<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
ANNUAL REPORT
-----------------------------------
JUNE 30, 2000
CHAIRMAN'S LETTER
August 2000
Dear Fellow Shareholder:
It was an exciting year, both in the financial markets and here at The
Montgomery Funds.
If any term defined the past 12 months, it was NEW ECONOMY. The fiscal year
began with a growing sense of excitement about the growth and convergence of the
Internet, media and telecommunications industries. But as we've seen time and
again, this trend, like others before it, appears to have created both genuine
opportunities and inevitable excesses.
Although our portfolio managers have been striving to take advantage of
opportunities emerging from the new economy, they refuse to compromise their
core philosophy simply to jump on the bandwagon. Their steadfastness was
rewarded when more-speculative investments dropped sharply in the second
quarter. Those declines only serve to underscore what we believe is a basic
truth about investing: Individual business fundamentals, not momentum or a mere
concept, are what ultimately drive share prices over the long term. That's why
our portfolio managers are seeking opportunities to invest in companies that
they think have great long-term potential and a solid foundation in the here and
now.
And we believe that those opportunities are not confined to the United States.
As you'll see in the following pages, investments in markets as diverse as
Germany and South Korea, in addition to those in the United States, enabled many
of our Funds to outperform their respective benchmarks. It's a concrete example
of how the Funds are benefiting from their strategic migration to our Global
Research Platform.* As borders become less and less of a barrier to business,
this centralized research engine is designed to help us identify what we believe
are some of the world's most promising investment opportunities for shareholders
like you.
As always, thank you for investing with The Montgomery Funds.
Sincerely,
/s/ R. Stephen Doyle
R. Stephen Doyle
Chairman
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.
*If you would like more information about our Global Research Platform, send us
an e-mail at [email protected].
1
<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
ANNUAL REPORT
-----------------------------------
JUNE 30, 2000
STOCKS AND BOND MARKET OVERVIEW
U.S. STOCKS
The past year was a notably volatile one in the U.S. stock market. Periods of
tremendous strength were followed by steep declines.
Rising interest rates weighed heavily on the stock market during the third
quarter of 1999, and investors remained concerned about the possibility of
widespread Y2K computer problems.
Yet concerns seemed to dissipate over the fourth quarter and much of the first
quarter of 2000. During the rally, investors overwhelmingly favored so-called
new-economy stocks in the technology, media and telecommunications sectors. In
the eyes of some investors, the seemingly vast potential for e-commerce
companies and Internet content providers suggested that a new paradigm was
operating in the market and that traditional ways of valuing companies were
becoming less relevant.
In mid-March 2000, however, concerns about rising interest rates, potentially
higher inflation and a possible slowdown in the U.S. economy sparked a "flight
to quality" that continued into the second quarter. Sectors traditionally
considered defensive, such as food and utilities, drew far more attention from
investors than they had in a long time. More-speculative stocks in the
technology sector and elsewhere dropped precipitously. The previously hot
initial public offering (IPO) market also slowed down, casting some doubt on the
future of companies in need of near-term funding. By early June 2000, however,
investors began revisiting high-growth stocks, as data was released suggesting
that the economy was indeed slowing. Investors now appear to be favoring
companies with actual earnings, rather than the concept-driven stocks that had
dominated the market in previous quarters.
SPX -- S&P 500 INDEX USD
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
DATE AVERAGE DATE AVERAGE DATE AVERAGE
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6/30 1451.522 3/31 1505.322 12/31 1462.386
6/23 1466.948 3/24 1501.190 12/24 1436.498
6/16 1465.834 3/17 1411.570 12/17 1414.310
6/ 9 1463.090 3/10 1382.072 12/10 1412.308
6/ 2 1442.280 3/ 3 1376.918 12/ 3 1407.360
5/26 1386.634 2/25 1349.912 11/26 1414.820
5/19 1442.072 2/18 1382.800 11/19 1414.414
5/12 1409.626 2/11 1416.322 11/12 1378.654
5/ 5 1434.368 2/ 4 1412.440 11/ 5 1357.932
4/28 1457.128 1/28 1394.874 10/29 1315.524
4/21 1426.265 1/21 1449.492 10/22 1278.028
4/14 1453.858 1/14 1448.648 10/15 1292.926
4/ 7 1501.152 1/ 7 1420.334 10/ 8 1317.002
10/ 1 1279.880
---------------------------------------------------------------------------------------------
<CAPTION>
---------------------------------------------------------------------------------------------
DATE AVERAGE DATE AVERAGE DATE AVERAGE
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9/24 1302.278
9/17 1330.458
9/10 1348.480
9/ 3 1330.370
8/27 1363.158
8/20 1333.594
8/13 1301.400
8/ 6 1313.912
7/30 1349.150
7/23 1376.390
7/16 1403.846
7/ 9 1395.420
7/ 2 1365.538
---------------------------------------------------------------------------------------------
</TABLE>
THE PAST YEAR WAS A PARTICULAR VOLATILE PERIOD IN THE U.S. STOCK MARKET, AS
THE GRAPH ABOVE DEMONSTRATES.
For the year the unmanaged S&P 500 Index had a return of 7.25%, the smaller-cap
Russell 2000 Index had a return of 14.32% and the tech-heavy NASDAQ Composite
Index returned 47.50%.
U.S. BONDS
As usual, interest rates had the most profound effect on the bond market over
the past year. All eyes were focused on Federal Reserve policy-makers, who
appeared concerned that the U.S. economy was growing at an unsustainable pace
and that low unemployment would cause wages and benefits to rise, with the costs
passed on to the consumer. In addition, it appeared that the strong equity
market was fueling the economy and consumer spending through the "wealth effect"
created by rising stock prices. As a result, the Federal Reserve hiked
short-term interest rates several times over the course of the year in an effort
to slow growth and head off inflation. Overall, it raised rates by a total of
1.75 percentage points. Although longer-term rates also rose steadily through
the last half of 1999, they trended downward during the first quarter of 2000,
due in part to the absence of widespread problems related to Y2K.
Another key factor affecting the bond market's performance was the U.S.
Treasury's buy-back program. In March the Treasury began paying down the federal
government's debt by buying back long-term Treasury bonds. With a budget surplus
and less of a need to borrow, the Treasury also cut back on the number of bonds
it auctioned. These developments pushed the yields on long-term Treasuries
lower and their prices higher during the first half of 2000.
In other areas of the bond market, investors grappled with complex
sector-specific issues over the year. Bonds issued by government agencies such
as Fannie Mae, Freddie Mac and Ginnie Mae came under increased scrutiny, as some
in Congress and the Treasury questioned the bonds' implied governmental backing.
Corporate bonds also faced some doubts, as default rates increased and credit
downgrades exceeded upgrades. Credit fundamentals have also weakened, as
corporations increase their leverage by issuing debt to finance mergers and
acquisitions. In addition, companies whose shares have dropped significantly
have been buying back stock to prop up their equity prices, a positive for
equity holders but generally a negative for bond holders.
Conflicting views about the economy's momentum and whether the Fed acted quickly
enough to stave off inflation kept volatility high through the end of the fiscal
year. The period ended on a positive note, however, as data emerged suggesting
that Fed policy-makers might have successfully engineered a "soft landing" for
the U.S. economy.
2
<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
ANNUAL REPORT
-----------------------------------
JUNE 30, 2000
US TREASURY 30-YEAR BOND YIELD
<TABLE>
<CAPTION>
AVERAGE TABLE
-------------------------------------------------------------------------
DATE AVERAGE DATE AVERAGE DATE AVERAGE
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6/30 5.927 3/31 5.927 12/31 6.455
6/23 5.951 3/24 5.964 12/24 6.466
6/16 5.904 3/17 6.076 12/17 6.319
6/ 9 5.902 3/10 6.155 12/10 6.209
6/ 2 6.010 3/ 3 6.149 12/ 3 6.293
5/26 6.141 2/25 6.127 11/26 6.208
5/19 6.177 2/18 6.223 11/19 6.110
5/12 6.190 2/11 6.317 11/12 6.067
5/ 5 6.091 2/ 4 6.321 11/ 5 6.122
4/28 5.940 1/28 6.565 10/29 6.296
4/21 5.869 1/21 6.719 10/22 6.342
4/14 5.764 1/14 6.665 10/15 6.256
4/ 7 5.773 1/ 7 6.576 10/ 8 6.164
10/ 1 6.081
-------------------------------------------------------------------------
<CAPTION>
AVERAGE TABLE
-------------------------------------------------------------------------
DATE AVERAGE DATE AVERAGE DATE AVERAGE
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9/24 6.041
9/17 6.081
9/10 6.060
9/ 3 6.070
8/27 5.930
8/20 6.021
8/13 6.212
8/ 6 6.121
7/30 6.044
7/23 5.937
7/16 5.906
7/ 9 6.014
7/ 2 6.027
-------------------------------------------------------------------------
</TABLE>
RISING INTEREST RATES WEIGHED HEAVILY ON BOND PRICES OVER THE PAST YEAR,
BOOSTING THEIR YIELDS. (BOND PRICES MOVE INVERSELY TO THEIR YIELDS.)
INTERNATIONAL EQUITIES
Trends in the international markets reflected those in the United States. At the
start of the fiscal year, rising interest rates weighed on European markets and
many others around the world. By the fourth quarter, sentiment had greatly
improved. As in the United States, technology and telecommunications stocks led
many developed and emerging markets in late 1999 and part of 2000. The trend was
especially positive for European and northern Asian markets, with their large
contingent of globally competitive technology companies. The tech rally was less
of a driving factor in most other emerging markets, though domestically oriented
telecom stocks in Thailand and Mexico performed fairly well.
Unfortunately, global markets followed the lead of the United States on the
downside as well as the upside over the past year. As rising interest rates and
other concerns put pressure on U.S. technology stocks during the spring, many
markets around the world fell. Overall currency weakness also contributed to the
declines.
From an economic perspective, Europe now appears to be gathering momentum even
as the United States shows signs of deceleration. Latin American economies,
especially those of Brazil and Mexico, also seem to be picking up steam, driven
by a decline in domestic real interest rates. In both regions greater economic
growth should benefit domestically oriented companies as consumer spending and
industrial production increase.
There appear to be some encouraging trends developing in other countries as
well. Russia is benefiting from higher prices for crude oil, it's major export,
and its improved current accounts and foreign-reserve position have also
stabilized the ruble and helped spur economic activity. Meanwhile, it now seems
more likely that China will be admitted to the World Trade Organization (WTO).
Vastly increased trade resulting from such an agreement has the potential to
create a great many opportunities in China and elsewhere around the world.
3
<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
PERFORMANCE SUMMARY
-----------------------------------
JUNE 30, 2000
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
FUND NAME (FUND NUMBER) INCEPTION DATE ONE YEAR THREE YEARS FIVE YEARS SINCE INCEPTION
MONTGOMERY U.S. EQUITY FUNDS
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Growth Fund (284) 9/30/93 0.47% 9.50% 14.57% 18.78%
------------------------------------------------------------------------------------------------------------------------
U.S. Emerging Growth Fund (294)* 12/30/94 42.46% 18.50% 20.12% 21.08%
------------------------------------------------------------------------------------------------------------------------
Small Cap Fund (276) 7/13/90 34.12% 16.58% 18.70% 19.27%
------------------------------------------------------------------------------------------------------------------------
Balanced Fund (291)* 3/31/94 1.62% 9.26% 13.13% 16.29%
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MONTGOMERY INTERNATIONAL AND GLOBAL EQUITY FUNDS
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International Growth Fund (296)* 7/3/95 10.16% 11.59% -- 16.15%
------------------------------------------------------------------------------------------------------------------------
Global Opportunities Fund (285)* 9/30/93 21.46% 21.33% 22.22% 18.38%
------------------------------------------------------------------------------------------------------------------------
Global 20 Fund (295)* 10/2/95 17.14% 15.48% -- 23.08%
------------------------------------------------------------------------------------------------------------------------
Global Long-Short Fund (1478) 12/31/97 67.54% -- -- 66.32%
------------------------------------------------------------------------------------------------------------------------
Global Communications Fund (280) 6/1/93 51.53% 42.64% 31.20% 25.52%
------------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund (277)* 3/1/92 17.58% (9.45)% (0.93)% 3.69%
------------------------------------------------------------------------------------------------------------------------
Emerging Markets Focus Fund (1481)* 12/31/97 27.91% -- -- 24.17%
------------------------------------------------------------------------------------------------------------------------
Emerging Asia Fund (648)* 9/30/96 (12.56)% (14.23)% -- (0.11)%
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MONTGOMERY U.S. FIXED-INCOME AND MONEY MARKET FUNDS
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Return Bond Fund (650)* 6/30/97 4.96% 6.31% -- 6.30%
------------------------------------------------------------------------------------------------------------------------
Short Duration Government Bond Fund (279)* 12/18/92 4.55% 5.64% 5.89% 6.08%
------------------------------------------------------------------------------------------------------------------------
California Tax-Free Intermediate Bond Fund (281)* 7/1/93 3.83% 4.45% 5.27% 4.86%
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AS OF 6/30/00 ONE-DAY YIELD SEVEN-DAY YIELD
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Government Money Market Fund (278)* 9/14/92 6.39% 6.22%
------------------------------------------------------------------------------------------------------------------------
Federal Tax-Free Money Fund (647)* 7/15/96 4.07% 3.97%
------------------------------------------------------------------------------------------------------------------------
California Tax-Free Money Fund (292) 9/30/94 3.50% 3.55%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Returns for Funds marked with this notation reflect a partial waiver of fees
without which the total return would have been lower.
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 for the Class R shares shown above do not reflect the 0.25% Rule 12b- 1
fees paid by the Class P shares, which would reduce performance.
A portion of income from the tax-free funds 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.
An investment in a money market fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the Fund
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Fund. Yields may fluctuate.
The Emerging Markets Focus and Global Long-Short Funds may use sophisticated
investment techniques and securities such as margin, leverage, short sales and
other forms of volatile financial derivatives including options and futures.
Such tactics could cause the value of an investment in these Funds to be more
volatile and subject to substantially greater risks than investments in other
mutual funds, including foreign stock funds. As a result, investors should
carefully consider whether these Funds are appropriate investments.
Returns for the Global Long-Short and Global Communications Funds were achieved
during favorable market conditions and, in significant part, are due to the
Funds' investments in IPOs. Investors should not expect these returns to be
achieved consistently.
Some Funds may not be appropriate for conservative investors, because they
invest in certain types of securities or in a limited number of sectors or
holdings that may produce volatile results. There are also risks associated with
investing in funds that invest in foreign securities, such as erratic market
conditions, economic and political instability, and fluctuations in currency
exchange rates. In addition, technology securities tend to be relatively
volatile compared with other types of investments. Also, Funds that invest in
small-cap stocks may be subject to greater volatility than those that invest in
large companies.
The recent growth rate in the stock market has helped produce short-term returns
that are not typical and may not continue in the future. Because of ongoing
market volatility, Fund performance may be subject to substantial short-term
changes.
4
<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
GROWTH FUND
-----------------------------------
PORTFOLIO HIGHLIGHTS
INVESTMENT REVIEW
Q: HOW DID THE FUND PERFORM FOR THE YEAR ENDED JUNE 30, 2000?
A: For the fiscal year, the Fund produced a total return of 0.47%. The benchmark
Standard & Poor's 500 Index rose 7.25% during the same period.
Q: WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE?
A: For most of the fiscal year, the Fund was overweighted in some
underperforming areas such as basic materials and other cyclicals. Its
overweighting in those economically sensitive areas corresponded to an
underweight stance in some of the more growth-oriented areas of the market, such
as technology. The benchmark outperformed the Fund over the period as a result.
On June 1, 2000, the Fund's management team changed to more efficiently leverage
investment ideas generated by our Global Research Platform, and the Fund's
strategy was aligned with a more growth-oriented focus. We believe that this
transition will add greater value for shareholders over time. Consistent with
this transition, we deemphasized basic materials, chemicals, paper and other
economically cyclical areas by lightening the Fund's exposure to Alcoa and Dow
Chemical and eliminating its positions in Boise Cascade and Whirlpool. This move
proved timely, as the U.S. economy now appears to be slowing.
Rest assured that throughout this process we have remained aware of the
potential tax effects associated with making significant changes to the
portfolio, balancing potential tax ramifications with the importance of making
constructive changes that will serve to enhance the Fund's performance and,
therefore, shareholder value.
Q: WHAT STOCKS WERE HELPFUL TO THE FUND'S PERFORMANCE OVER THE PAST YEAR?
A: Technology stocks were among the Fund's strongest holdings. These included
Comverse Technology, the leading provider of telecommunications applications and
enhanced service platforms to wireless and wireline communications companies.
These systems are in great demand because they allow communications service
providers to offer a better product and increase subscriber revenues. Comverse
is leveraging its leadership position in voice messaging systems to sell new
applications involving wireless Internet access. We believe that the growth
potential for these new applications is tremendous, especially as cellular phone
systems add to their bandwidth capabilities. Another good performer was
Hewlett-Packard. With a new management team, the company is reasserting its
leadership in growth markets, including PC sales, UNIX servers and computer
printers. Comverse Technology and Hewlett-Packard are just two examples of
companies that fit our strategy of investing in high-quality, profitable market
leaders positioned for growth.
Although we have increased the Fund's exposure to technology and more
growth-oriented companies, the Fund remains well diversified, holding strong
performers in other market segments as well. One example is Golden West
Financial, a California-based thrift institution that specializes in
adjustable-rate mortgages (ARMs). Many financial services stocks performed
poorly as interest rates rose over
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
--------------------------------------------------------------------------------
<S> <C>
Andrew Pratt, CFA ........................................... Portfolio Manager
<CAPTION>
--------------------------------------------------------------------------------
FUND PERFORMANCE
--------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/00
--------------------------------------------------------------------------------
MONTGOMERY GROWTH FUND
<S> <C>
Since inception (9/30/93) .............................................. 18.78%
One year ............................................................... 0.47%
Five years ............................................................. 14.57%
--------------------------------------------------------------------------------
<CAPTION>
S&P 500 INDEX
<S> <C>
Since 9/30/93 .......................................................... 21.02%
One year ............................................................... 7.25%
Five years ............................................................. 23.80%
--------------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost. Fund performance presented is for
Class R shares.
<TABLE>
<CAPTION>
Growth Fun S&P 500(1) Lipper(2)
----------- ---------- ---------
<S> <C> <C> <C>
Sep-93 10000 10000 10000
Oct-93 10400 10203.3 10139.37
Nov-93 10983 10107.18 9959.69
Dec-93 11834 10231.4 10239.89
Jan-94 12488 10573.64 10575.6
Feb-94 12647 10278.84 10402.23
Mar-94 12530 9840.11 9920.03
Apr-94 12982 9967.54 9960.78
May-94 13116 10130.61 10017.46
Jun-94 12798 9880.18 9683.76
Jul-94 13259 10206.92 9940.11
Aug-94 13929 10622.24 10405.78
Sep-94 13846 10365.92 10200.56
Oct-94 14349 10602.99 10361.77
Nov-94 13919 10213.76 9974.14
Dec-94 14309 10362.98 10063.45
Jan-95 13996 10632.42 10144.96
Feb-95 14537 11044.95 10535.34
Mar-95 15128 11371.99 10835.75
Apr-95 15230 11705.42 11075.81
May-95 15568 12168.02 11423.18
Jun-95 16193 12454.21 11900.44
Jul-95 16869 12869.43 12460.36
Aug-95 16920 12904.44 12550.78
Sep-95 17360 13446.3 12929.31
Oct-95 17081 13398.83 12757.07
Nov-95 17664 13988.65 13211.84
Dec-95 17692 14247.3 13261.63
Jan-96 17932 14737.98 13566.4
Feb-96 18641 14879.61 13870.83
Mar-96 19157 15022.15 13982.55
Apr-96 19904 15243.43 14401.1
May-96 20668 15636.25 14761.16
Jun-96 20217 15699.74 14575.4
Jul-96 19295 15000.63 13742.15
Aug-96 20042 15319.24 14200.75
Sep-96 20613 16180.34 15009.89
Oct-96 20977 16623.19 15159.76
Nov-96 21878 17885.06 16114.83
Dec-96 21267 17535.05 15874.26
Jan-97 21847 18623.62 16716.22
Feb-97 21636 18772.98 16540.12
Mar-97 21045 17992.22 15802.65
Apr-97 21921 19065.63 16445.99
May-97 23704 20235.88 17606.16
Jun-97 24348 21125.65 18286.91
Jul-97 26913 22803.03 19819.45
Aug-97 26586 21539.28 19125.61
Sep-97 28021 22713.82 20186.46
Oct-97 26744 21966.31 19421
Nov-97 26786 22973.9 19791.78
Dec-97 26405 23362.16 20015.95
Jan-98 25826 23626.62 20138.93
Feb-98 28094 25324.43 21659.69
Mar-98 29312 26624.34 22600.36
Apr-98 29758 26900.16 22858.19
May-98 28805 26432.37 22211.9
Jun-98 28564 27506.05 23002.25
Jul-98 27153 27213.66 22499.86
Aug-98 22521 23285.1 18810.98
Sep-98 23052 24793.04 19917.8
Oct-98 25054 26800.04 21393.3
Nov-98 26526 28424.92 22694.8
Dec-98 26959 30078.97 24445.48
Jan-99 27350 31317.02 25464
Feb-99 26368 30344.31 24443
Mar-99 27088 31563.25 25507
Apr-99 30146 32765.17 26254
May-99 29923 32007.64 25766
Jun-99 31817 33757.18 27306
Jul-99 30694 32729 26591
Aug-99 29386 32576 26333
Sep-99 28901 31674 25890
Oct-99 29268 33688 27400
Nov-99 29845 34377 28589
Dec-99 32498 36389 31273
Jan-00 30499 34572 30056
Feb-00 30499 33917 31505
Mar-00 33650 37236 33477
Apr-00 32876 36115 32014
May-00 32708 35374 30759
Jun-00 31966 36246 32350
</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 332 funds.
5
<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
GROWTH FUND
-----------------------------------
PORTFOLIO HIGHLIGHTS
the past year, but Golden West has actually benefited from rising rates. With
fixed-rate mortgages rising above 8%, ARMs have become much more popular, and
that trend is boosting Golden West's stock.
Q: WHAT ARE SOME RECENT ADDITIONS TO THE PORTFOLIO?
A: One of the Fund's significant purchases was EMC, a leading provider of data
storage. The need for storage is growing exponentially along with the growth of
the Internet and the sheer volume of data that corporations must process. EMC is
an example of a holding whose products are integral to building and maintaining
the Internet's infrastructure. We have long held the view that this type of
company will be among the most profitable Internet-related investments.
Other additions include Pfizer, the large pharmaceuticals company. In general,
drug stocks have done well lately because their earnings growth rates should
hold up well even in a slowing economy. In addition to a very promising pipeline
of potential new products, Pfizer's existing line of prescription
pharmaceuticals should be relatively immune to changes in public policy. For
example, Pfizer's most famous product, Viagra, is not affected by changes in
Medicare.
We have also added PepsiCo, which has performed well in the midst of lackluster
performance by rival Coca-Cola and disastrous results from consumer nondurable
bellwether Procter & Gamble (P&G). PepsiCo has benefited from its successful
expansion into the snack-food business and, unlike Coke and P&G, has continued
to successfully execute its business plan.
Q: HAVE YOU SOLD ANY HOLDINGS?
A: As part of the Fund's repositioning, we sold a number of economically
sensitive companies that had detracted from performance. These included railroad
operator Union Pacific, printing company Donnelley (RR) & Sons and mining
company Rio Tinto. We replaced these positions with less cyclical companies that
we believe have a greater opportunity to increase their sales and earnings on a
sustained basis.
Q: WHAT IS YOUR LONGER-TERM OUTLOOK?
A: We have had a volatile backdrop recently, including the series of Federal
Reserve rate hikes and the resulting concerns about where the economy and
corporate profits are headed. In the near term, we expect some of this
uncertainty to remain. Our continuing strategy will be to identify companies
that will do well independent of the market backdrop. To that end we will
maintain a diversified portfolio, focusing on leading, high-quality companies
that are poised for growth. Consistent with the stylistic changes that have
taken place in the portfolio, we see the best opportunities in technology,
health care, telecommunications, and more-traditional growth sectors. We expect
that the Fund will migrate toward a higher-weighted average market cap and be
more heavily weighted in these market segments and less so in such areas as
basic materials and transportation.
<TABLE>
<CAPTION>
-----------------------------------------------------------
TOP TEN HOLDINGS
-----------------------------------------------------------
(as a percentage of total net assets)
<S> <C>
Golden West Financial Corporation ................ 4.3%
General Electric Company ......................... 3.5%
Intel Corporation ................................ 2.8%
Cisco Systems, Inc. .............................. 2.7%
Capital One Financial Corporation ................ 2.6%
Microsoft Corporation ............................ 2.5%
Schlumberger Ltd. ................................ 2.2%
Tyco International Ltd. .......................... 1.9%
General Motors Corporation, Class H .............. 1.9%
Amerada Hess Corporation ......................... 1.9%
<CAPTION>
-----------------------------------------------------------
TOP FIVE INDUSTRIES
-----------------------------------------------------------
(as a percentage of total net assets)
<S> <C>
Major Pharmaceuticals ............................ 7.3%
Electronic Data Processing ....................... 5.4%
Telecommunications Equipment ..................... 4.8%
Savings and Loan Associations .................... 4.3%
Semiconductors ................................... 4.1%
</TABLE>
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.
6
<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
GROWTH FUND
-----------------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
COMMON STOCKS - 95.0%
AIR FREIGHT/DELIVERY SERVICES - 0.5%
59,000 FedEx Corporation+ ............................................................. $ 2,242,000
ALUMINUM - 1.0%
150,000 Alcoa, Inc. .................................................................... 4,350,000
BIOTECHNOLOGY - 0.4%
25,800 Amgen, Inc.+ ................................................................... 1,813,256
BUILDING MATERIAL CHAINS - 0.7%
55,100 Home Depot, Inc. ............................................................... 2,751,556
CABLE TELEVISION - 1.9%
90,000 General Motors Corporation, Class H+ ........................................... 7,897,500
CELLULAR TELEPHONE - 1.1%
75,000 Sprint Corporation+ ............................................................ 4,462,500
COMPUTER COMMUNICATIONS - 2.7%
179,900 Cisco Systems, Inc.+ ........................................................... 11,429,272
COMPUTER SOFTWARE - 4.1%
128,800 Microsoft Corporation+ ......................................................... 10,299,975
78,200 Oracle Corporation+ ............................................................ 6,571,244
---------------
16,871,219
CONTRACT DRILLING - 1.0%
75,000 Transocean Sedco Forex, Inc. ................................................... 4,007,813
DEPARTMENT STORES - 1.4%
30,800 Kohl's Department Stores, Inc.+ ................................................ 1,713,250
172,000 Nordstrom, Inc. ................................................................ 4,149,500
---------------
5,862,750
DISCOUNT STORES - 1.5%
111,500 Wal-Mart Stores, Inc. .......................................................... 6,425,188
DIVERSIFIED COMMERCIAL SERVICES - 1.4%
110,000 Convergys Corporation+ ......................................................... 5,706,250
DIVERSIFIED FINANCIAL SERVICES - 3.1%
36,600 American Express Company ....................................................... 1,907,775
102,300 Citigroup, Inc. ................................................................ 6,163,575
155,000 Stancorp Financial Group, Inc. ................................................. 4,979,375
---------------
13,050,725
DIVERSIFIED MANUFACTURE - 3.6%
325,000 Thermo Electron Corporation+ ................................................... 6,845,312
170,000 Tyco International Ltd. ........................................................ 8,053,750
---------------
14,899,062
EDP PERIPHERALS - 1.1%
57,900 EMC Corporation+ ............................................................... 4,454,681
EDP SERVICES - 1.3%
33,200 Automatic Data Processing, Inc. ................................................ 1,778,275
50,000 Computer Sciences Corporation+ ................................................. 3,734,375
---------------
5,512,650
ELECTRONIC DATA PROCESSING - 5.4%
93,500 Compaq Computer Corporation .................................................... 2,390,094
60,700 Dell Computer Corporation+ ..................................................... 2,995,165
35,000 Hewlett-Packard Company ........................................................ 4,370,625
44,500 International Business Machines Corporation .................................... 4,875,531
90,000 NCR Corporation+ ............................................................... 3,504,375
45,800 Sun Microsystems, Inc.+ ........................................................ 4,166,369
---------------
22,302,159
ELECTRONIC PRODUCTION EQUIPMENT - 0.4%
18,800 Applied Material, Inc.+ ........................................................ 1,704,338
FINANCE COMPANIES - 2.6%
245,000 Capital One Financial Corporation .............................................. 10,933,125
INSURANCE BROKERS/SERVICES - 0.4%
15,400 Marsh & McLennan Companies ..................................................... 1,608,338
INTEGRATED OIL COMPANIES - 3.0%
125,000 Amerada Hess Corporation ....................................................... 7,718,750
58,100 Exxon Mobil Corporation ........................................................ 4,560,850
---------------
12,279,600
INTERNET SERVICES - 1.3%
68,600 America Online, Inc.+ .......................................................... 3,618,650
12,800 Yahoo!, Inc.+ .................................................................. 1,586,000
---------------
5,204,650
INVESTMENT BANKERS/BROKERS/SERVICES - 1.1%
14,400 Merrill Lynch & Company ........................................................ 1,656,000
34,100 Morgan Stanley Dean Witter & Company ........................................... 2,838,825
---------------
4,494,825
LIFE INSURANCE - 0.5%
100,000 Metlife, Inc.+ ................................................................. 2,106,250
MAJOR BANKS - 1.6%
120,000 Bank of America Corporation .................................................... 5,160,000
38,800 Wells Fargo Company ............................................................ 1,503,500
---------------
6,663,500
MAJOR CHEMICALS - 2.4%
150,000 Dow Chemical Company ........................................................... 4,528,125
110,000 Eastman Chemical Company ....................................................... 5,252,500
---------------
9,780,625
MAJOR PHARMACEUTICALS - 7.3%
46,900 Bristol-Meyers Squibb Company .................................................. 2,731,925
37,300 Eli Lilly and Company .......................................................... 3,725,338
39,000 Johnson & Johnson .............................................................. 3,973,125
75,000 Merck & Company, Inc. .......................................................... 5,746,875
116,700 Pfizer, Inc. ................................................................... 5,601,600
125,000 Pharmacia Corporation .......................................................... 6,460,937
45,100 Schering Plough Corporation .................................................... 2,277,550
---------------
30,517,350
</TABLE>
The accompanying notes are an integral part of these financial statements. 7
<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
GROWTH FUND
-----------------------------------
INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
COMMON STOCKS -- CONTINUED
MAJOR U.S. TELECOMMUNICATIONS - 3.3%
62,300 AT&T Corporation ............................................................... $ 1,970,237
35,700 Bell Atlantic Corporation ...................................................... 1,814,006
58,200 BellSouth Corporation .......................................................... 2,480,775
111,000 SBC Communications, Inc. ....................................................... 4,800,750
56,100 WorldCom, Inc.+ ................................................................ 2,575,341
---------------
13,641,109
MANAGED HEALTH CARE - 1.0%
129,000 First Health Group Corporation+ ................................................ 4,257,000
MEDIA CONGLOMERATES - 3.3%
180,000 Fox Entertainment Group, Inc., Class A+ ........................................ 5,467,500
57,000 News Corporation Ltd., ADR ..................................................... 2,707,500
25,200 Time Warner, Inc. .............................................................. 1,915,200
24,200 Viacom, Inc.+ .................................................................. 1,650,137
49,500 Walt Disney Company ............................................................ 1,921,219
---------------
13,661,556
MEDICAL ELECTRONICS - 0.5%
42,500 Medtronic, Inc. ................................................................ 2,117,031
MEDICAL SPECIALTIES - 2.4%
57,000 Bausch & Lomb, Inc. ............................................................ 4,410,375
118,000 Nycomed Amersham PLC ........................................................... 5,782,000
---------------
10,192,375
MOTOR VEHICLES - 1.0%
70,000 General Motors Corporation ..................................................... 4,064,375
MULTI-LINE INSURANCE - 1.2%
41,200 American International Group, Inc. ............................................. 4,841,000
MULTI-SECTOR COMPANIES - 3.5%
277,800 General Electric Company ....................................................... 14,723,400
OIL & GAS PRODUCTION - 1.0%
182,000 Union Pacific Resources Group, Inc. ............................................ 4,004,000
OIL/GAS TRANSMISSION - 0.7%
48,200 Enron Corporation .............................................................. 3,108,900
OILFIELD SERVICES/EQUIPMENT - 2.2%
125,000 Schlumberger Ltd. .............................................................. 9,328,125
OTHER TELEPHONE/COMMUNICATION - 1.5%
210,000 COMSAT Corporation ............................................................. 4,935,000
55,800 Global Crossing Ltd.+ .......................................................... 1,469,981
---------------
6,404,981
PACKAGE GOODS/COSMETICS - 0.4%
28,200 Colgate Palmolive Company ...................................................... 1,688,475
PACKAGED FOODS - 1.4%
420,000 Dole Food Company, Inc. ........................................................ 5,880,000
PAPER - 0.5%
63,657 International Paper Company .................................................... 1,897,774
PRECISION INSTRUMENTS - 2.3%
38,349 Agilent Technologies, Inc.+ .................................................... 2,828,239
100,000 PerkinElmer, Inc. .............................................................. 6,612,500
---------------
9,440,739
RAILROADS - 0.6%
91,000 Canadian National Railway Company .............................................. 2,656,063
SAVINGS AND LOAN ASSOCIATIONS - 4.3%
440,000 Golden West Financial Corporation .............................................. 17,957,500
SEMICONDUCTORS - 4.1%
88,500 Intel Corporation .............................................................. 11,828,578
21,300 Micron Technology, Inc.+ ....................................................... 1,875,731
48,700 Texas Instruments, Inc. ........................................................ 3,345,082
---------------
17,049,391
SOFT DRINKS - 1.8%
88,100 Coca-Cola Company .............................................................. 5,060,243
58,900 PepsiCo, Inc. .................................................................. 2,617,369
---------------
7,677,612
TELECOMMUNICATIONS EQUIPMENT - 4.8%
60,000 Comverse Technology, Inc.+ ..................................................... 5,581,875
7,000 Corning, Inc. .................................................................. 1,889,125
55,400 Lucent Technologies, Inc. ...................................................... 3,282,450
120,000 Motorola, Inc. ................................................................. 3,487,500
84,200 Nortel Networks Corporation .................................................... 5,746,650
---------------
19,987,600
UNREGULATED POWER GENERATION - 0.4%
37,500 AES Corporation+ ............................................................... 1,710,938
TOTAL COMMON STOCKS
(Cost $314,219,110) ........................................................................ 395,621,126
---------------
PRINCIPAL AMOUNT
REPURCHASE AGREEMENT - 4.7%
$19,424,000 Agreement with Chase Manhattan Bank, Tri-Party, 7.000% dated
6/30/00, to be repurchased at $19,435,175 on 07/03/00,
collateralized by $19,812,604 market value of U.S.
government and mortgage-backed securities, having various
maturities and interest rates (Cost $19,424,000) ............................... $ 19,424,000
---------------
TOTAL INVESTMENTS - 99.7%
(Cost $333,643,110*) ......................................................................... 415,045,126
OTHER ASSETS AND LIABILITIES - 0.3%
(Net) ........................................................................................ 1,225,557
---------------
NET ASSETS - 100.0% .......................................................................... $ 416,270,683
===============
</TABLE>
* Aggregate cost for federal tax purposes $335,624,183.
+ Non-income-producing security.
ABBREVIATIONS
ADR American Depositary Receipt
8 The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
U.S. EMERGING
GROWTH FUND
-----------------------------------
PORTFOLIO HIGHLIGHTS
INVESTMENT REVIEW
Q: HOW DID THE FUND PERFORM DURING THE 12 MONTHS ENDED JUNE 30, 2000?
A: We are pleased to report that the Fund performed extremely well over the
period, returning 42.46%, versus a 14.32% return for its benchmark, the Russell
2000 Index.
Q: WHAT FACTORS CONTRIBUTED MOST TO THE FUND'S RETURNS DURING THE PERIOD?
A: The Fund's technology holdings were the biggest contributors to its strong
relative performance against the benchmark. Throughout most of the period,
investor interest in the small-cap arena was focused predominantly on growth
stocks, specifically in the technology sector, mirroring trends in the broader
market. The Fund was well positioned in this regard. Taking advantage of some
very attractive opportunities that we identified early in the period, we
increased our technology exposure to an overweight position versus the
benchmark, allowing us to benefit from the rally in the second half of 1999 and
the first quarter of 2000.
The past six months have been extremely volatile. February saw the best monthly
performance for the Russell 2000 Index since its inception in January 1979, both
in absolute terms and relative to large-caps, as represented by the S&P 500
Index. March, on the other hand, was the worst relative month for the Russell
2000 versus the S&P 500 and the worst absolute month in the past year. Although
the volatility continued throughout the second quarter of 2000, the Fund was
ready for it. The Fund's overweight position in technology helped it outperform
when technology was driving the index; but because the Fund remained well
diversified across many industries, it was also able to outperform when the
market broadened and when the "old economy" stocks--such as energy, consumer
cyclicals, capital goods and financials--performed well, even though technology
and biotech, or "new economy" stocks, corrected.
Q: DID YOU MAKE ANY SIGNIFICANT CHANGES TO YOUR STRATEGY OVER THE YEAR?
A: No. Our bottom-up stock selection process dictated our strategy throughout
the period. Our process, which has been used consistently since the Fund's
inception, involves identifying small-cap growth companies with improving
business fundamentals before their potential is fully recognized by the market.
We seek companies that have the potential to become large, successful growth
companies providing superior returns. Through this strategy we have continued to
maintain a well-diversified portfolio across many industries, but our stock
selection process and the strong performance of the tech stocks we already held
accounted for our increased technology weighting.
Q: WHICH STOCKS MADE PARTICULARLY STRONG CONTRIBUTIONS TO THE FUND'S
PERFORMANCE IN THE PAST 12 MONTHS?
A: The three main contributors were all in the technology sector: Optical
Coating Laboratories, Inc., which was acquired by JDS Uniphase, for stock in
February; Juniper Networks, Inc., a stock we have owned since its initial public
offering last year; and Comverse Technology, Inc., which we have owned for
several years.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
--------------------------------------------------------------------------------
<S> <C>
Kathryn Peters .............................................. Portfolio Manager
<CAPTION>
--------------------------------------------------------------------------------
FUND PERFORMANCE
--------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/00
--------------------------------------------------------------------------------
MONTGOMERY U.S.
EMERGING GROWTH FUND
<S> <C>
Since inception (12/30/94) ............................................. 21.08%
One year ............................................................... 42.46%
Five years ............................................................. 20.12%
--------------------------------------------------------------------------------
RUSSELL 2000 INDEX
Since 12/30/94 ......................................................... 15.69%
One year ............................................................... 14.32%
Five years ............................................................. 14.27%
--------------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
<TABLE>
<CAPTION>
US Emerging Growth Russell 2000(1) Lipper(2)
------------------ --------------- ---------
<S> <C> <C> <C>
Dec-94 10000 10000 10000
Jan-95 10083 9873.83 9897.15
Feb-95 10208 10284.57 10300.98
Mar-95 10558 10461.69 10580.81
Apr-95 10683 10694.31 10724.75
May-95 10792 10878.2 10897.6
Jun-95 11458 11442.51 11543.39
Jul-95 12083 12101.62 12409.43
Aug-95 12292 12351.96 12608.54
Sep-95 12475 12572.55 12928.95
Oct-95 12058 12010.28 12521.45
Nov-95 12571 12514.88 13010.66
Dec-95 12866 12845.08 13210.65
Jan-96 12790 12831.26 13116
Feb-96 13161 13231.21 13652.18
Mar-96 13590 13500.53 14005.77
Apr-96 14752 14222.42 15049.34
May-96 15838 14782.93 15668.06
Jun-96 15005 14175.9 15047.37
Jul-96 13464 12937.78 13737.34
Aug-96 14079 13688.94 14570.38
Sep-96 14584 14223.94 15324.8
Oct-96 14544 14004.72 15005.54
Nov-96 14866 14581.77 15455.85
Dec-96 15326 14963.96 15659.48
Jan-97 16015 15262.94 16045.25
Feb-97 15082 14892.86 15331.97
Mar-97 14493 14190.13 14532.99
Apr-97 14438 14229.86 14445.24
May-97 16070 15812.93 16159.27
Jun-97 17221 16490.6 16991.53
Jul-97 18181 17257.93 18033.56
Aug-97 19070 17652.82 18343.5
Sep-97 20420 18944.89 19724.27
Oct-97 19758 18112.67 18837.26
Nov-97 19414 17995.51 18567.54
Dec-97 19472 18310.49 18709.52
Jan-98 19530 18021.18 18380.88
Feb-98 21045 19353.72 19802.31
Mar-98 21936 20151.92 20705.52
Apr-98 21927 20262.42 20852.29
May-98 21064 19172.09 19651.07
Jun-98 20968 19212.42 19838.51
Jul-98 19520 17657.1 18395.67
Aug-98 16587 14228.45 14667.09
Sep-98 17354 15341.93 15559.86
Oct-98 18494 15967.59 16200.01
Nov-98 19559 16804.16 17251.38
Dec-98 21018 17844.03 18548.25
Jan-99 19993 18081 18594
Feb-99 18166 16617 17086
Mar-99 18257 16876 17401
Apr-99 19181 17388 18521
May-99 18876 18657 18875
Jun-99 20114 19501 20136
Jul-99 19484 18966 19993
Aug-99 18631 18264 19455
Sep-99 18825 18268 19525
Oct-99 19708 18342 19911
Nov-99 21627 19437 21486
Dec-99 24977 21637 24080
Jan-00 23743 21290 23492
Feb-00 27179 24805 31158
Mar-00 28146 23170 30734
Apr-00 26716 21776 28841
May-00 25496 20506 27341
Jun-00 28654 22294 30168
</TABLE>
(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 258 funds.
9
<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
U.S. EMERGING
GROWTH FUND
-----------------------------------
PORTFOLIO HIGHLIGHTS
Optical Coating Laboratories, the biggest contributor to performance,
manufactures thin film coatings and components for fiber-optic communications
systems, including dense-wavelength division multiplexing, an area that is
growing rapidly due to demand for increased bandwidth. Recognizing its
potential, we began accumulating the stock in May 1999 and added to our position
on subsequent pullbacks in July and August. The stock performed extremely well,
and in early November it was announced that Optical Coating Laboratories would
be acquired by its joint venture partner, JDS Uniphase. The stock remained a
very strong performer throughout the end of 1999 and the first quarter of 2000.
Juniper Networks is a leading provider of next-generation Internet provider
(IP) infrastructure systems that meet the scalability, performance, density and
compatibility requirements of rapidly evolving, optically enabled IP networks.
Internet traffic is exploding and with it the demand for its underlying enabling
infrastructure. As one of the leading providers of Internet backbone routers,
Juniper is a key beneficiary of this trend. This holding is an example of the
superior returns that can be achieved by early identification of a small-cap
growth company that has the potential to become a large, successful growth
company.
Comverse Technology is the leading provider of software/hardware solutions that
enable enhanced telecommunications services, such as voice messaging. The
company has benefited from the rapid growth of wireless phone usage. Comverse is
likely to achieve further earnings growth with the introduction of the "calling
party pays" billing system for wireless phones, which is projected to
dramatically increase wireless usage and therefore company revenue.
Q: WHAT OPPORTUNITIES ARE YOU EXCITED ABOUT, AND HOW IS THE FUND POSITIONED TO
TAKE ADVANTAGE OF THEM?
A: We are enthusiastic about opportunities in multiple sectors, because we
believe that many attractive stocks have been overlooked due to the narrow focus
of investors on the technology sector. It is these stocks that allowed the Fund
to outperform when technology corrected during the early part of second quarter
2000. We continue to maintain a healthy exposure to tech companies that meet our
criteria for inclusion in the Fund based on our stock selection process. Because
the Fund remains well diversified across sectors and industries, and in our view
the stocks we own are fundamentally sound and have the potential for strong
appreciation, we believe that we are well positioned to take advantage of
broadening investor interest.
<TABLE>
<CAPTION>
-----------------------------------------------------------
TOP TEN HOLDINGS
-----------------------------------------------------------
(as a percentage of total net assets)
<S> <C>
PerkinElmer, Inc. ................................ 4.7%
Juniper Networks, Inc. ........................... 4.5%
Comverse Technology, Inc. ........................ 4.1%
Westwood One, Inc. ............................... 4.0%
JDS Uniphase Corporation ......................... 2.8%
Business Objects S.A. ............................ 2.8%
First Health Group Corporation ................... 2.6%
Macromedia, Inc. ................................. 2.6%
Oxford Health Plans, Inc. ........................ 2.4%
On Assignment, Inc. .............................. 2.4%
<CAPTION>
-----------------------------------------------------------
TOP FIVE INDUSTRIES
-----------------------------------------------------------
(as a percentage of total net assets)
<S> <C>
Telecommunications Equipment ..................... 13.7%
Computer Software ................................ 11.3%
Precision Instruments ............................ 6.1%
Diversified Commercial Services .................. 5.7%
Managed Health Care .............................. 5.0%
</TABLE>
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.
10
<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
U.S. EMERGING
GROWTH FUND
-----------------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
COMMON STOCKS - 95.3%
ADVERTISING - 0.6%
14,000 Catalina Marketing Corporation+ ................................................ $ 1,428,000
BIOTECHNOLOGY - 3.5%
16,000 Abgenix, Inc.+ ................................................................. 1,917,500
32,000 Aclara Biosciences, Inc.+ ...................................................... 1,629,000
8,700 Affymetrix, Inc.+ .............................................................. 1,436,316
13,000 Gilead Sciences, Inc.+ ......................................................... 925,031
18,200 Millennium Pharmaceuticals, Inc.+ .............................................. 2,035,556
---------------
7,943,403
BROADCASTING - 4.0%
265,000 Westwood One, Inc.+ ............................................................ 9,043,125
BUILDING PRODUCTS - 1.0%
97,400 Elcor Corporation .............................................................. 2,240,200
CATALOG/SPECIALTY DISTRIBUTION - 1.0%
95,000 Valuevision International, Inc.+ ............................................... 2,294,844
COMPUTER SOFTWARE - 11.3%
40,500 BroadVision, Inc.+ ............................................................. 2,054,110
72,100 Business Objects S.A+ .......................................................... 6,347,053
90,000 Cadence Design Systems, Inc.+ .................................................. 1,833,750
200,000 Concurrent Computer Corporation+ ............................................... 2,618,750
59,400 Macromedia, Inc.+ .............................................................. 5,741,381
18,600 Mercury Interactive Corporation+ ............................................... 1,799,550
12,100 Micromuse, Inc.+ ............................................................... 2,002,172
137,000 PeopleSoft, Inc.+ .............................................................. 2,290,469
26,700 Sybase, Inc.+ .................................................................. 614,934
---------------
25,302,169
COMPUTER/VIDEO CHAINS - 1.1%
93,000 Ultimate Electronics, Inc.+ .................................................... 2,490,656
CONSTRUCTION/AGRICULTURE EQUIPMENT/TRUCKS - 1.1%
93,000 Manitowoc Company, Inc. ........................................................ 2,487,750
CONTRACT DRILLING - 2.3%
220,000 R&B Falcon Corporation+ ........................................................ 5,183,750
DIVERSIFIED COMMERCIAL SERVICES - 5.7%
71,000 Administaff, Inc.+ ............................................................. 4,508,500
206,200 kforce.com, Inc.+ .............................................................. 1,424,069
172,800 On Assignment, Inc.+ ........................................................... 5,335,200
90,700 Profit Recovery Group International, Inc.+ ..................................... 1,505,053
---------------
12,772,822
DIVERSIFIED ELECTRONIC PRODUCTS - 0.6%
6,100 Exfo Electro-Optical Engineering, Inc.+ ........................................ 268,019
17,200 Macrovision Corporation+ ....................................................... 1,099,187
---------------
1,367,206
DIVERSIFIED FINANCIAL SERVICES - 1.3%
91,125 Stancorp Financial Group, Inc. (The) ........................................... 2,927,391
DRUG STORE CHAINS - 1.9%
162,100 Duane Reade, Inc.+ ............................................................. $ 4,174,075
EDP PERIPHERALS - 1.0%
100,000 Pinnacle Systems, Inc.+ ........................................................ 2,265,625
EDP SERVICES - 2.7%
120,000 Acxiom Corporation+ ............................................................ 3,352,500
45,000 BISYS Group, Inc. (The)+ ....................................................... 2,781,562
---------------
6,134,062
ELECTRONIC COMPONENTS - 4.7%
74,800 Applied Power, Inc., Class A ................................................... 2,505,800
80,000 California Amplifier, Inc.+ .................................................... 3,665,000
38,000 Plexus Corporation+ ............................................................ 4,295,187
---------------
10,465,987
ELECTRONIC PRODUCTION EQUIPMENT - 1.7%
40,000 Cymer, Inc.+ ................................................................... 1,905,000
54,000 Lam Research Corporation+ ...................................................... 2,026,687
---------------
3,931,687
FOOD CHAINS - 1.0%
53,500 Whole Foods Market, Inc.+ ...................................................... 2,211,891
INTERNET SERVICES - 0.9%
11,200 Verisign, Inc.+ ................................................................ 1,975,050
INVESTMENT MANAGERS - 1.5%
104,450 Waddell & Reed Financial, Inc., Class A ........................................ 3,427,266
MANAGED HEALTH CARE - 5.0%
175,000 First Health Group Corporation+ ................................................ 5,775,000
230,000 Oxford Health Plans, Inc.+ ..................................................... 5,476,875
---------------
11,251,875
MEDICAL SPECIALTIES - 3.0%
87,000 Cerus Corporation+ ............................................................. 4,456,031
13,900 Molecular Devices Corporation+ ................................................. 961,272
41,600 ORATEC Interventions, Inc.+ .................................................... 1,370,200
---------------
6,787,503
MOVIES/TELEVISION - 1.0%
95,600 Imax Corporation+ .............................................................. 2,174,900
OIL & GAS PRODUCTION - 2.5%
70,000 Newfield Exploration Company+ .................................................. 2,738,750
252,000 Santa Fe Snyder Corporation+ ................................................... 2,866,500
---------------
5,605,250
OILFIELD SERVICES/EQUIPMENT - 3.2%
85,000 UTI Energy Corporation+ ........................................................ 3,410,625
164,587 Varco International, Inc.+ ..................................................... 3,826,648
---------------
7,237,273
OTHER PHARMACEUTICALS - 0.7%
151,500 Catalytica, Inc.+ .............................................................. 1,661,766
OTHER SPECIALTY STORES - 2.7%
83,200 Linens 'N Things, Inc.+ ........................................................ 2,256,800
</TABLE>
The accompanying notes are an integral part of these financial statements. 11
<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
U.S. EMERGING
GROWTH FUND
-----------------------------------
INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
COMMON STOCKS -- CONTINUED
OTHER SPECIALTY STORES - CONTINUED
100,000 Pier 1 Imports, Inc. ........................................................... $ 975,000
87,200 Williams Sonoma, Inc.+ ......................................................... 2,828,550
---------------
6,060,350
PACKAGE GOODS/COSMETICS - 0.7%
147,000 Playtex Products, Inc.+ ........................................................ 1,662,938
PRECISION INSTRUMENTS - 6.1%
30,000 Newport Corporation ............................................................ 3,222,187
160,000 PerkinElmer, Inc. .............................................................. 10,580,000
---------------
13,802,187
RESTAURANTS - 1.0%
84,000 CEC Entertainment, Inc.+ ....................................................... 2,152,500
SEMICONDUCTORS - 2.5%
11,000 Broadcom Corporation+ .......................................................... 2,408,312
54,800 C-Cube Microsystems, Inc.+ ..................................................... 1,075,450
39,300 Silicon Laboratories, Inc.+ .................................................... 2,100,094
---------------
5,583,856
SMALLER BANKS - 1.9%
48,000 Commerce Bancorp, Inc. ......................................................... 2,208,000
126,600 Imperial Bancorp, Inc.+ ........................................................ 1,978,125
---------------
4,186,125
SPECIALTY INSURERS - 2.4%
102,493 Radian Group, Inc. ............................................................. 5,304,013
TELECOMMUNICATIONS EQUIPMENT - 13.7%
43,600 Carrier Access Corporation+ .................................................... 2,306,713
99,800 Comverse Technology, Inc.+ ..................................................... 9,284,519
53,002 JDS Uniphase Corporation+ ...................................................... 6,351,958
70,000 Juniper Networks, Inc.+ ........................................................ 10,187,187
22,600 Plantronics, Inc.+ ............................................................. 2,610,300
---------------
30,740,677
TOTAL COMMON STOCKS
(Cost $124,583,852) 214,278,172
---------------
MONEY MARKET FUND - 0.2%
432,944 Chase Vista Federal Money Market Fund (Cost $432,944) .......................... 432,944
TOTAL SECURITIES
(Cost $125,016,796) 214,711,116
---------------
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
REPURCHASE AGREEMENT - 4.6%
$10,466,000 Agreement with Greenwich Capital Markets, Tri-Party,7.000% dated
6/30/00, to be repurchased at $10,472,022 on 07/03/00, collateralized by
$10,675,357 market value of U.S. government and mortgage-backed
securities, having various maturities and interest rates (Cost $10,466,000) $ 10,466,000
---------------
TOTAL INVESTMENTS - 100.1%
(Cost $135,482,796*) 225,177,116
OTHER ASSETS AND LIABILITIES - (0.1)%
(Net) (233,006)
---------------
NET ASSETS - 100.0% $ 224,944,110
===============
</TABLE>
* Aggregate cost for federal tax purposes $135,753,144.
+ Non-income-producing security.
12 The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
SMALL CAP FUND
-----------------------------------
PORTFOLIO HIGHLIGHTS
INVESTMENT REVIEW
Q: HOW DID THE FUND PERFORM DURING THE YEAR ENDED JUNE 30, 2000?
A: We are pleased to report that the Fund outperformed its benchmark, the
Russell 2000 Index. For the fiscal year, the Fund produced a total return of
34.12%, versus 14.32% for the unmanaged Russell 2000.
Q: WHAT MAIN FACTORS CONTRIBUTED TO THE FUND'S STRONG RESULTS?
A: From July 1,1999, through mid-March 2000, the Fund's high-growth stocks
delivered very strong performance. The Fund's holdings in the technology,
telecommunications and biotechnology sectors--all selected through our bottom-up
stock selection process--performed especially well. The rally lasted through the
second half of 1999, despite rising interest rates and lingering worries about
Y2K.
As we had expected, the long rally finally gave way to a period of consolidation
in early 2000. Investors' concerns about inflation, rising interest rates and
high valuations in some areas of the technology sector sparked a broad sell-off
in mid-March. Investors reacted by shifting to cyclical issues and
more-defensive consumer staples stocks. We had anticipated this decline and in
late 1999 had redoubled our efforts to ensure that the Fund was investing only
in high-quality companies with solid business fundamentals and good earnings
visibility. This focus helped the Fund weather the volatility much better than
funds that had invested heavily in, for example, concept-driven Internet stocks.
The market's "flight to quality" intensified in April, with the release of
additional inflation data indicating that the Fed might raise interest rates
more aggressively to slow the economy. By early June 2000, however, evidence
suggested that the economy was indeed slowing. Investors began rotating back
into high-quality growth-oriented stocks, a very positive trend for the Fund.
Q: WHAT HOLDINGS WERE PARTICULARLY HELPFUL TO THE FUND'S PERFORMANCE OVER THE
PAST YEAR?
A: The Fund's holdings in direct-satellite television, biotechnology and
semiconductor manufacturing were especially strong. Shares of direct-satellite
companies were bolstered by new legislation allowing them to transmit the
signals of local broadcast affiliates. This expanded lineup should attract more
subscribers and improve the growth prospects of satellite companies like
EchoStar and Pegasus Communications.
Biotechnology was another profitable, if sometimes volatile, area for the Fund
during the period. Biotech stocks surged during the third quarter of 1999 and
first quarter of 2000, then sold off sharply in March and April before staging a
comeback in May and June. Among the Fund's top performers in the sector was IDEC
Pharmaceuticals, which continues to make significant advances in the treatment
of non-Hodgkins lymphoma with its drug Rituxan. Another profitable investment
was MedImmune, which produces a compound that treats diseases in newborns. We
sold the Fund's position in MedImmune at a profit during the second quarter.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
--------------------------------------------------------------------------------
<S> <C>
Stuart Roberts ...................................... Senior Portfolio Manager
Bradford Kidwell .................................... Portfolio Manager
Cam Philpott, CFA ................................... Portfolio Manager
Charles Reed, CFA ................................... Portfolio Manager
Paul LaRocco, CFA ................................... Portfolio Manager
<CAPTION>
--------------------------------------------------------------------------------
FUND PERFORMANCE
--------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/00
--------------------------------------------------------------------------------
MONTGOMERY SMALL CAP FUND
<S> <C>
Since inception (7/13/90) ........................... 19.27%
One year ............................................ 34.12%
Five years .......................................... 18.70%
<CAPTION>
--------------------------------------------------------------------------------
RUSSELL 2000 INDEX
<S> <C>
Since 7/13/90 ........................................... 13.57%
One year ................................................ 14.32%
Five years .............................................. 14.27%
</TABLE>
--------------------------------------------------------------------------------
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost. Fund performance presented is for
Class R shares.
<TABLE>
<CAPTION>
Small Cap Russell 2000(1) Lipper(2)
--------- --------------- ---------
<S> <C> <C> <C>
Jul-90 10000 10000 10000
Jul-90 9539 9560.16 9641.42
Aug-90 8569 8286.94 8439.82
Sep-90 7853 7553.63 7742.45
Oct-90 7552 7092.49 7443.32
Nov-90 8154 7633.29 8026.9
Dec-90 8820 7936.16 8463.57
Jan-91 10055 8653.86 9184.7
Feb-91 11319 9618.89 9972.39
Mar-91 12310 10295.95 10596.61
Apr-91 12083 10270.05 10536.6
May-91 12979 10759.57 11016.92
Jun-91 12489 10132.54 10443.59
Jul-91 13764 10488.11 11045.01
Aug-91 14917 10876.32 11518.31
Sep-91 15371 10961.48 11585.41
Oct-91 16384 11251.4 11962.56
Nov-91 15313 10731 11484.61
Dec-91 17529 11590.29 12788.01
Jan-92 18607 12529.41 13399.23
Feb-92 18370 12894.91 13649.1
Mar-92 17541 12458.44 13099.81
Apr-92 16602 12021.97 12534.65
May-92 16577 12181.83 12531.98
Jun-92 15947 11605.72 11982.81
Jul-92 16379 12009.55 12396.83
Aug-92 15749 11670.66 12140.31
Sep-92 16231 11939.82 12419.48
Oct-92 16787 12319.34 12925.47
Nov-92 18740 13262.01 13943.17
Dec-92 19210 13724.03 14408.7
Jan-93 19495 14188.54 14715.4
Feb-93 18555 13860.83 14165.26
Mar-93 19396 14310.61 14665.39
Apr-93 18876 13917.79 14193.3
May-93 20323 14533.64 14963.88
Jun-93 20805 14624.3 15069.49
Jul-93 20941 14826.22 15174.65
Aug-93 22393 15466.73 15938.14
Sep-93 23432 15903.2 16480.58
Oct-93 24369 16312.53 16723.13
Nov-93 22624 15775.63 16164.3
Dec-93 23881 16315.01 16842.15
Jan-94 24651 16826.54 17262
Feb-94 24313 16765.68 17250.53
Mar-94 22800 15880.49 16331.11
Apr-94 22800 15974.85 16360.59
May-94 21651 15795.5 16064.01
Jun-94 20475 15259.14 15493.85
Jul-94 21097 15509.84 15745.4
Aug-94 23002 16374.09 16691.21
Sep-94 22718 16319.27 16798.53
Oct-94 22489 16254.86 17044.23
Nov-94 21475 15598.38 16431.69
Dec-94 21503 16017.46 16759.27
Jan-95 21475 15815.37 16609.11
Feb-95 22236 16473.28 17284.34
Mar-95 22811 16756.98 17753.82
Apr-95 22768 17129.58 17979.9
May-95 23214 17424.11 18255.44
Jun-95 24594 18328 19370.53
Jul-95 26130 19383.73 20835.37
Aug-95 27310 19784.71 21183.61
Sep-95 27828 20130.04 21747.49
Oct-95 26405 19237.42 21103.65
Nov-95 27276 20045.66 21879.87
Dec-95 29056 20574.55 22151.08
Jan-96 29008 20552.43 21952.65
Feb-96 30137 21193.05 22848.63
Mar-96 31519 21624.43 23355.13
Apr-96 33459 22780.71 25102.94
May-96 35382 23678.51 26121.58
Jun-96 34253 22706.21 25100.6
Jul-96 31837 20723.04 22825.14
Aug-96 33045 21926.21 24213.18
Sep-96 34794 22783.1 25510.31
Oct-96 34036 22432.01 24905.65
Nov-96 34929 23356.3 25599.83
Dec-96 34487 23968.46 25933.69
Jan-97 35143 24447.35 26634.98
Feb-97 33138 23854.59 25472.38
Mar-97 30457 22729.98 24116.36
Apr-97 29708 22792.63 23961.16
May-97 34318 25328.3 26753.33
Jun-97 36586 26413.75 28101.34
Jul-97 38629 27642.82 29801.37
Aug-97 38873 28275.34 30263.36
Sep-97 42903 30344.91 32533.99
Oct-97 41628 29011.89 31107.44
Nov-97 41347 28824.24 30710.95
Dec-97 42716 29328.76 30987.69
Jan-98 40759 28865.35 30506.58
Feb-98 45195 30999.74 32819.12
Mar-98 47740 32278.26 34339.46
Apr-98 47175 32456.85 34567.1
May-98 43847 30708.82 32667.84
Jun-98 45087 30773.43 33140.41
Jul-98 41085 28282.2 30870.01
Aug-98 29971 22790.36 24724.36
Sep-98 30493 24573.88 26225.65
Oct-98 32472 25576.02 27357.18
Nov-98 35495 26916 29132.33
Dec-98 39330 28581.61 31464.29
Jan-99 39566 28962 31543
Feb-99 36148 26616 28985
Mar-99 36879 27031 29518
Apr-99 39228 29454 31419
May-99 39463 29884 32019
Jun-99 43220 31235 34158
Jul-99 43324 30378 33915
Aug-99 43142 29254 33003
Sep-99 41602 29260 33121
Oct-99 46536 29379 33777
Nov-99 49979 31133 36449
Dec-99 61279 34657 40848
Jan-00 60366 34101 39851
Feb-00 71014 39732 52855
Mar-00 66157 37112 52136
Apr-00 58331 34879 48924
May-00 49744 32846 46380
Jun-00 57967 35709 51176
</TABLE>
(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 74 funds.
13
<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
SMALL CAP FUND
-----------------------------------
PORTFOLIO HIGHLIGHTS
In the technology sector, Applied Micro Circuits was a standout. In addition to
benefiting from the telecom boom, the company is helping build Internet
infrastructure to allow people and companies to exchange data more quickly and
easily. Other strong holdings were Advanced Energy Industries, which enhances
the manufacturing capacity of the semiconductor industry, and Credence Systems,
which provides test and measurement services to ensure that semiconductor
products are functioning properly before they are shipped.
Q: WHICH STOCKS DISAPPOINTED DURING THE YEAR?
A: Two of our holdings that reported lower than expected earnings were Petroleum
Geo-Services, an energy services company, and E.W. Blanch Holdings, which
specializes in reinsuring life insurance companies. After scrutinizing both, we
realized that these holdings no longer supported our original fundamental
analysis. As a result, we sold both stocks.
Q: HOW WOULD YOU DESCRIBE YOUR INVESTMENT STRATEGY?
A: We strive to outperform the benchmark through superior stock selection. To do
this we select companies based on their individual business fundamentals,
favoring those that we believe have the potential to achieve strong and
sustained long-term earnings growth--of at least 20% per year. This strategy is
based on our belief that real earnings growth, not share-price momentum or
other transitory factors, will ultimately dictate a stock's price over the long
term. The Fund's sector weightings are essentially a by-product of this
bottom-up process, though we do ensure that the portfolio remains well
diversified at all times. This helps us balance the Fund's overall risk/reward
characteristics.
Q: WHAT IS YOUR OUTLOOK?
A: The market's recent volatility has prompted investors to shift from their
previous enthusiasm for concept-driven companies to a focus closer to our
own--namely, companies with strong business fundamentals and a clear, positive
earnings trend. In addition, investors no longer seem to favor large-cap stocks
over small-caps, a trend that persisted for much of the late 1990s. A
continuation of both of these trends could be positive for the Fund. We will
continue to focus on small-cap companies that, in our opinion, have solid
business fundamentals, strong management teams and the potential for strong and
sustainable earnings growth.
<TABLE>
<CAPTION>
-----------------------------------------------------------
TOP TEN HOLDINGS
-----------------------------------------------------------
(as a percentage of total net assets)
<S> <C>
Pegasus Communications Corporation ............... 5.4%
EchoStar Communications Corporation, Class ....... 2.6%
Alpharma, Inc., Class A .......................... 2.2%
Jones Medical Industries, Inc. ................... 2.1%
Barr Laboratories, Inc. .......................... 2.1%
Flextronics International, Ltd. .................. 1.8%
Proxicom, Inc. ................................... 1.8%
Winstar Communications, Inc. ..................... 1.8%
Smithfield Foods, Inc. ........................... 1.7%
McLeod USA, Inc. ................................. 1.7%
<CAPTION>
-----------------------------------------------------------
TOP FIVE INDUSTRIES
-----------------------------------------------------------
(as a percentage of total net assets)
<S> <C>
Cable Television ................................. 9.2%
Biotechnology .................................... 8.2%
Other Telephone/Communication .................... 7.9%
Electronic Production Equipment .................. 7.5%
Other Pharmaceuticals ............................ 4.5%
</TABLE>
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.
14
<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
SMALL CAP FUND
-----------------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
COMMON STOCKS - 99.5%
ADVERTISING - 1.2%
43,600 Getty Images, Inc.+ ............................................................ $ 1,617,287
AIR FREIGHT/DELIVERY SERVICES - 1.0%
36,200 Atlas Air, Inc.+ ............................................................... 1,298,675
ALCOHOLIC BEVERAGES - 1.4%
36,000 Canandaigua Wine Company, Inc., Class A+ ....................................... 1,815,750
BIOTECHNOLOGY - 8.2%
32,000 Biocryst Pharmaceuticals, Inc.+ ................................................ 920,000
35,000 Enzon, Inc.+ ................................................................... 1,486,406
30,000 Gilead Sciences, Inc.+ ......................................................... 2,134,687
10,700 IDEC Pharmaceuticals Corporation+ .............................................. 1,254,909
22,900 Maxim Pharmaceuticals, Inc.+ ................................................... 1,176,488
30,000 Pharmacyclics, Inc.+ ........................................................... 1,827,188
44,200 Titan Pharmaceuticals, Inc.+ ................................................... 1,900,600
---------------
10,700,278
BOOKS/MAGAZINES - 0.5%
17,400 Information Holdings, Inc.+ .................................................... 643,800
BROADCASTING - 2.6%
36,000 Emmis Communications Corporation, Class A+ ..................................... 1,490,625
85,000 USA Networks, Inc.+ ............................................................ 1,840,781
---------------
3,331,406
CABLE TELEVISION - 9.2%
60,000 AT&T Corporation Liberty Media, Class A+ ....................................... 1,455,000
104,000 EchoStar Communications Corporation, Class A+ .................................. 3,441,750
144,200 Pegasus Communications Corporation+ ............................................ 7,061,294
---------------
11,958,044
COMPUTER COMMUNICATIONS - 0.3%
4,300 Alteon Websystems, Inc.+ ....................................................... 430,134
COMPUTER SOFTWARE - 3.8%
22,000 HNC Software, Inc.+ ............................................................ 1,361,250
48,000 Peregrine Systems, Inc.+ ....................................................... 1,671,000
35,200 Remedy Corporation+ ............................................................ 1,963,500
---------------
4,995,750
CONTRACT DRILLING - 2.3%
34,000 Patterson Energy, Inc.+ ........................................................ 969,000
32,700 Pride International, Inc.+ ..................................................... 809,325
39,000 Rowan Companies, Inc.+ ......................................................... 1,184,625
---------------
2,962,950
DIVERSIFIED COMMERCIAL SERVICES - 2.4%
23,500 Corporate Executive Board Company+ ............................................. 1,407,062
60,000 Nova Corporation (Georgia)+ .................................................... 1,676,250
---------------
3,083,312
DIVERSIFIED ELECTRONIC PRODUCTS - 0.9%
600 Exfo Electro-Optical Engineering, Inc.+ ........................................ $ 26,325
74,000 Sensormatic Electronics Corporation+ ........................................... 1,170,125
---------------
1,196,450
EDP SERVICES - 3.9%
35,900 BISYS Group, Inc. (The)+ ....................................................... 2,219,069
28,000 CSG Systems International, Inc.+ ............................................... 1,570,625
14,200 Diamond Technology Partners, Inc.+ ............................................. 1,249,600
---------------
5,039,294
ELECTRICAL PRODUCTS - 0.7%
12,800 C&D Technologies, Inc. ......................................................... 723,200
3,100 Capstone Turbine Corporation+ .................................................. 140,178
---------------
863,378
ELECTRONIC COMPONENTS - 4.3%
27,500 American Xtal Technology, Inc.+ ................................................ 1,188,516
34,000 Flextronics International, Ltd.+ ............................................... 2,336,437
133,000 Viasystems Group, Inc.+ ........................................................ 2,152,938
---------------
5,677,891
ELECTRONIC DATA PROCESSING - 0.6%
60,000 Micron Electronics, Inc.+ ...................................................... 750,000
ELECTRONIC PRODUCTION EQUIPMENT - 7.5%
25,000 Advanced Energy Industries, Inc.+ .............................................. 1,473,438
23,200 Credence Systems Corporation+ .................................................. 1,279,625
19,200 Cymer, Inc.+ ................................................................... 914,400
23,000 Kulicke & Soffa Industries, Inc.+ .............................................. 1,362,031
45,500 LTX Corporation+ ............................................................... 1,591,078
26,400 MKS Instruments, Inc.+ ......................................................... 1,029,600
18,600 PRI Automation, Inc.+ .......................................................... 1,219,463
15,300 Varian Semiconductor Equipment Associates, Inc.+ ............................... 961,509
---------------
9,831,144
FINANCE COMPANIES - 2.3%
108,000 AmeriCredit Corporation+ ....................................................... 1,836,000
37,000 CompuCredit Corporation+ ....................................................... 1,110,000
---------------
2,946,000
FINANCIAL PUBLISHING/SERVICES - 1.6%
32,000 Advent Software, Inc.+ ......................................................... 2,073,000
GENERIC DRUGS - 4.3%
46,000 Alpharma, Inc., Class A ........................................................ 2,863,500
61,500 Barr Laboratories, Inc.+ ....................................................... 2,755,969
---------------
5,619,469
HOSPITAL/NURSING MANAGEMENT - 0.6%
34,900 LifePoint Hospitals, Inc.+ ..................................................... 776,525
INTERNET SERVICES - 3.7%
23,000 Braun Consulting, Inc.+ ........................................................ 485,156
47,800 Proxicom, Inc.+ ................................................................ 2,286,931
22,000 VerticalNet, Inc.+ ............................................................. 813,313
</TABLE>
The accompanying notes are an integral part of these financial statements. 15
<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
SMALL CAP FUND
-----------------------------------
INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
COMMON STOCKS - CONTINUED
INTERNET SERVICES - CONTINUED
22,000 WatchGuard Technologies, Inc.+ ................................................. $ 1,208,625
---------------
4,794,025
INVESTMENT BANKERS/BROKERS/SERVICES - 0.6%
52,000 LaBranche & Company, Inc.+ ..................................................... 747,500
LIFE INSURANCE - 0.6%
30,000 Annuity and Life Re (Holdings), Ltd. ........................................... 726,563
MANAGED HEALTH CARE - 1.6%
30,000 First Health Group Corporation+ ................................................ 984,375
48,000 Oxford Health Plans, Inc.+ ..................................................... 1,143,000
---------------
2,127,375
MEAT/POULTRY/FISH - 1.7%
80,000 Smithfield Foods, Inc.+ ........................................................ 2,245,000
MEDICAL SPECIALTIES - 0.9%
14,700 ABIOMED, Inc.+ ................................................................. 453,403
26,300 Mentor Corporation ............................................................. 714,209
---------------
1,167,612
MILITARY/GOVERNMENT/TECHNICAL - 1.1%
29,000 Aeroflex, Inc.+ ................................................................ 1,440,937
MOVIES/TELEVISION - 1.4%
58,000 Liberty Digital, Inc.+ ......................................................... 1,772,625
OFFICE/PLANT AUTOMATION - 0.9%
32,000 Optimal Robotics Corporation+ .................................................. 1,226,000
OIL & GAS PRODUCTION - 0.2%
18,700 Syntroleum Corporation+ ........................................................ 320,822
OILFIELD SERVICES/EQUIPMENT - 2.3%
24,800 Core Laboratories N.V+ ......................................................... 719,200
89,600 Global Industries, Ltd.+ ....................................................... 1,691,200
16,000 Universal Compression Holdings, Inc.+ .......................................... 536,000
---------------
2,946,400
OTHER PHARMACEUTICALS - 4.5%
32,000 Celgene Corporation+ ........................................................... 1,885,000
88,600 Dura Pharmaceuticals, Inc.+ .................................................... 1,268,088
69,500 Jones Medical Industries, Inc. ................................................. 2,773,484
---------------
5,926,572
OTHER SPECIALTY STORES - 1.4%
81,300 Rent-A-Center, Inc.+ ........................................................... 1,821,628
OTHER TELEPHONE/COMMUNICATION - 7.9%
72,000 ICG Communications, Inc.+ ...................................................... 1,595,250
48,000 Intermedia Communications, Inc.+ ............................................... 1,425,000
107,400 McLeod USA, Inc.+ .............................................................. 2,225,194
27,400 MGC Communications, Inc.+ ...................................................... 1,642,288
39,500 Viatel, Inc.+ .................................................................. 1,126,984
67,500 Winstar Communications, Inc.+ .................................................. 2,286,562
---------------
10,301,278
RECREATIONAL PRODUCTS/TOYS - 0.8%
28,000 Intranet Solutions, Inc.+ ...................................................... 1,074,500
RENTAL/LEASING COMPANIES - 0.8%
36,800 Rent-Way, Inc.+ ................................................................ 1,074,100
SAVINGS AND LOAN ASSOCIATIONS - 1.1%
42,400 Bank United Corporation, Class A ............................................... $ 1,498,575
SEMICONDUCTORS - 2.1%
17,600 Alpha Industries, Inc.+ ........................................................ 775,500
14,000 Applied Micro Circuits Corporation+ ............................................ 1,382,500
4,800 Intersil Holding Corporation+ .................................................. 259,500
5,000 Semtech Corporation+ ........................................................... 378,750
---------------
2,796,250
SMALLER BANKS - 1.1%
35,000 Silicon Valley Bancshares+ ..................................................... 1,492,969
SPECIALTY INSURERS - 1.4%
36,000 Radian Group, Inc. ............................................................. 1,863,000
TELECOMMUNICATIONS EQUIPMENT - 3.8%
39,000 ANTEC Corporation+ ............................................................. 1,619,719
8,700 L-3 Communications Holdings, Inc.+ ............................................. 496,444
28,500 Virata Corporation+ ............................................................ 1,699,312
25,000 Visual Networks, Inc.+ ......................................................... 711,719
25,500 Westell Technologies, Inc.+ .................................................... 382,500
---------------
4,909,694
TOTAL COMMON STOCKS
(Cost $97,066,499) .......................................................................... 129,883,962
---------------
MONEY MARKET FUND - 0.8%
1,021,058 Chase Vista Federal Money Market Fund (Cost $1,021,058) ........................ 1,021,058
---------------
TOTAL INVESTMENTS - 100.3%
(Cost $98,087,557*) .......................................................................... 130,905,020
OTHER ASSETS AND LIABILITIES - (0.3)%
(Net) ........................................................................................ (355,994)
---------------
NET ASSETS - 100.0% .......................................................................... $ 130,549,026
===============
</TABLE>
* Aggregate cost for federal tax purposes $98,087,557.
+ Non-income-producing security.
16 The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
BALANCED FUND
-----------------------------------
PORTFOLIO HIGHLIGHTS
INVESTMENT REVIEW
Q: HOW DID THE FUND PERFORM FROM JULY 1, 1999, THROUGH JUNE 30, 2000?
A: The Fund underperformed its custom benchmark--60% of which consists of the
S&P 500 Index and 40% of which is the Lehman Brothers Aggregate Bond Index--over
the fiscal year.
Q: WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A: For most of the fiscal year, the Fund's equity portfolio was overweighted in
basic materials stocks and other cyclical areas. This overweight position in
cyclicals corresponded to an underweight stance in some of the more
growth-oriented areas of the market, such as technology. Because the Fund had
about 65% of its assets allocated to the equity portfolio over the fiscal year,
its underperformance led the Fund to underperform as well.
On June 1, 2000, however, the equity portfolio's management team was changed to
more efficiently leverage investment ideas generated by our Global Research
Platform, and its strategy was aligned with a more growth-oriented focus.
Consistent with this transition, we deemphasized basic materials, chemicals,
paper and other economically cyclical areas by lightening or eliminating its
positions in Alcoa, Dow Chemical, Boise Cascade and Whirlpool. This move proved
timely, as the U.S. economy appeared to be slowing soon after. We believe that,
over time, this transition will add greater value for shareholders of the
Balanced Fund.
Q: WHAT ABOUT THE FUND'S FIXED-INCOME PORTION?
A: We positioned the fixed-income portfolio conservatively in response to more
volatile market conditions and rising interest rates, with an emphasis on
bottom-up stock selection and sector positioning. This approach was rewarded, as
the bonds we chose for the fixed-income portfolio helped it outperform its
benchmark. Our decision to sell Occidental Petroleum and Bristol Meyers
corporate bonds was timely, for example; we were able to eliminate them from the
portfolio before they underperformed other corporates. In addition, the
portfolio's increased weighting in long-term Treasury bonds allowed it to
benefit when the Treasury commenced its buy-back program.
Over the course of the year, we pared back the fixed-income portfolio's
positions in corporate bonds due to concerns about this sector's fundamentals.
Rising default rates and more credit downgrades than upgrades appear to be
warning signs. Credit fundamentals have also weakened, as corporations have
increased their leverage by issuing debt over the past two years to finance
mergers and acquisitions. Furthermore, in sectors of the equity market where
prices have declined significantly, companies have been buying back stock to
prop up their equity prices, a positive for equity holders but generally a
negative for bond holders.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
--------------------------------------------------------------------------------
Fund-of-funds, including:
Montgomery Growth Fund
Montgomery Total Return Bond Fund
Montgomery Equity Income Fund
Montgomery Money Market Fund
--------------------------------------------------------------------------------
FUND PERFORMANCE
--------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/00
--------------------------------------------------------------------------------
MONTGOMERY BALANCED FUND
<S> <C>
Since inception (3/31/94) ........................... 16.29%
One year ............................................ 1.62%
Five years .......................................... 13.13%
--------------------------------------------------------------------------------
S&P 500 INDEX
Since 3/31/94 ....................................... 23.19%
One year ............................................ 7.25%
Five years .......................................... 23.80%
--------------------------------------------------------------------------------
LEHMAN BROTHERS
AGGREGATE BOND INDEX
Since 3/31/94 ....................................... 6.80%
One year ............................................ 4.56%
Five years .......................................... 6.25%
</TABLE>
--------------------------------------------------------------------------------
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost. Fund performance presented is for
Class R shares.
<TABLE>
<CAPTION>
Balanced Lehman(2) S & P 500(1) Lipper(3)
-------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Mar-94 10000 10000 10000 10000
Apr-94 10158 9920.15 10128.12 10023.71
May-94 10374 9918.76 10293.68 10071.35
Jun-94 10199 9896.84 10041.78 9905.52
Jul-94 10741 10093.42 10371.29 10110.38
Aug-94 11040 10105.95 10795.52 10355.87
Sep-94 11141 9957.2 10531.75 10190.12
Oct-94 11533 9948.33 10768.02 10257.92
Nov-94 11933 9926.24 10376.35 10020.23
Dec-94 11976 9994.78 10529.97 10087.66
Jan-95 12095 10192.58 10802.85 10197.28
Feb-95 12494 10434.92 11223.45 10493.49
Mar-95 12876 10498.94 11554.1 10704.09
Apr-95 12952 10645.59 11894.07 10922.85
May-95 13436 11057.55 12368.74 11303.1
Jun-95 13869 11138.62 12655.53 11540.45
Jul-95 14293 11113.74 13075.02 11838.41
Aug-95 14489 11247.87 13107.66 11918.02
Sep-95 14786 11357.29 13660.52 12191.77
Oct-95 14786 11504.99 13611.11 12127.57
Nov-95 15551 11677.39 14205.57 12506.87
Dec-95 15880 11841.27 14482.26 12694.27
Jan-96 15863 11919.91 14974.6 12953.46
Feb-96 16263 11712.71 15113.91 13018.39
Mar-96 16486 11631.29 15259.42 13087.23
Apr-96 16975 11565.88 15481.19 13249.23
May-96 17347 11542.4 15882.04 13416.59
Jun-96 17187 11697.4 15943.39 13418.81
Jul-96 16663 11729.41 15239.4 13042.92
Aug-96 17045 11709.75 15561.34 13270.41
Sep-96 17462 11913.82 16436.39 13745.16
Oct-96 17743 12177.72 16899.54 13989.62
Nov-96 18329 12386.71 18165.06 14656.57
Dec-96 17921 12271.14 17805.22 14517
Jan-97 18200 12308.72 18917.01 15010.08
Feb-97 18061 12339.34 19065.52 15000.84
Mar-97 17671 12202.6 18283.61 14580.67
Apr-97 18239 12385.27 19374.15 14986.6
May-97 19270 12502.35 20558.64 15648.2
Jun-97 19705 12650.74 21472.6 16135.32
Jul-97 21152 12991.89 23180.71 17063.19
Aug-97 20923 12881.08 21883.06 16542.42
Sep-97 21655 13071.05 23080.84 17244.65
Oct-97 21339 13260.67 22310.87 16856.47
Nov-97 21389 13321.74 23342.84 17146.37
Dec-97 21330 13455.86 23743.44 17368.57
Jan-98 21247 13628.61 24005.8 17476.69
Feb-98 22123 13618.35 25736.19 18329.99
Mar-98 22645 13665.15 27053.05 18941.99
Apr-98 22858 13736.47 27330.08 19123.24
May-98 22597 13866.78 26860.96 18885.52
Jun-98 22598 13984.38 27951.24 19230.4
Jul-98 22112 14014.13 27655.83 18973.3
Aug-98 20714 14242.2 23660.22 17078.24
Sep-98 21176 14575.69 25177.22 17753.97
Oct-98 21888 14498.63 27222 18642.71
Nov-98 22527 14580.91 28871.2 19412.08
Dec-98 22648 14624.75 30533.8 20160.82
Jan-99 22889 14729 31825.88 20522
Feb-99 22346 14472 30837.37 19904
Mar-99 22918 14552 32076.11 20426
Apr-99 24513 14598 33297.57 21120
May-99 24332 14470 32527.73 20772
Jun-99 25295 14424 34305.69 21428
Jul-99 24693 14363 33261 21066
Aug-99 23938 14356 33106 20891
Sep-99 23758 14522 32189 20636
Oct-99 23953 14576 34236 21200
Nov-99 24240 14575 35935 21594
Dec-99 25556 14505 36980 22609
Jan-00 24518 35120 14457 21962
Feb-00 24707 34456 14632 22397
Mar-00 26439 37826 14825 22496
Apr-00 26061 36688 14782 19976
May-00 25952 35935 14775 19679
Jun-00 25705 36821 15082 20129
</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 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 84 funds.
17
<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
BALANCED FUND
-----------------------------------
PORTFOLIO HIGHLIGHTS
Q: AT THE END OF 1999, THE FUND'S NAME CHANGED FROM THE U.S. ASSET ALLOCATION
FUND TO THE BALANCED FUND. DID YOU MAKE ANY SIGNIFICANT CHANGES TO ITS STRATEGY
OR POSITIONING AS A RESULT?
A: The Fund's name change was simply to more accurately describe its
positioning, which has been characterized by a more consistent allocation to
equities and bonds. It was accompanied by a tightening of the Fund's asset
allocation bands to 50 to 80% stocks, 20 to 50% bonds, and 0 to 20% cash. In
general, we expect to maintain a target asset allocation of 65% stocks and 35%
bonds going forward, though we always assess market conditions to determine if
that target allocation is appropriate.
Q: HOW ARE THE FUND'S COMPONENT PORTFOLIOS CURRENTLY POSITIONED?
A: In the equity portfolio, we will continue to seek investment opportunities
across the broad market in leading, high-quality companies that are poised for
growth. We believe that this diversified, growth-oriented approach is well
positioned to benefit in current and future market conditions. In addition, we
have and will continue to expend a great deal of effort on minimizing the
potential tax ramifications of the portfolio's transition, while recognizing the
importance of making constructive changes that will serve to enhance its
performance and that of the Balanced Fund. Right now we believe that technology,
health care, telecommunications and more-traditional growth sectors hold the
best opportunities.
On the fixed-income side, it is difficult to tell whether the recent series of
weak economic data will ward off further interest rate hikes. We do expect the
Federal Reserve to eventually continue raising rates, as consumer confidence and
retail spending are still strong. Because of this potential and weakening
corporate credit fundamentals, we anticipate maintaining a defensive stance in
the near term. Once the Fed stops raising rates, we believe that bonds will
likely perform very well. At that point we intend to become more aggressive in
the fixed-income portfolio, taking advantage of the attractive values that have
developed in the non-Treasury segments of the market.
PORTFOLIO INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
INVESTMENT COMPANY SECURITIES -- 99.9%
BOND MUTUAL FUND - TAXABLE -- 33.4%
1,869,686 Montgomery Total Return Bond Fund .............................................. $ 21,183,539
EQUITY MUTUAL FUNDS-- 66.5%
658,562 Montgomery Equity Income Fund .................................................. 9,097,495
1,570,003 Montgomery Growth Fund ......................................................... 33,142,765
---------------
42,240,260
TOTAL INVESTMENT COMPANY SECURITIES
(Cost $63,762,551) ........................................................................... 63,423,799
MONEY MARKET FUND -- 0.0%@
38,218 Chase Vista Federal Money Market Fund (Cost $38,218) ........................... 38,218
TOTAL INVESTMENTS -- 99.9%
(Cost $63,800,769*) .......................................................................... $ 63,462,017
OTHER ASSETS AND LIABILITIES -- 0.1%
(Net) ........................................................................................ 58,608
---------------
NET ASSETS -- 100.0% ......................................................................... $ 63,520,625
===============
</TABLE>
* Aggregate cost for federal tax purposes $68,105,429.
@ Amount represents less than 0.1%.
18 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 12 MONTHS ENDED JUNE 30, 2000?
A: Two strong quarters were not sufficient to offset two weaker quarters, and
the Fund underperformed its benchmark, the Morgan Stanley Capital International
(MSCI) Europe, Australasia and Far East (EAFE) Index, for the year. The Fund
returned 10.16%, versus a return of 17.44% for the benchmark.
Q: WHAT FACTORS CONTRIBUTED MOST TO THE FUND'S PERFORMANCE?
A: After a weak third quarter, international markets rallied during the fourth
quarter of 1999 and the first quarter of 2000. Growth-oriented stocks,
especially those in the technology and telecommunications sectors, dominated
markets around the world. In March, however, fears of rising interest rates
sparked a mass exodus out of growth-oriented technology and telecom stocks and
into more-defensive areas, such as utilities and consumer staples. By June
growth stocks had begun to recover, though investors were now favoring companies
with near-term earnings visibility over more-speculative, concept-driven firms.
Our bottom-up process led us to overweight tech and telecom stocks throughout
the year. When these sectors went into a broad decline, the Fund certainly felt
the effects--but not to the extent that it could have had we focused on
concept-driven Internet stocks, which were among the hardest hit during the
market sell-off. Instead we continued to favor companies that are instrumental
in building and maintaining the Internet's infrastructure. In addition, a
significant share of the Fund is devoted to leading telecom-equipment companies
such as Nokia, which didn't decline as far in April and early May and rebounded
more quickly in late May and June than did more-speculative stocks.
Q: WERE THERE ANY STOCKS THAT MADE A PARTICULARLY STRONG CONTRIBUTION TO THE
FUND'S RETURNS?
A: Nokia was one of the Fund's largest and strongest holdings during the fiscal
year. The company, in which the Fund has invested for several years, is the
world's leading provider of wireless handsets and has a significant telecom
infrastructure business. Its dominant position in the industry helped Nokia
avoid component shortages that hurt several of its competitors during the first
half of 2000. Nokia's continued market leadership and innovation bolstered its
shares over much of the fiscal year.
Another strong performer was Alcatel. Shares of this French company lagged those
of its competitors for most of the past decade, but recently it has emerged as a
very strong player in the telecom-equipment sector. We bought Alcatel's stock in
early 2000 as it was announcing plans to acquire Newbridge Networks. With the
acquisition of Newbridge, we saw Alcatel as an attractively valued company with
a strong presence in several key segments of the telecom-equipment landscape.
As the magnitude of Alcatel's transformation became more widely known, the stock
appreciated significantly.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
--------------------------------------------------------------------------------
<S> <C>
John Boich, CFA ......................................... Senior Portfolio Manager
Oscar Castro, CFA ....................................... Senior Portfolio Manager
<CAPTION>
--------------------------------------------------------------------------------
FUND PERFORMANCE
--------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/00
--------------------------------------------------------------------------------
MONTGOMERY
INTERNATIONAL GROWTH FUND
<S> <C>
Since inception (7/3/95) ................................ 16.15%
One year ................................................ 10.16%
Three years ............................................. 11.59%
<CAPTION>
--------------------------------------------------------------------------------
MSCI EAFE INDEX
<S> <C>
Since 7/3/95 ............................................ 11.63%
One year ................................................ 17.44%
Three years ............................................. 10.48%
</TABLE>
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost. Fund performance presented is for
Class R shares.
<TABLE>
<CAPTION>
International
Growth MSCI EAFE(1) Lipper(2)
------------- ------------ ---------
<S> <C> <C> <C>
Jun-95 10000 10000 10000
Jul-95 10083 10622.56 10535.91
Aug-95 10058 10217.35 10339.11
Sep-95 10417 10416.9 10495.93
Oct-95 10675 10136.89 10286.61
Nov-95 10783 10418.93 10396.57
Dec-95 11142 10838.72 10708.57
Jan-96 11392 10883.21 10949.63
Feb-96 11617 10920 10995.95
Mar-96 11842 11151.9 11186.91
Apr-96 12600 11476.12 11540.05
May-96 12925 11264.94 11508.2
Jun-96 12758 11328.34 11585.43
Jul-96 12183 10997.25 11150.67
Aug-96 12500 11021.34 11278.4
Sep-96 12717 11314.13 11521.57
Oct-96 12737 11198.36 11444.71
Nov-96 13420 11643.92 11933.52
Dec-96 13477 11494.13 11976.28
Jan-97 13747 11091.87 11932.77
Feb-97 13683 11273.29 12085.45
Mar-97 13730 11314.11 12118.03
Apr-97 13739 11374.14 12118
May-97 14572 12114.3 12136.05
Jun-97 15208 12782.37 12853.97
Jul-97 15704 12989.16 13453.37
Aug-97 14899 12019.08 12815.77
Sep-97 15789 12692.37 13615.29
Oct-97 14572 11716.78 12571.16
Nov-97 14750 11597.33 12453.9
Dec-97 14845 11698.49 12552.73
Jan-98 15478 12233.5 12862.04
Feb-98 16937 13018.47 13712.55
Mar-98 17862 13419.33 14414.36
Apr-98 18506 13525.55 14615.61
May-98 18717 13459.9 14632.53
Jun-98 18747 13561.8 14527.51
Jul-98 19129 13699.3 14763.5
Aug-98 16283 12002.1 12643.2
Sep-98 15529 11634.14 12174.74
Oct-98 17078 12846.89 13087.66
Nov-98 18144 13505.05 13759.6
Dec-98 19105 14037.82 14192.05
Jan-99 19862 13996 14307
Feb-99 18791 13663 13932
Mar-99 18468 14233 14420
Apr-99 18994 14810 15083
May-99 18519 14047 14466
Jun-99 19186 14595 15227
Jul-99 19236 15029 15620
Aug-99 18963 15083 15757
Sep-99 18650 15235 15817
Oct-99 19823 15806 16425
Nov-99 21492 16355 17694
Dec-99 24120 17823 19814
Jan-00 22781 16906 18695
Feb-00 24037 17365 19805
Mar-00 24253 18041 19961
Apr-00 21835 17095 18702
May-00 20239 16681 18096
Jun-00 21135 17337 18896
</TABLE>
(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 267 funds.
19
<PAGE>
-----------------------------------
THE MONTGOMERY FUNDS
-----------------------------------
INTERNATIONAL GROWTH FUND
-----------------------------------
PORTFOLIO HIGHLIGHTS
Q: WERE THERE ANY DISAPPOINTMENTS?
A: Growth stocks struggled during much of the second quarter, with telecom
stocks among the hardest hit. Many of these companies have been making huge
capital expenditures to build networks, and rising interest rates have increased
their financing costs. The previously hot initial public offering (IPO) market
also slowed down, casting some doubt on the future of companies in need of
near-term funding. In addition, foreign telecom stocks were depressed by the
unexpectedly high prices paid at auction for third-generation wireless licenses
in the United Kingdom. Investors and companies alike began reassessing the cost
of developing third-generation wireless networks, which would enable users to
access the Internet and receive high-quality audio and video feeds via cellular
phones.
These trends clouded the outlook for two of our holdings, Global TeleSystems
Group (GTS) and Equant. Both GTS and Equant had contributed gains to the Fund
earlier in the fiscal year, but we felt that the near-term outlook for both
companies was poor. As a result, we sold our positions, putting the proceeds
into stocks that we think have better near-term potential.
Q: HOW IS THE FUND CURRENTLY POSITIONED, AND WHERE DO YOU SEE THE BEST
OPPORTUNITIES IN THE COMING YEAR?
A: Reflecting an aggregate picture of our bottom-up stock selection process, the
Fund is now overweighted in Europe and underweighted in Japan. We remain very
selective in Japan, focusing primarily on companies that have more-transparent,
Western-style approaches to shareholder relations.
In addition, the Fund remains overweighted in tech and telecom stocks. We
continue to look for companies that, in our opinion, have strong management
teams, good earnings visibility and the best potential to deliver positive
earnings surprises. At the same time, we have trimmed the Fund's positions in
companies with good long-term plans but shakier short-term prospects. Going
forward we believe that we'll see more mergers and acquisitions, particularly in
the telecom industry. Many companies are looking to increase their scale, global
reach and product lines through strategic acquisitions. A continuation of this
trend may be very positive for these companies and for the Fund.
<TABLE>
<CAPTION>
-----------------------------------------------------------
TOP TEN HOLDINGS
-----------------------------------------------------------
(as a percentage of total net assets)
<S> <C>
Nokia Oyj ........................................ 3.1%
Samsung Electronics Company ...................... 3.1%
Elan Corporation PLC, ADR ........................ 2.7%
Muenchener Rueckversicherungs-Gesellschaft AG .... 2.7%
Julius Baer Holding AG ........................... 2.5%
Alcatel S.A., ADR ................................ 2.5%
NEC Corporation .................................. 2.2%
San Paolo-IMI SpA ................................ 2.2%
Nissan Motor Company, Ltd. ....................... 2.2%
Diageo PLC ....................................... 2.2%
<CAPTION>
-----------------------------------------------------------
TOP FIVE COUNTRIES
-----------------------------------------------------------
(as a percentage of total net assets)
<S> <C>
United Kingdom ................................... 15.8%
Japan ............................................ 14.3%
Germany .......................................... 12.0%
France ........................................... 9.1%
Finland .......................................... 6.5%
</TABLE>
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.
20
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
INTERNATIONAL GROWTH FUND
-----------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
COMMON STOCKS -- 94.8%
AUSTRALIA -- 2.8%
1,360,700 Cable & Wireless Optus Ltd.+
(Other Telephone/Communication) ................................................ $ 4,047,139
717,700 Qantas Airways Ltd. (Airlines) ................................................. 1,448,825
---------------
5,495,964
CANADA -- 2.1%
16,100 Ballard Power Systems, Inc.+
(Electrical Products) .......................................................... 1,447,491
39,200 Nortel Networks Corporation
(Telecommunications Equipment) ................................................. 2,675,400
---------------
4,122,891
CHINA/HONG KONG -- 1.0%
156,000 Hutchison Whampoa Ltd.+
(Multi-Sector Companies) ....................................................... 1,961,131
DENMARK -- 1.6%
82,160 Vestas Wind Systems A/S+
(Electrical Products) .......................................................... 3,014,140
FINLAND -- 6.5%
37,000 Helsinki Telephone
(Other Telephone/Communication) ................................................ 3,620,808
118,520 Nokia Oyj+
(Telecommunications Equipment) ................................................. 6,042,210
63,600 Sonera Oyj
(Other Telephone/Communication) ................................................ 2,896,589
---------------
12,559,607
FRANCE -- 9.1%
72,584 Alcatel S.A., ADR
(Telecommunications Equipment) ................................................. 4,826,836
12,450 Castorama Dubois S.A.
(Building Material Chains) ..................................................... 3,075,569
35,980 Societe Television Francaise+
(Broadcasting) ................................................................. 2,505,189
33,400 STMicroelectronics N.V.+
(Semiconductors) ............................................................... 2,102,552
19,490 Total Fina S.A., Class B
(Oil Refining/Marketing) ....................................................... 2,985,477
23,661 Vivendi (Water Supply) ......................................................... 2,086,395
---------------
17,582,018
GERMANY -- 8.9%
38,000 Bayerische Hypo-und Vereinsbank AG
(Non-U.S. Banks) ............................................................... 2,468,239
28,150 Consors Discount Broker AG+
(Investment Bankers/Brokers/Services) .......................................... 2,510,420
32,740 Deutsche Telekom AG
(Other Telephone/Communication) ................................................ 1,861,150
15,640 EM.TV & Merchandising AG
(Movies/Television) ............................................................ 920,404
19,350 Infineon Technologies AG+
(Electronic Components) ........................................................ 1,531,847
16,420 Muenchener Rueckversicherungs-Gesellschaft AG
(Multi-Line Insurance) ......................................................... 5,207,403
18,945 Siemens AG
(Diversified Electronic Products) .............................................. 2,845,978
---------------
17,345,441
IRELAND -- 2.7%
107,600 Elan Corporation PLC, ADR+
(Other Pharmaceuticals) ........................................................ 5,211,875
ITALY -- 2.8%
241,000 San Paolo-IMI SpA
(Non-U.S. Banks) ............................................................... 4,252,508
112,300 Telecom Italia Mobile SpA
(Cellular Telephone) ........................................................... 1,141,809
---------------
5,394,317
JAPAN -- 14.3%
194,000 Daiwa Securities Group, Inc.
(Investment Bankers/Brokers/Services) .......................................... 2,558,764
59,000 Fujitsu Ltd. (Electronic Data Processing) ...................................... 2,039,945
137,000 NEC Corporation
(Diversified Electronic Products) .............................................. 4,297,989
203 Nippon Telegraph &
Telephone Corporation
(Other Telephone/Communication) ................................................ 2,696,594
720,000 Nissan Motor Company, Ltd.
(Motor Vehicles) ............................................................... 4,239,484
61,000 Nomura Securities Company, Ltd.
(Investment Bankers/Brokers/Services) .......................................... 1,491,309
119 NTT DoCoMo, Inc. (Cellular Telephone) .......................................... 3,217,580
6,300 Rohm Company, Ltd. (Semiconductors) ............................................ 1,845,871
2,400 Softbank Corporation (Internet Services) ....................................... 325,592
30,000 Takeda Chemical Industries, Ltd.
(Major Pharmaceuticals) ........................................................ 1,967,121
374,000 The Sanwa Bank, Ltd. (Non-U.S. Banks) .......................................... 2,980,866
---------------
27,661,115
KOREA -- 3.1%
17,980 Samsung Electronics Company
(Diversified Electronic Products) .............................................. 5,950,198
NETHERLANDS -- 6.2%
63,900 ASM Lithography Holding N.V.+
(Electronic Production Equipment) .............................................. 2,743,865
37,700 Heineken N.V. (Alcoholic Beverages) ............................................ 2,292,334
58,638 KPN N.V.+
(Other Telephone/Communication) ................................................ 2,620,265
45,800 Versatel Telecom International N.V.+
(Other Telephone/Communication) ................................................ 1,922,094
</TABLE>
The accompanying notes are an integral part of these financial statements. 21
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
INTERNATIONAL GROWTH FUND
-----------------------------
INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
COMMON STOCKS -- CONTINUED
NETHERLANDS -- CONTINUED
48,500 VNU N.V. (Books/Magazines) ..................................................... $ 2,502,623
---------------
12,081,181
PORTUGAL -- 1.2%
464,000 Banco Comercial Portugues S.A.
(Non-U.S. Banks) ............................................................... 2,411,965
SPAIN -- 2.7%
126,300 Altadis S.A. (Tobacco) ......................................................... 1,938,277
222,200 Banco Bilbao Vizcaya Argentaria S.A.
(Major Banks) .................................................................. 3,316,766
---------------
5,255,043
SWEDEN -- 4.7%
127,700 Skandia Forsakrings AB (Life Insurance) ........................................ 3,370,424
197,000 Telefonaktiebolaget LM Ericsson AB+
(Telecommunications Equipment) ................................................. 3,894,030
198,700 Telia AB+
(Other Telephone/Communication) ................................................ 1,868,158
---------------
9,132,612
SWITZERLAND -- 4.9%
18,255 ABB Ltd. (Natural Gas Distribution) ............................................ 2,182,529
1,243 Julius Baer Holding AG (Non-U.S. Banks) ........................................ 4,909,283
2,790 Serono S.A.+ (Other Pharmaceuticals) ........................................... 2,323,434
---------------
9,415,246
UNITED KINGDOM -- 15.8%
100,200 Barclays PLC (Non-U.S. Banks) .................................................. 2,482,757
114,000 Cable & Wireless PLC
(Other Telephone/Communication) ................................................ 1,929,690
12,500 COLT Telecom Group PLC, ADR+
(Other Telephone/Communication) ................................................ 1,687,109
471,400 Diageo PLC (Alcoholic Beverages) ............................................... 4,235,733
595,900 Dixons Group PLC+
(Computer/Video Chains) ........................................................ 2,375,235
250,600 Freeserve PLC+ (Internet Services) ............................................. 1,220,645
623,900 Invensys PLC
(Industrial Machinery/Components) .............................................. 2,335,838
318,600 Next PLC
(Clothing/Shoe/Accessory Stores) .............................................. 2,797,696
130,000 Pearson PLC (Books/Magazines) .................................................. 4,060,841
280,700 Scottish Power PLC (Non-U.S. Utilities) ........................................ 2,367,227
105,300 Shire Pharmaceuticals Group PLC+
(Other Pharmaceuticals) ........................................................ 1,822,246
837,174 Vodafone AirTouch PLC
(Cellular Telephone) ........................................................... 3,406,595
---------------
30,721,612
UNITED STATES -- 4.4%
46,500 Atmel Corporation+ (Semiconductors) ............................................. 1,714,687
13,900 Flextronics International Ltd.+
(Electronic Components) ........................................................ 955,191
51,000 NTL, Inc.+
(Other Telephone/Communication) ................................................ 3,055,219
47,000 Sprint Corporation+ (Cellular Telephone) ....................................... 2,796,500
---------------
8,521,597
TOTAL COMMON STOCKS
(Cost $168,941,924) .............................................................................. $ 183,837,953
---------------
PREFERRED STOCKS -- 3.1%
GERMANY -- 3.1%
941 Porsche AG (Motor Vehicles) .................................................... 2,557,943
19,104 SAP AG (Computer Software) ..................................................... 3,525,833
---------------
TOTAL PREFERRED STOCKS
(Cost $5,889,041) ................................................................................ 6,083,776
---------------
TOTAL INVESTMENTS -- 97.9%
(Cost $174,830,965*) ............................................................................. 189,921,729
OTHER ASSETS AND LIABILITIES -- 2.1%
(Net) ............................................................................................ 4,017,910
---------------
NET ASSETS -- 100.0% ............................................................................. $ 193,939,639
===============
</TABLE>
* Aggregate cost for federal tax purposes $176,184,484.
+ Non-income-producing security.
ABBREVIATIONS
ADR American Depositary Receipt
22 The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GLOBAL OPPORTUNITIES FUND
-----------------------------
PORTFOLIO HIGHLIGHTS
INVESTMENT REVIEW
Q: HOW DID THE FUND PERFORM DURING THE 12 MONTHS ENDED JUNE 30, 2000?
A: The Fund outperformed its benchmark, the Morgan Stanley Capital International
(MSCI) World Index, by a wide margin over the past year, returning 21.46%,
compared with 12.53% for the benchmark. In recognition of its long-term
performance, the Fund has earned an overall five-star rating from Morningstar
for its risk-adjusted returns for the period ended 6/30/00 among 1,148
international equity funds. The Fund also received four and five stars for the
three- and five-year periods ended 6/30/00 among 1,148 and 701 international
equity funds, respectively.*
Q: WHAT FACTORS CONTRIBUTED TO THESE RESULTS?
A: Stock selection made a big difference in the Fund's performance relative to
its benchmark over the past year. Although the Fund was underweighted in the
United States versus the index, for example, our stock selection there
contributed outsized gains. Some of the Fund's best performers included U.S.
technology and telecommunications stocks, such as Cisco Systems and Sprint PCS.
The Fund's performance was also driven by a number of its telecom holdings in
Germany and the United Kingdom, including Orange, COLT Telecom and Mannesmann.
European tech stocks such as Infineon were also very strong.
The huge worldwide growth in demand for end-use products like cell phones and
personal digital assistants (PDAs) was a powerful catalyst during the financial
year. Atmel, a U.S.-based semiconductor maker that is the leading supplier of
flash memory, and Epcos, a major German component supplier, were among the
Fund's strongest performers.
Q: WERE THERE ANY DISAPPOINTMENTS?
A: The Fund's performance weakened during the second quarter of 2000, as
communications stocks such as Global TeleSystems (GTS) and Equant came under
pressure. Rising interest rates created uncertainty about the outlook for newer
entrants and companies whose business models would take some time to unfold.
This created a domino effect, sparking a corresponding slowdown in the initial
public offering (IPO) market and leaving somewhat in doubt the future of
companies that need more funding. Although both GTS and Equant should ultimately
capitalize on the demand for data communications, their near-term prospects are
clouded by the capital expenditures necessary to build their businesses as well
as by the less certain availability and cost of future financing. As a result,
we eliminated GTS and Equant from the portfolio to focus on investments that are
more attractive in the near term.
A few of the Fund's Japanese holdings were also weak over the past year. Our
shares in Daiwa Securities, for example, declined along with the Japanese market
in the first half of 2000. We believe, however, that this downturn will be
temporary. Daiwa is a leading player in Japan's securities markets and should be
a prime beneficiary as an equity culture takes root there. Over the next two
years, US$ 1 trillion in Japanese postal savings plans (low-yielding fixed-
income deposits) will mature. Given that
--------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
--------------------------------------------------------------------------------
John Boich, CFA ....................................... Senior Portfolio Manager
Oscar Castro, CFA ..................................... Senior Portfolio Manager
--------------------------------------------------------------------------------
FUND PERFORMANCE
--------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/00
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
MONTGOMERY
GLOBAL OPPORTUNITIES FUND
<S> <C>
Since inception (9/30/93) ............................................ 18.38%
One year ............................................................. 21.46%
Five years ........................................................... 22.22%
<CAPTION>
--------------------------------------------------------------------------------
MSCI WORLD INDEX
<S> <C>
Since 9/30/93 ........................................................ 15.44%
One year ............................................................. 12.53%
Five years ........................................................... 17.53%
</TABLE>
--------------------------------------------------------------------------------
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
<TABLE>
<CAPTION>
Global
Opportunities Index(1) Lipper (2)
---- -------- ----------
<S> <C> <C> <C>
Sep-93 10000 10000 10000
Oct-93 10692 10273.16 10414.67
Nov-93 10708 9689.62 10134.58
Dec-93 11850 10161.38 10926.79
Jan-94 12533 10829.21 11441.64
Feb-94 12350 10686.68 11195.61
Mar-94 11508 10223.56 10705.24
Apr-94 11650 10537.56 10886.6
May-94 11517 10561.93 10867.98
Jun-94 10767 10530.18 10647.5
Jul-94 11217 10727.96 10970.54
Aug-94 11858 11048.59 11368.42
Sep-94 11608 10755.85 11154.33
Oct-94 11883 11059.33 11336.46
Nov-94 11096 10577.23 10834.02
Dec-94 10836 10677.17 10735.18
Jan-95 10292 10514.34 10430.83
Feb-95 10421 10665.08 10615.97
Mar-95 10343 11176.54 10880.26
Apr-95 10663 11563.46 11232.46
May-95 10983 11659.76 11475.98
Jun-95 11459 11653.55 11664.75
Jul-95 12082 12234 11257.59
Aug-95 11866 11958.82 12080.26
Sep-95 12315 12304.54 12321.3
Oct-95 12030 12108.17 12077.59
Nov-95 12403 12525.95 12289.57
Dec-95 12707 12889.52 12520.65
Jan-96 12985 13120.03 13197.24
Feb-96 13289 13197.24 12984.7
Mar-96 13733 13414.11 13209.46
Apr-96 14550 13726.78 13614.5
May-96 14923 13735.9 13738.61
Jun-96 14741 13802.6 13725.6
Jul-96 13768 13312.04 13144.73
Aug-96 14280 13462.28 13459.75
Sep-96 14880 13986.58 13867.65
Oct-96 14822 14081.45 13898.98
Nov-96 15453 14867.78 14590.42
Dec-96 15271 14626.88 14614.76
Jan-97 15956 14800.42 14936.98
Feb-97 15700 14967.87 15014.54
Mar-97 15508 14669.01 14823.53
Apr-97 15563 15145.7 15047.95
May-97 16704 16077.79 15921.76
Jun-97 17498 16876.91 16621.2
Jul-97 18292 17651.45 17462.06
Aug-97 17480 16467.87 16440.17
Sep-97 18420 17359.75 17445.45
Oct-97 16750 16443.28 16321.21
Nov-97 16941 16731.46 16402.2
Dec-97 16959 16932.57 16607.58
Jan-98 17654 17401.64 16819.89
Feb-98 19648 18575.94 18019.92
Mar-98 21085 19357.49 18928.31
Apr-98 22070 19543.74 19263.6
May-98 21966 19295.89 19137.64
Jun-98 22244 19750.91 19227.15
Jul-98 22963 19716.29 19269.87
Aug-98 18477 17084.11 16350.26
Sep-98 17712 17383.32 16323.32
Oct-98 19428 18951.79 17414.88
Nov-98 20888 20075.87 18422.84
Dec-98 22514 21053.62 19258.84
Jan-99 24202 21512 19667
Feb-99 23438 20936 19091
Mar-99 23921 21805 19807
Apr-99 24270 22661 20779
May-99 24015 21830 20187
Jun-99 25732 22845 21296
Jul-99 25960 22774 21324
Aug-99 25681 22730 21279
Sep-99 25252 22507 21075
Oct-99 27009 23674 21979
Nov-99 30442 24337 23421
Dec-99 35471 26303 26039
Jan-00 34336 24794 24932
Feb-00 38594 24858 26316
Mar-00 38335 26573 27029
Apr-00 33532 25446 25559
May-00 30209 24799 24731
Jun-00 31257 25631 25784
</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 57 funds.
* Morningstar proprietary ratings on U.S.-domiciled funds reflect historical
risk-adjusted performance through 6/30/00. Ratings are subject to change
monthly, and past performance is no guarantee of future results.
Morningstar ratings on U.S.-domiciled funds are calculated from a funds'
three, five, 10-year average annual total 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 funds in a broad asset class receive five stars;
the next 22.5% receive four stars; the next 35% receive three stars, the
next 22.5% receive two stars, and the bottom 10% receive one star. Ratings
are for Class R shares only; other classes may vary.
23
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GLOBAL OPPORTUNITIES FUND
-----------------------------
PORTFOLIO HIGHLIGHTS
country's low interest rates, we expect a significant portion of that money to
flow into Japan's stock market. Daiwa also stands to benefit from an upsurge in
merger and acquisition activity in Japan, a trend that is gathering steam in
Europe as well.
Q: DID YOU MAKE ANY SIGNIFICANT CHANGES TO THE FUND'S POSITIONING?
A: Changes in positioning during the year resulted from our bottom-up stock
selection process rather than from macroeconomic themes, an approach that has
led us to focus a significant portion of the Fund in technology and
telecommunications. During the second quarter of 2000, we did reduce the Fund's
exposure to tech and telecom stocks that we thought were more vulnerable to a
near-term downturn. At the same time, however, we took advantage of the market
correction to add to the Fund's positions in companies that we believe have the
strongest business fundamentals.
Q: WHAT OPPORTUNITIES DO YOU SEE GOING FORWARD, AND HOW IS THE FUND POSITIONED
TO TAKE ADVANTAGE OF THEM?
A: We remain excited about opportunities emerging from the growth of wireless
communications. The next generation of wireless technology will allow users to
access the Internet via their cell phones. This is helping increase subscribers
worldwide and should translate into strong growth for a variety of companies in
the portfolio, including telecom-equipment manufacturers and component
suppliers.
As we enter the second half of 2000, it appears that the U.S. economy is finally
slowing, whereas Europe is gaining momentum. As this trend has enhanced the
growth prospects of European companies, our bottom-up process has led us to
favor European stocks over U.S. equities. On a sector basis, the Fund continues
to overweight tech and telecom stocks while underweighting consumer nondurables,
financial services and health-care issues.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
TOP TEN HOLDINGS
--------------------------------------------------------------------------------
(as a percentage of total net assets)
<S> <C>
Nokia Oyj ............................................................. 3.1%
Samsung Electronics Company ........................................... 3.0%
Elan Corporation PLC, ADR ............................................. 2.8%
Sprint Corporation .................................................... 2.4%
Alcatel S.A., ADR ..................................................... 2.3%
Total Fina S.A., Class B .............................................. 2.2%
Cisco Systems, Inc. ................................................... 2.2%
Pearson PLC ........................................................... 2.1%
Nortel Networks Corporation ........................................... 2.1%
Cable & Wireless Optus Ltd. ........................................... 2.1%
<CAPTION>
--------------------------------------------------------------------------------
TOP FIVE COUNTRIES
--------------------------------------------------------------------------------
(as a percentage of total net assets)
<S> <C>
United States ......................................................... 23.9%
United Kingdom ........................................................ 10.8%
France ................................................................ 10.2%
Germany ............................................................... 6.9%
Japan ................................................................. 6.1%
</TABLE>
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.
The recent growth rate in the stock market has helped produce short-term returns
that are not typical and may not continue in the future. Because of ongoing
market volatility, Fund performance may be subject to substantial short-term
changes.
24
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GLOBAL OPPORTUNITIES FUND
-----------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
COMMON STOCKS -- 91.4%
AUSTRALIA -- 2.1%
591,900 Cable & Wireless Optus Ltd.+ (Other Telephone/Communication) ................... $ 1,760,492
BERMUDA -- 2.9%
56,600 FLAG Telecom Holdings Ltd.+ (Other Telephone/Communication) .................... 845,462
62,515 Global Crossing Ltd.+ (Other Telephone/Communication) .......................... 1,646,880
---------------
2,492,342
CANADA -- 2.8%
6,400 Ballard Power Systems, Inc.+ (Electrical Products) ............................. 575,400
26,200 Nortel Networks Corporation (Telecommunications Equipment) ..................... 1,788,150
---------------
2,363,550
CHINA/HONG KONG -- 1.6%
74,000 Hutchison Whampoa Ltd. (Multi-Sector Companies) ................................ 930,280
68,000 Television Broadcasts Ltd. (Broadcasting) ...................................... 453,595
---------------
1,383,875
DENMARK -- 1.1%
25,590 Vestas Wind Systems A/S+ (Electrical Products) ................................. 938,800
FINLAND -- 5.0%
51,720 Nokia Oyj+ (Telecommunications Equipment) ...................................... 2,636,712
36,800 Sonera Oyj (Other Telephone/Communication) ..................................... 1,676,014
---------------
4,312,726
FRANCE -- 10.2%
30,242 Alcatel S.A., ADR (Telecommunications Equipment) ............................... 2,011,093
3,310 Canal Plus S.A.+ (Cable Television) ............................................ 555,645
3,220 Castorama Dubois S.A. (Building Material Chains) ............................... 795,448
19,500 Societe Television Francaise+ (Broadcasting) ................................... 1,357,732
15,300 STMicroelectronics N.V.+ (Semiconductors) ...................................... 963,146
12,210 Total Fina S.A., Class B (Oil Refining/Marketing) .............................. 1,870,327
13,778 Vivendi (Water Supply) ......................................................... 1,214,925
---------------
8,768,316
GERMANY --5.0%
18,200 Bayerische Hypo-und Vereinsbank AG (Non-U.S. Banks) ............................ 1,182,156
12,390 Consors Discount Broker AG+ (Insurance Brokers/Services) ....................... 1,104,942
12,410 EM.TV & Merchandising AG (Movies/Entertainment) ................................ 730,320
6,500 Epcos AG+ (Electronic Components) .............................................. 653,447
7,260 Infineon Technologies AG+ (Electronic Components) .............................. 574,740
---------------
4,245,605
IRELAND -- 2.8%
50,200 Elan Corporation PLC, ADR+ (Other Pharmaceuticals) ............................. 2,431,563
ITALY -- 0.6%
49,300 Telecom Italia Mobile SpA (Cellular Telephone) ................................. 501,257
JAPAN -- 6.1%
31,000 Daiwa Securities Group, Inc. (Investment Bankers/Brokers/Services) ............. 408,875
36,000 NEC Corporation (Diversified Electronic Products) .............................. 1,129,398
40 Nippon Telegraph & Telephone Corporation (Other Telephone/Communication) ....... 531,349
59 NTT DoCoMo, Inc. (Cellular Telephone) .......................................... 1,595,271
4,900 Rohm Company, Ltd. (Semiconductors) ............................................ 1,435,677
1,200 Softbank Corporation (Internet Services) ....................................... 162,796
---------------
5,263,366
KOREA -- 3.0%
7,870 Samsung Electronics Company (Diversified Electronic Products) .................. 2,604,453
NETHERLANDS -- 5.3%
29,500 ASM Lithography Holding N.V.+ (Electronic Production Equipment) ................ 1,266,730
9,500 Heineken N.V. (Alcoholic Beverages) ............................................ 577,644
24,630 KPN N.V.+ (Other Telephone/Communication) ...................................... 1,100,602
12,700 Versatel Telecom International N.V.+ (Other Telephone/Communication) ........... 532,982
20,900 VNU N.V. (Books/Magazines) ..................................................... 1,078,450
---------------
4,556,408
SPAIN -- 1.4%
55,800 Banco Bilbao Vizcaya Argentaria S.A. (Non-U.S. Banks) .......................... 832,923
12,400 Jazztel PLC+ (Other Telephone/Communication) ................................... 326,275
---------------
1,159,198
</TABLE>
25
The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GLOBAL OPPORTUNITIES FUND
-----------------------------
INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
COMMON STOCKS -- CONTINUED
SWEDEN -- 2.5%
64,500 Telefonaktiebolaget LM Ericsson AB+ (Telecommunications Equipment) ............. $ 1,274,949
91,600 Telia AB+ (Other Telephone/Communication) ...................................... 861,214
---------------
2,136,163
SWITZERLAND -- 4.3%
7,370 ABB Ltd. (Electrical Products) ................................................. 881,142
386 Julius Baer Holding AG (Non-U.S. Banks) ........................................ 1,524,524
1,556 Serono S.A.+ (Other Pharmaceuticals) ........................................... 1,295,793
---------------
3,701,459
UNITED KINGDOM -- 10.8%
8,400 Bookham Technology PLC+ (Semiconductors) ....................................... 483,362
47,400 Cable & Wireless PLC (Other Telephone/Communication) ........................... 802,345
6,700 COLT Telecom Group PLC, ADR+ (Other Telephone/Communication) ................... 904,291
195,200 Dixons Group PLC+ (Computer/Video Chains) ...................................... 778,060
124,600 Freeserve PLC+ (Internet Services) ............................................. 606,913
135,900 Next PLC (Clothing/Shoe/Accessory Stores) ...................................... 1,193,367
58,100 Pearson PLC (Books/Magazines) .................................................. 1,814,883
122,300 Scottish Power PLC (Non-U.S. Utilities) ........................................ 1,031,392
414,774 Vodafone AirTouch PLC (Cellular Telephone) ..................................... 1,687,782
---------------
9,302,395
UNITED STATES -- 23.9%
41,100 Atmel Corporation+ (Semiconductors) ............................................ 1,515,562
20,400 Carrier Access Corporation+ (Telecommunications Equipment) ..................... 1,079,288
29,400 Cisco Systems, Inc.+ (Computer Communications) ................................. 1,867,819
9,000 Cognex Corporation+ (Electronic Production Equipment) .......................... 465,469
8,600 Comverse Technology, Inc.+ (Telecommunications Equipment) ...................... 800,069
5,300 Corning, Inc. (Telecommunications Equipment) ................................... 1,430,338
19,100 Covad Communications Group, Inc.+ (Other Telephone/Communication) .............. 307,391
21,800 EMC Corporation+ (EDP Peripherals) ............................................. 1,677,237
13,000 Enron Corporation (Oil/Gas Transmission) ....................................... 838,500
6,100 Flextronics International Ltd.+ (Electronic Components) ........................ 419,184
51,800 Galileo International, Inc. (Diversified Commercial Services) .................. 1,081,325
51,900 McLeod USA, Inc., Class A+ (Other Telephone/Communication) ..................... 1,075,303
22,100 NTL, Inc.+ (Other Telephone/Communication) ..................................... 1,323,928
16,100 Oracle Corporation+ (Computer Software) ........................................ 1,352,903
35,100 Sprint Corporation (PCS Group)+ (Cellular Telephone) ........................... 2,088,450
18,900 Texas Instruments, Inc. (Semiconductors) ....................................... 1,298,194
16,700 Time Warner Telecom, Inc.+ (Other Telephone/Communication) ..................... 1,077,150
6,500 Voicestream Wireless Corporation+ (Cellular Telephone) ......................... 756,031
---------------
20,454,141
TOTAL COMMON STOCKS
(Cost $72,284,301) ............................................................................... 78,376,109
---------------
PREFERRED STOCKS -- 1.9%
GERMANY -- 1.9%
8,580 SAP AG (Computer Software) (Cost $1,736,444) ................................... 1,583,524
---------------
MONEY MARKET FUND -- 0.0%@
38 Chase Vista Federal Money Market Fund (Cost $38) ............................... 38
---------------
TOTAL SECURITIES
(Cost $74,020,783) ............................................................................... 79,959,671
---------------
PRINCIPAL AMOUNT
REPURCHASE AGREEMENT -- 7.5%
$6,446,000 Agreement with Greenwich Capital Markets, Tri-Party,
7.000% dated 06/30/00, to be repurchased at $6,449,709
on 07/03/00, collateralized by $6,574,943 market value
of U.S. government and mortgage-backed securities, having
various maturities and interest rates (Cost $6,446,000) ........................ 6,446,000
---------------
TOTAL INVESTMENTS -- 100.8%
(Cost $80,466,783*) .............................................................................. 86,405,671
OTHER ASSETS AND LIABILITIES -- (0.8)%
(Net) ............................................................................................ (683,123)
---------------
NET ASSETS -- 100.0% ............................................................................. $ 85,722,548
===============
</TABLE>
* Aggregate cost for federal tax purposes $80,466,783.
+ Non-income-producing security.
@ Amount represents less than 0.1%.
ABBREVIATIONS
ADR American Depositary Receipt
26
The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GLOBAL 20 FUND
-----------------------------
PORTFOLIO HIGHLIGHTS
INVESTMENT REVIEW
Q: HOW DID THE FUND PERFORM DURING THE 12 MONTHS ENDED JUNE 30, 2000?
A: The Fund outperformed its benchmark, the Morgan Stanley Capital International
(MSCI) World Index, returning 17.14%, versus 12.53% for the benchmark.
Q: WHAT MAIN FACTORS CONTRIBUTED TO THESE RESULTS?
A: The Fund's strong absolute returns in part reflected what we believe was
terrific performance for many global equity markets, which rallied over the
second half of 1999 and into the first half of 2000. Standouts among the Fund's
holdings included Nokia; Gucci; Sprint PCS; Atmel, a U.S.-based semiconductor
maker; and Canal Plus, the largest pay-television operator in Europe.
Longtime holding COLT Telecom was another strong performer, which we sold at an
opportune time. The U.K.-based company focuses on serving corporate customers
and telecom carriers through a network that provides data, Internet and voice
communication services across Europe. The company is also active in providing
Web hosting services. Fortunately, we took profits on it before it declined
along with other telecom and tech stocks during the second quarter.
The Fund's exposure to Brazil, India and a select few other emerging markets
also contributed to its outperformance. As in Europe and the United States,
technology, media and communications stocks were among the leading performers in
emerging markets. But the Fund also benefited from holdings in other sectors,
such as Petrobras, a Brazilian oil company; Yapi Ve Kredi Bankasi, a Turkish
bank; and Ranbaxy, an Indian pharmaceuticals company.
Q: WERE THERE ANY DISAPPOINTMENTS?
A: Two of the Fund's telecom stocks, Global TeleSystems (GTS) and Equant,
disappointed relative to our expectations during the second quarter. Although
both GTS and Equant should ultimately capitalize on the demand for data
communications, their near-term prospects are clouded by the capital
expenditures necessary to build their businesses, as well as by the more
uncertain availability and costs of future financing. As a result, we sold our
positions in Equant and GTS in favor of companies such as FLAG Telecom, which,
in our opinion, has excellent management, stronger near-term business
fundamentals and better funding.
Q: WHAT CHANGES HAVE YOU MADE AS A RESULT OF THE FUND'S RECENT TRANSITION FROM
THE SELECT 50 FORMAT TO THE MORE CONCENTRATED GLOBAL 20 STRATEGY?
A: As you may recall, in April 2000 we transitioned the Fund to a more
concentrated and flexible strategy. In conjunction with that transition, we
repositioned the portfolio, eliminating its equity income stocks and reducing
emerging markets exposure to approximately 5% of the portfolio. We believe that
positioning the Fund opportunistically in growth-oriented equities, rather than
maintaining strict allocations to various asset classes, will provide greater
benefit to shareholders over the long term. The elimination of equity income
stocks reflects this strategy, whereas the reallocation of
--------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
--------------------------------------------------------------------------------
John Boich, CFA ....................................... Senior Portfolio Manager
Oscar Castro, CFA ..................................... Senior Portfolio Manager
--------------------------------------------------------------------------------
FUND PERFORMANCE
--------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/00
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
MONTGOMERY GLOBAL 20 FUND
<S> <C>
Since inception (10/2/95) ............................................ 23.08%
One year ............................................................. 17.14%
Three years .......................................................... 15.48%
<CAPTION>
--------------------------------------------------------------------------------
MSCI WORLD INDEX
<S> <C>
Since 9/30/95 ........................................................ 17.15%
One year ............................................................. 12.53%
Three years .......................................................... 15.34%
</TABLE>
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost. Fund performance presented is for
Class R shares.
<TABLE>
<CAPTION>
MSCI
World
Select 50 Index(1) Lipper(2)
--------- -------- ---------
<S> <C> <C> <C>
Sep-95 10000 10000 10000
Oct-95 10417 9840.4 9804.26
Nov-95 11080 10179.93 9979.3
Dec-95 11574 10475.42 10176.36
Jan-96 11951 10662.75 10446.06
Feb-96 12160 10725.5 10563.78
Mar-96 12520 10901.75 10728.28
Apr-96 13281 11155.86 11101.71
May-96 14068 11163.27 11230.04
Jun-96 13775 11217.48 11215
Jul-96 12704 10818.79 10716.94
Aug-96 13298 10940.9 10993.91
Sep-96 13700 11367.01 11330.87
Oct-96 13629 11444.11 11337.68
Nov-96 14142 12083.16 11892.06
Dec-96 13942 11887.38 11904.28
Jan-97 14960 12028.41 12184.2
Feb-97 15125 12164.51 12218.01
Mar-97 14647 11921.62 12024.76
Apr-97 14969 12309.03 12182.09
May-97 16526 13066.54 12939.45
Jun-97 17404 13716 13478.45
Jul-97 18735 14345.47 14165.16
Aug-97 18587 13383.57 13416.36
Sep-97 19657 14108.4 14238.96
Oct-97 18396 13363.58 13314.7
Nov-97 18082 13597.79 13341.45
Dec-97 18023 13761.23 13505.32
Jan-98 17631 14142.45 13602.78
Feb-98 18942 15096.81 14560.76
Mar-98 20158 15731.98 15299.41
Apr-98 20789 15883.35 15523.08
May-98 20301 15681.93 15326.86
Jun-98 20091 16051.72 15396.9
Jul-98 19679 16023.58 15394.52
Aug-98 16138 13884.39 13037.89
Sep-98 16654 14127.56 13105.76
Oct-98 17669 15402.27 13965.75
Nov-98 18952 16315.82 14725.76
Dec-98 19717 17110.45 15439.87
Jan-99 19790 17482.62 15767
Feb-99 19099 17015.08 15305
Mar-99 19842 17721.04 15879
Apr-99 21295 18417.14 16659
May-99 21367 17741.67 16184
Jun-99 22882 18566.68 17073
Jul-99 22685 18508 17095
Aug-99 22222 18473 17059
Sep-99 21954 18291 16896
Oct-99 22573 19240 17620
Nov-99 24624 19778 18776
Dec-99 28648 21377 20875
Jan-00 27648 20150 19988
Feb-00 29597 20202 21097
Mar-00 30115 21596 21669
Apr-00 28329 20680 20490
May-00 26414 20154 19826
Jun-00 26803 20831 20671
</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 115 funds.
27
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GLOBAL 20 FUND
-----------------------------
PORTFOLIO HIGHLIGHTS
the Fund's emerging markets exposure was driven by our bottom-up investment
process and reflects our view that the Fund's developed market stocks are
comparatively more attractive. On a practical basis, eliminating the Fund's
equity income component and reducing its emerging markets weighting have helped
us reach our target portfolio of 20 to 30 stocks.
Q: WHAT OPPORTUNITIES DO YOU SEE EMERGING NOW, AND HOW IS THE FUND POSITIONED TO
TAKE ADVANTAGE OF THEM?
A: Based on our bottom-up research, we believe that U.S. and European companies
have the best growth prospects in the near term. The Fund's current positioning
reflects that view: Its largest country weighting is the United States (at about
26% of the portfolio), followed by the United Kingdom (at approximately 12%).
In our opinion some of the most exciting fundamental opportunities currently lie
in the wireless, semiconductor and telecom-equipment sectors. We also see
potential in companies in more-traditional sectors that are using new technology
to transform their businesses. Enron, for example, is known primarily as an
energy company but it is also making inroads in other areas, including broadband
communication. This diversified approach should help the Fund profit from the
long-term growth in telecommunications and technology while benefiting from
innovation taking place in other sectors.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
TOP TEN HOLDINGS
--------------------------------------------------------------------------------
(as a percentage of total net assets)
<S> <C>
Sprint Corporation (PCS Group) ........................................ 6.3%
Nokia Oyj ............................................................. 5.0%
Elan Corporation PLC, ADR ............................................. 4.8%
Samsung Electronics ................................................... 4.5%
Alcatel S.A., Sponsored ADR ........................................... 4.2%
Cisco Systems, Inc. ................................................... 4.1%
FLAG Telecom Holdings Ltd. ............................................ 3.9%
Infineon Technologies AG .............................................. 3.8%
Versatel Telecom International N.V. ................................... 3.7%
Pearson PLC ........................................................... 3.6%
<CAPTION>
--------------------------------------------------------------------------------
TOP FIVE INDUSTRIES
--------------------------------------------------------------------------------
(as a percentage of total net assets)
<S> <C>
Other Telephone/Communication ......................................... 14.5%
Telecommunications Equipment .......................................... 12.6%
Cellular Telephone .................................................... 9.7%
Other Pharmaceuticals ................................................. 7.7%
Semiconductors ........................................................ 6.1%
</TABLE>
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
Because the Global 20 Fund concentrates its assets in relatively few holdings
(generally 20 to 30), shareholders may be exposed to greater risks than with
more-diversified funds.
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.
Please be aware that foreign investing involves certain risks, including
currency fluctuations and economic and political instability.
28
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GLOBAL 20 FUND
-----------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
COMMON STOCKS -- 95.7%
ALCOHOLIC BEVERAGES -- 3.2%
412,300 Diageo PLC (United Kingdom) .................................................... $ 3,704,694
BOOKS/MAGAZINES -- 3.6%
134,600 Pearson PLC (United Kingdom) ................................................... 4,204,532
BROADCASTING -- 0.1%
6,800 Sri Adhikari Brothers Television Network Ltd. (India) .......................... 87,669
CELLULAR TELEPHONE -- 9.7%
122,000 Sprint Corporation (PCS Group)+ (United States) ................................ 7,259,000
982,197 Vodafone AirTouch PLC (United Kingdom) ......................................... 3,996,717
---------------
11,255,717
COMPUTER COMMUNICATIONS -- 4.1%
75,000 Cisco Systems, Inc.+ (United States) ........................................... 4,764,844
COMPUTER SOFTWARE -- 2.7%
37,400 Oracle Corporation+ (United States) ............................................ 3,142,769
DIVERSIFIED COMMERCIAL SERVICES -- 3.1%
171,000 Galileo International, Inc. (United States) .................................... 3,569,625
DIVERSIFIED ELECTRONIC PRODUCTS -- 4.5%
15,640 Samsung Electronics (Korea) .................................................... 5,175,812
ELECTRICAL PRODUCTS -- 3.0%
28,874 ABB Ltd. (Switzerland) ......................................................... 3,452,115
ELECTRONIC COMPONENTS -- 3.8%
56,200 Infineon Technologies AG+ (Germany) ............................................ 4,449,086
ENGINEERING AND CONSTRUCTION -- 1.5%
467,800 Invensys PLC (United Kingdom) .................................................. 1,751,411
INVESTMENT BANKERS/BROKERS/SERVICES -- 2.0%
26,070 Consors Discount Broker AG+ (Germany) .......................................... 2,324,926
MULTI-LINE INSURANCE -- 3.6%
12,980 Muenchener Rueckversicherungs-Gesellschaft AG (Germany) ........................ 4,116,449
NON-U.S. BANKS -- 2.2%
650 Julius Baer Holding Ltd.+ (Switzerland) ........................................ 2,567,203
OIL/GAS TRANSMISSION -- 2.8%
49,400 Enron Corporation (United States) .............................................. 3,186,300
OTHER PHARMACEUTICALS -- 7.7%
115,000 Elan Corporation PLC, ADR+ (Ireland) ........................................... 5,570,312
3,980 Serono S.A.+ (Switzerland) ..................................................... 3,314,433
---------------
8,884,745
OTHER TELECOMMUNICATIONS -- 2.5%
49,000 NTL, Inc.+ (United States) ..................................................... 2,935,406
OTHER TELEPHONE/COMMUNICATION -- 14.5%
1,309,700 Cable & Wireless Optus Ltd.+ (Australia) ....................................... 3,895,449
302,800 FLAG Telecom Holdings Ltd.+ (Bermuda) .......................................... 4,523,075
89,800 Sonera Oyj (Finland) ........................................................... 4,089,838
102,600 Versatel Telecom International N.V.+ (Netherlands) ............................. 4,305,826
---------------
16,814,188
SEMICONDUCTORS -- 6.1%
106,000 Atmel Corporation+ (United States) ............................................. 3,908,750
10,800 Rohm Company, Ltd. (Japan) ..................................................... 3,164,351
---------------
7,073,101
TELECOMMUNICATIONS EQUIPMENT -- 12.6%
73,200 Alcatel S.A., Sponsored ADR (France) ........................................... 4,867,800
112,800 Nokia Oyj+ (Finland) ........................................................... 5,750,601
58,800 Nortel Networks Corporation (Canada) ........................................... 4,013,100
---------------
14,631,501
TEXTILES -- 0.0%@
22 Reliance Industries Ltd. (India) ............................................... 168
WATER SUPPLY -- 2.4%
31,700 Vivendi S.A. (France) .......................................................... 2,795,262
TOTAL COMMON STOCKS
(Cost $101,175,697) .............................................................................. 110,887,523
---------------
MONEY MARKET FUND -- 0.0%@
483 Chase Vista Federal Money Market Fund (Cost $483) .............................. 483
---------------
TOTAL SECURITIES
(Cost $101,176,180) .............................................................................. 110,888,006
---------------
</TABLE>
The accompanying notes are an integral part of these financial statements. 29
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GLOBAL 20 FUND
-----------------------------
INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
REPURCHASE AGREEMENT -- 6.1%
$7,061,000 Agreement with Greenwich Capital Markets, Tri-Party,
7.000% dated 06/30/00, to be repurchased at $7,065,063
on 07/03/00, collateralized by $7,202,244 market value
of U.S. government and mortgage-backed securities, having
various maturities and interest rates (Cost $7,061,000) ........................ $ 7,061,000
---------------
TOTAL INVESTMENTS -- 101.8%
(Cost $108,237,180*) ............................................................................. $ 117,949,006
OTHER ASSETS AND LIABILITIES -- (1.8)%
(Net) ............................................................................................ (2,090,038)
---------------
NET ASSETS -- 100.0% ............................................................................. $ 115,858,968
===============
</TABLE>
* Aggregate cost for federal tax purposes $108,237,180.
+ Non-income-producing security.
@ Amount represents less than 0.1%.
ABBREVIATIONS
ADR American Depositary Receipt
30 The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GLOBAL LONG-SHORT FUND
-----------------------------
PORTFOLIO HIGHLIGHTS
INVESTMENT REVIEW
Q: HOW DID THE FUND PERFORM DURING THE 12 MONTHS ENDED JUNE 30, 2000?
A: We are pleased to report that the Fund significantly outperformed its
benchmark, the unmanaged Morgan Stanley Capital International (MSCI) All-Country
World Free Index. The Fund's total return for the fiscal year was 67.54%, versus
12.37% for the benchmark.
Q: WHAT FACTORS CONTRIBUTED TO THESE RESULTS?
A: The Fund's thematic approach to investing helped it outperform the index by a
wide margin over most of the reporting period. Its gains from July 1999 through
mid-March 2000 were strong enough to offset subsequent declines in its holdings
during the second quarter of 2000.
This outperformance was driven largely by the Fund's long positions in the
technology and communications sectors. In technology we continue to see a great
deal of potential in companies that play key roles in the build-out of the
Internet. Among the Fund's best performers were Internet infrastructure
companies that provide products that speed access, ensure security or enhance
functionality. The Fund also benefited from the continuing growth of wireless
communications, through its long positions in wireless service providers and in
telecom-equipment suppliers.
Q: WHICH POSITIONS, LONG AND SHORT, CONTRIBUTED MOST TO PERFORMANCE?
A: JDS Uniphase was a noteworthy long position. The company is on the cutting
edge of providing fiber-optic switching technology, an integral part of
increasing speed and bandwidth for data transmission over the Internet. Another
standout was Check Point Software Technologies, an Israel-based company that is
the market leader in Internet security software. Check Point allows companies to
build strong firewalls, an increasingly valuable safeguard given the more
frequent and damaging attacks by hackers over the past year. Other contributors
to the Fund's outperformance included Alcatel, a French telecom-equipment
provider; Nokia, the world's leading wireless handset provider; Canal Plus,
Europe's largest pay-TV company; and Weatherford, a U.S.-based oil services
company.
We also made use of our short positions throughout the period, both
opportunistically and as a hedging strategy against possible volatility in our
long positions. The Fund benefited from several short positions over the past
year, including those in a group of Internet companies that we felt had weaker
business models, had questionable paths to profitability and carried excessive
valuations.
Q: HOW IS THE FUND POSITIONED NOW?
A: We believe that higher interest rates will slow U.S. economic growth during
the second half of 2000. Although that trend and uncertainty about Federal
Reserve interest rate policy will likely fuel continuing market volatility, we
remain optimistic about the long-term prospects for the technology stocks that
possess the strongest fundamental characteristics. As a result, the portfolio's
largest sector exposure is still tech-
--------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
--------------------------------------------------------------------------------
John Boich, CFA .......................................... Sr. Portfolio Manager
Oscar Castro, CFA ........................................ Sr. Portfolio Manager
Josephine Jimenez, CFA ................................... Sr. Portfolio Manager
Nancy Kukacka ................................................ Portfolio Manager
Chetan Joglekar .............................................. Portfolio Manager
S. Bob Rezaee ................................................ Portfolio Manager
Daniel Kern, CFA ............................................. Portfolio Manager
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
FUND PERFORMANCE
--------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/00
--------------------------------------------------------------------------------
MONTGOMERY GLOBAL LONG-SHORT FUND
<S> <C>
Since inception (12/31/97) ........................................... 66.32%
One year ............................................................. 67.54%
<CAPTION>
--------------------------------------------------------------------------------
MSCI ALL-COUNTRY WORLD FREE INDEX
<S> <C>
Since 12/31/97 ....................................................... 17.77%
One year ............................................................. 12.37%
</TABLE>
<TABLE>
<CAPTION>
Global
Long-Short MSCI Index(Lipper)
---------- -------- -------------
<S> <C> <C> <C>
Dec-97 9450 10000 10000
Jan-98 9979 10220 10096
Feb-98 11198 10919 10811
Mar-98 12020 11385 11349
Apr-98 12833 11492 11507
May-98 12871 11274 11361
Jun-98 13249 11477 11398
Jul-98 13514 11481 11361
Aug-98 12767 9872 9658
Sep-98 12720 10069 9741
Oct-98 13154 10988 10400
Nov-98 13665 11655 10977
Dec-98 14495 12197 11485
Jan-99 15679 12446 11727
Feb-99 15060 12133 11383
Mar-99 16812 12679 11811
Apr-99 18365 13227 12394
May-99 18242 12759 12040
Jun-99 20110 13394 12704
Jul-99 20396 13340 12721
Aug-99 21079 13324 12694
Sep-99 21252 13180 12572
Oct-99 23222 13848 13111
Nov-99 26712 14278 13971
Dec-99 34071 15467 15533
Jan-00 34190 14633 14873
Feb-00 39148 14683 15698
Mar-00 37946 15648 16124
Apr-00 33385 14946 15247
May-00 30891 14558 14753
Jun-00 33637 15051 15381
</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 201 funds.
(3) The chart above shows the performance of the Montgomery Global Long-Short
Fund's Class B shares since the Fund's inception versus the index. This
represents a cumulative return of 256.52%. 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 $34,783
on June 30, 2000. 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 $32,515 on June 30, 2000.
31
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GLOBAL LONG-SHORT FUND
-----------------------------
PORTFOLIO HIGHLIGHTS
nology, at approximately 48% of the Fund. We continue to believe that companies
involved in building and maintaining the Internet's infrastructure represent
some of the best opportunities in the world today. In other sectors, we are
least enthusiastic about consumer-oriented stocks, as slowing economic growth
and a difficult competitive environment will present a serious headwind for many
companies. We have sold short several consumer-oriented stocks that we feel are
ill equipped for the current competitive and economic environment.
The Fund's largest country weighting is the United States, at approximately 60%
net long. Stocks in developing markets represent nearly 20% of the Fund, with
South Korea the largest country weighting among the developing world, at nearly
4%. Overall, the Fund is now net 67% long and approximately 36% short, compared
with net 81% long and 19% short at the end of 1999.
As shareholders may know, we also expanded the Fund's management team over the
past year. We believe that these additions have enhanced our global reach and
ability to identify the most compelling long and short opportunities around the
world.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
TOP TEN HOLDINGS
--------------------------------------------------------------------------------
(long positions as a percentage
of total net assets)
<S> <C>
Check Point Software Technologies Ltd. ................................ 2.2%
Galeries Lafayette .................................................... 2.2%
Extreme Networks, Inc. ................................................ 2.1%
Micron Technology, Inc. ............................................... 2.0%
Veritas Software Corporation .......................................... 1.7%
Alcatel S.A., ADR ..................................................... 1.7%
JDS Uniphase Corporation .............................................. 1.6%
Tut Systems, Inc. ..................................................... 1.6%
Forest Laboratories, Inc. ............................................. 1.5%
Atmel Corporation ..................................................... 1.5%
<CAPTION>
--------------------------------------------------------------------------------
TOP FIVE COUNTRIES
--------------------------------------------------------------------------------
(long positions as a percentage
of total net assets)
<S> <C>
United States ......................................................... 59.6%
United Kingdom ........................................................ 6.0%
France ................................................................ 5.3%
Korea ................................................................. 3.9%
Israel ................................................................ 2.7%
</TABLE>
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost. Fund performance presented is for
Class R shares.
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 than
investments in other mutual funds. This Fund may not be appropriate for
conservative investors.
32
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GLOBAL LONG-SHORT FUND
-----------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
COMMON STOCKS -- 99.8%
ARGENTINA -- 0.1%
12,400 Banco de Galicia y Buenos Aires S.A. (Non-U.S. Banks) .......................... $ 184,063
4,500 PC Holdings S.A. (Oil & Gas Production) ........................................ 82,406
---------------
266,469
AUSTRALIA -- 0.1%
204,700 Davnet Limited+ (Other Telephone/Communication) ................................ 154,044
151,000 Qantas Airways Ltd. (Airlines) ................................................. 304,825
---------------
458,869
BRAZIL -- 1.6%
125,500 Aracruz Celulose S.A., ADR (Paper) ............................................. 2,423,719
33,000,000 Companhia Siderurgica Nacional (Metal Fabrication) ............................. 1,035,287
66,400 Embratel Participacoes S.A., ADR (Other Telephone/Communication) ............... 1,568,700
12,800 Pao de Acucar ADR (Food Chains) ................................................ 411,200
70,900 Tele Centro Oeste Celular Participacoes S.A., ADR (Other Telephone/Communication) 850,800
---------------
6,289,706
CANADA -- 1.3%
76,800 Nortel Networks Corporation# (Telecommunications Equipment) .................... 5,241,600
CHINA/HONG KONG -- 2.4%
212,000 Bank of East Asia Ltd. (Non-U.S. Banks) ........................................ 494,952
138,000 Cheung Kong (Holdings) Ltd. (Real Estate) ...................................... 1,526,843
244,000 China Resources Enterprise Ltd. (Real Estate) .................................. 292,656
750,000 China Shipping Development Company, Ltd.+ (Marine Transportation) .............. 136,617
600,000 China Unicom Ltd.+ (Other Telephone/Communication) ............................. 1,273,812
150,000 Citic Pacific Ltd. (Wholesale Distributors) .................................... 785,068
148,000 Computer & Technologies Holdings Ltd. (EDP Services) ........................... 150,933
53,200 HSBC Holdings PLC (Non-U.S. Banks) ............................................. 607,376
245,600 Hutchison Whampoa Ltd. (Multi-Sector Companies) ................................ 3,087,525
170,000 Pacific Century CyberWorks Limited (Other Telephone/Communication) ............. 335,835
154,000 Television Broadcasts Ltd. (Broadcasting) ...................................... 1,027,259
---------------
9,718,876
CZECH REPUBLIC -- 0.6%
124,200 Komercni Banka A.S.+ (Non-U.S. Banks) .......................................... 2,514,413
FINLAND -- 1.3%
81,600 Nokia Oyj+ (Telecommunications Equipment) ...................................... 4,160,009
9,200 Nokia Oyj, ADR (Telecommunications Equipment) .................................. 459,425
10,000 Sonera Oyj (Other Telephone/Communication) ..................................... 455,439
4,600 Sonera Oyj, ADR+ (Other Telephone/Communication) ............................... 211,600
---------------
5,286,473
FRANCE -- 5.3%
15,500 Alcatel S.A.+ (Telecommunications Equipment) ................................... 1,015,652
99,700 Alcatel S.A., ADR+ (Telecommunications Equipment) .............................. 6,630,050
24,210 Altran Technologies S.A. (Engineering and Construction) ........................ 4,736,057
43,400 Galeries Lafayette+ (Department Stores) ........................................ 8,796,402
---------------
21,178,161
GERMANY -- 1.2%
63,770 EM.TV & Merchandising AG (Movies/Television) ................................... 3,752,822
1,400 Epcos AG+ (Electronic Components) .............................................. 140,742
32,000 Kamps AG (Restaurants) ......................................................... 1,022,472
---------------
4,916,036
GREECE -- 0.2%
22,830 Alpha Credit Bank (Non-U.S. Banks) ............................................. 899,883
HUNGARY -- 0.1%
32,500 Magyar Tavkozlesi Rt. (Other Telephone/Communication) .......................... 225,901
INDIA -- 1.8%
71,800 Atcom Technologies Ltd. (Precision Instruments) ................................ 211,541
9,100 Global Tele-Systems Limited (Other Telephone/Communication) .................... 272,817
7,765 Hindustan Lever Ltd. (Package Goods/Cosmetics) ................................. 493,264
6,300 Infosys Technologies Ltd. (Computer Software) .................................. 1,173,768
10,000 Nirma Ltd. (Package Goods/Cosmetics) ........................................... 197,536
16,900 Rediff.com India, Ltd., ADR+ (Internet Services) ............................... 237,656
66,000 Reliance Industries, Ltd. (Textiles) ........................................... 503,906
10,895 Satyam Computer Services Ltd.+ (Computer Software) ............................. 727,708
13,100 Satyam Infoway Ltd., ADR+ (Internet Services) .................................. 289,837
30,000 Silverline Technologies Ltd. (EDP Services) .................................... 648,750
</TABLE>
The accompanying notes are an integral part of these financial statements. 33
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GLOBAL LONG-SHORT FUND
-----------------------------
INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
COMMON STOCKS -- CONTINUED
INDIA -- CONTINUED
73,100 Sri Adhikari Brothers Telephone Network Ltd. (Broadcasting) .................... $ 942,442
94,400 State Bank of India (Non-U.S. Banks) ........................................... 932,200
700 Videsh Sanchar Nigam Ltd., GDR++ (Other Telephone/Communication) ............... 10,938
35,500 Videsh Sanchar Nigam Ltd., Sponsored GDR (Other Telephone/Communication) ....... 554,687
---------------
7,197,050
IRELAND -- 0.1%
9,000 Elan Corporation PLC, ADR+ (Other Pharmaceuticals) ............................. 435,938
ISRAEL -- 2.7%
528,000 Bank Leumi Le-Israel (Non-U.S. Banks) .......................................... 1,090,139
42,300 Check Point Software Technologies Ltd.+# (Computer Software) ................... 8,982,141
10,800 IDB Holding Corporation Ltd. (Miscellaneous) ................................... 414,754
7,000 NICE Systems Ltd.+ (Telecommunications Equipment) .............................. 540,969
---------------
11,028,003
ITALY -- 0.7%
610,000 Credito Italiano SpA (Major Banks) ............................................. 2,914,902
JAPAN -- 2.0%
85,000 Canon, Inc. (Consumer Specialties) ............................................. 4,228,178
600 Hikari Tsushin, Inc. (Other Telephone/Communication) ........................... 24,589
90,000 ITOCHU Corporation (Wholesale Distributors) .................................... 453,625
26,000 NEC Corporation (Diversified Electronic Products) .............................. 815,677
38,000 Oki Electric Industry Company, Ltd.+ (Diversified Electronic Products) ......... 295,351
16,000 Pioneer Corporation (Consumer Electronics/Appliances) .......................... 622,544
22,000 Sharp Corporation (Consumer Electronics/Appliances) ............................ 388,619
5,700 Softbank Corporation (Internet Services) ....................................... 773,282
30,000 The Sanwa Bank, Ltd. (Non-U.S. Banks) .......................................... 239,107
---------------
7,840,972
KOREA -- 3.9%
3,760 Cheil Communications, Inc. (Advertising) ....................................... 490,644
96,460 Hanwha Chemical Corporation (Major Chemicals) .................................. 343,442
29,600 Hyundai Electronics Industries Company, Ltd. (Semiconductors) .................. 584,023
29,950 Korea Electric Power Corporation (Non-U.S. Utilities) .......................... 929,369
10,958 Korea Next Education Services, Inc.+ (Internet Services) ....................... 68,596
9,670 Korea Telecom Corporation (Other Telephone/Communication) ...................... 851,635
58,480 Korean Air (Airlines) .......................................................... 485,137
23,100 Pohang Iron & Steel Company ADR (Steel/Iron Ore) ............................... 554,400
32,000 Samsung Corporation (Semiconductors) ........................................... 275,796
11,937 Samsung Electronics Company (Diversified Electronic Products) .................. 3,950,363
25,599 Samsung Electronics Company, GDR+ (Diversified Electronic Products) ............ 5,017,404
9,100 Samsung Electronics Company, Sponsored GDR,+,++ (Diversified Electronic Products) . 1,783,600
1,230 SK Telecom Company, Ltd.+ (Other Telephone/Communication) ...................... 402,637
---------------
15,737,046
MALAYSIA -- 0.7%
171,000 AMMB Holdings Berhad (Investment Bankers/Brokers/Services) ..................... 571,500
175,000 Digi.Com Berhad+ (Other Telephone/Communication) ............................... 320,066
400,000 Tenaga Nasional Berhad (Non-U.S. Utilities) .................................... 1,305,263
100,000 Unisem (M) Berhad (Electronic Components) ...................................... 710,526
---------------
2,907,355
MEXICO -- 1.5%
124,000 Apasco S.A. (Building Materials) ............................................... 711,883
16,200 Fomento Economico Mexicano S.A. de C.V., Sponsored ADR+ (Soft Drinks) .......... 697,613
302,000 Grupo Financiero Banamex Accival S.A. de C.V.+ (Non-U.S. Banks) ................ 1,270,416
178,000 Grupo Mexico S.A., Series B+ (Other Metals/Minerals) ........................... 501,001
28,400 Telefonos de Mexico S.A., ADR (Other Telephone/Communication) .................. 1,622,350
439,000 Wal-Mart de Mexico S.A. de C.V.+ (Other Specialty Stores) ...................... 1,030,422
---------------
5,833,685
NETHERLANDS -- 2.1%
7,300 ASM Lithography Holding N.V.+ (Electronic Production Equipment) ................ 321,884
325,000 BE Semiconductor Industries N.V.+ (Electronic Production Equipment) ............ 5,068,244
80,800 KPNQwest N.V.+ (Telecommunications Equipment) .................................. 3,175,156
1 Vedior N.V. (Diversified Commercial Services) .................................. 12
---------------
8,565,296
RUSSIA -- 0.2%
6,500,000 RAO Unified Energy Systems+ (Non-U.S. Utilities) ............................... 747,500
</TABLE>
34 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
SINGAPORE -- 0.4%
137,000 City Developments Ltd. (Real Estate) ........................................... $ 531,346
30,000 NatSteel Electronics Ltd. (Diversified Electronic Products) .................... 92,040
60,000 Overseas-Chinese Banking Corporation, Ltd. (Non-U.S. Banks) .................... 413,314
299,000 Singapore Telecommunications Ltd. (Other Telephone/Communication) .............. 437,899
32,000 Venture Manufacturing (Singapore) Ltd. (Electronic Components) ................. 326,020
---------------
1,800,619
SOUTH AFRICA -- 1.1%
360,100 African Bank Investments Ltd.+ (Diversified Financial Services) ................ 470,920
36,500 Anglo American Platinum Corporation, Ltd. (Precious Metals) .................... 1,052,709
75,850 Impala Platinum Holdings Ltd. (Precious Metals) ................................ 2,823,523
---------------
4,347,152
TAIWAN -- 2.3%
236,000 Far East Textiles Ltd. (Textiles) .............................................. 293,416
120,400 Hon Hai Precision Industry Company, Ltd.+ (Electronic Data Processing) ......... 1,089,380
393,800 Macronix International Company, Ltd.+ (Semiconductors) ......................... 986,903
622,000 Polaris Securities Company Ltd.+ (Investment Bankers/Brokers/Services) ......... 568,859
60,000 Realtek Semiconductor Corporation+ (Electronic Components) ..................... 501,872
448,000 Taiwan Semiconductor Manufacturing Company, Ltd.+
(Electronic Production Equipment) .............................................. 2,128,820
457,200 United Microelectronics Corporation, Ltd.+ (Semiconductors) .................... 1,272,273
51,000 Via Technologies, Inc.+ (Electronic Components) ................................ 788,446
348,300 Winbond Electronics Corporation+ (Semiconductors) .............................. 1,008,908
342,000 Yageo Corporation (Electronic Components) ...................................... 528,723
---------------
9,167,600
THAILAND -- 0.3%
285,300 PTT Exploration and Production Public Company, Ltd. (Oil & Gas Production) ..... 1,383,714
TURKEY -- 0.1%
20,250,000 Yapi Ve Kredi Bankasi A.S.+ (Non-U.S. Banks) ................................... 225,201
UNITED KINGDOM -- 6.0%
211,000 Capita Group PLC (Diversified Commercial Services) ............................. 5,183,475
32,000 COLT Telecom Group PLC+ (Other Telephone/Communication) ........................ 1,072,201
14,300 COLT Telecom Group PLC, ADR+ (Other Telephone/Communication) ................... 1,930,053
16,000 Freeserve PLC+ (Internet Services) ............................................. 77,934
164,750 Marconi PLC (Multi-Sector Companies) ........................................... 2,139,530
142,800 Pearson PLC (Books/Magazines) .................................................. 4,460,678
1,351,468 Vodafone AirTouch PLC (Cellular Telephone) ..................................... 5,499,340
90,000 Vodafone AirTouch PLC, ADR (Cellular Telephone) ................................ 3,729,375
---------------
24,092,586
UNITED STATES -- 59.6%
197,500 ACTV, Inc.+ (Cable Television) ................................................. 2,956,328
1,800 Agile Software Corporation+ (Internet Services) ................................ 127,406
2,700 Agilent Technologies, Inc.+ (Precision Instruments) ............................ 199,125
99,000 ALZA Corporation# (Medical Specialties) ........................................ 5,853,375
88,264 America Online, Inc.+ (Internet Services) ...................................... 4,655,926
4,500 Applied Materials, Inc.+ (Electronic Production Equipment) ..................... 407,953
132,500 Aspect Communications Corporation+ (Precision Instruments) ..................... 5,204,766
5,300 AT&T Corporation (Major U.S. Telecommunications) ............................... 167,613
182,800 AT&T Corporation Liberty Media Group, Class B+# (Cable Television) ............. 4,432,900
158,800 Atmel Corporation+# (Semiconductors) ........................................... 5,855,750
5,300 AVX Corporation (Electronic Components) ........................................ 121,569
65,000 BEA Systems, Inc.+# (EDP Services) ............................................. 3,211,406
14,300 Carrier Access Corporation+ (Telecommunications Equipment) ..................... 756,559
1,000 CIENA Corporation+ (Telecommunications Equipment) .............................. 166,656
74,800 Cisco Systems, Inc.+# (Computer Communications) ................................ 4,752,137
74,500 Citigroup, Inc.# (Diversified Financial Services) .............................. 4,488,625
1,700 Cognex Corporation+ (Electronic Production Equipment) .......................... 87,922
61,200 Comverse Technology, Inc.+# (Telecommunications Equipment) ..................... 5,693,512
4,500 Convergys Corporation+ (Diversified Commercial Services) ....................... 233,438
40,000 Cooper Cameron Corporation+# (Oilfield Services/Equipment) ..................... 2,640,000
</TABLE>
The accompanying notes are an integral part of these financial statements. 35
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GLOBAL LONG-SHORT FUND
-----------------------------
INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
COMMON STOCKS -- CONTINUED
UNITED STATES -- CONTINUED
105,200 Covad Communications Group, Inc.+ (Other Telephone/Communication) .............. $ 1,693,063
6,400 Cymer, Inc.+ (Electronic Production Equipment) ................................. 304,800
79,000 Digital Island, Inc.+ (Internet Services) ...................................... 3,838,906
106,000 Dril-Quip, Inc.+# (Oilfield Services/Equipment) ................................ 4,955,500
2,200 DuPont Photomasks, Inc.+ (Electronic Production Equipment) ..................... 150,150
5,600 EMC Corporation+ (EDP Peripherals) ............................................. 430,850
79,700 Extreme Networks, Inc.+# (Computer Communications) ............................. 8,380,953
5,200 Flextronics International Ltd.+ (Electronic Components) ........................ 357,338
60,000 Forest Laboratories, Inc.+# (Other Pharmaceuticals) ............................ 6,060,000
26,000 Galileo International, Inc. (Diversified Commercial Services) .................. 542,750
63,900 Guidant Corporation+ (Medical Specialties) ..................................... 3,163,050
121,000 Halliburton Company (Oilfield Services/Equipment) .............................. 5,709,687
32,200 I2 Technologies, Inc.+ (Computer Software) ..................................... 3,357,856
85,000 Internap Network Services Corporation+# (Internet Services) .................... 3,506,250
52,600 JDS Uniphase Corporation+# (Telecommunications Equipment) ...................... 6,303,781
40,200 Juniper Networks, Inc.+# (Telecommunications Equipment) ........................ 5,850,356
5,200 Lam Research Corporation+ (Electronic Production Equipment) .................... 195,163
3,100 Lands' End, Inc.+ (Catalog/Specialty Distribution) ............................. 103,463
6,500 Legato Systems, Inc.+ (Computer Software) ...................................... 98,109
56,000 Lowe's Companies, Inc. (Building Material Chains) .............................. 2,299,500
100,000 LSI Logic Corporation+# (Semiconductors) ....................................... 5,412,500
123,300 LTX Corporation+ (Electronic Production Equipment) ............................. 4,311,647
10,000 Lucent Technologies, Inc. (Telecommunications Equipment) ....................... 592,500
61,000 Maxim Intergrated Products, Inc.+# (Semiconductors) ............................ 4,142,281
136,500 Men's Warehouse, Inc. (The)+ (Clothing/Shoe/Accessory Stores) .................. 3,041,391
89,000 Micron Technology, Inc.+# (Semiconductors) ..................................... 7,837,562
4,800 Microsoft Corporation+ (Computer Software) ..................................... 383,850
10,300 NASDAQ-100 Shares+ (Mutual Funds) .............................................. 959,831
53,300 Netopia, Inc.+# (Internet Services) ............................................ 2,143,659
37,300 Next Level Communications, Inc.+# (Telecommunications Equipment) ............... 3,199,641
45,000 Nextel Communications, Inc.+ (Cellular Telephone) .............................. 2,752,031
76,900 Nike, Inc. (Shoe Manufacturing) ................................................ 3,061,581
40,625 NTL, Inc.+# (Other Telephone/Communication) .................................... 2,433,691
48,200 Oracle Corporation+ (Computer Software) ........................................ 4,050,306
29,800 Palm, Inc.+ (Electronic Data Processing) ....................................... 995,506
12,300 PeopleSoft, Inc.+ (Computer Software) .......................................... 205,641
101,475 Pfizer, Inc.# (Major Pharmaceuticals) .......................................... 4,870,800
192,800 Pinnacle Systems, Inc.+# (EDP Peripherals) ..................................... 4,368,125
104,900 Quest Software, Inc+# (Internet Services) ...................................... 5,821,950
3,800 Rational Software Corporation+ (Computer Software) ............................. 353,044
68,200 Realnetworks, Inc.+# (Internet Services) ....................................... 3,446,231
126,100 S1 Corporation+ (Savings and Loan Associations) ................................ 2,943,647
21,200 SAGA SYSTEMS, Inc.+ (Computer Software) ........................................ 263,675
8,200 SBC Communications, Inc. (Major U.S. Telecommunications) ....................... 354,650
66,500 Semtech Corporation+ (Semiconductors) .......................................... 5,037,375
5,400 Solectron Corporation+ (Electronic Components) ................................. 226,125
1,300 Sonus Networks, Inc.+ (Telecommunication Equipment) ............................ 205,238
63,800 Sprint Corporation (PCS Group)+ (Cellular Telephone) ........................... 3,796,100
6,400 Starbucks Corporation+ (Restaurants) ........................................... 244,600
900 StorageNetworks Inc.+ (EDP Services) ........................................... 81,253
58,600 Sun Mircosystems, Inc.+# (Electronic Data Processing) .......................... 5,330,769
18,000 Sycamore Networks, Inc.+ (Telecommunications Equipment) ........................ 1,987,312
9,400 TD Waterhouse Group, Inc.+ (Investment Bankers/Brokers/Services) ............... 162,738
1,900 Tellabs, Inc.+ (Telecommunications Equipment) .................................. 130,091
2,600 Texas Instruments, Inc. (Semiconductors) ....................................... 178,588
6,500 The Gap, Inc. (Clothing/Shoe/Accessory Stores) ................................. 203,125
7,200 Time Warner Telecom, Inc.+ (Other Telephone/Communication) ..................... 464,400
64,600 TMP Worldwide, Inc.+# (Advertising) ............................................ 4,766,269
110,000 Tut Systems, Inc.+# (Computer Communications) .................................. 6,300,937
32,000 Univision Communications, Inc.+# (Broadcasting) ................................ 3,312,000
168,300 USinternetworking, Inc.+# (Computer Software) .................................. 3,434,372
4,400 UTStarcom, Inc.+ (Telecommunications Equipment) ................................ 133,788
</TABLE>
36 The accompanying notes are an intergral 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
25,600 Verisign, Inc.+# (Internet Services) ........................................... $ 4,514,400
60,000 Veritas Software Corporation+ (Computer Software) .............................. 6,778,125
65,100 Viacom, Inc.+ (Media Conglomerates) ............................................ 4,439,006
103,500 Vignette Corporation+# (Internet Services) ..................................... 5,385,234
102,400 Weatherford International, Inc.+# (Oilfield Services/Equipment) ................ 4,076,800
85,000 Webvan Group, Inc.+ (Consumer Specialties) ..................................... 621,563
1,800 Williams Communications Group, Inc.+ (Other Telephone/Communication) ........... 59,738
---------------
239,130,177
VENEZUELA -- 0.1%
9,900 Compania Anonima Nacional Telefonos de Venezuela ADR
(Other Telephone/Communication) ................................................ 269,156
TOTAL COMMON STOCKS
(Cost $296,961,928) .............................................................................. 400,620,339
---------------
PREFERRED STOCK -- 0.2%
BRAZIL -- 0.2%
30,000,000 Banco do Estado de Sao Paulo S.A. (Non-U.S. Banks) (Cost $1,258,510) ........... 897,921
---------------
MONEY MARKET FUND -- 0.0%@
147,247 Chase Vista Federal Money Market Fund (Cost $147,247) .......................... 147,247
---------------
TOTAL INVESTMENTS -- 100.0%
(Cost $298,367,685*) ............................................................................. 401,665,507
TOTAL SHORT SALES -- (36.9)%
(Proceeds $154,718,053) .......................................................................... (148,147,237)
OTHER ASSETS AND LIABILITIES -- 36.9%
(Net) ............................................................................................ 148,042,808
---------------
NET ASSETS -- 100.0% ............................................................................. $ 401,561,078
---------------
---------------
</TABLE>
* Aggregate cost for federal tax purposes $299,991,760.
+ Non-income-producing security.
++ 144A security. Certain conditions for public sale may exist.
# 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
The accompanying notes are an integral part of these financial statements. 37
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GLOBAL LONG-SHORT FUND
-----------------------------
SCHEDULE OF SHORT SALES
June 30, 2000
<TABLE>
<CAPTION>
SHARES PROCEEDS VALUE (NOTE 1)
<S> <C> <C>
SHORT SALES -- 36.9%
CANADA -- 1.5%
80,200 QLT PhotoTherapeutics, Inc. (Biotechnology) ..................... $ 5,524,445 $ 6,228,031
CHINA/HONG KONG -- 0.2%
62,000 Hang Seng Bank Ltd. (Non-U.S. Banks) ............................ 588,784 588,545
58,000 Sun Hung Kai Properties Ltd. (Real Estate) ...................... 371,903 416,650
------------ ------------
960,687 1,005,195
------------ ------------
FRANCE -- 2.6%
16,310 Cap Gemini S.A. (EDP Services) .................................. 2,844,804 2,870,164
30,300 Groupe Danone (Packaged Foods) .................................. 3,487,950 4,017,111
42,290 Sidel S.A. (Industrial Machinery/Components) .................... 4,178,740 3,426,554
------------ ------------
10,511,494 10,313,829
------------ ------------
GERMANY -- 2.9%
50,000 Adidas AG (Shoe Manufacturing) .................................. 3,017,441 2,756,476
63,000 DaimlerChrysler AG (Motor Vehicles) ............................. 3,891,475 3,301,906
32,000 Kamps AG (Restaurants) .......................................... 568,467 1,022,471
70,000 SAP AG (Computer Software) ...................................... 2,987,208 3,285,625
40,000 T-Online International AG (Internet Services) ................... 1,446,630 1,295,258
------------ ------------
11,911,221 11,661,736
------------ ------------
INDIA -- 0.1%
30,000 Bajaj Auto Ltd. (Auto and Agricultural Holdings) ................ 273,000 273,000
ITALY -- 0.7%
772,000 Seat Pagine Gialle SpA (Printing/Forms) ......................... 2,951,305 2,665,522
JAPAN -- 1.4%
4,400 Fanuc Ltd. (Industrial Machinery/Components) .................... 480,295 447,275
1,053,000 Tokyu Corporation (Railroads) ................................... 4,609,333 5,198,285
------------ ------------
5,089,628 5,645,560
------------ ------------
NETHERLANDS -- 1.8%
240,000 Getronics N.V. (EDP Services) ................................... 5,755,952 3,696,921
38,500 Gucci Group N.V. (Apparel) ...................................... 3,047,962 3,647,875
------------ ------------
8,803,914 7,344,796
------------ ------------
SINGAPORE -- 0.3%
7,700 Chartered Semiconductor Manufacturing Ltd.
(Electronic Production Equipment) ............................... 610,898 697,091
14,000 Creative Technology Ltd. (EDP Peripherals) ...................... 317,146 337,945
------------ ------------
928,044 1,035,036
------------ ------------
SPAIN -- 2.8%
40,100 Telefonica S.A. (Other Telephone/Communication) ................. 3,031,160 2,568,906
1,540,000 TelePizza S.A. (Restaurants) .................................... 7,875,454 8,666,209
------------ ------------
10,906,614 11,235,115
------------ ------------
SWEDEN -- 1.7%
163,000 Hennes & Mauritz AB (Clothing/Shoe/Accessory Stores) ............ 4,470,893 3,397,372
604,200 WM-Data AB (EDP Services) ....................................... 3,833,838 3,319,404
------------ ------------
8,304,731 6,716,776
------------ ------------
TAIWAN -- 0.2%
30,300 Taiwan Fund, Inc. (Mutual Funds) ................................ 684,405 579,488
13,000 Taiwan Semiconductor Manufacturing Company Ltd.
(Electronic Production Equipment) ............................... 455,313 503,750
------------ ------------
1,139,718 1,083,238
------------ ------------
UNITED KINGDOM -- 3.8%
138,000 British Sky Broadcasting Group PLC (Cable Television) ........... 2,233,201 2,694,995
366,000 Freeserve PLC (Internet Services) ............................... 2,684,923 1,782,746
400,000 London Bridge Software Holdings PLC (Computer Software) ......... 3,703,471 2,934,636
147,000 PowderJect Pharmaceuticals PLC (Medical Specialties) ............ 1,891,226 900,585
497,400 QXL.com PLC (Other Consumer Services) ........................... 2,452,796 752,417
350,000 Reckitt & Colman PLC (Package Goods/Cosmetics) .................. 3,401,067 3,931,127
629,748 Telewest Communications PLC (Cable Television) .................. 2,575,184 2,174,353
------------ ------------
18,941,868 15,170,859
------------ ------------
</TABLE>
38 The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GLOBAL LONG-SHORT FUND
-----------------------------
SCHEDULE OF SHORT SALES
June 30, 2000
<TABLE>
<CAPTION>
SHARES PROCEEDS VALUE (NOTE 1)
<S> <C> <C>
UNITED STATES -- 16.9%
26,000 Amazon.com, Inc. (Catalog/Specialty Distribution) ............... $ 1,990,153 $ 944,125
75,500 Ask Jeeves, Inc. (Internet Services) ............................ 5,729,405 1,361,359
28,500 Best Buy Company, Inc. (Computer/Video Chains) .................. 1,793,730 1,802,625
75,200 Central Parking Corporation (Other Consumer Services) ........... 2,210,871 1,781,300
135,500 Chattem, Inc. (Other Pharmaceuticals ) .......................... 3,098,256 1,858,891
95,400 Cintas Corporation (Diversified Commercial Services) ............ 3,115,379 3,488,062
157,000 Claire's Stores, Inc. (Clothing/Shoe/Accessory Stores) .......... 3,061,355 3,022,250
65,000 DoubleClick, Inc. (Advertising) ................................. 2,549,293 2,478,125
39,400 eBay, Inc. (Other Consumer Services) ............................ 2,711,619 2,138,681
53,500 Estee Lauder Companies, Inc. (Package Goods/Cosmetics) .......... 2,805,969 2,644,906
124,200 G&K Services, Inc. (Diversified Commercial Services) ............ 3,555,383 3,108,881
2,100 hi/fn, Inc. (Semiconductors) .................................... 76,779 93,253
86,100 Immunex Corporation (Biotechnology) ............................. 3,131,360 4,259,259
63,300 India Fund, Inc. (Mutual Funds) ................................. 1,034,925 898,069
75,200 Inhale Therapeutic Systems, Inc. (Medical Specialties) .......... 3,196,841 7,630,450
82,800 Intimate Brands, Inc. (Clothing/Shoe/Accessory Stores) .......... 1,711,385 1,635,300
107,800 iShares MSCI Hong Kong (Mutual Funds) ........................... 1,404,477 1,320,550
50,000 iShares MSCI South Korea (Computer Communications) .............. 929,094 1,050,000
80,000 Kellogg Company (Packaged Foods) ................................ 2,092,634 2,380,000
31,300 MCSi, Inc. (Computer Communications) ............................ 622,192 802,063
15,700 NASDAQ-100 Shares (Mutual Funds) ................................ 1,247,879 1,463,044
110,000 Newell Company (Home Furnishings) ............................... 3,187,567 2,832,500
144,000 P.F. Chang's China Bistro, Inc. (Restaurants) ................... 3,597,885 4,603,500
81,500 Sears, Roebuck & Company (Department Stores) .................... 2,982,336 2,658,938
110,200 Starbucks Corporation (Restaurants) ............................. 2,546,817 4,211,706
45,000 Target Corporation (Discount Stores) ............................ 3,120,506 2,610,000
60,600 Tivo, Inc. (Broadcasting) ....................................... 2,024,717 2,122,894
85,000 Webvan Group, Inc. (Consumer Specialties) ....................... 1,086,995 621,563
90,000 Yankee Candle Company, Inc. (Consumer Sundries) ................. 1,855,582 1,946,250
------------ ------------
68,471,384 67,768,544
------------ ------------
TOTAL SHORT SALES ............................................... $154,718,053 $148,147,237
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements. 39
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GLOBAL COMMUNICATIONS
FUND
-----------------------------
PORTFOLIO HIGHLIGHTS
INVESTMENT REVIEW
Q: HOW DID THE FUND PERFORM FROM JULY 1, 1999, THROUGH JUNE 30, 2000?
A: The Fund significantly outperformed its benchmark, the Morgan Stanley Capital
International (MSCI) Telecommunications Index, returning 51.53%, versus 5.21%
for the benchmark. In recognition of its strong performance, Morningstar awarded
the Fund an overall five-star rating for its risk-adjusted returns over the
period ended 6/30/00 among 3,642 domestic equity funds. The Fund also received
five stars for the three- and five-year periods ended 6/30/00 among 3,642 and
2,328 domestic equity funds, respectively.*
Q: WHAT MAIN FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE OVER THIS PERIOD?
A: The Fund was exceptionally strong during the second half of 1999, gaining
63.42%. This performance was driven by broad strength in its communications,
technology and media holdings. Among the best performers were companies at the
forefront of data transmission through broadband or wireless technology and
services.
The broad-based rally continued into the first three months of 2000. In the
second quarter, however, technology and telecom stocks came under pressure for
several reasons. As we expected, rising interest rates created a headwind for
newer entrants, which were among the best performers in the first quarter. A
corresponding slowdown in the initial public offering (IPO) market was another
challenge for companies in need of funding to continue building their businesses
and networks.
Telecom stocks overseas were also depressed by the unexpectedly high prices paid
in the United Kingdom for licenses to develop a new generation of wireless
networks. Investors and companies alike began reassessing the costs of building
these networks, which would enable users to access the Internet and receive
high-quality audio and video feeds via wireless phones.
Q: WERE THERE ANY PARTICULARLY STRONG HOLDINGS?
A: During the relatively short periods when the communications and technology
sectors weren't enjoying a broad-based rally, the Fund benefited from its
exposure to manufacturers of telecom equipment, semiconductors and fiber-optic
components. The strength of these stocks--even during the second quarter of
2000--was very positive for the Fund, because its heaviest industry weightings
are in those areas. Telecom equipment companies such as Nokia are profiting from
strong global demand for wireless handsets and other end-use devices. Demand for
capital equipment such as fiber-optic components and semiconductors has also
been very strong.
Q: HAVE YOU MADE ANY SIGNIFICANT CHANGES TO THE PORTFOLIO RECENTLY?
A: Through our bottom-up process, we have continued to trim the Fund's exposure
to telecom-services businesses while increasing its share of telecom-equipment
companies. We expect telecom-equipment makers to benefit from a tremendous wave
of spending on communications infrastructures worldwide.
--------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
--------------------------------------------------------------------------------
Oscar Castro, CFA ..................................... Senior Portfolio Manager
Stephen Parlett, CFA ......................................... Portfolio Manager
--------------------------------------------------------------------------------
FUND PERFORMANCE
--------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/00
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
MONTGOMERY
GLOBAL COMMUNICATIONS FUND
<S> <C>
Since inception (6/1/93) ............................................. 25.52%
One year ............................................................. 51.53%
Five years ........................................................... 31.20%
--------------------------------------------------------------------------------
MSCI TELECOMMUNICATIONS INDEX
<S> <C>
Since 5/31/93 ........................................................ 16.09%
One year ............................................................. 5.21%
Five years ........................................................... 21.18%
</TABLE>
--------------------------------------------------------------------------------
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
<TABLE>
<CAPTION>
Global
Communications MSCI Telecom(1) Lipper(2)
-------------- --------------- ---------
<S> <C> <C> <C>
Jun-93 10375 10222.42 10453.97
Jul-93 10625 10322.5 10754.21
Aug-93 11675 10926.62 11538.95
Sep-93 12017 10753.92 11643.76
Oct-93 12867 11224.74 12034.04
Nov-93 12067 10633.67 11360.88
Dec-93 13483 10826.21 11842.93
Jan-94 14050 11289.13 12245.83
Feb-94 13558 10524.82 11789.47
Mar-94 12558 10179.59 11272.63
Apr-94 12742 10495.95 11491.94
May-94 12608 10540.39 11457.14
Jun-94 11833 10474.4 11341.2
Jul-94 12342 10772.38 11832.7
Aug-94 13217 11096.25 12191.48
Sep-94 12950 10762.79 11942.34
Oct-94 13117 10984.54 12198.77
Nov-94 12068 10218.92 11646.41
Dec-94 11675 10178.04 11520.18
Jan-95 11007 10394.72 11525.91
Feb-95 10982 10376.05 11426.82
Mar-95 11241 10567.71 11467.08
Apr-95 11700 10692.3 11869.62
May-95 12260 10844.01 12005.18
Jun-95 12878 11012.18 12580.47
Jul-95 13571 11262.25 13405.51
Aug-95 13596 11507.81 13770.25
Sep-95 14297 12184.28 14104.3
Oct-95 13629 12031.7 13553.11
Nov-95 13763 12101.6 13831.37
Dec-95 13646 12471.68 14243.71
Jan-96 13947 12681.42 14534.61
Feb-96 14064 12569.04 14410.07
Mar-96 14180 12376.44 14332.34
Apr-96 15158 12767.54 15214.74
May-96 15124 12627.66 15517.57
Jun-96 15074 12589.88 15350.74
Jul-96 14172 11739.67 14016.27
Aug-96 14456 11792.36 14326.09
Sep-96 14932 11926.72 14626.12
Oct-96 14499 12157.2 14437.3
Nov-96 15107 12812.85 15068.48
Dec-96 14740 13098.04 14998.14
Jan-97 15497 13224.07 15631.18
Feb-97 15180 13363.43 15432.16
Mar-97 14863 12939.91 14520.67
Apr-97 15189 13079.18 14949.77
May-97 16440 13876.96 16359.27
Jun-97 17250 14462.94 17302.49
Jul-97 18271 14723.79 18236.38
Aug-97 17118 13799.2 17269.87
Sep-97 18297 14732.82 19051.34
Oct-97 16862 14516.83 18227.38
Nov-97 16792 15485.77 18938.5
Dec-97 17074 16052.89 19079.86
Jan-98 17940 16979.46 20021.78
Feb-98 21559 17646 21298.62
Mar-98 23675 19178.56 23465.4
Apr-98 24289 18974.3 23214.86
May-98 23905 19031.81 22343.53
Jun-98 25090 19789.2 23381.86
Jul-98 26581 20948.95 23995.97
Aug-98 20221 19019.91 19752.23
Sep-98 20023 19422.47 20896.55
Oct-98 22436 20738.09 22552.31
Nov-98 24388 21673.58 24084.58
Dec-98 26459 24044.69 27874.81
Jan-99 29757 26376.91 30256
Feb-99 28190 26087.64 29085
Mar-99 28957 25377.72 31490
Apr-99 30231 26204 33338
May-99 30035 26253.68 32962
Jun-99 33038 27355.6 35365
Jul-99 33196 27277 34937
Aug-99 33355 25606 33274
Sep-99 33232 26226 34512
Oct-99 36482 28176 37753
Nov-99 44231 31448 42272
Dec-99 53983 34324 48701
Jan-00 54307 33164 48993
Feb-00 63637 34777 57410
Mar-00 61690 35732 55653
Apr-00 53034 31608 47845
May-00 47641 29268 42979
Jun-00 50056 28780 47445
</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 five funds.
40
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GLOBAL COMMUNICATIONS
FUND
-----------------------------
PORTFOLIO HIGHLIGHTS
Although we continue to emphasize companies in Europe and the United States over
those in the emerging markets, we have added to the Fund's weightings in such
stocks as Korea Telecom, a leader in rolling out DSL and broadband technology in
Korea. Samsung Electronics, another Korean holding, is a strong global
competitor in several areas: DRAM chips, wireless handsets and liquid crystal
displays (LCDs). Despite its strong competitive position, Samsung's shares, like
those of Korea Telecom, continue to trade inexpensively.
Q: WHAT TRENDS DO YOU SEE EMERGING IN THE COMMUNICATIONS ARENA OVER THE YEAR
AHEAD, AND HOW ARE YOU POSITIONING THE FUND TO TAKE ADVANTAGE OF THEM?
A: We believe that merger and acquisition activity will drive further change and
growth in the communications, technology and media industries over the next year
and beyond. After the watershed merger between Mannesmann and Vodafone in the
first quarter, the second quarter brought news that Vivendi would merge with
Seagram. The combined entity would be the world's second-largest media group.
As part of our bottom-up process, we do seek companies with a strategic
advantage that may make them attractive acquisition targets.
We also believe that the growth of wireless data transmission will be a driving
force for the sector over the next year. Consumers and companies are avidly
embracing new technologies that enable access to the Internet and other kinds of
data from a cellular phone or even a personal digital assistant (PDA). Using
firsthand original research and industry insight, we intend to focus our efforts
on identifying the companies that are best poised to capitalize on and benefit
from these trends over the long term.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
TOP TEN HOLDINGS
-------------------------------------------------------------------------------
(as a percentage of total net assets)
<S> <C>
Nokia Oyj ............................................................. 3.4%
Samsung Electronics Company ........................................... 3.1%
Sprint Corporation (PCS Group) ........................................ 2.3%
Cisco Systems, Inc. ................................................... 2.3%
Cable & Wireless Optus Ltd. ........................................... 2.2%
Corning, Inc. ......................................................... 2.1%
Global Crossing Ltd. .................................................. 2.0%
Nortel Networks Corporation ........................................... 1.9%
Vodafone AirTouch PLC ................................................. 1.9%
Alcatel S.A., ADR ..................................................... 1.9%
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
TOP FIVE COUNTRIES
-------------------------------------------------------------------------------
(as a percentage of total net assets)
<S> <C>
United States ........................................................ 40.6%
Finland .............................................................. 6.9%
United Kingdom ....................................................... 6.9%
France ............................................................... 5.1%
Japan ................................................................ 4.9%
</TABLE>
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, sector or
geographic area may be subject to a higher degree of market 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.
The recent growth rate in the stock market has helped produce short-term returns
that are not typical and may not continue in the future. Because of ongoing
market volatility, Fund performance may be subject to substantial short-term
changes.
* Morningstar proprietary ratings on U.S.-domiciled funds reflect historical
risk-adjusted performance through 6/30/00. Ratings are subject to change
monthly, and past performance is no guarantee of future results. Morningstar
ratings on U.S.-domiciled funds are calculated from a funds' three-, five-, and
10-year average annual total 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 funds in a
broad asset class receive five stars; the next 22.5% receive four stars; the
next 35% receive three stars, the next 22.5% receive two stars and the bottom
10% receive one star. Ratings are for Class R shares only; other classes may
vary.
41
<PAGE>
---------------------
THE MONTGOMERY FUNDS
---------------------
GLOBAL COMMUNICATIONS
FUND
---------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
COMMON STOCKS - 91.0%
<S> <C>
AUSTRALIA - 2.2%
3,754,800 Cable & Wireless Optus Ltd.+
(Other Telephone/Communication).............. $ 11,167,925
BERMUDA - 3.1%
367,000 FLAG Telecom Holdings Ltd.+
(Other Telephone/Communication).............. 5,482,062
372,715 Global Crossing Ltd.+
(Other Telephone/Communication).............. 9,818,711
-------------
15,300,773
CANADA - 2.4%
67,100 AT&T Canada, Inc.+
(Other Telephone/Communication).............. 2,222,688
141,181 Nortel Networks Corporation
(Telecommunications Equipment)............... 9,635,603
-------------
11,858,291
CHINA/HONG KONG - 0.6%
431,000 Television Broadcasts Ltd.
(Broadcasting)............................... 2,874,992
FINLAND - 6.9%
88,775 Helsinki Telephone
(Other Telephone/Communication).............. 8,687,493
332,240 Nokia Oyj+
(Telecommunications Equipment)............... 16,937,763
194,800 Sonera Oyj
(Other Telephone/Communication).............. 8,871,943
-------------
34,497,199
FRANCE - 5.1%
143,200 Alcatel S.A., ADR
(Telecommunications Equipment)............... 9,522,800
21,660 Canal Plus S.A.+ (Cable Television).......... 3,636,031
112,300 Societe Television Francaise+
(Broadcasting)............................... 7,819,141
70,500 STMicroelectronics N.V.+
(Semiconductors)............................. 4,438,022
-------------
25,415,994
GERMANY - 1.7%
81,140 EM.TV & Merchandising AG
(Movies/Television).......................... 4,775,035
49,300 Infineon Technologies AG+
(Electronic Components)...................... 3,902,846
-------------
8,677,881
IRELAND - 1.1%
196,800 Parthus Technologies PLC+
(Electronic Components)...................... 5,608,800
ITALY - 0.5%
237,900 Telecom Italia Mobile SpA
(Cellular Telephone)......................... 2,418,845
JAPAN - 4.9%
220,000 NEC Corporation
(Diversified Electronic Products)............ 6,901,879
289 Nippon Telegraph & Telephone
Corporation
(Other Telephone/Communication).............. 3,838,994
327 NTT DoCoMo, Inc. (Cellular Telephone)........ 8,841,585
16,900 Rohm Company, Ltd. (Semiconductors).......... 4,951,623
-------------
24,534,081
KOREA - 4.6%
147,500 Korea Telecom Corporation, ADR
(Other Telephone/Communication).............. 7,135,313
47,350 Samsung Electronics Company
(Diversified Electronic Products)............ 15,669,738
-------------
22,805,051
NETHERLANDS - 4.5%
141,538 KPN N.V.+
(Other Telephone/Communication).............. 6,324,687
62,200 KPNQwest N.V.+
(Telecommunications Equipment)............... 2,444,241
185,100 Versatel Telecom International N.V+
(Other Telephone/Communication).............. 7,768,113
113,100 VNU N.V. (Books/Magazines)................... 5,836,013
-------------
22,373,054
PORTUGAL - 1.6%
66,500 PT MULTIMEDIA-Servicos de
Telecomunicacoes e Multimedia SGPS
S.A+ (Other Telecommunications).............. 3,298,233
314,500 Telecel-Comunicacoes Pessoais S.A.+
(Cellular Telephone)......................... 4,769,515
-------------
8,067,748
RUSSIA - 0.1%
200,000 Russian Telecommunication
Development Corporations ss.+(a)
(Other Telephone/Communication).............. 407,553
SPAIN - 0.5%
99,900 Jazztel PLC+
(Other Telephone/Communication).............. 2,628,619
SWEDEN - 3.1%
315,500 Tele1 Europe Holding AB+
(Other Telephone/Communication).............. 3,859,764
320,500 Telefonaktiebolaget LM Ericsson AB+
(Telecommunications Equipment)............... 6,335,212
</TABLE>
42
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
COMMON STOCKS - CONTINUED
<S> <C>
SWEDEN - CONTINUED
535,400 Telia AB+
(Other Telephone/Communication)....................... $ 5,033,779
-------------
15,228,755
SWITZERLAND - 0.6%
8,700 Swisscom AG
(Other Telephone/Communication).............. 3,009,920
UNITED KINGDOM - 6.9%
52,700 Bookham Technology PLC+
(Semiconductors)............................. 3,032,520
307,100 Cable & Wireless PLC
(Other Telephone/Communication).............. 5,198,313
43,300 COLT Telecom Group PLC, ADR+
(Other Telephone/Communication).............. 5,844,147
570,700 Freeserve PLC+ (Internet Services)........... 2,779,818
244,890 Pearson PLC (Books/Magazines)................ 7,649,687
2,357,879 Vodafone AirTouch PLC
(Cellular Telephone)......................... 9,594,588
-------------
34,099,073
UNITED STATES 40.6%
77,300 3Com Corporation+
(Computer Communications).................... 4,451,997
60,300 Advanced Micro Devices, Inc.+
(Semiconductors)............................. 4,658,175
343,000 Allied Riser Communications
Corporation+
(Other Telephone/Communication).............. 4,877,031
29,600 AT&T Wireless Group+
(Cellular Telephone)......................... 825,100
246,300 Atmel Corporation+ (Semiconductors).......... 9,082,312
94,300 Bell Atlantic Corporation+
(Major U.S. Telecommunications).............. 4,791,619
136,500 Carrier Access Corporation+
(Telecommunications Equipment)............... 7,221,703
181,156 Cisco Systems, Inc.+
(Computer Communications).................... 11,509,067
96,600 Cognex Corporation+
(Electronic Production Equipment)............ 4,996,031
78,200 Comverse Technology, Inc.+
(Telecommunications Equipment)............... 7,275,044
109,800 Convergys Corporation+
(Diversified Commercial Services)............ 5,695,875
38,400 Corning, Inc.
(Telecommunications Equipment)............... 10,363,200
189,525 Covad Communications Group, Inc.+
(Other Telephone/Communication).............. 3,050,168
95,400 Cymer, Inc.+
(Electronic Production Equipment)............ 4,543,425
248,700 Dobson Communications Corporation+
(Cellular Telephone)......................... 4,803,019
111,500 EMC Corporation+ (EDP Peripherals)........... 8,578,531
65,800 Enron Corporation
(Oil/Gas Transmission)....................... 4,244,100
UNITED STATES - CONTINUED
156,000 ePresence, Inc.+
(Office/Plant Automation).................... 1,135,875
36,100 Flextronics International Ltd.+
(Electronic Components)...................... 2,480,747
281,000 Galileo International, Inc.
(Diversified Commercial Services)............ 5,865,875
322,860 Global TeleSystems Group, Inc.+
(Other Telephone/Communication).............. 3,894,499
22,900 Hewlett-Packard Company
(Diversified Electronic Products)............ 2,859,638
74,400 i2 Technologies, Inc.+
(Computer Software).......................... 7,758,525
218,100 Infonet Services Corporation+
(EDP Services)............................... 2,603,569
407,200 McLeod USA, Inc., Class A+
(Other Telephone/Communication).............. 8,436,675
143,300 NTL, Inc.+
(Other Telephone/Communication).............. 8,584,566
235,800 Open Text Corporation+
(Computer Software).......................... 5,091,806
106,400 Oracle Corporation+
(Computer Software).......................... 8,940,925
194,000 Sprint Corporation (PCS Group)+
(Cellular Telephone)......................... 11,543,000
51,300 Tellabs, Inc.+
(Telecommunications Equipment)............... 3,512,447
107,400 Texas Instruments, Inc. (Semiconductors) 7,377,037
117,800 Time Warner Telecom, Inc.+
(Other Telephone/Communication).............. 7,598,100
39,200 Voicestream Wireless Corporation+
(Cellular Telephone)......................... 4,559,450
47,100 Williams Communications Group, Inc.+
(Other Telecommunications)................... 1,563,131
169,872 WorldCom, Inc.+
(Major U.S. Telecommunications).............. 7,798,186
-------------
202,570,448
TOTAL COMMON STOCKS
(Cost $400,382,331)........................................... 453,545,002
-------------
PREFERRED STOCKS 2.6%
BRAZIL 0.0%@
200,650 Telemig Celular S.A., Series C
(Cellular Telephone)......................... 5,118
GERMANY 2.6%
55,563 ProSieben Media AG (Media)................... 6,942,460
31,410 SAP AG (Computer Software)................... 5,797,027
-------------
12,739,487
TOTAL PREFERRED STOCKS
(Cost $10,235,094)............................................ 12,744,605
</TABLE>
43
The accompanying notes are an integral part of these financial statements.
<PAGE>
---------------------
THE MONTGOMERY FUNDS
---------------------
GLOBAL COMMUNICATIONS
FUND
---------------------
INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
MONEY MARKET FUND - 0.0%@
<S> <C>
680 Chase Vista Federal Money Market Fund
(Cost $680).................................. $ 680
-------------
TOTAL SECURITIES
(Cost $410,618,105)........................................... 466,290,287
-------------
PRINCIPAL AMOUNT
REPURCHASE AGREEMENT - 6.7%
$ 33,491,000 Agreement with Greenwich Capital
Markets, Tri-Party, 7,000% dated
06/30/00, to be repurchased at
$33,510,269 on 07/03/00, collateralized by
$34,160,939 market value of U.S.
government and mortgage-backed
securities, having various maturities and
interest rates
(Cost $33,491,000)........................... 33,491,000
TOTAL INVESTMENTS - 100.3%
(Cost $444,109,105*).......................................... 499,781,287
OTHER ASSETS AND LIABILITIES (0.3)%
(Net)......................................................... (1,265,039)
-------------
NET ASSETS 100.0%............................................ $ 498,516,248
=============
</TABLE>
* Aggregate cost for federal tax purposes $444,207,043.
ss. Valued in good faith at fair value using procedures approved by the Board of
Trustees.
+ Non-income producing security.
@ Amount represents less than 0.1%.
(a) Restricted securities: At June 30, 2000, the Fund owned the following
restricted security, constituting less than 0.10% 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:
Russian Telecommunication Development Corporation
<TABLE>
<CAPTION>
Value per
Acquisition Date Shares Cost Share
--------------------------------------------------------------------------------
<S> <C> <C> <C>
12/22/97 200,000 $2,000,000 $2.04
</TABLE>
ABBREVIATIONS
ADR American Depositary Receipt
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 regulation than many other industries, and regulatory approval
requirements may materially affect the products and services of this industry.
44
The accompanying notes are an integral part of these financial statements.
<PAGE>
----------------------------
THE MONTGOMERY FUNDS
----------------------------
EMERGING MARKETS FUND
----------------------------
PORTFOLIO HIGHLIGHTS
INVESTMENT REVIEW
Q: HOW DID THE FUND PERFORM DURING THE 12 MONTHS ENDED JUNE 30, 2000?
A: The Fund outperformed its benchmark, the Morgan Stanley Capital International
(MSCI) Emerging Markets Free Index, returning 17.58%, versus 9.47% for the
benchmark.
Q: WHAT MAIN FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A: Stock selection and strategic over- and underweightings in certain markets
played an important role in the Fund's returns over the past year.
Our decision to overweight Brazil and Mexico relative to the Fund's benchmark
proved positive for performance. Both markets were especially strong in the
second quarter of 2000. In Brazil we have focused on large-cap
telecommunications firms and energy companies. Like Brazil's, Mexico's economy
gained momentum, which helped boost shares of banks such as Grupo Financiero
Banamex and beverage companies such as Fomento Economico Mexicano.
The Fund also benefited from its exposure to technology and telecommunications
companies. As in developed markets, these sectors led many emerging markets
worldwide in 1999 and the first part of 2000. The trend was positive for
northern Asian markets in particular, which are home to a number of world-class
technology companies, such as Samsung Electronics. The tech/telecom rally was
less of a driving factor in Southeast Asian markets, though domestically
oriented telecom stocks in Thailand and Indonesia performed fairly well. The
Fund remains underweighted in Southeast Asia, though we did raise its exposure
to Malaysia about midway through the fiscal year. While these holdings helped
the Fund relative to its benchmark index, the Fund's performance did suffer in
absolute terms during the first half of 2000. Rising interest rates and fears of
higher inflation depressed many emerging markets over the period and had a
concurrent impact on the Fund.
Q: WERE THERE ANY DISAPPOINTMENTS?
A: We reduced the Fund's weighting in Latin American copper-mining stocks over
the past few months. The direction of interest rates had an impact on the price
of many metals, including copper; so as interest rates rose in the United
States, the near-term prospects for copper- mining stocks deteriorated. We sold
them to take advantage of what we believe were better opportunities elsewhere.
Q: HAVE YOU MADE ANY SIGNIFICANT CHANGES TO THE PORTFOLIO RECENTLY?
A: During the first half of 2000, we reduced the Fund's positions in South
Africa, where domestically oriented companies appeared especially vulnerable to
a potential economic slowdown in that market. We think that the outlook for
export-oriented issues is still quite positive though-especially mining stocks
such as Impala Platinum Holdings and De Beers, which have been driven up this
year by strong demand for platinum and diamonds.
--------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
--------------------------------------------------------------------------------
Josephine Jimenez, CFA............................... Senior Portfolio Manager
Frank Chiang......................................... Portfolio Manager
--------------------------------------------------------------------------------
FUND PERFORMANCE
--------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/00
--------------------------------------------------------------------------------
MONTGOMERY EMERGING MARKETS FUND
Since inception (3/1/92)............................................... 3.69%
One year............................................................... 17.58%
Five years............................................................. (0.93)%
--------------------------------------------------------------------------------
MSCI EMERGING MARKETS FREE INDEX
Since 3/1/92........................................................... 5.59%
One year............................................................... 9.47%
Five years............................................................. 0.99%
--------------------------------------------------------------------------------
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>
MSCI
Emerging Mkts Fund Emerging Mkts(1) Lipper(2)
------------------ ---------------- -------------
<S> <C> <C> <C>
Feb-92 10000 10000 10000
Mar-92 9970 10338.49 9964.65
Apr-92 10010 10266.75 10114.17
May-92 10140 10229.72 10379.93
Jun-92 9960 9215.03 10184.29
Jul-92 9750 9315.26 9916.73
Aug-92 9620 8880.95 9682.22
Sep-92 9570 8911.25 9570.51
Oct-92 9950 9388.03 9732.72
Nov-92 9880 9286.77 9589.49
Dec-92 10031 9559.99 9639.89
Jan-93 10242 9606.09 9867.28
Feb-93 10342 9767.18 10313.37
Mar-93 10482 10090.13 10523.51
Apr-93 10702 10322.17 10973.89
May-93 10922 10609.82 11292.26
Jun-93 11083 10924.56 11373.58
Jul-93 11263 11213.06 11572.56
Aug-93 11934 12159.89 12490.06
Sep-93 12324 12604.56 12741.52
Oct-93 13295 13735.53 13846.62
Nov-93 13689 14343.35 14420.62
Dec-93 15916 16714.06 16749.29
Jan-94 16110 17018.36 17100.33
Feb-94 15609 16715.61 16634.48
Mar-94 14445 15202.91 15168.89
Apr-94 14373 14898.87 14881.64
May-94 14731 15408.8 15169.18
Jun-94 13975 14984.07 14424.52
Jul-94 14782 15915.92 15280.65
Aug-94 16212 17891.12 16717.19
Sep-94 16437 18094.42 16909.57
Oct-94 16365 17768.11 16530.75
Nov-94 15591 16844.06 15717.78
Dec-94 14687 15491.41 14573.25
Jan-95 13170 13843.26 13170.26
Feb-95 13191 13488.1 13113.58
Mar-95 13105 13573.79 13162.65
Apr-95 13331 14182.73 13559.57
May-95 14160 14937.25 14165.12
Jun-95 14170 14981.43 14196.34
Jul-95 14569 15317.71 14697.81
Aug-95 13998 14956.9 14343.77
Sep-95 13837 14885.92 14357.03
Oct-95 13320 14316.08 13712.42
Nov-95 12912 14060.78 13467.78
Dec-95 13353 14684.4 13979.56
Jan-96 14235 15728.2 15391.52
Feb-96 13912 15478.12 15197.02
Mar-96 14170 15598.68 15262.52
Apr-96 14891 16222.36 15814.51
May-96 15160 16149.92 15920.64
Jun-96 15268 16250.77 15938.37
Jul-96 14321 15140.13 14974.68
Aug-96 14773 15527.67 15426.63
Sep-96 14870 15662.18 15609.46
Oct-96 14555 15244.47 15191.11
Nov-96 14879 15499.91 15628.45
Dec-96 14998 15570.01 15814.98
Jan-97 16155 16632.04 16944.61
Feb-97 16685 17344.31 17594.47
Mar-97 16296 16888.71 16960.72
Apr-97 16306 16918.55 16838.31
May-97 16912 17402.76 17341.59
Jun-97 18220 18344.11 17922.09
Jul-97 18869 18607.79 18447.45
Aug-97 16847 16239.97 16156.64
Sep-97 17518 16689.94 16771.74
Oct-97 14468 13951.33 13848.22
Nov-97 13982 13442.28 13190.43
Dec-97 14527 13766.21 13297.36
Jan-98 12853 12686.53 12160.16
Feb-98 13729 14010.69 13288.3
Mar-98 14145 14618.7 13763.63
Apr-98 14302 14459.45 13881.3
May-98 12437 12477.92 12053.34
Jun-98 11078 11169.03 10967.42
Jul-98 11606 11523.16 11261.67
Aug-98 8067 8191.36 8003.58
Sep-98 8348 8710.98 8309.4
Oct-98 8741 9628.26 9109.88
Nov-98 9493 10429.02 9702.5
Dec-98 8965 10277.88 9573.32
Jan-99 8594 10112 9803
Feb-99 8314 10210 9743
Mar-99 9449 11556 10829
Apr-99 10325 9433 12254
May-99 10798 9378 12106
Jun-99 12690 10443 13301
Jul-99 11213 13985 12624
Aug-99 11168 14112 12478
Sep-99 10764 13634 12024
Oct-99 11123 13925 12450
Nov-99 12392 15173 13818
Dec-99 14628 17103 16325
Jan-00 14616 17205 16170
Feb-00 15021 17432 16889
Mar-00 15011 17517 16964
Apr-00 13495 15857 15064
May-00 13034 15201 14229
Jun-00 13528 15737 14937
</TABLE>
(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 six funds.
45
<PAGE>
----------------------------
THE MONTGOMERY FUNDS
----------------------------
EMERGING MARKETS FUND
----------------------------
PORTFOLIO HIGHLIGHTS
With the proceeds from South Africa, we increased the Fund's weighting in
Russia, where the political and economic environment appear to be improving. We
also increased the Fund's exposure to Israeli technology companies, which proved
beneficial for the Fund. As attacks by hackers and computer viruses became a
visible global threat in early 2000, companies like Check Point Software
Technologies, a leader in building computer firewalls, have attracted more
business.
Q: WHERE DO YOU BELIEVE THE BEST OPPORTUNITIES IN THE EMERGING MARKETS WILL
BE IN THE SECOND HALF OF 2000 AND BEYOND?
A: We believe that Latin America will experience stronger economic growth. In
1999 Asian economies garnered attention as they emerged from recession. During
the past six months, Latin American economies (especially Brazil and Mexico)
have boasted the fastest growth rates, driven by a decline in domestic real
interest rates as well as by the strength of the U.S. economy. We believe that
Brazil and Mexico are the most attractive markets in Latin America, and have
continued to overweight them versus the Fund's benchmark. Our focus in these two
markets is on domestically oriented companies, which should benefit from an
increase in consumer spending and industrial production.
We also see some encouraging trends developing in Russia, which appears to offer
better opportunities than do most European emerging markets. Higher prices for
crude oil, Russia's major export, have driven up shares of Lukoil and have
helped shore up the country's current accounts. Russia's improved
foreign-reserve position has also stabilized its currency and helped spur
economic activity. In fact, we believe that Russia's gross domestic product may
grow by 5% this year. In addition, the new government of Vladimir Putin has been
proactive in advancing reforms, including possible privatization of such
enterprises as Unified Energy Systems.
Although the Fund continues to have a neutral weighting in Asia, we have
increased its exposure to China, which it now seems more likely will be admitted
to the World Trade Organization (WTO). If that occurs, we expect companies in
the shipping and container-leasing business, such as Cosco Pacific, to be among
the prime beneficiaries of increased trade. We continue to seek opportunities
such as this around the world.
-------------------------------------------------------------------------------
TOP TEN HOLDINGS
-------------------------------------------------------------------------------
(as a percentage of total net assets)
Samsung Electronics.................................................... 6.3%
Telefonos de Mexico S.A., ADR.......................................... 5.0%
Taiwan Semiconductor Manufacturing
Company, Ltd........................................................... 3.8%
Embratel Participacoes ADR............................................. 3.2%
Alpha Credit Bank...................................................... 2.6%
United Microelectronics
Corporation, Ltd....................................................... 2.5%
China Mobile (Hong Kong) Ltd., ADR..................................... 2.2%
Check Point Software Technologies Ltd.................................. 2.2%
Wal-Mart de Mexico S.A. de C.V......................................... 2.2%
Petroleo Brasileiro S.A................................................ 1.9%
-------------------------------------------------------------------------------
TOP FIVE COUNTRIES
-------------------------------------------------------------------------------
(as a percentage of total net assets)
Brazil................................................................. 15.4%
Mexico................................................................. 14.0%
Korea.................................................................. 10.8%
Taiwan................................................................. 9.4%
South Africa........................................................... 7.5%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
46
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
EMERGING MARKETS FUND
--------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
COMMON STOCKS - 91.7%
<S> <C>
BRAZIL - 10.7%
173,600 Aracruz Celulose S.A., Sponsored ADR
(Paper)...................................... $ 3,352,650
98,700 Brasileira de Distribuicao Grupo Pao de
Acucar (Food Chains)......................... 3,170,737
70,600,000 Companhia Siderurgica Nacional
(Metal Fabrication).......................... 2,214,887
401,900 Embratel Participacoes ADR
(Other Telephone/Communication).............. 9,494,887
197,100 Petroleo Brasileiro S.A.
(Integrated Oil Companies)................... 5,790,052
27,000 Tele Celular Sul Participacoes S.A.
(Cellular Telephone)......................... 1,221,750
331,600 Tele Centro Oeste Celular
Participacoes S.A., ADR
(Other Telephone/Communication).............. 3,979,200
34,300 Telecom Participacoes S.A., ADR
(Other Telephone/Communication).............. 2,506,044
-------------
31,730,207
CHILE - 0.8%
127,274 Cia de Telecom Chile de S.A., ADR
(Other Telephone/Communication).............. 2,306,841
CHINA/HONG KONG - 5.5%
36,500 AsiaInfo Holdings, Inc.+
(Internet Services).......................... 1,632,234
292,000 China Mobile (Hong Kong) Ltd.+
(Other Telephone/Communication).............. 2,575,204
37,400 China Mobile (Hong Kong) Ltd., ADR+
(Other Telephone/Communication).............. 6,650,188
1,132,000 China Unicom Ltd.+
(Other Telephone/Communication).............. 2,403,258
3,998,000 Cosco Pacific Ltd. (Marine Transportation)... 3,154,089
-------------
16,414,973
CZECH REPUBLIC - 1.7%
68,190 Ceske Radiokomunikace, GDR+,++
(Other Telephone/Communication).............. 3,029,341
97,800 Komercni Banka A.S. (Non-U.S. Banks)......... 1,979,948
-------------
5,009,289
EGYPT - 2.2%
169,300 Al-Ahram Beverages Company, GDR+,++
(Alcoholic Beverages)........................ 2,907,728
110,233 Egyptian Company for Mobile Services+
(Cellular Telephone)......................... 3,587,435
-------------
6,495,163
GREECE - 2.6%
194,314 Alpha Credit Bank (Non- U.S. Banks).......... 7,659,212
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
HUNGARY - 0.5%
217,200 Magyar Tavkozlesi Rt.
(Other Telephone/Communication).............. 1,509,716
INDIA - 5.2%
50 Castrol (India) Ltd.
(Oil Refining/Marketing)..................... 340
200 Cummins India Ltd. (Auto Parts: O.E.M.)...... 2,012
106,000 Hindalco Industries Ltd. (Aluminum).......... 1,874,645
49,100 Hindustan Lever Ltd.
(Package Goods/Cosmetics).................... 3,119,032
25,200 Infosys Technologies Ltd.
(Computer Software).......................... 4,695,073
198,400 Sri Adhikari Brothers Telephone Network Ltd.
(Broadcasting)............................... 2,557,871
150 State Bank of India (Non-U.S. Banks)......... 760
10 Tata Engineering & Locomotive Company, Ltd.
(Motor Vehicles)............................. 28
201,500 Videsh Sanchar Nigam Ltd., GDR++
(Other Telephone/Communication).............. 3,148,438
-------------
15,398,199
INDONESIA - 0.4%
3,750,000 PT Telekomunikasi Indonesia
(Other Telephone/Communication).............. 1,317,481
ISRAEL - 7.1%
2,560,000 Bank Leumi Le-Israel (Non-U.S. Banks)........ 5,285,525
390,350 Bezeq Israeli Telecommunication Corporation,
Ltd. (Other Telephone/Communication)......... 2,174,985
31,000 Check Point Software Technologies Ltd.+
(Computer Software).......................... 6,582,656
54,400 IDB Holding Corporation, Ltd.
(Miscellaneous).............................. 2,089,131
28,000 NICE Systems Ltd., ADR+
(Telecommunications Equipment)............... 2,163,875
29,600 Orbotech Ltd.+
(Electronic Production Equipment)............ 2,750,025
-------------
21,046,197
KOREA - 10.8%
16,670 Cheil Communications, Inc. (Advertising)..... 2,175,274
165,110 Kookmin Bank (Non-U.S. Banks)................ 2,102,699
245,000 Korea Electric Power Corporation, ADR
(Non-U.S. Utilities)........................ 4,517,188
19,585 Korea Telecom Corporation
(Other Telephone/Communication).............. 1,724,847
56,329 Samsung Electronics
(Diversified Electronic Products)............ 18,641,197
9,130 SK Telecom Company, Ltd.+
(Other Telephone/Communication).............. 2,988,677
-------------
32,149,882
47
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
EMERGING MARKETS FUND
--------------------------
INVESTMENTS
<CAPTION>
SHARES VALUE (NOTE 1)
COMMON STOCKS CONTINUED
<S> <C>
MALAYSIA - 5.4%
915,000 AMMB Holdings Berhad
(Investment Bankers/Brokers/Services)........ $ 3,058,026
696,000 Commerce Asset Holdings Berhad
(Non-U.S. Banks)............................. 2,014,737
441,000 Digi.com Berhad+
(Other Telephone/Communication).............. 806,566
375,000 Malayan Banking Berhad (Non-U.S. Banks)...... 1,519,737
240,000 New Straits Times Press Berhad (The)
(Newspapers)................................. 568,421
2,772,000 Public Bank Berhad (Non-U.S. Banks).......... 2,553,158
1,241,000 Resorts World Berhad (Hotels/Resorts)........ 3,396,421
605,000 Tenaga Nasional Berhad (Non-U.S. Utilities).. 1,974,210
-------------
15,891,276
MEXICO - 14.0%
283,000 Apasco S.A. de C.V. (Building Materials)..... 1,624,702
74,700 Cemex S.A. de C.V., Sponsored ADR
(Building Materials)......................... 1,746,113
1,877,000 Controladora Comercial Mexicana S.A. de C.V.
(Department Stores).......................... 1,754,651
332,769 Corporacion Interamericana de Entretenimento
S.A., Series B+ (Advertising)................ 1,301,794
58,500 Fomento Economico Mexicano S.A. de C.V.+
(Soft Drinks)................................ 2,519,156
897,000 Grupo Financiero Banamex Accival S.A. de
C.V., Series B-Banacci+ (Non-U.S. Banks)..... 3,773,388
685,000 Grupo Mexico S.A., Series B+
(Other Metals/Minerals)...................... 1,928,009
39,600 Grupo Televisa S.A., GDR+,++
(Broadcasting)............................... 2,729,925
422,000 Kimberly-Clark de Mexico S.A. de C.V.
(Package Goods/Cosmetics).................... 1,200,630
432,000 Organizacion Soriana S.A. de C.V.+
(Other Specialty Stores)..................... 1,720,713
259,180 Telefonos de Mexico S.A., ADR
(Other Telephone/Communication).............. 14,805,658
2,747,000 Wal-Mart de Mexico S.A. de C.V.+
(Other Specialty Stores)..................... 6,447,767
-------------
41,552,506
PAKISTAN - 0.0%@
514 Engro Chemical Pakistan
(Agricultural Chemicals)..................... 578
PERU - 0.3%
57,900 Compania de Minas Buenaventura S.A., ADR
(Precious Metals)............................ 1,002,394
1 Ferreyros Enrique S.A., ADR+
(Construction/Agriculture Equipment/Trucks).. ---
-------------
1,002,394
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
PHILIPPINES - 0.0%@
100 Ayala Corporation (Multi-Sector Companies)...$ 18
POLAND - 0.4%
109,600 Elektrim Spolka Akcyjna S.A.+
(Wholesale Distributors)..................... 1,258,497
RUSSIA - 2.9%
205,000 Lukoil Holding Company, Sponsored ADR
(Integrated Oil Companies)................... 4,100,000
134,900 Mobile Telesystems, Sponsored ADR+
(Cellular Telephone)......................... 3,018,388
14,000,000 RAO Unified Energy Systems+
(Non-U.S. Utilities)......................... 1,610,000
-------------
8,728,388
SOUTH AFRICA - 7.5%
3,293,700 African Bank Investments Ltd.+
(Diversified Financial Services)............. 4,307,333
158,900 Anglo American Platinum Corporation, Ltd.
(Precious Metals)............................ 4,582,887
105,000 De Beers Centenary AG
(Other Metals/Minerals)...................... 2,557,196
199,000 Dimensions Data Holding Ltd.
(Electronic Data Processing)................. 1,647,808
109,600 Impala Platinum Holdings Ltd.+
(Precious Metals)............................ 4,079,870
1 Liberty Life Association of Africa Ltd.
(Life Insurance)............................. 10
18,970 Pepsi International Bottlers+ss.(a)
(Soft Drinks)................................ 80,622
257,000 Sappi Ltd. (Paper)........................... 1,934,613
465,936 Sasol Ltd. (Coal Mining)..................... 3,129,164
-------------
22,319,503
TAIWAN - 9.4%
622,000 Hon Hai Precision Industry Company, Ltd.+
(EDP Peripherals)............................ 5,627,860
350,225 Synnex Technology International Corporation+
(Electronics Distributors)................... 1,880,785
2,398,310 Taiwan Semiconductor Manufacturing Company,
Ltd.+ (Electronic Production Equipment)...... 11,396,363
2,623,600 United Microelectronics Corporation, Ltd.+
(Semiconductors)............................. 7,300,824
2,900,000 Yang Ming Marine Transport+
(Marine Transportation)...................... 1,595,118
-------------
27,800,950
THAILAND - 1.6%
113,000 Advanced Info Service Public Company, Ltd.+
(Cellular Telephone)......................... 1,407,632
201,600 Hana Microelectronics Public Company, Ltd.
(Diversified Electronic Products)............ 1,585,011
1,982,700 Thai Farmers Bank Public Company, Ltd. (F)
(Non- U.S. Banks)............................ 1,670,175
-------------
4,662,818
48
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
EMERGING MARKETS FUND
--------------------------
INVESTMENTS
<CAPTION>
SHARES VALUE (NOTE 1)
COMMON STOCKS CONTINUED
<S> <C>
TURKEY - 2.7%
26,916,000 Arcelik A.S.
(Consumer Electronics/Appliances)............. $ 1,323,144
45,300,000 Dogan Sirketler Grubu Holdings A.S.
(Diversified Manufacture)..................... 1,095,182
83,192,000 Turkiye Is Bankasi, Class C (Non-U.S. Banks).. 1,776,618
350,393,890 Yapi Ve Kredi Bankasi S.A.+
(Non-U.S. Banks).............................. 3,896,748
-------------
8,091,692
UNITED KINGDOM - 0.0%@
1 Liberty International PLC (Real Estate)....... 8
TOTAL COMMON STOCKS
(Cost $230,766,779)........................................... 272,345,788
-------------
PREFERRED STOCKS 4.7%
BRAZIL - 4.7%
187,100,000 Banco Bradesco S.A. (Non-U.S. Banks).......... 1,628,761
4,157,000 Itausa Investimentos Itau
(Multi-Sector Companies)...................... 4,033,685
214,943,580 Tele Norte Leste Participacoes S.A.
(Other Telephone/Communication)............... 5,035,412
4,156,835 Telecomunicacoes de Ceana S.A.
(Cellular Telephone).......................... 460,974
560,224 Telemig Celular S.A., Series C
(Cellular Telephone).......................... 14,289
94,800 Vale do Rio Doce, Series A
(Other Metals/Minerals)....................... 2,675,534
-------------
TOTAL PREFERRED STOCKS
(Cost $12,180,888)............................................ 13,848,655
-------------
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
MONEY MARKET FUND - 0.0%@
19 Chase Vista Federal Money Market Fund
(Cost $19).................................... $ 19
-------------
TOTAL INVESTMENTS - 96.4%
(Cost $242,947,686*).......................................... 286,194,462
OTHER ASSETS AND LIABILITIES - 3.6%
(Net).......................................................... 10,841,069
-------------
NET ASSETS - 100.0%............................................ $ 297,035,531
=============
</TABLE>
* Aggregate cost for federal tax purposes $244,595,024.
+ Non-income-producing security.
ss. Valued in good faith using procedures approved by the Board of Trustees.
++ 144A security. Certain conditions for public sale may exist.
@ Amount represents less then 0.1%.
(a) Restricted securities: At June 30, 2000, the Fund owned the following
restricted securities, constituting less than 0.03% of net assets, which
may not be publicly sold without registration under the Securities Act
of 1933 (Note 1). Additional information on the securities is as follows:
Pepsi International Bottlers
<TABLE>
<CAPTION>
Value per
Acquisition Date Shares Cost Share
--------------------------------------------------------------------------------
<S> <C> <C> <C>
3/20/97 18,970 $569,100 $4.25
</TABLE>
ABBREVIATIONS
ADR American Depositary Receipt
(F) Foreign or Alien Shares
GDR Global Depositary Receipt
49
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
EMERGING MARKETS
FOCUS FUND
--------------------------
PORTFOLIO HIGHLIGHTS
==============================================================================
PORTFOLIO MANAGEMENT
------------------------------------------------------------------------------
Josephine Jimenez, CFA..................................................Senior
Portfolio Manager
==============================================================================
FUND PERFORMANCE
------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/00
------------------------------------------------------------------------------
MONTGOMERY EMERGING MARKETS
FOCUS FUND
Since inception (12/31/97)............................................. 24.17%
One year............................................................... 27.91%
------------------------------------------------------------------------------
MSCI EMERGING MARKETS FREE INDEX
Since 12/31/97......................................................... 5.50%
One year............................................................... 9.47%
------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
Emerging
Market
Focus Index(1) Lipper
---------- ------------- ----------------
<S> <C> <C> <C>
Dec-97 10000 10000 10000
Jan-98 8949 9216 9284
Feb-98 9998 10178 10117
Mar-98 10801 10619 10508
Apr-98 11331 10504 10572
May-98 9790 9064 9210
Jun-98 8826 8113 8371
Jul-98 9081 8371 8652
Aug-98 6558 5950 6204
Sep-98 7258 6328 6385
Oct-98 7825 6994 6952
Nov-98 8032 7576 7378
Dec-98 7489 7466 7275
Jan-99 7846 7346 7138
Feb-99 7740 7417 7074
Mar-99 9293 8395 7833
Apr-99 10325 9433 8880
May-99 10798 9378 8797
Jun-99 12690 10443 9835
Jul-99 12594 10159 9641
Aug-99 11677 10251 9509
Sep-99 11641 9904 9175
Oct-99 12207 10115 9506
Nov-99 14890 11022 10565
Dec-99 16653 12424 12484
Jan-00 16693 12498 12362
Feb-00 16820 12663 12920
Mar-00 17878 12725 12987
Apr-00 16085 11519 11514
May-00 15223 11043 10879
Jun-00 16232 11432 11420
</TABLE>
(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 152 Funds.
INVESTMENT REVIEW
Q: HOW DID THE FUND PERFORM DURING THE 12 MONTHS ENDED JUNE 30, 2000?
A: The Fund outperformed its benchmark, the Morgan Stanley Capital International
(MSCI) Emerging Markets Free Index, by a wide margin, returning 27.91%, versus
9.47% for the benchmark.
Q: WHAT MAIN FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A: Stock selection played the most important role in the Fund's performance
relative to its benchmark over the past year. But on some
occasions--particularly during the first half of 2000--that factor could not
offset a general decline in the emerging markets.
As in developed markets, technology stocks led many emerging markets around the
world in 1999 and part of 2000. The trend was positive for northern Asian
markets in particular, which are home to a number of world-class technology
companies, such as Samsung Electronics of Korea. Samsung was a strong holding
for the Fund over the year, as was Taiwan Semiconductor Manufacturing. Both
companies have been benefiting from a strong surge in demand for components used
in end-source products. Samsung, for example, is a leading producer of DRAM
chips, mobile-telephone handsets and flat-panel liquid crystal displays (LCDs).
Yet its shares continue to trade inexpensively, which in our opinion is
primarily a reflection of investor concerns about Korea's market environment
rather than of the company's fundamentals.
In a number of markets, domestically focused telecom companies such as SK
Telecom of Korea, China Telecom of Hong Kong, Embratel of Brazil and
Telefonos de Mexico also performed well over the past year. Subscriber growth
and demand for new services such as wireless Internet access should provide a
powerful source of long-term earnings for these companies. Accelerating
economic growth in Brazil and Mexico is creating a tailwind for Embratel and
Telefonos de Mexico, in particular, as it is for other domestically oriented
companies in those markets. The growing momentum also helped boost such
holdings as Grupo Financiero Banamex over the past year.
Finally, South African mining stocks such as Impala have appreciated this year
on the back of strong demand for platinum.
Although these holdings helped the Fund relative to its benchmark index, the
Fund's performance did suffer in absolute terms during the first half of 2000.
Rising interest rates and fears of higher inflation depressed many emerging
markets over that period and had a concurrent impact on the Fund.
Q: HAVE YOU MADE ANY SIGNIFICANT CHANGES TO THE FUND RECENTLY?
A: During the third quarter, we initiated a position in Russia, where the
political and economic environment appear to be improving. We invested in a
company called Unified Energy Systems on the basis of its attractive valuation
and privatization prospects.
50
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
EMERGING MARKETS
FOCUS FUND
--------------------------
PORTFOLIO HIGHLIGHTS
Q: WHERE DO YOU BELIEVE THE BEST OPPORTUNITIES IN THE EMERGING MARKETS WILL
BE IN THE SECOND HALF OF 2000 AND BEYOND?
A: Right now we are seeking opportunities to profit from potentially stronger
economic growth in Latin America. Last year Asian economies garnered a great
deal of attention as they emerged from recession. In 2000, Latin American
economies (especially Brazil's and Mexico's) are boasting the fastest growth
rates, driven by a decline in domestic real interest rates as well as by the
strength of the U.S. economy. Our focus in these two markets is on domestically
oriented companies, which should benefit from an increase in consumer spending
and industrial production.
We also see some encouraging trends developing in Russia, which appears to offer
much better opportunities than do most emerging markets in Europe. Higher prices
for crude oil, Russia's major export, helped shore up the country's current
accounts. Russia's improved foreign- reserve position has also stabilized its
currency and helped spur economic activity. In fact, we believe that Russia's
gross domestic product (GDP) may grow by 5% this year. In addition, the new
government of Vladimir Putin has been proactive in advancing reforms, including
possible privatization of such enterprises as Unified Energy Systems.
Looking forward, we remain confident about the prospects for emerging markets,
despite recent volatility. Many stocks in the emerging markets appear
inexpensive relative to global averages. Those attractive valuations, combined
with strong GDP growth momentum, lead us to believe that the asset class
continues to offer strong long-term return potential.
==============================================================================
TOP TEN HOLDINGS
------------------------------------------------------------------------------
(as a percentage of total net assets)
Impala Platinum Holdings Ltd. ......................................... 7.8%
Embratel Participacoes ADR............................................. 6.7%
Grupo Financiero Banamex Accival
S.A. de C.V., Series B-Banacci......................................... 5.7%
Telefonos de Mexico S.A., ADR.......................................... 5.7%
China Mobile (Hong Kong) Ltd., ADR..................................... 5.4%
Samsung Electronics.................................................... 5.3%
Pao de Acucar ADR...................................................... 4.7%
Aracruz Celulose S.A. de C.V.,
Sponsored ADR.......................................................... 4.3%
Taiwan Semiconductor Manufacturing
Company, Ltd. ......................................................... 4.2%
Wal-Mart de Mexico S.A. de C.V. ....................................... 3.9%
==============================================================================
TOP FIVE COUNTRIES
------------------------------------------------------------------------------
(as a percentage of total net assets)
Mexico................................................................. 21.7%
Brazil................................................................. 20.6%
Taiwan................................................................. 10.7%
China/Hong Kong........................................................ 9.1%
Korea.................................................................. 8.3%
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.
51
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
EMERGING MARKETS
FOCUS FUND
--------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
Shares VALUE (NOTE 1)
<S> <C>
COMMON STOCKS - 80.5%
BRAZIL - 18.9%
10,600 Aracruz Celulose S.A. de S.V.,
Sponsored ADR (Paper).......................$ 204,713
13,500 Embratel Participacoes ADR
(Other Telephone/Communication)............. 318,937
6,900 Pao de Acucar ADR (Food Chains)............. 221,662
5,060 Petroleo Brasileiro S.A.
(Integrated Oil Companies).................. 148,644
------------
893,956
CHINA/HONG KONG - 9.1%
3,200 AsiaInfo Holdings, Inc.+
(Internet Services)......................... 143,100
29,000 China Mobile (Hong Kong) Ltd., ADR+
(Other Telephone/Communication)............. 255,757
16,000 China Unicom Ltd.+
(Other Telephone/Communication)............. 33,968
------------
432,825
KOREA - 8.3%
754 Samsung Electronics
(Diversified Electronic Products)........... 249,525
430 SK Telecom Company, Ltd.
(Other Telephone/Communication)............. 140,759
------------
390,284
MALAYSIA - 3.0%
42,000 AMMB Holdings Berhad
(Investment Bankers/Brokers/Services)....... 140,368
MEXICO - 21.7%
3,500 Fomento Economico Mexicano S.A. de C.V.,
Sponsored ADR+ (Soft Drinks)................ 150,719
64,000 Grupo Financiero Banamex Accival S.A. de
C.V., Series B-Banacci+ (Non-U.S. Banks).... 269,227
38,000 Organizacion Soriana S.A. de C.V.+
(Other Specialty Stores).................... 151,359
4,700 Telefonos de Mexico S.A., ADR
(Other Telephone/Communication)............. 268,488
79,000 Wal-Mart de Mexico S.A. de C.V.+
(Other Specialty Stores).................... 185,429
------------
1,025,222
RUSSIA - 1.0%
2,100 Mobile Telesystems, Sponsored ADR+
(Cellular Telephone)........................ 46,987
SOUTH AFRICA - 7.8%
9,950 Impala Platinum Holdings Ltd.
(Precious Metals)........................... 370,390
TAIWAN - 10.7%
16,000 Hon Hai Precision Industry Company, Ltd.
(EDP Peripherals)........................... 144,768
42,240 Taiwan Semiconductor Manufacturing Company,
Ltd.+ (Electronic Production Equipment)..... 200,717
57,600 United Microelectronics Corporation, Ltd.+
(Semiconductors)............................ 160,287
------------
505,772
TOTAL COMMON STOCKS
(Cost $3,236,263)............................................ 3,805,804
------------
PREFERRED STOCK - 1.7%
BRAZIL - 1.7%
9,000,000 Banco Bradesco S.A. (Non-U.S. Banks)
(Cost $77,815).............................. 78,348
------------
MONEY MARKET FUND 3.1%
145,022 Chase Vista Federal Money Market Fund
(Cost $145,022)............................. 145,022
------------
TOTAL SECURITIES
(Cost $3,459,100)............................................ 4,029,174
------------
PRINCIPAL AMOUNT
REPURCHASE AGREEMENTS - 12.2%
$ 399,000 Agreement with Chase Manhattan Bank, Tri-
Party, 7.000% dated 06/30/00, to be
repurchased at $399,230 on 07/03/00,
collateralized by $406,983 market value
of U.S. government and mortgage-backed
securities, having various maturities and
interest rates.............................. 399,000
------------
180,000 Agreement with Greenwich Capital Markets,
Tri-Party, 7.000% dated 06/30/00, to be
repurchased at $180,104 on 07/03/00,
collateralized by $183,601 market value
of U.S. government and mortgage-backed
securities, having various maturities and
interest rates.............................. 180,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $579,000).............................................. 579,000
------------
52
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
EMERGING MARKETS
FOCUS FUND
--------------------------
INVESTMENTS
<CAPTION>
VALUE (NOTE 1)
<S> <C>
TOTAL INVESTMENTS 97.5%
(Cost $4,038,100*)........................................... $ 4,608,174
OTHER ASSETS AND LIABILITIES 2.5%
(Net)........................................................ 117,122
------------
NET ASSETS - 100.0%......................................... $ 4,725,296
============
</TABLE>
*Aggregate cost for federal tax purposes $4,043,596.
+Non-income-producing security.
ABBREVIATIONS
ADR American Depositary Receipt
53
The accompanying notes are an integral part of these financial statments.
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
EMERGING ASIA FUND
--------------------------
PORTFOLIO HIGHLIGHTS
==============================================================================
PORTFOLIO MANAGEMENT
------------------------------------------------------------------------------
Frank Chiang.................................................Portfolio Manager
==============================================================================
FUND PERFORMANCE
------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/00
------------------------------------------------------------------------------
MONTGOMERY EMERGING ASIA FUND
Since inception (9/30/96)............................................ (0.11)%
One year............................................................. (12.56)%
Three years.......................................................... (14.23)%
------------------------------------------------------------------------------
MSCI ALL-COUNTRY ASIA FREE
(EX-JAPAN) INDEX
Since 9/30/96........................................................ (5.53)%
One year............................................................. (0.84)%
Three years.......................................................... (8.69)%
------------------------------------------------------------------------------
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>
Emerging MSCI
Asia All-Country Asia(1) Lipper(2)
---- ------------------- ---------
<S> <C> <C> <C>
Sep-96 10000 10000 10000
Oct-96 10142 9810.4 9857.86
Nov-96 11750 10273.81 10353.55
Dec-96 12106 10238.21 10437.75
Jan-97 12807 10449.83 10581.45
Feb-97 13175 10539.17 10668.58
Mar-97 13275 9943.77 10168.77
Apr-97 13475 9795.14 10012.89
May-97 14502 10238.27 10619.62
Jun-97 15780 10612.98 10954.03
Jul-97 16256 10701.75 11115.05
Aug-97 14928 8803.84 9464.41
Sep-97 14035 8764.44 9393.41
Oct-97 9785 6815.87 7364.74
Nov-97 8992 6348.51 6950.66
Dec-97 8680 6111.6 6753.05
Jan-98 7130 5583.2 6111.33
Feb-98 9015 6767.04 7083.27
Mar-98 8698 6667.43 6997.09
Apr-98 7681 6083.05 6596.57
May-98 6636 5154.73 5024.48
Jun-98 5768 4576.2 5204.71
Jul-98 5366 4460.09 5096.83
Aug-98 4582 3817.86 4453.09
Sep-98 5506 4196.41 4884.74
Oct-98 7065 5108.64 5635.5
Nov-98 7522 5521.02 5978.12
Dec-98 7402 5635.8 6057.64
Jan-99 6777 5546 5905
Feb-99 6459 5438 5754
Mar-99 7066 6090 5299
Apr-99 9194 7203 6342
May-99 9064 7047 6283
Jun-99 11388 8149 7271
Jul-99 10445 7969 7163
Aug-99 10324 8166 7184
Sep-99 9306 7595 6751
Oct-99 9614 7839 7016
Nov-99 10389 8585 7907
Dec-99 11547 9280 8838
Jan-00 11458 9235 8693
Feb-00 10688 9042 8741
Mar-00 11142 9255 8966
Apr-00 10154 8406 7960
May-00 9235 7675 7239
Jun-00 9956 8080 7732
</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 57
funds.
INVESTMENT REVIEW
Q: HOW DID THE FUND PERFORM DURING THE 12 MONTHS ENDED JUNE 30, 2000?
A: The Fund underperformed its benchmark, the Morgan Stanley Capital
International (MSCI) All-Country Asia Free (ex-Japan) Index, returning
-12.56%, versus -0.84% for the benchmark.
Q: WHAT MAIN FACTORS CONTRIBUTED TO THE PERFORMANCE OF ASIAN MARKETS DURING
THE YEAR?
A: Two quarters of very strong performance in the middle of the period were
flanked by two disappointing quarters. From July through September 1999,
declines in Thai and other Southeast Asian holdings offset the Fund's gains in
northern Asian markets such as Korea and China/Hong Kong. This disparity between
north and south persisted for much of the fiscal year. In part the trend
reflected the technology boom, because markets such as Korea and Taiwan are
populated by many more technology companies than are their Southeast Asian
counterparts. But after a few months of very strong performance, starting in
mid-March northern Asian markets declined in tandem with the NASDAQ. The
performance of India's market, which is increasingly influenced by technology
stocks, reflected the same trend.
Q: DID YOU MAKE ANY SIGNIFICANT CHANGES TO THE PORTFOLIO OVER THE PERIOD?
A: We continued to scale back the Fund's exposure to Southeast Asian markets,
particularly the Philippines and Indonesia because, in our opinion, the
political and macroeconomic outlook there remains generally poor. The one
exception is Malaysia, which we think is fundamentally the strongest economy in
Southeast Asia. Malaysia's stock market is also benefiting from the technology
boom, a revival of domestic consumption and low interest rates.
Q: WHERE IN THE REGION DO YOU SEE THE BEST OPPORTUNITIES EMERGING NOW?
A: We believe that some of the most attractive opportunities in the
Asia-Pacific region currently lie in Korea. Over the spring its market fell
on news that Hyundai, one of its largest conglomerates, was facing a
cash-flow crisis. Shares of other Korean companies--many of which are
connected to Hyundai either directly or indirectly--dropped, and the market
as a whole hit a 12-month low.
The downturn created what we saw as an excellent opportunity to initiate new
positions or add to the Fund's existing ones in the market's more attractive
companies. Shares of Samsung Electronics, for example, have been depressed by
Hyundai's problems at home, even though the company remains a very strong
competitor on the global stage. It is a leading producer of computer memory
chips, mobile telephone handsets and flat-panel liquid crystal displays
(LCDs)--three products currently in tremendous demand. Many South Korean
companies continue to enjoy strong export sales, and firms that restructured
during the 1997/98 economic crisis are now in much better shape financially. Yet
Korean stocks, like Asian equities in general, are extremely inexpensive
relative to international averages.
54
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
EMERGING ASIA FUND
--------------------------
PORTFOLIO HIGHLIGHTS
In addition, the June meeting of South Korean President Kim Dae Jung and North
Korean leader Kim Jong Il was auspicious, even though they did not discuss any
specific measures to reduce the ill will between the two countries. One can only
hope that the dialogue will continue, thereby defusing one of the perennial and
most potent sources of tension in the Asia-Pacific region.
On a sector basis, we continue to find many attractive opportunities in the
technology and telecommunications sectors. Leading companies in these
industries, such as Samsung, should continue to thrive on massive global demand
for existing and new technologies like the wireless Internet.
Q: WHAT'S YOUR OUTLOOK FOR THE SECOND HALF OF 2000?
A: In the near term, the global economic environment seems fairly positive for
Asian equities. Although Japan has not delivered the economic boom some were
hoping for, its economy does not appear to be on the verge of lapsing back into
recession. In addition, the U.S. economy seems to be slowing at a measured pace,
and we believe that China and India continue to have strong economic prospects.
All of this, in our opinion, creates a positive backdrop for Asia-Pacific
markets and for the Fund.
==============================================================================
TOP TEN HOLDINGS
------------------------------------------------------------------------------
(as a percentage of total net assets)
Cheung Kong Holdings Ltd. ............................................. 4.5%
China Shipping Development
Company, Ltd. ......................................................... 4.4%
Pacific Century CyberWorks Ltd. ....................................... 4.0%
Samsung Electronics GDR................................................ 3.9%
HSBC Holdings PLC...................................................... 3.7%
United Micoelectronics
Corporation, Ltd. ..................................................... 3.4%
Hon Hai Precision Industry
Company, Ltd. ......................................................... 3.3%
China Everbright Ltd. ................................................. 3.2%
Shinawatra Satellite Public
Company, Ltd. ......................................................... 3.0%
Tenaga Nasional Berhad................................................. 3.0%
==============================================================================
TOP FIVE COUNTRIES
------------------------------------------------------------------------------
(as a percentage of total net assets)
China/Hong Kong........................................................ 31.1%
Korea.................................................................. 22.9%
Taiwan................................................................. 11.3%
Thailand............................................................... 9.4%
India.................................................................. 8.4%
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.
There are risks associated with in 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.
55
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
EMERGING ASIA FUND
--------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
COMMON STOCKS - 97.5%
CHINA/HONG KONG - 31.1%
100,000 Cheung Kong Holdings Ltd. (Real Estate)..... $ 1,106,408
1,000,000 China Everbright Ltd.
(Other Specialty Stores).................... 782,503
394,000 China Resources Enterprises Ltd.
(Real Estate)............................... 472,567
6,000,000 China Shipping Development Company, Ltd.+
(Marine Transportation)..................... 1,092,938
90,000 China Unicom Ltd.+
(Other Telephone/Communication)............. 191,072
100,000 Citic Pacific Ltd. (Wholesale Distributors) 523,379
648,000 Cosco Pacific Ltd.
(Marine Transportation)..................... 511,218
81,537 HSBC Holdings PLC (Non- U.S. Banks)......... 930,895
500,000 Pacific Century CyberWorks Ltd.
(Telecommunications Equipment).............. 987,749
3,080,000 Shanghai Industrial Holdings Ltd.
(Specialty Chemicals)....................... 418,806
100,000 Sun Hung Kai Properties Ltd. (Real Estate).. 718,363
--------------
7,735,898
INDIA - 8.4%
20,900 Hindalco Industries Ltd., GDR++
(Aluminum).................................. 409,117
1,700 Infosys Technologies Ltd.
(Computer Software)......................... 303,663
7,700 Rediff.com (India) Ltd., ADR+
(Internet Services)......................... 108,281
30,000 Reliance Industries Ltd., GDR (Textiles).... 630,000
40,000 Videsh Sanchar Nigam Ltd., GDR
(Other Telephone/Communication)............. 625,000
--------------
2,076,061
INDONESIA - 2.0%
1,404,000 PT Telekomunikasi Indonesia
(Other Telephone/Communication)............. 493,265
KOREA - 22.9%
54,000 Daelim Industrial Company, Ltd.
(Engineering and Construction).............. 257,160
25,700 Hyundai Electronics Industries Company
(Semiconductors)............................ 507,074
23,000 Hyundai Motor Company, Ltd. (Motor Vehicles) 294,971
24,000 Korea Electric Power Corporation, ADR
(Non- U.S. Utilities)....................... 744,737
77,700 Korean Air Company, Ltd. (Airlines)......... 644,582
10,000 LG Chemical Ltd. (Specialty Chemicals)...... 199,995
20,000 Pohang Iron & Steel Company, Sponsored ADR
(Steel/Iron Ore)............................ 480,000
25,911 Pusan City Company, Ltd.
(Natural Gas Distribution).................. 177,771
5,000 Samsung Electronics GDR
(Diversified Electronic Products)........... 980,000
78,000 Shinhan Bank Company, Ltd. (Non-U.S. Banks) 734,513
6,000 Shinsegae Department Store Company
(Other Specialty Stores).................... 263,671
21,800 SK Corporation (Oil Refining/Marketing) 399,820
--------------
5,684,294
MALAYSIA - 6.7%
50,000 Malaysian Pacific Industries Berhad
(Containers/Packaging)...................... 513,158
150,000 Resorts World Berhad (Hotels/Resorts)....... 410,526
230,000 Tenaga Nasional Berhad (Non-U.S. Utilities) 750,526
--------------
1,674,210
SINGAPORE - 5.7%
100,000 City Developments Ltd. (Real Estate)........ 387,844
100,000 Overseas Union Bank Ltd. (Non-U.S. Banks)... 387,844
40,352 Singapore Press Holdings Ltd. (Newspapers).. 630,682
--------------
1,406,370
TAIWAN - 11.3%
38,080 Asustek Computer, Inc.
(Electronic Data Processing)................ 314,803
200,000 Far East Textiles Ltd. (Textiles)........... 248,657
90,000 Hon Hai Precision Industry Company, Ltd.
(EDP Peripherals)........................... 814,321
300,000 United Microelectronics Corporation, Ltd.
(Semiconductors)............................ 834,825
384,810 Yageo Corporation (Electronic Components)... 594,906
--------------
2,807,512
THAILAND - 9.4%
1,750,000 Industrial Finance Corporation of Thailand
(Finance Companies)......................... 366,305
500,000 Kiatnakin Finance and Securities Public
Company, Ltd. (Non- U.S. Banks)............. 229,739
118,800 PTT Exploration and Production Public
Company, Ltd. (F) (Oil & Gas Production).... 576,184
1,000,000 Shinawatra Satellite Public Company, Ltd.
(Telecommunications Equipment).............. 753,031
482,000 Thai Farmers Bank Public Company, Ltd.
(Non-U.S. Banks)............................ 406,025
--------------
2,331,284
TOTAL COMMON STOCKS
(Cost $21,996,033)........................................... 24,208,894
--------------
</TABLE>
56
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>
REPURCHASE AGREEMENT - 3.0%
$ 746,000 Agreement with Greenwich Capital Markets,
Tri-Party, 7.000% dated 06/30/00, to be
repurchased at $746,429 on 07/03/00,
collateralized by $760,923 market value
of U.S. government and mortgage-backed
securities, having various maturities and
interest rates (Cost $746,000).............. $ 746,000
-----------
TOTAL INVESTMENTS - 100.5%
(Cost $22,742,033*).......................................... 24,954,894
OTHER ASSETS AND LIABILITIES - (0.5)%
(Net)........................................................ (112,223)
-----------
NET ASSETS - 100.0%.......................................... $ 24,842,671
============
</TABLE>
* Aggregate cost for federal tax purposes $23,595,241.
+ Non-income-producing security.
++ 144A security. Certain conditions for public sale may exist.
ABBREVIATIONS
ADR American Depositary Receipt
(F) Foreign or Alien Shares
GDR Global Depositary Receipt
57
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
TOTAL RETURN BOND FUND
--------------------------
PORTFOLIO HIGHLIGHTS
==============================================================================
PORTFOLIO MANAGEMENT
------------------------------------------------------------------------------
William Stevens.......................................Senior Portfolio Manager
Marie Chandoha...............................................Portfolio Manager
==============================================================================
FUND PERFORMANCE
------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/00
------------------------------------------------------------------------------
MONTGOMERY
TOTAL RETURN BOND FUND
Since inception (6/30/97)............................................. 6.30%
One year.............................................................. 4.96%
Three years........................................................... 6.31%
------------------------------------------------------------------------------
LEHMAN BROTHERS
AGGREGATE BOND INDEX
Since 6/30/97......................................................... 6.03%
One year.............................................................. 4.56%
Three years........................................................... 6.03%
------------------------------------------------------------------------------
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>
Total Return Lehman(1) Lipper(2)
--------- --------- ------------------
<S> <C> <C> <C>
Jun-97 10000 10000 10000
Jul-97 10276 10269.67 10261.46
Aug-97 10176 10182.07 10170.54
Sep-97 10333 10332.24 10316.37
Oct-97 10493 10482.13 10434.05
Nov-97 10543 10530.4 10464.53
Dec-97 10646 10636.42 10559.13
Jan-98 10792 10772.97 10696.33
Feb-98 10779 10764.86 10681.51
Mar-98 10824 10801.85 10720.3
Apr-98 10860 10858.23 10766.05
May-98 10985 10961.23 10859.99
Jun-98 11092 11054.19 10937.9
Jul-98 11110 11077.71 10957.49
Aug-98 11326 11257.99 11085.45
Sep-98 11569 11521.61 11324.79
Oct-98 11479 11460.69 11235.09
Nov-98 11506 11525.74 11288.92
Dec-98 11575 11560.39 11327.14
Jan-99 11663 11643 11397
Feb-99 11454 11440 11190
Mar-99 11546 11503 11271
Apr-99 11569 11539 11306
May-99 11474 11438 11188
Jun-99 11447 11402 11146
Jul-99 11422 11353 11108
Aug-99 11423 11348 11090
Sep-99 11535 11479 11201
Oct-99 11557 11522 11216
Nov-99 11557 11521 11225
Dec-99 11507 11465 11177
Jan-00 11509 11428 11136
Feb-00 11654 11566 11244
Mar-00 11803 11718 11373
Apr-00 11779 11685 11310
May-00 11759 11679 11288
Jun-00 12017 11922 11516
</TABLE>
(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 205 funds.
INVESTMEMT REVIEW
Q: HOW DID THE FUND PERFORM OVER THE 12 MONTHS ENDED JUNE 30, 2000?
A: The Fund returned 4.96% over that period, versus a return of 4.56% for its
benchmark, the Lehman Brothers Aggregate Bond Index. The Lipper Intermediate
Investment-Grade Debt Funds Average returned 3.42% for the same 12-month period.
Q: WHAT MARKET FACTORS HAD THE GREATEST IMPACT ON THE FUND'S PERFORMANCE
DURING THE PERIOD?
A: As usual, interest rates had the most profound effect on the bond market and
the Fund over the past year. The Federal Reserve Board was concerned that the
U.S. economy was growing at an unsustainable pace and that low unemployment
would cause wages and benefits to rise, with the costs passed on to the
consumer. In addition, it appeared that the strong equity market was fueling the
economy through the "wealth effect" caused by rising equity prices. As a result,
the Federal Reserve pursued a program of hiking short-term interest rates in an
effort to slow growth and head off inflation. Overall, it raised interest rates
six times over the Fund's fiscal year, totaling 1.75 percentage points.
Although market rates rose steadily through the last half of 1999, they
trended downward during the first quarter of 2000, due in part to the
realization that the Y2K computer bug was not going to cripple the markets.
In addition, in March the U.S. Treasury started paying down the government
debt by buying back long-term Treasury debt. This pushed longer-term yields
lower and prices higher during the first quarter. Conflicting views about the
economy's momentum and whether the Fed acted quickly enough, however, kept
volatility high during the second quarter. The fiscal year concluded with
indications that the economy was slowing, resulting in a more positive tone
in the bond market.
Q: HOW DID THE DIFFERENT SEGMENTS OF THE BOND MARKET FARE?
A: Treasury bonds, especially those with long maturities, significantly
outperformed all other sectors of the bond market due to the Treasury's buy-back
program. The Treasury is also auctioning fewer bonds, as the strong U.S. economy
and the balanced federal budget have led to a federal budget surplus. In
response, bond investors have flocked to Treasuries, fearing that they might
become scarce. This combination of decreased supply and strong demand forced
yields on longer-term Treasuries lower and their prices higher. In fact, yields
on long-term Treasury bonds actually fell below those of short-term Treasuries.
Meanwhile, corporates and bonds in other sectors underperformed Treasuries
because of concerns about deteriorating credit fundamentals. As in the equity
markets, there was a significant divergence between bonds that did well and
those that did not. U.S. government agency securities also lagged Treasuries due
to increased scrutiny of their implied governmental backing.
58
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
TOTAL RETURN BOND FUND
--------------------------
PORTFOLIO HIGHLIGHTS
Q: HOW DID YOU POSITION THE FUND AS THESE EVENTS TRANSPIRED?
A: We applied a conservative strategy in response to more-volatile market
conditions and rising interest rates. In keeping with our investment process, we
emphasized bottom-up security selection and focused secondarily on sector
positioning. This approach was rewarded, as the bonds we chose for the Fund
helped it outperform its benchmark. For example, our decision to sell the Fund's
holdings in Occidental Petroleum and Bristol Meyers corporate bonds was timely.
We were able to eliminate those securities from the portfolio before they began
underperforming their peers. In addition, we increased the percentage of the
Fund dedicated to long-term Treasury bonds just before the Treasury announced
its buy-back program.
Over the course of the year, we also pared back the Fund's positions in
corporate bonds and remained concerned about the fundamentals in
this sector. Warning signs have included rising default rates and more credit
downgrades than upgrades. Credit fundamentals have also weakened as corporations
increased their leverage through the issuance of debt over the past two years to
finance mergers and acquisitions. Furthermore, in sectors of the equity market
where prices have declined significantly, companies have been buying back stock
to prop up their equity prices, a positive for equity holders but generally a
negative for bond holders.
Q: WHAT IS YOUR OUTLOOK FOR THE COMING YEAR?
A: It is difficult to tell whether the recent series of weak economic data is
signaling that the economy is entering a sustained slowdown. These releases may
temporarily delay more rate hikes, but we expect the Federal Reserve to
eventually continue raising rates, as consumer confidence and retail spending
are still strong. Because of the potential for further interest rate increases
and weakening corporate credit fundamentals, we anticipate maintaining a
defensive stance in the near term. Once the Fed stops raising rates, we believe
that bonds will likely perform very well. At that point we intend to become more
aggressive, taking advantage of the attractive values that have developed in the
non-Treasury segments of the market.
==============================================================================
TOP TEN HOLDINGS
------------------------------------------------------------------------------
(as a percentage of total net assets)
FNMA TBA Feb., 30 Yr.,
8.000% due 02/01/26................................................. 18.2%
FNMA, TBA Jul., 30 Yr.,
6.000% due 07/01/28................................................. 8.1%
U.S. Treasury Notes,
5.625% due 05/15/08................................................. 7.2%
Green Tree Home Equity Loan Trust, Series 1999-DA6,
7.610% due 09/15/30................................................. 5.3%
U.S. Treasury Bonds,
8.875% due 02/15/19................................................. 5.3%
FNMA, Pool #B00688,
9.000% due 09/01/05................................................. 5.0%
U.S. Treasury Bonds,
6.125% due 11/15/27................................................. 5.0%
Bloomingdale Life Time Fitness
Ltd., Bonds,
6.700% due 01/01/20................................................. 3.6%
IRT Property Company, Notes,
7.450% due 04/01/01................................................. 3.1%
The Money Store Home Equity Trust,
Series 1995-CA9,
6.375% due 09/15/11................................................. 2.8%
==============================================================================
ASSET MIX
------------------------------------------------------------------------------
(as a percentage of total investments)
Corporate Bonds and Notes............................................. 22.4%
Agencies.............................................................. 21.3%
Treasuries............................................................ 14.2%
Asset-Backed Securities............................................... 13.7%
Collateralized Mortgage Obligations................................... 7.6%
Mortgage Pass-throughs................................................ 5.9%
Other................................................................. 14.9%
==============================================================================
INVESTMENT GRADE
------------------------------------------------------------------------------
(as a percentage of total investments)
Aaa................................................................... 60.0%
Aa.................................................................... 5.3%
A..................................................................... 8.8%
Baa................................................................... 10.2%
Nonrated.............................................................. 15.7%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
59
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
TOTAL RETURN BOND FUND
--------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
ASSET-BACKED SECURITIES - 17.0%
$ 620,000 DLJ Commercial Mortgage Corporation,
Series 1999-CG2, A1B,
7.300% due 06/10/09......................... $ 612,444
581,711 Ford Credit Auto Owner Trust,
Series 1998-B A3,
5.850% due 10/15/01......................... 580,257
570,719 GE Capital Mortgage Services, Inc.,
Series 1999-HE3,
6.520% due 08/25/13......................... 567,723
180,671 Green Tree Financial Corporation,
Series 1998-1A2,
5.850% due 10/02/08#........................ 180,335
1,500,000 Green Tree Home Equity Loan Trust,
Series 1999-DA6,
7.610% due 09/15/30#........................ 1,495,078
206,332 Premier Trust, Series B1,
10.500% due 12/20/05........................ 206,332
786,389 The Money Store Home Equity Trust,
Series 1995-CA9,
6.375% due 09/15/11#........................ 783,165
341,584 Union Acceptance Corporation,
Series 1998-B A3,
5.875% due 08/08/02#........................ 341,114
------------
TOTAL ASSET-BACKED SECURITIES
(Cost $4,802,733)............................................ 4,766,448
------------
CORPORATE BONDS AND NOTES - 27.8%
1,000,000 Bloomingdale Life Time
Fitness Ltd., Bonds,
6.700% due 01/01/20++....................... 1,000,000
250,000 Deutsche Telekom
International Finance, Bonds,
8.000% due 06/15/10......................... 251,875
500,000 Dominion Resources, Inc., Senior Notes,
8.125% due 06/15/10......................... 504,375
460,000 Enron Corporation, Bonds,
7.375% due 05/15/19#........................ 434,125
450,000 Ford Motor Credit Company, Debentures,
7.375% due 10/28/09#........................ 435,375
200,000 Franchise Finance Corporation, MTN,
6.780% due 02/20/02#........................ 195,000
500,000 General Electric Capital
Corporation, Debentures,
8.850% due 04/01/05#........................ 531,875
875,000 IRT Property Company, Notes,
7.450% due 04/01/01#........................ 868,437
650,000 Kimco Realty Corporation, Senior Notes,
6.500% due 10/01/03#........................ 621,563
400,000 Lockheed Martin Corporation, Notes,
7.200% due 05/01/36#........................ 379,000
500,000 MCI WorldCom, Inc., Senior Notes,
6.950% due 08/15/28#........................ 441,875
110,000 Occidental Petroleum Corporation, MTN,
9.750% due 06/15/01......................... 111,925
450,000 Occidental Petroleum Corporation,
Senior Notes,
7.650% due 02/15/06#........................ 447,188
550,000 Price Reit, Inc., Senior Notes,
7.250% due 11/01/00#........................ 549,298
500,000 Scottish Power PLC, MTN,
6.710% due 01/15/26......................... 420,000
645,000 Vastar Resources, Inc., MTN,
6.960% due 02/26/07......................... 625,650
------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $7,944,470)............................................ 7,817,561
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) - 8.8%
CMOs:
515,298 16D (TAC) 10.000% due 10/15/19.............. 536,332
804,067 2098VA (PAC) 6.000% due 10/15/05............ 782,489
273,116 2114VM (AD) 6.000% due 09/15/04............. 266,822
------------
1,585,643
NOTES:
470,000 5.650% due 02/02/06#........................ 437,417
450,000 6.000% due 04/27/04......................... 432,596
------------
870,013
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION
(Cost $2,476,122)........................................... 2,455,656
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 36.7%
AGENCIES:
5,100,000 TBA Feb., 30 Yr., 8.000% due 02/01/26+...... 5,120,706
2,500,000 TBA Jul., 30 Yr., 6.000% due 07/01/28+...... 2,287,500
------------
7,408,206
CMOs:
389,137 1988-16B (PAC), 9.500% due 06/25/18......... 404,246
845 1993-159PA (PAC), 0.000% due 01/25/21#...... 837
700,000 1994-12PH (PAC), 6.250% due 01/25/09........ 675,063
------------
1,080,146
PASS-THROUGHS:
398,546 Pool #323193, 9.000% due 09/01/07........... 406,875
1,393,491 Pool #B00688, 9.000% due 09/01/05........... 1,416,952
------------
1,823,827
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION
(Cost $10,364,956).......................................... 10,312,179
------------
</TABLE>
60
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
TOTAL RETURN BOND FUND
--------------------------
INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 0.8%
PASS-THROUGHS:
$ 24,853 8.500%, due 1/15/23#........................ $ 25,466
186,922 8.500%, due 2/15/23#........................ 191,537
8,654 8.500%, due 7/15/23#........................ 8,868
------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(Cost $229,226)............................................. 225,871
------------
MUNICIPAL BONDS AND NOTES - 2.1%
600,000 Pennsylvania Economic Development,
Financing Authority, Revenue Bonds,
6.75% due 09/01/14++ (Cost $600,000)........ 600,000
U.S. TREASURY BONDS - 10.3%
1,160,000 U.S. Treasury Bonds, 8.875% due 02/15/19.... 1,492,955
1,410,000 U.S. Treasury Bonds, 6.125% due 11/15/27#... 1,405,594
------------
TOTAL U.S. TREASURY BONDS
(Cost $2,802,463)........................................... 2,898,549
------------
U.S. TREASURY NOTE - 7.2%
2,110,000 U.S. Treasury Notes, 5.625%
due 05/15/08#
(Cost $2,009,580)........................... 2,034,831
SHARES
MONEY MARKET FUND - 0.2%
63,067 Chase Vista Federal Money Market Fund
(Cost $63,067).............................. 63,067
------------
TOTAL SECURITIES
(Cost $31,292,617).......................................... 31,174,162
------------
PRINCIPAL AMOUNT
REPURCHASE AGREEMENT - 13.1%
$ 3,676,000 Agreement with Greenwich Capital Markets,
Tri-Party, 7.000% dated 06/30/00, to be
repurchased at $3,678,115 on 07/03/00,
collateralized by $3,749,533 market value
of U.S. government and mortgage-backed
securities, having various maturities and
interest rates (Cost $3,676,000)............ 3,676,000
------------
TOTAL INVESTMENTS - 124.0%
(Cost $34,968,617*).......................................... $ 34,850,162
------------
OTHER ASSETS AND LIABILITIES - (24.0)%
(Net)........................................................ (6,738,494)
------------
NET ASSETS - 100.0%........................................... $ 28,111,668
============
</TABLE>
* Aggregate cost for federal tax purposes $35,129,990.
+ Security subject to dollar roll transactions. See note 1 and 4.
++ Floating-rate note reflects the rate in effect at June 30, 2000.
# All or a portion of this security held as collateral for dollar roll
transactions.
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.
CMO Collateralized Mortgage Obligation
MTN Medium-Term Notes
PAC Planned Amortization Class: bonds with coupon rates that adjust in
proportion to an index.
TAC Target Amortization Class: bond that pays principal based upon a
predetermined schedule which is derived by amortizing the collateral based
on a single prepayment rate.
TBA To-Be-Announced Security
61
The accompanying notes are an integral part of these financial statements.
<PAGE>
----------------------------
THE MONTGOMERY FUNDS
----------------------------
SHORT DURATION
GOVERNMENT BOND FUND
----------------------------
PORTFOLIO HIGHLIGHTS
==============================================================================
PORTFOLIO MANAGEMENT
------------------------------------------------------------------------------
William Stevens.......................................Senior Portfolio Manager
Marie Chandoha...............................................Portfolio Manager
==============================================================================
FUND PERFORMANCE
------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/00
------------------------------------------------------------------------------
MONTGOMERY SHORT DURATION
GOVERNMENT BOND FUND
Since inception (12/18/92)........................................... 6.08%
One year............................................................. 4.55%
Five years........................................................... 5.89%
------------------------------------------------------------------------------
LEHMAN BROTHERS GOVERNMENT
BOND 13 YEAR INDEX
Since 12/18/92....................................................... 5.49%
One year............................................................. 4.86%
Five years........................................................... 5.74%
------------------------------------------------------------------------------
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>
Short Duration
Gov. Bond Fund Lehman(1) Lipper(2)
-------------------- ------------ ----------
<S> <C> <C> <C>
Dec-92 10000 10000 10000
Jan-93 10175 10104.63 10098.78
Feb-93 10268 10185.02 10178.11
Mar-93 10350 10216.3 10206.23
Apr-93 10425 10278.46 10262.52
May-93 10442 10253.59 10253.07
Jun-93 10363 10330.05 10328.65
Jul-93 10623 10352.42 10356.66
Aug-93 10699 10438.4 10431.17
Sep-93 10758 10471.76 10457.86
Oct-93 10796 10495.17 10474.49
Nov-93 10797 10496.83 10464.46
Dec-93 10356 10538.47 10502.64
Jan-94 10940 10604.36 10568.7
Feb-94 10880 10539.92 10507.61
Mar-94 10831 10486.68 10436.78
Apr-94 10791 10446.69 10398.17
May-94 10799 10460.78 10408.92
Jun-94 10829 10487.09 10423.47
Jul-94 10938 10581.36 10500.62
Aug-94 10971 10616.17 10527.78
Sep-94 10931 10592.14 10508.78
Oct-94 10961 10616.38 10527.93
Nov-94 10940 10572.25 10496.02
Dec-94 10979 10592.76 10520.71
Jan-95 11133 10736.96 10642.57
Feb-95 11287 10883.02 10773.41
Mar-95 11351 10944.35 10830.68
Apr-95 11461 11042.14 10915.15
May-95 11651 11230.68 11083.52
Jun-95 11725 11291.38 11137.2
Jul-95 11732 11336.14 11165.68
Aug-95 11835 11403.68 11234.46
Sep-95 11918 11459.41 11289.84
Oct-95 12004 11554.3 11373.52
Nov-95 12133 11652.92 11464.88
Dec-95 12262 11740.98 11547.94
Jan-96 12336 11840.22 11627.25
Feb-96 12281 11794.43 11585.12
Mar-96 12210 11785.52 11576.12
Apr-96 12277 11796.92 11587.47
May-96 12288 11823.44 11602.6
Jun-96 12398 11909.42 11676.44
Jul-96 12448 11955.62 11722.78
Aug-96 12485 11999.34 11752.78
Sep-96 12598 12108.52 11851.28
Oct-96 12760 12244.85 11968.91
Nov-96 12887 12335.39 12057.55
Dec-96 12872 12337.46 12052.58
Jan-97 12936 12396.51 12109.27
Feb-97 12957 12426.55 12140.15
Mar-97 12930 12416.82 12129.15
Apr-97 13045 12518.13 12221.3
May-97 13136 12605.35 12295.01
Jun-97 13210 12692.16 12372.88
Jul-97 13410 12830.77 12501.68
Aug-97 13408 12844.03 12509.12
Sep-97 13524 12941.62 12599.68
Oct-97 13642 13037.96 12683.54
Nov-97 13678 13070.69 12708.43
Dec-97 13769 13158.33 12776.02
Jan-98 13917 13283.88 12886.12
Feb-98 13927 13295.9 12897.23
Mar-98 13985 13347.08 12943.03
Apr-98 14058 13411.72 12994.7
May-98 14156 13483.4 13063.85
Jun-98 14242 13552.81 13123.56
Jul-98 14320 13616.21 13175.82
Aug-98 14510 13781.96 13317.6
Sep-98 14698 13967.39 13466.82
Oct-98 14745 14035.55 13488.11
Nov-98 14718 14021.05 13491.91
Dec-98 14785 14074.71 13538.85
Jan-99 14835 14128.58 13604
Feb-99 14783 14064.97 13551
Mar-99 14877 14160.28 13631
Apr-99 14941 14204.41 13684
May-99 14876 14194.88 13672
Jun-99 14929 14236.32 13677
Jul-99 14968 14281 13695
Aug-99 15074 14320 13719
Sep-99 15176 14413 13806
Oct-99 15235 14452 13842
Nov-99 15264 14481 13878
Dec-99 15234 14493 13882
Jan-00 15217 14490 13892
Feb-00 15306 14589 13971
Mar-00 15414 14676 14081
Apr-00 15459 14713 14132
May-00 15524 14768 14156
Jun-00 15682 14929 14298
</TABLE>
(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
32 funds.
* Morningstar proprietary ratings on U.S.-domiciled funds reflect
historical risk-adjusted performance through 6/30/00. Ratings are
subject to change monthly, and past performance is no guarantee of
future results. Morningstar ratings on U.S.-domiciled funds are
calculated from a funds' three-, five-, and 10-year average annual
total 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
funds in a broad asset class receive five stars; the next 22.5%
receive four stars; the next 35% receive three stars, the next 22.5%
receive two stars and the bottom 10% receive one star. Ratings are
for Class R shares only; other classes may vary.
INVESTMENT REVIEW
Q: HOW DID THE FUND PERFORM DURING THE FISCAL YEAR ENDED JUNE 30, 2000?
A: The Fund's return over that period was 4.55%, compared with 4.86% for its
benchmark, the Lehman Brothers Government Bond 1-3 Year Index. In recognition of
its strong performance, Morningstar awarded the Fund an overall five-star rating
for its risk-adjusted returns over the period ended 6/30/00 among 1,684 taxable
bond funds. The Fund also received five stars for the three- and five-year
periods ended 6/30/00 among 1,684 and 1,287 taxable bond funds, respectively.*
Q: WHAT WAS THE BOND MARKET LIKE OVER THE PAST YEAR?
A: It was not the easiest of years. Rising interest rates at some times caused
concerns and at others havoc, as the Federal Reserve Board sought to make sure
that vibrant economic growth in the United States would not cause inflation.
High employment raised fears that employers would pass higher compensation costs
on to consumers, and the "wealth effect" sparked very high levels of consumer
spending, a major factor propelling the economy. To deal with these issues, the
Fed hiked the benchmark federal funds target rate six times starting on June 30,
1999, as it attempted to subdue growth and stop inflation before it emerged.
During the course of the year, the federal funds rate increased from 4.75% to
6.50%, a total of 1.75 percentage points.
After rising steadily during the last half of 1999, longer-term interest
rates declined over the first six months of 2000, reflecting a more positive
backdrop. Investors were relieved that the beginning of the New Year did not
bring with it any major problems related to the Y2K computer bug. In
addition, share-price declines in the stock market led many to believe that
the Federal Reserve's interest rate hikes were starting to garner their
desired effect. The U.S. Treasury's announcement that it would be paying down
the government debt by buying back long-term Treasuries also helped buoy the
prices of these securities. Nonetheless, volatility was the watchword over
the past six months. Sentiment shifted from positive to negative and back to
positive again as investors reacted to emerging data and tried to get a read
on how much influence the Federal Reserve's rate increases were having on the
strength of the economy. The fiscal year ended on a positive note, as some
new data indicated that economic growth may indeed be slowing.
Q: HOW DID THE DIFFERENT SECTORS IN WHICH THE FUND INVESTS PERFORM?
A: Topping the list of strong performers were Treasury bonds, most notably
long-term Treasuries. Robust economic growth in the United States and the
federal government's success at balancing the budget helped fill the Treasury's
coffers with a surplus. With less need to borrow and in an effort to reduce the
government's debt service, the Treasury moved to cut back on the number of bonds
it auctioned and announced plans to buy back higher-yielding long-term bonds. It
followed through with buy- backs in February and May. Concerned about a possible
dearth of Treasury securities, investors increased demand, pushing yields on
longer-term Treasuries lower and increasing their value. In fact, long-term
yields fell lower than short-term rates.
62
<PAGE>
----------------------------
THE MONTGOMERY FUNDS
----------------------------
SHORT DURATION
GOVERNMENT BOND FUND
----------------------------
PORTFOLIO HIGHLIGHTS
Bonds issued by government agencies such as the Federal National Mortgage
Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie
Mac) and the Government National Mortgage Association (Ginnie Mae) offered
generally good performance. That was despite increased scrutiny by some in
Congress and the Treasury, who called into question the agencies' implied
governmental backing. Despite this uncertainty, agency mortgage-backed
securities fared well due to reduced refinancing activity and relative stability
in the mortgage market.
Q: HOW WAS THE FUND POSITIONED OVER THE COURSE OF THE YEAR?
A: We focused most of our attention on adding extra income by investing in
agency mortgage- backed securities. We also added to the Fund's share of
high-quality asset-backed securities-- bonds backed by receipts from credit
cards and auto and other loans. In keeping with our investment strategy, we
focused on high-quality, conservative instruments in these sectors. This focus
was particularly beneficial during the second half of 1999; more-conservative
bonds fared best in the face of market volatility preceding the changeover to
the Year 2000. The Fund's positioning also dovetailed with the scarcity of
Treasury securities caused by Treasury buy-backs and the under performance of
lesser-quality securities due to Fed rate hikes and concerns about deteriorating
credit fundamentals.
Q: WHAT IS YOUR OUTLOOK FOR THE MARKET IN THE COMING YEAR?
A: It's too early to tell if recent signs of economic weakness will translate
into a more sustained slowdown. Our opinion is that the Federal Reserve is
likely to hike short-term interest rates again in the near term. The Fund
continues to hold a large percentage of conservative investments, and its
duration--a measure of its sensitivity to changes in interest rates--is
currently more defensive than usual. The position should help the Fund achieve
attractive yields in an uncertain environment.
==============================================================================
TOP TEN HOLDINGS
------------------------------------------------------------------------------
(as a percentage of total net assets)
U.S. Treasury Note,
6.125% due 12/31/01................................................ 11.7%
U.S. Treasury Note,
5.625% due 05/15/01................................................ 9.0%
FNMA, TBA Feb., 30 Yr.,
8.000% due 02/01/26................................................ 5.7%
FHLMC, 2121TA (PAC),
6.000% due 04/15/08................................................ 5.5%
FHLMC, 1166D (AD),
8.000% due 02/15/05................................................ 2.9%
FHLMC, 16D (TAC),
10.000% due 10/15/19............................................... 2.8%
FNMA, 1999-11B (AD),
5.500% due 04/25/07................................................ 2.6%
FNMA, Pool #458009,
8.500% due 09/20/10................................................ 2.5%
Onyx Acceptance Auto Trust,
Series 1999-D A4,
7.00% due 11/15/04................................................. 2.4%
FNMA, 1999-34VE (AD),
6.500% due 09/25/05................................................ 2.4%
==============================================================================
ASSET MIX
------------------------------------------------------------------------------
(as a percentage of total investments)
Collateralized Mortgage Obligations.................................. 33.4%
Mortgage Pass-throughs............................................... 20.8%
Treasuries........................................................... 19.9%
Asset-Backed Securities.............................................. 16.3%
Corporate Bonds and Notes............................................ 4.2%
Other................................................................ 5.4%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
Note that U.S. government bonds are backed by the full faith and credit of
the U.S. government and are guaranteed as to the timely payment of principal
and interest. If you hold them to maturity, your rate of return is fixed and
you will receive the principal of the bond in full. Investing in mutual funds
involves certain risks, including the possible loss of principal value.
63
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
SHORT DURATION
GOVERNMENT BOND FUND
-----------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
ASSET-BACKED SECURITIES -- 17.0%
$1,200,000 Banc One Credit Card Master Trust,
Series 1995-B A,
6.30% due 10/15/02 ............................................................. $ 1,198,548
136,444 Case Equipment Loan Trust,
Series 1998-B A3,
5.81% due 05/15/03 ............................................................. 135,965
125,775 Caterpillar Financial Asset Trust,
Series 1997-A A3,
6.45% due 05/25/03 ............................................................. 125,654
1,515,000 Chase Manhattan Auto Owner Trust,
Series 1997-B A5,
6.60% due 03/15/02 ............................................................. 1,508,395
486,298 Chase Manhattan Grantor Trust,
Series 1996-A A,
5.20% due 02/15/02 ............................................................. 484,538
471,108 Contimortgage Home Equity Loan Trust,
Series 1997-2 A6,
7.12% due 03/15/16 ............................................................. 469,775
2,588 Daimler-Benz Vehicle Trust,
Series 1998-A A2,
5.23% due 12/20/01 ............................................................. 2,587
1,000,000 Discover Card Master Trust I,
Series 1995-2 A,
6.55% due 02/18/03 ............................................................. 999,360
120,058 EQCC Home Equity Loan Trust,
Series 1997-2 A5,
6.54% due 04/15/11 ............................................................. 119,988
3,152,000 EQCC Home Equity Loan Trust,
Series 1998-2 A3F,
6.23% due 03/15/13 ............................................................. 3,118,510
263,548 First Plus Home Loan Trust,
Series 1996-A A5,
6.53% due 07/10/11 ............................................................. 262,940
32,306 First Security Auto Owner Trust,
Series 1999-2 A2,
5.49% due 04/15/02 ............................................................. 32,276
96,027 Green Tree Financial Corporation,
Series 1995-5 A4,
6.60% due 09/15/26 ............................................................. 95,947
162,936 Green Tree Home Equity Loan Trust,
Series 1998-A A2,
6.04% due 06/15/29 ............................................................. 162,589
4,200,000 Green Tree Home Equity Loan Trust,
Series 1999-D A6,
7.61% due 09/15/30 ............................................................. 4,186,220
410,910 Green Tree Home Improvement Loan Trust,
Series 1997-C HEA3,
6.88% due 08/15/28 ............................................................. 410,215
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
$ 709,684 Green Tree Recreational,
Series 1999-A A3,
5.82% due 07/15/03 ............................................................. $ 708,861
113,061 Honda Auto Lease Trust,
Series 1999-A A2,
5.88% due 10/15/01 ............................................................. 113,006
95,330 John Deere Owner Trust,
Series 1999-A A2,
5.47% due 08/15/01 ............................................................. 94,979
167,638 Navistar Financial
Corporation Owner Trust,
Series 1996-A A2,
6.35% due 11/15/02 ............................................................. 167,418
56,991 Newcourt Recievables Asset Trust,
Series 1996-2 A,
6.87% due 06/20/04 ............................................................. 56,772
4,300,000 Onyx Acceptance Auto Trust,
Series 1999-D A4,
7.00% due 11/15/04 ............................................................. 4,267,415
154,220 Premier Auto Trust,
Series 1997-1 A4,
6.35% due 04/06/02 ............................................................. 154,029
3,000,000 Premier Auto Trust,
Series 1999-1 A4,
5.82% due 10/08/03 ............................................................. 2,931,150
1,825,000 Toyota Auto Lease Trust,
Series 1997-A A3,
6.45% due 04/26/04 ............................................................. 1,806,750
3,000,000 Toyota Auto Lease Trust,
Series 1998-B A3,
5.50% due 12/26/03 ............................................................. 2,918,100
3,500,000 Union Acceptance Corporation,
Series 1998-D A5,
5.96% due 07/10/06 ............................................................. 3,391,993
TOTAL ASSET-BACKED SECURITIES
(Cost $30,079,664) ............................................................................... 29,923,980
-----------
CORPORATE BONDS AND NOTES -- 4.4%
490,000 American Express Master Trust, Debentures, 5.375% due 09/15/00 ................. 488,344
3,000,000 Bloomingdale Life Time Fitness Ltd., Bonds, 6.700% due 01/01/20++ .............. 3,000,000
1,000,000 Countrywide Home Loans, Inc., MTN, 5.620% due 10/16/00 ......................... 996,043
1,000,000 DaimlerChrysler NA Holding, Notes, 7.400% due 01/20/05 ......................... 997,500
</TABLE>
64
The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
SHORT DURATION
GOVERNMENT BOND FUND
-----------------------------
INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
CORPORATE BONDS AND NOTES -- CONTINUED
$ 1,000,000 International Bank Recon & Development, Bonds, 7.000% due 01/27/05 ............. $ 999,690
1,300,000 KFW International Finance, Notes, 7.125% due 02/15/05 .......................... 1,303,250
-----------
TOTAL CORPORATE BONDS AND NOTES
(Cost $7,779,470) ............................................................................... 7,784,827
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 27.2%
CMOs:
5,064,366 1166D (AD), 8.000% due 02/15/05 ................................................ 5,072,874
1,989,849 1464JB (AD), 7.400% due 02/15/03 ............................................... 1,996,714
404,969 1606E (PAC), 5.500% due 03/15/07 ............................................... 402,438
1,000,000 1606G (PAC), 5.750% due 01/15/08 ............................................... 983,860
744,509 1639PL (PAC), 5.900% due 08/15/06 .............................................. 742,223
788,780 1643PE (PAC), 5.500% due 10/15/19# ............................................. 785,562
637,076 1659PE (PAC), 5.750% due 05/15/07# ............................................. 633,731
1,480,000 1676KD (AD), 6.250% due 03/15/06 ............................................... 1,435,600
294,842 1694PE (PAC), 5.750% due 03/15/19# ............................................. 293,595
4,666,515 16D (TAC), 10.000% due 10/15/19 ................................................ 4,857,002
476,913 1943C, 7.500% due 06/15/22 ..................................................... 475,568
3,973,701 2098VA (PAC), 6.000% due 10/15/05 .............................................. 3,867,063
1,000,000 2106BC (PAC), 5.500% due 06/15/17 .............................................. 970,839
3,491,202 2114VM (AD), 6.000% due 09/15/04 ............................................... 3,410,740
10,000,000 2121TA (PAC), 6.000% due 04/15/08 .............................................. 9,864,060
3,393,983 2122VA (AD), 6.000% due 09/15/05 ............................................... 3,299,563
2,204,000 2158PC (PAC), 6.000% due 11/15/06 .............................................. 2,175,524
-----------
41,266,956
NOTES:
1,000,000 5.500% (FLTR) due 05/19/03++.................................................... 940,225
PASS-THROUGHS:
2,357,227 Pool #736001, 9.500% due 01/01/06 .............................................. 2,433,007
1,386,776 Pool #E40290, 8.500% due 06/01/07 .............................................. 1,412,616
619,365 Pool #G10007, 8.500% due 03/01/06 .............................................. 631,365
1,251,677 Pool #L74820, 5.000% due 09/01/03 .............................................. 1,186,052
-----------
5,663,040
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION
(Cost $48,536,765) ............................................................................... 47,870,221
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 30.6%
AGENCIES:
4,090,000 6.030% MTN due 06/19/03 ........................................................ 3,972,151
CMOs:
466,315 1992-165K (PO), due 09/25/22 ................................................... 453,053
440,459 1993-214EA (PAC), 5.300% due 03/25/07 .......................................... 436,605
799,000 1993-99D (AD), 6.700% due 03/25/04 ............................................. 789,199
2,152,819 1994-23PT (PAC), 5.125% due 07/25/17 ........................................... 2,131,958
545,617 1994-23PV (PAC), 5.125% due 07/25/17# .......................................... 540,395
2,500,000 1994-39PG (PAC), 6.150% due 06/25/20 ........................................... 2,457,025
1,866,624 1996-22VA (AD), 7.000% due 01/16/05 ............................................ 1,855,833
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
CMOS -- CONTINUED
$ 4,746,503 1999-11B (AD), 5.500% due 04/25/07 ............................................. $ 4,512,121
4,320,666 1999-34VE (AD), 6.500% due 09/25/05 ............................................ 4,240,328
-----------
17,416,517
PASS-THROUGHS:
649,943 Pool #242836, 5.500% due 10/01/00 .............................................. 646,160
382,109 Pool #244098, 5.500% due 10/01/00 .............................................. 379,885
830,358 Pool #252432, 5.000% due 02/01/09 .............................................. 763,410
2,914,379 Pool #323193, 9.000% due 09/01/07 .............................................. 2,975,284
1,181,549 Pool #348144, 8.500% due 04/01/10 .............................................. 1,202,596
1,502,448 Pool #420599, 5.000% due 03/01/27 .............................................. 1,316,110
837,379 Pool #458005, 9.000% due 08/15/09 .............................................. 850,626
4,263,413 Pool #458009, 8.500% due 09/20/10 .............................................. 4,327,530
601,412 Pool #70851, 9.500% due 06/01/06 ............................................... 615,678
901,629 Pool #74798, 5.000% due 08/01/03 ............................................... 854,357
1,172,194 Pool #B00688, 9.000% due 09/01/05 .............................................. 1,191,929
3,835,963 Pool #L74747, 5.500% due 05/01/03 .............................................. 3,671,736
10,000,000 TBA Feb., 30 Yr., 8.000% due 02/01/26+ ......................................... 10,040,600
4,000,000 TBA Jul., 30 Yr., 6.000% due 07/01/28+.......................................... 3,660,000
-----------
32,495,901
TIERED PAYMENTS:
4,790 Pool #730288, 8.500% due 07/01/06 .............................................. 4,817
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION
(Cost $54,327,693) .............................................................................. 53,889,386
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 1.6%
CMOs:
2,767,833 1998-18VK (AD), 6.500% due 07/20/05 ............................................. 2,720,152
PASS-THROUGHS:
6,734 GNMA II, Pool #1123, 10.500%, due 01/20/19 ...................................... 7,221
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(Cost $2,857,163) ................................................................................. 2,727,373
-----------
U.S. TREASURY NOTES -- 20.8%
15,935,000 U.S. Treasury Note, 5.625% due 05/15/01 ........................................ 15,820,476
20,755,000 U.S. Treasury Note, 6.125% due 12/31/01 ........................................ 20,638,253
165,000 U.S. Treasury Note, 7.875% due 11/15/04 ........................................ 174,600
TOTAL U.S. TREASURY NOTES
(Cost $36,610,658) ............................................................................... 36,633,329
-----------
<CAPTION>
SHARES
<S> <C>
MONEY MARKET FUND -- 0.0%@
722 Chase Vista Federal Money Market Fund (Cost $722) .............................. 722
-----------
TOTAL SECURITIES
(Cost $180,192,135) .............................................................................. 178,829,838
-----------
</TABLE>
65
The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
SHORT DURATION
GOVERNMENT BOND FUND
-----------------------------
INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
REPURCHASE AGREEMENT -- 2.9%
$ 4,996,000 Agreement with Merrill Lynch, Tri-Party,7.000% dated
06/30/00, to be repurchased at $4,998,874 on 07/03/00,
collateralized by $5,095,922 market value of U.S.
government and mortgage-backed securities, having various
maturities and interest rates (Cost $4,996,000) ................................ $ 4,996,000
-----------
TOTAL INVESTMENTS -- 104.5%
(Cost $185,188,135*) ............................................................................. 183,825,838
-----------
OTHER ASSETS AND LIABILITIES -- (4.5)%
(Net) ............................................................................................ (7,860,269)
-----------
NET ASSETS -- 100.0% ............................................................................. $ 175,965,569
===========
</TABLE>
* Aggregate cost for federal tax purposes $185,448,259.
+ Security subject to dollar roll transactions. See note 1 and 4.
++ Floating-rate note reflects the rate in effect at June 30, 2000.
# All or a portion of this security held as collateral for dollar roll
transactions.
@ Amount represents less than 0.1%.
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.
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.
PO Principle Only
TBA To-Be-Announced Security
66
The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
CALIFORNIA TAX-FREE
INTERMEDIATE BOND FUND
-----------------------------
PORTFOLIO HIGHLIGHTS
INVESTMENT REVIEW
Q: HOW DID THE FUND PERFORM OVER THE PAST 12 MONTHS?
A: The Fund returned 3.83%, versus a return of 3.71% for its benchmark, the
Merrill Lynch California Intermediate Municipal Bond Index, and 3.78% for the
Lipper California Intermediate Municipal Debt Funds Average.
Q: WHAT MARKET FACTORS HAD THE GREATEST IMPACT ON THE FUND'S PERFORMANCE DURING
THE PERIOD?
A: The main story in the bond market over the past year was rising interest
rates. The U.S. economy continued to grow at a pace that many, including the
Federal Reserve Board, felt would lead to the buildup of inflationary pressures.
The "wealth effect" caused by soaring equity prices only added to the worries.
Many feared that low unemployment would cause wages and benefits to rise and
that employers would pass the added costs on to the consumer in the form of
higher prices. In response, the Fed raised short-term interest rates in an
effort to slow the economy and keep inflation under control. Beginning on June
30,1999, and over the course of the following 12 months, the Fed raised the
benchmark federal funds target rate six times, for a total of 1.75 percentage
points.
Overall, longer-term interest rates increased steadily over the last six months
of 1999, but trended downward during the first six months of 2000. This decline
was due in part to the absence of widespread Y2K computer problems. In addition,
some investors saw price drops in the equity market as evidence that the Fed's
rate increases were starting to influence the direction of the market and the
economy. Volatility was high in the first half of 2000, however, as sentiment
concerning the strength of the economy and the Fed's ability to keep pace with
inflation shifted back and forth. In June data suggested that the economy was
slowing and the market turned more bullish.
Q: HOW DID MUNICIPAL BONDS, PARTICULARLY THOSE FROM CALIFORNIA, PERFORM COMPARED
WITH OTHER MARKET SECTORS?
A: On a relative-return basis, Treasury bonds outperformed all other types of
bonds, including municipals. The U.S. Treasury bought back longer-maturity,
higher-yielding Treasury bonds and began curtailing its auctions of new
securities. Strong economic growth and a balanced federal budget meant that the
Treasury had less need to issue debt to pay for government programs. Tighter
supply ignited avid demand from investors, who expected Treasury bonds to become
more scarce over time. As a result, Treasury bond yields fell and their prices
rose.
The main factor affecting the Fund's returns over the course of its fiscal year
was supply and demand, a perennial driver of the municipal market. Rising
interest rates made it less worthwhile for municipalities to issue refunding
bonds--new bonds with lower interest rates used to pay off outstanding
higher-rate debt. In addition, strong economic growth reduced the borrowing
needs of municipalities. At the same time, demand remained soft through most of
the year, mainly because traditional institutional buyers of munis, such as
insurance companies, had less capital to invest in the
--------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
--------------------------------------------------------------------------------
William Stevens ....................................... Senior Portfolio Manager
--------------------------------------------------------------------------------
FUND PERFORMANCE
--------------------------------------------------------------------------------
Average annual total returns
for the period ended 6/30/00
--------------------------------------------------------------------------------
MONTGOMERY CALIFORNIA TAX-FREE
INTERMEDIATE BOND FUND
<TABLE>
<S> <C>
Since inception (7/1/93) ............................................. 4.86%
One year ............................................................. 3.83%
Five years ........................................................... 5.27%
</TABLE>
---------------------------------------------------------------------------
MERRILL LYNCH CALIFORNIA
INTERMEDIATE MUNICIPAL BOND INDEX
<TABLE>
<S> <C>
Since 6/30/93 ........................................................ 4.53%
One year ............................................................. 3.71%
Five years ........................................................... 5.02%
</TABLE>
--------------------------------------------------------------------------------
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
<TABLE>
<CAPTION>
Cal Tax Free Merrill Lynch(1) Lipper(2)
------------ ---------------- ---------
<S> <C> <C> <C>
Jun-93 10000 10000 10000
Jul-93 9991 9981.5 10001.6
Aug-93 10077 10023.42 10194.69
Sep-93 10121 10015.9 10324.67
Oct-93 10151 10138.9 10341.38
Nov-93 10144 10091.15 10266.17
Dec-93 10233 10263.4 10452.83
Jan-94 10295 10332.88 10563.18
Feb-94 10185 10186.05 10319.3
Mar-94 10086 10034.79 10022.46
Apr-94 10117 10018.03 10063.48
May-94 10175 10127.43 10132.82
Jun-94 10171 9782.09 10099.52
Jul-94 10264 9994.36 10247.66
Aug-94 10285 10009.15 10276.64
Sep-94 10271 9936.58 10168.57
Oct-94 10233 9919.94 10043.85
Nov-94 10187 9825.31 9885.06
Dec-94 10238 9915.01 9995.36
Jan-95 10352 9995.12 10185.84
Feb-95 10486 10195.03 10430.75
Mar-95 10583 10262.11 10534.22
Apr-95 10645 10311.37 10552.28
May-95 10777 10587.2 10817.35
Jun-95 10784 10602.87 10739.24
Jul-95 10849 10726.39 10851.33
Aug-95 10970 10799.33 10974.42
Sep-95 11054 10823.95 11042.08
Oct-95 11187 10884.89 11174.97
Nov-95 11327 11062.42 11303.09
Dec-95 11406 11045.39 11366.44
Jan-96 11495 11179.37 11473.03
Feb-96 11470 11169.64 11428.23
Mar-96 11373 11092.35 11297.33
Apr-96 11368 11103.22 11286.58
May-96 11355 11099.22 11287.77
Jun-96 11442 11162.6 11366.1
Jul-96 11531 11271.77 11471.97
Aug-96 11536 11275.6 11470.63
Sep-96 11634 11349.45 11572.15
Oct-96 11761 11452.39 11687.7
Nov-96 11964 11578.6 11877.09
Dec-96 11921 11555.79 11830.78
Jan-97 11964 11580.98 11851.99
Feb-97 12042 11659.38 11933.52
Mar-97 11901 11575.09 11816.73
Apr-97 11962 11607.5 11875.66
May-97 12112 11747.14 12034.06
Jun-97 12233 11878 12135.77
Jul-97 12539 12068.88 12412.11
Aug-97 12435 12007.57 12312.56
Sep-97 12566 12118.76 12440.14
Oct-97 12619 12157.9 12477.72
Nov-97 12672 12198.14 12530.16
Dec-97 12815 12312.66 12680.67
Jan-98 12968 12407.6 12802.45
Feb-98 12977 12442.83 12813.31
Mar-98 12920 12448.51 12799.12
Apr-98 12852 12404.95 12722.09
May-98 13038 12533.17 12900.76
Jun-98 13071 12579.66 12934.24
Jul-98 13095 12612.06 12975.62
Aug-98 13323 12847.84 13161.5
Sep-98 13540 12990.54 13349.08
Oct-98 13533 13012.17 13328.47
Nov-98 13577 13021.96 13367.96
Dec-98 13591 13089.49 13379.19
Jan-99 13771 13267.13 13536
Feb-99 13688 13218.59 13472
Mar-99 13702 13253.24 13492
Apr-99 13705 13269.68 13503
May-99 13624 13223.19 13422
Jun-99 13425 13061.89 13231
Jul-99 13524 13155 13304
Aug-99 13474 13136 13245
Sep-99 13530 13195 13293
Oct-99 13438 13139 13180
Nov-99 13537 13211 13297
Dec-99 13423 13125 13201
Jan-00 13491 13168 13209
Feb-00 13547 13221 13320
Mar-00 13738 13352 13528
Apr-00 13633 13297 13448
May-00 13661 13314 13394
Jun-00 13939 13547 13667
</TABLE>
(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.
67
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
CALIFORNIA TAX-FREE
INTERMEDIATE BOND FUND
-----------------------------
PORTFOLIO HIGHLIGHTS
sector. The lack of substantial new supply or demand created a kind of
equilibrium for the muni bond market until the latter part of the 12-month
period, when demand from institutional buyers helped perk up the market a bit.
In California specifically, the vibrant state economy led to dramatically lower
new issuance at a time when there was strong demand for California municipal
bonds. As a result, prices for California muni bonds reached lofty levels
relative to municipal counterparts elsewhere in the United States.
Q: WHAT WAS YOUR STRATEGY WITH THE FUND?
A: We structured the portfolio defensively in response to Fed rate hikes. This
meant that we kept the Fund's interest rate sensitivity relatively neutral to
the benchmark's, especially in the first half of 2000. Our main focus was on
adding value through bottom-up security selection and detailed credit analysis
to identify bonds with the best return potential. For example, we purchased
Rialto, California, Unified School District general obligation bonds, which are
structurally attractive and enjoy a strong credit rating. We also purchased
Commonwealth of Puerto Rico bonds, which have the same kind of positive
characteristics. Bonds backed by Puerto Rico are tax exempt in all 50 states,
creating a strong market for the commonwealth's debt.
Q: WHAT IS YOUR OUTLOOK, AND HOW ARE YOU STRUCTURING THE FUND ACCORDINGLY?
A: At this point it's too soon to tell if recent reports of weaker economic data
are a sure sign that the economy is indeed slowing or if they might affect
future Fed action. We do believe that the Fed will continue to raise rates in
the near term. As a result, we remain cautious and have structured the Fund
defensively going into the second half of 2000. We intend to purchase bonds with
higher coupon rates trading at a premium to buffer the portfolio from the
effects of further Fed action. We plan to position the Fund this way until we
are sure that the economy has been reined in and the Fed is finished raising
rates. Once that happens we believe that the municipal market will be well
positioned for a strong rally. Municipal supply is down more than 50% from last
year. This dearth of supply and less Fed intervention would create a solid
backdrop for the municipal market.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
TOP TEN LONG-TERM HOLDINGS
--------------------------------------------------------------------------------
(as a percentage of total net assets)
<S> <C>
San Diego, California, Transportation
Authority Sales Tax Revenue, Series A (MBIA Insured),
6.000% due 04/01/05 .................................................... 4.2%
Anaheim, California, Public Financing
Authority, Lease Revenue,
Series C (FSA Insured),
6.000% due 09/01/12 .................................................... 4.0%
Riverside County, California,
Transportation Commission Sales Tax
Revenue, Series A (FGIC Insured),
6.000% due 06/01/09 .................................................... 4.0%
California Pollution Control Financing
Authority, Revenue, San Diego
Gas and Electric, Series A,
5.900% due 06/01/14 .................................................... 3.9%
Walnut Valley, California,
School District, Series A
(MBIA Insured),
7.000% due 08/01/08 .................................................... 2.9%
California Educational Facilities Authority
Revenue, L.A. College of Chiropractic,
5.100% due 11/01/05 .................................................... 2.7%
Sacramento, California, Municipal
Utilities, Electric Revenue Refunding,
Series A (MBIA Insured),
6.250% due 08/15/10 .................................................... 2.5%
Metropolitan Water District,
Southern California
Waterworks Revenue, Series C,
6.000% due 07/01/08 .................................................... 2.4%
Castaic Lake, California, Water Agency,
Certificates of Participation,
Refunding, Water System
Improvement Project, Series A
(MBIA Insured),
7.250% due 08/01/08 .................................................... 2.1%
San Francisco City & County International
Airport Revenue, AMT Second Series,
8.000% due 05/01/09 .................................................... 2.0%
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
INVESTMENT GRADE
--------------------------------------------------------------------------------
(as a percentage of total net assets)
<S> <C>
Aaa ...................................................................... 52.9%
Aa ....................................................................... 9.7%
A ........................................................................ 7.9%
Baa ...................................................................... 11.0%
Nonrated ................................................................. 18.5%
</TABLE>
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.
68
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
CALIFORNIA TAX-FREE
INTERMEDIATE BOND FUND
-----------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
MUNICIPAL BONDS AND NOTES -- 98.2%
CALIFORNIA -- 95.0%
$ 1,000,000 Anaheim, California, Public Financing
Authority, Lease Revenue, Series C
(FSA Insured),
6.000% due 09/01/12 ............................................................ $ 1,097,500
California Educational Authority Revenue,
University of San Francisco:
255,000 3.900% due 04/01/01 ............................................................ 253,172
300,000 4.050% due 04/01/02 ............................................................ 294,750
285,000 3.700% due 04/01/03 ............................................................ 274,312
455,000 4.400% due 04/01/05 ............................................................ 441,350
545,000 4.800% due 04/01/09 ............................................................ 523,200
250,000 California Educational Authority Revenue,
University of San Francisco (MBIA Insured),
6.000% due 10/01/08 ............................................................ 272,187
745,000 California Educational Facilities Authority
Revenue, L.A. College of Chiropractic,
5.100% due 11/01/05 ............................................................ 751,519
200,000 California Housing Finance Agency,
Housing Revenue, Series C (MBIA
Insured),6.150% due 08/01/14 ................................................... 205,500
1,000,000 California Pollution Control Financing
Authority, Revenue, San Diego
Gas and Electric, Series A,
5.900% due 06/01/14 ............................................................ 1,065,000
90,000 California Public Works Board High
Technology Lease Revenue, San Jose Facilities,
Series A (AMBAC Insured),
7.750% due 08/01/06 ............................................................ 99,338
300,000 California Public Works Board Lease
Revenue, Series A (AMBAC Insured),
6.200% due 12/01/05 ............................................................ 325,125
California State:
260,000 6.200% due 11/01/02 ............................................................ 271,050
100,000 6.500% due 02/01/08 ............................................................ 111,375
115,000 7.000% due 04/01/06 ............................................................ 128,944
145,000 7.000% due 08/01/09 ............................................................ 168,563
100,000 6.250% due 09/01/12 ............................................................ 112,000
(FGIC Insured):
250,000 7.000% due 04/01/06 ............................................................ 280,937
265,000 California State Public Works Board Lease
Revenue Department of Corrections,
Series A (AMBAC Insured),
6.000% due 01/01/06 ............................................................ 283,881
495,000 California State Public Works Board, Lease
Revenue Various Community College Projects,
Series A (AMBAC Insured),
6.000% due 03/01/05 ............................................................ 527,175
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
$ 70,000 California State Veterans Bonds,
Series AL (AMBAC Insured),
9.600% due 04/01/01 ............................................................ $ 72,703
100,000 California State, Veterans Bonds, Series AT,
9.500% due 02/01/10 ............................................................ 134,625
250,000 California Statewide Communities Development
Authority Revenue Certificates of Participation
(Sutter Health System Group),
6.500% due 07/01/04 ............................................................ 269,687
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 ............................................................ 173,437
500,000 7.250% due 08/01/08 ............................................................ 585,000
Chino Basin, California, Regional Financing
Authority Revenue, Municipal Water and
District Sewer Systems Project (AMBAC Insured):
500,000 7.000% due 08/01/06 ............................................................ 563,750
240,000 7.000% due 08/01/08 ............................................................ 276,900
Commerce, California, Community Development
Commission, Tax Allocation, Merged Redevelopment
Project,
Series A Refunding:
100,000 5.100% due 08/01/04 ............................................................ 100,500
190,000 5.200% due 08/01/05 ............................................................ 191,425
120,000 5.500% due 08/01/09 ............................................................ 120,600
Contra Costa, California,
Transportation Authority,
Series A (FGIC Insured):
300,000 6.000% due 03/01/05 ............................................................ 319,500
Series B,
500,000 6.000% due 03/01/07 ............................................................ 540,000
300,000 Desert Hospital District, California, Hospital
Revenue, Certificates of Participation
(CGIC Insured),
6.150% due 07/01/02 ............................................................ 310,500
250,000 Elsinore Valley, California, Municipal Water
District, Certificates of Participation,
Refunding, Series A (FGIC Insured),
6.000% due 07/01/12 ............................................................ 274,375
Emeryville, California, Public Financing
Authority Housing Revenue:
140,000 5.600% due 09/01/06 ............................................................ 145,600
Unrefunded,
130,000 5.600% due 09/01/06 ............................................................ 139,263
</TABLE>
69
The accompanying notes are an integral part of thses financial statements.
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
CALIFORNIA TAX-FREE
INTERMEDIATE BOND FUND
-----------------------------
INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
MUNICIPAL BONDS AND NOTES -- CONTINUED
CALIFORNIA -- CONTINUED
$ 50,000 Estero, California, Series S-1,
7.000% due 07/01/00 ............................................................ $ 50,000
290,000 Fresno, California, Sewer Revenue,
Series A (MBIA Insured),
6.000% due 09/01/07 ............................................................ 314,650
La Mesa, California, Improvement Board,
Assessment District No. 98-1:
180,000 4.900% due 09/02/04 ............................................................ 178,875
100,000 5.500% due 09/02/11 ............................................................ 97,375
175,000 Lafayette, California,
Elementary School District,
6.900% due 05/15/06 ............................................................ 195,344
50,000 Los Angeles County Public Works,
Revenue Anticipation Notes,
4.500% due 03/01/01 ............................................................ 50,125
Los Angeles Transportation Commission,
Sales Revenue, Proposition C,
Second Series A:
180,000 6.200% due 07/01/04 ............................................................ 191,025
400,000 6.400% due 07/01/06 ............................................................ 436,500
200,000 Los Angeles County, California,
Certificates of Participation,
6.708% due 06/01/15 ............................................................ 207,416
Mammoth, California
Community Water District:
250,000 5.100% due 09/02/07 ............................................................ 245,312
245,000 5.200% due 09/02/08 ............................................................ 240,406
265,000 5.250% due 09/02/09 ............................................................ 258,706
Manteca, California, School District,
Community Facilities District No. 89-1:
120,000 5.400% due 09/01/10 ............................................................ 117,300
170,000 5.450% due 09/01/11 ............................................................ 163,200
Metropolitan Water District, Southern
California Waterworks Revenue:
200,000 6.000% due 07/01/21 ............................................................ 203,440
Series C,
600,000 6.000% due 07/01/08 ............................................................ 652,500
250,000 Ontario, California, Redevelopment Financing
Authority, Revenue Refunding (Ontario
Redevelopment Project No. 1)
(MBIA Insured),
6.550% due 08/01/06 ............................................................ 276,250
Piedmont, California,
School District, Series A:
75,000 8.300% due 08/01/01 ............................................................ 78,099
45,000 7.100% due 08/01/02 ............................................................ 47,419
40,000 Piedmont, California, School District,
Series C (MBIA Insured),
7.200% due 08/01/01 ............................................................ 41,219
Port of Redwood City, California:
170,000 4.000% due 06/01/01 ............................................................ 168,720
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
CALIFORNIA - CONTINUED
$ 160,000 4.100% due 06/01/02 ............................................................ $ 157,200
185,000 4.200% due 06/01/03 ............................................................ 180,606
190,000 4.350% due 06/01/04 ............................................................ 185,250
200,000 4.500% due 06/01/05 ............................................................ 194,000
210,000 4.600% due 06/01/06 ............................................................ 203,175
215,000 4.700% due 06/01/07 ............................................................ 205,325
225,000 4.800% due 06/01/08 ............................................................ 215,719
Rancho, California, Water District Financing
Authority, Revenue Refunding (FGIC Insured):
400,000 6.500% due 11/01/02 ............................................................ 419,000
400,000 6.500% due 11/01/05 ............................................................ 438,000
200,000 Rialto, California, Unified School District
General Obligation Bonds (FGIC Insured),
6.250% due 06/01/12 ............................................................ 223,500
250,000 Riverside County, California, Special Tax
Communities Facilities District No,84-2,
4.050% due 09/01/00 ............................................................ 249,680
1,000,000 Riverside County, California, Transportation
Commission Sales Tax Revenue, Series
A (FGIC Insured),
6.000% due 06/01/09 ............................................................ 1,092,500
625,000 Sacramento, California, Municipal
Utilities, Electric Revenue Refunding,
Series A (MBIA Insured),
6.250% due 08/15/10 ............................................................ 696,094
1,075,000 San Diego, California, Transportation
Authority Sales Tax Revenue,
Series A (MBIA Insured),
6.000% due 04/01/05 ............................................................ 1,146,219
San Francisco City & County International
Airport Revenue, AMT Second Series:
445,000 8.000% due 05/01/06 ............................................................ 517,869
500,000 8.000% due 05/01/09 ............................................................ 582,500
240,000 San Mateo-Foster City, California,
School District (MBIA Insured),
7.750% due 08/01/06 ............................................................ 280,200
Santa Rosa, California, Central Packaging
Service Facilities, Refunding:
265,000 4.200% due 07/02/00 ............................................................ 265,000
200,000 4.800% due 07/02/06 ............................................................ 199,000
100,000 4.900% due 07/02/07 ............................................................ 98,625
170,000 5.100% due 07/02/09 ............................................................ 167,875
South Tahoe, California, Joint Powers
Financing Authority (South Tahoe Development
Project), Series A:
95,000 4.400% due 10/01/06 ............................................................ 91,556
100,000 4.500% due 10/01/07 ............................................................ 94,875
105,000 4.625% due 10/01/08 ............................................................ 100,144
300,000 Tulare County, California, Certificates
of Participation (MBIA Insured),
6.000% due 02/15/16 ............................................................ 328,125
</TABLE>
70
The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
CALIFORNIA TAX-FREE
INTERMEDIATE BOND FUND
-----------------------------
INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
MUNICIPAL BONDS AND NOTES - CONTINUED
CALIFORNIA - CONTINUED
Walnut Valley, California, School District,
Series A (MBIA Insured):
$ 100,000 6.850% due 08/01/07 ............................................................ $ 113,500
700,000 7.000% due 08/01/08 ............................................................ 807,625
Wiseburn, California, School District,
Series A (FGIC Insured):
360,000 6.875% due 08/01/06 ............................................................ 403,650
395,000 6.875% due 08/01/07 ............................................................ 448,819
-----------
26,024,255
PUERTO RICO -- 3.2%
135,000 Commonwealth of Puerto Rico,
5.700% due 07/01/09 ............................................................ 140,400
Commonwealth of Puerto Rico Public
Improvement Bonds (MBIA Insured):
350,000 5.000% due 07/01/07 ............................................................ 352,188
375,000 5.250% due 07/01/12 ............................................................ 383,906
-----------
876,494
TOTAL INVESTMENTS -- 98.2%
(Cost $26,643,033*) .............................................................................. 26,900,749
-----------
OTHER ASSETS AND LIABILITIES -- 1.8%
(Net) ............................................................................................ 504,645
-----------
NET ASSETS -- 100.0% ............................................................................. $ 27,405,394
===========
</TABLE>
* Aggregate cost for federal tax purposes $26,643,033.
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
MBIA Municipal Bond Investors Assurance
The Montgomery California Tax-Free Intermediate Bond Fund concentrates in
California municipal securities. Certain California constitutional amendments,
legislative measures, executive orders, administrative regulations, court
decisions and voter initiatives could result in certain adverse consequences,
including impairing the ability of certain issuers of California municipal
securities to pay principal and interest on their obligations.
71
The accompanying tables are an integral part of these financial statements.
<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 Government Money Market Fund returned 5.49% over the period,
compared with 5.05% for its benchmark, the Lipper U.S. Government Money Market
Funds Average. The Montgomery Federal Tax-Free Money Fund returned 3.25%,
compared with 3.09% for the Lipper Tax-Exempt Money Market Funds Average. The
Montgomery California Tax-Free Money Fund returned 2.72%, versus 2.76% for the
Lipper California Tax-Exempt Money Market Funds Average.
Q: WHAT FACTORS CHARACTERIZED THE MONEY MARKETS DURING THE FUNDS' FISCAL YEAR?
A: The Federal Reserve Board's monetary policy was the main driver of the money
markets during the period. With a series of six increases in the federal funds
target rate, the Fed tried to keep the U.S. economy from overheating and
inflation from igniting. Strong economic growth, low unemployment and the
"wealth effect" created by rising equity prices were among the factors the Fed
cited to justify its moves. From June 30,1999, through the course of the fiscal
year, the Fed increased short-term interest rates by a total of 1.75 percentage
points. Higher rates normally depress the price of longer-term bonds and the
funds that invest in them, but money market funds can actually benefit from
these increases. With their current holdings maturing within a fairly short
period, money market funds can quickly reinvest the assets in new instruments
bearing the higher interest rates. That was true of our Funds as well.
Q: WHAT IS YOUR CURRENT OUTLOOK?
A: Despite some recent hints of an economic slowdown, we believe that short-term
rates are likely to rise further at some point later in the year. We think the
Fed will continue to wait for concrete evidence that inflation is under control
and the economy is slowing before bringing its series of rate hikes to an end.
At this point, however, it is too soon to tell if the Federal Reserve can
engineer a soft landing.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. YIELDS WILL FLUCTUATE. AN
INVESTMENT IN A MONEY MARKET FUNDS IS NOT INSURED OR 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 ONLY.
--------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
--------------------------------------------------------------------------------
William Stevens ....................................... Senior Portfolio Manager
--------------------------------------------------------------------------------
FUND PERFORMANCE
--------------------------------------------------------------------------------
<TABLE>
MONTGOMERY GOVERNMENT MONEY MARKET FUND
<S> <C>
Since inception (9/14/92) ............................................ 4.64%
One year ............................................................. 5.49%
Five years ........................................................... 5.18%
One-day yield ........................................................ 6.39%
Seven-day yield ...................................................... 6.22%
LIPPER U.S. GOVERNMENT MONEY MARKET FUNDS AVERAGE
Since 9/30/92 ........................................................ 4.63%
One year ............................................................. 5.05%
Five years ........................................................... 4.92%
MONTGOMERY FEDERAL TAX-FREE MONEY FUND
Since inception (7/15/96) ............................................ 3.14%
One year ............................................................. 3.25%
Three years .......................................................... 3.07%
One-day yield ........................................................ 4.07%
Seven-day yield ...................................................... 3.97%
LIPPER TAX-EXEMPT MONEY MARKET FUNDS AVERAGE
Since 7/31/96 ........................................................ 2.98%
One year ............................................................. 3.09%
Three year ........................................................... 2.96%
MONTGOMERY CALIFORNIA TAX-FREE MONEY FUND
Since inception (9/30/94) ............................................ 2.95%
One year ............................................................. 2.72%
Five years ........................................................... 2.86%
One-day yield ........................................................ 3.50%
Seven-day yield ...................................................... 3.55%
LIPPER CALIFORNIA TAX-EXEMPT MONEY MARKET FUNDS AVERAGE
Since 9/30/94 ........................................................ 2.92%
One year ............................................................. 2.76%
Five years ........................................................... 2.87%
</TABLE>
72
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GOVERNMENT MONEY
MARKET FUND
-----------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
FEDERAL FARM CREDIT BANK (FFCB) -- 11.0%
$ 2,000,000 5.400% due 07/03/00 ............................................................ $ 1,999,901
1,710,000 5.450% due 08/02/00 ............................................................ 1,709,717
23,000,000 6.680% due 09/01/00++ .......................................................... 22,999,221
9,000,000 5.800% due 10/02/00 ............................................................ 9,000,366
10,000,000 6.471% due 10/02/00++ .......................................................... 9,998,747
10,000,000 6.575% due 12/01/00++ .......................................................... 10,000,000
10,000,000 6.443% due 02/01/01++ .......................................................... 10,000,000
500,000 5.520% due 02/05/01 ............................................................ 496,962
1,235,000 5.125% due 04/02/01 ............................................................ 1,221,461
723,000 6.500% due 04/03/01 ............................................................ 720,647
10,000,000 6.930% due 07/03/01 ............................................................ 9,998,600
10,000,000 6.461% due 11/01/01++ .......................................................... 9,996,127
-----------
88,141,749
FEDERAL HOME LOAN BANK (FHLB) -- 36.6%
80,000,000 Discount Note due 07/03/00 ..................................................... 79,970,800
2,000,000 Discount Note due 07/05/00 ..................................................... 1,998,562
75,000,000 Discount Note due 07/06/00 ..................................................... 74,932,708
3,632,000 Discount Note due 07/07/00 ..................................................... 3,628,084
500,000 5.540% due 07/07/00 ............................................................ 499,970
2,500,000 5.630% due 07/10/00 ............................................................ 2,499,971
1,000,000 6.250% due 07/10/00 ............................................................ 999,875
5,500,000 5.500% due 07/14/00 ............................................................ 5,497,924
9,400,000 3.450% due 07/28/00++ .......................................................... 9,378,523
1,000,000 5.580% due 08/10/00 ............................................................ 999,617
2,400,000 5.470% due 08/17/00 ............................................................ 2,399,350
3,500,000 4.980% due 09/15/00 ............................................................ 3,494,051
8,500,000 0.000% due 09/29/00 ............................................................ 8,498,554
3,000,000 5.925% due 10/10/00 ............................................................ 2,999,028
5,000,000 5.915% due 10/13/00 ............................................................ 4,998,285
1,565,000 4.565% due 10/16/00 ............................................................ 1,558,369
500,000 5.965% due 12/01/00 ............................................................ 498,753
500,000 5.970% due 12/01/00 ............................................................ 499,091
8,000,000 4.875% due 01/26/01 ............................................................ 7,932,584
3,000,000 5.125% due 01/26/01 ............................................................ 2,977,167
500,000 5.510% due 02/06/01 ............................................................ 496,924
19,000,000 6.390% due 02/07/01 ............................................................ 18,984,761
1,600,000 5.540% due 02/20/01 ............................................................ 1,589,165
1,000,000 0.000% due 02/25/01 ............................................................ 959,682
1,000,000 5.190% due 03/01/01 ............................................................ 991,300
1,750,000 5.495% due 03/02/01 ............................................................ 1,737,640
2,750,000 6.170% due 03/08/01 ............................................................ 2,741,758
10,000,000 6.375% due 03/13/01 ............................................................ 9,979,600
1,690,000 6.480% due 03/20/01 ............................................................ 1,687,650
10,000,000 6.750% due 05/04/01 ............................................................ 9,984,569
1,000,000 6.555% due 05/22/01 ............................................................ 998,288
5,000,000 7.125% due 05/22/01 ............................................................ 4,998,731
23,000,000 6.880% due 05/23/01++ .......................................................... 23,000,000
-----------
294,411,334
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 0.3%
$ 151,237 6.500% due 07/01/00 ............................................................ $ 151,142
438,108 6.500% due 09/01/00 ............................................................ 437,971
612,910 6.000% due 10/01/00 ............................................................ 610,133
441,672 6.000% due 11/01/00 ............................................................ 439,292
797,075 6.000% due 11/01/00 ............................................................ 790,350
-----------
2,428,888
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 1.7%
45,164 6.000% due 07/01/00 ............................................................ 44,875
7,122 6.000% due 07/01/00 ............................................................ 7,076
49,360 6.000% due 07/01/00 ............................................................ 49,044
11,686 6.000% due 07/01/00 ............................................................ 11,612
56,671 6.000% due 07/01/00 ............................................................ 56,308
32,476 6.000% due 08/01/00 ............................................................ 32,268
70,738 6.000% due 08/01/00 ............................................................ 70,285
21,694 6.000% due 08/01/00 ............................................................ 21,555
91,193 6.000% due 08/01/00 ............................................................ 90,609
275,453 6.000% due 09/01/00 ............................................................ 273,688
29,301 6.000% due 09/01/00 ............................................................ 29,113
306,866 6.000% due 09/01/00 ............................................................ 304,901
60,311 6.000% due 09/01/00 ............................................................ 59,924
131,766 6.000% due 10/01/00 ............................................................ 130,921
12,675 6.000% due 10/01/00 ............................................................ 12,593
29,902 6.000% due 10/01/00 ............................................................ 29,711
13,497 6.000% due 11/01/00 ............................................................ 13,411
76,804 6.000% due 11/01/00 ............................................................ 76,312
979,905 6.000% due 11/01/00 ............................................................ 973,742
179,163 6.000% due 11/01/00 ............................................................ 178,016
68,955 6.000% due 11/01/00 ............................................................ 68,514
24,775 6.000% due 11/01/00 ............................................................ 24,616
43,610 6.000% due 11/01/00 ............................................................ 43,331
88,299 6.000% due 11/01/00 ............................................................ 87,733
41,498 6.000% due 11/01/00 ............................................................ 41,232
23,490 6.000% due 11/01/00 ............................................................ 23,339
107,270 6.000% due 11/01/00 ............................................................ 106,582
23,465 6.000% due 11/01/00 ............................................................ 23,315
172,744 6.000% due 11/01/00 ............................................................ 171,638
1,928,361 5.500% due 12/01/00 ............................................................ 1,910,282
146,182 6.000% due 12/01/00 ............................................................ 145,245
5,376 6.000% due 12/01/00 ............................................................ 5,342
120,797 6.000% due 12/01/00 ............................................................ 120,023
168,171 6.000% due 12/01/00 ............................................................ 167,094
1,870,000 8.250% due 12/18/00 ............................................................ 1,885,167
194,809 6.000% due 01/01/01 ............................................................ 193,561
327,621 6.000% due 01/01/01 ............................................................ 325,522
48,373 6.000% due 01/01/01 ............................................................ 48,063
11,665 6.000% due 01/01/01 ............................................................ 11,590
201,304 6.000% due 01/01/01 ............................................................ 200,015
</TABLE>
73
The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
GOVERNMENT MONEY
MARKET FUNDS
-----------------------------
INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- CONTINUED
$ 16,720 6.000% due 01/01/01 ............................................................ $ 16,613
4,000,000 5.240% due 01/19/01 ............................................................ 3,952,754
152,242 6.000% due 03/01/01 ............................................................ 151,266
166,035 6.000% due 03/01/01 ............................................................ 164,972
125,061 6.000% due 03/01/01 ............................................................ 124,260
222,244 6.000% due 03/01/01 ............................................................ 220,820
81,823 6.000% due 03/01/01 ............................................................ 81,299
10,837 6.000% due 03/01/01 ............................................................ 10,768
50,045 6.000% due 04/01/01 ............................................................ 49,725
499,868 6.000% due 04/01/01 ............................................................ 496,813
68,850 6.000% due 04/01/01 ............................................................ 68,409
-----------
13,405,867
STUDENT LOAN MARKETING ASSOCIATION (SLMA) -- 5.4%
4,500,000 6.214% due 07/20/00++ .......................................................... 4,500,016
5,000,000 6.000% due 11/01/00 ............................................................ 4,999,631
14,000,000 6.045% due 11/03/00 ............................................................ 13,974,968
10,000,000 6.550% due 02/14/01 ............................................................ 9,996,437
3,000,000 5.220% due 02/23/01 ............................................................ 2,966,024
6,500,000 5.196% due 03/02/01 ............................................................ 6,427,487
1,000,000 5.520% due 04/05/01 ............................................................ 989,353
-----------
43,853,916
TENNESSEE VALLEY AUTHORITY -- 0.5%
3,730,000 6.000% due 11/01/00 ............................................................ 3,725,702
MONEY MARKET FUNDS -- 0.0%@
272,952 Chase Vista Federal Money Market Fund .......................................... 272,952
8,132 Chase Vista U.S. Government Money Market Fund .................................. 8,132
-----------
281,084
TOTAL SECURITIES ................................................................................. 446,248,540
REPURCHASE AGREEMENTS -- 45.8%
90,000,000 Agreement with Bear Stearns, Tri-Party,7.000% dated 06/30/00,
to be repurchased at $90,051,781 on 07/03/00, collateralized
by $92,674,871 market value of U.S. government and
mortgage-backed securities, having various maturities and
interest rates ................................................................. 90,000,000
154,462,500 Agreement with Chase Manhattan Bank, Tri-Party,7.000% dated
06/30/00, to be repurchased at $154,551,369 on 07/03/00,
collateralized by $157,552,738 market value of U.S. government
and mortgage-backed securities, having various maturities and
interest rates ................................................................. 154,462,500
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
$33,211,500 Agreement with Greenwich Capital Markets, Tri-Party,7.000%
dated 06/30/00, to be repurchased at $33,230,608 on 07/03/00,
collateralized by $33,875,848 market value of U.S. government
and mortgage-backed securities, having various maturities and
interest rates ................................................................. $33,211,500
89,890,000 Agreement with Merrill Lynch, Tri-Party,7.000% dated 06/30/00,
to be repurchased at $89,941,718 on 07/03/00, collateralized
by $91,687,839 market value of U.S. government and
mortgage-backed securities, having various maturities and
interest rates ................................................................. 89,890,000
-----------
TOTAL REPURCHASE AGREEMENTS 367,564,000
-----------
TOTAL INVESTMENTS -- 101.3%
(At amortized cost*) ............................................................................. 813,812,540
OTHER ASSETS AND LIABILITIES -- (1.3)%
(Net) ............................................................................................ (10,527,903)
-----------
NET ASSETS -- 100.0% ............................................................................. $803,284,637
===========
</TABLE>
* Aggregate cost for federal tax purposes was $813,812,540.
++ Floating-rate note reflects the rate in effect at June 30, 2000.
@ Amount represents less than 0.1%.
74
The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
FEDERAL TAX-FREE
MONEY FUNDS
-----------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
MUNICIPAL BONDS AND NOTES -- 98.0%
ALABAMA -- 4.4%
$ 6,500,000 Mobile, Alabama, Special Care Facilities,
Financing Authority Revenue Bonds,
5.100% due 11/15/39++ .......................................................... $ 6,500,000
ALASKA - 0.8%
1,000,000 Anchorage, Alaska, General Obligation
Bonds, Refunding (FGIC Insured),
4.400% due 10/01/00 ............................................................ 999,163
250,000 Anchorage, Alaska, Revenue Bonds
(MBIA Insured),
5.000% due 05/01/01 ............................................................ 251,004
-----------
1,250,167
COLORADO -- 1.3%
660,000 Arapahoe County, Colorado, School District
No. 005, Cherry Creek, General Obligation
Bonds, Refunding,
4.750% due 12/15/00 ............................................................ 660,782
1,210,000 Denver, Colorado, City & County Airport
Revenue Bonds, Prerefunded,
8.500% due 11/15/23 ............................................................ 1,254,151
-----------
1,914,933
DISTRICT OF COLUMBIA -- 2.4%
700,000 District of Columbia, General Obligation Bonds,
Series A-1, Refunding (LOC: Societe Generale),
4.650% due 10/01/07++ .......................................................... 700,000
500,000 District of Columbia, General Obligation Bonds,
Series A-2, Refunding (LOC: Canadian Imperial Bank),
4.650% due 10/01/07++ .......................................................... 500,000
600,000 District of Columbia, General Obligation Bonds,
Series A-3, Refunding (LOC: Societe Generale),
4.650% due 10/01/07++ .......................................................... 600,000
600,000 District of Columbia, General Obligation Bonds,
Series A-4, Refunding (LOC: Societe Generale),
4.650% due 10/01/07++ .......................................................... 600,000
500,000 District of Columbia, General Obligation Bonds,
Series A-5, Refunding (LOC: Bank of Nova Scotia),
4.650% due 10/01/07 ............................................................ 500,000
620,000 District of Columbia, Housing Finance Agency
Mortgage Revenue Bonds, Series E,
4.600% due 07/23/01 ............................................................ 620,000
-----------
3,520,000
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
FLORIDA -- 5.8%
$ 3,015,000 Broward County, Florida, Airport System Revenue
(Passenger Facilities-Conventional Lien-H-1),
4.000% due 10/01/00 ............................................................ $ 3,006,403
250,000 Dade County, Florida, School District General
Obligation Bonds (MBIA Insured),
6.875% due 08/01/00 ............................................................ 250,380
4,700,000 Indian River County, Florida, Hospital District
Revenue Bonds, Commercial Paper,
4.150% due 07/12/00 ............................................................ 4,700,000
605,000 Sunrise, Florida, Utility System Revenue Bonds
(AMBAC Insured),
10.250% due 10/01/13 ........................................................... 622,206
-----------
8,578,989
GEORGIA -- 0.2%
250,000 Carroll City, Georgia, County Hospital Authority
Revenue (Tanner Medical Center),
6.750% due 07/01/00 ............................................................ 250,000
HAWAII -- 1.4%
1,500,000 Hawaii State, General Obligation Bonds,
Series BT, Refunding,
6.000% due 02/01/04 ............................................................ 1,529,030
500,000 Hawaii State, General Obligation Bonds,
Series CI, Refunding,
4.000% due 11/01/00 ............................................................ 499,500
-----------
2,028,530
IDAHO -- 4.4%
6,500,000 American Falls, Idaho, Reservoir District
Replacement Dam Revenue Bonds, Refunding,
5.150% due 02/01/25++ .......................................................... 6,500,000
ILLINOIS -- 11.8%
1,200,000 Chicago, Illinois, Airport Special Facilities
Revenue (Centerpoint O'Hare LLC)
(LOC: First National Bank),
4.800% due 09/01/32++ .......................................................... 1,200,000
1,000,000 Chicago, Illinois, Wastewater Transmission
Revenue Bonds (FGIC Insured),
6.750% due 11/15/20 ............................................................ 1,029,347
1,000,000 East Dundee, Illinois, Industrial Development
Revenue (Kreis Tool & Manufacturing Company Project)
(LOC: American National Bank
& Trust),
4.850% due 06/01/27++ .......................................................... 1,000,000
1,740,000 Elgin, Illinois, Economic Development Revenue
(Gibson Guitar Corporation Project),
4.800% due 11/01/15++ .......................................................... 1,740,000
</TABLE>
75
The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
FEDERAL TAX-FREE
MONEY FUNDS
-----------------------------
INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
MUNICIPAL BONDS AND NOTES -- CONTINUED
ILLINOIS -- CONTINUED
$ 1,530,000 Illinois Development Financing Authority,
Industrial Development Revenue
(HPL Illinois, Inc. Project)
(LOC: American National Bank & Trust),
4.950% due 09/01/17++ .......................................................... $ 1,530,000
1,850,000 Illinois Development Financing Authority,
Industrial Development Revenue
(MCL, Inc. Project)
(LOC: American National Bank & Trust),
4.950% due 06/01/17++ .......................................................... 1,850,000
1,950,000 Illinois Development Financing Authority,
Industrial Project Revenue
(Midco International, Inc. Project),
Refunding (LOC: Harris
Trust & Savings Bank),
4.750% due 05/01/25++ .......................................................... 1,950,000
1,500,000 Illinois Health Facilities Authority Revenue
(Elmhurst Memorial Health),
4.700% due 01/01/28++ .......................................................... 1,500,000
1,000,000 Illinois Health Facilities Authority Revenue
(Franciscan Sisters Health Care) (MBIA Insured),
5.200% due 09/01/00 ............................................................ 1,001,983
1,385,000 Illinois State, Dedicated Tax Revenue Bonds,
Prerefunded (AMBAC Insured),
7.000% due 12/15/10 ............................................................ 1,426,283
300,000 Illinois State, General Obligation Bonds,
6.375% due 08/01/00 ............................................................ 300,424
2,955,000 Lombard, Illinois, Multi-family Housing Revenue
(Clover Creek Apartments Project)
(LOC: Bank One Arizona N.A.),
4.050% due 12/15/06 ............................................................ 2,955,000
-----------
17,483,037
INDIANA -- 5.2%
235,000 Hamilton County, Indiana, County Option Income
Tax Revenue Bonds (FSA Insured),
4.125% due 07/10/00 ............................................................ 235,000
6,500,000 Indiana Health Facilities Financing Authority
Revenue (Ascension Health Credit),
5.100% due 11/15/39++ .......................................................... 6,500,000
250,000 Indianapolis, Indiana, Local Public Improvement
Revenue Bonds, Series A,
7.400% due 01/01/20 ............................................................ 262,476
610,000 Noblesville Hamilton County, Indiana, Building
Authority Revenue Bonds, Prerefunded,
7.000% due 02/01/13 ............................................................ 630,849
-----------
7,628,325
KANSAS -- 6.2%
6,500,000 Burlington, Kansas, Environmental Improvement
Revenue (Kansas City Power & Light Company Project),
Refunding,
4.900% due 09/01/15++ .......................................................... 6,500,000
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
KANSAS -- CONTINUED
$ 660,000 Johnson County, Kansas, Public Buildings Commission
Lease Revenue (County Administration Building
Project), Prerefunded,
7.100% due 09/01/01 ............................................................ $ 663,151
1,190,000 Johnson County, Kansas, School District No. 233,
General Obligation Bonds (AMBAC Insured),
5.500% due 09/01/00 ............................................................ 1,192,951
775,000 Sedgwick County, Kansas, General Obligation Bonds,
4.250% due 08/01/00 ............................................................ 775,380
-----------
9,131,482
KENTUCKY -- 0.3%
470,000 Boyd County, Kentucky, School District Finance
Corporation, School Building Revenue Bonds,
4.400% due 10/01/00 ............................................................ 469,980
MARYLAND -- 0.3%
175,000 Bowie, Maryland, General Obligation Bonds, Refunding,
4.900% due 07/15/00 ............................................................ 175,077
325,000 Maryland State, General Obligation Bonds,
4.500% due 10/15/00 ............................................................ 325,226
-----------
500,303
MASSACHUSETTS -- 0.6%
450,000 Massachusetts State, Health and Educational
Facilities Authority Revenue
(Charlton Memorial Hospital),
7.000% due 07/01/00 ............................................................ 450,000
500,000 Massachusetts State, Health and Educational
Facilities Authority Revenue
(Sisters Providence Health Systems), Refunding,
6.000% due 11/15/00 ............................................................ 502,726
-----------
952,726
MICHIGAN -- 6.8%
545,000 Buena Vista, Michigan, School District,
General Obligation Bonds, Prerefunded,
7.200% due 05/01/16 ............................................................ 566,669
1,000,000 Michigan State, Building Authority Revenue Bonds,
Series I,
5.000% due 10/01/00 ............................................................ 1,002,320
3,500,000 Michigan State, Strategic Fund Ltd.,
Obligation Revenue (Camac LLC Project)
(LOC: Bank One Michigan),
4.800% due 08/01/28++ .......................................................... 3,500,000
5,000,000 Michigan State, Strategic Fund Ltd., Obligation
Revenue (Kaspari Investments LLC Project)
(LOC: Bank One Michigan),
4.950% due 06/01/09++ .......................................................... 5,000,000
-----------
10,068,989
</TABLE>
76
The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
FEDERAL TAX-FREE
MONEY FUNDS
-----------------------------
INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
MUNICIPAL BONDS AND NOTES -- CONTINUED
MINNESOTA -- 0.4%
$ 500,000 Minneapolis & St. Paul, Minnesota, Housing
& Redevelopment Authority, Health Care System
Revenue Bonds, Series B, Prerefunded,
8.000% due 08/15/14 ............................................................ $ 515,081
MISSISSIPPI -- 2.3%
2,500,000 Flowood, Mississippi, Industrial Development
Revenue (BSC Steel, Inc. Project)
(LOC: Bank of America N.A.),
4.950% due 11/01/01++ .......................................................... 2,500,000
250,000 Hancock County, Mississippi, School District,
General Obligation Bonds (AMBAC Insured),
5.500% due 10/15/00 ............................................................ 250,666
220,000 Hattiesburg, Mississippi, Water & Sewer Revenue,
Refunding (AMBAC Insured),
5.750% due 08/01/00 ............................................................ 220,256
380,000 Jones County, Mississippi, Hospital Revenue
(South Central Regional Medical Center Project),
Prerefunded (MBIA Insured),
7.200% due 08/01/10 ............................................................ 388,506
-----------
3,359,428
MISSOURI -- 2.7%
1,280,000 Missouri State, Economic and Industrial Development
Revenue Bonds, Export and Infrastructure Board,
Series E,
5.050% due 09/01/10++ .......................................................... 1,280,000
1,700,000 Missouri State, Health and Educational Facilities
Authority, Educational Facilities Revenue
(Drury College), Refunding (LOC:
Mercantile Bank N.A.),
4.750% due 08/15/24++ .......................................................... 1,700,000
1,000,000 Missouri State, Health and Educational Facilities
Authority, School District Advance Funding
Project Revenue (Brentwood School
District), Series B,
4.250% due 09/19/00 ............................................................ 999,759
-----------
3,979,759
NEBRASKA -- 2.2%
360,000 Douglas County, Nebraska, Zoo Facilities Revenue,
Refunding (Omaha's Henry Doorly Zoo Project),
4.250% due 09/01/00 ............................................................ 360,000
1,500,000 Lincoln, Nebraska Water Works Revenue Bonds,
Prerefunded,
6.900% due 11/01/04 ............................................................ 1,526,314
645,000 Nebraska Educational Telecommunications Commission
Revenue (DTV Project),
4.350% due 02/01/01 ............................................................ 645,000
500,000 Omaha, Nebraska, General Obligation Bonds,
4.500% due 12/15/00 ............................................................ 500,096
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
NEBRASKA -- CONTINUED
$ 245,000 Omaha-Douglas, Nebraska, Public Building Commission
Revenue Bonds,
4.450% due 05/01/01 ............................................................ $ 244,898
-----------
3,276,308
NEVADA -- 0.6%
400,000 Nevada State, Colorado River Commission Revenue Bonds,
Refunding,
5.500% due 07/01/00 ............................................................ 400,000
455,000 North Las Vegas, Nevada, Water & Sewer General
Obligation Bonds (FGIC Insured),
4.800% due 08/01/00 ............................................................ 455,431
-----------
855,431
NEW JERSEY -- 0.3%
420,000 Burlington Township, New Jersey, General Obligation
Bonds (FGIC Insured),
4.875% due 07/15/00 ............................................................ 420,192
NEW MEXICO -- 1.4%
1,000,000 Albuquerque, New Mexico, Joint Water & Sewer System
Revenue Bonds, Series A, Prerefunded,
6.000% due 07/01/15 ............................................................ 1,000,000
375,000 Rio Rancho, New Mexico, Gross Receipts Tax Revenue
Bonds, Series A (FSA Insured),
5.500% due 12/01/00 ............................................................ 376,821
650,000 Silver City, New Mexico, Revenue Bonds, Series A,
Refunding (LOC: Lasalle National Bank),
4.900% due 11/15/10 ............................................................ 650,000
-----------
2,026,821
OHIO -- 2.8%
1,250,000 Columbus, Ohio, City School District, General
Obligation Bonds, Refunding (FGIC Insured),
4.800% due 12/01/00 ............................................................ 1,253,515
1,000,000 North Royalton, Ohio, General Obligation Bonds,
Prerefunded,
7.500% due 12/01/11 ............................................................ 1,030,981
1,000,000 Ohio State, Building Authority Revenue
(Administration Building Fund),
5.500% due 10/01/00 ............................................................ 1,002,040
800,000 Wooster, Ohio, Individual Development Revenue
(The Allen Group, Inc.) (LOC: NBD Bank),
4.850% due 12/01/10++ .......................................................... 800,000
-----------
4,086,536
OKLAHOMA -- 0.1%
200,000 Tulsa County, Oklahoma, Independent School District
No. 003 Broken Arrow, General Obligation Bonds,
4.300% due 08/01/00 ............................................................ 200,033
</TABLE>
77
The accompanying notes are an integral part of the financial statements.
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
FEDERAL
TAX-FREE MONEY FUND
-----------------------------
INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
MUNICIPAL BONDS AND NOTES -- CONTINUED
OREGON -- 0.5%
$ 800,000 Port Morrow, Oregon, Environmental Improvement
Revenue (Portland General Electric Company),
4.800% due 12/01/31++ .......................................................... $ 800,000
PENNSYLVANIA -- 3.6%
125,000 Johnstown, Pennsylvania, New Public Housing
Revenue Bonds,
5.125% due 11/01/00 ............................................................ 125,375
345,000 Lycoming County, Pennsylvania, Authority College
Revenue Bonds, Prerefunded (AMBAC Insured),
7.000% due 11/01/09 ............................................................ 354,888
350,000 Montgomery County, Pennsylvania, General Obligation
Bonds, Series A, Prerefunded,
5.200% due 10/15/07 ............................................................ 350,660
2,000,000 Pennsylvania Economic Development Financing
Authority Revenue Bonds, Series B2
(LOC: PNC Bank N.A.),
4.950% due 05/01/10++ .......................................................... 2,000,000
1,100,000 Pennsylvania Economic Development Financing
Authority Revenue Bonds, Series B4
(LOC: PNC Bank N.A.),
4.950% due 05/01/10++ .......................................................... 1,100,000
1,000,000 Pennsylvania Economic Development Financing
Authority Revenue Bonds, Series B7
(LOC: PNC Bank N.A.),
4.950% due 05/01/10++ .......................................................... 1,000,000
200,000 Solanco, Pennsylvania, School District, Series B,
General Obligation Bonds (FGIC Insured),
5.050% due 02/01/01 ............................................................ 200,328
240,000 Wayne Highlands, Pennsylvania, General Obligation
Bonds (FGIC Insured),
5.250% due 09/01/00 ............................................................ 240,178
-----------
5,371,429
SOUTH CAROLINA -- 2.7%
4,000,000 Chesterfield County, South Carolina, Commercial Paper,
4.800% due 07/14/00 ............................................................ 4,000,000
SOUTH DAKOTA -- 0.7%
1,000,000 South Dakota State, Building Authority, Building
Revenue Bonds, Refunding,
6.125% due 09/01/00 ............................................................ 1,003,192
TENNESSEE -- 0.5%
730,000 Tennessee State, Series B, General Obligation Bonds,
6.200% due 06/01/01 ............................................................ 739,978
TEXAS -- 12.3%
500,000 Alief, Texas, Independent School District, General
Obligation Bonds, Prerefunded (PSF-GTD Insured),
6.000% due 02/15/08 ............................................................ 505,406
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
TEXAS -- CONTINUED
$ 1,000,000 Austin, Texas, Independent School District, General
Obligation Bonds (PSF-GTD Insured),
8.125% due 08/01/00 ............................................................ $ 1,002,776
300,000 Austin, Texas, Independent School District, General
Obligation Bonds, Prerefunded,
7.100% due 08/01/04 ............................................................ 300,803
505,000 Corpus Christi, Texas, Independent School District,
General Obligation Bonds (PSF-GTD Insured),
6.400% due 08/15/02 ............................................................ 506,353
320,000 Flower Mound, Texas, Waterworks & Sewer Revenue Bonds
(FSA Insured),
5.250% due 09/01/00 ............................................................ 320,708
200,000 Garland, Texas, Independent School District, General
Obligation Bonds, Prerefunded (AMBAC Insured),
6.000% due 08/15/09 ............................................................ 200,441
125,000 Harris County, Texas, General Obligation Bonds,
6.400% due 08/01/00 ............................................................ 125,203
1,100,000 Harris County, Texas, Industrial Development
Corporation, Solid Waste Disposal Revenue
(Deer Park Refining L.P.),
4.800% due 02/01/23+ ........................................................... 1,100,000
200,000 Highland Park, Texas, Independent School District,
General Obligation Bonds,
5.500% due 02/15/01 ............................................................ 201,421
500,000 Houston, Texas, Independent School District,
General Obligation Bonds,
5.000% due 07/15/00 ............................................................ 500,007
500,000 Houston, Texas, Water & Sewer System Revenue Bonds,
Prerefunded (MBIA Insured),
7.375% due 12/01/10 ............................................................ 515,648
1,520,000 Houston, Texas, Water & Sewer System Revenue Bonds,
Prerefunded (MBIA Insured),
7.400% due 12/01/18 ............................................................ 1,567,724
150,000 La Porte, Texas, General Obligation Bonds (MBIA Insured),
7.000% due 03/15/01 ............................................................ 152,554
2,105,000 North Harris, Texas, Montgomery Community College
District, General Obligation Bonds,
5.000% due 02/15/01 ............................................................ 2,111,251
100,000 North Harris, Texas, Montgomery Community College District,
General Obligation Bonds, Refunding (FGIC Insured),
4.800% due 08/15/00 ............................................................ 100,070
</TABLE>
78
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)
<S> <C>
MUNICIPAL BONDS AND NOTES -- CONTINUED
TEXAS -- CONTINUED
$ 250,000 Northside, Texas, Independent School District,
General Obligation Bonds, Prerefunded
(PSF-GTD Insured),
6.625% due 02/01/05 ............................................................ $ 253,255
1,700,000 San Antonio, Texas, Independent Development
Authority Revenue (Rivercenter Association Project),
Refunding (LOC: PNC Bank),
4.850% due 12/01/12++ .......................................................... 1,700,000
100,000 Tarrant County, Texas, Hospital District,
General Obligation Bonds,
5.100% due 08/15/00 ............................................................ 100,106
500,000 Tarrant County, Texas, Water Control & Improvement
District No. 001 Water Revenue Bonds, Prerefunded,
5.800% due 03/01/02 ............................................................ 504,657
1,100,000 Tarrant County, Texas, Water Control & Improvement
District No. 001 Water Revenue Bonds, Refunding,
5.700% due 03/01/01 ............................................................ 1,106,313
4,100,000 Texas State, Public Financing Authority, General
Obligation Bonds, Prerefunded,
6.375% due 10/01/03 ............................................................ 4,117,369
455,000 Trinity River Authority, Texas, Regional Wastewater
System Revenue Bonds, Prerefunded (AMBAC Insured),
7.100% due 08/01/16 ............................................................ 456,130
675,000 University, Texas, University Revenue Bonds,
4.500% due 08/15/00 ............................................................ 675,684
-----------
18,123,879
UTAH -- 0.2%
300,000 Utah Water Finance Agency Revenue (Pooled Loan
Financing Program), Series A (MBIA Insured),
5.000% due 10/01/00 ............................................................ 300,513
VERMONT -- 0.3%
500,000 Vermont Public Power Supply Authority Revenue
(McNeil Project), Refunding (AMBAC Insured),
4.000% due 07/01/00 ............................................................ 500,000
VIRGINIA -- 1.6%
2,300,000 Louisiana, Virginia, Industries Commercial Paper,
4.350% due 07/25/00 ............................................................ 2,300,000
WASHINGTON -- 6.4%
200,000 Island County, Washington, School District
No. 201 Oak Harbor, General Obligation Bonds,
Refunding,
3.950% due 12/01/00 ............................................................ 199,715
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
WASHINGTON -- CONTINUED
$ 380,000 Kitsap County, Washington, General Obligation Bonds,
Series B, Refunding (AMBAC Insured),
4.250% due 07/01/00 ............................................................ $ 380,000
1,160,000 Port of Seattle, Washington, Commercial Paper,
4.500% due 07/18/00 ............................................................ 1,160,000
500,000 Seattle, Washington, Municipal Light & Power Revenue
Bonds, Series A,
5.100% due 08/01/00 ............................................................ 500,316
200,000 Washington State, General Obligation Bonds, Series R-94A,
4.500% due 08/01/00 ............................................................ 200,047
2,225,000 Washington State, Housing Finance Commission,
Multi-family Mortgage Revenue (Winterhill Apartments
Project) (FSA Insured) (LOC:
Wells Fargo Bank),
4.950% due 07/01/28++ .......................................................... 2,225,000
1,775,000 Washington State, Housing Finance Commission,
Multi-family Revenue (Summer Ridge Apartments
Project), Series A (LOC: U.S. Bank
N.A.),
4.800% due 12/01/29++ .......................................................... 1,775,000
500,000 Washington State, Public Power Supply System
Nuclear Project No. 2 Revenue Bonds, Series A, Refunding,
4.375% due 07/01/00 ............................................................ 500,000
2,500,000 Washington State, Public Power Supply System
Nuclear Project No. 2 Revenue Bonds, Series C, Refunding,
7.625% due 07/01/10 ............................................................ 2,583,052
-----------
9,523,130
WEST VIRGINIA -- 2.3%
2,500,000 Pleasants County, West Virginia, Pollution Control
Revenue (American Cyanamid Company Project),
4.950% due 12/01/20++ .......................................................... 2,500,000
900,000 West Virginia School Building Authority Revenue (MBIA Insured),
6.750% due 07/01/10 ............................................................ 918,000
-----------
3,418,000
WISCONSIN -- 0.5%
250,000 Sheboygan, Wisconsin, General Obligation Bonds, Series A,
4.000% due 10/01/00 ............................................................ 250,060
450,000 Wisconsin State Health & Educational Facilities Authority
Revenue (United Health Group, Inc.), Refunding (MBIA Insured),
4.500% due 12/15/00 ............................................................ 450,000
-----------
700,060
</TABLE>
79
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)
<S> <C>
MUNICIPAL BONDS AND NOTES -- CONTINUED
WYOMING -- 1.7%
$ 2,580,000 Gillette, Wyoming, Environmental Improvement Revenue
(Black Hills Power & Light Corporation Project),
5.050% due 06/01/24++ .......................................................... $ 2,580,000
TOTAL INVESTMENTS -- 98.0%
(At amortized cost*) ............................................................................. 144,857,231
OTHER ASSETS AND LIABILITIES -- 2.0%
(Net) ............................................................................................ 2,981,037
-----------
NET ASSETS -- 100.0% ............................................................................. $ 147,838,268
===========
</TABLE>
* Aggregate cost for federal tax purposes $144,857,231.
++ Floating-rate note reflects the rate in effect at June 30, 2000.
ABBREVIATIONS:
AMBAC American Municipal Bond Assurance Corporation
PSF-GTD Permanent School Fund Guaranteed
FGIC Federal Guaranty Insurance Corporation
FSA Financial Security Assurance
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance
80
The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
CALIFORNIA TAX-FREE
MONEY FUND
-----------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
MUNICIPAL BONDS AND NOTES -- 108.7%
CALIFORNIA -- 105.3%
$ 5,750,000 Abag, California, Financing Authority Revenue,
Nonprofit Corporation, Certificates of Participation,
Series C, Refunding,
4.238% due 10/01/27++ .......................................................... $ 5,750,000
2,690,000 Alameda County, California,
Multi-family Mortgage Revenue,
4.238% due 05/15/15++ .......................................................... 2,690,000
440,000 Anaheim, California, Electric
Revenue Bonds (AMBAC Insured),
4.500% due 10/01/00 ............................................................ 440,688
Anaheim, California, Unified School District,
Certificates of Participation:
1,300,000 4.338% due 09/01/13++ .......................................................... 1,300,000
(FSA Insured),
2,300,000 4.350% due 09/01/29++ .......................................................... 2,300,000
250,000 Atascadero, California, Unified School District,
Certificates of Participation,
7.200% due 08/01/11 ............................................................ 255,718
1,900,000 Azusa, California, Multi-family
Housing Revenue,
4.288% due 07/15/15++ .......................................................... 1,900,000
260,000 Belmont, California, Redevelopment Agency
Tax Allocation (AMBAC Insured),
4.375% due 08/01/00 ............................................................ 260,165
California Educational Facilities Authority:
5,000,000 3.889% due 07/17/00++ .......................................................... 5,000,000
265,000 3.450% due 04/01/01 ............................................................ 262,026
2,500,000 4.550% due 05/01/30++ .......................................................... 2,500,000
5,000,000 California Educational Facilities Authority
Revenue, Pepperdine University, Series B,
4.388% due 11/01/29++ .......................................................... 5,000,000
150,000 California Educational Facilities
Authority Revenue, St. Mary's
College of California Project,
7.500% due 10/01/20 ............................................................ 154,337
12,950,000 California Health Facilities
Financing Authority Revenue,
Memorial Health Services,
4.388% due 10/01/24++ .......................................................... 12,950,000
3,300,000 California Health Facilities Financing Authority
Revenue, Saint Joseph
Health System, Series B,
4.238% due 07/01/09++ .......................................................... 3,300,000
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
CALIFORNIA -- CONTINUED
$ 2,000,000 California Health Facilities, Financing Authority,
Revenue Bonds, Childrens Hospital (MBIA Insured),
6.500% due 07/01/20 ............................................................ $ 2,040,000
9,000,000 California Schools Cash Reserve
Authority, Series A,
4.000% due 07/03/00 ............................................................ 8,999,928
California State:
4,000,000 4.050% due 07/14/00 ............................................................ 4,000,000
2,500,000 4.050% due 07/19/00 ............................................................ 2,500,000
4,900,000 4.050% due 08/02/00 ............................................................ 4,900,000
100,000 5.600% due 09/01/00 ............................................................ 100,346
1,000,000 4.000% due 12/01/00 ............................................................ 1,001,530
3,070,000 9.000% due 04/01/01 ............................................................ 3,189,043
10,000,000 4.787% due 03/01/03++ .......................................................... 10,000,000
(FGIC Insured)
250,000 6.600% due 10/01/00 ............................................................ 251,743
California State Public Works
Board Leasing Revenue:
1,085,000 7.250% due 09/01/03 ............................................................ 1,112,933
1,865,000 7.000% due 09/01/15 ............................................................ 1,913,002
75,000 California State University & Colleges,
Housing Revenue (AMBAC Insured),
6.250% due 11/01/00 ............................................................ 75,602
1,700,000 California State, Educational Facilities,
4.050% due 07/19/00 ............................................................ 1,700,000
365,000 California State, University
Trust Certificates,
6.450% due 06/01/02 ............................................................ 375,292
7,200,000 California Statewide Communities Development Authority,
Certificates of Participation,
4.338% due 07/01/08++ .......................................................... 7,200,000
California Statewide Communities Development Authority,
Certificates of Participation:
500,000 4.100% due 07/01/00 ............................................................ 500,000
4,000,000 4.000% due 09/29/00 ............................................................ 4,001,758
3,000,000 4.000% due 09/29/00 ............................................................ 3,000,471
3,000,000 4.189% due 06/01/26++ .......................................................... 3,000,000
8,500,000 California, School Cash Reserves
Program Authority, Series A,
5.250% due 07/03/01 ............................................................ 8,579,815
100,000 Capinteria, California Sanitation District
Capital Facilities Revenue (FGIC Insured),
7.500% due 07/01/00 ............................................................ 100,000
2,300,000 Central Unified School District, TRANS,
4.250% due 12/20/00 ............................................................ 2,304,683
</TABLE>
81
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>
MUNICIPAL BONDS AND NOTES -- CONTINUED
CALIFORNIA -- CONTINUED
$ 700,000 Coachella Valley, California, Water District
Improvement Number 71, Flood Control Project,
Certificates of Participation,
5.750% due 10/01/00 ............................................................ $ 703,516
1,000,000 Conejo Valley, California
Unified School District,
4.500% due 08/01/00 ............................................................ 1,000,781
Contra Costa, California,
Water District Revenue:
750,000 4.000% due 09/29/00 ............................................................ 749,161
1,000,000 6.875% due 10/01/20 ............................................................ 1,026,943
1,250,000 Corona-Norco, California, Unified School District, General Obligation Bonds,
4.500% due 09/01/00 ............................................................ 1,250,625
2,200,000 Covina, California, Redevelopment Agency, Multi-family Revenue,
4.288% due 12/01/15++ .......................................................... 2,200,000
4,000,000 East Bay, California,
Municipal Utility District,
4.000% due 07/06/00 ............................................................ 4,000,000
3,000,000 Easten, California, Municipal Water District, 2.600% due 07/01/20 .............. 3,000,000
7,700,000 Elsinore Valley, California, Municipal
Water District (FGIC Insured),
4.238% due 07/01/29++ .......................................................... 7,700,000
2,100,000 Encinitas, California, Multi-family
Housing Revenue,
4.338% due 09/01/15++ .......................................................... 2,100,000
1,000,000 Escondido, California, Unified School District, General Obligation Bonds
(FGIC Insured),
4.100% due 09/01/00 ............................................................ 1,000,919
2,000,000 Foothill, California, Transportation Zone Certificates of
Participation, TRANS,
5.050% due 11/01/00 ............................................................ 2,008,151
9,665,000 Fremont, California,
Multi housing Revenue Bonds,
4.338% due 09/01/14++ .......................................................... 9,665,000
2,700,000 Fresno, California, Sewer Revenue
Bonds (FGIC Insured),
4.288% due 09/01/25++ .......................................................... 2,700,000
3,000,000 Fresno, California, TRANS,
5.000% due 06/29/01 ............................................................ 3,020,760
2,045,000 Golden Empire Schools Finance Authority, Var-Kern High
School District, Series A,
4.238% due 12/01/24++ .......................................................... 2,045,000
1,785,000 Hacienda, Los Angeles, California, Unified School District,
Adult Education Financing Program, Certificates of
Participation,
4.850% due 10/01/09++ .......................................................... 1,785,000
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
CALIFORNIA -- CONTINUED
Indio, California, Public
Financing Authority Revenue:
$ 255,000 6.850% due 08/15/01 ............................................................ $ 261,042
275,000 6.950% due 08/15/02 ............................................................ 281,513
Irvine Ranch, California,
Water District Revenue Bonds:
9,000,000 6.500% due 10/01/09 ............................................................ 9,000,000
1,600,000 4.300% due 04/01/33 ............................................................ 1,600,000
Series A,
4,200,000 4.600% due 05/01/09 ............................................................ 4,200,000
6,000,000 Kern County, California,
Board of Education, TRANS,
5.000% due 07/03/01 ............................................................ 6,040,020
1,000,000 Kern County, California,
Certificates of Participation,
4.250% due 08/01/06++ .......................................................... 1,000,000
Kern County, California,
High School District (MBIA Insured):
200,000 5.900% due 08/01/00 ............................................................ 200,296
2,705,000 4.358% due 02/01/13++ .......................................................... 2,705,000
12,000,000 Long Beach, California,
Health Facilities Revenue,
4.288% due 10/01/16++ .......................................................... 12,000,000
2,000,000 Los Angeles County, California,
Certificates of Participation,
Series A, TRANS,
5.000% due 07/02/01 ............................................................ 2,013,960
250,000 Los Angeles County, California, Commercial Transportation,
Certificates of Participation,
5.900% due 07/01/00 ............................................................ 250,000
7,000,000 Los Angeles County, California, Metropolitan
Transit Authority, Sales Tax
Revenue, Series A,
3.500% due 07/01/20 ............................................................ 7,000,000
2,000,000 Los Angeles, California Department of Water &
Power Electricity Plant Revenue,
9.000% due 09/01/00 ............................................................ 2,017,188
1,150,000 Los Angeles, California, Housing Authority,
Multi-family Housing Revenue, Series A,
4.000% due 12/01/10++ .......................................................... 1,150,000
100,000 Los Angeles, California, Judgement Obligation Bonds, Series A,
5.000% due 08/01/00 ............................................................ 100,025
1,500,000 Los Angeles, California, Metropolitan Transit
Authority, Sales Tax Revenue,
4.500% due 07/01/01 ............................................................ 1,503,022
715,000 Los Angeles, California, State
Building Authority Lease Revenue,
4.000% due 10/01/00 ............................................................ 715,872
Los Angeles, California,
Waste Water System Revenue:
7,750,000 3.850% due 07/11/00 ............................................................ 7,750,000
5,000,000 3.300% due 07/12/00 ............................................................ 5,000,000
</TABLE>
82
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>
MUNICIPAL BONDS AND NOTES -- CONTINUED
CALIFORNIA -- CONTINUED
(FGIC Insured),
$ 385,000 8.700% due 11/01/00 ............................................................ $ 391,349
1,700,000 Los Angeles, California,
Water & Power Authority,
4.000% due 07/13/00 ............................................................ 1,700,000
Metropolitan Water District, Southern California
Waterworks Revenue, Series C:
17,400,000 4.150% due 07/01/27++ .......................................................... 17,400,000
3,500,000 3.250% due 07/14/00 ............................................................ 3,500,000
4,200,000 4.300% due 07/21/00 ............................................................ 4,200,000
Modesto, California Irrigation District,
Certificates of Participation:
5,500,000 4.100% due 08/04/00 ............................................................ 5,500,000
(AMBAC Insured),
2,140,000 4.250% due 07/01/00 ............................................................ 2,140,000
3,200,000 Montebello, California, TRANS,
4.600% due 06/29/01 ............................................................ 3,207,584
2,000,000 Mt. Diablo, California, Unified School District,
Community Facilities Special Tax, Revenue Bonds
(FGIC Insured),
7.050% due 08/01/20 ............................................................ 2,043,766
Newport Beach, California,
Memorial Hospital Revenue:
Series A,
4,000,000 4.238% due 10/01/26++ .......................................................... 4,000,000
Series B,
1,300,000 4.238% due 10/01/26++ .......................................................... 1,300,000
Newport Beach, California, Memorial
Presbyterian Hospital Revenue:
3,200,000 4.238% due 10/01/22++ .......................................................... 3,200,000
Series C,
8,100,000 4.238% due 10/01/26++ .......................................................... 8,100,000
6,300,000 Northern California, TRANS,
3.900% due 09/05/00 ............................................................ 6,300,000
3,700,000 Oakland, California, TRANS,
4.250% due 09/29/00 ............................................................ 3,707,428
5,000,000 Orange County, California
Improvement Bonds,
3.989% due 09/02/18++ .......................................................... 5,000,000
1,300,000 Orange County, California,
Recovery, Certificates of Participation
(MBIA Insured),
4.358% due 07/01/19++ .......................................................... 1,300,000
8,500,000 Orange County, California, Sanitation District,
Certificates of Participation (AMBAC Insured),
4.250% due 08/01/13++ .......................................................... 8,500,000
Orange County, California, Special Financing
Authority, Teeter Plan Revenue, Series B (AMBAC Insured):
2,500,000 4.637% due 11/01/14++ .......................................................... 2,500,000
3,800,000 4.638% due 11/01/14++ .......................................................... 3,800,000
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
CALIFORNIA -- CONTINUED
$ 1,000,000 Orange County, California, Water District,
Certificates of Participation,
7.000% due 08/15/15 ............................................................ $ 1,023,331
1,600,000 Orange County, California,
Recovery, Certificates of Participation
(MBIA Insured),
4.358% due 07/01/19++ .......................................................... 1,600,000
410,000 Palmdale, California, Elementary School District (FSA Insured),
3.700% due 08/01/00 ............................................................ 410,000
4,470,000 Pittsburgh, California, Mortgage Obligations, Series A,
4.687% due 12/30/31++ .......................................................... 4,470,000
660,000 RE Badger, Water Facilities Financing Authority,
California Waterworks Revenue
(FGIC Insured),
4.500% due 10/01/00 ............................................................ 661,368
1,000,000 Rocklin, California, Stanford
Ranch Community Facilities District,
Special Tax Number 3,
8.100% due 11/01/15 ............................................................ 1,032,554
4,500,000 Rohnert Park, California, Multi-family Revenue Bonds,
Crossbrook
Apartments, Series A,
3.590% due 06/15/25++ .......................................................... 4,500,000
Sacramento, California, Municipal
Utility District Electricity, Revenue Bonds:
1,000,000 3.900% due 08/08/00 ............................................................ 1,000,000
(AMBAC Insured),
1,000,000 5.000% due 07/01/00 ............................................................ 1,000,000
200,000 San Diego County, California, Certificates of Participation
(AMBAC Insured),
4.750% due 09/01/00 ............................................................ 200,095
11,200,000 San Diego, California, TRANS,
4.050% due 07/17/00 ............................................................ 11,200,000
5,500,000 San Diego, California, Water District,
4.050% due 07/10/00 ............................................................ 5,500,000
3,975,000 San Francisco, California Bay Area,
Rapid Transit District Sales Revenue
(AMBAC Insured),
6.750% due 07/01/09 ............................................................ 4,054,501
San Francisco, California, Bay Area,
Rapid Transit District Sales Tax Revenue:
500,000 6.700% due 07/01/00 ............................................................ 500,000
(FGIC Insured),
250,000 6.100% due 07/01/00 ............................................................ 250,000
175,000 San Francisco, California, City and County International
Airport Revenue,
AMT Second Series,
6.000% due 05/01/01 ............................................................ 178,309
1,000,000 San Francisco, California, City and
County Public Utilities Common Water, Revenue Bonds,
5.750% due 11/01/00 ............................................................ 1,004,959
</TABLE>
83
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>
MUNICIPAL BONDS AND NOTES -- CONTINUED
CALIFORNIA -- CONTINUED
$ 9,300,000 San Francisco, California, City and County Redevelopment
Agency, Bayside Village, Revenue Bonds,
4.150% due 12/01/05 ............................................................ $ 9,300,000
2,000,000 San Francisco, California,
Rapid Transit District Sales Tax,
3.850% due 08/01/00 ............................................................ 2,000,000
250,000 San Leandro, California, Unified School District (FGIC Insured),
6.000% due 08/01/00 ............................................................ 250,493
400,000 San Mateo, California, Joint Power Financing
Authority, Downtown & Shoreline Project, Revenue Bonds
(AMBAC Insured),
5.100% due 08/01/03 ............................................................ 408,437
Santa Ana, California, Community Redevelopment
Agency Tax Allocation:
2,155,000 6.500% due 12/15/14 ............................................................ 2,228,711
Series B,
4,170,000 6.500% due 12/15/15 ............................................................ 4,325,458
2,000,000 Santa Paula, California, School District, Revenue Bonds,
5.000% due 06/29/01 ............................................................ 2,012,440
500,000 Santa Rosa High School District, General Obligation Bonds
(FGIC Insured),
7.000% due 05/01/01 ............................................................ 513,450
400,000 Sonoma County, California, Water & Wastewater Financing Authority
(FSA Insured),
4.000% due 08/01/00 ............................................................ 400,133
4,594,000 Southeast Reserve Recovery Facilities Authority,
California Lease Revenue,
4.388% due 12/01/18++ .......................................................... 4,594,000
2,265,000 Southern California, Public Power Authority,
Power Project Revenue,
6.000% due 07/01/18 ............................................................ 2,265,000
1,835,000 Southern California, Rapid Transit District
California, Certificates of Participation (MBIA Insured),
7.625% due 07/01/00 ............................................................ 1,835,000
1,000,000 Stockton, California Community
Facilities District,
7.750% due 08/01/15 ............................................................ 1,023,026
6,000,000 Upland, California, Apartment Development, Mountain Springs,
Revenue Bonds,
4.238% due 11/15/28++ .......................................................... 6,000,000
1,700,000 Vallejo, California, Multi-family
Housing Authority Revenue,
4.538% due 01/01/08++ .......................................................... 1,700,000
3,000,000 Ventura County, California, TRANS,
4.000% due 07/06/00 ............................................................ 3,000,087
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
CALIFORNIA -- CONTINUED
West Basin, California, Municipal Water District,
Certificates of Participation (AMBAC Insured):
$ 165,000 7.000% due 08/01/11 ............................................................ $ 168,698
4,040,000 6.850% due 08/01/16 ............................................................ 4,129,316
650,000 6.600% due 08/01/03 ............................................................ 664,653
-----------
398,847,020
PUERTO RICO -- 3.4%
Commonwealth of Puerto Rico:
3,500,000 4.500% due 07/30/00 ............................................................ 3,502,791
2,885,000 7.625% due 07/01/10 ............................................................ 2,942,700
400,000 Puerto Rico, Electric Power Authority, Revenue (MBIA Insured),
6.000% due 07/01/00 ............................................................ 400,000
6,260,000 Puerto Rico, Government Development Bank,
4.300% due 08/25/00 ............................................................ 6,260,000
-----------
13,105,491
-----------
TOTAL INVESTMENTS -- 108.7%
(At amortized cost*) ............................................................................. 411,952,511
OTHER ASSETS AND LIABILITIES -- (8.7)%
(Net) ............................................................................................ (33,133,362)
-----------
NET ASSETS -- 100.0% ............................................................................. $ 378,819,149
===========
</TABLE>
* Aggregate cost for federal tax purposes $411,952,511.
++ Floating-rate note reflects the rate in effect at June 30, 2000.
ABBREVIATIONS:
AMBAC American Municipal Bond Assurance Corporation
FGIC Federal Guaranty Insurance Corporation
FSA Financial Security Assurance
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.
84
The accompanying notes are an integral part of these financial statements.
<PAGE>
------------------------------------------
THE MONTGOMERY FUNDS
------------------------------------------
ANNUAL REPORT
------------------------------------------
JUNE 30, 2000
==========================================
FINANCIAL STATEMENTS
------------------------------------------
Statements of Assets and Liabilities.. 86
Statements of Operations.............. 92
Statements of Changes in Net Assets... 96
Statements of Cash Flows.............. 100
Financial Highlights.................. 103
Notes to Financial Statements......... 122
Independent Auditors' Report.......... 137
Tax Information....................... 138
85
<PAGE>
------------------------------------------
THE MONTGOMERY FUNDS
------------------------------------------
STATEMENTS OF
ASSETS AND LIABILITIES
------------------------------------------
JUNE 30, 2000
<TABLE>
<CAPTION>
GROWTH
ASSETS: FUND
----------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (note 1)
Securities .......................................................................... $ 395,621,126
Repurchase agreements ............................................................... 19,424,000
Receivables:
Custodian ........................................................................... --
Dividends ........................................................................... 323,744
Interest ............................................................................ 8,125
Expenses absorbed by Manager ........................................................ 4,283
Shares of beneficial interest sold .................................................. 1,542,230
Investment securities sold .......................................................... 5,557,341
Other assets ............................................................................. 7,900
---------------
Total Assets ............................................................................. 422,488,749
---------------
LIABILITIES:
----------------------------------------------------------------------------------------------------------------
Forward foreign-currency exchange contracts:
Net unrealized depreciation of forward foreign-currency
exchange contracts (note 4) ........................................................ --
Payables:
Notes payable (note 4) .............................................................. --
Shares of beneficial interest redeemed .............................................. 336,075
Investment securities purchased ..................................................... 4,340,596
Management fees ..................................................................... 222,491
Administration fees ................................................................. 27,230
Share marketing plan fees (note 3) (Class P shares only) ............................ 1,105
Custodian fees ...................................................................... 4,807
Dividends ........................................................................... --
Trustees' fees and expenses ......................................................... 2,554
Accounting fees ..................................................................... 34,268
Cash overdrafts payable to custodian ................................................ 667,825
Transfer agency and servicing fees .................................................. 410,503
Other accrued liabilities and expenses .............................................. 170,612
---------------
Total Liabilities ........................................................................ 6,218,066
---------------
Net Assets ............................................................................... $ 416,270,683
---------------
Investments at identified cost ........................................................... $ 333,643,110
NET ASSETS CONSIST OF:
----------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(distributions in excess of
net investment income/accumulated net investment loss) ................................. $ --
Accumulated net realized gain/(loss) ..................................................... 40,863,583
Net unrealized appreciation/(depreciation) ............................................... 81,402,016
Shares of beneficial interest ............................................................ 197,206
Additional paid-in capital ............................................................... 293,807,878
---------------
Net Assets ............................................................................... $ 416,270,683
NET ASSETS:
----------------------------------------------------------------------------------------------------------------
Class R shares ...................................................................... $ 414,631,613
Class P shares ...................................................................... 1,639,070
---------------
Net Assets ............................................................................... $ 416,270,683
Class R shares outstanding .......................................................... 19,643,497
Class P shares outstanding .......................................................... 77,095
Class R shares: Net asset value, offering and redemption price per share outstanding ..... $ 21.11
---------------
Class P shares: Net asset value, offering and redemption price per share outstanding ..... $ 21.26
---------------
</TABLE>
86 The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
U.S. EMERGING
GROWTH SMALL CAP
ASSETS: FUND FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (note 1)
Securities .......................................................................... $ 214,711,116 $ 130,905,020
Repurchase agreements ............................................................... 10,466,000 --
Receivables:
Custodian ........................................................................... -- --
Dividends ........................................................................... 300 2,128
Interest ............................................................................ 2,111 175
Expenses absorbed by Manager ........................................................ 62,055 --
Shares of beneficial interest sold .................................................. 48,704 22,091
Investment securities sold .......................................................... 6,392,133 5,044,624
Other assets ............................................................................. 4,443 2,185
--------------- ---------------
Total Assets ............................................................................. 231,686,862 135,976,223
--------------- ---------------
LIABILITIES:
---------------------------------------------------------------------------------------------------------------------------------
Forward foreign-currency exchange contracts:
Net unrealized depreciation of forward foreign-currency
exchange contracts (note 4) ........................................................ -- --
Payables:
Notes payable (note 4) .............................................................. -- 2,500,000
Shares of beneficial interest redeemed .............................................. 172,270 590,573
Investment securities purchased ..................................................... 6,132,726 2,120,301
Management fees ..................................................................... 144,452 68,033
Administration fees ................................................................. 13,031 11,885
Share marketing plan fees (note 3) (Class P shares only) ............................ -- 39,739
Custodian fees ...................................................................... 18,742 7,599
Dividends ........................................................................... -- --
Trustees' fees and expenses ......................................................... 1,271 793
Accounting fees ..................................................................... 17,018 9,119
Cash overdrafts payable to custodian ................................................ -- --
Transfer agency and servicing fees .................................................. 160,217 33,495
Other accrued liabilities and expenses .............................................. 83,025 45,660
--------------- ---------------
Total Liabilities ........................................................................ 6,742,752 5,427,197
--------------- ---------------
Net Assets ............................................................................... $ 224,944,110 $ 130,549,026
--------------- ---------------
Investments at identified cost ........................................................... $ 135,482,796 $ 98,087,557
NET ASSETS CONSIST OF:
---------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(distributions in excess of
net investment income/accumulated net investment loss) ................................. $ -- $ --
Accumulated net realized gain/(loss) ..................................................... 87,850,395 35,368,827
Net unrealized appreciation/(depreciation) ............................................... 89,694,320 32,817,463
Shares of beneficial interest ............................................................ 90,509 59,011
Additional paid-in capital ............................................................... 47,308,886 62,303,725
--------------- ---------------
Net Assets ............................................................................... $ 224,944,110 $ 130,549,026
NET ASSETS:
---------------------------------------------------------------------------------------------------------------------------------
Class R shares ...................................................................... $ 224,944,110 $ 102,621,853
Class P shares ...................................................................... N/A 27,927,173
--------------- ---------------
Net Assets ............................................................................... $ 224,944,110 $ 130,549,026
Class R shares outstanding .......................................................... 9,050,881 4,623,058
Class P shares outstanding .......................................................... N/A 1,278,037
Class R shares: Net asset value, offering and redemption price per share outstanding ..... $ 24.85 $ 22.20
--------------- ---------------
Class P shares: Net asset value, offering and redemption price per share outstanding ..... N/A $ 21.85
--------------- ---------------
<CAPTION>
INTERNATIONAL
BALANCED GROWTH
ASSETS: FUND FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (note 1)
Securities .......................................................................... $ 63,462,017 $ 189,921,729
Repurchase agreements ............................................................... -- --
Receivables:
Custodian ........................................................................... -- 3,000,000
Dividends ........................................................................... 158,111 174,860
Interest ............................................................................ -- 737
Expenses absorbed by Manager ........................................................ 28,045 --
Shares of beneficial interest sold .................................................. 12,392 445,206
Investment securities sold .......................................................... 84,088 5,111,856
Other assets ............................................................................. 132 3,260
--------------- ---------------
Total Assets ............................................................................. 63,744,785 198,657,648
--------------- ---------------
LIABILITIES:
---------------------------------------------------------------------------------------------------------------------------------
Forward foreign-currency exchange contracts:
Net unrealized depreciation of forward foreign-currency
exchange contracts (note 4) ........................................................ -- 9,089
Payables:
Notes payable (note 4) .............................................................. -- --
Shares of beneficial interest redeemed .............................................. 114,783 180,140
Investment securities purchased ..................................................... -- 3,838,101
Management fees ..................................................................... -- 52,044
Administration fees ................................................................. -- 11,637
Share marketing plan fees (note 3) (Class P shares only) ............................ 2,322 16,332
Custodian fees ...................................................................... -- 46,987
Dividends ........................................................................... 28,411 --
Trustees' fees and expenses ......................................................... 791 1,177
Accounting fees ..................................................................... 4,347 14,226
Cash overdrafts payable to custodian ................................................ -- 294,016
Transfer agency and servicing fees .................................................. 50,440 129,608
Other accrued liabilities and expenses .............................................. 23,066 124,652
--------------- ---------------
Total Liabilities ........................................................................ 224,160 4,718,009
--------------- ---------------
Net Assets ............................................................................... $ 63,520,625 $ 193,939,639
--------------- ---------------
Investments at identified cost ........................................................... $ 63,800,769 $ 174,830,965
NET ASSETS CONSIST OF:
---------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(distributions in excess of
net investment income/accumulated net investment loss) ................................. $ 51,747 $ (625,121)
Accumulated net realized gain/(loss) ..................................................... (545,261) 27,485,749
Net unrealized appreciation/(depreciation) ............................................... (338,752) 15,080,000
Shares of beneficial interest ............................................................ 39,706 94,486
Additional paid-in capital ............................................................... 64,313,185 151,904,525
--------------- ---------------
Net Assets ............................................................................... $ 63,520,625 $ 193,939,639
NET ASSETS:
---------------------------------------------------------------------------------------------------------------------------------
Class R shares ...................................................................... $ 60,718,070 $ 184,587,586
Class P shares ...................................................................... 2,802,555 9,352,053
--------------- ---------------
Net Assets ............................................................................... $ 63,520,625 $ 193,939,639
Class R shares outstanding .......................................................... 3,795,318 8,993,856
Class P shares outstanding .......................................................... 175,232 454,750
Class R shares: Net asset value, offering and redemption price per share outstanding ..... $ 16.00 $ 20.52
--------------- ---------------
Class P shares: Net asset value, offering and redemption price per share outstanding ..... 15.99 $ 20.57
--------------- ---------------
<CAPTION>
GLOBAL
OPPORTUNITIES
ASSETS: FUND
------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (note 1)
Securities .......................................................................... $ 79,959,671
Repurchase agreements ............................................................... 6,446,000
Receivables:
Custodian ........................................................................... --
Dividends ........................................................................... 49,242
Interest ............................................................................ 1,619
Expenses absorbed by Manager ........................................................ 20,052
Shares of beneficial interest sold .................................................. 772,511
Investment securities sold .......................................................... 2,015,665
Other assets ............................................................................. 1,298
---------------
Total Assets ............................................................................. 89,266,058
---------------
LIABILITIES:
------------------------------------------------------------------------------------------------------------
Forward foreign-currency exchange contracts:
Net unrealized depreciation of forward foreign-currency
exchange contracts (note 4) ........................................................ 6,928
Payables:
Notes payable (note 4) .............................................................. --
Shares of beneficial interest redeemed .............................................. 1,853,928
Investment securities purchased ..................................................... 1,483,177
Management fees ..................................................................... 92,206
Administration fees ................................................................. 5,156
Share marketing plan fees (note 3) (Class P shares only) ............................ --
Custodian fees ...................................................................... 19,894
Dividends ........................................................................... --
Trustees' fees and expenses ......................................................... 456
Accounting fees ..................................................................... 5,059
Cash overdrafts payable to custodian ................................................ 3,187
Transfer agency and servicing fees .................................................. 30,449
Other accrued liabilities and expenses .............................................. 43,070
---------------
Total Liabilities ........................................................................ 3,543,510
---------------
Net Assets ............................................................................... $ 85,722,548
---------------
Investments at identified cost ........................................................... $ 80,466,783
NET ASSETS CONSIST OF:
------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(distributions in excess of
net investment income/accumulated net investment loss) ................................. $ 1,768
Accumulated net realized gain/(loss) ..................................................... 12,752,489
Net unrealized appreciation/(depreciation) ............................................... 5,933,599
Shares of beneficial interest ............................................................ 39,441
Additional paid-in capital ............................................................... 66,995,251
---------------
Net Assets ............................................................................... $ 85,722,548
NET ASSETS:
------------------------------------------------------------------------------------------------------------
Class R shares ...................................................................... $ 85,722,548
Class P shares ...................................................................... N/A
---------------
Net Assets ............................................................................... $ 85,722,548
Class R shares outstanding .......................................................... 3,944,093
Class P shares outstanding .......................................................... N/A
Class R shares: Net asset value, offering and redemption price per share outstanding ..... $ 21.73
---------------
Class P shares: Net asset value, offering and redemption price per share outstanding ..... N/A
---------------
</TABLE>
87
<PAGE>
------------------------------------------
THE MONTGOMERY FUNDS
------------------------------------------
STATEMENTS OF
ASSETS AND LIABILITIES
------------------------------------------
JUNE 30, 2000
<TABLE>
<CAPTION>
GLOBAL 20
ASSETS: FUND
------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (note 1
Securities .......................................................................... $ 110,888,006
Repurchase agreements ............................................................... 7,061,000
Cash ..................................................................................... --
Cash at broker (note 1) .................................................................. --
Foreign currency, at value (Cost $1,554, $11,465,694, $37, $666,978
and $715 respectively) ................................................................... 1,542
Receivables:
Dividends ........................................................................... 50,598
Interest ............................................................................ 1,728
Expenses absorbed by Manager ........................................................ 22,874
Shares of beneficial interest sold .................................................. 492,548
Investment securities sold .......................................................... 376,299
Short sales ......................................................................... --
Other assets ............................................................................. 2,355
---------------
Total Assets ............................................................................. 118,896,950
---------------
LIABILITIES:
------------------------------------------------------------------------------------------------------------
Short sales (proceeds $154,718,053) (note 1) ............................................. --
Net unrealized depreciation of forward foreign-currency exchange contracts (note 4) ...... --
Payables:
Notes payable (note 4) .............................................................. --
Deferred fee income on dollar roll transactions ..................................... --
Shares of beneficial interest redeemed .............................................. 73,356
Investment securities purchased ..................................................... 2,677,267
Short sales ......................................................................... --
Management fees ..................................................................... 77,886
Administration fees ................................................................. 6,910
Share marketing plan fees (note 3) (Class P shares only) ............................ 164
Custodian fees ...................................................................... 20,270
Dividends ........................................................................... --
Trustees' fees and expenses ......................................................... 370
Accounting fees ..................................................................... 8,218
Cash overdrafts payable to custodian ................................................ 26,689
Cash overdrafts payable to broker ................................................... --
Transfer agency and servicing fees .................................................. 79,901
Other accrued liabilities and expenses .............................................. 66,951
---------------
Total Liabilities ........................................................................ 3,037,982
---------------
Net Assets ............................................................................... $ 115,858,968
---------------
Investments at identified cost ........................................................... $ 108,237,180
NET ASSETS CONSIST OF:
------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(distributions in excess of net investment
income/accumulated net investment loss) .................................................. $ --
Accumulated net realized gain/(loss) ..................................................... 26,623,200
Net unrealized appreciation/(depreciation) ............................................... 9,711,741
Shares of beneficial interest ............................................................ 50,758
Additional paid-in capital ............................................................... 79,473,269
---------------
Net Assets ............................................................................... $ 115,858,968
NET ASSETS:
------------------------------------------------------------------------------------------------------------
Class B shares ...................................................................... $ N/A
Class C shares ...................................................................... N/A
Class R shares ...................................................................... 115,838,572
Class P shares ...................................................................... 20,396
---------------
Net Assets ............................................................................... $ 115,858,968
Class B shares outstanding .......................................................... N/A
Class C shares outstanding .......................................................... N/A
Class R shares outstanding .......................................................... 5,074,865
Class P shares outstanding .......................................................... 913
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 ..... $ 22.83
---------------
Class P shares: Net asset value, offering and redemption price per share outstanding ..... $ 22.35
---------------
</TABLE>
88 The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
GLOBAL GLOBAL
LONG-SHORT COMMUNICATIONS
ASSETS: FUND FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (note 1)
Securities .......................................................................... $ 401,665,507 $ 466,290,287
Repurchase agreements ............................................................... -- 33,491,000
Cash ..................................................................................... 135,937 --
Cash at broker (note 1) .................................................................. 149,665,252 --
Foreign currency, at value (Cost $1,554, $11,465,694, $37, $666,978
and $715 respectively).................................................................... 12,202,707 31
Receivables:
Dividends ........................................................................... 157,065 175,598
Interest ............................................................................ 627,306 8,050
Expenses absorbed by Manager ........................................................ -- --
Shares of beneficial interest sold .................................................. 295,852 2,057,687
Investment securities sold .......................................................... 8,688,927 19,231,601
Short sales ......................................................................... 2,872,838 --
Other assets ............................................................................. 12,012 4,811
--------------- ---------------
Total Assets ............................................................................. 576,323,403 521,259,065
--------------- ---------------
LIABILITIES:
---------------------------------------------------------------------------------------------------------------------------------
Short sales (proceeds $154,718,053) (note 1) ............................................. 148,147,237 --
Net unrealized depreciation of forward foreign-currency exchange contracts (note 4) ...... 1,423 3,631
Payables:
Notes payable (note 4) .............................................................. 14,700,000 --
Deferred fee income on dollar roll transactions ..................................... -- --
Shares of beneficial interest redeemed .............................................. 408,097 373,708
Investment securities purchased ..................................................... 5,724,790 21,645,510
Short sales ......................................................................... 3,809,247 --
Management fees ..................................................................... 294,951 304,058
Administration fees ................................................................. 25,650 33,209
Share marketing plan fees (note 3) (Class P shares only) ............................ 5,198 --
Custodian fees ...................................................................... 100,198 56,071
Dividends ........................................................................... 38,961 --
Trustees' fees and expenses ......................................................... 2,276 2,977
Accounting fees ..................................................................... 88,101 32,270
Cash overdrafts payable to custodian ................................................ -- 15,048
Cash overdrafts payable to broker ................................................... 742,656 --
Transfer agency and servicing fees .................................................. 111,540 143,045
Other accrued liabilities and expenses .............................................. 562,000 133,290
--------------- ---------------
Total Liabilities ........................................................................ 174,762,325 22,742,817
--------------- ---------------
Net Assets ............................................................................... $ 401,561,078 $ 498,516,248
--------------- ---------------
Investments at identified cost ........................................................... $ 298,367,685 $ 444,109,105
NET ASSETS CONSIST OF:
---------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(distributions in excess of net investment
income/accumulated net investment loss) .................................................. $ 715,966 $ (12,383)
Accumulated net realized gain/(loss) ..................................................... 81,312,394 160,848,647
Net unrealized appreciation/(depreciation) ............................................... 109,850,449 55,648,869
Shares of beneficial interest ............................................................ 130,955 145,896
Additional paid-in capital ............................................................... 209,551,314 281,885,219
--------------- ---------------
Net Assets ............................................................................... $ 401,561,078 $ 498,516,248
NET ASSETS:
---------------------------------------------------------------------------------------------------------------------------------
Class B shares ...................................................................... $ 23,333,223 N/A
Class C shares ...................................................................... 9,927,389 N/A
Class R shares ...................................................................... 368,300,466 $ 498,516,248
Class P shares ...................................................................... N/A N/A
--------------- ---------------
Net Assets ............................................................................... $ 401,561,078 $ 498,516,248
Class B shares outstanding .......................................................... 778,199 N/A
Class C shares outstanding .......................................................... 358,120 N/A
Class R shares outstanding .......................................................... 11,959,199 14,589,625
Class P shares outstanding .......................................................... N/A N/A
Class B shares: Net asset value, offering and redemption price per share outstanding ..... $ 29.98 N/A
--------------- ---------------
Class C shares: Net asset value, offering and redemption price per share outstanding ..... $ 27.72 N/A
--------------- ---------------
Class R shares: Net asset value, offering and redemption price per share outstanding ..... $ 30.80 $ 34.17
--------------- ---------------
Class P shares: Net asset value, offering and redemption price per share outstanding ..... N/A N/A
--------------- ---------------
<CAPTION>
EMERGING
EMERGING MARKETS
ASSETS: MARKETS FUND FOCUS FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (note 1)
Securities .......................................................................... $ 286,194,462 $ 4,029,174
Repurchase agreements ............................................................... -- 579,000
Cash ..................................................................................... -- --
Cash at broker (note 1) .................................................................. -- --
Foreign currency, at value (Cost $1,554, $11,465,694, $37, $666,978
and $715 respectively).................................................................... 673,258 --
Receivables:
Dividends ........................................................................... 434,145 862
Interest ............................................................................ 751 139
Expenses absorbed by Manager ........................................................ 62,279 --
Shares of beneficial interest sold .................................................. 6,104,199 27,115
Investment securities sold .......................................................... 12,666,172 576,703
Short sales ......................................................................... -- --
Other assets ............................................................................. 4,447 624
--------------- ---------------
Total Assets ............................................................................. 306,139,713 5,213,617
--------------- ---------------
LIABILITIES:
---------------------------------------------------------------------------------------------------------------------------------
Short sales (proceeds $154,718,053) (note 1) ............................................. -- --
Net unrealized depreciation of forward foreign-currency exchange
contracts (note 4) ..................................................................... -- --
Payables:
Notes payable (note 4) .............................................................. -- --
Deferred fee income on dollar roll transactions ..................................... -- --
Shares of beneficial interest redeemed .............................................. 177,917 3,502
Investment securities purchased ..................................................... 5,722,454 270,145
Short sales ......................................................................... -- --
Management fees ..................................................................... 190,807 140,925
Administration fees ................................................................. 17,869 292
Share marketing plan fees (note 3) (Class P shares only) ............................ 2,639 --
Custodian fees ...................................................................... 192,775 9,590
Dividends ........................................................................... -- --
Trustees' fees and expenses ......................................................... 1,778 798
Accounting fees ..................................................................... 21,324 179
Cash overdrafts payable to custodian ................................................ 1,200,799 --
Cash overdrafts payable to broker ................................................... -- --
Transfer agency and servicing fees .................................................. 286,110 2,737
Other accrued liabilities and expenses .............................................. 1,289,710 60,153
--------------- ---------------
Total Liabilities ........................................................................ 9,104,182 488,321
--------------- ---------------
Net Assets ............................................................................... $ 297,035,531 $ 4,725,296
--------------- ---------------
Investments at identified cost ........................................................... $ 242,947,686 $ 4,038,100
NET ASSETS CONSIST OF:
---------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(distributions in excess of net investment
income/accumulated net investment loss) .................................................. $ (961,126) $ (11,809)
Accumulated net realized gain/(loss) ..................................................... (307,340,789) (1,064,319)
Net unrealized appreciation/(depreciation) ............................................... 42,225,407 570,302
Shares of beneficial interest ............................................................ 246,827 2,852
Additional paid-in capital ............................................................... 562,865,212 5,228,270
--------------- ---------------
Net Assets ............................................................................... $ 297,035,531 $ 4,725,296
NET ASSETS:
---------------------------------------------------------------------------------------------------------------------------------
Class B shares ...................................................................... $ N/A $ N/A
Class C shares ...................................................................... N/A N/A
Class R shares ...................................................................... 290,504,452 4,725,296
Class P shares ...................................................................... 6,531,079 N/A
--------------- ---------------
Net Assets ............................................................................... $ 297,035,531 $ 4,725,296
Class B shares outstanding .......................................................... N/A N/A
Class C shares outstanding .......................................................... N/A N/A
Class R shares outstanding .......................................................... 24,128,744 285,185
Class P shares outstanding .......................................................... 553,937 N/A
Class B shares: Net asset value, offering and redemption price per share outstanding ..... N/A N/A
--------------- ---------------
Class C shares: Net asset value, offering and redemption price per share outstanding ..... N/A N/A
--------------- ---------------
Class R shares: Net asset value, offering and redemption price per share outstanding ..... $ 12.04 $ 16.57
--------------- ---------------
Class P shares: Net asset value, offering and redemption price per share outstanding ..... $ 11.79 N/A
--------------- ---------------
<CAPTION>
EMERGING TOTAL RETURN
ASSETS: ASIA FUND BOND FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (note 1)
Securities .......................................................................... $ 24,208,894 $ 31,174,162
Repurchase agreements ............................................................... 746,000 3,676,000
Cash ..................................................................................... 925 --
Cash at broker (note 1) .................................................................. -- --
Foreign currency, at value (Cost $1,554, $11,465,694, $37, $666,978
and $715 respectively) ................................................................... 715 --
Receivables:
Dividends ........................................................................... 12,366 --
Interest ............................................................................ 145 351,475
Expenses absorbed by Manager ........................................................ 43,470 --
Shares of beneficial interest sold .................................................. 4,030 300,841
Investment securities sold .......................................................... -- 1,227,410
Short sales ......................................................................... -- --
Other assets ............................................................................. 1,178 1,048
--------------- ---------------
Total Assets ............................................................................. 25,017,723 36,730,936
--------------- ---------------
LIABILITIES:
---------------------------------------------------------------------------------------------------------------------------------
Short sales (proceeds $154,718,053) (note 1) ............................................. -- --
Net unrealized depreciation of forward foreign-currency exchange
contracts (note 4) ..................................................................... -- --
Payables:
Notes payable (note 4) .............................................................. -- --
Deferred fee income on dollar roll transactions ..................................... -- 6,187
Shares of beneficial interest redeemed .............................................. 25,633 39,941
Investment securities purchased ..................................................... -- 8,479,982
Short sales ......................................................................... -- --
Management fees ..................................................................... 28,614 59,390
Administration fees ................................................................. 1,417 1,114
Share marketing plan fees (note 3) (Class P shares only) ............................ -- --
Custodian fees ...................................................................... 28,964 2,758
Dividends ........................................................................... 4,294 2,699
Trustees' fees and expenses ......................................................... 1,019 160
Accounting fees ..................................................................... 2,582 2,057
Cash overdrafts payable to custodian ................................................ -- --
Cash overdrafts payable to broker ................................................... -- --
Transfer agency and servicing fees .................................................. 31,332 2,680
Other accrued liabilities and expenses .............................................. 51,197 22,300
--------------- ---------------
Total Liabilities ........................................................................ 175,052 8,619,268
--------------- ---------------
Net Assets ............................................................................... $ 24,842,671 $ 28,111,668
--------------- ---------------
Investments at identified cost ........................................................... $ 22,742,033 $ 34,968,617
NET ASSETS CONSIST OF:
---------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(distributions in excess of net investment
income/accumulated net investment loss) .................................................. $ (706,975) $ 40,714
Accumulated net realized gain/(loss) ..................................................... (9,960,984) (1,150,039)
Net unrealized appreciation/(depreciation) ............................................... 2,212,856 (118,455)
Shares of beneficial interest ............................................................ 24,646 24,806
Additional paid-in capital ............................................................... 33,273,128 29,314,642
--------------- ---------------
Net Assets ............................................................................... $ 24,842,671 $ 28,111,668
NET ASSETS:
---------------------------------------------------------------------------------------------------------------------------------
Class B shares ...................................................................... $ N/A $ N/A
Class C shares ...................................................................... N/A N/A
Class R shares ...................................................................... 24,842,671 28,111,668
Class P shares ...................................................................... N/A N/A
--------------- ---------------
Net Assets ............................................................................... $ 24,842,671 $ 28,111,668
Class B shares outstanding .......................................................... N/A N/A
Class C shares outstanding .......................................................... N/A N/A
Class R shares outstanding .......................................................... 2,464,582 2,480,620
Class P shares outstanding .......................................................... N/A N/A
Class B shares: Net asset value, offering and redemption price per share outstanding ..... N/A N/A
--------------- ---------------
Class C shares: Net asset value, offering and redemption price per share outstanding ..... N/A N/A
--------------- ---------------
Class R shares: Net asset value, offering and redemption price per share outstanding ..... $ 10.08 $ 11.33
--------------- ---------------
Class P shares: Net asset value, offering and redemption price per share outstanding ..... N/A N/A
--------------- ---------------
</TABLE>
89
<PAGE>
------------------------------------------
THE MONTGOMERY FUNDS
------------------------------------------
STATEMENTS OF
ASSETS AND LIABILITIES
------------------------------------------
JUNE 30, 2000
<TABLE>
<CAPTION>
SHORT DURATION
GOVERNMENT
ASSETS: BOND FUND
------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (note 1)
Securities .......................................................................... $ 178,829,838
Repurchase agreements ............................................................... 4,996,000
Cash ..................................................................................... --
Receivables:
Interest ............................................................................ 1,013,173
Expenses absorbed by Manager ........................................................ 99,959
Shares of beneficial interest sold .................................................. 874,157
Investment securities sold .......................................................... 5,651,183
Other assets ............................................................................. 2,839
---------------
Total Assets ............................................................................. 191,467,149
---------------
LIABILITIES:
------------------------------------------------------------------------------------------------------------
Payables:
Deferred fee income on dollar roll transactions ..................................... 10,579
Shares of beneficial interest redeemed .............................................. 107,769
Investment securities purchased ..................................................... 15,044,623
Management fees ..................................................................... 70,592
Administration fees ................................................................. 6,061
Share marketing plan fees (note 3) (Class P shares only) ............................ 14,345
Custodian fees ...................................................................... 8,054
Dividends ........................................................................... 112,855
Trustees' fees and expenses ......................................................... 846
Accounting fees ..................................................................... 10,891
Cash overdrafts payable to custodian ................................................ --
Transfer agency and servicing fees .................................................. 60,447
Other accrued liabilities and expenses .............................................. 54,518
---------------
Total Liabilities ........................................................................ 15,501,580
---------------
Net Assets ............................................................................... $ 175,965,569
---------------
Investments at identified cost ........................................................... $ 185,188,135
NET ASSETS CONSIST OF:
------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(distributions in excess of net investment
income/accumulated net investment loss) ............................................. $ (48,871)
Accumulated net realized gain/(loss) ..................................................... (2,767,462)
Net unrealized appreciation/(depreciation) ............................................... (1,362,297)
Shares of beneficial interest ............................................................ 177,733
Additional paid-in capital ............................................................... 179,966,466
---------------
Net Assets ............................................................................... $ 175,965,569
NET ASSETS:
------------------------------------------------------------------------------------------------------------
Class R shares ...................................................................... $ 171,878,609
Class P shares ...................................................................... 4,086,960
---------------
Net Assets ............................................................................... $ 175,965,569
Class R shares outstanding .......................................................... 17,359,827
Class P shares outstanding .......................................................... 413,461
Class R shares: Net asset value, offering and redemption price per share outstanding ..... $ 9.90
---------------
Class P shares: Net asset value, offering and redemption price per share outstanding ..... $ 9.88
---------------
</TABLE>
90
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE GOVERNMENT
INTERMEDIATE MONEY MARKET
ASSETS: BOND FUND FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (note 1)
Securities .......................................................................... $ 26,900,749 $ 446,248,540
Repurchase agreements ............................................................... -- 367,564,000
Cash ..................................................................................... 92,875 --
Receivables:
Interest ............................................................................ 457,846 3,698,776
Expenses absorbed by Manager ........................................................ -- --
Shares of beneficial interest sold .................................................. 8,063 --
Investment securities sold .......................................................... -- --
Other assets ............................................................................. 1,086 4,954
--------------- ---------------
Total Assets ............................................................................. 27,460,619 817,516,270
--------------- ---------------
LIABILITIES:
---------------------------------------------------------------------------------------------------------------------------------
Payables:
Deferred fee income on dollar roll transactions ..................................... -- --
Shares of beneficial interest redeemed .............................................. 1,839 --
Investment securities purchased ..................................................... -- 9,998,600
Management fees ..................................................................... 9,877 91,110
Administration fees ................................................................. 1,069 28,640
Share marketing plan fees (note 3) (Class P shares only) ............................ -- 3,017
Custodian fees ...................................................................... 2,057 8,759
Dividends ........................................................................... 8,357 3,966,180
Trustees' fees and expenses ......................................................... 664 3,166
Accounting fees ..................................................................... 2,260 37,098
Cash overdrafts payable to custodian ................................................ -- --
Transfer agency and servicing fees .................................................. 2,530 13,645
Other accrued liabilities and expenses .............................................. 26,572 81,418
--------------- ---------------
Total Liabilities ........................................................................ 55,225 14,231,633
--------------- ---------------
Net Assets ............................................................................... $ 27,405,394 $ 803,284,637
--------------- ---------------
Investments at identified cost ........................................................... $ 26,643,033 $ 813,812,540
NET ASSETS CONSIST OF:
---------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(distributions in excess of net investment
income/accumulated net investment loss) ............................................. $ 1,382 $ 22,008
Accumulated net realized gain/(loss) ..................................................... (307,103) 27,942
Net unrealized appreciation/(depreciation) ............................................... 257,716 --
Shares of beneficial interest ............................................................ 21,712 8,032,271
Additional paid-in capital ............................................................... 27,431,687 795,202,416
--------------- ---------------
Net Assets ............................................................................... $ 27,405,394 $ 803,284,637
NET ASSETS:
---------------------------------------------------------------------------------------------------------------------------------
Class R shares ...................................................................... $ 27,405,394 $ 794,631,719
Class P shares ...................................................................... N/A 8,652,918
--------------- ---------------
Net Assets ............................................................................... $ 27,405,394 $ 803,284,637
Class R shares outstanding .......................................................... 2,171,217 794,574,171
Class P shares outstanding .......................................................... N/A 8,652,918
Class R shares: Net asset value, offering and redemption price per share outstanding ..... $ 12.62 $ 1.00
--------------- ---------------
Class P shares: Net asset value, offering and redemption price per share outstanding ..... N/A $ 1.00
--------------- ---------------
<CAPTION>
FEDERAL CALIFORNIA
TAX-FREE TAX-FREE
ASSETS: MONEY FUND MONEY FUND
<S> <C> <C>
---------------------------------------------------------------------------------------------------------------------------------
Investments in securities, at value (note 1)
Securities .......................................................................... $ 144,857,231 $ 411,952,511
Repurchase agreements ............................................................... -- --
Cash ..................................................................................... -- 5,633,573
Receivables:
Interest ............................................................................ 1,338,451 3,408,314
Expenses absorbed by Manager ........................................................ -- --
Shares of beneficial interest sold .................................................. -- --
Investment securities sold .......................................................... 15,570,709 --
Other assets ............................................................................. 1,413 3,082
--------------- ---------------
Total Assets ............................................................................. 161,767,804 420,997,480
--------------- ---------------
LIABILITIES:
---------------------------------------------------------------------------------------------------------------------------------
Payables:
Deferred fee income on dollar roll transactions ..................................... -- --
Shares of beneficial interest redeemed .............................................. -- --
Investment securities purchased ..................................................... 13,120,000 41,038,784
Management fees ..................................................................... 63,483 114,495
Administration fees ................................................................. 6,594 15,429
Share marketing plan fees (note 3) (Class P shares only) ............................ -- --
Custodian fees ...................................................................... 8,492 18,072
Dividends ........................................................................... 493,989 898,510
Trustees' fees and expenses ......................................................... 1,019 1,712
Accounting fees ..................................................................... 9,571 37,920
Cash overdrafts payable to custodian ................................................ 177,825 --
Transfer agency and servicing fees .................................................. 3,182 4,240
Other accrued liabilities and expenses .............................................. 45,381 49,169
--------------- ---------------
Total Liabilities ........................................................................ 13,929,536 42,178,331
--------------- ---------------
Net Assets ............................................................................... $ 147,838,268 $ 378,819,149
--------------- ---------------
Investments at identified cost ........................................................... $ 144,857,231 $ 411,952,511
NET ASSETS CONSIST OF:
---------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(distributions in excess of net investment
income/accumulated net investment loss) ............................................. $ 3,214 $ 10,005
Accumulated net realized gain/(loss) ..................................................... (22,144) (21,943)
Net unrealized appreciation/(depreciation) ............................................... -- --
Shares of beneficial interest ............................................................ 1,478,584 3,788,316
Additional paid-in capital ............................................................... 146,378,614 375,042,771
--------------- ---------------
Net Assets ............................................................................... $ 147,838,268 $ 378,819,149
---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Class R shares ...................................................................... $ 147,838,268 $ 378,819,149
Class P shares ...................................................................... N/A N/A
--------------- ---------------
Net Assets ............................................................................... $ 147,838,268 $ 378,819,149
Class R shares outstanding .......................................................... 147,858,396 378,831,613
Class P shares outstanding .......................................................... N/A N/A
Class R shares: Net asset value, offering and redemption price per share outstanding ..... $ 1.00 $ 1.00
--------------- ---------------
Class P shares: Net asset value, offering and redemption price per share outstanding ..... N/A N/A
--------------- ---------------
</TABLE>
91
<PAGE>
------------------------------------------
THE MONTGOMERY FUNDS
------------------------------------------
STATEMENTS OF OPERATIONS
------------------------------------------
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
U.S. EMERGING
GROWTH GROWTH SMALL CAP
NET INVESTMENT INCOME: FUND FUND FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest ................................................................ $ 1,302,256 $ 264,667 $ 146,053
Dividends (net of foreign withholding taxes) ............................ 6,369,921 642,515 126,507
Securities lending income (note 4) ...................................... 40,617 43,384 23,218
--------------- --------------- ---------------
Total Income ............................................................ 7,712,794 950,566 295,778
EXPENSES:
Custodian fee ........................................................... 24,562 31,222 42,999
Transfer agency and servicing fees ...................................... 1,233,112 683,949 134,478
Management fee (note 2) ................................................. 5,221,816 3,596,622 1,394,554
Administration fee (note 2) ............................................. 365,554 184,611 97,619
Dividend expense due to short sales ..................................... -- -- --
Share marketing plan fee
Class P shares (note 3) ............................................ 952 -- 63,639
Class B shares ..................................................... -- -- --
Class C shares ..................................................... -- -- --
Legal and audit fees .................................................... 40,481 33,364 23,013
Trustees' fees .......................................................... 25,897 8,199 4,861
Registration fees ....................................................... 35,026 23,001 21,196
Accounting fees ......................................................... 307,401 162,692 82,044
Printing fees ........................................................... 337,536 147,017 46,329
Shareholder servicing fees (note 2) ..................................... -- -- --
Other ................................................................... 82,647 59,141 34,377
Tax expense ............................................................. -- -- --
Interest expense (note 4) ............................................... 131,803 132,671 6,298
--------------- --------------- ---------------
Total Expenses .......................................................... 7,806,787 5,062,489 1,951,407
Fees deferred and/or expenses absorbed by Manager (note 2) .............. -- (973,454) --
--------------- --------------- ---------------
Net Expenses ............................................................ 7,806,787 4,089,035 1,951,407
--------------- --------------- ---------------
NET INVESTMENT INCOME/(LOSS) ............................................ (93,993) (3,138,469) (1,655,629)
--------------- --------------- ---------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
---------------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Securities transactions ............................................ 76,142,505 107,314,389 52,130,304
Securities sold short .............................................. -- -- --
Written options .................................................... -- -- --
Swaps .............................................................. -- -- --
Foreign-currency transactions and other assets ..................... -- -- --
--------------- --------------- ---------------
Net Realized Gain/(Loss) on Investments ................................. 76,142,505 107,314,389 52,130,304
Net change in unrealized appreciation/(depreciation) of:
Securities ......................................................... (81,165,810) (20,040,356) (8,034,704)
Forward foreign-currency exchange contracts ........................ -- -- --
Securities sold short .............................................. -- -- --
Futures contracts .................................................. -- -- --
Foreign-currency transactions and other assets ..................... -- -- --
--------------- --------------- ---------------
Net Unrealized Appreciation/(Depreciation) of Investments ............... (81,165,810) (20,040,356) (8,034,704)
--------------- --------------- ---------------
Net Realized and Unrealized Gain/(Loss) on Investments .................. (5,023,305) 87,274,033 44,095,600
--------------- --------------- ---------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ......... $ (5,117,298) $ 84,135,564 $ 42,439,971
--------------- --------------- ---------------
Foreign withholding taxes ............................................... -- -- --
--------------- --------------- ---------------
</TABLE>
92
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL GLOBAL
BALANCED GROWTH OPPORTUNITIES
NET INVESTMENT INCOME: FUND FUND FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest ................................................................ $ 220 $ 178,927 $ 104,650
Dividends (net of foreign withholding taxes) ............................ 1,855,955 1,902,872 483,685
Securities lending income (note 4) ...................................... -- 22,341 6,478
--------------- --------------- ---------------
Total Income ............................................................ 1,856,175 2,104,140 594,813
--------------- --------------- ---------------
EXPENSES:
Custodian fee ........................................................... -- 160,851 42,256
Transfer agency and servicing fees ...................................... 182,821 611,747 162,939
Management fee (note 2) ................................................. -- 2,547,997 1,217,984
Administration fee (note 2) ............................................. -- 151,955 55,473
Dividend expense due to short sales ..................................... -- -- --
Share marketing plan fee
Class P shares (note 3) ............................................ 1,730 15,596 --
Class B shares ..................................................... -- -- --
Class C shares ..................................................... -- -- --
Legal and audit fees .................................................... 6,733 37,669 38,348
Trustees' fees .......................................................... 5,709 7,707 1,399
Registration fees ....................................................... 24,750 35,980 26,135
Accounting fees ......................................................... 33,173 117,301 25,421
Printing fees ........................................................... 48,450 142,049 35,714
Shareholder servicing fees (note 2) ..................................... -- -- --
Other ................................................................... 102,816 39,123 13,792
Tax expense ............................................................. -- -- 69
Interest expense (note 4) ............................................... -- 321,114 39,041
--------------- --------------- ---------------
Total Expenses .......................................................... 406,182 4,189,089 1,658,571
Fees deferred and/or expenses absorbed by Manager (note 2) .............. (316,186) (270,496) (113,986)
--------------- --------------- ---------------
Net Expenses ............................................................ 89,996 3,918,593 1,544,585
--------------- --------------- ---------------
NET INVESTMENT INCOME/(LOSS) ............................................ 1,766,179 (1,814,453) (949,772)
--------------- --------------- ---------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
---------------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Securities transactions ............................................ 3,063,844 34,448,094 17,022,535
Securities sold short .............................................. -- -- --
Written options .................................................... -- -- --
Swaps .............................................................. -- -- --
Foreign-currency transactions and other assets ..................... -- (4,824,583) (942,421)
--------------- --------------- ---------------
Net Realized Gain/(Loss) on Investments ................................. 3,063,844 29,623,511 16,080,114
Net change in unrealized appreciation/(depreciation) of:
Securities ......................................................... (4,476,849) 10,047,878 (2,337,182)
Forward foreign-currency exchange contracts ........................ -- 89,237 4,093
Securities sold short .............................................. -- -- --
Futures contracts .................................................. -- -- --
Foreign-currency transactions and other assets ..................... -- 5,522 147
--------------- --------------- ---------------
Net Unrealized Appreciation/(Depreciation) of Investments ............... (4,476,849) 10,142,637 (2,332,942)
--------------- --------------- ---------------
Net Realized and Unrealized Gain/(Loss) on Investments .................. (1,413,005) 39,766,148 13,747,172
--------------- --------------- ---------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ......... $ 353,174 $ 37,951,695 $ 12,797,400
--------------- --------------- ---------------
Foreign withholding taxes ............................................... $ -- $ 203,886 $ 52,875
--------------- --------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
GLOBAL GLOBAL
GLOBAL 20 Long-Short COMMUNICATIONS
NET INVESTMENT INCOME: FUND FUND FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest ................................................................ $ 350,588 $ 5,782,193 $ 923,249
Dividends (net of foreign withholding taxes) ............................ 748,544 2,042,172 1,456,411
Securities lending income (note 4) ...................................... -- -- 47,560
--------------- --------------- ---------------
Total Income ............................................................ 1,099,132 7,824,365 2,427,220
--------------- --------------- ---------------
EXPENSES:
Custodian fee ........................................................... 43,826 377,415 157,449
Transfer agency and servicing fees ...................................... 342,389 191,796 624,138
Management fee (note 2) ................................................. 1,588,633 5,942,624 5,631,091
Administration fee (note 2) ............................................. 88,963 268,678 325,425
Dividend expense due to short sales ..................................... -- 814,317 --
Share marketing plan fee
Class P shares (note 3) ............................................ 189 -- --
Class B shares ..................................................... -- 175,543 --
Class C shares ..................................................... -- 72,438 --
Legal and audit fees .................................................... 17,572 122,472 38,449
Trustees' fees .......................................................... 2,324 18,527 12,238
Registration fees ....................................................... 23,914 71,389 24,872
Accounting fees ......................................................... 82,718 254,081 246,157
Printing fees ........................................................... 109,097 86,203 224,672
Shareholder servicing fees (note 2) ..................................... -- 649,769 --
Other ................................................................... 25,787 334,520 41,967
Tax expense ............................................................. 1,148,904 1,635,225 27,179
Interest expense (note 4) ............................................... 34,918 4,863,883 111,403
--------------- --------------- ---------------
Total Expenses .......................................................... 3,509,234 15,878,880 7,465,040
Fees deferred and/or expenses absorbed by Manager (note 2) .............. (37,870) -- --
--------------- --------------- ---------------
Net Expenses ............................................................ 3,471,364 15,878,880 7,465,040
--------------- --------------- ---------------
Net Investment Income/(Loss) ............................................ (2,372,232) (8,054,515) (5,037,820)
--------------- --------------- ---------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
---------------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Securities transactions ............................................ 39,323,896 95,220,188 211,231,462
Securities sold short .............................................. -- 13,602,281 --
Written options .................................................... -- 85,860 --
Swaps .............................................................. -- 336,382 --
Foreign-currency transactions and other assets ..................... (510,926) (1,999,214) (4,547,006)
--------------- --------------- ---------------
Net Realized Gain/(Loss) on Investments ................................. 38,812,970 107,245,497 206,684,456
Net change in unrealized appreciation/(depreciation) of:
Securities ......................................................... (15,575,564) 65,548,814 (19,752,612)
Forward foreign-currency exchange contracts ........................ 26,131 (5,515) 51,807
Securities sold short .............................................. -- 11,958,956 --
Futures contracts .................................................. -- 48,957 --
Foreign-currency transactions and other assets ..................... 936 50,568 21,919
--------------- --------------- ---------------
Net Unrealized Appreciation/(Depreciation) of Investments ............... (15,548,497) 77,601,780 (19,678,886)
--------------- --------------- ---------------
Net Realized and Unrealized Gain/(Loss) on Investments .................. 23,264,473 184,847,277 187,005,570
--------------- --------------- ---------------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ......... $ 20,892,241 $ 176,792,762 $ 181,967,750
--------------- --------------- ---------------
Foreign withholding taxes ............................................... $ -- $ 48,983 $ 151,684
--------------- --------------- ---------------
</TABLE>
93
<PAGE>
<TABLE>
<CAPTION>
EMERGING
MARKETS
EMERGING FOCUS EMERGING
NET INVESTMENT INCOME: MARKETS FUND FUND ASIA FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest ................................................................ $ 181,125 $ 20,955 $ 38,155
Dividends (net of foreign withholding taxes) ............................ 3,935,104 48,261 460,520
--------------- --------------- ---------------
Total Income ............................................................ 4,116,229 69,216 498,675
--------------- --------------- ---------------
EXPENSES:
Custodian fee ........................................................... 594,077 9,265 103,231
Transfer agency and servicing fees ...................................... 1,056,805 12,241 135,342
Management fee (note 2) ................................................. 4,307,233 33,286 719,944
Administration fee (note 2) ............................................. 222,101 2,120 27,497
Share marketing plan fee.................................................
Class P shares (note 3) ............................................ 4,471 -- --
Legal and audit fees .................................................... 50,569 30,866 37,251
Trustees' fees .......................................................... 13,194 149 1,347
Registration fees ....................................................... 40,847 15,150 18,200
Accounting expenses ..................................................... 167,006 37,091 24,371
Printing fees ........................................................... 283,214 1,041 40,803
Other ................................................................... 47,066 44,101 17,899
Tax expense ............................................................. 610,375 -- --
Interest expense ........................................................ 663,368 700 87,431
--------------- --------------- ---------------
Total Expenses .......................................................... 8,060,326 186,010 1,213,316
Fees deferred and/or expenses absorbed by Manager (note 2) .............. (544,871) (136,869) (379,537)
--------------- --------------- ---------------
Net Expenses ............................................................ 7,515,455 49,141 833,779
--------------- --------------- ---------------
NET INVESTMENT INCOME/(LOSS) ............................................ (3,399,226) 20,075 (335,104)
--------------- --------------- ---------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
---------------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Securities transactions ............................................ 60,779,415 480,624 3,801,961
Securities sold short .............................................. -- (6,231) --
Futures contracts, written options and purchased options ........... -- -- --
Foreign-currency transactions and other assets ..................... (2,198,523) (20,090) (186,737)
--------------- --------------- ---------------
Net Realized Gain/(Loss) on Investments ................................. 58,580,892 454,303 3,615,224
Net change in unrealized appreciation/(depreciation) of:
Securities ......................................................... 7,261,846 (52,886) (9,991,633)
Forward foreign-currency exchange contracts ........................ 20,911 (3) 2,086
Foreign-currency transactions and other assets ..................... (840,688) (2,529) 2,811
--------------- --------------- ---------------
Net Unrealized Appreciation/(Depreciation) of Investments ............... 6,442,069 (55,418) (9,986,736)
--------------- --------------- ---------------
Net Realized and Unrealized Gain/(Loss) on Investments .................. 65,022,961 398,885 (6,371,512)
--------------- --------------- ---------------
Net Increase/(Decrease) in Net Assets Resulting from Operations.......... $ 61,623,735 $ 418,960 $ (6,706,616)
--------------- --------------- ---------------
Foreign withholding taxes ............................................... $ 277,373 $ 614 $ 44,927
--------------- --------------- ---------------
</TABLE>
94
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA
SHORT DURATION TAX-FREE
TOTAL RETURN GOVERNMENT INTERMEDIATE
NET INVESTMENT INCOME: BOND FUND BOND FUND BOND FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest ................................................................ $ 2,393,182 $ 11,798,994 $ 1,657,540
Dividends (net of foreign withholding taxes) ............................ -- -- --
--------------- --------------- ---------------
Total Income ............................................................ 2,393,182 11,798,994 1,657,540
--------------- --------------- ---------------
EXPENSES:
Custodian fee ........................................................... 6,218 18,741 5,673
Transfer agency and servicing fees ...................................... 17,302 269,966 15,639
Management fee (note 2) ................................................. 208,255 1,308,664 305,188
Administration fee (note 2) ............................................. 15,780 84,664 17,055
Share marketing plan fee.................................................
Class P shares (note 3) ............................................ -- 9,687 --
Legal and audit fees .................................................... 17,958 27,462 19,113
Trustees' fees .......................................................... 583 4,808 1,216
Registration fees ....................................................... 11,860 36,734 2,817
Accounting expenses ..................................................... 20,497 88,599 22,417
Printing fees ........................................................... 5,306 34,004 3,713
Other ................................................................... 20,421 38,638 15,211
Tax expense ............................................................. -- -- --
Interest expense ........................................................ 33,244 809,484 --
--------------- --------------- ---------------
Total Expenses .......................................................... 357,424 2,731,451 408,042
Fees deferred and/or expenses absorbed by Manager (note 2) .............. (103,543) (846,635) (168,758)
--------------- --------------- ---------------
Net Expenses ............................................................ 253,881 1,884,816 239,284
--------------- --------------- ---------------
NET INVESTMENT INCOME/(LOSS) ............................................ 2,139,301 9,914,178 1,418,256
--------------- --------------- ---------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
---------------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Securities transactions ............................................ (932,701) (1,702,266) (299,782)
Securities sold short .............................................. -- -- --
Futures contracts, written options and purchased options ........... (4,333) 16,584 --
Foreign-currency transactions and other assets ..................... -- -- --
--------------- --------------- ---------------
Net Realized Gain/(Loss) on Investments ................................. (937,034) (1,685,682) (299,782)
Net change in unrealized appreciation/(depreciation) of:
Securities ......................................................... 278,253 (703,291) 47,167
Forward foreign-currency exchange contracts ........................ -- -- --
Foreign-currency transactions and other assets ..................... -- -- --
--------------- --------------- ---------------
Net Unrealized Appreciation/(Depreciation) of Investments ............... 278,253 (703,291) 47,167
--------------- --------------- ---------------
Net Realized and Unrealized Gain/(Loss) on Investments .................. (658,781) (2,388,973) (252,615)
--------------- --------------- ---------------
Net Increase/(Decrease) in Net Assets Resulting from Operations.......... $ 1,480,520 $ 7,525,205 $ 1,165,641
--------------- --------------- ---------------
Foreign withholding taxes ............................................... $ -- $ -- $ --
--------------- --------------- ---------------
<CAPTION>
GOVERNMENT FEDERAL CALIFORNIA
MONEY MARKET TAX-FREE TAX-FREE
NET INVESTMENT INCOME: FUND MONEY FUND MONEY FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income:
Interest ................................................................ $ 38,651,809 $ 5,709,074 $ 10,696,410
Dividends (net of foreign withholding taxes) ............................ -- -- --
--------------- --------------- ---------------
Total Income ............................................................ 38,651,809 5,709,074 10,696,410
--------------- --------------- ---------------
EXPENSES:
Custodian fee ........................................................... 20,475 20,938 48,654
Transfer agency and servicing fees ...................................... 201,586 32,009 28,505
Management fee (note 2) ................................................. 2,082,066 856,614 1,377,534
Administration fee (note 2) ............................................. 291,413 74,889 163,417
Share marketing plan fee.................................................
Class P shares (note 3) ............................................ 8,479 -- --
Legal and audit fees .................................................... 27,040 16,681 26,947
Trustees' fees .......................................................... 17,756 4,012 9,738
Registration fees ....................................................... 13,668 28,176 2,101
Accounting expenses ..................................................... 301,006 72,709 178,002
Printing fees ........................................................... 50,451 4,871 9,327
Other ................................................................... 73,671 38,834 63,725
Tax expense ............................................................. -- -- --
Interest expense ........................................................ -- -- --
--------------- --------------- ---------------
Total Expenses .......................................................... 3,087,611 1,149,733 1,907,950
Fees deferred and/or expenses absorbed by Manager (note 2) .............. (465,627) (251,063) --
--------------- --------------- ---------------
Net Expenses ............................................................ 2,621,984 898,670 1,907,950
--------------- --------------- ---------------
NET INVESTMENT INCOME/(LOSS) ............................................ 36,029,825 4,810,404 8,788,460
--------------- --------------- ---------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
---------------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Securities transactions ............................................ 43,512 (21,154) (15,207)
Securities sold short .............................................. -- -- --
Futures contracts, written options and purchased options ........... -- -- --
Foreign-currency transactions and other assets ..................... -- -- --
--------------- --------------- ---------------
Net Realized Gain/(Loss) on Investments ................................. 43,512 (21,154) (15,207)
Net change in unrealized appreciation/(depreciation) of:
Securities ......................................................... -- -- --
Forward foreign-currency exchange contracts ........................ -- -- --
Foreign-currency transactions and other assets ..................... -- -- --
--------------- --------------- ---------------
Net Unrealized Appreciation/(Depreciation) of Investments ............... -- -- --
--------------- --------------- ---------------
Net Realized and Unrealized Gain/(Loss) on Investments .................. 43,512 (21,154) (15,207)
--------------- --------------- ---------------
Net Increase/(Decrease) in Net Assets Resulting from Operations.......... $ 36,073,337 $ 4,789,250 $ 8,773,253
--------------- --------------- ---------------
Foreign withholding taxes ............................................... $ -- $ -- $ --
--------------- --------------- ---------------
</TABLE>
95
<PAGE>
------------------------------------------
THE MONTGOMERY FUNDS
------------------------------------------
STATEMENTS OF
CHANGES IN NET ASSETS
------------------------------------------
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: U.S. EMERGING
GROWTH GROWTH SMALL CAP
FUND FUND FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) .......................................................... $ (93,993) $ (3,138,469) $ (1,655,629)
Net realized gain/(loss) on securities, forward foreign-currency exchange
contracts, futures contracts and foreign-currency transactions and other
assets during the period ........................................................ 76,142,505 107,314,389 52,130,304
Net unrealized appreciation/(depreciation) of securities, forward
foreign-currency exchange contracts, foreign-currency transactions and
other assets during the period .................................................. (81,165,810) (20,040,356) (8,034,704)
------------ ----------- -------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ...................... (5,117,298) 84,135,564 42,439,971
Distributions to Shareholders:
---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares .................................................................. (4,220,939) -- --
Class P shares .................................................................. (644) -- --
Distributions to shareholders from net realized gains on investments
Class B shares .................................................................. -- -- --
Class C shares .................................................................. -- -- --
Class R shares .................................................................. (72,316,628) (33,705,710) (2,347)
Class P shares .................................................................. (19,865) -- (471)
Distributions to shareholders in excess of net realized gains on investments:
Class R shares .................................................................. -- -- --
Class P shares .................................................................. -- -- --
----------- ----------- -------------
Total distributions .................................................................. (76,558,076) (33,705,710) (2,818)
Beneficial Interest Transactions:
---------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 6) ............... (172,061,248) (207,968,254) (45,817,347)
Net Increase/(Decrease) in Net Assets ................................................ (253,736,622) (157,538,400) (3,380,194)
Net Assets:
---------------------------------------------------------------------------------------------------------------------------------
Beginning of period .................................................................. 670,007,305 382,482,510 133,929,220
End of Period ........................................................................ $416,270,683 $224,944,110 $130,549,026
Accumulated Undistributed Net Investment Income/ (Accumulated Net Investment Loss) ... $ - $ -- $ --
<CAPTION>
Emerging
Emerging Markets Emerging
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: Markets Fund Focus Fund Asia Fund
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) ........................................................ $ (3,399,266) $ 20,075 $ (335,104)
Net realized gain/(loss) on securities, forward foreign-currency exchange
contracts, equity swaps and foreign-currency transactions during the period .... 58,580,892 454,303 3,615,224
Net unrealized appreciation/(depreciation) of securities, forward
foreign-currency exchange contracts, equity swaps,foreign-currency transactions
and other assets during the period ............................................ 6,442,069 (55,418) (9,986,736)
------------ ----------- -------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ..................... 61,623,735 418,960 (6,706,616)
Distributions to Shareholders:
---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ................................................................. -- (23,653) (1,751,948)
Class P shares ................................................................. -- -- --
Distributions to shareholders from in excess of net investment income:
Class R shares ................................................................. -- (11,809) (706,975)
Class P shares ................................................................. -- -- --
Distributions to shareholders in excess of net realized gains on investments:
Class R shares ................................................................. -- -- --
Total distributions ................................................................. -- (35,462) (2,458,923)
Beneficial Interest Transactions:
---------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 6) .............. (110,015,380) 1,790,791 (29,187,679)
Net Increase/(Decrease) in Net Assets ............................................... (48,391,645) 2,174,289 (38,353,218)
Net Assets:
---------------------------------------------------------------------------------------------------------------------------------
Beginning of period ................................................................. 345,427,176 2,551,007 63,195,889
End of Period ....................................................................... $297,035,531 $4,725,296 $24,842,671
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) ... $ (961,126) $ (11,809) $ (706,975)
</TABLE>
96
<PAGE>
<TABLE>
<CAPTION>
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: INTERNATIONAL GLOBAL
BALANCED GROWTH OPPORTUNITIES
FUND FUND FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) ....................................................... $ 1,766,179 ($ 1,814,453) ($ 949,772)
Net realized gain/(loss) on securities, forward foreign-currency exchange
contracts, futures contracts and foreign-currency transactions and other
assets during the period ...................................................... 3,063,844 29,623,511 16,080,114
Net unrealized appreciation/(depreciation) of securities, forward
foreign-currency exchange contracts, foreign-currency transactions and
other assets during the period ................................................ (4,476,849) 10,142,637 (2,332,942)
------------ ----------- -----------
Net Increase/(Decrease) in Net Assets Resulting from Operations .................... 353,174 37,951,695 12,797,400
Distributions to Shareholders:
---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ................................................................ (2,469,564) -- --
Class P shares ................................................................ (56,456) -- --
Distributions to shareholders from net realized gains on investments
Class B shares ................................................................ -- -- --
Class C shares ................................................................ -- -- --
Class R shares ................................................................ (1,296,646) (4,202,087) (5,240,294)
Class P shares ................................................................ (1,055) (75,380) --
Distributions to shareholders in excess of net realized gains on investments:
Class R shares ................................................................ (544,818) -- --
Class P shares ................................................................ (443) -- --
------------ ----------- -----------
Total distributions ................................................................ (4,368,982) (4,277,467) (5,240,294)
Beneficial Interest Transactions:
---------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 6) ............. (13,653,062) (69,373,573) 21,019,902
Net Increase/(Decrease) in Net Assets .............................................. (17,668,870) (35,699,345) 28,577,008
Net Assets:
---------------------------------------------------------------------------------------------------------------------------------
Beginning of period ................................................................ 81,189,495 229,638,984 57,145,540
End of Period ...................................................................... $ 63,520,625 $193,939,639 $85,722,548
Accumulated Undistributed Net Investment Income/ (Accumulated Net Investment Loss) . $ 51,747 ($ 625,121) $ 1,768
<CAPTION>
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: GLOBAL GLOBAL
GLOBAL 20 LONG-SHORT COMMUNICATIONS
FUND FUND FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) ........................................................ $ (2,372,232) $(8,054,515) $ (5,037,820)
Net realized gain/(loss) on securities, forward foreign-currency exchange
contracts, futures contracts and foreign-currency transactions and other
assets during the period ....................................................... 38,812,970 107,245,497 206,684,456
Net unrealized appreciation/(depreciation) of securities, forward
foreign-currency exchange contracts, foreign-currency transactions and
other assets during the period ................................................. (15,548,497) 77,601,780 (19,678,886)
------------ ----------- -----------
Net Increase/(Decrease) in Net Assets Resulting from Operations ..................... 20,892,241 176,792,762 181,967,750
Distributions to Shareholders:
---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ................................................................. -- -- --
Class P shares ................................................................. -- -- --
Distributions to shareholders from net realized gains on investments
Class B shares ................................................................. -- (1,713,891) --
Class C shares ................................................................. -- (763,244) --
Class R shares ................................................................. (16,007,638) (26,333,085) (84,931,132)
Class P shares ................................................................. (3,666) -- --
Distributions to shareholders in excess of net realized gains on investments:
Class R shares ................................................................. -- -- --
Class P shares ................................................................. -- -- --
Total distributions ................................................................. (16,011,304) (28,810,220) (84,931,132)
Beneficial Interest Transactions:
---------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 6) .............. (25,869,138) 11,365,473 46,749,445
Net Increase/(Decrease) in Net Assets ............................................... (20,988,201) 159,348,015 143,786,063
---------------------------------------------------------------------------------------------------------------------------------
Beginning of period ................................................................. 136,847,169 242,213,063 354,730,185
End of Period ....................................................................... $115,858,968 $401,561,078 $498,516,248
Accumulated Undistributed Net Investment Income/ (Accumulated Net Investment Loss) .. $ -- $ 715,966 $ (12,383)
<CAPTION>
CALIFORNIA
TOTAL RETURN SHORT DURATION TAX-FREE
BOND FUND GOVERNMENT INTERMEDIATE
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: BOND FUND BOND FUND
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) ...................................................... $2,139,301 $ 9,914,178 $ 1,418,256
Net realized gain/(loss) on securities, forward foreign-currency exchange
contracts, futures contracts, equity swaps and foreign-currency
transactions during the period ............................................... (937,034) (1,685,682) (299,782)
Net unrealized appreciation/(depreciation) of securities, forward
foreign-currency exchange contracts, equity swaps, foreign-currency
transactions and other assets during the period .............................. 278,253 (703,291) 47,167
---------- ----------- -----------
Net Increase/(Decrease) in Net Assets Resulting from Operations ................... 1,480,520 7,525,205 1,165,641
Distributions to Shareholders:
----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ............................................................... (2,065,411) (9,649,353) (1,418,257)
Class P shares ............................................................... -- (215,954) --
Distributions to shareholders in excess of net investment income:
Class R shares ............................................................... -- (47,801) --
Class P shares ............................................................... -- (1,070) --
Distributions to shareholders in excess of net realized gains on investments:
Class R shares ............................................................... (440,674) -- --
---------- ----------- -----------
Total distributions ............................................................... 2,506,085 (9,914,178) (1,418,257)
Beneficial Interest Transactions:
----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 6) ............ (9,338,436) 20,101,823 (13,358,879)
Net Increase/(Decrease) in Net Assets ............................................. (10,364,001) 17,712,850 (13,611,495)
Net Assets:
----------------------------------------------------------------------------------------------------------------------------------
Beginning of period ............................................................... 38,475,669 158,252,719 41,016,889
End of Period ..................................................................... $28,111,668 $175,965,569 $27,405,394
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) . $ 40,714 $ (48,871) $ 1,382
<CAPTION>
GOVERNMENT FEDERAL CALIFORNIA
MONEY MARKET TAX-FREE TAX-FREE
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: FUND MONEY FUND MONEY FUND
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) ........................................................ $ 36,029,825 $ 4,810,404 $ 8,788,460
Net realized gain/(loss) on securities, forward foreign-currency exchange
contracts, futures contracts, equity swaps and foreign-currency
transactions during the period ................................................. 43,512 (21,154) (15,207)
Net unrealized appreciation/(depreciation) of securities, forward
foreign-currency exchange contracts, equity swaps, foreign-currency
transactions and other assets during the period ................................ -- -- --
------------- ------------ ------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ..................... 36,073,337 4,789,250 8,773,253
Distributions to Shareholders:
----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ................................................................. (35,843,506) (4,806,981) (8,779,520)
Class P shares ................................................................. (186,297) -- --
Distributions to shareholders in excess of net investment income:
Class R shares ................................................................. -- -- --
Class P shares ................................................................. -- -- --
Distributions to shareholders in excess of net realized gains on investments:
Class R shares ................................................................. -- -- --
------------- ------------ ------------
Total distributions ................................................................. (36,029,803) (4,806,981) (8,779,520)
Beneficial Interest Transactions:
----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 6) .............. 227,852,914 31,514,686 85,924,189
Net Increase/(Decrease) in Net Assets ............................................... 227,896,448 31,496,955 85,917,922
Net Assets:
----------------------------------------------------------------------------------------------------------------------------------
Beginning of period ................................................................. 575,388,189 116,341,313 292,901,227
End of Period ....................................................................... $ 803,284,637 $147,838,268 $378,819,149
Accumulated Undistributed Net Investment Income/ (Accumulated Net Investment Loss) .. $ 22,008 $ 3,214 $ 10,005
</TABLE>
97
<PAGE>
------------------------------------------
THE MONTGOMERY FUNDS
------------------------------------------
STATEMENTS OF
CHANGES IN NET ASSETS
------------------------------------------
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS:
U.S. EMERGING
GROWTH GROWTH SMALL CAP
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 B shares .............................................................. -- -- --
Class C shares .............................................................. -- -- --
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>
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: GLOBAL EMERGING EMERGING
COMMUNICATIONS MARKETS MARKETS
FUND FUND FOCUS FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) ..................................................... $ 56,999 $ 23,317 $ 227
Net realized gain/(loss) on securities, forward foreign-currency exchange
contracts, futures contracts, equity swaps and foreign-currency
transactions during the period .............................................. 87,630,657 (223,090,923) 281,187
Net unrealized appreciation/(depreciation) of securities, forward
foreign-currency exchange contracts, equity swaps, foreign-currency
transactions and other assets during the period ............................. (11,374,981) 180,045,820 402,145
------------ ------------ ----------
Net Increase in Net Assets Resulting from Operations ............................. 76,312,675 (43,021,786) 683,559
DISTRIBUTIONS TO SHAREHOLDERS:
---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares .............................................................. -- -- --
Class P shares .............................................................. -- -- --
Distributions to shareholders in excess of net investment income:
Class R shares .............................................................. -- -- --
Class P shares .............................................................. (29,529,571) -- --
Distributions to shareholders from net realized gains on investments:
Class R shares .............................................................. -- -- --
Class P shares .............................................................. -- -- --
Distributions to shareholders in excess of net realized gains on investments:
Class R shares .............................................................. -- -- --
Class P shares .............................................................. -- -- --
------------ ------------ ----------
Total distributions .............................................................. (29,529,571) -- --
BENEFICIAL INTEREST TRANSACTIONS:
---------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 6) ........... 40,834,194 (370,874,641) 103,468
Net Increase/(Decrease) in Net Assets ............................................ 87,617,298 (413,896,427) 787,027
NET ASSETS:
---------------------------------------------------------------------------------------------------------------------------------
Beginning of period .............................................................. 267,112,887 759,323,603 1,763,980
End of Period .................................................................... $354,730,185 $345,427,176 $2,551,007
Accumulated Undistributed Net Investment Income/(Accumulated Net
Investment Loss) $ 54,907 $ (8,200,457) $ --
</TABLE>
98
<PAGE>
<TABLE>
<CAPTION>
BALANCED INTERNATIONAL GLOBAL
FUND GROWTH OPPORTUNITIES
FUND FUND
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) ..................................................... $ 2,867,104 $ 749,646 $ (352,610)
Net realized gain/(loss) on securities, forward foreign-currency exchange
contracts, futures contracts, foreign-currency transactions and other
assets during the period .................................................... 1,328,853 5,813,104 10,125,366
Net unrealized appreciation/(depreciation) of securities, forward
foreign-currency exchange contracts, foreign-currency transactions
and other assets during the period .......................................... 4,581,206 (1,920,955) (5,035,094)
----------- ---------- ----------
Net Increase/(Decrease) in Net Assets Resulting from Operations .................. 8,777,163 4,641,795 4,737,662
DISTRIBUTIONS TO SHAREHOLDERS:
----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares .............................................................. (5,412,395) -- (558,444)
Class P shares .............................................................. (3,284) -- --
Distributions to shareholders in excess of net investment income:
Class R shares .............................................................. -- -- --
Distributions to shareholders from net realized gains on investments:
Class B shares .............................................................. -- -- --
Class C shares .............................................................. -- -- --
Class R shares .............................................................. (9,737,684) (940,560) (5,700,468)
Class P shares .............................................................. (6,222) (4,968) --
Distributions to shareholders in excess of net realized gains on investments:
Class R shares .............................................................. (8,188,227) -- --
Class P shares .............................................................. (5,233) -- --
----------- ---------- ----------
Total distributions .............................................................. (23,353,045) (945,528) (6,258,912)
BENEFICIAL INTEREST TRANSACTIONS:
----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 6) ........... (32,380,618) 161,118,037 (37,744,824)
Net Increase/(Decrease) in Net Assets ............................................ (46,956,500) 164,814,304 (39,266,074)
NET ASSETS:
----------------------------------------------------------------------------------------------------------------------------------
Beginning of period .............................................................. 128,145,995 64,824,680 96,411,614
End of Period .................................................................... $ 81,189,495 $229,638,984 $ 57,145,540
Accumulated Undistributed Net Investment Income/(Accumulated Net
Investment Loss) ............................................................... $ 811,588 $ (606,751) $ 11,294
<CAPTION>
GLOBAL 20 GLOBAL GLOBAL
FUND LONG-SHORT LONG-SHORT
FUND* FUND**
--------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net investment income/(loss) ..................................................... $ (789,095) $ (1,058,208) $ (295,533)
Net realized gain/(loss) on securities, forward foreign-currency exchange
contracts, futures contracts, foreign-currency transactions and other
assets during the period .................................................... 15,663,023 11,691,646 10,103,621
Net unrealized appreciation/(depreciation) of securities, forward
foreign-currency exchange contracts, foreign-currency transactions
and other assets during the period .......................................... (5,559,262) 20,006,772 10,888,946
----------- ---------- ----------
Net Increase/(Decrease) in Net Assets Resulting from Operations .................. 9,314,666 30,640,210 20,697,034
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 .............................................................. (9,337,841) -- (3,527,506)
Class P shares .............................................................. (2,414) -- --
Distributions to shareholders in excess of net realized gains on investments:
Class R shares .............................................................. -- -- --
Class P shares .............................................................. -- -- --
----------- ---------- ----------
Total distributions .............................................................. (12,413,393) -- (4,929,719)
BENEFICIAL INTEREST TRANSACTIONS:
-------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 6) ........... (129,772,361) 104,478,341 74,484,954
Net Increase/(Decrease) in Net Assets ............................................ (132,871,088) 135,118,551 90,252,269
NET ASSETS:
-------------------------------------------------------------------------------------------------------------------------------
Beginning of period .............................................................. 269,718,257 107,094,512 16,842,243
End of Period .................................................................... $ 136,847,169 $242,213,063 $107,094,512
Accumulated Undistributed Net Investment Income/(Accumulated Net
Investment Loss) ............................................................... $ (792,662) $ (160,495) $ (337,050)
<CAPTION>
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: SHORT DURATION
EMERGING TOTAL RETURN GOVERNMENT
ASIA FUND BOND FUND BOND FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) ..................................................... $ (112,643) $ 3,561,458 $ 6,741,583
Net realized gain/(loss) on securities, forward foreign-currency exchange
contracts, futures contracts, equity swaps and foreign-currency
transactions during the period .............................................. (1,207,744) 1,432,924 (570,017)
Net unrealized appreciation/(depreciation) of securities, forward
foreign-currency exchange contracts, equity swaps, foreign-currency
transactions and other assets during the period ............................. 25,843,968 (2,230,098) (869,520)
----------- ---------- ----------
Net Increase in Net Assets Resulting from Operations ............................. 24,523,581 2,764,284 5,302,046
DISTRIBUTIONS TO SHAREHOLDERS:
---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares .............................................................. -- (3,561,458) (6,441,336)
Class P shares .............................................................. -- -- (95,475)
Distributions to shareholders in excess of net investment income:
Class R shares .............................................................. -- (41,221) (204,526)
Class P shares .............................................................. -- -- (3,034)
Distributions to shareholders from net realized gains on investments:
Class R shares .............................................................. -- (2,032,202) --
Class P shares .............................................................. -- -- --
Distributions to shareholders in excess of net realized gains on investments:
Class R shares .............................................................. -- -- (699,799)
Class P shares .............................................................. -- -- (115)
----------- ---------- ----------
Total distributions .............................................................. -- (5,634,881) (7,444,285)
BENEFICIAL INTEREST TRANSACTIONS:
---------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 6) ........... 14,063,944 (36,347,494) 94,034,691
Net Increase/(Decrease) in Net Assets ............................................ 38,587,525 (39,218,091) 91,892,452
NET ASSETS:
---------------------------------------------------------------------------------------------------------------------------------
Beginning of period .............................................................. 24,608,364 77,693,760 66,360,267
End of Period .................................................................... $63,195,889 $38,475,669 $158,252,719
Accumulated Undistributed Net Investment Income/(Accumulated Net
Investment Loss) $ (888,647) $ (46,628) $ (198,522)
<CAPTION>
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: CALIFORNIA TAX-FREE GOVERNMENT FEDERAL
INTERMEDIATE MONEY MARKET TAX-FREE
BOND FUND FUND MONEY FUND
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) ..................................................... 1,590,420 $ 34,883,767 $ 3,482,541
Net realized gain/(loss) on securities, forward foreign-currency exchange
contracts, futures contracts, equity swaps and foreign-currency
transactions during the period .............................................. 28,947 32,817 (72)
Net unrealized appreciation/(depreciation) of securities, forward
foreign-currency exchange contracts, equity swaps, foreign-currency
transactions and other assets during the period ............................. (682,980) -- --
----------- ---------- ----------
Net Increase in Net Assets Resulting from Operations ............................. 936,387 34,916,584 3,482,469
DISTRIBUTIONS TO SHAREHOLDERS:
----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares .............................................................. (1,510,644) (34,878,792) (3,482,322)
Class P shares .............................................................. -- (22) --
Distributions to shareholders in excess of net investment income:
Class R shares .............................................................. (79,767) -- (209)
Class P shares .............................................................. -- -- --
Distributions to shareholders from net realized gains on investments:
Class R shares .............................................................. (92,379) -- --
Class P shares .............................................................. -- -- --
Distributions to shareholders in excess of net realized gains on investments:
Class R shares .............................................................. (7,321) -- --
Class P shares .............................................................. -- -- --
---------- ----------- ----------
Total distributions .............................................................. (1,690,111) (34,878,814) (3,482,531)
BENEFICIAL INTEREST TRANSACTIONS:
----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 6) ........... 6,103,794 (149,268,606) (942,095)
Net Increase/(Decrease) in Net Assets ............................................ 5,350,070 (149,230,836) (942,157)
NET ASSETS:
----------------------------------------------------------------------------------------------------------------------------------
Beginning of period .............................................................. 35,666,819 724,619,025 117,283,470
End of Period .................................................................... $41,016,889 $575,388,189 $116,341,313
Accumulated Undistributed Net Investment Income/(Accumulated Net
Investment Loss) $ (79,767) $ 4,448 $ (209)
<CAPTION>
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: CALIFORNIA
TAX-FREE
MONEY FUND
--------------------------------------------------------------------------------------------------
<S> <C>
Net investment income/(loss) ..................................................... $ 6,170,903
Net realized gain/(loss) on securities, forward foreign-currency exchange
contracts, futures contracts, equity swaps and foreign-currency
transactions during the period .............................................. 33
Net unrealized appreciation/(depreciation) of securities, forward
foreign-currency exchange contracts, equity swaps, foreign-currency
transactions and other assets during the period ............................. --
------------
Net Increase in Net Assets Resulting from Operations ............................. 6,170,936
DISTRIBUTIONS TO SHAREHOLDERS:
--------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares .............................................................. (6,169,715)
Class P shares .............................................................. --
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 .............................................................. --
Class P shares .............................................................. --
Distributions to shareholders in excess of net realized gains on investments:
Class R shares .............................................................. --
Class P shares .............................................................. --
------------
Total distributions .............................................................. (6,169,715)
BENEFICIAL INTEREST TRANSACTIONS:
--------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 6) ........... 105,683,949
Net Increase/(Decrease) in Net Assets ............................................ 105,685,170
NET ASSETS:
--------------------------------------------------------------------------------------------------
Beginning of period .............................................................. 187,216,057
End of Period .................................................................... $292,901,227
Accumulated Undistributed Net Investment Income/(Accumulated Net
Investment Loss) $ 296
</TABLE>
99
<PAGE>
------------------------------------------
THE MONTGOMERY FUNDS
------------------------------------------
STATEMENTS OF CASH FLOWS
------------------------------------------
YEAR ENDED JUNE 30, 2000
GLOBAL LONG-SHORT FUND
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ (8,045,515)
Adjustments to reconcile net increase in net assets resulting from
operations to net cash provided by operating activities:
Increase in interest receivable.............................................. (625,322)
Decrease in dividend receivable.............................................. 171,716
Decrease in receivable for shares of beneficial interest sold................ 632,398
Increase in receivable for investments sold.................................. (2,014,734)
Decrease in receivable for short sales....................................... 1,805,743
Decrease in payable for investments purchased................................ (7,403,572)
Decrease in payable for shares of beneficial interest redeemed............... (847,129)
Increase in foreign currency................................................. (11,348,882)
Decrease in other assets and liabilities..................................... 390,323
Increase in accrued management fee payable................................... 214,954
Total adjustments.............................................................. (19,024,505)
-----------
Net Cash Used by Operating Activities (27,079,020)
CASH FLOWS FROM INVESTING ACTIVITIES:
---------------------------------------------------------------------------------------------------------------
Proceeds from sales of investments........................................... 932,464,838
Purchases of securities...................................................... (969,602,907)
Purchases of short sales..................................................... 354,897,563
Proceeds from short sales.................................................... (263,772,336)
Net realized gain on investments, securities sold short, futures contracts,
foreign-currency transactions and other assets.............................. 107,245,497
------------
Cash Provided by Investing Activities 161,232,655
CASH FLOWS FROM FINANCING ACTIVITIES:
---------------------------------------------------------------------------------------------------------------
Net capital shares transactions.............................................. 11,365,473
Distributions paid........................................................... (28,810,220)
Payments on loans............................................................ (25,300,000)
Decrease in dividends payable................................................ (10,124)
------------
Cash Used by Financing Activities (42,754,871)
Increase in cash............................................................... 91,398,764
Cash at beginning of period.................................................... 58,402,425
------------
Cash at End of Period $149,801,189
</TABLE>
100
<PAGE>
------------------------------------------
THE MONTGOMERY FUNDS
------------------------------------------
STATEMENTS OF CASH FLOWS
------------------------------------------
YEAR ENDED JUNE 30, 2000
TOTAL RETURN BOND FUND
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $2,139,301
Adjustments to reconcile net increase in net assets resulting from
operations to net cash provided by operating activities:
Decrease in interest receivable............................................. $ 160,209
Increase in receivable for shares of beneficial interest sold............... (295,817)
Decrease in receivable from Manager......................................... 52,802
Increase in receivable for investments sold................................. (810,079)
Increase in payable for investments purchased............................... 1,262,608
Increase in payable for shares of beneficial interest redeemed.............. 8,009
Decrease in other assets and liabilities.................................... 74,093
Decrease in accrued management fee payable.................................. (55,948)
Net amortization of premium................................................. 17,242
Total adjustments............................................................. 413,119
----------
Net Cash Provided by Operating Activities 2,552,420
CASH FLOWS FROM INVESTING ACTIVITIES:
---------------------------------------------------------------------------------------------------------------
Proceeds from sales of investments.......................................... 1,017,841,372
Purchases of securities..................................................... (1,007,142,925)
Change in variation margin for futures transactions......................... (391)
Net realized loss on investments............................................ (937,034)
Cash Provided by Investing Activities 9,761,022
CASH FLOWS FROM FINANCING ACTIVITIES:
---------------------------------------------------------------------------------------------------------------
Net capital shares transactions............................................. (9,542,233)
Distributions paid.......................................................... (2,506,085)
Net dollar roll transactions................................................ (70,505)
Change in dividends payable................................................. (252)
Cash Used by Financing Activities (12,119,075)
Increase in cash.............................................................. 194,367
Cash at beginning of period................................................... (194,367)
----------
Cash at End of Period......................................................... $ --
</TABLE>
101
<PAGE>
-------------------------
THE MONTGOMERY FUNDS
-----------------------
STATEMENTS OF CASH FLOWS
-----------------------
YEAR ENDED JUNE 30, 2000
SHORT DURATION GOVERNMENT BOND FUND
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
--------------------------------------------------------------------------------------------------------
Net investment income $ 9,914,178
Adjustments to reconcile net increase in net assets resulting from
operations to net cash provided by operating activities:
Decrease in interest receivable................................. $ 156,435
Increase in receivable for shares of beneficial interest sold... (43,884)
Increase in receivable from Manager............................. (99,959)
Increase in receivable for investments sold..................... (2,036,005)
Decrease in payable for investments purchased................... (10,628,021)
Decrease in payable for shares of beneficial interest redeemed.. (1,173,900)
Decrease in other assets and liabilities........................ 64,717
Decrease in accrued management fee payable...................... (154,687)
Net amortization of premium..................................... (156,521)
---------------
Total adjustments............................................... (14,071,825)
------------
Net Cash Used by Operating Activities (4,157,647)
CASH FLOWS FROM INVESTING ACTIVITIES:
--------------------------------------------------------------------------------------------------------
Proceeds from sales of investments.............................. 5,176,671,477
Purchases of securities......................................... (5,180,657,139)
Net realized loss on investments................................ (1,685,682)
---------------
Cash Used by Investing Activities (5,671,344)
CASH FLOWS FROM FINANCING ACTIVITIES:
--------------------------------------------------------------------------------------------------------
Net capital shares transactions................................. 20,101,823
Distributions paid.............................................. (9,914,178)
Net dollar roll transactions.................................... 34,493
Change in dividends payable..................................... (646,354)
---------------
Cash Provided by Financing Activities 9,575,784
Decrease in cash........................................................ (253,207)
Cash at beginning of period............................................. 253,207
------------
Cash at End of Period $ -
</TABLE>
102 The accompanying notes are an integral part of these financial statements.
<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,
------------------------------------------------------------
2000@ 1999@ 1998@ 1997@ 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 24.34 $ 23.68 $ 23.07 $ 21.94 $ 19.16
=================================================================================================================================
Net investment income/(loss) 0.00++# 0.09 0.17 0.15 0.17
Net realized and unrealized gain/(loss) on investments (0.04) 2.24 3.51 3.90 4.32
---------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment
operations (0.04) 2.33 3.68 4.05 4.49
---------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.18) (0.10) (0.15) (0.15) (0.17)
Distributions from net realized capital gains (3.01) (1.57) (2.92) (2.77) (1.54)
---------------------------------------------------------------------------------------------------------------------------------
Total distributions (3.19) (1.67) (3.07) (2.92) (1.71)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 21.11 $ 24.34 $ 23.68 $ 23.07 $ 21.94
=================================================================================================================================
TOTAL RETURN* 0.47% 11.41% 17.31% 20.44% 24.85%
=================================================================================================================================
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
=================================================================================================================================
Net assets, end of year (in 000s) $414,632 $669,789 $1,382,874 $1,137,343 $926,382
---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.02)% 0.46% 0.71% 0.69% 0.78%
---------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.00++ $ 0.09 $ 0.17 - -
---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 79% 39% 54% 61% 118%
---------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.49% 1.38% 1.20% 1.27% 1.35%
---------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 1.49% 1.38% 1.20% - -
---------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.46% 1.35% 1.19% - -
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS P SHARES
Selected Per-Share Data for the Year or Period Ended: FISCAL YEAR ENDED JUNE 30,
------------------------------------------------------------
2000@ 1999@ 1998@ 1997@ 1996(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 24.51 $ 23.77 $ 23.12 $ 21.94 $ 19.22
================================================================================================================================
Net investment income/(loss) (0.07) 0.04 0.11 0.09 0.03
Net realized and unrealized gain/(loss) on investments (0.07) 2.31 3.55 3.96 2.69
--------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment
operations (0.14) 2.35 3.66 4.05 2.72
--------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.10) (0.04) (0.09) (0.10) -
Distributions from net realized capital gains (3.01) (1.57) (2.92) (2.77) -
--------------------------------------------------------------------------------------------------------------------------------
Total distributions (3.11) (1.61) (3.01) (2.87) -
--------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 21.26 $ 24.51 $ 23.77 $ 23.12 $ 21.94
================================================================================================================================
TOTAL RETURN* 0.01% 11.62% 17.09% 20.41% 14.15%
================================================================================================================================
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
================================================================================================================================
Net assets, end of year (in 000s) $ 1,639 $ 219 $ 198 $ 212 $ 82
--------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.32)% 0.21% 0.46% 0.44% 0.53%+
--------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.07) $ 0.04 $ 0.11 - -
--------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 79% 39% 54% 61% 118%
--------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.66% 1.63% 1.45% 1.52% 1.60%+
--------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 1.66% 1.63% 1.45% - -
--------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.63% 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.
++ 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.
103
<PAGE>
-----------------------
THE MONTGOMERY FUNDS
-----------------------
FINANCIAL HIGHLIGHTS
-----------------------
<TABLE>
U.S. EMERGING GROWTH FUND
CLASS R SHARES
Selected Per-Share Data for the Year or Period Ended: FISCAL YEAR ENDED JUNE 30,
---------------------------------------------------------
2000 1999 1998@ 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 19.80 $ 21.89 $ 19.00 $ 17.82 $ 13.75
============================================================================================================================
Net investment income/(loss) (0.35) (0.16) (0.18) (0.13) (0.04)
Net realized and unrealized gain/(loss) on investments 8.07 (0.80) 4.21 2.54 4.26
----------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment
operations 7.72 (0.96) 4.03 2.41 4.22
----------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income - - - - (0.04)
Distributions from net realized capital gains (2.67) (1.13) (1.14) (1.23) (0.11)
----------------------------------------------------------------------------------------------------------------------------
Total distributions (2.67) (1.13) (1.14) (1.23) (0.15)
----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 24.85 $ 19.80 $ 21.89 $ 19.00 $ 17.82
============================================================================================================================
TOTAL RETURN* 42.46% (4.07)% 22.18% 14.77% 30.95%
============================================================================================================================
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
============================================================================================================================
Net assets, end of year (in 000s) $ 224,944 $ 382,483 $ 391,973 $ 317,812 $ 306,217
----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (1.19)% (0.83)% (0.84)% (0.75)% (0.11)%
----------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.45) $ (0.16) $ (0.18) - $ (0.05)
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 63% 76% 24% 79% 89%
----------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.55% 1.66% 1.57% 1.71% 1.75%
----------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 1.92% 1.66% 1.57% - 1.79%
----------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.50% 1.66% 1.56% - -
----------------------------------------------------------------------------------------------------------------------------
</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.
104 The accompanying notes are an integral part of these financial statements.
<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,
----------------------------------------------------------
2000 1999@ 1998@ 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 16.58 $ 20.73 $ 19.52 $ 21.55 $ 17.11
==============================================================================================================================
Net investment income/(loss) (0.28) (0.17) (0.15) (0.18) (0.09)
Net realized and unrealized gain/(loss) on investments 5.90 (1.21) 4.33 1.43 6.31
------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment
operations 5.62 (1.38) 4.18 1.25 6.22
------------------------------------------------------------------------------------------------------------------------------
Distributions:
Distributions from net realized capital gains (0.00)++ (2.07) (2.97) (3.28) (1.78)
Distributions in excess of net realized capital gains - (0.70) - - -
------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.00)++ (2.77) (2.97) (3.28) (1.78)
------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 22.20 $ 16.58 $ 20.73 $ 19.52 $ 21.55
==============================================================================================================================
TOTAL RETURN* 34.12% (4.14)% 23.23% 6.81% 39.28%
==============================================================================================================================
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
==============================================================================================================================
Net assets, end of year (in 000s) $ 102,622 $ 113,323 $ 203,437 $ 198,298 $ 275,062
------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (1.14)% (1.09)% (0.70)% (0.78)% (0.47)%
------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.28) $ (0.17) $ (0.15) - -
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 93% 71% 69% 59% 80%
------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.35% 1.32% 1.24% 1.20% 1.24%
------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 1.35% 1.32% 1.24% - -
------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.35% 1.32% 1.24% - -
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
CLASS P SHARES
Selected Per-Share Data for the Year or Period Ended: FISCAL YEAR ENDED JUNE 30,
------------------------------------------
2000 1999@ 1998@ 1997(a)
<S> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 16.35 $ 20.53 $ 19.48 $ 21.73
==================================================================================================================
Net investment income/(loss) (0.28) (0.21) (0.20) (0.10)
Net realized and unrealized gain/(loss) on investments 5.78 (1.20) 4.22 1.13
------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment
operations 5.50 (1.41) 4.02 1.03
------------------------------------------------------------------------------------------------------------------
Distributions:
Distributions from net realized capital gains (0.00)++ (2.07) (2.97) (3.28)
Distributions in excess of net realized capital gains - (0.70) - -
------------------------------------------------------------------------------------------------------------------
Total distributions (0.00)++ (2.77) (2.97) (3.28)
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 21.85 $ 16.35 $ 20.53 $ 19.48
==================================================================================================================
TOTAL RETURN* 33.95% (4.39)% 22.44% 5.74%
==================================================================================================================
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
==================================================================================================================
Net assets, end of year (in 000s) $ 27,927 $ 20,606 $ 21,548 $ 6,656
------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (1.40)% (1.35)% (0.95)% (1.03)%+
------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.28) $ (0.21) $ (0.20) -
------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 93% 71% 69% 59%
------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.61% 1.57% 1.49% 1.45%+
------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest
and tax expense 1.61% 1.57% 1.49% -
------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.61% 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.
++ 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.
105
<PAGE>
-----------------------
THE MONTGOMERY FUNDS
-----------------------
FINANCIAL HIGHLIGHTS
-----------------------
<TABLE>
<CAPTION>
BALANCED FUND
CLASS R SHARES
Selected Per-Share Data for the Year or Period Ended: FISCAL YEAR ENDED JUNE 30,
------------------------------------------------------
2000 1999@ 1998# 1997@ 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 16.77 $ 19.08 $ 19.89 $ 19.33 $ 16.33
--------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.49 0.48 1.66 0.48 0.26
Net realized and unrealized gain/(loss) on investments (0.19) 1.23 0.99 2.13 3.54
--------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.30 1.71 2.65 2.61 3.80
--------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.63) (0.93) (0.93) (0.39) (0.25)
Dividends in excess of investment income -- -- (0.70) -- --
Distributions from net realized capital gains (0.31) (1.68) (1.83) (1.66) (0.55)
Distributions in excess of net realized capital gains (0.13) (1.41) -- -- --
--------------------------------------------------------------------------------------------------------------------------
Total distributions (1.07) (4.02) (3.46) (2.05) (0.80)
--------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 16.00 $ 16.77 $ 19.08 $ 19.89 $ 19.33
--------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 1.62% 11.93% 14.67% 14.65% 23.92%
--------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
--------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $60,718 $81,133 $128,075 $127,214 $132,511
--------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 2.62% 2.63% 3.10% 2.55% 1.85%
--------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.43 $ 0.45 $ 1.63 $ 0.47 $ 0.24
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 35% 36% 84% 169% 226%
--------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 0.13% 0.25% 0.26% 1.43% 1.42%
--------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager
including interest and tax expense 0.60% 0.46% 0.31% 1.49% 1.55%
--------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.13% 0.25% 0.25% 1.31% 1.30%
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS P SHARES
Selected Per-Share Data for the Year or Period Ended: FISCAL YEAR ENDED JUNE 30,
------------------------------------------------------
2000 1999@ 1998# 1997@ 1996(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $16.74 $19.11 $19.89 $19.33 $17.86
-------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.58 0.44 1.62 0.43 0.09
Net realized and unrealized gain/(loss) on investments (0.31) 1.17 1.01 2.13 1.38
-------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.27 1.61 2.63 2.56 1.47
-------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.58) (0.89) (0.84) (0.34) --
Dividends in excess of net investment income -- -- (0.74) -- --
Distributions from net realized capital gains (0.31) (1.68) (1.83) (1.66) --
Distributions in excess of net realized capital gains (0.13) (1.41) -- -- --
-------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.02) (3.98) (3.41) (2.00) --
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $15.99 $16.74 $19.11 $19.89 $19.33
-------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 1.53% 11.15% 14.53% 14.35% 8.23%
-------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
-------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $2,803 $ 56 $ 71 $ 74 $ 43
-------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 0.27% 2.68% 2.85% 2.30% 1.60%+
-------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.09 $ 0.41 $ 1.59 $ 0.42 $ 0.08
-------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 35% 36% 84% 169% 226%
-------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 0.40% 0.50% 0.51% 1.68% 1.67%+
-------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest and tax expense 0.87% 0.71% 0.56% 1.74% 1.80%+
-------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.40% 0.50% 0.50% 1.56% 1.55%+
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Balanced 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 after that date do not reflect expenses borne indirectly.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
@ 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.
106
The accompanying notes are an integral part of these financial statements.
<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,
------------------------------------------------------
2000++ 1999 1998@ 1997@ 1996(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 18.97 $ 18.67 $ 16.24 $ 15.31 $ 12.00
-------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.17) 0.09 0.04 0.08 0.02
Net realized and unrealized gain/(loss) on investments 2.11 0.31 3.48 2.53 3.29
-------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 1.94 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 (0.39) (0.10) (1.07) (1.68) --
-------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.39) (0.10) (1.09) (1.68) --
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 20.52 $ 18.97 $ 18.67 $ 16.24 $ 15.31
-------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 10.16% 2.34% 23.27% 19.20% 27.58%
-------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
-------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $184,588 $227,287 $64,820 $33,912 $18,303
-------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.83)% 0.41% 0.22% 0.57% 0.26%+
-------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.18) $ 0.09 $ (0.04) $ (0.02) $ (0.07)
-------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 207% 150% 127% 95% 239%
-------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.80% 1.66% 1.66% -- --
-------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest and tax expense 1.92% 1.74% 2.13% 2.37% 2.91%+
-------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.65% 1.65% 1.65% 1.66% 1.65%+
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS P SHARES
Selected Per-Share Data for the Year or Period Ended: FISCAL YEAR ENDED JUNE 30,
------------------------------------------------------
2000@ 1999 1998@ 1997@ 1996(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $18.92 $18.64 $16.22 $15.31 $13.66
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.25) 0.12 (0.01) 0.05 0.00++
Net realized and unrealized gain/(loss) on investments 2.29 0.26 3.50 2.54 1.65
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 2.04 0.38 3.49 2.59 1.65
-----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Distributions in excess of net investment income -- -- (0.00)++ -- --
Distributions from net realized capital gains (0.39) (0.10) (1.07) (1.68) --
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.39) (0.10) (1.07) (1.68) --
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $20.57 $18.92 $18.64 $16.22 $15.31
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 10.67% 2.18% 23.03% 19.13% 12.08%
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
-----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $9,352 $2,352 $ 5 $ 5 $ 1
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (1.15)% 0.16% (0.03)% 0.32% 0.01%+
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $(0.27) $ 0.12 $(0.08) $(0.06) $(0.05)
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 207% 150% 127% 95% 239%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 2.05% 1.91% 1.91% -- --
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and tax expense 2.17% 1.99% 2.38% 2.62% 3.16%+
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.90% 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.
@ 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.
107
The accompanying notes are an integral part of these financial statements.
<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,
------------------------------------------------------
2000 1999 1998@ 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 19.21 $ 19.19 $ 19.17 $ 16.96 $ 13.25
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.24) (0.12) 0.00++ (0.11) (0.06)
Net realized and unrealized gain/(loss) on investments 4.42 2.56 3.87 3.14 3.84
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 4.18 2.44 3.87 3.03 3.78
-----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- (0.22) -- -- (0.07)
Distributions from net realized capital gains (1.66) (2.20) (3.85) (0.82) --
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.66) (2.42) (3.85) (0.82) (0.07)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 21.73 $ 19.21 $ 19.19 $ 19.17 $16.96
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 21.46% 15.68% 27.12% 18.71% 28.64%
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
-----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $85,723 $57,146 $96,412 $32,371 $28,496
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (1.20)% (0.61)% (0.02)% (0.62)% (0.56)%
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.26) $ (0.14) $ 0.00++ $ (0.23) $ (0.16)
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 203% 172% 135% 117% 164%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.95% 2.01% 1.96% -- 2.05%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 2.09% 2.40% 2.37% 2.62% 3.10%
-----------------------------------------------------------------------------------------------------------------------------------
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.
108
The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------
THE MONTGOMERY FUNDS
-----------------------
FINANCIAL HIGHLIGHTS
-----------------------
<TABLE>
<CAPTION>
GLOBAL 20 FUND
CLASS R SHARES
Selected Per-Share Data for the Year or Period Ended: FISCAL YEAR ENDED JUNE 30,
-----------------------------------------------------------------
2000@ 1999@ 1998@ 1997@ 1996(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 22.20 $ 20.98 $ 20.01 $ 16.46 $ 12.00
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.43) (0.09) 0.12 0.01 0.06
Net realized and unrealized gain/(loss) on investments 4.17 2.70 2.70 4.16 4.45
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 3.74 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 (3.11) (1.05) (1.85) (0.52) --
Distributions in excess of net realized capital gains -- -- -- -- (0.01)
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions (3.11) (1.39) (1.85) (0.62) (0.05)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 22.83 $ 22.20 $ 20.98 $ 20.01 $ 16.46
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 17.14% 13.89% 15.44% 26.35% 37.75%
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
-----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $115,839 $136,792 $269,667 $172,509 $77,955
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (1.87)% (0.47)% 0.58% 0.04% 0.42%+
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.44) $ (0.09) $ 0.12 $ (0.01) $ 0.02
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 181% 115% 151% 158% 106%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 2.73% 1.76% 1.81% -- --
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest and tax expense 2.76% 1.76% 1.81% 1.92% 2.11%+
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.80% 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,
------------------------------------------------------
2000@ 1999@ 1998@ 1997(a)
<S> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $21.83 $20.68 $19.98 $15.89
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.47) (0.14) 0.09 (0.02)
Net realized and unrealized gain/(loss) on investments 4.10 2.64 2.46 4.11
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting
from investment operations 3.63 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 (3.11) (1.05) (1.85) --
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions (3.11) (1.35) (1.85) --
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $22.35 $21.83 $20.68 $19.98
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 16.91% 13.46% 14.12% 25.74%
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
-----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 20 $ 55 $ 52 $ 9
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (1.99)% (0.72)% 0.34% (0.21)%+
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $(0.66) $(0.14) $ 0.09 $(0.03)
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 181% 115% 151% 158%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 2.94% 2.01% 2.06% --
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest and tax expense 2.97% 2.01% 2.06% 2.17%+
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 2.01% 1.98% 2.05% 2.07%+
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Global 20 (formerly the Montgomery Select 50 Fund) 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.
@ 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.
109
The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------
THE MONTGOMERY FUNDS
-----------------------
FINANCIAL HIGHLIGHTS
-----------------------
<TABLE>
<CAPTION>
GLOBAL LONG-SHORT FUND
CLASS R SHARES
Selected Per-Share Data for the Year or Period Ended: FISCAL YEAR ENDED
JUNE 30, MARCH 31,
------------------------------------------------
2000 1999(b)(c) 1999@ 1998(a)@
<S> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 19.65 $ 16.47 $ 12.70 $ 10.00
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.60) (0.06) (0.05) 0.02
Net realized and unrealized gain/(loss) on investments 13.74 3.24 4.92 2.68
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 13.14 3.18 4.87 2.70
-----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Distributions from net realized capital gains (1.99) -- (1.10) --
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.99) -- (1.10) --
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 30.80 $ 19.65 $ 16.47 $ 12.70
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 67.54% 19.61% 39.87% 27.20%
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
-----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $368,301 $216,300 $83,638 $16,579
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (1.92)% (2.30)%+ (0.35)% 0.65%+
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.60) $ (0.06) $ (0.09) $ (0.05)
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 204% 43% 226% 84%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 3.91% 4.18%+ 3.40% 2.78%+
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and tax expense 3.91% 4.61%+ 3.79% 5.19%+
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 2.06% 2.35%+ 2.35% 2.35%+
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES
Selected Per-Share Data for the Year or Period Ended: FISCAL YEAR ENDED
JUNE 30, MARCH 31,
----------------------- ---------------------
2000 1999(c) 1999@ 1998(a)@
<S> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 19.35 $ 16.25 $ 12.64 $10.00
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.80) (0.15) (0.16) (0.00)++
Net realized and unrealized gain/(loss) on investments 13.42 3.25 4.87 2.64
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 12.62 3.10 4.71 2.64
-----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Distributions from net realized capital gains (1.99) -- (1.10) --
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.99) -- (1.10) --
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 29.98 $ 19.35 $ 16.25 $12.64
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 65.83% 19.38% 38.88% 26.50%
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
-----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $23,333 $18,704 $17,031 $ 61
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (2.65)% (3.07)%+ (1.10)% (0.10)%+
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.80) $ (0.16) $ (0.28) $ 0.00++
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 204% 43% 226% 84%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 4.67% 4.93%+ 4.15% 3.53%+
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and tax expense 4.67% 5.36%+ 4.54% 5.94%+
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 2.82% 3.10%+ 3.10% 3.10%+
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
110
The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------
THE MONTGOMERY FUNDS
-----------------------
FINANCIAL HIGHLIGHTS
-----------------------
GLOBAL LONG-SHORT FUND - CONTINUED
<TABLE>
<CAPTION>
CLASS C SHARES
Selected Per-Share Data for the Year or Period Ended: FISCAL YEAR ENDED
JUNE 30, MARCH 31
--------------------- -------------------
2000 1999(c) 1999@ 1998(a)@
<S> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 18.01 $ 15.13 $ 11.83 $ 10.00
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.71) (0.13) (0.15) 0.00++
Net realized and unrealized gain/(loss) on investments 12.41 3.01 4.55 1.83
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 11.70 2.88 4.40 1.83
-----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Distributions from net realized capital gains (1.99) -- (1.10) --
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.99) -- (1.10) --
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 27.72 $ 18.01 $ 15.13 $ 11.83
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 65.61% 19.37% 38.81% 18.50%
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
-----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 9,927 $ 7,209 $ 6,425 $ 202
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (2.65)% (3.07)%+ (1.10)% (0.10)%+
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.71) $ (0.15) $ (0.26) $ (0.00)++
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 204% 43% 226% 84%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 4.67% 4.93%+ 4.15% 3.53%+
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and tax expense 4.67% 5.36%+ 4.54% 5.94%+
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 2.82% 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.
@ 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>
GLOBAL COMMUNICATIONS FUND
CLASS R SHARES
Selected Per-Share Data for the Year or Period Ended: FISCAL YEAR ENDED JUNE 30,
----------------------------------------------------
2000 1999 1998@ 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $ 26.73 $ 22.88 $ 19.61 $ 18.05 $ 15.42
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.35) 0.01 (0.17) (0.25) (0.20)
Net realized and unrealized gain/(loss) on investments 14.04 6.35 7.19 2.72 2.83
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 13.69 6.36 7.02 2.47 2.63
-----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Distributions from net realized capital gains (6.25) (2.51) (3.75) (0.91) --
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions (6.25) (2.51) (3.75) (0.91) --
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 34.17 $ 26.73 $ 22.88 $ 19.61 $ 18.05
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 51.53% 31.66% 45.45% 14.43% 17.06%
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
-----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 498,516 $354,730 $267,113 $153,955 $206,671
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (1.01)% 0.02% (0.85)% (1.05)% (1.01)%
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.35) $ 0.01 $ (0.17) $ (0.27) $ (0.22)
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 186% 146% 80% 76% 104%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.49% 1.69% 1.93% -- 2.01%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 1.49% 1.69% 1.93% 2.00% 2.11%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.47% 1.68% 1.90% 1.91% 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.
112
The accompanying notes are an integral part of these financial statements.
<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,
---------------------------------------------------------------
2000@ 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.24 $ 9.86 $ 16.85 $ 14.19 $ 13.17
----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.12) 0.92 0.07 0.07 0.08
Net realized and unrealized gain/(loss) on investments 1.92 (0.54) (6.58) 2.66 0.94
----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 1.80 0.38 (6.51) 2.73 1.02
----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- -- (0.15) (0.07) --
Distributions from net realized capital gains -- -- (0.33) -- --
----------------------------------------------------------------------------------------------------------------------------------
Total distributions -- -- (0.48) (0.07) --
----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 12.04 $ 10.24 $ 9.86 $ 16.85 $ 14.19
----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 17.58% 3.85% (39.20)% 19.34% 7.74%
----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 290,505 $344,907 $758,911 $1,259,457 $994,378
----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (1.03)% 0.01% 0.55% 0.48% 0.58%
----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $(0.13) $0.96 $ 0.07 -- --
----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 113% 86% 97% 83% 110%
----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 2.29% 2.05% 1.65% -- --
----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest and tax expense 2.45% 2.15% 1.65% -- --
----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.90% 1.90% 1.60% 1.67% 1.72%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS P SHARES
Selected per-share data for the Year or Period Ended: FISCAL YEAR ENDED JUNE 30,
---------------------------------------------------------------
2000@ 1999 1998 1997 1996(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.05 $ 9.74 $ 16.77 $ 14.19 $ 12.62
-------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.20) 0.00++ 0.03 0.06 0.01
Net realized and unrealized gain/(loss) on investments 1.94 0.31 (6.61) 2.58 1.56
-------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 1.74 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 $ 11.79 $ 10.05 $ 9.74 $ 16.77 $ 14.19
-------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 17.43% 3.08% (39.75)% 18.62% 12.44%
-------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
-------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 6,531 $ 520 $ 413 $ 607 $ 2
-------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (1.72)% (0.24)% 0.30% 0.23% 0.33%+
-------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.21) $ 0.01 $ 0.03 -- --
-------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 113% 86% 97% 83% 110%
-------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 2.58% 2.30% 1.90% -- --
-------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest and tax expense 2.74% 2.40% 1.90% -- --
-------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 2.19% 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.
+ Annualized.
++ 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.
113
<PAGE>
-----------------------
THE MONTGOMERY FUNDS
-----------------------
FINANCIAL HIGHLIGHTS
-----------------------
<TABLE>
<CAPTION>
EMERGING MARKETS FOCUS FUND
CLASS R SHARES (a)
Selected Per-Share Data for the Year or Period Ended: FISCAL YEAR FISCAL YEAR
ENDED JUNE 30, THREE MONTHS ENDED JUNE 30, ENDED MARCH 31,
------------- --------------------------- ------------------
2000 1999(c) 1999@ 1998(b)@
<S> <C> <C> <C> <C>
NET ASSET VALUE-BEGINNING OF PERIOD $13.15 $9.63 $11.43 $10.00
-------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.19 0.04 0.12 0.27
Net realized and unrealized gain/(loss) on investments 3.47 3.48 (1.76) 1.16
-------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 3.66 3.52 (1.64) 1.43
-------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.16) -- (0.16) --
Dividends in excess of net investment income (0.08) -- -- --
-------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.24) -- (0.16) --
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE-END OF PERIOD $16.57 $13.15 $9.63 $11.43
-------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 27.91% 36.55% (14.04)% 14.40%
-------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
-------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in 000s) $4,725 $2,551 $1,655 $1,789
-------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 0.66% 0.05%+ 1.24% 10.46%+
-------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $(0.79) $(0.10) $(0.52) $(0.07)
-------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 264% 200% 437% 71%
-------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.62% 1.73%+ 2.10% 2.10%+
-------------------------------------------------------------------------------------------------------------------------------
Expense ratios before deferral of fees by Manager, including
interest and tax expense 6.15% 8.82%+ 8.68% 15.34%+
-------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.60% 1.73%+ 2.10% 2.10%+
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Formerly named Institutional shares.
(b) The Emerging Markets Focus Fund commenced operations on December 31, 1997.
(c) For the period April 1, 1999, to June 30, 1999.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
@ 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.
114
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,
----------------------------------------------
2000 1999 1998 1997(a)
<S> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 12.21 $ 6.18 $ 18.91 $ 12.00
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.68) (0.01) 0.13 (0.01)
Net realized and unrealized gain/(loss) on investments (0.81) 6.04 (11.74) 6.95
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations (1.49) 6.03 (11.61) 6.94
-----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.46) (0.00)++ (0.17) --
Dividends in excess of net investment income (0.18) -- -- --
Distributions from net realized capital gains -- -- (0.00)++ (0.03)
Distributions in excess of net realized capital gains -- -- (0.95) --
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.64) -- (1.12) (0.03)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE END OF PERIOD $ 10.08 $ 12.21 $6.18 $18.91
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* (12.56)% 97.44% (63.45)% 57.80%
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
-----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $24,843 $63,196 $24,608 $68,095
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.85)% (0.35)% 0.22% (0.42)%+
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.30) $ (0.03) $ (0.08) $ (0.02)
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 64% 233% 154% 72%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 2.12% 2.19% 1.91% 2.20%+
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and tax expense 3.09% 2.89% 2.27% 2.69%+
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before excluding interest and tax expense 1.90% 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.
115
<PAGE>
-----------------------
THE MONTGOMERY FUNDS
-----------------------
FINANCIAL HIGHLIGHTS
-----------------------
<TABLE>
<CAPTION>
TOTAL RETURN BOND FUND
CLASS R SHARES
FISCAL YEAR ENDED JUNE 30,
Selected Per-Share Data for the Year or Period Ended: --------------------------------------------
2000 1999 1998(a )
<S> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 11.66 $ 12.44 $ 12.00
===================================================================================================================================
Net investment income/(loss) 0.77 0.73 0.72
Net realized and unrealized gain/(loss) on investments (0.20) (0.35) 0.56
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 0.57 0.38 1.28
-----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.75) (0.73) (0.72)
Distributions in excess of net investment income -- (0.01) (0.00)++
Distributions from net realized capital gains -- (0.42) (0.12)
Distributions in excess of net realized capital gains (0.15) -- (0.00)++
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.90) (1.16) (0.84)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 11.33 $ 11.66 $ 12.44
===================================================================================================================================
TOTAL RETURN* 4.96% 3.20% 10.92%
===================================================================================================================================
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
===================================================================================================================================
Net assets, end of year (in 000s) $28,112 $38,476 $77,694
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 6.78% 5.88% 5.81%
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.75 $ 0.72 $ 0.71
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 176% 158% 390%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 0.80% 1.16% 1.29%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and tax expense 1.13% 1.25% 1.34%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.70% 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.
The accompanying notes are an integral part of these financial statements.
116
<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,
---------------------------------------------------------------
2000 1999 1998 1997++ 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.04 $ 10.14 $ 9.99 $ 9.92 $ 9.95
===================================================================================================================================
Net investment income/(loss) 0.58 0.53 0.57 0.59 0.60
Net realized and unrealized gain/(loss) on investments (0.14) (0.05) 0.16 0.07 (0.04)
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from 0.44 0.48 0.73 0.66 0.56
investment operations
-----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.57) (0.51) (0.56) (0.59) (0.59)
Dividends in excess of net investment income (0.01) (0.02) -- (0.00)# (0.00)#
Distributions from net realized capital gains -- -- (0.02) -- --
Distributions in excess of net realized capital gains -- (0.05) -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.58) (0.58) (0.58) (0.59) (0.59)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 9.90 $ 10.04 $ 10.14 $ 9.99 $ 9.92
===================================================================================================================================
TOTAL RETURN* 4.55% 4.82% 7.56% 6.79% 5.74%
===================================================================================================================================
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
===================================================================================================================================
Net assets, end of year (in 000s) $171,879 $154,365 $66,357 $47,265 $22,681
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 5.84% 5.21% 5.83% 5.87% 5.88%
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.56 $ 0.48 $ 0.51 $ 0.54 $0.52
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 188% 199% 502% 451% 350%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.11% 1.35% 1.15% 1.55% 1.55%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including 1.61% 1.85% 1.73% 2.05% 2.31%
interest and tax expense
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.63% 0.62% 0.28% 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,
---------------------------------------------------------------
2000 1999 1998 1997++ 1996(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $10.03 $10.15 $ 9.99 $9.92 $9.98
===================================================================================================================================
Net investment income/(loss) 0.56 0.41 0.61 0.59 0.16
Net realized and unrealized gain/(loss) on investments (0.15) (0.06) 0.12 0.06 (0.05)
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.41 0.35 0.73 0.65 0.11
-----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.54) (0.41) (0.57) (0.58) (0.17)
Dividends in excess of net investment income (0.02) (0.01) -- 0.00# --
Distributions in excess of net realized capital gains -- (0.05) -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.56) (0.47) (0.57) (0.58) (0.17)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 9.88 $10.03 $10.15 $9.99 $9.92
===================================================================================================================================
TOTAL RETURN* 4.18% 4.47% 7.34% 6.69% 1.12%
===================================================================================================================================
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
===================================================================================================================================
Net assets, end of year (in 000s) $4,087 $3,887 $3 $0 $1
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 5.60% 4.96% 5.58% 5.62% 5.63%+
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.54 $ 0.37 $ 0.55 $0.54 $0.14
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 188% 199% 502% 451% 350%+
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.36% 1.60% 1.40% 1.80% 1.80%+
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 1.86% 2.10% 1.98% 2.30% 2.56%+
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.88% 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.
++ 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>
CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
CLASS R SHARES
Selected Per-Share Data for the Year or Period Ended: FISCAL YEAR ENDED JUNE 30,
------------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 12.67 $ 12.86 $ 12.53 $ 12.23 $ 12.04
===================================================================================================================================
Net investment income/(loss) 0.51 0.49 0.51 0.53 0.54
Net realized and unrealized gain/(loss) on investments (0.04) (0.16) 0.33 0.30 0.19
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.47 0.33 0.84 0.83 0.73
-----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.52) (0.46) (0.51) (0.53) (0.54)
Dividends in excess of net investment income -- (0.03) -- -- --
Distributions from net realized capital gains -- (0.03) -- -- --
Distributions from net realized capital gains -- (0.00)++ -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.52) (0.52) (0.51) (0.53) (0.54)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 12.62 $ 12.67 $ 12.86 $ 12.53 $ 12.23
===================================================================================================================================
TOTAL RETURN* 3.83% 2.71% 6.85% 6.91% 6.11%
===================================================================================================================================
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
===================================================================================================================================
Net assets, end of year (in 000s) $27,405 $41,017 $35,667 $21,681 $13,948
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 4.14% 3.93% 4.03% 4.27% 4.34%
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.50 $ 0.48 $ 0.44 $ 0.47 $0.43
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 49% 184% 42% 26% 58%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 0.70% 0.69% 0.69% 0.68% 0.61%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 1.19% 1.19% 1.19% 1.18% 1.43%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.70% 0.69% 0.68% -- --
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total return represents aggregate total return for the periods indicated.
++ Amount represents less than $0.01 per share.
118
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 30,
------------------------------------------------------------
2000 1999 1998 1997 1996
<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) 0.054 0.047 0.052 0.049 0.052
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 0.054 0.047 0.052 0.049 0.052
-----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.054) (0.047) (0.052) (0.049) (0.052)
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.054) (0.047) (0.052) (0.049) (0.052)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===================================================================================================================================
TOTAL RETURN* 5.49% 4.81% 5.27% 5.03% 5.28%
===================================================================================================================================
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
===================================================================================================================================
Net assets, end of year (in 000s) $794,632 $575,387 $724,619 $473,154 $439,423
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 5.41% 4.71% 5.15% 4.93% 5.17%
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.054 $ 0.047 $ 0.052 $ 0.049 $ 0.050
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 0.46% 0.50% 0.53% -- --
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 0.46% 0.50% 0.48% 0.62% 0.74%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.46% 0.50% 0.53% 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,
------------------------------------------------------------
2000 1999 1998 1997 1996(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) 0.051 0.045 0.049 0.048 0.014
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 0.051 0.045 0.049 0.048 0.014
-----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.051) (0.045) (0.049) (0.048) (0.014)
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.051) (0.045) (0.049) (0.048) (0.014)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===================================================================================================================================
TOTAL RETURN* 5.19% 4.54% 5.00% 4.88% 1.38%
===================================================================================================================================
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
===================================================================================================================================
Net assets, end of year (in 000s) $ 8,653 $ 1 -- -- $ 1
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 5.53% 4.52% 4.90% 4.68% 4.91%
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.051 $ 0.045 $ 0.049 $ 0.048 $ 0.013
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 0.72% 0.75% 0.78% -- --
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 0.72% 0.75% 0.73% 0.87% 0.99%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.72% 0.75% 0.78% 0.85% 0.85%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Government Money Market Fund's Class P shares commenced operations on
March 11, 1996.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
ss. Amount represents less than $0.001 per share.
119
<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,
------------------------------------------------------------
2000 1999 1998 1997(a)
<S> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
===================================================================================================================================
Net investment income/(loss) 0.032 0.028 0.031 0.032
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 0.032 0.028 0.031 0.032
-----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.032) (0.028) (0.031) (0.032)
Distributions in excess of net investment income -- (0.000)ss. -- (0.000)ss.
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.032) (0.028) (0.031) (0.032)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
===================================================================================================================================
TOTAL RETURN* 3.25% 2.82% 3.12% 3.26%
===================================================================================================================================
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
===================================================================================================================================
Net assets, end of year (in 000s) $147,838 $116,341 $117,283 $114,197
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 3.21% 2.80% 3.08% 3.24%+
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.030 $ 0.026 $ 0.031 $ 0.030
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 0.60% 0.60% 0.60% 0.33%+
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest
and tax expense 0.77% 0.80% 0.81% 0.69%+
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.60% 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.
120
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,
------------------------------------------------------------
2000 1999 1998 1997 1996
<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) 0.027 0.026 0.029 0.029 0.030
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
investments 0.027 0.026 0.029 0.029 0.030
----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.027) (0.026) (0.029) (0.029) (0.030)
Dividends in excess of net investment income -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.027) (0.026) (0.029) (0.029) (0.030)
----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 2.72% 2.59% 3.00% 2.95% 3.03%
----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 378,819 $ 292,901 $ 187,216 $118,723 $98,134
----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 2.69% 2.55% 2.96% 2.91% 2.99%
----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.023 $ 0.021 $ 0.029 $ 0.028 $ 0.028
----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 0.58% 0.58% 0.58% 0.58% 0.59%
----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 0.58% 0.61% 0.68% 0.73% 0.80%
----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.58% 0.58% 0.58% -- --
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total return represents aggregate total return for the periods indicated.
ss. Amount represents less than $0.001 per share.
121
<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, 2000, the Trusts had 21 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
International Growth Fund, Montgomery Global Opportunities Fund, Montgomery
Global 20 Fund, Montgomery Global Long-Short Fund, Montgomery Global
Communications Fund, Montgomery Emerging Markets Fund, Montgomery Emerging
Asia Fund, Montgomery Total Return Bond Fund, Montgomery Short Duration
Government Bond Fund, Montgomery California Tax-Free Intermediate Bond Fund,
Montgomery Government Money Market Fund, Montgomery Federal Tax-Free Money
Fund, Montgomery California Tax-Free Money Fund, Montgomery U.S. Select 20
Portfolio and Montgomery International 20 Portfolio. The financial statements
for the Montgomery Equity Income Fund, Montgomery U.S. Select 20 Portfolio
and Montgomery International 20 Portfolio have been presented under separate
covers. The Montgomery U.S. Select 20 Portfolio and the Montgomery
International 20 Portfolio commenced operations on December 31, 1999. The
Montgomery Funds II include the Montgomery Emerging Markets Focus Fund, the
Montgomery Global Long-Short Fund and the Montgomery Balanced 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 is organized as a Massachusetts business trust and
commenced operations on May 10, 1990. The Montgomery Funds II is organized as
a Delaware business trust and commenced operations on September 8, 1993.
Effective December 30, 1999, the Montgomery U.S. Asset Allocation Fund
changed its name to the Montgomery Balanced Fund.
Effective December 31, 1999, Institutional Class shares of the Montgomery
Emerging Markets Focus Fund converted to Retail Class shares, which were
designated as no-load.
Effective January 3, 2000, the Montgomery U.S. Emerging Growth Fund reopened
to new investors.
Effective April 5, 2000, the Montgomery Select 50 Fund changed its name to
the Montgomery Global 20 Fund.
Effective April 5, 2000, the Montgomery International Small Cap Fund merged
into the Montgomery International Growth Fund.
Effective April 5, 2000, all shareholders in the Montgomery Equity Income
Fund were reorganized into shareholders of the Montgomery Balanced Fund.
1. SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States 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 generally accepted in the United
States.
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, the Federal Tax-Free Money Fund and the
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. 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.
c. FORWARD FOREIGN-CURRENCY EXCHANGE CONTRACTS
The Funds typically do not hedge against movements in currency exchange rates.
However, in certain limited circumstances, 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.
122
<PAGE>
-----------------------
THE MONTGOMERY FUNDS
-----------------------
NOTES
-----------------------
TO FINANCIAL STATEMENTS
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.
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 agreements either individually or jointly
through a joint repurchase account with other series of the Trusts pursuant
to a joint repurchase agreement. Under the terms of a typical repurchase
agreement, a Fund 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, the Fund has the
right to use the collateral to offset losses incurred. There could be
potential loss to the Fund in the event the 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 a Fund of securities with a simultaneous
agreement to repurchase substantially similar securities at an agreed-upon
price at a future date. The securities repurchased will bear the same interest
as those sold, but generally will be collateralized by different pools of
mortgages with different prepayment histories. During the period between the
sale and repurchase, the 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 broker, 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
Except to the extent used by the Montgomery Global Long-Short Fund, the Funds
typically do not hedge against movements in interest rates, securities prices
or currency exchange rates. However, 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 the 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 those Funds. Pursuant to these
agreements, a 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 periodic 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 periodic 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
123
<PAGE>
-----------------------
THE MONTGOMERY FUNDS
-----------------------
NOTES
-----------------------
TO FINANCIAL STATEMENTS
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, the 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. The 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 year ended June 30, 2000, the Global Long-Short Fund incurred
$814,317 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 the 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 the 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, the 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, Global Opportunities Fund,
Global Communications Fund, Emerging Markets Fund, Emerging Markets Focus Fund,
Emerging Asia Fund, Global Long-Short Fund, Global 20 Fund and Balanced 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.
Distributions of net realized capital gains (including net short-term capital
gains) earned by the Funds are distributed at least annually. Additional
distributions of net investment income and capital gains for each Fund may be
made 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 accounting principles generally accepted in
the United States. 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, 2000, 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:
<TABLE>
<CAPTION>
Undistributed
Net Undistributed
Investment Capital Paid-in
Fund Income Gain/(Loss) Capital
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Fund .............................. $ 94,806 $(70,477,862) $ 70,383,056
U.S. Emerging Growth Fund ................ 3,138,469 (8,586,804) 5,448,335
Small Cap Fund ........................... 1,655,629 (9,884,288) 8,228,659
Balanced Fund ............................ -- (609,823) 609,823
International Growth Fund ................ 1,796,083 (4,800,749) 3,004,666
Global Opportunities Fund ................ 940,246 (2,901,048) 1,960,802
Global 20 Fund ........................... 3,164,894 (9,063,133) 5,898,239
</TABLE>
124
<PAGE>
-----------------------
THE MONTGOMERY FUNDS
-----------------------
NOTES
-----------------------
TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Undistributed
Net Undistributed
Investment Capital Paid-in
Fund Income Gain/(Loss) Capital
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Long-Short Fund ................... $ 8,930,976 $(13,326,938) $ 4,395,962
Global Communications Fund ............... 4,970,530 (25,160,500) 20,189,970
Emerging Markets Fund .................... 10,638,557 (1,226,398) (9,412,159)
Emerging Markets Focus Fund .............. 3,578 14,099 (17,677)
Emerging Asia Fund ....................... 2,975,699 (810,378) (2,165,321)
Total Return Bond Fund ................... 13,452 (250,490) 237,038
Short Duration
Government Bond Fund ................... 149,651 (151,066) 1,415
California Tax-Free
Intermediate Bond Fund ................. 81,150 -- (81,150)
Government Money Market Fund ............. 17,538 (22,497) 4,959
California Tax-Free
Money Fund ............................. 769 (1) (768)
</TABLE>
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. Each multi-class 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 and excise 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 the current
interpretation of existing tax rules and regulations in the markets in which
they invest.
n. CASH
Cash, as used in the Statement of Cash Flows, is the amount reported in the
Statement of Assets and Liabilities, including the amounts held at the broker.
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. For the year ended June 30,
2000, the preparation of the Statements of Cash Flows for the Global Long-Short
Fund, the Total Return Bond Fund and the Short Duration Government Bond Fund
changed from the direct method to the indirect method.
o. EXPENSES
General expenses of the Trusts are allocated to the relevant Funds based on
relative net assets. Operating expenses directly attribut able 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 and the U.S. Emerging
Growth Fund; 1.40% for the Small Cap Fund; 1.65% for the International Growth
Fund; 1.90% for 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 Global 20 Fund; 1.60% for the Emerging Markets
Focus Fund; 1.30% for the Balanced Fund (including total expenses of the
underlying Funds); 0.70% for the Total Return Bond Fund, the Short Duration
Government Bond Fund and the California Tax-Free Intermediate Bond Fund; and
0.60% for the Government Money Market Fund, the Federal Tax-Free Money Fund and
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 the Fund is able to effect such reimbursement and remain in compliance
with applicable
125
<PAGE>
-----------------------
THE MONTGOMERY FUNDS
-----------------------
NOTES
-----------------------
TO FINANCIAL STATEMENTS
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 Funds' administrator (the
"Administrator"). The Administrator performs services with regard to various
aspects of each Fund's administrative operations.
As compensation, each Fund has accrued a monthly management and
administration fee (accrued daily) based 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:
<TABLE>
<CAPTION>
Management
Effective Fee Including
Fund Contractual Management Effect of Administration
Management Fee Fee Fees Reduced Fee
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Fund ............. 1.00% 1.00% 1.00% 0.07%
U.S. Emerging Growth Fund 1.36 1.36 0.99 0.07
Small Cap Fund .......... 1.00 1.00 1.00 0.07
Balanced Fund ........... -- -- -- --
International Growth Fund 1.10 1.17 1.05 0.07
Global Opportunities Fund 1.25 1.54 1.39 0.07
Global 20 Fund .......... 1.25 1.25 1.22 0.07
Global Long- Short Fund . 1.40 1.46 1.46 0.07
Global Communications
Fund .................. 1.12 1.12 1.12 0.07
Emerging Markets Fund ... 1.19 1.31 1.15 0.07
Emerging Markets
Focus Fund ............ 1.10 1.10 -- 0.07
Emerging Asia Fund ...... 1.25 1.83 0.87 0.07
Total Return Bond Fund .. 0.50 0.66 0.33 0.05
Short Duration Government
Bond Fund ............. 0.50 0.77 0.27 0.05
California Tax- Free
Intermediate Bond Fund 0.50 0.89 0.40 0.05
Government Money
Market Fund ........... 0.31 0.31 0.31 0.04
Federal Tax- Free Money
Fund .................. 0.40 0.57 0.40 0.05
California Tax- Free
Money Fund ............ 0.40 0.42 0.42 0.05
</TABLE>
The Manager recouped previously deferred fees during the year ended June 30,
2000. 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, 2000, were $160,136,
$227,394, $241,012, $397,685, $228,920, $50,453, $462,029, $136,429, $257,500
and $70,198, for the International Growth Fund, Global Opportunities Fund,
Global Long-Short Fund, Emerging Markets 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 expenses are absorbed expenses recouped from the
previous year of $89,996 and $33,234 for the Balanced Fund and the Emerging
Markets Focus Fund, respectively.
For the year ended June 30, 2000, the Manager has deferred fees and/or absorbed
expenses and has deferred management fees and absorbed expenses subject to
recoupment as follows:
<TABLE>
<CAPTION>
Deferred
Management Fees
and Absorbed
Expenses
Fees Expenses Subject to
Fund Reduced Absorbed Recoupment
----------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Emerging Growth Fund . $973,454 -- $973,454
Balanced Fund ............. -- $ 316,186 433,783
International Growth Fund . 270,496 -- 270,496
Global Opportunities Fund . 113,986 -- 113,986
Global 20 Fund ............ 37,870 -- 37,870
Emerging Markets Fund ..... 544,871 -- 544,871
Emerging Markets Focus Fund 33,286 103,583 349,518
Emerging Asia Fund ........ 379,537 -- 379,537
Total Return Bond Fund .... 103,543 -- 103,543
Short Duration
Government Bond Fund .... 846,635 -- 1,032,102
California Tax-Free
Intermediate Bond Fund .. 168,758 -- 306,661
Federal Tax-Free Money Fund 251,063 -- 251,063
</TABLE>
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.
3. SHARE MARKETING PLAN:
Class P shares of each Fund, and Class B and Class C shares of the 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
126
<PAGE>
-----------------------
THE MONTGOMERY FUNDS
-----------------------
NOTES
-----------------------
TO FINANCIAL STATEMENTS
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 amounts of purchases and sales of long-term securities,
excluding long-term U.S. government securities, during the year ended June 30,
2000, were:
<TABLE>
<CAPTION>
Fund Purchases Sales
----------------------------------------------------------------------------
<S> <C> <C>
Growth Fund .................... $ 399,388,048 $ 624,640,444
U.S. Emerging Growth Fund ...... 164,754,009 408,744,622
Small Cap Fund ................. 126,457,793 162,563,077
Balanced Fund .................. 23,696,908 33,534,178
International Growth Fund ...... 444,607,796 544,398,098
Global Opportunities Fund ...... 166,074,115 155,869,269
Global 20 Fund ................. 216,997,236 262,817,781
Global Long-Short Fund ......... 1,205,905,988 1,161,611,521
Global Communications Fund ...... 882,756,836 917,887,839
Emerging Markets Fund .......... 359,094,824 468,688,316
Emerging Markets Focus Fund ..... 8,306,537 7,178,732
Emerging Asia Fund ............. 25,663,002 53,913,283
Total Return Bond Fund ......... 18,624,115 29,094,535
Short Duration
Government Bond Fund ......... 96,072,599 77,598,242
California Tax-Free
Intermediate Bond Fund ....... 16,270,257 27,134,572
</TABLE>
The aggregate amounts of purchases and sales of long-term U.S. government
securities during the year ended June 30, 2000, were:
<TABLE>
<CAPTION>
Fund Purchases Sales
---------------------------------------------------------------------
<S> <C> <C>
Total Return Bond Fund .......... $ 41,716,229 $ 47,714,239
Short Duration
Government Bond Fund .......... 242,625,087 248,352,161
</TABLE>
b. At June 30, 2000, 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 Cost for
Unrealized Unrealized Net Tax Basis Unrealized Appreciation Federal Tax
Fund Appreciation Depreciation (Depreciation) Purposes
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Fund .............................. $ 84,844,527 $ 5,423,584 $ 79,420,943 $335,624,183
U.S. Emerging Growth Fund ................ 95,295,974 5,872,002 89,423,972 135,753,144
Small Cap Fund ........................... 37,726,228 4,908,765 32,817,463 98,087,557
Balanced Fund ............................ 1,473,161 6,116,573 (4,643,412) 68,105,429
International Growth Fund ................ 22,882,608 9,145,363 13,737,245 176,184,484
Global Opportunities Fund ................ 12,824,653 6,885,765 5,938,888 80,466,783
Global 20 Fund ........................... 13,908,884 4,197,058 9,711,826 108,237,180
Global Long-Short Fund ................... 123,316,698 21,642,951 101,673,747 299,991,760
Global Communications Fund ............... 104,457,820 48,883,576 55,574,244 444,207,043
Emerging Markets Fund .................... 59,619,758 18,020,320 41,599,438 244,595,024
Emerging Markets Focus Fund .............. 602,077 37,499 564,578 4,043,596
Emerging Asia Fund ....................... 4,991,855 3,632,202 1,359,653 23,595,241
Total Return Bond Fund ................... 203,626 483,454 (279,828) 35,129,990
Short Duration Government Bond Fund ...... 239,855 1,862,276 (1,622,421) 185,448,259
California Tax-Free Intermediate Bond Fund 461,473 203,757 257,716 26,643,033
</TABLE>
127
<PAGE>
-----------------------
THE MONTGOMERY FUNDS
-----------------------
NOTES
-----------------------
TO FINANCIAL STATEMENTS
c. Information regarding transactions under dollar roll transactions was as
follows:
<TABLE>
<CAPTION>
Average
Maximum Principle 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 6/30/00 the Period the Period the Period Earned
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Return Bond Fund ................ $12,493,944 7,600,000 $ 5,366,217 2,768,354 $ 1.94 $ 71,145
Short Duration Government Bond Fund ... 23,448,125 14,000,000 14,869,412 17,051,587 0.87 156,053
</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, 2000.
d. Information regarding reverse repurchase agreements was as follows:
<TABLE>
<CAPTION>
Average
Maximum Average Average Debt
Amount Amount Shares per Share
Outstanding Outstanding Outstanding Outstanding Average
During During During During Interest Interest
Fund the Period the Period the Period the Period Rate Expense
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
Total Return Bond Fund .................. $ 19,361,200 $ 586,810 2,768,354 $ 0.21 5.76% $ 33,244
Short Duration Government Bond Fund ..... 119,752,225 13,949,447 17,051,587 0.82 5.66 809,484
</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, 2000. There were no reverse repurchase agreements
outstanding at June 30, 2000.
128
<PAGE>
-----------------------
THE MONTGOMERY FUNDS
-----------------------
NOTES
-----------------------
TO FINANCIAL STATEMENTS
E. The schedule of forward foreign-currency exchange contracts at
June 30, 2000, was as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
FOREIGN- CURRENCY APPRECIATION
AMOUNT SETTLEMENT DATE IN EXCHANGE FOR ($US) (DEPRECIATION)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTERNATIONAL GROWTH FUND:
FORWARD FOREIGN-CURRENCY EXCHANGE CONTRACTS TO RECEIVE
385,134 British Pound 07/03/00 $582,592 $2,214
875,369 European Union Euro 07/03/00 834,925 7,701
8,420,199 Swedish Krona 07/03/00 953,806 (7,801)
401,532 British Pound 07/05/00 607,396 (1,161)
---------- -----------
Total $2,978,719 $953
========== ===========
FORWARD FOREIGN-CURRENCY EXCHANGE CONTRACTS TO DELIVER
1,257,613 European Union Euro 07/03/00 $1,199,509 $(10,924)
468,685 Swiss Franc 07/03/00 286,991 (815)
586,920 British Pound 07/05/00 887,833 1,697
---------- -----------
Total $2,374,333 $(10,042)
========== ===========
Net Unrealized Depreciation $(9,089)
===========
GLOBAL OPPORTUNITIES FUND:
FORWARD FOREIGN-CURRENCY EXCHANGE CONTRACTS TO RECEIVE
187,186 European Union Euro 07/03/00 $178,538 $1,647
3,002,138 Swedish Krona 07/03/00 340,070 (2,782)
--------- ----------
Total $518,608 $(1,135)
========= ==========
FORWARD FOREIGN-CURRENCY EXCHANGE CONTRACTS TO DELIVER
160,111 Australian Dollar 07/03/00 $95,626 $520
354,945 European Union Euro 07/03/00 338,546 (3,122)
362,705 European Union Euro 07/03/00 345,948 (3,191)
--------- ----------
Total $780,120 $(5,793)
======== ========
Net Unrealized Depreciation $(6,928)
========
GLOBAL LONG-SHORT FUND:
FORWARD FOREIGN-CURRENCY EXCHANGE CONTRACTS TO RECEIVE
7,973,532 Japanese Yen 07/03/00 $75,119 $(323)
31,466,402 Japanese Yen 07/05/00 296,447 (2,230)
-------- --------
Total $371,566 $(2,553)
======== ========
FORWARD FOREIGN-CURRENCY EXCHANGE CONTRACTS TO DELIVER
5,327,704 Hong Kong Dollar 07/03/00 $683,433 $(70)
29,599,595 Japanese Yen 07/03/00 278,860 1,200
-------- --------
Total $962,293 $1,130
======== ========
Net Unrealized Depreciation $(1,423)
========
GLOBAL COMMUNICATIONS FUND:
FORWARD FOREIGN-CURRENCY EXCHANGE CONTRACTS TO RECEIVE
2,268,252 European Union Euro 07/03/00 $2,163,455 $19,956
17,284,501 Swedish Krona 07/03/00 1,957,918 (16,014)
---------- --------
Total $4,121,373 $3,942
========== ========
</TABLE>
129
<PAGE>
------------------------------------------
THE MONTGOMERY FUNDS
------------------------------------------
NOTES
------------------------------------------
TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NET UNREALIZED
FOREIGN- CURRENCY APPRECIATION
AMOUNT SETTLEMENT DATE IN EXCHANGE FOR($US) (DEPRECIATION)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GLOBAL COMMUNICATIONS FUND - CONTINUED
FORWARD FOREIGN-CURRENCY EXCHANGE CONTRACTS TO DELIVER
8,181 European Union Euro 06/30/00 $7,803 $(417)
1,603,886 Australian Dollar 07/03/00 957,922 5,212
1,405,814 European Union Euro 07/03/00 1,340,862 (12,368)
--------- --------
Total $2,306,587 $(7,573)
========== ========
Net Unrealized Depreciation $(3,631)
========
</TABLE>
F. Written option activity for the Global Long-Short Fund for the year ended
June 30, 2000, was as follows:
<TABLE>
<CAPTION>
Written Options Premiums Number of Contracts
----------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at June 30, 1999.............. $ 131,401 154
Options closed.................................... (131,401) (154)
---------- ----
Written options outstanding at June 30, 2000...... $ 0 0
========== ====
</TABLE>
G. 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.
At June 30, 2000, the Funds had no securities on loans.
Income earned from securities lending transactions is included in securities
lending income on the Statement of Operations.
H. 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,
1999, 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,
2000, borrowings by the Funds under the agreement were as follows:
<TABLE>
<CAPTION>
Amount Outstanding Average Amount Maximum Average Average Debt
Fund at 6/30/00 Outstanding Debt Outstanding Interest Rate Average Shares per Share
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Fund................. -- $1,902,459 $18,300,000 6.25% 23,893,490 $0.08
U.S. Emerging Growth Fund... -- 2,058,470 41,800,000 6.13 12,734,886 0.16
Small Cap Fund.............. $2,500,000 106,557 4,900,000 6.18 6,878,157 0.02
International Growth Fund... -- 4,971,311 30,300,000 6.29 10,441,170 0.48
Global Opportunities Fund... -- 616,120 5,200,000 6.11 3,520,990 0.17
Global 20 Fund.............. -- 528,689 8,000,000 6.04 5,472,012 0.10
Global Communications Fund.. -- 1,671,858 24,500,000 6.51 14,587,576 0.11
Emerging Markets Fund....... -- 10,371,858 37,600,000 6.17 28,580,289 0.36
Emerging Asia Fund.......... -- 1,383,880 5,900,000 6.16 3,594,823 0.38
</TABLE>
Under a Credit Agreement dated August 28, 1999, 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
year ended June 30, 2000, the Global Long-Short Fund incurred $4,109,869 of
interest expense.
For the year ended June 30, 2000, borrowings by the Global Long-Short Fund
under the Credit Agreement were as follows:
<TABLE>
<CAPTION>
Amount Outstanding Average Amount Maximum Average Average Debt
Fund at 6/30/00 Outstanding Debt Outstanding Interest Rate Average Shares per Share
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Global Long-Short Fund $14,700,000 $62,948,087 $100,000,000 6.33% 14,656,261 $4.29
</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, 2000.
130
<PAGE>
-----------------------
THE MONTGOMERY FUNDS
-----------------------
NOTES
-----------------------
TO FINANCIAL STATEMENTS
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 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 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 Federal Tax-Free Money Fund and the California Tax-Free Money Fund
are money market funds, and money market funds sell shares, issue shares for
reinvestment of dividends and redeem shares normally at a constant net asset
value of $1 per share, the numbers of shares represented by such sales,
reinvestments and redemptions are the same as the dollar amounts shown for
such transactions.
<TABLE>
<CAPTION>
GLOBAL LONG-SHORT FUND
THREE MONTHS ENDED
YEAR ENDED 6/30/00 6/30/99@ YEAR ENDED 3/31/99
R SHARES: SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sold 7,426,035 $ 205,790,074 6,376,587 $115,011,592 2,502,705 $ 38,599,800
Issued as reinvestment of dividends 859,683 23,821,807 -- -- -- --
Reissued for name change from
Class A shares -- -- (446,290) (8,621,700) 3,966,659 52,104,139
Redeemed (7,333,613) (212,171,350) -- -- (1,392,567) (21,334,896)
----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 952,105 $ 17,440,531 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)
Canceled 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 51,660 $ 1,432,102 668 $ 12,145 1,184,123 $ 16,623,219
Issued as reinvestment of dividends 3,689 100,078 -- -- 1 15
Redeemed (243,789) (6,483,279) (82,068) (1,502,400) (140,910) (2,104,182)
----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (188,440) $ (4,951,099) (81,400) $ (1,490,255) 1,043,214 $ 14,519,052
----------------------------------------------------------------------------------------------------------------------------------
C SHARES:
----------------------------------------------------------------------------------------------------------------------------------
Sold 25,837 $ 655,803 1 $ 17 511,612 $ 6,598,428
Issued as reinvestment of dividends 876 22,011 -- -- 1 15
Redeemed (68,785) (1,801,773) (24,511) (421,313) (103,968) (1,287,689)
----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (42,072) $ (1,123,959) (24,510) $ (421,296) 407,645 $ 5,310,754
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
@ The Montgomery Global Long-Short Fund changed its fiscal year end from
March 31 to June 30.
131
<PAGE>
-----------------------
THE MONTGOMERY FUNDS
-----------------------
NOTES
-----------------------
TO FINANCIAL STATEMENTS
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
<TABLE>
<CAPTION>
GROWTH FUND
YEAR ENDED 6/30/00 YEAR ENDED 6/30/99
R SHARES: SHARES DOLLARS SHARES DOLLARS
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 14,003,652 $ 305,532,629 18,104,217 $ 390,073,046
Issued in exchange for shares
of Montgomery International
Small Cap Fund -- -- -- --
Issued as reinvestment of dividends 3,704,085 74,415,078 3,934,494 77,989,817
Redeemed (25,584,599) (553,484,206) (52,908,132) (1,124,668,296)
------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (7,876,862) $(173,536,499) (30,869,421) $ (656,605,433)
------------------------------------------------------------------------------------------------------------
P SHARES:
------------------------------------------------------------------------------------------------------------
Sold 1,304,933 $ 28,008,428 4,069 $ 92,919
Issued in exchange for shares of
Montgomery International Small
Cap Fund -- -- -- --
Issued as reinvestment of dividends 1,010 20,496 654 13,054
Redeemed (1,237,764) (26,553,673) (4,132) (87,473)
------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 68,179 $ 1,475,251 591 $ 18,500
------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
U.S. EMERGING GROWTH FUND
YEAR ENDED 6/30/00 YEAR ENDED 6/30/99
R SHARES: SHARES DOLLARS SHARES DOLLARS
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 5,766,884 $ 126,300,729 9,492,873 $ 128,296,684
Issued in exchange for shares of
Montgomery Small Cap Opportunities Fund -- -- 3,376,958 60,368,327
Issued as reinvestment of dividends 1,667,736 32,837,733 1,089,727 23,479,369
Redeemed (17,697,064) (367,106,716) (12,553,360) (190,115,591)
------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (10,262,444) $(207,968,254) 1,406,198 $ 22,028,789
------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP FUND
YEAR ENDED 6/30/00 YEAR ENDED 6/30/99
R SHARES: SHARES DOLLARS SHARES DOLLARS
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 2,881,534 $ 60,948,220 1,500,979 $ 23,905,212
Issued as reinvestment of dividends 109 2,279 1,429,493 19,813,868
Redeemed (5,095,176) (107,780,765) (5,909,461) (90,955,913)
------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (2,213,533) $ (46,830,266) (2,978,989) $(47,236,833)
------------------------------------------------------------------------------------------------------------
P SHARES:
------------------------------------------------------------------------------------------------------------
Sold 454,868 $ 9,259,550 436,333 $ 7,082,536
Issued as reinvestment of dividends 23 471 218,219 2,980,874
Redeemed (437,231) (8,247,102) (443,741) (6,860,622)
------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 17,660 $1,012,919 210,811 $ 3,202,788
------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHORT DURATION GOVERNMENT BOND FUND
YEAR ENDED 6/30/00 YEAR ENDED 6/30/99
R SHARES: SHARES DOLLARS SHARES DOLLARS
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 18,561,253 $ 184,566,653 21,806,908 $ 222,105,673
Issued as reinvestment of dividends 936,813 9,303,853 564,567 5,733,568
Redeemed (17,508,875) (174,025,703) (13,542,909) (137,742,612)
------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 1,989,191 $ 19,844,803 8,828,566 $ 90,096,629
------------------------------------------------------------------------------------------------------------
P SHARES:
------------------------------------------------------------------------------------------------------------
Sold 274,982 $ 2,712,071 460,384 $ 4,668,471
Issued as reinvestment of dividends 3,763 37,715 8,030 81,193
Redeemed (252,958) (2,492,766) (81,036) (811,602)
------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 25,787 $ 257,020 387,378 $ 3,938,062
------------------------------------------------------------------------------------------------------------
</TABLE>
132
<PAGE>
-----------------------
THE MONTGOMERY FUNDS
-----------------------
NOTES
-----------------------
TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH FUND
YEAR ENDED 6/30/00 YEAR ENDED 6/30/99
R SHARES: SHARES DOLLARS SHARES DOLLARS
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 30,551,675 $ 663,070,403 21,750,207 $ 400,464,468
Issued in exchange for shares
of Montgomery International
Small Cap Fund 1,265,707 27,748,104 -- --
Issued as reinvestment of dividends 183,389 4,045,551 51,019 905,589
Redeemed (34,990,975) (770,997,386) (13,289,899) (242,379,952)
-----------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (2,990,204) $ (76,133,328) 8,511,327 $ 158,990,105
-----------------------------------------------------------------------------------------------------------------------------
P SHARES:
-----------------------------------------------------------------------------------------------------------------------------
Sold 3,156,566 $ 71,473,123 137,543 $ 2,367,177
Issued in exchange for shares of
Montgomery International Small
Cap Fund 136 2,965 -- --
Issued as reinvestment of dividends 175 3,861 -- 4,968
Redeemed (2,826,438) (64,720,194) (13,504) (244,213)
-----------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 330,439 $ 6,759,755 124,039 $ 2,127,932
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GLOBAL COMMUNICATIONS FUND EMERGING ASIA FUND
YEAR ENDED 6/30/00 YEAR ENDED 6/30/99 YEAR ENDED 6/30/00 YEAR ENDED 6/30/99
R SHARES: SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sold 20,586,299 $ 732,677,750 16,399,838 $ 370,661,069 2,498,798 $ 28,588,188 19,688,601 $ 157,590,021
Issued in
exchange for
shares of
Montgomery
Small Cap
Opportunities
Fund -- -- -- -- -- -- -- --
Issued as
reinvestment
of dividends 2,436,866 82,219,864 1,295,937 25,594,755 192,844 2,132,855 -- --
Redeemed (21,706,433) (768,148,169) (16,095,950) (355,421,630) (5,403,267) (59,908,722) (18,491,655) (143,526,077)
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/
(decrease) 1,316,732 $ 46,749,445 1,599,825 $ 40,834,194 (2,711,625) $(29,187,679) 1,196,946 $ 14,063,944
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GLOBAL 20 FUND BALANCED FUND
YEAR ENDED 6/30/00 YEAR ENDED 6/30/99 YEAR ENDED 6/30/00 YEAR ENDED 6/30/99
R SHARES: SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sold 3,964,823 $ 91,767,662 4,487,757 $ 90,080,135 848,970 $ 14,033,052 871,727 $ 15,336,419
Issued as
reinvestment
of dividends 686,490 15,294,998 650,669 11,789,988 262,775 4,193,173 1,504,322 22,440,907
Redeemed (5,738,075) (132,841,369) (11,827,599 (231,636,588) (2,155,169) (34,752,120) (4,248,757) (70,150,396)
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/
(decrease) (1,086,762) $ (25,778,709) (6,689,173) $(129,766,465) (1,043,424) $(16,525,895) (1,872,708) $(32,373,070)
-----------------------------------------------------------------------------------------------------------------------------------
P SHARES:
-----------------------------------------------------------------------------------------------------------------------------------
Sold 320,225 $ 7,338,250 1,804 $ 37,885 175,299 $ 2,931,313 1,078 $ 17,773
Issued as
reinvestment
of dividends 167 3,647 69 1,238 3,622 57,954 914 13,679
Redeemed (322,023) (7,432,326) (1,820) (45,019) (7,051) (116,434) (2,344) (39,000)
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/
(decrease) (1,631) $ (90,429) 53 $ (5,896) 171,870 $ 2,872,833 (352) $ (7,548)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EMERGING MARKETS FUND
YEAR ENDED 6/30/00 YEAR ENDED 6/30/99
R SHARES: SHARES DOLLARS SHARES DOLLARS
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sold 51,074,497 $ 598,964,106 63,953,630 $ 537,114,591
Issued as
reinvestment of
dividends -- -- -- --
Redeemed (60,616,996) (713,842,379) (107,275,950) (908,071,587)
------------------------------------------------------------------------------------------------------------
Net increase/
(decrease) (9,542,499) $(114,878,273) (43,322,320) $(370,956,996)
------------------------------------------------------------------------------------------------------------
P SHARES:
------------------------------------------------------------------------------------------------------------
Sold 11,830,121 $ 140,438,637 24,153 $ 211,598
Issued as
reinvestment of
dividends -- -- -- --
Redeemed (11,327,916) (135,575,744) (14,780) (129,243)
------------------------------------------------------------------------------------------------------------
Net increase/
(decrease) 502,205 $ 4,862,893 9,373 $ 82,355
------------------------------------------------------------------------------------------------------------
</TABLE>
133
<PAGE>
------------------------
THE MONTGOMERY FUNDS
------------------------
NOTES
------------------------
TO FINANCIAL STATEMENTS
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
<TABLE>
<CAPTION>
GLOBAL OPPORTUNITIES FUND
YEAR ENDED 6/30/00 YEAR ENDED 6/30/99
R SHARES: SHARES DOLLARS SHARES DOLLARS
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 10,248,923 $ 235,157,152 4,863,038 $ 83,285,653
Issued as reinvestment of dividends 221,318 5,083,663 387,823 5,976,349
Redeemed (9,500,934) (219,220,913) (7,299,062) (127,006,826)
---------------------------------------------------------------------------------------------------------
Net increase/(decrease) 969,307 $ 21,019,902 (2,048,201) $ (37,744,824)
---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN BOND FUND
YEAR ENDED 6/30/00 YEAR ENDED 6/30/99
R SHARES: SHARES DOLLARS SHARES DOLLARS
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 448,134 $ 4,974,812 2,212,229 $ 27,532,949
Issued as reinvestment of dividends 234,682 2,676,890 295,215 3,526,016
Redeemed (1,501,387) (16,990,138) (5,455,138) (67,406,459)
---------------------------------------------------------------------------------------------------------
Net increase/(decrease) (818,571) $ (9,338,436) (2,947,694) $ (36,347,494)
---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
YEAR ENDED 6/30/00 YEAR ENDED 6/30/99
R SHARES: SHARES DOLLARS SHARES DOLLARS
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 413,988 $ 5,170,700 2,076,450 $ 27,138,488
Issued as reinvestment of dividends 116,853 1,467,569 114,589 1,497,553
Redeemed (1,597,742) (19,997,148) (1,727,339) (22,532,247)
---------------------------------------------------------------------------------------------------------
Net increase/(decrease) (1,066,901) $(13,358,879) 463,700 $ 6,103,794
---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT MONEY MARKET FUND
YEAR ENDED 6/30/00 YEAR ENDED 6/30/99
R SHARES: SHARES AND DOLLARS SHARES AND DOLLARS
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sold $ 1,884,333 ,694 $ 3,814,709 ,697
Issued as reinvestment of dividends 32,733,944 25,371,449
Redeemed (1,697,866,337) (3,989,350,677)
---------------------------------------------------------------------------------------------------------
Net increase/(decrease) $ 219,201,301 $ (149,269,531)
---------------------------------------------------------------------------------------------------------
P SHARES:
---------------------------------------------------------------------------------------------------------
Sold $ 244,957,597 $ 1,008
Issued as reinvestment of dividends 50,302 17
Redeemed (236,356,286) (100)
---------------------------------------------------------------------------------------------------------
Net increase/(decrease) $ 8,651,613 $ 925
---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FEDERAL TAX-FREE MONEY FUND
YEAR ENDED 6/30/00 YEAR ENDED 6/30/99
R SHARES: SHARES AND DOLLARS SHARES AND DOLLARS
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sold $ 756,884,288 $ 1,061,020,071
Issued as reinvestment of dividends 4,328,017 3,011,207
Redeemed (729,697,619) (1,064,973,373)
---------------------------------------------------------------------------------------------------------
Net increase/(decrease) $ 31,514,686 $ (942,095)
---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA MONEY MARKET FUND
YEAR ENDED 6/30/00 YEAR ENDED 6/30/99
R SHARES: SHARES AND DOLLARS SHARES AND DOLLARS
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sold $ 862,563,593 $ 1,369,794,351
Issued as reinvestment of dividends 8,745,120 5,769,768
Redeemed (785,384,524) (1,269,880,170)
---------------------------------------------------------------------------------------------------------
Net increase/(decrease) $ 85,924,189 $ 105,683,949
---------------------------------------------------------------------------------------------------------
</TABLE>
134
<PAGE>
------------------------
THE MONTGOMERY FUNDS
------------------------
NOTES
------------------------
TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
EMERGING MARKETS FOCUS FUND
YEAR ENDED 6/30/00 PERIOD ENDED 6/30/99* YEAR ENDED 3/31/99
R SHARES**: SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sold 217,215 $ 3,655,713 213,213 $ 2,396,514 -- --
Issued as reinvestment of dividends 1,259 20,159 -- -- -- --
Redeemed (127,280) (1,885,081) (19,222) (228,809) -- --
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 91,194 $ 1,790,791 193,991 $ 2,167,705 -- --
-----------------------------------------------------------------------------------------------------------------------------------
A SHARES***:
-----------------------------------------------------------------------------------------------------------------------------------
Sold -- $ -- 21,917 $ 244,594 746,596 $ 7,655,077
Issued as reinvestment of dividends -- -- -- -- 8,306 63,151
Redeemed -- -- (193,761) (2,162,372) (739,577) (5,983,612)
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) -- $ -- (171,844) $(1,917,778) 15,325 $ 1,734,616
-----------------------------------------------------------------------------------------------------------------------------------
B SHARES+:
-----------------------------------------------------------------------------------------------------------------------------------
Sold -- $ -- 58 $ 595 1,641 $ 17,057
Issued as reinvestment of dividends -- -- -- -- -- --
Redeemed -- -- (1,721) (17,872) -- --
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) -- $ -- (1,663) $ (17,277) 1,641 $ 17,057
-----------------------------------------------------------------------------------------------------------------------------------
C SHARES+:
-----------------------------------------------------------------------------------------------------------------------------------
Sold -- $ -- 6,236 $ 66,128 38,800 $ 342,778
Issued as reinvestment of dividends -- -- -- -- -- --
Redeemed -- -- (15,534) (195,310) (42,510) (359,103)
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) -- $ -- (9,298) $ (129,182) (3,710) $ (16,325)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ On May 31, 1999, Class B and C shares of the Institutional Series:
Montgomery Emerging Markets Focus Fund ceased operations.
* The Montgomery Emerging Market Focus Fund changed its fiscal year end from
March 31 to June 30.
** The Montgomery Emerging Market Focus Fund Institutional shares were
redesignated as Class R shares on December 31, 1999.
*** On May 28, 1999, Class A shares of the Institutional Series: Emerging
Markets Focus Fund converted from Institutional shares.
135
<PAGE>
------------------------
THE MONTGOMERY FUNDS
------------------------
NOTES
------------------------
TO FINANCIAL STATEMENTS
7. CAPITAL LOSS CARRYFORWARDS:
At June 30, 2000, the following Funds had available for federal tax purposes
unused capital losses as follows:
<TABLE>
<CAPTION>
Fund Expiring in 2004 Expiring in 2006 Expiring in 2007 Expiring in 2008
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Emerging Markets Fund................................. -- $ 83,822,425 $ 199,540,290 $ 22,330,736
Emerging Markets Focus Fund........................... -- 676,866 381,957 --
Emerging Asia Fund.................................... -- 2,085,531 7,682,883
Total Return Bond Fund................................ -- -- -- 484,122
Short Duration Government
Bond Fund........................................... -- -- -- 1,280,617
California Tax-Free Intermediate
Bond Fund........................................... -- -- -- 51,827
Federal Tax-Free Money Fund........................... -- 873 45 20,320
California Tax-Free Money Fund........................ $ 6,712 23 -- 2,649
</TABLE>
The following Funds utilized capital loss
carryforward during the year:
<TABLE>
<CAPTION>
Fund Amount
-----------------------------------------------------------------------
<S> <C>
Small Cap Fund............................................ $6,876,862
Emerging Markets Focus Fund............................... 473,898
Emerging Asia Fund........................................ 2,220,279
</TABLE>
Under current tax law, net capital and currency losses realized after October 31
may be deferred and treated as occurring on the first day of the following
fiscal year ended June 30, 2001. The following Funds elected to defer losses
occurring between November 1, 1999, and June 30, 2000, under these rules as
follows:
<TABLE>
<CAPTION>
Fund Amount
-----------------------------------------------------------------------
<S> <C>
Emerging Markets Focus Fund................................ $ 11,809
Emerging Asia Fund......................................... 42,044
Total Return Bond Fund..................................... 504,544
Short Duration Government Bond Fund........................ 1,226,722
California Tax-Free Intermediate Bond Fund................. 255,276
Federal Tax Free Money Fund................................ 906
California Tax-Free Money Fund............................. 12,558
</TABLE>
8. REORGANIZATION:
On April 5, 2000, the Montgomery International Growth Fund, as listed below
("Acquiring Fund"), acquired substantially all of the assets and liabilities
of the Montgomery International Small Cap 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 International Small Cap
Fund were exchanged for Class R shares of the International 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>
International International Small $27,751,404 $186,758,164 $214,509,568 $2,607,524
Growth Fund Cap Fund
</TABLE>
136
<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 Balanced Fund (formerly Montgomery U.S
Asset Allocation fund), Montgomery International Growth Fund, Montgomery Global
Opportunities Fund, Montgomery Global 20 Fund (formerly Montgomery Select 50
Fund), Montgomery Global Long-Short Fund, Montgomery Global Communications Fund,
Montgomery Emerging Markets Fund, Montgomery Emerging Markets Focus Fund,
Montgomery Emerging Asia Fund, Montgomery Total Return Bond Fund, Montgomery
Short Duration Government Bond Fund, Montgomery California Tax-Free Intermediate
Bond Fund, Montgomery Government Money Market Fund, Montgomery Federal Tax-Free
Money Fund, Montgomery California Tax-Free Money Fund (all portfolios of The
Montgomery Funds) and (two portfolios of The Montgomery Funds II) (collectively
the "Funds") at June 30, 2000, 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, 2000, in
conformity with accounting principles generally accepted in the United States.
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 auditing standards generally accepted in the United States 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, 2000 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, 2000
137
<PAGE>
------------------------
THE MONTGOMERY FUNDS
------------------------
TAX INFORMATION
------------------------
FISCAL YEAR ENDED
JUNE 30, 2000
(UNAUDITED)
In accordance with the Code, the following Funds are designating the following
amounts as long-term capital-gain dividends:
Growth Fund.....................................................$ 48,092,772
U.S. Emerging Growth Fund....................................... 64,349,780
Small Cap Fund.................................................. 42,996,243
Balanced Fund................................................... 3,594,409
International Growth Fund....................................... 9,453,161
Global Opportunities Fund....................................... 5,178,132
Global 20 Fund.................................................. 17,701,265
Global Long-Short Fund.......................................... 22,685,274
Global Communications Fund...................................... 63,619,691
Of the distributions made from investment income, the following percentages are
tax exempt for regular federal income-tax purposes:
California Tax-Free Intermediate Bond Fund...................... 99.99%
Federal Tax-Free Money Fund..................................... 100.00
California Tax-Free Money Fund.................................. 99.70
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%
Balanced Fund................................................... 22.06
Global Opportunities Fund....................................... 1.35
Global 20 Fund.................................................. 11.62
Global Long-Short Fund.......................................... 0.04
Global Communication Fund....................................... 0.13
The Following Funds may elect under Internal Revenue Code Section 853 to pass
through foreign taxes paid by the Fund to its shareholders. For the fiscal
year ended June 30, 2000, foreign income and foreign taxes paid relating to
foreign sources and possessions of the United States on a per-share basis were
as follows:
<TABLE>
<CAPTION>
Foreign Foreign
Fund Income Taxes
--------------------------------------------------------------------------------
<S> <C> <C>
International Growth Fund......................... $ 2,106,758 $ 203,886
Global Opportunities Fund......................... 501,479 52,875
Global Long-Short Fund............................ 2,032,443 48,983
Global Communications Fund........................ 1,221,292 151,684
</TABLE>
The above figures may differ from those cited elsewhere in this report due to
differences in the calculation of income and capital gains for Securities and
Exchange Commission (book) purposes and Internal Revenue Service (tax) purposes.
138
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
INTERNATIONAL 20 PORTFOLIO
--------------------------
PORTFOLIO HIGHLIGHTS
INVESTMENT REVIEW
Q: HOW DID THE PORTFOLIO PERFORM BETWEEN DECEMBER 31, 1999 (ITS INCEPTION DATE)
AND JUNE 30, 2000?
A: The Portfolio outperformed its benchmark, the Morgan Stanley Capital
International (MSCI) Europe, Australasia and Far East Index, with a return of
0.10%, compared with -3.95% for the index.
Q: WHAT MAIN FACTORS CONTRIBUTED TO THE PORTFOLIO'S PERFORMANCE?
A: Good stock selection enabled the Portfolio to outperform its benchmark by a
wide margin. One of the Portfolio's strongest holdings was Nokia, the world's
leading provider of wireless handsets, which also has a significant
telecommunications infrastructure business. Nokia's dominant position in the
industry helped it avoid component shortages that hurt several of its
competitors during the first half of 2000. This and other evidence of Nokia's
continued market leadership and innovation bolstered its shares during the
reporting period.
Another strong performer was Alcatel. Shares of this French company had lagged
those of its competitors for most of the past decade, but recently the company
has emerged as a very strong player in the telecom-equipment sector. We bought
Alcatel's stock in early 2000, as it was announcing plans to acquire Newbridge
Networks. With the acquisition of Newbridge, we saw Alcatel as an attractively
valued company with a strong presence in several key segments of the telecom-
equipment landscape. As the magnitude of Alcatel's transformation became more
widely known, its stock appreciated significantly.
Other strong holdings included Samsung Electronics of South Korea and Elan
Pharmaceuticals, which is based in Ireland.
Q: WERE THERE ANY DISAPPOINTMENTS?
A: Growth stocks struggled during much of the second quarter, with telecom
stocks among the hardest hit. Many of these companies have been making huge
capital expenditures to build networks, and rising interest rates have increased
their financing costs. The previously hot initial public offering (IPO) market
has also slowed, casting some doubt on the future of companies in need of
near-term funding. In addition, foreign telecom stocks were depressed by the
unexpectedly high prices paid at auction for third-generation wireless licenses
in the United Kingdom. Investors and companies alike began reassessing the
costs of developing third-generation wireless networks, which would enable users
to access the Internet and receive high-quality audio and video feeds via
cellular phones. Although these trends affected some of the Portfolio's
holdings, as growth stocks began to recover in late May and June they ended the
first half on a more positive note.
--------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
--------------------------------------------------------------------------------
John Boich, CFA ....................................... Senior Portfolio Manager
Oscar Castro, CFA ..................................... Senior Portfolio Manager
--------------------------------------------------------------------------------
PORTFOLIO PERFORMANCE
--------------------------------------------------------------------------------
Total returns for the
period ended 6/30/00
--------------------------------------------------------------------------------
MONTGOMERY INTERNATIONAL 20
PORTFOLIO
Since inception (12/31/99) ............................................... 0.10%
--------------------------------------------------------------------------------
MSCI EAFE INDEX
Since 12/31/99 ......................................................... (3.95)%
--------------------------------------------------------------------------------
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 that their original cost.
The performance figures provided do not reflect the effect of (i) any securities
purchased or sold by the Portfolio after 6/30/00 but that were effective on
6/30/00 or (ii) any purchases or redemptions of Portfolio shares completed after
6/30/00 that were effective on 6/30/00.
<TABLE>
<CAPTION>
Montgomeery International Lipper International Funds
20 Portfolio(1) MSCI EAFE Index Average(2)
--------------- --------------- ----------
<S> <C> <C> <C>
Jan-00 10120 9366 9443
Feb-00 11290 9620 10075
Mar-00 11700 9995 10130
Apr-00 10670 9471 9472
May-00 9790 9241 9141
Jun-00 10010 9605 9542
</TABLE>
(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 consists of 1,714 funds.
1
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
INTERNATIONAL 20 PORTFOLIO
--------------------------
PORTFOLIO HIGHLIGHTS
Q: WHAT OPPORTUNITIES DO YOU SEE GOING FORWARD, AND HOW IS THE PORTFOLIO
POSITIONED TO TAKE ADVANTAGE OF THEM?
A: Reflecting an aggregate picture of our bottom-up stock selection process, the
Portfolio is now overweighted in Europe and underweighted in Japan. We remain
very selective in Japan, focusing primarily on companies that have
more-transparent, Western-style approaches to shareholder relations.
In addition, the Portfolio remains overweighted in tech and telecom stocks. We
continue to look for companies that, in our opinion, have strong management
teams, good earnings visibility and the best potential to deliver positive
earnings surprises. Going forward we expect to see continued mergers and
acquisitions, particularly in the telecom industry, as many companies are
looking to increase their scale, global reach and product lines through
strategic acquisitions. A continuation of this trend should be very positive for
these companies and for the Portfolio.
<TABLE>
<CAPTION>
---------------------------------------------
TOP TEN HOLDINGS
---------------------------------------------
(as a percentage of total net assets)
<S> <C>
Samsung Electronics, GDR ...............6.0%
Scottish Power PLC, ADR ................4.7%
ABB Ltd. ...............................4.5%
Elan Corporation PLC, ADR ..............4.3%
Nokia Oyj ..............................4.2%
Alcatel S.A., ADR ......................4.1%
FLAG Telecom Holdings Ltd. .............4.0%
Cable & Wireless Optus Ltd. ............3.9%
Serono S.A. ............................3.8%
Pearson PLC ............................3.7%
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------
TOP FIVE COUNTRIES
---------------------------------------------
(as a percentage of total net assets)
<S> <C>
United Kingdom........................22.9%
Germany...............................10.2%
France................................10.0%
Switzerland............................8.4%
Finland................................8.1%
</TABLE>
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
Because the International 20 Portfolio concentrates its assets in relatively few
holdings (generally 20 to 30), shareholders may be exposed to greater risks than
with more diversified funds.
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.
Please be aware that foreign investing involves certain risks, including
currency fluctuations and economic and political instability.
2
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
INTERNATIONAL 20 PORTFOLIO
--------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
COMMON STOCKS - 92.9%
AUSTRALIA - 3.9%
29,400 Cable & Wireless Optus Ltd. (Other Telephone/Communication) .......................... $ 87,445
BERMUDA - 4.0%
6,000 FLAG Telecom Holdings Ltd.+ (Other Telephone/Communication) .......................... 89,625
FINLAND - 8.1%
1,864 Nokia Oyj (Telecommunications Equipment) ............................................. 95,028
200 Nokia Oyj, ADR (Telecommunications Equipment) ........................................ 9,987
1,700 Sonera Oyj (Other Telephone/Communication) ........................................... 77,425
-----------
182,440
FRANCE - 10.0%
1,400 Alcatel S.A., ADR (Telecommunications Equipment) ..................................... 93,100
323 Castorama Dubois S.A. (Building Material Chains) ..................................... 79,792
620 Vivendi (Water Supply) ............................................................... 54,671
-----------
227,563
GERMANY - 10.2%
770 Consors Discount Broker AG+ (Investment Bankers/Brokers/Services) .................... 68,669
1,050 Infineon Technologies AG+ (Electronic Components) .................................... 83,124
250 Muenchener Rueckversicherungs-Gesellschaft AG (Multi-Line Insurance) ................. 79,284
-----------
231,077
IRELAND - 4.3%
2,000 Elan Corporation PLC, ADR+ (Other Pharmaceuticals) ................................... 96,875
JAPAN - 6.2%
3 NTT DoCoMo, Inc. (Cellular Telephone) ................................................ 81,115
200 Rohm Company, Ltd. (Semiconductors) .................................................. 58,599
-----------
139,714
KOREA - 6.0%
698 Samsung Electronics, GDR++ (Diversified Electronic Products) ......................... 136,808
NETHERLANDS - 3.5%
1,900 Versatel Telecom International N.V.+ (Other Telephone/Communication) ................. 79,737
PORTUGAL - 3.3%
14,400 Banco Comercial Portugues S.A. (Non-U.S. Banks) ...................................... 74,854
SWITZERLAND - 8.4%
860 ABB Ltd. (Electrical Products) ....................................................... 102,820
104 Serono S.A. (Other Pharmaceuticals) .................................................. 86,608
-----------
189,428
UNITED KINGDOM - 22.9%
8,900 Diageo PLC (Food Distributors) ....................................................... 79,970
10,050 Freeserve PLC+ (Internet Services) ................................................... 48,953
16,780 Invensys PLC (Engineering & Construction) ............................................ 62,823
6,400 Next PLC (Clothing/Shoe/Accessory Stores) ............................................ 56,200
2,700 Pearson PLC (Books/Magazines) ........................................................ 84,341
3,200 Scottish Power PLC, ADR (Non-U.S. Utilities) ......................................... 107,000
19,566 Vodafone AirTouch PLC (Cellular Telephone) ........................................... 79,617
-----------
518,904
UNITED STATES - 2.1%
700 Flextronics International Ltd.+ (Electronic Components) .............................. 48,103
TOTAL COMMON STOCKS
(Cost $2,133,439) ............................................................................. 2,102,573
-----------
MONEY MARKET FUND - 0.0%@
413 Chase Vista Federal Money Market Fund (Cost $413) .................................... 413
-----------
TOTAL SECURITIES
(Cost $2,133,852) ............................................................................. 2,102,986
-----------
PRINCIPAL AMOUNT
REPURCHASE AGREEMENTS - 10.3%
$ 77,500 Agreement with Chase Manhattan Bank, Tri-Party, 7.000% dated
06/30/00, to be repurchased at $77,545 on 07/03/00,
collateralized by $79,050 market value of U.S. government and
mortgage-backed securities, having various maturities and
interest rates ................................................................... 77,500
77,500 Agreement with Greenwich Capital Markets, Tri-Party, 7.000%
dated 06/30/00, to be repurchased at $77,545 on 07/03/00,
collateralized by $79,050 market value of U.S. government and
mortgage-backed securities, having various maturities and
interest rates ................................................................... 77,500
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
INTERNATIONAL 20 PORTFOLIO
--------------------------
INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPLE AMOUNT VALUE (NOTE 1)
REPURCHASE AGREEMENTS - CONTINUED
<S> <C>
$ 78,000 Agreement with Merrill Lynch, Tri-Party, 7.000% dated 06/30/00,
to be repurchased at $78,045 on 07/03/00, collateralized by $79,560
market value of U.S. government and mortgage-backed securities, having
various maturities and interest rates................................................... $ 78,000
--------------
TOTAL REPURCHASE AGREEMENTS
(Cost $233,000).................................................................................... 233,000
--------------
TOTAL INVESTMENTS -- 103.2%
(Cost $2,366,852*)................................................................................. 2,335,986
OTHER ASSETS AND LIABILITIES -- (3.2)%
(Net).............................................................................................. (71,918)
--------------
NET ASSETS -- 100.0%................................................................................ $ 2,264,068
--------------
--------------
</TABLE>
* Aggregate cost for federal tax purposes $2,366,852.
+ Non-income-producing security.
++ 144A security. Certain conditions for public sale may exist.
@ Amount represents less than 0.1%.
ABBREVIATIONS
ADR American Depositary Receipt
GDR Global Depositary Receipt
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
STATEMENTS OF
ASSETS AND LIABILITIES
--------------------------
JUNE 30, 2000
<TABLE>
<CAPTION>
MONTGOMERY
ASSETS: INTERNATIONAL 20 PORTFOLIO
----------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (note 1)
Securities .................................................................................... $2,102,986
Repurchase agreements ......................................................................... 233,000
---------
Total Investments 2,335,986
Receivables:
Investment securities sold .................................................................... 40,782
Expenses absorbed by Manager .................................................................. 430
Dividends ..................................................................................... 218
Interest ...................................................................................... 109
---------
Total Assets 2,377,525
---------
LIABILITIES:
----------------------------------------------------------------------------------------------------------------------
Forward foreign-currency exchange contracts:
Net unrealized depreciation of forward foreign-currency exchange contracts (note 3) ........... 149
Payables:
Investment securities purchased ............................................................... 79,338
Transfer agency and servicing fees ............................................................ 3,398
Management fees (note 2) ...................................................................... 1,913
Custodian fees ................................................................................ 1,350
Trustees' fees and expenses (note 2) .......................................................... 787
Accounting fees ............................................................................... 239
Administration fees ........................................................................... 133
Other accrued liabilities and expenses ........................................................ 26,150
---------
Total Liabilities 113,457
---------
Net Assets $2,264,068
Investments at identified cost .................................................................. $2,366,852
NET ASSETS CONSIST OF:
----------------------------------------------------------------------------------------------------------------------
Accumulated net investment loss ................................................................. $(14,417)
Accumulated net realized loss on securities sold, forward foreign-currency exchange
contracts and foreign-currency transactions .................................................. (165,091)
Net unrealized depreciation of investments, forward foreign-currency exchange contracts,
foreign-currency transactions and other assets ............................................... (30,845)
Shares of beneficial interest ................................................................... 2,261
Additional paid-in capital ...................................................................... 2,472,160
----------
Net Assets $2,264,068
NET ASSETS:
----------------------------------------------------------------------------------------------------------------------
Net assets....................................................................................... $2,264,068
Number of Fund shares outstanding................................................................ 226,113
Net asset value, offering and redemption price per share outstanding............................. $10.01
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
STATEMENTS OF OPERATIONS
--------------------------
PERIOD ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Montgomery
International 20
NET INVESTMENT INCOME: Portfolio*
----------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest $ 8,119
Dividends (net of foreign withholding taxes of $459) 5,206
----------
Total Income 13,325
----------
EXPENSES:
Legal and audit fees 16,720
Management fee (note 2) 11,254
Printing fees 9,030
Custodian fee 5,399
Transfer agency and servicing fees 4,917
Registration fees 2,629
Trustees' fees (note 2) 1,800
Administration fee (note 2) 716
Accounting expenses 492
Other 4,240
----------
Total Expenses 57,197
Fees deferred and/or expenses absorbed by Manager (note 2) (40,322)
----------
Net Expenses 16,875
----------
NET INVESTMENT LOSS (3,550)
----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
----------------------------------------------------------------------------------------------------------------------
Net realized loss from:
Securities transactions (165,091)
Foreign-currency transactions and other assets (14,417)
----------
Net Realized Loss on Investments (179,508)
Net change in unrealized appreciation/(depreciation) of:
Securities (30,866)
Forward foreign-currency exchange contracts (149)
Foreign-currency transactions and other assets 170
----------
Net Unrealized Depreciation of Investments (30,845)
----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (210,353)
----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(213,903)
----------
</TABLE>
*The Montgomery International 20 Portfolio commenced operations on December 31,
1999.
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
STATEMENT OF CHANGES
IN NET ASSETS
--------------------------
<TABLE>
<CAPTION>
MONTGOMERY
INTERNATIONAL 20 PORTFOLIO*
--------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS: PERIOD ENDED 6/30/00
----------------------------------------------------------------------------------------------------------------------
<S> <C>
Net investment loss ....................................................................... $ (3,550)
Net realized loss on securities, forward foreign-currency exchange contracts and
foreign-currency transactions and other assets during the period ........................ (179,508)
Net unrealized depreciation of securities, forward foreign-currency exchange
contracts, foreign-currency transactions and other assets during the period ............. (30,845)
----------
Net Decrease in Net Assets Resulting from Operations ...................................... (213,903)
BENEFICIAL INTEREST TRANSACTIONS:
----------------------------------------------------------------------------------------------------------------------
Net increase from beneficial interest transactions (note 4) ............................... 2,477,971
----------
Net Increase in Net Assets ................................................................ 2,264,068
NET ASSETS:
----------------------------------------------------------------------------------------------------------------------
Beginning of period ....................................................................... -
End of Period ............................................................................. $2,264,068
Accumulated Investment Loss ............................................................... $ (14,417)
</TABLE>
*The Montgomery International 20 Portfolio commenced operations on December 31,
1999.
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
FINANCIAL HIGHLIGHTS
--------------------------
<TABLE>
<CAPTION>
MONTGOMERY
INTERNATIONAL 20
PORTFOLIO
Selected Per-Share Data for the Period Ended: PERIOD ENDED JUNE 30,
---------------------
2000(a)
<S> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $10.00
---------------------------------------------------------------------------------------------------------------------
Net investment loss (0.02)
Net realized and unrealized gain on investments 0.03++
---------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from investment operations 0.01
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $10.01
---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 0.10%
---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
---------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $2,264
---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.35)%+
---------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $(0.20)
---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 114%
---------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.65%+
---------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and tax expense 5.59%+
---------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.65%+
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Montgomery International 20 Portfolio commenced operations on
December 31, 1999.
* Total return represents aggregate total return for the period
indicated.
+ Annualized.
++ The amounts shown in this caption for each share outstanding throughout
the period may not be in accordance with the net realized and
unrealized gain/(loss) for the period because of the timing of
purchases and withdrawals of shares in relation to the fluctuating
market values of the Portfolio.
The accompanying notes are an integral part of these financial statements.
8
<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, 2000, the Trusts had 21 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 Global Opportunities Fund,
Montgomery Global 20 Fund, Montgomery Global Communications Fund, Montgomery
Emerging Markets Fund, Montgomery Emerging Asia Fund, Montgomery Total Return
Bond Fund, Montgomery Short Duration Government Bond Fund, Montgomery California
Tax-Free Intermediate Bond Fund, Montgomery Government Money Market Fund,
Montgomery Federal Tax-Free Money Fund, Montgomery California Tax-Free Money
Fund, Montgomery U.S. Select 20 Portfolio and the Montgomery International 20
Portfolio. The Montgomery U.S. Select 20 Portfolio and Montgomery International
20 Portfolio commenced operations on December 31, 1999. The Montgomery Funds II
include the Montgomery Emerging Markets Focus Fund, the Montgomery Global Long-
Short Fund and the Montgomery Balanced Fund, among other series. Information
presented in these financial statements pertains to the Montgomery International
20 Portfolio. The financial statements for the other Funds have been presented
under separate covers.
The Montgomery Funds is organized as a Massachusetts business trust and
commenced operations on May 10, 1990. The Montgomery Funds II is organized as
a Delaware business trust and commenced operations on September 8, 1993.
1. SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates. The
following is a summary of significant accounting policies.
a. PORTFOLIO VALUATION
Portfolio securities 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, the mean between 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.
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 Trust's officers in accordance with methods authorized by the Trust's Board
of Trustees. Short-term securities with maturities of 60 days or less are
carried at amortized cost, which approximates market value.
b. FOREIGN CURRENCY
The accounting records of the Fund are maintained in U.S. dollars. Investment
securities and all other assets and liabilities of the Fund 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 Fund does 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.
c. FORWARD FOREIGN-CURRENCY EXCHANGE CONTRACTS
The Fund typically does not hedge against movements in currency exchange rates.
However, in certain circumstances, the Fund 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 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, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
d. REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreements individually or jointly through a
joint repurchase account with other series of the Trust and affiliated
registered investment companies pursuant to a joint repurchase agreement. Under
the terms of a typical repurchase agreement, the Fund takes possession of
government 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 obligations, including interest. In the event of
9
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
NOTES
--------------------------
TO FINANCIAL STATEMENTS
counterparty default, the Fund has the right to use the collateral to offset
losses incurred. There could be potential loss to the Fund in the event the 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 in which 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 Fund enters into repurchase agreements to
evaluate potential risks. The Fund may also participate on an individual or
joint basis in tri-party repurchase agreements that involve a counterparty and a
custodian bank.
e. DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared and paid at least annually.
Distributions of net realized capital gains (including net short-term capital
gains) are distributed at least annually. Additional distributions of net
investment income and capital gains for the 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 the Fund, timing differences and
differing characterizations of distributions made by the Fund.
Permanent book and tax differences incurred during the period ended June 30,
2000, resulting in reclassifications of $10,867 to increase accumulated net
investment loss, $14,417 to decrease accumulated net realized loss and $3,550 to
decrease paid-in capital.
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.
f. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on a trade date basis. Realized gain and
loss from securities transactions are computed on the specific identified cost
basis of the securities sold. Dividend income is recorded on the ex-dividend
date. Interest income, including accretion/amortization of premium/discount on
short-term investments, is recognized on the accrual basis. The 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.
g. FEDERAL INCOME TAXES
The Fund has elected and qualified, and it is the intention of the 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 by making distributions of taxable income to
shareholders sufficient to relieve the Fund of all or substantially all federal
income and excise taxes. Therefore, no federal income or excise-tax provision
has been made.
The Fund may be subject to foreign taxes on income, gains on investments or
currency repatriation, a portion of which may be recoverable. The Fund will
accrue such taxes and recoveries as applicable, based on the current
interpretation of existing tax rules and regulations in the markets in which it
invests.
h. EXPENSES
General expenses of the Trust are allocated to the Fund and other series of the
Trust based on relative net assets. Operating expenses directly attributable to
the Fund are charged to the Fund's operations. Expenses of the Fund not directly
attributable to the operations of the Fund or class of shares are prorated among
the classes based on the relative average net assets of the Fund or class of
shares.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES AND OTHER CONTRACTUAL
COMMITMENTS:
a. Montgomery Asset Management, LLC, is the Fund's 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 Commerz-bank
AG.
Pursuant to the Investment Management Agreement (the "Agreement") between the
Manager and the Trust with respect to the Fund, the Manager provides the Fund
with advice on buying and selling securities, manages the investments of the
Fund including the placement of orders for portfolio transactions, furnishes the
Fund with office space and certain administrative services, and provides the
personnel needed by the Trust with respect to the Manager's responsibilities
under the Agreement. For the period ended June 30, 2000, the effective
management fee, management fee including effect of fee reduced, effective
administration fee and contractual management fee was 0.54%, 0.54%, 0.07% and
0.54%, respectively.
Under an Operating Expense Agreement with the Trust, the Manager has agreed to
reduce some or all of its management fee or absorb Fund expenses if necessary to
keep the Fund's annual operating expenses, exclusive of any Rule 12b-1 fees,
interest, extraordinary expenses or taxes, at or below 1.65% of the average
daily net assets of the Fund. Any reductions or absorptions made to the Fund by
the Manager are subject to recovery within the following three years, provided
the Fund is able to effect such reimbursement and remain in compliance with
applicable expense limitations. The Operating Expense Agreement has a rolling
10-year term, 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 services with regard to various
aspects of the Fund's administrative operations.
10
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
NOTES
--------------------------
TO FINANCIAL STATEMENTS
For the period ended June 30, 2000, the Manager has absorbed fees of $29,068 and
reduced fees of $11,254.
b. Certain officers and Trustees of the Trust are, with respect to the Trust's
Manager, "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 three Trusts advised by the Manager ($35,000 of
which will be allocated to The Montgomery Funds).
3. SECURITIES TRANSACTIONS:
a. The aggregate amount of purchases and sales of investment securities, other
than short-term securities, for the period ended June 30, 2000, was $4,312,744
and $2,002,182, respectively.
b. At June 30, 2000, tax cost was $2,366,852, 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 for federal income-tax purposes were
$174,784 and $205,650, respectively.
c. Under an unsecured Revolving Credit Agreement with Deutsche Bank, New York,
the Fund, along with other Funds of The Montgomery Funds, The Montgomery Funds
II and The Montgomery Funds III, may for one year starting August 13, 1999,
borrow (consistent with applicable law and its investment policies) up to 10% of
its net asset value, provided that the aggregate principal amount of outstanding
loans under the agreement to all Funds does not exceed $175,000,000. The Fund
pays its pro rata share of the quarterly commitment fee of 0.08% per annum of
the unutilized credit line balance. At June 30, 2000, the Fund had no borrowings
under the agreement.
d. The schedule of forward foreign-currency exchange contracts at June 30, 2000,
was as follows:
<TABLE>
<CAPTION>
Net Unrealized
Foreign-Currency Appreciation/
Amount Settlement Date In Exchange for ($US) (Depreciation)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Forward Foreign-Currency Exchange Contracts to Receive
8,285 European Union Euro 07/31/00 $7,918 $84
------ -----
Total $7,918 $84
====== =====
Forward Foreign-Currency Exchange Contracts to Deliver
26,475 European Union Euro 07/03/00 $25,252 $(233)
======= ======
Total $25,252 $(233)
======= ======
Net Unrealized Depreciation $(149)
======
</TABLE>
4. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
The Trust has authorized an unlimited number of shares of beneficial interest
which have a par value of $0.01. Transactions in shares of beneficial interest
for the periods indicated below were:
<TABLE>
<CAPTION>
MONTGOMERY INTERNATIONAL 20 PORTFOLIO
PERIOD ENDED 6/30/00#
R SHARES: SHARES DOLLARS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sold 269,598 $ 2,906,363
Issued as reinvestment of dividends - -
Redeemed (43,485) (428,392)
---------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 226,113 $ 2,477,971
---------------------------------------------------------------------------------------------------------------------
</TABLE>
# The Montgomery International 20 Portfolio commenced operations on December 31,
1999.
At June 30, 2000, shareholders of the Fund with ownership of 10% or greater
included two shareholders, comprising ownership of 81.18% of the total aggregate
shares outstanding.
5. FOREIGN SECURITIES:
The Fund purchases securities on foreign securities 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 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.
11
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
INDEPENDENT
AUDITORS' REPORT
--------------------------
TO THE TRUSTEES AND THE SHAREHOLDERS OF THE MONTGOMERY INTERNATIONAL 20
PORTFOLIO (A SERIES OF THE MONTGOMERY FUNDS):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio investments, and the related statements of operations and of
changes in net assets and the financial hightights present fairly, in all
material respects, the financial position of the Montgomery International 20
Portfolio at June 30, 2000, the results of its operations, the changes in its
net assets and the financial highlights for the period from December 31, 1999
(commencement of operations) through June 30, 2000, in conformity with
accounting principles generally accepted in the United States. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with auditng
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free from material mistatement. 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 audit, which included confirmation of securities at June 30,
2000, by correspondence with the custodian and brokers, provides a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
August 18, 2000
12
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
TAX INFORMATION
-------------------------
(UNAUDITED)
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. For the period ended June 30, 2000, the Fund elected to defer net
capital and currency losses of $179,657 occurring between January 1, 2000 and
June 30, 2000.
Such deferred losses will be treated as arising on the first day of the fiscal
year ending June 30, 2001.
13
<PAGE>
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<PAGE>
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<PAGE>
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<PAGE>
------------------------
STOCK SOLUTIONS
------------------------
ANNUAL REPORT
------------------------
JUNE 30, 2000
[GRAPHICS]
CHAIRMAN'S LETTER
August 2000
Dear Fellow Shareholder:
It was an exciting year, both in the financial markets and here at The
Montgomery Funds.
If any term defined the past 12 months, it was NEW ECONOMY. The fiscal year
began with a growing sense of excitement about the growth and convergence of the
Internet, media and telecommunications industries. But as we've seen time and
again, this trend, like others before it, appears to have created both genuine
opportunities and inevitable excesses.
Although our portfolio managers have been striving to take advantage of
opportunities emerging from the new economy, they refuse to compromise their
core philosophy simply to jump on the bandwagon. Their steadfastness was
rewarded when more-speculative investments dropped sharply in the second
quarter. Those declines only serve to underscore what we believe is a basic
truth about investing: Individual business fundamentals, not momentum or a mere
concept, are what ultimately drive share prices over the long term. That's why
our portfolio managers are seeking opportunities to invest in companies that
they think have great long-term potential and a solid foundation in the here and
now.
And we believe that those opportunities are not confined to the United States.
As you'll see in the following pages, investments in markets as diverse as
Germany and South Korea, in addition to those in the United States, enabled many
of our Funds to outperform their respective benchmarks. It's a concrete example
of how the Funds are benefiting from their continued migration to our Global
Research Platform.* As borders become less and less of a barrier to business,
this centralized research engine is designed to help us identify what we believe
are some of the world's most promising investment opportunities for shareholders
like you.
As always, thank you for investing with The Montgomery Funds.
Sincerely,
/s/ R. Stephen Doyle
R. Stephen Doyle
Chairman
*If you would like more information about our Global Research Platform, send us
an e-mail at [email protected].
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
<PAGE>
------------------------
STOCK SOLUTIONS
------------------------
ANNUAL REPORT
------------------------
JUNE 30, 2000
STOCK AND BOND MARKET OVERVIEW
U.S. STOCKS
The past year was a notably volatile one in the U.S. stock market. Periods of
tremendous strength were followed by steep declines.
Rising interest rates weighed heavily on the stock market during the third
quarter of 1999, and investors remained concerned about the possibility of
widespread Y2K computer problems.
Yet concerns seemed to dissipate over the fourth quarter and much of the first
quarter of 2000. During the rally, investors overwhelmingly favored so-called
new-economy stocks in the technology, media and telecommunications sectors. In
the eyes of some investors, the seemingly vast potential for e-commerce
companies and Internet content providers suggested that a new paradigm was
operating in the market and that traditional ways of valuing companies were
becoming less relevant.
In mid-March 2000, however, concerns about rising interest rates, potentially
higher inflation and a possible slowdown in the U.S. economy sparked a "flight
to quality" that continued into the second quarter. Sectors traditionally
considered defensive, such as food and utilities, drew far more attention from
investors than they had in a long time. More-speculative stocks in the
technology sector and elsewhere dropped precipitously. The previously hot
initial public offering (IPO) market also slowed down, casting some doubt on the
future of companies in need of near-term funding. By early June 2000, however,
investors began revisiting high-growth stocks, as data was released suggesting
that the economy was indeed slowing. Investors now appear to be favoring
companies with actual earnings, rather than the concept-driven stocks that had
dominated the market in previous quarters.
[CHART]
[PLOT POINTS TO COME]
THE PAST YEAR WAS A NOTABLY VOLATILE PERIOD IN THE U.S. STOCK MARKET, AS THE
GRAPH ABOVE DEMONSTRATES.
For the year the unmanaged S&P 500 Index had a return of 7.25%, the smaller-cap
Russell 2000 Index had a return of 14.32% and the tech-heavy NASDAQ Composite
Index returned 47.50%.
U.S. BONDS
As usual, interest rates had the most profound effect on the bond market over
the past year. All eyes were focused on Federal Reserve policy-makers, who
appeared concerned that the U.S. economy was growing at an unsustainable pace
and that low unemployment would cause wages and benefits to rise, with the costs
passed on to the consumer. In addition, it appeared that the strong equity
market was fueling the economy and consumer spending through the "wealth effect"
created by rising stock prices. As a result, the Federal Reserve hiked
short-term interest rates several times over the course of the year in an effort
to slow growth and head off inflation. Overall, it raised rates by a total
of 1.75 percentage points. Although longer-term rates also rose steadily through
the last half of 1999, they trended downward during the first quarter of 2000,
due in part to the absence of widespread problems related to Y2K.
Another key factor affecting the bond market's performance was the U.S.
Treasury's buy-back program. In March the Treasury began paying down the federal
government's debt by buying back long-term Treasury bonds. With a budget surplus
and less of a need to borrow, the Treasury also cut back on the number of bonds
it auctioned. These developments pushed the yields on long-term Treasuries lower
and their prices higher during the first half of 2000.
In other areas of the bond market, investors grappled with complex
sector-specific issues over the year. Bonds issued by government agencies such
as Fannie Mae, Freddie Mac and Ginnie Mae came under increased scrutiny, as some
in Congress and the Treasury questioned the bonds' implied governmental backing.
Corporate bonds also faced some doubts, as default rates increased and credit
downgrades exceeded upgrades. Credit fundamentals have also weakened, as
corporations increase their leverage by issuing debt to finance mergers and
acquisitions. In addition, companies whose shares have dropped significantly
have been buying back stock to prop up their equity prices, a positive for
equity holders but generally a negative for bond holders.
Conflicting views about the economy's momentum and whether the Fed acted quickly
enough to stave off inflation kept volatility high through the end of the fiscal
year. The period ended on a positive note, however, as data emerged suggesting
that Fed policy-makers might have successfully engineered a "soft landing" for
the U.S. economy.
2
<PAGE>
------------------------
STOCK SOLUTIONS
------------------------
ANNUAL REPORT
------------------------
JUNE 30, 2000
[CHART]
[PLOT POINTS TO COME]
RISING INTEREST RATES WEIGHED HEAVILY ON BOND PRICES OVER THE PAST YEAR,
BOOSTING THEIR YIELDS. (BOND PRICES MOVE INVERSELY TO THEIR YIELDS.)
INTERNATIONAL EQUITIES
Trends in the international markets reflected those in the United States. At the
start of the fiscal year, rising interest rates weighed on European markets and
many others around the world. By the fourth quarter, sentiment had greatly
improved. As in the United States, technology and telecommunications stocks led
many developed and emerging markets in late 1999 and part of 2000. The trend was
especially positive for European and northern Asian markets, with their large
contingent of globally competitive technology companies. The tech rally was less
of a driving factor in most other emerging markets, though domestically oriented
telecom stocks in Thailand and Mexico performed fairly well.
Unfortunately, global markets followed the lead of the United States on the
downside as well as the upside over the past year. As rising interest rates and
other concerns put pressure on U.S. technology stocks during the spring, many
markets around the world fell. Overall currency weakness also contributed to the
declines.
From an economic perspective, Europe now appears to be gathering momentum even
as the United States shows signs of deceleration. Latin American economies,
especially those of Brazil and Mexico, also seem to be picking up steam, driven
by a decline in domestic real interest rates. In both regions greater economic
growth should benefit domestically oriented companies as consumer spending and
industrial production increase.
There appear to be some encouraging trends developing in other countries as
well. Russia is benefiting from higher prices for crude oil, it's major export,
and its improved current accounts and foreign-reserve position have also
stabilized the ruble and helped spur economic activity. Meanwhile, it now seems
more likely that China will be admitted to the World Trade Organization (WTO).
Vastly increased trade resulting from such an agreement has the potential to
create a great many opportunities in China and elsewhere around the world.
3
<PAGE>
------------------------
STOCK SOLUTIONS
------------------------
PERFORMANCE SUMMARY
------------------------
JUNE 30, 2000
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
Fund Name (Fund Number) INCEPTION DATE ONE YEAR THREE YEARS FIVE YEARS SINCE INCEPTION
MONTGOMERY U.S. EQUITY FUNDS
===============================================================================================================================
<S> <C> <C> <C> <C> <C>
Growth Fund (284) 9/30/93 0.47% 9.50% 14.57% 18.78%
-------------------------------------------------------------------------------------------------------------------------------
U.S. Emerging Growth Fund (294)* 12/30/94 42.46% 18.50% 20.12% 21.08%
-------------------------------------------------------------------------------------------------------------------------------
Small Cap Fund (276) 7/13/90 34.12% 16.58% 18.70% 19.27%
-------------------------------------------------------------------------------------------------------------------------------
Balanced Fund (291)* 3/31/94 1.62% 9.26% 13.13% 16.29%
-------------------------------------------------------------------------------------------------------------------------------
MONTGOMERY INTERNATIONAL AND GLOBAL EQUITY FUNDS
===============================================================================================================================
International Growth Fund (296)* 7/3/95 10.16% 11.59% -- 16.15%
-------------------------------------------------------------------------------------------------------------------------------
Global Opportunities Fund (285)* 9/30/93 21.46% 21.33% 22.22% 18.38%
-------------------------------------------------------------------------------------------------------------------------------
Global 20 Fund (295)* 10/2/95 17.14% 15.48% -- 23.08%
-------------------------------------------------------------------------------------------------------------------------------
Global Long-Short Fund (1478) 12/31/97 67.54% -- -- 66.32%
-------------------------------------------------------------------------------------------------------------------------------
Global Communications Fund (280) 6/1/93 51.53% 42.64% 31.20% 25.52%
-------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund (277)* 3/1/92 17.58% (9.45)% (0.93)% 3.69%
-------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Focus Fund (1481)* 12/31/97 27.91% -- -- 24.17%
-------------------------------------------------------------------------------------------------------------------------------
Emerging Asia Fund (648)* 9/30/96 (12.56)% (14.23)% -- (0.11)%
-------------------------------------------------------------------------------------------------------------------------------
MONTGOMERY U.S. FIXED-INCOME AND MONEY MARKET FUNDS
===============================================================================================================================
Total Return Bond Fund (650)* 6/30/97 4.96% 6.31% -- 6.30%
-------------------------------------------------------------------------------------------------------------------------------
Short Duration Government Bond Fund (279)* 12/18/92 4.55% 5.64% 5.89% 6.08%
-------------------------------------------------------------------------------------------------------------------------------
California Tax-Free Intermediate Bond Fund (281)* 7/1/93 3.83% 4.45% 5.27% 4.86%
-------------------------------------------------------------------------------------------------------------------------------
AS OF 6/30/00 ONE-DAY YIELD SEVEN-DAY YIELD
-------------------------------------------------------------------------------------------------------------------------------
Government Money Market Fund (278)* 9/14/92 6.39% 6.22%
-------------------------------------------------------------------------------------------------------------------------------
Federal Tax-Free Money Fund (647)* 7/15/96 4.07% 3.97%
-------------------------------------------------------------------------------------------------------------------------------
California Tax-Free Money Fund (292) 9/30/94 3.50% 3.55%
-------------------------------------------------------------------------------------------------------------------------------
STOCK SOLUTIONS
===============================================================================================================================
U.S. Select 20 Portfolio (1484)* 12/31/99 -- -- -- 15.30%+
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Returns for Funds marked with this notation reflect a partial waiver of fees
without which the total return would have been lower.
+ Not Annualized
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 for the Class R shares shown above do not reflect the
0.25% Rule 12b-1 fees paid by the Class P shares, which would reduce
performance.
A portion of income from the tax-free funds 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.
An investment in a money market fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the Fund
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Fund. Yields may fluctuate.
The Emerging Markets Focus and Global Long-Short Funds may use sophisticated
investment techniques and securities such as margin, leverage, short sales and
other forms of volatile financial derivatives including options and futures.
Such tactics could cause the value of an investment in these Funds to be more
volatile and subject to substantially greater risks than investments in other
mutual funds, including foreign stock funds. As a result, investors should
carefully consider whether these Funds are appropriate investments.
Returns for the Global Long-Short and Global Communications Funds were
achieved during favorable market conditions and, in significant part, are due
to the Funds' investments in IPOs. Investors should not expect these returns
to be achieved consistently.
Some Funds may not be appropriate for conservative investors,
because they invest in certain types of securities or in a limited number of
sectors or holdings that may produce volatile results. There are also risks
associated with investing in funds that invest in foreign securities, such as
erratic market conditions, economic and political instability, and fluctuations
in currency exchange rates. In addition, technology securities tend to be
relatively volatile compared with other types of investments. Also, Funds that
invest in small-cap stocks may be subject to greater volatility than those that
must invest in large companies.
The recent growth rate in the stock market has helped produce short-term
returns that are not typical and may not continue in the future. Because of
ongoing market volatility, Fund performance may be subject to substantial
short-term changes.
4
<PAGE>
-------------------------
STOCK SOLUTIONS
-------------------------
U.S. SELECT 20 PORTFOLIO
-------------------------
PORTFOLIO HIGHLIGHTS
INVESTMENT REVIEW
Q: HOW DID THE PORTFOLIO PERFORM BETWEEN DECEMBER 31, 1999
(ITS INCEPTION DATE), AND JUNE 30, 2000?
A: We are pleased to report that the Portfolio outperformed its benchmark, the
Standard & Poor's 500 Index, for the period, producing a total return of 15.30%,
compared with -0.42% for the unmanaged S&P 500 Index.
Q: WHAT IS THE MISSION OF THIS STOCK SOLUTIONS PORTFOLIO?
A: Our goal is to offer shareholders a concentrated selection of U.S. stocks
representing the best ideas that emanate from our Global Research Platform. When
evaluating investment opportunities, we favor companies that have a believable
and visible three-year growth plan, are reasonably valued relative to their
peers, and demonstrate evidence of business momentum as a catalyst for growth
and share-price appreciation. The Portfolio includes leading companies such as
America Online, Cisco Systems, Exxon Mobil, General Electric and Oracle. Despite
its concentration in 20 to 30 securities, the Portfolio is diversified by
sector. Reflecting its opportunistic, bottom-up approach, the Portfolio's
specific holdings will vary and will change over time, depending on market
conditions and investment opportunities.
Q: HOW HAVE SHAREHOLDERS BENEFITED FROM ITS ONLINE FEATURES?
A: The secure Stock Solutions Web site is designed for shareholders to view all
of the stocks in the Portfolio on a two-week delay basis. There are data, charts
and news articles associated with each holding so that you can research more
information about the companies in the Portfolio. In addition, shareholders can
view a graphic display of the Portfolio by stock, industry and sector and access
the reasons for our buy and sell decisions. This information is available to
shareholders online 24/7 through our Web site, www.montgomeryfunds.com. You may
also opt to receive updates by e-mail so that you are automatically alerted when
Portfolio changes are made.
Q: WHAT FACTORS CONTRIBUTED TO THE PORTFOLIO'S STRONG RESULTS SINCE ITS
INCEPTION?
A: As we were launching the U.S. Select 20 Portfolio, we witnessed the tail end
of a speculative surge in unprofitable, concept-oriented companies. Because we
had avoided this type of stock, the Portfolio had some protection during the
correction. Since that time our focus on high-quality, profitable companies has
enabled the Portfolio to do well. In addition, its underweighting in basic
materials and other economically cyclical areas was a plus when the U.S. economy
appeared to be slowing toward the end of the first half of 2000.
============================================
PORTFOLIO MANAGEMENT
--------------------------------------------
Andrew Pratl, CFA...........Portfolio Manager
============================================
PORTFOLIO
PERFORMANCE
--------------------------------------------
Total returns for the
period ended 6/30/00
--------------------------------------------
MONTGOMERY U.S. SELECT 20 PORTFOLIO
Since inception (12/31/99).......... 15.30%
--------------------------------------------
S&P 500 Index
Since 12/31/99...................... (0.42)%
--------------------------------------------
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>
New Fund S&P 500 Index (Lipper)
------------------- -------- ----------------
<S> <C> <C> <C>
Jan-00 10170 9498 9614
Feb-00 11170 9318 10094
Mar-00 12490 10229 10730
Apr-00 11711 9922 10252
May-00 10990 9718 9843
Jun-00 11530 9958 10359
</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 consists
of 1,519 funds.
5
<PAGE>
--------------------------------------------
STOCK SOLUTIONS
--------------------------------------------
U.S. SELECT 20 PORTFOLIO
--------------------------------------------
PORTFOLIO HIGHLIGHTS
============================================
TOP TEN HOLDINGS
--------------------------------------------
(as a percentage of total net assets)
General Electric Company .............. 5.1%
Sun Microsystems, Inc. ................ 4.6%
American International Group, Inc. .... 4.6%
Nortel Networks Corporation ........... 4.5%
Eli Lilly and Company ................. 4.5%
Intel Corporation ..................... 4.4%
EMC Corporation ....................... 4.4%
Cisco Systems, Inc. ................... 4.4%
Citigroup, Inc. ....................... 4.3%
Oracle Corporation .................... 4.3%
============================================
TOP FIVE INDUSTRIES
--------------------------------------------
(as a percentage of total net assets)
Electronic Data Processing............ 11.2%
Major Pharmaceuticals................. 8.6%
Telecommunication Equipment........... 7.8%
Semiconductors........................ 6.4%
Multi-Sector Companies................ 5.1%
Portfolio holdings are subject to change and
should not be considered a recommendation
to buy individual securities.
Because the U.S. Select 20 Portfolio concentrates
its assets in relatively few holdings (generally
20 to 30), shareholders may be exposed to greater
risks than with more diversified funds.
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 increase risk of
price fluctuations.
Q: WHICH STOCKS WERE PARTICULARLY HELPFUL TO THE PORTFOLIO'S PERFORMANCE?
A: The Portfolio's top performer is not a household name, but it exemplifies the
type of opportunity that our investment process seeks to identify. Comverse
Technology is the world's leading provider of telecommunications applications
and enhanced service platforms to wireless and wireline communications
companies. These systems are in great demand because they allow communications
service providers to increase subscriber revenues. Comverse is leveraging its
leadership position in voice messaging systems to sell new applications like
wireless Internet access. We believe that the growth potential for these new
applications is tremendous, especially as cellular phone systems add to their
bandwidth capabilities.
In the pharmaceuticals area, Pfizer has been an excellent performer,
strengthened by its recent merger with Warner Lambert. In general, shares of
pharmaceuticals companies have performed well lately, because investors believe
that their earnings growth rates should hold up well even in a slowing economy.
In addition to a very promising pipeline of potential new drugs, Pfizer's
existing line of prescription pharmaceuticals should be relatively immune to
changes in public policy. For example, Pfizer's most famous product, Viagra, is
not affected by changes in Medicare.
In the consumer area, PepsiCo has performed well in the midst of lackluster
performance by rival Coca-Cola. The company has benefited from its expansion
into the snack-food business and, unlike Coca-Cola, has continued to
successfully execute its business plan.
Q: WHAT STOCK DISAPPOINTED DURING THE PERIOD?
A: Costco Wholesale surprised the investment community by announcing
disappointing quarterly earnings and by guiding analysts to lower their growth
expectations for the company's upcoming fiscal year. We still believe that
Costco is a leader in its category and that its loyal consumer base provides a
stronghold against competitors. We may consider revisiting this stock in the
future when it shows signs of renewed growth in earnings.
Q: WHAT IS YOUR OUTLOOK?
A: In the near term, we expect some uncertainty to persist about where the
economy and corporate profits are headed. We will gain additional insight into
the outlook for corporate profits as we enter the second-quarter earnings
reporting season in July. We will also receive economic data that provides more
clues to whether the Federal Reserve has successfully engineered a soft landing
for the economy. Our approach during this period will be to position the
Portfolio in high-quality companies with solid business fundamentals. Although
it is always difficult to figure out where the market is headed in the short
term, from a long-term perspective we believe that the market will remain a
rewarding place to invest.
6
<PAGE>
------------------------
STOCK SOLUTIONS
------------------------
U.S. SELECT 20 PORTFOLIO
------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
COMMON STOCKS - 97.7%
CELLULAR TELEPHONE - 4.1%
2,300 Sprint PCS+ .............................................. $ 136,850
COMPUTER COMMUNICATIONS - 4.4%
2,300 Cisco Systems, Inc.+...................................... 146,122
COMPUTER SOFTWARE - 4.3%
1,700 Oracle Corporation+....................................... 142,853
DEPARTMENT STORES - 2.0%
1,200 Kohl's Corporation+....................................... 66,750
DISCOUNT STORES - 3.3%
1,900 Wal-Mart Stores, Inc...................................... 109,488
DIVERSIFIED FINANCIAL SERVICES - 4.3%
2,400 Citigroup, Inc............................................ 144,600
DIVERSIFIED MANUFACTURE - 3.2%
2,300 Tyco International Ltd.................................... 108,963
DRUG STORE CHAINS - 1.4%
1,200 CVS Corporation........................................... 48,000
EDP PERIPHERALS - 4.4%
1,900 EMC Corporation+.......................................... 146,181
ELECTRONIC DATA PROCESSING - 11.2%
1,000 Apple Computers, Inc.+.................................... 52,344
3,500 Compaq Computer Corporation............................... 89,468
1,600 Dell Computer Corporation+................................ 78,950
1,700 Sun Microsystems, Inc.+................................... 154,647
-----------
375,409
FOOD CHAINS - 2.2%
1,600 Safeway, Inc.+............................................ 72,200
INTEGRATED OIL COMPANIES - 2.3%
1,000 Exxon Mobil Corporation................................... 78,500
INTERNET SERVICES - 2.8%
1,800 America Online, Inc.+..................................... 94,950
INVESTMENT BANKERS/BROKERS/SERVICES - 1.4%
400 Merrill Lynch & Co., Inc.................................. 46,000
MAJOR BANKS - 2.9%
2,100 Chase Manhattan Corporation............................... 96,731
MAJOR PHARMACEUTICALS - 8.6%
1,500 Eli Lilly and Company..................................... 149,812
2,900 Pfizer, Inc............................................... 139,200
----------
289,012
MEDICAL ELECTRONICS - 3.0%
2,000 Medtronic, Inc............................................ 99,625
MULTI-LINE INSURANCE - 4.6%
1,300 American International Group, Inc......................... 152,750
MULTI-SECTOR COMPANIES - 5.1%
3,200 General Electric Company................................... 169,600
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
OIL/GAS TRANSMISSION - 3.5%
1,800 Enron Corporation........................................... $ 116,100
OTHER TELEPHONE/COMMUNICATION - 0.9%
1,200 Global Crossing Ltd.+........................................ 31,613
SEMICONDUCTORS - 6.4%
1,100 Intel Corporation............................................ 147,022
1,000 Texas Instruments, Inc....................................... 68,687
----------
215,709
SOFT DRINKS - 3.6%
2,700 PepsiCo, Inc................................................. 119,981
TELECOMMUNICATIONS EQUIPMENT - 7.8%
1,200 Comverse Technology, Inc.+................................... 111,638
2,200 Nortel Networks Corporation.................................. 150,150
----------
261,788
----------
TOTAL COMMON STOCKS
(Cost $3,175,363)............................................................ 3,269,775
MONEY MARKET FUND - 0.0%@
907 Chase Vista Federal Money Market Fund
(Cost $907).................................................. 907
----------
TOTAL SECURITIES
(Cost $3,176,270)............................................................ 3,270,682
----------
PRINCIPAL AMOUNT
REPURCHASE AGREEMENTS - 3.3%
$ 37,000 Agreement with Chase Manhattan Bank, Tri-Party, 7.000%
dated 06/30/00, to be repurchased at $37,021 on
07/03/00, collateralized by $37,740 market value of U.S.
government and mortgage-backed securities, having
various maturities and interest rates..................... 37,000
37,000 Agreement with Greenwich Capital Markets, Tri-Party,
7.000% dated 06/30/00, to be repurchased at $37,021 on
07/03/00, collateralized by $37,740 market value of
U.S. government and mortgage-backed securities, having
various maturities and interest rates...................... 37,000
36,000 Agreement with Merrill Lynch, Tri-Party, 7.000% dated
06/30/00, to be repurchased at $36,021 on 07/03/00,
collateralized by $36,720 market value of U.S. government
and mortgage-backed securities, having various maturities
and interest rates......................................... 36,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $110,000).......................................................... 110,000
------------
7
The accompanying notes are an integral part of these financial statements.
<PAGE>
------------------------
STOCK SOLUTIONS
------------------------
U.S. SELECT 20 PORTFOLIO
------------------------
INVESTMENTS
<CAPTION>
VALUE (NOTE 1)
<S> <C>
TOTAL INVESTMENTS - 101.0%
(Cost $3,286,270*)....................................................... $ 3,380,682
OTHER ASSETS AND LIABILITIES - (1.0)%
(Net).................................................................... (35,122)
------------
NET ASSETS - 100.0%...................................................... $ 3,345,560
============
</TABLE>
* Aggregate cost for federal tax purposes $3,333,760.
+ Non-income-producing security.
@ Amount represents less than 0.1%.
8
The accompanying notes are an integral part of these financial statements.
<PAGE>
------------------------
STOCK SOLUTIONS
------------------------
STATEMENT OF
ASSETS AND LIABILITIES
------------------------
JUNE 30, 2000
<TABLE>
<CAPTION>
MONTGOMERY
ASSETS: U.S. SELECT 20 PORTFOLIO
--------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (note 1)
Securities........................................... $ 3,270,682
Repurchase agreements................................ 110,000
------------
Total Investments 3,380,682
Receivables:
Investment securities sold........................... 12,599
Shares of beneficial interest sold................... 9,885
Dividends............................................ 253
Interest............................................. 24
------------
Total Assets 3,403,443
------------
LIABILITIES:
--------------------------------------------------------------------------------
Payables:
Shares of beneficial interest redeemed............... 19,531
Investment securities purchased...................... 15,349
Management fees (note 2)............................. 6,554
Transfer agency and servicing fees................... 3,778
Custodian fees....................................... 591
Trustees' fees and expenses (note 2)................. 590
Accounting fees...................................... 226
Administration fees.................................. 187
Other accrued liabilities and expenses.................... 11,077
------------
Total Liabilities 57,883
------------
Net Assets $3,345,560
------------
Investments at identified cost............................ $3,286,270
NET ASSETS CONSIST OF:
--------------------------------------------------------------------------------
Undistributed net investment income....................... $ --
Accumulated net realized gain on securities sold.......... 82,703
Net unrealized appreciation of investments................ 94,412
Shares of beneficial interest............................. 2,903
Additional paid-in capital................................ 3,165,542
-------------
Net Assets $3,345,560
NET ASSETS:
--------------------------------------------------------------------------------
Net assets................................................ $3,345,560
Number of Fund shares outstanding......................... 290,254
Net asset value, offering and redemption
price per share outstanding............................... $11.53
------------
</TABLE>
9
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------
STOCK SOLUTIONS
--------------------------
STATEMENT OF OPERATIONS
--------------------------
PERIOD ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
MONTGOMERY
NET INVESTMENT INCOME: U.S. SELECT 20 PORTFOLIO
--------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest...................................................... $ 11,002
Dividends..................................................... 4,720
----------
Total Income 15,722
----------
EXPENSES:
Legal and audit fees.......................................... 13,769
Management fee (note 2)....................................... 11,946
Printing fees................................................. 9,184
Transfer agency and servicing fees............................ 4,917
Registration fees............................................. 3,864
Custodian fee................................................. 2,360
Trustees' fees (note 2)....................................... 1,800
Administration fee (note 2)................................... 836
Accounting expenses........................................... 492
Other......................................................... 3,038
----------
Total Expenses 52,206
Fees deferred and/or expenses absorbed by Manager (note 2).... (35,483)
----------
Net Expenses 16,723
----------
NET INVESTMENT LOSS (1,001)
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
-------------------------------------------------------------------------------
Net realized gain from:
Securities transactions................................... 83,704
Net change in unrealized appreciation of:
Securities................................................ 94,412
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 178,116
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $177,115
----------
</TABLE>
10
The accompanying notes are an integral part of these financial statements.
<PAGE>
-----------------------
STOCK SOLUTIONS
-----------------------
STATEMENT OF
CHANGES IN NET ASSETS
------------------------
<TABLE>
<CAPTION>
MONTGOMERY
U.S. SELECT 20 PORTFOLIO*
--------------------------------------------------------------------------------
PERIOD ENDED 06/30/00
--------------------------------------------------------------------------------
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS:
--------------------------------------------------------------------------------
<S> <C>
Net investment loss...............................................$ (1,001)
Net realized gain on securities during the period................. 83,704
Net unrealized appreciation of securities during the period....... 94,412
--------
Net Increase in Net Assets Resulting from Operations 177,115
BENEFICIAL INTEREST TRANSACTIONS:
--------------------------------------------------------------------------------
Net increase from beneficial interest transactions (note 4)....... 3,168,445
---------
Net Increase in Net Assets 3,345,560
NET ASSETS:
--------------------------------------------------------------------------------
Beginning of period............................................... --
End of Period $3,345,560
Undistributed Net Investment Income $ --
</TABLE>
* The Montgomery U.S. Select 20 Portfolio
commenced operations on December 31, 1999.
11
The accompanying notes are an integral part of these financial statements.
<PAGE>
---------------------
STOCK SOLUTIONS
---------------------
FINANCIAL HIGHLIGHTS
---------------------
<TABLE>
<CAPTION>
MONTGOMERY
U.S. SELECT 20
PORTFOLIO
Selected Per-Share Data for the Period Ended: PERIOD ENDED JUNE 30,
---------------------
<S> <C>
2000 (a)
NET ASSET VALUE - BEGINNING OF PERIOD $10.00
--------------------------------------------------------------------------------------------------------
Net investment income 0.00ss
Net realized and unrealized gain on investments 1.53
--------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from investing operations 1.53
--------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $11.53
========================================================================================================
TOTAL RETURN* 15.30%
========================================================================================================
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
========================================================================================================
Net assets, end of year (in 000s) $3,346
--------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.08)%+
--------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $(0.13)
--------------------------------------------------------------------------------------------------------
Portfolio turnover rate 247%
--------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.40%+
--------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and tax expense 4.37%+
--------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.40%+
--------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Montgomery U.S. Select 20 Portfolio commenced operations on
December 31, 1999.
* Total return represents aggregate total return for the period indicated.
+ Annualized.
ss Amount represents less than $0.01 per share.
12
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------
STOCK SOLUTIONS
--------------------------
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, 2000, the Trusts had 21 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 Global
Opportunities Fund, Montgomery Global 20 Fund, Montgomery Global
Communications Fund, Montgomery Emerging Markets Fund, Montgomery Emerging
Asia Fund, Montgomery Total Return Bond Fund, Montgomery Short Duration
Government Bond Fund, Montgomery California Tax-Free Intermediate Bond Fund,
Montgomery Government Money Market Fund, Montgomery Federal Tax-Free Money
Fund, Montgomery California Tax-Free Money Fund, Montgomery U.S. Select 20
Portfolio and Montgomery International 20 Portfolio. The Montgomery U.S.
Select 20 Portfolio and the Montgomery International 20 Portfolio commenced
operations on December 31, 1999. The Montgomery Funds II include the
Montgomery Emerging Markets Focus Fund, the Montgomery Global Long-Short Fund
and the Montgomery Balanced Fund, among other series. Information presented
in these financial statements pertains to the Montgomery U.S. Select 20
Portfolio. The financial statements for the other Funds have been presented
under separate covers.
The Montgomery Funds is organized as a Massachusetts business trust and
commenced operations on May 10, 1990. The Montgomery Funds II is organized as
a Delaware business trust and commenced operations on September 8, 1993.
1. SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates. The following is a summary of significant accounting policies.
a. PORTFOLIO VALUATION
Portfolio securities 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, the mean between the closing bid and ask prices.
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.
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 Trust's officers in accordance with methods authorized by the
Trust's Board of Trustees. Short-term securities with maturities of 60 days
or less are carried at amortized cost, which approximates market value.
b. REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreements individually or jointly through
a joint repurchase account with other series of the Trust and affiliated
registered investment companies pursuant to a joint repurchase agreement.
Under the terms of a typical repurchase agreement, the Fund takes possession of
government 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 obligations, including interest. In the
event of counterparty default, the Fund has the right to use the
collateral to offset losses incurred. There could be potential loss to the
Fund in the event the 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 in which
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 Fund enters
into repurchase agreements to evaluate potential risks. The Fund may also
participate on an individual or joint basis in tri-party repurchase agreements
that involve a counterparty and a custodian bank.
c. DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared and paid at least annually.
Distributions of net realized capital gains (including net short-term
capital gains) are distributed at least annually. Additional distributions of
net investment income and capital gains for the 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 accounting principles
generally accepted in the United States. These differences are primarily due
to differing treatments of income and gains on various investment securities
held by the Fund, timing differences and differing characterizations of
distributions made by the Fund.
Permanent book and tax differences incurred during the period ended June 30,
2000, resulting in reclassifications of $1,001 to increase undistributed net
investment income and $1,001 to decrease accumulated net realized gain.
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.
d. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on a trade date basis. Realized gain and
loss from securities transactions are computed on the specific identified
cost basis of the securities sold. Dividend income is recognized on the
ex-dividend date. Interest income, including accretion/amortization of
premium/discount on short-term investments, is recognized on the accrual
basis.
13
<PAGE>
--------------------------
STOCK SOLUTIONS
--------------------------
NOTES
--------------------------
TO FINANCIAL STATEMENTS
e. FEDERAL INCOME TAXES
The Fund has elected and qualified, and it is the intention of the 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 by making distributions of taxable
income to shareholders sufficient to relieve the Fund of all or substantially
all federal income and excise taxes. Therefore, no federal income or
excise-tax provision has been made.
f. EXPENSES
General expenses of the Trust are allocated to the Fund and other series of
the Trust based on relative net assets. Operating expenses directly
attributable to the Fund are charged to the Fund's operations. Expenses of
the Fund not directly attributable to the operations of the Fund are prorated
among the classes based on the relative average net assets of the Fund.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES AND OTHER
CONTRACTUAL COMMITMENTS:
a. Montgomery Asset Management, LLC, is the Fund's 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 the Investment Management Agreement (the "Agreement") between the
Manager and the Trust with respect to the Fund, the Manager provides the Fund
with advice on buying and selling securities, manages the investments of the
Fund including the placement of orders for portfolio transactions,
furnishes the Fund with office space and certain administrative services, and
provides the personnel needed by the Trust with respect to the Manager's
responsibilities under the Agreement. For the period ended June 30, 2000, the
effective management fee, management fee including effect of fees reduced,
effective administration fee and contractual management fee was 0.49%, 0.00%,
0.07% and 0.49%, respectively.
Under an Operating Expense Agreement with the Trust, the Manager has agreed
to reduce some or all of its management fee or absorb Fund expenses if
necessary to keep the Fund's annual operating expenses, exclusive of any Rule
12b-1 fees, interest, extraordinary expenses or taxes, at or below 1.40% of
the average daily net assets of the Fund. Any reductions or absorptions made
to the Fund by the Manager are subject to recovery within the following three
years, provided the Fund is able to effect such reimbursement and remain in
compliance with applicable expense limitations. The Operating Expense
Agreement has a rolling 10-year term, 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 services with regard to various
aspects of the Fund's administrative operations.
For the period ended June 30, 2000, the Manager has absorbed fees of $23,537
and reduced fees of $11,946.
b. Certain officers and Trustees of the Trust are, with respect to the
Trust's Manager, "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 three Trusts advised by the
Manager ($35,000 of which will be allocated to The Montgomery Funds).
3. SECURITIES TRANSACTIONS:
a. The aggregate amount of purchases and sales of investment securities, other
than short-term securities, for the period ended June 30, 2000, was
$7,836,525 and $4,744,868, respectively.
b. At June 30, 2000, cost for federal income tax purposes was $3,333,760,
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 for
federal income-tax purposes were $173,939 and $127,017, respectively.
c. Under an unsecured Revolving Credit Agreement with Deutsche Bank, New York,
the Fund, along with other Funds of The Montgomery Funds, The Montgomery
Funds II and The Montgomery Funds III, may for one year starting
August 13, 1999, borrow (consistent with applicable law and its investment
policies) up to 10% of its net asset value, provided that the aggregate
principal amount of outstanding loans under the agreement to all Funds does
not exceed $175,000,000. The Fund pays its pro rata share of the quarterly
commitment fee of 0.08% per annum of the unutilized credit line balance. At
June 30, 2000, the Fund had no borrowings under the agreement.
14
<PAGE>
--------------------------
STOCK SOLUTIONS
--------------------------
NOTES
--------------------------
TO FINANCIAL STATEMENTS
4. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
The Trust has authorized an unlimited number of shares of beneficial
interest which have a par value of $0.01. Transactions in shares of
beneficial interest for the periods indicated below were:
<TABLE>
<CAPTION>
MONTGOMERY
U.S. SELECT 20
PORTFOLIO
PERIOD ENDED 06/30/00#
R SHARES: SHARES DOLLARS
--------------------------------------------------------------------------------
<S> <C> <C>
Sold 336,575 $3,688,869
Issued as reinvestment of dividends -- --
Redeemed (46,321) (520,424)
--------------------------------------------------------------------------------
Net increase 290,254 $3,168,445
--------------------------------------------------------------------------------
</TABLE>
# The Montgomery U.S. Select 20 Portfolio commenced operations on
December 31, 1999.
At June 30, 2000, shareholders of the Fund with ownership of 10% or greater
included one shareholder, comprising ownership of 54.24% of the total
aggregate shares outstanding.
15
<PAGE>
---------------------------
STOCK SOLUTIONS
---------------------------
INDEPENDENT
AUDITORS' REPORT
---------------------------
TO THE TRUSTEES AND THE SHAREHOLDERS OF THE MONTGOMERY U.S. SELECT 20 PORTFOLIO
(A SERIES OF THE MONTGOMERY FUNDS):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Montgomery U.S. Select 20
Portfolio (a Portfolio of the Montgomery Funds, the "Fund") at June 30, 2000,
the results of its operations, the changes in its net assets and the financial
highlights for the period from December 31, 1999 (commencement of operations)
through June 30, 2000, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
from 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 audit, which included confirmation of securities at June 30,
2000 by correspondence with the custodian and brokers, provides a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
August 18, 2000
16
<PAGE>
--------------------------------------------
THE MONTGOMERY FUNDS
--------------------------------------------
EQUITY INCOME FUND
--------------------------------------------
PORTFOLIO HIGHLIGHTS
INVESTMENT REVIEW
============================================
PORTFOLIO MANAGEMENT
--------------------------------------------
William King, CFA..........Portfolio Manager
============================================
FUND
PERFORMANCE
--------------------------------------------
Average annual total returns
for the period ended 6/30/00
--------------------------------------------
MONTGOMERY EQUITY INCOME FUND
Since inception (9/30/94)............ 13.33%
One year.............................(14.06)%
Five years........................... 12.45%
--------------------------------------------
S&P 500 INDEX
Since 9/30/94........................ 24.32%
One year............................. 7.25%
Five years........................... 23.80%
--------------------------------------------
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.
The performance figures provided do not reflect
the effect of (i) any securities purchased or
sold by the Fund after 6/30/00 but that were
effective on 6/30/00 or (ii) any purchases or
redemptions of Fund shares completed after
6/30/00 that were effective on 6/30/00.
GROWTH OF A $10,000 INVESTMENT LINE GRAPH
<TABLE>
<CAPTION>
Equity Income S&P 500 Index Lipper
<S> <C> <C> <C>
Sep-94 10000 10000 10000
Oct-94 10083 10228.7 10061.03
Nov-94 9825 9853.2 9687.36
Dec-94 9907 9997.16 9764.84
Jan-95 10336 10257.09 9954.51
Feb-95 10597 10655.06 10286.68
Mar-95 10824 10970.56 10533.98
Apr-95 11028 11292.21 10779.82
May-95 11392 11738.48 11108.59
Jun-95 11426 12014.57 11238.7
Jul-95 11562 12415.14 11535.35
Aug-95 11742 12448.91 11652.72
Sep-95 12280 12971.64 12037.71
Oct-95 12280 12925.85 11920.92
Nov-95 12899 13494.84 12452.72
Dec-95 13392 13744.36 12766.42
Jan-96 13610 14217.72 13074.35
Feb-96 13705 14354.35 13184.18
Mar-96 13784 14491.86 13356.1
Apr-96 13828 14705.33 13495.62
May-96 14065 15084.29 13703.55
Jun-96 14232 15145.53 13732.34
Jul-96 13834 14471.1 13252.77
Aug-96 14108 14778.46 13599.74
Sep-96 14639 15609.16 14117.15
Oct-96 15126 16036.38 14443.57
Nov-96 16028 17253.71 15250.8
Dec-96 15848 16916.05 15170.61
Jan-97 16174 17966.2 15719.63
Feb-97 16668 18110.29 15921.18
Mar-97 16232 17357.08 15445.67
Apr-97 16511 18392.6 15907.56
May-97 17356 19521.54 16817.03
Jun-97 17935 20379.9 17441.98
Jul-97 18936 21998.07 18557.43
Aug-97 18285 20778.94 17994.26
Sep-97 19148 21912.01 18881.09
Oct-97 18412 21190.89 18306.9
Nov-97 19430 22162.91 18879.01
Dec-97 19984 22537.47 19334.3
Jan-98 19827 22792.59 19303.94
Feb-98 20783 24430.47 20390.12
Mar-98 21711 25684.48 21331.57
Apr-98 21248 25950.57 21331.37
May-98 20819 25499.29 21001.95
Jun-98 20774 26535.07 21143.49
Jul-98 20126 26253.01 20526.97
Aug-98 18409 22463.12 17983.66
Sep-98 19623 23917.83 18937.59
Oct-98 21087 25853.98 20038.18
Nov-98 21796 27421.51 20902.12
Dec-98 22130 29017.17 21453.6
Jan-99 21979 30211.51 21394
Feb-99 21654 29273.14 20945
Mar-99 22115 30449.05 21410
Apr-99 23794 31608.55 22923
May-99 23018 30877.76 22692
Jun-99 23902 32565.54 23388
Jul-99 23388 31574 22782
Aug-99 22382 31426 22204
Sep-99 21366 30556 21406
Oct-99 22033 32499 22130
Nov-99 21907 33163 22028
Dec-99 22012 35104 22378
Jan-00 20856 33343 21521
Feb-00 19152 32712 20320
Mar-00 20974 35912 22289
Apr-00 21272 34831 22229
May-00 21510 34116 22531
Jun-00 20544 34957 22099
</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 Equity Income Funds Average
universe consists of 106 funds.
1
<PAGE>
--------------------------------------------
THE MONTGOMERY FUNDS
--------------------------------------------
EQUITY INCOME FUND
--------------------------------------------
PORTFOLIO HIGHLIGHTS
============================================
TOP TEN HOLDINGS
--------------------------------------------
(as a percentage of total net assets)
Electronic Data Systems Corporation.... 3.9%
General Electric Company............... 3.5%
Exxon Mobil Corporation................ 3.5%
Chevron Corporation.................... 3.3%
International Business
Machines Corporation................... 3.0%
Dow Chemical Company................... 3.0%
Automatic Data Processing, Inc. ....... 2.9%
PepsiCo, Inc. ......................... 2.9%
Marsh & McLennan Companies............. 2.9%
Kimberly-Clark Corporation............. 2.8%
============================================
TOP FIVE INDUSTRIES
--------------------------------------------
(as a percentage of total net assets)
Major Pharmaceuticals................. 11.8%
Integrated Oil Companies.............. 8.5%
Major Banks........................... 6.8%
EDP Services.......................... 6.8%
Major U.S. Telecommunications......... 5.9%
Portfolio holdings are subject to change and
should not be considered a recommendation to
buy individual securities.
2
<PAGE>
-----------------------------
THE MONTGOMERY FUNDS
-----------------------------
EQUITY INCOME FUND
-----------------------------
INVESTMENTS
PORTFOLIO INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
COMMON STOCKS - 86.7%
ALUMINUM - 1.9%
6,000 Alcoa, Inc. .................................... $ 174,000
DIVERSIFIED MANUFACTURING - 5.8%
6,000 General Electric Company ....................... 318,000
6,300 Honeywell International, Inc. .................. 212,231
-------------
530,231
EDP SERVICES - 6.8%
5,000 Automatic Data Processing, INC. 267,812
8,500 Electronic Data Systems
Corporation .................................... 350,625
-------------
618,437
ELECTRIC UTILITIES: EAST - 2.2%
5,000 Peco Energy Company ............................ 201,563
ELECTRICAL PRODUCTS - 2.7%
4,000 Emerson Electric Company ....................... 241,500
ELECTRONIC DATA PROCESSING - 5.1%
1,500 Hewlett-Packard Company ........................ 187,313
2,500 International Business
Machines Corporation ........................... 273,906
-------------
461,219
FINANCE COMPANIES - 2.0%
3,500 Fannie Mae ..................................... 182,656
FINANCIAL PUBLISHING/SERVICES - 1.5%
2,500 McGraw-Hill Companies, Inc. .................... 135,000
INDUSTRIAL MACHINERY/COMPONENTS - 2.5%
4,000 Illinois Tool Works, Inc. ...................... 228,000
INSURANCE BROKERS/SERVICES - 2.9%
2,500 Marsh & McLennan Companies ..................... 261,094
INTEGRATED OIL COMPANIES - 8.5%
3,500 Chevron Corporation ............................ 296,844
6,500 Conoco, Inc. ................................... 159,656
4,000 Exxon Mobil Corporation ........................ 314,000
-------------
770,500
MAJOR BANKS - 6.8%
4,000 Bank of America Corporation .................... 172,000
3,500 Citigroup, Inc. ................................ 210,875
7,000 FleetBoston Financial
Corporation .................................... 238,000
-------------
620,875
MAJOR CHEMICALS - 4.5%
9,000 Dow Chemical Company ........................... 271,687
4,000 Rohm & Haas Company ............................ 138,000
-------------
409,687
MAJOR PHARMACEUTICALS - 11.8%
4,000 American Home Products
Corporation .................................... 235,000
3,000 Baxter International, Inc. ..................... 210,937
4,000 Bristol-Meyers Squibb Company .................. 233,000
2,000 Johnson & Johnson .............................. 203,750
2,500 Merck & Company, Inc. .......................... 191,563
-------------
1,074,250
MAJOR U.S. TELECOMMUNICATIONS - 5.9%
2,500 Bell Atlantic Corporation ...................... 127,031
4,000 BellSouth Corporation .......................... 170,500
5,528 SBC Communications, Inc. ....................... 239,086
-------------
536,617
MEDICAL SPECIALTIES - 1.7%
2,000 Bausch & Lomb, Inc. ............................ 154,750
OIL/GAS TRANSMISSION - 2.7%
4,000 Coastal Corporation (The) ...................... 243,500
OILFIELD SERVICES/EQUIPMENT - 4.1%
4,000 Halliburton Company ............................ 188,750
2,500 Schlumberger Ltd. .............................. 186,563
-------------
375,313
PACKAGE GOODS/COSMETICS - 2.8%
4,500 Kimberly-Clark Corporation ..................... 258,188
PAPER - 1.6%
5,500 Willamette Industries, Inc. .................... 149,875
SOFT DRINKS - 2.9%
6,000 PepsiCo, Inc. .................................. 266,625
TOTAL COMMON STOCKS
(Cost $7,500,203) ..................................... 7,893,880
-------------
MONEY MARKET FUND - 0.0%@
29 Chase Vista Federal Money
Market Fund (Cost $29) ........................... 29
-------------
TOTAL SECURITIES
(Cost $7,500,232) ...................................... 7,893,909
PRINCIPAL AMOUNT
REPURCHASE AGREEMENT - 9.6%
$ 871,000 Agreement with Greenwich Capital Markets,
Tri-Party, 7.000% dated 06/30/00, to be repurchased at
$871,501 on 07/03/00, collateralized by $888,423 market
value of U.S. government and mortgage-backed securities,
having various maturities and interest rates (Cost
$871,000) ................................... 871,000
-------------
TOTAL INVESTMENTS - 96.3%
(Cost $8,371,232*) ..................................... 8,764,909
OTHER ASSETS AND LIABILITIES - 3.7%
(Net) .................................................. 336,059
-------------
NET ASSETS - 100.0% .................................... $ 9,100,968
==============
</TABLE>
* Aggregate cost for federal tax purposes $8,404,100.
@ Amount represents less than 0.1%.
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
-------------------------
THE MONTGOMERY FUNDS
-------------------------
STATEMENT OF
ASSETS AND LIABILITIES
-------------------------
JUNE 30, 2000
<TABLE>
<CAPTION>
ASSETS: EQUITY INCOME FUND
------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in Securities, at Value (note 1)
Securities ................................................................................ $ 7,893,909
Repurchase agreements ..................................................................... 871,000
-------------
Total Investments 8,764,909
Receivables:
Investment securities sold ................................................................ 382,187
Expenses absorbed by Manager .............................................................. 14,127
Dividends ................................................................................. 9,546
Interest .................................................................................. 172
Other Assets ................................................................................ 902
-------------
Total Assets 9,171,843
-------------
LIABILITIES:
------------------------------------------------------------------------------------------------------------
Payables:
Transfer agency and servicing fees ........................................................ 23,216
Management fees ........................................................................... 6,061
Share marketing plan fees (note 3) (Class P shares only) .................................. 4,988
Accounting fees ........................................................................... 1,136
Custodian fees ............................................................................ 673
Trustees' fees and expenses ............................................................... 599
Administration fees ....................................................................... 549
Other accrued liabilities and expenses .................................................... 33,653
-------------
Total Liabilities 70,875
-------------
Net Assets $ 9,100,968
Investments at identified cost .............................................................. $ 8,371,232
NET ASSETS CONSIST OF:
------------------------------------------------------------------------------------------------------------
Undistributed net investment income ......................................................... $ 105,396
Accumulated net realized gain ............................................................... 912,669
Net unrealized appreciation ................................................................. 393,677
Shares of beneficial interest ............................................................... 6,586
Additional paid-in capital .................................................................. 7,682,640
-------------
Net Assets $ 9,100,968
NET ASSETS:
------------------------------------------------------------------------------------------------------------
Class R shares .......................................................................... $ 6,464,619
Class P shares .......................................................................... 2,636,349
-------------
Net Assets $ 9,100,968
Number of Fund shares outstanding:
Class R shares ........................................................................... 467,556
Class P shares ........................................................................... 191,005
Class R shares: Net asset value, offering and redemption price per share outstanding ....... $ 13.83
-------------
Class P shares: Net asset value, offering and redemption price per share outstanding ....... $ 13.80
-------------
</TABLE>
4
The accompanying notes are an integral part of these financial statements.
<PAGE>
-------------------------
THE MONTGOMERY FUNDS
-------------------------
STATEMENT OF OPERATIONS
-------------------------
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
NET INVESTMENT INCOME: EQUITY INCOME FUND
---------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends ................................................................. $303,498
Interest .................................................................. 22,840
Securities lending income (note 4) ........................................ 791
-------------
Total Income 327,129
-------------
EXPENSES:
Management fee (note 2) ................................................... 102,349
Transfer agency and servicing fees ........................................ 61,653
Legal and audit fees ...................................................... 32,045
Registration fees ......................................................... 19,906
Printing fees ............................................................. 15,917
Administration fee (note 2) ............................................... 11,941
Accounting fees ........................................................... 11,424
Share marketing plan fee (note 3) (Class P shares only) ................... 5,698
Custodian fees ............................................................ 2,602
Trustees' fees ............................................................ 785
Other ..................................................................... 7,866
Interest expense .......................................................... 937
-------------
Total Expenses 273,123
Fees deferred and/or expenses absorbed by Manager (note 2) ................ (120,852)
-------------
Net Expenses 152,271
-------------
NET INVESTMENT INCOME 174,858
-------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
-------------------------------------------------------------------------------------------------
Net realized gain from securities transactions ......................... 2,110,465
Net change in unrealized appreciation/(depreciation) of securities ..... (5,411,966)
-------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS ........................... (3,301,501)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................... $(3,126,643)
-------------
</TABLE>
5
The accompanying notes are an integral part of these financial statements.
<PAGE>
--------------------------
THE MONTGOMERY FUNDS
--------------------------
STATEMENTS OF
CHANGES IN NET ASSETS
--------------------------
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
EQUITY INCOME FUND
-------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: 06/30/00 06/30/99
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income ......................................................... $ 174,858 $ 612,057
Net realized gain on securities transactions .................................. 2,110,465 2,848,156
Net unrealized appreciation/(depreciation) of securities ...................... (5,411,966) 1,204,992
------------- --------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ............... (3,126,643) 4,665,205
DISTRIBUTIONS TO SHAREHOLDERS:
-------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ... ........................................................ (132,974) (559,687)
Class P shares ............................................................ (22,564) (44,084)
Distributions to shareholders from net realized gains on investments:
Class R shares ............................................................ (2,213,995) (2,953,011)
Class P shares ............................................................ (446,923) (250,330)
------------- --------------
Total Disributions ............................................................ (2,816,456) (3,807,112)
BENEFICIAL INTEREST TRANSACTIONS:
------------------------------------------------------------------------------------------------------------------------------
Net decrease from beneficial interest transactions (note 5) ................... (14,917,910) (13,875,041)
------------- --------------
Net Decrease in Net Assets .................................................... (20,861,009) (13,016,948)
NET ASSETS:
-------------------------------------------------------------------------------------------------------------------------------
Beginning of period ........................................................... 29,961,977 42,978,925
End of Period ................................................................. $ 9,100,968 $ 29,961,977
Undistributed Net Investment Income ........................................... $ 105,396 $ 8,286
</TABLE>
6
The accompanying notes are an integral part of these financial statements.
<PAGE>
----------------------
THE MONTGOMERY FUNDS
----------------------
FINANCIAL HIGHLIGHTS
----------------------
<TABLE>
<CAPTION>
EQUITY INCOME FUND**
CLASS R SHARES
Selected Per-Share Data for the Year Ended: FISCAL YEAR ENDED JUNE 30,
------------------------------------------------------------------------
2000 1999 1998 1997++ 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 19.04 $ 18.27 $ 17.91 $ 16.09 $ 13.38
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.19 0.32 0.44 0.49 0.43
Net realized and unrealized gain/(loss) on investments (2.72) 2.30 2.27 3.35 2.82
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting
from investment operations (2.53) 2.62 2.71 3.84 3.25
-----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.14) (0.31) (0.44) (0.46) (0.42)
Distributions from net realized capital gains (2.54) (1.54) (1.91) (1.56) (0.12)
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.68) (1.85) (2.35) (2.02) (0.54)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 13.83 $ 19.04 $ 18.27 $ 17.91 $ 16.09
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* (14.06)% 15.06% 15.83% 26.02% 24.56%
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
-----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 6,465 $ 26,750 $ 40,260 $ 38,595 $ 19,312
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.05% 1.71% 2.32% 2.93% 3.03%
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income before deferral of fees by Manager $ 0.07 $ 0.21 $ 0.34 $ 0.39 $ 0.34
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 53% 57% 68% 62% 90%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense 0.86% 0.85% 0.86% -- --
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager,
including interest expense 1.57% 1.45% 1.38% 1.46% 1.45%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest expense 0.85% 0.85% 0.85% 0.86% 0.85%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS P SHARES
Selected Per-Share Data for the Year or Period Ended: FISCAL YEAR ENDED JUNE 30,
----------------------------------------------------
2000 1999 1998 1997++ 1996(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $19.01 $ 18.25 $ 17.90 $ 16.09 $ 15.66
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.13 0.26 0.38 0.44 0.08
Net realized and unrealized gain/(loss) on investments (2.69) 2.31 2.27 3.35 0.35
-----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations (2.56) 2.57 2.65 3.79 0.43
-----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.11) (0.27) (0.39) (0.42) --
Distributions from net realized capital gains (2.54) (1.54) (1.91) (1.56) --
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.65) (1.81) (2.30) (1.98) --
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $13.80 $ 19.01 $ (18.25) $ 17.90 $ 16.09
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* (14.18)% 14.74% 15.49% 25.64% 2.75%
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
-----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $2,636 $ 3,212 $ 2,719 $ 868 $ 2
-----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.87% 1.46% 2.07% 2.68% 2.78%+
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income before deferral of fees by Manager $ 0.02 $ 0.15 $ 0.28 $ 0.34 $0.06
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 53% 57% 68% 62% 90%
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest expense 1.05% 1.10% 1.11% -- --
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest expense 1.76% 1.70% 1.63% 1.71% 1.70%+
-----------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest expense 1.04% 1.10% 1.10% 1.11% 1.10%+
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Equity Income Fund's Class P shares commenced operations on March 12,
1996.
* Total return represents aggregate total return for the periods indicated.
** Closed to new investors.
+ Annualized.
++ 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.
7
<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, 2000, the Trusts had 21 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 Global Opportunities Fund,
Montgomergy Global 20 Fund (formerly Montgomergy Select 50 Fund), Montgomery
Global Communications Fund, Montgomery Emerging Markets Fund, Montgomery
Emerging Asia Fund, Montgomery Total Return Bond Fund, Montgomery Short Duration
Government Bond Fund, Montgomery California Tax-Free Intermediate Bond Fund,
Montgomery Government Money Market Fund, Montgomery Federal Tax-Free Money Fund,
Montgomery California Tax-Free Money Fund, Montgomery U.S. Select 20 Fund and
the Montgomery International 20 Fund. The Montgomery U.S. Select 20 Fund and the
Montgomery International 20 Fund commenced operations on December 31, 1999. The
Montgomery Funds II include the Montgomery Emerging Markets Focus Fund,
Montgomery Global Long-Short Fund and the Montgomery Balanced Fund (formerly
Montgomery U.S. Asset Allocation Fund), among other series. Information
presented in these financial statements pertains to the Montgomery Equity Income
Fund. The financial statements for the other Funds 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.
1. SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates. The
following is a summary of significant accounting policies.
a. PORTFOLIO VALUATION
Portfolio securities 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, the mean of the closing bid and ask prices.
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.
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 Trust's officers in accordance with methods authorized by the Trust's Board
of Trustees. Short-term securities with maturities of 60 days or less are
carried at amortized cost, which approximates market value.
b. REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreements individually or jointly through a
joint repurchase account with other series of the Trust and affiliated
registered investment companies pursuant to a joint repurchase agreement. Under
the terms of a typical repurchase agreement, the Fund takes possession of
government 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 obligations, including interest. In the event of
counterparty default, the Fund has the right to use the collateral to offset
losses incurred. There could be potential loss to the Fund in the event the 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 in which 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 Fund enters into repurchase agreements to
evaluate potential risks. The Fund may also participate on an individual or
joint basis in tri-party repurchase agreements that involve a counterparty and a
custodian bank.
c. DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared and paid at least annually.
Distributions of net realized capital gains (including net short-term capital
gains) are distributed at least annually. Additional distributions of net
investment income and capital gains for the 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 accounting principles generally accepted in the United
States. These differences are primarily due to differing treatments of income
and gains on various investment securities held by the Fund, timing differences
and differing characterizations of distributions made by the Fund.
Permanent book and tax differences incurred during the year ended June 30, 2000,
resulting in reclassifications of $77,790 to increase undistributed net
investment income and $636,994 to decrease accumulated net realized gain and
$559,204 to increase paid-in capital.
Permanent book-tax differences, if any, are not included in ending undistributed
net investment income (loss) for the purposes of
8
<PAGE>
--------------------------
THE MONTGOMERY
FUNDS
--------------------------
NOTES
--------------------------
TO FINANCIAL STATEMENTS
calculating net investment income (loss) per share in the Financial Highlights.
d. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on a trade date basis. Realized gain and
loss from securities transactions are computed on the specific identified cost
basis of the securities sold. Dividend income is recognized on the ex-dividend
date. Interest income, including accretion/amortization of premium/discount on
short-term investments, is recognized on the accrual basis. The 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.
e. FEDERAL INCOME TAXES
The Fund has elected and qualified, and it is the intention of the 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
applicable requirements of the Code and by making distributions of taxable
income to shareholders sufficient to relieve the Fund of all or substantially
all federal income taxes. Accordingly, no provision for federal income taxes is
required.
f. EXPENSES
General expenses of the Trust are allocated to the Fund and other series of the
Trust based on relative net assets. Operating expenses directly attributable to
the Fund are charged to the Fund's operations. Expenses of the Fund not directly
attributable to the operations of the Fund or class of shares are prorated among
the classes based on the relative average net assets of the Fund or class of
shares.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES AND OTHER CONTRACTUAL
COMMITMENTS:
a. Montgomery Asset Management, LLC, is the Fund's 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 the Investment Management Agreement (the "Agreement") between the
Manager and the Trust with respect to the Fund, the Manager provides the Fund
with advice on buying and selling securities, manages the investments of the
Fund including the placement of orders for portfolio transactions, furnishes the
Fund with office space and certain administrative services, and provides the
personnel needed by the Trust with respect to the Manager's responsibilities
under the Agreement. For the year ended June 30, 2000, the effective management
fee and management fee including effect of fee reduced was 0.60% and 0.00%,
respectively. Montgomery Asset Management, LLC, serves as the Fund's
administrator (the "Administrator"). The Administrator performs services with
regard to various aspects of the Fund's administrative operations. As
compensation, the Fund pays the Administrator a monthly fee (accrued daily) at
an annual rate of 0.07% of average daily net assets.
Under an Operating Expense Agreement with the Trust, the Manager has agreed to
reduce some or all of its management fee or absorb Fund expenses if necessary to
keep the Fund's annual operating expenses, exclusive of any Rule 12b-1 fees,
interest, extraordinary expenses or taxes, at or below 0.85% of the average
daily net assets of the Fund. Any reductions or absorptions made to the Fund by
the Manager are subject to recovery within the following three years, provided
the Fund is able to effect such reimbursement and remain in compliance with
applicable expense limitations. The Operating Expense Agreement has a rolling
10-year term, extendable for one year at the end of each fiscal year.
This amount has been included with current annual management fees in the
Statement of Operations and is part of the effective management fee shown. For
the year ended June 30, 2000, the Manager has deferred fees of $102,349,
absorbed fees of $18,503 and deferred management fees and absorbed expenses
subject to recoupment of $615,400.
b. Certain officers and Trustees of the Trust are, with respect to the Trust's
Manager, "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 three Trusts advised by the Manager ($35,000 of
which will be allocated to The Montgomery Funds).
3. SHARE MARKETING PLAN:
Class P shares of the 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 Trust's Board of Trustees has approved, and the Fund has entered into, the
Plan with Funds Distributor, Inc., the Fund's distributor (the "Distributor"),
as the distribution coordinator for the Class P shares. Under the Plan, the 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 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 Fund to prospective investors in that Class;
9
<PAGE>
--------------------------
THE MONTGOMERY
FUNDS
--------------------------
NOTES
--------------------------
TO FINANCIAL STATEMENTS
(iii) costs involved in preparing, printing and distributing sales literature
pertaining to the Fund and that Class; and (iv) costs involved in obtaining
whatever information, analysis and reports with respect to marketing and
promotional activities that the Fund 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 shares, as accrued.
4. SECURITIES TRANSACTIONS:
A. The aggregate amount of purchases and sales of investment securities, other
than short-term securities, for the year ended June 30, 2000, were $8,900,712
and $26,671,506, respectively.
B. At June 30, 2000, tax cost was $8,404,100, 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 for federal income-tax purposes were
$1,026,743 and $665,934, respectively.
C. Under an unsecured Revolving Credit Agreement with Deutsche Bank, New York,
the Fund, along with other funds of The Montgomery Funds, The Montgomery Funds
II and The Montgomery Funds III, may for one year starting August 13, 1999,
borrow (consistent with applicable law and its investment policies) up to 10% of
its net asset value, provided that the aggregate principal amount of outstanding
loans under the agreement to all Funds does not exceed $175,000,000. The Fund
pays its pro rata share of the quarterly commitment fee of 0.08% per annum of
the unutilized credit line balance. For the year ended June 30, 2000, borrowings
by the Fund under the agreement were as follows:
<TABLE>
<CAPTION>
Amount Outstanding Average Amount Maximum Average Average Debt
at 6/30/00 Outstanding Debt Outstanding Interest Rate Average Shares per Share
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-- $19,945 $2,400,000 5.56% 1,058,228 $0.02
</TABLE>
D. Under an agreement with Chase Manhattan Bank, the 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.
At June 30, 2000, the Fund had no securities on loan. Income earned from
securities lending transactions is included in securities lending income on the
Statement of Operations.
5. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
The Trust has authorized an unlimited number of shares of beneficial interest
which have a par value of $0.01. Transactions in shares of beneficial interest
for the periods indicated below were:
<TABLE>
<CAPTION>
EQUITY INCOME FUND
YEAR ENDED 6/30/00 YEAR ENDED 6/30/99
R SHARES: SHARES DOLLARS SHARES DOLLARS
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 707,254 $ 10,320,979 857,982 $ 18,361,775
Issued as reinvestment of dividends 154,795 2,295,464 190,128 3,407,582
Redeemed (1,799,754) (27,903,105) (1,845,907) (35,994,823)
------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (937,705) (15,286,662) (797,797) (14,225,466)
------------------------------------------------------------------------------------------------------------------------------------
P SHARES: SHARES DOLLARS SHARES DOLLARS
------------------------------------------------------------------------------------------------------------------------------------
Sold 230,735 $ 3,380,061 60,646 $ 1,085,025
Issued as reinvestment of dividends 31,752 469,471 16,390 294,403
Redeemed (240,472) (3,480,780) (57,061) 1,029,003)
------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 22,015 368,752 19,975 350,425
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
--------------------------
MONTGOMERY EQUITY
INCOME FUND
--------------------------
INDEPENDENT
AUDITORS' REPORT
--------------------------
TO THE BOARD OF TRUSTEES AND THE SHAREHOLDERS OF THE MONTGOMERY EQUITY INCOME
FUND (A SERIES OF THE MONTGOMERY FUNDS):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Montgomery Equity Income Fund (a
portfolio of The Montgomery Funds, the "Fund") at June 30, 2000, the results of
its operations for the year then ended, the changes in its net assets and its
financial highlights for each of the three years in the period then ended, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's 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 auditing standards generally accepted in the United States 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, 2000 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
The financial highlights of the Fund 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, 2000
11
<PAGE>
--------------------------
THE MONTGOMERY
FUNDS
--------------------------
TAX INFORMATION
--------------------------
(UNAUDITED)
In accordance with the Code, the Fund is designating $2,125,994 as long-term
capital gain dividends.
The Fund is designating 100.00% of distributions made from net investment
income, as stated in these financial statements, as net investement income
dividends that qualify for the dividends received deduction with regard to the
Fund's corporate shareholders.
12
