<PAGE> 1
The Montgomery Funds are a comprehensive family of no-load mutual funds,
offering U.S. equity, international and global, and U.S. fixed-income investment
strategies.
We currently manage more than $5.0 billion in the Funds on behalf of over
200,000 individual investors, helping them meet their financial goals through a
combination of professional portfolio management and high-quality customer
service.
[MONTGOMERY LOGO]
THE MONTGOMERY FUNDS(SM)
101 California Street
San Francisco, CA 94111-9361
[GRAPHIC] www.montgomeryfunds.com
THE MONTGOMERY FUNDS
SEMIANNUAL REPORT
D E C E M B E R 3 1 , 1 9 9 9
(Unaudited)
C O N T E N T S
Stock and Bond Market Overview .......................................... 2
Performance Summary ..................................................... 4
PORTFOLIO HIGHLIGHTS AND INVESTMENTS
MONTGOMERY U.S. EQUITY FUNDS
Growth Fund ............................................................. 5
U.S. Emerging Growth Fund ............................................... 9
Small Cap Fund .......................................................... 13
Equity Income Fund(*) ................................................... 17
MONTGOMERY INTERNATIONAL AND GLOBAL EQUITY FUNDS
International Growth Fund ............................................... 21
International Small Cap Fund(*) ......................................... 26
Global Opportunities Fund ............................................... 30
Global Communications Fund .............................................. 34
Emerging Markets Fund ................................................... 39
Emerging Asia Fund ...................................................... 45
MONTGOMERY MULTI-STRATEGY FUNDS
Global Long-Short Fund .................................................. 49
Select 50 Fund .......................................................... 57
Balanced Fund ........................................................... 61
(Formerly named Montgomery U.S.
Asset Allocation Fund)
MONTGOMERY U.S. FIXED-INCOME AND MONEY MARKET FUNDS
Total Return Bond Fund .................................................. 63
Short Duration Government Bond Fund ..................................... 67
California Tax-Free Intermediate Bond Fund .............................. 71
Government Money Market Fund ............................................ 76
Federal Tax-Free Money Fund ............................................. 76
California Tax-Free Money Fund .......................................... 76
FINANCIAL STATEMENTS
Statements of Assets and Liabilities .................................... 92
Statements of Operations ................................................ 98
Statements of Changes in Net Assets ..................................... 102
Statements of Cash Flows ................................................ 106
Financial Highlights .................................................... 110
Notes to Financial Statements ........................................... 130
* Closed to new investors.
<PAGE> 2
THE MONTGOMERY FUNDS
SEMIANNUAL REPORT
D e c e m b e r 3 1 , 1 9 9 9
(Unaudited)
S T O C K A N D B O N D M A R K E T O V E R V I E W
U.S. STOCKS
U.S. stocks experienced a roller-coaster ride in the six months ended December
31, 1999. Reflecting similar trends in 1998, equity markets were generally soft
in the third quarter. Most of the market indices suffered declines. The Russell
2000 Index fell by 6.3% during the quarter, the S&P 500 Index fell 6.2% and the
Dow Jones Industrial Average lost 5.4%. The NASDAQ Composite was the only major
market index that posted positive performance for the third quarter, with a gain
of 2.2%.
Rather than concerns about global recession as in 1998, however, interest rate
worries were the dominant factor plaguing equity valuations for the majority of
the third quarter. At the end of June, the Federal Reserve raised interest rates
by 25 basis points; and when the Federal Open Market Committee reconvened in
August, the Fed once again raised rates by 25 basis points while maintaining a
neutral policy bias. At the October meeting, the Fed left interest rates
unchanged but adopted a tightening bias, in spite of the fact that inflation
appeared to be under control.
Another issue that received attention, more significantly at the end of the
third quarter, was the weakness in the U.S. dollar, particularly relative to the
Japanese yen. Historically, currency issues have tended to create short-term
volatility in underlying equity markets but don't typically change longer-term
valuations.
In complete contrast to the preceding three months, however, and in spite of yet
another interest rate hike in November, in the final three months of the year
investors shrugged off interest rate and seasonal and Y2K concerns. In so doing
they pushed the benchmark indices to record highs. The Russell 2000 recorded an
18.4% gain, the S&P 500 a 14.9% increase and the NASDAQ Composite a staggering
return of 48.3% for the quarter.
[LINE GRAPH]
THE S&P 500 INDEX PERFORMANCE:
July 1, 1998 to December 31, 1999
<TABLE>
<S> <C>
6/30/98 1133.84
7/2/98 1146.42
7/10/98 1164.33
7/17/98 1186.75
7/24/98 1140.8 S&P Index
7/31/98 1120.67
8/7/98 1089.45
8/14/98 1062.75
8/21/98 1081.18
8/28/98 1027.14
9/4/98 973.89
9/11/98 1009.06
9/18/98 1020.09
9/25/98 1044.75
10/2/98 1002.6
10/9/98 984.39
10/16/98 1056.42
10/23/98 1070.67
10/30/98 1098.67
11/6/98 1141.01
11/13/98 1125.72
11/20/98 1163.55
11/27/98 1192.29
12/4/98 1176.74
12/11/98 1166.46
12/18/98 1188.03
12/24/98 1226.27
12/31/98 1229.23
1/8/99 1275.09
1/15/99 1243.26
1/22/99 1225.19
1/29/99 1279.64
2/5/99 1239.4
2/12/99 1230.13
2/19/99 1239.19
2/26/99 1238.33
3/5/99 1275.47
3/12/99 1294.59
3/19/99 1299.29
3/26/99 1282.8
4/1/99 1293.72
4/9/99 1348.35
4/16/99 1319
4/23/99 1356.85
4/30/99 1335.18
5/7/99 1345
5/14/99 1337.8
5/21/99 1330.29
5/28/99 1301.84
6/4/99 1327.75
6/11/99 1293.64
6/18/99 1342.84
6/25/99 1315.31
6/30/99 1372.71
7/2/99 1391.22
7/9/99 1403.28
7/16/99 1418.78
7/23/99 1356.94
7/30/99 1328.72
8/6/99 1300.29
8/13/99 1327.68
8/20/99 1336.61
8/27/99 1348.27
9/3/99 1357.24
9/10/99 1351.66
9/17/99 1335.42
9/24/99 1277.36
10/1/99 1282.81
10/8/99 1336.02
10/15/99 1247.41
10/22/99 1301.65
10/29/99 1362.93
11/5/99 1370.23
11/12/99 1396.06
11/19/99 1422
11/26/99 1416.62
12/3/99 1422.3
12/10/99 1417.04
12/17/99 1421.05
12/24/99 1458.34
12/31/99 1469.25
</TABLE>
U.S. stocks experienced a roller-coaster ride in the six months ended December
31, 1999.
As the performances of the indices suggest, the rally was almost entirely
technology driven. In fact, investor focus remained concentrated on technology
and telecommunications stocks throughout the period; but when the Fed raised
rates at its November meeting, most market participants believed that rate
policy would not change for the balance of the year. Investors began to embrace
the view of a high-growth, low-inflation environment. As a result, investors
aggressively pursued high-growth stocks, particularly technology issues, and
growth stocks significantly outperformed value stocks. This phenomenon was
especially evident during the month of December, even though interest rates were
rising. Although we wouldn't characterize this period as strictly a tech stock
rally, growth derived from technology was clearly favored and growth potential
rather than valuation seemed to be the primary driver of price performance.
U.S. BONDS
December 31, 1999, marked the end of another difficult six months for the U.S.
bond market. Although the beginning of the period was marginally better than the
second quarter as yields began to stabilize, by the final three months of the
year bearish sentiment returned to the market as the economy showed little sign
of slowing, stoking inflation fears. As a result, yields continued to rise. In
addition, liquidity became progressively worse as dealers reduced positions
before year-end due to Y2K concerns.
The Federal Reserve Board raised short-term interest rates twice, once at its
August meeting and again in November, effectively taking back the cuts it had
implemented in 1998 when concerns were centered on deflation rather than
inflation. But rather than cool consumer spending and temper gains in the stock
market, the rate hikes appeared to have had little impact. The economy continued
its robust expansion, and stock market indices reached record highs while bond
returns suffered.
The world economy is being fueled by investment. Economic growth is strong and
getting stronger. We believe that investment spending is far less inflationary
than consumption spending and has kept inflation and interest rates lower than
expected. But this has proved to be a recipe for a tortuous bear market in
bonds, as the Fed has moved slowly to try to head off inflation pressures that
might occur from tight labor markets. So long as equity prices remain strong and
economic growth continues, bond prices may continue to be shackled. On a more
positive note, however, with real yields (yields adjusted for inflation) ending
2
<PAGE> 3
THE MONTGOMERY FUNDS
SEMIANNUAL REPORT
D E C E M B E R 3 1 , 1 9 9 9
(Unaudited)
U.S. TREASURY 30-YEAR BOND YIELD: JULY 1, 1998 TO DECEMBER 31, 1999
[LINE GRAPH]
<TABLE>
<S> <C>
6/30/98 5.627
7/31/98 5.713
8/31/98 5.338
9/30/98 4.84
10/31/98 5.157
11/30/98 5.159
12/31/98 5.095
1/31/99 5.086
2/28/99 5.576
3/31/99 5.596
4/30/99 5.662
5/31/99 5.828
6/30/99 5.963
7/31/99 6.1
8/31/99 6.1
9/30/99 6.1
10/31/99 6.2
11/30/99 6.3
12/31/99 6.5
</TABLE>
December 31, 1999 marked the end of another difficult six months for the U.S.
Bond Market.
the year at more than 4%, the highest level in 15 years, we think that the bond
market represents good value.
Within the market itself, the most interesting story over the six months was in
corporate bonds, where spreads have widened by nearly the same amount across the
credit spectrum. We believe that much of the general widening was justified, but
not the credit relationship. Corporate America has become much more leveraged
over the past 18 months, and credit quality is worse overall. As the next year
unfolds, we expect to see much greater differences between highly regarded
credits and those that are barely or below investment grade.
INTERNATIONAL EQUITIES
In Europe, as in the United States, the second half of 1999 began on a volatile
note, as investors became increasingly concerned about rising interest rates.
Japanese equities were driven up by foreign investment flows as the market began
to show early signs of a long-awaited recovery. But also reflecting U.S. trends,
sentiment had completely reversed by the final three months of the year, and the
markets in Europe and Japan were exceptionally strong. European benchmark
indices were pushed to all-time highs, and buying activity also picked up in
Japan. Throughout the rally, however, the focus remained narrow, as investors
were predominantly attracted to technology and telecommunications issues.
In Europe interest in telecommunications and technology was driven by a couple
of key events. First, the high-profile hostile bid by U.K. telecommunications
company Vodafone AirTouch for Germany-based Mannesmann raised the stakes in the
consolidation trend within the sector, and increased speculation about other
possible takeover targets. Second, the successful public offering of Spanish
telecommunications company Telefonica's Internet unit, Terra Networks, sparked
greater interest in technology, specifically Internet stocks.
The Japanese market was buoyed by a government announcement of a higher than
anticipated fiscal stimulus package. Following the release of disappointing
third-quarter statistics, the size of the government's fiscal stimulus helped
reassure investors that the country's economic recovery would continue.
Following this positive news, investors in Japan also gravitated toward
technology and telecommunications stocks.
Trends were similar in the emerging markets, which also performed well during
the final quarter of the year. Accelerating economic growth, declining interest
rates and stabilized currencies all contributed to positive market sentiment and
capital inflows. Once again, technology and telecommunications attracted a
disproportionate amount of interest.
3
<PAGE> 4
THE MONTGOMERY FUNDS
PERFORMANCE SUMMARY
D E C E M B E R 3 1 , 1 9 9 9
(Unaudited)
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
FUND NAME (FUND NUMBER) INCEPTION DATE ONE YEAR THREE YEARS FIVE YEARS SINCE INCEPTION
<S> <C> <C> <C> <C> <C>
MONTGOMERY U.S. EQUITY FUNDS
Growth Fund (284) 9/30/93 20.56% 15.19% 17.83% 20.74%
U.S. Emerging Growth Fund (294) 12/30/94 18.83% 17.68% 20.09% 20.07%
Small Cap Fund (276) 7/13/90 55.81% 21.12% 23.30% 21.09%
Equity Income Fund* (293) 9/30/94 (0.52)% 11.58% 17.31% 16.20%
MONTGOMERY INTERNATIONAL AND GLOBAL EQUITY FUNDS
International Growth Fund (296) 7/3/95 26.25% 21.41% -- 21.62%
International Small Cap Fund* (283) 9/30/93 7.33% 5.60% 8.63% 6.55%
Global Opportunities Fund (285) 9/30/93 57.53% 32.43% 26.76% 22.43%
Global Communications Fund (280) 6/1/93 104.02% 54.14% 35.83% 29.18%
Emerging Markets Fund (277) 3/1/92 63.16% (0.83)% (0.08)% 4.97%
Emerging Asia Fund (648) 9/30/96 56.00% (1.56)% -- 4.52%
MONTGOMERY MULTI-STRATEGY FUNDS
Global Long-Short Fund (1478) 12/31/97 135.07% -- -- 89.89%
Select 50 Fund (295) 10/2/95 45.29% 27.13% -- 28.10%
Balanced Fund** (291) 3/31/94 12.85% 12.56% 16.37% 17.71%
MONTGOMERY U.S. FIXED-INCOME AND MONEY MARKET FUNDS
Total Return Bond Fund (650) 6/30/97 (0.59)% -- -- 5.76%
Short Duration Government Bond Fund (279) 12/18/92 2.56% 5.61% 6.67% 6.09%
California Tax-Free Intermediate Bond Fund (281) 7/1/93 (1.24)% 4.03% 5.57% 4.63%
As of 12/31/99 ONE-DAY YIELD SEVEN-DAY YIELD
Government Money Market Fund (278) 9/14/92 5.39% 5.28%
Federal Tax-Free Money Fund (647) 7/15/96 3.27% 3.27%
California Tax-Free Money Fund (292) 9/30/94 2.42% 2.96%
</TABLE>
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Net asset value, investment
return and principal value of an investment will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than their original cost.
Performance information is for Class R (Retail) shares only. The performance
figures provided do not reflect the effect of (i) any securities purchased or
sold by the Funds after 12/31/99 but that were effective on 12/31/99 or (ii) any
purchases or redemptions of Fund shares completed after 12/31/99 that were
effective on 12/31/99. The performance figures for the Class R shares shown
above do not reflect the 0.25% Rule 12b-1 fees paid by the Class P shares that
would reduce performance.
Income from tax-free funds may be subject to the alternative minimum tax and/or
state and local taxes.
An investment in one of our money market funds is neither insured nor guaranteed
by the government. There can be no assurance that the money market funds will be
able to maintain a stable net asset value of $1 per share. Yields may fluctuate.
There are certain risks associated with investing in foreign markets, such as
currency fluctuations and political and economic instability. There are also
additional risks associated with investing in small-cap companies. Investors are
encouraged to read the prospectus carefully before investing.
The Montgomery Global Long-Short Fund uses sophisticated investment strategies
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.
Funds whose investments are concentrated in a specific industry or sector are
subject to a higher degree of risk than funds whose investments are diversified
and may not be suitable for all investors. In addition, technology securities
tend to be relatively volatile as compared with other types of investments.
* Closed to new investors.
** Formerly named the Montgomery U.S. Asset Allocation Fund.
4
<PAGE> 5
THE MONTGOMERY FUNDS
GROWTH FUND
PORTFOLIO HIGHLIGHTS
(Unaudited)
I N V E S T M E N T R E V I E W
Q: HOW DID THE FUND PERFORM IN THE SIX MONTHS ENDED DECEMBER 31, 1999?
A: The Montgomery Growth Fund enjoyed strong absolute results, returning 12.44%
for the fourth quarter, but fell short of the S&P 500's performance over the six
months, returning 2.14%, versus 7.71% for the benchmark. For the calendar year
1999, however, the Fund was up more than 20.00%.
Q: WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A: Two important areas contributed to the Fund's performance in the most recent
period: stock selection and risk control. In terms of stock selection, our
strategy is to invest in strong companies that we believe offer an opportunity
for future earnings growth and to buy them when they are available at reasonable
prices. At the same time, by not overpaying for current growth we are able to
dampen the risk exposure of the portfolio. In fact, the risk of the Montgomery
Growth Fund, as measured by its beta, is 20% less than that of the overall
market. This inclusion of risk management caused us to underweight the most
highly valued technology and telecom stocks, the market's best performers for
the period.
Q: WERE THERE ANY STOCKS THAT PERFORMED PARTICULARLY WELL OVER THE PERIOD?
A: Technological innovation is having an increasingly positive impact on our
economy and our lives and, likewise, the Fund profited from our holdings in
several technology companies. Examples of strong contributors include Motorola,
Sony and Comverse Technology (2.57%, 3.73%, and 1.77% of net assets as of
12/31/99). Each of these companies is a leader within its respective industry.
In 1998 the impact of the Asian crisis had a negative effect on the revenue and
earnings growth-rate of these companies. Despite a temporary slowdown, we
believed in their long-term growth prospects and used the weakness created by
the Asian crisis to add to the Fund's positions in each of them. Of course, they
benefited both from a snap-back in the global markets as well as continued
growth in the areas of wireless communications and the Internet.
As their stocks have moved sharply higher, we have recently trimmed each of
these holdings.
We also own companies that benefit from implementing and using new technologies.
FedEx (2.43% of net assets as of 12/31/99) positively contributed to the Fund's
performance and is an example of just such a company. It effectively uses the
latest available technology for the benefit of its business and customers. By
leveraging technology in areas such as route optimization, package tracking and
cargo sorting, FedEx can reduce its operating costs, add new markets and build
customer loyalty. This should help drive the company's growth for years to come.
Good stock selection in the basic materials sector was another positive factor
in the Fund's performance. For example, the shares of aluminum producer Alcoa
(5.48% of net assets as of 12/31/99) were up more than 100% in 1999, making
Alcoa the single best performer in the Dow Jones Industrial Average. The company
is a dominant global competitor and has proven its ability to produce solid
earnings
PORTFOLIO MANAGEMENT
ROGER HONOUR ...........................................Senior Portfolio Manager
KATHRYN PETERS ................................................Portfolio Manager
FUND PERFORMANCE
Average annual total returns
for the period ended 12/31/99
<TABLE>
MONTGOMERY GROWTH FUND
<S> <C>
Since inception (9/30/93) 20.74%
One year 20.56%
Five years 17.83%
</TABLE>
<TABLE>
S&P 500 INDEX
<S> <C>
Since 9/30/93 22.96%
One year 21.04%
Five years 28.56%
</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.
[GROWTH OF A $10,000 INVESTMENT GRAPH]
<TABLE>
<CAPTION>
Growth Fund S&P 500 Lipper
----------- ------- ------
<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
</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 333 funds.
5
<PAGE> 6
The Montgomery Funds
GROWTH FUND
Portfolio Highlights
<TABLE>
<CAPTION>
TOP TEN HOLDINGS
(as a percentage of total net assets)
<S> <C>
Alcoa, Inc. 5.5%
Dow Chemical Company 4.2%
Whirlpool Corporation 4.1%
First Health Group Corporation 3.9%
Sony Corporation, ADR 3.7%
Rio Tinto PLC, ADR 3.3%
Golden West Financial Corporation 2.9%
Amerada Hess Corporation 2.8%
Matsushita Electric Industrial Co., Ltd., ADR 2.7%
Boise Cascade Corporation 2.6%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE INDUSTRIES
(as a percentage of total net assets)
<S> <C>
Consumer Electronics/Appliances 7.8%
Paper 5.5%
Aluminum 5.5%
EDP Services 4.3%
Telecommunications Equipment 4.3%
</TABLE>
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
growth even while the underlying price of aluminum was down. Higher metal prices
would only serve to leverage the growth prospects of the company.
Q: DID YOU MAKE ANY NOTABLE CHANGES TO THE FUND'S POSITIONING OVER THE
PERIOD?
A: No. As we noted before, we continued to choose investments for the Fund based
on our stock selection process. Specifically, we continued to seek out companies
that are undergoing positive fundamental change that we believe will ensure good
long-term growth prospects and are trading at attractive valuations. Our
bottom-up process has led us to an overweight position in industrial materials
and energy companies. We think this sector will continue to be driven by
increased demand for the building blocks of global infrastructure.
Q: HOW DOES THE FUND'S CURRENT POSITIONING REFLECT YOUR VIEW OF THE MARKET
LOOKING FORWARD?
A: While we view the "new economy" -- in which technology, telecommunications
and the Internet are driving productivity higher, which in turn promotes faster
economic growth with modest inflation -- as the second Industrial Revolution,
the excitement surrounding technology stocks has created speculative interest in
the sector. With the industry's current strong growth, investors have pushed up
the prices of many technology stocks to levels that we believe to be overvalued
and unsustainable. This belief is enforced by the huge amount of venture
capital being invested in the sector and the seemingly endless flow of
competitive new companies that are going public in this space (more than 700 in
1999 alone).
Through our stock selection process, we have identified interesting
opportunities in sectors outside technology, most notably in
infrastructure-related industries. Accelerating global economic growth is having
a positive effect on world markets. For the past 27 years, the global economy
has grown, on average, 3.7% annually. In 1998 the world economy outside the U.S.
did not grow due to the Asian economic crisis. The global economy bottomed in
early 1999 and has since begun to gather momentum. In addition, while the
industrialized nations are in what we believe is the second Industrial
Revolution driven by the "new economy," developing countries (which represent
the vast majority of the world's population) are still in their first Industrial
Revolution and may even go through the first and second Industrial Revolutions
at the same time.
A fascinating result of this is the increased flow of capital throughout the
globe, which is funding the construction of factories and infrastructure around
the world. Besides technology and telecommunications, the increasing demand for
energy and materials to build the developing economies' infrastructures offers
tremendous opportunities for companies positioned to take advantage of these
trends. With our well-diversified portfolio, as well as our investments in both
builders and users of technology, we are confident that the Fund's current
positioning is optimal for long-term success. We thank you for your continued
confidence.
6
<PAGE> 7
The Montgomery Funds
GROWTH FUND
I n v e s t m e n t s
P O R T F O L I O I N V E S T M E N T S
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - 97.4%
AIR FREIGHT/DELIVERY SERVICES - 3.3%
340,000 FedEx Corporation+ ........................... $ 13,918,750
75,500 United Parcel Service Inc., Class B .......... 5,209,500
-------------
19,128,250
ALUMINUM - 5.5%
380,000 Alcoa, Inc. .................................. 31,540,000
BOOKS/MAGAZINES - 1.0%
140,000 Harcourt General, Inc. ....................... 5,635,000
CLOTHING/SHOE/ACCESSORY STORES - 2.7%
400,000 Nordstrom, Inc. .............................. 10,475,000
240,000 TJX Companies, Inc. .......................... 4,905,000
-------------
15,380,000
COMPUTER SOFTWARE - 1.8%
780,000 Avid Technology, Inc.+ ....................... 10,164,375
CONSTRUCTION/AGRICULTURE EQUIPMENT/TRUCKS - 1.8%
230,000 PACCAR, Inc. ................................. 10,191,875
CONSUMER ELECTRONICS/APPLIANCES - 7.8%
75,000 Sony Corporation, ADR ........................ 21,356,250
360,000 Whirlpool Corporation ........................ 23,422,500
-------------
44,778,750
CONTRACT DRILLING - 0.2%
34,920 Transocean Sedco Forex, Inc. ................. 1,176,368
DISCOUNT STORES - 1.8%
1,000,000 Kmart Corporation+ ........................... 10,062,500
DIVERSIFIED COMMERCIAL SERVICES - 1.3%
250,000 Convergys Corporation+ ....................... 7,687,500
DIVERSIFIED ELECTRONIC PRODUCTS - 3.5%
40,000 Hewlett-Packard Company ...................... 4,557,500
55,000 Matsushita Electric Industrial
Co., Ltd., ADR ............................... 15,345,000
-------------
19,902,500
DIVERSIFIED FINANCIAL SERVICES - 1.0%
220,000 Stancorp Financial Group, Inc. ............... 5,541,250
DIVERSIFIED MANUFACTURE - 2.5%
350,000 Thermo Electron Corporation+ ................. 5,250,000
228,600 Tyco International Ltd. ...................... 8,886,825
-------------
14,136,825
EDP SERVICES - 4.3%
90,000 Computer Sciences Corporation+ ............... 8,516,250
180,000 Electronic Data Systems Corporation .......... 12,048,750
150,000 Infonet Services Corporation+ ................ 3,937,500
-------------
24,502,500
ENVIRONMENTAL SERVICES - 1.6%
640,000 Republic Services, Inc., Class A+ ............ 9,200,000
FINANCE COMPANIES - 1.7%
200,000 Capital One Financial Corporation ............ 9,637,500
FOOD DISTRIBUTORS - 0.7%
400,000 Fleming Companies, Inc. ...................... 4,100,000
FOREST PRODUCTS - 2.5%
200,000 Weyerhauser Company .......................... 14,362,500
INTEGRATED OIL COMPANIES - 2.8%
280,000 Amerada Hess Corporation ..................... 15,890,000
MAJOR BANKS - 1.3%
150,000 Bank of America Corporation .................. 7,528,125
MAJOR CHEMICALS - 4.2%
180,000 Dow Chemical Company ......................... 24,052,500
MAJOR PHARMACEUTICALS - 1.2%
150,000 Pharmacia & Upjohn, Inc. ..................... 6,750,000
MANAGED HEALTH CARE - 3.9%
820,000 First Health Group Corporation+ .............. 22,191,250
MEDIA CONGLOMERATES - 1.6%
270,000 News Corporation Ltd., ADR ................... 9,028,125
MEDICAL SPECIALTIES - 2.4%
200,000 Bausch & Lomb, Inc. .......................... 13,687,500
MILITARY/GOVERNMENT/TECHNICAL - 2.1%
125,000 General Motors Corporation, Class H+ ......... 12,000,000
MOTOR VEHICLES - 1.4%
110,000 General Motors Corporation ................... 7,995,625
MOVIES/TELEVISION - 1.0%
220,000 Fox Entertainment Group, Inc., Class A+ ...... 5,486,250
MULTI-SECTOR COMPANIES - 0.9%
80,000 Loews Corporation ............................ 4,855,000
OFFICE/PLANT AUTOMATION - 0.9%
240,000 Newbridge Networks Corporation+ .............. 5,415,000
OIL AND GAS PRODUCTION - 2.2%
1,000,000 Union Pacific Resources Group, Inc. .......... 12,750,000
OILFIELD SERVICES/EQUIPMENT - 1.8%
180,000 Schlumberger Ltd. ............................ 10,125,000
OTHER METALS/MINERALS - 3.3%
200,000 Rio Tinto PLC, ADR ........................... 18,950,000
OTHER TELEPHONE/COMMUNICATION - 1.3%
360,000 COMSAT Corporation ........................... 7,155,000
PACKAGED FOODS - 1.0%
367,000 Dole Food Co., Inc. .......................... 5,963,750
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
The Montgomery Funds
GROWTH FUND
I n v e s t m e n t s
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - CONTINUED
PAPER - 5.5%
370,000 Boise Cascade Corporation .................... $ 14,985,000
140,000 Champion International Corporation ........... 8,671,250
140,000 International Paper Company .................. 7,901,250
-------------
31,557,500
PRINTING/FORMS - 1.8%
420,000 Donnelley (R.R.) & Sons Company .............. 10,421,250
RAILROADS - 3.5%
340,000 Canadian National Railway Company ............ 8,946,250
260,000 Union Pacific Corporation .................... 11,342,500
-------------
20,288,750
REAL ESTATE INVESTMENT TRUSTS - 0.6%
400,000 Host Marriott Corporation .................... 3,300,000
SAVINGS AND LOAN ASSOCIATIONS - 2.9%
500,000 Golden West Financial Corporation ............ 16,750,000
TECHNOLOGY - 0.5%
40,000 Agilent Technologies, Inc.+ .................. 3,092,500
TELECOMMUNICATIONS EQUIPMENT - 4.3%
70,000 Comverse Technology, Inc.+ ................... 10,130,312
100,000 Motorola, Inc. ............................... 14,725,000
-------------
24,855,312
TOTAL COMMON STOCKS
(Cost $409,535,130) ........................................ 557,216,130
-------------
MONEY MARKET FUND - 0.0%@
98,044 Chase Vista Federal Money Market Fund
(Cost $98,044) ............................... 98,044
-------------
TOTAL SECURITIES
(Cost $409,633,174) ........................................ 557,314,174
-------------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C>
REPURCHASE AGREEMENTS - 1.6%
$ 8,870,000 Agreement with Greenwich Capital
Markets, Tri-Party, 5.500% dated 12/31/99,
to be repurchased at $8,874,010 on
01/03/00, collateralized by $9,047,576
market value of U.S. government and
mortgage-backed securities, having various
maturities and interest rates
(Cost $8,870,000) ............................ $ 8,870,000
-------------
TOTAL INVESTMENTS- 99.0%
(Cost $418,503,174*) ....................................... 566,184,174
OTHER ASSETS AND LIABILITIES - 1.0%
(Net) ...................................................... 5,823,303
-------------
NET ASSETS - 100.0% ........................................ $ 572,007,477
=============
</TABLE>
(*) Aggregate cost for federal tax purposes.
+ Non-income-producing security.
@ Amount represents less than 0.1%.
Abbreviations
ADR American Depositary Receipt
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 9
The Montgomery Funds
U.S. EMERGING
GROWTH FUND
Portfolio Highlights
(Unaudited)
I N V E S T M E N T R E V I E W
Q: HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED DECEMBER 31, 1999?
A: We are pleased to report that the Fund performed extremely well over the
period, returning 24.17%, versus a 10.96% return for its benchmark, the Russell
2000 Index.
Q: WHAT FACTORS CONTRIBUTED TO THE FUND'S STRONG RETURNS?
A: The Fund's technology holdings proved to be the biggest contributors to its
strong relative performance against the benchmark. Throughout 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. In fact, the final three months of 1999 saw the widest divergence
between growth and value stocks since the launch of the Russell 2000 style
indices in 1993. To perform well, any Fund had to have at least an established
market weighting in technology.
The Fund was well positioned in this regard. Taking advantage of some very
attractive opportunities that we had identified earlier in the period, we
increased our technology exposure, which allowed us to participate in the
late-year rally in that sector. In addition, strong stock selection further
boosted relative returns.
Q: DID YOU MAKE ANY CHANGES TO YOUR STRATEGY OVER THE PERIOD?
A: Our strategy remained dictated by our bottom-up stock selection process
throughout the period. Our process involves identifying small-cap growth
companies with improving business fundamentals that are trading at reasonable
valuations. 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 technology
stocks that we already held accounted for our increased technology weighting.
Given the rapid gains of the portfolio's technology holdings and their resulting
high valuations, we have begun to trim the portfolio's exposure to this sector
on a stock-by-stock basis and take profits. Based on our sell discipline, which
involves trimming a position when our return objective has been achieved and the
stock is no longer attractive on a valuation basis, we have reduced our
technology exposure.
Q: WERE THERE ANY STOCKS THAT MADE PARTICULARLY STRONG CONTRIBUTIONS TO
PERFORMANCE?
A: Stocks that made particularly strong contributions to performance included
Optical Coating Laboratories, Inc. (3.82% of net assets as of 12/31/99) and
Comverse Technology (5.05% of net assets as of 12/31/99) on the technology side.
And because performance was concentrated mainly in technology, we were
particularly pleased with the performance of some non-technology companies, such
as Westwood One, Inc. (4.80% of net assets as of 12/31/99).
PORTFOLIO MANAGEMENT
<TABLE>
<S> <C>
Roger Honour ......... Senior Portfolio Manager
Kathryn Peters ....... Portfolio Manager
</TABLE>
FUND PERFORMANCE
Average annual total returns
for the period ended 12/31/99
MONTGOMERY U.S.
EMERGING GROWTH FUND
<TABLE>
<S> <C>
Since inception (12/30/94) ... 20.07%
One year ..................... 18.83%
Five years ................... 20.09%
</TABLE>
RUSSELL 2000 INDEX
<TABLE>
<S> <C>
Since 12/30/94 ............... 16.69%
One year ..................... 21.26%
Five years ................... 16.69%
</TABLE>
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
<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
</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 269 funds.
9
<PAGE> 10
The Montgomery Funds
U.S. EMERGING
GROWTH FUND
Portfolio Highlights
TOP TEN HOLDINGS
(as a percentage of total net assets)
<TABLE>
<S> <C>
MICROS Systems, Inc. ................. 5.2%
Comverse Technology, Inc. ............ 5.0%
Westwood One, Inc. ................... 4.8%
Duane Reade, Inc. .................... 3.9%
Optical Coating Laboratories, Inc. ... 3.8%
Esat Telecom Group PLC, ADR .......... 3.2%
On Assignment, Inc. .................. 2.9%
PerkinElmer, Inc. .................... 2.8%
First Health Group Corporation ....... 2.7%
Manitowoc Company, Inc. .............. 2.5%
</TABLE>
TOP FIVE INDUSTRIES
(as a percentage of total net assets)
<TABLE>
<S> <C>
Computer Software .................... 12.7%
Telecommunications Equipment ......... 12.1%
Diversified Commercial Services ...... 7.6%
Movies/Television .................... 4.8%
Paper ................................ 4.3%
</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.
Optical Coating Laboratories, Inc., which manufactures thin film coatings and
components for fiber-optic communication systems including dense-wavelength
division multiplexing, an area that is growing rapidly due to increased
bandwidth demand, was the biggest contributor to performance. We first started
to accumulate the stock in May, recognizing its potential, and added to the
position on subsequent pullbacks in July and August. The stock performed
extremely well, and in early November it was announced that Optical Coating
would be acquired by its joint venture partner, JDS Uniphase. The stock
continued its rapid appreciation through the remainder of the year.
Comverse Technology, a stock we have owned for several years, 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 see further earnings
growth acceleration 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.
Broadcast company Westwood One is the largest owner of radio content,
particularly local content, such as traffic, news, sports and weather. Westwood
One bought Metro Networks, a stock we had owned since 1996, earlier in the year.
The company is benefiting from an increase in advertising rates as a result of
Internet companies vying to get their messages out and build brand names for
themselves.
Q: WHAT OPPORTUNITIES ARE YOU CURRENTLY MOST EXCITED ABOUT, AND HOW IS THE FUND
POSITIONED TO TAKE ADVANTAGE OF THEM?
A: Looking forward to the New Year, we are excited about opportunities in
multiple sectors. We believe that there are many attractively valued stocks that
have been overlooked due to the narrow focus of investors on the technology
sector in 1999. Because the Fund remains well diversified across sectors, and,
in our view, the stocks we own are fundamentally strong, we believe that the
Fund is well placed to take advantage of any broadening in investor interest. In
the meantime, although we have reduced our weighting in the technology sector,
we continue to maintain a healthy exposure to technology companies that meet our
criteria for inclusion in the Fund based on our stock selection process.
10
<PAGE> 11
The Montgomery Funds
U.S. EMERGING
GROWTH FUND
I n v e s t m e n t s
P O R T F O L I O I N V E S T M E N T S
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - 98.4%
AEROSPACE/DEFENSE - 1.4%
155,000 Moog, Inc., Class A+ .......................... $ 4,185,000
BIOTECHNOLOGY - 0.6%
35,500 Gilead Sciences, Inc.+ ........................ 1,919,219
BROADCASTING - 4.8%
190,000 Westwood One, Inc.+ ........................... 14,440,000
BUILDING PRODUCTS - 2.3%
231,000 Elcor Corporation ............................. 6,958,875
CLOTHING/SHOE/ACCESSORY STORES - 1.6%
57,000 Men's Wearhouse, Inc. (The)+ .................. 1,677,937
67,200 Talbots, Inc. ................................. 2,998,800
-----------
4,676,737
COMPUTER SOFTWARE - 12.7%
13,500 BroadVision, Inc. ............................. 2,295,844
42,000 Business Objects S.A.+ ........................ 5,583,375
185,900 Concurrent Computer Corporation+ .............. 3,491,435
53,000 Genesys Telecomm Laboratories, Inc.+ .......... 2,870,281
93,400 Macromedia, Inc.+ ............................. 6,829,875
17,500 Metasolv Software, Inc.+ ...................... 1,445,937
213,000 MICROS Systems, Inc.+ ......................... 15,781,969
-----------
38,298,716
COMPUTER/VIDEO CHAINS - 0.6%
73,300 Ultimate Electronics, Inc.+ ................... 1,809,594
CONSTRUCTION/AGRICULTURE EQUIPMENT/TRUCKS - 2.5%
224,600 Manitowoc Company, Inc. ....................... 7,636,400
CONSUMER ELECTRONICS/APPLIANCES - 1.2%
55,000 Whirlpool Corporation ......................... 3,578,437
CONTRACT DRILLING - 1.2%
270,000 R&B Falcon Corporation+ ....................... 3,577,500
DISCOUNT STORES - 0.8%
87,700 Ames Department Stores, Inc.+ ................. 2,524,128
DIVERSIFIED COMMERCIAL SERVICES - 7.6%
123,000 Administaff, Inc.+ ............................ 3,720,750
900 Avert, Inc. ................................... 11,250
41,000 Catalina Marketing Corporation+ ............... 4,745,750
296,000 On Assignment, Inc.+ .......................... 8,796,750
106,700 Profit Recovery Group International, Inc.+ .... 2,830,884
175,000 TETRA Tech, Inc.+ ............................. 2,701,562
-----------
22,806,946
DIVERSIFIED FINANCIAL SERVICES - 0.8%
100,000 Stancorp Financial Group, Inc. (The) .......... 2,518,750
DRUG STORE CHAINS - 3.9%
420,000 Duane Reade, Inc.+ ............................ 11,576,250
EDP SERVICES - 1.3%
161,000 Acxiom Corporation+ ........................... 3,869,031
ELECTRONIC COMPONENTS - 4.3%
164,000 Applied Power, Inc., Class A .................. 6,027,000
96,000 California Amplifier, Inc.+ ................... 2,520,000
33,700 Plexus Corporation+ ........................... 1,491,225
29,200 Sanmina Corporation+ .......................... 2,897,195
-----------
12,935,420
ELECTRONIC PRODUCTION EQUIPMENT - 2.6%
56,700 Cymer, Inc.+ .................................. 2,611,744
19,200 KLA-Tencor Corporation+ ....................... 2,137,800
28,000 Lam Research Corporation+ ..................... 3,125,500
-----------
7,875,044
ENGINEERING AND CONSTRUCTION - 0.6%
103,000 Granite Construction, Inc. .................... 1,899,062
ENVIRONMENTAL SERVICES - 1.3%
200,000 Casella Waste Systems, Inc., Class A+ ......... 3,781,250
FOOD CHAINS - 0.1%
9,000 Whole Foods Market, Inc.+ ..................... 415,687
HOME FURNISHINGS - 0.6%
105,400 Westpoint Stevens, Inc. ....................... 1,844,500
INTERNET SERVICES - 0.8%
12,000 Verisign, Inc.+ ............................... 2,281,872
INVESTMENT BANKERS/BROKERS/SERVICES - 1.1%
120,000 Waddell & Reed Financial, Inc., Class A ....... 3,255,000
MAJOR PHARMACEUTICALS - 1.7%
364,000 Catalytica, Inc.+ ............................. 4,959,500
MANAGED HEALTH CARE - 3.7%
305,500 First Health Group Corporation+ ............... 8,267,594
234,000 Oxford Health Plans, Inc.+ .................... 2,976,187
-----------
11,243,781
MEDICAL SPECIALTIES - 1.3%
140,000 Cerus Corporation+ ............................ 3,762,500
OFFICE/PLANT AUTOMATION - 1.2%
59,500 Kronos, Inc.+ ................................. 3,633,219
OIL AND GAS PRODUCTION - 1.9%
100,000 Newfield Exploration Company+ ................. 2,675,000
366,000 Santa Fe Snyder Corporation+ .................. 2,928,000
-----------
5,603,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 12
The Montgomery Funds
U.S. EMERGING
GROWTH FUND
I n v e s t m e n t s
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - CONTINUED
OILFIELD SERVICES/EQUIPMENT - 1.6%
81,900 UTI Energy Corporation+ ....................... $ 1,888,819
290,000 Varco International, Inc.+ .................... 2,954,375
-------------
4,843,194
OTHER CONSUMER SERVICES - 2.0%
31,000 Echostar Communications, Class A+ ............. 2,950,828
223,000 Education Management Corporation+ ............. 3,115,031
-------------
6,065,859
OTHER SPECIALTY STORES - 1.4%
141,000 Linens 'N Things, Inc.+ ....................... 4,177,125
OTHER TELEPHONE/COMMUNICATION - 3.2%
103,200 Esat Telecom Group PLC, ADR+ .................. 9,571,800
PACKAGE GOODS/COSMETICS - 1.1%
210,000 Playtex Products, Inc.+ ....................... 3,228,750
PAPER - 4.3%
155,000 Mead Corporation .............................. 6,732,812
136,000 Willamette Industries, Inc. ................... 6,315,500
-------------
13,048,312
PRECISION INSTRUMENTS- 2.8%
204,500 PerkinElmer, Inc. ............................. 8,525,094
RESTAURANTS - 1.5%
158,000 CEC Entertainment, Inc.+ ...................... 4,483,250
SAVINGS AND LOAN ASSOCIATIONS - 1.2%
49,000 Bank United Corporation, Class A .............. 1,321,469
130,000 Commercial Federal Corporation ................ 2,315,625
-------------
3,637,094
SEMICONDUCTORS - 0.5%
5,500 Broadcom Corporation+ ......................... 1,501,500
SPECIALTY INSURERS - 2.2%
140,493 Radian Group, Inc. ............................ 6,708,541
TELECOMMUNICATIONS EQUIPMENT - 12.1%
67,700 Carrier Access Corporation+ ................... 4,597,253
105,000 Comverse Technology, Inc.+ .................... 15,195,469
14,800 Juniper Networks, Inc.+ ....................... 5,098,137
39,000 Optical Coating Laboratories, Inc. ............ 11,495,250
-------------
36,386,109
TOTAL COMMON STOCKS
(Cost $179,435,895) ......................................... 296,042,046
-------------
TOTAL INVESTMENTS- 98.4%
(Cost $179,435,895*) ........................................ $ 296,042,046
OTHER ASSETS AND LIABILITIES - 1.6%
(Net) ....................................................... 4,845,851
-------------
NET ASSETS - 100.0% ......................................... $ 300,887,897
=============
</TABLE>
(*) Aggregate cost for federal tax purposes.
+ Non-income-producing security.
Abbreviations
ADR American Depositary Receipt
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 13
The Montgomery Funds
SMALL CAP FUND
Portfolio Highlights
(Unaudited)
I N V E S T M E N T R E V I E W
Q: HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED DECEMBER 31, 1999?
A: We are pleased to report that the Fund performed exceptionally well in the
second half of 1999, buoyed by particularly strong relative results in the final
three months of the year. The Fund returned 41.79%, versus a return of 10.96%
for its benchmark, the Russell 2000 Index, and a 26.83% return for the Russell
2000 Growth Index.
Q: WHAT FACTORS CONTRIBUTED TO THE FUND'S STRONG RESULTS?
A: As a result of our technology, communications and biotech holdings, the
performance of the Fund compared very favorably with its benchmark throughout
the period. Even though the first three months of 1999 were not favorable to
equities, the final three months were nothing short of spectacular for domestic
equity markets. As interest rate seasonal and Y2K concerns began to dissipate,
stock prices significantly appreciated. Investors embraced the view of a
high-growth, low-inflation environment and aggressively pursued high-growth
stocks, particularly technology issues, which significantly outperformed value
stocks.
The Fund was well positioned to take advantage of this trend, entering October
with a 19.50% weighting in technology stocks and a 13.10% weighting in
telecommunications-related securities. Many of our investments in semiconductor
manufacturing companies appreciated significantly as order flows continued to
increase. We see strong revenue opportunities as semiconductor companies expand
manufacturing capacity, invest in 300-mm production and build copper-based chip
technology. Our communications holdings, including media companies, also
registered solid gains, and biotechnology stocks strongly contributed to the
portfolio's performance throughout the period. After trimming several positions
in the third quarter due to their rapid appreciation, we used price
opportunities in October and November to increase existing positions and
initiate some new ones.
Q: WERE THERE ANY COMPANIES THAT MADE A PARTICULARLY STRONG CONTRIBUTION TO
PERFORMANCE?
A: Similar to the overall market indices, performance was strongest in the
Fund's higher-growth companies. For instance, the value of Echostar (5.56% of
net assets as of 12/31/99), a satellite cable television company, made
significant gains over the final three months of the year. Investors reacted to
favorable legislation which will double the company's addressable market. Other
contributors to the portfolio's performance included Conexant (3.54% of net
assets as of 12/31/99) and Applied Micro Circuits (2.32% of net assets as of
12/31/99), both of which experienced rapid revenue growth in communications
semiconductors, and were rewarded by investors.
In biotechnology two notable successes included IDEC Pharmaceuticals (1.91% of
net assets as of 12/31/99), which sells an anti-cancer compound called Rituxan,
and Medimmune (1.61% of net assets as of 12/31/99). Several presentations at a
physicians' conference in December suggested a dramatic change in the market
outlook for IDEC Pharmaceuticals' product. Medimmune's Synagis compound treats
newborn pediatric patients and continues to rapidly penetrate the market.
PORTFOLIO MANAGEMENT
<TABLE>
<S> <C>
Stuart Roberts ...... Senior Portfolio Manager
Brad Kidwell ........ Portfolio Manager
Cam Philpott, CFA ... Portfolio Manager
</TABLE>
FUND PERFORMANCE
Average annual total returns
for the period ended 12/31/99
MONTGOMERY SMALL CAP FUND
<TABLE>
<S> <C>
Since inception (7/13/90) ............ 21.09%
One year ............................. 55.81%
Five years ........................... 23.30%
</TABLE>
RUSSELL 2000 INDEX
<TABLE>
<S> <C>
Since 7/13/90 ........................ 13.98%
One year ............................. 21.26%
Five years ........................... 16.69%
</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.
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
<TABLE>
<CAPTION>
Small Cap S&P 500 Lipper
<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
</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 77 funds.
13
<PAGE> 14
The Montgomery Funds
SMALL CAP FUND
Portfolio Highlights
TOP TEN HOLDINGS
(as a percentage of total net assets)
<TABLE>
<S> <C>
Echostar Communications, Class A .......... 5.6%
USA Networks, Inc. ........................ 4.3%
Conexant Systems, Inc. .................... 3.5%
Pegasus Communications Corporation ........ 3.2%
AT&T Corporation Liberty Media, Class A ... 3.2%
McLeod USA, Inc. .......................... 2.6%
Winstar Communications, Inc. .............. 2.6%
Intermedia Communications, Inc. ........... 2.5%
Viatel, Inc. .............................. 2.5%
VerticalNet, Inc. ......................... 2.4%
</TABLE>
TOP FIVE INDUSTRIES
(as a percentage of total net assets)
<TABLE>
<S> <C>
Other Telephone/Communication ............. 9.6%
Biotechnology ............................. 8.7%
Electronic Production Equipment ........... 8.4%
Media Conglomerates ....................... 7.5%
Internet Services ......................... 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 small-cap companies, which tend to
be more volatile and less liquid than stocks of large companies, including the
increased risks of price fluctuations.
Q: WERE THERE ANY STOCKS THAT DISAPPOINTED?
A: Unfortunately, not every stock participated in the fourth-quarter small-cap
rally. For the most part, lower-multiple, lower-growth stocks continued to
languish. Rising interest rates pressured consumer-related stocks and companies
in the financial sector. Smithfield Foods (2.33% of net assets as of 12/31/99)
was one that fell into this category. The revenue potential of the nation's
largest pork producer did not materially change during the quarter, and the
stock continues to trade at roughly 10 times earnings with 20% plus
earnings-growth prospects. Ultimately, however, we believe that earnings will
again drive stock prices. Over the past six months, multiple expansion has been
an uneven and more dominant factor.
Q: WHAT TRENDS DO YOU SEE DEVELOPING IN THE SMALL-CAP ARENA IN THE YEAR 2000,
AND HOW IS THE FUND POSITIONED TO TAKE ADVANTAGE OF THEM?
A: Looking forward, we see a number of potential issues arising as we enter the
Year 2000. We find that stock valuations, particularly in the technology area,
leave little room for earnings disappointments. Interest rates also continue to
be an area of concern. Although the inflation outlook is currently benign, the
economy doesn't appear to be slowing significantly, and this may result in
further hikes from the Federal Reserve. At a minimum we expect to see higher
volatility in the markets surrounding those dates when macroeconomic data is
reported. Last year investors focused on companies with higher growth rates, and
valuations increased despite higher interest rates. Historically, higher
interest rate levels have tended to compress equity valuations, so the market
could be vulnerable should investor focus shift if interest rates continue to
rise.
Our defense against these risks is to focus on including only high-quality
companies in the Fund. Our efforts are directed at understanding the earnings
potential of the companies that we invest in and carefully balancing the
risk/reward characteristics of each investment. On that front we are optimistic
about the fundamentals of the companies in the Fund as we look ahead. We
strongly believe that earnings growth ultimately dictates stock prices.
14
<PAGE> 15
The Montgomery Funds
SMALL CAP FUND
I n v e s t m e n t s
P O R T F O L I O I N V E S T M E N T S
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - 98.1%
ALCOHOLIC BEVERAGES - 1.7%
54,000 Canandaigua Wine Company, Inc.,
Class A+ ....................................... $ 2,754,000
BIOTECHNOLOGY - 8.7%
28,000 Alkermes, Inc.+ ................................ 1,373,750
24,000 Biocryst Pharmaceuticals, Inc.+ ................ 706,500
40,000 COR Therapeutics, Inc.+ ........................ 1,077,500
32,000 Enzon, Inc.+ ................................... 1,384,000
38,000 Gilead Sciences, Inc.+ ......................... 2,054,375
32,000 IDEC Pharmaceuticals Corporation+ .............. 3,141,000
16,000 Medimmune, Inc.+ ............................... 2,653,000
40,000 Titan Pharmaceuticals, Inc.+ ................... 760,000
30,000 Viropharma, Inc.+ .............................. 1,115,625
-------------
14,265,750
BROADCASTING - 2.7%
53,900 Cumulus Media, Inc.+ ........................... 2,732,056
13,600 Emmis Broadcasting Corporation+ ................ 1,695,325
-------------
4,427,381
CABLE TELEVISION - 3.2%
54,600 Pegasus Communications Corporation+ ............ 5,289,375
COMPUTER COMMUNICATIONS - 2.3%
30,000 Applied Micro Circuits Corporation+ ............ 3,821,250
COMPUTER SOFTWARE - 3.1%
35,200 Avant! Corporation+ ............................ 529,100
7,500 HNC Software, Inc.+ ............................ 793,125
26,000 Peregrine Systems, Inc.+ ....................... 2,186,437
33,000 Remedy Corporation+ ............................ 1,569,563
-------------
5,078,225
COMPUTER/VIDEO CHAINS - 0.3%
15,900 Rex Stores Corporation+ ........................ 556,500
CONSUMER SUNDRIES - 0.7%
45,000 American Greetings Corporation, Class A ........ 1,063,125
DIVERSIFIED COMMERCIAL SERVICES - 2.2%
32,000 Getty Images, Inc.+ ............................ 1,568,000
66,100 Nova Corporation (Georgia)+ .................... 2,086,281
-------------
3,654,281
EDP SERVICES - 4.8%
40,000 BISYS Group, Inc. (The)+ ....................... 2,607,500
46,000 CSG Systems International, Inc.+ ............... 1,819,875
24,000 DST Systems, Inc.+ ............................. 1,831,500
16,000 QRS Corporation+ ............................... 1,684,500
-------------
7,943,375
ELECTRONIC COMPONENTS - 1.5%
52,000 Flextronics International Ltd.+ ................ 2,393,625
ELECTRONIC PRODUCTION EQUIPMENT - 8.4%
48,000 Advanced Energy Industries, Inc.+ .............. $ 2,362,500
24,000 Credence Systems Corporation+ .................. 2,070,750
34,000 Cymer, Inc.+ ................................... 1,566,125
30,000 Kulicke & Soffa Industries, Inc.+ .............. 1,275,938
64,000 LTX Corporation+ ............................... 1,444,000
57,600 MKS Instruments, Inc.+ ......................... 2,084,400
44,000 PRI Automation, Inc.+ .......................... 2,942,500
-------------
13,746,213
FINANCE - 0.4%
52,000 LaBranche & Company, Inc.+ ..................... 663,000
FINANCE COMPANIES - 3.1%
172,000 AmeriCredit Corporation+ ....................... 3,182,000
40,000 Radian Group, Inc. ............................. 1,910,000
-------------
5,092,000
FINANCIAL PUBLISHING/SERVICES - 0.2%
5,900 Advent Software, Inc.+ ......................... 377,784
GENERIC DRUGS - 1.6%
40,000 Alpharma, Inc., Class A ........................ 1,230,000
44,000 Barr Laboratories, Inc.+ ....................... 1,380,500
-------------
2,610,500
HOME FURNISHINGS - 0.6%
30,050 Ethan Allen Interiors, Inc. .................... 963,478
INSURANCE BROKERS/SERVICES - 1.8%
48,000 E. W. Blanch Holdings, Inc. .................... 2,940,000
INTERNET SERVICES - 6.1%
18,000 Cybersource Corporation+ ....................... 934,875
108,000 Intermedia Communications, Inc. ................ 4,185,000
7,700 Proxicom, Inc.+ ................................ 956,485
24,000 VerticalNet, Inc.+ ............................. 3,924,750
-------------
10,001,110
LIFE INSURANCE - 0.5%
30,000 Annuity and Life Re (Holdings), Ltd. ........... 781,875
MANAGED HEALTH CARE - 0.6%
36,000 Trigon Healthcare, Inc.+ ....................... 1,062,000
MEAT/POULTRY/FISH - 2.3%
160,000 Smithfield Foods, Inc.+ ........................ 3,835,000
MEDIA CONGLOMERATES - 7.5%
92,000 AT&T Corporation Liberty Media, Class A+ ....... 5,221,000
128,000 USA Networks, Inc.+ ............................ 7,068,000
-------------
12,289,000
MEDICAL SPECIALTIES - 1.0%
48,000 Mentor Corporation ............................. 1,245,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 16
The Montgomery Funds
SMALL CAP FUND
I n v e s t m e n t s
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - CONTINUED
MEDICAL SPECIALTIES - CONTINUED
28,000 Novoste Corporation+ ........................... $ 467,250
-------------
1,712,250
MOVIES/ENTERTAINMENT - 4.0%
44,000 Liberty Digital, Inc.+ ......................... 3,271,125
92,000 SFX Entertainment, Inc.+ ....................... 3,329,250
-------------
6,600,375
OFFICE/PLANT AUTOMATION - 1.2%
40,000 Optimal Robotics Corporation+ .................. 1,490,000
12,000 Zixit Corporation+ ............................. 473,625
-------------
1,963,625
OILFIELD SERVICES/EQUIPMENT - 0.6%
55,600 Petroleum Geo-Services, ADR+ ................... 990,375
OTHER CONSUMER SERVICES- 5.6%
94,000 Echostar Communications, Class A+ .............. 9,153,250
OTHER PHARMACEUTICALS - 2.5%
60,000 Jones Medical industries, Inc. ................. 2,606,250
30,000 Pharmacyclics, Inc.+ ........................... 1,241,250
30,000 Theragenics Corporation+ ....................... 271,875
-------------
4,119,375
OTHER SPECIALTY STORES - 1.2%
101,900 Rent-A-Center, Inc.+ ........................... 2,041,184
OTHER TELEPHONE/COMMUNICATION - 9.6%
174,900 ICG Communications, Inc.+ ...................... 3,273,909
73,000 McLeod USA, Inc.+ .............................. 4,293,313
76,000 Viatel, Inc.+ .................................. 4,070,750
56,000 Winstar Communications, Inc.+ .................. 4,210,500
-------------
15,848,472
RENTAL/LEASING COMPANIES - 0.5%
40,000 Rent-Way, Inc.+ ................................ 747,500
RESTAURANTS - 0.5%
33,000 Brinker International, Inc.+ ................... 792,000
SAVINGS AND LOAN ASSOCIATIONS - 1.3% ........................
32,000 Bank United Corporation, Class A ............... 863,000
72,000 Commercial Federal Corporation ................. 1,282,500
-------------
2,145,500
SEMICONDUCTORS - 3.5%
88,000 Conexant Systems, Inc.+ ........................ 5,827,250
TELECOMMUNICATIONS EQUIPMENT - 2.3%
72,000 Commscope, Inc.+ ............................... 2,902,500
14,000 RF Micro Devices, Inc.+ ........................ 955,938
-------------
3,858,438
TOTAL COMMON STOCKS
(Cost $91,679,272) .......................................... 161,408,441
-------------
MONEY MARKET FUND - 0.0%@
365 Chase Vista Federal Money Market Fund
(Cost $365) .................................... 365
-------------
TOTAL SECURITIES
(Cost $91,679,637) .......................................... 161,408,806
-------------
Principal Amount
REPURCHASE AGREEMENTS - 2.1%
$3,520,000 Agreement with Greenwich Capital
Markets, Tri-Party, 5.500% dated 12/31/99,
to be repurchased at $3,521,591 on
01/03/00, collateralized by $3,590,470
market value of U.S. government and
mortgage-backed securities, having various
maturities and interest rates
(Cost $3,520,000) .............................. 3,520,000
-------------
TOTAL INVESTMENTS - 100.2%
(Cost $95,199,637*) ......................................... 164,928,806
OTHER ASSETS AND LIABILITIES - (0.2)%
(Net) ....................................................... (377,727)
-------------
NET ASSETS - 100.0% ......................................... $ 164,551,079
=============
</TABLE>
(*) Aggregate cost for federal tax purposes.
+ Non-income-producing security.
@ Amount represents less than 0.1%.
Abbreviations
ADR American Depositary Receipt
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 17
The Montgomery Funds
Equity Income Fund
Portfolio Highlights
(Unaudited)
I N V E S T M E N T R E V I E W
Q: How did the Fund perform during the six months ended December 31, 1999?
A: The Fund returned - 7.90% in the six months ended December 31, 1999, versus
7.71% for its benchmark, the S&P 500 Index. A late surge in technology stocks
fueled a 14.79% increase in the S&P in the fourth quarter. Many of the stocks
participating in that technology rally did not meet the Fund's selection
criteria for dividend yield and value and were therefore not eligible for
inclusion in the Fund. Consequently, tech stocks constituted 28% of the S&P 500
and only 10% of the Fund as of December 31. This weighting disparity and the
comparatively weak performance of value stocks versus growth stocks throughout
the period were the principal reasons behind the Fund's underperformance.
Q: Did you make any changes to Fund strategy in response to market trends or
conditions?
A: The narrowness of the market and its increasing volatility prompted us to
forgo any major adjustments during the period. The strongest returns in the
market were led by a relatively small number of technology and
telecommunications stocks, whose skyrocketing valuations were increasingly
detached from performance fundamentals. In our opinion the uncertainty
surrounding these valuations suggests that investment opportunities in other
sectors of the market were being overlooked.
The Fund did continue to expand its technology and telecommunications exposure
over the period, however, in accordance with selection guidelines that were
revised in the first half of 1999. Previously, the Fund's investment guidelines
limited stock selection to those names with a relative yield at least 40%
greater than that of the average S&P 500 stock. To increase the Fund's exposure
to the technology and health-care sectors, that guideline was relaxed to allow
up to 20% of the Fund to be invested on the basis of historic yield and not
solely on return versus the benchmark.
This change opened the door to new technology acquisitions, including
Hewlett-Packard (2.32% of net assets as of 12/31/99), which, after experiencing
significant price volatility at the beginning of the period, was a strong
contributor to performance during the final three months of the year. During the
fourth quarter, we also added International Business Machines (4.08% of net
assets as of 12/31/99), which now ranks among the Fund's largest holdings. We
believe that such attractively priced investment opportunities can be discovered
irrespective of the current narrowness of the market without compromising the
Fund's investment discipline.
Q: Were there any stocks that made a particularly strong contribution to
performance?
A: Individual stocks from several industries fared well in the six-month period
ended December 31, 1999. Alcoa (2.41% of net assets as of 12/31/99), the world's
leading producer of aluminum and alumina, leapt 33.7% toward the end of the
year, following its addition to the Fund. Alcoa continues to benefit from
consolidation within the industry, as well as from the global economic recovery,
which has bolstered demand for basic materials and lifted the price of alumi-
PORTFOLIO MANAGEMENT
William King, CFA .............Portfolio Manager
FUND PERFORMANCE
Average annual total returns
for the period ended 12/31/99
Montgomery Equity Income Fund
<TABLE>
<S> <C>
Since inception (9/30/94) ................................. 16.20%
One year .................................................. (0.52)%
Five years ................................................ 17.31%
</TABLE>
S&P 500 Index
<TABLE>
<S> <C>
Since 9/30/94 ........................................... 27.02%
One year ................................................ 21.04%
Five years .............................................. 28.56%
</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.
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
</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 110 funds.
17
<PAGE> 18
The Montgomery Funds
Equity Income Fund
Portfolio Highlights
TOP TEN HOLDINGS
(as a percentage of total net assets)
<TABLE>
<S> <C>
International Business Machines
Corporation ........................................................ 4.1%
Citigroup, Inc. .................................................... 3.6%
Electronic Data Systems Corporation ................................ 3.3%
International Paper Company ........................................ 3.3%
SBC Communications, Inc. ........................................... 3.0%
Honeywell International, Inc. ...................................... 3.0%
Bank of America Corporation ........................................ 2.9%
Bell Atlantic Corporation .......................................... 2.9%
Illinois Tool Works, Inc. .......................................... 2.7%
McGraw-Hill Companies, Inc. ........................................ 2.7%
</TABLE>
TOP FIVE INDUSTRIES
(as a percentage of total net assets)
<TABLE>
<S> <C>
Major U.S. Telecommunications ...................................... 9.3%
EDP Services ....................................................... 7.4%
Paper .............................................................. 5.9%
Integrated Oil Companies ........................................... 5.8%
Major Banks ........................................................ 5.1%
</TABLE>
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
num. McGraw-Hill (2.69% of net assets as of 12/31/99), the large publishing
house and information services provider, returned 27.4% over the six-month
period, and Citigroup (3.55% of net assets as of 12/31/99) gained 26.6%, with a
strong showing from its credit card and mortgage-backed securities divisions.
These performance highlights were unfortunately offset by weakness in other
areas. After briefly considering alternative industries such as paper and oil in
the second quarter, investors abruptly returned their attention to the
high-growth technology stocks following the Federal Reserve's third-quarter rate
hike. This further rotation into technology issues caused other sectors to wilt,
including energy and utilities. For example, Coastal Corporation (2.37% of net
assets as of 12/31/99), the Houston-based energy company, slipped 13.4% in the
fourth quarter.
18
<PAGE> 19
The Montgomery Funds
Equity Income Fund
I n v e s t m e n t s
P O R T F O L I O I N V E S T M E N T S
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - 95.4%
AEROSPACE/DEFENSE - 1.5%
4,000 United Technologies Corporation ................ $ 260,000
ALCOHOLIC BEVERAGES - 2.1%
5,000 Anheuser-Busch Companies, Inc. ................. 354,375
ALUMINUM - 2.4%
5,000 Alcoa, Inc. .................................... 415,000
BOOKS/MAGAZINES - 1.2%
5,000 Harcourt General, Inc. ......................... 201,250
CLOTHING/SHOE/ACCESSORY STORES - 1.5%
10,000 Nordstrom, Inc. ................................ 261,875
CONSUMER ELECTRONICS/APPLIANCES - 1.1%
3,000 Whirlpool Corporation .......................... 195,187
DIVERSIFIED ELECTRONIC PRODUCTS - 2.3%
3,500 Hewlett-Packard Company ........................ 398,781
DIVERSIFIED FINANCIAL SERVICES - 3.6%
11,000 Citigroup, Inc. ................................ 611,187
DIVERSIFIED MANUFACTURE - 3.0%
8,812 Honeywell International, Inc. .................. 508,342
EDP SERVICES - 7.4%
8,500 Electronic Data Systems Corporation ............ 568,969
6,500 International Business Machines
Corporation .................................... 702,000
----------
1,270,969
ELECTRIC UTILITIES: EAST - 1.0%
5,000 Peco Energy Company ............................ 173,750
ELECTRICAL PRODUCTS - 1.3%
4,000 Emerson Electric Company ....................... 229,500
FINANCE COMPANIES - 1.6%
4,500 Fannie Mae ..................................... 280,969
FINANCIAL PUBLISHING/SERVICES - 2.7%
7,500 McGraw-Hill Companies, Inc. .................... 462,187
INDUSTRIAL MACHINERY/COMPONENTS - 3.7%
7,000 Illinois Tool Works, Inc. ...................... 472,937
3,000 Ingersoll Rand Company ......................... 165,188
----------
638,125
INSURANCE BROKERS/SERVICES - 2.5%
4,500 Marsh & McLennan Companies ..................... 430,594
INTEGRATED OIL COMPANIES - 5.8%
5,000 Chevron Corporation ............................ 433,125
10,000 Conoco, Inc. ................................... 248,750
4,000 Exxon Mobil Corporation ........................ 322,250
----------
1,004,125
LIFE INSURANCE - 1.3%
3,000 American General Corporation ................... 227,625
MAJOR BANKS - 5.1%
10,000 Bank of America Corporation .................... $ 501,875
7,000 FleetBoston Financial Corporation .............. 243,687
5,500 U.S. Bancorp ................................... 130,969
----------
876,531
MAJOR CHEMICALS - 2.3%
3,000 Dow Chemical Company ........................... 400,875
MAJOR PHARMACEUTICALS - 4.2%
7,000 American Home Products Corporation ............. 276,063
3,000 Johnson & Johnson .............................. 279,375
2,500 Merck & Company, Inc. .......................... 167,656
----------
723,094
MAJOR U.S. TELECOMMUNICATIONS - 9.3%
8,000 AT&T Corporation ............................... 406,000
8,000 Bell Atlantic Corporation ...................... 492,500
4,000 BellSouth Corporation .......................... 187,250
10,528 SBC Communications, Inc. ....................... 513,240
----------
1,598,990
MEDICAL SPECIALTIES - 2.2%
6,000 Baxter International, Inc. ..................... 376,875
MOTOR VEHICLES - 1.9%
4,500 General Motors Corporation ..................... 327,094
OFFICE EQUIPMENT/SUPPLIES - 3.5%
4,000 Avery Dennison Corporation ..................... 291,500
6,500 Pitney-Bowes, Inc. ............................. 314,031
----------
605,531
OIL/GAS TRANSMISSION - 4.0%
11,500 Coastal Corporation (The) ...................... 407,531
7,000 El Paso Energy Corporation ..................... 271,688
----------
679,219
OILFIELD SERVICES/EQUIPMENT - 3.1%
8,000 Baker Hughes, Inc. ............................. 168,500
9,000 Halliburton Company ............................ 362,250
----------
530,750
PACKAGE GOODS/COSMETICS - 3.8%
4,000 Clorox Company (The) ........................... 201,500
7,000 Kimberly-Clark Corporation ..................... 456,750
----------
658,250
PAINTS/COATINGS - 1.5%
4,000 PPG Industries, Inc. ........................... 250,250
PAPER - 5.9%
10,000 International Paper Company .................... 564,375
10,000 Westvaco Corporation ........................... 326,250
2,500 Willamette Industries, Inc. .................... 116,094
----------
1,006,719
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 20
The Montgomery Funds
Equity Income Fund
I n v e s t m e n t s
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - continued
Printing/Forms - 1.0%
7,000 Donnelley (R.R) & Sons Company............... $ 173,688
Soft Drinks - 1.6%
8,000 PepsiCo, Inc................................. 282,000
TOTAL COMMON STOCKS
(Cost $14,591,311) ........................................ 16,413,707
-----------
MONEY MARKET FUND - 0.0%@
345 Chase Vista Federal Money Market Fund
(Cost $345) ................................. 345
-----------
TOTAL SECURITIES
(Cost $14,591,656) ........................................ 16,414,052
-----------
<CAPTION>
Principal Amount
<S> <C>
REPURCHASE AGREEMENTS - 2.5%
$ 433,000 Agreement with Greenwich Capital
Markets, Tri-Party, 5.500% dated
12/31/99, to be repurchased at $433,196
on 01/03/00, collateralized by $441,669
market value of U.S. government and
mortgage-backed securities, having
various maturities and interest rates
(Cost $433,000) ............................. 433,000
-----------
TOTAL INVESTMENTS - 97.9%
(Cost $15,024,656*) ...................................... 16,847,052
OTHER ASSETS AND LIABILITIES - 2.1%
(Net) ..................................................... 364,780
-----------
NET ASSETS - 100.0%........................................ $17,211,832
===========
</TABLE>
(*) Aggregate cost for federal tax purposes.
@ Amount represents less than 0.1%.
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 21
The Montgomery Funds
INTERNATIONAL GROWTH FUND
Portfolio Highlights
(Unaudited)
I N V E S T M E N T R E V I E W
Q: HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED DECEMBER 31, 1999?
A: A very strong relative performance in the final three months of the year more
than made up for a soft start. As a result, we are pleased to report that the
Fund outperformed its benchmark, the Morgan Stanley Capital International (MSCI)
Europe, Australasia and Far East (EAFE) Index over the six-month period,
returning 25.72%, versus 22.27% for the index. In recognition of these solid
results and its long-term performance, the Fund has earned an overall four-star
rating from Morningstar for its risk-adjusted returns for the period ended
12/31/99 among 1,104 international equity funds. The Fund also received four
stars among 1,104 international equity funds for the three-year period ended
12/31/99.(*)
Q: WHAT FACTORS CONTRIBUTED MOST TO THE FUND'S STRONG RELATIVE PERFORMANCE?
A: The same positioning that hurt performance at the beginning of the period
proved to be a positive in the final three months of 1999. During the third
quarter of 1999 the performance of growth stocks suffered due to concerns over
rising interest rates in Europe and the United States. Japan was the
best-performing market, partly due to a 14% appreciation in the value of the yen
against the dollar. By the fourth quarter, however, interest rate concerns had
dissipated, the yen began to stabilize and the euro, which had been extremely
soft, also began to stabilize. As a result, growth stocks returned to favor,
specifically in the technology and telecommunications sectors, and investors
again showed greater interest in Europe.
The Fund was very well positioned to take advantage of these trends in the
latter part of the year. Based on our bottom-up stock selection process, the
Fund was overweighted in the communications and technology sectors in Europe and
therefore participated in the rallies in those sectors. Both stock selection and
country allocation decisions added to relative returns during the quarter. Most
of the outperformance was attributable to stock selection. Stock selection in
Japan was particularly strong, as the Fund's Japanese holdings gained
approximately 30%, while the Nikkei 225 Index rose by 17% for the quarter.
Q: WERE THERE ANY STOCKS THAT MADE A PARTICULARLY STRONG CONTRIBUTION TO
RETURNS?
A: Reflecting the Fund's changeable fortunes, two stocks in particular enjoyed
outstanding gains toward the end of the year, more than making up for a volatile
start to the period. These were Freeserve PLC (0.65% of net assets as of
12/31/99), a U.K. Internet service provider, and Global TeleSystems Group (1.28%
of net assets as of 12/31/99), a telecommunications company that is positioned
at the forefront of the Internet wave through its ownership interest in the
largest data network in Europe. We are pleased to note that our fundamentally
based stock selection process, which contributed to our decision to add to these
positions when their prices softened, worked well as their valuations rebounded
strongly in the final three months of the year.
PORTFOLIO MANAGEMENT
<TABLE>
<S> <C>
John Boich, CFA................. Senior Portfolio Manager
Oscar Castro, CFA............... Senior Portfolio Manager
</TABLE>
FUND PERFORMANCE
Average annual total returns
for the period ended 12/31/99
MONTGOMERY
INTERNATIONAL GROWTH FUND
<TABLE>
<S> <C>
Since inception (7/3/95) ............................ 21.62%
One year ............................................ 26.25%
Three years ......................................... 21.41%
</TABLE>
MSCI EAFE INDEX
<TABLE>
<S> <C>
Since 7/3/95 ........................................ 14.02%
One year ............................................ 27.30%
Three years ......................................... 16.06%
</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.
[GROWTH OF A $10,000 INVESTMENT LINE GRAPH]
<TABLE>
<CAPTION>
International
Growth Institutional Index Lipper
<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 13748 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
</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 270 funds.
(*) Morningstar proprietary ratings reflect historical risk-adjusted
performance as of 12/31/99. The ratings are subject to change every month.
The ratings are calculated from the Fund's three-, five- and 10-year
average annual returns (if applicable) in excess of 90-day Treasury bill
returns, with appropriate fee adjustments and a risk factor that reflects
Fund performance below 90-day T-bill returns. The top 10 percent of funds
in an investment class receive five stars. Ratings are for Class R shares
only; other classes may vary.
21
<PAGE> 22
The Montgomery Funds
INTERNATIONAL GROWTH FUND
Portfolio Highlights
TOP TEN HOLDINGS
(as a percentage of total net assets)
<TABLE>
<S> <C>
Sony Corporation ............................................... 3.0%
Mannesmann AG .................................................. 2.8%
Nippon Telegraph & Telephone
Corporation .................................................... 2.6%
Nokia Oyj ...................................................... 2.6%
VNU N.V. ....................................................... 2.0%
Atmel Corporation .............................................. 2.0%
Telecom Italia Mobile SpA ...................................... 2.0%
Glaxo Wellcome PLC ............................................. 2.0%
Invensys PLC ................................................... 1.9%
Hitachi Ltd. ................................................... 1.7%
</TABLE>
TOP FIVE COUNTRIES
(as a percentage of total net assets)
<TABLE>
<S> <C>
Japan ......................................................... 20.8%
France ........................................................ 17.1%
Netherlands ................................................... 14.8%
United Kingdom ................................................ 13.5%
Germany ....................................................... 9.0%
</TABLE>
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
Investors should be aware that there are risks associated with investing in
funds of this type that invest in securities of foreign countries, such as
erratic market conditions, economic and political instability, and fluctuations
in currency exchange rates.
Communications and technology weren't the only sectors in which our process
identified stocks that boosted returns. In the underperforming health-care
sector, for example, Aventis (1.41% of net assets as of 12/31/99) -- a
pharmaceuticals company that was born out of the merger between Rhone-Poulenc
and Hoechst -- was also a strong contributor to performance.
Q: DO YOU STILL LIKE THE PROSPECTS FOR TECHNOLOGY AND TELECOMMUNICATIONS STOCKS
FOLLOWING THE RAPID INCREASE IN VALUATIONS TOWARD THE END OF THE YEAR?
A: Looking forward, we believe that the key to performance at the beginning of
the year will be judging our exposure to telecommunications and technology.
Because of the strong price appreciation in these stocks in the fourth quarter,
many are now at historically high valuation levels. In our view high valuations
combined with a rising interest rate environment in Europe will likely lead to
short-term volatility in these securities. As a result, we have already taken
profits in companies that have met our price targets and reduced the Fund's
overweight position in these sectors.
In the long run, however, we remain positive about the market's prospects and
are still excited about the telecommunications and technology stocks that we
own. We believe that these stocks will likely continue to drive economic growth
and also believe that the investment environment will be more hospitable to them
in the second half of the year once interest rates have peaked and as a result
of accelerating macroeconomic growth in Europe and Japan. Reflecting this view,
we intend to add to those stocks with the most favorable fundamentals on price
weakness.
Q: HOW IS THE FUND CURRENTLY POSITIONED, AND WHERE DO YOU SEE THE BEST
OPPORTUNITIES IN THE COMING YEAR?
A: Looking forward, we expect interest rates to increase in the United States
and Europe during the first half of 2000, against a backdrop of accelerating
growth in Europe. In light of our changing interest rate assumptions, we have
reassessed the Fund's holdings; we have reduced our exposure to the companies
most negatively affected and have added to companies we feel are less
vulnerable.
We also intend to add companies identified by our stock selection process in
sectors such as consumer durables, companies that we believe will also benefit
from accelerating growth in Europe and an improved second-half interest rate
environment. By sticking to our disciplined process and using primary original
research, we hope to continue reporting solid results.
22
<PAGE> 23
The Montgomery Funds
INTERNATIONAL GROWTH FUND
I n v e s t m e n t s
P O R T F O L I O I N V E S T M E N T S
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - 96.1%
AUSTRALIA - 2.3%
299,934 Australia & New Zealand Banking Group
Ltd. (Non-U.S. Banks) .......................... $ 2,180,262
1,157,600 Cable & Wireless Optus Ltd.
(Other Telephone/Communication) ................ 3,865,273
-----------
6,045,535
BELGIUM - 1.3%
96,000 Global TeleSystems Group, Inc.+
(Other Telephone/Communication) ................ 3,324,000
BRAZIL - 1.3%
26,900 Telebras, Sponsored ADR
(Other Telephone/Communication) ................ 3,456,650
CHINA/HONG KONG - 2.2%
294,000 Cheung Kong Holdings Ltd. (Real Estate) ........ 3,734,804
306,000 Henderson Land Development Company,
Ltd. (Real Estate) ............................. 1,964,289
-----------
5,699,093
FINLAND - 3.7%
34,300 Helsinki Telephone
(Other Telephone/Communication) ................ 2,860,293
37,780 Nokia Oyj
(Telecommunications Equipment) ................. 6,857,177
-----------
9,717,470
FRANCE - 17.1%
16,000 Air Liquide S.A. (Specialty Chemicals) ......... 2,681,402
98,920 Alstom (Electrical Products) ................... 3,301,589
63,000 Aventis S.A. (Major Pharmaceuticals) ........... 3,665,450
25,350 Axa (Multi-Line Insurance) ..................... 3,537,732
36,620 Banque Nationale de Paris
(Non-U.S. Banks) ............................... 3,382,398
13,000 Carrefour S.A. (Food Chains) ................... 2,400,173
12,690 Castorama Dubois S.A.
(Building Material Chains) ..................... 3,864,377
12,040 Coflexip S.A.
(Oilfield Services/Equipment) .................. 875,939
29,670 France Telecom S.A.
(Other Telephone/Communication) ................ 3,928,196
5,600 Societe Television Francaise (Broadcasting) .... 2,936,313
25,300 STMicroelectronics N.V.+
(Semiconductors) ............................... 3,898,116
19,090 Total Fina S.A., Class B
(Oil Refining/Marketing) ....................... 2,550,544
46,800 Valeo S.A. (Auto Parts: O.E.M.) ................ 3,614,811
44,261 Vivendi (Non-U.S. Utilities) ................... 4,001,128
-----------
44,638,168
GERMANY - 7.3%
29,600 Deutsche Telecom AG
(Other Telephone/Communication) ................ $ 2,110,192
35,700 Epcos AG+
(Electronic Components) ........................ 2,681,856
32,200 HypoVereinsbank AG (Non-U.S. Banks) ............ 2,201,387
83,300 Infonet Services Corporation+
(Other Telephone/Communication) ................ 2,186,625
29,902 Mannesmann AG (Cellular Telephone) ............. 7,221,322
18,200 SAP AG, ADR (Computer Software) ................ 947,538
12,170 Siemens AG
(Diversified Electronic Products) .............. 1,549,904
-----------
18,898,824
ITALY - 2.4%
226,000 Credito Italiano SpA (Non-U.S. Banks) .......... 1,112,088
461,700 Telecom Italia Mobile SpA
(Cellular Telephone) ........................... 5,163,003
-----------
6,275,091
JAPAN - 20.8%
334,000 Asahi Glass Company, Ltd.
(Building Materials) ........................... 2,584,310
248,000 Bank of Tokyo-Mitsubishi Ltd.
(Non-U.S. Banks) ............................... 3,454,485
237,000 Daiwa Securities Group, Inc.
(Investment Bankers/Brokers/Services) .......... 3,706,965
6,800 Fanuc Ltd.
(Industrial Machinery/Components) .............. 865,382
303,000 Fuji Bank Ltd. (Non-U.S. Banks) ................ 2,943,158
97,000 Fujitsu Ltd. (EDP Services) .................... 4,421,598
282,000 Hitachi Ltd.
(Diversified Electronic Products) .............. 4,523,917
107,000 KAO Corporation
(Package Goods/Cosmetics) ...................... 3,051,012
46,000 Matsushita Electric Industrial Company,
Ltd. (Diversified Electronic Products) ......... 1,273,403
109,000 Mitsubishi Estate Company, Ltd.
(Real Estate) .................................. 1,063,024
153,000 Mitsui Fudosan Company, Ltd.
(Real Estate) .................................. 1,035,665
537,000 Nippon Steel Company (Steel/Iron Ore) .......... 1,255,434
401 Nippon Telegraph & Telephone
Corporation
(Other Telephone/Communication) ................ 6,864,423
619,000 Nissan Motor Company, Ltd.
(Motor Vehicles) ............................... 2,434,100
2,850 Shohkoh Fund & Company, Ltd.
(Finance Companies) ............................ 1,127,678
26,500 Sony Corporation
(Consumer Electronics/Appliances) .............. 7,854,348
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 24
The Montgomery Funds
INTERNATIONAL GROWTH FUND
I n v e s t m e n t s
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - CONTINUED
JAPAN - CONTINUED
24,000 Tokyo Electron Ltd.
(Electronic Production Equipment) .............. $ 3,286,706
52,000 Toyota Motor Corporation
(Motor Vehicles) ............................... 2,517,852
------------
54,263,460
KOREA - 1.6%
17,210 Samsung Electronics Company
(Electrical Products) .......................... 4,031,581
NETHERLANDS - 14.8%
87,400 ABN AMRO Holdings N.V.
(Non-U.S. Banks) ............................... 2,185,617
17,100 Aegon N.V. (Life Insurance) .................... 1,653,582
72,900 Akzo Nobel N.V. (Major Chemicals) .............. 3,660,731
22,300 Equant N.V.+
(Other Telephone/Communication) ................ 2,534,193
47,300 Fortis N.V.
(Diversified Finance Companies) ................ 1,705,093
66,200 Heineken N.V. (Alcoholic Beverages) ............ 3,232,166
56,800 ING Groep N.V.
(Diversified Financial Services) ............... 3,433,017
43,919 Koninklijke KPN, N.V.
(Other Telephone/Communication) ................ 4,291,283
66,900 Laurus N.V. (Food Chains) ...................... 1,207,508
47,800 Unilever N.V. (Packaged Foods) ................. 2,602,113
23,200 United Pan-Europe Communications
N.V.+ (Cable Television) ....................... 2,971,000
140,854 Vendex N.V. (Department Chains) ................ 3,749,592
99,800 VNU N.V. (Books/Magazines) ..................... 5,251,043
------------
38,476,938
NEW ZEALAND - 1.4%
785,800 Telecom Corporation of New Zealand Ltd.
(Other Telephone/Communication) ................ 3,695,216
NORWAY - 1.1%
155,600 Petroleum Geo-Services, Sponsored ADR+
(Oil and Gas Production) ....................... 2,771,625
SPAIN - 0.9%
204,400 Banco Santander Central Hispano S.A.
(Non-U.S. Banks) ............................... 2,316,638
SWEDEN - 0.8%
16,500 Ericsson AB, ADR
(Telecommunications Equipment) ................. 1,083,328
15,500 Ericsson AB, Class B
(Telecommunications Equipment) ................. 998,528
------------
2,081,856
SWITZERLAND - 1.2%
543 Julius Baer Holding AG
(Investment Bankers/Brokers/Services) .......... 1,641,112
5,560 UBS AG (Non-U.S. Banks) ........................ 1,502,231
------------
3,143,343
TAIWAN - 0.4%
59,600 Hon Hai Precision Industry Company,
Ltd.+ (EDP Services) ........................... $ 1,160,710
UNITED KINGDOM - 13.5%
133,900 Allied Zurich PLC
(Diversified Financial Services) ............... 1,587,354
115,300 Barclays PLC (Non-U.S. Banks) .................. 3,318,441
136,900 British Telecom PLC
(Other Telephone/Communication) ................ 3,316,590
726,900 Corus Group PLC (Specialty Steels) ............. 1,896,026
445,500 Diageo PLC (Alcoholic Beverages) ............... 3,550,847
180,200 Freeserve PLC+ (Internet Services) ............. 1,689,484
180,103 Glaxo Wellcome PLC
(Major Pharmaceuticals) ........................ 5,102,085
248,833 HSBC Holdings PLC
(Non-U.S. Banks) ............................... 3,452,218
931,400 Invensys PLC
(Industrial Machinery/Components) .............. 5,009,306
583,600 National Power PLC
(Non-U.S. Utilities) ........................... 3,355,540
100,800 Prudential Corporation PLC
(Life Insurance) ............................... 1,978,035
212,200 Vodafone AirTouch PLC
(Cellular Telephone) ........................... 1,046,160
------------
35,302,086
UNITED STATES - 2.0%
177,400 Atmel Corporation+ (Semiconductors) ............ 5,249,931
TOTAL COMMON STOCKS
(Cost $201,033,323) ........................................ 250,548,215
------------
PREFERRED STOCKS - 1.7%
GERMANY - 1.7%
841 Porsche AG (Motor Vehicles) .................... 2,306,619
3,370 SAP AG (Computer Software) ..................... 2,032,086
------------
TOTAL PREFERRED STOCKS
(Cost $3,639,765) .......................................... 4,338,705
------------
MONEY MARKET FUND - 0.0%@
686 Chase Vista Federal Money Market Fund
(Cost $686) .................................... 686
------------
TOTAL SECURITIES
(Cost $204,673,774) ........................................ 254,887,606
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 25
The Montgomery Funds
International Growth Fund
I n v e s t m e n t s
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C>
REPURCHASE AGREEMENTS - 1.9%
$5,114,000 Agreement with Greenwich Capital Markets,
Tri-Party, 5.500% dated 12/31/99, to be
repurchased at $5,116,312 on 01/03/00,
collateralized by $5,216,382 market value of
U.S. government and mortgage-backed securities,
having various maturities and interest rates
(Cost $5,114,000) .............................. $ 5,114,000
------------
TOTAL INVESTMENTS - 99.7%
(Cost $209,787,774*) ....................................... 260,001,606
OTHER ASSETS AND LIABILITIES - 0.3%
(Net) ...................................................... 701,715
------------
NET ASSETS - 100.0% ........................................ $ 260,703,321
============
</TABLE>
(*) Aggregate cost for federal tax purposes.
+ Non-income-producing security.
@ Amount represents less than 0.1%.
Abbreviations
ADR American Depositary Receipt
The accompanying notes are an integral part of these financial statements.
25
<PAGE> 26
The Montgomery Funds
International
Small Cap Fund
Portfolio Highlights
(Unaudited)
PORTFOLIO MANAGEMENT
<TABLE>
<S> <C>
John Boich, CFA............. Senior Portfolio Manager
</TABLE>
FUND PERFORMANCE
Average annual total returns
for the period ended 12/31/99
Montgomery International
Small Cap Fund
<TABLE>
<S> <C>
Since inception (9/30/93) ................................ 6.55%
One year ................................................. 7.33%
Five years ............................................... 8.63%
</TABLE>
Salomon Smith Barney World
Extended Market (ex-U.S.) Index
<TABLE>
<S> <C>
Since 9/30/93 .......................................... 6.63%
One year ............................................... 23.54%
Five years ............................................. 7.22%
</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.
[GROWTH OF A $10,000 INVESTMENT GRAPH]
<TABLE>
<CAPTION>
Intern Sm Cap S&B EMI World Lipper
<S> <C> <C> <C>
Sep-93 10000 10000 10000
Oct-93 10433 9964 10492.44
Nov-93 10492 9130.01 10254.07
Dec-93 11342 9717.99 11222.3
Jan-94 12117 10688.81 12132.78
Feb-94 12083 10763.63 12134.62
Mar-94 11158 10587.11 11585.28
Apr-94 10817 10904.72 11706.52
May-94 10625 10748.79 11611.83
Jun-94 10017 10974.51 11370.82
Jul-94 10450 11099.62 11628.65
Aug-94 10825 11217.28 11935.75
Sep-94 10517 10896.46 11639.84
Oct-94 10642 11093.69 11749.61
Nov-94 9951 10401.44 11076.17
Dec-94 9835 10540.82 10927.22
Jan-95 9318 10198.24 10476.14
Feb-95 9409 10049.35 10512.67
Mar-95 9301 10476.45 11370.82
Apr-95 9543 10790.74 11628.65
May-95 9635 10601.9 11935.75
Jun-95 9793 10471.5 11639.84
Jul-95 10285 11081.99 11749.61
Aug-95 10260 10801.61 11076.17
Sep-95 10751 10885.87 10927.22
Oct-95 10651 10572.35 10476.14
Nov-95 10586 10684.42 10512.67
Dec-95 10987 11093.63 11554.35
Jan-96 11413 11291.1 11946.28
Feb-96 11429 11467.24 12203.36
Mar-96 11671 11730.64 12419.2
Apr-96 12164 12347.54 12853.14
May-96 12490 12247.27 13075.09
Jun-96 12406 12248.87 13140.47
Jul-96 11997 11785.68 12682.47
Aug-96 12348 11905.22 12895.08
Sep-96 12423 11971.39 12973.36
Oct-96 12281 11924.37 13010.08
Nov-96 12773 12119.4 13395.03
Dec-96 12631 11896.48 13507.89
Jan-97 13041 11639.4 13658.66
Feb-97 13199 11834.94 13856.64
Mar-97 13032 11678.02 13856.64
Apr-97 12924 11503.43 13646.41
May-97 13959 12240.52 14353.95
Jun-97 14326 12517.26 14737.35
Jul-97 14193 12327.86 14725.38
Aug-97 13892 11802.02 14313.31
Sep-97 14118 12011.78 14750.8
Oct-97 13241 11537.33 13937.77
Nov-97 12515 11022.21 13519.26
Dec-97 12533 10778.46 13378.46
Jan-98 12958 11227.8 13567.51
Feb-98 14016 12065.3 14580.09
Mar-98 14955 12632.2 15489.03
Apr-98 15212 12728.39 15802.43
May-98 15182 12965.75 15927.92
Jun-98 14965 12587.53 15433.99
Jul-98 15331 12501.14 15442.28
Aug-98 12524 10968.25 13304.22
Sep-98 12504 10682.92 12864.69
Oct-98 12830 11436.81 13375.34
Nov-98 13304 11803.26 13849.71
Dec-98 13859 12088.46 14175.85
Jan-99 14344 12051.46 14441
Feb-99 14067 11817.53 14406
Mar-99 14048 12261.16 14850
Apr-99 14691 12924.41 15951
May-99 14344 12586.05 15571
Jun-99 14393 13015.24 16778
Jul-99 14492 13502 17568
Aug-99 14552 13710 17934
Sep-99 13973 13678 18258
Oct-99 13484 13541 18645
Nov-99 13504 14004 21228
Dec-99 14997 14934 23913
</TABLE>
(1) The Salomon Smith Barney World Extended Market (ex-U.S.) Index is a
comprehensive float-weighted equity index consisting of every company with
an investable market capitalization of more than $100 million in developed
countries. Within this index, the Extended Market (ex-U.S.) Index defines
the small-capitalization stock universe.
(2) The Lipper International Small Cap Funds Average universe consists of six
funds.
I N V E S T M E N T R E V I E W
Q: How did the Fund perform during the six months ended December 31, 1999?
A: In spite of a late rally toward the end of the year, the Fund underperformed
its benchmark, the Salomon Smith Barney World Extended Market (ex-U.S.) Index,
over the six-month period, returning 4.21%, versus 14.74% for the benchmark.
Q: What factors contributed to the Fund's relative performance over the period?
A: The main factor influencing the Fund's disappointing relative returns was our
underweight position in Japan. We had taken profits in many of our holdings in
Japan prior to the third quarter of 1999 on the basis that a number of the
companies we owned had reached their price targets and that liquidity can dry up
rapidly in the Japanese small-cap sector. The underweighting in Japan proved
particularly negative in the third quarter, as the surprising strength of the
yen, which appreciated by more than 14% during the quarter, was a boon for
foreign investors in the Japanese small-cap sector. The currency increase and
the impact of the government's efforts to stimulate the economy more than offset
any market volatility resulting from concerns about the impact of the rising yen
on the country's frail recovery.
Japan's favorable market performance contrasted sharply with that of the
European small-cap markets in which the Fund was overweighted. The U.K. market,
our largest country exposure moving into the period, was one of the worst
affected, having previously been among the best-performing small-cap markets in
1999. This was due to the Bank of England's decision to increase short-term
rates, which had a negative impact on the Fund's retail holdings. Although the
final three months of the year brought about a reversal in this situation, as
European markets soared and Japanese small-cap stocks lost ground, the change in
circumstances was not sufficient to offset the effects of the Fund's previous
underweighting in Japan.
Q: Did any of your stock selections disappoint during the period?
A: We did have a few disappointments, but these were mainly concentrated in the
volatile third quarter. A handful of European stocks in the portfolio performed
particularly poorly at the begining of the period. These included a U.K.
retailing company which also owns 50% of Zoom, a U.K. Internet service provider
and Global TeleSystems Group (3.15% of net assets as of 12/31/99), a European
telecommunications company with a strong pan-European voice and data network.
Arcadia's stock was hurt by an extremely difficult retail environment as well as
by rising U.K. interest rates. We trimmed this position on the basis of its
deteriorating fundamentals. In contrast we chose to use price weakness to add to
our position in Global TeleSystems Group as that company's stock price fell by
more than 50%. This decline was primarily attributable to short-term revenue
concerns that were misinterpreted by the market. Our instincts proved well
founded, and the stock price rebounded in the final three months of the year,
more than making up for the previous decline.
26
<PAGE> 27
The Montgomery Funds
International
Small Cap Fund
Portfolio Highlights
Q: WERE THERE ANY STOCKS THAT MADE A PARTICULARLY STRONG CONTRIBUTION TO
RETURNS?
A: On the positive side, the Fund's holdings in the telecommunications and media
sectors were particularly strong, especially toward the end of the period when
investors favored these sectors above all others. Stocks that made a notable
contribution to performance included COLT Telecom (3.02% of net assets as of
12/31/99), Epcos (1.25% of net assets as of 12/31/99) and Sogecable (4.33% of
net assets as of 12/31/99).
COLT Telecom is a relatively young U.K.-based telecommunications and data
service provider. A contributor to performance throughout the period, the
company continues to grow rapidly, benefiting from deregulation in European
phone markets. Toward the end of the year, we added Germany-based Epcos, one of
the world's largest designers and manufacturers of passive electronic
components, and Sogecable, a large Spanish media company; both were very
positive additions to the Fund.
Q: WHAT TRENDS DO YOU SEE DEVELOPING IN INTERNATIONAL SMALL-CAPS IN THE COMING
YEAR?
A: Looking forward, we continue to anticipate an acceleration in worldwide
economic activity in the New Year, particularly in Europe. Within Europe we are
most optimistic about the prospects for Germany. We believe that proposed
changes to that country's tax regulations, including a reduction in the
corporate capital-gains tax, bodes well for both economic growth and market
performance. Against this background our bottom-up stock selection process has
identified an increasing number of attractive opportunities in this market, and
at the end of 1999 Germany was the Fund's largest country weighting.
There are some concerns on the horizon, however. Although we do not anticipate
that inflation will become a major problem, we do foresee interest rate
increases in Europe as global growth picks up momentum. As a result, we may see
some volatility in the markets, particularly in stocks that are sensitive to
interest rates, such as those in financial services and in the highly valued
technology and telecommunications sectors. We are using our disciplined,
bottom-up stock selection approach to assess this interest rate risk on
portfolio holdings and have trimmed exposures to companies where higher rates
may have a negative impact on earnings.
TOP TEN HOLDINGS
(as a percentage of total net assets)
<TABLE>
<S> <C>
Esat Telecom Group PLC, ADR .......................................... 6.9%
Primacom AG .......................................................... 4.6%
Sogecable S.A. ....................................................... 4.3%
Global TeleSystems Group, Inc. ....................................... 3.2%
Baron de Ley S.A. .................................................... 3.1%
COLT Telecom Group PLC, ADR .......................................... 3.0%
Henlys Group PLC ..................................................... 2.8%
AT&T Canada, Inc. .................................................... 2.6%
Libertel N.V. ........................................................ 2.6%
Hugo Boss AG ......................................................... 2.5%
</TABLE>
TOP FIVE COUNTRIES
(as a percentage of total net assets)
<TABLE>
<S> <C>
Germany .............................................................. 20.1%
Ireland .............................................................. 12.8%
United Kingdom ....................................................... 12.7%
Spain ................................................................ 10.9%
Netherlands .......................................................... 8.3%
</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 funds of this type that invest in
securities of foreign countries, such as erratic market conditions, economic and
political instability, and fluctuations in currency exchange rates.
There are also risks associated with investing in small-cap companies, which
tend to be more volatile and less liquid than stocks of large companies,
including the increased risk of price fluctuations.
27
<PAGE> 28
The Montgomery Funds
International
Small Cap Fund
I n v e s t m e n t s
P O R T F O L I O I N V E S T M E N T S
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - 93.6%
AUSTRALIA - 1.5%
146,200 Cable & Wireless Optus Ltd.
(Other Telephone/Communication) .............. $ 488,168
BELGIUM - 4.4%
28,900 Global TeleSystems Group, Inc.+
(Other Telephone/Communication) .............. 1,000,662
90,700 Virgin Express Holdings PLC, Sponsored
ADR+ (Airlines) .............................. 391,144
----------
1,391,806
CANADA - 2.9%
20,800 AT&T Canada, Inc.+
(Other Telephone/Communication) .............. 835,900
267,346 Photochannel Networks, Inc.+
(Computer Software) .......................... 75,866
----------
911,766
CHINA/HONG KONG - 1.1%
56,000 Henderson Land Development Company,
Ltd. (Real Estate) ........................... 359,478
FINLAND - 2.0%
7,800 Helsinki Telephone
(Other Telephone/Communication) .............. 650,446
FRANCE - 1.8%
9,300 Alstom (Electrical Products) ................. 310,400
3,800 Coflexip S.A.
(Oilfield Services/Equipment) ................ 276,459
----------
586,859
GERMANY - 14.6%
5,300 Epcos AG+ (Electronic Components) ............ 398,146
6,765 Hugo Boss AG (Apparel) ....................... 804,935
23,500 Moebel Walther AG
(Other Specialty Stores) ..................... 255,919
24,020 Primacom AG (Cable Television) ............... 1,458,077
9,900 SAP AG, ADR (Computer Software) .............. 515,419
38,190 Vossloh AG
(Diversified Electronic Products) ............ 573,782
39,330 Winkler & Duennebier AG
(Industrial Machinery/Components) ............ 634,534
----------
4,640,812
IRELAND - 12.8%
277,719 Anglo Irish Bank Corporation PLC
(Non-U.S. Banks) ............................. 644,087
23,700 Esat Telecom Group PLC, ADR+
(Other Telephone/Communication) .............. 2,198,175
68,933 Irish Permanent PLC
(Diversified Financial Services) ............. 653,380
10,200 Ryanair Holdings PLC, ADR+ (Airlines) ........ 560,362
----------
4,056,004
ITALY - 6.1%
53,300 ACEA SpA+ (Non-U.S. Utilities) ............... $ 741,681
54,900 Banca Lombarda SpA (Non-U.S. Banks) .......... 597,871
153,700 Italgas SpA (Natural Gas Distribution) ....... 582,737
----------
1,922,289
JAPAN - 4.2%
41,000 Asahi Glass Company, Ltd. ....................
(Building Materials) ......................... 317,235
59,000 Fuji Heavy Industries, Ltd.
(Motor Vehicles) ............................. 403,991
34,500 Shimano, Inc.
(Recreational Products/Toys) ................. 607,454
----------
1,328,680
NETHERLANDS - 8.3%
6,000 Heineken N.V. (Alcoholic Beverages) .......... 292,946
31,600 Libertel N.V.+ (Cellular Telephone) .......... 828,460
2,900 United Pan-Europe Communications
N.V.+ (Cable Television) ..................... 371,375
20,400 Vendex N.V. (Department Chains) .............. 543,056
11,400 VNU N.V. (Books/Magazines) ................... 599,818
----------
2,635,655
NEW ZEALAND - 4.1%
375,500 Air New Zealand Ltd., Class B (Airlines) ..... 549,355
159,000 Telecom Corporation of New Zealand Ltd.
(Other Telephone/Communication) .............. 747,696
----------
1,297,051
NORWAY - 0.6%
9,800 Petroleum Geo-Services, Sponsored ADR+
(Oilfield Services/Equipment) ................ 174,563
SPAIN - 10.9%
70,530 Azkoyen S.A ..................................
(Industrial Machinery/Components) ............ 554,016
39,650 Baron de Ley S.A. (Alcoholic Beverages) ...... 999,126
26,700 Continente S.A.+ (Food Chains) ............... 535,766
21,500 Sogecable S.A.+ (Cable Television) ........... 1,374,481
----------
3,463,389
SWEDEN - 1.5%
51,300 Scandic Hotels AB (Hotels/Resorts) ........... 477,294
SWITZERLAND - 2.1%
225 Julius Baer Holding AG (Non-U.S. Banks) ...... 680,019
UNITED KINGDOM - 12.7%
4,700 COLT Telecom Group PLC, ADR+
(Other Telephone/Communication) .............. 958,800
122,174 Henlys Group PLC (Other Transportation) ...... 904,722
150,900 Jarvis PLC (Other Transportation) ............ 565,424
39,850 National Express Group PLC
(Other Transportation) ....................... 466,620
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 29
The Montgomery Funds
International
Small Cap Fund
I n v e s t m e n t s
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - CONTINUED
UNITED KINGDOM - CONTINUED
73,700 National Power PLC (Non-U.S. Utilities) ....... $ 423,755
163,800 Wickes PLC (Building Material Chains) ......... 705,031
-----------
4,024,352
UNITED STATES - 2.0%
13,800 Flextronics International Ltd.+
(Electronic Products) ......................... 635,231
TOTAL COMMON STOCKS
(Cost $28,102,093) ........................................ 29,723,862
-----------
PREFERRED STOCKS - 5.5%
GERMANY - 5.5%
18,250 Fielmann AG (Other Specialty Stores) .......... 546,550
245 Porsche AG (Motor Vehicles) ................... 671,964
24,300 Wella AG (Package Goods/Cosmetics) ............ 539,064
-----------
TOTAL PREFERRED STOCKS
(Cost $2,172,730) ......................................... 1,757,578
-----------
TOTAL SECURITIES
(Cost $30,274,823) ........................................ 31,481,440
-----------
Principal Amount
REPURCHASE AGREEMENTS - 0.6%
$ 171,000 Agreement with Greenwich Capital Markets, Tri-
Party, 5.500% dated 12/31/99, to be repurchased
at $171,077 on 01/03/00, collateralized by
$174,423 market value of U.S. government and
mortgage-backed securities, having various
maturities and interest rates
(Cost $171,000) ............................... 171,000
-----------
TOTAL INVESTMENTS - 99.7%
(Cost $30,445,823*) ....................................... 31,652,440
OTHER ASSETS AND LIABILITIES - 0.3%
(Net) ..................................................... 106,273
-----------
NET ASSETS - 100.0% ....................................... $ 31,758,713
============
</TABLE>
(*) Aggregate cost for federal tax purposes.
+ Non-income-producing security.
Abbreviations
ADR American Depositary Receipt
The accompanying notes are an integral part of these financial statements.
29
<PAGE> 30
The Montgomery Funds
GLOBAL OPPORTUNITIES FUND
Portfolio Highlights
(Unaudited)
PORTFOLIO MANAGEMENT
John Boich, CFA .........Senior Portfolio Manager
Oscar Castro, CFA .......Senior Portfolio Manager
FUND PERFORMANCE
Average annual total returns
for the period ended 12/31/99
MONTGOMERY
GLOBAL OPPORTUNITIES FUND
<TABLE>
<S> <C>
Since inception (9/30/93) ............................................ 22.43%
One year ............................................................. 57.53%
Five years ........................................................... 26.76%
</TABLE>
MSCI WORLD INDEX
<TABLE>
<S> <C>
Since 9/30/93 ........................................................ 16.74%
One year ............................................................. 24.93%
Five years ........................................................... 19.76%
</TABLE>
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
<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 12257.59
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
</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 60 funds.
(*) Morningstar proprietary ratings reflect historical risk-adjusted
performance as of 12/31/99. The ratings are subject to change every
month. The ratings are calculated from the Fund's three-, five- and
10-year average annual returns (if available) 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 percent of funds in an investment class receive five stars; the
next 22.5% of funds receive four stars. The ratings are for Class R
shares only; other classes may vary.
I N V E S T M E N T R E V I E W
Q: HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED DECEMBER 31, 1999?
A: The Fund enjoyed a strong performance in the second half of 1999, returning
37.83%, versus a return of 15.14% for its benchmark, the Morgan Stanley Capital
International (MSCI) World Index. These strong gains have resulted in a one-,
three-and five-year returns of 57.53%, 32.43% and 26.76%, respectively, for the
Fund, versus returns of 24.93%, 21.61% and 19.76% for its benchmark.
Additionally, Morningstar awarded the Fund an overall five-star rating for its
risk-adjusted returns for the period ended 12/31/99 among 1,104 international
equity funds. The Fund also received five stars for the three- and five-year
periods ended 12/31/99 among 1,104 and 638 international equity funds,
respectively.(*)
Q: WHAT FACTORS CONTRIBUTED TO THESE STRONG RESULTS?
A: Stock selection, based on our investment process of identifying well-managed,
attractively valued companies with good long-term growth prospects, was the
primary driver of performance over the period and was the dominant source of
returns during the outstanding fourth quarter. Through our investment process,
we identified many strong performers during the second half of the year and
enjoyed particular success by owning several of the stocks with the most rapid
gains in the outperforming telecommunications and technology sectors.
The Fund remained significantly underweighted in the United States during the
second half of 1999. Although U.S. market performance continued to be strong
during the second half, the Fund's underweighting was more than overcome by good
U.S. stock selection.
Q: WHICH STOCKS CONTRIBUTED MOST TO PERFORMANCE?
A: Several of the Fund's holdings performed exceptionally well during the
period, including Atmel (2.41% of net assets as of 12/31/99), a U.S.-based
semiconductor company that has benefited from increased demand for its
integrated circuits and specialized chips, and Terra Networks (1.15% of net
assets as of 12/31/99), an Internet spin-off of Spanish telecommunications
company Telefonica de Espana.
Other strong performers included VNU (2.03% of net assets as of 12/31/99), a
Dutch publishing company, and Sony Corp. (2.92% of net assets as of 12/31/99).
We believe that VNU, besides having great management, is the European publishing
company with the best Internet strategy. Sony Corp. was another company that
attracted investor atten- tion due to its strong consumer brand name,
well-designed Internet strategy and strong track record for innovation.
Q: MANY OF THE FUND'S BEST-PERFORMING STOCKS DURING THE PERIOD WERE
TECHNOLOGY HOLDINGS. DO YOU BELIEVE THAT THIS SITUATION WILL CONTINUE IN
THE NEW YEAR?
A: Our expectations are for a strong, growing global economy, but in the near
term we are concerned about the interest rate outlook, as we expect rates to
rise during the
30
<PAGE> 31
early part of the year. The combination of rising rates and high valuations may
create some short-term pressure in the technology and telecommunications
sectors. Although valuations are at record highs in these sectors, our
fundamentally driven investment process has identified stocks that continue to
excite us. We believe that the communications sector is a highly desirable area
of the market for mid- to long-term investment, and that the new economy, driven
by technology and the Internet and supported by low inflation, is a strong
growth catalyst going forward.
Q: WHAT OPPORTUNITIES DO YOU SEE LOOKING FORWARD, AND HOW IS THE FUND
POSITIONED TO TAKE ADVANTAGE OF THEM?
A: Given our near-term outlook and based on our stock selection process, we have
made some changes to the portfolio. In the technology and telecommunications
sectors, we have reduced or eliminated holdings that we feel are vulnerable, and
have done the same with holdings that have valuations we believe are
unsustainable. We have increased our exposure to cyclical stocks, as our stock
selection process has identified several well-managed, attractively valued
companies that we believe have strong business prospects.
We believe that in the coming year, although the U.S. economy is likely to
remain firm, there will be a shift in economic leadership to Japan and Europe.
This shift will be driven by relative growth in other countries versus the
United States. The U.S. is in its fifth or sixth year of economic expansion, and
the market is concerned about increases in interest rates, which may temper
growth. Outside the United States, however, the scenario is quite different.
With a few exceptions, the European markets are growing and the Asian economies,
including Japan, have bottomed and are now turning around. This growth in other
parts of the world will move the global emphasis away from the U.S. economy.
Although our process is based on stock selection rather than macroeconomic
influences, our global equities mandate allows us to attempt to profit from this
upturn in the world economy. We believe that the portfolio's holdings are well
positioned to take advantage of these global trends.
The Montgomery Funds
GLOBAL OPPORTUNITIES FUND
Portfolio Highlights
TOP TEN HOLDINGS
(as a percentage of total net assets)
<TABLE>
<S> <C>
Sony Corporation .................................................... 2.9%
Mannesmann AG ....................................................... 2.7%
Sogecable S.A ....................................................... 2.5%
Sprint Corporation .................................................. 2.5%
Atmel Corporation ................................................... 2.4%
Global Crossing Ltd. ................................................ 2.2%
Global TeleSystems Group, Inc. ...................................... 2.2%
Nippon Telegraph & Telephone
Corporation ......................................................... 2.1%
Telecom Italia Mobile SpA ........................................... 2.1%
VNU N.V ............................................................. 2.0%
</TABLE>
TOP FIVE COUNTRIES
(as a percentage of total net assets)
<TABLE>
<S> <C>
United States ....................................................... 18.4%
Japan ............................................................... 15.0%
France .............................................................. 13.5%
United Kingdom ...................................................... 10.7%
Netherlands ......................................................... 8.4%
</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.
31
<PAGE> 32
The Montgomery Funds
GLOBAL OPPORTUNITIES FUND
I n v e s t m e n t s
P O R T F O L I O I N V E S T M E N T S
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 1)
COMMON STOCKS - 97.2%
<S> <C>
AUSTRALIA - 1.5%
395,000 Cable & Wireless Optus Ltd.
(Other Telephone/Communication) ................... $ 1,318,921
BELGIUM - 2.2%
56,500 Global TeleSystems Group, Inc.+
(Other Telephone/Communication) ................... 1,956,312
BRAZIL - 1.3%
8,900 Telebras, Sponsored ADR
(Other Telephone/Communication) ................... 1,143,650
CANADA - 2.0%
45,100 AT&T Canada, Inc.+
(Other Telephone/Communication) ................... 1,812,456
CHINA/HONG KONG - 2.3%
106,000 Cheung Kong Holdings Ltd. (Real Estate) .......... 1,346,562
112,000 Henderson Land Development Company,
Ltd. (Real Estate) ................................ 718,955
------------
2,065,517
FINLAND - 2.3%
1,800 Nokia Oyj
(Telecommunications Equipment) .................... 326,705
9,680 Nokia Oyj, Class A
(Telecommunications Equipment) .................... 1,756,948
------------
2,083,653
FRANCE - 13.5%
5,700 Air Liquide S.A. (Speciality Chemicals) .......... 955,250
33,600 Alstom (Electrical Products) ..................... 1,121,446
13,700 Aventis S.A. (Major Pharmaceuticals) ............. 797,090
3,200 Axa (Multi-Line Insurance) ....................... 446,578
14,200 Banque Nationale de Paris
(Non-U.S. Banks) .................................. 1,311,580
4,560 Castorama Dubois S.A.
(Building Material Chains) ........................ 1,388,618
10,540 France Telecom S.A.
(Other Telephone/Communication) ................... 1,395,456
2,800 Societe Television Francaise (Broadcasting) ...... 1,468,156
8,900 STMicroelectronics N.V.+
(Semiconductors) .................................. 1,371,274
4,510 Total Fina S.A., Class B
(Oil Refining/Marketing) .......................... 602,564
15,078 Vivendi (Non-U.S. Utilities) ..................... 1,363,029
------------
12,221,041
GERMANY - 5.5%
9,300 Deutsche Telecom AG
(Other Telephone/Communication) ................... 663,000
15,000 Epcos AG+ (Electronic Components) ................ 1,126,830
10,165 Mannesmann AG (Cellular Telephone) ............... 2,454,844
5,400 SAP AG, ADR (Computer Software) .................. 281,138
3,560 Siemens AG
(Diversified Electronic Products) ................. 453,382
------------
4,979,194
ITALY - 3.6%
73,100 ACEA SpA+ (Non-U.S. Utilities) ................... 1,017,202
85,900 Italgas SpA (Natural Gas Distribution) ........... 325,681
169,700 Telecom Italia Mobile SpA
(Cellular Telephone) .............................. 1,897,686
------------
3,240,569
JAPAN - 15.0%
66,000 Bank of Tokyo-Mitsubishi Ltd.
(Non-U.S. Banks) .................................. 919,339
96,000 Daiwa Securities Group, Inc.
(Investment Bankers/Brokers/Services) ............. 1,501,555
87,000 Fuji Bank Ltd. (Non-U.S. Banks) .................. 845,065
31,000 Fujitsu Ltd. (EDP Services) ...................... 1,413,088
111,000 Hitachi Ltd.
(Diversified Electronic Products) ................. 1,780,691
33,000 Mitsubishi Estate Company, Ltd.
(Real Estate) ..................................... 321,833
46,000 Mitsui Fudosan Company, Ltd.
(Real Estate) ..................................... 311,376
113 Nippon Telegraph & Telephone
Corporation
(Other Telephone/Communication) ................... 1,934,364
210,000 Nissan Motor Company (Motor Vehicles) ............ 825,785
8,900 Sony Corporation
(Consumer Electronics/Appliances) ................. 2,637,875
8,000 Tokyo Electron Ltd.
(Electronic Production Equipment) ................. 1,095,569
------------
13,586,540
KOREA - 1.8%
6,970 Samsung Electronics Company
(Diversified Electronic Products) ................. 1,632,779
NETHERLANDS - 8.4%
8,400 Akzo Nobel N.V. (Major Chemicals) ................ 421,813
15,800 Equant N.V.+
(Other Telephone/Communication) ................... 1,795,527
15,515 Koninklijke KPN N.V.
(Other Telephone/Communication) ................... 1,515,956
36,100 Libertel N.V.+ (Cellular Telephone) .............. 946,436
8,200 United Pan-Europe Communications
N.V.+ (Cable Television) .......................... 1,050,095
34,900 VNU N.V. (Books/Magazines) ....................... 1,836,286
------------
7,566,113
NEW ZEALAND - 1.3%
254,000 Telecom Corporation of New Zealand Ltd.
(Other Telephone/Communication) ................... 1,194,432
</TABLE>
32
The accompanying notes are an integral part of these financial statements.
<PAGE> 33
The Montgomery Funds
GLOBAL OPPORTUNITIES FUND
I n v e s t m e n t s
<TABLE>
<CAPTION>
Shares Value (Note 1)
COMMON STOCKS - continued
SPAIN - 4.9%
96,900 Banco Santander Central Hispano S.A.
<S> <C>
(Non-U.S. Banks) .................................... $ 1,098,250
35,800 Sogecable S.A.+ (Cable Television) ................. 2,288,670
19,000 Terra Networks S.A.+ (Internet Services) ........... 1,039,356
------------
4,426,276
SWEDEN - 0.3%
4,500 Ericsson AB, Class B
(Telecommunications Equipment) ...................... 289,895
SWITZERLAND - 2.2%
331 Julius Baer Holding AG (Non-U.S. Banks) ............. 1,000,383
2,340 Swisscom AG
(Other Telephone/Communication) ..................... 946,881
------------
1,947,264
UNITED KINGDOM - 10.7%
31,400 Barclays PLC (Non-U.S. Banks) ...................... 903,721
44,700 British Telecom PLC
(Other Telephone/Communication) ..................... 1,082,919
8,800 COLT Telecom Group PLC, ADR+
(Other Telephone/Communication) ..................... 1,795,200
45,200 Diageo PLC (Alcoholic Beverages) ................... 360,265
68,300 Freeserve PLC+ (Internet Services) ................. 640,354
48,200 Glaxo Wellcome PLC
(Major Pharmaceuticals) ............................. 1,365,443
85,510 HSBC Holdings PLC
(Non-U.S. Banks) .................................... 1,186,335
62,030 National Express Group PLC (Railroads) ............. 726,335
208,200 Thus PLC+
(Other Telephone/Communications) .................... 1,304,697
63,000 Vodafone AirTouch PLC
(Cellular Telephone) ................................ 310,594
------------
9,675,863
UNITED STATES - 18.4%
24,100 AT&T Corporation
(Major U.S. Telecommunications) ..................... 1,223,075
73,500 Atmel Corporation+ (Semiconductors) ................ 2,175,141
15,300 Bell Atlantic Corporation
(Major U.S. Telecommunications) ..................... 941,906
13,000 Carrier Access Corporation+
(Telecommunications Equipment) ...................... 882,781
14,700 Cisco Systems, Inc.+
(Computer Communications) ........................... 1,574,278
5,200 Electronic Arts, Inc.+
(Recreational Products/Toys) ........................ 437,125
17,000 Enron Corporation
(Oil/Gas Transmission) .............................. 754,375
20,600 Flextronics International Ltd.+
(Electronic Components) ............................. 948,244
40,215 Global Crossing Ltd.+
(Other Telephone/Communication) ..................... 2,009,493
54,000 Hollywood Entertainment Corporation+
(Computer/Video Chains) ............................. 779,625
10,075 Lucent Technologies, Inc.
(Telecommunications Equipment) ...................... 753,736
24,150 MCI WorldCom, Inc.+
(Major U.S. Telecommunications) ..................... 1,280,705
22,300 Sprint Corporation+
(Major U.S. Telecommunications) ..................... 2,285,750
4,100 Voicestream Wireless Corporation+
(Cellular Telephone) ................................ 582,584
------------
16,628,818
TOTAL COMMON STOCKS
(Cost $63,170,052) ............................................... 87,769,293
------------
PREFERRED STOCKS - 1.8%
GERMANY - 1.8%
293 Porsche AG (Motor Vehicles) ......................... 803,614
1,310 SAP AG (Computer Software) ......................... 789,921
------------
TOTAL PREFERRED STOCKS
(Cost $1,394,354) ................................................ 1,593,535
------------
TOTAL INVESTMENTS - 99.0%
(Cost $64,564,406*) .............................................. 89,362,828
OTHER ASSETS AND LIABILITIES - 1.0%
(Net) ............................................................ 937,880
------------
NET ASSETS - 100.0% .............................................. $ 90,300,708
============
</TABLE>
(*) Aggregate cost for federal tax purposes.
+ Non-income-producing security.
ABBREVIATIONS
ADR American Depositary Receipt
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 34
The Montgomery Funds
GLOBAL COMMUNICATIONS
Fund
Portfolio Highlights
(Unaudited)
PORTFOLIO MANAGEMENT
Oscar Castro, CFA ...Senior Portfolio Manager
FUND PERFORMANCE
Average annual total returns
for the period ended 12/31/99
MONTGOMERY
GLOBAL COMMUNICATIONS FUND
<TABLE>
<S> <C>
Since inception (6/1/93) ..................................... 29.18%
One year 104.02%
Five years ................................................... 35.83%
</TABLE>
MSCI TELECOMMUNICATIONS INDEX
<TABLE>
<S> <C>
Since 5/31/93 ................................................ 20.60%
One year ..................................................... 42.75%
Five years ................................................... 27.52%
</TABLE>
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
<TABLE>
<CAPTION>
Global Communications Index Lipper
<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
</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 four funds.
I N V E S T M E N T R E V I E W
Q: HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED DECEMBER 31, 1999?
A: The Fund enjoyed exceptionally strong performance in the second half of 1999,
returning 63.42%, versus a return of 25.47% for its benchmark, the Morgan
Stanley Capital International (MSCI) Telecommunications Index. These strong
gains have resulted in one-, three- and five-year returns of 104.02%, 54.14% and
35.83%, respectively, for the Fund, versus returns of 42.75%, 37.87% and 27.52%,
respectively, for its benchmark. In recognition of this strong performance,
Morningstar awarded the Fund an overall five-star rating for its risk-adjusted
returns for the period ended 12/31/99 among 3,469 domestic equity funds. The
Fund also received five stars for the three- and five-year periods ended
12/31/99, among 3,469 and 2,180 domestic equity funds, respectively.(*)
Q: COMMUNICATIONS STOCKS OUTPERFORMED MOST OTHERS IN THE SECOND HALF OF 1999.
WHAT DO YOU THINK ACCOUNTS FOR THEIR STRONG GAINS?
A: Virtually all industries within the communications sector recorded impressive
gains in the second half of calendar 1999. After a period of transition in the
middle of the year, telephone companies that offer broadband data transmission
and/or wireless services began to perform very well, followed closely by the
equipment makers, providers of software applications and media companies. We
believe that there were three driving forces behind such broad investor interest
in communications companies and applications: solid business fundamentals,
merger and acquisition activity and good old-fashioned momentum. There can be
little dispute about the extremely strong growth enjoyed by communications
companies. The expansion of data transmission such as the Internet through
broadband and wireless services has been taking place at a tremendous rate as
consumers and companies recognize the value that such services provide. The
growth in such new applications has, in turn, led to companies jockeying to
position themselves advantageously, resulting in a wave of merger and
acquisition activity. The bidding war that erupted in 1999, particularly in
Europe, served only to highlight this sector and sparked more buying interest.
Q: What factors led to the Fund's even more impressive performance?
A: The communications sector was a global market leader during the second half
of 1999. The Fund's returns, however, were even stronger than those of its
benchmark. We attribute this strong relative performance to our bottom-up stock
selection process, which focuses on identifying companies with strong management
teams that we perceive to be better equipped to manage the pace of growth and
industry change. This strategy positioned the Fund well to take advantage of the
strong interest in global communications companies.
Holdings that met our criteria and outperformed over the period included Esat
Telecom (3.15% of net assets as of 12/31/99), Mannesmann (2.44% of net assets as
of 12/31/99) and Atmel (2.52% of net assets as of 12/31/99). Both Esat,
Ireland's second-
34
<PAGE> 35
The Montgomery Funds
GLOBAL COMMUNICATIONS
FUND
Portfolio Highlights
largest telecommunications company, and Mannesmann, the largest German provider
of wireless services, were subject to takeover bids due to their attractive
market positioning and strong management teams. Atmel, a U.S.-based producer of
specialty memory chips, benefited from accelerating demand, particularly for
wireless components.
Q: ARE YOU CONCERNED ABOUT THE HIGH VALUATIONS OF MANY COMMUNICATIONS COMPANIES?
A: We believe that the valuations of many communications companies were
stretched by year end. Although we aim to remain fully invested and do not
attempt to time the market, we do reduce positions as they approach or exceed
our price targets. In a market run-up as rapid as the fourth-quarter rally in
communications stocks, it can be challenging to reassess our price targets for
each stock in light of the changing market and economic environment. Our team of
experienced analysts continually reevaluate the outlook for each of our
portfolio holdings so that we can maintain our positions in the stocks that we
feel will continue to advance, while reducing our positions in the stocks that
we feel are vulnerable to a negative surprise.
Q: WHERE DO YOU THINK THE BEST OPPORTUNITIES ARE LIKELY TO BE IN THE YEAR 2000?
A: Despite the sector's high valuations, we are excited about the Fund's
prospects for the coming year. Although we anticipate some volatility at the
beginning of the year, primarily resulting from renewed interest rate fears, in
our view there is still a very compelling case for investing in the
communications sector. Innovative product development and relatively low
penetration rates for new technologies, even in developed countries such as the
United States, continue to suggest huge growth potential. Strong global economic
growth and a benign inflationary environment may also bolster growth in the
communications sector. We intend to maintain our relatively cautious approach in
the short term, however, using primary fundamental research and our industry
insight to seek to identify companies that are best positioned to outperform in
the long run.
TOP TEN HOLDINGS
(as a percentage of total net assets)
<TABLE>
<S> <C>
Esat Telecom Group PLC, ADR .............................................. 3.2%
Atmel Corporation ........................................................ 2.5%
Mannesmann AG ............................................................ 2.4%
Sony Corporation ......................................................... 2.3%
Global TeleSystems Group, Inc. ........................................... 2.2%
Sogecable S.A ............................................................ 2.1%
Sprint Corporation ....................................................... 2.0%
Telecom Italia Mobile SpA ................................................ 1.9%
Nokia Oyj ................................................................ 1.9%
Nippon Telegraph & Telephone
Corporation .............................................................. 1.9%
</TABLE>
TOP FIVE COUNTRIES
(as a percentage of total net assets)
<TABLE>
<S> <C>
United States ............................................. 29.2%
Netherlands ............................................... 10.3%
United Kingdom ............................................ 7.9%
Japan ..................................................... 7.6%
Germany ................................................... 6.8%
</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 or sector are
subject to a higher degree of risk than funds whose investments are diversified
and may not be suitable for all investors. In addition, technology securities
tend to be relatively volatile as compared with other types of investments.
(*)Morningstar proprietary ratings reflect historical risk-adjusted performance
as of 12/31/99. The ratings are subject to change every month. The ratings are
calculated from the Fund's three-, five- and 10-year average annual returns (if
available) 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 percent of funds in an investment class receive five stars;
the next 22.5% of funds receive four stars. The ratings are for Class R shares
only; other classes may vary.
35
<PAGE> 36
The Montgomery Funds
GLOBAL COMMUNICATIONS
Fund
I n v e s t m e n t s
P O R T F O L I O I N V E S T M E N T S
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 1)
COMMON STOCKS - 95.1%
<S> <C>
AUSTRALIA - 1.5%
2,598,800 Cable & Wireless Optus Ltd.
(Other Telephone/Communication) .................... $ 8,677,499
BELGIUM - 2.2%
385,660 Global TeleSystems Group, Inc.+
(Other Telephone/Communication) .................... 13,353,478
BERMUDA - 0.8%
270,900 RSL Communications Ltd.+
(Other Telephone/Communication) .................... 4,630,697
BRAZIL - 1.0%
47,900 Telebras, Sponsored ADR
(Other Telephone/Communication) .................... 6,155,150
CANADA - 2.7%
242,700 AT&T Canada, Inc.+
(Other Telephone/Communication) .................... 9,753,506
110,100 Clearnet Communications, Inc.+
(Cellular Telephone) ............................... 3,791,569
78,800 Clearnet Communications, Inc.+
(Cellular Telephone) ............................... 2,707,932
----------
16,253,007
FINLAND - 3.6%
124,600 Helsinki Telephone
(Other Telephone/Communication) .................... 10,390,453
62,660 Nokia Oyj
(Telecommunications Equipment) ..................... 11,372,968
----------
21,763,421
FRANCE - 5.5%
61,830 France Telecom S.A.
(Other Telephone/Communication) .................... 8,186,060
18,050 Societe Television Francaise
(Broadcasting) ..................................... 9,464,365
34,500 STMicroelectronics N.V.+
(Semiconductors) ................................... 5,315,613
19,900 STMicroelectronics N.V. (NY Shares)
(Semiconductors) ................................... 3,013,606
78,779 Vivendi (Non-U.S. Utilities) ..................... 7,121,503
----------
33,101,147
GERMANY - 5.7%
62,400 Deutsche Telecom AG
(Other Telephone/Communication) .................... 4,448,514
97,900 Epcos AG+ (Electronic Components) ................ 7,354,445
62,800 Infonet Services Corporation+
(Other Telephone/Communication) .................... 1,648,500
60,441 Mannesmann AG (Cellular Telephone) ............... 14,596,478
65,400 SAP AG, ADR (Computer Software) .................. 3,404,887
21,320 Siemens AG
(Diversified Electronics Products) ................. 2,715,198
----------
34,168,022
GREECE - 1.0%
250,000 Hellenic Telecommunications
Organization S.A.
(Other Telephone/Communication) .................... 5,926,016
IRELAND - 3.2%
203,100 Esat Telecom Group PLC, ADR+
(Other Telephone/Communication) .................... 18,837,525
ITALY - 1.9%
1,034,100 Telecom Italia Mobile SpA
(Other Telephone/Communication) .................... 11,563,918
JAPAN - 7.6%
648,000 Hitachi Ltd.
(Diversified Electronics Products) ................. 10,395,383
956,000 Marubeni Corporation
(Wholesale Distributors) ........................... 4,011,777
650 Nippon Telegraph & Telephone
Corporation
(Other Telephone/Communication) .................... 11,126,871
46,100 Sony Corporation
(Consumer Electronics/Appliances) .................. 13,663,602
46,000 Tokyo Electron Ltd.
(Electronic Production Equipment) .................. 6,299,521
----------
45,497,154
KOREA - 2.9%
95,500 Korea Telecom Corporation, ADR
(Other Telephone/Communication) .................... 7,138,625
44,150 Samsung Electronics Company
(Diversified Electronics Products) ................. 10,342,492
----------
17,481,117
NETHERLANDS - 10.3%
94,500 Equant N.V.+
(Other Telephone/Communication) .................... 10,739,070
95,969 Koninklijke KPN, N.V.
(Other Telephone/Communication) .................... 9,377,038
142,800 KPNQwest N.V.+
(Other Telephone/Communication) .................... 9,517,888
270,800 Libertel N.V.+
(Cellular Telephone) ............................... 7,099,585
50,700 United Pan-Europe Communications
N.V.+ (Cable Television) ........................... 6,492,659
247,300 Versatel Telecom International N.V.+
(Other Telephone/Communication) .................... 8,727,766
183,700 VNU N.V. (Books/Magazines) ....................... 9,665,496
----------
61,619,502
NEW ZEALAND - 1.1%
1,340,600 Telecom Corporation of New Zealand Ltd.
(Other Telephone/Communication) .................... 6,304,157
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE> 37
The Montgomery Funds
GLOBAL COMMUNICATIONS
FUND
I n v e s t m e n t s
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - continued
PORTUGAL - 1.8%
66,500 PT MULTIMEDIA-Servicos de
Telecomunicacoes e Multimedia SGPS S.A.+
(Cable Television) .................................. $ 3,786,608
388,000 Telecel-Comunicacoes Pessoais S.A.
(Cellular Telephone) ................................ 6,772,355
-----------
10,558,963
RUSSIA - 0.0%@
200,000 Russian Telecommunication Development
Corporation Section+(a)
(Other Telephone/Communication) ..................... 99,020
SPAIN - 3.4%
29,200 Jazztel PLC+
(Other Telephone/Communication) ..................... 1,914,425
193,700 Sogecable S.A.+ (Cable Television) ................ 12,383,112
108,000 Terra Networks S.A.+ (Internet Services) .......... 5,907,918
-----------
20,205,455
SWEDEN - 0.3%
27,200 Ericsson AB, Class B
(Telecommunications Equipment) ...................... 1,752,255
SWITZERLAND - 1.0%
14,150 Swisscom AG
(Other Telephone/Communication) ..................... 5,725,793
TAIWAN - 0.5%
275,000 Ritek Corporation GDR+
(Electronic Components) ............................. 3,210,625
UNITED KINGDOM - 7.9%
285,500 British Telecom PLC
(Other Telephone/Communication) ..................... 6,916,629
54,400 COLT Telecom Group PLC, ADR+
(Other Telephone/Communication) ..................... 11,097,600
455,700 Freeserve PLC+ (Internet Services) ................ 4,272,464
501,400 Future Network PLC (The)+
(Other Telephone/Communications) .................... 6,903,603
262,590 Pearson PLC
(Financial Publishing/Services) ..................... 8,516,066
1,243,000 Thus PLC+
(Other Telephone/Communication) ..................... 7,789,327
402,100 Vodafone AirTouch PLC
(Cellular Telephone) ................................ 1,982,380
-----------
47,478,069
UNITED STATES - 29.2%
422,500 Allied Riser Communications
Corporation+
(Other Telephone/Communication) ..................... 8,608,438
21,700 Amazon.com, Inc.+ (Internet Services) ............. 1,652,591
74,600 America On-Line, Inc.+ (Internet Services) ........ 5,627,638
82,900 At Home Corporation+ (Internet Services) .......... 3,562,109
155,400 AT&T Corporation
(Major U.S. Telecommunications) ..................... 7,886,550
508,800 Atmel Corporation+ (Semiconductors) ............... 15,057,300
145,400 Bell Atlantic Corporation
(Major U.S. Telecommunications) ..................... 8,951,187
94,900 Carrier Access Corporation+
(Telecommunications Equipment) ...................... 6,444,303
82,678 Cisco Systems, Inc.+
(Computer Communications) ........................... 8,854,297
110,650 Covad Communications Group, Inc.+
(Other Telephone/Communication) ..................... 6,172,195
144,800 Cymer, Inc.+
(Electronic Production Equipment) ................... 6,669,850
67,700 Electronic Arts, Inc.+
(Recreational Products/Toys) ........................ 5,691,031
86,800 Enron Corporation
(Oil/Gas Transmission) .............................. 3,851,750
109,800 Flextronics International Ltd.+
(Diversified Electronics Products) .................. 5,054,231
222,415 Global Crossing Ltd.+
(Other Telephone/Communication) ..................... 11,113,799
371,800 Hollywood Entertainment Corporation+
(Computer/Video Chains) ............................. 5,367,863
50,600 Lam Research Corporation+
(Electronic Production Equipment) ................... 5,648,225
65,340 Lucent Technologies, Inc.
(Telecommunications Equipment) ...................... 4,888,249
157,872 MCI WorldCom, Inc.+
(Major U.S. Telecommunications) ..................... 8,372,150
148,000 McLeod USA, Inc., Class A+
(Other Telephone/Communication) ..................... 8,704,250
48,000 Open Text Corporation+
(Computer Software) ................................. 862,500
143,400 Rhythms NetConnections, Inc.+
(Internet Services) ................................. 4,449,881
116,800 Sprint Corporation+
(Major U.S. Telecommunications) ..................... 11,972,000
61,600 Tellabs, Inc.+
(Telecommunications Equipment) ...................... 3,952,025
149,400 Ticketmaster Online-CitySearch, Inc.+
(Internet Services) ................................. 5,747,231
27,000 Voicestream Wireless Corporation+
(Other Telephone/Communication) ..................... 3,836,531
202,000 Williams Communications Group, Inc.+
(Telecommunications Equipment) ...................... 5,845,375
-----------
174,843,549
TOTAL COMMON STOCKS
(Cost $348,863,998) 569,205,539
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE> 38
The Montgomery Funds
GLOBAL COMMUNICATIONS
FUND
I n v e s t m e n t s
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
PREFERRED STOCKS - 1.1%
Germany - 1.1%
55,563 ProSieben Media AG (Media) ......................... $ 3,232,752
5,640 SAP AG (Broadcasting) .............................. 3,400,880
-------------
TOTAL PREFERRED STOCKS
(Cost $5,134,741) ............................................... 6,633,632
-------------
MONEY MARKET FUND - 0.0%@
292 Chase Vista Federal Money Market Fund
(Cost $292) .......................................... 292
-------------
TOTAL SECURITIES
(Cost $353,999,031) ............................................. 575,839,463
-------------
Principal Amount
REPURCHASE AGREEMENTS - 3.9%
$12,235,000 Agreement with Greenwich Capital
Markets, Tri-Party, 5.500% dated
12/31/99, to be repurchased at
$12,240,531 on 01/03/00,
collateralized by $12,479,943 market
value of U.S. government and
mortgage-backed securities, having
various maturities and interest
rates................................................. 12,235,000
11,000,000 Agreement with Paine Webber,
Tri-Party, 5.500% dated 12/31/99, to be
repurchased at $11,004,973 on 01/03/00,
collateralized by $11,220,067
market value of U.S. government and
mortgage-backed securities,
having various maturities and interest rates ........ 11,000,000
TOTAL REPURCHASE AGREEMENTS
(Cost $23,235,000) .............................................. 23,235,000
TOTAL INVESTMENTS - 100.1%
(Cost $377,234,031*) ............................................ 599,074,463
OTHER ASSETS AND LIABILITIES - (0.1)%
(Net) ........................................................... (403,738)
-------------
NET ASSETS - 100.0% ............................................. $ 598,670,725
=============
</TABLE>
(*) Aggregate cost for federal tax purposes.
(Section)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 security: At December 31, 1999, the Fund owned the following
restricted security constituting 0.00% of net assets which may not be
publicly sold without registration under Securities Act of 1933 (Note
1). Additional information on the security is as follows:
Russian Telecommunication Development Corporation
<TABLE>
<CAPTION>
Value per
Acquisition Date Shares Cost Share
<S> <C> <C> <C>
12/22/97 200,000 $2,000,000 $0.50
</TABLE>
ABBREVIATIONS
ADR American Depositary Receipt
GDR Global 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 governmental regulation than many other industries, and regulatory
approval requirements may materially affect the products and services of this
industry.
The accompanying notes are an integral part of these financial statements.
38
<PAGE> 39
The Montgomery Funds
EMERGING MARKETS FUND
Portfolio Highlights
(Unaudited)
I N V E S T M E N T R E V I E W
Q: HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED DECEMBER 31, 1999?
A: We are pleased to report that a very strong fourth-quarter performance for
the Fund resulted in a return of 27.15% for the period, versus a return of
18.98% for its benchmark, the Morgan Stanley Capital International (MSCI)
Emerging Markets Free Index.
Q: WHAT FACTORS CONTRIBUTED TO THE FUND'S SOLID PERFORMANCE?
A: The Fund's strong returns can be attributed to a combination of a favorable
investment environment in the period and good market and stock selection on our
part. Although profit taking and concern over the direction of U.S. interest
rates reduced some of the earlier gains enjoyed by emerging markets investors in
the third quarter of 1999, such concerns were pushed aside by the final three
months of the year. A number of markets performed particularly well toward year
end, including Turkey, Mexico, China/Hong Kong and Korea. The Turkish market
benefited from the removal of Greek objections to the country's accession to the
European Union. In Mexico the economy continued to show a strong recovery,
helped by a rise in oil prices and robust growth across the border in the United
States. China/Hong Kong and Korea also revised upward their estimates for
economic growth, but the main driving force behind these and other northern
Asian markets during the quarter were the technology and telecommunications
sectors.
The Fund was well positioned to benefit from an improving global economic
outlook, such as the increase in demand for commodities, including platinum and
pulp and paper. The decision to increase exposure to Mexico to a 14.35%
weighting and to maintain our overweight position in Turkey in the final months
of 1999 contributed greatly to the Fund's performance. A fourth-quarter
reduction in the Fund's Indian holdings also proved positive. Following a strong
third-quarter showing, India remained essentially flat through the end of the
year. Fund returns also received a boost from our 16.98% weighting in
telecommunications and technology, and particularly our Asian holdings, as
investors took their lead from the United States and favored these issues above
most others.
Q: WERE THERE ANY STOCKS THAT MADE A PARTICULARLY STRONG CONTRIBUTION TO
PERFORMANCE?
A: Reflecting market trends, the Fund's Mexican telecom and technology holdings
were undisputedly the strongest performers during the period. These included
Grupo Financiero Banamex (1.45% of net assets as of 12/31/99), Egyptian Company
for Mobile Services (3.07% of net assets as of 12/31/99), Korea Telecom (1.74%
of net assets as of 12/31/99) and Satyam Computer Services (1.07% of net assets
as of 12/31/99).
Banamex, a Mexican bank, benefited from a strengthening Mexican market, falling
interest rates and positive sentiment toward the market. Egyptian Company for
Mobile Services also benefited from positive market sentiment and continued
growth
PORTFOLIO MANAGEMENT
Josephine Jimenez, CFA ...................................................Senior
Portfolio Manager
Frank Chiang ..................................................Portfolio Manager
FUND PERFORMANCE
Average annual total returns
for the period ended 12/31/99
MONTGOMERY EMERGING MARKETS FUND
<TABLE>
<S> <C>
Since inception (3/1/92) ................................... 4.97%
One year ................................................... 63.16%
Five years ................................................. (0.08)%
</TABLE>
MSCI EMERGING MARKETS FREE INDEX
<TABLE>
<S> <C>
Since 3/1/92 ............................................ 7.09%
One year ................................................ 66.41%
Five years .............................................. 2.00%
</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.
[GROWTH OF A $10,000 INVESTMENT GRAPH]
[LINE GRAPH]
<TABLE>
<CAPTION>
Emerging Mkts Fund (MSCI) Lipper
<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 15915.62 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
</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 seven
funds.
39
<PAGE> 40
The Montgomery Funds
EMERGING MARKETS FUND
Portfolio Highlights
TOP TEN HOLDINGS
(as a percentage of total net assets)
<TABLE>
<S> <C>
Samsung Electronics Company .............................................. 4.8%
Telefonos de Mexico S.A., ADR ............................................ 4.3%
Egyptian Company for Mobile Services ..................................... 3.1%
Vale do Rio Doce, A Shares ............................................... 2.5%
Hon Hai Precision Industry ............................................... 2.5%
Taiwan Semiconductor Manufacturing Company Ltd. .......................... 2.3%
Korea Electric Power Corporation, ADR .................................... 2.0%
Alpha Credit Bank ........................................................ 2.0%
TeleNorte Leste Participacoes ............................................ 1.8%
Fomento Economico Mexicano S.A. de C.V ................................... 1.8%
</TABLE>
TOP FIVE COUNTRIES
(as a percentage of total net assets)
<TABLE>
<S> <C>
Mexico .................................................. 14.4%
Brazil .................................................. 13.5%
Korea ................................................... 12.3%
India ................................................... 11.4%
Taiwan .................................................. 9.0%
</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 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.
in its subscriber base. Korea Telecom also benefited from rapid growth of its
subscriber base and its dominant position in the domestic wireless market.
Satyam, a recently listed Indian information technology company, saw its
valuation soar on the back of high demand for Asian technology issues.
Q: WERE THERE ANY DISAPPOINTMENTS?
A: Unfortunately, not all of our holdings lived up to expectations. Most of
those that disappointed were listed on the Indian market, which, apart from
technology issues, turned in a lackluster performance toward the end of the year
due to Y2K worries and profit taking. Given the recently elected government's
stronger-than-anticipated commitment to reform, however, and the positive
outlook for the economy in 2000, we believe that this market is likely to revive
and that our holdings may begin making a more positive contribution to
performance.
Q: WHERE DO YOU BELIEVE THE BEST OPPORTUNITIES IN THE EMERGING MARKETS TO BE
IN THE NEW YEAR?
A: Moving into the New Year, we continue to see plenty of opportunities across
the emerging markets. We believe that reductions in interest rates and strong
markets have helped boost consumer confidence and may continue to stimulate
growth in the year ahead. In addition, companies that withstood the 1997/98
crisis are now more robust and many have implemented restructuring that will
make them more competitive in the long run.
In terms of individual country exposure, while we continue to like the prospects
for Mexico, we are also becoming more optimistic about Brazil. We expect that
the Brazilian economy is likely to see a recovery in 2000, and we believe that
specific well-placed domestically oriented companies may begin to enjoy
improving growth prospects. We also like Hong Kong, where, similar to Brazil,
economic growth is beginning to accelerate, which may attract funds to certain
sectors, such as property, that have recently been out of favor.
We are also very excited about the some of the Asian technology companies,
particularly DRAM chip manufacturers. Some semiconductor companies are currently
experiencing top-line growth of 60 to 80%, and we believe that this trend will
continue. In view of this, we are currently overweighted in this sector. We will
continue to seek out similarly attractive ideas and well-managed companies and
through this strategy strive to add value to your Fund.
40
<PAGE> 41
The Montgomery Funds
EMERGING MARKETS FUND
I n v e s t m e n t s
P O R T F O L I O I N V E S T M E N T S
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - 89.6%
ARGENTINA - 1.1%
130,849 Telefonica de Argentina, ADR
(Other Telephone/Communication) ....................... $4,039,963
BRAZIL - 4.9%
77,600 Aracruz Celulose S. A., ADR (Paper) ................... 2,037,000
238,100 Embratel Participacoes, ADR
(Other Telephone/Communication) ....................... 6,488,225
93,000 Tele Celular Sul Participacoes S.A., ADR
(Cellular Telephone) .................................. 2,952,750
59,600 Tele Centro Sul Participacoes S.A.
(Other Telephone/Communication) ....................... 5,408,700
45,200 Vale do Rio Doce, Series A+
(Other Metals/Minerals) ............................... 1,050,872
----------
17,937,547
CHILE - 0.8%
167,274 Cia de Telecom Chile de S.A., ADR
(Other Telephone/Communication) ....................... 3,052,751
CHINA/HONG KONG - 3.0%
147,000 Cheung Kong (Holdings) Ltd.
(Real Estate) ......................................... 1,867,402
43,600 China Telecom Ltd., ADR+
(Other Telephone/Communication) ....................... 5,605,325
2,350,000 Cosco Pacific Ltd.
(Marine Transportation) ............................... 1,949,894
123,498 HSBC Holdings PLC (Non-U.S. Banks) ................... 1,731,689
----------
11,154,310
CZECH REPUBLIC - 0.6%
54,520 Ceske Radiokomunikace, GDR+
(Other Telephone/Communication) ....................... 1,989,980
EGYPT - 4.4%
96,540 Al-Ahram Beverages Company+
(Alcoholic Beverages) ................................. 1,904,695
154,000 Al-Ahram Beverages Company GDR+
(Alcoholic Beverages) ................................. 3,033,800
247,333 Egyptian Company for Mobile Services
(Cellular Telephone) .................................. 11,333,610
----------
16,272,105
GREECE - 2.8%
93,963 Alpha Credit Bank (Non-U.S. Banks) ................... 7,365,032
123,200 Hellas Telecommunication S.A.,
(Other Telephone/Communication) ....................... 2,920,341
----------
10,285,373
HUNGARY - 1.3%
73,100 Mol Magyar Olaj-es Gazipari Rt.
(Integrated Oil Companies) ............................ 1,519,901
53,790 OTP Bank Rt. (Non-U.S. Banks) ........................ 3,151,774
----------
4,671,675
INDIA - 11.4%
25 Bajaj Auto Ltd. (Motor Vehicles) ...................... 189
100 Bharat Petroleum Corporation Ltd.
(Oil Refining/Marketing) .............................. 902
250 BSES Ltd. (Non-U.S. Utilities)+ ...................... 1,098
420 Castrol (India) Ltd.
(Oil Refining/Marketing) .............................. 2,946
200 Cummins India Ltd. (Auto Parts: O.E.M.) .............. 2,630
73,700 Dr. Reddy's Laboratories Ltd.
(Generic Drugs) ....................................... 2,443,113
466,500 Hindustan Petroleum Corporation Ltd.
(Oil Refining/Marketing) .............................. 1,962,517
76,500 Hindustan Petroleum Corporation Ltd.
(Oil Refining/Marketing) .............................. 321,828
363,980 Housing Development and Finance
Corporation (Finance Companies) ....................... 2,393,064
192,800 ICICI Ltd., Sponsored ADR+
(Diversified Financial Services) ...................... 2,675,100
240 Indian Hotels Company Ltd.
(Hotels/Resorts) ...................................... 1,749
17,400 Infosys Technologies Ltd.
(Diversified Electronic Products) ..................... 5,806,500
152 ITC Ltd. (Diversified Manufacture) ................... 2,324
406,000 Larsen & Toubro Ltd.
(Construction/Agriculture
Equipment/Trucks) .................................... 5,188,400
27,803 NIIT Ltd. (Computer Software) ........................ 2,119,132
1,064,000 Reliance Industries, Ltd. (Textiles) ................. 5,716,248
78,400 Satyam Computer (Computer Software) .................. 3,963,255
156,000 Sri Adhikari Brothers Telephone Network
Ltd. (Broadcasting) .................................. 4,621,903
150 State Bank of India (Non-U.S. Banks) ................. 775
10 Tata Engineering & Locomotive Co., Ltd.
(Motor Vehicles) ...................................... 46
201,500 Videsh Sanchar Nigam Ltd., GDR
(Other Telephone/Communication) ....................... 4,956,900
----------
42,180,619
INDONESIA - 0.5%
1,518,000 PT Indofood Sukses Makmur Tbk+
(Specialty Foods/Candy) ............................... 1,900,894
ISRAEL - 3.8%
2,972,000 Bank Leumi Le-Israel (Non-U.S. Banks) ................ 6,260,914
390,350 Bezeq Israeli Telecommunication
Corporation Ltd.+
(Other Telephone/Communication) ....................... 1,947,610
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE> 42
The Montgomery Funds
EMERGING MARKETS FUND
I n v e s t m e n t s
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - CONTINUED
ISRAEL - CONTINUED
7,100 Check Point Software Technologies Ltd.+
(Computer Software) .............................. $ 1,411,125
50,800 ECI Telecom Ltd.
(Telecommunications Equipment) ................... 1,609,725
49 Makhteshim-Agan Industries, Ltd.+
(Speciality Chemicals) ........................... 86
37,200 NICE Systems Ltd., ADR+
(Telecommunications Equipment) ................... 1,833,262
12,900 Orbotech Ltd.+
(Electronic Production Equipment) ................ 1,002,169
----------
14,064,891
KOREA - 12.3%
213,110 Kookmin Bank (Non-U.S. Banks) ................... 3,340,694
447,800 Korea Electric Power Corporation, ADR
(Non-U.S. Utilities) ............................. 7,500,650
40,800 Korea Telecom Corporation+
(Other Telephone/Communication) .................. 6,431,704
53,091 Pohang Iron & Steel Company Ltd.
(Steel/Iron Ore) ................................. 6,312,008
89,000 Pohang Iron & Steel Company, ADS
(Steel/Iron Ore) ................................. 3,115,000
76,329 Samsung Electronics Company
(Diversified Electronic Products) ................ 17,880,681
56 Samsung Electronics Ltd., GDR
(Diversified Electronic Products) ................ 6,825
77,000 Shinhan Bank Company Ltd.
(Non-U.S. Banks) ................................. 834,082
----------
45,421,644
MALAYSIA - 2.5%
4,000,000 Public Bank Berhad (Non-U.S. Banks) ............. 3,494,691
517,000 Tenaga Nasional Berhad
(Non-U.S. Utilities) ............................. 1,333,298
2,798,200 YTL Corporation Berhad
(Engineering and Construction) ................... 4,454,970
----------
9,282,959
MEXICO - 14.4%
156,300 Cemex S.A. de C.V., Sponsored ADR+
(Building Materials) 4,356,863
1,930,000 Cifra S.A. de C.V.+ (Other Specialty Stores) .... 3,868,143
1,877,000 Controladora Comercial Mexicana S.A. de
C.V. (Department Stores) ....................... 2,514,546
516,768 Corporacion Interamericana de
Entretenimiento S.A., Series B+
(Advertising) .................................... 2,063,256
150,100 Fomento Economico Mexicano S.A. de
C.V. (Soft Drinks) ............................... 6,679,450
1,337,000 Grupo Financiero Banamex Accival S.A. de
C.V., Series B-Banacci+ (Non-U.S. Banks) ......... 5,359,283
1,234,000 Grupo Mexico S.A.
(Other Metals/Minerals) .......................... 6,111,424
58,100 Grupo Televisa S.A., GDR+ (Broadcasting) ........ 3,965,325
592,000 Kimberly-Clark de Mexico S.A. de C.V.
(Package Goods/Cosmetics) ........................ 2,310,549
139,890 Telefonos de Mexico S.A., ADR
(Other Telephone/Communication) .................. 15,737,625
----------
52,966,464
MOROCCO - 0.0%@
2 Banque Marocaine du Commerce
Exterieur, GDR+ (Non-U.S. Banks) ................ 43
PAKISTAN - 0.0%@
333 Engro Chemical Pakistan
(Agricultural Chemicals) ......................... 807
PERU - 0.6%
18,500 Compania de Minas Buenaventura S.A.,
ADR (Precious Metals) ........................... 297,156
78,200 Credicorp Ltd. (Non-U.S. Banks) ................. 938,400
1 Ferreyros Enrique S.A., ADR
(Construction/Agriculture
Equipment/Trucks) ............................... 1
83,700 Telefonica del Peru S.A., ADR
(Other Telephone/Communication) .................. 1,119,487
----------
2,355,044
PHILIPPINES - 0.8%
6,360,000 Ayala Corporation
(Multi-Sector Companies) ......................... 1,854,342
864,000 San Miguel Corporation, Class B
(Alcoholic Beverages) ............................ 1,222,035
----------
3,076,377
POLAND - 0.8%
127,600 Elektrim Spolka Akcyjna S.A.+
(Wholesale Distributors) 1,265,200
115,500 Prokom Software, GDR+ (EDP Services) ............ 1,801,800
----------
3,067,000
SOUTH AFRICA - 7.0%
716,400 ABSA Group Ltd. (Finance Companies) ............. 3,215,063
100,300 Anglo American Platinum Corporation
Ltd. (Precious Metals) ........................... 3,049,772
32,000 AngloGold Ltd. (Precious Metals) ................ 1,647,350
1 B.O.E. Corporation Ltd.
(Investment Managers) ............................ 1
177,000 De Beers Centenary AG
(Other Metals/Minerals) .......................... 5,151,707
42,000 Impala Platinum Holdings Ltd.
(Precious Metals) ................................ 1,700,488
6 Iscor Ltd. (Steel/Iron Ore) ..................... 24
1 Liberty International PLC
(Finance Companies) .............................. 8
1 Liberty Life Association of Africa Ltd.
(Life Insurance) ................................. 12
1,608,000 Old Mutual PLC+
(Diversified Financial Services) ................. 4,222,634
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE> 43
The Montgomery Funds
EMERGING MARKETS FUND
I n v e s t m e n t s
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - CONTINUED
SOUTH AFRICA - CONTINUED
18,970 Pepsi International Bottlers+(Section)(a)
(Soft Drinks) ...................................... $ 159,917
257,000 Sappi Ltd. (Paper) ................................ 2,540,748
465,936 Sasol Ltd. (Coal Mining) .......................... 3,932,045
2 Standard Bank Investment Corp., Ltd.
(Non-U.S. Banks) ................................... 8
------------
25,619,777
TAIWAN - 9.0%
1,443,900 Far East Textile Ltd.+ (Textiles) ................. 3,450,454
1,253,000 Hon Hai Precision Industry+
(Electronic Data Processing) ....................... 9,342,106
621,225 Synnex Technology International
Corporation (Electronic Distributors) .............. 4,077,500
1,604,305 Taiwan Semiconductor Manufacturing
Company Ltd.+
(Electronic Production Equipment) .................. 8,536,528
1,800,000 United Microelectronics Corporation,
Ltd.+ (Semiconductors) ............................. 6,423,451
2,900,000 Yang Ming Marine Transport
(Marine Transportation) ............................ 1,395,253
------------
33,225,292
THAILAND - 2.2%
5,738,000 National Finance PLC (F)
(Non-U.S. Banks) ................................... 2,551,746
403,200 PTT Exploration and Production Public
Company Ltd. (F)
(Oil and Gas Production) ........................... 2,483,536
1,917,200 Thai Farmers Bank Public Company Ltd.
(F) (Non-U.S. Banks) ............................... 3,206,786
------------
8,242,068
TURKEY - 5.1%
36,565,000 Arcelik A.S.
(Consumer Electronics/Appliances) .................. 2,393,174
130,000,000 Dogan Sirketler Grubu Holdings A.S.
(Diversified Manufacture) .......................... 3,834,808
123,300,000 Turkiye Is Bankasi, Class C
(Non-U.S. Banks) ................................... 5,910,398
209,870,469 Yapi Ve Kredi Bankasi S.A.
(Non-U.S. Banks) ................................... 6,481,067
------------
18,619,447
VENEZUELA - 0.3%
41,700 Compania Anonima Nacional
Telefonos de Venezuela, ADR
(Other Telephone/Communication) .................... 1,026,863
TOTAL COMMON STOCKS
(Cost $224,966,573) ........................................... 330,453,893
------------
PREFERRED STOCKS - 9.5%
BRAZIL - 8.6%
195,869,000 Cia Paranaense de Energi
(Non-U.S. Utilities) ............................... $ 1,897,430
4,157,000 Itausa Investimentos Itau
(Multi-Sector Companies) ........................... 4,303,122
16,100,000 Petroleo Brasileiro S.A.+
(Integrated Oil Companies) ......................... 3,564,637
4,156,835 Telecel-Comunicacoes Pessoais S.A.
(Cellular Telephone) ............................... 459,058
250,600,000 Tele Norte Leste Participacoes
(Other Telephone/Communication) .................... 6,727,982
6,276,872 Telesp Celular S.A., Series B
(Cellular Telephone) ............................... 496,869
939,000 Usinas Siderurgicas de Minas Gerais, GDR
(Steel/Iron Ore) ................................... 5,093,939
337,800 Vale do Rio Doce, A Shares
(Other Metals/Minerals) ............................ 9,349,571
487,888 Vale do Rio Doce, B Shares
(Other Metals/Minerals) ............................ 3
------------
31,892,611
RUSSIA - 0.9%
270,000 LUKoil Company, ADR
(Integrated Oil Companies) ......................... 3,240,000
TOTAL PREFERRED STOCKS
(Cost $25,610,902) ............................................. 35,132,611
------------
MONEY MARKET FUND - 0.0%@
19 Chase Vista Federal Money Market Fund
(Cost $19) ......................................... 19
-----------
TOTAL SECURITIES
(Cost $250,577,494) ............................................ 365,586,523
-----------
Principal Amount
REPURCHASE AGREEMENTS - 0.0%@
$34,000 Agreement with Greenwich Capital
Markets, Tri-Party, 5.500% dated 12/31/99,
to be repurchased at $34,015 on 01/03/00,
collateralized by $34,681 market value of
U.S. government and mortgage-backed
securities, having various maturities and
interest rates.
(Cost $34,000) ..................................... 34,000
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE> 44
The Montgomery Funds
EMERGING MARKETS FUND
I n v e s t m e n t s
<TABLE>
<CAPTION>
Value (Note 1)
<S> <C>
TOTAL INVESTMENTS - 99.1%
(Cost $250,611,494*).......................................... $ 365,620,523
OTHER ASSETS AND LIABILITIES - 0.9%
(Net)......................................................... 3,429,036
-------------
NET ASSETS - 100.0%........................................... $ 369,049,559
=============
</TABLE>
(*) Aggregate cost for federal tax purposes.
+ Non-income-producing security.
(Section) Valued in good faith using procedures approved by the Board of
Trustees.
@ Amount represents less than 0.1%.
(a) Restricted securities: At December 31, 1999, the Fund owned the
following restricted securities, constituting less than 0.05% of net
assets, which may not be publicly sold without registration under
Securities Act of 1933 (Note 1).
Additional information on the securities is as follows:
Pepsi International Bottlers
<TABLE>
<CAPTION>
Value per
Acquisition Date Shares Cost Share
<S> <C> <C> <C>
3/20/97 18,970 $569,100 $8.43
</TABLE>
Abbreviations
ADR American Depositary Receipt
ADS American Depositary Share
(F) Foreign or Alien Shares
GDR Global Depositary Receipt
The accompanying notes are an integral part of these financial statements.
44
<PAGE> 45
THE MONTGOMERY FUNDS
EMERGING ASIA FUND
PORTFOLIO HIGHLIGHTS
(UNAUDITED)
I N V E S T M E N T R E V I E W
Q: HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED DECEMBER 31, 1999?
A: Following a very strong showing during the first half of the year, and in
spite of a solid recovery in the latter half of the period, the Montgomery
Emerging Asia Fund's performance for the period proved disappointing. The Fund
returned 1.40%, versus 13.89% for its benchmark, the Morgan Stanley Capital
International (MSCI) All-Country Asia Free (ex-Japan) Index.
Q: WHAT FACTORS CONTRIBUTED TO THIS PERFORMANCE?
A: Most of the Fund's relative underperformance was between July 1 and September
30, 1999 -- a volatile period for the Asian markets in general. Whereas the
northern Asian markets of China/Hong Kong, Korea and Taiwan held up reasonably
well on the back of tangible economic improvements, smaller Southeast Asian
markets, including Thailand, Malaysia and Indonesia, were buffeted by financial
scandals and political uncertainty. During this period the Fund's overweight
position in the Southeast Asian markets, specifically Thailand, dragged down
performance.
In contrast to the previous quarter, the Fund's performance was
much stronger in the final three months of 1999, in spite of a continued
overweight position in selected Southeast Asian markets. The Fund returned
24.08%, versus a return of 22.19% for the benchmark during the fourth quarter.
Although most Asian markets enjoyed positive gains, the trend toward a
two-tier performance in Asia continued, as the northern Asian markets fared
better than their southern counterparts. This discrepancy was due in part to
increased interest in the technology and telecommunications sectors, which tend
to be more heavily represented in the larger northern Asian markets and in
India.
The Fund benefited from the shift into these sectors. Having recognized their
potential earlier in the year, it was well positioned to take advantage of gains
in such companies as Stone Electronics, a Chinese Internet company, and Far East
Textiles (2.81% of net assets as of 12/31/99), the parent of Far Eastern Tung, a
leading cell phone company in Taiwan. These and other technology holdings made a
strong contribution to returns, helping to partially offset earlier
disappointments.
Q: HAVE YOU CHANGED YOUR STRATEGY AT ALL SINCE THE BEGINNING OF THE PERIOD?
A: Toward the end of 1999, we carried out a review of the portfolio's strategy
and began restructuring the Fund's investments to reflect the trends that we
believe are likely to boost longer-term performance. As a result, we shifted
assets out of the Southeast Asian markets and into China/Hong Kong and India.
The Fund is now far more heavily weighted in the larger northern Asian markets,
reflecting our view of where the strongest growth is likely to be.
PORTFOLIO MANAGEMENT
Frank Chiang ............. Portfolio Manager
FUND PERFORMANCE
Average annual total returns
for the period ended 12/31/99
MONTGOMERY EMERGING ASIA FUND
<TABLE>
<S> <C>
Since inception (9/30/96) 4.52%
One year ................ 56.00%
Three years ............. (1.56)%
</TABLE>
MSCI ALL-COUNTRY ASIA FREE
(EX-JAPAN) INDEX
<TABLE>
<S> <C>
Since 9/30/96............ (2.27)%
One year ................ 64.67%
Three years ............. (3.22)%
</TABLE>
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
<TABLE>
<CAPTION>
Emerging Asia (MSCI) Lipper
<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
</TABLE>
(1) The Morgan Stanley Capital International All-Country Asia Free
(ex-Japan) Index comprises equities in 11 countries in the Asia Pacific
region.
(2) The Lipper All-Pacific (ex-Japan) Funds Average universe consists of 67
funds.
45
<PAGE> 46
THE MONTGOMERY FUNDS
EMERGING ASIA FUND
PORTFOLIO HIGHLIGHTS
TOP TEN HOLDINGS
(as a percentage of total net assets)
<TABLE>
<S> <C>
China Shipping Development
Company, Ltd. .................... 4.8%
HSBC Holdings PLC .................. 4.7%
Pacific Century CyberWorks Ltd. .... 4.2%
Videsh Sanchar Nigam Ltd., GDR ..... 3.5%
Singapore Press Holdings Ltd. ...... 3.1%
Shinawatra Satellite Public Company,
Ltd. ............................... 3.1%
Malaysian Pacific Industries Berhad 3.0%
Yageo Corporation .................. 3.0%
Cheung Kong Holdings Ltd. .......... 3.0%
Hon Hai Precision Industry Company,
Ltd............................... 2.8%
</TABLE>
TOP FIVE COUNTRIES
(as a percentage of total net assets)
<TABLE>
<S> <C>
China/Hong Kong... 30.9%
Korea ............ 14.8%
Taiwan ........... 14.7%
Thailand ......... 13.7%
India ............ 10.4%
</TABLE>
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
Please be aware that foreign investing, particularly in a single geographical
area such as the Asia Pacific region, involves certain risks, including currency
fluctuations and political and economic instability.
Q: HOW HAS THE REPOSITIONING OF THE PORTFOLIO HELPED PERFORMANCE?
A: The repositioning of the Fund's assets has helped performance by giving us
more exposure to the better-performing markets and by freeing up assets to
increase our investment in sectors such as technology that have enjoyed strong
gains. We are confident, however, that the impact of these changes may be
greater yet as we move into 2000.
Based on our macroeconomic analysis, we believe that China and India are likely
to post stronger growth than their Southeast Asian neighbors. Neighboring
countries such as Korea and Taiwan are likely to be direct beneficiaries of this
growth. Although we believe that China has made unprecedented concessions in its
bid to join the World Trade Organization (WTO), there are already signs of an
upside to its possible entry. We are already seeing an expansion in the number
of interesting private sector opportunities and expect this trend to continue.
In India the new government is proving to be far more progressive than many
analysts expected, making us increasingly optimistic about that country's
economic and market outlooks.
In contrast, many of the companies in the Southeast Asian markets lack the size
and competitive advantages of their northern Asian and Indian peers. While
companies based in the larger markets are positioning themselves as global
players, many South-east Asian companies remain domestically focused. With
slower investment flows into the region, we believe that this focus suggests
only limited upside for these companies in spite of continued improvement in
their home markets.
Q: WHAT OTHER THEMES DO YOU SEE DEVELOPING IN 2000?
A: Whereas at the beginning of 1999, domestic economic recovery was the dominant
theme, in our view technology and communications are likely to generate the most
interest in 2000. We are seeing the development of more opportunities in these
sectors, particularly in India, Korea and China, resulting from a rash of IPOs.
Most of Asia is still at a relatively early stage of development, but Hong Kong,
Singapore and Korea are catching up fast, with the introduction of innovative
products. As a result, we believe that the shift into technology is likely to
continue to drive regional growth and offer investors the best chance to
participate in the success of some very exciting new companies. We believe that
the Fund is positioned to take full advantage of these trends.
46
<PAGE> 47
THE MONTGOMERY FUNDS
EMERGING ASIA FUND
I N V E S T M E N T S
P O R T F O L I O I N V E S T M E N T S
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - 107.2%
CHINA/HONG KONG - 30.9%
189,000 Bank of East Asia Ltd. (Non-U.S. Banks) ............ $ 525,169
386,000 Cable & Wireless Ltd.
(Other Telephone/Communication) .................... 1,114,775
100,000 Cheung Kong Holdings Ltd. (Real Estate).. .......... 1,270,341
1,200,000 China Everbright Ltd.
(Other Specialty Stores) ........................... 987,972
394,000 China Resources Enterprises Ltd.
(Real Estate) ...................................... 631,028
10,360,000 China Shipping Development Company,
Ltd.+ (Marine Transportation) ...................... 2,052,409
648,000 Cosco Pacific Ltd.
(Marine Transportation) ............................ 537,673
141,535 HSBC Holdings PLC (Non-U.S. Banks) ................. 1,984,603
760,000 Pacific Century CyberWorks Ltd.+
(Other Telephone/Communication) .................... 1,769,602
3,080,000 Shanghai Industrial Holdings Ltd.
(Speciality Chemicals) ............................. 483,386
100,000 Sun Hung Kai Properties Ltd.
(Real Estate) ...................................... 1,042,002
120,000 Swire Pacific Ltd.
(Multi-Sector Companies) ........................... 708,561
-----------
13,107,521
INDIA - 10.4%
55,600 Bajaj Auto Ltd., GDR (Motor Vehicles) .............. 528,200
35,000 Hindalco Industries Ltd., GDR+
(Aluminum) ......................................... 825,125
1,500 Infosys Technologies Ltd.
(Diversified Electronic Products) .................. 489,000
76,700 Reliance Industries Ltd., GDR (Textiles) ........... 1,096,810
60,000 Videsh Sanchar Nigam Ltd., GDR
(Other Telephone/Communication) .................... 1,476,000
-----------
4,415,135
INDONESIA - 3.7%
600,000 PT Indofood Sukses Makmur Tbk+
(Specialty Foods/Candy) ............................. 751,342
1,404,000 PT Telekomunikasi
(Other Telephone/Communication) ..................... 798,697
-----------
1,550,039
KOREA - 14.8%
25,700 Hyundai Electronics Industries Company
(Semiconductors) .................................... 545,460
23,000 Hyundai Motor Company, Ltd.
(Motor Vehicles) .................................... 364,597
24,000 Korea Electric Power Corporation, ADR
(Non-U.S. Utilities) ................................ 743,989
74,000 Korean Air Company, Ltd. (Airlines) ................. 837,428
</TABLE>
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
KOREA - CONTINUED
10,000 LG Chemical Ltd. (Major Chemicals) ............... $ 316,160
20,000 Pohang Iron & Steel Company, Sponsored
ADR (Steel and Iron Ore) ......................... 700,000
25,911 Pusan City Company, Ltd.+
(Natural Gas Distribution) ....................... 358,260
5,000 Samsung Electronics Ltd., GDR
(Diversified Electronic Products) ................ 609,375
78,000 Shinhan Bank Company, Ltd.
(Non-U.S. Banks) ................................. 844,914
6,000 Shinsegae Department Store Company
(Other Specialty Stores) ......................... 303,303
21,800 SK Corporation
(Oil Refining/Marketing) ......................... 660,432
-----------
6,283,918
MALAYSIA - 6.0%
200,000 Malaysian Pacific Industries Berhad
(Containers/Packaging) ........................... 1,289,457
150,000 Resorts World Berhad (Hotels/Resorts) ............ 430,257
600,000 TA Enterprise Berhad
(Finance Companies) .............................. 255,786
230,000 Tenaga Nasional Berhad
(Non-U.S. Utilities) ............................. 593,150
-----------
2,568,650
PHILIPPINES - 3.8%
170,400 Bank of the Philippine Islands
(Non-U.S. Banks) ................................. 490,482
250,000 Manila Electronics Company, Series B
(Non-U.S. Utilities) ............................. 713,399
300,000 San Miguel Corporation, Class B
(Alcoholic Beverages) ............................ 424,318
-----------
1,628,199
SINGAPORE - 9.2%
100,000 City Developments Ltd. (Real Estate) ............. 585,410
275,000 Keppel Land Ltd. (Real Estate) ................... 450,766
570,000 Neptune Orient Lines Ltd.
(Marine Transportation) ........................... 763,194
134,413 Overseas Union Bank Ltd.
(Non-U.S. Banks) .................................. 786,869
60,352 Singapore Press Holdings Ltd.
(Newspapers) ...................................... 1,308,140
-----------
3,894,379
TAIWAN - 14.7%
31,800 Advanced Semiconductor, GDR
(Semiconductors).................................. 616,920
509,250 China Steel Corporation+ (Steel/Iron Ore) ........ 376,441
500,000 Far East Textiles Ltd.+ (Textiles) ............... 1,194,838
</TABLE>
The accompanying notes are an integral part of these financial statements.
47
<PAGE> 48
THE MONTGOMERY FUNDS
EMERGING ASIA FUND
I N V E S T M E N T S
<TABLE>
<CAPTION>
Shares Value (Note 1)
COMMON STOCKS - CONTINUED
TAIWAN - CONTINUED
<S> <C>
161,000 Hon Hai Precision Industry
Company, Ltd.+ (EDP Services) ................. $ 1,200,383
45,000 Ritek Corporation (EDP Peripherals) ........... 272,423
283,000 United Microelectronics Corporation, Ltd.
(Semiconductors) ............................... 1,009,909
1,077,810 Yageo Corporation
(Electronic Components) ........................ 1,274,072
655,000 Yang Ming Marine Transport
(Marine Transportation) ........................ 315,135
-----------
6,260,121
THAILAND - 13.7%
593,100 Bangkok Expressway Public Company, Ltd.
(Other Transportation) ......................... 283,441
2,000,000 Industrial Finance Corporation of
Thailand (Finance Companies) .................. 982,344
786,000 Kiatnakin Finance and Securities Public
Company, Ltd.+ (Non-U.S. Banks) ............... 1,038,192
930,000 National Finance Company, Ltd.
(Non-U.S. Banks) ............................... 413,580
118,800 PTT Exploration and Production Public
Company Ltd. (F)
(Oil and Gas Production) ....................... 731,756
1,250,000 Shinawatra Satellite Public Company, Ltd.
(Other Telephone/Communication) ................ 1,302,602
317,500 Siam Panich Leasing Public Company, Ltd.
(Diversified Financial Services) ............... 278,176
482,000 Thai Farmers Bank Public Company, Ltd.
(Non-U.S. Banks) ............................... 806,213
-----------
5,836,304
TOTAL COMMON STOCKS
(Cost $35,698,154) .......................................... 45,544,266
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C>
REPURCHASE AGREEMENTS - 0.6%
$ 244,000 Agreement with Greenwich Capital Markets,
Tri-Party, 5.500% dated 12/31/99, to be
repurchased at $244,110 on 01/03/00,
collateralized by $248,885 market value
of U.S. government and mortgage-backed
securities, having various maturities
and interest rates Cost ($244,000).............. $ 244,000
-----------
TOTAL INVESTMENTS - 107.8%
(Cost $35,942,154*)........................................... 45,788,266
OTHER ASSETS AND LIABILITIES - (7.8)%
(Net)......................................................... (3,307,312)
-----------
NET ASSETS - 100.0%........................................... $ 42,480,954
============
</TABLE>
(*) Aggregate cost for federal tax purposes.
+ Non-income-producing security.
Abbreviations
ADR American Depositary Receipt
(F) Foreign or Alien Shares
GDR Global Depositary Receipt
48
The accompanying notes are an integral part of these financial statements.
<PAGE> 49
THE MONTGOMERY FUNDS
GLOBAL LONG-SHORT FUND
PORTFOLIO HIGHLIGHTS
(Unaudited)
I N V E S T M E N T R E V I E W
Q: HOW DID THE FUND PERFORM FROM JULY 1 TO DECEMBER 31, 1999?
A: We are pleased to report that the Fund enjoyed strong performance over the
period, returning 69.44%, versus 15.48% for its most comparable benchmark, the
Morgan Stanley Capital International (MSCI) All-Country World Free Index. These
strong results led to a 135.07% return for the calendar year and a 89.89% return
since the Fund's inception, compared with returns of 26.82% and 24.37%,
respectively, for the benchmark.
Q: HOW DID THE FUND ACHIEVE SUCH STRONG RETURNS OVER THE PERIOD?
A: Our thematic approach toward the Fund's investments was instrumental in
achieving such strong results, particularly in the final three months of the
year. Dominant themes in the portfolio have always included technology,
communications and telecommunications. We believe that these sectors are
likely to outperform over the long- term and drive global growth. As a result of
this conviction, these sectors account for approximately 65% of market exposure
in the developed markets allocation of the Fund. In spite of volatility in
global markets in general, the performance of these sectors remained solid in
the first three months of the period, and in the final quarter of 1999 they
proved exceptionally strong. Investors favored technology and communications
above all other sectors in all markets-developed and emerging.
Against favorable returns for the majority of Fund holdings, two stocks in
particular stand out in terms of their contributions to performance. In the
United States, JDS Uniphase (1.24% of net assets as of 12/31/99), a company on
the cutting edge of fiber-optic switching technology (a broadband technology
that allows large amounts of data to be transmitted over phone lines),
appreciated 288.70% over the period. The other standout performer, Verisign
(1.52% of net assets as of 12/31/99), appreciated 342.75% over the period.
Verisign, also based in the United States, is the leading provider of Internet
security systems, such as credit card incription technology and intranet
security systems. The company's business has been growing exponentially as
Internet usage has taken off.
In the Fund's emerging markets allocation, our exposure to basic materials also
helped boost returns over the period, as accelerating global growth increased
demand for commodities. For example, the Fund's holdings in Brazilian pulp
manufacturer Aracruz (0.67% of net assets as of 12/31/99), appreciated by
43.69%. This stock benefited from a significant increase in pulp prices.
Q: IN SUCH A STRONG MARKET ENVIRONMENT, DID THE FUND'S SHORT POSITIONS MAKE ANY
CONTRIBUTION TO RETURNS?
A: We continued to make use of our short positions throughout the period, both
as a hedging strategy against possible volatility in our long positions and
opportunistically. In spite of the strength of this sector, this approach worked
well for us in technology, where we tried to identify those companies likely to
be the losers in the "new economy" -- the wholesalers and middlemen likely to
be bypassed as the Internet continues to develop. We also highlighted business
models where we believe the prospect of making money is slim and valuations are
high. A good example of this was our short
PORTFOLIO MANAGEMENT
Nancy Kukacka .................. Portfolio Manager
FUND PERFORMANCE
Average annual total returns
for the period ended 12/31/99
MONTGOMERY
GLOBAL LONG-SHORT FUND
<TABLE>
<S> <C>
Since inception (12/31/97) ...... 89.89%
One year ........................ 135.07%
</TABLE>
MSCI ALL-COUNTRY WORLD FREE INDEX
<TABLE>
<S> <C>
Since 12/31/97 .................. 24.37%
One year ........................ 26.82%
</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.
Growth of a $10,000 Investment*
<TABLE>
<CAPTION>
Fund Class A Index 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
</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 213 funds.
(*) The chart above shows the performance of the Montgomery Global
Long-Short Fund's Class R shares since the Fund's inception versus the
index. This represents a cumulative return of 240.81%. 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 $34,863 on December 31, 1999. This
figure reflects all Fund expenses and the applicable contingent
deferred sales charge (5% in the first year, decreasing to 0% after six
years), assuming a complete redemption at the end of the period. A
$10,000 investment in the Fund's Class C shares at inception, December
31, 1997, would have been worth $33,002 on December 31, 1999.
49
<PAGE> 50
THE MONTGOMERY FUNDS
GLOBAL LONG-SHORT FUND
PORTFOLIO HIGHLIGHTS
TOP TEN HOLDINGS
(long positions as a percentage
of total net assets)
<TABLE>
<S> <C>
S1 Corporation ....................................... 2.0%
Actv, Inc. ........................................... 1.8%
Vignette Corporation ................................. 1.6%
Verisign, Inc. ....................................... 1.5%
UnitedGlobalCom, Inc. ................................ 1.3%
JDS Uniphase Corporation ............................. 1.2%
USinternetworking, Inc. .............................. 1.2%
Veritas Software Corporation ......................... 1.2%
Gruppo Editoriale L'Espresso SpA ..................... 1.1%
Oracle Corporation ................................... 1.1%
</TABLE>
TOP FIVE COUNTRIES
(long positions as a percentage
of total net assets)
<TABLE>
<S> <C>
United States .............................. 57.5%
France ..................................... 8.1%
United Kingdom ............................. 4.5%
Mexico ..................................... 4.5%
Taiwan ..................................... 3.6%
</TABLE>
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.
position in Amazon.com ( - 0.40% of net assets as of 12/31/99), which worked in
our favor as investors began losing confidence in Amazon's ability to deliver
long-term profits.
In other popular sectors such as telecommunications equipment and handsets,
however, we avoided using shorts altogether. We chose instead to use cash
defensively and trimmed our long positions when valuations reached what we
considered unreasonably high levels.
Q: HOW IS THE FUND POSITIONED IN RELATION TO YOUR OUTLOOK FOR THE COMING YEAR?
A: In the final few weeks of 1999, we positioned the Fund far more defensively,
reducing risk by taking profits in our telecommunications and technology
holdings that had appreciated significantly and by redeploying the assets in
similar stocks that had not performed as well. We also added to our cyclical
exposure. Cyclical stocks, including those in the chemical, oil and paper
sectors -- industries that have traditionally performed well at the beginning of
the calendar year -- now account for approximately 15% of the Fund. We have also
added to the Fund's health-care exposure, believing that an increase in merger
and acquisition activity in the pharmaceuticals industry is likely to provide
this sector with some upward price momentum in the New Year.
We believe that a rising interest rate environment in the short term is likely
to result in some volatility. It is often difficult to get a sense of market
direction in the first quarter of a new calendar year. As a result, we are
cautiously positioned in a number of sectors, including financial services and
biotechnology -- another outperformer in the fourth quarter of 1999. In the
longer run, however, we remain optimistic about telecommunications and
technology. In our view there is still an incredible amount of value and
momentum in data-related securities, as a growing number of companies realize
the benefits of an Internet platform for their businesses. We anticipate a
further wave of infrastructure upgrading activity and another wave of strong
earnings growth for companies providing the equipment and services needed to
meet this. Companies unable to rise to the challenge are likely to present
attractive shorts.
Q: WHAT IS THE FUND'S LONG AND SHORT EXPOSURE, AND DO YOU FORESEE ANY CHANGES TO
THIS POSITIONING?
A: At December 31, 1999, the Fund was positioned net 81% long and 19% short. We
expect to roughly maintain this positioning moving forward, at the maximum
moving to a 30% net short positioning, depending on developments in the market
and opportunities as they arise.
50
<PAGE> 51
THE MONTGOMERY FUNDS
GLOBAL LONG-SHORT FUND
I N V E S T M E N T S
P O R T F O L I O I N V E S T M E N T S
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - 110.4%
BELGIUM - 0.7%
100,800 Global TeleSystems Group, Inc.+
(Other Telephone/Communication) ............. $ 3,490,200
BERMUDA - 0.2%
60,000 RSL Communications Ltd.+
(Other Telephone/Communication) ............. 1,025,625
BRAZIL - 1.1%
125,500 Aracruz Celulose S.A., ADR (Paper) .......... 3,294,375
33,800 Cia Vale do Rio Doce
(Other Metals/Minerals) ..................... 785,829
87,000 Globo Cabo S.A., Sponsored ADR
(Cable Television) .......................... 1,549,687
--------------
5,629,891
CANADA - 0.4%
53,200 AT&T Canada, Inc.+
(Other Telephone/Communication) ............. 2,137,975
CHINA/HONG KONG - 1.2%
102,000 Cheung Kong Holdings Ltd. (Real Estate) .... 1,295,749
13,200 China Telecom Ltd., ADR+
(Other Telephone/Communication) ............. 1,697,025
4,652,000 e-New Media Company Ltd.+
(Recreational Products/Toys) ................ 2,274,085
445,000 Shaws Brothers (Hong Kong) Ltd.
(Movies/Entertainment) ...................... 518,074
--------------
5,784,933
EGYPT - 0.7%
78,100 Egyptian Company for Mobile Services
(Cellular Telephone) ........................ 3,578,798
FINLAND - 2.3%
20,400 Nokia Corporation, Sponsored ADR#
(Telecommunications Equipment) .............. 3,876,000
220,900 Stora Enso Oyj (Paper) ..................... 3,855,704
92,600 UPM-Kymmene Oyj (Paper) 3,734,925
--------------
11,466,629
FRANCE - 8.1%
87,200 Alcatel S.A., ADR
(Telecommunications Equipment) .............. 3,924,000
8,070 Altran Technologies S.A.
(Engineering and Construction) .............. 4,882,426
8,960 Axa (Multi-Line Insurance) ................. 1,250,417
40,730 Banque Nationale de Paris
(Non-U.S. Banks) ............................ 3,762,018
8,896 Brice S.A.
(Clothing/Shoe/Accessory Stores) ............ 438,646
35,210 Canal Plus S.A. (Cable Television) ......... 5,130,324
17,500 Carrefour S.A. (Food Chains) ............... 3,231,003
</TABLE>
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
FRANCE - CONTINUED
64,240 Compagnie Generale d'Industrie et de
Participations
(Containers/Packaging) ........................ $ 4,210,463
21,400 Galeries Lafayette
(Department Stores) ........................... 3,556,165
9,100 PSA Peugeot Citroen (Motor Vehicles) ......... 2,068,265
6,050 Publicis S.A. (Advertising) .................. 2,287,692
20,950 Rexel S.A. (Wholesale Distributors) .......... 1,869,555
178,000 Usinor S.A. (Speciality Steels) .............. 3,347,417
--------------
39,958,391
GERMANY - 3.5%
63,770 EM.TV & Merchandising AG
(Movies/Entertainment) ........................ 4,115,355
48,400 Epcos AG+ (Electronic Components) ............ 3,635,905
1,500 Freenet.de AG+ (Internet Services) ........... 166,075
16,000 Kamps AG+ (Specialty Foods/Candy) ............ 1,068,044
45,956 Kinowelt Median AG+
(Diversified Commercial Services) ............. 2,919,401
22,920 Mannesmann AG (Cellular Telephone) ........... 5,535,171
--------------
17,439,951
GREECE - 0.1%
5,000 Alpha Credit Bank (Non-U.S. Banks) ........... 391,911
INDIA - 2.3%
78,200 ICICI Ltd., Sponsored ADR+
(Diversified Financial Services) .............. 1,085,025
8,300 Infosys Technologies Ltd.
(Diversified Electronic Products) ............. 2,769,767
20,150 NIIT Ltd. (Computer Software) ................ 1,535,824
52,900 Reliance Industries Ltd., GDR (Textiles) ..... 756,470
66,000 Reliance Industries Ltd., Sponsored GDR
(Textiles) .................................... 943,800
102,097 Sri Adhikari Brothers Telephone Network
Ltd. (Broadcasting) .......................... 3,024,888
11,700 Videsh Sanchar Nigam Ltd., GDR
(Other Telephone/Communication) ............... 287,820
40,000 Videsh Sanchar Nigam Ltd., Sponsored
GDR (Other Telephone/Communication) .......... 984,000
--------------
11,387,594
IRELAND - 1.0%
55,400 Esat Telecom Group PLC, ADR+
(Other Telephone/Communication) ............... 5,138,350
ISRAEL - 1.8%
1,056,000 Bank Leumi Le-Israel (Non-U.S. Banks) ........ 2,224,605
196,000 Bezeq Israeli Telecommunication
Corporation Ltd.+
(Other Telephone/Communication) ............... 977,921
</TABLE>
The accompanying notes are an integral part of these financial statements.
51
<PAGE> 52
THE MONTGOMERY FUNDS
GLOBAL LONG-SHORT FUND
I N V E S T M E N T S
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - CONTINUED
ISRAEL - CONTINUED
27,800 Check Point Software Technologies Ltd.+
(Computer Software) $ 5,525,250
--------------
8,727,776
ITALY - 1.8%
610,000 Credito Italiano SpA (Non-U.S. Banks) 3,001,653
487,292 Gruppo Editoriale L'Espresso SpA
(Newspapers) 5,645,732
--------------
8,647,385
JAPAN - 3.1%
76,000 Canon, Inc. (Office Equipment/Supplies) 3,018,292
200 Nippon Telegraph & Telephone
Corporation
(Other Telephone/Communication) 3,423,652
9,900 Rohm Company, Ltd. (Semiconductors) 4,144,772
4,900 Softbank Corporation (Internet Services) 4,687,665
--------------
15,274,381
KOREA - 2.2%
5,105 Hyundai Motor Company, Ltd.
(Motor Vehicles) 80,925
70,400 Pohang Iron & Steel Company, ADR
(Steel/Iron Ore) 2,464,000
17,917 Samsung Electronics Company
(Diversified Electronic Products) 4,197,201
25,599 Samsung Electronics Company, GDR
(Diversified Electronic Products) 3,119,878
9,100 Samsung Electronics Company, Sponsored
GDR (Diversified Electronic Products) 1,109,063
--------------
10,971,067
MALAYSIA - 0.7%
304,000 Hong Leong Bank Berhad
(Non-U.S. Banks) 439,994
103,000 Malaysian Pacific Industries Berhad
(Containers/Packaging) 664,070
200,000 Resorts World Berhad (Hotels/Resorts) 573,677
252,000 Unisem (M) Berhad
(Electronic Components) 1,618,084
--------------
3,295,825
MEXICO - 4.5%
107,300 Cemex S.A. de C.V., Sponsored ADR+
(Building Materials) 2,990,988
1,500,000 Cifra S.A.+ (Other Specialty Stores) 3,006,329
302,000 Corporation Interamericana
Entertainment S.A., Series A+
(Movies/Television) 1,205,770
32,500 Fomento Economico Mexicano S.A. de
C.V., Sponsored ADR (Soft Drinks) 1,446,250
605,000 Grupo Financiero Banamex Accival S.A.
de C.V.+ (Non-U.S. Banks) 2,425,106
631,000 Grupo Mexico S.A., Series B
(Other Metals/Minerals) 3,125,047
19,400 Grupo Televisa S.A., GDR+ (Broadcasting) 1,324,050
</TABLE>
<TABLE>
<CAPTION>
Shares Value (Note 1)
MEXICO - CONTINUED
<S> <C>
688,000 Kimberly-Clark de Mexico S.A. de C.V.
(Package Goods/Cosmetics) $ 2,685,232
35,500 Telefonos de Mexico S.A., ADR
(Other Telephone/Communication) 3,993,750
--------------
22,202,522
NETHERLANDS - 3.5%
35,300 ASM Lithography Holding N.V.+
(Electronic Production Equipment) 3,999,931
37,900 Equant N.V.+
(Other Telephone/Communication) 4,244,800
24,000 Gucci Group N.V. (Apparel) 2,748,000
80,800 KPNQwest N.V.+
(Other Telephone/Communication) 5,385,472
8,700 United Pan-Europe Communications
N.V.+ (Cable Television) 1,114,125
1 Vedior N.V.
(Other Telephone/Communication) 10
--------------
17,492,338
NORWAY - 0.4%
101,500 Petroleum Geo-Services ASA, Sponsored
ADR+ (Oilfield Services/Equipment) 1,807,969
SOUTH AFRICA - 1.2%
58,000 Anglo American Platinum Corporation,
Ltd. (Precious Metals) 1,763,577
100,000 Impala Platinum Holdings Ltd.
(Precious Metals) 4,048,781
--------------
5,812,358
SPAIN - 1.5%
194,600 Banco Santander Central Hispano S.A.
(Non-U.S. Banks) 2,205,566
84,000 Sogecable S.A.+ (Cable Television) 5,370,064
--------------
7,575,630
SWEDEN - 0.9%
88,800 Modern Times Group AB, B Shares+
(Broadcasting) 4,413,332
SWITZERLAND - 0.4%
3,700 Societe Generale D'Affichage (Advertising) 1,906,378
TAIWAN - 3.6%
57,300 Advanced Semiconductor, GDR+
(Semiconductors) 1,111,620
526,000 Far East Textiles Ltd. (Textiles) 1,256,970
503,400 Hon Hai Precision Industry Company,
Ltd.+ (EDP Services) 3,753,245
323,000 Synnex Technology International
Corporation (Electronics Distributors) 2,120,057
905,880 Taiwan Semiconductor Manufacturing
Company Ltd.+
(Electronic Production Equipment) 4,820,199
1,248,000 United Microelectronics Corporation,
Ltd.+ (Semiconductors) 4,453,593
--------------
17,515,684
</TABLE>
52
The accompanying notes are an integral part of these financial statements.
<PAGE> 53
THE MONTGOMERY FUNDS
GLOBAL LONG-SHORT FUND
I N V E S T M E N T S
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - CONTINUED
THAILAND - 0.2%
557,000 Thai Farmers Bank Public Company, Ltd.
(Non-U.S. Banks) ............................. $ 931,661
TURKEY - 1.0%
12,600,000 Aksigorta A.S.
(Property-Casualty Insurers) ................. 766,593
21,345,000 Arcelik A.S.
(Consumer Electronics/Appliances) ............ 1,397,027
87,225,000 Yapi Ve Kredi Bankasi A.S.
(Non-U.S. Banks) ............................. 2,693,619
-------------
4,857,239
UNITED KINGDOM - 4.5%
32,000 COLT Telecom Group PLC+
(Other Telephone/Communication) .............. 1,642,483
14,300 COLT Telecom Group PLC, ADR+
(Other Telephone/Communication) .............. 2,917,200
366,000 Freeserve PLC+ (Internet Services) .......... 3,431,472
169,400 Future Network PLC (The)+
(Other Telephone/Communication) .............. 2,332,410
119,000 Pearson PLC (Books/Magazines) ............... 3,859,293
165,800 QXL.com PLC+
(Other Consumer Services) .................... 3,896,231
180,000 Royal & Sun Alliance Insurance Group PLC
(Multi-Line Insurance) ....................... 1,363,460
493,600 Saatchi & Saatchi PLC (Advertising) ......... 2,969,604
-------------
22,412,153
UNITED STATES - 57.5%
197,500 Actv, Inc.+ (Cable Television) .............. 8,980,078
89,750 Administaff, Inc.+
(Diversified Commercial Services) ............ 2,714,938
42,400 America Online, Inc.+ (Internet Services) ... 3,198,550
73,600 American Eagle Outfitters+
(Clothing/Shoe/Accessory Stores) ............. 3,312,000
35,000 American Home Products Corporation
(Major Pharmaceuticals) ...................... 1,380,313
32,500 AMFM, Inc.+ (Broadcasting) .................. 2,543,125
66,100 Ann Taylor Stores Corporation+
(Clothing/Shoe/Accessory Stores) ............. 2,276,319
95,000 Aspect Communications Corporation+
(Telecommunications Equipment) ............... 3,716,875
91,400 AT&T Corporation-Liberty Media Group,
Class B+ (Broadcasting) ..................... 5,186,950
144,000 Atmel Corporation+ (Semiconductors) ......... 4,261,500
100,000 BJ Services Company+
(Oilfield Services/Equipment) ................ 4,181,250
68,500 Bowater, Inc. (Paper) ....................... 3,720,406
30,100 Cacheflow, Inc.+
(Computer Communications) .................... 3,932,753
22,000 Careinsite, Inc.+ (Assisted Living Services) 1,771,688
60,000 CBS Corporation+ (Broadcasting) ............. 3,836,250
35,500 Circuit City Stores-Circuit City Group
(Computer/Video Chains) ...................... 1,599,719
</TABLE>
<TABLE>
<CAPTION>
Shares Value (Note 1)
UNITED STATES - CONTINUED
<S> <C>
31,000 Cisco Systems, Inc.+#
(Computer Communications) ........................ $ 3,319,906
59,500 Citigroup, Inc.
(Diversified Financial Services) ................. 3,305,969
62,000 Comcast Corporation, Class A#
(Cable Television) ............................... 3,132,937
28,500 Comverse Technology, Inc.+#
(Telecommunications Equipment) ................... 4,124,484
41,800 Conexant Systems, Inc.+#
(Semiconductors) ................................. 2,767,944
40,000 Cooper Cameron Corporation+#
(Oilfield Services/Equipment) .................... 1,957,500
50,000 Covad Communications Group, Inc.+#
(Other Telephone/Communication) .................. 2,789,062
76,800 Cymer, Inc.+#
(Electronic Production Equipment) ................ 3,537,600
32,000 Digital Island, Inc.+ (Internet Services) ....... 3,039,000
20,000 Doubleclick, Inc.+ (Advertising) ................ 5,065,625
106,000 Dril-Quip, Inc.+
(Oilfield Services/Equipment) .................... 3,219,750
32,900 Eli Lilly & Company#
(Major Pharmaceuticals) .......................... 2,187,850
50,000 Extreme Networks, Inc.+
(Computer Communications) ........................ 4,181,250
75,660 Firstar Corporation (Mid-Sized Banks) ........... 1,598,318
85,000 Fox Entertainment Group, Inc.+
(Media Conglomerates) ............................ 2,119,688
73,000 Infonet Services Corporation+
(EDP Services) ................................... 1,916,250
30,000 Internap Network Services Corporation+#
(Computer Software) .............................. 5,186,250
38,000 JDS Uniphase Corporation+#
(Diversified Electronic Products) ................ 6,129,875
13,700 Juniper Networks, Inc.+#
(Computer Communications) ........................ 4,653,291
42,000 Lam Research Corporation+
(Electronic Production Equipment) ................ 4,688,250
40,000 Lexmark International Group, Inc.+
(Office Equipment/Supplies) ...................... 3,620,000
69,000 LSI Logic Corporation+ (Semiconductors) ......... 4,657,500
21,450 Lucent Technologies, Inc.
(Telecommunications Equipment) ................... 1,604,728
67,900 Lycos, Inc.+# (Internet Services) ............... 5,404,416
158,000 MapQuest.com, Inc.+
(Other Consumer Services) ........................ 3,604,375
81,400 Martha Stewart Living Omnimedia, Inc.+
(Other Consumer Services) ........................ 1,953,600
46,500 MCI WorldCom, Inc.+
(Major U.S. Telecommunications) .................. 2,465,953
58,000 Medical Manager Corporation+#
(Services to the Health Industry) ................ 4,881,062
125,200 Medquist, Inc.+ (Medical Specialties) ........... 3,219,987
136,500 Men's Warehouse, Inc. (The)+#
(Clothing/Shoe/Accessory Stores) ................. 4,018,219
</TABLE>
53
The accompanying notes are an integral part of these financial statements.
<PAGE> 54
THE MONTGOMERY FUNDS
GLOBAL LONG-SHORT FUND
I N V E S T M E N T S
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - CONTINUED
UNITED STATES - CONTINUED
44,500 Micron Technology, Inc.+#
(Semiconductors) $ 3,459,875
12,400 MicroStrategy, Inc.+ (Computer Software) 2,604,388
125,500 MTI Technology Corporation+
(EDP Peripherals) 4,631,734
60,800 Netopia, Inc.+# (Internet Services) 3,319,300
60,400 Next Level Communications, Inc.+
(Telecommunications Equipment) 4,528,112
28,500 Nextel Communications, Inc.+
(Cellular Telephone) 2,938,172
32,500 NTL Inc.+#
(Other Telephone/Communication) 4,050,312
50,000 Oracle Corporation+ (Computer Software) 5,601,562
116,000 Pinnacle Systems, Inc.+ (EDP Peripherals) 4,701,625
51,500 Quest Software, Inc.+# (Internet Services) 5,191,844
23,500 Realnetworks, Inc.+# (Internet Services) 2,829,547
126,100 S1 Corporation+
(Savings and Loan Associations) 9,835,800
28,500 Sprint Corporation+ (Cellular Telephone) 2,921,250
6,400 Starbucks Corporation+ (Restaurants) 155,400
56,000 Sun Mircosystems, Inc.+ (EDP Services) 4,334,750
200,000 Sunglass Hut International, Inc.+
(Other Specialty Stores) 2,262,500
27,300 TMP Worldwide, Inc.+# (Advertising) 3,868,069
84,000 Transocean Sedco Forex, Inc.
(Contract Drilling) 2,829,750
80,000 Tut Systems, Inc.+
(Computer Communications) 4,305,000
92,200 UnitedGlobalCom, Inc.+
(Cable Television) 6,500,100
32,000 Univision Communications, Inc.+#
(Broadcasting) 3,270,000
83,700 USinternetworking, Inc.+
(Computer Software) 5,843,306
39,300 Verisign, Inc.+# (Internet Services) 7,508,756
40,000 Veritas Software Corporation+#
(Computer Software) 5,723,750
49,000 Vignette Corporation+# (Internet Services) 7,985,469
36,900 Warner Lambert Company#
(Major Pharmaceuticals) 3,023,494
102,400 Weatherford International, Inc.#
(Oilfield Services/Equipment) 4,089,600
69,500 Winstar Communications, Inc.+
(Other Telephone/Communication) 5,225,531
-----------
284,502,349
TOTAL COMMON STOCKS
(Cost $355,494,122) 545,776,295
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
PREFERRED STOCKS - 1.6%
BRAZIL - 1.6%
145,100 Cia Vale do Rio Doce, Series A
(Other Metals/Minerals) $ 4,016,053
8,300,000 Petroleo Brasileiro S.A.
(Integrated Oil Companies) 2,113,479
10,000,000 Telesp Celular S.A., Series B
(Cellular Telephone) 791,586
241,000 Usinas Siderurgicas de Minas Gerais S.A.,
Series A, GDR (Steel/Iron Ore) 1,307,390
--------------
TOTAL PREFERRED STOCKS
(Cost $6,324,014) 8,228,508
--------------
TOTAL INVESTMENTS - 112.0%
(Cost $361,818,136*) 554,004,803
TOTAL SHORT SALES - (26.5)%
(Proceeds $124,983,837) (131,186,337)
OTHER ASSETS AND LIABILITIES - 14.5%
(Net) 71,676,949
--------------
NET ASSETS - 100.0% $ 494,495,415
==============
</TABLE>
(*) Aggregate cost for federal tax purposes.
+ Non-income-producing security.
# Security, or a portion thereof, designated as short-sale collateral.
Abbreviations
ADR American Depositary Receipt
GDR Global Depositary Receipt
54
The accompanying notes are an integral part of these financial statements.
<PAGE> 55
THE MONTGOMERY FUNDS
GLOBAL LONG-SHORT FUND
SCHEDULE OF SHORT SALES
S C H E D U L E O F S H O R T S A L E S
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Proceeds Value (Note 1)
<S> <C> <C> <C>
SHORT SALES - 26.5%
BRAZIL - 0.1%
17,200 Telesp Celular Participacoes
S.A., ADR
(Cellular Telephone) ................ $ 651,680 $ 728,850
FINLAND - 0.3%
339,500 Raisio Group PLC
(Specialty Foods/Candy) ............ 3,062,411 1,345,375
FRANCE - 2.6%
12,010 Cap Gemini S.A.
(EDP Services) ...................... 1,934,948 3,051,789
9,385 Essilor International S.A.
(Medical Specialties) ............... 3,069,242 2,914,714
10,150 Groupe Danone S.A.
(Packaged Foods) .................... 2,584,016 2,394,930
42,290 Sidel S.A.
(Industrial Machinery/
Components) ........................ 4,178,740 4,370,916
---------- ----------
11,766,946 12,732,349
---------- ----------
GERMANY - 1.5%
44,000 Adidas AG
(Shoe Manufacturing) ................ 3,444,914 3,305,368
32,080 Kamps AG
(Specialty Foods/Candy) ............. 1,108,971 2,215,827
52,000 RWE AG
(Multi-Sector Companies) ............ 2,187,032 2,039,689
---------- ----------
6,740,917 7,560,884
---------- ----------
ITALY - 0.8%
328,000 Autogrill SpA (Restaurants) ........ 3,348,812 4,134,231
JAPAN - 0.2%
81,000 Ibiden Company, Ltd.
(Electronic Components) ............. 1,311,845 1,093,417
SPAIN - 0.5%
639,500 TelePizza S.A. (Restaurants) ....... 3,866,826 2,708,325
UNITED KINGDOM - 4.8%
166,600 Flextech PLC
(Movies/Television) ................. 2,575,184 3,228,891
366,000 Freeserve PLC
(Internet Services) ................. 2,684,923 3,431,472
80,000 London Bridge Software
Holdings PLC
(Computer Software) ................. 3,703,471 5,459,009
147,000 PowderJect Pharmaceuticals
PLC (Medical Specialties) .......... 1,891,226 1,952,767
165,800 QXL.com PLC
(Other Consumer Services) ........... 2,452,796 3,896,230
350,000 Reckitt & Colman PLC
(Package Goods/Cosmetics) ........... 3,401,067 3,301,247
123,400 Sema Group PLC
(EDP Services) ...................... 1,165,318 2,208,269
---------- ----------
17,873,985 23,477,885
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Shares Proceeds Value (Note 1)
<S> <C> <C> <C>
UNITED STATES - 15.7%
75,200 1-800-FLOWERS.COM, Inc.
(Catalog/Specialty
Distribution) .................. $ 1,232,853 $ 803,700
132,000 Abercrombie & Fitch
Company (Clothing/Shoe/
26,000 Accessory Stores) .............. 3,536,514 3,522,750
Amazon.com, Inc.
(Catalog/Specialty
Distribution) .................. 1,990,153 1,980,062
26,000 Ask Jeeves, Inc.
(Internet Services) ............ 3,150,353 2,935,562
63,000 Beringer Wine Estates
Holdings, Inc., Series B
(Alcoholic Beverages) .......... 2,394,101 2,502,281
27,400 Best Buy Company, Inc.
(Other Specialty Stores) ....... 1,493,519 1,375,138
103,500 Buca, Inc. (Restaurants) ....... 1,815,940 1,041,469
75,200 Central Parking Corporation
(Other Consumer Services) ...... 2,210,871 1,438,200
135,500 Chattem, Inc.
(Other Pharmaceuticals) ........ 3,098,257 2,549,094
63,600 Cintas Corporation
(Diversified Commercial
Services) ...................... 3,115,379 3,376,762
157,000 Claire's Stores, Inc.
(Clothing/Shoe/
Accessory Stores) .............. 3,061,355 3,512,875
60,000 Clorox Company (The)
(Package Goods/Cosmetics) ...... 3,055,220 3,022,500
31,100 Critical Path, Inc.
(Internet Services) ............ 1,969,402 2,937,006
46,700 Darden Restaurants, Inc.
(Restaurants) .................. 812,745 846,438
46,700 Dell Computer Corporation
(EDP Services) ................. 1,902,535 2,380,241
118,000 Dollar General Corporation
(Discount Stores) .............. 2,840,979 2,684,500
9,600 eBay, Inc.
(Other Consumer Services) ...... 1,281,857 1,202,100
91,200 Eclipsys Corporation
(Services to the Health
Industry) ...................... 2,766,989 2,339,850
51,000 Ecolab, Inc.
(Industrial Specialties) ....... 1,856,035 1,995,375
104,000 G&K Services, Inc.
(Diversified Commercial
Services) ...................... 3,234,511 3,337,750
60,000 Gerald Stevens, Inc.
(Catalog/Specialty
Distribution) .................. 807,471 500,625
</TABLE>
55
The accompanying notes are an integral part of these financial statements.
<PAGE> 56
THE MONTGOMERY FUNDS
GLOBAL LONG-SHORT FUND
SCHEDULE OF SHORT SALES
<TABLE>
<CAPTION>
Shares Proceeds Value (Note 1)
<S> <C> <C> <C>
SHORT SALES - CONTINUED
UNITED STATES - CONTINUED
63,600 Inhale Therapeutic Systems,
Inc. (Medical Specialties) ......... $ 2,678,900 $ 2,708,962
38,650 Intimate Brands, Inc.
(Clothing/Shoe/
Accessory Stores) .................. 1,504,138 1,666,781
31,300 Miami Computer Supply
Corporation
(Electronics Distributors) ......... 622,192 1,160,056
80,000 Net.B@nk, Inc.
(Savings and Loan
Associations) ...................... 1,808,190 1,497,500
80,000 Newell Company
(Home Furnishings) ................. 2,468,670 2,320,000
60,000 NIKE, Inc., Class B
(Shoe Manufacturing) ............... 3,143,547 2,973,750
31,150 Northpoint Communications
Group, Inc. (Internet Services) .... 651,080 744,680
15,900 P.F. Chang's China Bistro, Inc.
(Restaurants) ...................... 403,449 399,488
80,000 Pacific Sunwear of
California, Inc.
(Clothing/Shoe/
Accessory Stores) .................. 2,287,192 2,547,500
32,500 PC Connection, Inc.
(Catalog/Specialty
Distribution) ...................... 502,952 1,117,188
</TABLE>
<TABLE>
<CAPTION>
Shares Proceeds Value (Note 1)
<S> <C> <C> <C>
UNITED STATES - CONTINUED
23,500 RENT-A-CENTER, INC.
(Other Specialty Stores) ........ $ 578,157 $ 470,734
40,000 SFX Entertainment, Inc.
(Movies/Entertainment) .......... 1,455,311 1,447,500
110,200 Starbucks Corporation
(Restaurants) ................... 2,546,817 2,675,794
50,500 Stryker Corporation
(Medical Specialties) ........... 2,639,764 3,516,062
33,600 Timberland Company, Class A
(Shoe Manufacturing) ............ 730,844 1,776,600
32,600 Tivo, Inc. (Cable Television) ... 951,877 1,092,100
24,300 Value America, Inc.
(Other Consumer Services) ....... 654,286 122,259
21,333 Ventiv Health, Inc.
(Services to the
Health Industry) ................ 191,058 196,664
26,500 Williams-Sonoma, Inc.
(Other Specialty Stores) ........ 1,059,370 1,219,000
90,000 Yankee Candle Company, Inc.
(Home Furnishings) .............. 1,855,582 1,468,125
------------ ------------
76,360,415 77,405,021
------------ ------------
TOTAL SHORT SALES ............... $124,983,837 $131,186,337
============ ============
</TABLE>
Abbreviations
ADR American Depositary Receipt
56
The accompanying notes are an integral part of these financial statements.
<PAGE> 57
THE MONTGOMERY FUNDS
SELECT 50 FUND
PORTFOLIO HIGHLIGHTS
(Unaudited)
I N V E S T M E N T R E V I E W
Q: HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED DECEMBER 31, 1999?
A: The second half of 1999 was an excellent period for the Select 50 Fund. The
Fund gained 25.20%, which put it nearly 10 percentage points ahead of its
benchmark, the Morgan Stanley Capital International (MSCI) World Index, which
returned 15.30%. In fact, the Fund outperformed the MSCI World by a full 20
percentage points over the year as a whole, returning 45.29%, versus 24.93% for
the benchmark; the Fund has returned 27.13% and 28.10% over the past three years
and since inception, respectively, compared with 21.61% and 19.57%,
respectively, for the benchmark.
In recognition of this strong performance, the Fund was awarded an overall
four-star rating by Morningstar for its risk-adjusted returns for the period
ended 12/31/99 among 3,469 domestic funds. It was also awarded four stars for
the three-year period ended 12/31/99 among 3,469 domestic funds.(*)
Q: WHAT ROLE DID THE FUND'S STRATEGY PLAY IN THESE STRONG RELATIVE RETURNS?
A: The Fund's international component contributed tremendously, with a gain of
more than 65% during the second half. That segment of the Fund was driven
largely by its holdings in communications, media and technology, which reflected
the strength of these sectors in all the global markets, especially toward the
end of the year. The Fund's emerging markets exposure also contributed to its
outperformance, followed by its emerging growth and large-cap growth components.
Q: WERE THERE ANY STOCKS THAT PERFORMED PARTICULARLY WELL OVER THE PERIOD?
A: Once again, reflecting market trends, the Fund's strongest holdings were
all in the communications sector. They included several in our international
portfolio, such as COLT Telecom Group (1.71% of net assets as of 12/31/99), a
wireless service provider; Nokia (3.80% of net assets as of 12/31/99), a
manufacturer of wire- less equipment and handsets; and Global TeleSystems (2.37%
of net assets as of 12/31/99), a European provider of long-distance
telecommunications and data.
In the emerging markets portfolio, two recent purchases -- Aftek in India (1.79%
of net assets as of 12/31/99) and Globo Cabo in Brazil (3.45% of net assets as
of 12/31/99) -- were standouts. These, again, are communications-related stocks,
reflecting investor's excitement about the prospects for such companies around
the world. That's also what's been driving some of the Fund's best-performing
small- cap stocks, such as Optical Coating Labortories (2.23% of net assets as
of 12/31/99), which manufactures thin film coatings and components for
fiber-optic communications systems including dense-wavelength division
multiplexing, an area that is growing rapidly due to increased bandwidth
demand.
PORTFOLIO MANAGEMENT
Portfolio Managers from
each equity team representing:
U.S. Growth Equity
U.S. Emerging Growth
U.S. Equity Income
International Equity
Emerging Markets
FUND PERFORMANCE
Average annual total returns
for the period ended 12/31/99
MONTGOMERY SELECT 50 FUND
<TABLE>
<S> <C>
Since inception (10/2/95) 28.10%
One year ................ 45.29%
Three years ............. 27.13%
</TABLE>
MSCI WORLD INDEX
<TABLE>
<S> <C>
Since 9/30/95 .......... 19.57%
One year ............... 24.93%
Three years ............ 21.61%
</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>
Select 50 MSCI World Net Lipper
<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
</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 122 funds.
(*) Morningstar proprietary ratings reflect historical risk- adjusted
performance as of 12/31/99. The ratings are subject to change every
month. The ratings are calculated from the Fund's three-, five- and
10-year average annual returns (if available) 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 percent of funds in an investment class receive five stars; the
next 22.5% of funds receive four stars. The ratings are for Class R
shares only; other classes may vary.
57
<PAGE> 58
THE MONTGOMERY FUNDS
SELECT 50 FUND
PORTFOLIO HIGHLIGHTS
TOP TEN HOLDINGS
(as a percentage of total net assets)
<TABLE>
<S> <C>
Nokia Corporation, Sponsored ADR ......... 3.8%
Globo Cabo S.A., Sponsored ADR ........... 3.4%
Alcoa, Inc. .............................. 3.4%
Sri Adhikari Brothers Telephone
Network Ltd. ............................. 3.0%
Canal Plus S.A. .......................... 2.9%
First Health Group Corporation ........... 2.7%
Equant N.V. .............................. 2.6%
Yapi Ve Kredi Bankasi A.S. ............... 2.5%
Whirlpool Corporation .................... 2.4%
Dow Chemical Company ..................... 2.4%
</TABLE>
TOP FIVE INDUSTRIES
(as a percentage of total net assets)
<TABLE>
<S> <C>
Other Telephone/Communication ........... 17.6%
Computer Software ....................... 7.6%
Cable Television ........................ 6.3%
Telecommunications Equipment ............ 3.8%
Aluminum ................................ 3.4%
</TABLE>
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
This Fund invests in stocks of both small-cap companies and foreign companies.
There are risks associated with investing in small-cap companies, which tend
to be more volatile and less liquid than stocks of large companies, including
the increased risk of price fluctuations. There are also risks associated with
investing in securities of foreign countries, such as erratic market conditions,
economic and political instability, and fluctuations in currency exchange rates.
Q: WERE THERE ANY DISAPPOINTMENTS?
A: The Fund's equity income portfolio was weak during the second half, as
investors largely ignored large-cap, value-oriented issues that the equity
income strategy favors. In addition, the large-cap portfolio's bias toward
cyclical stocks has not yet been rewarded. Even here, however, there were
exceptions: Both Alcoa (3.40% of net assets as of 12/31/99) and Dow Chemical
(2.38% of net assets as of 12/31/99) appreciated significantly, as the
recovering global economy has begun to increase demand for basic materials.
Q: WHAT OPPORTUNITIES DO YOU SEE FOR THE FUND MOVING FORWARD?
A: The global markets present a sea of opportunities, and we are working
continuously to determine the best way to leverage them for our investors. In
fact, we are seeking shareholder approval in the coming quarter to reorganize
the Select 50 Fund into a more concentrated portfolio with greater flexibility
that should help capitalize on the investment opportunities we are constantly
uncovering. We believe that the proposed change in the Fund's investment
approach would benefit shareholders, as it allows the Fund's managers more
flexibility in managing country exposure, as well as the ability to help
maximize the Fund's potential returns by allocating a greater percentage of the
Fund's assets to fewer stocks whose investments potentials are believed to be
especially attractive.
58
<PAGE> 59
THE MONTGOMERY FUNDS
SELECT 50 FUND
I N V E S T M E N T S
P O R T F O L I O I N V E S T M E N T S
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - 96.4%
AEROSPACE/DEFENSE - 0.6%
30,000 Moog, Inc., Class A+ (United States) ...... $ 810,000
AIR FREIGHT/DELIVERY SERVICES - 2.2%
74,700 FDX Corporation+ (United States) .......... 3,058,031
ALUMINUM - 3.4%
57,800 Alcoa, Inc. (United States) ............... 4,797,400
APPAREL - 2.4%
29,000 Gucci Group N.V. (Netherlands) ............ 3,320,500
BROADCASTING - 3.0%
144,700 Sri Adhikari Brothers Telephone
Network Ltd. (India) ...................... 4,287,112
BUILDING MATERIALS - 1.5%
72,500 Elcor Corporation (United States) ......... 2,184,063
CABLE TELEVISION - 6.3%
27,900 Canal Plus S.A. (France) .................. 4,065,210
273,100 Globo Cabo S.A., Sponsored ADR (Brazil) ... 4,864,594
-----------
8,929,804
CELLULAR TELEPHONE - 1.5%
8,656 Mannesmann AG (Germany) ................... 2,090,421
CLOTHING/SHOE/ACCESSORY STORES - 1.3%
70,500 Nordstrom, Inc. (United States) ........... 1,846,219
COMPUTER SOFTWARE - 7.6%
51,700 Aftek Infosys Ltd. (India) ................ 2,526,763
208,400 Avid Technology, Inc.+ (United States) .... 2,715,712
7,100 Macromedia, Inc.+ (United States) ......... 519,188
30,500 MICROS Systems, Inc.+ (United States) ..... 2,259,859
71,000 Silverline Industries Ltd. (India) ........ 1,322,151
211,000 SQL Star International Ltd.+ (India) ...... 1,398,421
-----------
10,742,094
CONSTRUCTION/AGRICULTURE EQUIPMENT/TRUCKS - 2.0%
84,325 Manitowoc Company, Inc. (United States) ... 2,867,050
CONSUMER ELECTRONICS/APPLIANCES - 2.4%
53,000 Whirlpool Corporation (United States) ..... 3,448,312
DIVERSIFIED COMMERCIAL SERVICES - 1.5%
70,000 On Assignment, Inc.+ (United States) ...... 2,080,313
DIVERSIFIED ELECTRONIC PRODUCTS - 1.2%
14,500 Hewlett-Packard Company (United States) ... 1,652,094
DIVERSIFIED MANUFACTURE - 1.5%
36,000 Honeywell International, Inc.
(United States) ........................... 2,076,750
DRUG STORE CHAINS - 2.3%
120,000 Duane Reade, Inc.+ (United States) ........ 3,307,500
EDP SERVICES - 1.5%
20,000 International Business Machines
Corporation (United States) ............... 2,160,000
</TABLE>
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
ELECTRONIC COMPONENTS - 1.5%
1,749,000 Yageo Corporation (Taiwan) ................ $ 2,067,481
FINANCE COMPANIES - 1.3%
29,500 Fannie Mae (United States) ................. 1,841,906
FOOD CHAINS - 2.2%
17,100 Carrefour S.A. (France) .................... 3,157,151
INDUSTRIAL MACHINERY/COMPONENTS - 1.0%
37,100 Applied Power, Inc., Class A
(United States) ............................. 1,363,425
INDUSTRIAL SPECIALTIES - 2.2%
10,700 Optical Coating Laboratories, Inc.
(United States) ............................. 3,153,825
INTEGRATED OIL COMPANIES - 2.2%
55,500 Amerada Hess Corporation
(United States) ............................. 3,149,625
INTERNET SERVICES - 0.5%
3,800 Commerce One, Inc.+ (United States) ........ 746,700
MAJOR BANKS - 1.5%
42,000 Bank of America Corporation
(United States) ............................. 2,107,875
MAJOR CHEMICALS - 2.4%
25,100 Dow Chemical Company (United States) ....... 3,353,987
MAJOR PHARMACEUTICALS - 1.6%
40,500 Glaxo Wellcome PLC, ADR
(United Kingdom) ............................ 2,262,937
MAJOR U.S. TELECOMMUNICATIONS - 1.4%
41,500 SBC Communications, Inc.
(United States) ............................. 2,023,125
MANAGED HEALTH CARE - 2.7%
140,000 First Health Group Corporation+
(United States) ............................. 3,788,750
NON-U.S. BANKS - 2.5%
112,000,000 Yapi Ve Kredi Bankasi A.S. (Turkey) ....... 3,458,702
OIL/GAS TRANSMISSION - 1.3%
53,500 Coastal Corporation (The) (United States) .. 1,895,906
OILFIELD SERVICES/EQUIPMENT - 1.4%
48,000 Halliburton Company (United States) ........ 1,932,000
OTHER METALS/MINERALS - 0.7%
10,000 Rio Tinto PLC, ADR (United Kingdom) ........ 947,500
OTHER SPECIALTY STORES - 1.4%
65,500 Linens 'N Things, Inc.+ (United States) .... 1,940,438
OTHER TELEPHONE/COMMUNICATION - 17.2%
82,800 AT&T Canada, Inc.+ (Canada) ................ 3,327,525
47,300 COLT Telecom Group PLC+
(United Kingdom) ............................ 2,427,796
</TABLE>
59
The accompanying notes are an integral part of these financial statements.
<PAGE> 60
THE MONTGOMERY FUNDS
SELECT 50 FUND
I N V E S T M E N T S
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - continued
OTHER TELEPHONE/COMMUNICATION - CONTINUED
11,800 COLT Telecom Group PLC, ADR+
(United Kingdom) $ 2,407,200
33,100 Equant N.V.+ (Netherlands) 3,707,200
96,500 Global TeleSystems Group, Inc.+
(Belgium) 3,341,312
152,500 Matav Rt. (Hungary) 1,069,010
4,400 Matav Rt., ADR (Hungary) 158,400
23,300 Telebras, Sponsored ADR (Brazil) 2,994,050
20,500 Telefonos de Mexico S.A., ADR (Mexico) 2,306,250
102,900 Videsh Sanchar Nigam Ltd., GDR (India) 2,531,340
-------------
24,270,083
PACKAGE GOODS/COSMETICS - 1.6%
34,500 Kimberly-Clark Corporation
(United States) 2,251,125
PAPER - 2.0%
49,000 International Paper Company
(United States) 2,765,437
SPECIALITY CHEMICALS - 1.7%
75,000 LG Chemical Ltd. (Korea) 2,371,202
TELECOMMUNICATIONS EQUIPMENT - 3.8%
28,200 Nokia Corporation, Sponsored ADR
(Finland) 5,358,000
TEXTILES - 0.1%
33,400 Reliance Industries, Ltd. (India) 179,439
TOTAL COMMON STOCKS
(Cost $99,605,502) 136,044,282
-------------
PREFERRED STOCK - 0.4%
Other Telephone/Communication - 0.4%
5,000,000 Telebras (Brazil)
(Cost $465,680) 657,349
-------------
MONEY MARKET FUND - 0.0%@
973 Chase Vista Federal Money Market Fund
(Cost $973) 973
-------------
TOTAL SECURITIES
(Cost $100,072,155) 136,702,604
-------------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C>
REPURCHASE AGREEMENT - 0.4%
$ 578,000 Agreement with Greenwich Capital Markets, Tri-Party, 5.500% dated
12/31/99, to be repurchased at $578,261 on 01/03/00,
collateralized by $589,571 market value of U.S. government and
mortgage-backed securities, having various maturities and interest
rates
(Cost $578,000) $ 578,000
------------
TOTAL INVESTMENTS - 97.2%
(Cost $100,650,155*) 137,280,604
OTHER ASSETS AND LIABILITIES - 2.8%
(Net) 3,892,535
------------
NET ASSETS - 100.0% $ 141,173,139
=============
</TABLE>
(*) Aggregate cost for federal tax purposes.
+ Non-income-producing security.
@ Amount represents less than 0.1%.
Abbreviations
ADR American Depositary Receipt
GDR Global Depositary Receipt
60
The accompanying notes are an integral part of these financial statements.
<PAGE> 61
The Montgomery Funds
BALANCED FUND(*)
Portfolio Highlights
(Unaudited)
I N V E S T M E N T R E V I E W
Q: AT THE END OF 1999, THE FUND CHANGED ITS NAME FROM THE U.S. ASSET ALLOCATION
FUND TO THE BALANCED FUND. WHAT DOES THIS MEAN FOR SHAREHOLDERS?
A: The Fund remains a fund-of-funds which strives to capitalize on the potential
of both the equity and fixed income markets. While the Fund maintains the same
management team and general strategy, we changed the name because we believe
that "Balanced" more accurately describes the Fund's historical positioning,
which has remained between 40% to 70% stocks and 30% to 60% bonds. We will
continue to analyze market factors, including relative risk and return to
determine what we believe is an optimal allocation between stocks, bonds and
cash, each of which may represent 50% to 80%, 20% to 50% and 0% to 20% of the
Fund, respectively
Q: HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED DECEMBER 31, 1999?
A: The Fund underperformed its custom benchmark--60% S&P 500 Index and 40%
Lehman Brothers Aggregate Bond Index--over the second half of 1999. This
reflected both our underweighting in bonds over the third quarter and the
underperformance of our equity holdings in a stock market deeply enamored with
technology.
Since mid-1999 we have kept the Fund's allocations at a constant 65% stocks and
35% bonds. Bonds outperformed equities during the third quarter, so in
retrospect the Fund would have benefited from a greater percentage of bonds over
that period. In the fourth quarter, however, stocks once again took the lead and
to some extent helped vindicate our emphasis on equities. The equities portfolio
enjoyed strong absolute returns. With highly valued technology
stocks--especially Internet-related shares--dominating the market, however, our
more diversified equity portfolio with its emphasis on growth at a reasonable
price lagged the market's high fliers.
Q: THE BOND MARKET CAME UNDER PRESSURE DURING THE SECOND HALF OF 1999.
HOW DID THIS AFFECT THE FUND'S RETURNS?
A: Rising interest rates created a headwind for our bond portfolio, as it did
for most fixed-income investments. The bond market's overall dearth of liquidity
in the run-up to Y2K also worked against us. Even so, the final few months of
the year were relatively uneventful for the fixed-income portfolio, and it ended
the period close to its benchmark. The portfolio's modest overweight positions
in corporate and mortgage-backed bonds helped performance, as did our security
selection in the asset-backed sector.
Now that fears surrounding Y2K have subsided, liquidity is returning to the bond
market. And though the threat of further interest rate hikes may continue to
provide a challenging investment environment for bonds at the beginning of the
year, we believe that the outlook for bonds in the second half of 2000 is more
positive. What's more, with sectors of the market representing good value, we
continue to identify interesting opportunities in this market.
Q: HOW DID THE FUND'S EQUITY ALLOCATION PERFORM RELATIVE TO ITS BENCHMARK?
A: Our equity portfolio's relatively modest exposure to technology put it at
somewhat of a disadvantage during the second half of 1999. Internet stocks were
especially hot in
PORTFOLIO MANAGEMENT
Fund-of-funds, including:
Montgomery Growth Fund
Montgomery Total Return Bond Fund
Montgomery Government Money Market Fund
FUND PERFORMANCE
Average annual total returns
for the period ended 12/31/99
MONTGOMERY
BALANCED FUND(*)
<TABLE>
<S> <C>
Since inception (3/31/94) ............................... 17.71%
One year ................................................ 12.85%
Five years .............................................. 16.37%
</TABLE>
S&P 500 INDEX
<TABLE>
<S> <C>
Since 3/31/94 ........................................ 25.54%
One year ............................................. 21.04%
Five years ........................................... 28.56%
</TABLE>
LEHMAN BROTHERS
AGGREGATE BOND INDEX
<TABLE>
<S> <C>
Since 3/31/94 ........................................ 6.68%
One year ............................................. (0.82)%
Five years ........................................... 7.73%
</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.
[GROWTH OF A $10,000 INVESTMENT GRAPH]
[LINE GRAPH]
<TABLE>
<CAPTION>
US Asset Allocation (Lehman) S&P 500 Lipper
<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 17674 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 34935 21594
Dec-99 25556 14505 36980 22609
</TABLE>
(*) Formerly named Montgomery U.S. Asset Allocation Fund.
(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 88 funds.
61
<PAGE> 62
The Montgomery Funds
BALANCED FUND
Portfolio Highlights
this environment. It didn't seem to matter much that many of these
companies--which appear to have open-ended opportunities and are very exciting
in theory--have minimal products, minimal customers and minimal revenues and
clearly won't produce any earnings for years to come. We have chosen to focus
instead on companies that, while benefiting from the Internet revolution, are
still reasonably valued--companies such as Federal Express (2.43% of net assets
within the equity portion of the Fund as of 12/31/99) and News Corp. (1.58% of
net assets within the equity portion of the Fund as of 12/31/99). We also see
opportunity in companies that have been punished too severely for what we
believe amount to temporary disappointments. Finally, we continue to be
overweighted in basic materials companies, an undervalued area that we believe
will profit from recovering global demand.
Q: WHAT IS THE FUND'S CURRENT POSITIONING?
A: As it has been since mid-1999, the Fund remains at 65% stocks and 35% bonds.
This positioning reflects our view that there are still opportunities in both
the equity and the bond markets, but that, on balance, the prospects for the
stock market are slightly more favorable in the near term. We believe that this
is especially true for fundamentally sound companies in the industrial cyclicals
and basic materials sectors that will benefit from global growth but did not see
the heady run-up in valuations enjoyed by the technology sector at the end of
1999. Such stocks are looking increasingly attractive.
Q: WHY SHOULD INVESTORS CONSIDER ADDING THIS FUND TO THEIR INVESTMENT
PORTFOLIOS?
A: This Fund provides a way for investors to participate in both the stock and
the bond markets through just one fund. As a result, it may be a good choice for
investors who are just beginning to invest or who own only a few funds.
Additionally, the Fund's bond component helps balance its equity portfolio, so
it may be suitable for more-conservative investors who wish to have some
exposure to the growth potential of the stock market but want to temper that
with the stability and income potential of bonds.
P O R T F O L I O I N V E S T M E N T S
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
INVESTMENT COMPANY SECURITIES -- 99.6%
BOND MUTUAL FUND -TAXABLE -- 34.5%
2,129,273 Montgomery Total Return Bond Fund ............... $23,890,442
EQUITY MUTUAL FUND -- 65.1%
2,099,213 Montgomery Growth Fund .......................... 45,049,112
MONEY MARKET FUND -- 0.0%@
1,768 Chase Vista Federal Money Market Fund (Cost $1,767).. 1,768
TOTAL INVESTMENTS -- 99.6%
(Cost $69,221,400*) .......................................... $68,941,322
-----------
OTHER ASSETS AND LIABILITIES -- 0.4%
(Net) ........................................................ 294,193
-----------
NET ASSETS-- 100.0% .......................................... $69,235,515
===========
</TABLE>
(*) Aggregate cost for federal tax purposes.
@ Amount represents less than 0.1%.
The accompanying notes are an integral part of these financial statements.
62
<PAGE> 63
The Montgomery Funds
TOTAL RETURN BOND FUND
Portfolio Highlights
(Unaudited)
I N V E S T M E N T R E V I E W
Q: HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED DECEMBER 31, 1999?
A: In a very difficult environment for the bond market, the Fund slightly
underperformed its benchmark, the Lehman Brothers Aggregate Bond Index. For the
six-month period, the Fund returned 0.52%, versus 0.56% for the benchmark, but
the Fund continued to perform well against the Lipper Intermediate
Investment-Grade Debt Funds Average, which returned 0.30% for the six-month
period.
Q: WHAT MARKET FACTORS HAD THE GREATEST IMPACT ON PERFORMANCE DURING THE
QUARTER?
A: The rising interest rate environment dominated bond market activity over the
period, but the effect was particularly pronounced in the final three months of
the year. Having raised rates in June, the Federal Reserve Board again hiked
rates in August and November. Interest rates were on the rise because the world
economy was being stoked by investments, and the resulting acceleration in
economic growth showed signs of only getting stronger. Because investment
spending is far less inflationary than consumption spending, however, inflation
and interest rates actually remained lower than expected for such strong growth.
Unfortunately, these factors produced a tortuous bear market in bonds, as the
Fed moved slowly to try to head off inflation pressures that might be sparked by
tight labor markets.
The bear market inevitably affected the Fund's absolute returns, because as
rates go up, bond prices decline. A more volatile market against a backdrop of
declining liquidity hurt Fund performance in the final three months of the year,
offsetting the Fund's strong relative performance in the third quarter, which
provided some respite from earlier declining absolute returns. Liquidity in the
market deteriorated as dealers reduced their positions just in case there was
any instability caused by potential Y2K computer problems. As a result, our
trading activity was lighter than usual, and this detracted from performance.
Q: WHAT STRATEGY DID YOU PURSUE AGAINST THIS CHALLENGING BACKDROP?
A: We modestly overweighted corporate bonds and mortgage-backed securities
during the period, which helped the Fund's performance relative to the index.
Security selection among asset-backed securities--the payments of which are
backed by payments from credit cards and other loan receipts such as for
autos--also contributed to performance.
We found compelling opportunities in the corporate bond market, in particular.
Corporate America has taken on much more debt over the past 18 months. Yield
spreads--the yield advantage offered by corporate bonds relative to comparable
Treasuries-- widened, indicating a relative cheapening of corporate bonds. We
found much of the general widening to be justified, but not the credit
relationship, because credit quality has deteriorated. In 2000 we expect to see
a significant performance difference between highly regarded credits and those
that are barely or below investment grade, so we have positioned the Fund with a
focus on even higher-quality credits than usual.
PORTFOLIO MANAGEMENT
<TABLE>
<S> <C>
William Stevens ............................................. Senior Portfolio Manager
Marie Chandoha .............................................. Portfolio Manager
</TABLE>
FUND PERFORMANCE
Average annual total returns
for the period ended 12/31/99
MONTGOMERY
TOTAL RETURN BOND FUND
<TABLE>
<S> <C>
Since inception (6/30/97) ............................... 5.76%
One year ................................................ (0.59)%
</TABLE>
LEHMAN BROTHERS
AGGREGATE BOND INDEX
<TABLE>
<S> <C>
Since 6/30/97 ........................................ 5.62%
One year ............................................. (0.82)%
</TABLE>
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
Total Return (Lehman) Lipper
<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
</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 217 funds.
63
<PAGE> 64
The Montgomery Funds
TOTAL RETURN BOND FUND
Portfolio Highlights
TOP TEN HOLDINGS
(as a percentage of total net assets)
<TABLE>
<S> <C>
U.S. Treasury Bonds,
8.875% due 02/15/19 ..................................... 14.4%
FNMA, 9.000% Pass-through Pool
#B00688 due 09/01/05 .................................... 11.5%
FNMA, TBA Jul., 30 Yr.,
6.000% due 07/01/28 ..................................... 7.3%
Green Tree Home Equity Loan Trust,
Series 1999-DA6,
7.610% due 09/15/30 ..................................... 4.8%
The Money Store Home Equity Trust,
Series 1995-CA9
6.375% due 09/15/11 ..................................... 4.8%
FNMA, TBA Aug., 30 Yr.,
7.000% due 08/01/28 ..................................... 4.6%
FHLMC, 1676KD (AD),
6.250% due 03/15/06 ..................................... 4.6%
FHLB, (FLTR),
5.500% due 04/14/00 ..................................... 3.7%
Bristol-Myers Squibb Company,
Debentures,
6.800% due 11/15/26 ..................................... 3.5%
Lockheed Martin Corporation, Notes,
7.200% due 05/01/36 ..................................... 2.8%
</TABLE>
A S S E T M I X
(as a percentage of total investments)
<TABLE>
<S> <C>
Corporate Bonds and Notes .................................. 24.2%
Treasuries ................................................. 17.8%
Asset-Backed Securities .................................... 17.0%
Mortgage Pass-throughs ..................................... 14.3%
Agencies ................................................... 13.9%
Collateralized Mortgage Obligations ........................ 12.8%
</TABLE>
INVESTMENT GRADE
(as a percentage of total investments)
<TABLE>
<S> <C>
Aaa .................................................................. 72%
A .................................................................... 9%
Baa .................................................................. 10%
Nonrated ............................................................. 9%
</TABLE>
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
On the downside, our strategy to overweight bonds issued by defense firms hurt
relative performance. Because the stock prices of these companies tumbled,
interest rate spreads on these bonds widened. Our decision to underweight
Yankees--bonds issued in the United States by foreign governments or
corporations--also held back performance somewhat.
Q: WHAT'S DRIVING THE CURRENT POSITIONING OF THE FUND?
A: Even though technology companies issue very little debt, the impact of
technology is very much on our minds. Strong corporate issuance in 1999 has
increased corporate leverage and made security selection much more important in
the corporate market. In addition, we expect consolidation activity to be quite
strong in 2000 because of changes in merger accounting rules. As a result, a
company's credit quality could change overnight. Technology companies stir an
already full pot. Their liaisons and products can quickly alter barriers to
entry and the power relationships between buyers and sellers. The strategic
importance and profit prospects for entire industries can change nearly
overnight. We are trying to stay ahead of those changes.
Technology is also changing the mortgage market, because the Internet has made
refinancing even easier and cheaper, changing the value of mortgages. This fact
was rarely noticed in the recent bear market. Asset-backed securities are less
affected and may even see improvements in credit quality over the next few
years.
Q: DO YOU SEE AN IMPROVEMENT IN THE FORTUNES OF THE BOND MARKET IN THE COMING
YEAR?
A: Although the market may still prove difficult, particularly in the first few
months of the year as the Federal Reserve continues to raise rates to cool the
economy, we certainly believe that 2000 may bring greater opportunities from
security selection and trading. Valuations are good, and liquidity is returning
to the market. Huge Treasury surpluses, even bigger corporate mergers, and the
rapid destruction and construction of $50 billion and $100 billion companies
will create many challenges in the bond markets--but also plenty of potential to
add value to the Fund. In addition, should the Fed become more sanguine about
the unemployment rate, declining inflation resulting from the deflationary
effects of technology could drive a powerful bond rally. In these respects we
are becoming more optimistic about the prospects for the bond markets.
Even as we constantly rethink the opportunities before us, however, we remain
dedicated to thinking of risk in addition to return. We believe that
consideration of risk is a key component in bringing consistent relative returns
to our shareholders.
64
<PAGE> 65
The Montgomery Funds
TOTAL RETURN BOND FUND
I n v e s t m e n t s
P O R T F O L I O I N V E S T M E N T S
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C>
ASSET-BACKED SECURITIES - 19.0%
$ 448,302 Chase Manhattan Auto Owner Trust,
Series 1997-BA3,
6.350% due 02/15/01 ................................... $ 448,302
600,000 Conseco Finance Corporation,
Series 1999-HAF6,
7.210% due 12/15/29 ................................... 593,906
620,000 DLJ Commercial Mortgage Corporation,
Series 1999-CG2, A1B,
7.300% due 06/10/09 ................................... 614,575
391,175 Green Tree Financial Corporation,
Series 1998-1A2,
5.850% due 10/02/08 ................................... 384,371
1,500,000 Green Tree Home Equity Loan Trust,
Series 1999-DA6,
7.610% due 09/15/30 ................................... 1,512,657
97,320 Master Financial Asset Securitization Trust,
Series 1998-1A2,
6.220% due 08/20/11 ................................... 96,992
823,560 Premier Trust, Series B1,
10.500% due 12/20/05 .................................. 804,129
1,527,762 The Money Store Home Equity Trust,
Series 1995-CA9,
6.375% due 09/15/11 ................................... 1,505,356
---------
TOTAL ASSET-BACKED SECURITIES
(Cost $6,025,108) ................................................. 5,960,288
=========
CORPORATE BONDS AND NOTES - 27.2%
1,200,000 Bristol-Myers Squibb Company,
Debentures,
6.800% due 11/15/26 ................................... 1,108,500
545,000 Dow Chemical Company, Debentures,
7.375% due 11/01/29 ................................... 521,838
450,000 Ford Motor Company, Notes,
7.450% due 07/16/31 ................................... 433,125
200,000 Franchise Finance Corporation, MTN,
6.780% due 02/20/02 ................................... 194,000
500,000 General Electric Capital Corporation,
Debentures,
8.850% due 04/01/05 ................................... 528,750
875,000 IRT Property Company, Notes,
7.450% due 04/01/01 ................................... 865,156
650,000 Kimco Realty Corporation, Senior Notes,
6.500% due 10/01/03 ................................... 624,000
950,000 Lockheed Martin Corporation, Notes,
7.200% due 05/01/36 ................................... 887,062
500,000 MCI WorldCom, Inc., Senior Notes,
6.950% due 08/15/28 ................................... 455,000
110,000 Occidental Petroleum Corporation, MTN,
9.750% due 06/15/01 ................................... 113,438
575,000 Occidental Petroleum Corporation,
Senior Notes,
7.650% due 02/15/06 ................................... 574,281
550,000 Price Reit, Inc., Senior Notes,
7.250% due 11/01/00 ................................... 547,720
650,000 Raytheon Company, Notes,
6.750% due 08/15/07 ................................... 604,500
500,000 Scottish Power PLC, MTN,
6.710% due 01/15/26 ................................... 434,375
645,000 Vastar Resources, MTN,
6.960% due 02/26/07 ................................... 623,231
---------
TOTAL CORPORATE BONDS AND NOTES
(Cost $9,054,532) ................................................. 8,514,976
---------
FEDERAL HOME LOAN BANK (FHLB) - 3.7%
Agencies:
1,150,000 5.500% (FLTR) due 04/14/00++
(Cost $1,147,469) ..................................... 1,148,649
---------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) - 10.4%
CMOs:
1,480,000 1676KD (AD)#
6.250% due 03/15/06 ................................... 1,438,722
633,818 16D (TAC)
10.000% due 10/15/19 .................................. 659,171
867,958 2098VA (PAC)#
6.000% due 10/15/05 ................................... 847,310
300,999 2114VM (AD)#
6.000% due 09/15/04 ................................... 295,179
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION
(Cost $3,295,754) ................................................. 3,240,382
---------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 31.3%
Agencies:
2,500,000 TBA Jul., 30 Yr., 6.000% due 07/01/28 ................. 2,286,700
1,500,000 TBA Aug., 30 Yr., 7.000% due 08/01/28 ................. 1,450,305
CMOs:
427,299 1988-16B (PAC)#
9.500% due 06/25/18 ................................... 447,062
139,851 1993-159PA (PAC)#
0.000% due 01/25/21 ................................... 137,054
700,000 1994-12PH (PAC)#
6.250% due 01/25/09 ................................... 684,852
</TABLE>
The accompanying notes are an integral part of these financial statements.
65
<PAGE> 66
The Montgomery Funds
TOTAL RETURN BOND FUND
I n v e s t m e n t s
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) - continued
Pass-throughs:
$ 663,840 Gold Pool #M80162
6.500% due 04/01/00 .................................. $ 662,293
499,110 Pool #323193#
9.000% due 09/01/07 .................................. 511,763
3,534,524 Pool #B00688#
9.000% due 09/01/05 .................................. 3,604,939
-----------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION
(Cost $9,921,360) ............................................... 9,784,968
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) - 0.7%
Pass-throughs:
224,536 8.500% Pass-through Pools due
1/15/23-7/15/23
(Cost $233,528) ...................................... 230,921
------------
U.S. TREASURY BONDS - 14.4%
3,705,000 U.S. Treasury Bonds, 8.875% due 02/15/19
(Cost $4,621,930) .................................... 4,509,689
------------
U.S. TREASURY NOTES - 5.6%
475,000 U.S. Treasury Notes, 6.125% due 12/31/01 ............. 473,813
325,000 U.S. Treasury Notes, 7.000% due 07/15/06 ............. 332,803
400,000 U.S. Treasury Notes, 7.875% due 11/15/04 ............. 422,840
562,178 U.S. Treasury Notes, Inflationary Index,+
3.625% due 01/15/08 .................................. 535,168
------------
TOTAL U.S. TREASURY NOTES
(Cost $1,769,937) ................................................ 1,764,624
------------
TOTAL INVESTMENTS - 112.3%
(Cost $36,069,618*) .............................................. 35,154,497
------------
OTHER ASSETS AND LIABILITIES - (12.3)%
(Net) ............................................................ (3,853,602)
------------
NET ASSETS - 100.0% .............................................. $ 31,300,895
============
</TABLE>
(*) Aggregate cost for federal tax purposes.
+ Inflation indexed security. Security includes principal adjustment feature
in which par amount adjusts with the Consumer Price Index to insulate bonds
from effects of inflation. The principal amount shown is that in effect on
December 31, 1999.
++ Floating-rate note reflects the rate in effect at December 31, 1999.
# 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.
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.
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.
The accompanying notes are an integral part of these financial statements.
66
<PAGE> 67
The Montgomery Funds
SHORT DURATION
GOVERNMENT BOND FUND
Portfolio Highlights
(Unaudited)
I N V E S T M E N T R E V I E W
Q: HOW DID THE FUND PERFORM FROM JULY 1 THROUGH DECEMBER 31, 1999?
A: In the final quarter of 1999, Fund performance was in line with its
benchmark, the Lehman Brothers Government Bond 1-3 Year Index; but because of a
slight underperformance in a difficult investment environment during the
preceding three months, the Fund's six-month returns remained below those of the
index: 1.57%, versus 1.80% for the benchmark.
In recognition of its consistently strong long-term risk-adjusted performance,
however, the Fund was awarded an overall five-star rating by Morningstar for the
period ended 12/31/99 among 1,617 taxable bond funds. The Fund also received
five stars for the three- and five-year periods ended 12/31/99 among 1,617 and
1,221 taxable bond funds, respectively.(*)
Q: WHAT MARKET FACTORS HAD THE GREATEST IMPACT ON RETURNS?
A: Rising bond yields (interest rates) were the main factor that worked to the
detriment of the Fund's relative returns over the six-month period. Even after
the Federal Reserve's increase in short-term interest rates in August and
November, market activity continued to reflect concerns over inflationary
pressures due to the continued strength of the U.S. economy and a robust equity
market. By the end of the year, two-year interest rates had backed up by 0.23%.
With the two-year Treasury rising to a yield of 6.24% at year end, yields are
back to September 1997 levels.
Our target duration (the weighted average length of time to receipt of a bond's
coupon and redemption value) for the Fund was slightly longer than that of the
benchmark. We believe that this positioning offers an excellent risk/reward
trade-off over the longer term, but worked to our disadvantage during the third
quarter of 1999. Another factor that hurt performance was a further widening of
yields in the mortgage-backed securities market. But because this was an unusual
trend in a rising interest rate environment, we remained comfortable with the
slightly greater risk of the Fund's longer-duration position.
Offsetting the headwind that detracted from performance at the beginning of the
six-month period, however, the Fund's holdings of high-quality, asset-backed and
mortgage securities made a strong contribution to performance in the final three
months of the year. Yield premiums for these securities either held steady or
continued to contract in spite of rising interest rates.
Q: DID YOU CHANGE YOUR STRATEGY IN RESPONSE TO DIFFICULT MARKET CONDITIONS?
A: We made no significant changes to strategy over the period. Instead we
remained faithful to our conservative, analytical, risk-controlled approach to
managing the Fund. We believe that the relative values of the securities owned
by the Fund are excellent and that yields are beginning to reach attractive
levels. In view of these factors, we are confident that our strategy may result
in stronger performance moving forward.
PORTFOLIO MANAGEMENT
<TABLE>
<S> <C>
William Stevens ............................................. Senior Portfolio Manager
Marie Chandoha .............................................. Portfolio Manager
</TABLE>
FUND PERFORMANCE
Average annual total returns
for the period ended 12/31/99
MONTGOMERY SHORT DURATION
GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
<S> <C>
Since inception (12/18/92) ............................... 6.09%
One year ................................................. 2.56%
Five years ............................................... 6.67%
</TABLE>
LEHMAN BROTHERS GOVERNMENT
BOND 1-3 YEAR INDEX
<TABLE>
<S> <C>
Since 12/18/92 ........................................ 5.44%
One year .............................................. 2.98%
Five years ............................................ 6.47%
</TABLE>
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
[LINE GRAPH]
<TABLE>
<CAPTION>
Short Duration Gov. Bond Fund (Lehman) Lipper
<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
</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 reflect historical risk-adjusted
performance through 12/31/99. The ratings are subject to change every
month, and past performance is no guarantee of future results. Morningstar
ratings are calculated from the Funds three-, five- and 10-year average
annual returns (if applicable) in excess of 90-day Treasury bill returns,
with appropriate fee adjustments and a risk factor that reflects Fund
performance below 90-day T-bill returns. The top 10% of funds in a broad
asset class receive five stars. Ratings are for Class R shares only; other
classes may vary.
67
<PAGE> 68
The Montgomery Funds
SHORT DURATION
GOVERNMENT BOND FUND
Portfolio Highlights
TOP TEN HOLDINGS
(as a percentage of total net assets)
<TABLE>
<S> <C>
U.S. Treasury Note,
6.125% due 12/31/01 .................................................. 13.1%
U.S. Treasury Note,
5.625% due 05/15/01 .................................................. 7.8%
FHLMC, 2121TA (PAC)
6.000% due 04/15/08 .................................................. 5.8%
FHLMC, 1166D (AD)
8.000% due 02/15/05 .................................................. 4.3%
FNMA, Pool #323450,
8.500% due 05/01/07 .................................................. 3.4%
FNMA, TBA, Aug. 30 Yr.
7.000% due 08/01/28 .................................................. 3.1%
U.S. Treasury Note,
7.875% due 11/15/04 .................................................. 3.1%
U.S. Treasury Inflation Indexed Note,
3.625% due 01/15/08 .................................................. 2.9%
FNMA, 1999-11B (AD)
5.500% due 04/25/07 .................................................. 2.8%
FNMA, 1999-34VE (AD)
6.500% due 09/25/05 .................................................. 2.7%
</TABLE>
A S S E T M I X
(as a percentage of total investments)
<TABLE>
<S> <C>
Collateralized Mortgage Obligations ........................ 35.6%
Treasuries ................................................. 25.7%
Mortgage Pass-throughs ..................................... 18.8%
Asset-Backed Securities .................................... 16.9%
Corporate Notes ............................................ 1.6%
Other ...................................................... 1.4%
</TABLE>
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.
Q: HOW IS THE FUND CURRENTLY POSITIONED?
A: Maintaining our strategy that assesses the risk as well as the reward in
seeking to provide our shareholders with consistent returns, the Fund's duration
remains slightly longer than that of the benchmark. In terms of securities, we
continue to like collateralized mortgage obligations (CMOs) and asset-backed
securities. We believe that technology, particularly the Internet, is making
refinancing easier and cheaper and that this is changing the value of mortgages.
Asset-backed securities are less affected, but may see an improvement in credit
quality. As a result, we see attractive opportunities in both sectors.
Q: LOOKING FORWARD, WHAT ARE THE BENEFITS TO INVESTORS IN HOLDING THE FUND IN
THEIR PORTFOLIOS?
A: We believe that there are two very compelling reasons to invest in the
Montgomery Short Duration Government Bond Fund right now. First, given the
uncertainty surrounding stocks, diversification into a bond fund makes sense
from a risk perspective. Second, we believe that the Fund may offer an
attractive alternative to a money market fund.
One of the arguments against bond funds is that they often have a strong
positive correlation with stocks. Fortunately, this relationship is less true in
a crisis--and is less true now. For investors who are particularly risk averse
and want to diversify assets into a bond fund, the Short Duration Government
Bond Fund offers about the interest rate risk of a two-year Treasury bond(**)
and invests in high-quality securities such as mortgage and asset-backed
securities and Treasury bonds. Although the Fund entails greater risk and may
prove more volatile than one of Montgomery's money market offerings, because the
Fund is able to invest in a greater variety of bonds its potential yield, and
therefore total returns, may be higher over the long term.
68
<PAGE> 69
The Montgomery Funds
SHORT DURATION
GOVERNMENT BOND FUND
I n v e s t m e n t s
P O R T F O L I O I N V E S T M E N T S
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C>
ASSET-BACKED SECURITIES - 17.7%
$ 1,400,000 Chase Manhattan Auto Owner Trust,
Series 1997-B A5,
6.60% due 03/15/02 .................................. $ 1,399,308
1,750,000 Citibank Credit Card Master Trust,
Series 1998-1 A,
5.75% due 01/15/03 .................................. 1,733,042
1,400,000 Conseco Finance,
Series 1999-H AF6,
7.21% due 12/15/29 .................................. 1,385,781
700,000 Discover Card Master Trust,
Series 1998-4 A,
5.75% due 10/16/03 .................................. 689,717
2,000,000 EQCC Home Equity Loan Trust,
Series 1998-2 A3F, 6.23% due 03/15/13................ 1,979,609
2,523,000 Ford Credit Auto Owner Trust,
Series 1996 B,
6.55% due 02/15/02 .................................. 2,517,475
21,554 Green Tree Financial Corporation,
Series 1993-9 A3,
6.25% due 01/15/19 .................................. 21,554
4,200,000 Green Tree Home Equity Loan Trust,
Series 1999-D A6, 7.61% due
09/15/30 ............................................ 4,235,440
774,063 Green Tree Home Improvement Loan Trust,
Series 1997-C HEA3, 6.88%
due 08/15/28......................................... 779,044
1,216,501 Master Financial Asset Securitization Trust,
Series 1998-1 A2,
6.22% due 08/20/11 .................................. 1,212,395
4,100,000 Onyx Acceptance Auto Trust,
Series 1999-D A4,
7.00% due 11/15/04 .................................. 4,093,594
1,965,000 Premeir Auto Trust,
Series 1998-5 A3,
5.07% due 07/08/02 .................................. 1,938,590
1,000,000 Premier Auto Trust,
Series 1999-2 A3,
5.49% due 02/10/03 .................................. 982,500
825,000 Toyota Auto Lease Trust,
Series 1997-A A3,
6.45% due 04/26/04 .................................. 820,611
3,000,000 Toyota Auto Lease Trust,
Series 1998-B A3,
5.50% due 12/26/03 .................................. 2,945,775
3,500,000 Union Acceptance Corporation,
Series 1998-D A5,
5.96% due 07/01/06 .................................. 3,421,250
TOTAL ASSET-BACKED SECURITIES
(Cost $30,262,197) .............................................. 30,155,685
----------
CORPORATE NOTES - 1.7%
$ 2,000,000 Association Corporation N.A.,
Senior Notes,
5.800% due 04/20/04 ................................. 1,892,500
1,000,000 Countrywide Home Loans, Inc., MTN
5.620% due 10/16/00 ................................. 990,018
----------
TOTAL CORPORATE NOTES
(Cost $2,999,128) ............................................... 2,882,518
----------
FEDERAL HOME LOAN BANK (FHLB) - 0.3%
550,000 5.500% (FLTR) due 04/14/00++
(Cost $549,671) ..................................... 549,353
----------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) - 28.3%
CMOS:
7,250,000 1166D (AD) 8.000% due 02/15/05 ...................... 7,292,760
459,722 1320F (PAC) 7.000% due 05/15/05 ..................... 458,754
696,108 1499PE (PAC) 6.000% due 02/15/19# ................... 694,453
462,269 1521C (PAC) 5.800% due 07/15/00# .................... 461,156
757,125 1606E (PAC) 5.500% due 03/15/07 ..................... 751,681
1,692,466 1639PL (PAC) 5.900% due 08/15/06 .................... 1,686,794
1,645,378 1643PE (PAC) 5.500% due 10/15/19 .................... 1,636,183
1,092,225 1659PE (PAC) 5.750% due 05/15/07 .................... 1,086,916
541,284 1694PE (PAC) 5.750% due 03/15/19 .................... 538,681
4,390,247 16D (TAC) 10.000% due 10/15/19 ...................... 4,565,857
370,461 1711PH (PAC) 0.000% due 03/15/24 .................... 367,564
3,768,674 2098VA (PAC) 6.000% due 10/15/05 .................... 3,679,021
3,847,626 2114VM (AD) 6.000% due 09/15/04# .................... 3,773,229
10,000,000 2121TA (PAC) 6.000% due 04/15/08 .................... 9,869,531
2,239,099 2122VA (AD) 6.000% due 09/15/05 ..................... 2,178,912
----------
39,041,492
NOTES:
1,000,000 5.500% (FLTR) 5.500% due 05/19/03++ ................. 946,531
PASS-THROUGHS:
2,806,366 Pool #736001, 9.500% due 01/01/06 ................... 2,907,221
2,892,383 Pool #A01841 8.750% due 10/01/10# ................... 2,987,516
1,537,535 Pool #E40290 8.500% due 06/01/07 .................... 1,572,250
736,319 Pool #G10007 8.500% due 03/01/06# ................... 754,095
----------
8,221,082
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION
(Cost $48,951,110) ............................................. 48,209,105
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
69
<PAGE> 70
THE MONTGOMERY FUNDS
SHORT DURATION
GOVERNMENT BOND FUND
INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 26.2%
CMOs:
$ 829,086 1992-165K (PO) 0.000% due 09/25/22 ............. $ 795,923
720,303 1993-109G (PAC) 6.000% due 08/25/05# ........... 713,100
817,757 1993-214EA (PAC) 5.300% due 03/25/07 ........... 809,580
650,000 1993-99D (AD) 6.700% due 03/25/04# ............. 644,389
3,698,030 1994-23PT (PAC) 5.125% due 07/25/17 ............ 3,624,069
937,241 1994-23PV (PAC) 5.125% due 07/25/17# ........... 927,724
2,500,000 1994-39PG (PAC) 6.150% due 06/25/20 ............ 2,456,543
5,035,544 1999-11B (AD) 5.500% due 04/25/07 .............. 4,733,411
4,665,837 1999-34VE (AD) 6.500% due 09/25/05 ............. 4,603,140
-----------
19,307,879
PASS-THROUGHS:
657,924 Pool #242836, 5.500% due 10/01/00 .............. 651,345
758,413 Pool #244098, 5.500% due 10/01/00 .............. 750,858
971,526 Pool #252432, 5.000% due 02/01/09 .............. 904,885
3,649,757 Pool #323193, 9.000% due 09/01/07 .............. 3,742,286
5,685,599 Pool #323450, 8.500% due 05/01/07# ............. 5,807,527
1,325,438 Pool #348144, 8.500% due 04/01/10 .............. 1,359,144
1,538,166 Pool #420599, 5.000% due 03/01/27 .............. 1,354,547
846,495 Pool #438089, 9.000% due 06/01/08 .............. 875,725
776,939 Pool #70851, 9.500% due 06/01/06 ............... 792,478
5,500,000 TBA Aug., 30 Yr., 7.000% due 08/01/28 .......... 5,317,785
4,000,000 TBA Jul., 30 Yr., 6.000% due 07/01/28 .......... 3,658,720
-----------
25,215,300
TIERED PAYMENTS:
5,123 Pool #730288, 8.500% due 07/01/06 .............. 5,208
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION
(Cost $45,279,903) ............................................. 44,528,387
-----------
</TABLE>
<TABLE>
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) - 2.9%
CMOs:
2,038,779 1996-22VA (AD) 7.000% due 01/16/2005 ............. 2,032,249
2,994,984 1998-18VK (AD) 6.500% due 07/20/2005# ............ 2,953,569
-----------
4,985,818
PASS-THROUGHS:
7,769 GNMA II, 10.500% Pool #1123
due 01/20/2019 ................................... 8,462
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(Cost $5,157,469) .............................................. 4,994,280
-----------
</TABLE>
<TABLE>
<S> <C> <C>
U.S. TREASURY NOTES - 26.9%
5,205,350 U.S. Treasury Inflation Indexed Note,
3.625% due 01/15/08+ ........................... 4,955,259
13,335,000 U.S. Treasury Note, 5.625% due 05/15/01 ........ 13,232,854
22,340,000 U.S. Treasury Note, 6.125% due 12/31/01 ........ 22,291,075
4,950,000 U.S. Treasury Note, 7.875% due 11/15/04 ........ 5,233,833
TOTAL U.S. TREASURY NOTES
(Cost $45,892,768) ............................. 45,713,021
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C> <C>
MONEY MARKET FUND - 0.0%@
657 Chase Vista Federal Money Market Fund
(Cost $657) ..................................... $ 657
-------------
TOTAL SECURITIES
(Cost $179,092,903) ......................................... 177,033,006
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
REPURCHASE AGREEMENTS - 0.5%
<S> <C> <C>
$ 907,000 Agreement with Greenwich Capital
Markets, Tri-Party, 5.500% dated 12/31/99,
to be repurchased at $907,410 on 01/03/00,
collateralized by $925,158 market value of
U.S. government and mortgage-backed
securities, having various maturities and
interest rates
(Cost $907,000) ................................. 907,000
-------------
TOTAL INVESTMENTS - 104.5%
(Cost $179,999,903*) ........................................ 177,940,006
OTHER ASSETS AND LIABILITIES - (4.5)%
(Net) ....................................................... (7,735,763)
-------------
NET ASSETS - 100.0% $ 170,204,243
=============
</TABLE>
* Aggregate cost for federal tax purposes.
+ Inflation indexed security. Security includes principal adjustment feature
in which par amount adjusts with the Consumer Price Index to insulate bonds
from effects of inflation. The principal amount shown is that in effect on
December 31, 1999.
++ Floating-rate note reflects the rate in effect at December 31, 1999.
# 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.
TBA To-Be-Announced Security.
The accompanying notes are an integral part of these financial statements.
70
<PAGE> 71
THE MONTGOMERY FUNDS
CALIFORNIA TAX-FREE
INTERMEDIATE BOND FUND
PORTFOLIO HIGHLIGHTS
(UNAUDITED)
PORTFOLIO MANAGEMENT
William Stevens ............................... Senior Portfolio Manager
FUND PERFORMANCE
Average annual total returns
for the period ended 12/31/99
MONTGOMERY CALIFORNIA TAX-FREE
INTERMEDIATE BOND FUND
<TABLE>
<S> <C>
Since inception (7/1/93) ....... 4.63%
One year ....................... (1.24)%
Five years ..................... 5.57%
</TABLE>
MERRILL LYNCH CALIFORNIA
INTERMEDIATE MUNICIPAL BOND INDEX
<TABLE>
<S> <C>
Since 6/30/93 .................. 4.27%
One year ....................... 0.27%
Five years ..................... 5.77%
</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.
INVESTMENT REVIEW
Q: HOW DID THE FUND PERFORM OVER THE PAST SIX MONTHS?
A: In a difficult environment for California municipal bonds, the Fund returned
- -0.02%, versus a return of 0.48% for its benchmark, the Merrill Lynch California
Intermediate Municipal Bond Index, and a return of -0.24% for the Lipper
California Intermediate Municipal Debt Funds Average.
In recognition of the Fund's strong long-term track record, however, it was
awarded an overall four-star rating by Morningstar for its risk-adjusted returns
for the period ended 12/31/99 among 1,623 municipal bond funds. It was also
awarded four stars for the three- and five-year periods ended 12/31/99 among
1,623 and 1,348 municipal bond funds, respectively.(*)
Q: WHAT WAS THE BOND MARKET ENVIRONMENT LIKE DURING THE SIX-MONTH PERIOD?
A: All segments of the U.S. bond market experienced a significant decline. The
overriding influence was an increase in interest rates: When rates go up, bond
prices fall. Interest rates were on the rise because of continued robust
strength in the U.S. economy and the tightest labor market in nearly 30 years,
conditions that generally lead to inflation. Against this backdrop, market
yields ratcheted upward to compensate investors for the fear of future
inflation. It was also cause for alarm for the Federal Reserve Board, which felt
the need to increase short-term interest rates twice, in August and November,
after having already raised them once at the end of June.
Q: HOW DID MUNICIPAL BONDS FARE?
A: Municipal bonds trended downward along with the rest of the bond market, yet
they fared better than Treasuries. The fixed-income market weathered fairly
aggressive interest rate hikes by the Federal Reserve Board, the impact of which
was too much for dampened supply in the municipal market to overcome. Issuance
for 1999 was down more than 20% from the previous year, although the year's $225
billion in issuance was the fourth highest on record. Tax-exempt bond funds
experienced significant redemptions through the last half of 1999, which
resulted in decreased demand for municipal securities. This was fueled in large
part by the skyrocketing equity markets. There was also a sharp drop-off in
demand from insurance companies, in part because of a difficult year for
property and casualty insurers in 1998; with earnings down, those companies did
not feel the need to seek out tax-exempt investments. Moreover, institutional
firms that historically have been attracted to municipals shied away from
everything but the most liquid investments during the last few months of 1999,
possibly because of fears related to potential Y2K computer problems.
GROWTH OF A $10,000 INVESTMENT
[Plot points follow]
Cal Tax Free Merrill Lynch Lipper
<TABLE>
<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 10278.64
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
</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.
(*) Morningstar proprietary ratings reflect historical risk-adjusted
performance through 12/31/99. The ratings are subject to change every
month, and past performance is no guarantee of future results. Morningstar
ratings are calculated from the Funds' three-, five- and 10-year average
annual returns (if applicable) in excess of 90-day Treasury bill returns,
with appropriate fee adjustments and a risk factor that reflects Fund
performance below 90-day T-bill returns. The top 10% of funds in a broad
asset class receive five stars, the next 22.5% receive four stars and the
next 35% receive three stars. Ratings are for Class R shares only; other
classes may vary.
71
Q: WHAT ABOUT THE MARKET FOR CALIFORNIA MUNICIPAL BONDS?
A: Looking more closely at California, there were two countervailing trends. On
the one hand, the vibrant California economy helped increase tax revenues and
<PAGE> 72
THE MONTGOMERY FUNDS
CALIFORNIA TAX-FREE
INTERMEDIATE BOND FUND
PORTFOLIO HIGHLIGHTS
TOP TEN LONG-TERM HOLDINGS
(as a percentage of total net assets)
<TABLE>
<S> <C>
San Bernardino County, California,
Transportation Authority Sales Tax
Revenue, Series A (MBIA Insured),
6.000% due 04/01/05 .................... 3.3%
California State, 6.250% due 09/01/08 ..... 3.1%
Riverside County, California,
Transportation Commission Sales Tax
Revenue, Series A (FGIC Insured),
6.000% due 06/01/09 .................... 3.1%
Anaheim, California, Public Financing
Authority, Lease Revenue,
Series C (FSA Insured),
6.000% due 09/01/12 .................... 3.1%
California Pollution Control Financing
Authority, Revenue,
San Diego Gas and Electric, Series A,
5.900% due 06/01/14 .................... 3.0%
Los Angeles County, Building
Authority, Lease Revenue,
5.625% due 10/01/11 .................... 3.0%
California State, 7.000% due 10/01/09 ..... 2.7%
Walnut Valley, California,
School District, Series A
(MBIA Insured),
7.000% due 08/01/08 .................... 2.3%
California Educational Facilities Authority
Revenue, LA College of Chiropractic,
5.100% due 11/01/05 .................... 2.2%
Sacramento, California, Municipal
Utilities, Electric Revenue Refunding,
Series A (MBIA Insured),
6.250% due 08/15/10 .................... 2.0%
</TABLE>
INVESTMENT GRADE
(as a percentage of total net assets)
<TABLE>
<S> <C>
Aaa ....................................... 45%
Aa ........................................ 15%
A ......................................... 12%
Baa ....................................... 20%
Nonrated .................................. 8%
</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.
encouraged municipalities to issue bonds to finance new projects. On the other
hand, higher interest rates discouraged issuers from pre-refunding existing
bonds. In this scenario--which characterized the market prior to 1999--declining
interest rates led many municipalities to refund their outstanding debt and
reissue new bonds at lower interest rates. With interest rates on the rise, this
strategy no longer made economic sense. In fact, because of higher interest
rates and the resulting decline in refunding, we expect municipal issuance in
the United States to decline from $225 billion in 1999 to about $175 billion in
2000. With the absence of refunding in the market, issuance in California also
declined.
Q: HOW DID YOU POSITION THE FUND DURING THE PERIOD?
A: We followed a very constant course, making only minor adjustments to the
portfolio as we determined market developments. Due to significant volatility,
we shortened the Fund's duration slightly during the last half of the year,
which served to dampen the impact of the rising interest rate environment. Very
late in the period, we increased the duration slightly to position the Fund to
take advantage of increased demand in the muni market that we feel could occur
after the first of the year.
The credit profile of the Fund remained stable during the period. At the end of
1999, 72% of the Fund's investments were rated A or higher, 20% were rated BBB,
with the remaining 8% in nonrated issues. We regularly reviewed the nonrated
bonds to make sure the issuers could meet their payments. So far as sectors were
concerned, credit quality among almost all municipals remained very strong when
compared with similarly rated corporate bonds. The one exception was in the
urban health-care industry, which was racked by lower than expected Medicare
payments.
Q: WHAT IS YOUR OUTLOOK?
A: Looking at the broader market, the consensus is that the Fed will continue to
implement short-term interest rate hikes to slow down the economy and mute the
inflation that many feel is imminent. Many market observers are calling for a
total of 0.50 to 1.00% in additional Fed rate increases by the end of 2000, with
a large portion occurring in the first part of the year. This expectation has
already been largely discounted by the marketplace.
In the California municipal market, the main factor--as is typical with all
municipals--will be supply and demand. Supply should continue to decline because
of higher market rates. The strong California economy could offset that decrease
slightly, however, as issuers seek to take advantage of full coffers, a strong
tax base and positive sentiment. On the demand side, we anticipate that
individual investors will remain attracted to the values offered by California
municipal bonds. The big question is whether decreased supply will couple with
rekindled buying by institutional investors to spark a rally and recovery in the
muni bond markets.
72
<PAGE> 73
THE MONTGOMERY FUNDS
CALIFORNIA TAX-FREE
INTERMEDIATE BOND FUND
INVESTMENTS
PORTFOLIO INVESTMENTS
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
MUNICIPAL BONDS AND NOTES - 98.7%
<S> <C>
CALIFORNIA - 96.8%
$1,000,000 Anaheim, California, Public Financing
Authority, Lease Revenue, Series C,
(FSA Insured)
6.000% due 09/01/12 ....................... $1,063,750
205,000 Benicia, California, GO, Series B,
7.000% due 08/01/04 223,963
California Educational Authority Revenue,
University of San Francisco:
370,000 3.550% due 04/01/00 ....................... 369,142
255,000 3.900% due 04/01/01 ....................... 252,450
275,000 3.600% due 04/01/02 ....................... 268,812
300,000 4.050% due 04/01/02 ....................... 294,000
285,000 3.700% due 04/01/03 ....................... 275,737
455,000 4.400% due 04/01/05 ....................... 435,662
545,000 4.800% due 04/01/09 ....................... 509,575
250,000 California Educational Authority Revenue,
University of San Francisco(MBIA Insured),
6.000% due 10/01/08 ....................... 267,500
745,000 California Educational Facilities Authority
Revenue, LA College of Chiropractic,
5.100% due 11/01/05 ....................... 738,481
200,000 California Housing Finance Agency,
Housing Revenue, Series C(MBIA Insured),
6.150% due 08/01/14 ....................... 203,250
1,000,000 California Pollution Control Financing
Authority, Revenue, San Diego Gas and
Electric, Series A,
5.900% due 06/01/14 ....................... 1,028,750
90,000 California Public Works Board High
Technology Lease Revenue, San Jose
Facilities, Series A (AMBAC Insured),
7.750% due 08/01/06 ....................... 98,100
300,000 California Public Works Board Lease
Revenue, Series A (AMBAC Insured),
6.200% due 12/01/05 ....................... 322,500
California State:
260,000 6.200% due 11/01/02 ....................... 271,700
100,000 6.750% due 04/01/04 ....................... 107,625
115,000 7.000% due 04/01/06 ....................... 127,650
200,000 7.400% due 09/01/07 ....................... 229,500
100,000 6.500% due 02/01/08 ....................... 109,125
1,000,000 6.250% due 09/01/08 ....................... 1,080,000
145,000 7.000% due 08/01/09 ....................... 165,481
800,000 7.000% due 10/01/09 ....................... 914,000
100,000 7.000% due 10/01/10 ....................... 115,000
100,000 6.250% due 09/01/12 ....................... 108,625
(FGIC Insured):
250,000 7.000% due 04/01/06 ....................... 277,812
500,000 6.500% due 02/01/08 ....................... 548,750
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
CALIFORNIA - CONTINUED
$ 265,000 California State Public Works Board Lease
Revenue Department of Corrections, Series
A (AMBAC Insured),
6.000% due 01/01/06 ........................ $280,900
75,000 California State Public Works Board
University Revenue (AMBAC Insured),
6.250% due 11/01/00 ........................ 76,438
365,000 California State Public Works Board
Various Community College Projects,
Series A (AMBAC Insured),
6.000% due 03/01/06 ........................ 387,356
495,000 California State Public Works Board, Lease
Revenue Various Community College
Projects, Series A (AMBAC Insured),
6.000% due 03/01/05 ........................ 522,225
70,000 California State Veterans Bonds, Series AL
(AMBAC Insured),
9.600% due 04/01/01 ........................ 74,288
100,000 California State, Veterans Bonds, Series AT,
9.500% due 02/01/10 ........................ 132,875
250,000 California Statewide Communities
Development Authority Revenue
Certificates of Participation
(Sutter Health System Group),
6.500% due 07/01/04 ........................ 268,437
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 ........................ 171,000
500,000 7.250% due 08/01/08 ........................ 573,750
Chino Basin, California, Regional
Financing Authority Revenue, Municipal
Water and District Sewer Systems Project
(AMBAC Insured):
500,000 7.000% due 08/01/06 ........................ 557,500
240,000 7.000% due 08/01/08 ........................ 271,200
Commerce, California, Community
Development Commission, Tax Allocation,
Merged Redevelopment Project,
Series A Refunding:
100,000 5.100% due 08/01/04 ........................ 99,000
190,000 5.200% due 08/01/05 ........................ 188,338
120,000 Commerce, California, Community
Development Commission, Tax Allocation,
Merged Redevelopment Project,
Series A Refunding,
5.500% due 08/01/09 ........................ 118,050
</TABLE>
The accompanying notes are an integral part of these financial statements.
73
<PAGE> 74
THE MONTGOMERY FUNDS
CALIFORNIA TAX-FREE
INTERMEDIATE BOND FUND
INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
MUNICIPAL BONDS AND NOTES - CONTINUED
<S> <C> <C>
CALIFORNIA - CONTINUED
$ 500,000 Contra Costa, California, Transportation
Authority, Series B,
6.000% due 03/01/07 ......................... $ 533,125
300,000 Contra Costa, California, Transportation
Authority Sales Tax Revenue, Series A
(FGIC Insured),
6.000% due 03/01/05 ......................... 317,250
300,000 Desert Hospital District, California,
Hospital Revenue, Certificates of
Participation (CGIC Insured),
6.150% due 07/01/02 ......................... 311,625
375,000 Eastern Municipal Water District,
California, Water and Sewer Revenue,
Certificates of Participation, Refunding,
Series A (FGIC Insured),
6.250% due 07/01/05 ......................... 387,656
250,000 Elsinore Valley, California, Municipal Water
District, Certificates of Participation,
Refunding Series A (FGIC Insured),
6.000% due 07/01/12 ......................... 265,937
140,000 Emeryville, California, Public Financing
Authority Housing Revenue,
5.600% due 09/01/06 ......................... 142,450
130,000 Emeryville, California, Public Financing
Authority Housing Revenue, Unrefunded,
5.600% due 09/01/06 ......................... 137,313
50,000 Estero, California, Series S-1,
7.000% due 07/01/00 ......................... 50,726
290,000 Fresno, California, Sewer Revenue, Series A
(MBIA Insured),
6.000% due 09/01/07 ......................... 310,300
La Mesa, California, Improvement Board,
Assessment District No. 98-1:
180,000 4.900% due 09/02/04 ......................... 176,625
100,000 5.500% due 09/02/11 ......................... 95,250
175,000 Lafayette, California, Elementary
School District,
6.900% due 05/15/06 ......................... 192,719
50,000 Los Angeles County Public Works, Revenue
Anticipation Notes,
4.500% due 03/01/01 ......................... 50,125
1,000,000 Los Angeles County, Building Authority,
Lease Revenue,
5.625% due 10/01/11 ......................... 1,022,500
Los Angeles Transportation Commission,
Sales Revenue, Proposition C, Second
Series, Series A:
180,000 6.200% due 07/01/04 ......................... 190,350
400,000 6.400% due 07/01/06 ......................... 432,000
200,000 Los Angles County, California Certificates
of Participation,
6.708% due 06/01/15 ......................... 209,500
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C> <C>
CALIFORNIA - CONTINUED
Mammoth, California Community
Water District:
$ 260,000 5.100% due 09/02/07 ....................... $ 250,900
255,000 5.200% due 09/02/08 ....................... 245,437
275,000 5.250% due 09/02/09 ....................... 262,625
Manteca, California, School District,
Community Facilities District No. 89-1:
170,000 5.450% due 09/01/11 ....................... 160,225
120,000 5.400% due 09/01/10 ....................... 114,600
600,000 Metropolitan Water District Southern
California Waterworks Revenue, Series C,
6.000% due 07/01/08 ....................... 641,250
200,000 Metropolitan Water District, Southern
California Waterworks Revenue,
6.000% due 07/01/21 ....................... 204,750
250,000 Ontario, California, Redevelopment
Financing Authority, Revenue Refunding
(Ontario Redevelopment Project No. 1)
(MBIA Insured),
6.550% due 08/01/06 ....................... 273,125
Piedmont, California, School District:
Series A:
75,000 8.300% due 08/01/01 ....................... 79,406
45,000 7.100% due 08/01/02 ....................... 47,756
40,000 Piedmont, California, School District:
Series C (MBIA Insured),
7.200% due 08/01/01 ....................... 41,700
200,000 Pomona, California, Unified School
District, Series A (MBIA Insured),
5.950% due 08/01/10 ....................... 212,750
Port of Redwood City, California:
170,000 4.000% due 06/01/01 ....................... 167,663
160,000 4.100% due 06/01/02 ....................... 156,200
190,000 4.350% due 06/01/04 ....................... 182,163
185,000 4.200% due 06/01/03 ....................... 178,988
200,000 4.500% due 06/01/05 ....................... 190,250
210,000 4.600% due 06/01/06 ....................... 198,188
215,000 4.700% due 06/01/07 ....................... 201,831
225,000 4.800% due 06/01/08 ....................... 209,813
Rancho, California, Water District
Financing Authority, Revenue Refunding
(FGIC Insured),
400,000 6.500% due 11/01/02 ....................... 421,500
400,000 6.500% due 11/01/05 ....................... 434,500
315,000 Redwood City, California, Multi-Family
Housing (Redwood Shores), Series B
(Mandatory Put 10/01/00),
5.200% due 10/01/08 ....................... 315,000
250,000 Riverside County, California, Special Tax
Communities Facilities District No, 84-2,
4.050% due 09/01/00 ....................... 249,412
</TABLE>
The accompanying notes are an integral part of these financial statements.
74
<PAGE> 75
THE MONTGOMERY FUNDS
CALIFORNIA TAX-FREE
INTERMEDIATE BOND FUND
INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
MUNICIPAL BONDS AND NOTES - CONTINUED
<S> <C> <C>
CALIFORNIA - CONTINUED
$1,000,000 Riverside County, California,
Transportation Commission Sales Tax
Revenue, Series A (FGIC Insured),
6.000% due 06/01/09 ......................... $1,068,750
625,000 Sacramento, California, Municipal Utilities,
Electric Revenue Refunding, Series A
(MBIA Insured),
6.250% due 08/15/10 ......................... 677,344
1,075,000 San Bernardino County, California,
Transportation Authority Sales Tax
Revenue, Series A (MBIA Insured),
6.000% due 04/01/05 ......................... 1,136,812
250,000 San Bernardino County Transportation
Authority Sales Tax Revenue, Series A
(MBIA Insured),
6.000% due 03/01/06 ......................... 265,312
175,000 San Diego County Water Authority, Water
Revenue, Certificates of Participation,
Series A,
6.000% due 05/01/01 ......................... 178,938
115,000 San Diego, California, Public Financing
Authority, Sewer Revenue (FGIC Insured),
6.000% due 05/15/07 ......................... 122,763
San Francisco City & County International
Airport Revenue, AMT Second Series:
445,000 8.000% due 05/01/06 ......................... 513,419
500,000 8.000% due 05/01/09 ......................... 578,125
240,000 San Mateo-Foster City, California, School
District (MBIA Insured),
7.750% due 08/01/06 ......................... 277,500
Santa Rosa California, Central Packaging
Service Facilities, Refunding:
100,000 4.900% due 07/02/07 ......................... 96,000
170,000 5.100% due 07/02/09 ......................... 162,350
500,000 Santa Rosa High School District
(FGIC Insured),
7.000% due 05/01/01 ......................... 516,875
Santa Rosa, California: Central Packaging
Service Facilities, Refunding:
265,000 4.200% due 07/02/00 ......................... 265,241
200,000 4.800% due 07/02/06 ......................... 192,750
South Tahoe, California, Joint Powers
Financing Authority (South Tahoe
Development Project), Series A:
95,000 4.400% due 10/01/06 ......................... 89,538
100,000 4.500% due 10/01/07 ......................... 93,750
105,000 4.625% due 10/01/08 ......................... 98,306
Torrance, California, Downtown
Redevelopment Authority:
200,000 5.100% due 09/01/09 ......................... 192,250
210,000 5.200% due 09/01/10 ......................... 201,600
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C> <C>
CALIFORNIA - CONTINUED
$ 300,000 Tulare County, California, Certificates of
Participation (MBIA Insured),
6.000% due 02/15/16 ......................... $ 322,500
Walnut Valley, California, School District,
Series A (MBIA Insured):
100,000 6.850% due 08/01/07 ......................... 111,500
700,000 7.000% due 08/01/08 ......................... 791,000
Wiseburn, California, School District,
Series A (FGIC Insured):
360,000 6.875% due 08/01/06 ......................... 398,700
395,000 6.875% due 08/01/07 ......................... 441,412
-----------
33,186,515
PUERTO RICO - 1.9%
135,000 Commonwealth of Puerto Rico,
5.700% due 07/01/09 ......................... 139,050
170,000 Commonwealth of Puerto Rico
(FSA Insured),
5.700% due 07/01/09 ......................... 177,013
350,000 Commonwealth of Puerto Rico Public
Improvement Bonds, (MBIA Insured),
5.000% due 07/01/07 ......................... 349,125
-----------
665,188
TOTAL INVESTMENTS - 98.7%
(Cost $34,257,490*) ..................................... 33,851,703
OTHER ASSETS AND LIABILITIES - 1.3%
(Net) ................................................... 441,297
-----------
NET ASSETS - 100.0% $34,293,000
===========
</TABLE>
(*) Aggregate cost for federal tax purposes.
ABBREVIATIONS:
AMBAC American Municipal Bond Assurance Corporation
AMT Alternative Minimum Tax
CGIC Capital Guaranty Insurance Corporation
FGIC Federal Guaranty Insurance Corporation
FSA Financial Security Assurance
GO General Obligation
MBIA Municipal Bond Investors Assurance
TRANS Tax and Revenue Anticipation
The Montgomery California Tax-Free Intermediate Bond Fund concentrates in
California municipal securities. Certain California constitutional amendments,
legislative measures, executive orders, administrative regulations, court
decisions and voter initiatives could result in certain adverse consequences,
including impairing the ability of certain issuers of California municipal
securities to pay principal and interest on their obligations.
75
<PAGE> 76
THE MONTGOMERY FUNDS
MONEY MARKET FUNDS
PORTFOLIO HIGHLIGHTS
(Unaudited)
PORTFOLIO MANAGEMENT
William Stevens .................. Senior Portfolio Manager
FUND PERFORMANCE
MONTGOMERY
GOVERNMENT MONEY MARKET FUND
<TABLE>
<S> <C>
Since inception (9/14/92)...... 4.56%
One year ...................... 4.87%
Five years .................... 5.15%
One-day yield ................. 5.39%
Seven-day yield ............... 5.28%
</TABLE>
LIPPER U.S. GOVERNMENT
MONEY MARKET FUNDS AVERAGE
<TABLE>
<S> <C>
Since 9/30/92 .................. 4.33%
One year ....................... 4.46%
Five years ..................... 4.92%
</TABLE>
MONTGOMERY
FEDERAL TAX-FREE MONEY FUND
<TABLE>
<S> <C>
Since inception (7/15/96)....... 3.08%
One year ....................... 2.80%
Three years .................... 3.00%
One-day yield .................. 3.27%
Seven-day yield ................ 3.27%
</TABLE>
LIPPER TAX-EXEMPT
MONEY MARKET FUNDS AVERAGE
<TABLE>
<S> <C>
Since 7/31/96................... 2.93%
One year ....................... 2.67%
</TABLE>
MONTGOMERY
CALIFORNIA TAX-FREE MONEY FUND
<TABLE>
<S> <C>
Since inception (9/30/94)....... 2.96%
One year ....................... 2.52%
Five years ..................... 2.93%
One-day yield .................. 2.42%
Seven-day yield ................ 2.96%
</TABLE>
LIPPER CALIFORNIA TAX-EXEMPT
MONEY MARKET FUNDS AVERAGE
<TABLE>
<S> <C>
Since 9/30/94 ................. 2.89%
One year ...................... 2.48%
Five years .................... 2.89%
</TABLE>
Past performance is no guarantee of future results. Yields will fluctuate. An
investment in one of our money market funds is neither insured nor guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although these Funds seek to preserve the value of your investment at $1 per
share, it is possible to lose money by investing in the Funds. A portion of
income may be subject to some state and/or local taxes, and, for certain
investors, a portion may be subject to the federal alternative minimum tax. Fund
performance presented is for Class R shares.
INVESTMENT REVIEW
Q: HOW HAVE THE FUNDS PERFORMED OVER THE PAST SIX MONTHS?
A: The Montgomery Government Money Market Fund and the Montgomery Federal
Tax-Free Money Fund both performed very well over the six-month period ended
December 31, 1999. These Funds returned 2.55% and 1.45%, respectively, compared
with their benchmarks, the Lipper U.S. Government Money Market Funds Average and
the Lipper Tax-Exempt Money Market Funds Average, which returned 2.32% and
1.41%, respectively.
Against a difficult investment environment for California municipal bonds, the
Montgomery California Tax-Free Money Fund fared less well, returning 1.27%,
versus a 1.30% return for its benchmark, the Lipper California Tax-Exempt Money
Market Funds Average.
Q: WHAT WERE THE MAIN FACTORS DRIVING THE MONEY MARKETS OVER THE PERIOD?
A: The rising interest rate environment dominated bond market activity over the
period. Having raised rates in June, the Federal Reserve Board again hiked rates
in August and November. Against a background of robust economic growth and a
tight labor market, inflation concerns and the Federal Reserve Board's reaction
to them was the prevalent theme during the six-month period.
Liquidity was another consideration. Liquidity deteriorated as dealers reduced
their positions just in case there was any instability caused by potential Y2K
computer problems. As a result, our trading activity was lighter than usual, and
this detracted from performance in the Montgomery California Tax-Free Money
Fund.
Q: WHAT CAN WE EXPECT FOR THE MONEY MARKETS IN 2000?
A: Barring a significant stock market correction, we would not be surprised to
see the Fed continue to raise rates beginning in February, given the strength of
the U.S. economy. The bond markets, however, have already priced in a
significant amount of Federal Reserve tightening, so we do not expect long-term
rates to rise commensurately. With real rates (yields adjusted for inflation) in
the United States now more than 4%, we think the U.S. bond markets represent
good value. Real yields are currently higher in the United States than they have
been in the past 15 years.
76
<PAGE> 77
THE MONTGOMERY FUNDS
GOVERNMENT
MONEY MARKET FUND
INVESTMENTS
PORTFOLIO INVESTMENTS
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
FEDERAL FARM CREDIT BANK (FFCB) - 13.4%
$ 1,000,000 4.760% due 01/18/00 .......... $ 999,526
5,840,000 5.560% due 01/18/00 .......... 5,839,137
1,500,000 6.190% due 02/03/00 .......... 1,500,442
9,385,000 Discount Note due 02/10/00 ... 9,327,491
2,500,000 5.020% due 03/01/00 .......... 2,496,525
10,516,000 5.000% due 04/03/00 .......... 10,496,136
1,000,000 6.670% due 06/26/00 .......... 1,003,385
1,710,000 5.450% due 08/02/00 .......... 1,708,101
23,000,000 5.950% due 09/01/00++ ........ 22,996,933
9,000,000 5.800% due 10/02/00 .......... 9,001,079
10,000,000 6.309% due 10/02/00++ ........ 9,996,293
-----------
75,365,048
FEDERAL HOME LOAN BANK (FHLB) - 31.9%
10,000,000 4.900% due 01/14/00 .......... 9,996,958
2,000,000 5.670% due 01/14/00 .......... 2,000,393
3,750,000 3.850% due 01/15/00++ ........ 3,747,478
20,000,000 5.893% due 01/21/00++ ........ 19,997,046
700,000 4.850% due 01/27/00 .......... 699,500
2,500,000 3.643% due 02/03/00++ ........ 2,495,018
650,000 4.790% due 02/04/00 .......... 649,356
2,000,000 5.500% due 02/09/00 .......... 1,999,266
5,000,000 4.995% due 02/24/00 .......... 4,999,708
5,635,000 5.035% due 02/25/00 .......... 5,633,854
1,000,000 5.450% due 02/25/00 .......... 999,357
10,000,000 6.163% due 02/25/00++ ........ 9,999,851
3,250,000 4.875% due 03/17/00++ ........ 3,248,647
4,000,000 4.595% due 03/22/00++ ........ 3,994,163
3,650,000 4.625% due 03/22/00++ ........ 3,645,884
22,435,000 4.495% due 03/23/00++ ........ 22,380,785
3,000,000 1.850% due 03/24/00++ ........ 2,972,925
1,000,000 5.590% due 03/27/00 .......... 1,000,290
8,750,000 5.050% due 03/29/00++ ........ 8,745,710
1,000,000 4.830% due 04/03/00 .......... 997,890
8,000,000 4.770% due 04/05/00++ ........ 7,984,538
3,000,000 4.460% due 04/12/00++ ........ 2,991,168
4,000,000 3.778% due 05/24/00++ ........ 3,965,617
8,000,000 5.260% due 05/26/00 .......... 8,000,233
1,850,000 3.471% due 06/01/00++ ........ 1,833,331
1,710,000 5.940% due 06/13/00 .......... 1,710,567
5,000,000 5.415% due 06/14/00 .......... 4,999,437
1,500,000 3.629% due 06/15/00++ ........ 1,484,331
500,000 5.540% due 07/07/00 .......... 499,052
2,500,000 5.630% due 07/10/00 .......... 2,499,352
1,000,000 5.500% due 07/14/00 .......... 998,260
7,650,000 2.980% due 07/28/00++ ........ 7,517,086
1,000,000 5.580% due 08/10/00 .......... 997,866
2,400,000 5.470% due 08/17/00 .......... 2,396,823
3,500,000 4.980% due 09/15/00 .......... 3,479,802
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
FEDERAL HOME LOAN BANK (FHLB) - CONTINUED
$ 8,500,000 6.011% due 09/29/00++......... $ 8,495,630
3,000,000 5.925% due 10/10/00........... 2,997,273
5,000,000 5.915% due 10/13/00........... 4,995,285
1,565,000 4.565% due 10/16/00........... 1,547,092
------------
179,596,822
</TABLE>
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) - 2.0%
<TABLE>
<S> <C>
8,100,000 5.000% due 03/10/00++.......... 8,098,621
557,592 7.000% due 04/01/00............ 558,107
103,347 7.000% due 05/01/00............ 103,460
498,937 6.500% due 06/01/00............ 499,499
491,964 6.500% due 07/01/00............ 491,657
534,917 6.500% due 09/01/00............ 534,750
769,970 6.000% due 10/01/00............ 766,481
562,262 6.000% due 11/01/00............ 559,231
------------
11,611,806
</TABLE>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 0.9%
<TABLE>
<S> <C>
1,000,000 5.000% due 03/03/00++.......... 998,724
458,117 7.000% due 05/01/00............ 458,054
1,336,816 6.000% due 11/01/00............ 1,328,409
2,370,696 5.500% due 12/01/00............ 2,348,471
------------
5,133,658
</TABLE>
STUDENT LOAN MARKETING ASSOCIATION (SLMA) - 12.9%
<TABLE>
<S> <C>
5,750,000 5.893% due 01/20/00++.......... 5,748,877
12,000,000 6.113% due 02/14/00++.......... 11,998,705
13,500,000 6.113% due 02/22/00++.......... 13,498,489
5,000,000 7.500% due 03/08/00............ 5,015,153
1,000,000 6.133% due 03/16/00++.......... 999,609
700,000 5.570% due 03/17/00............ 699,716
1,400,000 6.063% due 05/18/00++.......... 1,399,016
15,000,000 5.766% due 06/30/00++.......... 15,000,723
5,000,000 6.000% due 11/01/00............ 4,999,084
13,500,000 6.163% due 11/09/00++.......... 13,497,365
------------
72,856,737
</TABLE>
TENNESSEE VALLEY AUTHORITY - 0.2%
<TABLE>
<S> <C>
1,000,000 6.000% due 11/01/00 997,520
------------
TOTAL SECURITIES............................ 345,561,591
</TABLE>
The accompanying notes are an integral part of these financial statements.
77
<PAGE> 78
THE MONTGOMERY FUNDS
GOVERNMENT
MONEY MARKET FUND
INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE (NOTE 1)
<S> <C>
REPURCHASE AGREEMENTS - 37.6%
$55,000,000 Agreement with Bear Stearns, Tri-Party,
5.500% dated 12/31/99, to be repurchased
at $55,024,863 on 01/03/00, collateralized
by $57,735,896 market value of U.S.
government and mortgage-backed
securities, having various maturities and
interest rates ................................ $ 55,000,000
50,000,000 Agreement with Chase Manhattan Bank,
Tri-Party, 5.500% dated 12/31/99, to be
repurchased at $50,022,603 on 01/03/00,
collateralized by $51,002,335 market value
of U.S. government and mortgage-backed
securities, having various maturities and
interest rates ................................ 50,000,000
13,371,000 Agreement with Greenwich Capital
Markets, Tri-Party, 5.500% dated 12/31/99,
to be repurchased at $13,377,044 on
01/03/00, collateralized by $13,638,686
market value of U.S. government and
mortgage-backed securities, having various
maturities and interest rates ................. 13,371,000
45,000,000 Agreement with Merrill Lynch, Tri-Party,
6.000% dated 12/31/99, to be repurchased
at $45,022,192 on 01/19/00, collateralized by
$45,900,232 market value of U.S.
government and mortgage-backed
securities, having various maturities and
interest rates ................................ 45,000,000
48,200,000 Agreement with Paine Webber, Tri-Party,
5.500% dated 12/31/99, to be repurchased
at $48,221,789, collateralized by
$49,164,295 market value of U.S.
government and mortgage-backed
securities, having various maturities and
interest rates ................................ 48,200,000
------------
TOTAL REPURCHASE AGREEMENTS ................................ 211,571,000
------------
TOTAL INVESTMENTS - 98.9%
(At amortized cost*) ....................................... 557,132,591
OTHER ASSETS AND LIABILITIES - 1.1%
(Net) ...................................................... 5,974,129
------------
NET ASSETS - 100.0% ........................................ $563,106,720
============
</TABLE>
(*) Aggregate cost for federal tax purposes.
++ Floating-rate note reflects the rate in effect at December 31, 1999.
The accompanying notes are an integral part of these financial statements.
78
<PAGE> 79
The Montgomery Funds
FEDERAL
TAX-FREE MONEY FUND
I n v e s t m e n t s
P O R T F O L I O I N V E S T M E N T S
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C>
MUNICIPAL BONDS AND NOTES - 101.3%
ALABAMA - 0.8%
$ 500,000 Huntsville, Alabama, General
Obligation Bonds,
6.750% due 02/01/10 .................................... $ 511,310
1,300,000 Stevenson, Alabama, Industrial
Development Board, Environmental
Improvement Revenue
(Mead Corporation Project)
(LOC: First National Bank),
5.100% due 04/01/33++ .................................. 1,300,000
----------
1,811,310
ALASKA - 0.1%
250,000 Anchorage, Alaska, General Obligation
Bonds, Refunding (MBIA Insured),
5.250% due 02/01/00 .................................... 250,246
ARIZONA - 3.2%
1,650,000 Maricopa County, Arizona, Pollution
Control Corporation, PCR
(Arizona Public Service Company
Project), Refunding,
4.750% due 05/01/29++ .................................. 1,650,000
5,000,000 Maricopa County, Arizona, Pollution
Control Corporation, PCR
(Arizona Public Service Company
Project), Refunding,
4.900% due 05/01/29++ .................................. 5,000,000
500,000 Pinal County, Arizona, Industrial
Development Authority, PCR (Magna
Copper Company Project), Refunding
(LOC: Banque Nationale de Paris),
5.600% due 12/01/11++ .................................. 500,000
----------
7,150,000
CONNECTICUT - 0.1%
300,000 Connecticut State Health & Educational
Facilities Authority Revenue
(Yale University Project),
5.100% due 07/01/29++ .................................. 300,000
FLORIDA - 2.8%
300,000 Collier County, Florida, Special
Obligation Revenue Bonds, Refunding
(AMBAC Insured),
4.100% due 03/01/00 .................................... 300,000
250,000 Florida State, Board of Education Capital
Outlay, Refunding,
4.500% due 06/01/00 .................................... 250,714
4,700,000 Indian River County, Florida, Hospital
District Revenue Bonds,
Commercial Paper,
3.650% due 01/14/00 .................................... 4,700,000
1,000,000 Miami Dade County, Florida, Industrial
Development Revenue (Airis Miami LLC
Project) (AMBAC Insured),
5.800% due 10/15/25++ .................................. 1,000,000
----------
6,250,714
GEORGIA - 2.4%
2,000,000 Burke County, Georgia, Development
Authority PCR
(Georgia Power Company),
4.750% due 07/01/24++ .................................. 2,000,000
100,000 Burke County, Georgia, Development
Authority PCR (Oglethorpe Power
Corporation), Refunding
(FGIC Insured),
5.400% due 01/01/16++ .................................. 100,000
250,000 Carroll City, Georgia, County Hospital
Authority Revenue
(Tanner Medical Center),
6.750% due 07/01/00 .................................... 253,215
1,700,000 Hapeville, Georgia, Industrial
Development Revenue (Hapeville Hotel
Ltd.) (LOC: Deutsche Bank A.G.),
5.000% due 11/01/15++ .................................. 1,700,000
200,000 Roswell, Georgia, Housing Authority
Multi-family Revenue (Azalea Park
Apartments Projects), Refunding,
5.500% due 06/15/25++ .................................. 200,000
1,100,000 Roswell, Georgia, Housing Authority
Multi-family Revenue (Greenhouse
Roswell Project), Refunding,
5.500% due 08/01/30++ .................................. 1,100,000
----------
5,353,215
IDAHO - 0.9%
2,000,000 Idaho Health Facilities Authority Revenue
Bonds (LOC: Bank of Idaho),
4.900% due 10/01/10++ .................................. 2,000,000
ILLINOIS - 8.4%
500,000 Chicago, Illinois, General Obligation
Bonds (FGIC Insured),
4.800% due 01/01/00 .................................... 500,000
1,500,000 Chicago, Illinois, Metropolitan Water
Reclamation District-Greater Chicago
Capital Improvement, General
Obligation Bonds,
6.800% due 01/01/08 .................................... 1,530,000
500,000 Clinton, Illinois, Industrial Development
Revenue (Thrall Car Manufacturing
Company) (LOC: Harris Trust &
Savings Bank),
5.500% due 10/01/13++ .................................. 500,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
79
<PAGE> 80
The Montgomery Funds
FEDERAL
TAX-FREE MONEY FUND
I n v e s t m e n t s
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C>
MUNICIPAL BONDS AND NOTES - CONTINUED
ILLINOIS - CONTINUED
$ 180,000 Cook County, Illinois, School District No.
036 Winnetka, General Obligation Bonds,
5.500% due 01/01/00 $ 180,000
1,000,000 East Dundee, Illinois, Industrial
Development Revenue (Kreis Tool &
Manufacturing Company Project)
(LOC: American National Bank & Trust),
5.550% due 06/01/27++ 1,000,000
785,000 Elgin, Illinois, Economic Development
Revenue (Gibson Guitar
Corporation Project),
5.500% due 11/01/15++ 785,000
4,000,000 Illinois Development Financing Authority,
Pollution Control Revenue
(Central Illinois Public Service
Company), Refunding,
5.250% due 08/15/26++ 4,000,000
700,000 Illinois Educational Facilities Authority
Revenue (Field Museum of Natural
History) (LOC: Northern
Trust Company),
5.350% due 11/01/25++ 700,000
2,000,000 Illinois Health Facilities Authority
Revenue (Elmhurst Memorial
Hospital), Refunding,
4.800% due 01/01/20++ 2,000,000
1,600,000 Illinois Health Facilities Authority
Revenue (Northwestern
Memorial Hospital),
4.750% due 08/15/25++ 1,600,000
3,000,000 Illinois State Toll Authority, Highway
Revenue Bonds, Series B,
5.450% due 01/01/17++ 3,000,000
2,955,000 Lombard, Illinois, Multi-family Housing
Revenue (Clover Creek Apartments
Project) (LOC: Bank One Arizona N.A.),
3.550% due 12/15/06 2,955,000
-----------
18,750,000
INDIANA - 3.1%
235,000 Hamilton County, Indiana, County
Option Income Tax Revenue Bonds
(FSA Insured),
4.125% due 07/10/00 235,000
4,000,000 Indiana Health Facilities Financing
Authority Hospital Revenue (Clarian
Health Partners, Inc.), Refunding,
6.000% due 02/15/00 4,009,434
1,200,000 Indiana Health Facilities Financing
Authority Revenue Bonds,
5.500% due 08/01/06++ 1,200,000
1,150,000 Indiana State Educational Facilities
Authority Revenue (Indiana Wesleyan
University Project), Refunding
(LOC: Bank One Indiana N.A.),
5.350% due 06/01/28++ 1,150,000
250,000 Indianapolis, Indiana, Local Public
Improvement Revenue Bonds, Series A,
7.400% due 01/01/20 262,795
-----------
6,857,229
IOWA - 3.5%
100,000 Black Hawk County, Iowa, General
Obligation Bonds, Refunding,
4.250% due 06/01/00 100,000
240,000 College, Iowa, Community School
District, Linn Johnson & Benton
Counties, General Obligation
Bonds, Refunding,
4.250% due 06/01/00 240,146
100,000 Davenport, Iowa, General Obligation
Bonds, Refunding,
4.500% due 06/01/00 100,264
200,000 Iowa City, Iowa, General
Obligation Bonds,
4.375% due 06/01/00 200,342
300,000 Iowa Western Community College
Merged Area XIII, General
Obligation Bonds,
4.550% due 06/01/00 300,659
510,000 Urbandale, Iowa, General
Obligation Bonds,
4.000% due 06/01/00 510,711
6,500,000 West Des Moines, Iowa, Commercial
Development Revenue
(LOC: Morgan Guaranty Trust),
5.500% due 12/01/14++ 6,500,000
-----------
7,952,122
KANSAS - 0.3%
775,000 Sedgwick County, Kansas, General
Obligation Bonds,
4.250% due 08/01/00 777,621
KENTUCKY - 2.3%
1,000,000 Boone County, Kentucky, Industrial
Development Revenue (Square D
Company Project), Refunding
(LOC: Societe Generale),
5.350% due 03/01/03++ 1,000,000
390,000 Floyd County, Kentucky, General
Obligation Bonds, Refunding
(FSA Insured),
4.350% due 03/01/00 390,684
505,000 Kentucky State, Turnpike Authority,
Economic Development Revenue
Bonds, Prerefunded,
7.250% due 05/15/10 519,282
</TABLE>
The accompanying notes are an integral part of these financial statements.
80
<PAGE> 81
The Montgomery Funds
FEDERAL
TAX-FREE MONEY FUND
I n v e s t m e n t s
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C>
MUNICIPAL BONDS AND NOTES - CONTINUED
KENTUCKY - CONTINUED
$ 1,220,000 Louisville, Kentucky, Multi-family
Revenue (Station House Square),
Refunding (LOC: PNC Bank N.A.),
5.125% due 07/15/19 $ 1,220,000
2,000,000 Ohio County, Kentucky, PCR, Big Rivers
Electric Corporation, Revenue Bonds
(AMBAC Insured),
5.550% due 10/01/15++ 2,000,000
-----------
5,129,966
LOUISIANA - 7.1%
6,000,000 Calcasieu Parish, Inc., Louisiana,
Industrial Development Board, Industrial
Revenue (Olin Corporation Project),
Refunding (LOC: Wachovia Bank),
5.050% due 02/01/16++ 6,000,000
2,000,000 Jefferson Parish, Louisiana, Industrial
Development Board, Inc., Industrial
Revenue (Sara Lee Corporation Project),
4.850% due 06/01/24++ 2,000,000
3,000,000 Louisiana Public Facilities Authority,
Multi-family Mortgage Revenue
(River View Project),
4.950% due 07/01/07++ 3,000,000
4,500,000 Louisiana State, Offshore Term Authority,
Deepwater Port Revenue
(Loop, Inc. Project),
4.750% due 09/01/08++ 4,500,000
500,000 St. Charles Parish, Louisiana, PCR
(Shell Oil Company-Norco Project),
5.350% due 09/01/23++ 500,000
-----------
16,000,000
MAINE - 4.8%
10,750,000 Maine Health & Higher Educational
Facilities Authority Revenue (Multi-mode
Piper Shores) (LOC: Paribas),
5.600% due 01/01/29++ 10,750,000
MARYLAND - 0.9%
250,000 Baltimore County, Maryland, General
Obligation Bonds, Refunding,
5.500% due 05/01/00 251,772
175,000 Bowie, Maryland, General Obligation
Bonds, Refunding,
4.900% due 07/15/00 176,058
500,000 Community Development
Administration, Maryland, Multi-family
Development Revenue (Avalon Lea
Apartments Project), Refunding,
5.500% due 06/15/26++ 500,000
1,000,000 Montgomery County, Maryland, Housing
Opportunity Community, Multi-family
Mortgage Revenue (Falklands Project),
5.700% due 08/01/15++ 1,000,000
100,000 Prince Georges County, Maryland,
General Obligation Bonds
(MBIA Insured),
5.000% due 01/01/00 100,000
-----------
2,027,830
MASSACHUSETTS - 4.5%
625,000 Boston, Massachusetts, General
Obligation Bonds (AMBAC Insured),
7.375% due 02/01/10 639,238
250,000 Massachusetts State, General Obligation Bonds, Series A (FGIC
Insured), 7.000% due 03/01/00 251,440
4,600,000 Massachusetts State, Health and
Educational Facilities Authority Revenue
Bonds (MBIA Insured),
4.900% due 01/01/35++ 4,600,000
450,000 Massachusetts State, Health and
Educational Facilities Authority Revenue
Bonds, Refunding,
7.000% due 07/01/00 456,917
350,000 Massachusetts State, Health and
Educational Facilities Authority Revenue
Bonds, Refunding (MBIA Insured),
4.900% due 07/01/05++ 350,000
3,765,000 Massachusetts Water Resources Authority,
Commercial Paper,
3.800% due 03/10/00 3,765,000
-----------
10,062,595
MICHIGAN - 4.8%
265,000 Chippewa Valley, Michigan, Schools,
General Obligation Bonds,
8.100% due 05/01/00 268,777
725,000 Genesee County, Michigan, Building
Authority, General Obligation Bonds,
Series A,
7.200% due 05/01/03 747,098
1,400,000 Michigan State, Strategic Fund Ltd.,
Obligation Revenue (Camac LLC Project),
(LOC: NBD Bank),
5.500% due 08/01/28++ 1,400,000
5,305,000 Michigan State, Strategic Fund Ltd.,
Obligation Revenue (LOC: Barclays
Bank PLC),
5.000% due 09/01/30++ 5,305,000
500,000 Michigan State, Strategic Fund Ltd., PCR
(Consumers Power Company Project),
Refunding (AMBAC Insured),
4.900% due 04/15/18++ 500,000
2,600,000 Midland County, Michigan, Economic
Development Corporation Revenue
(Dow Chemical Company Project),
5.150% due 12/01/23++ 2,600,000
-----------
10,820,875
</TABLE>
The accompanying notes are an integral part of these financial statements.
81
<PAGE> 82
The Montgomery Funds
FEDERAL
TAX-FREE MONEY FUND
I n v e s t m e n t s
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C>
MUNICIPAL BONDS AND NOTES - CONTINUED
MISSISSIPPI - 0.1%
$ 290,000 Vicksburg Warren, Mississippi, School
District, Certificates of Participation
(MBIA Insured),
4.600% due 04/01/00 $ 290,947
MISSOURI - 6.8%
100,000 Franklin County, Missouri,
Reorganization School District No. R-013,
General Obligation Bonds, Refunding,
3.900% due 03/01/00 99,980
1,900,000 Jackson County, Missouri, Industrial
Development Authority Recreational
Facilities Revenue (YMCA Greater Kansas
Project) (LOC: UMB Bank N.A.),
4.850% due 11/01/16++ 1,900,000
4,600,000 Kansas City, Missouri, Industrial
Development Authority Revenue
(Ewing Marion Kauffman Project),
4.750% due 04/01/27++ 4,600,000
200,000 Kansas City, Missouri, School District
Building Revenue (Elementary School
Project) (FGIC Insured),
4.300% due 02/01/00 200,022
270,000 Missouri State, Development Financing
Board, Infrastructure Facilities Revenue
(Bolger Square Project), Series A
(AMBAC Insured),
5.250% due 06/01/00 271,633
1,280,000 Missouri State, Economic and Industrial
Development Revenue Bonds, Export and
Infrastructure Board, Series E,
5.950% due 09/01/10++ 1,280,000
5,000,000 Missouri State, Health and Educational
Facilities Authority, Educational Facilities
Revenue (Drury College), Refunding
(LOC: Mercantile Bank N.A.),
4.850% due 12/01/24++ 5,000,000
2,000,000 Missouri State, Health and Educational
Facilities Authority, Educational Facilities
Revenue (St. Louis University),
4.550% due 10/01/24++ 2,000,000
-----------
15,351,635
NEBRASKA - 0.2%
360,000 Douglas County, Nebraska, Zoo Facilities
Revenue (Omaha's Henry Doorly Zoo
Project), Refunding,
4.250% due 09/01/00 360,000
200,000 Omaha, Nebraska, Public Power District,
Nebraska Electric Revenue Bonds,
4.300% due 02/01/00 200,098
-----------
560,098
NEVADA - 0.8%
1,000,000 Clark County, Nevada, School District,
Refunding (MBIA Insured),
4.950% due 03/01/00 $1,002,124
400,000 Nevada State, Colorado River
Commission Revenue Bonds, Refunding,
5.500% due 07/01/00 402,995
455,000 North Las Vegas, Nevada, Water & Sewer
General Obligation (FGIC Insured),
4.800% due 08/01/00 457,961
-----------
1,863,080
NEW JERSEY - 0.8%
420,000 Burlington Township, New Jersey, General
Obligation Bonds (FGIC Insured),
4.875% due 07/15/00 422,678
1,300,000 New Jersey Economic Development
Authority, Natural Gas Facilities Revenue
(New Jersey Natural Gas Company
Project) (AMBAC Insured),
4.750% due 08/01/30++ 1,300,000
-----------
1,722,678
NEW MEXICO - 0.8%
1,000,000 Albuquerque, New Mexico, Joint Water &
Sewer System Revenue Bonds,
6.000% due 07/01/15 1,010,105
650,000 Silver City, New Mexico, Revenue Bonds,
Refunding (LOC: Lasalle National Bank),
5.550% due 11/15/10++ 650,000
-----------
1,660,105
NEW YORK - 2.2%
250,000 Hempstead Town, New York, Series C,
General Obligation Bonds,
4.800% due 02/15/00 250,447
100,000 Huntington, New York, General
Obligation Bonds (FGIC Insured),
6.700% due 02/01/00 100,209
4,100,000 New York State, Dormitory Authority
Revenue (Memorial Sloan-Kettering),
Refunding (LOC: Chase
Manhattan Bank),
4.950% due 07/01/19++ 4,100,000
350,000 New York State, Dormitory Authority
Revenue Bonds, Refunding,
5.500% due 02/15/07++ 350,000
100,000 New York State, Tollway Authority,
Highway & Bridge Trust Fund Revenue
Bonds, Series A (AMBAC Insured),
4.900% due 04/01/00 100,222
-----------
4,900,878
NORTH CAROLINA - 0.2%
400,000 Raleigh-Durham, North Carolina, Airport
Authority Special Facilities Revenue
(American Airlines, Inc.), Refunding
(LOC: Bank of America N.A.),
4.950% due 11/01/15++ 400,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
82
<PAGE> 83
The Montgomery Funds
FEDERAL
TAX-FREE MONEY FUND
I n v e s t m e n t s
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C>
MUNICIPAL BONDS AND NOTES - CONTINUED
OHIO - 3.4%
$ 3,720,000 Clermont County, Ohio, Hospital
Facilities Revenue, Series B
(Mercy Health System),
5.750% due 09/01/21++ $ 3,720,000
1,200,000 Franklin County, Ohio, Hospital Revenue
(Holy Cross Health Systems),
5.400% due 06/01/16++ 1,200,000
280,000 Franklin County, Ohio, Hospital Revenue
Bonds, Refunding,
7.600% due 05/15/20 289,289
2,500,000 Ohio State, Air Quality Development
Authority Revenue
(Cincinnati Gas & Electric),
4.750% due 09/01/30++ 2,500,000
-----------
7,709,289
OKLAHOMA - 0.1%
200,000 Tulsa County, Oklahoma, Independent
School District No. 003 Broken Arrow,
General Obligation Bonds,
4.300% due 08/01/00 200,218
OREGON - 1.5%
230,000 Lake Oswego, Oregon, General
Obligation Bonds,
4.625% due 06/01/00 230,902
220,000 Medford, Oregon, Gas Tax Revenue
(FSA Insured),
4.000% due 02/01/00 220,119
1,000,000 Multnomah County, Oregon,
School District No. 1J Portland,
General Obligation Bonds,
4.500% due 06/01/00 1,002,021
800,000 Port Morrow, Oregon,
Environmental Improvement Revenue
(Portland General Electric Company),
5.550% due 12/01/31++ 800,000
390,000 Umatilla Indian Reservation, Oregon,
Confederated Tribes, Series A,
General Obligation Bonds
(LOC: Bank of America),
4.200% due 02/01/00 390,226
700,000 Washington County, Oregon, Housing
Authority Multi-family Revenue (Cedar
Mill Project) (LOC: Bank of Nova Scotia),
5.500% due 09/01/25++ 700,000
-----------
3,343,268
PENNSYLVANIA - 3.0%
2,400,000 Emmaus, Pennsylvania,
General Authority Revenue Bonds,
5.700% due 03/01/24++ 2,400,000
2,000,000 Emmaus, Pennsylvania, General Authority
Revenue Bonds (LOC: KBC Bank N.V.),
5.650% due 03/01/24++ 2,000,000
200,000 Hampton Township, Pennsylvania,
Municipal Authority Water
Revenue Bonds,
6.850% due 05/01/12 $201,779
125,000 Johnstown, Pennsylvania, New Public
Housing Revenue Bonds,
5.125% due 11/01/00 126,204
1,900,000 Schuylkill County, Pennsylvania,
Industrial Development Authority
Reserve Recovery Revenue (Northeastern
Power Company), Refunding
(LOC: Credit Local de France),
4.750% due 12/01/22++ 1,900,000
-----------
6,627,983
SOUTH CAROLINA - 1.2%
450,000 Horry County, South Carolina School
District, Series B, General Obligation
Bonds (MBIA Insured),
6.500% due 03/01/00 452,338
1,980,000 Myrtle Beach, South Carolina,
Water & Sewer Revenue Bonds,
6.000% due 03/01/20 1,987,117
350,000 Richland County, South Carolina,
Recreation District, General
Obligation Bonds,
7.000% due 03/01/00 351,724
-----------
2,791,179
TENNESSEE - 0.9%
1,000,000 Clarksville, Tennessee, Public Building
Authority Revenue Bonds, Refunding,
4.750% due 12/01/00 1,000,000
750,000 Rutherford County, Tennessee,
Industrial Development Board
(Square D Company Project),
Refunding (LOC: Societe Generale),
5.350% due 04/01/17++ 750,000
265,000 Sullivan County, Tennessee Health
Educational & Housing Facilities Board
Revenue Bonds, Refunding
(MBIA Insured),
7.250% due 02/15/20 271,298
-----------
2,021,298
TEXAS - 6.4%
125,000 Angleton, Texas, Independent School
District, General Obligation Bonds,
6.000% due 02/15/05 125,288
110,000 Aransas County, Texas, Naval District,
General Obligation Bonds,
7.000% due 02/15/00 110,389
300,000 Austin, Texas, Independent School
District, General Obligation
Bonds, Prerefunded,
7.100% due 08/01/04 305,520
</TABLE>
The accompanying notes are an integral part of these financial statements.
83
<PAGE> 84
The Montgomery Funds
FEDERAL
TAX-FREE MONEY FUND
I n v e s t m e n t s
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C>
MUNICIPAL BONDS AND NOTES - CONTINUED
TEXAS - CONTINUED
$ 500,000 Brazos River Authority, Texas, Pollution
Control Revenue (Texas Utilities Electric
Company), Refunding (AMBAC Insured),
5.400% due 06/01/30++ .................................. $ 500,000
1,200,000 Calhoun County, Texas, Naval Industrial
Development Authority, Port Revenue
(Formosa Plastics Corporation)
(LOC: Bank of America),
5.300% due 11/01/15++ .................................. 1,200,000
2,000,000 County of Bexar, Texas, Metropolitan
Water District, Commercial Paper,
3.850% due 01/26/00 .................................... 2,000,000
320,000 Flower Mound, Texas, Waterworks &
Sewer Revenue Bonds (FSA Insured),
5.250% due 09/01/00 .................................... 322,785
200,000 Garland, Texas, Independent School
District, General Obligation Bonds,
Prerefunded (AMBAC Insured),
6.000% due 08/15/09 .................................... 202,221
250,000 Grapevine-Colleyville, Texas,
Independent School District,
General Obligation Bonds,
8.250% due 06/15/00 .................................... 254,909
1,300,000 Gulf Coast Waste Disposal Authority,
Texas, Environmental Facilities Revenue
(Amoco Oil Company
Project), Refunding,
5.350% due 01/01/26++ .................................. 1,300,000
1,100,000 Gulf Coast Waste Disposal Authority,
Texas, Revenue (Amoco Oil Company
Project), Refunding,
5.350% due 08/01/23++ .................................. 1,100,000
790,000 Harlingen, Texas, Airport Improvement
Revenue Bonds, Refunding
(AMBAC Insured),
3.450% due 02/15/00 .................................... 790,000
580,000 Harris County, Texas, Health Facilities
Development Revenue (Texas Medical
Center Project) (MBIA Insured),
7.375% due 05/15/20 .................................... 599,747
350,000 Huffman, Texas, Independent School
District, General Obligation Bonds,
7.250% due 02/15/00 .................................... 351,353
1,000,000 Mansfield, Texas, Independent School
District, General Obligation Bonds,
5.000% due 02/15/00 .................................... 1,001,414
1,000,000 North Harris, Texas, Montgomery
Community College District,
General Obligation Bonds,
5.000% due 02/15/00 .................................... 1,001,462
$100,000 North Harris, Texas, Montgomery
Community College District, General
Obligation Bonds, Refunding
(FGIC Insured),
4.800% due 08/15/00 .................................... 100,357
1,800,000 Port Arthur, Texas, Naval District Revenue
(Texaco, Inc. Project), Refunding,
4.950% due 10/01/24++ .................................. 1,800,000
100,000 Tarrant County, Texas, Hospital District,
General Obligation Bonds,
5.100% due 08/15/00 .................................... 100,539
200,000 Texas State, General Obligation Bond,
6.900% due 04/01/00 .................................... 201,452
250,000 Trinity River Authority, Texas, Revenue
(Tarrant County Water Project),
Refunding (AMBAC Insured),
4.800% due 02/01/00 .................................... 250,154
675,000 University, Texas, University
Revenue Bonds,
4.500% due 08/15/00 678,454
----------
14,296,044
UTAH - 3.5%
260,000 Davis County, Utah, School District,
General Obligation Bonds
(AMBAC Insured),
7.000% due 06/01/03 .................................... 263,513
7,000,000 Salt Lake City, Utah, Revenue Bonds,
5.650% due 01/01/20++ .................................. 7,000,000
500,000 Utah State Building Ownership Authority,
Series A (State Facilities Master
Lease Project),
5.500% due 05/15/00 .................................... 503,864
----------
7,767,377
VIRGINIA - 1.1%
250,000 Fairfax County, Virginia, Series A, General
Obligation Bonds, Refunding,
4.700% due 06/01/00 .................................... 251,413
100,000 Henrico County, Virginia, General
Obligation Bonds, Refunding,
4.500% due 01/15/00 .................................... 100,020
1,300,000 Roanoke, Virginia, Industrial
Development Authority, Hospital
Revenue Bonds,
4.800% due 07/01/27++ .................................. 1,300,000
815,000 Virginia State, Series B, General
Obligation Bonds, Refunding,
4.200% due 06/01/00 .................................... 817,949
----------
2,469,382
WASHINGTON - 8.8%
200,000 Island County, Washington, School
District No. 201 Oak Harbor, General
Obligation Bonds, Refunding,
3.950% due 12/01/00 .................................... 199,376
</TABLE>
The accompanying notes are an integral part of these financial statements.
84
<PAGE> 85
The Montgomery Funds
Federal
Tax-Free Money Fund
I n v e s t m e n t s
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C>
MUNICIPAL BONDS AND NOTES - CONTINUED
WASHINGTON - CONTINUED
$ 380,000 Kitsap County, Washington, General
Obligation Bonds, Series B, Refunding
(AMBAC Insured),
4.250% due 07/01/00 $ 381,096
1,000,000 Port Seattle, Washington, Industrial
Development Corporation Revenue
(Sysco Food Services Project), Refunding,
5.650% due 11/01/25++ 1,000,000
450,000 Richland, Washington, Water and Sewer
Revenue Bonds, Refunding
(AMBAC Insured),
4.000% due 04/01/00 450,649
5,000,000 Seattle, Washington, Municipality
Metropolitan Seattle Sewer
Revenue, Prerefunded,
6.875% due 01/01/31 5,096,000
320,000 Washington State, Certificates of
Participation, Series A,
3.250% due 01/01/00 320,000
200,000 Washington State, General Obligation
Bonds, Series R-94A,
4.500% due 08/01/00 200,328
1,600,000 Washington State, Housing Finance
Community, Elderly Housing Revenue
(Riverview Retirement Project)
(LOC: U.S. Bank N.A.),
5.550% due 07/01/22++ 1,600,000
2,200,000 Washington State, Housing Finance
Community, Multi-family Mortgage
Revenue (Canyon Lakes II Project)
(LOC: U.S. Bank of Washington),
6.000% due 10/01/19++ 2,200,000
2,225,000 Washington State, Housing Finance
Community, Multi-family Mortgage
Revenue (Winterhill Apartments Project)
(FSA Insured),
5.550% due 07/01/28++ 2,225,000
2,000,000 Washington State, Housing Finance
Community, Nonprofit Housing Revenue
(Emerald Heights Project)
(LOC: U.S. Bank N.A.),
4.850% due 01/01/21++ 2,000,000
1,875,000 Washington State, Housing Finance
Community, Nonprofit Housing Revenue
(Nikkei Concerns Projects)
(LOC: U.S. Bank N.A.),
5.500% due 10/01/19++ 1,875,000
500,000 Washington State, Public Power Supply
System Nuclear Project No. 2 Revenue
Bonds, Refunding,
4.375% due 07/01/00 501,139
1,740,000 Washington State, Public Power Supply
System Nuclear Project No. 3 Revenue
Bonds, Refunding,
7.250% due 07/01/15 1,774,800
-----------
19,823,388
WEST VIRGINIA - 1.7%
2,500,000 Pleasants County, West Virginia,
Pollution Control Revenue
(American Cyanamid Company Project),
5.650% due 12/01/20++ 2,500,000
900,000 West Virginia School Building Authority
Revenue (MBIA Insured),
6.750% due 07/01/10 929,236
340,000 West Virginia State Parkways
Development & Tourism Authority
Revenue Bonds, Refunding
(FGIC Insured),
4.800% due 05/15/00 340,330
-----------
3,769,566
WISCONSIN - 7.0%
200,000 Ashwaubenon, Wisconsin, General
Obligation Bonds,
4.300% due 03/01/00 200,067
1,200,000 Carlton, Wisconsin, Pollution Control
Revenue (Wisconsin Power & Light
Company Project),
5.600% due 08/01/15++ 1,200,000
200,000 Green Bay, Wisconsin, Area Public School
District, General Obligation Bonds,
6.500% due 04/01/00 201,266
100,000 Janesville, Wisconsin, General
Obligation Bonds,
4.000% due 02/01/00 99,922
500,000 Milwaukee, Wisconsin, General
Obligation Bonds,
6.700% due 06/15/01 506,296
5,000,000 Milwaukee, Wisconsin, Industrial
Development Revenue
(Sellars Absorbent Materials Project)
(LOC: Firstar Bank Milwaukee),
5.650% due 09/01/19++ 5,000,000
2,000,000 Monona Grove, Wisconsin,
School District Notes,
4.500% due 08/01/00 2,001,081
200,000 Sheboygan, Wisconsin, Area School
District, General Obligation Notes,
3.900% due 04/01/00 200,000
250,000 Sheboygan, Wisconsin, General
Obligation Bonds, Series A,
4.000% due 10/01/00 250,178
</TABLE>
The accompanying notes are an integral part of these financial statements.
85
<PAGE> 86
The Montgomery Funds
FEDERAL
TAX-FREE MONEY FUND
I n v e s t m e n t s
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C>
MUNICIPAL BONDS AND NOTES - CONTINUED
WISCONSIN - CONTINUED
$ 6,000,000 Wisconsin State Health & Educational
Facilities Authority Revenue
(Aurora Health Care, Inc.)
(LOC: First National Bank of Chicago),
5.125% due 02/15/29++ $ 5,999,280
-------------
15,658,090
WYOMING - 0.8%
700,000 Gillette, Wyoming, Environmental
Improvement Revenue (Black Hills Power
& Light Corporation Project),
5.600% due 06/01/24++ 700,000
1,050,000 Lincoln County, Wyoming, Pollution
Control Revenue (Exxon Project),
5.050% due 07/01/17++ 1,050,000
-------------
1,750,000
TOTAL INVESTMENTS - 101.3%
(At amortized cost*) 227,220,226
OTHER ASSETS AND LIABILITIES - (1.3)%
(Net) (2,833,380)
--------------
NET ASSETS - 100.0% $ 224,386,846
=============
</TABLE>
(*) Aggregate cost for federal tax purposes.
++ Floating-rate note reflects the rate in effect at December 31, 1999.
Abbreviations:
AMBAC American Municipal Bond Assurance Corporation
FGIC Federal Guaranty Insurance Corporation
FSA Financial Security Assurance
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance
PCR Pollution Control Revenue
The accompanying notes are an integral part of these financial statements.
86
<PAGE> 87
THE MONTGOMERY FUNDS
CALIFORNIA
TAX-FREE MONEY FUND
I N V E S T M E N T S
P O R T F O L I O I N V E S T M E N T S
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
MUNICIPAL BONDS AND
NOTES - 89.3%
CALIFORNIA - 84.8%
<S> <C> <C>
$ 3,400,000 Abag, California, Financing Authority
Revenue, Nonprofit Corporation,
Certificates of Participation,
Series C, Refunding,
4.550% due 10/01/27++ ...................................... $ 3,400,000
1,000,000 Anaheim, California, Certificates of
Participation (AMBAC Insured),
7.125% due 05/15/13 ........................................ 1,034,202
2,300,000 Anaheim, California, Unified High School
Districts, Certificates of Participation
(FSA Insured)
5.000% due 09/01/29++ ...................................... 2,300,000
1,200,000 Anaheim, California, Unified School
District, Certificates of Participation,
4.100% due 09/01/13++ ...................................... 1,200,000
250,000 Atascadero, California, Unified School
District, Certificates of Participation,
7.200% due 08/01/11 ........................................ 259,935
2,000,000 Azusa, California, Multi-Family
Housing Revenue,
5.150% due 07/15/15++ ...................................... 2,000,000
260,000 Belmont, California, Redevelopment
Agency Tax Allocation (AMBAC Insured),
4.375% due 08/01/00 ........................................ 261,137
5,000,000 California Educational Facilities Authority,
3.400% due 01/14/00++ ...................................... 5,000,000
500,000 California Educational Facilities Authority,
5.150% due 07/01/26++ ...................................... 500,000
1,105,000 California Educational Facilities Authority,
6.200% due 01/01/02++ ...................................... 1,127,097
2,000,000 California Educational Facilities Authority
Revenue, Pepperdine University, Series B,
4.900% due 11/01/29 ........................................ 2,000,000
335,000 California Educational Facilities Authority
Revenue, Pomona College,
2.900% due 01/01/00 ........................................ 335,000
1,500,000 California Health Facilities Financing
Authorities Revenue, Pomona Valley,
7.000% due 01/01/18 ........................................ 1,522,500
600,000 California Health Facilities Financing
Authority Revenue,
7.500% due 05/01/20 ........................................ 620,598
4,700,000 California Health Facilities Financing
Authority Revenue (MBIA Insured),
5.260% due 08/15/28 ........................................ 4,700,000
$12,950,000 California Health Facilities
Financing Authority Revenue,
Memorial Health Services,
5.050% due 10/01/24++ ...................................... $12,950,000
800,000 California Pollution Control
Financing Authority,
4.400% due 11/01/26++ ...................................... 800,000
2,000,000 California Pollution Control
Financing Authority,
4.450% due 02/01/16++ ...................................... 2,000,000
4,000,000 California Schools Cash
Reserve Authority, Series A,
4.000% due 07/03/00 ........................................ 4,017,547
100,000 California State,
5.600% due 09/01/00 ........................................ 101,362
690,000 California State,
5.900% due 02/01/00 ........................................ 691,489
250,000 California State,
9.600% due 04/01/00 ........................................ 253,643
250,000 California State (FGIC Insured),
6.600% due 10/01/00 ........................................ 255,188
400,000 California State Department of Water
Resources, Central Valley Project Revenue,
Series H,
6.900% due 12/01/11 ........................................ 414,296
380,000 California State Department of Water
Resources, Central Valley Project
Revenue, Series I,
6.600% due 12/01/19 ........................................ 390,928
6,000,000 California State Economic Development
Financing Authority Revenue,
4.000% due 04/01/08++ ...................................... 6,000,000
250,000 California State Public Works Board
Energy Efficiency Revenue, Series B
(AMBAC Insured),
4.200% due 03/01/00 ........................................ 250,485
1,865,000 California State Public Works
Board Leasing Revenue,
7.000% due 09/01/15 ........................................ 1,944,417
365,000 California State, University
Trust Certificates,
6.450% due 06/01/02 ........................................ 379,391
5,500,000 California Statewide Communities
Development Authority Revenue, Series A,
4.000% due 06/30/00 ........................................ 5,521,047
3,000,000 California Statewide Communities
Development Authority,
Certificates of Participation,
4.000% due 09/29/00 ........................................ 3,001,423
</TABLE>
The accompanying notes are an integral part of these financial statements.
87
<PAGE> 88
THE MONTGOMERY FUNDS
CALIFORNIA
TAX-FREE MONEY FUND
I N V E S T M E N T S
<TABLE>
<CAPTION>
<S> <C> <C>
Principal Amount Value (Note 1)
MUNICIPAL BONDS AND
NOTES - CONTINUED
CALIFORNIA - CONTINUED
$ 500,000 California Statewide Communities
Development Authority,
Certificates of Participation,
4.100% due 07/01/00 ........................................... $ 500,959
8,800,000 California Statewide Community
Development Authority, Certificate of
Participation (FSA Insured),
5.260% due 12/01/15++ ......................................... 8,800,000
4,675,000 California, Pollution Control
Financing Authority,
4.400% due 11/01/26 ........................................... 4,675,000
100,000 Capinteria, California Sanitation District
Capital Facilities Revenue (FGIC Insured),
7.500% due 07/01/00 ........................................... 101,892
3,300,000 Central Valley, California Schools
Finance Authority,
3.500% due 01/27/00 ........................................... 3,300,906
2,300,000 Central Unified School District, TRANS,
4.250% due 12/20/00 ........................................... 2,309,637
1,000,000 Conejo Valley, California
Unified School District,
4.500% due 08/01/00 ........................................... 1,005,377
2,500,000 Contra Costa County, California Board of Education,
TRANS, 3.750%
due 06/30/00 .................................................. 2,507,786
1,000,000 Contra Costa County,
Water District Revenue,
6.875% due 10/01/20 ........................................... 1,040,677
1,100,000 Covina, California, Redevelopment Agency,
Multi-Family Revenue,
5.150% due 12/01/15++ ......................................... 1,100,000
450,000 Davis California Joint Unified School
Districts Yolo & Solano Counties, TRANS,
3.250% due 04/04/00 ........................................... 450,164
75,000 East Bay Municipal Utility District,
Series M, 7.500% due 03/01/00 ................................. 75,483
4,000,000 East Bay, California,
Municipal Utility District,
3.200% due 03/08/00 ........................................... 4,000,000
250,000 East Bay, California, Municipal Utility
District, Water System Revenue
(FGIC Insured),
6.000% due 06/01/00 ........................................... 252,829
2,000,000 Foothill, California, Transportation Zone
Certificates of Participation, TRANS,
5.050% due 11/01/00 ........................................... 2,020,211
550,000 Fresno, California, Unified School District
Certificates of Participation,
6.600% due 05/01/07 ........................................... 566,423
$ 2,545,000 Golden Empire Schools Finance Authority,
Var-Kern High School District, Series A,
4.950% due 12/01/24++ ......................................... $ 2,545,000
1,000,000 Health Facilities Financing Authority,
4.250% due 09/01/28 ........................................... 1,000,000
725,000 Imperial County, California, Certificates of
Participation (MBIA Insured),
3.500% due 02/15/00 ........................................... 725,462
255,000 Indio, California, Public
Financing Authority Revenue,
6.850% due 08/15/01 ........................................... 264,845
275,000 Indio, California, Public
Financing Authority Revenue,
6.950% due 08/15/02 ........................................... 285,611
1,000,000 Irvine California Improvement Bonds,
Act of 1915,
4.200% due 09/02/22++ ......................................... 1,000,000
1,000,000 Irvine California Improvement Bonds,
Act of 1915,
4.200% due 09/02/23++ ......................................... 1,000,000
400,000 Kaweah Delta Healthcare District,
California Revenue,
Series A (MBIA Insured),
3.100% due 06/01/00 ........................................... 400,000
1,800,000 Kern County, California Board of
Education, Tax Revenue,
4.000% due 06/30/00 ........................................... 1,801,644
1,000,000 Kern County, California,
Certificates of Participation,
5.000% due 08/01/06++ ......................................... 1,000,000
2,400,000 Kern County, California, Certificates of
Participation, 5.000% due
08/01/06 ...................................................... 2,400,000
1,100,000 Kern County, California,
Certificates of Participation,
5.000% due 08/01/06++ ......................................... 1,100,000
200,000 Kern County, California, High School
District (MBIA Insured),
5.900% due 08/01/00 ........................................... 202,036
2,705,000 Kern County, California, High School
District (MBIA Insured),
5.260% due 02/01/13++ ......................................... 2,705,000
250,000 Long Beach, California, Harbor Revenue,
7.150% due 05/15/00 ........................................... 253,796
8,000,000 Long Beach, California,
Health Facilities Revenue,
5.050% due 10/01/16++ ......................................... 8,000,000
2,000,000 Los Angeles County, California Schools
Pooled Financing Program,
Certificates of Participation, Series A,
4.000% due 06/30/00 ........................................... 2,008,479
</TABLE>
The accompanying notes are an integral part of these financial statements.
88
<PAGE> 89
THE MONTGOMERY FUNDS
CALIFORNIA
TAX-FREE MONEY FUND
I N V E S T M E N T S
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C> <C>
MUNICIPAL BONDS AND
NOTES-CONTINUED
CALIFORNIA - CONTINUED
$1,080,000 Los Angeles County, California,
Certificates of Participation,
7.000% due 03/01/02 .................................... $1,109,269
250,000 Los Angeles County, California,
Commercial Transportation,
Certificates of Participation,
5.900% due 07/01/00 .................................... 252,306
300,000 Los Angeles County, California, Schools
Regionalized Business Services, Series A
(FSA Insured),
3.850% due 06/01/00 .................................... 300,865
1,000,000 Los Angeles, California Department of
Water & Power Electricity Plant Revenue,
9.000% due 09/01/00 .................................... 1,034,240
2,000,000 Los Angeles, California Wastewater
System Revenue,
3.150% due 02/18/00 .................................... 2,000,000
200,000 Los Angeles, California Wastewater
System Revenue (AMBAC Insured),
5.500% due 06/01/00 .................................... 201,305
2,045,000 Los Angeles, California Wastewater
System Revenue (MBIA Insured),
6.600% due 02/01/00 .................................... 2,050,249
1,990,000 Los Angeles, California, Community
Redevelopment Agency,
4.300% due 04/01/09++ .................................. 1,990,000
200,000 Los Angeles, California, Departments of
Airport Revenue,
4.250% due 05/15/00 .................................... 200,662
715,000 Los Angeles, California, State Building
Authority Lease Revenue,
4.000% due 10/01/00 .................................... 717,595
5,000,000 Los Angeles, California, Wastewater
System Revenue,
3.600% due 02/04/00 .................................... 5,000,000
4,025,000 Los Angeles, California, Wastewater
System Revenue,
7.150% due 06/01/20 .................................... 4,165,922
5,250,000 Los Angeles, California, Wastewater
System Revenue (MBIA Insured),
3.600% due 01/13/00 .................................... 5,250,000
3,500,000 Los Angeles, California,
Water & Power Authority,
3.550% due 03/10/00 .................................... 3,500,000
4,200,000 Metropolitan Water District, Southern
California Waterworks Revenue, Series C,
3.400% due 01/26/00 .................................... 4,200,000
3,500,000 Metropolitan Water District, Southern
California Waterworks Revenue, Series C,
3.600% due 01/14/00 .................................... 3,500,000
$5,000,000 Metropolitan Water District, Southern
California Waterworks Revenue, Series C,
Morgan Guaranty Trust, NY
3.600% due 07/01/27 .................................... $5,000,000
2,140,000 Modesto, California Irrigation District,
Certificate of Participation,
(AMBAC Insured),
4.250% due 07/01/00 .................................... 2,145,605
7,800,000 Modesto, California Irrigation District,
Certificate of Participation
(AMBAC Insured),
3.300% due 03/10/00 .................................... 7,800,000
5,500,000 Modesto, California Irrigation District,
Certificate of Participation
(AMBAC Insured),
3.700% due 02/11/00 .................................... 5,500,000
1,200,000 Newport Beach, California, Memorial
Hospital Revenue, Series B,
4.400% due 10/01/26++ .................................. 1,200,000
500,000 Northern California Transmission Revenue,
Oregon Transit Project, Series A
(MBIA Insured),
7.000% due 05/01/00 .................................... 505,599
500,000 Northern California, Power Agency,
Northwest Revenue (MBIA Insured),
4.200% due 06/01/00 .................................... 501,374
300,000 Northern California, Transmission
Revenue, Oregon Transportation Project,
Series A (MBIA Insured),
7.000% due 05/01/10 .................................... 307,305
3,700,000 Oakland, California, Tax & Revenue
Anticipation Notes,
4.250% due 09/29/00 .................................... 3,722,447
5,800,000 Ontario California Industrial Development
Authority,
4.750% due 04/01/15++ .................................. 5,800,000
1,300,000 Orange County California
Apartment Development Revenue,
Harbor Point, Issue D,
4.900% due 12/01/06++ .................................. 1,300,000
750,000 Orange County Local Transportation
Authority, Sales Tax Revenue,
5.400% due 02/15/00 .................................... 752,314
1,080,000 Orange County, California, Sanitation
District Certificates of Participation
(AMBAC Insured),
4.200% due 08/01/16++ .................................. 1,080,000
1,600,000 Orange County, California
Improvement Bonds,
4.250% due 09/02/18++ .................................. 1,600,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
89
<PAGE> 90
THE MONTGOMERY FUNDS
CALIFORNIA
TAX-FREE MONEY FUND
I N V E S T M E N T S
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C> <C>
MUNICIPAL BONDS AND
NOTES - CONTINUED
CALIFORNIA -
CONTINUED
$ 1,000,000 Orange County, California, Apartment
Development Revenue,
3.400% due 12/01/06++ .................................... $ 1,000,000
2,500,000 Orange County, California, Recovery,
Certificates of Participation
(MBIA Insured),
5.260% due 07/01/19++ .................................... 2,500,000
1,000,000 Orange County, California, Sanitation
District, Certificates of Participation,
Series C (FGIC Insured),
4.250% due 08/01/17++ .................................... 1,000,000
2,500,000 Orange County, California, Special
Financing Authority, Teeter Plan Revenue,
Series B (AMBAC Insured),
5.000% due 11/01/14++ .................................... 2,500,000
2,500,000 Orange County, California, Special
Financing Authority Teeter Plan Revenue
(AMBAC Insured),
4.250% due 11/01/14++ .................................... 2,500,000
500,000 Orange County, California, Transportation
Authority Sales, TRANS,
3.900% due 02/15/00 ...................................... 500,125
250,000 Orange County, California, Transportation
Authority Sales Tax and Revenue
(FGIC Insured),
4.200% due 02/15/00 ...................................... 250,155
2,780,000 Orange County, California, Transportation
Authority Sales Tax and Revenue
(MBIA Insured),
5.400% due 02/15/00 ...................................... 2,786,382
1,600,000 Orange County, California, Recovery,
Certificates of Participation
(MBIA Insured),
5.260% due 07/01/19 ...................................... 1,600,000
2,175,000 Orange County, California, Water District
Project, Series B,
3.550% due 01/24/00 ...................................... 2,175,000
410,000 Palmdale, California, Elementary School
District (FSA Insured),
3.700% due 08/01/00 ...................................... 410,000
3,470,000 Pittsburgh, California,
Mortgage Obligation,
5.350% due 12/30/31++ .................................... 3,470,000
4,800,000 Rancho, California, Water District
Financing Authority Revenue
(FGIC Insured),
5.000% due 08/15/29++ .................................... 4,800,000
660,000 RE Badger, Water Facilities Financing
Authority, California Waterworks Revenue
(FGIC Insured),
4.500% due 10/01/00 ...................................... 664,075
$ 3,250,000 Riverside County, Teeter
Financing Program,
3.500% due 01/26/00 ...................................... $ 3,250,000
1,500,000 Sacramento County, California, Housing
Authority Multi-Family Housing Revenue
(MBIA Insured),
6.500% due 06/01/15 ...................................... 1,548,399
250,000 San Bernardino County, California,
Transportation Authority Sales Tax
Refunding Revenue Bonds, Series A
(MBIA Insured),
5.000% due 03/01/00 ...................................... 250,480
5,000,000 San Diego, California TRANS,
3.550% due 01/12/00 ...................................... 5,000,000
1,070,000 San Francisco California, City and County
Financial Corporate Lease Revenue,
Emergency Radio,
3.700% due 04/01/00 ...................................... 1,071,870
3,975,000 San Francisco, California Bay Area, Rapid
Transit District Sales Revenue
(AMBAC Insured),
6.750% due 07/01/09 ...................................... 4,113,667
250,000 San Francisco, California Bay Area, Rapid
Transit District Sales Revenue
(FGIC Insured),
6.100% due 07/01/00 ...................................... 253,186
500,000 San Francisco, California, Bay Area Rapid
Transit District Sales Tax Revenue,
6.700% due 07/01/00 ...................................... 508,527
375,000 San Francisco, California, City & County,
City Hall Improvement Project, Series A
(FGIC Insured),
6.100% due 06/15/00 ...................................... 380,011
250,000 San Leandro, California, Unified School
District (FGIC Insured),
6.000% due 08/01/00 ...................................... 253,389
300,000 Santa Barbara County, California,
Local Transit Authority Sales Revenue
(FGIC Insured),
4.300% due 04/01/00 ...................................... 300,862
500,000 Santa Monica, California, Community
College District, Certificates of
Participation (AMBAC Insured),
3.200% due 06/01/00 ...................................... 500,143
400,000 Sonoma County, California, Water &
Wastewater Financing Authority
(FSA Insured),
4.000% due 08/01/00 ...................................... 400,916
1,000,000 Sonoma County, TRANS,
3.500% due 02/01/00 ...................................... 1,000,529
</TABLE>
The accompanying notes are an integral part of these financial statements.
90
<PAGE> 91
THE MONTGOMERY FUNDS
CALIFORNIA
TAX-FREE MONEY FUND
I N V E S T M E N T S
<TABLE>
<CAPTION>
Principal Amount Value (Note 1)
<S> <C> <C>
MUNICPAL BONDS AND
NOTES - CONTINUED
CALIFORNIA -
CONTINUED
$ 4,594,000 Southeast Reserve Recovery Facilities
Authority, California Lease Revenue,
5.000% due 12/01/18 ........................................ $ 4,594,000
500,000 Southern California, Public Power
Authority, Power Project Revenue,
6.000% due 07/01/18 ........................................ 505,550
1,835,000 Southern California, Rapid Transit District
California, Certificates of Participation
(MBIA Insured),
7.625% due 07/01/00 ........................................ 1,873,112
1,000,000 Stockton, California Community
Facilities District,
7.750% due 08/01/15 ........................................ 1,040,791
510,000 Tri-City California Hospital District Revenue,
Series B (MBIA
Insured), 5.500% due 02/15/00 .............................. 511,540
2,300,000 Union City, California
Multi-Family Housing Revenue,
4.000% due 07/15/29++ ...................................... 2,300,000
5,000,000 University of California, Revenue Series
(AMBAC Insured),
3.500% due 01/20/00 ........................................ 5,000,000
3,000,000 Ventura County, California, TRANS,
4.000% due 07/06/00 ........................................ 3,003,268
650,000 West Basin California, Municipal Water
District, Certificates of Participation
(AMBAC Insured),
6.600% due 08/01/03 ........................................ 674,366
165,000 West Basin, California, Municipal Water
District, Certificate of Participation,
7.000% due 08/01/11 ........................................ 171,028
765,000 West Basin, California, Municipal Water
District, Certificate of Participation
(AMBAC Insured),
6.850% due 08/01/16 ........................................ 793,426
900,000 Western Riverside County, California
Regional Wastewater Authority Revenue,
4.200% due 04/01/28++ ...................................... 900,000
5,550,000 Yuba County, California, TRANS,
3.750% due 02/10/00 ........................................ 5,553,800
PUERTO RICO - 4.5%
400,000 Puerto Rico, Electric Power Authority,
Revenue (MBIA Insured),
6.000% due 07/01/00 ........................................ 404,402
1,910,000 Puerto Rico GDB,
3.250% due 02/18/00 ........................................ 1,910,000
1,000,000 Puerto Rico GDB,
3.300% due 02/18/00 ........................................ 1,000,000
3,350,000 Puerto Rico GDB,
3.400% due 02/18/00 ........................................ 3,350,000
$ 7,500,000 Puerto Rico GDB,
3.450% due 01/21/00 ........................................ $ 7,500,000
------------
14,164,402
TOTAL INVESTMENTS - 89.3%
(At amortized cost*) ....................................... 283,390,958
OTHER ASSETS AND LIABILITIES - 10.7%
(Net) ...................................................... 34,072,386
------------
NET ASSETS - 100.0% ........................................ $317,463,344
============
</TABLE>
(*) Aggregate cost for federal tax purposes.
++ Floating-rate note reflects the rate in effect at December 31, 1999.
Abbreviations:
AMBAC American Municipal Bond Assurance Corporation
FGIC Federal Guaranty Insurance Corporation
FSA Financial Security Assurance
GO General Obligation
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance
TRANS Tax and Revenue Anticipation
The Montgomery California Tax-Free Money Fund concentrates in California
municipal securities. Certain California constitutional amendments, legislative
measures, executive orders, administrative regulations, court decisions and
voter initiatives could result in certain adverse consequences, including
impairing the ability of certain issuers of California municipal securities to
pay principal and interest on their obligations.
The accompanying notes are an integral part of these financial statements.
91
<PAGE> 92
THE MONTGOMERY FUNDS
STATEMENTS OF
ASSETS AND LIABILITIES
D E C E M B E R 3 1 , 1 9 9 9
(Unaudited)
<TABLE>
<CAPTION>
GROWTH
ASSETS: FUND
- ---------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (note 1)
Securities ..................................................... $557,314,174
Repurchase agreements .......................................... 8,870,000
Cash .............................................................. --
Foreign currency, at value (Cost $130,398, $268,831 and $436,434,
respectively) .................................................... --
Receivables:
Dividends ...................................................... 1,135,237
Interest ....................................................... 3,495
Expenses absorbed by Manager ................................... --
Shares of beneficial interest sold ............................. 164,369
Investment securities sold ..................................... 6,436,958
Other assets ...................................................... 4,657
------------
Total Assets ...................................................... 573,928,890
------------
LIABILITIES:
- ---------------------------------------------------------------------------------------
Payables:
Shares of beneficial interest redeemed ......................... 742,201
Investment securities purchased ................................ 181,001
Management fees ................................................ 134,153
Administration fees ............................................ 32,133
Share marketing plan fees (note 3) (Class P shares only) ....... 716
Custodian fees ................................................. 56,279
Dividends ...................................................... --
Trustees' fees and expenses .................................... 4,914
Accounting fees ................................................ 23,875
Cash overdrafts payable to custodian ........................... 150,436
Transfer agency and servicing fees ............................. 398,409
Other accrued liabilities and expenses ......................... 197,296
------------
Total Liabilities ................................................. 1,921,413
============
Net Assets ........................................................ $572,007,477
------------
Investments at identified cost .................................... $418,503,174
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------
Undistributed net investment income/(distributions in excess of net
investment income/accumulated net investment loss) ............... $ 457,570
Accumulated net realized gain ..................................... 56,435,832
Net unrealized appreciation ....................................... 147,681,000
Shares of beneficial interest ..................................... 266,551
Additional paid-in capital ........................................ 367,166,524
------------
Net Assets ........................................................ $572,007,477
NET ASSETS:
- ---------------------------------------------------------------------------------------
Class R shares ................................................. $571,849,647
Class P shares ................................................. 157,830
------------
Net Assets ........................................................ $572,007,477
Class R shares outstanding ..................................... 26,648,849
Class P shares outstanding ..................................... 7,288
Class R shares: Net asset value, offering and redemption price per
share outstanding ................................................ $ 21.46
------------
Class P shares: Net asset value, offering and redemption price per
share outstanding ................................................ $ 21.66
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
92
<PAGE> 93
<TABLE>
<CAPTION>
U.S. EMERGING EQUITY INTERNATIONAL
GROWTH SMALL CAP INCOME GROWTH
FUND FUND FUND(*) FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments in securities, at value (note 1)
Securities ................................ $ 296,042,046 $ 161,408,806 $ 16,414,052 $ 254,887,606
Repurchase agreements ..................... -- 3,520,000 433,000 5,114,000
Cash ......................................... -- -- -- 544,511
Foreign currency, at value (Cost $130,398,
$268,831 and $436,434, respectively) ........ -- -- -- 129,498
Receivables:
Dividends ................................. 35,010 7,740 21,335 168,664
Interest .................................. 522 689 103 2,128
Expenses absorbed by Manager .............. 712,870 -- 197,858 --
Shares of beneficial interest sold ........ 88,408 61,686 6,562 962,899
Investment securities sold ................ 12,262,523 -- 794,436 --
Other assets ................................. 5,527 196 2,359 6,695
------------- ------------- ------------- -------------
Total Assets ................................. 309,146,906 164,999,117 17,869,705 261,816,001
------------- ------------- ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payables:
Shares of beneficial interest redeemed .... 654,505 148,223 96,799 249,062
Investment securities purchased ........... 6,227,146 148,500 -- 686,627
Management fees ........................... 533,750 65,676 212,168 7,264
Administration fees ....................... 14,977 13,049 1,036 14,818
Share marketing plan fees (note 3) (Class P -- 37,310 6,810 5,758
shares only) .............................
Custodian fees ............................ 9,781 -- 15,479 28,449
Dividends ................................. 2,788 -- -- --
Trustees' fees and expenses ............... 2,524 1,168 1,062 2,439
Accounting fees ........................... 7,602 1,881 453 10,588
Cash overdrafts payable to custodian ...... 550,883 9,513 288,388 --
Transfer agency and servicing fees ........ 165,942 4,981 13,068 36,429
Other accrued liabilities and expenses .... 89,111 17,737 22,610 71,246
------------- ------------- ------------- -------------
Total Liabilities ............................ 8,259,009 448,038 657,873 1,112,680
------------- ------------- ------------- -------------
Net Assets ................................... $ 300,887,897 $ 164,551,079 $ 17,211,832 $ 260,703,321
------------- ------------- ------------- -------------
Investments at identified cost $ 179,435,895 $ 95,199,637 $ 15,024,656 $ 209,787,774
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Undistributed net investment income/
(distributions in excess of net investment
income/accumulated net investment loss) .... $ (1,729,969) $ (736,924) $ (574) $ (1,395,006)
Accumulated net realized gain ................ 40,301,685 14,636,473 1,296,020 15,220,862
Net unrealized appreciation .................. 116,606,151 69,729,169 1,822,396 50,210,379
Shares of beneficial interest ................ 138,945 70,239 11,597 111,282
Additional paid-in capital ................... 145,571,085 80,852,122 14,082,393 196,555,804
------------- ------------- ------------- -------------
Net Assets ................................... $ 300,887,897 $ 164,551,079 $ 17,211,832 $ 260,703,321
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Class R shares ............................ $ 300,887,897 $ 136,876,333 $ 14,068,493 $ 255,733,134
Class P shares ............................ N/A 27,674,746 3,143,339 4,970,187
------------- ------------- ------------- -------------
Net Assets ................................... $ 300,887,897 $ 164,551,079 $ 17,211,832 $ 260,703,321
Class R shares outstanding ................ 13,894,481 5,828,314 947,628 10,915,468
Class P shares outstanding ................ N/A 1,195,629 212,114 212,734
Class R shares: Net asset value, offering
and redemption price per share outstanding .. $ 21.66 $ 23.48 $ 14.85 $ 23.43
------------- ------------- ------------- -------------
Class P shares: Net asset value, offering
and redemption price per share outstanding .. N/A $ 23.15 $ 14.82 $ 23.36
------------- ------------- ------------- -------------
</TABLE>
*Closed to new investors.
93
<PAGE> 94
<TABLE>
<CAPTION>
INTERNATIONAL GLOBAL
SMALL CAP OPPORTUNITIES
FUND(*) FUND
------- ----
<S> <C> <C>
Investments in securities, at value (note 1)
Securities ................................ $ 31,481,440 $ 89,362,828
Repurchase agreements ..................... 171,000 --
Cash ......................................... -- --
Foreign currency, at value (Cost $130,398,
$268,831 and $436,434, respectively) ........ 269,315 440,864
Receivables:
Dividends ................................. 37,570 53,762
Interest .................................. 27 361
Expenses absorbed by Manager .............. 233,531 238,005
Shares of beneficial interest sold ........ 222,696 117,395
Investment securities sold ................ 526,406 1,915,276
Other assets ................................. 4,618 2,041
------------- -------------
Total Assets ................................. 32,946,603 92,130,532
------------- -------------
- --------------------------------------------------------------------------------------
LIABILITIES:
Payables:
Shares of beneficial interest redeemed ....
Investment securities purchased ........... 8,752 23,720
Management fees ........................... -- 646,382
Administration fees ....................... 252,708 231,636
Share marketing plan fees (note 3) (Class P 3,839 4,792
shares only) ............................. 38 --
Custodian fees ............................
Dividends ................................. 33,825 49,581
Trustees' fees and expenses ............... -- --
Accounting fees ........................... 1,106 633
Cash overdrafts payable to custodian ...... 974 --
Transfer agency and servicing fees ........ 827,041 816,871
29,363 24,780
Other accrued liabilities and expenses .... 30,244 31,429
------------- -------------
Total Liabilities ............................ 1,187,890 1,829,824
------------- -------------
Net Assets ................................... $ 31,758,713 $ 90,300,708
Investments at identified cost ------------- -------------
$ 30,445,823 $ 64,564,406
- --------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Undistributed net investment income/
(distributions in excess of net investment
income/accumulated net investment loss) .... $ (340,228) $ (380,152)
Accumulated net realized gain ................ 1,048,270 6,982,700
Net unrealized appreciation .................. 1,209,505 24,800,103
Shares of beneficial interest ................ 21,548 36,602
Additional paid-in capital ................... 29,819,618 58,861,455
------------- -------------
Net Assets ................................... $ 31,758,713 $ 90,300,708
- --------------------------------------------------------------------------------------
NET ASSETS:
Class R shares ............................ $ 31,755,760 $ 90,300,708
Class P shares ............................ 2,953 N/A
Net Assets ................................... $ 31,758,713 $ 90,300,708
Class R shares outstanding ................ 2,154,607 3,660,151
Class P shares outstanding ................ 202 N/A
Class R shares: Net asset value, offering
and redemption price per share outstanding .. $ 14.74 $ 24.67
------------- -------------
Class P shares: Net asset value, offering
and redemption price per share outstanding .. $ 14.65 N/A
------------- -------------
</TABLE>
*Closed to new investors.
93
<PAGE> 95
THE MONTGOMERY FUNDS
STATEMENTS OF
ASSETS AND LIABILITIES
D e c e m b e r 3 1 , 1 9 9 9
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
GLOBAL
COMMUNICATIONS
ASSETS: FUND
- -----------------------------------------------------------------------------------------
Investments in securities, at value (note 1)
Securities ..................................................... $ 575,839,463
Repurchase agreements .......................................... 23,235,000
Cash .............................................................. 5,882,158
Foreign currency, at value (Cost $6,876,902, $468,441, $5,442,159
and $6,515,672, respectively) .................................... --
Receivables:
Dividends ...................................................... 265,787
Interest ....................................................... 6,312
Variation margin on futures contracts .......................... --
Expenses absorbed by Manager ................................... --
Shares of beneficial interest sold ............................. 2,591,425
Investment securities sold ..................................... 79,513
Short sales .................................................... --
Deferred organization costs (note 1) ........................... --
Other assets ...................................................... 1,835
-------------
Total Assets ...................................................... 607,901,493
-------------
LIABILITIES:
- -----------------------------------------------------------------------------------------
Short sales (proceeds $124,983,837) (note 1) ...................... --
Payables:
Notes payable (note 4) ......................................... --
Deferred fee income on dollar roll transactions ................ --
Shares of beneficial interest redeemed ......................... 1,526,345
Investment securities purchased ................................ 7,321,311
Management fees ................................................ 39,785
Administration fees ............................................ 30,248
Share marketing plan fees (note 3) (Class P shares only) ....... --
Custodian fees ................................................. 86,150
Dividends ...................................................... --
Trustees' fees and expenses .................................... 3,403
Accounting fees ................................................ 10,444
Cash overdrafts payable to custodian ........................... --
Transfer agency and servicing fees ............................. 122,529
Other accrued liabilities and expenses ......................... 90,553
-------------
Total Liabilities ................................................. 9,230,768
-------------
Net Assets ........................................................ $ 598,670,725
-------------
Investments at identified cost .................................... $ 377,234,031
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------------
Undistributed net investment income/(distributions in excess of net
investment income/accumulated net investment loss) ............... $ (1,949,252)
Accumulated net realized gain/(loss) .............................. 61,009,123
Net unrealized appreciation/(depreciation) ........................ 221,837,691
Shares of beneficial interest ..................................... 162,443
Additional paid-in capital ........................................ 317,610,720
-------------
Net Assets ........................................................ $ 598,670,725
NET ASSETS:
- -----------------------------------------------------------------------------------------
Class B shares ................................................. $ N/A
Class C shares ................................................. N/A
Class R shares ................................................. 598,670,725
Class P shares ................................................. N/A
-------------
Net Assets ........................................................ $ 598,670,725
Class B shares outstanding ..................................... N/A
Class C shares outstanding ..................................... N/A
Class R shares outstanding ..................................... 16,244,304
Class P shares outstanding ..................................... N/A
Class B shares: Net asset value, offering and redemption price
per share outstanding ............................................ N/A
Class C shares: Net asset value, offering and redemption price
per share outstanding ............................................ N/A
-------------
Class R shares: Net asset value, offering and redemption price
per share outstanding ............................................ $ 36.85
-------------
Class P shares: Net asset value, offering and redemption price
per share outstanding ............................................ N/A
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
94
<PAGE> 96
<TABLE>
<CAPTION>
GLOBAL
EMERGING EMERGING LONG-SHORT SELECT 50
MARKETS FUND ASIA FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value (note 1)
Securities .............................................. $ 365,586,523 $ 45,544,266 $554,004,803 $136,702,604
Repurchase agreements ................................... 34,000 244,000 -- 578,000
Cash ....................................................... 1,251,639 1,001 122,996,616 --
Foreign currency, at value (Cost $6,876,902, $468,441, ..... 6,913,144 468,441 5,570,347 6,604,938
$5,442,159 and $6,515,672, respectively)
Receivable
Dividends ............................................... 1,372,504 51,632 271,800 185,798
Interest ................................................ 5,755 -- 137 4,751
Variation margin on futures contracts ................... -- -- -- --
Expenses absorbed by Manager ............................ 1,072,571 456,409 -- 65,062
Shares of beneficial interest sold ...................... 1,026,871 174,905 1,245,212 103,923
Investment securities sold .............................. 1,407,165 -- 5,355,428 2,676,276
Short sales ............................................. -- -- 4,792,228 --
Deferred organization costs (note 1) .................... -- 6,286 -- 1,467
Other assets ............................................... -- 2,205 -- 2,843
------------- ------------ ------------ ------------
Total Assets ............................................... 378,670,172 46,949,145 694,236,571 146,925,662
------------- ------------ ------------ ------------
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Short sales (proceeds $124,983,837) (note 1) ............... -- -- 131,186,337 --
Payables:
Notes payable (note 4) .................................. 5,600,000 3,900,000 65,000,000 --
Deferred fee income on dollar roll transactions ......... -- -- -- --
Shares of beneficial interest redeemed .................. 1,732,167 89,870 384,761 78,646
Investment securities purchased ......................... 351,951 23,428 2,375,401 3,556,375
Management fees ......................................... 1,069,631 396,863 117,424 135,985
Administration fees ..................................... 19,456 2,508 -- 13,810
Share marketing plan fees (note 3) (Class P shares only) 769 -- 41,744 133
Custodian fees .......................................... 390,906 2,741 -- 77,288
Dividends ............................................... -- 4,294 84,995 --
Trustees' fees and expenses ............................. 1,636 845 -- 1,280
Accounting fees ......................................... 12,267 334 -- 1,377
Cash overdrafts payable to custodian .................... -- -- -- 1,731,173
Transfer agency and servicing fees ...................... 248,845 24,831 -- 75,234
Other accrued liabilities and expenses .................. 192,985 22,477 550,494 81,222
------------- ------------ ------------ ------------
Total Liabilities .......................................... 9,620,613 4,468,191 199,741,156 5,752,523
------------- ------------ ------------ ------------
Net Assets ................................................. $ 369,049,559 $ 42,480,954 $494,495,415 $141,173,139
------------- ------------ ------------ ------------
Investments at identified cost ............................. $ 250,611,494 $ 35,942,154 $361,818,136 $100,650,155
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Undistributed net investment income/(distributions in excess
of net investment income/accumulated net investment loss) . $ (9,394,698) $ (3,574,896) $ (3,305,966) $ (2,276,692)
Accumulated net realized gain/(loss) ....................... (361,734,478) (12,244,324) 29,806,748 15,543,552
Net unrealized appreciation/(depreciation) ................. 115,020,591 9,846,704 186,225,669 36,718,720
Shares of beneficial interest .............................. 283,375 36,353 159,426 57,878
Additional paid-in capital ................................. 624,874,769 48,417,117 281,609,538 91,129,681
------------- ------------ ------------ ------------
Net Assets ................................................. $ 369,049,559 $ 42,480,954 $494,495,415 $141,173,139
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Class B shares .......................................... $ N/A $ N/A $ 27,638,918 $ N/A
Class C shares .......................................... N/A N/A 11,485,967 N/A
Class R shares .......................................... 368,135,455 42,480,954 455,370,530 141,145,948
Class P shares .......................................... 914,104 N/A N/A 27,191
------------- ------------ ------------ ------------
Net Assets ................................................. $ 369,049,559 $ 42,480,954 $494,495,415 $141,173,139
Class B shares outstanding .............................. N/A N/A 907,426 N/A
Class C shares outstanding .............................. N/A N/A 407,311 N/A
Class R shares outstanding .............................. 28,265,661 3,635,293 14,627,864 5,786,630
Class P shares outstanding .............................. 71,808 N/A N/A 1,138
Class B shares: Net asset value, offering and redemption
price per share outstanding ............................... N/A N/A $ 30.46 N/A
------------- ------------ ------------ ------------
Class C shares: Net asset value, offering and redemption
price per share outstanding ............................... N/A N/A $ 28.20 N/A
------------- ------------ ------------ ------------
Class R shares: Net asset value, offering and redemption
price per share outstanding ............................... $ 13.02 $ 11.69 $ 31.13 $ 24.39
------------- ------------ ------------ ------------
Class P shares: Net asset value, offering and redemption
price per share outstanding ............................... $ 12.73 N/A N/A $ 23.89
------------- ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
BALANCED TOTAL RETURN
FUND(*) BOND FUND
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments in securities, at value (note 1)
Securities .............................................. $ 68,941,322 $ 35,154,497
Repurchase agreements ................................... -- --
Cash ....................................................... 43,166 --
Foreign currency, at value (Cost $6,876,902, $468,441, ..... -- --
$5,442,159 and $6,515,672, respectively)
Receivable
Dividends ............................................... -- --
Interest ................................................ 7 499,136
Variation margin on futures contracts ................... -- 1,331
Expenses absorbed by Manager ............................ 553,908 93,585
Shares of beneficial interest sold ...................... 23,953 3,643
Investment securities sold .............................. 106,401 1,996,514
Short sales ............................................. -- --
Deferred organization costs (note 1) .................... 717 4,197
Other assets ............................................... -- 64,672
------------- -------------
Total Assets ............................................... 69,669,474 37,817,575
------------- -------------
- -----------------------------------------------------------------------------------------------
LIABILITIES:
Short sales (proceeds $124,983,837) (note 1) ............... -- --
Payables:
Notes payable (note 4) .................................. -- --
Deferred fee income on dollar roll transactions ......... -- 1,904
Shares of beneficial interest redeemed .................. 124,227 59,760
Investment securities purchased ......................... 43,166 4,724,187
Management fees ......................................... -- 147,655
Administration fees ..................................... -- 1,379
Share marketing plan fees (note 3) (Class P shares only) 683 --
Custodian fees .......................................... 4,467 7,185
Dividends ............................................... -- --
Trustees' fees and expenses ............................. 4,749 748
Accounting fees ......................................... 600 --
Cash overdrafts payable to custodian .................... -- 1,524,880
Transfer agency and servicing fees ...................... 201,943 1,302
Other accrued liabilities and expenses .................. 54,124 47,680
------------- -------------
Total Liabilities .......................................... 433,959 6,516,680
------------- -------------
Net Assets ................................................. $ 69,235,515 $ 31,300,895
------------- -------------
Investments at identified cost ............................. $ 69,221,400 $ 36,069,618
- -----------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Undistributed net investment income/(distributions in excess
of net investment income/accumulated net investment loss) . $ 6,680,602 $ 27,261
Accumulated net realized gain/(loss) ....................... (4,983,353) (381,164)
Net unrealized appreciation/(depreciation) ................. (280,078) (915,121)
Shares of beneficial interest .............................. 42,542 27,894
Additional paid-in capital ................................. 67,775,802 32,542,025
------------- -------------
Net Assets ................................................. $ 69,235,515 $ 31,300,895
- -----------------------------------------------------------------------------------------------
NET ASSETS:
Class B shares .......................................... $N/A $ N/A
Class C shares .......................................... N/A N/A
Class R shares .......................................... 69,178,369 31,300,895
Class P shares .......................................... 57,146 N/A
------------- -------------
Net Assets ................................................. $ 69,235,515 $ 31,300,895
Class B shares outstanding .............................. N/A N/A
Class C shares outstanding .............................. N/A N/A
Class R shares outstanding .............................. 4,250,701 2,789,386
Class P shares outstanding .............................. 3,517 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 ............................... $ 16.27 $ 11.22
------------- -------------
Class P shares: Net asset value, offering and redemption
price per share outstanding ............................... $ 16.25 N/A
------------- -------------
</TABLE>
(*)Formerly named Montgomery U.S. Asset Allocation Fund.
95
<PAGE> 97
THE MONTGOMERY FUNDS
STATEMENTS OF
ASSETS AND LIABILITIES
D e c e m b e r 3 1 , 1 9 9 9
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
SHORT DURATION
GOVERNMENT
ASSETS: BOND FUND
- ----------------------------------------------------------------------------------
Investments in securities, at value (note 1)
Securities ................................................. $ 177,033,006
Repurchase agreements ...................................... 907,000
Cash .......................................................... --
Receivables:
Interest ................................................... 1,782,943
Expenses absorbed by Manager ............................... 653,433
Shares of beneficial interest sold ......................... 708,363
Investment securities sold ................................. 3,466,082
Other assets .................................................. 2,950
-------------
Total Assets .................................................. 184,553,777
-------------
LIABILITIES:
- ----------------------------------------------------------------------------------
Payables:
Deferred fee income on dollar roll transactions ............ 5,026
Shares of beneficial interest redeemed ..................... 296,854
Investment securities purchased ............................ 12,362,687
Management fees ............................................ 782,804
Administration fees ........................................ 13,150
Share marketing plan fees (note 3) (Class P shares only) ... 9,603
Custodian fees ............................................. 6,389
Dividends .................................................. 102,922
Trustees' fees and expenses ................................ 747
Accounting fees ............................................ 5,835
Cash overdrafts payable to custodian ....................... 726,777
Transfer agency and servicing fees ......................... 2,103
Other accrued liabilities and expenses ..................... 34,637
-------------
Total Liabilities ............................................. 14,349,534
-------------
Net Assets .................................................... $ 170,204,243
-------------
Investments at identified cost ................................ $ 179,999,903
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------
Undistributed net investment income/(distributions in excess of
net investment income/accumulated net investment loss) ....... $ (198,521)
Accumulated net realized gain/(loss) .......................... (1,768,659)
Net unrealized depreciation ................................... (2,059,897)
Shares of beneficial interest ................................. 171,743
Additional paid-in capital .................................... 174,059,577
-------------
Net Assets .................................................... $ 170,204,243
NET ASSETS:
- ----------------------------------------------------------------------------------
Class R shares ............................................. $ 166,445,267
Class P shares ............................................. 3,758,976
Net Assets .................................................... $ 170,204,243
Class R shares outstanding ................................. 16,796,846
Class P shares outstanding ................................. 377,460
Class R shares: Net asset value, offering and redemption price
per share outstanding ........................................ $ 9.91
-------------
Class P shares: Net asset value, offering and redemption price
per share outstanding ........................................ $ 9.96
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
96
<PAGE> 98
<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE GOVERNMENT FEDERAL CALIFORNIA
INTERMEDIATE MONEY MARKET TAX-FREE TAX-FREE
BOND FUND FUND MONEY FUND MONEY FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value (note 1)
Securities .............................................. $ 33,851,703 $ 345,561,591 $ 227,220,226 $ 283,390,958
Repurchase agreements ................................... -- 211,571,000 -- --
Cash ....................................................... 552,888 -- -- --
Receivables:
Interest ................................................ 596,161 3,968,528 1,606,792 2,515,903
Expenses absorbed by Manager ............................ 145,034 -- -- --
Shares of beneficial interest sold ...................... 37,521 2,314,522 16,380 1,820,913
Investment securities sold .............................. -- -- -- 34,677,354
Other assets ............................................... 2,387 -- 2,443 41,467
------------- ------------- ------------- -------------
Total Assets ............................................... 35,185,694 563,415,641 228,845,841 322,446,595
------------- ------------- ------------- -------------
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payables:
Deferred fee income on dollar roll transactions ......... -- -- -- --
Shares of beneficial interest redeemed .................. 118,211 -- -- 27,923
Investment securities purchased ......................... 536,790 -- 342,506 310,922
Management fees ......................................... 191,449 22,618 161,563 178,448
Administration fees ..................................... 1,509 20,790 8,943 15,192
Share marketing plan fees (note 3) (Class P shares only) -- 108 -- --
Custodian fees .......................................... 884 24,512 760 1,887
Dividends ............................................... 5,442 9,627 242 --
Trustees' fees and expenses ............................. 569 5,299 2,821 1,055
Accounting fees ......................................... 958 43,137 1,357 2,932
Cash overdrafts payable to custodian .................... -- 9,409 3,903,329 4,407,351
Transfer agency and servicing fees ...................... 3,070 29,030 6,829 1,358
Other accrued liabilities and expenses .................. 33,812 144,391 30,645 36,183
------------- ------------- ------------- -------------
Total Liabilities .......................................... 892,694 308,921 4,458,995 4,983,251
------------- ------------- ------------- -------------
Net Assets ................................................. $ 34,293,000 $ 563,106,720 $ 224,386,846 $ 317,463,344
------------- ------------- ------------- -------------
Investments at identified cost ............................. $ 34,257,490 $ 557,132,591 $ 227,220,226 $ 283,390,958
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Undistributed net investment income/(distributions in excess
of net investment income/accumulated net investment loss) . $ (79,767) $ 4,448 $ (416) $ 296
Accumulated net realized gain/(loss) ....................... (145,593) 2,561 (21,238) (10,018)
Net unrealized depreciation ................................ (405,787) -- -- --
Shares of beneficial interest .............................. 27,630 5,630,973 2,244,126 3,174,736
Additional paid-in capital ................................. 34,896,517 557,468,738 222,164,374 314,298,330
------------- ------------- ------------- -------------
Net Assets ................................................. $ 34,293,000 $ 563,106,720 $ 224,386,846 $ 317,463,344
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Class R shares .......................................... $ 34,293,000 $ 560,020,154 $ 224,386,846 $ 317,463,344
Class P shares .......................................... N/A 3,086,566 N/A N/A
------------- ------------- ------------- -------------
Net Assets ................................................. $ 34,293,000 $ 563,106,720 $ 224,386,846 $ 317,463,344
Class R shares outstanding .............................. 2,763,019 560,010,705 224,412,602 317,473,602
Class P shares outstanding .............................. N/A 3,086,565 N/A N/A
Class R shares: Net asset value, offering and redemption
price per share outstanding ............................... $ 12.41 $ 1.00 $ 1.00 $ 1.00
------------- ------------- ------------- -------------
Class P shares: Net asset value, offering and redemption
price per share outstanding ............................... N/A $ 1.00 N/A N/A
------------- ------------- ------------- -------------
</TABLE>
97
<PAGE> 99
THE MONTGOMERY FUNDS
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
U.S. EMERGING
GROWTH GROWTH SMALL CAP
NET INVESTMENT INCOME: FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest ...................................................... $ 1,063,255 $ 113,586 $ 79,742
Dividends (net of foreign withholding taxes) .................. 3,670,209 434,962 52,258
Securities lending income (note 4) ............................ 39,497 39,946 21,286
------------ ------------ ------------
Total Income .................................................. 4,772,961 588,494 153,286
------------ ------------ ------------
EXPENSES:
Custodian fee ................................................. 43,703 16,978 12,877
Transfer agency and servicing fees ............................ 658,614 439,443 52,565
Management fee (note 2) ....................................... 2,929,757 2,073,082 654,623
Administration fee (note 2) ................................... 203,694 104,836 45,824
Share marketing plan fee (note 3) (Class P shares only) ....... 209 -- 27,329
Legal and audit fees .......................................... 54,905 27,434 22,258
Trustees' fees ................................................ 10,821 5,544 2,083
Registration fees ............................................. 39,918 13,025 12,048
Accounting fees ............................................... 145,086 81,856 29,521
Printing fees ................................................. 161,209 90,797 20,232
Amortization of organization expenses (note 1) ................ -- 614 --
Other ......................................................... 47,035 21,995 5,857
Tax expense ................................................... 19,627 10,920 4,103
Interest expense .............................................. -- 11,504 890
------------ ------------ ------------
Total Expenses ................................................ 4,314,578 2,898,028 890,210
Fees deferred and/or expenses absorbed by Manager (note 2) .... -- (579,565) --
------------ ------------ ------------
Net Expenses .................................................. 4,314,578 2,318,463 890,210
------------ ------------ ------------
NET INVESTMENT INCOME/(LOSS) .................................. 458,383 (1,729,969) (736,924)
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Securities transactions ................................... 21,236,892 51,181,664 21,513,662
Foreign-currency transactions and other assets ............ -- -- --
------------ ------------ ------------
Net Realized Gain on Investments .............................. 21,236,892 51,181,664 21,513,662
Net change in unrealized appreciation/(depreciation) of:
Securities ................................................ (14,886,826) 6,871,475 28,877,002
Forward foreign-currency exchange contracts ............... -- -- --
Futures contracts ......................................... -- -- --
Foreign-currency transactions and other assets ............ -- -- --
------------ ------------ ------------
Net Unrealized Appreciation/(Depreciation) of Investments ..... (14,886,826) 6,871,475 28,877,002
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS ........ 6,350,066 58,053,139 50,390,664
------------ ------------ ------------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 6,808,449 $ 56,323,170 $ 49,653,740
------------ ------------ ------------
Foreign withholding taxes ..................................... $ -- $ -- $ --
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
98
<PAGE> 100
<TABLE>
<CAPTION>
EQUITY INTERNATIONAL INTERNATIONAL GLOBAL
INCOME GROWTH SMALL CAP OPPORTUNITIES
FUND(*) FUND FUND(*) FUND
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
INVESTMENT INCOME:
Interest ...................................................... $ 20,102 $ 108,520 $ 51,124 $ 43,174
Dividends (net of foreign withholding taxes) .................. 193,163 985,471 126,577 198,495
Securities lending income (note 4) ............................ 791 24,124 2,958 6,153
----------- ----------- ---------- -----------
Total Income .................................................. 214,056 1,118,115 180,659 247,822
----------- ----------- ---------- -----------
EXPENSES:
Custodian fee ................................................. 2,957 67,328 32,226 37,326
Transfer agency and servicing fees ............................ 34,568 268,298 43,753 66,506
Management fee (note 2) ....................................... 65,782 1,377,872 397,962 634,162
Administration fee (note 2) ................................... 7,675 77,473 12,048 22,779
Share marketing plan fee (note 3) (Class P shares only) ....... 3,902 3,889 -- --
Legal and audit fees .......................................... 12,842 23,116 18,253 18,165
Trustees' fees ................................................ 501 3,332 942 834
Registration fees ............................................. 15,934 44,144 13,826 16,694
Accounting fees ............................................... 8,465 49,315 12,404 13,261
Printing fees ................................................. 7,711 57,661 4,960 15,255
Amortization of organization expenses (note 1) ................ 1,213 818 -- --
Other ......................................................... 2,671 10,004 3,543 5,658
Tax expense ................................................... 772 6,921 2,293 2,033
Interest expense .............................................. 1,314 73,229 923 20,801
----------- ----------- ---------- -----------
Total Expenses ................................................ 166,307 2,063,400 543,133 853,474
Fees deferred and/or expenses absorbed by Manager (note 2) .... (67,975) (157,030) (215,142) (214,206)
----------- ----------- ---------- -----------
Net Expenses .................................................. 98,332 1,906,370 327,991 639,268
----------- ----------- ---------- -----------
NET INVESTMENT INCOME/(LOSS) .................................. 115,724 (788,255) (147,332) (391,446)
----------- ----------- ---------- -----------
- --------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) from:
Securities transactions ................................... 1,856,823 15,828,698 2,227,261 7,918,143
Foreign-currency transactions and other assets ............ -- (3,270,823) (127,294) (508,866)
----------- ----------- ---------- -----------
Net Realized Gain on Investments .............................. 1,856,823 12,557,875 2,099,967 7,409,277
Net change in unrealized appreciation/(depreciation) of:
Securities ................................................ (3,983,247) 42,563,422 (958,930) 16,522,352
Forward foreign-currency exchange contracts ............... -- 98,326 2,156 11,021
Futures contracts ......................................... -- -- -- --
Foreign-currency transactions and other assets ............ -- 3,744 9,806 189
----------- ----------- ---------- -----------
Net Unrealized Appreciation/(Depreciation) of Investments ..... (3,983,247) 42,665,492 (946,968) 16,533,562
----------- ----------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS ........ (2,126,424) 55,223,367 1,152,999 23,942,839
----------- ----------- ---------- -----------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(2,010,700) $54,435,112 $1,005,667 $23,551,393
----------- ----------- ---------- -----------
Foreign withholding taxes ..................................... $ -- $ 123,524 $ 17,652 $ 19,483
----------- ----------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
GLOBAL
COMMUNICATIONS EMERGING EMERGING
FUND MARKETS FUND ASIA FUND
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INVESTMENT INCOME:
INVESTMENT INCOME:
Interest ...................................................... $ 508,935 $ 80,011 $ 32,864
Dividends (net of foreign withholding taxes) .................. 488,184 1,999,092 197,682
Securities lending income (note 4) ............................ 36,786 -- --
------------ ----------- -----------
Total Income .................................................. 1,033,905 2,079,103 230,546
------------ ----------- -----------
EXPENSES:
Custodian fee ................................................. 85,251 461,440 44,068
Transfer agency and servicing fees ............................ 282,292 533,860 58,659
Management fee (note 2) ....................................... 2,315,716 2,309,709 525,596
Administration fee (note 2) ................................... 132,659 108,437 16,614
Share marketing plan fee (note 3) (Class P shares only) ....... -- 863 --
Legal and audit fees .......................................... 27,755 39,482 19,657
Trustees' fees ................................................ 5,258 4,603 572
Registration fees ............................................. 12,036 22,131 15,456
Accounting fees ............................................... 71,224 72,112 10,121
Printing fees ................................................. 70,426 110,177 16,995
Amortization of organization expenses (note 1) ................ -- -- 1,262
Other ......................................................... 16,186 41,278 3,886
Tax expense ................................................... 17,016 40,744 2,728
Interest expense .............................................. 2,245 206,375 6,970
------------ ----------- -----------
Total Expenses ................................................ 3,038,064 3,951,211 722,584
Fees deferred and/or expenses absorbed by Manager (note 2) .... -- (677,867) (264,712)
------------ ----------- -----------
Net Expenses .................................................. 3,038,064 3,273,344 457,872
------------ ----------- -----------
NET INVESTMENT INCOME/(LOSS) .................................. (2,004,159) (1,194,241) (227,326)
------------ ----------- -----------
- ----------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) from:
Securities transactions ................................... 84,322,392 4,199,030 683,850
Foreign-currency transactions and other assets ............ (2,637,960) (1,238,225) (162,344)
------------ ----------- -----------
Net Realized Gain on Investments .............................. 81,684,432 2,960,805 521,506
Net change in unrealized appreciation/(depreciation) of:
Securities ................................................ 146,415,638 79,024,099 (2,358,382)
Forward foreign-currency exchange contracts ............... 55,417 213,154 2,678
Futures contracts ......................................... -- -- 2,816
Foreign-currency transactions and other assets ............ 38,881 -- --
------------ ----------- -----------
Net Unrealized Appreciation/(Depreciation) of Investments ..... 146,509,936 79,237,253 (2,352,888)
------------ ----------- -----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS ........ 228,194,368 82,198,058 (1,831,382)
------------ ----------- -----------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $226,190,209 $81,003,817 $(2,058,708)
------------ ----------- -----------
Foreign withholding taxes ..................................... $ 44,163 $ 24,313 $ 20,186
------------ ----------- -----------
</TABLE>
(*)Closed to new investors.
99
<PAGE> 101
THE MONTGOMERY FUNDS
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
GLOBAL
LONG-SHORT SELECT 50 BALANCED
NET INVESTMENT INCOME: FUND FUND FUND(*)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest ................................................... $ 1,633,111 $ 60,984 $ 53
Dividends (net of foreign withholding taxes) ............... 842,077 518,503 7,131,461
------------- ------------- -------------
Total Income ............................................... 2,475,188 579,487 7,131,514
------------- ------------- -------------
EXPENSES:
Custodian fee .............................................. 54,683 64,896 2,731
Transfer agency and servicing fees ......................... 113,980 176,837 105,501
Management fee (note 2) .................................... 2,539,907 788,906 --
Administration fee (note 2) ................................ 107,834 44,179 --
Dividend expense ........................................... 196,186 -- --
Share marketing plan fee
Class P shares (note 3) .................................. -- 42 69
Class B shares ........................................... 76,179 -- --
Class C shares ........................................... 30,814 -- --
Legal and audit fees ....................................... 49,326 16,278 7,496
Trustees' fees ............................................. 6,195 2,140 4,705
Registration fees .......................................... 62,523 17,533 14,606
Accounting expenses ........................................ 42,699 35,427 21,086
Printing fees .............................................. 28,837 45,101 26,080
Amortization of organization expenses (note 1) ............. 2,347 733 --
Shareholder servicing fees (note 4) ........................ 365,868 -- --
Other ...................................................... 312,441 6,495 39,273
Tax expense ................................................ 92,806 920,452 2,451
Interest expense ........................................... 1,538,034 9,557 --
------------- ------------- -------------
Total Expenses ............................................. 5,620,659 2,128,576 223,998
Fees deferred and/or expenses absorbed by Manager (note 2) . -- (65,059) (190,820)
------------- ------------- -------------
Net Expenses ............................................... 5,620,659 2,063,517 33,178
------------- ------------- -------------
NET INVESTMENT INCOME/(LOSS) ............................... (3,145,471) (1,484,030) 7,098,336
------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Securities transactions ................................ 46,466,086 18,874,279 (1,984,071)
Securities sold short .................................. (2,638,534) -- --
Futures contracts, written options and purchased options 85,859 -- --
Foreign-currency transactions and other assets ......... (1,500,224) (204,089) --
------------- ------------- -------------
Net Realized Gain/(Loss) on Investments .................... 42,413,187 18,670,190 (1,984,071)
Net change in unrealized appreciation/(depreciation) of:
Securities ............................................. 154,437,658 11,343,059 (4,418,175)
Forward foreign-currency exchange contracts ............ (4,092) 1,021 --
Securities sold short .................................. (814,360) -- --
Futures contracts and written options .................. 48,957 -- --
Foreign-currency transactions and other assets ......... 308,837 114,402 --
------------- ------------- -------------
Net Unrealized Appreciation/(Depreciation) of Investments .. 153,977,000 11,458,482 (4,418,175)
------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS ..... 196,390,187 30,128,672 (6,402,246)
------------- ------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....... $ 193,244,716 $ 28,644,642 $ 696,090
------------- ------------- -------------
Foreign withholding taxes .................................. $ 48,983 $ -- $ --
------------- ------------- -------------
</TABLE>
(*)Formerly named Montgomery U.S. Asset Allocation Fund.
The accompanying notes are an integral part of these financial statements.
100
<PAGE> 102
<TABLE>
<CAPTION>
CALIFORNIA
SHORT DURATION TAX-FREE GOVERNMENT
TOTAL RETURN GOVERNMENT INTERMEDIATE MONEY MARKET
BOND FUND BOND FUND BOND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest
Dividends (net of foreign withholding taxes) ............... $ 1,339,191 $ 5,627,986 $ 933,671 $ 15,447,963
Total Income ............................................... -- -- -- --
------------ ------------ ------------ ------------
1,339,191 5,627,986 933,671 15,447,963
------------ ------------ ------------ ------------
EXPENSES:
Custodian fee .............................................. 5,043 6,409 2,513 23,616
Transfer agency and servicing fees ......................... 8,113 101,341 9,004 111,998
Management fee (note 2) .................................... 140,036 728,313 172,308 950,990
Administration fee (note 2) ................................ 8,958 42,626 9,749 127,369
Dividend expense ........................................... -- -- -- --
Share marketing plan fee
Class P shares (note 3) .................................. -- 4,881 -- 114
Class B shares ........................................... -- -- -- --
Class C shares ........................................... -- -- -- --
Legal and audit fees ....................................... 8,004 13,267 9,757 37,049
Trustees' fees ............................................. 703 2,158 606 10,158
Registration fees .......................................... 18,195 35,759 3,343 20,808
Accounting expenses ........................................ 9,148 35,100 16,413 143,255
Printing fees .............................................. 2,209 10,514 2,195 40,552
Amortization of organization expenses (note 1) ............. -- -- -- --
Shareholder servicing fees (note 4) ........................ -- -- -- --
Other ...................................................... 2,499 8,086 6,817 21,849
Tax expense ................................................ 1,214 5,597 1,305 5,688
Interest expense ........................................... -- 205,439 -- --
------------ ------------ ------------ ------------
Total Expenses ............................................. 204,122 1,199,490 234,010 1,493,446
Fees deferred and/or expenses absorbed by Manager (note 2) . (78,525) (426,262) (97,489) (433,828)
------------ ------------ ------------ ------------
Net Expenses ............................................... 125,597 773,228 136,521 1,059,618
------------ ------------ ------------ ------------
NET INVESTMENT INCOME/(LOSS) ............................... 1,213,594 4,854,758 797,150 14,388,345
------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) from:
Securities transactions ................................ (406,869) (854,529) (138,272) (4,366)
Securities sold short .................................. -- -- -- --
Futures contracts, written options and purchased options (11,780) 16,584 -- --
Foreign-currency transactions and other assets ......... -- -- -- --
------------ ------------ ------------ ------------
Net Realized Gain/(Loss) on Investments .................... (418,649) (837,945) (138,272) (4,366)
Net change in unrealized appreciation/(depreciation) of:
Securities ............................................. (518,413) (1,400,891) (616,336) --
Forward foreign-currency exchange contracts ............ -- -- -- --
Securities sold short .................................. -- -- -- --
Futures contracts and written options .................. -- -- -- --
Foreign-currency transactions and other assets ......... -- -- -- --
------------ ------------ ------------ ------------
Net Unrealized Appreciation/(Depreciation) of Investments .. (518,413) (1,400,891) (616,336) --
------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS ..... (937,062) (2,238,836) (754,608) (4,366)
------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....... $ 276,532 $ 2,615,922 $ 42,542 $ 14,383,979
------------ ------------ ------------ ------------
Foreign withholding taxes .................................. $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
FEDERAL CALIFORNIA
TAX-FREE TAX-FREE
MONEY FUND MONEY FUND
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest
Dividends (net of foreign withholding taxes) ............... $ 2,453,175 $ 4,835,007
Total Income ............................................... -- --
------------ ------------
2,453,175 4,835,007
------------ ------------
EXPENSES:
Custodian fee .............................................. 3,280 18,597
Transfer agency and servicing fees ......................... 12,976 17,005
Management fee (note 2) .................................... 536,980 689,797
Administration fee (note 2) ................................ 34,935 77,489
Dividend expense ........................................... -- --
Share marketing plan fee
Class P shares (note 3) .................................. -- --
Class B shares ........................................... -- --
Class C shares ........................................... -- --
Legal and audit fees ....................................... 10,898 15,291
Trustees' fees ............................................. 3,069 3,939
Registration fees .......................................... 21,222 12,987
Accounting expenses ........................................ 26,532 65,438
Printing fees .............................................. 5,797 7,378
Amortization of organization expenses (note 1) ............. 276 --
Shareholder servicing fees (note 4) ........................ -- --
Other ...................................................... 8,509 15,657
Tax expense ................................................ 4,086 10,198
Interest expense ........................................... -- --
------------ ------------
Total Expenses ............................................. 668,560 933,776
Fees deferred and/or expenses absorbed by Manager (note 2) . (249,345) (4,342)
------------ ------------
Net Expenses ............................................... 419,215 929,434
------------ ------------
NET INVESTMENT INCOME/(LOSS) ............................... 2,033,960 3,905,573
------------ ------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) from:
Securities transactions ................................ (20,248) (3,283)
Securities sold short .................................. -- --
Futures contracts, written options and purchased options -- --
Foreign-currency transactions and other assets ......... -- --
------------ ------------
Net Realized Gain/(Loss) on Investments .................... (20,248) (3,283)
Net change in unrealized appreciation/(depreciation) of:
Securities ............................................. -- --
Forward foreign-currency exchange contracts ............ -- --
Securities sold short .................................. -- --
Futures contracts and written options .................. -- --
Foreign-currency transactions and other assets ......... -- --
------------ ------------
Net Unrealized Appreciation/(Depreciation) of Investments .. -- --
------------ ------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS ..... (20,248) (3,283)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....... $ 2,013,712 $ 3,902,290
------------ ------------
Foreign withholding taxes .................................. $ -- $ --
------------ ------------
</TABLE>
101
<PAGE> 103
THE MONTGOMERY FUNDS
STATEMENTS OF
CHANGES IN NET ASSETS
SIX MONTHS ENDED DECEMBER 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
U.S. EMERGING
GROWTH GROWTH SMALL CAP
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) ......................................... $ 458,383 $ (1,729,969) $ (736,924)
Net realized gain on securities, forward foreign-currency exchange
contracts, futures contracts and foreign-currency transactions
and other assets during the period .................................. 21,236,892 51,181,664 21,513,662
Net unrealized appreciation/(depreciation) of securities, forward
foreign-currency exchange contracts, foreign-currency transactions
and other assets during the period .................................. (14,886,826) 6,871,475 28,877,002
------------- ------------- -------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ...... 6,808,449 56,323,170 49,653,740
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 R shares .................................................... (72,316,628) (33,708,499) (2,347)
Class P shares .................................................... (19,865) -- (471)
------------- ------------- -------------
Total Distributions .................................................. (76,558,076) (33,708,499) (2,818)
BENEFICIAL INTEREST TRANSACTIONS:
- -------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 6) (28,250,201) (104,209,284) (19,029,063)
Net Increase/(Decrease) in Net Assets ................................ (97,999,828) (81,594,613) 30,621,859
NET ASSETS:
- -------------------------------------------------------------------------------------------------------------------------------
Beginning of Period .................................................. 670,007,305 382,482,510 133,929,220
End of Period ........................................................ $ 572,007,477 $ 300,887,897 $ 164,551,079
Accumulated Undistributed Net Investment Income/(Accumulated Net
Investment Loss) .................................................... $ 457,570 $ (1,729,969) $ (736,924)
</TABLE>
<TABLE>
<CAPTION>
GLOBAL
LONG-SHORT SELECT 50 BALANCED
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: FUND FUND FUND*
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) ......................................... $ (3,145,471) $ (1,484,030) $ 7,098,336
Net realized gain/(loss) on securities, forward foreign-currency
exchange contracts, futures contracts, equity swaps and foreign-
currency transactions during the period ............................. 42,413,187 18,670,190 (1,984,071)
Net unrealized appreciation/(depreciation) of securities, forward
foreign-currency exchange contracts, equity swaps, foreign-currency
transactions and other assets during the period .................... 153,977,000 11,458,482 (4,418,175)
------------- ------------- -------------
Net Increase in Net Assets Resulting from Operations ................. 193,244,716 28,644,642 696,090
DISTRIBUTIONS TO SHAREHOLDERS:
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares .................................................... -- -- (1,228,472)
Class P shares .................................................... -- -- (850)
Distributions to shareholders from net realized gains on investments:
Class B shares .................................................... (1,713,891) -- --
Class C shares .................................................... (763,205) -- --
Class R shares .................................................... (26,333,398) (16,007,638) (1,841,464)
Class P shares .................................................... -- (3,667) (1,498)
------------- ------------- -------------
Total Distributions .................................................. (28,810,494) (16,011,305) (3,072,284)
BENEFICIAL INTEREST TRANSACTIONS:
- -------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 6) 87,848,130 (8,307,367) (9,577,786)
Net Increase/(Decrease) in Net Assets ................................ 252,282,352 4,325,970 (11,953,980)
NET ASSETS:
- -------------------------------------------------------------------------------------------------------------------------------
Beginning of Period .................................................. 242,213,063 136,847,169 81,189,495
End of Period ........................................................ $ 494,495,415 $ 141,173,139 $ 69,235,515
Accumulated Undistributed Net Investment Income/(Accumulated Net
Investment Loss) .................................................... $ (3,305,966) $ (2,276,692) $ 6,680,602
</TABLE>
* Formerly named Montgomery U.S. Asset Allocation Fund.
The accompanying notes are an integral part of these financial statements.
102
<PAGE> 104
<TABLE>
<CAPTION>
EQUITY INTERNATIONAL INTERNATIONAL GLOBAL
INCOME GROWTH SMALL CAP OPPORTUNITIES
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: FUND** FUND FUND** FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income/(loss) ................................. $ 115,724 $ (788,255) $ (147,332) $ (391,446)
Net realized gain on securities, forward foreign-currency
exchange contracts, futures contracts and foreign-currency
transactions and other assets during the period ............. 1,856,823 12,557,875 2,099,967 7,409,277
Net unrealized appreciation/(depreciation) of securities,
forward foreign-currency exchange contracts, foreign-
currency transactions and other assets during the period .... (3,983,247) 42,665,492 (946,968) 16,533,562
------------ ------------ ----------- -----------
Net Increase/(Decrease) in Net Assets Resulting from
Operations................................................... (2,010,700) 54,435,112 1,005,667 23,551,393
DISTRIBUTIONS TO SHAREHOLDERS:
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ............................................ (107,640) -- -- --
Class P shares ............................................ (16,944) -- -- --
Distributions to shareholders from net realized gains on
investments:
Class R shares ............................................ (2,213,996) (4,202,087) (609,943) (5,240,294)
Class P shares ............................................ (446,923) (75,380) (55) --
------------ ------------ ----------- -----------
Total Distributions .......................................... (2,785,503) (4,277,467) (609,998) (5,240,294)
BENEFICIAL INTEREST TRANSACTIONS:
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions
(note 6) .................................................... (7,953,942) (19,093,308) (6,693,691) 14,844,069
Net Increase/(Decrease) in Net Assets ........................ (12,750,145) 31,064,337 (6,298,022) 33,155,168
NET ASSETS:
- -----------------------------------------------------------------------------------------------------------------------------------
Beginning of Period .......................................... 29,961,977 229,638,984 38,056,735 57,145,540
End of Period ................................................ $ 17,211,832 $260,703,321 $31,758,713 $90,300,708
Accumulated Undistributed Net Investment Income/(Accumulated
Net Investment Loss) ........................................ $ (574) $ (1,395,006) $ (340,228) $ (380,152)
</TABLE>
<TABLE>
<CAPTION>
GLOBAL
COMMUNICATIONS EMERGING EMERGING
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: FUND MARKETS FUND ASIA FUND
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) ................................. $ (2,004,159) $ (1,194,241) $ (227,326)
Net realized gain on securities, forward foreign-currency
exchange contracts, futures contracts and foreign-currency
transactions and other assets during the period ............. 81,684,432 2,960,805 521,506
Net unrealized appreciation/(depreciation) of securities,
forward foreign-currency exchange contracts, foreign-
currency transactions and other assets during the period .... 146,509,936 79,237,253 (2,352,888)
------------ ------------ ------------
Net Increase/(Decrease) in Net Assets Resulting from
Operations................................................... 226,190,209 81,003,817 (2,058,708)
DISTRIBUTIONS TO SHAREHOLDERS:
- ------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ............................................ -- -- (2,458,923)
Class P shares ............................................ -- -- --
Distributions to shareholders from net realized gains on
investments:
Class R shares ............................................ (84,931,132) -- --
Class P shares ............................................ -- -- --
------------ ------------ ------------
Total Distributions .......................................... (84,931,132) -- (2,458,923)
BENEFICIAL INTEREST TRANSACTIONS:
- ------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions
(note 6) .................................................... 102,681,463 (57,381,434) (16,197,304)
Net Increase/(Decrease) in Net Assets ........................ 243,940,540 23,622,383 (20,714,935)
NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------
Beginning of Period .......................................... 354,730,185 345,427,176 63,195,889
End of Period ................................................ $598,670,725 $369,049,559 $ 42,480,954
Accumulated Undistributed Net Investment Income/(Accumulated
Net Investment Loss) ........................................ $ (1,949,252) $ (9,394,698) $ (3,574,896)
</TABLE>
<TABLE>
<CAPTION>
SHORT DURATION CALIFORNIA TAX-FREE GOVERNMENT
TOTAL RETURN GOVERNMENT INTERMEDIATE MONEY MARKET
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: BOND FUND BOND FUND BOND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income/(loss) .............................. $ 1,213,594 $ 4,854,758 $ 797,150 $ 14,388,345
Net realized gain/(loss) on securities, forward
foreign-currency exchange contracts, futures contracts,
equity swaps and foreign-currency transactions during
the period ............................................... (418,649) (837,945) (138,272) (4,366)
Net unrealized appreciation/(depreciation) of securities,
forward foreign-currency exchange contracts, equity swaps,
foreign-currency transactions and other assets during the
period ................................................... (518,413) (1,400,891) (616,336) --
----------- ------------ ----------- ------------
Net Increase in Net Assets Resulting from Operations ...... 276,532 2,615,922 42,542 14,383,979
DISTRIBUTIONS TO SHAREHOLDERS:
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ......................................... (1,139,705) (4,748,190) (797,150) (14,386,107)
Class P shares ......................................... -- (106,567) -- (2,238)
Distributions to shareholders from net realized gains on
investments:
Class B shares ......................................... -- -- -- --
Class C shares ......................................... -- -- -- --
Class R shares ......................................... (440,674) -- -- --
Class P shares ......................................... -- -- -- --
----------- ------------ ----------- ------------
Total Distributions ....................................... (1,580,379) (4,854,757) (797,150) (14,388,345)
- -----------------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS:
Net increase/(decrease) from beneficial interest
transactions (note 6) .................................... (5,870,927) 14,190,359 (5,969,281) (12,277,103)
Net Increase/(Decrease) in Net Assets ..................... (7,174,774) 11,951,524 (6,723,889) (12,281,469)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Period ....................................... 38,475,669 158,252,719 41,016,889 575,388,189
End of Period ............................................. $31,300,895 $170,204,243 $34,293,000 $563,106,720
Accumulated Undistributed Net Investment Income/
(Accumulated Net Investment Loss) ........................ $ 27,261 $ (198,521) $ (79,767) $ 4,448
</TABLE>
<TABLE>
<CAPTION>
FEDERAL CALIFORNIA
TAX-FREE TAX-FREE
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: MONEY FUND MONEY FUND
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income/(loss) .............................. $ 2,033,960 $ 3,905,573
Net realized gain/(loss) on securities, forward
foreign-currency exchange contracts, futures contracts,
equity swaps and foreign-currency transactions during
the period ............................................... (20,248) (3,283)
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 ...... 2,013,712 3,902,290
DISTRIBUTIONS TO SHAREHOLDERS:
- ---------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ......................................... (2,034,167) (3,905,573)
Class P shares ......................................... -- --
Distributions to shareholders from net realized gains on
investments:
Class B shares ......................................... -- --
Class C shares ......................................... -- --
Class R shares ......................................... -- --
Class P shares ......................................... -- --
------------ ------------
Total Distributions ....................................... (2,034,167) (3,905,573)
- ---------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS:
Net increase/(decrease) from beneficial interest
transactions (note 6) .................................... 108,065,988 24,565,400
Net Increase/(Decrease) in Net Assets ..................... 108,045,533 24,562,117
- ---------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of Period ....................................... 116,341,313 292,901,227
End of Period ............................................. $224,386,846 $317,463,344
Accumulated Undistributed Net Investment Income/
(Accumulated Net Investment Loss) ........................ $ (416) $ 296
</TABLE>
** Closed to new investors.
103
<PAGE> 105
THE MONTGOMERY FUNDS
STATEMENTS OF
CHANGES IN NET ASSETS
Year Ended June 30, 1999
<TABLE>
<CAPTION>
U.S. EMERGING
GROWTH GROWTH SMALL CAP
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) ........................................ $ 4,222,654 $ (3,102,617) $ (1,713,356)
Net realized gain/(loss) on securities, forward foreign-
currency exchange contracts, futures contracts, foreign-
currency transactions and other assets during the period ........... 123,275,863 26,092,256 (6,685,358)
Net unrealized appreciation/(depreciation) of securities,
forward foreign-currency exchange contracts, foreign-
currency transactions and other assets during the period ........... (103,710,125) (33,067,747) (11,588,109)
-------------- ------------- ------------
Net Increase/(Decrease) in Net Assets Resulting from Operations ..... 23,788,392 (10,078,108) (19,986,823)
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions to shareholders from net investment income:
Class R shares ................................................... (4,685,102) -- --
Class P shares ................................................... (787) -- --
Distributions to shareholders in excess of net investment income:
Class R shares ................................................... -- -- --
Distributions to shareholders from net realized gains on investments:
Class R shares ................................................... (75,567,304) (21,441,030) (17,927,065)
Class P shares ................................................... (12,703) -- (2,233,433)
Distributions to shareholders in excess of net realized gains on
investments:
Class R shares ................................................... -- -- (6,112,721)
Class P shares ................................................... -- -- (761,650)
-------------- ------------- ------------
Total Distributions ................................................. (80,265,896) (21,441,030) (27,034,869)
BENEFICIAL INTEREST TRANSACTIONS:
- ------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions
(note 6) ........................................................... (656,586,933) 22,028,789 (44,034,045)
Net Increase/(Decrease) in Net Assets ............................... (713,064,437) (9,490,349) (91,055,737)
NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------------------
Beginning of Period ................................................. 1,383,071,742 391,972,859 224,984,957
End of Period ....................................................... $ 670,007,305 $ 382,482,510 $133,929,220
Accumulated Undistributed Net Investment Income/
(Accumulated Net Investment Loss) .................................. $ 4,220,770 -- --
</TABLE>
<TABLE>
<CAPTION>
GLOBAL GLOBAL
LONG-SHORT LONG-SHORT SELECT 50
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: FUND* FUND** FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) .................................... $ (1,058,208) $ (295,533) $ (789,095)
Net realized gain/(loss) on securities, forward foreign-
currency exchange contracts, futures contracts, equity
swaps and foreign-currency transactions during the period ...... 11,691,646 10,103,621 15,663,023
Net unrealized appreciation/(depreciation) of securities,
forward foreign-currency exchange contracts, equity swaps,
foreign-currency transactions and other assets during the
period ......................................................... 20,006,772 10,888,946 (5,559,262)
------------- ------------- -------------
Net Increase in Net Assets Resulting from Operations ............ 30,640,210 20,697,034 9,314,666
DISTRIBUTIONS TO SHAREHOLDERS:
- --------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ............................................... -- -- (2,143,762)
Class P shares ............................................... -- -- (475)
Distributions to shareholders in excess of net investment income:
Class R shares ............................................... -- -- (928,695)
Class P shares ............................................... -- -- (206)
Distributions to shareholders from net realized gains on
investments:
Class B shares ............................................... -- (1,000,105) --
Class C shares ............................................... -- (402,108) --
Class R shares ............................................... -- (3,527,506) (9,337,841)
Class P shares ............................................... -- -- (2,414)
Distributions to shareholders in excess of net realized gains on
investments:
Class R shares ............................................... -- -- --
Class P shares ............................................... -- -- --
------------- ------------- -------------
Total Distributions ............................................. -- (4,929,719) (12,413,393)
BENEFICIAL INTEREST TRANSACTIONS:
- --------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions
(note 6) ....................................................... 104,478,341 74,484,954 (129,772,361)
Net Increase/(Decrease) in Net Assets ........................... 135,118,551 90,252,269 (132,871,088)
NET ASSETS:
- --------------------------------------------------------------------------------------------------------------------------
Beginning of Period ............................................. 107,094,512 16,842,243 269,718,257
End of Period ................................................... $ 242,213,063 $ 107,094,512 $ 136,847,169
Accumulated Undistributed Net Investment Income/(Accumulated
Net Investment Loss) ........................................... $ (160,495) $ (337,050) $ (792,662)
</TABLE>
* For the three-month period ended June 30, 1999. The Fund changed its year
end from March 31 to June 30.
** Year ended March 31, 1999.
The accompanying notes are an integral part of these financial statements.
104
<PAGE> 106
<TABLE>
<CAPTION>
EQUITY INTERNATIONAL INTERNATIONAL GLOBAL
INCOME GROWTH SMALL CAP OPPORTUNITIES
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: FUND** FUND FUND** FUND
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income/(loss) .......................... $ 612,057 $ 749,646 $ 31,931 $ (352,610)
Net realized gain/(loss) on securities, forward
foreign-currency exchange contracts, futures
contracts, foreign-currency transactions and
other assets during the period ....................... 2,848,156 5,813,104 (364,583) 10,125,366
Net unrealized appreciation/(depreciation) of
securities, forward foreign-currency exchange
contracts, foreign-currency transactions and
other assets during the period ....................... 1,204,992 (1,920,955) (1,929,208) (5,035,094)
------------ ------------ ------------ ------------
Net Increase/(Decrease) in Net Assets Resulting
from Operations ...................................... 4,665,205 4,641,795 (2,261,860) 4,737,662
DISTRIBUTIONS TO SHAREHOLDERS:
- --------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment
income:
Class R shares ..................................... (559,687) -- -- (558,444)
Class P shares ..................................... (44,084) -- -- --
Distributions to shareholders in excess of net
investment income:
Class R shares ..................................... -- -- (36,660) --
Distributions to shareholders from net realized gains
on investments:
Class R shares ..................................... (2,953,011) (940,560) -- (5,700,468)
Class P shares ..................................... (250,330) (4,968) -- --
Distributions to shareholders in excess of net
realized gains on investments:
Class R shares ..................................... -- -- -- --
Class P shares ..................................... -- -- -- --
------------ ------------ ------------ ------------
Total Distributions ................................... (3,807,112) (945,528) (36,660) (6,258,912)
BENEFICIAL INTEREST TRANSACTIONS:
- --------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest
transactions (note 6) ................................ (13,875,041) 161,118,037 (10,140,563) (37,744,824)
Net Increase/(Decrease) in Net Assets ................. (13,016,948) 164,814,304 (12,439,083) (39,266,074)
NET ASSETS:
- --------------------------------------------------------------------------------------------------------------------------------
Beginning of Period ................................... 42,978,925 64,824,680 50,495,818 96,411,614
End of Period ......................................... $ 29,961,977 $229,638,984 $ 38,056,735 $ 57,145,540
Accumulated Undistributed Net Investment Income/
(Accumulated Net Investment Loss) .................... $ 8,286 $ (606,751) $ (192,896) $ 11,294
</TABLE>
<TABLE>
<CAPTION>
GLOBAL
COMMUNICATIONS EMERGING EMERGING
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: FUND MARKETS FUND ASIA FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income/(loss) .......................... $ 56,999 $ 23,317 $ (112,643)
Net realized gain/(loss) on securities, forward
foreign-currency exchange contracts, futures
contracts, foreign-currency transactions and
other assets during the period ....................... 87,630,657 (223,090,923) (1,207,744)
Net unrealized appreciation/(depreciation) of
securities, forward foreign-currency exchange
contracts, foreign-currency transactions and
other assets during the period ....................... (11,374,981) 180,045,820 25,843,968
------------ ------------- -----------
Net Increase/(Decrease) in Net Assets Resulting
from Operations ...................................... 76,312,675 (43,021,786) 24,523,581
DISTRIBUTIONS TO SHAREHOLDERS:
- --------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment
income:
Class R shares ..................................... -- -- --
Class P shares ..................................... -- -- --
Distributions to shareholders in excess of net
investment income:
Class R shares ..................................... -- -- --
Distributions to shareholders from net realized gains
on investments:
Class R shares ..................................... (29,529,571) -- --
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) 14,063,944
Net Increase/(Decrease) in Net Assets ................. 87,617,298 (413,896,427) 38,587,525
NET ASSETS:
- --------------------------------------------------------------------------------------------------------------
Beginning of Period ................................... 267,112,887 759,323,603 24,608,364
End of Period ......................................... $354,730,185 $ 345,427,176 $63,195,889
Accumulated Undistributed Net Investment Income/
(Accumulated Net Investment Loss) .................... $ 54,907 $ (8,200,457) $ (888,647)
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA
SHORT DURATION TAX-FREE
BALANCED TOTAL RETURN GOVERNMENT INTERMEDIATE
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: FUND+ BOND FUND BOND FUND BOND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income/(loss) ................................ $ 2,867,104 $ 3,561,458 $ 6,741,583 $ 1,590,420
Net realized gain/(loss) on securities, forward
foreign-currency exchange contracts, futures contracts,
equity swaps and foreign-currency transactions during
the period ................................................. 1,328,853 1,432,924 (570,017) 28,947
Net unrealized appreciation/(depreciation) of securities,
forward foreign-currency exchange contracts, equity
swaps, foreign-currency transactions and other assets
during the period .......................................... 4,581,206 (2,230,098) (869,520) (682,980)
------------ ------------ ------------ -----------
Net Increase in Net Assets Resulting from Operations ........ 8,777,163 2,764,284 5,302,046 936,387
DISTRIBUTIONS TO SHAREHOLDERS:
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ........................................... (5,412,395) (3,561,458) (6,441,336) (1,510,644)
Class P shares ........................................... (3,284) -- (95,475) --
Distributions to shareholders in excess of net investment
income:
Class R shares ........................................... -- (41,221) (204,526) (79,767)
Class P shares ........................................... -- -- (3,034) --
Distributions to shareholders from net realized gains on
investments:
Class B shares ........................................... -- -- -- --
Class C shares ........................................... -- -- -- --
Class R shares ........................................... (9,737,684) (2,032,202) -- (92,379)
Class P shares ........................................... (6,222) -- -- --
Distributions to shareholders in excess of net realized
gains on investments:
Class R shares ........................................... (8,188,227) -- (699,799) (7,321)
Class P shares ........................................... (5,233) -- (115) --
------------ ------------ ------------ -----------
Total Distributions ......................................... (23,353,045) (5,634,881) (7,444,285) (1,690,111)
BENEFICIAL INTEREST TRANSACTIONS:
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest
transactions (note 6) ...................................... (32,380,618) (36,347,494) 94,034,691 6,103,794
Net Increase/(Decrease) in Net Assets ....................... (46,956,500) (39,218,091) 91,892,452 5,350,070
NET ASSETS:
- --------------------------------------------------------------------------------------------------------------------------------
Beginning of Period ......................................... 128,145,995 77,693,760 66,360,267 35,666,819
End of Period ............................................... $ 81,189,495 $ 38,475,669 $158,252,719 $41,016,889
Accumulated Undistributed Net Investment Income/
(Accumulated Net Investment Loss) .......................... $ 811,588 $ (46,628) $ (198,522) $ (79,767)
</TABLE>
<TABLE>
<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) ................................ $ 34,883,767 $ 3,482,541 $ 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 ................................................. 32,817 (72) 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 ........ 34,916,584 3,482,469 6,170,936
DISTRIBUTIONS TO SHAREHOLDERS:
- ------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class R shares ........................................... (34,878,792) (3,482,322) (6,169,715)
Class P shares ........................................... (22) -- --
Distributions to shareholders in excess of net investment
income:
Class R shares ........................................... -- (209) --
Class P shares ........................................... -- -- --
Distributions to shareholders from net realized gains on
investments:
Class B shares ........................................... -- -- --
Class C shares ........................................... -- -- --
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 ......................................... (34,878,814) (3,482,531) (6,169,715)
BENEFICIAL INTEREST TRANSACTIONS:
- ------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest
transactions (note 6) ...................................... (149,268,606) (942,095) 105,683,949
Net Increase/(Decrease) in Net Assets ....................... (149,230,836) (942,157) 105,685,170
NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------
Beginning of Period ......................................... 724,619,025 117,283,470 187,216,057
End of Period ............................................... $ 575,388,189 $116,341,313 $292,901,227
Accumulated Undistributed Net Investment Income/
(Accumulated Net Investment Loss) .......................... $ 4,448 $ (209) $ 296
</TABLE>
** Currently closed to new investors.
+ Formerly named Montgomery U.S. Asset Allocation Fund.
105
<PAGE> 107
THE MONTGOMERY FUNDS
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1999
(Unaudited)
TOTAL RETURN BOND FUND
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Interest income received $ 1,300,877
Fee income received 38,314
Operating expenses paid (145,565)
Proceeds from sales of long-term securities 78,646,457
Net proceeds from short-term investments 967,388
Purchases of long-term securities (74,686,678)
------------
Cash Used by Operating Activities $ 6,120,793
CASH FLOWS FROM FINANCING ACTIVITIES:
- ----------------------------------------------------------------------------------------------------------------
Proceeds from subscriptions $ 1,441,276
Payments on shares redeemed (8,873,318)
Proceeds from loans with custodian 1,524,880
Cash dividends paid(*) (19,264)
------------
Cash Provided by Financing Activities (5,926,426)
Increase in cash 194,367
Cash at beginning of period (194,367)
------------
Cash at end of period $ --
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS
TO CASH PROVIDED BY OPERATING ACTIVITIES:
- ----------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in net assets resulting from operations: $ 276,532
Decrease in investments $ 10,133,101
Decrease in interest receivable 12,548
Increase in variation margin for futures transactions (1,722)
Increase in other assets and liabilities (207,328)
Increase in receivables for investments sold (1,579,183)
Decrease in payable for investments purchased (2,493,187)
Decrease in accrued expenses (19,968)
------------
Total Adjustments 5,844,261
------------
Cash Used by Operating Activities $ 6,120,793
</TABLE>
(*)Noncash activities include reinvestment of dividends of $1,561,115.
The accompanying notes are an integral part of these financial statements.
106
<PAGE> 108
THE MONTGOMERY FUNDS
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1999
(Unaudited)
SHORT DURATION GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income received $ 5,549,232
Fee income received 78,754
Operating expenses paid (327,458)
Interest expense paid (205,438)
Proceeds from sales of long-term securities 224,021,024
Net payments for short-term investments 10,717,000
Purchases of long-term securities (250,148,699)
--------------
Cash Used by Operating Activities $(10,315,585)
CASH FLOWS FROM FINANCING ACTIVITIES:
- ---------------------------------------------------------------------------------------------------------------------
Proceeds from subscriptions $ 116,279,147
Payments on shares redeemed (106,361,089)
Proceeds from loans with custodians 726,777
Cash dividends paid(*) (582,457)
--------------
Cash Provided by Financing Activities $ 10,062,378
Decrease in cash (253,207)
Cash at beginning of period 253,207
------------
Cash at end of period $ --
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS
TO CASH USED BY OPERATING ACTIVITIES:
- ---------------------------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in net assets resulting from operations: $ 2,615,922
Decrease in investments $ 2,446,940
Increase in interest receivable (613,335)
Decrease in receivables for investments sold 149,096
Decrease in payables for investments purchased (13,309,957)
Decrease in other assets and liabilities (1,844,583)
Increase in accrued expenses 240,332
Total Adjustments -------------- (12,931,507)
------------
Cash Used by Operating Activities $(10,315,585)
</TABLE>
(*)Noncash activities include reinvestment of dividends of $4,272,301.
107
<PAGE> 109
THE MONTGOMERY FUNDS
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1999
(Unaudited)
GLOBAL LONG-SHORT FUND
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dividend and interest income received $ 2,475,188
Dividends and interest paid (1,538,034)
Operating expenses paid (3,965,434)
Proceeds from sales of securities 305,144,295
Purchases of long-term securities and written options transactions (321,559,460)
-------------
Cash Used by Operating Activities $(19,443,445)
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------------------------------------------------------------------------------------
Proceeds from subscriptions $ 103,391,685
Payments on shares redeemed (39,487,450)
Proceeds from loans payable 25,000,000
Cash dividends paid(*) (4,866,599)
-------------
Cash Provided by Financing Activities 84,037,636
Increase in cash 64,594,191
Cash at beginning of period 58,402,425
------------
Cash at end of period $122,996,616
</TABLE>
(*)Noncash activities include reinvestment of dividends of $23,943,895.
The accompanying notes are an integral part of these financial statements.
108
<PAGE> 110
THE MONTGOMERY FUNDS
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1999
(Unaudited)
GLOBAL LONG-SHORT FUND - continued
<TABLE>
<CAPTION>
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS TO CASH USED BY OPERATING ACTIVITIES:
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Increase/(Decrease) in net assets resulting from operations: $ 193,244,716
Increase in investments ...................................... $(254,945,347)
Decrease in dividends and interest receivable ................ 58,828
Increase in unrealized depreciation for equity swap agreements 46,793
Increase in forward foreign-currency exchange contracts ...... 4,092
Increase in written options .................................. (227,150)
Increase in short sales ...................................... 62,205,371
Increase in foreign currency ................................. (5,459,178)
Increase in receivables for investments sold ................. (2,604,129)
Decrease in payables for investments purchased ............... (10,752,961)
Increase in accrued expenses and dividend payable ............ 117,191
Decrease in other assets and liabilities ..................... (1,131,671)
-------------
Total Adjustments ............................................ (212,688,161)
-------------
Cash Provided by Operating Activities $ (19,443,445)
</TABLE>
109
<PAGE> 111
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GROWTH FUND
CLASS R SHARES
--------------------------------------------------------
Selected Per-Share Data for the Year or Period Ended: 12/31/99++ Fiscal Year Ended June 30,
(Unaudited) 1999++ 1998++ 1997++ 1996 1995
----------- -------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 24.34 $ 23.68 $ 23.07 $ 21.94 $ 19.16 $ 15.27
-------- -------- ---------- ---------- -------- --------
Net investment income/(loss) 0.00** 0.09 0.17 0.15 0.17 0.12
Net realized and unrealized gain/(loss) on investments 0.30 2.24 3.51 3.90 4.32 3.91
-------- -------- ---------- ---------- -------- --------
Net increase/(decrease) in net assets resulting from
investment operations 0.30 2.33 3.68 4.05 4.49 4.03
-------- -------- ---------- ---------- -------- --------
Distributions:
Dividends from net investment income (0.17) (0.10) (0.15) (0.15) (0.17) (0.07)
Distributions from net realized capital gains (3.01) (1.57) (2.92) (2.77) (1.54) (0.07)
-------- -------- ---------- ---------- -------- --------
Total distributions (3.18) (1.67) (3.07) (2.92) (1.71) (0.14)
-------- -------- ---------- ---------- -------- --------
NET ASSET VALUE - END OF PERIOD $ 21.46 $ 24.34 $ 23.68 $ 23.07 $ 21.94 $ 19.16
-------- -------- ---------- ---------- -------- --------
TOTAL RETURN* 2.14% 11.41% 17.31% 20.44% 24.85% 26.53%
-------- -------- ---------- ---------- -------- --------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $571,850 $669,789 $1,382,874 $1,137,343 $926,382 $878,776
-------- -------- ---------- ---------- -------- --------
Ratio of net investment income/(loss) to average net assets 0.16%+ 0.46% 0.71% 0.69% 0.78% 0.98%
-------- -------- ---------- ---------- -------- --------
Net investment income/(loss) before deferral of fees
by Manager $ 0.02 $ 0.09 $ 0.17 -- -- --
-------- -------- ---------- ---------- -------- --------
Portfolio turnover rate 23% 39% 54% 61% 118% 128%
-------- -------- ---------- ---------- -------- --------
Expense ratio including interest and tax expense 1.45%+ 1.38% 1.20% 1.27% 1.35% 1.50%
-------- -------- ---------- ---------- -------- --------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 1.45%+ 1.38% 1.20% -- -- --
-------- -------- ---------- ---------- -------- --------
Expense ratio excluding interest and tax expense 1.45%+ 1.35% 1.19% -- -- --
-------- -------- ---------- ---------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
CLASS P SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99++ ----------------------------------------------
(Unaudited) 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) 0.00** 0.04 0.11 0.09 0.03
Net realized and unrealized gain/(loss) on investments 0.26 2.31 3.55 3.96 2.69
------- ------- ------- ------- -------
Net increase/(decrease) in net assets resulting from
investment operations 0.26 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 $ 21.66 $ 24.51 $ 23.77 $ 23.12 $ 21.94
------- ------- ------- ------- -------
TOTAL RETURN* 1.98% 11.62% 17.09% 20.41% 14.15%
------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $ 158 $ 219 $ 198 $ 212 $ 82
------- ------- ------- ------- -------
Ratio of net investment income/(loss) to average net assets 0.15%+ 0.21% 0.46% 0.44% 0.53%+
------- ------- ------- ------- -------
Net investment income/(loss) before deferral of fees
by Manager $ 0.01 $ 0.04 $ 0.11 -- --
------- ------- ------- ------- -------
Portfolio turnover rate 23% 39% 54% 61% 118%
------- ------- ------- ------- -------
Expense ratio including interest and tax expense 1.70%+ 1.63% 1.45% 1.52% 1.60%+
------- ------- ------- ------- -------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 1.70%+ 1.63% 1.45% -- --
------- ------- ------- ------- -------
Expense ratio excluding interest and tax expense 1.70%+ 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.
++ 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.
110
<PAGE> 112
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. EMERGING GROWTH FUND
CLASS R SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 ---------------------------------------------------------
(Unaudited) 1999 1998++ 1997 1996 1995(a)++
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 19.80 $ 21.89 $ 19.00 $ 17.82 $ 13.75 $ 12.00
-------- -------- -------- -------- -------- --------
Net investment income/(loss) (0.12) (0.16) (0.18) (0.13) (0.04) 0.09
Net realized and unrealized gain/(loss) on investments 4.65 (0.80) 4.21 2.54 4.26 1.66
-------- -------- -------- -------- -------- --------
Net increase/(decrease) in net assets resulting from
investment operations 4.53 (0.96) 4.03 2.41 4.22 1.75
-------- -------- -------- -------- -------- --------
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 $ 21.66 $ 19.80 $ 21.89 $ 19.00 $ 17.82 $ 13.75
-------- -------- -------- -------- -------- --------
TOTAL RETURN* 24.17% (4.07)% 22.18% 14.77% 30.95% 14.58%
-------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $300,888 $382,483 $391,973 $317,812 $306,217 $162,949
-------- -------- -------- -------- -------- --------
Ratio of net investment income/(loss) to average net
assets (1.12)%+ (0.83)% (0.84)% (0.75)% (0.11)% 1.40%+
-------- -------- -------- -------- -------- --------
Net investment income/(loss) before deferral of fees
by Manager $ (0.16) $ (0.16) $ (0.18) -- $ (0.05) $ 0.07
-------- -------- -------- -------- -------- --------
Portfolio turnover rate 59% 76% 24% 79% 89% 37%
-------- -------- -------- -------- -------- --------
Expense ratio including interest and tax expense 1.51%+ 1.66% 1.57% 1.71% 1.75% 1.75%+
-------- -------- -------- -------- -------- --------
Expense ratio before deferral of fees by Manager,
including interest and tax expense 1.88%+ 1.66% 1.57% -- 1.79% 2.07%+
-------- -------- -------- -------- -------- --------
Expense ratio excluding interest and tax expense 1.50%+ 1.66% 1.56% -- -- --
-------- -------- -------- -------- -------- --------
</TABLE>
(a) The U.S. Emerging Growth (formerly Micro Cap) Fund's Class R shares
commenced operations on December 30, 1994.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
++ 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> 113
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SMALL CAP FUND
CLASS R SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 --------------------------------------------------------
(Unaudited) 1999++ 1998++ 1997 1996 1995
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 16.58 $ 20.73 $ 19.52 $ 21.55 $ 17.11 $ 15.15
-------- -------- -------- -------- -------- --------
Net investment income/(loss) (0.10) (0.17) (0.15) (0.18) (0.09) (0.10)
Net realized and unrealized gain/(loss) on investments 7.00 (1.21) 4.33 1.43 6.31 3.04
-------- -------- -------- -------- -------- --------
Net increase/(decrease) in net assets resulting from
investment operations 6.90 (1.38) 4.18 1.25 6.22 2.94
-------- -------- -------- -------- -------- --------
Distributions:
Distributions from net realized capital gains (0.00)** (2.07) (2.97) (3.28) (1.78) (0.98)
Distributions in excess of net realized capital gains -- (0.70) -- -- -- --
-------- -------- -------- -------- -------- --------
Total distributions (0.00)** (2.77) (2.97) (3.28) (1.78) (0.98)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE - END OF PERIOD $ 23.48 $ 16.58 $ 20.73 $ 19.52 $ 21.55 $ 17.11
-------- -------- -------- -------- -------- --------
TOTAL RETURN* 41.79% (4.14)% 23.23% 6.81% 39.28% 20.12%
-------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $136,876 $113,323 $203,437 $198,298 $275,062 $202,399
-------- -------- -------- -------- -------- --------
Ratio of net investment income/(loss) to average net
assets (1.08)%+ (1.09)% (0.70)% (0.78)% (0.47)% (0.57)%
-------- -------- -------- -------- -------- --------
Net investment income/(loss) before deferral of fees
by Manager $ (0.10) $ (0.17) $ (0.15) -- -- --
-------- -------- -------- -------- -------- --------
Portfolio turnover rate 79% 71% 69% 59% 80% 85%
-------- -------- -------- -------- -------- --------
Expense ratio including interest and tax expense 1.31%+ 1.32% 1.24% 1.20% 1.24% 1.37%
-------- -------- -------- -------- -------- --------
Expense ratio before deferral of fees by Manager,
including interest and tax expense 1.31%+ 1.32% 1.24% -- -- --
-------- -------- -------- -------- -------- --------
Expense ratio excluding interest and tax expense 1.31%+ 1.32% 1.24% -- -- --
-------- -------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
CLASS P SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 --------------------------------
(Unaudited) 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) (0.12) (0.21) (0.20) (0.10)
Net realized and unrealized gain/(loss) on investments 6.92 (1.20) 4.22 1.13
------- ------- ------- --------
Net increase/(decrease) in net assets resulting from
investment operations 6.80 (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 $ 23.15 $ 16.35 $ 20.53 $ 19.48
------- ------- ------- --------
TOTAL RETURN* 41.85% (4.39)% 22.44% 5.74%
------- ------- ------- --------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $27,675 $20,606 $21,548 $ 6,656
------- ------- ------- --------
Ratio of net investment income/(loss) to average net assets (1.32)%+ (1.35)% (0.95)% (1.03)%+
------- ------- ------- --------
Net investment income/(loss) before deferral of fees
by Manager $ (0.12) $ (0.21) $ (0.20) --
------- ------- ------- --------
Portfolio turnover rate 79% 71% 69% 59%
------- ------- ------- --------
Expense ratio including interest and tax expense 1.56%+ 1.57% 1.49% 1.45%+
------- ------- ------- --------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 1.56%+ 1.57% 1.49% --
------- ------- ------- --------
Expense ratio excluding interest and tax expense 1.56%+ 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.
The accompanying notes are an integral part of these financial statements.
112
<PAGE> 114
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EQUITY INCOME FUND**
CLASS R SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 ----------------------------------------------
(Unaudited) 1999 1998 1997++ 1996 1995(a)
----------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 19.04 $ 18.27 $ 17.91 $ 16.09 $ 13.38 $12.00
------- ------- ------- ------- ------- ------
Net investment income/(loss) 0.10 0.32 0.44 0.49 0.43 0.31
Net realized and unrealized gain/(loss) on investments (1.64) 2.30 2.27 3.35 2.82 1.38
------- ------- ------- ------- ------- ------
Net increase/(decrease) in net assets resulting from
investment operations (1.54) 2.62 2.71 3.84 3.25 1.69
------- ------- ------- ------- ------- ------
Distributions:
Dividends from net investment income (0.11) (0.31) (0.44) (0.46) (0.42) (0.31)
Distributions from net realized capital gains (2.54) (1.54) (1.91) (1.56) (0.12) --
------- ------- ------- ------- ------- ------
Total distributions (2.65) (1.85) (2.35) (2.02) (0.54) (0.31)
------- ------- ------- ------- ------- ------
NET ASSET VALUE - END OF PERIOD $ 14.85 $ 19.04 $ 18.27 $ 17.91 $ 16.09 $13.38
------- ------- ------- ------- ------- ------
TOTAL RETURN* (7.90)% 15.06% 15.83% 26.02% 24.56% 14.26%
------- ------- ------- ------- ------- ------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $14,069 $26,750 $40,260 $38,595 $19,312 $6,383
------- ------- ------- ------- ------- ------
Ratio of net investment income/(loss) to average net assets 1.09%+ 1.71% 2.32% 2.93% 3.03% 4.06%+
------- ------- ------- ------- ------- ------
Net investment income/(loss) before deferral of fees by Manager $ 0.04 $ 0.21 $ 0.34 $ 0.39 $ 0.34 $ 0.13
------- ------- ------- ------- ------- ------
Portfolio turnover rate 60% 57% 68% 62% 90% 29%
------- ------- ------- ------- ------- ------
Expense ratio including interest and tax expense 0.86%+ 0.85% 0.86% -- -- --
------- ------- ------- ------- ------- ------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 1.48%+ 1.45% 1.38% 1.46% 1.45% 3.16%+
------- ------- ------- ------- ------- ------
Expense ratio excluding interest and tax expense 0.85%+ 0.85% 0.85% 0.86% 0.85% 0.84%+
------- ------- ------- ------- ------- ------
</TABLE>
<TABLE>
<CAPTION>
CLASS P SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 ------------------------------------
(Unaudited) 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/(loss) 0.07 0.26 0.38 0.44 0.08
Net realized and unrealized gain/(loss) on investments (1.63) 2.31 2.27 3.35 0.35
------ ------ ------ ------ ------
Net increase/(decrease) in net assets resulting from
investment operations (1.56) 2.57 2.65 3.79 0.43
------ ------ ------ ------ ------
Distributions:
Dividends from net investment income (0.09) (0.27) (0.39) (0.42) --
Distributions from net realized capital gains (2.54) (1.54) (1.91) (1.56) --
------ ------ ------ ------ ------
Total distributions (2.63) (1.81) (2.30) (1.98) --
------ ------ ------ ------ ------
NET ASSET VALUE - END OF PERIOD $14.82 $19.01 $18.25 $17.90 $16.09
------ ------ ------ ------ ------
TOTAL RETURN* (8.03)% 14.74% 15.49% 25.64% 2.75%
------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $3,143 $3,212 $2,719 $ 868 $ 2
------ ------ ------ ------ ------
Ratio of net investment income/(loss) to average net assets 0.85%+ 1.46% 2.07% 2.68% 2.78%+
------ ------ ------ ------ ------
Net investment income/(loss) before deferral of fees by Manager $ 0.02 $ 0.15 $ 0.28 $ 0.34 $ 0.06
------ ------ ------ ------ ------
Portfolio turnover rate 60% 57% 68% 62% 90%
------ ------ ------ ------ ------
Expense ratio including interest and tax expense 1.11%+ 1.10% 1.11% -- --
------ ------ ------ ------ ------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 1.73%+ 1.70% 1.63% 1.71% 1.70%+
------ ------ ------ ------ ------
Expense ratio excluding interest and tax expense 1.10%+ 1.10% 1.10% 1.11% 1.10%+
------ ------ ------ ------ ------
</TABLE>
(a) The Equity Income Fund's Class R shares and Class P shares commenced
operations on September 30, 1994, and March 12, 1996, respectively.
* Total return represents aggregate total return for the periods indicated.
** 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.
113
<PAGE> 115
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH FUND
CLASS R SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 -----------------------------------------
(Unaudited) 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) (0.08) 0.09 0.04 0.08 0.02
Net realized and unrealized gain/(loss) on investments 4.93 0.31 3.48 2.53 3.29
-------- -------- ------- ------- -------
Net increase/(decrease) in net assets resulting from
investment operations 4.85 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 $ 23.43 $ 18.97 $ 18.67 $ 16.24 $ 15.31
======== ======== ======= ======= =======
TOTAL RETURN* 25.72% 2.34% 23.27% 19.20% 27.58%
======== ======== ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $255,733 $227,287 $64,820 $33,912 $18,303
-------- -------- ------- ------- -------
Ratio of net investment income/(loss) to average net assets (0.70)%+ 0.41% 0.22% 0.57% 0.26%+
-------- -------- ------- ------- -------
Net investment income/(loss) before deferral of fees by
-------- -------- ------- ------- -------
Manager $ (0.08) $ 0.09 $ (0.04) $ (0.02) $ (0.07)
-------- -------- ------- ------- -------
Portfolio turnover rate 199% 150% 127% 95% 239%
-------- -------- ------- ------- -------
Expense ratio including interest and tax expense 1.72%+ 1.66% 1.66% -- --
-------- -------- ------- ------- -------
Expense ratio before deferral of fees by Manager,
including interest and tax expense 1.86%+ 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
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 -------------------------------------
(Unaudited) 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) (0.06) 0.12 (0.01) 0.05 0.00++
Net realized and unrealized gain/(loss) on investments 4.89 0.26 3.50 2.54 1.65
------ ------ ------ ------ ------
Net increase/(decrease) in net assets resulting from
investment operations 4.83 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 $23.36 $18.92 $18.64 $16.22 $15.31
====== ====== ====== ====== ======
TOTAL RETURN* 25.68% 2.18% 23.03% 19.13% 12.08%
====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $4,970 $2,352 $ 5 $ 5 $ 1
------ ------ ------ ------ ------
Ratio of net investment income/(loss) to average net assets (1.00)%+ 0.16% (0.03)% 0.32% 0.01%+
------ ------ ------ ------ ------
Net investment income/(loss) before deferral of fees by Manager $(0.06) $ 0.12 $(0.08) $(0.06) $(0.05)
------ ------ ------ ------ ------
Portfolio turnover rate 199% 150% 127% 95% 239%
------ ------ ------ ------ ------
Expense ratio including interest and tax expense 1.97%+ 1.91% 1.91% -- --
------ ------ ------ ------ ------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 2.11%+ 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.
The accompanying notes are an integral part of these financial statements.
114
<PAGE> 116
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERNATIONAL SMALL CAP FUND**
CLASS R SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 --------------------------------------------------
(Unaudited) 1999++ 1998++ 1997 1996 1995
----------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 14.49 $ 15.14 $ 17.16 $ 14.86 $ 11.75 $ 12.02
======= ======= ======= ======= ======= =======
Net investment income/(loss) (0.08) 0.01 (0.01) (0.05) 0.03 0.12
Net realized and unrealized gain/(loss) on investments 0.61 (0.65) 0.31 2.35 3.10 (0.39)
------- ------- ------- ------- ------- -------
Net increase/(decrease) in net assets resulting from
investment operations 0.53 (0.64) 0.30 2.30 3.13 (0.27)
------- ------- ------- ------- ------- -------
Distributions:
Dividends from net investment income -- -- -- -- (0.02) (0.00)++
Distributions in excess of net investment income -- (0.01) (0.13) -- -- --
Distributions from net realized capital gains (0.28) -- (2.19) -- -- --
------- ------- ------- ------- ------- -------
Total distributions (0.28) (0.01) (2.32) -- (0.02) (0.00)++
------- ------- ------- ------- ------- -------
NET ASSET VALUE - END OF PERIOD $ 14.74 $ 14.49 $ 15.14 $ 17.16 $ 14.86 $ 11.75
======= ======= ======= ======= ======= =======
TOTAL RETURN* 4.21% (3.82)% 4.46% 15.48% 26.68% (2.23)%
======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $31,756 $38,054 $50,491 $53,602 $41,640 $28,516
------- ------- ------- ------- ------- -------
Ratio of net investment income/(loss) to average net assets (0.85)%+ 0.07% (0.03)% (0.34)% 0.20% 0.95%
------- ------- ------- ------- ------- -------
Net investment income/(loss) before deferral of fees by Manager $ (0.10) $ 0.01 $ (0.10) $ (0.14) $ (0.08) $ 0.05
------- ------- ------- ------- ------- -------
Portfolio turnover rate 93% 117% 111% 85% 177% 156%
------- ------- ------- ------- ------- -------
Expense ratio including interest and tax expense 1.91%+ 1.91% 1.92% -- 1.96% 1.91%
------- ------- ------- ------- ------- -------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 3.15%+ 2.56% 2.53% 2.60% 2.76% 2.50%
------- ------- ------- ------- ------- -------
Expense ratio excluding interest and tax expense 1.90%+ 1.90% 1.90% 1.90% 1.90% 1.90%
------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
CLASS P SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 ---------------------------
(Unaudited) 1999!! 1998!! 1997(a)
----------- ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $14.42 $15.13 $17.16 $16.96
------ ------ ------ ------
Net investment income/(loss) (0.07) (0.02)# (0.05) 0.00++
Net realized and unrealized gain/(loss) on investments 0.58 (0.69) 0.30 0.20
------ ------ ------ ------
Net increase/(decrease) in net assets resulting from
investment operations 0.51 (0.71) 0.25 0.20
------ ------ ------ ------
Distributions:
Distributions in excess of net investment income -- -- (0.09) --
Distributions from net realized capital gains (0.28) -- (2.19) --
------ ------ ------ ------
Total distributions (0.28) -- (2.28) --
------ ------ ------ ------
NET ASSET VALUE - END OF PERIOD $14.65 $14.42 $15.13 $17.16
====== ====== ====== ======
TOTAL RETURN* 3.80% (4.03)% 4.13% 1.18%
====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $ 3 $ 3 $ 5 $ 15
------ ------ ------ ------
Ratio of net investment income/(loss) to average net assets (1.07)%+ (0.18)% (0.28)% (0.59)%+
------ ------ ------ ------
Net investment income/(loss) before deferral of fees by Manager $(0.08) $(0.03) $(0.16) $(0.01)
------ ------ ------ ------
Portfolio turnover rate 93% 117% 111% 85%
------ ------ ------ ------
Expense ratio including interest and tax expense 2.16%+ 2.16% 2.17% --
------ ------ ------ ------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 3.41%+ 2.81% 2.78% 2.85%+
------ ------ ------ ------
Expense ratio excluding interest and tax expense 2.15%+ 2.15% 2.15% 2.15%+
------ ------ ------ ------
</TABLE>
(a) The International Small Cap Fund's Class P shares commenced operations on
June 9, 1997
* Total return represents aggregate total return for the periods indicated.
** Closed to new investors.
+ Annualized.
++ Amount represents less than $0.01 per share.
# The amount shown in this caption for each share outstanding throughout the
period may not be in accord with the net realized and unrealized gain/(loss)
for the period because of the timing of purchases and withdrawal of shares
in relation to the fluctuating market values of the portfolio.
!! Per-share numbers have been calculated using the average share method, which
more appropriately represents the per-share data for the period, since the
use of the undistributed income method did not accord with results of
operations.
115
<PAGE> 117
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GLOBAL OPPORTUNITIES FUND
CLASS R SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 ---------------------------------------------------
(Unaudited) 1999 1998# 1997 1996 1995
----------- ---- ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 19.21 $ 19.19 $ 19.17 $ 16.96 $ 13.25 $ 12.92
======= ======= ======= ======= ======= =======
Net investment income/(loss) (0.11) (0.12) 0.00++ (0.11) (0.06) 0.13
Net realized and unrealized gain/(loss) on investments 7.23 2.56 3.87 3.14 3.84 0.70
------- ------- ------- ------- ------- -------
Net increase/(decrease) in net assets resulting from
investment operations 7.12 2.44 3.87 3.03 3.78 0.83
------- ------- ------- ------- ------- -------
Distributions:
Dividends from net investment income -- (0.22) -- -- (0.07) --
Distributions from net realized capital gains (1.66) (2.20) (3.85) (0.82) -- (0.50)
------- ------- ------- ------- ------- -------
Total distributions (1.66) (2.42) (3.85) (0.82) (0.07) (0.50)
------- ------- ------- ------- ------- -------
NET ASSET VALUE - END OF PERIOD $ 24.67 $ 19.21 $ 19.19 $ 19.17 $ 16.96 $ 13.25
======= ======= ======= ======= ======= =======
TOTAL RETURN* 37.83% 15.68% 27.12% 18.71% 28.64% 6.43%
======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $90,301 $57,146 $96,412 $32,371 $28,496 $13,677
------- ------- ------- ------- ------- -------
Ratio of net investment income/(loss) to average net
assets (1.20)%+ (0.61)% (0.02)% (0.62)% (0.56)% 1.03%
------- ------- ------- ------- ------- -------
Net investment income/(loss) before deferral of fees
by Manager $ (0.11) $ (0.14) $ 0.00++ $ (0.23) $ (0.16) $ (0.01)
------- ------- ------- ------- ------- -------
Portfolio turnover rate 175% 172% 135% 117% 164% 119%
------- ------- ------- ------- ------- -------
Expense ratio including interest and tax expense 1.96%+ 2.01% 1.96% -- 2.05% 1.91%
------- ------- ------- ------- ------- -------
Expense ratio before deferral of fees by Manager,
including interest and tax expense 2.62%+ 2.40% 2.37% 2.62% 3.10% 2.99%
------- ------- ------- ------- ------- -------
Expense ratio excluding interest and tax expense 1.90%+ 1.90% 1.90% 1.90% 1.90% 1.90%
------- ------- ------- ------- ------- -------
</TABLE>
* 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.
The accompanying notes are an integral part of these financial statements.
116
<PAGE> 118
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GLOBAL COMMUNICATIONS FUND
CLASS R SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 -------------------------------------------------------
(Unaudited) 1999 1998++ 1997 1996 1995
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 26.73 $ 22.88 $ 19.61 $ 18.05 $ 15.42 $ 14.20
======== ======== ======== ======== ======== ========
Net investment income/(loss) (0.12) 0.01 (0.17) (0.25) (0.20) (0.03)
Net realized and unrealized gain/(loss) on investments 16.49 6.35 7.19 2.72 2.83 1.28
-------- -------- -------- -------- -------- --------
Net increase/(decrease) in net assets resulting from
investment operations 16.37 6.36 7.02 2.47 2.63 1.25
-------- -------- -------- -------- -------- --------
Distributions:
Distributions from net realized capital gains (6.25) (2.51) (3.75) (0.91) -- --
Distributions in excess of net realized capital gains -- -- -- -- -- (0.03)
-------- -------- -------- -------- -------- --------
Total distributions (6.25) (2.51) (3.75) (0.91) -- (0.03)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE - END OF PERIOD $ 36.85 $ 26.73 $ 22.88 $ 19.61 $ 18.05 $ 15.42
======== ======== ======== ======== ======== ========
TOTAL RETURN* 63.42% 31.66% 45.45% 14.43% 17.06% 8.83%
======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $598,671 $354,730 $267,113 $153,955 $206,671 $209,644
-------- -------- -------- -------- -------- --------
Ratio of net investment income/(loss) to average net assets (1.00)%+ 0.02% (0.85)% (1.05)% (1.01)% (0.10)%
-------- -------- -------- -------- -------- --------
Net investment income/(loss) before deferral of fees
by Manager $ (0.12) $ 0.01 $ (0.17) $ (0.27) $ (0.22) $ (0.07)
-------- -------- -------- -------- -------- --------
Portfolio turnover rate 163% 146% 80% 76% 104% 50%
-------- -------- -------- -------- -------- --------
Expense ratio including interest and tax expense 1.51%+ 1.69% 1.93% -- 2.01% 1.91%
-------- -------- -------- -------- -------- --------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 1.51%+ 1.69% 1.93% 2.00% 2.11% 2.09%
-------- -------- -------- -------- -------- --------
Expense ratio excluding interest and tax expense 1.51%+ 1.68% 1.90% 1.91% 1.90% 1.90%
-------- -------- -------- -------- -------- --------
</TABLE>
* 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.
117
<PAGE> 119
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EMERGING MARKETS FUND
CLASS R SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99!! -------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995++
-------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.24 $ 9.86 $ 16.85 $ 14.19 $ 13.17 $ 13.68
-------- -------- -------- ---------- -------- --------
Net investment income/(loss) (0.04) 0.92 0.07 0.07 0.08 0.03
Net realized and unrealized gain/(loss) on investments 2.82 (0.54) (6.58) 2.66 0.94 0.25#
-------- -------- -------- ---------- -------- --------
Net increase/(decrease) in net assets resulting from
investment operations 2.78 0.38 (6.51) 2.73 1.02 0.28
-------- -------- -------- ---------- -------- --------
Distributions:
Dividends from net investment income -- -- (0.15) (0.07) -- --
Distributions from net realized capital gains -- -- (0.33) -- -- (0.42)
Distributions in excess of net realized capital gains -- -- -- -- -- (0.37)
-------- -------- -------- ---------- -------- --------
Total distributions -- -- (0.48) (0.07) -- (0.79)
-------- -------- -------- ---------- -------- --------
NET ASSET VALUE - END OF PERIOD $ 13.02 $ 10.24 $ 9.86 $ 16.85 $ 14.19 $ 13.17
-------- -------- -------- ---------- -------- --------
TOTAL RETURN* 27.15% 3.85% (39.20)% 19.34% 7.74% 1.40%
-------- -------- -------- ---------- -------- --------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $368,135 $344,907 $758,911 $1,259,457 $994,378 $998,083
-------- -------- -------- ---------- -------- --------
Ratio of net investment income/(loss) to average net assets (0.74)%+ 0.01% 0.55% 0.48% 0.58% 0.23%
-------- -------- -------- ---------- -------- --------
Net investment income/(loss) before deferral of
fees by Manager $ (0.92) $ 0.96 $ 0.07 -- -- --
-------- -------- -------- ---------- -------- --------
Portfolio turnover rate 112% 86% 97% 83% 110% 92%
-------- -------- -------- ---------- -------- --------
Expense ratio including interest and tax expense 2.04%+ 2.05% 1.65% -- -- --
-------- -------- -------- ---------- -------- --------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 2.47%+ 2.15% 1.65% -- -- --
-------- -------- -------- ---------- -------- --------
Expense ratio excluding interest and tax expense 1.90%+ 1.90% 1.60% 1.67% 1.72% 1.80%
-------- -------- -------- ---------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
CLASS P SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99!! ---------------------------------------
(Unaudited) 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) (0.04) 0.00++ 0.03 0.06 0.01
Net realized and unrealized gain/(loss) on investments 2.72 0.31 (6.61) 2.58 1.56
------- ------- -------- ------ -------
Net increase/(decrease) in net assets resulting from
investment operations 2.68 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 $ 12.73 $ 10.05 $ 9.74 $16.77 $ 14.19
------- ------- -------- ------ -------
TOTAL RETURN* 27.09% 3.08% (39.75)% 18.62% 12.44%
------- ------- -------- ------ -------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $ 914 $ 520 $ 413 $ 607 $ 2
------- ------- -------- ------ -------
Ratio of net investment income/(loss) to average net assets (0.85)%+ (0.24)% 0.30% 0.23% 0.33%+
------- ------- -------- ------ -------
Net investment income/(loss) before deferral of
fees by Manager $ (1.05) $ 0.01 $ 0.03 -- --
------- ------- -------- ------ -------
Portfolio turnover rate 112% 86% 97% 83% 110%
------- ------- -------- ------ -------
Expense ratio including interest and tax expense 2.29%+ 2.30% 1.90% -- --
------- ------- -------- ------ -------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 2.72%+ 2.40% 1.90% -- --
------- ------- -------- ------ -------
Expense ratio excluding interest and tax expense 2.15%+ 2.15% 1.85% 1.92% 1.97%+
------- ------- -------- ------ -------
</TABLE>
(a) The Emerging Markets Fund's Class P shares commenced operations on March 12,
1996.
* Total return represents aggregate total return for the periods indicated.
# The amount shown in this caption for each share outstanding throughout the
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.
+ 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.
The accompanying notes are an integral part of these financial statements.
118
<PAGE> 120
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EMERGING ASIA FUND
CLASS R SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99!! --------------------------------------
(Unaudited) 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) (0.05) (0.01) 0.13 (0.01)
Net realized and unrealized gain/(loss) on investments 0.17# 6.04 (11.74) 6.95
---------- ---------- ---------- ----------
Net increase/(decrease) in net assets resulting from investment
operations 0.12 6.03 (11.61) 6.94
---------- ---------- ---------- ----------
Distributions:
Dividends from net investment income (0.64) (0.00)++ (0.17) --
Distributions from net realized capital gains -- -- (0.00)++ (0.03)
Distributions in excess of net realized capital gains -- -- (0.95) --
---------- ---------- ---------- ----------
Total distributions (0.64) (0.00)++ (1.12) (0.03)
---------- ---------- ---------- ----------
NET ASSET VALUE - END OF PERIOD $ 11.69 $ 12.21 $ 6.18 $ 18.91
---------- ---------- ---------- ----------
TOTAL RETURN* 1.40% 97.44% (63.45)% 57.80%
---------- ---------- ---------- ----------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $ 42,481 $ 63,196 $ 24,608 $ 68,095
---------- ---------- ---------- ----------
Ratio of net investment income/(loss) to average net assets (0.96)%+ (0.35)% 0.22% (0.42)%+
---------- ---------- ---------- ----------
Net investment income/(loss) before deferral of fees by Manager $ (0.08) $ (0.03) $ (0.08) $ (0.02)
---------- ---------- ---------- ----------
Portfolio turnover rate 82% 233% 154% 72%
---------- ---------- ---------- ----------
Expense ratio including interest and tax expense 1.93%+ 2.19% 1.91% 2.20%+
---------- ---------- ---------- ----------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 3.05%+ 2.89% 2.27% 2.69%+
---------- ---------- ---------- ----------
Expense ratio 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.
# 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 sales 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.
119
<PAGE> 121
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GLOBAL LONG-SHORT FUND
CLASS R SHARES
Fiscal Year Ended
June 30, March 31,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 ---------- --------------------
(Unaudited) 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) (0.19) (0.06) (0.05) 0.02
Net realized and unrealized gain/(loss) on investments 13.66 3.24 4.92 2.68
-------- -------- ------- -------
Net increase/(decrease) in net assets resulting from
investment operations 13.47 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 $ 31.13 $ 19.65 $ 16.47 $ 12.70
-------- -------- ------- -------
TOTAL RETURN* 69.44% 19.61% 39.87% 27.20%
-------- -------- ------- -------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $455,370 $216,300 $83,638 $16,579
-------- -------- ------- -------
Ratio of net investment income/(loss) to average net assets (1.90)%+ (2.30)%+ (0.35)% 0.65%+
-------- -------- ------- -------
Net investment income/(loss) before deferral of fees by Manager $ (0.19) $ (0.06) $ (0.09) $ (0.05)
-------- -------- ------- -------
Portfolio turnover rate 277% 43% 226% 84%
-------- -------- ------- -------
Expense ratio including interest and tax expense 3.46%+ 4.18%+ 3.40% 2.78%+
-------- -------- ------- -------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 3.46%+ 4.61%+ 3.79% 5.19%+
-------- -------- ------- -------
Expense ratio excluding interest and tax expense 2.25%+ 2.35%+ 2.35% 2.35%+
-------- -------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES
Fiscal Year Ended
June 30, March 31,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 -------- --------------------
(Unaudited) 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) (0.29) (0.15) (0.16) 0.00++
Net realized and unrealized gain/(loss) on investments 13.39 3.25 4.87 2.64
------- ------- ------- ------
Net increase/(decrease) in net assets resulting from investment
operations 13.10 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 $ 30.46 $ 19.35 $ 16.25 $12.64
------- ------- ------- ------
TOTAL RETURN(*) 68.80% 19.38% 38.88% 26.50%
------- ------- ------- ------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $27,639 $18,704 $17,031 $ 61
------- ------- ------- ------
Ratio of net investment income/(loss) to average net assets (2.61)%+ (3.07)%+ (1.10)% (0.10)%+
------- ------- ------- ------
Net investment income/(loss) before deferral of fees by Manager $ (0.29) $ (0.16) $ (0.28) $(0.00)++
------- ------- ------- ------
Portfolio turnover rate 277% 43% 226% 84%
------- ------- ------- ------
Expense ratio including interest and tax expense 4.21%+ 4.93%+ 4.15% 3.53%+
------- ------- ------- ------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 4.21%+ 5.36%+ 4.54% 5.94%+
------- ------- ------- ------
Expense ratio excluding interest and tax expense 3.00%+ 3.10%+ 3.10% 3.10%+
------- ------- ------- ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
120
<PAGE> 122
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GLOBAL LONG-SHORT FUND - continued
CLASS C SHARES
Fiscal Year Ended
June 30, March 31,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 -------- -------------------
(Unaudited) 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) (0.27) (0.13) (0.15) 0.00++
Net realized and unrealized gain/(loss) on investments 12.45 3.01 4.55 1.83
------- ------ ------ ------
Net increase/(decrease) in net assets resulting from investment
operations 12.18 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 $ 28.20 $18.01 $15.13 $11.83
------- ------ ------ ------
TOTAL RETURN* 68.60% 19.37% 38.81% 18.50%
------- ------ ------ ------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $11,486 $7,209 $6,425 $ 202
------- ------ ------ ------
Ratio of net investment income/(loss) to average net assets (2.62)%+ (3.07)%+ (1.10)% (0.10)%+
------- ------ ------ ------
Net investment income/(loss) before deferral of fees by Manager $ (0.27) $(0.15) $(0.26) $(0.00)++
------- ------ ------ ------
Portfolio turnover rate 277% 43% 226% 84%
------- ------ ------ ------
Expense ratio including interest and tax expense 4.21%+ 4.93%+ 4.15% 3.53%+
------- ------ ------ ------
Expense ratio before deferral of fees by Manager, including
interest and tax expense 4.21%+ 5.36%+ 4.54% 5.94%+
------- ------ ------ ------
Expense ratio excluding interest and tax expense 3.00%+ 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.
121
<PAGE> 123
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SELECT 50 FUND
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99++ --------------------------------------------
(Unaudited) 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) (0.26) (0.09) 0.12 0.01 0.06
Net realized and unrealized gain/(loss) on investments 5.56 2.70 2.70 4.16 4.45
---------------------------------------------------------
Net increase/(decrease) in net assets resulting from investment
operations 5.30 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 $ 24.39 $ 22.20 $ 20.98 $ 20.01 $ 16.46
---------------------------------------------------------
TOTAL RETURN* 25.20% 13.89% 15.44% 26.35% 37.75%
---------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $ 141,146 $ 136,792 $ 269,667 $ 172,509 $77,955
Ratio of net investment income/(loss) to average net assets (2.34)%+ (0.47)% 0.58% 0.04% 0.42%+
Net investment income/(loss) before deferral of fees by Manager $ (0.27) $ (0.09) $ 0.12 $ (0.01) $ 0.02
Portfolio turnover rate 122% 115% 151% 158% 106%
Expense ratio including interest and tax expense 3.26%+ 1.76% 1.81% -- --
Expense ratio before deferral of fees by Manager, including interest
and tax expense 3.37%+ 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
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99++ -------------------------------
(Unaudited) 1999++ 1998++ 1997(a)
NET ASSET VALUE - BEGINNING OF PERIOD $ 21.83 $ 20.68 $19.98 $ 15.89
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income/(loss) (0.25) (0.14) 0.09 (0.02)
Net realized and unrealized gain/(loss) on investments 5.42 2.64 2.46 4.11
----------------------------------------------------
Net increase/(decrease) in net assets resulting from investment
operations 5.17 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 $ 23.89 $ 21.83 $20.68 $ 19.98
TOTAL RETURN* 25.02% 13.46% 14.12% 25.74%
----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $ 27 $ 55 $ 52 $ 9
Ratio of net investment income/(loss) to average net assets (2.29)%+ (0.72)% 0.34% (0.21)%+
Net investment income/(loss) before deferral of fees by Manager $ (0.27) $ (0.14) $ 0.09 $ (0.03)
Portfolio turnover rate 122% 115% 151% 158%
Expense ratio including interest and tax expense 3.51%+ 2.01% 2.06% --
Expense ratio before deferral of fees by Manager, including interest
and tax expense 3.62%+ 2.01% 2.06% 2.17%+
Expense ratio excluding interest and tax expense 2.05%+ 1.98% 2.05% 2.07%+
</TABLE>
(a) The Select 50 Fund's Class R shares and Class P shares commenced operations
on October 2, 1995, and December 12, 1996, respectively.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
++ Per-share numbers have been calculated using the average share method, which
more appropriately represents the per-share data for the period, since the
use of the undistributed income method did not accord with results of
operations.
122
The accompanying notes are an integral part of these financial statements.
<PAGE> 124
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
BALANCED FUND
CLASS R SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 ------------------------------------------------------------
(Unaudited) 1999++ 1998# 1997++ 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 16.77 $ 19.08 $ 19.89 $ 19.33 $ 16.33 $ 12.24
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 1.70 0.48 1.66 0.48 0.26 0.25
Net realized and unrealized gain/(loss) on investments (1.46) 1.23 0.99 2.13 3.54 4.11
------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.24 1.71 2.65 2.61 3.80 4.36
------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.30) (0.93) (0.93) (0.39) (0.25) (0.17)
Dividends in excess of net investment income -- -- (0.70) -- -- --
Distributions from net realized capital gains (0.44) (1.68) (1.83) (1.66) (0.55) (0.10)
Distributions in excess of net realized capital gains -- (1.41) -- -- -- --
Total distributions (0.74) (4.02) (3.46) (2.05) (0.80) (0.27)
------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 16.27 $ 16.77 $ 19.08 $ 19.89 $ 19.33 $ 16.33
TOTAL RETURN* 1.04% 11.93% 14.67% 14.65% 23.92% 35.99%
------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $ 69,178 $ 81,133 $ 128,075 $ 127,214 $ 132,511 $ 60,234
Ratio of net investment income/(loss) to average
net assets 19.24%+ 2.63% 3.10% 2.55% 1.85% 3.43%
Net investment income/(loss) before deferral
of fees by Manager $ 1.63 $ 0.45 $ 1.63 $ 0.47 $ 0.24 $ 0.19
Portfolio turnover rate 22% 36% 84% 169% 226% 96%
Expense ratio including interest and tax expense 0.09%+ 0.25% 0.26% 1.43% 1.42% 1.31%
Expense ratio before deferral of fees by Manager,
including interest and tax expense 0.61%+ 0.46% 0.31% 1.49% 1.55% 2.07%
Expense ratio excluding interest and tax expense 0.09%+ 0.25% 0.25% 1.31% 1.30% 1.30%
</TABLE>
<TABLE>
<CAPTION>
CLASS P SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 --------------------------------------------
(Unaudited) 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) 1.55 0.44 1.62 0.43 0.09
Net realized and unrealized gain/(loss) on investments (1.34) 1.17 1.01 2.13 1.38
---------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.21 1.61 2.63 2.56 1.47
Distributions:
Dividends from net investment income (0.25) (0.89) (0.84) (0.34) --
Dividends in excess of net investment income -- -- (0.74) -- --
Distributions from net realized capital gains (0.45) (1.68) (1.83) (1.66) --
Distributions in excess of net realized capital gains -- (1.41) -- -- --
Total distributions (0.70) (3.98) (3.41) (2.00) --
---------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 16.25 $ 16.74 $ 19.11 $ 19.89 $ 19.33
TOTAL RETURN* 1.01% 11.15% 14.53% 14.35% 8.23%
---------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $ 57 $ 56 $ 71 $ 74 $ 43
Ratio of net investment income/(loss) to average net assets 19.70%+ 2.68% 2.85% 2.30% 1.60%+
Net investment income/(loss) before deferral of fees by Manager $ 1.50 $ 0.41 $ 1.59 $ 0.42 $ 0.08
Portfolio turnover rate 22% 36% 84.% 169% 226%
Expense ratio including interest and tax expense 0.34%+ 0.50% 0.51% 1.68% 1.67%+
Expense ratio before deferral of fees by Manager, including interest
and tax expense 0.86%+ 0.71% 0.56% 1.74% 1.80%+
Expense ratio excluding interest and tax expense 0.34%+ 0.50% 0.50% 1.56% 1.55%+
</TABLE>
(a) The Balanced Fund's (formerly named Montgomery U.S. Asset Allocation Fund)
Class P shares commenced operations on January 3, 1996.
# The Fund converted to a fund of funds structure effective July 1, 1998.
Expense ratios prior to that date do not reflect expenses borne indirectly.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
++ Per-share numbers have been calculated using the average share method,
which more appropriately represents the per-share data for the period,
since the use of the undistributed income method did not accord with
results of operations.
123
<PAGE> 125
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: 12/31/99 --------------------------
(Unaudited) 1999 1998(a)
<S> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 11.66 $ 12.44 $ 12.00
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.39 0.73 0.72
Net realized and unrealized gain/(loss) on investments (0.31) (0.35) 0.56
--------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 0.08 0.38 1.28
--------------------------------------
Distributions:
Dividends from net investment income (0.37) (0.73) (0.72)
Distributions in excess of net investment income -- (0.01) (0.00)++
Distributions from net realized capital gains (0.15) (0.42) (0.12)
Total distributions (0.52) (1.16) (0.84)
--------------------------------------
NET ASSET VALUE - END OF PERIOD $ 11.22 $ 11.66 $ 12.44
TOTAL RETURN* 0.52% 3.20% 10.92%
--------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $ 31,301 $ 38,476 $ 77,694
Ratio of net investment income/(loss) to average net assets 6.75%+ 5.88% 5.81%
Net investment income/(loss) before deferral of fees by Manager $ 0.38 $ 0.72 $ 0.71
Portfolio turnover rate 140% 158% 390%
Expense ratio including interest and tax expense 0.70%+ 1.16% 1.29%
Expense ratio before deferral of fees by Manager, including interest and tax expense 1.14%+ 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.
+ Annualized.
++ Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
124
<PAGE> 126
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SHORT DURATION GOVERNMENT BOND FUND
CLASS R SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 -----------------------------------------------------------
(Unaudited) 1999 1998 1997++ 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.04 $ 10.14 $ 9.99 $ 9.92 $ 9.95 $ 9.80
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.29 0.53 0.57 0.59 0.60 0.62
Net realized and unrealized gain/(loss) on investments (0.13) (0.05) 0.16 0.07 (0.04) 0.16
------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.16 0.48 0.73 0.66 0.56 0.78
------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.29) (0.51) (0.56) (0.59) (0.59) (0.62)
Dividends in excess of net investment income -- (0.02) -- (0.00)# (0.00)# --
Distributions from net realized capital gains -- -- (0.02) -- -- --
Distributions in excess of net realized capital gains -- (0.05) -- -- -- --
Distributions from capital -- -- -- -- -- (0.01)
Total distributions (0.29) (0.58) (0.58) (0.59) (0.59) (0.63)
------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 9.91 $ 10.04 $ 10.14 $ 9.99 $ 9.92 $ 9.95
TOTAL RETURN* 1.57% 4.82% 7.56% 6.79% 5.74% 8.28%
------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $ 166,445 $ 154,365 $ 66,357 $ 47,265 $ 22,681 $ 17,093
Ratio of net investment income/(loss) to average
net assets 2.68%+ 5.21% 5.83% 5.87% 5.88% 6.41%
Net investment income/(loss) before deferral of
fees by Manager $ 5.54 $ 0.48 $ 0.51 $ 0.54 $ 0.52 $ 0.54
Portfolio turnover rate 271% 199% 502% 451% 350% 284%
Expense ratio including interest and tax expense 0.92%+ 1.35% 1.15% 1.55% 1.55% 1.38%
Expense ratio before deferral of fees by Manager,
including interest and tax expense 1.43%+ 1.85% 1.73% 2.05% 2.31% 2.23%
Expense ratio excluding interest and tax expense 0.68%+ 0.62% 0.28% 0.60% 0.60% 0.47%
</TABLE>
<TABLE>
<CAPTION>
CLASS P SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 -----------------------------------------
(Unaudited) 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) 0.27 0.41 0.61 0.59 0.16
Net realized and unrealized gain/(loss) on investments (0.07) (0.06) 0.12 0.06 (0.05)
-----------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.20 0.35 0.73 0.65 0.11
-----------------------------------------------------
Distributions:
Dividends from net investment income (0.27) (0.41) (0.57) (0.58) (0.17)
Dividends in excess of net investment income -- (0.01) -- (0.00)# --
Distributions in excess of net realized capital gains -- (0.05) -- -- --
Total distributions (0.27) (0.47) (0.57) (0.58) (0.17)
-----------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 9.96 $ 10.03 $ 10.15 $ 9.99 $ 9.92
TOTAL RETURN* 1.45% 4.47% 7.34% 6.69% 1.12%
-----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $ 3,759 $ 3,887 $ 3 $ 0 $ 1
Ratio of net investment income/(loss) to average net assets 5.43%+ 4.96% 5.58% 5.62% 5.63%+
Net investment income/(loss) before deferral of fees by Manager $ 5.28 $ 0.37 $ 0.55 $ 0.54 $ 0.14
Portfolio turnover rate 271% 199% 502% 451% 350%
Expense ratio including interest and tax expense 1.17%+ 1.60% 1.40% 1.80% 1.80%+
Expense ratio before deferral of fees by Manager, including interest
and tax expense 1.68%+ 2.10% 1.98% 2.30% 2.56%+
Expense ratio excluding interest and tax expense 0.93%+ 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.
125
<PAGE> 127
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
CLASS R SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 ---------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 12.67 $ 12.86 $ 12.53 $ 12.23 $ 12.04 $ 11.79
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.26 0.49 0.51 0.53 0.54 0.44
Net realized and unrealized gain/(loss) on investments (0.26) (0.16) 0.33 0.30 0.19 0.25
----------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.00++ 0.33 0.84 0.83 0.73 0.69
----------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.26) (0.46) (0.51) (0.53) (0.54) (0.44)
Dividends in excess of net investment income -- (0.03) -- -- -- (0.00)++
Distributions from net realized capital gains -- (0.03) -- -- -- --
Distributions in excess of net realized capital gains -- (0.00)++ -- -- -- --
Total distributions (0.26) (0.52) (0.51) (0.53) (0.54) (0.44)
----------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 12.41 $ 12.67 $ 12.86 $ 12.53 $ 12.23 $ 12.04
TOTAL RETURN* (0.02)% 2.71% 6.85% 6.91% 6.11% 6.03%
----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $ 34,293 $ 41,017 $ 35,667 $ 21,681 $ 13,948 $ 5,153
Ratio of net investment income/(loss) to average net
assets 4.08%+ 3.93% 4.03% 4.27% 4.34% 3.71%
Net investment income/(loss) before deferral of fees
by Manager $ 0.44 $ 0.48 $ 0.44 $ 0.47 $ 0.43 $ 0.34
Portfolio turnover rate 42% 184% 42% 26% 58% 38%
Expense ratio including interest and tax expense 0.70%+ 0.69% 0.69% 0.68% 0.61% 0.56%
Expense ratio before deferral of fees by Manager,
including interest and tax expense 1.20%+ 1.19% 1.19% 1.18% 1.43% 1.41%
Expense ratio excluding interest and tax expense 0.70%+ 0.69% 0.68% -- -- --
</TABLE>
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
++ Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
126
<PAGE> 128
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GOVERNMENT MONEY MARKET FUND
CLASS R SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 ------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.025 0.047 0.052 0.049 0.052 0.049
Net realized and unrealized gain/(loss) on investments 0.000 0.000 0.000 0.000 0.000 0.000
------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.025 0.047 0.052 0.049 0.052 0.049
Distributions:
Dividends from net investment income (0.025) (0.047) (0.052) (0.049) (0.052) (0.049)
Total distributions (0.025) (0.047) (0.052) (0.049) (0.052) (0.049)
------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN* 2.55% 4.81% 5.27% 5.03% 5.28% 4.97%
------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $560,020 $575,387 $724,619 $473,154 $439,423 $258,956
Ratio of net investment income/(loss) to average
net assets 5.00%+ 4.71% 5.15% 4.93% 5.17% 4.92%
Net investment income/(loss) before deferral of
fees by Manager $ 0.025 $ 0.047 $ 0.052 $ 0.049 $ 0.050 $ 0.047
Expense ratio including interest and tax expense 0.37%+ 0.50% 0.53% -- -- 0.63%
Expense ratio before deferral of fees by Manager,
including interest and tax expense 0.52%+ 0.50% 0.48% 0.62% 0.74% 0.79%
Expense ratio excluding interest and tax expense 0.37%+ 0.50% 0.53% 0.60% 0.60% 0.60%
</TABLE>
<TABLE>
<CAPTION>
CLASS P SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 ---------------------------------------------------
(Unaudited) 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) 0.024 0.045 0.049 0.048 0.014
Net realized and unrealized gain/(loss) on investments 0.000 0.000 0.000 0.000 0.000
----------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 0.024 0.045 0.049 0.048 0.014
Distributions:
Dividends from net investment income (0.024) (0.045) (0.049) (0.048) (0.014)
Total distributions (0.024) (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* 2.40% 4.54% 5.00% 4.88% 1.38%
----------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $ 3,087 $ 1 -- -- $ 1
Ratio of net investment income/(loss) to average net assets 4.92%+ 4.52% 4.90% 4.68% 4.91%+
Net investment income/(loss) before deferral of fees by Manager $ 0.024 $ 0.045 $ 0.049 $ 0.048 $ 0.013
Expense ratio including interest and tax expense 0.62%+ 0.75% 0.78% -- --
Expense ratio before deferral of fees by Manager, including
interest and tax expense 0.77%+ 0.75% 0.73% 0.87% 0.99%+
Expense ratio excluding interest and tax expense 0.62%+ 0.75% 0.78% 0.85% 0.85%+
</TABLE>
(a) The Government Money Market (formerly named Montgomery Government Reserve
Fund) Fund Class P shares commenced operations on March 11, 1996.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
Section Amount represents less than $0.001 per share.
127
<PAGE> 129
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FEDERAL TAX-FREE MONEY FUND
CLASS R SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 ---------------------------------------
(Unaudited) 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) 0.014 0.028 0.031 0.032
Net realized and unrealized gain/(loss) on investments 0.000 0.000 0.000 0.000
-----------------------------------------------------
Net increase/(decrease) in net assets resulting from investment operations 0.014 0.028 0.031 0.032
-----------------------------------------------------
Distributions:
Dividends from net investment income (0.014) (0.028) (0.031) (0.032)
Distributions in excess of net investment income -- (0.000) -- (0.000)
Total distributions (0.014) (0.028) (0.031) (0.032)
-----------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN* 1.45% 2.82% 3.12% 3.26%
-----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $ 224,387 $ 116,341 $ 117,283 $ 114,197
Ratio of net investment income/(loss) to average net assets 2.90%+ 2.80% 3.08% 3.24%+
Net investment income/(loss) before deferral of fees by Manager $ 0.014 $ 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 0.96%+ 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 Funds Class R shares commenced operations on
July 15, 1996.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
Section Amount represents less than $0.001 per share.
The accompanying notes are an integral part of these financial statements.
128
<PAGE> 130
THE MONTGOMERY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CALIFORNIA TAX-FREE MONEY FUND
CLASS R SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 --------------------------
(Unaudited) 1999 1998
<S> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.010 0.026 0.029
Net realized and unrealized gain/(loss) on investments 0.000 0.000 0.000
------------------------------------------
Net increase/(decrease) in net assets resulting from investments 0.010 0.026 0.029
------------------------------------------
Distributions:
Dividends from net investment income (0.010) (0.026) (0.029)
Dividends in excess of net investment income -- -- --
Total distributions (0.010) (0.026) (0.029)
------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN* 1.27% 2.59% 3.00%
------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $ 317,463 $ 292,901 $ 187,216
Ratio of net investment income/(loss) to average net assets 1.62%+ 2.55% 2.96%
Net investment income/(loss) before deferral of fees by Manager $ 0.012 $ 0.021 $ 0.029
Expense ratio including interest and tax expense 0.60%+ 0.58% 0.58%
Expense ratio before deferral of fees by Manager, including interest
and tax expense 0.60%+ 0.61% 0.68%
Expense ratio excluding interest and tax expense 0.60%+ 0.58% 0.58%
</TABLE>
<TABLE>
<CAPTION>
CLASS R SHARES
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: --------------------------------------
1997 1996 1995(a)
<S> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.029 0.030 0.027
Net realized and unrealized gain/(loss) on investments 0.000 0.000 0.000
--------------------------------------
Net increase/(decrease) in net assets resulting from investments 0.029 0.030 0.027
--------------------------------------
Distributions:
Dividends from net investment income (0.029) (0.030) (0.027)
Dividends in excess of net investment income -- -- (0.00)
Total distributions (0.029) (0.030) (0.027)
--------------------------------------
NET ASSET VALUE - END OF PERIOD $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN* 2.95% 3.03% 2.68%
--------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) $ 118,723 $ 98,134 $ 64,780
Ratio of net investment income/(loss) to average net assets 2.91% 2.99% 3.55%+
Net investment income/(loss) before deferral of fees by Manager $ 0.028 $ 0.028 $ 0.023
Expense ratio including interest and tax expense 0.58% 0.59% 0.33%+
Expense ratio before deferral of fees by Manager, including interest
and tax expense 0.73% 0.80% 0.86%+
Expense ratio excluding interest and tax expense -- -- --
</TABLE>
(a) The California Tax-Free Money Funds Class R shares commenced operations on
September 30, 1994.
* Total return represents aggregate total return for the periods indicated.
+ Annualized.
Section Amount represents less than $0.001 per share.
129
<PAGE> 131
The Montgomery Funds
Notes
to Financial Statements
(Unaudited)
The Montgomery Funds and The Montgomery Funds II (individually, the "Trust"
and, collectively, the "Trusts") are registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as diversified, open-end management
investment companies. As of December 31, 1999, the Trusts had 24 publicly
offered series (individually, a "Fund" and, collectively, the "Funds"). The
Montgomery Funds include the following: Montgomery Growth Fund, Montgomery U.S.
Emerging Growth Fund, Montgomery Small Cap Fund, Montgomery Equity Income Fund,
Montgomery International Growth Fund, Montgomery International Small Cap Fund,
Montgomery Global Opportunities Fund, Montgomery Global Communications Fund,
Montgomery Emerging Markets Fund, Montgomery Emerging Asia Fund, Montgomery
Select 50 Fund, Montgomery Total Return Bond Fund, Montgomery Short Duration
Government Bond Fund, Montgomery California Tax-Free Intermediate Bond Fund,
Montgomery Government Money Market Fund, Montgomery Federal Tax-Free Money Fund
and Montgomery California Tax-Free Money Fund. The Montgomery Funds II include
the Montgomery Global Long-Short Fund and the Montgomery Balanced Fund (formerly
Montgomery U.S. Asset Allocation Fund), among other series. The financial
statements for the other Funds in The Montgomery Funds II have been presented
under separate covers.
The Montgomery Funds are organized as a Massachusetts business trust and
commenced operations on May 10, 1990. The Montgomery Funds II are organized as
a Delaware business trust and commenced operations on September 8, 1993.
The Montgomery Global Long-Short Fund, which commenced operations on December
31, 1997, has changed its fiscal year end from March 31 to June 30 of each year.
The Fund's most recent audited financial statements covered the period ended
June 30, 1999. On May 21, 1999, the Montgomery Global Long-Short Fund was closed
to new investors; however, existing shareholders of the Fund as of this date may
continue to purchase additional shares for their accounts.
Effective November 30, 1999, the Montgomery Equity Income Fund and the
Montgomery International Small Cap Fund were closed to new investors; however,
existing shareholders of the Funds as of this date may continue to purchase
additional shares for their accounts.
Effective December 30, 1999, the Montgomery U.S. Asset Allocation Fund changed
its name to the Montgomery Balanced Fund.
Effective January 3, 2000, the Montgomery U.S. Emerging Growth Fund will reopen
to new investors.
1.SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosure in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies.
a.PORTFOLIO VALUATION
Portfolio securities, including short sales, are valued using current market
valuations: either the last reported sale price or, in the case of securities
for which there is no reported last sale and in the case of fixed-income
securities, the mean of the closing bid and ask prices.
Portfolio securities that are traded primarily on foreign securities exchanges
or for which market quotations are readily available are generally valued at
the last reported sale price on the respective exchanges or markets; except that
when an occurrence subsequent to the time that a value was so established is
likely to have changed said value, the fair value of those securities will be
determined by consideration of other factors by or under the direction of the
Board of Trustees or its delegates. Securities traded on the over-the-counter
market or on the NASDAQ national market are valued at the mean between the last
available bid and ask prices prior to the time of valuation.
For the Government Money Market Fund, Federal Tax-Free Money Fund and California
Tax-Free Money Fund, portfolio securities are valued at amortized cost, which
approximates market value.
Securities for which market quotations are not readily available (including
restricted securities that are subject to limitations as to their sale) are
valued at fair value as determined in good faith by or under the supervision of
the Trusts' officers in accordance with methods authorized by the Trusts' Board
of Trustees. Short-term securities with maturities of 60 days or less are
carried at amortized cost, which approximates market value.
b.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
Certain Funds may engage in forward foreign-currency exchange contracts
("forward contracts") as a hedge in connection with portfolio purchases and
sales of securities denominated in foreign currencies. A forward contract is a
commitment to purchase or sell a foreign currency at the settlement date at a
negotiated rate.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies, and unrealized gain/(loss) is recorded daily. Unrealized
gains and losses that represent the difference between the value of the forward
contract to buy and the forward contract to sell are included in net unrealized
gain/(loss) from foreign-currency-related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, a Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
130
<PAGE> 132
The Montgomery Funds
Notes
to Financial Statements
(Unaudited)
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 the Fund of securities with a simultaneous
agreement to repurchase substantially similar securities at an agreed-upon price
at a future date. The securities repurchased will bear the same interest as
those sold, but generally will be collateralized by different pools of mortgages
with different prepayment histories. During the period between the sale and
repurchase, 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
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 the Fund. Pursuant to these
agreements, the Fund pays a swap fee in cash which is equal to a fixed
percentage of the cost for the underlying security (the "notional amount").
Additionally, the Fund will make 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 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.
131
<PAGE> 133
The Montgomery Funds
Notes
to Financial Statements
(Unaudited)
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 six months ended December 31, 1999, the Global Long-Short Fund
incurred $196,186 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, International Small Cap Fund,
Global Opportunities Fund, Global Communications Fund, Emerging Markets Fund,
Emerging Asia Fund, Global Long-Short Fund, Select 50 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.
Dividends from net investment income of the Equity Income Fund are declared and
paid quarterly.
Distributions of net realized capital gains (including net short-term capital
gains) earned by 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 generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by a Fund, timing differences and
differing characterization of distributions made by a Fund.
l.SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on a trade date basis (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
132
<PAGE> 134
The Montgomery Funds
Notes
to Financial Statements
(Unaudited)
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 their current
interpretation of tax rules and regulations that exist in the markets in which
they invest.
n.ORGANIZATION COSTS
Certain expenses incurred in connection with the organization of each Fund are
amortized on a straight-line basis over a period of five years from the
commencement of operations.
o.CASH
Cash, as used in the Statement of Cash Flows, is the amount reported in the
Statement of Assets and Liabilities. The Funds issue and redeem their shares,
invest in securities and distribute dividends from net investment income and net
realized gains (which are either paid in cash or reinvested at the discretion of
shareholders). These activities are reported in the Statement of Changes in Net
Assets. Information on cash payments is presented in the Statement of Cash
Flows. Accounting practices that do not affect reporting activities on a cash
basis include unrealized gain or loss on investment securities, accretion income
recognized on investment securities and amortization of organization costs.
p.EXPENSES
General expenses of the Trusts are allocated to the relevant Funds based on
relative net assets. Operating expenses directly attributable to a Fund or a
class of shares are charged to that Fund's or class's operations. Expenses of
each Fund not directly attributable to the operations of any Fund or class of
shares are prorated among the classes based on the relative average net assets
of each Fund or class of shares.
2.MANAGEMENT FEES AND OTHER
TRANSACTIONS WITH AFFILIATES AND
OTHER CONTRACTUAL COMMITMENTS:
a. Montgomery Asset Management, LLC, is the Funds' Manager (the "Manager"). The
Manager, a Delaware limited liability company, is an investment adviser
registered with the Securities and Exchange Commission under the Investment
Advisers Act of 1940, as amended. The Manager is a subsidiary of Commerzbank AG.
Pursuant to Investment Management Agreements (the "Agreements") between the
Manager and the Trusts with respect to each Fund, the Manager provides each Fund
with advice on buying and selling securities, manages the investments of each
Fund including the placement of orders for portfolio transactions, furnishes
each Fund with office space and certain administrative services, and provides
the personnel needed by the Trusts with respect to the Manager's
responsibilities under the Agreements. Under Operating Expense Agreements with
each Trust, the Manager has agreed to reduce some or all of its management fee
or absorb Fund expenses if necessary to keep each Fund's annual operating
expenses,exclusive of Rule 12b-1 fees, dividend expense, interest, extraordinary
expenses and taxes, at or below the following percentages of each Fund's average
net assets: 1.50% for the Growth Fund; 1.75% for the U.S. Emerging Growth Fund;
1.40% for the Small Cap Fund; 0.85% for the Equity Income Fund; 1.65% for the
International Growth Fund; 1.90% for the International Small Cap Fund, the
Global Opportunities Fund, the Global Communications Fund, the Emerging Markets
Fund and the Emerging Asia Fund; 2.35% for the Global Long-Short Fund; 1.80% for
the Select 50 Fund; 1.30% for the Balanced Fund (including total expenses of the
underlying Funds); 0.70% for the Total Return Bond Fund and the Short Duration
Government Bond Fund; 0.70% for the California Tax-Free Intermediate Bond Fund;
0.60% for the Government Money Market Fund and the Federal Tax-Free Money Fund;
and 0.60% for the California Tax-Free Money Fund. Any reductions or absorptions
made to a Fund by the Manager are subject to recovery within the following three
years, provided the Fund is able to effect such reimbursement and remain in
compliance with applicable expense limitations. The Operating Expense Agreements
have rolling 10-year terms, extendable for one year at the end of each fiscal
year.
Montgomery Asset Management, LLC, serves as the 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
Fee Including
Contractual Effective Effect of
Management Management Fees Administration
Fund Fee Fee Reduced Fee
- ---- --- --- ------- ---
<S> <C> <C> <C> <C>
Growth Fund 0.95% 0.95% 0.95% 0.07%
U.S. Emerging Growth Fund 1.35 1.35 0.97 0.07
Small Cap Fund 1.00 1.00 1.00 0.07
Equity Income Fund 0.60 0.60 0.00 0.07
International Growth Fund 1.10 1.24 1.10 0.07
International Small Cap Fund 1.25 2.31 1.06 0.07
Global Opportunities Fund 1.25 1.94 1.29 0.07
Global Communications Fund 1.15 1.15 1.15 0.07
Emerging Markets Fund 1.19 1.44 1.02 0.07
Emerging Asia Fund 1.25 2.21 1.10 0.07
Global Long-Short Fund 1.44 1.59 1.59 0.07
Select 50 Fund 1.25 1.25 1.14 0.07
Balanced Fund(*) -- -- -- --
Total Return Bond Fund 0.50 0.78 0.34 0.05
Short Duration
Government Bond Fund 0.50 0.85 0.35 0.05
California Tax-Free
Intermediate Bond Fund 0.50 0.88 0.38 0.05
Government Money Market
Fund 0.33 0.33 0.18 0.04
Federal Tax-Free Money Fund 0.40 0.77 0.41 0.05
California Tax-Free
Money Fund 0.40 0.45 0.44 0.05
</TABLE>
(*) Formerly named Montgomery U.S. Asset Allocation Fund.
133
<PAGE> 135
The Montgomery Funds
Notes
to Financial Statements
(Unaudited)
The Manager recouped previously deferred fees during the six months ended
December 31, 1999. These amounts have been included with current annual
management fees in the Statement of Operations and are part of the effective
management fee shown. The amounts recouped during the six months ended December
31, 1999, were $160,139, $182,820, $227,394, $397,685, $228,921, $241,012,
$50,454, $302,051, $74,819, $257,501 and $70,198, for the International Growth
Fund, International Small Cap Fund, Global Opportunities Fund, Emerging Markets
Fund, Emerging Asia Fund, Global Long-Short 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 $33,178 for the Balanced Fund.
For the six months ended December 31, 1999, 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 $579,565 -- $579,565
Equity Income Fund 65,782 $ 2,193 562,493
International Growth Fund 157,030 -- 157,030
International Small Cap Fund 215,142 -- 332,125
Global Opportunities Fund 214,206 -- 214,206
Emerging Markets Fund 677,867 -- 677,867
Emerging Asia Fund 264,712 -- 264,712
Select 50 Fund 65,059 -- 65,059
Balanced Fund -- 190,820 453,691
Total Return Bond Fund 78,525 -- 78,525
Short Duration
Government Bond Fund 426,262 -- 997,117
California Tax-Free
Intermediate Bond Fund 97,489 -- 297,002
Federal Tax-Free Money Fund 249,345 -- 249,345
California Tax-Free
Money Fund 4,342 -- 4,342
</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
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.
134
<PAGE> 136
The Montgomery Funds
Notes
to Financial Statements
(Unaudited)
4.SECURITIES TRANSACTIONS:
a. The aggregate amount of purchases and sales of long-term securities,
excluding long-term U.S. government securities, during the six months ended
December 31, 1999, were:
<TABLE>
<CAPTION>
Fund Purchases Sales
- ---- --------- -----
<S> <C> <C>
Growth Fund $127,350,489 $201,784,877
U.S. Emerging Growth Fund 89,881,136 218,817,582
Small Cap Fund 51,192,699 62,201,469
Equity Income Fund 6,379,807 16,805,850
International Growth Fund 221,781,269 246,312,567
International Small Cap Fund 15,286,460 22,509,571
Global Opportunities Fund 67,035,902 57,260,549
Global Communications Fund 350,476,933 316,803,971
Emerging Markets Fund 178,786,874 223,755,358
Emerging Asia Fund 19,859,890 31,286,140
Global Long-Short Fund 463,794,586 410,195,824
Select 50 Fund 74,666,117 95,805,668
Balanced Fund 8,188,494 13,526,391
Total Return Bond Fund 8,471,486 9,332,833
Short Duration
Government Bond Fund 15,283,073 27,105,815
California Tax-Free
Intermediate Bond Fund 8,018,891 11,547,195
</TABLE>
The aggregate amount of purchases and sales of long-term U.S. government
securities during the six months ended December 31, 1999, were:
<TABLE>
<CAPTION>
Fund Purchases Sales
- ---- --------- -----
<S> <C> <C>
Total Return Bond Fund $ 49,812,875 $ 59,691,631
Short Duration
Government Bond Fund 227,851,776 205,647,080
</TABLE>
b. At December 31, 1999, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost and aggregate
gross unrealized depreciation for all securities in which there was an excess of
tax cost over value were as follows:
<TABLE>
<CAPTION>
Tax Basis Tax Basis Net Tax Basis Cost for
Unrealized Unrealized Unrealized Federal Tax
Appreciation Depreciation Appreciation Purposes
(Depreciation)
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
Growth Fund $ 177,496,169 $ 29,815,169 $ 147,681,000 $ 418,503,174
U.S. Emerging Growth Fund 121,407,541 4,801,390 116,606,151 179,435,895
Small Cap Fund 71,167,323 1,438,154 69,729,169 95,199,637
Equity Income Fund 2,412,778 590,382 1,822,396 15,024,656
International Growth Fund 55,806,396 5,592,564 50,213,832 209,787,774
International Small Cap Fund 6,456,015 5,249,398 1,206,617 30,445,823
Global Opportunities Fund 25,888,201 1,089,779 24,798,422 64,564,406
Global Communications Fund 225,683,353 3,842,921 221,840,432 377,234,031
Emerging Markets Fund 122,984,195 7,975,166 115,009,029 250,611,494
Emerging Asia Fund 13,433,624 3,587,512 9,846,112 35,942,154
Global Long-Short Fund 212,229,669 20,043,002 192,186,667 361,818,136
Select 50 Fund 40,592,732 3,962,283 36,630,449 100,650,155
Balanced Fund 1,996,211 2,276,289 (280,078) 69,221,400
Total Return Bond Fund 19,181 934,302 (915,121) 36,069,618
Short Duration Government Bond Fund 30,797 2,090,694 (2,059,897) 179,999,903
California Tax-Free Intermediate Bond Fund 226,294 632,081 (405,787) 34,257,490
</TABLE>
c. Information regarding transactions under dollar roll transactions was as
follows:
<TABLE>
<CAPTION>
Average
Maximum Average Average Debt
Amount Amount Amount Shares per Share
Outstanding Outstanding Outstanding Outstanding Outstanding Fee
During as of During During During Income
Fund the Period 12/31/99 the Period the Period the Period Earned
- ---- ---------- -------- ---------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Total Return Bond Fund $4,712,051 $3,781,563 $4,029,769 3,089,172 $ 1.30 $ 22,363
Short Duration Government Bond Fund 9,005,664 5,660,000 7,871,850 16,978,994 0.46 78,754
</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 six months ended December 31, 1999.
135
<PAGE> 137
The Montgomery Funds
Notes
to Financial Statements
(Unaudited)
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>
Short Duration Government Bond Fund $52,866,000 $7,511,766 16,978,994 $0.44 5.00% $205,439
</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 six months ended December 31, 1999. There were no reverse repurchase
agreements outstanding at December 31, 1999.
e. Written option activity for the Global Long-Short Fund for the year ended
December 31, 1999, 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 December 31, 1999 $ 0 0
======== ====
</TABLE>
f. 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 December 31, 1999, the Funds had no securities on loans. Income earned from
securities lending transactions is included in securities lending income on
the Statement of Operations.
g. 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 six months ended December 31, 1999, borrowings by
the Funds under the agreement were as follows:
<TABLE>
<CAPTION>
Amount Average Maximum Average Average
Outstanding Amount Debt Interest Average Debt
Fund at 12/31/99 Outstanding Outstanding Rate Shares per Share
- ---- ----------- ----------- ----------- ---- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Emerging Growth Fund -- $ 460,326 $12,200,000 6.21% 15,701,380 $0.03
Small Cap Fund -- 30,978 1,300,000 5.63 7,375,111 0.00+
Equity Income Fund -- 39,674 2,400,000 5.56 1,238,650 0.03
International Growth Fund -- 2,367,935 13,800,000 6.37 11,169,584 0.21
International Small Cap Fund -- 71,739 3,000,000 5.19 2,416,851 0.03
Global Opportunities Fund -- 717,391 5,000,000 6.10 3,170,636 0.23
Global Communications Fund -- 100,543 9,100,000 5.75 13,368,523 0.01
Emerging Markets Fund $ 5,600,000 7,027,717 23,600,000 6.62 30,686,507 0.23
Emerging Asia Fund 3,900,000 538,043 5,500,000 5.96 4,304,856 0.12
Select 50 Fund -- 298,913 8,000,000 5.78 5,642,217 0.05
</TABLE>
+ Amount represents less than $0.01 per share
Under a Credit Agreement dated August 28, 1998, as amended, the Global
Long-Short Fund may borrow cash of up to one-third of its total net asset value
from Bank of America NT&SA. This Fund makes quarterly payments of a 0.12% annual
commitment fee of the unutilized credit line balance. For the six months ended
December 31, 1999, the Global Long-Short Fund incurred $1,538,034 of interest
expense.
For the six months ended December 31, 1999, borrowings by the Global Long-Short
Fund under the Credit Agreement were as follows:
<TABLE>
<CAPTION>
Amount Average Maximum Average Average
Outstanding Amount Debt Interest Average Debt
Fund at 12/31/99 Outstanding Outstanding Rate Shares per Share
- ---- ----------- ----------- ----------- ---- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Global Long-Short Fund $65,000,000 $51,601,630 $65,000,000 5.93% 13,828,389 $3.73
</TABLE>
136
<PAGE> 138
The Montgomery Funds
Notes
to Financial Statements
(Unaudited)
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
Six Months Ended 12/31/99 6/30/99(*) Year Ended 3/31/99
R SHARES: Shares Dollars Shares Dollars Shares Dollars
- --------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Sold 4,314,704 $ 101,336,937 6,376,587 $ 115,011,592 2,502,705 $ 38,599,800
Issued as reinvestment of dividends 859,683 23,821,806 -- -- -- --
Reissued for name change from
Class A shares -- -- (446,290) (8,621,700) 3,966,659 52,104,139
Redeemed (1,553,617) (36,649,848) -- -- (1,392,567) (21,334,896)
---------- ----------- --------- ------------- ---------- -----------
Net increase/(decrease) 3,620,770 $ 88,508,895 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 51,191 $ 1,399,912 668 $ 12,145 1,184,123 $ 16,623,219
Issued as reinvestment of dividends 3,689 100,078 -- -- 1 15
Redeemed (114,093) (2,440,531) (82,068) (1,502,400) (140,910) (2,104,182)
---------- ----------- --------- ------------- ---------- -----------
Net increase/(decrease) (59,213) $ (940,541) (81,400) $ (1,490,255) 1,043,214 $ 14,519,052
========== =========== ========= ============= ========== ===========
C SHARES:
---------- ----------- --------- ------------- ---------- -----------
Sold 25,628 $ 654,836 1 $ 17 511,612 $ 6,598,428
Issued as reinvestment of dividends 876 22,011 -- -- 1 15
Redeemed (19,385) (397,071) (24,511) (421,313) (103,968) (1,287,689)
---------- ----------- --------- ------------- ---------- -----------
Net increase/(decrease) 7,119 $ 279,776 (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.
137
<PAGE> 139
The Montgomery Funds
Notes
to Financial Statements
(Unaudited)
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
<TABLE>
<CAPTION>
GROWTH FUND
Six Months Ended 12/31/99 Year Ended 6/30/99
R SHARES: Shares Dollars Shares Dollars
- --------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Sold 8,611,672 $ 193,353,966 18,104,217 $ 390,073,046
Issued as reinvestment of dividends 3,704,026 74,413,891 3,934,494 77,989,817
Redeemed (13,187,208) (295,976,530) (52,908,132) (1,124,668,296)
----------- ------------ ----------- --------------
Net increase/(decrease) (871,510) $ (28,208,673) (30,869,421) $ (656,605,433)
=========== ============ =========== ==============
P SHARES:
- ---------- ----------- ------------ ----------- --------------
Sold 330 $ 7,910 4,069 $ 92,919
Issued as reinvestment of dividends 1,010 20,496 654 13,054
Redeemed (2,968) (69,934) (4,132) (87,473)
----------- ------------ ----------- --------------
Net increase/(decrease) (1,628) $ (41,528) 591 $ 18,500
=========== ============ =========== ==============
</TABLE>
<TABLE>
<CAPTION>
U.S. EMERGING GROWTH FUND
Six Months Ended 12/31/99 Year Ended 6/30/99
R SHARES: Shares Dollars Shares Dollars
- --------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Sold 1,435,056 $ 27,843,915 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 (8,521,636) (164,890,932) (12,553,360) (190,115,591)
---------- ------------ ----------- ------------
Net increase/(decrease) (5,418,844) $(104,209,284) 1,406,198 $ 22,028,789
========== ============= ========= =============
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP FUND
Six Months Ended 12/31/99 Year Ended 6/30/99
R SHARES: Shares Dollars Shares Dollars
- --------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Sold 1,401,333 $ 25,819,803 1,500,979 $ 23,905,212
Issued as reinvestment of dividends 109 2,279 1,429,493 19,813,868
Redeemed (2,409,719) (43,703,793) (5,909,461) (90,955,913)
---------- ----------- ---------- -----------
Net increase/(decrease) (1,008,277) $ (17,881,711) (2,978,989) $(47,236,833)
========== =========== ========== ===========
P SHARES:
- --------- ---------- ----------- ---------- -----------
Sold 243,388 $ 4,237,231 436,333 $ 7,082,536
Issued as reinvestment of dividends 23 471 218,219 2,980,874
Redeemed (308,159) (5,385,054) (443,741) (6,860,622)
---------- ----------- ---------- -----------
Net increase/(decrease) (64,748) $ (1,147,352) 210,811 $ 3,202,788
========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
EQUITY INCOME FUND
Six Months Ended 12/31/99 Year Ended 6/30/99
R SHARES: Shares Dollars Shares Dollars
- --------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Sold 53,572 $ 961,754 857,982 $ 18,361,775
Issued as reinvestment of dividends 153,043 2,270,746 190,128 3,407,582
Redeemed (664,248) (11,848,372) (1,845,907) (35,994,823)
-------- ----------- ---------- -----------
Net increase/(decrease) (457,633) $ (8,615,872) (797,797) $(14,225,466)
======== =========== ========== ===========
P SHARES:
- --------- ------ ------- ------ -------
Sold 31,977 $ 543,198 60,646 $ 1,085,025
Issued as reinvestment of dividends 31,354 463,851 16,390 294,403
Redeemed (20,207) (345,119) (57,061) (1,029,003)
-------- ----------- ---------- -----------
Net increase/(decrease) 43,124 $ 661,930 19,975 $ 350,425
======== =========== ========== ===========
</TABLE>
138
<PAGE> 140
The Montgomery Funds
Notes
to Financial Statements
(Unaudited)
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH FUND INTERNATIONAL SMALL CAP FUND
Six Months Ended 12/31/99 Year Ended 6/30/99 Six Months Ended 12/31/99 Year Ended 6/30/99
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
10,261,735 $ 203,676,982 21,750,207 $ 400,464,468 2,037,051 $ 28,979,671 3,953,549 $ 55,726,426
183,388 4,045,551 51,019 905,589 38,423 531,391 2,195 29,217
(11,513,715) (228,574,532) (13,289,899) (242,379,952) (2,546,938) (36,204,821) (4,665,338) (65,896,240)
----------- ------------ ----------- ------------ ---------- ----------- ---------- -----------
(1,068,592) $ (20,851,999) 8,511,327 $ 158,990,105 (471,464) $ (6,693,759) (709,594) $ (10,140,597)
----------- ------------ ----------- ------------ ---------- ----------- ---------- -----------
----------- ------------ ----------- ------------ ---------- ----------- ---------- -----------
195,427 $ 4,060,225 137,543 $ 2,367,177 -- $ -- 27,959 404,022
175 3,861 -- 4,968 4 68 -- --
(107,179) (2,305,395) (13,504) (244,213) -- -- (28,087) (403,988)
----------- ------------ ----------- ------------ ---------- ----------- ---------- -----------
88,423 $ 1,758,691 124,039 $ 2,127,932 4 $ 68 (128) $ 34
----------- ------------ ----------- ------------ ---------- ----------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
GLOBAL COMMUNICATIONS FUND EMERGING ASIA FUND
Six Months Ended 12/31/99 Year Ended 6/30/99 Six Months Ended 12/31/99 Year Ended 6/30/99
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
4,560,428 $ 142,421,156 16,399,838 $ 370,661,069 1,785,346 $ 20,692,372 19,688,601 $ 157,590,021
-- -- -- -- -- -- -- --
2,436,866 82,219,864 1,295,937 25,594,755 192,844 2,132,855 -- --
(4,025,883) (121,959,557) (16,095,950) (355,421,630) (3,519,104) (39,022,531) (18,491,655) (143,526,077)
---------- ------------ ----------- ------------ ---------- ----------- ----------- ------------
2,971,411 $ 102,681,463 1,599,825 $ 40,834,194 (1,540,914) $ (16,197,304) 1,196,946 $ 14,063,944
---------- ------------ ----------- ------------ ---------- ----------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
SELECT 50 FUND BALANCED FUND(**)
Six Months Ended 12/31/99 Year Ended 6/30/99 Six Months Ended 12/31/99 Year Ended 6/30/99
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
1,841,005 $ 40,632,512 4,487,757 $ 90,080,135 187,150 $ 2,932,048 871,727 $ 15,336,419
686,490 15,294,998 650,669 11,789,988 186,982 2,980,493 1,504,322 22,440,907
(2,902,492) (64,204,983) (11,827,599) (231,636,588) (962,173) (15,492,787) (4,248,757) (70,150,396)
---------- ----------- ----------- ------------ -------- ----------- ---------- -----------
(374,997) $ (8,277,473) (6,689,173) $(129,766,465) (588,041) $ (9,580,246) (1,872,708) $ (32,373,070)
---------- ----------- ----------- ------------ -------- ----------- ---------- -----------
---------- ----------- ----------- ------------ -------- ----------- ---------- -----------
58 $ 1,300 1,804 $ 37,885 75 $ 1,200 1,078 $ 17,773
167 3,647 69 1,238 147 2,348 914 13,679
(1,631) (34,841) (1,820) (45,019) (67) (1,088) (2,344) (39,000)
---------- ----------- ----------- ------------ -------- ----------- ---------- -----------
(1,406) $ (29,894) 53 $ (5,896) 155 $ 2,460 (352) $ (7,548)
---------- ----------- ----------- ------------ -------- ----------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
EMERGING MARKETS FUND SHORT DURATION GOVERNMENT BOND FUND
Six Months Ended 12/31/99 Year Ended 6/30/99 Six Months Ended 12/31/99 Year Ended 6/30/99
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
19,843,018 $ 207,319,305 63,953,630 $ 537,114,591 11,526,282 $ 115,762,659 21,806,908 $ 222,105,673
-- -- -- -- 489,963 4,253,833 564,567 5,733,568
(25,248,600) (264,866,540) (107,275,950) (908,071,587) (10,590,035) (105,725,386) (13,542,909) (137,742,612)
- ----------- ------------ ------------ ------------ ----------- ------------ ----------- ------------
(5,405,582) $ (57,547,235) (43,322,320) $(370,956,996) 1,426,210 $ 14,291,106 8,828,566 $ 90,096,629
- ----------- ------------ ------------ ------------ ----------- ------------ ----------- ------------
- ----------- ------------ ------------ ------------ ----------- ------------ ----------- ------------
154,621 $ 1,791,254 24,153 $ 211,598 49,958 $ 516,488 460,384 $ 4,668,471
-- -- -- -- 3,627 18,468 8,030 81,193
(134,545) (1,625,453) (14,780) (129,243) (63,799) (635,703) (81,036) (811,602)
- ----------- ------------ ------------ ------------ ----------- ------------ ----------- ------------
20,076 $ 165,801 9,373 $ 82,355 (10,214) $ (100,747) 387,378 $ 3,938,062
- ----------- ------------ ------------ ------------ ----------- ------------ ----------- ------------
</TABLE>
(**) Formerly named Montgomery U.S. Asset Allocation Fund.
139
<PAGE> 141
The Montgomery Funds
Notes
to Financial Statements
(Unaudited)
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
<TABLE>
<CAPTION>
GLOBAL OPPORTUNITIES FUND
Six Months Ended 12/31/99 Year Ended 6/30/99
R Shares: Shares Dollars Shares Dollars
- --------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Sold 2,719,330 $ 56,186,780 4,863,038 $ 83,285,653
Issued as reinvestment of dividends 221,317 5,083,663 387,823 5,976,349
Redeemed (2,255,282) (46,426,374) (7,299,062) (127,006,826)
---------- ----------- ---------- ------------
Net increase/(decrease) 685,365 $ 14,844,069 (2,048,201) $ (37,744,824)
---------- ----------- ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN BOND FUND
Six Months Ended 12/31/99 Year Ended 6/30/99
R Shares: Shares Dollars Shares Dollars
- --------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Sold 107,589 $ 1,441,276 2,212,229 $ 27,532,949
Issued as reinvestment of dividends 153,679 1,561,115 295,215 3,526,016
Redeemed (771,073) (8,873,318) (5,455,138) (67,406,459)
-------- ---------- ---------- -----------
Net increase/(decrease) (509,805) $ (5,870,927) (2,947,694) $(36,347,494)
-------- ---------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA TAX-FREE INTERMEDIATE BOND FUND
Six Months Ended 12/31/99 Year Ended 6/30/99
R Shares: Shares Dollars Shares Dollars
- --------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Sold 237,497 $ 3,117,378 2,076,450 $ 27,138,488
Issued as reinvestment of dividends 71,230 765,644 114,589 1,497,553
Redeemed (783,826) (9,852,303) (1,727,339) (22,532,247)
-------- ---------- ---------- -----------
Net increase/(decrease) (475,099) $ (5,969,281) 463,700 $ 6,103,794
-------- ---------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT MONEY MARKET FUND
Six Months Ended 12/31/99 Year Ended 6/30/99
R Shares: Shares and Dollars Shares and Dollars
- --------- ------------------ ------------------
<S> <C> <C>
Sold $ 779,282,264 $ 3,814,709,697
Issued as reinvestment of dividends 13,871,162 25,371,449
Redeemed (808,516,166) (3,989,350,677)
------------ --------------
Net increase/(decrease) $ (15,362,740) $ (149,269,531)
------------ --------------
- --------- ------------------ ------------------
P Shares:
Sold $ 3,825,387 $ 1,008
Issued as reinvestment of dividends 1,198 17
Redeemed (740,948) (100)
------------ --------------
Net increase/(decrease) $ 3,085,637 $ 925
------------ --------------
</TABLE>
<TABLE>
<CAPTION>
FEDERAL TAX-FREE MONEY FUND
Six Months Ended 12/31/99 Year Ended 6/30/99
R Shares: Shares and Dollars Shares and Dollars
- --------- ------------------ ------------------
<S> <C> <C>
Sold $ 479,333,143 $ 1,061,020,071
Issued as reinvestment of dividends 1,910,186 3,011,207
Redeemed (373,177,341) (1,064,973,373)
------------ --------------
Net increase/(decrease) $ 108,065,988 $ (942,095)
------------ --------------
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA TAX-FREE MONEY FUND
Six Months Ended 12/31/99 Year Ended 6/30/99
R Shares: Shares and Dollars Shares and Dollars
- --------- ------------------ ------------------
<S> <C> <C>
Sold $ 456,359,894 $ 1,369,794,351
Issued as reinvestment of dividends 3,774,200 5,769,768
Redeemed (435,568,694) (1,269,880,170)
------------ --------------
Net increase/(decrease) $ 24,565,400 $ 105,683,949
------------ --------------
</TABLE>
140
<PAGE> 142
The Montgomery Funds
Notes
to Financial Statements
(Unaudited)
7.CAPITAL LOSS CARRYFORWARDS:
At June 30, 1999, the following Funds had available for federal tax purposes
unused capital losses as follows:
<TABLE>
<CAPTION>
Fund Expiring in 2003 Expiring in 2004 Expiring in 2005 Expiring in 2006 Expiring in 2007
- ---- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Small Cap Fund $ -- $ -- $ -- $ -- $ 6,876,863
International Small Cap Fund -- -- -- -- 420,080
Emerging Markets Fund -- -- -- 83,822,425 199,540,290
Emerging Asia Fund -- -- -- 3,385,829 7,819,658
Federal Tax-Free Money Fund -- -- -- 873 45
California Tax-Free Money Fund -- 6,712 -- 23 --
</TABLE>
The following Funds utilized capital loss carryforward during the year:
<TABLE>
<CAPTION>
Fund Amount
<S> <C>
California Tax-Free Intermediate Bond Fund $17,719
Government Money Market Fund 26,092
California Tax-Free Money Fund 33
</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, 1999. The following Funds elected to defer losses
occurring between November 1, 1998, and June 30, 1999, under these rules as
follows:
<TABLE>
<CAPTION>
Fund Amount
<S> <C>
International Growth Fund $ 705,177
International Small Cap Fund 194,643
Emerging Markets Fund 82,233,825
Emerging Asia Fund 1,652,027
Short Duration Government Bond Fund 854,319
California Tax-Free Intermediate Bond Fund 7,321
Federal Tax Free Money Fund 72
</TABLE>
8.SUBSEQUENT EVENTS:
The Montgomery Funds and The Montgomery Funds II are currently seeking
shareholder approval to reorganize the Equity Income Fund, a series of The
Montgomery Funds, into the Balanced Fund, a series of The Montgomery Funds II.
Upon such approval, the shareholders of the Equity Income Fund will exchange all
of their Class R and Class P shares in exchange for pro-rata shares of Class R
and Class P shares of the Balanced Fund, based on the net asset value of both
Funds on the effective date yet to be determined. The Equity Income Fund will
then become an underlying Fund of the Balanced Fund (which is a fund-of-funds).
On or before the fiscal year end, the Equity Income Fund intends to distribute
all of its then-remaining net investment income and realized capital gains. The
reorganization is expected to be effected as a tax-free transaction, and the
Manager of the Funds has agreed to pay all expenses of the transaction.
The Montgomery Funds is currently also seeking shareholder approval to
reorganize the International Small Cap Fund into the International Growth Fund,
both series of The Montgomery Funds. Upon such approval, the International
Growth Fund will issue Class R and Class P shares to the International Small Cap
Fund in exchange for the assets and liabilities of the International Small Cap
Fund, based on the net asset value of both Funds on the effective date yet to be
determined. On or before the effective date, the International Small Cap Fund
intends to distribute all of its then-remaining net investment income and
realized capital gains. The reorganization is expected to be effected as a
tax-free transaction, and the Manager of the Funds has agreed to pay all
expenses of the transaction.
141
<PAGE> 143
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<PAGE> 144
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<PAGE> 146
This report and the financial statements contained herein are provided for the
general information of the shareholders of The Montgomery Funds. This report is
not authorized for distribution to prospective investors in the Funds unless
preceded or accompanied by an effective prospectus.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the Federal Deposit Insurance
Corporation (FDIC) or any other agency and are subject to investment risk,
including the possible loss of principal. Neither The Montgomery Funds nor
Montgomery Asset Management is a bank.
For more information on any Montgomery Fund, including charges and expenses,
visit our Web site at www.montgomeryfunds.com or call (800) 572-FUND [3863] for
a free prospectus. Read it carefully before you invest or send money.
Funds Distributor, Inc. 2/00
