<PAGE>
MONTGOMERY INSTITUTIONAL SERIES: EMERGING MARKETS PORTFOLIO
PORTFOLIO HIGHLIGHTS
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
TOP FIVE COUNTRIES (AS A PERCENTAGE OF TOTAL NET ASSETS):
- ---------------------------------------------------------
<S> <C>
Brazil.........................................15.2 %
Malaysia.......................................14.2
China/Hong Kong................................ 8.9
South Africa................................... 6.3
Thailand....................................... 5.2
- ---------------------------------------------------------
<CAPTION>
TOP TEN HOLDINGS (AS A PERCENTAGE OF TOTAL NET ASSETS):
- ---------------------------------------------------------
<S> <C>
Arab Malaysian Corporation..................... 2.2 %
IJM Corporation Berhad......................... 2.1
Electrobras, "B"............................... 2.1
Banco Bradesco................................. 2.0
Petroleo Brasileiro............................ 1.9
Sonae InvestImentos............................ 1.9
IOI Corporation Oxygen, Inc.................... 1.9
Bangkok Bank Public Company, Ltd., Series 2.... 1.9
Compania de Telefonos de Chile, ADR............ 1.7
Telebras, ADR.................................. 1.7
- ---------------------------------------------------------
</TABLE>
1
<PAGE>
MONTGOMERY INSTITUTIONAL SERIES: EMERGING MARKETS PORTFOLIO
PORTFOLIO INVESTMENTS
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCKS--79.2%
SHARES VALUE (NOTE 1)
<S> <C>
ARGENTINA--3.4%
657,000 Astra Cia Argentina de Petroleo (Oil) $1,255,102
70,155 Banco Frances del Rio de La Plata, ADR (Banks) 1,929,263
717,500 Cresud S.A.+ (Real Estate) 1,270,210
252,382 Inversiones y Representaciones (Real Estate) 810,296
3,954 Inversiones y Representaciones, GDR (Real Estate) 126,034
532,500 Siderar S.A. (Steel) 1,533,884
93,500 Telefonica de Argentina, Sponsored ADR (Telephone/Networks) 2,419,313
---------
9,344,102
---------
BANGLADESH--0.2%
17,400 Apex Tannery (Apparel and Textiles) 479,256
---------
BRAZIL--1.7%
1,200 Electrobras, GDS*** (Electric Utilities) 111,978
32,100 Multicanal, ADR+ (Cable Television) 411,281
13,270 Telebras, ADR (Telephone/Networks) 1,015,155
42,350,000 Telec Brasileiras-Telebras ON (Telephone/Networks) 3,036,354
143,153 Telec de Minas Gerais S.A. (Telephone/Regional-Local) 17,908
170,996 Telec de Sao Paulo S.A. (Telephone/Regional-Local) 36,962
---------
4,629,638
---------
CHILE--1.9%
45,400 Compania de Telefonos de Chile, ADR (Telecommunications/Wireless) 4,591,075
10,834 Sociedad Quimica y Minera de Chile (Chemicals) 586,390
---------
5,177,465
---------
CHINA/HONG KONG--8.9%
253,000 Cheung Kong Holdings (Real Estate) 2,248,853
264,000 China Light and Power Company (Electric Utilities) 1,174,168
378,000 China Resources Enterprises Ltd. (Holding) 850,372
1,114,000 Concord Land Development Company Ltd.+ (Real Estate) 482,500
336,000 Guoco Group, Ltd., ORD (Diversified Financial Services) 1,881,027
89,000 Henderson Land Development Company (Real Estate) 897,537
109,400 HSBC Holdings (Banks) 2,340,901
440,000 Hutchison Whampoa Ltd. (Conglomerates) 3,455,944
550,000 New World Development Company Ltd. (Holding) 3,715,496
200,000 Shanghai Industrial Holdings Ltd.+ (Conglomerates) 729,200
1,164,100 Shangri-La Asia (Lodging) 1,723,310
180,000 Sun Hung Kai Properties Ltd. (Real Estate) 2,205,055
120,000 Swire Pacific Company Ltd., Class A (Holding) 1,144,224
474,000 Wheelock and Company, Ltd. (Holding) 1,351,309
----------
24,199,896
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
<PAGE>
MOMTGOMERY INSTITUTIONAL SERIES: EMERGING MARKETS PORTFOLIO
PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCKS--(CONTINUED)
SHARES VALUE (NOTE 1)
<S> <C>
CZECH REPUBLIC--3.0%
6,097 Cokoladovny (Food and Beverage) $ 776,752
37,100 Komercni Banka, GDR (Banks) 1,017,468
93,900 Komercni Banka I.F. (Mutual Funds) 2,375,292
60,633 PIF (Mutual Funds) 771,344
7,239 SPT Telecom A.S.+ (Telephone/Networks) 901,215
125,000 The Czech Value Fund+ (Mutual Funds) 1,062,500
183,126 Vseobecny I.F. (Mutual Funds) 536,087
112,165 Vynosovy I.F. (Mutual Funds) 701,083
----------
8,141,741
----------
EGYPT--0.5%
47,800 Amreya Cement (Cement) 901,648
26,200 Tora Cement+ (Cement) 528,957
----------
1,430,605
----------
GREECE--0.1%
87,770 Aegek (Heavy Construction) 323,743
----------
HUNGARY--0.2%
26,500 Borsodchem, GDR*** (Chemicals) 666,475
----------
INDIA--3.3%
38,550 Bajaj Auto, Ltd. (Auto/Auto Parts) 918,587
225,250 Carrier Aircon, Ltd.** (Home Appliance) 1,118,396
262,000 Floatglass+** (Chemicals) 145,434
49,200 Gujarat Ambuja Cement Ltd., GDR*** (Cement) 423,120
226,200 HDFC Bank, Ltd.** (Banks) 253,962
14,575 Housing Development and Finance Corporation** (Banks) 915,460
35,800 Indian Hotels Company, Ltd.** (Lodging) 707,512
13,600 Indian Hotels, GDS*** (Lodging) 344,216
23,100 Indian Hotels, GDS (Euro) (Lodging) 584,661
46,000 Indian Petrochemicals Corporation Ltd. (Chemicals) 531,300
1,441 Industrial Credit and Investment Corporation** (Banks) 2,361
800 Madras Cement Ltd. (Cement) 178,522
398,400 Mahanagar Telephone Nigam, Ltd.** (Electric Utilities) 2,633,774
4,250 State Bank of India** (Banks) 26,852
7,001 Tata Engineering and Locomotive Company, Ltd.** (Auto/Auto Parts) 65,811
23,500 Tata Engineering and Locomotive Company, Ltd., GDR*** (Auto/Auto Parts) 249,453
----------
9,099,421
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
<PAGE>
MONTGOMERY INSTITUTIONAL SERIES: EMERGING MARKETS PORTFOLIO
PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCKS--(CONTINUED)
SHARES VALUE (NOTE 1)
<S> <C>
INDONESIA--3.2%
498,000 Aneka Kimia Raya (F) (Chemicals) $ 295,174
845,000 Bimantara (F) (Conglomerates) 1,126,905
234,000 Ciputra Development (Auto/Auto Parts) 242,718
306,000 Hanjaya Mandala Sampoerna (F)** (Tobacco) 1,632,345
480 Indorama (F)** (Apparel and Textiles) 467
217,000 Lippo Bank (F)** (Banks) 211,304
145,500 London Sumatra Indonesia+ (Agricultural Commodities) 380,382
820,000 Matahari Putra Prima (F) (Retail Trade) 954,699
1,071,500 Mulia Industrindo (F) (Building Materials) 1,111,420
255,500 Semen Gresik (F) (Building Materials) 822,100
42,000 Tambang Timah (F) (Metals and Mining) 76,461
19,100 Tambang Timah, GDR*** (Metals and Mining) 343,323
41,700 Telekomunikas Indonesia, ADR (Telephone/Regional-Local) 1,438,650
----------
8,635,948
----------
ISRAEL--1.0%
12,200 Koor Industries, ADR (Holding) 207,400
71,093 Osem Investment, Ltd. (Food and Beverage) 401,478
9,450 Supersol Ltd. (Food and Beverage) 232,001
3,880 Teva Pharmaceuticals (Pharmacy/Drugs) 1,943,503
----------
2,784,382
----------
KOREA--3.5%
85,200 Korea Electric Power Corporation (Electric Utilities) 2,480,379
1,971 Korea Mobile Telecommunications (Telephone/Wireless) 2,000,495
29,260 Pohang Iron and Steel Company, Ltd. (Steel) 1,674,659
23,536 Samsung Company, Ltd., GDS+*** (Conglomerates) 100,028
4,908 Samsung Electronics, Ltd. (F) (Electronics) 295,118
1,096 Samsung Electronics, Ltd., GDR, Voting*** (Electronics) 43,992
38 Samsung Electronics, Ltd., GDS (Electronics) 1,572
5,992 Samsung Electronics, Ltd., Refunding 1/1/97 (Electronics) 333,391
128,276 Shinhan Bank (Banks) 2,035,216
29,868 Yukong, Ltd. (Oil) 569,337
----------
9,534,187
----------
MALAYSIA--13.5%
1,200,000 Arab Malaysian Corporation (Diversified Financial Services) 5,986,933
53,000 Arab Malaysian Finance (F) (Diversified Financial Services) 295,902
70,000 Genting Berhad (Leisure Time) 482,281
313,000 Guinness Anchor Berhad (Food and Beverage) 768,402
351,000 Hong Leong Bank Berhad** (Banks) 1,223,045
2,486,000 IJM Corporation Berhad (Heavy Construction) 5,856,939
3,315,000 IOI Corporation Oxygen, Inc. (Chemicals) 5,092,932
538,000 Leader Universal Holdings Berhad (Telecommunications Equipment) 1,129,044
78,000 Lingkaran Trans Kota Holdings Berhad+ (Real Estate) 160,602
418,000 Metacorp Berhad (Chemicals) 1,067,551
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE>
MOMTGOMERY INSTITUTIONAL SERIES: EMERGING MARKETS PORTFOLIO
PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
MALAYSIA (CONTINUED)
492,000 New Straits Times (Newspaper/Publishing) $ 2,844,268
104,000 Oriental Holdings Berhad (Auto/Auto Parts) 708,295
138,000 Powertek Berhad+ (Electric Utilities) 272,120
1,058,000 Public Bank Berhad (F)** (Banks) 2,241,259
162,000 Resorts World Berhad (Leisure Time) 737,676
440,000 Renong Berhad (Heavy Construction) 780,519
288,000 Tanjong PLC (Leisure Time) 1,151,772
181,000 Telekom Malaysia Berhad** (Telecommunications/Other) 1,612,552
342,000 UMW Holdings Berhad (Auto/Auto Parts) 1,597,941
322,000 United Engineers Berhad (Heavy Construction) 2,906,989
-----------
36,917,022
-----------
MEXICO--3.4%
865,686 Alfa S.A. de C.V. (Steel) 3,997,419
282,300 Cementos Mexicanos S.A. CPO (Building Materials) 1,011,288
131,000 Empresas La Moderna S.A. de C.V. (Tobacco) 640,689
92,100 Grupo Radio Central S.A. de C.V., ADR+ (Broadcasting/Advertising) 633,188
257,306 Industrias Penoles CPO (Metals and Mining) 911,946
60,000 Kimberly Clark de Mexico, Class A (Pulp and Paper) 1,184,451
136,000 San Luis Corporacion S.A. de C.V. (Metals and Mining) 843,089
-----------
9,222,070
-----------
MOROCCO--0.3%
59,700 Banque Marocaine du Commerce Exterieur, GDR+*** (Banks) 932,663
-----------
PAKISTAN--0.4%
3,031 Adamjee Insurance Company** (Insurance) 6,598
33,500 DG Khan Cement+ (Building Materials) 7,731
7,416 Engro Chemicals Pakistan (Chemicals) 24,887
459,900 Fauji Fertilizer Company Ltd.+** (Agricultural Commodities) 774,534
6,255 Nishat Textile Mills+ (Apparel and Textiles) 2,497
761 Pakistan International Airways (Airlines) 166
22,305 Pakistan State Oil** (Oil) 144,140
-----------
960,553
-----------
PERU--1.0%
32,249 Credicorp, Ltd. (Banks) 596,607
419,685 Enrique Ferreyros S.A. (Holding) 401,766
34,100 Minas Buenaventura, ADR (Metals and Mining) 581,831
15,000 Telefonica del Peru S.A., ADR, Series B (Telephone/Networks) 283,125
396,282 Telefonica del Peru S.A., Class B (Telephone/Networks) 737,481
-----------
2,600,810
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
<PAGE>
MONTGOMERY INSTITUTIONAL SERIES: EMERGING MARKETS PORTFOLIO
PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
PHILIPPINES--2.2%
2,895,632 Aboitiz Equity Ventures+ (Conglomerates) $ 291,765
1,304,000 DMCI Holdings+ (Building Materials) 855,285
310,738 Keppel Philippines Holdings, Inc., Class B (Shipping) 35,445
54,000 Manila Electric Company, Class B (Electric Utilities) 441,445
369,730,911 Manila Mining, Class B (Metals and Mining) 337,397
8,833,350 Metro Pacific Inc., Class B (Conglomerates) 2,183,147
203,000 Music Semiconductors Corporation+ (Semiconductor) 100,342
2,960,000 Petron Corporation (Oil) 1,001,673
8,133 Philippine Long Distance Telephone, ADR (Telephone/Long Distance) 414,783
1,636,000 Republic Glass (Glass) 317,247
431,000 Uniwide Holdings, Inc.+ (Retail Trade) 85,217
-----------
6,063,746
-----------
PORTUGAL--4.1%
59,100 Banco Totta E Acores, SA (Banks) 1,114,533
19,180 Capital Portugal Fund+ (Mutual Funds) 2,214,266
21,363 Electricas Empresa Fabril de Maquinas (Electrical Equipment) 177,052
282,600 Portucel Industries Empresa (Pulp and Paper) 1,640,374
162,980 Sonae InvestImentos (Conglomerates) 5,161,121
14,250 Telecel-Comunicacaoes Pessoai, SA+ (Telecommunications/Wireless) 909,868
-----------
11,217,214
-----------
RUSSIA--2.5%
18,300 AO Mosenergo, ADS*** (Electric Utilities) 564,326
21,100 AO Mosenergo, Sponsored ADS (Electric Utilities) 650,671
9,152 Global Telesystems Group, Inc.** (Telephone/Networks) 176,965
86 Irkutskenegro, RDC+*** (Oilfield Equipment) 2,399,400
25 LukOil Company, RDC*** (Oil) 1,438,125
5,100 Tatneft, ADR+ (Oil) 235,875
26,500 Tatneft, Sponsored ADS+*** (Oil) 1,272,000
-----------
6,737,362
-----------
SINGAPORE--1.2%
1,191,020 CDL Hotels International, Ltd. (Real Estate) 681,397
235,000 Far East Levingston (Heavy Construction) 1,225,970
177,000 Keppel Corporation, ORD (Shipping) 1,378,761
-----------
3,286,128
-----------
SLOVAK REPUBLIC--0.3%
37,000 VUB Kupon Fund+ (Mutual Funds) 693,985
-----------
SOUTH AFRICA--6.1%
20,900 Anglo American Gold Investment Company (Metals and Mining) 1,591,456
63,700 Anglovaal, Ltd. (Conglomerates) 1,878,936
71,830 Barlow, Ltd. (Building Materials) 637,158
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE>
MONTGOMERY INSTITUTIONAL SERIES: EMERGING MARKETS PORTFOLIO
PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
SOUTH AFRICA (CONTINUED)
524,800 Clinic Holdings (Health Care) $ 549,646
1,700,000 Highstone Property Fund (Real Estate) 472,374
1,156,381 Lonrho (Conglomerates) 2,456,862
9,000 Pepsi International Bottlers+** (Food and Beverage) 761,167
163,800 Randgold and Exploration Company (Metals and Mining) 1,111,606
167,726 Sappi, Ltd. (Pulp and Paper) 1,505,716
256,711 Sasol, Ltd. (Metals and Mining) 3,045,305
3,041,227 South Africa Iron and Steel Industrial Corporation (Steel) 2,171,144
374,875 Waltons Stationary Company (Retail Trade) 524,833
-----------
16,706,203
-----------
SRI LANKA--0.1%
38,900 Aitken Spence and Company (Conglomerates) 82,285
21,600 Development Finance Corporation of Ceylon (Banks) 97,091
-----------
179,376
-----------
TAIWAN--5.2%
179,000 Accton Technology Corporation+** (Computers and Office Equipment) 637,891
2,415,320 Bank Sinopac** (Banks) 2,617,329
303,032 Cathay Life Insurance** (Insurance) 1,928,385
750,000 China Development Corporation** (Diversified Financial Services) 2,290,909
1,500,000 China Steel Corporation** (Steel) 1,407,273
2,359,902 Pacific Construction** (Heavy Construction) 2,016,643
607,160 Taiwan Semiconductor Company** (Semiconductor) 1,247,438
382,200 Yageo Corporation+** (Electronics) 750,502
116,126 Yageo Corporation, GDR+*** (Electronics) 1,161,550
-----------
14,057,920
-----------
THAILAND--4.9%
52,780 Ban Pu Coal Public Company, Ltd. (F) (Coal) 979,618
678,900 Bangkok Bank Public Company, Ltd., Series 2 (Banks) 5,057,805
25,200 Bangkok Insurance Public Company, Ltd. (F) (Insurance) 357,670
174,100 Central Pattana Public Company, Ltd. (F) (Real Estate) 787,476
143,900 CH Karnchang Public Company (F) (Heavy Construction) 729,431
595,500 Electricity Generation Power Company (F) (Electric Utilities) 1,625,400
102,000 IFCT Finance and Securities PLC (F) (Securities Brokerage) 276,417
110,100 PTT Exploration and Production Public Company, LTD. (F) (Oil) 1,588,435
62,900 Regional Container Lines (F) (Shipping) 608,251
19,600 Siam Cement Public Company, Ltd. (F) (Building Materials) 617,515
25,300 Siam Cement Public Company, Ltd., Local Series 2 (Building Materials) 797,203
-----------
13,425,221
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
<PAGE>
MONTGOMERY INSTITUTIONAL SERIES: EMERGING MARKETS PORTFOLIO
PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1996 (UNAUDITED)
COMMON STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
<S> <C>
TURKEY--1.7%
2,075,863 Efes Sinai Yatrium ve Ticaret** (Food and Beverage) $ 90,332
147,600 Erciyas Biracilik ve Malt, ADS (Food and Beverage) 317,340
4,463,499 Koc Holdings (Holding) 781,987
1,183,000 Migros Turk T.A.S. (Retail Trade) 1,445,343
1,265,583 Tat Konserve (Food and Beverage) 189,633
13,347,631 Trakya Cam Sanayil (Glass) 676,920
4,860,000 Turk Sise ve Cam (Glass) 515,353
19,126,500 Yapi ve Kredi Bankasi A.S. (Banks) 476,179
------------
4,493,087
------------
UKRAINE--0.2%
232,000 Ukraine Enterprise Corporation+ (Mutual Funds) 516,666
------------
VENEZUELA--1.1%
443,333 Electricidad de Caracas (Electric Utilities) 449,612
95,300 Telefonos de Venezuela, ADR+ (Telephone/Networks) 2,680,313
------------
3,129,925
------------
VIETNAM--0.1%
10,800 Southeast Asia Frontier Fund (Mutual Funds) 54,000
7,000 The Vietnam Frontier Fund+ (Mutual Funds) 71,750
------------
125,750
------------
TOTAL COMMON STOCKS (COST $204,470,511) 215,712,560
------------
PREFERRED STOCKS--13.9%
BRAZIL--13.5%
743,599,110 Banco Bradesco (Banks) 5,388,607
1,367,000 Brahma (Food and Beverage) 747,239
82,200,000 Cia Energetica de Minas Gerais (Electric Utilities) 2,800,385
15,305,000 Electrobras, "B" (Electric Utilities) 5,685,430
396,000 Electropaulo "B" (Electric Utilities) 58,499
9,400 Kepler Weber S.A. + (Machinery and Tools) 61,424
18,300,000 Lojas Americanas (Retail Trade) 241,276
21,340,000 Lojas Renner S.A. (Retail Trade) 985,776
1,437,000 Marcopolo S.A., Series B+ (Auto/Auto Parts) 240,629
4,760,000 Metalurgica E Shultz S.A. (Steel) 80,166
33,260,286 Petroleo Brasileiro (Oil) 5,297,447
59,553,872 Telebras (Telephone/Networks) 4,585,035
10,600,000 Telec de Minas Gerais S.A. (Telephone/Regional-Local) 1,310,846
3,990,000 Telec de Sao Paulo S.A. (Telephone/Regional-Local) 863,969
18,349,150 Telec do Rio Janeiro S.A. (Telephone/Networks) 2,321,942
51,110,000 Uniao de Bancos Brasileiros (Banks) 1,667,432
1,423,000,000 Usiminas (Steel) 1,451,622
90,056 Vale do Rio Doce (Metals and Mining) 1,733,346
2,628,000 Weg S.A. (Furniture) 1,239,265
------------
36,760,335
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
8
<PAGE>
MONTGOMERY INSTITUTIONAL SERIES: EMERGING MARKETS PORTFOLIO
PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1996 (UNAUDITED)
PREFERRED STOCKS--(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE (NOTE 1)
KOREA--0.0%#
<S> <C> <C>
3,638 Samsung Electronics, Ltd. (F) (Electronics) $ 99,073
1,096 Samsung Electronics, Ltd., Refunding 1/1/97 (Electronics) 28,296
-----------
127,369
-----------
PHILIPPINES--0.4%
35,700 Philippine Long Distance Telephone, Convertible Preferred
5.750% 12/31/49 (Telephone/Long Distance) 1,097,775
-----------
TOTAL PREFERRED STOCKS (COST $29,670,308) 37,985,479
-----------
CONVERTIBLE BONDS--0.7%
PRINCIPAL AMOUNT
MALAYSIA--0.0%#
$ 22,666 AMLN Loan Stock, 7.500% due 12/31/99 (Diversified Financial Services) 18,219
-----------
PHILIPPINES--0.2%
350,000 Metro Pacific, Inc., 2.500% due 04/11/03 (Conglomerates) 371,000
-----------
SOUTH AFRICA--0.2%
590,000 Barlow, Ltd., 7.000% due 09/20/04*** (Building Materials) 628,350
-----------
THAILAND--0.3%
740,000 Central Pattana Public Company, Ltd., 2.750% due 04/10/01 (Real Estate) 774,225
180,000 Siam Sindhorn, 2.000% due 07/31/00*** (Real Estate) 115,200
-----------
889,425
-----------
TOTAL CONVERTIBLE BONDS (COST $2,012,115) 1,906,994
-----------
WARRANTS--0.7%
SHARES
CZECH REPUBLIC--0.0%#
21,000 The Czech Value Fund, Warrants, Expire 09/13/98+ (Mutual Funds) 28,980
-----------
MALAYSIA--0.7%
1,223,000 Development and Commercial Bank Holdings Corporation, Warrants,
Expire 12/27/99+ (Banks) 1,840,190
-----------
TOTAL WARRANTS (COST $1,440,213) 1,869,170
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
9
<PAGE>
MONTGOMERY INSTITUTIONAL SERIES: EMERGING MARKETS PORTFOLIO
PORTFOLIO INVESTMENTS (CONTINUED)
DECEMBER 31, 1996 (UNAUDITED)
CORPORATE BOND--0.1% (COST $373,233)
PRINCIPAL AMOUNT
<TABLE>
<S> <C> <C>
PHILIPPINES--0.1%
$425,000 Ayala Land, Inc., Zero Coupon due 12/08/00 (Real Estate) $ 370,281
-------------
RIGHTS--0.0%# (COST $0)
SHARES
ARGENTINA--0.0%#
657,000 Astra Cia Argentina de Petroleo, Rights, Expire 01/10/97+ (Oil) 1
-------------
REPURCHASE AGREEMENT--3.2% (COST $8,689,000)
PRINCIPAL AMOUNT
$8,689,000 Agreement with Bear Stearns Companies Inc., Tri-Party, 7.500%
dated 12/31/96, to be repurchased at $8,692,620, on 01/02/97,
collateralized by $8,930,195 market value of U.S. Government
securities, having various maturities and various interest
rates 8,689,000
-------------
TOTAL INVESTMENTS (COST $246,655,380*) 97.8% 266,533,485
OTHER ASSETS AND LIABILITIES (NET) 2.2 5,926,067
------ -------------
NET ASSETS 100.0% $ 272,459,552
- -------------------- ------ -------------
</TABLE>
* Aggregate cost for Federal tax purposes.
** Illiquid Security or Special Situation Security ( See Note 5 to Financial
Statements).
*** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
# Amount represents less than 0.1%.
+ Non-income producing security.
ABBREVATIONS:
ADR American Depositary Receipt
ADS American Depositary Share
(F) Foreign or alien share.
GDR Global Depositary Receipt
GDS Global Depositary Share
ORD Ordinary
RDC Russian Depositary Certificate
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
10
<PAGE>
MONTGOMERY INSTITUTIONAL SERIES: EMERGING MARKETS PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Identified cost $246,655,380) (Note 1) .............. $ 266,533,485
Cash ....................................................................... 1,245,808
Foreign currency (Cost $4,814,497) ......................................... 4,749,795
Forward foreign currency exchange contracts to buy, at value
(Contract cost $1,382,919) (Note 3) ................................ 1,384,484
Receivable for forward foreign currency
exchange contracts to sell (Note 3) ................................ 413,375
Receivables:
Investment securities sold ......................................... 2,274,956
Shares of beneficial interest sold ................................. 859,390
Dividends .......................................................... 727,416
Interest ........................................................... 35,965
Other Assets:
Other assets ....................................................... 319,740
Organization costs (Note 1) ........................................ 15,830
Total Assets ....................................................... 278,560,244
=============
LIABILITIES:
Payable for forward foreign currency exchange contracts (Note 3) ........... $ 1,382,919
Forward foreign currency exchange contracts to sell, at value
(Contract cost $413,375) (Note 3) .................................. 414,451
Payables:
Investment securities purchased .................................... 4,163,682
Custodian fees ..................................................... 92,182
Management fee ..................................................... 13,962
Adminstration fee .................................................. 3,176
Trustees' fees and expenses ........................................ 1,200
Transfer agency and servicing fees ................................. 952
Accrued liabilities and expenses ................................... 28,168
-------------
Total Liabilities .................................................. 6,100,692
-------------
NET ASSETS ................................................................. $ 272,459,552
=============
NET ASSETS CONSIST OF:
Distributions in excess of net investment income ................... $ (940,908)
Accumulated net realized loss on securities sold, forward foreign
currency exchange contracts and foreign currency transactions . (13,339,035)
Net unrealized appreciation of investments, forward foreign currency
exchange contracts, foreign currency transactions and net
other assets .................................................. 19,724,299
Shares of beneficial interest ...................................... 56,978
Additional paid-in capital ......................................... 266,958,218
-------------
NET ASSETS ......................................................... $ 272,459,552
=============
Net Asset Value, per share outstanding* .................................... $ 47.82
=============
Maximum offering price per share (Note 4) ($47.82/9925)
(based on maximum investment expense reimbursement fee
of 0.75% of the offering price) .................................... $ 48.18
=============
Number of Fund shares outstanding .......................................... 5,697,799
=============
</TABLE>
* Redemption price per share is equal to Net Asset Value less any applicable
investment expense reinbursement fee (Note 4).
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
11
<PAGE>
MONTGOMERY INSTITUTIONAL SERIES: EMERGING MARKETS PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $122,132) ........... $ 1,931,405
Interest ........................................................... 351,621
-----------
Total Income ....................................................... 2,283,026
EXPENSES:
Management fee (Note 2) ............................................ $ 2,149,820
Custodian fees ..................................................... 273,212
Administration fee (Note 2) ........................................ 67,246
Legal and audit fees ............................................... 34,922
Transfer agency and servicing fees ................................. 4,084
Trustees' fees and expenses ........................................ 3,141
Amortization of organization costs (Note 1) ........................ 304
Other .............................................................. 68,249
-----------
Total Expenses ..................................................... 2,600,978
Fees deferred and/or waived by Manager and/or Administrator (Note 2) (913,125)
-----------
Net Expenses ....................................................... 1,687,853
-----------
NET INVESTMENT INCOME .............................................. 595,173
-----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) from:
Securities transactions .................................... 326,872
Forward foreign currency exchange contracts ................ (216,914)
Foreign currency transactions .............................. 20,282
-----------
Net realized gain on investments during the period ................. 130,240
-----------
Net change in unrealized appreciation/(depreciation) of:
Securities ................................................. (4,955,544)
Forward foreign currency exchange contracts ................ 9,062
Foreign currency and net other assets ...................... (129,986)
-----------
Net unrealized depreciation of investments during the period ....... (5,076,468)
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS .................... (4,946,228)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ............... $(4,351,055)
===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
12
<PAGE>
MONTGOMERY INSTITUTIONAL SERIES: EMERGING MARKETS PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended
12/31/96 Year Ended
(Unaudited) 06/30/96
------------- -------------
<S> <C> <C>
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income ........................................... $ 595,173 $ 2,593,039
Net realized gain on securities transactions, forward foreign
currency exchange contracts and foreign currency
transactions during the period .......................... 130,240 524,339
Net unrealized appreciation/(depreciation) of securities, forward
foreign currency exchange contracts, foreign currency and
net other assets during the period ...................... (5,076,468) 23,202,979
------------- -------------
Net increase/(decrease) in net assets resulting from operations . (4,351,055) 26,320,357
Distributions to shareholders from net investment income ........ (2,730,875) (169,409)
Net increase from beneficial interest transactions (Note 4) ..... 8,663,522 58,061,496
------------- -------------
Net increase in net assets ...................................... 1,581,592 84,212,444
NET ASSETS:
Beginning of period ............................................. 270,877,960 186,665,516
------------- -------------
End of period (including (distributions in excess of net
investment income)/undistributed net investment income
of ($940,908) and $1,194,794, respectively) ..................... $ 272,459,552 $ 270,877,960
============= =============
</TABLE>
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA FOR THE YEAR OR PERIOD ENDED:
<TABLE>
<CAPTION>
Six Months Ended
12/31/96
(Unaudited) 06/30/96 06/30/95++ 06/30/94*
---------------------------------------------
<S> <C> <C> <C> <C>
Net asset value--beginning of year $ 49.09 $ 44.61 $ 43.71 $ 50.00
--------- --------- --------- ---------
Net investment income 0.10 0.50 0.13 0.09
Net realized and unrealized gain/(loss) on investments (0.90) 3.93 0.67 (6.67)
Net increase/(decrease) in net assets resulting from
investment operations (0.80) 4.43 0.80 (6.58)
Effect of redemption expense reimbursement fee 0.01 0.09 0.11 0.29
Distributions from net investment income (0.48) (0.04) (0.01) --
Net asset value--end of year $ 47.82 $ 49.09 $ 44.61 $ 43.71
========= ========= ========= =========
Total return ** (1.57)% 10.14% 2.09% (12.58)%
========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) $ 272,460 $ 270,878 $ 186,666 $ 127,085
Ratio of net investment income to average net assets 0.44%+ 1.16% 0.29% 0.47%+
Ratio of net expenses to average net assets 1.25%+ 1.29% 1.40% 1.40%+
Portfolio turnover rate 39%+ 88% 101% 33%+
Average commission rate paid (a) $0.0005 $ 0.0007 N/A N/A
Net investment income/(loss) before deferral and/or
waiver of fees by Manager and/or administrator ($0.06) $0.33 ($0.05) $0.01
Ratio of expenses before deferral and/or waiver of fees
by Manager and/or administrator 1.93%+ 1.70% 1.79% 1.81%+
</TABLE>
- ----------------
* The Montgomery Institutional Series: Emerging Markets Portfolio commenced
operations on December 17, 1993.
** Total return represents aggregate total return for the periods indicated.
+ Annualized.
++ Per share numbers have been calculated using the monthly average shares
method, which more appropriately represent the per share data for the year
since the use of the undistributed method did not accord with results of
operations.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
13
<PAGE>
THE MONTGOMERY FUNDS II
NOTES TO FINANCIAL STATEMENTS--(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES:
The Montgomery Funds II (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a diversified, open-end
management investment company. As of December 31, 1996, the Trust had two
publicly offered series, the Montgomery Asset Allocation Fund and the
Montgomery Institutional Series: Emerging Markets Portfolio.
The Montgomery Funds II were organized as a Delaware business trust on
September 8, 1993 and commenced operations with the Montgomery Institutional
Series: Emerging Markets Portfolio. Prior to the public offerings of shares
of each Fund, a limited number of shares were sold to Montgomery Asset
Management, L.P. and/or affiliated persons of Montgomery Asset Management in
private placement offerings. Otherwise, no Fund had any significant
operations prior to the date on which it commenced operations (i.e.,
commenced selling shares to the public).
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. Information presented in
these financial statements pertains only to the Montgomery Institutional
Series: Emerging Markets Portfolio (the "Fund"). The financial statements for
the Montgomery Asset Allocation Fund have been presented under separate
cover.
The following is a summary of significant accounting policies.
a. PORTFOLIO VALUATION
The Fund's securities are valued using current market valuations: either
the last reported sales price or, in the case of securities for which
there is no reported last sale and in the case of fixed income securities,
the mean between the closing bid and asked price. Securities and assets
for which market quotations are not readily available (including
restricted securities which are subject to limitations as to their sale)
are valued at fair value as determined in good faith by or under the
supervision of the Trust in accordance with methods which are authorized
by the Trust's Board of Trustees.
Securities denominated in foreign currencies and traded on foreign
exchanges or in foreign markets will have their value translated into U.S.
dollars at the last price of their respective currency denomination
against U.S. dollars quoted by a major bank or, if no such quotation is
available, at the rate of exchange determined in accordance with policies
established in good faith by the Board of Trustees. Because the value of
securities denominated in foreign currencies must be translated into U.S.
dollars, fluctuations in the value of such currencies in relation to the
U.S. dollar may affect the net asset value of Fund shares even if there
has not been any change in the foreign-currency denominated value of such
securities.
Short-term securities with maturities of 60 days or less are valued at
amortized cost as reflecting fair value.
b. REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreements individually or jointly
through a joint repurchase account with other series of the Trust pursuant
to a joint repurchase agreement. Under the terms of a typical repurchase
agreement, the Fund writes a financial contract with a counterparty and
takes possession of a government or other debt obligation as collateral.
The Fund also agrees with the counterparty to allow the counterparty to
repurchase the financial contract at a specified date and price, thereby
determining the yield during the Fund's holding period. This arrangement
results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the collateral
is at least equal at all times to the total amount of the repurchase
obligations, including interest. In the event of counterparty default, the
Fund has the right to use the collateral to offset losses incurred. There
is potential loss to the Fund in the event the Fund is delayed or
prevented from exercising its rights to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period in which the Fund seeks to assert
its rights. The Fund's investment manager, acting under the supervision of
the Board of Trustees, reviews the value of the collateral and the
creditworthiness of those banks and dealers with which the Fund enters
into repurchase agreements to evaluate potential risks. The Fund may also
participate on an individual or joint basis in tri-party repurchase
agreements which involve a counterparty and a custodian bank.
c. FOREIGN CURRENCY
Foreign currencies, investments and other assets and liabilities are
translated into U.S. dollars at the exchange rates prevailing at the end
of the period, and purchases and sales of investment securities, income
and expenses are translated on the respective dates of such transactions.
Unrealized gains and losses that result from changes in foreign currency
exchange rates on investments have been included in the unrealized
appreciation/(depreciation) of securities. Net realized foreign currency
gains and losses resulting from movement in exchange rates include foreign
currency gains and losses between trade date and settlement date on
investment securities transactions, foreign currency transactions and the
difference between the amounts of interest and dividends recorded on the
books of the Fund and the amount actually received and the portion of
foreign currency gains and losses related to fluctuations in exchange
rates between the initial purchase trade date and subsequent sale trade
date.
14
<PAGE>
THE MONTGOMERY FUNDS II
NOTES TO FINANCIAL STATEMENTS--(UNAUDITED)
(continued)
d. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may engage in forward foreign currency exchange contracts with
off balance sheet risk in the normal course of investing activities in
order to manage exposure to market risks. Forward foreign currency
exchange contracts are valued at the forward rate and are marked-to-market
daily. The change in market value is recorded by the Fund as an unrealized
gain or loss.
When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed. Forward foreign
currency exchange contracts have been used solely to establish a rate of
exchange for settlement of transactions. Although forward foreign currency
contracts limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain that might result
should the value of the currency increase. In addition, the Fund could be
exposed to risks if the counterparties to the contracts are unable to meet
the terms of their contracts.
e. DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared and paid
annually.
Distributions of any short-term capital gains earned by the Fund are
distributed no less frequently than annually. Additional distributions of
net investment income and capital gains for the Fund may be made in order
to avoid the application of a 4% non-deductible excise tax on certain
undistributed amounts of ordinary income and capital gains. Income
distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments of income and gains on various investment securities held by
the Fund, timing differences and differing characterization of
distributions made by the Fund.
f. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on a trade-date basis. Realized gain
and loss from securities transactions are recorded on the specific
identified cost basis. Dividend income is recognized on the ex-dividend
date and interest income, including, where applicable, amortization of
discount on short-term investments, is recognized on an accrual basis.
Dividend income on foreign securities is recognized as soon as the Fund is
informed of the ex-dividend date.
g. FEDERAL INCOME TAX
The Fund has qualified and it is the intention of the Fund to continue to
qualify and elect treatment as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Code, and to make
distributions of taxable income to shareholders sufficient to relieve the
Fund from all or substantially all federal income taxes.
h. ORGANIZATION COSTS
Expenses incurred in connection with the organization of the Fund are
amortized on a straight-line basis over a period of five years from the
commencement of operations.
i. EXPENSES
Most expenses of the Trust can be directly attributed to a Fund. Expenses
which cannot be directly attributed are apportioned between the Funds in
the Trust.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES:
a. Montgomery Asset Management, L.P. is the Fund's Manager (the "Manager").
The Manager, a California limited partnership, is an investment adviser
registered with the Securities and Exchange Commission under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"). The
general partner of the Manager is Montgomery Asset Management, Inc.
Montgomery Securities, and certain of its principals are affiliates of the
Manager. Under the Advisers Act, both Montgomery Asset Management, Inc.
and Montgomery Securities may be deemed controlling persons of the
Manager. Although the operations and management of the Manager are
independent from those of Montgomery Securities, it is expected that the
Manager may draw upon the research and administrative resources of
Montgomery Securities at its discretion in a manner consistent with
applicable regulations.
Pursuant to an investment management agreement ("Investment Management
Agreement"), the Manager provides the Fund with advice on buying and
selling securities, manages the investments of the Fund including the
placement of orders for portfolio transac-
15
<PAGE>
THE MONTGOMERY FUNDS II
NOTES TO FINANCIAL STATEMENTS--(UNAUDITED)
(continued)
tions, furnishes the Fund with office space and certain administrative
services, and provides the personnel needed by the Trust with respect to
the Manager's responsibilities under such agreement. As compensation, the
Fund pays the Manager a monthly management fee (accrued daily) based upon
the average daily net assets of the Fund, at an effective annual rate of
1.60% of average daily net assets before any deferral of fees for the six
months ending December 31,1996. (the effective rate including the effect
of current period fee deferral was 0.96% for the six months ending
December 31, 1996.) The Manager has agreed to reduce some or all of its
management fee or absorb Fund expenses if necessary to keep the Fund's
annual operatng expenses (on a calendar year), exclusive of interest or
taxes, at or below the lesser of 1.25% of average daily net assets or the
maximum allowed by applicable state expense limitations. Any reductions
made for the Fund by the Manager in its fees are subject to recovery
within the following three years provided the Fund is able to affect such
reimbursement and remain in compliance with applicable expense
limitations. Any of the Manager's voluntary absorptions are also subject
to recovery. For the six months ending December 31,1996, the Manager
recouped fees of $828,433, which were deferred during prior fiscal year.
These amounts have been included with current year management fees in the
Statement of Operations and are part of the effective rate above.
For the six months ended December 31,1996, the Manager has deferred fees
of $864,670.
As of December 31,1996, the deferred management fee subject to recoupment
is $864,670.
b. Montgomery Asset Management, L.P., serves as the Fund's administrator (the
"Administrator"). The Administrator performs services with regard to
various aspects of the Fund's administrative operations. As compensation,
the Fund pays the Administrator a monthly fee at an annual rate of 0.05%
of average daily net assets. For the six months ended December 31, 1996,
the Administrator has voluntarily waived fees of $48,455. This waiver is
not recoupable by the Administrator.
c. Certain officers and Trustees of the Trust are, with respect to the
Trust's Manager and/or principal underwriter, "affiliated persons" as
defined in the 1940 Act. Each Trustee of the Montgomery Funds II who is
not an "affiliated person" receives an annual retainer and quarterly
meeting fees totalling $35,000 per annum, as well as reimbursement for
expenses, for service as a Trustee of all three Trusts advised by the
Manager ($5,000 of which was allocated to the Montgomery Funds II).
d. The Fund has no sales load and does not pay distribution (Rule 12b-1) fees
to its distributor. Therefore, Montgomery Securities has received no
direct compensation for serving as the Fund's principal underwriter and
distributor.
e. For the six months ended December 31, 1996, the Fund's securities
transactions generated commissions of $1,007,453, none of which was paid
to Montgomery Securities.
3. SECURITIES TRANSACTIONS:
a. The aggregate amount of purchases and sales of investment securities,
other than short-term securities, for the six months ended December 31,
1996, were $105,670,296 and $99,703,070, respectively.
b. At December 31, 1996, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value for federal income tax purposes were
$37,049,865 and $17,171,760, respectively.
c. The schedules of forward foreign currency exchange contracts at December
31,1996 were as follows:
<TABLE>
<CAPTION>
CONTRACT VALUE DATE VALUE (NOTE 1)
Forward Foreign Currency Exchange Contracts to Buy:
<S> <C> <C> <C>
877,490 Malaysian Ringgit 01/02/97 $ 347,450
4,719,828 Hong Kong Dollars 01/03/97 610,232
19,864,879 Portuguese Escudo 01/03/97 128,118
638,449 Malaysian Ringgit 01/07/97 252,767
115,992 Malaysian Ringgit 01/09/97 45,917
----------
TOTAL FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO BUY
(CONTRACT COST $1,382,919) $1,384,484
----------
Forward Foreign Currency Exchange Contracts to Sell:
901,332 Malaysian Ringgit 01/02/97 $ 356,890
14,201,968 Greek Drakma 01/03/97 57,561
----------
TOTAL FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO SELL
(CONTRACT COST $413,375) $ 414,451
----------
</TABLE>
16
<PAGE>
THE MONTGOMERY FUNDS II
NOTES TO FINANCIAL STATEMENTS--(UNAUDITED)
(continued)
4. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
The Trust has authorized an unlimited number of shares of beneficial
interest which have a par value of $0.01. Transactions in shares of
beneficial interest for the periods indicated below were:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, 1996 YEAR ENDED JUNE 30, 1996
------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- -------- ------------
<S> <C> <C> <C> <C>
Shares Sold 135,256 $6,589,321 1,525,175 $66,963,824
Issued as reinvestment of dividends 44,511 2,074,201 3,176 129,186
Shares redeemed -- -- (194,803) (9,031,514)
------- ---------- --------- -----------
NET INCREASE 179,767 $8,663,522 1,333,548 $58,061,496
------- ---------- --------- -----------
</TABLE>
To the extent consistent with certain tax requirements, investment expense
reimbursement fees and redemption expense reimbursement fees of 0.75% may
be imposed on the purchase or redemption of Fund shares. Payment of such
fees reflected in the dollar amount above are paid in cash. This
adjustment is not a sales charge. It is kept in the Fund for the benefit
of all shareholders. The purpose of the adjustment is to prevent the
performance of the Fund from being adversely affected by the transaction
costs created by the investment of cash received by the Fund or the sale
of securities to obtain cash.
5. ILLIQUID AND SPECIAL SITUATION SECURITIES:
The Fund may not invest more than 15% of its net assets in illiquid
securities. The following securities have been determined by the Manager
to be illiquid because they are restricted or there is an exceptionally
low trading volume in the primary trading market for the security at
December 31,1996.
<TABLE>
<CAPTION>
ACQUISITION 12/31/96 VALUE % OF TOTAL
DATE SHARES MARKET VALUE PER SHARE COST NET ASSETS
------------- ------ ------------ --------- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Accton Technology Corporation 12/19/96 179,000 $ 637,891 $ 3.56 $ 602,575 0.23%
Bank Sinopac 07/03/96 2,415,320 2,617,329 1.08 2,204,269 0.96
Cathay Life Insurance 07/21/95 303,032 1,928,385 6.36 1,546,834 0.71
China Development Corporation 09/12/96 750,000 2,290,909 3.05 2,077,479 0.84
China Steel Corporation 05/22/96 1,500,000 1,407,273 0.94 1,416,431 0.52
Efes Sinai Yatrium ve Ticaret 07/12/94 2,075,863 90,332 0.04 123,129 0.03
Global Telesystems Group, Inc. 06/17/94 9,152 176,965 19.3 98,177 0.06
Pacific Construction 05/08/96 2,359,902 2,016,643 0.85 1,907,846 0.74
Pepsi International Bottlers 12/27/95 9,000 761,167 84.57 900,000 0.28
Taiwan Semiconductor Company 05/23/95 607,160 1,247,438 2.05 1,316,646 0.46
Yageo Corporation 04/15/96 382,200 750,502 1.96 504,987 0.28
----------- ----
$13,924,834 5.11%
=========== ====
</TABLE>
In addition, certain of the foreign currency at December 31, 1996, may be
illiquid because conversion to U.S. dollars could take more than seven
days. The following securities held by the Fund on December 31,1996 are
generally unrestricted securities for which reliable market prices can be
established. These securities are valued at their market prices. However,
because the process of re-registering foreign securities in the Fund's
name can take more than seven days, the following shares of each of these
securities were deemed restricted or illiquid in the hands of the Fund at
December 31,1996. The Fund bears the cost of re-registering these
securities:
17
<PAGE>
THE MONTGOMERY FUNDS II
NOTES TO FINANCIAL STATEMENTS--(UNAUDITED)
(continued)
<TABLE>
<CAPTION>
ACQUISITION 12/31/96 VALUE % OF TOTAL
DATE SHARES MARKET VALUE PER SHARE COST NET ASSETS
------------ ------ ------------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Adamjee Insurance Company 06/18/96 200 $ 435 $ 2.18 $ 675 0.00%#
Carrier Aircon, Ltd. 11/05/96 10,200 50,644 4.97 50,528 0.02
Fauji Fertilizer Company Ltd. 11/27/96 459,900 774,534 1.68 803,221 0.28
Floatglass 01/29/96 700 389 0.56 847 0.00#
Hanjaya Mandala Sampoerna (F) 03/15/96 153,001 816,178 5.33 1,393,395 0.30
HDFC Bank, Ltd. 07/16/96 2,800 3,144 1.12 3,054 0.00#
Hong Leong Bank Berhad 12/09/96 351,000 1,223,045 3.48 1,218,913 0.45
Housing Development and
Finance Corporation 02/05/96 44 2,764 62.82 3,228 0.00#
Indian Hotels Company, Ltd. 10/14/96 48 949 19.76 938 0.00#
Indorama (F) 11/19/96 240 233 0.97 223 0.00#
Industrial Credit and Investment
Corporation 05/08/96 1,216 1,992 1.64 3,748 0.00#
Lippo Bank (F) 11/20/96 217,000 211,304 0.97 176,590 0.08
Mahanagar Telephone Nigam, Ltd. 11/25/96 23,900 158,000 6.61 127,188 0.06
Pakistan State Oil 12/16/96 9,312 60,176 6.46 53,422 0.02
Public Bank Berhad (F) 12/26/96 723,000 1,531,598 2.12 1,360,771 0.57
State Bank of India 03/26/96 4,150 26,220 6.32 27,890 0.01
Tata Engineering and Locomotive
Company, Ltd. 05/06/96 6,640 62,418 9.40 92,421 0.02
Telekom Malaysia Berhad 08/21/96 181,000 1,612,552 8.91 1,601,473 0.59
---------- ----
$6,536,575 2.40%
========== ====
---------
</TABLE>
# Amount represents less than 0.01%.
6. Foreign Securities:
The Fund purchases securities in emerging market countries. Securities of
foreign companies and foreign governments involve special risks and
considerations not typically associated with investing in U.S. companies and
the U.S. government. These risks include re-evaluation of currencies, less
reliable information about issuers, different securities transactions
clearance and settlement practices, and future adverse political and economic
developments. These risks are heightened for investments in emerging market
countries. Moreover, securities of many foreign companies and foreign
governments and their markets may be less liquid and their prices more
volatile than those securities of comparable U.S. companies and the U.S.
government.
7. Capital Loss Carry Forward:
At June 30, 1996, the Fund had available for federal income tax purposes
unused capital losses of $4,067,977 expiring in 2002 and $8,872,589 expiring
in 2004. Under current tax law, net capital and currency losses realized
after October 31 may be deferred and treated as occurring on the first day of
the following fiscal year. In the fiscal year ended June 30, 1996, the
Portfolio elected to defer losses of $703,814 occurring between November 1,
1995 and June 30, 1996.
Such deferred losses will be treated as arising on the first day of the
fiscal year ending June 30, 1997.
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