<PAGE>
Montgomery Institutional Series:
Emerging Markets Portfolio
Semi-Annual Report
December 31, 1997
Invest wisely.(R)
Montgomery Asset Management
<PAGE>
Montgomery Institutional Series: Emerging Markets Portfolio
Portfolio Highlights
December 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------
TOP FIVE COUNTRIES
(AS A PERCENTAGE OF TOTAL NET ASSETS):
Brazil............................ 21.2%
Mexico............................ 12.9
Russia............................ 10.9
India............................. 7.3
Turkey............................ 5.6
TOP TEN INDUSTRIES
(AS A PERCENTAGE OF TOTAL NET ASSETS):
Oil............................... 14.0%
Telephone Networks................ 13.1
Electric Utilities................ 7.8
Holding........................... 6.9
Banks............................. 5.6
Telephone/Long Distance........... 5.0
Retail Trade...................... 4.0
Conglomerates..................... 3.4
Telephone/Regional-Local.......... 3.4
Food and Beverage................. 3.2
TOP TEN HOLDINGS
(AS A PERCENTAGE OF TOTAL NET ASSETS):
Telefonos de Mexico S.A., ADR..... 3.8%
Tatneft, Sponsored ADS............ 3.7
Compania Anonima Nacional
Telefonos de Venezuela, ADR.. 3.6
Telec Brasileiras-Telebras ON..... 3.5
Petroleo Brasileiro............... 2.8
Alfa S.A. de C.V.................. 2.3
Telebras.......................... 2.0
Banco Bradesco.................... 1.7
Yapi ve Kredi Bankasi A.S......... 1.6
Telebras, ADR..................... 1.5
Portfolio Management
- ---------------------------------------------------
Josephine S. Jimenez, CFA
.................... Senior Portfolio Manager
Bryan L. Sudweeks, Ph.D., CFA
.................... Senior Portfolio Manager
Angeline Ee.......... Portfolio Manager
Frank Chiang......... Portfolio Manager
Jesus Duarte......... Portfolio Manager
Fund Performance
- ---------------------------------------------------
Average annual total returns for the period
ended 12/31/97
- ---------------------------------------------------
MONTGOMERY INSTITUTIONAL SERIES:
EMERGING MARKETS PORTFOLIO
Since inception 12/17/93........ -1.30%
1 year.......................... -1.96%
3 years......................... 0.97%
IFC GLOBAL COMPOSITE INDEX/1/
Since (1/1/94).................. -5.27%
1 year.......................... -14.42%
3 years......................... -6.80%
- ---------------------------------------------------
Past performance is not guarantee of future results.
Net asset value, investment return and principal
value will fluctuate so that shares, when redeemed,
may be worth more or less than their original cost.
/1/ The IFC Global Composite Index is comprised of
more than 1,900 individual stocks from 32
developing countries in Asia, Latin America,
Middle East, Africa and Europe.
1
<PAGE>
Montgomery Institutional Series: Emerging Markets Portfolio
Portfolio Highlights
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS-78.8% VALUE
SHARES (NOTE 1)
<S> <C> <C>
ARGENTINA-2.4%
377,160 Cresud S.A.+ (Real Estate) $ 754,463
173,137 Inversiones y Representaciones (Real Estate) 644,192
6,590 Inversiones y Representaciones, GDR (Euro) (Real Estate) 247,949
313,590 Siderar S.A. (Steel) 1,333,011
30,100 Telefonica de Argentina, Sponsored ADR (Telephone/Networks) 1,121,225
60,700 Y.P.F. Sociedad Anonima, ADS (Oil) 2,075,181
-----------------
6,176,021
-----------------
BANGLADESH-0.1%
17,400 Apex Tannery (Apparel and Textiles) 158,545
-----------------
BRAZIL-6.9%
6,154,000 Cia Saneamento Basico Estado (Water Utilities) 1,461,234
10,200,000 Electrobras (Electric Utilities) 507,235
13,300 Electrobras, GDS*** (Electric Utilities) 1,449,700
136,000 Souza Cruz S.A. (Tobacco) 1,096,725
32,670 Telebras, ADR (Telephone/Networks) 3,804,013
88,220,000 Telec Brasileiras-Telebras ON (Telephone/Networks) 8,971,793
1,293,081 Telec de Ceara S.A.**+ (Telecommunications Equipment) 521,380
170,996 Telec de Sao Paulo S.A.+ (Telephone/Regional-Local) 38,915
-----------------
17,850,995
-----------------
CHILE-1.3%
50,900 Empresa Nacional Electricidad S.A., ADR (Electric Utilities) 900,294
35,700 Linea Aerea Nacional Chile S.A.+ (Airlines) 486,413
24,534 Sociedad Quimica y Minera de Chile (Chemicals) 1,079,496
85,500 Supermercados Unimarc S.A., ADR+ (Retail Trade) 1,052,719
-----------------
3,518,922
-----------------
CHINA/HONG KONG-4.7%
2,870,000 Anhui Conch Cement Company, Ltd.+ (Cement) 500,000
86,000 Cheung Kong Holdings (Real Estate) 563,234
397,000 China Light and Power Company (Electric Utilities) 2,202,994
190,000 China National Aviation Corporation+ (Airlines) 40,212
602,000 China Resources Enterprises Ltd. (Holding) 1,343,993
43,400 China Telecom ADR+ (Telecommunications/Wireless) 1,456,613
278,000 Citic Pacific Ltd. (Holding) 1,104,968
67,600 HSBC Holdings (Banks) 1,666,228
229,000 Hutchison Whampoa Ltd. (Conglomerates) 1,436,237
399,000 New World Development Company Ltd. (Holding) 1,379,946
160,000 Shanghai Industrial Holdings Ltd. (Conglomerates) 594,657
-----------------
12,289,082
-----------------
2 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
Montgomery Institutional Series: Emerging Markets Portfolio
Portfolio Highlights (continued)
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS-CONTINUED VALUE
SHARES (NOTE 1)
<S> <C> <C>
COLOMBIA-1.2%
246,000 Almacenes Exito S.A.(Retail Trade) $ 815,795
225,400 Bavaria (Food and Beverage) 2,311,973
-----------------
3,127,768
-----------------
CZECH REPUBLIC-2.4%
35,850 Komercni Banka, ADR (Banks) 439,163
102,000 Komercni Banka, GDR *** (Banks) 1,249,500
37,940 Komercni Banka I.F.+ (Mutual Funds) 751,428
88,993 PIF+ (Mutual Funds) 1,075,553
186,700 The Czech Value Fund+ (Mutual Funds) 1,166,875
300,059 Vseobecny I.F.+ (Mutual Funds) 739,173
163,025 Vynosovy I.F.+ (Mutual Funds) 880,503
-----------------
6,302,195
-----------------
EGYPT-2.9%
2,500 Al-Ahram Beverages Company, GDR (Food and Beverage) 70,625
67,400 Al-Ahram Beverages Company, GDR*** (Food and Beverage) 1,904,050
12,775 Al-Ahram Pyramid Beverages Company (Food and Beverage) 728,391
96,028 Amreya Cement (Cement) 2,243,711
130,000 Paints and Chemical Industries Company*** (Paint) 1,365,000
57,200 Tora Cement** (Cement) 1,311,103
-----------------
7,622,880
-----------------
GREECE-0.1%
19,000 Hellenic Telecommunication Organization S.A. (Telephone/Networks) 389,572
-----------------
HUNGARY-1.2%
60,500 Borsodchem Rt.+ (Chemicals) 2,180,127
4,000 Zalakeramia Rt.+ (Building Materials) 185,659
74,500 Zalakeramia Rt., GDR***+ (Building Materials) 690,987
-----------------
3,056,773
-----------------
INDIA-7.3%
185,325 Bajaj Auto, Ltd.** (Auto/Auto Parts) 2,860,245
200,000 Bharat Petroleum Corporation Ltd. (Oil) 2,123,724
225,250 Carrier Aircon, Ltd. (Home Appliance) 1,244,046
49,800 Castrol (India) Ltd.** (Chemicals) 946,454
600 HDFC Bank, Ltd. (Banks) 1,194
400 Hindustan Lever Ltd.** (Retail Trade) 14,117
125,000 Hindustan Petroleum Corporation Ltd.** (Oil) 1,544,962
14,575 Housing Development and Finance Corporation** (Banks) 1,144,249
69,206 Indian Hotels Company, Ltd. (Lodging) 1,099,881
20,700 Indian Hotels, GDS (Euro) (Lodging) 389,419
13,600 Indian Hotels, GDS*** (Lodging) 255,850
200 Industrial Credit and Investment Corporation (Banks) 390
154,000 ITC Ltd.**+ (Holding) 2,429,821
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 3
</TABLE>
<PAGE>
Montgomery Institutional Series: Emerging Markets Portfolio
Portfolio Highlights (continued)
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS-CONTINUED VALUE
SHARES (NOTE 1)
<S> <C> <C>
INDIA-CONTINUED
50,000 Kirloskar Cummins Ltd.**+ (Auto/Auto Parts) $ 605,867
4,120 Madras Cement Ltd.** (Cement) 480,842
561,500 Mahanagar Telephone Nigam, Ltd.**+ (Telephone/Regional-Local) 3,695,587
2,248 Oil and Natural Gas Corporation Ltd.** (Oil) 16,344
300 State Bank of India** (Banks) 1,860
83 Tata Engineering & Locomotive Company, Ltd.** (Auto/Auto Parts) 627
-----------------
18,855,479
-----------------
INDONESIA-0.1%
9,100 Gulf Indonesia Resources Ltd.+ (Oil) 200,200
-----------------
ISRAEL-1.8%
660,000 Bank Leumi Le-Israel (Banks) 1,108,648
687,410 Supersol Ltd. (Retail Trade) 1,949,755
28,520 Teva Pharmaceuticals (Pharmacy/Drugs) 1,353,333
3,500 Teva Pharmaceuticals, ADR (Pharmacy/Drugs) 165,594
-----------------
4,577,330
-----------------
KAZAKHSTAN-0.3%
54,860 Central Asia Growth Fund+ (Mutual Funds) 521,170
12,600 Kazkommerts Bank+ (Banks) 264,600
-----------------
785,770
-----------------
KOREA-0.0%#
31 Samsung Electronics, Ltd.,New, GDR*** + (Electronics) 502
-----------------
MALAYSIA-0.1%
473,000 IJM Corporation Berhad (Heavy Construction) 156,876
-----------------
MEXICO-12.9%
189,000 Acer Computer Latino America S.A. de C.V.+ (Computers and Office Equipment) 562,047
899,686 Alfa S.A. de C.V. (Conglomerates) 6,053,274
60,700 Cifra S.A. de C.V., ADR+ (Retail Trade) 1,456,800
167,000 Corpacion Interamericana Entertainment S.A., Series B+ (Entertainment) 1,295,359
98,100 Empresas ICA Sociedad Controladora S.A. de C.V., ADR (Heavy Construction) 1,612,519
131,000 Empresas La Moderna S.A. de C.V., Class A+ (Tobacco) 699,597
1,485,000 Grupo Financiero Banorte S.A. de C.V., Class B+ (Holding) 2,594,449
47,000 Grupo Industrial Maseca S.A. de C.V. (Food and Beverage) 728,500
902,000 Grupo Industrial Maseca S.A. de C.V., Class B (Food and Beverage) 932,121
86,100 Grupo Radio Central S.A. de C.V., ADR (Broadcasting/Advertising) 1,226,925
280,000 Kimberly Clark de Mexico, Class A (Pulp and Paper) 1,335,729
280,000 San Luis Corporacion S.A. de C.V. (Metals and Mining) 2,300,229
178,000 Telefonos de Mexico S.A., ADR (Telephone/Long Distance) 9,979,125
970,000 Telefonos de Mexico S.A., Series L (Telephone/Long Distance) 2,728,332
-----------------
33,505,006
-----------------
4 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
Montgomery Institutional Series: Emerging Markets Portfolio
Portfolio Highlights (continued)
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS-CONTINUED VALUE
SHARES (NOTE 1)
<S> <C> <C>
MOROCCO-0.0%#
2 Banque Marocaine du Commerce Exterieur, GDR*** (Banks) $ 41
-----------------
PAKISTAN-1.1%
2,226 Adamjee Insurance Company (Insurance) 4,378
898,200 Fauji Fertilizer Company Ltd.** (Agricultural Commodities) 1,719,614
6,255 Nishat Textile Mills+ (Apparel and Textiles) 2,075
141,965 Pakistan State Oil** (Oil) 1,208,149
-----------------
2,934,216
-----------------
PERU-0.9%
463,060 Ferreyros Enrique S.A. (Holding) 489,399
17,732 Ferreyros Enrique S.A. ADS*** (Metals and Mining) 420,027
207,182 Telefonica del Peru S.A., Class B (Telephone/Networks) 463,023
37,525 Telefonica del Peru S.A., Series B, ADR (Telephone/Networks) 872,456
-----------------
2,244,905
-----------------
PHILIPPINES-0.5%
2,288,000 Belle Corporation+ (Real Estate) 88,130
871,700 International Container Terminal Services, Inc.+ (Shipping) 107,617
649,000 Ionics Circuit, Inc.+ (Electronics) 264,407
1,241,240 Music Semiconductors Corporation+ (Semiconductor) 444,395
2,108,000 PCI Leasing and Finance, Inc.+ (Diversified Financial Services) 41,639
10,144 Philippine Long Distance Telephone, ADR (Telephone/Long Distance) 228,235
-----------------
1,174,423
-----------------
POLAND-0.3%
10,000 NIF Privatization+ (Mutual Funds) 354,610
35,000 Prokom ADR+ (Software Systems) 392,875
-----------------
747,485
-----------------
PORTUGAL-2.9%
39,000 Brisa-Auto Estradas+ (Transportation) 1,397,050
2,655 Capital Portugal Fund+ (Mutual Funds) 438,152
36,000 Cia de Segros Tranquilidade (Insurance) 864,548
110,900 Cimpor-Cimentos de Portugal (Building Materials) 2,906,719
10,000 Lusomundo-SGPS, SA+ (Entertainment) 92,366
47,180 Sonae Investimentos (Retail Trade) 1,908,220
-----------------
7,607,055
-----------------
ROMANIA-0.1%
46,653 Romania Growth Fund PLC+ (Mutual Funds) 314,908
-----------------
RUSSIA-10.3%
1,350,000 Bashkirenergo+ (Electric Utilities) 729,000
9,152 Global Telesystems Group, Inc.**+ (Telephone/Networks) 179,118
80 Irkutskenegro, RDC***+ (Electric Utilities) 3,152,000
26,500 Krasny Oktyabr+ (Food and Beverage) 367,688
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 5
</TABLE>
<PAGE>
Montgomery Institutional Series: Emerging Markets Portfolio
Portfolio Highlights (continued)
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS-CONTINUED VALUE
SHARES (NOTE 1)
<S> <C> <C>
RUSSIA-CONTINUED
16,700 LukOil Company, ADR (Oil) $ 1,538,487
23 LukOil Company, RDC*** (Oil) 2,645,575
146 Russian Telecom Basket GEC 144A***+ (Telephone/Regional-Local) 1,315,005
7,800 Samarasvyazinform+ (Telephone/Local) 608,400
347,000 Surgutneftegaz, ADR (Oil) 3,535,930
16,500 Tatneft, ADR+ (Oil) 2,351,250
67,000 Tatneft, Sponsored ADR*** (Oil) 9,547,500
78,300 Uralmas Zavody+ (Holding) 724,275
-----------------
26,694,228
-----------------
SOUTH AFRICA-3.8%
170,000 Barlow, Ltd. (Building Materials) 1,442,721
4,406,900 Consolidated African Mining Company+ (Holding) 1,267,782
122,000 De Beers Centenary AG (Holding) 2,481,866
1,700,000 Highstone Property Fund (Real Estate) 523,991
233,816 JCI Ltd. (Diversified Financial Services) 1,045,001
468,278 Lonrho (Conglomerates) 712,064
9,000 Pepsi International Bottlers**+ (Food and Beverage) 783,000
100,811 Sasol, Ltd. (Oil) 1,056,480
1,830,000 South Africa Iron and Steel Industrial Corporation (Steel) 541,498
-----------------
9,854,403
-----------------
TAIWAN-2.6%
245,400 ASE+ (Semiconductor) 861,251
549,000 China Development Corporation+ (Diversified Financial Services) 1,564,966
406,400 Delta Electronic Industrial (Electrical Equipment) 1,619,372
431,740 Taiwan Semiconductor Company+ (Semiconductor) 1,482,142
250,080 Yageo Corporation+ (Electronics) 567,231
50,000 Yageo Corporation, GDR+ (Electronics) 568,750
-----------------
6,663,712
-----------------
THAILAND-0.3%
209,200 Central Pattana Public Company, Ltd. (F) (Real Estate) 109,810
213,400 Hemaraj Land and Development Public Company Ltd. (F)**+ (Real Estate) 220,601
104,900 Pizza Public Company Ltd. (F) (Food and Beverage) 191,034
188,700 Regional Container Lines (F)** (Shipping) 153,628
186,700 Tipco Asphalt Public Company Ltd. (F)+ (Heavy Construction) 148,000
-----------------
823,073
-----------------
TURKEY-5.6%
16,924,000 Akcansa Cimento A.S. (Cement) 2,368,135
9,665,661 Koc Holdings (Holding) 2,261,928
2,764,000 Migros Turk T.A.S. (Retail Trade) 2,500,603
47,105,000 Turk Sise ve Cam+ (Glass) 3,466,110
106,014,745 Yapi ve Kredi Bankasi A.S. (Banks) 4,041,093
-----------------
14,637,869
-----------------
6 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
Montgomery Institutional Series: Emerging Markets Portfolio
Portfolio Highlights (continued)
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS-CONTINUED VALUE
SHARES (NOTE 1)
<S> <C> <C>
UKRAINE-0.1%
232,000 Ukraine Enterprise Corporation+ (Mutual Funds) $ 304,398
-----------------
VENEZUELA-4.6%
225,900 Compania Anonima Nacional Telefonos de Venezuela, ADR
(Telephone/Networks) 9,403,088
2,222,424 Electricidad de Caracas (Electric Utilities) 2,666,204
-----------------
12,069,292
-----------------
VIETNAM-0.0%#
7,000 The Vietnam Frontier Fund+ (Mutual Funds) 43,750
-----------------
TOTAL COMMON STOCKS (COST $190,754,505) 204,687,674
-----------------
PREFERRED STOCKS-15.2%
BRAZIL-14.3%
461,036,110 Banco Bradesco (Banks) 4,544,059
23,995,000 CESP-Cia Energetica de Sao Paulo (Electric Utilities) 1,440,495
68,200,000 Cia Energetica de Minas Gerais (Electric Utilities) 2,963,145
88,402,000 Cia Paranaense de Energi (Electric Utilities) 1,200,027
1,399,400 Cia Rio Grandense de Telecomunicacoes+ (Telephone/Networks) 1,724,094
61,700,000 Electrobras, "B" (Electric Utilities) 3,151,203
2,497,000 Itausa Investimentos Itau (Holding) 1,946,499
9,400 Kepler Weber S.A. **+ (Machinery and Tools) 38,238
19,940,000 Lojas Renner S.A. (Retail Trade) 625,330
84,287,000 Odebrecht S.A. (Heavy Construction) 566,419
31,060,286 Petroleo Brasileiro (Oil) 7,263,774
46,553,872 Telebras (Telephone/Networks) 5,310,074
13,792,475 Telec de Minas Gerais S.A. (Telephone/Regional-Local) 1,742,520
7,347,860 Telec de Sao Paulo S.A. (Telephone/Regional-Local) 1,955,325
18,075,401 Telec do Rio Janeiro S.A. (Telephone/Networks) 1,878,721
142,956 Vale do Rio Doce, "B"+ (Metals and Mining) 0
1,144,000 Weg S.A. (Furniture) 697,030
-----------------
37,046,953
-----------------
GREECE-0.1%
34,000 Delta Dairy S.A.+ (Food and Beverage) 305,443
-----------------
PORTUGAL-0.2%
67,000 Lusomundo-SGPS+ (Entertainment) 613,393
-----------------
RUSSIA-0.6%
16,000 LukOil Company, ADR (Oil) 516,000
272,770 Orenburgneftegaz+ (Oil) 722,840
6,000 Samarasvyazinform+ (Telephone/Local) 300,000
-----------------
1,538,840
-----------------
TOTAL PREFERRED STOCKS (COST $29,094,680) 39,504,629
-----------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 7
</TABLE>
<PAGE>
Montgomery Institutional Series: Emerging Markets Portfolio
Portfolio Highlights (continued)
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
CONVERTIBLE BONDS-0.2% (COST $697,247) VALUE
PRINCIPAL AMOUNT (NOTE 1)
<S> <C> <C>
THAILAND-0.2%
$691,000 Central Pattana Public Company, Ltd., 2.750% due 04/10/01***
(Real Estate) $ 380,050
-----------------
RIGHTS-0.0%# (COST $47,812)
SHARES
BRAZIL-0.0%#
19,711,677 Banco Bradesco, Expires 02/06/98+ (Banks) 70,648
136,000 Souza Cruz S.A., Expires 01/29/98+ (Tobacco) 1,072
-----------------
71,720
-----------------
WARRANTS-0.0%# (COST $44,214)
CZECH REPUBLIC-0.0%#
21,000 The Czech Value Fund, Expires 09/13/98+ (Mutual Funds) 5,355
-----------------
TOTAL SECURITIES (COST $220,638,458) 244,649,428
-----------------
REPURCHASE AGREEMENTS-5.0%
PRINCIPAL AMOUNT
$6,542,500 Agreement with Bear Stearns, Tri-Party, 6.850% dated 12/31/97, to be
repurchased at $6,544,990, on 01/02/98, collateralized by $6,815,003
market value of U.S. government securities, having various
maturities and various interest rates 6,542,500
6,542,500 Agreement with Nomura Securities, Tri-Party, 6.900% dated 12/31/97,
to be repurchased at $6,545,008, on 01/02/98, collateralized by
$6,673,350 market value of U.S. government securities, having
various maturities and various interest rates 6,542,500
-----------------
TOTAL REPURCHASE AGREEMENTS (COST $13,085,000) 13,085,000
-----------------
TOTAL INVESTMENTS (COST $233,723,458*) 99.2% 257,734,428
----- -----------------
OTHER ASSETS AND LIABILITIES (NET) 0.8 2,012,837
===== =================
NET ASSETS 100.0% $ 259,747,265
- -------------------------
* Aggregate cost for federal tax purposes.
** Illiquid security or special situation security (see Note 5 to Financial Statements)
*** Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified institutional buyers.
# Amount represents less than 0.1%.
+ Non-income-producing security.
ABBREVATIONS:
ADR American Depositary Receipt
ADS American Depositary Share
Euro Trades Through Euroclear
(F) Foreign or Alien Shares
GDR Global Depositary Receipt
GDS Global Depositary Share
GEC Global Equity Certificate
RDC Russian Depository Certificate
8 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
Montgomery Institutional Series: Emerging Markets Portfolio
Statement of Assets and Liabilities
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investment in securities, at value (Identified cost $233,723,458) (Note 1)
Securities......................................................... $ 244,649,428
Repurchase agreements.............................................. 13,085,000
-------------------
Total investments.................................................. 257,734,428
Foreign currency (Cost $2,617,707)......................................... 2,476,543
Receivables:
Investment securities sold......................................... 1,861,862
Dividends.......................................................... 789,689
Interest........................................................... 16,230
Other Assets:
Organization costs (Note 1)........................................ 7,561
-------------------
Total Assets............................................................... 262,886,313
LIABILITIES:
Forward foreign currency exchange contracts:
Net unrealized depreciation of forward foreign currency
contracts (Note 3)............................................ $ 1,810
Payables:
Investment securities purchased.................................... 2,853,485
Due to custodian................................................... 125,406
Custodian fees..................................................... 93,467
Management fee (Note 2)............................................ 16,977
Interest expense on equity swap agreements (Note 1)................ 9,169
Administration fee (Note 2)........................................ 2,994
Trustees' fees and expenses (Note 2)............................... 1,550
Transfer agency and servicing fees................................. 663
Accrued liabilities and expenses................................... 33,527
Total Liabilities.......................................................... 3,139,048
-------------------
NET ASSETS................................................................. $ 259,747,265
===================
NET ASSETS consist of:
Distributions in excess of net investment income................... $ (1,180,176)
Accumulated net realized loss on securities sold, forward
foreign currency exchange contracts and foreign
currency transactions......................................... (24,049,756)
Net unrealized appreciation of investments, forward
foreign currency exchange contracts, foreign currency
transactions and net other assets............................. 23,780,573
Shares of beneficial interest...................................... 56,390
Additional paid-in capital......................................... 261,140,234
-------------------
NET ASSETS................................................................. $ 259,747,265
===================
Net Asset Value, per share outstanding*.................................... $ 46.06
===================
Maximum offering price per share (Note 4) ($46.060.9925) (based
on maximum investment expense reimbursement fee of
0.75% of the offering price).................................. $ 46.41
===================
Number of Fund shares outstanding.......................................... 5,638,986
===================
- ------------------------
* Redemption price per share is equal to Net Asset Value less any applicable investment expense reimbursement fee (Note 4)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 9
</TABLE>
<PAGE>
Montgomery Institutional Series: Emerging Markets Portfolio
Statement of Operations
For the Six Months Ended December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
NET INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $126,573)......... $ 2,441,831
Interest......................................................... 257,820
-------------------
Total Income..................................................... 2,699,651
EXPENSES:
Management fee (Note 2).......................................... $ 2,364,151
Custodian fees................................................... 308,954
Legal and audit fees............................................. 45,236
Administration fee (Note 2)...................................... 20,905
Transfer agency and servicing fees............................... 1,485
Trustees' fees and expenses (Note 2)............................. 3,052
Amortization of organization costs (Note 1)...................... 4,171
Other............................................................ 72,649
-------------------
Total Expenses................................................... 2,820,603
Fees deferred by Manager (Note 2)................................ (954,109)
-------------------
NET EXPENSES..................................................... 1,866,494
-------------------
NET INVESTMENT INCOME............................................ $ 833,157
-------------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized loss from:
Securities transactions and interest equity swaps........ (22,501,859)
Forward foreign currency exchange contracts.............. (170,528)
Foreign currency transactions............................ (1,353,109)
-------------------
Net realized loss on investments during the period............... (24,025,496)
-------------------
Net change in unrealized appreciation/(depreciation) of:
Securities............................................... (40,354,513)
Forward foreign currency exchange contracts.............. 1,948
Foreign currency and net other assets.................... (146,706)
-------------------
Net unrealized depreciation of investments during the period..... (40,499,271)
-------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS.................. (64,524,767)
-------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $ (63,691,610)
===================
10 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
Montgomery Institutional Series: Emerging Markets Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended
12/31/97 Year Ended
(Unaudited) 06/30/97
------------------- -----------------
<S> <C> <C>
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income........................................................... $ 833,157 $ 2,456,315
Net realized gain/(loss) on securities transactions, forward foreign
currency exchange contracts and foreign currency
transactions during the period.......................................... (24,025,496) 14,926,319
Net unrealized appreciation/(depreciation) of securities, forward
foreign currency exchange contracts, foreign currency and
net other assets during the period...................................... (40,499,271) 39,479,077
-------------- ---------------
Net increase/(decrease) in net assets resulting from operations................. (63,691,610) 56,861,711
Distributions to shareholders from net investment income........................ (3,559,500) (2,730,875)
Distributions to shareholders from net realized gains on investments............ (855,371) -
Net increase/(decrease) from beneficial interest transactions (Note 4).......... (6,326,951) 9,171,901
-------------- ---------------
Net increase/(decrease) in net assets........................................... (74,433,432) 63,302,737
NET ASSETS:
Beginning of period............................................................. 334,180,697 270,877,960
-------------- ---------------
End of period (including (distributions in excess of net
investment income)/undistributed net investment income
of ($1,180,176) and $1,620,507, respectively)................................... $ 259,747,265 $ 334,180,697
============== ===============
</TABLE>
Financial Highlights
Selected Per Share Data for the Year or Period Ended:
<TABLE>
<CAPTION>
Six Months Ended
12/31/97
(Unaudited) 06/30/97 06/30/96 06/30/95++ 06/30/94*
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value-beginning of period $ 58.52 $ 49.09 $ 44.61 $ 43.71 $ 50.00
----------- ---------- ---------- ---------- ----------
Net investment income 0.16 0.43 0.50 0.13 0.09
Net realized and unrealized gain/(loss) on investments (11.85) 9.46 3.93 0.67 (6.67)
----------- ---------- ---------- ---------- -----------
Net increase/(decrease) in net assets resulting from
investment operations (11.69) 9.89 4.43 0.80 (6.58)
----------- ---------- ---------- ---------- -----------
Effect of redemption expense reimbursement fee 0.02 0.02 0.09 0.11 0.29
Distributions from net investment income (0.64) (0.48) (0.04) (0.01) -
Distributions from net realized gains on investments (0.15) - - - -
----------- ---------- ---------- ---------- -----------
Net asset value-end of period $ 46.06 $ 58.52 $ 49.09 $ 44.61 $ 43.71
----------- ---------- ---------- ---------- -----------
Total return ** (19.87)% 20.45% 10.14% 2.09% (12.58)%
=========== ========== ========== =========== ===========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 259,747 $ 334,181 $ 270,878 $ 186,666 $ 127,085
Ratio of net investment income to average net assets 0.56%+ 0.86% 1.16% 0.29% 0.47%+
Ratio of net expenses to average net assets 1.25%+ 1.26% 1.29% 1.40% 1.40%
Portfolio turnover rate 41% 85% 88% 101% 33%
Average commission rate paid (a) $ 0.0011 $ 0.0009 $ 0.0007 N/A N/A
Net investment income/(loss) before deferral of fees
by Manager $ (0.02) $ 0.26 $ 0.33 $ (0.05) $ 0.01
Ratio of expenses before deferral of fees by Manager 1.89%+ 1.61% 1.70% 1.79% 1.81%+
- -----------------------
* The Montgomery Institutional Series: Emerging Markets Portfolio c ommenced operations on December 17, 1993.
** Total return represents aggregate total return for the periods indicated.
+ Annualized.
++ Per share numbers have been calculated using the monthly average shares method, which more appropriately represent the per
share data for the year since the use of the undistributed method did not accord with results of operations.
(a) Average commission rate paid per share of securities purchased and sold by the Fund.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 11
</TABLE>
<PAGE>
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 and 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, 1997, the Trust had four publicly offered series, the
Montgomery U.S. Asset Allocation Fund, the Montgomery Global Long-Short
Fund, the Montgomery Emerging Markets Focus Fund 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
to Montgomery Asset Management, LLC (or its predecessor) and/or
affiliated persons of Montgomery Asset Management in private placement
offerings. Otherwise, no Fund had any significant operations prior to
the date on which it commenced operations (i.e., commenced selling
shares to the public) Information presented in these financial
statements pertains only to the Montgomery Institutional Series:
Emerging Markets Portfolio (the Fund). The financial statements for the
Montgomery U.S. Asset Allocation Fund have been presented under separate
cover.
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
The Fund's securities are valued using current market
valuations: either the last reported sales price or, in the case
of securities for which there is no reported last sale and in
the case of fixed income securities, the mean between the
closing bid and asked price. Securities and assets for which
market quotations are not readily available (including
restricted securities which are subject to limitations as to
their sale) are valued at fair value by management as determined
in good faith in accordance with methods which are authorized by
the Trust's Board of Trustees.
Portfolio securities which are traded primarily on foreign
securities exchanges or for which market quotations are readily
available are generally valued at the last reported sales 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
are valued at the mean between the last available bid and ask
price prior to the time of valuation. The value of equity swap
agreements will be the value of the underlying security. Short-
term securities with maturities of 60 days or less are valued at
amortized cost which approximates fair value.
b. REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreements individually or
jointly through a joint repurchase account with other series of
the Trust 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 investment manager, acting under the
supervision of the Board of Trustees, reviews the value of the
collateral and the creditworthiness of those banks and dealers
with which the Fund enters into repurchase agreements to
evaluate potential risks. The Fund may also participate on an
individual or joint basis in tri-party repurchase agreements
which involve a counterparty and a custodian bank.
12
<PAGE>
The Montgomery Funds II
Notes to Financial Statements (Unaudited)
(continued)
c. FOREIGN CURRENCY
Foreign currencies, investments and other assets and liabilities
are translated into U.S. dollars at the exchange rates
prevailing at the end of the period, and purchases and sales of
investment securities, income and expenses are translated on the
respective dates of such transactions. Unrealized gains and
losses which result from changes in foreign currency exchange
rates on investments have been included in the unrealized
appreciation/(depreciation) of securities. Net realized foreign
currency gains and losses resulting from movement in exchange
rates include foreign currency gains and losses between trade
date and settlement date on investment securities transactions,
foreign currency transactions and the difference between the
amounts of interest and dividends recorded on the books of the
Fund and the amount actually received and the portion of foreign
currency gains and losses related to fluctuations in exchange
rates between the initial purchase trade date and subsequent
sale trade date.
d. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may engage in forward foreign currency exchange
contracts with off balance sheet risk in the normal course of
investing activities in order to manage exposure to market
risks. Forward foreign currency exchange contracts are valued at
the forward rate and are marked-to-market daily. The change in
market value is recorded by the Fund as an unrealized gain or
loss. When the contract is closed, the Fund records a realized
gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it
was closed. Forward foreign currency exchange contracts have
been used solely to establish a rate of exchange for settlement
of transactions. Although forward foreign currency contracts
limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain that might
result should the value of the currency increase. In addition,
the Fund could be exposed to risks if the counterparties to the
contracts are unable to meet the terms of their contracts.
e. EQUITY SWAPS
The Fund has entered into equity swap agreements in order to
participate in foreign markets not currently accessible to the
Fund. Pursuant to these agreements, The Fund pays a swap fee in
cash, equal to a fixed percentage based on a notional amount
equal to the Fund's acquisition cost for the underlying
security. Additionally, the Fund will make semi-annual floating
rate payments equal to the six month LIBOR and any capital
depreciation on the underlying security to the swap
counterparty. The swap counterparty will make semi-annual
payments to the Fund equal to any capital appreciation and any
dividends received on the underlying security. During the terms
of the agreements, changes in the underlying value of the swaps
are recorded as unrealized gains or losses. The Fund is exposed
to credit loss in the event of non-performance by the swap
counterparty. However, the Fund does not anticipate non-
performance by the counterparty. The Fund has segregated cash as
a reserve for the payment of liabilities under the equity swap
agreements.
f. DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared
and paid annually.
Distributions of any short-term capital gains earned by the Fund
are distributed no less frequently than annually. Additional
distributions of net investment income and capital gains for the
Fund may be made in order to avoid the application of a 4% non-
deductible excise tax on certain undistributed amounts of
ordinary income and capital gains. Income distributions and
capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment
securities held by the Fund, timing differences and differing
characterization of distributions made by the Fund.
g. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on a trade-date basis.
Realized gain and loss from securities transactions are recorded
on the specific identified cost basis. Dividend income is
recognized on the ex-dividend date and interest income,
including, where applicable, amortization of discount on short-
term investments, is recognized on an accrual basis. Dividend
income on foreign securities is recognized as soon as the Fund
is informed of the ex-dividend date.
h. 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
from all or substantially all federal income taxes.
13
<PAGE>
The Montgomery Funds II
Notes to Financial Statements (Unaudited)
(continued)
i. ORGANIZATION COSTS
Expenses incurred in connection with the organization of the
Fund are amortized on a straight-line basis over a period of
five years from the commencement of operations.
j. EXPENSES
Most expenses of the Trust can be directly attributed to a Fund.
Expenses which cannot be directly attributed are apportioned
among the Funds in the Trust based upon relative net assets.
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 Advisers Act). The Manager is a subsidiary of
Commerzbank AG, one of the largest publicly held commercial
banks in Germany.
Pursuant to an investment management agreement (Investment
Management Agreement), the Manager provides the Fund with advice
on buying and selling securities, manages the investments of the
Fund including the placement of orders for portfolio
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
such agreement. As compensation, the Fund pays the Manager a
monthly management fee (accrued daily) based upon the average
daily net assets of the Fund, at an effective annual rate of
0.98% of average daily net assets before any deferral of fees
for the six months ending December 31,1997. (the effective rate
including the effect of current period fee deferral was 0.95%
for the six months ending December 31, 1997.) 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 interest or taxes, at or below the lesser
of 1.25% of average daily net assets. Any reductions made for
the Fund by the Manager in its fees are subject to recovery
within the following three years provided the Fund is able to
affect such reimbursement and remain in compliance with
applicable expense limitations. Any of the Manager's voluntary
absorptions are also subject to recovery. For the six months
ending December 31, 1997, the Manager recouped fees of $906,841,
which were deferred during prior fiscal years. These amounts
have been included with current year management fees in the
Statement of Operations and are part of the effective rate
above.
For the six months ended December 31, 1997, the Manager
has deferred fees of $954,109.
As of December 31, 1997, the deferred management fee subject to
recoupment is $954,109.
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 at an annual rate of 0.05% of
average daily net assets. For the six months ended December 31,
1997, the Administrator has not waived any fees.
c. Certain officers and Trustees of the Trust are, with respect to
the Trust's Manager and/or principal underwriter, affiliated
persons as defined in the 1940 Act. Each Trustee of the
Montgomery Funds II who is not an affiliated person receives an
annual retainer and quarterly meeting fees totalling $35,000 per
annum, as well as reimbursement for expenses, for service as a
Trustee of all Trusts advised by the Manager ($5,000 of which
was allocated to the Montgomery Funds II).
DST Systems, Inc. serves as the Fund's transfer agent.
d. For the six months ended December 31, 1997, the Fund's
securities transactions generated commissions of $1,064,645,
none of which was paid to Montgomery Securities (a former
affiliate of the Manager).
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, 1997, were $117,699,787 and $136,831,963,
respectively.
b. At December 31, 1997, 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 $45,123,966 and
$21,112,996, respectively.
14
<PAGE>
The Montgomery Funds II
Notes to Financial Statements (Unaudited)
(continued)
c. The schedules of forward foreign currency exchange contracts at
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
CONTRACT VALUE DEPRECIATION OF
VALUE DATE (NOTE 1) CONTRACTS
<S> <C> <C> <C>
Forward Foreign Currency Exchange Contracts to Sell:
7,680,532 Philippine Peso 01/02/98 $189,624 $1,744
179,164 Thai Baht 01/05/98 3,838 66
TOTAL FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO SELL
(CONTRACT COST $191,652) $193,462 $1,810
</TABLE>
d. Under an unsecured Revolving Credit Agreement with DeutscheBank
(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 6, 1997, borrow (consistent with
applicable law and its investment policies) up to 10% of its net
asset value, provided that the aggregate principal amount of
outstanding loans under the agreement to all Funds does not
exceed $300,000,000. The Fund pays its pro-rata share of the
0.8% quarterly commitment fee of the unutilized credit line
balance. For the six months ended December 31, 1997, there were
no borrowings under this agreement.
4. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
The Trust has authorized an unlimited number of shares of beneficial
interest which have a par value of $0.01. Transactions in shares of
beneficial interest for the periods indicated below were:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, 1997 YEAR ENDED JUNE 30, 1997
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares Sold 655,458 $ 38,682,701 258,831 $13,097,700
Issued as reinvestment of dividends 73,789 3,279,907 44,511 2,074,201
Shares redeemed (800,995) (48,289,559) (110,640) (6,000,000)
------------- -------------- ---------- -------------
Net Increase/(Decrease) (71,748) ($ 6,326,951) 192,702 $ 9,171,901
============= ============== ========== =============
</TABLE>
To the extent consistent with certain tax requirements, investment
expense reimbursement fees and redemption expense reimbursement fees of
0.75% may be imposed on the purchase or redemption of Fund shares.
Payment of such fees reflected in the dollar 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
or the sale of securities to obtain cash.
5. ILLIQUID AND SPECIAL SITUATION SECURITIES:
The Fund may not invest more than 15% of its net assets in illiquid
securities. The following securities have been determined by the Manager
to be illiquid because they are restricted or there is an exceptionally
low trading volume in the primary trading market for the security at
December 31, 1997:
<TABLE>
<CAPTION>
ACQUISITION 12/31/97 VALUE % OF TOTAL
DATE SHARES MARKET VALUE PER SHARE COST NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
Global Telesystems Group, Inc. 06/17/94 9,152 $ 179,118 $ 19.57 $ 98,177 0.07%
Hemaraj Land and Development
Public Company Ltd. 07/07/97 213,400 220,601 1.03 717,896 0.09
Kepler Weber S.A. 02/10/95 9,400 38,238 4.07 122,544 0.01
Pepsi International Bottlers 12/27/95 9,000 783,000 87.00 9,000 0.30
Regional Container Lines 05/11/95 188,700 153,628 0.81 1,045,287 0.06
Telec de Creara S.A. 04/17/97 1,293,081 521,380 0.40 539,186 0.20
------------ -------
$ 1,895,965 0.73%
============= =======
</TABLE>
In addition, certain of the foreign currency holding of the Fund at
December 31, 1997, may be illiquid because conversion to U.S. dollars
could take more than seven days.
15
<PAGE>
The Montgomery Funds II
Notes to Financial Statements (Unaudited)
(continued)
The securities shown in the table below were held by the Fund on
December 31, 1997 and are generally unrestricted securities for which
reliable market prices can be established. These securities are valued
at their market prices. However, because the process of re-registering
foreign securities in the Fund's name can take more than seven days, the
following shares of each of these securities were deemed restricted or
illiquid in the hands of the Fund at December 31, 1997. The Fund bears
the cost of re-registering these securities.
<TABLE>
<CAPTION>
ACQUISITION 12/31/97 VALUE % OF TOTAL
SECURITY DATE SHARES MARKET VALUE PER SHARE COST NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
Bajaj Auto, Ltd. 10/24/97 30,075 $ 464,168 $ 15.43 $ 500,683 0.18%
Castrol (India) Ltd. 06/17/97 1,841 34,988 19.00 26,628 0.01
Fauji Fertilizer Company Ltd. 10/20/97 469,000 897,906 1.91 1,045,728 0.35
Hindustan Lever Ltd. 06/02/97 150 5,294 35.29 4,853 0.00#
Hindustan Petroleum
Corporation Ltd. 06/11/97 8,400 103,821 12.36 107,170 0.04
Housing Development and Finance
Corporation 02/05/96 600 47,105 78.51 44,143 0.02
ITC Ltd. 12/19/97 120,000 1,893,367 15.78 1,828,933 0.73
Kirloskar Cummins Ltd. 09/15/97 50,000 605,867 12.12 730,037 0.23
Madras Cement Ltd. 10/23/97 1,800 210,077 116.77 403,209 0.08
Mahanagar Telephone Nigam, Ltd. 07/11/97 1,000 6,582 6.58 8,155 0.00#
Oil and Natural Gas Corporation Ltd. 09/19/97 2,248 16,344 7.27 21,908 0.01
Pakistan State Oil 12/24/97 119,660 1,018,329 8.51 1,114,894 0.39
State Bank of India 03/26/96 150 930 6.20 1,008 0.00#
Tata Engineering and Locomotive
Company, Ltd. 05/06/96 63 476 7.56 876 0.00#
----------- ------
$ 5,305,254 2.04%
=========== ======
</TABLE>
- ----------------------------
# Amount represents less than 0.01%.
6. FOREIGN SECURITIES:
The Fund purchases securities on foreign securities exchanges.
Securities of foreign companies and foreign governments involve special
risks and considerations not typically associated with investing in U.S.
companies and the U.S. government. These risks include 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 market countries.
Moreover, securities of many foreign companies and foreign governments
and their markets may be less liquid and their prices more volatile than
those securities of comparable U.S. companies and the U.S. government.
7. EQUITY SWAP AGREEMENTS:
The Fund has entered into equity swap agreements with Robert Flemings &
Co. Limited, London ("Flemings"), with respect to the holdings of
foreign equity securities. Pursuant to these agreements, the Fund pays
Flemings a swap fee in cash, equal to a fixed percentage based on a
notional amount equal to the Fund's acquisition cost for the underlying
security. Additionally, the Fund will make semi-annual floating rate
payments to Flemings equal to the six-month LIBOR and any capital
depreciation on the underlying security. Flemings will make semi-annual
payments to the Fund equal to any capital appreciation and any dividends
received on the underlying security. There were no equity swap
agreements open at December 31, 1997.
8. CHANGE OF CONTROL OF MANAGER:
On March 25, 1997, Montgomery Securities, the Manager and CAM
Acquisition LLC ("CAM"), a newly organized subsidiary of Commerzbank
Aktiengesellschaft, entered into an agreement providing for the transfer
of substantially all the assets comprising the Manager's business to
CAM. On June 23, 1997, the shareholders of the Fund approved a new
Investment Management Agreement with CAM (renamed Montgomery Asset
Management, LLC) that became effective upon the closing of the Manager's
transaction with CAM. Such transaction closed on July 31, 1997.
16
<PAGE>
The Montgomery Funds II
Notes to Financial Statements (Unaudited)
(continued)
9. RESULTS OF VOTING AT SPECIAL SHAREHOLDERS' MEETING:
A special meeting of the Fund's shareholders was held on June 23, 1997.
The results of votes taken among shareholders on proposals before them
are listed below:
PROPOSAL 1
For the approval of the new Investment Management Agreement between the
Fund and CAM Acquisition, LLC ("New Montgomery") pursuant to which New
Montgomery will act as adviser with respect to the assets of the Fund,
to become effective upon the closing of the transaction by which
substantially all the assets of Montgomery Asset Management, L.P. will
be acquired by New Montgomery, a subsidiary of Commerzbank AG.
<TABLE>
<CAPTION>
VOTING RESULT # OF SHARES VOTED % OF SHARES VOTED
<S> <C> <C>
For 5,386,379.680 100.000
Against 0.000 0.000
Abstained 0.000 0.000
TOTAL 5,386,379.680 100.000
</TABLE>
PROPOSAL 2
For the approval of authority for the Board of Trustess to approve any
future conversion of the Fund to a feeder fund in a master/feeder fund
structure.
[PROPOSAL NOT SUBMITTED FOR A VOTE AT THE MEETING.]
PROPOSAL 3
For the approval of certain changes to the fundamental investment
restrictions of the Fund, as described in the proxy statement.
[PROPOSAL NOT SUBMITTED FOR A VOTE AT THE MEETING.]
17
