<PAGE> 1
[owl graphic]
THE MONTGOMERY FUNDS(SM)
INSTITUTIONAL SERIES
EMERGING MARKETS PORTFOLIO
Semiannual Report
December 31, 1999
INVEST WISELY
<PAGE> 2
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 a very strong fourth-quarter performance for
the Portfolio resulted in a return of 27.84% for the period, versus a return of
18.98% for its benchmark, the Morgan Stanley Capital International (MSCI)
Emerging Markets Free Index.
Q: WHAT FACTORS CONTRIBUTED TO THE PORTFOLIO'S SOLID PERFORMANCE?
A: The Portfolio's strong returns can be attributed to a combination of a
favorable investment environment in the period and good market and stock
selection on our part. Although profit taking and concern over the direction of
U.S. interest rates reduced some of the earlier gains enjoyed by emerging
markets investors in the third quarter of 1999, such concerns were pushed aside
by the final three months of the year. A number of markets performed
particularly well toward year end, including Turkey, Mexico, China/Hong Kong and
Korea. The Turkish market benefited from the removal of Greek objections to that
country's accession to the European Union. In Mexico the economy continued to
show a strong recovery, helped by a rise in oil prices and robust growth across
the border in the United States. China/Hong Kong and Korea also revised upward
their estimates for economic growth, but the driving force behind these and
other northern Asian markets during the quarter were the technology and
telecommunications sectors.
The Portfolio was well positioned to benefit from an improving global economic
outlook, such as the increase in demand for commodities, including platinum and
pulp and paper. The decision to increase exposure to Mexico to a 13.6% weighting
and to maintain our overweight position in Turkey in the final months of 1999
contributed greatly to the Portfolio's performance. A fourth-quarter reduction
in the Portfolio's Indian holdings also proved positive. Following a strong
third-quarter showing, India remained essentially flat through the end of the
year. Portfolio returns also received a boost from our 16.98% weighting in
telecommunications and technology, and particularly our Asian holdings, as
investors took their lead from the United States and favored these issues above
most others.
Q: WERE THERE ANY STOCKS THAT MADE A PARTICULARLY STRONG CONTRIBUTION TO
PERFORMANCE?
A: Reflecting market trends, the Portfolio's technology holdings and Mexican
telecom were undisputedly the strongest performers during the period. These
included Grupo Financiero Banamex (1.15% of net assets as of 12/31/99), Egyptian
Company for Mobile Services (2.93% of net assets as of 12/31/99), Korea Telecom
(1.73% of net assets as of 12/31/99) and Satyam Computer (1.07% of net assets as
of 12/31/99).
Banamex, a Mexican bank, benefited from a strengthening Mexican market, falling
interest rates and positive sentiment toward the market. Egyptian Company for
Mobile Services benefited from positive market sentiment and continued growth in
its
Montgomery
Institutional Series
EMERGING MARKETS PORTFOLIO
Portfolio Highlights
(Unaudited)
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
Josephine Jimenez, CFA ....................... Sr. Portfolio Manager
Frank Chiang ................................. Portfolio Manager
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Average annual total returns
for the period ended 12/31/99
MONTGOMERY INSTITUTIONAL SERIES:
EMERGING MARKETS PORTFOLIO
Since inception (12/17/93) ................................ 0.47%
One year .................................................. 66.87%
Five years ................................................ 2.23%
- --------------------------------------------------------------------------------
MSCI EMERGING MARKETS FREE INDEX
Since 12/31/93 ........................................ 0.38%
One year .............................................. 66.41%
Five years ............................................ 2.00%
- --------------------------------------------------------------------------------
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.
The performance figures provided do not reflect the effect of (i) any securities
purchased or sold by the Fund after 12/31/99 but that were effective on 12/31/99
or (ii) any purchases or redemptions of Fund shares completed after 12/31/99
that were effective on 12/31/99.
[GROWTH OF A $10,000 INVESTMENT CHART]
<TABLE>
<CAPTION>
Instit Emerging Markets MSCI Index
----------------------- ----------
<S> <C> <C>
Dec-93 10154 10000
Jan-94 10036 10182
Feb-94 9632 10000
Mar-94 9010 9095
Apr-94 8994 8913
May-94 9284 9218
Jun-94 8742 8964
Jul-94 9272 9521
Aug-94 10282 10703
Sep-94 10416 10825
Oct-94 10384 10630
Nov-94 9798 10077
Dec-94 9215 9268
Jan-95 8200 8282
Feb-95 8226 8070
Mar-95 8172 8121
Apr-95 8320 8486
May-95 8874 8938
Jun-95 8924 8964
Jul-95 9179 9165
Aug-95 8822 8949
Sep-95 8752 8907
Oct-95 8466 8566
Nov-95 8240 8413
Dec-95 8558 8787
Jan-96 9155 9412
Feb-96 8964 9262
Mar-96 9105 9334
Apr-96 9593 9708
May-96 9753 9664
Jun-96 9830 9724
Jul-96 9229 9060
Aug-96 9503 9292
Sep-96 9583 9372
Oct-96 9383 9122
Nov-96 9581 9275
Dec-96 9675 9317
Jan-97 10460 9953
Feb-97 10818 10379
Mar-97 10567 10106
Apr-97 10575 10124
May-97 10972 10413
Jun-97 11838 10971
Jul-97 12238 11134
Aug-97 10980 9718
Sep-97 11386 9987
Oct-97 9428 8348
Nov-97 9114 8043
Dec-97 9485 8237
Jan-98 8437 7591
Feb-98 9009 8384
Mar-98 9256 8748
Apr-98 9388 8652
May-98 8192 7467
Jun-98 7333 6684
Jul-98 7683 6894
Aug-98 5385 4901
Sep-98 5597 5212
Oct-98 5955 5761
Nov-98 6468 6240
Dec-98 6166 6149
Jan-99 5989 6050
Feb-99 5840 6109
Mar-99 6638 6914
Apr-99 7394 7769
May-99 7233 7724
Jun-99 8049 8601
Jul-99 7864 8367
Aug-99 7884 8443
Sep-99 7611 8157
Oct-99 7862 8331
Nov-99 8749 9078
Dec-99 10290 10233
</TABLE>
(1) The Morgan Stanley Capital International Emerging Markets Free Index is an
unmanaged, capitalization-weighted composite index that covers individual
securities within the equity markets of approximately 25 emerging markets
countries.
1
<PAGE> 3
Montgomery
Institutional Series
EMERGING MARKETS PORTFOLIO
Portfolio Highlights
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
Samsung Electronics Company .......................................... 4.7%
Telefonos de Mexico S.A., ADR ........................................ 4.1%
Egyptian Company for Mobile Services ................................. 2.9%
Vale do Rio Doce Ltd., Series A (F) .................................. 2.5%
Hon Hai Precision Industry ........................................... 2.5%
Pohang Iron & Steel Company, Ltd. .................................... 2.4%
Taiwan Semiconductor Manufacturing
Company Ltd. ......................................................... 2.2%
Alpha Credit Bank .................................................... 2.0%
Tele Norte Leste Participacoes S.A. .................................. 1.8%
Korea Electric Power Corporation, ADR ................................ 1.8%
- --------------------------------------------------------------------------------
TOP FIVE COUNTRIES
- --------------------------------------------------------------------------------
(as a percentage of total net assets)
Mexico ............................................... 13.6%
Brazil ............................................... 12.9%
Korea ................................................ 11.8%
India ................................................ 11.8%
Taiwan ............................................... 8.7%
Portfolio holdings are subject to change and should not be considered a
recommendation to buy individual securities.
There are risks associated with investing in a fund of this type that invests in
securities of foreign countries, such as erratic market conditions, economic and
political instability, and fluctuations in currency exchange rates.
subscriber base. Korea Telecom benefited from rapid growth of its subscriber
base and its dominant position in the domestic wireless market. Satyam, a
recently listed Indian information technology company, saw its valuation soar on
the back of high demand for Asian technology issues.
Q: WERE THERE ANY DISAPPOINTMENTS?
A: Unfortunately, not all of our holdings lived up to expectations. Most of
those that disappointed were listed on the Indian market, which, apart from
technology issues, turned in a lackluster performance toward the end of the year
due to Y2K worries and profit taking. Given the recently elected government's
stronger-than-anticipated commitment to reform, however, and the positive
outlook for the economy in 2000, we believe that this market is likely to revive
and that our holdings may begin making a more positive contribution to
performance.
Q: WHERE DO YOU BELIEVE THE BEST OPPORTUNITIES IN THE EMERGING MARKETS WILL
BE IN THE NEW YEAR?
A: Moving into the New Year, we continue to see plenty of opportunities across
the emerging markets. We believe that strong markets and reductions in interest
rates have helped boost consumer confidence and may continue to stimulate growth
in the year ahead. In addition, companies that withstood the 1997/98 crisis are
now more robust and many have implemented restructuring that will make them more
competitive in the long run.
In terms of individual country exposure, although we continue to like the
prospects for Mexico, we are also becoming more optimistic about Brazil. We
expect that the Brazilian economy is likely to see a recovery in 2000, and we
believe that specific well-placed domestically oriented companies may begin to
enjoy improving growth prospects. We also like China/Hong Kong, where, similar
to Brazil, economic growth is beginning to accelerate, which may attract funds
to certain sectors, such as property, that have recently been out of favor.
We are also very excited about some of the Asian technology companies,
particularly DRAM chip manufacturers. Some semiconductor companies are currently
experiencing impressive top-line growth, and we believe that this trend will
continue. In view of this, we are currently overweighted in this sector. We will
continue to seek out similarly attractive ideas and well-managed companies and
through this strategy strive to add value to your Portfolio.
2
<PAGE> 4
Montgomery
Institutional Series
EMERGING MARKETS 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 - 86.1%
ARGENTINA - 1.0%
1 Cresud S.A. (Farming/Seeds/Milling)........... $ 1
40,100 Telefonica de Argentina, ADR
(Other Telephone/Communication) .............. 1,238,087
----------
1,238,088
BRAZIL - 4.3%
24,500 Aracruz Celulose S.A., ADR (Paper) ........... 643,125
69,800 Embratel Participacoes, ADR
(Other Telephone/Communication) .............. 1,902,050
29,400 Tele Celular Sul Participacoes S.A., ADR
(Cellular Telephone) ......................... 933,450
18,800 Tele Centro Sul Participacoes S.A. ...........
(Other Telephone/Communication) .............. 1,706,100
7,900 Vale do Rio Doce Ltd., Series A (F)
(Other Metals/Minerals) ...................... 183,670
142,956 Vale do Rio Doce Ltd., Series B (F)
(Other Metals/Minerals) ...................... 1
----------
5,368,396
CHILE - 0.7%
49,200 Cia de Telecom Chile de S.A., ADR
(Other Telephone/Communication) .............. 897,900
CHINA/HONG KONG - 2.9%
48,000 Cheung Kong (Holdings) Ltd.
(Real Estate) ................................ 609,764
13,100 China Telecom Ltd., ADR+
(Other Telephone/Communication) .............. 1,684,169
926,000 Cosco Pacific Ltd. (Marine Transportation) ... 768,341
42,000 HSBC Holdings PLC (Non-U.S. Banks) ........... 588,924
----------
3,651,198
CZECH REPUBLIC - 0.7%
23,050 Ceske Radiokomunikace, GDR+
(Other Telephone/Communication) .............. 841,325
EGYPT - 4.2%
83,800 Al-Ahram Beverages Company, GDR+
(Alcoholic Beverages) ........................ 1,650,860
80,398 Egyptian Company for Mobile Services
(Cellular Telephone) ......................... 3,684,100
----------
5,334,960
GREECE - 2.8%
31,855 Alpha Credit Bank (Non-U.S. Banks) ........... 2,496,867
41,800 STET Hellenic Telecommunication S.A.,
ADR (Other Telephone/Communication) .......... 990,830
----------
3,487,697
HUNGARY - 1.1%
21,600 Mol Magyar Olaj-es Gazipari Rt., GDR
(Integrated Oil Companies) ................... 447,120
HUNGARY - CONTINUED
16,780 OTP Bank Rt. (Non-U.S. Banks) ................ $ 983,208
----------
1,430,328
INDIA - 11.8%
50 Bajaj Auto Ltd. (Motor Vehicles) ............. 378
200 BSES Ltd. (Non-U.S. Utilities) ............... 878
414 Castrol (India) Ltd.
(Oil Refining/Marketing) ..................... 2,904
24,900 Dr. Reddy's Laboratories Ltd.
(Generic Drugs) .............................. 825,421
35,000 Hindalco Industries Ltd.+ (Aluminum) ......... 647,701
50 Hindustan Lever Ltd.
(Package Goods/Cosmetics) .................... 2,586
173,550 Hindustan Petroleum Corporation Ltd.
(Oil Refining/Marketing) ..................... 730,107
124,000 Housing Development and Finance
Corporation (Finance Companies) .............. 815,264
67,200 ICICI Ltd., Sponsored ADR+
(Diversified Financial Services) ............. 932,400
56 Indian Hotels Company Ltd.
(Hotels/Resorts) ............................. 408
5,760 Infosys Technologies Ltd.
(Diversified Electronic Products) ............ 1,922,152
250 ITC Ltd. (Diversified Manufacture) ........... 3,822
135,000 Larsen & Toubro Ltd.
(Construction/Agriculture
Equipment/Trucks) ............................ 1,725,207
600 Mahanagar Telephone Nigam Ltd.
(Other Telephone/Communication) .............. 2,662
9,420 NIIT Ltd. (Computer Software) ................ 717,988
100 Oil & Natural Gas Corporation Ltd.
(Integrated Oil Companies) ................... 476
320,000 Reliance Industries Ltd. (Textiles) .......... 1,719,173
26,700 Satyam Computer (Computer Software) .......... 1,349,731
55,000 Sri Adhikari Brothers Telephone Network
Ltd. (Broadcasting) .......................... 1,629,517
150 State Bank of India (Non-U.S. Banks) ......... 775
74,000 Videsh Sanchar Nigam Ltd., GDR
(Other Telephone/Communication) .............. 1,820,400
----------
14,849,950
INDONESIA - 0.5%
511,000 PT Indofood Sukses Makmur Tbk
(Specialty Food/Candy) ....................... 639,893
ISRAEL - 3.7%
950,100 Bank Leumi Le-Israel (Non-U.S. Banks) ........ 2,001,512
127,820 Bezeq Israeli Telecommunication
Corporation Ltd.+
(Other Telephone/Communication) .............. 637,744
</TABLE>
3
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
Montgomery
Institutional Series
EMERGING MARKETS PORTFOLIO
I n v e s t m e n t s
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - CONTINUED
ISRAEL - CONTINUED
2,400 Check Point Software Technologies Ltd.+
(Computer Software) ............................ $ 477,000
18,000 ECI Telecom Ltd.
(Telecommunications Equipment) ................. 570,375
12,500 NICE Systems Ltd., ADR+
(Telecommunications Equipment) ................. 616,016
4,350 Orbotech Ltd.+
(Electronic Production Equipment) .............. 337,941
----------
4,640,588
KOREA - 11.8%
73,418 Kookmin Bank (Non-U.S. Banks) .................. 1,150,894
133,900 Korea Electric Power Corporation, ADR
(Non-U.S. Utilities) ........................... 2,242,825
13,800 Korea Telecom Corporation
(Other Telephone/Communication) ................ 2,175,429
25,760 Pohang Iron & Steel Company, Ltd.
(Steel/Iron Ore) ............................... 3,062,616
25,516 Samsung Electronics Company
(Diversified Electronic Products) .............. 5,977,328
31 Samsung Electronics Ltd., GDR
(Diversified Electronic Products) .............. 3,778
24,400 Shinhan Bank Company, Ltd.
(Non-U.S. Banks) ............................... 264,307
----------
14,877,177
MALAYSIA - 1.9%
1,576,000 Public Bank Berhad (Non-U.S. Banks) ............ 1,376,908
355,000 Tenaga Nasional Berhad
(Non-U.S. Utilities) ........................... 915,514
104,000 YTL Corporation Berhad
(Engineering and Construction) ................. 165,577
----------
2,457,999
MEXICO - 13.6%
53,800 Cemex S.A. de C.V., Sponsored ADR+
(Building Materials) ........................... 1,499,675
652,000 Cifra S.A. de C.V.+ (Other Specialty Stores) ... 1,306,751
628,000 Controladora Comercial Mexicana S.A. de
C.V. (Department Stores) ....................... 841,308
174,092 Corporacion Interamericana de
Entretenimiento S.A., Series B+
(Advertising) .................................. 695,082
49,400 Fomento Economico Mexicano S.A. de
C.V., ADR, Series B (Soft Drinks) .............. 2,198,300
360,000 Grupo Financiero Banamex Accival S.A. de
C.V.+ (Non-U.S. Banks) ......................... 1,443,038
416,000 Grupo Mexico S.A.
(Other Metals/Minerals) ........................ 2,060,253
18,100 Grupo Televisa S.A., GDR+ (Broadcasting) ....... 1,235,325
198,000 Kimberly-Clark de Mexico S.A. de C.V.
(Package Goods/Cosmetics) ...................... 772,785
45,500 Telefonos de Mexico S.A., ADR
(Other Telephone/Communication) ................ 5,118,750
----------
17,171,267
MOROCCO - 0.0%
2 Banque Marocaine du Commerce Exterieur,
Series B (Non-U.S. Banks) ...................... $ 43
PERU - 0.8%
28,300 Compania de Minas Buenaventura S.A.,
ADR, Series B (Precious Metals) ................ 454,569
18,700 Credicorp Ltd (Non-U.S. Banks) ................. 224,400
22,800 Telefonica del Peru S.A., ADR
(Other Telephone/Communication) ................ 304,950
----------
983,919
PHILIPPINES - 0.6%
1,708,000 Ayala Corporation
(Multi-Sector Companies) ....................... 497,990
140,000 San Miguel Corporation, Class B
(Alcoholic Beverages) .......................... 198,015
----------
696,005
POLAND - 0.7%
46,600 Elektrim Spolka Akcyjna S.A.+
(Wholesale Distributors) ....................... 462,056
24,300 Prokom Software GDR, Series B
(EDP Services) ................................. 379,080
----------
841,136
SOUTH AFRICA - 6.8%
172,800 ABSA Group Ltd. (Finance Companies) ............ 775,493
40,000 Anglo American Platinum Corporation
Ltd., Series B (Precious Metals) ............... 1,216,260
11,300 AngloGold Ltd. (Precious Metals) ............... 581,720
67,000 De Beers Centenary AG
(Other Metals/Minerals) ........................ 1,950,081
13,900 Impala Platinum Holdings Ltd.
(Precious Metals) .............................. 562,780
545,000 Old Mutual PLC +
(Diversified Financial Services) ............... 1,431,179
5,337 Pepsi International Bottlers+ (Soft Drinks) .... 44,991
86,400 Sappi Ltd. (Paper) ............................. 854,166
137,711 Sasol Ltd. (Coal Mining) ....................... 1,162,147
----------
8,578,817
TAIWAN - 8.7%
505,260 Far East Textile Ltd., Series B (Textiles) ..... 1,207,408
424,800 Hon Hai Precision Industry+
(Electronic Data Processing) ................... 3,167,220
194,636 Synnex Technology International
Corporation (Electronic Distributors) .......... 1,277,522
526,988 Taiwan Semiconductor Manufacturing
Company Ltd.
(Electronic Production Equipment) .............. 2,804,110
585,000 United Microelectronics Corporation, Ltd.+
(Semiconductors) ............................... 2,087,621
924,000 Yang Ming Marine Transport
(Marine Transportation) ........................ 444,556
----------
10,988,437
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
Montgomery
Institutional Series
EMERGING MARKETS PORTFOLIO
I n v e s t m e n t s
<TABLE>
<CAPTION>
Shares Value (Note 1)
<S> <C>
COMMON STOCKS - CONTINUED
THAILAND - 2.3%
2,449,000 National Finance Public Company, Ltd. (F)
(Mutual Funds) . ................................ $ 1,089,095
137,500 PTT Exploration and Production Public
Company, Ltd. (F) (Oil & Gas Production) ........ 846,940
600,200 Thai Farmers Bank Public Company, Ltd.
(F) (Non-U.S. Banks) ............................ 1,003,919
------------
2,939,954
TURKEY - 4.9%
12,386,000 Arcelik A.S.
(Consumer Electronics/Appliances) ............... 810,662
44,000,000 Dogan Sirketler Grubu Holdings A.S.
(Diversified Manufacture) ....................... 1,297,935
39,500,000 Turkiye Is Bankasi, Class C
(Non-U.S. Banks) ................................ 1,893,437
71,985,332 Yapi Ve Kredi Bankasi S.A.
(Non-U.S. Banks) ................................ 2,222,998
------------
6,225,032
VENEZUELA - 0.3%
14,100 Compania Anonima Nacional
Telefonos de Venezuela, ADR
(Other Telephone/Communication) ................. 347,212
TOTAL COMMON STOCKS
(Cost $71,939,832) ......................................... 108,487,321
------------
PREFERRED STOCKS - 9.8%
BRAZIL - 8.6%
65,614,000 Cia Paranaense de Energi
(Non-U.S. Utilities) ............................ 635,619
1,379,000 Itausa Investimentos Itau
(Multi-Sector Companies) ........................ 1,427,473
5,500,000 Petroleo Brasileiro S.A.
(Integrated Oil Companies) ...................... 1,217,733
84,700,000 Tele Norte Leste Participacoes S.A.
(Other Telephone/Communication) ................. 2,273,983
1 Telec do Rio Janeiro S.A.+
(Other Telephone/Communication) ................. --
1,291,545 Telecel-Comunicacoes Pessoais S.A.
(Cellular Telephone) ............................ 142,631
2,037,860 Telesp Celular S.A., Series B
(Cellular Telephone) ............................ 161,314
319,500 Usinas Sider-Urgicas de Minas Gerais,
GDR Ltd. (F) (Steel/Iron Ore) ................... 1,733,241
114,800 Vale do Rio Doce Ltd., Series A (F)+
(Other Metals/Minerals) ......................... 3,177,415
------------
10,769,409
RUSSIA -- 1.2%
126,000 LUKoil Company, ADR
(Integrated Oil Companies) ...................... 1,512,000
TOTAL PREFERRED STOCKS
(Cost $8,998,914) .......................................... 12,281,409
------------
TOTAL SECURITIES
(Cost $80,938,746) ......................................... $ 120,768,730
------------
Principal Amount
REPURCHASE AGREEMENTS - 1.1%
$ 1,330,000 Agreement with Greenwich Capital Markets,
Tri-Party, 5.500% dated 12/31/99, to be
repurchased at $1,330,601 on 01/03/00,
collateralized by $1,356,626 market value of
U.S. government and mortgage-backed
securities, having various maturities and
interest rates (Cost $1,330,000)................ 1,330,000
------------
TOTAL INVESTMENTS - 97.0%
(Cost $82,268,746*)......................................... 122,098,730
OTHER ASSETS AND LIABILITIES - 3.0%
(Net)....................................................... 3,832,524
------------
NET ASSETS - 100.0%......................................... $125,931,254
============
</TABLE>
(*) Aggregate cost for federal tax purposes.
(+) Non-income-producing security.
ABBREVIATIONS
ADR American Depositary Receipt
(F) Foreign or Alien Shares
GDR Global Depositary Receipt
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 7
Montgomery
Institutional Series
STATEMENT OF
ASSETS AND LIABILITIES
D e c e m b e r 3 1 , 1 9 9 9
(Unaudited)
<TABLE>
<CAPTION>
ASSETS: EMERGING MARKETS PORTFOLIO
- ----------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (note 1)
Securities ........................................... $ 120,768,730
Repurchase agreements ................................ 1,330,000
-------------
Total Investments 122,098,730
Cash ..................................................... 136,977
Foreign currency, at value (Cost $3,566,648) ............. 3,635,474
Receivables:
Expenses absorbed by Manager (note 2) ................ 929,201
Dividends ............................................ 261,082
Investment securities sold ........................... 96,003
Interest ............................................. 1,498
-------------
Total Assets 127,158,965
-------------
LIABILITIES:
- ----------------------------------------------------------------------------------------
Payables:
Management fees ...................................... 804,610
Custodian fee ........................................ 215,918
Investment securities purchased ...................... 123,372
Trustees' fees and expenses (note 2) ................. 7,073
Administration fees (note 2) ......................... 4,413
Accounting fees ...................................... 2,885
Transfer agency and servicing fees ................... 664
Other accrued liabilities and expenses ............... 68,776
-------------
Total Liabilities 1,227,711
Net Assets $ 125,931,254
Investments at identified cost ........................... $ 82,268,746
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------
Accumulated net investment loss .......................... $ (1,056,926)
Accumulated net realized loss on securities sold,
forward foreign-currency exchange contracts,
futures contracts and foreign-currency transactions ..... (68,057,882)
Net unrealized appreciation of investments,
forward foreign-currency exchange contracts,
foreign-currency transactions and other assets .......... 39,903,429
Shares of beneficial interest ............................ 25,205
Additional paid-in capital ............................... 155,117,428
-------------
Net Assets $ 125,931,254
NET ASSETS:
- ----------------------------------------------------------------------------------------
Net Assets ............................................... $ 125,931,254
Number of Fund shares outstanding ........................ 2,520,500
Net asset value, offering and redemption
price per share outstanding ............................. $ 49.96
-------------
Maximum offering price per share (Note 4)
($49.96/.9925) (based on maximum investment
expense reimbursement fee of 0.75% of the
offering price) ......................................... $ 50.34
-------------
</TABLE>
6
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
Montgomery
Institutional Series
STATEMENTS OF OPERATIONS
Six Months Ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
NET INVESTMENT INCOME: EMERGING MARKETS PORTFOLIO
- ------------------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C>
Dividends (net of foreign withholding taxes of $16,724) ..... $ 554,795
Interest .................................................... 36,473
Securities lending income (note 4) .......................... 5,641
------------
Total Income 596,909
------------
EXPENSES:
Management fee (note 2) ..................................... 889,717
Custodian fees .............................................. 210,252
Accounting expenses ......................................... 31,510
Legal and audit fees ........................................ 29,133
Administration fee (note 2) ................................. 26,058
Tax expense ................................................. 13,555
Trustees' fees (note 2) ..................................... 6,621
Interest expense ............................................ 5,157
Transfer agency and servicing fees .......................... 2,790
Registration fees ........................................... 2,619
Printing fees ............................................... 1,538
Other ....................................................... 24,768
------------
Total Expenses 1,243,718
Fees deferred and/or expenses absorbed by Manager (note 2) .. (581,682)
------------
Net Expenses 662,036
------------
NET INVESTMENT LOSS (65,127)
------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- ------------------------------------------------------------------------------------------
Net realized gain/(loss) from:
Securities transactions ................................. 4,922,588
Foreign-currency transactions and other assets .......... (349,588)
------------
Net Realized Gain on Investments 4,573,000
Net change in unrealized appreciation/(depreciation) of:
Securities .............................................. 22,477,838
Foreign-currency transactions and other assets .......... 81,862
Forward foreign-currency exchange contracts ............. 68,826
------------
Net Change in Unrealized Appreciation of Investments 22,628,526
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 27,201,526
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 27,136,399
------------
</TABLE>
7
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
Montgomery
Institutional Series
STATEMENTS OF
CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EMERGING MARKETS PORTFOLIO
- -----------------------------------------------------------------------------------------------------------
Six Months
Ended
12/31/99 Year Ended
INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: (Unaudited) 06/30/99
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income/(loss) ...................................... $ (65,127) $ 1,121,834
Net realized gain/(loss) on securities, forward foreign-currency
exchange contracts, futures contracts and foreign-currency
transactions and other assets during the period .................. 4,573,000 (43,102,142)
Net unrealized appreciation of securities, forward
foreign-currency exchange contracts, foreign-currency transactions
and other assets during the period ............................... 22,628,526 48,228,963
------------- --------------
Net Increase in Net Assets Resulting from Operations 27,136,399 6,248,655
DISTRIBUTIONS TO SHAREHOLDERS:
- -----------------------------------------------------------------------------------------------------------
Distributions to shareholders in excess of net investment income .. -- (12,952)
BENEFICIAL INTEREST TRANSACTIONS:
- -----------------------------------------------------------------------------------------------------------
Net decrease from beneficial interest transactions (note 4) ....... (4,866,040) (100,152,917)
------------- --------------
Net Increase/(Decrease) in Net Assets 22,270,359 (93,917,214)
NET ASSETS:
- -----------------------------------------------------------------------------------------------------------
Beginning of Period ............................................... 103,660,895 197,578,109
End of Period $ 125,931,254 $ 103,660,895
Accumulated Net Investment Loss $ (1,056,926) $ (991,799)
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 10
Montgomery
Institutional Series
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EMERGING MARKETS PORTFOLIO
Fiscal Year Ended June 30,
Selected Per-Share Data for the Year or Period Ended: 12/31/99 ---------------------------------------
(Unaudited) 1999 1998 1997
<S> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 39.05 $ 35.61 $ 58.52 $ 49.09
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) (0.05) 0.38 0.32 0.43
Net realized and unrealized gain/(loss) on investments 10.96 3.06 (22.44) 9.46
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 10.91 3.44 (22.12) 9.89
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of redemption expense reimbursement fee -- -- -- 0.02
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income -- -- (0.64) (0.48)
Dividends in excess of net investment income -- (0.00)(#) -- --
Distributions from net realized capital gains -- -- (0.15) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (0.00)(#) (0.79) (0.48)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 49.96 $ 39.05 $ 35.61 $ 58.52
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(*) 27.84% 9.75% (38.05)% 20.45%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 125,931 $ 103,661 $ 197,578 $ 334,181
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets (0.12)%(+) 0.79% 0.96% 0.86%
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ (0.13) $ (0.11) $ 0.03 $ 0.26
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 130% 115% 104% 85%
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.27%(+) 1.45% 1.25% 1.26%
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest
and tax expense 2.38%(+) 2.42% 1.66% 1.61%
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.25%(+) 1.25% 1.25% 1.26%
</TABLE>
<TABLE>
<CAPTION>
Selected Per-Share Data for the Year or Period Ended:
1996 1995++
<S> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 44.61 $ 43.71
- -------------------------------------------------------------------------------------------------------
Net investment income/(loss) 0.50 0.13
Net realized and unrealized gain/(loss) on investments 3.93 0.67
- -------------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
investment operations 4.43 0.80
- -------------------------------------------------------------------------------------------------------
Effect of redemption expense reimbursement fee 0.09 0.11
- -------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.04) (0.01)
Dividends in excess of net investment income -- --
Distributions from net realized capital gains -- --
- -------------------------------------------------------------------------------------------------------
Total distributions (0.04) (0.01)
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE - END OF PERIOD $ 49.09 $ 44.61
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN(*) 10.14% 2.09%
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------
Net assets, end of year (in 000s) $ 270,878 $ 186,666
- -------------------------------------------------------------------------------------------------------
Ratio of net investment income/(loss) to average net assets 1.16% 0.29%
- -------------------------------------------------------------------------------------------------------
Net investment income/(loss) before deferral of fees by Manager $ 0.33 $ (0.05)
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate 88% 101%
- -------------------------------------------------------------------------------------------------------
Expense ratio including interest and tax expense 1.29% 1.40%
- -------------------------------------------------------------------------------------------------------
Expense ratio before deferral of fees by Manager, including interest
and tax expense 1.70% 1.79%
- -------------------------------------------------------------------------------------------------------
Expense ratio excluding interest and tax expense 1.29% 1.40%
</TABLE>
(*) Total return represents aggregate total return for the periods
indicated.
(+) Annualized.
(++) Per-share numbers have been calculated using the average share method,
which more appropriately represents the per-share data for the period,
since the use of the undistributed income method did not accord with
results of operations.
(#) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 11
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: Emerging Markets Focus Portfolio, Montgomery Institutional
Series: Emerging Markets Portfolio and Montgomery Institutional Series:
International Growth 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 the Montgomery
Institutional Series: Emerging Markets Portfolio (the "Fund"). The financial
statements for the other Funds in the Trust have been presented under separate
covers.
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
The Fund may engage in repurchase agreements 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, the 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 obligations, including interest. In the event of
counterparty default, the Fund has the right to use the collateral to offset
losses incurred. There could be potential loss to the Fund in the event the Fund
is delayed or prevented from exercising its rights to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities, during the period in which the Fund seeks to assert its
rights. The Fund's Manager, acting under the supervision of the Board of
Trustees, reviews the value of the collateral and the creditworthiness of those
banks and dealers with which the Fund enters into repurchase agreements to
evaluate potential risks. The Fund may also participate on an individual or
joint basis in tri-party repurchase agreements that involve a counterparty and a
custodian bank.
c. FOREIGN CURRENCY
The accounting records of the Fund are maintained in U.S. dollars. Investment
securities and all other assets and liabilities of the Fund denominated in a
foreign currency are translated into U.S. dollars at the exchange rate each day.
Purchases and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the exchange rate in effect on the date of the
respective transactions.
The Fund does not isolate the portion of the fluctuations on investments
resulting from changes in foreign-currency exchange rates from the fluctuations
in market prices of investments held. Such fluctuations are included with the
net realized gain/(loss) and unrealized appreciation/(depreciation) from
investments.
d. FORWARD FOREIGN-CURRENCY EXCHANGE CONTRACTS
The Fund may engage in forward foreign-currency exchange contracts ("forward
contracts") as a hedge in connection with portfolio purchases and sales of
securities denominated in foreign currencies. A forward contract is a commitment
to purchase or sell a foreign currency at the settlement date at a negotiated
rate.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies, and unrealized gain/(loss) is recorded daily. 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.
10
<PAGE> 12
The Montgomery
Funds II
NOTES
to Financial Statements
(Unaudited)
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
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
at least annually. Additional distributions of net investment income and capital
gains for the Fund may be made in order to avoid the application of a 4%
non-deductible excise tax on certain undistributed amounts of ordinary income
and capital gains. Income distributions and capital-gain distributions are
determined in accordance with income-tax regulations, which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment securities held
by the Fund, timing differences and differing characterization of distributions
made by the Fund.
f. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on a trade date basis (date the order to
buy or sell is executed). Interest income is accrued daily and includes
amortization of premium and accretion of discount on investments. Realized gain
and loss from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities are recorded as soon as the Fund is informed
of the ex-dividend date.
g. FEDERAL INCOME TAXES
The Fund has elected and qualified, and it is the intention of the Fund to
continue to qualify, to be treated 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 of all or substantially
all federal income and excise taxes. Therefore no federal income-tax or
excise-tax provision has been provided.
The Fund may be subject to foreign taxes on income, gains on investments or
currency repatriation, a portion of which may be recoverable. The Fund will
accrue such taxes and recoveries as applicable, based on their current
interpretation of tax rules and regulations that exist in the markets in which
it invests.
h. EXPENSES
General expenses of the Trust are allocated to the Fund and other series of the
Trust based on relative net assets. Operating expenses directly attributable to
the Fund are charged to the Fund's operations.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES:
a. Montgomery Asset Management, LLC, is the Fund's Manager (the "Manager"). The
Manager, a Delaware limited liability company, is an investment adviser
registered with the Securities and Exchange Commission under the Investment
Advisers Act of 1940, as amended. The Manager is a subsidiary of
Commerzbank AG.
Pursuant to Investment Management Agreement (the "Agreement") between the
Manager and the Trust with respect to the Fund, the Manager provides the Fund
with advice on buying and selling securities, manages the investments of the
Fund including the placement of orders for portfolio transactions, furnishes the
Fund with office space and certain administrative services, and provides the
personnel needed by the Trust with respect to the Manager's responsibilities
under the Agreement. Under an Operating Expense Agreement with the Trust, the
Manager has agreed to reduce some or all of its management fee or absorb Fund
expenses if necessary to keep the Fund's annual operating expenses, exclusive of
Rule 12b-1 fees, interest expense, extraordinary expenses and taxes, at or below
1.25% of the Fund's average net assets. Any reductions or absorptions made to
the Fund by the Manager are subject to recovery within the following three
years, provided the Fund is able to effect such reimbursement and remain in
compliance with applicable expense limitations. The Operating Expense Agreement
has a rolling 10-year term, extendable for one year at the end of each fiscal
year.
As compensation the Fund has accrued a monthly management fee (accrued daily)
based on the average daily net assets of the Fund. The contractual management
fee annual rate was 1.05%. The effective management fee annual rate including
current-year accrued fees and recoupment of prior-year deferral, but not
including the effect of current-year fee deferral or expense absorption; and
management fee annual rate including the effects of fees reduced were 1.70% and
0.59%, respectively.
The Manager recouped previously deferred fees and/or absorbed expenses during
the six months ended December 31, 1999, of $308,034. This amount has been
included with current annual management fees in the Statement of Operations and
are part of the effective management fee shown.
For the six months ended December 31, 1999, the Manager has deferred fees of
$581,682 and has deferred fees and/or absorbed expenses subject to recoupment
totaling $1,722,706.
b. Montgomery Asset Management, LLC, serves as the Fund's administrator (the
"Administrator"). The Administrator performs services with regard to various
aspects of the Fund's administrative operations. As compensation, the Fund pays
the Administrator a monthly fee (accrued daily) at an annual rate of 0.05% of
average daily net assets.
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 who is not an affiliated person will receive an annual
retainer and quarterly meeting fee
11
<PAGE> 13
The Montgomery
Funds II
NOTES
to Financial Statements
(Unaudited)
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).
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, 1999, were
$12,320,382 and $17,641,507, respectively.
b. At December 31, 1999, cost for federal income-tax purposes was $82,268,746,
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 $41,563,113 and $1,733,129, respectively.
c. Under an unsecured Revolving Credit Agreement with Deutsche Bank, New York,
the Fund, along with other Funds of The Montgomery Funds, The Montgomery Funds
II and The Montgomery Funds III, may for one year starting August 13, 1999,
borrow (consistent with applicable law and its investment policies) up to 10% of
its net asset value, provided that the aggregate funds borrowed do not exceed
$175,000,000. The Fund pays its pro rata share of the quarterly commitment fee
of 0.08% per annum of the unutilized credit line balance. For the six months
ended December 31, 1999, borrowings under this agreement were as follows:
<TABLE>
<CAPTION>
Amount Outstanding Average Amount Maximum Average Average Debt
at 12/31/99 Outstanding Debt Outstanding Interest Rate Average Shares per Share
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-- $176,630 $5,000,000 5.78% 2,600,869 $0.07
</TABLE>
4. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
The Trust has authorized an unlimited number of shares of beneficial interest
which have a par value of $0.01. Transactions in shares of beneficial interest
for the periods indicated below were:
<TABLE>
<CAPTION>
Six Months Ended 12/31/99 Year Ended 6/30/99
Shares Dollars Shares Dollars
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 6,590 $ 1,018,804 111,839 $ 3,452,857
Issued as reinvestment of dividends -- -- 300 8,857
Redeemed (140,806) (5,884,844) (3,006,528) (103,614,631)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) (134,216) $ (4,866,040) (2,894,389) $(100,152,917)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
To the extent consistent with certain tax requirements, investment 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 amounts 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.
5. FOREIGN SECURITIES:
The Fund purchases securities on foreign securities exchanges. Securities of
foreign companies and foreign governments involve risks and considerations not
typically associated with investing in U.S. companies and the U.S. government.
These risks include revaluation of currencies, less-reliable information about
issuers, different securities transactions clearance and settlement practices,
and potential future adverse political and economic developments.
These risks are heightened for investments in emerging markets countries.
Moreover, securities of many foreign companies and foreign governments and their
markets may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies and the U.S. government.
6. CAPITAL LOSS CARRYFORWARDS:
At December 31, 1999, the Fund had available for federal tax purposes unused
capital losses as follows:
Expiring in 2006 Expiring in 2007
-------------------------------------------
$17,750,209 $41,909,046
Under current tax law, net capital and currency losses realized after October
31, 1998, may be deferred and treated as occurring on the first day of the
following fiscal year ended June 30, 1999. The Fund elected to defer losses
totaling $12,920,359 occurring between November 1, 1998, and June 30, 1999. No
losses deferred in prior years were utilized during the current fiscal year.
12
<PAGE> 14
[OWL GRAPHIC]
Invest wisely
The Montgomery Funds(SM)
101 California Street
San Francisco, CA 94111-9361
800.572.FUND [3863]
www.montgomeryasset.com
