,000 TBA Jul., 30 Yr.
6.000% due 06/29/29 ........................... 3,757,520
2,500,000 TBA Aug., 30 Yr.
7.000% due 06/29/29 ........................... 2,466,400
CMOs:
510,621 1988-16B (PAC)#
9.500% due 06/25/18 ........................... 537,249
303,528 1993-159PA (PAC)#
0.000% due 01/25/21 ........................... 295,275
1,100,000 1993-234PB (PAC)#
5.500% due 10/25/07 ........................... 1,086,330
700,000 1994-12PH (PAC)#
6.250% due 01/25/09 ........................... 690,790
Pass-throughs:
630,878 Pool #323193#
9.000% due 09/01/07 ........................... 657,887
4,768,050 Pool #B00688#
9.000% due 09/01/05 ........................... 4,912,955
-----------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION
(Cost $14,384,215) .............................................. 14,404,406
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) -- 0.6%
Pass-throughs:
227,193 8.500% Pass-through Pools due
1/15/23-7/15/23
(Cost $236,343) ............................... 237,701
-----------
67
The accompanying notes are an integral part of these financial statements.
<PAGE>
======================
The Montgomery Funds
- ----------------------
Total Return Bond Fund
- ----------------------
Investments
Principal Amount Value (Note 1)
U.S. TREASURY BONDS -- 8.1%
$ 2,400,000 U.S. Treasury Bonds, 8.875% due 02/15/19
(Cost $2,963,428) ............................. $ 3,093,384
----------
U.S. TREASURY NOTES -- 16.3%
3,750,000 U.S. Treasury Notes, 5.625% due 05/15/01 ...... 3,758,205
2,375,000 U.S. Treasury Notes, 7.000% due 07/15/06 ...... 2,515,134
----------
TOTAL U.S. TREASURY NOTES
(Cost $6,257,208) ............................................... 6,273,339
----------
TOTAL SECURITIES
(Cost $44,020,306) .............................................. 43,623,598
----------
REPURCHASE AGREEMENTS -- 4.3%
1,664,000 Agreement with Greenwich Capital
Markets, Tri-Party, 5.250% dated 6/30/99,
to be repurchased at $1,664,242 on
07/01/99, collateralized by $1,697,312
market value of U.S. government and
mortgage-backed securities, having various
maturities and interest rates
(Cost $1,664,000) ............................. 1,664,000
----------
TOTAL INVESTMENTS -- 117.7%
(Cost $45,684,306*) ............................................. 45,287,598
OTHER ASSETS AND LIABILITIES -- (17.7)%
(Net) ........................................................... (6,811,929)
----------
NET ASSETS -- 100.0% ............................................. $ 38,475,669
==========
* Aggregate cost for federal tax purposes $45,897,311.
++ Floating-rate note reflects the rate in effect at June 30, 1999.
# All or a portion of this security is held as collateral for dollar roll
transactions.
Abbreviations
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.
MTN Medium-Term Note.
PAC Planned Amortization Class: bonds that are protected in part from
variations in prepayments, generally resulting in greater stability.
TBA To-Be-Announced Security.
68
The accompanying notes are an integral part of these financial statements.
<PAGE>
========================
The Montgomery Funds
------------------------
Short Duration
Government Bond Fund
------------------------
Portfolio Highlights
INVESTMENT REVIEW
Q: How did the Fund perform over its fiscal year?
A: The Fund returned 4.8% for the year, slightly underperforming its benchmark,
the Lehman Brothers Government Bond 1-3 Year Index, which returned 5.0%. This
underperformance was concentrated in the final three months of the financial
year ended June 30, 1999, which was a difficult environment for short-term
government bonds. In recognition of its consistently strong long-term
risk-adjusted performance, however, the Fund was awarded an overall five-star
rating by Morningstar for the period ended June 30, 1999, among 1,543 taxable
bond funds. The Fund also received five stars for the three- and five-year
periods ended June 30, 1999, among 1,543 and 1,102 taxable bond funds,
respectively.*
Q: What factors affected performance over the period?
A: The Fund performed in line with or slightly better than the benchmark for the
first three quarters of the financial year. Contributing to this encouraging
performance were the Fund's broad diversity of holdings that enabled us to
maintain a relatively low risk profile in a challenging market environment, as
well as our active management style. In late July 1998, we reduced the Fund s
mortgage exposure in favor of Treasury bonds. As a result, the Fund was able to
fully participate in the strong rally in Treasuries as investors sought a safe
haven from the effects of global economic turmoil and the well-publicized near
collapse of several large hedge funds.
At the beginning of the fourth quarter of 1998, other sectors of the bond market
started to revitalize from severe downturns caused by the "flight to quality."
We had anticipated this trend, reducing our exposure to Treasuries and
increasing our weighting in the mortgage sector. Our purchases of collateralized
mortgage obligations (CMOs) added moderately to fourth-quarter performance but
were a large contributor to the Fund s first-quarter relative outperformance.
Offsetting these positive contributions, however, the portfolio s overexposure
to mortgage-backed securities worked against us in the final months of the
financial year. In addition, our target duration of two years is longer than the
benchmark s, but we were unable to find openings to extend this beyond the
benchmark weighting as we were sailing into the headwind of a rising rate
environment. Although this detracted from overall performance, the Fund still
maintained its position in the top quartile of similar funds for the year.
Q: Where do you see opportunities to add value going forward?
A: Toward the end of the period, the Fed tightened, reflecting its increasing
concern over inflationary pressures in the economy. We believe that this more
recognizable market environment may provide many opportunities to add value.
There are a number of issues related to supply and demand that should be
positive developments as well. First, with the U.S. government balancing the
budget, it has less need to issue debt to finance government operations. The
resulting decline in the supply of Trea-
- -------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
- -------------------------------------------------------------------------------
William Stevens.......................................Senior Portfolio Manager
Marie Chandoha.............................................. Portfolio Manager
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/99
- --------------------------------------------------------------------------------
Montgomery Short Duration
Government Bond Fund
Since inception (12/18/92) ............................................... 6.32%
One year ................................................................. 4.82%
Five years ............................................................... 6.63%
- --------------------------------------------------------------------------------
Lehman Brothers Government
Bond 1-3 Year Index
Since 12/18/92 ........................................................... 5.58%
One year ................................................................. 5.04%
Five years ............................................................... 6.31%
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
Growth of a $10,000 Investment
[LINE GRAPH APPEARS HERE]
Short Duration Lehman Brothers Lipper Short
Date Gov. Bond Fund Government Bond/1/ U.S. Government/2/
------- --------------- --------------- ---------------
Dec-92 10,000 10,000.00 10,000.00
Jan-93 10,175 10,104.63 10,098.78
Feb-93 10,268 10,185.02 10,178.11
Mar-93 10,350 10,216.30 10,206.23
Apr-93 10,425 10,278.46 10,262.52
May-93 10,442 10,253.59 10,253.07
Jun-93 10,363 10,330.05 10,328.65
Jul-93 10,623 10,352.42 10,356.66
Aug-93 10,699 10,438.40 10,431.17
Sep-93 10,758 10,471.76 10,457.86
Oct-93 10,796 10,495.17 10,474.49
Nov-93 10,797 10,496.83 10,464.46
Dec-93 10,356 10,538.47 10,502.64
Jan-94 10,940 10,604.36 10,568.70
Feb-94 10,880 10,539.92 10,507.61
Mar-94 10,831 10,486.68 10,436.78
Apr-94 10,791 10,446.69 10,398.17
May-94 10,799 10,460.78 10,408.92
Jun-94 10,829 10,487.09 10,423.47
Jul-94 10,938 10,581.36 10,500.62
Aug-94 10,971 10,616.17 10,527.78
Sep-94 10,931 10,592.14 10,508.78
Oct-94 10,961 10,616.38 10,527.93
Nov-94 10,940 10,572.25 10,496.02
Dec-94 10,979 10,592.76 10,520.71
Jan-95 11,133 10,736.96 10,642.57
Feb-95 11,287 10,883.02 10,773.41
Mar-95 11,351 10,944.35 10,830.68
Apr-95 11,461 11,042.14 10,915.15
May-95 11,651 11,230.68 11,083.52
Jun-95 11,725 11,291.38 11,137.20
Jul-95 11,732 11,336.14 11,165.68
Aug-95 11,835 11,403.68 11,234.46
Sep-95 11,918 11,459.41 11,289.84
Oct-95 12,004 11,554.30 11,373.52
Nov-95 12,133 11,652.92 11,464.88
Dec-95 12,262 11,740.98 11,547.94
Jan-96 12,336 11,840.22 11,627.25
Feb-96 12,281 11,794.43 11,585.12
Mar-96 12,210 11,785.52 11,576.12
Apr-96 12,277 11,796.92 11,587.47
May-96 12,288 11,823.44 11,602.60
Jun-96 12,398 11,909.42 11,676.44
Jul-96 12,448 11,955.62 11,722.78
Aug-96 12,485 11,999.34 11,752.78
Sep-96 12,598 12,108.52 11,851.28
Oct-96 12,760 12,244.85 11,968.91
Nov-96 12,887 12,335.39 12,057.55
Dec-96 12,872 12,337.46 12,052.58
Jan-97 12,936 12,396.51 12,109.27
Feb-97 12,957 12,426.55 12,140.15
Mar-97 12,930 12,416.82 12,129.15
Apr-97 13,045 12,518.13 12,221.30
May-97 13,136 12,605.35 12,295.01
Jun-97 13,210 12,692.16 12,372.88
Jul-97 13,410 12,830.77 12,501.68
Aug-97 13,408 12,844.03 12,509.12
Sep-97 13,524 12,941.62 12,599.68
Oct-97 13,642 13,037.96 12,683.54
Nov-97 13,678 13,070.69 12,708.43
Dec-97 13,769 13,158.33 12,776.02
Jan-98 13,917 13,283.88 12,886.12
Feb-98 13,927 13,295.90 12,897.23
Mar-98 13,985 13,347.08 12,943.03
Apr-98 14,058 13,411.72 12,994.70
May-98 14,156 13,483.40 13,063.85
Jun-98 14,242 13,552.81 13,123.56
Jul-98 14,320 13,616.21 13,175.82
Aug-98 14,510 13,781.96 13,317.60
Sep-98 14,698 13,967.39 13,466.82
Oct-98 14,745 14,035.55 13,488.11
Nov-98 14,718 14,021.05 13,491.91
Dec-98 14,785 14,074.71 13,538.85
Jan-99 14,835 14,128.58 13,604.00
Feb-99 14,783 14,064.97 13,551.00
Mar-99 14,877 14,160.28 13,631.00
Apr-99 14,941 14,204.41 13,684.00
May-99 14,876 14,194.88 13,672.00
Jun-99 14,929 14,236.32 13,677.00
Fund performance presented is for Class R shares.
/1/ The Lehman Brothers Government Bond 1-3 Year Index comprises all U.S.
government issues with maturities of one to three years.
/2/ The Lipper Short U.S. Government Funds Average universe consists of 31
funds.
* Morningstar proprietary ratings reflect historical risk-adjusted
performance through 6/30/99. The ratings are subject to change every
month, and past performance is no guarantee of future results. Morningstar
ratings are calculated from the funds three-, five-, and 10-year average
annual returns (if applicable) in excess of 90-day Treasury bill returns,
with appropriate fee adjustments and a risk factor that reflects funds
performance below 90-day T-bill returns. The top 10% of the funds in a
broad asset class receive five stars. Ratings are for Class R shares only;
other classes may vary.
69
<PAGE>
=====================================
The Montgomery Funds
- -------------------------------------
Short Duration
Government Bond Fund
- -------------------------------------
Portfolio Highlights
- ----------------------------------------------------
TOP TEN HOLDINGS
- ----------------------------------------------------
(as a percentage of total net assets)
U.S. Treasury Note,
4.000% due 10/31/00 ................. 15.0%
U.S. Treasury Note,
5.625% due 05/15/01 ................. 7.1%
FHLMC, 2121TA (PAC)
6.000% due 04/15/08 ................. 6.3%
FNMA, TBA Jul., 30 Yr,
6.000% due 06/29/29 ................. 5.6%
FHLMC, 1166D (AD)
8.000% due 02/15/05 ................. 4.7%
FNMA, Pool #323450,
8.500% due 05/01/07 ................. 4.5%
FNMA,1999-34VE (AD)
6.500% due 09/25/05 ................. 3.2%
FNMA, Pool #323193,
9.000% due 09/01/07 ................. 3.0%
FHLMC, 2114VM(AD)
6.000% due 09/15/04 ................. 2.6%
FHLMC, 2098VA (PAC)
6.000% due 10/15/05 ................. 2.5%
- ----------------------------------------------------
ASSET MIX
- ----------------------------------------------------
(as a percentage of total investments)
Collateralized Mortgage Obligations .......... 32.4%
Treasuries ................................... 24.6%
Mortgage Pass-throughs ....................... 20.9%
Asset-Backed Securities ...................... 12.1%
Other ........................................ 7.3%
Corporate Notes ............................... 1.6%
Municipal Bonds and Notes .................... 1.1%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
sury securities is a new dynamic that should help the relative performance of
Treasuries.
Second, the growing popularity of indexing as an investment tool has opened up a
number of opportunities. For example, at the close of the markets at month's
end, different sectors can become attractively priced for a very short time as
indexers move to rebalance their portfolios. And finally, the year 2000 issue--
centered on questions related to computer codes and their ability to recognize
dates at the turn of the millennium--should create some opportunities.
Q: What are the possible risks?
A: Although we have identified plenty of opportunities in the current market
environment, we are mindful of possible risks to the portfolio. Yields rose yet
again in June. Although the Fed tightened monetary policy on June 30, with
overnight rates moving up to 5%, the move was not accompanied by a tightening
bias, which the bond market liked-at least for the short term. Wage pressures
and low unemployment continue to be the main inflationary concern, but the
turnaround in global growth rates is also adding fuel to the fire of strong U.S.
economic growth. Nevertheless, the aberrantly high rise in the Consumer Price
Index (CPI) rate for May was not repeated in June, and inflation remains only a
theoretical concern, albeit one that the Fed will act to preempt.
We have extended the Fund to benchmark duration but have not found an entry
point to extend further, and we remain concerned that the market will price in
further Fed tightenings before the economy finally cools. As much as we like
these high real yields, we recognize that they could go still higher. As we
focus on the wealth of relative value opportunities, we will not do so at the
expense of risk management and consistent returns.
Q: How is the Fund currently positioned?
A: The Fund is currently overweighted in mortgages (62.0% of net assets as of
6/30/99) to take advantage of their added yield. Further, we are underweighted
in Treasuries (28.0% of net assets as of 6/30/99). Even though we feel that
inflation-adjusted yields are attractive at this point, we're not making any
significant interest rate bets with the Fund's duration, because we believe that
there will be better opportunities to do so at some point in the third quarter.
70
<PAGE>
==========================================
The Montgomery Funds
------------------------------------------
Short Duration
Government Bond Fund
------------------------------------------
Investments
PORTFOLIO INVESTMENTS
June 30, 1999
Principal Amount Value (Note 1)
ASSET-BACKED SECURITIES--13.8%
$ 1,400,000 Chase Manhattan Auto Owner Trust,
Series 1997-B A5,
6.60% due 03/15/02 ............................ $ 1,412,806
1,750,000 Citibank Credit Card Master Trust,
Series 1998-1 A,
5.75% due 01/15/03 ............................ 1,742,877
700,000 Discover Card Master Trust,
Series 1998-4 A,
5.75% due 10/16/03 ............................ 696,227
1,000,000 EQCC Home Equity Loan Trust,
Series 1998-2 A3F,
6.23% due 03/15/13 ............................ 998,320
2,523,000 Ford Credit Auto Owner Trust,
Series 1996 B,
6.55% due 02/15/02 ............................ 2,530,090
243,891 Green Tree Financial Corporation,
Series 1993-4 A3,
6.25% due 01/15/19 ............................ 243,958
1,000,000 Green Tree Home Improvement Loan
Trust, Series 1997-C HEA3,
6.88% due 08/15/28 ............................ 1,008,150
3,134,605 Master Financial Asset Securitization
Trust, Series 1998-1 A2,
6.22% due 08/20/11 ............................ 3,134,088
1,700,000 Premier Auto Trust,
Series 1998-5 A3,
5.07% due 07/08/02 ............................ 1,677,090
1,000,000 Premier Auto Trust,
Series 1999-2 A3,
5.49% due 02/10/03 ............................ 988,750
1,600,000 The Money Store Home Equity Trust,
Series 1994-C A6,
8.05% due 12/15/25 ............................ 1,641,676
2,000,000 The Money Store Home Equity Trust,
Series 1995-A A5,
8.40% due 02/15/24 ............................ 2,073,383
750,000 Toyota Auto Lease Trust,
Series 1997-A A3,
6.45% due 04/26/04 ............................ 752,107
3,000,000 Toyota Auto Lease Trust,
Series 1998-B A3,
5.50% due 12/26/03 ............................ 2,942,145
TOTAL ASSET-BACKED SECURITIES
(Cost $21,868,206) .............................................. 21,841,667
--------------
CORPORATE NOTES--1.9%
$ 2,000,000 Associates Corporation N.A.,
Senior Notes,
5.800% due 04/20/04 ........................... $ 1,932,500
1,000,000 Countrywide Home Loans, Inc., MTN
5.620% due 10/16/00 ........................... 994,080
TOTAL CORPORATE NOTES
(Cost $2,999,092) ............................................... 2,926,580
--------------
FEDERAL HOME LOAN BANK (FHLB)--0.3%
550,000 5.500% (FLTR) due 04/14/00++................... 549,725
TOTAL FEDERAL HOME LOAN BANK
(Cost $549,099) ................................................. 549,725
--------------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC)--30.0%
CMOs:
7,250,000 1166D (AD) 8.000% due 02/15/05 ................ 7,392,738
1,894,121 1320F (PAC) 7.000% due 05/15/05 ............... 1,896,848
167,385 1329SA (PAC) 10.703% due 08/15/99 ............. 166,129
1,942,098 1499PE (PAC) 6.000% due 02/15/19 .............. 1,939,975
1,525,644 1521C (PAC) 5.800% due 07/15/00# .............. 1,524,735
2,754,800 1639PL (PAC) 5.900% due 08/15/06 .............. 2,757,924
2,528,000 1643PE (PAC) 5.500% due 10/15/19# ............. 2,521,183
1,606,899 1659PE (PAC) 5.750% due 05/15/07# ............. 1,606,200
792,689 1694PE (PAC) 5.750% due 03/15/19# ............. 791,658
1,428,957 1711PH (PAC) 0.000% due 03/15/24 .............. 1,399,920
4,037,908 2098VA (PAC) 6.000% due 10/15/05 .............. 4,014,564
4,193,541 2114VM (AD) 6.000% due 09/15/04 ............... 4,177,160
10,000,000 2121TA (PAC) 6.000% due 04/15/08 .............. 9,962,364
--------------
40,151,398
Notes:
1,000,000 5.000% (FLTR) due 05/19/03++................... 964,181
Pass-throughs:
26,618 Pool #281208 9.000% due 10/01/16# ............. 27,646
3,426,896 Pool #A01841 8.750% due 10/01/10# ............. 3,592,484
1,794,948 Pool #E40290 8.500% due 06/01/07# ............. 1,858,963
898,146 Pool #G10007 8.500% due 03/01/06# ............. 934,809
5,469 Pool #730288 8.500% due 07/01/06 .............. 5,588
12,591 Pool #730223 9.500% due 01/01/06# ............. 13,193
--------------
6,432,683
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION
(Cost $47,751,199) .............................................. 47,548,262
-------------
The accompanying notes are an integral part of these financial statements.
71
<PAGE>
========================================
The Montgomery Funds
- ----------------------------------------
Short Duration
Government Bond Fund
- ----------------------------------------
Investments
Principal Amount Value (Note 1)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)--28.6%
CMOs:
$ 2,087,478 1992-176SA (PAC) 9.002% due 10/25/99............ $ 2,086,010
2,323,302 1993-109G (PAC) 6.000% due 08/25/05#............ 2,317,493
650,000 1993-99D (AD) 6.700% due 03/25/04# ............. 658,176
1,340,955 1994-23PV (PAC) 5.125% due 07/25/17#............ 1,329,564
2,500,000 1994-39PG (PAC) 6.150% due 06/25/20 ............ 2,491,016
5,000,000 1999-34VE (AD) 6.500% due 09/25/05 ............. 5,011,719
------------
13,893,978
Pass-throughs:
3,000,000 TBA Aug, 30 Yr, 7.000% due 06/29/29............. 2,959,680
9,500,000 TBA Jul, 30 Yr, 6.000% due 06/29/29............. 8,924,110
665,659 Pool #242836, 5.500% due 10/01/00............... 662,200
895,480 Pool #244098, 5.500% due 10/01/00 .............. 890,827
1,026,282 Pool #252432, 5.000% due 02/01/09 .............. 957,970
4,613,727 Pool #323193, 9.000% due 09/01/07 .............. 4,784,758
6,810,840 Pool #323450, 8.500% due 05/01/07 ............. 7,049,220
1,629,218 Pool #348144, 8.500% due 04/01/10# ............. 1,691,969
1,553,052 Pool #420599, 5.000% due 03/01/27 ............. 1,409,092
914,380 Pool #438089, 9.000% due 06/01/08 .............. 957,348
984,540 Pool #70851, 9.500% due 06/01/06................ 1,036,536
------------
31,323,710
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION
(Cost $45,240,516)................................................ 45,217,688
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)--2.8%
CMOs:
1,102,509 1996-22VA (AD) 7.000% due 01/16/05 ............. 1,120,511
3,214,891 1998-18VK (AD) 6.500% due 10/20/11# ............ 3,236,241
------------
4,356,752
Pass-throughs:
9,337 GNMA II, 10.50% Pool #1123#
due 01/20/19 .................................. 10,040
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(Cost $4,452,807) ................................................ 4,366,792
------------
MUNICIPAL BONDS AND NOTES--1.3%
2,000,000 Greater Orlando Aviation Authority,
Orlando, Florida, Airport Facilities,
Revenue Bonds, Series E (AMBAC Insured)
7.100% due 10/01/09 ............................ 2,006,500
TOTAL MUNICIPAL BONDS
(Cost $2,010,466) ................................................ 2,006,500
------------
U.S. TREASURY NOTES--28.0%
$ 3,039,510 U.S. Treasury Note, Inflationary Index,
3.875% due 01/15/09+............................ $ 3,003,401
24,200,000 U.S. Treasury Note, 4.000% due 10/31/00......... 23,765,126
11,250,000 U.S. Treasury Note, 5.625% due 05/15/01......... 11,271,037
3,000,000 U.S. Treasury Note, 6.250% due 01/31/02 ........ 3,045,480
3,125,000 U.S. Treasury Note, 6.500% due 05/15/05 ........ 3,220,688
TOTAL U.S. TREASURY NOTES
(Cost $44,550,567) ............................................... 44,305,732
------------
TOTAL SECURITIES
(Cost $169,421,952) .............................................. 168,762,946
REPURCHASE AGREEMENT--7.3%
11,624,000 Agreement with Greenwich Capital
Markets, Tri-Party, 5.300%, to be
repurchased at $11,625,688 on
07/01/99, collateralized by $11,856,703
market value of U.S. government and
mortgage-backed securities, having various
maturities and interest rates
(Cost $11,624,000) ............................. 11,624,000
------------
TOTAL INVESTMENTS--114.0%
(Cost $181,045,952*) ............................................. 180,386,946
OTHER ASSETS AND LIABILITIES --(14.0)%
(Net)............................................................. (22,134,227)
------------
NET ASSETS--100.0% ............................................... $158,252,719
============
* Aggregate cost for federal tax purposes $181,130,003.
++ Floating-rate note reflects the rate in effect at June 30, 1999.
# All or a portion of this security held as collateral for dollar roll
transactions.
+ Inflation indexed security. Security includes principal adjustment feature
in which par amount adjusts with the Consumer Price Index to insulate bonds
from effects of inflation. The principal amount shown is that in effect on
June 30, 1999.
Abbreviations
AD Accretion Directed: These bonds receive, as principal, the negative
amortization from tranche(s) in a deal. These securities often have
guaranteed final maturities..
AMBAC American Municipal Bond Assurance Corporation.
CMO Collateralized Mortgage Obligation.
FLTR Floating-Rate Securities: bonds with coupon rates that adjust in
proportion to an index.
MTN Medium-Term Notes.
PAC Planned Amortization Class: bonds with coupon rates that adjust in
proportion to an index.
TBA To-Be-Announced Security.
The accompanying notes are an integral part of these financial statements.
72
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==================================
The Montgomery Funds
----------------------------------
California Tax-Free
Intermediate Bond Fund
---------------------------------
Portfolio Highlights
INVESTMENT REVIEW
Q: How did the Fund perform over the past fiscal year?
A: The Fund returned 2.7% versus a return of 2.4% for the Lipper California
Intermediate Municipal Debt Funds Average and a return of 3.8% for the Merrill
Lynch Cali-fornia Intermediate Municipal Bond Index. Although it lost some
ground in the latter half of the fiscal year, the Fund enjoyed strong relative
results against the benchmark in the first half. The Fund s previous
outperformance was more than sufficient to provide good relative returns for the
year as a whole. The Fund was awarded an overall four-star rating by Morningstar
for its risk-adjusted performance for the period ended June 30, 1999, among
1,591 municipal bond funds. The Fund also received three and four stars for the
three- and five-year periods ended June 30, 1999, among 1,591 and 1,191
municipal bond funds, respectively.*
Q: What were some of the major trends in the California municipal bond market?
A: There were two notable trends during the period. In the first half of 1999,
the number of new municipal bonds issued (issuance) was less than three-quarters
that of the same period in 1998. Additionally, the municipal market witnessed a
lower percentage of insured bonds being issued in the primary market.
The decline in new issues from January through June 1999 resulted from a change
in the interest rate environment. In the previous six-month period, declining
interest rates had been the norm, reflecting market concerns about deflation.
This had led to a significant increase in the number of bonds issued as the
interest rates on the debt became progressively more attractive. In contrast, at
the beginning of 1999, as fears of a resurgence in inflation began to emerge,
the bond market started to price the worst-case scenario into bond yields
(interest rates), making it more expensive to borrow money in this manner. And,
as a result, refunding existing bonds that were rate sensitive no longer made
economical sense and had to be postponed until savings targets could once again
be achieved. It was this that reduced new issuance supply.
Q: You mentioned that longer-term interest rates have risen on the back of
inflationary fears. What affect has this had on returns of the Fund?
A: The general rate rise since the beginning of 1999 has led to negative returns
for the Fund and for other municipal bond funds. The reason for this is the
relationship between interest rates and bond prices. One of the major
determinants of the price of a bond is the market s expectation of future
interest rates. Investors are less likely to want to buy a lower-yielding bond
if interest rates are expected to rise, making the yields on bonds issued in the
future more attractive. As a result, as interest rate expectations (and
therefore bond yield expectations) rise, bond prices generally fall.
================================================================================
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
William Stevens ....................................... Senior Portfolio Manager
================================================================================
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Average annual total returns for the
period ended 6/30/99
- --------------------------------------------------------------------------------
Montgomery California
Intermediate Bond Fund
Since inception (7/1/93) ................................................ 5.03%
One year ................................................................ 2.71%
Five years .............................................................. 5.71%
- --------------------------------------------------------------------------------
Merrill Lynch California
Intermediate Municipal Bond Index
Since 6/30/93 ........................................................... 4.55%
One year ................................................................ 3.83%
Five years .............................................................. 5.95%
- --------------------------------------------------------------------------------
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 GRAPH APPEARS HERE]
Montgomery California Merrill Lynch California Lipper California
Tax-Free Intermediate Intermediate Municipal Intermediate Debt
Bond Fund Bond Index 1 Funds Average 2
Jun-93 10,000 10,000 10,000
Jul-93 9,991 9,982 10,002
Aug-93 10,077 10,023 10,195
Sep-93 10,121 10,016 10,325
Oct-93 10,151 10,139 10,341
Nov-93 10,144 10,091 10,266
Dec-93 10,233 10,263 10,453
Jan-94 10,295 10,333 10,563
Feb-94 10,185 10,186 10,319
Mar-94 10,086 10,035 10,022
Apr-94 10,117 10,018 10,063
May-94 10,175 10,127 10,133
Jun-94 10,171 9,782 10,100
Jul-94 10,264 9,994 10,248
Aug-94 10,285 10,009 10,279
Sep-94 10,271 9,937 10,169
Oct-94 10,233 9,920 10,044
Nov-94 10,187 9,825 9,885
Dec-94 10,238 9,915 9,995
Jan-95 10,352 9,995 10,186
Feb-95 10,486 10,195 10,431
Mar-95 10,583 10,262 10,534
Apr-95 10,645 10,311 10,552
May-95 10,777 10,587 10,817
Jun-95 10,784 10,603 10,739
Jul-95 10,849 10,726 10,851
Aug-95 10,970 10,799 10,974
Sep-95 11,054 10,824 11,042
Oct-95 11,187 10,885 11,175
Nov-95 11,327 11,062 11,303
Dec-95 11,406 11,045 11,366
Jan-96 11,495 11,179 11,473
Feb-96 11,470 11,170 11,428
Mar-96 11,373 11,092 11,297
Apr-96 11,368 11,103 11,287
May-96 11,355 11,099 11,288
Jun-96 11,442 11,163 11,366
Jul-96 11,531 11,272 11,472
Aug-96 11,536 11,276 11,471
Sep-96 11,634 11,349 11,572
Oct-96 11,761 11,452 11,688
Nov-96 11,964 11,579 11,877
Dec-96 11,921 11,556 11,831
Jan-97 11,964 11,581 11,852
Feb-97 12,042 11,659 11,934
Mar-97 11,901 11,575 11,817
Apr-97 11,962 11,608 11,876
May-97 12,112 11,747 12,034
Jun-97 12,233 11,878 12,136
Jul-97 12,539 12,069 12,412
Aug-97 12,435 12,008 12,313
Sep-97 12,566 12,119 12,440
Oct-97 12,619 12,158 12,478
Nov-97 12,672 12,198 12,530
Dec-97 12,815 12,313 12,681
Jan-98 12,968 12,408 12,802
Feb-98 12,977 12,443 12,813
Mar-98 12,920 12,449 12,799
Apr-98 12,852 12,405 12,722
May-98 13,038 12,533 12,901
Jun-98 13,071 12,580 12,934
Jul-98 13,095 12,612 12,976
Aug-98 13,323 12,848 13,162
Sep-98 13,540 12,991 13,349
Oct-98 13,533 13,012 13,328
Nov-98 13,577 13,022 13,368
Dec-98 13,591 13,089 13,379
Jan-99 13,771 13,267 13,536
Feb-99 13,688 13,219 13,472
Mar-99 13,702 13,253 13,492
Apr-99 13,705 13,270 13,503
May-99 13,624 13,223 13,422
Jun-99 13,425 13,062 13,231
1 The Merrill Lynch California Intermediate Municipal Bond Index is composed
of those issues contained in the broader Merrill Lynch California Municipal
Bond Index whose maturities range from three to seven years.
2 The Lipper California Intermediate Municipal Debt Funds Average universe
consists of 12 funds.
* Morningstar proprietary ratings reflect historical risk-adjusted
performance through 6/30/99. The ratings are subject to change every month,
and past performance is no guarantee of future results. Morningstar ratings
are calculated from the funds three-, five-, and 10-year average annual
returns (if applicable) in excess of 90-day Treasury bill returns, with
appropriate fee adjustments and a risk factor that reflects fund
performance below 90-day T-bill returns. The top 10% of the funds in a
broad asset class receive five stars; the next 22.5% receive four stars;
and the next 35% receive three stars. Ratings are for Class R shares only;
other classes may vary.
73
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The Montgomery Funds
- ----------------------------------
California Tax-Free
Intermediate Bond Fund
- ----------------------------------
Portfolio Highlights
======================================================================
TOP TEN LONG-TERM HOLDINGS
- ----------------------------------------------------------------------
(as a percentage of total net assets)
Antioch, California, Public
Financing Authority, Series B,
4.000% due 09/02/99 ................................. 5.6%
San Bernardino County, California,
Transportation Authority Sales Tax
Revenue, Series A (MBIA Insured)
6.000% due 04/01/05 ................................. 2.8%
California State, 6.250% due 09/01/08 ........................ 2.7%
Redwood City Public Financing Authority,
Lease Revenue, Capital Facilities
Project, 5.000% due 07/15/10 ........................ 2.7%
Anaheim, California, Public Financing
Authority, Lease Revenue,
Series C (FSA Insured),
6.000% due 09/01/12 ................................. 2.7%
California Pollution Control Financing
Authority, Revenue,
San Diego Gas and Electric, Series A,
5.900% due 06/01/14 ................................. 2.6%
California State, 7.000% due 10/01/09 ........................ 2.3%
Los Angeles County State Building
Authority, Lease Revenue
(MBIA Insured),
5.600% due 05/01/08 ................................. 2.2%
Walnut Valley, California,
School District, Series A
(MBIA Insured)
7.000% due 08/01/08 ................................. 2.0%
California Statewide Communities
Development Authority Revenue
Certificates of Participation
(Sutter Health System Group)
3.400% due 07/01/15 ................................. 2.0%
================================================================================
I N V E S T M E N T G R A D E
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
Aaa ........................................................................ 52%
Aa ......................................................................... 13%
A .......................................................................... 9%
Baa ........................................................................ 13%
Nonrated ................................................................... 12%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
A portion of income may be subject to some state and/or local taxes and, for
certain investors, a portion may be subject to the federal alternative minimum
tax.
Q: Is the booming California economy a further factor in reduced supply of
municipal bonds?
A: Not necessarily. Unlike the effect of rising interest rates on refundings,
the expansion of the California economy has, if anything, encouraged new money
financings. Strong economic growth has allowed the collection of increased tax
revenues, and as a result, projects that were put on hold due to lack of funding
have been reactivated.
Q: How have you positioned the Fund for the year ahead?
A: The decline in new issuances being insured over the period was a reflection
of the tougher underwriting standards imposed by credit-rating agencies on bond
insurers. As a result, there were fewer Aaa-rated bonds available, and spreads
between insured and high uninsured bonds widened, as anticipated, creating the
opportunity for us to add high-quality, noninsured bonds at attractive values.
We have therefore increased the percentage of uninsured bonds in the Fund. The
current credit profile of the Fund includes only 51% in Aaa's, as opposed to 75%
at the beginning of the fiscal year, June 30, 1998. Also, as rates were rising,
we reversed our strategy from extending to reducing our interest rate exposure.
The Fund's current duration of 5.44 years and maturity of 7.11 years were
reduced from their June 30, 1998, position of 5.86 years and 8.01 years,
respectively.
74
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The Montgomery Funds
----------------------------------
California Tax-Free
Intermediate Bond Fund
----------------------------------
Investments
PORTFOLIO INVESTMENTS
June 30, 1999
Principal Amount Value (Note 1)
MUNICIPAL BONDS AND NOTES--98.9%
California 97.2%
$1,000,000 Anaheim, California, Public Financing
Authority, Lease Revenue,
Series C (FSA Insured),
6.000% due 09/01/12 ........................... $ 1,095,000
2,295,000 Antioch, California, Public Financing
Authority, Series B,
4.000% due 09/02/99 ........................... 2,294,702
205,000 Benicia, California,
GO, Series B,
7.000% due 08/01/04 ........................... 229,856
California Educational Facilities
Authority Revenue Pooled College &
University Projects, Series A:
370,000 3.550% due 04/01/00 ........................... 369,267
255,000 3.900% due 04/01/01 ........................... 253,088
275,000 3.600% due 04/01/02 ........................... 271,219
300,000 4.050% due 04/01/02 ........................... 296,250
285,000 3.700% due 04/01/03 ........................... 279,656
310,000 3.950% due 04/01/05 ........................... 301,475
455,000 4.400% due 04/01/05 ........................... 443,625
545,000 4.800% due 04/01/09 ........................... 521,837
250,000 California Educational Authority
Revenue, University of San Francisco
(MBIA Insured),
6.000% due 10/01/08 ........................... 274,062
745,000 California Educational Facilities
Authority Revenue, LA College of
Chiropractic
5.100% due 11/01/05 ........................... 755,244
200,000 California Housing Finance Agency,
Housing Revenue, Series C
(MBIA Insured),
6.150% due 08/01/14 ........................... 207,000
1,000,000 California Pollution Control Financing
Authority, Revenue,
San Diego Gas and Electric, Series A,
5.900% due 06/01/14 ........................... 1,082,500
100,000 California Public Works Board High
Technology Lease Revenue, San Jose
Facilities, Series A (AMBAC Insured),
7.750% due 08/01/06 ........................... 111,625
300,000 California Public Works Board Lease
Revenue, Series A (AMBAC Insured),
6.200% due 12/01/05 ........................... 330,375
365,000 California Public Works Board University
Trust Certificates,
6.450% due 06/01/02 ........................... 385,987
California State:
260,000 6.200% due 11/01/02 ........................... 276,900
100,000 6.750% due 04/01/04 ........................... 110,250
115,000 7.000% due 04/01/06 ........................... 131,388
200,000 7.400% due 09/01/07 ........................... 237,500
100,000 6.500% due 02/01/08 ........................... 112,125
1,000,000 6.250% due 09/01/08 ........................... 1,110,000
250,000 6.000% due 10/01/08 ........................... 272,812
145,000 7.000% due 08/01/09 ........................... 169,469
800,000 7.000% due 10/01/09 ........................... 937,000
100,000 7.000% due 10/01/10 ........................... 117,375
100,000 6.250% due 09/01/12 ........................... 111,875
(FGIC Insured):
250,000 7.000% due 04/01/06 ........................... 286,250
500,000 6.500% due 02/01/08 ........................... 561,875
265,000 California State Public Works Board Lease
Revenue, Department of Corrections,
Series A (AMBAC Insured),
6.000% due 01/01/06 ........................... 287,525
75,000 California State Public Works Board
University Revenue (AMBAC Insured),
6.250% due 11/01/00 ........................... 77,438
365,000 California State University, Various
Community College Projects, Series A
(AMBAC Insured),
6.000% due 03/01/06 ........................... 396,937
495,000 California State Public Works
Board, Various Community College
Projects, Series A,
6.000% due 03/01/05 ........................... 535,219
70,000 California State Veterans Bonds,
Series AL (AMBAC Insured),
9.600% due 04/01/01 ........................... 76,563
100,000 California State, Veterans Bonds,
Series AT, 9.500% due 02/01/10 ................ 136,500
California Statewide Communities
Development Authority Revenue
Certificates of Participation
(Sutter Health System Group):
250,000 6.500% due 07/01/04 ........................... 274,375
800,000 3.400% due 07/01/15 ........................... 800,000
100,000 Capinteria, California (FGIC Insured),
7.500% due 07/01/00 ........................... 103,942
The accompanying notes are an integral part of these financial statements.
75
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==================================
The Montgomery Funds
- ----------------------------------
California Tax-Free
Intermediate Bond Fund
- ----------------------------------
Investments
Principal Amount Value (Note 1)
MUNICIPAL BONDS AND NOTES -- continued
California -- continued
Castaic Lake, California, Water Agency,
Certificates of Participation, Refunding,
Water System Improvement Project,
Series A (MBIA Insured):
$ 150,000 7.250% due 08/01/07 ........................... $ 175,688
500,000 7.250% due 08/01/08 ........................... 588,750
Chino Basin, California, Regional
Financing Authority Revenue, Municipal
Water and District Sewer Systems
Project (AMBAC Insured):
500,000 7.000% due 08/01/06 ........................... 574,375
240,000 7.000% due 08/01/08 ........................... 278,400
Commerce, California, Community
Development Commission, Tax Allocation,
Merged Redevelopment
Project, Series A, Refunding:
100,000 5.100% due 08/01/04 ........................... 101,250
190,000 5.200% due 08/01/05 ........................... 192,850
120,000 5.500% due 08/01/09 ........................... 121,800
500,000 Contra Costa, California, Transportation
Authority, Series B,
6.000% due 03/01/07 ........................... 545,625
300,000 Contra Costa, California, Transportation
Authority Sales Tax Revenue, Series A
(FGIC Insured),
6.000% due 03/01/05 ........................... 324,375
300,000 Desert Hospital District, California,
Hospital Revenue, Certificates of
Participation (CGIC Insured),
6.150% due 07/01/02 ........................... 317,250
100,000 East Bay Regional Parks District, Series B,
8.750% due 09/01/99 ........................... 100,810
75,000 East Bay Municipal Utility District,
Revenue, Certificates of Participation
(CGIC Insured),
7.500% due 03/01/00 ........................... 77,003
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 ........................... 393,281
250,000 Elsinore Valley, California, Municipal
Water District, Certificates of
Participation, Refunding, Series A
(FGIC Insured),
6.000% due 07/01/12 ........................... 273,750
140,000 Emeryville, California, Public Financing
Authority Housing Revenue,
5.600% due 09/01/06 ........................... 147,350
130,000 Emeryville, California, PubliC Financing
Authority Housing Revenue, Unrefunded,
5.600% due 09/01/06 ........................... 140,238
50,000 Estero, California, Series S-1,
7.000% due 07/01/00 ........................... 51,696
290,000 Fresno, California, Sewer Revenue,
Series A (MBIA Insured),
6.000% due 09/01/07 ........................... 317,912
La Mesa, California, Improvement Board,
Assessment District No. 98-1:
180,000 4.900% due 09/02/04 ........................... 180,450
100,000 5.500% due 09/02/11 ........................... 99,500
175,000 Lafayette, California, Elementary
School District,
6.900% due 05/15/06 ........................... 199,281
50,000 Los Angeles County Public Works,
Revenue Anticipation Notes,
4.500% due 03/01/01 ........................... 50,500
835,000 Los Angeles County State Building
Authority, Lease Revenue (MBIA Insured),
5.600% due 05/01/08 ........................... 888,231
Los Angeles Transportation Commission,
Sales Revenue, Proposition C,
Second Series, Series A:
400,000 6.400% due 07/01/06 ........................... 444,500
180,000 6.200% due 07/01/04 ........................... 195,075
200,000 Los Angeles County, California
Certificates of Participation,
6.708% due 06/01/15 ........................... 213,250
Mammoth, California, Community Water District:
260,000 5.100% due 09/02/07 ........................... 259,025
255,000 5.200% due 09/02/08 ........................... 254,362
275,000 5.250% due 09/02/09 ........................... 272,937
Manteca, California, School District,
Community Facilities
District No. 89-1:
170,000 5.450% due 09/01/11 ........................... 168,725
120,000 5.400% due 09/01/10 ........................... 119,400
600,000 Metropolitan Water District,
Southern California Waterworks
Revenue, Series C,
6.000% due 07/01/08 ........................... 656,250
200,000 Metropolitan Water District,
Southern California Waterworks
Revenue, 6.000% due 07/01/21 .................. 208,000
The accompanying notes are an integral part of these financial statements.
76
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==================================
The Montgomery Funds
----------------------------------
California Tax-Free
Intermediate Bond Fund
----------------------------------
Investments
Principal Amount Value (Note 1)
MUNICIPAL BONDS AND NOTES -- continued
California -- continued
$ 250,000 Ontario, California, Redevelopment Financing
Authority, Revenue Refunding (Ontario Redevelopment
Project No. 1)(MBIA Insured),
6.550% due 08/01/06 ........................... $ 280,312
150,000 Oxnard, California, School District,
Refunding (MBIA Insured),
5.625% due 08/01/13 ........................... 158,813
Piedmont, California, School District,
Series A:
75,000 8.300% due 08/01/01 ........................... 81,375
45,000 7.100% due 08/01/02 ........................... 48,825
40,000 Piedmont, California, School District:
Series C (MBIA Insured),
7.200% due 08/01/01 ........................... 42,550
200,000 Pomona, California, Unified School District,
Series A (MBIA Insured),
5.950% due 08/01/10 ........................... 217,750
Port of Redwood City, California:
190,000 4.350% due 06/01/04 ........................... 184,538
210,000 4.600% due 06/01/06 ........................... 202,913
170,000 4.000% due 06/01/01 ........................... 168,300
160,000 4.100% due 06/01/02 ........................... 157,200
185,000 4.200% due 06/01/03 ........................... 180,838
200,000 4.500% due 06/01/05 ........................... 194,250
215,000 4.700% due 06/01/07 ........................... 206,938
225,000 4.800% due 06/01/08 ........................... 215,156
1,095,000 Redwood City Public Financing Authority,
Lease Revenue, Capital Facilities Project,
5.000% due 07/15/10 ........................... 1,103,212
Rancho, California, Water District Financing
Authority, Revenue Refunding (FGIC Insured):
400,000 6.500% due 11/01/05 ........................... 445,500
400,000 6.500% due 11/01/02 ........................... 430,500
320,000 Redwood City, California Multi-family
Housing (Redwood Shores), Series B
(Mandatory Put 10/01/00),
5.200% due 10/01/08 ........................... 320,355
250,000 Riverside County, California, Special Tax
Communities Facilities District No, 84-2,
4.050% due 09/01/00 ........................... 248,750
500,000 Riverside County, California, Transportation
Commission Sales Tax Revenue, Series A
(FGIC Insured),
6.000% due 06/01/09 ........................... 546,250
625,000 Sacramento, California, Municipal Utilities,
Electric Revenue Refunding, Series A
(MBIA Insured),
6.250% due 08/15/10 ........................... 692,969
San Bernardino County, California,
Transportation Authority Sales Tax
Revenue, Series A (MBIA Insured):
1,075,000 6.000% due 04/01/05 ........................... 1,163,687
250,000 6.000% due 03/01/06 ........................... 271,875
500,000 San Bernardino, California, Joint Powers
Financing Authority, Tax Allocation
Revenue Central City Merged Project,
Series A (AMBAC Insured)
5.750% due 07/01/16 ........................... 531,875
175,000 San Diego County Water Authority
Revenue, Certificates of Participation,
Series A,
6.000% due 05/01/01 ........................... 181,563
115,000 San Diego, California, Public Financing
Authority, Sewer Revenue (FGIC Insured),
6.000% due 05/15/07 ........................... 125,781
San Francisco City & County, International
Airport Revenue, AMT Second Series:
445,000 8.000% due 05/01/06 ........................... 529,550
500,000 8.000% due 05/01/09 ........................... 592,500
240,000 San Mateo-Foster City, California, School
District (MBIA Insured),
7.750% due 08/01/06 ........................... 286,500
Santa Rosa, California, Central Packaging
Service Facilities, Refunding:
100,000 4.900% due 07/02/07 ........................... 98,875
170,000 5.100% due 07/02/09 ........................... 167,238
265,000 4.200% due 07/02/00 ........................... 266,094
200,000 4.800% due 07/02/06 ........................... 198,000
500,000 Santa Rosa High School District,
(FGIC Insured),
7.000% due 05/01/01 ........................... 526,875
South Tahoe, California, Joint Powers
Financing Authority, (South Tahoe Development
Project), Series A:
95,000 4.400% due 10/01/06 ........................... 92,031
100,000 4.500% due 10/01/07 ........................... 96,500
105,000 4.625% due 10/01/08 ........................... 100,931
740,000 Sweetwater, California, Water Revenue
Authority (AMBAC Insured),
5.250% due 04/01/10 ........................... 760,350
Torrance, California, Downtown
Redevelopment Authority:
200,000 5.100% due 09/01/09 ........................... 196,000
210,000 5.200% due 09/01/10 ........................... 206,063
Walnut Valley, California, School District,
Series A
(MBIA Insured):
100,000 6.850% due 08/01/07 ........................... 114,875
700,000 7.000% due 08/01/08 ........................... 814,625
The accompanying notes are an integral part of these financial statements.
77
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==================================
The Montgomery Funds
- ----------------------------------
California Tax-Free
Intermediate Bond Fund
- ----------------------------------
Investments
Principal Amount Value (Note 1)
MUNICIPAL BONDS AND NOTES -- continued
California -- continued
Wiseburn, California, School District,
Series A (FGIC Insured):
$ 395,000 6.875% due 08/01/07 ........................... $ 454,250
360,000 6.875% due 08/01/06 ........................... 410,850
----------
39,872,157
Puerto Rico -- 1.7%
135,000 Commonwealth of Puerto Rico,
5.700% due 07/01/09 ........................... 143,775
170,000 Commonwealth of Puerto Rico
(FSA Insured),
5.700% due 07/01/09 ........................... 181,475
350,000 Commonwealth of Puerto Rico Public
Improvement Bonds (MBIA Insured),
5.000% due 07/01/07 ........................... 356,563
----------
681,813
TOTAL MUNICIPAL BONDS AND NOTES
(Cost $40,343,421) .............................................. 40,553,970
----------
TOTAL INVESTMENTS -- 98.9%
(Cost $40,343,421*) ............................................. 40,553,970
----------
OTHER ASSETS AND LIABILITIES -- 1.1%
(Net) ........................................................... 462,919
----------
NET ASSETS -- 100.0% ............................................ $ 41,016,889
==========
* Aggregate cost for federal tax purposes $40,343,421.
Abbreviations:
AMBAC American Municipal Bond Assurance Corporation
AMT Alternative Minimum Tax
CGIC Capital Guaranty Insurance Corporation
FGIC Federal Guaranty Insurance Corporation
FSA Financial Security Assurance
GO General Obligation
MBIA Municipal Bond Investors Assurance
TRANS Tax and Revenue Anticipation
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.
The accompanying notes are an integral part of these financial statements.
78
<PAGE>
======================
The Montgomery Funds
----------------------
Money Market Funds
----------------------
Portfolio Highlights
INVESTMENT REVIEW
Q: How have the Funds performed over the past 12 months?
A: The Montgomery Money Market Funds all outperformed their benchmarks over the
fiscal year ended June 30, 1999. The California Tax-Free Money Fund returned
2.6%, the Federal Tax-Free Money Fund returned 2.8% and the Government Money
Market Fund (formerly the Government Reserve Fund) returned 4.8%. For the same
time period, the benchmark returns of the Lipper California Tax-Exempt Money
Market Funds Average, the Lipper Tax-Exempt Money Market Funds Average and the
Lipper U.S. Government Money Market Funds Average were 2.5%, 2.7% and 4.5%,
respectively.
Q: What were the major bond market trends during the period?
A: Market sentiment reversed from expectations that the United States was headed
into a deflationary environment in the latter half of 1998, to one where
moderate inflation was expected in 1999. Several factors contributed to this
move. Commodity prices stopped declining, there were signs that economies in
Asia and elsewhere were recovering from the crises they have experienced over
the past few years, and the U.S. domestic economy continues to grow at a strong
rate while unemployment remains at historically low levels. Although increases
in productivity spurred by improved technology have helped keep consumer prices
in check, there are questions about how long that can last. As a result, by the
end of June the Federal Reserve Board felt compelled to raise a key short-term
interest rate in an attempt to slow the economy and head off inflation.
On the national front, the significant gains provided by short-term municipal
securities at the end of 1998 toned down somewhat, as short-term Treasury
securities faltered and brought municipals back to more normal price and yield
levels. At the same time, it appears that issuance in the national short-term
municipals market should be lower than in the recent past, a factor that should
help performance in the short term.
As far as the municipal bond markets were concerned, there were a few factors
that affected the performance of the California municipal bond market, in
particular. Over the past few months, added supply caused a backup in short-term
rates. Two factors contributed to this move. First, at the beginning of April,
many investors in municipal money market funds or securities redeemed their
investments in order to collect funds for their tax payments. In addition, as is
typically the case, California municipalities came to market with new issuance
starting at the beginning of June. This oversupply pushed interest rates higher.
In response we extended the Funds'average maturity slightly to capture some of
these higher yields. It should also be noted that we shifted strategy in the
Montgomery California Tax-Free Money Fund by no longer purchasing AMT
(alternative minimum tax) securities, because more California investors are
becoming concerned about being subject to the AMT.
Q: What can we expect for the remainder of 1999?
A: Looking forward we believe that the Federal Reserve will try to find the
perfect level for interest rates, one that will allow economic growth at a
sustainable level without inflation. When the Fed announced its rate hike, it
surprised most market observers by also announcing a switch to a neutral bias.
One of the open questions that remains concerns the strength of the recovery in
foreign economies. We are confident that from this point, however, emerging
economic data and the market's reactions to them should provide ample
opportunities to find value in the marketplace.
- ------------------------------------------
PORTFOLIO MANAGEMENT
- ------------------------------------------
William Stevens.......... Senior Portfolio
Manager
- ------------------------------------------
FUND PERFORMANCE
- ------------------------------------------
Montgomery
Government Money Market Fund*
Since inception (9/14/92)........... 4.52%
One year............................ 4.81%
Five years.......................... 5.07%
One-day yield....................... 4.67%
Seven-day yield..................... 4.53%
Lipper U.S. Government
Money Market Funds Average
Since 9/30/92....................... 4.30%
One year............................ 4.51%
Five years.......................... 4.86%
- ------------------------------------------
Montgomery
Federal Tax-Free Money Fund
Since inception (7/15/96)........... 3.11%
One year............................ 2.82%
One-day yield....................... 2.91%
Seven-day yield..................... 3.17%
Lipper Tax-Exempt
Money Market Funds Average
Since 7/31/96....................... 2.94%
One year............................ 2.68%
- ------------------------------------------
Montgomery
California Tax-Free Money Fund
Since inception (9/30/94)........... 3.00%
One year............................ 2.59%
Three years......................... 2.85%
One-day yield....................... 2.53%
Seven-day yield..................... 2.73%
Lipper California Tax-Exempt
Money Market Funds Average
Since 9/30/94....................... 2.91%
One year............................ 2.46%
Three years......................... 2.79%
- ------------------------------------------
Past performance is no guarantee of future results. Yields will fluctuate. An
investment in one of our money market funds is neither insured nor guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although these Funds seek to preserve the value of your investment at $1 per
share, it is possible to lose money by investing in the Funds. A portion of
income may be subject to some state and/or local taxes, and, for certain
investors, a portion may be subject to the federal alternative minimum tax. Fund
performance presented is for Class R shares.
*Formerly named Montgomery Government Reserve Fund.
79
<PAGE>
========================
The Montgomery Funds
- ------------------------
Government
Money Market Fund
- ------------------------
Investments
PORTFOLIO INVESTMENTS
June 30, 1999
Principal Amount Value (Note 1)
FEDERAL FARM CREDIT BANK (FFCB) -- 4.6%
$ 1,000,000 8.400% due 07/26/99.............................. $ 1,001,815
500,000 4.870% due 09/01/99.............................. 499,730
15,000,000 5.157% due 10/01/99++............................ 15,000,000
10,000,000 Discount Note due 12/21/99....................... 9,776,542
-----------
26,278,087
FEDERAL HOME LOAN BANK (FHLB) -- 35.3%
500,000 6.315% due 07/09/99.............................. 500,064
3,600,000 5.540% due 07/13/99.............................. 3,599,935
1,500,000 4.110% due 07/15/99++............................ 1,499,432
1,550,000 7.180% due 07/30/99++............................ 1,552,867
7,270,000 5.805% due 08/06/99.............................. 7,274,747
14,015,000 5.510% due 08/17/99.............................. 14,013,936
500,000 5.545% due 08/17/99.............................. 500,524
7,550,000 7.866% due 08/31/99++............................ 7,585,415
10,000,000 5.419% due 09/02/99++............................ 9,999,134
20,000,000 4.721% due 09/08/99++............................ 19,998,099
3,000,000 5.915% due 09/24/99.............................. 3,006,083
18,000,000 6.035% due 09/27/99.............................. 18,060,764
20,000,000 4.910% due 10/13/99++............................ 20,001,106
4,545,000 8.375% due 10/25/99.............................. 4,598,159
500,000 7.650% due 10/28/99.............................. 504,229
10,000,000 4.910% due 11/10/99++............................ 9,997,853
2,000,000 5.790% due 11/18/99.............................. 2,007,703
1,000,000 6.405% due 11/22/99.............................. 1,006,922
1,000,000 5.880% due 11/26/99.............................. 1,005,070
2,000,000 5.670% due 01/14/00.............................. 2,005,959
5,000,000 4.995% due 02/24/00.............................. 4,998,712
5,635,000 5.035% due 02/25/00.............................. 5,630,021
3,250,000 4.870% due 03/17/00++............................ 3,245,366
4,000,000 4.500% due 03/22/00++............................ 3,980,908
3,650,000 4.625% due 03/22/00++............................ 3,636,534
19,435,000 4.200% due 03/23/00++............................ 19,289,078
1,000,000 5.590% due 03/27/00.............................. 1,000,911
8,250,000 5.050% due 03/29/00++............................ 8,239,769
8,000,000 4.425% due 04/05/00++............................ 7,954,589
3,000,000 4.120% due 04/12/00++............................ 2,975,236
8,000,000 5.260% due 05/26/00.............................. 8,000,525
500,000 4.690% due 06/01/00++............................ 490,744
5,000,000 5.415% due 06/14/00.............................. 4,998,808
-----------
203,159,202
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 1.6%
916,318 6.500% due 10/01/99.............................. 917,305
8,100,000 5.000% due 03/10/00++............................ 8,095,132
-----------
9,012,437
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 0.2%
330,734 6.500% due 09/01/99.............................. 330,838
348,407 6.500% due 10/01/99.............................. 348,657
460,505 6.500% due 10/01/99.............................. 460,831
-----------
1,140,326
MUNICIPAL BONDS AND NOTES -- 4.0%
New York City, General Obligation Bonds, Prerefunded:
305,000 9.800% due 08/15/04.............................. 312,823
55,000 9.750% due 08/15/09.............................. 56,407
985,000 9.625% due 08/01/10.............................. 1,008,394
165,000 9.750% due 08/15/10.............................. 169,230
150,000 9.750% due 08/15/11.............................. 153,837
351,000 9.875% due 08/15/13.............................. 360,039
3,935,000 9.875% due 08/15/14.............................. 4,036,339
585,000 9.875% due 08/15/15.............................. 600,066
6,200,000 9.875% due 08/15/16.............................. 6,359,671
9,005,000 9.875% due 08/15/17.............................. 9,233,969
1,000,000 9.875% due 08/15/18.............................. 1,025,754
-----------
23,316,529
STUDENT LOAN MARKETING ASSOCIATION (SLMA) -- 17.7%
5,600,000 5.469% due 07/15/99++............................ 5,600,840
11,200,000 5.530% due 07/16/99.............................. 11,204,026
42,215,000 4.500% due 08/02/99.............................. 42,192,283
8,000,000 5.583% due 08/11/99.............................. 7,999,758
20,000,000 4.670% due 09/15/99++............................ 19,997,395
15,000,000 4.910% due 11/05/99++............................ 14,999,185
-----------
101,993,487
TENNESSEE VALLEY AUTHORITY (TVA) -- 0.3%
1,650,000 8.375% due 10/01/99.............................. 1,663,664
-----------
TOTAL SECURITIES.................................................. 366,563,732
REPURCHASE AGREEMENTS -- 36.1%
70,000,000 Agreement with Bear Stearns, Tri-Party,
5.200% dated 06/30/99, to be repurchased at
$70,009,973 on 07/01/99, collateralized
by $71,864,715 market value of U.S.
government and mortgage-backed securities,
having various maturities and interest rates..... 70,000,000
121,712,000 Agreement with Greenwich Capital Markets,
Tri-Party, 5.300% dated 6/30/99, to be
repurchased at $121,729,673 on 07/01/99,
collateralized by $124,148,571 market value
of U.S. government and mortgage-backed
securities, having various maturities and
interest rates................................... 121,712,000
80
The accompanying notes are an integral part of these financial statements.
<PAGE>
=======================
The Montgomery Funds
-----------------------
Government
Money Market Fund
-----------------------
Investments
Principal Amount Value (Note 1)
REPURCHASE AGREEMENTS -- continued
$ 2,073,000 Agreement with Paine Webber Group,
Tri-Party, 5.050% dated 06/30/99, to be
repurchased at $2,073,287 on 07/01/99,
collateralized by $2,077,122 market value
of U.S. government and mortgage-backed
securities, having various maturities and
interest rates.................................. $ 2,073,000
14,172,000 Agreement with Prudential Securities,
Tri-Party, 5.100% dated 06/30/99, to be
repurchased at $14,173,980 on 07/01/99,
collateralized by $14,455,462 market value
of U.S. government and mortgage-backed
securities, having various maturities and
interest rates.................................. 14,172,000
-----------
TOTAL REPURCHASE AGREEMENTS...................................... 207,957,000
-----------
TOTAL INVESTMENTS -- 99.8%
(At amortized cost*)............................................. 574,520,732
OTHER ASSETS AND LIABILITIES -- 0.2%
(Net)............................................................ 867,457
-----------
NET ASSETS -- 100.0%............................................. $ 575,388,189
===========
* Aggregate cost for federal tax purposes was $574,520,732.
++ Floating-rate note reflects the rate in effect at June 30, 1999.
81
The accompanying notes are an integral part of these financial statements.
<PAGE>
========================
The Montgomery Funds
- ------------------------
Federal
Tax-Free Money Fund
- ------------------------
I n v e s t m e n t s
Portfolio Investments
<TABLE>
<CAPTION>
June 30, 1999
Principal Amount Value (Note 1)
MUNICIPAL BONDS AND NOTES -- 100.2%
<S> <C> <C>
Alabama -- 0.4%
$ 500,000 Huntsville, Alabama, General Obligation
Bonds, Prerefunding,
6.750% due 02/01/10............................. $ 519,084
Alaska -- 1.6%
1,350,000 Alaska Municipal Bond Authority Revenue,
Series A, Revenue Bonds (FSA Insured),
4.000% due 12/01/99............................. 1,354,414
500,000 Alaska Student Loan Revenue Corporation,
Series A, Revenue Bonds (AMBAC Insured),
4.700% due 07/01/99............................. 500,000
-----------
1,854,414
Arizona -- 0.6%
250,000 Maricopa County, Arizona, Unified High School
District, No. 210 Phoenix, Series C,
7.400% due 07/01/99............................. 250,000
450,000 Phoenix, Arizona, General Obligation Bonds,
Prerefunding,
6.250% due 07/01/16............................. 459,000
------------
709,000
Arkansas -- 0.4%
500,000 Paragould, Arkansas, Sales and Use Tax,
Revenue Bonds (AMBAC Insured),
4.750% due 07/01/99............................. 500,000
District of Columbia -- 9.2%
5,400,000 District of Columbia, General Obligation
Bonds, Series A-3,
3.450% due 01/01/28++........................... 5,400,000
1,100,000 District of Columbia, General Obligation
Bonds, Series A-3, Refunding,
3.500% due 10/01/07++........................... 1,100,000
2,530,000 District of Columbia, General Obligation
Bonds, Series B-1,
3.700% due 06/01/03++........................... 2,530,000
1,700,000 District of Columbia, General Obligation
Bonds, Series B-2,
3.700% due 06/01/03++........................... 1,700,000
------------
10,730,000
Florida -- 4.5%
4,700,000 Indian River County, Florida, Hospital
District Revenue Bonds Commercial Paper,
3.150% due 07/09/99............................. 4,700,000
500,000 Port Everglades Port Authority, Florida,
Series A, Revenue Bonds, Prerefunding,
7.500% due 09/01/12............................. 513,516
------------
5,213,516
Georgia -- 1.3%
1,200,000 Burke County, Georgia, PCR
(Georgia Power Company Project),
3.500% due 09/01/25++............................ 1,200,000
260,000 Metropolitan Atlanta Rapid Transit
Authority, Georgia Sales Tax Revenue,
Series P (AMBAC Insured),
5.500% due 07/01/99.............................. 260,000
------------
1,460,000
Illinois -- 7.1%
2,100,000 Chicago, Illinois, Public Building
Commission, Series A (FGIC Insured),
3.500% due 01/01/12++............................ 2,100,000
220,000 Franklin Park, Illinois, General
Obligation Revenue (AMBAC Insured),
6.000% due 07/01/99.............................. 220,000
3,000,000 Illinois State Toll Authority, Highway
Priority Revenue, Series B,
3.700% due 01/01/17++............................ 3,000,000
2,955,000 Lombard, Illinois, Multi-family
Housing Revenue (Clover Creek
Apartments Project) (Put, 12/15/99),
3.550% due 12/15/06.............................. 2,955,000
------------
8,275,000
Indiana -- 0.4%
500,000 Warren Township, Indiana, School
Building Corporation Revenue Bonds,
First Mortgage, Series B,
5.600% due 07/15/99.............................. 500,444
Iowa -- 1.0%
1,100,000 Iowa Higher Education Authority, Loan
Revenue Anticipation Notes, Briar Cliff,
Series A,
4.250% due 07/07/99.............................. 1,100,077
Kansas -- 2.9%
250,000 Emporia, Kansas, General Obligation
Bonds, Refunding (AMBAC Insured),
4.750% due 09/01/99.............................. 250,579
2,875,000 Johnson County, Kansas, Public
Buildings Commission, Lease Revenue,
4.250% due 09/01/99.............................. 2,877,846
250,000 Kansas Municipal Energy Agency Electric
Power (Nearman Project), Series A
(AMBAC Insured),
3.800% due 12/01/99.............................. 250,612
------------
3,379,037
</TABLE>
82
The accompanying notes are an integral part of these financial statements.
<PAGE>
========================
The Montgomery Funds
------------------------
Federal
Tax-Free Money Fund
------------------------
I n v e s t m e n t s
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
MUNICIPAL BONDS AND NOTES -- continued
<S> <C> <C>
Kentucky -- 4.1%
$ 390,000 Floyd County, Kentucky, General
Obligation Bonds, Prerefunding
(FSA Insured),
4.350% due 03/01/00.............................. $ 392,784
505,000 Kentucky State, Turnpike Authority,
Economic Development Revenue
Bonds, Prerefunded,
7.250% due 05/15/10.............................. 528,422
3,900,000 Ohio County, Kentucky, PCR, Big Rivers
Electric Corporation, Revenue Bonds
(AMBAC Insured),
3.500% due 10/01/15++............................ 3,900,000
------------
4,821,206
Louisiana -- 5.0%
4,300,000 Louisiana Public Facilities Authority,
Multi-family Mortgage Revenue
(River View Project),
3.550% due 07/01/07++............................ 4,300,000
1,500,000 West Baton Rouge Parish, Louisiana,
Industrial District No. 3 Revenue
(Dow Chemical Project),
3.600% due 12/01/24++............................ 1,500,000
------------
5,800,000
Maryland -- 1.5%
250,000 Baltimore County, Maryland, General
Obligation Bonds, Prerefunding,
5.500% due 05/01/00.............................. 254,470
200,000 Howard County, Maryland, Series B,
General Obligation Bonds,
5.600% due 08/15/99.............................. 200,553
1,000,000 Montgomery County, Maryland,
Housing Opportunity Community,
Multi-family Mortgage Revenue
(Falklands Project),
3.350% due 08/01/15++............................ 1,000,000
300,000 University of Maryland Systems Auxiliary
Facilities and Tuition Revenue, Series B,
6.750% due 10/01/99.............................. 302,468
------------
1,757,491
Massachusetts -- 0.4%
230,000 Dighton and Rehoboth, Massachusetts,
Regional School District, General
Obligation Bonds (AMBAC Insured),
4.100% due 07/15/99.............................. 230,069
250,000 Massachusetts State, General Obligation
Bonds, Series A (FGIC Insured),
7.000% due 03/01/00.............................. 255,852
------------
485,921
Michigan -- 0.4%
500,000 Grand Traverse County Hospital,
Michigan, Munson Healthcare, Series A
(AMBAC Insured),
3.600% due 07/01/99.............................. 500,000
Mississippi -- 0.3%
290,000 Vicksburg Warren, Mississippi, School
District, Certificates of Participation
(MBIA Insured),
4.600% due 04/01/00.............................. 292,861
Missouri -- 4.0%
2,500,000 Kansas City, Missouri, Industrial
Development Authority Revenue
(Ewing Marion Kauffman Project),
3.650% due 04/01/27++............................ 2,500,000
270,000 Missouri State, Development Financing
Board, Infrastructure Facilities Revenue
(Bolger Square Project), Series A
(AMBAC Insured),
5.250% due 06/01/00.............................. 273,611
1,390,000 Missouri State, Economic and Industrial
Development, Export and Infrastructure
Board, Series E,
3.800% due 09/01/10++............................ 1,390,000
485,000 Neosho, Missouri, School District No.
R-5, Building Corporation Leasehold
Revenue, Prerefunding (FSA Insured),
3.500% due 09/01/99.............................. 485,000
------------
4,648,611
Nevada -- 0.3%
300,000 Nevada State, General Obligation Bonds
(Colorado River Community),
5.000% due 07/01/99.............................. 300,000
New Jersey -- 0.4%
500,000 Keansburg, New Jersey, Board of
Education, Certificates of Participation,
Prerefunding,
8.000% due 11/01/14.............................. 517,790
New York -- 0.2%
250,000 Hempstead Town, New York, Series C,
General Obligation Bonds,
4.800% due 02/15/00.............................. 252,278
North Dakota -- 0.3%
300,000 North Dakota State Municipal Board
(Capital Financing Project), Series I,
Prerefunding,
6.250% due 12/01/11.............................. 303,744
Ohio -- 14.1%
3,820,000 Clermont County, Ohio, Hospital
Facilities, Series B, Infrastructure
Facilities Revenue (Bolger Square
Project), Series A (AMBAC Insured),
3.600% due 09/01/21++............................ 3,820,000
4,930,000 Ohio State University, General
Receipts Revenue,
3.500% due 12/01/07++............................ 4,930,000
3,350,000 Ohio State University, General
Receipts Revenue,
3.500% due 12/01/17++............................ 3,350,000
</TABLE>
83
The accompanying notes are an integral part of these financial statements.
<PAGE>
========================
The Montgomery Funds
- ------------------------
Federal
Tax-Free Money Fund
- ------------------------
Investments
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
MUNICIPAL BONDS AND NOTES--continued
<S> <C> <C>
Ohio--continued
$ 4,350,000 Ohio State, PCR (General Motors
Corporation Project),
3.350% due 03/01/06++ .......................... $ 4,350,000
------------
16,450,000
Oregon -- 4.8%
220,000 Medford, Oregon, Gas Tax Revenue
(FSA Insured),
4.000% due 02/01/00 ............................. 220,820
1,010,000 Oregon State, Department of
Administrative Services, Certificates of
Participation, Series B (MBIA Insured),
4.400% due 11/01/99 ............................. 1,013,533
3,950,000 Portland, Oregon, Multi-family Revenue
(South Park Block Project)
(LOC:Harris Trust & Savings Bank),
3.350% due 12/01/11++ ........................... 3,950,000
390,000 Umatilla Indian Reservation, Oregon,
Confederated Tribes, Series A,
General Obligation Bonds
(LOC: Bank of America),
4.200% due 02/01/00 ............................. 391,562
------------
5,575,915
Pennsylvania -- 1.3%
490,000 Pennsylvania State University, Revenue
Bonds, Series B,
4.500% due 08/15/99 ............................. 490,440
1,000,000 Sewickley Valley, Pennsylvania,
Hospital Authority Revenue (Sewickley
Valley Hospital Project), Prerefunding,
7.500% due 10/01/14 ............................. 1,029,385
------------
1,519,825
South Carolina -- 0.4%
450,000 Horry County, South Carolina School
District, Series B, General Obligation
Bonds (MBIA Insured),
6.500% due 03/01/00 ............................. 459,504
Tennessee -- 0.7%
820,000 Nashville and Davidson Counties,
Tennessee, Metropolitan
Government, Prerefunding,
3.700% due 08/01/99 ............................. 820,000
Texas -- 10.1%
535,000 Austin, Texas, General Obligation Bonds,
Series A, Prerefunded, (Call, 09/01/99),
7.000% due 09/01/02 ............................. 538,185
1,200,000 Calhoun County, Texas, Naval Industrial
Development Authority, Port Revenue
(Formosa Plastics Corporation)
(LOC: Bank of America),
3.450% due 11/01/15++............................ 1,200,000
250,000 Dallas, Texas, Waterworks and Sewer
Systems Revenue Bonds,
5.600% due 10/01/99 ............................. 251,163
700,000 Grand Prairie Sports Facility Tax
Revenue, Series B, Prerefunding
(FSA Insured),
4.000% due 09/15/99 ............................. 701,045
1,000,000 Guadalupe-Blanco River Authority, PCR
(Central Power & Light Company
Project) (LOC: ABN Amro Bank N.V.),
3.450% due 11/01/15++ ........................... 1,000,000
790,000 Harlingen, Texas, Airport Improvement
Revenue, Prerefunding (AMBAC Insured),
3.450% due 02/15/00 ............................. 790,000
580,000 Harris County, Texas, Health Facilities
Development Revenue (Texas Medical
Center Project) (MBIA Insured),
7.375% due 05/15/20++ ........................... 610,849
3,900,000 Harris County, Texas, Industrial
Development Corporation, Solid Waste
Disposal Revenue,
3.300% due 02/01/23++............................ 3,900,000
1,000,000 Lower Neches Valley, Texas Authority,
Industrial Development
Corporation Revenue
(Mobil Oil Refining Corporation),
3.550% due 03/01/29++............................ 1,000,000
275,000 Plano, Texas, General Obligation Bonds,
Prerefunding (AMBAC Insured),
5.000% due 09/01/99 ............................. 275,671
225,000 Plugerville, Texas, Independent School
District, General Obligation Bonds,
8.750% due 08/01/99 ............................. 226,001
200,000 Texas Municipal Power Agency Revenue,
Prerefunding (FGIC Insured),
7.000% due 09/01/99 ............................. 201,090
300,000 Texas State Public Financing Authority,
General Obligation Bonds, Prerefunding,
4.000% due 10/01/99.............................. 300,668
700,000 Texas State Public Financing Authority,
General Obligation Bonds, Series B,
7.100% due 10/01/03 ............................. 706,166
------------
11,700,838
Utah -- 4.0%
4,100,000 Utah State Board, Regents Student Loan
Revenue, Series B (AMBAC Insured),
3.500% due 11/01/00++............................ 4,100,000
500,000 Utah State Building Ownership
Authority, Series A,
5.500% due 05/15/00 ............................. 509,131
------------
4,609,131
Virginia -- 0.9%
250,000 Fairfax County, Virginia, Series A,
General Obligation Bonds, Prerefunding,
4.700% due 06/01/00 ............................. 253,120
</TABLE>
84
The accompanying notes are an integral part of these financial statements.
<PAGE>
========================
The Montgomery Funds
------------------------
Federal
Tax-Free Money Fund
------------------------
Investments
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
MUNICIPAL BONDS AND NOTES -- continued
<S> <C> <C>
Virginia -- continued
$ 815,000 Virginia State, Series B, General
Obligation Bonds, Prerefunding,
4.200% due 06/01/00 ............................. $ 821,517
------------
1,074,637
Washington -- 13.8%
265,000 King County, Washington, Housing
Authority Housing Revenue, Series A,
3.850% due 07/01/99 ............................. 265,000
1,000,000 Port Seattle, Washington, Industrial
Development Corporation Revenue (Sysco
Food Services Project), Prerefunding,
3.550% due 11/01/25++ ........................... 1,000,000
450,000 Richland, Washington, Water and Sewer
Revenue, Refunding (AMBAC Insured),
4.000% due 04/01/00 ............................. 451,961
285,000 Snohomish and Island Counties,
Washington, Stanwood School District
No. 401, Refunding (FGIC Insured),
3.250% due 12/15/99 ............................. 285,000
965,000 Thurston County, Washington, Olympia
School District No. 111, Refunding
(FGIC Insured),
4.300% due 12/01/99 ............................. 969,027
315,000 Washington State, Certificates of
Participation, Series A,
3.000% due 07/01/99 ............................. 315,000
320,000 Washington State, Certificates of
Participation, Series A,
3.250% due 01/01/00 ............................. 320,000
3,000,000 Washington State, Economic
Development Financing Authority
Revenue (Pioneer Human Services
Project), Series H
(LOC: U.S. Bank of Washington),
3.700% due 09/01/18++ ........................... 3,000,000
3,200,000 Washington State, Healthcare Facilities
Authority Revenue (Sisters Providence),
3.400% due 10/01/05++ ........................... 3,200,000
370,000 Washington State, Higher Education
Facilities Authority Revenue
(Whitworth College Project),
Refunding (MBIA Insured)
3.250% due 10/01/99 ............................. 370,000
1,100,000 Washington State, Housing Finance
Community, Multi-family Mortgage
Revenue (Canyon Lakes II Project)
(LOC: U.S. Bank of Washington),
4.650% due 10/01/19++ ........................... 1,100,000
2,600,000 Washington State, Housing Finance
Community, Multi-family Mortgage
Revenue (Inglenook Court Project)
(LOC: Bank of America),
3.600% due 07/01/25++ ........................... 2,600,000
2,225,000 Washington State, Housing
Finance Community,
Multi-family Mortgage Revenue
(Winterhill Apartments Project),
3.250% due 07/01/28++ ........................... 2,225,000
------------
16,100,988
Wisconsin -- 1.6%
1,800,000 Wisconsin State Transportation Revenue,
Multi-family Mortgage Revenue
(Canyon Lakes II Project),
5.800% due 07/01/99 ............................. 1,800,000
Wyoming -- 2.2%
2,500,000 Lincoln County, Wyoming,
Environmental Improvement Revenue
(Pacificorp Projects), AMT,
3.650% due 11/01/25++ ........................... 2,500,000
TOTAL INVESTMENTS -- 100.2%
(At amortized cost*) ............................................. 116,531,312
OTHER ASSETS AND LIABILITIES -- (0.2)%
(Net) ............................................................ (189,999)
------------
NET ASSETS -- 100.0% ............................................. $116,341,313
============
</TABLE>
* Aggregate cost for federal tax purposes $116,531,312.
++ Floating-rate note reflects the rate in effect at June 30, 1999.
Abbreviations:
AMBAC American Municipal Bond Assurance Corporation
AMT Alternative Minimum Tax
FGIC Federal Guaranty Insurance Corporation
FSA Financial Security Assurance
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance
PCR Pollution Control Revenue
85
The accompanying notes are an integral part of these financial statements.
<PAGE>
=========================
The Montgomery Funds
- -------------------------
California
Tax-Free Money Fund
- -------------------------
Investments
PORTFOLIO INVESTMENTS
<TABLE>
<CAPTION>
June 30, 1999
Principal Amount Value (Note 1)
<S> <C> <C>
Municipal Bonds and Notes -- 103.7%
California -- 103.0%
$ 1,300,000 Abag, California, Financing
Authority Revenue, Nonprofit
Corporation, Certificates of Participation,
Series C, Prerefunding
3.100% due 10/01/27++ ........................... $ 1,300,000
300,000 Alameda County, California, Unified
School District
6.900% due 07/01/99 ............................. 300,000
1,000,000 Anaheim, California, Certificates of
Participation, Prerefunding
(AMBAC Insured)
7.125% due 05/15/13 ............................. 1,053,559
2,450,000 Antioch, California, Public Financing
Authority Reassessment Revenue, Series A
(AMBAC Insured)
6.500% due 09/02/99 ............................. 2,464,469
1,000,000 Bakersfield, California, City School,
Series B, Prerefunding
6.250% due 08/01/14 ............................. 1,022,604
200,000 Bay Area, California, Redevelopment
Agency, Pool A (FSA Insured)
4.900% due 12/15/99 ............................. 201,653
200,000 Berkeley, California, School District
Authority (AMBAC Insured)
8.100% due 08/01/01 ............................. 204,841
320,000 Berkeley, California, Unified School
District (FGIC Insured)
4.375% due 08/01/99 ............................. 320,355
400,000 Calexico, California, Financing Authority
Revenue, Water System (AMBAC Insured)
3.150% due 11/01/99 ............................. 400,000
500,000 California Statewide Community
Development Authority, Oakland
Convention Center Project
5.200% due 10/01/99 ............................. 502,568
5,000,000 California Education Facilities Authority
3.050% due 08/20/99 ............................. 5,000,000
1,105,000 California Educational Facilities
Authority Revenue, Prerefunding
6.200% due 01/01/02 ............................. 1,144,332
2,000,000 California Educational Facilities Authority
Revenue, Pepperdine University, Series B
2.650% due 11/01/29++ ........................... 2,000,000
5,200,000 California Educational Facilities Authority
Revenue, Pomona College
2.650% due 07/01/22++ ........................... 5,200,000
335,000 California Educational Facilities Authority
Revenue, Pomona College
2.900% due 01/01/00 ............................. 334,831
6,000,000 California Health Facilities Financing
Authority Revenue (MBIA Insured)
3.000% due 11/01/21++ ........................... 6,000,000
3,210,000 California Health Facilities Financing
Authority Revenue
3.200% due 09/01/20++ ........................... 3,210,000
600,000 California Health Facilities Financing
Authority Revenue, Prerefunding
7.500% due 05/01/20 ............................. 633,674
6,000,000 California Health Facilities Financing
Authority Revenue (MBIA Insured),
3.070% due 08/15/28++ ........................... 6,000,000
875,000 California Health Facilities Financing
Authority Revenue, Catholic Health,
Series A, Prerefunding (AMBAC Insured)
7.000% due 07/01/06 ............................. 892,500
2,300,000 California Health Facilities Financing
Authority Revenue, Catholic Healthcare,
Series B (MBIA Insured)
3.000% due 07/01/16++ ........................... 2,300,000
500,000 California Health Facilities Financing
Authority Revenue, Kaiser Permanente,
Series A, Prerefunding
7.000% due 10/01/18 ............................. 514,715
15,050,000 California Health Facilities
Financing Authority Revenue,
Memorial Health Services
3.200% due 10/01/24++............................ 15,050,000
2,200,000 California Health Facilities
Financing Authority, Saint Joseph
Health System, Series B
2.900% due 07/01/09++ ........................... 2,200,000
2,100,000 California Health Facilities Financing
Authority, Sutter Healthcare Series B
2.900% due 07/01/12++ ........................... 2,100,000
7,600,000 California Pollution Control
Financing Authority
3.050% due 10/14/99 ............................. 7,600,000
8,400,000 California Pollution Control
Financing Authority
3.300% due 11/01/26++ ........................... 8,400,000
4,000,000 California Schools Cash Reserve Authority,
Series A
4.000% due 07/03/00 ............................. 4,035,000
5,250,000 California State
4.500% due 10/01/99 ............................. 5,267,892
490,000 California State
5.900% due 02/01/00 ............................. 497,639
</TABLE>
86
The accompanying notes are an integral part of these financial statements.
<PAGE>
=========================
The Montgomery Funds
-------------------------
California
Tax-Free Money Fund
-------------------------
Investments
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
Municipal Bonds and Notes -- continued
<S> <C> <C>
California -- continued
$ 450,000 California State
6.000% due 11/01/99 .............................. $ 454,447
400,000 California State Department of Water
Resources Central Valley Project Revenue,
Series H, Prerefunding
6.900% due 12/01/11 .............................. 421,031
380,000 California State Department of Water
Resources Central Valley Project Revenue,
Series I, Prerefunding
6.600% due 12/01/19 .............................. 397,256
8,265,000 California State Economic Development
Financing Authority Revenue
3.050% due 04/01/08++ ............................ 8,265,000
250,000 California State Public Works Board
Energy Efficiency Revenue Series B
(AMBAC Insured)
4.200% due 03/01/00 .............................. 251,966
500,000 California State Public Works Board Lease
Revenue, Department of Corrections State
Prisons, Series A (AMBAC Insured)
4.500% due 12/01/99 .............................. 503,074
13,750,000 California Statewide Communities
Development Authority Revenue,
Certificates of Participation,
Sutter Health Obligation Group
3.400% due 07/01/15++ ............................ 13,750,000
5,000,000 California Statewide Communities
Development Authority Revenue, Series A
4.000% due 06/30/00 .............................. 5,039,600
7,200,000 California Statewide Community
Development Authority, Certificate of
Participation FSA Financing
2.900% due 12/01/15++ ............................ 7,200,000
2,700,000 California Statewide Communities
Development Authority, Certificates of
Participation
3.200% due 06/01/26++ ............................ 2,700,000
250,000 Central Coast, California Water Authority
Revenue (AMBAC Insured)
5.300% due 10/01/99 .............................. 251,355
3,300,000 Central Valley, California Schools
Financing Authority
3.500% due 01/27/00 .............................. 3,307,304
475,000 Chico, California, Unified School District
(FSA Insured)
9.000% due 08/01/99 .............................. 477,336
1,000,000 Clovis, California, Unified School District
5.000% due 08/01/99 .............................. 1,001,568
320,000 Compton, California, Community
Redevelopment Agency, Prerefunding
(AMBAC Insured)
7.500% due 08/01/13 .............................. 327,571
3,400,000 Contra Costa County, California,
Multi-family Mortgage Revenue
3.200% due 11/15/22++ ............................ 3,400,000
2,500,000 Contra Costa County, California Board of
Education, TRANS
3.750% due 06/30/00 .............................. 2,515,700
500,000 Contra Costa County, California, Water
District, Water Revenue Series F
(FGIC Insured)
4.375% due 10/01/99 .............................. 501,693
400,000 Coronado, California Community
Development Agency Tax Allocation
(FSA Insured)
4.300% due 09/01/99 .............................. 400,865
650,000 Culver City, California, Redevelopment
Financing Authority, Prerefunding, Senior
Lien, Series A (AMBAC Insured)
6.900% due 11/01/01 .............................. 671,217
450,000 Davis California Joint Unified School
District Yolo & Solano Counties, TRANS
3.250% due 04/04/00 .............................. 450,484
4,000,000 East Bay, California, Municipal Utility
District, Water System Revenue
3.000% due 10/08/99 .............................. 4,000,000
250,000 East Bay, California, Municipal Utility
District, Water System Revenue
(FGIC Insured)
6.000% due 06/01/00 .............................. 256,251
250,000 Evergreen, California, School District
Special Tax (AMBAC Insured)
3.900% due 09/01/99 .............................. 250,373
1,630,000 Folsom Community Facilities
District 2, Special Tax, Prerefunding
7.700% due 12/01/19 .............................. 1,692,315
360,000 Fontana, California, Redevelopment
Agency, Tax Allocation, Southwest
Industrial Park (MBIA Insured)
4.000% due 09/01/99 .............................. 360,569
5,000,000 Fontana, California, Unified School
District, TRANS
4.000% due 07/09/99 .............................. 5,000,359
765,000 Fremont, California, Certificates of
Participation, Police Facility Refinancing
Project (MBIA Insured)
3.000% due 08/01/99 .............................. 765,000
345,000 Garden Grove, California Public Financing
Authority Revenue, Water Services
(FGIC Insured)
4.200% due 12/15/99 .............................. 346,687
</TABLE>
87
The accompanying notes are an integral part of these financial statements.
<PAGE>
=========================
The Montgomery Funds
- -------------------------
California
Tax-Free Money Fund
- -------------------------
Investments
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
Municipal Bonds and Notes -- continued
<S> <C> <C>
California -- continued
$ 1,945,000 Golden Empire Schools Financing
Authority, Var-Kern High School District,
Series A
3.250% due 12/01/24++............................ $ 1,945,000
1,440,000 Golden West Schools Financing Authority,
Series A (MBIA Insured)
4.600% due 08/01/99.............................. 1,441,889
250,000 High Desert, California, Memorial Health
Care District Revenue
3.950% due 10/01/99.............................. 250,000
725,000 Imperial County, California, Certificates
of Participation (MBIA Insured)
3.500% due 02/15/00.............................. 727,201
700,000 Irvine California Improvement Bonds,
Act of 1915 Adjusted Assessment
2.900% due 09/02/22++............................ 700,000
500,000 Irvine California Improvement Bonds,
Act of 1915 Adjusted Assessment
2.900% due 09/02/23++............................ 500,000
4,150,000 Irvine Ranch Improvement Bonds,
Act of 1915
2.900% due 09/02/24++............................ 4,150,000
9,400,000 Irvine Ranch Water District Certificates
of Participation
3.700% due 08/01/16++............................ 9,400,000
1,460,000 Irvine Ranch, California, Water District
Bank of America NT&SA
3.200% due 04/01/33++............................ 1,460,000
2,000,000 Irvine Ranch, California, Water District
2.900% due 10/01/10++............................ 2,000,000
400,000 Kaweah Delta Healthcare District
California Revenue, Series A
(MBIA Insured)
3.100% due 06/01/00.............................. 400,000
2,705,000 Kern, California, High School District
(MBIA Insured)
3.270% due 02/01/13++............................ 2,705,000
250,000 Long Beach, California, Harbor Revenue
7.150% due 05/15/00.............................. 258,634
300,000 Los Angeles County California,
Metropolitan Transit Authority Sales Tax
Revenue, Series A (FSA Insured)
4.000% due 07/01/99.............................. 300,000
5,260,000 Los Angeles County Certificate of
Participation, Equipment and Realty
Property Acquisition (AMBAC Insured)
4.000% due 12/01/99.............................. 5,282,399
2,000,000 Los Angeles County, California Schools
Pooled Financing Program, Certificates of
Participation, Series A
4.000% due 06/30/00.............................. 2,016,820
1,080,000 Los Angeles County, California,
Certificates of Participation, Prerefunding
7.000% due 03/01/02 ............................. 1,129,657
300,000 Los Angeles County, California, Schools
Regionalized Business Services, Series A
(FSA Insured)
3.850% due 06/01/00 ............................. 301,873
5,000,000 Los Angeles Multi-family Housing
Mortgage Revenue, Valencia Village
Project (FSA Insured)
3.300% due 10/01/14++ ........................... 5,000,000
2,000,000 Los Angeles Waste Water Systems Revenue,
Series B, Prerefunding
7.150% due 06/01/20 ............................. 2,110,407
2,000,000 Los Angeles Water Works (MBIA Insured)
3.050% due 08/27/99 ............................. 2,000,000
325,000 Los Angeles, Convention and Exhibition
Center Authority, Certificates of
Participation, Series A, Prerefunding
6.600% due 08/15/99 ............................. 326,341
2,000,000 Los Angeles, Community
Redevelopment Agency
2.800% due 04/01/09++ ........................... 2,000,000
750,000 Los Angeles, Convention and Exhibition
Center Authority, Certificates of
Participation, Series A, Prerefunding
7.375% due 08/15/18 ............................. 765,028
200,000 Los Angeles, California, Departments of
Airport Revenue
4.250% due 05/15/00 ............................. 201,529
775,000 Los Angeles, California, GO Series A
4.900% due 09/01/99 ............................. 777,442
1,000,000 Los Angeles, California, Municipal
Corporation Lease Revenue
7.300% due 09/01/99 ............................. 1,006,825
200,000 Los Angeles County, California Flood
Control District
4.300% due 11/01/99 ............................. 200,284
215,000 Mammoth County, California,
Community Water District, Act 1915
4.000% due 09/02/99 ............................. 215,000
5,500,000 Metropolitan Water District, Southern
California Water Works Revenue, Series C
2.500% due 07/01/28++ ........................... 5,500,000
7,800,000 Modesto Irrigation District
3.050% due 09/14/99 ............................. 7,800,000
500,000 Northern California Power Agency,
Public Power, Combustion Turbine,
Prerefunding (MBIA Insured)
6.000% due 08/15/10 ............................. 501,743
300,000 Northern California, Power Agency
Northwest Revenue (MBIA Insured)
4.200% due 06/01/00 ............................. 302,407
</TABLE>
88
The accompanying notes are an integral part of these financial statements.
<PAGE>
=========================
The Montgomery Funds
-------------------------
California
Tax-Free Money Fund
-------------------------
Investments
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C> <C>
Municipal Bonds and Notes -- continued
California -- continued
$ 5,800,000 Ontario California Industrial
Development Authority
3.450% due 04/01/15++ ............................ $ 5,800,000
1,300,000 Orange County Apartment Development
Revenue, Harbor Point, Issue D
3.600% due 12/01/06++ ............................ 1,300,000
750,000 Orange County Local Transportation
Authority, Sales Tax Revenue
5.400% due 02/15/00 ............................. 761,036
5,000,000 Orange County Water Corporation
3.000% due 08/25/99 ............................. 5,000,000
1,300,000 Orange County, California, Sanitation
District, Certificates of Participation
(AMBAC Insured)
2.900% due 08/01/16++ ........................... 1,300,000
5,000,000 Orange County, California Apartment
Development Revenue, Issue D
3.600% due 11/15/28++ ........................... 5,000,000
1,000,000 Orange County, California, Sanitation
District Certificates of Participation,
Series C (FGIC Insured)
3.050% due 08/01/17++ ........................... 1,000,000
5,000,000 Orange County, California, Special
Financing Authority, Teeter Plan Revenue,
Series B (AMBAC Insured)
2.950% due 11/01/14++ ........................... 5,000,000
4,100,000 Orange County, California, Recovery,
Certificates of Participation
(MBIA Insured)
3.520% due 07/01/19++ ........................... 4,100,000
2,275,000 Orange County,
Water Authority, California
3.050% due 10/13/99 ............................. 2,275,000
2,000,000 Pollution Control Financing Authority
3.000% due 11/01/26++ ........................... 2,000,000
5,620,000 Redlands, California, Certificates of
Participation (FGIC Insured)
3.300% due 09/01/17++ ........................... 5,620,000
1,040,000 Redlands, California, Redevelopment
Agency, Series A (MBIA Insured)
3.700% due 08/01/99 ............................. 1,040,604
860,000 Riverside County, California, TRANS
4.500% due 09/30/99 ............................. 862,744
3,300,000 Riverside County, California, Housing
Authority Multi-family Revenue
3.250% due 12/01/07 ............................. 3,300,000
310,000 Rocklin, California, Unified School
District, Community Facilities District,
Special Tax (MBIA Insured)
3.750% due 09/01/99 ............................. 310,281
1,565,000 Sacramento, California, Regional County
Sanitation District
4.500% due 08/01/99 ............................. 1,566,149
5,000,000 Riverside Teeter, Commercial Paper
3.000% due 08/24/99 ............................. 5,000,000
195,000 San Bernardino, California, Joint Powers
Financing Authority, Tax Allocation
Revenue, Series B
4.600% due 07/01/99 ............................. 195,000
1,419,000 San Diego Port Corporation
3.000% due 09/09/99 ............................. 1,419,000
900,000 San Diego, Regional Transportation
Commission, Series A
4.500% due 09/30/99 ............................. 902,640
290,000 San Diego, California, Unified School
District, Certificates of Participation,
Series B
6.000% due 07/01/99 ............................. 290,000
1,070,000 San Francisco California, City and County
Financial Corporate Lease Revenue,
Emergency Radio
3.700% due 04/01/00 ............................. 1,075,469
500,000 San Francisco, California, Bay Area Rapid
Transit District Sales Tax Revenue
6.700% due 07/01/00 ............................. 516,869
375,000 San Francisco, California, City & County
City Hall Improvement Project, Series A
(FGIC Insured)
6.100% due 06/15/00 ............................. 385,379
250,000 San Francisco, California, City and County
Sewer Revenue, Prerefunding
(AMBAC Insured)
6.500% due 10/01/10 ............................. 256,991
500,000 San Francisco, California, City and County
Sewer Revenue, Prerefunding
(AMBAC Insured)
6.500% due 10/01/11 ............................. 514,246
475,000 San Francisco, California, City and County
Sewer Revenue, Prerefunding
(AMBAC Insured)
6.500% due 10/01/21 ............................. 488,530
510,000 Santa Ana, California, Community
Redevelopment Agency, Tax Allocation,
Prerefunding
7.400% due 09/01/19 ............................. 523,743
300,000 Santa Barbara County, California, Local
Transit Authority Sales Revenue
(FGIC Insured)
4.300% due 04/01/00 ............................. 302,522
2,510,000 Santa Clara County, California, TRANS
4.500% due 10/01/99 ............................. 2,518,622
1,935,000 Santa Clara County, California, Transit
District, Series 1985 A
3.200% due 06/01/15++ ........................... 1,935,000
</TABLE>
89
The accompanying notes are an integral part of these financial statements.
<PAGE>
=========================
The Montgomery Funds
- -------------------------
California
Tax-Free Money Fund
- -------------------------
Investments
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
Municipal Bonds and Notes -- continued
<S> <C> <C>
California -- continued
$ 500,000 Santa Monica California, Community
College District, Certificates of Partici-
pation, Prerefunding (AMBAC Insured)
3.200% due 06/01/00 ............................. $ 500,311
250,000 Santa Rosa, California, Central Parking
Service Facilities District
4.050% due 07/02/99 ............................. 250,002
500,000 Santa Cruz County, California, Public
Financing Authority Revenue, Series B,
Prerefunding
7.625% due 09/01/21 ............................. 515,997
1,000,000 Sonoma County, TRANS
3.500% due 02/01/00 ............................. 1,002,156
500,000 South Coast Air Quality Management,
District Building Corporation, California,
Revenue, Series B (AMBAC Insured)
6.900% due 08/01/00 ............................. 511,579
250,000 South Poway Community, Facilities
District Number 1, California
(MBIA Insured)
3.500% due 08/02/99 ............................. 250,106
1,835,000 Southern California Rapid Transit District,
Certificates of Participation (MBIA Insured)
7.625% due 07/01/99 ............................. 1,910,400
375,000 Temecula, California, Community
Special Tax
4.250% due 09/01/99 ............................. 375,169
435,000 Thousand Oaks, California, Certificate of
Participation, Wastewater System
Improvement Project (FSA Insured)
3.400% due 10/01/99 ............................. 435,319
555,000 Torrance, California, Certificate
of Participation, Wastewater System
Improvement Project (FSA Insured)
4.000% due 12/01/99 ............................. 557,270
510,000 Tri-City California Hospital District
Revenue, Series B (MBIA Insured)
5.500% due 02/15/00 ............................. 517,348
4,610,000 Triunfo, California County,
Sanitation District (Callable)
3.300% due 06/01/19++ ........................... 4,610,000
455,000 University of California, Revenue Series,
Prerefunding, (AMBAC Insured)
6.800% due 09/01/09 ............................. 466,898
2,000,000 University of California, UCLA Central
Chiller/Cogeneration Facility, Certificate
of Participation, Prerefunding
7.000% due 11/01/21 ............................. 2,065,943
2,100,000 Vallecitos Water District, California,
Water Revenue Credit (LOC: Local de France)
3.200% due 07/01/30++ ........................... 2,100,000
2,300,000 Vallejo, California, Multi-family
Housing Authority Revenue, (LOC:
Dresdner Kleinworth Benson)
2.800% due 01/01/08++ ........................... 2,300,000
200,000 West Covina, California, Public Financing
Water Revenue, Water Systems Capital
Improvements Project, Prerefunding
7.500% due 09/01/08 ............................. 205,437
320,000 Whittier, California, Community Facility
District Special Tax
3.600% due 09/01/99 ............................. 320,000
5,550,000 Yuba County, California, TRANS
3.750% due 02/10/00 ............................. 5,569,800
------------
301,808,692
Puerto Rico -- 0.7%
1,910,000 Puerto Rico GDB
3.150% due 09/10/99 ............................. 1,910,000
TOTAL INVESTMENTS -- 103.7%
(At amortized cost*) ............................................. 303,718,692
OTHER ASSETS AND LIABILITIES -- (3.7%)
(Net) ............................................................ (10,817,465)
------------
NET ASSETS -- 100.0% ............................................. $292,901,227
============
</TABLE>
* Aggregate cost for federal tax purposes $303,718,692.
++ Floating-rate note reflects the rate in effect at June 30, 1999.
Abbreviations:
AMBAC American Municipal Bond Assurance Corporation
FGIC Federal Guaranty Insurance Corporation
FSA Financial Security Assurance
GO General Obligation
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance
TRANS Tax and Revenue Anticipation
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.
90
The accompanying notes are an integral part of these financial statements.
<PAGE>
=======================
The Montgomery Funds
-----------------------
Annual Report
-----------------------
June 30, 1999
====================
FINANCIAL STATEMENTS
- --------------------
Statements of Assets and Liabilities ..... 92
Statements of Operations ................. 98
Statements of Changes in Net Assets ...... 102
Statements of Cash Flows ................. 106
Financial Highlights ......................110
Notes to Financial Statements ............ 130
Independent Auditor's Report ............. 146
Tax Information .......................... 147
91
<PAGE>
=======================
The Montgomery Funds
- -----------------------
Statements of
Assets and Liabilities
- -----------------------
June 30, 1999
<TABLE>
<CAPTION>
Growth
Assets: Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (note 1)
Securities ..................................................................................... $633,757,054
Repurchase agreements .......................................................................... 45,284,000
Cash ................................................................................................ --
Foreign currency, at value (Cost $475,277) .......................................................... --
Cash held as collateral for loaned securities (note 4) .............................................. 15,683,855
Dividends receivable ................................................................................ 675,128
Interest receivable ................................................................................. 6,352
Receivable for expenses absorbed by Manager ......................................................... --
Receivable for shares of beneficial interest sold ................................................... 908,304
Receivable for investment securities sold ........................................................... 5,040,520
Other assets ........................................................................................ --
------------
Total Assets ........................................................................................ 701,355,213
------------
Liabilities:
- ------------------------------------------------------------------------------------------------------------------------------------
Forward foreign-currency exchange contracts:
Net unrealized depreciation of forward foreign-currency exchange contracts (note 4) ............ --
Collateral on securities loaned (note 4) ............................................................ 15,683,855
Notes payable (note 4) .............................................................................. --
Payable for shares of beneficial interest redeemed .................................................. 8,430,324
Payable for investment securities purchased ......................................................... 5,891,945
Management fees payable ............................................................................. 102,653
Administration fees payable ......................................................................... 36,385
Share marketing plan fees payable (note 3) (Class P shares only) .................................... 563
Dividends payable ................................................................................... --
Trustees' fees and expenses payable ................................................................. 3,445
Cash overdrafts payable to custodian ................................................................ 645,746
Accounting, Custodian and Transfer agency fees payable .............................................. 399,395
Other accrued liabilities and expenses .............................................................. 153,597
--------------
Total Liabilities ................................................................................... 31,347,908
--------------
Net Assets .......................................................................................... $670,007,305
--------------
Investments at identified cost ...................................................................... $516,473,228
Net Assets Consist of:
- ------------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(distributions in excess of net investment income/accumulated net
investment loss) .................................................................................... $ 4,220,770
Accumulated net realized gain/(loss) ................................................................ 107,535,433
Net unrealized appreciation ......................................................................... 162,567,826
Shares of beneficial interest ....................................................................... 275,293
Additional paid-in capital .......................................................................... 395,407,983
--------------
Net Assets .......................................................................................... $670,007,305
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Class R shares ................................................................................. $669,788,754
Class P shares ................................................................................. 218,551
--------------
Net Assets .......................................................................................... $670,007,305
Class R shares outstanding ..................................................................... 27,520,359
Class P shares outstanding ..................................................................... 8,916
Class R shares: Net asset value, offering and redemption price per share outstanding ................ $ 24.34
--------------
Class P shares: Net asset value, offering and redemption price per share outstanding ................ $ 24.51
--------------
</TABLE>
92
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
U.S. Emerging Equity International International Global
Growth Small Cap Income Growth Small Cap Opportunities
Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
$ 372,397,416 $ 121,878,047 $ 28,966,175 $ 221,479,146 $ 37,436,220 $ 55,274,580
12,813,000 16,578,000 1,308,000 7,390,000 -- 2,303,000
-- -- 990 -- -- 62,887
-- -- -- -- -- 474,452
7,355,591 12,069,405 356,679 16,859,354 1,614,873 3,582,787
96,143 10,760 28,042 558,423 160,957 98,943
1,815 2,326 185 1,047 -- 326
-- -- 216,317 175,020 303,164 227,394
206,696 63,902 2,557 5,086,064 205,534 67,883
2,848,093 1,965,956 233,622 2,456,811 1,071,177 1,180,174
5,071 -- -- -- 2,514 --
- ------------- ------------- ------------- ------------- ------------- -------------
395,723,825 152,568,396 31,112,567 254,005,865 40,794,439 63,272,426
- ------------- ------------- ------------- ------------- ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------------
-- -- -- 98,326 2,156 11,021
7,355,591 12,069,405 356,679 16,859,354 1,614,873 3,582,787
-- -- -- -- 400,000 --
292,404 5,359,491 15,163 154,311 3,959 58,174
4,693,685 994,978 464,925 6,357,625 139,625 2,163,202
253,898 55,602 246,788 450,573 344,292 192,295
18,922 12,310 1,706 13,185 2,284 3,119
-- 23,038 4,936 2,017 36 --
-- -- -- -- -- --
2,093 1,063 565 2,322 751 656
482,160 14,254 -- 264,548 133,616 --
50,061 51,668 28,594 95,668 45,421 69,794
92,501 57,367 31,234 68,952 50,691 45,838
- ------------- ------------- ------------- ------------- ------------- -------------
13,241,315 18,639,176 1,150,590 24,366,881 2,737,704 6,126,886
- ------------- ------------- ------------- ------------- ------------- -------------
$ 382,482,510 $ 133,929,220 $ 29,961,977 $ 229,638,984 $ 38,056,735 $ 57,145,540
- ------------- ------------- ------------- ------------- ------------- -------------
$ 275,475,738 $ 97,603,880 $ 24,468,532 $ 221,218,736 $ 35,270,673 $ 49,301,510
- ------------------------------------------------------------------------------------------------------------------------------------
$ -- $ -- $ 8,286 $ (606,751) $ (192,896) $ 11,294
22,828,520 (6,874,371) 2,100,116 6,940,454 (441,699) 4,813,717
109,734,676 40,852,167 5,805,643 7,544,887 2,156,473 8,266,541
193,133 80,970 15,743 121,084 26,263 29,748
249,726,181 99,870,454 22,032,189 215,639,310 36,508,594 44,024,240
- ------------- ------------- ------------- ------------- ------------- -------------
$ 382,482,510 $ 133,929,220 $ 29,961,977 $ 229,638,984 $ 38,056,735 $ 57,145,540
- ------------------------------------------------------------------------------------------------------------------------------------
$ 382,482,510 $ 113,322,824 $ 26,749,914 $ 227,286,877 $ 38,053,879 $ 57,145,540
N/A 20,606,396 3,212,063 2,352,107 2,856 N/A
- ------------- ------------- ------------- ------------- ------------- -------------
$ 382,482,510 $ 133,929,220 $ 29,961,977 $ 229,638,984 $ 38,056,735 $ 57,145,540
19,313,325 6,836,591 1,405,261 11,984,060 2,626,071 2,974,786
N/A 1,260,377 168,990 124,311 198 N/A
$ 19.80 $ 16.58 $ 19.04 $ 18.97 $ 14.49 $ 19.21
- ------------- ------------- ------------- ------------- ------------- -------------
N/A $ 16.35 $ 19.01 $ 18.92 $ 14.42 N/A
- ------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
93
<PAGE>
======================
The Montgomery Funds
- ----------------------
Statements of
Assets and Liabilities
- ----------------------
June 30, 1999
<TABLE>
<CAPTION>
Global
Communications
Assets: Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (note 1)
Securities ....................................................................................... $311,944,922
Repurchase agreements ............................................................................ 40,277,000
Cash .................................................................................................. 475,789
Foreign currency, at value (Cost $855,581, $4,176,930, $1,304,115, $152,779 and $682,683, respectively) 855,250
Net unrealized appreciation of forward foreign-currency exchange contracts (note 4).................... --
Cash held as collateral for loaned securities (note 4) ................................................ 473,884
Net unrealized appreciation of equity swaps............................................................ --
Dividends receivable .................................................................................. 342,408
Interest receivable ................................................................................... 5,706
Receivable for expenses absorbed by Manager............................................................ --
Receivable for shares of beneficial interest sold ..................................................... 3,105,470
Receivable for investment securities sold ............................................................. 3,145,752
Receivable for short sales............................................................................. --
Deferred organization costs (note 1)................................................................... --
Other assets .......................................................................................... 834
------------
Total Assets 360,627,015
------------
Liabilities:
- ------------------------------------------------------------------------------------------------------------------------------------
Short sales (Proceeds $63,592,826) (note 1)............................................................ --
Options written, at value (Premium received $131,401) (note 1)......................................... --
Net unrealized depreciation of forward foreign-currency exchange contracts (note 4) ................... 55,438
Collateral on securities loaned (note 4) .............................................................. 473,884
Notes payable (note 4)................................................................................. --
Deferred fee income on dollar roll transactions........................................................ --
Purchase of investments under dollar roll transactions................................................. --
Payable for shares of beneficial interest redeemed .................................................... 125,761
Payable for investment securities purchased ........................................................... 4,816,758
Payable for foreign currency due to Custodian.......................................................... --
Management fees payable ............................................................................... 70,158
Administration fees payable ........................................................................... 19,470
Share marketing plan fees payable (note 3)............................................................. --
Dividends payable...................................................................................... --
Trustees' fees and expenses payable ................................................................... 3,147
Variation margin payable............................................................................... --
Cash overdrafts payable to custodian................................................................... --
Accounting, Custodian and Transfer Agency fees payable ................................................ 214,406
Other accrued liabilities and expenses ................................................................ 117,808
------------
Total Liabilities 5,896,830
------------
Net Assets $354,730,185
------------
Investments at identified cost ........................................................................ $276,797,128
Net Assets Consist of:
- ------------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(distributions in excess of net investment income/accumulated net
investment loss)....................................................................................... $ 54,907
Accumulated net realized gain/(loss) .................................................................. 64,255,823
Net unrealized appreciation ........................................................................... 75,327,755
Shares of beneficial interest ......................................................................... 132,729
Additional paid-in capital ............................................................................ 214,958,971
------------
Net Assets $354,730,185
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Class B shares ................................................................................... $ N/A
Class C shares ................................................................................... N/A
Class R shares ................................................................................... 354,730,185
Class P shares ................................................................................... N/A
------------
Net Assets $354,730,185
Class B shares outstanding ....................................................................... N/A
Class C shares outstanding ....................................................................... N/A
Class R shares outstanding ....................................................................... 13,272,893
Class P shares outstanding ....................................................................... N/A
Class B shares: Net asset value, offering and redemption price per share outstanding .................. N/A
------------
Class C shares: Net asset value, offering and redemption price per share outstanding .................. N/A
------------
Class R shares: Net asset value, offering and redemption price per share outstanding .................. $ 26.73
------------
Class P shares: Net asset value, offering and redemption price per share outstanding .................. N/A
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
94
<PAGE>
<TABLE>
<CAPTION>
Global U.S. Asset
Emerging Emerging Long-Short Select 50 Allocation Total Return
Markets Fund Asia Fund Fund Fund Fund Bond Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 327,138,160 $ 58,640,616 $ 299,059,456 $ 128,003,731 $ 81,199,261 $ 43,623,598
-- 5,150,000 -- 3,120,000 -- 1,664,000
-- 23,916 58,402,425 -- 90,082 --
4,176,931 1,304,115 111,169 655,931 -- --
-- -- 4,092 -- -- --
-- -- -- -- -- --
-- -- 46,793 -- -- --
1,568,446 34,372 328,781 433,979 -- --
17,663 1,822 1,984 442 -- 511,684
221,543 -- -- -- 224,274 52,802
7,189,327 1,975,373 928,250 1,356,108 5,822 5,024
19,216,199 865,192 6,674,193 7,085,128 -- 417,331
-- -- 869,334 -- -- --
-- 7,549 19,846 2,200 717 4,197
-- -- -- -- -- 100,000
- ------------- ------------- ------------- ------------- ------------- -------------
359,528,269 68,002,955 366,446,323 140,657,519 81,520,156 46,378,636
- ------------- ------------- ------------- ------------- ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------------
-- -- 68,980,966 -- -- --
-- -- 227,150 -- -- --
20,911 2,086 -- 1,021 -- --
-- -- -- -- -- --
7,500,000 -- 40,000,000 -- -- --
-- -- -- -- -- 4,017
-- -- -- -- -- 72,675
293,209 77,597 1,255,226 326,671 250,760 31,932
1,817,010 3,580,405 13,128,362 3,190,528 -- 7,217,374
-- -- -- -- -- --
-- 14,888 79,997 63,055 -- 115,338
18,343 2,941 -- 7,743 -- 1,617
250 -- 29,196 -- 628 --
-- -- 49,085 -- -- 206,748
1,797 1,031 1,493 1,082 1,738 638
-- -- -- -- -- 391
3,739,906 1,043,493 -- 20,930 -- 194,367
554,475 36,907 123,322 131,283 37,573 9,733
155,192 47,718 358,463 68,037 39,962 48,137
- ------------- ------------- ------------- ------------- ------------- -------------
14,101,093 4,807,066 124,233,260 3,810,350 330,661 7,902,967
- ------------- ------------- ------------- ------------- ------------- -------------
$ 345,427,176 $ 63,195,889 $ 242,213,063 $ 136,847,169 $ 81,189,495 $ 38,475,669
- ------------- ------------- ------------- ------------- ------------- -------------
$ 291,153,230 $ 51,586,122 $ 261,310,447 $ 105,836,341 $ 77,061,164 $ 45,684,306
- ------------------------------------------------------------------------------------------------------------------------------------
$ (8,200,457) $ (888,647) $ (160,495) $ (792,662) $ 811,588 $ (46,628)
(364,695,283) (12,765,830) 16,204,055 12,884,667 (1,156,320) 478,159
35,783,338 12,199,592 32,248,669 25,260,238 4,138,097 (396,708)
337,230 51,762 123,739 61,642 48,421 32,992
682,202,348 64,599,012 193,797,095 99,433,284 77,347,709 38,407,854
- ------------- ------------- ------------- ------------- ------------- -------------
$ 345,427,176 $ 63,195,889 $ 242,213,063 $ 136,847,169 $ 81,189,495 $ 38,475,669
- ------------------------------------------------------------------------------------------------------------------------------------
$ N/A $ N/A $ 18,703,880 $ N/A $ N/A $ N/A
N/A N/A 7,208,697 N/A N/A N/A
344,907,496 63,195,889 216,300,486 136,791,645 81,133,231 38,475,669
519,680 N/A N/A 55,524 56,264 N/A
- ------------- ------------- ------------- ------------- ------------- -------------
$ 345,427,176 $ 63,195,889 $ 242,213,063 $ 136,847,169 $ 81,189,495 $ 38,475,669
N/A N/A 966,639 N/A N/A N/A
N/A N/A 400,192 N/A N/A N/A
33,671,243 5,176,207 11,007,094 6,161,627 4,838,742 3,299,191
51,732 N/A N/A 2,544 3,362 N/A
N/A N/A $ 19.35 N/A N/A N/A
- ------------- ------------- ------------- ------------- ------------- -------------
N/A N/A $ 18.01 N/A N/A N/A
- ------------- ------------- ------------- ------------- ------------- -------------
$ 10.24 $ 12.21 $ 19.65 $ 22.20 $ 16.77 $ 11.66
- ------------- ------------- ------------- ------------- ------------- -------------
$ 10.05 N/A N/A $ 21.83 $ 16.74 N/A
- ------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
95
<PAGE>
- ---------------------------
The Montgomery Funds
- ---------------------------
Statements of
Assets and Liabilities
- ---------------------------
June 30, 1999
<TABLE>
<CAPTION>
Short
Duration
Government
Assets: Bond Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (note 1)
Securities ..................................................................................... $ 168,762,946
Repurchase agreements .......................................................................... 11,624,000
Cash ................................................................................................ 253,207
Interest receivable ................................................................................. 1,169,608
Receivable for shares of beneficial interest sold ................................................... 830,273
Receivable for investment securities sold ........................................................... 3,615,178
Receivable for expenses absorbed by Manager.......................................................... --
Sale of investments under dollar roll transactions .................................................. 32,343
Other assets......................................................................................... --
------------
Total Assets ........................................................................................ 186,287,555
------------
Liabilities:
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred fee income on dollar roll transactions ..................................................... 8,429
Payable for shares of beneficial interest redeemed .................................................. 1,281,669
Payable for investment securities purchased ......................................................... 25,672,644
Management fees payable ............................................................................. 225,279
Administration fees payable ......................................................................... 12,504
Share marketing plan fees payable (note 3) (Class P shares only) .................................... 4,752
Dividends payable ................................................................................... 759,209
Trustees' fees and expenses payable ................................................................. 1,027
Cash overdrafts payable to custodian................................................................. --
Accounting, Custodian and Transfer agency fees payable .............................................. 25,730
Other accrued liabilities and expenses .............................................................. 43,593
-------------
Total Liabilities ................................................................................... 28,034,836
-------------
Net Assets .......................................................................................... $ 158,252,719
-------------
Investments at identified cost ...................................................................... $ 181,045,952
-------------
Net Assets Consist of:
- ------------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(distributions in excess of net investment income/accumulated net $ (198,522)
investment loss)
Accumulated net realized gain/(loss) ................................................................ (930,714)
Net unrealized appreciation ......................................................................... (659,006)
Shares of beneficial interest ....................................................................... 157,583
Additional paid-in capital .......................................................................... 159,883,378
-------------
Net Assets .......................................................................................... $ 158,252,719
-------------
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Class R shares ................................................................................. $ 154,365,349
Class P shares ................................................................................. 3,887,370
-------------
Net Assets .......................................................................................... $ 158,252,719
Class R shares outstanding ..................................................................... 15,370,636
Class P shares outstanding ..................................................................... 387,674
Class R shares: Net asset value, offering and redemption price per share outstanding ................ $ 10.04
-------------
Class P shares: Net asset value, offering and redemption price per share outstanding ................ $ 10.03
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
96
<PAGE>
California
Tax-Free Government Federal California
Intermediate Money Market Tax-Free Tax-Free
Bond Fund Fund* Money Fund Money Fund
- --------------------------------------------------------------------------------
$ 40,553,970 $ 366,563,732 $ 116,531,312 $ 303,718,692
-- 207,957,000 -- --
22,671 -- -- 597,580
683,302 5,085,149 808,906 2,194,234
6,500 290,782 -- 2,701,267
-- -- -- --
-- -- -- 70,198
-- -- -- --
-- -- -- 38,927
------------- ------------- ------------- -------------
41,266,443 579,896,663 117,340,218 309,320,898
------------- ------------- ------------- -------------
- --------------------------------------------------------------------------------
-- -- -- --
6,289 1,015,869 371,273 14,300
-- 722,745 -- 15,517,520
56,660 333,020 122,546 223,917
1,702 21,739 4,223 13,510
-- -- -- --
137,011 2,030,323 268,307 567,442
592 3,857 1,560 1,518
-- 101,593 191,150 --
7,941 124,588 15,137 30,078
39,359 154,740 24,709 51,386
------------- ------------- ------------- -------------
249,554 4,508,474 998,905 16,419,671
------------- ------------- ------------- -------------
$ 41,016,889 $ 575,388,189 $ 116,341,313 $ 292,901,227
------------- ------------- ------------- -------------
$ 40,343,421 $ 574,520,732 $ 116,531,312 $ 303,718,692
------------- ------------- ------------- -------------
- --------------------------------------------------------------------------------
$ (79,767) $ 4,448 $ (209) $ 296
(7,321) 6,927 (990) (6,735)
210,549 -- -- --
32,381 5,753,656 1,163,428 2,929,076
40,861,047 569,623,158 115,179,084 289,978,590
------------- ------------- ------------- -------------
$ 41,016,889 $ 575,388,189 $ 116,341,313 $ 292,901,227
- --------------------------------------------------------------------------------
$ 41,016,889 $ 575,387,260 $ 116,341,313 $ 292,901,227
N/A 929 N/A N/A
------------- ------------- ------------- -------------
$ 41,016,889 $ 575,388,189 $ 116,341,313 $ 292,901,227
3,238,118 575,364,707 116,342,816 292,907,663
N/A 928 N/A N/A
$ 12.67 $ 1.00 $ 1.00 $ 1.00
------------- ------------- ------------- -------------
N/A $ 1.00 N/A N/A
------------- ------------- ------------- -------------
*Formerly named Montgomery Government Reserve Fund.
97
<PAGE>
=========================
The Montgomery Funds
- -------------------------
Statements of Operations
- -------------------------
Year Ended June 30, 1999
<TABLE>
<CAPTION>
U.S. Emerging
Growth Growth Small Cap
Net Investment Income: Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income:
Interest ...................................................... $ 2,768,428 $ 1,706,433 $ 150,156
Dividends (net of foreign withholding taxes) .................. 13,998,220 1,130,762 158,953
Securities lending income (note 4) ............................ 55,863 111,032 44,287
------------- ------------- -------------
Total Income .................................................. 16,822,511 2,948,227 353,396
------------- ------------- -------------
Expenses:
Custodian fee ................................................. 82,432 20,997 19,099
Transfer agency and servicing fees ............................ 1,931,012 513,855 138,097
Management fee (note 2) ....................................... 8,698,673 4,867,019 1,529,933
Administration fee (note 2) ................................... 596,578 244,217 107,095
Share marketing plan fee (note 3) (Class P shares only) ....... 432 -- 45,933
Legal and audit fees .......................................... 118,482 40,813 55,573
Trustees' fees ................................................ 8,250 6,055 5,866
Registration fees ............................................. 62,317 31,854 42,007
Accounting fees ............................................... 343,900 123,298 56,198
Printing fees ................................................. 383,933 140,142 40,165
Amortization of organization expenses (note 1) ................ 1,428 2,194 --
Tax expense ................................................... -- -- --
Other ......................................................... 112,152 58,655 23,234
Interest expense .............................................. 260,268 1,745 3,552
------------- ------------- -------------
Total Expenses ................................................ 12,599,857 6,050,844 2,066,752
Fees deferred and/or expenses absorbed by Manager (note 2) .... -- -- --
------------- ------------- -------------
Net Expenses .................................................. 12,599,857 6,050,844 2,066,752
------------- ------------- -------------
Net Investment Income/(Loss) .................................. 4,222,654 (3,102,617) (1,713,356)
------------- ------------- -------------
Net Realized and Unrealized Gain/(Loss) on Investments:
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Securities transactions ................................... 126,994,489 20,878,928 (6,685,358)
Futures contracts ......................................... (3,718,426) 5,213,328 --
Foreign-currency transactions and other assets ............ (200) -- --
------------- ------------- -------------
Net Realized Gain/(Loss) on Investments ....................... 123,275,863 26,092,256 (6,685,358)
Net change in unrealized appreciation/(depreciation) of:
Securities ................................................ (103,710,125) (33,067,747) (11,588,109)
Forward foreign-currency exchange contracts ............... -- -- --
Futures contracts ......................................... -- -- --
Foreign-currency transactions and other assets ............ -- -- --
------------- ------------- -------------
Net Unrealized Appreciation/(Depreciation) of Investments ..... (103,710,125) (33,067,747) (11,588,109)
------------- ------------- -------------
Net Realized and Unrealized Gain/(Loss) on Investments ........ 19,565,738 (6,975,491) (18,273,467)
------------- ------------- -------------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 23,788,392 $ (10,078,108) $ (19,986,823)
------------- ------------- -------------
Foreign withholding taxes ..................................... $ 109,803 $ -- $ --
------------- ------------- -------------
</TABLE>
98
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Equity International International Global Global
Income Growth Small Cap Opportunities Communications Emerging Emerging
Fund Fund Fund Fund Fund Markets Fund Asia Fund
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 63,569 $ 740,254 $ 211,313 $ 130,468 $ 928,218 $ 191,806 $ 156,659
865,200 2,935,033 637,703 568,119 3,783,021 8,062,289 440,817
215 127,398 57,818 105,768 227,264 -- --
------------- ------------- ------------- ------------- ------------- ------------- -------------
928,984 3,802,685 906,834 804,355 4,938,503 8,254,095 597,476
------------- ------------- ------------- ------------- ------------- ------------- -------------
14,931 132,926 69,445 87,367 127,387 978,345 34,668
81,400 385,720 91,489 120,999 564,262 1,426,513 82,749
303,646 2,215,164 855,638 923,286 3,513,626 4,630,828 562,967
25,341 128,893 32,122 40,303 198,318 265,350 22,722
7,483 2,122 109 -- -- 925 --
25,168 50,697 39,719 40,971 57,155 77,825 50,465
5,371 6,229 5,560 5,477 7,958 6,948 5,377
28,294 42,788 31,801 23,660 46,781 62,540 30,713
11,543 110,827 24,362 34,332 169,391 269,638 21,080
18,661 90,021 11,545 29,865 122,449 197,962 20,181
2,878 1,953 1,483 1,450 -- -- 3,149
-- -- -- -- 5,382 135,594 --
7,752 33,287 8,439 13,883 56,180 94,022 11,008
1,670 12,551 2,994 62,766 12,615 481,973 93,961
------------- ------------- ------------- ------------- ------------- ------------- -------------
534,138 3,213,178 1,174,706 1,384,359 4,881,504 8,628,463 939,040
(217,211) (160,139) (299,803) (227,394) -- (397,685) (228,921)
------------- ------------- ------------- ------------- ------------- ------------- -------------
316,927 3,053,039 874,903 1,156,965 4,881,504 8,230,778 710,119
------------- ------------- ------------- ------------- ------------- ------------- -------------
612,057 749,646 31,931 (352,610) 56,999 23,317 (112,643)
------------- ------------- ------------- ------------- ------------- ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------------
2,848,156 7,059,105 (159,760) 10,716,706 89,060,782 (219,608,583) (1,014,857)
-- -- -- -- -- -- 238,945
-- (1,246,001) (204,823) (591,340) (1,430,125) (3,482,340) (431,832)
------------- ------------- ------------- ------------- ------------- ------------- -------------
2,848,156 5,813,104 (364,583) 10,125,366 87,630,657 (223,090,923) (1,207,744)
------------- ------------- ------------- ------------- ------------- ------------- -------------
1,204,992 (1,642,974) (1,935,788) (5,044,724) (11,288,950) 180,122,934 25,917,257
------------- ------------- ------------- ------------- ------------- ------------- -------------
-- (286,275) 237 (6,298) (44,816) (16,415) (2,086)
-- -- -- -- -- -- --
-- 8,294 6,343 15,928 (41,215) (60,699) (71,203)
------------- ------------- ------------- ------------- ------------- ------------- -------------
1,204,992 (1,920,955) (1,929,208) (5,035,094) (11,374,981) 180,045,820 25,843,968
------------- ------------- ------------- ------------- ------------- ------------- -------------
4,053,148 3,892,149 (2,293,791) 5,090,272 76,255,676 (43,045,103) 24,636,224
------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 4,665,205 $ 4,641,795 $ (2,261,860) $ 4,737,662 $ 76,312,675 $ (43,021,786) $ 24,523,581
------------- ------------- ------------- ------------- ------------- ------------- -------------
$ -- $ 385,734 $ 84,950 $ 77,251 $ 268,294 $ 671,483 $ 34,123
------------- ------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
99
<PAGE>
========================
The Montgomery Funds
- ------------------------
Statements of Operations
- ------------------------
Year Ended June 30, 1999
<TABLE>
<CAPTION>
Global Global
Long-Short Long-Short Select 50
Net Investment Income: Fund* Fund** Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Income:
<S> <C> <C> <C>
Interest ...................................................... $ 107,964 $ 1,122,155 $ 228,460
Dividends (net of foreign withholding taxes) .................. 668,729 570,095 1,964,261
------------ ------------ ------------
Total Income .................................................. 776,693 1,692,250 2,192,721
------------ ------------ ------------
Expenses:
Custodian fee ................................................. 73,921 112,391 146,573
Transfer agency and servicing fees ............................ 50,876 119,465 256,149
Management fee (note 2) ....................................... 885,497 863,717 2,118,848
Administration fee (note 2) ................................... 31,290 38,828 118,656
Equity swap fees .............................................. -- 8,103 --
Dividend expense .............................................. 175,308 208,338 --
Share marketing plan fee (note 3)
Class P shares ............................................ -- -- 116
Class B shares ............................................ 33,611 72,735 --
Class C shares ............................................ 12,731 27,393 --
Legal and audit fees .......................................... 17,270 102,999 27,281
Trustees fees ................................................ 1,672 8,801 5,884
Registration fees ............................................. 7,453 44,415 36,135
Accounting expenses ........................................... 27,883 -- 98,812
Printing fees ................................................. 3,648 -- 91,431
Amortization of organization expenses (note 1) ................ 1,396 5,367 1,748
Shareholder servicing fees (note 4) ........................... 111,750 137,886 --
Tax expense ................................................... -- 4,418 --
Overdraft expense ............................................ 228,477 -- --
Other ......................................................... 8,728 84,235 34,980
Interest expense .............................................. 352,367 363,688 45,203
------------ ------------ ------------
Total Expenses ................................................ 2,023,878 2,202,779 2,981,816
Fees deferred and/or expenses absorbed by Manager (note 2) .... (188,977) (214,996) --
------------ ------------ ------------
Net Expenses .................................................. 1,834,901 1,987,783 2,981,816
------------ ------------ ------------
Net Investment Income/(Loss) .................................. (1,058,208) (295,533) (789,095)
------------ ------------ ------------
Net Realized and Unrealized Gain/(Loss) on Investments:
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Securities transactions ................................... 12,700,812 11,019,215 17,826,369
Securities sold short ..................................... 102,762 (94,947) --
Futures contracts and written options ..................... (81,821) (51,168) --
Foreign-currency transactions and other assets ............ (1,030,107) (769,479) (2,163,346)
------------ ------------ ------------
Net Realized Gain/(Loss) on Investments ....................... 11,691,646 10,103,621 15,663,023
Net change in unrealized appreciation/(depreciation) of:
Securities .................................................... 21,029,501 14,977,606 (5,457,920)
Forward foreign-currency exchange contracts ................... 14,638 (9,847) (143,831)
Securities sold short ......................................... (1,550,825) (3,448,607) --
Equity swaps .................................................. 96,997 (50,204) --
Futures contracts and written options ......................... (101,773) (475) --
Foreign-currency transactions and other assets ................ 518,234 (579,527) 42,489
------------ ------------ ------------
Net Unrealized Appreciation/(Depreciation) of Investments ..... 20,006,772 10,888,946 (5,559,262)
------------ ------------ ------------
Net Realized and Unrealized Gain/(Loss) on Investments 31,698,418 20,992,567 10,103,761
------------ ------------ ------------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 30,640,210 $ 20,697,034 $ 9,314,666
------------ ------------ ------------
Foreign withholding taxes ..................................... $ 52,047 $ 57,248 $ --
------------ ------------ ------------
</TABLE>
* For the three-month period ended June 30, 1999. The Fund changed its year
end from March 31 to June 30.
** Year ended March 31, 1999.
The accompanying notes are an integral part of these financial statements.
100
<PAGE>
<TABLE>
<CAPTION>
California
U.S. Asset Short Duration Tax-Free Government Federal California
Allocation Total Return Government Intermediate Money Market Tax-Free Tax-Free
Fund Bond Fund Bond Fund Bond Fund Fund*** Money Fund Money Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,100 $ 4,267,110 $ 8,491,824 $ 1,868,241 $ 38,606,173 $ 4,227,007 $ 7,582,120
3,117,168 -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
3,120,268 4,267,110 8,491,824 1,868,241 38,606,173 4,227,007 7,582,120
------------ ------------ ------------ ------------ ------------ ------------ ------------
6,067 10,138 12,196 2,246 199,450 -- 8,361
238,629 18,000 123,425 17,665 279,096 31,042 32,779
-- 340,724 1,019,539 357,085 2,230,429 763,874 1,135,573
-- 30,298 64,534 20,231 321,086 62,270 122,096
-- -- -- -- -- -- --
-- -- -- -- -- -- --
165 -- 4,785 -- 1 -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
21,013 11,491 28,994 18,024 159,911 26,837 36,716
7,649 5,567 5,832 5,397 9,467 4,932 4,830
43,246 7,316 58,014 10,756 66,206 40,443 5,160
14,323 27,733 47,513 17,029 341,653 44,264 89,625
32,293 1,768 16,546 3,770 22,494 6,664 7,889
4,511 10,304 -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
92,861 13,316 71,062 27,933 92,613 21,641 38,386
-- 279,451 945,297 -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
460,757 756,106 2,397,737 480,136 3,722,406 1,001,967 1,481,415
(207,593) (50,454) (647,496) (202,315) -- (257,501) (70,198)
------------ ------------ ------------ ------------ ------------ ------------ ------------
253,164 705,652 1,750,241 277,821 3,722,406 744,466 1,411,217
------------ ------------ ------------ ------------ ------------ ------------ ------------
2,867,104 3,561,458 6,741,583 1,590,420 34,883,767 3,482,541 6,170,903
------------ ------------ ------------ ------------ ------------ ------------ ------------
1,328,853 1,402,105 (582,777) 28,947 32,817 (72) 33
-- -- -- -- -- -- --
-- 30,819 14,579 -- -- -- --
-- -- (1,819) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
1,328,853 1,432,924 (570,017) 28,947 32,817 (72) 33
4,581,206 (2,230,098) (869,520) (682,980)
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
4,581,206 (2,230,098) (869,520) (682,980) -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
5,910,059 (797,174) (1,439,537) (654,033) 32,817 (72) 33
------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 8,777,163 $ 2,764,284 $ 5,302,046 $ 936,387 $ 34,916,584 $ 3,482,469 $ 6,170,936
------------ ------------ ------------ ------------ ------------ ------------ ------------
$ -- $ -- $ -- $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
***Formerly named Montgomery Government Reserve Fund.
101
<PAGE>
- ------------------------
The Montgomery Funds
- ------------------------
Statements of
Changes in Net Assets
- ------------------------
Year Ended June 30, 1999
<TABLE>
<CAPTION>
U.S. Emerging
Growth Growth Small Cap
Increase/(Decrease) in Net Assets from Operations: Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) ....................................................... $ 4,222,654 $ (3,102,617) $ (1,713,356)
Net realized gain/(loss) on securities, forward foreign-currency exchange contracts,
futures contracts, foreign-currency transactions and other assets during the
period ........................................................................ 123,275,863 26,092,256 (6,685,358)
Net unrealized appreciation/(depreciation) of securities, forward foreign-currency
exchange contracts, foreign-currency transactions and other assets during the
period ........................................................................ (103,710,125) (33,067,747) (11,588,109)
-------------- ------------- -------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .................... 23,788,392 (10,078,108) (19,986,823)
Distributions to Shareholders:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ................................................................ (4,685,102) -- --
Class P shares ................................................................ (787) -- --
Distributions to shareholders in excess of net investment income:
Class R shares ................................................................ -- -- --
Distributions to shareholders from net realized gains on investments:
Class R shares ................................................................ (75,567,304) (21,441,030) (17,927,065)
Class P shares ................................................................ (12,703) -- (2,233,433)
Distributions to shareholders in excess of net realized gains on investments:
Class R shares ................................................................ -- -- (6,112,721)
Class P shares ................................................................ -- -- (761,650)
-------------- ------------- -------------
Total Distributions ................................................................ (80,265,896) (21,441,030) (27,034,869)
Beneficial Interest Transactions:
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 6) ............. (656,586,933) 22,028,789 (44,034,045)
Net Increase/(Decrease) in Net Assets .............................................. (713,064,437) (9,490,349) (91,055,737)
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of Period ................................................................ 1,383,071,742 391,972,859 224,984,957
End of Period ...................................................................... $ 670,007,305 $ 382,482,510 $ 133,929,220
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) .. $ 4,220,770 -- --
<CAPTION>
Global Global
Long-Short Long-Short Select 50
Increase/(Decrease) in Net Assets from Operations: Fund* Fund** Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) ....................................................... $ (1,058,208) $ (295,533) $ (789,095)
Net realized gain/(loss) on securities, forward foreign-currency exchange contracts,
futures contracts, equity swaps and foreign-currency transactions during the
period ........................................................................ 11,691,646 10,103,621 15,663,023
Net unrealized appreciation/(depreciation) of securities, forward foreign-currency
exchange contracts, equity swaps, foreign-currency transactions and other
assets during the period ...................................................... 20,006,772 10,888,946 (5,559,262)
------------- ------------- -------------
Net Increase/(Decrease) in Net Assets Resulting from Operations .................... 30,640,210 20,697,034 9,314,666
Distributions to Shareholders:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ................................................................ -- -- (2,143,762)
Class P shares ................................................................ -- -- (475)
Distributions to shareholders in excess of net investment income:
Class R shares ................................................................ -- -- (928,695)
Class P shares ................................................................ -- -- (206)
Distributions to shareholders from net realized gains on investments:
Class B shares ................................................................ -- (1,000,105) --
Class C shares ................................................................ -- (402,108) --
Class R shares ................................................................ -- (3,527,506) (9,337,841)
Class P shares ................................................................ -- -- (2,414)
Distributions to shareholders in excess of net realized gains on investments:
Class R shares ................................................................ -- -- --
Class P shares ................................................................ -- -- --
------------- ------------- -------------
Total Distributions ................................................................ -- (4,929,719) (12,413,393)
Beneficial Interest Transactions:
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 6) ............. 104,478,341 74,484,954 (129,772,361)
Net Increase/(Decrease) in Net Assets .............................................. 135,118,551 90,252,269 (132,871,088)
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of Period ................................................................ 107,094,512 16,842,243 269,718,257
End of Period ...................................................................... $ 242,213,063 $ 107,094,512 $ 136,847,169
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) .. $ (160,495) $ (337,050) $ (792,662)
</TABLE>
* For the three-month period ended June 30, 1999. The Fund changed its year
end from March 31 to June 30.
** Year ended March 31, 1999.
The accompanying notes are an integral part of these financial statements.
102
<PAGE>
<TABLE>
<CAPTION>
Equity International International Global Global
Income Growth Small Cap Opportunities Communications Emerging Emerging
Fund Fund Fund Fund Fund Markets Fund Asia Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 612,057 $ 749,646 $ 31,931 $ (352,610) $ 56,999 $ 23,317 $ (112,643)
2,848,156 5,813,104 (364,583) 10,125,366 87,630,657 (223,090,923) (1,207,744)
1,204,992 (1,920,955) (1,929,208) (5,035,094) (11,374,981) 180,045,820 25,843,968
------------- ------------- ------------- ------------- ------------- ------------- -------------
4,665,205 4,641,795 (2,261,860) 4,737,662 76,312,675 (43,021,786) 24,523,581
- ------------------------------------------------------------------------------------------------------------------------------------
(559,687) -- -- (558,444) -- -- --
(44,084) -- -- -- -- -- --
-- -- (36,660) -- -- -- --
(2,953,011) (940,560) -- (5,700,468) (29,529,571) -- --
(250,330) (4,968) -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- ------------- -------------
(3,807,112) (945,528) (36,660) (6,258,912) (29,529,571) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
(13,875,041) 161,118,037 (10,140,563) (37,744,824) 40,834,194 (370,874,641) 14,063,944
(13,016,948) 164,814,304 (12,439,083) (39,266,074) 87,617,298 (413,896,427) 38,587,525
- ------------------------------------------------------------------------------------------------------------------------------------
42,978,925 64,824,680 50,495,818 96,411,614 267,112,887 759,323,603 24,608,364
$ 29,961,977 $ 229,638,984 $ 38,056,735 $ 57,145,540 $ 354,730,185 $ 345,427,176 $ 63,195,889
$ 8,286 $ (606,751) $ (192,896) $ 11,294 $ 54,907 $ (8,200,457) $ (888,647)
<CAPTION>
U.S. Asset Short Duration California Tax-Free Government Federal California
Allocation Total Return Government Intermediate Money Market Tax-Free Tax-Free
Fund Bond Fund Bond Fund Bond Fund Fund*** Money Fund Money Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,867,104 $ 3,561,458 $ 6,741,583 $ 1,590,420 $ 34,883,767 $ 3,482,541 $ 6,170,903
1,328,853 1,432,924 (570,017) 28,947 32,817 (72) 33
4,581,206 (2,230,098) (869,520) (682,980) -- -- --
------------- ------------- ------------- ------------- ------------- ------------- -------------
8,777,163 2,764,284 5,302,046 936,387 34,916,584 3,482,469 6,170,936
- ------------------------------------------------------------------------------------------------------------------------------------
(5,412,395) (3,561,458) (6,441,336) (1,510,644) (34,878,792) (3,482,322) (6,169,715)
(3,284) -- (95,475) -- (22) -- --
-- (41,221) (204,526) (79,767) -- (209) --
-- -- (3,034) -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
(9,737,684) (2,032,202) -- (92,379) -- -- --
(6,222) -- -- -- -- -- --
(8,188,227) -- (699,799) (7,321) -- -- --
(5,233) -- (115) -- -- -- --
------------- ------------- ------------- ------------- ------------- ------------- -------------
(23,353,045) (5,634,881) (7,444,285) (1,690,111) (34,878,814) (3,482,531) (6,169,715)
------------- ------------- ------------- ------------- ------------- ------------- -------------
(32,380,618) (36,347,494) 94,034,691 6,103,794 (149,268,606) (942,095) 105,683,949
(46,956,500) (39,218,091) 91,892,452 5,350,070 (149,230,836) (942,157) 105,685,170
------------- ------------- ------------- ------------- ------------- ------------- -------------
128,145,995 77,693,760 66,360,267 35,666,819 724,619,025 117,283,470 187,216,057
$ 81,189,495 $ 38,475,669 $ 158,252,719 $ 41,016,889 $ 575,388,189 $ 116,341,313 $ 292,901,227
$ 811,588 $ (46,628) $ (198,522) $ (79,767) $ 4,448 $ (209) $ 296
</TABLE>
*** Formerly named Montgomery Government Reserve Fund.
103
<PAGE>
========================
The Montgomery Funds
- ------------------------
Statements of
Changes in Net Assets
- ------------------------
Year Ended June 30, 1998
<TABLE>
<CAPTION>
U.S. Emerging
Growth Growth Small Cap
Increase/(Decrease) in Net Assets from Operations: Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss)................................................... $ 9,632,489 $ (3,157,905) $ (1,618,774)
Net realized gain/(loss) on securities, forward foreign-currency exchange
contracts, futures contracts, foreign-currency transactions and other
assets during the period..................................................... 164,931,428 28,785,885 42,779,392
Net unrealized appreciation/(depreciation) of securities, forward
foreign-currency exchange contracts, foreign-currency transactions and other
assets during the period..................................................... 31,011,960 44,225,233 4,803,792
----------------- ------------- ------------
Net Increase/(Decrease) in Net Assets Resulting from Operations 205,575,877 69,853,213 45,964,410
Distributions to Shareholders:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares............................................................... (8,102,760) -- --
Class P shares............................................................... (591) -- --
Distributions to shareholders in excess of net investment income:
Class R shares............................................................... -- -- --
Class P shares............................................................... -- -- --
Distributions to shareholders from net realized gains on investments:
Class R shares............................................................... (160,149,883) (19,493,315) (27,244,989)
Class P shares............................................................... (20,125) -- (2,828,409)
----------------- ------------- ------------
Total Distributions............................................................ (168,273,359) (19,493,315) (30,073,398)
Beneficial Interest Transactions:
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 7)......... 208,213,759 23,801,277 4,139,175
----------------- ------------- ------------
Net Increase/(Decrease) in Net Assets 245,516,277 74,161,175 20,030,187
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of Year.............................................................. 1,137,555,465 317,811,684 204,954,770
End of Year $ 1,383,071,742 $391,972,859 $224,984,957
Accumulated Undistributed Net Investment Income/(Accumulated Net
Investment Loss) $ 4,685,889 $ -- $ --
Global
Long-Short Select 50 U.S. Asset
Increase/(Decrease) in Net Assets from Operations: Fund* Fund Allocation Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss)................................................... $ 13,539 $ 1,416,052 $ 4,211,290
Net realized gain/(loss) on securities, forward foreign-currency exchange
contracts, futures contracts, equity swaps and foreign-currency transactions
during the period............................................................ 506,608 23,620,118 29,420,101
Net unrealized appreciation/(depreciation) of securities, forward
foreign-currency exchange contracts, equity swaps, foreign-currency
transactions and other assets during the period.............................. 1,352,951 3,990,850 (15,356,094)
----------------- ------------- ------------
Net Increase/(Decrease) in Net Assets Resulting from Operations 1,873,098 29,027,020 18,275,297
Distributions to Shareholders:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class B shares............................................................... -- -- --
Class C shares............................................................... -- -- --
Class R shares............................................................... -- -- (5,713,481)
Class P shares............................................................... -- -- (3,135)
Distributions to shareholders in excess of net investment income:
Class R shares............................................................... -- -- (4,805,423)
Class P shares............................................................... -- -- (2,791)
Distributions to shareholders from net realized gains on investments:
Class R shares............................................................... -- (20,659,018) (11,764,751)
Class P shares............................................................... -- (7,288) (6,851)
----------------- ------------- ------------
Total Distributions............................................................ -- (20,666,306) (22,296,432)
Beneficial Interest Transactions:
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 7)......... 14,969,145 88,839,567 4,879,135
----------------- ------------- ------------
Net Increase/(Decrease) in Net Assets 16,842,243 97,200,281 858,000
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of Year.............................................................. -- 172,517,976 127,287,995
End of Year $ 16,842,243 $269,718,257 $128,145,995
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) $ (13,885) $677,989 $1,771,623
</TABLE>
* For the period from commencement of operations on December 31, 1997 to March
31, 1998.
The accompanying notes are an integral part of these financial statements.
104
<PAGE>
<TABLE>
<CAPTION>
Equity International International Global Global Emerging Emerging
Income Growth Small Cap Opportunities Communications Markets Fund Asia Fund
Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,066,465 $ 90,925 $ (16,628) $ (8,126) $ (1,553,254) $ 5,849,057 $ 97,480
5,353,093 1,926,799 3,884,910 4,218,182 16,560,504 (143,171,602) (11,921,961)
165,897 6,190,676 (2,291,295) 8,813,624 53,641,157 (369,794,189) (23,554,621)
----------- ----------- ----------- ----------- ------------ ------------- ------------
6,585,455 8,208,400 1,576,987 13,023,680 68,648,407 (507,116,734) (35,379,102)
- ---------------------------------------------------------------------------------------------------------------------
(1,024,731) (49,520) -- -- -- (11,344,230) (552,799)
(41,734) -- -- -- -- (5,297) --
-- (479) (338,201) -- -- -- (799)
-- -- (22) -- -- -- --
(4,032,302) (2,206,214) (5,935,927) (4,796,210) (29,194,471) (24,396,251) (3,025,530)
(153,692) (291) (651) -- -- (14,456) --
----------- ----------- ----------- ----------- ------------ ------------- ------------
(5,252,459) (2,256,504) (6,274,801) (4,796,210) (29,194,471) (35,760,234) (3,579,128)
- ---------------------------------------------------------------------------------------------------------------------
2,183,421 24,955,086 1,576,493 55,813,221 73,703,850 42,136,641 (4,528,662)
----------- ----------- ----------- ----------- ------------ ------------- ------------
3,516,417 30,906,982 (3,121,321) 64,040,691 113,157,786 (500,740,327) (43,486,892)
- ---------------------------------------------------------------------------------------------------------------------
39,462,508 33,917,698 53,617,139 32,370,923 153,955,101 1,260,063,930 68,095,256
$42,978,925 $64,824,680 $50,495,818 $96,411,614 $267,112,887 $ 759,323,603 $ 24,608,364
$ -- $ (133,569) $ (252,194) $ (259,674) $ (914,375) $ (5,228,216) $ (344,172)
</TABLE>
<TABLE>
<CAPTION>
Short Duration California Tax-Free Government Federal California
Total Return Government Intermediate Money Market Tax-Free Tax-Free
Bond Fund Bond Fund Bond Fund Fund* Money Fund Money Fund
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4,495,030 $ 3,137,833 $ 1,173,983 $ 33,237,943 $ 3,829,270 $ 5,235,752
2,124,761 670,997 114,279 36,767 670 (23)
1,833,390 78,579 462,957 -- -- --
---------------- ----------------- ----------------- ----------------- ------------------- ------------------
8,453,181 3,887,409 1,751,219 33,274,710 3,829,940 5,235,729
- ---------------------------------------------------------------------------------------------------------------------
-- -- -- -- -- --
-- -- -- -- -- --
(4,458,508) (3,046,386) (1,174,001) (33,224,825) (3,829,270) (5,235,794)
-- (90) -- -- -- --
(1,652) -- -- -- -- --
-- -- -- -- -- --
(775,110) (90,023) -- -- -- --
-- -- -- -- -- --
---------------- ----------------- ----------------- ----------------- ------------------- ------------------
(5,235,270) (3,136,499) (1,174,001) (33,224,825) (3,829,270) (5,235,794)
- ---------------------------------------------------------------------------------------------------------------------
74,475,849 18,344,636 13,408,266 251,415,147 3,085,705 68,493,060
---------------- ----------------- ----------------- ----------------- ------------------- ------------------
77,693,760 19,095,546 13,985,484 251,465,032 3,086,375 68,492,995
- ---------------------------------------------------------------------------------------------------------------------
-- 47,264,721 21,681,335 473,153,993 114,197,095 118,723,062
$77,693,760 $ 66,360,267 $35,666,819 $ 724,619,025 $ 117,283,470 $ 187,216,057
$ (1,652) $ -- $ 1,374 $ (303) $ (219) $ (113)
</TABLE>
*Formerly named Montgomery Government Reserve Fund.
105
<PAGE>
- ---------------------------
The Montgomery Funds
===========================
Statement of Cash Flows
===========================
Year Ended June 30, 1999
<TABLE>
<CAPTION>
TOTAL RETURN BOND FUND
<S> <C> <C>
Cash Flows from Operating Activities:
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Income received...................................................$ 4,573,813
Fee income received............................................... 87,616
Operating expenses paid........................................... (345,904)
Interst expense paid.............................................. (279,451)
Proceeds from sales of long-term securities....................... 152,138,121
Net payments for short-term investments........................... (455,000)
Proceeds from futures transactions................................ 30,820
Purchases of long-term securities................................. (107,260,203)
--------------------
Cash Provided by Operating Activities............................. $ 48,489,812
Cash Flows from Financing Activities:
- ------------------------------------------------------------------------------------------------------------------------------------
Proceeds from subscriptions....................................... $ 27,528,621
Payments on shares redeemed....................................... (67,469,679)
Net paments for reverse repurchase agreements..................... (6,908,738)
Proceeds from loans with custodian................................ 194,367
Net dollar roll transactions...................................... 67,960
Cash dividends paid*.............................................. (1,903,769)
------------------
Cash Used by Financing Activities................................. (48,491,238)
Decrease in cash.................................................. (1,426)
Cash at beginning of period....................................... 1,426
-------------------
Cash at end of period............................................. $ --
Reconciliation of Net Increase in Net Assets from Operations to Cash Provided by Operating Activities:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase in net assets resulting from operations: $ 2,764,284
Decrease in investments............................................. $ 39,584,977
Decrease in interest receivable..................................... 394,319
Increase in variation margin for futures transactions............... 391
Decrease in other assets and liabilities............................ (134,529)
Decrease in receivables for investments sold........................ 2,292,790
Increase in net receivable for fund shares sold..................... 3,517,978
Increase in accrued expenses........................................ 69,602
-----------------
Total Adjustments................................................... 45,725,528
-------------------
Cash Provided by Operating Activities............................... $ 48,489,812
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Noncash activities include reinvestment of dividends of $3,526,016.
106
The accompanying notes are an integral part of these financial statements.
<PAGE>
------------------------
The Montgomery Funds
========================
Statement of Cash Flows
========================
Year Ended June 30, 1999
<TABLE>
<CAPTION>
SHORT DURATION GOVERNMENT BOND FUND
Cash Flows from Operating Activities:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income received.................................................. $ 7,737,623
Fee income received.............................................. 106,458
Operating expenses paid.......................................... (557,850)
Interest expense paid............................................ (945,297)
Proceeds from sales of long-term securities...................... 273,573,629
Net payments for short-term investments.......................... (7,802,000)
Proceeds from futures transactions............................... 14,579
Purchases of long-term securities................................ (355,778,711)
------------------
Cash Used by Operating Activities................................ $ (83,651,569)
Cash Flows from Financing Activities:
- ------------------------------------------------------------------------------------------------------------------------------------
Proceeds from subscriptions...................................... $ 226,558,005
Payments on shares redeemed...................................... (137,328,999)
Net payments for reverse repurchase agreements................... (4,934,813)
Net dollar roll transactions..................................... (14,857)
Cash dividends paid*............................................. (919,901)
-----------------
Cash Provided by Financing Activities............................ $ 83,359,435
Decrease in cash................................................. (292,134)
Cash at beginning of period...................................... 545,341
------------
Cash at end of period............................................ $ 253,207
Reconciliation of Net Increase in Net Assets from Operations to Cash Used by Operating Activities:
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase in net assets resulting from operations: $ 5,302,046
Increase in investments.......................................... $ (106,193,595)
Increase in interest receivable.................................. (647,743)
Increase in receivables for investments sold..................... (3,440,407)
Increase in payables for investments purchased................... 21,090,792
Decrease in other assets and liabilities......................... (9,756)
Increase in accrued expenses..................................... 247,094
------------------
Total Adjustments................................................ (88,953,615)
-------------
Cash Used by Operating Activities................................ $ (83,651,569)
</TABLE>
*Noncash activities include reinvestment of dividends of $5,814,761.
<PAGE>
=======================
The Montgomery Funds
- -----------------------
Statement of Cash Flows
- -----------------------
Year Ended June 30, 1999
GLOBAL LONG-SHORT FUND
<TABLE>
<CAPTION>
Cash Flows from Operating Activities:
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income received ........................................... $ 211,666
Dividend income received............................................ 474,936
Dividends and interest paid ........................................ (478,590)
Operating expenses paid ............................................ (1,102,658)
Proceeds from sales of securities .................................. 96,652,639
Proceeds from short sales transaction .............................. 28,340,372
Net proceeds from forward foreign currency exchange contracts ...... 855,199
Purchases of long-term securities and purchased options ............ (221,420,974)
Proceeds from written options transactions ......................... 11,928
---------------
Cash Used by Operating Activities .................................. $ (96,455,482)
Cash Flows from Financing Activities:
- -------------------------------------------------------------------------------------------------------------------
Proceeds from subscriptions ........................................ $ 115,673,255
Payments on shares redeemed ........................................ (9,515,630)
Proceeds from loans payable ........................................ 15,000,000
---------------
Cash Provided by Financing Activities ................................ 121,157,625
Increase in cash ..................................................... 24,702,143
Cash at beginning of period .......................................... 33,700,282
--------------
Cash at end of period ................................................ $ 58,402,425
</TABLE>
The accompanying notes are an integral part of these financial statements.
108
<PAGE>
========================
The Montgomery Funds
------------------------
Statement of Cash Flows
------------------------
Year Ended June 30, 1999
GLOBAL LONG-SHORT FUND
<TABLE>
<CAPTION>
Reconciliation of Net Increase in Net Assets from Operations to Cash Used by Operating Activities:
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Increase in net assets resulting from operations: $ 30,640,210
Increase in investments ......................................... $(158,282,186)
Increase in dividends and interest receivable ................... (90,091)
Decrease in unrealized depreciation for equity swap agreements .. (96,997)
Decrease in payable to custodian for foreign currency ........... (828,171)
Increase in forward foreign-currency exchange contracts ......... (14,638)
Increase in written options ..................................... 207,900
Increase in short sales ......................................... 29,249,062
Decrease in deposits with custodian bank for short sales ........ 423,007
Increase in foreign currency .................................... (111,169)
Decrease in receivables for equity swaps ........................ 148,754
Decrease in receivables for investments sold .................... 1,931,452
Increase in payable for investments purchased ................... 113,732
Increase in accrued expenses and dividend payable................ 220,992
Decrease in other assets......................................... 32,661
-------------
Total Adjustments ............................................... (127,095,692)
------------
Cash Provided by Operating Activities ............................. $ (96,455,482)
</TABLE>
109
<PAGE>
====================
The Montgomery Funds
- --------------------
Financial Highlights
- --------------------
<TABLE>
<CAPTION>
GROWTH FUND
Class R Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
-------------------------------------------------------
1999T 1998T 1997T 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $ 23.68 $ 23.07 $ 21.94 $ 19.16 $ 15.27
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.09 0.17 0.15 0.17 0.12
Net realized and unrealized gain/(loss) on investments 2.24 3.51 3.90 4.32 3.91
- ----------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment
operations 2.33 3.68 4.05 4.49 4.03
- ----------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.10) (0.15) (0.15) (0.17) (0.07)
Distributions from net realized capital gains (1.57) (2.92) (2.77) (1.54) (0.07)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (1.67) (3.07) (2.92) (1.71) (0.14)
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 24.34 $ 23.68 $ 23.07 $ 21.94 $ 19.16
- ----------------------------------------------------------------------------------------------------------------------------
Total Return* 11.41% 17.31% 20.44% 24.85% 26.53%
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $669,789 $1,382,874 $1,137,343 $926,382 $878,776
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 0.46% 0.71% 0.69% 0.78% 0.98%
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.09 $ 0.17 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 39% 54% 61% 118% 128%
- ----------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.38% 1.20% 1.27% 1.35% 1.50%
- ----------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest
and tax expense 1.38% 1.20% -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.35% 1.19% -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class P Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
-------------------------------------------------------
1999T 1998T 1997T 1996(a)
<S> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $ 23.77 $ 23.12 $ 21.94 $ 19.22
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.04 0.11 0.09 0.03
Net realized and unrealized gain/(loss) on investments 2.31 3.55 3.96 2.69
- -----------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment
operations 2.35 3.66 4.05 2.72
- -----------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.04) (0.09) (0.10) --
Distributions from net realized capital gains (1.57) (2.92) (2.77) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (1.61) (3.01) (2.87) --
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 24.51 $ 23.77 $ 23.12 $ 21.94
- -----------------------------------------------------------------------------------------------------------------------------
Total Return* 11.62% 17.09% 20.41% 14.15%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
Net assets, end of year (in 000s) $ 219 $ 198 $ 212 $ 82
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 0.21% 0.46% 0.44% 0.53%+
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.04 $ 0.11 -- --
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 39% 54% 61% 118%
- -----------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.63% 1.45% 1.52% 1.60%+
- -----------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest
and tax expense 1.63% 1.45% -- --
- -----------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.60% 1.44% -- --
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Growth Fund's Class P shares commenced operations on January 12, 1996.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
T 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.
110
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------
The Montgomery Funds
--------------------
Financial Highlights
--------------------
<TABLE>
<CAPTION>
U.S. EMERGING GROWTH FUND
Class R Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
----------------------------------------------------------
1999 1998T 1997 1996 1995(a)T
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $ 21.89 $ 19.00 $ 17.82 $ 13.75 $ 12.00
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.16) (0.18) (0.13) (0.04) 0.09
Net realized and unrealized gain/(loss) on investments (0.80) 4.21 2.54 4.26 1.66
- -------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment
operations (0.96) 4.03 2.41 4.22 1.75
- -------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- -- -- (0.04) --
Distributions from net realized capital gains (1.13) (1.14) (1.23) (0.11) --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.13) (1.14) (1.23) (0.15) --
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 19.80 $ 21.89 $ 19.00 $ 17.82 $ 13.75
- -------------------------------------------------------------------------------------------------------------------------------
Total Return* (4.07)% 22.18% 14.77% 30.95% 14.58%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $382,483 $391,973 $317,812 $306,217 $162,949
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.83)% (0.84)% (0.75)% (0.11)% 1.40%+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.16) $ (0.18) -- $ (0.05) $ 0.07
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 76% 24% 79% 89% 37%
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.66% 1.57% 1.71% 1.75% 1.75%+
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest
and tax expense 1.66% 1.57% -- 1.79% 2.07%+
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.66% 1.56% -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The U.S. Emerging Growth (formerly Micro Cap) Fund's Class R shares
commenced operations on December 30, 1994.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
T 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.
111
<PAGE>
- --------------------
The Montgomery Funds
- --------------------
Financial Highlights
- --------------------
<TABLE>
<CAPTION>
SMALL CAP FUND
Class R Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
-----------------------------------------------------------------------------
1999T 1998T 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $ 20.73 $ 19.52 $ 21.55 $ 17.11 $ 15.15
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.17) (0.15) (0.18) (0.09) (0.10)
Net realized and unrealized
gain/(loss) on investments (1.21) 4.33 1.43 6.31 3.04
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets
resulting from investment operations (1.38) 4.18 1.25 6.22 2.94
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Distributions from net realized capital gains (2.07) (2.97) (3.28) (1.78) (0.98)
Distributions in excess of
net realized capital gains (0.70) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.77) (2.97) (3.28) (1.78) (0.98)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 16.58 $ 20.73 $ 19.52 $ 21.55 $ 17.11
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return* (4.14)% 23.23% 6.81% 39.28% 20.12%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
Net assets, end of year (in 000s) $113,323 $203,437 $198,298 $275,062 $202,399
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss)
to average net assets (1.09)% (0.70)% (0.78)% (0.47)% (0.57)%
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss)
before deferral of fees by Manager $ (0.17) $ (0.15) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 71% 69% 59% 80% 85%
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.32% 1.24% 1.20% 1.24% 1.37%
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest and tax expense 1.32% 1.24% -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.32% 1.24% -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class P Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
----------------------------------
1999T 1998T 1997(a)
<S> <C> <C> <C>
Net Asset Value - Beginning of Period $ 20.53 $ 19.48 $ 21.73
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.21) (0.20) (0.10)
Net realized and unrealized gain/(loss) on investments (1.20) 4.22 1.13
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment
operations (1.41) 4.02 1.03
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Distributions from net realized capital gains (2.07) (2.97) (3.28)
Distributions in excess of net realized capital gains (0.70) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.77) (2.97) (3.28)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 16.35 $ 20.53 $ 19.48
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return* (4.39)% 22.44% 5.74%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 20,606 $ 21,548 $ 6,656
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (1.35)% (0.95)% (1.03)%+
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.21) $ (0.20) --
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 71% 69% 59%
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.57% 1.49% 1.45%+
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest and tax expense 1.57% 1.49% --
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.57% 1.49% --
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Small Cap Fund s Class P shares commenced operations on July 1, 1996.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
T 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.
The accompanying notes are an integral part of these financial statements.
112
<PAGE>
====================
The Montgomery Funds
- --------------------
Financial Highlights
- --------------------
<TABLE>
<CAPTION>
EQUITY INCOME FUND
Class R Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
-----------------------------------------------------
1999 1998 1997T 1996 1995(a)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $ 18.27 $ 17.91 $ 16.09 $ 13.38 $12.00
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.32 0.44 0.49 0.43 0.31
Net realized and unrealized gain/(loss) on investments 2.30 2.27 3.35 2.82 1.38
- --------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 2.62 2.71 3.84 3.25 1.69
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.31) (0.44) (0.46) (0.42) (0.31)
Distributions from net realized capital gains (1.54) (1.91) (1.56) (0.12) --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.85) (2.35) (2.02) (0.54) (0.31)
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 19.04 $ 18.27 $ 17.91 $ 16.09 $13.38
- --------------------------------------------------------------------------------------------------------------------------------
Total Return* 15.06% 15.83% 26.02% 24.56% 14.26%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $26,750 $40,260 $38,595 $19,312 $6,383
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 1.71% 2.32% 2.93% 3.03% 4.06%+
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.21 $ 0.34 $ 0.39 $ 0.34 $ 0.13
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 57% 68% 62% 90% 29%
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 0.85% 0.86% -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and
tax expense 1.45% 1.38% 1.46% 1.45% 3.16%+
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.85% 0.85% 0.86% 0.85% 0.84%+
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class P Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
----------------------------------------
1999 1998 1997T 1996(a)
<S> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $18.25 $ 17.90 $16.09 $15.66
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.26 0.38 0.44 0.08
Net realized and unrealized gain/(loss) on investments 2.31 2.27 3.35 0.35
- --------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 2.57 2.65 3.79 0.43
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.27) (0.39) (0.42) --
Distributions from net realized capital gains (1.54) (1.91) (1.56) --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.81) (2.30) (1.98) --
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 19.01 $ 18.25 $17.90 $16.09
- --------------------------------------------------------------------------------------------------------------------------------
Total Return* 14.74% 15.49% 25.64% 2.75%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 3,212 $ 2,719 $ 868 $2
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 1.46% 2.07% 2.68% 2.78%+
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.15 $ 0.28 $ 0.34 $ 0.06
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 57% 68% 62% 90%
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.10% 1.11% -- --
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and
tax expense 1.70% 1.63% 1.71% 1.70%+
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.10% 1.10% 1.11% 1.10%+
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Equity Income Fund's Class R shares and Class P shares commenced
operations on September 30, 1994, and March 12, 1996, respectively.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
T 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.
113
<PAGE>
====================
The Montgomery Funds
- --------------------
Financial Highlights
- --------------------
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH FUND
Class R Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
-----------------------------------------
1999 1998T 1997T 1996(a)
<S> <C> <C> <C> <C>
Net Asset Value - Beggining of Period $ 18.67 $ 16.24 $ 15.31 $ 12.00
- --------------------------------------------------------------------------------------------------------------------------------
Net Investment income/(loss) 0.09 0.04 0.08 0.02
Net realized and unrealized gain/(loss) on investments 0.31 3.48 2.53 3.29
- --------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 0.40 3.52 2.61 3.31
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- (0.02) -- --
Distributions in excess of net investment income -- (0.00)++ -- --
Distributions from net realized capital gains (0.10) (1.07) (1.68) --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.10) (1.09) (1.68) --
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 18.97 $ 18.67 $ 16.24 $ 15.31
- --------------------------------------------------------------------------------------------------------------------------------
Total Return* 2.34% 23.27% 19.20% 27.58%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $227,287 $64,820 $33,912 $18,303
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 0.41% 0.22% 0.57% 0.26%+
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.09 $ (0.04) $ (0.02) $ (0.07)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 150% 127% 95% 239%
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.66% 1.66% -- --
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and tax
expense 1.74% 2.13% 2.37% 2.91%+
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.65% 1.65% 1.66% 1.65%+
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class P Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
----------------------------------------------
1999 1998T 1997T 1996(a)
<S> <C> <C> <C> <C>
Net Asset Value - Beginningof Period $ 18.64 $ 16.22 $ 15.31 $ 13.66
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.12 (0.01) 0.05 0.00++
Net realized and unrealized gain/(loss) on investments 0.26 3.50 2.54 1.65
- --------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 0.38 3.49 2.59 1.65
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
Distributions in excess of net investment income -- (0.00)++ -- --
Distributions from net realized capital gains (0.10) (1.07) (1.68) --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.10) (1.07) (1.68) --
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 18.92 $ 18.64 $ 16.22 $ 15.31
- --------------------------------------------------------------------------------------------------------------------------------
Total Return* 2.18% 23.03% 19.13% 12.08%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 2,352 $ 5 $ 5 $ 1
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 0.16% (0.03)% 0.32% 0.01%+
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.12 $ (0.08) $ (0.06) $ (0.05)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 150% 127% 95% 239%
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.91% 1.91% -- --
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and tax 1.99% 2.38% 2.62% 3.16%+
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.90% 1.90% 1.91% 1.90%+
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The International Growth Fund s Class R shares and Class P shares commenced
operations on July 3, 1995, and March 11, 1996, respectively.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
++ Amount represents less than $0.01 per share.
T 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.
The accompanying notes are an integral part of these financial statements.
114
<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: Fiscal Year Ended June 30,
-------------------------------------------------------
1999** 1998** 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginningof Period $ 15.14 $ 17.16 $ 14.86 $ 11.75 $ 12.02
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.01 (0.01) (0.05) 0.03 0.12
Net realized and unrealized gain/(loss) on investments (0.65) 0.31 2.35 3.10 (0.39)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment
operations (0.64) 0.30 2.30 3.13 (0.27)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- -- -- (0.02) (0.00)++
Distributions in excess of net net investment income (0.01) (0.13) -- -- --
Distributions from net realized capital gains -- (2.19) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.01) (2.32) -- (0.02) (0.00)++
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 14.49 $ 15.14 $ 17.16 $ 14.86 $ 11.75
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return* (3.82)% 4.46% 15.48% 26.68% (2.23)%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $38,054 $50,491 $53,602 $41,640 $28,516
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 0.07% (0.03)% (0.34)% 0.20% 0.95%
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.01 $ (0.10) $ (0.14) $ (0.08) $ 0.05
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 117% 111% 85% 177% 156%
- ---------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.91% 1.92% -- 1.96% 1.91%
- ---------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest
and tax expense 2.56% 2.53% 2.60% 2.76% 2.50%
- ---------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.90% 1.90% 1.90% 1.90% 1.90%
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class P Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
-----------------------------------
1999** 1998** 1997(a)
<S> <C> <C> <C>
Net Asset Value - Beginning of Period $ 15.13 $ 17.16 $ 16.96
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.02)# (0.05) 0.00++
Net realized and unrealized gain/(loss) on investments (0.69) 0.30 0.20
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment
operations (0.71) 0.25 0.20
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Distributions from net net investment income -- -- --
Distributions in excess of net net investment income -- (0.09) --
Distributions from net realized capital gains -- (2.19) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (2.28) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 14.42 $ 15.13 $17.16
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return* (4.03)% 4.13% 1.18%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 3 $ 5 $ 15
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.18)% (0.28)% (0.59)%+
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.03) $ (0.16) $ (0.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 117% 111% 85%
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 2.16% 2.17% --
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest
and tax expense 2.81% 2.78% 2.85%+
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 2.15% 2.15% 2.15%+
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The International Small Cap Fund s Class P shares commenced operations on
June 9, 1997.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
++ Amount represents less than $0.01 per share.
# 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.
** 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.
115
<PAGE>
====================
The Montgomery Funds
- --------------------
Financial Highlights
- --------------------
<TABLE>
<CAPTION>
GLOBAL OPPORTUNITIES FUND
Class R Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
-------------------------------------------------------
1999 1998** 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $ 19.19 $ 19.17 $ 16.96 $ 13.25 $ 12.92
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.12) 0.00++ (0.11) (0.06) 0.13
Net realized and unrealized gain/(loss) on investments 2.56 3.87 3.14 3.84 0.70
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 2.44 3.87 3.03 3.78 0.83
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.22) -- -- (0.07) --
Distributions from net realized capital gains (2.20) (3.85) (0.82) -- (0.50)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.42) (3.85) (0.82) (0.07) (0.50)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 19.21 $ 19.19 $ 19.17 $ 16.96 $ 13.25
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return* 15.68% 27.12% 18.71% 28.64% 6.43%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $57,146 $96,412 $32,371 $28,496 $13,677
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.61)% (0.02)% (0.62)% (0.56)% 1.03%
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.14) $ 0.00++ $ (0.23) $ (0.16) $ (0.01)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 172% 135% 117% 164% 119%
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 2.01% 1.96% -- 2.05% 1.91%
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and
tax expense 2.40% 2.37% 2.62% 3.10% 2.99%
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.90% 1.90% 1.90% 1.90% 1.90%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total return represents aggregate total return for the periods indicated.
++ 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.
The accompanying notes are an integral part of these financial statements.
116
<PAGE>
====================
The Montgomery Funds
--------------------
Financial Highlights
--------------------
<TABLE>
<CAPTION>
GLOBAL COMMUNICATIONS FUND
Class R Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
--------------------------------------------------------
1999 1998++ 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginningof Period $ 22.88 $ 19.61 $ 18.05 $ 15.42 $ 14.20
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.01 (0.17) (0.25) (0.20) (0.03)
Net realized and unrealized gain/(loss) on investments 6.35 7.19 2.72 2.83 1.28
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment
operations 6.36 7.02 2.47 2.63 1.25
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Distributions from net realized capital gains (2.51) (3.75) (0.91) -- --
Distributions in excess of net realized capital gains -- -- -- -- (0.03)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.51) (3.75) (0.91) -- (0.03)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 26.73 $ 22.88 $ 19.61 $ 18.05 $ 15.42
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return* 31.66% 45.45% 14.43% 17.06% 8.83%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $354,730 $267,113 $153,955 $206,671 $209,644
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 0.02% (0.85)% (1.05)% (1.01)% (0.10)%
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.01 $ (0.17) $ (0.27) $ (0.22) $ (0.07)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 146% 80% 76% 104% 50%
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.69% 1.93% -- 2.01% 1.91%
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest and tax expense 1.69% 1.93% 2.00% 2.11% 2.09%
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.68% 1.90% 1.91% 1.90% 1.90%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total return represents aggregate total return for the periods indicated.
++ Per-share numbers have been calculated using the average share method, which
more appropriately represents the per-share data for the period, since the
use of the undistributed income method did not accord with results of
operations.
117
<PAGE>
====================
The Montgomery Funds
- --------------------
Financial Highlights
- --------------------
<TABLE>
<CAPTION>
EMERGING MARKETS FUND
Class R Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
-----------------------------------------------------------
1999 1998 1997 1996 1995T
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $ 9.86 $ 16.85 $ 14.19 $ 13.17 $ 13.68
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.92 0.07 0.07 0.08 0.03
Net realized and unrealized gain/(loss) on investments (0.54) (6.58) 2.66 0.94 0.25#
- -------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment
operations 0.38 (6.51) 2.73 1.02 0.28
- -------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- (0.15) (0.07) -- --
Distributions from net realized capital gains -- (0.33) -- -- (0.42)
Distributions in excess of net realized capital gains -- -- -- -- (0.37)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (0.48) (0.07) -- (0.79)
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 10.24 $ 9.86 $ 16.85 $ 14.19 $ 13.17
- -------------------------------------------------------------------------------------------------------------------------------
Total Return* 3.85% (39.20)% 19.34% 7.74% 1.40%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 344,907 $758,911 $1,259,457 $994,378 $998,083
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 0.01% 0.55% 0.48% 0.58% 0.23%
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.96 $ 0.07 -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 86% 97% 83% 110% 92%
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 2.05% 1.65% -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest
and tax expense 2.15% 1.65% -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.90% 1.60% 1.67% 1.72% 1.80%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class P Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
----------------------------------------------------
1999 1998 1997 1996(a)
<S> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $ 9.74 $ 16.77 $ 14.19 $ 12.62
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.00++ 0.03 0.06 0.01
Net realizedand unrealized gain/(loss) on investments 0.31 (6.61) 2.58 1.56
- -------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 0.31 (6.58) 2.64 1.57
- -------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- (0.12) (0.06) --
Distributions from net realized capital gains -- (0.33) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (0.45) (0.06) --
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 10.05 $ 9.74 $ 16.77 $ 14.19
- -------------------------------------------------------------------------------------------------------------------------------
Total Return* 3.08% (39.75)% 18.62% 12.44%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 520 $ 413 $ 607 $2
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.24)% 0.30% 0.23% 0.33%+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.01 $ 0.03 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 86% 97% 83% 110%
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 2.30% 1.90% -- --
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest
and tax expense 2.40% 1.90% -- --
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 2.15% 1.85% 1.92% 1.97%+
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Emerging Markets Fund's Class P shares commenced operations on March 12,
1996.
* Total return represents aggregate total return for the periods indicated.
# The amount shown in this caption for each share outstanding throughout the
peroid 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.
+ Annualized.
++ Amount represents less than $0.01 per share.
T 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.
118
The accompanying notes are an integral part of these financial statements.
<PAGE>
====================
The Montgomery Funds
--------------------
Financial Highlights
--------------------
<TABLE>
<CAPTION>
EMERGING ASIA FUND
Class R Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
-------------------------------------
1999 1998 1997(a)
<S> <C> <C> <C>
Net Asset Value - Beginning of Period $ 6.18 $ 18.91 $ 12.00
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.01) 0.13 (0.01)
Net realized and unrealized gain/(loss) on investments 6.04 (11.74) 6.95
- -------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 6.03 (11.61) 6.94
- -------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.00)++ (0.17) --
Distributions from net realized capital gains -- (0.00)++ (0.03)
Distributions in excess of net realized capital gains -- (0.95) --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (1.12) (0.03)
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 12.21 $ 6.18 $ 18.91
- -------------------------------------------------------------------------------------------------------------------------------
Total Return* 97.44% (63.45)% 57.80%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $63,196 $24,608 $68,095
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.35)% 0.22% (0.42)%+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.03) $ (0.08) $ (0.02)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 233% 154% 72%
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 2.19% 1.91% 2.20%+
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and tax expense 2.89% 2.27% 2.69%+
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.90% 1.90% 1.80%+
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Emerging Asia Fund's Class R shares commenced operations on September
30, 1996.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
++ Amount represents less than $0.01 per share.
119
<PAGE>
====================
The Montgomery Funds
- --------------------
Financial Highlights
- --------------------
<TABLE>
<CAPTION>
GLOBAL LONG-SHORT FUND
Class R Shares
Fiscal Year Ended
Selected Per-Share Data for the Year or Period Ended: June 30, March 31,
------------ --------------------
1999(b)(c) 1999T 1998(a)T
<S> <C> <C> <C>
Net Asset Value - Beginning of Period $ 16.47 $ 12.70 $ 10.00
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.06) (0.05) 0.02
Net realized and unrealized gain/(loss) on investments 3.24 4.92 2.68
- -------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 3.18 4.87 2.70
- -------------------------------------------------------------------------------------------------------------------------------
Distributions:
Distributions from net realized capital gains -- (1.10) --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (1.10) --
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 19.65 $ 16.47 $ 12.70
- -------------------------------------------------------------------------------------------------------------------------------
Total Return* 19.61% 39.87% 27.20%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $216,300 $83,638 $16,579
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (2.30)%+ (0.35)% 0.65%+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.06) $ (0.09) $ (0.05)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 43% 226% 84%
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 4.18%+ 3.40% 2.78%+
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and tax expense 4.61%+ 3.79% 5.19%+
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 2.35%+ 2.35% 2.35%+
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
Fiscal Year Ended
Selected Per-Share Data for the Year or Period Ended: June 30, March 31,
------------ ----------------------
1999(b)(c) 1999T 1998(a)T
<S> <C> <C> <C>
Net Asset Value - Beginning of Period $ 16.25 $ 12.64 $ 10.00
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.15) (0.16) 0.00++
Net realized and unrealized gain/(loss) on investments 3.25 4.87 2.64
- -------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 3.10 4.71 2.64
- -------------------------------------------------------------------------------------------------------------------------------
Distributions:
Distributions from net realized capital gains -- (1.10) --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (1.10) --
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 19.35 $ 16.25 $ 12.64
- -------------------------------------------------------------------------------------------------------------------------------
Total Return* 19.38% 38.88% 26.50%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $18,704 $17,031 $ 61
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (3.07)%+ (1.10)% (0.10)%+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.16) $ (0.28) $ (0.00)++
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 43%+ 226% 84%
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 4.93%+ 4.15% 3.53%+
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and tax expense 5.36%+ 4.54% 5.94%+
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 3.10%+ 3.10% 3.10%+
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
120
The accompanying notes are an integral part of these financial statements.
<PAGE>
====================
The Montgomery Funds
--------------------
Financial Highlights
--------------------
<TABLE>
<CAPTION>
Class C Shares
Fiscal Year Ended
Selected Per-Share Data for the Year or Period Ended: June 30, March 31,
------------ -----------------------------
1999(c) 1999T 1998(a)T
<S> <C> <C> <C>
Net Asset Value Beginning of Period $15.13 $ 11.83 $10.00
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.13) (0.15) 0.00++
Net realized and unrealized gain/(loss) on investments 3.01 4.55 1.83
- -------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 2.88 4.40 1.83
- -------------------------------------------------------------------------------------------------------------------------------
Distributions:
Distributions from net realized capital gains -- (1.10) --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (1.10) --
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value End of Period $18.01 $ 15.13 $11.83
- -------------------------------------------------------------------------------------------------------------------------------
Total Return* 19.37% 38.81% 18.50%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $7,209 $ 6,425 $ 202
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (3.07)%+ (1.10)% (0.10)%+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $(0.15) $ (0.26) $(0.00)++
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 43% 226% 84%
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 4.93%+ 4.15% 3.53%+
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and tax expense 5.36%+ 4.54% 5.94%+
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 3.10%+ 3.10% 3.10%+
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Global Long-Short Fund commenced operations on December 31, 1997.
(b) On January 29, 1999, Class R shares were issued in exchange for Class A
shares.
(c) The Fund changed its year end from March 31 to June 30.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
++ Amount represents less than $0.01 per share.
T 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.
121
<PAGE>
====================
The Montgomery Funds
- --------------------
Financial Highlights
- --------------------
<TABLE>
<CAPTION>
SELECT 50 FUND
Class R Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
-------------------------------------------------
1999T 1998T 1997T 1996(a)
<S> <C> <C> <C> <C>
Net Asset Value -- Beginning of Period $ 20.98 $ 20.01 $ 16.46 $ 12.00
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.09) 0.12 0.01 0.06
Net realized and unrealized gain/(loss) on investments 2.70 2.70 4.16 4.45
- -------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 2.61 2.82 4.17 4.51
- -------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.24) -- (0.10) (0.04)
Distributions in excess of net investment income (0.10) -- -- --
Distributions from net realized capital gains (1.05) (1.85) (0.52) --
Distributions in excess of net realized capital gains -- -- -- (0.01)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.39) (1.85) (0.62) (0.05)
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $ 22.20 $ 20.98 $ 20.01 $ 16.46
- -------------------------------------------------------------------------------------------------------------------------------
Total Return* 13.89% 15.44% 26.35% 37.75%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $136,792 $269,667 $172,509 $ 77,955
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.47)% 0.58% 0.04% 0.42%+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.09) $ 0.12 $ (0.01) $ 0.02
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 115% 151% 158% 106%
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.76% 1.81% -- --
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest and tax expense 1.76% 1.81% 1.92% 2.11%+
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.73% 1.80% 1.82% 1.80%+
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class P Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
---------------------------------------
1999T 1998T 1997(a)
<S> <C> <C> <C>
Net Asset Value -- Beginning of Period $ 20.68 $ 19.98 $15.89
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.14) 0.09 (0.02)
Net realized and unrealized gain/(loss) on investments 2.64 2.46 4.11
- -------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 2.50 2.55 4.09
- -------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.21) -- --
Distributions in excess of net investment income (0.09) -- --
Distributions from net realized capital gains (1.05) (1.85) --
Distributions in excess of net realized capital gains -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.35) (1.85) --
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $ 21.83 $ 20.68 $19.98
- -------------------------------------------------------------------------------------------------------------------------------
Total Return* 13.46% 14.12% 25.74%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 55 $ 52 $ 9
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.72)% 0.34% (0.21)%+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.14) $ 0.09 $ (0.03)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 115% 151% 158%
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 2.01% 2.06% --
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and tax expense 2.01% 2.06% 2.17%+
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.98% 2.05% 2.07%+
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Select 50 Fund's Class R shares and Class P shares commenced operations
on October 2, 1995, and December 12, 1996, respectively.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
T 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.
122
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------
The Montgomery Funds
====================
Financial Highlights
====================
<TABLE>
<CAPTION>
U.S. ASSET ALLOCATION FUND
Class R Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
--------------------------------------------------
1999T 1998# 1997T 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value -- Beginning of Period $ 19.08 $ 19.89 $ 19.33 $ 16.33 $ 12.24
- ------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.48 1.66 0.48 0.26 0.25
Net realized and unrealized gain/(loss) on investments 1.23 0.99 2.13 3.54 4.11
- ------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment
operations 1.71 2.65 2.61 3.80 4.36
- ------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.93) (0.93) (0.39) (0.25) (0.17)
Dividends in excess of net investment income -- (0.70) -- -- --
Distributions from net realized capital gains (1.68) (1.83) (1.66) (0.55) (0.10)
Distributions in excess of net realized capital gains (1.41) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total distributions (4.02) (3.46) (2.05) (0.80) (0.27)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $ 16.77 $ 19.08 $ 19.89 $ 19.33 $ 16.33
- ------------------------------------------------------------------------------------------------------------------------
Total Return* 11.93% 14.67% 14.65% 23.92% 35.99%
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 81,133 $128,075 $127,214 $132,511 $ 60,234
- ------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 2.63% 3.10% 2.55% 1.85% 3.43%
- ------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.45 $ 1.63 $ 0.47 $ 0.24 $ 0.19
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 36% 84% 169% 226% 96%
- ------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 0.25% 0.26% 1.43% 1.42% 1.31%
- ------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest
and tax expense 0.46% 0.31% 1.49% 1.55% 2.07%
- ------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.25% 0.25% 1.31% 1.30% 1.30%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class P Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
----------------------------------------
1999T 1998# 1997T 1996(a)
<S> <C> <C> <C> <C>
Net Asset Value -- Beginning of Period $ 19.11 $ 19.89 $ 19.33 $ 17.86
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.44 1.62 0.43 0.09
Net realized and unrealized gain/(loss) on investments 1.17 1.01 2.13 1.38
- -------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 1.61 2.63 2.56 1.47
- -------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.89) (0.84) (0.34) --
Dividends in excess of net investment income -- (0.74) -- --
Distributions from net realized capital gains (1.68) (1.83) (1.66) --
Distributions in excess of net realized capital gains (1.41) -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (3.98) (3.41) (2.00) --
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $ 16.74 $ 19.11 $ 19.89 $ 19.33
- -------------------------------------------------------------------------------------------------------------------------------
Total Return* 11.15% 14.53% 14.35% 8.23%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 56 $ 71 $ 74 $ 43
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 2.68% 2.85% 2.30% 1.60%+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.41 $ 1.59 $ 0.42 $ 0.08
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 36% 84% 169% 226%
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 0.50% 0.51% 1.68% 1.67%+
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest
and tax expense 0.71% 0.56% 1.74% 1.80%+
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.50% 0.50% 1.56% 1.55%+
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The U.S. Asset Allocation Fund's Class P shares commenced operations on
January 3, 1996.
# The Fund converted to a fund of funds structure effective July 1, 1998.
Expense ratios prior to that date do not reflect expenses borne indirectly.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
T 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.
123
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------
The Montgomery Funds
====================
Financial Highlights
====================
<TABLE>
<CAPTION>
TOTAL RETURN BOND FUND
Class R Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
-----------------------------
1999 1998(a)
<S> <C> <C>
Net Asset Value -- Beginning of Period $ 12.44 $ 12.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.73 0.72
Net realized and unrealized gain/(loss) on investments (0.35) 0.56
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 0.38 1.28
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.73) (0.72)
Dividends in excess of net investment income (0.01) --
Distributions in excess of net realized capital gains -- (0.00)++
Distributions from net realized capital gains (0.42) (0.12)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.16) (0.84)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $ 11.66 $ 12.44
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return* 3.20% 10.92%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 38,476 $ 77,694
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 5.88% 5.81%
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.72 $ 0.71
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 158% 390%
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.16% 1.29%
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and tax expense 1.25% 1.34%
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.70% 0.70%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Total Return Bond Fund's Class R shares commenced operations on June 30,
1997.
* Total return represents aggregate total return for the periods indicated.
++ Amount represents less than $0.01 per share.
124
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------
The Montgomery Funds
====================
Financial Highlights
====================
<TABLE>
<CAPTION>
SHORT DURATION GOVERNMENT BOND FUND
Class R Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
------------------------------------------------
1999 1998 1997T 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value -- Beginning of Period $ 10.14 $ 9.99 $ 9.92 $ 9.95 $ 9.80
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.53 0.57 0.59 0.60 0.62
Net realized and unrealized gain/(loss) on investments (0.05) 0.16 0.07 (0.04) 0.16
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 0.48 0.73 0.66 0.56 0.78
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.51) (0.56) (0.59) (0.59) (0.62)
Dividends in excess of net investment income (0.02) -- (0.00)# (0.00)# --
Distributions from net realized capital gains -- (0.02) -- -- --
Distributions in excess of net realized capital gains (0.05) -- -- -- --
Distributions from capital -- -- -- -- (0.01)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.58) (0.58) (0.59) (0.59) (0.63)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $ 10.04 $10.14 $ 9.99 $ 9.92 $ 9.95
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return* 4.82% 7.56% 6.79% 5.74% 8.28%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 154,365 $66,357 $47,265 $22,681 $17,093
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 5.21% 5.83% 5.87% 5.88% 6.41%
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.48 $ 0.51 $ 0.54 $ 0.52 $ 0.54
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 199% 502% 451% 350% 284%
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.35% 1.15% 1.55% 1.55% 1.38%
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and
tax expense 1.85% 1.73% 2.05% 2.31% 2.23%
- ----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.62% 0.28% 0.60% 0.60% 0.47%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class P Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
-------------------------------------
1999 1998 1997T 1996(a)
<S> <C> <C> <C> <C>
Net Asset Value -- Beginning of Period $10.15 $9.99 $9.92 $9.98
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.41 0.61 0.59 0.16
Net realized and unrealized gain/(loss) on investments (0.06) 0.12 0.06 (0.05)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 0.35 0.73 0.65 0.11
- -------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.41) (0.57) (0.58) (0.17)
Dividends in excess of net investment income (0.01) -- (0.00)# --
Distributions from net realized capital gains -- -- -- --
Distributions in excess of net realized capital gains (0.05) -- -- --
Distributions from capital -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.47) (0.57) (0.58) (0.17)
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $10.03 $10.15 $9.99 $9.92
- -------------------------------------------------------------------------------------------------------------------------------
Total Return* 4.47% 7.34% 6.69% 1.12%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $3,887 $ 3 $ 0 $ 1
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 4.96% 5.58% 5.62% 5.63%+
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $0.37 $0.55 $0.54 $ 0.14
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 199% 502% 451% 350%
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.60% 1.40% 1.80% 1.80%+
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,including interest and tax
expense 2.10% 1.98% 2.30% 2.56%+
- -------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.87% 0.53% 0.85% 0.85%+
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Short Duration Government Bond Fund's Class P shares commenced
operations on March 11, 1996.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
# Amount represents less than $0.01 per share.
T 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.
125
The accompanying notes are an integral part of these financial statements.
<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: Fiscal Year Ended June 30,
-------------------------------------------------
1999 1998 1997 1996 1995(a)
<S> <C> <C> <C> <C> <C>
Net Asset Value -- Beginning of Period $ 12.86 $ 12.53 $ 12.23 $ 12.04 $ 11.79
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.49 0.51 0.53 0.54 0.44
Net realized and unrealized gain/(loss) on investments (0.16) 0.33 0.30 0.19 0.25
- --------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 0.33 0.84 0.83 0.73 0.69
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.46) (0.51) (0.53) (0.54) (0.44)
Dividends in excess of net investment income (0.03) -- -- -- (0.00)++
Dividends from net realized capital gains (0.03) -- -- -- --
Dividends in excess of net realized capital gains (0.00)++ -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.52) (0.51) (0.53) (0.54) (0.44)
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $ 12.67 $ 12.86 $ 12.53 $ 12.23 $ 12.04
- --------------------------------------------------------------------------------------------------------------------------------
Total Return* 2.71% 6.85% 6.91% 6.11% 6.03%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $41,017 $35,667 $21,681 $13,948 $ 5,153
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 3.93% 4.03% 4.27% 4.34% 3.71%
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.48 $ 0.44 $ 0.47 $ 0.43 $ 0.34
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 184% 42% 26% 58% 38%
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 0.69% 0.69% 0.68% 0.61% 0.56%
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and
tax expense 1.19% 1.19% 1.18% 1.43% 1.41%
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.69% 0.68% -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The California Tax-Free Intermediate Bond Fund's Class R shares commenced
operations on July 1, 1993.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
++ Amount represents less than $0.01 per share.
126
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------
The Montgomery Funds
====================
Financial Highlights
====================
<TABLE>
<CAPTION>
GOVERNMENT MONEY MARKET FUND
Class R Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 3
-------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value--Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.047 0.052 0.049 0.052 0.049
Net realized and unrealized gain/(loss) on investments 0.000ss. 0.000ss. 0.000ss. 0.000ss. 0.000ss.
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 0.047 0.052 0.049 0.052 0.049
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.047) (0.052) (0.049) (0.052) (0.049)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.047) (0.052) (0.049) (0.052) (0.049)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return* 4.81% 5.27% 5.03% 5.28% 4.97%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $575,387 $724,619 $473,154 $439,423 $258,956
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 4.71% 5.15% 4.93% 5.17% 4.92%
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.047 $ 0.052 $ 0.049 $ 0.050 $ 0.047
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 0.50% 0.53% -- -- 0.63%
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest and tax expense 0.50% 0.48% 0.62% 0.74% 0.79%
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.50% 0.53% 0.60% 0.60% 0.60%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class P Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
--------------------------------------------
1999 1998 1997 1996(a)
<S> <C> <C> <C> <C>
Net Asset Value--Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.045 0.049 0.048 0.014
Net realized and unrealized gain/(loss) on investments 0.000ss. 0.000ss. 0.000ss. 0.000ss.
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 0.045 0.049 0.048 0.014
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.045) (0.049) (0.048) (0.014)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.045) (0.049) (0.048) (0.014)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return* 4.54% 5.00% 4.88% 1.38%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 1 -- -- $ 1
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 4.52% 4.90% 4.68% 4.91%+
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.045 $ 0.049 $ 0.048 $ 0.013
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 0.75% 0.78% -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest and tax expense 0.75% 0.73% 0.87% 0.99%+
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.75% 0.78% 0.85% 0.85%+
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Government Money Market (formerly Government Reserve) Fund's Class P
shares commenced operations on March 11, 1996.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
# The amount shown in this caption for each share outstanding throughout the
period may not be in accord with the net realized and unrealized gain/(loss)
for the period because of the timing of purchases and withdrawal of shares
in relation to the fluctuating market values of the portfolio.
ss. Amount represents less than $0.001 per share.
127
<PAGE>
- --------------------
The Montgomery Funds
====================
Financial Highlights
====================
<TABLE>
<CAPTION>
FEDERAL TAX-FREE MONEY FUND
Class R Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
--------------------------------
1999 1998 1997(a)
<S> <C> <C> <C>
Net Asset Value -- Beginning of Period $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.028 0.031 0.032
Net realized and unrealized gain/(loss) on investments 0.000ss. 0.000ss. 0.000ss.
- --------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 0.028 0.031 0.032
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.028) (0.031) (0.032)
Dividends in excess of net investment income (0.000)ss. -- (0.000)ss.
Distributions from net realized capital gains -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.028) (0.031) (0.032)
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------------------
Total Return* 2.82% 3.12% 3.26%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $116,341 $117,283 $114,197
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 2.80% 3.08% 3.24%+
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.026 $ 0.031 $ 0.030
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 0.60% 0.60% 0.33%+
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and tax expense 0.80% 0.81% 0.69%+
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.60% 0.60% --
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Federal Tax-Free Money Fund's Class R shares commenced operations on
July 15, 1996.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
ss. Amount represents less than $0.001 per share.
128
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------
The Montgomery Funds
====================
Financial Highlights
====================
<TABLE>
<CAPTION>
CALIFORNIA TAX-FREE MONEY FUND
Class R Shares
Selected Per-Share Data for the Year or Period Ended: Fiscal Year Ended June 30,
-----------------------------------------------
1999 1998 1997 1996 1995(a)
<S> <C> <C> <C> <C> <C>
Net Asset Value--Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.026 0.029 0.029 0.030 0.027
Net realized and unrealized gain/(loss) on investments 0.000ss. 0.000ss. 0.000ss. 0.000ss. 0.000ss.
- --------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment
operations 0.026 0.029 0.029 0.030 0.027
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.026) (0.029) (0.029) (0.030) (0.027)
Distributions in excess of net investment income -- -- -- -- (0.000)ss.
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.026) (0.029) (0.029) (0.030) (0.027)
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value--End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------------------
Total Return* 2.59% 3.00% 2.95% 3.03% 2.68%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) 292,901 $187,216 $118,723 $98,134 $64,780
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 2.55% 2.96% 2.91% 2.99% 3.55%+
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.021 $ 0.029 $ 0.028 $ 0.028 $ 0.023
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 0.58% 0.58% 0.58% 0.59% 0.33%+
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest
and tax expense 0.61% 0.68% 0.73% 0.80% 0.86%+
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.58% 0.58% -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Califonia Tax-Free Money Fund's Class R shares commenced operations on
September 30, 1994.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
ss. Amount represents less than $0.001 per share.
<PAGE>
========================
The Montgomery Funds
- ------------------------
Notes
- ------------------------
to Financial Statements
The Montgomery Funds and The Montgomery Funds II (individually, the "Trust" and,
collectively, the "Trusts" ) are registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as diversified, open-end management
investment companies. As of June 30, 1999, the Trusts had 24 publicly offered
series (individually, a "Fund" and, collectively, the "Funds"). The Montgomery
Funds include the following: Montgomery Growth Fund, Montgomery U.S. Emerging
Growth Fund, Montgomery Small Cap 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 Total Return Bond Fund, Montgomery Short Duration
Government Bond Fund, Montgomery California Tax-Free Intermediate Bond Fund,
Montgomery Government Money Market Fund (formerly Montgomery Government Reserve
Fund), Montgomery Federal Tax-Free Money Fund and Montgomery California Tax-Free
Money Fund. The Montgomery Funds II include the Montgomery Global Long-Short
Fund and the Montgomery U.S. Asset Allocation Fund, among other series. The
financial statements for the other Funds in The Montgomery Funds II have been
presented under separate covers .
The Montgomery Funds are organized as a Massachusetts business trust and
commenced operations on May 10, 1990. The Montgomery Funds II are organized as a
Delaware business trust and commenced operations on September 8, 1993.
The Montgomery Global Long-Short Fund, which commenced operations on December
31, 1997, has changed its fiscal year end from March 31 to June 30 of each year.
The Fund s most recent audited financial statements covered the fiscal year
ended March 31, 1999. On May 21, 1999, the Montgomery Global Long-Short Fund was
closed to new investors; however, existing shareholders of the Fund as of this
date may continue to purchase additional shares for their accounts.
Effective July 15, 1999, the Montgomery Government Reserve Fund changed its name
to the Montgomery Government Money Market Fund.
1. SIGNIFICANT ACCOUNTING POLICIES:
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. The following is a summary of
significant accounting policies.
a. Portfolio Valuation
Portfolio securities, including short sales, are valued using current market
valuations: either the last reported sale 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 ask 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 sale price on the respective exchanges or markets; except that
when an occurrence subsequent to the time that a value was so established is
likely to have changed said value, the fair value of those securities will be
determined by consideration of other factors by or under the direction of the
Board of Trustees or its delegates. Securities traded on the over-the-counter
market or on the NASDAQ national market are valued at the mean between the last
available bid and ask prices prior to the time of valuation.
For the Government Money Market Fund, Federal Tax-Free Money Fund and California
Tax-Free Money Fund, portfolio securities are valued at amortized cost, which
approximates market value.
Securities for which market quotations are not readily available (including
restricted securities that are subject to limitations as to their sale) are
valued at fair 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 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
("forward contracts") as a hedge in connection with portfolio purchases and
sales of securities denominated in foreign currencies. A forward contract is a
commitment to purchase or sell a foreign currency at the settlement date at a
negotiated rate.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies, and unrealized gain (loss) is recorded daily. Unrealized
gains and losses that represent the difference between the value of the forward
contract to buy and the forward contract to sell are included in net unrealized
gain (loss) from foreign-currency-related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, a Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
c. Foreign Currency
The accounting records of the Funds are maintained in U.S. dollars. Investment
securities and all other assets and liabilities of the Funds denominated in a
foreign currency are translated into U.S. dollars at the exchange rate each day.
Purchases and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the exchange rate in effect on the date of the
respective transactions.
The Funds do not isolate the portion of the fluctuations on investments
resulting from changes in foreign-currency exchange rates from the fluctuations
in market prices of investments held. Such fluctuations are included with the
net realized gain (loss) and unrealized appreciation (depreciation) from
investments and securities sold short.
d. Repurchase Agreements
Each Fund may engage in repurchase agreement transactions either individually or
jointly through a joint repurchase account with
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to Financial Statements
other series of the Trusts pursuant to a joint repurchase agreement. Under the
terms of a typical repurchase agreement, a Fund takes possession of debt
obligations as collateral. The Fund also agrees with the counterparty to allow
the counterparty to repurchase, and the Fund to resell, the obligations 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 obligation, 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 the Fund seeks to assert its rights. The Fund's 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 the Funds enter
into repurchase agreements, to evaluate potential risks. The Funds may also
participate on an individual or joint basis in tri-party repurchase agreements
that 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 sustantially 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 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. Reverse Repurchase Agreements
Certain Funds may enter into reverse repurchase agreement transactions with
member banks on the Federal Reserve Bank of New York's list of reporting
dealers. A reverse repurchase agreement involves a sale by the Fund of
securities that it holds with an agreement by the Fund to repurchase the same
securities at an agreed-upon price and date. A reverse repurchase agreement
involves the risk that the market value of the securities sold by the Fund may
decline below the repurchase price of the securities. Additionally, in the event
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds of the agreement
may be restricted pending a determination by the party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Each Fund establishes a segregated account with its custodian in which the Fund
maintains cash, U.S. government securities or other high-grade liquid debt
obligations equal in value to its obligations with respect to reverse repurchase
agreements.
g. 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. When futures contracts are
closed, the difference between the opening value at the date of purchase and the
value at closing is recorded as realized gain (loss) in the Statement of
Operations.
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.
h. Equity Swaps
Certain Funds may enter into equity swap agreements in order to participate in
foreign markets not currently accessible to the Fund. Pursuant to these
agreements, the Fund pays a swap fee in cash which is equal to a fixed
percentage of the cost for the underlying security (the "notional amount").
Additionally, the Fund will make semiannual payments to the swap counterparty
equal to any capital depreciation on the underlying security, plus a
floating-rate payment based on the notional amount and the six-month LIBOR rate.
The swap counterparty will make semiannual payments to the Fund equal to any
capital appreciation and any dividends received on the underlying security.
During the terms of the agreements, changes in the underlying value of the swaps
are recorded as unrealized gains or losses and are based on changes in the value
of the underlying security. Amounts received from (paid to) the swap
counterparty representing capital appreciation (depreciation) are recorded as
realized gain (loss), whereas dividends on the underlying security are recorded
when received. The Fund is exposed to credit risk in the event of
non-performance by the swap counterparty; the Fund does not anticipate
non-performance by the counterparty, however.
i. Short Sales/Forward Commitments
Certain Funds may enter into short sales and forward commitments. Short sales
are transactions in which a Fund sells a security it does not own, in
anticipation of a decline in the market value of that security. To complete such
a transaction, a Fund must borrow the security to deliver to the buyer upon the
short sale; the Fund is then obligated to replace the security borrowed by
purchasing it on the open market at some later date. A Fund will incur a loss if
the market price of the security increases between the date of the short sale
and the date on which the Fund replaces the borrowed security. A Fund will
typically realize a gain if the security declines in value between those dates.
Dividends declared on securities sold short are recorded on the ex-dividend
date. For the period ended June
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to Financial Statements
30, 1999, the Global Long-Short Fund incurred $175,308 in short dividend
expenses. A Fund engaging in short sales maintains as collateral cash or liquid
debt and equity securities sufficient to fully collateralize its obligation on
the short position.
j. Options
Certain Funds may enter into options contracts. An option contract is a contract
in which the writer of the option grants the buyer of the option the right to
purchase from (call option) or sell to (put option) the writer a designated
instrument at a specified price within a specified period of time. Certain
options, including options on indices, will require cash settlement by a Fund if
the option is exercised.
If a Fund writes an option and the option expires unexercised, the Fund will
realize a capital gain to the extent of the amount received for the option (the
"premium"). If a Fund elects to close out the option, it will recognize a gain
or loss based on the difference between the cost of closing the option and the
initial premium received. If a Fund purchases an option and allows the option to
expire, it will realize a loss to the extent of the premium paid. If a Fund
elects to close out the option, it will recognize a gain or loss equal to the
difference between the cost of acquiring the option and the amount realized upon
the sale of the option.
The gain or loss recognized by a Fund upon the exercise of a written call or
purchased put option is adjusted for the amount of option premium. If a written
put or purchased call option is exercised, a Fund's cost basis of the acquired
security or currency would be the exercise price adjusted for the amount of the
option premium.
The liability representing a Fund's obligation under an exchange-traded written
option or investment in the purchased option is valued at the last sale price
or, in absence of a sale, the mean between the closing bid and ask prices or at
the most recent ask price (bid for purchased options) if no bid and ask prices
are available. Over-the-counter written or purchased options are valued using
dealer-supplied quotations.
When a Fund writes a covered call option, the Fund forgoes, in exchange for the
premium, the opportunity to profit during the option period from an increase in
the market value of the underlying security or currency above the exercise
price. When a Fund writes a put option, it accepts the risk of a decline in the
market value of the underlying security or currency below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. A Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into options contracts, including the risk
that an illiquid secondary market will limit a Fund's ability to close out an
option contract prior to the expiration date, and that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.
k. Dividends and Distributions
Dividends from net investment income of the Growth Fund, U.S. Emerging Growth
Fund, Small Cap Fund, International Growth/Fund, International Small Cap Fund,
Global Opportunities Fund, Global Communications Fund, Emerging Markets Fund,
Emerging Asia Fund, Global Long-Short Fund, Select 50 Fund and U.S. Asset
Allocation Fund are declared and paid at least annually. Dividends from net
investment income of the Total Return Bond Fund, Short Duration Government Bond
Fund, California Tax-Free Intermediate Bond Fund, Government Money Market Fund,
Federal Tax-Free Money Fund and California Tax-Free Money Fund are declared
daily and paid monthly. Dividends from net investment income of the Equity
Income Fund are declared and paid quarterly.
Distributions of net realized capital gains (including net short-term capital
gains) earned by a Fund are distributed no less frequently than annually.
Additional distributions of net investment income and capital gains for each
Fund may be made in order to avoid the application of a 4% non-deductible excise
tax on certain undistributed amounts of ordinary income and capital gains.
Income distributions and capital-gain distributions are determined in accordance
with income-tax regulations, which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of
income and gains on various investment securities held by a Fund, timing
differences and differing characterization of distributions made by a Fund.
Permanent differences incurred during the year ended June 30, 1999, resulting
from differences in book and tax accounting, that have been reclassified at year
end among undistributed net investment income, accumulated net realized gain
(loss) and paid-in capital were as follows:
Undistributed
Net Undistributed
Investment Capital Paid-in
Fund Income Gain/(Loss) Capital
- --------------------------------------------------------------------------------
Growth Fund ........................ $ (1,884) $(9,822,573) $ 9,824,457
U.S. Emerging Growth Fund .......... 3,102,617 (1,251,702) (1,850,915)
Small Cap Fund ..................... 1,713,356 (3,148,630) 1,435,274
Equity Income Fund ................. -- (1,022,061) 1,022,061
International Growth Fund .......... (1,222,828) 514,247 708,581
International Small Cap Fund ....... 64,027 (361,998) 297,971
Global Opportunities Fund .......... 1,182,022 (2,427,867) 1,245,845
Global Communications Fund ......... 912,283 (3,390,685) 2,478,402
Emerging Markets Fund .............. (2,995,558) 2,993,392 2,166
Emerging Asia Fund ................. (431,832) 431,833 (1)
Global Long-Short Fund ............. 1,234,763 (1,227,655) (7,108)
Select 50 Fund ..................... 2,391,582 (5,499,756) 3,108,174
U.S. Asset Allocation Fund ......... 1,588,540 (4,504,134) 2,915,594
Total Return Bond Fund ............. (3,755) (329,954) 333,709
Short Duration
Government Bond Fund ............... (195,734) (30,551) 226,285
California Tax-Free
Intermediate Bond Fund ............. (81,150) 81,151 (1)
Government Money Market Fund ....... (202) 202 --
Federal Tax-Free Money Fund ........ -- 136 (136)
California Tax-Free
Money Fund ......................... (2) (1) 3
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Notes
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to Financial Statements
Permanent book-tax differences, if any, are not included in ending undistributed
net investment income (loss) for the purposes of calculating net investment
income (loss) per share in the Financial Highlights.
l. Securities Transactions and Investment Income
Securities transactions are recorded on a trade date basis (date the order to
buy or sell is executed). Interest income is accrued daily and includes
amortization of premium and accretion of discount on investments. Realized gain
and loss from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities are recorded as soon as the Funds are informed
of the ex-dividend date. Interest income, including, where applicable,
accretion/amortization of discount/premium on short-term investments, is
recognized on the accrual basis. Each Fund's investment income and realized and
unrealized gains and losses are allocated among its classes based on the
relative net assets of each class of shares.
m. Federal Income Taxes
Each Fund has elected and qualified, and it is the intention of each Fund to
continue to qualify, as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), by complying with the
provisions available to certain investment companies, as defined in applicable
sections of the Code, and to make distributions of taxable and tax-exempt income
to shareholders sufficient to relieve each Fund of all or substantially all
federal income taxes. Therefore, no federal income or excise-tax provision has
been made.
The Funds may be subject to foreign taxes on income, gains on investments or
currency repatriation, a portion of which may be recoverable. The Funds will
accrue such taxes and recoveries as applicable, based on their current
interpretation of tax rules and regulations that exist in the markets in which
they invest.
n. Organization Costs
Certain 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.
o. Cash
Cash, as used in the Statement of Cash Flows, is the amount reported in the
Statement of Assets and Liabilities. The Funds issue and redeem their shares,
invest in securities and distribute 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, accretion income
recognized on investment securities and amortization of organization costs.
p. Expenses
General expenses of the Trusts are allocated to the relevant Funds based on
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 Fund or class of
shares are prorated among the classes based on the relative average net assets
of each Fund or class of shares.
2. MANAGEMENT FEES AND OTHER
TRANSACTIONS WITH AFFILIATES AND
OTHER CONTRACTUAL COMMITMENTS:
a. Montgomery Asset Management, LLC, is the Funds' Manager (the "Manager"). The
Manager, a Delaware limited liability company, is an investment adviser
registered with the Securities and Exchange Commission under the Investment
Advisers Act of 1940, as amended. The Manager is a subsidiary of Commerzbank AG.
Pursuant to Investment Management Agreements (the "Agreements") between the
Manager and the Trusts with respect to each Fund, 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 the Agreements. Under Operating Expense Agreements with
each Trust, 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 Rule 12b-1 fees, dividend expense, interest,
extraordinary expenses 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 U.S.
Emerging Growth Fund; 1.40% for the Small Cap Fund; 0.85% for the Equity Income
Fund; 1.65% for the International Growth Fund; 1.90% for the International Small
Cap Fund, the Global Opportunities Fund, the Global Communications Fund, the
Emerging Markets Fund and the Emerging Asia Fund; 2.35% for the Global Long-
Short Fund; 1.80% for the Select 50 Fund; 1.30% for the U.S. Asset Allocation
Fund (including total expenses of the underlying Funds); 0.70% for the Total
Return Bond Fund and the Short Duration Government Bond Fund; 0.70% for the
California Tax-Free Intermediate Bond Fund; 0.60% for the Government Money
Market Fund and the Federal Tax-Free Money Fund; and 0.60% for the California
Tax-Free Money Fund. Any reductions or absorptions made to a Fund by the Manager
are subject to recovery within the following three years, provided a Fund is
able to effect such reimbursement and remain in compliance with applicable
expense limitations. The Operating Expense Agreements have rolling 10-year
terms, extendable for one year at the end of each fiscal year.
Montgomery Asset Management, LLC, serves as the Fund's administrator (the
"Administrator"). The Administrator performs
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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 on 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:
Management
Fee
Including
Contractual Effective Effect of
Management Management Fees Administration
Fund Fee Fee Reduced Fee
- --------------------------------------------------------------------------------
Growth Fund .................. 0.95% 0.95% 0.95% 0.07%
U.S. Emerging Growth Fund .... 1.33 1.33 1.33 0.07
Small Cap Fund ............... 1.00 1.00 1.00 0.07
Equity Income Fund ........... 0.60 0.84 0.24 0.07
International Growth Fund .... 1.10 1.20 1.12 0.07
International Small Cap Fund . 1.24 1.86 1.21 0.07
Global Opportunities Fund .... 1.25 1.60 1.21 0.07
Global Communications Fund ... 1.22 1.22 1.22 0.07
Emerging Markets Fund ........ 1.16 1.16 1.06 0.07
Emerging Asia Fund ........... 1.25 1.73 1.03 0.07
Global Long-Short Fund ....... 1.50 2.02 1.47 0.07
Select 50 Fund ............... 1.25 1.25 1.25 0.07
U.S. Asset Allocation Fund.... -- -- -- --
Total Return Bond Fund ....... 0.50 0.56 0.48 0.05
Short Duration
Government Bond Fund ....... 0.50 0.79 0.29 0.05
California Tax-Free
Intermediate Bond Fund ..... 0.50 0.88 0.38 0.05
Government Money Market Fund.. 0.30 0.30 0.30 0.04
Federal Tax-Free Money Fund .. 0.40 0.61 0.41 0.05
California Tax-Free
Money Fund ................. 0.40 0.47 0.44 0.05
The Manager recouped previously deferred fees during the year ended June 30,
1999. These amounts have been included with current annual management fees in
the Statement of Operations and are part of the effective management fee shown.
The amounts recouped during the year ended June 30, 1999, were $86,435,
$189,698, $286,566, $203,595, $157,217, $37,741, $372,043, $154,770, $265,710
and $168,617, for the Equity Income Fund, International Growth Fund,
International Small Cap Fund, Global Opportunities Fund, Emerging Asia Fund,
Total Return Bond Fund, Short Duration Government Bond Fund, California Tax-Free
Intermediate Bond Fund, Federal Tax-Free Money Fund and California Tax-Free
Money Fund, respectively.
Also included in other expense are absorbed expenses recouped from the previous
year of $71,778 and $48,686 for U.S. Asset Allocation Fund and Short Duration
Government Bond Fund, respectively.
For the year ended June 30, 1999, the Manager has deferred fees and/or absorbed
expenses and has deferred management fees and absorbed expenses subject to
recoupment as follows:
Deferred
Management Fees
and Absorbed
Expenses
Fees Expenses Subject to
Fund Reduced Absorbed Recoupment
- ---------------------------------------------------------------------
Equity Income Fund ............. $217,211 -- $494,518
International Growth Fund ...... 160,139 -- 160,139
International Small Cap Fund ... 299,803 -- 299,803
Global Opportunities Fund ...... 227,394 -- 227,394
Emerging Markets Fund .......... 397,685 -- 397,685
Emerging Asia Fund ............. 228,921 -- 228,921
Global Long-Short Fund.......... 188,977 -- 241,012
U.S. Asset Allocation Fund ..... -- $207,593 296,049
Total Return Bond Fund ......... 50,454 -- 50,454
Short Duration
Government Bond Fund ........... 647,496 -- 872,906
California Tax-Free
Intermediate Bond Fund ......... 202,315 -- 274,332
Federal Tax-Free Money Fund .... 257,501 -- 257,501
California Tax-Free
Money Fund ..................... 70,198 -- 70,198
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 $55,000 per annum, as well as
reimbursement for expenses, for services as a Trustee of all Trusts advised by
the Manager ($35,000 of which will be allocated to The Montgomery Funds and
$15,000 to The Montgomery Funds II).
c. 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 to shareholder servicing and recordkeeping and are
reflected in the Funds' financial statement as "servicing fees." The Manager,
out of its own resources, may make additional payments to financial
intermediaries and recordkeepers in connection with the Funds participation in
these programs.
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to Financial Statements
3. SHARE MARKETING PLAN:
Class P shares of each Fund, and Class B and Class C shares of Global Long Short
Fund, have adopted a Share Marketing Plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act (the "Rule"). Pursuant to that Rule, the Trusts Board of
Trustees has approved, and each Fund has entered into, the Plan with Funds
Distributor, Inc., the Funds distributor (the "Distributor"), as the
distribution coordinator for the Class P, Class B and Class C shares. Under the
Plan, each Fund will pay distribution fees to the Distributor at an annual rate
of up to 0.25% of the Fund's aggregate average daily net assets attributable to
its Class P shares, and up to 0.75% of the Fund's aggregate average daily net
assets attributable to its Class B and Class C shares, to reimburse the
Distributor for its distribution costs with respect to that class (the "Class").
The Plan provides that the Distributor may use the distribution fees received
from the Class to pay for the distribution expenses of that Class, including,
but not limited to, (i) incentive compensation paid to the directors, officers
and employees of, agents for and consultants to the Manager or any other
broker-dealer or financial institution that engages in the distribution of that
Class; and (ii) compensation to broker-dealers, financial institutions or other
persons for providing distribution assistance with respect to that Class.
Distribution fees may also be used for (i) marketing and promotional activities,
including, but not limited to, direct-mail promotions and television, radio,
newspaper, magazine and other mass media advertising for that Class; (ii) costs
of printing and distributing prospectuses, statements of additional information
and reports of the Funds to prospective investors in that Class; (iii) costs
involved in preparing, printing and distributing sales literature pertaining to
the Funds and that Class; and (iv) costs involved in obtaining whatever
information, analysis and reports with respect to marketing and promotional
activities that the Funds may, from time to time, deem advisable with respect to
the distribution of that Class. Distribution fees are accrued daily, paid
monthly and charged as expenses of the Class P, Class B and Class C shares, as
accrued.
4. SECURITIES TRANSACTIONS:
a. The aggregate amount of purchases and sales of long-term securities,
excluding long-term U.S. government securities, during the year ended June 30,
1999, were:
Fund Purchases Sales
- --------------------------------------------------------------------------------
Growth Fund...................... $326,567,872 $939,991,228
U.S. Emerging Growth Fund........ 253,108,705 286,383,431
Small Cap Fund................... 107,235,563 185,522,503
Equity Income Fund............... 19,830,078 37,668,239
International Growth Fund........ 422,617,819 259,162,943
International Small Cap Fund..... 49,228,509 55,407,437
Global Opportunities Fund........ 98,013,382 59,073,216
Global Communications Fund....... 392,345,658 416,642,893
Emerging Markets Fund............ 348,481,982 722,465,995
Emerging Asia Fund............... 82,698,284 69,997,959
Global Long-Short Fund........... 221,526,844 93,846,853
Select 50 Fund................... 186,427,205 312,664,665
U.S. Asset Allocation Fund....... 34,940,929 82,638,720
Total Return Bond Fund........... 72,359,047 109,247,461
Short Duration
Government Bond Fund............. 189,522,888 143,242,800
California Tax-Free
Intermediate Bond Fund........... 74,923,560 70,693,261
The aggregate amount of purchases and sales of long-term U.S. government
securities, during the year ended June 30, 1999, were:
Fund Purchases Sales
- --------------------------------------------------------------------------------
Total Return Bond Fund........... $ 38,419,134 $ 46,382,059
Short Duration
Government Bond Fund .......... 167,745,188 133,771,236
b. At June 30, 1999, aggregate gross unrealized appreciation for all securities
in which there was an excess of value over tax cost and aggregate gross
unrealized depreciation for all securities in which there was an excess of tax
cost over value were as follows:
<TABLE>
<CAPTION>
Tax Basis Tax Basis Net Tax Basis Cost for
Unrealized Unrealized Unrealized Appreciation Federal Tax
Fund Appreciation Depreciation (Depreciation) Purposes
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Fund................................. $ 168,817,106 $ 17,513,123 $ 151,303,983 $ 527,737,071
U.S. Emerging Growth Fund................... 116,326,931 6,821,178 109,505,753 275,704,663
Small Cap Fund.............................. 42,674,997 1,822,830 40,852,167 97,603,880
Equity Income Fund.......................... 5,980,845 211,594 5,769,251 24,504,924
International Growth Fund................... 15,140,891 7,606,358 7,534,533 221,334,613
International Small Cap Fund................ 5,669,180 3,523,505 2,145,675 35,290,545
Global Opportunities Fund................... 9,672,094 1,384,730 8,287,364 49,290,216
Global Communications Fund.................. 83,493,958 8,014,257 75,479,701 276,742,221
Emerging Markets Fund....................... 59,001,320 25,328,226 33,673,094 293,465,066
Emerging Asia Fund.......................... 14,134,697 3,325,970 10,808,727 52,981,889
Global Long-Short Fund...................... 55,013,496 17,591,002 37,422,494 261,636,962
Select 50 Fund.............................. 26,548,249 2,424,273 24,123,976 106,999,755
U.S. Asset Allocation Fund.................. 2,959,790 1,555,641 1,404,149 79,795,112
Total Return Bond Fund...................... 259,643 869,356 (609,713) 45,897,311
Short Duration Government Bond Fund......... 145,154 888,211 (743,057) 181,130,003
California Tax-Free Intermediate Bond Fund.. 571,141 360,592 210,549 40,343,421
</TABLE>
135
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- -----------------------
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- -----------------------
to Financial Statements
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
Fund the Period 6/30/99 the Period the Period the Period Earned
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Return Bond Fund ............ $14,423,590 $ 6,588,906 $ 9,243,058 4,773,038 $1.94 $ 87,616
Short Duration Government Bond Fund 14,782,500 14,055,000 10,504,862 10,956,352 0.96 106,458
</TABLE>
The average amount outstanding during the year was calculated by totaling
borrowings at the end of each day and dividing the sum by the number of days in
the year ended June 30, 1999.
d. Information regarding reverse repurchase agreements was as follows:
<TABLE>
<CAPTION>
Average
Maximum Average Average Debt Per
Amount Amount Shares Shares
Outstanding Outstanding Outstanding Outstanding Average
During During During During Interest Interest
Fund the Period the Period the Period the Period Rate Expense
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Return Bond Fund $ 18,024,188 $ 4,534,948 $ 4,773,038 $0.95 4.77% $279,451
Short Duration Government Bond Fund ...111,971,250 31,680,772 10,956,352 2.89 4.97 945,297
</TABLE>
The average amount outstanding during the year was calculated by totaling
borrowings at the end of each day and dividing the sum by the number of days in
the year ended June 30, 1999. There were no reverse repurchase agreements
outstanding at June 30, 1999.
e. The schedule of forward foreign-currency exchange contracts at June 30, 1999,
was as follows:
<TABLE>
<CAPTION>
Net Unrealized
Foreign-Currency Appreciation
Amount Settlement Date In Exchange for (US$) (Depreciation)
- ------------------------------------------------------------------------------------------------------------------------------------
International Growth Fund:
Forward Foreign-Currency Exchange Contracts to Receive
<S> <C> <C> <C>
55,310,497 Japanese Yen 07/01/99 $ 457,603 $ 680
282,369 British Pound 07/02/99 445,426 (2,693)
366,170 European Union Euro 07/02/99 378,088 (3,901)
242,962 European Union Euro 07/15/99 251,154 (2,303)
2,972,303 European Union Euro 07/30/99 3,076,027 (7,411)
----------- --------
Total $ 4,608,298 $(15,628)
=========== ========
Forward Foreign-Currency Exchange Contracts to Deliver
5,474,922 Swedish Krona 07/01/99 $ 646,565 $ 99
1,910,000,000 Japanese Yen 12/17/99 16,143,895 (82,797)
----------- --------
Total $16,790,460 $(82,698)
=========== ========
Net Unrealized Depreciation $(98,326)
========
</TABLE>
136
<PAGE>
<TABLE>
<CAPTION>
=======================
The Montgomery Funds
-----------------------
Notes
-----------------------
to Financial Statements
Net Unrealized
Foreign-Currency Appreciation
Amount Settlement Date In Exchange for (US$) (Depreciation)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Small Cap Fund:
Forward Foreign-Currency Exchange Contracts to Deliver
153,711 British Pound 07/01/99 $ 244,032 $ 1,558
73,525 European Union Euro 07/01/99 76,194 276
100,305 Singapore Dollar 07/01/99 58,899 (22)
3,444,644 Japanese Yen 07/01/99 28,456 (42)
277,169 Singapore Dollar 07/02/99 162,429 (386)
4,450,721 Japanese Yen 07/02/99 36,604 (218)
218,163 European Union Euro 07/30/99 227,224 1,960
84,000,000 Japanese Yen 12/17/99 708,354 (5,282)
----------- ---------
Total $ 1,542,192 $ (2,156)
=========== =========
Net Unrealized Depreciation $ (2,156)
=========
Global Opportunities Fund:
Forward Foreign-Currency Exchange Contracts to Receive
14,255,283 Japanese Yen 07/01/99 $ 117,939 $ 175
114,428 European Union Euro 07/02/99 118,152 (1,219)
55,171 British Pound 07/02/99 87,029 (526)
----------- ---------
Total $ 323,120 $ (1,570)
=========== =========
Forward Foreign-Currency Exchange Contracts to Deliver
1,009,362 Swedish Krona 07/01/99 $ 119,201 $ 18
4,975,597 Japanese Yen 07/01/99 41,104 (61)
760,629 Swedish Krona 07/02/99 90,069 255
6,878,387 Japanese Yen 07/02/99 56,570 (336)
246,000,000 Japanese Yen 12/17/99 2,080,604 (9,327)
----------- ---------
Total $ 2,387,548 $ (9,451)
=========== =========
Net Unrealized Depreciation $ (11,021)
=========
Global Communications Fund:
Forward Foreign-Currency Exchange Contracts to Receive
250,346 Swedish Krona 07/01/99 $ 29,560 $ (5)
8,244,988 Swedish Krona 07/02/99 973,549 (2,767)
----------- ---------
Total $ 1,003,109 $ (2,772)
=========== =========
Forward Foreign-Currency Exchange Contracts to Deliver
10,291,208 Swedish Krona 07/01/99 $ 1,215,349 $ 187
19,902,388 Japanese Yen 07/01/99 164,415 (245)
6,151,573 Swedish Krona 07/02/99 728,418 2,054
27,513,547 Japanese Yen 07/02/99 226,281 (1,348)
1,211,000,000 Japanese Yen 12/17/99 10,234,918 (53,314)
----------- ---------
Total $12,569,381 $ (52,666)
=========== =========
Net Unrealized Depreciation $ (55,438)
=========
</TABLE>
137
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The Montgomery Funds
- -----------------------
Notes
- -----------------------
to Financial Statements
<TABLE>
<CAPTION>
Net Unrealized
Foreign-Currency Appreciation
Amount Settlement Date In Exchange for (US$) (Depreciation)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Emerging Markets Fund:
Forward Foreign-Currency Exchange Contracts to Receive
15,705,741 Mexican Peso 07/02/99 $ 1,659,262 $ (7,483)
8,086,280 Hong Kong Dollar 07/02/99 1,042,517 242
5,513,777 Hong Kong Dollar 07/06/99 710,767 169
------------ ---------
Total $ 3,412,546 $ (7,072)
============ =========
Forward Foreign-Currency Exchange Contracts to Deliver
220,938 European Union Euro 07/01/99 $ 228,128 $ (10,794)
439,628,539 Indonesian Rupiah 07/02/99 63,484 (3,045)
------------ ---------
Total $ 291,612 $ (13,839)
============ =========
Net Unrealized Depreciation $ (20,911)
=========
Emerging Asia Fund:
Forward Foreign-Currency Exchange Contracts to Receive
1,359,694 Hong Kong Dollar 07/06/99 $ 175,233 $ 42
------------ ---------
Total $ 175,233 $ 42
============ =========
Forward Foreign-Currency Exchange Contracts to Deliver
863,633 Singapore Dollar 07/01/99 $ 507,780 $ (462)
16,886,958 Thai Baht 07/02/99 458,573 (746)
3,311,534 Hong Kong Dollar 07/02/99 426,882 (44)
5,950,194 Hong Kong Dollar 07/06/99 767,025 (183)
12,879,869 Thai Baht 07/06/99 349,996 (693)
------------ ---------
Total $ 2,510,256 $ (2,128)
============ =========
Net Unrealized Depreciation $ (2,086)
=========
Global Long-Short Fund:
Forward Foreign-Currency Exchange Contracts to Receive
1,045,604 Singapore Dollar 06/07/99 $ 614,212 $ 8,064
14,833,700 Indian Rupee 07/01/99 341,751 (651)
1,336,007 Singapore Dollar 07/01/99 784,801 (715)
105,446,400 Korean Won 07/01/99 91,098 (118)
6,836,868 Hong Kong Dollar 07/02/99 881,233 (204)
244,015 European Union Euro 07/30/99 252,530 (342)
------------ ---------
Total $ 2,965,625 $ 6,034
============ =========
Forward Foreign-Currency Exchange Contracts to Deliver
1,815,759 South African Rand 07/01/99 $ 300,896 $ (1,168)
482,289 Mexican Peso 07/01/99 54,182 (224)
1,154,638 Mexican Peso 07/02/99 122,543 (550)
------------ ---------
Total $ 477,621 $ (1,942)
============ =========
Net Unrealized Appreciation $ 4,092
=========
</TABLE>
138
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-----------------------
Notes
-----------------------
to Financial Statements
<TABLE>
<CAPTION>
Net Unrealized
Foreign-Currency Appreciation
Amount Settlement Date In Exchange for (US$) (Depreciation)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Select 50 Fund:
Forward Foreign-Currency Exchange Contracts to Deliver
1,118,396 Singapore Dollar 07/01/99 $ 656,972 $ (1,021)
---------- --------
Net Unrealized Depreciation $ (1,021)
========
<CAPTION>
f. At June 30, 1999, the Global Long-Short Fund had the following written options contracts open:
Number of Expiration
Fund Contracts Date Strike Price Value Premiums
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Call Options Written:
Circuit City Stores-Circuit City Group (Computer/Video Chains) 154 7/17/99 $80.00 $227,150 $131,401
<CAPTION>
g. Written option activity for the Global Long-Short Fund for the year ended June 30, 1999, was as follows:
Written Options Premiums Number of Contracts
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding, at March 31, 1999 ............... $ 25,273 55
Options written ...................................... 138,090 174
Options closed ....................................... (31,962) (75)
--------- ---
Written options outstanding at June 30, 1999 ......... $ 131,401 154
========= ===
<CAPTION>
h. The Global Long-Short Fund has the ability to enter into equity swap agreements with Robert Fleming & Co. Limited, London, with
respect to the holdings of foreign equity securities. Each swap is for a period of three years. At June 30, 1999, the Fund had the
following open equity swap agreements:
Unrealized
Underlying Security Notional Amount Swap Fee Rate Floating Rate Termination Date Appreciation/(Depreciation)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Associated Cement Companies Ltd. $266,179 1.50% LIBOR + 0.50% 5/17/00 $(33,130)
Associated Cement Companies Ltd. 31,408 1.50% LIBOR + 0.50% 5/22/00 (1,783)
Associated Cement Companies Ltd. 374,631 1.50% LIBOR + 0.50% 5/24/00 (32,167)
Bajaj Auto Ltd. 93,058 1.50% LIBOR + 0.50% 5/12/00 (8,818)
Bajaj Auto Ltd. 90,491 1.50% LIBOR + 0.50% 5/26/00 (6,252)
Britannia Gold NL 49,899 1.50% LIBOR + 0.50% 4/14/00 (6,474)
DBS Malaysia Growth Fund 275,254 1.50% LIBOR + 0.50% 5/18/00 88,661
Glaxo India Ltd. 230,201 1.50% LIBOR + 0.50% 5/3/00 19,970
ITC Ltd. 234,099 1.50% LIBOR + 0.50% 3/3/00 5,965
ITC Ltd. 422,741 1.50% LIBOR + 0.50% 5/22/00 (10,840)
Overseas-Chinese Banking
Corporation Ltd. 550,598 1.50% LIBOR + 0.50% 5/18/00 53,380
Ranbaxy Laboratories Ltd., GDR 462,657 1.50% LIBOR + 0.50% 3/24/00 (9,957)
Ranbaxy Laboratories Ltd., GDR 332,675 1.50% LIBOR + 0.50% 6/19/00 23,448
Reliance Industries Ltd., GDR 353,055 1.50% LIBOR + 0.50% 3/24/00 (7,479)
Reliance Industries Ltd., GDR 282,874 1.50% LIBOR + 0.50% 5/22/00 (17,674)
Reliance Industries Ltd., GDR 101,465 1.50% LIBOR + 0.50% 5/26/00 535
Satyam Computer Services Ltd. 93,223 1.50% LIBOR + 0.50% 4/19/00 (10,592)
--------
$ 46,793
========
</TABLE>
i. Under an agreement with Chase Manhattan Bank, each Fund has the ability to
lend securities to approved brokers, dealers and other financial institutions.
Loans of portfolio securities are collateralized by cash. The cash collateral
received is invested in short-term securities at the discretion of the
Custodian. A portion of the income generated by the investments of the
collateral, net of any rebates paid by Chase to borrowers, is remitted to Chase,
as lending agent, and the remainder is paid to the Fund. Generally, in the event
of counterparty default, the Fund has the right to use the collateral to offset
losses incurred. There would be a potential loss to the Fund in the event the
Fund is delayed or prevented from exercising its right to dispose of the
collateral. The Fund bears the risk in the event that investment collateral is
not sufficient to meet obligations due on the loans.
<PAGE>
========================
The Montgomery Funds
- ------------------------
Notes
- ------------------------
to Financial Statements
At June 30, 1999, the Funds had outstanding loans of securities to certain
brokers, dealers or other financial institutions for which each Fund has
received and segregated cash equivalent to 102% of the market value loans of
domestic securities and 105% for loans of international securities as collateral
with the Funds' Custodian. At June 30, 1999, the following Funds had securities
on loan:
<TABLE>
<CAPTION>
Market Value of Market Value Market Value of Market Value
Fund Loaned Securities of Collateral Fund Loaned Securities of Collateral
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Growth Fund ............... $15,376,328 $15,683,855 International Small Cap Fund .. $1,537,974 $1,614,873
U.S. Emerging Growth Fund . 7,211,364 7,355,591 Global Opportunities Fund ..... 3,412,178 3,582,787
Small Cap Fund ............ 11,832,750 12,069,405 Global Communications Fund .... 451,318 473,884
Equity Income Fund ........ 349,685 356,679
International Growth Fund . 16,056,528 16,859,354 Income earned from securities lending transactions is included in
securities lending income on the Statements of Operations.
</TABLE>
j. Under an unsecured Revolving Credit Agreement with Deutsche Bank, New York,
each of the Funds of The Montgomery Funds and The Montgomery Funds II, except
the Global Long-Short Fund, may, for one year starting August 13, 1998, borrow
(consistent with applicable law and its investment policies) up to one-third of
its net asset value (or such lower limit applicable to such Fund), provided that
the aggregate funds borrowed do not exceed $175,000,000. The Funds pay their pro
rata shares of the quarterly commitment fee of 0.08% per annum of the unutilized
credit line balance. For the year ended June 30, 1999, borrowings by the Funds
under the agreement were as follows:
<TABLE>
<CAPTION>
Amount Outstanding Average Amount Maximum Average Average Debt
Fund at 6/30/99 Outstanding Debt Outstanding Interest Rate Average Shares per Share
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Fund ................... $ -- $11,216,495 $66,600,000 5.30% 42,955,070 $ 0.26
International Growth Fund ..... -- 2,435,294 9,300,000 4.46 7,728,396 0.32
International Small Cap Fund .. 400,000 514,815 2,300,000 5.29 2,980,868 0.17
Global Opportunities Fund ..... -- 6,031,579 37,000,000 5.90 3,998,886 1.51
Emerging Markets Fund ......... 7,500,000 9,040,095 34,900,000 5.31 55,182,403 0.16
Emerging Asia Fund ............ -- 2,214,035 6,600,000 5.24 4,577,734 0.48
Select 50 Fund ................ -- 1,657,798 6,600,000 5.31 9,506,214 0.17
</TABLE>
Under a Credit Agreement dated August 28, 1998, as amended, the Global
Long-Short Fund may borrow cash of up to one-third of its total net asset value
from Bank of America NT&SA. This Fund makes quarterly payments of a 0.12% annual
commitment fee of the unutilized credit line balance. For the three-month period
ended June 30, 1999, the Global Long-Short Fund incurred $352,367 of interest
expense.
For the three-month period ended June 30, 1999, borrowings by the Global
Long-Short Fund under the Credit Agreement were as follows:
<TABLE>
<CAPTION>
Amount Outstanding Average Amount Maximum Average Average Debt
at 6/30/99 Outstanding Debt Outstanding Interest Rate Average Shares per Share
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Global Long Short Fund $40,000,000 $5,382,955 $40,000,000 5.49% 8,041,946 $0.67
</TABLE>
5. FOREIGN SECURITIES:
Certain Funds may purchase securities on foreign security exchanges. Securities
of foreign companies and foreign governments involve risks and considerations
not typically associated with investing in U.S. companies and the U.S.
government. These risks include, among others, revaluation of currencies,
less-reliable information about issuers, different securities transactions
clearance and settlement practices, and potential future adverse political and
economic developments. These risks are heightened for investments in emerging
markets countries. Moreover, securities of many foreign companies and foreign
governments and their markets may be less liquid and their prices more volatile
than those of securities of comparable U.S. companies and the U.S. government.
6. 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 Money Market Fund, the
California Tax-Free Money Fund and the Federal Tax-Free Money Fund are money
market funds, and money market funds sell shares, issue shares for reinvestment
of dividends and redeem shares normally at a constant net asset value of $1 per
share, the numbers of shares represented by such sales, reinvestments and
redemptions are the same as the dollar amounts shown for such transactions.
140
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-----------------------
Notes
-----------------------
to Financial Statements
TRANSACTIONS IN SHARES OF A BENEFICIAL INTEREST
<TABLE>
<CAPTION>
GROWTH FUND
Year Ended 6/30/99 Year Ended 6/30/98
R Shares: Shares Dollars Shares Dollars
- ----------------------------------------------------------------------------------------------------------------------------------
Sold 18,104,217 $ 390,073,046 16,507,063 $ 403,921,271
Issued as reinvestment of dividends 3,934,494 77,989,817 7,601,712 163,436,074
Redeemed (52,908,132) (1,124,668,296) (15,029,335) (359,116,329)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (30,869,421) $ (656,605,433) 9,079,440 $ 208,241,016
- ----------------------------------------------------------------------------------------------------------------------------------
P Shares:
- ----------------------------------------------------------------------------------------------------------------------------------
Sold 4,069 $ 92,919 3,130 $ 75,468
Issued as reinvestment of dividends 654 13,054 949 20,488
Redeemed (4,132) (87,473) (4,943) (123,213)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 591 $ 18,500 (864) $ (27,257)
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
U.S. EMERGING GROWTH FUND
Year Ended 6/30/99 Year Ended 6/30/98
R Shares: Shares Dollars Shares Dollars
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 9,492,873 $ 128,296,684 2,587,843 $ 57,987,143
Issued in exchange for shares of Montgomery Small Cap
Opportunities Fund (note 8) 3,376,958 60,368,327 -- --
Issued as reinvestment of dividends 1,089,727 23,479,369 966,775 19,005,916
Redeemed (12,553,360) (190,115,591) (2,378,282) (53,191,782)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 1,406,198 $ 22,028,789 1,176,336 $ 23,801,277
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SMALL CAP FUND
Year Ended 6/30/99 Year Ended 6/30/98
R Shares: Shares Dollars Shares Dollars
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 1,500,979 $ 23,905,212 697,973 $ 14,438,171
Issued as reinvestment of dividends 1,429,493 19,813,868 1,320,879 24,450,884
Redeemed (5,909,461) (90,955,913) (2,362,125) (49,694,104)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (2,978,989) $ (47,236,833) (343,273) $ (10,805,049)
- ----------------------------------------------------------------------------------------------------------------------------------
P Shares:
- ----------------------------------------------------------------------------------------------------------------------------------
Sold 436,333 $ 7,082,536 943,236 $ 20,198,104
Issued as reinvestment of dividends 218,219 2,980,874 154,148 2,828,622
Redeemed (443,741) (6,860,622) (389,596) (8,082,502)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 210,811 $ 3,202,788 707,788 $ 14,944,224
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
EQUITY INCOME FUND
Year Ended 6/30/99 Year Ended 6/30/98
R Shares: Shares Dollars Shares Dollars
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 857,982 $ 18,361,775 1,554,094 $ 28,652,451
Issued as reinvestment of dividends 190,128 3,407,582 265,748 4,707,487
Redeemed (1,845,907) (35,994,823) (1,772,223) (33,012,153)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (797,797) $ (14,225,466) 47,619 $ 347,785
- ----------------------------------------------------------------------------------------------------------------------------------
P Shares:
- ----------------------------------------------------------------------------------------------------------------------------------
Sold 60,646 $ 1,085,025 101,466 $ 1,859,907
Issued as reinvestment of dividends 16,390 294,403 10,850 195,396
Redeemed (57,061) (1,029,003) (11,769) (219,667)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 19,975 $ 350,425 100,547 $ 1,835,636
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
141
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=======================
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- -----------------------
Notes
- -----------------------
to Financial Statements
TRANSACTIONS IN SHARES OF A BENEFICIAL INTEREST
<TABLE>
<CAPTION>
EMERGING MARKETS FUND
Year Ended 6/30/99 Year Ended 6/30/98
R Shares: Shares Dollars Shares Dollars
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 63,953,630 $ 537,114,591 64,252,253 $ 870,111,228
Issued as reinvestment of dividends -- -- 2,665,847 33,243,134
Redeemed (107,275,950) (908,071,587) (64,669,860) (861,322,948)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (43,322,320) $(370,956,996) 2,248,240 $ 42,031,414
- -----------------------------------------------------------------------------------------------------------------------------------
P Shares:
- -----------------------------------------------------------------------------------------------------------------------------------
Sold 24,153 $ 211,598 27,137 $ 398,184
Issued as reinvestment of dividends -- -- 1,597 19,750
Redeemed (14,780) (129,243) (22,590) (312,707)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 9,373 $ 82,355 6,144 $ 105,227
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
GLOBAL OPPORTUNITIES FUND
Year Ended 6/30/99 Year Ended 6/30/98
R Shares: Shares Dollars Shares Dollars
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 4,863,038 $ 83,285,653 6,526,549 $ 115,648,814
Issued as reinvestment of dividends 387,823 5,976,349 328,896 4,693,347
Redeemed (7,299,062) (127,006,826) (3,521,069) (64,528,940)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (2,048,201) $ (37,744,824) 3,334,376 $ 55,813,221
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SHORT DURATION GOVERNMENT BOND FUND
Year Ended 6/30/99 Year Ended 6/30/98
R Shares: Shares Dollars Shares Dollars
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 21,806,908 $ 222,105,673 11,317,233 $ 114,184,061
Issued as reinvestment of dividends 564,567 5,733,568 251,170 2,538,235
Redeemed (13,542,909) (137,742,612) (9,757,162) (98,380,450)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 8,828,566 $ 90,096,629 1,811,241 $ 18,341,846
- -----------------------------------------------------------------------------------------------------------------------------------
P Shares:
- -----------------------------------------------------------------------------------------------------------------------------------
Sold 460,384 $ 4,668,471 296 $ 2,999
Issued as reinvestment of dividends 8,030 81,193 -- 5
Redeemed (81,036) (811,602) (21) (214)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 387,378 $ 3,938,062 275 $ 2,790
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL RETURN BOND FUND
Year Ended 6/30/99 Year Ended 6/30/98
R Shares: Shares Dollars Shares Dollars
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 2,212,229 $ 27,532,949 9,144,322 $ 110,211,352
Issued as reinvestment of dividends 295,215 3,526,016 416,875 5,131,390
Redeemed (5,455,138) (67,406,459) (3,314,312) (40,866,893)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (2,947,694) $ (36,347,494) 6,246,885 $ 74,475,849
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
142
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH FUND
Year Ended 6/30/99 Year Ended 6/30/98
Shares Dollars Shares Dollars
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
21,750,207 $ 400,464,468 4,351,572 $ 75,095,191
51,019 905,589 95,761 1,401,682
(13,289,899) (242,379,952) (3,062,252) (51,540,762)
- -----------------------------------------------------------------------------------------
8,511,327 $ 158,990,105 1,385,081 $ 24,956,111
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
137,543 $ 2,367,177 121 $ 2,000
-- 4,968 -- --
(13,504) (244,213) (184) (3,025)
- -----------------------------------------------------------------------------------------
124,039 $ 2,127,932 (63) $ (1,025)
- -----------------------------------------------------------------------------------------
<CAPTION>
INTERNATIONAL SMALL CAP FUND
Year Ended 6/30/99 Year Ended 6/30/98
Shares Dollars Shares Dollars
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
3,953,549 $ 55,726,426 2,996,436 $ 44,417,251
2,195 29,217 478,710 6,026,955
(4,665,338) (65,896,240) (3,262,988) (48,676,575)
- -----------------------------------------------------------------------------------------
(709,594) $ (10,140,597) 212,158 $ 1,767,631
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
27,959 $ 404,022 87,254 $ 1,157,000
-- -- 53 674
(28,087) (403,988) (87,867) (1,348,812)
- -----------------------------------------------------------------------------------------
(128) $ 34 (560) $ (191,138)
- -----------------------------------------------------------------------------------------
<CAPTION>
GLOBAL COMMUNICATIONS FUND
Year Ended 6/30/99 Year Ended 6/30/98
Shares Dollars Shares Dollars
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
16,399,838 $ 370,661,069 10,480,584 $ 216,384,607
1,295,937 25,594,755 1,826,761 27,927,779
(16,095,950) (355,421,630) (8,484,435) (170,608,536)
- -----------------------------------------------------------------------------------------
1,599,825 $ 40,834,194 3,822,910 $ 73,703,850
- -----------------------------------------------------------------------------------------
<CAPTION>
EMERGING ASIA FUND
Year Ended 6/30/99 Year Ended 6/30/98
Shares Dollars Shares Dollars
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
19,688,601 $ 157,590,021 15,482,971 $ 169,893,174
-- -- 289,356 2,751,873
(18,491,655) (143,526,077) (15,395,025) (177,173,709)
- -----------------------------------------------------------------------------------------
1,196,946 $ 14,063,944 377,302 $ (4,528,662)
- -----------------------------------------------------------------------------------------
<CAPTION>
SELECT 50 FUND
Year Ended 6/30/99 Year Ended 6/30/98
Shares Dollars Shares Dollars
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
4,487,757 $ 90,080,135 9,976,256 $ 210,226,345
650,669 11,789,988 1,052,393 19,382,808
(11,827,599) (231,636,588) (6,797,972) (140,815,546)
- -----------------------------------------------------------------------------------------
(6,689,173) $ (129,766,465) 4,230,677 $ 88,793,607
- -----------------------------------------------------------------------------------------
1,804 $ 37,885 3,967 $ 82,688
69 1,238 223 4,054
(1,820) (45,019) (2,131) (40,782)
- -----------------------------------------------------------------------------------------
53 $ (5,896) 2,059 $ 45,960
- -----------------------------------------------------------------------------------------
<CAPTION>
U.S. ASSET ALLOCATION FUND
Year Ended 6/30/99 Year Ended 6/30/98
Shares Dollars Shares Dollars
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
871,727 $ 15,336,419 2,182,888 $ 44,133,894
1,504,322 22,440,907 1,217,904 21,581,251
(4,248,757) (70,150,396) (3,086,435) (60,834,270)
- -----------------------------------------------------------------------------------------
(1,872,708) $ (32,373,070) 314,357 $ 4,880,875
- -----------------------------------------------------------------------------------------
1,078 $ 17,773 334 $ 6,400
914 13,679 720 12,778
(2,344) (39,000) (1,074) (20,918)
- -----------------------------------------------------------------------------------------
(352) $ (7,548) (20) $ (1,740)
- -----------------------------------------------------------------------------------------
<CAPTION>
CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
Year Ended 6/30/99 Year Ended 6/30/98
Shares Dollars Shares Dollars
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
2,076,450 $ 27,138,488 1,962,625 $ 25,203,200
114,589 1,497,553 75,599 969,104
(1,727,339) (22,532,247) (994,510) (12,764,038)
- -----------------------------------------------------------------------------------------
463,700 $ 6,103,794 1,043,714 $ 13,408,266
- -----------------------------------------------------------------------------------------
<CAPTION>
FEDERAL TAX-FREE MONEY FUND
Year Ended 6/30/99 Year Ended 6/30/98
Shares and Dollars Shares and Dollars
- -----------------------------------------------------------------------------------------
<S> <C>
$ 1,061,020,071 $ 1,183,904,180
3,011,207 3,577,816
(1,064,973,373) (1,184,396,291)
- -----------------------------------------------------------------------------------------
$ (942,095) $ 3,085,705
- -----------------------------------------------------------------------------------------
</TABLE>
143
<PAGE>
=======================
The Montgomery Funds
- -----------------------
Notes
- -----------------------
to Financial Statements
TRANSACTIONS IN SHARES OF A BENEFICIAL INTEREST
<TABLE>
<CAPTION>
GOVERNMENT MONEY MARKET FUND*
Year Ended 6/30/99 Year Ended 6/30/98
R Shares: Shares and Dollars Shares and Dollars
- -----------------------------------------------------------------------------------------------------------------------------------
Sold $ 3,814,709,697 $ 5,085,349,172
Issued as reinvestment of dividends 25,371,449 31,642,805
Redeemed (3,989,350,663) (4,865,576,626)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) $ (149,269,531) $ 251,415,351
- -----------------------------------------------------------------------------------------------------------------------------------
P Shares:
- -----------------------------------------------------------------------------------------------------------------------------------
Sold $ 1,008 $ 282
Issued as reinvestment of dividends 17 4
Redeemed (100) (490)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) $ 925 $ (204)
- -----------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY FUND
Year Ended 6/30/99 Year Ended 6/30/98
R Shares: Shares and Dollars Shares and Dollars
- -----------------------------------------------------------------------------------------------------------------------------------
Sold $ 1,369,794,351 $ 1,344,581,138
Issued as reinvestment of dividends 5,769,768 5,033,519
Redeemed (1,269,880,170) (1,281,121,597)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) $ 105,683,949 $ 68,493,060
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
GLOBAL LONG-SHORT FUND
Three Months Ended
6/30/99** Year Ended 3/31/99
R Shares Shares Dollars Shares Dollars
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 6,376,587 $ 115,011,592 2,502,705 $ 38,599,800
Issued as reinvestment of dividends -- -- -- --
Re-issued for name change from Class A shares (446,290) (8,621,700) 3,966,659 52,104,139
Redeemed -- -- (1,392,567) (21,334,896)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 5,930,297 $ 106,389,892 5,076,797 $ 69,369,043
- -----------------------------------------------------------------------------------------------------------------------------------
A Shares:
- -----------------------------------------------------------------------------------------------------------------------------------
Sold -- $ -- 6,446,498 $ 93,356,477
Issued as reinvestment of dividends -- -- 198,228 2,711,754
Redeemed -- -- (3,983,154) (58,677,987)
Cancelled for name change to Class R shares -- -- (3,966,659) (52,104,139)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) -- $ -- (1,305,087) $ (14,713,895)
- -----------------------------------------------------------------------------------------------------------------------------------
B Shares:
- -----------------------------------------------------------------------------------------------------------------------------------
Sold 668 $ 12,145 1,184,123 $ 16,623,219
Issued as reinvestment of dividends -- -- 1 15
Redeemed (82,068) (1,502,400) (140,910) (2,104,182)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (81,400) $ (1,490,255) 1,043,214 $ 14,519,052
- -----------------------------------------------------------------------------------------------------------------------------------
C Shares:
- -----------------------------------------------------------------------------------------------------------------------------------
Sold 1 $ 17 511,612 $ 6,598,428
Issued as reinvestment of dividends -- -- 1 15
Redeemed (24,511) (421,313) (103,968) (1,287,689)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (24,510) $ (421,296) 407,645 $ 5,310,754
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Formerly named Montgomery Government Reserve Fund.
** The Montgomery Global Long-Short Fund changed its fiscal year end from March
31 to June 30.
144
<PAGE>
=======================
The Montgomery Funds
-----------------------
Notes
-----------------------
to Financial Statements
7. CAPITAL LOSS CARRYFORWARDS:
At June 30, 1999, the following Funds had available for federal tax purposes
unused capital losses as follows:
<TABLE>
<CAPTION>
Fund Expiring in 2003 Expiring in 2004 Expiring in 2005 Expiring in 2006 Expiring in 2007
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Small Cap Fund ................. $ -- $ -- $ -- $ -- $ 6,876,863
International Small Cap Fund ... -- -- -- -- 420,080
Emerging Markets Fund .......... -- -- -- 83,822,425 199,540,290
Emerging Asia Fund ............. -- -- -- 3,385,829 7,819,658
California Tax-Free Money Fund . -- 6,712 -- 23 --
Federal Tax-Free Money Fund .... -- -- -- 873 45
</TABLE>
The following Funds utilized capital loss carryforward during the year:
Fund Amount
-------------------------------------------------------------
California Tax-Free Intermediate Bond Fund $17,719
Government Money Market Fund 26,092
California Tax-Free Money Fund 33
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 ended June 30, 1998. The following Funds elected to defer losses
occurring between November 1, 1998, and June 30, 1999, under these rules as
follows:
Fund Amount
--------------------------------------------------------------
International Growth Fund.................... $ 705,177
International Small Cap Fund................. 194,643
Emerging Markets Fund........................ 82,233,825
Emerging Asia Fund........................... 1,652,027
Short Duration Government Bond Fund.......... 854,319
California Tax-Free Intermediate Bond Fund... 7,321
Federal Tax Free Money Fund.................. 72
Such deferred losses will be treated as arising on the first day of the fiscal
year ended June 30, 1999.
8. REORGANIZATION
On March 12, 1999, the Montgomery U.S. Emerging Growth Fund, as listed below
("Acquiring Fund"), acquired substantially all of the assets and liabilities of
the Montgomery Small Cap Opportunities Fund, as listed below ("Acquired Fund"),
in a tax-free reorganization in an exchange for shares of the Acquiring Fund,
pursuant to a plan of reorganization approved by the Board of Trustees and
shareholders of the Acquired Fund. The net assets of the Small Cap Opportunities
Fund were exchanged for Class R shares of the U.S. Emerging Growth Fund.
Net assets as of the reorganization date were as follows:
<TABLE>
<CAPTION>
Total Net Assets of
Total Net Assets of Total Net Assets of Acquiring Fund After Acquired Fund Unrealized
Acquiring Fund Acquired Fund Acquired Fund Acquiring Fund Acquisition Appreciation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Emerging Small Cap
Growth Fund Opportunities Fund $60,368,324 $336,278,948 $396,647,272 $9,632,288
</TABLE>
The shareholders of the Montgomery Small Cap Opportunities Fund voted on the
proposed plan of reorganization, which included the transfer of all assets of
the Fund to the Montgomery U.S. Emerging Growth Fund and the distribution to the
Fund's shareholders shares of the U.S. Emerging Growth Fund. The number of
shares voted was as follows (unaudited):
Voted For Voted Against Abstained
------------------------------------------------------
2,151,559 65,353 128,323
145
<PAGE>
====================
The Montgomery Funds
- --------------------
Independent
Auditors' Report
- --------------------
To the Board of Trustees and Shareholders of The Montgomery Funds and The
Montgomery Funds II:
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios investments and schedule of short sales, and the related
statements of operations, of changes in net assets and of cash flows and the
financial highlights present fairly, in all material respects, the financial
position of Montgomery Growth Fund, Montgomery U.S. Emerging Growth Fund,
Montgomery Small Cap 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 Total Return Bond Fund, Montgomery Short Duration Government Bond
Fund, Montgomery California Tax-Free Intermediate Bond Fund, Montgomery
Government Money Market Fund (formerly Montgomery Government Reserve Fund),
Montgomery Federal Tax-Free Money Fund, Montgomery California Tax-Free Money
Fund (all portfolios of The Montgomery Funds) and Montgomery Global Long-Short
Fund and Montgomery U.S. Asset Allocation Fund (two portfolios of The Montgomery
Funds II) (collectively the "Funds") at June 30, 1999, the results of each of
their operations, the changes in each of their net assets, their cash flows and
the financial highlights for the periods presented between July 1, 1997 and June
30, 1999, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at June
30, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
The financial highlights of the Funds for the periods preceding July 1, 1997
were audited by other independent accountants whose report dated August 8, 1997
expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
San Francisco, CA
August 18, 1999
The accompanying notes are an integral part of these financial statements.
146
<PAGE>
===============================
The Montgomery Funds
- -------------------------------
Tax Information
- -------------------------------
Fiscal Year Ended June 30, 1999
(Unaudited)
In accordance with the Code, the following Funds are designating the following
amounts as long-term capital gain dividends:
Growth Fund .....................................................$ 123,746,723
U.S. Emerging Growth Fund ....................................... 28,228,600
Equity Income Fund .............................................. 3,967,563
International Growth Fund ....................................... 3,651,865
Global Opportunities Fund ....................................... 7,547,015
Global Communications Fund ...................................... 42,755,366
Global Long-Short Fund .......................................... 301,147
Select 50 Fund .................................................. 8,190,583
U.S. Asset Allocation Fund ...................................... 18,472,060
Total Return Bond Fund .......................................... 825,245
Short Duration Government Bond Fund ............................. 124,034
California Tax-Free Intermediate Bond Fund ...................... 81,164
Government Money Market Fund .................................... 4,119
Of the distributions made from investment income, the following percentages are
tax exempt for regular federal income-tax puposes:
California Tax-Free Intermediate Bond Fund ...................... 100.00%
Federal Tax-Free Money Fund ..................................... 100.00
California Tax-Free Money Fund .................................. 100.00
The following Funds are designating the following percentages of distributions
made from net investment income, as stated in these financial statements, as net
investment income dividends that qualify for the dividends-received deduction
with regard to the Funds' corporate shareholders:
Growth Fund ..................................................... 100.00%
Equity Income Fund .............................................. 100.00
Global Opportunities Fund ....................................... 1.71
Select 50 Fund .................................................. 20.65
U.S. Asset Allocation Fund ...................................... 6.62
For the fiscal year ended June 30, 1999, foreign income and foreign taxes paid
relating to foreign sources and possessions of the United States on a per-share
basis were as follows:
Foreign Foreign
Fund Income Taxes
- --------------------------------------------------------------------------
International Growth Fund ................. $0.2743 $0.0319
International Small Cap Fund .............. 0.2550 0.0323
Global Opportunities Fund ................. 0.2152 0.0260
Global Communications Fund ................ 0.2878 0.0202
Emerging Markets Fund ..................... 0.2621 0.0199
Emerging Asia Fund ........................ 0.0746 0.0066
The above figures may differ from those cited elsewhere in this report due to
differences in the calculation of income and capital gains for Securities and
Exchange Commission (book) purposes and Internal Revenue Service (tax) purposes.
147
<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 Federal Deposit Insurance
Corporation (FDIC) or any other agency and are subject to investment risk,
including the possible loss of principal. Neither The Montgomery Funds nor
Montgomery Asset Management is a bank.
For more information on any Montgomery Fund, including charges and expenses,
visit our Web site at www.montgomeryfunds.com or call (800) 572-FUND [3863] for
a free prospectus. Read it carefully before you invest or send money.
Funds Distributor, Inc. 8/99
<PAGE>
[GRAPHIC APPEARS HERE]
Invest wisely(SM)
The Montgomery Funds(SM)
101 California Street
San Francisco, CA 94111-9361
- -----------------------
^ILLEGIBLE^
- -----------------------
www.montgomeryfunds.com
- -----------------------
