<PAGE> 1
[OWL GRAPHIC]
THE MONTGOMERY FUNDS(sm)
INSTITUTIONAL SERIES
INTERNATIONAL GROWTH PORTFOLIO
EMERGING MARKETS FOCUS PORTFOLIO
SEMIANNUAL REPORT
DECEMBER 31, 1999
<PAGE> 2
Montgomery
Institutional Series
SEMIANNUAL REPORT
D e c e m b e r 3 1 , 1 9 9 9
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
C O N T E N T S
- --------------------------------------------------------------------------------
<S> <C>
Performance Summary .................................................... 1
PORTFOLIO HIGHLIGHTS AND INVESTMENTS
- --------------------------------------------------------------------------------
International Growth Portfolio ......................................... 2
Emerging Markets Focus Portfolio ....................................... 7
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities ................................... 10
Statements of Operations ............................................... 11
Statements of Changes in Net Assets .................................... 12
Financial Highlights ................................................... 13
Notes to Financial Statements .......................................... 15
</TABLE>
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 $5.2 billion in the Funds on behalf of over
200,000 individual investors, helping them meet their financial goals through a
combination of professional portfolio management and high-quality customer
service.
[OWL GRAPHIC]
The Montgomery Funds(SM)
101 California Street
San Francisco, CA 94111-9361
<PAGE> 3
Montgomery
Institutional Series
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>
International Growth Portfolio (654) 6/30/98 26.77% -- -- 17.94%
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Focus Portfolio (1481) 12/31/97 122.38% -- -- 32.75%
- ------------------------------------------------------------------------------------------------------------------------------------
</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. The
performance figures provided do not reflect the effect of (i) any securities
purchased or sold by the Portfolios after 12/31/99 but that were effective on
12/31/99 or (ii) any purchases or redemptions of Portfolio shares completed
after 12/31/99 that were effective on 12/31/99.
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.
1
<PAGE> 4
Montgomery
Institutional Series
INTERNATIONAL GROWTH
PORTFOLIO
Portfolio Highlights
(Unaudited)
PORTFOLIO MANAGEMENT
John Boich, CFA .......................... Senior Portfolio Manager
Oscar Castro, CFA ........................ Senior Portfolio Manager
PERFORMANCE
Average annual total returns
for the period ended 12/31/99
MONTGOMERY INSTITUTIONAL SERIES:
INTERNATIONAL GROWTH PORTFOLIO
Since inception (6/30/98) ................................ 17.94%
One year ................................................. 26.77%
MSCI EAFE Index
Since 6/30/98 ......................................... 19.98%
One year .............................................. 26.96%
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate, so shares, when redeemed, may be
worth more or less than their original cost.
I N V E S T M E N T R E V I E W
Q: HOW DID THE PORTFOLIO 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
Portfolio outperformed its benchmark, the Morgan Stanley Capital International
(MSCI) Europe, Australasia and Far East (EAFE) Index, over the six-month period,
returning 25.90%, versus 22.27% for the index.
Q: WHAT FACTORS CONTRIBUTED MOST TO THE PORTFOLIO'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 as did the euro, which had been extremely
soft. As a result, growth stocks returned to favor, specifically in the
technology and telecommunications sectors, and investors again showed greater
interest in Europe.
The Portfolio 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
Portfolio 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 Portfolio'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 Portfolio'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
(1.27% 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.
Communications and technology weren't the only sectors in which our process
identified stocks that boosted returns. In the underperforming healthcare
sector, for exam-
[Growth of a $10,000 Investment]
<TABLE>
<CAPTION>
Institutional
International MSCI EAFE
Growth Index
<S> <C> <C>
Jun-98 10000 10000
Jul-98 10230 10104
Aug-98 8790 8854
Sep-98 8369 8585
Oct-98 9109 9482
Nov-98 9639 9970
Dec-98 10110 10366
Jan-99 10480 10338
Feb-99 9940 10094
Mar-99 9780 10518
Apr-99 10071 10946
May-99 9841 10385
Jun-99 10180 10792
Jul-99 10220 11082
Aug-99 10100 11122
Sep-99 9950 11234
Oct-99 10530 11655
Nov-99 11399 12060
Dec-99 12816 13142
</TABLE>
(1) The Morgan Stanley Capital International EAFE Index is composed of
approximately 20 developed market countries in Europe, Australasia and
the Far East. The returns are presented net of dividend withholding
taxes.
2
<PAGE> 5
Montgomery
Institutional Series
INTERNATIONAL GROWTH
PORTFOLIO
Portfolio Highlights
(Unaudited)
ple, Aventis (1.37% 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: 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 Portfolio'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 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 PORTFOLIO 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 Portfolio'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 to 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
<S> <C>
Sony Corporation ..................................................... 2.9%
Mannesmann AG ........................................................ 2.8%
Nippon Telegraph & Telephone
Corporation .......................................................... 2.7%
Nokia Oyj ............................................................ 2.6%
VNU N.V. .............................................................. 2.1%
Telecom Italia Mobile SpA ............................................ 2.0%
Glaxo Wellcome PLC ................................................... 1.9%
Invensys PLC ......................................................... 1.9%
Hitachi Ltd. ......................................................... 1.7%
Koninklijke KPN, N.V. ................................................. 1.6%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
TOP FIVE COUNTRIES
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
<S> <C>
Japan .................................................. 20.6%
France ................................................. 17.0%
Netherlands ............................................ 14.7%
United Kingdom ......................................... 13.4%
Germany ................................................ 8.1%
</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.
3
<PAGE> 6
Montgomery
Institutional Series
INTERNATIONAL GROWTH
PORTFOLIO
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 - 93.3%
AUSTRALIA - 2.3%
324,407 Australia & New Zealand Banking Group
Ltd. (Non-U.S. Banks) ......................... $2,358,159
1,270,900 Cable & Wireless Optus Ltd.
(Other Telephone/Communication) ............... 4,243,587
----------
6,601,746
BELGIUM - 1.3%
104,600 Global TeleSystems Group, Inc.+
(Other Telephone/Communication) ............... 3,621,775
BRAZIL - 1.3%
28,300 Telebras, Sponsored ADR
(Other Telephone/Communication) ............... 3,636,550
CHINA/HONG KONG - 2.2%
329,000 Cheung Kong Holdings Ltd. (Real Estate) ....... 4,179,423
334,000 Henderson Land Development Company,
Ltd. (Real Estate) ............................ 2,144,028
----------
6,323,451
FINLAND - 3.7%
37,500 Helsinki Telephone
(Other Telephone/Communication) ............... 3,127,143
40,580 Nokia Oyj
(Telecommunications Equipment) ................ 7,365,385
----------
10,492,528
FRANCE - 17.0%
17,700 Air Liquide S.A. (Specialty Chemicals) ........ 2,966,301
108,672 Alstom (Electrical Products) .................. 3,627,075
66,900 Aventis S.A. (Major Pharmaceuticals) .......... 3,892,359
25,960 Axa (Multi-Line Insurance) .................... 3,622,861
39,470 Banque Nationale de Paris
(Non-U.S. Banks) .............................. 3,645,638
14,500 Carrefour S.A. (Food Chains) .................. 2,677,117
14,200 Castorama Dubois S.A.
(Building Materials) .......................... 4,324,204
13,060 Coflexip S.A. (Oilfield Services/Equipment) ... 950,146
32,890 France Telecom S.A.
(Other Telephone/Communication) ............... 4,354,512
6,010 Societe Television Francaise (Broadcasting) ... 3,151,293
28,000 STMicroelectronics N.V.+
(Semiconductors) .............................. 4,314,121
21,190 Total Fina S.A., Class B
(Oil Refining/Marketing) ...................... 2,831,117
50,200 Valeo S.A. (Auto Parts: O.E.M.) ............... 3,877,425
46,526 Vivendi (Non-U.S. Utilities) .................. 4,205,881
----------
48,440,050
GERMANY - 6.4%
33,100 Deutsche Telecom AG
(Other Telephone/Communication) ............... 2,359,708
GERMANY - CONTINUED
39,700 Epcos AG+ (Electronic Components) ............. $2,982,344
33,800 HypoVereinsbank AG (Non-U.S. Banks) ........... 2,310,773
33,179 Mannesmann AG (Cellular Telephone) ............ 8,012,716
19,700 SAP AG, ADR (Computer Software) ............... 1,025,631
12,860 Siemens AG
(Diversified Electronic Products) ............. 1,637,779
----------
18,328,951
ITALY - 2.4%
244,000 Credito Italiano SpA (Non-U.S. Banks) ......... 1,200,661
505,800 Telecom Italia Mobile SpA
(Cellular Telephone) .......................... 5,656,155
6,856,816
JAPAN - 20.6%
355,000 Asahi Glass Company, Ltd.
(Building Materials) .......................... 2,746,796
270,000 Bank of Tokyo-Mitsubishi Ltd.
(Non-U.S. Banks) .............................. 3,760,931
264,000 Daiwa Securities Group, Inc.
(Investment Bankers/Brokers/Services) ......... 4,129,277
7,500 Fanuc Ltd.
(Industrial Machinery/Components) ............. 954,465
327,000 Fuji Bank Ltd. (Non-U.S. Banks) ............... 3,176,279
102,000 Fujitsu Ltd. (EDP Services) ................... 4,649,516
303,000 Hitachi Ltd.
(Diversified Electronic Products) ............. 4,860,804
114,000 KAO Corporation
(Package Goods/Cosmetics) ..................... 3,250,611
50,000 Matsushita Electric Industrial Company,
Ltd. (Diversified Electronic Products) ........ 1,384,134
117,000 Mitsubishi Estate Company, Ltd.
(Real Estate) ................................. 1,141,045
164,000 Mitsui Fudosan Company, Ltd.
(Real Estate) ................................. 1,110,124
579,000 Nippon Steel Company (Steel/Iron Ore) ......... 1,353,624
445 Nippon Telegraph & Telephone
Corporation
(Other Telephone/Communication) ............... 7,617,627
676,000 Nissan Motor Company, Ltd.
(Motor Vehicles) .............................. 2,658,241
3,160 Shohkoh Fund & Company, Ltd.
(Finance Companies) ........................... 1,250,338
28,300 Sony Corporation
(Consumer Electronics/Appliances) ............. 8,387,851
26,000 Tokyo Electron Ltd.
(Electronic Production Equipment) ............. 3,560,599
57,000 Toyota Motor Corporation
(Motor Vehicles) .............................. 2,759,953
58,752,215
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
Montgomery
Institutional Series
INTERNATIONAL GROWTH
PORTFOLIO
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - CONTINUED
KOREA - 1.5%
18,480 Samsung Electronics Company
(Diversified Electronic Products) ............. $4,329,089
NETHERLANDS - 14.7%
94,500 ABN AMRO Holdings N.V.(Non-U.S. Banks) ........ 2,363,167
18,400 Aegon N.V. (Life Insurance) ................... 1,779,292
78,300 Akzo Nobel N.V. (Major Chemicals) ............. 3,931,896
25,000 Equant N.V.+
(Other Telephone/Communication) ............... 2,841,024
51,100 Fortis N.V.
(Diversified Finance Companies) ............... 1,842,077
71,100 Heineken N.V. (Alcoholic Beverages) ........... 3,471,405
59,500 ING Groep N.V.
(Diversified Financial Services) .............. 3,596,207
47,645 Koninklijke KPN, N.V.
(Other Telephone/Communication) ............... 4,655,347
73,000 Laurus N.V. (Food Chains) ..................... 1,317,610
51,400 Unilever N.V. (Packaged Foods) ................ 2,798,087
25,200 United Pan-Europe Communications N.V.+
(Cable Television) ............................ 3,227,121
155,097 Vendex N.V. (Department Store Chains) ......... 4,128,747
111,700 VNU N.V. (Books/Magazines) .................... 5,877,169
-----------
41,829,149
NEW ZEALAND - 1.4%
825,000 Telecom Corporation of New Zealand Ltd.
(Other Telephone/Communication) ............... 3,879,554
NORWAY - 1.0%
165,300 Petroleum Geo-Services, Sponsored ADR+
(Oilfield Services/Equipment) ................. 2,944,406
SPAIN - 0.9%
220,900 Banco Santander Central Hispano S.A.
(Non-U.S. Banks) .............................. 2,503,646
SWEDEN - 0.8%
17,600 Ericsson AB, ADR
(Telecommunications Equipment) ................ 1,155,550
16,400 Ericsson AB, Class B
(Telecommunications Equipment) ................ 1,056,507
-----------
2,212,057
SWITZERLAND - 1.2%
572 Julius Baer Holding AG (Non-U.S. Banks) ....... 1,728,759
6,010 UBS AG (Non-U.S. Banks) ....................... 1,623,814
-----------
3,352,573
TAIWAN - 0.4%
64,500 Hon Hai Precision Industry Company,
Ltd.+ (EDP Services) .......................... 1,256,138
UNITED KINGDOM - 13.4%
140,700 Allied Zurich PLC
(Diversified Financial Services) .............. 1,667,966
130,000 Barclays PLC (Non-U.S. Banks) ................. 3,741,521
UNITED KINGDOM - CONTINUED
144,800 British Telecom PLC
(Other Telephone/Communication) ............... $3,507,979
795,800 Corus Group PLC (Specialty Steels) ............ 2,075,743
478,400 Diageo PLC (Alcoholic Beverages) .............. 3,813,076
197,400 Freeserve PLC+
(Internet Services) ........................... 1,850,745
191,130 Glaxo Wellcome PLC
(Major Pharmaceuticals) ....................... 5,414,465
278,906 HSBC Holdings PLC
(Diversified Financial Services) .............. 3,869,440
999,400 Invensys PLC
(Industrial Machinery/Components) ............. 5,375,027
640,700 National Power PLC (Non-U.S. Utilities) ....... 3,683,849
108,300 Prudential Corporation PLC
(Life Insurance) .............................. 2,125,210
232,200 Vodafone AirTouch PLC
(Cellular Telephone) .......................... 1,144,761
-----------
38,269,782
UNITED STATES - 0.8%
92,700 Infonet Services Corporation+
(EDP Services) ................................ 2,433,375
-----------
TOTAL COMMON STOCKS
(Cost $217,965,497) ........................................... 266,063,851
-----------
PREFERRED STOCKS - 1.7%
GERMANY - 1.7%
925 Porsche AG (Motor Vehicles) ...................... 2,537,006
3,600 SAP AG (Computer Software) ....................... 2,170,774
-----------
TOTAL PREFERRED STOCKS
(Cost $4,236,786) ............................................. 4,707,780
-----------
MONEY MARKET FUND - 0.0%@
668 Chase Vista Federal Money Market Fund
(Cost $668) ....................................... 668
-----------
TOTAL SECURITIES
(Cost $222,202,951) ........................................... 270,772,299
-----------
Principal Amount
REPURCHASE AGREEMENTS - 3.1%
$ 8,853,000 Agreement with Greenwich Capital Markets, Tri-Party,
5.500% dated 12/31/99, to be repurchased at
$8,857,002 on 01/03/00, collateralized by $9,030,236
market value of U.S. government and mortgage-backed
securities, having various maturities and interest
rates (Cost $8,853,000) ........................... 8,853,000
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 8
Montgomery
Institutional Series
INTERNATIONAL GROWTH
PORTFOLIO
<TABLE>
<CAPTION>
Value (Note 1)
<S> <C>
TOTAL INVESTMENTS - 98.1%
(Cost $231,055,951*) ......................................... $ 279,625,299
OTHER ASSETS AND LIABILITIES - 1.9% .......................... 5,393,899
-------------
NET ASSETS - 100.0% .......................................... $ 285,019,198
=============
</TABLE>
* Aggregate cost for federal tax purposes.
+ Non-income-producing security.
@ Amount represents less than 0.1%.
Abbreviations
ADR American Depositary Receipt
6
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
Montgomery
Institutional Series
EMERGING MARKETS
FOCUS PORTFOLIO
Portfolio Highlights
(Unaudited)
I N V E S T M E N T R E V I E W
Q: HOW DID THE PORTFOLIO PERFORM DURING THE SIX MONTHS ENDED DECEMBER
31, 1999?
A: We are pleased to report that the Portfolio enjoyed exceptional performance
over the past six months, returning 31.23%, versus a return of 18.98% for its
benchmark, the Morgan Stanley Capital International (MSCI) Emerging Markets Free
Index. These returns maintain the Portfolio's strong track record: As of
December 31, 1999, it returned 122.38% for the year and 32.75% since its
inception on 12/31/97, compared with returns for the benchmark of 66.41% and
11.46%, respectively. As a result, Lipper Analytical Services, Inc., ranked it
number three of 180 emerging markets funds for the one-year and since-inception
periods ended 12/31/99.(*)
Q: WHAT STRATEGY HELPED YOU TO ACHIEVE SUCH GOOD RESULTS?
A: Unlike most emerging markets funds, which invest broadly across the emerging
markets, the strategy of the Montgomery Emerging Markets Focus Portfolio is to
concentrate its assets in no less than three but no more than 10 attractive,
relatively liquid markets and no more than 25 stocks. Last year this strategy
allowed us to avoid some of the difficulties associated with investing in
emerging markets and it has also worked to our advantage in the fiscal year
beginning July 1, 1999. Although the recovery in the emerging markets has
presented us with ample attractive opportunities over the past six months, based
on our rigorous analysis and our disciplined focused approach we have allocated
assets to where we believe they will achieve the best returns. This strategy has
allowed us to realize greater gains than the average emerging markets fund (as
shown by the Lipper ranking noted above).
For example, in October we identified some very interesting opportunities in
Mexico, a market that we believed would outperform on the basis of improving
macroeconomic fundamentals. Because the Portfolio was invested in the maximum
number of stocks at the time, devoting more assets to the Mexican market meant
reducing our exposure to other markets. As a result, we took profits from some
of our investments in India and South Africa. We sold companies such as South
African diamond conglomerate De Beers, which had appreciated by 35% since we
added it to the Portfolio, and put the money into companies that we believed to
have even greater upside potential. Our efforts were rewarded, as Mexico proved
to be one of the best-performing markets in the final three months of 1999.
Q: WERE THERE ANY PARTICULAR STOCKS THAT MADE A STRONG CONTRIBUTION TO
PERFORMANCE?
A: In addition to the Portfolio's Mexican holdings, a number of the raw
materials companies also made significant contributions to performance over the
period. These included Impala Platinum, a South African platinum producer (5.60%
of net assets as of 12/31/99), which appreciated nicely over the period as a
result of a higher price for
PORTFOLIO MANAGEMENT
Josephine Jimenez, CFA............................................ Senior
Portfolio Manager
PERFORMANCE
Average annual total returns
for the period ended 12/31/99
MONTGOMERY INSTITUTIONAL SERIES:
EMERGING MARKETS FOCUS PORTFOLIO
Since inception (12/31/97) .............................. 32.75%
One year ................................................ 122.38%
MSCI EMERGING MARKETS FREE INDEX
Since 12/31/97 .......................................... 11.46%
One year ................................................ 66.41%
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 GRAPHIC]
(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.
(*) The Montgomery Emerging Market Focus Portfolio was ranked number three
out of 180 emerging markets funds since inception based on a return of
32.75% for the period ended December 31, 1999, according to Lipper
Analytical Services, Inc. Ratings for share classes may vary. All
performance figures reflect a partial waiver of fees where applicable.
Lipper Analytical Services, Inc., is a nationally recognized,
independent company that compiles performance data on mutual funds.
Lipper rankings are based on total return.
7
<PAGE> 10
Montgomery
Institutional Series
EMERGING MARKETS
FOCUS PORTFOLIO
Portfolio Highlights
(Unaudited)
<TABLE>
<CAPTION>
TOP TEN HOLDINGS
(as a percentage of total net assets)
<S> <C>
Telefonos de Mexico S.A., ADR ........................................ 5.7%
Samsung Electronics Company .......................................... 5.7%
Grupo Financiero Banamex
Accival S.A. de C.V. ................................................. 5.6%
Impala Platinum Holdings Ltd. ........................................ 5.6%
Aracruz Celulose S.A., Sponsored ADR ................................. 5.1%
Cia Vale do Rio Doce, Sponsored ADR .................................. 4.9%
Kimberly-Clark de Mexico
S.A. de C.V. ......................................................... 4.6%
Taiwan Semiconductor Company ......................................... 4.6%
United Microelectronics
Corporation, Ltd. .................................................... 4.4%
Arcelik A.S. ......................................................... 4.4%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE COUNTRIES
(as a percentage of total net assets)
<S> <C>
Mexico ................................................ 26.8%
Taiwan ................................................ 16.9%
Brazil ................................................ 10.0%
Korea ................................................. 9.4%
South Africa .......................................... 8.4%
</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.
platinum. As global growth accelerated, demand for platinum rings improved. In
addition, platinum is a key component in catalytic converters, so we benefited
from higher worldwide automobile sales. Brazilian pulp manufacturer Aracruz
(5.11% of net assets as of 12/31/99), was another holding that substantially
outperformed the market averages. This stock benefited from a significant
increase in pulp prices.
Q: WERE THERE ANY DISAPPOINTMENTS?
A: There were very few disappointments during the period, and we believe that
those stocks that underperformed have the potential to rebound and contribute to
future returns. For instance, Egyptian Company for Mobile Services (4.11% of net
assets as of 12/31/99), an Egyptian provider of wireless phone services, failed
to perform as well as expected following its addition to the Portfolio due to
Year 2000 readiness concerns. Nevertheless, its subscriber base continues to
grow very rapidly, and as a result we believe that the stock has plenty of
upside potential.
Q: WHERE DO YOU BELIEVE THE BEST OPPORTUNITIES IN EMERGING MARKETS TO BE IN
THE NEW YEAR, AND HOW IS THE PORTFOLIO POSITIONED TO TAKE ADVANTAGE OF THEM?
A: Moving into the New Year, we continue to see plenty of opportunities across
the emerging markets. We are very excited about 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.
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 domestically oriented companies may 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.
Because of the wealth of opportunities in these and other markets, we are
currently fully invested in 10 markets and 25 stocks. We will continue to seek
out the best ideas among the attractive, well-managed companies we have
identified as potential additions to the Portfolio and look for markets that are
experiencing accelerating momentum. Although past performance is no guarantee of
future returns, through this strategy we hope to continue providing you with
above-average returns.
As of 12/22/99 the Montgomery Institutional Series: Emerging Markets Focus
Portfolio was reclassified from its current institutional Class I structure to
no-load, retail Class R shares.
8
<PAGE> 11
Montgomery
Institutional Series
EMERGING MARKETS
FOCUS PORTFOLIO
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 - 97.3%
BRAZIL - 10.0%
5,000 Aracruz Celulose S.A., Sponsored ADR
(Paper) ........................................ $ 131,250
4,500 Cia Vale do Rio Doce, Sponsored ADR
(Other Metals/Minerals) ........................ 125,452
-----------
256,702
CHINA/HONG KONG - 4.0%
800 China Telecom Ltd., ADR+
(Other Telephone/Communication) ................ 102,850
EGYPT - 4.1%
2,300 Egyptian Company for Mobile Services
(Cellular Telephone) ........................... 105,394
INDIA - 4.9%
3,600 Reliance Industries Ltd., GDR (Textiles) ....... 51,480
3,000 Videsh Sanchar Nigam Ltd., GDR
(Other Telephone/Communication) ................ 73,800
-----------
125,280
ISRAEL - 4.4%
53,000 Bank Leumi Le-Israel (Non-U.S. Banks) .......... 111,652
KOREA - 9.4%
800 Pohang Iron & Steel Company, Ltd.
(Steel/Iron Ore) ............................... 95,112
624 Samsung Electronics Company
(Diversified Electronic Products) .............. 146,177
-----------
241,289
MEXICO - 26.8%
2,500 Cemex S.A. de C.V., Sponsored ADR+
(Building Materials) ........................... 69,687
53,000 Cifra S.A.+ (Other Specialty Stores) ........... 106,224
36,000 Grupo Financiero Banamex Accival S.A. de
C.V.+ (Non-U.S. Banks) ......................... 144,304
21,000 Grupo Mexico S.A., Series B
(Other Metals/Minerals) ........................ 104,003
30,000 Kimberly-Clark de Mexico S.A. de C.V.
(Package Goods/Cosmetics) ...................... 117,089
1,300 Telefonos de Mexico S.A., ADR
(Other Telephone/Communication) ................. 146,250
-----------
687,557
SOUTH AFRICA - 8.4%
2,400 Anglo American Platinum Corporation,
Ltd. (Precious Metals) .......................... 72,975
3,550 Impala Platinum Holdings Ltd.
(Precious Metals) ............................... 143,732
-----------
216,707
TAIWAN - 16.9%
12,000 Hon Hai Precision Industry Company,
Ltd.+ (EDP Services) ............................ 89,469
TAIWAN - CONTINUED
17,000 Synnex Technology International
Corporation (Electronics Distributors) .......... $ 111,582
22,000 Taiwan Semiconductor Company+
(Electronic Production Equipment) ............... 117,062
32,000 United Microelectronics Corporation, Ltd.+
(Semiconductors) ................................ 114,195
-----------
432,308
TURKEY - 8.4%
1,720,000 ARCELIK A.S.
(Consumer Electronics/Appliances) ............... 112,574
3,354,000 Yapi Ve Kredi Bankasi A.S.
(Non-U.S. Banks) ................................ 103,576
-----------
216,150
-----------
TOTAL COMMON STOCKS
(Cost $1,829,113) .............................................. 2,495,889
-----------
MONEY MARKET FUND - 0.0%@
476 Chase Vista Federal Money Market Fund
(Cost $476) ....................................... 476
-----------
TOTAL SECURITIES
(Cost $1,829,589) .............................................. 2,496,365
-----------
Principal Amount
REPURCHASE AGREEMENT - 0.2%
$ 5,000 Agreement with Greenwich Capital
Markets, Tri-Party, 5.500% dated 12/31/99,
to be repurchased at $5,002 on 01/03/00,
collateralized by $5,100 market value of
U.S. government and mortgage-backed
securities, having various maturities and
interest rates
(Cost $5,000) ..................................... 5,000
-----------
TOTAL INVESTMENTS - 97.5%
(Cost $1,834,589*) ............................................. 2,501,365
OTHER ASSETS AND LIABILITIES - 2.5%
(Net) .......................................................... 64,890
-----------
NET ASSETS - 100.0% ............................................ $ 2,566,255
===========
</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
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 12
Montgomery
Institutional Series
STATEMENTS OF
ASSETS AND LIABILITIES
D e c e m b e r 3 1 , 1 9 9 9
(Unaudited)
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH EMERGING MARKETS
ASSETS: PORTFOLIO FOCUS PORTFOLIO
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments in securities, at value (note 1)
Securities .................................... $270,772,299 $ 2,496,365
Repurchase agreements ......................... 8,853,000 5,000
------------ ------------
Total Investments 279,625,299 2,501,365
Foreign currency, at value
(Cost $828,525 and $112,892, respectively) ......... 819,630 113,628
Receivables:
Dividends ..................................... 137,715 6,809
Interest ...................................... 5,479 291
Expenses absorbed by Manager .................. 373,491 159,327
Shares of beneficial interest sold ............ 58,223 8,724
Investment securities sold .................... 5,747,846 --
Deferred organization costs (note 1) ............... 21,500 12,753
Other assets ....................................... 2,097 2,568
------------ ------------
Total Assets 286,791,280 2,805,465
------------ ------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Payables:
Shares of beneficial interest redeemed ........ 266 --
Investment securities purchased ............... 677,339 --
Management fees ............................... 462,227 73,889
Administration fees ........................... 12,983 172
Custodian fees ................................ 2,204 8,479
Trustees' fees and expenses ................... 7,086 813
Accounting fees ............................... 3,631 1,238
Cash overdrafts payable to custodian .......... 544,846 72,638
Transfer agency and servicing fees ............ 217 13,434
Other accrued liabilities and expenses ........ 61,283 68,547
------------ ------------
Total Liabilities 1,772,082 239,210
------------ ------------
Net Assets $285,019,198 $ 2,566,255
Investments at identified cost ..................... $231,055,951 $ 1,834,589
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income/(distributions
in excess of net investment income/accumulated
net investment loss) .............................. $ 178,453 $ (15,651)
Accumulated net realized gain/(loss) on
securities sold, securities sold short and foreign-
currency transactions ............................. 12,076,827 (984,815)
Net unrealized appreciation of investments,
foreign-currency transactions and other assets .... 48,560,946 667,500
Shares of beneficial interest ...................... 226,165 1,510
Additional paid-in capital ......................... 223,976,807 2,897,711
------------ ------------
Net Assets ......................................... $285,019,198 $ 2,566,255
NET ASSETS:
- ---------------------------------------------------------------------------------------------------
Number of Portfolio shares outstanding ............. 22,616,549 150,994
Net asset value, offering and redemption price
per share outstanding ............................. $ 12.60 $ 17.00
------------ ------------
</TABLE>
10
The accompanying notes are an integral part of these financial statements.
<PAGE> 13
Montgomery
Institutional Series
STATEMENTS OF OPERATIONS
Six Months Ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH EMERGING MARKETS
NET INVESTMENT INCOME: PORTFOLIO FOCUS PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C> <C>
Interest ..................................................................... $ 290,473 $ 4,710
Dividends (net of foreign withholding taxes) ................................. 711,934 32,969
------------ ------------
Total Income 1,002,407 37,679
------------ ------------
EXPENSES:
Custodian fees ............................................................... 40,378 8,363
Transfer agency and servicing fees ........................................... 3,751 18,812
Management fee (note 2) ...................................................... 887,599 11,832
Administration fee (note 2) .................................................. 49,054 752
Legal and audit fees ......................................................... 26,967 13,615
Trustees' fees ............................................................... 5,839 89
Registration fees ............................................................ 17,816 11,559
Accounting expenses .......................................................... 29,944 36,441
Printing fees ................................................................ 27,685 1,957
Amortization of organization expenses (note 1) ............................... 2,515 1,732
Other ........................................................................ 8,513 23,642
Tax expense .................................................................. 6,579 2,277
------------ ------------
Total Expenses 1,106,640 131,071
Fees deferred and/or expenses absorbed by Manager (note 2) ................... (221,700) (113,204)
------------ ------------
Net Expenses 884,940 17,867
------------ ------------
NET INVESTMENT INCOME 117,467 19,812
------------ ------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Securities transactions ................................................. 16,947,560 565,852
Securities sold short ................................................... -- (6,231)
Foreign-currency transactions and other assets .......................... (2,544,725) (11,715)
------------ ------------
Net Realized Gain on Investments 14,402,835 547,906
Net change in unrealized appreciation/(depreciation) of:
Securities .............................................................. 44,874,286 43,816
Forward foreign-currency exchange contracts ............................. 62,116 --
Foreign-currency transactions and other assets .......................... (11,899) (2,036)
------------ ------------
Net Unrealized Appreciation of Investments 44,924,503 41,780
------------ ------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 59,327,338 589,686
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 59,444,805 $ 609,498
------------ ------------
Foreign withholding taxes .................................................... $ 97,987 $ 224
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 14
Montgomery
Institutional Series
STATEMENTS OF
CHANGES IN NET ASSETS
Six Months Ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH EMERGING MARKETS
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: PORTFOLIO FOCUS PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income .................................................................. $ 117,467 $ 19,812
Net realized gain on securities, forward foreign currency exchange contracts,
futures contracts and foreign currency transactions and other assets during
the period .......................................................................... 14,402,835 547,906
Net unrealized appreciation of securities, forward foreign currency exchange
contracts, foreign currency transactions and other assets during the period ......... 44,924,503 41,780
--------------- ------------
Net Increase in Net Assets Resulting from Operations 59,444,805 609,498
DISTRIBUTIONS TO SHAREHOLDERS:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income ............................... (257,572) (35,463)
Distributions to shareholders from net realized gains on investments ................... (4,272,148) --
BENEFICIAL INTEREST TRANSACTIONS:
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) from beneficial interest transactions (note 5) ................. 81,273,098 (558,787)
--------------- ------------
Net Increase in Net Assets 136,188,183 15,248
NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of Period .................................................................... 148,831,015 2,551,007
End of Period $ 285,019,198 $ 2,566,255
Accumulated Undistributed Net Investment Income/(Accumulated Net Investment Loss) $ 178,453 $ (15,651)
</TABLE>
Year Ended June 30, 1999
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH EMERGING MARKETS
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: PORTFOLIO FOCUS PORTFOLIO(*)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income .................................................................... $ 1,180,867 $ 227
Net realized gain on securities, forward foreign currency exchange contracts,
futures contracts, foreign currency transactions and other assets during the
period ................................................................................ 1,083,288 281,187
Net unrealized appreciation of securities, forward foreign currency exchange
contracts, foreign currency transactions and other assets during the period .............. 3,636,443 402,145
--------------- ------------
Net Increase in Net Assets Resulting from Operations 5,900,598 683,559
DISTRIBUTIONS TO SHAREHOLDERS:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income ................................. -- --
Distributions to shareholders from net realized gains on investments ..................... -- --
BENEFICIAL INTEREST TRANSACTIONS:
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase from beneficial interest transactions (note 5) .............................. 142,930,417 103,468
--------------- ------------
Net Increase in Net Assets 148,831,015 787,027
NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of Period ...................................................................... -- 1,763,980
End of Period $148,831,015 $ 2,551,007
Accumulated Undistributed Net Investment Income $ 318,558 $ --
</TABLE>
(*) For the three-month period ended June 30, 1999. The Portfolio changed its
fiscal year end from March 31 to June 30.
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 15
Montgomery
Institutional Series
FINANCIAL HIGHLIGHTS
INTERNATIONAL GROWTH PORTFOLIO
Selected Per-Share Data for the Year or Period Ended:
<TABLE>
<CAPTION>
12/31/99 Fiscal Year Ended June 30
(Unaudited) 1999(a)
<S> <C> <C>
Net Asset Value - Beginning of Period $ 10.18 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.02 0.08
Net realized and unrealized gain on investments 2.60 0.10
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from investment operations 2.62 0.18
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.01) --
Distributions from net realized capital gains (0.19) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.20) --
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 12.60 $ 10.18
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(*) 25.90% 1.80%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in 000s) $ 285,019 $ 148,831
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.12%(+) 1.50%
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.01) $ 0.07
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 203% 155%
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 0.90%(+) 0.90%
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and tax expense 1.13%(+) 1.09%
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 0.90%(+) 0.90%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The International Growth Portfolio commenced operations on June 30, 1998.
(*) Total return represents aggregate total return for the periods indicated.
(+) Annualized.
13
The accompanying notes are an integral part of these financial statements.
<PAGE> 16
Montgomery
Institutional Series
FINANCIAL HIGHLIGHTS
EMERGING MARKETS FOCUS PORTFOLIO
<TABLE>
<CAPTION>
CLASS R SHARES(a)
Selected Per-Share Data for the Year or Period Ended:
12/31/99 Three Months Ended June 30,
(Unaudited) 1999(c)
<S> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 13.15 $ 9.63
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.14 0.04
Net realized and unrealized gain/(loss) on investments 3.95 3.48
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 4.09 3.52
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.24) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.24) --
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 17.00 $ 13.15
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(*) 31.23% 36.55%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in 000s) $ 2,566 $ 2,551
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.84%(+) 0.05%(+)
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.52) $ (0.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 343% 200%
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.66%(+) 1.73%(+)
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and
tax expense 12.18%(+) 8.82%(+)
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.60%(+) 1.73%(+)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS R SHARES(a)
Selected Per-Share Data for the Year or Period Ended:
Fiscal Year Ended March 31,
1999(++) 1998(b)(++)
<S> <C> <C>
Net Asset Value - Beginning of Period $ 11.43 $ 10.00
- --------------------------------------------------------------------------------------------------------------------
Net investment income 0.12 0.27
Net realized and unrealized gain/(loss) on investments (1.76) 1.16
- --------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations (1.64) 1.43
- --------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.16) --
- --------------------------------------------------------------------------------------------------------------------
Total distributions (0.16) --
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 9.63 $ 11.43
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(*) (14.04)% 14.40%
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in 000s) $ 1,655 $ 1,789
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.24% 10.46%(+)
- --------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.52) $ (0.07)
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 437% 71%
- --------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 2.10% 2.10%(+)
- --------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest and
tax expense 8.68% 15.34%(+)
- --------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 2.10% 2.10%(+)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Formerly named institutional shares.
(b) The Emerging Markets Focus Portfolio commenced operations on December 31,
1997.
(c) For the period April 1, 1999, to June 30, 1999.
(*) Total return represents aggregate total return for the periods indicated.
(+) Annualized.
(++) Per-share numbers have been calculated using the average share method,
which more appropriately represents the per-share data for the period,
since the use of the undistributed income method did not accord with
results of operations.
14
The accompanying notes are an integral part of these financial statements.
<PAGE> 17
The Montgomery
Funds II
NOTES
to Financial Statements
(Unaudited)
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. The Trust was organized as a Delaware business trust on
September 8, 1993, and commenced operations with the Montgomery Institutional
Series: Emerging Markets Portfolio. As of December 31, 1999, the Trust had five
publicly offered series: Montgomery Balanced Fund (formerly Montgomery U.S.
Asset Allocation Fund), Montgomery Global Long-Short Fund, Montgomery
Institutional Series: International Growth Portfolio, Montgomery Institutional
Series: Emerging Markets Focus Portfolio, and the Montgomery Institutional
Series: Emerging Markets Portfolio. Prior to the public offerings of shares of
each Fund, a limited number of shares were sold 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). Information
presented in these financial statements pertains only to Montgomery
Institutional Series: International Growth Portfolio and the Montgomery
Institutional Series: Emerging Markets Focus Portfolio (individually, a "Fund"
and, collectively, the "Funds"). The financial statements for the other Funds in
the Trust have been presented under separate covers.
Montgomery Institutional Series: Emerging Markets Focus Portfolio, which
commenced operations on December 31, 1997, has changed its fiscal year end from
March 31 to June 30. The Fund's most recent audited financial statements covered
the fiscal period ended June 30, 1999.
On November 30, 1999, the Montgomery Institutional Series: Macro Cap Systematic
Value Portfolio and the Montgomery Institutional Series: Small Cap Systematic
Value Portfolio were closed to new investors. On December 15, 1999, the
Montgomery Institutional Series: Macro Cap Systematic Value Portfolio and the
Montgomery Institutional Series: Small Cap Systematic Value Portfolio accrued
final returns of paid-in capital to shareholders thus liquidating the Funds.
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 disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies.
a. PORTFOLIO VALUATION
Portfolio securities are valued using current market valuations: either the last
reported sale price or, in the case of securities for which there is no reported
last sale and in the case of fixed-income securities, the mean between the
closing bid and ask prices.
Portfolio securities that are traded primarily on foreign securities exchanges
or for which market quotations are readily available are generally valued at the
last reported sale price on the respective exchanges or markets; except that
when an occurrence subsequent to the time that a value was so established is
likely to have changed said value, the fair value of those securities will be
determined by consideration of other factors by or under the direction of the
Board of Trustees or its delegates. Securities traded on the over-the-counter
market or on the NASDAQ national market are valued at the mean between the last
available bid and ask prices prior to the time of valuation.
Securities for which market quotations are not readily available (including
restricted securities that are subject to limitations as to their sale) are
valued at fair value as determined in good faith by or under the supervision of
the Trust's officers in accordance with methods authorized by the Trust's Board
of Trustees. Short-term securities with maturities of 60 days or less are
carried at amortized cost, which approximates market value.
b. REPURCHASE AGREEMENTS
Each Fund may engage in repurchase agreement transactions either individually or
jointly through a joint repurchase account with other series of the Trust and
affiliated series of another registered investment company, pursuant to a joint
repurchase agreement. Under the terms of a typical repurchase agreement, a Fund
takes possession of a government debt obligation as collateral. The Fund also
agrees with the counterparty to allow the counterparty to repurchase, and the
Fund to resell, the obligation 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 Fund enters into repurchase agreements, to
evaluate potential risks. The Funds may also participate on an individual or
joint basis in tri-party repurchase agreements that involve a counterparty and a
custodian bank.
c. FOREIGN CURRENCY
The accounting records of the Funds are maintained in U.S. dollars. Investment
securities and all other assets and liabilities of the Funds denominated in a
foreign currency are translated into U.S. dollars at the exchange rate each day.
Purchases and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the exchange rate in effect on the date of the
respective transactions.
d. 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
15
<PAGE> 18
The Montgomery
Funds II
NOTES
to Financial Statements
(Unaudited)
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. Realized
and 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 realized and 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.
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.
e. 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.
f. DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of each Fund are declared and paid
annually. Distributions of net realized capital gains (including net short-term
capital gains) earned by a Fund are distributed at least annually. Additional
distributions of net investment income and capital gains for each Fund may be
made in order to avoid the application of a 4% non-deductible excise tax on
certain undistributed amounts of ordinary income and capital gains. Income
distributions and capital-gain distributions are determined in accordance with
income-tax regulations, which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of
income and gains on various investment securities held by a Fund, timing
differences and differing characterization of distributions made by a Fund.
g. 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 specific 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 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.
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.
h. FEDERAL INCOME TAXES
Each Fund has elected and qualified, and it is the intention of each Fund to
continue to qualify, as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), by complying with the
provisions available to certain investment companies, as defined in applicable
sections of the Code, and to make distributions of taxable income to
shareholders sufficient to relieve each Fund of all or substantially all federal
income and excise taxes. Therefore, no federal income-tax or excise-tax
provision has been provided.
i. ORGANIZATION COSTS
Expenses incurred in connection with the organization of the Montgomery
Institutional Series: International Growth Portfolio and the Montgomery
Institutional Series: Emerging Markets Focus Portfolio are amortized on a
straight-line basis over a period of five years from the commencement of
operations.
j. EXPENSES
General expenses of the Trust are allocated to the 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:
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
16
<PAGE> 19
The Montgomery
Funds II
NOTES
to Financial Statements
(Unaudited)
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 Trust 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 Trust with respect to the Manager's responsibilities
under the Agreements. Under Operating Expense Agreements with the 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 expense, extraordinary expenses
and taxes, at or below the following percentages of each Fund's average net
assets: 0.90% for the International Growth Portfolio and 1.60% for the Emerging
Markets Focus Portfolio. Any reductions or absorptions made to a Fund by the
Manager are subject to recovery within the following three years, provided a
Fund is able to effect such reimbursement and remain in compliance with
applicable expense limitations. The Operating Expense Agreements have rolling
10-year terms, extendable for one year at the end of each fiscal year.
Montgomery Asset Management, LLC, serves as the 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
CONTRACTUAL EFFECTIVE FEE INCLUDING EFFECTIVE
MANAGEMENT MANAGEMENT EFFECT OF FEES ADMINISTRATION
FUND FEE FEE REDUCED FEE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Growth Portfolio 0.75% 0.90% 0.68% 0.05%
Emerging Markets Focus Portfolio(+) 1.10 1.10 -- 0.07
</TABLE>
(+) Annualized.
The Manager recouped previously deferred and/or absorbed expenses during the
year 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 amount recouped during the six months ended
December 31, 1999, was $151,790 for the International Growth Portfolio.
Included in other expense are absorbed expenses recouped from the previous year
of $17,866 for Emerging Markets Focus Portfolio.
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>
- --------------------------------------------------------------------------------
International Growth Portfolio........... $221,700 -- $221,700
Emerging Markets Focus Portfolio......... 11,832 $101,372 341,220
</TABLE>
b. Certain officers and Trustees of the Trust 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 ($15,000 of which will be allocated 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 statements 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 B and Class C shares of the Emerging Markets Focus Portfolio have adopted
a Share Marketing Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act
(the "Rule"). Pursuant to that Rule, the Trust's Board of Trustees has approved,
and each Class has entered into, the Plan with Funds' Distributor, Inc., the
Funds' distributor, (the "Distributor"), as the distribution coordinator for the
Class B and Class C shares. Under the Plan the Fund will pay distribution fees
to the Distributor at an annual rate of up to 0.75% of the Class'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
17
<PAGE> 20
The Montgomery
Funds II
Notes
to Financial Statements
(Unaudited)
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 as accrued.
4.SECURITIES TRANSACTIONS:
a. The aggregate amount of purchases and sales of long-term securities,
excluding long-term U.S. government securities, during the six months ended
December 31, 1999, were:
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>
Fund Purchases Sales
- --------------------------------------------------------------------------------
<S> <C> <C>
International Growth Portfolio............ $284,946,833 $190,647,455
Emerging Markets Focus Portfolio.......... 3,534,264 3,926,764
</TABLE>
<TABLE>
<CAPTION>
Tax Basis Tax Basis Net Tax Basis
Fund Unrealized Appreciation Unrealized Depreciation Unrealized Appreciation
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Growth Portfolio ..... $ 54,813,779 $ 6,244,431 $ 48,569,348
Emerging Markets Focus Portfolio ... 670,735 3,959 666,776
</TABLE>
<TABLE>
<CAPTION>
Cost for Federal
Fund Tax Purposes
- -------------------------------------------------------------
<S> <C>
International Growth Portfolio ..... $231,055,951
Emerging Markets Focus Portfolio ... 1,834,589
</TABLE>
c. Under an unsecured Revolving Credit Agreement with Deutsche Bank, New York,
each of the Funds of The Montgomery Funds II, along with other series of the
Montgomery Funds, The Montgomery Funds II and The Montgomery Funds III, may,
for one year starting August 13, 1999, borrow (consistent with applicable law
and its investment policies) up to 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. At
December 31, 1999, there were no loans outstanding under this agreement. For the
six months ended December 31, 1999, the Funds had no borrowings under the
agreement.
5.TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
The Trust has authorized an unlimited number of shares of beneficial interest
which have a par value of $0.01. Transactions in shares of beneficial interest
for the periods indicated below were:
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH PORTFOLIO
Six Months Ended 12/31/99 Period Ended 6/30/99(#)
Shares Dollars Shares Dollars
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 9,485,868 $ 95,969,890 16,146,917 $ 158,087,488
Issued as reinvestment of dividends 374,140 4,433,559 -- --
Redeemed (1,860,909) (19,130,351) (1,529,467) (15,157,071)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) 7,999,099 $ 81,273,098 14,617,450 $ 142,930,417
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 21
The Montgomery
Funds II
Notes
to Financial Statements
(Unaudited)
<TABLE>
<CAPTION>
EMERGING MARKETS FOCUS PORTFOLIO
Six Months Ended 12/31/99 Period Ended 6/30/99(*)
R Shares(**) Shares Dollars Shares Dollars
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 19,626 $ 268,579 213,213 $ 2,396,514
Issued as reinvestment of dividends 1,259 20,159 -- --
Redeemed (63,882) (847,525) (19,222) (228,809)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (42,997) $ (558,787) 193,991 $ 2,167,705
- ------------------------------------------------------------------------------------------------------------------------------------
Class A(***)
- ------------------------------------------------------------------------------------------------------------------------------------
Sold -- $ -- 21,917 $ 244,594
Issued as reinvestment of dividends -- -- -- --
Redeemed -- -- (193,761) (2,162,372)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) -- $ -- (171,844) $(1,917,778)
- ------------------------------------------------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------------------------------------------------
Sold -- $ -- 58 $ 595
Issued as reinvestment of dividends -- -- -- --
Redeemed -- -- (1,721) (17,872)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) -- $ -- (1,663) $ (17,277)
- ------------------------------------------------------------------------------------------------------------------------------------
Class C
- ------------------------------------------------------------------------------------------------------------------------------------
Sold -- $ -- 6,236 $ 66,128
Issued as reinvestment of dividends -- -- -- --
Redeemed -- -- (15,534) (195,310)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) -- $ -- (9,298) $ (129,182)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EMERGING MARKETS FOCUS PORTFOLIO
Year Ended 3/31/99
R Shares(**) Shares Dollars
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Sold -- $ --
Issued as reinvestment of dividends -- --
Redeemed -- --
- ------------------------------------------------------------------------------------------------
Net increase/(decrease) -- $ --
- ------------------------------------------------------------------------------------------------
Class A(***)
- ------------------------------------------------------------------------------------------------
Sold 746,596 $ 7,655,077
Issued as reinvestment of dividends 8,306 63,151
Redeemed (739,577) (5,983,612)
- ------------------------------------------------------------------------------------------------
Net increase/(decrease) 15,325 $ 1,734,616
- ------------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------------
Sold 1,641 $ 17,057
Issued as reinvestment of dividends -- --
Redeemed -- --
- ------------------------------------------------------------------------------------------------
Net increase/(decrease) 1,641 $ 17,057
- ------------------------------------------------------------------------------------------------
Class C
- ------------------------------------------------------------------------------------------------
Sold 38,800 $ 342,778
Issued as reinvestment of dividends -- --
Redeemed (42,510) (359,103)
- ------------------------------------------------------------------------------------------------
Net increase/(decrease) (3,710) $ (16,325)
- ------------------------------------------------------------------------------------------------
</TABLE>
(#) The International Growth Portfolio commenced operations on June 30, 1998.
(*) The Emerging Markets Focus Portfolio changed its fiscal year end from March
31 to June 30.
(**) The Emerging Markets Focus Portfolio Institutional shares were redesignated
to Class R shares on December 31, 1999.
(***) On May 28, 1999, Class A shares of the Institutional Series Emerging
Markets Focus Portfolio converted to Institutional shares.
At December 31, 1999, shareholders of the Funds with ownership of 10% or greater
of the aggregate shares outstanding were as follows:
<TABLE>
<CAPTION>
Fund Number of Shareholders Percentage
- --------------------------------------------------------------------------------
<S> <C> <C>
International Growth Portfolio 2 72%
Emerging Markets Focus Portfolio 2 75%
</TABLE>
6. FOREIGN SECURITIES:
Certain Funds purchase securities on foreign securities exchanges. Securities of
foreign companies and foreign governments involve risks and considerations not
typically associated with investing in U.S. companies and the U.S. government.
These risks include revaluation of currencies, less-reliable information about
issuers, different securities transactions clearance and settlement practices,
and potential future adverse political and economic developments. These risks
are heightened for investments in emerging markets countries. Moreover,
securities of many foreign companies and foreign governments and their markets
may be less liquid and their prices more volatile than those of securities of
comparable U.S. companies and the U.S. government.
7. CAPITAL LOSS CARRYFORWARDS:
At June 30, 1999, the following Fund had available for federal tax purposes
unused capital losses as follows:
<TABLE>
<CAPTION>
Expiring in Expiring in
Fund 2006 2007
- --------------------------------------------------------------------------------
<S> <C> <C>
Emerging Markets Focus Portfolio $1,150,764 $381,957
</TABLE>
19
<PAGE> 22
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<PAGE> 23
[OWL GRAPHIC]
Invest Wisely
The Montgomery Funds
101 California Street
San Francisco, CA 94111-9361
800.572.FUND [3863]
www.montgomeryasset.com
